Johnson v. Rothschilds

Hughes, J., (after stating the facts.) Up to the year 1860, the rule in England and America was that participation in the profits of a business was a conclusive test of a partnership. But this rule was overthrown by the case of Cox v. Hickman in the House of Eords in England (8 H. L. C. 260), and the final test was declared to be “whether the business has been carried on in behalf of the person sought to be charged as a partner, i. e., did he stand in the relation of the principal toward the ostensible traders by whom the liabilities have been' incurred, and under whose management the profits have been made?” This is the settled rule in England, and has been very generally adopted in this country. Culley v. Edwards, 44 Ark. 427. In the case of Pooley v. Driver, 5 Ch. Div. 458, decided in England after Cox v. Hickman, and in other cases, it is held “participation in profits, or the right to participate in profits, is cogent evidence, and, standing alone, may be conclusive evidence of a partnership, but in case of a party who has not acted as a principal in the business, and therefore is not ostensibly a partner, may be explained and overcome by other circumstances.” Wild v. Davenfort, (N. J. E.) 57 Am. Rep. 556. In the case of Cox v. Hickman, Eord Cranworth put it in this way (8 H. E. C. 306): “It is often said that the test, or one of the tests, whether a person not ostensibly a partner is nevertheless in contemplation of law a partner is whether he is entitled to participate in the profits. This no doubt is in general a sufficiently accurate test; for a right to participate in profits affords cogent, often conclusive, evidence that the trade in which the profits have been made was carried on in part for or on behalf of the person setting up such claim. But the real ground of the liability is that the trade has been carried on by persons acting in his behalf. * * * * It is not strictly correct to say that his right to share in the profits makes him liable to the debts of the trade. The correct mode of stating the proposition is to say that which entitles him to the one makes him liable to the other, namely, the fact that the trade has been carried on in his behalf, i. e., that he stood in the relation of principal towards'the persons acting ostensibly as the traders, by whom the liabilities have been incurred, and under whose management the profits have been made.” Participation in profits. In commenting upon this statement of Lord Cran-worth, it is said in Pooley v. Driver: “Now what Lord Cranworth means there is quite plain. He says in fact that the participation in the profits is sufficent proof of partnership if there is nothing to get rid of it. If you find an association, and a contract made by the members of the association that the trade is to be carried on, and that they are to share the profits in certain proportions, then that makes a partnership, unless you can show from the surrounding circumstances some other relation. It is not impossible to show some other relation, but, as he says, it is very difficult to do so. It is often conclusive by itself — not always.” And further, it is said: “Now a dormant partner means a person who does- not take an' active part in the conduct of the business, and who may be, and often is, prohibited from taking such active part. Therefore, when the inquiry is whether a man is a dormant partner, it does not appear to me to aid that inquiry by saying that there are provisions preventing his taking an active part in the conduct of the business, or that there are provisions which make it optional for him to take an active part in the business or not. It only shows he is not an active partner.” It is contended that the money that Leopold Berger had in tfie business of B. & H. Berger was only a loan. It is said that the profits paid him were for interest on the money loaned the firm. Sharing profits does not constitute a lender a partner, “though it is a cogent test for trying the question,” and is conclusive unless' there are some circumstances altering tbe nature of the contract. Pooley v. Driver, 5 Ch. Div. 486. In Dubos v. Jones, the supreme court of Florida says : “To constitute a loan in such a case the money advanced must be returnable in any event. It is not a loan, if repayment is contingent upon the profits, for in such case it is made, not upon the personal responsibility of the borrower, but upon the security of the business. Neither must the transaction be a mere device to obtain the benefits of a partnership, without incurring its responsibilities, for in such case, whatever else the parties may call it, it will be construed to be a partnership.” Dubos v. Jones, 16 So. Rep. 392; Harvey v. Childs, 28 Ohio St. 319; S. C. 22 Am. Rep. 387; Pooley v. Driver, 5 Ch. Div. 358. So it seems it is not so much what is said as what is done that constitutes a partnership- Mr. Dindley in Yol. 1, star page 12, says: “Where no .statute interferes, an agreement to share profits is ■prima facie an agreement for a partnership, and accordingly it has been held that, unless an intention to the contrary can be shown, persons engaged in any business or adventure and sharing the profits derived from it are partners as regards that business or adventure.” Citing Pooley v. Driver, supra. This is not in any sense in conflict with Cox v. Hickman, supra; 1 Dindley on Partnership, *page 26, note c. Parsons on Partnership, sec. 46, says: “The result of the English cases seems to be the abandonment of any artificial test of partnership, and the adoption of what must be regarded as the true principle, that parties become partners only by agreeing to enter into an association which the law regards as a partnership. The agreement, either express or implied, to form such an association is the only method by which one can become a true partner. Whether such an association is intended to be formed is a question of fact in each case.” In sec. 54 Mr. Parson says: ‘‘The true test of partnership, then, is the intention of the parties. * * * * * The intention to form a partnership may be expressed in the contract, ■or it may be gathered from all the acts and from all the circumstances which are available for the interpretation or construction of the contract.” See also 1 Lindley on Partnership, *page 10. He says: ‘‘But an agreement to share profits and losses may be said to be the type of a partnership contract,” etc. Never until September 20, 1892, after the firm was evidently, if not insolvent, 'in a precarious condition financially, did Leopold Berger, as far as the evidence shows, demand or receive any note or promise for the repayment of the money he claims to have loaned B. & H. Berger, and he was an experienced business man. If he was a partner, it was a convenient thing to do, when the firm was in a condition that it soon became necessary for it to make an assignment, to take a note for the amount of capital he had in the firm as for so much loaned money for which he might be preferred when the assignment was made, and thus save the amount of his capital, and avoid making his valuable property in St. Louis liable for the debts of the firm. The note was taken in September, 1892; the assignment was 2d January, 1893. The facts in the case afford cogent evidence, and, taken altogether, we think, a clear preponderance of evidence that L. Berger was a partner with B. & H. Berger, in their business at Malvern, from 1879 to the time of the assignment in 1893, and that the preponderance of the evidence sustains the decree of the'chancellor, that the assignment was fraudulent and void, and the decree must be affirmed. It is so ordered. Bunn, C. J., and Battle, J., dissent.