Morgan v. Farrel , 58 Conn. 413 ( 1890 )

On the first day of March, 1880, William M. Babbott made and delivered to the firm of Morgan Herrick, merchants, then doing business in New York, a note for the sum of one thousand and four 56/100 dollars, expressed to be for value received and payable in thirty days; and on the eighth day of the same month another note for the sum of two thousand two hundred and five 60/100 dollars, payable in thirty days at the Ansonia National Bank, Ansonia, Conn. These notes were signed by Babbott in the name of "Franklin Farrel Company," and were delivered to Morgan Herrick in payment for certain goods sold and delivered by them to Babbott on his order therefor.

The plaintiff is now the owner of the notes and brings this suit to recover their amount. The complaint alleges that at the time the notes bear date Franklin Farrel and the said William M. Babbott were partners in business under the firm name of Franklin Farrel Company. Farrel alone makes defense. No service of the complaint was made on Babbott. The answer is a general denial.

Upon the trial evidence was offered from which the plaintiff claimed to have proved that Farrel and Babbott were partners as between themselves, or at least that they were partners as to all third persons, or that Farrel was liable as a partner to Morgan Herrick for the reason that he had permitted Babbott to hold out that Farrel and himself were partners under such circumstances that he was estopped to deny that he was a partner. Farrel denied that he was a partner in either way. The Superior Court rendered judgment for the defendant and the plaintiff has appealed.

An exhaustive definition of partnership is not easy. So far as the facts in the case present the question of partnership it is sufficiently accurate to say that there is a partnership between two or more persons whenever such a relation exists between them that each is as to all the others, in respect to some business, both principal and agent. If such a relation exists they are partners; otherwise not. They are partners in that business in respect to which there is this relation; and as to any other business they are not partners. Partnership is but a name for this reciprocal relation. Story on Partnership, § 1; Lord WENSLEYDALE in Cox v. Hickman, 8 H. L. Cases, 311; Bullen v. Sharp, L. R., 1 C. P., 86; Holme v. Hammond, L. R., 7 Exch., 230; Harvey v. Childs, 28 Ohio St., 319; Eastman v. Clark, 53 N. Hamp., 276; Collyer on Partnership, §§ 139, 412; Stillman v. Harvey,47 Conn., 26.

Between the parties themselves this relation of principal and agent cannot exist except by their voluntary agreement. Hazard v. Hazard, 1 Story, 371; Collyer on. Partnership, § 2. In the present case the finding is as explicit as language can make it that Farrel and Babbott did not intend to become partners. It says: — " No paper was ever signed by or between Farrel and Babbott alone. No conversation ever took place in which it was stated in words that Farrel and Babbott were partners or were to form a partnership. No firm name was ever mentioned. No suggestion that either had used or could use the name or the credit of the other. Neither ever understood, intended or thought that a partnership existed or should exist." And in addition to this there is the express declaration of Babbott to his counsel — apparently after Farrel had written to him that he, Farrel, had stopped all work on the machine — that he did not believe there was any partnership between them. This part of the case is not pressed and we need not pursue it.

A partnership as to third persons sometimes arises by operation of law even against the intention of the parties; and this happens either because the contract which the parties have entered into in law makes each the principal and agent of the other, or because by a course of dealing they have shown that such was the real relation between them. Such were the cases of Parker v. Canfield, 37 Conn., 250, and Citizens Bank v.Hine, 49 Conn., 236. It is laid down in Everett v. Chapman,6 Conn., 347, that where the terms of the agreement and the facts are all admitted, whether or not a partnership existed is a question of law for the court to decide. The plaintiff claims that from the facts found by the Superior Court it does appear that Farrel and Babbott were partnersquoad third persons notwithstanding their intent not to be partners. The facts from which the partnership is claimed to arise are mainly the exhibits one, two and three; and of these exhibit two is the only one important. All the other facts derive their significance solely from the construction that is to be put on this exhibit.

Exhibit two purports to be no more than an agreement between the Cook Ice Refrigerating Company, party of the first part, and Franklin Farrel and William M. Babbott, party of the second part, by which the party of the first part, being the owner of patents therefor, grants to the party of the second part the exclusive right to manufacture and sell refrigerating machines and apparatus for refrigerating, as described in the patents, throughout the United States for the full term for which the patents were granted. And in consideration of that grant the party of the second part undertakes and agrees with all diligence and dispatch, and without expense or charge to the party of the first part, to manufacture a refrigerating machine under the patents, and, for the purpose of aiding and benefiting the business intended in the agreement, to run the machine for at least two months subsequent to its completion. The party of the second part also agrees to use its best endeavors to create a public demand for the machines and to manufacture machines to supply any bonâfide order therefor; and agrees to pay to the party of the first part an amount equal to one half of the gross profits accruing therefrom. There are other provisions in the agreement, but all having reference to the duties and obligations of the parties thereto. That such a contract as this does not make the parties — that is, the party of the first part and the party of the second part — partners, is settled by abundant authority. It only provides a way in which the party doing the work is to be paid for its services. Chase v. Barrett, 4 Paige, 148.

The only relation of Farrel and Babbott that appears by this agreement is that of joint contractors to manufacture refrigerating machines for the Cook company. There is no suggestion in it that either is, or is to be, the agent of the other. It does not attempt to provide in what way Farrel and Babbott, as between themselves, are to carry out their joint undertaking. A community of interest does not make a partnership.Loomis v. Marshall, 12 Conn., 77; Porter v. M' Clure, 15 Wend., 186. Thus tenants in common of land are not partners. Calout v. Aldrich,99 Mass., 74. In Oliver v. Gray, 4 Arkansas, 425, it was holden that two persons, joint owners of a horse, were not partners in respect to a contract for its keeping. French v. Styring, 2 Com. Bench, N.S., 357, was a case where two men owned a race horse which they entered in a race and won a prize. It was held that they were not partners as to that money. In Hawkins v. McIntyre, 45 Verm., 496, the defendant contracted to finish off a church for the sum of $4,500. Afterwards he agreed with the plaintiff that they should work together in doing the job, each working himself, the work of each to offset that of the other, and the expense of materials and of other work to be deducted from the amount and the balance to be divided between them. It was held that they were not partners. In the case above cited, Loomis v. Marshall, 12 Conn., 77,B was the owner of a satinet factory. A agreed with B to furnish all the wool that should be needed at the factory for two years, whichB agreed to manufacture into cloth, the net proceeds of the cloth, after deducting the incidental charges of sale, to be divided so thatA should have fifty-five per cent and B forty-five per cent. It was held that there was not a partnership as to third persons.

It probably could be inferred that Farrel and Babbott were to divide between themselves whatever was left, if anything, after paying the Cook company. But a partnership, even as to third persons, is not constituted by the mere fact that two or more persons participate or are interested in the net proceeds of a business. 1 Lindley on Partnership, 24; Holme v. Hammond, L. R., 7 Exch., 230;Loomis v. Marshall, supra; Ex parte Tennant, L. R., 6 Ch. Div., 303;Bullen v. Sharp, L. R., 1 C. P., 86.

Mr. Farrel was a manufacturer of machinery of long and wide experience. He was at the head of a company in Ansonia, in this state, engaged in manufacturing machinery and employing four or five hundred hands. Work on a refrigerating machine was begun promptly at the factory in Ansonia under the supervision of Mr. Cook, the patentee, and with the aid of one David Smith and of one Greene, but with no success. " The machines broke down and proved so faulty and imperfect in their nature, and the business in all respects so unsatisfactory, as not to justify or warrant proceeding. Not a dollar's return in any form was ever received from the business or venture." In the language of the finding it was " only failure after failure." On September 22d, 1879, Farrel wrote Babbott that he had stopped all work on the machine until he could see him. Work did stop at Ansonia at that time and was never resumed. About November 1st, 1879, the Cook company gave Farrel notice to annul the contract with them as by its terms they had a right to do; which notice Farrel at once communicated to Babbott. Prior to the stopping of the work on the machines no act had been done by Babbott or by Farrel in which either had assumed to act for or to bind the other. Every thing they had done in carrying out their contract with the Cook company had been done by them jointly.

There was no writing, and there was no course of conduct prior to that time from which any one could be led to believe that these three men were partners. It was subsequent to this time that Babbott commenced and continued in New York the series of acts from which the plaintiff claims " that the court erred in not holding, ruling and deciding that the defendant Farrel was a partner with the said Babbott as to and against third parties, especially as to and against the plaintiff."

A person who holds himself out as a partner, or permits others to do so, is liable as such to third persons who have given credit to the firm upon the faith of his connection with it, or who knew of such holding out. The liability in such cases is predicated upon the doctrine of estoppel, and in order to charge a person on that ground it is not enough to show that he was represented by others to be a partner, or that his name appeared in the firm; it must be shown that heknew that he was being held out as a partner and that he assented thereto, or facts from which assent can be fairly implied. McBride v.Protection Ins. Co., 22 Conn., 259; Buckingham v. Burgess, 8 McLean, 364.

It is always a question of fact whether or not there has been such a holding out as to estop a party from denying the partnership. Wood v.Duke of Argyle, 6 Man. Grang., 928; Lake v. Duke of Argyle, 6 Queen's Bench, 477. And so the decision of the Superior Court is conclusive unless there is some error in its proceedings. Upon an examination of this part of the case we are satisfied that the result to which the court came was fully required by the facts.

In May, 1879, while the parties were at work at Ansonia endeavoring to construct a refrigerating machine, and also were seeking to find or to create a demand for the machines when they should be ready, one F. L. Babbott, a brother of W. M. Babbott, called on a Mr. Blackwell of Blackwell Co., warehousemen in Clarkson street, New York, with reference to furnishing them with a machine; and on the 29th day of July following W. M. Babbott entered into an arrangement with Blackwell Co., as shown by exhibit four. It was explained to Blackwell that the machine was to be built by Franklin Farrel of The Farrel Foundry Co., at Ansonia, Conn. At that time there was no machine or apparatus in condition to be set up, and as none was ever completed nothing was done under that arrangement.

"The first knowledge that Mr. Farrell had that any use was being made of his name or credit in any form was about January 1st, 1880, when a three months' note dated October 22d, 1879, signed `Franklin Farrel Co.,' payable at Ansonia National Bank, was brought to his attention a few days before it fell due by the cashier, who asked him what he knew about it. Up to that time he had never learned that there was any claim to a partnership with him made by Babbott. He knew nothing of Blackwell except as above stated, never saw him until long after, was never at Clarkson street, and had no knowledge of any business done there. He had no knowledge of any transaction with Morgan Herrick and had never heard of that firm until the notes in suit matured and were demanded and protested. He did not know that Smith was in New York, and could not find or meet Babbott there." Such is the finding, and it is added that he knew nothing of the Delamater Iron Works or that Babbott had any dealings with it. It appears then that the only fact which the defendant knew was that some one had wrongfully used his name on that note. It does not appear that at the time he knew that Babbott was the man. Inferentially it would seem that he did not know, for it is stated that he could not find Babbott in the city. But without pausing to remark on the dearth of knowledge the defendant had of Babbott's doings, we pass to another feature in this part of the case.

A party setting up an estoppel by conduct is bound to the exercise of good faith and due diligence to know the truth. Bigelow on Estoppel, 480; Moore v. Bowman, 47 N. Hamp., 499; Odlin v. Gove, 41 N. Hamp., 465.

When Babbott began his operations with Morgan Herrick he showed them a copy of the contract with the Cook company and also a letter from Farrel in which occurred the words — "I have concluded to go on with the business," accompanied with statements that he and Farrel were partners. They were told that the goods were to be used in the manufacture of a refrigerating machine by Franklin Farrel Co. at Clarkson street, New York city. They seem not to have been satisfied with the terms of that contract nor with the statements that were made to them, for they made inquiries of the Delamater Iron Works, of which Farrel knew nothing, and of the mercantile agencies of Dun, Barlow Co. and of Bradstreet Co. From these agencies they were able to learn nothing as to any firm of Franklin Farrel Co., who composed it, or as to its responsibility, or that there was any such firm at all. If Babbott and Farrel had been partners by virtue of the contract with the Cook company, they had been such since the 22d day of March, 1879. The absence of the name of any such firm from these mercantile agencies was a most significant circumstance. These agencies made known to Morgan Herrick all about Franklin Farrel and his responsibility. These agencies could tell, and presumably did tell, where Farrel lived and in what business he was engaged; that he was a man of large means, a large manufacturer of machinery, having a large factory and employing many hands in that kind of work. From this information Morgan Herrick would know that the manufacture of a refrigerating machine would be in the exact line of work Farrel was doing at his own factory in Ansonia, Conn. That such a man, having such facilities, was represented to be carrying on the manufacture of a refrigerating machine in a warehouse in Clarkson street in the city of New York, and that he was doing it on credit, would be certain to excite inquiry in the mind of any prudent man. Why did not Morgan Herrick inquire further? Mr. Farrel was a manufacturer in Connecticut, not in the city of New York. In a manufacturing partnership the place where it was to be carried on would be likely to be a controlling feature. For such work there must be machinery to use, and power to run it, and men to operate it. All these Mr. Farrel had in Connecticut, and none of them in New York. The court had judicial knowledge that Ansonia was easily accessible from New York city by railway, that there was frequent communication by mail, or that the telegraph might have been used and a reply obtained in half an hour and at trifling expense. Wharton on Evidence, § 339. When so many circumstances called for inquiry, and with all these means by which inquiries could have been satisfied, and when none of them were used, we cannot hold that the plaintiff's assignors exercised good faith or due diligence to know the truth.

On the trial the plaintiff introduced a large number of letters and postal cards which had passed between Farrel and Babbott for the purpose of showing that they were partners in the refrigerating business. The defendant claimed that these letters or some of them had reference to other matters and not to the refrigerating business, and to show this offered other letters and postals that had passed between them. To these the plaintiff objected, but the court admitted them solely for the purpose named. That letters which had passed between these men might tend to show that they were partners in any business is very obvious, and that other letters on the same or a kindred subject might modify or contradict the first ones is equally obvious. The real relation between the parties could best be shown by the whole correspondence, not by a part of it.

There is no error in the judgment appealed from.

In this opinion the other judges concurred.