Opinion ID: 1700164
Heading Depth: 1
Heading Rank: 1

Heading: C. 1058The B-D Partnership

Text: This court feels that the proper starting point is the partnership dissolution. We are well aware that Brown has petitioned for writs of mandamus and that Bateh, and other appellees, have filed motions to dismiss. Why we have postponed discussion of these will become apparent. Let us first examine the positions of the parties and their contentions as to the dissolution of the partnership and the distribution of the assets and liabilities. This case began on March 7, 1968, when Brown filed a petition to dissolve the partnership. He desired that the lands be sold and all proper charges paid, and the balance distributed to the partners. Bateh, in his answer, agreed with this. On May 18, 1971, Brown amended his complaint to change the prayer from a sale for division of the partnership real property to a partition or division in-kind. His prayer still requested that only the lands in excess of those needed to pay the debts of B-D be partitioned. This amendment came after a strong suggestion by the trial judge that there be an in-kind division. Bateh v. Brown at 711, 271 So.2d at 837. Brown's initial assignment of error is that the trial judge failed to conduct a new trial after Justice Merrill's reversal and remand. Brown's position is that this court reversed the decree in toto and ordered a new trial if the case were not settled. At the first trial there was insufficient evidence in the record to support the decree and the trial judge failed to follow the dictates of Title 43, § 31. Bateh's answer is that a trial judge's failure to rule is not reviewable. Judge Barber did not respond to Brown's motion requesting that the litigation be set for trial promptly. Since the judge did not rule adversely to him, Brown has no ruling from which to appeal. Brown's replication to this is that the trial judge did not merely fail to rule on a motion; he failed to obey the explicit mandate of this court. Failure to set a case for trial is always reviewable. Justice Merrill felt a new trial was necessary to develop the evidence needed to effect a fair distribution of the partnership assets. The only evidence subsequent to remand was Brown's statement given on a Petition to Order Collection of National Filtronics, Inc., Promissory Notes. This statement has little relevance to the value of the partnership assets. Bateh asserts that in the context of the present appeal by Brown, as opposed to the prior appeal by Bateh, there are admissions, pleadings and waivers of objection which are competent against Brown, and which are legally sufficient to sustain the decree. Brown, it is argued, did not object to the scheme of partition in the former decree. Consequently he waived any objection to such scheme. The prior scheme of distribution differs only in two details, the handling of certain parcels of land and the treatment of National Filtronics stock. Bateh claims that Brown has sworn in an affidavit and implied in open court that the parcels of land are interchangeable in value. The change in the National Filtronics stock distribution was made to settle an imbalance in capital accounts. Brown has not objected to this since he has gotten more than his share; he wants only to postpone collection. Bateh notes that he, Bateh, has waived his claim to more of the National Filtronics stock award in the interest of reaching a speedy settlement. At first glance we would agree with Brown that Judge Barber should have set the cause down for trial when no compromise was reached after remand. According to Justice Merrill a new trial should have been held for the taking of evidence as to the value of the partnership assets to be sold or distributed. Any failure by a trial judge to follow an order of this court is, without question, open to review. A complete trial de novo need not have been held, we believe, if Judge Barber satisfied the evidentiary requirements, or if the parties bound themselves to certain valuations by their pleadings and actions. Brown's second assignment of error is that Judge Barber erred once again in ordering an in-kind distribution of the partnership assets, and in dividing the partnership debts between the individual partners. First, it is to be noted that the Alabama Partnership Act, Title 43, § 5(38) and (40), is inapplicable, as litigation began prior to the Act's effective date of January 1, 1972. The controlling section of Alabama law, thus, is Title 43, § 31, which reads as follows: Each member of a partnership may require its property to be applied to the discharge of its debts, and has a lien upon the shares of the other partners for this purpose, and for the payment of the general balance if any due to him. How is this section to be interpreted? To simplify the positions of the antagonists, Brown believes that this section requires that the partnership assets be sold or distributed in-kind to the creditors. After the creditors have been provided for, then the remaining assets can be distributed to the individual partners, either in-kind, or sold and the proceeds divided. Bateh takes the opposing view. Title 43, § 31 allows an in-kind distribution of the partnership assets and liabilities as long as the creditors are protected. If the in-kind partition is fair and supported by the evidence, if it is approved by the creditors, and if it is accepted by the chancellor in equity, then it is to be upheld by this court. Bateh argues the proposition that upon dissolution of a partnership and payment of creditors, the former partners become tenants in common with respect to the partnership property. Partition is a matter of right, and property cannot be sold for division except upon averment and proof that the property is incapable of equitable partition in-kind. Howard v. Harrell, 275 Ala. 422, 155 So.2d 525 (1963). The burden of proving that the instant property cannot be equitably partitioned must be affirmatively carried by the party seeking a sale for division. Elliott v. Burch, 293 Ala. 244, 301 So.2d 557 (1974). Brown did not object to the partition scheme put forward by one Morton who was the court-appointed manager, commissioned to report to the trial court and suggest a partition in-kind. Brown did apply for a rehearing after the decision on remand, but did not appeal the denial of his motion. Consequently he is bound by Morton's report, which should have the same weight as a jury verdict. We would propound a slightly different interpretation of Title 43, § 31. We agree that partition is a matter of right between tenants in common. Where land cannot be partitioned equitably, an equity court has jurisdiction to sell it for division among the joint owners or tenants in common. Whereas partition is a matter of right, sale for division is statutory; it must be proven that a fair and equitable partition cannot be made. Adams v. Mathieson Alabama Chemical Corp., 262 Ala. 166, 77 So.2d 667 (1954); Meador v. Meador, 255 Ala. 688, 53 So.2d 546 (1951). We would emphasize, however, that the right to partition in partnership dissolution does not arise until after the creditors have been satisfied. Obviously the creditors have a right to have their demands satisfied out of partnership property. But also, as Brown forcefully urges, and Bateh admits somewhat obliquely, a partner has a right to demand that the partnership property first be applied to the satisfaction of partnership debts. Granted, a partnership creditor can sue any partner individually for the payment of all or part of a partnership debt. A partnership debt is, admittedly, the joint and several obligation of the partners. Yet Title 43, § 31 plainly gives a partner the right to require that the partnership property be applied to the payment of partnership debts. If his individual property has been used to satisfy such debts, he has the right to indemnification from partnership property. The policy behind Title 43, § 31 was that partnership property be used to pay partnership debts; separate individual property, to pay private debts. A partner has a right to protect his private property from the demands of partnership creditors, if there is partnership property that can satisfy the partnership debts. This is what Brown wants; he has stated in his reply brief that either partition or sale for division is acceptable, once the creditors' demands have been satisfied from the partnership assets. He does have such a right to demand that the creditors first be satisfied, as we interpret Title 43, § 31. Whether he has waived his rights, as Bateh asserts, by his conduct or his formal pleadings, is another question. Brown's next assignment of error argued in brief is that Judge Barber erred in stopping Brown's suit for surplus collateral after a mortgage foreclosure by the First National Bank of Birmingham. Since this alleged error constitutes the bulk of Brown's appeal in S.C. 1058-B, it will be discussed later. A further assignment of error is that the trial judge failed to enter separate decrees in the three cases. Justice Merrill, in his opinion remanding the case, stated that In the event it is seen proper to consolidate the cases for the taking of testimony, separate decrees should be entered in the two cases. Bateh v. Brown, at 699 and 712, 271 So.2d 845. Separate decrees were not entered, Brown points out; in fact, a third case was consolidated and dealt with in the final decree. Bateh answers that the final decrees recited that the cases were consolidated. Brown replies that the partnership case and the Bank case were ordered consolidated, but no order was ever entered consolidating these two with the corporation case. Bateh's rejoinder is that separate decrees were entered; each transcript shows this. Brown's surrejoinder is that the identical decree was typed three times. Bateh rebuts that the decrees are as responsive as possible to the issues and the parties' pleadings and claims, given the nature of the parties' businessa hodge-podge of inter-related transactions. Furthermore, Brown has not been harmed by the decrees being identical and he requested consolidation of the partnership and the Bank cases, and his attorney consented to an order consolidating the partnership and corporation cases. The following assignment of error is concerned with the option apparently given to the creditors and to Bateh to set aside the final decree if Brown petitioned for a rehearing or appealed. Brown's argument is that Judge Barber impaired his statutory right to appeal; such action was prejudicial on its face. Bateh responds that he, Bateh, has waived any right to invoke this portion of the decree. No other party has attempted to have the decree set aside because of Brown's appeal. Brown cannot complain of prejudice, since he has actually appealed. In fact, this portion of the decree could be construed to benefit Brown, since if anyone exercised his option to set the decree aside, Judge Barber would order an immediate sale of the partnership assets, which is what Brown supposedly wants. Brown's final assignment of error is directed at what he calls an automatic judgment granted in favor of Joseph A. Bateh, Jr. against Brown and Bateh, Sr., $15,000 plus interest against each. Brown's position is that a judgment had been rendered against Bateh, Jr. in a separate action and upheld by this court on appeal. Bateh v. Brown, 293 Ala. 704, 310 So.2d 186 (1975). Brown's argument seems to be well-taken on its face. Bateh counters that res judicata or collateral estoppel is an affirmative defense, and must be timely raised, if not apparent on the face of the complaint. Brown, it is alleged, did not raise this properly. Brown's response to this allegation is that he could not be required to raise an affirmative defense when no pleading, or claim had been filed by either of Bateh's sons. Res judicata could not have been put into issue until after Judge Barber entered the judgment in favor of Fred Bateh and Joseph A. Bateh, Jr. in his final decree. Brown is absolutely correct in his assertions. Bateh's sons are prohibited by res judicata or collateral estoppel from their claims. Judge Barber erred in granting judgment in their favor when they had lost their suits at the trial level and in this court. Brown, nevertheless, cannot get off scot-free. A short analysis of the former suits will explain. Bateh, Jr. and Fred Bateh sued the B-D partnership in Jefferson County, seeking as cumulative relief the return of 75,000 shares of Southeastern Enamaling Company (SECO) stock. Joe's suit sought either the return of 37,500 shares or $30,000 for money had and received; Fred sought only the return of the stock. In an affidavit in support of his motion for summary judgment, Brown swore that the $30,000 allegedly delivered to B-D Development Company (a partnership comprised solely of Joseph A. Bateh, Sr. and the affiant) by Joseph A. Bateh, Sr. (the father of the plaintiff) [allegedly delivered by the father to purchase the SECO stock for his sons] in 1966 was in fact and in truth a loan by the said Joseph A. Bateh, Sr. to B-D Development Company . . . The jury returned a verdict in favor of the defendants, the partners. Trial Judge James O. Haley entered a memorandum opinion on September 20, 1973, the same day judgment was entered. His opinion was that . . . the jury's verdict and the judgment rendered thereon necessarily amounted to a finding by the jury and a judicial determination by the judgment that the Thirty Thousand ($30,000) Dollar item on the books of B-D Development Company as an account payable to Joseph A. Bateh, Jr. was in truth and fact an advance made by Joseph A. Bateh, Sr. to the partnership and this is an item that should be considered in settling the partnership account. This court agreed with Judge Haley's analysis, for it affirmed the lower court decision, but pointed out, in Justice Jones' words that Bateh, Sr., put up $30,000 toward the purchase price, all or substantially all of which came from a `common pool' which the Bateh family, including Joe and Fred, jointly maintained. Bateh v. Brown, 293 Ala. 704, 707, 310 So.2d 186, 188 (1975). As we stated above, Judge Barber erred in the portion of his final decree granting judgment in favor of Joseph A. Bateh, Jr. This error was harmless. What Judge Barber should have done was to consider the $30,000 as a loan to the partnership by Joseph A. Bateh, Sr. and figured this in when balancing the capital accounts.