Court Opinion

ID: 9666989
Source: CourtListenerOpinion
Date Created: 2023-08-24 01:32:05.494932+00
Date Added: 2024-06-11T18:15:33.950720
License: Public Domain

White, J., dissenting.
I would reverse. The case is a classic example of otherwise business-wise persons signing an agreement containing words whose meanings are not readily known to them, and whose application, except in the case of the lone survivor, is disastrous.
It is obvious that the partnership was not formed in anticipation of a yearly profit. The partnership was intended to lose money (whether real or bookkeeping money), and the anticipated gain was to be made in liquidation, consisting of asset appreciation and recovery of claimed depreciation costs.
Two phrases in the agreement are the source of the trouble: “capital accounts” and “cash basis” accounting.
Capital generally consists of the difference between the book value of assets and liabilities. We know that each partner contributed $1,500 to the partnership, that no withdrawals were made, and that a fair reading of the record supports a finding that the difference between asset value and liabilities is in the $60,000 range.
We note that the rules for the cash basis accounting were not specified in the agreement, but consisted of charges to partnership income as determined by the firm’s accountant. The elimination of two items alone would establish a plus figure for the value of appellant’s interest; neither is a cash item, i.e., depreciation of the partnership building and a charge of accrued debts to a corporation wholly owned by the partners. (The propriety of the last item as an allowable deduction was sharply disputed by the two accountants who testified.)
The fairness of a system whereby depreciation is charged against a capital account but appreciation is not aside, the suggestion that there is not a mutual mistake proven when three partners enter into a pact, which as interpreted provides for financial suicide on the part of two of them, is not realistic.
In the absence of a meeting of the minds as to dissolution, I would remand the matter to the district court for dissolution proceedings in accordance with the Uniform Partnership Act.
Caporale, J., joins in this dissent.