1 * * W. Bl. 998. The doctrine took its rise in the decisions in these cases. And commenting upon them, the text-writers, who have presented most forcible criticisms upon it, say: "The principle laid down by De Grey, C. J., in Grace v. Smith, has served as the foundation of a long line of decisions which cannot now be overruled by any authority short of that of the Legislature. And in all cases in which there is no incorporation, nor limited liability, it must still be regarded as binding on the courts." Lindley on Part. *36. "The doctrine is completely established upon the very ground asserted in Grace v. Smith." Story on Part. § 36, note 3. And so Mr. Parsons, in his book on Partnership, quoting Lord Eldon, Ex parte Hamper: "But if he has a specific interest in the profits themselves, as profits, he is a partner"-adds: "Undoubtedly he is. Every principle of the law of partnership leads to this conclusion." He contends, however, that the specific interest in profits which is to make a person a partner must be a proprietary interest in them, existing before the division of them into shares. See, also, 3 Kent's Commentaries, *25, note "b," where it is said: "The test of partnership is a community of profit; a specific interest in the profits, as profits, in contradistinction to a stipulated portion of the profits as a compensation for services." The courts of this state have always adhered to this doctrine and applied or recognized it in the cases coming before them. It is not too much to say, that the limited partnership act, 1 Rev. St. (1st Ed.) p. 764, pt. 2, c. 4, tit. 1, is a legislative and practical recognition of this rule of commercial law. Indeed, if it shall be held that such a contract as that of the appellant does not make him a partner as to third persons, there is little or no need of that act. The situation of the special partner is more onerous than that of the appellant under such a ruling. The first may lose his capital invested, as well as profits, by the same being absorbed in the payment to creditors. The latter may lose his anticipated compensation for his money loaned; but his position is quite as favorable to him as that occupied by creditors for the recovery of his money advanced. Neither may interfere, to transact business, or to sign for the firm, or to bind the same. Both may advise as to the management. Both may examine into the state and progress of the partnership concerns— the special partner, from time to time; the appellant, at the end of every six months. In one respect the special partner is better placed. He may stipulate for legal interest on his capital invested, as well as for a portion of the profits. The appellant, if he bargained for profits in addition to interest, might be in conflict with the usury act. It is evident that most of the conveniences and advantages of the limited partnership act, and some which it does not give, might be obtained by a loan of money, with a stipulation for compensation for its use by a share of the profits, if thereby a partnership is not created as to third persons. This is not decisive as to what the law is; hut it is strongly indicative of the view of the law held by the revisers and by the Legislature. There have been from time to time certain exceptions established to this rule in a broad statement of it; but the decisions by which these exceptions have been set up still recognize the rule that, where one is interested in profits as such, he is a partner as to third persons. These exceptions deal with the case of an agent, servant, factor, broker, or employé, who, with no interest in the capital or business, is to be remunerated for his services by a compensation from the profits, or by a compensation measured by the profits; or with that of seamen, on whaling or other like voyages, whose reimbursement for their time and labor is to finally depend upon the result of the whole voyage. There are other exceptions, like tenants of land, or a ferry, or an inn, who are to share with the owners in results, as a means of compensation for their labor and services. The decisions. which establish these exceptions do not profess to abrogate the ruleonly to limit it. It is claimed by the learned counsel for the appellant that the rule as announced in Grace v. Smith and Waugh v. Carver has been exploded, and another rule propounded which shields the appellant. He is correct so far as the courts in England are concerned. Cox v. Hickman, 8 H. of L. C. 268, 9 C. B. N. S. (99 E. C. L.) 47, and Bullen v. Sharp, L. R. 1 Com. Pl. 86, affirm that while a participation in the profits is cogent evidence that the trade in which the profits were made was carried on in part for or in behalf of the person claiming the right to participate, yet that the true ground of liability is that it has been carried on by persons acting in his behalf. Those cases were very peculiar in their circumstances. After the judgments rendered in them, the Parliament deemed it needful to enact that the advance of money by way of loan to a person in trade for a share of the profits should not, of itself, make the lender responsible as a partner. St. 28 & 29 Vict. c. 86, as cited in Parsons on Partn. *92, note "t." If the decisions in the cases cited went as far as is claimed, it would seem that the act was supererogatory. It is suggested, however, by Kelly, C. B., in Holme v. Hammond, L. R. 7 Exch. 218, that the effect of the statute is that the sharing in the profits by a lender shall be no evidence at all of a partnership. At all events, those decisions have been accepted in England as settling. the rule as above stated. See case last cited and cases therein referred to. Without discussing those decisions and determining just how far they reach, it is sufficient to say that they are not controlling here, that the rule remains in this state as it has long been, and that we should be governed by it until here, as in England, the Legislature shall see fit to abrogate it. The references upon the appellant's points do not show that the courts of this state have yet exploded the rule I have stated. I have consulted all the authorities cited (save a few of which I had not the books, or as to which there was a miscitation), and I do not find that the rule is questioned, further than to apply to the facts of the particular case some one or more of the exceptions to the rule which I have stated to exist. I am of the opinion that the judgment appealed from should be affirmed, with costs.1 CHURCH, C. J., dissents. HACKETT et al. v. STANLEY. (Court of Appeals of New York, 1889. 115 N. Y. 625, 22 N. E. 745.) Action by Martin Hackett and others against James Stanley, impleaded, and Moulton W. Gorham, as alleged copartners, for materials and labor furnished for the firm business. James Stanley appeals from a judgment for plaintiff. RUGER, C. J. The determination of this case involves the construction of an agreement between James Stanley and Moulton W. Gorham, and the question whether such agreement constituted the de.fendant Stanley a partner as to third persons with Gorham. If it did, then the judgment must be sustained. The liability of the alleged partners is predicated upon a debt for services rendered and materials. furnished by the plaintiffs, upon the request of Gorham, in fitting up a place in New York to carry on the business of heating, ventilating, etc. The part of the agreement which it is claimed creates the partnership reads as follows: "That for and in consideration of the loan of seven hundred and fifty ($750) dollars from the said party of the second part to the said party of the first part, for use in the business of heating, ventilating, etc., for which said party of the first part has given unto said party of the second part his note at two years, with interest, bearing date of January 14, 1885, payment of which is secured by an assignment of said value in a certain $3,000 policy in the Massachusetts Mutual Life Ins. Co., and also by a certain chattel mortgage, bearing date January 23, 1885, and in further consideration of services of said party of second part in securing sales in said business, and for any further moneys he may, at his own option, advance for me in said business, the said party of the first part agrees to divide equally the yearly net profits of said. business. It is understood and agreed that said loan of $750 is expressly for use in said business, and for no other use whatever." It 1 "The cases have gone further to this nicety, upon a distinction so thin, that I cannot state it as established upon due consideration: That if a trader agrees to pay another person, for his labor in the concern, a sum of money, even in proportion to the profits, equal to a certain share, that will not make him a partner; but, if he has a specified interest, in the profits themselves, as profits, he is a partner." Per Eldon,. L. C., in Ex parte Hamper, 17 Ves. 403 (1810). was further provided that advances made by either party in the business were at all times subject to be withdrawn, at the option of the party making them, and were to bear interest while used in the business. Gorham was to be allowed $1,000 per annum for his services in managing the business, and quarterly statements of its condition were to be made by him to Stanley. It is fairly to be implied from the contract that Gorham was to be the active man in the business, and it was to be carried on in his name; but whether he was to furnish any capital, and if so how much, is not disclosed. For aught that appears the money furnished by Stanley was all that was supposed to be necessary to start and carry on the business until returns were realized from its prosecution. This agreement does not, in express terms, purport to form a partnership; neither is the intention to do so disclaimed; and the question is therefore whether, in a business carried on under the conditions provided for in the contract, the parties thereto became partners, as to third persons. It clearly provides for something more than a loan of money, as it is fairly to be implied from it that Stanley would render active services as a principal in the prosecution of the business, and furnish further financial aid therefor, if it became necessary, and he deemed it advisable to do so. The loan was not one made to Gorham generally, but was for the benefit of the particular business, in whose prosecution Stanley had an equal interest, and any diversion of the funds from such use was strictly prohibited. Each party was authorized to charge the business with interest on the funds advanced by him for its prosecution, and they would each be entitled to pro rata reimbursement of such funds from the assets of the business, in case of a deficiency in assets to pay the advances in full. In that respect, it was evidently contemplated that each party should bear any loss incurred, in proportion to the advances made by them respectively. For all this, Stanley was to receive one-half the net profits of the business. His right to profits would not cease upon the repayment of the original loan, or depend upon the value of the services rendered or moneys advanced or either of them alone, but was to continue as long as the business was carried on. The letter of the contract is that in consideration of the loan of $750, payable in two years, and the further consideration of services in securing sales in said business, and further moneys furnished, the net profits are to be divided. The services promised, and the moneys advanced and to be advanced, each and all constituted the consideration for the division of the profits. We think such an agreement, within all authorities, constitutes a partnership as to third parties. By it, Stanley had an interest in the general business of the concern; a right to require a quarterly account of its transactions; authority to make contracts in its behalf; and an irrevocable right to demand one-half of the profits of the business. That the original loan of $750 was secured to be repaid by Gorham to Stanley does not preclude the conclusion that they were partners; for it is entirely competent for one partner to guaranty another against loss, in whole or in part, in a partnership business, if the parties so agree. The application of the rule that "participation in profits" renders their recipient a partner in the business from which profits are derived, as to third persons, has been somewhat restricted by modern decisions; but we think that the division of profits must still be considered the most important element in all contracts by which the true relation of parties to a business is to be determined. We think this rule is founded in strict justice and sound policy. There can be no injustice in imposing upon those who contract to receive the fruits of an adventure a liability for credits contracted in its aid, and which are essential to its successful conduct and prosecution. This liability does not, and ought not to, depend upon the intention of the parties, in making their contract, to shield themselves from liability, but upon the ground that it is against public policy to permit persons to prosecute an enterprise which, however successful it may for a time appear to be, is sure in the end to result in the advantage of its secret promoters alone, and the ruin and disaster of its creditors and others connected with it. Atherton v. Tilton, 44 N. H. 452; Chase v. Barrett, 4 Paige, 159. Expected profits being the motive which induces the prosecution of all commercial and business enterprises, their accumulation and retention in business are essential to their success; and if persons are permitted, by secret agreement, to appropriate them to their own use, and throw the liabilities incurred in producing them. upon those who receive only a portion of the benefits, not only is a door opened to the perpetration of frauds, but such frauds are rendered. inevitable. * * The rule laid down in Kent's Commentaries (volume 3, p. 25, note "b"), that "the test of partnership is a community of profit; a specific interest in the profits, as profits, in contradistinction to a stipulated portion of the profits as a compensation for services," was approved by this court in Leggett v. Hyde, 58 N. Y. 272, 17 Am. Rep. 244, in which case Judge Folger says: "The courts of this state have always adhered to this doctrine, and applied or recognized it in the cases coming before them." After citing numerous cases in support of the statement, he proceeds: "There have been from time to time certain exceptions established to this rule, in a board statement of it; but the decisions by which these exceptions have been set up still recognize the rule that where one is interested in profits, as such, he is a partner as to third persons. These exceptions deal with the case of an agent, servant, factor, broker, or employé who, with no interest in the capital or business, is to be remunerated for his services by a compensation from the profits, or by a compensation measured by the profits." The learned judge, after referring to the English cases claimed to have qualified, if not overruled, the cases of Grace v. Smith, 2 W. Bl. 998, and Waugh v. Carver, 2 H. Bl. 235, which were the foundation of the doctrine that a participation in profits |