Waverly Nat. Bank v. Hall , 150 Pa. 466 ( 1892 )

Opinion by

Mb,. Justice Heydbick,

The plaintiff sues upon notes made by C. M. Crandall, one of the defendants, in his own name, and seeks to charge the other defendants as partners of Crandall in a business in which the proceeds of certain other notes, of which these were renewals, were used. The evidence relied upon to establish the alleged partnership is a contract in writing between Crandall of the one part, and the other defendants of the other part, dated February 24, 1885. If this contract does not create a partnership as to creditors it cannot be successfully contended that all the evidence in the cause taken together tends to charge anybody but Crandall; and inasmuch as all the assignments of error aré predicated upon the assumption that such partnership was created by that contract, it is evident that if that assumption was unfounded the plaintiffs could not have been injured by the rulings complained of, and hence, though there may have been technical error therein, the judgment ought not to be disturbed. It is, therefore, pertinent to inquire what were the rights and liabilities of the parties under that contract although the question is not directly raised by any of the assignments of error.

The whole scope of the contract indicates that a loan of money to Crandall by the other parties in consideration of a share of the profits of a business in which he was to embark was intended, and not a contribution to the capital of a partnership of which the parties were to be the members. The parties of the second part covenanted to furnish three thousand dollars to Crandall, and not to a firm; they were to furnish it to him from time to time as he might require it, and its repayment to them was to be secured by a chattel mortgage upon the tools, machinery, furniture and fixtures of every kind and nature belonging to or connected with the business in which it was to be used. Crandall might repay it at his option before the expiration of the full term for which he had the right to demand it; and, although it was stipulated that the money so to be furnished should be used in the business contemplated, the right of entire control of that business was recognized to be in, and was expressly conceded to Crandall. And it was further stip ulated that nothing in the writing contained should be construed to create a partnership between the parties thereto except as to the profits of the business. These provisions are all consistent with the relation of borrower and lender, and some of them are inconsistent with any other relation. It is therefore manifest that that relation was intended to be established; and the next question is whether, in spite of the intention of the parties, the community of interest in the profits constituted them a partnership as to creditors.

If this were a Pennsylvania contract the question would be answered in the negative by the act of April 6,1870, P. L. 56, and by Hart v. Kelly, 83 Pa. 286. But, although it was made in this state, it was to be executed in the state of New York. Such cases are stated bjr approved text writers to be an exception to the general rule that the lex loci applies in respect to the nature, obligation and construction of contracts. That exception is thus stated by Judge Story: “But where the contract is either expressly or tacitly to be performed in any other place the general rule is in conformity to the presumed intention of the parties that the contract, as to its validity, nature, obligation and interpretation, is to be governed by the law of the place of performance:” Conflict of Laws, § 280. Chancellor Kent, after stating the exception in substantially the same terms, -adds that it “ is more embarrassed than any other branch of the subject (the lex loci) by distinctions and jarring decisions:” 2 Com. 459. But whatever conflict of authority there may be in respect to the exception, all agree that matters connected with the performance of a contract are regulated by the law prevailing at the place of performance. Brown v. Railroad Co., 83 Pa. 316; Scudder v. Union National Bank, 91 U. S. 406. Under the present contract it is clear there could be no liability to third persons without a performance as between the parties to it, and therefore the question of such liability would necessarily be connected with or grow out of such performance and be determinable by the law of New York.

More than a century ago Chief Justice De Grey, in Grace v. Smith, 2 Wm. Bl. 998, laid down the proposition that “ every man that has a share of the profits of . a trade ought also to bear his share of the loss.” In a few years the principle thus stated became recognized as a part of the law of England, and so continued until 1860, when it was overthrown by the House of Lords in Cox v. Hickman, 8 H. L. C. 268. On this side of the Atlantic, and especially in the state of New York, it was accepted without question, so far as I have observed, as to the soundness of the reasons put forth in support of it, until it was exploded in England. As early as 1819, Spencer, J., delivering the opinion of the’court in Walden v. Sherburne, 15 Johns. 409, said: “No principle is better established than that every person is deemed to be in partnership, if he is interested in the profits of a trade, and if the advantages which he derives from the trade are casual and indefinite, depending on the accidents of trade.” And although the judgment of the House of Lords in Cox v. Hickman was soon followed by many American courts, the New York court of appeals declared as late as 1874 in Leggett v. Hyde, 58 N. Y. 272, that the rule remained in that state as it had long been. But while the judgment of the court sustained the rule, the opinion of the learned judge who pronounced it betrayed dissatisfaction with it, and attempted to defend it on no other principle than that of stare decisis, and the chief justice dissented from the judgment itself. The question came before the court of appeals again in Richardson v. Hughitt, 76 N. Y. 55. In that case the defendant had entered into a contract in writing with a firm engaged in- the business of manufacturing wagons, by the terms of which they were to manufacture and deliver wagons to him and use their best efforts to sell them. He was to advance $50 on each wagon •to be paid on the first day of each month, and at the time of each advance the firm was to render him an account of sales of wagons during the previous month, and pay him one quarter of the net profits thereon with interest on the advances. This instrument was construed to be a contract for the loan of money, and not to constitute a partnership. This was followed by Curry v. Fowler, 87 N. Y. 38, in which it appeared that certain persons, having purchased vacant ground in the city of New York and being about to erect buildings thereon, entered into a written contract with Fowler by the terms of which he was to advance $50,000 towards the purchase and erection of the buildings; in consideration of which they “ agreed to share the profits of the said purchase and buildings with the said Fowler; ” and he was to be allowed interest on his advances, and be secured by bond and mortgage on the premises. This contract was held not to create any other relation than that of borrower and lender; the same judge who delivered the opinion of the court in the case last cited saying: “In Richardson v. Hughitt, 76 N. Y. 55, it was held by this court that a person who has no interest in the business of a firm or in the capital invested save that he is to receive a share of the profits as a compensation for services, or for money loaned for the benefit of the business, is not a partner and cannot be held liable as such by a creditor of the firm.” This language was repeated with approval in Cassidy v. Hall, 97 "N. Y. 159. It is said however in Haekett v. Stanley, 115 N. Y. 625, that these cases and others in harmony with them do not overrule Leggett v. Hyde and its predecessors. But while this is affirmed it is said in the same case that, “ exceptions to the rule (that participation in profits of a business renders the participant liable to creditors) are, however, found in cases where a share in profits is contracted to be paid, as a measure of compensation to employees for services rendered in the business, or for the use of moneys loaned in aid of the enterprise.” It is not material to inquire how much more of the rule is left by this exception than was left by Cox v. Hickman. It is enough that the present case comes within the letter and the spirit of the exception. The parties who made the loan and who are now sought to be held liable as partners had no voice or part in the prosecution of the business either as principals or otherwise, nor had they an irrevocable right to demand a share of the profits as was the case in Hackett v. Stanley. The right of control, or any voice in the control, an incident of proprietorship, was denied to them. And the implication of partnership from community of interest in the profits was excluded by an express stipulation, the absence of which in Hackett v. Stanley was thought to be worthy of notice: and their right to demand a share of the profits was to terminate upon repayment of the money advanced at the end of five years, or sooner at the option of Crandall. In all its material provisions the contract under consideration is not distinguishable from that 'in Curry v. Fowler, or from those provisions of the contract in Hackett v. Stanley which it is there conceded would create no other relation than that of borrower and lender.

For these reasons the defendants as to whom issue was joined are not liable to the plaintiff and therefore the judgment must be affirmed.