Case ID: nc_164/html/0290-01.html
Source: Caselaw Access Project
Author: {"author": "WalKER, J.,", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

M. A. BUIE et al. v. ANGUS KENNEDY et al.
    (Filed 13 December, 1913.)
    '1. Partnership — Dissolution—Profits—Diminution of Assets — Liability for Losses.
    Where a partnership was formed for the purpose of engaging in the business of making turpentine, the partners agreeing to divide the profits in the proportion of three-fourths and one-fourth, and one-half of the capital was lost in the business in depreciation of the property contributed by the partners which was caused by its use in the business: Held,, that as the firm was indebted to each partner for the share of capital furnished by him, the amount of capital so lost should be deducted from the gross returns, along with the costs and expenses of operation, in order to ascertain if any profits had been realized, and if any, to what amount. And this would be so whether the firm is to be considered as indebted to the partners in their contribution to the capital or whether there was merely a loss of capital by user of the property so contributed, and which is to be regarded as making a part of the gross' returns in its converted form and to be taken therefrom, in like manner as debts of the firm, and to be deducted, in ascertaining whether there are any profits.
    2. Contracts, Writing — Deeds and Conveyances — Consideration— Guaranty — Parol Contracts — Trials—Evidence.
    The plain tiff and defendant having agreed to form a copart-nership for producing turpentine on the lands .of the latter, an undivided one-half interest. in the lands was conveyed to the former for a monetary “and a further consideration.” It was found as a fact that the entire contract was. not reduced to writing, but that it was stipulated by parol that the defendant would pay the amount of shortage in the “crop boxes” should the actual number thereof be less than that specified in the conveyance: SeU, the parol part of the contract did not vary or contradict the writing (the deeds) in this case, and is admissible as evidence; and that this agreement to refund was a part of the consideration of the deed.
    3. Appeal and Error — Assignments of Error — Exceptions Valid in Part.'
    Where there is a single assignment of error to several rulings of the trial court, and one of them is correct, the assignment must fail; and in this case it is held that the assignment, being general, was not taken as required by the rule of this Court. ■
    Appeal by plaintiffs from Ferguson, J., at February Term, 1913, of BobesoN.
    Tbis action was brought by tbe plaintiffs to enjoin tbe sale of certain real • property under a power • of sale contained in a mortgage given by them to tbe defendants. Tbe real controversy, though, arose out of tbe settlement of their partnership dealings. Defendants being tbe owners of lands, chattels, and turpentine leases in tbe State of Florida, conveyed a one-half undivided interest therein to the plaintiffs for the sum of $8,000, under an existing agreement to form a copartnership for the purpose of carrying on a turpentine business, and this was to constitute the capital of the firm. This was in November, 1907. The mortgage was given to secure the payment of $5,000 of the $8,000 indebtedness. The business was entered upon and continued by the firm of Kennedy Brothers & Buie until 18 April, 1910, when it was dissolved. The partners contributed equally to the capital, but agreed to share unequally in the profits, M. A. Buie to receive three-fourths thereof and defendants the other fourth, the excess of one-fourth over defendant’s share going to Buie on account- of personal services to be rendered by him.
    The case was referred to Mr. S. E. Mordecai, to take and state an account of the copartnership, the sale having been enjoined until the amount due on the $5,000 note could be ascertained. The referee found the balance due 1 December, 1912, to be $4,778.25. Exceptions were duly taken to his findings of fact and law, and upon a review of his report, under the exceptions, the court found the balance to be $5,394.03.
    The principal items in dispute between the parties were as to what constituted profits of the business, and whether, in estimating the same, depreciation of the capital by its use in the business should be counted as a loss, or whether the profits to be divided should be ascertained simply by deducting the costs and expenses of operation from the gross returns of the business.
    . The referee was of the opinion that no loss or depreciation of capital should be considered in making'the computation, and upon this basis he found the profits to be $1,279.60, while the judge was of the opposite opinion, and held that, under the facts of the case as found by the referee and approved by him, the amount by which the capital had been reduced in value by use iii the business should be considered and deducted from the gross' returns, and under this view he found the profits to be $174.03.
    There was another question of importance in the case, which, perhaps, does not enter strictly into the partnership account, but should be considered as a separate and independent‘item of charge against the defendants, if plaintiff’s claim is held to be well founded. They alleged that at tbe time they entered into the partnership arrangement the defendants orally represented and 'agreed, as- a part of the terms of the purchase of the land, chattels, and turpentine interests or leaseholds, that the timber on the land would “cut not less than thirteen crops of 10,000 boxes eachj and that any deficiency in this amount would be deducted from the purchase price; that the timber failed by actual test to cut more than ten crops of 10,000 boxes each, and by reason thereof plaintiffs are entitled to a credit of $4,500 on the price, leaving only a balance of $3,500 due originally thereon, without any deduction on account of their subsequent partnership transactions. The referee held, the court affirming the finding, that the claim for the deficiency in the crops varied or contradicted the writing, and, therefore, excluded it from consideration. Evidence as to it was taken under objection by defend-0 ants, but finally ruled out for the reason just given.
    There’are some other subsidiary questions, which will be noticed in the further development of the case. , The court gave judgment against- the plaintiffs for $5,394.03, with interest on the principal, $5,000, from 10 April, 1910, and the costs, and ordered a sale of the property described in the mortgage. Plaintiff, having assigned errors, appealed to this Court.
    
      Gox & Dunn for plaintiffs.
    
    
      McIntyre, Lawrence & Proctor and McLean, Varser & McLean for defendants. , .
    
   WalKER, J.,

after stating the case: The first question presented is the one in regard to the profits. The authorities seem to hold it to be clear that an important distinction exists between the terms “profits” and “gross returns.” Profits are the excess of returns over advances; the excess of what is obtained over the cost of obtaining it. Losses, on the other hand, are the excess of advances over returns; the excess of the cost of obtaining over what is obtained. The expressions “net profits” and “gross profits” are met with in the books, but they are inaccurate. “Profits” and “net profits” are,.for all legal purposes, synonymous expressions. All profits are necessarily net, and no profits can possibly be gross. But tbe term “gross profits” is sometimes used to designate tbe returns. Tbis use of tbe term, however, is inaccurate. A business is susceptible of “gross returns” and “nefi returns,” and “profits” is tbe synonym of “net returns.” Tbe distinction between profits, on tbe one band, and gross returns on tbe other band, is obvious. George on Partner-sbip, p. 64. It is said by tbe same author that an agreement to share gross returns does not create a partnership, for tbe reason that such an agreement is inconsistent with the joint ownership of tbe profits. In a partnership tbe profits are shared because tbe partners are joint owners of them. If no profits have been made, no partner is entitled to any share as against tbe others, for there is nothing to share. But where tbe agreement is to share gross returns, tbe share is independent of tbe .existence of profits, and may be taken when there is a loss. It necessarily follows that an agreement to share gross returns creates a debt between tbe parties, and not a joint proprietorship in tbe profits. He then quotes Parsons on Partnership, sec. 62, as follows: “Though the sum may come out of profits, if they are sufficient, it will, nevertheless, come out of somebody, though there be no profits. The fixed amount, which'is independent of the success or failure of the business, betrays a stranger’s interest, and not a principal’s. A proprietor’s share' springs out of the business, and varies according to its vicissitudes. A principal who made no contribution himself could never take his copartner’s, and make gain out of his copartner’s loss and the failure of the business.” George on Partnership, pp. 64, 65. We deduce the principle, from what is there said, that the word “profits,” when used in relation to the final distribution of the partnership effects or to the shares of the members upon a settlement of its affairs, means “net returns,” that is, the gross returns after paying its liabilities and taking off the losses" in the business and the costs and expenses of operation. But in this case the vital question is, whether the amount of the reduction in the value of the capital contributed by the partners by the use of- it, that is, by cutting and scraping the boxes, and in other respects, should be deducted from the gross returns. The partnership, as an entity distinct from its individual membe'rs, becomes indebted to them for the capital they advance, and upon a settlement this debt should be paid just as any other liability of- the firm, except that it is subordinate to the prior claims of creditors. As between the members and the partnership, it is a debt, and it makes no difference whether the capital was contributed in money or in money’s worth, such as property. Upon this subject the rule is thus stated in George on Partnership-, p. 116: “Where the business has resulted in a loss impairing the capital, such loss is prima facie to be equally borne, notwithstanding the fact that the capital was unequally contributed. Thus, in Whitcomb v. Converse the articles of partnership provided that A. and B. should contribute the whole capital in unequal proportions; that B., 0., and D. should contribute all their time to the business, and A. ‘such time as he may be able to give’; and that each should receive one-fourth of the net profits. The business resulted in a loss of a portion of the capital. It was held that the capital constituted a debt of the partnership, to which all the partners were bound to contribute- equally. The fact that the partner contributing services loses them does not affect the question. The doctrine here presented is sustained by the great weight of authority, though there are some contra cases. Of course, the agreement of the parties determines the proportions in which losses are to be shared, and what losses are to-be shared. But prima facie, a loss of capital is like any other loss, and is to be borne in like proportions.” And at p. 117: “Any advances of money *to the firm by a partner in excess of his contribution agreed to .be made in the contract do not come within the designation of capital; the same being nothing other than a loan-to the partnership, whereby the loaner becomes a creditor of the firm, though, of course, not of equal standing with outside creditors in respect of payment in ease of the firm’s, insolvency.” And again at p. 115: “When the amount of each partner’s contribution is shown, there is no room for presumptions, and upon a dissolution eacb partner must be repaid tbe amount contributed -by him, before there is any distribution of profits.”

It is apparent here, from tbe facts and circumstances, though tbe terms of tbe partnership were not all reduced to writing, tbat tbe partners mutually intended tbat tbe property contributed by them, as capital, should belong to the firm and be made good to tbe partners at its dissolution, and not merely tbat tbe firm should have tbe use of it, and for this reason defendants conveyed one-half interest in it to tbe plaintiff Euie. “Where, as is usual in an ordinary mercantile partnership transaction, a partnership is created, not merely in profits and losses, but in tbe property itself, tbe property is transferred from tbe original owners to tbe partnership, and becomes tbe joint property of tbe latter.” Whitcomb v. Converse, 119 Mass., 38, 43. This was directly held by tbe same Court in Livingston v. Blanchard, 130 Mass., 241. Some authorities treat, tbe impairment of tbe capital as a loss to be borne by tbe parties in tbe same proportion as they share tbe profits. “If there are no prpfits, and tbe capital has been impaired or wholly lost, in dividing losses tbe deficit must be repaid like any other loss, for impairment of capital is a loss tbe same as any other, and is not to be reimbursed out of profits merely. Tbat tbe capital has been contributed unequally and losses are to be equal makes no difference, or if tbe capital has been wholly paid by one partner, tbe other contributing services and skill, tbe latter who has lost bis timé owes to tbe former tbe same proportion of a loss of capital tbat be would be chargeable with bad tbe losses not reached tbe capital, but bad simply diminished tbe profits.” ’2 Bates on Partnership, sec. 813. He gives several concrete examples of this principle in tbe notes to tbe text. Under this view, Hasbrouck v. Childs, 3 Bosw., 105, is an apt illustration, and its facts are very much like those in this case. H. and 0. formed a partnership, eacb contributing $2,000, H. giving.bis whole time and C. a small part of bis time, H. to receive three-fourths of the profits and C. one-fourth; but nothing was said as to losses. There were no profits, but tbe capital was heavily impaired, only $879.80 being left.- It was held tbat this must be equally divided; that H.’s excess of profits was for extra services and payable only out of tbe profits, if any were made, and tbat losses were to be shared equally.

It would be strange if we should hold in this case that there had been a net profit, when the firm had lost half of its capital, which really represented nearly all of its gross returns, having been converted into money by a sale of the manufactured product. The agreement was to divide net profits, and not any part of the capital. But whichever view we take, whether the amount contributed to capital is to be considered as a debt of the firm, or whether if capital is impaired, it is to be regarded as a loss, the ruling of the judge was correct/ The defendant has not appealed, but is satisfied with that decision, and the plaintiff cannot complain :of it.

But we think the court erred as to the other question. The oral stipulation that defendants would pay the amount of the shortage in the “crops of boxes,” if there turned out to be less than thirteen of them, was but a part of the entire contract between the parties, the other part of which, namely, the deeds, was reduced to writing. It did not contradict or vary the written part. Besides, the deed for the land and leasehold and timber boxes, dated 19 November, 1907, recites that it is given in consideration of $100 (and a further consideration),” showing that -the whole consideration was not set forth. The referee finds, and the court approved his findings of fact, that the partnership agreement was not in writing and the .misunderstanding of the parties grew out of this fact. It is' true the deeds for the property were in writing, but what the finding means is that the entire contract between the parties was not written, but a part of it rested in parol. The facts in McGee v. Craven, 108 N. C., 351, were that a tract of land was sold with the undei*-standing between the parties that if there should be a deficiency in the acreage, the grantor would pay back the difference or the value of the deficiency. The deed conveyed 111 acres of land for $900, and not by the acre. Plaintiff, the grantor, sued on one of the purchase-money notes, representing the balance alleged to be due; defendant counterclaimed upon the ground tbat there were only 82% acres in tbe tract, tbe difference being $230.85. Tbe. jury so found, and tbis Court' affirmed tbe judgment upon tbe verdict, and beld tbat there was no contradiction or alteration of tbe written part' of tbe contract, and tbat tbe stipulation as to tbe deficiency was enforcible, not being in violation of tbe rule excluding oral evidence to vary or contradict a written agreement. Tbat case is strictly analogous to ours. It is “on all-fours with it,” as we sometimes say in order to express an exact similitude. Not only is tbis case like that one, so far as there are facts common to both, and to tbe extent tbat tbe legal principle involved in' both is tbe same, but tbe facts of tbis'case more clearly, if anything, exclude the application of tbe rule of law in regard to parol testimony which is now involved, and present a much stronger case than did those in McGee v. Graven. At any rate, tbe rule of exclusion does not apply here. A ease much like ours is Sherrill v. Hagan, 92 N. C., 345, in which it is beld, Justice Ashe delivering tbe opinion: “Where it is agreed between the vendor and purchaser of a tract of land tbat tbe purchaser shall have it surveyed at bis expense, and-if it shall be found to contain a smaller number of acres than is called for by tbe deed, tbat tbe vendor shall refund a pro rata part of tbe purchase money: Held, tbat such contract is founded on a sufficient consideration, and tbat it is not within tbe provisions of tbe statute of frauds. In such ease parol" evidence is admissible to establish tbe contract,” citing Manning v. Jones, 44 N. C., 368; Howe v. O’Malley, 1 Minn., 387; Twidy v. Saunderson, 31 N. C., 5; Daughtrey v. Boothe, 49 N. C., 87, and Terry v. R. R., 91 N. C., 236. It was said in Colgate v. Latta, 115 N. C., 127, quoting Abbott’s Trial Ev., p. 294: “A written instrument, although it be a contract within the meaning of tbe rule on tbis point, does not exclude evidence tending to show- tbe actual transaction, where it appears tbat tbe instrument was not intended to be a complete and final settlement of tbe whole transaction, and tbe object of tbe evidence is simply to establish a separate oral agreement in tbe matter as to which tbe instrument is silent and which is not contrary to its terms nor to their legal effect.”

In classifying .eases exempt from tbis rule of evidence, tbe Court, in Thomas v. Scott, 127 N. Y., 133, said: “Tbe second class embraces those cases wbicb recognize tbe written instrument as existing’ and valid, but regard it as incomplete either, obviously or at least possibly, and admit parol evidence, not to contradict or vary, but to complete tbe entire agreement, of wbicb tbe writing was only a part.” And in Batterman v. Pierce, 11 Hill, 171, wbicb was an action for purchase of'wood, a verbal agreement was made at tbe time that if anything happened to tbe wood through plaintiff’s means, or by setting fire to bis fallow, be would guarantee tbe purchaser against any loss. Tbe Court held that tbe evidence was competent, and to tbe objection that tbis contravened tbe rule, said there was “nothing in it.” See, also, Currie v. Hawkins, 118 N. C., 594; Walton v. Jordan, 65 N. C., 170; Johnson v. R. R., 116 N. C., 926; Kelly v. Oliver, 113 N. C., 442. We said in Typewriter Co. v. Hardware Co., 143 N. C., 97, quoting with approval Evans v. Freeman, 142 N. C., 61: “Numerous other eases have been decided by tbis Court in wbicb tbe application of tbe same principle has been made to various combinations of facts, all tending, though, to tbe same general conclusion, that such evidence is competent where it does not conflict with tbe written part of tbe agreement and tends to supply its complement or to prove some collateral agreement made at tbe same time. The other terms of tbe contract may generally thus be shown where it appears that tbe writing embraces some, but not all, of tbe terms.”

Tbe subject, was considered in Richards v. Hodges, ante, 183, with full citation of authorities, though the facts of that case were .not, in all respects, identical with those of tbis one. Beference is also made to a valuable note to Woodson v. Beck, 31 L. R. Anno. (N. S.), 235, cited in Richards v. Hodges, where there are many authorities collected wbicb sustain our view in tbis case. One of tbe cases cited there is Brady v. Henry, 71 Cal., 481 (60 Am. Rep., 543), where a parol agreement made at tbe time of giving a note, that if tbe'quantity of bay for wbicb i't was given, not then known, should fall below tbe given amount, a credit should be -allowed to the extent of tbe deficiency, and it was field by the Court to be admissible, as not contradicting or varying the writing. Other cases to be found there, and which agree with our decision in Evans v. Freeman, supra, and Typewriter Co. v. Hardware Co., supra, are the following: Hansen v. Yturria, 43 S. W., 795; State Bank v. Cook, 125 Iowa, 111; Mitchell v. Sellman, 5 Md., 376; Insurance Co. v. Smucker, 106 Mo. App., 304; Saffer v. Lambert, 111 Ill. App., 410.

In this case it was agreed that if the timber on the land did not cut thirteen crops, the amount of the shortage should be deducted from the price for which the note w;as given. This comes within the principle of .the above authorities, and the judge erred in not submitting the question to the jury. This will be done unless the parties can agree as to the amount, or to some other method of ascertaining it. The case of Walker v. Venters, 148 N. C., 388, is not applicable, for there the writing was contradicted or varied, but our case is more like Brown v. Hobbs, 147 N. C., 73, also cited, Michael v. Foil, 100 N. C., 178, and Sprague v. Bond, 108 N. C., 382, where this Court held the parol agreements for a division of the profits, upon a sale of the land conveyed, not to be within the rule of exclusion, nor within the statute of frauds.* The agreement to pay a part of the proceeds or to refund a portion of the price was a part of the consideration upon which the deed was obtained. Brown v. Hobbs, supra; Trowbridge v. Wetherbee, 93 Mass. (11 Allen), 364; Hess v. Fox, 10 Wendell, 436; Sprague v. Bond, supra. These cases are in principle like Richards v. Hodges, supra, decided at this term.

Assignment of error No. 4 is not taken as required .by this Court. Porter v. Lumber Co., post, 396. Besides, it is a general assignment to several distinct rulings of the court, one of which, at least, we have decided to be correct. In such a case the assignment, of course, must fail, as we held in S. v. English, post, 497. It is the same as if- taken to several portions of a charge, it must be good as a.whole (Bost v. Bost, 87 N. C., 477; Insurance Co. v. Sea, 21 Wall., 158); or as if taken to a mass of evidence, some of wbicb is competent. Barnhardt v. Smith, 86 N. C., 473. In S. v. Ledford, 133 N. C., 722, we held: “The objections are general, and the rule is well settled that such objections will not be entertained if the evidence consists of several distinct parts, some of which are competent and others not. In such a case the objector must specify the ground of the objection, and it must be confined to the incompetent evidence. Unless this is done, he cannot afterwards single out and assign, as error the admission of that part of the testimony which was incompetent,” citing the cases. Without conclusively determining the question as to what is called the “high boxes,” and the refusal of the referee and court to allow it as a part of the profits, as they are embraced in the general assignment, we may say that it appears to be without any real merit. a

Some assignments are made to the findings of fact, but we are bound by those of the judge, or, rather, we do not review them in matters of account, and certain other cases not necessary now to enumerate. McCullers v. Cheatham, 163 N. C., 61, and authorities there cited.

There was error as to the parol agreement and no error as to other matters. Costs of this Court to be divided equally,

Modified.