Goben v. Barry
| Decision Date | 13 January 1984 |
| Docket Number | No. 55515,55515 |
| Citation | 676 P.2d 90,234 Kan. 721 |
| Parties | William Earl GOBEN, Appellant, v. Bernard L. BARRY and United Petroleum, Inc., Appellees. |
| Court | Kansas Supreme Court |
Syllabus by the Court
1. A joint venture is defined as an association of persons with intent, by way of contract, express or implied, to engage in and carry out a single business venture for joint profit. Neighbors Construction Co., Inc. v. Seal-Wells Construction Co., Inc., 219 Kan. 382, 385, 548 P.2d 491 (1976).
2. The law provides no redress for breach of a contract for an illegal purpose but this principle is inapplicable where the purpose of the contract is legal but illegal acts occur in performance thereof.
3. Under the "unclean hands" doctrine, a court of equity may deny relief to a party whose conduct has been inequitable, unfair and deceitful, but it applies only when the reprehensible conduct complained of pertains to the controversy at issue.
4. The doctrine of "in pari delicto" requires the court to weigh the wrongful acts of each party to a suit and if they are found in equal wrong, deny relief to the plaintiff.
5. The Statute of Frauds is inapplicable to an oral partnership agreement to engage in the business of procuring oil and gas leases despite the fact the Statute of Frauds applies to the leases themselves. Potucek v. Blair, 176 Kan. 263, 270 P.2d 240 (1954).
6. Joint venturers owe the fiduciary duty of full, fair, open and honest disclosure of everything affecting the relationship the same as do partners. Martin v. Hunter, 179 Kan. 578, 297 P.2d 153 (1956).
7. Punitive damages may be awarded in the trial court's discretion whenever there is proof of fraud. Augusta Bank & Trust v. Broomfield, 231 Kan. 52, 643 P.2d 100 (1982).
8. Fraud in its general sense is deemed to comprise anything calculated to deceive, including all acts, omissions, and concealments involving a breach of legal or equitable duty, trust, or confidence resulting in damage to another.
9. A person who has equitable ownership of one-half interest in a corporation with another is entitled to the benefits of the dissolution procedure provided in K.S.A. 17-6804(d).
10. A joint venture agreement providing for ownership and division of profits is binding on the parties irrespective of the ownership of common stock in a corporation organized and operated on behalf of the joint venture. Campbell v. Campbell, 198 Kan. 181, 422 P.2d 932 (1967).
Orval L. Fisher, of Shultz, Fisher, Monnat & Shultz, Wichita, argued the cause and Craig Shultz and Daniel E. Monnat, Wichita, were with him on briefs, for appellant.
Jim Lawing, Wichita, argued the cause for appellees and was on briefs, for appellee United Petroleum, Inc., and Warner Moore, of Warnick & Moore, Wichita, was on briefs, for appellee Bernard L. Barry.
This is an action for breach of contract and for an accounting and dissolution of a corporation.
The appellant, William Goben, and the appellee, Bernard Barry, met in 1977 when both started working for National Crude, Inc. Barry worked for only two weeks but Goben continued his employment, during which time Goben and Barry kept in touch.
From his experience with National Crude, Goben concluded he could sell oil and gas drilling deals for himself as easily as for others. He discussed organizing his own oil company with Barry and two or three other persons. After a few meetings at a Wichita steakhouse, Goben and Barry agreed to enter into a joint venture to sell fractional working interests in oil and gas drilling ventures. According to the agreement, Goben would furnish customers and Barry would furnish the leases. Additionally, Goben was to recruit a sales force and be in charge of selling, while Barry was to manage office operations. They agreed the venture would be financed by sale of the fractional interests and profits and losses would be divided equally. Barry loaned their company $4122.48 as seed money to set up an office from which operations could be commenced.
Pursuant to the agreement, Barry rented an office and obtained the "Tillotson" lease. Because of Goben's tax problems they decided to incorporate the business. Goben selected the name United Petroleum, Inc. (UPI). Barry did the paper work and incorporated the venture under Goben's selected name. They prepared and printed a prospectus. Goben then started selling one thirty-second interests in the first well on the Tillotson lease for $1995 each, plus completion costs of $2295 per unit. They agreed twenty-eight units would be sold and the company would retain one-eighth for itself as a carried interest. Goben sold twenty-four of the twenty-eight units between March 1978 and May 15, 1978. Goben and Barry divided the commission of $200 per unit equally. The first well drilled was successful. Completion costs were collected and the venture prospered. By June 30, 1978, the balance in the company checking account was $101,785.79, having increased from only $14,858.97 two months earlier. On May 16, Barry was reimbursed the sum he loaned the company for temporary financing. Thereafter, the new business operated entirely on its earnings. By November, 1978, Goben and Barry had sold interests in their ninth oil well, seven having already been successfully drilled.
When the drilling on the Tillotson lease resulted in production, the sales force which Goben had recruited for the partnership started selling fractional interests in oil wells to be drilled on additional leases which Barry had obtained in the name of United Petroleum, Inc. Goben and Barry, in accordance with their agreement, continued to draw equally on a weekly basis which was initially set at $500 per week and then at $560 per week.
The company continued to prosper. In August of 1978, $100,000 was withdrawn from the checking account of the corporation and invested in a certificate of deposit. An additional $50,000 was withdrawn from checking and invested in another certificate of deposit just one month later. In October, two $100,000 certificates of deposit were purchased, leaving a checking account balance of $98,293.66.
On October 11, 1978, Barry, without Goben's knowledge, drew $2000 instead of $560 for his weekly pay. Thereafter, he continued to pay himself weekly draws of $1700. About the same time, Goben became aware of a tension developing between himself and Barry. From their actions, Goben suspected Barry and the sales manager Goben had recruited were scheming to cut Goben out of his interest in the company. Late in November, to investigate the status of the company, Goben asked Barry to see the check register. Barry appeared to be insulted, saying, "I guess this will always stick in my craw." A discussion ensued about dividing the company, but the two separated without coming to a decision.
On the Monday following Thanksgiving, Goben called Barry's home and told Mrs. Barry he would not be in the office that morning. Later Barry called Goben and said, "I have talked to my attorney, the attorney tells me you don't have a leg to stand on ... I will give you $10,000 [for his interest in the company]." Goben replied, "Look, Barry, don't give me ultimatums," and Barry responded, "Allright, you'll get nothing."
Barry took Goben's personal belongings from the office to a storage company. The following Wednesday, Barry took possession of a 1977 Monte Carlo automobile which had been purchased by the company for Goben's use.
Drilling was continued on various wells and other interests continued to pay into the venture. Some twenty additional producing wells were drilled after November, 1978.
Goben filed the present action on December 21, 1978. Barry denied the joint venture existed and Goben's ownership in the company. In the meantime, the venture was doing so well that toward the end of the fiscal year, February 28, 1979, the accountant for United Petroleum, Inc., advised larger salaries be paid to the corporate officers because the income appeared to be out of proportion to the salaries. The officers of the corporation were Barry, his wife and his son. The accountant testified this recommendation was made from a tax standpoint.
The records for United Petroleum, Inc., show salaries paid to Barry and his wife in 1979 were $84,675; in 1980 they were $108,800; in 1981 they were $157,600; and in 1982 they were $146,500.
On August 12, 1980, Barry purported to transfer to his wife one-half of the total issued stock of United Petroleum, Inc.
After a lengthy trial, the trial court entered judgment for Goben finding generally that a joint venture existed which Goben and Barry were to share in equally. After an accounting of the business, judgment was granted in favor of Goben for half the profits of the company from its inception until November 28, 1978. Additionally, Goben was granted profits from the wells which were producing before November 1978. Punitive damages were awarded against Barry in the amount of $82,237. The total judgments were therefore $110,827.06 against Barry and United Petroleum, Inc., and $82,237 against Barry personally. Goben, the plaintiff, now brings this appeal and Barry cross-appeals.
The initial issue is whether there was sufficient evidence to support the trial court's finding of a joint venture. A joint venture is defined as:
" 'an association of persons with intent, by way of contract, express or implied, to engage in and carry out a single business venture for joint profit, for which purpose they combine their efforts, property, money, skill and knowledge, without creating a partnership or a corporation, pursuant to an agreement that there shall be a community of interest among them as to the purpose of the undertaking, and that each joint venturer shall stand in the relation of principal, as well as agent, as to each of the other co-venturers, with an equal right of control of the means employed to carry out the common purpose of the venture ....' " Neighbors...
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