Meehan v. Valentine

• Decision Date: 16 May 1892
• Citation: 12 S.Ct. 972,145 U.S. 611,36 L.Ed. 835
• Parties: MEEHAN v. VALENTINE
• Court: U.S. Supreme Court

145 U.S. 611

12 S.Ct. 972

36 L.Ed. 835

MEEHAN v. VALENTINE.

May 16, 1892.

Statement by Mr. Justice GRAY:

This was an action of assumpsit brought by Thomas J. Meehan, a citizen of Maryland, against John K. Valentine executor of William G. Perry, both citizens of Pennsylvania, alleging Perry to have been a partner with Lawrence W. Counselman and Albert L. Scott, under the name of L. W. Counselman & Co., and counting on promissory notes of various dates from August 10, 1883, to November 25, 1884, signed by that firm, indorsed to the plaintiff, and amounting in all to about $10,000, with interest. The defendant denied that Perry was a partner in the firm.

At the trial, the plaintiff put in evidence the following agreement:

'L. W. Counselman. Albert L Scott Office of L. W. Counselman & Co., Oyster and Fruit Packers, corner Philpot and Will streets. Baltimore, Md., March 15, 1880. For and in consideration of loans made and to be made to us by Wm. G. Perry, of Philadelphia, amounting in all to the sum of ten thousand dollars, for the term of one year from the date of said loans, we agree to pay to said Wm. G. Perry, in addition to the interest thereon, one tenth of the net profits over and above the sum of ten thousand dollars on our business for the year commencing May 1st, 1880, and ending May 1st, 1881,—i. e., if our net profits for said year's business exceed the sum of ten thousand dollars, then we are to pay to said W. G. Perry one tenth of said excess of profits over and above the said sum of ten thousand dollars; and it is further agreed that if our net profits do not exceed the sum of ten thousand dollars, then he is not to be paid more than the interest on said loan, the same being added to notes at the time they are given, which are to date from the time of said loans, and payable one year from date. L. W. COUNSELMAN & Co.'

Also the following indorsement thereon: 'March 2, 1881. This contract and agreement is to continue one year longer on the same basis,—i. e., from May 1st, 1881, until May 1st, 1882. L. W. COUNSELMAN & Co.'

Alson three further renewals of the agreement from year to year, the first of which was by letter, dated March 18, 1882, from L. W. Counselman & Co. to Perry, with the same heading as the original agreement, and saying: 'We hereby renew the agreement made with you May 1, 1880, which is to the effect that we will guarantee you ten per cent. interest upon loans amounting to $10,000; and that if the net profits of our business are over $10,000 for the year commencing May 1, 1882, and ending April 30th, 1883, we will in lieu of the ten per cent. interest give you ten per cent. of the profits. We have two propositions for partnership May 1st, and if we accept either we will then, if you desire, return your loan.'

The other renewals, dated April 4, 1883, and March 15, 1884, were substantially like the original agreement of March 15, 1880, except that in the agreement of April 4, 1883, the rate of interest was specified as 6 per cent.

The plaintiff further offered in evidence six promissory notes, amounting in the aggregate to $10,600, given by the firm to Perry in the months of March, May, and June, 1884.

The plaintiff also called Scott as a witness, who testified that the firm was composed of L. W. Counselman and himself; that it was engaged in 'the fruit and vegetable packing and oyster business' in Baltimore; that Perry was in the stationery business in Philadelphia; that the $10,000 mentioned in the agreement was paid by him to the firm, receiving their notes for it, and remained in the business throughout, no part of it having been repaid; that from time to time he lent other sums to the firm, which were repaid; that he was an intimate friend of the witness, and visited him every few weeks; that those visits were not specially connected with the business, though on such occasions Perry 'usually went down to the place of business and talked business;' that he annually asked and received from the firm accounts of profit and loss; that the accounts showed an annual profit, which varied from year to year, amounting for the second year to $11,000 or $12,000; that, it being then found difficult to tell at the end of the year exactly what the profits would be, it was agreed with Perry that he should thenceforth receive $1,000 each year, leaving the final settlement until the whole business was settled up; and that he received under the agreement about $1,500 the first year, and $1,000 each subsequent year. On cross-examination, the witness stated that the firm made an assignment to the plaintiff for the benefit of creditors on April 30, 1885; that their liabilities were from $60,000 to $70,000, about half of which was with collateral security, and he did not know whether it had been paid out of such security; that the assets realized less than $2,000; that, so far as he knew, no dividend had been paid; and, in regard to the $10,000 received from Perry, the witness testified as follows: 'Question. Mr. Counselman and yourself did owe this $10,000 to the estate of Mr. Perry, did you? Answer. They had my notes for it. Q. Did you or did you not owe it? A. It was capital he had in the business the same as ours. We owed it to him. Of course, we owed it to him if we did not lose it.'

At the close of the plaintiff's evidence, the defendant moved for a nonsuit, on the ground that there was no evidence to show that Perry was liable as a partner. The court so ruled, and ordered a nonsuit. 29 Fed. Rep. 276. The plaintiff duly excepted to the ruling, and sued out this writ of error.

S. Shellabarger and J. M. Wilson, for plaintiff in error.

[Argument of Counsel from pages 614-618 intentionally omitted] Samuel Dickson and R. C. Dale, for defendant in error.

Mr. Justice GRAY, after stating the case as above, delivered the opinion of the court.

The granting of a nonsuit by the circuit court, because in its opinion the plaintiff had given no evidence sufficient to maintain his action, was in accordance with the law and practice of Pennsylvania, prevailing in the courts of the United States held within that state, and is subject to the revision of this court on writ of error. Central Trans. Co. v. Pullman's Car Co., 139 U. S. 24, 38-40, 11 Sup. Ct. Rep. 478. The real question in this case, therefore, is whether the evidence introduced by the plaintiff would have been sufficient to sustain a verdict in his favor.

The requisites of a partnership are that the parties must have joined together to carry on a trade or adventure for their common benefit, each contributing property or services, and having a community of interest in the profits. Ward v. Thompson, 22 How. 330, 334.

Some of the principles applicable to the question of the liability of a partner to third persons were stated by Chief Justice MARSHALL in a general way, as follows: 'The power of an agent is limited by the authority given him; and, if he transcends that authority, the act cannot affect his principal; he acts no longer as an agent. The same principle applies to partners. One binds the others so far only as he is the agent of the others.' 'A man who shares in the profit, although his name may not be in the firm, is responsible for all its debts.' 'Stipulations [restricting the powers of partners] may bind the partners, but ought not to affect those to whom they are unknown, and who trust to the general and well- established commercial law.' Winship v. Bank, 5 Pet. 529, 561, 562. And the chief justice referred to Waugh v. Carver, 2 H. Bl. 235; Ex parte Hamper, 17 Ves. 403, 412; and Gow, Partn. 17.

How far sharing in the profits of a partnership shall make one liable as a partner has been a subject of much judicial discussion, and the various definitions have been approximate rather than exhaustive.

The rule formerly laid down, and long acted on as established, was that a man who received a certain share of the profits as profits, with a lien on the whole profits as security for his share, was liable as a partner for the debts of the partnership, even if it had been stipulated between him and his copartners that he should not be so liable; but that merely receiving compensation for labor or services, estimated by a certain proportion of the profits, did not render one liable as a partner. Story, Partn. c. 4; 3 Kent, Comm. 25, note, 32-34; Ex parte Hamper, above cited; Pott v. Eyton, 3 C. B. 32, 40; Bostwick v. Champion, 11 Wend. 571, and 18 Wend. 175, 184, 185; Burckle v. Eckart, 1 Denio, 337, and 3 N. Y. 132; Denny v. Cabot, 6 Metc. (Mass.) 82; Fitch v. Harrington, 13 Gray, 468, 474; Brundred v. Muzzy, 25 N. J. Law, 268, 279, 674. The test was often stated to be whether the person sought to be charged as a partner took part of the profits as a principal, or only as an agent. Benjamin v. Porteus, 2 H. Bl. 590, 592; Coll. Partn. (1st Ed.) 14; Smith, Merc. Law, (1st Ed.) 4; Story, Partn. § 55; Loomis v. Marshall, 12 Conn. 69, 78; Burckle v. Eckart, 1 Denio, 337, 341; Hallet v. Desban, 14 La. Ann. 529.

Accordingly, this court, at December term, 1860, decided that a person employed to sell goods under an agreement that he should receive half the profits, and that they should not be less than a certain sum, was not a partner with his employer. 'Actual participation in the profits as principal,' said Mr. Justice CLIFFORD in delivering judgment, 'creates a partnership as between the parties and third persons, whatever may be their intentions in that behalf, and notwithstanding the dormant partner was not expected to participate in the loss beyond the amount of the profits,' or 'may have expressly stipulated with his associates against all the usual incidents to that relation. That rule, however, has no application whatever to a case of service or special agency, where the employe has no power as a partner in the firm and no interest in the profits, as property, but is simply employed as a servant or special agent, and is to...