Story Case

Albert Sherman desired to rent a hotel which he owned, so that he could be relieved of personal responsibility in the business. As he was not successful in leasing it for a cash rental, he entered into a contract with Henry Mead, an experienced manager, giving him the control of the hotel. In this contract which the parties called a lease, Mead agreed to assume control of the hotel, to devote all of his time to its management, and to give Sherman one-half of the profits of the business. Sherman agreed to advise and aid in its direction, when he was in town, and consented to allow Mead to be considered as a one-half owner of the business. Mead, however, agreed to assume all the losses, if there were any, and not to incur any liabilities in Sherman's name. The hotel was conducted under the name Union Depot Hotel. After the business was carried on by Mead for a year, he became insolvent, and the creditors of the hotel looked to Sherman personally, as a partner, for their money. Can they hold Sherman, on the theory that a partnership existed between himself and Mead?

Ruling Court Case. Beecher Vs. Bush, Volume 7 Northwestern Reports, Page 785; Same Case, Volume 40 American Reports, Page 465

Beecher was the owner of a hotel, which he leased to Williams. It was agreed between the parties that Beecher was to receive each day a sum equal to one-third of the gross receipts and gross earnings. While conducting the hotel, Williams incurred certain debts which he was unable to pay. Bush, one of William's creditors, brought this action against Beecher, seeking to charge him as a partner of Williams, and, therefore, liable for the debts contracted by the latter while conducting the hotel.

Decision

Beecher and Wiliams never became partners in the hotel business; they sustained, to each other, merely the relation of landlord and tenant. The right of Beecher to a part of the profits did not arise by virtue of any partnership relation existing between them, but was his, as rent for the premises which he had leased to Williams. The Court, through Mr. Justice Cooley, said in part: "Except where one allows the public or individual dealers to be deceived by the appearance of partnership where none exists, he is never to be charged as a partner, unless by contract and with intent he has formed a relation in which the elements of partnership are to be found. And what are these? At the very least the following: Community of interest in some lawful commerce or business, for the conduct of which the parties are mutually principals of and agents for each other, with general powers within the scope of the business, which powers, however, by agreement between the parties themselves, may be restricted at option, to the extent even of making one the sole agent of the others and of the business."

Ruling Law. Story Case Answer

It not infrequently happens that an owner of a building or other property will engage another to manage and control the property; the owner may reserve to himself the right to control in certain ways for his own protection; and he may stipulate that he is to receive a certain part of the profits derived from the management of the property. Under these circumstances, the question often arises as to whether the parties are partners engaged in business; or whether they sustain to each other merely the relation of landlord and tenant. This question cannot be settled by any arbitrary set of rules; it is purely a question of intention. The mere fact that the owner of the property stipulated for a part of the profits, though incidental to a partnership, is not conclusive. In the relation of landlord and tenant, neither has any implied power from the relation to act as agent for the other, which is true as between partners, in the absence of a contrary understanding. In the former case, the disposition of the profits and the assumption of losses depend upon their agreement; in the latter case, it is understood from the relation that the partners share both equally, unless they agree to the contrary.

In the Story Case, Mead and Sherman were partners in the business, although they called the contract between themselves a lease. They were partners because they were to share in the profits of a business in which each of them owned an interest. Had Sherman not agreed to take an active part, and to let Mead be considered as an owner of one-half the hotel, then a community of interest would have been lacking and a partnership relation would not have existed. Of course, Mead's power was limited, and there was an understanding that he should share all the loss, but this sort of an arrangement partners can always make with each other.