163 Ky. 463 | Ky. Ct. App. | 1915
Opinion of the Court by
Reversing.
Elby Rankin and Gr. B. Kelly were partners in a merchandise store at Pryse, Kentucky. In the month of October, 1912, Kelly sold his half interest in the partnership property to Rankin. Rankin was to assume- all liabilities, and execute t.o Kelly his note for $700. Rankin refused to execute the note, and this action was brought to recover the purchase price. Rankin defended on the
Rankin testifies that he and Kelly were partners. Kelly did most of the buying and selling. Rankin only staid at the store now and then. Kelly kept the books. Before the sale was made Kelly represented that the firm’s indebtedness amounted to- only about $800; that the outstanding solvent accounts due the firm amounted to about $1,000; that these could all be collected in a few days. When he received the books from Kelly they showed that accounts amounting to $1,000.18 were due the firm. He made an’ effort to collect these, but collected only about $800. The outstanding indebtedness amounted to over $1,900. The stock of goods was worth about $1,200 or $1,400. On cross-examination Rankin stated that he first proposed the sale. He made Kelly an offer to give or take $700, on the condition, however, that the liabilities did not exceed $800'. The proposition was talked over on Sunday, and he told Kelly to wait until Monday for an answer. On Tuesday he concluded he would not trade. On Wednesday he agreed to the trade provided the liabilities amounted to only what were clearly represented. He. took possession of the store on Wednesday, and has had possession ever since. The accounts due from customers were all on the books, but the books did not show the amount of liabilities. The bills from parties from whom they purchased were kept in the spool case. On October 11th he wrote to the Lexington Dry Goods Company advising them that he would settle all accounts against the firm. Robert Rankin says that he talked with Kelly a few days before the sale, and Kelly told him they owed something- near $800-. George Kinkead testified that he had made an effort to collect the outstanding- accounts, but succeeded in collecting-only about $800.
Kelly testifies that Rankin came to him on Sunday and said he had a proposition to make. He would either take $700 for his interest or give that amount for Kelly’s interest, and assume all accounts against the firm. Kelly told Rankin to come down on Monday. On Wednesday Rankin said he did not see his way out. Witness-told him that he had made the trade and that Rankin then said he would stick to the trade if he went broke.
There is no relation of trust or confidence known to the law that requires of the parties a higher degree of good faith than that of a partnership. This obligation of partners to exercise the utmost good faith towards each other applies not only during the life of the partnership, but extends to their settlements and dealings while negotiating for the formation of the partnership, as well as for the purchase or sale of a partner’s share in the business. 30 Cyc., 438. Purchases by one partner of his co-partner’s interest in the firm are of frequent occurrence, and when made in good faith operate to vest the ownership of firm property in the purchasing partner. 30 Cyc., 456; Taylor v. Ford, 131 Cal., 440, 63 Pac., 770. Where, however, through mutual mistake, the amount of liability assumed by the outstanding partner is largely in excess of the estimated amount, the sale may be avoided. Mussetter v. Timmerman, 11 Colo., 201, 17 Pac., 501; Maxfield v. Seabury, 75 Minn., 93, 77 N. W., 555; Erhmann v. Stitzel, 121 Ky., 751. The transaction may also be avoided not only for actual fraud, but for a violation of that high degree of good faith and fair dealing which the law requires of the partners in their transactions with each other. Meyers v. Merillion, 118 Cal., 352, 50 Pac., 662; Powell v. Cash, 54 N. J. Eq., 218, 34 Atl., 131, affirmed in 55 N. J. Eq., 826, 41 Atl., 1115; Butler v. Prentiss, 158 N. Y., 49. It is, therefore, held that where one party seeks to benefit himself at the expense of the firm or of his co-partner,
Judgment reversed and cause remanded, with directions to enter such judgment as may be necessary to place the parties in the position which they occupied prior to the sale.