Sangston v. Hack

Miller, J., delivered the opinion of the Court. By the will of James A. Sangston, who died in April, 1851, the testator appointed his brothers, George E. Sangston and Lawrence Sangston, his executors, and directed them to invest and hold all his estate in trust for the benefit of his two children, with certain limitations over in favor principally of his grandchildren. The executors took out letters of administration upon his estate, and thereby accepted the trusts created and imposed upon them by the will. Hanson and Wife vs. Worthington, 12 Md., 418 .

They then returned to the Orphans’ Court an inventory of the personal property, consisting chiefly of household furniture, appraised at $1622.85, and the inventory then states that: “ In addition to the above the deceased had an interest in the firm of Sangston & Co., not ascertained " At the time of the death of the testator, and since the 1st of August, 1843, the three brothers, James, George and Lawrence, were and had been partners in the commercial firm of Sangston & Co., which carried on the wholesale dry goods business in the City of Baltimore. All the estate of the testator seems to have consisted of the furniture above mentioned and his interest in the partnership property, real and personal, belonging to ¹⁸⁸ this firm. The estate was never settled up hy the executors in the Orphans’ Court, and on the 16th of June, 1869, more than eighteen years after the testator’s death, the bill in this case was filed by his two children and his grandchildren, beneficiaries under his will, against these executors and trustees for an account. It is not necessary to state at length the averments of this bill or of the answer thereto.

Nor shall we stop now to consider and notice in detail the proceedings in the cause prior to the decree for an account. It is sufficient to say that lapse of time and laches have not been relied on in the argument before us, and, in view of the relation in which the parties stood to each other, could not be relied on as an absolute bar to the accounting. The liability to account was conceded by the defendants’ counsel, and the whole difficulty in the case relates to the ascertainment by the account of the testator’s interest in this firm. And as to this many questions have arisen and have been argued with great earnestness and ability.

The record is quite voluminous and yet it does not contain some of the exhibits, balance sheets and statements referred to by the witnesses, which might have aided us in reaching proper conclusions on many of the minor points presented hy the numerous exceptions taken by both parties to the auditor’s accounts. Again the auditor, instead of stating the accounts in the mode usually adopted in equity cases, and with which the Court is familiar, has reached results by a series, of schedules or accounts, made out in the mode and on the principles adopted hy professional and expert book-keeping accountants, and this we have found has not diminished the labor attending our investigations. These difficulties were suggested to counsel during the argument, and they then expressed the desire that we should confine ourselves to the decision of certain prominent and controlling questions, and assured us that when these were decided it would not he difficult to re-state the accounts and adjust ¹⁸⁹ the rights and liabilities of the parties. But apart from this request and assent of counsel, a careful examination of the record has convinced us that this is the only satisfactory mode of now dealing with the case, and we shall accordingly so dispose of it. 1st.

The question first in order, if not in importance, is, were the “ Partnership Articles,” under which the partnership between these three brothers was originally formed, in force at the death of James, in 1851 ? These Articles were signed on the 1st of August, 1843, and by their terms the co-partnership thus formed was to continue for the term of three years, unless sooner dissolved by mutual consent. At the expiration of this period, viz., on the 1st of August, 1846, the same three parties by an agreement in writing appended to the articles, agreed “to continue the aforegoing co-partner ship for two years from this date, subject to a charge of twelve per cent, of the net profits to Isaac J. Pollard, in lieu of the salary heretofore allowed him.” It is very plain that by this agreement the partnership under the Articles was expressly continued for two years. At the expiration of this period Pollard left, and the partnership was continued and the business conducted by the three brothers until the death of James, a period of nearly three years, without any further written agreement between them.

This is not an unusual occurrence. It frequently happens that a partnership formed under Articles and limited as to time is silently continued after the expiration of the period originally prescribed for its duration, and the business is carried on by the same parties in much the same way with no new Articles and no formal renewal of the old ones. The question then arises under what terms does the law regard the continued partnership to be conducted P “ This question,” says Judge Story (Story on Partnership, sec. 219) “ does not perhaps admit of any uniform or universal answer. It may be affected by various considerations ; by ¹⁹⁰ the acts of the parties ; by the habits and changes of their business; by implications from their omission to act upon certain terms of the original contract and from apparent qualification and exceptions and restrictions of others, in their dealings and settlements with each other or even with third persons.

But in the absence of all acts and circumstances whatsoever to control or vary the original terms, the just legal conclusion seems to be, that the partnership is to be treated as a mere partnership during the joint will and pleasure of all the parties, and therefore dissoluble at the will of any one of them, but that in all other respects it is to be carried on upon the original terms thereof as to rights, duties, interest, liabilities, and shares of the profits and losses.” And in another part of the same treatise (secs. 197,198,) where the effect of the continuation of a partnership, after the expiration of the original term, without new Articles, is also considered, it is said, “the habits of the trade, and the conduct of the parties may often establish the fact satisfactorily, that some of the Articles have been practically waived, or abrogated, or qualified, while others are necessarily implied as being in full force and operation. In such cases the presumption of the actual state of the partnership contract will necessarily vary with the circumstances, and be governed by them and not govern them.” In Parsons on Partnership, 289, 240, the learned author in treating of the same question, says the answer to it “ must depend mainly on the conduct of the parties. If they go on precisely as before,- or in such a way as to indicate no intentional departure from such a course, the former Articles would have much influence in determining the terms of their present association, and probably their provisions would be held to be those of the present partnership excepting such, if any there were, as were plainly inapplicable to the present state of things. On the other hand, if the firm varied, or departed from these provisions, ¹⁹¹ or appeared to adopt new ones, they would be considered as making so far a different bargain from the old one,” but he adds that the renewal of the limitation of time will seldom be presumed from acts or sustained by the law as part of the new bargain on any thing less than proof that the parties had expressly so agreed.

The same general rule is also to be found in most of the text books on the Law of Partnership, and it is very clearly and succinctly stated in Lindley on Partnership, 678, thus: “ If a partnership originally entered into for a definite time is continued after the expiration of that time without any new agreement, the Articles under which the partnership was first carried on, continue, so far as they are applicable to a partnership at will, to regulate the rights and obligations of the partners inter se.” The authorities which these authors cite as establishing the doctrine clearly sustain it, though the instances in which the question has been directly presented for adjudication are comparatively few. The cases in which it has been most clearly recognized or expressly determined are Crayshaw vs. Collins, 15 Ves., 228; Booth vs. Parks, 1 Molloy, 466; United States Bank vs. Binney, 5 Mason, 185 ; Mifflin vs. Smith, 17 Sergt. & Rawle, 165, and Bradley vs. Chamberlin, 16 Verm., 613 . The rule as thus stated is not only a convenient, but an equitable and reasonable one, and in our judgment its application, for the purposes of justice in this case, is almost indispensable. It must, therefore, be applied, unless some well founded and unanswerable objection is encountered.

The complainants’ counsel has argued that the doctrine applies only in cases where one and the same firm has been continued by the same partners, and that here the intervention of Pollard in 1846 made a new firm, which was dissolved by his retirement in 1848, and that the firm thereafter continued was also in law a new firm. In other words the argument is, that the continuity of the original partnership was broken by a succession of new ¹⁹² firms, and therefore the presumption of the continuance of the partnership Articles fails. It is however a matter of great doubt whether' Pollard ever became a partner with the Sangstons. The question relates of course to a partnership inter sese and not as to third parties.

It is often very difficult to decide whether two or more persons are partners as to each other. The rule is that it is a matter to he determined by the intention of the parties as the same is expressed in the words of their contract, or to be gathered from their acts and all the circumstances which are available for the interpretation of the contract. Parsons on Part., 58; Potter vs. Kerr, 6 Gill, 404 ; Bull vs. Schuberth, 2 Md., 38 . Previous to the 1st of August, 1846, Pollard had been a cleric in the employ of the firm, and he did not sign the agreement of that date as he naturally would if the purpose had been to admit him as a partner.

The Sangstons alone sign it and they thereby agree to continue the previous partnership for two years, “ subject to a charge of twelve per cent, of the net profits to Pollard in lieu of the salary heretofore ailoioed him." This plainly means that instead of the fixed salary which they had before allowed him for his services as cleric, the Sangstons, whilst continuing their own partnership, agreed that Pollard should for two years receive twelve per cent, of the net profits of the business, as compensation for his services during that period. It is very clear that this did not make him a partner, for where a per centage of profits is adopted simply as a mode of measuring the amount of wages, salary or remuneration, the fact that it Í3 made contingent upon profits does not create a partnership. Lindley on Part., 15. In the case of Bull vs. Schuberth, ( 2 Md., 56 ,) this Court held that the mere fact that remuneration was to depend on the contingency of profits, does not of itself create a partnership, because that is not an uncommon mode of paying agents and servants, and in Crawford vs. Austin, 34 Md., 49 , it was decided that an agreement by ¹⁹³ a firm to pay a party one-third of the profits of the business, as compensation for his services as a salesman did not make him a partner.

Nor is the case helped by the agreement dated the 17th of April, 1851, endorsed on the Articles and signed by George and Lawrence Sangston, for that simply recites that Pollard’s interest of twelve per cent, had ceased by his withdrawal on the 1st of August, 1848, and that the parties signing had on that day purchased that interest, which means that they had paid or settled with him for his twelve per cent, of the net profits during the two years. There would he no-difficulty in holding that he was not a partner, were it not for the admission in the answer (which however is by no means explicit on the subject,) and the testimony of Pollard himself which was introduced by the defendants, and in which he says he was a partner. But assuming that this admission and testimony are sufficient to warrant a different construction of the contract, we are still of opinion that his connection with the firm under the circumstances stated, did not prevent the continued operation of the partnership Articles as between the Sangs-tons after his withdrawal. We have found no authority to that effect, and we are not disposed to make a precedent in that direction.

Again, a clause in the will of James A. Sangston which was executed in December, 1849, is relied on to show that he did not then regard the Articles as in force. One of the conditions of the Articles is, that if either of the parties should die before the first of February or of August, the partnership should continue until the first days of those months respectively, as the case might be, when the business shall cease, and the survivors shall then have the privilege of taking the stock of goods then on hand at an appraisement to be made by duly sworn appraisers, and to continue the business on their own account. A provision like this for the continuance of the partnership after ¹⁹⁴ the death of a partner for a short period until the close of the respective business seasons of the year, is neither unreasonable nor unusual in partnership Articles. The agreement of the 17th of April, which was evidently made by the surviving partners after the death of James in that month, seems to have been executed by them for the very purpose of carrying out this condition and providing for a continuance of the partnership under the Articles until the 1st of August following.

By his will the testator directs that for three years after, and dating from his decease, his portion of the capital should remain, in the firm, the surviving partners paying him interest for the use thereof, and at the' end of these three years, the principal to he paid to his executors, and he adds that he does this for the convenience of the firm and not as a continuation of his interest or share therein, or as entitling his heirs or representatives to a participation in the profits, or as subjecting them to liability for losses during that time. Now we cannot think that in thus allowing his surviving brothers and partners the use of his capital for three years, he had in view or intended to interfere with the continuance of the partnership for the short period after his death provided for in the Articles. The whole scope and tenor of this clause of the will as well as the purpose it was manifestly intended to subserve