Reset A A Font size: Print

District Court of Appeal, Third District, California.


Civ. 6640.

Decided: June 05, 1942

Lloyd J. Cosgrove, James M. Hanley, and Herbert Chamberlin, all of San Francisco, for appellant. Peter tum Suden and Richard tum Suden, both of San Francisco, for respondent.

This is an appeal from a judgment in favor of respondent upon his cross–complaint in an action for dissolution of a partnership known as Olmo Bros. Draying Co.

As grounds for reversal, appellant makes the following claims:

1. That certain partnership assets were not converted into cash and a debt of $6,000 found by the trial court to be due to the mother of the parties hereto was not paid and therefore a personal judgment could not be rendered against one of the partners.

2. That the court erroneously found that the partnership commenced on July 1, 1929, instead of July 1, 1934, as claimed by appellant.

3. That appellant was relieved of liability by a written release dated July 1, 1934, which release was erroneously set aside by the court for fraud alleged in its procurement.

4. That an illegal method of accounting was adopted by the referee, that he failed to charge respondent for $2,000 paid him for the alleged fraudulent release, and that the accounting extended back only to October 10, 1929, while the court found that the partnership commenced on July 1, 1929.

5. That the evidence will not support certain findings of fact and the findings of fact will not support the judgment.

Both appellant and respondent, by their pleadings, asked for a dissolution and an accounting, so no issue was raised on these questions.

The essential facts are these:

Appellant and respondent, who are brothers, formed a partnership on July 1, 1929. This partnership continued without interruption until some time in May, 1932. At that time appellant told respondent that there were no profits in the business and that he was going to withdraw and thought he would leave San Francisco, where the partnership business was, and go to Los Angeles. In the preceding April, however, he had filed a certificate with the county clerk in San Francisco, stating that he was doing business individually under the name of Olmo Bros. Draying Co. Appellant claims that at that time respondent abandoned his interest in the partnership and voluntarily turned it over to appellant.

Contrary to appellant's statement, there had been some profits in the business, but respondent had left the bookkeeping to his brother and did not know much about that end of the business. He continued to work with appellant, drawing a salary of $150 per month. Appellant also drew a salary from the business.

Notwithstanding his statements, appellant did not leave San Francisco, but continued to operate the business with his brother as before.

In April or May, 1934, respondent being in urgent need of funds, requested appellant to advance him some money from the partnership. Then for the first time, the partners quarreled over money matters, appellant claiming that respondent had no interest in the business.

The business was conducted from the family dwelling house, where the partners lived with their mother and the rest of the family, including an adult sister, Laura, who for some time kept the books of the partnership. Many discussions of the business were held with the whole family participating. Appellant never told any of the members of his family at any time that he had dissolved partnership with his brother, until April or May, 1934.

At this time, Laura Olmo accused appellant of withdrawing large sums of money from the partnership for his own personal benefit and in particular one check for $5,000 for which he made a stub marked only with five crosses. The check book with the questioned stub subsequently disappeared. Also pages were torn out of other books and certain partnership books and papers completely vanished. Appellant offered an explanation of the $5,000 check which proved to be false.

Notwithstanding the fact that appellant claimed respondent had no interest in the partnership, he offered to pay him $5,000 for his purported interest.

At this time respondent was suspicious of the $5,000 withdrawal but did not have definite information that appellant had appropriated it. What he did not know was that at the very time negotiations were pending, appellant had withdrawn an additional $3,000 and placed it in his personal savings account.

The negotiations culminated in a written agreement of settlement effective as of July 1, 1934, whereby respondent retained a half interest in the partnership, was paid $2,000 in cash and released appellant from all prior claims and demands.

Appellant and respondent thereafter operated the business together until January 14, 1935. At that time respondent got into a personal difficulty having no connection with the business and went into hiding for three months. Appellant thereupon brought this action.

The partnership owned some trucks which respondent asserts were sold for storage charged, but there is no evidence to that effect.

The first ground for reversal claimed by appellant is meritorious. No personal judgment can be rendered by one partner against the other until all the assets have been collected and all the property sold and converted into cash. Clark v. Hewitt, 136 Cal. 77, 68 P. 303.

No personal judgment can be rendered against a partner until all of the partnership debts are paid. Nakamura v. Kondo, 65 Cal.App. 211, 223 P. 425; Albery v. Geis, 1 Cal.App. 381, 82 P. 262.

The second and third grounds of reversal urged by appellant are not tenable.

There is abundant evidence that appellant concealed from respondent important information which if known would have caused him to refuse to enter into the agreement of July 1, 1934. In addition to the $5,000 and the $3,000 withdrawals hereinbefore referred to, there were other large, unexplained withdrawals including sums of several hundred dollars at a time which were paid to a real estate firm from whom appellant was buying property.

At the time of most of these withdrawals, a fiduciary relationship prevailed between the partners, respondent trusted appellant and relied upon his representations, express and implied, concerning the management of the business and the profits thereof.

Under the existing circumstances the trial court was justified in holding that the written agreement of July 1, 1934, was procured upon fraudulent representations made by appellant which were relied upon by respondent, and the court's action in setting aside the agreement was entirely proper. Vance v. Supreme Lodge, 15 Cal.App. 178, 114 P. 83.

Appellant claims that respondent voluntarily withdrew from the partnership in May, 1932, but there is little to support that contention except his own testimony. Respondent continued to work with the firm and denied that he ever withdrew. In this he was supported by the other members of the family who testified that they were never informed of any change in the partnership relation. There is substantial evidence to support the finding that the partnership continued without interruption from July 1, 1929, until the filing of the action for dissolution.

We find little substantial merit in the fourth ground for reversal urged by appellant. The referee was confronted with an incomplete and imperfect set of books, which had been partially destroyed and mutilated while in the custody of the appellant. Where records were missing, he resorted to a system of computations based upon average receipts and expenditures which was the best method he could pursue under the circumstances. If the results arrived at have been to appellant's disadvantage, he cannot complain of a situation brought about by his own dishonest manipulation. Freeman v. Donohoe, 65 Cal.App. 65, 223 P. 431.

In this connection it is true that neither in the referee's report nor in the findings has respondent been charged with the $2,000 which he was paid under the voided written agreement of July 1, 1934. However, in a roundabout way he has had approximately this sum deducted from his judgment. The judgment found due to respondent was $8,095.94. There was $3,910.62 cash on hand with the partnership. The judgment directed that the cash be paid to respondent and that the difference of $4,185.32 be docketed as a personal judgment against appellant. Of course, respondent by virtue of his partnership interest was already entitled to half of the cash on hand, so by the method of payment prescribed he receives $1,955.31 less than the amount found to be due him, which nearly offsets the $2,000 item. The findings and judgment are incomplete and incorrect on this point and while the final result is approximately proper, they should be corrected.

The referee's accounting extended back only to October 10, 1929, while the court found that the partnership was formed on July 1, 1929. But there were no records available to the referee back of October 10, 1929, so it was impossible for him to go back of that date.

There is some merit in the final ground for reversal urged by appellant. That this is true has been indicated by observations previously made herein.

The finding that there was a debt of $6,000 due to the mother of the partners is not completely supported by the evidence. There is evidence that she had advanced them considerable money but nowhere in the briefs on file has it been pointed out that the sum of these advances reached that total. At least the major portion of this debt had outlawed. Respondent acknowledged the debt while appellant repudiated it. This question should be correctly and definitely determined by the trial court and a proper finding made.

There was evidence as to capital contributions made by the partners but no finding on that subject.

A finding that respondent accepted the $2,000 because appellant stated that that was the amount of his pilferings from the partnership, is not supported by the evidence. Appellant never admitted any pilferings but claimed that he was the sole owner of the business and entitled to do as he pleased with its assets, and he did all he could to cover up his illegal withdrawals, which were in excess of $8,000 over the amount to which he was entitled.

There is a finding that during a period when appellant was ill, he absented himself from the business, but nevertheless drew a salary of $250 per month. Apparently this salary was charged against him in the accounting. The evidence shows that notwithstanding his illness, he spent quite a little time with the business, both at the office and at home, and managed to keep it running under severe handicaps. This finding should be eliminated and appellant should be given credit for the salary in question.

There are some inaccuracies in other findings but they are not of sufficient importance to merit discussion here.

The record in this case is voluminous and it seems neither necessary nor expedient to order a complete new trial.

The judgment is reversed with directions to the trial court to vacate the findings and judgment, and to reopen the case for the taking of such additional evidence as may be necessary to prepare proper findings as indicated herein; also to direct the referee to take additional testimony and to file a supplemental report accounting for the partnership assets and debts, and making the other corrections hitherto suggested.

The trial court is further directed thereafter to file new findings and a judgment which will conform to the views expressed in this decision.