Thursday, May 14, 2015

Court of Appeals Finds Liability on Agreement under Partnership Law

Court of Appeals Finds Liability on Agreement under Partnership Law

      A recent decision of the Court of Appeals found that a partnership existed and on that basis that all participants therein were responsible to pay for feed delivered to the partnership’s farm.  There was, however, at dissent from that determination.  Cowan v. Woodford Feed, Inc., No. 2013-CA-000982-MR (Ky. App. April 17, 2015).

      Kathryn (“Katy”) Cowen, in 1996, signed a credit agreement with Woodford feed, Inc. The name of her father, Jack Cowan, appeared as well on the credit agreement - there was a dispute as to whether Jack had given permission to Katy to sign his name to that document.  Regardless, from 1996 Woodford Feed supplied feed to the farm.  Initially, the feed was used for Katie’s personal horses.  In 2001, Jack relocated to Bourbon County, at which time a farm property was purchased.  That farm was operated by Jack and Katy under the name Aspendell Farm.  The farm was never incorporated, and Jack and Katy never entered into a written partnership agreement.  Woodford Feed continued to supply feed to the farm.

      The farm was sold in August, 2007.  At the time of the sale a balance was due to Woodford Feed – Katy told them they would be paid from the sale proceeds.  That, however did not happen, and invoices totaling $22,649.29 for January – August 2007 were left outstanding.  Woodford Feed, in 2010, sued Jack and Katy on the open account.
      Apparently, Katy never answered the complaint; a default judgment was entered against her.  At a bench trial neither Jack nor Katy appeared.  A judgment found Jack jointly and severally liable on the debt owed to Woodford Feed, as well as costs and, under the credit agreement, attorney fees.
      Jack filed this appeal.
      One basis for his appeal was an objection to the trial court, inter alia, taking judicial notice of pleadings and evidence in other actions to the effect that Jack and Katy were partners in the operation of Aspendell Farm.  Reviewing the rules as to judicial notice, the Court of Appeals found his reference and reliance to be appropriate.
      Further, the Court of Appeals found that the evidence supported a determination that Jack and Katy were partners.  Consequent to his status as a partner, Jack was liable on the credit agreement pursuant to which the partnership received feed from Woodford Feed.
      A quibble with the decision is that its citations are to the Kentucky Revised Uniform Partnership Act (2006), KRS ch. 362.1.  The problem is that the Jack/Katy partnership was formed in either 1996 or 2001, and at that time the Kentucky Uniform Partnership Act, KRS ch. 362, controlled.  While the principles in the cited statutes are the same under the prior law, the decision essentially cites statutes that are not, by the terms of that act, applicable to this partnership.
      Judge Kramer concurred only in the result of the opinion by Judge Vanmeter.  Judge Taylor filed a partial dissent.  While he would hold Jack liable on the account, he would do so under quantum meruit rather than implied contract liability.  His points of difference were the facts that the credit agreement was signed in 1996 only by Katy and that the partnership was not formed until 2001. Still:
The time frame from which this dispute arises was 2005 through 2007.  Since Jack did benefit from the credit extended for the period 2005 – 2007, for the purchase of feed, he is liable for payment under the quantum meruit doctrine.
      As Jack did not sign the credit agreement, Judge Taylor dissented from holding Jack liable for attorney fees thereunder.  He wrote as well that:
The majority’s analysis of this issue bound upon partnership law is misplaced and otherwise not supported by any legal principles in Kentucky jurisprudence.
      While it is my personal view that the application of partnership law was here warranted, it might have helped the decision had it considered the partnership’s obligations under a preformation contract (i.e., the credit agreement) which is performed on by (adoption and ratification?) the partnership.

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