ARNOLD v CREMER

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No. 12450 I N THE SUPREME COURT O THE STATE OF M N A A F OTN 1973 BEN R. ARNOLD, P l a i n t i f f and Respondent, -vs LEO J - . CREMER, JR. , Defendant and A p p e l l a n t . Appeal from: District Court o f t h e S i x t h J u d i c i a l D i s t r i c t , Honorable C. B. Sande, Judge p r e s i d i n g . Counsel of Record: For Appellant : William R. Morse a r g u e d , Absarokee, Montana C . E. Laws a p p e a r e d , Absarokee, Montana For Respondent : John R. K l i n e a r g u e d , Helena, Montana Submitted: Decided : September 27, 1973 1 I973 8 M r . J u s t i c e Wesley C a s t l e s d e l i v e r e d t h e Opinion of t h e Court. T h i s i s an a p p e a l from a judgment e n t e r e d by t h e d i s t r i c t c o u r t of t h e s i x t h j u d i c i a l d i s t r i c t , Park County, a f t e r t h a t c o u r t adopted t h e r e p o r t and f i n d i n g s of a S p e c i a l Master i n what developed a s an accounting. Judgment i n t h e amount of $10,749.82 was e n t e r e d f o r p l a i n t i f f . The a c t i o n was brought by p l a i n t i f f Ben R. Arnold t o r e c o v e r from defendant Leo J. Cremer, Jr. moneys owed a r i s i n g o u t of v a r i o u s t r a n s a c t i o n s between p l a i n t i f f and d e f e n d a n t , i n c l u d i n g an o r a l p a r t n e r s h i p . p l a i n t i f f ' s action i n part was f o r a p a r t n e r s h i p accounting. P l a i n t i f f a s manager of t h e p a r t n e r s h i p submitted h i s accounting which showed a d e f i c i t i n d e f e n d a n t ' s account which p l a i n t i f f was e n t i t l e d t o . S p e c i a l Master determined t h a t t o be $5,862.95. The Plaintiff also claimed and was found t o b e owed: $4,674.40 f o r 46 h e i f e r s purchased by p l a i n t i f f f o r defendant; $212.47 i n t e r e s t on o p t i o n money borrowed by p l a i n t i f f f o r d e f e n d a n t ' s b e n e f i t . P l a i n t i f f and defendant were long-time f r i e n d s and both had been i n t h e c a t t l e b u s i n e s s f o r y e a r s . I n 1959, t h e y e n t e r e d i n t o an o r a l p a r t n e r s h i p agreement on a farming and ranching venture. P l a i n t i f f had a c q u i r e d a l e a s e from one George Wepler. Defendant had c a t t l e t o p u t on t h e l e a s e d land. had ranch o p e r a t i o n s o f t h e i r own. The p a r t n e r s h i p was operated under t h e name of Arnold Livestock Company. was t o be equal. Both p a r t i e s C a p i t a l and income Operation and management of t h e v e n t u r e was t o b e by p l a i n t i f f . Other than t h e name of t h e p a r t n e r s h i p , p l a c e of o p e r a t i o n , and agreement on d i v i s i o n of c a p i t a l and p r o f i t , no terms were agreed upon. Such was t h e i n f o r m a l i t y of t h e agreement. A bank account was opened and p l a i n t i f f , defendant and de- f e n d a n t ' s son were a u t h o r i z e d t o w r i t e checks. P l a i n t i f f , however, was t h e only one who wrote checks on t h e account. A l l of t h e bank s t a t e m e n t s , d e p o s i t s l i p s and checks were k e p t . P l a i n t i f f , a t t h e d i r e c t i o n of h i s a c c o u n t a n t , k e p t o t h e r r e c o r d s of t h e p a r t n e r s h i p a f f a i r s i n which he recorded r e c e i p t s and disbursements f o r t h e y e a r s 1961, 1962, 1963 and 1964. I n t h i s r e g a r d , t h e S p e c i a l Master found: "4. The managing p a r t n e r maintained accounting r e c o r d s f o r t h e p a r t n e r s h i p u n t i l December 31, 1963. These r e c o r d s were used i n t h e p r e p a r a t i o n of t h e p a r t n e r s h i p income t a x r e t u r n s . The p a r t n e r s h i p books f o r t h e y e a r 1964 were maintained by accountant M. L. Smith, who prepared t h e 1964 p a r t n e r s h i p income t a x r e t u r n . "5. The accounting r e c o r d s a s maintained by P l a i n t i f f a r e f a i r l y common t o t h e farm and ranch i n d u s t r y . R e c e i p t s a r e d e p o s i t e d i n t h e bank and disbursements a r e made by check drawn on t h e bank. The r e c e i p t s and disbursements a r e then c l a s s i f i e d and e n t e r e d under a p p r o p r i a t e columns i n e i t h e r t h e income o r t h e expense columns provided i n I N a t i o n a l ~ a r m e r s ' Income Tax Record', a copyrighted b o o k l e t s o l d f o r t h e i n d i c a t e d purpose. The b o o k l e t does n o t provide f o r double e n t r y bookkeeping and t h u s does n o t w i t h i n i t s e l f c o n t a i n c o n t r o l s a g a i n s t e r r o r s and omissions. I I P l a i n t i f f t e s t i f i e d t h a t each y e a r he went over t h e books w i t h defendant. Defendant denied he had e v e r examined t h e books, b u t admitted Arnold o f f e r e d t o l e t him examine them. I n addi- t i o n , d u r i n g t h e y e a r s from 1959 through 1963, t h e p a r t n e r s h i p t a x r e t u r n was prepared by M r . S c h r e i n e r , p l a i n t i f f ' s accountant. T h e r e a f t e r , d e f e n d a n t ' s accountant M. L. Smith prepared t h e partnership return. P l a i n t i f f withdrew money from t h e p a r t n e r s h i p account f o r h i s p e r s o n a l u s e and recorded t h e withdrawals a s l o a n s t o himself on t h e p a r t n e r s h i p books. p l a i n t i f f ' s withdrawals were w i t h t h e knowledge and consent of defendant Cremer. P l a i n t i f f ' s uncon- t r a d i c t e d testimony was t h a t none of t h e items l i s t e d i n t h e books a s expense items were used f o r h i s own p e r s o n a l l i v e s t o c k b u s i n e s s . ~ e f e n d a n t ' sa c c o u n t a n t , M. L. Smith, k e p t t h e books f o r Arnold Livestock Company a f t e r 1963. Smith had worked f o r de- f e n d a n t ' s o r g a n i z a t i o n s i n c e 1935 and was s t i l l working f o r i t on June 1 9 , 1968, when h i s d e p o s i t i o n was taken. The Wepler l e a s e r a n out a f t e r t h r e e years. A t h r e e year l e a s e on t h e Hanson place was obtained by p l a i n t i f f when t h e Wepler l e a s e s t i l l had a year t o run. P l a i n t i f f kept a personal ledger i n which was recorded t h e b a r l e y t h a t he and defendant, a s i n d i v i d u a l s , supplied t o t h e partnership. P l a i n t i f f kept t h e weigh s l i p s which were admitted a t t r i a l a s p l a i n t i f f ' s Exhibit 8-1. P l a i n t i f f and M, L. Smith used records t h a t belonged t o t h e e l e v a t o r company t o g e t some of t h e information a s t o t h e g r a i n supplied. On A p r i l 1, 1963, Arnold Livestock Company purchased and paid f o r 400 head of y e a r l i n g h e i f e r s from defendant f o r $50,000. Defendant Cremer a c t u a l l y moved 436 y e a r l i n g h e i f e r s on t o t h e Hanson l e a s e . Although defendant got t h e 436 h e i f e r s back, he never paid t o t h e p a r t n e r s h i p t h e $70,000 t h e c o n t r a c t c a l l e d for. The I n t e r n a l Revenue Service audited t h e p a r t n e r s h i p records i n 1962. P l a i n t i f f borrowed money on behalf of t h e p a r t n e r s h i p . P l a i n t i f f ' s personal records f o r 1959 through 1963 were introduced i n evidence a s Exhibits 13 through 22. These were t h e same type of records kept f o r Arnold Livestock Company. They were kept i n a l i k e manner. P l a i n t i f f kept h i s personal income and expenses s e p a r a t e from those of t h e p a r t n e r s h i p . Both p l a i n t i f f and defendant used men h i r e d by t h e p a r t n e r s h i p t o h e l p out on t h e i r i n d i v i d u a l operations. Defendant Cremer used t h e Hanson l e a s e f o r h i s own c a t t l e without reimbursing t h e partnership. Upon d i s s o l u t i o n of t h e p a r t n e r s h i p , M. L. Smith (who was defendant's and a l s o t h e p a r t n e r s h i p ' s accountant a f t e r 1963) was h i r e d t o make an accounting. The p r i c e s entered on t h e books f o r c a t t l e were e s t a b l i s h e d by defendant Cremer. Elevator f i g u r e s were used t o determine defendant's b a r l e y c o n t r i b u t i o n a t defendant's request. I n making h i s f i n d i n g s i n r e g a r d t o t h e p a r t n e r s h i p t h e S p e c i a l Master had bank r e c o r d s from t h e Yellowstone Bank; t h e testimony of Wallace E. S c h r e i n e r ; t h e p a r t n e r s h i p U.S. tax r e t u r n s ; t h e Smith d e p o s i t i o n and s m i t h ' s accounting and t h e t a x r e t u r n s he prepared; t h e testimony of Charles McCartney, C.P.A. and h i s r e c o n s t r u c t i o n of t h e r e c o r d s ; t h e testimony o f D a l l a s VanDelinder, C.P.A.; and "the e n t i r e f i l e i n t h e c a s e , i n c l u d i n g d e p o s i t i o n s taken p r i o r t o t r i a l b u t n o t put i n e v i dence. II On t h e above f a c t s t h e S p e c i a l Master found i n a d d i t i o n t o o t h e r f a c t s t h e f o l l o w i n g , which i s amply s u b s t a n t i a t e d by t h e r e c o r d and e x h i b i t s : "17. The following balance s h e e t r e f l e c t s t h e a s s e t s and c a p i t a l accounts of t h e p a r t n e r s h i p a t t h e time of d i s c o n t i n u a n c e of t h e p a r t n e r s h i p b u s i n e s s and a t t h e time of t h e h e a r i n g a s determined from t h e testimony and e x h i b i t s and t h e foregoing f i n d i n g s of f a c t : ASSETS Cash i n Yellowstone Bank Due from Leo J. Cremer, Jr. TOTAL ASSETS CAPITAL ACCOUNTS Leo J . Cremer, Jr. Ben R. Arnold TOTAL -- CAPITAL ACCOUNTS $70,226.39 "18. P l a i n t i f f claims $500 f o r t h e use of and $100.00 f o r damage t o combines a l l e g e d t o have been used by Defendant. The evidence does n o t e s t a b l i s h t h a t t h e u s e of t h e combines was by t h e Defendant o r under circumstances r e n d e r i n g Defendant l i a b l e f o r same. The p a r t n e r s h i p e n t e r e d i n t o a "19. w r i t t e n agreement w i t h Defendant ( p l a i n t i f f ' s E x h i b i t 8-2) whereby t h e p a r t n e r s h i p agreed t o purchase 400 h e i f e r s from Defendant, breed and feed them from A p r i l 1, 1963 t o November 15, 1963, a t whi.ch t i m e Defendant agreed t o buy them back f o r $70,000.00. The p a r t n e r s h i p paid f o r t h e h e i f e r s . Defendant took t h e c a t t l e back p r i o r t o November 15, 1963, w i t h t h e complaint t h a t P l a i n t i f f had caused Defendant and t h e p a r t n e r s h i p t o b e over-stocked w i t h c a t t l e . The evidence i s conf l i c t i n g on t h e q u e s t i o n of t h e n e c e s s i t y t o r e move t h e animals and i s i n s u f f i c i e n t t o support any change i n t h e w r i t t e n agreement. Defendant i s i n debted t o t h e p a r t n e r s h i p f o r t h e sum of $70,000.00 a s provided i n t h e agreement. I I A s t o h i s two f i n d i n g s f o r t h e p l a i n t i f f on matters outs i d e t h e p a r t n e r s h i p accounting, t h e Special Master found: "20. P l a i n t i f f purchased f o r t h e account of and d e l i v e r e d t o Defendant 46 h e i f e r s on o r about September 30, 1961, f o r t h e sum of $4,674.40. P l a i n t i f f drew a d r a f t on Defendant f o r $4,000.00 which was refused twice and then honored. P l a i n t i f f thought t h e d r a f t had been c r e d i t e d t o him, b u t i t was c r e d i t e d t o t h e c a p i t a l account of Defendant i n t h e p a r t n e r s h i p on October 27, 1961. Defendant has n o t paid P l a i n t i f f f o r s a i d h e i f e r s and i s indebted t o him f o r t h e sum of $4,674.40 on account t h e r e o f . "21. P l a i n t i f f leased c e r t a i n lands from Robert P. Hanson and Dorothy M. Hanson, husband and w i f e , under t h e terms of a w r i t t e n agreement dated November 22, 1961 ( P l a i n t i f f ' s Exhibit 7). The r e n t a l f o r s a i d l e a s e was paid by t h e p a r t n e r s h i p and t h e lands were used by t h e p a r t n e r s h i p i n i t s business. The l e a s e contained an option t o purchase t h e leased premises a t any time p r i o r t o December 1, 1964. A t t h e r e q u e s t of Defendant, t h e P l a i n t i f f exercised t h e option f o r the b e n e f i t of t h e Defendant. I n order t o do s o , P l a i n t i f f borrowed $35,412.19 on h i s own account a t t h e Yellowstone Bank, Columbus, Montana. Subsequently, a d i s p u t e a r o s e between t h e Hansons and P l a i n t i f f concerning performance of t h e l e a s e agreement and s t a t u s of t h e option t o purchase. I n s e t t l e m e n t of t h e d i s p u t e , t h e option was cancelled. Defendant was a p a r t i c i p a n t with P l a i n t i f f i n t h e n e g o t i a t i o n s leading up t o s e t t l e m e n t of t h e d i s p u t e by c a n c e l l a t i o n of t h e o p t i o n , both having gone t o t h e same a t t o r n e y t o r e p r e s e n t them i n t h e d i s p u t e with t h e Hansons. There i s a c o n f l i c t i n t h e testimony a s t o t h e reason f o r c a n c e l l a t i o n of t h e option, b u t i t does n o t appear t h a t t h e c a n c e l l a t i o n was t h e f a u l t of t h e P l a i n t i f f . P l a i n t i f f paid i n t e r e s t of $212.47 on h i s loan of $35,412.19 and i s ent i t l e d t o reimbursement from t h e Defendant therefor. " The Special Master concluded: "22. I n summary of t h e foregoing f i n d i n g s , The Special Master f i n d s t h a t P l a i n t i f f has rendered an accounting of t h e p a r t n e r s h i p a f f a i r s t o Defendant, and a s a r e s u l t of such accounting and of o t h e r d e a l i n g s between P l a i n t i f f and Defendant a s s e t f o r t h above, P l a i n t i f f i s e n t i t l e d t o t h e balance of $226.39 i n t h e p a r t n e r s h i p bank account i n t h e Yellowstone Bank, Columbus, Montana, and i s f u r t h e r e n t i t l e d t o have and *I1 recover from Defendant t h e sum of $10,749.82. * * The i s s u e s s e t f o r t h by appellant-defendant a r e four. f i r s t i s s u e , termed by a p p e l l a n t a s t h e main i s s u e , i s : er The Wheth- a s o l e managing p a r t n e r has s u s t a i n e d h i s f i d u c i a r y burden a s a t r u s t e e with regard t o accuracy of recordkeeping; and with regard t o commingling of p a r t n e r s h i p a s s e t s with h i s personal a s s e t s i n various ways. The o t h e r t h r e e i s s u e s include (1) t h e r e c e i p t i n evidence by t h e Special Master of "unsupported bank statements", (2) t h e acceptance by t h e d i s t r i c t c o u r t of t h e S p e c i a l aster's f i n d i n g s , and ( 3 ) whether t h i s Court should do an accounting of i t s own. These l a t t e r t h r e e i s s u e s a r e n o t i s s u e s a s such, s i n c e they a l l bear on t h e s i n g l e i s s u e of whether t h e evidence submitted a t t h e hearing was of a kind and of a s u f f i c i e n c y t o s u s t a i n t h e findings. The e n t i r e t h r u s t of a p p e l l a n t ' s p o s i t i o n i n t h e d i s t r i c t c o u r t and h e r e i s t h a t a s a f i d u c i a r y t h e managing p a r t n e r was under a s t r i c t duty of maintaining d e t a i l e d records of each t r a n s a c t i o n and t h a t t h e managing p a r t n e r was held t o an p e c i a l l y high" degree of duty. 11 es- Then, a p p e l l a n t a r g u e s , where accounts a r e n o t kept with such d e t a i l and accurateness a s t o be capable of an "audit" i n a s t r i c t sense, t h e presumptions a r e a g a i n s t t h e one causing i t . Appellant s t a t e s t h a t t o prove an item, p l a i n t i f f must have accounts and vouchers f o r each item and c i t e s i n support Hansen v. Hansen, 130 Mont. 175, 179, 297 P. 2d 879. He then s t a t e s t h a t t h e Special Master considered t h e accounting on an ordinary p a r t n e r s h i p b a s i s , r a t h e r than i n volving a s o l e managing p a r t n e r s h i p . W have considerable d i f f i c u l t y i n grasping a p p e l l a n t ' s e reasoning here. W do n o t d i s a g r e e with t h e r u l e s of law and e accounting t h a t a p p e l l a n t urges, b u t r a t h e r t h e i r a p p l i c a t i o n t o t h e f a c t s . Appellant seems t o argue t h a t p l a i n t i f f could n o t have an accounting because h i s bookkeeping was n o t p e r f e c t o r t h a t t h e r e was commingling of funds and o t h e r business. However, t h e Special Master found t h a t p l a i n t i f f had rendered an accounting. On items t h a t p l a i n t i f f d i d n o t prove, t h e Special Master d i d n o t allow. I n summary a p p e l l a n t s t a t e s t h a t p l a i n t i f f has committed a h o s t of a c t s of impropriety i n breach of h i s t r u s t e e s h i p a s a s o l e managing p a r t n e r ; he has taken cash; he has s o l d h i s own personal goods t o t h e p a r t n e r s h i p a t a personal p r o f i t ; he has commingled h i s own business with t h a t of t h e p a r t n e r s h i p ; and, he cannot account f o r missing c a t t l e . Then a p p e l l a n t s t a t e s : "1n s h o r t he [ p l a i n t i f f ] i s i n s e r i o u s trouble!" Appellant again urges t h a t once a breach of t r u s t has been e s t a b l i s h e d , t h e e n t i r e accounting i s suspect and t h e managing p a r t n e r must have a l l presumptions considered conclusively a g a i n s t him. W have examined t h e e n t i r e record. e W f i n d nothing a s i n e Hansen, where t h e Court found t h e books were " u t t e r l y u n r e l i a b l e and f u r n i s h no b a s i s whatever f o r a determination of t h e r e s p e c t i v e r i g h t s of t h e p a r t n e r s ** *.I' Rather we f i n d , a s t h e S p e c i a l Master and t h e d i s t r i c t c o u r t found, t h a t an accounting was made; t h a t p l a i n t i f f d i d n o t g e t c r e d i t where he d i d n o t have c l e a r , s a t i s f a c t o r y proof of t h e same; and t h a t t h e informal p a r t n e r s h i p was conducted i n a manner known t o both p a r t i e s . W f i n d no e r r o r and a f f i r m t h e judgment. e Justice a ChieS J u s t i c e /' ", f-\ J u s t i c e s red B. Coate, Judge, s i t t i n g f o r J u s t i c e John Conway Harrison. '--'

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