## Facts

- Gerry Horton and J. D. Althouse operated as partners growing potatoes through business names that included Gerry Horton Company and Gerry Horton Farms.
- Charles H. Kaufman and Albert H. Brown did business as Kaufman-Brown Potato Company, a partnership that purchased, marketed, and distributed potatoes.
- In 1944, Kaufman-Brown entered agreements with Horton and Althouse under which Horton and Althouse would plant and grow potatoes for Kaufman-Brown to purchase and distribute.
- The agreements required Kaufman-Brown to provide upfront operating money for production costs, while Horton and Althouse supplied labor and farming operations.
- The arrangements provided that after Kaufman-Brown was repaid for its advances, the parties would share profits and losses from the potato venture.
- Horton and Althouse devoted their potato production during the season to performance under the arrangements with Kaufman-Brown.
- Kaufman-Brown advanced roughly $43,000 for production expenses; Horton and Althouse became insolvent and could not repay the advances (and related obligations were left unpaid).
- An involuntary bankruptcy petition was filed against Horton and Althouse individually and against two partnerships of which they were members (including entities identified as Gerry Horton Company and Gerry Horton Farms); the court entered an adjudication of bankruptcy as to those named debtors.
- Kaufman-Brown filed a claim in the bankruptcy proceeding, asserting it was a creditor of Horton and Althouse based on the unpaid advances and related instruments.
- The trustee later sought relief based on the effect of the contracts, and the bankruptcy referee and district court entered orders stating that a second partnership existed under the name Gerry Horton Farms, formed by combining the Horton/Althouse farming partnership with Kaufman-Brown’s partnership.
- The bankruptcy court amended the adjudication to add this additional entity—often described as a “combination partnership”—as a bankrupt, and it treated Kaufman-Brown as a partner (not a creditor) in the potato venture, affecting allowance of its claim.
- Kaufman-Brown appealed from the order disallowing its claim as a creditor and from the orders amending the adjudication to add the combination partnership.

## Issues

1. Whether the 1944 agreements and the parties’ course of dealing created a partnership/joint venture between Kaufman-Brown and Horton/Althouse for the potato-growing enterprise, rather than a lender–borrower relationship.
2. Whether the bankruptcy court could, by amending an existing adjudication, declare bankrupt a partnership entity that was not named in the involuntary petition and against which no separate petition was filed.
3. Whether Kaufman-Brown’s participation in the bankruptcy case as a petitioning creditor and claimant amounted to consent to bankruptcy adjudication of the added partnership entity.

## Decision

- The Ninth Circuit agreed that the agreements, including profit-and-loss sharing after repayment of advances, supported treating the potato enterprise as a partnership involving Kaufman-Brown rather than a simple debtor-creditor arrangement.
- The Ninth Circuit upheld the bankruptcy court’s treatment of Kaufman-Brown as a partner for purposes of its claim, rejecting Kaufman-Brown’s attempt to prove as an ordinary creditor on that theory.
- The Ninth Circuit set aside the amended adjudication to the extent it added the newly identified “combination partnership” as an additional bankrupt when that entity had not been named in the involuntary petition and no proper petition was filed against it.
- The case was remanded for further proceedings consistent with limiting the adjudication to the debtors properly brought before the court.

## Legal Principles

- An arrangement that provides for sharing profits and losses, coupled with conduct showing joint participation in a business undertaking, may establish partnership status even when one party supplies most of the money and another supplies labor.
- A participant deemed a partner in the business generally cannot assert a standard creditor claim against the partnership estate on the same footing as outside creditors; partner rights are determined by partnership rules rather than ordinary debt collection.
- A bankruptcy court lacks authority to adjudicate as bankrupt an entity that has not been made a party through a petition that satisfies statutory requirements; jurisdiction over additional debtors cannot be created simply by labeling them in a later order.
- An amendment to an adjudication may correct or clarify what was actually before the court, but it cannot be used to add a different debtor—such as a newly identified partnership—not named in the original involuntary petition.
- Filing a proof of claim or joining an involuntary petition as a creditor does not, by itself, constitute consent to have oneself (or a separate partnership including oneself) adjudicated bankrupt.

## Conclusion

Kaufman-Brown’s agreements with Horton and Althouse made it a partner in the potato-growing venture because the parties arranged to share profits and losses after repayment of advances, so Kaufman-Brown could not prove its advances as a normal creditor claim; however, the bankruptcy court exceeded its authority by amending the adjudication to add a separate “combination partnership” that was never named in the involuntary petition and was not otherwise properly brought before the court, requiring reversal of that portion of the orders and a remand.


Kaufman-Brown Potato Co. v. Long, 182 F.2d 594 (1950)