p. 691the “ Hoffman Press ” was run by Louis J. Hoffman as manager, and his wife owned it Defendant entered into an agreement to furnish Hoffman with two presses, as follows :
“It is my intention to provide, as soon after May 1st as practicable, two cylinder presses, which are to be let to you at the rate of six per cent interest on actual cost, with ten per cent on same for wear and tear, actual insurance and half profit on same, after deducting rent, labor, ink and other necessary expenses.”
It is claimed that by reason of this agreement defendant became liable as partner because he shared in the profits of the business.
The opinion of the general term of the city court is as follows :
Ehrlich, Ch. J.—It is not essential that the parties defendant should have intended a partnership, nor is it material that they did not intend one. The agreement executed by them made them partners as to creditors, Hackett v. Stanley, 115 N. Y., 625 ; 26 N. Y. State Rep., 693; Leggett v. Hyde, 58 N. Y., 272 , and this is the only question presented for determination here. Sharing in the profit was sufficient to constitute a partnership as to third persons. Hackett v. Stanley, supra; Manhattan Brass Co. v. Sears, 45 N. Y., 797 . It follows that the verdict was properly directed in favor of the plaintiff, and that the judgment entered upon it must be affirmed, with costs.
Edward M. Shepard and John M. Perry, for app’lt; Philip Carpenter, for resp’t.
—In the absence of an estoppel, no man can be charged with liability on a contract to which he is not a party, either immediately or mediately, either personally or by act of a duly authorized representative. It is not pretended that the appellant has precluded himself from disputing his responsibility on the note by assuming the relation of an ostensible partner, but his liability is inferred from the postulate that he was an actual partner in the business of the Hoffman Press. Was he such partner? The learned trial judge directed a verdict for the plaintiff on the ground that “ sharing in the profits was sufficient to constitute a partnership as to third persons,” and for the same reason the judgment was affirmed on appeal to the general term of the court below. In Grace v. Smith, 2 W. Bl., 998, and in Waugh v. Carver, 2 H. Bl., 235, it was held that participation in the profits of a partnership raises an irrebuttable presumption of liability for the debts of the partnership; for the reason that, by taking a part of the profits, the defendant diminishes the fund to which the creditors of the firm must have recourse for satisfaction of their demands. The argument involves an obvious fallacy; for, first, it assumes that the portion of profits which the defendant takes by so much reduces the resources of the business, whereas the presumption is that the loan, service or other consideration in requital of which he is paid, augumented those resources to the extent of his share in the dividend; and, secondly, if every payment by which the funds of the firm are diminished makes the payee a partner, then every servant and agent of the partnership is respon
p. 692sible for its obligation; a palpable reductio ad absurdum. From the principle that one who receives a part of the profits is a partner as to third persons, the inference was deduced that so, also, is one who merely stipulates for such participation, although this extension of the rule has not for support the reason assigned for the original proposition, namely, an actual diminution of the firm assets. Unsatisfactory as was the argument for the conclusion, nevertheless it was long the law of England that an interest in the profits of a partnership imposed a liability for the partnership obligations, and the principle was generally prevalent in the courts of this country. But in 1860 the rule and the reason of it underwent a searching scrutiny in the house of lords, under the criticism of Lord Chancellor Campbell, and the Ex-Chancellors Brougham, Cranworth and Wensleydale, with the result that the doctrine was utterly exploded as a principle of English jurisprudence. Cox v. Hickman, 8 H. L. Cas., 268, The question on the present appeal is, does the principle prevail as a rule of law in the state of New York? The appellant was held liable on a note to which he was not in fact a party, either directly or indirectly, because, and merely because, in return for the hire of a chattel to the maker, he had stipulated for a part of the profits that might be earned by the use of the chattel in the bailee’s business. It is the law of this state, as declared by the court of appeals, that a right to a share of the profits in compensation of services rendered to the partnership does not involve a liability for the partnership engagements. Cassidy v. Hall, 97 N.Y., 159 ,168; Leggett v. Hyde, 58 id., 272 . And so of a loan of money to the partnership for a part of the profits. Curry v. Fowler, 87 N. Y., 33 ; Richardson v. Hughitt, 76 id., 55 ; Keogh v. Minrath, 30 N.Y. State Rep., 131; Eager v. Crawford, 76 N. Y., 97 . And see Smelting Co. v. Smith, 13 R. I., 27 ; Ford v. Smith, 27 Wis., 261 ; Ruddick v. Olis, 33 Iowa, 402 ; Beckwith v. Talbot, 2 Colo., 639 ; Dale v. Pierce, 85 Pa. St., 474 ; Sangston v. Hack, 52 Md., 173 ; Slade v. Paschal, 67 Ga., 541 ; Flints v. Marble Works, 53 Vt., 669 ; Austin v. Thomson, 45 N. H., 113 ; Oliver v. Gray, 4 Ark., 425 ; Smith v. Knight, 71 Ill., 148 ; Bradleys v. White, 10 Metc. (Mass), 303; Culley v. Edwards, 44 Ark., 423 . The rule, therefore, upon which the court below decided the case against the appellant, namely, that a share of profits constitutes partnership as to third persons, is not the law of New York or of other states. The question then is, does the fact that profits are to be paid for the hire of a chattel for the partnership business modify the principle ? Is it possible to distinguish between the letting of a chattel and the loan of money or the hire of services ? Equally with the chattel, the money and the services are employed in the business of the partnership ; and if the taking of profits for the use of the latter does not impose a partnership liability, why should the taking of profits for the use of the former ? A difference between the cases is inconceivable. “An indefinite compensation out of the profits for the use of property, real or personal, and dependent on the success of the business, is in lieu of rent, and does not constitute the owner a partner inter se. Nor liable as partner to third persons
p. 693because of sharing the profits, for exactly the same reason that protects an employee when so paid.” 1 Bates Partn., 61;
Newspaper Co. v. Farrell, 88 Mo., 594 ;
McDonnell v.
Battle House Co., 67 Ala., 90 ;
Holmes v.
Railroad Corp., 5 Gray, 58 ;
Thayer v. Augustine, 55 Mich., 187 . For affirmance of the judgment, the respondent relies on
Bank v. Gallaudet, 122 N. Y., 655 ; 34 N. Y. State Rep., 228;
Hackett v.
Stanley, 115 N. Y., 625 ; 26 N. Y. State Rep., 693 ;
Leggett v.
Hyde, 58 N. Y., 272 ; and
Brass etc., Co. v. Sears, 45 id., 797. But it is obvious, upon examination, that each of those cases is essentially distinguishable from the one under review. In
Bank v.
Gallaudet, there was not only a participation of profits, but a joint interest in the patent, the subject matter of the partnership ; and the court said: “ The evidence warranted the inference of a partnership. Such relation arises from a business jointly carried on by persons pursuant to an .arrangement that they are to share in the profits as such. The fact, however, that a person is to receive a portion of the profits may be dependent upon a right so qualified by the arrangement, or controlled by the circumstances under which they are to be received, as to furnish no evidence ■of partnership.” In the case at bar there was no joint interest in the presses let to hire, nor any stipulation for profits as such, but as rent for the use of the presses. The citation plainly sustains the appellant’s contention. In
Hackett v. Stanley, the court placed the liability of the defendant upon the grounds:
First, that the contract contemplated that he was to bear a proportionate share of the losses of the business; and,
secondly, that, even after the repayment of his loan, he was still to receive one half the profits of the business; facts clearly implying a partnership, but not apparent in the case at bar. In
Legged v. Hyde, the defendant was not only entitled to demand one-third of the profits every half year, but those profits were designated specifically as profits of “ capital in the business; ” a fact distinguished by the court as the
ratio decidendi. In
Brass, etc., Co. v.
Sears, as in
Bank v. Gallaudet, the parties were “joint owners” of the patent right, and the profits were to be paid as such, and not as mere compensation for the advance, whereas here the defendant was the sole owner of the presses; they were merely “ let,” and the share of profits was to be received as payment for their hire: The question presented
is not free from doubt, and the learned court below are not without argument and authority for their position; still, upon a critical consideration of the cases, we are of opinion that the preponderance of reason and precedent is with the appellant, and that he is not liable as a partner.
Judgment reversed and new trial granted, costs to abide event.
Allen and Bischoff, JJ., concur.