Court Opinion

ID: 9670954
Source: CourtListenerOpinion
Date Created: 2023-08-24 03:28:47.724442+00
Date Added: 2024-06-11T18:16:07.408590
License: Public Domain

FOSHEIM, Chief Justice
(dissenting).
The threshold question is whether the trial court had jurisdiction to enter judgment for appellees. It did not. This is an equitable action. However, there is no evidence in the record that findings were waived in the manner required by SDCL 15-6-52(b). This requires remanding the case with direction that the trial court enter findings, conclusions and judgment based thereon.
Harold and Edithe Brenden (appellees) and Marvin and Delores Anderson (appellants) were equal partners in the business known as B & B Mobile Homes at Water-town, South Dakota. In December 1978 appellants purchased appellees’ partnership interest for $12,000. In this action appel-lees claim appellants breached their fiduciary duty by failing to fully disclose the financial condition of the partnership and that consequently appellants owe them an *141additional $15,446.72. The jury returned a general verdict of $6,250 for appellees.
Appellee’s request for a jury trial was unopposed and granted. While it appears this case was treated as an action at law, the pleadings, requested relief, evidence and arguments clearly shape it as an action in equity. Skoglund v. Staab, 312 N.W.2d 29 (S.D.1981); Orr v. Kneip, 287 N.W.2d 480 (S.D.1979). The complaint alleges a partnership; a sale contract of appellees’ partnership interest to appellants; a breach by misrepresentation of the fiduciary duty as partners; and consequent detriment amounting to $15,446.72. Although appel-lees asked for “damages” in their complaint, they maintained in argument that they were not really seeking damages, but rather their proper share of the partnership assets. Appellees in effect asked the trial court to pierce the sale contract, because of the alleged misrepresentations, and award them what they have coming as equal partners in B & B Mobile Homes. That required a rescission of the contract and an accounting of the partnership affairs.
In Munce v. Munce, 77 S.D. 594, 96 N.W.2d 661, 663-64 (1959), we said:
As a general rule in the absence of statute one partner cannot maintain an action at law against the other to recover an amount claimed by him by reason of partnership transactions until there has been a final settlement of the affairs of the concern by discharging its liabilities, collecting its assets, and ascertaining the share to which each is entitled and up to that time a partner’s only remedy is to apply to a court of equity for dissolution and accounting. Ellenbecker v. Volin, 75 S.D. 604, 71 N.W.2d 208.
Munce follows the general rule stated in 68 C.J.S. Partnership § 108, the reason for which we expressed in Ellenbecker, supra at 210-11 (citation omitted).
‘An accounting and settlement between copartners is a condition precedent to an action by one against another on partnership claims and transactions for the following principal reasons: (1) A dispute of this nature ordinarily involves the taking of a partnership account, for, until that is taken, it cannot be known but that plaintiff may be liable to refund even more than he claims in the particular suit. (2) In partnership transactions a partner does not as a rule become the creditor or the debtor of a copartner, but of the firm. (3) Such a suit would necessitate that the party complained of be both plaintiff and defendant. (4) One partner does not own or have a right to any specific portion of the partnership property’.
In Munce we cited with approval a West Virginia decision which discusses the exceptions to the above rule.
‘If the demand, even though it relates in some measure to partnership matters, is yet so specific and distinct that the right to recover cannot in any event be affected by the state of the partnership accounts, it is suable at law. Thus an action of damages will lie when it does not involve any inquiry into the affairs of the firm. So an action lies for an agreed price of certain partnership stock. So upon an express promise to furnish a given amount of capital or to pay for particular articles. And on an express promise to pay half of a specific sum required for a certain joint adventure. So on a promissory note executed by one or more of the partners to a copartner, although the note is given in payment for partnership stock or is given for the use of the firm, and one item may be separated from the rest of the partnership transactions and adjusted independently so as to support an action. So an action will lie on a note given on a partnership settlement.’ In the case of Newman v. Ruby, 54 W.Va. 381, 46 S.E. 172, an action at law was allowed by one partner against another for money advanced by the former in payment of the share of the latter to the capital of the firm. Judge Poffen-barger, delivering the opinion, quotes approvingly from Dr. Minor in part as follows: ‘But, where no such adjustment of the partnership is requisite to reach the merits of the case, a partner may as readily sue a copartner, in a court of law, as a stranger.’
*142■Thus we see that one partner is not always precluded from an action at law against another partner upon contract, but that under certain circumstances such an action at law may be maintained when it does not involve an adjustment or settlement of the partnership business or accounts, or where the subject-matter has been so separated from the partnership business as not to be a part of it. (Emphasis supplied).
Crockett v. Burleson, 60 W.Va. 252, 54 S.E. 341, 342 (1906) (citations omitted).
In Crockett the plaintiff brought an action at law against his former partner for fraud, claiming that the debts he had taken over for value when he sold his interest to the defendant were either false charges or debts that had already been collected. On an appeal from a judgment dismissing plaintiff’s suit, the Supreme Court of West Virginia reversed the trial court, holding that the plaintiff could properly bring an action at law because
[t]he wrong complained of does not involve in this action the reopening or readjustment of the partnership business or accounts. The contract of settlement and dissolution stands without rescission. The ground of action is in no way connected with the state of the partnership accounts or business, except that the deceit is alleged to have been practiced in relation to the state of the indebtedness owing to the firm before the dissolution.
Id. The plaintiff in Crockett could prove the debts were false charges or had been paid by the testimony from the people the defendant claimed were indebted to the partnership. Thus, the subject matter had been separated from the partnership business and a reopening or readjustment of the partnership business or accounts was unnecessary to resolve the dispute.
In this case each party’s evidence consisted of testimony and exhibits looking behind the contract and bearing directly on the state of the partnership business during the entire term of the partnership. Such evidence was not only proper, but necessary to determine whether appellants misrepresented, and failed to disclose, the true picture of the business as claimed. Without examining the partnership accounts it would have been impossible to grant the relief sought. Accordingly, the general rule we adopted in Munce and Ellenbecker applies.
Neither party disputes the fact that there has never been a final accounting and settlement of the partnership affairs. In fact, appellants have consistently maintained that had the partnership been dissolved according to the partnership agreement, ap-pellees would have been entitled to their half interest. As it is, argue appellants, appellees simply sold appellants their interest for $12,000 in an arm’s-length transaction. Appellants’ position seemingly ignores long-established law in this State that partners are in a fiduciary relationship to each other and thus a partner is considered a trustee of partnership property, holding it for the benefit of the partnership. Betts v. Letcher, 1 S.D. 182, 46 N.W. 193 (1890); SDCL ch. 55-1; SDCL 48-1-13; SDCL 48-3-11, -12, -14; SDCL 48-4-1, -2. Application of these principles requires the trial court to establish, by way of an accounting, whether appellants breached their fiduciary duty as partners and to settle the partnership accounts accordingly.
Rescission and accounting actions are equitable in nature and thus the jury verdict in this case was advisory only. Black v. Gardner, 320 N.W.2d 153 (S.D.1982) (Fosheim, J., dissenting); Heiser v. Rodway, 247 N.W.2d 65 (1976); Holzworth v. Roth, 78 S.D. 287, 101 N.W.2d 393 (1960); State v. Nieuwenhuis, 49 S.D. 181, 207 N.W. 77 (1926); Accord, Skoglund, supra. Since the record reveals no waiver of findings and conclusions, a formal decision is required. Bunnell v. Kindt, 83 S.D. 377, 159 N.W.2d 923 (1968); Nelson v. Nelson, 82 S.D. 404, 147 N.W.2d 1 (1966); Central Loan & Investment Co. v. Loiseau, 59 S.D. 255, 239 N.W. 487 (1931); In Re Lansing’s Estate, 51 S.D. 615, 216 N.W. 353 (1927); Nieuwenhuis, supra; SDCL 15-6-52(a); SDCL 15— 6-52(b). Without the trial court’s findings establishing the partnership accounts and its conclusions as to an equitable settlement *143based on its findings, we cannot properly review the judgment. Black, supra.
The fact that this ease was submitted without objection as a case at law cannot supply subject matter jurisdiction where none exists. Neither can the failure of either party to urge the conclusion herein reached affect the requirement that courts take notice of jurisdictional deficiencies. Black, supra; In Re Mackrill’s Add’n, 85 S.D. 196, 179 N.W.2d 268 (1970); Sioux City Boat Club v. Mulhall, 79 S.D. 668, 117 N.W.2d 92 (1962); In Re Okeson’s Estate, 52 S.D. 387, 217 N.W. 676 (1928).