Bromley v. Elliot

Bell, J. We regard the law as settled in this State, that where two men are jointly concerned in any transaction, under an agreement to share between them the profits of the business indefinitely, they must be considered as partners in the transaction. It was distinctly so decided in the ease of Brown v. Robbins, 3 N. H. 65; and the court cite, in support of the decision, Dob v. Halsey, 16 Johns. 34; Waugh v. Carver, 2 H. B. 235; Grace v. Smith, 2 W. B. 988; Coope v. Eyre, 1 H. B. 43; Hoare v. Dawes, Doug. 373; Walden v. Sherburn, 15 Johns. 422. It was an action brought to charge two persons as partners, one of whom denied his liability, and the precise question was of the liability of the parties as partners to third persons. The same principle is supported, as the general rule, by the elementary books, even where its force is impaired by groundless exceptions. 3 Stark. Ev. 1071, notes ; 2 Saund. Pl. & Ev. 710; 1 Smith’s L. C. 491; Gow Part. 14 ; Smith’s Mer. Law 21; Story Part. 5, 60 ; Cary Part. 7; 3 Kent Com. 32. And by a great mass of decisions. Ex parte Digby, 1 Deac. 341; Barry v. Neshan, 3 C. B. 641; Reid v. Hollinshead, 4 B. & C. 867; Ex parte Langdale, 18 Ves. 301; Pott v. Eyton, 3 C. B. 42; Ex parte Rowlandson, 1 Rose 89; Smith v. Watson, 2 B. & C. 401; Higbee v. Burge, 9 C. B. 431; King v. Dodd, 9 East 527; Turner v. Bissell, — 302 — 14 Pick. 192; Dickinson v. Roberts, 12 Pick. 74; Denny v. Cabot, 6 Pick. 82; Bailey v. Clark, 6 Pick. 374; Blanchard v. Cooledge, 22 Pick. 164; Walden v. Sherburn, 15 Johns. 409; Oakley v. Aspinwall, 2 Sandf. S. C. 7; Hodgman v. Smith, 13 Barb. 302; Katskill Bk. v. Gray, 14 Barb. 471; Kellogg v. Griswold, 12 Vt. 295; Hastings v. Hopkinson, 28 Vt. 108; Pierce v. Alexander, 2 Green (Iowa) 427; Maltby v. Jones, 3 Iredell 144. Though the law allows parties to regulate their concerns as they please in regard to each other, they cannot, by any secret arrangement among themselves, control their responsibilities to others; and it is not competent for a person who partakes of the profits of a trade, however small his share of those profits may be, by any private or secret agreements between the parties, to withdraw himself from the obligations of a partner. Waugh v. Carver, 2 H. B. 235; Cheap v. Cramond, 4 B. & A. 663; Hoare v. Dawes, Doug. 371; Wightman v. Townroe, 1 M. & S. 412; Perry v. Randolph, 6 S. & M. 335; Bank v. Monteath, 1 Denio 402; King v. Dodd, 9 East 527; Ex parte Rowlandson, 1 Rose 89; Ex parte Gillar, 1 Rose 197; Ex parte Wheeler, Buck 48; 1 Smith’s L. C. 363; 3 Kent Com. 32. The question as to the person on whom the responsibility of a partner ought to attach, in respect to third persons, arises in the case of dormant partners, who participate in the profits of a trade, and conceal the relations in which they stand to the business and to their fellows. Such parties are equally liable when discovered and the facts shown, as if their names had appeared in the firm, and although they were not known to be partners at the time of the creation of the debt. 3 Kent Com. 31; Robinson v. Wilkinson, 3 Price 538; Grace v. Smith, 1 H. B. 48; Pitts v. Waugh, 4 Mass. 434; Loyd v. Archbold, 2 Taunt. 324; Boardman v. Keeler, 2 Vt. 65; Etheridge v. Binney, 9 Pick. 272; Loyd v. Ashby, 2 C. & P. 138. — 303 — As the law is designed to protect third persons against the frauds which might be practiced, if secret agreements were allowed to be binding on third persons, it holds all parties entering into such agreements to share profits liable as partners. But this liability depends, where the real agreement of the parties as between themselves is that they shall not be partners, upon the point of its secrecy. Because, as the parties are bound by their own stipulations as between themselves, so all who deal with them are equally bound by them, if, at the time of their trading or contracting with the parties, or any of them, they know the nature of their agreements with each other. Ensign v. Wands, 1 Johns. Ca. 171; Hastings v. Hopkinson, 28 Vt. 108; Guidon v. Robson, 1 Camp. 302; Alderson v. Pope, 1 Camp. 404, n.; Hind v. Rigg, Man. Dig. 273; Perkins v. Carruthers, 3 Esp. 248; Wayland v. Elkins, 1 Stark. 272; Champion v. Bostwick, 18 Wend. 186. Indeed, it is not necessary that they should actually know, or have been fully informed, of the real or supposed partnership agreements. They will be equally bound if they have been informed of such facts as should have led a reasonably prudent and cautious man to make inquiry. Pinson v. Steinmeyer, 4 Rich. 309; Town v. Hendee, 27 Vt. 258; Livingston v. Roosvelt, 4 Johns. 251; McIvor v. Humble, 16 East 169; Barfoot v. Goodall, 3 Camp. 147; Irby v. Vining, 2 McCord 379; Mowatt v. Houtland, 3 Day 353. This seems the only exception which can be admitted to the general rule, that he who shares profits must share losses and responsibilities, with safety to the public, or to those who deal with such parties. And under this exception will be found to range themselves a very large proportion of the cases where, upon one apparent ground and another, parties who were by their agreement to share profits, have been held not chargeable as to third persons, as partners. — 304 — By the facts laid before us in this case, the parties were to share in the profits of all the business done in the store kept by Hovey, as well the profits of the goods furnished by Elliot as of those purchased by Hovey. Under the general rule in Brown v. Robbins, they were chargeable as partners. They do not come within the exception we have stated, as there is no evidence that the plaintiffs had any knowledge of the actual agreement; and, as the business was all done by Hovey in his own name, there is no circumstance disclosed which was calculated to excite a suspicion, much less to put them on inquiry, whether some one else was not interested in the profits of the business. Upon our view of the law, the defendants were, therefore, chargeable as partners. It is contended in argument, that the rule laid down in the case of Brown v. Robbins, if true at all, is true only in the most general sense, and that there are exceptions and qualifications which include the present case. Thus, it is said, they must share tbe profits as profits, to render them liable. The principle, thus cited, rests on a distinction long since disapproved as too thin to be satisfactory. Ex parte Hamper, 17 Ves. 404. If so absurd and groundless a doctrine were to be recognized as law, it would not reach this case, since it is expressly agreed that “ the net income, after paying the expenses of the concern, is to be equally shared between the contracting parties.” This is, in our view, nothing less than sharing the profits of the business, as profits. It is evidently the net profits which are to be thus divided, and not the gross profits ; which it has been attempted, in some cases, to make a test to distinguish the cases where a partnership liability attaches, and where it, does not. The term “net income” cannot be understood to mean gross profits. — 305 — Again it is said, that a person may receive a share of the profits of a business, by way of salary or compensation for services, without being held liable as a partner to third persons. This principle has not been adopted here ; and, unless received with the qualification that the true character of the agreements between the parties is made known to those who may have dealings with them, or the apparent relations of the parties are so evidently those of principal and agent, or rather of master and servant, that no person could be misled or defrauded in consequence of the connection, it seems to us it would be of most unsafe and dangerous tendency, and wholly unfit to be adopted. But, if such a rule was established, it is not conceived that this case would fall within it. It was not a case where Ilovey was to furnish merely his personal services, since it was expressly agreed that he was to furnish the store; and Ilovey was also expressly authorized to procure and add to the stock furnished by Elliot such goods, and to such value, as he should think proper; the profits on the sales of which were to be accounted for and divided in the same manner as those on the goods furnished by Elliot. Ilovey, by the agreement, is not to stand, as to any of these goods, in the relation of a clerk or salesman to Elliot, or in any way as his servant. He is not to appear as mere broker or commission dealer, transacting the business of another; but he is to be presented as the principal merchant, proprietor of the goods, dealing on his own account and credit, and transacting the business for his own profit. Elliot furnished a capital, and retained a control for his own security, but he stands apart and is not seen by the world to have any interest or connection with the business. "W"e cannot believe that, in any court where the doctrine to which we have referred is adopted, it would be held to apply to a case of this kind, unless they are prepared to reject entirely all the received doc — 306 — trines as to the liability of dormant partners, or to adopt the broad rule that “ no partnership will be created as to third persons, if the whole transactions are clearly susceptible of a different interpretation, or exclude some of the essential ingredients of a partnership as laid down by a plausible writer, but often superficial thinker, which fall little short, if at all, of the doctrine that no persons will be liable to third persons as partners, unless they are partners as between themselves. To us it is a settled matter that dormant partners, who participate in the profits of the trade, and conceal their names, are equally liable, when discovered, as if their names had appeared in the firm, although they were unknown to he partners at the time of the creation of the debt. 3 Kent Com. 311; Robinson v. Wilkinson, 3 Price 538; Grace v. Smith, 1 H. B. 48; Pitts v. Waugh, 4 Mass. 438; Loyd v. Archbold, 2 Taunt. 324; Boardman v. Keeler, 2 Vt. 65; Etheridge v. Binney, 9 Pick. 272; Loyd v. Ashby, 2 C. & P. 138. The present seems to us precisely a case of this Mud. Py their agreement, Elliot was to furnish the capital; Hovey to furnish the store, and to transact the business in his own name, with power to purchase in his own name any additional goods he chose ; and, after deducting the expenses of the business, excepting Hovey’s services, the net income and profits of the whole business (except some musical instruments) were to be equally divided between them — Hoyey transacting the business in his own name and for his own benefit, apparently, while Elliot kept out of sight, but shared the profits. It is not to be believed that in any jurisdiction a party who, without knowing or having any reason to suspect that any third person had any interest in the business, or any private bargain with the apparent owner, had given him credit, and upon discovery of the fact that the person he dealt with was a mere clerk without responsibility, had — 307 — brought his action against the agent and the owner as partners, could be defeated on the ground that the agent sharing the profits received them only as wages, or a compensation for services. The doctrine that when the private agreements of parties are so drawn as to exclude some of the essential ingredients of a partnership, the parties shall not be charged as partners as to third persons, would overturn at once all the doctrines of the courts of common law for centuries; and though the courts, under the pressure of cases of individual hardship, from the general rule, have occasionally decided such cases upon slight, and subtile, and unsatisfactory grounds, there is no case, so far as we can find, which has in terms adopted, or sanctioned, or approved any such doctrine. The decisions in a few recent cases have tended very strongly towards such a rule; but they all have been decided upon other and entirely distinct grounds. When a principle like this is generally received, it is apparent that fraud must have the widest scope, or the courts must be forced to protect the community by a new set of rules and distinctions, to supply the place of the wholesome principles maintained in all past times by courts of justice. The case of Newman v. Bean, 21 N. H. (1 Fost.) 93, is cited in the argument to the position that where A. was to furnish goods to B., to sell as his agent, and B. might fill up the store with articles that would sell at a profit, the profits, after paying expenses, to be divided, the parties would not be held partners as to third persons. It is erroneously cited to this point. The action was trover by A., who furnished the goods, against the sheriff who attached the goods as the property of B. It was held that they were not partners as between themselves, and that B. had no property in the goods. The same remark applies to the similar case of Judson v. Adams, 8 Cush. 556. The decision relates to the ques — 308 — tion of partnership between the parties, and not as to third parties, and as to the property of goods manufactured by one person from the stock of another for a share of the profits. The case of Gibson v. Stevens, 7 N. H. 352, has no tendency to show that parties sharing profits are not partners as to those who deal with them. It merely decides that if they are partners, they are not necessarily the owners of the property employed in their business. The question whether these parties are to be deemed partners as to third persons, must of course be entirely superceded, if it should prove on examination that they were in fact to be regarded as partners between themselves. Ordinarily, the two leading principles of the contract of partnership are a common interest in the stock of the company, and a personal responsibility for the partnership engagements; and both these seem to have been studiously avoided, it being obviously intended that each should continue to own the goods he placed in the store, and that the responsibility for all agreements made in the course of the business should rest on the party who made them. But though each party must bring into the common stock something that is valuable, yet it is not necessary that there should be any property owned in common, to constitute a partnership. If one person advances funds, and another furnishes his personal services and skill in carrying on a trade, and is to share in the profits, this constitutes a valid partnership; neither is it essential to a partnership that it be confined to commercial business. It may exist between attorneys, conveyancers, mechanics, owners of a line of stage coaches, artizans, or farmers, as well as between merchants. It may as well exist between brokers, and factors or agents, whose sole employment relates to the property and business of third persons, as among those who jointly own the prop — 309 — erty in which they deal. There can be no valid reason why, in such case, the ownership of the goods in which a partnership deals, should not belong to one of the partners exclusively, just as well as it might to a stranger, without in any way affecting the validity of the partnership. The essence of the contract is that they should be jointly concerned in profits and loss, or in profits only, in some honest and lawful business — the relation of partners being established by the fact that they share the profits between them. They are bound as partners to third persons, by all agreements within the apparent scope of the business in which they are engaged, unless the limitations of their contracts are known to those with whom they deal, or are such as from the facts known to them, they are bound to enquire. But, as between themselves, their stipulations, so far as they are not forbidden by law, are binding; and we know of no rule by which persons are forbidden to be partners, as to the profits of a business carried on by them jointly, though as to all the property employed in the business, they may be several owners. Such seems to be the chai’acter of the trade of these parties. Each was to be owner of the stock employed in the business which he had furnished, while they were sharers of the profits alone. In such case the partners would not be liable for each other for any goods purchased by either to be used in the trade, when the seller was aware 'of the real nature of their partnership agreements. But the case would be otherwise as to those who know nothing of their being in any way partners, and as to those who know the fact of a partnership, but know nothing of the precise stipulations between them. As to these the private agreements form no test of the liability of the partners. The legal test is found in the apparent scope and character of the business. Here the apparent scope of the business transacted by Hovey was the trade in — 310 — watches, jewelry, &c., implying the buying and selling of that class of goods. That is the business evidently contemplated by their written agreement, and all bargains within the scope of that trade, when a partnership, however limited, is once proved, were as binding on Elliot as they were on ITovey himself. The policy of the law is, we think, clearly shown in relation to this subject by the statute providing for limited partnerships, passed July, 1855 — almost a year before the contract here in question was made — by which persons are permitted to invest their funds in trade as special partners, without personal liability, on compliance with certain conditions, the chief object of which is to secure entire publicity as to the fact and the principal terms of the connection. Upon the doctrine before referred to, in the extent which it is claimed to have, such a law must be idle; allowing that to be done under onerous and troublesome conditions which the law already allowed to be done without them. It seems to us impossible to regard this in any other light than as a secret and dormant partnership, and the parties must both be held liable as partners for the debts in suit. An objection was made to evidence given by Elliot and Hovey. So far as their testimony tended to give a construction to the written contract, and to show the intention of the parties in it, it is clearly inadmissible as tending to explain or vary a written contract. In the view we have taken of the case, this does not seem to be of much importance. Judgment on the verdict.