McGovern v. Mattison — 26 N.Y. St. Rep. 612

Majority

p. 612

John P. McGovern et al., App’lts, v. Monroe Mattison et al., Resp’ts.^[1]

(Court of Appeals, Second Division,

Filed October 8, 1889.)

Headnote

1. Partnership — Requisites of — Proprietary interest.

Where A agrees to stock a store and hire a manager, and B, O and D to endorse A’s notes, do what they reasonably can to make the business a success, and to have an interest in the goods in stock to the extent of their endorsement, “ subject, however, to no liability hut such endorsement” and the net profits are to be divided-between them all in a stated proportion, but, if loss ensues, B, C and D to have goods to secure them, they have a proprietary interest, and are liable as partners.

3. Same.

The stipulation that B, 0 and D should not be liable beyond their endorsement limits their liability between them and A, hut not as to liability to a creditor of the concern.

Appeal from a judgment of the general term of the fifth department, affirming a judgment dismissing the complaint on the merits which was entered on the report of a referee. April 80, 1881, the defendants entered into the following contract:

“ Memoranda of an agreement made and entered into this 80th day of April, 1881, by and between Evolin B. Robertson, of the village of Mayville, Chautauqua county, ¡N". Y., of the first part, and M. Mattison, W. B. Martin, C. H, Johnson, Oren Stoddard, James Moon, W. Holt, A. C. Packard, R. ¡D. Bush, H. ¡D. Stoddard, W. ¡Northrup, Jr., ¡D. H. Matthews, John ÜSTorthrup, A. M. Rinehart, Jackson and Hollenbeck, W. H. White, A. W. Smith, Mark Jones, J. H. Wood, J. W. Broadhead, of the town of Busti, said county, of the second part, witnesseth that for and in consideration of the covenants hereinafter expressed, the said party of the first part hereby covenants and agrees to and with the said Íarties of the second part, to put a stock of dry goods, groceries, ats, caps, boots and shoes, etc., in what is known as the John R. Robertson store building, situate in Busti village, said stock to be at least of the value of three thousand dollars, to be replenished from time to time as it runs below that amount, the said party of the first part to procure the services of* John R. Róbertson to manage said store and devote his time thereto to the interests of the business. The parties of the second part agree to endorse the paper of the said party of the first part to the amount-of %2,000, ivhich sum is to go into the business, and the said parties of the second part are to have an interest at all times in the goods in said store to the amount of their endorsement, subject, however to no liability except such endorsement. At the end of one year the party of the first part is to cause an invoice of the goods on hand to be talcen in the presence, if so required, of two of the parties of the second part, and the net profits of said business, including all commissions received for buying hides, butter, cheese, wool and other produce received by said manager, and after deducting insurance on goods, fuel, lights, additional clerk hire, freights and other necessary expenses of the business, to be divided as follows: Two-thirds of

p. 613

said net profits to belong to the party of the first part in consideration of her capital and management of said business through, said J. E. Robertson and the use of said store building, and the other one-third of said net profits are to be paid to the said parties of the second part, pro rata, in consideration of their said endorsement and their general interest in the business. It is further stipulated by and between the said parties that at any time previous to the expiration of said year, when a majority of the parties of the second part shall make a request in writing to that effect, the party of the first part shall cause an invoice of the stock of goods on hand to be taken in the presence of two of the parties of the second part, and if it he ascertained that the business is -sustaining any considerable loss, and the said parties of the second part so demand, the party of the first part shall turn over sufficient amount of said goods to secure said parties of the second part against any liability on account of said endorsement, or relieve said parties of the second part from said endorsement, by causing said endorsed paper to be cancelled. And it is further agreed by and between the parties that if, at the end of one year, it be ascertained that there has been a profit in said business, and the party of the first part so require, the provisions of this agreement shall extend another year, but if the party of the first part desires to continue said business without the aid of said endorsement, then this contract, from and after that date, becomes abrogated. Said parties to this contract are to do what they reasonably can to make said business a success.

In witness whereof we have hereunto set our hands and seals this 29th day of April, 1881.”

Pursuant to this contract, on the 7th day of May, 1881, Evolin B. Robertson made her promissory note for $2,000, payable to the order of J. R. Robertson, at the First National Bank of Jamestown, which was endorsed by all of the defendants except David H. Matthews. This note was discounted by said bank, and the avails thereof credited to the “Busti Union Store.” The note was twice renewed, the renewals being indorsed by most of the defendants.

Between May 7, 1881, and December 16, 1881, the business established by the contract was carried on under the name of the Busti Union store, at' the place and under the management as stipulated in the contract. From time to time goods were purchased with the avails of the discounts and upon credit. During this time the plaintiffs, who were merchants, doing business in the city of New York, sold upon credit and delivered to the Busti Union store goods of the value and at the agreed price of $1,217.62, to recover which this action was brought against the signers of the contract.

William H. Henderson, for app’lts; A. C. Pickard, for resp’ts.

Persons having a proprietary interest in a business, and in its profits, are liable, as partners, to creditors. Manhattan Brass & Man. Co. v. Sears, 45 N. Y., 797 ; Leggett v. Hyde, 58 id., 272, 278; Mason v. Partridge, 4 Hun, 621 ; affd 66

p. 614

N. Y., 633 ; Burnett v. Snyder, 81 N. Y., 550 , 555; Ontario Bank v. Hennessey, 48 id., 545; Berthold v. Goldsmith, 24 How., U. S., 536, 541; Haas v. Roat, 16 Hun, 526 ; S. C., 26 id., 632 ; Rosenfield v. Haight, 53 Wis., 260 ; 40 Am. Rep., 770 .

It is stipulated -in the contract that the parties thereto should do-what they reasonably could to make the business a success, that the defendants should have an interest in the goods in the store equal to the amount of their endorsement, and that at the end of the year an inventory should be taken in the presence of two of the defendants, the net profits ascertained, and one-third of them paid to the defendants “in consideration of their said endorsement and their general interest in the business.”

Every one of the signers had a right to require that the assets of the business should be applied in payment; (1) of the debts of the business; (2) of the sums contributed by each; (3) of the sum due each for profits earned. An execution creditor of Mrs. Robertson (the debt not having been contracted in the business), could not, by a levy upon the goods, have acquired a lien prior to the equitable lien of the defendants, to have had them applied in payment of the debts of the business and of the amount put into the business directly, or by way of their endorsements. Such being the rights of the parties to the contract, they had a proprietary interest in the business and in its profits, and are liable for the amount due the plaintiffs. The cases holding that a person entitled to a share of the profits of a business in payment for services rendered, or as a compensation for money advanced, is not a partner, are not in.point. The distinction between the rights and liabilities of persons so situated, and the rights and liabilities of persons having a proprietary interest in the assets and profits of a business has been clearly drawn by the cases decided in the courts of this state.

The case at bar can not be distinguished in principle from Mason v. Partridge, supra.

The stipulation in the contract that the defendants should not be liable beyond their endorsement, limits their liability as between them and Mrs. Robertson; but, under the findings, it does not exempt the defendants from liability for the plaintiffs’ claim.

It is quite apparent that the defendants knew that the business which they initiated was conducted under the name of the Busti Union Store, and' not under the name and on the credit of Mrs. Robertson.

The judgment should be reversed and a new trial granted, with costs to abide the event.

All concur, except Bradley and Haight, J.J., not sitting.