SMITH v. BULL XV

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District Court of Appeal, Second District, Division 1, California.

Bertille B. SMITH, Administratrix with-will-annexed of the Estate of Vincent Richard Smith, sometimes known as V. R. Smith, V. R. ‘Dick’ Smith, and Dick Smith, deceased, Plaintiff and Respondent, v. Frank BULL, Mel Roach, Doe 1 to Doe XV, inclusive, Defendants.*

Civ. 22360.

Decided: November 22, 1957

A. G. Ritter, H. E. Lindersmith, Los Angeles, for appellant. Darling, Shattuck & Edmonds, by Thomas F. Call, Los Angeles, for respondents.

Defendant Frank Bull appeals from the judgment in an action for an accounting, brought by the administratrix with the will annexed of his deceased former partner, V. R. Smith, hereinafter referred to as ‘Smith’. Respondent is also Smith's widow and sole distributee.

Appellant and Smith, by oral agreement, on September 1, 1949, entered into a partnership for the purpose of doing business as an advertising agency under the firm name and style of Smith & Bull. Each partner owned a 50% interest, and each had the right to terminate the partnership at any time.

The court found that the partnership continued up to February 27, 1953; and that on that day it was dissolved by mutual consent; that ‘in February, 1953’, appellant ‘converted and appropriated for himself alone, and for his sole benefit and profit the copartnership business, good will, the customers and all the company employees with one exception. At the time of said conversion and appropriation the partnership had a goodwill of $57,391.66’. The court further found that appellant had accounted to Smith before his death, on June 6, 1953, ‘for all of the personal and real property and a portion of the accounts receivable and money on deposit’, but that he had never accounted for the remaining accounts receivable, the balance of money on deposit in the partnership bank account ‘nor for any of the goodwill of the partnership’. Respondent's interest in the money still on deposit in the name of Smith & Bull was found to be $2,057.89; her interest in the paper stock inventory $1,102.95; her interest in the collections on accounts receivable $14.18; pursuant to stipulation, judgment was given for those amounts; and, from the record and briefs it appears that those items were offered before the action was begun and paid before this appeal was taken.

From said findings it was concluded that plaintiff is entitled to recover, in addition to those items said to have been paid, one-half of certain accounts receivable when and if collected, and $28,695.82, with interest from date of entry of final judgment herein, which sum ‘represents one-half the value of the good will of the copartnership of Smith & Bull when converted and appropriated by’ appellant. Judgment was given accordingly.

Only one item of the judgment—$28,695.83 for one-half of the value of the good will of the partnership ‘when converted and appropriated’—is claimed to be erroneous.

The following grounds for reversal are urged: (1) that as a matter of law no partnership good will existed; (2) that there is no evidence to support a finding that partnership good will existed; (3) that the partnership good will had no value; (4) that the value of the partnership good will found by the trial court was erroneous; and (5) that there is no evidence of any conversion by appellant of the good will or anything else belonging to said partnership.

‘The ‘good will’ of a business is the expectation of continued public patronage'. Bus. & Prof.Code, 14100. It is property and may be transferred. Bus. & Prof.Code, 14102. It is not limited to the expectation of continued patronage of the general public, but includes the expectation of continued patronage of its former and present customers. Bergum v. Weber, 136 Cal.App.2d 389, 392, 288 P.2d 623; Handyspot Co. of Northern California v. Buegeieisen, 128 Cal.App.2d 191, 195, 274 P.2d 938.

Respondent, in her brief, relies upon the decision in Mackay v. Clark Rig Building Co., 5 Cal.App.2d 44, 60, 42 P.2d 341, 348, wherein the statements are made that ‘The question of whether the business possessed a good will is a question of fact to be determined upon the trial of the action’ and that ‘it may not be declared that good will cannot as a matter of law attach to the business of building oil derricks * * *’. (Emphasis added.)

Appellant in the instant action relies upon the case of Little v. Caldwell, 101 Cal. 553, wherein at page 560, 36 P. 107, at page 109, after stating that in both commercial and personal service partnerships the surviving partner must complete all executory contracts of the firm, it is said that in the personal service or professional partnership the survivor ‘is not required to make an allowance in the settlement of the partnership accounts for what may be termed the good will of the partnership, or for the profits of such future business as may have been given to him by former clients of firm * * *’.

In both the Mackay and Little cases, supra, demurrers to complaints for accounting were sustained, and judgments rendered for defendants (the surviving partners) were reversed on appeal. In both, the partnership had been dissolved by the death of a partner; and in both the surviving partner completed performance of existing contracts for services to be rendered,—in the Mackay case the building of oil derricks, and in the Little case the rendering of services as attorneys under a contingent fee contract. In the Little case, it was held that the original contract was for the services of both partners and upon Little's death the clients could elect to consider the employment terminated. But, since the client was willing to intrust the survivor with the further management of the litigation, the survivor was bound to complete the unfinished contract for the benefit of the partnership.

The facts in the instant action differ materially from those considered in Mackay v. Clark Rig Building Co., supra, and Little v. Caldwell, supra, in that the instant action does not involve contracts or ‘unfinished business' which one partner was obligated to perform after dissolution because of the death of the other partner.

Likewise, other cases cited by the parties on the instant appeal are not controlling because of their differing facts.

In Driskill v. Thompson, 141 Cal.App.2d 479, 296 P.2d 834, 838, one partner, who before dissolution procured for himself alone a lease of the partnership premises, ousted his partners and carried on alone the partnership dance hall business in the leased premises, was required to pay the former partners for their share of the ‘business, together with its good will’.

In Miller v. Hall, 65 Cal.App.2d 200, 150 P.2d 287, 288, Miller retired from a brokerage partnership because of a paralytic stroke. Hall circularized the partnership's customers, referred to an old communication from the partnership and said ‘our principles and policies haven't changed a bit’. He was required to pay Miller for his portion of the good will. There the appellate court stated that use of the same address, the organization, and the files was a partnership asset and said: ‘we are unable to hold, as a matter of law, that Hall was under no duty to account to Miller for the value of this good will’.

In Ruppe v. Utter, 76 Cal.App. 19, 243 P. 715, the defendant partner, after refusing to buy or sell pursuant to the partnership agreement, continued in possession of the leased premises, the furniture and equipment, etc. and operated the partnership mortuary business for his sole benefit. It was there held that the lease, the permit to do business, the good will and the profits of the continued business should be accounted for even though plaintiff (the withdrawing partner) had formed other connections and solicited similar business.

In the instant action, the partners had divided by agreement the personal property, and Smith, not the appellant, had remained in possession of the partnership premises, the old address and telephone number. Both partners after dissolution conducted business in the same general district under the names of ‘Smith & Ganz’ and ‘Frank Bull & Co.’, respectively. Appellant did not in any way hold himself out as the successor to the partnership.

More helpful in the instant action is the decision in Heywood v. Sooy, 45 Cal.App.2d 423, 114 P.2d 361, where, as here, the partnership was dissolved and the partnership assets were divided by mutual consent. Mr. Justice Spence, speaking for the court, quotes with approval from Little v. Caldwell, supra, and at page 426 of 45 Cal.App.2d, at page 363 of 114 P.2d, says: ‘It will be noted that the cited case refers to the ‘contract [of employment]’ and states that such contract is to be viewed by a court of equity as an asset of the partnership. It will be further noted that the cited case repudiates the notion that a partner is accountable after dissolution for any allowance for what may be termed the ‘good will’ of the partnership which may result in contracts of employment after dissolution. While the cited case did not involve the precise points presented here, we believe that it indicates the line of demarcation between ‘unfinished business', being business covered by contracts of employment at the time of dissolution, and other matters, not covered by contracts of employment, but which thereafter become the subjects of contracts of employment through the good will previously existing between the partnership and the clients. As to the ‘unfinished business', a duty to perform services rests on the partnership at the time of dissolution and continues thereafter to rest on the partners or the surviving partner. As to the other matters, no duty to perform services rests on the partnership at the time of dissolution and no duty continues thereafter to rest on the partners or surviving partner. And where no duty to perform the services rests on the partnership at the time of dissolution, such services as may thereafter be performed by either of the former partners under contracts of employment subsequently made with former clients cannot be considered ‘unfinished business' of the partnership at the time of the dissolution.’ (Emphasis added.) Judgment for a portion of the fees collected by Sooy for services in litigation begun by old clients of the partnership after its dissolution was reversed with directions that findings and conclusions be reframed and judgment entered for defendant. Petitions for rehearing by the District Court of Appeal and hearing by the Supreme Court were denied, and we have found no modification of the decision.

Under the facts of the instant action, we are persuaded that as a matter of law the partnership of Smith & Bull in February 1953 had no good will which could have been sold or which was converted to his own use by appellant.

Smith and Bull had individually engaged in various phases of the advertising agency business for many years, they had been partners before, and each had ben a member of other firms prior to 1949 when Smith & Bull was formed by them. Each had some accounts at the beginning of the partnership. The accounts whidh ‘just came in’ were negligible. The large accounts were brought in by a partner or an account executive through his personal contracts or friendships. The largest account serviced by the partnership was Seaboard Finance Company. Over half of the partnership's gross billing was to Seaboard. The Seaboard account had been secured and serviced by the joint efforts of the partners and their employee who was the account executive assigned to that work. Early in December 1952, Seaboard had advised Smith and Bull and their account executive that they were dissatisfied with the service and were considering taking their account elsewhere on March 1st. February 5, 1953, Bull wrote Smith that he wished to withdraw from the partnership, and could not go along with Smith's proposal that their partnership be merged with several other agencies into a corporation. A few days later at a meeting of Smith, Bull and several of their employees, it was agreed that the partnership would be dissolved, that Bull would remove his business from the partnership premises, that Smith should have first opportunity to solicit the Seaboard business and if he were unsuccessful Bull would try to get it. In evidence is a letter from Seaboard dated January 15th telling of its dissatisfaction, and a letter dated February 26th advising that its account is being taken elsewhere on March 1st.

The evidence is that Smith, soon after thje oral agreement to dissolve the partnership, arranged an appointment with an officer of Seaboard concerning its future business; that he failed to keep the appointment; that later Bull solicited the business for himself; and that it was given to him on March 1st. Some of the evidence above summarized was hearsay, but it was admitted without objection, and it was not contradicted.

Under these facts, and without any proof of any illegal or unfair act on the part of Bull, as matter of law he cannot be held responsible to Smith for any good will of the former partnership.

As said in Pollock v. Ralston, 5 Wash.2d 36, 104 Pa.2d 934, 938,

‘We are of the opinion that, under the facts of this case, there was no good will of any value which could be or was appropriated * * * The partnership here involved was a mere agency partnership, holding agency contracts, terminable at will, which contracts were secured and held purely because of the skill and experience of these parties. * * * The partnership was dissolved, and the partnership name * * * expired upon the dissolution and was not thereafter used * * *. The business of the partnership was not continued. * * *

“A partner cannot be charged with appropriating the good will after dissolution because he individually solicited the business of the firm's partrons without using the firm name, or because after dissolution he continued to use his own name in similar business, even though his own name had been the firm name, there being no attempt to deceive people into believing that they were dealing with the old firm' * * *'

In the instant action, as in the last cited case, the partnership ‘partook more of the nature of a professional than a trading or commercial partnership’, and under the established facts there was no good will after the dissolution of the partnership. Nor do the facts of the instant action permit the conclusion that appellant ‘converted and appropriated the partnership good will’ before the dissolution took place.

The only evidence in the record as to the existence and value of the partnership good will is the testimony of Hugh V. Hunter, a certified public accountant, that he believed ‘the same general formula’ would ‘apply to all personal service agencies in the evaluation of good will’; ‘at least there is good will attached to personal service organizations'; that he had, at the request of respondent's counsel, done some research on the question of evaluation of good will; that, from Smith & Bull's gross billing, net profit and cost of advertising and entertainment for the years 1949 to 1952, his opinion is ‘there is definitely some good will to such an organization’; that from those figures he had used five methods of evaluating such good will, and the average of the five results was $57,391.66, which in his opinion is the value of the good will of Smith & Bull ‘when the partnership was still alive, as of February 28th’; that he estimated the value ‘without any reference at all to why or what caused the income to be created’; and on cross-examination that ‘when the partners have discontinued the business * * * completely quit * * * and neither one of them did any more * * * under the name of the business, or following out the investment * * * the old organization obviously, as an empty shell, would have no good will.’

We find nothing in the agreement dated May 5, 1953, prepared by Attorney Shattuck and signed by Smith and Bull, that ‘Nothing in this agreement is intended to be construed as in any way affecting the rights of either party against the other connected with or arising out of the partnership of Smith & Bull. The entire purpose of this agreement being merely to divide as hereinabove set forth between Smith and Bull certain of the assets of Smith & Bull and to arrange for the payment of the listed obligations of Smith & Bull as hereinbefore set forth. Each of the parties hereto expressly reserves any and all rights he may have as a partner of former partner of Smith & Bull, and this agreement is in no way intended as an agreement winding up or dissolving Smith & Bull, a partnership, nor to release either party from any obligation to the other party’, that supports a finding that partnership good will existed or was converted or appropriated. Nor is such support to be found in Attorney Shattuck's testimony that said agreement was one ‘retaining the right to continue to assert our right to good will and to damages for taking the business.’

It is ordered that the findings of fact and conclusions of law be reframed in accordance with the views herein expressed; that the judgment be amended by striking therefrom the following:

‘3. The plaintiff shall recover from defendant Frank Bull the sum of twenty-eight thousand six hundred ninety-five and 83/100 dollars ($28,695.83), with interest thereon from the date of entry of this final judgment, until paid, at the rate of seven per cent (7%) per annum.’

As so modified the judgment is affirmed. The parties will bear their respective costs on appeal.

WHITE, Presiding Justice.

FOURT, J., and DRAPEAU, J., pro tem., concur.