Title: ARNOLD v CREMER

State: montana

Issuer: Montana Supreme Court

Document:

No. 12450 I N THE S U P R E M E C O U R T O F THE STATE O F M O N T A N A 1973 BEN R. ARNOLD, P l a i n t i f f and Respondent, -vs - L E O J . CREMER, J R . , Defendant and Appellant. Appeal from: District Court of t h e Sixth J u d i c i a l D i s t r i c t , Honorable C. B. Sande, Judge presiding. Counsel of Record: For Appellant : William R. Morse argued, Absarokee, Montana C. E. Laws appeared, Absarokee, Montana For Respondent : John R. Kline argued, Helena, Montana Submitted: September 27, 1973 Decided : 1 8 I 9 7 3 M r . J u s t i c e Wesley Castles delivered the Opinion of the Court. This i s an appeal from a judgment entered by the d i s t r i c t court of the s i x t h j u d i c i a l d i s t r i c t , Park County, a f t e r t h a t court adopted the report and findings of a Special Master i n what developed a s an accounting. Judgment i n the amount of $10,749.82 was entered f o r p l a i n t i f f . The action was brought by p l a i n t i f f Ben R. Arnold t o recover from defendant Leo J. Cremer, Jr. moneys owed a r i s i n g out of various transactions between p l a i n t i f f and defendant, including an o r a l partnership. p l a i n t i f f ' s action i n p a r t was f o r a partnership accounting. P l a i n t i f f a s manager of the partnership submitted h i s accounting which showed a d e f i c i t i n defendant's account which p l a i n t i f f was e n t i t l e d to. The Special Master determined t h a t t o be $5,862.95. P l a i n t i f f a l s o claimed and was found t o be owed: $4,674.40 f o r 46 h e i f e r s pur- chased by p l a i n t i f f f o r defendant; $212.47 i n t e r e s t on option money borrowed by p l a i n t i f f f o r defendant's benefit. P l a i n t i f f and defendant were long-time friends and both had been i n the c a t t l e business f o r years. I n 1959, they entered i n t o an o r a l partnership agreement on a farming and ranching venture. P l a i n t i f f had acquired a lease from one George Wepler. Defendant had c a t t l e t o put on the leased land. Both p a r t i e s had ranch operations of t h e i r own. The partnership was operated under the name of Arnold Livestock Company. Capital and income was t o be equal. Operation and management of the venture was t o be by p l a i n t i f f . Other than the name of the partnership, place of operation, and agreement on division of c a p i t a l and p r o f i t , no terms were agreed upon. Such was the informality of t h e agreement. A bank account was opened and p l a i n t i f f , defendant and de- fendant's son were authorized t o write checks. P l a i n t i f f , however, was the only one who wrote checks on the account. A l l of the bank statements, deposit s l i p s and checks were kept. P l a i n t i f f , a t t h e direction of h i s accountant, kept other records of the partnership a f f a i r s i n which he recorded r e c e i p t s and disbursements f o r the years 1961, 1962, 1963 and 1964. I n t h i s regard, the Special Master found: "4. The managing partner maintained accounting records f o r the partnership u n t i l December 31, 1963. These records were used i n the preparation of the partnership income tax returns. The partner- ship books f o r the year 1964 were maintained by accountant M. L. Smith, who prepared the 1964 partner- ship income tax return. "5. The accounting records a s maintained by Plain- t i f f a r e f a i r l y common t o the farm and ranch industry. Receipts a r e deposited i n the bank and disbursements a r e made by check drawn on the bank. The receipts and disbursements a r e then c l a s s i f i e d and entered under appropriate columns i n e i t h e r the income o r I the expense columns provided i n National ~ a r m e r s ' Income Tax Record', a copyrighted booklet sold f o r the indicated purpose. The booklet does not provide f o r double entry bookkeeping and thus does not within i t s e l f contain controls against e r r o r s and omissions. I I P l a i n t i f f t e s t i f i e d t h a t each year he went over the books with defendant. Defendant denied he had ever examined the books, but admitted Arnold offered t o l e t him examine them. I n addi- t i o n , during the years from 1959 through 1963, the partnership t a x r e t u r n was prepared by M r . Schreiner, p l a i n t i f f ' s accountant. Thereafter, defendant's accountant M. L. Smith prepared the partnership return. P l a i n t i f f withdrew money from the partnership account f o r h i s personal use and recorded the withdrawals a s loans t o himself on the partnership books. p l a i n t i f f ' s withdrawals were with the knowledge and consent of defendant Cremer. P l a i n t i f f ' s uncon- tradicted testimony was t h a t none of the items l i s t e d i n the books a s expense items were used f o r h i s own personal livestock business. ~ e f e n d a n t ' s accountant, M. L. Smith, kept the books f o r Arnold Livestock Company a f t e r 1963. Smith had worked f o r de- fendant's organization since 1935 and was s t i l l working f o r i t on June 19, 1968, when h i s deposition was taken. The Wepler lease ran out a f t e r three years. A three year lease on the Hanson place was obtained by plaintiff when the Wepler lease s t i l l had a year t o run. Plaintiff kept a personal ledger i n which was recorded the barley that he and defendant, as individuals, supplied t o the partnership. Plaintiff kept the weigh s l i p s which were admitted a t t r i a l as p l a i n t i f f ' s Exhibit 8-1. Plaintiff and M, L. Smith used records that belonged t o the elevator company t o get some of the information as t o the grain supplied. O n April 1, 1963, Arnold Livestock Company purchased and paid for 400 head of yearling heifers from defendant for $50,000. Defendant Cremer actually moved 436 yearling heifers on t o the Hanson lease. Although defendant got the 436 heifers back, he never paid t o the partnership the $70,000 the contract called for. The Internal Revenue Service audited the partnership records i n 1962. Plaintiff borrowed money on behalf of the partnership. P l a i n t i f f ' s personal records for 1959 through 1963 were introduced i n evidence as Exhibits 13 through 22. These were the same type of records kept for Arnold Livestock Company. They were kept i n a like manner. Plaintiff kept h i s personal income and expenses separate from those of the partnership. Both plaintiff and defendant used men hired by the partnership t o help out on t h e i r individual operations. Defendant Cremer used the Hanson lease for h i s own c a t t l e without reimbursing the partnership. Upon dissolution of the partnership, M. L. Smith (who was defendant's and also the partnership's accountant a f t e r 1963) was hired t o make an accounting. The prices entered on the books for c a t t l e were established by defendant Cremer. Elevator figures were used t o determine defendant's barley contribution a t de- fendant's request. I n making h i s findings i n regard t o the partnership the Special Master had bank records from the Yellowstone Bank; the testimony of Wallace E. Schreiner; the partnership U.S. tax returns; t h e Smith deposition and smith's accounting and the t a x returns he prepared; the testimony of Charles McCartney, C.P.A. and h i s reconstruction of the records; the testimony of Dallas VanDelinder, C.P.A.; and "the e n t i r e f i l e i n the case, including depositions taken prior t o t r i a l but not put i n evi- dence. I I On the above f a c t s the Special Master found i n addition t o other f a c t s the following, which i s amply substantiated by the record and exhibits : "17. The following balance sheet r e f l e c t s the a s s e t s and c a p i t a l accounts of the partnership a t t h e time of discontinuance of the partnership business and a t the time of the hearing a s determined from t h e testimony and exhibits and the foregoing findings of f a c t : ASSETS Cash i n Yellowstone Bank Due from Leo J. Cremer, Jr. T O T A L ASSETS CAPITAL A C C O U N T S Leo J. Cremer, Jr. Ben R. Arnold T O T A L CAPITAL A C C O U N T S -- $70,226.39 "18. P l a i n t i f f claims $500 f o r the use of and $100.00 f o r damage t o combines alleged t o have been used by Defendant. The evidence does not e s t a b l i s h t h a t t h e use of the combines was by the Defendant or under circumstances rendering Defendant l i a b l e f o r same. "19. The partnership entered i n t o a w r i t t e n agreement with Defendant ( p l a i n t i f f ' s Exhibit 8-2) whereby the partnership agreed t o purchase 400 h e i f e r s from Defendant, breed and feed them from April 1, 1963 t o November 15, 1963, a t whi.ch t i m e Defendant agreed t o buy them back f o r $70,000.00. The partnership paid f o r the h e i f e r s . Defendant took the c a t t l e back prior t o November 15, 1963, with the complaint t h a t P l a i n t i f f had caused Defendant and the partnership t o be over-stocked with c a t t l e . The evidence i s con- f l i c t i n g on the question of the necessity t o re- move the animals and i s i n s u f f i c i e n t t o support any change i n the w r i t t e n agreement. Defendant i s in- debted t o the partnership f o r the sum of $70,000.00 a s provided i n the agreement. I I A s t o h i s two findings for the plaintiff on matters out- side the partnership accounting, the Special Master found: "20. Plaintiff purchased for the account of and delivered t o Defendant 46 heifers on or about September 30, 1961, for the sum of $4,674.40. Plaintiff drew a d r a f t on Defendant for $4,000.00 which was refused twice and then honored. Plaintiff thought the d r a f t had been credited to him, but it was credited t o the capital account of Defendant i n the partnership on October 27, 1961. Defendant has not paid Plaintiff for said heifers and i s indebted t o him for the sum of $4,674.40 on account thereof. "21. Plaintiff leased certain lands from Robert P. Hanson and Dorothy M. Hanson, husband and wife, under the terms of a written agreement dated November 22, 1961 ( P l a i n t i f f ' s Exhibit 7). The rental for said lease was paid by the partnership and the lands were used by the partnership i n i t s business. The lease contained an option t o purchase the leased premises a t any time prior t o December 1, 1964. A t the request of Defendant, the Plaintiff exercised the option for the benefit of the Defendant. In order t o do so, Plaintiff borrowed $35,412.19 on h i s own account a t the Yellowstone Bank, Columbus, Montana. Subsequently, a dispute arose between the Hansons and Plaintiff concerning performance of the lease agreement and status of the option t o purchase. In settlement of the dispute, the option was cancelled. Defendant was a participant with Plaintiff i n the negotiations leading up t o settlement of the dispute by cancellation of the option, both having gone t o the same attorney to represent them i n the dispute with the Hansons. There i s a conflict i n the testimony as t o the reason for cancellation of the option, but it does not appear that the cancellation was the f a u l t of the Plaintiff. Plaintiff paid interest of $212.47 on h i s loan of $35,412.19 and i s en- t i t l e d t o reimbursement from the Defendant therefor. " The Special Master concluded: "22. I n summary of the foregoing findings, The Special Master finds that Plaintiff has rendered an accounting of the partnership a f f a i r s to Defendant, and as a r e s u l t of such accounting and of other dealings between Plaintiff and Defendant a s s e t forth above, Plaintiff i s entitled t o the balance of $226.39 i n the partnership bank account in the Yellowstone Bank, Columbus, Montana, and i s further entitled t o have and recover from Defendant the sum of $10,749.82. * * *I1 The issues s e t forth by appellant-defendant are four. The f i r s t issue, termed by appellant as the main issue, is: Wheth- er a sole managing partner has sustained h i s fiduciary burden as a trustee with regard t o accuracy of recordkeeping; and w i t h regard t o commingling of partnership assets with h i s personal assets i n various ways. The other three issues include (1) the receipt i n evidence by the Special Master of "unsupported bank statements", (2) the acceptance by the d i s t r i c t court of the Special aster's findings, and (3) whether t h i s Court should do an accounting of i t s own. These l a t t e r three issues a r e not issues as such, since they a l l bear on the single issue of whether the evidence submitted a t the hearing was of a kind and of a sufficiency t o sustain the findings. The entire thrust of appellant's position i n the d i s t r i c t court and here i s that a s a fiduciary the managing partner was under a s t r i c t duty of maintaining detailed records of each 11 transaction and that the managing partner was held t o an es- pecially high" degree of duty. Then, appellant argues, where accounts are not kept with such d e t a i l and accurateness as t o be capable of an "audit" i n a s t r i c t sense, the presumptions are against the one causing it. Appellant states that t o prove an item, plaintiff must have accounts and vouchers for each item and c i t e s i n support Hansen v. Hansen, 130 Mont. 175, 179, 297 P. 2d 879. H e then s t a t e s that the Special Master considered the accounting on an ordinary partnership basis, rather than in- volving a sole managing partnership. W e have considerable d i f f i c u l t y i n grasping appellant's reasoning here. W e do not disagree with the rules of law and accounting that appellant urges, but rather their application t o the facts. Appellant seems t o argue that plaintiff could not have an accounting because his bookkeeping was not perfect or that there was commingling of funds and other business. However, the Special Master found that p l a i n t i f f had rendered an accounting. O n items that p l a i n t i f f did not prove, the Special Master did not allow. I n summary appellant states that p l a i n t i f f has committed a host of acts of impropriety i n breach of h i s trusteeship a s a sole managing partner; he has taken cash; he has sold h i s own personal goods t o the partnership a t a personal profit; he has commingled h i s own business with that of the partnership; and, he cannot account for missing c a t t l e . Then appellant states: "1n short he [ p l a i n t i f f ] i s i n serious trouble!" Appellant again urges that once a breach of t r u s t has been established, the e n t i r e accounting i s suspect and the managing partner must have a l l presumptions considered conclusively against him. W e have examined the entire record. W e find nothing as i n Hansen, where the Court found the books were "utterly unreliable and furnish no basis whatever for a determination of the respective rights of the partners * * *.I' Rather we find, a s the Special Master and the d i s t r i c t court found, that an accounting was made; that plaintiff did not get credit where he did not have clear, satisfactory proof of the same; and that the informal partnership was conducted i n a manner known t o both parties. W e find no error and affirm the judgment. Justice '--' a ChieS Justice /' ", f-\ Justices red B. Coate, Judge, s i t t i n g for Justice John Conway Harrison.