[No. 11061. Department One. September 8, 1913.]
PETER SANDBERG et al., Plaintiffs and Appellants, v. FRANK J.
SCOUGALE et al., Defendants and Appellants,
DOMINIC CAVALERO et al., Defendants and
PARTNERSHIP - DISSOLUTION - LIQUIDATION - RIGHTS OF PARTNERS -
ESTOPPEL. Where three partners in a logging venture were
interested in timber lands, and in standing timber that had to be
removed within two years, a dissolution of the partnership by a
sale of the interests of one partner to another, does not prevent
the purchaser from proceeding to carry out the venture by paying
taxes and logging the timber, where it was necessary to save the
stumpage from loss and he acted in good faith; and the third
partner, who refused to aid or take part in the work, is
estopped, after waiting to see if the operations proved
advantageous, to deny his right to log the land and wind up the
affairs o the partnership.
«1» Reported in 134 Pac. 1051.
314 SANDBERG v. SCOUGALE.
Opinion Per Curiam. 75 Wash.
PARTNERSHIP - ACCOUNTING - ADVANCEMENTS. Evidence that a
partner, making advances to conduct logging operations, might
have bought cheaper equipment, does not establish that he did not
conduct the operations economically, where the equipment provided
was standard and usually employed in that class of work.
SAME - PERSONAL EXPENSES - EVIDENCE - ADMISSIBILITY. A partner
conducting logging operations, is not, in the absence of an
express agreement, entitled to be reimbursed for personal
expenses by way of railroad fare and hotel charges "for marketing
the products of the firm;" and it is not admissible to show that
the selling of timber in like quantities involves an average
expenditure in a certain amount by way of personal expenses.
INTEREST - RATE - LEGAL RATE IN ABSENCE OF WRITING. Where there
is no written contract for the payment of interest, testimony of
witnesses as to an oral contract for "bank interest" must be
considered in the light of Rem. & Bal. Code, SS 6250, providing
for interest at the rate of "six per cent per annum, where no
different rate is agreed to in writing between the parties."
Appeal from a judgment of the superior court for
Snohomish county, W.P. Bell, J., entered June 19, 1912, upon
findings in favor of the defendants, in an action on contract,
tried to the court. Modified.
Bates, Peer & Peterson and Fogg & Fogg, for appellants.
Coleman, Fogarty & Anderson, for respondents.
PER CURIAM. - In the summer of 1906, Dominic Cavalero,
Norval McGhie and Frank Scougale purchased 360 acres of
timber land; also, bought 720 acres of timber on a stumpage
basis. The land was situate near Gig Harbor, in Pierce
county, Washington. The land, timber, and subsequent
purchases of the right of way, and expenses incidental to logging
the land and putting the product in booms in tide water,
involved an expenditure of over $200,000. Scougale had no
money, and Cavalero advanced his one-third without security.
The amount due from Scougale to Cavalero on account of the
purchase price is not in dispute, although Scougale denied
the right of Cavalero to recover interest. He contends that
it was agreed that he was not to pay interest, while Cavalero
and McGhie testified that it was agreed that he should pay
SANDBERG v. SCOUGALE. 315
Sept. 1913 Opinion Per Curiam.
bank interest, or eight per cent. It was the intention of all
parties that the work of logging should be begun within a
reasonable time after the partnership had been entered into. The
time limit for removal of most of the timber bought on a
stumpage basis was two years. The work was not begun
immediately, for several reasons which we find to be sufficient,
and was not begun until the year 1909, when Cavalero, who
was a practical logger and engaged in the logging business,
went about the work on his own account. He built a logging
road and equipped it, made boom grounds, bought donkeys,
cables, boom sticks and other paraphernalia of the camp.
Scougale, although invited, if not requested, to participate in
the work of logging, did nothing. He afterwards brought
suit against Cavalero (State ex rel. Scougale v. Superior
Court, 55 Wash. 328, 104 Pac. 607, 133 Am. St. 1030), for
damages in the sum of $42,000 alleged to have been suffered
because the work of logging was not promptly done, and
certain options had been permitted to lapse. This action seems
to have been abandoned. Reference to the former case is
material only in so far as it shows Scougale's willingness to
subscribe to the acts of Cavalero and to take his compensation
in damages. Scougale afterwards mortgaged his interest in
all of the partnership property to Sandberg, who foreclosed
and bought the interest of Scougale at sheriff's sale. In
1909, and before Cavalero began the work of removing the
timber, McGhie sold out to Cavalero. This action was finally
begun by Sandberg, who sets up the history of the venture
and prays for one-third of the amount of the proceeds of the
logs and piles, with legal interest, less Scougale's one-third
of the original cost price of the property; that the property
of the partnership be sold, and that the proceeds be divided.
He is supported and sustained by Scougale. While the argument
in the briefs is directed to specific findings of the court
which are attacked and defended by counsel, we think the
true result may be the more quickly arrived at by reference
316 SANDBERG v. SCOUGALE.
Opinion Per Curiam. 75 Wash.
to the legal propositions involved, with such incidental
reference to the facts as may be necessary to illustrate them.
It is first contended that the court erred in refusing to find
as a fact that Cavalero agreed, early in 1907, to log the
timber at $5.50 per thousand. Appellant undertakes at this time
to charge Cavalero with all timber at $8 per thousand, and
give him credit for $5.50 per thousand. We have examined
the testimony with some care, and are of the opinion that the
finding that there was no such contract should be sustained.
If there ever was a contract of that kind, it was not acted
upon, and the subsequent negotiations of the parties, as well
as their conduct, indicates that all thought of it was
abandoned. In anticipation of this holding, appellant contends
that the original partnership was dissolved by the sale of
McGhie's interest to Cavalero. Story, Partnership (7th ed.),
SS 307; Parsons, Partnerships (3d ed.), p. 433-4; Shumaker,
Partnerships, p. 416; 22 Am. & Eng. Ency. Law (2d ed.),
p. 206; 30 Cyc. 653: and many cases to be found in the foot
notes of these texts. He further contends that, after such
dissolution, Cavalero could do nothing that could bind the
partnership; that, by reason of the sale by McGhie of his
interest, Cavalero and Scougale became tenants in common, and as
such Cavalero must account for the value of the timber
without diminution for the expenses and cost of removal. To
sustain this contention appellants cite: Foster v. Weaver, 118
Pa. St. 42, 12 Atl. 313, 4 Am. St. 573; Everson v. Seller,
105 Ind. 266, 4 N.E. 854; Silgo Furnace Co. v. Hobart-Lee
Tie Co., 153 Mo. App. 442, 134 S.W. 585; Wright v.
Skinner, 34 Fla. 453, 16 South. 335; Bailey v. Hayden,
65 Wash. 57, 117 Pac. 720.
The general rule is that the sale of a partner's interest
dissolves the partnership. This rule is not without its
qualifications, and reference to the books will show that, as between
partners, the qualification or explanation which is stated in
all the texts:
SANDBERG v. SCOUGALE. 317
Sept. 1913 Opinion Per Curiam.
"The expenses and outlays of a partner continuing the
business after dissolution for mutual benefit are allowed; and
expenses by a surviving or liquidating partner in winding up."
Bates, Partnership, SS 769; 30 Cyc. 659; 22 Am. & Eng.
Ency. Law. (2d ed.), pp. 205, 211, 212.
is as often applied as is the general rule.
Upon the sale of a partner's interest, a dissatisfied partner
may concur with the remaining partner or partners, or may
himself close up the partnership business. If he is unwilling
to do this, he may resort to a court of equity and have a
receiver appointed. It does not follow that, because a technical
dissolution is worked by the sale of a partner's interest, the
business of the firm is paralyzed and the surviving or remaining
partners are powerless to protect their investment or their
interest in the concern.
"Notwithstanding the dissolution of the partnership, there
still remain certain rights, duties, powers, authorities, and
relations between them which the law recognizes and supports,
because they are, or may be, indispensable to the complete
arrangement and final settlement of the affairs of the
partnership; and, therefore, in a qualified and limited sense, the
partnership may be said for those purposes to continue between
the parties until such arrangement and settlement take place.
. . . and the consequence, therefore, must be, that for the
purpose of making good outstanding engagements, of taking
and settling all the accounts and converting all the property,
means, and assets of the partnership, existing at the time of
the dissolution, as beneficially as may be for the benefit of all
who were partners, according to their respective shares and
proportions, the legal interest must subsist, although for all
other purposes the partnership is actually determined.
"Moreover, it is plain that if a total extinction of all rights,
powers, and authorities of the partners to deal with the
partnership property, funds, and effects, immediately followed
upon the dissolution of the partnership, it would amount to a
complete suspension of all right and authority to apply any
part thereof to the payment and discharge of the existing
partnership debts, or to collect the debts due to the
partnership, or to adjust unsettled accounts, or even to close any
outstanding adventures or inchoate operations. The mischiefs,
318 SANDBERG v. SCOUGALE.
Opinion Per Curiam. 75 Wash.
therefore, would be positive and irreparable without the
intervention of a court of equity to compel the parties to do that
which the law has wisely allowed without compulsion, or to
appoint a receiver who should perform the like functions in a
slow and expensive, and, for the most part, a less active and
skilful manner." Story, Partnership, SSSS 325, 327.
The subject-matter of the partnership in this case was
such that it required the attention of those who were interested,
and in the event of the refusal or inability of one of the
remaining partners to act or to contribute his time and money
to the promotion of the business of the concern, the other
partner could proceed to carry out the venture; the only
limitation upon his conduct being that he proceed to do so in an
honest and in an economical way. The testimony shows that
is was up to Cavalero, he being able so to do, to proceed with
the work; otherwise the 720 acres of timber held on stumpage
contracts would have been lost. Appellants are not in a
position to deny the right of Cavalero to proceed to log the land.
Neither did the partnership have any funds to meet taxes and
other charges. Appellants should have manifested their
dissatisfaction at the time Cavalero began his logging operations,
or within a reasonable time thereafter. The courts were open
and would have given a remedy in the way of a receivership,
or would have compelled Cavalero to log the land under the
direction of the court. They have held themselves in a position
to take the benefit of the logging operations if it proved
to be advantageous to do so. Equity will not permit them to
deny Cavalero's right to wind up the affairs of the partnership,
no reason appearing other than that the venture was not
as profitable as they hoped that it might be.
Taking a perspective of the whole case, the facts and
circumstances strongly imply that it was originally intended
that Cavalero would finance the whole deal, and that Scougale
would have no return for his time except as it was realized
out of the final balance over and above the amount Cavalero
had advanced for him.
SANDBERG v. SCOUGALE. 319
Sept. 1913 Opinion Per Curiam.
The only questions remaining, therefore, are, whether (1)
the work was economically done, (2) whether Cavalero has
accounted, and (3) whether certain items allowed as interest,
attorney's fees, etc., are proper charges against the interest
Taking the figures as found by the court, and the amount
of timber as contended for by respondents - and they seem to
be as nearly correct as it is possible for us to make them - it
cost, including the price paid for the land, stumpage,
equipment, and interest on the sums advanced by Cavalero and
borrowed from banks, $8.95 per thousand feet B.M. to log the
land, or deducting the cost of the land and equipment from
the total expenditures, the cost of logging the timber alone
was $5.96 per thousand feet B.M. This includes interest.
The court found that Cavalero had received $199,333.96. He
has received, therefore, $7.83 per thousand feet B.M. The
court found accounts and bills receivable of the probable
value of $10,000. There are also some slight items, a few
logs, piles, booms, etc., remaining that might be added, but
their value is inconsequential as compared with the whole, and
they would not materially change these figures. We are not
prepared to say that the work was not economically done.
The testimony relied on to show that it should have been done
for less was the evidence of Scougale that Cavalero had, in
1907 and 1908, agreed to do the work for $5.50 per thousand,
and that he, Scougale, had negotiated with another party
who had agreed to do the work for $5 per thousand. Cavalero
denies that he ever agreed to log the land at the price stated.
The other contract was never entered into. There is nothing
in the record that would warrant us in saying that the sums
paid out by Cavalero in the course of his logging operations
were not justly paid. It is not shown that he hired too many
men or that he paid extravagant wages. Some attempt is
made to show that he might have bought cheaper equipment,
but equity will not condemn him for buying that which is
shown to be standard and of the character usually employed
320 SANDBERG v. SCOUGALE.
Opinion Per Curiam. 75 Wash.
in carrying on that class of work. We therefore find that,
although done without profit other than as is represented in
the equipment on hand, and the 330 acres of logged-off land,
the work was not extravagantly done.
The major portion of the briefs is devoted to a discussion
of the amount of timber that was upon the land and the
amount accounted for. The court made no finding as to the
amount of timber. This should have been done, for it is the
important and crucial fact in the whole case. Instead of
sending the case back for further findings, as we might have done,
and perhaps should have done, we have devoted our own time
to a consideration of this item. So far as we can ascertain
from the whole record, we are unable to say that Cavalero has
not accounted for all of the timber on the land. The
testimony that he has not done so is inferential rather than
positive, and is insufficient to overcome the showing made by him.
The court allowed Cavalero the sum of $800 to cover
personal expenses "by way of railroad fare, hotel charges," etc.,
and "for marketing . . . the products of the company."
Under certain circumstances, a partner is entitled to be
reimbursed for personal expenses and for sums paid out for the
benefit of the concern, but the allowance of this sum is not
warranted by reference to any fact disclosed in the testimony.
A partnership cannot be called on to pay personal expenses
unless they are clearly proven; neither can a partner, in the
absence of an agreement, recover anything in the way of
compensation for marketing products. Cavalero refers to
no items, submits no vouchers, nor does he show any
transactions that would warrant us in allowing him expenses or
extra compensation. His testimony is wholly insufficient to
warrant the finding of the court:
"Q. Was it necessary for you in looking after the company's
business to travel a great deal and spend money for
traveling expenses? Mr. Peer: Under the issues in this case, we
object as incompetent and immaterial. The Court:
Objection overruled and exception allowed. A. Yes, I stood my
expenses. Q. Now, Mr. Cavalero, what amount of money did
SANDBERG v. SCOUGALE. 321
Sept. 1913 Opinion Per Curiam.
you necessarily expend when traveling around in the
company's business? A. Well, I spent considerable. Q. State
the amount if you can. A. About fifteen hundred dollars.
Q. Since it began logging? A. Since it began logging, from
the first down to the end."
Counsel made an offer to prove by a witness who was engaged
in the business of selling logs that the selling of timber
products involves an expenditure of money in the way of
personal expenses. The offer was rejected and properly so,
for items of expense cannot be proved in this way, but it
illustrates the misunderstanding of counsel, and the
insufficiency of the proof. It follows:
"At this time, your honor, we make the offer to prove by
this witness that in selling logs and piles and poles in the
quantity manufactured or put up by a camp the size of the
Gig Harbor Timber Company, at the lowest estimate, that the
average expenses of such marketing, including railroad fare,
hotel bills and such other expenses as are incidental to selling
logs and timber, which everyone knows to be treating and
sometimes may be in drinking, would be not less than one
hundred dollars a month. We make that offer?
The item of $800 was improperly allowed.
The court has allowed Cavalero interest at the rate of eight
per cent upon the money advanced by him to pay the purchase
price of the land. There was no written contract. Scougale
insists that it was understood that he was not to pay any
interest, while Cavalero and McGhie both testify that he
agreed to pay bank interest or eight per cent. We think,
notwithstanding the preponderance of the spoken evidence,
that this charge was improperly made. The testimony of the
witnesses must be considered in the light of the statute:
"Every loan or forbearance of money, . . . shall bear
interest at the rate of 6 per centum per annum where no
different rate is agreed to in writing between the parties." Rem.
& Bal. Code, SS 6250 (P.C. 263 SS 1).
When so considered, the allowance of any rate of interest
other than the legal rate is unwarranted.
11 - 75 WASH.
322 NORTHERN PAC. R. CO. v. RAYMOND.
Opinion Per MAIN, J. 75 Wash.
The decree of the lower court will be modified by striking
out the item of $800, and reducing the interest charge from
eight to six per cent. In all other respects, it is affirmed.
Appellants will recover their costs in this court.