Broffman v. Newman

Opinion

Plaintiff, a limited partner of a partnership, appeals from a judgment in favor of defendant general partner on her claim that he was not entitled to special compensation for his services in managing the medical office building which is the business of the partnership. For the reasons discussed below, we reverse.

Factual and Procedural History

The Wilshire Center Building limited partnership, formed in 1976, owns a medical office building. After the first year, the partnership consisted of Lewis Podus, a limited partner who owned a 50 percent interest in the partnership, his brother Morris Podus, a general partner who owned a 33% percent interest in the partnership, and Sidney Newman, a general partner who owned the remaining 16% percent interest in the partnership.

Substantively, it appears that at least one of the exceptions applies to the general rule that claims between partners and the partnership may only be resolved in an action for dissolution and accounting. This is not a complex account involving a variety of partnership transactions. (Van Fleet-Durkee, Inc. v. Oyster (1952) 112 Cal.App.2d 739 [ 247 P.2d 403 ]; see also Gherman v. Colburn (1977) 72 Cal.App.3d 544 [ 140 Cal.Rptr. 330 ].)

We are called upon to interpret the provisions of a partnership agreement with respect to the availability to a general partner of a management fee for services he performed. We begin by stating the general proposition that the interpretation of a written instrument presents a question of law to be decided de novo by an appellate court. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861 , 865 [ 44 Cal.Rptr. 767 , 402 P.2d 839 ]; Klingele v. Engelman (1987) 192 Cal.App.3d 1482 , 1485 [ 238 Cal.Rptr. 199 ].) In this case, the trial court also admitted and considered extrinsic evidence to assist in its interpretation. “Even where extrinsic evidence was offered in the trial court, a reviewing court is not bound by the trial court’s findings if the extrinsic evidence is not in conflict, is not substantial, or is inconsistent with the only interpretation to which the instrument is reasonably susceptible.” (Okun v. Morton (1988) 203 Cal.App.3d 805 [ 250 Cal.Rptr. 220 ].)

We conclude that this is an instance where the interpretation of the agreement is a question of law. It is clear that when read together, sections 8.1 and 8.2 do not permit a general partner to receive compensation from the partnership for management services performed in managing the partnership property, whether a broad or narrow interpretation is given to the provisions governing this area, absent agreement by the partners. While we agree with the trial court that the agreement is reasonably read to preclude payment of a management fee or “other compensation” for the “services”

Our analysis of these two provisions causes us to conclude that the trial court is incorrect in restricting the services for which additional compensation is prohibited only to those services set forth in paragraph 8.1. Rather than prohibiting compensation to a general partner only for the specific categories and kinds of services explicitly set forth in paragraph 8.1, paragraph 8.2 prohibits compensation to the general partners for performing any services arising out of their partnership obligations. To read the provisions in such fashion is to fail to give each part of the agreement the consideration required.

The trial court’s decision turns on the fact that certain services are set out, some concerning requirements flowing directly from acquisition of the building and preparations necessary for leasing medical offices. Yet there is no temporal limitation on the activities specified. Preparing suites for occupancy and negotiating tenancy terms would be necessary so long as the partnership owns and rents offices in the building. Thus, these services must be performed so long as required by the general partners, or any of them, to the extent necessary, without additional compensation. To find that other services such as general maintenance, repairs, decoration of common areas, and dealing with tenants’ complaints and requests are without the ambit of paragraph 8.2 is to disregard the provision that “[t]he General Partners shall devote the required portion of their time to conduct the business of the partnership in an efficient and proper manner.”

While this portion of paragraph 8.1 must be read in conjunction with the next sentence which states that neither of the general partners shall be required to devote his full time to the partnership business, the only reasonable construction of these provisions is that general partners may not be compensated for any services performed in managing the building, for that is the business of the partnership. The partners in their agreement recognize that more time and effort may be needed for managing the business of the partnership—the building—than either general partner may be called upon to give, by reason of the provision permitting them to retain the services of a management company, the cost of which is to be borne by the partnership.

After the first year, Podus and Newman agreed that no longer would Newman’s compensation be limited to a maximum of $75,000 per year, but that he would receive the full 5 percent of the gross income. One month before, Broffman objected formally to the compensation arrangement. Podus and Newman proceeded nonetheless to implement the arrangement, believing that as the general partners they were so empowered. On such conflicting evidence the trial court found in Newman’s favor on the declaratory relief cause of action. “Where the evidence is in conflict, the appellate court will not disturb the verdict of the jury or the findings of the trial court. The presumption being in favor of the judgment, the court must consider the evidence in the light most favorable to the prevailing party, giving him the benefit of every reasonable inference, and resolving conflicts in support of the judgment.” (9 Witkin, Cal. Procedure (3d ed. 1985) Appeal, § 278, p. 289.) We conclude the record supports the inference that even if Newman was not seeking Broffman’s approval, it was reasonable for him and Morris Podus to assume that her silence was equivalent to her assent until she finally raised objection.

We thus have a situation in which the partnership agreement, reasonably interpreted, did not permit payment to a general partner for services to the partnership. The partnership agreement was never formally amended to permit such compensation. Under these circumstances, the express agreement between Morris Podus and Newman, and lack of objection from Broffman are sufficient evidence of an implied agreement both to meet the requirements of Corporations Code section 15018, subdivision (f), and the partnership agreement itself. By failing to object to the arrangement announced by Morris Podus and Newman, Broffman is deemed impliedly to have agreed to it and is estopped later to complain. (Busick v. Stoetzl, supra, 264 Cal.App.2d at pp. 738-739.) However, as in Busick, once Broffman objected not only to the removal of the limit from the management fee but

Broffman next contends that since Newman was not a licensed real estate broker, he could not legally receive a fee for negotiating leases and collecting rents because one performing such services for another for compensation is required by law to be a licensed broker. (Bus. & Prof. Code, § 10131.) The record discloses that certain of the management services performed by Lewis Podus before his death and subsequently by Newman included these real estate services. Newman was not so licensed. The record does not indicate what portion of Newman’s work involved leasing space and rent collection. Statutory and case law in this area demonstrates that a general partner of a partnership performing such services for the partnership is performing them on behalf of another, not on his own behalf as a co-owner of property, as Newman urges. The statute which exempts certain persons from the license requirement, Business and Professions Code section 10133, was amended in 1985 to add a general partner of a partnership only where no special compensation is received. (Froid v. Fox (1982) 132 Cal.App.3d 832 [ 183 Cal.Rptr. 461 ]; Stickel v. Harris (1987) 196 Cal.App.3d 575 , 592, fn. 13 [ 242 Cal.Rptr. 88 ].) Newman’s argument that a general partner is acting with respect to his own property is supported by no authority and is contrary to law. While Corporations Code section 15025, subdivision (1) provides that a partner is a co-owner of partnership property, holding as a tenant in partnership, the incidents of that tenancy limit possession to partnership purposes. (Corp. Code, § 15025, subd. (2)(a).) Moreover, and dispositively, Corporations Code section 15026 defines a partner’s interest in the partnership as his share of profits and surpluses, which is personal property. Thus, Newman may not avoid the application of Business and Professions Code section 10131 to some of his work in managing the building.

However, we reject Broffman’s contention that his contract was illegal requiring judgment for Broffman. First, only a portion of Newman’s activities involved leasing offices and collecting rent. Second, the failure to be licensed merely prevents one who is required to be from bringing or maintaining an action to recover compensation. Here, Newman is defending an action to recover compensation already paid to him. Newman neither brought nor maintained an action for compensation for which a real estate broker must be licensed. (Bus. & Prof. Code, § 10136.) In an analogous context involving the law prohibiting an unlicensed contractor from bringing and maintaining such a lawsuit (Bus. & Prof. Code, § 7031), the Court

Furthermore, contrary to Broffman’s contention that the illegality taints the entire agreement rendering it completely void, where the contract on its face calls for hybrid services, some requiring a license and some not, and the contract can be interpreted in the particular case to require work for which no license is necessary, the licensing act does not apply. (Executive Landscape Corp. v. San Vicente County Villas IV Assn. (1983) 145 Cal.App.3d 496 , 500, 501 [ 193 Cal.Rptr. 377 ].) In this case, Newman performed work some of which required a real estate broker’s license and much of which did not. He is therefore not prevented from defending this case and the compensation he received. The real estate license provision imposes no such disability.

We turn to Broffman’s contention that the trial court erred in permitting Newman to present evidence showing that his fee was reasonable, therefore causing no loss to the partnership. Broffman argues and presents authority pertaining to trusts for the proposition that a fiduciary who breaches his duties by self-dealing may not show that his activities were fair to and in the best interests of the other fiduciaries. (Toedter v. Bradshaw (1958) 164 Cal.App.2d 200 , 208 [ 330 P.2d 688 ].) In the absence of agreement, express or implied, Broffman would be correct. However, we have determined the evidence will support a finding there was agreement to the initial compensation agreement. Thus the issue of and consequences for self-dealing as a breach of fiduciary duty need not be decided by the court. The trial court did not err.

In this connection, Broffman complains that testimony by a witness, John Marshall, as to his property management company’s bid to manage the building, 8Vz percent of the gross monthly rental income, violated the expert designation discovery statute, former Code of Civil Procedure section 2037. The trial court overruled Broffman’s objection to the testimony on this ground because Marshall was a percipient witness as to his own bid,

We reach the same conclusion about Newman’s counsel reading from Newman’s answer to Broffman’s complaint in his argument to the jury. We agree with Broffman that arguing to the jury that the partnership has a position, when it is evident that the partnership interests are equally divided on this issue, was both unwarranted and incorrect. This case undoubtedly presents a circumstance where it is appropriate to view the partnership as an aggregate rather than as an entity. (Epstein v. Frank (1981) 125 Cal.App.3d 111 , 119 [ 177 Cal.Rptr. 831 ].) However, it is for the trial court to decide whether an argument is to be permitted. Since it is well established that an attorney may read a complaint including the prayer to the jury as part of his argument, there is no reason in law or logic why a defendant’s attorney may not read from his answer. (Beagle v. Vasold (1966) 65 Cal.2d 166 , 172 [ 53 Cal.Rptr. 129 , 417 P.2d 673 ].) We observe that in fact the trial court ruled there was no evidence of the partnership’s position and that argument as to the partnership’s position was improper, instructing the jury to disregard it. The trial court then permitted the reading from the answer, including the prayer on the part of the partnership, that Broffman take nothing by her complaint. Because the trial court correctly advised the jury of the state of the evidence and instructed the jury to disregard argument as to the partnership’s position, it is not reasonably probable that a different result would have been reached had the answer not been read. (People v. Watson (1956) 46 Cal.2d 818 , 836 [ 299 P.2d 243 ].)

Notwithstanding the status of both express and implied agreement among all of the partnership interests with respect to Newman’s first contract to manage the building, such agreement no longer existed once Broffman protested the employment of Newman to manage the partnership business for a fee. The general partners could agree only to retain a property management firm. We have previously discussed why the general partners could not agree between themselves that one or both of them could be the property management firm without breaching their fiduciary duty to their remaining partner, who held a 50 percent limited partnership interest. Similarly, in the absence of either express or implied agreement by Broffman to

The judgment is reversed. Costs awarded to appellants.

Lillie, P. J., and Woods (Fred), J., concurred.

A petition for a rehearing was denied September 15, 1989, and respondents’ petition for review by the Supreme Court was denied November 15, 1989.