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Clifton v. Howard.

the cattle. That said cattle were purchased by Clifton and paid for by his individual check on said bank, and that Estis had no interest in said cattle, except under the following arrangement made by and between him and Clifton, about two years before this bunch of cattle was purchased, viz.: In order to avoid conflict and rivalry between them in the cattle trade in that neighborhood, it was agreed that in all lots of cattle bought in the same neighborhood, and shipped by either, the other should have half the profits, if any, arising from the shipment and should pay half the losses of such shipment and sale, if any, and in pursuance of said arrangement they often assisted each other in loading stock on the cars, and accompanied each other in purchasing, and when a portion of the cattle in controversy were purchased, Estis was present, and was also present when the cattle were seized by Howard, the sheriff. That when either went out of his own neighborhood and bought cattle, it was on his own account, and the other did not share in the profits of such purchases. That between the time these cattle were levied upon, and the date at which they were replevied and shipped, cattle declined in St. Louis forty or fifty cents on the one hundred pounds. The demand of Walker against Estis was the individual debt of Estis, with which plaintiff had no connection whatever, and was contracted long before Clifton and Estis had any business connection with each other.

[Omitting instructions.]

The court tried the cause upon the theory, as indicated by the instructions given at defendant's instance, and refused instructions of plaintiff, that a mere participation in the profits and loss of the venture by one who had no other interest in the property was sufficient to constitute him a copartner of the other party in the property itself. This question was elaborately considered in the opinion of this court delivered by Napton, J., in the case of Donnell v. Harshe, 67 Mo. 170, and the conclusion announced was that "a mere participation in profit and loss does not necessarily constitute a partnership." This case was followed in that of Musser v. Brink, 68 Mo. 242, and again in the same case reported in 80 Mo. 350; Rapp v. Vogel, 45 Mo. 524, is to the same effect.

Alfaro v. De La Torre, decided by the English High Court of Chancery, a brief synopsis of which decision will be found in 3 Cent. L. J. 473, seems to be directly in point on the question, and in harmony with what this court held in the cases, supra.

Clifton v. Howard.

In Story Part., § 27, the learned author says: "And accordingly it has been held, at the common law, that if A. is owner of goods, and agrees with B. that B. shall be interested in a particular portion of the profit and loss of the adventure, or voyage abroad in which the goods are to be embarked, such an agreement will not alone make A. and B. partners in the goods, as between themselves, but only partners in the profits." As to persons who have dealt with them as partners this question would be presented. It is not however in this record, because the debt for which the cattle were seized was contracted by Estis, on his own account, long before he and this plaintiff had formed any business connection. As to such a creditor, his debtor must have an interest not only in the profits and losses; but also in the property, the subject of the speculation. In Alfaro v. De La Torre, supra, the ruling seems to have been, that an agreement between two persons to divide the profit or loss upon a sale of goods, which are to be and paid for by one of them, does not create a joint property in the goods.

The judgment is reversed and the cause remanded.

All concur.

Judgment reversed.

NOTE BY THE REPORTER.— See Thayer v. Augustine, 55 Mich. 187; Parchen v. Anderson, 5 Mont. 438; 8. c., 51 Am. Rep. 65; Sodiker v. Applegate, 24 W. Va. 411; 8. c., 49 Am. Rep. 252, and note, 255; note, 32 Am. Rep. 271.

Participation in profits. It was laid down in Grace v. Smith, 2 W. Bl. 998, and Waugh v. Horner, 2 H. Bl. 247, that mere participation in the profits of a business renders the recipient liable as partner to creditors, even though no partnership exists between the parties.

DE GREY, J., remarks in Grace v. Smith that "every man who has a share of the profits of a trade ought also to bear his share of the loss, because he (the sharer in profits) takes a part of that fund on which the creditor of the trader relies for payment."

The rule enunciated in Grace v. Smith continued to be the law in England till 1860, when the House of Lords overruled it in Cox v. Hickman, 8 H. L. C. 268. The doctrine laid down in this case has been uniformly followed by the English courts. Bullen v. Sharp, L. R., 1 C. P. 86; Holme v. Hammond, L. R., 7 Exch. 218; Molwoo v. Court of Wards, L. R., 4 P. C. 419; Ex parte Tennant, 1. R., 6 Ch. Div. 303; Kelly v. Scotto, 49 L. J. Ch. (N. S.) 383; s. c., 42 L. C. (N. S.) 827; Gilpin v. Anderby, 5 B. & Ald. 594.

The purport of the opinions delivered in Cox v. Hickman in the House of Lords is very clearly and succinctly stated in Holme v. Hammond, supra: "The principle to be collected from them appears to be that partnership, even as to third parties, is not constituted by the mere fact of two or more persons par. ticipating or being interested in the net profits of the business, but that the

Clifton v. Howard.

existence of such partnership implies also the existence of such a relation between those persons as that each of them is a principal, and each an agent for the others."

BLACKBURN, J., in Bullen v. Sharp, supra, in referring to Cox v. Hickman, says: "I think that the ratio decidendi is that the proposition laid down in Waugh v. Carver, viz., that a participation in the profits of a business does of itself, by operation of law, constitute a partnership, is not a correct statement of the law of England; but that the true question is, as stated by Lord CRANWORTI, whether the trade is carried on on behalf of the person sought to be charged as partner, the participation in the profits being a most important element in determining the question, but not being in itself decisive; the test being in the language of Lord WENSLEYDALE whether it is such a participation in the profits as to constitute the relation of principal and agent between the person taking the profits and those actually carrying on the busi

ness.

The case of Molwoo v. Court of Wards, supra, was a case of a loan of money for which the borrower was to pay a share of the profits of the business in which the money was to be used. The borrower agreed with the lender to allow him to control the business in several important particulars; and yet it was held that the lender was not thereby rendered liable to creditors as partner. Baron BRAMWELL, in Bullen v. Sharp, characterized the rule of Grace v. Smith as one which had "caused more injustice and mischief than any bad law in our books," and also: " They say that the defendant is a partner with his son, and that if not partners inter se, they are so as regards third parties. A most remarkable expression. Partnership means a certain relation between two parties. How then can it be correct to say that A. and B. are not in partnership as between themselves; they have not held themselves out as being so, and yet a third person has a right to say they are so as relates to him? A. is not the agent of B. B. has never held him out as such; yet C. is entitled as between himself and B. to say that A. is the agent of B. Why is he so entitled if the fact is not so, and B. has not so represented?" Under these authorities it is clear that the question of liability to creditors in England depends entirely upon the existence of a partnership inter se. If a partnership has been established between the parties, of course all the partners are responsible for firm debts; but no one can be charged as a partner who is not a partner in fact, unless he has by his acts or declarations estopped himself from claiming that he is not a partner.

There are therefore only two grounds of liability to creditors: The party sought to be charged as partner either must be a partner in fact or he must have estopped himself from denying the existence of a partnership relation between himself and another.

Mr. Lindley, after reviewing the English cases, comes to this conclusion: "In fact the strong tendency of the above decisions is to establish the doctrine that no person who does not hold himself out as partner is liable to third persons for the acts of persons whose profits he shares, unless he and they are really partners inter se; and it is perhaps not going too far to say that this is now the law." 1 Lind. on Part. 42. This was the rule of the Roman law, and is

Clifton v. Howard.

the doctrine of the modern foreign law throughout Europe. That the courts of this country have always felt the rule enunciated in Grace v. Smith to be unsound and unjust is manifested by the numerous exceptions to the rule which would have been established in cases in which the rule could have been applied as reasonably as in any case in which it has been applied.

Participation in profits for services. One exception is in favor of servants and employees. The courts have uniformly held that an agreemen to receive a certain percentage of profits as compensation for services does not render the participant in profits liable to the creditors of his principal or master. Bradley v. White, 10 Metc. 303; s. c., 43 Am. Dec. 435; Deming v. Cabbott, 6 Metc. 82; Richardson v. Hughitt, 76 N. Y. 55; s. c., 32 Am. Rep. 267; Burckle v. Eckhardt, 1 Den. 341; s. c., 3 N. Y. 132; Loomis v. Marshall, 12 Conn. 69; s. c., 30 Am. Dec. 596; Nicholas v. Thielges, 50 Wis. 491; Smith v. Bodine, 74 N. Y. 30; Lewis v. Greicher, 51 N. Y. 231; Ambler v. Bradley, 6 Vt. 119; Hanna v. Flint, 14 Cal. 73; Barber v. Cazalis, 30 Cal. 92; Higgins v. Graham, 51 Mo. 17; Edward v. Tracy, 62 Penn. St. 374; Pond v. Cummins, 50 Conn. 372; Cothran v. Marmaduke, 60 Tex. 370; Nicholaus v. Thielges, 50 Wis. 491; Holbrook v. Oberne, 56 Iowa, 324; LeFevre v. Casagnio, 5 Colo. 564; Walker v. Hirsch, 51 L. T. Rep. (N. S.) 481, and cases cited in note 1, p. 20, vol. 1, Lind. on Part.

Participation in profits for rent.

Another exception to the rule is that a lease of a farm on shares, or of any property on condition that the lessee is to pay as rent a certain share of profits, will not impose upon the lessor the liability of a partner. McDonnell v. Battle House Co., 67 Ala. 90; s. c., 42 Am. Rep. 99; Beecher v. Bush, 45 Mich. 188; s. c., 40 Am. Rep. 465; Brown v. Jaquette, 94 Penn. St. 113; s. c., 39 Am. Rep. 770; Putnam v. Wise, 1 Hill, 234; Christian v. Crocker, 25 Ark. 327; Holmes v. Old Colony R. Co., 5 Gray, 58; Donnell v. Harsh, 67 Mo. 242; Dwinell v. Stone, 30 Me. 384; Jeter v. Penn, 28 La. Ann. 230; s. c., 26 Am. Rep. 98; Tayloe v. Bush, 75 Ala. 432; Gardenshire v. Smith, 39 Ark. 280; Clark v. Smith, 52 Vt. 529; Day v. Stevens, 88 N. C. 83; a. c., 43 Am. Rep. 732. But see Reynolds v. Pool, 84 N. C. 37; s. c., 37 Am. Rep. 607.

Numerous other authorities might be cited, but these are sufficient, as the point is well settled. This doctrine of non-liability applies in all cases in which the party sought to be charged as partner has received, or is to receive a share of profits as compensation for services performed or for the use of property furnished. Story on Part., §§ 41-48; 3 Kent Com. 33.

Participation in profits for use of money. There has been frequently before the courts of this country the question whether an agreement to receive a certain portion of profits as compensation for the use of money loaned will render the participant in profits who merely lends his money liable as partner to creditors. The decided weight of authority is against the liability. Willirms v. South, 7 Iowa, 434; Hart v. Kelly, 83 Penn. St. 286; Smith v. Knight, 71 Ill. 148; s. c., 22 Am. Rep. 94; Harvey v. Childs, 28 Ohio St. 319; s. c., 22 Am. Rep. 387; Eastman v. Clark, 53 N. H. 276; s. c., 16 Am. Rep. 192; Eagar v. Crawford, 76 N. Y. 97; Richardson v. Hughitt, 76 N. Y. 55; s. c., 32 Am. Rep. 267; Curry v. Fowler, 87 N. Y. 33; s. c., 41 Am. Rep. 343; Boston & Col.

Clifton v. Howard.

Smelt. Co. v. Smith, 13 R. I. 27; s. c., 43 Am. Rep. 3; In re Francis, 2 Sawy. 286; Polk v. Buchanan, 5 Sneed, 721; Gibson v. Stone, 43 Barb. 285; s. c., 28 How. Pr. 468; Lord v. Proctor, 7 Phila. 630; Campbell v. Dent, 54 Mo. 325; Eager v. Crawford, 76 N. Y. 97; Culley.v. Edwards, 44 Ark. 428; s. c., 51 Am. Rep. 614; Slade v Paschal, 67 Ga 541; Benedict v. Heterick, 35 Supr. Ct. (N. Y.) 405...

In Curry v.. Fowler, 87 N. Y. 33, the court say: "In Richardson v. Hughitt, 76 N. Y. 55, it was held by this court that a person who has no interest in the business of a firm or in the capital invested, save that he is to receive a share of the profits as compensation for services or for money loaned for the benefit of the business, is not a partner, and cannot be held liable as such by a creditor of the firm. The case cited is very similar in its leading aspect to the one at bar." The question was directly involved. Fowler, who was sought to be charged as partner, had loaned $50,000 to certain owners of real estate to enable them to erect certain buildings thereon. Fowler was to receive as compensation for the use of his money interest thereon and one-half of the profits arising on a sale. The claim was for work performed and materials furnished in the erection of these buildings. Held, that Fowler was not liable as partner. In Boston and Colorado Smelting Co. v. Smith, 13 R. I. 27; s. c., 43 Am. Rep. 3, it was held: "An agreement to lend money and indorse to a certain amount for the purposes of the borrower's business, in consideration of a certain percentage of the net profits of that business, does not constitute the parties partners as between themselves or as to third parties."

There are some authorities which apparently militate against this doctrine; but a careful analysis of them will show that they are only apparently and not really opposed to it. Parker v. Canfield, 37 Conn. 250; s. c., 9 Am. Rep. 317; Leggett v. Hyde, 58 N. Y. 272; s. c., 17 Am. Rep. 244; Wood v. Mallett, 7 Ohio St. 172; Mason v. Partridge, 66 N. Y. 633; Rosenfield v. Haight, 53 Wis. 260; s. c., 40 Am. Rep. 770; Sheridan v. Medina, 10 N. J. L. 469.

Mason v. Partridge is not in point, for it appears in that case that the parties had endeavored by agreement to restrict the liabilities of Partridge, who was sought to be charged as partner to the sum of $2,000. There was therefore an actual partnership between the parties, and of course Partridge was liable. because the common law recognized no special or limited partnership, and his attempt to restrict his liability as partner was therefore futile.

In Rosenfield v. Haight the court based its decision that Haight, whom creditors were seeking to charge as partner, was liable as such, on the ground that he was to receive three-fifths of the profits, not as compensation for the use of his money, but as a party interested as principal in the business. In other words the court held that the agreement made Haight a partner in fact for all purposes, because he was actually interested in the management and prosecution of the business. At page 266 the court say: "But it is said in answer to this view that the intention of the parties was, that Haight should receive three-fifths of the profits as a mode of compensation for the use of his money, but that he was not to participate in the profits as such. On looking at the different clauses of the agreement, it is very clear to our minds that this construction is not correct." The court expressly recognized the soundness of the

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