Loomis v. Marshall , 12 Conn. 69 ( 1837 )

Huntington, J.

At the trial, the jury were instructed, that the agreement dated June 1, 1833, constituted the defendants partners, so far at least, as to make them liable as such, in this suit, to the plaintiff. The general question submitted to this court, is upon the propriety of this instruction.

That the parties to this agreement did not intend to create a partnership, either as between themselves or third persons, is,_ we think, very obvious from the facts set forth in the motion, connected with the stipulations contained in the agreement: and if they are liable as partners, they are made so, by construction of law. Those who were to furnish the wool, supposed they alone were responsible for the purchase money ; and those who were to perform the labour and provide the materials necessary to complete the manufacture of it, believed they alone were liable for the price of the labour and materials. If they are all jointly liable, their liability arises from the fact that they have entered into a contract, which, as between themselves and the plaintiff, controuls their clear intention, if not express stipulation, to the contrary. And it is undoubtedly true, that a person may expressly refuse to be responsible as partner, and yet, in the same instrument which contains that refusal, may agree to such terms as will in law constitute him a partner. Whether these defendants have entered into such terms, is to be determined, by a fair construction of the agreement which they have executed. ^ While, on the e*¡®r-fjand, we should be careful to adopt no rule of construction, which would enable parties who are interested in the profits of business, as profits, to deprive the creditors of any portion of the fund on which they have a just claim for the payment of the debts clue to them; so, on the other hand, (to use the language of Kent, Ch. J. in Post v. Kimberly, 9 Johns. Rep. 504.) “we must be careful not to carry the doctrine of constructive partnership so far as to render it a trap for the unwary. We must in this, as in other cases, look to the entire transaction, in order to judge correctly of its nature apd tendency. And we think, (as is said by Gould, J. in Coope & al. v. Eyre & al. 1 H. Bla. 44.) ‘ cases of this nature should stand on broad lines, not on subtleties and refinements, the source of litigation and disputes.’ ”

A community of interest in land, does not, of itself, constitute a partnership ; nor does a mere community of interest in personal estate. There must be some joint adventure, and an agreement to share in the profit of the undertaking. Porter v. McClure & al. 15 Wend. 187. Green v. Beesley, 2 Bing N. C. 108., Fereday v. Hordern, Jacob 144. This community of profit, is the test to determine whether the contract be one of partnership; and to constitute it, a partner must not 'only share in the profits, but share in them as a principal; _for the rule is now well established, that a party who stipulates Í to receive a sum of money in proportion to a given quantum of the profits, as a reward for his labour, is not chargeable as partner. The cases are collected and well arranged, by Colli yer, in his treatise on Partnership, 14. 15. <fe seq. and by Ca' ry, 8; 9, 10. 11. They embrace factors and brokers, who receive a commission out of the profits of the goods sold by them ; masters of vessels, who share in the profit and loss of the adventure in lieu of wages ; seamen employed in the whale fisheries ; shipments from this country to India on half profits ; those who receive, in the form of rent, a portion of the profits of a farm or tavern ; and a variety of other adventures, to which it is unnecessary particularly to refer. Dry v. Boswell, 1 Campb. 30; Wish v. Small, Ib. note. Hesketh v. Blanchard, 4 East, 143; Mair &. al. v. Glennie & al. 4 M. & S. 240. Dixon v. Cooper, 3 Wils. 40; Withington v. Herring & al. 5 Bing. 442; Rice v. Austin, 17 Mass. Rep. 1971 Baxter & al. v. Rodman, 3 Pick. 435; Cutler & al. v. Wisner, 6 Pick. 335. Turner v. Bissell & al. 14 Pick. 192. Muzzy v. Whitney, 10 Johns. Rep. 226. Ross v. Drinker, 2 Hall, 415; Harding v. Foxcroft, 6 Greenl. 76, Thomson v. Snow, 4 Greenl. 264. Miller v. Bartlett, 15 Serg. & Rawle 137. The rule which these and other cases establish, is founded on the distinction which has been taken between agreements by which the parties have a specific interest in the profits themselves, as profits, and such as give to the party sought to be charged as a partner, not a specific interest in the business or profits, as such, but a stipulated proportion of the profits as a compensation for his labour and services. Ex parte Chuck, 8 Bing. 469.

We are aware this distinction has not received the approbation of Lord Eldon, who says, in ex parte Hamper, 17 Ves. 404.: “ The cases have gone farther to this nicety, upon a distinction so thin that I cannot state it as established upon due consideration, that if a trader agrees to pay another person for his labour in the concern, a sum of money, even in proportion to the profits, equal to a certain share, that will not make him a partner; but if he has a specific interest in the profits themselves as profits, he is a partner. It is clearly settled, though I regret it, that if a man stipulates, that, as the reward of his labour, he shall have, not a specific interest in the business, but a given sum of money even in proportion to a given quantum of the profits, that will not make him a partner; but if he agrees for a part of the profits, as such, giving him a right to an account, though having no property in the capital, he is, as to third persons, a partner.” Id AK2^ Ex parte Row-landson,\ Rosefili Ex parte Watson, 19 Ves. 458. We do not propose to examine the reasonableness of the doubts expressed by this distinguished judge. Such enquiry we consider closed, by a series of precedents, which we do not feel at liberty to disregard. They have settled principles, which have, for a long period, regulated the agreements of parties, in cases to which they are applicable ; and they ought not now to be questioned.

The distinction to which we have referred, in our opinion, embraces the present case. The object of Marshall and his associates, was, to have their wool manufactured into cloth. They resided ata distance from the factory occupied by French and Hubbell, and were unacquainted with the business of manufacturing. They were willing to avail themselves of the opportunity, which the possession of the factory by French afforded, of having their wool worked into cloth, and of the skill of French and Hubbell, to prepare it for market. To secure and increase exertion, they agreed to give them, as a reward for their services and the materials which they should furnish, a certain proportion of “ the net proceeds of all the cloths, after deducting incidental and necessary expenses of transporting and other proper charges of sale.” It is not expressed, in terms, to be for such compensation ; but this is its legal meaning/ In many of the cases to which we have referred, the language of the agreements was not more explicit than in the one now under consideration ; but looking at the entire transaction, such was considered the obvious meaning of the parties. French and Hubbell had no other interest in the profits, than such as arose from the agreement to pay them for their labour, &c., in a specific proportion of the amount of the sales of the manufactured article.”*

It was supposed, however, that this agreement ought not to receive the construction we have given it, inasmuch as Marshall dp Co. were to furnish stock for two years ; and during the whole of that period, the factory and time of French and Hubbell were to be devoted to the business of manufacturing .it into cloth. We do not perceive how these facts can vary the construction of the agreement. Whether a specified quantity of wool was to be worked, or so much as would be “ a full supply for two years or whether French and Hubbell were to be constantly employed in the business of Marshall ép Co., or might occasionally do business on their own account; does not, we think, evince any other intention of the parties to the agreement, than that which appears to us quite obvious, viz. that French and Hubbell were to receive a compensation for their labour, by a percentage on the sales. Neither the quantity to be manufactured, nor the time to be devoted to the business, can vary the relation between the parties. If they contemplated a division of the profits, as such, they were partners, whether the quantity of wool was specified, or was indefinite— whether the time occupied in its manufacture, was longer or shorter. If they provided for the payment for the labour, by allowing a certain sum proportioned to the profits, no partnership was created, although the quantity to be worked might be large, and the period of employment extended to two years.

It was further insisted, that as the agreement contained a Stipulation that French and Hubbell should furnish the warp, to be paid by them and Marshall Sp Co. in the proportion of forty-five to fifty-five per cent, of its cost, it is fairly to be inferred, they contemplated a joint ownership of the property, and a joint participation in the profits. A similar argument was urged in the case of Turner v. Bissell & al. 14 Pick. 192.; and we are satisfied with the answer given to it by the court. “ The circumstance that Root was to find warps, does not affect the principle upon which the distinction as to compensation is founded. If Bissell had agreed with Root, to pay him a certain sum for his services and for supplying the warp, there could be no pretence for holding them as partners ; and we can perceive no difference in principle, arising from the circumstance that the compensation was to be determined according to the amount of sales.”

It was also urged, that the stipulation as to insurance, furnished evidence of a joint interest in the business — in the profits as well as in the property. The agreement provides, that the expense of insurance effected on wool or cloth, is to be borne by the parties, in proportion to their interest in the final division of the avails of the cloth ; and if any wool or cloth should be destroyed by fire, the amount received under the policy, is to. be divided, as near as may be, as either party may sustain loss. We think this clause in the agreement shows, that the parties contemplated a continued and sole ownership of the wool by Marshall Co., after its delivery at the factory, rather than a joint ownership by them and French and Hubbell. The premium of insurance was to be paid in the same proportion as the avails of the sales were to be divided. This was an expense, which the parties believed it just, should be reimbursed in that ratio. But the application of the moneys which might be received, in the event of a loss, was to be governed by different, principles. It was to be divided, as near as it could be, according to the loss which each might sustain. If the wool only was destroyed, Marshall Sp Co. would alone be interested in the amount received from the insurers ; if the materials furnished by French and Hubbell were alone consumed, they alone would be entitled to it; if cloth was burnt, each would sustain a loss — Marshall <£■ Co. in the wool, French and Hubbell in the labour and materials. We do not mean, however, to prescribe a rule, by w'hich the division should have been made, in the latter case. We express no opinion upon the question, whether the price of the wool, and of the work and materials should be ascertained, by reference to their actual value, or to the sums paid by the respective parties. We mean merely to say, that when the parties agree, that it shall be divided in proportion to the amount of the loss sustained by each respectively, it can hardly be supposed they intended to create any joint interest in the wool furnished by the one, or the materials and labour furnished by the other. If such was their intention, it is difficult to perceive why they did not promise the same ratio of distribution of the moneys which might be paid on the policy, as they did of the expense of the premium and the avails of the sale of the manufactured goods. It is not easy to discover an intention to make a joint concern of the whole business, when provision is made for a division of the amount paid on a loss, in proportion to the loss which each might sustain.

If the views we have thus expressed, be correct, the case before us is not one of partnership, but is properly referable to that class of cases, in which one party receives a share of the profit's or avails, as a compensation, for services rendered) to* ^0ur performed and expenses incurred in the business.

It was claimed in the argument, by counsel, that in the pres? ent case, French and Huhbell had no interest in the profits, as that term is understood in the law of partnership. “The main feature in the contract of partnership, is the communion of profit between the parties. Without that quality, a partnership cannot exist.” Coll. 44. The cases are to be laid out of view, in which a liability as partner may exist, quoad third persons, arising from the use of his name with his consent, or holding himself out to the plaintiff, or under such circumstanf ces of publicity as to satisfy a jury that the plaintiff knew of ⅛ and believed him to'be a partner ; in which cases he would be liable to the plaintiff, in all transactions in which he engaged and gave credit to him upon the faith of his being such partner. Dickinson v. Valpy, 10 B. C. 128. The motion does not state any facts which require the application of these principles. If Marshall <§• Co. are partners, they aré such, by force of the written agreement. Does that give French and Hub-bell any share of the profits ? It was remarked, that it pro-vidés for no division of the profits by name, but of “ the net proceeds of all the cloths,” deducting certain charges and expenses. It was said, that the result to these parties might .be different, if the basis of the division was the net profits, instead of the net sales; that one party might make a profit, and the other sustain a loss, or both the one or the other, but neither the gain nor the loss would be reciprocal or proportioned to each other; — that this would depend on the distinct and independent operations of each, and wiibout any relation of the one to the other; — that the profits of Marshall if Co. would not, in the slightest degree, depend upon the cost of the machinery, labour and materials furnished by French and Huhbell, nor the profits of the latter be connected with the cost of the wool, which comes into view only when it exceeds, with interest at eight per cent, per annum, fifty-five per cent, of the avails of the sales, and then, not for the purpose of closing,,the concern upon the principle of participation in profit and loss, but t'o as-I certain the fact of such excess, and thus enable the parties to ' fix the ratio of distribution. Jf this difference in the result; be- | tween a division of the profits, and a division of the avails <of the sales, should be kept in view, and in connexion with the facts that these parties are contributors to a common object, and the contribution of each party is separate and distinct, and the final division is to be of the proceeds of the sales, and not of the net profits of the business, it was supposed, a communion of profit could not easily be discovered. It was insisted, that the profit is the sum remaining after the payment of all expenses connected with the adventure; — that from the gross amount of sales, are to be deducted the cost of all the materials, expense of manufacturing, and all other expenses which are a charge on the business ; and if any thing remains, that is profit, and nothing else is such ; — and that in the case before the court, neither the price of the wool, nor of the labour and materials furnished by French and Hnbbell, were to be considered in the division of the proceeds : — and that as the profits of the business were not to be divided, but the avails of the sales, it was contended, there could be no community of interest in the profits, upon such a division. The following authorities were cited in support of these views. Hoare & al. v. Dawes & al. Doug. 356. Gibson & al. v. Lupton & al. 9 Bing. 297. Coope v. Eyre, 1 H. Bla. 37. Cheap & al. v. Cramond, 4 B. & A. 663. Catlin & al. v. Wisner, 6 Pick. 335. Lowrey v. Brooks, 2 McCord, 421.

Again; had the agreement provided for a division of the profits, instead of a division of the avails of the sales, but without inference to the original cost of the wool, labour and materials, it was asked, would there have been any mutuality in the profits? It was admitted, that where by the express terms of the contract, a partnership stock is created in which all have a joint property, but one is not to have any definite aliquot part of it, yet is entitled to an account of the profits as between themselves, so as to get, as the case may be, at least a specific amount out of the clear profits, the parties to such a contract would be partners ; yet it was said, that in the present case, it is quite clear, that in the division of the proceeds, one of the parties might make a profit, while the other would sustain a loss ; that if Marshall fy Co. had purchased the wool at a low price, they might have been more than reimbursed the original cost and their proportion of the expenses, while French and Hubbell, in procuring labour, machinery, materials, &c., might have expended an amount exceeding what they were entitled to receive under the agreement; and that by a change of circumstances, and the happening of events, Marshall <5* Co. suffer a 1083; jn c]osjng the business, while French and Hubbell would realize a profit. The question was then put to us, whether there can be such a communion or mutuality in profit and loss, as will constitute a partnership, where, by the agreement, the gain or loss of one party is wholly independent of the other, so that while the business in which both are engaged, is a source of profit to one, it results in a loss to the other 1 And we were referred to the observations of different judges in the following cases. In Coope v. Eyre, Gould, J. says, “ there was no communication between the buyers as to profit and loss. The profit or loss of the one, might be more or less than that of the other.” In the same case, Lord Lough-borough says, “ in order to constitute a partnership, a communion of profit and loss is essential.” In Waugh v. Carver, 2 H. Bla. 235. 246. Eyre, Ch. J. says, “the case is reduced to the single point, whether the Carvers did not entitle themselves and did not mean to take a moiety of the profits of Gies-ler’s house generally and indefinitely, as they should arise, at certain times agreed upon for the settlement of their accounts.” In The United Insurance Company v. Scott & al. 1 Johns. Rep. 105., Kent, Ch. J. says, “there was no community between them, as to profit and loss and in Post v. Kimberly, the same judge remarks, “ the profit and loss of the voyage, was never to be joint and mutual. The eventual gain or loss of one party, might be very different from that of the other.”

We do not express an opinion upon either of these points presented by the counsel for the defendants ; for our decision is placed on other grounds, which have been stated. We refer to them, and the argument by which they are attempted to be sustained, that it may appear, they have not been overlooked. They may, with propriety, be examined, when necessary to the decision of cases to which they are applicable.

When the agreement between these parties, is viewed with reference to its object, the condition of the parties, the stipulations into which they have entered, and the consequences which would result from holding them liable as partners, in their application to the trade and manufactures of the country, we feel no hesitation in saying, that neither by express agreement, nor by construction of law, are they constituted partners. We find no intimation that such was their intention; no words used, which evince that French and Hubbell were to have a legal interest in the wool, or Marshall Co. in the materials furnished by French and Hubbell; no suggestion that all were to be responsible for the purchases and on the contracts of each relating to the business ; no evidence that one was to repose confidence in the other, as partner. The parties, in their respective spheres of operation, were independent of each other, excepting that one was to “ furnish wool, of a good quality, for two years,” and the other was to “ manufacture it, in a good and workman-like manner.” The labour of one was to be employed upon the property of the other, with a view to its amelioration. ⅛ Were we to hold, that this agreement creates a partnership, we think we should change the existing law, as to factors, brokers, agents, ship-masters and seamen, who share in the profits of a business, by way of commission, or in lieu of wages; — should introduce great perplexity and confusion in the adjustment of their legal rights and remedies ; — should establish a doctrine, which would constitute landlords and tenants, where farms are taken on shares, partners in all contracts relating to the occupancy and improvement of the farms ; and declare to the enterprising citizens of our country, who possess industry and skill, but are without capital, that they can neither improve farms, nor manufacture goods, nor be employed as mechanics, for a compensation proportioned to the avails of the sales — the product of their labour and skill, — without involving themselves and their employers, in such responsibility as partners, as would, to a considerable extent, deprive them of employment. e should require well established precedents, too numerous to be overruled, before we should yield our assent to a doctrine which would produce such consequences.

It was supposed such a precedent exists, and was established, by this court, in the case of Everitt v. Chapman, 6 Conn. Rep. 347. That case, we think, is clearly distinguishable from the one now before the court. There, it was agreed, the parties were, at the time of the purchase of the hides, and had been, for several months previous, in partnership, for the purpose of manufacturing leather. The agreement states, that they had united themselves into a company, for the purpose of transacting business to advantage; that the “ partners” were to exert themselves to enrich the firm ; that the “ company” Was to be dissolved at any time, by the consent of the parties. the present case, no partnership was, in terms, created ; nor js there, in the articles signed by the parties, any allusion to the fact that they are partners. In the case cited, although it is stipulated, that each party is to furnish, on his own credit, one half of the hides necessary to keep the tannery in operation, and to receive and make market for one half of the leather ; yet there is nothing in these clauses, which excludes an entire participation in the profit and loss. The court, therefore, said, “ the agreement was, substantially, to share in the profits and loss and the case was considered analogous to that of Gouthwaite v. Duckworth & al. 12 East, 421., where two of the defendants purchased goods of the plaintiff, on their own credit, for an adventure, in which they and Duckworth were to share in the profit and loss. In the case before us, French and Hubbell were not under obligation to furnish any wool, nor to pledge their credit for it. In Everitt v. Chapman, it is not entirely clear, that when the leather was manufactured, it was to be equally divided, and a moiety to be taken by each, as his separate property. It would seem rather to have been the intention of the parties, that both should bear equally the burden of disposing of the leather in market, for the equal benefit of both, subject to accountability. This construction of their agreement, comports with the language used. Chapman was “ to receive and make market for one half of the leather.” Mott was to “ make a market” for the other half. The fair meaning of these expressions is, that each of the parties was to take one half of the leather to the best market, and account for the proceeds, when sold. In this view, the stipulation that “ the partners should do what was in their power, to increase the property of, and strengthen and enrich, the company or firm,” was of much importance. The parties were not merely to furnish stock sufficient to keep the tannery in operation ; cause it to be kept in good, useful and tenantable repair ; to do the work “ in the tannery, in a faithful and workman-like manner but the leather, when completed, was to be sold in market; each party was to be at the expense, and to perform the labour, of disposing of a moiety, to the best advantage ; and thus, the property of the firm be increased and the firm enriched, by the exertions of both, in selling in the best market and at the highest prices. If this be a correct view of the contract in that case, the court might well have enquired, “where is there room for a question ?” It was a clear case of partnership. If, however, the leather was to be divided into moieties, each taking his portion without further accountability, it was held by the court, that the purchase of the hides was for all the partners ; that had a loss been sustained, it must have been borne by the three, and any profit shared in like manner ; and that thus the profit and loss were meant to be joint and mutual. In the case under consideration, we cannot give such a construction to the agreement, as would make French and Hubbell liable for all the wool purchased by Marshall Co., and the expenses of transportation, and for a share of any loss and damage it might sustain after it was purchased, and before its delivery at the factory ; nor, on the other hand, to impose a liability upon Marshall Co. for the rent of the factory, for debts contracted in the purchase of machinery to work the wool into cloth, or for dye-stuffs and other materials and la-bour necessary to its completion.

Upon the whole, a majority of the court are of opinion, that the instruction to the jury was erroneous ; and therefore, advise a new trial.

In this opinion. Bissell, Church and Waite, Js., concurred.