Abbott v. Hurst

• Decision Date: 24 June 1994
• Citation: 643 So.2d 589
• Court: Alabama Supreme Court
• Parties: John ABBOTT III v. Ronnie HURST and Rita Hurst. Ronnie HURST and Rita Hurst v. John ABBOTT III. 1921435, 1921467.

Page 589

643 So.2d 589

John ABBOTT III v. Ronnie HURST and Rita Hurst.

Ronnie HURST and Rita Hurst v. John ABBOTT III.

1921435, 1921467.

Supreme Court of Alabama.

June 24, 1994.

William J. Trussell of Trussell & Funderburg, Pell City, for appellant/cross-appellee John Abbott III.

Donna Wesson Smalley and David C. Livingston, Gadsden, for appellees/cross-appellants Hurst.

ALMON, Justice.

The defendant, John Abbott III, appeals from a $110,000 judgment entered on a jury verdict in favor of the plaintiff Ronnie Hurst and a $30,000 judgment entered on a jury verdict in favor of the plaintiff Rita Hurst. Ronnie Hurst had alleged breach of a partnership agreement, fraud, and conversion, and Rita Hurst had alleged false arrest, malicious prosecution, slander, and false imprisonment. The Hursts sought compensatory and punitive damages, a declaratory judgment, and an accounting. Ronnie and Rita Hurst also appeal from these judgments; however, they stipulate that their appeal is conditioned on a reversal of the judgments based on the issues raised by Abbott in his appeal.

The issues raised by Abbott are (1) Whether the circuit court erred in not directing a verdict on Ronnie Hurst's breach of contract claim on the ground that it violated the Statute of Frauds, § 8-9-2, Ala.Code 1975; (2) Whether Ronnie Hurst could recover damages for the breach of the partnership agreement; (3) Whether a partnership accounting was required before Ronnie Hurst brought this action for damages arising out of the alleged partnership; (4) Whether the circuit court reversibly erred in refusing to include an instruction on the Statute of Frauds in its charge to the jury; and (5) Whether admitting evidence of the defendant's general character was reversible error.

In recounting the facts, we state only those relevant to the issues raised by Abbott. In August 1988, Ronnie Hurst met with Abbott to discuss the idea of opening a rent-to-own store in Pell City, Alabama; the store was subsequently opened and named "USA Rent to Own." According to the trial testimony of Ronnie Hurst, during this meeting and another meeting several months later, he and Abbott agreed to form a partnership, in which Abbott would invest the necessary capital and extend his credit to the enterprise, and Ronnie Hurst, who had worked for rent-to-own stores in Leeds and Talledega, would set up and manage the business. Ronnie Hurst testified that the partnership was to be "indefinite" and that either he or Abbott could dissolve the partnership at any time and "settle up." Ronnie Hurst testified that he initially wanted to be a 50% partner with Abbott, but he testified that the parties finally agreed that Abbott would have a 75% interest in the partnership, that Hurst would have a 25% interest, and that Hurst's ownership interest would increase each year by 2% for a period of five years until he owned a 35% interest in the partnership. According to Ronnie Hurst, he and Abbott did not anticipate profits in the first year and therefore agreed further that Ronnie Hurst would devote all his efforts to the business, that he would receive compensation of $420 per week, and that his wife Rita would also work for the business and receive a wage of $175 per week.

In October 1988, Abbott incorporated the business under the name USA Rent to Own, making himself the sole shareholder. Hurst testified that Abbott told him about the incorporation, but that he said that it was done only to obtain certain tax advantages. Hurst testified that he did not understand the legal consequences of Abbott's incorporating the business.

In January 1989, Ronnie Hurst quit his job with Fairway Rental in Talledega and began working full-time to start USA Rent to Own. On February 28, 1989, USA Rent to Own opened. For 10 months, Ronnie Hurst managed USA Rent to Own, while Rita also worked full time for the business. On January 9, 1990, Abbott entered the business premises and accused Ronnie Hurst of embezzling money and ordered him and Rita to leave the premises of the business.

During the period in which Ronnie Hurst managed USA Rent to Own, Rita rented some furniture and appliances from the business. After Abbott fired Ronnie and Rita and forbade them from entering the premises of the business, Abbott filed a complaint charging Rita with "fraudulent leasing," and as a result Rita was arrested in February 1990. The indictment was submitted to a grand jury, which "no billed" it.

On February 6, 1990, Ronnie and Rita Hurst filed this action, alleging fraud and breach of a contract to form a partnership to conduct a rent-to-own business and seeking a temporary restraining order returning control of the business to them. The Hursts later amended their complaint to allege a claim of conversion, and to seek declaratory relief and an accounting. ¹ This amendment to the complaint also included claims on behalf of Rita Hurst alleging false arrest, malicious prosecution, slander, and false imprisonment, based on the criminal complaint Abbott had filed against Rita Hurst. Abbott filed a counterclaim, alleging a breach of an agreement not to compete and alleging conversion of monies and equipment from the business. Before trial, the circuit court severed the claims for declaratory relief and an accounting and set them for a separate nonjury trial. The Hursts subsequently dismissed those claims.

On August 19, 1992, the case went to trial. The circuit court directed a verdict on Abbott's counterclaims and on all of the Hursts' claims, except those of breach of contract and malicious prosecution, and submitted those two claims to the jury. The trial ended in a mistrial, because the jury was unable to reach a verdict. A second trial was held on February 15, 1993. Ronnie Hurst's breach of contract claim and Rita Hurst's malicious prosecution claim were submitted to the jury, which returned verdicts in favor of the Hursts.

The first issue is whether the circuit court erred in failing to direct a verdict in favor of Abbott on Ronnie Hurst's breach of contract claim on the ground that by its terms it could not be performed within one year. ²

Alabama's version of the Statute of Frauds states, in pertinent part:

"In the following cases, every agreement is void unless such agreement or some note or memorandum thereof expressing the consideration is in writing and subscribed by the party to be charged therewith or some other person by him thereunto lawfully authorized in writing:

"(1) Every agreement which, by its terms, is not to be performed within one year from the making thereof...."

§ 8-9-2(1), Ala.Code 1975. The one-year provision of the Statute of Frauds applies to any agreement which by its terms cannot be performed within one year. See, e.g., Dean v. Myers, 466 So.2d 952 (Ala.1985); Kitsos v. Mobile Gas Service Corp., 404 So.2d 40 (Ala.1981), appeal after remand, 431 So.2d 1150 (Ala.1983).

Hurst's testimony concerning the existence and the terms of the alleged partnership agreement is scant with regard to this first issue. On direct examination and on cross-examination, Hurst testified that the partnership was "indefinite" and that he and Abbott could dissolve it at any time so long as they "settled up." On cross-examination, however, Hurst also testified that although the partnership was "indefinite," the partnership was to last at least five years, until Hurst's interest in the partnership reached 35%.

Abbott argues that the only logical conclusion that can be drawn from Ronnie Hurst's testimony and Ronnie Hurst's interpretation of the terms of the alleged partnership agreement is that it was a contract not to be performed within one year. Abbott's argument implicitly views the five-year provision regarding Ronnie Hurst's increasing ownership interest as a promise to continue the partnership for a minimum of five years. On the basis of this construction of the agreement, Abbott contends that the alleged parol partnership agreement could not by its own terms be performed by the parties within one year and that it is, therefore, void under the Statute of Frauds. Hurst responds, arguing that because the partnership could be dissolved by either party at any time, the agreement was capable of performance within one year.

Partnership agreements, like other contracts, are subject to the Statute of Frauds. Larkins v. Rhodes, 5 Port. 195 (Ala.1837). A contract of partnership for a term exceeding one year is within the Statute of Frauds and is void unless it is in writing; however, a contract establishing a partnership terminable at the will of any partner is generally held to be capable of performance by its terms within one year of its making and, therefore, to be outside the Statute of Frauds. See Am.Jur.2d Partnership, § 88, at 281 (1987).

If a promise is integral to and indivisible from the contract as a whole and if that promise falls within the Statute of Frauds because by its terms it cannot be performed within one year, the entire contract is subject to the Statute and is void unless it is in writing and subscribed by the party to be charged. E.g., Bunch v. Garner, 208 Ala. 271, 272-73, 94 So. 114, 115-16 (1922); see also Restatement (Second) of the Law of Contracts § 130 (1979). This case presents the interesting question whether a parol partnership agreement, which is expressly terminable at will, can be performed within one year of its making if one of the promises of the partnership agreement cannot by its terms be performed within one year. Although this issue appears to be one of first impression in Alabama, elsewhere it has been the subject of considerable discussion among jurists and commentators. Two views have emerged, which may be fairly identified by reference to their most eminent, respective proponents, Professor Williston and Professor Corbin.

Emphasizing the distinction between a performance of a contractual promise and an excuse for not performing one, Professor Williston...