Opinion
No. 42609.
March 10, 1952. Motion for Rehearing or to Transfer to Court En Banc Denied April 14, 1952.
APPEAL FROM THE CIRCUIT COURT, ST. LOUIS COUNTY, AMANDUS BRACKMAN, J.
Rassieur, Long Yawitz, Elliott P. Koenig and Leonard E. Martin, all of St. Louis, for appellant.
Royal L. Coburn, St. Louis, for respondents.
On August 21, 1945, plaintiff-appellant sold his interest in a partnership to his partners, Max A. Wilkerson and Robert B. Dana, the respondents in this case. The partnership was in the business of accounting, bookkeeping, and tax service. The consideration in the sale was $15,000; $5,000 was paid in cash and a note was given for the balance of $10,000 to be paid at the rate of $100 per week. Nine such payments had been made when on October 22, 1945, Wilkerson and Dana notified Florida that they had terminated the contract alleging fraud on the part of Florida. This suit was filed by Florida to collect the balance due on the note, that is, $9,100. Wilkerson and Dana filed a counterclaim and crosspetition asking that the contract of the dissolution of the partnership be set aside and the note canceled. They also asked judgment against Florida for the amount paid him and for an accounting.
The trial court entered a judgment in favor of respondents and against Florida in the sum of $9,849.69. The court also canceled the note and contract of the dissolution of the partnership. From the judgment Florida appealed.
The fraud relied upon by respondents was based on the theory that Florida as a member of the partnership and on behalf thereof had gone to California for the purpose of purchasing a bookkeeping and tax service business owned by Jack B. Welles and that Florida, instead of purchasing the business for the partnership, had bought the business for himself.
This is an equity case made so by the respondents' counterclaim and crosspetition. It is reviewable de novo. It will be necessary to make a rather complete statement of the facts proven.
Jack B. Welles conducted a bookkeeping service in the State of Texas during the years from 1923 to 1937. From Texas he moved to Long Beach, California, where he established a similar business under the name of Welles Welles. The other member of the firm was Mrs. Welles. While in this business in California, Welles devised a cost meter machine which he sold in the state. Wilkerson, one of the respondents in this case, was one of Welles' employees in California from 1941 to 1942 selling cost meters. While so employed, Welles and Wilkerson discussed plans of establishing a bookkeeping business in St. Louis, Missouri. In 1942 Wilkerson began the operation of such a business in St. Louis, Missouri, under the name of Welles Welles Accounting Service. Wilkerson was furnished with the necessary forms and Wilkerson agreed to pay Welles a royalty based on the amount of business transacted in St. Louis. Wilkerson soon took unto himself partners; these were Robert B. Dana, one of the respondents herein, one Alex Bayou, and appellant Florida. Later Florida purchased Bayou's interest. The partnership then consisted of Wilkerson who owned a 40% interest, Dana with a 20% interest, and Florida with a 40% interest. This partnership added another service to the business, that of accounting. Florida was an accountant and devoted all of his time to the business. Wilkerson devoted much of his time but not all and Dana was in the armed forces from August 4, 1942 to October 8, 1945, stationed at Camp Crowder. At various times there was discussion of extending the business to other states. In May, 1945, Wilkerson and Florida by arrangement met Welles in Dallas, Texas, for the purpose of discussing the possibility of consolidating the business in California and that in St. Louis. Welles was told of the successful use of machines (rented from International Business Machines) used in the St. Louis office. Plans to form a corporation were discussed and Welles made a trip to St. Louis to investigate the success of the methods there used. Welles proposed that he, Wilkerson, and Florida each have a 1/3 interest in the corporation. Wilkerson insisted that Dana be given a share. It was finally agreed that Wilkerson and Welles each should have a 35% interest, Florida a 20% interest, and Dana a 10% interest. After Welles returned to California, he sent Wilkerson a check for $2,000 payable to "Welles Welles, Inc.", his part in the "Promoting Expenses" for the corporation. Wilkerson was to attend to the incorporation. It was necessary to have the approval of the S.E. C. before stock could be sold.
Wilkerson testified that a few days after he had received the check from Welles, he and Florida discussed the California office and the possibility of installing some machines to handle the business in a manner similar to that in the St. Louis office; that Florida said Welles was discussing the manner of operation with the Remington-Rand Company in California and he was concerned because Welles might disclose some of their secrets of operation; that he (Wilkerson) called Welles and advised him not to divulge any of their methods of operation; that he also asked Welles how he thought the check for $2,000 could be cashed since it was made payable to a corporation not yet in existence; that this seemed to offend Welles who then said to him, "How would you like to buy me out lock, stock, and barrel?" Wilkerson stated he asked Welles if he was sincere and being told he was, answered Welles, "I will look into it."
Welles testified the check was returned to him with a note that the national service had fallen through. Welles further testified that when Wilkerson spoke to him over the telephone, Wilkerson asked, "`How the hell' he was going to cash that check made out to Welles Welles, Inc."; that he told Wilkerson if he needed the money, he (Welles) would cash the check; after some further talk, he said to Wilkerson, "You fellows were so smart, why don't you come out and buy this place? I will sell it to you, lock, stock, and barrel." The plan of forming a corporation was abandoned.
Wilkerson and Welles in their evidence were in agreement that the idea of the St. Louis men purchasing Welles' interest was first mentioned in this telephone conversation after which Wilkerson, Florida, and Dana discussed the question of buying the Welles interest. Wilkerson was of the opinion that if the business could be bought for any sum less than $100,000, it would be a "steal." Pursuant to these discussions Florida went to California for the purpose of purchasing the Welles interest for the St. Louis partnership. Florida also considered the trip as a vacation and his family accompanied him. When Florida reached California, he discussed the proposed sale with Welles who offered to sell for $67,500, $5,000 to be paid at the time of sale and the balance at $200 per week, provided that Florida would manage the business in California. Florida wrote Wilkerson a letter about the terms and this letter contained the following paragraph: "As you know the living cost(s) in Long Beach are considerable higher than in St. Louis and if we moved out here some adjustment would have to be made in my salary to take care of this increase expense, before partners distribution of earnings. Also cost of moving would be born by the business." (Notation "No".)
The notation "No" on the letter was made by Wilkerson who made notations of approval on a number of other terms contained in the letter when preparing a reply to Florida's letter. In reply Wilkerson wrote in part as follows:
"We agree with you, that the installation of machines and other matters will require your attention out there. But we don't believe it advisable for you to move out there as it will be impossible for you to move in to each town that we put a branch into. Unless you and your family want to make the West Coast your home.
"Yes, I can handle this end, we have our troubles but we will iron them out. Find yourself a good I. B. M. trained accountant, break him in your way, put the responsibility on him and see that he does it. It may cost you $400.00 or $500.00 per month but that will be the problem in each city, so we might as well start there. Send your family back if you want to and your expenses while away from home charge to the company. Just the same as other business trips."
When Florida received that letter he immediately contacted Wilkerson by telephone and explained to him that Wilkerson had misunderstood the terms of the sale; that Welles insisted that he (Florida) stay in California and manage the business to insure the payment of the $200 per week. We may state here that the physical assets were very little as compared with the purchase price of $67,500. The value, all partners agreed, was in the number of accounts the firm possessed. There is much dispute in the evidence as to what was said in the telephone conversations. Florida testified that Wilkerson would not agree that he (Florida) stay in California and asked to talk with Welles. Welles then talked with Wilkerson; Welles testified that Wilkerson would not agree to let Florida manage the California business. Note a portion of Welles' evidence:
"Q. Now, you said in your cross examination that when you talked to Mr. Wilkerson on the telephone, he did not disapprove of Mr. Florida coming to California. What did Mr. Wilkerson say to you? A. He said to me it was none of my `Godamn business' who ran the business after they bought it. That was their talk and not mine.
"Q. What did you say to him? A. I said `I am not interested' and gave the 'phone back to Mr. Florida."
Wilkerson when on the witness stand was asked about this telephone conversation and his version of what was said with reference to Florida's remaining in California was as follows:
"A. He called me on the 'phone.
"Q. And when was that with reference to the sending of the letter? A. A few days later, I don't know.
"Q. And what did he say when he got you on the telephone? A. He said Jack was insisting on him staying in California. And I said, `Is that one of the conditions of the sale?'; `No' he said, `Not a condition of sale, but', and he starts hemming and hawing about him staying out there, and I said, `Look, Rolla, we are opening one hundred and four branches, you can't live in a hundred and four cities. You are going to hire somebody to stay out there.' He said, `Jack wants me to stay out here' and I said, `Okay then' I said, `Let me talk to Jack, put him on.' He put him on the `phone and I said, `Jack, is that a condition of sale?' He said, `I want somebody here that knows what he is doing.' He said, `I would like to have Florida stay out here.' I said, `If you need him out there, we can solve that problem.'"
It is apparent from Wilkerson's evidence and the notations of "No" made on Florida's letter that he (Wilkerson) was disapproving the plan of Florida's managing the Welles business in California. Wilkerson's statement over the telephone to Florida, "Look, Rolla, we are opening one hundred and four branches, you can't live in a hundred and four cities. You are going to hire somebody to stay out there.", clearly meant that Wilkerson was rejecting that plan. (Emphasis ours.) Welles testified that "I informed him if Mr. Florida couldn't operate it the deal was off." Welles, if he so desired, had a right to place such a condition in the contract of sale. He seems to have had confidence in Florida. The only security Welles had in case of sale to insure payment of the purchase price was the continuation of the business. It appears from the record that none of the parties to the transaction had any money except perhaps Dana. The St. Louis business was losing money every year. Had it not been for the blood transfusions supplied by Dana, $6,000 at one time, and $5,000 at another, to meet operating expenses, the business might have died of pecuniary anemia.
After the telephone conversations between Wilkerson at St. Louis and Florida and Welles in California, Florida made plans to return to Missouri. He wired the St. Louis office that he was returning. Soon after Florida arrived in St. Louis, he proposed that he purchase Wilkerson's interest or that Wilkerson buy Florida's interest. Florida offered $20,000 for Wilkerson's interest. In a telephone call made to Dana by Wilkerson, Dana stated that if Florida was purchasing Wilkerson's interest, he (Dana) would not stay in the firm. The negotiations resulted in Florida's selling his interest to Wilkerson and Dana for $15,000, $5,000 cash and a note of $10,000 payable $100 per week. After the sale, Florida telephoned the International Business Machines Company that he was no longer a partner and not to look to him for rentals on the I. B. M. equipment. He also telephoned to Welles in California to advise him that he was out of the partnership and not to look to him for royalties on the St. Louis business. Florida stated Welles asked him to come to California to work for him; that he would pay him $7,500 per year. This offer was refused. Welles in another telephone conversation asked Florida to come to California; that he had an interesting proposition to make to him. Florida did so and after some negotiations, he became a partner in the Welles Welles business.
As to what happened when Florida returned to Missouri, the evidence is very conflicting. Florida testified that when he went to the office he learned from Wilkerson that he had borrowed $10,000 from Dana instead of $5,000 as was authorized to swing the deal in California; that he complained to Wilkerson about borrowing that amount without his consent and about the number of persons who had been added to the payroll also without his consent; that this brought on an argument and his decision to dissolve the partnership. Florida's testimony concerning the subjects of discussion after his return to Missouri includes the following:
"Q. On your return there was no discussion of the California trip at all? A. As far as the California trip is concerned, I don't think so. I think that nothing was said. Whether we discussed anything about it or not. I think maybe I did tell him about the deal, I don't recall.
"Q. You had no discussion with him about your California trip? A. Then the deal fell through and we talked about our regular course of business there and this problem that came up and the policies of the company there, that morning; and he said he was going to run it his way and I said, `I don't any part of it, that way,' and that is where our argument came about." (Apparently the court reporter omitted "want" from the sentence, "I don't any part of it, that way," since Florida soon thereafter testified, "I told him I didn't want any part of an organization with all these employees in there, * * *.")
Wilkerson and other witnesses testified that when Florida returned to the office he stated that Welles Welles did not have as many accounts as had been represented and further that the manner of keeping records would lead to trouble with the Federal Revenue Department. There was also evidence that Florida said he was sick and wanted to sell his interest in the partnership.
Respondents in their brief cite cases and other authorities to the effect that utmost good faith is required of partners in their relations with each other; that one is the confidential agent of the other and is required to make full disclosure of all material facts within his knowledge in relation to their partnership affairs. Some of the authorities cited are: Pomeroy v. Benton, 57 Mo. 531, same case as 77 Mo. 64; Johnson v. Peckham, 132 Tex. 148, 120 S.W.2d 786, 120 A.L.R. 720, and Annotations, 120 A.L.R. 724. In the brief much was quoted from Pomeroy v. Benton, 57 Mo. 531. We approve the doctrine there announced. Such has been the generally accepted rule of law.
The trial court found that Florida had secretly agreed with Welles while in California to purchase a part interest in the firm of Welles Welles; that in so doing he breached a duty he owed to his partners. When the evidence on a factual issue is in dispute, an appellate court gives due consideration to the finding of the trial court. In this case with all due respect to the able trial judge, we find ourselves in disagreement with the result reached. We find that Wilkerson, by his rejection of the proposal made by Welles to have Florida manage the business in California, ended the negotiations for the sale. We shall endeavor to set forth our conclusions as briefly as the facts permit.
One of the terms of the proposed sale of Welles' interest to the St. Louis partnership was that Florida remain in California and manage the business to insure the weekly payments due on the purchase price. Wilkerson did not at any time agree to this. He wrote "No" on Florida's letter with reference to Florida's remaining in California. Furthermore, Wilkerson in his reply to Florida's letter gave directions as to what should be done; these directions were contrary to Welles' proposal of having Florida manage the Welles Welles business. Note the above-quoted portion of Wilkerson's letter in which he advised Florida that he would be required to establish a branch business in various cities. In another portion of the letter Wilkerson wrote, "All you need is the right man out there, to handle that branch. Be careful about this and I think we'll be O. K. Maybe the man Thomas was talking about would be him what do you think. Or maybe because of taxes you will need a strong woman for I. B. M. and a strong accountant as manager." This was all contrary to and inconsistent with Welles' proposal that Florida stay to manage the business. In his evidence Wilkerson did not contend he ever agreed to have Florida as manager of the Welles office. When informed by telephone by Florida about the condition, Wilkerson asked to speak with Welles. In his testimony Welles stated Wilkerson told him it was none of his business who would be manager; that that ended the proposed sale as far as he (Welles) was concerned.
We are of the opinion that Wilkerson's rejection of the condition of having Florida manage the California business caused the sale to fail. Wilkerson's evidence and his letter to Florida clearly indicate that he was determined not to have Florida in the Welles Welles office as manager. If that be true, and the record in this case has convinced us it is, then the proposed sale of Welles Welles to the St. Louis partnership was at an end. It is not surprising in view of the correspondence and the telephone conversations between Wilkerson, Florida, and Welles that relations were anything but friendly when Florida returned to Missouri. Arguments between Wilkerson and Florida concerning transactions occurring while Florida was in California led to a dissolution of the partnership in so far as Florida was concerned. 68 C.J.S., Partnership, § 334, p. 846. Wilkerson and Dana agreed to pay Florida $15,000 for his share in the business; $5,000 was paid at the time of sale and nine weekly installments were made. Florida is entitled to have judgment against Wilkerson and Dana for the balance due.
From what we have said, it follows that the judgment of the trial court must be reversed and the cause remanded with directions to enter a judgment for plaintiff Florida against the defendants Wilkerson and Dana for the balance due on the purchase price of Florida's interest in the partnership and to dismiss the counterclaim and cross-petition of the defendants Wilkerson and Dana.
It is so ordered.
BOHLING and BARRETT, CC., concur.
The foregoing opinion by WESTHUES, C., is adopted as the opinion of the court.
All concur.