No. 87-25

INTHE SUPREME COURT OF THE STATE OF MONTANA
1988

INTHEMATTER OF THE ESTATE OF WILBUR EDWARD SMITH,Deceased.

ROGER H. SMITH, Plaintiff and Respondent,-vsTHE ESTATE OF WILBUR E. SMITH,deceased, HARRIET E. SMITH as PersonalRepresentative and against HARRIET E. SMITH as an individual; ROGER WILBUR SMITH and DOUGLASLANCE SMITH, Defendants and Appellants.

APPEAL FROM: DistrictCourt of the Eighteenth JudicialDistrict, Inand for the County of Gallatin, TheHonorable ThomasA. Olson, Judgepresiding.

COUNSEL OF RECORD:
ForAppellant:

H. A. Bolinger argued, Bozeman,Montana K. Robert Foster,Bozeman, Montana
For Respondent: Kirwan & Barrett; StephenM. Barrett argued,Bozeman, Montana McKinley Anderson,Bozeman,Montana Jim Screnar,Bozeman, Montana

Submitted: November 10, 1987 Decided: January 15, 1988

*e ClerkMr. Chief Justice J. A. Turnage delivered the Opinion of the Court.Plaintiff and respondent Roger H. Smith brought an action alleging partnership against the estate of Wilbur E. Smith (estate). Following jury trial, the trier-of-fact found that a partnership existed and held that one-half of various ranch and personal property including joint tenancy propertybelonged toplaintiffRoger H. Smith. We reverse. Nine issues are presented for our review. Because we
are reversing,we limit our review to the following issue: Did the District Court err when it denied the estate's motion for a directed verdict on thepartnership issue? Wilbur Smith was born in Bozeman in 1895. At the age of five years, Wilbur was adopted by his deceased mother's sister,Annie Smith, and her husband, Pierre Everich Guanus Smith or "Peg" Smith. Wilburmarried Virginia Smith in 1926. In 1928, Wilbur's only child, Roger H. Smith, was born. Wilbur and Virginia divorced in 1936. They remarried in 1942 after signing an antenuptial agreement. Virginia died in 1946.Wilbur married Harriet Smith in 1949. Harriet had two

sons from a previous marriage, Roy and Gordon Boe. Roy is

now deceased. Prior to their marriage, Wilbur and Harriet Smith executed an antenuptialagreement. Wilbur inherited a life estate in theHarry SmithRanch from his mother, Annie, subject to Roger's remainder interest. The Harry SmithRanch (HSR)is a 240-acre ranch located within the Bozeman city limits. Wilbur operated HSR as a dairy until 1960. Roger farmed HSR after 1960 and received crops or cash rent as payment. In January 1982, Wilbur conveyed his life interest in HSR to Roger contingent upon Roger conveying half interest to Roger's wife, Rose. Subsequently, Roger subdivided HSR for sale as residential and commercialproperty.In 1931,Wilbur inherited the Peg Smithplace fromhis stepfather. The Peg Smith place is a 200-acre ranch located one-half mile west of the Harry Smith Ranch. After his parents' deaths, Wilbur purchased the following properties: 1. Elk Creek Ranch or "Madison" (1920 acres and 2000

acres of state leases) is located approximately thirty-five miles west of Bozeman near the Madison River. Roger Smith lived on Elk Creek Ranch and farmed the property from 1954 through 1960and from 1973 through 1979. 2. Madison Valley Ranch (900 acres with 1280 acres of state leases) is located a few miles north of Elk Creek Ranch. Madison Valley Ranch was farmed by Elmer Satre and laterby Norman Bryson from 1947until 1979. 3. Harris Ranch (640 acres) was originally leased by Wilbur in 1953 and purchased by him in 1958. At the time of the purchase, Wilbur advised Roger that he would have one-half interest in this ranch. In 1965 Wilbur deeded a one-half interest to Roger. Wilbur devised his one-half interestby will toRoger's son,Roger Wilbur Smith. 4. The Harman Ranch (240 acres) is adjacent on the east to the Harry Smith Ranch and on the west to the Peg Smith Ranch. It was purchased by Wilbur in 1946. Leo Freeland farmed theHarman Ranch on a crop shareor cash rent basis. Prior to his death, Wilbur subdivided and sold 80

acres of theHarmon ranch. 5. Summit Valley Ranch (375 acres) was deeded by Wilbur to his first wife, Virginia, in 1936 upon their divorce. Virginia devised her interestby will to Wilbur for life with a remainder to Roger. Roger took possession on Wilbur's death. Howard Hedges farmed the SummitValley Ranch

on a crop share or a cash rentbasis. 6. The Norine Buildingwas deeded to Wilbur by Hedley Norine in 1955 as a mortgage to secure a $30,000 loan. Norine periodically borrowed additional money from Wilbur.Subsequently, Norine releasedhis interest in thebuilding to Wilbur in satisfactionof a debt. 7. The Armstead Ranch was purchased jointly by Wilbur and CarlRichter in 1958. The ranchwas sold in 1964. 8. The junkyard consists of about five acres located approximately ten miles west of Bozeman. Wilbur purchased the junkyard in 1963. The contract was not fully paid at Wilbur's death and subsequent payments have been made by the personal representative. Wilbur's inventory and appraisal listed the following assets: Real Property
Elk Creek Ranch Norine Building Junkyard Beartrap MadisonValley Ranch Harris Place Peg Place Harmon Place
Stocks & Bonds 109,842 Mortgages, Notes & Cash 35,402 Jointly-OwnedProperty (Held in the name ofdecedent and his spouse,Harriet E. Smith, as joint tenants with right of survivorship)

(Taxable interest or one-half) 260,268
OtherMisc. Property 43,550 Transfers during decedent's life none
Powers ofAppointment none Wilbur Smith executed his will on March 18, 1980. Wilbur died on March 21, 1983. Section 9 of Wilbur Smith's will states:I have intentionally left no part of m~ 

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### -- - estate or property to 

### 9 son Roger H. Smith, for the reasorthat uponmy death my life estatewill terminate and-endin approximately 240 acres of land adjoining the city limits of Bozeman, Montana, and a farm in Madison County south of Cardwell, Montana, so that said lands will be owned free and clear of encumbrances andwhichhave a value in excess of the requirements of he and his wife.

[Emphasisadded.] Plaintiff Roger H. Smith was born in 1928. Roger married Rose [maiden name also Smith] in 1948. In 1951 Roger borrowed $3,000 to begin operating as a tenant on the Peg Smith Ranch. Roger was hailed out in August 1951. Roger left Bozeman and lived and worked in Trident, Montana, and later at the Canyon Ferry Dam. Roger also worked as a carpenter in Billings. In 1952 Roger returned to Bozeman because he was out of work due to a union strike. The following year Roger moved to the Harris Ranch. In 1954 Roger moved to the Elk Creek Ranch where he resided until 1960. In 1960Rogermoved to the Harry SmithRanch. In 1964, Roger leased the Wellington D. Rankin Ranch near ~ingling. He farmed theRankinproperty for three or four years. During the 1960s, Roger and Wilbur formed a company called Northwest Merchandising, which trucked and sold grain, salt and meal for feeding, concentrates, fertilizer, lumber and other goods. Roger testified that Northwest Merchandisingwas later expanded to include aused automobile and truck dealership. Wilbur Smith financed Northwest Merchandising. In 1968,Roger formed apartnership with hiswife's two brothers, Joseph and Bill Smith. The partnership, called Smith & Smith Construction,built houses and fences. Wilbur financed the company until itwas dissolved in 1972.Roger returned to the Elk Creek Ranch in 1973. He continued to farm the Elk Creek property until his retirement in 1979. Roger and Wilbur also operated a cattle buying and trucking operation. In an intermittent fashion, Roger and Wilbur purchased cattle and subsequently sold the cattle for profit. Wilbur financed nearly all of the cattlepurchases. Except for a brief and unsuccessful attempt at a joint bank account,Wilbur Smithmanaged all funds. Wilburwas the "banker," receiving and distributing or reinvesting all proceeds and profits. Roger brought this action demanding:

(1) A determination that an oral contract to make a will existed between Wilbur and Roger and that all estate properties were to be transferred to Roger upon Wilbur's death;(2) An order determining the will a nullity due to fraud, mistake, undue influence, lack of testamentary capacity or forgery; (3) A determination that the estate property was held in a constructiveor resulting trust; (4) A determination of the existence of a partnership on the estate properties; (5) An accounting of the profits and distribution of partnership assets; (6) A determination of the value of Roger's services to the estate; (7) An accounting of Wilbur's use of property and proceeds belonging to Roger. Roger also demanded appointment of a special adn~inistratorand that a $1,000,000 bond be posted by the personal representative. By the close of the plaintiff's case,all issues except partnership had been dismissed. Following presentation of the defense, the District Court submitted a specialinterrogatory to the jury. The special interrogatory contained questions pertaining topartnership and partnership assets. The jury reviewed nine separate properties as potential partnership property. The jury found that three parcels of real property belonged to thepartnership: (1)the Elk Creek Ranch, (2) the Norine Building, and (3) the "junkyard." Additionally, the jury found that one-half of joint tenancy property,held in the names of decedent and his spouse, Harriet E. Smith, as joint tenants with right of survivorship,waspartnershipproperty.

IssueDid the District Court err when it denied the estate's motion for a directed verdict on thepartnership issue? Following presentation of Roger Smith's case,defendant estatemoved for a directed verdict on the partnership issue. The District Court denied the estate's motion. The court did, however, grant the estate's motion for a directed verdict that Roger Smith had failed to present sufficient evidence of an oral promise to convey real orpersonal property. A partnership isdefined in S 35-10-201(1),MCA, as "an association of two or more persons to carry on as co-owners
as business forprofit." The elementsnecessary to establish

apartnership are found in Benderv. Bender (1965),144Mont.

To establish

# ... a partnership, it is necessary to determine the intentof the parties: such business relationships arise only when the parties intend to associate themselves as such. There must be some contribution by each co-adventurer or partner or something promotive of the enterprise. Theremust be joint proprietary interest and a right ofmutual control over the subject matter of the enterprise or over the property engaged therein,and there must be an agreement to share the profits.

[Citations omitted.] The intention ofthe parties has to be clearly manifested, [citing cases] and must be ascertained from all the facts and circumstancesand actions and conductof theparties. [Citationsomitted.]
The burden of establishing a partnership is upon the person claiming apartnership exists. FirstNational Bank of Twin Bridges v. Sant (1973), 161 Mont. 376, 386, 506 P.2d 835, 841. No person canbecome apartner without the consent of all partners. Section 35-10-401(7)

## , MCA; Pulliam v. Pulliam (Mont. 1987), 733 P.2d 1299, 1300, 44 St.Rep. 483, 485. The existence of a partnership depends upon the intention of theparties. Intentmust be ascertained from all the facts, circumstances, actions and conduct of the parties. Gaspar v. Buckingham (1944), 116 Mont. 236, 246, 153 P.2d 892, 896. The estate contends that Roger Smith failed to provide sufficient evidence of (1) commencement of the partnership;

(2) intent to form a partnership; (3) an agreement to share profits and losses; and (4)Roger's right to control partnership assets. Roger Smith contends that ample evidencewas presented to support the DistrictCourt's denial of the estate's motion for a directedverdict. After careful review of the record,

we summarize testimony of the followingwitnesses. Raymond S. White, former Gallatin County Assessor, testified that he felt Roger andWilburwerepartners. The estate objected toWhite's nonexpert opinion on the partnership issue. The District Court, over the estate's objection, allowed White and numerous other laywitnesses to give opinion testimony on the partnership issue. Roger Smith's next witness,W. W. Lessley, ChiefWater Judge of theMontana Water Court,testified thatWilbur Smith

was a long-time neighbor and resident of the Harry Smith Ranch. Lessley stated that Flilbur and Roger worked "interchangeably" onwater issues concerning the Harry Smith Ranch.Wilbur owned the Harry Smith Ranch. Roger held a remainder interest in the ranch. Judge Lessley testified thatWilbur and Roger worked together; however, he didnot testifythat a partnership existedbetween Wilbur and Roger Smith. Barbara Chapman, an employee of theDepartment of State Lands, surface leasingbureau, testifiedthat althoughWilbur

was the lessee of record, both Wilbur and Roger signed the seed and crop reports required by the State. C. E. Stephenson, an employee of Owenhouse Hardware Company, testifiedthat Roger and Wilbur maintained a mutual charge account atthe store. Ken Graber, an outfitter and friend of Roger, testified that in his opinion, Roger and Wilbur were partners. Thomas J. Kamp, owner of Kamp Implement Company in Belgrade, stated that he feltWilbur and Roger were partners intheElk Creek Ranch. R. G. Roberts, Roger's accountant from 1953 through 1969, testified as follows. Roberts felt Roger and Wilbur

were partners. Roberts' understanding of a partnership was "a partnership would be two or more people involved, making decisions together and handling the monies together and buying and selling together." However, Roger Smith did not mention toRoberts, Roger's accountant of sixteenyears, that he and Wilbur werepartners. Further, Roberts testifiedthat

no realproperty orpersonal property was held aspartnership assets and no partnership tax returnswere ever filed. Jack Cain, a long-time friend of Roger's, testified that he, Wilbur and Roger entered into a number of joint ventures, involving automobile parts and salvage. Cain also statedthathe feltWilbur and Roger were partners. Doug Smith, son of Roger Smith, testified that he also feltWilbur and Roger were partners. Doug based histestimony on Wilbur and Roger's intermittent cattlepurchases. Doug testified that he was very close tohis grandfather. However, Doug stated that neitherhis father Roger nor his grandfatherWilbur evermentioned that theywere partners.Roger testified that he felt he and Wilbur had been partners since 1951. However,Roger did notpresent evidence that Wilbur intended to enter the partnership. Bender v. Bender, 144Mont. at 480, 397 P.2d at 962. Neither Roger nor Wilbur ever mentioned "partner1'or "partnership" in over thirty years of alleged partnership. Further,Wilbur indicated in his will that he did not feel Roger was entitled to any of the alleged partnershipassets. Roger respondsby claiming that his family did not talk about legal relationships suchaspartnership and transfer of real property ownership. Roger further contends that partnership and transfer of real property ownership was "understood" but unspoken. However, Roger

### 's testimony is not supported by the record and is contradictedby Wilbur's 1965 title transfer of the Harris Place to Roger. Roger testified that he periodically received monies for working on the Elk Creek Ranch and other property owned by Wilbur. However,with the exception of cattle purchases, Roger did not present evidence that he and Wilbur divided partnership profits and losses. Bender, supra. A review of Wilbur's voluminous business recordsdoes not reveal division ofprofits and losses. Wilbur's business records and Roger's testimony merely show that Roger was employed by Wilbur and that he and Wilbur engaged in a number of joint ventures involving cattle, trucking, and automotive salvage. Section 35-10-202(4), MCA. Clearly, Roger's involvement in the above-mentioned joint ventures did not create a partnership. Wilbur held legal title to nearly all alleged partnership assets, including real property and state land leases. Roger did notpresent evidence that he had an equal right of control over these alleged partnership assets. See, Rae v. Cameron (1941), 112 Mont. 159, 169, 114 P.2d 1060, 1064. Additionally, Roger testified that Wilbur financed nearly every joint venture and all realproperty purchases.Roger also failed to present evidence of an oral or written partnership agreement or substantial credible evidence of an implied partnership agreement. 

### - Rae, supra. No partnership name or partnership bank accountwas established

or maintained. No partnership income tax returnswere prepared or filed. Both Wilbur and Roger's annual income tax returns showed income and expenses without reference to a partnership. Neither Wilbur or Roger used the words "partner" or "partnership" in any conversation, transaction or financial record. In summary, the record is bare of substantial, credible evidence that would support a jury finding of oral, written or implied partnership. This is especially relevant in light of Wilbur's voluminous and detailed financialrecords. Clearly, the evidence presented does not support a finding, as amatter of law, that Roger and Wilbur Smithwere engaged in a partnership. Sections 35-10-201 and -202,MCA. See, Bender v. Bender, 144 Mont. at 480, 397 P.2d at 962. As stated earlier, the District Court, over defendant estate s objection, allowed numerous nonexpert or lay witnesses to express their opinions as to whether they felt Roger and Wilbur Smithwere partners or engaged in apartnership. In doing so, the court allowed nonexpert witnesses to state their opinions on theultimate jury question. Generally, a witness is not permitted to state a conclusion or give

an opinion of law. Rule 701, M.R.Evid. Bean v. Diamond Alkali Company (Idaho 1969), 454 P.2d 69, 71. Testimony of nonexpert witnesses is confined to matters of fact, as distinguished from matters of law. Olson v. Coats (Or. 1986)

## , 717 P.2d 176, 178. The District Court is required to instruct on the law, while the trier of fact is required to determine the facts from the evidencepresented and draw its conclusions. Sections 26-1-201 and -202,MCA. The court erred when it allowed, over defendant's objection, nonexpert opinion testimony on the partnershipissue. Defendant was prejudiced when the above-mentioned testimony was repeatedly presented tothejury. Additionally, defendant was prejudiced because the improper testimony concerned the sole and ultimatejury question. See, Commission Comments, Rule 704, M.R.Evid. We hold the nonexpert partnership testimony prejudiced defendant and invaded the province of thejury. A review of the record reveals that when the improper testimony is excluded, the record is void of substantial credible evidence which might support a finding of partnership. Accordingly, we vacate thejudgment and remand tothe DistrictCourt with instructionstodismiss. 

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ief Justice Weconcur: