Wills v. Simmonds

Van Yorst, J.

—The plaintiffs, the defendants and James Lee, jr., parties to the contracts set forth in the complaint, were creditors of Crocker, the remaining party thereto. Crocker was unable to pay his debts without sacrificing his property and destroying his business, which he desired to preserve for a time at least.

The plaintiffs, defendants and Lee were willing to aid him in this desire, so far as they could safely do so, by waiting for the payment of their claims ; and, among other things, they covenanted with each other not to bring suit, nor invoke process in bankruptcy on their demands, for one year. They secured, as the contract of May 24, 1873, discloses, a conveyance of the real estate of Crocker, the debtor, to three trustees, who were empowered to sell within a time limited in execution of the trust; and they agreed to invest moneys for the purchase of seed tó be manufactured into oil, in reality for the benefit and advantage of all the contracting parties.

As to Crocker, if successful, the business would be preserved. As to the other parties, the profits to be realized would belong to them, and, if sufficient, would pay their claims.

The seed to be manufactured was to be purchased by the plaintiffs on the order of Crocker, and was in the first instance to be paid for by them through credits to be by them provided for the purpose. But upon the arrival of the seed at Boston, plaintiffs were to receive from Crocker one-third of the costs and charges thereof by a draft on the defendants, which they were to honor and pay, one-third by Crocker’s note to the order of Lee, the payment of which was in the end to • be guaranteed by him. The remaining third was to be secured by Crocker’s note to the plaintiffs.

Although these notes and drafts were to be made and drawn by Crocker, yet it was within the contemplation of the parties that they should in fact be paid by him out of the proceeds of the mill. The agreements as a whole contemplate such result. This was clearly so with respect to the advances to be made by plaintiffs and defendants. For the agreements provide that for the third of the cost of the seed which the defendants were to assume by accepting and honoring the drafts drawn therefor, all the cake made in the oil mills was to be shipped to them for sale; but in the event that the cake did not produce sufficient to meet the drafts for their third of the cost of the seed, the deficiency was in effect to be made up to them out of the proceeds of the mill.

With respect to the notes to be given by Crocker to plaintiffs themselves for their third of the cost of the seed, the modified agreement provides for their ultimate payment out of the proceeds and earnings of the mill.

The effect of the agreements, therefore, was substantially that the parties other than Crocker should equally contribute to the purchase of the seed, and that they should, in any event, be reimbursed out of the proceeds of its manufacture.

The profits of the manufacture of the seed into oil were to be received and held by the plaintiffs, defendants, and Lee, not in the proportion of them respective claims and demands against Crocker, but equally. They severally stood related to the profits as they did to their contribution of money in the purchase and payment of the seed.

The language of the Agreement is: “ It is understood and agreed that all proceeds of seed furnished under this agreement, are held for the benefit of the parties, other than Crocker, equally.”

And again: “At the end of the year contemplated by this agreement, after paying the expenses of running the linseed oil mill, including the necessary repairs and insurance, M. Crocker shall draw $6,000, for his personal expenses, which he is at liberty to draw at the rate of $500 per month during the year, the net balance of earnings shall be divided by said M. Crocker & Co. into three equal parts, one of which shall be paid over to each "of the three parties hereto.” It was within the contemplation and understanding of the parties, that the losses incident to the business under the agreement, should be borne in the same proportions, for it is provided that in case the seed imported under the order of Crocker, should be wholly lost by fire or perils of the sea, the insurance should be paid to plaintiff. Such arrangement was just, because under the agreement of the parties plaintiffs could not . call upon the other parties to contribute to the purchase, until the seed should have arrived in Boston. But if the insurance exceeded the costs and charges, the excess was to be paid to M. Crocker & Co. Such excess Crocker would doubtless receive and hold, for the advantage of all the parties to the contract. But in the event that the sums received for insurance should not cover the advances and charges, plaintiffs were to be reimbursed by Crocker & Co. for the deficiency, and should Crocker & Co. fail to pay, liability for the deficiency was to be shared equally by the contracting parties. The losses of the business or its want of profitable prosecution, were in effect to be borne and sustained equally, at least, by all the parties except Crocker. It was the net balance of the earnings which was to be paid over to the plaintiffs, defendants and Lee equally. So if nothing was earned, nothing could be received.

It is reasonably clear that Crocker was interested pecuniarily in both profits and losses. He participated in the former to the extent of having his debts paid therefrom, and thus saving his property; and when the debts were paid in full he was entitled to a restoration of his property.

So that in this ease we have, under the agreements, a joint contribution of capital in money, property and services by the respective parties, a joint participation in the profits and in bearing the losses; and these are incidents which characterize a partnership and indicate a copartnership relation between the contracting parties in the undertaking in question.

But it is urged by the plaintiffs’ counsel that the element of agency, ever present in a partnership, is here wanting. But if the facts be closely considered it will be seen that this is not so. Plaintiffs were agents for all the parties in ordering, receiving and paying for the seed; they were such agents in effecting the insurance. Defendants were agents for the other parties in receiving and selling the cake, the product of the mill, and could be held by all the parties to a faithful application of the proceeds of the same, to the discharge of their proportion of the moneys paid by them on the purchase and delivery of the seed, and their accounts in the premises could have been reviewed by the others, as could plaintiff’s account of the purchases and insurance.

Crocker was agent, also, for the other parties in making his orders for seed, in conducting the manufacture of oil, in payment of moneys therefor, and in the appropriation of the earnings. It is true no specific duty appears to have been assigned to Lee, but he was under positive obligation to pay his proportion of the cost of the seed. He could doubtless, as a party in interest in the profits, act for the others with respect to any implied power necessarily arising under the agreements for the preservation of their joint interest.

It is true that the intention of the parties should control; but such intention must be gathered • from the contracts, through which the parties have spoken, and parties must be held to intend what their words and acts reasonably indicate.

It must be conceded, therefore, that the relation of the parties for the time limited by the contracts in the prosecution of the undertaking therein indicated, was a partnership one.

In the case of Cox agt. Hickman (8 House of Lords Cases, 312), an agreement between the debtor, his trustees and creditors, substantially for the continuance of the business, was held not to constitute a partnership. There was, however, a marked difference in opinion among the learned judges who considered that case. It was finally decided as above indicated. But the case now considered differs essentially from Cox agt. Hickman. I do not find in that case any agreement on the part of the creditors for a joint contribution of moneys for the purchase of stock to be used; nor did the net profits in that case,' as here, belong absolutely to the parties who contributed moneys for the purchase of stock. The profits or income belonged to the debtor.

But the conclusion reached does not necessarily determine that Bee and Crocker are necessary parties to this action, or that this court has no jurisdiction to entertain this action, which is a suit at law for damages. It is a general rule that no action can be maintained at law by one partner against another which would involve an accounting of the co-partnership affairs. An action to recover a balance struck and agreed upon, would involve no accounting.

As was said in the early case of Casey agt. Brush (2 Caines, 293), assumpsit cannot be maintained by one partner against another for a balance due on a joint transaction, unless there be evidence of an express promise (Townsend agt. Goewey, 19 Wend., 424; Petrie agt. Petrie, 7 Lansing, 90).

In Lindley on Partnership, page 908, in his sixth rule on this subject, it is stated: “With reference to this inquiry, it will be found useful to keep constantly in mind these questions, namely:

“ First — Is any matter of account involved in the dispute to which the action relates %

“Second—Will the damage sought to be obtained belong, if obtained, to the firm ?

“ Third — Will such damage have to be paid out of a fund to which the plaintiff must himself contribute ?

“If these three questions can be answered in the negative, that is, if the action can be properly brought and decided wholly irrespective of the state of the accounts between the partners, and if the damages sought will, when recovered, belong not to the firm, including the defendant in the action, but exclusively to the plaintiff, and if he will not have to contribute to his own payment, then an action will lie, notwithstanding the parties to it are partners, and the matter relates to some partnership transaction.”

And again, at page 911, the same author adds: “ And, generally, an action may be brought for damages sustained by any breach of an express stipulation with his copartners, if it is so framed as to admit of an action by some, or one only, of the partners against the partner complained of, and the damages, when recovered, will not belong as much to himself as to the plaintiff” (Brown agt. Tapscott, 6 Meeson & Welsby, 119).

Where one person, even if he is a partner, expressly promises the other to pay for the articles furnished, or to furnish a given amount of capital, the latter may sue the former at law (Callamer agt. Foster, 26 Vt., 757).

And in Venning agt. Leckie (13 East R., 7), where the defendant agreed to take one-half of certain goods bought by plaintiffs on their joint account, and to furnish the plaintiffs with half the amount in time for the payment thereof, it was held that an action lay against the defendant for his moiety of the price, although an account might have to be taken between them as partners upon the subsequent disposal of their joint stock (Scott agt. Campbell, 30 Ala. R., 729).

The amount agreed to be invested in the partnership before it is formed, may be sued for at law without disturbing the partnership. It is an agreement to launch the partnership (45 N. H., 233; id., 73; Wright agt. Crapsey, 1 Penn. St. R., 112; Mosier agt. Trumpbour, 5 Wend., 274).

In the present case, under the contract of May 24th, 1873, it was agreed, so far as the plaintiffs’ and defendants’ firms were concerned, that the seed to be manufactured should be imported, and in the first instance paid for by the plaintiffs; and to meet the cost of same, including all expenses and charges thereon, the plaintiffs, upon the arrival and entry of the ship bearing the seed at the custom-house, should receive one-third of same in a draft in sterling, drawn by Crocker & Co. upon the defendants, which drafts the defendants agreed to honor. This was an absolute undertaking on the defendants’ part with the plaintiffs.

Mow, in the event that the plaintiffs should import and pay for the seed under the agreement, the failure of the defendants to fulfill their part of the agreement, by honoring and accepting drafts for their one-third of its cost, would be a peculiar and special ground of damages to the plaintiffs, in which neither the partnership nor the members thereof, other than plaintiffs and defendants, could have any concern. The damages, when recovered, would have to be'paid by defendants out of their own means, and would be received by the plaintiffs to their own separate use.

It may be that the defendants’ breach of the agreement may have been the occasion of damage to the copartnership, but redress in that direction must be invoked in an appropriate proceeding.

But this action involves an inquiry only with respect to the damages which the plaintiffs have solely sustained by the alleged breach of the agreement by the defendants. Suppose, for instance, that the defendants had accepted drafts for one-third of the cost of the seed, and had in the end failed to pay, the plaintiffs could, without doubt, have maintained an action against the defendants on their acceptance without joining the other parties.

Mor is there any thing in the provisions of section 118 of the Code which makes it necessary to join Lee and Crocker, or either one of them, as defendants. That section provides, that “ any person may be made a defendant who has or claims an interest in the controversy adverse to the plaintiff, or who is a necessary party to a complete determination or settlement of the questions involved therein.” Meither of the persons above mentioned, for the reasons above stated, have any interest or claim in this controversy adverse to the plaintiffs in the action. They cannot be affected, however it may be decided, whether the plaintiffs shall or shall not recover damages for the defendants’ breach of his undertaking with the plaintiffs; and the question can be determined as to the plaintiffs’ rights and the defendants’ liability, without the presence of either Lee or Crocker as a party, hi or is there any thing in section 122 of the Code which calls for the bringing in of the other parties to the agreement in this action. The particular controversy can be completely determined without prejudice to their rights.

The remaining question is, whether the defendants’ conduct, as disclosed in the complaint, amounts to a breach of the contracts ?

This is, perhaps, a more serious question than either of the others.

It is urged by the defendants’ counsel that what is alleged in the complaint, on this part of the case, is, at most, a mere threat, on the defendants’ part, not to accept and honor the drafts of Crocker & Co., and that there was yet a place of repentance.

The defendants’ conduct was more than a threat; it was a positive direction to Crocker & Co, not to receive the seed, and a refusal on their part to allow them to draw bills in compliance with the terms of the contracts, accompanied by a notification that the bills would not be honored and their acceptance would be refused.

As already observed, the seed was to be furnished and paid for by the plaintiffs upon the order of Crocker & Co. It was agreed, on the part of the defendants, that plaintiffs should receive from Crocker & Co., upon the arrival of the ship at the custom-house, one-third, in a draft sterling, drawn by Crocker & Co. upon defendants, which defendants should accept and honor.

The agreement to accept and honor was an absolute engagement on the defendants’ part, independent entirely of duties cast upon Crocker, save that he should order the seed. The complaint alleges that the seed was imported by order of Crocker & Co., and that plaintiffs performed all the conditions of the contracts on their part. These allegations the demurrer admits.

It was - not necessary that the plaintiffs should allege that Crocker had performed all that was required of him, in regard to other duties cast upon him by the terms of the contracts. It was, however, requisite that it should appear that the seed was ordered, imported and received in pursuance of the terms of the contracts, to entitle the plaintiffs to the indemnity thereby provided, so far as defendants were concerned.

The complaint alleges that the defendants forbade Crocker & Co. to receive the seed or draw bills of exchange upon the defendants, in compliance with the terms of the contracts, for the payment of any of the shipments, excepting only six thousand bags imported by the Winona, and notified Crocker & Co. that any bills so drawn would not be honored and would be refused acceptance; and that, in consequence, Crocker & Co. have been unable and have declined to pay for the seed.

The action of the defendants has therefore availed to prevent the drawing of the bills, and their declaration in advance that they would not, should be held to amount to a refusal to honor and accept. Under such circumstances a party should be held to mean precisely what he says.

A positive declaration of their intention not to perform their contract was, under these facts, a breach of the contract. Upon the occurrence of the breach a cause of action existed at once in favor of the plaintiffs (Hockster agt. Delatour, 2 Ellis & B., 678; Thompson agt. Laing, 8 Bosworth, 482; Crist agt. Armour, 34 Barb., 378, 387; Terwilliger agt. Knapp, 2 E. D. Smith, 86).

It is not necessary to determine what damages the plaintiffs will be entitled to-recover. That will depend upon the facts established on the trial. The breach of a valid contract imports some damages.

So much for the first cause of action described in the complaint, and which has thus far been only considered. .

The second cause of action differs materially from the first, in that it is alleged in the former that the seed was shipped on or about April 6th, 1875, by the ship Winged Hunter, and is now on voyage. That is, the seed had not arrived, nor had the ship been entered at the custom-house when the action was commenced.

I am of opinion that, as to this second cause, the action is prematurely brought. Until the merchandise had actually arrived at Boston, the plaintiffs were not entitled to the defendants’ acceptances.

And it may well be that there was a locus penitenUos for the defendants as to the seed afloat.

The seed may never arrive; it may be destroyed by fire or perils of the sea; and such casualties were contemplated and provided for by the contracts. The plaintiffs were to recover the insurance moneys in case of loss by such causes, and, if insufficient to indemnify them, the deficiency was to be made up by the other parties to the agreement.

As to the first cause of action, no valid ground of demurrer has been assigned, and there must be judgment for the plaintiffs thereon. As to the second cause of action, the objection that no cause therefor is set up in the complaint is well taken, and there should be judgment for the defendants on the demurrer as to such second cause of action.