Krebs v. Blankenship et al.

• Court: Supreme Court of West Virginia
• Citation: 73 W.Va. 539
• Decision Date: 27 January 1914
• Parties: Krebs v. Blankenship et al.

73 W.Va. 539

Krebs
v.
Blankenship et al.

Supreme Court of Appeals of West Virginia.

Submitted January 6, 1914.
Decided January 27, 1914.

[73 W.Va. 539]

1. Partnership-Agreement Between Partners Construction.

By a contract in writing, K and B agreed "to option coal and timber lands" and to secure when necessary renewals of options, K to furnish the "option money" to offset the services of B in securing the options and renewals, and "in case of a sale of the property under option or what may be optioned" to divide the profits equally between them "less option money". Each of them was thereby authorized "to sell the property under option and to do all in his power to negotiate such sale". Held': That K and B thereby became partners for the purposes stated; that, when properly construed according to its terms alone or by its terms and the conduct of the partners, the contract authorized dealings in lands optioned, as well as in the instruments under which they thus controlled the lands. (p. 541).

2. Same Partners Dual Relation Secret Dealings Accounting.

A partner occupies a dual relation in respect of his dealings with his-associates and with the partnership assets. As to the former, he is a trustee; as to the latter, a cestui que trust. Out of this dual relation arises the reciprocal duty by which each partner is required to refrain from all concealment in his transactions with his co

[73 W.Va. 540]

partners and with the common property; and if, by fraud or concealment, he derives a benefit to the exclusion of his associates, j equity will treat him as a trustee of the firm, and compel him to account therefor. (p. 545). j

3. Same Dealings Between Partners Good Faith.

Partners in their dealings with each other are required to use the utmost good faith. If either of them seeks to acquire the interest of another, he must make to him a frank and honest disclosure of all knowledge possessed by him from which his associate may form a sound judgment as to the value of such interest, (p. 545).

4. Same Dealings Between Partners Equitable Belief.

If, without a full disclosure of all knowledge within his exclusive possession, one partner, by the purchase of his copartner's interest, secures an unfair and inequitable advantage, he commits a breach of faith, from the effect of which equity will grant relief at the suit of the injured partner. (p. 545).

5. Same Termination Secret Profit.

A partner can not terminate the partnership relation in order to secure.to himself a profit from a sale secretly effected by him of the community property, unless he makes a full, frank and honest disclosure of all the facts and circumstances from which his copartners may form a sound judgment as to the purpose and propriety of such, dissolution. (p. 545).

6. Same Secret Profits Accounting.

If to the firm property a pretended right is fraudulently obtained j by one partner, who, thereafter, with it as a nucleus, secretly j secures other like property, and, by a sale of all of it, derives a profit, he will, at the suit of his copartner, thus defrauded, be required to account to the latter for his proportionate share. (p. 545).

Appeal from Circuit Court, Raleigh County. Bill by George R. Krebs against P. L. Blankenship and others. Prom decree for defendants, plaintiff appeals.

Reversed and Remanded. j

Brown, Jackson & Knight, for appellants.

!

Sanders & Crockett, for appellees.

Lynch, Judge:

Upon final hearing on pleadings and proof, the circuit court dismissed the bill of George R. Krebs, by which he sought a decree requiring P. L. Blankenship to pay to him a share of the profits derived, as charged by the bill, from the sale of

[73 W.Va. 541]

certain lands in which Krebs and Blankenship were interested as partners. From the decree of dissmiesal Krebs has appealed to this court.

On May 29, 1909, Krebs and Blankenship entered into an agreement "to option coal and timber lands" and to secure renewals of options when necessary, Krebs to furnish the "option money" to "offset the services" of Blankenship in securing the options and renewals. In case of a sale of the property under option "or what may be optioned", they were to divide the profits equally, one-half to each, less "option money". Each of them was thereby authorized to sell the property under option and to do all in his power to negotiate such sale.

This agreement is properly construed by the parties as constituting a partnership between Krebs and Blankenship. They differ only as to the scope of the dealings within its terms, Blankenshtip contending that the firm can not deal as partners in the property optioned, though they may deal in options. This distinction is not warranted by the terms of the agreement. In fact, it is not seriously urged. The contract speaks of the "property under option or what may be optioned", and gives to each partner authority "to sell the property under option". Besides, in the course of the joint dealings, the partners construed the terms as comprehending lands, and not merely the instruments under which they controlled the lands.

At the date of the agreement, Blankenship had options on 2100 acres of coal and timber lands in Mercer county the Davis-Smith-Maitland 1100 acres, that is, a boundary in which the three persons named had interests, and the Karnes 1000 acres. Although the options themselves bear a subsequent date, these are the tracts in contemplation as a nucleus of a larger acreage at the inception of the joint dealings, whether in fact under their joint control at that time or later. This fact is conceded; at least it is affirmed by Krebs and not satisfactorily denied by Blankenship.

After agreeing among themselves upon the location of the territory to which the joint dealings should be confined, Blankenship acquired in his own name options on other lands,

[73 W.Va. 542]

thereby increasing the quantity controlled by the firm to 3300 acres. On September 23, 1909, he sold the entire boundary to A. D. Harrah, at the rate of fifty dollar® per acre, the j exact quantity to be ascertained by survey.

Of this sale Krebs was not advised, as claimed by him, until a short time before the institution of this suit August, 1910. Blankenship admits he did not at any time inform Krebs of the sale or the contract in pursuance of which it was made, but I insists that he knew of its final consummation in February, 1910, and that, with such knowledge, he adjusted by settle-! ment between the parties all matters incident to the partnership transactions.

Blankenship, through Bolen as his agent, on October 14, 1909, purchased Krebs' interest in the options on lands owned by Karnes and others, in which, for purposes hereafter explained, Blankenship previously pretended to assign his interest to Krebs, although he in fact still retained a half interest, being the only interest he really had therein prior to his assignment. As an inducement, Bolen informed Krebs I that he had a purchaser, whose name he declined to disclose, who would buy the firm property, but would not pay the con-I sideration theretofore named by the partners. Krebs declined to deal with Bolen at that time, because, as conceded, he had given to one Anderson an option to buy the lands at the rate of fifty-five dollars per acre. At the expiration of the Ander-j son option, Bolen renewed the effort to deal with Krebs, and j again failed. But later he and Blankemship together succeeded in persuading Krebs to assign his interest to Bolen, j provided Bolen's purchaser accepted the property. If he did accept, the purchaser thus secured was to execute a note for $5000 to each of the partners, Blankenship agreeing at the same time to assign to Bolen his interest upon the same terms and conditions; and the notes were later executed by Bolen, and not by his purchaser. For his service in effecting the assignment of Krebs' interest, Bolen was paid $1000 by Blankenship, or, what is the same in effect, Blankenship offered to pay $6000 for Krebs' interest, with tht understanding that if Bolen secured the interest for less he was to have the difference.

[73 W.Va. 543]

The terms of the agreement thus made by Krebs, Blankenship and Bolen were by Krebs' letter communicated to the law firm of Woods & Martin, to be put in proper legal form, with the understanding that both Krebs and Blankenship should sign it. But Woods by letter informed Krebs that it was not necessary for Blankenship to execute the paper, because he was protected by some arrangement, not stated, between him and Bolen, and Krebs accordingly executed and returned to Woods the assignment of his interest in the lands.

The acquisition of Krebs' interest, as clearly appears, in fact admitted by Blankenship and Bolen, was for the sole use and benefit of Blankenship, who was Bolen's undisclosed purchaser; for, as soon as Bolen obtained the assignment from Krebs and the pretended assignment from Blankenship, he at once re-assigned to the latter the interests of both partners.

The intervention of Bolen being thus far successful, Blankenship further enlisted hiisi services in securing, first, a reduction in the $5,000 note due...