H. H. Worden Co. v. Beals

When the question of the existence of a partnership is in issue, the burden of establishing the partnership rests upon the party alleging it. Plaintiff, upon whom rested the burden of proving the partnership, contends that this contract should be construed in the light of the surrounding circumstances and that if so construed, a partnership will be inferred, but since no fact or circumstance, except the terms of the contract themselves were either alleged or proven, there can be no basis for the application of the principle which plaintiff seeks to invoke, and hence in the purchase of the goods, whether Beals was a partner or not, depends wholly upon the legal effect to be given to the contract itself. As said in Parsons on Partnership (4 ed.), Section 41:

"There is ordinarily no difficulty in establishing the existence of a partnership. The relation of the parties is usually fixed by a written agreement, known as ``articles of co-partnership,' which in almost every case provides at the outset for the formation of a partnership, and declares the parties to be partners. But in some cases an agreement, either oral or written, is entered into by the parties concerned, which does not profess to create a partnership, yet it is contended that the effect of the agreement is to create one. A question of much difficulty is then presented, namely; whether the agreement, the terms of which are known, does in fact create that sort of relationship between the parties which the law considers a partnership."

This contract does not in itself profess to create a partnership, nor does it contain any words evidencing any intention upon the part of the contracting parties to enter into a partnership. While this in itself is not conclusive upon the question, yet it is a circumstance tending to show that the parties did not intend to create a partnership when entering into the contract.

All text-book writers seem to agree, that it is much easier to give an illustration of a partnership than it is to give a comprehensive and accurate definition of one; but all agree that there are certain elements which must exist before a partnership can be formed. Professor Page in his work on Contracts, Volume 3, Section 1688 says: "A partnership is a business relation between two or more persons arising out of a contract, by which they agree to unite their property, credit, services, skill or influence in some business, so that they have a community of interest in such business, and usually divide the profits and losses between themselves in a fixed proportion." He also says that in construing partnership contracts, the question of whether they have formed a partnership is to be determined by what they have agreed to do, and not by what they have agreed to call themselves. If the contract contains the elements necessary to make it a contract of partnership, the relationship of the partners is not altered by the fact that they have agreed expressly that they will not call themselves a partnership and if they have entered into a relationship which the law holds to be a partnership, they are partners, although they may not have known the legal effect of their acts, and although they may have called the contract one of employment. He also says that the real test of the existence of a partnership, is community of interest in the partnership business.

In Parsons on Partnership (4 ed.), Section 42, the author states that up to the year 1860 it appeared to be the law in England, that the mere fact that participation in the profits of the business as such, made one a partner as a matter of law, but that this point of view has undergone a remarkable change. He then states: "This rule was however, confined to the case of participation in the net profits of a business; one who had a share in the gross profits of a business, so called, that is, the gross earnings of the business, was not held as a partner even as to third persons." This early English view of the law, that the mere participation in the profits of a business made one a partner as a matter of law, has never received the entire sanction of the courts of this state, for in Cogswell v.Wilson, 11 Or. 371 (4 P. 1130), the court said: "Mere community of interest is not sufficient, but there must be an agreement to share in the profits and loss. (Holmes v. UnitedIns. Co., 2 Johns. Cas. (N.Y.) 329; Post v. Kimberly, 9 Johns. (N.Y.) 470.) Nor will an agreement to divide the gross earnings constitute individuals partners, but there must be an interest in the profits as profits (Pattison v. Blanchard, 5 N.Y. 186; Heims' Heirs v. Howland, 5 Denio, 68), and such profits must be shared as the result of the adventure or enterprise, in which both are interested, and not simply as a measure of compensation. (Ogden v. Astor, 4 Sand. (N.Y.) 311.) These references are sufficient to show that a communion of profit and loss is essential in order to constitute a partnership, and this, it would seem, is the true test to determine whether persons are partners or not."

In Hanthorn v. Quinn, 42 Or. 1 (69 P. 817), it was held that a mere agreement to share in the profits and losses of an enterprise does not of itself create a partnership, nor does the mere participation in the profits and losses of a business in itself alone, constitute a partnership, but there must also be such a community of interest as enables each party to make contracts, incur liabilities, manage the business and dispose of the entire property of the partnership for its purposes in the same manner and to the same extent that all could do if acting together, and it is there said that this rule is the same as to third persons unless the party sought to be charged has so acted as to lead such third persons to believe a partnership to exist and to act upon such belief.

Applying these principles to the facts stipulated, it is obvious that no partnership between Beals and Bennett could result either from the making or the performance of this contract. They were to share only in the gross earnings of the business after deducting a specified sum fixed arbitrarily as the cost to be incurred by Bennett in the purchase of the timber and the manufacture and sale of the lumber. Under this contract Beals was not to have any charge or control over the management of the business. He could not make contracts, incur liabilities, manage the business or dispose of the entire property for any purpose. All that he was to receive under the contract, was $4 per thousand feet and one third of such gross earnings as should remain after deducting an estimated cost of $21 per thousand feet, which sum was to be allowed Bennett as the cost of operation. And since Beals had no community of interest in the business and no common control thereover, no partnership could be created, for where both of these elements are lacking, the sharing of the profits of the business is not sufficient to constitute a partnership. See 1 Page on Contracts, § 1694.

"The true test of partnership, then," as said by the author in Parsons on Partnership (4 ed.), Section 54, "is the intention of the parties. They have agreed together for a certain purpose. If the purpose was the formation of an associated body, different from the individual parties, for which they are thereafter to act, they have formed a partnership. If, however the purpose was the entrance into a relationship in which one of the parties, at least, was to act as an individual solely for himself, without becoming a member of an associated body, there is no partnership formed and the parties are therefore not partners."

A careful reading of this contract will disclose that it was not the purpose of either of these contracting parties to submit the control of his interest under the contract to the other, but that each intended to leave himself free to act as an individual and solely for himself as an individual. Under this contract, the money which Beals was to receive, was to be paid to him as compensation for property sold. Neither party had power to bind the other in respect to anything that he was to do in performing the contract, and each party was to act individually and look after his own interest and not act as the agent of the other. In carrying out the contract, the only relation that could arise, was that of debtor and creditor. There was to be no division of net profits, no community of interest in the capital of the business, or in the property resulting from the performance of the contract, and no common control of the business. Since all of these elements were lacking, no partnership was formed, and since the contract itself conferred no express authority upon Bennett to bind Beals in the purchase of goods and no partnership being formed, Bennett could have no implied authority to incur any liability binding upon Beals.

For these reasons, the judgment against Beals must be reversed and it is so ordered.

REVERSED. REHEARING DENIED.

McBRIDE, C.J., and BURNETT and COSHOW, JJ., concur.