Ashley v. Dowling

• Decision Date: 19 October 1909
• Citation: 89 N.E. 434,203 Mass. 311
• Parties: ASHLEY v. DOWLING et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

203 Mass. 311

89 N.E. 434

ASHLEY v. DOWLING et al.

Supreme Judicial Court of Massachusetts, Worcester.

October 19, 1909

COUNSEL

Ernest H. Vaughan, Edward T. Esty, J. Clark, Jr., and J. P. Halnon for plaintiff.

Herbert Parker and Henry H. Fuller, for defendants.

OPINION

RUGG J.

This is an action of contract brought against certain persons as partners. The facts as to the alleged copartnership are that in 1886 a voluntary trading association was formed under the name of 'Knights of Labor Co-operative Store Association' for the purpose of carrying on a general country store. Certain by-laws were adopted, which provided among other things for the issuance and transfer of an unlimited number of 'shares of stock,' each of a par value of $5, for the general conduct of a store business through a salesman under the supervision of an executive committee, for interest on the capital at the rate of 6 per cent. per annum, payable semiannually, for the setting apart of 5 per cent. on the net profits as a sinking fund, and the quarterly payment of the balance of such profits to purchasers as 'dividends' in proportion to the amounts of their respective purchases, for accumulation of uncollected interest or dividends to the credit of the several members of the association, and the transfer of uncollected dividends on purchases by nonmembers to the sinking fund. Shares were issued from time to time, and regular meetings were held for several years, but none after 1894. One Mahoney entered the employ of the association as salesman when it began business, and so continued until 1908 when it ceased to do business. In 1891 he was elected at a regular meeting of the stockholders a member of the executive committee and treasurer, and continued without subsequent election to hold these offices until 1908. He did all the buying and issued, and received money for, stock. Interest was declared annually to the shareholders, up to the time the store was closed, at the rate of 6 per cent., save that for four or five years the stockholders voted to pay themselves 8 per cent. Financial reports were made by Mahoney to the executive committee from time to time, except toward the end of the business. The plaintiff had sold goods to the store, and from time to time took notes, which were always signed 'Knights of Labor Co-operative Store Association, by George A. Mahoney, Treasurer,' and which were paid. The indebtedness for which this suit is brought was incurred subsequent to the purchase by defendants of any stock they held. All the time after the first year of the business, it was the custom of Mahoney to buy goods on credit, and give notes in payment. No objection was ever made by any stockholder to the method in which Mahoney conducted the business.

A voluntary unincorporated association of individuals for the purpose of conducting business, whose proportions of ownership in the assets are represented by certificates having similarity to shares of stock in a corporation, has repeatedly and uniformly been held to be a partnership. Tappan v. Bailey, 4 Metc. 529; Hoadley v. County Com., 105 Mass. 519; Taft v. Ward, 106 Mass 518; Edwards v. Warren Linoline & Gasoline Works, 168 Mass. 564-566, 47 N.E. 502, 38 L. R. A. 791. See Opinions of Justices, 196 Mass. 603, 614, 627, 85 N.E. 545. The defendants undertake to distinguish the present case from these on several grounds. It is urged that because the income, which might be received by the stockholders, was limited by the by-laws to 6 per cent., they were creditors and not stockholders. A like provision was in the by-laws of the association under consideration in Ricker v. American Loan & Trust Co., 140 Mass. 346, 5 N.E. 284, but it was nevertheless held to be a copartnership. Moreover, the stockholders varied this rate by increasing it for several years. There is also here a by-law for the establishment of a sinking fund, but no regulation for its use or ultimate disposition. If this fund had been kept intact and regularly increased, it might have become a substantial sum. Its ownership would have been in the association. Its distribution, in case of the winding up of the association, would have been among the stockholders in the nature of profit sharing. It is argued that the purchasers of goods were really the persons for whose benefit the business was carried on. But the purchasers were not associated in the enterprise. They had no voice, directly or indirectly, in the management and are not anywhere recognized in the plan of the association as having a proprietary relation to it. They were under no obligation to collect their so-called 'dividends' on purchases, and if these were not collected they were not credited on the books of the company to the purchasers, but transferred to the sinking fund, which was in its last analysis for the benefit of the stockholders. The phrase of the by-laws in describing its members as 'stockholders' indicates a participation in the fortunes of the venture. Dividends or interest...