Court Opinion

ID: 8766087
Source: CourtListenerOpinion
Date Created: 2022-11-26 12:25:47.875821+00
Date Added: 2024-06-11T17:01:53.237583
License: Public Domain

McCALL, District Judge
(after stating the facts as above). The controlling question here is whether or not complainant and defendant have been partners since 1875 in the timber land business, in the manufacture and sale of lumber, and in the construction and operation of the Manistee & North Eastern Railroad. The defendant assigns 29 errors, the first 4 of which raise the main question of fact, and may, therefore, be stated together, and so disposed of.
They are to the effect that the Circuit Court erred in decreeing that complainant and' defendant were partners in the business recorded in the books labeled “Edward Buckley,” and that complainant was a subpartner with defendant in the business of Buckley & Douglas, and that the three-fourths of the capital stock standing in the name of Edward Buckley in the Buckley & Douglas Dumber Co., and also in the Manistee & North Eastern Railroad Co., were assets of the partnership of Ruggles and Buckley. It is neither contended by any one that there was a written partnership agreement between the complainant and the defendant, nor that there was a partnérship name adopted. The business relation of the parties in this case must, therefore, be determined from the facts and circumstances under which the business was begun and conducted. And for this purpose, we may consider what the parties said, their correspondence, the manner of.keeping their books, the source of the capital invested, the disposition of the profits, the relation or connection of each party to the business, and its character, and, more important still, the relation the parties themselves understood they bore each to the other and to the business during the years in which and while the business was going on. The fact of a partnership, like any other fact, may be established by circumstances. It does not follow that because there was no partnership name, nor formal partnership agreement, there was, therefore, no partnership. “Partnership is a fact — a fact sometimes made out like other facts, from circumstances as well as by direct evidence.” Fechteler v. Palm Bros. & Co., 133 Fed. 462, 66 C. C. A. 336; In re Neasmith, 147 Fed. 165, 77 C. C. A. 402.
When We examine the record for facts and • circumstances tending to. prove that a partnership existed between Ruggles and Buckley from 1875 down to March 12, 1903, the evidence clearly preponderates in favor of the proposition that such a business relation existed between them, and there is no escape from the conclusion to that effect reached by the Circuit Court.
True, the parties did not make public the fact of their business connections,- indeed, for reasons satisfactory to themselves, they may have, concealed, that relation; yet, if in point of fact, they were co-partners, the concealment from the public of their true relation would *955not in the least affect that relation as between themselves. But we are not left to mere circumstances from which to determine the business relation existing between complainant and defendant. That is made clear, and the interest complainant had and has in the business, and his relation to it is stated by Buckley himself in the Clifton agreement of April 22, 1893, and the Chicago agreement of February 3,1896. In addition, in August, 1895, the defendant wrote a letter to his legal adviser, Mitchell J. Smiley, in which he says that while he has appeared to own and control the capital invested in the business conducted by him at Manistee, Mich., and elsewhere, since 1874, and the business conducted by himself and Douglas, including the Buckley & Douglas Lumber Co., and the Manistee & North Eastern Railroad Co., and the construction company that built said road, the fact is, and always has been, that Charles F. Ruggles is, and always has been, the owner of said capital, etc. These two agreements, and this letter, together with other facts and circumstances in the record, are wholly inconsistent with the claim attempted to be set up by the defendant for the first time after the bill was filed, to the effect that complainant was only a creditor of Buckley for money loaned him since 1880, and with which he had conducted this extensive business. The facts and circumstances here make a case that falls squarely within the definition1 of a partnership as laid down by Mr. Justice Gray in Meehan v. Valentine, 145 U. S. 611, 618, 12 Sup. Ct. 972, 973, 36 L. Ed. 835. He said:
“The requisitos of a partnership are that the parties must have joined together to carry on a trade or adventure for their common benefit, each contributing property or service, and having a community of interest in the profits.” Ward v. Thompson, 22 How. 330, 16 L. Ed. 249; Fleming v. Lay, 109 Fed. 954, 48 C. C. A. 748.
We considered and discussed somewhat fully this question in Fechteler v. Palm Bros. & Co., supra, and there held that “the intent to be partners is made out when we find a business carried on for the joint benefit of two or more persons, with an agreement for a mutual participation in profits, as profits.”
It is earnestly and ably insisted by counsel for defendant that the terms of the partnership as disclosed by this record, and insisted on by counsel for complainant are illegal and unconscionable. Illegal, in that it provides for usurious interests compounded. And to permit the business to be wound up under such terms would be against public policy, and a great hardship on the defendant.
In the view we have taken of the case, the question of usury is eliminated. Where one partner furnishes all or more than his share of the capital in the business, he may contract for any rate of interest on the surplus of capital so furnished by him, to be paid out of the profits of the business, as preferred profits. If there are no profits, or the business fails, he gets no interest and loses his capital. It is for this additional risk that he is permitted to charge and receive from the business as a preferred profit, in the event it is earned, a return exceeding the legal rate of interest upon the capital so advanced. Paul v. Cullum, 132 U. S. 546, 10 Sup. Ct. 151, 33 L. Ed. 430; Duden v. Maloy, 63 Fed. 183, 11 C. C. A. 119.
*956In Paul v. Cullum, supra, Mr. Justice Harlan, speaking for tlie court, says:
“¡While in the absence of written stipulations or other evidence showing a-different intention, partners will be held to share equally both profits and losses, it is entirely competent for them to determine, as between themselves, the basis upon which profits shall be divided and losses borne, without regard' to their respective contributions, whether of money, labor, or experience, to the common stock. Story on Partnership, §§ 23, 24. Such matters are entirely within the discretion of parties about to assume the relation of partners.”
The terms of the partnership agreement, considered from the present, may appear hard. But even a court of equity cannot grant relief from a legal contract entered into freely and understanding^,, and from time to time reaffirmed and complied with without complaint for a quarter of a century. Especially is this true, when the party seeking such relief admits its execution, and does not allege and prove deceit, fraud, duress, or that he was in some way overreached in its execution.
As was said by this court in Blake v. Pine Mountain Iron & Coal Co., 76 Fed. 624, 22 C. C. A. 430:
“It is just these hardships which a court of equity cannot relieve by rescinding contracts, or making new ones by construction, through the process-of balancing blame for nonperformance, and going into parol proof of other or different intentions than those expressed in the contracts themselves, intentions relating to failures not anticipated at the time the contracts were-made, or not provided for .by the terms of the agreement, as they would have-been if the parties had not been improvident in neglecting such protection as-was open to them against possible failure and change of conditions. The reasonableness of a contract, its fairness and. justice, are to be determined as of the time when the parties entered into it, and so of the intentions involved in the construction of their agreements, and none of these are to be influenced by the force of subsequent changes in events or circumstances. Fry, Spec. Perf. p. 193, c. 6. It may be an improvident contract, but improvidence or inadequacy does not determine a court of equity to rescind, or to decree against specific performance.”
The defendant, however, under the terms of a partnership which his counsel insist are hard and unconscionable, began as a bankrupt, and in a quarter of a century has accumulated an estate amounting to nearly $1,000,000, and withdrew from the business during this-time quite a quarter of a million for expenses.
This bill, however, is not brought to enforce specific performance of a contract,- but rather to dissolvé a partnership and to wind up its business, which is quite another proposition.
We come now to consider the two errors assigned and pressed upon our attention by the complainant.
First. It is insisted that the Circuit Court erred in decreeing that the contract of February 3, 1896, was binding on the parties only until the date of the decree dissolving the partnership. The agreement of February 3, 1896, was an account stated of past transactions, and contained stipulations regarding the future conduct of the business. This agreement is not an article or a contract of copartnership. It is evidence tending to show that a copartnership existed. That copartnership ceased to exist when it was dissolved by a decree of *957the Circuit Court, and it is proper that the business be wound up as of the date of the dissolution of the partnership.
Second. It is insisted that the court erred in decreeing that in case there was sufficient property of the partnership when sold to bring an amount sufficient to pay to Ruggles the amount found due him from the business, that in that event, the shares of stock belonging to the partnership in the lumber company and in the railroad company should be divided equally between complainant and defendant. This presents the question as to whether or not the stock in the two corporations shall be sold or divided in specie. The general rule it that a sale shall be had of what remains of partnership property after the debts are paid. The reason of the rule is that a sale furnishes the best means of ascertaining the value of the property, and its equal division. 3 Bates on Partnership, 974. But under the facts in this case, we think the question addressed itself to the sound discretion of the court. In the exercise of that discretion, the trial judge decreed that said shares of stock should be divided equally between the complainant and defendant, unless it become necessary to sell them in order to pay debts of the firm, and in that event, only enough thereof should be sold as will be sufficient to pay any debts remaining unpaid after all the other property of the firm had been exhausted. The decision of a question which is within the discretion of the trial judge will not be disturbed on appeal, except it clearly appears that such discretion was abused. It does not appear that there was an abuse of this discretion in this case. Each share of stock is of equal value. The entire amount of stock is susceptible of equal and exact division in specie. If there is no need of its sale to pay debts, it should be divided as decreed by the court below. Kelley v. Shay, 206 Pa. 205, 55 Atl. 925; Harper v. Lamping, 33 Cal. 641. Each of these assignments is without merit.
The remaining errors assigned by complainant were abandoned at the hearing.
Upon the whole case, we are satisfied with the holdings of the court below, and its decree is affirmed.