In re Assigned Estate of Haines & Co.

Opinion by Mr. Justice Mitchell, The court below placed its decision on the written agreement of January 13,1887, between the members of the firm of Wood, Brown & Co., holding that it made all of that firm partners in — 361 — the firm of Granville B. Haines & Co. But the learned judge in his brief opinion overlooked the distinction between participation in profits as such, and a compensation or consideration merely measured by a proportion of profits. While this distinction was admitted in Edwards v. Tracy, 62 Pa. 374, 381, to be “ of a very refined and shadowy character ” it was held to have been “ authoritatively established .... and it is entirely too late now to question either the rule or the exception.” The agreement of January, 1887, nowhere provides for a participation in profits as such. Its language is “ the said parties of the first part will at the dissolution of said copartnership (G. B. Haines & Co.) pay over to the said parties of the second part .... a sum equal to twenty-eight and two tenths per centum of the profits,” etc. No agreement of Wood and Brown without the joining of Haines and the other partners could make any outside persons partners in Haines & Co., nor did this agreement attempt to do so, for even as to Wood and Brown there was no obligation to pay until their profits had been actually received by them, and then it was not a share but a sum equal to a share that was payable. If Wood and Brown had become individually insolvent, owing the parties of the second part, and having undeclared profits in Haines & Co. the parties of the second part could not have called upon Haines & Co. to declare and account for profits to them for they had no title to profits as such even against Wood and Brown. The agreement of 1887 is not a contract of partnership at all, either as regards G. B. Haines & Co. or Wood, Brown & Co. It is a contract of indemnity only, between W ood and Brown of the first part, and Henderson, Crowe, Jenkins, Harper and Wilson of the other part. The firm of Wood, Brown & Co. is not a party to it, or even mentioned in it at all. The fact that the seven persons concerned in the contract were also the members of the firm of Wood, Brown & Co. was immaterial as a matter of law. The legal effect would have been the same if the contract had been between Wood and Brown and X, Y and Z, strangers who agreed for the consideration named to indemnify Wood and Brown in the proposed venture, and whose right to have the debits and credits of Haines & Co. and Wood, Brown & Co. with each other settled on a strictly distinct basis could not have been questioned. The judgment cannot be sustained on this agreement. — 362 — The auditor reached the same conclusion but by, a different process, based on the acts and declarations of the parties, the oral testimony, and the agreement of January 13,1887, treated as merely an item of evidence in the inquiry for the intentions of the parties and the actual relations of the two firms. This ground of conclusion however is no more tenable than the other. The auditor finds that Wood and Brown were the representatives of Wood, Brown & Co. in Haines & Co., and that the two firms were practically one, and therefore Wood, Brown & Co. could not claim as a creditor of Haines & Co. while other creditors remained unpaid. This view as already discussed is contrary to the legal effect of the .written agreement. It is not worth while to consider that part of the argument which denies that the circumstances of the case were such as to justify a court in going behind the writing to inquire into the real intention of the parties, because we are of opinion that even conceding that much, the auditor’s finding is against the evidence. The facts are practically undisputed and the question is of the proper inference to be drawn from them. A general statement is all that is necessary. The firm of Wood, Brown & Co. was formed for a term of five years from January 1, 1886. In the latter part of 1886, Wood and Brown who were the senior partners and the capitalists of the firm, proposed that the firm should buy out Cooper & Conard who had a retail business of similar kind next door. The junior partners objected that the proper business of Wood, Brown^ Co. would . suffer, because among other reasons customers objected to dealing with a wholesale house which had a retail branch and because it would lessen the financial ability of the capitalist partners in their own firm, and would withdraw part of the time and attention of Brown which were due to their own business. The auditor reports that “ The question remained under discussion in an entirely informal way for a month or more, but eventually the junior partners consented to do what Wood and Brown wanted.” This brings us to the crucial question, what was it that the junior partners did consent to ? As to this the auditor reports, “ Exactly what was to be done to carry out their wishes was not exactly or succinctly stated. It was known to some if not all of the junior partners that the business of Cooper & — 363 — Conard was to be bought by a new firm wliich was to be a limited partnership, and that Granville B. Haines was to be interested in it and give it his name; but what the extent of Wood, Brown & Co.’s interest was to be, or where the capital to represent that interest was to come from was never discussed or stated.” It is just here that the auditor makes the misstep which, led to his erroneous conclusion. He assumes, without expressly finding the fact, that the firm of Wood, Brown & Co. was to be “interested,” i. e. partner, in the new firm of G. B. Haines & Co., and that Wood and Brown were to go into that firm not in their individual capacities but as representatives of Wood, Brown & Co. The evidence will not bear this construction. Pursuing the same view the auditor then recites the agreement of January 13,1887, and continues, “ This agreement was intended by all parties to represent the proportions in which the profits, to be made by the firm of Wood, Brown & Co. in the firm of Haines & Co. were to be divided and the losses, if any, shared.” As we have already seen this is exactly what Jhe agreement does not do. The firm of Wood, Brown & Co. was not party to it, was not even mentioned in it, and it was a contract of indemnity between Wood and Brown on one side with Henderson, Crowe, Jenkins, Harper and Wilson on the other, which might just as well have been with five strangers so far as concerned its legal effect on the firm of Wood, Brown & Co. What then do we have ? A proposition made and objected to, an informal discussion prolonged for a month or more, then a yielding of objections and a consent, but what was to be done “not exactly or succintly stated,” and finally, the parties with the aid of counsel putting their agreement formally into writing. .It would be difficult to imagine a case calling more strictly for the enforcement of the rule that all prior negotiations are merged in the writing which is to be the sole evidence of the intentions of the parties. But if we look beyond the writing what is the evidence ? We must start with the inherent incredibility that five men, partners in a large business but not themselves capitalists, would embark their firm and their firm’s capital in an additional enterprise of a different though somewhat similar character, without as the auditor reports it, “ the extent of the firm’s interest, or where the capital to represent that interest was to come — 364 — from, being ever discussed or stated.” Coming then to tbe parol testimony, the five junior partners deny positively and emphatically that there was any agreement, outside of the writing, that there was any intention that the firm of Wood, Brown & Co. should become partner in Haines & Co., or furnish any capital to it and any knowledge that Wood and Brown were using the firm capital for that purpose. Ón the other hand both • Wood and Brown speak in a general way of the intention that the firm should go into Haines & Co., but when broughtsquarely to the pinch of the question whether there was any other agreement than the one in writing refuse to say so. One or two other small items such as the sale of goods by Wood,-Brown & Co. to Haines & Co. at cost, and loose talk that the latter firm was the retail branch of the former, are not worth serious consideration. That the relations of the two firms were close, and.that there were large transactions between them both in money and in goods is entirely clear, but we find nothing to justify the inference of a partnership. Several creditors of Haines & Co. and others as appellees have supported the judgment with arguments varying almost as much from each other as from that of the appellant. What has been already said disposes of the whole case on the main ground of contention, but one or two other suggestions may be briefly noticed. It is urged that the assignee, appellant, is not entitled to prove against the fund until the accounts between the partners of Wood, Brown & Co. shall have been settled, and then only for the amount that may be found due to the partners other than Wood and Brown. In other words that Wood and Brown being partners in the debtor firm cannot be creditors also of that firm as against other creditors. But this argument overlooks the effect of the insolvency of Wood, Brown & Co. The moment that fact is ascertained the creditors acquire a right to all the assets of that firm, among which undoubtedly is their claim against Haines & Co. If Haines & Co. were solvent there could be no question of the validity of this claim, although Brovin and Wood might be creditor partners ; the right would be in the creditors of Wood, Brown & Co. as a firm without réferghce to the status of the individual partners in either firm — 365 — among themselves. And the insolvency of Haines & Co. does not change the rights of Wood, Brown & Co.’s creditors. As to their respective creditors the two firms are separate and distinct entities, and the assets of each are a separate fund for its own creditors, just as the firm assets and the individual property of the partners are separate funds for partnership and individual creditors in ordinary cases, although the partners are equally debtors to both. Each class has a prior claim on its own fund, and only a secondary or postponed claim on the other after the latter’s preferred creditors are satisfied. The validity of the appellant’s claim on its merits is also attacked. It isjdoribtful if any such question is really before us, as there was no exception on this subject in the court below, and of course there is no complaint by the appellant. But to avoid all further difficulty it may as well be disposed of. The auditor finds that “the right of Wood, Brown & Co. to recover back the $75,000 paid in as the capital of Wood and Brown, and the further question of the bona fides of the transaction by which the charge against Haines & Co. for $100,000 worth of merchandise was wiped off the books of Wood, Brown & Co. without the payment of any consideration whatever,” depend on the real relation of the two firms to each other. As we now hold that the relation was that of separate debtor and creditor firms, that makes an end of this contention. The use of the firm’s money by Wood and Brown for their contribution to the capital of Haines & Co. and the debiting of their firm $75,000 for that purpose on Haines & Co.’s books were without the consent or knowledge of the other partners, and therefore unauthorized if not fraudulent. Calling it capital on the books of Haines & Co. did not change the character of the act. Haines & Co. got the credit in their accounts without being entitled to it, and afterwards charged Wood, Brown & Co. in the same way with $100,000 worth of merchandise which the latter never bought or received. No subsequent juggling with the accounts in the books could make these anything else than debts, or amount to payment. Decree reversed, and the claim of appellant directed to be allowed.