Opinion ID: 1309482
Heading Depth: 2
Heading Rank: 1

Heading: personal judgment for partner

Text: Disharoon argues that the trial court lost sight of the fact that this [was] a suit for partnership acounting, because the court's judgment orders Levy accountable to the partnership and Disharoon liable to Levy for specified sums. Disharoon relies primarily on Laddon v. Whittlesey, 44 Md. App. 19, 408 A.2d 93 (1979), for his contention that a personal judgment cannot be awarded to a partner in an action for accounting. Laddon is distinguishable. In that case, the Maryland Court of Appeals held that the trial court had committed reversible error because it addressed the personal dispute between the parties rather than the dissolution of the partnership. The court stated: [T]he [trial] court was premature in issuing its final judgment before deciding the fate of the partnership business which appears from the record extract to be in a state of purgatory still awaiting the expiation of its partners' sins. Id. at 33, 408 A.2d at 101. In this case, by contrast, the partnership was dissolved, and the equity court, assuming jurisdiction of the matter, settled the accounts of the parties, determined the outstanding and unpaid obligations of the firm, and fixed the liabilities of each partner. Disharoon incorrectly argues that a court of equity in a suit for accounting has no power to enter a money judgment against one of the parties. A court of equity has power not only to state the account between the parties, but to enter judgment in favor of one and against another as the state of the account may require. Holman v. Cape, 45 Wash.2d 205, 206, 273 P.2d 664, 665 (1954) (per curiam) (quoting Yarwood v. Billings, 31 Wash. 542, 543, 72 P. 104 (1903)). Thus, when a partner has proven expenses, a personal money judgment may be rendered in his favor. See Wright v. Ogle, 283 Or. 505, 584 P.2d 737 (1978). Although Disharoon concedes the partnership's indebtedness to TEC, he next maintains that a judgment cannot be entered against him because TEC owes him money for his share of the profits. Disharoon's position is untenable. The district court concluded that Disharoon was entitled to $32,786.84 as his share of the profits from July 1984 through April 1985. The court made allowance in the judgment against Disharoon for this amount. But as the record shows, the partnership's obligations to TEC exceeded any profits TEC owed to Disharoon. Because Disharoon voluntarily terminated his contract relationship with TEC as of April 1985, he is not entitled to any net profits accrued after that date and thus to any other credits against his liability. Alternatively, and what becomes the crux of his contention on appeal, Disharoon argues that the trial court erred in awarding Levy damages for amounts that TEC paid. For the reasons stated below, we conclude that the district court did not err in awarding Levy damages for one-half of the interest and expenses TEC paid on behalf of the partnership. The Uniform Partnership Act, NMSA 1978, Sections 54-1-1 to 54-1-43, governs the rights, duties and obligations of each partner. By letter dated July 1, 1985, Disharoon dissolved the partnership by ceasing his association with it. § 54-1-29. This dissolution, however, did not terminate the partnership's obligations and the partnership continued until the winding up of its affairs was completed. § 54-1-30. As liquidating partner, Levy advised Disharoon of his continued obligations until all partnership affairs were completed, and also of Levy's attempt to sell the lear jet in order to mitigate any further costs to the partnership. A liquidating partner can act on behalf of his former associates in matters in which they still have a common interest and are under a common liability. § 54-1-35(A)(1); see also Cotten v. Perishable Air Conditioners, 18 Cal.2d 575, 577, 116 P.2d 603, 604 (1941). Sometimes the period between dissolution and termination requires that the partnership business be conducted for the preservation of its assets. Here, in order to protect and preserve the partnership's only asset from foreclosure, Levy, through TEC, continued paying the interest on the bank note and the operating costs for the jet. Generally, a personal judgment in favor of one partner against another for outstanding obligations to third parties is improper until all the partnership assets have been converted into money, the debts paid and a final balance ascertained. Hooper v. Barranti, 81 Cal. App.2d 570, 184 P.2d 688 (1947). Under these circumstances, however, we conclude that it was not improper for Levy to obtain a money judgment for expenses and interest payments made by TEC because for all practical purposes Levy and TEC are one and the same. Cf. Moore v. Malis, 292 Ky. 106, 166 S.W.2d 52 (1942) (judgment directing defendant partner to sell partnership property that was transferred to corporation owned by defendant was proper). Levy is a majority shareholder of TEC and it was through Levy's direction that TEC continued paying interest and operating expenses on behalf of the partnership. In essence, therefore, Levy paid the partnership's obligations and incurred costs for the preservation of partnership property; he should be indemnified for his payments. § 54-1-18(B). [A] court is not always bound to regard the legal status of a corporation as an existence in itself regardless of its stockholders. Eastern Navajo Indus., Inc. v. Bureau of Revenue, 89 N.M. 369, 373, 552 P.2d 805, 809 (Ct.App.), cert. denied, 90 N.M. 7, 558 P.2d 619 (1976). The circumstances of a case may sometimes require a court of equity to disregard the corporate entity and to look to the owner as the real party in interest. State Trust & Sav. Bank v. Hermosa Land & Cattle Co., 30 N.M. 566, 240 P. 469 (1925). We therefore conclude that the district court acting under equitable principles properly disregarded TEC's corporate form and entered a personal judgment in favor of Levy. We do, however, reverse the court's determination of Levy's award for the interest payments made through February 28, 1986. The court concluded that this amount was $57,743.79. The court erred in its calculation. The correct amount is $52,945.64. [3] The trial court also erred in calculating Disharoon's liability for the December 1984 interest payment. That amount should be $4,798.21, not $4,788.21. [4] Accordingly, these amounts are adjusted in the judgment.