Pluth v. Smith

• Decision Date: 23 July 1962
• Citation: 205 Cal.App.2d 818,23 Cal.Rptr. 550
• Court: California Court of Appeals Court of Appeals
• Parties: Hattie PLUTH, Executrix of the Estate of John L. Thies, Deceased, Plaintiff and Respondent, v. Joseph SMITH and Hazel Smith, Defendants and Appellants. Civ. 25802.

Page 550

23 Cal.Rptr. 550

205 Cal.App.2d 818

Hattie PLUTH, Executrix of the Estate of John L. Thies, Deceased, Plaintiff and Respondent, v. Joseph SMITH and Hazel Smith, Defendants and Appellants.

Civ. 25802.

District Court of Appeal, Second District, Division 3, California.

July 23, 1962.

Rehearing Denied Aug. 20, 1962.

Hearing Denied Sept. 11, 1962.

Kenneth N. Dellamater, Los Angeles, for appellants.

Joseph A. Capalbo, Los Angeles, for respondent.

FILES, Justice.

This is an appeal from a judgment in favor of the estate of a deceased partner against the surviving partners after an accounting. The undisputed facts which form the background for this action are as follows:

John L. Thies and defendant Joseph Smith had been in business together since about 1931. In 1938 they entered into a written agreement of partnership to operate an automobile service station. Each partner was to share equally. On January 6, 1939, Thies and Smith and Smith's wife, the defendant Hazel Smith, entered into a written partnership agreement whereby the 1938 agreement was revoked. The 1937 agreement provided that 'each partner will confine his entire time, efforts and talent to the business,' salaries and drawings were to be equal, and profits were to be shared equally. The agreement stated: 'This partnership shall continue for a period of twenty (20) years,' and also:

'It is further mutually understood and agreed by and between the parties hereto that in the event of a partners death the whole of the partnership assets shall be and become the property of the surviving partners or partner in the same manner as would a joint tenant under a joint tenancy deed.'

At the time, Thies was approximately 64 years of age and unmarried. Mr. Smith was 42 and Mrs. Smith 45. None of the parties had any children.

On October 30, 1959, Hattie Pluth, a niece, was appointed guardian of the person and state of Thies. On November 24, 1959, Thies, through his guardian, commenced this action against the two Smiths for dissolution of the partnership and for an accounting. This complaint did not mention the written agreement, the guardian apparently being uninformed of it at that time. On November 27, 1959, the attorney for the guardian wrote a letter to the Smiths declaring that 'the partnership agreement heretofore entered into by and between you and Mr. Thies is terminated.' On December 7, 1959, an amended complaint was filed alleging that the parties had entered into a written agreement on January 6, 1939, that this agreement had expired January 5, 1959, that defendants had continued to carry of the business, had misapplied funds and had refused to account.

Defendants answered and counterclaimed. They alleged, among other things, that the parties had originally agreed that the partnership was to continue for the joint lifetime of the parties, that in drafting the agreement the scrivener had inserted the 20-year term by mistake, and that none of the parties had discovered this mistake until after suit had been commenced; that to further the intention of the parties, they had made mutual wills and had entered into an agreement not to revoke those wills; that the title to the partnership real property had been taken in joint tenancy; that in consideration of and in reliance upon the agreement that the survivors would take all, defendants agreed to give Thies one-third of the profits even though he contributed no services, and that defendants are ready, able and willing to pay to the guardian the one-third share of the profits. Defendants prayed that the 1939 agreement be reformed, that Thies' interest in the joint tenancy property be adjudged to be a partnership asset, and that the covenant not to revoke the mutual wills be specifically enforced.

Before the action could be trial Thies died on May 8, 1960. Hattie Pluth, as executrix, became the new plaintiff. Defendants filed a supplemental answer which alleged, among other things, that by reason of the death of Thies, defendants have succeded to full ownership of the real property which had stood in joint tenancy.

After a trial the court made findings of fact and an interlocutory judgment declaring that the partnership was 'terminated' on November 27, 1959, and appointing a receiver and referee to liquidate the assets and take the accounting. The court found that the real property was a partnership asset, that no joint tenancy existed, that the terms of the partnership were as set forth in the written agreement of January 6, 1939, which had never been modified, that Thies was entitled to one-their of the profits but that defendants had misappropriated funds and had refused to account to Thies.

After the referee reported the court made new findings which included all of the interlocutory findings with some elaboration and added new matter taken from the referee's report. It found that as of November 27, 1959, there was due to Thies as his share of profits withheld each year back to 1942, a total of $23,590.82; that the net worth of the partnership as of November 27, 1959, was $122,579.55, of which plaintiff was entitled to one-third, or $40,859.85. The court then made a final judgment ordering the receiver to sell the property and distribute the proceeds to the parties. Defendants and appealing from that judgment.

Since the interlocutory judgment was not itself appealable (Bakewell v. Bakewell, 21 Cal.2d 224, 130 P.2d 975), all issues, including the matters set forth in the interlocutory judgment, are reviewable on this appeal. (Code Civ.Proc. § 956.)

The Survivorship Clause in the Partnership Agreement

Defendants contend that as a matter of law they are entitled to retain all of the partnership assets because the agreement of January 6, 1939, provides that in the event of a partner's death the whole shall become the property of the survivors. Defendants contend that the 20-year limitation on the duration of the partnership was a mistake of the draftsman. Defendants themselves testified that their attorney was instructed to draw up a lifetime contract, and they did not discover the error until September 1959, after Thies had become incompetent.

The trial court found against defendants on this fact issue of mutual mistake. The attorney who drew the 1939 agreement is not living, and hence defendants are the only living persons with direct knowledge of what the attorney was instructed to do. Why the parties should have selected a 20-year term is not shown by the evidence, but this absence of explanation is not surprising in view of the lapse of time and the death of material witnesses. The burden was upon defendants to establish the mistake by clear and convincing evidence; and whether they did so was a question for the trial court. (Moore v. Vandermast, Inc., 19 Cal.2d 94, 119 P.2d 129; Hochstein v. Berghauser, 123 Cal. 681, 684, 56 P. 547.) The trial court was not obliged to accept the uncorroborated self-serving testimony of defendants as to the terms of a contract they made with a dead man when contradicted by an attorney-drawn writing signed by all parties. The trial court's finding is further supported by the testimony of one of the service-station employees, Wanda Dugan, who said Thies had told her about the 20-year contract.

Defendants argue that even if the contract is not reformed, the survivorship clause is applicable because the partnership continued to exist until the death of Thies. The trial court found that after the expiration of the 20-year term on January 5, 1959, the defendants continued to carry on the partnership 'without the actual consent or agreement' of Thies, who was then 84 years of age, ill and incapacitated. The court also found that from January 6, 1959, until November 27, 1959, the partnership continued to operate as a partnership at will. The contradiction between the finding that Thies did not 'consent' and a finding of a partnership 'at will' during this period does not prejudice defendants, who have insisted that the partnership did exist at all times until Thies died.

On November 27, 1959, Thies' guardian, through her attorney, sent a letter to defendants declaring the partnership terminated. The trial judge found that 'said partnership was terminated and dissolved on November 27, 1959.' Defendants criticize this use of the word 'terminated,' pointing out that on dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed. (Corp.Code, § 15030.) No harm is done by this misuse of a word. It is abundantly clear that the trial court treated November 27, 1959, as the date of dissolution, this being the date on which it became the duty of defendants to cease carrying on, as distinguished from winding up the business. (Corp.Code, §§ 15029, 15033.)

The question is whether the survivorship clause was effective only during the time the partners were carrying on the business (i. e., the 20-year term plus any extension mutually agreed upon) or whether it continued in effect after dissolution, during the time required to wind up partnership affairs. The survivorship clause, read literally, contains no time limitation. However it is a part of an instrument which declares: 'This partnership shall continue for a period of twenty (20) years.' Evidently the draftsman there referred to the period prior to dissolution. We agree that the trial court correctly concluded that the survivorship clause likewise referred only to the 20-year term--the period during which the parties were carrying on, as distinguished from winding up the business.

If the survivorship clause were construed to continue in effect after dissolution, this would result in a most indefinite time period. No one could ever predict when it would expire because the time required to wind up is subject both to the fortunes of commerce and the diligence or resistance of the parties. If the survivorship clause continued in effect during the...