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
Page 168 U. S. 329
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,
Page 168 U. S. 330
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
----------
$23,337.58
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
----------
$15,875.12
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
Page 168 U. S. 331
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,
Page 168 U. S. 332
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
Page 168 U. S. 333
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.
MR. JUSTICE GRAY, after stating the facts in the foregoing
language, delivered the opinion of the court.
Much of the argument for the appellant was devoted to a
discussion of conflicting evidence, which is not open to
examination by this Court, its authority upon appeal from the
supreme court of a territory being limited to the question whether
the facts found by that court support its judgment.
Haws v.
Victoria Co., 160 U. S. 303;
Harrison v. Perea, ante, 168 U. S. 311.
The principal question of law discussed in the opinion of the
supreme court of the territory, and at the argument in this Court,
was whether a partnership which, by the co-partnership articles, is
to continue for a specified time, can be dissolved by one partner
at his own will, without the assent of the other, before the
expiration of that time.
It is universally conceded that a contract of partnership,
containing no stipulation as to the time during which it shall
Page 168 U. S. 334
continue in force, does not endure for the life of the partners,
or of either of them, nor for any longer time than their mutual
consent, but may be dissolved by either partner at his own will at
any time.
Peacock v. Peacock, 16 Ves. 49;
Crawshay v.
Maule, 1 Swanst. 495;
Neilson v. Iron Co., 11
App.Cas. 298; 3 Kent, Com.; Story on Partnership § 269.
Upon the question how far the status or relation of a
partnership, which by the partnership agreement is to continue for
a certain number of years, can be determined by one partner without
the consent of the other before the expiration of that time there
has been some difference of opinion.
The principal reasons and authorities in favor of the position
that a contract of partnership for a definite time cannot be
dissolved at the mere will of one partner are stated or referred to
in the opinion of the supreme court of the territory in this case,
reported in 9 Utah 236.
Those which support the opposite view may be summed up as
follows: a contract of partnership is one by which two or more
persons agree to carry on a business for their common benefit, each
contributing property or services and having a community of
interest in the profits. It is, in effect, a contract of mutual
agency, each partner acting as a principal in his own behalf and as
agent for his co-partner.
Meehan v. Valentine,
145 U. S. 611.
Every partnership creates a personal relation between the partners,
rests upon their mutual consent, and exists between them only.
Without their agreement or approval, no third person can become a
member of the partnership, either by act of a single partner or by
operation of law, and the death or bankruptcy of a partner
dissolves the partnership. 3 Kent Com. 25, 55, 58;
Wilkins v.
Davis, 2 Lowell 511. So, an absolute assignment by one partner
of all his interest in the partnership to a stranger dissolves the
partnership, although it does not make the assignee a tenant in
common with the other partners in the partnership property.
Bank v. Carrolton
Railroad, 11 Wall. 624,
78 U. S. 628;
Marquand v. New York Mfg. Co., 17 Johns. 525, 528, 535. No
partnership can efficiently or beneficially
Page 168 U. S. 335
carry on its business without the mutual confidence and
cooperation of all the partners. Even when, by the partnership
articles, they have covenanted with each other that the partnership
shall continue for a certain period, the partnership may be
dissolved at any time at the will of any partner, so far as to put
an end to the partnership relation and to the authority of each
partner to act for all, but rendering the partner who breaks his
covenant liable to an action at law for damages, as in other cases
of breaches of contract.
Skinner v. Dayton, 19 Johns. 513,
538; 3 Kent, Com. 54, 55, 62;
Cape Sable Co.'s Case, 3
Bland 606, 674;
Monroe v. Conner, 15 Me. 178, 180;
Mason v. Connell, 1 Whart. 381, 388;
Slemmer's
Appeal, 58 Pa.St. 168, 176;
Blake v. Dorgan, 1 Greene
(Iowa) 537, 540;
Solomon v. Kirkwood, 55 Mich. 256,
259-260. According to the authorities just cited, the only
difference, so far as concerns the right of dissolution by one
partner, between a partnership for an indefinite period and one for
a specified term, is this: in the former case, the dissolution is
no breach of the partnership agreement and affords the other
partner no ground of complaint. In the latter case, such a
dissolution before the expiration of the time stipulated is a
breach of the agreement, and, as such, to be compensated in
damages; but in either case, the action of one partner does
actually dissolve the partnership.
A court of equity doubtless will not assist the partner breaking
his contract to procure a dissolution of the partnership, because,
upon familiar principles, a partner who has not fully and fairly
performed the partnership agreement on his part has no standing in
a court of equity to enforce any rights under the agreement.
Marble Co. v.
Ripley, 10 Wall. 339,
77 U. S. 358.
But, generally speaking, neither will it interfere at the suit of
the other partner to prevent the dissolution, because, while it may
compel the execution of articles of partnership so as to put the
parties in the same position as if the articles had been executed
as agreed, it will seldom, if ever, specifically compel subsequent
performance of the contract by either party, the contract of
partnership being of an essentially personal character. Batten on
Specific Performance
Page 168 U. S. 336
165-167; Lindley on Partnership, bk. 3, c. 10, § 4; Pomeroy on
Specific Performance § 290;
Scott v. Rayment, L.R. 7 Eq.
112;
Satterthwait v. Marshall, 4 Del.Ch. 337, 354;
Reed v. Vidal, 5 Rich.Eq. 289;
Somerby v. Buntin,
118 Mass. 279, 287. Especially where, by the partnership agreement,
as in the case at bar, the defendant is to supply all or most of
the capital and the plaintiff is to furnish his personal services,
the agreement cannot be specifically enforced against the
plaintiff, and will not be enforced against the defendant.
Stocker v. Wedderburn, 3 K. & J. 393, 404;
Buck v.
Smith, 29 Mich. 165.
In the somewhat analogous case of a contract of hiring and
service, it is well settled that a court of equity cannot compel
the performance of the service, although it may in some cases
enforce a negative stipulation not to serve any third person within
the time agreed.
Dietrichsen v. Cabburn, 2 Phil.Ch. 52,
59, and cases cited;
Lumley v. Wagner, 1 D., M. & G.
604;
Wolverhampton & Walsall Railway v. London &
Northwestern Railway, L.R. 16 Eq. 433, 440;
Whitwood
Chemical Co. v. Hardman (1891), 2 Ch. 416;
Davis v.
Foreman (1894), 3 Ch. 654; 13 Law Quarterly Review 306;
Tobey v. Bristol, 3 Story, 800, 824.
We are not prepared, therefore, to assent to the opinion of the
court below that a partnership for a definite time cannot be
dissolved by one partner at his own will, and without the consent
of his co-partner, within that time, and consequently that the
partnership between these parties was not dissolved on February 1,
1888, when the defendant assumed exclusive possession and control
of the business and property of the partnership, and excluded the
plaintiff from any participation therein. But it is unnecessary to
express an opinion upon this point, because, however it might be
decided, it would not affect the conclusion in favor of the
plaintiff in the present case.
Even if the partnership should be considered as having been
actually dissolved at that date, yet the dissolution did not put an
end to the plaintiff's right to his share in the property and the
profits of the partnership. In a case in which both parties,
Page 168 U. S. 337
in their pleadings, assumed the partnership to have been
dissolved, this Court, speaking by Mr. Justice Miller, held that
drunkenness and dishonesty on the part of one partner, and his
consequent exclusion from the business, did not authorize his
co-partner, "of his own motion, to treat the partnership as ended,
and to take himself all the benefits of their joint labors and
joint property," or exempt him from responsibility to account to
the excluded partner.
Ambler v.
Whipple, 20 Wall. 546,
87 U. S.
555-557. And, in a later case, the Court, speaking by
Mr. Justice Woods, said:
"However the question may be decided, whether one partner may by
his own mere will dissolve a partnership formed for a definite
purpose or period, it is clear that, upon such a dissolution one
partner cannot appropriate to himself all the partnership assets,
or turn over the share of his partner to another with whom he
proposes to form a new partnership."
Pearce v. Ham, 113 U. S. 585,
113 U. S.
593.
A partner who assumes to dissolve the partnership before the end
of the term agreed on in the partnership articles is liable, in an
action at law against him by his co-partner for the breach of the
agreement, to respond in damages for the value of the profits which
the plaintiff would otherwise have received.
Bagley v.
Smith, 10 N.Y. 489;
Dennis v. Maxfield, 10 Allen 138.
In a court of equity, a partner who, after a dissolution of the
partnership, carries on the business with the partnership property
is liable, at the election of the other partner or his
representative, to account for the profits thereof, subject to
proper allowances.
Ambler v. Whipple and
Pearce v.
Ham, above cited;
Hartman v. Woehr, 3 C. E. Green (18
N.J.Eq.) 383;
Freeman v. Freeman, 136 Mass. 260;
Holmes v. Gilman, 138 N.Y. 369; 3 Kent, Com. 64.
In the case at bar, by the terms of the agreement in writing,
dated February 3, 1886, under which the partnership was formed, it
was to continue for five years -- that is to say, until February 3,
1891. The plaintiff was to contribute $5,000, and the defendant
$20,000, to the capital. The defendant lent the plaintiff the sum
of $5,000, for which the plaintiff gave his promissory note,
payable at the end of the five years. The plaintiff was to have the
general management of the business. Each
Page 168 U. S. 338
partner might draw out not exceeding $125 a month for personal
expenses. The profits and losses were to be shared equally, and
neither partner was to have any other compensation for services,
and their title in the partnership property was to be in proportion
to their contributions to the capital.
By the facts found by the courts of the territory, it appears
that the business was carried on according to the agreement for two
years, or until February 1, 1888; that the defendant then took
exclusive possession of the property and the business of the
partnership, and thenceforth carried on the business profitably and
for his own benefit, and excluded the plaintiff from any
participation in the business or the profits, although the
plaintiff was, as he informed the defendant, ready and willing to
perform his part of the partnership agreement, and the defendant,
on January 1, 1890, a year before the expiration of the term agreed
on, and without the plaintiff's knowledge or assent, sold out and
delivered to a stranger all the property of the partnership.
The judgment of the court of first instance charged the
defendant with the amount of capital paid by the plaintiff into the
partnership, deducting, however, the whole amount of the
plaintiff's promissory note payable to the defendant at the end of
the term of five years, and further charged the defendant with half
of the net profits of the business during the two years that he
carried it on, after ousting the plaintiff, and before selling out
to a stranger, and with half of the wrongful disbursements of the
defendant afterwards. The supreme court of the territory, affirming
the judgment in other respects, held that as by the agreement of
partnership, each partner was permitted to draw out a certain sum
monthly for personal expenses, the defendant was entitled to such
an allowance monthly for the two years during which he conducted
the business, and the same should be deducted from the profits to
be accounted for, and the judgment in favor of the plaintiff
reduced accordingly. The court made no such allowance to the
plaintiff, and, in accordance with the partnership articles,
neither partner was allowed any compensation for his services other
than his half of the profits.
Page 168 U. S. 339
It does not appear to have been suggested by the defendant in
either of the courts of the territory, and could not successfully
be contended, that, in estimating the damages or the profits which
the plaintiff was entitled to recover, any deduction should be made
by reason of his not having performed during those two years the
services, as manager of the business, which he had agreed by the
partnership articles to perform. No finding as to the value of such
services was made or requested, and the defendant himself, not only
refused to let the plaintiff, as he offered to do, perform them
during those two years, but, in his answer and at the hearing
before the referee, insisted that the plaintiff's services as
manager were of no benefit to the partnership.
The result is that whether the partnership should or should not
be considered to have been dissolved when the defendant ousted the
plaintiff and assumed the exclusive possession and control of the
property and business of the partnership, the defendant has shown
no ground for reversing or modifying the final decree of the
supreme court of the territory.
Decree affirmed.
*
"Where the partnership is merely at will, the right of one
partner to terminate it must be conceded; but where, by agreement,
it is to continue for a time stipulated, the party seeking a
dissolution before the expiration of the time ought, in justice at
least be required to act in good faith, and at a reasonable time,
and in a reasonable manner. In the case of a partnership for a
stipulated time of duration, where the business has been
established, is becoming profitable, and has good future prospects,
to allow one of the partners
sua sponte to expel the
other, and dissolve the partnership with a view to appropriate the
business to himself would be to adopt a doctrine at once
inequitable and unsupported by either reason or justice. There
seems to be no good reason why a person should be allowed to commit
a breach of his contract in such case, while in all other cases of
flagrant violation not within the partnership he would be compelled
to specifically perform if it was within his power to do so. Why
should a partner be thus allowed to ruin the business of the firm
from mere caprice, or of his own volition, without cause, and in
violation of his agreement, and sacrifice the entire object of the
partnership? That such a violation may entitle the injured partner
to damages is no answer, for damages, in many cases, must
necessarily prove to be utterly inadequate to compensate for the
destruction of a profitable and growing business, and besides, this
mode of redress is usually slow and unsatisfactory, and is not a
remedy that will or can do complete justice between the parties.
Where there is such a breach between the partners as to render
continuance impossible, or when dissension has dispelled the hopes,
prospects, and advantages which induced its formation, or if, for
any just cause, the partnership ought to be dissolved before the
expiration of the term, then a court of equity is competent to
grant relief. But it would scarcely seem to come within the
principles of justice to permit one partner to expel another from a
profitable business for some real or fancied wrong or
mismanagement, and then continue the business himself, and profit
by his own wrong, responsible only in damages."
"Mr. Justice Story, in his Commentaries on the Law of
Partnership, § 275, speaking of the power of one partner to
dissolve the partnership where the time of duration is stipulated,
says:"
"In cases where the partnership is, by the agreement, to endure
for a limited period of time, the question whether it may within
the period be dissolved by the mere act or will of one of the
partners, without the consent of all the others, does not seem to
be absolutely and definitely settled in our jurisprudence, although
it would not seem, upon principle, to admit of any real doubt or
difficulty. Whenever a stipulation is positively made that the
partnership shall endure for a fixed period, or for a particular
adventure or voyage, it would seem to be at once inequitable and
injurious to permit any partner at his mere pleasure to violate his
engagement, and thereby to jeopard, if not sacrifice, the whole
objects of the partnership; for the success of the whole
undertaking may depend upon the due accomplishment of the adventure
or voyage, or the entire time be required to put the partnership
into beneficial operation."
"In
Gerard v. Gateau, 84 Ill. 121, Mr. Justice Scott,
delivering the opinion of he court, said:"
"A party who is the author of the ill feeling between himself
and partners ought not to be permitted to make the relation he has
induced the ground of a dissolution of the partnership. His conduct
may have been taken with a view to that very result, and it would
be inequitable to allow him advantage from his own wrongful acts.
It would allow one partner, at his election, to put an end to his
own deliberate contract when the other has been guilty of no
wrongful act or omission of duty. The results flowing from a
premature dissolution of a partnership might be most disastrous to
a partner who had embarked his capital in the enterprise."
"So, in
Henn v. Walsh, 2 Edw.Ch. 129, the
Vice-Chancellor said:"
"A partnership agreement, like any other, is binding upon the
parties, and they must adhere to its terms. Neither partner is at
liberty to recede from it against the will of the other without a
sufficient cause. Mere dissatisfaction by one partner will not
justify him in filing a bill for a dissolution where, by the
express agreement, it is to continue for a definite term, and this
Court will not interfere to dissolve the contract upon such
ground."
"The views thus expressed have the apparent support of most
elementary writers, and seem to be in conformity with the doctrine
prevailing in England. The contrary doctrine, if not indefensible,
is founded on reasons exceedingly artificial. It is based on the
ground that one partner has the right to found his claim, real or
otherwise, to immediate safety and indemnity, on an obvious injury
to the interests and rights of another, which is alike inequitable
and unjust, and we think it is not supported by the weight of
authority. Story on Partnership, §§ 275, 276; Story, Eq.Jur. § 673;
Lindley on Partnership [bk. 4, c. 1, (5th ed.)] p. 575, § 2;
Ferrero v. Buhlmeyer, 34 How.Pract. 33;
Pearpoint v.
Graham, 4 Wash. C.C. 232;
Peacock v. Peacock, 16 Ves.
49;
Cash v. Earnshaw, 66 Ill. 402;
Van Kuren v.
Trenton Co., 13 N.J.Eq. 302."
