Mundy v. Holden
42 Del. Ch. 84, 1964 Del. LEXIS 169, 204 A.2d 83 (1964)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
When a partnership agreement contains a specific, fixed-price buyout provision for a deceased partner's share, that provision overrides the general default rule that a partner's capital contribution is considered a debt owed by the partnership to the partner.
Facts:
- In 1945, William C. Holden and Gilbert H. Mundy formed a partnership for an automobile agency.
- On January 25, 1954, they executed a formal partnership agreement.
- The agreement stipulated that upon the death of one partner, the survivor would purchase the deceased's 'share or interest' for a fixed sum of $40,000.
- The agreement also required the surviving partner to 'assume and pay all of the then existing debts and obligations of said partnership.'
- The agreement defined the partners' shares as equal halves of all capital assets, which included real estate, inventory, and bank accounts.
- On April 14, 1959, the partners reaffirmed these terms in a written modification.
- Gilbert H. Mundy died on May 31, 1963.
- Following Mundy's death, Holden tendered the agreed-upon $40,000 to Mundy's estate and assumed debts to outside creditors, but the estate refused the payment.
Procedural Posture:
- William C. Holden (plaintiff) filed an action for specific performance against the Executor of Gilbert H. Mundy's estate (defendants) in the Court of Chancery for Kent County, the court of first instance.
- The plaintiff, Holden, filed a motion for summary judgment.
- The Court of Chancery granted the plaintiff's motion for summary judgment, ordering the estate to comply with the contract.
- The defendants, the Executor of Mundy's estate, appealed the trial court's decision to this court, the Delaware Supreme Court.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a partnership agreement that sets a fixed price for a deceased partner's 'share or interest' and requires the surviving partner to pay all partnership 'debts and obligations' obligate the survivor to pay back the deceased's capital contribution in addition to the fixed price?
Opinions:
Majority - Carey, Justice
No. A partnership agreement that provides a specific method for dissolution and a fixed price for a deceased partner's entire share demonstrates the parties' intent to bypass the general rule treating capital contributions as partnership debts. The court must interpret the contract as a whole to ascertain the parties' intent. Here, the agreement defined a partner's 'share' as their one-half ownership of the total capital assets. Therefore, the provision to purchase the 'share or interest' for $40,000 unambiguously meant that this sum was full payment for all of the deceased partner's interests, including his capital contribution. The term 'debts and obligations' in this context refers to liabilities owed to outside creditors, not internal obligations to the partners themselves, because the parties specifically contracted for a different arrangement regarding capital.
Analysis:
This decision reinforces the principle of freedom of contract, holding that specific, express terms in a partnership agreement will govern over general, default principles of partnership law. It highlights the importance of precise drafting in buy-sell agreements to avoid ambiguity. The case serves as a precedent for enforcing fixed-price buyout provisions as written, preventing estates or surviving partners from seeking a different valuation based on default rules or changed circumstances unless the contract itself allows for it. It underscores that partners take a calculated risk when they agree to a fixed price, as the actual value may be higher or lower at the time of death.
