Paul v. North

• Decision Date: 06 April 1963
• Docket Number: Nos. 42750,42882,s. 42750
• Parties: Lewis A. PAUL, Appellant, v. Frank W. NORTH, Defendant, and L. Chandler Smith, Appellee. *
• Court: Kansas Supreme Court

Page 421

380 P.2d 421

191 Kan. 163

Lewis A. PAUL, Appellant, v. Frank W. NORTH, Defendant, and L. Chandler Smith, Appellee. ^*

Nos. 42750, 42882.

Supreme Court of Kansas.

April 6, 1963.

Syllabus by the Court

1. In an action designed to impress a constructive trust upon the assets of Chandler Investment Company, a corporation, (or upon its stock) formerly owned by the Western Control Corporation, Inc., and for specific performance, the petition alleged the assets or stocks of the Chandler Investment Company were in the hands of the defendant by reason of his purchase of the assets of the Chandler Investment Company in violation of a joint advanture agreement with the plaintiff to purchase such assets. The trial court after hearing the evidence found that no fiduciary relationship was created between the parties; that no joint adventure agreement was established; that the plaintiff was not entitled to specific performance; that the evidence was insufficient for the imposition of a constructive trust in favor of the plaintiff; and that no wrong or breach of legal duty was committed by the defendant for which the plaintiff could seek equity. On appeal it is held the evidence presented by the record supports the findings and judgment of the trial court.

2. Fiduciary relationships recognized and enforceable in equity do not depend upon nomenclature, nor are they necessarily the product of any particular legal relationship.

3. Fiduciary relationships may arise out of conduct of the parties evidencing an agreement to engage in a joint enterprise for the mutual benefit of the parties, and they necessarily spring from an attitude of trust and confidence, and are based upon some form of agreement, either express or implied, from which it can be said that the minds have met in a manner to create mutual obligations.

4. A confidential relationship is never presumed, and the burden of proof is upon the party asserting it.

5. Mere concert of action, without more, does not establish a fiduciary relationship, for parties may deal at arm's length for their mutual benefit, and it is only when by their concerted action they willingly and knowingly act for one another in a manner to impose mutual trust and confidence that a fiduciary relationship arises.

6. Where a fiduciary relationship exists fair dealing requires that the parties be frank with each other. It demands the utmost good faith in all the dealings of the parties with each other, and a party attempting to initiate a joint adventure by false representations cannot impose fiduciary obligations on the other.

7. Where one has special knowledge that a business is for sale, together with financial data concerning the business and ideas concerning its future profits, he has no property right in such knowledge and ideas, unless he, as the proprietor or originator, protects it from escape or disclosure by contract, express or implied, prior to making a voluntary disclosure of it. Where such information is given to an agent without any restriction upon its disclosure, the knowledge or information comes within the public domain.

Gerrit H. Wormhoudt, Wichita, argued the cause, Wayne Coulson, Paul R. Kitch, Dale M. Stucky, Donald R. Newkirk, Robert J. Hill, Philip Kassebaum, John E. Rees, Robert T. Cornwell Willard B. Thompson and David W. Buxton, Wichita, with him on the brief, for appellant. Hugo T. Wedell and Homer V. Gooing, Wichita, of counsel.

Oscar S. Brewer, Kansas City, argued the cause, W. A. Kahrs, Wichita, with him on the brief, for appellee.

SCHROEDER, Justice.

This is an action designed to impress a constructive trust upon the assets of the Chandler Investment Company, a corporation, (or upon its stock) formerly owned by the Western Control Corporation, Inc. It is alleged the assets or stocks of the Chandler Investment Company were in the hands of, or subject to the control of, Frank W. North and L. Chandler Smith (defendants-appellees).

Upon joinder of issues the action was tried to the court against L. Chandler Smith alone, resulting in a judgment in favor of the defendant. Appeal has been duly perfected from this judgment (No. 42,750), and the orders of the trial court overruling post-trial motions (No. 42,882).

The primary question to be determined on appeal is whether the evidence supports the findings and judgment of the trial court.

The appellant contends the trial court drew erroneous conclusions of law from the undisputed facts.

The facts material to this appeal may be summarized as follows:

James House, Robert Kolde and their wives were the owners of Western Control Corporation, Inc., located in Wichita, Kansas. House and Kolde were willing to sell the business. In the month of July, 1959, Lewis A. Paul (plaintiff-appellant), a resident of Wichita, commenced a series of discussions with House concerning the proposed sale of the Western Control Corporation, Inc. to him. Four different proposals were made by Paul to House during July and August, 1959. The first two proposals were options in favor of Paul. The last two proposals were in the form of sales contracts running from the corporation and its stockholders to Paul. All of these proposals were in writing and were prepared by Paul's attorneys. None of these proposals, however, was ever executed by the Western Control Corporation or by any of its stockholders.

The fourth and last of Paul's proposals was a sales contract which embodied the terms upon which House and Kolde were willing to sell. This contract provided that the total purchase price was to be $500,000, payable $200,000 in cash and $300,000 in credit, to be represented by two notes to the sellers for $150,000 each. The notes were to be secured by first mortgages on all of the land, plant and equipment of the Western Control Corporation. Paul's testimony was to the effect that House agreed to sign the contract if Paul could raise the money to make the payments called for in the contract, and if Paul could also raise an additional $150,000 needed for working capital to operate the business. House testified, however, that during all of his discussions with Paul he was engaged in similar discussions with other prospective buyers, both in Wichita and outside of Wichita, Kansas. House stated, 'it is not correct that we had an agreement, no sir. I was at the time willing to deal with anybody.'

Paul did not have the necessary funds to implement his proposal to House, so he enlisted the aid of various stock brokers in Wichita and Kansas City to find a financial angel. Paul contacted Frank North, a Kansas City broker, and informed North that he had an option to purchase the assets of Western Control Corporation, Inc. for $500,000; that $150,000 in additional working capital would be needed which he could obtain in the form of a line of bank credit; that the purchase would require a cash payment of $200,000; and that the sellers would carry bank mortgages for $300,000. Paul stated that he and a friend could put up $100,000, and he wanted 'the other $100,000.00 to be raised either by selling stock or getting the funds from an individual or a group of individuals.'

Paul submitted to North numerous papers, financial statements, and certain projections showing the future financial possibilities of the corporation. Nor made contact with a prospective purchaser in Kansas City and arranged a meeting between Paul and this prospect, a Mr. Perry. However, Perry decided not to go through with the proposition. North then made contact with L. Chandler Smith (defendant-appellee) and told him of Paul's proposition, and he showed Smith the figures that Paul had prepared.

The first meeting between Paul and Smith took place in Wichita on September 16, 1959. At this meeting Paul represented to Smith that he had an option to buy the assets of the corporation for $500,000, and that an additional $150,000 was needed as working capital; that Paul and Guy Shelley could put up $100,000, and that if Smith would put up $100,000, the remaining $450,000 could be raised by a first mortgage loan of $300,000 by the sellers and a working capitla loan of $150,000 from certain Wichita firms where Paul had a line of credit.

Smith expressed doubt that any bank would loan a new enterprise $150,000, when all of its assets would be subjest to prior first mortgages to the seller for $300,000. Paul then proposed that Smith contribute the entire additional sum of $250,000 required to complete the down payment, and to provide working capital. He also proposed that the stock of the purchasing corporation be originally issued to the parties in proportion to their initial capital contributions, 72% to Smith and 28% to Paul and Guy Shelley. Paul also asked that Smith give him a ten-year option to purchase 22% of the stock originally issued at the option price of $150,000.

Paul also proposed to Smith that he be given a ten-year management contract at a salary of $35,000 per year. Paul told Smith that the owners of the corporation had previously offered him a job to manage the business for them, and that he could manage it.

Smith told Paul that he would not commit himself to any deal with him until he had investigated the business, and had investigated Paul and Guy Shelley. Smith then went to the plant of Western Control Corporation, Inc. and inspected the business for the first time, and returned to Kansas City.

On the 22nd day of September, 1959, Smith returned to Wichita, and the parties again met. Paul testified that on this date he reiterated his offer and Smith agreed to go into the deal on Paul's terms. Smith denied that he made any answer to Paul's offer at that time. Paul's wife was present at this meeting, but her testimony did not corroborate that of her husband, and the tiral court did not see fit to give credence to Paul's testimony on this point.

On the 23rd day of September, 1959, Smith conferred with the officers and owners of the Western Control...