Temple v. White Lakes Plaza Associates, Ltd.

• Decision Date: 02 August 1991
• Docket Number: No. 66069,66069
• Citation: 15 Kan.App.2d 771,816 P.2d 399
• Parties: Marianna V. TEMPLE, Appellee, v. WHITE LAKES PLAZA ASSOCIATES, LTD., and Fritz Duda, Appellants.
• Court: Kansas Court of Appeals

Page 399

816 P.2d 399

15 Kan.App.2d 771

Marianna V. TEMPLE, Appellee, v. WHITE LAKES PLAZA ASSOCIATES, LTD., and Fritz Duda, Appellants.

No. 66069.

Court of Appeals of Kansas.

Aug. 2, 1991.

Syllabus by the Court

1. A distinguishing feature of a partnership is the rule of delectus personae or choice of the person. A partnership is based on the intent of all parties involved. Expressed another way, partners should be able to choose their associates.

2. The Uniform Partnership Act recognizes the principle of delectus personae by distinguishing a partner's interest in the partnership and a partner's right to participate in management. A partner's interest in the partnership is his or her share of the profits and surplus. In a limited partnership, the partner's interest is a share of the profits and losses and the right to receive distributions of partnership assets.

3. Under the specific terms of the limited partnership agreement in this case, the assignee of a partner's interest in the partnership is neither entitled to participate in the management of the partnership, nor to obtain information about the partnership or its books, but is only entitled to the profits to which the assignor would be entitled.

Thomas D. Haney of Porter, Fairchild, Wachter & Haney, P.A., Topeka, for appellants.

Charles T. Engel and Lori A. Fink of Cosgrove, Webb & Oman, Topeka, for appellee.

Before ELLIOTT, P.J., and LARSON and RULON, JJ.

RULON, Judge:

White Lakes Plaza Associates, Ltd., (White Lakes), defendant, appeals a district court judgment ordering that Marianna V. Temple, plaintiff, be made a limited partner in that partnership. We affirm in part and reverse in part.

The important facts are as follows:

On February 1, 1977, John Temple became a limited partner in White Lakes, a Kansas limited partnership formed for the purpose of operating the White Lakes Plaza apartment complex in Topeka, Kansas. The 1977 limited partnership agreement was a reorganization of a limited partnership organized in 1973. John's interest in the partnership's net income and losses was 5%. His wife Marianna signed the partnership agreement, consenting to its terms.

The partnership agreement gives the limited partners no authority to act for or bind the partnership. The agreement further provides that all limited partners and the general partner must consent to (1) a termination of the partnership other than in accordance with the agreement; (2) amendment of the agreement; and (3) sale of all or substantially all of the partnership's assets.

The certificate of limited partnership contains the following provision:

"A Limited Partner may sell, assign or transfer his limited partnership interest; however, any such purchaser shall only be entitled to be admitted as a Substituted Limited Partner if the Assignor so designates his intention in the instrument of assignment, and the General Partner consents thereto, the denial or granting of which shall be at the sole discretion of the General Partner. The General Partner does not have the right to admit additional Limited Partners without the consent of the Limited Partners."

The agreement also contains the following provision regarding transfer of partnership interests:

"13. RESTRICTIONS ON TRANSFER OF PARTNERSHIP INTERESTS.

"A. Transfers by General Partner. The General Partner shall not sell, transfer or assign his entire interest as a General Partner in the Partnership, except to a corporation controlled by such General Partner and to members of his immediate family, without the consent of all of the Partners holding seventy-five percent (75%) in interest of the Partnership, unless such sale is to one or more then existing General Partner. No consent is required for a sale, transfer or assignment of a portion of the General Partner's interest or [sic ] to a corporation controlled by the General Partner and to members of his immediate family.

"B. Transfers by a Limited Partner. A Limited Partner shall be entitled to sell, assign, transfer, or convey all or a portion of the interest owned by him ('Assignor'), and such purchaser ('Assignee') shall be entitled to be admitted to the Partnership as a 'Substituted Limited Partner' only upon the performance or occurrence of each of the following events:

"(1) The Assignor shall send a written notice to the General Partner setting forth the name and address of the proposed Assignee, the percentage interest being transferred and the date such transfer is to become effective (which must be on the last day of the calendar month during which the transfer becomes effective) together with a check made payable to the Partnership in an amount specified by the General Partner to cover or apply to the costs described in Subparagraph (6) hereof;

"(2) The Assignee shall have furnished to the General Partner, on a form approved by the General Partner, such information concerning the Assignee's residence, financial capabilities and investment experience as may be requested by the General Partner;

"(3) The General Partner shall approve of the form and content of the instrument of assignment;

"(4) The Assignor and the Assignee or Assignees executing and acknowledging such other instrument or instruments as the General Partner may deem necessary or desirable to effectuate such admission;

"(5) The written acceptance and adoption by the Assignee or Assignees of all of the terms and provisions of this Agreement, as the same may have been amended;

"(6) The Assignor paying or obligating himself to pay, as the General Partner may determine, all reasonable expenses incurred in connection with such admission, including, but not limited to, legal fees and costs (which costs may include, for example, the cost of filing an amendment of the Certificate of Limited Partnership);

"(7) The filing with the Partnership, if required by the General Partner, of such proof of the age of the Assignee as the General Partner may deem necessary. In no event shall a limited partnership interest, or any portion thereof, be assigned or transferred to a minor or incompetent. Any such attempted assignment or transfer shall be null, void and ineffectual;

"(8) The Assignor shall have evidenced an intent in the instrument of assignment that the Assignee be admitted to the Partnership as a Substituted Limited Partner;

"(9) The General Partner shall have consented in writing to the admission of the Assignee as a Substituted Limited Partner, the granting or denial of which shall be within the sole and absolute discretion of the General Partner, except that should the Assignee be a trust of which the Assignor is the sole or controlling trustee, and the beneficiaries are members of the Assignor's immediate family, the General Partner shall consent to such admission;

"(10) The Assignor shall have furnished the Partnership and the General Partner with an opinion of counsel, in form and content satisfactory to the General Partner, that such transfer is exempt from registration under the Federal Securities Act of 1933.

"C. Restrictions on Assignees. An Assignee of an interest in this Partnership who does not become a Substituted Limited Partner, has no right to require any information or account of the partnership transactions, to inspect the partnership books or to vote on any of the matters as to which a Limited Partner would be entitled to vote under this Agreement. An Assignee shall only be entitled to receive the share of the profits or other compensation by way of income, or the return of his contributions, to which his Assignor would otherwise be entitled."

According to subparagraph B(9), the general partner may within his sole and absolute discretion deny admission of an assignee as a substituted limited partner, even if the assignor and assignee have fulfilled the requirements of subparagraphs B(1) through B(8). Paragraph C provides, however, that the assignee is still entitled to the share of profits or the return of contributions to which the assignor would be entitled. This restriction on a limited partner's transfer of his or her interest also appears in the certificate of limited partnership.

On January 23, 1986, a decree was filed by a Florida court dissolving the marriage of John and Marianna. As part of the property settlement, the Florida court awarded Marianna "100% of the interest of [John] in the ... limited partnership[ ] known as ... White Lakes Plaza." Marianna was to assume "full financial responsibility" for the partnership interest as of December 17, 1985. The Florida court then ordered that John, "on or before midnight, January 16, 1986, transfer to [Marianna], by such appropriate documents as is required, one hundred percent of his interest in" White Lakes Plaza Associates, Ltd. "All of the income ... and all of the expenses related thereto shall be owned by and shall be the responsibility of [Marianna] from and after December 17, 1985."

In late January 1986, John executed an assignment of his partnership interest to Marianna. The assignment provided that John intended Marianna to become a substituted limited partner. Marianna, however, never signed the assignment.

In a letter to general partner Fritz Duda, John acknowledged that Duda had told him the partnership interest transfer would not be allowed "because of the uniqueness of this partnership and particularly the unanimous vote of the limited partners needed for ultimate sale." John also acknowledged that he and his attorney had suggested a substitution of assets to the Florida court, but that Marianna's attorney had rejected the offer. He then concluded the letter by asking for Duda's reconsideration of the matter.

Duda's reply to John contained the following explanation of his refusal to approve Marianna as a substituted limited partner:

"I have discussed your request with our counsel and two of the limited partners. As you know, this partnership was initiated and established by a small group of...