Case ID: ny-super-ct_50/html/0026-01.html
Source: Caselaw Access Project
Author: {"author": "By the Court.—O’ Gorman, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

WASHINGTON MANLEY, Appellant, v. WILLIAM TAYLOR, Respondent.
    
      Decided January 18, 1884.
    
      Partnership—proportion in which losses are to be'shared.
    
    Where one member contributes only mo.ney to the partnership and the other member contributes time, labor and skill, but no money, each contribution is to be set against the other, and in case of failure each loss is to be borne exclusively by the loser without auy right to contribution from the other; though the member contributing money has only one-fourth “interest in the business,” and the member contributing time, etc., has three-fourths.
    The rule however, is not inflexible, and each case i's to be decided from its own circumstances and the intent of the parties to be deduced therefrom.
    Before Sedgwick, Ch. J., Freedman and O’Gorman, JJ.
    Appeal from a judgment entered on the report of a referee, adjusting the respective rights and obligations of the plaintiff and the defendant, as partners, on the dissolution of the partnership.
    The facts are stated in the opinion.
    
      Stickney & Shepard, for appellant.
    The referee’s finding was that defendant “ was to have a three-quarter interest in said business,” and that plaintiff was to have an interest of “ one-fourth in said business.” “A three-quarter interest” means the right to Chree-fourths of all profits and a liability to three-fourths of all losses.
    Though one partner contribute the capital and another the labor, it is not law that losses must be paid out of the capital, so contributed, until that capital is exhausted, before the partner not contributing any capital can be made to bear any losses (Whitcomb v. Converse, 119 Mass. 38; Nowell v. Nowell, L. R. 7 Eq. 538).
    As to Hasbrouck v. Childs (2 Bosw. 105), that case was decided in this court by a majority of one, and only held that losses on capital should be equally borne. The referee has held that the plaintiff should bear all the loss on capital.
    In Jones v. Butler (23 Hun, 367), the rule laid down in Nowell v. Nowell (L. R. 7 Eq. 538), is apparently approved ; and although capital was contributed in a proportion different from the division of profits, the losses on capital were still made to be borne in the proportion in which profits were divided. And the decision in Jones v. Butler, was affirmed by the court of appeals in 87 N. Y. 613. So, also, Neudecker v. Kohlberg (3 Daly, 407), quotes Nowell v. Nowell, with approval.
    
      John A. Balestier and Thomas Darlington, for respondent.
    The plain meaning of the agreement was, that plaintiff risked $1,500, and defendant risked his labor in a business. If there were “ profits,” plaintiff and defendant were to have their benefit in them. If there were “ losses,” plaintiff lost, to that extent, his money, and defendant his time and labor ; this was equitable.
    It is not necessary to travel abroad to find the law which, in this case, will guide this court; the superior court of the city of New York, in the year 1858, settled it, and that decision has never been questioned (Hasbrouck v. Childs, 3 Bos. 105).
    Jones v. Butler was decided under the particular agreement entered .into between the parties. The court in 23 Hun, say, “We think under such an agreement . ■ . . . the loss of capital is to be distributed equally.” And the court of appeals places its decision on the same ground. Neudecker v. Kohlberg is rather an authority in favor of respondent than against him. In that case there was no special contribution of skill and services against capital.
   By the Court.—O’ Gorman, J.

The plaintiff and the defendant agreed to go into business together, the plaintiff furnishing money “as a special deposit but to be used in the business.” He was to be a silent partner, and to take no active part in the business, and to have an interest of one-fourth in the business. The defendant was to be the active partner, giving his time and personal attention to the business and doing all that was necessary to make it successful, and was to have a three-quarter interest in said business. At the time of the dissolution of the partnership, the plaintiff’s special deposit amounted to $1,326. The business was not successful; no profits were realized, and the losses exhausted the available assets, including a considerable, share" of plaintiff’s “special deposit.”

The only question in the case, is whether the defendant can be called on to make good the deficiency in proportion to his three-fourths interest in the business.

The learned referee held that the plaintiff was entitled to take the assets, and after paying the claims of the creditors of the firm to apply the remainder to payment of the balance due and unpaid on his special capital account, and if any surplus remained, that it was to be divided between him and the defendant in the proportion of one-fourth to the plaintiff and three-fourths to the defendant; and the referee did not allow the claim of the plaintiff against the defendant, for contribution, in order to make up the deficiency, which appeared on account of plaintiff’s special deposit..

There has been some difference of opinion among jurists, as to the rule of equity to be applied in these cases, and the question was discussed with great care and erudition by Judge Hoffman in Hasbrouck v. Childs (3 Bosw. 105). The opinion sustained by the weight of authority, is that when one member of a partnership puts money into the business, but gives to it no time or attention, and expends upon it no skill or labor, while the other partner contributes no money, but does contribute his time, attention, labor and skill to make the business productive, that his_ contribution of labor, etc., is to be set against- the money contribution of the other ; that in case of failure, his loss of labor, etc., is to be set against the money loss of the other, and that each loss is to be borne exclusively by the loser without any right to contribution from the other. This rule is not inflexible, and each case must be decided according to its own circumstances, and the intention of the parties to be deduced therefrom ; and these were questions which it was within the province of the referee, in the case at bar, to determine on the evidence before him.

His decision was, in my opinion, correct, and the judgment should be affirmed, with costs of this appeal.

Sedgwick, Ch. J., and Freedman, J., concur.