Court Opinion

ID: 6581612
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:38:44.827592+00
Date Added: 2024-06-11T15:57:18.374919
License: Public Domain

Granger, J.
(dissenting). Passing the overwhelming equities of the case in favor of the plaintiff apparent to every one who reads the record, I proceed to consider the cold naked question of law involved, and from the decision of which by the majority of the court I feel compelled to dissent.
If any partnership relation existed between Malley and Neely at the time of the happening of the loss in controversy, it was because the law infers such relation from the instrument recited in the opinion of the court, dated January 12th, 1882. Outside the physical act of signing that instrument, there is disclosed upon the record no act done by Neely tending to indicate that he was or claimed to be a partner in the business. y
It does not appear in what capacity, if any, he had been *252previously employed by Malley, but it does appear that, after the contract and up to the date of the fire, “ the business conducted by said Neely was the purchase of merchandise in New York city for the wholesale and retail business in New Haven.” This is all the record discloses on that subject. It excludes therefore any actual joint possession or control bjr Neely as joint Owner of the merchandise situated and insured in New Haven; and as to the proceeds of the sale of that merchandise, it was found by the Superior Court that they were deposited in bank to the individual credit of Malley; that Neely had no control over them, but that all checks were issued and notes given by Malley individually. No check or obligation -of any kind purporting to be a partnership check or obligation was ever signed by Neely. Two questions then arise: first, was there an existing partnership as between Malley and Neely at the date of the fire; and second, if there was, did that partnership involve such a change of title in the insured merchandise owned by Malley at the date of the insurance as to work a forfeiture of his claim to indemnity under the terms of this policy of insurance.
I entertain grave doubts whether even a technical partnership was created between the parties under this contract. There is a marked distinction between actual and contemplated partnership. If an agreement merely looks to a future partnership, the contractors cannot be considered partners until the event which was to make them partners happens. Lindley on Partnership, 27; Harker v. Burr, 106 Mass., 48; Roberts v. Chalker, 27 Conn., 114. That event in this case was to be the contribution by Neely of $10,000 to the capital. Until then he had no right to share in the profits as such, nor could he draw out of the concern more than the sum of $2,000 in any one year, until he had not only put in the $10,000, but until the accumulation of that fund had amonnted to $10,000 in addition thereto. Neely never contributed any part of the $10,000. He was not therefore a partner as betweenfhimself and Malley at the date of the loss. It is quite true that, having permitted *253liimself to be held out as one of the firm by advertisement and otherwise, he would be estopped to deny a partnership liability as against creditors. But the law works such an estoppel out of considerations having no relevancy to the enquiry whether, as between the contracting parties, the title of Malley in the capital contributed by him was transferred to Neely.
• But assuming that there was a partnership created by this agreement, existing at the date of the fire, we reach the more important, because wider question, whether that agreement annulled this policy of insurance. It is said in the majority opinion that “ upon the execution thereof the title to the property contributed to the capital of the partnership by the plaintiff instantly vested in -himself and Neely jointly; they became joint owners thereof and joint debtors therefor.” If this be so, it is not because such was the intent of the parties to the agreement, because by its terms the instrument excluded Neely from any such joint ownership of the capital, and so far from Neely intending to become a joint debtor to Malley, for property purchased by him from Mallejq to be thereafter owned by himself or in common with Malley, he stipulated that Malley should as its exclusive owner be entitled to receive interest upon its whole value at the rate of six per cent, per annum. But it is said that, irrespective of the actual intent of the parties as to Malley’s continued ownership, the contract creates a partnership in the fullest legal sense of that term, with all the resulting rights to and duties upon each individual entering therein, and therefore upon the execution thereof there devolved upon Neely, as a conclusion of law, such a title to the capital contributed by Malley as to extinguish his right to indemnity for the loss he has sustained by the fire. I am compelled to dissent from this proposition. I understaftd the law to be that “ to avoid a policy of insurance on the ground that the property has been alienated, an alienation in fact must be shown by the insurers, and that the burden of proof is-in all such cases upon them.” Wood on Fire Insurance, § 320. This principle was applied, and the plain*254tiff’s right'of recovery against such a defense as is here interposed, was sustained, in Orrell v. Hampden Fire Ins. Co., 13 Gray, 431, where the insured, to avoid an attachment, had represented that the insured merchandise had been sold and did not belong to her; in Gilbert v. N. Amer. Fire Ins. Co., 23 Wend., 43, where a deed from the insured had been executed, delivered and recorded, but he was permitted to show that the delivery had been intended as an escrow, and that it had been recorded by mistake ; in numerous cases cited by Wood on Fire Insurance, § 323, of executory contracts of sale, on which partial payments had been made; in Lockwood v. Middlesex Mut. Ins. Co., 47 Conn., 553, where during the period covered by the risk, one of the insured sold his interest in the property insured to his co-tenant; in Cowan v. Iowa State Ins. Co., 40 Iowa, 55, where there was a sale of the insured merchandise to a firm of which the insured was a member. Unless, therefore, an actual substantial change of title as distinguished from a mere technical change, results as a necessary legal inference from the creation of a partnership between the then owner of the property and his incoming co-partner, it would seem that there was not under the terms of, this policy such a forfeiture as to extinguish the plaintiff’s right to indemnity.
The next inquiry is therefore, having for our premises an admitted partnership, does it follow as a necessary, inevitable conclusion of law, that there is an actual community of ownership and of title among all the partners, in all the capital employed in the conducting of its business ? There are two phases of this inquiry. One relates to the right of creditors to resort to a common fund, without regard to any private agreements between the partners as to its ownership. The trading community are not bound to know or to inquire into the terms of the contract of partnership as between the individual members of a firm. They may treat the capital as a trust fund for the payment of their debts and absorb the whole of it for that purpose, if necessary, even though its entirety be the contribution of a single partner. But upon the other phasé of the enquiry a very *255different question presents itself. As between the partners themselves, as individuals, we must look beyond the mere fact of partnership in searching for their title to the partnership capital. If, for instance, Neely had loaned Malley $10,000, under such an agreement as to taking profits in lieu of interest, that under the ruling of this court in Parker v. Canfield, 37 Conn., 266, he thereby became a partner as between himself and the creditors of Malley, it would hardly be claimed that any such change of title resulted as would defeat Malley’s claim to a recovery. We cannot, therefore, upon the mere abstract fact of the existence of a legal partnership assume, as a conclusion of law, that each partner is in fact, as between himself and his co-partners, a joint owner of the property invested in the business. Nor can we, if a conceded joint ownership exists, assume, in ignorance of their actual contract relations, in what proportion it exists, and cannot, therefore, if there be a loss, apportion that loss. All this depends upon the terms of the contract of partnership. As was said by Gray, C. J., in Whitcomb v. Converse, 113 Mass., 36, “ whether a loss of capital is a partnership loss to be borne by all the parties, depends upon, the nature and extent of the contract of partnership.” Another case cited in the opinion of the court, Livingston v. Blanchard, 130 Mass., 341, affords an apt illustration of this principle and of its application, because the articles of partnership between Livingston and Blanchard contained the same provisions as to the contribution of the entire cash capital by Livingston, and of his right to be paid rent and interest prior to any claim of Blanchard to share in the profits, as are contained in these articles of agreement, in which Malley represents the rights of Livingston and Neely those of Blanchard. The partnership in that case was dissolved by the death of Livingston. Upon a bill for an accounting brought by the executrix of Livingston, Blanchard claimed that upon the execution of the articles of co-partnership the title of the property contributed to the capital by Livingston became vested in Livingston and himself jointly, that they became thereupon joint owners thereof, *256and that upon the settlement of the partnership accounts he was entitled not only to one half the profits, bat also to one half the capital Livingston had contributed. But the court say: — “It appears from the articles of partnership that Livingston contributed the whole capital which was invested in the business, and that the profits, after providing for the expenses, including the rent of store, interest on capital and salary to the defendant, were to be divided equally between the parties. The capital became therefore partnership property, the expense of insuring which was part of the expenses of the business; and on the dissolution of the firm Livingston, or the plaintiff as executrix of his will, was entitled to repayment of the capital contributed by him. before the defendant was entitled to receive anything out of the profits. The amount of the profits was ascertainable only by deducting from the assets left after paying the expenses of the business, the amount of capital invested.” The opinion of the court quotes in its support from the language of the opinion in that case, “the capital became therefore partnership property.” Doubtless it became partnership property as to creditors, and became also partnership property to the extent that premiums paid for the insurance were “ part of the expenses of the business,” but, upon the issue we are now considering, the court held that, as between Livingston and 'Blanchard, the capital contributed by Livingston ivas not partnership property, but that Livingston was the exclusive owner and that Blanchard had no title to it. This conforms to the rule laid down in the text-books; “ one may be a partner in the business or in the profits arising from it, without being a part owner in the capital with which the business is carried on.” Story on Partnership, § 27; Lindley on Partnership, 16; Parsons on Partnership, 52. While therefore it is true, as said in effect by Story in the section referred to, that in the absence of any agreement to the contrary (and as against creditors in spite of such agreement,) a community of interest in the capital, as well as in the profits, will be presumed, yet it is no less true that, between the parties to a partnership contract, such *257presumption may be rebutted by the articles of agreement, and, oyer of them being had, it may appear, as it does here, ■not only that there was not to be an equal division of profits between Malley and Neely, but that Malley was to remain the owner of, and as such to receive interest upon, the capital he contributed. Again, joint ownership in the partnership property, where one contributes no capital, is a mere inference or presumption of law. The law infers such community of ownership between the partners, because, where one shares in the profits, it is just that he should bear his proportion of the loss, and the only way he can fairly be held to contribute to a loss of capital is by imputing to him a legal ownership therein. But this inference of the law may be overcome by the language of the partnership agreement; and in the present case the agreement provides that “ in any event said Neely shall receive $3,000 per year.” This amounts to an indemnity against loss, and destroys the foundation of the legal presumption of joint ownership, for a participation in the profits alone, accompanied by an indemnity against loss, is inconsistent with ownership of the capital itself. Nor do I understand* this legal inference to go to the extent of imputing such ownership generally and for all purposes to a non-contributing partner, but only in a restricted sense and for special purposes. Thus, in the Massachusetts cases cited, it is said that the capital contributed became partnership property, but nevertheless in both cases, upon dissolution of the partnership, the ownership of the non-contributors evaporated, and the title of each contributing partner to the amount originally furnished by him remained unimpaired. In one of these cases there was a loss, in the other a profit; and it was held that before the partnership loss or profit could be divided, the sum put in by each contributing partner must be repaid. Whatever may have been the fictitious title of the non-contributing partner to the capital during the continuance of the partnership, when tested by a division of the capital itself his substantial title was nothing at all. The utmost that can be said is that for certain purposes and awaiting certain *258contingencies which, may or may not arise, the law assumes a latent ownership of the capital in all the partners. Creditors are permitted to share in this assumption, though they be, as in one of the Massachusetts cases, partners themselves. It exists for their benefit, and is held in abeyance to await a proper occasion for its beneficial operation. But until a contingency occurs where the assumption is invoked for just cause, as in favor of creditors, the ownership which is not founded in actual contribution of capital, but-has only an embryo existence in the policy of the law, is an unsubstantial and dormant thing. One who is not in fact a partner, may, by so holding himself out, become a partner in the eye of the law. So one who is not -in fact a part owner of capital may, by the mere act of signing a partnership agreement,' become in the eye of the law a part owner. But the first is not thereby entitled to the profits of a real partner, and neither is the second a real part owner. Each has put himself in such position that the law, in pursuance of the general policy, may, if certain contingencies arise, and for the benefit of those having higher equities, declare that to be true in law which is not true in fact. But no such contingency has arisen in this case. This policy of the law which protects creditors is not here invoked to aid them in enforcing their rights; but it is invoked, to enable the defendant to so construe this contract of indemnity as to escape liability for a just and (but for such construction) legal claim.
In further support of the foregoing views I refer to the case of Lycoming Insurance Co. v. Barringer, 73 Ill., 230.
I am of the opinion that there was not such a change of title in the insured property from Malley to Neely as avoided this policy, and that the Superior Court should be advised to render judgment for the plaintiff.
In this opinion Carpenter, J., concurred.