Case ID: ad_171/html/0327-01.html
Source: Caselaw Access Project
Author: {"author": "Smith, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Max Stoller, Appellant, v. John Franken, Respondent.
    First Department,
    February 11, 1916.
    Partnership — agreement constituting joint venture or partnership — equity — erroneous dismissal of complaint in equity where plaintiff entitled to recover at law.
    In an action to recover moneys due under an agreement between ' the plaintiff and defendant it appeared that the defendant had established a department in his store for the selling of certain articles and had placed the plaintiff in charge; that it was agreed that he was to receive a certain amount per week and a percentage of the net profits at the end of each year; that the defendant was to furnish the cash and credit for the department which was to be deducted from the gross income before dividing the profits, and was to receive a certain amount per month to be deducted from the gross profits for the expenses of the department; that the plaintiff would make no purchases and indorse or sign no notes or checks without the consent of the defendant, and that all money or checks and negotiable instruments should be in charge of the defendant.
    
      
      Held, that the agreement constituted a joint venture in the nature of a partnership and that the plaintiff, in order to ascertain the net profits, should bring a suit in equity for an accounting.
    But, having brought an action at law and pleaded an account stated as to the first year’s profits, the plaintiff should have been allowed to make proof thereof, and it was error to dismiss the complaint.
    Appeal by the plaintiff, Max Stoller, from a judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of the county of New York on the 29th day of November, 1915, upon a dismissal of the complaint upon the pleadings at the opening of the trial.
    
      Philip O. Samuels, for the appellant.
    
      Otto Horwitz, for the respondent.
   Smith, J.:

The case had been moved at a Trial Term of the Supreme Court before a jury.

From the complaint it appears that the defendant was in business under the style of Franken Bros.; that upon the 9th day of September, 1912, a new department of that store was instituted under the name of the “ Max Stoller Department of Franken Brothers.” This department was set aside for the business of selling dress fabrics, and was to be maintained for a period of two years from the date of its creation. The plaintiff was put in charge of it, and it was agreed that for his services he was to receive the sum of forty-five dollars a week out of the department, and was further to receive fifty per cent of the net profits of said department at the end of each and every year. The defendant was to furnish the cash and credit for all merchandise and for the running expenses and salaries, and same was to be deducted from the gross income in a division of the profits. Furthermore, it was provided that the defendant was to receive fifty dollars a month for the first two months and ninety-five dollars a month thereafter, which was to be deducted from the gross profits, for rents for such parts of the building as were necessary for the running of this department, and such sum should be deducted as might be agreed upon for gas and electricity. It was further agreed that this plaintiff would run the business and buy and sell with the approval of the defendant, and that he would make no purchases without the consent of the defendant, or indorse or sign any notes or checks without such consent, and that all money or checks and negotiable instruments should be in charge of the defendant. It was further provided that either party might terminate the relation by reason of default of the other party by giving ten days’ notice.

Plaintiff claims that this is purely an agreement for services, and that his interest in the profits is simply in payment of such services. Defendant contends that the agreement constitutes a joint venture in the nature of a partnership. These claims present the first question for consideration.

In my judgment the agreement has all the indicia of a joint venture or partnership. The allowances both to the defendant and to the plaintiff of specific sums to be deducted from the proceeds before the net profits were ascertained are in the nature of partnership allowances. The restrictions and limitations placed upon the plaintiff, that he should act only with the approval of the defendant, make purchases only with his consent, sign notes only with his consent, are restrictions which would naturally be placed upon a partner or one interested jointly, from which relation a greater power might naturally be assumed to exist without the expression of a limitation. If the plaintiff were a mere employee of the defendant these limitations would naturally follow, or at least would be unnecessarily placed in the agreement of employment. The interest of the plaintiff then in this fifty per cent of the net profits after the deduction of expenses and certain allowances to both parties, was an interest in the profits as such, and not merely an interest therein for the purpose of ascertaining the amount of compensation for services rendered. The court properly held, therefore, that the relations existing between the parties were partnership relations and that an action to ascertain the net profits must accordingly be an action in equity for an accounting.

The plaintiff contended upon the trial that even though this contract created a joint venture or partnership, nevertheless, as to the first year’s profits he had pleaded an account stated, which was the proper subject of a legal action. The 5th paragraph of the complaint states that under and pursuant to the terms of the agreement after deducting all expenses and allowances, there was a net profit in said business of $22,151.23, of which the plaintiff was entitled to one-half. The 6th paragraph then states: “That it was mutually agreed that the defendant herein was entitled to an allowance for cash and merchandise up to the 1st day of September, 1913, in the sum of $1,147.42, leaving a balance due and owing to the plaintiff from the defendant of $9,895.87, Which the defendant promised and agreed to pay.” It is undoubted that two partners may agree upon a balance due, and after such agreement an action at law may be brought therefor. While the agreement as to the balance due is not here stated as clearly as it might have been, nevertheless it is clearly stated that the credit was mutually agreed upon. The balance due is then stated, and the promise of the defendant to pay the same. A fair interpretation of the whole paragraph would, I think, lead to the conclusion that as to the first year’s profits an account was stated of the balance due, and a promise made to pay same, upon which an action at law could be brought. As to the action for the profits for the first year, there was error in dismissing the complaint, and the plaintiff should have been allowed to make proof, thereof.

Upon the assumption, however, that a cause of action for an accounting upon a contract for a joint venture or partnership is in equity, the court was not authorized to dismiss the plaintiff’s complaint. In Glyn v. Title Guarantee & Trust Co. (132 App. Div. 859) the head note in part reads: “ Where a complaint is dismissed at trial before evidence taken, it is the same as sustaining a demurrer on the grounds of insufficiency, "and the dismissal is error if the plaintiff is entitled to any recovery upon the facts alleged.” In Thomas v. Schumacher (17 App. Div. 441) the head note in part reads: “ The fact that the plaintiff in an action in equity has demanded in his complaint the wrong relief, or relief to which he is not entitled, does not justify the court in dismissing the complaint where the facts show that he is entitled to recover damages at law. If the case is not one properly triable in equity, it should be transferred to a term where it can be tried before a jury.” In Perrin v. Smith (135 App. Div. 127) the head note in part reads: Although a complaint in equity will be dismissed on demurrer if it fail to state an equitable cause of action, yet after answer it will not be dismissed on a motion for judgment on the pleadings if it state a legal cause of action, no matter what the prayer for relief. ”

These views lead to an order reversing the judgment and granting a new trial, with costs to appellant to abide the event of the action.

Clarke, P. J., McLaughlin, Laughlin and Dowling, JJ., concurred.

Judgment reversed, new trial ordered, costs to appellant to abide event.