Title: Bucholtz v. Computer Based Systems
Citation: N/A
Docket Number: 970361
State: Virginia
Issuer: Virginia Supreme Court
Date: February 27, 1998

PRESENT: All the Justices 
 
ROY J. BUCHOLTZ, P.C. 
 
 
 
OPINION BY 
v.  Record No. 970361 
JUSTICE LAWRENCE L. KOONTZ, JR.  
 
 
 
February 27, 1998 
COMPUTER BASED SYSTEMS, INC. 
 
 
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY 
Jane Marum Roush, Judge 
 
 
This appeal involves a lease dispute between the tenant of 
office space in a building formerly owned by a bankrupt 
partnership and the subsequent purchaser of that property at a 
foreclosure sale.  Specifically, we consider whether the lease 
permitted the tenant to set off debts the tenant alleged were 
owed it by the partnership against rents owed to the new owner 
of the property.  We further consider the effect of a provision 
in the lease for an extension of its term at “market rates.” 
 
We recite only the facts necessary to our resolution of 
this appeal.  Prior to a foreclosure sale in the summer of 1995, 
the building in question was the property of Old Reston Limited 
Partnership (Old Reston).  Roy J. Bucholtz and Harold O. Miller, 
partners in a professional corporation for the practice of law, 
were the general partners of Old Reston and leased space for 
their law practice in the building.  In June 1992, Miller left 
the practice of law in Virginia and relocated to Florida.  
Bucholtz formed Roy J. Bucholtz, P.C., a new professional 
corporation, and continued his law practice in the same 
location. 
 
Bucholtz alleges that after Miller moved to Florida 
Bucholtz discovered that Miller had improperly withdrawn funds 
from Old Reston.  In order to “equalize” the alleged imbalance 
in the Old Reston account resulting from Miller’s actions, 
Bucholtz, as general partner of Old Reston and principal of Roy 
J. Bucholtz, P.C., entered into a new lease between these two 
entities for the office space used for Bucholtz's law practice. 
In pertinent part, the lease included the following provision: 
 
Lessee and/or Roy J. Bucholtz or heirs, successors or 
assigns shall have the right of setoff and deduction 
from money owed by Lessor to Lessee and/or Roy J. 
Bucholtz or heirs, successors or assigns. 
 
(Emphasis added.)*
 
The term of the lease was from April 1, 1993 to March 31, 
1996 at a monthly rental rate of $2,227.50.  A further provision 
in the lease permitted Bucholtz to renew the lease for two 
consecutive three-year terms “at market rates” upon specified 
notice to the lessor. 
                     
 
*Apparently because of the emphasized language, the parties 
have not drawn a distinction between the rights and obligations of 
Roy J. Bucholtz, P.C., the actual lessee, and Roy J. Bucholtz 
individually.  Accordingly, hereafter we will simply refer to 
“Bucholtz” to mean either depending upon the context in which the 
reference is made. 
 
2
 
In December 1994, Old Reston filed for bankruptcy.  During 
the period prior to the bankruptcy, Bucholtz paid no rent to Old 
Reston.  Instead, payment was made by the professional 
corporation to Bucholtz individually and “credited as if it was 
rents paid to Old Reston” so as to reduce the amount of the 
“debt” Bucholtz alleged was owed him by Old Reston.  Bucholtz 
maintained that he received these payments in his capacity as a 
general partner of Old Reston. 
 
Computer Based Systems, Inc. (CBSI) purchased the building 
owned by Old Reston in a foreclosure sale in July 1995.  CBSI 
acknowledged that the purchase was subject to the existing lease 
with Bucholtz.  However, CBSI disputed any obligation to honor 
the setoff provision in the lease, and thereafter Bucholtz paid 
rent, “under protest,” in accord with the terms of the lease 
into an escrow account for the benefit of CBSI.  CBSI 
subsequently sought to terminate the lease at the conclusion of 
its original three-year term.  Bucholtz responded to the notice 
of termination by giving notice of its intent to exercise the 
first three-year extension of the lease.   
 
On April 9, 1996, Bucholtz filed a petition against CBSI, 
seeking a declaratory judgment that under the terms of the lease 
it was entitled to continue setting off rent against amounts 
still alleged to be owed Bucholtz individually by Old Reston.  
The petition further sought a declaration that the option for 
 
3
the first three-year extension of the lease had been properly 
exercised. 
 
CBSI filed an answer, grounds of defense, and counterclaim, 
asserting that it had given Bucholtz notice of its intention not 
to renew the lease, which voided the tenant's option to extend 
the lease.  In the alternative, CBSI asserted that Bucholtz's 
current rental payments were less than “market rates” as called 
for in the lease, thus placing Bucholtz in default.  Finally, 
CBSI sought judgment for possession of the office space and for 
rent from March 31, 1996 at “reasonable market value.” 
 
Following a two-day hearing, the chancellor orally ruled 
that the lease was valid, CBSI had “ratified and affirmed” it 
subsequent to the foreclosure sale, and Bucholtz was entitled to 
exercise the extension option and had properly done so.  The 
chancellor further ruled, in a subsequent decree, that Bucholtz 
was not entitled to exercise the setoff provision of the lease 
“because there is no money owed by the former Lessor,” Old 
Reston, to Bucholtz.  Although Miller had testified that he had 
not made any improper withdrawals of partnership assets from Old 
Reston, the chancellor found this testimony “to be wholly 
incredible and . . . that Mr. Miller looted this partnership.”  
Thus, the chancellor found that Bucholtz's claims were against 
Miller personally. 
 
4
 
The chancellor's rulings were incorporated into a decree 
entered on November 15, 1996.  The decree further ordered that 
the parties seek an agreement on the appropriate rental at 
“market rates” for the renewal term or, in the alternative, that 
a panel of real estate brokers be selected by the parties to 
determine the appropriate rate “all to be completed within 
ninety days.” 
 
Twenty-one days later, on December 6, 1996, the chancellor 
denied a motion to stay the November 15, 1996 decree, which then 
became final.  We awarded an appeal to Bucholtz challenging 
those portions of the final decree which denied the right to 
setoff under the terms of the lease and the establishment of a 
panel of real estate brokers to determine market rates after the 
court no longer had jurisdiction over the matter.  CBSI by 
assignment of cross-error also appeals the manner in which the 
chancellor sought to determine the “market rates.” 
 
Bucholtz first contends that the chancellor erred in ruling 
that Old Reston was not indebted to Bucholtz and, therefore, 
that CBSI was not bound to honor the setoff provision of the 
lease.  We disagree. 
 
The chancellor found, and CBSI does not dispute, that CBSI 
accepted the lease as part of its acquisition of the building.  
Indeed, CBSI asserted the right to receive rent from Bucholtz 
under the lease.  Nonetheless, CBSI asserts that the setoff 
 
5
provision is not enforceable as a matter of law, because it 
would permit Bucholtz, a partner of Old Reston, to favor himself 
over the other creditors of that partnership.  We need not reach 
this issue because we agree with the chancellor that the 
evidence does not establish that Old Reston was indebted to 
Bucholtz. 
 
It is fundamental and well settled that “in the absence of 
an agreement, express or implied, between partners in respect to 
their shares in the profits and losses of the business, they are 
to share equally.”  Legum Furniture Corp. v. Levine, 217 Va. 
782, 787, 232 S.E.2d 782, 786 (1977).  Moreover, “the interest 
of a partner in the partnership assets, real and personal, is 
his share of the profits and surplus after the payment of all 
partnership debts.”  Savings and Loan Corp. v. Bear, 155 Va. 
312, 331, 154 S.E. 587, 593 (1930).  Thus, Bucholtz was entitled 
to an equal share of the profits, if any, of Old Reston and to 
have any lawful debts owed him by the partnership paid to him. 
 
In this context, Bucholtz asserts that he was attempting to 
“equalize” the “payments” by Old Reston to Miller through the 
provision for the setoff in the lease.  Yet Bucholtz himself 
concedes, and the chancellor found, that the funds taken by 
Miller were not proper partnership draws of profit, but amounted 
to embezzlement of partnership assets to the detriment of the 
partnership and its creditors.  Miller's acts clearly did not 
 
6
create a debt of the partnership in favor of Bucholtz or permit 
Bucholtz, the remaining partner, to compound the malfeasance by 
“equalizing” the amount wrongly taken by another partner.  
Accordingly, assuming, without deciding, that the liability 
imposed by the setoff clause was applicable to CBSI as the 
“Lessor” under that clause, we hold there was ample evidence to 
sustain the chancellor’s finding that no outstanding debt of Old 
Reston to Bucholtz ever existed against which the setoff could 
be applied. 
 
We turn now to the remaining issues in this case.  Neither 
party challenges the chancellor's finding that Bucholtz properly 
exercised the option to extend the term of the lease for three 
years.  Accordingly, that finding is conclusive and binding on 
appeal.  Both parties, however, challenge aspects of the 
chancellor's ruling concerning the lease provision that the 
extension would be at “market rates.”  Both parties contend that 
the chancellor erred in delegating the determination of an 
appropriate market rate to a panel of real estate brokers 
without providing for continuing control of the court over the 
issue.  We agree. 
 
Initially, we note that despite the broad power to do full 
justice usually afforded to a court sitting in equity, we are 
unaware of any authority, by statute or in common law, that 
permits the chancellor to delegate the issue before the court in 
 
7
this case to an independent panel of real estate brokers.  
Although an equity court may from time to time refer matters to 
commissioners in chancery or special masters, we are not 
persuaded that such a panel of real estate brokers as that 
appointed here is encompassed within that authority.  Moreover, 
here the chancellor lost jurisdiction over the case twenty-one 
days after entry of the November 15, 1996 decree, Rule 1:1, and, 
yet, the panel, which had not acted within that period, was 
expressly given a period of ninety days to reach a 
determination.  Under these circumstances, the chancellor 
clearly erred by permitting the panel to act on the issue after 
the court would no longer have had jurisdiction over the matter. 
 
We are left then to consider what action the chancellor 
should have taken with respect to the issue of the proper 
“market rates” of rental.  Based upon the evidence produced, 
Bucholtz contends that the chancellor erred in failing to find 
that the original rental rate in the lease was the appropriate 
rental rate for the extension period.  We agree. 
 
It is axiomatic that the failure to produce evidence on an 
issue is held against the party having the burden of proof, not 
against the party that does not have the burden of proof.  See 
Ransom v. Watson's Adm., 145 Va. 669, 679, 134 S.E. 707, 710 
(1926); Brothers Construction Co. v. VEC, 26 Va. App. 286, 298, 
494 S.E.2d 478, 484 (1998).  Here, the sole evidence in the 
 
8
record concerning “market rates” for the office space was that 
following the extension Bucholtz continued to pay, and CBSI 
accepted into the escrow account, the same rent Bucholtz had 
paid under the original term of the lease.  CBSI had the burden 
of producing evidence that this was not the “market rates” 
contemplated by the extension provision of the lease for the 
space.  Under these circumstances, the chancellor erred in not 
finding that the original lease rate was an appropriate market 
rate. 
 
For these reasons, we will affirm that portion of the final 
decree which found that Bucholtz was not entitled to apply the 
setoff provision of the lease against CBSI, thus entitling CBSI 
to the funds in the escrow account and all other rents due under 
the lease.  We will reverse that portion of the decree which 
would have submitted the determination of market rates of rental 
for the extension period to a panel of real estate brokers, and 
enter final judgment for Bucholtz declaring that the original 
lease rate is the rental rate for the first extension period. 
Affirmed in part,
reversed in part,
and final judgment. 
 
9