Cengage Advantage Books: Fundamentals of Business Law 9th Edition by Roger LeRoy Miller

تمرين 10

Craton Capital, LP v. Natural Pork Production II, LLP
Court of Appeals of Iowa, 797 N.W.2d 623 (2011).
www.iowacourts.gov/Court_of_Appeals
FACTS Natural Pork Production II, LLP (NPP), an Iowa limited partnership, raises hogs. Under a partnership buy-sell agreement, NPP was obligated to buy a dissociating partner's interests (units) but could defer the purchase payment if, in the judgment of the managing partners, it would "adversely affect the working capital, cash flow or other financial means, condition or operation of the Partnership." Once this "Impairment Circumstance" was "no longer applicable," NPP was to make the purchase payment within thirty days. Craton Capital, LP, and Kruse Investment Company were among NPP's limited partners. When they notified NPP of their dissociation, a wave of similar notices from other partners followed. NPP declared an impairment circumstance. Craton and Kruse filed a suit in an Iowa state court against NPP, asking the court to order the partnership to buy their units. NPP responded that the impairment circumstance still existed. Both parties filed motions for summary judgment on the issue of whether NPP was obligated to buy. The court issued a summary judgment in NPP's favor. Craton and Kruse appealed.
ISSUE Was NPP required to buy the dissociating partners' interests under the buy-sell agreement?
DECISION Yes. A state intermediate appellate court reversed the lower court's judgment in favor of NPP and remanded the case for the entry of a summary judgment in favor of Craton and Kruse.
REASON The "Dissociation Notice" provision of the partnership agreement stated that NPP shall buy a dissociating partner's units. This is mandatory. The only restriction is set out in the "impairment circumstance" provision. This provision applies when NPP is obligated to buy a dissociating partner's units and an impairment circumstance arises. Payment is then postponed, but the partnership is still obligated to buy the units. That is what occurred in this case. NPP argued that under the impairment circumstance provision, an obligation to buy a partner's units would never arise if it would materially impair or adversely affect the financial condition of the partnership. But this interpretation, the court reasoned, was not consistent with "the actual wording." The word "shall" is mandatory. Thus, once Craton and Kruse gave their dissociation notice, NPP was obligated to buy their units. The declaration of an impairment circumstance only deferred the purchase payment.
WHAT IF THE FACTS WERE DIFFERENT? Suppose that Craton and Kruse had been general partners rather than limited partners. In that circumstance, what might their dissociation have meant for NPP?