Agency and Partnership – General Partnership – Contribution – Partnership Debt

Where the respondent general partnership sued the appellant, a partner, seeking contribution for an alleged partnership debt the partnership had incurred as a result of a debt owed to the appellant, the trial court improperly ordered the appellant to make a contribution since the 1999 settlement agreement did not rescind the 1989 indemnification agreement, which the appellant had no duty to contribute under.

Reversed.

Background

The appellant John White’s company, R.I. Inc., owned a Ramada Inn. In 1985, Everett Smith, Joe Edens and James Finley (“the partners”) decided to purchase the hotel. White agreed to sell the hotel for $4.575 million. As part of the purchase price, R.I. accepted a note of $1.3 million (“the White note”). White also received a 25 percent partnership interest in RIM Associates, the partnership formed by White and the partners “to invest in, own, and operate” the hotel. The partners financed the transaction by taking out a bank loan for the $3.275 million balance owed to White. The partners did not place any capital in the transaction, but they guaranteed 75 percent of the White note.

RIM fell behind on its payments on the White note and, in 1989, White and RIM renegotiated its terms. White extended the maturity date of the White note and the partners guaranteed it 100 percent. The parties contemporaneously entered into an indemnification agreement that provided in part: “The Partners acknowledge and agree that each Partner, as the owner of a 25 percent interest in the Partnership, is responsible for 25 percent of the Partnership indebtedness and each Partner agrees to indemnify and hold the others harmless from liability for such Partner’s share of any such indebtedness … White shall have no personal liability therefor other than to the extent of his interest in the Partnership and Edens, Smith and Finley shall not have the right to require contribution from White on account of any payment which they may have to make on the Note.”

Notwithstanding the 1989 agreement, RIM again fell behind on its payments. In 1997, White sued the partners for repayment as guarantors of the White note. The partners brought a third-party complaint against RIM, seeking indemnification for the amounts due under the White note. The partners then caused RIM to bring suit against White, seeking contribution from him in case RIM was required to indemnify the partners. The parties reached a settlement in April or June 1999. The 1999 settlement provided in part: (1) All of the pending litigation against John and Hazel White will be dismissed with prejudice; and (2) The partnership will not attempt to borrow the money to pay John and Hazel except with the prior written approval of John White.

On July 14, Edens and Smith paid $2 million pursuant to the 1999 settlement. Finley did not contribute any funds. On Aug. 5, the trial judge ordered “the action ended and dismissed with prejudice as to all parties.” RIM moved to amend the order. As a result, the trial judge rescinded that order and issued a second order that dismissed with prejudice all causes of action “by and against” White “asserted within the action,” all claims by RIM “in the Amended Fourth Party Complaint,” and all actions by White. The trial judge also dismissed all actions by the individual partners Eden, Smith and Finley against RIM but without prejudice.

In April 2000, RIM sued White. RIM’s amended complaint claimed breach of the partnership agreement and sought contribution and specific performance. Following a bench trial, the trial judge ruled that White had breached his contractual and statutory obligations to make contributions under the partnership agreement and the South Carolina Uniform Partnership Act. This appeal followed.

Discussion

White argues the court erred when it ruled that the 1989 agreement was inoperative and ordered him to contribute to RIM for its payment of the White note. We agree. The trial judge found that the parties’ 1999 settlement rescinded the 1989 agreement. We find otherwise. Any modification of a written contract must satisfy all the requirements of a contract, including a meeting of the minds. Here, there is no evidence of an agreement to rescind the 1989 agreement by implication or otherwise.

Moreover, there is no evidence that the 1989 agreement and the 1999 settlement materially contradict each other. Both documents provide that White would be a partner and share in the partnership’s profits and debts, including the White note. And both documents placed restrictions on how the White note could be paid. The 1989 agreement stated: “Eden, Finley, and Smith shall not have the right to require contribution from White on account of any payment they may have to make on the Note.” The 1999 settlement forbade RIM to borrow money to pay the White note without White’s prior permission. Although White may be required to contribute to the payment of the note, the documents, when read together, limit White’s contribution to pay the White note to his share of the funds generated by RIM and only if RIM did not default on the note.

This conclusion is reinforced by RIM’s pleading in the prior action. Paragraphs 37 and 39 of RIM’s amended third-party answer and claims states that RIM relied on White’s representation that the “[s]o-called [White note] would be a ‘cash flow,’ ‘soft’ note and would be paid from distributions from operations and refinancing of the hotel.” It is clear that the parties never agreed that White would make a capital call contribution to pay the White note.

We find that: (1) RIM had the authority to bring the current action; (2) the 1999 settlement did not rescind the 1989 agreement, and White had no duty to contribute under that agreement; (3) the 1999 litigation precludes the current action pursuant to res judicata; and (4) RIM borrowed the money to pay the White note, in violation of the parties’ agreements. The trial judge’s ruling is reversed.

RIM Associates v. Blackwell (Lawyers Weekly No. 011-069-04) (15 pages) (Beatty, J.) (SCCOA) Appealed from the Charleston County Circuit Court, Roger M. Young, J.; G. Dana Sinkler, Mark S. Sharpe, Paul E. Tinkler and R. Bruce Wallace for appellant; Richard S. Rosen and Daniel F. Blanchard III for respondent (No. 3747) (Feb. 23, 2004).