Case Name: Bagley against Smith and others
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1853
Citations: 10 N.Y. 489
Docket Number: 
Parties: Bagley against Smith and others.
Judges: 
Reporter: New York Reports
Volume: 10
Pages: 489–500

Head Matter:
Bagley against Smith and others.
One partner may maintain an action at law against another for a breach of the copartnership articles in dissolving before the period therein limited.
Such action is maintainable before the expiration of the period for which the partnership was to continue. The plaintiff’s remedy is not confined to an accounting in equity.
The damages in such an action are the profits which would have accrued to the plaintiff from the continuation of the partnership business and which are lost by the unauthorized dissolution.
Evidence of the actual gains of the partnership during its continuance is admissible as an element in determining the value of the prospective profits. The fact that the plaintiff entered into business upon his own account does not limit his claim for damages to the profits which would have accrued to him in the firm anterior to such new employment.
Whether the defendant in mitigation of damages could show that the plaintiff either was or might have been as profitably employed in business on his own account as he would have been had the firm business been continued, Quere.
Appeal from the superior court of the city of New-York. Action to recover damages for the breach of a contract to continue a partnership. Upon the trial before the late Mr. Justice Sandfoed, it appeared that in December, 1846, the plaintiff entered into written articles of copartnership with the defendants, by which it was stipulated that the partnership was to continue until January 1851, unless sooner dissolved by one or more of the parties upon three months’ previous notice. In August, 1848, the plaintiff being absent from the city of New-York, the firm’s place of business, the defendants published a notice that the partnership had been dissolved and that they would continue the business under a new firm. They immediately took possession of the store and property formerly used by the plaintiff in the manufacture of gold pens, &o., which was the business of the firm. The. plaintiff commenced this suit on the 26th August, 1848, and shortly afterwards commenced business on his own account. In October, 1848, an arrangement was made between the parties for the division and disposition of the property and the payment of the debts. This arrangement was to be without prejudice to the rights of either party as against the other or to any claim for damages which either might have against the other for any act, proceeding or deed of either in respect to the partnership or in violation of the co-partnership articles.
One Ridgeway, a witness for the plaintiff, testified that he had been employed to make the accounts of the firm, consisting of the plaintiff and defendant. The plaintiff’s counsel asked him to state, from these accounts and the books of the firm, what the profits of the firm were for the last six months of its existence. The defendant’s counsel objected to the inquiry, on the grounds that for the breach of copartnership articles no damages, or at most only nominal damages, could be recovered; that by the constitution of the partnership the partners have a power of revocation whenever they lose confidence in each other. That prospective profits form no ground of damages at all; and that if damages were recoverable at all on the ground of loss of profits, they must be limited to the period between the 10th August, 1848, when the notice of dissolution was given and the day when the plaintiff went into business again on his own account. The judge overruled the objection and allowed the inquiry to be made respecting actual damages and profits; the latter being admitted, as he said, not as a rule of damages but as evidence from which the jury might form a judgment. The defendant took an exception.
The defendant subsequently moved for a nonsuit upon substantially the same grounds before stated, and the non-suit being refused took an exception.
The judge charged -the jury as follows: “ The object of “ the provision in the articles requiring three months’ previous notice of the intention to dissolve, was to enable the “partner receiving the notice to prepare for continuing the “ business, if he chose, or to provide some other business, “ and to give him the benefit of the election stipulated in “ the articles to take the unfinished stock, fixtures, See., “ then on hand, at a valuation, with the deduction of “ twenty per cent, thereby provided. Evidence has been “ given as to the profits made by the concern, anterior to “ the dissolution. This evidence was admitted, not as “ furnishing a rule of damages, but as furnishing to the jury “ one means of arriving at the amount the plaintiff ought to “ receive for damages.
“It is contended, and very properly, that profits are con- “ tingent and fluctuating, and past profits are no sure indi- “ cation that there will be the same in future; in this “ instance, the jury cannot give the plaintiff any damages “ by reason of his loss of the profits he would otherwise have “ received, for a period exceeding three months from the date “ of the dissolution; it is for the jury to say, on the evidence, “ what would have been his share of the profits that would “have been earned in that concern, if it had continued in “ business three months longer than it did, and notice of “ the intended dissolution, at the end of three months, had “ been given on the 10th August, 1848. In making this “ estimate, the jury will allow for the fluctuations of trade, “ the danger of losses, and the effects of competition.
“The amount thus ascertained, is subject to a further de- “ duction in determining what were the plaintiff’s actual “ damages; he was not at liberty to fold his arms and re“main idle during the three months succeeding the dissolu- “ tion; whatever he actually made, or by reasonable diligence “ could have made, during that period, is to be deducted, in “ ascertaining his damages; he is to be made good for the “ actual reasonable damages (and nothing more), which he “ sustained, in consequence of not receiving a notice of three “ months of the intended dissolution.
“ In arriving at this, the jury, besides the profits of which “the plaintiff has been deprived (estimated, as already “ stated), should allow him a fair compensation for his being “ deprived of the privilege of buying the unfinished stock, “fixtures, &c., of the concern, at the dissolution, and continuing the business on the terms provided in the articles “ of copartnership, if the jury find that the deprivation was “ any loss to him.”
An exception to the judge’s refusal to charge as requested by the defendant, is sufficiently stated in the following opinion. There was a verdict for the plaintiff for $7,500. The judgment thereon having been affirmed at general term, the defendants appealed to this court.
Daniel Lord, for the appellants.
I. No recovery can be had of damages in the nature of profits, for the breach of covenant in dissolving, before its limited time, a copartnership for a fixed period.
The present suit is one of first impression, not supported by the decision of any court in England or in this country.
The cases relied on do not support any such rule. (Duncan v. Lyon, 3 Johns. Ch. Cas., 351; Glover v. Tucker, 24 Wend., 153; Townsend v. Goey, 19 Wend., 424; Skinner v. Dayton, Id., 514; Niven v. Spickerman, 12 Johns., 401; Halsted v. Schmelzel, 17 Johns., 80; Dunham v. Gilles, 8 Mass. R., 462; Gale v. Leckie, 2 Stark. N. P. C., 97; 3 C. L. R., 268; Venning v. Leckie, 13 East., 6; Owston v. Ogle, 13 East., 538; Radenhurst v. Bates, 3 Bing., 463, 13 C. L. R., 53; McNeil v. Reed, 9 Bing., 68, 23 C. L. R., 265.)
II. The making of prospective or past profits of a partnership the basis of a rule of damages is contrary to principle.
1. It will require an account to be taken in every action for damages on a partnership agreement; which cannot be done in a trial at law, contrary to all the principles of the administration of justice by juries.
2. That in the case at bar an account had recently been taken, was a mere accidental circumstance; if profits are in law the basis of the damages, they must be resorted to in every case.
3. Prospective profits, in a general and continuing business by a firm, depend on the harmony and confidence between the copartners and their mutual exertions; these being wanting, and the copartnership being about to be terminated, there would be a state of business wholly unlike that previously existing, when these circumstances did not exist.
4. The deductions directed by the judge show that the adoption of profits, as the basis of damages, is a defeating of all just protection in a rule of damages. What basis had the jury to measure fluctuations of trade, danger of losses, effects of competition?
5. Although elementary writers express the opinion that damages at law may be recovered among partners for sundry violation of copartnership articles, yet there are no discussions of such a rule of damages; and the cases cited are only of simple and isolated acts, not involving any resort to profits as a rule of damages. (Gow. on Partn., 84, Am. Ed., 1830, and notes; Colyer, Perk. cd. of 1848, pl., 245, &c., notes; Story on Partnership, ch. 11, § 218, &c.)
III. The partnership here, being for a term of years unexpired, was not dissolved by the notice of 10th August, 1848, nor until the plaintiff chose to treat it as dissolved. He could have enjoined the defendants from interfering with the firm, if without cause; and could have had its actual earnings up to the end of the three months’ notice of dissolution. Having elected to make the dissolution immediate, he cannot claim damages for it. (Colyer, pl., 206, 247, 342, 344.)
That such a copartnership cannot be dissolved, without the assent of all the parties, is upheld by the best opinions; and if so, certainly an action will not lie by one partner against the others, for damages based on profits, for not con- tinning his confidence and activity, there not being any legal dissolution. (3 Kent’s Corn., 54, and cases there cited; Story on Partnership, % 268, 275, 287; Colyer on Partnership, pl. 119, note.)
IY. Copartnership, being founded on mutual confidence and exertion, in its nature cannot be continued when cooperation becomes impracticable ; and its dissolution under such circumstances is no just basis for damages based on profits.
1. If a partnership for a term maybe dissolved by the act of less than all the partners, then this right enters into the basis of the contract and cannot subject to damages on the basis of prospective profits.
2. The right of dissenting from the copartnership action substantially involves the right of dissolving at pleasure. (3 Kent's Com., 55.) It should not subject the party dissolving, to any extraordinary measure of damages.
3. The civil law disregards a limitation on the right of dissolving, as contrary to public policy. (3 Kent's Com., 55, 7 ed., note.)
4. It would have been very idle to have continued the mere form of partnership in a manufactory of gold and silver, when the parties had come to such distrust as was shown here, and to have compelled all parties to continue a merely formal union, with absolute distrust and the necessary limitation of business consequent thereupon.
5. The rule confining claims of this nature to equitable principles and proceedings in equity, preventing either from gaining by a dissolution and securing justice by an actual account of profits only, is founded on the same policy. It is the true, sufficient and only remedy.
6. Where the copartnership consists of more than two parties, the rule of damages based on profits is entirely impracticable. How can it be said how much was the damage from the act of each? How can they be made jointly liable, where the contracts.are several ? (See the remarks of Gould, J., 2 Conn. R., 430, in Beach v. Hotchkiss.)
John Slosson, for the respondent.

Opinion:
Johnson, J.
The principal points presented by the exceptions in this case are, first, whether an action can be maintained for a breach of a covenant to continue a partnership for a fixed period, unless sooner dissolved in accordance with the terms of the covenant; second, whether actual damages can in such case be recovered; third, whether expected profits can be regarded as a ground of damages in such a case; and fourth, whether the amount of profits made prior to the dissolution could be considered by the jury as bearing in any degree upon the amount of damages to which the plaintiff was entitled. Another objection was presented on the argument, that the covenants of the defendants being several, no judgment for joint damages could be given. This objection not having been presented at the trial, so far as the bill of exceptions informs us, cannot be considered here.
There do not seem to be any special rules of law applicable to covenants contained in partnership articles, and not to other covenants; and we may therefore say, without discussion, that an action will lie for a breach of covenant, no matter in what instrument the covenant be found. We may further affirm that no rule of law declares that the breach of a covenant contained in partnership articles shall be compensated only by nominal damages. The measure of damages must depend on the nature of the obligation, and the extent of the injury in this as in all other cases of broken covenants.
No question was made at the trial as to the sufficiency of the proof that a breach of the obligation to continue the partnership had taken place, except only so far as a question of that sort is raised by the objection of the defendants' counsel, that, by the constitution of the partnership, the partners have a power of revocation whenever they lose confidence in each other. It is not quite clear whether this objection points to the particular frame of this partnership, or is supposed to be founded upon the general rules applicable to that relation. If it relate to the provisions of the partnership agreement in this case, then it is clear that the articles contain no clause which warrants the defendants' proposition. If, on the other hand, the general law of partnership is referred to, while it must be conceded that some difference of opinion seems to exist as to the power of either partner, in a partnership for a fixed term, contrary to his agreement, to put an end to the continuance of the firm at his own mere will, it can be safely affirmed that conceding this power to exist in the broadest form, it has never been pretended that a partner who should, in contravention of his agreement, put an end to the partnership, would not be held responsible for the injury thus committed.
We are left, then, to the only substantial question which this case presents: whether the loss of those profits which the plaintiff would have made during the stipulated term of the partnership is a proper subject of compensation, and whether the evidence of past profits, during the period next preceding the dissolution, can be considered as bearing upon the question of 'prospective profits. The form of the exceptions taken concedes that the judge committed no error, unless in taking the profits into consideration at all; that if he was correct in this, he has annexed to his instructions all. the proper qualifications to prevent an excessive and erroneous estimate of the amount of compensation for prospective profits.
object of commercial partnerships is profit. This is the motive upon which men enter into the relation. The only legitimate beneficial consequence of continuing a partnership is the making of profits. The most direct and legitimate injurious consequence which can follow upon an un authorized dissolution of a partnership, is the loss of profits. Unless that loss can be made up to the injured party, it is idle to say that any obligation is imposed by a contract to continue a partnership for a fixed period. The loss of profits is one of the common grounds, and the amount of profits lost, one of the common measures of the damages to be given upon a breach of contract. I need only refer to Masterson v. Brooklyn (7 Hill, 62). So, too, in Wilson v. Martin (1 Den., 602); Hecksher v. McCrea (24 Wend., 304); and Shannon v. Comstock (21 Wend., 457), what the party would have made—in other words, his prospective profit from the performance of the contract—was held to be the true measure of damages. I refer also to two English cases on the question, although the English courts do not seem so carefully to have considered the rules by which, as matter of law, damages are to be measured, as the courts in this country.
Gale v. Leckie (2 Stark., 107), was at nisi prim before Lord Ellenborough. The defendant agreed, as author, to furnish a manuscript work to plaintiffs, to be published at their expense, and the profits to be equally divided. The defendant failed to fulfill, and this action was brought for damages. Lord Ellenborough told the jury the plaintiffs were entitled to their expenses of paper and printing, and added, " the sum of ¿690 has been stated by the witnesses as the amount of profit which would probably have been derived from the first edition; and it is doubtful whether it would have reached a secondafter suggesting that there might have been a loss instead of profit, which would have been wholly the plaintiffs' loss under the contract, he submitted the matter to the jury, who found for the plaintiffs ¿650 more than the expenses, &c., for loss of profit. The case does not appear to have been moved afterwards.
McNeil v. Reid (9 Bing., 68), was an action upon a contract, by the defendant, to take the plaintiff into a firm of which the defendant was a member. It appeared, upon the trial, that the plaintiff had been offered, upon certain terms, the command of an East India ship for a double voyage; that the value of such voyage to the captain was not less than ¿£1,000 ; that the plaintiff had been induced by the defendant to give up this voyage to enter into the promised partnership. The jury found ¿£500 for the plaintiff. It was objected, among other things, that the jury were wrongly instructed as to damages. On this point Tindal, Ch. J., says: " I told the jury that they might see that the plaintiff considered the engagement equal to an Indian voyage, because he would not otherwise have relinquished it, and the defendant could not-5 have estimated it at less, because he made his offer as a friend of th'e plaintiff." It was the value of the engagement as partner, therefore, which the jury were to estimate; and Bosanqtjet, J., says: " The damages were estimated according to what the jury thought was the value of the contract. The value of the East India voyage has not been recovered as special damage, but has been taken as an ingredient for estimating the value which each party set on the proposed contract of partnership."
In each of these cases the prospective profits of a joint undertaking unperformed, was made the subject'of compensation in damages in an action at law.
The next question relates to the admission of the evidence of the amount of past profits, to be considered by the jury as bearing upon future profits. It will be observed that the objection does not at all relate to the mode of proof, but only to the competency of the fact. It seems to me quite obvious that, outside of a court of justice, no man would undertake to form an opinion as to the prospective profits of a business, without, in the first place, informing himself as to its past profits, if that fact were accessible. As it is a fact in its nature entirely capable of accurate ascertainment and proof, I can see no more reason why it should be excluded from the consideration of a tribunal called upon to determine conjecturally the amount of prospective profits, than proof of the nature of the business, or any other circumstance connected with its transaction. It is very true that there is great difficulty in making an accurate estimate of future profits, even with the aid of knowing the amount of the past profits. This difficulty is inherent in the nature of the inquiry. We shall not lessen it by shutting our eyes to the light which the previous transactions of the partnership throw upon it. Nor are we the more inclined to refuse to make the inquiry, by reason of its difficulty, when we remember that it is the misconduct of the defendants which has rendered it necessary.
Another question arises upon the defendants' third request to charge, viz., " That supposing Bagley to be accountable, through want of diligence, that should be taken into view in diminution of the damages."
An issue had been formed upon the pleadings, and tried, whether Bagley had fraudulently abstracted a quantity of gold from the firm, and the judge had instructed the jury that if they found this issue for the defendants, then they were justified in dissolving the partnership, and the plaintiff could not recover damages. No issue had been made as to negligence on Bagley's part, nor did the evidence tend to the proof of such negligence; and on these grounds, as well as because the request was not in such a shape, even conceding it to have been well founded upon the evidence, as to require the judge to comply with it, we think the exception not well taken. A request must be in such form that the judge may properly charge in the terms of the request as made, without qualification, or his refusal will not be ground of error. If made, as requested here, the effect would have been to submit to the jury to find, whether Bagley was accountable, through want of diligence, without any instructions as to what sort of diligence he was bound to exhibit, or what" sort of losses or other mishaps he was thus to be made accountable for. In this refusal there was no error.
It may be proper to notice briefly the proposition that the plaintiff's claim for profits must be limited to the period between the dissolution and his subsequent entry into business. This is obviously unfounded. The only question which could be made as to this part of the case is, whether the defendants, in mitigation of damages, could show that the plaintiff either was or might have been as profitably employed in business on his own account, as he would have been had the firm business been continued. The plaintiff might, perhaps, have disputed the competency of such evidence. But surely the defendants cannot be heard to say that the plaintiff was bound to remain idle at their expense, or lose his claim upon them altogether, from the moment when he engaged in business.
Jewett, Gakdinee, Moese, Willabd and Mason, Js., concurred. Ruggles, Ch. J., and Taggabt, J., expressed no opinion.
Judgment affirmed.