Court Opinion

ID: 3408369
Source: CourtListenerOpinion
Date Created: 2016-07-05 19:25:24.693883+00
Date Added: 2024-06-11T09:25:13.633001
License: Public Domain

I concur in the following conclusions: that the contract of August 19, 1919, as expressed in the letter of that date from respondent Lord to the complainant (exhibit K) was separate and distinct from the contract relating to the Alapai Street and Iwilei jobs and is not to be regarded as a renewal or extension of the earlier agreement; that the net profits referred to in the contract of August 19, 1919, a percentage of which is thereby secured to the complainant, are the net profits of the business as a whole during the period specified in that contract and are not the net profits of any one or more separate contracts performed during that period; that the equipment referred to in the same contract, a percentage of which is secured to the complainant, is all of the equipment actually purchased by the respondent Lord during the period named irrespective of whether it was paid for by respondent Lord with money that was borrowed for the purpose or with other moneys on hand (the undisputed evidence being that all of the equipment purchased during the period in question was wholly paid for by the respondent Lord, no question arises as to whether equipment not paid for or only in part paid for was subject to the percentage in favor of the complainant); *Page 218 
and that it does not in any wise appear from the evidence that the complainant has estopped himself from seeking an accounting in a court of equity.
I dissent upon the subject of whether there was a partnership between the two McCandless brothers on the one hand and the respondent Lord on the other.
Much of the law of partnership, in so far as it is involved in the case at bar, has been definitely laid down in former decisions of this court. In Barnes v. Collins, 16 Haw. 340, 342, 343, this court said: "What constitutes a partnership is a matter of some diversity of opinion, but in general it may be said that, according to what is called the modern doctrine, a partnership exists where the parties have contracted to share, as common owners or principals, the profits of a business and that whether an agreement creates a partnership or not depends upon the intention of the parties. But by the intention of the parties is meant, not what they call or consider the relation into which they enter, but what the relation is in legal effect. The parties may expressly agree that there shall be a partnership and yet such agreement will be ineffective if the specific stipulations do not establish a partnership as matter of law, and on the other hand they may expressly agree that their relation shall not be that of partners and yet it may be such as matter of law. Perhaps there is no single element that will necessarily show as a matter of evidence that a partnership was intended. Even an express agreement that the parties shall share in the profits and losses will not, it is said, necessarily establish a partnership, but such an agreement would be strong presumptive evidence of a partnership, and even an agreement to share in the profits with no agreement as to the losses would be presumptive evidence of a partnership. If the right to share in the profits is merely by way of compensation in lieu of salary *Page 219 
or wages for services performed or of interest for money loaned or of rent for land or of compensation for acting as agent and not by virtue of ownership of the profits, there is not a partnership. The natural inference is, in the absence of a contrary showing, that if one has a right to share in the profits it is because he is a co-owner of the profits. If in addition to a right to share in the profits there is also a liability for losses or expenses the case is greatly strengthened, for agents or servants or loaners of capital are not usually liable for losses or expenses. Of course there need be no partnership name, nor need it be stipulated that there shall be a partnership, nor is it necessary that the partners should understand or realize what the legal consequences of their agreement will be. The question is whether that which they have agreed upon constitutes a partnership as matter of law; that is, did they agree to become co-owners of the profits?" These principles were enunciated after careful consideration. No good reason appears for reexamining the conflicting decisions in other jurisdictions. While it has been thus definitely decided that a partnership exists where the parties have contracted to share, as common owners orprincipals, the profits of a business, it has also been decided and with equal definiteness that if the right to share in the profits is merely by way of interest for money loaned there is not a partnership.
The agreement of the parties in the case at bar was reduced to writing (exhibit L), was entirely unambiguous and is not subject to explanation by parol evidence. It abounds in indications, as it seems to me, that a partnership was neither intended nor formed. The parties have clearly said in the very agreement, "It is expressly understood and agreed by and between the parties hereto that nothing in or by virtue of this agreement shall constitute or be construed to constitute the relation of copartnership *Page 220 
between the first and second parties" (the first parties being the respondents, McCandless brothers, and the second party being the respondent E.J. Lord). This declaration, it is true, is not conclusive upon the court for if, as held in Barnes v.Collins, the parties entered into stipulations which in the eyes of the law made them partners, they became partners even though they mistook the legal effect of their acts; but the statement quoted is at least one indication of what the parties intended and hoped to effect. The document bears upon its face strong evidence that it was prepared by an attorney and not by a layman. Did the parties and the attorney misunderstand the effect of the stipulations? In my opinion, they did not.
The first recital is that "the second party is engaged in the business of general contracting in the Territory of Hawaii and has in the past required and will require financial assistance from time to time in connection with said contracting business." This is a statement that it is Lord, and not the McCandless brothers, who has been and will continue to be in the contracting business (the complainant's services, pay for which is sought in this suit, were rendered in the contracting business). This recital further shows that the reason for the execution of the agreement is that Lord needed financial assistance.
The second recital is that the McCandless brothers "have been and are willing to assist the second party financially, and otherwise, under certain terms and conditions." This is further evidence that the cause and object of the agreement were to render financial assistance to Lord. The document continues: "Now, therefore, it is agreed by and between the parties hereto as follows." In other words, it is as though the parties said that the reasons mentioned in the recitals are what led them to execute the agreement. *Page 221 
Of the actual agreements of the parties set forth in the document the first is that the McCandless brothers "will use their best endeavors to enable the second party to secure the necessary contract bonds on all suitable contracts which may be procured by the second party." There is no reference in this or any other clause of the agreement to contracts to be secured by or for the three parties. The very definite statement is that they are to be secured by and for the respondent Lord alone. The contracting business to be conducted was to be his business and not the business of the three.
The next agreement is that "the first parties will make necessary advances for payrolls, equipment and soforth on existing and further contracts held by the second party." Upon two points this provision is illuminating: first that the moneys to be furnished by the McCandless brothers to Lord are to beadvances. While the word "advances" is perhaps capable of other interpretations under special circumstances, no reason appears for not reading it here in its ordinary acceptation. Advances ordinarily are loans, to be repaid to the lender. The language of the provision further emphasizes the view that the contracts with reference to which the loans are to be made are those held and to be held "by the second party," that is, by Lord alone.
The next agreement is that "the first parties shall have the right to approve or disapprove of any purchases, payments or expenditures made or incurred by the second party in connection with any of such contracts and to approve or disapprove of the second party entering into any contracts for construction, including wharves, roads, buildings or any other form of general contracting work," — again indicating in clear language that the purchases, payments and expenditures arising out of the contracting business are to be the purchases, payments and expenditures *Page 222 
of Lord alone and that the contracts entered into are to be entered into by Lord alone.
The next undertaking is that the "second party shall not enter into any such contracts without the written permission of the first parties and shall not make any such payments or expenditures without their written approval." This provision likewise refers merely to contracts that are to be entered into by Lord and to payments and expenditures that are to be made by him. Nowhere in the agreement is any reference made to contracts that are to be entered into by the McCandless brothers alone or jointly with Lord or to payments or expenditures or purchases that are to be made by the McCandless brothers alone or jointly with Lord.
In another provision recital is made of the fact that the first parties had theretofore assumed or paid certain sums "on account of losses sustained" by Lord under prior contracts and the parties agree that "before any net profits hereunder are divided" the net profits if any "accruing upon any contract or contracts since December 17, 1918, or now, or during the term or any extension hereof, held by the second party, and financed wholly or in part in any way by the first parties, shall be applied towards the repayment to the first parties of any such losses." This is a recital of the fact that Lord and the McCandless brothers had prior to this written agreement undertaken practically the same relations towards each other in an agreement of financing and security and is a provision that those past loans still unpaid were to be paid for by Lord out of the proceeds of his business before paying to the McCandless brothers any profits as compensation for the use of the later loans.
Another provision relates to certain possible losses to be suffered by the McCandless brothers in connection with the purchase and sale of certain bonds made necessary in *Page 223 
furtherance of Lord's contracting business and provides for the payment by Lord to the McCandless brothers of any such loss that may accrue to them.
In the provision securing interest of seven per cent to the McCandless brothers expression is further given to the fact that the moneys paid and to be paid by the McCandless brothers to or for Lord were all by way of "advances," that is to say, were all loans.
Another provision, set forth in much detail, is that, "upon the termination of this agreement by death of any of the parties hereto, or otherwise," if it shall then appear that the advances made by the McCandless brothers to Lord shall not have been fully repaid, "then, and in such case, the second party and his estate shall be obligated to repay to the first parties and their respective estates" the amount of such advances then due and unpaid. The agreement, having provided that the McCandless brothers should be paid fifty per cent of the profits of the business and fifty per cent of the value of the plant and equipment paid for or purchased by Lord during its pendency, further provides, in its essence, that upon the termination of the agreement whether by death or otherwise, if the total of the cash on hand and receivable and of the equipment shall be less than the amount of the advances then unpaid, Lord and his estate shall be obligated to pay to the McCandless brothers the amount of the difference in addition, as I infer, to the application of all of the assets of the business to the payment of the advances; and that if the said assets shall exceed in value and amount the total unpaid advances the excess after payment of all of the advances shall be divided equally between the two sets of parties. In other words this is but another way of saying that the moneys provided by the McCandless brothers are loans to Lord to be repaid by the latter in any event and are not contributions to the *Page 224 
business to be subjected to possible loss. It is worthy of note in this connection that the undisputed evidence shows that at the time this contract was entered into the respondent Lord was the owner of attachable property of some considerable value.
Another express provision of the contract is that "the first parties shall in no wise be responsible or shall be obliged to contribute towards any losses which may have or may hereafter accrue under or by virtue of any contracts held or to be held by the second party." This provision throws light upon two points: one, that the contracts were to be held by Lord alone, and the other, that one of the ordinary and indispensable incidents of a partnership, to wit, responsibility for the obligations of the partnership even though incurred by another partner, was not to exist in this instance.
I can find in this agreement no language apt to express the thought that the parties were entering into the relationship known to the law as a partnership or were creating the rights in each or imposing the obligations upon each which in law constitute a partnership. On the contrary, all of the language which is used is what would be expected in an agreement concerning loans and compensation for the use of those loans. It is true that in various provisions in the contract a certain measure of control was vested in the McCandless brothers concerning certain features of the business. They were to be judges of the suitability of the contracts to be entered into by Lord and were to have the sole right to determine what advances would be necessary and to approve or disapprove the purchases, payments and expenditures; but these provisions are altogether consistent with the view that the McCandless brothers were to be mere lenders and not partners. As the undisputed evidence shows, they had suffered large losses in prior *Page 225 
contracts with a contractor other than Lord and certain loans to Lord in contracts prior to the date of this agreement still remained unpaid. It is not to be wondered at that they desired to have some check provided in the written agreement against the assumption by Lord of unnecessarily risky or speculative contracts. The same is to be said of the fact that, as appears from the evidence, one of the McCandless brothers showed a very close interest in the progress of the performance of each contract by Lord by daily or almost daily asking questions about and familiarizing himself with the progress of the work. This, it seems to me, was merely interest arising out of the desire to ensure the repayment of the large sums of money loaned. It may be noted in this connection that Lord's testimony stands undisputed that when Black complained to him of the daily asking of questions by one of the McCandless brothers Lord in substance, but in more forcible language, replied that it was none of McCandless' business how the work was done. Aside from the limitations already referred to, the contract gave the McCandless brothers no control whatever over the methods or the details of the performance of the contracts undertaken by Lord or over the management of the business.
There was no common ownership, by the McCandless brothers and Lord, of the business or its assets or its profits.
It is also true that the provision securing some of the profits to the McCandless brothers is simply that they "shall receive one-half the net profit" of all work done by Lord under the contracts and "shall have a one-half interest in all the road equipment" purchased by Lord, without specifying in express words that the profits and the equipment are secured to the McCandless brothers by way of compensation for use of the loans. This is *Page 226 
far from controlling, however, in determining whether the profits are to be received as profits or as compensation by way of interest. This expression alone is as consistent with the one view as with the other and the intent of the parties is to be ascertained from all of the provisions of the instrument. These make it clear, as it seems to me, that the share in the profits and in the equipment is purely by way of compensation for the use of advances.
In respect to sharing in the profits and equipment, the relationship between Black and Lord was very similar. Under the contract of August 19, 1919, Black was to receive a share in the profits, without any statement as to whether the net profits were to be so received by him as profits or as compensation for services. There is nothing on the face of that written agreement to clear the ambiguity on this subject; but it is obvious from the testimony adduced that the percentage was to be paid to him as compensation for his services and the decree of this court is proceeding upon that theory. No one in the case has claimed anything to the contrary. Likewise, Black stipulated that he was not to be responsible for any losses. No one claims that this stipulation failed or that he became Lord's partner.
The circuit judge, while not deciding whether Lord and the McCandless brothers were partners inter se, held that they were partners "as to third parties," that is, as to the complainant. My understanding of the modern and more generally accepted view is that it is not a legal possibility for two or more persons to be, upon the same facts, partners as to third parties and not partners inter se and that the most that can be said is that, if the true relationship of nonpartnership has been misrepresented to third parties, then, as to those third parties, the two or more are estopped from claiming that they are not *Page 227 
partners. "Under the modern doctrine of partnership, persons are not liable as partners to third persons, although they share the profits of a business, unless they are in fact partners interse or have held themselves out as partners under such circumstances as to estop them from denying their partnership." 22 A.  E. Ency. L. 20. "Merely sharing in the profits, where third persons have not been legitimately led to believe in the existence of a partnership, does not create a partnership as to them, unless there is one in fact, or unless a party has by his acts put himself in such position that he is estopped from denying that he is a partner." Strohm v. Wilson, 10 Haw. 302, 305, 306. No evidence was adduced tending to show that any misrepresentations had been made by Lord or anyone else to Black. On the contrary, the undisputed evidence indicates that he was perfectly familiar at all times with the true relationship between Lord and the McCandlesses. Neither Lord nor the McCandless brothers are estopped from claiming that there was not a partnership. So, also, no testimony was adduced showing either that the intent of the parties was not correctly expressed on the face of the written agreement or that the latter was ever amended in any respect. *Page 228