Fouse v. Shelly

• Court: Supreme Court of West Virginia
• Writing for the Court: McWHORTER
• Citation: 64 W.Va. 425,63 S.E. 208
• Parties: FOUSE et al. v. SHELLY et al.
• Decision Date: 02 December 1908

63 S.E. 208
64 W.Va. 425

FOUSE et al.
v.
SHELLY et al.

Supreme Court of Appeals of West Virginia.

Dec. 2, 1908.

[63 S.E. 208]

1. Pabtneeship (§ 25^*)—Good Faith Toward Each Other.

It is well settled that partners in all their transactions must observe the Utmost good faith towards each other, and this applies as well to their negotiations in the formation of the partnership agreement as to any subsequent transaction involving their partnership interests.

[Ed. Note.—For other cases, see Partnership, Cent. Dig. § 11; Dec. Dig. § 25.*]

2. Partnership (§ 25*)—Rescission of Contract—Fraud.

Equity has jurisdiction to rescind a partnership contract at the instance of a party who has been induced to enter into it by fraudulent representations.

[Ed. Note.—For other cases, see Partnership, Cent. Dig. § 11; Dec. Dig. § 25.*]

3. Partnership (§ 304*)—Accounting—Partnership Lands.

S., F., B., and C. entered into an agreement of partnership for the purpose of purchasing certain lands upon which S. had options, and making improvements for a plant for mining and shipping sand, whereby F., B., and C. were to furnish the capital to be invested and expended by S. for said purposes, S. binding himself to assign and set over to said F., B., and C. three-fourths interest pt all his right, title, and interest in and to said properties, and further to pledge the absolute title to said properties to said F., B.. and C. until all the purchase money, together with the total sum of other expenditures, should be repaid out of the profits of the business or otherwise, "after which monthly settlements are to be made and dividends declared if any there be to each and every member of this agreement as his interest may appear." S. purchased several of the properties, and took absolute deeds in fee therefor in his own name, expending therefor over $12,000 furnished by F. and B. for that purpose, C. furnishing none of the funds. S. refused to pledge the title to the properties so purchased, or otherwise to secure F. and B. for the moneys so furnished by them to pay for the properties purchased. Held that, upon a dissolution of the partnership, F. and B. were entitled to have a decree of sale of the lands so purchased for the partnership, and held in the name of S. to repay them the moneys so furnished by them.

[Ed. Note.—For other cases, see Partnership, Cent. Dig. § 701; Dec. Dig. § 304.*]

(Syllabus by the Court.)

Appeal from Circuit Court, Morgan County.

Bill by John G. Fouse and another against S. F. Shelly and others. Decree for complainants, and Shelly appeals. Affirmed.

Forrest W. Brown and J. Hammond Siler, for appellant.

X. Poole, A. C. Mclntire, and Faulkner, Walker & Woods, for appellees.

McWHORTER, J. S. F. Shelly of the first part, J. G. Fouse, I. K. Bechtel, and N. L. Chappelle of the second part, on the 2d day of July, 1901, entered into a written contract of partnership to the following effect: "That whereas the said S. F. Shelly, party of the first part is engaged in the general exploring business for all kind of mineral and promoting industries in and throughout the county of Morgan W. Va. and desires to associate the said Fouse, Bechtel and Chappelle, parties of the second part, with himself to provide and furnish the necessary capital to purchase in fee certain properties hereinafter described for the purpose of developing the properties to the best possible advantage, and for the mutual benefit of all parties to this indenture. [Then followed a list of the properties to be purchased with the sums to be paid therefor.] Therefore, it is hereby mutually agreed and covenanted by and between all parties to this indenture upon the conditions and considerations herein contained the said parties of the second part provide and furnish the necessary capital and purchase money to pay for the said properties herein mentioned as provided by and between the several owners respectively, and for the construction of the necessary improvements of the mine and ship the product to market together with all the necessary and legitimate expenses to conduct the operations as required, the said Shelly, party of the first part, for himself, executors, administrators and assigns, will and hereby agrees to assign and set over to the parties of the second part, their executors and assigns three-fourths interest of all his right and title and interest in and to the herein described properties; and further agrees that the absolute title to the said property shall be pledged to the said second parties until all of the purchase money, together with the total sum of other expenditures has been repaid out of the profits of the business or otherwise; after which time monthly settlements are to be made and dividends declared if any there be, to each and every member to this agreement, as his interests may appear." And it was further agreed that Shelly should have full charge of the construction of the operating plant and necessary improvements, and be in charge of operating said plant, and to receive $100 per month as salary, but to be paid only $50 per month while the plant was being constructed. At June rules, 1902, of the circuit court of Morgan county, John G. Fouse and I. K. Bechtel filed their bill, and at July rules filed their amended and supplemental bill of complaint against S. F. Shelly and wife, N. L. Chappelle, and others, for the purpose of dissolving the partnership, enjoining said Shelly from further acting under said agreement, or from disposing of any of the property, and asking that the case be referred to a commissioner to ascertain and report a settlement, and that the property be sold, and plaintiffs be repaid the amount put into the business. Plaintiffs based their claims on the ground of fraud and misrepresentations on the part of Shelly and Chappelle; that Shelly represented that he paid $3,100 for the Hunter property, when in fact he only paid $810 for the same, including $310 paid to

[63 S.E. 209]

Hunter as commissions; that only $1,800 was paid for the Biser tract, represented by Shelly to have cost $4,000; that Chappelle had never furnished any money at all for the business, saying he was not in a position to pay; that they had advanced $2,550 cash payment on the "Tannery" property, including $50 insurance, paid $3,100, the full amount for the Hunter tract of 31 acres, paid $4,000, in different payments, for the Biser tract, $1,007.96 for a railroad siding, and other sums aggregating the sum of $12,099.96; that, though often requested to do so, Shelly had failed and refused to secure plaintiffs for the large sum expended, either by pledging absolute title to said real estate as security, or by conveying the same to a trustee for that purpose. The defendants Shelly and Chappelle demurred to the bill and amended bill, which demurrers were overruled and the defendants answered, denying all allegations of fraud and misrepresentation on their part. Shelly averred that he had lived up to the covenants of the agreement so far as he was concerned, but had been prevented from the performance thereof by the failure of plaintiffs to carry out their part of the agreement; admitted that he had not set over to plaintiffs the three-fourths interest in the real estate, but that he was willing and ready to do so on their complying with their part of the agreement in furnishing the capital to purchase in fee the properties in the agreement mentioned; and praying that the injunction, granted in this case, be dissolved. Chappelle admitted that he had paid no money, but averred that it was understood and agreed between himself and the two plaintiffs that he had performed everything on his part that was to be performed, and that the business had failed of completion solely by reason of the failure of the plaintiffs to carry out their part of the said agreement, and asked to be dismissed, with costs. On the day agreed upon for argument of the cause, counsel for plaintiffs stated that through inadvertence they had failed to allege in their bills that at the time of the execution of the contract of July 2. 1901, and before said contract was signed, plaintiffs asked Shelly what his financial condition was, whether there were any judgments...