Salter v. Ham, 31 N.Y. 321 (1865)
A partnership requires the intent of the parties to share in both the profits and losses of a business venture; a mere loan agreement with repayment tied to profits does not create a partnership.
Summary
Salter sued Ham for an accounting, claiming they were partners in a medicine business. Salter based his claim on a written agreement where he loaned Ham $500 to purchase materials, and in return, Salter would receive one-quarter of the net profits from the medicine’s manufacture and sale. The court held that the agreement did not establish a partnership. The court reasoned that the agreement was merely a loan with repayment tied to profits, lacking the essential elements of a partnership, such as shared risk of loss and joint control. Therefore, Salter was not entitled to an accounting of Ham’s business.
Facts
In December 1855, Salter and Ham entered into a written agreement. Salter agreed to loan Ham $500 for one year. Ham assigned bills and accounts against his agents as security for the loan. Ham stipulated to invest the loan in materials needed to manufacture his medicine, Dr. Ham’s Invigorating Spirit. Ham was to manufacture and sell the medicine, paying Salter one-quarter of the net profits. The parties operated under this agreement for about two months before abandoning it. Salter later claimed a partnership existed and sought an accounting of Ham’s business profits until 1862.
Procedural History
Salter brought an action in the Supreme Court, seeking an accounting and distribution of assets, claiming a partnership with Ham. The Supreme Court dismissed the complaint. Salter appealed to the New York Court of Appeals.
Issue(s)
Whether the agreement between Salter and Ham created a partnership, inter sese, entitling Salter to an accounting of Ham’s business.
Holding
No, because the agreement was a mere loan arrangement and lacked the essential elements of a partnership, such as shared risk of loss and intent to create a partnership.
Court’s Reasoning
The court stated that whether a partnership exists between parties is determined by their intention. The court analyzed the agreement of December 1855. It concluded that the agreement was a loan for a fixed period, secured by assigned accounts, with profits serving as a form of interest. The court noted that the agreement did not impose the duties or confer the powers of a partner upon Salter. There was no joint ownership of partnership funds, and Salter was not to participate in the losses. "The $500 loaned under the agreement was not a contribution to the capital of the firm as such; nor was it put into the business at the risk of the business. The plaintiff was, in no event, to participate in the losses of the adventure." The court found the relationship to be that of creditor and debtor, not partners. Therefore, Salter was not entitled to an accounting. The court emphasized that Salter was seeking a share of the general business assets, not just profits derived directly from the $500 investment which had already been abandoned.