Case ID: mass_47/html/0082-01.html
Source: Caselaw Access Project
Author: {"author": "Wilde, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Edward Denny & another vs. Richard C. Cabot & others.
    By an agreement between A. and B., A. was to supply B. with stock to be manufactured into cloth, at his mill, on A.'s account, and B. was to manufacture the stock into cloth, and to deliver the cloth to A., for a certain sum per yard : A. also engaged, that if B. should fulfil his said agreement to manufacture and deliver the cloth, A. woui.d pay him one third part of the net profits of the business. Held that this agreement did not make A. and B. partners, either between themselves, or as to third persons.
    Assumpsit to recover $673-02, the amount of a bill of goods sold and delivered. The action was brought against R. C. Cabot, R. Appleton and John Greenough, partners under the firm of Cabot, Appleton & Co., and Hiram Cooper. Said Cooper was defaulted before trial. Trial before Wilde, J., who made the following report thereof:
    It appeared that on the 2d of January 1841, an agreement was entered into between Cabot, Appleton & Co. and Hiram Cooper, as follows:
    “ Memorandum of agreement, made the second day of January 1841, by and between Cabot, Appleton & Co., of Boston, on the one part, and Hiram Cooper of Holliston, on the other part.
    “ Whereas said Cooper is lessee of a certain mill and machinery in Milford, suitable for the manufacture of satinets and jeans, (owned by Wm. Whitney,) it is agreed that said Cabot, Appleton & Co. shall supply said Cooper with stock, to be manufactured into satinets on their account, on the following named terms: To say, said Cooper agrees tó cause to be manufactured the stock furnished, into satinets, in the best manner, to be thoroughly made in a workmanlike manner in every respect, and of usual width, and of such colors and style as required by said Cabot, Appleton & Co., (excepting blue color,) for which he shall receive at the rate of fourteen cents per yard for pulled wool, and fourteen and one half cents per yard for fleece wool, payable quarterly by acceptances at 60 and 90 days. Said Cooper shall deliver the goods well packed in boxes, at his own expense, in Boston. And he shall receive the stock, without expense to him, at the mill.
    
      “ In consideration of the foregoing, and upon condition of the performance of the same, as agreed by said Cooper, said Cabot, Appleton & Co. agree to pay him one third part of the net profits on the business, to be computed as follows, viz.; they are to charge a commission and guaranty on gross sales of six per cent., also all premiums, insurance, transportation, and expenses as usual, with interest. In respect to the manufacture of jeans, that shall be determined hereafter, as well as the terms upon which they shall be made.
    “ It is agreed that wool shall be furnished of good, fair quality, American wool, and suitable warps.
    “ This agreement to continue in force for the period of six months from date, with three months’ notice by both, or either party, previous to the termination herein named.
    Cabot, Appleton & Co.”
    It also appeared that, a few days before the 15th of January 1841, Cooper applied to the plaintiffs to supply dye stuffs and other manufacturing articles for said mill, and told the plaintiffs he had entered into a contract with Cabot, Appleton & Oc and showed to them the contract in writing, above set forth.
    It was not one purchase, but supplies for the mill, that Cooper wanted.
    The usual time of credit was six months; and Cooper said he would give the plaintiffs drafts on Cabot, Appleton & Co., which they would accept. The articles charged in the bill (and which are the subject of this suit) were delivered by the plaintiffs, at various dates, between January 15th and April 14th 1841, and most of them on Cooper’s written orders brought from Milford by a teamster, who carried the articles to the mill. The plaintiffs charged the articles, in their books, to Cooper.
    All the articles, so supplied by the plaintiffs from time to time, and delivered at the mill, are articles used in the manufacture of satinets, and put into the cloth, or used in clean ing and preparing the wool for manufacture, except certain leather, &c. amounting to $ 52-88, which are articles used about machinery only.
    After the delivery of all the articles, Cooper drew a draft, for the amount, on Cabot, Appleton & Co., payable to the plain tiffs in six months from the average time when the money was to become due, which draft the plaintiffs presented to the drawees for acceptance, and acceptance was refused.
    Previously to Cooper’s application to the plaintiffs for any of the articles above mentioned, he had failed, owing the plaintiffs, who had lost their debt; he having been discharged under the insolvent law of Massachusetts, and having no property.
    Cooper run the mill from January 2d until about the 11th of May, 1841, when he failed. During that time, he manufactured no goods, except under the foregoing agreement with Cabot, Appleton & Co. The goods, as manufactured, were sent to Cabot, Appleton & Co., who sold them, and received the proceeds, except a few pieces which Cooper sold at the mill, and which were charged to him in account, by Cabot, Appleton & Co. Some of the dye stuffs remained on hand at the mill, when Cooper left it, and he carried them off. And he sold some other of said articles bought of the plaintiffs, before he left.
    The case was taken from the jury, by consent, and reserved for the consideration of the court. Cabot, Appleton & Co., to be defaulted, if the court are of opinion that the plaintiffs are entitled to recover of them, and judgment to be rendered against them and Cooper: Otherwise, the plaintiffs to discontinue against Cabot, Appleton & Co. The court to draw all such inferences of fact, as a jury would be warranted in drawing from the facts above disclosed.
    
      English, for the • plaintiffs.
    Does the contract now before the court constitute a partnership between the defendants, either inter se or as to third persons ? Community of property and profits, as a general rule, constitutes a partnership inter se. It is not essential that there should be a community of interest in the property and also a community of profit and loss. If the whole property belongs to one, yet if there is a community of profits, or of profits and loss, there is a partnership inter se as to profits and loss. Joint interest in profits only may not constitute a partnership as to third persons. But where two or more have a joint interest in losses as well as profits, they are partners as to third persons. And a stipulation by one partner to indemnify another against loss does not affect third persons; but is only a personal indemnity. Ex parte Rowlandson, 1 Rose’s Bankr. Cas. 91. Ex parte Hamper, 17 Yes. 404. Ex parte Langdale, 18 Ves. 300. Walden v. Sherburne, 15 Johns. 409. Champion v. Bostwick, 18 Wend. 182, 183. Cushman v. Bailey, 1 Hill’s (N. Y.) Rep. 526. Turner v. Bissell, 14 Pick. 192. Cobb v. Abbot, 14 Pick. 292. Musier v. Trump-bout , 5 Wend. 274. Note to Waugh v. Carver, in Smith’s Leading Cases, 363. Tench v. Roberts, Mad. & Geld. 145, ncie. Green v. Beesley, 2 Bing. N. R. 108. Story on Part. <§>§ 23, 27, 36 and note (2). Bucknam v. Barnum, 15 Connect. 67.
    
      The defence, in this case, will be put upon the shadowy distinction (disapproved by Lord Eldon) between agency to be paid for from profits, and an ownership of property, or a share of gain and loss ; and upon a refinement as to the meaning of a participation in profits, “ as profits,” which will render a person liable to third persons, as a partner. By profits “ as profits,” nothing more nor less is meant than net profits. Story on Part. <§> 34. See also Dry v. Boswell, 1 Campb. 329. Bond v. Bit-tar d, 3 Mees. & Welsb. 360. Coppard v. Page, Forrest, 1. Perrott v. Bryant, 2 Younge & Collyer, 61. Sharing in profits necessarily imports a sharing in losses; for the profits are more or less, according to the losses. Grace v. Smith, 2 W. Bl. 998. Dob v. Halsey, 16 Johns. 40. 15 Connect. 72. The case of Cheap v. Cramond, 4 Barn. & Aid. 663, proceeded on the distinction between gross proceeds and net profits.
    By the contract in question, Cooper is to pay for a guaranty. Why should the other parties charge him with a guaranty on their own goods, if he had no interest in them ?
    It will not be denied, that Cooper had a right to an account from the others; and this is one of the tests of a partnership. There is also, in this case, another test: The goods sued for were bought for the purposes of the joint business, and with a view to a subsequent sale on joint account; that is, a sale in which each was interested in profit and loss. See Gouthwaite v. Duckworth, 12 East, 421. Coope v. Eyre, 1 H. B. 37. Felicity v. Hamilton, 1 Wash. C. C. 491. Everitt v. Chapman, 6 Connect. 351. Holmes v. United Ins. Co. 2 Johns. Cas. 332. Post v. Kimberly, 9 Johns. 470.
    
      C. P. Curtis & B. R. Curtis, for Cabot, Appleton & Co.
    This case must be decided on the particular terms and effect of the contract; as the adjudged cases form no general and clear abstract rule. The contract states that Cabot & Co. are to employ Cooper to make cloth on their account, and that he shall make it as they shall direct, from their stock, and receive a certain sum per yard, as pay for his labor and the use of his mill. Thus far, there is mere agency, and no partnership, on the part of Cooper. The only matter, that can raise a doubt, is the agreement to pay him one third of the profits, “ on condition,” &c. No community of profits was provided for. Cooper was to have a certain sum, at any rate; and that sum might have given him a profit, though there should have been a loss on the business. But if that sum would not have been a profit, then he might not have shared profits, because of the condition. Cabot & Co. were to pay Cooper a part of the profits, conditionally. He had no authority to decide what hinds of goods should be made, and no control of the sale of them The case therefore comes within the rule, which is correctly stated in Collyer on Part. 18: “If one be a mere servant or agent of the other, and receive his share of the profits in lieu of wages, then, as there is no mutuality between the parties, there is no partnership.”
    C roper doubtless had a right to an account; and so he would have had, if the contract had been that he should have a sum equal to a given share of the profits. This therefore does not show his right or liability as a partner. 17 Ves. 404. Gow on Part. 19. To show this, it must be shown, that he has also a specific lien, or a preference in payment over other creditors Cary on Part. 11, note, (i).
    The decisions, it is true, proceed on a somewhat shadowy distinction between partnership and agency; and though Lord Eldon intimated that the distinction was not established upon due consideration, (17 Ves. 404,) yet he admitted that it was established.
    Where the parties intend to create an agency, a participation in the profits, without a participation in the loss, will not create a partnership. The only difference between the plaintiffs’ counsel and us is on the question — what makes a participation in loss? We deny that an interest in net profits subjects a party to loss. If it does, then the decisions are wholly irreconcilable.
    
      Vanderburgh v. Hull, 20 Wend. 70, supports two positions: 1st. That there may be a sharing in profits without a sharing in losses: 2d. That sharing in net profits does not necessarily constitute a partnership. The cases of Turner v. Bissell. 
      14 Pick. 192, and Loomis v. Marshall, 12 Connect. 69, are hardly distinguishable from that at bar.
    In Miller v.Bartlet, 15 S. & It. 137, an agreement between A. & B., that B. should receive a certain commission on the profits of goods sold, in addition to a certain salary, was held not to constitute him a partner. The intention of the parties, in such cases, settles the question of agency or partnership. Story on Part. <§, 48. See also <§>§ 32, 36, 38, 41, 43 -47.
    Cabot & Co. were to charge for a guaranty. It is asked why they should make this charge, if Cooper had no property in the goods ? We answer by asking, why should they charge for a guaranty, if the property in the goods belonged to Cooper and them as partners ?
    
      Gardiner, in reply.
    The rule cited from Collyer on Part. 18, is not supported by any decided case; and the case at bar is not within even that rule. See Ferry v. Henry, 4 Pick. 75. Bailey v. Ciarle, 6 Pick. 372. The contract between Cooper and Cabot & Co., was not one for personal service; because Cooper did not engage for mere service, but to buy stock, &c. and sell for joint account; because he was, in effect, to share in the loss, as he must have contributed to the advances of Cabot & Co., if they had advanced beyond their two thirds ; because he had the power of sale, (subject only to the lien of Cabot & Co.,) like any other partner: And he did sell goods at the mill, and was charged by Cabot & Co. for such sales, in their account. He also bought on joint account, as the product became joint property. Hazard v. Hazard, 1 Story Rep. 371
    It has been argued, that as Cooper had only a conditional interest in the profits, he was not a partner. But such conditional or contingent interest in profits makes a partner. Col-lyer on Part. 22. All profits of one partner depend on the contingency of his fidelity to the firm. Story on Part. <§> 169.
    The case cited from 15 S. & R. 137, is not in point, as it was not a case of net profits. The case in 20 Wend. 70, is a solitary one, which does not seem to have been much considered: The question there was as to the competency of a witness. Loomis v. Marshall, 12 Connect 69, seems to be, inconsistent with Everitt v. Chapman, 6 Connect. 351, and was so considered by Williams, C. J., who dissented from the opinion of the other judges.
    If the contract in question is obscure, the plaintiffs must prevail; for they have been misled.
    
    
      
       Another question was argued by the counsel, viz. whether the plaintiffs did not sell to Cooper, relying on his sole credit, and therefore had no claim on the partnership, if Cooper were a partner. As it became unnecessary for the couit to decide this question, the arguments on it are omitted
    
   Wilde, J.

This was an action of assumpsit for goods sold and delivered, and the general question is, whether all the defendants are liable, or Cooper alone, to whom the goods were delivered and charged in the plaintiffs’ books of account. This question depends on the terms of the contract between the defendants, made previous to the delivery of the goods.

By the terms of this contract, it is manifest, we think, that the defendants had no intention to create a partnership in the business referred to in the contract, and that inter sese no such partnership was created. The agreement was that Cooper should manufacture satinets for Cabot, Appleton & Co., the other defendants, on the terms stipulated. The stock was to be supplied by the latter, and the satinets were to be of such co ors as they should direct, and, when manufactured, were to be delivered to them. The satinets were therefore unquestionably the property of Cabot, Appleton & Co. They were bound to pay Cooper for all satinets made by him, at the rate of 14 cents per yard for pulled wool, and 14£ cents for fleece wool, and, in addition, to pay him one third part of the net profits of the business, after deducting a charge' of commission and guaranty on gross sales, of six per cent., and all premiums, insurance, transportation and expenses, with interest. In this manner, the compensation to Cooper for his services was to be ascertained; but he had no title to any share of the satinets, nor any lien thereon.

But it is contended by the plaintiffs’ counsel, that if the defendants were not partners inter sese, they were nevertheless liable, as partners, to third persons; because, if here was no community of interest in the property, there was a community of interest in the profits, which renders them liable, as partners, to third persons. On this point the distinction appears to us to be well established, that a party, who participates in the profits of a trade or business, and has an interest in the profits, as profits, is chargeable as a partner, with respect to third persons; but if he is only entitled to receive a certain sum of money, in proportion to a given quantum of the profits, as a compensation for his labor and services, he is not thereby liable to be charged as a partner. Turner v. Bissell, 14 Pick. 192. Loomis v. Marshall, 12 Connect. 69. Rice v. Austin, 17 Mass. 197. Perrine v. Hankinson, 6 Halst. 181. 3 Kent Com. (3d ed.) 33. Gow on Part. 14-21. Story on Part. c. iv. It is true that Lord Eldon has expressed a doubt of the soundness of this distinction. In Ex parte Hamper, 17 Ves. 404, he says, “the cases have gone to this nicety, (upon a distinction so thin, that l cannot state it as established upon due consideration,) that if a trader agrees to pay another person, for his labor in the concern, a sum of money, even in proportion to the profits, equal to a certain share; that will not make him a partner; but if he has a specific interest in the profits themselves, as profits, he is a partner.” He admits, however, that the law of partnership is thus settled. Ex parte Watson, 19 Ves. 459. Ex parte Rowlandson, 1 Rose, 92. And this distinction has been confirmed by numerous subsequent decisions. In Cutler v. Winsor, 6 Pick. 335, it was decided, that an agreement between the owner and master of a vessel to divide the earnings of the vessel between them, after deducting certain fixed charges, did not render them liable to third persons, as partners. In that case, the deduction was from the gross earnings. And the agreement is substantially the same in the present case. For although, in terms, the agreement was to pay Cooper one third of the net earnings, yet that is explained by the words immediately following, by which it appears that Cooper was entitled to one third of the gross profits, after deducting certain specified charges; and that in no event was he to be liable for any losses. So the agreement in this case is precisely similar to that in Loomis v. Marshall, 12 Connect. 69. In that case, French & Hubbell agreed with Marshall to manufacture his wool into cloth, and he agreed to give them, for their services and the materials they should furnish, a certain proportion of “ the net proceeds of all the cloths, after deducting incidental and necessary expenses of transporting, and other proper charges of sale.” It was not expressed in terms, to be for such compensation, but such the court held was the legal meaning of the agreement. This case was very ably discussed by the learned judge who delivered the opinion of the court, and, as it seems to us, the decision is fully sustained by well established principles. So in Reynolds v. Toppan, 15 Mass. 370, it was agreed between the master and owner of a vessel, that the latter was to receive two fifths of the net earnings of the vessel; and it was held that this did not render him liable as a partner. So in Vanderburgh v. Hull, 20 Wend. 70, where a person was employed as an agent in conducting the business of a foundry, at a salary of $300; and in addition thereto he was to receive one third of the profits of the foundry, if any were made ; and he had nothing to do with the losses ; it was held that the agent was not, either as to his employers or third persons, a partner. So in Turner v. Bissell, 14 Pick. 192, it was agreed that Bissell was to furnish wool to be worked into satinets by Root, who was to find and pay for warps for the same, and Bissell was to pay Root for working the wool, finding the warp, &c., 40 per cent, on the sales of the satinets. It was held that the defendants were not partners inter se, nor as to third persons.

These cases appear to us fully to support the defence in the present case. Some of them may perhaps appear to clash with the distinction (laid down by Lord Ellenborough in Dry v. Boswell, 1 Campb. 329, and recognized in other cases) between sharing the gross earnings and sharing the net earnings of a business or adventure. But however this may be, we think there is no sound distinction between an agreement to pay to a party a certain share of the gross profits, and an agreement to pay a certain share of the net profits, as explained in the present contract; the clear meaning of the terms of which is, that Cabot, Appleton & Co. were to pay Cooper one third part of the profits, after making certain specified deductions therefrom, and Cooper clearly was not to be liable for any losses. If he had stipulated for a share in thé profits, (whether gross or net profits,) so as to entitle him to an account, and to give him a specific lien, or a preference in payment, over other creditors, and giving him the full benefit of the profits of the business, without any corresponding risk in case of loss ; justice to the other creditors would seem to require that he should be holden to be liable to third persons, as a partner. But where a party is to receive a compensation for his labor, in proportion to the profits of the business, without having any specific lien upon such profits, to the exclusion of other creditors, there seems to be no reason for holding him liable, as a partner, even to third persons. This distinction is supported by Cary, in his treatise on partnership, and Chancellor Walworth considers it as a sound one, in Champion v. Bostwick, 18 Wend. 184. And it is adopted with approbation by Chancellor Kent, in his commentaries. 3 Kent Com. (4th ed.) 25, note. The remarks of Judge Story on these distinctions are very forcible, and seem to us to be founded on sound principles. “ The question in all this class of cases,” he says, “ is first to arrive at the intention of the parties inter sese ; and secondly, if between themselves there is no intention to create a partnership, whether there is any stubborn rule of law, which will nevertheless, as to third persons, make a mere participation in the profits conclusive that there is a partnership.” — “ It is said, ‘ every man, who has a share in the profits of a trade, ought also to bear his share of the loss, as a partner.’ In a just áense, this language is sufficiently expressive of the general rule of law ; but it is assuming the very point in controversy, to assert that it is universally true, or that there are no qualifications, or limitations, or exceptions to it. On the contrary, the very cases alluded to by Lord Eldon, in the clearest terms establish that such qualifications limitations and exceptions do exist.” Story on Part. <§> 36. Admitting, however, that a participation in the profits will ordinarily establish the existence of a partnership between the pai'ties, in favor of third persons, in the absence of all other opposing circumstances; the question is, whether the circumstances, under which the participation exists, may not qualify the presumption, and satisfactorily prove, that the portion of the profits is taken, not in the character of a partner, but in the character of an agent, as a mere compensation for labor and services. If the latter be the true predicament of the party, and the whole transaction admits, nay, requires, that very interpretation, where is the rule of law, which forces upon the transaction the opposite interpretation, and requires the court to pronounce an agency to be a partnership, contrary to the truth of the facts, and the intention of the parties ? Now, it is precisely upon this very ground, that no such absolute rule exists, and that it is a mere presumption of law, which prevails in the absence of controlling circumstances, but is controlled by them, that the doctrine in the authorities alluded to is founded;” “ and there is no hardship upon third persons, since the party does not hold himself out as more than an agent. This qualification of the rule (the rule itself being built upon an artificial foundation) is, in truth, but carrying into effect the real intention of the parties, and would seem far more consonant to justice and equity, than to enforce an opposite doctrine, which must always carry in its train serious mischiefs or ruinous results, never contemplated by the parties.” <§, 38.

These well founded remarks and considerations have great weight, and a very decisive bearing on the present case. It seems to us very clear, that the defendants never contemplated a partnership, by the contract between them. The property and the profits of the transaction belonged to Cabot, Appleton & Co. They, it is true, were bound to pay to Cooper a sum equivalent to a third part of the profits ; but if they failed so to do, Cooper’s remedy would be by action on the contract. But he had no lien on the property or profits, so as to give him a preference over other creditors. Cooper, when he applied to the plaintiffs to supply him with the articles charged, showed them the contract in question, and they must be presumed to have known that the contract did not create a partnership; so that credit was given, and the sale was made, to Cooper alone. But whether, in truth, such was the case or not, we are of opinion that the plaintiffs have no right of action against Cabot, Appleton & Co.; and according to the agreement of the parties the plaintiffs must discontinue as to them, and judgment is to be rendered for them for their costs.