Story Case

Homer Still and Edgar Beach were partners in the contracting business. When the partnership contract was made, no time was agreed upon for the continuance of the firm and it was understood that the partnership was one at will, with the right in either party to terminate upon notice. Still was the business manager of the firm, and Beach, the construction foreman. After the firm had been in business for some time, Still made an especially attractive contract in his own name, without the knowledge of Beach, and, after the contract was executed, informed Beach that he elected to terminate the partnership agreement. Beach maintained that Still did not have the right to terminate the partnership in this manner, and that he must account to Beach for part of the profits made on this last contract. What are the rights of the parties?

Ruling Court Case. Howell Vs. Harvey, Volume 5 Arkansas Reports, Page 270; Same Case, Volume 39 American Decisions, Page 376

The firm of John Howell & Co., composed of John Howell, John D. Howell and John Harvey, was engaged in the business of selling dry goods. By the partnership agreement no time limit was placed upon the continuance of the firm. Therefore, the partnership was one at will. Harvey was frequently absent and seemed careless and often negligent about the business. For these reasons, but without any previous complaint or warning to Harvey, John Howell dissolved the partnership, took all the goods, books and accounts into his own hands and excluded Harvey from all participation in the business.

At the time Howell published the notice of dissolution, merchants were realizing large profits upon their stocks and goods; they were being sold readily at an advance of fifty to one hundred percent. The Court found, as a matter of fact, that Howell dissolved the relation for the sole purpose of receiving the advantage of these high profits, and not because of the incompetency of Harvey.

Decision

As a general rule, it is the undoubted right of any member of a partnership at will to dissolve the relation. This is not an absolute right, however, and must be exercised reasonably and in good faith. The Court found that the defendant, Howell, exercised the right here for the purpose of making additional profit which would have been shared by Harvey, in case the firm had not been dissolved; and the plaintiff is entitled to damages for the wrongful dissolution by the defendant at this time.

Mr. Justice Lacey said in part: "As a general rule, contracts subsisting during pleasure are naturally and necessarily dissolvable by the mere exercise of the will of either of the parties. * * * In cases of equity we think the true rule to be this; - to enable one partner to dissolve at will the partnership, two things must occur; first, the renunciation must be made in good faith; and secondly, it must not be made at an unreasonable time." Upon the finding of fact that Howell had acted in bad faith in dissolving the partnership, the Court decided that the plaintiff was entitled to damages.

Ruling Law. Story Case Answer

A partnership at will is one, the life of which has not been determined by the partners. They have merely entered into the relation, without agreeing upon the time when it shall come to an end. In respect to this character of partnership, the general rule is, that any partner may withdraw at any time and work a dissolution of the firm. Yet, this right is subject to certain restrictions; a partner may not do this at an unreasonable time; and he must do it in good faith.

In the Story Case, Still did not act in good faith in terminating the partnership so as to defeat Beach of his share of the profits in the attractive contract. The Court would compel Still to account for part of the profits.