Nelson v. Seaboard Surety Company

Decision Date03 September 1959
Docket NumberNo. 16040.,16040.
Citation269 F.2d 882
PartiesH. C. NELSON, Sidney A. Nelson, and H. C. Nelson Investment Company, Appellants, v. SEABOARD SURETY COMPANY, a corporation, et al., Appellees.
CourtU.S. Court of Appeals — Eighth Circuit

COPYRIGHT MATERIAL OMITTED

Frank J. Hammond, St. Paul, Minn. (Briggs, Gilbert, Morton, Kyle & Macartney, St. Paul, Minn., were with him on the brief), for appellants.

Paul C. Thomas and Frederick A. Collatz, St. Paul, Minn. (Robert R. Hume and Thomas, Bradford, King & Collatz, St. Paul, Minn., were on the brief), for appellee Seaboard Surety Co.

Robert O. Sullivan, Philip Stringer, Arthur J. Donnelly, and R. Paul Sharood, St. Paul, Minn., on brief for appellee Borchert-Ingersoll, Inc.

Frank E. Clinite and Charles F. Kelly, Minneapolis, Minn. on brief for appellee Armco Drainage & Metal Products, Inc.

Nunan, Quealy, Colwell & Greffenius, Minneapolis, Minn., on brief for appellee Rocket Transfer, Inc.

Charles J. Foley, Minneapolis, Minn., on brief for appellee J. V. Gleason.

Before GARDNER, Chief Judge, and WOODROUGH and VAN OOSTERHOUT, Circuit Judges.

VAN OOSTERHOUT, Circuit Judge.

This is an appeal by H. C. Nelson Investment Company (Investment), H. C. Nelson, and Sidney Nelson (all of whom will sometimes be referred to jointly hereinafter as Nelsons), from final judgment rendered against them in an action commenced by Seaboard Surety Company, a corporation (Seaboard). The case was tried to the court without a jury. The court awarded judgment to Seaboard against the Nelsons and others for $164,920.79, awarded damages in favor of certain other claimants, and denied the Nelsons' counterclaims for rentals, conversion, and reformation. Memorandum opinion is reported in Seaboard Surety Company v. H & R Construction Corporation, D.C., 153 F.Supp. 641. The court also filed detailed findings of fact and conclusions of law.

Jurisdiction is based upon diversity of citizenship and the jurisdictional amount.

Seaboard is engaged in the business of writing surety bonds as a compensated surety. H & R Construction Company (H & R) was a building contractor. This litigation arises as a result of performance bonds issued by Seaboard for H & R in connection with eight of its construction contracts. These contracts, listed in the order in which they were signed, are referred to in the evidence as: (1) Sauers, (2) Woodrich, (3) Waseca, (4) Waseca, (5) Normandale, (6) Excelsior, (7) Shakopee, (8) Lummus. The first contract is dated March 19, 1952, and the last, April 1, 1954. The first seven bonds were conditioned upon the completion of the work and payment of all claims for labor and material. The last bond, Lummus, required the surety to guarantee the completion of the job free of liens. All contract jobs were physically completed. Seaboard was not called upon to make any payments on its bonds as to the first five contracts. H & R failed to pay bills in the alleged amount of $4,471.80 on Excelsior, $65,014.56 on Shakopee, and $28,127.57 on Lummus.

Seaboard by this action, among other things:

"(a) Sought to compel all interested creditors of H & R to prove their respective claims arising out of such issuance of surety bonds by Seaboard and H & R.
"(b) Asked judgment against H & R as principal, for the full amount of Seaboard\'s liability.
"(c) Claimed that H. C. Nelson and Sidney Nelson (hereinafter `the Nelsons\') were partners doing business as H. C. Nelson Investment Co. (hereinafter `Investment\') and that Investment was a partner or joint adventurer of H & R and a co-principal upon said bonds. Seaboard claims judgment against Investment for the entire amount adjudged to be payable by H & R to Seaboard.
"(d) Claimed damages against Investment for its alleged breach of certain agreements to furnish funds and equipment for H & R and claimed that such failure resulted in increased liability to Seaboard under its several bonds.
"(e) Alleged that Investment sold and mortgaged various items of equipment belonging to H & R in derogation of Seaboard\'s rights in such equipment, and that Investment has diverted monies belonging to H & R."

H & R defaulted on Seaboard's claims and has not appealed from the judgment entered against it. There is no question but that Seaboard was required to make substantial payments on the last three bonds it issued because of H & R's defaults upon its contracts.

The Nelsons admitted that Investment is a partnership composed of H. C. Nelson and his wife, but denied Investment or any of its members had any partnership relations with H & R, and further denied that Sidney Nelson was a partner in Investment. The Nelsons also asserted an affirmative defense to Seaboard's action, stating that Seaboard, after it had knowledge of the partnership, had elected to deal with H & R alone, and thereby waived any rights it might have against the Nelsons. Investment counterclaimed against Seaboard for rentals of equipment furnished H & R on the bonded jobs and for conversion of various items of machinery and equipment. A number of individual claimants asserted claims for labor and material furnished on the bonded jobs. H & R filed cross-claims against the Nelsons for various sums alleged to be due it.

The facts and issues are complicated and voluminous. The trial lasted 50 days. The printed record consists of 2705 pages. In addition there are numerous exhibits not contained in the record. All issues raised and the facts pertinent thereto cannot be fully discussed without unduly extending this opinion. We shall attempt to restrict our statement of the issues and facts to those essential for the disposition of this appeal.

The basic issues will be discussed under the following headings in the order listed:

1. Partnership issue.

2. Election issue.

3. Judgment.

4. Other issues.

Before passing to the specific issues just stated, we shall briefly discuss general principles of law applicable to the consideration of all issues.

The trial court held that Minnesota law governs. No one has disputed this holding. It appears that the contracts involved were made in Minnesota and were to be performed in that State. We shall therefore proceed upon the basis that Minnesota law applies.

The findings of fact of a trial judge sitting without a jury should not be set aside unless it is clearly demonstrated that they are without adequate evidentiary support in the record or were induced by an erroneous view of the law. Pacific National Fire Ins. Co. v. Mickelson, 8 Cir., 235 F.2d 425, 428; Pendergrass v. New York Life Ins. Co., 8 Cir., 181 F.2d 136, 138.

1. Partnership issue.

The court held that a partnership or joint venture had been established between H & R and the Nelsons as to the construction contracts giving rise to this controversy. The court in its opinion states that the extensive trial was directed largely to the partnership issue. The court sets out the applicable Minnesota law and summarizes the facts supporting its conclusion.

Seaboard does not claim that the Nelsons held themselves out to be partners. Moreover, there is no substantial evidence to support a partnership by estoppel. Consequently, the real issue is whether the Nelsons and H & R were partners as between themselves.

In Moore v. Thorpe, 133 Minn. 244, 158 N.W. 235, 238, the court states:

"If Kellett Company and the individual defendants were partners as between themselves, they were partners as to third persons. On the other hand, if they were not partners as between themselves, they are not liable as such to plaintiff, as there is no estoppel or holding out in the case. * * *"

In Commissioner of Internal Revenue v. Tower, 327 U.S. 280, 66 S.Ct. 532, 536, 90 L.Ed. 670, the question was whether an alleged partnership was valid for income tax purposes. The validity of the partnership was challenged by the Commissioner. The Supreme Court states that when the question of the existence of a partnership is raised by an outsider, "the question arises whether the partners really and truly intended to join together for the purpose of carrying on business and sharing in the profits or losses or both. And their intention in this respect is a question of fact, to be determined from testimony disclosed by their `agreement, considered as a whole, and by their conduct in execution of its provisions.' * * *" See 68 C.J.S. Partnership § 24, p. 443.

There is no arbitrary test for determining the existence of a partnership. Each case must be determined upon its own facts. The trial court's findings must be sustained if the evidence as a whole shows that the parties had entered into a partnership relation. Wormsbecker v. Donovan Construction Co., 251 Minn. 277, 87 N.W.2d 660, 664; Cyrus v. Cyrus, 242 Minn. 180, 64 N.W. 2d 538, 541, 45 A.L.R.2d 1002; Blumberg v. Palm, 238 Minn. 249, 56 N.W.2d 412, 414. In the Blumberg case the court states (56 N.W.2d at pages 414-415):

"* * * The cases are rare, however, in which this court has taken upon itself the determination of whether the evidence was within the definitions once a trier of fact in the trial court had made the determination. Most of the cases defining and discussing the elements of a partnership are cases which uphold the finding of a jury or a trial court sitting without a jury. This court has often said that there is no arbitrary test for the existence of a partnership and that, unless the evidence is conclusive, it is a question of fact for the trier of fact. * *"

In Hansen v. Adent, 238 Minn. 540, 57 N.W.2d 681, 684, it is said:

"M.S.A. § 323.02, subd. 8, defines a partnership as `an association of two or more persons to carry on as co-owners a business for profit.\' It is essential to the existence of a partnership that there be a joint contribution to the enterprise and something in the nature of a community of interest. Hammell v. Feigh, 143 Minn. 115, 173 N.W. 570. When parties contribute their experience, their capital, and their energies to a common
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