Johnson v. Kennedy
214 N.E.2d 276, 350 Mass. 294 (1966)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A partnership formed by an oral agreement without a specified duration or particular undertaking is a partnership at will, which any partner may lawfully dissolve at any time without violating the partnership agreement.
Facts:
- In April 1961, plaintiffs Johnson and Walker, along with defendant Donald C. Kennedy, formed an oral insurance agency partnership named Triangle Insurance Agency, agreeing to one-third interest each, but with no agreement on the partnership's duration.
- In April 1962, Kennedy began devoting full-time to Triangle, while Johnson and Walker continued to work part-time, and it was agreed Kennedy would receive a $100 weekly salary when the business could afford it.
- In August 1963, the partners retained counsel to prepare a written partnership agreement that provided for a 25-year duration from January 1, 1964, with a meeting scheduled for December 16, 1963, to sign it.
- In early December 1963, Kennedy secretly consulted an attorney about owning the business himself and arranged for the Triangle bank accounts to be held jointly with his wife, later transferring the funds to new secret Boston bank accounts.
- On December 14, 1963, Kennedy secretly removed all books, records, and furniture from the shared office to another location a block away, where he immediately opened for business under the Triangle name.
- The scheduled meeting on December 16, 1963, to sign the written partnership agreement, did not occur due to Kennedy's actions.
Procedural Posture:
- On December 17, 1963, plaintiffs Johnson and Walker brought a bill in equity in the trial court (court of first instance) against Kennedy for an accounting and damages, alleging wrongful dissolution, and Kennedy counterclaimed for unpaid compensation and contribution for legal defense costs.
- A master was appointed by the trial court and filed an initial report finding the dissolution wrongful and assessing damages.
- The trial court recommitted the case to the master for an accounting, after which a supplemental report was filed detailing the debits and credits.
- Kennedy objected to the master's reports and moved to expunge the finding of wrongful dissolution and the assessment of damages, while Johnson and Walker moved to confirm the reports.
- An interlocutory decree was entered by the trial court judge, expunging the finding of wrongful dissolution and the assessment of damages, but confirming the reports as thus modified, leading to the entry of a final decree.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does the termination of an oral partnership with no specified duration constitute a wrongful dissolution, entitling the other partners to damages for breach of agreement?
Opinions:
Majority - Kirk, J.
No, the termination of an oral partnership with no specified duration does not constitute a wrongful dissolution, and the other partners are not entitled to damages for breach of agreement. The court held that because the oral agreement between Johnson, Walker, and Kennedy did not specify a definite term or particular undertaking, the Triangle Insurance Agency was a partnership at will. Under G. L. c. 108A, § 31(1)(b), dissolution can be caused 'Without violation of the agreement between the partners ... By the express will of any partner when no definite term or particular undertaking is specified.' Therefore, Kennedy's termination of the partnership, however 'unseemly in manner and method,' was not a legal wrong because any partner has the right to lawfully dissolve a partnership at will. The unexecuted written agreement, which would have specified a 25-year duration, did not alter the nature of the existing partnership as one at will. Since the dissolution was not wrongful, the partners were only entitled to an equal share of the firm's assets, and damages based on the firm's value as a continuing enterprise were not appropriate. The court affirmed the lower court's finding that the dissolution was not wrongful, but modified the final decree by dismissing Kennedy's counterclaim and the bill as to Marjorie Kennedy.
Analysis:
This case clarifies that the absence of a definite term in a partnership agreement, especially an oral one, designates it as a partnership 'at will,' affording any partner the legal right to dissolve it without liability for wrongful dissolution. It highlights the critical importance of clearly defining the partnership's duration in a written agreement to protect partners' investments and expectations. The decision differentiates between a partner's legal right to dissolve an at-will partnership and the ethical impropriety of their methods, emphasizing that the law prioritizes the terms of the agreement over the 'unseemly' conduct of a dissolving partner in determining wrongfulness. This ruling serves as a strong reminder for aspiring entrepreneurs to secure formal, comprehensive partnership agreements.
