Story Case

David Shippy, Robert Hunt, and Donald Hibert formed a partnership as consulting engineers. Shippy was an elderly man, widely known in his field, but about to retire from the business; Robert Hunt, possessing a keen mentality, and reputed as very skillful, was a young engineer with five years of practice. Hibert was just out of college, a young man of wealth, who desired to locate in a good firm. It was agreed to call the partnership Shippy, Hunt and Hibert; Shippy agreed to contribute, as his share of the firm capital, his well known name, reputation and influence; Hunt agreed to contribute his skill and reputation, and to devote all his time to the work of the firm; Hibert agreed to contribute $2,500 in cash as his share of the capital of the firm, and to devote all his time to his work. It was further agreed that all the partners should share equally in the profits and losses. After the firm was in existence for one year, it was mutually agreed between all the partners that a dissolution should be effected. The only tangible and salable asset of the firm was $2,400 worth of furniture and engineering equipment purchased with Hibert's money. Hibert maintained that all of this belonged to him because he had contributed all of the money. The other partners maintained that the property should be divided equally between them. What should be done in the case?

Ruling Court Case. Shea Vs. Donahue, Volume 54 American Reports, Page 407

Shea and Donahue formed a partnership to carry on the business of hardware. It was agreed by them that Shea should contribute $1,000 of the capital stock of the partnership; and that, in view of the fact that Donahue was an experienced man in this business, he was to give his entire time and attention to the affairs of the business, to place against the cash to be paid in by Shea, and on this basis the partnership was created and carried on for a period of three years. At the end of this time, the partnership was dissolved. This bill was brought by Donahue for an accounting between himself and Shea; he claimed, among other things, that he was entitled to one-half of the capital stock which was put in by Shea by virtue of their agreement that each was to bear the expenses and losses and share the profits equally.

Decision

In the absence of any contrary agreement, after all the prior claims are paid, each is entitled to the amount of the capital which he contributed. Donahue contributed his experience, that he takes away with him; Shea contributed $1,000 in cash, and to that he is entitled.

Mr. Justice Cooper said in part: "In accordance with these principles, the following decision has been made by the Supreme Court of New York in a case cited in a note to page 610 of Lindley on Partnership: ' Where, by the terms of the agreement, the defendant furnished the capital stock and the plaintiff contributed his skill and services, and the profits of the copartnership were to be equally divided, the plaintiff is not entitled to any part of the capital stock on a settlement of the affairs of the partnership. He has no interest in any part of the capital, excepting so far as, in the progress of the business, the same may have been converted into profits.' " It was, therefore, held that the plaintiff Donahue was entitled to no part of the $1,000 which had been contributed to the partnership by the defendant, Shea.

Ruling Law. Story Case Answer

The capital of the partnership consists of the respective amounts which the members thereof have agreed to contribute as the basis of the business in which they are to engage. It is not the same as the partnership property; this may vary from time to time; at times it may exceed, and at times be less than, the capital of the firm. The capital need not be contributed in money; ordinarily, however, it is made up of sums of money contributed by the partners. But one partner may contribute money and another may contribute land or other property, or one may contribute money and another may contribute his skill and services in a given business.

Upon the dissolution of the relation, after all partnership obligations are met, the surplus is divided among the members as their capital contributed and profits made. All the partners divide equally the profits made from the capital of the firm, but, in the division of the capital itself, each is entitled to the amount he contributed, if there was not an agreement otherwise. In the Story Case, Shippy has the right to take what he has contributed, his reputation and influence; Hunt has a similar right and Hibert should be permitted to draw out the tangible assets which were his contribution.