Clegg v. Lyons, Harris & Brooks

30 Ga. App. 482 | Ga. Ct. App. | 1923

Jenkins, P. J.

(After stating the foregoing facts.) While the partnership agreement provides for certain services to be rendered by the defendant to the partnership, for which he is to receive a specified-commission, and while it provides the terms and method for a possible dissolution, it expressly provides for the-purchase by the defendant of a specified interest in the partnership business, and that he shall share pro rata in the net profits of the enterprise, independently of the provision made for his personal services. The provision referred to is as follows: “ The parties of the first part hereby acknowledge receipt of five hundred dollars ($500) in cash and a note for five hundred dollars ($500) payable April 15, 1922, for which they hereby convey to the party of the second a one-tenth interest in the business operated by them and known as the Mercantile Sales Company, such interest entitling party of the second part to one tenth of the net earnings of said business.” Nothing is said Avith reference-to losses.

Section 3158 of Park’s Code provides as follows: “A joint interest in the partnership property, or joint interest in the profits and losses of the business, constitutes a partnership as to third persons. A common interest in profits alone does not.” It is expressly held, however, by a long line of decisions of the Supreme Court, that it was not intended by the adoption of the code to change the rule of the common law upon this subject, but that the language of the code must be taken and construed as declaratory only. Dalton City Co. v. Dalton Mfg. Co., 33 Ga. 243; Sankey v. Columbus Iron Works, 44 Ga. 228; Powell v. Moore, 79 Ga. 524, 529 (4 S. E. 383). The contrary intimation in Huguley v. Morris, 65 Ga. 666, is disapproved, as obiter, in Brandon v. Conner, 117 Ga. 759, 764 (45 S. E. 371, 63 L. R. A. 260), where the original rule as laid down in Buckner v. Lee, 8 Ga. 285, is reasserted. The Brandon case was reviewed and expressly approved in Callaway v. Waxelbaum Co., 128 Ga. 508 (57 S. E. 762). A definition by Judge Story, quoted by Justice Lumpkin in Floyd v. Kicklighter, 139 Ga. 133, 136 (76 S. E. 1011), is as follows: “Partnership, often called copartnership, is usually defined to be a voluntary contract between two or more competent persons to place their money, effects, labor, and skill, or some or all of them, in lawful commerce or business, with the understanding that there shall be a communion of the profits thereof between them.” What has often been referred to as a subtle and metaphysical distinction has been recognized in many cases where the proportion of profits goes to one of the parties to the agreement, not as profits, but merely as compensation for labor or benefits furnished to his employer. Such an agreement does not have the effect of clothing the employee with the rights, powers, duties, and responsibilities of a partner. Judge Nisbet, in the Buckner case, supra, said: “ ‘ The true distinction (says Mr. Story) by which we are to distinguish cases of this kind from cases in which there is a partnership as to third persons is to ascertain whether the retiring partner, lender or annuitant is to receive a share of the profits as profits, or whether the profits are relied on only as a fund of payment; or in other words, whether the profits, or premium, or annuity, is certain and defined, or is casual, indefinite and depending on the accidents of trade. In the former case it is a loan — in the latter a partnership.’ Story on Part. § 67. Grace v. Smith, 2 W. Black. R. 998, 1,000. Waugh v. Caurs, 2 H. Black. R. 235 to 247. And again, ‘in short, in all cases of this kind, the real question to be solved is, whether the party is, in effect, to participate in the rise or fall of the profits as such, or whether he only looks to the profits as a fund for payment of the annuity, but not exclusively to that fund. In the former case he is a partner —■ in the latter he is not/ Story on Part., § 69. ‘The test of partnership is a community of profit ■ — ■ a specific interest in the profits as profits, in contradistinction to a stipulated portion of the profits as a compensation/ 3 Kent, 25. To which I add, in contradistinction, also, to a stipulated portion of the profits, as an annuity; that is, an annual sum for the use of money, or of negroes, or other property. It seems, then, clear that if one is to receive a certain proportion of the profits, as one third or one half, as profits, he is a partner. If a certain sum is agreed to be paid out of profits, and the party does not look to that alone for payment, he is not a partner; but if the sum to be paid is not fixed, but may be increased or diminished by the amount or accidents of the business, then the receiver is a partner.” (8 Ga. 288).

Following this Buckner case, it was held in the Brandon case, supra, that, “Where A, who had a contract to grade a portion of a railroad, made a contract with B, by the terms of which B was to ‘ put in ’ sixteen mules and harness against A’s six mules and his services, and to receive one-half of the net profits of the business for the use of his mules and harness, there was a partnership between them as to third persons, although they agreed that B was to have nothing to do with the work and was not to be responsible for any debts.” This rule was reiterated in Callaway v. Waxelbaum, supra, where, as already stated, the decisions in the Brandon case and the Buckner case were, upon review, adhered to. See also Walls v. Atlanta Newspaper Union, 141 Ga. 594 (3) (81 S. E. 866).

What the text-books speak of as the confusion and conflict in the decisions upon this question seems to grow out of the interpretation which the courts give to the particular agreement under consideration, with reference to whether the share of profits is intended to go as profits, so as to clothe the recipient with all the ■rights, powers, and responsibilities of a partner, or whether the proportion of profits is to be received merely by way of compensation. Under the Georgia decisions, if a definite proportion of indefinite profits is to be received as such, and not merely as compensation for services, this will render the person so receiving it a partner. In the Brandon case it was recognized that this, the original rale, is contrary to the modern trend. While in Davis v. Savannah Lumber Co., 11 Ga. App. 610 (4) (75 S. E. 986), it was held that, “while liability for losses will generally be implied from proof that the contract stipulated for a division of the profits, and a sharing of the profits may imply a partnership, still the existence of a partnership is not to be implied where it appears indisputably from the proof that there was not a common liability for losses,” it appears from an examination of the Georgia cases that in most, if not all, of them, where the relation of partnership was upheld under an agreement providing for the sharing of profits, but silent as to losses, the assets of the enterprise had been jointly contributed; but it is not intended by this statement to thus absolutely limit the possibility of parties entering upon a partnership agreement where it is their plain intention that the profits shall be received as such and not merely as compensation for services. It was clearly recognized in Sankey v. Columbus Iron Works, supra, that a partnership existed where there was a joint contribution to the stock of the enterprise; that is, where each of the partners was to furnish a portion of what was necessary to operate it. If, however, as there recognized, one of the parties furnished everything necessary to the conduct of the business, and the other party, in consideration of a stated proportion of the profits, was merely to sell his personal services, then there would be no partnership. This was clearly the controlling principle in the rulings made by the Supreme Court in Thornton v. McDonald, 108 Ga. 3 (33 S. E. 680), and in Dawson National Bank v. Ward, 120 Ga. 861 (43 S. E. 313); also in Hall v. Stone, 11 Ga. App. 269 (75 S. E. 140), as will appear from language used on page 271. In the instant ease, not only is there no limitation upon the generally implied liability for losses on the part of the defendant, but under the terms of the agreement he is to share in the net profits of the business independently of his special compensation for services; and finally, having contributed a 'portion of the joint stock of the enterprise, he is clothed with all the rights, powers, and responsibilities of a partner.

Judgment affirmed.

Stephens and Bell, JJ., concur.