Boston & Colorado Smelting Co. v. Smith

• Decision Date: 29 May 1880
• Citation: 13 R.I. 27
• Parties: BOSTON & COLORADO SMELTING COMPANY v. WILLIAM T. SMITH et als.
• Court: Rhode Island Supreme Court

13 R.I. 27

BOSTON & COLORADO SMELTING COMPANY v. WILLIAM T. SMITH et als.

Supreme Court of Rhode Island.

May 29, 1880

Agreement under seal between A. and B. by which B. was to loan A. $5,000 for one year, or indorse his note for that amount for that time, and also indorse his notes to an additional amount not exceeding $2,000 if B. thought such sums required for A.'s business. For this A. was to pay B. ten per cent. of his net business profits of the year, and two per cent. of his net profits for each $1,000 indorsed for him over said sum of $5,000. A. also agreeing to conduct his business to the best advantage, and to keep accurate accounts thereof to be at all times open to B.'s examination:

Held, an executory agreement which if carried into effect would make A. and B. copartners neither as between themselves nor as to third persons.

Held, further, that the lenders having no voice in the management of the business and no interest in the capital, the agreement was for a loan of money or credit in which a percentage of profits took the place of interest.

Held, further, that such a contract did not, according to the later English cases, create a partnership at common law.

A. brought assumpsit against B. and others whom A. claimed to be copartners of B. for goods furnished them under a sealed agreement executed by A. and B.

Held, that the action would not lie. As against B., A.'s claim rested on a specialty, and as B. alone could not be made liable in assumpsit, so B. in company with others could not be held in assumpsit .

Semble, that if a partnership existed between B. and his co-defendants, the partners who did not execute the sealed agreement could only be reached by a bill in equity filed by A.

ASSUMPSIT. Heard by the court under the following agreement:

" In this cause it is stipulated and agreed as follows:

That the following questions be submitted to the court:

First . Whether or not the agreement between Mason, Chapin & Co. and William T. Smith, marked Exhibit A, is evidence of a copartnership between said Mason, Chapin & Co. and said William T. Smith.

Second . Whether or not, in view of the agreement under seal, signed by the plaintiff and the defendant, William T. Smith, marked Exhibit B, an action of assumpsit can be maintained against the defendants as for goods sold and delivered to them as copartners, if such goods are the same goods contracted for in said agreement.

In case the court should decide, under the second question, that an action of assumpsit cannot be maintained, then the plaintiff shall become nonsuit.

EDWIN METCALF, Attorney of Mason, Chapin & Co ."

" THURSTON, RIPLEY & Co., Plaintiff's Attorneys .

Exhibit A above referred to is recited in the opinion of the court.

Exhibit B is as follows:

" Memorandum of agreement made and entered into this first day of May, A. D. 1878, by and between the Boston & Colorado Smelting Company, party of the first part, and William T. Smith, of Providence, R.I., party of the second part, witnesseth: That the said party of the first part hereby agrees to sell and deliver, and by these presents does sell, to said party of the second part five eighth (5/8 ) parts of the entire product of oxide of copper produced at their works in Colorado, from the first day of September, A. D. 1878, to the first day of September, A. D. 1880, the same not to exceed twenty-five (25) tons per month, and to be delivered, free of expense, in car loads of about ten (10) tons each, at the railroad depot in Providence. And the said party of the second part hereby agrees to purchase, and by these presents does purchase, five eighth parts of the oxide of copper produced at the works of the party of the first part, from September 1st, A. D. 1878, to September 1st, A. D. 1880, not exceeding twenty-five (25) tons per month, hereby agreeing to pay for each shipment within ten (10) days from the date of its arrival at Providence."

[Then follow provisions for determining the prices to be paid, and respecting damage in transportation, not material to the questions submitted.]

" This agreement shall take effect on the first day of September, A. D. 1878, and be binding upon the parties hereto, their successors and assigns, until the first day of September, A. D. 1880.

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

" BOSTON & COLORADO SMELTING Co.

By J. Warren Merrill, Treasurer . [L. S.]

" WM. T. SMITH. [L. S.]

In presence of H. E. VALENTINE.

Witness: WM. P. CHAPIN."

James M. Ripley & George Fuller, for plaintiff.

Tillinghast & Ely, for defendant Smith.

Edwin Metcalf, for the other defendants.

DURFEE C. J.

This is an action of assumpsit for goods sold and delivered by the plaintiff corporation to the defendants, who are alleged to have been copartners in business at the time of their delivery. The names of the defendants are, first, William T. Smith, and, second, certain persons constituting the firm of Mason, Chapin & Co., to wit: E. Philip Mason, William P. Chapin, Charles S. Bush, and Samuel L. Peck. Two questions, one of which may be decisive of the case, are submitted to the court for determination, preliminarily to the full trial. The first is, whether the following agreement between the defendant, William T. Smith, and the other defendants, is evidence of a copartnership between them.

" This indenture, made this twenty-fifth day of April, in the year eighteen hundred and seventy-eight, between William T. Smith, of Providence, in the State of Rhode Island, of the first part, and Mason, Chapin & Co., of the said Providence, of the second part, Witnesseth: That in consideration of the agreements herein made, the said party of the first part covenants with the said parties of the second part, that on the first day of May, in the year eighteen hundred and seventy-nine, he will pay to them ten per centum of the net profits of the business, carried on during the year preceding the day last named, under the name and style of ‘ Elmwood Chemical Works, William T. Smith, Treasurer,’ in consideration of their loan to him of $5,000, or of their indorsements for him to that amount, for and during the year aforesaid, and will also pay to them two per centum of said net profits for each sum of one thousand for which they may indorse for him during said year in addition to said sum of $5,000; and that he will conduct said business during said year to the best advantage, and keep accurate accounts thereof upon books which shall be at all times open for examination by them.

" And that the said parties of the second part, in consideration of the foregoing agreement, covenant with the said party of the first part: that they will loan to him $5,000 for the term of one year, from the first day of May, eighteen hundred and seventy-eight, or indorse his note for that amount, renewable from time to time during said term, and will also during said year, if in their judgment required for the proper management of his business aforesaid, indorse his notes to an amount not exceeding $2,000 in excess of said $5,000.

" In witness whereof, the said parties hereto set their hands and seals, the day and year first above written.

" Executed in presence of EDGAR G. ROBINSON, Witness to both signatures.

WILLIAM T. SMITH, [SEAL.]

MASON, CHAPIN & Co. [SEAL.]"

The contract, it will be noted, is executory, and of course does not create a partnership between the parties to it until something is done to carry it into effect. We presume, therefore, that the meaning of the question put to us is, Is the contract such that it would create a partnership between the parties to it, if carried into effect according to its terms, or such that, if so carried into effect, it would render the parties to it liable as copartners to third persons? We will consider the question as if so propounded.

If we regard the contract simply as a contract between the parties to it, to be construed as contracts are usually construed, so as to carry out their intention, we think there can be no doubt that it can only be considered a contract for a loan of money or credit in consideration of a percentage of profits in lieu of interest. It gives the lenders no voice in the management, and no interest in the capital, of the business. It gives them only a percentage of the profits for a single year in a continuing business. It is true they are to have the right to inspect the books, but only for information. The contract calls the business his, i. e. the borrower's, and it remains exclusively his, as much during the continuance of the loan as before or afterwards. The contract, as between the parties to it, is, therefore, simply a contract for a loan of money or credit, and if, when carried out, it renders them liable as copartners, it is not because they have agreed to become such, but, independently of their agreement, by force of an arbitrary or artificial rule, or by operation of law.

The plaintiff corporation contends that the members of the firm of Mason, Chapin & Co. have, by sharing or being entitled to share the profits of the business carried on by Smith, become, if not actual copartners with him, at least liable with him as copartners to third persons for the debts contracted by him in the prosecution of his business.

The position taken by the plaintiff corporation has the support of the earlier English and of numerous American decisions, and, previous to the decision of Cox v. Hickman in the House of Lords, in 1860, was so well established that Judge Story, in his work on the Law of Partnership, while he questions whether it would not have been " more conformable to true principles, as well as public policy, to have...