Murphy v. Burke

• Citation: 311 A.2d 904,454 Pa. 391
• Parties: L. Francis MURPHY and Robert E. Slota, Individually and as co-partners t/a Murphy & Slota, Appellants, v. Thomas J. BURKE et al., Appellees.
• Decision Date: 26 November 1973
• Court: Pennsylvania Supreme Court

311 A.2d 904

454 Pa. 391

L. Francis MURPHY and Robert E. Slota, Individually and as

co-partners t/a Murphy & Slota, Appellants, v. Thomas J. BURKE et al., Appellees.

Supreme Court of Pennsylvania.

November 26, 1973.

Bernard V. DiGiacomo, Norristown, for appellants.

Harold W. Spencer, Wright, Spencer, Manning & Sagendorph Norristown, for appellees.

Before JONES, C.J., and EAGEN, O'BRIEN, ROBERTS, POMEROY NIX and MANDERINO, JJ.

OPINION OF THE COURT

POMEROY Justice.

The appellants, L. Francis Murphy and Robert E. Slota, are attorneys and members of the Bar of Montgomery County. They brought an action in equity against the Norristown Pennsylvania law firm of Haws & Burke, a professional corporation, and against Thomas J. Burke, James S. Kilpatrick, Jr. and Ralph L. Hose, the three lawyers practicing in that firm. In their complaint plaintiffs recited that 'for some period up until June of 1971, (they) were associated with the individual defendants in the practice of law' and that 'plaintiffs and entitled to the possession of all the files, both active and closed, of the clients who have personally retained plaintiffs or either or both of them or who regard either or both of them as their own attorneys.' Consequently, plaintiffs prayed, Inter alia, that the defendants be directed to deliver all files of clients listed in an appendix of the complaint. Defendants denied that Messrs. Murphy and Slota were associated with the firm of Haws & Burke in any capacity other than as employees. The appellants thereafter filed a companion ^[1] suit in which they alleged alternatively (a) that they had been General partners of the firm of Haws & Burke either pursuant to an express oral agreement Or pursuant to an agreement to be implied from the conduct of the parties Or pursuant to a partnership the existence of which the named individual defendants were estopped to deny; (b) that they had been Shareholders in the professional corporation of Haws & Burke; or (c) that they had been Mere employees but were entitled under an employment agreement to certain unpaid monies. In the event plaintiffs were to be found general partners or shareholders, they demanded a distribution of the asserts of the firm. The two complaints were consolidated for trial.

After eight days of testimony, the chancellor ^[2] found that both Murphy and Slota were Employees of Haws & Burke at all times, that they had agreed to devote their sole efforts to the affairs of that firm, and hence were entitled neither to a distribution of that corporation's assets nor to possession of its business records. ^[3] Extensive exceptions by plaintiffs to the chancellor's adjudication were dismissed by a unanimous court En banc and the two decrees denying relief were made final. This appeal followed.

Appellants urge that the decrees below must be reversed because the chancellor erred in applying the law of partnerships ^[4] and so wrongly decided that no partnership existed. While we agree that some of the legal reasoning of the court was faulty, the findings of fact are nevertheless entirely sufficient to enable us to conclude that under correct legal principles no relief was warranted. We will therefore affirm the decrees.

I. Partnership Implied from Conduct

A partnership is created by contract; it comes into being, as do all contracts, through agreement. A contract is 'a manifestation of mutual assent on the part of two or more persons.' American Law Institute, Restatement (Second) of Contracts § 3, at 20 (Tent. Draft No. 1, April 13, 1964). The verb 'to manifest', as the word is used in the above Restatement quotation, means 'to Show plainly.' Random House Dictionary of the English Language (1967). Like all contracts, partnership contracts may be either express or implied. 'The distinction involves, however, no difference in legal effect, but lies merely in the mode of manifesting assent. (A)ssent may be manifested by words or other conduct, sometimes including silence . . . or by other circumstances, including course of dealing or usage of trade or course of performance.' Restatement (Second) of Contracts § 5, at 24 (Comment). ^[5]

There is no requirement that partnership agreements be in writing. Gohen v. Cravelle, 411 Pa. 520, 192 A.2d 414 (1963); Pappas v. Klutinoty, 383 Pa. 184, 118 A.2d 202 (1955). They may be made orally or may be found to exist by implication from all attending circumstances (i.e., the manner in which the alleged partners actually conducted their business, etc.). Gohen v. Cravelle, Supra; O'Donnell v. McLoughlin, 386 Pa. 187, 125 A.2d 370 (1956); Miller v. Miller, 370 Pa. 520, 88 A.2d 784 (1952). ^[6]

As to this latter method (partnership implied from conduct), the chancellor held that a 'course of conduct between the parties can only be considered as it might establish a partnership between the parties as to the claims of third persons. Such a course of conduct does not establish a partnership between themselves in the absence of an agreement, either express or implied.' ^[7] In so concluding we are of the opinion that the chancellor fell into error. As will be seen, however, (see part III, Infra), this limitation on partnership implied from conduct did not lead to a wrong result.

II. Partnership by Estoppel

Appellants further contend that the appellees, by their conduct, can be held estopped to deny the existence of a partnership agreement, and that the chancellor erred in holding to the contrary. There are two strains of estoppel involved in the argument: (i) equitable estoppel, and (ii) promissory estoppel.

(i) Equitable Estoppel. The principle of equitable estoppel to deny the existence of a partnership is set forth in the Uniform Partnership Act. ^[8] This section, as the chancellor held, is applicable by its terms only where a third party attempts to hold liable on a theory of partnership some person who has 'represented(ed) himself, or consent(ed) to another (having) represented him . . . as a partner . . ..' This statutory estoppel contains all the elements of a traditional equitable estoppel:

'Equitable estoppel arises when one by his acts, representations, or admissions, or by his silence when he ought to speak out, intentionally or through culpable negligence induces another to believe certain facts to exist and such other rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence of such facts.'

Northwestern Nat'l Bank v. Commonwealth, 345 Pa. 192, 27 A.2d 20 (1942). See also American Law Institute, Restatement (Second) of Agency § 8B (1958).

Appellants contend, however, that this Court has applied an estoppel as between alleged partners, and not merely as between an alleged partners and a relying but misled third person. See, e.g., Gibboney v. Derrick, 338 Pa. 317, 12 A.2d 111 (1940); Kennedy's Estate, 321 Pa. 225, 183 A. 798 (1936). ^[9] We think those cases correctly decided, but that upon close reading, while estoppel language was used, the cases stand for the proposition already discussed, viz., that a partnership agreement can be implied from the conduct and circumstances of the parties, that is to say, their manifestations of assent to the existence of a partnership relationship. The gist of estoppel, on the other hand, is a misrepresentation.

(ii) Promissory Estoppel. Appellants further argue that a partnership could be found under the theory of promissory estoppel, see Restatement (Second) of Contracts § 90 (Tent. Draft No. 2, April 30, 1965). ^[10] This doctrine, that promises will be enforced where the promisee reasonably relied and injustice can be avoided only by enforcement, is the law in Pennsylvania. See, e.g., Fried v. Fisher, 328 Pa. 497, 196 A. 39 (1938); Berlinger v. Bee Em Manufacturing Co., 383 Pa. 458, 119 A.2d 65 (1956).

Thus we think that the lower court was mistaken in holding that No theory of estoppel could serve to bind the appellees. That error, however, was not prejudicial to these appellants under the facts of the case.

III. Applying the Law to the Chancellor's Facts.

Appellant Murphy joined the firm of Haws & Burke in July 1966. By his own admission he was from that date until January, 1971 merely an employee of the firm. Similarly, appellant Slota, who became associated with the firm in June, 1967, was also by his own admission an employee until January, 1971. There is therefore no point in reviewing the evidence pertaining to any earlier period to determine whether Murphy and Slota were then general partners; they agree they were not.

In December, 1970, appellee Thomas J. Burke, who until that month had operated Haws & Burke as a sole proprietorship, incorporated the firm as a professional business corporation, listing himself on the papers of incorporation as the sole promoter and causing all stock to be issued in his name. ^[11] In November of 1970, the month previous to incorporation, Burke had individually and privately broached with his attorney-employees the subject of future employment as employees of the contemplated professional corporation. Although both Murphy and Slota testified that at this time Burke offered to accepted them as 'partners', but to operate under corporate form, the other two lawyer-appellees testified that no such offer had been made to them. The chancellor found in favor of the appellees. ^[12]

In January 1971 a meeting was held at which the professional corporation's accountant reviewed the deferred compensation possibilities open to the employees of the corporation. Although appellant Slota testified that the subject of the meeting was 'partnership,' appellant Murphy testified that he did not recall that the word was ever used, and all other participants testified that the meeting...