Tucker v. Judd

3 Haw. 180, 1870 Haw. LEXIS 3

• Court: Hawaii Supreme Court
• Decided: January 19, 1870
• Status: Published

Opinion

Hartwell, J.:

The papers present some complication, but there are few unsettled points of law involved in the case, which require the judgment of the Court. The first point is whether Tucker and Waller were Metcalf’s partners, or his agents only, to be remunerated by shares in the profits. There has been a series of decisions in the English and United States courts, commencing with the leading case of Waugh vs. Carver, 2 H. Bl., 235, in 1789, to the effect that parties might become liable for each others’ acts as partners, contrary to their own intention or expressed agreement. If A and B agreed that B carry on a work for A, for a share of profits, B was held liable for the debts contracted for that work, notwithstanding he may have expressly stipulated that he should not be liable as a partner, provided the creditor was not aware of such stipulations. Various reasons were given in support of this doctrine that a partnership could thus be created' merely by operation of law. It was said that taking profits “as profits,” and not as wages, indicated a partnership between the parties as far as they were themselves concerned, as well of course as far as others were entitled to regard them. As the decrease of the partnership fund by liens for profits is the loss of private creditors, it was argued that any person having such a lien must be a partner. But this is assuming what should be proved, by a species of petitio principii, or “begging the question.” If there is no partnership, creditors care nothing whether their debtor has paid his agent with money “as profits,” or “as wages.” If the debtor undertakes illegally to prefer claims, they may be contested, but it is hard to see why a prior agreement that the agent’s claim shall be preferred, must of necessity create a partnership and impose a liability never intended. Courts often objected to this doctrine. Lord Eldon was reluctant to accept so “thin” a distinction as a conclusive test, Judge Story regretted while he admitted its necessity, C. J. Gibson, of the Supreme Court of Pennsylvania was desirous of throwing off the authority of Waugh vs. Carver as having been made subsequently to the American Revolution, but was unable to take the responsibility. Miller vs. Bartlet, 15 S. & R., 157; Hazard vs. Hazard, 1 Story, 371; Story’s Part., § 35 et passim.

Except in a few instances, as in the Supreme Court of New Hampshire, (see Bromley vs. Elliot, 38 N. H., 287) 'the doctrine referred to was regarded as law, until recently, when its authority has been successfully attacked and overthrown. “A series of eases has decided that the law of partnership is a branch of the law of agency; that the test to determine the liability of one sought to be charged as a partner, is whether the trade is carried on in.his behalf; and that participation in the profits is not decisive of that question, except so far as it is evidence of the relation of principal and agent between the person taking the profits and those actually carrying on the business.” Gray’s Notes on Story’s Part., §49. The decisions last referred to are Cox vs. Hickman, 8, House of Lord’s cases, 268; Kilshaw vs. Jukes, 3 B. & S., 847; Bullen vs. Sharp, Law Reports, 1 C. P., 86.

The reasoning of the Court in the recent English cases has special significance. In Bullen vs. Sharp, Mr. Justice Blackburne referring to the rule in Waugh vs. Carver, says: “This decision had never been overruled — when more recently it was a common opinion, (in which I for one participated) that the doctrine had become so inveterately part of the law of England, that it would require legislation to reverse it. In Cox vs. Hickman, the creditors of a trade had agreed that their debtor’s trade should be carried on for the purpose of paying them their debts out of the profits; and the composition deed, to which they were parties, secured to them a property in the profits. The rule laid down in Waugh vs. Carver, if logically carried out, led to the conclusion that all the creditors who assented to this deed, and by so doing agreed to take the profits, were individually liable as partners; but when it was sought to apply the rule to such an extreme case, it was questioned whether the rule itself was really established. In the result, the House of Lords, consisting of Lord Campbell, C., and Lords Brougham, Cranworth, Wensleydale and Chelmsford — unanimously decided that the creditors were not partners. Lord Cranworth says: ‘It was argued that, as they would be interested in the profits, therefore they would be partners. But this is a fallacy. This no doubt is, in general, a sufficiently accurate test. ’ I think that the ratio decidendi is, that the proposition laid down in Waugh vs. Carver, viz., that a participation in the profits of a business does of itself, by operation of law, constitute a partnership, is not a correct statement of the law of England; the test being in the language of Lord Wensleydale, whether it is such a participation of profits as to constitute the relation of principal and agent between the person taking the profits and those actually carrying on the business.” 1 Law Rep. (1865), 107.

In Holmes vs. Old Colony R. R. Corp., 5 Gray, 59, a firm had leased a hotel of the Corporation for $500 and “one half net proceeds,” but it was held that no partnership existed, the Court, Dewey, J., saying that it is no longer true that receiying profits, or net profits, must produce that result, but that all the circumstances must be considered.

In the following cases it was held that there was no partnership: Case of a ferry which A leased to B, the latter to pay expenses, and have one half the gross earnings. Heimstreet vs. Howland, 5 Denio, 68. Agreement that A furnish B with wool to make into satinets for A, for forty per cent, on sales. Turner vs. Bissell, 14 Peck, 192; and see Dennis vs. Cabot, 6 Met., 82; Bradley vs. White, 10 Met., 303; Pratt vs. Langdon, 12 Allen, 544; Hitchings vs. Ellis, 12 Gray, 449. Agreement that A furnish B with books to sell for a share in the profits. Newman vs. Bean, 1 Fost., 95. Agreement that a ship-owner victual and man the ship and pay half port charges, the master paying the other half, and rigging the ship, the profits on freights to be equally divided. Cutler vs. Winsor, 6 Pick., 337; Reynolds vs. Toppan, 15 Mass., 370. But see Julio vs. Ingall, 1 Allen, 41. In Hazard vs. Hazard, 1 Story, 372, it was agreed that B. H. “devote his whole time, expepting his attendance on religious meetings, exclusively to the management of the factories of T. R. H., taking the machinery as it is, and returning it in like order, ” for one fourth of the profits. See Champion vs. Bostwick, 18 Wend., 175; Burckle vs. Eckhart, 3 Coms., 132; Conklin vs. Barton, 43 Bar., 438; Gratz vs. Bayard, 11 S. & R., 41.

Examination of the authorities cited, and of the cases referred to by them, will show that a partnership can not be inferred merely from a “common interest,” from a sharing in profits, from the right to account, nor from a direct control over the business. How, in fact, can an agent prove a disputed claim for agreed profits, unless he can haye an account ? (Gray’s Notes on Story’s Part., p. 89.) All these relations between parties are not inconsistent with those of principal and agent, and are, therefore, insufficient of themselves to establish a partnership a priori, but in order to decide the matter, we must look to the agreed intention of the parties, as shown by their words and acts, prior to any dispute arising. The legal consequences of a partnership exist without agreement, and often contrary to the expectation of parties, but it is illogical to assume the consequences and thence infer the cause.

Did the parties in this case intend to act together as principals in a common business ? We think such was their intention. It was agreed that the plantation should pay for losses by injury to animals: this means that the partnership pays for them. The plantation, with all its improvements, as agreed, “shall revert to said T. Metcalf or his heir.” This indicates that during the term of the partnership, the use of the land is in the partners alone. We also have the incidents of a community of interest, a division of profits, a control of the plantation by Tucker & Waller, and of mutual and common accounts, which tend to confirm the conclusion that a partnership was meant.

What are the incidents of this partnership, and what are the mutual rights, duties and obligations of the partners ? First, the partnership itself was dissolved at Metcalf’s death. The agreement for the term of ten years was not binding upon the heirs and creditors of Metcalf, because there was no stipulation to that effect, and such express stipulation is always necessary, in articles of co-partnership for a term of years, in order to prevent a dissolution at the death of either partner. Sometimes a direction in the will of the deceased partner is regarded as an expression of his assent to such an agreement, leaving it optional with the surviving partners to continue the business with the representatives or devisees of the testator; but in this case, the directions in Metcalf’s will can have no such intent, in view of his previous declarations, appearing in his letters, which are in evidence, that he never regarded the complainants as partners.

The Roman law prohibited the continuance of a partnership, even by previous agreement, after the death of any partner. The English law never went to that length, but has always allowed the continuance of the partnership, but only by express stipulation. Burwell vs. Mandeville’s Ex. 2 H., 573; Scholefield vs. Eichburger, 7 P., 594; Story’s Part., §§ 84, 85, 196. The accounts of the partnership must be made up to the time of its dissolution, allowing time to wind up the concern. This view affects the mutual rights and duties of the executors and complainants, inasmuch as they are to be regarded, not as partners, but as trustees for each other. Story’s Part., § 130.

The terms of the partnership are clear: The complainants are “to take charge and carry on,” Metcalf to furnish land, with the improvements and animals then upon the land, and all capital or means required “for the sufficient conduct of the plantation, ” the partnership paying for losses by injury to animals, the cost of their keeping, and interest on the money furnished; the plantation and improvements to revert to Metcalf, or his heirs, at the expiration of the partnership.

To open a partnership account after the death of one of the partners, requires a clear case of fraud or gross error, and allowances are not usually made for any contribution to the common stock. Foster vs. Hodgson, 19 Ves., 180; Dexter vs. Arnold, 3 Mason, 284; Winsor vs. Savage, 9 Metcalf, 347; Story’s Part., §193, note 3, §233, note 4, and §349.

In regard to the claim of $1,089, claimed by the complainants for their implements, for the payment of which by note they show Metcalf’s receipt, it appears that Metcalf agreed to furnish the implements then on the place, and that the complainants not having agreed so to do, furnished those mentioned in Schedule C. The complainants can recover at law any implements belonging to them which they can identify, but if they have volunteered the use of them, without any agreement that they should be paid for their use, they can not, at this late day, have the accounts opened, and a claim allowed which the they failed to make seasonably, during Metcalf’s life.

There is no evidence that Metcalf charged for the animals on the place which he agreed to furnish. There is no evidence that the complainants furnished money to carry on the plantation, or that Metcalf failed to furnish capital as agreed. It was not intended that the complainants should share in the gross profits, but only in the net profits. If the pi-ofits were wholly or in part devoted to carrying on and enlarging the business, it was done by mutual assent, and if no gain resulted therefrom, no one can be blamed, unless for violation of good faith, or by failure to exercise the diligence and prudence that a reasonable man could require. The complainants made no objections, called for no division of profits, but continued in the business as it was carried on, partly with money furnished by Metcalf, and partly with the proceeds of sugar, in the net profits of which they were interested. If the result was unsatisfactory, it is too late to claim reimbursement for their ventures, and too late to compel, on the part of their deceased partner, a specific performance of any part of the agreement, which, in good, faith, and exercising reasonable care, he failed to perform.

By the law of Partnership, neither party is entitled to payment for personal services, unless by express agreement. This disposes of the mutual claim for services in this case. The partners are presumed to have worked for their own as well as the common interest, and not at the expense of the firm. Franklin vs. Robinson, 1 Johns., C. 158; Story’s Part., § 182; Caldwell vs. Lieber, 7 Paige, 483; Cradford vs. Kimberly, 3 Johns., C. 431.

No allowance can be made for the “Hema” lot, bought by Metcalf at his own instance, nor for his payments of Wyllie’s note of $2,000, or Bates’s counsel fees of $227.25, and insurance premiums. The parties had not so agreed. See Shattuck vs. Lawson, 10 Gray, 407.

For Metcalf’s failure to furnish machinery requisite to take off the crop of 1864, and for their loss consequent thereon, no allowance can be made the complainants. Upon the evidence, wé aré of the opinion that Metcalf did all he was able to do to furnish, seasonably, the required machinery. He had everything to gain by so doing, and the evidence fails to show an approach to culpable negligence on his part. Story’s Part, § 178, and note; Coll, do., § 178; Lyles vs. Styles, 2 Wash. C. C. 224.

It is, however, a clear principle of law, that partnership property shall be devoted to partnership purposes. The partnership must be allowed for all sums paid for Metcalf’s private debts, or for the use of his family, from proceeds of sugar. No deficiencies in the executor’s accounts are shown, and in the argument, the charges concerning the wood, shooks, &e., also concerning unreasonable delay to account, are withdrawn. The sums admitted as paid on private account are, $11,795, $2,116.66, $3,250, and $2,821. These are to be allowed the fund, and can not be regarded as chargeable to the plantation. Story’s Part, § 326.

If debts incurred by Metcalf for the purpose of furnishing means, as agreed, to carry on the plantation, were paid out of the proceeds of sugar, the sums so paid are to be allowed to the firm, but no allowance is to be made for payments of interest. The evidence fails to satisfy us that interest was paid against the complainants’ protest, or that higher rates were paid than wére required to raise funds.

The partnérs agreed that all “improvements” should revert to the plantation; without this clause, all improvements and all articles paid for by Metcalf’s money, or by money which he obtained, would have belonged to his estate. But it seems that the firm invested to some extent the proceeds of the sugar. The question arises, whether the improvements paid for by the undivided profits are to be regarded as firm property, or as reverting, under the original agreement; and if they revert, as to the meaning of the term improvements. We are of .the opinion that the partners enlarged the business by investing proceeds of sugar sales, in addition to the' means furnished by Metcalf, under the original agreement concerning the reverting of improvements.

The term improvements, according to Bouvier, applies principally to buildings, “though generally it extends to amelioration of every description of property, whether real or personal.”

The old rule concerning fixtures and standing crops, is greatly enlarged in favor of tenants, for the encouragement of trade and agriculture. Miller vs. Plumb, 6 Cow., 665. In Lawton vs. Lawton, 3 Atk., 13, a fire-engine, erected by a tenant for a colliery, was held not to be a fixture. So with machinery erected for manufacturing purposes, on timbers imbedded in the soil, or fastened thereto with bolts. House vs. House, 10 Paige, 158. Also, looms in a woolen mill. Murdock vs. Gifford, 18 N. Y., 28. And machinery in a cotton mill, removable without any injury to itself or the building. Vanderpoel vs. Van Allen, 10 Bar. 161. But such a rule would not hold between vender and purchaser, or mortgager and mortgagee. Winslow vs. Merchants Ins. Co., 4 Met., 306.

In the present case, the proper rule is that which prevails between landlord and tenant, as to improvements purchased by common funds, and as to the crop remaining at the date of the winding up of the partnership, which was not until the expiration of the original ten years from December 14th, 1857.

We are of the opinion that all stock, tools, and engines removable without injury to the buildings, and bought with partnership funds, and the crop standing December 14th, 1867, are to be regarded as firm property.

As for the sums paid for labor contracts, if paid from money derived from the business, they must be regarded as paid by common consent, and as deemed necessary to obtain the labor. An apportionment of sums so paid, between the firm and the estate, could only be made under an agreement to that effect. In Metcalf’s letter to Waller, of July 29th, 1865, after writing that he has fifty coolies from the Matador, at $150 each for their contracts, “which A., W. & Co. will send you, ” he adds: “As their contracts may have to be transferred at the end of your term, it will be best to keep them in good condition, in order to realize as much as possible on them. Not so good a lot, that came in the same day per Golden West, realized $150 each for their contracts for five years, at $5 per month.” We think this shows the intention of the partners, that for the term of labor remaining to the estate, an allowance should be made the firm, deducting, of course, loss by death or disease, and such allowance may be made in regard to the coolies; but no such agreement about the native laborers was made.

The statutes do not require — and it does not appear — that the Court ordered any appraisement by the executors. As for the mortgage and notes given by the executor, to cover liabilities incurred by Metcalf, — whatever may have been the legal right of the executor to give them, as against heirs and creditors, — it does not appear that the firm were injured thereby, as their profits were not devoted to paying the principal, and for the interest thereon, the firm was liable. No allowance can be- made for any supposed profit that might have accrued from a- different course, as there seems to have been no bad faith shown in the course pursued.

It will be remembered that, although the complainants have a good claim against the estate for sums paid from proceeds of the business for Metcalf’s private account, yet tbe firm were bable for sums advanced for the plantation.

R. H. Stanley and S. H. Philhps for complainants. C. C. Harris, J. Montgomery, H. Thompson and A. F. Judd for respondents. Honolulu, January 19th, 1870.

An order of reference to a master may be taken out, directing an appraisement of tbe net value of tbe crop standing December 14th, 1867, and of tbe implements and machinery as already stated, and of all sums allowed to tbe fund, and of tbe respective shares therein of tbe complainants, of one-fifth each; and upon tbe coming in of tbe master’s report, decree will be made, accordingly, in favor of the complainants.