Rainwater v. Childress

• Decision Date: 20 December 1915
• Docket Number: 66
• Parties: RAINWATER v. CHILDRESS
• Court: Arkansas Supreme Court

182 S.W. 280

121 Ark. 541

RAINWATER v. CHILDRESS

No. 66

Supreme Court of Arkansas

December 20, 1915

Appeal from Conway Chancery Court; J. T. Bullock, Special Chancellor; affirmed.

STATEMENT BY THE COURT.

H. H Childress sued Lloyd Rainwater and about twenty-five other persons for contribution on a debt which he alleges he and the defendants became liable for as partners. The defendants denied liability. The material facts necessary for a determination of the issues raised by the appeal are as follows:

In the fall of 1908 a proposition was made by a promoter to the Board of Trade of Morrilton, Arkansas, to establish a canning factory if a bonus of $ 5,000 should be given him. Some of the citizens of the town of Morrilton assembled at the Board of Trade rooms to consider the proposition, and after a discussion of the matter decided to themselves organize a corporation for the purpose of establishing a canning factory. A subscription list stating that the signers would pay the amount set opposite their names toward the establishment of a canning factory was written out and the plaintiff and defendants and some other citizens of the town of Morrilton signed the subscription contract. The amount subscribed was about $ 2,275. It was the intention of the subscribers that a corporation should be formed, but nothing was done toward that end except to procure the signers to the subscription contract as above stated. Some of the subscribers, among whom were H. H. Childress, Lloyd Rainwater, S.W. Simpson and Walter Smith, met, and, after looking at the signatures, decided that the signers were good for the amount subscribed by them and would pay it. They thought that the establishment of a canning factory would be a paying proposition. Simpson, Childress and Smith were appointed as a committee to examine the machinery of other canning factories and to purchase machinery for their own plant. After an examination of canning factories at other places, they purchased machinery of the value of about $ 1,500 and established a canning factory in the town of Morrilton. A committee was appointed to collect some of the subscriptions and the amount collected was applied toward the payment of the machinery. Rainwater was cashier of the Bank of Morrilton and agreed that his bank would finance the proposition if Childress was made manager. By common consent of all the interested parties, Childress became manager of the canning factory, and it was operated for the season of 1909. It turned out that the factory was not a profitable enterprise, this being due partly to the fact that the farmers did not raise sufficient tomatoes with which to operate it. So in the spring of 1910 it was agreed to rent land and grow tomatoes with which to operate the plant. Simpson objected to this course, and declared that he would have nothing to do with the venture of renting land to grow tomatoes. Childress and others, however, rented the land and proceeded to raise tomatoes to be used by the canning factory. This also proved to be a losing venture.

Lloyd Rainwater was absent from the State when the agreement to raise tomatoes was reached but afterward returned home and proceeded to finance the business just as if he had been present when the venture was decided upon.

In 1912 the Bank of Morrilton sued H. H. Childress, Lloyd Rainwater its cashier, and all the other defendants herein for the indebtedness due the bank by the canning factory. The bank took a nonsuit as to all the parties except H. H. Childress and judgment was rendered against him in favor of the bank for the amount sued for. Childress paid the judgment and this suit was instituted by him for contribution against the other subscribers to the stock in the canning factory on the ground that a partnership existed between them.

The whole machinery of the canning factory was sold to satisfy a debt incurred by the factory in its operation and Childress became the purchaser thereof for the sum of $ 152.90.

Other facts will be referred to in the opinion.

As to all of the defendants who had paid for their stock prior to the institution of this suit, the court dismissed the complaint of the plaintiffs for want of equity. As to the subscribers who had not paid their subscriptions the court rendered judgment in favor of the plaintiff for the amount subscribed by each one. The court found that H. H. Childress Lloyd Rainwater and S.W. Simpson actively promoted and engaged in the business of the canning factory, that they adopted and used the name of "The Morrilton Canning Factory" and that they were primarily liable for the indebtedness up to the 10th of April, 1910, and judgment was rendered against them for that amount.

The court further held that Childress and Rainwater engaged in the business of growing tomatoes in 1910 and incurred further indebtedness in that enterprise and that Simpson protested against going into that business and was not liable for any of the indebtedness so contracted. The court held that Childress and Lloyd Rainwater were jointly liable to the bank for that indebtedness and judgment was rendered in favor of Childress against Rainwater for half the amount. The court also held that Childress purchased the machinery of the canning factory at an inadequate price and that he held the same in trust for the other parties interested. A decree was entered accordingly and both Childress and Rainwater have appealed. The defendants against whom judgment was rendered on the subscription contract have also appealed.

Decree affirmed.

Sellers & Sellers, for appellant.

1. The court erred in holding only Simpson and Rainwater liable as partners with the appellee, Childress. If the defendants were not liable as partners, neither is appellant.

2. The growing of a tomato crop was not the occasion of any greater loss than operating the plant. The growing of this crop was not outside the partnership business. Partnership agreements may be changed by mutual consent, and even written agreements of partnership may be varied by the conduct of the interested parties. 44 Ark. 34; 50 Id. 196.

3. The growing of a tomato crop was within the scope of the business, and was a necessity. 76 Ark. 4. No bad faith is shown.

4. The decree of the chancellor is based upon issues never raised. Nowhere in the pleadings has it been contended that Simpson and appellant were alone liable with Childress up to the time of engaging in the farming enterprise, and nowhere is it contended that, after that time, appellant alone was liable with appellee.

5. Were defendants partners? It does not take an express agreement to form a partnership in order to make defendants liable as partners between themselves. 30 Cyc. 357, note 51, 360, 363. This citation covers the entire case. No express agreement to enter into a partnership was necessary. Considering the original subscription list together with all the acts and conduct of all parties, their acquiescence in all that was done, all the defendants were liable. 35 Ark. 144; 62 Id. 229; 59 Am. Dec. 712, and note; 92 N.W. 99; 22 Am. & Eng. Enc. Law, 26-b.

Only implied agreements may bind parties as partners, and this in actions between themselves. 9 Enc. of Ev. 551, note 47. If the growing of the tomato crop was beyond the scope of the partnership it was ratified. 103 Ark. 283, 287; 30 Cyc. 357.

W. P Strait, for appellees.

1. Appellees were not liable as partners (1) to the Bank of Morrilton, to whose rights H. H. Childress attempts to be subrogated, and (2) certainly not as partners with Childress. 38 Mich. 779; 44 Cal. 440; 24 Am. St. 887; 101 U.S. 392; 117 Mass. 476; Taylor on Corporations, § 148; 11 L. R. A. 515; 7 Cush. 188; 91 Ark. 26; 54 Id. 384; 30 Cyc. 383-5, 394; 80 Ark. 23; 32 Id. 733; 29 Id. 512. To hold one liable as a partner who is not, in fact, a partner, it must appear that the alleged act of holding out was done by him or with his assent. 30 Cyc. 393; 67 Ga. 541; 6 J. J. Marsh, 609; 23 Mich. 484; 28 Mo. 94; 11 L. R. A. 136; 34 N.Y.S. 328; 40 Am. Rep. 465.

One who relies on the acts or conduct of another as holding himself out as a member of a partnership must show that he extended credit on the faith of such reliance. 80 Ark. 23; 93 Id. 305. The bank is not a third party, extending credit on the presumption that appellees were partners. Rainwater, the cashier, knew there was no such partnership.

Persons who have entered into a contract to become partners at some future time, etc., do not become so until the contingency happens. 30 Cyc. 358.

They were not liable as stockholders to a de facto corporation. No steps at all were taken. Appellees merely signed a subscription list for stock in a corporation--never formed. 7 Rul. C. Law, 352; 17 L. R. A. 555. There was no liability as partners.

2. No partnership was ever intended. None was ever entered into or created. Partnership relation never arises by operation of law. 70 Miss. 193; 66 N.Y. 424; 37 N.Y.S. 751. Nor can parties be made to assume the relation of partners, nor the liability, when their purpose was not to assume such partnership. 116 U.S. 461; 118 Id. 211. It must have been the intention of the parties themselves, to form a partnership. 93 Ark. 526; 63 Id. 526; 74 Id. 437; 74 Id. 615; 44 Id. 423; 94 Id. 505.

Edward Gordon, for appellee, H. H. Childress.

1. One who holds himself out as a partner, and thereby another is induced to extend credit or incur liability, is liable as a partner. 80 Ark. 23; 93 Id. 301.

2. A written agreement can not be varied by parol evidence. 92 Ark. 504.

3. The evidence is conclusive that all the parties intended to incorporate; when they failed to do so they became individually liable. 1 Thomp. on Corp., § 513; 10 Cyc 657; 35 Ark. 144; 62 Id. 229; 57...