Persinger & Company v. Larrowe , 252 Va. 404 ( 1996 )

Present: All the Justices
PERSINGER & COMPANY
OPINION BY JUSTICE LAWRENCE L. KOONTZ, JR.
v. Record No. 952160 November 1, 1996
MICHAEL D. LARROWE
FROM THE CIRCUIT COURT OF ALLEGHENY COUNTY
Duncan M. Byrd, Jr., Judge
In this appeal we consider whether an individual can be
bound by a non-competition clause of a partnership agreement to
which he was not a signatory, although he accepted a partnership
1
interest and served as a partner for several months. Under the
facts of this case, we hold that the partnership agreement did
not bind the former partner who did not sign it.
The pertinent facts are not in dispute. From 1980 to 1987,
Michael D. Larrowe (Larrowe) was a staff accountant with the
general accounting firm of Persinger & Company (the Persinger
firm). In 1985, Larrowe was promoted to a non-equity position of
"office partner" and signed a non-competition agreement as a
condition of this promotion. Larrowe left the firm in 1987 on
good terms and joined an accounting practice in North Carolina.
In September 1990, Larrowe returned to Virginia and entered
into negotiations to resume employment with the Persinger firm.
Larrowe wished to be made a general or full partner with equity
in the firm. The parties agree that when Larrowe resumed
1
This appeal was brought by the partnership in order to
contest two interpretations of terms in the agreement made by the
trial court in rendering judgment for the partnership which
limited the amount of the recovery. Our resolution of the
dispositive issue, which was raised as cross-error by the former
partner, renders these issues moot.
employment with the firm as an office partner in December 1990,
there was a mutual expectation that an equity partnership offer
ultimately would be extended to him. In November 1991, the
Persinger firm requested that Larrowe re-execute the
non-competition agreement as an office partner. Larrowe refused,
and the request was not pursued.
During the summer of 1992, Larrowe and the firm entered into
negotiations regarding his promotion to equity partner. During
the course of these negotiations, Larrowe was provided with a
copy of the Persinger firm's July 1, 1989 partnership agreement
which included a non-competition provision:
24.1 Limitations Imposed on Former Partner.
When a party to this Agreement ceases to be a
partner, whether by reason of withdrawal or retirement,
he will observe the following limitations. For a
period of three (3) years immediately following the
date he ceased to be a partner, or while he is
receiving guaranteed payments from the partnership, he
shall not directly or indirectly render public
accounting services to any clients who were serviced by
the partnership at date of his withdrawal or
retirement. A partner violating this paragraph shall
pay to the partnership an amount equal to one-third
(1/3) of each year's fee as collected for a period of
three (3) years. Such amount is due within thirty (30)
days after it has been collected from the client by the
former partner.
In addition, the agreement contains the following provision:
26.3 Changes in General Partners.
The obligations and rights accruing to this
partnership by virtue of this Agreement shall continue
unabated regardless of any change in the membership of
this general partnership; such obligations and rights
shall be automatically assigned to the partners
constituting the general partnership created by this
Agreement as of any particular date; and, such
assignments shall be effective without any further
affirmative action on the part of the parties hereto.
On September 1, 1992, Larrowe wrote a letter accepting "the
Firm's offer of a general partnership interest." The nature of
the Persinger firm's offer is not disclosed in the record, but it
is undisputed that Larrowe did not sign the 1989 partnership
agreement or any similar document at this or any subsequent time.
Shortly after Larrowe became a general partner, two senior
members of the Persinger firm began to make preparations for
their retirement. During this period, the remaining partners,
including Larrowe, discussed drawing a new partnership agreement
to be signed after the retirements became effective. The
partners were also considering reconstituting the firm as a
professional limited liability corporation.
Larrowe served as a general partner until January 26, 1993,
when he submitted his resignation. Larrowe subsequently began
his own accounting practice in Galax. He solicited a number of
the Persinger firm's clients, obtaining employment from some.
On August 9, 1993, the Persinger firm filed a petition for
declaratory judgment and bill of complaint against Larrowe
seeking to enforce the non-competition provision of the 1989
partnership agreement and to recover fees it alleged were owed
the firm under the provisions of the agreement. Larrowe filed
grounds of defense asserting that he was not subject to the
partnership agreement and its non-competition provision.
Following an ore tenus hearing, the trial court entered judgment
for the Persinger firm. This appeal followed.
There can be no doubt that upon Larrowe's acceptance of the
Persinger firm's offer of a general partnership interest, a
partnership was created between the Persinger firm and Larrowe.
The threshold issue of this appeal is whether by virtue of that
partnership Larrowe could be bound by the 1989 partnership
agreement and its non-competition provision without being a
signatory thereto. In resolving this issue we are guided by the
well settled principles that the Persinger firm had the burden of
proof and that because non-competition agreements are a restraint
of trade, they will be carefully examined and strictly construed
before they will be enforced. See Clinch Valley Physicians, Inc.
v. Garcia, 243 Va. 286, 289, 414 S.E.2d 599, 601 (1992).
The Persinger firm asserts on brief that the only plausible
interpretation of the facts in this case is to assume that its
"offer of general partnership in the firm was an offer for
Larrowe to become a party to the [1989] Agreement." In support
of this position, the firm contends that article 26.3 of the 1989
partnership agreement "automatically subjects new partners to the
same rights and obligations [of the 1989 partnership agreement]
as other partners . . . requir[ing] no affirmative conduct for
these effects to occur." We disagree.
The 1989 partnership agreement evinces the intent of its
signatories to conduct business as a partnership and to be bound
by the included non-competition provision. It is true that in
the course of the Persinger firm's negotiations with Larrowe, he
was shown this document. Thereafter, when an equity partnership
offer was extended to Larrowe and that offer was accepted by him,
no reference was made to this document. Nothing in the record
supports the conclusion that this offer expressly or implicitly
required Larrowe to become a party to the 1989 agreement. To the
contrary, the Persinger firm concedes that Larrowe was never
asked to sign the agreement, and the record is unequivocal that
he did not do so. 2
Nor could Larrowe be bound to the agreement under the
provisions of article 26.3. For the Court to find that the
article has the effect proposed by the firm, we would be required
to accept the circular reasoning that Larrowe was bound by the
agreement by virtue of the agreement's requirement that partners
be bound by it. A more sensible construction of article 26.3
would be that those partners who were signatories to the
agreement would remain bound by the agreement at the time of a
dissolution or other change in the composition of the general
partnership.
The Persinger firm's threshold burden in this case was to
establish that Larrowe was a party to the 1989 agreement and its
non-competition clause. Until the parties have a distinct
intention common to both and without doubt or difference, there
is a lack of mutual assent and, therefore, no contract.
Progressive Construction Co. v. Thumm, 209 Va. 24, 30, 161 S.E.2d
687, 691 (1968). The record before us fails to show that
Larrowe gave his assent to the 1989 agreement or to any express
agreement other than to serve as a general partner.
2
Moreover, Larrowe apparently was not shown or asked to sign
a 1991 general partnership agreement which was also produced at
trial, although not made an exhibit. According to the testimony
of one of the partners, the 1991 agreement was substantially
similar to the 1989 agreement, but was signed by a different
group of individuals.
A partnership is defined as "an association of two or more
persons to carry on as co-owners a business for profit." Code
§ 50-6(1). The statutory language implies the voluntary joining
together of two or more persons with the intent to form a
partnership. No written document is necessary to create the
partnership.
Furthermore, it is permissible for existing partnerships to
associate with individuals, corporations, and other partnerships
for the purpose of forming new partnerships. See Code §§ 50-2,
50-6. Thus, when Larrowe accepted the Persinger firm's offer, a
partnership was formed between Larrowe and the partnership that
then constituted the Persinger firm. Whatever the nature of this
new partnership, with regard to Larrowe's rights and obligations,
it was decidedly not created by nor subject to the provisions of
the 1989 partnership agreement.
Stated another way, when Larrowe accepted the Persinger
firm's offer, he became an equity partner not subject to the 1989
partnership agreement. Absent some written agreement
affirmatively adopted by Larrowe providing otherwise, the
partnership between Larrowe and the Persinger firm was governed
exclusively by the Uniform Partnership Act. Code §§ 50-1 through
-78. Accordingly, the Persinger firm's claims against Larrowe,
founded solely on the operation of the 1989 partnership
agreement, lack merit because Larrowe was not a party to that
agreement.
For these reasons, we will reverse the judgment of the trial
court and enter final judgment for Larrowe.
Reversed and final judgment.