In a case decided Tuesday by the Business Court, the parties were at loggerheads over how the assets of a partnership were to be valued upon the dissolution of the partnership or the withdrawal of a partner. Judge Jolly granted the motion for summary judgment by EHP Land Company, the withdrawing partner of HPB Enterprises, which was the developer of a resort community on 750 acres of land in Perquimans County. EHP Land Co., Inc. v. Bosher.
The partnership agreement said that EHP was entitled to the book value of its interest, to be adjusted based on the fair market value of "any inventory owned by the partnership." The critical word for construction by Judge Jolly was "inventory," which was undefined in the agreement and as to which there was a huge difference of opinion between the parties regarding the meaning of the word. To the plaintiff corporate partner it included all the developed and undeveloped real property owned by the Partnership, "as well as development amenities such as the golf course, pro shop, clubhouse, restaurant and marina." Op. ¶21.
The defendant partners had a much more limited view, arguing that the term was ambiguous and therefore void. In the alternative, they contended that "inventory" was limited to assets developed and held for sale, which would not have included much of the property owned by the partnership.
Given the lack of any evidence regarding the intention of the parties as to the construction of the undefined word, Judge Jolly determined that it had a "natural and ordinary meaning." Op. ¶52. Looking to dictionary definitions, he concluded that undeveloped lots to be developed in the future were within the scope of the "inventory" of the partnership.
The Court recognized testimony that the partnership had not discussed the term at the time the partners entered into the agreement and that there was no draftsman who could testify as to the meaning of the undefined word. The lawyer who had drafted the agreement testified that the partnership agreement was the "standard, 'cookie-cutter' Partnership Agreement that [he] used for partnerships at that time." Judge Jolly said:
It is not uncommon for contracts to be form-based and not created from "scratch." Indeed, one reason the use of form contracts is beneficial is because terms may acquire meaning from continual use over time. The very fact that the term“inventory” appears in the Partnership Agreement weighs in favor of according it specific meaning; that is, the term was chosen not haphazardly without thinking, but was chosen for inclusion in a form contract precisely because it carries meaning.
I can't end without saying that my partner John Buford deserves a public thank you for running this blog very well during the many months (since February) I have not been working or writing on this blog due to a stroke. He did a great job and only gave the blog back somewhat unwillingly when I asked for it a few days ago. I hope to be back to work in a few months but will start keeping up the blog now. I'll leave it to you whether you preferred John over me. Please don't hurt my tender feelings. I appreciate all of you who wrote to me while I was in the hospital. Thank you for reading and for noticing that I was missing.