In re Mission Farms Dairy
| Decision Date | 23 February 1932 |
| Docket Number | No. 6604.,6604. |
| Citation | 56 F.2d 346 |
| Parties | In re MISSION FARMS DAIRY. KING v. RIVERSIDE ALFALFA GROWERS' ASS'N, Inc., et al. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Neil S. McCarthy, Earl L. Banta, and Howard P. Hall, all of Los Angeles, Cal., for appellant.
Francis D. Adams and Robert Clifton, both of Hollywood, Cal., for appellees.
Before WILBUR and SAWTELLE, Circuit Judges.
This appeal is taken from an order adjudging bankrupt a partnership composed of A. G. King, Axel H. Hultgren, and Eleanor Hultgren, doing business under the name Mission Farms Dairy. The sole question presented by the appeal is whether or not A. G. King is a member of the alleged copartnership. The District Court having determined that he was a member of the partnership, he brings this appeal. The agreement between the alleged copartners was in writing and the question of whether or not A. G. King was a member of the copartnership depends almost entirely upon the legal effect of the written agreement under the provisions of the Uniform Partnership Law of California (), adopted in August, 1929.
Axel H. Hultgren and wife conducted a dairy business under the name Mission Farms Dairy. It appears from the terms of the written instrument that the appellant, A. G. King, had advanced $7,400 to Hultgren and wife with which to purchase land, cattle, and equipment for the purpose of establishing a dairy at San Clemente, Cal.; that the property so purchased was to be the property of the appellant, although title thereto was to be taken in the name of Hultgren and wife in trust for the appellant, to be assigned to him upon demand. Hultgren and wife were to be given the right and privilege of purchasing a 49 per cent. interest therein; they were to have the possession and use of the real estate, cattle, and personal property for the purpose of conducting and operating a dairy business; and were authorized to retain from the receipts of the business $150 per month "in full for all services rendered" by them. All profits over and above operating expenses, deferred installments upon the purchase price of property, and the aforesaid salary, were to be paid to appellant King until he had received $7,400, with interest thereon at the rate of 6 per cent. per annum. When said amount with interest had thus been paid, King was to transfer to Hultgren and wife a 49 per cent. interest in all the property purchased and used as aforesaid. The appellant agreed that, after the entire amount due him had thus been paid, he would not sell his 51 per cent. interest "in said business or any part thereof to any person without first giving" Hultgren and wife the right to dispose of their 49 per cent. interest at the same rate. It was agreed that, if payments were not made from the receipts of the business as required by the agreement, appellant, King, could terminate the agreement, retain the title to all the property, and take possession thereof, to the exclusion of Hultgren and wife; that the salary payable to Hultgren and wife was to be paid from the receipts of the business, and not otherwise; and that appellant was under no obligation to pay the same. Hultgren and wife were to keep accurate books of account which should be subject to inspection by the appellant. It is further provided that:
An addenda to the contract signed by appellant alone is as follows: "In case the property is sold the net profits are to be divided equally between both parties." Promissory notes were given by Hultgren and wife to appellant King for the $7,400 and interest, and for all subsequent advancements.
The rule is that the intention of the parties with reference to the formation of a copartnership is controlling as to their rights and obligations, unless the parties are bound by reason of the ostensible relation assumed by them. There is no claim here of an ostensible partnership, for the relationship of King to the business was unknown to the creditors until long after they had extended credit to the Mission Farms Dairy. It is also true, however, that the mere declaration in the agreement that the relationship established is not that of a copartnership is not controlling, if the agreement actually establishes a partnership relationship. Sparks v. Kuss, 195 Wis. 378, 216 N. W. 929, 218 N. W. 208. As between the parties, it is clear that it was considered that the money invested by the appellant was a loan from appellant to Hultgren and wife. The promissory note executed by them to appellant can be explained on no other hypothesis. The title to the property, although taken in the name of Hultgren and wife, was to be held by them in trust for the appellant pending the payment of the promissory note from the profits of the business. There was no agreement for any division of the profits of the business until the note was paid, when the property as an entirety was to be treated as a profit from the conduct of the business to be divided in the ratio of 51 to 49 per cent. If, however, a sale of the property was made before the consummation of the agreement, the net profits were to be divided equally.
By that we understand that, if there were any sum remaining after the payment of all the debts and the obligations incurred in operating the business and the payment to Hultgren and wife of $150 per month and to appellant of the amount of the indebtedness due him, or moneys advanced by him, that amount would be equally divided, notwithstanding the fact that the principal and interest due appellant was paid from the proceeds of the sale of the business instead of from the profits accruing therefrom. That there is an agreement here for the division of profits is clear. This division was to occur when appellant had been completely repaid the amount of his investment evidenced by the promissory notes of Hultgren and wife either from profits of the business or from the proceeds of a sale of the business. The question then is, Did this agreement to divide the profits in such fashion ipso facto constitute a copartnership? Appellant relies upon the case of San Joaquin Light & Power Co. v. Costaloupes, 96 Cal. App. 322, 274 P. 84, by the District Court of Appeals of the First District in California. That decision, however, was rendered before the adoption of the Uniform Partnership Law by the Legislature of California. That case differed from the case at bar, for the reason that in that case the party sought to be charged as a copartner had actually participated in the management of the cheese manufacturing business by taking the entire product of the plant and selling the same for the mutual advantage of himself and those alleged to be his copartners, and by participating in the management of the manufactory itself by employing and paying an agent to represent him there. We therefore turn to the provisions of the Uniform Partnership Law for the purpose of determining whether or not a partnership was created under the law of California. It is provided (Cal. Civ. Code, ž 2401, subd. 3) that the sharing of gross returns does not of itself establish a partnership whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived. Section 2401, subd. 4, Cal. Civ. Code, provides:
If it be conceded, as we think it must be, that the basic relation between the appellant and Hultgren was that of debtor and creditor, and that the payments received by appellant from the proceeds of the business were payments of that debt, then under the express terms of the Uniform Partnership Law, ž 2401, Cal. Civ. Code, subd. 4, (a) the fact that such payment was made from the profits of the business did not constitute them copartners. Nor does the payment of interest on the loan from profits of the business constitute them copartners. Id. subdivision d. If, on the other hand, we treat the agreement as one by which the Hultgrens were entitled to purchase a 49 per cent. interest in the property which was declared to be the purpose of the contract by the following phrase thereof, "and the second parties were to be given the right and privilege of purchasing a 49 per cent. interest therein," then the payment of such purchase price from the profits of the business would not constitute them copartners. Cal. Civ. Code, ž 2401, subd. 4, (e).
Until the consummation of the agreement by the payment to the appellant of the entire indebtedness...
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