95-516

No. 95-516

IN THE SUPREME COURT OF THE STATE OF MONTANA

1997

MacARTHUR COMPANY, a Minnesota Corporation,

Plaintiff and Respondent,

v.

KARL STEIN, individually and d/b/a MIDLAND

ROOFING AND MIDLAND ROOFING AND GUTTERS;

JOHN DOES 1-2, individually and d/b/a

MIDLAND ROOFING AND GUTTERS,

Defendants and Appellants.

APPEAL FROM: District Court of the Thirteenth Judicial District,

In and for the County of Yellowstone,

The Hon. Maurice R. Colberg, Jr., Judge presiding.

COUNSEL OF RECORD:

For Appellants:

Jock B. West; West, Patten, Bekkedahl

& Green; Billings, Montana

For Respondent:

Michael K. Rapkoch; Felt, Martin, Frazier

& Nelson; Billings, Montana

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Submitted on Briefs: December 12, 1996

Decided: March 25, 1997

Filed:

__________________________________________

Clerk

Justice Terry N. Trieweiler delivered the opinion of the Court.

 MacArthur Company filed a complaint in the District Court for

the Thirteenth Judicial District in Yellowstone County in which it

alleged that Karl Stein, Midland Roofing, Midland Roofing and

Gutters, and John Does 1 and 2 were jointly and severally liable

for an outstanding debt for roofing materials supplied by MacArthur

to Midland Roofing and Gutters. Following a nonjury trial held on

January 11, 1995, the District Court concluded that Stein was a

partner in Midland Roofing and Gutters at the time the debt to

MacArthur was incurred. The District Court therefore concluded

that pursuant to 35-10-307, MCA, Stein was liable to MacArthur

for the amount of $39,875.27, plus interest and attorney fees. 

Stein appeals from the judgment of the District Court. We affirm 

the District Court.

 On appeal, we address the issue of whether the District Court

erred when it concluded that Karl Stein was a partner in Midland

Roofing and Gutters and was therefore liable for the partnership's

debt to MacArthur Company.

 FACTUAL BACKGROUND

 Karl Stein has operated Midland Roofing in Billings since

1974. Prior to July 1991, Midland Roofing was a sole proprietorship

owned solely by Stein.

 In the summer of 1991, several hail storms occurred in the

Billings area. As a result, the demand for roofing services

increased significantly in the late summer and fall of 1991. Stein

recognized an opportunity to increase his profits because of the

sudden demand for roofing services. He sought to take advantage of

the business opportunity by seeking a line of credit at a local

financial institution, but was unable to secure financing.

 John L. Potter and Jesse Beebe approached Stein in late June

or early July 1991 with the idea of expanding Stein's business to

take advantage of the increase in roofing demand. Both Potter and

Beebe were out-of-state businessmen who engaged in "storm

tracking"--the business of traveling to areas where there was

increased roofing activity due to storm damage. In early

negotiations, Potter asserted that he could handle the general

operation of a roofing business and that a third party, Bill Evans,

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could handle sales and material acquisition. In addition, Beebe

represented that he had the ability to secure credit for the

expanded business.

 In early July, the parties entered into an agreement, some of

which was in writing and some of which was not, but which was

confirmed by subsequent actions of the parties. Pursuant to the

agreement, Stein, Beebe, and Potter agreed to create a new entity

which would operate under the name of Midland Roofing and Gutters. 

The parties expressly intended that the business name would be so

similar to Stein's business name, Midland Roofing, that the public

and customers would be unable to distinguish between the two

businesses. In addition, both Midland Roofing and the new entity,

Midland Roofing and Gutters, were to use the same telephone number

and all calls to that number were to be answered by employees of

Midland Roofing and Gutters. The parties agreed that a record

would be made of all telephone calls and that Stein would be given

a first right to accept any potential roofing job. Midland Roofing

and Gutters had the option to complete any other jobs.

 As part of the parties' initial written agreement, Stein's

compensation was equal to three percent of total gross charges for

all "nail-on roofing" jobs and ten percent of gross charges for

"hot roofing" jobs performed by Midland Roofing and Gutters. 

Midland Roofing and Gutters also agreed to pay one of Stein's

employees a portion of his salary for inspection work and to set

aside $.50 per roofing square to be set up in a two-signature

account, which would bear the signatures of Stein and Beebe, to

cover any warranty work necessary after Midland Roofing and Gutters

ceased operation.

 In August 1991, Jesse Beebe arranged a line of credit for

Midland Roofing and Gutters from MacArthur Company. Stein had

previously been denied credit by the company. His purchases from

MacArthur were on a "cash only" basis. On the credit application,

Beebe listed Midland Roofing and Gutters as the company seeking

credit, and named himself as the "principal or officer." Neither

Stein nor Midland Roofing was mentioned on the credit application,

and MacArthur was not advised of Stein's association with Midland

Roofing and Gutters. Based solely on Beebe's credit references,

MacArthur granted Midland Roofing and Gutters a line of credit and

supplied the company with materials from August 1991 through

January 1992. 

 In January 1992, Jesse Beebe, John Potter, and Bill Evans

departed the Billings area without notice, and left an unpaid

balance to MacArthur Company in the amount of $39,875.27. On

May 12, 1994, MacArthur Company filed a complaint in the Thirteenth

Judicial District Court in Yellowstone County against Karl Stein,

Midland Roofing, Midland Roofing and Gutters, and John Does 1 and

2. MacArthur alleged that each of the defendants, as partners in

Midland Roofing and Gutters, was jointly and severally liable for

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the outstanding debt to MacArthur.

 Following a hearing on January 11, 1995, the District Court

concluded that Stein was a partner of Midland Roofing and Gutters

at the time the debt to MacArthur was incurred. The District Court

therefore concluded that, pursuant to 35-10-307, MCA, Stein was

"jointly liable for all . . . debts and obligations of the

partnership." Based on its conclusions, the court ordered Stein to 

pay $39,875.27, plus interest and attorney fees, for the debt owed

to MacArthur by Midland Roofing and Gutters.

 DISCUSSION

 The issue in this case is whether the District Court erred

when it concluded that Karl Stein was a partner in Midland Roofing

and Gutters and was therefore liable for the partnership's debt to

MacArthur Company.

 Our review of a district court's order is two-fold. We review

a district court's findings of fact to determine whether the

court's findings are clearly erroneous. Daines v. Knight (1995),

269 Mont. 320, 324, 888 P.2d 904, 906. We review a district

court's conclusions of law to determine whether they are correct.

Carbon County v. Union Reserve Coal Co. (1995), 271 Mont. 459, 469,

898 P.2d 680, 686.

 Section 35-10-201(1), MCA (1991), defines a partnership as "an

association of two or more persons to carry on as co-owners a

business for profit." Section 35-10-202, MCA (1991), provides:

 In determining whether a partnership exists, these

 rules shall apply:

 (1) Except as provided by 35-10-308 persons who are

 not partners as to each other are not partners as to

 third persons.

 (2) Joint tenancy, tenancy in common, tenancy by

 the entireties, joint property, common property, or part

 ownership does not of itself establish a partnership,

 whether such co-owners do or do not share any profits

 made by the use of the property.

 (3) The sharing of gross returns does not of itself

 establish a partnership, whether or not the persons

 sharing them have a joint or common right or interest in

 any property from which the returns are derived.

 (4) The receipt by a person of a share of the

 profits of a business is prima facie evidence that such

 person is a partner in the business, but no such

 inference shall be drawn if such profits were received in

 payment:

 (a) as a debt by installments or otherwise;

 (b) as wages of an employee or rent to a landlord;

 (c) as an annuity to a surviving spouse or

 representative of a deceased partner;

 (d) as interest on a loan, though the amount of

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 payment varies with the profits of the business;

 (e) as the consideration for the sale of a goodwill

 of a business or other property by installments or

 otherwise. 

 This Court established the elements for the determination of

the existence of a partnership in Bender v. Bender (1965), 144

Mont. 470, 480, 397 P.2d 957, 962: (1) the parties must clearly

manifest their intent to associate themselves as a partnership;

(2) each party must contribute something that promotes the

enterprise; (3) each party must have a right of mutual control over

the subject matter of the enterprise; and (4) the parties must

agree to share the profits of the enterprise. We have consistently

held that each of the four Bender requirements must be established

in order to prove the existence of a partnership. See, e.g.,

Weingart v. C & W Taylor Partnership (1991), 248 Mont. 76, 79, 809

P.2d 576, 578; Montana Bank of Red Lodge v. Lightfield (1989), 237

Mont. 41, 45, 771 P.2d 571, 574; Antonick v. Jones (1989), 236

Mont. 279, 283, 769 P.2d 1240, 1242; In re Estate of Smith (1988),

230 Mont. 140, 145, 749 P.2d 512, 515. 

 In this case, the District Court analyzed the alleged

partnership of Stein, Beebe, Potter, and Evans pursuant to both

 35-10-202, MCA (1991), and the elements of partnership set forth

in Bender. The court found that the parties' actions and conduct

were sufficient to establish their intent to associate themselves

as a partnership. In addition, the court found that each party had

contributed something that promoted Midland Roofing and Gutters,

that each had a joint proprietary interest and a right of mutual

control over the enterprise, and that each had received a share of

the profits of the enterprise. Based on its findings, the court

concluded that Stein, Beebe, Potter, and Evans had created a

partnership and that that partnership was in existence at the time

the debt to MacArthur Company was incurred. The court therefore

concluded that, as a partner in Midland Roofing and Gutters, Stein

was liable "jointly for all . . . debts and obligations of the

partnership," pursuant to 35-10-307, MCA (1991). 

 The initial test for the determination of whether a

partnership exists is the intent of the parties. Antonick, 236

Mont. at 284, 769 P.2d at 1242. At trial, Stein testified that he

did not intend to create a partnership through his negotiations

with Beebe and Potter. However, as this Court noted in Truck

Insurance Exchange v. Industrial Indemnity Co. (1984), 212 Mont.

297, 300, 688 P.2d 1243, 1244-45:

 [I]f the facts bring the arrangement within the

 definition of a partnership, the parties cannot escape

 liability incident to that relationship merely by saying

 that no such thing exists. If the intended action of the

 parties creates a partnership in fact, what the parties

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 call their arrangement or intend their arrangement to be

 is irrelevant.

(Citation omitted.) Therefore, where intent cannot be directly

ascertained, it must be established from all the facts,

circumstances, actions, and conduct of the parties. Antonick, 236

Mont. at 284, 769 P.2d at 1242. In this case, then, it is not

necessary that Stein intended to be a partner in Midland Roofing

and Gutters; it is only necessary that he intended his actions and

that his actions created a partnership in fact. 

 In this case, the District Court found that, regardless of

Stein's intentions, the parties had created a partnership in fact

through their actions and conduct. Specifically, the court found

that the remaining three elements of Bender--contribution, joint

interest and control, and the right to share profits--had been

proven and were indicative of the parties' intent to establish a

partnership. 

 Pursuant to Bender, in addition to the requirement of intent, 

each of the purported partners must contribute something that

promotes the enterprise. Bender, 144 Mont. at 480, 397 P.2d at

962. In this case, the District Court found that each of the

parties had made a contribution to Midland Roofing and Gutters

sufficient to indicate the creation of a partnership. 

Specifically, the court found that Stein had contributed to Midland

Roofing and Gutters the name of his business, his business license,

and his goodwill in the community. In addition, the court noted

that Stein had agreed to warrant work completed by Midland Roofing

and Gutters. The other parties, the court found, had contributed

roofing skills, start-up revenue, and sales skills. Based on the

substantial contributions of each of the parties, the District

Court found that the element of contribution had been established. 

 The uncontroverted evidence at trial established that Stein

lent his business name, his telephone number, his business leads,

his good will, his business license, and his expertise to Midland

Roofing and Gutters. We hold that such contribution was promotive

of the enterprise of Midland Roofing and Gutters. We therefore

conclude that the District Court's finding that the element of

contribution had been established is supported by substantial,

credible evidence and is not clearly erroneous.

 A further requirement of Bender is that each party to an

enterprise have a joint proprietary interest in, and right of

control over the subject matter of the enterprise. Bender, 144

Mont. at 480, 397 P.2d at 962. In this case, the District Court

found that Stein did have such interest and control. Specifically,

the court found that, pursuant to the parties' agreement, Stein had

the right to exercise quality control over the work performed by

Midland Roofing and Gutters and, after inspection, could have

required that the work conform with his standards. In addition,

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the court found that Stein had agreed to perform future warranty

work for Midland Roofing and Gutters and had established a joint

account for the payment for that work. Finally, the court found

that Stein had reserved the right to discontinue the parties'

arrangement and prohibit Midland Roofing and Gutters from using his

telephone number and business license. Although the court noted

that Stein did not specifically hire the employees of Midland

Roofing and Gutters or arrange for their work schedule or payment,

the court found that "there are sufficient indices of control and

proprietary interest to determine that he was in fact a partner."

 In addition to the District Court's specific findings

regarding Stein's proprietary interest and right of control, the

record reflects that Stein was involved in the oversight of the

day-to-day workings of Midland Roofing and Gutters. Stein

testified at trial that he visited Midland Roofing and Gutter job

sites and gave advice on local building code requirements. In

addition, Stein testified that he was in the offices of Midland

Roofing and Gutters on a daily basis and answered the phones for

that entity. Moreover, the evidence presented at trial established

that Stein and Midland Roofing and Gutters worked together to

contact the general public. This evidence was clearly indicative

of Stein's interest in and control of Midland Roofing and Gutters. 

We therefore hold that the District Court's finding of Stein's

right of mutual control and joint proprietary interest is supported

by substantial credible evidence and is not clearly erroneous. 

 The final element of Bender requires that there must be an

agreement to share profits in order to establish a partnership. 

Bender, 144 Mont. at 480, 397 P.2d at 962. In this case, the

District Court found that Stein was entitled to receive a

percentage of Midland Roofing and Gutters' profit. Specifically,

the court noted that both the written agreement formalizing the

parties' arrangement and its subsequent modification entitled Stein

to a percentage of the gross revenue on all work done by Midland

Roofing and Gutters. In addition, the court noted that, according

to testimony at trial, Stein earned between $75,000 and $92,000 in

both cash and materials from his agreement with Midland Roofing and

Gutters. As the District Court correctly stated, "[t]he receipt by

a person of a share of the profits of a business is prima facie

evidence that such person is a partner in the business." Section

35-10-202(4), MCA (1991). Based on the evidence at trial, which

clearly established that Stein was entitled to share the profits of

Midland Roofing and Gutters, we hold that the District Court's

finding that the final element of Bender had been satisfied is not

clearly erroneous.

 Because we uphold the District Court's findings regarding the 

establishment of the four elements of a partnership, we hold that

the court's conclusion that Stein, Beebe, Potter, and Evans had

created a partnership is correct. The only remaining question,

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then, is whether Stein is liable, as a partner, for Midland Roofing

and Gutters' debt to MacArthur Company.

 Section 35-10-307(2), MCA (1991), provides that "[a]ll

partners are liable . . . jointly for all . . . debts and

obligations of the partnership." In this case, because we hold

that Stein was a partner in Midland Roofing and Gutters, we further

conclude he was jointly liable for the partnership's debt to

MacArthur Company. We do not address the issue of whether that

makes him individually liable for the entire partnership debt

because that issue has been neither raised nor briefed by the

parties. Furthermore, we reject Stein's contention that he is not

liable to MacArthur because MacArthur was not aware of his

relationship with Midland Roofing and Gutters when it extended

credit to the company. Reliance is an element of partnership by

estoppel; it is not necessary to the establishment of liability of

a partner in fact. Therefore, we hold that the District Court was

correct in its conclusion that, pursuant to 35-10-307, MCA

(1991), Stein was jointly liable for the partnership's debt to

MacArthur Company.

 We affirm the judgment of the District Court.

 /S/ TERRY N. TRIEWEILER

We Concur:

/S/ J. A. TURNAGE

/S/ JAMES C. NELSON

/S/ KARLA M. GRAY

/S/ W. WILLIAM LEAPHART

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