
    James H. Snyder, Respondent, v. Lloyd I. Seaman, Appellant.
    
      Contract — where there is ambiguity the usage of the pa/rties determines its construction.
    
    In an action brought to procure an accounting between partners, the plaintiff claimed that personal taxes imposed upon the defendant had been for a number . of years improperly paid out of the profits or net earnings of the firm. The ' plaintiff had been in the defendant’s employ from 1871 to 1885 (being paid by a gross sum anda percentage upon the net profits.or earnings of the business), and was at all times familiar' with the books of account, and during all these ■ years the'defendant’s personal taxes were entered on his books as expenses of the business. In 1885 the plaintiff became a partner, entitled to a specified . percentage of the net earnings and net profits of the business, and thereafter until 1891, without dissent on the plaintiff’s part, the defendant continued to ' enter his personal taxes upon the books as expenses of the business, and when he was away the plaintiff did so. In 1891 the plaintiff objected to this, but .when, in May, 1892, the firm dissolved, a balance was "struck upon the basis of allowing these payments, and the plaintiff, accepted this balance, although protesting against the personal taxes being charged in the account.
    
      Held, that there being a doubt as to the meaning of the partnership agreement the construction adopted by the partners themselves was controlling;
    That the payments objected to having been made and entered on the books for years, both preceding and during the time of the co-partnership, a construction was thereby given to the words “profits” and “net earnings” in the partnership agreement which entitled the defendant to have his personal tax deducted therefrom before a division thereof was made..
    Appeal by the defendant, Lloyd I. Seaman, from a ¡judgment of the Court of Common Pleas for the city and county of New York, entered in the office of the clerk of said court on the 5th day of August, 1895, upon the report of a referee.
    The action was brought for an accounting between co-partners, the plaintiff claiming that certain personal taxes of defendant had been improperly paid with co-partnership moneys and charged to. business expenses in arriving at the net profits or earnings of the co-partnership, which were to be divided between the co-partners.
    The first co-partnership agreement was made May 1,1885. Prior to that time the defendant had carried on the. business as an individual, and plaintiff had been in his employ in the business from August, 1871, until the agreement óf May 1, 1885, was made. By the terms of that agreement the co-partnership was to commence at its date and to continue for three years; defendant was to contribute as capital $45,000, and plaintiff $5,000, and interest at six per cent was to be paid half yearly to each on the capital contributed, and the defendant was to be entitled to two equal third parts of the net profits of the business, and the plaintiff to the remaining equal third part thereof, and all losses sustained in the business were to be borne and paid by the parties in 'the same proportion. The character of the business was dealing in butter and cheese upon commission. Books of account, in which all the business dealings of the co-partnership should be correctly and truly entered, were to be kept open at all times to the inspection of each of the partners.
    May 1, 1888, a change in the terms of the co-partnership agreement was made for the balance of the term -respecting the division of. the net earnings. In place of the defendant being entitled to two equal thirds, and the plaintiff to the remaining one equal third, the net em'nings thereafter were to be divided equally, each receiving one-half thereof, and each assuming one-half the losses.
    Both of these agreements were in writing. The co-partnership continued beyond the term of three years,, and until April 30, 1892, under the agreement as modified, and then was dissolved by mutual consent. During the continuance of the co-partnership personal .taxes of the defendant, assessed by the city of New York, were paid with the co-partnership moneys and charged in the books to' business expenses, viz.: In 1885, $180 ; in 1886, $171.75; in 1887, $165 in 1888, $166.50 ; in 1889, $146.25 • in 1890, $197, and in 1891, $190.
    The referee held that these taxes were improperly charged; that the jfiaintiff was entitled to recover his one-third thereof for the year 1885, and one-half thereof for the balance of the years with interest, and ordered judgment accordingly. From the judgment entered upon the referee’s report this appeal is taken.
    
      John W. Weed, for the appellant.
    
      Herbert M. Lloyd, for the respondent.
   Williams, J.:

The referee evidently based his decision upon the language of the agreements alone, without taking into consideration the evidence offered, bearing upon ■ the construction or meaning given . to the language by the parties to the agreement. In the absence of such evidence, and construing the language of the agreement without the aid of such evidence, the conclusion of the referee would undoubtedly have been correct. According to the ordinary meaning of the term net profits or net earnings of the business, these personal taxes of the defendant which were not shown to have been assessed solely upon his share of the. capital invested in the business, would not have been properly chargeable as expenses of the business. We are of the opinion, however, that the parties have by their acts given a practical' Construction to the agreements, in accordance with the defendant’s claim that these taxes were to be regarded as a part of the expenses of the business, for the purpose of arriving at the net profits or earnings of the business.'- These two words profits and • eairn'mgs were clearly used by the parties in these agreements as synonymous terms. The word profits alone was used in the agreement of May 1, 1885, and when they came .to make the modification of the contract May .1, 1886,, the language used was “ We agreed to change the .terms of this co-partnership respecting'the division, of the. net earnings. In place of the said Seaman being entitled to. two equal thirds and the said Snyder to the remaining one equal third, it is 'agreed that hereafter the net earnings. be divided equally.”.

This language conclusively shows that they understood earnings and profits were the same thing. In the modification they spoke of ea/rnifigs as though that had been the word used in. the original agreement, when no such word had there, been used* but only .the word profits. This shows that they understood the-words to mean the ■same -thing.. They so used them in these agreements, at. least. The evidence to which we have referred established the following facts: The plaintiff was in defendant’s employ from.' 1871 until the- first agreement was made May 1, 1885, and from about 1877 the plaintiff was paid for his services ' by a certain fixed salary, and in addition á percentage of the net profits or earnings of the business. Plaintiff was bookkeeper until 1881, and from that time until 1885 was salesman, but remained familiar " with the books, ■ During all the time plaintiff was receiving a percentage of the net profits or earnings, and up to the time the co-partnership was formed, the defendant’s personal taxes were entered in the boobs of the business, as expenses of the business, as plaintiff well knew. At the time the co-partnership was formed, defendant told plaintiff he would give him a one-third interest, and that' this was the only change they would mahe in the business. This evidence was stricken out upon motion of the plaintiff, and defendant excepted. After the co-partnership was formed the plaintiff exercised a supervision over the books, and with his knowledge, and without objection from him, the personal taxes of defendant were continued to be charged as a part of the businéss expenses during the whole existence of the co-partnership. Plaintiff raised no question in regard to such charges until 1891. He was present at thq time the annual accounts of the co-partnership were cast up for the purpose of determining the net profits, and when the balances were struck, and there was carried to his account so much of his undrawn profits so arrived at, as appeared to his credit on the books, and this continued during all the years the co-partnership existed. Soon after the co-partnership was formed defendant went to Europe and was away for more than a year. While he was away his taxes were paid by checks drawn by the plaintiff himself. This occurred as to two years’ taxes, 1886 and 1887, and the amounts were charged in the co-partnership books to business expenses.

In the fall of 1889, plaintiff first charged his own personal taxes to the account of business expenses on the co-partnership books and similar charges were made in 1890 and 1891. No question as to these taxes had ever arisen before 1889. At some time after the charges were made the defendant objected to them, and these taxes were thereupon charged back to the plaintiff.

In the year 1891, after the yearly balance had been struck, the plaintiff protested against defendant’s personal taxes being charged to business expenses, and subsequently at some time the defendant insisted upon their so remaining, and the plaintiff made no further objection until the dissolution of the co-partnership, about the 1st of May, 1892. The balance was struck at the time of the dissolution as it had been before with these taxes .in the account, and plaintiff accepted the balance coming to him as so ascertained, though protesting against the charges for defendant’s personal taxes. This action was not commenced until August, 1893.

In Insurance Co. v. Dutcher (95 U. S. 273) which, was an action to compel the issuance of a paid-up policy of insurance, the original policy of insurance declared-that the amount of the- paid-up policy should be determined by the sum of the premiums paid in cash. It appeared in the case that the insurance company always'issüed paid-up policies upon the basis of the full amount of premiums paid, making no- distinction between the notes and the money received by the company for the premiums. The words “paid in cash” were'.construed by the court to -cover not only premiums for which cash had actually been paid, but those also for which notes had been given.. In this connection the court said: “The practical interpretation-' of an agreement by a party to it is always a consideration of great weight. The construction of a contract is as much a part of it as anything else. There is no surer way to find out what parties meant than to see what they have done. Self-interest stimulates the mind to activity and sharpens its perspicacity. Parties in such cases often claim more,' but rarely less, than they are entitled to. The probabilities are largely in the direction of, the-former. In considering the question before us, it is difficult -to resist the: cogency of this uniform practice during the period mentioned, as a factor in the case.”

In Woolsey v. Funke (121 N. Y. 87) the court was considering the construction of a charter party which provided that the plaintiffs should furnish the vessel at their own expense, with all the supplies required, except water, the cost of which the defendant was to pay. It was claimed by the defendant that under this charter party the plaintiffs were 'bound' to furnish the water, the expenses thereof to be paid by him, and not having done so,, had broken- the contract, and were not, therefore, entitled to recover certain damages claimed. The court held otherwise, among other things, saying that if they were not right in the interpretation of the language of the charter party, it must at least be- admitted that the language was somewhat ambiguous or indefinite, and that under such circumstances the practical interpretation of the charter party by both parties was a consideration of great importance. (Citing with approval, Insurance Co. v. Dutcher, supra.) And in Nicoll v. Sands (131 N. Y. 19, 24) this same doctrine was approved (citing Woolsey v. Funke, and Ins. Co. v. Dutcher, supra). In Story on Partnership (Gray’s ed. §§' 191, 192. and notes) it is said: ■ “ In all cases of doubtful-interpretation, the actual construction adopted by the partners in their partnership transactions will be, and indeed ought to be, adopted as the true, legitimate and appropriate interpretation intended by themselves. * * *

“ Entries in the books of a partnership have been said to be as conclusive of the rights of the partners as if prescribed in a regular contract. * * * Partnership articles in the view of courts of equity, whatever may be the rule at law, are liable to be controlled, superseded, qualified or waived by the acts and transactions of the partnership, in the course of the business thereof, wherever the assent of all the partners thereto may be fairly inferred, and however positive or stringent those provisions may be. * * * Partners ■ * * * if they please, may in the course of the partnership, daily come to a new arrangement, for the purpose of making some addition or alteration in the terms on which they carry on business, provided those additions or alterations be made with the unanimous concurrence of all- the partners.’ * * * In short, in many cases of this kind, looking to the course of conduct of the partners and the special circumstances of their business, or to their general acquiescence, or their positive acts, we may often have the most satisfactory evidence that the partnership articles have been laid aside, either fro ta/nto or in whole, and that new articles and arrangements have been entered into in their stead.”

It seems to us that the evidence in question, under the circumstances, is not to be considered for the purpose of varying the terms of the written agreements, but rather as giving a proper construction to the agreements and the words net earnings ” or profits,” as Therein contained. These words as used in these agreements may be considered as so ambiguous and uncertain as that evidence may be given of the conversation between the parties at the time the agreements were made, and the acts of the parties in the conduct of the co-partnership, to show what the parties intended by the use of those words in the agreements. Whether we are to give this effect to the evidence, and construe the language of the contracts accordingly, or whether we are to regard the agreements as modified in view of the evidence, in either event the rights of the parties are to be determined by regarding the personal taxes of the defendant as properly part of the expenses of the business.

We, therefore, conclude that the decision of the referee was errori'eous,. and that the judgment should be reversed, arid we think, under, the circumstances, that judgment should be entered for the defendant with costs of appeal' and costs of the court below.

Van Brunt, P. J., Patterson, O’Brien arid Ingraham, JJ., concurred.. /

Judgment reversed and judgment directed for defendant, with costs of appeal and cost's of the court below.  