Goddard v. Pratt

Shaw C. J.

delivered the opinion of the Court. This is an action of great magnitude and importance, as well on account of the number and variety of questions presented by it, as the amount of property involved in it.

The position assumed by the defendants is, that the defendant Thompson, with his deceased partner Willey, were not at any time members and copartners of the house and firm known by the name of I. 8c J. Pratt 8c Co., and that the instruction of the Court, upon the legal effect and operation of the memorandum mentioned in the report, under the cir cumstances proved, should have been that they were not partners in that firm. Upon a revision of the question, the Court are of opinion, that by the terms of the memorandum of October 10, 1827, which Thompson & Willey, and Messrs James & Co. of New York, agreed to take and pay for one fourth of the real estate at the price of $15,000, and also to purchase one fourth of the stock of the factory, at the appraisal, with the other stipulations in that instrument, coupled with evidence of the payment of the money, did constitute a partnership, commencing at least as early as the payment of the money ; and as the stock is designated as that of the firm of I. 8í J. Pratt & Co., as it is shown that the concern had, for a length of time, been conducted and carried on in that name, and as no new name or style was adopted, the partnership business of the company, as thus constituted by this memorandum, was conducted in the same name, and that name and firm designated all the persons who thus became copartners.

Whether the agreement alone, without the payment of money, would have constituted them copartners or not, either as between themselves, or between them and third persons, it is not necessary to decide ; but undoubtedly there are many cases, where by an agreement to share profit and loss, without any payment, or by an agreement to pay instead of present payment, the parties will become partners. But in the present case, it was found that the amount stipulated was paid, and the opinion expressed by the Court to the jury, upon the effect of this instrument, was connected with the consideration that the money had been paid. As part of the argument turned upon this direction and its correctness, it may be as well to consider it. After the memorandum had been introduced, stipulating that the new purchasers, Thompson h Willey and James &. Co., would take and pay for the one fourth of the real and personal estate of the firm, which formerly belonged to the deceased' partner Crane, but no time was stipulated, within which such payment should be made, the presumption was that the payments were to be made forthwith, or within reasonable time ; or taken in connexion with other proof in the case, that the real estate was to be obtained by a deed from N. S. Spooner, the administrator and guardian, it is to be presumed, that as to the real estate at least, the payment was to be made, as soon as the deed could be obtained. It was further shown, that-in the course of about twenty days afterwards, and about the time the deed was actually executed by Spooner to Pratt Si Co., a letter was addressed by Thompson & Willey to I. Si J. Pratt 8s Co. in answer to one of theirs dated the 24th of October, expressing satisfaction at the prospect of getting along with Spooner, and saying, your draft shall be duly honored. If there was any reason for delaying payment for the real estate to be obtained by a deed from Spooner, there seemed to be none for delaying payment for the personal property, which was to be taken at an appraisal, made many months before, and especially as the purchaser’s interest in the profits, was to commence at a period anterior to the date of the memorandum. Taking the terms of the memorandum, then, it was t-» be presumed, that the payments were to be made soon. Thrletter of Thompson 8s Willey of the 27th of October, acknowledges the receipt of that of Pratt 8c Co. of the 24th, and by promising that their draft shall be duly honored, the presumption is very strong, that this refers to some proposition or request in the letter of Pratt 8s Co. announcing their intention to draw bills ; and the presumption is equally strong, that that letter, if produced, would show on what account such bills were to be drawn. The plaintiff contended that these bills were for these very payments ; the defendants did not admit or deny this, and upon notice given, refused, without any excuse, to produce this letter. There was no evidence offered by the defendants to show any payments afterwards, and yet when organized under the act of incorporation it is not pretended that the new partners, Thompson 8s Willey and James 8s Co., had not paid for this quarter part and received certificates of stock accordingly. Under these circumstances the question was whether these payments had been made, and the judge instructed the jury, that the agreement, coupled with evidence of payment, was sufficient to prove that Thompson 8s Willev became partners in the firm on October 10, 1827. This is not the precise form of the instruction, but is, we think, its effect. The same is stated afterwards, in reference to the first request of the defendants, for special instructions in point of law. The judge instructed the jury, that the agreement, coupled with the payment of the purchase money, and the evidence contained in the letters aforesaid, if established to their satisfaction, did constitute those who subscribed it, copartners at that time.

The counsel contended, that the words “ if established to their satisfaction,” do not apply to the fact of payment, but the mere authenticity of the letters, but we think this is not the natural or proper construction. This is shown, we think, by reference to the point in controversy. The defendants asked the opinion of the Court as to the construction and legal effect of the terms of the memorandum ; this they had a right to ask, and this it was proper for the Court to give. The construction and legal effect of every written instrument, is matter of law. But such construction may be modified and controlled, by the existence of facts, to be proved by evidence aliunde. So it appears the judge thought it was here. Tne construction therefore adopted, and given to the jury, was, that this instrument, connected with the fact of payment, if established by the proof, did constitute the defendants partners. The fact, therefore, we think, was left to the jury, upon the evidence, and not merely the authenticity and genuineness of the letters, and the jury were informed that if this fact was established to their satisfaction, by the letters and evidence submitted to them, then the agreement did constitute the defendants partners.

The question therefore recurs, upon the correctness of this construction of the memorandum. It appears to us that this was an entire and complete agreement for an immediate and present copartnership, between the parties. - The defendants, Thompson & Willey, together with James & Co., agree, without limitation of time, to purchase a quarter part of the real estate and one quarter part of the stock of the factory, at an appraisal, then before made. The price therefore was fixed and definite. It was also stipulated that they were to be interested, in one fourth part of the profits, and subject to the like share of the losses, immediately from and after the agreement. These are not precisely the terms of the agreement, but a slight consideration of all the terms of the agreement, and the circumstances under which it was made, will clearly show that this was its legal effect. It is manifest from the circumstances and the terms of the contract, that the existing firm of I. 8c J. Pratt 8c Co., consisting of Isaac and Jared Pratt and Charles Wilbur, considered themselves as entitled, either in their legal right as surviving partners, or in virtue of some executory contract with the representatives of their deceased partner, Daniel Crane, to sell and dispose of the quarter part, both of the real and personal estate, which he had owned in the concern. It is obvious, from the reference in the memorandum, that an appraisal of the whole stock had been made some months preceding, having reference to Crane’s death on the 20th of April preceding, which the parties assumed as the basis of their new agreement. The parties no doubt considered, that as to all the profits acquired after the death of Crane, and as to the value of the good-will of the establishment, if it may be so called, or the privilege of coming into an already formed and active concern, with the benefit of its correspondence and established reputation and run of custom, these belonged exclusively to the survivors,, and these were made the subject of a separate stipulation. But the effect was to make the new purchasers sharers in profit and loss, from the moment of the agreement. In fact it gave them an interest in profits already earned, and made them subject to losses already sustained. But as to past profits, it may be considered as a purchase, and as to past profits and losses, it may be considered as a private agreement between the parties, as to the mode in which the account should be taken, and could not by relation render them liable to persons already become creditors to the firm. Vere v. Ashby, 10 Barn. & Cressw. 288. The question in all such cases is, with whom was the contract made ; and the fixed rule of law gives the answer, that all those who have entered into copartnership with the ostensible dealer or firm, and who by agreeing to share in the profits, aie in legal contemplation deemed to be partners, are the parties bound. As to all business and all contracts, future when this agreement was made, the defendants Thompson &. Willey and James &t Co., by the agreement of partnership, and the agreement to share in the profits of the business carried on in the name of I. 81 J. Pratt 8t Co., did authorize that firm to bind them, and they became, parties in all such contracts. The suggestion, that this was an executory agreement to become partners at a future time, and when they should so become partners the defendants were to share m the profits of the business done in the intermediate time, is forced and untenable.

It may be added in passing, that this agreement to share m the profits of the business to commence at a period anterior to the date of the agreement, is very strong evidence to the point, that the purchase money was to be paid forthwith. The two thousand dollars was a fixed sum to be paid at a fixed time, for profits then already earned, and was not to be enlarged or varied with reference to any time of payment of the purchase money ; and therefore if the new purchasers were not to pay the amount of their purchase money forthwith, they would be at once receiving a full share of the profits of the business, requiring a large capital, without advancing any capital. If it had been put upon that ground, at the trial, it is a very grave question, whether the agreement did not, defacto, constitute all the defendants partners, without other proof of payment, on the ground that if payment were necessary, the agreement itself implies that the money was paid or other security given, or that the agreement itself amounts to a contract for payment, which was accepted by the venders as satisfactory.

This view of the subject seems decisive. An agreement to take and pay for a fixed share, in a partnership, with a view to carry on the business, and an agreement to share the profit and loss of such concern, is a contract of partnership ; and an agreement to share profits from the moment of making the agreement, shows that it was executed and not executory.

But other views of different parts of the contract, lead to the same result. The stipulation at the close, that the services of the active partners shall commence from April 20, 1827, preceding, no doubt means that compensation for those services should be computed from that time. Any other construction would be insensible. Why should this be, if they were to continue working for themselves and not for the new concern, until some future time, when some new arrangement would be made ?

The stipulation, that Messrs. I. & J. Pratt & Co. might be at liberty to sell another quarter of the stock and concern, to two gentlemen named, leads directly to the same conclusions. If they were partners, no new partners could be introduced without their consent. But upon the hypothesis, that this agreement was not to go into effect until the act of incorporation should be obtained, no such consent would be necessary, and this claim would be wholly nugatory, because upon obtaining the act of incorporation, the shares would become transferable personal property, and each stockholder might transfer his shares to any person, in whole or in part, at his pleasure. The stipulation, that I. & J. Pratt & Co. should get the manufacturing establishment incorporated in the ensuing January, is a distinct, independent, executory agreement on their part, and it has neither the form nor the force of a condition precedent, or of a limitation of time, at which the agreement to participate in the profits, the effective agreement of copartnership, should take effect. The further stipulation, that at that time an exhibition was to be made to the satisfaction of all, and a copartnership formed, as to the first clause of it, is nothing more than a common stipulation, on the part of acting and managing partners, to render an account at a fixed time ; and as to the latter, it is obvious, and indeed was so conceded at the argument, that “ copartnership ” was not used in its legal sense, but rather intended, that after the act of incorporation should be obtained, a connexion or company should be formed under it, and such connexion or company must necessarily be a corporation, and not a copartnership in its ordinary sense.

Besides, every agreement and stipulation must be construed according to the subject matter. It is not absolutely in the power of any individuals, at their will and pleasure, to obtain an act of incorporation, however confidently they may be warranted from the past history of legislation, to expect one on asking for it; and therefore the stipulation of I. & J. Pratt & Co. - must be understood as an agreement to apply for an act of incorporation, and use their honest endeavors to obtain it. But if the carrying into effect of this agreement, had been intended to be suspended upon the condition of procuring an act of incorporation, we think the whole basis, frame and structure of this agreement would have been different. The Court therefore all concur in the opinion expressed by the judge who tried the cause, that this agreement, under the circumstances, constituted the parties to it copartners, from the time it was made.

The next question for our consideration is, whether the partnership thus formed, had been dissolved and notice of it so given, before the contracts were entered into with the plaintiff upon which this action is brought, as to exempt the defendant Thompson from his liability.

Some other questions were indeed made, but we think the decision must depend upon that above stated.

It was suggested that the new purchasers were dormant partners, and so it was not necessary to have given notice of dissolution to exempt them; but we think it impossible to sustain this position upon the terms of the agreement, and if it depended upon other facts, it was a question for the jury, and the verdict is decisive. By the agreement, Thompson & Willey of Boston, and James & Co. of New York, purchase into a trading and manufacturing concern, at a distant place, then already known, and extensively known, by a partnership designation ; that partnership designation expressed the names of two of the active and managing partners, and indicated the participation of others, as partners, by the significant abbreviation, “ & Co.” This was a plain indication to all customers, and persons dealing with them, that others were concerned ; there is nothing in the agreement intimating an intent to keep the interest of these new partners secret, or to prevent the acting partners from disclosing this fact, and thereby giving the additional strength and firmness to their establishment which this fact would do. It is a well settled rule of law, that a person is not to be deemed a dormant partner, because his name does not appear in the firm and part*. nership style, which they choose to adopt, but where other partners are indicated by the word “ company,” where the interest of partners not named, is generally known, the partners actually constituting the company are to be deemed partners, in the same manner as if their names were expressed. But where it is intended to be shown that, in point of fact, a partner was strictly a dormant partner, and his interest not in fact generally known, in order to excuse notice of dissolution, it is a question of fact for the jury. This point, though slightly alluded to at the trial, was not reserved, nor the evidence in relation to it reported, and so far therefore as it was relied upon at all at the trial, it must be deemed to have been settled by the verdict, that the partnership was not a dormant one.

It was also objected, that when this company became incorporated, and organized under their act of incorporation, and adopted a by-law, agreeing among themselves and instructing their agents, to transact all their business in the name of I. & J. Pratt. & Co., that name thenceforth bound the corporation only, and not the individuals, formerly and at the time of such organization, composing the firm known by that name.

This case and this by-law disclose a very extraordinary state of facts, so unprecedented and novel, that it seems extremely difficult to apply to these transactions any of the known rules of law, or to ascertain the legal rights, duties and obligations of those connected or dealing with this concern.

It is extremely difficult to know what they themselves designed and intended by this regulation. That they intended • to renounce their corporate name altogether, and assume that of I. & J. Pratt & Co. for all purposes, cannot for a moment be imagined, because it would be entirely inconsistent with the act of incorporation authorizing them to form a corporation by a particular name, in which the evidence of its identity mainly consists, because the name of individuals, as a corporate name, is entirely unprecedented and could only tend to mislead. Test this. Suppose the deed in the case had been made to I. & J. Pratt & Co., can it be imagined that the Wareham Ivon Co. would take under it ? Certain corporations may indeed have more than one name, or rather more than one designation, and perhaps, by force of the doctrine of estoppel, a corporation might be bound by other names than their own ; but this would found no rule of construction against those claiming adversely to them.

But no doubt it was the intention of the corporation, in adopting this by-law, to make their ordinary contracts, and carry on their mercantile business, in the name of this firm, and to this the members of the firm did not object.

But what contract, did they suppose, such a transaction formed, and with whom ? With the corporation, as having in fact made the contract, through their agents, in a name designated by them, and of which they had received the fruits ? With the firm, as being a party whose name alone was used, and that name embracing the real personal names of the managing agents, and in fact, making contracts in their own names ? Would it have a double aspect, binding the corporation as the real contractors, and the managing individuals composing the firm, as sureties or collateral contractors ? Or would it operate as the contract of the one or the other of these parties, according as the person contracting with them, or taking their negotiable securities, should or should not have notice of the precise state of the facts, so that it should operate as the contract of the corporation, as to those persons who should know of the existence of this by-law, and as the contract of the firm in regard to those who had no such notice ?

These queries indicate the extreme difficulty of putting a legal construction upon those acts of the parties, adopting their own hypothesis, that upon the organization of this corporation, the former partnership was de facto dissolved, or subsisted only for the purpose of settling and closing an account with the corporation itself, pursuant to the terms of the deed ; that they adopted the name of I. & J. Pratt & Co. as a convenient business name, not intending to hold out the credit of this firm, as a known and already established house. The strong probability is, that the members of the corporation, in adopting this extraordinary mode of transacting their corporate business, did not foresee or consider the great inconveniences to themselves and others dealing with them, producing in effect most of the ill consequences of misrepresentation ; and if it were otherwise, if it could be supposed that such consequences were anticipated and designed, the course would have been extremely reprehensible and obnoxious to a charge more severe, than that of unintentionally misleading those who should deal with them.

But after considering the subject in these various views, and perceiving that in some other aspects of the cause, they might have presented questions of great doubt and difficulty, we are all of opinion, that, in the actual condition in which this cause is now placed before the Court, it is not necessary to decide them, and that this cause in fact depends upon a few plain and well established principles. We think the case is brought back to the question, first above stated, whether there was in fact a dissolution of this copartnership, formed, commenced' and continued, for some time at least, under the firm of I. & J. Pratt & Co., and if so, whether such actual or constructive notice was given of it, as by law is requisite, to exonerate the partners from the obligation of contracts made by the acting partners in the name of the firm.

These two facts are so intimately blended together, as they bear upon this question, that is to say, the fact of dissolution by the partners, as among themselves, and notice of it, either general to the community, or particular to the plaintiff, that there seems to be little use in considering them separately. The fact of forming a corporation under an act obtained foi that purpose, and transferring the whole of the real estate and the partnership stock and property to such corporation, standing alone, would be strong evidence of an intention of the partners, as between themselves, to dissolve the partnership, and form an association of a different legal character; but the regulation adopted at the same time to transact their business in the name of the already existing firm, made, at least with the tacit consent of the members of that firm, the business to be conducted and carried on by the agency of the acting and managing members, whose names appeared in the firm, indicated strongly an intention to continue the partnership, as between themselves and the community. But as already stated, it- seems unnecessary to decide this question by itself, because it is well settled, that whatever may be the intention and the agreement of partners, to effect a dissolution as between themselves, if notice of that fact is not given, it cannot be legally deemed to be dissolved, as regards others.

If then, the partnership was established, if it was determined that this was not strictly a dormant partnership, then supposing a dissolution effected as between the partners, it was a question of fact for the jury, whether actual or constructive notice of such dissolution- had been given, so as to exempt the members from responsibility for acts done and contracts made in the name of the firm by the late acting and managing partners.

This question was left to the jury, and after carefully looking through the report and examining the several exceptions, to the admissions and rejections of evidence, and the instructions of the Court, we are satisfied that they were sufficiently favorable to the defendant.

Several considerations were relied on as matter of law, as conclusive evidence of such dissolution, such as the supposed limitation in the agreement itself, the act of incorporation, the acceptance of it, the notice of the.act having been accepted, and the acts and doings of the corporation. As to the limitation in the agreement itself, it is rather to be found in implication, than in terms, but supposing it intended to be limited to the time of obtaining the act of incorporation, and organizing under it, it could only affect the rights of the parties as between themselves, and not itself being public had no tendency to give notice to others. Besides, as the jury were distinctly and correctly informed in another part of the case, whatever may be the intention and even the stipulations of partners, in their agreement or articles of copartnership, as to the limits of its duration, if after the expiration of such term, they still continue to act together as partners as to third parties, they must be deemed to be partners.

The act of incorporation, and the doings under it, are of the same effect, being accompanied with no notice that this firm was dissolved, or that all the property and stock of this firm was transferred to this corporation, or that the name of the firm was adopted and continued for the mere convenience of the corporation; the acceptance of the charter and the organization of the company had no tendency to give notice to the mercantile community, of the dissolution of the firm. The memorandum indorsed' on the agreement is of the same character. If a partnership was actually formed, pursuant to the agreement, cancelling the agreement under which it was formed, would not determine it, if they continued to act as partners ; and a private agreement between some of the partners, even if it indicated‘a more decided intention to dissolve the partnership as between themselves, could not have that effect as against third persons, having no notice of it.

Without going minutely into the particular exceptions, which are somewhat numerous and some of them rather unintelligible, it appears that it was fully left to the jury to decide, upon the whole evidence, whether the plaintiff knew that he was dealing with a corporation, and not with a firm or copartnership composed of individuals, whether he knew that the copartnership was dissolved, or that Thompson & Willey had withdrawn from it, and the jury by their verdict for the plaintiff negatived the fact of such notice. We are also of opinion, that the instruction of the judge, that if Thompson & Willey sold out their shares in the corporation, this did not necessarily constitute a dissolution of the copartnership, was unexceptionable.

One other question was discussed at the argument, as to the admissibility of evidence. The defendants’ counsel proposed to inquire of witnesses, whether there was a general reputation or report, that by the signature of I. & J. Pratt & Co. the corporation of the Wareham Iron Company was meant; this was objected to and not admitted, but the evidence was confined to the knowledge of the witnesses, who had discounted or dealt in the paper of that signature, and the whole evidence upon this point was left to the jury. They also desired to inquire of their witnesses, if they had heard that Thompson & Willey had left the concern, and if such was the common reputation. The Court are of opinion that these decisions were right. In regard to the first, supposing a partnership proved, the question could have no other effect than to show notice of a dissolution and of the adoption of the partnership name, by common reputation, and that of those who had had no dealings with the parties, or who had had no occasion to make particular inquiries, with a view to taking their paper. We are satisfied that this decision was sufficiently favorable to the defendants, and if the question had been made on the other side, whether the belief and understanding of those who had dealt with them, founded upon report and hearsay, was admissible, it would have been one of more difficulty. The general rule is, that to preclude a party in such case, it must be shown that he has actual notice of the fact; or that notice has been published as the act and declaration of the partners themselves, which shall operate as constructive notice to all persons.

One other question arises, in this action, of great practical importance. In one of the cases now before the Court, the plaintiff was permitted on motion, to summon in a new defendant, after the action was entered in this Court. If not warranted by the statute, it is clear that the case is not within the jurisdiction of the Court. This statute, 1833, c. 194, and the corresponding act authorizing the striking out of defendants, or rendering judgment in favor of some and against others in actions founded on joint contract, St. 1834, c. 189, do certainly make a bold innovation upon the principles and practice of the common law ; it is therefore necessary to examine with great care, and endeavour as far as possible to give them a correct and liberal construction.

An ingenious argument was raised upon the construction of this statute, founded principally on the punctuation. Upon this construction, new defendants could be summoned in only on a plea of non-joinder of parties in abatement. This would render it entirely optional with the defendant whether such motion should be made or not, and would not render the act beneficial to the plaintiff, to the extent which seems intended. If no plea in abatement is filed, no motion can be made to summon in defendants. But it is not safe to depend on punctuation, and it is necessary to look carefully at the probable intent of the legislature. The construction is certainly net free from obscurity. It was certainly a mischief, that where a plea in abatement for non-joinder of a party, before the statute, was filed, if the plaintiff could not safely traverse it, his action must abate because he could not at common law amend by making new parties. If the legislature had thought fit to remedy this specific mischief, and nothing more, it Would have been well; but we think the intent would have Been more definitely expressed. It is a general rule in the construction of remedial statutes, that the remedy shall be held to be coextensive with the mischief, if this can be clearly discerned, and if it can be done without violence to the language.

Upon the best consideration we have been able to give to the statute, we think the legislature had in view a mischief of deeper and wider extent. In case of an abatement, the plaintiff loses only his costs and the benefit of his attachment, and may commence his action anew. The manifest design of the legislature was, to enable a party to avoid the payment of costs, and save the benefit of his attachment, against parties already served with process where the only defect was that there were other parties also liable. We think therefore the true construction is, that in all cases founded on debt or contract, unless where an issue has been joined on a plea of nonjoinder in abatement, the plaintiff may, on motion, summon in new defendants. This construction seems best adapted to attain the general purposes intended by the statute, and may be adopted without violence to the language of the statute. This case was, upon this construction, within the statute, and the new defendant rightfully summoned.

Judgment on the verdict for the plaintiff.

Case Details

Case Name: Goddard v. Pratt

Court Name: Massachusetts Supreme Judicial Court

Date Published: Mar 15, 1835

Citation: 33 Mass. 412

Court Abbreviation: Mass.