Mervyn Investment Company v. Biber

Supreme Court of California · 1921 · Corporations

194 P. 1037 (1921)

Updated August 22, 2026

CorporationsPartnership dissolutionAssignment of partnership interestReceivershipLiquidating partnerpartnershipassignmentcorporation

Facts

Werner and Biber operated an apartment-house business under a written agreement stating they were partners, with Werner financing the business and Biber devoting his full time to management. The agreement provided that business debts and Werner's advances would be paid from available income and profits, after which Werner would convey Biber a one-third interest in the property, lease, and business; it also allowed Werner to assign his interest to a corporation that would be bound by all partnership terms. Werner soon assigned all his interests to the plaintiff corporation, which accepted the transfer subject to the agreement and later sought a decree for sale of the business assets and a receivership. The trial court found Biber had faithfully performed, the business was profitable, and no default by Biber had occurred.

Issue

When one partner assigns his interest to a corporation that accepts the transfer subject to the original agreement, may the assignee corporation terminate the arrangement by forcing a sale and receivership, despite the remaining partner's faithful performance and contractual right to continue the business until debts are paid from profits and his ownership interest vests? Relatedly, did the assignment extinguish Biber's right to remain in control as liquidating partner?

Rule

A partner's assignment of his interest may terminate the partnership relation as to that partner, but it does not extinguish the remaining partner's contractual rights under the partnership agreement. Where the agreement and circumstances show the business was to continue until a specified object is accomplished, a withdrawing partner or assignee cannot, absent default or other justifying cause, deprive the remaining partner of control needed to liquidate liabilities and realize the contractual fruits of the agreement; a forced sale or receivership is improper without such cause.

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In Seattle, Nora Levin financed a specialty bakery operated with Devin Cole under a written agreement calling them partners. Devin was to manage the bakery full time, and all business debts plus Nora's documented advances were to be repaid from profits before Devin would receive a one-third ownership interest in the lease, equipment, and business; the agreement also permitted Nora to assign her interest to a corporation that accepted the transfer subject to the agreement. Nora assigned her entire interest to Harbor Glen Foods, which then sued to force an immediate sale of the bakery and appointment of a receiver, even though Devin has managed profitably and has not defaulted.

How should the court rule on Harbor Glen Foods' request?

Explanation. The majority rule is that assignment by one partner terminates the partnership relation as to that partner, but does not extinguish the remaining partner's contractual and property rights under the agreement. Where the contract contemplates continuation until debts are paid from profits and the manager is faithfully performing, an assignor or assignee cannot arbitrarily force a sale or receivership that defeats those rights.