Corley v. Ott
326 S.C. 89, 485 S.E.2d 97, 1997 S.C. LEXIS 84 (1997)
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Rule of Law:
In a partnership dissolution, a partner's services are not considered capital contributions unless there is an express agreement, and a partner has a fiduciary duty to account to the partnership for any benefits derived from transactions connected with the partnership's formation, even if a formal written agreement is not yet in place.
Facts:
- Appellant Ott held an option to purchase a tract of land known as Lakewood Estates.
- Without disclosing his option, Ott approached respondent Corley about providing capital to purchase the land and develop it for profit.
- On March 30, 1979, Ott individually signed a contract to purchase Lakewood Estates, including 128 lots, a 34.68-acre pond tract, and a water plant, for $171,200.
- To conceal his individual purchase from Corley, Ott had the property transferred to a third party as trustee on the same day.
- Also on March 30, 1979, the trustee contracted to convey the same property, but without the 34.68-acre pond tract, to Ott and Corley 'trading as Lakewood Associates of South Carolina, a general partnership,' for $198,200.
- Each time an installment payment was made by the Ott and Corley partnership, Ott received from the trustee the difference between the amount due on his individual contract and the amount due on the partnership contract, totaling $27,000.
- Ott also received the 34.68-acre pond tract, which was valued at $41,000 at the time of its conveyance to him.
- On September 28, 1979, the parties formalized their partnership in a written partnership agreement.
Procedural Posture:
- In 1990, Corley commenced an action in a trial court (court of first instance) for dissolution of the partnership.
- Sometime during litigation, Corley discovered Ott’s original purchase contract and amended his complaint to allege a breach of fiduciary duty.
- The trial judge found that Ott breached his fiduciary duty to Corley and awarded Corley $68,000 in damages.
- Ott, as the appellant, appealed the trial judge’s findings and award to the Supreme Court of South Carolina.
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Issue:
1. Does the evidence support the trial court's refusal to credit a partner's time and labor as capital contributions during partnership dissolution when there was no agreement to do so? 2. Does a partner breach a fiduciary duty by failing to disclose an individual purchase of property at a lower price, which is then immediately resold to the nascent partnership at a higher price, including retaining a portion of the original purchase?
Opinions:
Majority - MOORE, Justice
No, the trial judge properly refused to credit Ott’s time and labor as capital contributions. Under S.C.Code Ann. § 33-41-510(6), no partner is entitled to remuneration for acting in the partnership business. Other courts, applying the Uniform Partnership Act, have held that in the absence of an agreement to the contrary, a partner’s services are not considered capital contributions upon dissolution. The Supreme Court adopted this rule, noting that there was no evidence of any agreement between Ott and Corley that Ott’s services should be credited as capital contributions. Yes, the evidence supports the trial judge’s finding that Ott breached his fiduciary duty. A partnership may be found to exist by implication from the parties’ conduct, as evidenced by the March 30, 1979, purchase agreement where Corley and Ott entered into the transaction as “Lakewood Associates of South Carolina, a general partnership.” This indicates the partnership was formed, at the latest, concurrently with that transaction. Furthermore, under S.C.Code Ann. § 33-41-540, a partner must account to the partnership for any benefit from any transaction connected with the formation of the partnership. Ott’s prior undisclosed purchase of the property for $27,000 less than the partnership paid (and retaining the $41,000 pond tract) was intimately connected with the formation of the partnership and its purchase of the property, thus constituting a breach of his fiduciary duty.
Analysis:
This case reinforces fundamental principles of partnership law: the necessity of an express agreement for non-monetary capital contributions and the stringent standard of fiduciary duty partners owe each other, particularly during partnership formation. It clarifies that a partnership can be found to exist by implication through conduct, thereby triggering fiduciary duties even before a formal written agreement is executed. The ruling serves as a strong warning against self-dealing and undisclosed personal profit by partners, highlighting the importance of full transparency in all transactions related to a partnership's business and formation.
