First National Bank v. Staples

Martin, J. It seems to be settled in this state that persons who have a proprietary interest in a business and in its profits are liable to creditors as partners. Magovern v. Robertson, 116 N. Y. 61, 22 N. E. Rep. 398; Hackett v. Stanley, 115 N. Y. 625, 22 N. E. Rep. 745. It seems to be equally well settled 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 compensation for services or 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. Richardson v. Hughitt, 76 N. Y. 55; Eager v. Crawford, Id. 97; Burnett v. Snyder, Id. 344, 81 N. Y. 550; Curry v. Fowler, 87 N. Y. 33; Cassidy v. Hall, 97 N. Y. 159; Keogh v. Minrath, 8 N. Y. Supp. 816. The important question presented by this appeal is whether the respondents under the agreement between themselves and Howard So Underhill acquired a proprietary interest in the business of that firm, and its profits, so as to make them liable as partners for the debts contracted by it. The appellant contends that the agreement between the firm of Howard & Underhill and the respondents contains all the elements necessary to constitute a copartnership, and to render the respondents liable, as copartners, to third persons dealing with that firm. It claims that this agreement discloses (1) that there was a loan of money by the respondents to be used in the business of the firm to which it was made; (2) that the respondents reserved to themselves a right to participate in the management of the firm business; and (3) that the respondents possessed an ownership of a share of the profits of all the business of the firm. We do not think this contention can be sustained. An examination of the agreement between the parties shows that the respondents agreed to loan to the firm of Howard So Underhill $25,000. The purpose of this loan, as indicated in the agreement, was to obtain money with which to pay the debts of the firm of 812 Howard & Underhill, as well those that were due as those that were to become due. We find no provision in the agreement that this money should be used in any business in which the respondents were to become interested. The respondents were given no power or control as to its application or disposition. It was a loan to that firm, and it could dispose of the money as it saw fit. We fail to find any provision in this agreement which gave the respondents any right to participate in the management of the general business of the firm of Howard & Underhill. The firm of Howard. & Underhill, as security for the payment of the money loaned them, were to give the respondents their notes. As collateral security for the payment of that debt they also transferred to the respondents certain specified property, with the right of possession, and the right to sell the same, and thus procure the money to satisfy their debt. They also agreed to give the respondents certain mortgages as further security, with the right to the possession of the property mortgaged, and to retain such possession with the use thereof until the loan was paid. The respondents were authorized to perform no services, and had no interest in the general business of the firm of Howard & Underhill. The only services the respondents were authorized to perform, and the only interest they had in the management of any business was under and by virtue of the transfer to them of the property of Howard & Underhill. The services which might be performed by the respondents related to the property transferred to them as security, and to the collection of their debt. That business was their business, and was wholly independent of the general business of the firm of Howard & Underhill. Ñor do we think the respondents possessed any ownership in the profits of the business of the firm of Howard & Under-hill. The loan was without interest. Services might have to be performed by the respondent's in collecting their debt, and looking after the property transferred to them as security therefor. As a measure of the compensation to be paid for such services, as they might have to render and for the use of the money loaned, the respondents were to receive the proportion of the profits named. They acquired no interest in these profits as such, but they were only interested therein as a means of compensation for the use of their money, and their trouble in converting the property transferred into money to pay their loan. The agreement between these parties shows that its purposes were threefold: (1) To provide for a loan of money by the respondents to the firm of Howard & Underhill; (2) to provide security for its repayment and a special method of enforcing such security; (3) to establish the measure of the compensation to be received by the respondents for the use of the money loaned by them, and for any services they might perform in enforcing their security and collecting their debt. We do not think the respondents by this agreement acquired any such proprietary interest in the business of the firm of Howard & Underhill, or in its profits as to make them liable as partners for the debts of that firm. Moreover, there is no evidence in this case to show that the notes upon which the appellant sought to recover in this action were given by Howard & Underhill in any business in which the respondents had any interest whatever. We think the court properly nonsuited the plaintiff, and that the judgment appealed from should be affirmed. Judgment affirmed, with costs. All concur.