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CASE 31-3
HORIZON/CMS HEALTHCARE CORPORATION v.
SOUTHERN OAKS HEALTH CARE, INC.
Court of Appeal of Florida, Fifth District, 1999
732 So.2d 1156, petition for review denied, 744 So.2d 454
http://scholar.google.com/scholar_case?case=12151982165035491195&q=732+So.
+2d+1156&hl=en&as_sdt=2,34
Goshorn, J.
[Horizon is a large, publicly traded provider of both nursing homes and management for
nursing homes. It wanted to expand into Osceola County, Florida, in 1993. Southern Oaks
was already operating in Osceola County; it owned the Southern Oaks Health Care Center
and had a Certificate of Need issued by the Florida Agency for Health Care Administration
for a new one-hundred-and-twenty-bed facility in Kissimmee, Florida. Horizon and
Southern Oaks decided to form a partnership to own the proposed Kissimmee facility, which
was ultimately named Royal Oaks, and agreed that Horizon would manage both the
Southern Oaks facility and the new Royal Oaks facility. To that end, Southern Oaks and
Horizon entered into several twenty-year partnership and management contracts in 1993.
In 1996, Southern Oaks filed suit alleging that Horizon breached its obligations
* * *
* * * First, the trial court’s finding that the parties are incapable of continuing to operate
in business together is a finding of “irreconcilable differences,” a permissible reason for
dissolving the partnerships under the express terms of the partnership agreements. Thus,
dissolution was not “wrongful,” assuming there can be “wrongful” dissolutions, and
Southern Oaks was not entitled to damages for lost future profits. Additionally, the
partnership contracts also permit dissolution by “judicial decree.” Although neither party
Second, even assuming the partnership was dissolved for a reason not provided for in the
partnership agreements, damages were properly denied. Under RUPA, it is clear that
wrongful dissociation triggers liability for lost future profits. See §602(3) (“A partner who
wrongfully dissociates is liable to the partnership and to the other partners for damages
caused by the dissociation. The liability is in addition to any other obligation of the partner
to the partnership or to the other partners.”). However, RUPA does not contain a similar
provision for dissolution; RUPA does not refer to the dissolutions as rightful or wrongful.
A partnership is dissolved, and its business must be wound up, only upon the occurrence
of any of the following events:
* * *
(5) On application by a partner, a judicial determination that:
(a) The economic purpose of the partnership is likely to be unreasonably frustrated;
(b) Another partner has engaged in conduct relating to the partnership business which
makes it not reasonably practicable to carry on the business in partnership with such
partner; or
(c) It is not otherwise reasonably practicable to carry on the partnership business in
conformity with the partnership agreement. * * *
Paragraph (5)(c) provides the basis for the trial court’s dissolution in this case. While
“reasonably practicable” is not defined in RUPA, the term is broad enough to encompass the
inability of partners to continue working together, which is what the court found.
NOTE: This section of the instructor’s manual continues the side-by-side
comparison of the two sections in the student’s text that are entitled as follows:
Dissolution of General
Partnerships Under UPA
Dissociation and Dissolution of
General Partnerships Under RUPA
C
CONTINUATION AFTER
DISSOLUTION
After dissolution, a partnership is
either liquidated or the
remaining partners continue the
partnership. Liquidation
sacrifices the value of a going
Right to Continue Partnership
After dissolution, the remaining
partners have the right to
continue the partnership when:
(1) the partnership has been
partners may.)
(2) a partner has been expelled
in accordance with
partnership agreement,
(Expelled partner may not
force liquidation.) or
(3) all the partners agree to
continue the business.
Rights of Creditors
Continuing a partnership after
DISSOCIATION NOT
CAUSING DISSOLUTION
Non-dissolving Dissociations
With three exceptions, the
partners may by agreement
modify or eliminate any of the
grounds for dissolution. The three
partner, and a court ordered
dissolution on application of a
transferee of a partner’s interest.
Partnership at Will — a
partner’s death, bankruptcy, or
incapacity, the expulsion of a
Term Partnership — if within 90
days after any of following
causes of dissolution occurs,
fewer than half of the remaining
partners express their will to
wind up the partnership
business, then the partnership
will not dissolve: a partner’s
dissociation by death, bankruptcy
or incapacity, the distribution by
dissolution creates a new
partnership. Creditors of the old
partnership personally liable.
Even if the remaining members of
the continuing business agree to
assume and pay all of the firm’s
debts, a withdrawing partner is
still liable to creditors whose
claims arose prior to the
dissolution — but she has a right
of indemnity against her former
partners if she has to pay due to
their failure to pay debts as
agreed.
A retiring partner may be
an old one, same terms but new
parties.) A creditor must agree to
the novation, or his consent may
also be inferred from his course of
dealing with the partnership after
dissolution.
A withdrawing partner may
protect herself against liability on
contracts that the firm enters into
had extended credit to the
partnership prior to its dissolution.
Constructive notice will su0ce
for those who knew of the
partnership but who had not
extended credit to it before its
dissolution.
a trust-partner of its entire
partnership interest, the
Continuation After Dissociation
The remaining partners have the
right to continue the partnership
with a mandatory buyout of the
dissociating partner. The
creditors of the partnership have
claims against the continued
partnership.
Dissociated Partner’s Power to
Bind the Partnership
A dissociated partner's actual
authority to act for the
partnership terminates; apparent
Dissociated Partner’s Liability to
Third Persons
A partner’s dissociation does not
of itself discharge the partner’s
liability for a partnership
obligation incurred before
dissociation. A dissociated
partner is liable for a partnership
obligation incurred within two
CASE 31-4
WARNICK v. WARNICK
Supreme Court of Wyoming, 2003
2003 Wy 113, 76 P.3d 316
http://scholar.google.com/scholar_case?case=15255465738264221669&q=76+P.3d+316+&hl=en&as_sdt=2,34
Golden, J.
In August 1978, Wilbur and Dee Warnick and their son Randall Warnick contracted to
purchase a ranch in Sheridan County for an agreed price of $335,000, with $90,000 down
plus $245,000 in installments over ten years at 8% interest. In April 1979, they formed
Warnick Ranches general partnership to operate the ranch and complete the installment
purchase agreement. The partnership agreement recited that the initial capital contributions
of the partners totaled $60,000, paid 36% by Wilbur, 30% by Dee, and 34% by Randall.
The partners over the years each contributed additional funds to the operation of the
ranch and received cash distributions from the partnership. After 1983, Randall contributed
very little new money and almost all of the additional funds to pay off the mortgage came
from Wilbur and Dee Warnick. Wilbur also left in the partnership account two $12,000 cash
distributions that were otherwise payable to him. The net cash contributions of the partners
through 1999, considering the initial contributions, payments to or on behalf of the
partnership, draws not taken and distributions from the partnership were:
Wilbur $170,112.60 (51%)
Dee 138,834.63 (41%)
Randall 25,406.28 (8%)
In 1998, Randall Warnick began having discussions with his brother about the possibility
of selling his interest in Warnick Ranches. When Randall mentioned this to his father, a
dispute arose between them concerning the percentage of the partnership that Randall
owned. Finally, on April 14, 1999, Randall’s attorney sent a letter to Warnick Ranches which
stated:
I have been asked to contact you regarding [Randall’s] desire to either sell his interest in
the ranch to a third party, to the partnership, or to liquidate the partnership under
On August 11, 1999, Warnick Ranches responded in writing, treating the letter from
Randall’s attorney as the expressed will of a partner to dissociate. The partnership’s response
included a tender offer for Randall’s share, as provided under [RUPA] §701(e) and (g) in the
* * * The parties stipulated to facts regarding the cash flows into and out of the
partnership accounts, as well as the partnership tax returns for each year from 1979 through
1999. * * *
The district court, in granting Randall Warnick’s motion for summary judgment, found
that dissociation of Randall as a partner was the appropriate remedy and that the schedule of
ownership recited in the partnership agreement, absent evidence of any other written
* * *
Resolution of this matter relies almost entirely on application of the Wyoming Revised
Uniform Partnership Act (“RUPA”), [citation]. * * * RUPA states in pertinent part:
[A] partnership agreement governs relations among the partners and between the
partners and the partnership. To the extent the partnership agreement does not otherwise
provide, this chapter governs relations among the partners and between the partners and
the partnership.
During the existence of the partnership, each partner has authority to act on behalf of the
partnership, [RUPA] §§301, 401(f), and “all partners are liable jointly and severally for all
obligations of the partnership unless otherwise agreed by the claimant or provided by law.”
[RUPA] §306(a). “A partner may lend money to and transact other business with the
partnership,” [RUPA] §404(f), and “[a] partnership shall repay a partner who, in aid of the
partnership, makes a payment or advance beyond the amount of capital the partner agreed to
* * *
9. ACCOUNTING. On December 31 of each year, the accounts of the Partnership
business will be closed for the year. As of that date, the Partnership income and expenses
will be totaled and the difference shall be divided among the Partners on any basis which
is mutually agreed upon by all Partners, giving due consideration to services rendered
during the year by each Partner, drawings during the year by each Partner and the
amount of capital invested by each Partner during such year.
The partnership agreement is entirely silent as to how cash advances or payments on
behalf of the business are to be treated. The partners knew that additional cash would be
It is, however, undisputed that the partners never entered into a unanimous agreement to
amend their partnership agreement or to reflect additional capital contributions. It is also
undisputed that the advances by the partners were not anywhere documented as a loan to the
partnership rather than capital contributions. The district court found these facts dispositive
in granting Randall Warnick’s summary judgment motion. The court specifically found that
there was no documentation to support a conclusion that the payments by the elder Warnicks
were a loan, so they could not be treated as a loan.
The district court’s decision, however, misapplies the clear provisions of the Revised
Uniform Partnership Act. RUPA operates automatically if a partnership agreement does not
The district court’s calculations in this case treat the mortgage payments as neither
capital contributions nor advances, but as something else not contemplated by RUPA. The
partnership agreement at paragraph ten and RUPA at [RUPA] §401(k) are consistent in
requiring that the partners must unanimously consent to any amendments of the partnership
agreement. Advances are not addressed in the agreement, so we must turn to RUPA’s default
provisions in that regard. [Citation.] Nothing in RUPA requires advances to the partnership
or payment of partnership debts by partners to be memorialized in writing as a loan. In fact,
the act addresses payments and advances in several places without requiring a writing or
unanimous partner approval:
•[RUPA] §401(c) requires the partnership to reimburse a partner for payments made by
the partner in the ordinary and proper conduct of the business of the partnership or for
Read [together], these provisions of the act evidence a presumption that additional
amounts paid by a partner, over and above the capital contributions recited in the partnership
agreement or agreed to, are presumed to be loans to the partnership, with interest payable
from the date of the advance. RUPA is unequivocal on this point. The drafters’ comment to
§401(d) states: “Subsection (d) is based on UPA Section 18(c). It makes explicit that the
partnership must reimburse a partner for an advance of funds beyond the amount of the
partner’s agreed capital contribution, thereby treating the advance as a loan.” [Citation.]
Warnick Ranches partnership was formed “for the purpose of managing and operating a
farming and ranching business” on property that was subject to a mortgage at the time the
partnership was formed. It was entirely foreseeable that additional cash would be needed to
* * *
We turn then to the consequences of this dispute. RUPA, with the goal of avoiding
unnecessary dissolutions of partnerships, contains a significant change from prior
partnership law. Again in the words of the drafters:
RUPA dramatically changes the law governing partnership breakups and dissolution. An
entirely new concept, “dissociation,” is used in lieu of the UPA term “dissolution” to
denote the change in the relationship caused by a partner’s ceasing to be associated in
the carrying on of the business. * * *
Under RUPA, unlike the UPA, the dissociation of a partner does not necessarily
cause a dissolution and winding up of the business of the partnership. Section 801
[Revised] Uniform Partnership Act §601, cmt. 1, [citation]. The Warnick Ranch
Partnership Agreement is again silent as to dissociation, addressing only liquidation. RUPA
states that a partner has the power to dissociate at any time by express will, [RUPA] §602(a),
and that:
(a) A partner is dissociated from a partnership upon:
* * *
Under these circumstances, the record supports the district court’s conclusion that there
was no genuine issue as to the material fact that a dissociation occurred. Considering the
April 1999 letter from Randall’s attorney to the partnership, in the context of deposition
testimony regarding allegations of physical violence and misappropriation of partnership
funds, we determine that the date of the letter is the date of dissociation.
However, the court erred in its calculation of the judgment. RUPA states that a
dissociated partner’s interest in the partnership shall be purchased by the partnership for a
buyout price. [RUPA] §§603(a), 701(a), (b). The buyout price is equal to the amount that
would have been distributable to the dissociating partner under [RUPA] §808(b) if, on the
date of the dissociation, the partnership’s assets had been sold. [RUPA] §701(b). However,
§808(a) provides that partnership assets must first be applied to discharge partnership
Next, there is the matter of two $12,000 draws, or “guaranteed payments,” that Wilbur
Warnick was entitled to in 1998 and 1999, but actually left in the partnership account and
did not receive. The guaranteed payment arrangement was at Randall’s request and agreed
among the partners in order to provide Randall an income and to avoid the partnership
showing a taxable profit. Randall received his draw as agreed in 1998 and 1999 but Wilbur
did not, even though he reported it as personal income and paid taxes on it. At the time he
A partnership agreement governs relations among general partners and between partners
and their partnership. To the extent the agreement is silent or ambiguous, the Revised
Uniform Partnership Act provisions apply. Review of the entire record leads us to conclude
that there is no genuine issue regarding the fact that a partner dissociation occurred, and that
