NELSON v. ABRAHAM

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District Court of Appeal, First District, Division 1, California.

NELSON v. ABRAHAM.

Civ. 12878.

Decided: October 30, 1945

Hardin, Rank, Metzler & Fletcher, of Oakland, for appellant. Raymond Salisbury, of Oakland, for respondent.

Plaintiff has appealed from a judgment for defendant in an action for the dissolution of an alleged partnership, an accounting, and general relief.

It was alleged in the amended complaint, in substance, that plaintiff and defendant formed the partnership by oral agreement to engage in the business of selling ice at wholesale and retail in San Francisco under the firm name of Independent Ice Company; that after the business had been carried on for more than a year defendant, without the knowledge or consent of plaintiff, sold the business and ‘diverted all of said consideration so received upon the sale solely and entirely to his own individual purposes'; that the assets of the business consisted of the good will, furniture, fixtures and equipment, and accounts receivable. It was then alleged on information and belief that all partnership liabilities had not been liquidated, although the consideration received from the sale of the business was ample to pay the same; that there was a net profit from the operation of the business and the sale of the assets; and that defendant refused to account to plaintiff, or to turn over to him his share of the net profits from the business or the sale thereof. Plaintiff therefore asked for an accounting, for the dissolution of the partnership, and general relief. The trial court found that the allegations relating to the sale of the business by defendant, the retention by him of the entire consideration, and his refusal to account, were true; but it further found that the evidence failed to establish a partnership, that plaintiff had no interest in the business or the assets thereof, and that he was not entitled to any of the profits derived from the operation or sale of the business. Judgment was entered accordingly, that plaintiff take nothing by his action.

Plaintiff's first point is directed against the soundness of the negative finding as to the existence of the partnership, the basis of his contention being that the existence thereof was clearly established by various transactions which took place when the business was started and during its operation; also by the undenied admissions and declarations made by defendant before the business was sold. While the evidence introduced by plaintiff relating to those matters presented a substantial case in plaintiff's favor, the record shows, as will be hereinafter pointed out, that the testimony given by the parties as to what was actually said and understood at the time the business was started, is conflicting. Therefore, since the trial court saw fit to accept defendant's version, its conclusion is controlling on the issue as to the existence of the partnership.

It is well settled, however, that where a party brings an action for an accounting upon the theory of the existence of a partnership and he fails to establish that fact, he is entitled, nevertheless, to an accounting if the evidence shows that the relationship of the parties was that of joint adventurers or that they were doing business under a profit sharing agreement, Hauret v. Pedelaborde, 77 Cal.App. 187, 246 P. 134; Champagne v. Passons, 95 Cal.App. 15, 272 P. 353; Butler v. Union Trust Co., 178 Cal. 195, 172 P. 601; furthermore, that where a profit sharing agreement is involved and the action for an accounting is based on an erroneous thereoy of the existence of a partnership, the plaintiff is entitled to an accounting even though it is found that the relationship of the parties is that of employer and employee. Coward v. Clanton, 122 Cal. 451, 55 P. 147; see, also, cases cited and analyzed in Note in 137 A.L.R., p. 169, et seq. In other words, as pointed out in all the above-cited cases, if the plaintiff has a cause of action of which the court has jurisdiction and it is necessary to have an accounting to determine his rights, it will be done, regardless of the erroneous legal theory upon which the action is based.

And in connection with the foregoing doctrines plaintiff contends that where a party brings an action for an accounting based upon the erroneous theory that there was a partnership, and there is evidence tending to show that the relationship of the parties was that of joint adventurers, and the trial court makes no finding as to the existence of a joint adventure, the appellate court will review all the evidence and determine whether such relationship did exist, and if it finds that it did, an accounting will be ordered. Defendant concedes such to be the law. On page 6 of his brief he states: ‘In subdivisions II and III, appellant's brief, page 23, it is contended that appellant is not denied an accounting because he alleges the existence of a partnership, and the proof shows a joint venture. With this we agree. Appellant also contends that upon an action for dissolution of a partnership and accounting where the Court does not make a finding upon the existence of a joint venture, the Appellate Court should review all the testimony to ascertain whether or not a joint venture existed, and if it did exist order an accounting. With this we partially agree, that is to say, the Appellate Court should review the testimony and if a joint venture is found to exist an accounting should be ordered.’

Here there is an absence of any finding on the question of a joint venture. There were certain general findings to the effect that plaintiff was not entitled to any of the assets of the business or to any of the profits derived from its operation or sale; but those general findings amount to nothing more than legal conclusions based upon the ultimate negative finding as to the existence of a partnership. In any event, whether taken singly or together, they are not sufficiently specific in form to constitute a negative finding on the question of joint venture. Turning then to the record in the case, we find the essential facts disclosed thereby to be as follows: For many years the defendant, Isaac Abraham, had been engaged in the business of manufacturing and selling ice at wholesale in Oakland, under the firm name of Independent Ice Company; and for about six years the plaintiff, Julius Nelson, had been in his employ as salesman. Early in 1940, they held several conferences with the view to starting a place of business in San Francisco, to be operated by plaintiff; and defendant at that time told plaintiff that if he would take over the operation of such business defendant ‘would take care of him.’ In the latter part of October, 1940, as the result of such conferences, an office was opened in a downtown building in San Francisco, under the name Independent Ice Company, and plaintiff and an ice-wagon driver employed by defendant started an ice route in that city, the ice being shipped to them from the Oakland plant. All moneys collected in the operation of the business were turned over to the Oakland office, and all accounts payable by the San Francisco operations were paid out of the Oakland office. Although separate books of account were kept in the Oakland office for the San Francisco business, the money received from the San Francisco office was merged with that received from the Oakland business; and plaintiff received a monthly check for his services from the Oakland office for the same amount he had received prior to the opening of the San Francisco office.

Through the efforts of plaintiff, the San Francisco business rapidly increased, so much so that about September 1, 1941, defendant leased a lot and moved a building thereon, following which the downtown office was discontinued and the building was used for storage and office purposes. However, shortly prior to September 1, 1941, plaintiff held several conversations with defendant in which he demanded that a definite understanding be had as to what his future status in the company was going to be; and they finally agreed that the net profits from the business would be divided between them in the proportions of one-third to plaintiff and two-thirds to defendant. Defendant's testimony regarding the making of such agreement was as follows: ‘He [plaintiff] said, ‘Now, before I go any further I would like to know what my part is going to be in this business.’ * * * I told him ‘I will give you one-third of the net profits from the operation of the business.’ I explained, ‘If I made $3,000 net profits out of the San Francisco operation, $1,000 is yours.’ I asked him if that was satisfactory, and he said, yes. I told him, ‘You understand now, you will not have any interest in the business whatsoever,’ and I asked him whether he wanted to go in the office and verify that with his wife. He said, ‘No, it isn't necessary.’ So he went to his business in San Francisco.' Plaintiff's version of the conversation was as follow: ‘I said, ‘Ike, I would like to know, you told me when we started in over here before we started, you would take care of me, and I would like to have that clarified and tell me exactly what you meant and what your intentions are.’ And Mr. Abraham said, ‘Well, what do you think would be an equitable share?’ To which I replied, ‘Well, would you think a one-third interest would be asking too much?’ To which Mr. Abraham said, ‘Well, I think that's fair,’ and the conversation ended there.' (Plaintiff denied that defendant had at any time told him that he would ‘not have any interest in the business.’)

On September 1, 1941, pursuant to the agreement so made, plaintiff took complete charge of the San Francisco business, and it was thereafter operated by him as a separate enterprise, entirely distinct from the Oakland business. He opened and kept a complete set of books, and he also opened a bank account wherein he deposited all receipts from the business, and all accounts were paid by him by checks drawn thereon and signed by him as follows: ‘Independent Ice Company By: Julius Nelson.’ In order to carry on the business it became necessary to obtain a retail sales tax permit from the State Board of Equalization, and the application therefor was signed by plaintiff and defendant as partners doing business under the firm name and style of Independent Ice Company. The San Francisco company bought its ice from the Oakland plant, paying regular platform price therefor, plus hauling charges; and the ice was billed to the San Francisco company by the Oakland office in the same manner that the latter dealt with its other customers. Plaintiff hired and fired the personnel, fixed prices, and handled all credits and collections, etc.; and as the result of his management the business continued expanding in size and the volume of business increased.

It appears, however, that for some time prior to March 31, 1942, defendant, without the knowledge of plaintiff, had been carrying on negotiations with representatives of the Union Ice Company and the City Ice Company for the sale of the San Francisco business; and shortly before the sale was consummated plaintiff learned that defendant was going to meet the representatives of those two companies to discuss the terms of the proposed sale. While the meeting was in progress in the office of the Union Ice Company, plaintiff entered and asserted that he was the owner of one-third of the business and therefore was entitled to sit in the meeting. The representatives of the two companies asked defendant if plaintiff's statement was true, and defendant made no denial thereof. Thereupon plaintiff was permitted to remain during the discussions. Thereafter and on March 31, 1942, without consulting plaintiff, defendant sold the business to the City Ice Company for a consideration of $14,000 in cash, five ice routes in Oakland, and a contract calling for the sale to a customer of minimum of 2500 tons of ice a year from the Oakland plant for a period of not less than five years. On April 7, 1942, plaintiff asked defendant for an accounting, but defendant replied that the profit and loss statement of the business showed a loss of $2,090, and he refused to give any accounting.

In addition to the facts above narrated, the evidence shows that defendant supplied the necessary equipment from his Oakland plant to start the San Francisco enterprise; and that plaintiff furnished no capital to start or carry on the business; furthermore, that during the period of time from September 1, 1941, to the date of sale on March 31, 1942, plaintiff drew from the San Francisco business the same semi-monthly payments he had been receiving prior thereto from the Oakland business; that such payments were made by check, and that although deductions were made therefrom for social security and old age benefits, the evidence also shows that subsequent to September 1, 1941, plaintiff was not covered by workmen's compensation insurance.

‘A joint adventure may be defined to be a joint association of persons in a common enterprise for profit, but falling short of a partnership.’ 14 Cal.Jur. 760. And since the two relationships are similar, the rights and obligations of the joint adventurers, as between themselves, are governed by practically the same rules that govern the relationship of partners; consequently, as in the cases of partnerships, there must be a community of interest as well as sharing the profits. 14 Cal.Jur. 761; see, also, cases cited in 7 Cal.Jur. 10-Yr. Supp. 211. It is held, therefore, that in order to bring a contract within the legal designation of a joint adventure it must be shown that the parties are joint owners of the property belonging to the association. Dempsey-Kearns Theatrical & Motion Picture Enterprises, Inc. v. Pantages, 91 Cal.App. 677, 267 P. 550.

In the present case the evidence establishes most of the factors which go to make up a joint venture; but, as pointed out, there is a sharp conflict in the testimony bearing upon the important issue of whether there was a community interest in the property used in carrying on the enterprise, and that being so we are not prepared to hold as a matter of law that the relationship of the parties fell within the legal status of joint adventurers.

However, the evidence definitely shows, without conflict, that the parties entered into a binding profit sharing agreement, and therefore under the legal doctrine laid down by the cases hereinabove cited plaintiff was and is clearly entitled to a full and complete accounting from and after September 1, 1941, up to and including the sale of the business by defendant, regardless of whether his legal status was that of a joint adventurer or an employee.

The question of whether the profit sharing agreement was intended to include the right of plaintiff to share in the profits derived from sale of the business is, in our opinion, more of a question of fact than of law, and therefore properly should be determined by the trial court at the time of the settlement of accounts, after receiving such additional evidence on that issue as the respective parties may see fit to introduce.

In accordance with the views above expressed, the judgment that plaintiff take nothing by his action is reversed; and an accounting is ordered. Plaintiff will receive his costs of appeal.

KNIGHT, Justice.

PETERS, P. J., and WARD, J., concur.