Chapman v. Dunnegan, s. 43640

Decision Date17 January 1984
Docket NumberNos. 43640,43626,s. 43640
Citation665 S.W.2d 643
PartiesMarjorie E. CHAPMAN and Fred A. Eppenberger, Executors of the Estate of William A. Chapman, Deceased, Plaintiffs-Respondents, v. James E. DUNNEGAN, John S. Vickroy and Arrow Realty Company, A Partnership, Defendants-Appellants.
CourtMissouri Court of Appeals

Donald S. Hilleary, Clayton, for defendants-appellants.

Husch, Eppenberger, Donohue, Elson & Cornfeld by Mark G. Arnold and Thomas M. Carney, St. Louis, for plaintiffs-respondents.

SATZ, Judge.

In this cause, plaintiffs, the executors of the estate of William E. Chapman, deceased, sued defendants, James E. Dunnegan and John Vickroy, Chapman's former partners in a partnership doing business as Arrow Realty Company. Plaintiffs sued defendants in two counts. In Count I, plaintiffs sought a declaration of the rights of the partners under the partnership agreement, specifically requesting that, in determining the value of Chapman's interest in the partnership, partnership real estate be valued at fair market value. In Count II, plaintiffs requested the court to order an accounting and to order payment of Chapman's interest to plaintiffs.

Defendants filed a Motion to Dismiss both counts of plaintiffs' petition for failure to state a claim. This motion was denied. Plaintiffs filed Motions for Summary Judgments on both counts of its petition. The court denied Summary Judgment on Count II but granted it on Count I, ordering, as to Count I, that "the partnership real estate ... be valued at fair market value." An advisory jury then determined the fair market value of the real estate to be $250,000. Apparently, based upon this figure and the partnership "Balance Sheet," 1 plaintiffs moved the court to enter judgment in their favor on Count II in the amount of $62,061.85. Then, by stipulation of the parties, judgment in that amount was entered. Defendants, however, "reserved" all rights for appeal. On appeal, defendants contest the denial of their Motion to Dismiss and the grant of plaintiffs' Motion for Summary Judgment. We affirm the judgment of the trial court.

The partnership agreement which created the present controversy permits the surviving partners to continue the partnership, but, if the surviving partners choose to continue the partnership, they must purchase the interest of the deceased partner by paying the value of that interest to the deceased partner's legal representatives. 2 The agreement also provides that, in determining the value of the deceased partner's interest, partnership real estate is to be valued at the value set by the partners annually. To this end, the partners were to agree in writing as to the value of the real estate at the end of each fiscal year. If the partners failed to agree upon the value of the real estate in any one fiscal year, the real estate was to be valued at the value agreed upon in the last previous fiscal year. 3 The partners, however, never, at any time, reached an agreed to value of the real estate, and the partnership agreement had no provision covering this failure to agree. Under this circumstance, plaintiffs concluded the proper method for evaluating the real estate should be "fair market value." Defendants concluded "book value" should be used. Plaintiffs sought judicial approval and enforcement of their conclusion by filing their two Count petition.

On appeal, as at trial, defendants' first argument appears to be that plaintiffs failed to state a claim upon which relief can be granted. As we understand this argument, defendants contend that plaintiffs' action is nothing more than an action for breach of contract. According to defendants, the contract is the partnership agreement, which defines the correlative rights and duties of the partners, and the alleged breach of this contract apparently would be defendants' failure to pay plaintiffs for Chapman's interest in the partnership. Having defined plaintiffs' cause of action as a breach of contract, defendants then argue that plaintiffs failed to plead this cause of action properly because plaintiffs failed to allege that Chapman had met all conditions precedent to defendants' duty to pay. Defendants' argument is misdirected and, thus, misses the mark.

Giving defendants' argument its most sensible meaning, the argument raises the threshold issue of whether plaintiffs were required to plead their action in contract to obtain the relief they wanted, or, stated otherwise, whether plaintiffs' two Count petition, seeking a declaratory judgment and an accounting, was an appropriate procedural vehicle to obtain the relief plaintiffs wanted. Resolution of this issue requires, in the first instance, an understanding of the historical interrelation of an action on contract, at law, and an action for accounting, in equity.

The action for an accounting originated in equity before the advent of the action of assumpsit at law. Dobbs, Remedies, § 4.3 at 252 (1973). Equity courts were uniquely suited to handle an accounting: masters who were regular officers of the court were available to work through complicated accounts, and special powers of discovery then available in equity facilitated the discovery of hidden assets. Id. at 252; See, Pomeroy, Equity Jurisprudence, § 1421-1422 (1941). After the advent of the action of assumpsit at law, "with its recognition and enforcement of ordinary contract claims," many money claims became actionable at law, even those which involved disputed amounts. Dobbs, supra at 252. Consequently, in accord with the basic rule that a remedy in equity is only available where a remedy at law is inadequate, accounting in equity became appropriate only where equity could give relief not available at law. "This furnished one ground for equity jurisdiction, namely that the legal remedy was inadequate because of the complexity of the accounts." Id. at 252.

However:

"Equity might also intervene to compel an accounting where there was a pre-existing equitable duty to account. The duties of trustees and other fiduciaries were originally recognized and imposed only by equity courts, for example, and one of these equitable duties was to stand ready to account to the beneficiary. Naturally, equity courts were the only courts to enforce this duty to account at a time when they were the only courts to recognize it at all. In such cases, the complexity of the account was not the basis of equity action; the basis was instead the substantive equity rule, not enforced elsewhere." Id. at 252-253.

Thus, there can be no sensible dispute that an equitable accounting is an appropriate remedy where there is a duty to account arising from a fiduciary relationship between parties.

Admittedly, a partnership is, at times, referred to as a creature of contract, 59 Am.Jur. Partnership, § 6 (1971). However, once a partnership is created, the partners owe a fiduciary duty to one another, e.g., Thomas v. Milfelt, 222 S.W.2d 359, 363 (Mo.App.1949), regardless of the legal jargon used to describe the method of creating the partnership. 59 Am.Jur.2d Partnership, §§ 1-7 (1971). Moreover, surviving partners are considered to be and are treated as trustees of the legal representatives of the deceased partner. See Roberts v. Hendrickson, 75 Mo.App. 484, 491 (1898); 60 Am.Jur.2d Partnership, § 257 (1971). "Consequently it is the duty of the surviving partners to render an account of the performance of their trust to the personal representatives of the deceased partner ...." 60 Am.Jur.2d Partnership, § 257 (1971). Thus, an accounting in equity is almost the exclusive procedure for settling the affairs between the legal representatives of a deceased partner and the surviving partner. Alexander v. Glasgow, 365 Mo. 24, 275 S.W.2d 339, 341-342 (1955); Kolb v. Dietz, 454 S.W.2d 632, 636 (Mo.App.1970). 4 The propriety of this procedure is expressly recognized in Missouri by our legislature's adoption of the Uniform Partnership Act, which provides that if a partnership is dissolved by the death of a partner and the surviving partners choose to continue the partnership, the representatives of the deceased partner have a right to bring an action for an accounting and recover the value of the deceased partner's interest in the partnership. §§ 358.420 RSMo 1978. Smith v. Kennebeck, 502 S.W.2d 290, 293-294 (Mo.1973); Schoeller v. Schoeller, 465 S.W.2d 648, 655 (Mo.App.1971). Thus, there is no question that plaintiffs chose the proper cause of action to obtain the relief they wanted.

Moreover, defendants have cited no case nor advanced any argument which makes a deceased partner's fulfillment of his partnership obligations a condition precedent to his legal representative's right to an accounting; 5 nor have we found a case which directly addresses this issue. Plaintiffs, however, have cited cases which resolve this issue by implication. In each of these cases, an accounting was granted even though the partner seeking relief had not fulfilled all of his obligations under the partnership agreement. See, Lanpher v. Warshauer, 28 Cal.App. 457, 152 P. 933, 934 (1915) (plaintiff abandoned construction on partnership house before completion) and Bowen v. Velliquette, 153 Cal.App.2d 847, 315 P.2d 95, 97 (1957); see also, Thompson v. McCormick, 149 Colo. 465, 370 P.2d 442, 446 (1962).

Perhaps, the reason this issue has not been raised and addressed directly is because of the presupposition that a partner's right to an accounting is not a conditional right. This presupposition derives from the very nature of partnership. While partnership may have contractual aspects, a dissolution of the partnership requires the ascertainment and distribution of the ownership interest in the partnership business. That ownership interest is derived from the formation of the partnership and is not dependent upon a partner's performance of...

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  • O'Flaherty v. Belgum
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    ... ... dependent upon a partner's performance of duties and obligations under the agreement." ( Chapman v. Dunnegan (Mo.App.1984) 665 S.W.2d 643, 648.) ...         The dissent discusses the ... ...
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