Ashley v. Dowling

Rugg, J. This is an action of contract brought against certain persons as partners. The facts as to the alleged co-partnership are that in 1886 a voluntary trading association was formed under the name of “ Knights of Labor Co-operative Store Association” for the purpose of carrying on a general country store. Certain by-laws were adopted, which provided among other things for the issuance and transfer of an unlimited number of “ shares of stock,” each of a par value of $5, for the general conduct of a store business through a salesman under the supervision of an executive committee, for interest on the capital at the rate of six per cent per annum, payable semiannually, for the setting apart of five per cent on the net profits as a sinking fund, and the quarterly payment of the balance of such profits to purchasers as “ dividends ” in proportion to the amounts of their respective purchases, for accumulation of uncollected interest or dividends to the credit of the several members of the association, and the transfer of uncollected dividends on purchases by non-members to the sinking fund. Shares were issued from time to time, and regular meetings were held for several years, but none after 1894. One Mahoney entered the employ of the association as salesman when it began business, and so continued until 1908, when it ceased to do business. In 1891 he was elected at a regular meeting of the stockholders a member of the executive committee and treasurer, and continued without subsequent election to hold these offices until 1908. He did all the buying and issued, and received money for, stock. Interest was declared annually to the shareholders, up to the time the store was closed, at the rate of six per cent, save that for four or five years the stockholders voted to pay themselves eight per cent. Financial reports were made by Mahoney to the executive committee from time to time, except toward the end of the business. The plaintiff had sold goods to' the store, and from time to time took notes, which were always [317] signed “ Knights of Labor Co-operative Store Association, by George A. Mahoney, Treasurer,” and which were paid. The indebtedness for which this action is brought was incurred subsequent to the purchase by defendants of any stock they held. All the time after the first year of the business, it was the custom of Mahoney to buy goods on credit, and give notes in payment. No objection was ever made by any stockholder to the method in which Mahoney conducted the business. A voluntary unincorporated association of individuals for the purpose of conducting business, whose proportions of ownership in the assets are represented by certificates having similarity to shares of stock in a corporation, has repeatedly and uniformly been held to be a partnership. Tappan v. Bailey, 4 Met. 529. Hoadley v. County Commissioners, 105 Mass. 519. Taft v. Ward, 106 Mass. 518. Edwards v. Warren Linoline & Gasoline Works, 168 Mass. 564, 566. See Opinion of the Justices, 196 Mass. 603, 614, 627; Merchants’ National Bank of Cincinnati v. Wehrmann, 202 U. S. 295, 300. The defendants undertake to distinguish the present case from these on several grounds. It is urged that because the income, which might be received by the stockholders, was limited by the by-laws to six per cent, they were creditors and not stockholders. A like provision was in the by-laws of the association under consideration in Ricker v. American Loan & Trust Co. 140 Mass. 346, but it was nevertheless held to be a copartnership. Moreover, the stockholders varied this rate by increasing it for several years. There is also here a by-law for the establishment of a sinking fund, but no regulation for its use or ultimate disposition. If this fund had been kept intact and regularly increased, it might have become a substantial sum. Its ownership would have been in the association. Its distribution, in case of the winding up of the association, would have been among the stockholders in the nature of profit sharing. It is argued that the purchasers of goods were really the persons for whose benefit the business was carried on. But the purchasers were not associated in the enterprise. They had no voice, directly or indirectly, in the management and are not anywhere recognized in the plan of the association as having a proprietory relation to it. They were under no obligation to collect [318] their so called “ dividends ” on purchases, and if these were not collected they were not credited on the books of the company to the purchasers, but transferred to the sinking fund, which was in its last analysis for the benefit of the stockholders. The phrase of the by-laws in describing its members as. “ stockholders ” indicates a participation in the fortunes of the venture. Dividends or interest uncollected by the stockholders was carried to their credit on the books, and not transferred to the sinking fund. The device of dividing a large share of the profits among the purchasers was well adapted to advertising the business. It cannot have the effect of making such purchasers members of the association against the language of the by-laws. It is immaterial, so far as the rights of creditors are concerned, that the by-laws have not in all respects been strictly complied with. The so called stockholders, when they paid in their money, became copartners with the other associates, and subject to the general principles of the law of partnership, both as to rights and liabilities. The members are not exempt from the ordinary rules governing partnerships, because there were a large number of partners, who for their own convenience as to internal management adopted articles of copartnership, which they called by-laws, nor are these regulations without express notice imposed upon those who deal with them on the basis of their apparent and real connection with each other. If persons choose to avail themselves of the advantages of a partnership for business purposes, they cannot escape the responsibilities accompanying such a relation. Tyrrell v. Washburn, 6 Allen, 466. Phillips v. Blatchford, 137 Mass. 510, 513. The right of a business partnership to buy upon credit and make notes for goods purchased cannot be doubted. The act of one partner in this respect within the apparent scope of the business binds his co-partners. It does not appear whether Mahoney was a stockholder, and thus a partner. But he was one of the executive committee, which was charged with general oversight of the affairs of the association, and he conducted the business. If not a partner by reason of membership in the association, he was by some or all of the partners, without objection from any of them, appointed managing agent, and served as such for many years. Under familiar principles of the law of agency, he was empowered [319] in behalf of the copartnership to incur such indebtedness as the ordinary conduct of the business required. Although the authority of an agent to execute commercial paper in the name of his principal must be clearly shown, and may not be implied merely from general authority to do business, Brown v. Parker, 7 Allen, 337, 339, in the present case it may be inferred from the exercise by Mahoney of buying on credit and paying therefor by notes since the first year of the business, which must have been with the knowledge and consent of those partners who took any interest in the business. If the others did not avail themselves of their rights of supervision as partners, they cannot now complain. It does not appear that any limitation upon Mahoney’s authority was known to the plaintiff. The nature of the association was not such .as to give warning of limitations upon the liabilities of members or the powers of agents, as in Volger v. Ray, 131 Mass. 439, and Ray v. Powers, 134 Mass. 22. It was not necessary to show any knowledge of the particular transaction on the part of the defendants. It is plain that the by-law,* upon which the defendants rely, is regulative merely of the retail trade, and does not purport to govern the conduct of wholesale purchases of stock. The defendant Graham contends that there was not sufficient evidence to support a finding that he was a member of the association. It appeared from his own testimony that he paid $5 for a share about the time the store was started, and although he never received cash interest on the share, might have received it in way of goods, that he “ never saw the stock ” and did not remember that he ever had a certificate or had forgotten it, and that he never attended meetings nor received notices of them nor had a copy of the by-laws. The payment for the share of so called stock was all that was necessary to constitute him a partner, entitled to share in profits and responsible for losses. It. is immaterial upon the question of his liability that he may not have received a certificate of stock nor attended a meeting of the [320] association nor had any knowledge as to the business of the firm. Boston & Albany Railroad v. Pearson, 128 Mass. 445, 449. Under the terms of the report, the case is to be sent to an auditor for the single purpose of determining the amount of the plaintiff’s claim, and judgment is to be entered in his favor for the amount so found. So ordered. Footnotes [*] The by-law referred to was as follows : “ Cash System. The stock in trade shall be, as far as possible, pure in quality, and the sales made at the prevailing retail price, and the cash system strictly enforced; provided, that this article shall not be construed as preventing the salesman from exchanging commodities as stock in trade; but no checks shall be given in exchange.”