Parchen v. Anderson

• Citation: 5 P. 588,5 Mont. 438
• Parties: PARCHEN and others v. ANDERSON and others.
• Decision Date: 10 January 1885
• Court: Montana Supreme Court

5 P. 588

5 Mont. 438

PARCHEN and others v. ANDERSON and others.

Supreme Court of Montana

January 10, 1885

Appeal from Second district, Silver Bow county.

Knowles & Forbis, for appellants.

W. W Dixon and F. T. McBride, for respondents.

WADE C.J.

This is an action on an account for goods, wares, and merchandise alleged to have been sold by plaintiffs to the defendants, as partners, during the year 1881. There was a verdict and a judgment for defendant Nickel, and a motion for new trial overruled; from the order overruling which, and from the judgment, the plaintiffs appeal. The action is against Frederick C. Anderson, Rudolph Scheneder, and Henry Nickel who are charged as partners; and the question to be determined is whether, under the facts and the law, the defendant Nickel was a partner with the defendants Anderson and Scheneder, and as such liable to the plaintiffs, with them, for the goods aforesaid. It appears that a part of the goods were charged to Anderson & Co., and a part of them to Anderson & Scheneder; that Anderson ordered the goods; and that plaintiffs did not know who were the members of the firm. There is no claim that the defendant Nickel held himself out as a partner in the firm of Anderson & Scheneder or that the plaintiffs were induced to give credit to the firm by reason of Nickel being a member of it, or by reason of any act or representation of his. It further appears that Anderson & Scheneder were about to commence, or were working, the Centennial quartz-mill, when, on or about the first day of April, 1881, Anderson went to Nickel, and asked him if he could let Scheneder have $500, to which Nickel replied that he could; and that night Anderson & Scheneder went to the shop of Nickel, and he let Scheneder have $500, in consideration of the following agreement, which was reduced to writing, and signed by Anderson & Scheneder at the time, viz.: "In consideration of $500, we sell one-fourth of the net profits in the Centennial mill to Henry Nickel."

A few days subsequent to the execution of this agreement, finding that the same had no date, Nickel, as he claims in his testimony, went to Scheneder and had him execute his note for $500, dated April 1, 1881, to him, (Nickel), he thinking that the agreement was not good because the same had no date; but he retained the agreement, and the note was delivered to him. Anderson testified that the note was not given until some time in the following August, after the attachment in this case had been issued; that "Nickel asked Scheneder to give him a note for $500, so he could show it and prove he was not a partner, and so he would not be attached when the sheriff came down to serve the paper;" all of which Nickel denied. The rights of these parties must be determined by the effect to be given to this purchase of one-fourth of the net profits of the mill. If, as Anderson claims, the note was executed to conceal the fact that Nickel was a partner with Anderson and Scheneder, it was an idle thing to have done, unless he was in fact a partner; and whether he was or not, must be determined by the terms of the agreement, and the situation and acts of the parties; and we are confronted with this proposition: Did the sale by Anderson and Scheneder, and the purchase thereof by Nickel of one-fourth of the net profits in the Centennial mill, in and of itself, make Nickel a partner, a principal with Anderson and Scheneder, in the business by which such profits were to be earned? Nickel did not hold himself out, or suffer himself to be held out, as a partner, either to the public at large or to these plaintiffs. He is not, therefore, a partner by estoppel. He declares in his testimony, and there is no circumstance or act to contradict him, that he did not intend to become a partner. He is not, therefore, a partner by intent, and if a partner at all, he becomes so by the force and operation of his purchase of the one-fourth of the net profits of the mill, and by that alone. There is no doubt but that the agreement is competent evidence, and strong evidence, that Nickel became a partner in the mill; but does the bare fact of sharing the profits furnish an arbitrary test by which a person, not ostensibly a partner, is by operation of law to be held a partner? This question has been much considered by judges and text-writers, and the authorities are not entirely harmonious; but the tendency of the more modern authorities, both English and American, is towards the doctrine that the sharing of profits is evidence that he who shares them is a partner, but not conclusive evidence; the true test being whether there is such a participation in or sharing of the profits as to constitute the relation of principal and agent between the person taking the profits, and those actually carrying on the business.

In the case of Eastman v. Clark, 53 N.H. 276, decided in 1873, the court says:

"It has been supposed that a sharing profit test, with divers exceptions and qualifications, was at one time established by the authorities. It has been supposed that it was established in England in the latter part of the last century; that it was settled in the class of cases generally ranged under the leading case of Waugh v. Carver, 2 H. Bl. 235; that it was upheld until 1860; and that it was then overthrown by the decision of Cox v. Hickman, 99 E. C. L. 47; S. C. 8 H. L. Cas. 268. Cox v. Hickman and the subsequent English cases maintain that there is no such test; that the question of partnership liability is a question of the liability of a principal; that, so far as it is a question of law, it is governed by the general doctrines called law of agency, or law of principal and agent, when applied in a case of an agent and one principal, and called law of partnership when applied in a case where the agent is a joint principal; and that, so far as it is a question of fact, sharing profits is evidence tending to show that the sharer is a principal. From 1866 to the present time that has been held to be the common law of England. But what was the meaning and effect of the English cases before 1860? This is an important question, for this reason, among others: that before 1860 the American authorities were generally intended to be a mere following of the English and when we ascertain the meaning and effect of the English cases before 1860, we shall learn what the mass of American authorities were intended to be."

The judge then goes into a careful history and analysis of the English cases for nearly 100 years prior to 1860, commencing with that of Bloxham v. Pell, of which an account is given in Grace v. Smith, 2 W. Bl. 998, (in 1775,) and Waugh v. Carver, 2 H. Bl. 235, (in 1793,) in which the sharing profit test had its birth; reviewing Hoare v. Dawes, 1 Doug. 371, (1780;) Coope v. Eyre, 1 H. Bl. 37, (1788;) Saville v. Robertson, 4 Durn. & E. 720; Benjamin v. Porteus, 2 H. Bl. 590; Wilkinson v. Frasier, 4 Esp. 182, (1803;) Hesketh v. Blanchard, 4 East, 144, (1803;) Dry v. Boswell, 1 Camp. 329, (1808;) Wish v. Small, Id. 331, (1808;) Ex parte Garland, 10 Ves. 110, (1804;) Barton v. Hanson, 2 Taunt. 49, (1809;) Weyland v. Elkins, Holt, N. P. 227; Gouthwaite v. Duckworth, 12 East, 421, (1810;) Ex parte Hamper, 17 Ves. 403, (1811;) Wightman v. Townroe, 1 Maule & S. 412, (1813;) Waland v. Elkins, 1 Starkie, 272, (1816;) Cheap v. Cramond, 4 Barn. & Ald. 663, (1821;) Fromont v. Coupland, 2 Bing. 170, (1824;) Smith v. Watson, 2 Barn. & C. 404, (1824;) Dickinson v. Valpy, 10 Barn. & C. 128, (1829;) Fox v. Clifton, 6 Bing. 776, (1830;) Id. 9 Bing. 115, (1832;) Ex parte Chuck, 8 Bing. 469, (1832;) Green v. Beesley, 2 Bing. N.C. 108, (1835;) Owen v. Body, 5 Adol. & E. 28, (1836;) Bond v. Pittard, 3 Mees. & W. 357, (1838;) Wilson v. Whitehead, 10 Mees. & W. 503, (1842;) Pott v. Eyton, 3 C. B. 32, (1846;) McAlpine v. Mangnall, Id. 496, (1846;) Barry v. Nesham, 3 C. B. 641, (1846;) Heyhoe v. Burge, 9 C. B. 431, (1850;) and then says:

"Such are the most important English cases before Cox v. Hickman (1860) relating to the subject of a sharing profit test. Whatever loose general notions may have been entertained as to the effect of these cases, they do not establish such a test in an unqualified form. They can be arrayed as a mass of authorities overruled by Cox v. Hickman and the subsequent cases, which have settled the law for England, that sharing profits in a general, unlimited sense is not a test. Neither is such a test established by a preponderance of the weight of American cases decided without reference to Cox v. Hickman. The subject has been much considered in Massachusetts, and the result is far from being a simple, absolute sharing profits test. Reynolds v. Toppan, 15 Mass. 370; Rice v. Austin, 17 Mass. 197; Baxter v. Rodman, 3 Pick. 435; Grozier v. Atwood, 4 Pick 234; Cutler v. Winsor, 6 Pick. 335; Turner v. Bissell, 14 Pick. 192; Denny v. Cabot, 6 Metc. 82; Bradley v. White, 10 Metc. 303; Holmes v. Old Colony R. Co. 5 Gray, 58; Fitch v. Harrington, 13 Gray, 468; Julio v. Ingalls, 1 Allen, 41; Gunnison v. Langley, 3 Allen, 337; Pratt v. Langdon, 12 Allen, 544; S. C. 97 Mass. 97. Sometimes such a test seems to be recognized with the qualification 'as principal.' Loomis v. Marshall, 12 Conn. 69; Berthold v. Goldsmith, 24 How. 536, 544; Colly. Partn. bk. 1, c. 1, § 25; Story, Partn. §§ 49, 54, 55.

Of course, if one shares profits 'as a principal,' i.e., in the capacity of a principal, he is a principal; and so he is if he does anything else in that capacity. When sharing profits is accepted as a test, it is almost universally with this qualification: that if the profits are received as compensation for services, or payment of any debt, sharing them is not a test. The number of cases that favor an unqualified...