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).
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