Court Opinion

ID: 9720522
Source: CourtListenerOpinion
Date Created: 2023-08-26 08:33:53.498326+00
Date Added: 2024-06-11T18:24:19.020656
License: Public Domain

HANSEN, J.
(concurring). Two brothers, Benjamin and Arthur Schaefer, were partners in a real estate business, with expenses shared and profits divided 50/50 between the two brothers. When Ben died in 1969, the partnership of the two brothers terminated. See sec. 178.37, Stats. (1975).
For more than eight years, however, the .business continued to be run, with the Estate of Ben stepping into Ben’s shoes, with expenses shared and profits divided between Arthur and the Estate of Ben. This action was brought for a declaration of clarification of rights of Arthur and the Estate of Ben as to increments in value of properties held by the original partnership at the time of Ben’s death.
Do such increments in value over the eight-year period go solely to Arthur, or are they to be shared 50/50 between Arthur and the Estate of Ben? If, as Arthur now *388contends and the trial court agreed, Arthur was a sole proprietor doing business for the eight years as the only surviving partner, the increased values inure to his benefit alone. If, the majority of this court holds, Arthur was only “winding up” the initial two-brother partnership, albeit rather slowly, the Estate of Ben, represented now by the bank trustee, receives one-half of the value of the partnership assets at the time of final dissolution. If, as this writer concludes, a new partnership between Arthur and the Estate of his brother Ben was created and existed for the eight-year period, then upon dissolution, the assets of the new partnership, or value thereof, are to be divided 50/50 between Arthur and his new partner, the Estate of Ben.
Testing whether there is here a new partnership between Arthur and the Estate of Ben starts with the statute, taken from the Uniform Partnership Act, defining a partnership as an “association of 2 or more persons to carry on as co-owners a business for profit.” Sec. 178.03(1), Stats. Our Wisconsin Supreme Court has held that “four elements need to be met so as to qualify as a partnership.” In re Estate of Schaefer, 72 Wis.2d 600, 605, 241 N.W.2d 607, 609 (1976), quoting Skaar v. Department of Revenue, 61 Wis.2d 93, 98, 211 N.W.2d 642, 645 (1973). These four elements are:
Initially, the contracting parties must intend to form a bona fide partnership and accept the legal requirements and duties emanating therefrom. Secondly, there must exist a community of interest in the capital employed. Thirdly, there must be an equal voice in the management of the partnership. Finally, there must be a sharing and distribution of profits and losses. [Footnotes omitted.] Skaar v. Department of Revenue, 61 Wis.2d at 98-99, 211 N.W.2d at 645.
Starting with the fourth test, it is evident and undisputed that there was a 50/50 sharing of profits and *389losses for the eight-year period between Arthur and the Estate of Ben. Books and accounts of the eight-year operation show Arthur and the Estate of Ben credited with profits and charged for losses, share and share alike. Withdrawals between the two were always equal, rent expenses were distributed equally between them, and gains from sales of underlying partnership assets were distributed equally between them, adjusted at times for different depreciation rates. The fourth test is met here.
The third test — the requirement of an equal voice between the partners in the management of the partnership — is not disputed. It hardly could be. Arthur Schae-fer was not only a surviving partner of the original two-brother partnership, but, until removed as such, he was named in Ben’s will as co-executor of the estate. Even before the death of his brother David, also a co-executor, Arthur was the most active personal representative of the estate. By reason of his dual role, an exactly equal voice in management was assured to Arthur, as survivor, and the Estate of Ben, represented by him as co-executor. The third test is met here.
As to the second test — that there be a community of interest in the capital employed — there is and can be no issue raised. As the books and accounts make clear, every dollar of operating expense or loss was charged 50/50 to both Arthur and the Estate of Ben, and every dollar of profit or income was divided 50/50 between them. An exactly equal community of interest was shared by both Arthur and the Estate of Ben in the capital here involved. The second test is met here.
As to the first test — a shared intent to form a bona fide partnership and accept the legal requirements and duties emanating therefrom — the picture is blurred and the situation confused by the fact that Arthur wore two hats, or had two hats to wear, at the times here important. He was the sole survivor of the partnership with *390his brother Ben. He also was co-executor and most active personal representative of the estate of his brother. Ordinarily, in a situation such as this, one would look to communications and contacts between a surviving partner and a bank, executor or widow of the deceased partner. However, here the survivor and the representative of the estate are one and the same person. Who is to say which hat, or both, he has elected to put on his head at a particular time? When he testifies, as he did here and to his own advantage, that he as survivor and he as representative of the estate of his brother never intended a new partnership be created, who is there to gainsay him ?
However, between these parties, as to the existence of a partnership relation between them, what was done by and for the parties speaks as eloquently as words from a witness stand. Whether a new partnership between survivor and estate was created, one court has held, is to be gathered from all of the facts and circumstances. Keller v. Keller, 4 Ill. App. 3rd 89, 280 N.E.2d 281 (1972). Review of the facts and circumstances in the case before us, on the issue of intent of the parties to carry on the business in a new partnership, leads to the following observations and conclusion.
Facts and circumstances in this record that establish an intent of survivor Arthur and the Estate of brother Ben to carry on the real estate enterprise as partners include the following:
Will. Ben Schaefer’s will specifically authorized the executors to cause the estate “to become or remain a partner, general or special, in any business.”'
Petition. In a petition to the Probate Court for instructions on September 17, 1971, Arthur and his co-executors asked the court: “As to whether the Real Estate Partnership shall attempt to dispose of said real *391estate and the co-executors as partners of said Real Estate Partnership shall accept on behalf of the Estate one-half (1/4) of the net proceeds thereof.” The reference, italicized for emphasis, clearly has Arthur and his co-executors acting as partners on behalf of the estate. The last will and testament of Benjamin Schaefer provided: “Said trustees shall take possession of, hold, manage and control said property, with power to rent or lease same, shall collect all rents, incomes, issues and profits thereof.” The petition for instructions filed by the co-executors as trustees indicates no dissent from the expressed will of the testator. Instead, it shows that they viewed themselves as acting as partners for the estate in the real estate operations.
Returns. During the years of business operation following the death of Ben, partnership tax returns, state and federal, were caused to be prepared by Arthur and then reviewed and signed by him. These tax returns show the Estate of Ben to be a partner with Arthur showing that all income of the real estate operation was shared equally between them as partners, and that all expenses of the real estate operation were shared equally between them as partners. Form K-l filed with federal partnership income, tax returns and submitted to the Estate of Ben for its tax purposes showed the estate as a partner in the real estate operation. As to the tax treatment of income received, our Wisconsin Supreme Court has held that “receipt of a share of business profits, as shown in tax returns, is prima facie evidence of partnership, under sec. 178.04(4), Stats.” In re Estate of Schaefer, 72 Wis.2d at 606, 241 N.W.2d at 610. Arthur now claims that his repeated representation in tax returns that a partnership existed between himself as survivor and the Estate of Ben were made just “for tax purposes.” However, we deal here with only the intent of the parties. On that narrow issue, what he said “for tax purposes” *392was made for all purposes. At the least, it is not easily retractable when the issue becomes whether he intended to continue the business as a joint partnership with the estate rather than as a sole proprietorship as he now claims.
Capital Gains. Following the “Section 754 election” in the 1970 partnership tax return filed, and entirely consistent therewith, Arthur distributed one-half of capital gains realized by the partnership to the Estate of Ben, and the Estate paid taxes thereon. We need not deal with all consequences of Arthur’s belated claim that, as a sole proprietor, he should not have paid one-half of capital gains realized in the real estate operations to the Estate of Ben. We deal here solely with the intent of the parties to form a partnership between them. The distribution of its partnership share of the realized capital gains to the Estate of Ben by Arthur clearly shows the intent of the parties to operate the business as a partnership between them.
Election. Arthur, through his accountant, filed what is known as a “Section 754 election,” stating for himself as surviving partner and the Estate of Ben: “The partnership hereby elects to apply the provisions of [I.R.C.] Section 734(b) and Section 743(b) in connection with the transfer of assets at death of Ben G. Schaefer to Estate of Ben G. Schaefer.” [Emphasis added.] An election under I.R.C. §754 can, but need not, be used in connection with a transfer of assets to a new partner, and the election in this case expressly referred to the transfer of Ben’s assets to the estate. It goes beyond a continuation of the preexisting partnership to provide for a “transfer of assets.” This is consistent only with the business continuing with Arthur and the Estate of Ben as partners in a new partnership. In this respect, the books and records of the business, after the death of Ben, go beyond establishing a sharing of profits and *393losses between Arthur and the Estate of Ben. They also establish the division of realized capital gains between Arthur and the Estate of Ben. Such complete sharing of income, losses, and capital gains clearly reveals that the partners, Arthur and the Estate of Ben, conducted the enterprise as a full partnership between them, and intended to do so.
On the scales, against this overpowering evidence of the existence of a partnership between Arthur and the Estate of Ben, there lies only the courtroom testimony of Arthur that he intended to operate as a surviving partner and sole proprietor. This self-serving testimony is here eroded, if not erased, by the earlier inconsistent statements of Arthur declaring the continued operation for over eight years to be a partnership enterprise of himself and the Estate of Ben. Quite aside from being federal or state tax returns, each such tax return is a statement by him to a governmental authority that the real estate operation was a partnership, which was being operated and was taxable only as a partnership between himself and the Estate of Ben. Actually, Arthur whistled the partnership tune so often for so many years that there is not much wind left for his whistling the tune of solo performer now. It is true that Arthur sees support for his change of tune in his having signed some documents, primarily sales agreements, as a “surviving partner” during the eight-year period. In a sense, Arthur was, as to the initial partnership between him and Ben, the survivor or “surviving partner,” even though after Ben’s death he had taken on a new partner, the Estate of Ben.
As to the weight to be given to occasional references to himself as the survivor, the writer notes what the Wisconsin Supreme Court said in the case involving the same parties about references to “tenants in common” on a handful of deed conveyances to Arthur and Ben. The high court held: “Even if this would be sufficient to overcome the statutory presumption, it must be weighed *394against the overwhelming mass of evidence showing that the lands were purchased with partnership funds, managed as a partnership activity, and sold for partnership benefit.” In re Estate of Schaefer, 72 Wis.2d at 606, 241 N.W.2d at 610. On very nearly the same issue, with very nearly the same overwhelming evidence as to a partnership being intended and actually existing between Arthur and the Estate of Ben, the writer would conclude that the overwhelming weight and near complete preponderance of the evidence in this record establishes that a new partnership was established between Arthur and the Estate of Ben which existed during the more than eight years of continued business operation after the death of Ben. So concluding and holding, the writer would reverse and remand to the trial court for further proceedings consistent with such holding and such opinion.