An agreement by A, with B. that on the payment of a sum of
money, B. shall participate in the profits of A.'s business gives
B. no interest, as between themselves, in A.'s stock in trade when
it appears that it was their intention that he should have no such
interest.
This case was before the Court at the last term,
113 U. S. 113 U.S.
51, when the Court gave a construction to the contract between the
Assurance Company and the present defendants in error, then
plaintiffs in error. That contract and other facts in that case
which also enter into this case will be found on pages
113 U. S. 51, 52,
53 and 54 of vol. 113. At the new trial had in September,
Page 116 U. S. 462
1885, a verdict was rendered for plaintiffs for $6,770, and
judgment accordingly. This writ of error was sued out to review
that judgment. There was a bill of exceptions which incorporated
all the evidence, including the agreement reported in the statement
of facts in vol. 113, and the evidence offered by the Insurance
Company to show that there was a partnership between the defendants
in error and Arndt, and rebutting testimony offered by defendants
in error, and then continued:
"Upon the foregoing admissions and testimony, which was all that
was received or considered on said trial, the defendant prayed the
court to charge the jury that"
"On the undisputed evidence in this case, the jury are
instructed that Mr. Arndt became a co-partner in the insured
property with the plaintiffs, Drennen, Starr & Everett, and was
such co-partner at the time of the fire, and your verdict must be
for the defendants,"
"which charge the court refused to give, and the defendant then
and there duly excepted to the said ruling, and said exception was
then and there duly noted and allowed."
"The defendant prayed the court to charge the jury that"
"The question is whether Arndt, in paying his money into the
firm and executing his note to the firm, became a lender of money
to the firm, and the firm a mere borrower from him, or whether he
acquired an interest in the business and property of the firm
itself as a member thereof. On this subject the law is: if it was
not the understanding that Arndt became a lender to the concern,
and if it was the understanding between the parties that the amount
of his investment was to be risked in their business and become
part of the capital stock, and he was to have a share of the net
profits, he is not a mere lender, but a partner,"
"which charge the court refused to give, and the defendant duly
excepted to the said ruling, and said exception was then and there
duly noted and allowed."
"The defendant prayed the court to charge the jury that"
"Where a person contributes a portion of the common capital
which is mingled with the contributions of the other parties, and
the whole is managed for the joint interests of those who
contribute, the contributors each having a share of the net profits
of the business, they become thereby partners as between
themselves
Page 116 U. S. 463
in the capital stock or property of the concern,"
"which charge the court refused to give, and the defendant then
and there duly excepted to the said ruling, and said exception was
then and there duly noted and allowed."
"The court charged the jury that the making of the written
contract, Exhibit 'K,' and the payment of money and giving of note
by Arndt to plaintiffs, as shown, could not be considered as
proving partnership relation between the plaintiffs and Arndt, and
that the issue as to whether such partnership relation was formed
must be determined from all the other testimony and facts in the
case, outside and independent of said contract and payment under
it; that said payment of money must not be considered as evidence
of such partnership, but must be taken in connection with said
contract and as part performance thereof. The defendant then and
there duly excepted to the said instruction so far as it excluded
from the consideration of the jury the payment of said money and
giving of said note as evidence upon the question of partnership,
and said exception was then and there duly noted and allowed."
"The court charged the jury as follows:"
" Even if you should find from the evidence that the apparent
relation between the plaintiffs and Arndt was such as would charge
them as partners at the suit of creditors or third persons, that
alone would not be sufficient to constitute them as partners as
between themselves, or to maintain the defense in this action --
that is, Arndt might have an interest in the profits without being
an actual partner."
"To which charge the defendant then and there duly excepted, and
the said exception was then and there duly noted and allowed."
"The court charged the jury as follows:"
" If you find from the evidence that up to the time of the fire
it was not the intention of the plaintiffs and Arndt to become
partners, but that it was their intention to organize a corporation
of which they should be members and stockholders, and that the
goods and property of the plaintiffs should be transferred to said
corporation when organized, and they should take stock in said
corporation to the extent of the ascertained value thereof, and
that Arndt should take stock in said corporation to the extent of
ten thousand
Page 116 U. S. 464
dollars contributed by him, and that no change should take place
in the name or character of the firm of Drennen, Starr &
Everett until such corporation should be organized, then the
defense fails, and the plaintiffs are entitled to a verdict for the
full amount of the policies, with interest, as claimed in the
complaint. That is another way of putting it, that if there was no
partnership -- that is, if Arndt was not taken in as a partner --
then the plaintiffs are entitled to recover."
"To which charge the defendant then and there duly excepted, and
the exception was then and there duly noted and allowed."
"The court charged the jury as follows:"
" If you find from the evidence that said Arndt was to be a
participant in the profits realized from the business of the
plaintiffs, to a certain extent from January 1st, 1883, this would
not necessarily constitute him a partner in or joint owner of the
goods and property of the plaintiffs insured by these policies. He
might have an interest in such profits without having any joint
title or interest with the plaintiffs in the ownership of their
goods."
"To which charge the defendant then and there duly excepted and
said exception was then and there duly noted and allowed."
"The court charged the jury as follows:"
" If you find from the evidence that the plaintiffs, in
consideration of Arndt's paying in $10,000 with interest thereon
from January 1st, 1883, in advance of the formation of the
contemplated corporation, agreed that he should receive a
proportionate share of the profits of their business from said
January 1st to the formation of said contemplated corporation, that
fact would not have the effect to assign or transfer to him any
title or interest in the insured goods or property of the
plaintiffs in the absence of any agreement to that effect."
"To which charge the defendant then and there duly excepted, and
the exception was then and there duly noted and allowed."
"The court charged the jury as follows:"
" The defendant is entitled to contradict or vary the written
contract of May 24, 1883, by parol evidence, and the parol evidence
which has been received may be considered by you and is competent.
And if you find from it that, contemporaneous with the making of
the written contract of May 24th, the plaintiffs entered
Page 116 U. S. 465
into a verbal contract with Mr. Arndt for a present partnership,
you are not precluded from finding that fact because of said
written contract. "
Page 116 U. S. 468
MR. JUSTICE HARLAN delivered the opinion of the Court.
This case has been once before in this Court.
Drennen v.
London Assurance Co., 113 U. S. 51. It is
an action upon two policies of fire insurance executed March 10,
1883, and covering certain goods, wares, and merchandise belonging
to the firm of Drennen, Starr & Everett. Each policy contains
the following provisions:
"If the property be sold or transferred, or any change takes
place in title or possession (except by succession by reason of the
death of the insured), whether by legal process, or judicial
decree, or voluntary transfer or conveyance, . . . then, and in
every such case, this policy shall be void. . . . If the interest
of the assured in the property be any other than the entire,
unconditional, and sole ownership of the property for the use and
benefit of the assured, . . . it must be so represented to the
corporation, and so expressed in the written part of this policy,
otherwise the policy shall be void. When property has been sold or
delivered or otherwise disposed of, so that all interest or
liability on the part of the assured herein named has ceased, this
insurance on such property shall immediately terminate."
The insurer contends that after the execution of the policies
and before the loss of July 29, 1883, there was, by the
Page 116 U. S. 469
voluntary act of the insured, a sale or transfer of the property
or such a change in title or possession as rendered the policies,
by their terms, void. This defense rests entirely upon the claim
that prior to the loss one Arndt was admitted as a partner in the
firm of Drennen, Starr & Everett. The plaintiffs deny that he
ever became a partner with them or ever acquired any interest in
the property insured. Upon the record as it was at the former
hearing, that question depended mainly upon the construction of the
written agreement of May 24, 1883, which is given in full in
113 U. S. 113
U.S. 52, whereby the insured agreed to receive Arndt "into their
business" upon certain terms and conditions, among which are the
following: that the company should be incorporated; that Arndt
should pay into the firm for its use, on or before June 14, 1883,
the sum of $5,000, and a like sum on or before January 1, 1885, the
latter amount, until paid, to be evidenced by his promissory note,
dated January 1, 1883, and each payment to bear interest at eight
percent from the date last named; that the business "to be carried
on by the new company to be formed," the name of which was to be
thereafter determined, should be of the same nature as that then
conduct by Drennen Starr & Everett, and that "no change in the
name or character" of that firm "shall be made until said
corporation shall be formed." Arndt paid to the firm, on the 18th
of June, 1883, the sum of $5,000, and executed on the 3d of July of
the same year the required note for a like amount, the money and
note being entered to his individual credit on the books of
Drennen, Starr & Everett. Upon this state of facts, this Court,
reversing the judgment rendered for the insurer, said:
"The instruction by the court below proceeded upon the ground
that the payment by Arndt in cash and notes of the amount which he
agreed to pay, and their receipt and entry upon the books of the
firm to his credit, gave him an interest as partner in the
business, whereas such facts only established the performance of
some, not of all, the conditions prescribed, for by the agreement,
the formation of the proposed corporation was expressly made a
condition, with the others named, to Arndt's becoming interested in
the business. In our judgment, looking at the
Page 116 U. S. 470
whole agreement, the parties did not contemplate a partnership,
and none was ever established between them. The agreement looked
only to a corporation, the payment and other things specified being
in preparation for its ultimate formation, which was an adequate,
as its was the actual, consideration; consequently there was, prior
to the loss and under the most liberal interpretation of the
policies, no change in the title or possession of the property, nor
any transfer thereof, that avoided the policies."
At the last trial, there was evidence to the effect that Arndt,
after paying the $5,000 in cash and executing his note for the same
amount, became entitled, by agreement with the insured, to
participate in the profits of their business from January 1, 1883,
he paying interest on these amounts from that date, and there was
some slight proof that Drennen upon one occasion spoke of Arndt as
a member of his firm.
On behalf of the insured it is contended that even if Arndt had
become a partner in their firm, the policy would cover their
interest in the property. This results, it is claimed, from that
clause in the policy providing for the termination of the insurance
if the property be sold or delivered or otherwise disposed of, "so
that all interest or liability on the part of the insured herein
named has ceased." We deem it unnecessary to consider this question
because the case can be satisfactorily determined upon other
grounds. In view of all the evidence, the court, when delivering
its charge, might well have assumed that there was no purpose on
the part of the insured or of Arndt that the latter should have
such an interest in the property as would belong to a partner. The
court therefore rightfully refused to instruct the jury that upon
the undisputed evidence, Arndt became a partner in the firm of
Drennen, Starr & Everett. Such an instruction could not have
been given without disregarding the interpretation which this Court
at the former hearing gave to the written agreement of May 24,
1883, for it was then said that the parties, by that agreement,
appeared
ex industria to have excluded the possibility of
Arndt's acquiring an interest in or any control of the insured
property in advance of the formation of an incorporated
company.
Page 116 U. S. 471
That interpretation was not affected by the fact that Arndt paid
$5,000 in cash and gave his note for a like amount, for, as
heretofore said, those acts were simply in execution of the
agreement and in preparation for the ultimate formation of the
proposed corporation, and were not, as the court below properly
decided, evidence of a partnership. The payment of the money and
the execution of the note were plainly required by the agreement,
and the purpose of both acts is to be ascertained from its
provisions.
The main ground upon which the defendant at the last trial
claimed exemption from liability on the policies is indicated in
two of its requests for instructions to the jury: 1, that
"if it was not the understanding that Arndt became a lender of
money, and if it was the understanding between the parties that the
amount of his investment was to be risked in their business and
became part of the capital stock, and he was to have a share of the
net profits, he is not a mere lender, but a partner;"
2, that
"when a person contributes a portion of the common capital
stock, which is mingled with the contributions of other parties,
and the whole is managed for the joint interests of those who
contribute, the contributors each having a share of the net profits
of the business, they become thereby partners as between themselves
in the capital stock or property of the concern."
We are of opinion that the court did not err in declining to so
instruct the jury. The question is not whether Arndt, by reason of
his participation in the profits of the business of Drennen, Starr
& Everett, could have been charged at the suit of creditors as
a partner in that firm. The inquiry is whether the insured, after
the execution of the policies and before the loss, sold or
transferred the property covered by the policies, or whether there
occurred during that period any change in title or possession. If
there had been a sale or transfer of the entire property to one who
had no interest in it, nor any right to control it at the time the
contract of insurance was made, there would undoubtedly have been
such a change in the title as to render the policies void, and for
the purposes of the present case it may be conceded that such would
have been the result
Page 116 U. S. 472
had Arndt become a partner in the firm of Drennen, Starr &
Everett. But the sale or transfer to which the policies refer was
one that would pass an interest in the property itself. Mere
participation in profits would give no such interest contrary to
the real intention of the parties. Persons cannot be made to assume
the relation of partners, as between themselves when their purpose
is that no partnership shall exist. There is no reason why they may
not enter into an agreement whereby one of them shall participate
in the profits arising from the management of particular property
without his becoming a partner with the others or without his
acquiring an interest in the property itself so as to effect a
change of title. As the charge to the jury was in accordance with
these principles, and as the evidence conclusively showed that
Arndt did not, prior to the loss, acquire an interest in, or any
control of, the property insured, but was only entitled to
participate in the profits arising from its management after a
named date, there is no reason to disturb the judgment. It is
therefore
Affirmed.
