Story Case

Deloss Shepherd and Simon Hobbs were manufacturers of stoves, doing business as Shepherd & Hobbs Company. Hobbs died and Shepherd, as surviving partner, continued the business of the firm. The heirs of Hobbs demanded that Shepherd dispose of the business, and pay them the cash value of Hobbs' interest. This, Shepherd refused to do, saying that they should be satisfied with the success of the business and the regular payment of the profits which belonged to them.

The heirs, thereupon, brought an action in court, demanding the sale of the property. What will the Court do?

Ruling Court Case. Beale Vs. Beale, Volume 2 Northeastern, Illinois Reports, Page 65

In 1866, Edward and Virgil Beale, who were brothers, became partners in the milling business in Union County, Illinois. In December, 1876, Edward died. In February, 1877, Virgil, as surviving partner, made an inventory of the partnership assets, which was duly presented to, and approved by, the proper court. Virgil, after making and filing this inventory, made no further report to the Court. Thus, in January, 1878, Lorena Beale, administratrix of Edward, filed this bill to compel the defendant, Virgil Beale, to render an account.

The Court proceeded to make up the account. Virgil had had some money, belonging to the firm, which he had had in his possession since the death of Edward. The Court ordered that, upon the share which should go to Lorena, as administratrix, Virgil should pay interest. This he contested, claiming that he was under no obligation to pay interest thereon. The Court made this answer to his contention: "Complaint is made that the Court charged the defendant with interest. From an examination of the decree, the Court did, no doubt, require the payment of interest upon certain amounts in defendant's hands which ought to have been paid over. We perceive no error in this. No good reason was shown, why the partnership affairs were not settled up at once, and the balance going to the representatives of the deceased paid over. So far as appears from the evidence, no complication existed in the partnership business, and there was nothing to hinder the defendant from converting the partnership assets into money at once, paying the liabilities of the firm, and dividing the surplus between himself and the administratrix. It was the duty of the survivor, after the partnership terminated, to wind up the partnership with reasonable diligence and to account with the representatives of the deceased partner; and if he failed to discharge this duty, and held partnership money in his hands, he ought to be required to pay interest."

It was, therefore, held that the defendant must pay interest upon the partnership money which he had held in his possession, since the death of his partner and the dissolution of the firm.

Ruling Law. Story Case Answer

It is the duty of a surviving partner to settle up the affairs of the partnership immediately. He has no power, unless by special agreement or direction of the deceased partners, to continue the business as such. He has, however, power to do all things reasonably necessary to close up the business, to pay all outstanding obligations, and to perform all executory contracts. If he does not proceed with due diligence to liquidate the affairs of the partnership, he may be held liable for any damages caused by the delay. Unless he proceeds to settle at once, he may be held for interest on any money in his hands which should be distributed among the representatives of the deceased partners.

Therefore, it is obvious that Shepherd, in the Story Case, must sell the property under order of the Court, and account to the heirs of Hobbs for the cash value of the deceased partner's interest. Of course, Shepherd may buy in the property, provided he acts in good faith.