Davidson v. Davidson

TAYLOR, J. This is an appeal by a divorced wife from a judgment in favor of her former husband and partner in his action for declaratory relief and contribution. Appellant contends that the trial court erred in denying relief on her cross-complaint for misappropriation of partnership funds.

The material facts are as follows: On April 22, 1957, in contemplation of divorce, appellant and respondent entered [444]into a written property settlement agreement whereby, among other propery dispositions, they became general partners in three business enterprises they had previously conducted as community property ventures. These businesses which had been operated by respondent were in a poor financial condition. In addition to other obligations, county and federal tax claims had accrued in the amount of $27,209.53. The agreement stated that the parties desired to pay appellant a lump sum of $35,000 in addition to other properties transferred to her but that such was impossible due to the condition of the community estate. The agreement further expressed the belief that respondent could improve the position of the partnership businesses to the extent that such sum could be paid to the appellant. The businesses were to continue as before and respondent was given the discretion to determine whether in his best judgment any profits should be retained, used or distributed. No new boobs or records were established and respondent continued his management responsibilities.

Between April and October of 1957, the partnership acquired additional tax liabilities totaling $26,582.62. In October of 1957, the businesses went into bankruptcy. Payment from the bankruptcy estate in the sum of $16,064.13 was applied against a federal tax liability but the county and state tax claims and further federal tax liability remained unpaid. Subsequent to the bankruptcy proceedings, respondent personally paid from individual earnings the sum of $15,061.18 on account of federal taxes remaining unpaid.

The appellant filed a cross-complaint alleging, among other things, that the respondent had wrongfully misappropriated partnership funds by using them to pay obligations of the businesses that had accrued prior to April 22, 1957, the date of the property settlement agreement and the formation of the partnership.

The court found the community property charged with the obligations of the community business enterprises became merged in the partnership businesses and that respondent did not misappropriate partnership funds but properly applied them toward the federal taxes accruing prior to April 22, 1957, and thus denied appellant any relief on her cross-complaint.