Case Name: Eli Hasbrouck, Jr., v. Emery E. Childs
Court: New York Superior Court
Jurisdiction: New York
Decision Date: 1858-05-15
Citations: 3 Bosw. 105
Docket Number: 
Parties: Eli Hasbrouck, Jr., v. Emery E. Childs.
Judges: 
Reporter: Reports of cases argued and determined in the Superior Court of the city of New York
Volume: 16
Pages: 105–124

Head Matter:
Eli Hasbrouck, Jr., v. Emery E. Childs.
Two persons (H. & C.), both of whom then resided in the State of New York, entered into written articles of copartnership, by which they agreed to transact, as partners, at Keokuk, Iowa, the wholesale and retail dry goods business. H. & 0. severally agreed to contribute and did contribute §2,000, of capital, in cash. H. agreed to devote himself diligently in Keokuk to the said partnership business, except when the purchasing of goods or other necessary business of the firm required him to be absent from Keokuk. C. agreed to attend to that part of the business which could be conducted in the city of New York, as far as he was able, without interfering in any way with his duties there, as clerk of any firm by whom he might be employed. It was stipulated, that H. should be entitled to receive and be paid “ three-fourth parts of the profits of said partnership,’’ and the said 0. “ one-fourth part.” The agreement did not, in terms, make any provision in respect to losses. No profits were made, but on the contrary the losses absorbed §3,120.20 of the money contributed as capital:
1. Held, on these facts, that in respect to the portion of the capital absorbed in the payment of losses, neither party had any claim against the other, and that the §879.80 remaining of the sum originally contributed as capital, belonged to, and should be divided between the partners equally. (Per Slosson and Pierrepont, J. J.)
2. Held, also, that by a just construction of the articles of copartnership, the partners thereby, agreed, that H. should receive half of the profits for his extra services if profits were made; and if none were made, that he should not be compensated therefor; and that if losses were incurred, they should be borne by the partners equally. (Per Slosson and Pierrepont, J. J.)
1. Conclusions of Hoffman, Justice. The terms of the copartnership agreement do not afford satisfactory proof of the intention of the parties being such as the majority of the Court have drawn from it. It cannot be construed on the supposition of such being the expressed or necessarily implied intention; and the question is, how the law construes the provisions and what rule of apportionment it will apply ?
2. In the absence of any decisive case in the English or our own Courts, upon the particular point, the Court is at liberty to resort to the doctrines of the civil law for assistance.
3. The rule of such law .is nearly universal, that in cases of a contribution of labor and skill by one, and of a money capital by another, the intendment of the law is, that the labor and skill are to be compared with the use or interest of the money, and be estimated at that value. In such a case, the money is at the risk of the contributor; whatever is lost in the business is his loss; whatever remains, belongs to him. He loses, also, the interest on his capital, and the.associate of labor loses his time and services, taken as equivalent for such interest
4. The Code of France has changed this rule, and made the money, in such a case, to belong to the association, and be at its risk, but such Code has not provided for the case of a contribution by one of industry in conjunction with a money capital, and by another of money alone; nor especially when such circumstances are combined with an inequality in the share of profits.
5. In such a case, the intendment that the labor is to be compared and valued with the use of the money, in some proportion to be deduced from the circumstances is reasonable; conformable to the rules of the general civil law; sustained by writers upon it; and not opposed by any principle or rule of our law.
6. Under such rules and their exposition, the legal construction of the agreement in this case is that the extra services of H. are represented by, and are to be estimated at, the interest on one-half of the aggregate capital.
Assuming the profits to be §280 (the legal interest for one year on §4,000, the aggregate capital), O. will receive §70'on his capital, and H. §70 on his equal capital; §140, therefore, represents the extra services of H.
The common fund is made up of the extra services of H, thus estimated and represented; the interest on the money contributed by him; and the interest on the money contributed by O. The money capital itself, is owned by the partners equally. This was put at risk by them respectively, and was lost, except the §879.80 of capital still remaining. That must be divided equally between the partners.
(Before Hoffman, Slosson and Piekkepont, J. J.)
Heard, April 12;
decided, May 15, 1858.
This controversy comes before the court at General Term, upon a case containing the facts upon which it depends, agreed upon by the parties, as prescribed by § 372 of the Code. The case so agreed upon, exclusive of its title, is in these words, viz.: “ We, Eli Hasbrouck, jr., of the village of Hewburg, in the State of Hew York, and Emery E. Childs, of the city, county and State of Hew York, having a ‘question of difference, which might be the subject of a civil action,’ viz.: As to the proportion each party shall bear of the losses incurred, as hereinafter stated, have agreed upon the following case, which states ‘the facts upon which the controversy depends,’ and hereby submit the same to the Superior Court of the city of Hew York, according to § 372 of the Code of Procedure, &c.
(Signed) “ Eli Hasbrouck, Jr.,
“ Emery E. Childs.
“Dated, October 31, 1857.”
The parties entered into the following agreement: “The undersigned Eli Hasbrouck, jr., of the city of Hewburg, in the State of Hew York, and Emery E. Childs, of the city of Brooklyn, in the State of Hew York, hereby agree, each for himself, to form a limited partnership, for the transaction of the wholesale and retail dry goods business, in the city of Keokuk, in the county of Lee, in the State of Iowa, under the name or firm of ‘ Hasbrouck & Childs,’ to commence the fifteenth day of April, in the year one thousand eight hundred and fifty-six, and terminate on the first day of January, in the year one thousand eight hundred and sixty-one.
“ The said Eli Hasbrouck, jr., for himself, agrees to contribute two thousand dollars of capital, to the common stock of said partnership, and to pay same in cash, on or before the twenty-second day of April next.
“ The said Emery E. Childs, for himself, agrees to contribute two thousand dollars of capital to the common stock of said partnership, and to pay same in cash, on or before the twenty-second day of April next.
“ It is further mutually agreed, that the said Eh Hasbrouck, jr., shall be entitled to receive and be paid three-fourths parts, of the profits of said partnership, and the said Emery E. Childs one-fourth part.
“ The said Eli Hasbrouck, jr., hereby agrees to devote himself diligently, in Keokuk, to the said partnership business, durmg the continuance of the partnership, excepting the time the purchase of goods or other necessary business of the firm, may require his absence from Keokuk.
“ The said Emery E. Childs, hereby agrees to attend to that part of the business, which can be conducted in the city of Few York, as far as he is able, without interfering in any way, with his duties as clerk to any firm there, by whom he may be employed.
“Eli Hasbrouck, Jr.,
“ Embry E. Childs.
“Few York, April 15th, 1856.
“ The whole capital was contributed -as agreed upon and paid in, nothing has been paid to Mr. Childs.
“The firm was unfortunate and has been dissolved; the assets remaining are eight hundred and seventy-nine dollars and eighty cents, the losses consequently are three thousand one hundred and twenty dollars twenty cents.”
.(Signed by the attorneys of the parties.)
There was, appended to the case, an affidavit that “the controversy is real, and the proceeding in good faith, to determine the rights -of the parties.”
T. McKissoclc, for E. Hasbrouck, jr.
The parties entered into partnership, and each put an equal amount in cash into the concern—Hasbrouck was to devote his whole time to the business, and Childs an indefinite and very small portion of his time—Hasbrouck to receive three-fourths of the profits. The partnership is dissolved without profits—a little more than three-fourths of the capital has been lost. The question presented is, in what proportion shall the partners bear the loss.
I. The loss should be borne equally, each partner taking a moiety of the capital left.
II. The one-half of the profits, to which Hasbrouck was entitled beyond his partner, was manifestly a compensation for his extra services, and not profits—the profits were only named as a basis on which to calculate the compensation he was to receive.
Hasbrouck did not render his extra services instead of a share of the capital stock of the firm, but advanced as much in cash to the capital as Childs his partner.
TIT. Besides, there is no equitable rule of adjustment that would subject Hasbrouck to bear three-fourths of the loss, merely because by the articles of copartnership he was to have received that portion of the profits.
It was only of the net profits he was entitled to any share. So that if the profits had been a $1,000, and the losses $999, he would have been entitled to receive three-fourths of a dollar, of which, fifty cents would have been for extra services, and in this way he would have borne three-fourths of the loss, which is according to the meaning of the articles of copartnership.
But when the three-fourth ratio is applied to the capital stock remaining, then the principle is not only destitute of equity or reciprocity but arbitrary and unjust..
F. Byrne, for Henry E. Childs.
I. The amount of pecuniary capital contributed by each partner was equal, and whether one did the whole labor or not is immaterial in law, as the parties have made the amount of compensation for the labors of each determinate on the amount of profits. The capital was “common stock,” and the individuality of each share was lost during the continuance of the partnership.
II. The duties of the several parties were distinct. Mr. Childs was to attend to the affairs of the firm, such as purchasing in, and forwarding goods from, the city of New York to Mr. Hasbrouck and Mr. Hasbrouck was to dispose of them in Iowa. All the capital was contributed according to the agreement (Mr. Hasbrouck received it), and “nothing has been paid to Mr. Childs.” “A communion of profit implies a communion of loss, for every man who has a share of the profits of a trade, ought also to bear his share of the loss.” “And if there is nothing to guide the judgment of the court to give unequal shares, there is no rule for them, but to give equal shares.” (Story on Partnership, § 24, Note 3.)
“The proportion of the profits, as well as the mode of conducting the business, may be modified and regulated by private agreement, if there be no such agreement on the subject, and no evidence to the contrary, the general conclusion of law is, that the partnership losses are to be equally borne, and the profits to be equally divided. In equity (according to Pothier), each partner should share in the profits, in proportion to the value of what he brings into the common stock, and he should share in the loss, in a ratio to the gain, to which he would, in a prosperous issue to the business have been entitled. (3 Kent’s Com., 3d ed., p. 29; S. P. Turnipseed v. Goodwin, &c., 9 Alabama R., 372; Colyer on Partnerships, § 167 and notes.)
HI. From the above extracts, it appears that if the pecuniary amount contributed is unequal, the losses and profits would be borne in the same ratio. In the agreement in question, in a prosperous issue of the business, Hasbrouck would be entitled to three-fourths profits. Why, therefore, according to the principles of equity and law, should he not be required to sustain his-share of the losses in the same ratio ?
TV. The amount of capital contributed was... $4,000 00
The losses have been.................. 3,120 20
The assets are........................ 879 80
$4,000 00
Mr. Childs should bear one-fourth of the
losses, viz.,........................ $780 05
Mr. Hasbrouck three-fourths,........... 2,340 15
$3,120 20

Opinion:
.Pierrepont, J.
—Each partner contributed the same amount of capital; had there been no special agreement, each would be entitled to half the profits, and each would be liable for half the loss.
It was competent for the parties to agree, that one should render extra services, taldng his risk of compensation out of anticipated profits, and that such compensation should be half of the profits if any were made, and that the other half should be equally divided; had such been the agreement in terms, the capital left in this case would be equally divided.
A written contract of partnership, like any other contract in writing, is to be construed according to the true intent of the parties, as fairly deduced from the terms used.
I think the fair construction of this contract is such, as to amount to an agreement, that Hasbrouck should have half the profits for his extra services, if profits were made, and no compensation for such services, except in that way; leaving the remaining profits to be divided equally if profits there were, and the losses to be shared equally if losses were sustained.
The balance of capital remaining (the fund in question), should be divided equally between the partners, and judgment should be entered accordingly.
Slossoh, J.
—We think the intention of the parties sufficiently manifested by the agreement itself. Apart from the provisions as to profits and labor, a perfect equality exists between the two, each is to contribute an equal amount of capital, but Hasbrouck is to perform all the work of the partnership, with the exception of what might conveniently be done by Childs in Hew York without prejudice to his other business; moreover Hasbrouck, though a resident in the State of Hew York at the time the partnership was formed, was to remove to, and reside during the five years provided for its continuance, at Keokuk, in Iowa, where the business was to be transacted. There was a propriety therefore, in making a discrimination between them as to the profits, and in giving the larger share to the partner who was to do the larger share of the work, and on whose industry and ability depended the success of the enterprise.
Whether we call this difference, a compensation for extra service, payable out of profits, or call it a larger share of profits by way of compensation is a matter of no moment, as it is very manifest, that compensation for service was the sole object of the provision.
Had no discrimination been made in the agreement as to profits, each would have shared equally, not only on the general presumption, in absence of proof to the contrary, that partners are interested equally, but because each had contributed an equal amount of capital, notwithstanding the services to be rendered by one were wholly disproportionate to those which the other was to bestow. The fact that a discrimination is made, there being no cause for making 'it, in any difference in capital contributed, indicates clearly that it was intended to compensate for the superior service to be rendered by Hasbrouck. If this be so, it is quite manifest that the parties could never have intended that Hasbrouck was to run a risk in respect to his capital, three times greater than that incurred by Childs; in other words, that he was to bear losses in the same proportion he was to receive profits, even to the entire absorption of all his capital, and possibly the bringing him in debt to his copartner besides.
There is nothing unreasonable in holding the intention of the parties to have been that losses were to be borne equally in consideration of an equal contribution of capital, while profits were to be shared unequally in consideration of the difference in services to be rendered. Hasbrouck absolutely stipulates to render the greater service, and his compensation is to depend wholly on the success of the trade, the making of profits. If no profits are made he loses his services, and also the interest on Ms capital, while Childs who has rendered no service, or comparatively none, loses the interest on Ms capital. They are then remitted to the position in which they would have stood had no discrimination been made in respect to profits. If the losses intrench on the capital, they must be equally borne, and if after all the debts are paid any capital remains, it must be equally divided.
I think tMs to be the fair spirit of the agreement, the understanding of the parties, and the true rule of construction.
Judgment should be entered that the fund, being a residue of capital (all the debts being paid), be equally divided between the partners.