Story Case

Arnold Hall invented a machine for starting automobile engines. He desired to place his machine on the market personally, provided he could find some one who understood the automobile trade, and who would become a partner with him in the business. He advertised for such a man in a local newspaper. Fred Hansen answered the advertisement. He represented himself to be familiar with the automobile trade, and Hall, accordingly, made a year's contract with him. Hall agreed to make him a partner in the business, and to give him twenty-five per cent of the net proceeds of all the machines sold. One month after the partnership was formed, Hall realized that he had contracted with the wrong man, because Hansen did not have knowledge of the automobile business as he had represented. What can Hall do to avoid the year's contract, provided Hansen refuses to release him!

Ruling Court Case. Johnston Vs. Fogg, Volume 27 Alabama Reports, Page 432; Same Case, Volume 62 American Decisions, Page 771

This was a bill in equity for the dissolution of a partnership, filed by Johnston against Fogg and Van-derslice.

The complainant states that he was the owner of a lot of valuable timber land in Mobile County, in the State of Alabama; that he was desirous of erecting a saw mill on it, but being unacquainted with mechanics, was desirous of forming a partnership with a competent person for the purpose of erecting a saw mill and carrying on the lumber business.

Fogg, upon hearing of this desire, presented himself to be an experienced and accomplished engineer and machinist, competent to conduct such business as complainant contemplated, to select the necessary machinery, to erect the mill, and repair or alter the same. Upon the strength of these representations, he entered into a partnership with Vanderslice.

The complainant at the trial showed that the representations made by Fogg were utterly false, and without any foundation. He not only knew nothing about the milling business, but dealt dishonestly with the complainant, subsequent to the formation of the relation.

Mr. Justice Rice said in part: "Where there is fraud, imposition, misrepresentation, or oppression in the original agreement for the partnership, a court of equity has jurisdiction to decree its dissolution during the term for which it was originally entered into, and to declare it void from the beginning. A court of equity may also decree a dissolution of the partnership for causes arising subsequently to the formation of the contract, founded upon the misconduct, fraud or violation of duty of one partner; or on account of the inability or incapacity of one partner to perform his obligations and duties, and to contribute his skill, labor and diligence in the promotion and accomplishment of the objects of the partnership; or for the existence of an impracticability in carrying on the undertaking for which the partnership was formed."

The Court, in accordance with the opinion, and upon the finding of fact, decreed a dissolution of the partnership.

Ruling Law. Story Case Answer

A partnership may be terminated by a decree of a court of equity. If the contract of partnership was procured by fraud, or duress, or imposition, or material misrepresentations, upon application by the injured person to a court of equity, the relation will be dissolved. Further, the court of equity not only has power to dissolve the relation, but it may do so where it appears that, subsequent to its formation, a member thereof has been guilty of conduct inconsistent with his duties as a partner.

Since, in the Story Case, Hansen mis-stated the facts to Hall, and the partnership was made in reliance on this misrepresentation, Hall can go into court, and demand that he be freed of the contract.