## Facts

- Johnny and Janie Farnsworth (the Farnsworths) and John and Carol Deaver (the Deavers) were partners in a partnership whose business failed and was dissolved.
- The partners did not have a written partnership agreement addressing dissolution, winding up, or allocation of losses beyond the default statutory rules.
- At dissolution, the Farnsworths’ partnership capital account balance was $22,080.68, and the Deavers’ capital account balance was $34,349.41.
- After the partnership paid its nonpartner creditors, the partnership had no remaining assets.
- The parties disputed how to settle the partnership accounts and what each side was entitled to receive in winding up.
- Following a trial on the winding-up accounting, the trial court ordered the Farnsworths to pay the Deavers $6,134.37, which represented one-half of the difference between the two positive capital account balances.
- The Farnsworths appealed the order requiring them to pay the Deavers.

## Issues

1. Under the Texas Revised Partnership Act’s winding-up and settlement-of-accounts provisions, may a court require one partner to pay another partner an amount based on the difference between their positive capital account balances when the partnership has no assets after paying outside creditors?

## Decision

- The court of appeals upheld the trial court’s settlement-of-accounts result requiring the Farnsworths to pay the Deavers $6,134.37.
- The court concluded that, under the statutory winding-up scheme, a partner may be required to make a contribution that effectively results in a payment to a partner with a larger positive capital account, even though the partnership itself has no assets to distribute.

## Legal Principles

- In winding up a partnership under the Texas Revised Partnership Act, the partnership must settle accounts not only with outside creditors but also among the partners.
- A positive partner capital account represents an amount owed to that partner in the final accounting, subject to the statutory order of payment and the partnership’s ability to satisfy obligations.
- When partnership assets are insufficient to satisfy amounts owed in the final settlement, the statute can require partners to contribute to the partnership (consistent with default loss-sharing rules) so that the partnership’s obligations, including amounts owed to partners on their capital accounts, are satisfied.
- Contribution obligations can arise from the statutory accounting even if a partner’s capital account is “positive” on the books; the final settlement looks to the partners’ required contributions and the resulting net amounts each partner must bear or receive.

## Conclusion

Farnsworth v. Deaver holds that, under the Texas Revised Partnership Act’s winding-up accounting, the absence of partnership assets after paying outside creditors does not end the inquiry: partners may still be required to contribute in order to settle partner capital accounts, and a court may order a partner to pay an amount that equalizes the partners’ net positions based on the difference between their positive capital account balances.


Farnsworth v. Deaver, 147 S.W.3d 662 (2004)