Reference no: EM131627820

Clint and Paige Crumley lived on a dairy farm in Hand County, South Dakota. Clint managed the farm on a day-to-day basis, and Paige, a few hired hands, and Paige's mother and father also worked with the cattle. In August 2007, Clint purchased a herd of dairy cows from James McGregor. When McGregor delivered the dairy cows to Clint's dairy farm, Paige handed McGregor a check for payment. While at Clint's farm, McGregor observed Paige, her mother and father, and two farm hands working with the dairy cows on the farm.

In September 2007, McGregor and Clint had a series of telephone calls about the purchase of 25 dairy cows for Clint's milk- ing operation. The calls were exclusively between McGregor and Clint. On September 13, 2007, McGregor and Clint entered into an oral contract for the purchase of dairy cows. McGregor's agent delivered 25 dairy cows to Clint's milking operation and assisted Clint in unloading the cattle. Paige was not present at the time of delivery. Nonetheless, the bill of lading prepared by McGregor's bookkeeper listed the purchasers as Clint and Paige Crumley. McGregor's agent gave the bill of lading to Clint.

A few days later, Clint returned to McGregor eight cows that were substandard. McGregor issued a second bill for the remaining 17 cows. The second bill listed both Clint and Paige as the purchasers. After the bill was not paid, McGregor sued both Clint and Paige. Eventually, Clint-via a letter from his attorney-offered to settle the suit filed by McGregor by returning the 17 cows. McGregor refused the offer.

At trial, Clint and Paige were represented by the same attorney. Paige was not present at the trial, did not testify, and was not called as a witness by either McGregor or Clint. McGregor testified at trial that he spoke with Clint several times concerning the outstanding bill. McGregor also testified that on one occasion he attempted to discuss the bill with Paige but was unable to get her to do so. McGregor testified that Clint became angry after finding out that McGregor had attempted to discuss the bill with Paige.

Clint testified at trial that he ran the dairy operation, and that he had gotten into the business on his own in early 2007. He further testified that Paige confronted him about the September 2007 purchase after McGregor tried to speak with her about the bill. Clint was not asked whether Paige was a partner in the operation with Clint. Clint also testified that, in the fall of 2007, he had signed over all the assets of the dairy farm-including the 17 cows purchased from McGregor-to his father-in-law to avoid losing the farm. He also testified that, after the transfer of the dairy operation's assets to his father-in-law, both he and Paige milked the dairy cows he had previously owned and were paid a bi-weekly salary of $1,000 by his father-in-law's limited liability company that assumed ownership of the operation.

McGregor did not ask questions concerning the business structure of Clint's dairy operation, or whether Paige was a part- ner in the business at the time of the cattle sale. Clint did not offer any evidence of the business structure of the operation. No financial statements, tax returns, or business formation documents were admitted at trial.

The trial court found that although the evidence was admittedly weak, McGregor thought he was doing business with Clint and Paige, Paige was a partner or purported partner in the dairy operation, and therefore, she was liable under the contract to buy the dairy cows. Paige appealed to the Supreme Court of South Dakota.

Gilbertson, Chief Justice

A partnership is formed when two or more persons carry on as co-owners a business for profit, whether or not the persons in- tend to form a partnership. SDCL 48-7A-202(a). SDCL 48-7A- 202 provides in relevant part:

(c) In determining whether a partnership is formed, the fol- lowing rules apply:

(1) Joint tenancy, tenancy in common, tenancy by the entire- ties, joint property, common property, or part ownership does not by itself establish a partnership, even if the co- owners share profits made by the use of the property.

(2) The sharing of gross returns does not by itself establish a partnership, even if the persons sharing them have a joint or common right or interest in property from which the returns are derived.

(3) A person who receives a share of the profits of a business is presumed to be a partner in the business, unless the profits were received in payment:

(ii) For services as an independent contractor or of wages or other compensation to an employee;

A purported partner may be found jointly and severally liable for certain transactions under SDCL 48-7A-308, which provides in relevant part:

(a) If a person, by words or conduct, purports to be a partner, or consents to being represented by another as a partner, in a partnership or with one or more persons not partners, the pur- ported partner is liable to a person to whom the representation is made, if that person, relying on the representation, enters into a transaction with the actual or purported partnership. If the representation, either by the purported partner or by a per- son with the purported partner's consent, is made in a public manner, the purported partner is liable to a person who relies upon the purported partnership even if the purported partner is not aware of being held out as a partner to the claimant. If part- nership liability results, the purported partner is liable with re- spectto that liability as if the purported partner were a partner.
No evidence was presented at trial to show that Paige shared in the title to the dairy farm. There was also no evidence pre- sented that she shared in the gross returns generated by the dairy operation, or that she had a common right in the cattle. There was no evidence presented that Paige shared in the profits of the business, that there were any profits to share, or that she was compensated as an employee for her labor on the dairy farm.

Despite McGregor's contentions to the contrary, Clint made no admission at trial that Paige was a partner in the dairy opera- tion. His testimony throughout the trial was that he had entered into the business on his own, that he was solely responsible for the debts incurred in the business, and that he made the decision to purchase the first herd from McGregor as well as the second herd over which the dispute occurred.

McGregor's argument that Clint and Paige admitted their partnership status in the letter of offer to McGregor and in their Answer and Counterclaim is also without merit. While both documentsstate that Clint and Paige operated the dairy farm at the time the contract was formed, neither document indicates Clint and Paige were partners, the dairy farm was operated as a partnership, Clint and Paige shared the profits, or Paige had property rights in the cattle. The fact that Clint and Paige ran the dairy farm does not address the type of business entity under which they operated. As Clint testified at trial, he and Paige man- aged the dairy farm after its assets were transferred to Paige's father's limited liability company. They did so as hired hands for which they were compensated at the bi-weekly rate of $1,000.

McGregor did not explore the type of business entity used by Clint at the time of the cattle sale during pre-trial discov- ery or at trial. McGregor assumed that because the husband and wife worked on the dairy farm together they were engaged in a partnership. However, the burden to show Clint and Paige were operating the dairy farm as a partnership was with McGregor.

McGregor's testimony and the billing statements issued by McGregor are likewise not conclusive evidence of the existence of a partnership between Clint and Paige. There was no testi- mony at trial to suggest that McGregor's decision to invoice Clint and Paige for the cattle was anything more than an as- sumption on his part that the couple operated the dairy farm as a partnership. There was no evidence Paige did or said anything to cause McGregor to place her name along with her husband's on the bill of lading for the August 2007 or the September 2007 cattle purchases.

McGregor also did not offer any testimony concerning any- thing Paige did or said to suggest to McGregor that a partnership existed. The only testimony he offered with regard to Paige's conduct was that she handed him a check for the first cattle order in August 2007, that she worked on the farm, and that she re- fused to discuss the bill for the second shipment of cattle. None of these actions suggest Paige held herself out to McGregor as a partner in the dairy operation, or constitute a direct admission by Paige of a partnership.

The trial court erred when it found the "admittedly weak" evidence was sufficient to establish the existence of a partner- ship between Clint and Paige given their status as husband and wife. There was insufficient evidence to establish that a partner- ship existed between Clint and Paige with regard to the opera- tion of the dairy farm, or that Paige did anything to indicate to McGregor that she was a partner in the dairy farm.

Judgment reversed in favor of Paige Crumley.