Merrall v. Dobbins

Opinion by Mr. Justice Fell, The question raised by the case stated is whether Richard J. Dobbins and Hugh F. Griffin were partners as to third parties in conducting the business of the Howland Hotel at Long Branch in 1892. Their relation is to be determined entirely by the agreement into which they entered, as no facts outside of it are stated. By the first three clauses of the agreement Dobbins leased the Howland Hotel together with all the personal property on the premises for three months to Griffin for $20,000, payable in four equal installments. Thus far the agreement is a lease, but at this point in form, substance and apparent intent the similitude ceases. The additional provisions inconsistent with the relation of lessor and lessee, which indicate a joint interest between the parties as owners of the business, are in their order as follows: (1) that Griffin shall give his undivided attention and devote his best energies to the promotion of the business to be done on the said premises; (2) that Dobbins or his representatives shall have the right of free access to the premises at all times; (3) that in addition to the sum of $20,000 Dobbins shall have 80 per cent of the net [486] profits derived from all of the business' done on tire premises; (4) that in addition to the current expenses of the hotel and the business done therein there shall be charged to the expense account the cost of insurance, water and sewer rents, license fee,-interior repairs, and the salary of a person to be designated by Dobbins who shall keep the books and act as cashier, receive all money, deposit it in his own name, and make all payments ; (5) that at the termination of the agreement a statement shall be made of the business done, and that Griffin shall receive 20 per cent of the net profits; (6) that at the expiration of the lease Dobbins shall pay to Griffin $1,000, and that Dobbins shall have the light at any time upon 24 hours’ notice to annul the agreement and assume sole and exclusive possession of the property; (7) that Griffin shall have absolute control and management of the business during the continuance of the agreement, and assents to a transfer of the license if the agreement shall be annulled. This agreement is called by the parties a lease, and it provides that Dobbins shall not be liable for the business done or for the debts contracted by Griffin. In favor of construing it as a lease it may be said that its unusual provisions are explained by the unusual character and use of the property. Yaluable real estate and a large amount of personal property were being used for a business that was precarious. The season was short and the outcome uncertain, and dependent upon conditions beyond the control of the lessee. To apportion the rent under such circumstances so that a part should be fixed and certain and a part conditional was a reasonable and not unusual business arrangement, and the provisions were to ascertain and secure the payment of the conditional rent. This construction however makes a new agreement for the parties. It assumes what they do not say, that the 80 per cent of the net profits derived from the business is to be paid as additional rent. The rent named is $20,000, and this amount is twice named as the total rent. The 80 per cent of the net profits is in addition to the rent. It cannot be considered a part thereof without disregarding the words used and giving effect to an undisclosed intention. The difficulties in the way of considering the agreement a lease are insuperable. The lessor is given a share of the profits, not a sum proportionate to a [487] share, and not as rent but directly as profits. He has the right of access to the premises at all times and for all purposes ; to appoint a bookkeeper and cashier who shall receive all moneys, make all payments and retain possession of the balance. He has the right to an account, and is bound to pay his lessee $1,000, and can at his option with or without cause terminate the lease. The lessee contracts for the exclusive control of his own business, and covenants to give it his entire time and attention; he is forbidden to keep his own books or to touch a dollar of his own money; he can neither receive nor pay any money derived from his business, and has no control of the net balance; he gets nothing until the end, when after the statement of an account he is to receive 20 per cent; at the expiration of the term or its earlier termination at the will of the lessor he is to be paid by the lessor $1,000, and this in any event, whether there are profits or not. These are not the characteristics of a lease, but of a partnership. The business to be carried on is not spoken of as the business of Griffin, except in the single instance where it is provided that “ the party of the first part shall not in any wise be liable for the business done by the party of the second part.” In all other parts of the 'agreement it is spoken of or referred to as “ the business done on the premises.” It is to “ the business done on the premises ” that Griffin is to give his whole attention, of it that the bookkeeper is to take charge, an account to be stated and the net profits ascertained, and from it that he is to be paid and the parties to receive the one 80 per cent and the other 20 per cent. The business of which the agreement speaks and of which an account is to be kept, a statement made and the profits divided, is the business of a distinct entity, a partnership, in which the parties ‘ are joint owners and in which thejr share as proprietors. This seems to be the only fair conclusion to be drawn from the acts of the parties. The agreement is our only guide. If it is evidence of the intention of the parties to become joint'owners of the business to be carried on we need not consider whether they became partners against their will by operation of law. We are not concerned with the question whether the lauf of the state by which .the contract as governed is in harmony with the old English rule of Grace v. Smith, 2 Wm. Blackstone, 998, and Waugh v. Carver, [488] 2 II. Blackstone, 235, which makes participation in the profits conclusive of the liability of the participant to creditors without regard to the agreement or intention of the parties, or with the modern rule of Cox v. Hickman, 8 H. L. C. 268, under which a participation in profits is held to be strong but not conclusive evidence of a partnership, and the whole transaction is taken into consideration in order to determine whether the relation of partners was to be created. If there was a partnership .resulting from intention, all other questions drop out of the case. The judgment is affirmed.