ROSENBERGER v. HERBST
210 Pa.Super. 127, 232 A2D
634 (1967)
HOFFMAN, JUDGE. On January 1, 1957, defendant Julius Herbst and one
Eugene Parzych entered into a formal agreement relating to the operation of a
farm owned by Herbst, located in Bucks County. The agreement, which
is long and complex, recites Herbst's contribution of certain assets,
principally the use and occupancy of the farm. It further acknowledges
Parzych's indebtedness to Herbst in the amount of $6000, repayable with
interest of five per cent per annum.
The actual farming operation is stated to be "under the full
control of Parzych." Herbst is entitled to receive one-half of the net
profits, and is bound to indemnify Parzych for one-half of any losses
sustained. In a key paragraph, the agreement recites:
Since any remuneration due hereunder to Herbst is a payment in return
for his investment in the business and his capital contribution thereto, as
well as in return for his leasing the Herbst Farm to Parzych without further
rental payments, the parties do not intend by this agreement to establish a
partnership of any kind or type, but rather [a relation] of Debtor and Creditor
and Landlord and Tenant. [Emphasis supplied.]
Between February, 1957 and June, 1960, the plaintiffs, trading as "Clover
Leaf Mill" (hereinafter "Clover Leaf') sold and delivered to Parzych
large quantities of grain, feed, and fertilizer for use on the farm.
In July of 1961, Clover Leaf, for the first time, formally demanded
payment from defendant Herbst for certain debts contracted by Parzych in
connection with farming operations. Herbst disclaimed all liability, and this
suit followed.
The court below focused exclusively on the Herbst-Parzych agreement.
Concluding that the agreement constituted the two parties partners, in spite of
the disclaimer clause noted above, the court directed a verdict in favor of
plaintiff Clover Leaf. The defendant now appeals.
The Uniform Partnership Act of March 26, 1915, P.L. 18, S 7, 59 P.S. 5
12, states the rule which governs this case: "(1) Except as provided in
section sixteen [Partner by estoppel, persons who are not partners as to each
other are not partners as to third persons."
Two questions are therefore before us. First, did the agreement signed
by Herbst and Parzych create a partnership inter se? Second, if it did not, is
Herbst chargeable with liability as a partner, to this plaintiff, by virtue of
his conduct?
The court below noted that the contractual relation between Herbst and
Parzych had many of the ordinary incidents of partnership. Thus, in the words
of the trial judge, the agreement provided for "the division of net
profits and the sharing of losses" as well as for "a bank account on
which both parties [could] draw . . . for the business operation of the
farm."
Relying on the above indicia of partnership, and on a number of cases
decided before the passage of the
Uniform Partnership Act, supra, the lower court concluded that the
parties were partners inter se.
In relying on the profit-sharing provision of the
Herbst-Parzych agreement, the lower court clearly erred. The Uniform
Partnership Act, Supra, 59 P.S. 5 12(4), specifically provides:
The receipt by a person of a share of the 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) As a debt by
installment or otherwise, (b) As . . . rent to a landlord . . . (d) As interest
on a loan, though the amount of payment vary with the profits of the business. .
. .
As previously noted, Parzych's indebtedness to Herbst was to be repaid
from the proceeds of the farming
operation. Furthermore, the agreement specifically provided that
Herbst's remuneration was to be considered "a payment . . . in return for
his leasing the . . . Farm to Parzych without further rental payments. . .
." Accordingly, no inference of partnership may be drawn from Herbst's
receipt of a fractional share of the proceeds of the farming operation.
The construction of this contract must, ultimately, be
determined by reference to the intent of the parties.
Paragraph Nine of the agreement clearly states that ". . . the
parties do not intend to establish a partnership of any kind or type. . .
." Our Supreme Court has held: "[W]here [the parties] expressly
declare that they are not partners this settles the question, for, whatever
their obligations may be as to third persons, the law permits them to agree
upon their legal status and relations [as between themselves]." In light
of the parties' express statement of intention, coupled with the inconclusive
nature of the remainder of the agreement, we hold that defendant Herbst and
Eugene Parzych were not partners inter se.
If the plaintiff seeks to charge defendant Herbst with liability as a
partner under 5 16 of the Act, 59 P.S. 538, it is his burden to show that the
defendant's conduct gave rise to an estoppel. Not only did the plaintiff make
no such attempt in the court below, but, in his brief on appeal, he states:
"The question of partnership by estoppel was not argued in the lower court
and does not require comment." We would be justified in treating this
statement as a confession. Since the plaintiff may have misconceived his own
position, however, we shall discuss the point briefly.
There is testimony in the record that Parzych represented himself as
Herbst's partner to Clover Leaf, at some unspecified date, and that Clover Leaf
allegedly relied on Herbst's credit, for some unspecified period of time. There
is nothing in the record, however, to suggest that Herbst, himself, by words
spoken or written or by conduct, ever made or consented to such a
representation. Parzych's unauthorized statement, without more, cannot give
rise to an estoppel against Herbst.
We conclude. therefore, that defendant Herbst was not estopped to deny
liability as a partner for the debts
contracted by Eugene Parzych. Since he and Parzych were not, in fact,
partners, the judgment of the court below cannot stand.
Judgment reversed and entered for defendant.