Hart v. Kelley

Mr. Justice Paxson delivered the opinion of the court, January 29th 1877. The rule of law formerly prevailing, that participation in the net profits of a business made a participant liable to third parties as a partner, has been greatly modified in England and this country. Thus, in Dean v. Harris, and Harris v. Butterfield, Law Times Reports, N. S., vol. 33, p. 639, Butterfield, who was a person .of small means, applied to Harris to advance him money for the purpose of developing certain mines. Harris consented to lend Butterfield 2000Z., upon certain terms, viz.: That B. having entered into an agreement to take a lease of the Leycett mines, that the said mines be worked under the style or firm of the Leycett Mining Co.; that said H. find capital to work the mines to an extent not exceeding 2000Z.; that the money so advanced shall be repaid with 20 per cent, interest; the said H. to be paid 3d. per ton on all coal and iron stone, by way of commission. The said B. to be paid 200i. per annum by way of salary, but not to take date until the sum or [291] sums advanced by said H. be repaid; said B. to promote the interest of the concern and continue in receipt of salary so long as he should conduct the business to the satisfaction of II. After payment of the above, and costs of raising and preparing and delivering to market the product of said mines, said H. shall be entitled to three-fourths of the profits, and all the net proceeds of the concern to be disposed of in the like proportion; said H. to be free from all liability except in respect of the money advanced by him. The vice-chancellor held, that there was no partnership, saying: “All that H. did was consistent with his character as capitalist, assisting B. in carrying on business. All that is said to constitute a partnership. If it could, it would be most unsafe for any man to lend a tradesman any sum of money, and to look after the best means he could get for its repayment.” Mollroo, March & Co. v. The Court of Wards, Law Rep. 4 P. C. 419, is perhaps a stronger case than Dean v. Harris. To the same point is Cox v. Hickman, House of Lords Cases, vol. 8, p. 268. In this state the Act of 6th April 1870, Purdon 1121, pi. 15 (Pamph. L. 56), expressly provides that, “ it shall be lawful for any person or persons to loan money to any individual, firm, association or corporation, doing business in this Commonwealth, upon agreement to receive a share of the profits of such business as compensation for the use of the money so loaned, in lieu of interest, and such agreement, or the reception of profits under such agreement, shall not render the person or persons liable as a co-partner in such business to other creditors of such individual, firm, association, except as to the money loaned,” &c., &c. It is by the light of the law thus modified by judicial decision and legislative enactment that we must examine and construe the agreement of December 13th 1875, which was attached to the supplemental affidavit of defence, and forms a part thereof. We assume that the court below held, that this agreement, as to the parties thereto, created a partnership inter se. In any other view of the case the supplemental affidavit of defence was ample to prevent judgment. The agreement was,evidently drawn by a layman and was probably intended to come within the provisions of the Act of 1870. So far as the defendant below is concerned, it provides for two things, viz.: 1st. A loan or advance by him to Faucett and Pincus of such an amount of money as may be necessary to enable the latter to carry on the restaurant at No. 1220 Chestnut street for one year; and 2d. A division of the profits after such loan or advances are repaid. If the defendant can be held liable at all to creditors under said agreement it must be by reason of his right to a participation in the profits. It is not alleged that he held himself out to the world as a partner, and that any one was induced to give credit to Faucett and Pincus by reason of his connection with them. The advance of the money would not of itself constitute the defendant a partner. The participation in [292] the profits might make him one, but not necessarily so. It would depend upon the intention of the parties as expressed by the terms of their agreement. There were to be no profits divided until the advances were repaid. If, as was alleged upon the argument, no profits were ever made, and of course none divided, and the advances were not even repaid, the time never arrived when the defendant became a partner by reason of his participation in the profits. This was precisely the case in Dean v. Harris, supra, in which the vice-chancellor held that a participation in the profits might have made Harris liable as a partner, but inasmuch as the business was unprofitable and no profits were ever made, he could not be held for such reason. Here the defendant pointedly denies any participation in the profits. Such denial ought to have carried the case to a jury. Again, he swears distinctly, that he never acted under said agreement, being unable to comply and advance the money, and that as to him said agreement was rescinded immediately after its execution. If this be so, and we are bound to assume it, he would not be liable in any view we may take of the agreement, for any debt incurred after his withdrawal, at least not to a creditor who never had knowledge of said agreement, and never trusted Eaueett and Pincus on that account. Aside from all this, however, this suit is for a claim against Eaueett and Pincus, upon a contract made with them prior to the agreement of December 13th. Eor the purposes of this case we must treat said agreement as of the date of January 7th, the defendant having sworn that the date of December 13th was erroneous. A large proportion of the work was done prior to January 7th. Assuming the defendant to have become a partner, he did not assume the debts of Eaueett and Pincus. There is not a word in the agreement which binds him to pay any of their old debts. A partner who enters a firm already established, does not thereby become liable for the debts of the old firm. Nothing but an express agreement will render him so liable. If it be said that as to so much of the work as was done after January 7th, it enured to the benefit of the defendant, the answer is that the fact is not so. He acquired no title to the leasehold and fixtures by reason of the agreement. They were, and continued to be the property of Eaucett and Pincus. The clause in the agreement that “ the cost of fitting up the said premises, as well as all outlay for furnishing, &c., shall be considered as expenses to be first deducted before dividing any profits,” does not render the defendant liable for a debt which he never contracted. In the most favorable light for the jolaintiff, it is but an assumption of his claim so far as there may be profits out of which to pay it. He merely agrees that it may be paid out of profits before his own claim for advances. This imposes no personal responsibility upon him. We think this case ought to have gone to a jury. We therefore reverse the judgment and award a procedendo.