168 U.S. 328 42 L. Ed. 484 18 S. Ct. 135 SCDB 1897-024 1897 U.S. LEXIS 1728

KARRICK v. HANNAMAN.

APPEAL FROM THE SUPREME COURT OF THE TERRITORY OF UTAH.

No. 12.

Argued October 27, 28, 1896.

Decided November 29, 1897.

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 TJtah, by Hannaman against Karriok 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 $5000, and the defendant $20,000; the. defendant lent the plaintiff the sum of $5000 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 *329net 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 *330the 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 $2616.25 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 per cent yearly from January 1,

1890, to October 5, 1891, on $8258.87, the difference between $10,875.12 and $2616.25 uncollected January 1, 1890. 1,165 41

Total amount due to plaintiff.;.$12,040 53

*331From 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 tó and investments in the partnership; and that the sum of $12,040.53 was therefore owing to the plaintiff. The court confirmed 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 adopted the findings of fact in the district court, and held that, for the reasons stated in its opinion, (the material part of which upon this point is copied in the margin,1) the defendant could not dissolve the partnership, *332without 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 *333been 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 ’$3000 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. J. M. Wilson for appellant. Mr. J. G. Sutherland, Mr. A. Howat and Mr. G. W. Bennett were on his brief.

Mr. Joseph L. Rawlvhs for appellee. Mr. Parley L. Williams was on his brief.

Mb. Justice Gbay,

after stating the case, 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, cunte, 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 copart-nership 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 *334continue 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. Mossend Iron Co., 11 App. Cas. 298; 3 Kent Com. 53; 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 ihterest 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 copartner. 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, 628; Marquand v. New York Manuf. Co., 17 Johns. 525, 528, 535. No partnership can efficiently or beneficially *335carry 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 Maine, 178, 180; Mason v. Connell, 1 Whart. 381, 388 ; Slemmer's Appeal, 58 Penn. 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 notion 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, 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 Per*336formance, 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 Michigan, 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 & Worthwestern 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, tb 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 copartner, 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, *337in- their pleadings, assumed the partnership to have been dis: solved, 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 copartner, “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, 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 oyer the share of his partner to another with whom he proposes to form a new partnership.” Pearce v. Ham, 113 U. S. 585, 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 a.t law against him by his copartner 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. T. 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 $5000, and the defendant $20,000, to the capital; the defendant lent the plaintiff the sum of $5000, 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 *338partner might draw out not exceeding $125 a month for per- . sonál expenses; the profits arid 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 counts 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, 1-890, 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 coürt 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 thé.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 tp 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.

*339It does not appear to have been suggested by. the defendant in either of the courts of the Territory, and could not successfully he 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.

Karrick v. Hannaman
168 U.S. 328 42 L. Ed. 484 18 S. Ct. 135 SCDB 1897-024 1897 U.S. LEXIS 1728

Case Details

Name
Karrick v. Hannaman
Decision Date
Nov 29, 1897
Citations

168 U.S. 328

42 L. Ed. 484

18 S. Ct. 135

SCDB 1897-024

1897 U.S. LEXIS 1728

Jurisdiction
United States

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