Riedeburg v. Schmitt

Taylor, J. The learned counsel for the appellant insists that the circuit court erred in finding that the appellant, Schmitt, was a partner in the firm of II. Biedeburg & Co., and that it was error to charge him personally with any part of the losses of said firm; and he also insists that the court erred in holding that the distillery property should be charged with the payment of any part of the debts of said firm. Upon the question as to the personal liability of Schmitt as a partner in the firm of EL Biedeburg & Co., we think that, upon the evidence in the case, the court erred in holding Schmitt a partner. In the first place, the written articles of agreement exclude him from the partnership; and, again, within three months after the partnership articles had been signed and the business commenced, Schmitt applied to be admitted as a partner in the business, and his application was rejected by Riedeburg and Bodden, except upon a condition which he refused to comply with. It is urged by the learned counsel for the respondents that, notwithstanding these plain and admitted facts, he must be held as a partner, because he recognized the right of Marshall to put his property into the firm business, and that Marshall for that privilege agreed with Schmitt that he should have one half of his third of the profits of the business of the firm. It does not appear very clearly that this arrangement between Schmitt and Marshall was known to Riedeburg and Bodden; but, if it was known to them, it would not make him their partner. Elis arrangement with — 650 — Marshall did not give him any right to interfere with the business of the partnership, or impose any duty on the other partners to see that the half of the one-third of the profits which belonged to Marshall were paid over to Schmitt. If A. loans B. $5,000 with the understanding that B. shall invest it in forming a partnership with C., and, instead of ehargiiig B. with interest on the money loaned, he agrees to receive of B. one half of the profits he shall realize from the partnership business, it seems to us very clear that A. does not become a partner with B. and C. The evidence does not in this case show any arrangement between Schmitt and Marshall materially different from the one above stated. As between Schmitt and Marshall, there was no agreement that Schmitt should pay any part of the losses which might fall upon Marshall by reason of the partnership business, but simply that, if any profits accrued to Marshall from the business of the firm, he should have one half of them compensation for the privilege of putting his property in the firm business during the three years it was to exist. The true rule, in cases of this kind, is concisely stated by the court of appeals in New York, in Burnett v. Snyder, 81 N. Y. 555. Speaking of a contract made by a third person, not a member of the firm, with one of the members of the firm, to share in the profits derived by such member from the firm, and of the liability of such third person, even to the creditors of the firm, the court say: “ But the participation in the profits of a trade which makes a person a partner as to third persons is a participation in the profits as such, under circumstances which give him a proprietary interest in the profits, before division, as principal trader, . . . and a right to an account as partner, and a lien on the partnership assets in preference to the individual creditors of the partner.” The facts of that case were much stronger in favor of holding the third party as a partner than in the case at bar; yet the court held he was not a partner, — 651 — «ven as to creditors of the firm, much less as between himself and the members of the firm. The general an.d universal rule is that, as between the parties comprising a partnership, no act of one partner, or any number of the partners less than the whole, can bring a new partner into the firm. In the case at bar a partnership was formed by ■a written agreement, by which only three were to compose the firm, and all profits of the firm were to be divided equally between the three. Now, it is clear that a fourth man cannot be brought into the firm as a member without the consent of all; and there is an entire absence of any evidence in the case showing that Schmitt was ever admitted to the firm as a member thereof with the assent of all parties. The evidence would appear to negative the idea that he was ever so admitted. The following, among many other authorities, sustain the contention that the evidence in this case does not make Schmitt a partner in the firm of H. Riedeburg & Co.: Burnett v. Snyder, 76 N. Y. 344; S. C. 81 N. Y. 550, 555; Reynolds v. Hicks, 19 Ind. 113; Freeman v. Bloomfield, 43 Mo. 392; Rockafellow v. Miller, 107 N. Y. 507; Bybee v. Hawkett, 12 Fed. Rep. 649; Ex parte Hamper, 17 Ves. 404; Champion v. Bostwick, 18 Wend. 184; Richardson v. Hughitt, 76 N. Y. 55; 1 Bates on Partn. § 164; 1 Lindley on Partn. (4th ed.), 55. "We are of the opinion that the circuit court erred in holding the appellant, Schmitt, personally liable to account to the plaintiffs for the one-third of the losses of the firm, or for any part of such losses, and that the part of the judgment holding him so liable must be reversed. The only other question in the case is whether the real estate, viz., the distillery, the lands on which it is situated, and the personal property and fixtures therein, were a part of the firm property, so that in equity they must be held chargeable with a share of the losses of the firm in a final accounting bet-weon the members of the firm. Although — 652 — the title to this property was not in Marshall, who undertook to bring it to the firm at the time the partnership was organized, we are of the opinion that under the evidence it must, as against the appellant, Sehmitt, be treated as though the entire beneficial ownership had been in Marshall at the time he undertook to give the partnership control of it. We come to this conclusion from the fact that, after Marshall made the partnership agreement in writing by which he, in explicit terms, furnishes and contributes for the use of the copartnership his “ real estate, consisting,” etc., and declaring that the property so furnished is of the value of $11,550, “ which is considered the capital of said Marshall in the firm,” the appellant, Schmitt, ir writing, consented to the contract made by said Marshall, and afterwards, in further execution of said contract, Schmitt conveyed or released to the United States all his interest in said real estate, distillery, and fixtures, so far at least as to give the United States a preference as to all claims the United States might thereafter have against the firm of H. Riedeburg & Co. If, treating the distillery and fixtures as the property of Marshall at the time the partnership was formed, it became a part of the property belonging to the firm as between Marshall and the other members thereof, and became liable to contribute to the payment of the losses of the firm in a final accounting between the partners, then it must be held liable to contribute as against the appellant, Schmitt. This distillery must be treated as essentially real estate, and the question is whether, notwithstanding its character as real estate, and notwithstanding that the title was not conveyed to the firm by any of the usual forms of conveyance, it may still be treated in equity as a part of the partnership assets, and so liable to contribute as such to the payment of the losses of the firm. The rule is universal that real estate purchased with partnership funds for partnership purposes and used for such purposes, although the title be taken in the name — 653 — of one of the partners, will be treated in equity as partnership assets, and be held for the benefit of the creditors of the partnership instead of the creditors of the individual partner in whose name the title appears; and so, in winding up the business of the firm, it must be used in payment of losses instead of going to the creditors of the individual. 1 Bates on Partn. §§ 280, 281, and cases cited. In cases of this character the authorities are very much in accord; but the rule is not so well settled as to the rights of parties to real estate which is brought into the firm business at the time of its organization, and used in the business of the firm thereafter. Whether real estate owned by one or more members of a firm at the time of the organization of the firm, and which is to be used by the firm thereafter, becomes firm property for all purposes, depends mainly upon the question whether the person bringing the property into the firm contributes it to the firm as his part of the joint stock, and has credit with the firm for the value thereof as the whole or a part of his contribution to such joint stock. This is the rule as stated by Bates, in his work on Partnership, §§ 280, 281. Mr. Bates also says, in section 280: “Whether real estate is partnership or individual property is purely a question of the intention of the partner, and, as this is rarely expressed in the deed, is a matter of inference and evidence.” Is there sufficient evidence in this case to show that the distillery and fixtures were contributed by Marshall, as his part of the joint stock, to be used by and for the use of the firm? After a careful consideration of the evidence, we think the finding of the court on that question is sustained by the evidence. We have, first, the articles of copartnership, by which Marshall put in the distillery and fixtures as his contribution to the joint stock of the partnership at a fixed valuation. He is to be paid interest on its value, as a part of the capital stock invested in the business, before — 654 — any profits are to be divided; the other partners to be paid the same rate of interest on the capital furnished by them. Afterwards, Schmitt and Marshall secure the lien of the United States upon this property as the property of the distilling firm. The firm pay the taxes and the insurance on the property as the property of the firm, although nothing is said in the partnership articles upon that subject. Although Schmitt in his testimony denies generally that the distillery was put in as firm property, and insists, as Marshall does, that nothing but its use was transferred to the company, still.he says: “I was simply to allow them to use the property for distilling purposes. Marshall was allowed to put it in as working capital in the distillery.” It is very likely that Mr-. Schmitt did not understand the contract made by Marshall as conveying to the company the distillery as the part of the joint capital which Marshall was to contribute and did contribute for the use of the firm. Still, his misunderstanding of the legal effect of the contract cannot relieve him from its operation. There was another piece of evidence in the case which is almost conclusive of the intent of the parties to make the distillery the property of the firm; and that is the fact that it was entered on the books of the firm to the credit of Marshall as his capital invested in the business. This court held, in the case of Bergeron v. Richardott, 55 Wis. 129, that such an entry upon the books of the firm, with the knowledge and assent of the separate owner of a store building in which the business of the firm was carried on, was almost conclusive evidence that the property was firm property, though the title was never conveyed to the firm. We think, upon the whole evidence, the circuit court rightly found that the distillery was in equity firm property, so far as to subject it to the payment of the share of the losses chargeable to Marshall. The judgment, in that respect, must be affirmed. The following cases sustain the judgment in that respect: — 655 — Wiegand v. Copeland, 14 Fed. Rep. 118; Arnold v. Wainwright, 6 Minn. 358; Bergeron v. Richardott, supra; Sigourney v. Munn, 7 Conn. 11; Way v. Stebbins, 47 Mich. 296; 1 Bates on Partn. §§ 280, 281; Shafer’s Appeal, 106 Pa. St. 49; Black's Appeal, 89 Pa. St. 201; Marsh v. Davis, 33 Kan. 326; M’Dermot v. Laurence, 7 Serg. & R. 443; Ludlow v. Cooper, 4 Ohio St. 1, 8; Duryea v. Burt, 28 Cal. 569, 580; Hogle v. Lowe, 12 Nev. 286. See note to this case in 38 N. W. Rep. 336. — Rep. By the Court.— That part of the judgment of the circuit court which adjudges the appellant personalty liable for the one-third of the losses of the firm is reversed, and the remainder of said judgment is affirmed; the appellant to recover the costs of this appeal.