THE LAW OF PARTNERSHIP (PART 2) DISSOLUTION OF PARTNERSHIP 1. The dissolution of a partnership is the putting an end to its existence. The causes of dissolution are numerous. They have been classified into events which, of themselves, amount to a dissolution without any judicial declaration of that fact, and events or acts which are ground for dissolution, but require a judicial decree to effect it. The first class includes chiefly changes in the membership of the firm, which always cause a dissolution, since they operate as a breach of the partnership contract. It is subdivided into events that operate as a dissolution by act of the law, and those that operate as a dissolution by acts of the partners. 2. Dissolution by Act of the Law. -The death of a partner operates as a dissolution, and his executors, administrators, or heirs have no right to succeed to his place in the conduct of the business of the firm, even when he has expressly declared it to be his will that they should do so, unless the other partners consent. If, however, the articles of partnership so provide, either expressly or by implication, the death of a partner will not work a dissolution. The bankruptcy of a partner causes an immediate dissolution of the partnership, and any act done thereafter by the bankrupt as a partner is of no effect.' By the decree of bankruptcy, the bankrupt partner becomes civilly dead, as far as the partnership effects and creditors are concerned, and his assignee or trustee in bankruptcy becomes his 128 Pa. 287 (1857). For notice of copyright, see page immediately following the title page personal representative, the same as an executor or administrator. But this rule only applies to a bona-fide bankruptcy, and, if the adjudication of bankruptcy be obtained for no other purpose than to effect a dissolution of the partnership, it will not be allowed to have that operation. As a general rule, the mere insolvency of a partner, not accompanied by an assignment of his property for the benefit of his creditors, will not dissolve the firm, though, in some states, it has such an effect; and the mere insolvency of the firm itself will not dissolve it." A declaration of war puts an end to all commercial dealings between the citizens or subjects of the nations or powers at war, and places every individual of the respective governments, as well as the governments themselves, in a state of hostility; and it dissolves commercial partnerships existing between the subjects or citizens of the two contending parties prior to the war, for their continued existence would involve community of interest and mutual dealings between enemies." Civil war, especially when sectional, brings with it all the consequences in this regard, which attend upon and follow a state of foreign war. Equally with foreign war, it renders commercial intercourse unlawful between the contending parties, and dissolves commercial partnerships. 3. Dissolution by Act of the Partners. - A partnership, at will, may be dissolved at any time by the withdrawal of any one of the partners,' and the withdrawing partner will not be liable in damages to the others. In order to effect such a dissolution, notice must be given to all the partners of the intention to dissolve. Implied notice is sufficient, however. The notice cannot be withdrawn and the partnership continued without the consent of the other partners." The dissolution takes effect from the time the notice is received. 25 II. 427 (1843). 3 22 Wall. (U. S.) 395 (1874). 49 Cush. (Mass.) 356 (1852). 5 28 Pa. 279 (1857). 691 U. S. 7 (1875). 8 L. R. 18 Eq. (Eng.) 265 (1874). When a partnership is formed for a specified purpose, or for the prosecution of a particular enterprise, it is not a partnership at will, though no time be fixed for its duration, but is regarded as intended to continue until the purpose is accomplished, or the enterprise completed, and, hence, is essentially one for a fixed term. It has been very strongly questioned whether one partner can withdraw at his pleasure from a partnership for a fixed term before the term is completed; but it would seem to be now settled, by the weight of authority as well as of reason, that any partnership may be dissolved at will, subject to a liability to recompense the other partners for any damage they may suffer in consequence.1° The right of a partner to dissolve, it is said, "is a right inseparably incident to every partnership. There can be no such thing as an indissoluble partnership. Every partner has an indefeasible right to dissolve the partnership as to all future contracts by publishing his own volition to that effect; and, after such publication, the other members of the firm have no capacity to bind him by any contract. Even where partners covenant with each other that the partnership shall continue seven years, either party may dissolve it the next day by proclaiming his determination for that purpose; the only consequence being, that he thereby subjects himself to a claim for damages for a breach of his covenant. The power given by one partner to another to make joint contracts for them both, is not only a revocable power, but a man can do no act to divest himself of the capacity to revoke it." The damages recoverable from a partner for his unjustifiable withdrawal include anticipated profits for the remainder of the term fixed by the articles of partnership." In cases of great hardship, a court of equity may restrain a partner from withdrawing as against the will of his copartners; but only in extreme cases." A partnership may be dissolved at any time, without any attendant liability, by the mutual consent of all the partners; and the abandonment of the enterprise and 96 Ill. App. 229 (1880). 10 58 Pa. 168 (1868). 11 10 N. Y. 489 (1853). 1255 Mich. 256 (1884). winding up of the business, or the refusal of the partners to continue to act under the partnership agreement, . is sufficient to establish a dissolution, without any formal agreement to that effect."3 The formation of a corporation by the members of a firm, for the purpose of carrying on the partnership business, is strong evidence of a dissolution, but not conclusive." The expiration of the period fixed for its duration, or the completion of the enterprise for the prosecution of which it was formed, operates as an immediate dissolution of a partnership," unless it be continued by agreement, either express or implied; and, in the latter case, it is really a new partnership, though its members be the same. A partnership at will is dissolved by the transfer of a partner's interest to a stranger." Such a transfer will, as a general rule, operate as a dissolution of a partnership for a fixed term, at the election of the other partners; and independently of that, if an accounting and settlement of the partnership affairs be necessary to ascertain the value of the interest transferred." The above rule applies only to voluntary sales to a purchaser who may act as a partner; a sale under execution," or an assignment for the benefit of creditors," operates as an absolute dissolution. The assignment of part of an interest," or the pledge of the entire interest as collateral security," will not effect a dissolution, so long as the assignee or pledgee retains any interest and no new member is introduced into the firm. An assignment for the benefit of its creditors, executed by a firm, will dissolve it," as will the sale or destruction of the entire property of a firm whose sole business was dealing in or managing such property." Where there are only two partners, a sale by one to the other of all his interest in the firm necessarily dissolves the 13 109 II. 94 (1884). 14 67 Wis. 210 (1886). 15 33 Minn. 408 (1885). 16 13 Pa. 67 (1850). 17 109 Ill. 94 (1884). 189 N. J. Eq. 62 (1852). 19 29 Hun (N. Y.) 146 (1883). 22 72 Pa. 409 (1872). 23 partnership; but where there are more than two, a sale to one will not necessarily operate as a dissolution as to the remaining partners, and still less will a sale to the firm. Before the enactment of the married women's property acts, the marriage of a female partner, being in effect a transfer of her interest to her husband, was held to dissolve a partnership, as it will still where those acts do not permit a married woman to act as a partner." A partnership between a man and woman will be dissolved by their marriage." The foregoing rules are all founded on the principle of the delectus personarum, or choice of persons; and, consequently, do not apply where that principle is not in force, as in mining partnerships" or partnerships with transferable shares. In such, a transfer of a partner's interest cannot work a dissolution.28 4. Events Which Justify Dissolution. - The circumstances which will justify a court in decreeing that a partnership be dissolved on the application of one or more of the partners are numerous and various. The test is whether they be such that it will be unfair to compel the applicant to continue longer as a partner. When a partner has been induced to enter the partnership by the fraud or misrepresentation of another, the relation will be dissolved;" but the complaining partner must have declared and acted upon his choice to disaffirm the contract within a reasonable time after the discovery of the imposition practiced upon him. In decreeing a dissolution for fraud in the formation of the partnership, the parties will be restored to their original positions, as far as it is practicable; and though the rights of creditors who have given credit to the firm will not be affected, the defrauded partner will be entitled to indemnity against his liability as a partner.3° = 24 13 Pa. 67 (1850). 25 61 Tex. 437 (1884). 2652 Mich. 3 (1883). 295 Ark. 278 (1843); 34 Ch. Div. (Eng.) 582 (1886). 3034 Ch. Div. (Eng.) 582 (1886); 10 B. Monr. (Ky.) 429 (1850). |