## Facts

- Two individuals formed a written partnership to operate a mercantile and laundry business for a fixed five-year term with $25,000 capital: one contributed $20,000; the other was to contribute $5,000.
- The $5,000 contribution was financed by a five-year loan from the $20,000 contributor, documented by a promissory note secured by a mortgage on the borrower’s partnership interest.
- The $5,000 contributor agreed to devote full time to the business and was given general control and management, subject to mutual agreement and limited designation rights by the other partner.
- Net profits were allocated so that one-half went to the $20,000 contributor until $15,000 of his contribution was repaid; the other half remained in the business; profits and losses were otherwise to be shared equally, and each could draw up to $125 per month for personal expenses.
- About two years into the term, the $20,000 contributor took exclusive possession of the business, books, accounts, and premises and prevented the other partner from participating or receiving benefits, despite the excluded partner’s continued readiness to perform.
- The controlling partner continued the business for his own benefit and used proceeds and profits beyond his contractual share.
- Without the excluded partner’s knowledge or assent, the controlling partner later sold and delivered all partnership assets to a third-party company.
- The excluded partner sued in equity for dissolution, receiver, injunction, cancellation of the transfer, and an accounting; lower courts granted relief and ordered an accounting, with a modification allowing the controlling partner an additional allowance for personal expenses.

## Issues

1. Whether a partner in a partnership for a fixed term who unilaterally ends the relationship, seizes exclusive control, and excludes the copartner can avoid liability for profits later earned using partnership property.
2. Whether, regardless of whether the unilateral acts technically dissolved the partnership, the excluding partner must account to the excluded partner for the latter’s contractual share of partnership property and profits.

## Decision

- The Supreme Court affirmed the judgment as modified below.
- A partner who, during the agreed term, unilaterally undertakes to end the partnership, takes exclusive possession of partnership property and business, carries on the business profitably for himself, and excludes the copartner is liable to account to the copartner.
- The duty to account applies whether or not the partnership is treated as technically dissolved by the excluding partner’s acts.
- The accounting properly measured the excluded partner’s recovery by reference to the partnership agreement, subject to equitable allowances recognized by the territorial supreme court (including a personal-expense allowance).

## Legal Principles

- In a partnership for a definite term, unilateral termination and exclusion of a copartner before the term expires constitutes a wrongful breach of the partnership agreement.
- A partner who appropriates partnership property and opportunities for exclusive benefit while excluding the copartner owes a fiduciary-based duty to account for profits earned through use of partnership assets.
- The remedy for wrongful exclusion in a term partnership may require dissolution and an equitable accounting allocating property and profits according to the partnership agreement, not merely by restitutionary measures.
- The excluding partner’s liability to share profits earned with partnership property is not defeated by characterizing the partnership as dissolved; equity may treat the relation as continuing for purposes of profit allocation and distribution.

## Conclusion

The Court held that a partner in a fixed-term partnership who wrongfully excludes the other and continues the business with partnership assets must account for the excluded partner’s contractual share of partnership property and profits, and it affirmed the decree granting dissolution-related equitable relief and an accounting.


Karrick v. Hannaman, 168 U.S. 328 (1897)