Pilch v. Milikin
1962 Cal. App. LEXIS 2698, 200 Cal.App.2d 212, 19 Cal. Rptr. 334 (1962)
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Rule of Law:
While a formal accounting in equity is generally a prerequisite for one partner to sue another at law regarding partnership affairs, this rule does not apply where the partnership has been dissolved by mutual consent and the partners have already settled their accounts, leaving only a few specific, liquidated sums to be distributed.
Facts:
- In June 1946, Charles Pilch and a defendant named Milikin became equal partners in a meat packing plant.
- In early 1957, disagreements arose between the partners.
- Shortly after June 1, 1957, Milikin obtained an option on a new plant in San Luis Obispo and, after Pilch declined to join him, the partners orally agreed to terminate their partnership.
- On or about July 1, 1957, the partners took inventory, informed employees they had 'split up,' and divided the physical assets of the business, with Milikin moving his share to his new plant.
- The partnership's accountant was instructed to prepare a final audit and a 'Final' tax return, which Milikin signed for the company.
- After this division, two partnership bank accounts totaling $10,133.11 remained, requiring joint signatures for withdrawal.
- A sum of $2,677.59 was also owed to Pilch, representing one-half of an advance he had made to the partnership.
- Milikin later refused to sign the necessary documents to withdraw the bank funds or to reimburse Pilch for the advance.
Procedural Posture:
- Charles Pilch sued his former partner, Milikin, in a California trial court, seeking his share of remaining assets and reimbursement for an advance.
- The defendant, Milikin, filed a demurrer, which the trial court overruled.
- Milikin filed an answer and a cross-complaint seeking a formal accounting and damages.
- The trial court entered a judgment in favor of the plaintiff, Pilch, for $7,744.15 plus interest, and found against Milikin on his cross-complaint.
- Milikin (appellant) appealed the judgment to the California District Court of Appeal.
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Issue:
Does the general rule requiring a formal accounting before one partner can sue another partner at law apply when the partnership has been dissolved by mutual consent and the partners have already settled most of their affairs, leaving only a few specific, undisputed items?
Opinions:
Majority - Lillie, J.
No, the general rule requiring a formal accounting does not apply in this case. An action at law is permissible without a prior accounting where the partnership has been dissolved, there are no outstanding debts to third parties, all collectible debts due to the firm have been collected, and the judgment will effect a final settlement between the partners. Here, the partners' conduct—dividing all physical assets, closing the books, and starting separate businesses—constituted a dissolution and a de facto accounting. The remaining issues involved only simple, liquidated sums: the division of bank accounts and reimbursement for an advance, which Milikin himself admitted were due. The court found that Milikin's refusal to release the funds amounted to a conversion, providing an alternative basis for a direct action at law.
Analysis:
This case reinforces a significant exception to the traditional rule that partnership disputes must be resolved through a formal equitable accounting. It affirms that courts will look to the substance of the partners' actions over the form of legal proceedings. By allowing a direct suit at law where partners have, for all practical purposes, wound up their affairs themselves, the decision promotes judicial efficiency and prevents a party from using procedural rules to block the final settlement of a simple, agreed-upon debt. This precedent gives partners confidence that their own extrajudicial settlements will be respected and that they can seek a simple legal remedy for a former partner's refusal to complete the final steps of a dissolution.
