Irwin v. Bidwell

The opinion of the court was delivered, by Sharswood, J. — There are three classes of cases in which parties may become liable to third persons as partners: 1st, When they are actually partners inter se by express agreement. 2d, When not being partners inter se, or entitled to any share of the profits, they hold themselves out to the world as such by acts or declarations, and the particular creditor who sues trusts them as partners on the faith of such acts or declarations. 3d. When there is an agreement to receive a share of the profits as such and not a mere commission on profits, or a sum equal to a certain share of the profits, as a compensation for services. [250] It has not been, and cannot be, maintained that the facts of this case bring it within either of the two first classes. If there were any acts amounting to a holding out to the world as partners, there was no evidence that the plaintiffs gave credit to the defendants upon the knowledge and faith of such acts. Nor was there here any agreement to participate in the profits. The written contract by which Jones undertook to pay Bidwell and Phipps thirty cents a barrel upon every barrel of oil refined at his refinery had no relation whatever to the profits of his business. That agreement, considering the stipulated sums as a compensation for the advances made by Bidwell and Phipps, was clearly usurious, and could not have been enforced beyond the lawful rate of 6 per cent, per annum on the amount of the loan. Nothing can be more manifest than that a loan at an usurious rate of interest to a person to be employed in his business does not make the lender a partner: Parsons on Partn. 141, 142. Supposing, however, the objection of usury to be out of the way, and the agreement not to be affected byjhat taint, Bidwell and Phipps were entitled under its terms to thirty cents upon every barrel of oil refined, whether the business in which Jones was engaged and in which the money was to be invested turned out to be a profitable or losing one. Nor had they any right to call for an account other than of the number of barrels refined, nor had they any equity or lien superior to that of any other mere creditor of Jones by virtue of that stipulation. Had he proved insolvent (apart from their mortgage security) they must have come in pro rata with all his other creditors, whether for debts contracted in carrying on that business or on any other account. If this be so, and we think that it clearly is so, then the other provisions of the contract relied on do not alter the case. Certainly the bond and mortgage, which were mere securities for the advance, cannot change their relation from that of creditors to partners. A mortgage on partnership property to a partner for capital invested puts him in no better position than he is without it. Subject to partnership debts he has such a lien as against his partner, and as to partnership creditors it would not avail him. The provision for insurance on the stock, and the assignment of the policies to the creditors, is not an uncommon one, and is intended merely as further security. So the provisions regulative of the conduct of the business that Jones should not pursue a speculative business nor contract to sell refined oil without having first secured the crude materials for the manufacture of' the same. These, as well as the stipulation that the posting of the books should be done by persons satisfactory to Bidwell and Phipps, and that they should be open to their inspection, were evidently intended for their better security as creditors. We do not say, for the evidence in the case does not render it necessary, that if all these' provisions had been known to Irwin & Co., the plaintiffs, and it had been shown that [251] they gave credit to the defendants as partners on the faith of them, it would not have been such a holding out to the world as partners as would have made them liable as such. Had the consideration of the contract been anything else than an advance of money to be invested as capital in the business, the idea that it created a partnership would hardly have occurred to any one. Had Bidwell and Phipps undertaken to render their personal services in the business, to be paid for at so much per barrel of oil refined — had they been producers of oil and sold their crude products to Jones to be paid for in the same way — had they been the owners of the store in which the business was carried on, and demised it for a rent or consideration to be ascertained by the amount manufactured or sold — the case would not have admitted of an argument, for authorities in abundance could have been produced which settle it. A landlord who demises to a tenant on the shares — who lets a tavern or a colliery — as well as a clerk or salesman who gives his attention and services on the same terms, have often been decided not to be liable as partners: Parsons on Partn. 144; Heckert v. Fegely, 6 W. & S. 139; Dunham v. Rogers, 1 Barr 255; Perrine v. Hanninson, 6 Halst. 181; Putnam v. Wise, 1 Hill 284; Blue v. Leathers, 15 Illinois 81; Chase v. Barrett, 4 Paige 148 ; Bowyer v. Anderson, 2 Leigh 550; Tibbatts v. Tibbatts, 6 McLean 80. It only remains to advert to the argument founded on the supposed effect of the stipulation in the contract by which Bidwell and Phipps had the option to become partners at any time before January 1st 1870. If they should so elect, their advances weye then to be considered as capital invested by them from the beginning, and they were to participate in the profits to the extent of three-tenths, and to be liable for debts and losses. Upon what principle this could make them partners before they actually exercised the option by electing to become members of the firm, it is not easy to comprehend. An agreement between parties to become partners at a future time will not make them such; an inchoate partnership must be complete before liability can attach, as has been expressly ruled in Howell v. Brodie, 6 Bingh. N. C. 44, 87 English Common Law Rep. 272, and the very point in the case of such an option as was here reserved was decided in Gabriel v. Evill, 9 Meeson and Welsby 295; in which Lord Abinger said : “ The defendant clearly was not a partner until he had exercised the option given him of declaring himself such. He never had a right to an account of the profits of the concern.” Judgment affirmed.