Hawkins v. Campbell

The plaintiff, as assignee of the Waterbury Manufacturing Company, brought this action to recover an unpaid balance due for goods alleged to have been sold and delivered to the defendants as partners. The defendant Bell did not answer, but the de

The principal question here arising is whether, under the agreements of the defendants made on November 27th, 'Campbell became a partner as to third persons. He is described in the contract as a “financier,” and is stated “not to be regarded a co-partner”; but it is settled that such provisions and understandings cannot overrule the substance, and that, whatever their effect between the parties, the person attempting to exempt himself does not succeed in doing so as to third persons without notice of the limitations, if he is in truth a partner. Manufacturing Co. v. Sears, 45 N. Y. 797 . It has been held that participation in the profits as such makes one a partner as to third parties, and liable for the debts. Leggett v. Hyde, 58 N. Y. 272 ; Hackett v. Stanley, 115 N. Y. 625 , 22 N. E. 745 . On the other hand, where a party is only interested in the profits of a business as a means of compensation for services rendered or for money advanced, he is not a partner. Or as stated in Hackett v. Stanley, 115 N. Y. 631 , 22 N. E. 747 : “It cannot be disputed but that a loan may be made to a partnership firm on conditions by which the lenders may secure a limited or qualified interest in certain profits of the firm without making them partners in its general business.” The test seems to be whether the person sought to be held did or did not receive his share of the profits on account or by reason of an interest in the business. There is a line of decisions in this state which recognizes the rule to be that, where one is interested in the profits as such, he is a partner as to .third persons. The application of» this

“There has been from time to time certain exceptions established to this rule in a broad statement of it; but the decisions by which these exceptions have been set up still recognize the rule that, where one is interested in profits as such, he is a partner as to third persons without notice. These exceptions deal with the case of agent, servant, factor, broker, or employé who, with no interest in the capital or business, is to be remunerated for his services by a compensation from the profits or by a compensation measured by the profits, or with that of seamen on whaling or other like voyages, whose reimbursement for their time and labor is to finally depend upon the result of the whole voyage. There are other exceptions, like tenants of land or a ferry or an inn, who are to share with the owners in results as a means of compensation for their labor and services. The decisions which establish these exceptions do not profess to abrogate the rule,—only to limit it.”

Such exceptions are well illustrated by Hill v. Miller, 76 E. Y. 32, and German-American Bank v. Morris Run Coal Co., 74 N. Y. 58 .

It was further stated in the opinion (Johnson v. Alexander):

“The general principle upon which these exceptions have been established is that in such cases the parties have no interest in the profits or business, but simply have adopted a division of receipts as a method of ascertaining the amount of compensation for the services rendered or property used. But where the parties contemplate that profits, as such, should be divided, giving to the persons entitled to receive their proportion of such profits the right to call the remaining persons to account, giving each, one to the other, the right to enforce the agreement as a co-partner, so that the profits as a whole vest in the adventurers, to be divided among them in the proportion agreed to, then, as to third parties, the co-partnership is formed. The application of this rule is further illustrated in Hull v. Barth, 37 App. Div. 359 , 55 N. Y. Supp. 1103 ."

In the case at bar it is impossible to read the agreement made as one for compensation for services, the contract distinctly stating that the shares of the profits, whatever they be, should be divided into different portions, and showing that each had contributed something to the capital, and had a definite fixed interest in the business, as it should continue to be carried on by the parties to the agreement or thereafter by a corporation. Thus, Campbell owned a one-third interest in the patent, and (after payment for the same) a one-third interest in the property used in the business, was to receive one-third of the profits, and was to give his time and attention to the business. Applying the test referred to, the question resolves itself into whether Campbell, as a matter of fact, was entitled to receive one-third of the profits on account of his one-third interest in the business. It seems to us plain that that was just what the agreement provided for. Although Campbelks liability was specifically limited to $225, there still remains the cogent fact that he had an actual interest in the enterprise and the property. The fact that his contribution is limited was, of course, immaterial. If he became a partner, he was liable for all the debts; and the stipulation that the money to be paid Campbell was for the loan of this sum of $225 cannot override the whole purpose and scope of the contract.

We think it was error for the trial court to hold, as matter of law, that a partnership between the defendants was not established, and to decline to charge upon this question, as requested by the plaintiff.

Campbell insists, however, that such error was harmless, because, even though the agreement constituted him a partner, he did not become one till after the debt had been contracted. If that were established beyond question, it would not be necessary to reverse the judgment on account of the error in the charge, since an incoming partner is not liable for past debts. From the testimony, however, it appears that that was a question of fact for the jury.

The defendant Bell ordered the goods in question on November 14, 1895, before any association with Campbell. The order which was given to the plaintiff, Hawkins, as sales agent of the Waterbury Company, was much larger than usual, and, as an inducement to fill it, Bell stated that he had a contract to sell 10,000 of the 25,000 desired. Hawkins sent the order on the same day to his principals, telling them to rush it; but afterwards, and before November 27th, when the defendants’ agreement was made, Bell told him not to proceed with the order, as his expected purchaser had disappointed him. Hawkins said he would see how far his people had gone with the work, and advised Bell to associate himself with capital. Hawkins testified that he transmitted the order, and that samples were made, but that his company did not intend to fill the order without some better guaranty of payment than Bell’s responsibility, which was known to be weak; and that, hoping Bell would get a partner with capital, the matter was purposely left open, Bell not being told whether or not the order would be filled. Bell admits that the goods were not in fact made up, and that some time after November 27th he told Hawkins he had associated himself with Campbell. On November 29th Campbell’s check for $89, in full of some prior bill, was sent to the Waterbury Company, and Hawkins then took it for granted that Campbell was Bell’s partner, and instructed his company to go ahead, but to be safe, and make up only 10,000 valves. From this evidence, it is plain that the jury might have found that the plaintiff did not on November 15,1895, absolutely bind his company to fill the order for 25,000 valves, but accepted it provisionally, reserving the right to withhold the goods until satisfactory provision for payment should be made. It might also be inferred that Bell did not become obligated to pay at once for what the company was not bound to deliver, and that the goods were to be delivered as the Waterbury Company should see fit, and were to be paid for as delivered, or within such time as the parties might fix. Thus, the jury might have concluded that the debt did not accrue until after November 27th, when

We think the judgment and order should be reversed, and a new trial ordered, with costs to the appellant to abide the event. All concur.