On cross-appeals from the Superior Court, Appellate Division.
For affirmance -- Justices Oliphant, Wachenfeld, Burling, Jacobs and Brennan. For modification -- Chief Justice Vanderbilt and Justice Heher. The opinion of the court was delivered by Wachenfeld, J. Heher, J. (dissenting in part).
We granted cross-petitions for certification in this cause, in which the dispute between the widow of a deceased partner and the surviving partners concerns her efforts to be paid for her deceased husband's share in the partnership business and the endeavors of the surviving partners to recover from the widow amounts paid to others to perform the work normally performed by the decedent.
In 1925 five partners executed a partnership agreement under which they conducted the United Shop Cap Company.
The term was for a period of one year. Amongst other things, it provided for even distribution of the profits, weekly allowances to the partners, and the paying off of any partner who should voluntarily withdraw.
Before 1940 two partners withdrew, but no further agreement was executed by the remaining partners, and from that date until the death of the decedent they operated the business as equal one-third partners.
In 1946 the plaintiff's husband became ill and thereafter, until his death in 1949, rendered no services to the partnership business. During this time, however, he continued to receive his customary weekly salary and his share of other withdrawals, amounting in all to some $60,000. He also had free access to the books of the business and complete information as to its operation, and apparently approved the various financial reports.
After his death the widow instituted this action as executrix against the two surviving partners, seeking a dissolution of the partnership, an accounting, and the appointment of a receiver. A counterclaim was filed seeking to charge the account of the deceased partner with the cost of providing substitute help during his illness from 1946 to 1949. To avoid the appointment of a receiver, the defendants deposited $25,000 with the court to secure payment of whatever sum might be determined to be due to the plaintiff.
At the trial level, judgment was entered in the amount of $19,153 and interest for the plaintiff to the date of the defendants' deposit into court, and the counterclaim was dismissed. Blut v. Katz, 14 N.J. Super. 121 (Ch. Div. 1951). The sum so arrived at represented the deceased partner's interest in the capital account at the time of his death. Good will was excluded as an asset of the partnership in calculating the deceased partner's interest.
On cross-appeals to the Appellate Division, it was there determined good will should have been included, and the cause was remanded to the Chancery Division to determine the value thereof. Both sides are dissatisfied with the results and each appeals.
The first issue to be decided is the denial by both lower tribunals of the plaintiff's demand for an option to recover the profits earned after the dissolution which might be attributable to the use of her husband's capital by the defendants in continuing the partnership business. The demand was made pursuant to R.S. 42:1-42 and the briefs are replete with discussion of the meaning of the statute.
The Appellate Division reasoned thusly:
"The plaintiff argues that under R.S. 42:1-42 she is entitled to receive the profits attributable to the use of Blut's capital since his death. However, such right accrues where the business is continued after the death of a partner 'with the consent of * * * the representative of the deceased partner.' R.S. 42:1-41.3. The trial court found that in this instance there had been no consent, citing Laterra v. Laterra, 134 N.J. Eq. 162 (E. & A. 1943), which held that participation in the profits of an enterprise rested upon contribution of skill, time and diligence, rather than the mere use of capital. With this view we agree. Phillips v. Reeder and Prior, 18 N.J. Eq. 95 (Ch. 1866)."
The plaintiff asserts this is erroneous because it gives "a novel and unjustifiable interpretation" to the statute, and her consent to the continuation of the business is ...