U.S. Supreme Court Sun Ins. Co. V. Kountz Line, 122 U.S. 583 (1887)
Sun Insurance Co. V. Kountz Line
Argued January 17-18, 1887
Decided May 23, 1887
122 U.S. 583
APPEAL FROM THE CIRCUIT COURT OF THE UNITED
STATES FOR THE EASTERN DISTRICT OF LOUISIANA
A person who conducts himself with reference to the general public is such a way as to induce others, acting with reasonable caution, to believe that he is a partner in a partnership is liable as such to a creditor of the partnership who contracted with it under such belief, although he is not in fact a partner.
The defendants in error so conducted themselves toward the general public, in their business relations with each other, as to induce a shipper,
acting with reasonable caution, to believe that they had formed a combination in the nature of a partnership, or were engaged as joint traders, under the name of the Kountz Line.
This is a libel in admiralty and in personam. The libellants are insurance companies, which issued policies covering certain produce and merchandise delivered May 21, 1880, on board the steamboat Henry C. Yeager at St. Louis, Missouri, for transportation to the City of New Orleans and other ports on the Mississippi River, which cargo was lost by the sinking of the boat the day succeeding its departure from St. Louis. The Yeager was unseaworthy both at the commencement of her voyage and at the time of the loss. The sinking and the loss were the direct consequence of such unseaworthiness. The libellants having paid to the owners of the cargo the damages sustained by them ($31,720.10), and having been subrogated to all the rights and claims of the latter on account of such loss, brought this suit against the appellees jointly to recover the amount so paid. In the district court, the attachments sued out by the libellants were discharged and the libel dismissed. In the circuit court, it was adjudged that there was no joint liability on the part of the respondents or any of them, and that liability for the loss of the cargo was alone upon the Yeager and her owner, the H. C. Yeager Transportation Company. As to all the other respondents, the libel was dismissed. Of that decree the libellants complain, the principal assignment of error being that the court erred in not holding the respondents, or some of them, jointly liable for the loss of the cargo. The general ground upon which this contention is placed is that the shipment of May 21, 1880 on the Henry C. Yeager was a part of the general business of transportation in which the H. C. Yeager Transportation Company, the C. V. Kountz Transportation Company, the K. P. Kountz Transportation Company, and the M. Moore Transportation Company were jointly engaged under the name of the "Kountz Line," and consequently that said companies were jointly liable for the loss and damages in question. The decree
below proceeded upon the ground that said companies were not jointly engaged in business, and that the loss must be borne entirely by the company owning the Henry C. Yeager. Citizens' Ins. Co. v. The Kountz Line, 10 F.768.
The determination of the question of joint liability depends upon the facts set out in the finding by the circuit court. Those facts, preserving in our statement of them substantially the language of the court below, are as follows:
In June, 1872, William J. Kountz, John W. King, W. W. Atex, and Charles Scudder organized, under the laws of Missouri, a corporation by the name of the "Kountz Line," of which they were to be, and did become, directors for the first year, and of which Kountz was President, and King general agent. Its capital stock was fixed at $15,000, divided into shares of $100 each. The declared object of the corporation was to build or purchase, use, or employ one or more wharf boats for the use of steamboats and other vessels belonging to the stockholders of the company; to build, purchase, or charter steamboats, towboats, etc., for transporting freight and passengers on the Mississippi River and its tributaries, and to do a general river business. It does not appear that the Kountz Line corporation owned at the time of the shipment on the Yeager, or at any time during the year 1880, any steamboat or other watercraft, except a wharf boat at St. Louis.
In a few months after the organization of that corporation, to-wit on the 13th of November, 1872, Kountz, King, and one Sheble organized, under the laws of Missouri, the four transportation companies above named, of each of which Kountz and King were chosen directors, and King treasurer and secretary. Kountz, King, and Sheble, Charles H. Seaman, H. K. Haslitt, and W. P. Braithwaite, having interests, as owners, respectively, in the steamboats Henry C. Yeager, Carrie V. Kountz, Katie P. Kountz, and Mollie Moore, transferred the same by bills of sale as follows: The Henry C. Yeager to the H. C. Yeager Transportation Company, the Carrie V. Kountz to the Carrie V. Kountz Transportation
Company, the Katie P. Kountz to the K. P. Kountz Transportation Company, and the Mollie Moore to the M. Moore Transportation Company, the vendors receiving, in consideration of said transfers, stock in the respective transportation companies.
Of the stock of the Kountz Line corporation, on the 6th of July, 1874, William J. Kountz owned two shares; King, D. C. Brady, Van Hook, and C. H. Seaman, one share each; the steamboats John F. Tolle, Henry C. Yeager, Mollie Moore, and Carrie V. Kountz thirty-six shares each. There was no change in the ownership of such stock by those steamboats up to the commencement of this suit except that the shares held by the John F. Tolle belonged to the steamboat J. B. M. Kehlor when, on September 14, 1878, the latter was transferred to the M. Moore Transportation Company. W. J. Kountz never at any time, owned more than two shares in the Kountz Line corporation, and was a stockholder in all of the transportation companies.
On the 15th of January, 1873, W. J. Kountz owned 398 shares, and King and Sheble each one share, of the stock of the M. Moore Transportation Company. But on December 19, 1879, the stock of that company was held as follows: Katie P. Kountz, a daughter of W. J. Kountz, 397 shares, and Kountz, King, and Rogers each one share. November 4, 1878, Katie P. Kountz held 241 3/4 shares, her father and King each one share, and Braithwaite 56 1/4 shares, in the K. P. Kountz Transportation Company. December 19, 1879, Katie P. Kountz held 379 shares and her father, King, and Rogers each one share in the H. C. Yeager Transportation Company. On the 21st of May, 1880, of the stock of the C. V. Kountz Transportation Company, Katie P. Kountz held 323 shares, Clement Seaman, 74 shares, and her father, King, and C. H. Seaman, each one share. No subsequent transfer of stock in any of these companies was made, and at the time of the shipment on the Yeager, "the stock in no two of said companies was held by the same person." It thus appears that at the time of the shipment on the Yeager, almost all the stock of these transportation companies stood in the name of a daughter of William J. Kountz.
It was further found by the court below that the steamboats Carrie V. Kountz, Katie P. Kountz, Henry C. Yeager, and Mollie Moore
"were employed by the respective transportation companies, to which they were conveyed, under the direction of the officers of said companies, in carrying freight and passengers on the Mississippi and its tributaries,"
the Kountz Line corporation being the "common agent" of said companies, and charging the latter "for the services rendered to them, respectively, from one hundred to one hundred and fifty dollars per trip." Its office, as well as the business offices of the transportation companies, were in the same room on its wharf boat at St. Louis. It (the Kountz Line corporation) collected the dues of the transportation companies, keeping a separate account with each and paying to each the earnings of its own steamboat. By means of advertisements in newspapers, placards, handbills, and cards, the Kountz Line corporation advertised the "Kountz Line," setting forth the advantages offered by the boats of that line, their low rates of freight, etc., and "announced that it was ready to contract for the carrying of goods and passengers by the Kountz Line boats." In those advertisements, placards, and handbills, usually one, but sometimes two or more, of the boats belonging to the transportation companies were mentioned "as belonging to said Kountz Line." The Kountz Line corporation made out bills of freight upon blanks headed "Kountz Line, St. Louis and New Orleans Packet," the bills being "in the name of the particular steamboat to which the freight was due, and the dray tickets of shippers indicating on what boat the goods were to be shipped." The bills of lading were usually signed, "John W. King, Ag't Kountz Line, St. Louis," the signature thereto being made by a stamp, but the bills were sometimes signed by the clerk of the steamboat on which the goods were shipped. Some of the bills of lading for the produce and merchandise shipped May 21, 1880, on the Yeager, recited
"that the same were received from John W. King on board the steamboat Henry C. Yeager, to be delivered to the consignee at New Orleans. In witness whereof the master, clerk, or agent of said boat
hath affirmed to three bills of lading,"
etc., and were signed, some of them, "John W. King, Ag't Kountz Line, St. Louis," and some by E. B. McPherson, clerk. Others of said bills of lading recited the shipping of produce by other shippers on board the Henry C. Yeager, and were signed by King in the manner aforesaid, and others by E. B. McPherson, clerk.
In order that the boats belonging to said transportation companies might have freight, the Kountz Line corporation sometimes purchased produce and merchandise for the purpose of its being shipped upon them, the sum paid for such produce and merchandise being charged to the particular company in whose interest the purchase was made. The goods so purchased were usually bought and paid for by the Kountz Line corporation. Against such shipments it made drafts in its own name on the consignees. All moneys, whether received for freight carried by said several steamboats or for goods shipped and sold for their account, were remitted to William J. Kountz or John W. King as the agents of said Kountz Line, the cost of the goods being charged to the individual boat on which they were shipped. After deducting cost and charges, the net proceeds, although
"deposited in bank to the credit of said Kountz Line, were placed in the books of account to the credit of the boat carrying the goods, and were her separate profits."
The circuit court found that the Kountz Line and the said transportation companies "owned no property in common," and that "there was no community of profits or property between said companies, including the Kountz Line, or any two or more of them." But it also found that "none of said steamboats was ever advertised by the name of the corporations that owned them," and that, from the date of the incorporation of said transportation companies to the date of the said shipment on the Henry C. Yeager,
"none of said transportation companies ever transacted any commercial business by their several and respective names, but the same was done by the name of the Kountz Line or in the name of the individual boats belonging to said transportation companies."
Such in substance is the case made by the finding of facts.
MR. JUSTICE HARLAN, after stating the facts of the case in the foregoing language, delivered the opinion of the Court.
It is not claimed that the four transportation companies, organized in 1872, can be held jointly liable for the loss of the produce and merchandise shipped on the Yeager by reason of their being in fact partners, having a right to participate in the profits of the business conducted by and in the name of the "Kountz Line." They did not share, or agree to share, the profits or to divide the losses of that business as a unit. On the other hand, it is not disputed that, according to well settled principles of law, a person not a partner or joint trader may under some circumstances be held liable as if he were in fact a partner or joint trader. "Where the parties are not in reality partners," says Story "but are held out to the world as such in transactions affecting third persons," they will be held to be partners as to such persons. Story's Part. § 64. And in Gow on Partnership (p. 4), it is laid down as an undeniable proposition that
"Persons appearing ostensibly as joint traders are to be recognized and treated as partners, whatever may be the nature of the agreement under which they act or whatever motive or inducement may prompt them to such an exhibition."
And so it was adjudged in Waugh v. Carver, 2 H.Bl. 235, 246, where it was said by Lord Chief Justice Eyre that if one will lend his name as a partner, he becomes, as against all the world, a partner, "not upon the ground of the real transaction between them, but upon principles of general policy, to prevent the frauds to which creditors would be liable." We do not mean to say that such liability exists in every case where the person sought to be charged
holds himself out as a partner or joint trader with others. The qualifications of the general rule are recognized in Thompson v. First National Bank of Toledo, 111 U. S. 529 , where it was held upon full consideration that
"A person who is not in fact a partner who has no interest in the business of the partnership and does not share in its profits and is sought to be charged for its debts because of having held himself out or permitted himself to be held out as a partner cannot be made liable upon contracts of the partnership except with those who have contracted with the partnership upon the faith of such partnership."
At the same time, the Court observed that there may be cases in which the holding out has been so public and so long continued as to justify the inference as matter of fact that one dealing with the partnership knew it and relied upon it, without direct testimony to that effect.
As there is no evidence of any direct representation by these transportation companies or any of them to the shippers of the cargo in question as to their relations in business with each other or as to their relations respectively with the Kountz Line corporation or the Kountz Line, the inquiry in this case must be whether they so conducted themselves with reference to the general public as to induce a shipper, acting with reasonable caution, to believe that they had formed a combination in the nature of a partnership or were engaged as joint traders under the name of the Kountz Line. In our judgment, this question must be answered in the affirmative. It could not, we think, be otherwise answered consistently with the inferences which the facts reasonably justify.
The finding of facts, as we have seen, shows that the steamboats Henry C. Yeager, Katie P. Kountz, Carrie V. Kountz, and Mollie Moore were employed in the business of transporting freights and passengers on the Mississippi and its tributaries. They were placed by their owners, or were permitted by their owners to be placed, before the public as being engaged in the same trade and as constituting together the "Kountz Line." They had a common agent, which was
invested with or was permitted during a series of years to exercise unlimited authority in their general management and in respect to rates of transportation. That agent (the Kountz Line corporation), with the knowledge of the transportation companies, publicly announced that it was ready to contract for the carrying of goods and produce by the "Kountz Line boats." We say this was done with the knowledge of the owners of the boats because the persons conducting the entire business of the Kountz Line boats were officers, with plenary authority of the transportation companies and of the Kountz Line corporation. The court below finds that the transportation companies used and employed their several boats in carrying freight and passengers on the Mississippi River and its tributaries. But with the intent or with the effect to mislead shippers, they took care never, by their respective corporate names, to make or to allow others in their behalf to make any contracts or to enter into any engagements touching such business. It is expressly found that during the whole period from the organization, on the same day, in the year 1872, to the date of the shipment on the Yeager in 1880 -- a period of nearly eight years -- they did not transact any commercial business whatever by their respective corporate names. They severally empowered or permitted the Kountz Line corporation, their common agent, to do business for them, using in their discretion when making transportation contracts either the name of the Kountz Line, composed of all the companies, or the names of the respective boats of that line. In no instance was business transacted by the Kountz Line corporation as representing the particular transportation company owning the boat on which the shipment was made. Those companies therefore stood before the world as having united for the purpose of engaging in the same trade, under the name and style of the "Kountz Line," having a common agent -- the Kountz Line corporation -- fully authorized to represent them and each of them in respect to matters connected with such business. They held themselves out as united in a joint enterprise under the name of the "Kountz Line," and they are jointly
liable for the default or negligence of those placed in charge of any of the boats of that line. That the transportation companies owned no property in common, and that each was entitled, as between it and the others, to receive the net earnings of its own boat is immaterial in view of the fact that they held themselves out or permitted themselves to be held out as jointly engaged in the business of transporting freights and passengers in the same trade on the Mississippi and its tributaries. So far as the public was concerned, that which was done by their common agent, the Kountz Line corporation, in the prosecution of the business of the several boats constituting the Kountz Line is substantially what would have been done had the transportation companies entered into a formal agreement to conduct the transportation business jointly, under the name of the "Kountz Line," through an agent having full authority to represent that line and the several boats composing it in the making of contracts with shippers. The latter had the right to infer from all the circumstances that the boats constituting that line were jointly engaged in such business.
As there is no serious conflict in the adjudged cases as to the general propositions of law to which we have referred, it would serve no useful purpose to review the authorities to which our attention is invited by counsel. Whether, in a particular case, there has been such a "holding out" as to create joint liability must always depend upon its special facts. No one of the cases cited resembles the one before us in its facts. This case seems to be unlike any found in the books in the peculiar relations existing between these transportation companies, the Kountz Line corporation, and the stockholders of each of them. We decide nothing more than that, under the facts of this case, the H. C. Yeager Transportation Company, the K. P. Kountz Transportation Company, the Carrie V. Kountz Transportation Company, and the M. Moore Transportation Company were and are jointly liable for the loss of the produce and merchandise shipped May 21, 1880, on the steamboat Henry C. Yeager. The circuit court erred in not so adjudging.
The decree is reversed and the cause is remanded with directions to that court to set aside all orders inconsistent with, and to enter such orders and decree as may be in conformity to, the principles of this opinion.
MR. JUSTICE GRAY, not having heard the whole argument, took no part in this decision.
On the same day (May 28, 1887), on an application made on behalf of the plaintiff in error, the Court ordered that the mandate in this case be stayed and leave be granted to file a petition for a rehearing.