Joshua M. Whitcomb v. James C. Converse &Amp; Others

• Decision Date: 22 October 1875
• Citation: 119 Mass. 38
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: Joshua M. Whitcomb v. James C. Converse & others

119 Mass. 38

Joshua M. Whitcomb v. James C. Converse & others

Supreme Court of Massachusetts

October 22, 1875

[Syllabus Material] [Syllabus Material]

Suffolk. Bill in equity, filed July 3, 1873, by a partner in the late firm of Converse, Whitcomb & Co. against the other partners, James C. Converse, Walter Stanton and Edwin R. Blagden, to compel contribution to the losses incurred by the partnership. The articles of partnership were as follows:

"Terms of agreement of copartnership for the transaction of a dry-goods commission business in New York and Boston between the undersigned, to commence the second of January, 1871, and continue one year, under the firm name of Converse, Whitcomb & Co.

"J C. Converse to contribute twenty-five thousand dollars; to receive interest on the same at 7 per cent., and devote such time as he may be able to give; to receive 25 per cent. of net profits.

"J. M. Whitcomb to contribute fifty thousand dollars, receive 7 per cent. interest on the same; to give all his time to the business, and receive 25 per cent. of the net profits.

"E. R. Blagden to contribute all his time to the business, and receive 25 per cent. of the net profits.

"Walter Stanton to contribute all his time to the business, and receive 25 per cent. of the net profits.

"J. C. Converse and E. R. Blagden to attend to the business in Boston. J. M. Whitcomb and Walter Stanton to attend to the business in New York. Each partner shall be allowed to draw only $ 500 per month for personal expenses."

Hearing before Colt, J., who reported the case for the consideration of the full court in substance as follows:

The plaintiff contributed $ 25,000 of the amount mentioned in the agreement to be contributed by him.

The partnership was dissolved by mutual consent on March 9, 1871, and the plaintiff was authorized in the agreement of dissolution to settle up the affairs of the firm. He did so, and there resulted therefrom a loss, as he contended, of $ 25,000, more or less, being less than the amount of the capital to be put in by the plaintiff; but whether the loss in question was a partnership or individual loss, is one of the questions reserved as hereinafter stated. The defendant Blagden, at the time of the dissolution, was, ever since has been, and now is, insolvent and unable to pay any part of said loss. Whitcomb, Converse and Stanton have each paid back to the firm all sums drawn out by them, respectively, for personal expenses, under provision therefor in the memorandum, and Stanton, when he entered the firm, had the control of the business of certain woollen mills, and brought this into the firm; and he testified, without contradiction, that he brought the bulk of the business to the firm.

The defendant Stanton contended, that he was not liable to make good any portion of the capital contributed to the business by the plaintiff, and expended in paying partnership debts, and that, if liable, he was not liable to make good the share which Blagden would have contributed, but for his insolvency, or any part of said share.

The cause was reserved upon the foregoing facts and evidence. If the court shall be of opinion that the plaintiff is entitled to any contribution to said loss from either of the defendants, the cause is to be referred to a master to ascertain the amount thereof. If he is not entitled to recover from either of the defendants, the bill is to be dismissed as to such defendant.

Decree for the plaintiff.

C. T. Russell, for the plaintiff.

G. O. Shattuck & O. W. Holmes, Jr., for the defendant Stanton. 1. The plaintiff cannot recover of his former partners, for a loss of the capital stock contributed by him. In Barfield v. Loughborough, L. R. 8 Ch. 1, where attorneys had contributed to the firm capital in certain proportions, the question was whether interest should be allowed on their respective shares in the capital, after dissolution. The Lord Chancellor, while admitting that advances beyond the stipulated amount of capital might be treated as debts, laid it down distinctly as fundamental doctrine that "Neither partner has a personal demand upon the other for the repayment of his share of the capital employed in the business." He said that "in most of such cases there is either an express written agreement, or practice and usage equivalent thereto, that during the continuance of the partnership, interest shall, before each division of profits, be credited to both parties on the amount of capital standing to the credit of their respective accounts." This is so because the capital has been employed for the profit of the firm. But there is no such claim after dissolution, notwithstanding the shares of the partners in the capital were unequal, for the very reason that it is capital, and not a debt of the concern. Interest was allowed in the particular case only on the footing of a written agreement expressly making the capital a firm debt, equally with further advances. See also Everly v. Durborow, 1 Leg. Gaz. Rep. 127, per Sharswood, J.; Cameron v. Watson, 10 Rich. Eq. 64, 101, 102, 103; Heran v. Hall, 1 B. Mon. 159; Lindl. Part. (2d ed.) 790, 791; Story Part. § 26, note, citing and approving Rutherforth Inst. Bk. 1, c. 13, §§ 32, 35; Watson Part. 57; Parsons Part. 51.

On principle it is submitted that the defendant cannot be liable. If A. and B. agree to labor together a year for their joint advantage, and to share profits, and they make no profits, each loses his labor. If A. and B. are partners in shoemaking for a year, A. to furnish leather or money to purchase leather, and B. to make it into shoes, A. and B. to divide the profits, and they make no profits, B. loses his labor as before. But B. cannot be held to insure A.'s contribution on any principle which would not equally make A. insure B. Even the seeming difference in the nature of the respective contributions is not a true one. Before the goods are sold and the question of profit or loss settled, B.'s labor has been converted into capital, in the strictest sense of the word, by the change in form and increased value which it has given to the leather. The same is true when the labor of B. consists in selling instead of changing the form of goods. He increases their value for A.'s purposes by helping them to a market, and his labor is an element in the price which they fetch. The principle is not affected by an agreement to allow interest on the capital put in while it is being used for the joint advantage, which is said to be the usual thing in Barfield v. Loughborough, ubi supra.

A wholly different case is presented when a partner advances money to his firm, which he is not required by the articles to contribute to the partnership stock, for such an advance is not a contribution to the firm capital. So, perhaps, when one partner advances all the money for a single venture, and the other is to take half the profits and contributes neither labor nor funds, it may be inferred that sharing the risk is the consideration of being permitted to share the gain. These considerations explain the decision in Nowell v. Nowell, L.R. 7 Eq. 538, the language of which induced Mr. Lindley to change his text, contrary to his own previously expressed opinion.

The only question in any case is, whether the money is a contribution to firm capital or not. The money put in by the plaintiff in this case was put in under an agreement requiring him to "contribute" it, just as it required Stanton to "contribute" his time, and as he, in...