Opinion ID: 2206450
Heading Depth: 1
Heading Rank: 1

Heading: Partnership v. Corporation

Text: Although there are several other substantial issues, the overriding question in this case concerns the form of the business intended by the partiescorporate or partnership. The resolution of this dispute is made difficult by the vacillating testimony of the principals throughout this ongoing battle. Neither side comes away with much credibility; both shifted positions from time to time as best suited their immediate purpose. Dealing with Bitter's ambivalence first, we note he organized a corporation under the name of Gomer's, Inc., took title to the real estate in that name, gave a title opinion to obtain a $50,000 mortgage certifying the corporation as the fee simple owner, and advised the Smiths the corporate form should be used to avoid personal liability. Now Bitter disavows the corporation, says it was never viable, and insists the three principals always intended the tavern to be operated as a partnership venture. Bitter, however, isn't the only one to change course. In an apparent effort to obtain control of the business, the Smiths, too, abandoned the position they earlier espoused. Originally the Smiths represented themselves to be partners, filed tax returns as a partnership, took out a beer license in their individual names, and did not object when Bitter made representations of which they were aware to several lending institutions that the business was a partnership. Now they brush all this aside and insist the business was a corporate venture. The prize of all this, of course, is control over the business, a vital concern now that Bitter is an unwelcome associate. Clearly Bitter, as a one-third partner, would be in a much stronger position to protect his interest than if he owns one-third of the stock in Gomer's, Inc. The trial court found Joseph J. Smith, Steve J. Smith, and Joseph J. Bitter each owned a one-third interest in the business and all its assets. There is no appeal from this ruling. The question thus becomes this: What did each own a one-third interest ina partnership or a corporation? In attempting to determine the intended form of ownership, the trial court faced the same impasse that confronts us. The court attempted to reconcile the differences and conflicting testimony by holding the business operated as a partnership until November 1, 1977, and as a corporation after that date. We must reject this solution, appealing as it is on practical grounds. If there was a partnership until November 1, 1977, then there was a partnership after that date as well. Nothing happened on November 1, 1977, to convert the business from one form to another. We have purposely ignored until now the circumstance which is determinative of this dilemma. It lies in the pleadings. In two separate instrumentsthe plaintiffs' reply to defendant's answer to their petition and the plaintiffs' answer to Bitter's counterclaimthe Smiths admitted the existence of a partnership. In the first of these, Bitter amended his answer to plaintiffs' petition for declaratory judgment to allege the parties entered into an oral partnership agreement for the purpose of owning and developing a tavern in the City of Dubuque, Iowa. The Smiths filed a reply admitting this allegation. A similar concession was made in plaintiffs' amended answer to Bitter's cross-petition for declaratory judgment. There the Smiths admitted that if plaintiffs and Joseph J. Bitter would make equal financial or other contributions to the partnership, each of said parties would hold a one-third interest in said tavern. (Emphasis supplied.) The rule is well settled that admissions in the pleadings, if not amended or withdrawn, stand as conclusive proof of the admitted facts. The party making them is bound thereby. No evidence is needed to establish them. Long v. McAllister, 319 N.W.2d 256, 258 (Iowa 1982); Hanson v. Lassek, 261 Iowa 707, 709-10, 154 N.W.2d 871, 972-73 (1967). These admissions in the pleadings establish that the parties intended the business to be operated as a partnership. This holding is limited to the tavern business only and does not extend to ownership of the real estate, which is discussed in Division II. We reverse that part of the judgment holding the business to be a corporation after November 1, 1977.