Court Opinion

ID: 5156667
Source: CourtListenerOpinion
Date Created: 2022-01-02 02:23:05.716531+00
Date Added: 2024-06-11T08:25:23.573573
License: Public Domain

The basis for the remand in the first appeal was to give Lofgren and Wright an opportunity to establish, if they could, an independent source for their capital contributions of February 1, 1973. I believe that they failed to establish such an independent source, and that the superior court's contrary FINDINGS are clearly erroneous. *Page 1370 
Both Lofgren and Wright were credited with $15,000.00 in capital contributions on February 1, 1973, for the FNB loan taken out to secure the sublease agreement for the warehouse. It is their contention, however, that they had never intended that the proceeds from that loan be treated as a capital contribution by them to the partnership. Rather, they allege a bookkeeping error, and have since claimed that the $30,000.00 capital entry reflected their services in managing the company.
While it is certainly possible in the abstract that Mrs. Lofgren, the bookkeeper for the business, might have simply made a mistake in entering the loan proceeds under the wrong account; given the facts of this case, such a conclusion is implausible. From the outset, the $30,000.00 loan proceeds were treated as capital contributions. They were treated as such not only by Mrs. Lofgren, but also by Mrs. Karabelnikoff, the firm's accountant, for purposes of her work records and for reconciling the partner's capital accounts in calculating loss deductions for their 1973 and 1974 tax returns.
No records were ever kept by Lofgren or Wright of the services which they allegedly provided to the business for which their $30,000.00 capital is supposed to stand. There was no substantiation of hours or of agreed upon rates of compensation. Indeed, the $30,000.00 compensation figure seems to have evolved out of thin air with no justification other than the obvious need to find an alternative explanation for the February 1, 1973 entry.
In reaching today's result, the majority has ignored the fact that in our prior opinion we rejected Coleman's claim that he should not be charged with debts of the Lofgren-Wright partnership of which he had no knowledge. We did so on the grounds that Coleman had access to the partnership records at all times and thus should have apprised himself of those debts.Coleman v. Lofgren, 593 P.2d 632, 635 (Alaska 1979). Now we have learned that those partnership records understated the partnership liability by some $30,000.00. To be consistent with our prior opinion, Coleman's liability should be reduced by the same amount.
For these reasons I would modify the judgment of the superior court so that the primary obligation to repay the note would fall on Lofgren and Wright individually, not on the partnership or on the successor partners.
 APPENDIX
 IN THE SUPERIOR COURT FOR THE STATE OF ALASKA THIRD JUDICIAL DISTRICT
FIRST NATIONAL BANK OF ) FAIRBANKS, a national banking ) association, ) )
Plaintiff, ) )
v. ) )
J.B. GOTTSTEIN AND COMPANY, ) INC., et al., ) )
Defendants. ) _____________________________________ ) No. 75-4952
 FINDINGS OF FACT AND CONCLUSIONS OF LAW
The above-captioned case came on regularly for trial on the 25th day of July 1977, and was completed on the 1st day of August, 1977. Subsequent to an appeal filed by defendant Wallace L. Coleman, individually and as a partner d/b/a ABC Warehouse Company, the Supreme Court of the State of Alaska remanded part of this action back to the Superior Court. Pursuant to this partial remand, further proceedings were commenced on the 4th day of September, 1979, and concluded on the 5th day of September, 1979. Having fully considered the documentary evidence presented by the parties, and having reviewed the testimony and having weighed the credibility thereof, and having heard the arguments of counsel, and being fully advised in the premises, the Court makes the following:
 FINDINGS OF FACT
 1. This matter was remanded back to the Superior Court by the Supreme Court of the State of Alaska in Coleman v. *Page 1371 Lofgren,593 P.2d 632 (Alaska 1979). The Supreme Court's partial remand directed this Court to determine whether or not defendants Lofgren and Wright used the proceeds from a note signed February 1, 1973, in favor of the First National Bank of Fairbanks in the sum of $30,020.00, as their capital contributions to the warehouse operation.
2. Liability for the remaining obligations determined by this Court at the conclusion of the trial in this matter held in the summer of 1977, were also appealed by defendant Coleman to the Alaska Supreme Court. The Supreme Court, however, has upheld this Court's findings and judgment on these matters, and, except as otherwise expressly provided for herein, the Findings of Fact and Conclusions of Law dated September 16, 1977, are adopted and incorporated herein.
3. The basis for the Supreme Court's partial remand revolves around certain bookkeeping entries which indicated that Wright and Lofgren were each credited with a capital contribution of $15,000.00 on February 1, 1973, the same date as the aforementioned note with the First National Bank. The Court thusly concluded that:
 . . . the indications are very strong that the note proceeds were used to supply the capital contributions of Lofgren and Wright. If this is so, the primary obligation to repay the note should fall on Lofgren and Wright, not on the partnership or the successor partners. 593 P.2d at 638.
4. Because at the original trial of this matter there was little evidence presented by the parties with respect to the issue of Lofgren and Wright's capital contributions to the warehouse business, a substantial amount of additional testimony and documentary evidence was presented at the proceedings commenced September 4, 1979, in order to adjudicate responsibility for repayment of the subject loan. Defendant Wallace Coleman maintained at this proceeding that the Supreme Court's remand limited this Court's inquiry on this issue to a time period prior to February 1, 1973. The Court finds, however, that the Supreme Court did not intend to so restrain this Court's inquiry, but rather to discover if the proceeds of the loan were in fact used by the outgoing partners Lofgren and Wright, to supply their capital contributions to the partnership.
5. With regard to the specific question of whether or not Lofgren and Wright used the note proceeds to supply their capital contributions the Court finds that the testimony and evidence establishes that they did not. This Finding is based upon the following sequence of events which was established at the first trial and at the most recent proceedings in this matter.
 (a). On or about February 1, 1973, defendants Wayne Lofgren, Richard Wright, and John Bridgers, in their respective capacities as equal partners in ABC Warehouse Company, executed a partnership promissory note in the amount of $30,020.00 with plaintiff, First National Bank of Fairbanks. From the testimony of George Rayburn, trust officer with plaintiff's bank during the relevant period, and of defendants Lofgren and Wright, it was established that the loan proceeds were then placed in escrow with the trust department of First National Bank of Fairbanks to secure performance of the conditions and covenants of a sublease entered into with former defendant J.B. Gottstein Co., Inc.
 (b) The partnership records which were left with the Colemans by the outgoing partners, Lofgren and Wright on June 20, 1974, (see, Findings of Fact, II(D)7, 11), reflected that the capital accounts of Lofgren and Wright were each credited with a capital contribution of $15,000.00 on February 1, 1973. Through the undisputed testimony of the bookkeeper, Kathleen Lofgren, who made the entries in question, it was established that these bookkeeping entries were not made on February 1, 1973, but rather in May, 1973, when the formal partnership books were opened.
 (c) It was further established through the testimony of Kathleen Lofgren that *Page 1372 
the entries in question which resulted in the crediting of $15,000.00 each to the capital accounts of Lofgren and Wright were made in error and without consultation or authorization from the partners in the warehouse. Mrs. Lofgren testified, and this Court finds that the bookkeeping entries which are in question were based upon a good faith, but misapplied, bookkeeping theory. That is, after having charged the partnership with the bank obligation (trial exhibit "F"), she then mistakenly assumed that the corresponding entry was to be made to the capital accounts of Lofgren and Wright. Based upon the credibility of the testimony, the Court further finds that defendants Lofgren and Wright neither instructed the bookkeeper to make the entries in question, nor did the partners consider at any time the proceeds of the note to be a part of their capital investment in the business.
 (d) The testimony adduced at the recent proceedings further established that the entry of defendant Wallace Coleman into the warehouse partnership was predicated upon his payment of $30,000.00 to become an equal but silent, non-working partner in the business. Further, it was shown by Lofgren and Wright that Coleman's entry as an equal non-working partner was not made on the basis of equal cash contributions. Rather, by preponderance of the evidence, it was demonstrated at trial that the capital contributions of Lofgren and Wright at the time of Coleman's entry into the partnership were to consist of cash which was actually invested in the business, and past and future credit which Lofgren and Wright were to receive for the duties which they performed in the operation of the warehouse. In this regard, the Court finds that Lofgren and Wright each devoted substantial amounts of time to the operation without renumeration from the partnership for the period from December, 1972, to June 20, 1974.
 (e) Subsequent to the accounting entries referenced above which resulted in the improper crediting of the capital accounts of Lofgren and Wright, the bookkeeper discovered her error and made several attempts to correct the mistake. More specifically, a note was written to the accounting firm of Arthur Young Company by Mrs. Lofgren requesting that she be given the information necessary to reverse the entries in question and outlining the fact that Lofgren and Wright were to have received $15,000.00 in credit to their capital accounts for the time and labor they devoted to the business. Additionally, the Court finds that Mrs. Lofgren made several attempts to secure the partnership records from the Coleman defendants subsequent to June 20, 1974, in order to make the necessary corrections and close out the partnership books of the Lofgren, Wright and Coleman partnership. These attempts were thwarted, however, as a result of the Coleman defendants' unwillingness to review or release the partnership records entrusted to them.
6. It was maintained by Wallace Coleman at the recently concluded proceedings that Lofgren and Wright were not to receive any credit for the work which they performed in the management of the business. Defendant Coleman further asserted that there was no agreement with Lofgren and Wright regarding their being credited with capital contributions as a result of the labor which was performed. Based upon the credibility of the testimony presented, the Court finds, however, that this position is not supported by the evidence. Through Wallace Coleman's own admissions, it was established that he became a non-working partner in the concern and that Lofgren and Wright were charged with and did carry out the day-to-day management of the partnership affairs. The Court further finds that the reasonable value of the services and labor so rendered by Lofgren and Wright during their association with the warehouse to be at least $15,000.00 each.
7. A further finding of this Court is that the allegations raised by Wallace Coleman as regards the fabrication and/or falsification *Page 1373 
of the bookkeeper's memo to Arthur Young and Company to be completely without foundation. The testimony of the accountant with Arthur Young and Company who handled this account, clearly established that a copy of the note written by Mrs. Lofgren had been in their files prior to the institution of this lawsuit and was a good faith attempt to correct a mistaken bookkeeping entry.
8. As a result of the testimony, it is also this Court's finding that Lofgren and Wright have demonstrated by a preponderance of the evidence that Wallace Coleman was informed of the partnership loan with the First National Bank of Fairbanks and that all parties in this action considered this debt to be a partnership obligation which was to be satisfied by the partnership assets which had been escrowed to secure performance of the sublease agreement with J.B. Gottstein and Company. Although the partnership records reflected a contribution of $15,000.00 each from Lofgren and Wright on February 1, 1973, this was merely a bookkeeping error which did not accurately reflect the agreement or understanding of any of the partners involved in this action. Through exhaustive testimony and documentary evidence, defendants Lofgren and Wright have demonstrated by a preponderance of the evidence that the note proceeds were not used or intended by them or the Coleman defendants to be capital contributions of Lofgren and Wright. Accordingly, this Court finds that the primary obligation to repay the note lies with the assuming partners, Wallace L. Coleman, W. Carson Coleman, and Kit L. Coleman, individually, and d/b/a ABC Warehouse Company by virtue of the assignment dated June 20, 1974.
9. At the most recent proceedings a substantial amount of new evidence was presented surrounding both the capital contributions of the respective parties and the bookkeeping errors referenced above. The Court has also been apprised of the fact that the First National Bank of Fairbanks has, since the institution of these proceedings, obtained a judgment against defendants Lofgren, Wright and Bridgers in a separate action to recover the amounts due on the partnership note at issue in this case. Moreover, Lofgren and Wright, with prior notice to the Coleman defendants, entered into an agreement with the First National Bank of Fairbanks which calls for various payments to be made on the judgment and the accrual of interest at the rate of fourteen and a half percent (14 1/2%) commencing September 1, 1979. As a result of these developments, the Court has duly considered and finds that a Motion submitted by Lofgren, Wright and Bridgers to file an amended answer and cross-claim pursuant to Alaska Civil Rule 15(b) is proper and conforms to the evidence which has been presented.
Based upon the foregoing Findings of Fact, the Court makes the following:
 CONCLUSIONS OF LAW
1. This action was set on for further proceedings in accordance with the directions of the Supreme Court in Coleman v. Lofgren,593 P.2d 632 (Alaska 1979).
2. After balancing the credibility of the testimony of the witnesses and weighing the evidence presented herein, the Court concludes that defendants Wright and Lofgren did not use the note proceeds from the First National Bank of Fairbanks to supply their capital contributions to the warehouse partnerships. Rather, their investment consisted of the monies actually invested in and used by the business prior to June 20, 1974, and their time and labor spent in the operation of the warehouse business, which this Court concludes had a reasonable value of at least $15,000.00 each for Lofgren and Wright.
3. The Court concludes that while the Supreme Court declared that the evidence suggested that Lofgren and Wright may have used the note proceeds from the First National Bank to supply money to their capital accounts, this was due to a misapplied bookkeeping theory, which this Court was not made aware of until further proceedings were commenced. In order to fully understand the nature and circumstances *Page 1374 
surrounding this error and to justly determine liability on the note, this Court was required to look to events which occurred before and after the bookkeeping entries in question. Accordingly, this Court concludes that the Supreme Court did not intend by its Opinion to limit this Court's inquiry to events that occurred on or before February 1, 1973, since to do so would provide no meaningful resolution to the primary questions of the nature of Lofgren and Wright's capital contribution and primary responsibility for repayment of the loan with plaintiff.
4. This Court also concludes that the promissory note with the First National Bank of Fairbanks was a partnership obligation which the Coleman defendants agreed to assume and satisfy by virtue of the assignment dated June 20, 1974. Accordingly, defendants Lofgren, Wright and Bridgers are entitled to look to the Colemans for satisfaction and/or exoneration of all liability attendant thereto. This includes, but is not limited to, the judgment which the First National Bank of Fairbanks has received against those defendants in an action entitled "First National Bank of Fairbanks, plaintiff, v. ABC Warehouse, et al." (Case No. 771404) filed in the State of Alaska, Fourth Judicial District at Fairbanks, which is presently accruing interest at the rate of fourteen and a half percent (14 1/2%) per annum, and all costs incurred by Lofgren, Wright and Bridgers as a result of that judgment.
5. The Court further concludes that the Motion submitted by Lofgren, Wright and Bridgers to file an amended answer and cross-claim under Alaska Civil Rule 15(b) was proper, timely filed, and reflects the evidence and issues presented in this action.
 /s/ Judge Ripley