Dreifuerst v. Dreifuerst

Court of Appeals of Wisconsin
90 Wis. 2d 566, 280 N.W.2d 335 (1979)

ELI5:

Rule of Law:

Unless the partnership agreement provides otherwise, a partner in a rightfully dissolved partnership at will has the absolute right to compel liquidation of the business through a judicial sale of its assets and receive their share of the surplus in cash.

Facts:

Three brothers, the plaintiffs and the defendant, formed a partnership to operate two feed mills in St. Cloud and Elkhart Lake, Wisconsin.
The brothers did not have a written Articles of Partnership, meaning their business was a partnership at will.
On October 4, 1975, the plaintiffs formally notified the defendant of their decision to dissolve and wind up the partnership.
Following the notice of dissolution, the partners were unable to agree on a method for winding up the partnership's affairs and distributing its assets.

Procedural Posture:

The plaintiffs filed a complaint in the trial court for the dissolution and winding-up of the partnership.
During hearings, the defendant requested that the partnership property be sold at a judicial sale where partners could bid.
The trial court denied the defendant's request for a sale.
The trial court entered a judgment ordering an in-kind distribution of the partnership's physical assets, giving one mill to the plaintiffs and the other to the defendant.
The defendant (appellant) appealed the trial court's judgment to the intermediate court of appeals.

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Issue:

Does a partner, upon the rightful dissolution of a partnership at will and in the absence of a contrary agreement, have the right to force a judicial sale of the partnership assets and receive a cash distribution of their share of the surplus, rather than accept an in-kind distribution of assets?

Opinions:

Majority - Brown, P.J.

Yes. In the absence of an agreement to the contrary, a partner in a dissolved partnership at will is statutorily entitled to have the partnership assets liquidated by sale and their share distributed in cash. The court reasoned that Wisconsin statute § 178.33(1), mirroring the Uniform Partnership Act, explicitly provides that each partner may have the partnership's surplus applied 'to pay in cash the net amount owing.' The court defined 'winding-up' as the process of liquidation, which involves converting assets to cash to pay creditors and distribute the remainder to partners. It rejected an exception created by a Michigan court in Rinke v. Rinke, holding that the statutory language is unambiguous and does not permit a court to force an in-kind distribution on an objecting partner. A judicial sale is considered the most reliable method for establishing the true fair market value of the assets, which protects the interests of all partners and creditors. The court noted that partners can avoid this result by creating a partnership agreement that specifies a different method of distribution.

Analysis:

This decision reinforces a strict interpretation of the Uniform Partnership Act's default rules for dissolution. It establishes that a partner's right to force a cash liquidation is absolute unless waived by agreement, thereby limiting judicial discretion to order potentially inequitable in-kind distributions. The case serves as a critical precedent emphasizing the importance of comprehensive partnership agreements that explicitly detail the terms of dissolution and asset distribution. By rejecting an equitable exception, the court prioritizes predictability and the statutory text, compelling partners to proactively contract around the default rule of a forced sale if they desire a different outcome.

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