## Facts

- C. H. Drashner, A. D. Sorenson, and Jacob P. Deis formed an oral partnership to operate a real estate, loan, and insurance business.
- To acquire the existing business from its prior owner, Sorenson and Deis advanced $7,500 at the start of the venture.
- The partners orally agreed the $7,500 advance would be repaid to Sorenson and Deis out of partnership earnings.
- The partners also agreed on commission percentages for sales made by each partner.
- Disputes soon arose about Drashner’s performance and money demands.
- Evidence at trial showed Drashner neglected partnership duties, including spending time in bars during periods when he was expected to be working.
- Drashner sought additional cash distributions beyond what Sorenson and Deis believed the agreement allowed, and they refused.
- Sorenson and Deis had recovered only about $3,000 of the $7,500 advance when Drashner sued to dissolve the partnership and obtain an accounting.
- The trial court found Drashner wrongfully caused the dissolution and ruled Sorenson and Deis could continue the business if they paid Drashner the value of his partnership interest.
- In valuing Drashner’s interest, the trial court (1) treated his share as one-third of the value of partnership property after payment of liabilities and (2) excluded any value for goodwill.
- The trial court valued partnership property at $4,500; after accounting for liabilities (including what remained due on the $7,500 advance and other debts), the court found Drashner’s net partnership interest was $0.
- Drashner appealed to the South Dakota Supreme Court.

## Issues

1. Whether the evidence supported the trial court’s finding that Drashner caused a dissolution in violation of the partnership agreement.
2. Whether, after a wrongful dissolution by one partner, the other partners may continue the business upon paying the wrongfully dissolving partner the value of his interest rather than liquidating the enterprise.
3. Whether the trial court properly valued Drashner’s interest by excluding goodwill and by determining that liabilities exceeded assets, resulting in a $0 value for his share.

## Decision

- The South Dakota Supreme Court affirmed.
- The court upheld the finding that Drashner wrongfully caused the dissolution based on the evidence of his neglect of duties and conduct that led to the breakup.
- The court approved allowing Sorenson and Deis to continue the business and to satisfy their obligation to Drashner by paying him the value of his partnership interest as determined in the accounting.
- The court upheld the valuation method that excluded goodwill and calculated Drashner’s share only after payment of partnership liabilities.
- Because the partnership’s liabilities exceeded the $4,500 value of partnership property, the court agreed that Drashner’s partnership interest had no net value.

## Legal Principles

- A partner who causes dissolution in violation of the partnership agreement may be treated as a wrongfully dissolving partner.
- When dissolution is wrongful as to one partner, the non-wrongful partners may be permitted to continue the business and settle with the departing partner by paying the value of the departing partner’s interest, rather than being forced to liquidate.
- In determining the value of a wrongfully dissolving partner’s interest, partnership liabilities are paid before any distribution to partners; if liabilities exceed assets, the partner’s net interest may be zero.
- A court may exclude goodwill from the valuation of a wrongfully dissolving partner’s interest where the circumstances do not justify requiring the continuing partners to pay for it.

## Conclusion

The South Dakota Supreme Court affirmed the trial court’s determination that Drashner wrongfully caused the partnership’s dissolution and that Sorenson and Deis could continue the business after paying Drashner the value of his partnership interest; because the partnership’s liabilities exceeded its assets and goodwill was excluded, Drashner’s interest was properly valued at $0.


Drashner v. Sorenson, 75 S.D. 247, 63 N.W.2d 255 (1954)