Zogg.. v. Hedges

• Decision Date: 29 February 1944
• Docket Number: (No. 9496)
• Citation: 126 W.Va. 523
• Court: West Virginia Supreme Court
• Parties: H. C. Zogg. et al. v. Grover F. Hedges

126 W.Va. 523

H. C. Zogg. et al.

v.Grover F. Hedges

(No. 9496)

Supreme Court of Appeals of West Virginia.

Submitted February 1, 1944.

Decided February 29, 1944.

1. Partnership

The utmost good faith and fair dealing must be exercised toward each other by general, or mining, partners, not only after the partnership has been formed, but also during negotiations leading thereto.

2. Mines and Minerals

One, who with others, standing as strangers to him, organizes a partnership, or a mining partnership, for the purchase at a specified price and the subsequent operation, of oil and gas leases on which he holds an undisclosed option, is not required to allow such others to purchase such leases at the option price, in the absence of an agreement, express or implied, so to do.

3. Trusts

The allegation of the existence of a trust, or of a trust relation, between parties will not be considered as established when the evidence supporting and denying such allegation is substantially equal.

4. Trusts

The evidence to establish a trust, or a trust relation, express or ex maleficio, must not only preponderate, but must also be full, clear, and convincing.

Appeal from Circuit Court, Roane County.

Suit by H. C. Zogg and others against Grover F. Hedges to cancel a deed executed by a third party to defendant in so far as the same conveys to defendant a one-eighth interest in and to certain mineral leases and to recover a judgment for the amount to which defendant allegedly profited through false representations as to purchase price of property so acquired. A decree was entered directing defendant to transfer to plaintiffs a one-eighth interest in the leases and defendant appeals, and plaintiffs assign cross-error on the ground of their right to the recovery of the money judgment.

Reversed and bill dismissed.

Fox and Kenna, Judges, dissenting.

Harper & Baker and S. P. Bell, for appellant. Lively &Lively and A. G. Mathews, for appellees.

Rose, President:

In a chancery cause in the Circuit Court of Roane County in which H. C. Zogg and others were plaintiffs and Grover F. Hedges was defendant, a decree was entered directing the defendant to transfer to the plaintiffs the one-eighth interest, standing in his name, in three oil and gas leases, covering land in that county. An appeal from this decree was awarded the defendant. The plaintiffs assign cross error on the ground that they should also have had a recovery of $3,000 claimed by them from the defendant.

The bill of complaint alleges that the defendant Hedges is a practicing lawyer with offices at Spencer, between whom and the plaintiff Lively a long and intimate friendship had existed; that in July, 1941, the defendant advised Lively that he had knowledge of a certain oil and gas property in Roane County which was for sale at the price of $35,000 and requested Lively to procure others to join with.him and the defendant in forming an "association or partnership for its purchase and operation as a joint enterprise", toward which the defendant proposed to contribute one-eighth of the purchase price and to take a like interest in the property, and to charge for his services in connection with the transaction only the sum of $800 as commissions and for abstracting the title; that Lively transmitted the defendant's proposal to his coplaintiffs who, with Lively, after examination of the property offered to join with the defendant in purchasing the same at $32,000 to which price the defendant pretended to procure the assent of the owner, still agreeing to take one-eighth of the property at one-eighth of its purchase price; that the plaintiffs or their representatives met with the defendant in his office in Spencer on the 18th day of July, 1941, turned over to him their checks aggregating $28,000 for their seven-eighths of the purchase price of $32,000 to which the defendant purported to add his own check of $4,000, after which he took all the checks to a bank in Spencer where the deed from the owner was in escrow, delivered the checks to the bank and took up the deed; that the fact, unknown to the plaintiffs until after the acceptance of the deed but concealed from them by the defendant, was that he, the defendant, during all these negotiations had an option from O. H. Reed, the owner of certain oil and gas leases, to purchase the same at the price of $25,000, which was the whole amount paid to the owner; that the defendant paid nothing whatever for the interest conveyed to him by said deed and took and retained $3,000 of the amount which the plaintiffs had contributed for the payment of the property; and that the defendant thus by false representations on which the plaintiffs relied, has obtained for nothing one-eighth of said leases and $3,000 of the plaintiffs' money. The prayer of the bill is:

"that a decree be entered herein cancelling the deed made by O. H. Reed and wife to plaintiff and to the defendant Grover F. Hedges, bearing date on the 17th day of July, 1941, as to the interest of said defendant therein, and that said deed be cancelled, set aside, annulled and held for naught in so far as the same grants and conveys unto the said Grover F. Hedges a one-eighth interest undivided, in the property therein conveyed, sold and assigned; that these plaintiffs may have a recovery against the said defendant by proper decree herein, for the sum of Three Thousand Dollars, taken by the defendant from the joint funds put up by plaintiffs for the purchase of said property, and that said defendant be required to account for the one-eighth of the oil and gas received by him from the production since the purchase of said properties; * * *."

This, therefore, is not a suit to set aside a contract for fraud, and to restore the plaintiffs to a former position. There is no pretense that the plaintiffs did not receive precisely what they intended to buy, nor what they got was not fully worth what they paid. They do not renounce their contract but affirm it and sue on it. Their claim is simply that they should have gotten more for their money, or the same property for less money, by reason of matters advantageous to them which were either concealed or not disclosed, by the defendant while standing in a position of trust and confidence toward them. They maintain that the defendant, a partner with them, made a profit of $3,000 in cash and one-eighth of the purchased leases, which in good conscience and equity should be shared with, or turned over to, them. They plainly base their bill on the universal rule that partners must deal with each other openly and in the utmost good faith. This principle of common honesty covers not only transactions after the partnership is established but those taking place during negotiations toward the partnership. Fouse v. Shelly, 64 W. Va. 425, 63 S. E. 208; Engeman v. Taylor, 46 W. Va. 669, 33 S. E. 922. It controls as well in mining partnerships as in those of a general commercial character. Kimberly v. Arms, 129 U. S. 512, 9 S. Ct. 355, 32 L. Ed. 764; Wetzel v. Jones, 75 W. Va. 271, 84 S. E. 951.

Ordinarily the remedy for false representation or fraud is by an action at law for fraud and deceit. Wilt v. Crim, 87 W. Va. 626, 105 S. E. 812; Big Huff Coal Company v. Thomas, 76 W. Va. 161, 85 S. E. 171; Swarthmore Lumber Company v. Parks, 72 W. Va. 625, 79 S. E. 723. But when it is charged that the fraud has resulted in a trust ex maleflcio equity has jurisdiction. The bill plainly and clearly alleges facts, which, if proved, will create this character of trust. Carleton Mining & Power Co, v. West Virginia Northern R. Co., 113 W. Va. 20, 166 S. E. 536. Kersey v. Kersey, 76 W. Va. 70, 85 S. E. 22. State v. Phoenix Mutual Life Insurance Company, 114 W. Va. 109, 170 S. E. 909.

But the prayer of the bill goes beyond the equitable deserts of the plaintiffs on their own showing. They would have the court say that, by reason of their having paid the whole of the price received by the seller, plus $3,000, they should have the whole property and a refund from the defendant of the excess. The court gave them the entire property, but allowed the defendant to retain the $3,000 as profit from the transaction. How the plaintiffs' claim, or the court's decree can be sustained, we cannot see. The utmost showing to which the plaintiffs pretend can, at most, justify only a decree which would place them where they claim they should have stood if the defendant had dealt equitably with them. This would mean that they should have been required to pay for their purchase only seven-eighths of $25,000, or $21,875, instead of seveneighths of $32,000, or $28,000. Thus a restitution of $6,125 would completely rectify their alleged wrong. Upon no possible theory which we can perceive can the plaintiffs appropriate to themselves, to the complete exclusion of the defendant, the entire property on which he held an option and which, they allege, they and he purchased jointly. For this reason alone there must be a reversal of the decree and a rejection of the cross-assignments of error.

The defendant by his answer says that he did contact the plaintiff Lively regarding the leases in question, stating their price at $35,200, and that through Lively the other plaintiffs came into the transaction; that the plaintiffs after inspection of the property agreed to pay $32,000 for the property after which at their pressing request he, the defendant, agreed to take one-eighth interest in the leases at $4,000; that his check for that amount, together with the checks of the plaintiffs for $28,000, were used to take up the deed which was lying in escrow, of which total sum Reed, the owner of the property, received only $25,000; and that his, the defendant's, profits in the deal consisted of the interest in the leases conveyed to him and $3,000 in cash, being the excess of the payment of the plaintiffs over what the seller received. But the defendant denies that he at any time offered or requested Lively and his...