Return to nccourts.org
Return to the Opinions Page
An unpublished opinion of the North Carolina Court of Appeals does not constitute controlling legal authority. Citation is disfavored, but may be permitted in accordance with the provisions of Rule 30(e)(3) of the North Carolina Rules of Appellate Procedure.

NO. COA06-631

NORTH CAROLINA COURT OF APPEALS

Filed: 17 July 2007

JIM SANDER,
        Plaintiff,

v .                         Orange County
                            No. 04 CVS 907
THOMAS O'DWYER, CONSTRUCTION
RESOURCES, PHOENIX CONSTRUCTION
CORPORATION, and PHOENIX
CONSTRUCTION CORPORATION d/b/a
CONSTRUCTION RESOURCES,
        Defendants.

    Appeal by plaintiff from a judgment entered 7 September 2005 by Judge Michael R. Morgan in Orange County Superior Court. Heard in the Court of Appeals 10 January 2007.

    Steffan & Associates, P.C., by Kim K. Steffan, and Smith Moore LLP, by Shannon R. Joseph, for plaintiff-appellant.

    Wyrick Robbins Yates & Ponton LLP, by K. Edward Greene and Adrienne E. Allison, for defendant-appellee.

    BRYANT, Judge.

    Jim Sander (“plaintiff”) appeals from a judgment entered 7 September 2005 granting the dissolution of plaintiff's partnership with Thomas O'Dwyer (“O'Dwyer”). For the reasons below, we reverse the judgment of the trial court and remand for further proceedings.

Facts

    In 1996, plaintiff and O'Dwyer entered into an oral agreement to form a partnership to purchase, develop and sell a specific parcel of land in Carrboro, North Carolina. Plaintiff and O'Dwyer agreed that “they would contribute equal amounts of time, energyand financial resources to the partnership undertaking and would divide profits and losses equally.” The property was placed under contract in June 1996 and plaintiff and O'Dwyer closed on the purchase of the property in April 1998. Because plaintiff and O'Dwyer had not adopted or filed a partnership name, they agreed to purchase the property in the name of Phoenix Construction Corporation. O'Dwyer is the sole shareholder of Phoenix Construction Corporation (collectively, “defendants”).
    Plaintiff and O'Dwyer attempted to develop the property, but their proposed development plan was rejected by the Town of Carrboro in September 1999. In May 2000, following the denial of their appeal of the Town's decision to the Superior Court, plaintiff and O'Dwyer attempted to sell the property. The property remained on the market from May 2000 through February 2001, with a listing price of $400,000. Two offers were made to purchase the property but it was not sold.
    Thereafter, the parties openly did not agree on how the partnership and any development efforts should be conducted. During the course of the purchase of, and efforts to develop, the property from August 1996 through December 2001, plaintiff contributed a total of $155,100 to the partnership. Starting in 2001, due to plaintiff's and O'Dwyer's disagreement on how the partnership and any development efforts should be conducted, the parties engaged in a dispute resolution process. However, no agreement was reached between the parties for the purchase ofSander's partnership interest. No progress has been made on the development of the property since 2001.
Procedural History

    On 13 May 2004, plaintiff filed the instant lawsuit against defendants. In his complaint, plaintiff sought the following relief: (1) a judicial determination that the parties entered into a partnership to develop the property in issue; (2) judicial dissolution of the partnership, (3) an accounting by defendants of the partnership affairs, and (4) a resulting trust for plaintiff in the real estate and all other assets of the partnership. Defendants filed an answer and counterclaim and sought specific enforcement of an alleged settlement agreement between plaintiff and O'Dwyer, or in the alternative, a judicial dissolution of the partnership and a declaration of the rights, interests and obligations of the parties.
    This matter was heard without a jury before the Honorable Michael R. Morgan during the 8 March 2005 civil session of the Superior Court of Orange County. The trial court subsequently entered an Order and Judgment in favor of plaintiff on 7 September 2005. The trial court entered judgment for plaintiff as to the dissolution of the partnership and as to damages, and ordered the real estate be subject to a resulting trust in plaintiff's favor. The trial court further entered judgment for plaintiff providing defendants with two options: (1) defendants could purchase plaintiff's interest in the partnership within ninety days for $196,437.00, with plaintiff having his choice of any one of certainenumerated half-duplex lots located on the property; or (2) if defendants were unwilling or unable to purchase plaintiff's interest within ninety days, that judgment be entered in plaintiff's favor against defendants in the amount of $235,473.98, plus interest, as a lien on the real property. Defendants were also enjoined from drawing additional funds on an existing development loan collateralized by the property in excess of $135,000. Plaintiff appeals.
_________________________

    “In an appeal from a judgment entered in a non-jury trial, our standard of review is whether competent evidence exists to support the trial court's findings of fact, and whether the findings support the conclusions of law.” Resort Realty of the Outer Banks, Inc. v. Brandt, 163 N.C. App. 114, 116, 593 S.E.2d 404, 407-08, disc. review denied, 358 N.C. 236, 595 S.E.2d 154 (2004). The trial court's findings of fact “have the force and effect of a jury verdict and are conclusive on appeal if there is evidence to support those findings.” E. Mkt. St. Square, Inc. v. Tycorp Pizza IV, Inc., 175 N.C. App. 628, 632, 625 S.E.2d 191, 196 (citation and quotations omitted), disc. review denied, 361 N.C. 166, 639 S.E.2d 649 (2006). However, the trial court's conclusions of law are reviewed de novo. Ferguson v. Coffey, __ N.C. App. __, __ 637 S.E.2d 241, 242 (2006).
    Under the Uniform Partnership Act as enacted in North Carolina, a trial court has the authority to dissolve a partnership by judicial decree. N.C. Gen. Stat. § 59-62 (2005). A trial courtshall issue a decree of dissolution at the request of a partner whenever:
        (1) A partner has been adjudicated incompetent or is shown to be of unsound mind,
    
        (2) A partner becomes in any other way incapable of performing his part of the partnership contract,
        
        (3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business,
        
        (4) A partner wilfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him,
        
        (5) The business of the partnership can only be carried on at a loss,
        
        (6) Other circumstances render a dissolution equitable.

N.C. Gen. Stat. § 59-62(a) (2005). However, “[m]ere dissolution does not terminate a partnership []; the partnership continues after dissolution until the winding up of partnership affairs is completed.” Simmons v. Quick-Stop Food Mart, Inc., 307 N.C. 33, 40, 296 S.E.2d 275, 280 (1982); see also N.C. Gen. Stat. § 59-60 (2005). Rather, “[t]he dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business.” N.C. Gen. Stat. § 59-59 (2005); Simmons, 307 N.C. at 40, 296 S.E.2d at 280.
    The winding up of a partnership “generally involves the settling of accounts among partners and between the partnership andits creditors.” Simmons 307 N.C. at 40, 296 S.E.2d at 280; see also N.C. Gen. Stat. § 59-70 (2005). The right to wind up the partnership affairs is held by the partners who have not wrongfully dissolved the partnership. N.C. Gen. Stat. § 59-67 (2005). The partners with the right to wind up the partnership affairs may, “upon cause shown,” obtain winding up by the court. Id.; see also Ludwig v. Walter, 75 N.C. App. 584, 588, 331 S.E.2d 177, 180 (1985) (holding “[d]issolution will enable the court to distribute the remaining partnership assets”). Additionally, at the date of dissolution, a partner accrues the right to an account of his interest “as against the winding up partners or the surviving partners or the person or partnership continuing the business[.]” N.C. Gen. Stat. § 59-73 (2005); Ewing v. Caldwell, 243 N.C. 18, 22, 89 S.E.2d 774, 777 (1955).
    Our Supreme Court has held that, upon dissolution of a partnership,
        [e]ach partner may be said to have an equitable lien on the partnership property for the purpose of having it applied in discharge of the debts of the firm; and to have a similar lien on the surplus assets for the purpose of having them applied in payment of what may be due to the partners respectively, after deducting what may be due from them, as partners to the firm. For practical purposes this right does not exist until the affairs of the partnership have to be wound up, or the share of a partner ascertained.

Casey v. Grantham, 239 N.C. 121, 125, 79 S.E.2d 735, 738 (1954) (internal citations and quotations omitted). However, a partner's rights to the application of partnership property upon dissolution of the partnership vary depending on the reasons for thedissolution and the actions of the partner. See N.C. Gen. Stat. § 59-68 (2005).
    When the dissolution of a partnership is caused in contravention of the partnership agreement, partners who have not wrongfully caused the dissolution “may have the partnership property applied to discharge [the partnership's] liabilities, and the surplus applied to pay in cash the net amount owing to the respective partners[,]” and have “[t]he right, as against each partner who has caused the dissolution wrongfully, to damages for breach of the agreement.” N.C. Gen. Stat. § 59-68(a), (b)(1) (2005). The partners who have not wrongfully caused the dissolution may also continue the business of the partnership in the same name so long as they pay any partner who has wrongfully caused the dissolution of the partnership the “value of his interest in the partnership at dissolution” and “indemnify him against all present or future partnership liabilities.” N.C. Gen. Stat. § 59-68(b)(2) (2005).
    If the business of the partnership is not continued after dissolution, partners who have wrongfully caused the dissolution of the partnership also have the right to have the partnership property applied to discharge the partnership's liabilities, and the surplus applied to pay in cash the net amount owed to the respective partners. N.C. Gen. Stat. § 59-68(a), (b)(3)(a) (2005). However, any surplus amount owed to the partners who have wrongly caused the dissolution of the partnership will be subject to any damages suffered by the other partners for breach of thepartnership agreement. Id. If the business of the partnership is continued, partners who have wrongfully caused the dissolution of the partnership then have the right to the value of their interest in the partnership, not considering any value of the goodwill of the business, “less any damages caused to [their] copartners by the dissolution . . . and to be released from all existing liabilities of the partnership[.]” N.C. Gen. Stat. § 59-68(b)(3)(b) (2005).
    N.C. Gen. Stat. § 59-70 sets forth the rules for settling accounts between partners after dissolution and provides in pertinent part that:
        (1) The assets of the partnership are

            a. The partnership property,
        
            b. The contributions of the partners necessary for the payment of all the liabilities specified in subdivision (2) of this section.
        
        (2) The liabilities of the partnership shall rank in order of payment, as follows:
        
            a. Those owing to creditors other than partners,
        
            b. Those owing to partners other than for capital and profits,
        
            c. Those owing to partners in respect of capital,
        
            d. Those owing to partners in respect of profits.
        
        (3) The assets shall be applied in the order of their declaration in subdivision (1) of this section to the satisfaction of the liabilities.

N.C. Gen. Stat. § 59-70 (2005). However, “[u]ntil the liabilities of the partnership have been determined there can be nodistribution to the partners.” Brewer v. Elks, 260 N.C. 470, 474, 133 S.E.2d 159, 163 (1963).
    Here, the trial court found that dissolution of the partnership was warranted pursuant to N.C. Gen. Stat. § 59-62(a)(4) and (a)(6). The trial court subsequently ordered the partnership dissolved and subjected the real property owned by the partnership to a resulting trust in favor of plaintiff. The trial court's judgment then gave defendants the option of purchasing plaintiff's interest in the partnership and continuing on with the business of the partnership by paying plaintiff the sum of $196,437.00 and giving plaintiff his choice of one of several half-duplex lots in the subject property. If defendants chose not to purchase plaintiff's interest in the partnership, the trial court ordered: (1) that judgment be entered in favor of plaintiff in the amount of $235,473.98, with interest accruing at the legal rate from 1 June 2005; and (2) that defendants be enjoined from receiving any additional funds on the existing development loan above a total of $135,000; and (3) that defendants be enjoined from taking out any other loans using the subject property as collateral. While the trial court's judgment is in effect a winding up and termination of the partnership, the judgment is not based upon the statutory provisions which dictate how a partnership is wound-up and terminated and how the partnership's assets and liabilities are distributed to the partners. The trial court's judgment makes no finding as to the value of the assets of the partnership, the liabilities of the partnership, the value of plaintiff's interestin the partnership at the time of the dissolution, or the damages suffered by plaintiff, if any, as a result of O'Dwyer's actions in breach of the partnership agreement. Instead, the trial court bases its judgment on plaintiff's original investment of $155,100 plus a return of interest at six percent and orders defendants to pay plaintiff monetary awards while defendants retain ownership of all of the partnership assets. Such an award is not contemplated by the Uniform Partnership Act as enacted in North Carolina as it is contrary to the rules for distribution of partnership assets after dissolution of the partnership. See N.C. Gen. Stat. §§ 59-31 to -73 (2005).
    Additionally, the trial court specifically found that defendants, through the actions of O'Dwyer, “willfully or persistently committed a breach of the partnership agreement, or otherwise conducted themselves in matters relating to the partnership business that it is not reasonably practicable to carry on the business of the partnership with Defendant O'Dwyer.” Neither party challenges this finding of fact and it is thus binding on this Court on appeal. Koufman v. Koufman, 330 N.C. 93, 97, 408 S.E.2d 729, 731 (1991) (“Where no exception is taken to a finding of fact by the trial court, the finding is presumed to be supported by competent evidence and is binding on appeal.”) Therefore, the dissolution of the partnership was caused in contravention of the partnership agreement and O'Dwyer has wrongfully caused the dissolution of the partnership. See N.C. Gen. Stat. § 59-68 (2005). Because O'Dwyer has wrongfully causedthe dissolution of the partnership, he does not have any right to carry on the business of the partnership. See N.C. Gen. Stat. § 59-68(b)(2) (2005) (stating only partners who have not caused the dissolution wrongfully may continue the business in the same name). Rather, as plaintiff has given no indication of any desire to continue the business of the partnership, O'Dwyer only has the right to have the partnership property applied to discharge the partnership's liabilities, and the surplus applied to pay in cash the net amount owed to plaintiff and O'Dwyer for their interests in the partnership. N.C. Gen. Stat. § 59-68(a), (b)(3)(a) (2005). O'Dwyer's share of the surplus will be subject to plaintiff's right to collect damages, if any, for O'Dwyer's breach of the partnership agreement. N.C. Gen. Stat. § 59-68(b)(3)(a) (2005).
    We thus conclude that the trial court erred in entering its judgment for plaintiff when it failed to properly wind up the partnership and awarded judgment to plaintiff based on a six percent return of his initial investment instead of the value of his interest in the partnership and damages, if any, incurred due to O'Dwyer's breach of the partnership agreement. The judgment of the trial court is reversed and we remand this matter to the trial court for further proceedings not inconsistent with this opinion.
    Reversed and Remanded.
    Judges McGEE and ELMORE concur.
    Report per Rule 30(e).

*** Converted from WordPerfect ***