Kaufman-Brown Potato Co. v. Long, 12390.

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Citation182 F.2d 594
Docket NumberNo. 12390.,12390.
PartiesKAUFMAN-BROWN POTATO CO. et al. v. LONG et al.
Decision Date11 May 1950


Samuel C. Colby, Kyle Z. Grainger, Los Angeles, Cal., for appellant.

Johnston, Baker & Palmer, Bakersfield, Cal., for appellee.

Before DENMAN, Chief Judge, and STEPHENS and ORR, Circuit Judges.

STEPHENS, Circuit Judge.

The individuals, Charles H. Kaufman and Albert H. Brown, doing business as Kaufman-Brown Potato Company, a partnership, joined with two others in a petition filed in federal district court alleging that they were creditors of Gerry Horton and J. D. Althouse, individually, and creditors of them doing business as Gerry Horton Company, a partnership, and Gerry Horton and J. D. Althouse doing business as Gerry Horton Farms, a partnership. The petition contained appropriate allegations upon which bankruptcy adjudication was pronounced against both Horton and Althouse and against the two partnerships of which they were members. No petition for review of such adjudication has ever been filed nor has the adjudication been vacated although it was ordered amended by adding to those declared bankrupt.

At this point it is well to state that unless the text indicates otherwise, wherever we mention a partnership by name we include its membership and wherever we mention the membership of a partnership we include the partnership.

As will later herein appear, the referee and the district court in response to a petition of the trustee in bankruptcy subsequently made an order declaring among other things, that there was a second partnership by the name of Gerry Horton Farms which was composed of the first mentioned partnership of the same name and the partnership of Kaufman-Brown Potato Company. This second "Gerry Horton Farms" is distinguished by the bankruptcy court by adding after the name "engaged in raising potatoes". We shall designate it "Gerry Horton Farms (partnership combination)." By the amended order "Gerry Horton Farms (partnership combination)" as a distinct and separate enterprise is added to those adjudged bankrupt in the original adjudication. It will be necessary to an understanding of the problems presented and to their solution to keep in mind the fact that although the individuals Gerry Horton and J. D. Althouse and the two partnerships comprised of them alone are declared bankrupt, the individuals Charles H. Kaufman and Albert H. Brown and the partnership Kaufman-Brown Potato Company are not so declared. We quote the amended adjudication in the margin.1 It may be said in passing that the trustee's petition which called forth the amendments did not request that additional bankrupts be included in the order of adjudication but did call attention to the contracts hereinafter to be analyzed and to their questioned effect upon the bankruptcy proceedings. The amended adjudication is the subject of two of three appeals, all of which have been consolidated and are here for decision, one of them being an appeal from the court's minute order, the other from the court's formal written order.

Separate proceedings were had as to the allowability of Kaufman-Brown Potato Company's unsecured claim, as set up in the original petition and as to which form of proof was later filed, and such claim was ordered allowed in part as against Gerry Horton Company, and wholly disallowed as against Gerry Horton Farms, the partnership comprised of Horton and Althouse only. As against Gerry Horton Farms (partnership combination), such claim was allowed but payment thereon was deferred until after all other creditors' and all administration expenses had been paid. The order as to such claim is the subject of one of the consolidated appeals. Charles H. Kaufman, Albert H. Brown, and Kaufman-Brown Potato Company are the appellants in all three appeals.

It is contended by appellants that the contracts by and between Gerry Horton Farms, a partnership composed of Gerry Horton and J. D. Althouse, and Kaufman-Brown Potato Company a partnership composed of Charles H. Kaufman and Albert H. Brown, are not partnership agreements and did not constitute a partnership of such partnerships and that no conduct of any persons brought such status to functioning under them; that even if they are wrong in the contention that a partnership was not created by the contracts and conduct and the agreements between the partnerships did create another partnership, it was not within the power of the court, in the circumstances, to adjudge such partnership bankrupt. Appellants also contend that the disposition of their claim against the bankrupts was erroneous.

The Partnership Issue

Applicable local or California state law was applied to the facts in the consideration of this issue,2 and when this is done we must hold to the referee's and the court's conclusions unless they are without substantial support or, though they are substantially supported, we find upon a review of the whole case that clearly a mistake has been made. Rules 52(a) and 53 (e) of the Federal Rules of Civil Procedure, 28 U.S.C.A.; Diamond Laundry Corp. v. California Employment Stabilization Commission, 9 Cir., 1947, 162 F.2d 398. Compare United States v. United States Gypsum Co., 1948, 333 U.S. 364, 395, 68 S. Ct. 525, 92 L.Ed. 746. In our consideration of the written contract in the bankruptcy issue we must take into account the fact that part of the evidence is in writing and part is oral testimony before the referee and the trial court. See our latest expression on the point, with authorities, Smyth v. Barneson, 9 Cir., 181 F.2d 143.

Appellants rely mainly upon these arguments: The dealings between Gerry Horton, J. D. Althouse, Charles H. Kaufman, and Albert H. Brown could not constitute as is claimed they must under California law to constitute a partnership an association for the purpose of jointly carrying on a business together. The word "partner" used twice in each of the written agreements was inadvertent and is not conclusive. The written contracts or agreements themselves in certain particulars and the conduct of the parties under such written agreements negative both any intent to form a partnership or that a partnership in fact was formed or existed.

It appears from the evidence that Horton and Althouse, prior to any association with Kaufman-Brown Potato Company, were doing business in partnership both as Gerry Horton Company and Gerry Horton Farms, under the former name as farm produce distributors and under the latter name as producers. In 1944 they held two parcels of California farm land under lease. As to each parcel separately Horton and Althouse as Gerry Horton Farms contracted in writing with Kaufman and Brown doing business as Kaufman-Brown Potato Company, who were distributors, relative to planting, raising, and harvesting potatoes on such land.

It was agreed in each contract that Kaufman and Brown would purchase from Horton and Althouse for a certain amount an undivided interest 50% as to one parcel; 40% as to the other parcel in all potato crops to be planted, raised and harvested upon such leased land during the year 1944. Horton and Althouse agreed to pay all costs and expenses of planting and raising in excess of the amount above mentioned to be paid in by Kaufman and Brown for the above undivided interests. The costs incurred for harvesting were to be shared in the ratio of such interests. The net proceeds after repayment to Kaufman and Brown of the amount they paid in and of any amounts paid by Horton and Althouse in addition thereto for the expenses of planting and raising were to be divided "between the partners" quoting from such contracts in like manner. The over-all losses sustained in the venture were to be borne by the parties in their interest ratio. It was also provided that Horton and Althouse would keep full and accurate accounts of the enterprise at their place of business. The written contracts provided for an option to Kaufman and Brown Potato Company to purchase the crop raised and harvested on each parcel of land for a price equal to the prevailing market price but if there were no prevailing market price upon harvest Kaufman and Brown agreed to handle all the potatoes as agents for Horton and Althouse for a stated commission "for said services rendered on behalf of the partners hereto" and pay to Horton and Althouse all money received from the sale thereof "subject to accounting and distribution as hereinbefore set forth." Quotations are from each contract. In the event that Kaufman and Brown exercised their option to purchase, Horton and Althouse could add to the purchase price any markups allowed by O.P.A. regulations but that the total amount of such markups would be divided between the parties in the ratio of their interests. Horton and Althouse were to furnish all the necessary farming equipment. The contracts also provided for the execution of a crop mortgage as security for faithful performance by Horton and Althouse and for a promissory note also to be executed in an amount which as above mentioned Kaufman and Brown were to pay in. After each contract had been fully complied with, the mortgage and note were to be surrendered and cancelled. It was declared that the mortgage and note were executed solely as security for performance and that Horton and Althouse were not to be held liable for any losses resulting from causes beyond their control. The contracts did not provide for a firm bank account nor for a firm name of the business to be conducted under the provisions of the contracts. Both agreements were prepared by Horton and Althouse's attorney pursuant to Horton's instructions.

As to their farming activities, during the year 1944 Horton and Althouse devoted themselves solely to operations under and in conformity with the written agreements. Potatoes were farmed, harvested and sold and Kaufman-Brown Potato Company, exercising its option,...

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