Opinion ID: 2042978
Heading Depth: 1
Heading Rank: 6

Heading: Bendewald's Interest.

Text: As his first issue, Bendewald argues that the trial court should have ruled that he was entitled to redeem a one-half interest in the resort, the total interest purchased by the Bendewald-Olson partnership. The trial court concluded that the partnership between Bendewald and Olson was terminated in September, 1988, when Olson left the partnership. The court went on to conclude that Olson was free to sell his one-fourth interest in the resort, and that accordingly, Bendewald retained only a one-fourth equitable interest. The resolution of this issue depends on the ability of a partner who has withdrawn from the partnership to convey real property of the partnership after the partnership has been dissolved, but before it has been wound up. As a preliminary matter, it is well established that the terms dissolution and termination represent separate and distinct concepts under the Uniform Partnership Act (UPA), SDCL chs. 48-1 to 48-5. 59A Am.Jur.2d Partnership § 809 (1987). Dissolution is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business. SDCL 48-5-1; 59A Am.Jur.2d Partnership § 808; 68 C.J.S. Partnership § 330 (1950). Termination represents the point in time when all partnership affairs are settled or wound up. 59A Am.Jur.2d Partnership § 809. After dissolution, the partnership continues and terminates only when the process of completing and settling all partnership business has taken place. SDCL 48-5-2; 68 C.J.S. Partnership § 330. When Olson told Bendewald that he was leaving the partnership, their relationship as partners was dissolved. The two men did not, however, wind up the partnership affairs. They did not settle their accounts with creditors or otherwise agree to dispose of the assets of the partnership. After he left the partnership in September, 1988, Olson did personally pay one outstanding bill, and Bendewald did offer to buy out Olson's interest for $5,000, but he never did so. Because there was no winding up, the partnership was not terminated. SDCL 48-5-2. The trial court concluded that when Olson told Bendewald he was leaving the partnership, the partnership was then terminated by oral agreement of the partners, relying on our decision in Martinson v. Holso, 424 N.W.2d 664, 667 (S.D.1988). In Martinson, we held that the UPA does not prohibit the initial partnership agreement or an agreement to dispose of assets on the death of a partner from being orally made. 424 N.W.2d at 667. Our decision went on to hold that termination of the partnership is not necessary where there is an oral agreement for the surviving partners to take all partnership assets and for the partnership to continue rather than dissolve. Id. at 669. Martinson did not hold that an oral agreement between members of a partnership is sufficient to terminate the partnership. The trial court erred in ruling that the partnership was terminated. It is undisputed that the resort, which was held in the name of both Bendewald and Olson, was partnership property. See SDCL 48-4-1, 48-4-8. The facts here require us to determine whether Olson had the power to assign specific partnership property after dissolution. [2] Dissolution of a partnership does not terminate a partner's right to share in partnership assets. In re David, 54 F.2d 140 (S.D.Fla.1931). However, dissolution does not change the status of firm property as an asset of the partnership. Zimmerman v. Harding, 227 U.S. 489, 33 S.Ct. 387, 57 L.Ed. 608 (1913). During the life of the partnership, each partner has an equal and undivided interest in the real property of the partnership, referred to as a tenancy in partnership. SDCL 48-4-11, 48-4-12. There are two incidents of the tenancy in partnership: (1) the interest of each partner in specific partnership property is put beyond the reach of the partner's separate creditors; and (2) the interest of each partner in specific partnership property is non-assignable. Annotation, Construction, Application, and Effect of Uniform Partnership Act, § 25(2)(b), Relating to Non-assignability of Partner's Right in Specific Partnership Property, 39 A.L.R.2d 1365, 1367 (1955) ( Construction of UPA § 25(2)(b) ); SDCL 48-4-13. The UPA deprives a partner of all power of separate disposition of specific property of the partnership. Windom Nat'l Bank v. Klein, 191 Minn. 447, 254 N.W. 602 (1934). Consequently, any attempt by a partner to assign or otherwise convey his or her right is a nullity and void. [3] Id. ; Shapiro v. United States, 83 F.Supp. 375 (D.Minn.1949). Nowhere in the UPA is the rule of nonassignability abrogated for assignments after dissolution, and accordingly, in the absence of an express exception, the same rule should be applied for both going partnerships and dissolved (but not wound up) partnerships. The reasons supporting this rule demonstrate its necessity. The purpose of the act is plain that all partnership property is to be kept intact for partnership purposes and creditors. ..... The reasons for the nonassignability by one partner alone of his interest in specific partnership real or personal property may be summarized as follows: (1) it prevents the interference by outsiders with the conduct of partnership business and the possession, management, and disposition of partnership property; (2) partnership is a voluntary relationshipa person may not have a partner thrust upon him [or her] without his [or her] consent; (3) it is often impossible to measure a partner's beneficial interest in a specific partnership asset; (4) neither other partners nor firm creditors may be deprived of the right to have all firm assets applied to the payment of firm debts; (5) a creditor of one partner may not attach or in any way acquire a lien on specific partnership property to the exclusion of firm creditors or creditors of other partners. Goldberg v. Goldberg, [375 Pa. 78, 99 A.2d 474 (1953) ], 39 A.L.R.2d 1359. Construction of UPA § 25(2)(b), at 1367. The effect of Olson's assignment would be to deprive the partnership of its primary asset to be applied to discharge its liabilities when it winds up. While the dilemma faced by Olson was a difficult one, the UPA provides an alternative for just such situations. Olson had the right to seek an accounting from the date of dissolution and to seek a judicial winding up of the partnership. SDCL 48-5-28, 48-5-56. Because Olson lacked the power to assign or otherwise convey his interest in specific real property of the partnership, the assignment and quitclaim deed purporting to transfer his interest in the resort are null and void. Olson could have assigned his interest in the partnership itself but did not. See SDCL 48-4-19. Thus, the dissolved Bendewald-Olson partnership retained the entire one-half interest in the resort, subject to the winding up of the partnership. In the foreclosure action brought by Jade, then, Bendewald was entitled to redeem a one-half interest in the resort, the total equitable interest held by the partnership. Thus, the trial court's ruling that Bendewald could redeem only a one-fourth interest was erroneous.