Karrick v. Hannaman - 168 U.S. 328 (1897)
U.S. Supreme Court
Karrick v. Hannaman, 168 U.S. 328 (1897)
Karrick v. Hannaman
Argued October 27-28, 1896
Decided November 29, 1897
168 U.S. 328*
A partner who, within the term stipulated in the articles of partnership for its continuance, undertakes, of his own will, and without the consent of his copartner, to dissolve the partnership, takes exclusive possession of its property and business, profitably carries on the business with the property for his own benefit, and excludes his copartner from any participation in the business or the profits, is liable (whether the partnership should or should not be considered as having been dissolved by his acts) to account to the copartner for his share of the property and of the profits of the partnership according to the partnership agreement.
This was a suit brought April 17, 1890, in the Third Judicial District court of the Territory of Utah, by Hannaman against Karrick for the dissolution of a partnership formed February 3, 1886, by an agreement in writing by which they agreed to become partners in a mercantile and laundry business for the term of five years from that date, with a capital stock of $25,000, of which the plaintiff was to furnish $5,000, and the defendant $20,000. The defendant lent the plaintiff the sum of $5,000 for five years, for which the plaintiff gave a promissory note, payable at the end of that time, and secured by mortgage upon his interest in the partnership property. The plaintiff was to give his entire time and attention to the partnership business, and the defendant was to devote to it only such time as he should see fit; the plaintiff to have the control and management of the business generally and entirely, except as the defendant might designate, and such matters to be subject to mutual agreement, one-half of the
net profits of the business to go to the defendant in repayment of $15,000 of the capital stock furnished by him and the other half to be allowed to remain in the business, except that each partner might draw out not exceeding $125 a month for personal expenses, the profits and losses to be shared equally, and neither party to have any other salary or compensation for services, and the title and interest of the partners in the partnership property to be proportionate to their respective contributions to the capital.
The complaint alleged the following facts: the parties carried on business in conformity with the agreement until February 1, 1888, when the defendant took exclusive possession of all the partnership business, stock, books, and accounts, and of the premises where the business was carried on, and ever afterwards prevented the plaintiff from participating in any manner in the business or deriving any benefits therefrom. The plaintiff, until that date, performed his part of the agreement, and was ever after ready and willing to perform it, and so informed the defendant. From that date, the defendant wrongfully, and in fraud of the plaintiff's rights, carried on and controlled the partnership business for his own exclusive benefit, and applied to his own use, from the proceeds and profits of the same, large sums of money, exceeding the proportion to which he was entitled. On January 1, 1890, the defendant, without the plaintiff's knowledge or assent, sold and delivered to the Bast-Marshall Mercantile Company all the assets and property of the partnership. The complaint prayed for a dissolution of the partnership, the appointment of a receiver, an injunction against interfering with the property, its application to the payment of the partnership debts, and a division of the remainder between the partners, the setting aside and cancellation of any transfer or assignment to the Bast-Marshall Mercantile Company, and an account.
The defendant, Karrick, in his answer, admitted the partnership, and his own taking possession on February 1, 1888, but denied the other allegations of the complaint and alleged that the plaintiff mismanaged the business in various particulars specified, and that, when the defendant took possession,
the partnership was insolvent and heavily in debt, and the plaintiff was owing to it a large sum of money, and was insolvent, and the partnership was then dissolved by mutual consent.
The Bast-Marshall Mercantile Company was originally made a defendant, and filed a separate answer, but the plaintiff afterwards dismissed his suit as against that company. The case was referred, by consent of the remaining parties, to a referee, to report his findings of fact and conclusions of law to the court; and at the hearing before the referee, much evidence was introduced by either party in support of his allegations and denials.
On October 5, 1891, the referee made his report, in which he set forth all the evidence, and by which he found that the facts were as alleged in the complaint, and were not as alleged in the answer of Karrick, and stated an account, resulting as follows:
Unadjusted and undivided profits
January 1, 1890, including
$2,616.25, then uncollected by
defendant . . . . . . . . . . . . . . . . $22,858.18
Profits realized after January 1, 1890. . . 99.90
Wrongfully disbursed by defendant
after that date . . . . . . . . . . . . . 379.50
Unavoidable losses after January 1,
1890. . . . . . . . . . . . . . . . . . . 2,005.12
Net profits . . . . . . . . . . . . . . . . $21,332.46
Of which plaintiff is entitled to
one-half. . . . . . . . . . . . . . . . . $10,666.23
Capital put by plaintiff into the
business. . . . . . . . . . . . . . . . . 5,208.89
Due from plaintiff to defendant on
note mentioned in partnership
agreement, without interest . . . . . . . 5,000.00
Principal sum due to plaintiff. . . . . . . $10,875.12
Interest at eight percent yearly
from January 1, 1890, to October
5, 1891, on $8,258.87, the
difference between $10,875.12 and
$2,616.25, uncollected January 1, 1890. . 1,165.41
Total amount due to plaintiff. . . . . $12,040.53
From the findings of fact, the referee concluded as matter of law that the partnership was not dissolved, but that it expired February 3, 1891, according to the terms of the agreement; that the profits and losses of the partnership business should be divided equally between the parties, after crediting each with his advances to and investments in the partnership, and that the sum of $12,040.53 was therefore owing to the plaintiff. The court adopted the referee's findings of fact and conclusions of law, and entered a decree accordingly.
The defendant appealed to the supreme court of the territory, which held that, for the reasons stated in its opinion (the material part of which upon this point is copied in the margin), * the defendant could not dissolve the partnership,
without reasonable cause and without the plaintiff's consent, before the expiration of the term stipulated in the partnership articles, and therefore that the partnership had not
been dissolved by the acts of the defendant, but that, as each partner was permitted by those articles to draw out of the partnership $125 a month for personal expenses, the defendant should have been allowed the sum of $3,000 as personal expenses for the two years during which he conducted the business of the firm, and that the judgment should be modified by deducting one-half of this sum, and, so modified, be affirmed for the sum of $10,540.53. 9 Utah 236. The defendant appealed to this Court.