FILED
R.S. BRANDT, K.M. LUNDIN, ) August 5, 1998
M.I. LUNDIN, N.B. LUNDIN, )
and A .T. WIL TSH IRE, JR ., ) Cecil W. Crowson
) Appeal No. Appellate Court Clerk
Plaintiffs-Appellees, ) 01A01-9708-CH-00431
)
v. ) Lawrence C hancery
) No. 5965-92
BIB E NTE RPR ISES , LTD ., A )
Tennessee Limited Partnership, )
and GR EGOR Y SM ITH , Individually, )
and VIRGINIA ABERNETHY, )
)
Defendants-Appellants. )
IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
APPEALED FROM THE CHANCERY COURT FOR LAWRENCE COUNTY AT
LAWRENCEBURG, TENNESSEE.
THE HONORABLE WILLIAM B. CAIN, CHANCELLOR
WILLIAM S. FLEMING, FLEMING
HOL LOW AY, F LYN N & S AND S, P.C
207 West Eighth Street
Columbia, TN 38401
For Plaintiffs-Appellees.
HENRY, HENRY, STACK, GARNER & SPEER, P.C.
119 South First Street
Pulaski, TN
For Defendants-Appellants.
AFFIRMED AS MODIFIED, AND REMANDED
HERSCHEL P. FRANKS, JUDGE
CON CUR :
GODD ARD, P.J.
McMU RRAY, J.
This cases involves a d ispute over a limited partnership. B IB
Enterprises, Ltd. (“BIB”) was formed on December 30, 1982 for the stated purpose of
acquiring real estate, equipment and other personal property of a Bonanza Restaurant
in Lawrenceburg, Tennessee. Defendant-appellant Greg Smith was named General
Partner.
On Dece mber 31, 1982 , BIB entered an ag reement with D inero
Enterprises, Inc. for the lease of B IB’s real and persona l property. In November,
1994, Dinero defaulted on the lease. BIB entered a lease with Southeast Restaurants,
Inc. (“Southeast”) on January 1, 1985. In late 1985, the Bank of Loretto, which had
financed BIB’s purchase of the Bonanza Restaurant, failed and was taken over by the
F.D.I.C. B IB purch ased its note f rom the F .D.I.C. at a disc ount. The money to
purchase the note w as provide d by a bridge lo an from D ominion B ank. Smith
negotiated permane nt financin g through Comm unity Bank a nd Trust.
In 1991, S outheast file d for ban kruptcy. Afte r securing a new tena nt,
Smith arranged to sell the property at auction. The auction was held on August 18,
1992. S mith pu rchase d the pr operty fo r $242 ,500.00 .
The Plaintiffs-appellees filed suit against BIB and Greg Smith on
Decem ber 3, 1992 , alleging that th e sale of the partnership property to Sm ith was vo id
and requesting an accounting. The Plaintiffs later amended their complaint to add
additional defendants and further alleged that Smith breached his fiduciary duties and
committed acts of embezzlement and misrepresentation. On November 14, 1994, the
Plaintiffs moved for Partial Summary Judgment on the issues of which law governed
the transactio ns, the sale of the partnersh ip property and Smith’s ren ewal of h is
contract for management services. On February 15, 1995, the trial court filed a
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Memorandum of Summary Judgement finding that the sale of the assets was null and
void and that the Uniform Limited Partnership Act governed the dispute. The trial
court entered its Order on the Motion for Partial Summary Judgment on March 7,
1995.
The parties sought an interlocutory appeal, which w as denied. After a
trial on th e rema ining iss ues, the trial cou rt issued an opin ion on O ctober 2 9, 1996 .
The trial court determined that Smith had no authority to extend his base management
fee beyond the terms of the original agreement. The trial court also determined that
the South east equipm ent deal and the F.D.I.C . discount did not count a s compe nsable
sources of income for Smith.
The October 29 memorandum adjudicated all issues up to the purported
sale of the restaurant on September 10, 1992. The trial court held an additional
hearing on June 1 7, 1997 in order to adjud icate all remaining issues. The trial court
determined that Smith owed the partnership $53,516.77. The trial court also found
that the Plaintif fs were n ot entitled to a ju dgment a gainst Sm ith’s wife, V irginia
Abernathy. The trial court den ied Plaintiffs’ request for attorney’s fees, discretionary
costs and prejudgment interest and ordered the dissolution of the partnership.
The trial court properly determined that the Uniform Limited
Partnership Act (“Uniform Act”) governed this case. Appellants contend that the
Revised Un iform Limited Partne rship Act (“Revised Act”) is applicable. The rec ord
does not contain any evide nce, however, that the A ppellants made the ne cessary
election to be governe d by the Rev ised Act.
This issue w as decided by summa ry judgment. S ummary jud gment is
appropriate only if there are n o genuine issues of m aterial fact and the movin g party is
entitled to judgment as a matter of law. Tenn.R.Civ.P. 56.03. If both the facts and the
conclusions to be drawn from the facts permit a reasonable person to reach only one
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conclu sion, su mmar y judgem ent sho uld be g ranted. Shadrick v. Coker, 963 S.W.2d
726 (Tenn. 199 8)(citations omitted).
The partnership in this case was formed in 1982. At that time, the
Uniform Act wa s the gove rning law . T.C.A. § 6 1-2-1204 provides in part:
(c) Excep t as provide d in subsec tion (e), a limited partnership
formed prior to January 1, 1988 shall continue to be governed by
chapter 2 of this title in effect prior to the ado ption of chapter 2
of this title as hereby repealed, except that such limited
partnership shall not hav e its term exten ded exce pt under this
chapte r . . .
(e) Any limited partnership formed prior to January 1, 1989, and
any foreign lim ited partnersh ip may elect to b e govern ed by this
chapter before July 1, 1989 by filing with the register of deeds
prior to January 1, 1989 and with the secretary of state on or after
January 1, 1989 a certificate of limited partnership, or an
application for registration as a foreign limited partnership which
complies with this chapter or a certificate of amendment which
would c ause its certifica te of limited p artnership to c omply with
this chapter and which specifically states that it is electing to be
so bound and by paying the fee for a certificate of limited
partnership specified in § 61-2-1207(a)(8). Such certificate may
be filed by any general partner without the necessity of obtaining
the approval of any limited pa rtner.
In this case, there is no evidence tha t the Appellant mad e the necessary
election to be governe d by the Rev ised Act. T he only evide nce of an election is
contained in the affida vit of an ex pert witnes s who state d that the ap propriate
documents were prepared for filing. There is, however, no evidence that the
documents were actually filed or that any fees were paid in compliance with the
statutory requirements. Thus, the trial court properly determined that the Uniform Act
applies in this ca se.
The trial court determined that “the transfer by general partner Smith of
the partnership asset at bar without the consent of all of the limited partners is null and
void as a matte r of law . . .” This is sue w as also re solved throug h summ ary judgm ent.
The trial court noted that “the sale of the partnership property by the general partner
violated both T.C.A. § 61-2-109 and the fiduciary duty of the general partner . . .”
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Under th e Unifor m Act:
A general partner shall have all the rights and powers and be
subject to all the restrictions and liabilities of a partner in a
partnership without limited partners, except that without the
written consent or ratification of the specific act by all the limited
partners, a general partner or all of the general partners have no
auth ority:
(1) To do any action in contravention of the certificate;
(2) To do any act which would make it impossible to carry on the
ordinary business of the partnership;
(3) To confess a judgment against the partnership;
(4) To possess partnership property, or assign their rights in a
specific pa rtnership pro perty, for other th an a partne rship
purpose;
(5) To admit a perso n as a general partner;
(6) To ad mit a person as a limited p artner, unless th e right to do s o is
given in the certificate; or
(7) To continue the business with partnership property on the
death, retirement, or insanity of a general partner, unless the right
to do so is given in the certificate.
T.C.A. § 61-2-1 09 (repealed 1988 ).
The Lim ited Partnersh ip Agree ment states th at it is intended to comply
with the U niform A ct and that an y provision of the agreem ent that violate s the Act is
invalid. Sectio n 8.3 (l) of the agreeme nt states:
The Ge neral Partne r, on behalf of the Partn ership and in
furtherance of the business of the Partnership, shall have the
authority to perform all acts which the Partnership is authorized
to perform, including, but not limited to, the following:
. . . (l) to refinance, sell or otherwise dispose of all or
substantially all of the assets of the Partnership at any one time,
subject to the provision of Article XI defining certain rights of
the Limited Partners.
As the trial court noted, there is little Tennessee authority on this issue
under the Uniform Act. The trial court therefore analyzed case law from other
jurisdictions. The trial court relied heavily upon Newburger, Loeb and Co., Inc. v.
Gross, 365 F .Supp . 1364 ( S.D.N .Y. 197 3), 563 F.2d 1 057 (2 nd Cir., 1 977), cert.
denied , 434 U.S. 1035 (1978), 611 F.2d 423 (2nd Cir. 1979). In Newburger, two of
the limited partners did not consent to the transfer of partnership assets to a new
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entity. The Newburger trial cou rt, constr uing a s tatute ide ntical to th e form er T.C .A. §
61-2-109 conc luded that the general partne rs had violated their statutory and fiduciary
duties. The trial court noted:
It is undispute d that limited p artners Bleic h and D onoghu e did
not give their written consent to or thereafter ratify the Transfer
Agreement. Plaintiff contends, however, that execution of the
Transfer Agreement was not in violation of [the statute]. The
Court, however, concludes that the execution of the Transfer
Agreemen t without the written conse nt of the limited partners
was in violation of the statute. E ven if there were a c ontrary
provision in the Partnership A rticles, an issue which the Co urt
need not and does not decide, such a provision would violate [the
statute] a nd be in valid.
365 F.Supp at 1365.
The Second Circuit affirmed the portion of the opinion holding the
transfer invalid, but also cited to Mist Properties, Inc. v. Fitzsimmons Realty Co., 228
N.Y.S.2d 406 (N.Y.Sup.Ct. 1962). The Second Circuit noted:
Mist Properties held that a transfer of the partnership property by
general pa rtners, witho ut the conse nt of the limite d partners, d id
not violate [the N.Y. Limited Partnership Act] where the
partnership agreement ‘specifically contemplated and provided
for’ the trans fer that took place. Id. at 41 0. [The trial c ourt]
rejected the argument that the rights of limited partners under
[the sta tute] cou ld be ab rogated by the pa rtnershi p agree ment . . .
Howe ver, there is sim ply no langua ge in the Pa rtnership
agreement that can b e construed as granting th e general partners
the righ t to cond uct [the transfe r].
563 F.2d 1057, 1075.
Thus, the Second Circuit distinguished Newburger from Mist. In Mist,
the limited pa rtnership ag reement sta ted that:
The General Partners in their absolute discretion shall have the power on
behalf of the Partnership (I) to sell and convey title to, and to grant an
option for the sale of all or any portion of the Property, including any
mortgage or leasehold interest or other property which may be acquired
by the Pa rtnershi p upon a transf er of the Prope rty . . .
228 N.Y.S.2d at 409.
Interpreting th is language , the court de termined th at “[t]here cle arly
6
appears to have been no violation of the statute since the conveyance was not without
the written consent of the limited partners but was specifically contemplated and
provided for by the agreement.” Id. at 410. The M assachusetts Appe als Court
considered a similar issue in Wasserman v. Wasserman, 386 N.E.2d 783
(Mass.App.Ct. 1979). The court noted that “cases from other jurisdictions which have
considered the question have either held or assumed that the required consent can be
found in the express provisions of a partnership agreement.” Id. at 787 (citations
omitted). Similarly, the Arizona Court of Appeals held that “[t]he consent required by
the statu te can b e foun d in the e xpress provisio ns of th e partne rship ag reeme nt.”
Jerman v. O’Leary, 701 P.2d 120 5, 1209 (Ariz.Ct.Ap p. 1985)(citations omitted).
In this case, the Limited Partnership Agreement states that the general
partner has authority “to refin ance, sell or o therwise d ispose of a ll or substantially all
of the assets of the Partnership at any one time . . .” Under the rationale of Mist, this
language could reasonably be interpreted as providing consent for the sale of the
assets. Thus, this case is distinguishable from Newb urger, where no such language
existed in the partnership agreement. Although the Appellant could properly sell the
assets, that does not necessarily mean that he could also purchase them. His purchase
must als o be an alyzed in t erms o f his statu tory and f iduciary d uties.
The A ppellan t was n ot autho rized to p urchas e the pro perty at au ction.
Under the Uniform Act, a general partner may not possess partnership property for
other than a partnership purpose without the consent or ratification of the limited
partners. T.C.A. § 61-2-109 (repealed 1988). The Uniform Act requires “written
consent or ratification of the specific act.” Id. The Lim ited Partnersh ip Agree ment in
this case do es not spec ifically permit the g eneral partn er to posses s partnership
property for a non-partnership purpose. Although the Agreement grants very broad
powers to the gen eral partner, it is to be construed in accorda nce with the Un iform
7
Act. Since there is no sp ecific grant o f permissio n to purch ase the partn ership
proper ty, the Ap pellant w as not a uthoriz ed to do so. Cf. Jerman v. O’Leary, 701 P.2d
1205 (Ariz.Ct.App. 1985)(defendant did not possess partnership property without
consent when partnership agreement stated that general partner could “acquire”
partnership property). Wh en review ing docum ents that purp ortedly allow se lf
dealing by a g eneral partn er “courts w ill not imply such a powe r, and even when it is
expressly give n they constru e it so narrow ly that it is seldom, if e ver, found to exist in
the matter under consideration.” 59A Am.Jur.2d Partnersh ip § 1291 (1987). The
App ellan t was not auth orized to purc hase the p rope rty.
The trial court determined that the Appellant had no authority to extend
his base management fee beyond its original expiration date. The Contract for
Management Services, executed between the limited partnership and the general
partner on D ecembe r 31, 1982 , provides in p art:
2 .Compensation. As full com pensation f or services re ndered to
the Partners hip in wh atever cap acity rendered, th e Partnersh ip
shall pay to Sm ith the sum o f $545.07 per mon th payable w ithin
ten (10) days following the conclusion of the month. These
payments shall be made for five (5) years, and such compensation
shall not be paid for employment beyond that term. As additional
compen sation for the services ren dered to the Partnership in
whateve r capacity rende red, the Partn ership shall als o pay to
Smith, as an incentive for the effective management of the
Partnership , fifty per cent (50 %) of all c ash incom e realized in
excess of Forty-two Thousand Dollars ($42,000.00) per year
generate d fro m the ren tal an d lea sing of th e Partnership prop erty.
This compensation shall be paid to Smith for any employment
during an y extension as provided in paragrap h 3 of this
Agreem ent.
3. Term. The term of employment shall be five (5) years from
the date hereof unless further extended by agreement of all the
parties . . .
The Ap pellant con tinued to pa y either himself o r his designe e Virginia
Abernathy (his wife) the $547.07 monthly fee after December 31, 1987. The
Appellant memorialized his authority to extend the agreement in a document dated
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March 7, 1990. This document provides:
The contract for management services between BIB En terprises,
Ltd., and Gregory Smith expired December 31, 1987. This extension
agreement, per paragraph 3 of the Contract for Management Services,
extends the Contract Term from the date of expiration, January 1, 1988
through a period ending five years from today’s date, or until March 7,
1995.
This docume nt is signed by Greg Sm ith as general partner of B IB
Ente rpris es, L td., and by Gre gory S mith individu ally.
The trial court correctly noted that “[t]he meaning of the contractual
provisions relative to compensation of the general partner must be considered in light
of the fiduciary duty of the general partner and the extraordinary powers of
management given to him, both by the Uniform Limited Partnership Act and by the
Limited Partnership Agreement in issue.” The trial court found that the 1982 Contract
for Management Services is not ambiguous. The interpretation of unambiguous
contrac ts is a que stion of law fo r the cou rt. Hardeman County Bank v. Stallings, 917
S.W.2 d 695 ( Tenn .App. 1 995), appeal denied, (Jan. 29, 1996).
The Contract for Management Services clearly states that the $547.07
per month “shall be paid for five (5) years and such compensation shall not be paid for
employme nt beyond tha t term.” The contract also states that the 5 0% ov erride “shall
be paid to Smith for any employment during any extension as provided in paragraph 3
of this Agreement.” Thus, as the trial court properly found, “[i]t is clear that
paragraph 3 can only extend the percentage override term. Otherwise, the five-year
limitation on the Five Hundred Forty-five Dollars and Seven Cents ($545.07) per
month paymen t would make no sen se.”
The Appellant contends that the Limited Partnership Agreement
authorizes h im to mak e contracts o n behalf o f the partne rship and th us permits h im to
extend the compen sation. As n oted previo usly, courts narro wly construe docume nts
9
that purportedly allow self dealing by a general partner 59A Am.Jur.2d Partnersh ip §
1291 (1987). The trial court did not err on this issue.
The Ap pellant con tends that the trial court erred in holding th at certain
payments made by Southeast to BIB under an equipment lease-purchase agreement
were not rental or leasing income and therefore not subject to the provision allowing
the Appellant 50% of all annual rentals over $4 2,000.00. Accord ing to the trial court
“all parties construed the equipment disposition to Southeast as being the sale of an
asset rather than a lease thereof, and the Court agrees that such construction by the
parties is a correct interpretation of the contract.”
Tennessee decisions have addressed the distinction between a true lease
and a conditional sale. In United States Fidelity and Guar. Co. v. Thompson & Green
Mach . Co., Inc ., 568 S.W.2d 8 21, 825 (Tenn. 19 78), the Tennessee S upreme Co urt
stated:
Perhaps th e most rev ealing test is w hether the so -called lessee is
obligated to accept and pay for the pro perty or is obligate d only
to return or account for the property according to the terms of the
lease from which h e may be ex cused on ly if he exercises his
privilege of purchasing it. If the latter is the case the transaction
is a true lease but if the contract, whatever its form, imposes an
absolute obligation to pay for and accept the property and the
transferor may require its return only upon default of the
transferee, the transaction is a conditional sale.
(citations omitted).
The court also noted that “the intent of the parties is always controlling and is to be
ascertained from the whole transaction, not merely from the language employed.” Id.
In this case, the restaurant equipment transaction between BIB and
Southeast is titled “Lease Agreement” and is separate from the lease of the restaurant
itself. Th e origin al transa ction be tween BIB a nd Din ero ma de no s uch dis tinction .
The term s of the So utheast transa ction state that it is a thirty month, no n-cancela ble
lease requiring payments of $1698.30 per month plus sales tax. It appears that the
1 0
only way BIB could repossess the equipment during this period was if Southeast
defaulted. Paragraph four of the agreement provides “[a]t the expiration of the lease
term, the Lessee shall have the option of purchasing the said equipment by paying the
sum of T welve T housand Five Hu ndred D ollars ($12,5 00.00) to the Lessor. U ntil
such price s hall have b een paid in full, the said eq uipment sh all remain in th e property
of the L essor.”
In United States Fidelity, the court noted:
In close cases the courts consider whether the payments required
of the transferee are in such amounts, spread over such a period
of time, and are to be so made that compared with the original
value of the property, its depreciation and likely value at the end
of the term, that they may be reasonably considered as
compensation for the use of the prop erty or, instead, as p ayments
on an absolute obligation for the purchase price, as in a
conditional sale.
568 S .W.2d at 825.
Southeas t’s total paymen ts, including sa les tax, over th irty months am ounted to
approximately $54,705.30. Southeast could then exercise its option to purchase the
equipment for $12, 500.00. This low purchase price, compared to the amount of the
month ly paymen ts indica tes that S outhea st was m aking p ayments toward s a purc hase.
The trial cou rt applied the r ule of prac tical construc tion. Unde r this
approach, “the interpretation placed upon a contract by the parties thereto, as shown
by their acts, will be adopted by the court . . .” Hamblen County v. City of Morristown,
656 S.W.2d 331, 335 (Tenn. 1983)(citations omitted). When applying this rule, “not
only the acts but the declarations of the parties may be considered.” Id. Add ition ally:
In applying the appropriate standard of interpretation even to an
agreeme nt that on its fa ce is free fro m ambig uity it is permissible
to consider the situation of the parties and the accompanying
circumstances at the time it was entered into — not for the
purpose o f modifying or enlarging or curtailing its ter ms, but to
aid in determ ining the m eaning to b e given to th e agreem ent.
Appling v . Ellendale 1 22 Prop erty, 718 S.W.2d 261 (Tenn.App.
1986)(ap plying rules of c onstruction to a limited pa rtnership
1 1
agreem ent).
In this case, the record contains no direct evidence of how Southeast
viewed the transaction. T he trial court was correct, how ever in finding that the BIB
partners viewed the transaction as a sale. In a memorandum written in preparation for
litigation against Martin-Dinero for defaulting on the original lease and dated
Decem ber 11, 198 5, one of th e BIB lim ited partners d escribed the deal with
Southeas t:
As I recall, for tax purposes we valued the equipment at
$125,000 at the time of the original lease on December 31,
1982.
The lease was breached and we threw Dinero off the
property on D ecembe r 31, 1984 . We we re forced to get a
new tena nt and the n ew tenan t is Southeas t Restauran ts
which is re ally a man nam ed McK inney. McK inney wou ld
not lease the property from us unless h e was pe rmitted to
buy the equip ment from us. We w ere forced in order to
quickly re-lease the property to sell him the equipment as
of January 1, 1985 for $60,000 payable at the rate of
$1,698.30 a month with an option to purchase at the end of
the 30-month period of $12,500. I believe we calculated
this as a total of $60,000 payable over the 30-month period
with an extremely low interest rate--something like 5%.
Similar ly, the Ap pellant te stified b y depositio n in the s ame litig ation.
When asked about the equipment transaction he stated that Southeast was “purchasing
the equipment under a lease purchase agreement . . .” Additionally, in a report to the
limited partners dated January 9, 1985, the Appellant noted that the Dinero lease “had
no separate provision for equipment, while the new agreement treats the equipment
separately.” He noted that under the new lease “the equipment is being sold, resulting
in prese nt cash flow f or the p artnersh ip.”
The Appellant’s expert witness characterized the equipment transaction
as a lease “[a]t least for tax and financial reporting purposes.” The trial court found
that “[t]he critical question to be answered is not under tax and accounting law, but
under prin ciples of co ntract constru ction applica ble to the limite d partnersh ip
1 2
agreement in question.” In United Sta tes Fidelity, the court stated that “[t]he
accounting methods employed by each of the parties with respect to the rental
payments . . . ma y be considere d to be mo re indicative o f the hope of the parties to
minimize federal income taxes than of the true nature of the transactions between
them.” 568 S.W.2d at 826. Based on all the available evidence, the trial court did not
err in characterizing the Southeast equipment transaction as a sale not subject to the
50% override.
The Appellant argues that the trial court erred in determining that
payments made to BIB by the guarantors of the original Dinero lease were not subject
to the 50% override provision. The trial court held that the payments were not “rent or
lease” payments and were therefore “simply not subject to the 50% override.” The
trial court noted that “such payments were not considered by the managing partner
himself to be subject to the override until after ill will developed among the parties.”
The entire $ 25,000.00 settlement w as distributed in accorda nce with
paragraph 7.2 of the Partnership Agreement, which addresses cash distributions to the
limited partne rs. The trial cou rt found tha t the Appe llant never as serted any right to
the 50% override at th at time. Wh ile some pe rcentage o f the total settlem ent could
arguably comprise compensation for lost rent, the evidence does not show that it was
treated that way by the parties. Thus, the trial court did not err on this issue.
The trial court also determined that an F.D.I.C. discount of the mortgage
on the pro perty was no t income f rom leasing and rental. A fter the Ba nk of Lo retto
failed, the F.D.I.C. took it over and thus obtained the Dinero loan on which BIB was
making m onthly paymen ts. The Ap pellant neg otiated with the F.D.I.C . and was able
to obtain a $45,0 00.00 d iscoun t on the n ote, wh ich BIB purcha sed fo r $235 ,000.00 .
BIB obtained financing for the purchase through a bridge loan at Dominion Bank.
The Appellant contends that the $45,000.00 discount was subject to the
1 3
50% override provision. The trial court held that the discount “produces a reduction
in debt for the partnership and is not ‘lease or rental’ income . . .” The trial court was
correct in this determination. The Partnership Agreement provides for the 50%
override fo r cash incom e “genera ted from th e rental and leasing of th e Partnersh ip
property.” Th e F.D.I.C. d iscount do es not fall un der the term s of this prov ision and is
therefo re not su bject to th e 50% overrid e.
The Ap pellant argu es that the trial co urt erred in ref using to red uce his
debt to the partnership by $27,054.65. This amount represents payments the
Appellant made when he purchased the partnership property. The Appellant made a
$24,250.00 dow n payment and paid $ 2,804.50 in closing costs. Th e trial court
determine d that he w as not entitled to the offse t since “the p urported sa le of the on ly
asset of the limite d partn ership w as null a nd void and in b reach o f his fid uciary du ty.”
As noted previously, the Appellant was authorized to sell the partnership property. He
could not, however, purchase it for himself.
The tria l court p roperly vo ided the Appe llant’s pu rchase of the p roperty.
The Appellant should receive a credit, however, for the money that BIB received after
the sale. Otherwise, the Appellees would receive a windfall because they would not
only hav e the pro perty, but w ould als o retain t he mo ney paid by the A ppellan t.
Exhib it 202 6 -17-97 , affixe d to Vo l. 18 of th e Tran script, is a n analysis of the o ffset.
This analysis computes the total cash the Appellant paid and then deducts any
settlement ch arges paid b y either the buyer o r seller as a resu lt of the sale. T his
computation yields an offset of $27,054.65, which would reduce the Appellant’s debt
to the partne rship to $26 ,462.12. T he trial court err ed in failing to make this o ffset.
The Appellant contends that the trial court erred in ordering the
dissolution of the partnership and appointing a receiver. The Appellant argues that the
Appellees wa ived the right to seek such relief in the Partnership Agreem ent. A court
1 4
has no authority to order dissolution absent an application by one of the parties.
Owens v. Bricks, Inc., 703 S.W.2d 147 (Tenn.App. 1985). In this case, the request
was set fo rth in the Am ended C omplaint. “T he terms o f a partnersh ip contract w ill
not deprive a court of its e quity jurisdiction to decree the dissolution o f a partnersh ip
on pro per gro unds.” 59A Am.Jur.2d Partnersh ip §849 (19 87); See also Barclay v.
Barrie, 102 N.E. 602 (N.Y. 1913)(partnership agreement stating that there was no
right to relief un til a set period o f time after n otice of bre ach did no t defeat right to
seek judicial dissolution). The trial court properly ordered dissolution.
The Appellees argue that the trial court erred in refusing to find the
Appellant’s wife, Virginia Abernathy, liable for conversion. Conversion is “the
appropriation of [property] to the party’s own use and benefit, by the exercise of
domin ion ove r it, in def iance o f plaintif f’s righ t.” Mammoth Cave Prod. Credit Ass’n.
v. Oldham, 569 S.W.2d 833, 836 (Tenn.App. 1977) (citations omitted). The
Appellee s claim that V irginia Abe rnathy received funds thro ugh an ag reement w ith
the Appellant to receive part of his management fee. The trial court found that the
Appellees were not entitled to a judgment against Virginia Abernathy and that the
amount of money sought from her was included within the amount already adjudged
against the Appellant. The trial court determined that the proof did not establish any
basis for holding Abernathy liable. Based on the record, the trial court did not err on
this issue .
The Appe llees also argue that the trial court erred in refusing to award
them attor ney’s fees , disc retio nary c osts and prejudgmen t inte rest. Gen erall y,
attorney’s fees a re not recov erable “in the absence o f a statute or c ontract spec ifically
providing for such recovery, or a recognized ground of equity . . .” Pullman Standard,
Inc. v. Abex Corp., 693 S.W.2d 33 6, 338 (Tenn. 198 5). The Revised U niform
Limited Partnership Act provides for recovery of attorney’s fees in derivative actions.
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See T.C.A. § 61-2-1004. There is no provision under the Uniform Limited
Partnership Act that seems applicable to this case. Tennessee cases have allowed
attorney’s fee aw ards fo r breach es of a tr ustee’s f iduciary d uty. Brown v. Conroy,
1990 W L 1057 4 (Tenn.A pp.); See also Marshall v. First Nat. Bank of Lewisburg, 622
S.W.2 d 558 ( Tenn .App. 1 981)(re cogniz ing app ropriate ness of such an award ).
Regardless, the trial court properly noted that under the facts of this particular case
attorney’s fees should not be awarded. The trial court did not err on this issue.
An award of prejudgment interest is within the sound discretion of the
trial cou rt and w ill not be disturbe d on ap peal ab sent an abuse o f that dis cretion. Otis
v. Cambridge Mut. Fire Ins. Co., 850 S.W.2d 439 (Tenn. 1992). In Mitchell v.
Mitchell, 876 S.W.2d 830, 832, (Tenn. 1994) the Supreme Court noted that
prejudgment interest would be allowed when “the amount of the obligation is certain,
or can be ascertained by a proper accounting, and the obligation is not disputed on
reasonable grounds. . .” In this case, there was considerable controversy over the
amount due. The trial court did not abuse its discretion. The same standard of review
governs the awarding of discretionary costs. Tenn.R.Civ.P. 54.04(2). Based on the
record, the trial court also did not abuse its discretion on this issue.
We affirm the judgment of the Trial Court, as modified herein. The
cause is remanded for entry of judgment in conformity with this Opinion. The cost of
the cau se is adju dged o ne-half to the ap pellants and on e-half to the app ellees.
__________________________
Herschel P. Franks, J.
CONCUR:
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___________________________
Houston M. Godd ard, P.J.
___________________________
Don T. McM urray, J.
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