This section is from the book "Popular Law Library Vol8 Partnership, Private Corporations, Public Corporations", by Albert H. Putney. Also available from Amazon: Popular Law-Dictionary.
In Wild vs. Milne,11 the prayer in the bill was that the partnership property might be sold, or so much thereof as might be necessary, and applied in payment of debts and liabilities, and that the surplus might be divided. The court said: "I am clearly of the opinion that this is an ordinary case of partnership, and when it is dissolved or terminated any one of the partners is entitled to have the whole assets disposed of. * * * * Liberty to bid may be given to all partners, except the one having the conduct of the sale."
To prevent a sale of partnership effects, it is frequently provided in the articles of co-partnership that upon dissolution of the partnership by the death, withdrawal, misconduct, or bankruptcy of one partner, the others shall be entitled to take his share at a valuation in the manner prescribed.12
11 26 Beavan, 504; Ames, Cases on Partnership, p. 173.
In England the rule in regard to the sale of the whole assets applies not only to leaseholds but to lands held in fee simple. In the case of Darby vs. Darby, the court discusses the question as follows:
"What is the clear principle of this court as to the law of partnership? It is, that, on the dissolution of the partnership, all the property belonging to the partnership shall be sold; and the proceeds of the sale, after discharging all the partnership debts and liabilities, shall be divided among the partners, according to their respective shares in the capital. That is the general rule; it requires no special stipulation; it is inherent in the very contract of partnership. That the rule applies to all ordinary partnership property is beyond question; and no one partner has a right to insist that any particular part or item of the partnership property shall remain unsold, and that he shall retain his own share of it in specie. This principle is clearly laid down by Lord Eldon in Crawshay vs. Collins, and by Sir W. Grant in Featherstonhaugh vs. Fenwick; and the right of each partner to insist on the sale of all the partnership property which arises from what is implied in the contract of partnership is just as stringent as a special contract would be. If, then, this rule applies to ordinary stock in trade, why should it not apply to all kinds of partnership property? Suppose that partners, for the purpose of carrying on their business, purchase, out of the funds of the partnership, leasehold estate, or take a lease of land, paying the rent out of the partnership funds, can it be doubted that the same rule which applies to ordinary chattels would apply to such leasehold property? I do not think that it was ever questioned that, on a dissolution, the right of each partner to have the partnership effects sold applies to leasehold property belonging to the partnership as much as to any other stock in trade. No one partner can insist on retaining his share unsold. Nor would it make any difference in whom the legal estate was vested, whether in one of the partners or in all, this court would regulate the matter according to the equities, and Sir W. Grant so decided in Featherston-haugh vs. Fenwick.
12 Ames' Cases on Partnership, p. 174.
"If, then, the rule applies not only to the ordinary stock in trade, but also to a lease for years - suppose next that the partnership, instead of purchasing a term of years, were (whether from necessity or choice) to purchase land in fee; if the land is necessary for the partnership business, and bought with partnership assets, what difference can it make whether the real estate bought is leasehold or in fee? Let it be once established that the property purchased is partnership property, and it then comes under the operation of those principles which arise out of the partnership contract; and there seems to be no reason why the operation of those principles is to be restricted to any particular class or species of partnership property. The observations of Lord Eldon, in Crawshay vs. Maule, before referred to, show that in his opinion the right to a sale on dissolution of partnership does not in any degree depend on the nature of the property. Nor could it be material in this case, any more than on the purchase of a leasehold interest, in whom the legal title was vested."
In the United States, however, while real estate is considered personalty so long as the firm is a going concern, yet on dissolution of the firm a different situation arises, and the rule that the whole assets must be sold, does not apply to a fee in land. This is undoubtedly so where the dissolution occurs by death of one of the partners. Mr. Washburn in his work on Real Property, says: "In this country, - and it seems generally in England, - the doctrine of survivorship is limited by the extent to which equity stamps the character of personalty upon such estates, and that is, so far as, and no further than, they are required to pay partnership debts.13
Tiedeman in his work on Real Property, Sec. 246, says: "When, however, the partnership debts have all been paid, the partners are tenants in common of the partnership lands. Their widows have dower, and their heirs are entitled to it upon the decease of the partners. It is also subject to partition." 14
In Bopp vs. Fox,15 the land was sold by receiver for payment of debts while partners were all living. On the death of one of the partners afterwards his widow claimed dower in the land so sold. The court held that the property was required for the payment of partnership debts and was rightfully appropriated to that purpose.
In the case of a going concern, with the consent of all the members of a partnership, the real estate may be appropriated to any legitimate purpose of the partnership without being subject to dower rights, but on dissolution, either by death or otherwise, after debts are paid, any partner has a right to partition, and a sale of more land, land not being the stock in trade, than is necessary to pay the debts of the firm would give rise to dower rights.16