Porter v. Barnhouse
| Decision Date | 18 July 1984 |
| Docket Number | No. 83-1213,83-1213 |
| Citation | 354 N.W.2d 227 |
| Parties | John W. PORTER, Trustee for Irene B. Porter, Roy W. Kilpatrick, Jr., Trustee for Dorothy B. Kilpatrick, Appellants, v. Charles L. BARNHOUSE III and Robert S. Barnhouse, Appellees. |
| Court | Iowa Supreme Court |
John J. McLaughlin and W. Don Brittin, Jr. of Nyemaster, Goode, McLaughlin, Emery & O'Brien, P.C., Des Moines, for appellants.
Garold F. Heslinga of Heslinga & Heslinga, P.C., Oskaloosa, for appellees.
Considered by REYNOLDSON, C.J., and UHLENHOPP, HARRIS, McGIVERIN, and CARTER, JJ.
Plaintiffs-limited partners and defendants-general partners both appeal from the district court judgment in a declaratory judgment action establishing their respective interests upon dissolution of the partnership.
The action was commenced by John W. Porter and Roy W. Kilpatrick, Jr., who, as trustees of separate irrevocable inter vivos trusts, were limited partners in the C.L. Barnhouse Company. A third limited partner, Irene Barnhouse, is not a party to the action. Hereafter, unless otherwise indicated, reference to limited partners identifies only the plaintiffs. The defendants in the declaratory judgment action are the general partners in the partnership. The action seeks a judicial resolution of the dispute that has arisen between the limited partners and the general partners with respect to the date upon which the partnership was dissolved and the interest of the limited partners on dissolution.
The C.L. Barnhouse Company was founded in 1886 and has been engaged in the publication of music in Oskaloosa, Iowa since that time. It specializes in the publication of band music. All of the parties in their individual capacities are lineal descendents of the founder of the company.
The business has existed in various forms. Initially, it was a sole proprietorship. From 1940 until 1956, it was a general partnership. From 1956 until the present dispute arose, the business has been cast in the form of a series of limited partnerships.
The trusts of which plaintiffs are the trustees were created by trust agreements executed June 15, 1956, by settlors, Dorothy B. Kilpatrick and Irene B. Porter, the daughters of C.L. Barnhouse and are the mothers of the plaintiffs-trustees in the present action. The original assets of the trusts were the respective one-quarter interests of the settlors in the C.L. Barnhouse Company, which, at the time the trusts were created, was a general partnership.
On July 1, 1956, the trustees of the two trusts each became limited partners in the C.L. Barnhouse Company. The investment which they made at that time consisted of their existing one-quarter interests in the prior general partnership. The limited partnership of July 1, 1956, was dissolved on October 14, 1967, as a result of the death of one of the general partners.
A new limited partnership was formed effective January 1, 1968, and a written agreement of limited partnership was executed on February 23, 1968. Irene S. Barnhouse and the two trustees were each made limited partners under the new limited partnership agreement. The contribution each made in order to attain that status was their respective interest in the prior limited partnership. The defendants in the present action were named as the only general partners under the February 23, 1968 agreement.
Paragraph eighteen of the February 23, 1968 partnership agreement provided:
18. Upon the termination of the partnership, a full and accurate inventory shall be prepared, the assets, liabilities, income, both gross and net, shall be ascertained, the debts of the partnership shall be discharged, the capital contributions of the partners, if not otherwise returned, shall be returned, and the remaining moneys, assets and properties of the partnership shall be divided among the partners in the proportions provided in Paragraph 6 hereof; provided, that in settling accounts upon dissolution, the liabilities of the partnership shall be paid in the order prescribed by Section 545.2 of the 1966 Code of Iowa.
Paragraph six of the partnership agreement provides as follows:
6. The capital to be contributed by the parties shall consist of their respective interests in the capital of the old limited partnership having a stated book value of $36,000.00 as shown by the books of said partnership as of January 1, 1968, which contributions of capital are hereby acknowledged to be made by the parties in values and fractional shares as follows:
Name Amount Share
---------------------------- --------- -----
Charles L. Barnhouse III $4,500.00 1/8
Robert S. Barnhouse 4,500.00 1/8
Irene S. Barnhouse 9,000.00 1/4
R. V. Porter, Trustee For
Irene B. Porter, Et Al
Under Agreement Dated
June 15, 1956 9,000.00 1/4
Roy W. Kilpatrick, Trustee
For Dorothy B. Kilpatrick
Et Al, Under Agreement
Dated June 15, 1956 9,000.00 1/4
Other significant provisions of the partnership agreement include the following paragraphs:
8. The contributions of the limited partners are to be returned to them upon the dissolution or termination of the partnership, but only after all liabilities of the partnership, except liabilities to general partners and to limited partners on account of their contributions, have been paid or there remains property of the partnership sufficient to pay them.
9. The net profits derived from the operation of the partnership business, after deducting all expenses of operation, including compensation for personal services rendered by the general partners, shall be divided among and/or credited to the partners, both general and limited, in proportion to their respective contributions to the capital of the partnership as hereinafter set forth:
....
10. Losses suffered or incurred in the conduct of the business of the partnership shall be borne by all of the parties hereto in the same proportions in which they are entitled to share in the profits of the partnership as provided, however, that no limited partner shall in any event be liable for or subject to any loss whatsoever in excess of his interest in the net worth of the partnership.
....
17. The partnership shall terminate upon the retirement, death or insanity of, or upon the sale or other disposition of any part of the interest of, any of the partners, either general or limited....
The partnership agreement further provided that in consideration of the general partners devoting their time and efforts to the business of the partnership they were to be paid certain specified salaries and bonuses.
The limited partnership created by the agreement of February 23, 1968, was thereafter renewed for successive five-year periods, the last of which would have ended on December 31, 1982. On December 7, 1981, Dorothy B. Kilpatrick died, an event which triggered the termination of the Kilpatrick trust. Two days later, the defendants gave written notice to the plaintiffs that under paragraph seventeen of the partnership agreement the partnership was dissolved as of the date of Dorothy B. Kilpatrick's death. They further advised plaintiffs that they did not desire to form a new partnership and would cause the company accountant to compute the interests of the limited partners upon dissolution.
The plaintiffs, on February 15, 1982, advised the defendants that they did not believe the death of Dorothy B. Kilpatrick dissolved the partnership and further advised them that in the event of liquidation paragraph eighteen of the partnership agreement provides the method of determining their interests. On April 27, 1982, defendants notified plaintiffs that they still contended the partnership had terminated upon Dorothy B. Kilpatrick's death and further that "[s]ince January 1, 1982, this business has been run with a new set of books, different identification numbers and as a partnership of Robert and Charles Barnhouse."
Following a trial to the court, the district court found and concluded that the death of the settlor had terminated the limited partnership as of that time and that each of the plaintiffs thereupon became entitled to return of their capital contributions, an accounting of the extent of their proportionate share of the income earned before the death of the settlor and one-fourth of the market value of all net partnership assets, except goodwill. A provision in the district court's decree provided for binding appraisal in the event the parties could not agree on the net market value of the assets for purposes of determining the plaintiffs' respective distributive shares.
Both parties have appealed from the district court's decree. The plaintiffs contend that the district court should have declared that the partnership was not dissolved until December 31, 1982, required defendants to account for profits generated by partnership assets after Dorothy B. Kilpatrick's death, and awarded plaintiffs a distributive share in the goodwill of the partnership. The defendants contend that the limited partners were entitled only to the return of their investment based upon a book value of their interest as of the date of Dorothy B. Kilpatrick's death.
Additional facts not previously set forth will, where appropriate, be discussed in connection with our consideration of the substantive legal issues presented by the appeal.
The first issue which we consider concerns the time at which the partnership was dissolved. The defendants contend and the trial court found that this occurred on December 7, 1981, the date of Dorothy B. Kilpatrick's death. The plaintiffs urge that neither her death nor the resulting termination of the Kilpatrick trust was an act which caused dissolution of the partnership. If that claim is correct, the partnership would not have been dissolved until December 31, 1982, at the expiration of the final five-year renewal period.
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