Richardson v. Keely

58 Colo. 47

• Court: Supreme Court of Colorado
• Decided: April 15, 1914
• Docket: No. 7654
• Status: Published

Opinion

Mr. Justice Scott

delivered the opinion of the court:

This action was instituted by the Boston and Colorado Smelting Company, against Hugh McDougall, Hugh R. McClelland and Thomas Keely.

The plaintiff corporation was dissolved prior to the trial and the statutory trustees substituted.

The complaint alleges that prior to the year 1898, the plaintiff was the owner of a smelter site, upon which it had formerly operated a smelter, and upon 'which there was a large amount of slag containing metal values; that the plaintiff proposed to McDougall and Mc-Clelland to sell them the site with the slag for the price of $5,000, of which $2,000 was to be paid in cash, and the remainder in three yearly installments of $1,000 each.

It is then alleged that thereafter and about the 20th day of June, 1898, McDougall and McClelland entered into a partnership agreement with the defendant Thomas Keely and one G-eorge E. Ross-Lewin, since deceased, under the terms of which Ross-Lewin and Keely were to advance or cause to be advanced the $2,000 required for the cash payment required, and the property was to be worked for the common interest of all the partners equally; that after the payment of the $2,000 so to be advanced, and all cost of operation together with the proposed deferred payments, the profits if any, were to he equally divided between the four partners, and that, on the same day, the premises were conveyed by the defendant McDougall to the defendant Keely, to be by him held in the interest of the partnership. That the parties proceeded to work the slag dump,, and out of the profits paid the $2,000 so advanced, and two of the deferred payments, and also paid to each of the four partners $1,591.93 as profits; but that the third deferred payment of $1,000 was not paid; and prayed judgment for this sum against McDougall, McClelland and Keely.

McClelland died pending the suit and was dismissed as a party. Judgment was rendered against McDougall by default. Keely denied the partnership, and this is the sole question presented for consideration. The trial court found for Keely.

There is but little dispute as to the facts. It appears that at the time, McDougall and McClelland had obtained from the smelting company a proposition for the sale of the property upon the terms stated, RossLewin was the vice-president, and Keely was the cashier, of the First National Bank of Denver. McDougall and McClelland went to Ross-Lewin to secure a loan from the bank of the two thousand dollars with which to make the cash payment. After talking the matter over RossLewin called Keely in. Both officers of the bank agreed that it would not be advisable for the bank to make the loan. McDougall and McClelland then represented to Keely and Ross-Lewin that they expected to make a large amount of money out of - the deal, and proposed -to give them one-half of the profits, if the latter would arrange for the advance of the necessary two thousand dollars. Ross-Lewin suggested to Keely that they’“take a flyer,” which was apparently done in manner as follows: McDougall and McClelland executed their promissory' note to the hank for $2,000. Ross-Lewin and Keely as individuals joined in a letter to the bank guaranteeing the payment of the note, and as officers and acting for the bank, accepted the note and letter, and made the loan. The two thousand dollars so obtained was paid to the smelter company which executed its deed for the premises to McDougall, who in turn executed a trust deed in favor of the smelter company, to secure the remainder of the purchase price, evidenced by three notes of McDougall and McClelland, of one thousand dollars each due in one, two and three years respectively. After this, McDougall executed and delivered to Keely a deed to the premises, presumably subject to the trust deed. All this appears to have occurred on the same day.

McDougall and McClelland at once took personal charge of the operation of the property. Under an agreement of the parties an account was opened with the First National Bank, of which Ross-Lewin and Keely were officers, under the name of the Union Dump Company, into which account all receipts from the operation of the property was deposited, and from which all payments were made. Keely acted as treasurer of the Union Dump Company, and as such signed all checks drawn upon this account. From the testimony of Keely it appears that these checks were a sort of combined voucher and check, which were first to he signed and authorized by McDougall and McClelland who were in charge of the property. Keely’s testimony upon this point is as follows :

“Q. No, you would not pay them until you had the other two names, as you say?

A. The signature card stated that they should he signed by Messrs. McClelland and McDougall, and then I could complete the check by signing it and turning it over to any body, without any investigation; in other words I was not expected as treasurer of the company to investigate anything; they were supposed to check up all bills together, and pass them up to me as sort of an auditing committee, and then I simply appended my signature to the check to complete it, so the teller would pass out the money.”

The books of the Union Dump Company were not introduced in evidence, but trial balances from these books were, and to which there is no objection as to accuracy. These show that at all times the property was carried as an asset of the company to the extent of $5,000, and that the deferred payments on the property were carried as liabilities, so long as they remained unpaid ; the account as closed showing the one item of $1,000 remaining under the head of bills payable. It likewise appears that each of the four alleged partners received $1,591.93 in dividends.

The first of these trial balances is dated January 2, 1899 and the last February 22, 1904. The $2,000 note to the bank, and two of the deferred payments in the sum of $1,000 each, were paid directly from the treasury of the Union Dumping Company, by checks drawn on that company. Keely says the agreement was not for one-half of the profits to himself and Ross-Lewin but for a sum equal to one-half of the .profits. This is a distinction without a difference. Beside the fact remains that the dividends were paid to all 'alike out of the receipts ' from the venture and upon checks drawn upon such fund signed by Mr. Keely. as treasurer of the fund.

There is another circumstance presented by the plaintiff viz.: the institution of a suit in the name of Keely against the city of Black Hawk, in which the property is situated, to enjoin the city from interfering with such, property — the pleadings in that case were excluded by the court, but the essential facts w;ere proven orally, and the complaint tendered, is in the record.

The complaint in that case, verified by the plaintiff Keely, alleged among other things:'

“That the plaintiff was at all the times hereinafter mentioned and is now the owner in fee simple and in possession of those certain pieces and parcels of land situate, lying and being in the County of Gilpin and State of Colorado, described as follows, to-wit: (Here follows a description of the property).

. That the plaintiff was at all the times hereinafter mentioned and is now the owner of a large amount of goods, chattels and personal property described and known as smelter slag, which said smelter slag is of great value and contains great values of precious metals both gold and silver; that the said smelter slag was at all the times herein mentioned, has been and is now stored, piled and situate on the said premises hereinbefore described; that the said slag has an assay value of fifteen ($15.00) dollars and upwards per ton; that the plaintiff has heretofore been removing, hauling, shipping, selling, and disposing of large quantities of said slag from said premises, and has found the same to be merchantable and valuable on account of the gold and silver metal therein contained, and is desirous of continuing to sell and dispose of the. remaining part and portion of the said slag, the goods, chattels and property of this plaintiff; that the plaintiff had been removing from said premises said slag and personal property for a long time, and up until on or about the 15th day of September, A. D. 1899, when the plaintiff was unlawfully interrupted and interfered with in such removals of the said goods, chattels and property, by the defendant herein, its officers, agents and employes.”

This testimony was competent as tending to affect the testimony of Keely, that he was not interested in the property. Keely explains this by saying that the attorney for the Damp Company insisted that it was necessary that the suit should be instituted in his name for the reason that the record title to the property was in him.

In that action there was a prayer for injunction, and for damages in the sum of $5,000.

It must at least be regarded as surprising that a man possessing the business acumen and experience expected of the cashier of the First National Bank of Denver would lend his name and verify such statements, in a suit of that character, when he had no interest in the matter.

The question to be determined is, do the facts and circumstances as so disclosed by the record, constitute in law a partnership as affecting third persons.

It does not appear that the plaintiff at the time of the sale had any knowledge of the arrangement between the alleged partners.

It is contended that the proof does not show an intent of the parties at the time, to create a partnership, and for such reason there was no partnership. It is true there was no written partnership agreement between the alleged partners, nor does it appear that the word partnership was used, but the intent may be inferred from the acts and conduct of the partners, and clearly there was no agreement that the transaction should not constitute a partnership. Specific intent is not necessary to the formation of a partnership:

“It is possible for parties to intend no partnership and yet to form one. If they agree upon an arrangement which is a partnership in fact, it is of no importance that they call it something else, or that they even expressly declare that they are not to he partners. The law must declare what is the legal import of their agreements, and names go for nothing when the substance of the arrangement shows them to be inapplicable. Bur-dick on Partnership, p. 18.”

It is also urged that a division of profits does not constitute a partnership, and Le Fevre v. Castagino, 5 Colo. 564, and Baldwin v. Patrick, 39 Colo. 347, 91 Pac. 828 are cited. This court has uniformly held that the sharing of profits does not of itself necessarily constitute a partnership. But it is the rule in all jurisdictions that the fact that a person shares the profits of a business, tends to show that he is a partner therein, 30 Cyc. 386.

It is also urged that the transaction was a mere loan of money by the bank to McDougall and McClelland upon the credit of Boss-Lewin and Keely, and therefore does not tend to create a partnership, and many cases are cited wherein loans of money were made, and a.sharing of profits agreed upon in lieu of interest, and wherein it has been held that such circumstances alone do not constitute a partnership.

The rule of law upon this subject is stated in 30 Cyc. 368, to be:

“One who makes a bona fide loan of money or credit to the owner of a business, in consideration of a share • of its profits in lieu of interest, does not thereby become liable to the creditors of the business, in England, or in most of the American jurisdictions. It has been held in a number of cases, however, that if the-loan is a contribution- to the capital of the business, or if the profits are to he shared as profits, and not as a measure of compensation for the loan, the contracting parties are partners as to third persons, although their contract denies such relationship.”

But in this case McClelland and McDougall were not engaged in the business until after the arrangement with Ross-Lewin and Keely.

The note to the bank, signed by McDougall and Mc-Clelland, together with the interest thereon at the rate of ten per cent per annum, was paid out of the proceeds of the business, before any profits or dividends were paid. Therefore this is not a case where there was an agreement to share profits in lieu of interest upon a loan.

It is insisted that there was nothing said in the agreement as to losses, and for such reason there was no partnership.

While the sharing of losses is an incident of partnership, it has been held that the right to participate in profits implies a corresponding liability for losses, and that though there is no clause in the contract saying that either party was to bear the losses, in the absence of evidence to the contrary, the law presumes that losses were to be borne by them in the same proportion in which they shared the profits. Lee v. Cravens, 9 Colo. App. 273, 48 Pac. 149; Ramsay v. Meade, 37 Colo. 465, 86 Pac. 1018.

The parties constituting the alleged partnership must be presumed to have intended the very things they did, in the conduct of the whole matter, particularly in view of the fact that it is not contended here that any one of them performed a single act without the agreement of all the others.

McDougall and McClelland had been offered the property upon the terms stated. They were without funds to make the initial payment. They applied to Ross-Lewin and Keely as officers of the First National Bank for a loan from the bank for the required amount. This was refused and they then represented to Ross-Lewin and Keely that the scheme would be profitable, and that they would share one-half the profits, if the latter would secure the use of the money to make the initial payment for the property. Boss-Lewin and Keely accepted the proposition, and agreed to “take a flyer.” If this term means anything,- it means to share in the proposition. Clearly everything after this was with mutual knowledge and understanding of all the parties. On the same day McDougall and McClelland executed their note to the bank for the amount of the first payment. This was guaranteed by Boss-Lewin and Keely. -Thus and thus only, was the money secured. This was paid to the plaintiff, which executed its deed to McDougall, McClelland was not included. McDougall and McClelland executed their joint notes for the deferred payments and McDougall then conveyed the premises to Keely, who continued to hold the title. But the note to the bank was paid August 25, 1898, and if the deed to Keely was to secure this loan by the bank, it should have been released or cancelled at that time. But this was not done nor offered to be done by Keely, until after the close of the partnership affairs, which continued until 1904, or more than five years after the payment of the bank note. On June 21, 1901, or nearly three years after the payment of the bank note, Keely instituted the suit against the city of Black Hawk as before stated, upon his verified complaint claiming ownership of the property. Certainly the bank could not so use a security, after the debt it had been given to secure, was fully paid.

If Keely was not holding the title for the partnership why under this state of facts did he not transfer the title to those whom he claims were the real owners, rather than to personally institute that suit.

Keely says that prior to this suit he offered to transfer the title to the plaintiff. But if he holds the title only as security for the payment to the bank of a note long since paid, by what right or authority can he convey the premises to the plaintiff.

Counsel for defendant in error rely ón and cite many cases, wherein the division of profits have been held'to be either in lieu of interest for money loaned, or in the nature of compensation for services rendered. Tt has been shown that in the ease at bar, it was not in lieu of interest, and it was likewise not for services rendered.

No one of the four persons contributed a dollar to the enterprise. The money with which the advance payment was made was obtained upon the joint promises of all to the bank, in the form of a note and written guarantee. It was obtained for the common benefit of all — an equal division of the profits of the undertaking. It was paid out of the profits of the enterprise. It was the joint investment of credit to that extent.

The business was conducted in the name of the Union Dump Company, an unincorporated association, which under the law is held to be a partnership; whoever may have been the parties to it.

Keely was its treasurer. The funds were kept in the bank and under the surveillance of Boss-Lewin and Keely. All receipts were paid into this fund. All payments, including the purchase price of the land, the debt to the bank, expense of operation and dividends, were .paid out of this fund upon the signatures of three of the parties, including Keely, the treasurer of the concern. The dividends were exactly equal. It is not contended that this was without the joint agreement and understanding of all.

The acts and conduct of all the parties, so appearing from the record, clearly constitute a partnership in law:

“It is sometimes said that, in order to constitute a partnership, the parties must have intended to assume that relation towards each other. Bnt by this it is meant to say they must have intended to make snch stipulation as in law constitute a partnership, and not that they intended the conclusion without regard to the conditions upon which it results as matter of law. It certainly cannot be meant to say that, where the parties have entered into an agreement which ■contains all the incidents of a partnership, the mere unexpressed mental apprehension of its effect will control the legal consequences. ‘If’ says Bindley, ‘they have in fact stipulated, for all the rights of partners, an agreement that they shall not be partners is a useless protest against the consequences of their real agreement.’ 1 Bindl. Partn. (5th Ed.) 11.”

It having been found that Keely was a partner, there is no' serious contention as to his liability. 30 Cyc, 397.

The judgment is reversed with instruction to the trial court to enter judgment in favor of the plaintiff and against the defendant Keely for the amount found to be due.

Musser, C. J. and Garrigues, J., concur.