Burnett v. . Snyder

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] The question upon this appeal is whether the legal effect of the agreement entered into between the defendant Snyder, Peter O. Strang and Ammon Platt is such that Snyder thereby became a member of the firm of Strang, Platt Co. There is nothing else to be considered, for the referee has found not only that Snyder was not a partner, but that he was not held out as being a partner, either by himself or by members of the firm; and further, that the plaintiff had no belief prior to the year 1875 (several years after the debt in suit was contracted) that Snyder was a member of the firm.

These propositions were all fairly open to debate, by exceptions taken to the findings; but it is not now claimed by the appellant that there is any reason for impeaching the last two conclusions, or any ground upon which the first can be assailed, unless it is found in the agreement above referred to.

The provisions of this instrument are not all as clear and coherent as might have been expected, but it has certain unmistakable features which leave no doubt as to its proper construction.

First: It purports to be an agreement by Peter O. Strang and Ammon Platt, in their individual capacity, with C. Brown Snyder. It is dated December 31, 1869, and recites that a co-partnership was on that day formed between Strang, Platt, Philip C. Lockwood, Amasa Clark and Ammon B. Platt, under the name of Strang, Platt Co.; that it is deemed expedient and for the interest of said firm, that Snyder should have an interest and become a co-partner therein; therefore it is agreed between the parties to that paper "that C.B. Snyder is a co-partner in the firm," and in consideration of the agreement and other considerations, Snyder shall and he is hereby entitled to receive from Strang and Platt one-third of the profits earned and received by each of them from their interest in said firm; and Snyder agrees that he will pay Strang and Platt an amount equal to one-third of any losses which they, or either of them, may sustain, or be chargeable with by reason of their connection, as co-partners, or otherwise, with the firm of Strang, Platt Co. The parties agree to do all they can to further the interest of the firm of Strang, Platt Co., and "at all proper times, during the continuance of this co-partnership, give to each other true and exact statements of the affairs and accounts of the firm." The agreement was to commence with the co-partnership of Strang, Platt Co., and to continue until the same was dissolved, as provided for in the articles of agreement.

It is then, as the appellant contends, an agreement that "Snyder shall have an interest and become a co-partner," indeed, "that he is a co-partner in the firm." Such is its language; and, doubtless, if the firm of Strang, Platt Co. had been composed of Strang and Platt alone, it would be sufficient to introduce Snyder into that firm, and clothe him with the privilege and subject him to the liability of a co-partner. But that partnership itself was formed by a contract entered into, not only by Strang and Ammon Platt, but by Lockwood, Clark, and AmmonB. Platt; so that the firm was composed of five persons, of whom only two signed the instrument in question. It required the voluntary consent of all these persons to create the firm; and it seems very clear that the declarations of any number less that the whole, however emphatic, that another person was also a member, could have no effect, either upon the firm or upon that person, for the simple reason that it would be untrue. It is also clear that the declaration of Snyder could not affect the firm or himself, unless (as is not the case here) he or the firm had been trusted on account of or by reason of that declaration. This is but reiterating a principle of law well established, that as a partnership can commence only by the voluntary contract of the parties, so when it is once formed, no third person can be introduced into the firm as a partner, without the concurrence of all the persons who compose the original firm. The consent of one or more to his introduction is not sufficient; (Kingman v. Spurr, 7 Pick., 235; Murray v. Kneeland, 14 J.R., 318; Marquand v. N YManuf. Co., 17 id., 534); for, otherwise, says Story, "it would, in effect, amount to a right of one or more of the partners to change the nature, and terms, and obligations of the original contract, and to take away the delectus personæ, which is essential to the constitution of a partnership:" (Story on Partnership, § 5.)

Second: It is, however, strenuously contended by the appellant's counsel that there is in this instrument an agreement that Snyder shall share the profits of the firm, and that, therefore, he became liable as co-partner to pay its debts.

We cannot find that the instrument contains such an agreement. It is not there in words, nor can it be implied from the language used. He is "to receive," not from the firm, but "from Peter O. Strang and Ammon Platt," not any part or share of the profits made by the firm, but "one-third of the profits earned and received by each" of them from their interest in said firm; and, in this connection, we may consider that, by the terms of the same agreement, Snyder becomes liable for, and agrees to pay to Strang and Platt, "an amount equal to one-third of all losses," not of the firm, but "that they may sustain or be chargeable with, by reason of their connection," not "as co-partners" simply, but "as co-partners, or otherwise, with the firm of Strang, Platt Co." We have examined all the cases referred to by the learned counsel for the appellant, and can find none which sustains his position, that, by such an agreement, Snyder became liable for the debts of the firm. It has been seen that, in the case before us, the agreement is, in terms, with Strang and Platt; they are to pay the defendant one-third of the profits which they receive from their interest in the firm, and he is to pay to them an amount equal to one-third of the losses which they sustain. The cases referred to rest on contracts with a firm or an individual trader; (Leggett v. Hyde, 58 N.Y., 272); or are between persons engaged in a joint enterprise; (The Manhattan Brass Co. v.Sears, 45 N.Y., 797; Walden v. Sherburne, 15 J.R., 409;Ontario Bank v. Hennessey, 48 N.Y., 545; Chase v.Barrett, 4 Paige, 148; Champion v. Bostwick, 18 Wend., 175;Cushman v. Bailey, 1 Hill, 526; Catskill Bank v. Gray, 14 Barb., 471; Hodgman v. Smith, 13 id., 302; and all rest upon the rule stated in Grace v. Smith, 2 Wm. Bl., 997), that he who takes a moiety of all the profits indefinitely, shall, by operation of law, be made liable to losses, if losses arise, upon the principle that, by taking a part of the profits, he takes from the creditors a part of that fund which is the proper security to them for the payment of their debts. "This," says EYRE, Ch. J., in Waugh v. Carver, 2 H. Blackstone, 235, "was the foundation of the decision in Grace v. Smith, and I think it stands upon the fair ground of reason." This covers the case of one taking profits, as such, from the partnership property or the firm, but has no relation to a case where the profits are first to be earned and received by one person before the other can have any claim upon any part thereof.

No action would lie against the firm in favor of Snyder. If the firm earned profits, Snyder could not compel a division, for in the general profits of the firm he has no interest. There is no privity between himself and the firm; and if he sued Strang and Platt, he could recover only on showing that they had received profits; that they were earned would not be sufficient. He has no claim against the firm, or cause of action as principal. He must make out his case through Strang and Platt; and this consideration alone would seem to be a decisive answer to the plaintiff's demand, for the plaintiff claims by virtue of the agreement, and not because Snyder has done anything to induce the plaintiff to deposit his money with the firm, relying on his responsibility, or his relation to the firm.

We are of opinion that the plaintiff, on the facts found by the referee, has no cause of action against the defendant, Snyder; and that the judgment should be affirmed.

All concur.

Judgment affirmed.