VANGEL v. VANGEL (1958)

This is an appeal from a judgment in the Superior Court following an accounting ordered by the Supreme Court in a prior appeal of this same controversy.

Charles Vangel and his brothers Nick Vangel and Ernest Vangel purchased the Cascade Ranch in the San Fernando Valley in 1944, pursuant to a written partnership agreement. From the very start there was dissension between the brothers, and this action was filed in April, 1946, requesting, among other things, a dissolution of the partnership and an accounting. For a detailed statement of the facts involving the litigation between the parties hereto, see Vangel v. Vangel, 116 Cal.App.2d 615, 254 P.2d 919.

The case has now been before the superior court four times. The first trial was in 1947, and the trial judge granted a motion for a new trial.

The judgment of the trial court in the second trial was affirmed in part, and reversed in part with directions to the superior court to take an accounting and enter a judgment in accordance with the views expressed by the appellate court. Vangel v. Vangel (March 11, 1953), supra. There was no petition for a hearing before the Supreme Court.

Upon the third trial, the superior court interpreted the opinion of the District Court of Appeal and rendered an accounting. There was an appeal from that judgment, and the District Court of Appeal affirmed the judgment, indicating that the trial judge had interpreted their opinion (116 Cal.App.2d 615, 254 P.2d 919) correctly, and that the accounting had was a proper one. See Vangel v. Vangel, Cal.App., 282 P.2d 967 (April 28, 1955). The appellant petitioned for a hearing before the Supreme Court, and such a hearing was granted. See Vangel v. Vangel, 45 Cal.2d 804, 291 P.2d 25, 55 A.L.R.2d 1385 (December 23, 1955).

The Supreme Court said, among other things, in Vangel v. Vangel, supra, 45 Cal.2d at pages 805–807, 291 P.2d at page 26:

‘In 1944, the three brothers purchased a citrus ranch pursuant to a written partnership agreement. After the commencement of operations, a dispute arose which culminated in an action by Nick and Ernest to dissolve the partnership. By the prior judgment, a dissolution was decreed effective as of June 15, 1950. The court found that Charles wrongfully caused the dissolution and concluded that Nick and Ernest were privileged to purchase his interest. The value of the ranch was fixed at $235,000, and a finding was made as to the value of Charles' interest in the partnership. According to another finding, he was entitled to participate in profits accruing between the date of dissolution and January 1, 1951.

‘Upon the prior appeal, findings as to the value of the ranch property and Charles' fault in causing the dissolution were approved. It was held that the trial judge properly allowed the plaintiffs to purchase Charles' interest, but that he erred in failing to include certain items in his valuation of it. Furthermore, said the District Court of Appeal, the right of Charles to participate in profits accumulated by joint use of the partnership assets should not have been terminated as of January 1, 1951. That period, it was determined, should extend so as to include the proceeds from fruit substantially matured and soon ready for marketing, the final date to be left to the sound judgment of the chancellor. As to those matters, the judgment was reversed with directions for an accounting.

‘The amounts of profits from the operation of the ranch after dissolution of the partnership and of set-offs, claims and advances, as determined upon the retrial, are not now disputed. The value of Charles' interest in the partnership at the time of dissolution based upon those amounts, was found to be 23.96% of the partnership net worth. The court also declared that Charles is entitled to that percentage of the profits from the operation of the ranch accruing between the date of dissolution and the winding up of the partnership affairs. Another finding is that ‘whatever services defendant may have rendered toward the conduct of the partnership affairs, from the date of the dissolution of the partnership * * * was voluntary on his part and against the wishes and directions of the plaintiffs.’

‘The judgment gives Nick and Ernest, inter alia, the right to purchase Charles' interest in the partnership for its value as determined at the retrial, plus interest on that amount from September 8, 1953. Charles is allowed 23.96 per cent of the profits accruing prior to that date and the same percentage of certain proceeds from sales of crops. He is denied any wages for services performed after the dissolution of the partnership and must pay 23.96% of the costs of the audit.

‘Charles contends that the trial judge erred in his computations of the values at the time of the dissolution of the respective partnership interests and of the partners' shares of the profits accruing between dissolution and the winding up of the partnership affairs.’

The court then stated, 45 Cal.2d at page 808, 291 P.2d at page 27, ‘* * * the computation of his share was made upon an erroneous basis.’ The court then set forth the following (45 Cal.2d at pages 808–809, 291 P.2d at page 27):

‘Upon the former appeal it was held that the trial judge was correct in concluding that the partnership had been dissolved by reason of Charles' breach of the partnership agreement and that the remaining partners had exercised their privilege of continuing the partnership business. Corp.Code, § 15038, subd. (2)(b). In that situation Charles was entitled to have computed the value of his interest in the partnership, exclusive of his share of the good will of the business, and less any damages caused to his copartners. Corp.Code, § 15038, subd. (2)(c) par. II. For the use of his partnership assets in the continuing business, pending a settlement of the accounts, he was entitled to receive ‘as an ordinary creditor an amount equal to the value of his interest in the dissolved partnership with interest, or, at his option * * * in lieu of interest, the profits attributable to the use of his right in the property of the dissolved partnership.’ Emphasis added; Corp. Code, § 15042. Said the District Court of Appeal, ‘From the position defendant has taken on this appeal it is fair to say that he has elected to take profits rather than interest on the value of his share of the partnership.’ 116 Cal.App.2d 629, 254 P.2d 928.

‘The record presents the rather unusual situation of a partner, expelled from the partnership for cause and by judicial decree, continuing to participate with his former partners in the operation and management of the business. Charles contends that he is entitled to receive compensation for services so performed. In reply, his brothers rely upon the finding that his post-dissolution services were voluntary and against their wishes. However, the evidence does not support that finding. It appears that Charles continued to participate in the business in substantially the same manner as before the action for dissolution. There is no evidence of any protest by his brothers. On the contrary, they appear to have acquiesced fully in his continuing services.

‘Section 15042 of the Corporations Code Fixes the right of one retired from a partnership for cause, or the personal representative of a deceased partner, to recover compensation for the use of his assets in the continuing business pending an accounting. In such case, he is entitled to ‘the profits attributable to the use of his right in the property.’ As a practical matter, his share of the profits usually is computed on the basis of the ratio that his share of the partnership assets bears to the whole of them. (Citing cases and authority.) However, that division may not be equitable when the contribution to profits from capital is relatively minor in comparison to the contribution from the skills or services of one conducting the business. In such a case, the managing partner may be entitled to a greater share of the profits. (Citing cases.) Although such a method of dividing profits is usually spoken of in terms of providing extra compensation for the managing ex-partner, in reality it merely reflects the statutory requirement that the retired or deceased partner be allowed the profits attributable to his right in the assets used in the business.

‘No California case considers the right to compensation for services in a continuing business of one whose fault has caused the dissolution of the partnership. The authorities in other jurisdictions are in conflict. Denying compensation: Major v. Todd, 84 Mich. 85, 47 N.W. 841; Germann v. Jones, 220 App.Div. 5, 221 N.Y.S. 32; see Zimmerman v. Harding, 227 U.S. 489, 33 S.Ct. 387, 57 L.Ed. 608. Allowing compensation: Drummond v. Batson, 162 Ark. 407, 258 S.W. 616; Hartman v. Woehr, 18 N.J.Eq. 383. Those which deny recovery generally proceed upon a theory similar to the unclean hands principle; most of the decisions which allow recovery are based upon the principle that one who seeks equity must do equity.

‘In the present case the balance of the equities favors the allowance of compensation based upon services rendered. The type of operation here shown is one which involves a considerable amount of service and skill in the cultivation and harvesting of a citrus crop. Furthermore, it would be inequitable to deny Charles compensation for his services when his brothers acquiesced in them.’

As heretofore set forth, the value of the ranch was fixed at $235,000, and as of the time of dissolution, the value of Charles Vangel's interest in the partnership was found to be 23.96 per cent of the partnership net worth, or $37,440.45.

In the accounting in the trial court, pursuant to the directions of the Supreme Court, Charles Vangel was found to have an interest in capital assets (profits) of $48,600.55; an interest in post-dissolution profits of $45,849.39; an interest in profits on crops in (fruit on trees) prior to May 12, 1953, paid subsequent to May 12, 1953, of $9,024.74; or, in other words, it was found that a total sum of $140,915.13, was due Charles Vangel for his entire interest in said former partnership. Of this sum $81,999.45 was found to have been withdrawn by Charles Vangel, leaving a balance due to him of $58,915.68 for his interest in said former partnership real property and profits ‘attributable to the use of (defendant's) share of the assets.’

In addition, it was found that Charles Vangel was entitled to receive a total amount of $8,200 for post-dissolution services rendered to the partnership from June 15, 1950, to November 10, 1953.

In this appeal, Charles Vangel contends as follows:

(1) That it was error to terminate his ‘right to participate in profits or receive interest on the balance due him as of May 12, 1953;’

(2) That it was error to allocate to Charles Vangel ‘only 23.96 per cent of the partnership assets and post-dissolution profits;’ and

(3) That it was error to invoke ‘the procedures set up in section 15038(2)(b) of the Corporations Code.’

We think that the applicable rule, appropriate here, is stated by the Supreme Court in Penziner v. West American Finance Co., 10 Cal.2d 160, 169, 74 P.2d 252, 256, as follows: ‘It is clearly established by the decisions in this state that when the precise question before the court has been decided in a former appeal in the same action and under substantially the same state of facts, the parties are estopped from again litigating this question in any subsequent proceeding either before the trial or appellate courts.’

The Supreme Court in Vangel v. Vangel, supra, indicated (45 Cal.2d at page 810, 291 P.2d at page 28) that it was improper to divide post-dissolution profits solely ‘upon the basis of the relative values of the partners' interests in the partnership property,’ indicating further (45 Cal.2d at page 810, 291 P.2d at page 29) that consideration should be given in the apportionment to ‘(t)he amount of profits attributable to the use of Charles' share of the assets and also those allocable to his services in the continuing business.’ The Supreme Court further recognized (45 Cal.2d at page 810, 291 P.2d at page 29) the rule that ‘a proceeding to dissolve and liquidate a partnership is controlled by equitable principles,’ also stating (45 Cal.2d at pages 808 and 809, 291 P.2d at page 28), ‘As a practical matter, his share (the retiring partner) of the profits usually is computed on the basis of the ratio that his share of the partnership assets bears to the whole of them.’

It appears to us that the trial court was not bound to apportion the profits on the basis of the accountants' determination of the shares of the partners in and to the assets of the partnership. However, in view of the large amount of discretion accorded to the trial court in such a proceeding, we cannot conclude that the findings and judgment of the trial court were not supported by substantial evidence. Accordingly, any argument to the effect that the final result is a manifestly unjust decision must be addressed to the Supreme Court. See England v. Hospital of Good Samaritan, 14 Cal.2d 791, 97 P.2d 813.

As has been previously stated herein, the Supreme Court, in Vangel v. Vangel, supra, in commenting upon the judgment in the prior appeal, stated (45 Cal.2d at page 806, 291 P.2d at page 26), ‘The judgment gives Nick and Ernest, inter alia, the right to purchase Charles' interest in the partnership for its value as determined at the retrial, plus interest on that amount from September 8, 1953.’ (Emphasis added.) One of the contentions of Charles Vangel before the Supreme Court was that the trial court erred in his computation of the profits accruing between dissolution and the winding up of the partnership affairs, and the Supreme Court stated (45 Cal.2d at page 808, 291 P.2d at page 28): ‘Section 15042 of the Corporations Code Fixes the right of one retired from a partnership for cause, * * * to recover compensation for the use of his assets in the continuing business pending an accounting.’ (Emphasis added.) We regard this to be the law of the case. See Penziner v. West American Finance Co., supra. Charles Vangel was found to have previously withdrawn $81,999.45 of the total sum due to him for his partnership interest, and so he is entitled to ‘profits attributable to the use of his right in the property’ on the sum of $58,915.68, remaining due him therefor, from May 12, 1953, until the date of the accounting.

The judgment is reversed as to this single issue and is remanded with directions to the trial court, in accordance with this opinion, to determine upon the evidence before it, the share of the profits, if any, attributable to the use of Charles Vangel's right in the property until the date of the accounting, or, if there is no evidence to support such a determination, then the trial court is instructed to award interest on such amount from May 12, 1953, to the date of the accounting. In all other respects, the judgment is affirmed.

FOURT, Justice.

WHITE, P. J., and LILLIE, J., concur.