Frank v. R. A. Pickens & Son Co.
1978 Ark. LEXIS 2108, 572 S.W.2d 133, 264 Ark. 307 (1978)
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Rule of Law:
Partnership agreements, whether oral or written, can establish terms for admission, expulsion, and valuation of partners' interests upon dissolution that supersede the default provisions of the Uniform Partnership Act (UPA).
Facts:
- The 'R. A. Pickens and Son Company,' a farming partnership leasing and farming 13,000 acres, had existed in various forms since 1925 and was managed by R. A. Pickens since 1937.
- Appellant, an employee, became a partner on January 1, 1968, initially acquiring a 2% interest and eventually accumulating a total 3% interest.
- Appellant's initial investment of $21,600 was made by giving a note to the partnership, with the understanding that his share of profits would apply to its payment.
- On May 31, 1976, R. A. Pickens, as the managing partner, terminated appellant’s partnership interest.
- R. A. Pickens tendered a check to appellant for $35,805.97, calculated as 3% of the partnership's book value as of December 31, 1975, plus 10% interest for five months, less appellant's outstanding debts to the partnership.
- Appellant refused to accept the tendered check, believing he was entitled to more.
- An oral agreement among the partners dictated that interests were purchased at book value, membership duration was at the will and pleasure of managing partner Pickens, and outgoing partners would be paid at book value upon leaving the company.
Procedural Posture:
- Appellant filed a petition in the trial court seeking an accounting of the partnership's affairs, alleging wrongful exclusion.
- Appellant subsequently amended his petition to request judicial dissolution and liquidation of the partnership assets.
- Appellees filed a counter-complaint, asking the trial court to recognize the dissolution that occurred when Pickens notified appellant of his termination, and asserting the existence of an oral agreement dictating the terms of interest purchase and termination.
- The trial court found that a partnership existed, appellant purchased his interest at book value, R. A. Pickens had a contractual right to terminate appellant's interest at will, and appellant was entitled to 3% of the partnership's book value as of December 31, 1975, plus a pro-rated share of 1976 profits, less his outstanding debts, but without the additional 10% interest for termination alleged by appellees.
- Appellant appealed the trial court's decision, contending the court erred by not finding he was entitled to a full share of profits while his capital was used, by finding Pickens had a contractual right to terminate, and by not ordering a full partnership winding up and liquidation.
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Issue:
Does a specific oral agreement among partners regarding the termination and valuation of a partner's interest upon departure supersede the default dissolution and liquidation procedures outlined in the Uniform Partnership Act?
Opinions:
Majority - Frank Holt, Justice
Yes, a specific oral agreement among partners regarding the termination and valuation of a partner's interest upon departure does supersede the default dissolution and liquidation procedures outlined in the Uniform Partnership Act. The court affirmed the trial court's finding that a partnership is a contractual relationship, which allows partners to vary its form and substance. Citing Ark. Stat. Ann. § 65-118 and § 65-140, the court emphasized that the rights, duties, and account settlements between partners are "subject to any agreement between" them. The evidence presented, including testimony from numerous past and present partners and appellant's own familiarity with similar book-value transactions, preponderated in favor of the existence of an oral agreement giving Pickens the right to terminate partners at will and requiring payment at book value upon departure. Since the chancellor's finding of this agreement was supported by the preponderance of the evidence, the Uniform Partnership Act's provisions for forced liquidation and sale of partnership assets were not applicable.
Analysis:
This case significantly clarifies that the Uniform Partnership Act (UPA) provides default rules that can be modified by specific agreements among partners. It reinforces the contractual nature of partnerships, emphasizing that explicit terms, even oral ones, can override statutory provisions for issues like partner expulsion and valuation of interests. The decision highlights the importance of clearly established partnership agreements for managing expectations and avoiding disputes, particularly when partners wish to deviate from standard UPA procedures. It also underscores appellate courts' deference to trial court findings of fact when supported by a preponderance of the evidence.
