CROWLEY v. THOMSON.*
Defendant appeals from a decree (1) dissolving a partnership between himself and plaintiff, and (2) distributing the partnership assets.
Since the appeal is upon the judgment roll alone the findings will be conclusively presumed to be supported by the evidence. (Estate of Roberts, 67 Cal.App.2d 380, 382, 154 P.2d 416. These findings so far as material here may be summarized as follows:
Plaintiff and defendant entered into a partnership agreement on July 5, 1950, which had for its purpose the redrilling of an oil well known as ‘Bowles No. 1’, and the production and sale of oil and gas therefrom. Pursuant to the provisions of the agreement plaintiff contributed $9,000 and defendant $3,000 which sums were deposited in the California Bank subject to withdrawal by their joint signatures. On July 5, 1950, defendant and his wife, pursuant to the partnership agreement assigned to the partnership their right, title and interest in a lease designated as the Zephyr Oil Co. lease, reserving unto themselves a seven and one-half per cent overriding royalty. Plaintiff withheld his consent to proceeding with redrilling ‘Bowles No. 1’ pursuant to the provisions of paragraph Seventh (a) of the partnership agreement, which reads as follows: ‘(a) All questions of business policy of the partnership as well as questions respecting the control, management and operation of the partnership, its assets and affairs, the amount and kinds of insurance to be carried, and the like, shall be determined in accordance with the mutual consent and approval of both of the partners.’
Thereafter plaintiff instituted the present action for the dissolution of the partnership and distribution of partnership assets to which defendant filed a cross-complaint. After trial the court ordered (1) the partnership should be dissolved, (2) plaintiff should be returned his original capital investment of $9,000, (3) defendant should be returned his contribution of $3,000, less some items of expense which the court allowed as partnership expenses, and (4) the oil lease assigned to the partnership by defendant and his wife should be returned to defendant.
Questions: First: Did the trial court err in decreeing the return to each partner of his capital contribution?
No. The rule is accurately stated in Swarthout v. Gentry, 62 Cal.App.2d 68, at page 83, 144 P.2d 38, 46, thus:
‘The general rule is that the decree should direct a sale of assets and division of proceeds, as that is regarded as the fairest course to be pursued. But where there are no debts necessitating a sale, and a division of assets in kind is fair to all parties, it may be ordered.’
In the instant case there was no necessity of selling the partnership assets in order to constitute a fair distribution of the assets between the parties. Hence the trial court properly applied the rule promulgated in section 15018(a) of the Corporations Code which reads:
‘Each partner shall be repaid his contributions, whether by way of capital or advances to the partnership property and share equally in the profits and surplus remaining after all liabilities, including those to partners, are satisfied; and must contribute towards the losses, whether of capital or otherwise, sustained by the partnership according to his share in the profits.’ (See also Tiffany v. Short, 22 Cal.2d 531, 533, 139 P.2d 939.)
There is no merit in defendant's contention that the lease which he contributed to the partnership should be valued at $6,000 as of the date of its assignment to the partnership, and that if at the time of the dissolution of the partnership it was worthless, plaintiff charged with half of the loss, for the reason that there is no finding that the lease was of the designated value and the trial court ordered its return to defendant as part of his contribution to the partnership assets. It is evident that at the time defendant contributed it to the partnership he knew of the provisions of paragraph Seventh (a) of the partnership agreement set forth above, and that accordingly the lease might or might not be of value in the event the partnership did not proceed to recondition the well.
Second: Did the trial court err in allowing plaintiff his costs upon the dissolution of the partnership?
No. An action for dissolution of a partnership and an accounting is an action in equity and a provision that plaintiff is entitled to recover his costs under the provision of the Code of Civil Procedure, section 1032(c), is within the discretion of the trial court, whose action will not be disturbed where, as in the instant case, there is no showing of an abuse of discretion. (Owen v. Cohen, 19 Cal.2d 147, 155, 119 P.2d 713).
The oil lease which the parties contemplated developing was assigned to and accepted by the partnership upon its formation. It was therefore a capital asset of the partnership. It was of undetermined value, but whatever its actual or potential value it came to naught on August 26, 1950, when the time to drill expired. Since the lease was partnership property its loss was a partnership loss, just as its increase in value would have been a partnership asset. The loss of the lease was not different from the loss of any other partnership property, e. g., the cash which the parties had also contributed to this venture.
By the terms of their agreement, each of the parties had a one-half interest in the partnership and was to share equally the profits and losses.1 To distribute, upon dissolution, the assets in kind and thus return to defendant the lease which had become valueless through no fault of his is both inequitable and contrary to the partnership agreement since this throws the entire loss on one of the parties. That the parties should share equally this loss, even in the absence of any agreement therefor, finds support in section 15018(a) of the Corporations Code quoted in the majority opinion. It is there provided that ‘Each partner * * * must contribute towards the losses, whether of capital or otherwise, sustained by the partnership according to his share in the profits.’ See Kirkpatrick v. Smith, 113 Cal.App.2d 409, 248 P.2d 534, and cases there cited.
The first portion of the cited code section is not here applicable because it deals with the distribution of profits and surplus after repayment of capital contributions and advances, and in the absence of any agreement between the parties. In this case there are no profits or surplus, and the parties agreed to share profits and losses equally. Swarthout v. Gentry, 62 Cal.App.2d 68, 83, 144 P.2d 38, 46, relied on in the majority opinion, justifies a division of assets in kind only if such division “is fair to all parties”. It is manifestly unfair to require one partner to take as a part of his share of the partnership assets a lease which has no value.
The majority opinion points out that defendant knew the provisions of paragraph 7(a) of the partnership agreement and accordingly knew the lease might not be of any value in the event the partnership did not recondition the well. Conceding this to be true, it does not follow that such loss should be borne by the defendant for the lease no longer belonged to him alone, but to the partnership.
I would reverse the judgment and direct the trial court to enter a judgment dividing equally between the parties the money remaining in the bank after payment of the partnership debts and the costs of this litigation.
1. Paragraph 5 of the partnership agreement reads as follows:‘Interest In The Partnership And Share Of The Profits And Losses Thereof.(a) Each partner shall have an equal one-half interest in the partnership.(b) The parties hereto shall share equally in the profits, if any, of the partnership, and, except as hereinbefore otherwise provided, the losses, if any, of the partnership shall be borne by and charged against the interest of each partner in the same proportion, and if the partnership assets be insufficient to fully discharge any such loss or other obligation of the partnership, each partner shall be liable for one half thereof.'
MOORE, P. J., concurs.