Stephens v. Neely

Hart, J., (after stating the facts). Jack McDonald made no defense to the action against him on the promissory note by the plaintiffs. It seems that the main purpose of the action in the circuit court was to charge M. Neely as a partner with Jack McDonald on the promissory note which the firm of McDonald Bros, had executed to Mrs. Helena Hanks in the sum of $10,000 on March 27, 1914. It appears that certain payments were made on the note by Jack McDonald from time to time until the 2d day of April, 1918, and that this suit was instituted on September 27, 1921, to recover the balance due. It has often been said by judges and text-writers that it is not practical to give a definition of-partnership that will cover all cases. In defining a partnership in the early case of Howell v. Harvey, 5 Ark. 270, this court said: “A partnership, in its most significant and extended sense, is a voluntary, contract of two or more persons for joining together their money, goods, labor, and skill, or either of them, upon an agreement that the gain or loss shall be divided proportionately between them, and having for its object the advancement and protection of fair and open trade.” In later cases this court has said that a partnership may be defined as the relation existing between two or more persons who have agreed to carry on a business together, and to share the profits thereof as the joint owners of the business. This court has also held that participating in the profits of a partnership is of itself cogent proof that the person who does so is a partner, and that, if unexplained, this may be conclusive proof. Johnson v. Rothschilds, 63 Ark. 518; Herman Kahn Co. v. Bowden, 80 Ark. 23, and cases cited, and Mehaffy v. Wilson, 138 Ark. 28. In these cases this court has recognized that, while the agreement to share profits, standing alone, is sufficient to constitute a partnership as to third persons, it is not conclusive, and that, where it is shown that the division of the profits was merely a measure of compensation, there is no partnership. Where one is only interested in the profits of a business as a measure of compensation for services rendered, he is not a partner. In short, the participation in the profits might make him a partner, but not necessarily so. It would depend upon the intention of the parties as expressed by the terms of the agreement. In the present case it is not contended that there were any written articles of partnership. Therefore, whether such relation actually existed is a question- of fact to be determined from the evidence in the case, and upon the trial of that question there is no sound foundation requiring a jury to regard participation in the profits as a decisive test of the partnership which will render the participator in such profits liable for the debts of the partnership. Here it must be admitted that there was strong proof to show that M. Neely became a member of the partnership áfter the widow of Dan McDonald sold out her interest therein. He 'signed a note to her for her share in the business, and he permitted his name to be used upon the letterheads of the firm. He also received a division of the profits. However, as above stated, this evidence was not conclusive. Neely testified that he received a share of the profits under an agreement made with Dan McDonald in his lifetime. This agreement was made in 1902, and was not changed after the death of Dan McDonald. Neely continued to work under the agreement that he was to receive a salary and one-fourth of the net profits until he left the firm in 1915. He had the right to draw out any commissions that the firm might owe him at any time, and did so. His testimony is corroborated by that of the bookkeeper as to the manner in which the books showing his accounts were kept. It is true that Jack McDonald testified positively that M. Neely bought an interest in the business, but his testimony is flatly contradicted by that of Neely. The testimony of Neely that he never became a partner in the business is a matter of which he had personal knowledge. He knows whether or not he made an agreement with Jack McDonald to buy out the interest of the widow of Dan McDonald and to become a member of the firm. His testimony, then, was of a substantive character, and, if believed by the jury, warranted it in returning a verdict in his favor. It is next insisted that the court erred in giving the following instruction: “If you find from the evidence that Neely was not a partner when the note was executed, but that he after-wards became a partner, and by special promise or agreement assumed liability for the debt evidenced by the note, then the court charges you as a matter of law that he is liable only on such special promise or agreement, and, if the promise or agreement was not in writing, the three years’ statute of limitations began to run thereon the 27th day of March, 1915.” We cannot avree with counsel for the plaintiffs in this contention. There is no presumption that an incoming partner of an existing partnership assumes liability for the previous debts of the concern. He is not bound for such debts unless he makes himself so by express agreement, or by such conduct as will raise the presumption of a special promise. Ringo v. Wing, 49 Ark. 457. The promissory note signed by McDonald Bros, is the basis of this action. The law of partnership is but a branch of the law of principal and agent. The ground of liability of one partner for the acts of the other is that of implied agency within the scope of the partnership. If Neely was bound by the fact that McDonald had made payments on the note after he became a member of the firm, then he could not even show that he had not assumed the debts of the old firm. The credit of a new member of a firm does not enter into the consideration of the creditors of the old firm, and it would be manifestly unjust to hold the new partner liable unless he, by an express or implied agreement, assumed the debts of the old firm. Hence if Neely is liable at all in the present case, it is upon an express or implied agreement to pay the debts of the old firm. If his liability depends upon maldng such an agreement, he has the right to plead the statute of limitations in regard thereto, and his plea of the statute in bar of his liability could not be defeated by showing that his partner had made a payment on the old indebtedness since the time it is claimed he became liable therefor. In such cases it will be presumed that the partner made the payment in discharge of his own obligation, and the burden of proof would still be upon the creditor to show that the incoming partner has assumed the debts of the old firm. Hence this assignment of error is not well taken. "We find no reversible error in the record, and the judgment will be affirmed.