Nicholes v. Hunt

• Decision Date: 16 October 1975
• Citation: 273 Or. 255,541 P.2d 820
• Parties: Bruce O. NICHOLES, Appellant, v. Eugene V. HUNT, Respondent.
• Court: Oregon Supreme Court

Page 820

541 P.2d 820

273 Or. 255

Bruce O. NICHOLES, Appellant, v. Eugene V. HUNT, Respondent.

Supreme Court of Oregon.

Argued and Submitted May 8, 1975.

Decided Oct. 16, 1975.

W. V. Deatherage of Frohnmayer & Deatherage, Medford, argued the cause and filed a brief for appellant.

Richard A. Stark of Haviland, deSchweinitz, Stark & Hammack, Medford, argued the cause and filed a brief for respondent.

Before O'CONNELL, C.J., and DENECKE, HOLMAN, ^* TONGUE, HOWELL and BRYSON, JJ.

BRYSON, Justice.

Plaintiff seeks a decree for the dissolution of a partnership pursuant to ORS 68.540(1). ¹ Plaintiff alleged that defendant wrongfully excluded plaintiff from the partnership; that there be an accounting and prayed for a dissolution of the partnership and determination of each party's interest. Defendant filed an amended answer denying plaintiff's allegations and affirmatively alleged that plaintiff breached the partnership agreement and that defendant be allowed to continue the business pursuant to an 'implied term' in the partnership agreement.

The trial court found that the parties had formed a partnership at will and that defendant, in good faith, had dissolved the partnership on May 27, 1973; that the partnership could be 'terminated at will' and entered a decree ordering the dissolution of the partnership and the distribution of the partnership assets. Plaintiff appeals and defendant cross appeals.

We review de novo. Prior to 1972 defendant, as sole proprietor, was engaged in the manufacture and sale of lead shot for shotgun shells under the name West Coast Shot Manufacturing Company. Defendant had developed a 'miner' and special equipment to recover used shot from trap shooting fields which was then melted down to produce new shot for sale on the market.

In the spring of 1972 plaintiff met defendant in Medford, Oregon, and the parties orally agreed to form an equal partnership for the mining, manufacture, and sale of shot. Plaintiff was to purchase one-half of defendant's existing business for $50,000. It was also agreed that plaintiff would make an initial payment of $10,000 and transfer one-half interest in his airplane ² to the partnership. The balance of $35,000 was to be reduced by annual payments of $5,000 together with interest at 7 percent. Defendant, being experienced, was to devote his best effort to the business. No written partnership agreement was executed. ³ However, the evidence and tax returns show that they operated as an equal partnership beginning May 29, 1972.

The record shows the original equipment was improved and upgraded and the new venture was a financial success but subject to considerable dissension between the partners. However, by December of 1972 the parties had 'pretty well patched everything up * * *, everything was happy'. ⁴ On May 28, 1973, approximately six months later, defendant informed plaintiff by phone that their business relationship was at an end. ⁵ Following the telephone notice of dissolution, defendant sent plaintiff a letter which stated in part as follows:

'May 31, 1973

'* * *.

'Please accept this letter as notice of termination of our business relationship. This notice is meant to be effective whether our business relationship is characterized as an agreement to form a partnership, or a partnership. In either event, I will continue to operate West Coast Shot Company henceforth.

'* * * You are specifically not authorized henceforth to act on behalf of West Coast Shot Company or myself as employee, agent, or partner. This termination is to be effective upon today's date, May 31, 1973.

'* * * (T)he $35,000.00 balance was to be paid at $5,000.00 per annum with seven percent (7%) interest upon the unpaid balance. The first $5,000.00 payment, plus interest, was due May 1, 1973, and you have failed to make that payment.

'* * *.'

On June 4, 1973, plaintiff's attorney wrote to defendant stating:

'* * *.

'Our client feels you have wrongfully dissolved the partnership * * *.

'Pursuant to ORS 68.590 and ORS 68.600(2)(b), our client hereby elects to continue the business of the partnership under the same name by himself and hereby demands that you immediately give him possession of all of the partnership property for that purpose. In addition, he demands that you submit an accounting of all the partnership affairs to date.

'* * *.'

After May 27, 1973, the defendant continued to operate the business but maintained a record of all transactions, assets and profits.

Each party contends that he is entitled to buy the 50 percent share of the other partner and continue the business as a sole proprietor. Based on the assignments of error of the respective parties, the general issues in this case are: the terms of the partnership agreement, the manner of dissolution, and the distribution of the partnership assets.

TERMS OF PARTNERSHIP AGREEMENT

The partnership in this case is founded upon an oral agreement evidenced by certain exhibits and testimony offered. Generally this is sufficient to establish a partnership relationship. See Harestad v. Weitzel, 75 Or.Adv.Sh. 2049, 536 P.2d 522 (1975). Plaintiff argues that the partnership was not one that could be terminated at will. Plaintiff concedes that there is no express agreement which establishes the duration of the partnership, but contends that a definite term can be implied from the fact that plaintiff was obligated to make seven annual payments on the balance of his capital contribution. Plaintiff relies on Vangel v. Vangel, 116 Cal.App.2d 615, 254 P.2d 919 (1953); Zeibak v. Nasser, 12 Cal.2d 1, 82 P.2d 375 (1938).

These cases stand as exceptions to the general rule that a partnership is one at will in the absence of an agreement to the contrary. Burke Mchy. Co. v. Copenhagen, 138 Or. 314, 319--20, 6 P.2d 886 (1932); 6 Uniform Laws Annotated, Uniform Partnership Act § 31, at 379--81 (Master ed 1969); 59 Am.Jur.2d, Partnership § 30 (1972). In both Vangel and Zeibak the court found that the partners had impliedly agreed to form a partnership of a specific duration, notwithstanding their failure to expressly provide therefor. For similar decision, See Drashner v. Sorenson, 75 S.D. 247, 63 N.W.2d 255 (1954); Meherin v. Meherin, 93 Cal.App.2d 459, 209 P.2d 36 (1949); Pemberton v. Ladue Realty & Const. Co., 237 Mo.App. 971, 180 S.W.2d 766 (1944); Owen v. Cohen, 19 Cal.2d 147, 119 P.2d 713 (1941); Zimmerman v. Harding, 227 U.S. 489, 33 S.Ct. 387, 57 L.Ed. 608 (1913). There are an equal number of cases wherein courts have refused to imply a fixed term. See, e.g., Napoli v. Domnitch, 18 A.D.2d 707, 236 N.Y.S.2d 549 (1962); Frey v. Hauke, 171 Neb. 852, 108 N.W.2d 228 (1961); Page v. Page, 55 Cal.2d 192, 10 Cal.Rptr. 643, 359 P.2d 41 (1961); Rinke v. Rinke, 330 Mich. 615, 48 N.W.2d 201 (1951); Seufert v. Gille, 230 Mo. 453, 131 S.W. 102 (1910).

A common rule can be drawn from the above-cited cases. Before the court is justified in implying a fixed term to an oral partnership agreement, there must be sufficient evidence to justify such a finding. Page v. Page, supra, 10 Cal.Rptr. at 645, 359 P.2d at 43.

Plaintiff has the burden of proving the partnership agreement and that the oral partnership was for a fixed term by clear and convincing evidence. Burke Mchy. Co. v. Copenhagen, supra, at 319, 6 P.2d 886; Harestad v. Weitzel, supra; 2 Rowley on Partnership 457, § 51.10 (2d ed. 1960).

In the instant case there is no evidence from which we can conclude that the parties had impliedly agreed to form a partnership of a definite duration. The partnership was a partnership at will and could be dissolved '(b)y the express will of any partner when no definite term or particular understanding is specified.' ORS 68.530(1)(b). The trial court reached the same conclusion and did not err in this respect.

MANNER OF DISSOLUTION

The second issue concerns the manner in which the partnership was dissolved. The evidence shows that defendant elected to and did exercise his right to dissolve the partnership pursuant to ORS 68.530(1)(b) and fully notified the plaintiff of this election on the morning of May 28, 1973. This was confirmed in the letter previously quoted dated May 31, 1973. Prior to adoption of the Uniform Partnership Act, in McKinnis v. Dodge et al., 103 Or. 9, 13, 203 P. 876, 878 (1922), this court held:

'A partnership is dissolved by notice of one partner to his associates of his election to terminate the partnership. No particular form of notice is required * * *.'

Nevertheless, plaintiff contends that the dissolution was in contravention of the partnership agreement and relies on Page v. Page, supra, 10 Cal.Rptr. at 646, 359 P.2d at 44, to support his contention that defendant, as a fiduciary, was obligated to exercise his power to dissolve the partnership in good faith. ⁶ See also Crane & Bromberg, Law of Partnership § 74(b), at 422 (1968); 1 Rowley on Partnership 587, § 31.1 (2d ed. 1960).

Plaintiff directs us to evidence produced at trial of an 'unfair design' on defendant's part to 'freeze out' plaintiff from a profitable enterprise. Defendant directs us to evidence of his good faith dissolution and the refusal of plaintiff to devote his full time to the business and failure to follow defendant's 'major decisions.' Assuming that there was such a duty of good faith in this case, the evidence proves that defendant acted in good faith and did not act in contravention of the oral partnership at will. See Crane & Bromberg, supra, § 74, nn. 37--41, at 422. In Timmermann v. Timmermann, 75 Or.Adv.Sh. 2733, 2739, 538 P.2d 1254, 1259 (1975), we held:

'A partnership at will may be dissolved without violation of the agreement between the partners by the express will of any partner when no definite term or particular undertaking is specified. ORS 68.530(1)(b), UPA § 31(1)(b). * * *'

The trial court did not err in this respect, and we find under the facts of this case that defendant dissolved the partnership in good faith as of ...