Defendant’s Claim of Partnership Does Not Buffalo Court

April 26, 2013 | Erika Eckley

Partnerships in Iowa can be shown by facts establishing joint ownership of property, sharing of gross revenues, and a share of the profits unless these were received in payment of certain expenses. The following case required the court to determine whether a partnership was inadvertently formed by two land and bison owners.

The plaintiff purchased property and a 28% share of a bison herd from a third party. The bison herd was managed by the defendant who also owned a portion of the herd. The plaintiff allowed the herd to graze on his property and continued to allow the defendant to manage the herd after his purchase. Unfortunately, the relationship between the defendant and the plaintiff deteriorated shortly thereafter. The defendant recorded a “right of first refusal” to purchase the plaintiff’s land, which he asserted was signed by the plaintiff. After this was filed, the plaintiff advised the defendant that he could no longer graze the herd on plaintiff’s land.

The plaintiff sued to quiet title in his property, for conversion, and rent, trespass, and damages. The defendant counterclaimed for breach of a partnership agreement and other claims. After trial, the district court quieted title in the land to the plaintiff and granted a judgment in favor of plaintiff on conversion and rent, trespass, and damages. The court also held that no partnership existed and dismissed all of the defendant’s counterclaims. The defendant appealed.

On appeal, the court agreed that no partnership had been formed. The defendant argued that, after the plaintiff’s purchase of the land and portion of the herd, the plaintiff orally agreed to “continue the partnership enterprise [he] previously had with [the third party].” The court agreed that the law allows for a partnership to be informally created without a written partnership agreement. The court also agreed that a partnership can be formed without an intention to form a partnership. But, the court held that in this case, there was no evidence of any partnership being formed.  For example, there was no joint ownership of property.  Instead, the plaintiff borrowed money for and titled the farmland in his name only.  Likewise, the court determined that the costs of maintenance of the property were the plaintiff’s sole responsibility, and the defendant billed the plaintiff for any maintenance work he did on plaintiff’s land.

The court also found significant that the plaintiff purchased 28% of the herd in the agreement with the third party. This agreement stated that the actual number of bison and costs to the plaintiff for the defendant’s management of the herd would be determined later. The agreement also specifically stated, “[t]here is to be no partnership as such between [plaintiff] and [defendant].” No sale of the bison was actually made because the defendant placed a lien on the third party’s share of the herd. Because of this lien, no transfer of ownership was ever made to the plaintiff, so there was no joint ownership of the herd by the plaintiff and the defendant. Equipment was also to be solely purchased and owned by the plaintiff under the agreement. The court held that joint ownership in this case was “not even presumptive evidence” of a partnership because there was no jointly owned property.

The court also held there was no sharing of gross returns either. The plaintiff specifically refused the same agreement of a split of costs and profit the third party had with the defendant. The plaintiff made clear when he purchased the property that he wanted to own his own herd and hoped that a sale of the current herd would generate enough revenue to do this. There was never any evidence presented of any sharing of gross returns when bison were slaughtered, so there was no sharing of gross returns to indicate a partnership might have existed. There was also no sharing of any profits. The court held, based on these facts, that there was no evidence of any association distinct from the plaintiff and defendant, so no partnership existed.

The court also affirmed the district court’s dismissal of the defendant’s right of first refusal. The plaintiff acknowledged he had a “gentlemen’s agreement” with the defendant that he could buy the property at fair market value, but the defendant repeatedly refused this offer. The defendant eventually listed the property with a realtor, but received no offers, so nothing triggered an obligation to give the defendant the opportunity to buy the property again. Because of this, there was no breach of the right of first refusal and the district court did not err in dismissing that claim as well.

This case makes clear that partnerships can be inadvertently formed by parties, but they do require some shared ownership, commitment, and revenues in order to establish a presumption that a partnership exists. This case also illustrates the danger of oral, “gentlemen’s agreements” and the need for courts to sort out what was actually promised and what the effect would be. All agreements for maintenance and management should be in writing and specifically state that under the terms of the agreement to pay for these services, no partnership is formed if that is the desired result.  Rasmussen v. Jackson, No. 3-183, 2013 Iowa App. LEXIS 440 (Iowa Ct. App. Apr. 24, 2013).