Morris v. Goldsmith, No. S1559-02 Cncv (Katz, J., May 13, 2004)



[The text of this Vermont trial court opinion is unofficial. It has been
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STATE OF VERMONT
Chittenden County, ss.:




MORRIS

v.

GOLDSMITH



                                  ENTRY

        In 1987 parties formed a partnership. Its purpose was to develop and
sell the Dyke’s Farm property, which defendant Goldsmith contributed.
They agreed to split the profits of this venture 90/10, with the lion’s share
going to defendant. According to the agreement, plaintiff Morris would
manage the development of the property. Plaintiff did this for the first few
years but ceased these duties around 1994. Defendant took over the duties
of management and stopped paying plaintiff his share of the profits.
Plaintiff now seeks remuneration for his share of the profits between 1994
and 2001. He has also made a motion to exclude any evidence of the
partnership other than defendant’s federal and state tax returns.
        Neither party disputes the formation of the partnership by oral
agreement. As defendant correctly notes, this is a permissible method of
formation. 11 V.S.A. § 3201(7) (defining a partnership agreement to
include oral, written, or implied agreements); Raymond S. Roberts, Inc. v.
White, 117 Vt. 573, 577–78 (1953) (discussing partnership formation).
Once a partnership is formed, it becomes an entity separate from the
partners and persists until it is dissolved or wound up. 11 V.S.A. §§ 3211,
3271; see also Unif. Ptrship. Act (1997) § 801 cmt.1, 6 Unif. L. Ann. 98
(Supp. 1999) (noting that the “entity theory” inhibits partnerships from
readily dissolving). A partner may also be dissociated, which allows the
partnership to nevertheless persist. 11 V.S.A. §§ 3251, 3253; Unif.
Ptrship. Act (1997) § 601 cmt.1, 6 Unif. L. Ann. 85 (Supp. 1999). In this
case, the parties never dissolved, wound up, or formally dissociated prior to
2001. Defendant has alluded to the fact that plaintiff “dissociated” himself
from the partnership when he stopped performing his tasks. Dissociation,
however, is a technical term of partnership that was introduced by the 1997
revisions. 11 V.S.A. § 3253; Unif. Ptrship. Act (1997) § 601 cmt. 1, 6
Unif. L. Ann. 85 (Supp. 1999). As defined, dissociation allows a partner to
leave or be expelled from a partnership by the partner’s explicit notice,
wrongful conduct, or similar pre-agreed terms. 11 V.S.A. § 3251; Unif.
Ptrship. Act (1997) § 601, 6 Unif. L. Ann. 84 (Supp. 1999) (listing ten
events causing dissociation). Here, plaintiff did not express any desire to
leave the partnership. Instead, he did nothing, which is not the same thing.

        Defendant makes much of the fact that plaintiff stopped working.
He argues that plaintiff was remunerated with his 10% share of the profits
for the time he worked and was cut off when he stopped. This mis-
characterizes the relationship between partners and their right to profit.
Partnership is about sharing the risks, rewards, and losses of a business. 11
V.S.A. § 3231; Raymond S. Roberts, Inc., 117 Vt. at 578 (partners are
jointly and severely liable for partnership debts); see also Jennison v.
Bierer, 601 F. Supp. 1167, 1177 (D.Vt. 1984) (partnership imposes a
fiduciary relationship on each partner that does not end until the partnership
affairs are fully settled). As long as he was a partner, plaintiff had an
inherent right to his share of the profits. 11 V.S.A. § 3231(b). These
profits are not tied to remuneration because partners are not entitled to
remuneration for services performed for the partnership. 11 V.S.A. §
3231(h). When plaintiff stopped working, he did not become ineligible for
his share of the profits because they were not his remuneration. To
characterize them otherwise would contradict plaintiff’s status as a partner
and violate his right to share in the profits of the partnership.

        Instead, the question is whether the partnership continued after
plaintiff’s cessation of management responsibilities in 1994. To prove that
the partnership persisted and that defendant did not end it or formally
dissociate, plaintiff seeks to submit the defendant’s federal and state tax
forms. According to plaintiff, these tax forms demonstrate that the
defendant considered the partnership on-going because he continued to
include plaintiff’s 10% share of the profits. This is valid evidence of what
defendant did or did not do with regards to the partnership.

       Plaintiff would also like to make these documents the sole written
evidence of the partnership agreement through the parol evidence rule.
There are two problems with applying this rule to the tax returns. First, the
tax returns are not a contract as required by the rule. 11 S. Williston & R.
Lord, A Treatise on the Law of Contracts § 33:1, at 558 (“[The parol
evidence rule] applies only where there is a binding, written contract.”).
The tax returns are a unilateral filing made by defendant. Plaintiff did not
see, sign, or ratify these documents. The defendant may have drafted them
based on his understanding of the partnership, but he did not intend them to
create a binding instrument. Without this mutual intent to bind themselves,
the tax returns cannot be considered as an independent source of
enforcement on the parties. Id. Second, even if the documents could be
considered to represent the agreement, they are not fully integrated. Id. at §
33:14. The purpose of the parol evidence rule is to exclude extrinsic
evidence of prior or contemporaneous negotiations or drafts once parties
have agreed to and signed a final agreement that integrates and nullifies all
previous or current statements. Id. at § 33:1. The rule is intended, not to
keep out all other evidence, but merely to acknowledge the elevated
authority of a written, final contract over contradictory evidence generated
in its formation. Isbrandtsen v. North Branch Corp., 150 Vt. 575, 579 n.*
(1988). Here the tax returns, while supporting plaintiff’s theory that the
partnership was on-going, do not intend to be a final agreement about the
nature of the partnership. They may demonstrate what the defendant
understood the agreement to be, but they are not, in and of themselves, the
final statement. Both parties agree that this partnership was formed through
an earlier oral agreement. The tax returns may supply evidence to
supplement this agreement, but they do not supplant it. Therefore, the parol
evidence rule is inapplicable to the tax returns.

      Plaintiff’s motion in limine and motion for summary judgment are
denied.

       Dated at Burlington, Vermont________________, 2004.
________________________
Judge
