A partnership formed to run a hotel for which a lease is
obtained
held, in the absence of any stipulation as to
duration, to be for the term of the lease.
Where partnerships are regulated by statute, as in Porto Rico,
the rights of one attempting to dissolve depend upon the statute,
rather than on general law applicable elsewhere.
The right to dissolve under § 1607, Civil Code Porto Rico, is
confined to partnerships the duration of which has not been fixed;
under § 1609, a partnership for fixed duration can only be
dissolved for sufficient cause shown to the court, and one
attempting to dissolve before the fixed termination and to exclude
the other from participation must account to the latter for his
share of the profits until the court decrees a dissolution in a
suit brought to dissolve.
Partnership property continues to be such after, as well as
before, dissolution.
Where one party attempts to illegally dissolve a partnership
without suit and subsequently the other brings a suit for
dissolution in accordance with the statute, the former must account
for all profits until the final decree of dissolution.
The doctrine of election is applicable as between inconsistent
remedies, but does not apply to a partner wrongfully excluded from
participation. He does not lose his right to an accounting because
he first starts an action at law which he subsequently
dismisses.
There may be a recovery at law for damages resulting from a
breach of the partnership agreement as well as an action for
accounting in equity for the same breach, and a partner wrongfully
excluded from management and profits need not wait for the end of
the period, but may show, in an action at law, his probable
profits.
One who wrongfully excludes the other partner from management of
the partnership affairs is not entitled to a salary for managing
them during such period of exclusion.
This Court can only review an improper allowance of salary to a
partner where an exception has been filed to such allowance.
Page 227 U. S. 490
Where the case has been tried in an irregular manner and items
are allowed in the final decree which do not appear in the
auditor's or master's report, this Court cannot attempt to correct
error assigned here, and will presume that the decree, so far as it
stands upon questions of fact, is supported by evidence not
objected to.
The case, in substance, is this:
The appellee, Harding, undertook to obtain a lease from the
owner of a hotel property situated in a suburb of San Juan, Porto
Rico, and an option of purchase. The parties agreed upon the
rental, term of the lease, and upon an option of purchase during
the term of the lease, but the owners required Harding to associate
himself with another person, as co-lessee, satisfactory to them.
After some negotiations, Harding arranged with the appellant, Mrs.
Zimmerman, to join him in the lease and option, and to form a
partnership to operate the hotel. Each agreed to contribute
one-half of an agreed capital, their personal services, and to
share in the profits and losses equally. The agreement of
partnership was never reduced to writing, and there was no express
stipulation as to its duration.
Under date of February 1, 1911, the owners of the hotel property
executed a lease to the partnership for the term of two years, with
right of renewal for another term of two years at an advanced
rental. This lease included an option of purchase during the term
at a price named. Thereupon the partnership took possession of the
property and its operation as a hotel. Harding undertook the office
side of affairs, and Mrs. Zimmerman the other departments. The
business seems to have run along smoothly and with profit until
about August 9, 1911, when Mrs. Zimmerman, who was in sole charge
by reason of the temporary absence of Harding upon a vacation in
the United States, assumed of her own motion to dissolve the
partnership. To this end, she notified Harding by letter that she
had dissolved the relation, and published a card in the local
papers that the partnership had been
Page 227 U. S. 491
dissolved, and that she would thenceforth conduct the business
for her own benefit. From that moment, she assumed the entire
ownership and possession of the partnership business and property.
Harding was excluded from all possession, control, or voice, and
all benefits which had accrued, she claiming that he had drawn more
than his share upon an accounting.
When Harding returned to San Juan, he at once brought an action
at law against Mrs. Zimmerman to recover damages for the breach of
the partnership contract. This suit was removed by Mrs. Zimmerman
to the District Court of the United States for the District of
Porto Rico. Thereupon Harding obtained leave to dismiss his action
at law, without prejudice, and filed this bill. Its object was to
obtain a decree of dissolution and an accounting of the partnership
affairs. The appointment of a receiver to manage the business
pending the litigation was at once sought by Harding under the
averments of the bill. This was resisted, and denied by the court.
Upon the coming in of her answer, an auditor was appointed to
report upon the partnership accounts. Mrs. Zimmerman remained in
full control of the hotel business down to the date of final
decree, May 18, 1912, by which the partnership was dissolved. At
that date, a special master was put in charge of the business to
conduct it until a sale of the assets should be had and
distribution made. The partnership property, including the
unexpired term of the lease, was sold, and the auditor's and
master's reports confirmed. The final result was that the share of
Harding in the proceeds of the business, including profits realized
to date of sale, was fixed at $3,008.02, and that of Mrs.
Zimmerman, $4,878.22. From this decree both parties have
appealed.
Page 227 U. S. 492
MR. JUSTICE LURTON, after making the foregoing statement,
delivered the opinion of the Court.
We agree with the court below that, although there was no
express stipulation as to the duration of the partnership
agreement, it was by implication to continue during the term of the
lease of the hotel property. The term had therefore not expired
when, on August 9, 1911, Mrs. Zimmerman, of her own motion,
declared it at an end. Her right to withdraw or terminate the
agreement at her own will, the agreement being for the term of the
lease, depends primarily upon the law of Porto Rico, rather than
the general law applicable elsewhere. The matter is regulated by §§
1607 and 1609 of the Civil Code of Porto Rico. These sections are
set out in the margin.
*
The suggestion is that § 1607 applies only to a case where one
partner desires to turn over the business and responsibility to the
other. This is too narrow. The plain mandate is that a dissolution
shall occur at the will or withdrawal of one partner only when the
duration of the partnership has not been fixed. Section 1609
obviously deals with a dissolution upon application to a court, for
sufficient reason shown. But whether a dissolution declared on the
motion of one of the members might be justified when later
challenged, if sufficient reason for the
Page 227 U. S. 493
act was shown, is academic, so far as this appeal is affected,
because the court below, upon oral evidence, including that of both
parties, found that no good reason in law or fact existed for the
dissolution declared on August 9, 1911, by Mrs. Zimmerman. The oral
evidence heard by the court in relation to the matter has not been
sent up, and we must presume the conclusion sound. We shall
therefore assume that the partnership continued in law until
dissolved by decree for sufficient reason on May 18, 1912. As the
court refused to appoint a receiver
pendente lite upon
Harding's application when his bill was filed, and permitted Mrs.
Zimmerman to continue to conduct the partnership business, she was
justly held accountable for Harding's share in the profits made
during that time.
The principal argument has turned upon the consequence to be
attached to the action at law brought by Harding. The claim made by
the appellant, Mrs. Zimmerman, is that the bringing of that action
was a conclusive election between two inconsistent remedies, and
that it operated as a bar to any remedy under the present bill. If
this is the case, the result must be deplored, for the dismissal of
this bill would leave Mrs. Zimmerman in full possession of the
fruits of her lawless conduct in excluding Harding from all
interest and control of the joint business, with only the right to
begin over again an action at law to recover his damages.
But we think the doctrine of the election of remedies has no
proper application here. The essential element of that rule is that
there must have been a right of choice between two remedies which
are inconsistent with each other.
Bierce v. Hutchins,
205 U. S. 340. The
argument is that the bringing of the suit at law was an election to
treat the contract of partnership as at an end, and to recover
damages for the breach, including profits prevented, while the bill
in equity was based upon the theory that the partnership was
continuing.
Page 227 U. S. 494
But that is a misconception of the bill. It states the same
facts stated in the suit at law, and alleges the illegality of the
defendant's declaration of dissolution and the plaintiff's illegal
exclusion from the control and possession of the joint property.
But the bill does not seek a restoration of the partnership
relation, nor a restoration to the joint possession or management
of the partnership business. Upon the contrary, it states that a
continuance of such relation is impossible. It therefore asked to
have the business placed at once in the hands of a receiver, and
the partnership affairs liquidated and the partnership dissolved.
This latter relief is but an incident to the liquidation sought of
a precautionary character.
Whether the partnership had been effectually dissolved by the
declaration of Mrs. Zimmerman on August 9, 1911, or not, her action
in excluding Harding from joint possession and control until the
affairs had been wound up was, upon either hypothesis, wholly
indefensible. The partnership property continued to be partnership
property after, as well as before, dissolution.
When she assumed the right to take possession for herself, and
to carry on the business with the partnership property, Harding had
a clear right to call her to account for his share in all of the
joint property, and at his election to require her to account for
the profits, by way of damages or otherwise, which he had been
prevented from making by his wrongful exclusion from the business.
Ambler v.
Whipple, 20 Wall. 546;
Pearce v. Ham,
113 U. S. 585,
113 U. S. 593;
Karrick v. Hannaman, 168 U. S. 328,
168 U. S. 337;
Holmes v. Gilman, 138 N.Y. 369.
Neither is the remedy in equity for a breach of a partnership
agreement exclusive. There may be at law a recovery of all the
damages which result, including damages for profits prevented by a
wrongful dissolution. Thus, if one member assumes to dissolve a
partnership before the end of the term, the other may bring an
action for
Page 227 U. S. 495
damages for the breach, and recover not only his interest, but
also his share of the profits which might have been made during the
term. He need not wait until the expiration of the period, and need
not go into equity for an accounting, but may at law show the
probable profits which he has been deprived of.
Bagley v.
Smith, 10 N.Y. 489;
Dennis v. Maxfield, 10 Allen 138;
Karrick v. Hannaman, 168 U. S. 328,
168 U. S.
337.
The remedy at law was in every substantial feature consistent
with that sought by his bill in equity, and no other form of suit
was admissible in the local court. Both suits were pecuniary. Both
sought compensation upon the same facts. In one, Harding sought a
judgment for damages which would include all that he could have in
equity as the result of an accounting. The jurisdiction in equity
in suits for winding up partnerships is based upon its jurisdiction
in matters of complicated accounts. A dissolution or a receivership
are mere incidents to its principal ground of jurisdiction. That,
in his equity suit, Harding sought relief in respect to some
matters not involved in or beyond the jurisdiction of the law court
does not affect the question of election. That he asked to have the
partnership formally declared dissolved by reason of the conduct of
Mrs. Zimmerman was not antagonistic to any position he assumed in
his suit at law. It was a mere incident to his right to hold her to
an accounting for his share in the business. He sought to have the
business wound up by a receiver. This Mrs. Zimmerman prevented, and
she was suffered to remain in sole possession. If she has been held
to account for the profits made during that time, she cannot
complain.
It has been assigned as error that Mrs. Zimmerman was allowed
salary for her service in the management of the business after she
assumed to be managing for herself. The partnership contract made
no provision for the allowance of salaries to either partner. In
the view
Page 227 U. S. 496
of the court below, the exclusion of Harding from joint
possession and management was without authority. In such
circumstances, it seems inconsistent that Mrs. Zimmerman should be
allowed for services which she wrongfully took upon herself because
she had unlawfully excluded Harding from participation. Probably
upon the theory that her management had resulted in profit in which
Harding was permitted to share, it was thought equitable that she
should be compensated. However this may be, and reluctant as we are
to its allowance (
Karrick v. Hannaman, cited above), we
are unable to find that any exception was filed to the allowance in
the auditor's report. It does appear that the court directed the
auditor to reduce the amount, which was done. But whether that was
done upon an exception to the amount as excessive, or to any
allowance at all, we have no information.
There is also an objection to a charge against Harding of $618
on account of some trouble with his accounts for bar receipts. The
credit was made by order of the court in the final decree. There is
no trace of the item in either the auditor's or master's reports.
This would be ordinarily enough to justify us in shutting the item
out. But this case seems to have been proceeded with in a most
irregular way. There are references in the opinion and in the
auditor's report to oral evidence and oral statements which have
not been made a part of the transcript. If the parties elect to try
a case in such an irregular way, we must presume that the decree,
so far as it stands upon questions of fact, was supported by
evidence not objected to.
All of the assignments must be overruled and the decree
affirmed.
*
"Section 1607. The dissolution of the partnership by the will or
withdrawal of one of the partners shall only take place when a term
for its duration has not been fixed, or if this term does not
appear from the nature of the business. In order that the
withdrawal may be of effect, it must be made in good faith at the
proper time; notice thereof shall also be given to the other
partners."
"Section 1609. No partner can demand the dissolution of a
partnership which, either by a provision of the articles or by the
nature of the business, has been constituted for a specified time
unless there should exist sufficient reason, such as when one of
the partners fails to comply with his obligations or when he
becomes incapacitated for the partnership business, or any other
similar cause, in the judgment, of the courts."
