Bergstrom v. Olson, 31657

• Decision Date: 05 November 1951
• Docket Number: No. 31657,31657
• Citation: 39 Wn.2d 536,236 P.2d 1052
• Court: Washington Supreme Court
• Parties: BERGSTROM, v. OLSON.

Page 536

39 Wn.2d 536

236 P.2d 1052

BERGSTROM, v. OLSON.

No. 31657.

Supreme Court of Washington, Department 2.

Nov. 5, 1951.

Rummens, Griffin & Short and Paul R. Cressman all of Seattle, for appellant.

Nolte & Stella, Tacoma, for respondent.

WEAVER, Chief Justice.

The question presented is: Did defendant Olson buy a one-half interest in plaintiff Bergstrom's going business for eleven thousand dollars, or, did defendant make a capital contribution of eleven thousand dollars to a new joint enterprise to which plaintiff contributed his going business?

In April, 1948, plaintiff was a sole proprietor, doing business under the name of Pioneer Roofing Company. On April 28, 1948, the plaintiff, Mr. Bergstrom, and the defendant, Mr. Olson, signed a partnership agreement which provided, so far as is here material, as follows:

'A. Walter Olson has paid to Carl A. Bergstrom the sum of eleven thousand ($11,000.00) dollars for a one-half interest in the goodwill, inventory, stock of merchandise, furniture and fixtures, and all other assets including moneys in bank and accounts receivable, of the going business known as the Pioneer Roofing Company, located at 3001 Chandler Street, Tacoma, Pierce County, Washington. It is understood that this purchase gives each Partner an equal share in the capital of said Partnership. * * *

'If A. Walter Olson desires to sell his interest in the Partnership to Carl A. Bergstrom within six months after April 28, 1948, it is agreed between the Partners that he shall receive for his interest and Carl A. Bergstrom will in such event pay to A. Walter Olson the sum of Eleven Thousand ($11,000.00) Dollars therefor.' (Italics ours.)

If this agreement were the only evidence before us, we would have no hesitancy in holding that Mr. Olson, the defendant, purchased a half interest in the business owned by Mr. Bergstrom, and that the eleven thousand dollars became the property of Mr. Bergstrom. The terms of the partnership agreement are not ambiguous.

Plaintiff brought this action to dissolve the partnership, and secure an accounting based upon his claim to the eleven thousand dollars. The defendant, however, cross-complained for a reformation of the contract upon the ground of mutual mistake.

Since 1945, plaintiff had been a subjobber engaged in buying and selling construction materials, especially roofing and siding, to applicators, lumber yards, and hardware stores. He had attempted to secure the right to buy direct from the Flintkote Company in order to increase his percentage of profit. The company, however, had refused to furnish materials direct to him, as his net worth was insufficient. He needed additional capital and credit in his business.

For some six weeks prior to April 12, 1948, plaintiff negotiated with defendant Olson, a man of considerable means. On April 1, 1948, plaintiff's business had a net worth of $5,128.31. On April 12, 1948, he owed The Pudget Sound National Bank $6,100, $3,000 of which had been borrowed April 5th. This he disclosed to defendant. On April 12th, plaintiff had $871.26 cash on hand and in the bank.

The testimony of plaintiff and defendant is in hopeless conflict. We look, therefore, to the entire record to find their intent from what they did, from how they acted, and from the interpretation the parties put upon the transaction at the time, in order to determine whether there was a mutual mistake made by the parties when they signed the partnership agreement on April 28, 1948.

As a result of their prior oral negotiations, defendant went to the bank on April 12, 1948. He transferred $11,000 cash from his savings account to the account of the Pioneer Roofing Company. He signed the necessary authorization for the bank to pay checks signed by either party. The same day, plaintiff went to the bank, signed the same authorizations to the bank, and paid to the bank, out of the partnership checking account, $6,119.20, the amount due on his promissory notes, plus interest.

It was subsequently agreed between the parties that the books of the partnership should be opened as of April 1 1948, in order to avoid taking an inventory in the middle of the month.

Sometime after April 12th, the date of the bank deposit, and prior to April 28, 1948, the parties went to a lawyer suggested by defendant, to have their partnership agreement drafted. He testified that in drawing the agreement he intended to represent both parties. After several minor changes the agreement was signed by the parties. The scrivener testified:

'Q. Now, did the words 'Moneys in the bank' include the $11,000.00? A. That was my understanding. * * *

'A. I intended, Mr. Nolte, that that agreement should recite that Olson was putting in his business, subject to his dubts, and throwing it in one pile, or had already thrown it and were splitting it down the middle.'

The partnership books were set up by the bookkeeper who had kept plaintiff's accounts since he started business in 1945. He testified that he had set up the books from an explanation of the working arrangement given him by plaintiff. The partnership books of account were kept in the office, were available to both parties, were used to make monthly financial statements for the partners, and were used as the basis for making the Federal partnership income tax return for the year 1948.

The books of account are revealing. They show unmistakably a partnership starting with a capital of $22,000. Capital account entries for April, 1948, credit $11,000 to defendant, and credit $5,128.31 (the net worth of the business on April 1, 1948) to plaintiff. On June 30, 1948, $5,871.69 was credited to plaintiff's capital account and designated in a journal entry 'To set up as Goodwill of business to equalize with incoming partner's investment of $11,000.00 for 1/2 interest in the business.' Thus, on June 30, 1948, each had a capital account of $11,000. On December 31st, each capital account was credited with one-half of the partnership profits for 1948 and debited with the drawing account of each for the period to that date.

The balance sheet of the 1948 partnership Federal income tax return, prepared by the bookkeeper from the partnership records, shows 'Partners' Capital Accounts: C. A. Bergstrom $11,000.00, A. W. Olson $11,000.00,' as liabilities. The same balance sheets shows 'Goodwill $5,871.69' as an asset, with no further identification. The 1948 individual Federal income tax return of plaintiff makes no reference, as a capital gain or otherwise, to a sale of a half interest in a business, having a net worth of $5,128.31, for $11,000.

A certified public accountant whose eminent qualifications were admitted by counsel for both parties, testifying as an expert after an examination of the partnership books of account and tax returns, said:

'There was everything about the entries, that is the explanation as well as the entries, themselves that indicate that each person was making an investment in a business, and not a sale or purchase between individuals. * * *

'Beyond a shadow of a doubt, the books and the return both indicate that each party made an investment in the business and that there was not a sale between the parties.'

In none of the partnership books of account, financial statements, or tax returns, does a partnership liability in favor of plaintiff appear.

Against all of this, most of which has been gleaned from the written records of the partnership and the testimony of third parties, Mr. Bergstrom, the plaintiff, maintains that he sold a half interest in his business to the defendant for $11,000, that the $11,000 became his 'personal funds,' and that he told defendant he would leave the cash in the partnership bank account for use in the event defendant desired to withdraw from the partnership at the end of six months as provided in the agreement of April 28th. He testified the agreement of that date expressed his 'complete thinking' on the matter. All this, defendant denied. He testified that he did not pay plaintiff $11,000; he contributed $11,000 cash to the business.

Shortly after April 12, 1948 (the date of the bank deposit), the partnership furnished a financial statement to the Flintkote Company. It became a Flintkote dealer. The business prospered.

The six months' period expired and the $11,000 was not withdrawn. Plaintiff testified that, in the late fall of 1948, he attempted to assert an interest in the money but that defendant refused to allow its withdrawal. Defendant denied this and testified that the first time plaintiff asserted a claim for $11,000 was at the time his amended complaint was filed on December 8, 1949.

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