Doting v. Trunk

No. 93-124
IN THE SUPREME COURT OF THE STATE OF MONTANA
1993

MARIE DOTING, ~,~. -..
Plaintiff and Respondent,
-v-
FRANK J. TRUNK, JR., and
PATRICIA A. TRUNK,
Defendants and Appellants.

APPEAL FROM: District Court of the Eighteenth Judicial District,
In and for the County of Gallatin,
The Honorable Kenneth R. Wilson, Judge presiding.

COUNSEL OF RECORD:
For Appellants:
John C. Brown, Cok & Wheat, Bozeman, Montana
For Respondent:
J. David Penwell, Bozeman, Montana

Submitted on Briefs: June 10, 1993
Decided: July 13, 1993
Filed:
Justice Fred J. Weber delivered the Opinion of the Court.

This case concerns the dissolution of Frank J. Trunk and Son
Partnership (the Partnership). On June 16, 1988, respondent Marie
Doting (Doting) initiated this action by filing a petition to
dissolve the Partnership. The District Court subsequently ordered
a dissolution of the Partnership and ordered that the winding up be
completed within 60 days and that the Partnership be terminated
after that time.
We previously addressed this dissolution and termination in
Doting v. Trunk (1992), 253 Mont. 350, 833 P.2d 1028 (Dotins I).
In that opinion, we affirmed the District Court's decision which
ordered a dissolution of the Partnership further concluding that
the Partnership could not be terminated until the winding up of
partnership affairs was completed.
On October 30, 1992, Doting again petitioned the District
Court to terminate the Partnership. The District Court ordered
that the Partnership be terminated and instructed that the
Partnership's assets be distributed to the partners. Appellants
Frank J. Trunk, Jr. and Patricia A. Trunk (the Trunks) appeal this
decision of the District Court which provides for termination of
the Partnership.
The sole issue for our review is whether the District Court
prematurely terminated the Partnership.
At time of the first appeal, the Partnership still owned
assets, including real property, and was responsible for delinquent
taxes for a 16-acre parcel of real property situated in Gallatin

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County. Other partnership matters had also not been settled: in
particular, complex partnership tax returns needed to be filed and
other administrative duties remained concerning money held in a
trust account for the partners.
At the time of the hearing on Doting's second petition to
terminate the Partnership on November 24, 1992, the Partnership
owned but three assets. They are as follows:
1. The Bronson contract receivable. On September 30, 1981,
the Partnership sold the King Arthur's Mobile Home Park located in
Bozeman, Montana to Clark Bronson for $1,365,000.00. The
Partnership receives payments in the amount of $9,321.31 per month
on this contract with a balloon payment due on October 1, 2001.
Mr. Bronson subsequently assigned the contract to King Arthur
Partners who in turn sold the mobile home park to Gary and Lorreta
Oakland, d/b/a Oakland Holding Company, on March 1, 1984. The
contract from King Arthur Partners to Oakland was amended on March
25, 1988, and now provides for a final balloon payment on March 1,
1996. It is possible that the balloon payment due on March 1, 1996
on the Oakland contract could effect the Bronson contract, in which
case the final balloon payment would likely be paid to the
Partnership on March 1, 1996, the same date the Oakland contract
comes due. Payments are received by an escrow agent and
distributed to the parties.
2. The Kaninos contract receivable. On November 1, 1983, the
Partnership sold highway frontage real property to Mr. and Mrs. Kip

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Kapinos for $150,000.00: The Partnership receives payments of
$965.05 per month with a balloon payment due on November 1, 1993.
3. The Cook contract receivable. On October 2, 1992, the
Partnership sold 4.88 acres to Gene Cook for $75,000.00, with the

Partnership carrying $35,000.00 on a contract for deed. The
Partnership receives an annual payment of $7,000.00 on this

contract, with a balloon payment due on October 2, 1997. Payments
on the Cook contract are also distributed directly to the partners

by an escrow agent.

At the time of the November 24, 1992 hearing, the proceeds

from the Bronson contract and the Cook contract were being
distributed directly to the partners. The proceeds of the Kapinos
contract were being accumulated by Philip Bailey, a Certified
Public Accountant who was ordered by the District Court to manage

the financial affairs of the Partnership during the winding up

process. This money has been kept in a Partnership trust account

to pay Partnership debts and expenses incurred during the winding

up process. At the time of the hearing the balance in that account

was $17,167.00. Mr. Bailey had held these funds in trust because

the Partnership had been liable for $27,196.34 in unpaid property

taxes on a 16-acre parcel of real property. In October 1992, this

parcel was sold by Gallatin County at a public tax auction sale
which canceled the property tax debt.

Mr. Bailey testified that after he had completed the 1992 tax

returns for the Partnership, any further tax returns would not be
complex and could easily be handled by others. With the delinquent

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property taxes effectively eliminated, the Partnership had no
further debts. Therefore, the District Court granted Doting's

petition and ordered Mr. Bailey to distribute all but $2000.00 of

the accumulated proceeds in the trust account equally between the

Trunks and Doting and also ordered that all future payments on the

Kapinos contract be distributed equally between the Trunks and

Doting. The court further authorized Bailey to draw from the

remaining $2000.00 to pay for his services in preparing the 1992

Partnership tax return and then to distribute the remaining
proceeds from the trust account. The District Court ordered that

the affairs of the Partnership would be decreed wound up and the

Partnership terminated on the date of the final distribution to the

partners from that trust account.

Did the District Court err by prematurely terminating the
Partnership?

The Trunks now argue that Montana law does not allow the

District Court to terminate the Partnership and decree that its

affairs are wound up until all payments due the Partnership on the

three contracts receivable have been received. As stated in the
above facts, that date could be as early as October 2, 1997 when

the Cook contract should be paid in full, or it could continue

until October 1, 2001 by the terms of the Bronson contract.

The Trunks contend that 5 35-10-602, MCA, and Dotins I require

that a partnership must continue until all receivables are

received. Section 35-10-602, MCA, provides:

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 On dissolution the partnership is not terminated but
continues until the winding up of partnership affairs is
completed.
Section 35-10-602, MCA, is taken from the Uniform Partnership Act

(UPA) which has been adopted in Montana and nearly all other

states. See Annotations, Compiler's Comments to Title 35, Chapter
10.

We alluded to this statute in our first opinion in this case,

stating:

Under the UPA, the partnership will continue in existence
solely for the purpose of winding up until all
receivables have been received and payables have been
paid.
Dotinq I, 833 P.2d at 1033. The Trunks contend that Dotinq I,

interpreting § 35-10-602, MCA, mandates that the Partnership shall

continue in existence solely for the purpose of winding up
Partnership affairs until & the receivables discussed above have

been received.

The District Court concluded that the winding up was
sufficiently completed so that termination of the Partnership was

proper. We review a district court's conclusions of law to

determine whether the interpretation of the law is correct. Steer,
Inc. v. Department of Revenue (1990), 245 Mont. 470, 803 P.2d 601.

The Trunks ask that the District Court order be reversed, the

Partnership be reinstated and ordered to exist until all

receivables have been received. The Trunks argue that this is the

law of the case and must be followed.

This argument has no merit. Our comment in Dotins I, stating

that the Partnership will continue in existence until all
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receivables have been received is not the law of the case. When
this Court states in an opinion a principle or rule of law
necessary to the decision, such statement becomes the law of the

case and controls throughout its subsequent progress, both in the
trial court and upon subsequent appeal. Zavarelliv. Might (1989),
239 Mont. 120, 124, 779 P.2d 489, 492. Our statement in Dotinq I

was not such a principle or rule of law necessary to that decision.

In fact, it merely discussed procedures to be followed by the

District Court after we concluded that the specific issue being
addressed was moot.

We have not previously interpreted § 35-10-602, MCA, to
determine whether all the Partnership's receivables must be

received in order for the Partnership to be wound up and

terminated. For ,the reasons stated below, we now modify the above-

quoted statement from Dotino I and hold as follows: In qeneral, a

partnership will continue in existence under the UPA solely for the

purpose of winding up until all receivables have been received and

payables have been paid. The appropriate time for terminating a

partnership and declaring that its affairs are settled will be

determined by the district court under the particular facts of each

case.

Originally, the Partnership was created to operate a mobile

home park. That purpose has long since been extinguished: at the

time of the hearing, all property had been sold and all debts had

been paid, excep-t the final expense for preparation of the 1992

partnership tax return, which was provided for in the District

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Court's order. The Partnership conducts no business. Now that all
the property has been sold, the partners' sole involvement is
receipt of distributions of payments on the contracts for deed, yet
the Trunks argue that the Partnership existence must continue.
Doting seeks to terminate the Partnership and terminate her
business relationship with the Trunks.
We note that any partner may obtain a winding up by the court
for good cause. Section 35-10-609, MCA. This is what Doting has
done in this case. Doting contends that the termination was proper
because there is no purpose in continuing the existence of the
Partnership now that the 1992 tax return has been filed and
remaining funds have been distributed to the parties. The
relationship between the Trunks and Doting during these appeals,
and prior to Doting's original petition, has been strained. Doting
wishes to have nothing more to do with the Trunks and wants to
remove any possibility of further exposure to liability which may
result from the continuing Partnership.
We emphasize here that all partners have a duty to settle the
Partnership affairs. 59A Am. Jur. 2d Partnershiv § 1102 (1987); 68
C.J.S. Partnershiv, 5 355 (1950). When a partnership is dissolved
and the winding up process is begun, partners have a duty to act in
the best interests of the partnership. Generally the best
interests of the partnership will be served by winding up the
partnership affairs as quickly as possible. Winding up will often
require property valuations, prosecuting and defending partnership
lawsuits, paying debts and collecting receivables.

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 At this point none of these actions are required in this case.
The three contracts for deed constituting the sole assets of the
Partnership are the results of sales of Partnership property.
These contracts for deed are not presently in default nor are they
in danger of default. However, any action which may arise in the
future as a result of a default does not have to be taken by the
Partnership, it can rather be prosecuted by the parties as owners
in common.
In a pre-UPA Montana case, all debts of the partnership had
been paid, but the property remained an asset of the partnership.
This Court stated:
The law is well settled that when the partnership is
settled and the debts are paid, the real estate of the
partnership retains its character as such and is held by
the owners as tenants in common. We announced this rule
as early as 1887 . . . "The rule [ceases] when the
partnership is settled and its debts are. paid. The
partners then hold their real estate as tenants in
common, relieved of any trust in behalf of the
partnership. The weight of American authorities sustains
this doctrine."
In re Perry's Estate (1948), 121 Mont. 280, 290, 192 P.2d 532, 537
(citations omitted). Nothing in the UPA dictates a different
result here from that of Perry's Estate, which allows property to
be held as tenants in common after partnership affairs are settled.
We have looked to our sister states for their handling of
winding up and termination under the UPA in similar situations.
Cases are uncommon where one or more partners wishes to keep a
partnership alive after all partnership affairs are essentially
settled. A Pennsylvania case, however, which was decided after the
enactment of the UPA in Pennsylvania, stated that its result would
9
have been the same if decided prior to the UPA as it was under the

UPA. & Faust v. Heckler (Pa. 1948), 58 A.2d 147. The

Pennsylvania court declared that a tenancy in partnership under the

UPA, whereby the partners held real property, would revert to

tenancy in common upon dissolution and termination. Faust, 58 A.2d
at 149.

In Karber v. Karber (Ariz. 1984), 701 P.2d 1, 3, the Arizona

Court of Appeals interpreted the UPA provision requiring partners

to "wind up partnership affairs according to law" as meaning that

payments to creditors other than partners must first be made, then
claims of partners other than repayment of capital and profit,

then advancements made by partners, followed by amounts owing to

partners in respect to capital, and finally any remaining profits
to be distributed. Section 35-lo-612(2), MCA, provides the same.
In order to effect the distribution of partnership funds during the

winding up process in accordance with 5 35-lo-612(2), MCA, a final
accounting is necessary so that all claims and demands arising

between the partners can be settled as a result of the accounting.

As stated by the Idaho Supreme Court: "[A] final account is the one

great occasion for a comprehensive and effective settlement of all

partnership affairs." Arnold v. Burgess (Idaho 1987), 747 P.2d

1315, 1320 (quoting Weidlich v. Weidlich (Conn. 1960), 157 A.2d

910).

We have previously stated that "winding up of partnership

affairs" is the process of settling partnership affairs after

dissolution. Doting I, 833 P.2d at 1033. See also Weisbrod v. Ely
- -

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(WYO. 1989), 768 P.2d 171, 174 (generally the winding up

encompasses the liquidation of partnership assets, collection and
payment of debts and distribution of the surplus to the partners).

Here, the final accounting has been completed and all

partnership debts have been covered. The only remaining

partnership "affair" consists of the escrow agents' pro rata

distributions to the partners when payments are received on the

contracts for deed. The District Court has determined that the

Trunks are to receive 50% and Doting is to receive 50% of these

payments. Thus, the sole question is whether this partnership's
winding up is sufficiently completed so that the Partnership can be

terminated.

The UPA is to be construed so as to effect its general purpose

to make uniform the law of those states which enact it. 1 Rowley

Oil Partnership § 4.4 (2d ed. 1960); § 35-lo-104(4), MCA.

Generally, in an action to terminate a partnership, a court will
order that partnership assets be sold and the proceeds from the

sale be distributed according to the statutory priorities. Arnold,

747 P.2d at 1320. Courts have held, however, that alternative

distributions of partnership property may also effect a

termination. In Arnold, for example, the trial court affirmed a

winding up which ordered a money judgment instead of a liquidation

sale. Arnold, 747 P.2d at 1323.

We conclude there is no reason to require the Partnership to

continue. The UPA has no requirement which would mandate sale of

all assets instead of a distribution such as the court has ordered

11
here. This Court has 'previously held that when construing
statutes, the interpretation should be reasonable to avoid absurd

results. Department of Highways v. Midland Materials Co. (1983),

204 Mont. 65, 71, 662 P.2d 1322, 1325. The Trunks' argument for an
interpretation of the statute forcing a partnership to continue

simply for receiving payments on sold assets could lead to an

absurd result. Contracts for deed, for example, can extend for

many years.
We agree with the following quote from the Oregon Supreme

Court:

. . . There is no express provision in [the UPA] which
establishes liquidation by sale as the exclusive mode of
distributing partnership assets after dissolution. . . .
Courts, both prior and subsequent to adopting the UPA,
have, under certain circumstances, relied upon their
equitable powers to distribute partnership assets without
resort to sale.
In Rinke v. Rinke, 330 Mich. 615, 48 N.W.2d 201, 207
(1951) I a suit for dissolution of a partnership, the
Michigan Supreme Court . . . interpreted the [UPA] by
stating
'I* * * [t]he decree of the trial court provided for
dividing the assets of the partnerships rather than for
the sale thereof and the distribution of cash proceeds.
Appellants insist that such method of procedure is
erroneous and not contemplated by the [UPA]. * * *
Construing together pertinent provisions of the statute
leads to the conclusion that it was not the intention of
the legislature in the enactment of the [UPA] to impose
a mandatory requirement that, under all circumstances,
the assets of a dissolved partnership shall be sold and
the money received therefor divided among those entitled
to it, particularly so, as in the case at bar, where
there are no debts to be paid from the proceeds. The
situation disclosed bv the record in the present case is
somewhat unusual in that no one other than the former
partners is interested in the assets of the businesses.
In view of this situation and the nature of the assets,
we think that the trial court was correct in aoportioninq
them to the parties. * * *'I

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 The position taken by the Michigan Supreme Court is not an

isolated one.

'I* * * [I]n some circumstances and in jurisdictions where
the [UPA] is in effect, surplus assets have been
apportioned among the partners, and apart from the act
distribution of the surplus partnership stock in kind has
sometimes been made by the court in cases where there
were no firm debts and a division in kind could be fairly
and equitably made. * * *'I (Footnotes omitted.) 1
Rowley on Partnership, § 38.0, at 737.
Nicholes v. Hunt (Or. 1975), 541 P.2d 820, 827-28 (emphasis

supplied). Like the case referred to in Nicholes, other than the

the Trunks and Doting, no one is interested in the assets of this

business. In this case, we conclude that a distribution of the

surplus to the partners and settling partnership affairs does not

require that all receivables be received by the partnership.
We further conclude that the winding up of partnership affairs

should be completed within a reasonable time. We reach this

conclusion also by reference to other courts' interpretations of

the UPA. For example, the Kansas Court of Appeals has interpreted

the equivalent of § 35-10-601(1)(a), MCA, part of the UPA, as

follows:

We interpret [the UPA statute] as contemplating that the
"windina UD” of PartnerShiD affairs be accomplished
within a reasonable time, and that under the facts of the
instant case such reasonable time has long since passed.
In any event such time could not logically extend beyond
the time limits of [statute of limitation for actions of
creditors with no notice of dissolution].

Daniels Trucking Inc. v. Rogers (Kan. App. 1982), 643 P.2d 1108,

1111. See also Tucker v. Ellbogen (Cola. App. 1989), 793 P.2d 592
- -
(the winding up partner has the affirmative fiduciary duty to wind

up partnership affairs as expeditiously as possible and so as not

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to cause waste until the partnership assets have been divided and
the liabilities have been satisfied): Gibson v. Dueth (Iowa 1978),
270 N.W.2d 632 (winding up usually entails the time necessary for
the partners to finish old business, collect and pay debts, and
finally distribute remaining assets to the partners).
We agree with the Kansas court that partnership affairs ought
to be wound up within a reasonable time. In a case such as ours
where a contract for deed may continue for a number of years, it is
not reasonable to force the parties to remain partners where they
may be subject to liability by acts of other partners for many
years into the future. All Partnership debts have been paid in
this case and no lawsuits are pending. The Trunks have not
presented a convincing reason for continuing the Partnership.
Without a convincing reason for continuing a partnership, §
35-10-602, MCA, does not require that every transaction be
completed before a partnership can be terminated. A partnership
should be wound up within a reasonable period of time according to
the circumstances of each case. Under the circumstances of this
case, an effective settlement or winding up of all Partnership
affairs has been achieved. Any action which may become necessary
in the future to collect on defaulted contracts can be taken by the
parties as owners in common, rather than as tenants in partnership.
We hold the District Court did not err when it determined that
Partnership affairs had been wound up and ordered that termination
of the Partnership would be effective with the date of Mr. Bailey's
final distribution to the parties from the trust account.

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Affirmed.

Justice

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