Opinion
No. 3445.
Decided February 1, 1944.
Where a written contract provided that the amount borrowed by the defendant and secured by mortgage should bear interest at 10 per cent per annum and that in addition thereto the defendant was required to pay at least $500 "in each and every year hereafter," the effect of the contract was to provide collateral security to subsist only as long as the obligation to repay the loan existed. Parol evidence is not admissible to show that common words, the meaning of a peculiar sense, were in fact so used. To constitute a joint adventure it is essential to establish a joint proprietary interest and a right of mutual control over the subject matter of the enterprise or over the property engaged therein. Under Massachusetts law, a joint adventure is not established by the mere fact that capital is furnished to finance an enterprise when the lender has no control over the enterprise, and although sharing in the profits is liable for no part of the losses.
BILL IN EQUITY, for temporary injunction and accounting. Hearing by the Court, Lorimer, J., who made the following findings:
"The defendant, Arthur Quint, was the owner of the Essex Yarn Company in Marlboro, N.H. and the owner of an interest of 198 out of 200 shares issued in the Medford-Marlboro Knit Gaiter Company, a New Hampshire corporation doing business in Marlboro, N.H. On June 25, 1940, Quint borrowed from his cousin, Dr. William Glaser of Boston, the sum of four thousand dollars, to be used in the Medford-Marlboro Knit Gaiter Company's business. Quint for himself as guarantor and on behalf of the Medford-Marlboro Knit Gaiter Company, on the same date entered into a written agreement with Glaser regarding the security and payment of the loan. . . .
"In the agreement Quint contracted to give Glaser a Promissory note for four thousand dollars, payable in three months, with interest at ten per cent, to be signed by Quint individually and as treasurer of the Medford-Marlboro Knit Gaiter Company, and to give chattel mortgages on properties of the Medford-Marlboro Knit Gaiter Company and the Essex Yarn Company as security and also to have assigned to Glaser a note and mortgage of $3,500. to the Keene National Bank, on which Quint was to pay the balance due of $500. from the proceeds of the loan from Mr. Glaser. Quint complied with these agreements.
"The condition in the note. . . is that the makers will pay Glaser the sum of four thousand dollars `subject to the terms and the conditions of agreement executed this June 25th, 1940 between said Medford-Marlboro Knit Gaiter Company, Arthur Quint and William Glaser.' . . .
"On July 10th, 1941, Quint paid Glaser by check the sum of $4,400, comprising the original loan of $4,000. and one year's interest at ten per cent of $400. Glaser signed the following endorsement on the check: `Payment mortgage notes and one year's interest of Essex Yarn Co. and Medford-Marlboro Knit Gaiter Co. to Dr. Wm. G. Glaser.'
"The issue raised in this case is whether Quint has fully complied with his agreement of June 25th, 1940, and this issue requires a construction of paragraph 1 (c) of the instrument. This paragraph reads as follows:
"`(c) The said Company further agrees to pay to said Mortgagee in further consideration of said financial assistance, not less than five hundred ($500) dollars, in quarterly payments of $125.00 each, from the date thereof, in each and every year hereafter, or a sum equal to ten (10%) per cent of the net profits arising out of the business of said Company, and in addition a sum equal to ten (10) per cent of the net profits arising out of the business of the Essex Yarn Co., owned by said Guarantor, but not less than $500.00 in each year to be paid as a minimum by said Company; and the said Mortgagee and his representative shall have the right at all reasonable times to have free access to the books of account, records, papers, and memoranda of every kind of said Company and said Essex Yarn Co., for the purpose of examining and inspecting the same to determine the net profits, if any, of said Company and Essex Yarn Co.'
"The petitioner claims that by reason of Paragraph 1 (c) the Medford-Marlboro Knit Gaiter Company must pay to Glaser during the entire existence of said company, in addition to the principal and interest on the note, ten per cent of the net profits of the Medford-Marlboro Knit Gaiter Company, and the Essex Yarn Company, and if ten per cent of the net profits of either company does not equal $500. annually, then the Medford-Marlboro Knit Gaiter Company shall pay in lieu of ten per cent of the net profits of such company the sum of $500.
"The Court finds that the intentions of the parties as incorporated in the agreement is not subject to the interpretation claimed by the petitioner. "Paragraph (c) with paragraphs (b) and (a) are subsections under the main title which reads as follows:
"`1. In consideration of the four thousand ($4,000) dollars to be loaned by the said Mortgagee to said Company, the said Company and the said Guarantor will give to the Mortgagee the following security:'
"These three paragraphs state the security to be given for the loan. It is fundamental, of course, that when the principal obligation is paid in full, the collateral security is no longer subject to the obligations of the loan. The parties must have recognized this principle when they executed the agreement. The security of Paragraph (c) would continue so long as the loan continued and when the loan was paid the security obligations provided by the agreement in Paragraph (c) terminated.
"The Court construes Paragraph (c) to mean that the Medford-Marlboro Knit Gaiter Company was to pay Glaser a minimum of $500. a year in quarterly payments of $125. so long as the obligation of $4,000. existed but if ten per cent of the combined net profits of the Medford-Marlboro Knit Gaiter Company and the Essex Yarn Company equaled more than $500. annually, then the Medford-Marlboro Knit Gaiter Company should pay such sum, with credit being given to the Medford-Marlboro Knit Gaiter Company for any quarterly payments of $125."
The petitioner excepted to the above and his exceptions were noted to all findings and rulings. A bill of exceptions was allowed and the case transferred. Further pertinent facts appear in the opinion.
Samuel A. Margolis and Maurice Palais (of Massachusetts), (Mr. Margolis orally), for the plaintiff.
Homer S. Bradley, Philip H. Faulkner and Arthur Siegel (of Massachusetts), (John E. Allen on the brief, Mr. Bradley orally), for the defendants.
The only issue argued is the construction of clause (c) in the agreement.
In addition to what appears in the Court's findings, we might add for further assistance in the discussion of the issue, the following portions of the agreement in question.
"AGREEMENT made this 25th day of June, 1940, between the Medford-Marlboro Knit Gaiter Co., a corporation organized under the laws of New Hampshire, with its usual place of business in Marlboro, New Hampshire, hereinafter referred to as the `Company', Arthur Quint, of Keene, New Hampshire, also doing business as Essex Yarn Co., in Marlboro, New Hampshire, hereinafter referred to as the `Guarantor', and William Glaser of Boston, Massachusetts, hereinafter referred to as the `Mortgagee', WITNESSETH:
"WHEREAS the said Company is desirous of borrowing the sum of four thousand ($4,000) dollars from said Mortgagee for the purpose of carrying on its business, in which Company the said Guarantor holds one hundred ninety-eight (198) shares, without par value, of the two hundred (200) shares, without par value, authorized and outstanding and who is also the Treasurer, Clerk and Director of said Company, and who is desirous of protecting his and the Company interest in carrying on and developing the business of said Company through the financial assistance which the said Mortgagee has agreed to render by making said loan of four thousand ($4,000) dollars;"
Sections (a) and (b) of the agreement refer to the loan and the security to be given therefor and the stipulations are given succinctly in the second and third paragraphs of the Court's findings.
That a written contract may not be explained, varied or contradicted by oral evidence is an elementary principle of law. "Parol evidence is not admissible to show that common words, the meaning of which is plain, and which do not appear from the context to have been used in a peculiar sense, were in fact so used." Goodwin v. Goodwin, 59 N.H. 548, 550. We construe the contract, in accordance with the ruling of the trial Court to the effect that it was a contract providing for the giving of collateral security to subsist only as long as the obligation existed. Once the loan was paid there was no longer any reason for the continuance of the security. And this applies not only to the principal amount loaned and interest to be paid thereon, but also to the bonus that went with it. This is the only sensible and reasonable meaning to be given to the language used. Plaintiff's claim that the payment of the bonus was to continue as long as the defendants remained in business is too preposterous to merit serious consideration. Having in mind that the contract was drawn by an attorney representing the plaintiff, there can be no question but that if the parties had contemplated any such intention as is now claimed by the plaintiff, adequate language would have been used to express clearly and definitely an agreement of such importance as this was to all parties concerned. In the absence of such language, neither defendant Quint (nor the average person) could have been expected to have understood that he was binding himself and his companies to the extent that he and his companies were obligated to pay the plaintiff a bonus of $500 so long as he and his companies did business, whether profitably or not. Such an agreement as is now being claimed to have been entered into demanded strong, clear and unequivocal expression. If, to use common parlance, plaintiff sought by the use of indefinite phraseology to put something over the defendants, he has failed miserably. We cannot subscribe to such an inequitable claim as that advanced by the plaintiff and we very readily join with the Presiding Justice in his findings and rulings, which we affirm in toto. Many valid and plausible reasons could be given therefor in addition to what is said by the Presiding Justice in his findings and rulings; we see no need of expounding them.
This should dispose of the case, but plaintiff now advances the claim (not set forth at the trial), that the agreement constituted a contract of joint adventure, and judging from his brief, apparently lays more stress on this than on the bonus issue, thus commanding attention and consideration.
The joint adventure concept, of modern origin (30 Am. Jur. 676) is closely allied with a partnership (Ib. 679), especially a limited one. "A joint proprietary interest and a right of mutual control over the subject-matter of the enterprise or over the property engaged therein is essential . . ." Ib. 682; and it is not enough to furnish the capital needed to finance the enterprise, even if the borrower is to pay the lender some share of the profits received, when the lender has no control over the enterprise and while sharing in the profits, is liable for no part of the losses. Ib. 688. All authority is to this effect. 33 C.J. 842, s. 4; 48 A.L.R. 1072; 63 A.L.R. 914, 919; 138 A.L.R. 976, 990.
The contract here is a Massachusetts contract, and the requirements for a joint adventure there are no more liberal than those generally established. The mere agreement to share in the profits of a business is not enough to create relationship, and the Massachusetts cases are definite against the plaintiff's position. In Estabrook v. Woods, 192 Mass. 499, 502, 503, the Court said: "When there is an arrangement between two persons that one of them shall receive a part of the profits of a business conducted by the other, the usual test to determine whether he is a partner, liable for debts, is to ascertain whether he has a share or interest in the profits as profits, or whether his interest in the profits is merely as a measure of his compensation for something that he does or furnishes under a contract . . . . For one to share in the profits as profits . . . he must have a proprietary interest in each dollar of profits as it is earned, so that he then has a right of possession or control of it for the purpose of retaining his share. This involves an ownership of an interest in the business that produces the profits."
This case dealt with a claim of partnership relations, but the test of a joint adventure relation was held to be the same in Ross v. Burrage, 233 Mass. 439, in which the Court said (p. 448): "The difference between a joint adventurer and a partner is that in case of a joint adventure the persons in question are interested in a single adventure, while they are interested in carrying on business together generally in the case of a partnership. Denny v. Cabot [6 Met. 82] and the doctrine established by that case is decisive authority against the relationship being that of joint adventurers in a case where the employer and employee are joint adventurers, if not employer and employee, as much as it is decisive authority against the relationship being that of partners in a case where they are partners, if not employer and employee." The test must be applicable to a debtor and creditor relationship as to an employer and employee one.
The relation shown by the contract in the instant case is strictly and only that of a creditor-debtor one. By its terms the creditor is called the mortgagee, Quint the guarantor, and the borrower the company. The plaintiff was only a secured creditor and nothing else. He had no vestige of voice in the control and management of the enterprises; had no duties to perform in connection with the conduct of the business; had no supervisory power over it; was not obligated to do anything more after making the loan; had no joint proprietary interest in the business, and reserved no right whatsoever to himself to even protect his loan beyond that of having the privilege to examine the books of the defendants to see to it that he was paid the bonus he was entitled to. Thus the agreement lacked all the requisites usually and invariably found in contracts where the Courts have construed agreements to amount to joint adventures.
As is well said in 33 C.J. 842, s. 4 "If money which a person loans to another to be used in a business enterprise is to be repaid by the borrower, whether the venture proves a success or a failure, the contract is ordinarily construed to be one of lending and borrowing and not of joint adventure, and the lender acquires no equitable interest in the property in which the money is invested, . . . even though under the agreement he is to share in the profits of the enterprise."
The present case is like the following. Ib., note 20(a). An existing firm owning certain vacant real estate which it desired to improve borrowed $50,000 from a person, who took as security a mortgage on the land with an agreement that he should be repaid his loan and interest with one-half the profits of the adventure, which the firm guaranteed should not be less than $12,500. It held that this agreement did not make the parties joint adventurers. Curry v. Fowler, 87 N.Y. 33.
We have examined all the cases cited by the plaintiff, but in none where the Courts have held that a joint adventure existed, do we find a state of facts anywhere comparable to those in this case. A review of them would serve no useful purpose.
Exceptions overruled.
All concurred.