Owen v. Cohen
1941 Cal. LEXIS 455, 19 Cal. 2d 147, 119 P.2d 713 (1941)
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Rule of Law:
A court of equity may decree the dissolution of a partnership when a partner's willful and persistent breach of the partnership agreement, or other misconduct, destroys trust and cooperation and makes it not reasonably practicable for the partners to carry on the business together, even if the partnership was created for a specific term or undertaking.
Facts:
- On January 2, 1940, Owen (plaintiff) and Cohen (defendant) entered into an oral partnership agreement to operate a bowling-alley business.
- The partners did not set a definite term, but agreed that a $6,986.63 loan from Owen to the partnership would be repaid out of the business's profits.
- The bowling alley opened on March 15, 1940, and was profitable for a short period.
- Shortly after opening, significant disagreements arose regarding the management of the business.
- Cohen refused to perform substantial work, stating he had not worked in 47 years and did not intend to start, and that he would act as manager while Owen performed the manual labor.
- Cohen engaged in conduct to humiliate Owen in front of employees and customers and told an acquaintance that Owen would not be there very long.
- The partners disagreed on policy matters, including Cohen's desire to open a gambling room and his dissatisfaction with the agreed-upon weekly salary.
- Cohen began appropriating small sums of money from the partnership funds for his own use without Owen's knowledge or consent.
Procedural Posture:
- Owen (plaintiff) filed an action in equity in a California trial court seeking the dissolution of his partnership with Cohen (defendant).
- The trial court appointed a receiver to take control of the partnership business pending the outcome of the litigation.
- Following a trial, the court found in favor of Owen, concluding the partnership was dissoluble both because it was a partnership at will and due to Cohen's misconduct.
- The trial court entered a decree dissolving the partnership and ordering the sale of its assets.
- Cohen (appellant) appealed the trial court's decree to the Supreme Court of California. Owen is the appellee.
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Issue:
Does a partner's conduct that creates constant dissension, destroys all confidence and cooperation between the partners, and makes it not reasonably practicable to carry on the business justify a court-ordered dissolution of the partnership?
Opinions:
Majority - Curtis, J.
Yes, a partner's conduct that makes it not reasonably practicable to carry on the business justifies a court-ordered dissolution. Although the trial court erred in finding the partnership was one at will—as the agreement to repay Owen's loan from profits implied a term lasting until the debt was paid—the dissolution decree is affirmed on other grounds. Courts of equity may order dissolution where quarrels and disagreements are so severe that all confidence and cooperation between the parties has been destroyed or where one partner's misbehavior materially hinders the proper conduct of the business. Cohen's persistent endeavors to dominate the enterprise, his refusal to work, his humiliation of Owen, and his appropriation of partnership funds constituted conduct that made it impossible to carry on the business to their mutual advantage. Such conduct falls under Civil Code § 2426, which permits dissolution when a partner willfully commits a breach of the agreement or otherwise makes it impracticable to continue the business with him. Because Cohen's own misconduct necessitated the dissolution, he cannot insist on the continuation of the partnership to repay Owen's loan from profits.
Analysis:
This case establishes that a partner's persistent misconduct, even if composed of individually trivial acts, can collectively create grounds for judicial dissolution of a partnership. It clarifies that a partnership for an implied term (e.g., until a debt is repaid) is not immune from dissolution if one partner's actions make the business relationship untenable. By preventing the wrongdoing partner from enforcing the original terms of the agreement (repayment from profits), the decision underscores the equitable principle that a party cannot benefit from their own breach. This precedent empowers courts to look beyond the formal terms of a partnership agreement to the practical realities of the partners' relationship when determining if dissolution is appropriate.
