Crofton v. Bargreen

• Decision Date: 10 December 1958
• Docket Number: No. 34409,34409
• Citation: 53 Wn.2d 243,332 P.2d 1081
• Court: Washington Supreme Court
• Parties: William CROFTON and George Crofton, Respondents, v. Howard S. BARGREEN, Appellant.

Page 243

53 Wn.2d 243

332 P.2d 1081

William CROFTON and George Crofton, Respondents, v. Howard S. BARGREEN, Appellant.

No. 34409.

Supreme Court of Washington, Department 2.

Dec. 10, 1958.

Parker Williams, Edward J. Novack, Everett, for appellant.

Welts & Welts, Mount Vernon, Clarence J. Coleman, Everett, for respondent.

DONWORTH, Justice.

This action was brought by William Crofton and his son to recover the balance allegedly due under an option contained in a written partnership agreement which had been exercised by appellant. The trial court entered judgment for respondents in accordance with the prayer of the complaint, and appellant has appealed therefrom.

For convenience, William Crofton will be referred to as though he were the sole respondent, since his son, George, was a party plaintiff as the heir of his mother who had a community interest in the option at the time of her death. The son did not participate in any of the transactions involved in this suit.

In order to understand the legal problem involved, it is necessary to state the basic facts in some detail.

In 1917, respondent married the maternal aunt of appellant. For more than thirty-five years thereafter, the parties enjoyed a relationship characterized by respondent as 'very good,' and by appellant as 'very close.' This litigation appears to be the only substantial dispute which has affected that relationship.

From 1933 to December 31, 1944, appellant, as sold proprietor, operated a wholesale beer distributing business in Everett called Crown Distributing Company. The business was financially successful.

On January 1, 1945, the parties executed articles of copartnership which form the basis of the present controversy. The material portions thereof provided as follows:

'5. * * * [Appellant] is the present owner of the assets of said Crown Distributing Company and * * * [respondent] desires to buy a 49% interest in said company and further desires to operate said company together with * * * [appellant] as hereinafter provided, * * * [appellant] to own 51% of the assets and * * * [respondent] to own 49% of the assets.

'6. The capital of said co-partnership shall be contributed as follows: * * * [Appellant] will own 51% and * * * [respondent] will own 49% of the assets of said Crown Distributing Company at Everett, Washington. * * * [Respondent] is buying said 49% interest therein under a note and chattel mortgage to carry interest at the rate of 6% per annum to be paid off as provided in said note and mortgage. The purchase price is to be based on the book value, plus the book value figure for good will, the date of computation to be December 31, 1944. * * *

'7. Each of the partners will draw $350.00 a month and all profits after the above drawing accounts are paid are to be divided 51% to * * * [appellant] and 49% to * * * [respondent]. The profits are to be figured at the end of each month, or such other periods as may be deemed proper by the partners. No profits shall be drawn unless it is agreed by both partners. Profits may be used to finance the business if deemed necessary. All operating and other expenses of the co-partnership shall be shared equally. * * *

'13. As an additional consideration for this agreement, * * * [respondent] grants * * * [appellant] the option, if * * * [appellant] desires to exercise it, to repurchase the interest of the * * * [respondent] in the co-partnership for the amount that * * * [respondent] paid * * * [appellant] for his interest therein, said option shall be exercised by giving thirty (30) days notice in writing to * * * [respondent] of * * * [appellant's] intention to exercise the option. The repurchase price shall be paid in cash and * * * [respondent] shall execute and deliver proper conveyances of all his interest therein upon the payment of the purchase price. In event of the death of * * * [appellant] this right shall pass to the estate of * * * [appellant] and may be exercised by the executor or administrator of * * * [appellant], whichever shall be appointed.

'14. Each of the parties shall have their capital investment as heretofore provided, subject to the limitation that * * * [respondent] is purchasing his interest in the business as heretofore described, and in event either party advances or loans to the partnership any further or greater sums, such advances or loan shall be repaid such partner as soon as practical and convenient out of the profits, and upon any dissolution such advance or loan shall be first refunded before any division of capital assets takes place, that is to say, any advance or loan shall be repaid to the party on the same basis as any other creditor of the partnership shall be repaid.'

The chattel mortgage mentioned in paragraph six of this agreement was executed by respondent and his wife in favor of appellant. It covered an undivided one-half interest in all of the assets of the partnership and was given as security for an interest-bearing note for $27,900.90, which represented forty-nine per cent of the book value of all assets of the business, including good will, computed as of December 31, 1944. This mortgage provided that all of respondent's forty-nine per cent of the profits in excess of respondent's salary, except those required in the business, should be applied to the payment of the mortgage debt until fully satisfied. Under this arrangement, it was possible for respondent and his then wife to acquire forty-nine per cent interest in a prosperous business without any cash contribution whatever from their own funds.

Shortly after entering into this agreement, respondent, who was about fifty-eight years of age at that time, commenced managing the partnership warehouse under the supervision of appellant, as provided in the articles of copartnership.

The business thereafter continued to prosper to such an extent that at the end of two years respondent's forty-nine per cent share of the profits was sufficient to completely pay the note secured by his purchase-money mortgage, in addition to his income taxes. After 1946, although partnership profits declined somewhat, respondent's share averaged in excess of twenty-eight thousand dollars per year.

Respondent's wife (appellant's aunt) died January 1, 1949. During the latter part of March, 1953, respondent advised appellant of his intention to remarry. Appellant then told respondent that he wished to repurchase respondent's forty-nine per cent interest. Respondent made no objection to appellant's oral assertion of his right to purchase respondent's interest. Thereafter, the partnership was dissolved, effective April 30, 1953.

An instrument, entitled 'Bill of Sale,' dated April 27, 1953, purportedly subscribed and verified by respondent before a notary public (an official of the bank in which the partnership account was kept), was delivered to appellant for the purpose of conveying respondent's interest to him. Respondent denied the execution of this document. The trial court did not believe him. A second instrument, dated May 25, 1953, was executed by respondent George Crofton (who claims as an heir of his deceased mother) and appellant purporting to authorize respondent to sell George Crofton's inherited interest to appellant. A check for $9,141.84, dated May 25, 1953, was drawn on the partnership checking account in favor of respondent as payee. Although the signatures of both appellant and respondent had been required on partnership checks, only appellant signed for the Crown Distributing Company as maker. A signature purporting to be that of respondent appears as endorser on the instrument. Respondent denied ever endorsing or receiving this check. The trial court found, however, to the contrary.

Extracts from partnership books of account, which were admitted in evidence, show the apportionment of profits during the entire eight years and four months' existence of the partnership. The interest of each partner was set up therein as follows: At the time of the inception of the partnership, a capital account was set up for each of the partners. Respondent's initial capital account credit totaled $27,900.09, the amount which he had contracted to pay for his forty-nine per cent interest in the business. Thereafter, as profits accrued and were apportioned, an appropriate credit entry was made to the capital account of each partner. From this total of capital contribution, plus profits, there was deducted from the account of each partner the amount of withdrawals for salary, income taxes, and accumulated profits.

Respondent's account revealed that from January 1, 1945, through April 30, 1953, his capital contribution ($27,900.90), plus his share of the profits ($259,885.33), totaled $287,786.23. But his withdrawals (including the sum of $27,900.90, together with interest thereon withdrawn and applied to the mortgage debt) during the same period totaled $280,718.17, thereby leaving a capital account credit of only $7,068.06 in his favor. In other words, at the time appellant elected to exercise his option to repurchase respondent's interest, the latter had overdrawn his capital account to the extent of $20,832.84. During this period, appellant's account balance grew (by reason of not withdrawing all of his fifty-one per cent of the profits) from his initial contribution of over twenty-nine thousand dollars to over fifty-four thousand dollars. The 'book value' of the business increased about four thousand dollars during the life of the partnership.

Respondent's share of partnership profits credited annually to his capital account, as reflected by partnership books, is supported substantially by the declarations of income made by respondent in his individual Federal income tax returns filed annually from 1945 through 1953. On the debit side of his capital account, withdrawals charged to respondent are supported by extracts from the partnership check register listing each check with its...