Arnold v. Cremer

No. 12450

I N THE SUPREME COURT O THE STATE OF M N A A
F OTN

1973

BEN R. ARNOLD,

P l a i n t i f f and Respondent,

-vs -
LEO J . CREMER, JR. ,
Defendant and A p p e l l a n t .

Appeal from: District Court o f t h e S i x t h J u d i c i a l D i s t r i c t ,
Honorable C. B. Sande, Judge p r e s i d i n g .

Counsel of Record:

For Appellant :

William R. Morse a r g u e d , Absarokee, Montana
C . E. Laws a p p e a r e d , Absarokee, Montana

For Respondent :

John R. K l i n e a r g u e d , Helena, Montana

Submitted: September 27, 1973

Decided :
1 I973
8
M r . J u s t i c e Wesley C a s t l e s d e l i v e r e d t h e Opinion of t h e Court.

T h i s i s an a p p e a l from a judgment e n t e r e d by t h e d i s t r i c t
c o u r t of t h e s i x t h j u d i c i a l d i s t r i c t , Park County, a f t e r t h a t
c o u r t adopted t h e r e p o r t and f i n d i n g s of a S p e c i a l Master i n
what developed a s an accounting. Judgment i n t h e amount of
$10,749.82 was e n t e r e d f o r p l a i n t i f f .
The a c t i o n was brought by p l a i n t i f f Ben R. Arnold t o
r e c o v e r from defendant Leo J. Cremer, Jr. moneys owed a r i s i n g
o u t of v a r i o u s t r a n s a c t i o n s between p l a i n t i f f and d e f e n d a n t ,
i n c l u d i n g an o r a l p a r t n e r s h i p . p l a i n t i f f ' s action i n part
was f o r a p a r t n e r s h i p accounting. P l a i n t i f f a s manager of t h e
p a r t n e r s h i p submitted h i s accounting which showed a d e f i c i t
i n d e f e n d a n t ' s account which p l a i n t i f f was e n t i t l e d t o . The
S p e c i a l Master determined t h a t t o be $5,862.95. Plaintiff also
claimed and was found t o b e owed: $4,674.40 f o r 46 h e i f e r s pur-
chased by p l a i n t i f f f o r defendant; $212.47 i n t e r e s t on o p t i o n
money borrowed by p l a i n t i f f f o r d e f e n d a n t ' s b e n e f i t .
P l a i n t i f f and defendant were long-time f r i e n d s and both had
been i n t h e c a t t l e b u s i n e s s f o r y e a r s . I n 1959, t h e y e n t e r e d
i n t o an o r a l p a r t n e r s h i p agreement on a farming and ranching
venture. P l a i n t i f f had a c q u i r e d a l e a s e from one George Wepler.
Defendant had c a t t l e t o p u t on t h e l e a s e d land. Both p a r t i e s
had ranch o p e r a t i o n s o f t h e i r own. The p a r t n e r s h i p was operated
under t h e name of Arnold Livestock Company. C a p i t a l and income
was t o be equal. Operation and management of t h e v e n t u r e was
t o b e by p l a i n t i f f . Other than t h e name of t h e p a r t n e r s h i p ,
p l a c e of o p e r a t i o n , and agreement on d i v i s i o n of c a p i t a l and
p r o f i t , no terms were agreed upon. Such was t h e i n f o r m a l i t y of
t h e agreement.
A bank account was opened and p l a i n t i f f , defendant and de-
f e n d a n t ' s son were a u t h o r i z e d t o w r i t e checks. P l a i n t i f f , however,
was t h e only one who wrote checks on t h e account. A l l of t h e
bank s t a t e m e n t s , d e p o s i t s l i p s and checks were k e p t .
P l a i n t i f f , a t t h e d i r e c t i o n of h i s a c c o u n t a n t , k e p t o t h e r
r e c o r d s of t h e p a r t n e r s h i p a f f a i r s i n which he recorded r e c e i p t s
and disbursements f o r t h e y e a r s 1961, 1962, 1963 and 1964.
I n t h i s r e g a r d , t h e S p e c i a l Master found:
"4. The managing p a r t n e r maintained accounting
r e c o r d s f o r t h e p a r t n e r s h i p u n t i l December 31,
1963. These r e c o r d s were used i n t h e p r e p a r a t i o n
of t h e p a r t n e r s h i p income t a x r e t u r n s . The p a r t n e r -
s h i p books f o r t h e y e a r 1964 were maintained by
accountant M. L. Smith, who prepared t h e 1964 p a r t n e r -
s h i p income t a x r e t u r n .
"5. The accounting r e c o r d s a s maintained by P l a i n -
t i f f a r e f a i r l y common t o t h e farm and ranch i n d u s t r y .
R e c e i p t s a r e d e p o s i t e d i n t h e bank and disbursements
a r e made by check drawn on t h e bank. The r e c e i p t s
and disbursements a r e then c l a s s i f i e d and e n t e r e d
under a p p r o p r i a t e columns i n e i t h e r t h e income o r
t h e expense columns provided i n I N a t i o n a l ~ a r m e r s '
Income Tax Record', a copyrighted b o o k l e t s o l d f o r
t h e i n d i c a t e d purpose. The b o o k l e t does n o t provide
f o r double e n t r y bookkeeping and t h u s does n o t w i t h i n
i t s e l f c o n t a i n c o n t r o l s a g a i n s t e r r o r s and omissions. I I
P l a i n t i f f t e s t i f i e d t h a t each y e a r he went over t h e books
w i t h defendant. Defendant denied he had e v e r examined t h e books,
b u t admitted Arnold o f f e r e d t o l e t him examine them. I n addi-
t i o n , d u r i n g t h e y e a r s from 1959 through 1963, t h e p a r t n e r s h i p
t a x r e t u r n was prepared by M r . S c h r e i n e r , p l a i n t i f f ' s accountant.
T h e r e a f t e r , d e f e n d a n t ' s accountant M. L. Smith prepared t h e
partnership return.
P l a i n t i f f withdrew money from t h e p a r t n e r s h i p account f o r h i s
p e r s o n a l u s e and recorded t h e withdrawals a s l o a n s t o himself
on t h e p a r t n e r s h i p books. p l a i n t i f f ' s withdrawals were w i t h t h e
knowledge and consent of defendant Cremer. P l a i n t i f f ' s uncon-
t r a d i c t e d testimony was t h a t none of t h e items l i s t e d i n t h e books
a s expense items were used f o r h i s own p e r s o n a l l i v e s t o c k b u s i n e s s .
~ e f e n d a n t ' sa c c o u n t a n t , M. L. Smith, k e p t t h e books f o r
Arnold Livestock Company a f t e r 1963. Smith had worked f o r de-
f e n d a n t ' s o r g a n i z a t i o n s i n c e 1935 and was s t i l l working f o r i t
on June 1 9 , 1968, when h i s d e p o s i t i o n was taken.
 The Wepler l e a s e r a n out a f t e r t h r e e years. A t h r e e year
l e a s e on t h e Hanson place was obtained by p l a i n t i f f when t h e
Wepler l e a s e s t i l l had a year t o run.
P l a i n t i f f kept a personal ledger i n which was recorded t h e
b a r l e y t h a t he and defendant, a s i n d i v i d u a l s , supplied t o t h e
partnership. P l a i n t i f f kept t h e weigh s l i p s which were admitted
a t t r i a l a s p l a i n t i f f ' s Exhibit 8-1. P l a i n t i f f and M, L. Smith
used records t h a t belonged t o t h e e l e v a t o r company t o g e t some
of t h e information a s t o t h e g r a i n supplied.
On A p r i l 1, 1963, Arnold Livestock Company purchased and
paid f o r 400 head of y e a r l i n g h e i f e r s from defendant f o r $50,000.
Defendant Cremer a c t u a l l y moved 436 y e a r l i n g h e i f e r s on t o t h e
Hanson l e a s e . Although defendant got t h e 436 h e i f e r s back, he
never paid t o t h e p a r t n e r s h i p t h e $70,000 t h e c o n t r a c t c a l l e d
for.
The I n t e r n a l Revenue Service audited t h e p a r t n e r s h i p records
i n 1962.
P l a i n t i f f borrowed money on behalf of t h e p a r t n e r s h i p .
P l a i n t i f f ' s personal records f o r 1959 through 1963 were
introduced i n evidence a s Exhibits 13 through 22. These were
t h e same type of records kept f o r Arnold Livestock Company.
They were kept i n a l i k e manner. P l a i n t i f f kept h i s personal
income and expenses s e p a r a t e from those of t h e p a r t n e r s h i p .
Both p l a i n t i f f and defendant used men h i r e d by t h e p a r t n e r s h i p
t o h e l p out on t h e i r i n d i v i d u a l operations.
Defendant Cremer used t h e Hanson l e a s e f o r h i s own c a t t l e
without reimbursing t h e partnership.
Upon d i s s o l u t i o n of t h e p a r t n e r s h i p , M. L. Smith (who was
defendant's and a l s o t h e p a r t n e r s h i p ' s accountant a f t e r 1963)
was h i r e d t o make an accounting. The p r i c e s entered on t h e books
f o r c a t t l e were e s t a b l i s h e d by defendant Cremer. Elevator f i g u r e s
were used t o determine defendant's b a r l e y c o n t r i b u t i o n a t de-
fendant's request.
 I n making h i s f i n d i n g s i n r e g a r d t o t h e p a r t n e r s h i p t h e
S p e c i a l Master had bank r e c o r d s from t h e Yellowstone Bank; t h e
testimony of Wallace E. S c h r e i n e r ; t h e p a r t n e r s h i p U.S. tax
r e t u r n s ; t h e Smith d e p o s i t i o n and s m i t h ' s accounting and t h e
t a x r e t u r n s he prepared; t h e testimony of Charles McCartney,
C.P.A. and h i s r e c o n s t r u c t i o n of t h e r e c o r d s ; t h e testimony o f
D a l l a s VanDelinder, C.P.A.; and "the e n t i r e f i l e i n t h e c a s e ,
i n c l u d i n g d e p o s i t i o n s taken p r i o r t o t r i a l b u t n o t put i n e v i -
II
dence.
On t h e above f a c t s t h e S p e c i a l Master found i n a d d i t i o n t o

o t h e r f a c t s t h e f o l l o w i n g , which i s amply s u b s t a n t i a t e d by t h e
r e c o r d and e x h i b i t s :
"17. The following balance s h e e t r e f l e c t s
t h e a s s e t s and c a p i t a l accounts of t h e p a r t n e r s h i p
a t t h e time of d i s c o n t i n u a n c e of t h e p a r t n e r s h i p
b u s i n e s s and a t t h e time of t h e h e a r i n g a s determined
from t h e testimony and e x h i b i t s and t h e foregoing
f i n d i n g s of f a c t :
ASSETS
Cash i n Yellowstone Bank
Due from Leo J. Cremer, Jr.
TOTAL ASSETS

CAPITAL ACCOUNTS
Leo J . Cremer, Jr.
Ben R. Arnold

--
TOTAL CAPITAL ACCOUNTS $70,226.39
"18. P l a i n t i f f claims $500 f o r t h e use of
and $100.00 f o r damage t o combines a l l e g e d t o
have been used by Defendant. The evidence does
n o t e s t a b l i s h t h a t t h e u s e of t h e combines was
by t h e Defendant o r under circumstances r e n d e r i n g
Defendant l i a b l e f o r same.
"19. The p a r t n e r s h i p e n t e r e d i n t o a
w r i t t e n agreement w i t h Defendant ( p l a i n t i f f ' s
E x h i b i t 8-2) whereby t h e p a r t n e r s h i p agreed t o
purchase 400 h e i f e r s from Defendant, breed and
feed them from A p r i l 1, 1963 t o November 15, 1963,
a t whi.ch t i m e Defendant agreed t o buy them back
f o r $70,000.00. The p a r t n e r s h i p paid f o r t h e
h e i f e r s . Defendant took t h e c a t t l e back p r i o r
t o November 15, 1963, w i t h t h e complaint t h a t
P l a i n t i f f had caused Defendant and t h e p a r t n e r s h i p
t o b e over-stocked w i t h c a t t l e . The evidence i s con-
f l i c t i n g on t h e q u e s t i o n of t h e n e c e s s i t y t o r e -
move t h e animals and i s i n s u f f i c i e n t t o support any
change i n t h e w r i t t e n agreement. Defendant i s i n -
debted t o t h e p a r t n e r s h i p f o r t h e sum of $70,000.00
a s provided i n t h e agreement. I I
 A s t o h i s two f i n d i n g s f o r t h e p l a i n t i f f on matters out-
s i d e t h e p a r t n e r s h i p accounting, t h e Special Master found:
"20. P l a i n t i f f purchased f o r t h e account
of and d e l i v e r e d t o Defendant 46 h e i f e r s on o r
about September 30, 1961, f o r t h e sum of
$4,674.40. P l a i n t i f f drew a d r a f t on Defendant
f o r $4,000.00 which was refused twice and then
honored. P l a i n t i f f thought t h e d r a f t had been
c r e d i t e d t o him, b u t i t was c r e d i t e d t o t h e
c a p i t a l account of Defendant i n t h e p a r t n e r s h i p
on October 27, 1961. Defendant has n o t paid
P l a i n t i f f f o r s a i d h e i f e r s and i s indebted t o
him f o r t h e sum of $4,674.40 on account t h e r e o f .
"21. P l a i n t i f f leased c e r t a i n lands
from Robert P. Hanson and Dorothy M. Hanson,
husband and w i f e , under t h e terms of a w r i t t e n
agreement dated November 22, 1961 ( P l a i n t i f f ' s
Exhibit 7). The r e n t a l f o r s a i d l e a s e was paid
by t h e p a r t n e r s h i p and t h e lands were used by
t h e p a r t n e r s h i p i n i t s business. The l e a s e
contained an option t o purchase t h e leased
premises a t any time p r i o r t o December 1, 1964.
A t t h e r e q u e s t of Defendant, t h e P l a i n t i f f
exercised t h e option f o r the b e n e f i t of t h e
Defendant. I n order t o do s o , P l a i n t i f f
borrowed $35,412.19 on h i s own account a t t h e
Yellowstone Bank, Columbus, Montana. Subsequently,
a d i s p u t e a r o s e between t h e Hansons and P l a i n t i f f
concerning performance of t h e l e a s e agreement and
s t a t u s of t h e option t o purchase. I n s e t t l e m e n t
of t h e d i s p u t e , t h e option was cancelled.
Defendant was a p a r t i c i p a n t with P l a i n t i f f
i n t h e n e g o t i a t i o n s leading up t o s e t t l e m e n t
of t h e d i s p u t e by c a n c e l l a t i o n of t h e o p t i o n ,
both having gone t o t h e same a t t o r n e y t o
r e p r e s e n t them i n t h e d i s p u t e with t h e Hansons.
There i s a c o n f l i c t i n t h e testimony a s t o t h e
reason f o r c a n c e l l a t i o n of t h e option, b u t i t
does n o t appear t h a t t h e c a n c e l l a t i o n was t h e
f a u l t of t h e P l a i n t i f f . P l a i n t i f f paid i n t e r e s t
of $212.47 on h i s loan of $35,412.19 and i s en-
t i t l e d t o reimbursement from t h e Defendant
therefor. "
The Special Master concluded:
"22. I n summary of t h e foregoing f i n d i n g s ,
The Special Master f i n d s t h a t P l a i n t i f f has rendered
an accounting of t h e p a r t n e r s h i p a f f a i r s t o Defendant,
and a s a r e s u l t of such accounting and of o t h e r d e a l i n g s
between P l a i n t i f f and Defendant a s s e t f o r t h above,
P l a i n t i f f i s e n t i t l e d t o t h e balance of $226.39 i n t h e
p a r t n e r s h i p bank account i n t h e Yellowstone Bank,
Columbus, Montana, and i s f u r t h e r e n t i t l e d t o have and
recover from Defendant t h e sum of $10,749.82. * *
*I1

The i s s u e s s e t f o r t h by appellant-defendant a r e four. The
f i r s t i s s u e , termed by a p p e l l a n t a s t h e main i s s u e , i s : Wheth-
er a s o l e managing p a r t n e r has s u s t a i n e d h i s f i d u c i a r y burden
a s a t r u s t e e with regard t o accuracy of recordkeeping; and with
regard t o commingling of p a r t n e r s h i p a s s e t s with h i s personal
a s s e t s i n various ways. The o t h e r t h r e e i s s u e s include (1) t h e
r e c e i p t i n evidence by t h e Special Master of "unsupported bank
statements", (2) t h e acceptance by t h e d i s t r i c t c o u r t of t h e
S p e c i a l aster's f i n d i n g s , and ( 3 ) whether t h i s Court should do
an accounting of i t s own. These l a t t e r t h r e e i s s u e s a r e n o t
i s s u e s a s such, s i n c e they a l l bear on t h e s i n g l e i s s u e of whether
t h e evidence submitted a t t h e hearing was of a kind and of a
s u f f i c i e n c y t o s u s t a i n t h e findings.
The e n t i r e t h r u s t of a p p e l l a n t ' s p o s i t i o n i n t h e d i s t r i c t
c o u r t and h e r e i s t h a t a s a f i d u c i a r y t h e managing p a r t n e r was
under a s t r i c t duty of maintaining d e t a i l e d records of each
11
t r a n s a c t i o n and t h a t t h e managing p a r t n e r was held t o an es-
p e c i a l l y high" degree of duty. Then, a p p e l l a n t a r g u e s , where
accounts a r e n o t kept with such d e t a i l and accurateness a s t o be
capable of an "audit" i n a s t r i c t sense, t h e presumptions a r e
a g a i n s t t h e one causing i t . Appellant s t a t e s t h a t t o prove an
item, p l a i n t i f f must have accounts and vouchers f o r each item
and c i t e s i n support Hansen v. Hansen, 130 Mont. 175, 179, 297 P.
2d 879. He then s t a t e s t h a t t h e Special Master considered t h e
accounting on an ordinary p a r t n e r s h i p b a s i s , r a t h e r than i n -
volving a s o l e managing p a r t n e r s h i p .
W have considerable d i f f i c u l t y i n grasping a p p e l l a n t ' s
e
reasoning here. W do n o t d i s a g r e e with t h e r u l e s of law and
e
accounting t h a t a p p e l l a n t urges, b u t r a t h e r t h e i r a p p l i c a t i o n t o
t h e f a c t s . Appellant seems t o argue t h a t p l a i n t i f f could n o t
have an accounting because h i s bookkeeping was n o t p e r f e c t o r
t h a t t h e r e was commingling of funds and o t h e r business. However,
t h e Special Master found t h a t p l a i n t i f f had rendered an accounting.
On items t h a t p l a i n t i f f d i d n o t prove, t h e Special Master d i d n o t
allow.
I n summary a p p e l l a n t s t a t e s t h a t p l a i n t i f f has committed a
h o s t of a c t s of impropriety i n breach of h i s t r u s t e e s h i p a s a
 s o l e managing p a r t n e r ; he has taken cash; he has s o l d h i s own
personal goods t o t h e p a r t n e r s h i p a t a personal p r o f i t ; he has
commingled h i s own business with t h a t of t h e p a r t n e r s h i p ; and,
he cannot account f o r missing c a t t l e . Then a p p e l l a n t s t a t e s :
"1n s h o r t he [ p l a i n t i f f ] i s i n s e r i o u s trouble!"
Appellant again urges t h a t once a breach of t r u s t has been
e s t a b l i s h e d , t h e e n t i r e accounting i s suspect and t h e managing
p a r t n e r must have a l l presumptions considered conclusively
a g a i n s t him.
W have examined t h e e n t i r e record.
e W f i n d nothing a s i n
e
Hansen, where t h e Court found t h e books were " u t t e r l y u n r e l i a b l e
and f u r n i s h no b a s i s whatever f o r a determination of t h e r e s p e c t i v e
r i g h t s of t h e p a r t n e r s ** *.I' Rather we f i n d , a s t h e S p e c i a l
Master and t h e d i s t r i c t c o u r t found, t h a t an accounting was made;
t h a t p l a i n t i f f d i d n o t g e t c r e d i t where he d i d n o t have c l e a r ,
s a t i s f a c t o r y proof of t h e same; and t h a t t h e informal p a r t n e r s h i p
was conducted i n a manner known t o both p a r t i e s .
W f i n d no e r r o r and a f f i r m t h e judgment.
e

Justice '--'

a ChieS J u s t i c e
/' ",

f-\ J u s t i c e s

red B. Coate,
Judge, s i t t i n g f o r
J u s t i c e John Conway Harrison.