Hawthorn, Waymouth & Carroll v. Johnson

• Decision Date: 29 July 1992
• Docket Number: No. CA,CA
• Citation: 611 So.2d 645
• Court: Court of Appeal of Louisiana — District of US
• Parties: HAWTHORN, WAYMOUTH & CARROLL v. Larry G. JOHNSON. 91 1098.

Page 645

611 So.2d 645

HAWTHORN, WAYMOUTH & CARROLL v. Larry G. JOHNSON.

No. CA 91 1098.

Court of Appeal of Louisiana First Circuit.

July 29, 1992.

Rehearing Denied Jan. 11, 1993.

John Dale Powers, Jose Ramanach, Baton Rouge, for plaintiff-appellant Hawthorn, Waymouth & Carroll.

Floyd J. Falcon, Jr., Baton Rouge, for defendant-appellee Larry G. Johnson.

Before SHORTESS, LANIER and CRAIN, JJ.

LANIER, Judge.

This action commenced as a suit in contract for an accounting by a partnership against a withdrawing partner. The partnership (Hawthorn, Waymouth & Carroll [HWC] ) asserted the withdrawing partner, Larry G. Johnson, was indebted to it for $38,743.25, which sum represented $2,735 for partnership equipment retained by Johnson, $106.16 for a health insurance premium advanced on Johnson's behalf, a $36,938.04 overdraft on Johnson's partnership drawing account, and $1,000 for an interest payment made by the partnership for Johnson's personal guaranty for the obligations of a computer company, subject to a credit of $2,035.95 for the book value of Johnson's interest in the partnership. Johnson answered and filed a reconventional demand asserting the partnership was indebted to him for $92,468, which sum represented the value of his interest in the partnership of $129,406, subject to a credit for the deficit in his partnership drawing account of $36,938. At the trial, the parties stipulated that Johnson repaid the $106.16 advance for a health insurance premium. The trial court ruled that HWC was entitled to recover the $1,000 interest payment claim and specifically rejected HWC's claim for the overdraft on the partnership drawing account. The trial court judgment was silent on the claim for the value ($2,735) of the equipment retained by Johnson. Silence in a judgment as to any part of a demand is construed as a rejection of that part of the claim. Sun Finance Company, Inc. v. Jackson, 525 So.2d 532 (La.1988); Erich Sternberg Realty Company, Inc. v. Louisiana Tax Commission, 560 So.2d 868 (La.App. 1st Cir.), writ denied, 567 So.2d 107 (La.1990). The trial court also held that pursuant to the partnership contract, Johnson was entitled to the book value (capital account balance) of his partnership interest which had a stipulated value of $2,035.95. The trial court offset the claims of the parties and rendered judgment in favor of Johnson and against HWC for $1,035.95, with legal interest thereon from date of judicial demand until paid, and ordered the parties to pay their own costs. HWC took this devolutive appeal. ¹ Johnson answered the appeal asserting the trial court judgment "is erroneous to the extent that it rejected defendant-appellant's Reconventional Demand for $92,468.00" and prayed that "he be awarded his full Reconventional Demand" ... "by increasing the amount allowed appellee from $1,035.95 to $92,468.00 with legal interest thereon from date of judicial demand until paid and that appellant be condemned to pay the costs incurred in both Courts and that as thus amended, that said judgment be affirmed."

FACTS

HWC is a partnership engaged in the practice of public accounting and in any other activities incident to such practice. HWC has its principal office in Baton Rouge, Louisiana.

At the trial the parties stipulated to the following facts:

2. Larry G. Johnson's partnership interest was 5.6554%.

3. Larry G. Johnson repaid the $106.16 June, 1986 advance for health insurance premium.

4. Larry G. Johnson capital account balance (book value) as of May 31, 1986 was $2,035.95.

5. As of May 31, 1986 Hawthorn, Waymouth and Carroll's capital units valuation account (one times annual billing) was $1,977,287.43.

6. Larry G. Johnson was made a partner in July, 1979.

7. Larry G. Johnson withdrew from Hawthorn, Waymouth & Carroll on May 31, 1986.

8. Larry G. Johnson commenced an accounting practice on July 1, 1986 in Baton Rouge, within 75 miles of Hawthorn, Waymouth & Carroll office [sic].

9. Louis McKnight and James Campbell were admitted to partnership in Hawthorn, Waymouth & Carroll on July 1, 1981.

10. Greg Brown was admitted to partnership after McKnight and Campbell and withdrew in 1984.

11. Larry G. Johnson actually paid $20,096.44 for his interest in Hawthorn, Waymouth & Carroll.

13. [sic] The effective date of the Hawthorn, Waymouth & Carroll Partnership Agreement sued upon was November 1, 1980. It was signed April 6, 1981.

The pertinent portions of the partnership contract ² are as follows:

II. NAME AND TERM

. . . . .

2.2 The partnership shall continue until such time as partners owning 80% of the capital units vote to terminate it notwithstanding the death, withdrawal, retirement or expulsion of any partner. Such death, withdrawal, retirement, or expulsion shall be effective only to terminate the partnership as to that partner as more fully set forth below and the partnership shall continue as to the remaining partners.

. . . . .

VIII. CAPITAL UNITS VALUATION AMOUNT

8.1 The assets of the Firm will not be revalued at admission or retirement of a partner, or upon any other change in the partnership. The books of the Firm are kept on the accrual basis and any error in depreciation of office equipment would represent a negligible amount in the valuation of the assets. The library consists largely of tax services and similar publications which are renewable each year. Work in process is reflected on the books of account as an inventory account, at cost, and any revaluation would therefore represent a guess.

8.2 For the purchase, sale, or donation of capital units and in order to reflect the good will of the Firm, the capital units are fixed in value at one time annual billings. Book value represents and reflects the value of all of the physical assets and accounts receivable of the Firm. Good will represents the additional cost.

8.3 This factor, one times annual billings, is the capital units valuation amount. The sale or purchase of capital units may not be made at any other price unless this is approved by a favorable vote of the partners holding a majority of the capital units.

8.4 The valuation amount may be changed at any time by the partners. Prior to any admission or retirement, the valuation amount must be established by the partners. If they fail to agree on a change by vote of the partners owning a majority of the capital units, the last valuation fixed shall continue to be used.

. . . . .

XII. WITHDRAWAL

12.1 Any partner may terminate his participation in the partnership by giving notice to the remaining partners at least 90 days in advance. If such notice is given, the remaining partners may waive the waiting period and elect for the partnership to terminate immediately or on any intermediate date.

12.2 Should a partner give notice of his desire to terminate his participation in the partnership after having been a member of the partnership, or of the predecessor partnership of Hawthorn, Waymouth & Carroll, for five years, the remaining partners shall have the option either:

a. To purchase his partnership interest based upon the book value of the partnership capital units owned by him at the capital unit valuation amount. The sum thus computed is the price due for the withdrawing partner's interest, or

b. To purchase his interest at the same price but payable over a period of five (5) years in equal monthly installments without interest. The withdrawing partner shall not be employed in the affairs of the partnership during that time and he may engage in his own professional practice should he desire, subject to the limitation imposed by paragraph 12.7. The payment of this sum over the five (5) year period will be payment to the withdrawing partner in full for all of his interest in the partnership and its assets and he shall be entitled to no other or further sum whatever.

12.3 Should a partner give notice of his desire to terminate his participation in the partnership before he has been a member of the partnership for five years, the remaining partners shall have the same options except that the purchase price shall be determined at the book value of the capital units without use of the capital units valuation amount, it being understood that the good will which can inure to a partner who has been a partner for less than five years is negligible.

12.4 If the remaining partners do not elect to purchase the interest of the withdrawing partner in either of the above fashions, the withdrawing partner shall have the option to purchase the capital units of the remaining partners at their value as determined by use of the capital units valuation amount.

12.5 If neither wishes to purchase, then the partnership's affairs shall be liquidated. The assets remaining after liquidation shall be divided among the partners in accordance with their respective capital accounts.

12.6 Should any partner or group of partners purchase the interest of another partner or partners in accordance with this article, either for cash or by payment over a period of five years, the buyer or buyers shall have the privilege of continuing to use the partnership name either permanently or so long as they shall see fit.

12.7 If a partner who has been a member of the partnership for five years elects to withdraw and commences to receive payment for his capital units as set forth in 12.2(a), he shall not engage for a period of five years from the date of his withdrawal in the private practice of accounting within a radius of 75 miles of the office in which he was physically located or domiciled and practiced as a partner. If he wishes to preserve his right to practice, he must elect at the time of withdrawal to receive only the book value of the partnership capital units owned by him in full settlement of his rights in the partnership as stated in 12.2(b).

12.8 Except as expressly provided in the articles of partnership no partner may sell or otherwise dispose of his partnership interest.

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