Case Title: Persinger & Company v. Larrowe

Citation: 

Docket Number: 952160

State: virginia

Court: Virginia Supreme Court

Date: 1996-11-01T00:00:00Z

Document:
Present:  All the Justices 
 
PERSINGER & COMPANY 
 
OPINION BY JUSTICE LAWRENCE L. KOONTZ, JR. 
v. Record No.  952160                  November 1, 1996 
 
MICHAEL D. LARROWE 
 
 
FROM THE CIRCUIT COURT OF ALLEGHENY COUNTY 
 
Duncan M. Byrd, Jr., Judge 
 
 
In this appeal we consider whether an individual can be 
bound by a non-competition clause of a partnership agreement to 
which he was not a signatory, although he accepted a partnership 
interest and served as a partner for several months.
1  Under the 
facts of this case, we hold that the partnership agreement did 
not bind the former partner who did not sign it. 
 
The pertinent facts are not in dispute.  From 1980 to 1987, 
Michael D. Larrowe (Larrowe) was a staff accountant with the 
general accounting firm of Persinger & Company (the Persinger 
firm).  In 1985, Larrowe was promoted to a non-equity position of 
"office partner" and signed a non-competition agreement as a 
condition of this promotion.  Larrowe left the firm in 1987 on 
good terms and joined an accounting practice in North Carolina. 
 
In September 1990, Larrowe returned to Virginia and entered 
into negotiations to resume employment with the Persinger firm.  
Larrowe wished to be made a general or full partner with equity 
in the firm.  The parties agree that when Larrowe resumed 
                     
     
1This appeal was brought by the partnership in order to 
contest two interpretations of terms in the agreement made by the 
trial court in rendering judgment for the partnership which 
limited the amount of the recovery.  Our resolution of the 
dispositive issue, which was raised as cross-error by the former 
partner, renders these issues moot. 
employment with the firm as an office partner in December 1990, 
there was a mutual expectation that an equity partnership offer 
ultimately would be extended to him.  In November 1991, the 
Persinger firm requested that Larrowe re-execute the 
non-competition agreement as an office partner.  Larrowe refused, 
and the request was not pursued. 
 
During the summer of 1992, Larrowe and the firm entered into 
negotiations regarding his promotion to equity partner.  During 
the course of these negotiations, Larrowe was provided with a 
copy of the Persinger firm's July 1, 1989 partnership agreement 
which included a non-competition provision: 
 
24.1 Limitations Imposed on Former Partner. 
 
 
 
When a party to this Agreement ceases to be a 
partner, whether by reason of withdrawal or retirement, 
he will observe the following limitations.  For a 
period of three (3) years immediately following the 
date he ceased to be a partner, or while he is 
receiving guaranteed payments from the partnership, he 
shall not directly or indirectly render public 
accounting services to any clients who were serviced by 
the partnership at date of his withdrawal or 
retirement.  A partner violating this paragraph shall 
pay to the partnership an amount equal to one-third 
(1/3) of each year's fee as collected for a period of 
three (3) years.  Such amount is due within thirty (30) 
days after it has been collected from the client by the 
former partner. 
In addition, the agreement contains the following provision: 
 
26.3 Changes in General Partners. 
 
 
The obligations and rights accruing to this 
partnership by virtue of this Agreement shall continue 
unabated regardless of any change in the membership of 
this general partnership; such obligations and rights 
shall be automatically assigned to the partners 
constituting the general partnership created by this 
Agreement as of any particular date; and, such 
assignments shall be effective without any further 
affirmative action on the part of the parties hereto. 
 
 
On September 1, 1992, Larrowe wrote a letter accepting "the 
Firm's offer of a general partnership interest."  The nature of 
the Persinger firm's offer is not disclosed in the record, but it 
is undisputed that Larrowe did not sign the 1989 partnership 
agreement or any similar document at this or any subsequent time. 
 
Shortly after Larrowe became a general partner, two senior 
members of the Persinger firm began to make preparations for 
their retirement.  During this period, the remaining partners, 
including Larrowe, discussed drawing a new partnership agreement 
to be signed after the retirements became effective.  The 
partners were also considering reconstituting the firm as a 
professional limited liability corporation. 
 
Larrowe served as a general partner until January 26, 1993, 
when he submitted his resignation.  Larrowe subsequently began 
his own accounting practice in Galax.  He solicited a number of 
the Persinger firm's clients, obtaining employment from some. 
 
On August 9, 1993, the Persinger firm filed a petition for 
declaratory judgment and bill of complaint against Larrowe 
seeking to enforce the non-competition provision of the 1989 
partnership agreement and to recover fees it alleged were owed 
the firm under the provisions of the agreement.  Larrowe filed 
grounds of defense asserting that he was not subject to the 
partnership agreement and its non-competition provision.  
Following an ore tenus hearing, the trial court entered judgment 
for the Persinger firm.  This appeal followed. 
 
There can be no doubt that upon Larrowe's acceptance of the 
Persinger firm's offer of a general partnership interest, a 
partnership was created between the Persinger firm and Larrowe.  
The threshold issue of this appeal is whether by virtue of that 
partnership Larrowe could be bound by the 1989 partnership 
agreement and its non-competition provision without being a 
signatory thereto.  In resolving this issue we are guided by the 
well settled principles that the Persinger firm had the burden of 
proof and that because non-competition agreements are a restraint 
of trade, they will be carefully examined and strictly construed 
before they will be enforced.  See Clinch Valley Physicians, Inc. 
v. Garcia, 243 Va. 286, 289, 414 S.E.2d 599, 601 (1992). 
 
The Persinger firm asserts on brief that the only plausible 
interpretation of the facts in this case is to assume that its 
"offer of general partnership in the firm was an offer for 
Larrowe to become a party to the [1989] Agreement."  In support 
of this position, the firm contends that article 26.3 of the 1989 
partnership agreement "automatically subjects new partners to the 
same rights and obligations [of the 1989 partnership agreement] 
as other partners . . . requir[ing] no affirmative conduct for 
these effects to occur."  We disagree. 
 
The 1989 partnership agreement evinces the intent of its 
signatories to conduct business as a partnership and to be bound 
by the included non-competition provision.  It is true that in 
the course of the Persinger firm's negotiations with Larrowe, he 
was shown this document.  Thereafter, when an equity partnership 
offer was extended to Larrowe and that offer was accepted by him, 
no reference was made to this document.  Nothing in the record 
supports the conclusion that this offer expressly or implicitly 
required Larrowe to become a party to the 1989 agreement.  To the 
contrary, the Persinger firm concedes that Larrowe was never 
asked to sign the agreement, and the record is unequivocal that 
he did not do so.
2
 
Nor could Larrowe be bound to the agreement under the 
provisions of article 26.3.  For the Court to find that the 
article has the effect proposed by the firm, we would be required 
to accept the circular reasoning that Larrowe was bound by the 
agreement by virtue of the agreement's requirement that partners 
be bound by it.  A more sensible construction of article 26.3 
would be that those partners who were signatories to the 
agreement would remain bound by the agreement at the time of a 
dissolution or other change in the composition of the general 
partnership. 
 
The Persinger firm's threshold burden in this case was to 
establish that Larrowe was a party to the 1989 agreement and its 
non-competition clause.  Until the parties have a distinct 
intention common to both and without doubt or difference, there 
is a lack of mutual assent and, therefore, no contract.  
Progressive Construction Co. v. Thumm, 209 Va. 24, 30, 161 S.E.2d 
687, 691 (1968).  The record before us fails to show that  
Larrowe gave his assent to the 1989 agreement or to any express 
agreement other than to serve as a general partner. 
                     
     
2Moreover, Larrowe apparently was not shown or asked to sign 
a 1991 general partnership agreement which was also produced at 
trial, although not made an exhibit.  According to the testimony 
of one of the partners, the 1991 agreement was substantially 
similar to the 1989 agreement, but was signed by a different 
group of individuals. 
 
A partnership is defined as "an association of two or more 
persons to carry on as co-owners a business for profit."  Code 
§ 50-6(1).  The statutory language implies the voluntary joining 
together of two or more persons with the intent to form a 
partnership.  No written document is necessary to create the 
partnership. 
 
Furthermore, it is permissible for existing partnerships to 
associate with individuals, corporations, and other partnerships 
for the purpose of forming new partnerships.  See Code §§ 50-2, 
50-6.  Thus, when Larrowe accepted the Persinger firm's offer, a 
partnership was formed between Larrowe and the partnership that 
then constituted the Persinger firm.  Whatever the nature of this 
new partnership, with regard to Larrowe's rights and obligations, 
it was decidedly not created by nor subject to the provisions of 
the 1989 partnership agreement. 
 
Stated another way, when Larrowe accepted the Persinger 
firm's offer, he became an equity partner not subject to the 1989 
partnership agreement.  Absent some written agreement 
affirmatively adopted by Larrowe providing otherwise, the 
partnership between Larrowe and the Persinger firm was governed 
exclusively by the Uniform Partnership Act.  Code §§ 50-1 through 
-78.  Accordingly, the Persinger firm's claims against Larrowe, 
founded solely on the operation of the 1989 partnership 
agreement, lack merit because Larrowe was not a party to that 
agreement. 
 
For these reasons, we will reverse the judgment of the trial 
court and enter final judgment for Larrowe. 
 
Reversed and final judgment.