No. 84-43
I N THE SUPREME COURT OF THE STATE O F MONTANA
1 98 4
GAMBLE ROBINSON COMPANY,
a Corporation,
P l a i n t i f f and R e s p o n d e n t ,
CAROUSEL P R O P E R T I E S , et al.,
D e f e n d a n t s and A p p e l l a n t s .
APPEAL FROM: D i s t r i c t C o u r t of t h e F i f t h J u d i c i a l D i s t r i c t ,
I n and f o r t h e C o u n t y of B e a v e r h e a d ,
T h e H o n o r a b l e F r a n k D a v i s , Judge p r e s i d i n g .
COUNSEL OF RECORD:
For Appellant:
Z a n e I . S u l l i v a n , I l i s s o u l a , Montana
(
For Respondent:
John Warren; S c h u l z , D a v i s & Warren, D i l l o n ,
Montana
S u b m i t t e d on B r i e f s : June 2 8 , 1 9 8 4
Decided: September 13, 1984
--
Clerk
Mr. J u s t i c e L. C. Gulbrandson d e l i v e r e d t h e Opinion of the
Court.
'This a c t i o n w a s b r o u g h t i n t h e D i s t r i c t Court of the
Fifth Judicial District, in and for the County of
B e a v e r h e a d , M o n t a n a , on a n a c c o u n t d u e . Respondent r e c e i v e d
summary judgment for $4,414.76 plus interest and costs.
Appellants contest the lower c o u r t ' s ruling, and ask this
C o u r t t o g r a n t summary j u d g m e n t i n t h e i r f a v o r . We reverse
and remand.
On J u n e 20, 1978, Walter W. Deines, Alan M. Hart,
C a r r o l l M. H a r t , Ray L . I n g a l l s a n d H a r r y M. O p s a h l , a l l o f
Plissoula, Montana, agreed to form a partnership called
Crosswinds Enterprises. Article 1.4 of the Partnership
Agreement set o u t t h e p u r p o s e o f the partnership, ". . .
t h e o w n e r s h i p and o p e r a t i o n of o n e o r more r e s t a u r a n t s a n d
any other businesses related thereto, and such other
business a s the p a r t n e r s s h a l l determine." In addition, the
partners, i n Article 4.1 of t h e agreement, contemplated t h a t
". . . the partnership intends to enter into a separate
c o n t r a c t of employment w i t h H a r r y M. Opsahl regarding the
full time operation and management of the partnershj.pls
i n i t i a l restaurant venture." U n t i l t h e n t h e Agreement g a v e
H a r r y O p s a h l t h e s p e c i f i c a u t h o r i t y t o manage t h e r e s t a u r a n t
as a partner and employee, "which said authority shall
include, but not be limited to t h e powers to . . . (ii)
borrow monies for operating expenses of the partnership
business . . . [and] ( i i i ) expend sums f o r t h e p a y m e n t o f
ordinary business expenses, purchase of inventory, supplies,
or other consumables . . . " The Agreement otherwise
limited all of the partners' authority, including Harry
Opsahl's, to those specifically granted. Crosswinds
Enterprises filed a registration of trade name on June 16,
1978.
In July of 1978, Crosswinds Enterprises acquired real
property in Dillon, Montana on which it intended to begin
restaurant operations. A Notice of Purchasers Interest in
the name of Crosswinds Enterprises, a partnership, was filed
with the Beaverhead County Clerk and Recorder at that time.
Little apparently happened until March of 1979. On
March 1, the five partners joined in amending the
partnership agreement. The name of the partnership was
changed to Carousel Properties, and the provision in the
Agreement giving Harry Opsahl general managerial powers was
deleted. The purposes clause of the partnership was not
amended. On March 30, Carousel Properties filed notice with
the Secretary of State that it was assigning all of its
rights in its old name, Crosswinds Enterprises, to a
corporation formed that same day. All five principals in
the partnership were equal shareholders in the new
corporation, which took as its name Crosswinds Enterprises.
The purpose of the corporation was the "operation and
management" of the Crosswinds Restaurant. That same day,
the partnership also filed a notice of name change.
On April 1, 1979, the partnership (Carousel
Properties) leased to the corporation (Crosswinds
Enterprises) the real property it had aquired the year
before. On June 1, 1979, Harry Opsahl entered into a
written agreement with the corporation to be general manager
of the Crosswinds Restaurant. The restaurant opened for
business on June 9 , 1979.
Sometime early that June, Ken Marsh, a sales
representative for respondent, Gamble Robinson Company,
visited the Crosswinds Restaurant to solicit orders for bulk
foodstuffs. Between June 11 and June 22, the restaurant
ordered $582.15 worth of food from Gamble Robinson Company.
The first order was billed to "Crosswinds Restaurant;
Dienes, Opsahl, Hart and Hart," and was paid on July 14.
All subsequent orders were billed the same way. In late
June or early July, Ken Marsh and Harry Opsahl met to
discuss the credit arrangement between Crosswinds and Gamble
Robinson. The details of this conversation are unclear.
Marsh has not testified, and Opsahl's recollection is
equivocal at best. Gamble Robinson alleges that during this
conversation, Opsahl represented to Marsh that the
restaurant was owned and operated by a partnership.
Regardless, what apparently came out of this conversation
was a credit application that Marsh filed sometime in July
with Gamble Robinson Company's branch manager. The
application listed the restaurant's owner as a partnership
of Dienes, Opsahl, Ingalls, Hart and Hart. It was not
signed by Opsahl or any of the purported partners. A line
of credit was approved and operations began on that basis.
In 1982, managerial and financial difficulties beset
the restaurant. Harry Opsahl was fired as manager in April,
and by October, Crosswinds was unable to pay its bills. The
account with Gamble Robinson went unpaid from August 3 to
October 16, when the line of credit was rescinded.
Crosswinds then owed Gamble Robinson $4,414.96, the amount
at issue in this action.
In January of 1982, Crosswinds Enterprises effected a
bulk transfer of all of its corporate assets to Snowden
Enterprises, Ltd. Snowden was a newly formed corporation
with only one shareholder, Iris Hart, the wife of Carrol
Hart (one of the partners and shareholders in the other two
entities). Gamble Robinson Co. received a notice of bulk
transfer, and indicated in a letter dated January 27, 1982
that it would file a claim as a corporate creditor.
Following the bulk transfer, Carousel Properties transferred
the lease from Crosswinds Enterprises to Snowden. On
February 18, 1983, Crosswinds Enterprises filed a petition
in United States Bankruptcy Court. Gamble Robinson, an
unsecured creditor, received nothing.
On February 24, 1983, Gamble Robinson filed this
action for the unpaid account against "Crosswinds
Enterprises, a partnership consisting of Walter W. Dienes,
Alan M. Hart and Ray L. Ingalls, also known as Crosswinds
Restaurant." Harry Opsahl was not named in the original
complaint, apparently because he had left the partnership at
the same time he was fired from his post as manager.
Defendant moved to dismiss under the name "Carousel
Properties, a partnership formerly known as Crosswinds
Enterprises, a partnership consisting of Walter W. Dienes,
Harry Opsahl, Allan W. Hart, Carrol M. Hart and Roy L.
Ingalls; also known as Crosswinds Restaurant." The motion
to dismiss was denied, and it is under that name this action
has proceeded. Following a hearing, the Honorable Frank E.
Blair, District Judge, authorized a writ of attachment to
issue against Carousel Properties.
This cause was heard on December 8, 1983, before the
Honorable Frank M. Davis, District Judge, on cross-motions
for summary judgment. At the hearing, Carousel Properties
withdrew its motion and Gamble Robinson's motion was then
granted. Judge Davis found this case to be appropriate for
summary judgment because there were no genuine issues of
material fact that the debt at issue belonged to the
partnership, Carousel. This ruling was based upon: (1) the
stated general purpose of the partnership; (2) the apparent
authority of Opsahl to bind the partnership; (3) Opsahl's
alleged representation to Marsh that he was dealing with a
partnership; (4) the record title of the real estate was in
the partnership name; and (5) the deceptive similarity of
the various entities. The court also intimated that,
although it was not strictly necessary for its decision,
this case was ripe for the application of the doctrine of
piercing the corporate veil.
Appellant presents the following issues on appeal:
(1) Was summary judgment properly granted?
(2) Did the District court err in its analysis of the
record in determining the facts before the court?
(3) Is the doctrine of piercing the corporate veil
applicable?
Was Summary Judgment Proper?
Summary judgment is not a substitute for trial, Baylor
v. Jacobson (1976), 170 Mont. 234, 552 P.2d 55. Rule 56 (c)
M0nt.R.Civ.P. permits summary judgment to issue only when
there is no genuine issue of material fact, and the moving
party is entitled to the judgment as a matter of law.
Reaves v. Reinhold (Mont. 1980), 615 P.21 896, 37 St.Rep.
1500. In Cereck v. Albertson's, Inc. (1981), 195 Mont. 409,
637 P.2d 509, we stated the test for granting summary
judgment :
"It is well established that a party
moving for summary judgment has the
burden of showing a complete absence of
any genuine issue as to all facts deemed
material in light of the substantive
principles that entitle that party to a
judgment as a matter of law. [Citations
omitted.] All reasonable inferences that
may be drawn from the offered proof are
to be drawn in favor of the party
opposing summary judgment." [Citations
omitted.]
The moving party's initial burden is two-fold. First,
it must show the absence of any genuine issue as to material
fact. Second, that party must also show that this set of
facts entitles it to the judgment as matter of law. This
necessarily implies the articulation of cogent legal grounds
to which the facts apply.
In addressing the factual test, although the court has
no duty to anticipate or speculate as to material facts to
the contrary, it must nonetheless draw every inference in
favor of the non-moving party. Larry C. Iverson, Inc. v.
Bouma (1981), 195 Mont. 351, 639 P.2d 47; State ex re1
Burlington Northern v. District Court (1972), 159 Mont. 295,
If the movant has met this burden, it then shifts to
the non-moving party to demonstrate a genuine issue of
material fact. Mere denial or speculation will not suffice,
the non-moving party must show facts sufficient to raise a
k; ;rf.q
genuine issue. Detert v. Lake County (Mont. 1984), =P.2d
1097, 41 St.Rep. 76; Lewis v. State (Mont. 1984), 675 P.2d
The fatal defect below was respondent's failure to
meet its initial burden. It did not show an absence of any
genuine issue of material fact, and assuming it had, it did
not articulate cogent legal grounds upon which judgment
could lie. To reach this conclusion, it is necessary to set
forth the substantive law governing this matter.
Gamble Robinson Co. relied primarily on section
35-10-301(1), MCA, to the effect that:
"Every partner is an agent of the
partnership for the purpose of its
business, and the act of every partner,
including the execution in the
partnership name of any instrument, for
apparently carrying on in the usual way
the business of the partnership of which
he is a member binds the partnership ..."
To this Carousel Properties responded that any actions
or representations by Harry Opsahl to Ken Marsh were beyond
the scope of his authority because of the March 1979
amendments to the partnership agreement. Because he was
acting beyond his authority, Opsahl did not bind the
partnership. For this point, Carousel relies on the second
clause of section 35-10-301(1), MCA: ". . . unless the
partner so acting has in fact no authority to act for the
partnership in the particular matter and the person with
whom he is dealing has knowledge of the fact that he has no
such authority."
Carousel attempts to impute "knowledge" onto Gamble
Robinson by characterizing Opsahl's representations as not
within the scope of business as ordinarily conducted and not
"for the carrying on of the partnership in the usual way,"
section 35-10-301(2), MCA.
The scope of Harry Opsahl's authority under the
partnership agreement is not the correct legal issue.
Crosswinds Restaurant was legally being operated by the
corporate entity, Crosswinds Enterprises. The only role
that the partnership, Carousel, played was that of lessor of
the restaurant property. Harry Bpsahl was acting for the
corporation in his role as manager-employee. The five
principals complied with all of the necessary legalities in
assigning the partnership name, incorporating Crosswinds
Enterprises, and leasing the property to the corporation.
Gamble Robinson was dealing with the corporation, and not
the partnership. In that respect it ran afoul of the
general rule that persons must be partners to one another
before they can be partners to third persons. St. Paul
Machinery Mfg. Co. v. Bruce et. a1. (1918), 54 Mont. 549,
172 P. 330; Martin v. Peyton (1927), 246, N.Y. 213, 158 N.E.
77; 59 Am.Jur.2d Partnership section 67. This underscores
that the issue in this case is not whether the partnership,
Carousel, is itself liable, but rather, whether the five
shareholders of the corporation, Crosswinds Enterprises, are
liable as partners.
In general, "[tlhe effect of a belief by a person
dealing with a corporation that it is a partnership is
governed by the principles applicable to partnerships by
estoppel." Rowley on Partnerships 2d ed. section 57.15
(1960), see also Mulkey v. Anglin (Okla. 1933), 25 P.2d 778.
Section 35-10-308, MCA, is the pertinent statutory
authority, stating in part:
"(1) When a person by words spoken or
written or by conduct represents himself
or consents to another representing him
to anyone as a partner in a existing
partnership or with one or more persons
not actual partners, he is liable to any
such person to whom such representation
has been made who has on the faith of
such representation, given credit to the
actual or apparent partnership, " .. .
(Emphasis added. )
Partnership by estoppel is the exception to the general
rule, stated above, that parties must be partners to each
other before they can be liable as partners to third
parties. The elements are: (1) that the person or entity
represents to the third party that he is dealing with a
partnership, even though no such partnership exists; and (2)
that the third party rely to his detriment. Section
35-10-308, MCA; Krone v. McCann (Mont. 1982), 638 P. 2d 397,
39 St.Rep. 500. This reliance must be reasonable, and under
the circumstances, the third party is "under a duty to make
reasonable inquiry to ascertain whether he was dealing with
an individual or a corporation." Payne v. Lucas (Tex.
1979), 517 S.W.2d 602, 607. The same applies to putative
partnerships. Hempstead v. Allen (1953), 126 Mont. 578, 255
This determination is inherently factual. Gustafson
v. Taber (1951), 125 Mont. 225, 234 P.2d 471. 8 Fletcher
Cyclopedia Corporations, section 4019 (1982) points this
out:
"Liability of partners on contracts
entered into and obligations incurred
after the incorporation must depend upon
a number of circumstances, among which
are the legality and completeness of the
incorporation, and notice thereof on the
part of those subsequently dealing with
the partners. Ordinarily the partners do
not become liable on debts and
obligations incurred after they have
become incorporated, unless the other
parties dealt with them as partners and
were justified in so doing because of
lack of actual or constructive notice or
knowledge of their incorporation or
attempted incorporation .The .
liability of a partner or firm for future
debts of the . . .
corporation, . . .
when such debts are incurred by reason of
credit having been extended because of
the belief induced by the conduct of the
partners that they were still interested
in or carrying on the business, rests
upon a principle akin to that of
equitable estoppel, differing only in
this respect that no specific intent to
mislead need be shown." (Citations
omitted. )
The ultimate factual issue in this case is whether the
five principals, Dienes, Opsahl, Hart, Hart and Ingalls,
under these circumstances, represented, or allowed
themselves to be represented, as partners in Crosswinds
Enterprises in operating Crosswinds Restaurant, and then
whether Gamble Robinson relied thereupon. The particular
issue as to Harry Opsahl's representation was whether he
acted under the apparent authority to bind the shareholders
as partners so as to give rise to reasonable reliance.
Although partnership by estoppel was not at issue
below, we will look at the facts in the record and uphold
the lower court's decision if it is ultimately correct.
Shimsky v. Valley Credit Uni 1984), 676 P.2d 1308,
41 St.Rep. 258; Steadman v. - H a - H m A (1982), 197 Mont. 45,
641 P.2d 448; Kirby Co. of Bozeman v. Employment Security
Division (1980), 614 R.2d 1040, 37 St.Rep. 1255. We do not
affirm because the facts in the record do not provide a
sufficient basis for summary judgment.
Respondent points out several facts supporting
partnership liability. First, and most significant, are the
alleged representations by Harry Opsahl to Tom Marsh, to
which he testified to in deposition. In response to
questioning, Opsahl stated:
"Q. Do you feel that you would have, at
that time, told them that this was a
partnership operation?
"A. I very well could have told them it
was a partnership operation.
"Q. Your statement is, then, it is
possible
- that you advised Gamble
Robinson, when the account was opened
that it was a partnership operation.
"A. It's possible.
"Q. Do you recall supplying information
to Ken Marsh about credit for the
restaurant business here in Dillon?
"A. I would say yes.
"Q. Do you recall telling Ken Marsh that
the partners in the business were Walter
Deines of Missoula, Harry Opsahl,
manager, Ray Ingalls of Missoula, Alan
Hart of Missoula and Carrol Hart of
Missoula?
"A. I don't recall that.
"Q. Could you have provided him with that
information?
"A. Yes.
"Q. So, basically your position is that
you could have and probably did give the
information to Gamble Robinson at this
time, that it was a partnership operating
a restaurant.
"A. That's possible.
"Q. Probable?
"A. Looking at the information that they
have, probable.
"Q. Why?
"A. Why would I give them this
information? I suppose in order to do
business with them I would have had to
give them some information to fill this
credit application. Again, they weren't
the type of supplier I would go after if
they didn't come to me. You treat them
more as a courtesy when they come. We
did use them, but as a minor supplier. I
don't know just when he got this
information. Maybe he got it at the time
it was a partnership.II (Emphasis added.)
And, in another statement at the deposition: "A. You
know, there's five of us and we're building and opening
restaurants. I guess I wasn't thinking in terms of
different entities. We had the same purpose."
Although Opsahl's responses provide some support for a
conclusion of partnership liability, this is not the type
and weight of evidence sufficient to support summary
judgment .
In any event, appellant contends that these
representations were beyond the scope of Opsahl Is authority
because of the 1979 amendments to the Partnership Agreement.
To the extent that this restriction on Opsahl's authority is
used to protect Carousel, this argument is irrelevant,
because the issue is the partnership liability of the five
shareholders of Crosswinds Enterprises.
Gamble Robinson Co. also points out the fact that the
record title to the real estate was held by Crosswinds
Enterprises, the partnership. Although the failure to amend
3 title when the owning entity changes names does not
support liability by itself, see e.g. section 70-20-109,
MCA, it is evidence that can support the element of
reliance. Gamble Robinson Co. nowhere alleged that it knew
about the title at the time credit was given. Nor does the
record unequivocally show that it relied upon the alleged
partnership in granting that credit. Finally, the failure
of Crosswinds to correct the billing document that
apparently indicated a partnership does not itself support
summary judgment.
In Facit-Addo, Inc. v. Davis Financial Corp (Ariz.
1982), 653 P . 2 d 356, the Arizona Supreme Court overturned a
ruling of summary judgment in similar circumstances. In
Facit-Addo, the appellant, Facit-Addo Co. had been dealing
with two principals over the course of several months, and
ultimately entered into a franchise agreement with them.
Things went sour, and the two alleged that they had
previously incorporated and were not personally liable on
the contract. Facit-Addo alleged no knowledge of the
incorporation and asserted liability on the basis of
partnership by estoppel.
The Arizona Supreme Court emphasized that partnership
by estoppel is a factual issue, and that the testimony
presented did not establish a set of facts one way or
another. The case was remanded. See also Kitchell Co. v.
Hermansen (1968), 8 Ariz.App. 424, 446 P.2d 934, where the
Arizona Supreme Court stated:
"We agree with the appellant that A.R.S.
section 29-216 [which is the same as
section 38-10-308, MCA] may estop a
person from denying that he was acting as
a general partner of a company rather
than as an officer of a corporation.
When it is contended that such a thing
has occurred, the question is whether his
actions and conduct were sufficient to
lead a creditor to believe that the
debtor was acting as an ostensible
cooartner, and whether he was assuming
L
responsibility as such. This is an issue
of f a c t for the trial court to determine
from all of the evidence presented. J. &
J. Builders Supply v. Caffin, 248
Cal.App.2d 292, 56Cal.~ptr. 365 (1967)."
(Summary judgment reversed.) (Emphasis
added. )
See also Mulkey v. Anglin (Okla. 1933), 25 P.2d 778; Flemmer
f 0323
v. Ming (Mont. 1981), 621 P.2d 9334, 37 St.Rep. 1916.
We find that summary judgment was improperly granted,
and thus do not reach the issue of whether this case is
appropriate for the doctrine of piercing of the corporate
veil.
/
Reversed and remanded. /'
We concur:
%&&pa C gJRd~*
Chief Justice