Adams v. Jarvis
1964 Wisc. LEXIS 420, 127 N.W.2d 400, 23 Wis. 2d 453 (1964)
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Rule of Law:
A partnership agreement's specific provisions for the continuation of the business and the distribution of assets upon a partner's withdrawal will supersede the default rules set forth in the Uniform Partnership Act, provided the agreement is otherwise enforceable and not contrary to public policy.
Facts:
- Dr. Adams was a partner in a medical practice, THE TOMAHAWK CLINIC, governed by a written partnership agreement.
- The agreement stipulated that the withdrawal of a partner would not terminate the partnership, which would continue to operate with the remaining partners.
- The agreement specified that a withdrawing partner would receive their credit balance, their share of profits for the fiscal year, and their capital account.
- Paragraph 16 of the agreement explicitly stated that upon a partner's withdrawal, all accounts receivable would remain the sole property of the remaining partners.
- Dr. Adams voluntarily withdrew from the partnership on June 1, 1961.
Procedural Posture:
- The withdrawing partner, Dr. Adams, sued his former partners in the trial court, seeking a share of the partnership's accounts receivable.
- The trial court found that the withdrawal triggered a statutory dissolution of the partnership.
- The trial court ordered the partnership assets to be liquidated and distributed according to statute, awarding Dr. Adams a one-third interest in the accounts receivable.
- The remaining partners, defendants in the initial suit, appealed the trial court's judgment.
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Issue:
Does a partnership agreement that provides for the continuation of the business and denies a withdrawing partner a share of the accounts receivable override the default statutory provisions for partnership dissolution and asset distribution?
Opinions:
Majority - Beilfuss, J.
No. A partnership agreement that provides for the continuation of the business and dictates the terms of a withdrawing partner's payout is enforceable and overrides the default statutory rules. The Uniform Partnership Act's provisions regarding dissolution and asset distribution apply only 'unless otherwise agreed.' Here, the partners clearly agreed to specific terms for withdrawal. While a partner's withdrawal constitutes a statutory dissolution as to that partner, the agreement validly allows the partnership itself to continue among the remaining members. The provision denying the withdrawing partner a share in accounts receivable is not a forfeiture or against public policy; it is an enforceable term reflecting legitimate business considerations for the ongoing practice. Therefore, distribution must be made pursuant to the agreement, not the statute.
Analysis:
This decision strongly affirms the principle of freedom of contract within partnership law, establishing that the Uniform Partnership Act's rules on dissolution are primarily default provisions. It clarifies that partners can create customized agreements to ensure business continuity and define specific, pre-agreed terms for a partner's exit. This is particularly significant for professional service firms, like medical practices or law firms, where the continuation of the business after a personnel change is critical. The case solidifies the enforceability of clauses that might seem harsh, such as the forfeiture of accounts receivable, as long as they are part of a clear, bargained-for exchange.
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