Opinion ID: 2058658
Heading Depth: 2
Heading Rank: 1

Heading: The Underlying Transactions

Text: The complaint alleges that on or about September 30, 1973, appellees Charles R. Jenkins and William E. Esham, Jr. formed a limited partnership with Robert S. Bounds [1] called Herring Landing Limited, in which they were the general partners. Under the agreement, there were three general partnership shares and seventeen limited partnership shares. The purpose of the partnership was to acquire title to certain real property located in West Ocean City, Maryland, for investment and development. Appellants Hugh H. Smith, C. Alexander Hewes and Augmentation, Inc., a Maryland corporation, allegedly signed on as limited partners on October 31, 1973, with the understanding that the purchase price of the property was to be $400,000. Nevertheless, on November 8, 1973, the property was sold for $300,000 to the Skyline Development Corporation, a company controlled by appellee Jenkins. In the same transaction, Herring Landing Limited purchased the property from Skyline for $400,000, allegedly without the knowledge of appellants. Skyline thereafter executed a check to appellee Bounds for $49,000. In the fall of 1976, Bounds, in violation of the partnership agreement, secretly and without the knowledge or consent of Jenkins or Esham undertook to assign his limited partnership shares in Herring Landing Limited to Dr. Rufus Johnson as collateral for a debt. In April 1977, Dr. Johnson, concerned with Bounds' financial difficulties, met with Jenkins and Esham and offered to purchase their partnership shares for $25,000 each, thereby becoming sole general partner in Herring Landing Limited. To pay for the shares, Dr. Johnson, his wife, and Ocean Holiday Investments, Inc., a corporation controlled by Dr. Johnson, executed two promissory notes. After Dr. Johnson agreed to purchase the general partnership shares but before consummation of the agreement, Jenkins and Esham transferred the funds in the partnership's bank account to the trust account of the partnership's attorney, Paul Ewell, with instructions to distribute the funds among the then-existing partners after paying all outstanding bills. The transaction between Dr. Johnson and appellees was completed on May 16, 1977. However, upon learning that the partnership funds had been distributed to the former partners before the deal was closed, Dr. Johnson, acting through Ocean Holiday, demanded that they repay the partnership monies.