No. 12450 INTHE SUPREME COURT OF THE STATE OF MONTANA 1973

BEN R. ARNOLD, Plaintiff and Respondent,

-vs

# - LEO J

# .CREMER, JR.

## , Defendant and Appellant.

Appeal from: District Court of the SixthJudicialDistrict, 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: 

## 18

## I973Mr. JusticeWesley Castles delivered the Opinion of the Court.

This 

### is an appeal from a judgment entered by the district court of the sixthjudicial district, Park County, afterthat court adopted the report and findings of a SpecialMaster in what developed asan accounting. Judgment inthe amount of $10,749.82 was entered for plaintiff. The actionwas brought by plaintiff Ben R. Arnold to

recover from defendant Leo J. Cremer, Jr. moneys owed arising out of various transactions between plaintiff and defendant, including an oral partnership. plaintiff's action inpart

was for a partnership accounting. Plaintiff asmanager of the partnership submitted his accountingwhich showed a deficit indefendant's accountwhich plaintiff was entitled to. The SpecialMaster determined that tobe $5,862.95. Plaintiff also claimed and was found tobe owed: $4,674.40 for46 heifers purchased by plaintiff for defendant; $212.47 interest on option money borrowed by plaintiff for defendant's benefit. Plaintiff and defendant were long-time friends and both had been in the cattlebusiness foryears. In 1959, they entered intoan oral partnership agreement on a farming and ranching venture. Plaintiff had acquired a lease from one George Wepler. Defendant had cattle toput on the leased land. Both parties had ranch operations of their 

### own. The partnershipwas operated under thename of Arnold Livestock Company. Capital and income

was tobe equal. Operation and management of the venturewas tobe by plaintiff. Other than thename of the partnership, place of operation, and agreement on division of capital and profit, no terms were agreed upon. Such was the informality of the agreement. A bank account was opened and plaintiff, defendant and defendant's son were authorized towrite checks. Plaintiff, however,was the only one who wrote checks on the account. Allof the bank statements, deposit slips and checks were kept. Plaintiff, atthe direction of his accountant, kept other records of the partnership affairs inwhich he recorded receipts and disbursements for the years 1961, 1962, 1963 and 1964. In this regard, the SpecialMaster found: "4. The managing partner maintained accounting records for the partnership until December 

### 31, 1963. These records were used inthe preparation of the partnership income tax returns. The partnershipbooks for the year 1964were maintained by accountant M. L. Smith, who prepared the 1964 partnership income tax return. "5. The accounting records asmaintained by Plaintiff are fairlycommon to the farm and ranch industry. Receipts are deposited inthebank and disbursements aremade by check drawn on thebank. The receipts and disbursements are then classified and entered under appropriate columns ineither the income or I the expense columns provided in National ~armers' Income Tax Record', a copyrighted booklet sold for the indicated purpose. The booklet does not provide for double entrybookkeeping and thus does not within itself contain controls against errors and omissions. II Plaintiff testified that each year he went over thebooks with defendant. Defendant denied he had ever examined thebooks, but admitted Arnold offered to lethim examine them. In addition, during theyears from 1959 through 1963, the partnership tax returnwas prepared by Mr. Schreiner, plaintiff's accountant. Thereafter, defendant's accountant M. L. Smith prepared the partnership return. Plaintiff withdrew money from the partnership account forhis personal use and recorded thewithdrawals as loans to himself

on the partnership books. plaintiff's withdrawals were with the knowledge and consent of defendant Cremer. Plaintiff's uncontradicted testimony was thatnone of the items listedinthebooks

as expense items were used for his own personal livestockbusiness. ~efendant's accountant, M. L. Smith, kept thebooks for Arnold Livestock Company after 1963. Smith had worked for defendant's organization since 1935 and was stillworking for it

on June 19, 1968, when his depositionwas taken.The Wepler lease ran out after three years. A three year lease on the Hanson place was obtained by plaintiff when the Wepler lease stillhad a year torun. Plaintiff kept a personal ledger inwhich was recorded the barley that he and defendant, as individuals, supplied to the partnership. Plaintiff kept theweigh slipswhich were admitted attrial as plaintiff's Exhibit 8-1. Plaintiff and M, L. Smith used records that belonged tothe elevator company to get some of the information as to the grain supplied. On 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 to the Hanson lease. Although defendant got the 436 heifers back, he never paid to the partnership the $70,000 the contract called for.The Internal Revenue Service audited the partnership records in 1962. Plaintiff borrowed money on behalf of the partnership. Plaintiff's personal records for 1959 through 1963were introduced inevidence as Exhibits 13through 

### 22. These were the same type of records kept forArnold Livestock Company. They were kept ina like manner. Plaintiff kept his personal income and expenses separate from those of the partnership. Both plaintiff and defendant used men hired by the partnership tohelp out on their individual operations. Defendant Cremer used the Hanson lease forhis own cattle without reimbursing the partnership. Upon dissolution of the partnership, M. L. Smith (who was defendant's and also the partnership's accountant after 1963)

was hired tomake an accounting. The prices entered on the books for cattlewere establishedby defendant Cremer. Elevator figures

were used todetermine defendant's barley contribution atdefendant's request.Inmaking his findings inregard to the partnership the SpecialMaster had bank records from the Yellowstone Bank; the testimony of Wallace E. Schreiner; the partnership U.S. tax returns; the Smith deposition and smith's accounting and the taxreturns he prepared; the testimony of Charles McCartney, C.P.A. and hisreconstruction of the records; the testimony of Dallas VanDelinder, C.P.A.; and "the entire fileinthe case, including depositions taken prior totrialbut not put inevidence. II On the above facts the SpecialMaster found inaddition to other facts the following, which 

### is amply substantiatedby the record and exhibits: "17. The following balance sheet reflects the assets and capital accounts of the partnership atthe time of discontinuance of the partnership business and at the time of the hearing as determined from the testimony and exhibits and the foregoing findings of fact: ASSETS Cash inYellowstone Bank Due from Leo J. Cremer, 

### Jr. TOTAL ASSETS CAPITAL ACCOUNTS Leo J. Cremer, 

### Jr. Ben R. Arnold TOTAL CAPITAL ACCOUNTS 

## -- $70,226.39 "18. Plaintiff claims $500 for the use of and $100.00 fordamage tocombines alleged to have been used by Defendant. The evidence does not establish that the use of the combines was by the Defendant or under circumstances rendering Defendant liable for same. "19. The partnership entered into a written agreement with Defendant (plaintiff

## 's Exhibit 8-2) whereby the partnership agreed to purchase 400 heifers from Defendant, breed and feed them from April 

### 1, 1963 to November 15, 1963, atwhi.ch timeDefendant agreed tobuy them back for $70,000.00. The partnership paid for the heifers. Defendant took the cattleback prior toNovember 15, 1963, with the complaint that Plaintiff had caused Defendant and the partnership tobe over-stocked with cattle. The evidence isconflicting on the question of the necessity toremove the animals and 

### is insufficient to support any change inthewritten agreement. Defendant 

### is indebted tothe partnership for the sum of $70,000.00 asprovided inthe agreement. II

### As to his two findings for the plaintiff on matters outside the partnership accounting, the Special Master found: "20. Plaintiff purchased for the account of and delivered to Defendant 46 heifers on or about September 30, 1961, for the sum of $4,674.40. Plaintiff drew a draft on Defendant for $4,000.00 which was refused twice and then honored. Plaintiff thought the drafthad been credited tohim, but itwas credited to the capital account of Defendant in the partnership on October 27, 1961. Defendant has not paid Plaintiff for said heifers and 

### is indebted to 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 (Plaintiff's Exhibit 7). The rental for said leasewas paid by the partnership and the lands were used by the partnership in 

### itsbusiness. The lease contained an option to purchase the leased premises atany time prior to December 

### 1, 1964. At the request of Defendant, the Plaintiff exercised the option for the benefit of the Defendant. In order todo so, Plaintiff borrowed $35,412.19 on his own account atthe Yellowstone Bank, Columbus, Montana. Subsequently, a dispute arosebetween the Hansons and Plaintiff concerning performance of the lease agreement and status of the option to purchase. In settlement of the dispute, the optionwas cancelled. Defendant was a participant with Plaintiff inthe negotiations leading up to settlement of the disputeby cancellation of the option, both having gone to the same attorney to represent them in the disputewith the Hansons. There 

### is

### a conflict inthe testimony as to the reason forcancellation of the option, but it does not appear that the cancellation was the fault of the Plaintiff. Plaintiff paid interest of $212.47 on his loan of $35,412.19 and isentitled toreimbursement from the Defendant therefor.

## " The SpecialMaster concluded: 

### "22. In summary of the foregoing findings, The Special Master finds that Plaintiff has rendered an accounting of the partnership affairs to Defendant, and as a result of such accounting and of other dealings between Plaintiff and Defendant as set forth above, Plaintiff 

### is entitled to the balance of $226.39 in the partnership bank account in the Yellowstone Bank, Columbus, Montana, and is further entitled tohave and recover from Defendant the sum of $10,749.82. 

# *

# * *I1 The issues set forthby appellant-defendant are four. The first issue, termed by appellant as the main issue, 

### is: Wheth

### er a solemanaging partner has sustainedhis fiduciaryburden

as a trustee with regard to accuracy of recordkeeping; and withregard to commingling of partnership assetswith his personal assets invarious ways. The other three issues include (1) the receipt inevidence by the Special Master of "unsupported bank statements", (2) the acceptance by the district court of the Special

### aster's findings, and 

### (3) whether this Court should do

an accounting of 

### its own. These latter three issues arenot issues as such, since they allbear on the single issue of whether the evidence submitted atthe hearing was of a kind and of a sufficiency to sustain the findings. The entire thrust of appellant's position inthe district court and here is that as a fiduciary the managing partner was under a strictduty of maintaining detailed records of each

11 transaction and that the managing partner was held to an 

### especially high" degree of duty. Then, appellant argues, where accounts arenot kept with such detail and accurateness as tobe capable of an "audit" ina strict sense, the presumptions are against the one causing it. Appellant states that toprove an item, plaintiff must have accounts and vouchers for each item and cites in support Hansen v. Hansen, 130 Mont. 175, 179, 297 P. 2d 879. He then statesthat the Special Master considered the accounting on an ordinary partnership basis, rather than involving a solemanaging partnership. We have considerable difficultyingrasping appellant's reasoning here. We do not disagreewith the rules of law and accounting that appellant urges, but rather their application to the facts. Appellant seems toargue that plaintiff could not have an accounting because hisbookkeeping was not perfect or that therewas commingling of funds and otherbusiness. However, the Special Master found that plaintiff had rendered an accounting. On items that plaintiff didnot prove, the SpecialMaster did not allow. In summary appellant states that plaintiff has committed a host of acts of impropriety inbreach of his trusteeship as asolemanaging partner; he has taken cash; he has sold his own personal goods to the partnership ata personal profit; he has commingled his own business with that of the partnership; and, he cannot account formissing cattle. Then appellant states: "1n short he [plaintiff]

### is in serious trouble!" Appellant again urges that once a breach of trust has been established, the entireaccounting is suspect and the managing partner must have allpresumptions considered conclusively against him. We have examined the entirerecord. We findnothing as in Hansen, where the Court found thebooks were "utterly unreliable and furnishno basis whatever for a determination of the respective rights of the partners

# *

# * *.I' Rather we find, as the Special Master and the district court found, that an accountingwas made; that plaintiff did not get creditwhere he did not have clear, satisfactoryproof of the same; and that the informal partnership

was conducted ina manner known toboth parties. We findno error and affirm thejudgment.

Justice '--'

a ChieSJustice /' ",



### f-\ Justices

red B. Coate,

Judge, sitting for JusticeJohn Conway Harrison.