## Facts

- Pav-Saver Corporation (PSC) owned patents and the “Pav-Saver” trademark used in a slip-form concrete paving machine; its majority shareholder, Harry Dale, was the inventor.
- In 1974, PSC, Dale, and attorney-financier H. Moss Meersman formed a partnership (Pav-Saver Manufacturing Company) to manufacture and sell the machines; the agreement was drafted by Meersman and reviewed by PSC’s counsel.
- PSC contributed an exclusive, no-charge right for the partnership to use the “Pav-Saver” trademark and an exclusive, no-charge license to its relevant patent rights during the agreement’s term; Meersman undertook to secure necessary financing; Dale contributed services.
- In 1976, the operating structure changed so that PSC and Vasso Corporation (owned and controlled by Meersman) became the active partners.
- The agreement contemplated a continuing relationship and included a liquidated damages provision commonly described as requiring the terminating party to pay the other party four times the partnership’s net earnings for fiscal year 1974, payable in equal annual installments over ten years.
- After business conditions deteriorated, PSC attempted unilaterally to end the partnership and demanded return of its patents and trademark or compensation for their value.
- Vasso continued operating the business and retained partnership assets, including continued use of the patents and trademark, without paying PSC for ongoing use.
- PSC sued for declaratory relief regarding its rights to the intellectual property and to invalidate the liquidated damages clause as an unenforceable penalty; Vasso counterclaimed to continue using partnership assets and to require immediate payment of the liquidated damages amount.
- The circuit court ruled largely for Vasso by permitting continued operation with the assets and enforcing liquidated damages; both sides appealed.

## Issues

1. Whether PSC’s unilateral termination of a partnership intended to be permanent constituted a wrongful dissolution in contravention of the partnership agreement under Illinois partnership law.
2. Whether, after wrongful dissolution, PSC could reclaim the contributed patents and trademark or recover their fair value, or whether Vasso could continue the business using those assets as partnership property.
3. Whether the liquidated damages clause was enforceable or an unenforceable penalty, and whether the payment schedule could be accelerated to require immediate full payment.

## Decision

- The appellate court affirmed.
- PSC’s unilateral termination constituted a wrongful dissolution because it contravened an agreement intended to limit dissolution to specified conditions.
- Vasso, as the nonbreaching partner, was entitled to continue the business using partnership property, including the patents and trademark contributed for partnership use, subject to paying PSC the statutory value of its partnership interest.
- PSC, as the wrongfully dissolving partner, was not entitled to recover goodwill value as part of the buyout calculation.
- The liquidated damages clause was enforceable as a reasonable estimate of damages at the time of contracting, and payment was required according to the agreed ten-year installment schedule, not accelerated.

## Legal Principles

- A dissolution in contravention of a partnership agreement is wrongful and triggers statutory consequences governing continuation of the business and buyout of the wrongfully dissolving partner.
- On wrongful dissolution, the nonbreaching partner may continue the partnership enterprise using partnership property, while compensating the withdrawing partner for its interest as defined by statute.
- A partner who wrongfully causes dissolution is not entitled to compensation for goodwill in valuing the partner’s interest.
- A liquidated damages provision is enforceable when actual damages are difficult to estimate at contract formation and the amount reflects a reasonable forecast rather than punishment.
- Courts generally enforce the contractual payment structure of liquidated damages absent a contractual basis for acceleration.

## Conclusion

The court held that PSC wrongfully dissolved a partnership intended to restrict unilateral termination, allowing Vasso to continue the business with the partnership’s intellectual property while buying out PSC without goodwill, and it enforced the agreed liquidated damages formula and ten-year installment payment schedule.


Pav-Saver Corp. v. Vasso Corp., 143 Ill. App. 3d 1013, 493 N.E.2d 423 (Ill. App. Ct. 3d Dist. 1986)