U.S. Supreme Court
Drennen v. London Assur. Co., 113 U.S. 51 (1885)
Drennen v. London Assurance Company
Submitted December 2, 1884
Decided January 5, 1885
113 U.S. 51
An agreement by the members of a firm to admit a person into their business on condition that the company shall become incorporated and that he shall pay into the firm for its use a stated sum of money which is to be put into the corporation, it being understood that no change shall be made in the name or character of the firm until the corporation shall be formed, and the subsequent payment of the agreed sum, do not make such person a member of the firm or give him an interest in the partnership property in advance of the creation of the corporation.
This action was brought on two policies of fire insurance, issued March 10, 1883, by the London Assurance Corporation of London on certain goods, wares and merchandise, which, it was admitted, were at the time of insurance, the property of the firm of Drennen, Starr & Everett, doing business in the City of Minneapolis, Minnesota. The loss occurred on the 29th of July, 1883, and there was no dispute at the trial, as to its amount.
Each policy contained a provision that it should be void if the property insured
"be sold or transferred, or any change takes place in title or possession (except by succession by reason of the death of the insured), whether by legal process, or judicial decree, or voluntary transfer or conveyance."
"if the interest of the assured in the property be any other than the entire, unconditional and sole ownership of the property, for the use and benefit of the assured, . . . it must be so represented to the corporation, and so expressed in the written part of this policy, otherwise the policy shall be void. When property has been sold and delivered, or otherwise disposed of, so that all interest or liability on the part of the assured herein named has ceased, this insurance on said property shall immediately terminate. "
The defendant disputed its liability on the ground that Drennen, Starr & Everett, on the 24th of May, 1883, before the loss, admitted one Arndt as a partner in their firm, and that thereby, without its knowledge or consent, and by the voluntary act of the plaintiffs, the title, interest, and possession of the insured in the property was changed, and the policies became void. The plaintiffs denied that Arndt ever became a member of their firm or acquired any interest in the property insured. Upon this issue the proof was substantially, as will be now stated.
Arndt resided in Sandusky, Ohio. He visited Minneapolis in May, 1883, and first became acquainted with plaintiffs Drennen and Starr on or about the twentieth day of that month. Negotiations then commenced with Drennen and Starr, who acted for their firm, and resulted in the making of the following agreement:
"This agreement, made and entered into this 24th day of May, A.D. 1883, by and between E. J. A. Drennen, F. W. Starr, and Edward D. Everett, who are now members of and constitute the firm of Drennen, Starr & Everett, all of the City of Minneapolis, Minnesota, parties of the first part, and D. M. Arndt, of the City of Sandusky, Ohio, party of the second part, witnesseth: said parties of the first part hereby agree to receive into their business said Arndt on the following terms and conditions:"
"1st. Said company is to become incorporated."
"2d. Said Arndt is to pay into said firm for its use, on or before June 14, 1883, five thousand dollars."
"3d. Said Arndt is to pay into said firm for its use, on or before January 1, 1885, an additional sum of five thousand dollars."
"4th. Said Arndt is to pay said firm interest at the rate of 8 percent per annum on each of said sums of five thousand dollars from January 1, 1883, till each of said sums shall be paid as aforesaid, the interest on last-mentioned sum to be paid semiannually."
"5th. If said Arndt shall be unable to pay said second $5,000 by January 1st, 1885, his interest shall be decreased 50
percent, and until said last-mentioned sum of $5,000 shall be paid, or interest decreased as aforesaid, the liability of said Arndt therefor shall be evidenced by his promissory note, executed to said firm, bearing interest as aforesaid, and dated January 1, 1883. The business to be carried on by the new company to be formed as aforesaid shall be of the same nature as that now conducted by Drennen, Starr & Everett; the name of the new company to be formed shall be determined hereafter."
"It is understood and agreed that of the effects and rights of the firm of Drennen, Starr & Everett, Drennen owns one-half and said Starr and Everett each one-fourth thereof. All said rights and effects shall be put into the corporation to be formed as aforesaid at their value as shown by the inventory taken January 1, 1883, less any by reason of nonpayment of any claim for goods sold by them before that time, and that to the amount to be contributed as aforesaid shall be added said sum of ten thousand dollars to be paid by said Arndt as aforesaid."
"The interest and shares of the several parties to this agreement in the new company shall be in proportion to the amount contributed by each to its capital stock according to the plan aforesaid."
"When a charter shall be procured as aforesaid, 50 percent of the stock of said Arndt shall be held by said company, or some one in trust for it, till said second sum of $5,000, with accruing interest thereon, shall be paid. It is understood said Arndt is to attend to the bookkeeping and office work of said business, and that each remaining partner of the firm of Drennen, Starr & Everett shall actively engage in the business of the new company; that no change in the name or character of the firm of Drennen, Starr & Everett shall be made until said corporation shall be formed."
"In testimony whereof, said parties hereto set their signatures the day and year first herein written."
"E. J. A. DRENNEN"
"FRED. W. STARR"
"DAVID M. ARNDT"
Everett, one of the plaintiffs, was then absent from Minneapolis, but, upon his return soon after, was informed by his partners of the contents of the written agreement with Arndt. The latter, immediately after the agreement was signed, went to Sandusky, but returned to Minneapolis about the 17th of June, 1883. This was after Everett learned from his partners what had occurred between them and Arndt. On the 18th of June, 1883, plaintiffs received from Arndt the sum of $5,000, which was placed to his individual credit upon the account books of the firm, and was by plaintiffs deposited in their bank, and on July 3, 1883, he made and delivered to them his promissory note for $5,000, which was also entered upon their account books to his individual credit. It was accepted by them as other bills receivable in their business. This constituted the whole evidence upon which the case went to the jury. There was a verdict and judgment for the defendant. chanroblesvirtualawlibrary