Balian v. Rainey , 115 Cal. App. 2d 10 ( 1952 )

FOX, J.

By a written agreement executed .at Detroit, Michigan, in February, 1946, the parties former a partnership for the purpose of operating a machine shop, and manufacturing and selling dies, tools and other similar products. Later the partnership business was moved to Los Angeles where it continued in operation until plaintiff filed this action for dissolution and an accounting. Pursuant to stipulation, the court entered an interlocutory judgment dissolving the partnership and appointed a receiver to take over the assets of the partnership, and appointed a referee for the purpose of taking an accounting of all the partnership transactions, and to ascertain the amount that each partner was entitled to receive upon dissolution, and to report his findings to the court. The referee conducted hearings at which all parties were present and testified. Under the partnership agreement plaintiff Balian had a 20 per cent interest, defendant Rainey had a 60 per cent interest, and defendant Chakmakjian had a 20 per cent interest. They were to share profits and losses on this percentage basis. The agreement further provided that all parties should devote all their time, energy and business experience to the business of the copartnership, and that no salaries were to be paid to any of the partners. “However, in ease of extended absence of any partner, that partner shall forfeit $50 per week for the time of tbe extended absence, which amount will be charged to the absent partner • and distributed to the remaining partners in the proportion that their respective shares of the profits and losses bear to one another.”

The referee found that plaintiff Balian did no work for the partnership for a period of seven weeks in 1948, that he was charged the sum of $350 for such absence, and that he did not then object to that charge; the referee also found that he did no work for the partnership at any time after January 1, 1949, a total of 91 weeks.

The question thus presented to the court was whether the account of plaintiff Balian should be charged $4,550 for such absence and the accounts of the other two partners appropriately credited. The trial court ordered such deduction and crédits. It is from this order that plaintiff appeals.

The referee further found that during various portions of 1949 plaintiff engaged in building operations constructing two store buildings as a partner of another person and remodeling his own home; that on various occasions he went to the plant of the partnership and obtained tools for use in his building operations.

The problem presented in this case is one of determining the intention of the parties to the partnership agreement. Effect must be given to such intention where it is not wholly at variance with correct legal interpretations of the terms of the contract. Where a contract is ambiguous, the “practical construction placed by the parties upon the instrument is the best evidence of their intention.” (Universal Sales Corp. v. California etc. Mfg. Co., 20 Cal.2d 751, 761-762 [128 P.2d 665]; Moore v. Wood, 26 Cal.2d 621, 629 [160 P.2d 772]; Vogel v. Bankers Bldg. Corp., 112 Cal.App.2d 160, 166-167 [245 P.2d 1069].)

As a result of plaintiff’s absence for seven weeks in 1948 a charge was made against him of $350 and he did not then make any objection to that charge, and the accounts of the parties were adjusted upon that basis. Such interpretation of the partnership agreement by the parties is “cogent and persuasive evidence” of their intent and the true meaning of the agreement (Vogel v. Bankers Bldg. Corp., supra), and supports the order of the trial court.

Plaintiff argues that a charge of $50 per week covering the period of his absence is in the nature of a penalty and its imposition works a forfeiture of his capital investment. He points out that the law abhors a forfeiture and that where there are two possible constructions of a contract, one of which leads to a forfeiture and the other avoids it, the construction which avoids the forfeiture must be made if at all possible. (Ballard v. MacCallum, 15 Cal.2d 439, 444 [101 P.2d 692].) He then argues that a forfeiture may be avoided by saying that this clause “was intended to be a withholding from the profits distributed during a profit and loss period of $50 per week for extended absences of any partner during that period.”

There is no suggestion in the agreement that the $50 per week which is to be “charged to the absent partner” who is on an “extended absence” is contingent upon the partnership ’s making a profit; nor is there any logic to reading such a condition into the agreement. In fact, the absent partner’s “business experience” might be more sorely needed when the firm was operating in the red. It might well be in such circumstances that if the absent partner were actively participating in the partnership business the investments of the other partners would not suffer.

The fact that the firm was making a profit when plaintiff was absent for a period of seven weeks in 1948 and his account accordingly charged for such period at the rate of $50 per week does not justify an implication that charges for such absences were to be made only in the event the firm was making a profit. It was a mere coincidence that such was the fact during that particular “extended absence.”

No significance should be attached to the fact that this provision for charging an absent partner $50 per week is in the paragraph of the agreement entitled Division of Profits. The correct title for that paragraph should be Division of Profits and Losses, because it sets out how the parties “shall divide all profits and losses.” The real explanation for this provision being in this particular paragraph is that the amount charged against a partner on an extended absence is to be “distributed to the remaining partners in the proportion that their respective shares of profit and losses bear to one another.” The amount of the charges against a partner as a result of his “extended absence” was thus to be divided between the other two partners on the same basis that profits and losses of the firm’s operations were to be shared.

By the terms of the partnership agreement the parties were required to “devote all their time, energy and business experience to the business of the Co-partnership.” No salary was to be paid to any of the parties. Their “time, energy and business experience” may therefore be considered a partnership asset. It was recognized that one or more of the parties might have occasion for an “extended absence” thereby withdrawing such asset from the partnership for a period of time. Undoubtedly, to discourage such absences and because there were no salaries from which deductions could be made as a means of adjustment, and in order to insure substantially equal personal service contributions to the enterprise, the parties agreed upon the value of such services in the event one of the partners desired to avail himself of the privilege of being absent for an extended period, and that such amount should be “charged to the absent partner.” As thus construed, the provision has a practical value and is in harmony with the plan and actual operations of the parties. Although the word “forfeit” is used, it is clear from the context of the agreement that it was not used in any strict or technical sense, and that a forfeiture was not in fact intended.

Plaintiff argues that the $50 per week charged for an “extended absence” has been waived by the conduct of the parties and that defendants are estopped to enforce it. Plaintiff’s first basis for this argument is that the referee found that “although each partner was at varying times and for varying reasons actually absent from the affairs of the business, no charge was ever made by the partners because of the absence of any partner from the business except” for the previously referred to absence of the plaintiff in 1948. None of such absences, however are shown to have been “extended” absences, hence they do not come within the provisions of the partnership agreement authorizing a charge against such absent partner.

Plaintiff’s second argument in support of his theory of waiver is that he asked his partners if it were true that they did not want him to work, and “they told him that so far as they were concerned, he could stay away. ’ ’ It was for the trial court to determine the significance to be attached to this statement and the inference to be drawn therefrom. It did not necessarily mean that plaintiff was at liberty to stay away and that no charge would be made against him therefor- under the terms of the partnership agreement. This statement did not require the trial coirrt to draw an inference that the other partners intended to waive such charge.

Plaintiff also argues that defendants should not be permitted to recover the sums credited to them due to his absence because there is no pleading which raises the issue of liquidated damages. There is no necessity for such pleading since the problem here presented is not one for the recovery of liquidated damages because no breach of contract is herein involved. The charge against a partner on an extended absence is simply an agreed compensation to the firm for the exercise of a privilege which it was contemplated some, or perhaps all, of the members might at some time desire to avail themselves. This was an action for an accounting which naturally involved an interpretation and enforcement of the partnership agreement which was pleaded. The pattern for this interpretation of the agreement and for making this charge had already been established as a result of plaintiff’s absence in 1948. The court was therefore justified in applying it to this later “extended absence.”

Plaintiff argues that it is inequitable that defendants should profit by his absence when such absence was due in great part to their actions. In support of this argument plaintiff asserts defendants “destroyed the mutual confidence which is an all-important element between partners,” and that by creating an attitude of tension and distrust they were able to keep plaintiff away from the business. As a basis for these inferences reference is made to the referee’s finding that defendant Rainey suggested to plaintiff’s wife that plaintiff pull out of the business. It is also asserted that defendants told plaintiff that they did not want him to work, and that so far as they were concerned he could stay away. Reliance is also placed on the referee’s finding that plaintiff would have been uncomfortable in the presence of his partners. The first point to be noted is that the record does not support plaintiff’s statement that defendants told him they did not want him to work. The comment of defendants to plaintiff that so far as they were concerned he could stay away cannot reasonably be construed as a refusal to permit him to participate in the firm’s operations. As to the suggestion to plaintiff’s wife that plaintiff pull out of the business, it should be borne in mind that Mrs. Dalian is the mother of defendant Rainey and that Dalian is the stepfather of Rainey. Although Mrs. Dalian said she would convey to plaintiff what her son was telling her, there is no evidence that she did in fact communicate it to him. Even if plaintiff’s wife did communicate to him the suggestion of defendant Rainey such statement could not be a justification for plaintiff’s refusal to render services to the firm. In addition to the referee’s finding that plaintiff would have been uncomfortable in the presence of his partners, it should also be pointed out that no physical interference was offered nor were any threats made against his entering the firm’s premises. It is also to be further noted that during this period, while plaintiff was engaged in his building enterprises, he went to the plant of the partnership and obtained tools which he used in these operations. It does not appear that any objection was made to the use by him of these tools or that any compensation was requested therefor by the other partners. It was for the trial court to draw inferences as to who was responsible for the alleged destruction of confidence between the partners and who was responsible for creating an attitude of tension or distrust and whether or not the circumstances justified plaintiff in staying away from the business. The trial court has impliedly drawn inferences on these questions adverse to plaintiff rather than in his favor. We cannot say, as a matter of law, that the court was not justified in so doing. Hence, it cannot be said that plaintiff was required to stay away from the business as a result of defendants’ acts.

The inequity of plaintiff’s construction of the partnership agreement is apparent. He agreed to devote his “time, energy and business experience to the business of the Co-partnership” without salary and in the event of his “extended absence” he would be subject to a charge of $50 per week for the benefit of the other partners. But he did no work for the partnership for 91 weeks, during which time, presumably, the other partners were actively devoting themselves to the partnership business. Throughout this period he was engaged in the construction business. He built two store buildings and remodeled his home, using in these operations tools which he obtained from the plant of the partnership. Yet when the assets of the partnership are to be distributed he claims he should receive the same share he would have received if he had been devoting his entire time and ability to the firm’s business for these nearly two years. He wants to enjoy the benefits of the agreement but nevertheless seeks to avoid its burdens. Such a result could not have been contemplated by the parties.

The referee’s report was adopted as the finding of the court. (Board of Education v. Mulcahy, 50 Cal.App.2d 418, 423 [123 P.2d 114].) Conflicting inferences may be drawn from these facts. It is, of course, our duty to draw those which will support the action of the trial court. (Levy v. Martin, 109 Cal.App.2d 730, 731 [241 P.2d 568].)

The orders are affirmed.

Me Comb, J., concurred.