Campbell v. Sherman — 29 N.Y. St. Rep. 156

Majority

p. 156

Douglas Campbell, Executor, Resp’t, v. Jacob A. Sherman et al., App’lts.

(Supreme Court, General Term, First Department,

Filed January 24, 1890.)

Headnote

1. Partnership—What constitutes.

Plaintiff’s testator and the defendants entered into a joint enterprise for publishing a cei tain work; S. to furnish the funds for publishing and the others to devote their time and services in consideration of receiving a certain share of the net profits arising from the publication. Held, that the enterprise has all the elements of a partnership.

2. Same—Agreement.

The agreement provided that if either testator or the other defendant failed to perform, except in case of sickness, such delinquent’s interest shall cease and he be paid his share of the profits up to that time. Heldr that the question of delinquency was one for a court to determine, and that assuming that testator was delinquent defendants were not justified in arrogating to themselves the jurisdiction of the court or of ejecting the testator.

3. Same—Counterclaim.

In an action for breach of the agreement in ejecting plaintiff’s testator from participation in the business, overdrafts or misappropriation of funds in a former partnership in which one of the defendants was not interested cannot be availed of as counterclaim or defense.

Appeal from a decree made at special term.

T. H. Randall, for app’lts; George C. Lay, for resp’ts.

The plaintiff’s testator, Charles S. Stearns, alleging his interest as a copartner in the Sherman Publishing Co,, and complaining of the acts of his associates justifying such a procedure, commenced this action and demanded a dissolution of the co-partnership ; the appointment of a receiver with the usual powers; an accounting by the defendants and an injunction. The defendants denied the existence of a copartnership but admitted the execution of the instrument of which the alleged partnership was predicated and the transaction of business under it. They substantially admitted that the plaintiff was discharged by order of the defendant Sherman, which was carried out by the defendant LaBree. The reason assigned for this act was the neglect of the plaintiff’s testator or his failure to perform his part of the agreement and to devote himself to the interests of the joint enterprise provided for by it and they asserted that the discharge was therefore the exercise of a legal right, the defendants treating the plaintiff as an employee whose rights and obligations were those and those only springing from the relation of employer and employee. The learned justice presiding in the court below found in favor of the plaintiff on all the issues and adjudged that his expulsion from the office or business place of the Sherman Publishing Co., and by

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which he was prevented from participating in its business, was unjustifiable. And, further, that he had not violated the agreement which, as to him, was still in force, and that he was entitled to a quarter interest in the profits arising from the business.

The Sherman Publishing Co. was practically the successor of Stearns & Co., a firm which had for several years existed under that title and which was the possessor of wood cuts, electrotypes and illustrations relating to the late civil war, so called. The agreement under which the plaintiff claimed is dated the 4th February, 1884, and was for the publication of an illustrated history. By the agreement the defendant Sherman was to provide the necessary funds for the publication of the first edition of 3,000 volmmes of the history mentioned and to continue the publication of it, but as the sole owner except as provided by the stipulations in the agreement contained. The plaintiff’s testator and the defendant La Bree were to devote them time and business capacities in furtherance of the enterprise in consideration of each receiving one-fourth of the net profits arising from the publication to be made. The business was to continue until January 1, 1894. It was mutually agreed that the plates and illustrations were to be furnished by Stearns & Co., owners and former publishers of the Pictorial War Record, without any charge or cost to the new company.

It also provided what sum the plaintiff's testator and the defendant La Bree should respectively be allowed to draw weekly, and that such amount should be deducted from their respective quarter interest It was also mutually agreed that upon the termination of the contract the plaintiff’s testator and the defendant La Bree should be allowed and paid their respective proportion of the cost of the publication of such of the completed volumes as might be on hand and unsold or that might be in course of publication. And it was further agreed as follows;

“It is further mutually agreed by the parties to this contract that should the parties of the second part and the party of the third part, or either of them, fail to regard, carry out and perform their designated stipulation and their covenants, through and by which they have become parties in interest of the publication and sale of said illustrated history, or any part of them, except only in case of sickness, then such delinquent’s connection and interest in said publication shall at once cease and he be paid his pro ■ portionate share of the profits that is due him at the time of such delinquency, if any, after which said delinquent party shall have no further right, share or interest m or to said publication.”

The contract between the parties has been partially stated in detail for the purpose of showing that it related to a joint enter prise m which the respective interests of the parties were stated, the defendant Sherman at first contributing the capital and the others assuming the burden and responsibility of conducting the business.

The defendant Sherman was professionally engaged mnch of his time as a physician, and paid little personal attention to the joint business. It is true that the result of a fadure by either the

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plaintiff’s testator or the defendant La Bree to discharge their assumed obligations, except only in case of sickness, was that the delinquent’s connection with the business should cease at once, and he be paid his proportionate share of the profits then due him. It w-as not stated in what manner such delinquency was to be determined or by whom it should be declared, and the proper course would have been an appeal to some court of competent j urisdiction to investigate and determine as to the alleged failure, and whether the delinquent was entitled to his portion of the profits, if any had then been made; but this was not done, as we have seen.

The joint enterprise thus established between the parties has all the necessary elements of a partnership, the test of which is a community of profit, a specific interest m the profits as profits in contradistinction to a stipulated portion of the profits as a compensation for services. 3 Kent’s Com., 25, note b; Walden v. Sherburne, 15 Johns., 409 ; Leggett v Hyde, 58 N. Y., 279 , and cases cited; Marston v Gould, 69 id., 225.

Here the parties were all interested in and their gains were controlled by the profits, and in January m each year a statement of the situation of the business was to be made, the books to be kept by the company being at all times open to the inspection of the parties,

Assuming, therefore, that the plaintiff’s testator was delinquent, the defendants were not justified m arrogating the jurisdiction of a court of equity or of ejecting the plaintiff’s testator, which was the act substantially committed by them.

If this view be questionable, however, having assumed the power it was incumbent on them to satisfactorily establish in this action the propriety of preventing the plaintiff’s testator from par^ ticipating in the business and in such manner as the agreement provided, There is no pretence that they paid the plaintiff's tes ■ tator his proportion of the profits up to the time he was expelled if any were due, or that prior to his expulsion or subsequent thereto any proper investigation leading to that end was adopted by them, and they failed to show as well the asserted delinquency, the learned justice in the court below having found against them on that issue and on conflicting evidence.

It is to be observed also that it was not necessary to determine whether or not the agreement between the parties constituted a copartnership eo nomine to authorize a judgment for the plaintiff,

It appears conclusively from the agreement between the parties that a joint interest m a joint enterprise was created, and by analogy, as said in Marston v. Gould, supra, the same remedy in equity may be had for a violation of the trust by either The same remedy exists against one occupying the position of a quasi partner involving the same duties and obligation.

The plaintiff’s testator was, it must be said, sometimes appam ently derelict, but this arose from illness to which, for periods, he was subject, and this infirmity was doubtless known and contemplated from the fact that he and Sherman had been partners and that the agreement excepted from the duty of devotion to the

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business periods of illness. The errors of which the defendant’s counsel complained arose chiefly from his persistent efforts to embrace in this controversy the acts of the plaintiff’s testator in reference to the affairs of Stearns & Go. and which, in an action or proceeding relative to that business would be subjects for judicial consideration. And most of the objections and exceptions, therefore, taken herein on behalf of the defendants, indeed all that have any merit, are based upon that relation. The impropriety of this is too apparent to require refutation. If the plaintiff’s testator overdrew his account, or appropriated property belonging to the firm of Stearns & Go., while a member thereof, that could not avail the defendant, La Bree, who was not a member of that firm.

He could not employ it as a counterclaim or as a defense in any form.

The delinquency contemplated by the agreement, as we have seen, relates to the new firm and the stipulations and their covenants thereunto relating, and all that the plaintiff and the defendant La Bree could be called upon to answer for was a violation of one or more of them.

It is only necessary to say in addition that the long litigation herein, as indicated by the volume of testimony taken, arose as suggested chiefly from the attempted commingling of the affairs of the two firms and the alleged grievances of the defendant Sherman in relation thereto, with which the defendant La Bree had nothing to do.

Por these reasons the judgment appealed from should be affirmed, with costs.

Tan Brunt, P. J., and Bartlett, J., concur.