Story Case

Porter Addington, Homer Stilwell and James Bryce were partners in a manufacturing business, each owning a $10,000 interest in their plant. Addington died, and during the week following his death, Stilwell and Bryce made a contract with Howard Evans to sell him the greater portion of the product of the plant then on hand. When the executor of Addington learned of this, he objected, on the ground that the surviving partners had no right to make such a contract, but should have permitted the product of the plant to be divided between them, the executor taking the share which belonged to Addington. "Was the executor right in making such a demand?

Ruling Court Case. Steivart Vs. Robinson, Volume 5 Lawyers' Reports, Annotated, Page 410

Colewell and Hepworth entered into a partnership for the purpose of manufacturing and selling centrifugal machines. By the terms of their agreement, Colewell was to furnish $4,000 in cash, as capital. Hep-worth was to devote his time and attention to the business, in lieu of paying cash towards the capital. It was also provided in their agreement, that the copartnership should continue until dissolved by mutual consent, or terminated by six months' notice, in writing, by one party to the other; and that, "in the event of the death of either, the business shall be continued by the survivor, until the expiration of five years next succeeding the death of said partner, the estate of the deceased partner to have the same share and interest in the profits, and to bear the same share of the losses of the business as would have been received or borne by the deceased, had he lived." Colewell died before the firm was dissolved, and by his will, the defendant, Robinson, was appointed trustee and executor of his estate. Hepworth continued the business in the old firm name, and contracted large indebtedness in the name of the firm. This is an action by a creditor on a debt which was incurred by Hepworth, subsequent to the death of Colewell. The plaintiff sues the defendant, as executor of the estate of the deceased partner, seeking to charge the estate for his claim.

Decision

Death of a partner, as a general rule, dissolves the firm, after which, the surviving partner has the right to conduct the business, only for the purpose of closing it up. He has no right to continue the business other than for that purpose. However, by special agreement, it may be provided that in case of the death of one partner, the survivor shall continue the business. Such agreements are strictly construed, however. Unless it clearly appears otherwise, the only liability which can be charged against the deceased partner is as against the interest which he had in the firm at his death.

Here, there is nothing to show that Colewell wished to risk all his property in the business, as conducted by the survivor. Accordingly, it was held that the creditors of the firm could not proceed against the separate property of the deceased to get satisfaction for claims which arose after the death of Colewell.

Ruling Law. Story Case Answer

Where a partnership is voluntarily dissolved by mutual consent, or where it is dissolved by the withdrawal of one member, if proper notice has been given, no partner has any further power to bind the others in any new business in the name of the firm. But, in the absence of any agreement to the contrary, any member may act for the purpose of closing up the business of the firm. Where the firm is dissolved by the death of a member, the surviving partner or partners have no power, whatsoever, to continue the business. They cannot engage in new transactions, make new contracts, or assume new obligations. They have, however, the power to make all necessary contracts for the purpose of closing up the business.

A deceased partner may have provided in his will that the business shall be continued by the survivor or survivors, and such an agreement is sufficient authority to entitle the survivor or survivors to continue the business. Such a provision is strictly construed, however, and unless it clearly appears to be the intention of the deceased partner, obligations incurred after his death will not be binding upon his estate to any further extent than the amount of capital invested in the firm at his death.

In the Story Case, the executor should not have made this demand, because the surviving partners have the right to dispose of the partnership property. They have the right to make firm contracts, for the purpose of bringing the business to a close, and to make a contract to sell the property is proper under this power.