Lowther v. Riggleman
| Decision Date | 25 February 1993 |
| Docket Number | No. 20997,20997 |
| Citation | 428 S.E.2d 49,189 W.Va. 68 |
| Parties | Robert L. LOWTHER, Plaintiff Below, Appellee, v. Fred L. RIGGLEMAN and Granville J. Zopp, Defendants Below, Appellees, v. Donald H. LOWTHER, Intervenor Below, Appellant. |
| Court | West Virginia Supreme Court |
Syllabus by the Court
1. Under W.Va.Code, 47-8A-40, the liability of a partnership to creditors other than partners must be given greater priority in the order of payment than the liability owed by a partnership to its partners when the partnership is dissolved.
2. The common law was that a partner in a partnership dissolution could not assert a lien on partnership assets that would create a preferential claim over its general creditors. This same result has been reached interpreting the Uniform Partnership Act, W.Va.Code, 47-8A-1, et seq.
3. The doctrine of plain error will be recognized in a civil case where the case was tried before a judge without a jury and both parties without objection have allowed the court to try the case on a totally erroneous legal theory that was dispositive of the outcome of the case to the substantial prejudice of the appealing party.
Jerald E. Jones, West & Jones, Clarksburg, for appellees Fred L. Riggleman and Granville Zopp.
Louis E. Enderle, Jr., Steptoe & Johnson, Clarksburg, R. Mike Mullens, Elkins, for appellant.
Donald H. Lowther appeals from an adverse ruling entered by the Circuit Court of Randolph County on June 25, 1991. The trial court ruled that excess money remaining from the sale of property owned by the Four Square Partnership should be distributed to the appellees, Fred L. Riggleman and Granville J. Zopp. The appellant contends that the trial court erred in ordering the excess money distributed to the appellees and that the money should have been ordered to be distributed to him because he is a nonpartner creditor of the partnership, unlike the appellees, who are partner creditors. 1 For the reasons that follow, we find for the appellant.
The appellees and Robert L. Lowther, brother of the appellant, formed Four Square Partnership in 1985. The three were equal partners. Their object in creating the partnership was to acquire real estate upon which to construct buildings to be used in a commercial retail venture. In the course of the partnership, both of the appellees loaned money to the partnership. Mr. Riggleman loaned the partnership $30,000 and Mr. Zopp loaned the partnership a total of $50,000. Apparently, Robert L. Lowther convinced the appellant to loan the partnership at least $80,000. 2
Although the record does not disclose the nature of the partnership's financial problems, it appears that the partnership did not fare well after the retail commercial venture began. The appellees offered Robert Lowther an option to purchase both their interests in the partnership and in a corporation formed to operate the commercial venture. Robert Lowther conditionally agreed to the option arrangement based upon his ability to find new investors in the partnership. The search for new investors was ultimately unsuccessful.
Upon learning of this failure, the appellees recorded deeds of trust securing their loans to the partnership. The appellee, Robert Lowther, also partially recorded documents purporting to be deeds of trust securing the loans of the appellant. The bank that had loaned money to the partnership for the construction of the retail building ultimately foreclosed under its deed of trust. The property was sold and, after paying off the bank, there was left $87,783, which became available for distribution because the partnership was in the process of dissolution.
The trial court found the deeds of trust recorded by the appellees to be valid and found that the documents recorded in favor of the appellant were invalid. It determined that the appellant had loaned the partnership $80,000 and received a promissory note signed by the three partners. Despite this finding, the trial court determined that the appellees "had no actual notice of any valid lien in [the appellant's] favor upon the partnership real estate at the time they recorded their respective deeds of trust." Consequently, because their liens were filed ahead of the appellant's, the trial court ordered that the appellees should receive the excess proceeds realized from the sale by the bank of the partnership's retail building.
Counsel for the appellant argue that basic tenets of partnership law dictate that upon the dissolution of a partnership and the sale of a partnership's assets, any excess monies recovered from such a sale must first be applied to debts owed to general creditors before any monies may be used to repay debts owed to partners in a partnership. Both the relevant statute under our Uniform Partnership Act, W.Va.Code, 47-8A-1, et seq., and case law based on the common law of partnership are clear and support this position.
Under the Uniform Partnership Act, the order of priorities in settling accounts of a partnership upon its dissolution is found in W.Va.Code, 47-8A-40, which provides, in relevant part:
Thus, under the foregoing statute, the liability of a partnership to creditors other than partners, such as the appellant, must be given greater priority in the order of payment than the liability owed by a partnership to its partners, such as the appellees, when the partnership is dissolved. The common law partnership rules regarding distribution of the assets of a partnership upon dissolution are much the same, as illustrated by Syllabus Point 4 of Hyre v. Lambert, 37 W.Va. 26, 16 S.E. 446 (1892):
"The assets of a firm are to be applied in the following order: First, in payment of the debts and liabilities of the firm to persons who are not partners; second, in payment to each partner ratably of what is due from the firm to him for advances, as distinguished from capital; third, in payment to each partner ratably of what is due from the firm to him in respect of capital; fourth, the ultimate residue, if any, is divisible among the partners in the proportion in which profits are divisible under the partnership contract."
See also Jones v. Rose, 81 W.Va. 177, 94 S.E. 41 (1917); Floyd v. Duffy, 68 W.Va. 339, 69 S.E. 993 (1910); Koelz v. Brinkman, 50 W.Va. 270, 40 S.E. 578 (1901).
Although not directly at issue in this case, we set out in Syllabus Points 1 and 2 of Stump v. Wilson, 100 W.Va. 227, 130 S.E. 463 (1925), the rule applicable to partners who leave or retire from a partnership before it is dissolved:
Thus, it is clear that even where a partner has left or retired from the partnership, his claim against the partnership is ordinarily considered to be inferior to those of "partnership creditors," i.e., non-partner creditors of the partnership. 3 These rules are codified in more detail in W.Va.Code, 47-8A-41 and -42.
There is no express language in the Uniform Partnership Act that states that a partner may not have a lien on partnership assets superior to that of a general creditor of the partnership upon its dissolution. As Stump v. Wilson, supra, points out, a retiring partner cannot secure a lien on partnership assets over its general creditors upon dissolution. Obviously, the same rule should apply to an existing partner. Thus, the common law was that a partner in a partnership dissolution could not assert a lien on partnership assets that would create a preferential claim over its general creditors. This same result has been reached interpreting the Uniform Partnership Act. See, e.g., In re Johnson, 51 B.R. 220 (D.C.Colo.1985); In re Fulton, 43 B.R. 273 (Bkrtcy.M.D.Tenn.1984); Carter v. Carter, 247 Ala. 409, 24 So.2d 759 (1945); Retzke v. Larson, 166 Ariz. 446, 803 P.2d 439 (1990); Stroebel-Polasky Co. v. Slachta, 106 Mich.App. 538, 308 N.W.2d 273 (1981). We agree with this rule, and, therefore, conclude that the appellees are not general creditors of the partnership on a par with the appellant.
In closing, we note that these rules regarding the priority of claims upon the dissolution of a partnership were not raised before the trial court. Both sides proceeded on the theory of who had the better recorded lien. The appellant's counsel on appeal raises for the first time the correct law with regard to a creditor of the partnership's enhanced status over a partner upon dissolution of the partnership.
Here, the case was tried without a jury and the law given to the trial court was clearly erroneous, even though no objection was made. The situation is analogous to one in which erroneous instructions have been given to a jury and no objection has been made. This is covered by Rule 51 of the West Virginia Rules of Civil Procedure, which states, in part: "but the court or any appellate court, may, in the interest of justice, notice plain error in the giving or refusal to give an instruction, whether or not it has been made the subject of objection." 4
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