PRESENT: Carrico, C.J., Lacy, Hassell, Koontz, Kinser, and
Lemons, JJ., and Compton, S.J.

THE INVESTOR ASSOCIATES,
ET AL.                                     OPINION BY
                               SENIOR JUSTICE A. CHRISTIAN COMPTON
v.   Record No. 001919                    June 8, 2001

ROBERT O. COPELAND, ET AL.


       FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH
                    A. Bonwill Shockley, Judge

      In this chancery suit involving controversy among partners

of a Virginia general partnership, the central issues, driven by

application of the proper statute of limitations, deal with who

is indebted to whom and which of the partners have the right to

wind up the partnership affairs under former Code § 50-37.

      The former Uniform Partnership Act, Code §§ 50-1 through -

43.12, which was repealed effective January 1, 2000 (Acts 1996,

ch. 292), applies in this suit.   Thus, we shall refer only to

the former statutes.

      In August 1994, the following plaintiffs filed this suit:

The Investor Associates (hereinafter Investors); Herbert L.

Kramer, individually and as assignee of all rights, title and

interest of Benjamin J. Levy in Investors; Jeffrey L. Kramer;

Richard G. Kramer; and Edward A. Kramer.   Named as defendants in

the bill of complaint were Robert O. Copeland, Herbert J.

Zukerman, and Property Investments Associates, also known as

Property Investments of America, Inc. (hereinafter PIA).
     The plaintiffs alleged that by an October 1983 agreement

among the individual plaintiffs and defendants and PIA,

Investors, a Virginia general partnership, was formed.    The

plaintiffs asserted that the partnership had been dissolved by

operation of law, citing various Code sections.

     In the bill of complaint, the plaintiffs sought the

following relief:   An accounting of partnership affairs under

Code § 50-22; dissolution of the partnership by the court under

Code § 50-32, if it had not already been dissolved by operation

of law; contribution from the defendant copartners under Code

§ 50-34; an order granting plaintiffs the right to wind up the

partnership affairs under Code § 50-37; an order under Code

§ 50-38 for application of the partnership's property to

discharge its liabilities and for appropriate distribution of

the surplus, if any; and, an order under Code § 50-40 settling

the accounts among copartners after dissolution.

     The plaintiffs further requested, relying on the terms of

the October 1983 agreement, that if it were determined "there is

a cash loss of over the initial capitalization of The Investor

Associates," the loss be assessed against the copartners in the

same proportions as their percentages of ownership in the

partnership, and that a judgment be entered against each of the

copartners as their liability may appear.




                                 2
      In an answer, Copeland and Zukerman (hereinafter

defendants) joined in the bill of complaint and asked for a

formal accounting.   They asserted "it is not clear" that the

partnership had been dissolved by operation of law, but "in any

event" joined plaintiffs' motion to dissolve and to wind up the

partnership affairs.

      Further, defendants asserted that plaintiffs have spent

funds in violation of the partnership agreement and, thus,

defendants owed no funds.   Additionally, defendants asserted

that they are the proper partners to wind up the partnership

affairs and that the plaintiffs should not be allowed to wind

up.   However, defendants joined in the plaintiffs' request for

settlement of the accounts, distribution of the proceeds, and

liquidation of the partnership assets.

      Defendants affirmatively asserted "that laches and the

statute of limitations bar any claim against them from any of

their partners."   Additionally, defendants alleged that

plaintiffs "do not come into equity with clean hands and as a

consequence are barred from any contribution from their partners

. . . and are further barred from the right to wind up the

partnership or otherwise deal on behalf of the partners or the

partnership."

      In a counterclaim, defendants sought judgment against

plaintiffs, alleging that plaintiffs created unnecessary losses


                                 3
by violating the terms of the partnership agreement and that

"the Plaintiffs breached their fiduciary duties against the

Defendants."

     In a May 1996 order, the chancellor referred the matter to

a commissioner in chancery.   In a December 1996 order, the court

amended the style of the suit because plaintiff Herbert L.

Kramer had died while the suit was pending.   The other Kramer

plaintiffs as "co-personal representatives of the Estate of

Herbert L. Kramer" were substituted for the deceased, their

father, as parties plaintiff.

     The commissioner held hearings during six days from May to

October 1997, during which he heard testimony ore tenus and

received voluminous documentary evidence.   Following receipt of

arguments and briefs of counsel, as well as proposed findings of

fact and conclusions of law, the commissioner submitted a report

in September 1999.   The commissioner recommended that the court

rule against the plaintiffs and grant the defendants' request

for relief contained in the answer.

     The chancellor considered the record, the commissioner's

report, exceptions to the report, and argument and briefing by

counsel.   In a May 2000 decree, incorporating a letter opinion

and rulings from the bench that adjudicated the principles of

the cause, the chancellor confirmed the commissioner's report,




                                 4
the counterclaim having been nonsuited in March 2000.    The

plaintiffs appeal.

     The plaintiffs agree on appeal that the factual findings of

the commissioner, approved by the chancellor, are correct.

Therefore, we will summarize those findings that are pertinent

to the issues we shall address.

     In the October 1983 agreement, the Kramers, Benjamin J.

Levy, PIA, and the defendants formed Investors, capitalized for

the total sum of $200,000.   Levy, as well as Herbert L. Kramer,

was deceased at the time of the commissioner's report.    The

deceased individuals comprising Investors, and the surviving

partners, were intelligent and sophisticated businessmen,

knowledgeable about construction, law, finance, and tax matters.

     The apparent purpose of the partnership was to place

various real estate investment entities owned by the various

partners under one management, and to share in the overall

profits and losses.

     On January 1, 1984, Herbert L. Kramer, Benjamin Levy, and

the Kramer brothers (Jeffrey L., Richard G., and Edward A.)

formed another general partnership known as Kramer/Levy

Associates (KLA), not a party to this suit.   The Kramers and

Levy used KLA to loan money to various other partnerships in

which they had interests.




                                  5
     Numerous loans, advances, and other payments were made by

the plaintiffs through KLA to Investors over the years that this

arrangement continued.   None of the loans was evidenced by any

promissory note.   Checks written to and by KLA are the only

evidence of the loans.

     At the commencement of the commissioner's hearings in May

1997, the parties stipulated that Investors had no assets, and

that Levy and all the Kramers had filed for bankruptcy

protection.   The parties further stipulated that Investors was

dissolved by operation of Code § 50-31(5) (the bankruptcy of any

partner).

     Code § 50-30 provided that a partnership is not terminated

upon dissolution "but continues until the winding up of

partnership affairs is completed."   Code § 50-37 provided that

partners, "not bankrupt, have the right to wind up the

partnership affairs;" but that any partner "upon cause shown,

may obtain winding up by the court."

     The commissioner noted that all the surviving plaintiff

partners of Investors were bankrupt.   He then found that

"[a]lthough there is substantial evidence of an acrimonious

relationship between parties Plaintiff and Defendant, no

evidence has been introduced to indicate that the Defendants are

not proper persons to wind up any remaining business of the

partnership."   Thus, the commissioner recommended that the court


                                 6
adjudicate Investors had been dissolved, but not terminated;

and, that the defendants be entrusted to wind up the partnership

affairs.

     Crucial to the winding up and settlement of the accounts

will be the determination of who is indebted to whom.    On

appeal, as below, the plaintiffs take the position that the KLA

partnership was a mere "conduit" for the plaintiffs to make

loans or other advances to Investors.   Under this theory, the

plaintiffs say that Investors is liable to them for the funds

loaned or advanced.   The defendants take the position that the

Kramers and Levy loaned money to KLA, which, in turn, loaned the

money to Investors and others.   The commissioner stated:     "The

issue here boils down to determining the identity of the lender

who made the loans and/or advances to Investors, the real party

in interest.   Is the real lender to Investors the Kramer family

and/or Levy; or, is KLA the real lender to Investors?"

     The significance of this issue relates to the statute of

limitations.   According to defendants, the plaintiffs developed

the "conduit theory" in an attempt to avoid the statute of

limitations of either Code § 8.01-246(4) (three years-unwritten

contract) or Code § 8.01-246(2) (five years-written contract).

The plaintiffs, defendants point out, seek to bring their claim

within the limitations set forth in Code § 8.01-246(3), which

provides:   "In actions by a partner against another for


                                 7
settlement of the partnership account . . . within five years

from the cessation of the dealings in which they are interested

together."   The plaintiffs realize, the defendants say, that in

order to advance their argument that § 8.01-246(3) governs, they

must convert the loans from KLA, which clearly was not a

partner, to loans from a partner.     Hence, the Kramers created

their conduit theory.

     In order to determine the identity of Investors' lender,

the commissioner reviewed the evidence.    He focused upon

bankruptcy schedules filed by the Kramers under penalties of

perjury.    The commissioner reported that the schedules "do

reflect adversely on their credibility in this proceeding as do

the Plaintiffs' (including the deceased Mr. Kramer's) income tax

returns, financial statements, the estate tax return for the

deceased Mr. Kramer, the books of Investors, the books of KLA,

and their attempts to explain them away."

     The commissioner said:    "In short, all of the records of

Investors and KLA, including KLA's tax returns, show that the

money went from the Kramers to KLA . . . to Investors.    In all

of these documents, the Kramers treated the money as a loan from

them to KLA and not as a loan to Investors.    Further, the

Kramers treated the money as a loan from KLA to Investors, as

did KLA."




                                  8
     The commissioner further found that the Kramers, KLA, and

Investors "are or were (at all pertinent times) distinct legal

entities."   He said that assertions on financial statements,

estate tax returns, income tax returns, books of account, and

other business records "all mean something."   The commissioner

observed:    "We cannot simply disregard the Plaintiffs' course of

conduct over the many years that Investors and KLA operated, nor

can we disregard same based on the Plaintiffs' testimony that

the use of KLA was a convenience."

     In concluding that the debt of Investors was in favor of

KLA, not the plaintiffs, the commissioner stated that "the over-

riding factor appears to me to be the way in which the

Plaintiffs have changed their perception of what has occurred in

the past, a past fully documented by the Plaintiffs' records and

other records not technically theirs but records of business

entities under their control."

     Among other issues reported upon, the commissioner made no

finding or recommendation relative to the statute of limitations

question, but observed that the three-year limitation found in

Code § 8.01-246(4) controls both the KLA and Copeland loans to

Investors.

     In her February 2000 letter opinion confirming the

commissioner's report, the chancellor ruled that the partnership

was dissolved upon the Kramers filing bankruptcy, that


                                  9
defendants are entitled to wind up the partnership affairs, and

that the Investors' debt is owed to KLA, not the Kramers.    While

the commissioner found that the clean hands doctrine had been

violated by the plaintiffs, the chancellor saw no "need to

reach" that question, or others raised by the parties.

     During a March 2000 hearing, the trial court considered the

statute of limitations issue.   Following argument of counsel,

the court ruled from the bench that the three-year limitation

period governing oral contracts controlled, and that the

partners responsible for winding up the affairs of the

partnership are entitled to invoke that defense on behalf of

Investors.

     All the foregoing rulings were incorporated in the May 2000

order appealed from, including the decision that, in winding up

the affairs of Investors, the defendants "do not have to pay the

debts due Kramer/Levy Associates or Robert Copeland, because the

debts are barred by the three year statute of limitations."

     On appeal, the plaintiffs first contend the trial court

erred when it ruled that Investors' debt is owed to KLA, and not

to the Kramers individually.    There is no error in this ruling.

     "When a report of a commissioner in chancery who heard

evidence ore tenus has been fully approved by the trial court,

the decree of the court confirming the report is presumed to be

correct and will not be reversed on appeal unless plainly


                                 10
wrong."   Ward v. Harper, 234 Va. 68, 70, 360 S.E.2d 179, 181

(1987).   Upon review of such a decree, the appellate court's

duty is to determine whether the conclusions of the

commissioner, approved by the chancellor, are supported by

credible evidence.   Id.

     A further discussion of the evidence is unnecessary to

demonstrate the obvious, that is, the factual findings upon the

foregoing issue are fully supported by the evidence.   Agreeing

that the commissioner "made the factual finding, consistent with

the undisputed evidence, that all loans and advances to

[Investors] were made by the Kramers funneling money through

[KLA]," the plaintiffs nevertheless persist to advance the

theory that KLA performed mere "conduit" functions.    Without

citing any law directly supporting their idea, the plaintiffs

argue that KLA "was the Kramers' agent, created for the purpose

of administering the Kramers' contractually required loans made

to or for the benefit of [Investors] and any other investments

in which the Kramers and Levy were jointly interested."   This

argument is no more than an attack upon the factual findings

below, which are supported by credible evidence.

     Second, plaintiffs contend the trial court erred in ruling

that defendants should wind up Investors' affairs.    They argue

that they have shown "cause" under Code § 50-37 to be entitled

to wind up because defendants will plead the statute of


                                11
limitations eliminating their individual liability for their

debt to Investors, and the plaintiffs will not.   There is no

merit in this contention.

     As we have said, Code § 50-37 provided that partners who

are not bankrupt have the right to wind up the partnership

affairs, but the court may allow any partner, "upon cause

shown," to wind up.    The phrase, "upon cause shown," does not

mean just any cause.   The statute vests the court with the

discretion to select which partners will wind up, giving

preference to partners who are not bankrupt.

     Here, the defendants are the only nonbankrupt partners.

The fact that they will perform their fiduciary duty to plead

available defenses eliminating liability to Investors, including

their own, does not disqualify them from serving, nor does it

justify a finding that the trial court abused its discretion.

     Finally, plaintiffs contend the trial court erred in ruling

that defendants are entitled to raise on behalf of Investors "a

defense that a three year oral contract statute of limitation

bars [KLA's] claim against [Investors] on the debt."   In the

same vein, plaintiffs contend the trial court erred by ruling

that defendants, in winding up, do not have to pay their share

of Investors' debt because the debt is barred by the three-year

statute of limitations.   We disagree with these contentions.




                                 12
     As we already have indicated, partners owe each other a

fiduciary duty in winding up the partnership affairs.   Code

§ 50-21(1) expressly provided that one partner is accountable to

the others as a fiduciary for "any transaction connected with

the . . . liquidation of the partnership."    Thus, the trial

court correctly ruled defendants may raise the statute of

limitations defense on behalf of Investors.

     Moreover, the trial court correctly decided that the three-

year statute of limitations for oral contracts set forth in Code

§ 8.01-246(4) governs, and bars KLA's claims.   At issue is the

recovery of debts to be included in the accounting and the

statute of limitations against a creditor, of which KLA is one.

The sums paid by KLA were demand loans made by checks premised

on an oral contract, the right of action accruing and the

statute of limitations commencing to run on the date of the

checks without any formal demand.    See Guth v. Hamlet Assoc.,

230 Va. 64, 72, 334 S.E.2d 558, 563-64 (1985) (demand note

matures and is payable at once, and interest and statute of

limitations commence to run on that date); former Code § 8.3-

104(2)(b).   Accord Bell v. Alexander, 62 Va. (21 Gratt.) 1, 6

(1871) (check is obligation payable on demand).

     In summary, we hold that the trial court committed no error

in deciding the foregoing issues.    And, we have considered the




                                13
remaining arguments made by plaintiffs, and have determined they

are without merit.

     Consequently, we will affirm the order appealed from and

will remand the cause to the trial court for such further

proceedings as may be necessary to wind up the partnership

affairs.

                                           Affirmed and remanded.




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