Hagan v. Dundore

Collins, J., delivered the opinion of the Court. This is an appeal from an order of the Circuit Court for Baltimore County overruling a demurrer to a bill of complaint filed therein. The substantial allegations shown by the bill and exhibits filed on January 8, 1945, by the appellee, Harry A. Dundore, hereinafter referred to as the appellee, follow: The appellee and the appellant, James A. Hagan, hereinafter referred to as the appellant, for some years past, had been partners trading as Diecraft Engraving Company. On May 18, 1944, they agreed that the partnership theretofore existing should be dissolved as of March 31, 1944, the appellant retiring from active participation in the operation of the business after March 31, 1944.

The same parties on May 18, 1944, entered into a new written partnership agreement, being a partnership at will, to become effective as of April 1, 1944. An original ⁸⁸ copy of the agreement executed by both parties .and a balance sheet and statement of the partners’ capital account as of March 31,1944, were filed therewith. The appellee, in strict compliance with the terms of the new partnership agreement, has faithfully conducted the business of •the concern, which is engaged in a highly confidential and specialized work connected with the war effort in- the making of dies, precision tools, and other instruments. Before April 1, 1944, the appellant gave part of his time to the partnership business, but certain events made it desirable for him to retire from any active participation in the business on March 31, 1944.

Thereafter the appellee alone has conducted the business. No large capital is required but the success depends entirely on engineering ability and technical skill and labor. The appellant for the period from «April 1, 1944, to December 31, 1944, was credited with his share of the profits in the amount of $58,249.50, and he withdrew during that same period $52,571.79. During that time he was not on the property, took no part in the operation of the business, and was free to engage in other business, even a competing one if he so desired.

At the time of the filing of the bill of complaint the appellant’s interest in the partnership was $42,885.23, subject to disputed claims of approximately $5,000.00 and to renegotiation liabilities. At that time the interest of the appellant in the capital and profits of the partnership business was 35 per cent, and that of appellee 65 per cent. On December 29, 1944, the appellee received a letter, dated December 28th, from the appellant and. his attorney by which the aforesaid partnership existing between the parties to this case was dissolved. This letter, filed as an exhibit, was the first intimation the appellee had that the appellant desired to dissolve the partnership.

Upon receipt of this letter the appellee offered to purchase from the appellant his interest in the partnership for the sum of $41,154.52, which was agreed upon as the value of said interest. A meeting was held to consum ⁸⁹ mate this transaction and appellee was prepared to pay this sum in cash upon receipt of a deed and assignment of appellant’s interest. The appellant, however, refused to consummate said transaction and through his attorney proposed to buy appellee’s interest in the partnership. Pursuant to Paragraph 9 of the partnership agreement, the appellee then sent by registered mail, return receipt requested, to the appellant, a letter dated January 4, 1945, in which appellee exercised the option given him to purchase all of the interest of the appellant in the partnership, including the real estate, for a sum not exceeding the book, value of the share of appellant in the partnership.

Paragraph 9 of the partnership agreement provides as follows: “The said Harry A. Dundore shall have the right and option to purchase from the said James A. Hagan at any time during the life of this partnership agreement, upon ten days notice in writing any portion or all of the interest of James A. Hagan, including his interest in fee simple property known as 1500 Guilford Ave., Baltimore, Md., for a sum not exceeding the book value of the share of the said James A. Hagan in said partnership. In the event the said Harry A. Dundore exercises his said option to purchase a part or parts’ of the interest of James A. Hagan, the sum or sums so paid by him to said James A. Hagan, shall be added to the capital investment of said Harry A. Dundore and deducted from the capital investment of said James A. Hagan; and from and after the date of said payment or payments by said Harry A. Dundore, the net profits shall be divided between the partners according to the ratio of their respective remaining capital interests to the capital of said business and in the same manner as provided in Paragraph 8 (a) and (b) above.” The appellant, by letter, denied the right of the appellee to exercise the option claimed under Paragraph 9 aforesaid. The partnership has been conducted solely by the appelee since April 1, 1944, and prior thereto was operated by appellee, with but little, if any, assistance from the ⁹⁰ appellant. The partnership business has been successful and highly remunerative.

Neither the appellant nor any other person or group of persons is qualified to conduct the business. Should the appellant, either individually or through his appointee and representatives, participate in the liquidation of the business and the completion of orders the interest of the appellee will be adversely affected and irreparably damaged. The appellant or his representatives have a right to examine the books for the purpose of determining the book value of appellant’s interest. The appellee is willing to pay into Court the book value of appellant’s interest and tó file bond to protect appellant.

Appellee is ready and willing to pay and has offered to pay for appellant’s interest. The appellant, through his attorney, stated that he is about to file suit to have the partnership placed in receivership, which appellant has no right to do. If such a suit is brought it will irreparably damage appellee, lessen the morale of the employees, and. to a material extent slow up production and prevent the acceptance of future contracts. The relief asked is that the Court declare and determine by the true and proper construction of the partnership agreement dated May 18, 1944, that the appellee possesses the right and option to purchase the interest of appellant in the partnership in accordance with the terms of the agreement; that appellee effectively exercised his said option by the letter of January 4, 1945, aforesaid; that the appellant be required to perform specifically by assigning his interest in the partnership to appellee for its book value; that the book value of the interest of appellant as of December 28, 1944, be determined; that ah injunction be issued enjoining and restraining appellant from interfering with the further, operation of the partnership other than the right to examine the books and accounts to determine the book value of his interest therein; that an injunction be issued restraining the appellant from instituting any suit for a ⁹¹ receiver of the partnership, pending the determination of the instant case; and for other and further relief.

The Chancellor by order overruled the demurrer to this bill of complaint, and from that order the appellant appeals here. In passing on the matters here presented, we are of course confined to the pleadings in the case. Appellant contends that this is a partnership at will and as the agreement provides that the appellee shall have the right to purchase from the appellant at any time during the life of the partnership agreement, upon ten days notice in writing, that this option cannot be exercised by the appellee after the agreement has been terminated and the partnership, at will of either partner, dissolved. It is further contended that the subject matter of the option, “any portion or all of the interest of James A. Hagan”, and the price “for a sum not exceeding the book value of the share of the said James A. Hagan in said partnership.

In the event the said Harry A. Dundore exercises his said option to purchase a part or parts of the interest of James A. Hagan, the sum or sums so paid by him to said James A. Hagan”, are too uncertain, indefinite, and vague to make the option enforceable. Appellee admits in the sixth paragraph of his bill that by the letter from appellant of December 28, 1944, hereinbefore referred to, that the partnership was dissolved. It is not admitted, however, that the partnership agreement was thereby dissolved. In the case of Corr v. Hoffman, 256 N. Y. 254 , 176 N. E. 383, 390 , a copartnership was formed by a written agreement for a term of three years.

In this agreement was a provision that “It is further understood and agreed that should the party of the first part (Hoffman) * * * desire, at any time before the end of the term of this contract, to purchase the interest of the party of the second part (Corr) the party of the second part will assign, set over and transfer unto the party of the first part * * * all his right, title and interest in said copartnership by the paying to him* * * of a sum * * *.” ⁹² One of the questions before the Court in that case was whether the parties in continuing the partnership after the expiration of the term of the written contract, by implication agreed to continue during the existence of the partnership at will, the right conferred upon Hoffman, by the written contract, to purchase his partner's interest. That Court decided at Pages 272 and 273 of 256 N. Y., at Page 391 of 176 N. E., that “Continuance of the partnership by consent of the parties, though without express contract, may not evidence an intention to renew the partnership contract for another fixed term; it does show an unmistakable intention to continue the existing partnership relations indefinitely; and, since the