Rutan v. Coolidge

Carroll, J. This bill in equity for a partnership accounting is brought by the executrix of the will of Charles H. Rutan against Charles A. Coolidge, sole surviving and liquidating partner of Shepley, Rutan and Coolidge, architects. Shepley died in 1903, and the business of the firm after his death was carried on by Rutan and Coolidge, each member having fifty per cent of the profits. The firm was dissolved on December 1, 1914. Rutan died on December 17 of that year. The firm had offices in Boston and Chicago. The designing and all the artistic and creative work were done by the defendant. Rutan had charge of making calculations of construction, writing the specifications, superintending construction and office details, in Boston; he had little to do with the Chicago office. He did no designing and had personal relations with only a few of the clients. At the time of the dissolution the majority of the firm’s clients looked chiefly to Coolidge, and a substantial number of important clients had stipulated for his personal services. In August, 1912, Rutan became incapacitated and after that time took no part in the business, but continued to receive his full share of the profits. There were on hand in the office of Shepley, Rutan and Coolidge at the time of the dissolution, jobs in all stages, from work actually in operation to work only vaguely contemplated, where only ten — 595 — tative plans had been discussed with the architects. The principal question in the case is the method to be adopted in stating the account of the so called unfinished business and good will. The plaintiff contended that each job constituted a contract between the owner and architect, which, although subject to termination by the owner, was an asset of the partnership, which it was the right and duty of the liquidating partner to complete and account for. The master found that there were no such contracts, and ruled that, in absence of special contracts, the only assets of the partnership on December 1, 1914, resulting from uncompleted jobs, at whatever stage, consisted of two items: (1) the fair value of services rendered to date and not paid for; and (2) the contingent value of the job, as one of the many items to be taken into account in determining the value of the good will of the partnership. In determining the assets of the firm, he included the personal property and equipment, cash in hand, receivables due from clients, as well as accounts assumed and completed by the defendant as liquidating partner. In determining the value of that portion of the good will which consisted of the possibility of future business concerning which the firm had not been consulted, the master took into account the personal nature of the relation of architect and client, and the reputation and prominence of the individual members of the firm, and found that as against the defendant’s right to compete, this general good will of the firm of Shepley, Rutan and Coolidge was of no substantial value. The evidence is not reported. That portion of the good will which consisted of the possibility of retaining or securing the right to continue the work in various stages where the firm had already been consulted, was found to be of some substantial value. The plans and sketches belonging to the firm were of little worth apart from the work to which they related. Their value to such work was contingent upon the possessor having the right to carry it on; and in estimating this portion of the good will, the contingent value of these sketches and plans in connection with current work was included. Subsequent to December 1, negotiations between the parties were in progress, and finally the assets of the firm, including the good will, “ except its cash on hand and on deposit, bills receivable, books of account, and rights in contracts unfinished December 1, — 596 — 1914, and in connection with work already at hand at that time, such contracts and work to be completed by Mr. Coolidge, the surviving partner, for the account and risk of the firm,” were sold at auction to Coolidge for $13,400. The master found that the consideration was adequate for the assets sold, including the good will. The defendant assumed responsibility as liquidating partner, to complete and account for all work on which, as between contractor and owner, contracts had been made on December 1, 1914; and in stating the account the defendant was held accountable for the profits on this work. He was allowed his expenses in completing these undertakings, and also compensation for his personal services as architect. Payments were made by the defendant for the work done as liquidating partner to the plaintiff on account of her husband’s share, amounting to $78,856.94, and it was found that there was still due the sum of $18,373.56, which was paid in full with interest after the filing of the master’s original report, as shown in the supplementary report. The plaintiff filed exceptions to the master’s report, but no objections were filed by the defendant and the case is before us on the reservation of a single justice. In Hutchinson v. Nay, 187 Mass. 262, 266, it was decided that if the sale of the good will of a partnership was ordered by the court, such a sale is to be “conducted on the footing that the surviving partner was at liberty to enter on a competing business and to solicit trade from the customers of the old firm.” The master followed this rule and found that that portion of the good will of Shepley, Rutan and Coolidge which consisted of the possibility of future business concerning which the firm had not been consulted, was of no value. In professional partnerships the good will, in so far as it relates to the possibility of future business, may be found to be of only nominal value. A professional partnership depends on the personal qualities of its members and the good will may be of little or no value to the estate of the deceased member. As was said in Foss v. Roby, 195 Mass. 292, 297: “In a mercantile partnership the sale of good will conveys an interest in a cominercial business, the trade of which may be largely, if not wholly, dependent upon locality, and the right which the vendee acquires under such a — 597 — purchase is the chance of being able to retain the trade connected with the business where it has been conducted. . . . But in a partnership for the practice of dentistry, the personal qualities of integrity, professional skill and ability attach to and follow the person not the place.” Dwight v. Hamilton, 113 Mass. 175. Mandeville v. Harmon, 15 Stew. 185, 191, 193. But in our opinion it could not be said of the firm of Shepley, Rutan and Coolidge that as matter of law it had no good will in this possibility of future business; it was a question of fact. The right of the survivor to follow his profession could not be affected by the death of his partner or the voluntary dissolution of the partnership. He had a right to seek the patronage of the clients of the old firm; he had a right to enter upon a competing business. And this fact was important in deciding whether the general good will of the firm was of any substantial value. Hutchinson v. Nay, supra. The business of Shepley, Rutan and Coolidge was not confined to any one place. It had business in different parts of the country and the defendant for many years had dealt with its clients. He was recognized as the member who did the designing and artistic work. Rutan had personal relations with few of the clients. He did no designing, and for more than two years before he died took no part in the business of the firm. On these facts, together with the evidence that the relation of architect and client is of a peculiarly personal nature, the master was fully justified in finding that this portion of the good will was of only nominal value. That portion of the good will which consisted in the possibility of obtaining a right to continue the jobs in various stages, as to which the firm had already been consulted, but where contracts between owner and contractor had not been let, was found to be of substantial value; in estimating it the master took into account the plans and drawings which were of no intrinsic value, but were of value, to their owner in connection with the possibility of holding the work, provided he secured it. These plans and drawings and the good will were sold at auction with the other assets already referred to, and it was found that the consideration was adequate. The plaintiff cannot complain of this finding. This portion of the good will could be found to be of some value, and the finding that the consideration paid was fair, cannot be disturbed. — 598 — When the firm was dissolved there was work on hand where, between owner and contractor, contracts had been let. This work the defendant undertook to complete and account for, as liquidating partner, as unfinished business of the firm. It was carried to completion and the defendant was charged in the account for the money received. The defendant having undertaken this work as a part of the firm assets, and continued it to completion as a liquidating partner, it became the property of the firm, to be accounted for by him. Moore v. Rawson, 185 Mass. 264. Hutchins v. Page, 204 Mass. 284. Wightman v. Wightman, 223 Mass. 398, 403. In stating this part of the account Mr. Coolidge was allowed a special compensation for his services. While profits earned in the liquidation of a commercial partnership as a general rule belong to the firm without deduction for the services of the liquidating partner, under the rule in this Commonwealth the right to charge profits with compensation for the liquidating partner depends upon the particular facts of each case. Robinson v. Simmons, 146 Mass. 167. Thayer v. Badger, 171 Mass. 279. Magullion v. Magee, ante, 360, 371. The facts warranted the finding that the liquidating partner was entitled to compensation for the services rendered, and the master states that in allowing him compensation for his services in the Boston office, “I have considered not only their great value, but his very low expense charge.” The plaintiff’s exceptions to this part of the report cannot be sustained. The plaintiff contends that all work in the office of the firm on December 1, 1914, no matter in what stage of completion, was unfinished work of the firm and as such was to be accounted for by the liquidating partner. For that part of the work which he assumed as liquidating partner the plaintiff has received the benefit. As to the portion of the work about which the firm had been consulted but where there were no contracts between the owner and contractor, it was taken into account, in the sale of the assets, as a part of the good will. The ruling of the master on this question was sufficiently favorable to the plaintiff. In Stem v. Warren, 227 N. Y. 538, upon which the plaintiff relies, two firms of architects, Reed and Stem and Warren and Wetmore, entered into a partnership to perform certain work — 599 — awarded them, for a railroad company. In the contract between the firms and in the contract with the railroad, it was provided that the contract should not be ended by death, but the railroad company reserved the right to terminate its contract in the event of Reed’s death. He was the executive head of the work, and when he died the firm of Warren and Wetmore induced the railroad company to terminate the contract. It was held, in view of this special contract and the conduct of Warren and Wetmore in inducing the railroad company to terminate the contract, that the firm of Reed and Stem was entitled to share in the profits of the work, notwithstanding the death of Reed. See also Consaul v. Cummings, 222 U. S. 262. In the case at bar there was no special contract of this kind, and on this ground it is to be distinguished from Stem v. Warren. When the firm was dissolved work was contemplated by the University of Nebraska about which Shepley, Rutan and Coolidge had been consulted, but no contract had been made; the offer of the firm had been accepted only conditionally and the entire plans were largely dependent on the outcome of a referendum vote in November, 1914; and after the election of that year the failure to complete the contract with Shepley, Rutan and Coolidge and the University of Nebraska, was not due to the acts of the defendant or his associates. There was no special contract with the University of Nebraska, nor with any of the firm’s clients, at the time of dissolution, similar to the contract in Stem v. Warren, and that case is not applicable. Other so called unfinished business for which the plaintiff seeks to hold the defendant (aside from contracts between owner and builder actually let on December 1, 1914, which the defendant completed and for which he accounted to the plaintiff) in principle stand on the same footing. The master was right in finding that there was no bad faith on the part of the defendant. The facts found show that he conducted himself with entire good faith in all the negotiations and there is nothing to indicate that he was unfair or dishonest in any way. During the transition period, December 1, 1914, until the sale at auction of the firm assets on June 23, 1915, the defendant did nothing which tends to support the plaintiff’s claim of bad faith. It was found that in adjusting the affairs of the firm during this period, the defendant acted in good faith and that — 600 — his method of settling the accounts between the old and the new firm was under all the circumstances “as correct and fair a method as could be used.” As to the item of interest on the sum of $20,079.26, with which the plaintiff claims the defendant should be charged from June 1, 1916, to March 7, 1917 — this sum of $20,079.26 was paid by Coolidge and Shattuck to the Shepley, Rutan and Coolidge account, but it was not in fact paid until March 9, 1917. We find no error in refusing the allowance of interest on this sum until it was paid to the firm of Shepley, Rutan and Coolidge, especially in view of the master’s finding that the method of adjusting the accounts between the two firms, was fair and accurate under all the circumstances. Without passing in detail upon the several rulings of the master, it is enough to say that no error was made injuriously affecting the substantial rights of the plaintiff. Freeman v. Robinson, 238 Mass. 449. The exceptions are overruled and a decree is to be entered dismissing the bill. So ordered.