Opinion ID: 1240701
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Heading Rank: 4

Heading: Partnership IssueConduct of the Parties.

Text: We have noted that in Iowa the intent of the parties to associate as partners is the crucial test. Fox, 193 Iowa at 1178, 188 N.W. at 967. This is the most widely accepted test for determining whether a partnership exists. Annot., 131 A.L.R. 508, 550 (1941). See, e.g., Gangl v. Gangl, 281 N.W.2d 574, 580 (N.D.1979); Heck & Paetow Claim Service, Inc. v. Heck, 93 Wis.2d 349, 359, 286 N.W.2d 831, 836 (1980). At the outset we observe that if these parties had the intent to associate as partners, it was remarkable that no indication of that intent was included in the lease the parties signed to memorialize their agreement. A partnership can be formed only upon mutual consent of the parties and a meeting of the minds; the intention of one party alone cannot create the relation. Heck, 93 Wis.2d at 359, 286 N.W.2d at 836. It is clear that from the outset Davidson did not even intend to comply with the lease, let alone an unexpressed partnership understanding. The fact findings trial court adopted do not take into account Davidson's intent. A conclusion that Harder intended to associate as a partner is based upon two findings. The first was the court's selection of Umbenhower's version of the telephone call to Texas, rather than Harder's. In this version the latter, following all the relevant events, allegedly responded in the affirmative when asked if he was in partnership with Davidson. The second was Harder's efforts to sell livestock from the farm after Davidson had left the farm and their relationship had terminated. Trial court concluded such control shows Harder believed himself to be more than a one-half owner of the livestock and a mere landlord. Trial court's finding that Harder responded in the affirmative to the inquiry relating to a partnership is entitled to little weight on the scale of substantial evidence. Even in written instruments, the general rule is that laymen misuse legal terms, and the fact they call each other partners is not conclusive if the essential elements of partnership are lacking in their relationship. Crane and Bromberg § 5(a). When a party refers to himself or herself as a partner in the course of a conversation, courts are very reluctant to give the statement any weight at all. Brotherton v. Gilchrist, 144 Mich. 274, 277, 107 N.W. 890, 891 (1906); Whetstone v. Purdue, 107 Or. 86, 90-91, 213 P. 1014, 1016 (1923); Zuback v. Bakmaz, 346 Pa. 279, 282, 29 A.2d 473, 474 (1943); Morris v. Resnick, 268 Wis. 410, 417, 67 N.W.2d 848, 851 (1955). Of similar inconsequential weight were Harder's desperate acts with respect to the livestock in which he thought he had an interest after Davidson departed the scene. No matter what arrangement Harder and Davidson had, the record affirmatively shows it had terminated at that point. Thus Harder's acts could neither be considered in furtherance of, nor in conformance with, a partnership association.
There is no issue concerning this element, as it related to the acts of the parties.
Similarly, there is no issue relating to this element.

Trial court's decision reveals no finding that the parties, by their behavior, indicated an intention to share profits. Certainly the distinction between a contemplated sharing of gross receipts and a sharing of profits is commonly drawn and recognized as valid. Iowa Code § 544.7(3) (1979); Crane and Bromberg § 14(c); 68 C.J.S. Partnership § 30(b)(6).
Although the farm lease clearly provided for co-ownership of certain livestock and feeding equipment, Davidson's maneuvers largely avoided even this limited requirement. Trial testimony was undisputed that, as a result of Davidson's duplicity, Harder in fact never owned a one-half interest in livestock other than a few sheep. It is also important that the major assets utilized in this associationthe real estate owned by Harder and the machinery owned by Davidsonwere and remained the separate assets of the parties. See Gangl, 281 N.W.2d at 580-81; Shrum v. Simpson, 155 Ind. at 163, 57 N.E. at 709.
The main battleground at trial was the attempt to show that Harder, despite the lease provisions, exercised the requisite control of the business. Typically, testimony on this topic concerns who gave instructions, hired and fired employees, had the say on how money was spent, or made important business decisions. If one participated to a significant degree in these functions, he had sufficient control. If he did not, the normal result is no partnership. Crane and Bromberg § 14(d). The search for objective evidence of joint control of the business usually focuses on acts such as holding licenses, assuming a firm name, keeping books that show a capital account for each party, or filing federal partnership tax returns. Id. at § 14(a). None of these indicia, of course, were present here. Significantly, Kevin Sharp, the farmhand who helped Davidson, testified that he was Davidson's employee and had never met Harder. Trial court relied on the following findings in concluding Harder had the requisite control of the operations: feed accounts during an early period were put in Harder's name, thus enabling him to close the accounts had he become dissatisfied with the amount of feed or its cost; the parties corresponded or talked by telephone about once a month; Harder periodically visited the farm; Davidson furnished Harder a monthly accounting; and Harder sold hogs in his own name following Davidson's departure. We already have discussed the feed account evidence. Had there been a joint bank accountone of the indicia of a partnershipother arrangements for Harder to pay the very substantial amounts Davidson was incurring in feeding other persons' livestock would have been unnecessary. As it happened, these bills, for a time, and some of Harder's bills for his separate expenses for building repair and improvement over a longer period of time, were sent directly to him. There was no modification of Davidson's right under the lease, to have sole control of what feed to buy, where to buy the feed, and how much feed to buy, and there was undisputed evidence he consistently exercised that right. There is an inference Davidson thought Harder might be able to track his activities, thus causing Davidson to unilaterally terminate this procedure. Subsequently, Davidson purported to deduct Harder's share of the feed against milk and livestock sales, which Davidson of course received and controlled. Regarding the telephone calls between Davidson and Harder, there again was no evidence Harder exercised or sought to exercise any control over the farming operations. When asked what was discussed during the telephone visits, Davidson testified: A. Sometimes he just wanted to know how things was at the farm weatherwise, crop-wise; a lot of times my wife's health. Q. Did he ever ask you anything about the livestock operation? A. Sometimes he might ask me how they was doing when I had some ready to go. Harder's testimony was this: Q. And did you ever talk to him about it on the telephone like how do things look out on the farm or whatever? A. In maybe general appearance. You know, like I would ask Carl the same thing, like how do things look. Harder obviously had a considerable stake in the Iowa farm and its improvements, in addition to the $30,000 he spent for the illusory livestock. It is understandable that he was interested in the progress of his investment, but there is nothing in the above evidence from which it could be concluded he was exercising any control. This is also the rational explanation for the one-or-twice-per-year visits Harder made to Iowa, where he also had relatives. We already have discussed Harder's conduct with respect to the livestock after the lease terminated. There remains the monthly accounting that Davidson erratically sent Harder. Such accountings are not unusual in share lease arrangements, and do not signal an attempt to control the operation. See Anderson, 256 Iowa at 1326, 131 N.W.2d at 526; Johnson & Co. v. Marsh, 111 Vt. 266, 15 A.2d 577 (1940). Milk proceeds were received every month. Obviously the parties concluded Harder would receive his rent monthly, in the form of receipts, less joint expenses. That this apparently generated no money to Harder is not controlling on the issue under consideration. Harder was obligated to itemize and show his share of receipts and expenses on his income tax return, and required the information supplied by the accounting. Again, there is no indication in the record Harder exercised control upon the basis of the information thus furnished. None of this evidence, taken together, supplied substantial evidence for the court's conclusions that Harder exercised control of the farm operation or that the conduct of the parties disclosed their intent to associate as partners. Finally, Chariton Feed concedes the weakness of its contentions when it states in its brief: The trial court undertook to decide the issue of the existence of a partnership, as to the Plaintiff [Chariton Feed] and Defendant [Harder], and did not purport to find whether the Defendant and Davidson were partners as to each other, since that issue was not before the trial court. Iowa Code section 544.7(1), however, expressly provides: Except as provided by section 544.16, persons who are not partners as to each other are not partners as to third persons. Iowa Code section 544.16, referred to in the statute just quoted, concerns the situation in which a person is made liable by estoppel. That statute, of course, has no application here because Chariton Feed concedes it did not even know of the stock-share lease, let alone an alleged partnership, when it extended credit to Davidson for feed. In summary, we hold trial court erred in concluding, if in fact it did, the written agreement between Harder and Davidson created a partnership. Similarly, we hold trial court's conclusion that Harder's conduct [5] otherwise furnished the requisite proof of the existence of a partnership was not supported by substantial evidence. We thus turn to consider whether the law of agency will support the judgment against Harder.