Garner v. Garner

Gilbert, J., delivered the opinion of the Court. On January 13, 1975, Jon H. Garner (Jon) sued his brother, James H. Garner (James), in the Circuit Court for Garrett County in assumpsit. The suit alleged that Jon had loaned James the sum of $6,910, but, despite demand for repayment, James refused to repay the monies. The declaration, on its face, recited that all the sums loaned by Jon to James had been turned over to James no later than August, 1971.

James responded to Jon’s averments, by raising the applicable general plea, a special plea of limitations and a further special plea that the brothers “ . . . were engaged in a partnership . . . from June, 1971, until September, 1974, and that one partner may not sue another partner in a Court of Law.” At a non-jury trial before Judge Stuart F. Hamill, Jon prevailed in his claim and judgment was entered against James in the amount of $6,910. James has appealed, and he attacks the judgment asserting that the trial judge erred because (1) the evidence established th.e existence of a partnership between the two litigating brothers, and (2) alternatively, that if there were no partnership then the Statute of Limitations was a complete bar to recovery. For the reasons stated infra, we think James to be wrong on both issues, and we shall, therefore, affirm the judgment of the circuit court. The record shows that prior to 1971, James had established himself as an electrical contractor in Garrett County.

Sometime in the early part of 1971, James had conversations with his brother, Jon, a plumber, concerning the creation of a partnership. According to Jon, he was to contribute $8,000 to the venture in exchange for an 8% interest in the business. There was, however, a condition precedent that the brothers would work together for a while ⁶⁴³ before finalizing the partnership, apparently in order to see how the two would get along. Jon, believing that he could demand and get the return of his money at any time before the actual creation of the partnership, advanced to James $1,506.47 on or about May 29, 1971, $4,000 on June 12, 1971, and $1,403.53 on August 4, 1971.

In addition, Jon transferred ownership of a truck to James, thus completing the payment of $8,000. The business was then operated as “Garner and Garner Electrical and Plumbing Contractors.” All trader’s licenses were in James’s name. A back-hoe was purchased by James, although Jon, his wife, and James’s wife were all required to endorse a security instrument so as to assure repayment to the bank that had advanced the purchase price for the back-hoe. No partnership tax return was ever filed, and during the time in question, Jon was carried on the books as an employee of James or as a subcontractor.

An Internal Revenue Service Form W-2 for 1972 clearly showed that Jon was employed by James during that year and was paid $7,594.38 in wages. Each Garner wrote an agreement of partnership in his own hand. Neither, however, signed the “agreement” he had written or that written by his brother. 1 The agreements are ⁶⁴⁴ undated, but there was testimony that they were written in late 1971 or early 1972. A formal partnership agreement was drafted and it was signed by Jon in 1973. 2 James did not sign the agreement.

James testified that he considered his brother and himself partners. He explained that for tax reasons no partnership return was filed, and his brother was carried as an employee or, sometimes, as a subcontractor. James pointed to the firm name and its listing in the telephone book as evidence of the partnership’s existence. Judge Hamill found the existence of a condition precedent to the creation of the partnership, and that there had been no fulfillment of the condition.

Consequently, he ruled that a partnership never existed. The judge further ⁶⁴⁵ found that the monies were advanced by Jon to James subject to the condition, and they must be considered as a loan. The judge said that the loan was “. . . predicated on the future formation of a partnership which was not consummated because of the conduct of James.” Implicitly, the judge held that limitations did not begin to run against Jon until James’s declination to enter into a partnership became manifest. James asserts that [t]he business was advertised as Garner and Garner in the phone directory . . . ”, on letterheads, and it appeared on insurance policies.

This, he contends, is evidence that “[t]he parties conducted themselves as if they were a partnership and that was their intention.” James’s argument would have validity if we were here dealing with a third party’s claim against an ostensible partnership rather than a suit between the two brothers, one seeking to show a partnership and the other denying its existence. In Myers v. Aragona, 21 Md. App. 45 , 318 A. 2d 263 (1974), we discussed the use of a firm name on letterheads as suggesting to a third party that a partnership existed. We determined that such evidence was sufficient to create a partnership by estoppel. 21 Md. App. at 55 . See also McBriety v. Phillips, 180 Md. 569 , 26 A. 2d 400 (1942); Blaustein v. Oldfield, 135 Md. 162 , 108 A. 485 (1919); Md. Ann. Code, Corporations and Associations Art. § 9-308.

The case sub judice, however, is not between third persons and a purported partnership, but rather between two parties advancing opposite views as to whether a partnership between them existed. As between the parties, a partnership is a matter of intention proven by their expressed agreement or inferred from either person’s actions or conduct. M. Lit, Inc. v. Berger, 225 Md. 241 , 170 A. 2d 303 (1961); Cohen v. Orlove, 190 Md. 237 , 57 A. 2d 810 (1948); Morgart v. Smouse, 103 Md. 463 , 63 A. 1070 (1906). The burden of proving the existence of a partnership rests upon the party alleging it.

M. Lit, Inc. v. Berger, supra; Miller v. Salabes, 225 Md. 53 , 169 A. 2d 671 (1961): Beard v. Beard, 185 Md. 178 , 44 A. 2d ⁶⁴⁶ 469 (1945); Collier v. Collier, 182 Md. 82 , 32 A. 2d 469 (1943); McBriety v. Phillips, supra. At the time the Garner brothers commenced doing business together, . whether as employee-employer, contractor-subcontractor, or partners, the partnership law of Maryland was codified in Md. Ann. Code art. 73A. 3 Article 73A, § 6 (1), defined a partnership as: “ . . . [A]n association of two or more persons to carry on as co-owners a business for profit.”! 4 ! The Uniform Act established specified rules to be used in ascertaining the existence, vel non, of a partnership. Md. Ann. Code art. 73A, § 7, then provided: “In determining whether a partnership exists, these rules shall apply: (1) Except as provided by § 16 persons who are not partners as to each other are not partners as to third persons.! 5 !

(2) Joint tenancy, tenancy in common, tenancy by the entireties, joint property, common property, or part ownership does not of itself establish a partnership, whether such co-owners do or do not share any profits made by the use of the property. (3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived. (4) The receipt by a person of a share of the ⁶⁴⁷ profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment: (a) Asa debt by installments or otherwise, (b) As wages of an employee or rent to a landlord, (c) As an annuity to a widow or representative of a deceased partner, (d) As interest on a loan, though the amount of payment vary with the profits of the business, (e) As the consideration for the sale of the good will of a business or other property by installments or otherwise.” 6 The Court of Appeals has held that a written agreement is not necessary in order to create a partnership. Gosman v. Gosman, 271 Md. 514 , 318 A. 2d 821 (1974), rev’g in part and affg in part 19 Md. App. 66 , 309 A. 2d 34 (1973); Presutti v. Presutti, 270 Md. 193 , 310 A. 2d 791 (1973), M. Lit, Inc. v. Berger, supra.

A similar conclusion was reached by Judge Winter in In re Hare, 205 F. Supp. 881, 884-85 (D. Md. 1962). This principle applies whether we speak of a partnership inter sese or a partnership as to third parties which, as we have seen, arises by operation of law. Waring v. National Marine Bank, 74 Md. 278 , 22 A. 140 (1891); Bull v. Schuberth, 2 Md. 38 (1852); Myers v. Aragona, supra. A partnership inter sese cannot exist against the consent and intention of the parties, and their intention must be gleaned from proof in the case.

Southern Can Co. v. Sayler, 152 Md. 303 , 136 A. 624 (1927); Waring v. National Marine Bank, supra. ⁶⁴⁸ The Court in Southern Can Co. v. Sayler, supra, discussed in depth the various tests that have been applied by courts in order to determine the existence or non-existence of a partnership, noting that the test most often applied in Maryland in cases arising out of a dispute between parties alleged to be partners is the intention of the parties. The test of intention, the Court opined, “ . . . logically should be given great weight.” 152 Md. at 316 . After the conclusion of the testimony and argument of counsel in the case now before us, Judge Hamill stated: “In this case, we have a certain written agreement of the parties, I don’t believe either one of them are signed, but it’s their individual writings and they both admit that this was their own writing .... This agreement is certainly in itself too vague and too inconclusive to form a partnership.

While the operations of these two individuals has some attributes of a partnership, I’m of the opinion that it is just entirely too vague and inconclusive for the court to construe this to be a partnership. Now, there is no doubt in my mind that they intended to form a partnership, and they worked together towards that end, but I do not believe that the partnership was ever