Creel v. Lilly
1999 Md. LEXIS 249, 354 Md. 77, 729 A.2d 385 (1999)
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Rule of Law:
Under the Uniform Partnership Act (UPA), winding up a partnership following the death of a partner does not require a forced liquidation of all partnership assets. The surviving partners may satisfy their duty by conducting a good faith accounting to determine the value of the deceased partner's interest and paying that value to the deceased partner's estate.
Facts:
- On September 20, 1994, Joseph Creel, Arnold Lilly, and Roy Altizer formed a general partnership named 'Joe’s Racing' to operate a retail business selling NASCAR memorabilia.
- The partnership agreement stated that upon a partner's death, their share goes to their estate, which must first offer to sell the interest to the remaining partners.
- The agreement also provided that at termination, a 'full and accurate inventory' would be prepared to ascertain assets and liabilities for distribution.
- During the partnership, without his partners' knowledge, Joseph Creel altered the partnership's bank account to give himself sole signatory authority.
- Joseph Creel died on June 14, 1995, causing the automatic dissolution of the partnership.
- Anne Creel, Joseph Creel's widow and the personal representative of his estate, negotiated with the landlord to shorten the store's lease to expire on August 31, 1995, without informing the surviving partners.
- On August 31, 1995, Lilly and Altizer conducted a full inventory of the partnership's merchandise and hired an accountant to determine the value of the business.
- After August 31, 1995, Lilly and Altizer ceased operating as Joe's Racing and began a new, successor partnership named 'Good Ole Boys Racing' in the same location.
Procedural Posture:
- Lilly and Altizer sued Anne Creel and the bank in District Court to release frozen partnership funds.
- Anne Creel demanded a jury trial, which transferred the case to the Circuit Court for Charles County (trial court).
- Anne Creel filed a separate complaint in the circuit court seeking an accounting and a declaratory judgment against Lilly and Altizer.
- The trial court denied Creel's motion for a court-appointed auditor and, after a trial, found that the surviving partners had properly wound up the partnership without a need for liquidation.
- The trial court entered a judgment declaring the total amount due to the Creel estate to be $21,631.
- Anne Creel (appellant) appealed the judgment to the Court of Special Appeals (intermediate appellate court).
- The Court of Special Appeals affirmed the trial court's judgment.
- Anne Creel (petitioner) successfully petitioned the Court of Appeals of Maryland (the state's highest court) for a writ of certiorari.
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Issue:
Does the Uniform Partnership Act (UPA) require surviving partners to liquidate all partnership assets upon the demand of a deceased partner's estate when the partnership agreement does not expressly provide for the continuation of the business and the estate has not consented to it?
Opinions:
Majority - Chasanow, J.
No. The Uniform Partnership Act (UPA) does not grant the estate of a deceased partner an absolute right to compel the liquidation of all partnership assets. The court reasoned that 'winding up' is not always synonymous with 'liquidation,' which it characterized as a harsh and often destructive measure, especially for a small business. The court found that the partnership agreement itself contemplated an alternative to liquidation by specifying a winding-up process involving an inventory and accounting. Furthermore, public policy, as evidenced by the legislature's recent adoption of the Revised Uniform Partnership Act (RUPA), disfavors forced sales and promotes business continuity through mechanisms like buy-outs. The surviving partners acted in good faith by conducting an inventory, commissioning an accounting to determine the fair value of the partnership as of the date of dissolution, and offering to pay the estate its proportionate share. This method properly discharged their duty to wind up the partnership affairs without resorting to a destructive 'fire sale'.
Analysis:
This decision significantly clarifies Maryland partnership law under the UPA by rejecting a rigid rule that would require liquidation upon dissolution. By holding that a good faith accounting and buyout can suffice, the court aligns the UPA with modern business practices and the principles later codified in the Revised Uniform Partnership Act (RUPA). The case establishes that courts have the equitable power to approve reasonable alternatives to liquidation, thereby protecting surviving partners and promoting business continuity. This precedent reduces the leverage a deceased partner's estate might otherwise have to force a destructive 'fire sale' against the interests of the surviving partners.
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