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Baker v. Gaul

Court of Appeals of Ohio, Eleventh District

September 30, 2013

KENNETH L. BAKER, Plaintiff-Appellant,
v.
DIANA J. GAUL, et al., Defendants-Appellees.

Civil Appeal from the Ashtabula County Court of Common Pleas. Case No. 2009 CV 622. Judgment: Affirmed.

William P. Bobulsky, William P. Bobulsky Co., L.P.A., (For Plaintiff-Appellant).

Diana J. Gaul, pro se, (Defendant-Appellee).

Katherine S. Riedel, Law Offices of Katherine S. Riedel Co., L.P.A., Jefferson Commercial Park, (For Defendant-Appellee Wesley J. Gaul, Jr.)

OPINION

TIMOTHY P. CANNON, P.J.

(¶1} Appellant, Kenneth L. Baker, appeals the judgment of the Ashtabula County Court of Common Pleas finding in favor of appellees, Diana J. Gaul[1] and Wesley J. Gaul, Jr., after a bench trial. On appeal, Baker argues the trial court erred in finding that, based on the facts and circumstances of this case, the parties operated Kountry Décor, a craft store, as a corporation and not a partnership and, as such, that Wesley was not personally liable for advances Baker made to the corporation. Additionally, the trial court found that because Baker had unclean hands, Baker was not entitled to restitution from Wesley for Baker's contribution of $4, 000 toward the purchase of a Cub Cadet tractor.

(¶2} The parties formed an oral partnership for the manufacture and sale of homemade crafts, named Kountry Décor. Each party contributed time and money toward the business. In February 2000, the parties decided to purchase commercial real estate at 22 South Chestnut Street ("Chestnut Property") for the operation of Kountry Décor. This property was deeded one-half to Baker and one-half to Wesley and Diana, who were married at the time. Each party signed the mortgage; the marital home of Wesley and Diana was used as collateral to obtain financing. The Chestnut Property was used as the physical location of the Kountry Décor craft store.

(¶3} On October 26, 2001, the parties incorporated Kountry Décor as Kountry Décor, Inc., an Ohio corporation with its principal office in Jefferson, Ohio.

(¶4} The parties then purchased a second commercial property, located at 12 East Jefferson Street ("Jefferson Property"), which consisted of several rental units. The Jefferson Property was purchased in their individual capacities, deeded one-third to Baker, one-third to Wesley, and one-third to Diana. Wesley and Diana's marital residence was once again used as collateral for the purchase of the Jefferson Property. Both the Chestnut Property and the Jefferson Property were used to house the parties' businesses, Kountry Décor and Sundown Tanning, and to lease rental apartments.

(¶5} In September 2005, the parties purchased a Cub Cadet tractor with multiple tools and attachments for $23, 000. The tractor was financed through GE Money Bank-Baker paid $4, 000 toward the tractor, and Wesley paid the remainder. The tractor was titled solely in Wesley's name.

(¶6} It is undisputed that at the inception of their business dealings the parties did not have any written agreement. The parties operated through an oral agreement relative to the purchase, improvements, and management of the real estate and businesses. At trial, Wesley testified that "[t]here was never anything in writing, and I would say things just sort of developed verbally over time and we were all putting money into the business. We were all putting a lot of time into the business."

(¶7} With respect to the transformation of the Kountry Décor business from a partnership into an S Corporation, the Articles of Incorporation were filed on October 26, 2001. All three parties signed as incorporators, and from 2001 through 2007 tax returns were filed for Kountry Décor, Inc., which resulted in IRS Form K-1's for corporate losses.

(¶8} The testimony revealed that the S Corporation that was formed included the business of Kountry Décor, Inc., as well as the tanning business. Baker testified that it was upon the advice of the parties' accountant that they decided to "get an S corporation." Baker stated that Kountry Décor was incorporated to "protect us from liability in case something should happen." "If someone should get hurt or fall on the steps or anything like that."

(¶9} Wesley filed for divorce in September 2006. Prior to the issue of a final divorce decree, Wesley quit-claimed his interest in both the Chestnut and Jefferson Properties to Diana. Wesley did not receive any compensation. Wesley was awarded the tractor in the domestic proceedings. Baker then removed the tractor from Wesley's residence ...


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