Court Opinion

ID: 3614263
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:57:45.104608+00
Date Added: 2024-06-11T14:07:33.604869
License: Public Domain

This action was brought to recover upon a liability of the firm of Blood  Co., in which it is sought to charge the defendant Harris as a member of the firm.
The facts are undisputed that from the 1st day of January, 1862, until the 25th day of October, 1869, the defendant was a member of the firm of Blood  Co.; that on the 25th day of October, 1869, the firm was dissolved by the withdrawal of the defendant Harris therefrom, and a new firm organized under the same name, in which one G.M. Angier took Harris' place. The new firm continued business until the 21st day of March, 1876, at which time it made a general assignment for the benefit of creditors. The plaintiff first transacted business with the firm of Blood  Co. in the year 1869, prior to the withdrawal of Harris, and from time to time thereafter it sold the firm material until near the time of the general assignment made as aforesaid; that the liability upon which this action was brought was incurred shortly before the assignment, nearly seven years after Harris had ceased to have any connection with the firm. It further appears that the plaintiff or its *Page 294 
officers did not know that Harris was ever connected with the firm until after the liability upon which this action was brought was contracted and the general assignment was made. It is sought, however, to hold him liable for the reason that no notice was given to the plaintiff or its officers of his retirement from the firm in 1869.
The trial court held that if Harris' connection with the firm was open and notorious as an ostensible partner, he would be liable; but if his position was not open and notorious as an ostensible partner, but was that of a dormant partner, he would not be liable, and this question was submitted to the jury who found in favor of Harris, and the judgment entered upon this verdict has been affirmed by the General Term.
It has been repeatedly held in this court that questions involving the weight of evidence cannot be here reviewed; that they are finally disposed of by the General Term; that this court can only inquire as to whether there is evidence upon which the verdict could stand. The claim is made that there is no such evidence.
A dormant partner has been variously defined as sleeping, silent, not known, not acting, one whose name and transactions as a partner are professedly concealed from the world, one who shares in the profits of a business but is not known as a member of the firm. In its strictest sense it may imply both the quality of secrecy and inactivity, but it has been held that to be such it is not essential that the dormant partner should wholly abstain from any actual participation in the business of the firm or be universally unknown as bearing a connection with it. He may act in an advisory manner in the general business of the firm and it is sufficient if he is not generally known as a partner. (North v. Bloss, 30 N.Y. 374.)
With this understanding as to the meaning of the term "dormant," we proceed to inquire as to whether there is any evidence tending to show whether Harris was such, which required a submission of that question to the jury. Our attention is first called to the articles of copartnership in which we find it provided that it is "Agreed and understood by and between *Page 295 
the parties that the said John P. and Samuel N. Blood are to give their entire personal attention to the management of the business which is to be located and carried on in the boro. of Athens at such place as shall be agreed upon by the parties, and said John P. Blood and S.N. Blood shall have six hundred dollars each year for their services in managing the business as aforesaid, to be drawn from the company's fund, and neither party shall have the right to draw any further sum without the written consent of the other parties. The said J.P. and S.N. Blood agree to give their whole time to the business and keep an accurate book or books, with entries of all matters of business belonging to the firm, which shall be accessible to both parties at all times and for all purposes. * * * And the said N.C. Harris shall be consulted in the business, and all plans and operations of the firm shall be made and done with the advice of the firm, and the said N.C. Harris is to have and receive from the firm one hundred dollars per year for his services for the care and assistance which he may render to the firm without giving his personal attention to the business."
It thus appears from the express provisions of the instrument that the two Bloods are to carry on the business of the firm and keep its books; that the defendant Harris is not to give his personal attention to the business, but is to be consulted. His position in the firm, therefore, is that of a counselor or adviser, and this is one of the things that he may do and not become an active partner.
It is said, however, that the defendant Harris often visited the work-shops of the firm, looked over the buildings and the work that was being done by the employes; that he wrote two letters to individuals in reference to the affairs of the firm, in one of which he signed his own name, and in the other that of the company. There is nothing, however, in the contents of the first, subscribed by him individually, which indicates that it pertains to any of the affairs of the firm. The other, however, has attached a bill of the firm for a balance of an account rendered, to which attention is called in the letter, and *Page 296 
the statement is made that the same can be settled by the payment of one-half down and by giving a note for the balance. Harris testified that he took no active part in the business of the firm; that he was engaged with one Clark in the manufacture of mowing machines, and that they employed the firm of Blood  Co. to manufacture quite a large number of those machines. If this be so, he could properly look after the construction of the machines from time to time as a member of the firm of Harris  Clark, and still not interfere with his character as an inactive partner of the firm of Blood  Co. Whilst the writing of the letter on behalf of the firm may be a circumstance for the jury, this act standing alone would not, as a matter of law, constitute him an active partner.
It is urged that the contract does not provide that Harris should, as to the business of the firm, be wholly inactive. Very true, no such expression appears in the articles of agreement. It does, however, state what his duties shall be, that of advising, etc., but, as I have already shown, it is not necessary that he should be wholly inactive or that he should wholly abstain from any actual participation in the business.
It consequently appears to me that taking the evidence in connection with the articles of copartnership, a question was presented in which the jury might find that his position in the firm was that of an inactive partner.
It still remains to be determined as to whether his connection with the firm was kept secret to such an extent as not to be generally known. Upon this question Harris testified that at the time they entered into the copartnership it was talked between them that it should not be made public; that it was not to be talked about at all; that that was the understanding when he went into the firm; that he did not know that anything had been said in reference to his connection with the firm in the community in which they did business.
John P. Blood testified that at the time Harris became a member of the firm it was said that he should not be generally known as a partner. On his cross-examination he said he presumed it was known by quite a number that Mr. Harris was a *Page 297 
member of the firm; that if a person asked him who had a right to know, he told him, etc. He does not, however, state that anyone did ask him, or that he, in fact, told anyone.
Evidence was also given on behalf of the defendant by a number of individuals living at the place in which the firm's business was conducted, to the effect that they had business transactions with the firm during its existence and that they never knew or understood that Harris was a member of the firm until the notice of dissolution was published. It is true that the evidence in reference to the talk about the arrangement to keep Harris' connection with the firm secret is controverted by the testimony of S.N. Blood, and that various witnesses testified that Harris was reputed to be a member of the firm. But this only raised a conflict in the evidence, which it was necessary to have settled by the jury. If it was talked and understood that his connection with the firm was not to be talked at all, as testified to by Harris and John C. Blood, and if the testimony of the witnesses who lived in the immediate vicinity is to be believed, to the effect that they had done business with the firm during its existence, and had not heard or known of Harris' connection with it, the jury was justified in finding that Harris' connection with the firm was that of a dormant partner.
But it is said that nothing was said about keeping Harris' connection with the firm secret in the articles of copartnership, and that this evidence was incompetent and should not have been admitted, for the reason that it tends to vary a written instrument; that the contract purports to embrace the entire agreement between the parties. It is true that nothing is said in the articles of copartnership in reference to keeping secret the relation of Harris, but I do not understand that it purports to embrace the entire agreement. If it does, may I inquire how much capital was put in by the Bloods, or either of them, or by the defendant Harris, and in what proportion were they to share in the profits or be liable in case of losses? These are quite important subjects in copartnership agreements, and yet in carefully scanning the agreement, it appears to be silent *Page 298 
upon those subjects. At the end thereof it states that "this partnership is made up and based upon all the stocks, tools, patterns, horses, wagons, goods manufactured and in process of being manufactured as per invoice, with the parties' names attached." But no such invoice is attached to the exhibit, and I consequently am unable to determine as to its contents, and yet reference is made to it as an instrument upon which the agreement is based. So that, instead of purporting to embrace the entire agreement, it expressly purports to be based upon another instrument which does not appear in the case.
But again, the question of secrecy is not one which would ordinarily be entered in a written contract. A contract between copartners usually regulates the rights and liabilities of the members of the firm, and it is not usual or customary for it to regulate the rights of strangers, or parties with whom the firm may transact business. Whether or not Harris' connection with the firm was made public or kept secret, did not affect or change the rights and liabilities of the copartners. As between the members of the firm, their rights and liabilities were the same whether his connection was public and notorious, or secret and unknown. Persons transacting business with the firm alone would be affected. The evidence was competent, and it is in entire harmony with the written contract.
But I am of the opinion that the defendant's motion for a nonsuit might have been properly granted. My examination of the case fails to disclose any evidence showing that the relation of Harris with the firm was that of an open, notorious, ostensible partner, or that he was generally understood as such. His name does not appear in that under which the firm did its business. He was not to be active under the provisions of the agreement, and even conceding the testimony of the witnesses to be true, who had heard rumors and reports in reference to his being a member, it falls short of giving him the general reputation as an acting, ostensible member, which, under the circumstances of this case, would render him liable. If a dormant partner, it is conceded he would not be liable by reason of the failure to give notice of the dissolution of the partnership, *Page 299 
and the reason of the rule is that the plaintiff suffers nothing in consequence of such failure. If the plaintiff had no notice of Harris' connection with the firm at the time it transacted its business, it could have given no credit on his account.
This rule is salutary and is founded upon reason. The plaintiff has no right to exact a penalty from Harris by reason of his failure to give notice. The word "dormant," when used in this connection, should be held to cover cases that clearly come within the reason of the rule. The plaintiff, in order to recover, must show that it has suffered in consequence of his neglect. It is frankly admitted that the president or officers of the plaintiff did not know that Harris was a member of the firm at any time until after the final credit was given, and the general assignment of Blood  Co. was made.
It, therefore, gave no credit to the firm on account of Harris, and it suffered nothing by his failure to give notice of his retirement, unless his relation with the firm was so notorious and ostensible as to give it a financial standing and reputation with the public. There is no presence that his relation was of this character, or that any credit was given by the plaintiff because of any such reputation. It would rather appear that the credit was given on account of the Bloods, for, in the examination made by the plaintiff before giving credit, it is stated that they discovered that the real estate upon which the buildings were constructed belonged to the Bloods.
In the case of Davis v. Allen (3 N.Y. 168-172) the action was brought against three persons as partners who did business under the name of the Albany and Buffalo Towing Company. The action was for work and labor done and performed. The defense of the defendant Childs was that the demand accrued against the company subsequent to his ceasing to be a member of the firm. His name did not appear in the name under which the company did its business. It was claimed, however, that he was liable for the reason that the plaintiff had worked for the company during the years that he was a member, and that no notice had ever been given of his retirement *Page 300 
from the firm. JEWETT, Ch. J., in delivering the opinion of the court, states the general rule, and then concludes as follows: "In order to render him liable on this ground it is necessary that he should have been known as a member of the firm to the plaintiff, either by direct transactions or public notoriety."
In the case of Thompson v. First National Bank of Toledo
(111 U.S. 529) the court at Circuit was requested to instruct the jury that if Thompson was not in fact a member of the partnership the plaintiff could not recover against him unless it appeared from the testimony that he had knowingly permitted himself to be held out as a partner, and that the plaintiff had knowledge thereof, during its transactions with the partnership. The court charged all except the last proposition, which it refused. On review it was held that the Circuit Court erred, holding that the plaintiff could not recover unless he had knowledge that the defendant held himself out as a member of the firm during the time that the plaintiff had transactions with the partnership.
Whilst this case differs from the one under consideration, the principle involved is the same. GRAY, J., in delivering the opinion of the court, says: "A person who is not in fact a partner, who has no interest in the business of the partnership and does not share in its profits, and is sought to be charged for its debts because of having held himself out, or permitted himself to be held out as a partner, cannot be made liable upon contracts of the partnership, except with those who have contracted with the partnership upon the faith of such holding out. In such a case the only ground of charging him as a partner is, that by his conduct in holding himself out as a partner he has induced persons dealing with the partnership to believe him to be a partner, and, by reason of such belief, to give credit to the partnership. As his liability rests solely upon the ground that he cannot be permitted to deny a participation which, though not existing in fact, he has asserted or permitted to appear to exist, there is no reason why a creditor of the partnership, who has neither known of nor acted upon *Page 301 
the assertion or permission, should hold as a partner one who never was in fact and whom he never understood or supposed to be a partner at the time of dealing with and giving credit to the partnership." In further discussing the question the learned justice, in his opinion, calls attention to the exception, and says that "there may be cases in which the holding out has been so public and so long continued that the jury may infer that one dealing with the partnership knew it and relied upon it without direct testimony to that effect," in which case the party would be liable.
Collyer, in his work on Partnership, in section 536, says: "Even where a person has retired from a firm, who, though intentionally a dormant partner, was known to many as a member of the firm, he will not, by failing to give notice of his retirement, become liable to the creditors of the remaining partners if such creditors, at the time of their respective contracts, were ignorant of his being a partner." (See also Story on Partnership, §§ 159, 160; 1 Lindley's Law of Partnership, 410;North v. Bloss, supra.)
I do not understand the case of Howell v. Thomas (68 N.Y. 314) to be in conflict. In that case the defendant had been a member of the banking firm, and had filed a certificate with the superintendent of the banking department under the provisions of the act to authorize the business of banking, and the acts amendatory thereto. He was, by this certificate, made a notorious, active, ostensible partner, upon which, as a banking firm, a financial credit was given. The business was conducted under the name of the Suffolk County Bank. The plaintiff did not know who composed the firm at the time of making his deposit. It was, however, held that the defendant was liable, even though notice of his prior withdrawal had been given. Attention is called to this distinction in the opinion of GRAY, J., in the case of Thompson v. First National Bank of Toledo (supra), and also by JEWETT, Ch. J., in the case of Davis v. Allen
(supra).
I cannot believe that there is anything in the name of "Blood 
Co." that makes the defendant Harris liable. There *Page 302 
were two members by the name of Blood, and one could properly be known as the company.
I am, therefore, of the opinion that the judgment should be affirmed, with costs.
All concur with PARKER, J., except HAIGHT, J., dissenting, and FOLLETT, Ch. J., not sitting.
Judgment reversed.