Court Opinion

ID: 4010012
Source: CourtListenerOpinion
Date Created: 2016-07-06 11:11:06.270356+00
Date Added: 2024-06-11T07:44:42.000141
License: Public Domain

By the use in the contract of January 2, 1942, between the appellant, Oswald A. Stocke, and his employer, Maurice Schumacher, of the expressions "the terms of your employment," "while you are engaged . . . in my office, in connection with my general contracting business, . . . you are to receive monthly a salary of $350," and "It is understood that this arrangement is conditional upon the continuation of your services to me as an employee," — the parties definitely characterized the intended purpose and nature thereof to be a contract of employment.  And the arrangement by which appellant was to receive as salary fifteen per cent of Schumacher's net profits on some of his projects was expressly *Page 418 
stated to be conditioned upon the continuation of appellant's services as an employee of Schumacher.  Thus it was only by appellant continuing in that status, — and not in some other relationship, — that he was entitled to receive for his services for Schumacher fifteen per cent of his net profits; and by their acts and conduct under and in performance of that contract, there is established the continuing existence of the employment relationship. Appellant never made any contribution of capital or owned any interest in the property, equipment, or other assets of the business of either Schumacher or the joint venture in which the latter participated with F. O. Watson and others; and appellant took no part in any of the negotiations in relation to the contract between the joint venture and the federal government. During the progress of the work under that contract appellant was Schumacher's personal representative on the job, and appellant's services were loaned, with Schumacher's consent, to the joint venture as its business manager at a monthly salary; but Watson was in general charge of the job for the joint venture and appellant served as his subordinate, with no right to participate in the management, conduct, or control of the business of either the joint venture or of Schumacher, excepting as appellant was directed to act as their employee under their supervision and control.  The percentage, which Schumacher had contracted to pay as additional salary to appellant, did not accrue to him when net proceeds on the Camp McCoy project were received in the business of the joint venture or of Schumacher; and the payments which the latter was to make to compensate appellant for his services did not accrue and were not made to him until the project was completed and fully paid for and the amount of Schumacher's share of profits was received by him.
In view of those facts, the conclusion that there existed any other relationship between them than that of employer and employee is contrary to the intention evidenced by their written contract and their performance thereunder consistently *Page 419 
therewith.  As is stated in Canton Bridge Co. v. Eaton Rapids,107 Mich. 613, 614, 616, 65 N.W. 761, —
"To determine whether persons are in fact partners, we must look to their intention, and this is deducible from their declaration as to their intention, and the agreements that they make regarding the subject matter; and, where the contract under which the business engagement is made contains the express or implied disavowal of an intention to assume the partnership relation, no partnership will be found to exist, unless such declaration is so at variance and so inconsistent with their engagement as to be irreconcilable."
Likewise this court said in Sander v. Newman,174 Wis. 321, 328, 181 N.W. 822, —
"Partnership contracts, like other contracts, are governed by the intent of the parties, and the generally accepted test of whether or not a partnership, exists is that a partnership is formed when the parties involved in the transaction have the intention that they should be partners.  20 Ruling Case Law, p. 831, sec. 36.  For as there pointed out:  `Every partnership rests on the mutual consent of its members.'"
When, as in the case at bar, the proof establishes that the parties intended their relationship to be that of employer and employee, rather than a partnership or joint venture, and there is no such community of interest as makes each of the parties a coprincipal with joint authority or right to participate in the management, control, and disposal of the business, the sole fact that the employee, whose services were to be compensated by payment of a percentage of his employer's net profits, agrees also to assume fifteen per cent of the employer's losses, if any, on a project, does not make them partners or joint venturers. As the court said in Canton Bridge Co. v. Eaton Rapids, supra.
(in holding that an agreement, under which an "agent" was to be paid one half of the net profits and the losses, if any, were to be divided in the same way, was a contract of employment), —
"There is nothing to indicate that Wheaton was to own any share in these materials.  He was to give his services, and that *Page 420 
was all of the obligation that he assumed.  The contract does not bind him to put a dollar into the common enterprise. These things being true, it is entirely consistent that he should be an agent, as the contract states, and that he should be `paid' by the company for `his services,' and that his salary or compensation should be one half of the profits. . . .  Does the sole remaining fact, viz., the sharing of losses, necessarily make the parties partners, against the express agreement that Wheaton was the agent, to be `paid' by plaintiff for his `services,' for whatever labor it should direct him to perform in relation to its property?  It would seem to be reasonable to conclude that the provision concerning losses was designed to induce care on the part of the agent in taking contracts.  It carried his interest in case of unprofitable work a little beyond the line of the mere loss of profits, and no reason suggests itself why that might not be consistent with the existence of an agency, instead of a partnership."
To the same effect see Hutchinson v. Birdsong, 211 N.Y. App. Div. 316, 207 N.Y. Supp. 273; Dwinel v. Stone, 30 Me. 384;  Morgan v. Stearns, 41 Vt. 398; Black v. Brundige,125 Cal. App. 641, 13 P.2d 999; Smith v. Grove, 47 Cal. App. 2d 456,118 P.2d 324; Fee-Crayton Hardwood LumberCo. v. Fee-Crayton Hardwood Co. 171 Ark. 831,286 S.W. 967.
Consequently, in view of the provisions in secs. 71.01 and71.02 (3) (c), Stats., and the effect and application thereof as stated in Wiik v. Department of Taxation, ante, p. 325,24 N.W.2d 685, in relation to income derived from services performed in this state by a nonresident under facts substantially similar in many material respects, as in the case at bar, excepting that the employee had not agreed to assume a percentage of his employer's net loss, appellant's income is not taxable under the statutes.  As the income was compensation for services performed for Schumacher by appellant "without the material aid of capital owned by him," it was not income derived by him from "business transacted" but constitutes income derived from "personal services" within the meaning of *Page 421 
those terms as used in secs. 71.01 and 71.02 (3) (c), Stats.State ex rel. Lerner v. Tax Comm. 213 Wis. 267,251 N.W. 456.  And as it was income received by appellant as compensation as an employee of Schumacher there is applicable thereto the provision in sec. 123.04 (4), Stats., that, —
"The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment . . . as wages of an employee. . . ."
I am authorized to state that Mr. Justice FAIRCHILD and Mr. Justice WICKHEM join in this dissent.