Howell v. Harvey

5 Ark. 270

• Court: Supreme Court of Arkansas
• Decided: July 15, 1843
• Status: Published

Opinion

By the Court,

Lacy, J.

It is said that the bill should have been dismissed upon the hearing for the want of proper parties. We think otherwise. The necessary parties were all before the court. The firm of John Howell & Co. was composed of John B. Harvey, John Howell and John B. Howell, and the record shows that ho one else had anyfinterest in their business, or the settlement of their accounts; Shanklin had not the most remote connection with the partnership concern. Harvey bought an interest in a stock of goods of John Howell and credited a note that he and Shanklin jointly held on Howell and McConnel with the amount of the purchase money. This he had a right to do. Should Harvey have used more than his just proportion of this joint note, he unquestionably would be answerable over to Shanklin; but then it is manifest that this mere possible liability of Harvey would give Shanklin no interest in the partnership concern, nor would it entitle him to be made a party to the present suit. Smith was originally one of the partners with Harvey and Howell, but after continuing in the firm eight or nine months, he sold and conveyed all his interest to John B. Howell, with the consent and approbation of the other partners. As it is evident that John B. Howell was substituted as a partner in the firm in the place of Smith, he of course was subrogated to all the rights and privileges of Smith, who has no interest in the present suit. The rule on the subject of making the necessary parties in suits of equity, is so plain and universal that it can neither be mistaken nor misapplied. All persons should be made parties, who have au interest in the matters in dispute, or who may be benefilted or injured by the decree. This rule has been followed in the present instance, and therefore it was proper to hear the cause upon its merits. Wendell vs. Van Rensalaer, 1 J. C. R. 349. People vs. Dalton, 8 Price 1. Duff vs. E. J. Co., 15 Ves. 213, 227. The business was to be conducted in the name of John Howell and company, and Howell and Harvey were to share an equal moiety of the profits and loss with Smith; and upon the dissolution of the partnership, Smith was to be reimbursed for the excess of his advances with six per cent, interest. Smith and Howell agreed to advance the necessary funds, as far as practicable to keep up a supply of goods, and Harvey was to attend to selling them while at home. Smith, as was before stated, sold and conveyed to John B. Howell all his interest on the 16th of December, 1838; thereupon Howell was admitted as a partner with all Smithes rights, and he took upon himself the discharge of all his duties. The bill states that the complainant performed his part of the agreement and that John Howell and John B. Howell violated their contract in not furnishing the necessary supplies of goods for the store; that John Howell went to Philadelphia and bought a large stock of goods and shipped them in his own name, and on his return advertised a dissolution of the co-partnership with the consent of John B. Howell in the absence of the complainant and against his will. It avers that John Howell took all the goods, books and accounts into his own hands, and excluded Harvey from all participation in the business. The bill makes John Howell and John B. Howell defendants, and prays an account may be taken; that the partnership may be continued or dissolved as the equity of the case may be, and it concludes with a prayer for general relief.

The answers admit most of the material allegations of the bill. The answer of John Howell insists that he, together with Smith, had purchased the necessary supplies for the store, and that he bought the goods at Philadelphia, on his own account and shipped in his own name, and that he excluded the complainant from intermeddling with the partnership effects and from taking charge of the goods of himself, and that he dissolved the firm, as he had the right to do, because the complainant was guilty of gross negligence and misconduct in not attending to the business of the firm, and in absenting himself unnecessarily from the State.

A partnership, in its most significant and extended sense, is a voluntary contract of two or more persons for joining together their money, goods labor and skill, or either or all of them, upon an agreement that the gain or loss shall be divided proportionably between them, and having for its object the advancement and protection of fair and open trade. Gow. on Part. p. 1. Story on Part. p. 1. 1 Pothier Pand. Lib. 17, tit. 2. Introd. 1 Domat Civ. Law, B. 1, tit. 8, 1st art. This is, substantially, the definition given by all the writers on the subject, and it embraces within its terms and spirit all the principal obligations and duties of the contract. It is perfectly clear upon principle, as well as authority that wherever the conditions of the partnership are incapable of being fulfilled, or the fruits arising from the agreement cannot be properly enjoyed, that such a case furnishes a good cause for the renunciation of either party. Under such circumstances the further continuance of the partnership would be productive of serious inconvenience and great injury to the other partners, and might end in their immediate ruin or the utter prostration of the business. Story on Partnership, 419, 421. The same doctrine is fully borne out by the civil law, and is illustrated by the case of a partner, where one of the partners is grievously oppressed with insolvency, or where from some bodily infirmity he is unable to discharge his engagements. The jurisdiction of a court of equity in cases of co-partnership flowing from the peculiar trusts and duties growing out of that connection, is of the most extensive and beneficial character. It often declares partnerships utterly void, in cases of fraud, imposition and oppression in the original agreement; or decrees a dissolution of a partnership which was unobjectionable in its origin, but which subsequent causes have rendered onerous and oppressive; gross misconduct, want of good faith, or criminal want of diligence, or such cause as is productive of serious and permanent injury in the partnership concerns, or renders it impracticable to carry on the business, is good ground for a dissolution at the suit of the injured partner. Habitual drunkenness, great extravagance or unwarrantable negligence in conducting the business of the partnership, justifies a dissolution; but then it must be a strong and clear case of positive or meditated abuse to authorize such a decree. For minor misconduct and grievances, if they require redress, the court will interfere by way of injunction to prevent the mischief. Story on Partnership, 4, 14, 15.

The application of the principles here stated will test the conduct of the complainant and show whether or not the defendant, John Howell, was justified in renouncing the co-partnership at the lime and under the circumstances of the present case. The proof is somewhat contradictory on this point; still the weight of the testimony, both in respect of numbers and the circumstances detailed by the witness, is clearly with the complainant. The articles of partnership show that the defendants were to furnish the funds to keep up the necessary supplies, when it was in their power to do so, and that the complainant was to attend to selling the goods while he remained at home. The terms of this agreement clearly indicate that the parties never contemplated that slight neglect or accidental failures of their respective engagements should dissolve the partnership. The articles of the partnership conclusively show that the parties themselves looked to unequivocal demonstrations of gross acts of abuse and misconduct, where the injury would be imminent and irreparable, to authorize a dissolution. It is true that the complainánt was absent in Kentucky upon several occasions, but then, business or his family afflictions seem to have called and detained him there; and the proof is that Howell was apprised of his absence, and so far from objecting to his going the last time to Kentucky, or making it a cause of complaint against him, that upon the eve of starting to Philadelphia to purchase goods, he urged the complainant to endeavor to get back against his return and be ready to receive the goods. This the complainant tried to do, but was detained by the sickness of his family, and did not arrive until after Howells return with the goods, which he claims to have purchased for himself, and until after he had published the dissolution of the co-partnership. Howell, it seems, never intimated a wish or desire to dissolve the co-partnership before he started to Philadelphia. The testimony is that in the opinion of some of the witnesses, the complainant was not a very profitable or attentive partner, but it wholly fails to establish such overt acts of misconduct or gross negligence as would authorize a dissolution of the partnership.

In the present case the partnership was to continue during the pleasure of the contracting parties. It is therefore strictly a partnership at will, and subject to the rules that govern such agreements. Chancellor Kent says, that it is an established principle of the law of partnership, that if it be without any definite period, any party may withdraw at a minute’s notice when he pleases, and dissolve the partnership. The existence of engagements with third persons will not prevent the dissolution though their engagements will not be affected by the act. He admits that cases may occur where reasonable notice might be advantageous, but he holds it not to be requisite; and he adds that a party may, in a case free from fraud, choose an unreasonable time for the dissolution. The exception he makes in a case of fraud, indicates to our minds that the rule is not so unbending or universal, as it is laid down, unless the limitation is intended to include those cases where the renunciation is made in good faith and at a proper time. As a general principle, contracts subsisting during pleasure, are naturally and necessarily dissolvable by the mere exercise of the will of cither of the parties, and this is the principle according to the civil law under ordinary circumstances, and to such an extent is it carried that a positive stipulation against the dissolution at the will of either of the parties will be held utterly void, as inconsistent with the true nature and'intent of such relation. In cases of equity, we think the true rule to be this, that to enable one partner to dissolve at will the partnership, two things must occur, first, the renunciation of the partnership must be in good faith, and secondly, it must not be made at an unreasonable time. This is the doctrine of the Civil Law, and of the code of Louisiana, and Potheirlays down the same rule, and inculcates it in the same manner; for, he says that no partner has a right -to prefer his own particular interest to that of the firm, or to take away its profits, or to appropriate them to his own private advantage, and it is upon this principle that, while a partner is engaged in business, courts of equity will restrain him from like pursuits. He has no right to divert from the firm the diligence, skill or capital that rightfully belongs to it. The French Civil Law expresses the whole law upon the subject in the following brief terms: “Dissolution o; partnerships, says Domal, by the will of one of the parties, applies only to partnerships the duration of which is unlimited and is effected by a renunciation notified to all the partners; provided such renunciation be bonajide, and not made at an improper time.” Renunciation is held not to be made bonajide, where one partner renounces in order to appropriate to himself the profits, which the partners are entitled to receive. It is said to be made at an improper time, when the things are no longer entire that were of consequence to partnership, and which should have deferred the dissolution. A partnership for á limited period of time cannot be dissolved at the mere pleasure of one pf the parties, within the time prescribed. On the contrary, it only can be dissolved from just motives and for a reasonable cause. There is an implied understanding that the partnership shall continue to the expiration of the term, unless where one partner fails in his engagements, or any habitual infirmity renders him unfit to carry on the business, or where the renunciation is for the benefit of the partnership and not for the advantage of the dissolving partner. The' principle here stated is extracted from all the authorities by Justice Story, and fully approved by him in his complete anfi admirable treatise upon partnerships. In cases where the partnership is to endure for a limited period of time, the question, whether within that period it may be dissolved by the mere act and will of one of the partners, without the consent of the others, is not definitively or absolutely settled, says Justice Story, in our jurisprudence. He clearly intimates, if ever such a case should arise, where one partner claimed the right, sua sponte, of dissolving the partnership, that he possesses no such power: and he takes the distinction between a court of equity dissolving the partnership, and that of a partner, acting upon his own caprice and pleasure, dissolving the engagement. He admits the doctrine to be somewhat different according to the Roman Law; but he denies that a partner has aright to found his own claim to immediate indemnity and safety by committing a known injury on the interest and privileges of his co-partners: and in this opinion he is fully sustained by many elementary writers and a number of adjudged, cases of unquestionable authority. Gow. on Partnership, ch. 5, sections 1, 288, 219, 225, 226. 3 Collyer on Part., B. 1, ch. 2, sec. 2, p. 62; 2 Edit. Kent's Com., sec. 43, p. 61; 4 Edit. Peacock vs. Peacock, 16 Ves. 56. Crashway vs. Maul, 1 Swanst. 495. Pearpoint vs. Graham, 4 Wash. C. C. Rep. 234.

The partner who breaks off the partnership with an unfair design,. or for selfish objects, discharges his co-partners from all liabilities to him, but he does not thereby free himself from his obligations to them. When he quits the partnership, that he may buy for himself what the partnership has a right to purchase, or that he may make a profit for his own advantage and to their prejudice, he is answerable to the community for the loss and damage; and so, if he quits at an unreasonable time, which occasioned a deprivation of profit to the community,’it is but right he should repair and make good such loss. Potheir Pand. Lib. 17, tit. 2, n. 64 to 68. Domat B. 1, tit. 8, sec. 5;. art. 1 to art. 8, by Straham. Story on Partnership, 383 to 420.

The proof in this case clearly shows that Howell renounced the partnership for his own private advantage, and not to benefit the firm. He said nothing to his partner of his wish to dissolve until his return from Philadelphia. He then advertised a dissolution of the firm, and seized all th* goods and effects into his own bands. While he was in partnership with Harvey, he had no right to purchase the goods in his own name; for in doing so, he would have acted in bad faith, and besides, Harvey would have been answerable for the purchase. Was it more to Howell’s interest, or to the firm’s that the dissolution should take place at the time it did ? The answer to this inquiry is neither difficult nor doubtful. At the time Howell published the dissolution of the co-partnership, merchants were realizing large profits upon their stock, and goods were sold readily at an advance of fifty to one hundred per cent. Did he not dissolve the partnership that he might buy for himself and realize this profit? Were not the other partners of the firm prejudiced in their business, and he benefited by the transaction? Were not his motives sinister and selfish, and did he not withdraw from the community at an unwarrantable time and in bad faith? The proof leaves no doubt upon this subject, and if the rules and principles above stated be correct, then he is unquestionably answerable to the complainant for the damages he may have sustained. That damage seems to have been calculated and awarded upon a correct basis. The Chancellor, in rendering the decree, debited and credited each of the partners in conformity to the articles of agreement, with their respective advances and expenditures, taking a list of the notes and accounts furnished by the books, and properly auditing them; and he then charged Howell with fifty per cent, profit upon the whole amount of goods he purchased at Philadelphia, as well, as the stock on hand belonging to the firm. In this calculation and adjustment, we perceive no error. Decree affirmed.