Story Case

Arthur Zane, a druggist, said to Martin Burns, an old and faithful employee, "Martin, I want to make you a partner in my business, provided you desire this relation. You agree to work another year as you have been doing, and I'll give you a fourth interest in the business. That is, you will receive one-fourth of the profits at the end of the year, based on a fourth ownership." Burns answered, "Very well, when shall we begin?" The reply came, "Right now." Nothing more was said about the matter until four months later when Zane said to Burns, "Martin, at the end of this month you may leave, for I won't need your services any more." Burns refused to go, saying that he was a partner in the business, and demanded an accounting. Zane contended that a partnership did not exist, since there were no articles of partnership signed by the parties. In an action, whom should the Court sustain?

Ruling Court Case. Mcmurtrie Vs. Guiler, Volume 183 Massachusetts Reports, Page 451; Same Case, Volume 67 Northeastern Reports, Page 358

Guiler and another were partners in the business of mechanical engineering. McMurtrie, the plaintiff in this action, entered their employ as an assistant, on a salary. While working for them, he received a very much better offer; the defendants, in order to induce the plaintiff to remain with them, offered to receive him into the firm as a partner. No written articles of partnership were prepared, but it was understood and agreed between them that the plaintiff should receive from the profits of the business at least $2,400 annually, and possibly more. Without further and more definite arrangements, the plaintiff continued to work in the business; at the end of the year a dispute arose as to the relation which the plaintiff bore to the firm; he left the concern, and brought this action, claiming at least one quarter part of the profits as his share. The defendants contended that since there was no agreement as to the proportion in which the parties were to share the profits, that there was no complete contract, consequently, there was no way of ascertaining his share, and he should not be permitted to recover anything as profits from the firm.

Decision

As between the parties to an alleged partnership, it becomes a question of intention, as to whether a given person is a partner. The evidence in this case was sufficient to sustain the conclusion reached by the lower court that such intention existed. The fact that the contract was informal, and incomplete in some respects, is not material, for equity has the power to adjust the proportion in which they shall share, if in fact the intention to make the plaintiff a partner existed.

Mr. Justice Braley said: "There was enough to show that a going business enterprise was in existence, to which, by mutual consent, the plaintiff was admitted. He, in common with the defendants, contributed his services as a contracting and mechanical engineer, and with them was to share in the profits of their joint undertaking; and this is all that is necessary, as a matter of law, to sustain the finding. * * * We are not prepared to hold that, because it was left undetermined by their agreement what share the plaintiff was to take in the profits, a court of chancery must dismiss his bill, and allow the defendant to hold the result of his labor and skill for their exclusive benefit. Where the contract is silent, equity will adjust the rights of the partners to profits on the basis of what their intention was as shown from all the facts of the case."

The Court, having determined that the plaintiff was entitled to share in the profits, the parties themselves agreed upon the amount to which the plaintiff was justly entitled.

Ruling Law. Story Case Answer

At common law, no formalities were required for the formation of the relation of partnership; the contract might be express or implied; oral or in writing; sealed or unsealed. It is quite apparent that persons, entering into the relation, for their own convenience and protection, should formulate their agreement in writing.

Under the Statute of Frauds, an agreement to form a partnership in the future, not to begin or to be formed within a year from the time of the agreement is made is unenforcible. Also a partnership which is formed to continue for more than a year cannot be enforced. But if the parties enter into the relation and transact business, the courts will treat it as a partnership at will, but not governed by their contract. Sufficient was said and done, in the Story Case, to make Zane and Burns partners and the latter should have his action as a partner for an accounting.