Bird v. Morrison , 12 Wis. 138 ( 1860 )

By the Court,

Paine, J.

We think the court below properly found the existence of the original agreement of partnership set forth in the complaint. ■> The answer of the defendant Morrison, admitting the execution of the agreement, and that, in pursuance of it, he brought his stock of goods to Madison, and opened the store, as the acting partner, and opened books in the name of the company, establishes this branch of the plaintiff’s case in the first instance, and devolves upon Morrison the burden of showing that such partnership ceased after having been so entered upon.’ His counsel insist that it was abandoned in fact, without ever having been entered upon at all. But we do not think this position is sustained, either by his answer or by the evidence. The answer itself only asserts, on information and belief, that Doty and O'Neil had never contributed their shares of the capital, or any part thereof, and then adds, that if they had done so, and had not been satisfied by said Morrison, “the courts of equity were open to them,” &c. This kind of denial is not calculated to free the mind from a suspicion that the party denying had quite a distinct impression that the fact might possibly be otherwise. And it does not go far to support the theory that the partnership agreement was abandoned. The evidence also, though not of the clearest or most satisfactory character, goes to show that it was continued and not abandoned. The testimony of Seymour is positive, that quite a large amount of goods belonging to Bird, were put into the store. After the business had been conducted for a considerable time, Morrison still gave receipts in the name of Morrison & Go. Goods came to the store marked in their name. It is true, there are some circumstances apparently conflicting with either theory of the case. Thus it is somewhat singular that Bird, Doty and O'Neil should have so long remained silent, without calling for an account, or inquiring particularly into the progress or success of the enterprise. This may perhaps be explained by the relation in which they stood to the building of the capi-tel, and the fact that workmen were paid out of the store. On the other hand, there is no evidence that Morrison ever called on either of the other parties to contribute anything, or ever made any inquiries why they did not, or whether they proposed to abide by the agreement as made. And this is about as singular as their course. The probability is, that the parties were not very desirous of giving publicity to their connection, and that this is to account for an absence of much on both sides that would otherwise be expected. But the making of the agreement lieing explicitly admitted, as also the fact that it was entered upon, we think the answer fails to show that it was abandoned, and that the evidence shows such a continuation of it, as entitles the plaintiff to an account, as to the mercantile partnership provided for by the written agreement.

But the most difficult question in the case grows out of the alleged subsequent agreement, by parol, to extend the partnership to dealing in real estate, and the allegation that, in pursuance of it, the other partners conveyed to Morrison divers lots by absolute deeds, upon an understanding that he was to hold them in trust for the partnership, and to rccon-vey to each his interest when required. The question at once arises, whether this agreement is not within the statute of frauds.

In the case of Rasdall's Administrators vs. Rasdall, decided at the last term, (9 Wis., 379,) we held that parol evidence was inadmissible to establish, an express trust in land conveyed by an absolute deed. And the appellants’ counsel contend that this case depends on the same principle and must be governed by that decision. We are unable to why this result does not follow, unless, as claimed on the other side, the fact that there was a partnership here, makes the case an exception and takes it out of the statute. We have carefully examined the authorities cited, and such others as we could find upon the- subject, and we do not think they go to that extent. It is only held that where real estate is purchased by partners with partnership funds, for partnership purposes, it is subject to an implied trust in favor of the partnership debts, including those due the individual partners, and this whether the title be taken to the partners jointly, so that they would at law be tenants in common, or whether it be taken in the name of a part only. Story Eq. Jur., § 1207, and cases cited in note 2; Coder vs. Huling, 27 Penn. St., 84; Matlock vs. Matlock, 5 Ind., 403; Dyer vs. Clark, 5 Met., 562; Fall River Whaling Co. and others vs. Borden, 10 Cush., 458.

These cases and those mentioned in them, are of two classes; those where the real estate was purchased with partnership funds, and those where the parties, by their written agreements, had clearly established the partnership character of the land in question. So far as the first class is concerned, we can see nothing more in the doctrine they hold, than an application of the ordinary rule respecting implied or resulting trusts. That rule is, that a trust results in favor of the party who pays the consideration. Therefore, where a partnership pays the consideration, a trust results in favor oi that. But those trusts are not within the statute, and therefore no question arose under it.

In the other class of cases, there was no dispute as to the partnership character of the real estate. In most of them the parties owned it jointly, so that there was no question as to the title. And in such cases, the courts have held that it was to be treated as partnership property, so far as the payment of the debts of the partnership was concerned, though for other purposes it was governed by the rules ordinarily applicable to real estate. Cookson vs. Cookson, 8 Sim, 529; Peck vs. Fisher, 7 Cush., 386. Tbe question was not under tbe statute of frauds, but simply bow far real estate owned by a partnership was to be regarded as personal property, and bow far it was to be treated as other real estate held by joint title. Thus it will be seen in tbe case in 10 Cushhig, before cited, that tbe court explicitly states, that “there is no question between competing claimants of tbe land as land, and of course no controversy as to title, or as to tbe relations of tbe statute of frauds to any collision of interest in real estate.” It is true, tbe court bad before remarked, that “ tbe relation of tbe subject to tbe statute of frauds” was tbe “straining point in law of tbe whole inquiry.” But tbe point then under consideration was, whether tbe partnership could be proved by parol, so as to attach to tbe real estate tbe character of partnership property, tbe actual condition of tbe title being entirely consistent therewith. Now it appeared in tbe case, that tbe “ cost of tbe purchase went into tbe partnership accounts, that tbe estates were entered in tbe company books as company property, and that as portions were sold for profit from time to time, tbe proceeds were merged in tbe general funds of tbe copartnership.” I am unable, therefore, to see any substantial distinction, so far as tbe question of tbe statute of frauds is concerned, between this case and that of Dyer vs. Clark. The title being joint, tbe fact of partnership may be proved by parol, and that tbe parties acquired tbe property as partners and treated it as such, and then, upon these facts, tbe law attaches to it tbe character of partnership property, and implies whatever trusts that character requires. And if we properly understand tbe cases that have sanctioned tbe admissibility of parol evidence of partnership, to attach to real estate a trust character in favor of tbe firm, it has been placed upon tbe ground of implied trusts, so that it was without tbe statute of frauds. Yet this case in Ousbing seems to leave it uncertain, whether it was assumed to be within tbe statute, and tbe written evidence sufficient, or without tbe statute, and no written evidence necessary. It does not state very clearly any definite rule upon which it proceeds, but we do not understand it as an authority to go further than this, that where the title to real estate is entirely consistent with the fact that it is held as partnership property, the fact that it was acquired as such, and was so held, may be shown by parol to give it that character.

There is still another class of cases which establish the proposition that real estate may be regarded as an incident to'a trading or manufacturing business, and that a partnership in the business being shown, the. law implies that the one holding • the legal title to such real estate, holds it in trust for the partners. Some instances of this kind are given in the case in 10 Cushing. The case of Forster vs. Hale, 5 Vesey, 308, is of the same character. The Lord Chancellor said that the partnership in carrying on the colliery being proved as a fact, the lease of the land was an incident to the business, and although the title was in one, there would be a resulting trust in favor of the partners.

These cases, therefore, go no further than to establish three propositions:

1. Where real estate is bought with partnership funds for partnership purposes, there is a resulting trust in favor of the partnership, though the title be taken in the name of one.

2. Where the title is held by all the partners jointly, so as to be entirely consistent with the character of partnership property, the fact of partnership may be shown by parol, and that the property was held for partnership purposes, and from these facts the law will imply its partnership character, and such trusts as result therefrom.

3. A partnership in any branch of trade or business may be shown by parol as an existing fact, and then, whatever real estate is held for the purpose of such business, is regarded as an incident thereto, and the law will imply a trust in favor of the partnership where the legal title is not in all.

Now, without examining whether any of these propositions stand among the many successful invasions upon this statute, it is obvious that none,of them goes to the extent of saying, that a bald parol agreement for a partnership in real estate as such, may be shown, to create a trust in land held by one of the parties, under, a deed absolute on its face. Nor do we think that such, is the law. We have found only one case that affords any sanction for such an idea, which is that of Dale vs. Hamilton, 5 Hare, 269. But it was the opinion only of the Yice-Ohancellor, and he admits, virtually, that his decision would be a repeal of the statute. He says, “ When the proposition was first advanced by the plaintiff, I confess it appeared to me that to admit the agreement to the extent contended for, would virtually be to repeal the statute of frauds, or nearly so; for if a party, by alleging an interest in land of any specific kind, can escape from that safe-guard against fraud and perjury which the statute has provided, it remains only that those who are prepared by fraud and perjury to invade the rights of another, shall make that specific interest (to which, it is said, the act does not extend) the ground of their claim, and the statute is at once evaded. Thus, if A alleges that B agreed to give him an interest in land, the statute applies; but if he adds that the land was to be improved and resold at their joint risk, for profit and loss, the statute does not apply.”

This brief extract clearly exposes the fallacy of the proposition ; and yet the Yice-Ohancellor went on to sustain it, upon the ground of authority. But we do not think any that he cited support the doctrine, or go further than those we have before alluded to. On the other hand, there is an elaborate opinion by Judge Story, in Smith vs. Burnham, 3 Sum., 435, in which he holds such an agreement to be clearly within the statute of frauds and void. See also Oollyer on Partnership, § 3, note; Henderson vs. Hudson, 1 Mun., 510. If the authorities, therefore, were equally divided upon the point, we should be inclined to follow those which uphold the law, rather than such as admit that they repeal it, for we are unable to understand by what authority courts can repeal a statute.

And what safety would there be, if the proposition were once established, that by alleging a partnership, the statute of frauds is entirely avoided, and the parties may then prove whatever interest in land they please by parol, against the absolute title of the deeds ? What would hinder the separate real estate of any partner from being converted into part-nersMp property, by proof of a mere verbal agreement What wonld binder tbe absolute title of any man, whether partner or not, from being changed into a trust estate in the same way ? Nothing whatever. For the statute assumed that there were those ready, as the Vice-Chancellor said, to invade the right of others by fraud and perjury. Let it be known, then, that a partnership avoids the statute, and all that would be necessary would be for the fraud and perjury to establish that also, and then every title would be open to attack. We do not feel called upon, even if we had authority, to overturn a statute for the purpose of exposing the title to real estate to such uncertainties. It may be urged, that the same evils may, to a certain extent, result from the rules before referred to in regard to implied trusts in favor of partnerships. But the facilities for fraud are not half so great ui^der them. They require proof of the partnership as an actual existing fact — a partnership doing business, having property and using it; and it is not so easy to establish this by false evidence, as it is to show a mere verbal agreement. And it may be remarked, that even the doctrine concerning resulting trusts, could not, perhaps, prevail as the law now is in this state, it having been very materially modified by statute.

We are of opinion, therefore, that even if the allegations in the complaint, respecting the subsequent agreement as to dealings in real estate, should be held to show a partnership, yet the absolute title of Morrison, under his deeds, could not be changed into a trust estate by virtue of such verbal agreement. But although this point was not made upon the argument, we are satisfied that the allegations of the bill are not sufficient to show a partnership in respect to any of the real' estate, except such as was acquired for the store. True, it alleges that the partnership was extended to dealing in real estate, but it then proceeds to state, specifically, what such dealing was to consist in, and what was the actual agreement with respect to the lots conveyed by the other partners to Morrison. And these specific allegations must control the general words, and if they do not show a partnership, then none is averred. The mode, then, bj which this partnership in real estate was to be established, was, according to the complaint, as follows: “ By each of said partners agreeing to contribute and put in, as capital stock for that purpose, an equal share of real estate, consisting of town lots in said town of Madison, and to contribute an equal amount of means required to improve the same, and more especially for the construction of a hotel, and the necessary buildings and improvements connected therewith.” Then, after averring that the other partners did accordingly convey to Morrison certain lots in fee, “as the capital stock of said copartnership in real estate,” it proceeds to allege that it was “with the understanding and agreement, by and between all of said copartners, that the said James Morrison should thereafter reconvey to each of the other three copartners, his just share of said lots and real estate, consisting of an undivided one-fourth of said lots, with the improvements thereon, when he, the said Morrison, should be requested so to do, by all or either of the copartners.”

How, what constitutes this a copartnership? We are unable to perceive. Standing alone, it is nothing more than a conveyance of certain lots by three persons to another, with an understanding that they were to be jointly improved, and he was then to reconvey to each his share. The element of risk, and of profit and loss in conducting the business, is lacking. Eor a joint interest in the increase of value of real estate, either by its rise, or by improvements put on by parties jointly owning it, does not constitute a partnership. Otherwise all joint owners would become partners, for they are always jointly interested in the profit of increased value as well as in the loss by depreciation. But, to make a partnership, there must be a dealing in the article for the purpose of making profit from the dealing, and that is not provided for here.

It may be admitted that dealing in real estate may be the proper subject of a copartnership agreement, though this has sometimes been held otherwise. Coles vs. Coles, 15 Johns., 159; Baker vs. Wheeler, 8 Wend., 505. It was there held that the title to real estate was of such a nature as prevented the application to tbat Mnd of property, of tbe rules of law applicable to partnership property. And as we have already seen, the joint acquisition by partners of real estate, with partnership funds and for partnership purposes, vests in them the title as tenants in common at law, and it is only by going into equity that it is made subject to the implied trust as partnership property. But it seems to be' now established, that real estate may be alone the subject of a copartnership. This point is considered in the case in 10 Cush., before cited, and in Collyer on Part., § 51, note 1. But to make it a partnership, there must be a dealing from which profit or loss may arise. Thus if the rule is as stated in Brady vs. Colhoun, 1 Penn., 140, that “a partnership in land may be limited to the purchasing only, the profit and loss being divisible as stock,” this case does not come up to that, for here there was no purchasing, the agreement relating to lands which the parties then had. In the case of Ludlow vs. Cooper, 4 Ohio State Rep., this question arose. The court, after alluding to the rule where real estate is bought with partnership funds, and used for carrying on partnership business, proceeds as follows: “ In the case now under consideration, however, the entries were not made with partnership funds, nor were the lands to be used as a means of carrying on any partnership business, other than the' purchase and sale of real estate. It is very clear that although the land was not purchased with partnership funds, but was to be purchased with separate funds of Goober and Ludlow in equal portions, the property was to be considered partnership property, so far as real estate could be so considered and treated; that it was, by the agreement, to be sold and converted into money, and each partner to share and share alike in the profits, and of course to share in the losses.” And upon this ground, that by the agreement, which was in writing, the property was to be sold, and they were to share in the proceeds, the court held it a partnership. And the implication is that except for that, they would have held otherwise. If the bill had alleged that the partnership extended to the carrying on of the hotel business, that would have been a partnership, and might, so far as the hotel lots were concerned, have laid the foundation for applying the doctrine of implied trust to the real estate used for the hotel, as being incident to the business. But it only alleges that they were to build a hotel. And this does not make it a partnership more than it would if they had built a boarding house or a mill. In Sikes vs. Work, 6 Gray, 433, the parties had purchased a lot jointly, and one had built a boarding kousfe on it, with the consent of the other. They did not at the time contemplate going into business in it, but did actually form a partnership in keeping a boarding house, which was conducted for three years. The court said: “The evidence in this case fails to show a partnership in regard to the real estate owned by the parties. There was no agreement between them to share the profit and loss of the joint undertaking, which is the essential and distinguishing feature of the contract of copart-nership.”

Neither does the agreement to share equally the expense of building the improvements make it a partnership. In Noyes vs. Cushman, 25 Vt., 390, the defendants had purchased a grist mill and privilege, under an agreement to rebuild it and share the expense equally. The court said: “ Their mutual obligation to rebuild and repair does not necessarily constitute them partners, for, as observed by Judge Bronson, in Porter vs. McLure, 15 Wend., 187, ‘they may or may not become partners in carrying on the milling business.’ A mere community of interest in real or personal estate, does not constitute a partnership. But where a purchase of that character is made, and the premises are rebuilt or repaired for the purpose of prosecuting some joint enterprise or adventure, under an agreement to share in the profit and loss of the undertaking, the contract then becomes one constituting a partnership.”

In the case alluded to in 15 Wend., the defendants owned a mill-site and had contracted for the erection of a mill. The court said: “The mill when completed, like the site which it occupied, would be real estate, and the defendants would hold it by the same tenure by which they held the land. Whatever that tenure might be, it would not constitute them partners; they might or might not become partners in carrying on the milling business. A community of interest in land does not make men partners, nor does a community of interest in personal property. There must be some "joint adventure, and an agreement to share in the profit and loss of the undertaking.”

Upon all these authorities, we think there was no partnership in the real estate, even according to the facts alleged in the bill It seems to have been nothing more than an agreement to convey the title to certain lots owned by the three, to Morrison; they were then to put certain improvements upon them, and upon those which Morrison was to, put in, and then he was to convey to each of' the others an undivided fourth part, on request. There was to be no purchasing of lands, no sale, nothing in which they were to share the profit and loss. The complaint excludes all idea that there was to be any sale of these lands for the put-poses of profit. Eor if such was the case, then all the allegations in respect to the purchase by Dean, and his notice, &c., are out of place. For if the property was partnership property, and the title was placed in Morrison for the purpose of dealing with it as such, then he could sell the whole interest; and though the purchaser had notice of such partnership he would undoubtedly take a good title. But the bill was framed upon the theory that there was to be no sale, but that the parties were to retain their respective interests, and have them reconveyed. There can be no doubt that this agreement respecting the real estate, standing alone, would not amount to a partnership. Does the fact that the parties were engaged in a mercantile partnership give it any different effect ? We are unable to see that it does. For certainly it cannot be said that wherever-a partnership exists, that changes the law with respect to agreements made by its members about real- estate outside of that partnership. We have already seen that a partnership may be made the ground of Implying certain trusts in real estate used in the business, or acquired with its funds. But this furnishes no reason for saying that where the members of a partnership make an agreement with respect to real estate which they own separately, the law applicable to such agpee-mei1^ *s anT different from wbat it would have been if suck partnership bad not existed.

In the case of Coder vs. Huling, 27 Penn. St., 84, tbe court say: “When two partners, engaged as such in a particular business specified in their articles, buy land not necessary for their business, but with views and purposes beyond and outside of it, such land is held by them as tenants in common ; it is not partnership property.” And if such lands would be held to be outside of the partnership, so much the more would lands which the partners owned separately, and not used in anyway for the partnership purposes, be entirely unaffected by it, and any agreement they might make respecting it would stand upon the same footing as to its legal effect, as though such partnership did not exist. If such agreement would be void within the statute of frauds, such partnership would not prevent that effect. If it would not in law amount to a partnership as to such real estate, then the existing mercantile partnership would not make it so. Thus, suppose A and B each owns a lot. They agree that A shall convey his lot to B by an absolute deed; that they will make a joint dwelling house on the two, and then B shall reconvey to A an undivided half. This agreement would clearly be within the statute. It would clearly not amount to a partnership. But suppose A and B had been at the time partners in law, or in medicine, or in trade, would that vary the effect of this agreement as to the lots? We' cannot see how it could. The agreement concerning the real estate, as set up in the complaint, is entirely separate and distinct from the mercantile partnership. Each of the parties was to put in an equal amount of real estate, each to contribute equally in the improvement, and each to have an undivided one fourth reconveyed. It has, by its terms, no connection whatever with the trading partnership; and the general allegation that the latter was extended to this new arrangement, does not vary its legal effect.

Our conclusions may be thus stated : An agreement for a partnership to consist in dealings in real estate, is within the statute of frauds, and void unless in writing.

The fact that the parties making it are engaged at the time in a mercantile partnership, does not take it out of the statute. The alleged new agreement in respect to the real estate does not in law constitute a partnership therein, and the existing mercantile partnership does not give it that effect.

The case, therefore, with respect to this real estate, stands upon the same footing as the Easdall case, and is an attempt to show by parol an express trust in lands conveyed by deeds absolute on their face. We must hold such evidence inadmissible under the statute of frauds. The lot acquired for the store was clearly trust property. It would be so as incident to the mercantile business, within some authorities, but it is not necessary to rely-on that doctrine here, for the original agreement expressly provided for its purchase. Morrison will, of course, be liable to account for the proceeds of that, it having passed to Bean through a honafide,purchaser without notice, and for any part of the partnership funds or property which he may have applied to the improvement of real estate to which he had the title, as well as for the shares of the others in the mercantile business, and the profits, &c.

It follows, therefore, that the decree must be affirmed so far as it adjudges the existence of the mercantile partnership, and an account between the parties therein; and that it must be reversed so far as it adjudges a partnership in real estate, other than the store lot, and an account of such partnership; and also all that part of the decree from which the defendant Bean has appealed, is reversed. The order for reference will remain, but the accounting will extend only to the mercantile partnership.

DixON, C. J., did not sit in this case, having presided at the trial in the circuit court.