Story Case

Lester Archibald and David McCoy were partners in the grocery business. Each agreed to give his entire time to the partnership affairs. After the firm was in existence for some time, McCoy became interested in a mail order novelty business and gave several hours each evening, when the grocery store was closed, to the work of selling things through the mail. He had been doing this for more than a year before Archibald learned of it. Archibald then demanded that McCoy divide the profits of the mail order business, on the basis that he had agreed to give all of his time to the firm and that this other work amounted to a competition with the firm.

Can McCoy be compelled to account for the mail order profits?

Ruling Court Case. Metcalfe Vs. Bradshaiv, Volume 145 Illinois Reports, Page 125; Same Case, Volume 36 American State Reports, Page 478

Sometime in the year 1874, the complainant, Metcalfe, and the defendant, Bradshaw, formed a partnership for the practice of law. Among other provisions in their articles of partnership, they mutually agreed to give their time, talents and strength to the prosecution of the interests of the firm. During the existence of the relation, at the suggestion and request of the complainant, the defendant was appointed as the executor of the estate of one who had been a firm client, and for whom the complainant had drawn a will, naming the defendant as executor. The defendant accepted the executorship, entered upon and faithfully performed the duties incident thereto. He received as commissions, for his services, some six thousand dollars.

Subsequently, the partnership was dissolved by mutual agreement of the parties. At the time of the dissolution, no accounting was had. Several years later, the complainant instituted the present action asking for a formal accounting of the affairs of the firm. The transaction above stated, among others, was involved in this proceeding. The complainant contended that he was entitled to a share of the commissions earned by the defendant. He based his claims upon the theory that the work done was in conflict with the interests of the firm. If this contention were true, it would follow that he should have been given a part thereof.

Decision

This was a partnership formed for the practice of law. The duties of an executor in the management of the estate of a decedent is not within the scope of law practice, nor are the duties so similar to the practice of law that the performance of the former necessarily conflicts with the latter.

The fact that the defendant had agreed to give his 'time and attention to the interests of the partnership affairs did not preclude him from entering into some independent employment outside the scope of the partnership business, provided he did so in good faith and provided the doing so in no way interfered with his efficient duties as a partner engaged in the practice of law. It appeared that he entered upon this work with the consent and approval and at the suggestion of the complainant. It did not appear that the performance of the duties as an executor in any way interfered with his duties to the partnership. Thus, it was held that the complainant was not entitled to any part of the commissions earned by the defendant.

Mr. Chief Justice Bailey, in the course of his opinion, said: "We are not unmindful of the well settled rule that a partner will not ordinarily be permitted, for his own profit, to enter into any business in competition with his firm. Thus, he cannot, without the consent of his co-partners, embark in a business that will manifestly conflict with the interests of his firm." The Court quoted from Lindley on Partnership: "Where a partner carried on a business not connected with or competing with that of the firm, his partners have no right to the profits he thereby makes, even if he has agreed not to carry on any separate business. In accordance with the foregoing, the Court decided that the complainant had not shown that he was entitled to any of the profits made by the defendant while acting as executor.

Ruling Law. Story Case Answer

When persons form a partnership they generally agree upon the manner in which its business will be conducted. It may be that some or all are to be actively engaged in the business; or it may be that some are relieved of this obligation and others may be permitted to engage in some other interest also. In the absence of any such agreement, however, each partner is supposed to devote his time and attention to the affairs of the partnership. He has no right whatsoever to engage in any business which will compete with the business of the partnership. He has no right to undertake anything in which his interests will conflict with the interests of the firm. If he does so the firm may compel him to account for all the profits which he has made in such manner.

The fact, however, that a partner has promised to give his time and attention to the affairs of the firm does not preclude him from engaging his leisure time in some independent occupation for his own benefit, provided such occupation does not interfere with his duties as a partner. In the Story Case, McCoy cannot be compelled to divide the profits of the mail order business, because the latter was not in any way in competition with the firm. McCoy did not take any of his time from the partnership, and he did not sell goods in competition with the partnership.