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Sebring Associates v. Coyle

375 N.J. Super. 315, 867 A.2d 1213 (App. Div. 2005)

PARTNERSHIPS; DISSOLUTION—A proper element of damages in a partnership dissolution may include “cash call” damages to return a non-contributing partner’s negative capital account to zero.

Partners in a real estate business sought to dissolve their partnership and recover damages against one of their terminated partners who had maintained a “negative balance in his capital account.” Although the partners’ “interest in the partnership was terminated, [the] partnership was dissolved, but not wound up.”

After a trial, the lower court granted the dissolution and awarded the partnership “cash-call damages to reimbursement in an amount” that only required raising the terminated partner’s “capital account balance to zero, thereby bringing his contributions and withdrawals into equipoise.” The lower court set these damages because of the terminated partner’s “failure to contribute to cash calls, resulting in a negative balance in [his] capital account.” The issue before the Appellate Division was “whether that damage award should be reinstated.”

In reaching its decision to reinstate, the Appellate Division relied on N.J.S.A. 42:1-40 which provides that the terminated partner: would be entitled to his share of partnership assets ... , minus liabilities, consisting in order by which they were to be satisfied of (1) those owing to creditors other than partners; (2) those owing to partners other than for capital and profits; (3) those owing to partners in respect of capital; and (4) those owing to partners in respect to profits.

The Court therefore reinstated the lower court’s judgment of cash call damages to the partners who had continued making contributions during the partnership, where these damages constituted an amount that only required raising the balance of the terminated partner’s capital account to zero.

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