Page v. Page

California Supreme Court
10 Cal. Rptr. 643, 55 Cal. 2d 192, 359 P.2d 41 (1961)

ELI5:

Rule of Law:

A partnership is at will unless the partners agree, either expressly or impliedly, to a definite term or the completion of a particular undertaking; a mere hope that the business will be profitable enough to repay its debts is not sufficient to establish a partnership for a term. However, the power to dissolve an at-will partnership must be exercised in good faith and not to wrongfully appropriate the partnership's business.

Facts:

In 1949, brothers George B. Page (plaintiff) and H.B. Page (defendant) entered into an oral partnership agreement to operate a linen supply business.
Each partner contributed approximately $43,000 to purchase land, machinery, and linen for the business.
From 1949 to 1957, the partnership was unprofitable, accumulating losses of about $62,000.
The partnership's major creditor is a corporation wholly owned by plaintiff George B. Page, which holds a $47,000 demand note from the partnership.
In 1958, due in part to the establishment of a nearby Air Force base, the business began to turn a profit.
Following this turn to profitability, George B. Page expressed his desire to terminate the partnership.
Defendant H.B. Page testified that he believed the partnership was intended to continue until the business's profits had paid for itself and repaid all obligations.

Procedural Posture:

Plaintiff George B. Page filed a suit for a declaratory judgment to have the partnership declared 'at will' in the trial court.
The trial court entered a judgment declaring the partnership to be for a definite term, namely for the reasonable time necessary to repay its debts from profits.
Plaintiff George B. Page appealed the trial court's judgment to the Supreme Court of California.

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Issue:

Does a partnership agreement create a partnership for a definite term, rather than at will, merely because the partners hope or expect that the business's profits will be sufficient to pay off its debts and recoup their investments?

Opinions:

Majority - Traynor, J.

No. A partnership agreement does not create a partnership for a definite term simply because the partners expect the business to be profitable enough to repay its debts. The evidence showed only a common hope that the partnership would be successful and pay its expenses, which is a feature of all partnerships and does not, by implication, establish a 'definite term or particular undertaking' as required by the Uniform Partnership Act. While other cases have found an implied term where there was a specific understanding to repay a loan or recoup an investment from profits, no such specific understanding was proven here. However, although the partnership is at will and plaintiff has the power to dissolve it, this power is constrained by the fiduciary duty of good faith owed between partners. A partner cannot dissolve an at-will partnership in bad faith to 'freeze out' a co-partner and appropriate the business's new prosperity for himself without providing adequate compensation.

Analysis:

This decision clarifies the high evidentiary bar for implying a partnership for a definite term, distinguishing a mere hope for profitability from a specific, agreed-upon undertaking. It reinforces that the default status of a partnership without an express duration is 'at will.' More significantly, the case establishes a crucial limit on the power to dissolve an at-will partnership by importing the concept of fiduciary duty. It creates a precedent that a dissolution motivated by bad faith—specifically, to seize a newly profitable business opportunity from a co-partner—is 'wrongful,' subjecting the dissolving partner to liability for damages.

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