First National Bank v. Staples — 34 N.Y. St. Rep. 503

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The First National Bank of Jersey City, App’lt, v. Orren G. Staples and John F. Walton, Resp’ts.

(Supreme Court, General Term, Fourth Department,

Filed December 6, 1890.)

Headnote

Partnership—What pacts will not constitute.

Defendants entered into an agreement to loan to the firm of H. & TJ. cer

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tain moneys, for which the firm was to give notes and as collateral to assign certain contracts with farmers to grow seeds, and give a mortgage on other seed; it being provided that the moneys received for sale of such seed should be paid over to defendants, who, on payment of the loan, should re-assign said contracts; that defendants were not required to give any personal attention to the' business, and that in lieu of interest on the loan, and for the services they might render, they should receive one-third of the gross profits made in raising and marketing said seed. Held, that the agreement gave defendants no such proprietary right in the business of the fizan, or in its profits, as to make them liable as partners for debts of the firm.

Appeal from a judgment entered in Jefferson county May 12, 1890, against the plaintiff for $185.02 costs.

This action was brought upon three promissory notes made by the firm of Howard & Underhill. The claim of the plaintiff was that the respondents were copartners with James H. Howard and Clayton E. Underhill, and were members of the firm of Howard & Underhill. This was denied by the respondents. On the trial the notes mentioned in the complaint were produced by the plaintiff, and their execution by the firm of Howard .& Underhill was proven. The signatures to them were in the handwriting of James H. Howard. They were received in evidence.

The plaintiff then introduced the following agreement: “ This agreement made this 2oth day of May, 1889, between James H. Howard and Clayton E. Underhill, composing the firm of Howard & Underhill, of Cape Vincent, N. Y., parties of the first part, and Orren Q-. Staples, of Washington, D. C., and John E. Walton, of Alexandria Bay, 3ST¡ Y., parties of the second part.

The said Howard & Underhill are engaged in the growing of peas and beans at Cape Vincent, N. Y., and have let out to divers farmers peas and beans to be grown for them during the present year under written contracts, a list of which contracts are hereto annexed, forming a part of this agreement.

All of which contracts belong to said Howard & Underhill and represent the peas and beans and bags therein mentioned and the crops to be raised from said peas and beans under the terms stated in said contracts, to which reference is had. And said Howard & Underhill are in immediate want of money to pay existing debts and to pay said farmers for said crop when delivered during the autumn of 1889, and have applied to said Staples and Walton for the loan of money for that purpose.

It is therefore agreed that said Staples and Walton will loan to said Howard & Underhill the sum of twenty-five thousand dollars ($25,000), as follows: $5,000 on the 4th day of June, 1889 ; $5,000 on the 11th day of June, 1889 ; $5,000 on the 1st day of August, 1889 ; $5,000 on the 15th day of August, 1889, and $5,000 on the first day of September, 1889, for which said Howard & Underhill are to give their notes without interest on receiving the above sums at the above dates and payable on demand, and as collateral thereto and security for the payment of said loans the said Howard & Underhill do hereby sell, assign, transfer and set over to said Staples and Walton all of the said contracts mentioned in said schedule A. annexed and all the grain therein mentioned and the crops to be grown under said contracts, and the hags and other personal property mentioned in said contracts, and all their right, title and

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interest in and to said contracts, and authorize said Staples and Walton to take possession under said contracts and enforce the same, and said Howard h Underhill covenant and agree that any assistance or labor they shall perform in receiving said grain under said contracts shall be as agents of said Staples and Walton and not otherwise, and any money received from the sale of said crops when raised by them shall be the money of said Staples and Walton.

And it is further agreed that whereas said Howard & Underhill are now erecting a seed house in the town of Cape Vincent, that as soon as the same is completed, which will be on or before the 1st day of August, 1889, they will give a mortgage upon said property, which shall be the first lien thereon, to said Staples and Walton as a further collateral security to this loan, and said Staples and Walton may at any time take possession of said seed house and occupy the same until this loan is paid, and as a further security said Howard & Underhill agree to give said Staples and Walton a chattel mortgage covering 560 odd bushels of peas and beans now in the barn of Harvey Howard, at Cape Vincent aforesaid.

It is further agreed that any money received from the sale of the peas and beans now on hand, or those that shall be received under said contracts, shall belong to said Staples and Walton, and the said Howard & Underhill agree to pay the same over to them as fast as received, less the necessary expenses of preparing said grain for market at the seedhouse in Cape Vincent aforesaid, which is estimated at about fifteen cents per bushel.

It is further agreed that said Staples and Walton shall receive, in lieu of interest on said loan, and for the services that they may render in and about the said business, one-third of the gross profits made in the raising and marketing the said peas and beans under said contracts, intending by this to give them one-third of all the gross profits on all business done at said seed-house during the season of 1889.

It is further agreed that upon said Staples and Walton receiving payment of the said $25,000 and one-third of the profits as aforesaid, they will re-assign and transfer to said Howard & Underhill all the property assigned them under this agreement or as security for said loan and remaining undisposed of, and not appropriated to the payment of said loan as aforesaid.

This contract shall not be construed as requiring either said Staples or Walton to give any personal attention to said business, and in case they see fit to put any man in possession of said seed-house or business as their agent, the same is to be paid by the firm of Howard & Underhill without expense to them.

It is understood, however, that it is the intention of the parties that Howard & Underhill shall convert said seeds into money as the agents of said Staples and Walton, provided the same is done in a satisfactory manner to said Staples and Walton.

It is further understood that said Howard & Underhill have contracts for the sale of peas and beans during the winter of 1889-90; that they shall give the benefit of said contracts to said

N. Y. State Rep., Vol. XXXIV. 64

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Staples and Walton, and shall, with the approval of said Staples and Walton, fill said contracts from the grain and seeds thereby-assigned to them.

The property now on hand and the crop to be grown shall be-insured in the name of said Staples and Walton, as their interests shall appear under this contract..

In witness whereof, the parties hereto have set their hands and seals the day and year first above written in duplicate.

James H. Howard,

Clayton E. "Underhill,

Staples & Walton.”

It was admitted that subsequent to the making of the agreement the parties thereto entered upon its performance, and that the business theretofore carried on by Howard & Underhill and referred to in the agreement was thereafter transacted in the firm name of Howard & Underhill as it previously had been. Ho other evidence was given on the trial.

When the plaintiff rested, the respondents moved for a non-suit on the grounds: “ 1. The plaintiff has failed to prove a cause-of action against said Staples and Walton; 2, the agreement in evidence dated May 25, 1889, did not constitute Staples and Walton members of the firm of Howard & Underhill, as between themselves or as to third parties; 3, the notes do not purport to be-made by any firm of which Staples and Walton were members; 4, no proof that the notes were for the benefit of any firm of which Staples and Walton were members or in any way assumed the same or became liable -thereon.” The motion was granted, and the plaintiff excepted.

D. G. Griffin, for app’lt.; John G McOartin for resp’ts.

It seems to be settled in this state that persons who have a proprietary interest in a business and in its profits, are liable to creditors as partners.« Magovern v. Robertson, 116 N. Y., 61 ; 26 N. Y. State Rep., 612; Hackett v. Stanley, 115 N. Y., 625 ; 26 N. Y. State Rep., 693. It seems to be equally well set-led that a person who has no interest in the business of a firm or in the capital invested, save that he is to receive a share of the profits as compensation for services, or money loaned, for the benefit of the business,' is not a partner and cannot be held liable as such by a creditor of the firm. Richardson v. Hughitt, 76 N. Y., 55 ; Eager v. Crawford, id., 97 ; Burnett v. Snyder, id., 344; 81 id,, 550 ; Curry v. Fowler, 87 id., 33 ; Cassidy v. Hall, 97 id., 159; Keogh v. Minrath, 8 N. Y. Supp., 816 ; 30 N. Y. State Rep., 129.

The important question presented by this appeal is, whether the respondents under the agreement between themselves and Howard & Underhill acquired a proprietary interest in the business of that firm and its profits so as to make them liable as partners for the debts contracted by it.

The appellant contends that the agreement between the firm of Howard & Underhill and the respondents contains all the ele

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ments necessary to constitute a copartnership and to render the respondents liable as copartners to third persons dealing with that firm. It claims that this agreement discloses: 1. That there was a loan of money by the respondents to be used in the business of the firm to which it was made; 2, that the respondents reserved to themselves a right to participate in the management of the firm business; and 3, that the respondents possessed an ownership of a share of the profits of all the business of the firm. We do not think this contention can be sustained.

An examination of the agreement between the parties shows that the respondents agreed to loan to the firm of Howard & Underhill $25,000. The purpose of this loan, as indicated in the agreement, was to obtain money with which to pay the debts of the firm of Howard & Underhill, as well those that were due as those that were to become due. We find no provision in the agreement that this money should be used in any business in which the respondents were to become interested. The respondents were given no power or control as to its application or disposition. It was a loan to that firm, and it could dispose of the money as it saw fit.

We fail to find any provision in this agreement which gave the respondents any right to participate in the management of the general business of the firm of Howard & Underhill. The firm of Howard & Underhill, as security for the payment of the money loaned them, were to give the respondents their notes. As collateral security for the payment of that debt they also transferred to the respondents certain specified property, with the right of possession and the right to sell the same and thus procure the money to satisfy their debt. They also agreed to give the respondents certain mortgages as further security, with the right to the possession of the property mortgaged, and to retain such possession with the use thereof until the loan was paid. The respondents were authorized to perform no services and had no interest in the general business of the firm of Howard & Underhill. The only services the respondents were authorized to perform, and the only interest they had in the management of any business, was under and by virtue of the transfer to them of the property of Howard & Underhill. The services which might be performed by the respondents related to the property transferred to them as security and to the collection of their debt. That business was their business, and wholly independent of the general business of the firm of Howard & Underhill.

Nor do we think the respondents possessed any ownership in the profits of the business of the firm of Howard & Underhill. The loan was without interest. Services might have to be performed by the respondents in collecting their debt and looking after the property transferred to them as security therefor. As a measure of the compensation to be paid for such services as they might have to render and for the use of the money loaned, the respondents were to receive the proportion of the profits named. They acquired no interest in these profits as such, but they were only interested therein as a means of compensation for the use of their

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money and their trouble in converting the property transferred into money to pay their loan.

The agreement between these parties shows that its purposes were three-fold:

1. To provide for a loan of money by the respondents to the firm of Howard & Underhill.

2. To provide security for its repayment, and a special method of enforcing such security.

3. To establish. the measure of the compensation to be received by the respondents for the use of the money loaned by them, and for any services they might perform in enforcing their security and collecting their debt. We do not think the respondents by this agreement acquired any such proprietary interest in. the business of the firm of Howard & Underhill, or in its profits, as to make them liable as partners for the debts of that firm.

Moreover, there is no evidence in this case to show that the notes upon which the appellant sought to recover in this action were given by Howard & Underhill in any business in which the respondents had any interest whatever. We think the court properly nonsuited the plaintiff, and that the judgment appealed from should be affirmed.

Judgment affirmed, with costs.

Hardin, P. J., andMERWiN, J., concur.