Magers v. Mallas ( 1990 )

No. 89-578
IN THE SUPREME COURT OF THE STATE OF MONTANA
1990
FRED W. MAGERS and CECILA MAGERS,
DONALD R. ABRAHAMSON and LOUINE
W. ABRAHAMSON, THOMAS TILLMAN and
THOMAS ORCUTT, and HELEN R. ORCUTT,
Plaintiffs and Respondents,
NICK MALLAS,
Defendant and Appellant.
APPEAL FROM: District Court of the Fifth Judicial District,
In and for the County of Madison,
The Honorable Frank M. Davis, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Edmund P. Sedivy, Jr., Morrow, Sedivy & Bennett,
L-J Bozeman, Montana
L- 3
For Respondent:
C. Richard Anderson, Esq., John P. Davis, Esq.,
Butte, Montana
Submitted on Briefs: June 28, 1990
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Ir
" - Decided: Aucjust 7, 1990
Filed:
Clerk
Justice R. C. McDonough delivered the Opinion of the Court.
This is an appeal from an order of the Fifth Judicial
District, Madison County, granting summary judgment in favor of the
plaintiffs, Fred Magers, et al. (Residents) and finding defendant,
Nick Mallas (Mallas) liable for the debts of the limited
partnership, Shining Mountains. We reverse.
The sole issue on appeal is:
Whether a general partner of a limited partnership, who is
admitted to that partnership subsequent to its entrance into a
contractual obligation, can be held personally liable for breach
of that contract.
This is the third time a controversy surrounding this case has
been before this Court. We will provide a brief outline of the
history of this controversy as it relates to the case now before
us.
In the early to middle 19701s, Shining Mountains, a limited
partnership, subdivided and sold lots on a 7,000 acre ranch located
in Madison County, Montana. Residential lots were sold pursuant
to land contracts which contained covenants that provided, inter
alia, that Shining ~ountainswould oversee and maintain all common
areas, including roads within the subdivision. The Residents also
maintained that Shining Mountains personnel informed them that
roads would be constructed and maintained by the sellers. Shining
Mountains failed to build the roads and the Residents sued. The
trial court granted summary judgment in favor of the Residents and
held that Shining Mountains had an implied covenant to construct
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the roads which were located on a recorded plat. Shining Mountains
appealed and we reversed, holding that the plats, in and of
themselves, did not give rise to a promise to construct roads. We
held that there were factual issues regarding the use made of these
plats and what representations were made in the sale of lots. We
directed the lower court in addressing this issue to determine
whether the plats were used to induce the purchases. See Majers
v. Shining Mountains (1986), 219 Mont. 366, 711 P.2d 1375. (Magers
in the case now on review is the same party as Majers which is
cited in earlier opinions.)
Upon remand, and subsequent trial, the District Court found
that Shining Mountains had represented during sales campaigns that
it would construct the roads. It then ordered specific performance
of the contract and awarded attorney's fees. shining Mountains
appealed and we affirmed the findings of the trial court in full.
Majers v. Shining Mountains (1988), 230 Mont. 373, 750 P.2d 449.
Following this appeal, Shining Mountains made no meaningful
effort to construct the roads. Therefore, after a number of
hearings in the lower court, the partnership was ordered to pay the
Residents the sum of $565,000, which was the estimated cost of
roadway construction. The Residents were unable to execute on the
judgment however, and they later learned that the partnership had
filed for bankruptcy in the United States Bankruptcy Court District
of California.
The Residents then moved the District Court to enter summary
judgment against Mallas, who had become a general partner in
Shining Mountains on August 28, 1984, after the disputed agreements
were executed. The District Court granted the order and found
Mallas jointly and personally liable for the costs of the roadways.
This appeal followed.
The District Court based its conclusion on two principles of
law. First, it held that under S 35-10-309, MCA, Mallas was
personally liable for the judgment against shining ~ountains
because the judgment was an obligation that only came into
existence upon the resolution of the trial, which occurred on
September 30, 1986. See Majers v. Shining Mountains (1988), 230
Mont. 373, 750 P.2d 449. Second, the District Court held that
Mallas, in his capacity as general partner, personally assumed the
obligation to construct roadways. We will address each of these
holdings separately.
To begin, we note that under S 35-12-803 (2), MCA, a general
partner of a limited partnership is liable to the same extent and
in the same manner, as a partner in a partnership. Section 35-
10-309, MCA, defines this liability:
A person admitted as a partner into an existing
partnership is liable for all the obligations of the
partnership arising before his admission as though he had
been a partner when such obligations were incurred,
except that this liability shall be satisfied only out
of partnership property. (Emphasis added.)
Mallas argues that while he is liable for the debts of the
partnership, he is only liable to the extent of his partnership
assets. He maintains that the obligation to build the roads
devolved upon Shining Mountains when it entered into the various
land sales contracts with the Residents. Since these contracts
were executed prior to the time he entered into the partnership,
he maintains that he cannot be held personally liable.
The lower court disagreed and held that the obligations were
not incurred until the court issued its final judgment in the
trial, which was held after remand from our reversal of its order
for summary judgment. This occurred after Mallas assumed
responsibility as a general partner. Under this theory Mallas
would be personally liable, in accordance with 5 35-10-309, MCA,
because the debt only became due and owing when final judgment was
entered, and not when the contracts were executed.
We disagree. A judgment does not create a new right. Rather,
it has long been recognized that a judgment merely defines and
determines what rights already exist. Nee1 v. First Federal Sav.
and Loan Assoc. (1984), 207 Mont. 376, 675 P.2d 96. In this case,
the judgment rendered by the District Court only had the effect of
enforcing an obligation which arose when the sales contracts were
executed. As such, the obligation and resultant liability came
into existence when the land sales contracts were signed--not when
judgment was entered against Shining Mountains. Mallas was not a
general partner when the contracts were executed and therefore
under 5 35-10-309, MCA, he cannot be held personally liable for the
debt. His liability only extends to his partnership assets.
The lower court also held that Mallas, in his capacity as
general partner, voluntarily assumed the obligations to build the
roads. In coming to this conclusion it relied upon a New York
case, Wood v. MacAfee (1918), 172 N.Y.Supp. 703, which holds that
an incoming partner may voluntarily make himself liable for
existing debts of a partnership. The New York court further held
that an intent to assume such debts may be inferred from facts and
circumstances surrounding the incoming partner's inception into the
partnership. The District Court maintains that, through his
actions of continuing the partnership, and in particular through
his efforts to build the needed roads, Mallas voluntarily assumed
the obligations.
We disagree. There is no evidence offered by the Residents
that indicates that Mallas personally assumed the obligations of
Shining Mountains. To the contrary, all evidence indicates that
Mallas was merely tending to partnership business, and fulfilling
his duty to the partnership through his attempts to build the roads
and resolve the conflict with the Residents. He cannot, therefore,
be held personally liable on the grounds that he assumed any
obligation to build the roads.
When this controversy was presented to the District Court,
both parties moved for summary judgment. The lower court, in
accordance with Rule 56 (c), M.R.Civ.P., found that there was no
issue of material fact and determined as a matter of law that
Mallas was personally liable. We agree there is no material issue
of fact; however, we disagree with the lower court's application
of the law. Under 3 35-10-309, MCA, Mallas is only personally
liable for debts which arose subsequent to his admittance to the
partnership. As stated earlier, the contractual obligations at
issue here, arose well before he assumed responsibilities as a
general partner. Furthermore, there is no evidence that Mallas
voluntarily assumed these obligations. We therefore hold that the
lower court erred in failing to grant Mallas' motion for summary
judgment and the judgment is reversed, and the case remanded with
instructions to enter judgment in favor of Mallas stating that his
personal liability is limited to the extent of his partnership
assets.