A Practical Treatise on the Law of Partnership

into between the plaintiff Marshall, and the defendants Colman and others, by which it was agreed, (amongst other things), that their business, that of wholesale linendrapers, should be carried on in the name of the firm of Colman, Willett, Oxley, & Marshall, and that all contracts and engagements entered into by any of the parties on account of the said trade, and all checks and drafts drawn by them, and all receipts for money paid, on account of the said trade, should be in the joint names of the said John Morris Colman, Henry Willett, James Oxley, and John Marshall. The bill, filed in July, 1820, alleged that the defendants, Colman and Willett, had entered into numerous contracts and engagements, and written numerous letters, (under some of which goods had been supplied and delivered), in the name of Colman, Willett, & Co., and had refused to add the name of the plaintiff, or to comply with the above-mentioned covenants; thus preventing him from being known as a partner, and from receiving partnership debts; and that Oxley consented thereto and it prayed that the two first-named defendants might be restrained, by injunction, from carrying on the trade or entering into any contracts, &c., (pursuing the words of the covenant in the partnership articles), except in the joint names of J. M. Colman, H. Willett, J. Oxley, and the plaintiff. The defendants by their answer admitted the principal facts stated in the bill, but insisted that it was well known to all persons dealing with the partnership, that the plaintiff was a partner. It appeared that the first application made by the plaintiff to have his name used in the business of the firm was in April, 1820, three months only before the filing of the bill.

Lord Eldon refused the motion for an injunction, but without costs. "Although this Court," said his Lordship, "will interfere where there is a breach of covenant in articles of partnership, so important in its consequences as to authorize the party complaining to call for a dissolution of the partnership, it is a matter of great consideration whether it will entertain the jurisdiction of pronouncing a decree for a perpetual injunction as to a particular covenant, the partnership not being dissolved by the Court. There is one case which is constantly occurring, that of a partner raising money for his private use on the credit of the partnership firm; and the Court interferes then, because there is a ground for dissolving

the partnership: but then the danger must be such, there must be that abuse of good faith between the members of the partnership, that the Court will try the question, whether the partnership should not be dissolved in consequence. But

it is quite a different thing, and it would be quite a new head of equity for the Court to interfere where one party violates a particular covenant, and the other party does not choose to put an end to the partnership: in that way there may be a separate suit, and a perpetual injunction in respect of each covenant; that is a jurisdiction that we have never decidedly entertained."

But it seems that the specific performance of a covenant, or an injunction against a breach of covenant, will be enforced between partners by a Court of equity, where the breach has been of long continuance and wilfully persisted in, although the party seeking relief against the breach of covenant does not pray for a dissolution of the partnership (a). Thus, in the above case of Marshall v. Colman, Lord Eldon seemed to be clearly of opinion, that the breach of covenant might have been relieved against without a dissolution by the Court, had there been "a studied, intentional, prolonged, and continued inattention to the application of one party calling upon the other to observe that contract." And, with reference to the future conduct of the defendants, he said, " these gentlemen will do well (if they mean to protect themselves from the interference of this Court) to use all the names in the concern; they must do that, or the Court will be under the necessity of awarding an injunction, or dissolving the partnership (b)."

A Court of equity will enforce the specific performance of partnership covenants, in cases where adequate compensation for the breach cannot be had at law. Thus, a Court of equity has enforced an agreement made upon a dissolution of partnership, that a particular book used in the trade should become the exclusive property of one of the partners, and that a copy of it should be delivered to the other (c).

(a) As to bills praying an account without praying a dissolution,

see post, sect. 4, art. 1.

3 Ves. & B. 167.

(b) And see Musgrave v. Medex, Gardiner, C. P. Coop. 119.

II. We have seen that, in partnership articles, there is frequently a covenant not to engage in any business, except on account and for the benefit of the copartnership (a). In case of a breach of this covenant, the aggrieved party may of course bring his action; but he may also file a bill for an account of the profits made in such separate trade, and for payment of a proportion of those profits. Thus, in Somerville v. Mackay (b), the bill stated, that the plaintiff had entered into a treaty with the defendant, who lived in London, for shipping goods and executing orders to Russia upon their joint account, and that upon the treaty it was expressly agreed that neither of them should send any goods upon their separate accounts to A. & Co., or to any other person in Russia. The bill then stated the separate transactions which had taken place between the defendant and A. & Co., and prayed that the plaintiff might be declared entitled to a moiety of the profits of all goods sent by the plaintiff and the defendant, or by the defendant separately, to Russia, consigned to A. & Co., or to any other person: and that an account might be taken accordingly of all goods sent upon the joint account, or by the defendant upon his private account, to A. & Co., or his other agents in Russia, and of the produce of the sales. The Court entertained no doubt that this bill was maintainable.

But when the plaintiff in a case of this nature is decreed to be entitled to a share in the profits of the separate business, he also becomes liable for all losses, from the period from which his profits commence.

III. 1. It is very doubtful whether an action will lie for breach of a covenant to refer partnership disputes to arbitration; by reason, it is said, of the tendency of such actions to oust the jurisdiction of the Courts of law (c), and likewise of the difficulty of directing a jury how to assess damages in such an action; for, non constat that the plaintiff would have succeeded in the arbitration (d). The latter objection, at least, is well

(a) Ante, p. 142.

objection seems equally applicable,

(b) 16 Ves. 382; 2 Hov. Supp. whether the arbitrators be named or 450. not. But see 7 Jarm. Conv. 352, n. (i).

founded; for it is difficult to conceive an action of this kind where more than nominal damages could be obtained (a); though, as we shall see presently, the deed may be so framed as to avoid this result. If the breach assigned be a refusal to submit to arbitration a dispute concerning the premium paid by one of the partners, and such premium be expressed to be one of the considerations of the partnership deed, in such case an action on the covenant will not lie, because the covenant itself is, in point of consideration, sustained by the disputed premium (b).

It has long been settled, that a Court of equity will not decree a specific performance of a covenant to refer to arbitration (c). The reasons seem to be, first, that if it be not part of the agreement, a Court of equity cannot give arbitrators authority to examine upon oath, and the agreement itself cannot authorize any person to administer an oath; and secondly, that the Court, following the suggestions of Courts of law in that respect, will not be accessory to ousting its own jurisdiction. In Lord Eldon's words, "The Court has given credit to itself, as likely to decide as well as arbitrators; and it requires a strong case to deprive a person of the right to a decision here (d)." And upon the same principle it seems clear, that an agreement to refer to arbitration is no plea to a bill filed either for discovery only, or for both discovery and relief, of matters which, by the deed, would be the subject of arbitration (e).

It should, however, here be noticed, that in one particular case, that of the Opera House, where the parties had made special provisions for the reference to arbitration of certain matters peculiarly connected with that concern, Lord Eldon refused to appoint a manager and receiver upon an interlocutory motion, until the parties had endeavoured to avail

(a) 6 Ves. 818; and see Mitchell v. Harris, 2 Ves. 134.

(b) Tattersall v. Groote, 2 Bos. & Pull. 131.

(d) See Street v. Rigby, 6 Ves.

815; Mitchell v. Harris, 2 Ves. 136.

(e) Wats. Arbit. 6; Wellington v. Mackintosh, 2 Atk. 569; contra, Halfhide v. Fenning, 2 Bro. 336, overruled by Lord Loughborough and Lord Eldon.

themselves of their agreement for arbitration; holding this course of proceeding the more beneficial to them all (a).

As, generally, a Court of equity will not assist an arbitration by decreeing a specific performance, so, on the other hand, it will not interfere with the intention of the parties, by tampering with the agreement which they have made. Hence, Sir John Leach decided, not only that a Court of equity would not entertain a bill for the specific performance of an agreement to refer to arbitration, but that it would not substitute the Master for the arbitrators. "This," said that learned Judge," would be to bind the parties contrary to their agreement (b)."

III. 2. From the foregoing observations it appears, that a general covenant in partnership articles to refer disputes to arbitration, is but an unprofitable covenant, affording only the shadow of relief at law, and neither substance nor shadow in equity. Yet, covenants of this kind may be made available. “There are,” says Lord Eldon, " prudential ways of drawing them; as, for instance, there may be an agreement for liquidated damages, to enforce a specific performance, if an action cannot produce sufficient damages, or equity will not entertain a bill for a specific performance (c).” It seems advisable, therefore, if parties are particularly anxious for a reference of their disputes to arbitration, to add after the arbitration covenant a clause, that if either of the parties shall neglect or refuse to fulfil such covenant, he shall pay to the other a certain sum as liquidated damages, not in the nature of a penalty.

IV. This leads us to a more general consideration of clauses of this nature.

There are many covenants to which such clauses may be added with effect; but there are others, the breach of which does not admit of compensation by liquidated damages, and to which, therefore, they cannot properly be applied. Thus, on

(a) Waters v. Taylor, 15 Ves. 10; 2 Hov. Supp. 389. See Gourlay v. Duke of Somerset, 19 Ves. 431.

(b) Agar v. Macklew, 2 Sim. & Stu. 418.

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A Practical Treatise on the Law of Partnership: With an Appendix of Forms