Court Opinion

ID: 3865892
Source: CourtListenerOpinion
Date Created: 2016-07-06 08:59:41.088618+00
Date Added: 2024-06-11T14:14:57.051510
License: Public Domain

The brief of the respondent, on the reargument of this case, complains of several misconceptions of fact and misstatements of law in the former opinion of the court.
The first misconception of fact complained of is the statement in our former opinion, that a new firm of P. Allen 
Sons was formed on November 26, A.D. 1858.
The old firm had been dissolved, as we stated in the former opinion. The firm was not only actually insolvent, but each *Page 299 
member of it had applied for and taken the benefit of the state insolvent laws, and had executed an assignment for the benefit of his creditors.
If this did not effect a dissolution of the firm, it is pretty difficult to imagine circumstances which would.
Judge Story in his Partnership, § 313, lays it down that "the common law, the Roman law, and the modern foreign law, all concur in the same general result, that bankruptcy or insolvency is of itself, by mere operation of law, a complete dissolution of the partnership. A fortiori, the like doctrine applies where all the partners become bankrupt, for then the whole property is divested out of all of them." And that the good will of a concern (so far as it is local and arises from an established place of business), while it cannot well be divided, may be sold by assignees, see Story on Partnership, § 99; 1 Parsons Contracts, *153, bk. I. cap. 12, sec. 3; Cruttwell v. Lye, 17 Ves. Jr. 336; Williams v. Wilson et al. 4 Sandf. Ch. 379; Mellersh
v. Keen, 27 Beav. 236; 28 Beav. 453; Turner v. Major, 3 Giff. 442; Dougherty v. Van Nostrand, 1 Hoff. Ch. 68. And as to the difficulty of laying down precise rules in these cases, see the remarks of Wigram, V.C., in Willett v. Blanford, 1 Hare, 253, 269. And so far as a trade-mark is connected with a place or with any particular recipe for manufacturing, it may be sold; but where it depends more or less on personal skill and reputation, it is more difficult to regulate as property. See cases in 2 Parsons Contracts, *257, bk. III. cap. 15, sec. 4, C.
Whether Philip Allen  Sons considered it a new firm, or a mere continuance of the old one, is a matter of little consequence, except so far as it affected the opinion of the court upon those circumstances relating to the amendment of the complainants' bill, which the respondent claimed were calculated to throw suspicion upon the honesty of the complainants. That the old firm was in law dissolved there can be no doubt. Its renewal or continuance did not require a written agreement, but they chose to make one in writing.
Our attention has again been called to the doctrine of "Ultra Vires," and it has been strenuously contended that the Woonsocket Company had no power to purchase and operate print works or to enter into a partnership. *Page 300 
The grounds, as before stated by us, on which proceedings of corporations have been held void as being beyond their charter powers, have been (see Kindersley, V.C., in Shrewsbury v. N.Staffordshire R.R. Co. 35 L.J. Ch. 156, 172; quoted in Brice on Ultra Vires, by Green, p. 35; see also Selden, J., in Bissell
v. Mich. South.  North. Ind. R.R. Cos. 22 N.Y. 281), —
First. Because the charter, when accepted, constitutes a contract between the stockholders that the corporation shall be confined to its proper business, and that a majority cannot change it. A minority have been held bound in some cases by the fact of the acquiescence in or ratification of the acts of the majority.
In the present case there was no one who had a right to complain on this ground, Crawford Allen being sole stockholder.
Second. Because public policy requires that they should be confined to the business and the mode of managing business prescribed by the charter, which is their law.
In the present case the charter was passed in 1832. No portion of the act specifies even by implication the business to be done, and nothing can be implied even from its name.
Where a corporation is created for special purposes, there is no doubt that it must be confined in its operations to those purposes, and it can only exercise the powers expressly granted or impliedly necessary to carry out these purposes. But in the construction of its powers it may be sometimes very important to consider whether the corporation is bound to show that the act done is within its granted powers, or whether the contestant is bound to show that it is beyond them.
In the present case the question is very important. The powers to buy and sell land, c., c., are merely the powers usually granted to all corporations for whatever purpose incorporated. But the purpose or object is nowhere declared.
And the general rule may be stated to be that it lies on those who impeach the contract to show that it is avoided. Brice, Ultra Vires, by Green, cap. 1, § 3, and cases cited.
The contrary rule, which is contended for so earnestly by the counsel for the respondent, would probably produce a great deal of litigation in this state. It is believed there are many charters of corporations doing a very large business where in the charter itself no purpose whatever is specified (although in one, the Lonsdale, *Page 301 
it is described in the title of the act, and there only as a manufacturing corporation), and a still greater number where the intended business can only be inferred from the name. In such cases the fact that the persons incorporated were doing a particular sort of business when incorporated, and the fact that the legislature and the corporators have acquiesced in the doing of a particular business, or in a continued course of dealing, might be entitled to weight.
In this case the contention is that the respondent had no right to form a partnership, that a corporation must transact its business through its proper officers, and cannot delegate its powers in such a manner as to put its business beyond its control.
If the partnership had been for a definite period, it might well be argued that the respondent had no right to make such a contract. But it was a mere partnership at will, terminable at any moment by either party. The respondent, therefore, did no more part with the control of the business than if it had employed Philip Allen  Sons simply as agents, and its right to do that cannot very well be denied.
We have examined carefully the authorities to which we have been referred. Brice, Ultra Vires, part III. cap. 2, iv., does indeed say, that "agreements between companies which create a partnership between the parties thereto are void." The leading case he refers to is Charlton v. Newcastle  Carlisle R.R.Co., reported in Weekly Reporter, vol. 7, but more fully in 5 Jurist N.S. 1097, before Page-Wood, V.C., where two corporations contracted for a permanent amalgamation. This would have been equivalent to the creation of a new corporation without the consent of parliament.
And it is recognized by this author, that certain arrangements may be made for division of profits or as to traffic, where there is no transfer of the powers of the corporation or merger of either separate corporation in a constituted whole.
The counsel have referred us to four American cases: —
1. Whittenton Mills v. Upton et als. 10 Gray, 582. The Whittenton Mills were incorporated for the purpose of manufacturing cotton goods. In 1842, the persons who had previously furnished machinery, c., for them failed, and William Mason bought the tools, machinery, and stock, and hired the foundry, c. Mason *Page 302 
and the Whittenton Mills then made an agreement by which the Mills were to advance the money to pay for said tools, machinery, stock, and rent. and for the labor required. Mason was to have a salary, and the profits on their business, patents, c., were to be divided for five years. Subsequently the agreement was extended to seven years, the business to be done under the name of W. Mason  Co.; buildings and additional machinery obtained, and it was afterwards extended for three years more. In the purchase of machinery for the Whittenton Mills, the parties dealt with each other as strangers. Mason contributed to the partnership nothing but his skill and patent rights. And it appeared that other corporations for manufacturing cotton and woollen goods had machine-shops for making their own machinery, and some such corporations had sold machinery to other mills. The court hold that the corporation (p. 596) could not make a contract by which the control of its business should be put beyond the control of its officers or agents; that (p. 597) the corporation could not engage in any business foreign to that for which it was created, or enter into any partnership for that purpose; and (p. 598) that the charter was a public law, and all persons dealing with them must take notice of the extent of their powers. The court say it was not necessary to decide the question of the liability to third persons, nor the question of ratification by stockholders. The suit was to set aside proceedings in insolvency, and they were set aside.
2. N.Y.  Sharon Canal Co. v. Fulton Bank, 7 Wend. 412. A canal was made partly in Connecticut and partly in New York. The projectors obtained a separate charter from each state, but the corporations had the same stockholders and the same officers, and by by-law they had consolidated the stock. The suit was to recover funds deposited in bank in the joint name. The court said it was not necessary to decide whether corporations might consolidate or form a partnership, although general principles were against such powers, but they were tenants in common of the funds and could sue for them.
3. Catskill Bank v. Gray  Ulster Iron Co. 14 Barb. S.C. 479. The Ulster Iron Company leased to Gray its works for five years, reserving a part of the profits for rent, c., with privilege to purchase at the end of the term. The suit was on drafts, *Page 303 
drawn by the superintendent and accepted by Gray, and the claim was to hold the Ulster Iron Company as partners. Counsel for the Ulster Iron Company contended there was no partnership, and the company could not form one. Held, that the Ulster Iron Company had an interest in the profits as profits, and were liable to third persons as partners, and that they could make such a contract as was made.
4. Marine Bank of Chicago v. Ogden et al. 29 Ill. 248. The Marine Bank was incorporated under the general law and could only receive ten per cent., and its stockholders were individually liable. The Chicago Insurance Company, under an old charter, could take twelve per cent. on loans. Both were under public acts. They had the same stockholders and officers and used the same room and vault, but their accounts were kept separate, and separate dividends were made. The profits of the bank in selling exchange, and of the insurance company on loans, were divided between the two. All the moneys in the vault were the property of the insurance company. Checks upon the bank were paid by the officers of the insurance company, and charged in account against the bank. The plaintiffs had deposited money with the insurance company, and sued the bank on the ground of liability as partner. There had been a depreciation in bank bills. Held, that it was a general deposit, and the holder of the check was not obliged to take payment in depreciated funds. Held, also, that the two corporations could not form a partnership but could make joint contracts. Here they were not jointly sued. The court below had instructed the jury, that if they were satisfied the bank was the real party in interest, and the insurance company only its agent to carry on the business, they might hold the bank liable, although the business had been done in the name of the agent. The verdict was for the plaintiff, and it was affirmed.
We can see nothing in these cases to affect the principle we have laid down.
To the argument, that the fact that there was only one stockholder cannot enlarge the powers of the corporation, we can only say that no such inference can properly be drawn from the language of the former opinion. That fact is only of importance upon the point that there were no stockholders with any right to complain of the acts of the corporation. *Page 304 
To the argument, that if the payments before 1865 prove a partnership they would also prove it afterwards, it is only necessary to say that we considered them as entitled to weight as evidences of an indebtedness before Philip Allen's death, which had not been settled.
We intended to decide and do decide, that we consider a contract of partnership, not of hire, proved. That the contract continued to the death of Philip Allen, we consider as most positively proved. If so, the defence of the statute of limitations is of no avail.
There is no satisfactory evidence that the agreement of 1865 had any effect upon the former relations of Philip Allen  Sons and the Woonsocket Company. They were not ousted from their former control of the business, nor had they any notice that their control or interest was in any way affected by it.
And as to the proportion of profits, the complainants were to be entitled to that is to our minds satisfactorily proved.
Mr. Nightingale, who went into the business in 1861, says (page 2 of printed evidence): "The fact that a so much larger amount than the nominal salary was paid led me to suppose that Messrs. Philip Allen  Sons had an interest in the business, and at an interview with Mr. Crawford Allen relative to my share in the business I proposed that it should be twenty per cent., and Mr. Allen said, that is what my brother has." Mr. Nightingale afterwards (pp. 10 and 64) said he was unable to fix the date of this conversation. He also states another conversation with Crawford Allen in 1865. We have also the statements of Crawford Allen made to Wilkinson and Dorr, the figures in his own handwriting, and the evidence of Philip Allen, Jr. And upon the general subject of the contract, see also the evidence of Hennessy, who, for aught that appears, is entirely disinterested.
It is also strongly urged that the contract between Philip Allen  Sons and Crawford Allen was merely a personal contract, or, as counsel say, a personal confidence. We can only repeat that the mode in which the accounts were kept and the receipts given satisfies us that the contract was considered by both parties to be made with the respondent corporation.
We have considered all the points made on the reargument. *Page 305 
We have noticed some of them in this opinion. We cannot see any reason for changing our former decision.
Former decision affirmed.
Decree establishing the fact of the partnership as charged, declaring that the complainants were during such partnership entitled to a salary of $200 per month and to twenty per cent. of the profits, and referring the cause to a master in chancery to take an account. Decree entered October 2, 1876.