Douthart v. Logan , 190 Ill. 243 ( 1901 )

Counsel on both sides have evinced great research and ability in their argument of the question whether or not there was a good will in the partnership business of F. G. Logan Co., which, upon the death of one of its members, Daniel Butters, should have been inventoried and caused to be appraised by the surviving partners, and sold by the order of the court for the benefit of the co-partnership estate. It would be interesting to consider the question as a legal one, so fully argued by counsel, whether or not the business was of such a character as that, independent of contract, there would be a good will belonging to the partnership. We are satisfied, however, from a careful consideration of the evidence, that, as a question of fact, there was no good will as an asset of the firm, and that it was intended by the co-partners that there should be none. It cannot be doubted that it would have been competent for the partners to contract with each other that there should be no good will, to be considered as property or as an asset of the co-partnership. Such a contract might be expressly made, or it might arise by implication from other contracts and the acts and conduct of the parties in interest. From the time Butters became interested with F. G. Logan as a partner, in 1891, until his death, in 1896, there were not less than five different partnerships of which they were constituent members, formed, conducted, dissolved and settled in a formal, business-like manner, each of them limited in duration to a year or less time, and, as a rule, each different from the others as to its membership, except that F. G. Logan and Butters were members of each successive firm. Logan had been in the business for many years, and if there had been a good will it would have been one chiefly of his own creation. In none of these several partnerships, nor upon the books, was any account taken or mention made of any good will, and each was dissolved and fully settled, releases were signed and receipts passed between the partners without regard to or mention of any good will of the business. On March 1, 1894, at the termination of the co-partnership for the year then expiring, Butters, by his writing, assigned to F. G. Logan and F. K. Dunn, members of the then late firm, among other things, all his right, title and interest in and to all the assets, of every name, nature and description, then or theretofore belonging to said firm of F. G. Logan Co.; and in March, 1895, upon a dissolution and settlement of the succeeding co-partnership, Butters executed a similar assignment, not so comprehensive in its language but apparently intended to settle and dispose of his partnership interests in the then late firm, and the several partners, including Butters, wrote upon the face of the balance sheet of their several partnership accounts, and signed, the following:

"We have examined the trial balance as shown by our books March 1, 1895, which represents all assets and liabilities, of every kind, of the present firm of F. G. Logan Co., closing absolutely all old affairs and books up to that date to the entire satisfaction of each one of us, and we hereby give receipts in full, each to the other, for everything up to that date.

"Dated at Chicago, June 22, 1895.

F. G. LOGAN, D. BUTTERS, F. K. DUNN."

On the same date a new firm was formed, under the same name, by Logan, Butters and Dunn, which was dissolved in October of the same year by Dunn's retirement, and a new firm was then formed by Logan, Butters and Theron Logan, to expire March 1, 1896. In the settlement with Dunn no account was had or mention made of any good will, and in the written adjustment it was stipulated as follows: "Each member has examined all accounts and books and found them satisfactory, that they are closed to date, except as to bills receivable, and they agree and receipt, each to the other, in full as above." A similar settlement and receipting was had March 1, 1896, when the firm was formed which existed when Butters died, in August of the same year. The two Logans, Butters and Bryan constituted this firm. Each person, on becoming a member of the firm, paid in the amount of capital as stipulated in the articles of co-partnership, but was not charged anything for good will. In none of the contracts or books or settlements or receipts was a good will ever mentioned, but the written assignment of Butters to Logan and Dunn, in 1894, was comprehensive enough to pass all interest he might then have had in any such good will. No new member coming into any of the different partnerships which were formed ever paid anything for good will of the business, and no retiring partner ever received anything for any such good will. Butters paid nothing for it, and if he acquired such an interest by virtue of the partnership relation prior to 1894, he then assigned it to Logan and Dunn, and his subsequent settlements, receipts and conduct precluded the idea that there was any good will of the business in which he had any interest. Logan had not contracted away his right to do business in his own name, and he had a right to organize a new firm to do business in his own name on the dissolution of the old. The partnership lease of the place of business was of no assignable value because it was not assignable, but was voidable at the option of Logan. The leases of private wires were equally valueless for purposes of transfer beyond the rental, for they were at will, and such wires could be had by any one for the same prices. We are satisfied, therefore, that the surviving partners did right in not including in their inventory a good will of the business, and that the chancellor of the circuit court properly held that there was no good will to be accounted for or sold.

As to the open trades which the firm had at the death of Butters, his estate was credited with his proportion of one-half of the commissions which were earned when they were fully carried out and settled. The evidence shows that in crediting the old firm with one-half of such full commissions the new firm really created for and allowed to Butters' estate a fund which it would not otherwise have received. It was necessary to carry on the business at an expense much greater than their value to realize anything from them. No sale or other disposition could have been made of them to the advantage of any one, and the plan adopted produced much more for Butters' estate than could have been realized in any other way. His executor has no ground of complaint.

The only question remaining to be considered relates to the proper division of the profits realized by the surviving partners in carrying on the business of the late firm after Butters' death, on August 12, 1896, until October 10, 1896, when they ceased to do so and organized the new firm. Under the articles of agreement Butters, while he contributed but one twenty-fourth of the capital, was entitled to six thirty-seconds of the business, and by the decree of the circuit court his executor was allowed the same share of the profits after the death of Butters and while the business of the late firm was continued by the surviving partners as was provided for Butters in the partnership contract. The Appellate Court, however, reversed this part of the decree and held that appellant was entitled to only one twenty-fourth of such profits, — that is, to a share in the profits in the same ratio that Butters' capital, used and employed by the surviving partners in the business, bore to the whole profits made during such period. We are of the opinion that the decision of this question by the Appellate Court was correct. By the death of Butters the partnership was ipso facto terminated. Neither partner continued, as before, to be the agent of the others in the partnership affairs, and it became the duty of the surviving partners to proceed at once to settle the partnership estate. The surviving partners became trustees, on the death of Butters, of the partnership estate, and sustained the fiduciary relation of trustee to Butters' executor, the cestui quetrust, in the matter of Butters' interest. (Nelson v. Hayner,66 Ill. 487; Galbraith v. Tracy, 153 id. 54.) After the death of Butters there was a community of interest between the surviving partners and the representative of Butters' estate in the adjustment of their partnership interests, but the partnership had only a limited continuance for that purpose. (Nelson v. Hayner, supra.) In continuing the business the surviving partners could no longer bind Butters or his estate and no longer had the benefit of his services, and the contract of partnership as to any new business being at an end, it ought not necessarily to furnish a basis for the division of such profits, but, on the contrary, the fiduciary relation which the surviving partners sustained to the representative of Butters' estate in the use of his capital and property in the business as continued by them, should, in the application of the facts, furnish the proper guide. And the rule which the authorities seem to have laid down in such cases, and which appears to be the equitable one, is, that the representative of the estate of the deceased partner is entitled to that proportion of the profits earned by the wrongful use of the deceased partner's capital in continuing the business by the surviving partners which such capital bore to the entire capital of the co-partnership, — which in this case was one twenty-fourth, — or, at the option of such representative, to have his share of the capital returned, with interest thereon. (Lindley on Partnership, — Ewell's ed. — 976; Robbinson v. Robbinson, 146 Mass. 167; Freeman v.Freeman, 142 id. 98; Durbin v. Barney, 14 Ohio, 311; Burnie v.Vandever, 16 Ark. 616; Gates v. Finn, L. R. 13 Ch. Div. 839.) In the case at bar, the executor of Butters was the attorney of the firm, and the business was continued by the surviving partners in good faith, with his knowledge and acquiescence but without any agreement with him, for the period mentioned of nearly two months. The surviving partners accounted for and paid to him the one twenty-fourth part of such profits, together with Butters' share of the capital, and we are of the opinion that this was all they were required to do. The judgment of the Appellate Court is affirmed.

Judgment affirmed.