Whitman v. Bowden

The opinion of the court was delivered by MR. Chiee Justice Simpson. The plaintiffs and the original defendants, nine in number, being the several owners of nine adjacent lots in the city of Spartanburg, organized themselves into a company known as the “Merchants’ Hotel Company,” for the purpose of building nine store rooms, to be owned separately by the owners of the respective lots, and above them a hotel, to be owned and rented for the common benefit. The organization was effected in January, 1879, by the election of a president, secretary, treasurer, and a building committee. A resolution was adopted that each member should pay one-ninth of the cost of the building. It is stated in the complaint that the defendant, R. L. Bowden, and W. W. Thompson, since deceased, were appointed on the building committee, and in the testimony it is stated that Dr. ITeinitsh, representing plaintiff, Dr. Dean, acted with this committee. This building committee was instructed to advertise for bids, which being done and certain bids having been received, the company met to open and consider them. They were found too high, and were rejected and ordered to be returned to the bidders, with a request that they be reduced. In the meantime some informal conversation was had on the question of the amount — 57 — the company would be willing to give, and it ivas ascertained that some of the members, if not all, would be willing to allow $22,500. Other bids were received, and the company again met on March 13. Among the bids then presented was one in the name of A. E. Simmons & Co. of $22,500. This included some extra work not embraced in the plans and specifications. Inquiry was made as to who composed the firm of A. E. Simmons & Co. The defendants declined to tell; assurance, however, was given that it was composed of responsible persons, and that they could give a good bond to complete the work. On motion of Mr. Thompson, the contract was awarded to A. E. Simmons & Co., the lowest bidders, and the building committee was instructed to draw up a contract between the company and A. E. Simmons & Co. It turned out that A. E. Simmons & Co. was a myth as. to the name, and that the bidders under this name were the defendants, Bowden and Thompson, building committee, and Harris, who, after the contract was awarded to them as above under the name of A. E. Simmons & Co., sublet it to Maxwell, Lyman & Land (contractors in the city), ostensibly at their bid, but really at $20,000, Maxwell, Lyman & Land having assigned $2,500 of the contract to Bowden, Harris, and Thompson. This arrangement was at first kept secret from the company. After this, however, the company was informed of the facts, as to the parties composing the imaginary firm of A. E. Simmons & Co., and it was asked to transfer the bid to Maxwell, Lyman & Land, at the same price and upon the same conditions. This was consented to, the defendants saying that they would sign the bond of Maxwell, Lyman & Land. The plaintiffs, however, did not know at this time that defendants had transferred their bid to Maxwell, Lyman & Land at $20,000, the excess, $2,500, to be retained by them. This latter fact, however, after this became known, and although there was some expression of dissatisfaction, yet there was no formal action taken by the company, and the members continued to pay each his proportion of the building contract at $22,500. The structure was finally completed, but not by Maxwell, Lyman & Land. They were settled with, however, upon the basis of their contract, they accounting for the unfinished work, about — 58 — $800, which, with other payments, amounted to $22,500, of which the ’ defendants received $2,500; and this action was brought by the plaintiffs against Bowden, Harris, and Thompson, since deceased, demanding judgment that the defendants be required to refund to the plaintiffs the several amounts paid by them in excess of the amounts they were bound to pay under the contract made with Maxwell, Lyman & Land, &c. The referee, William Munro, Esq., to whom the case was referred, after full testimony taken, reported as his conclusion of law, that the plaintiffs were entitled to share equally with the defendants, Bowden, Harris, and the estate of Thompson in the $2,500 — $1,666.66 being the amount thereof to which the plaintiffs were entitled, with interest from certain dates; and he recommended that plaintiffs have judgment for said amount with the interest to be ascertained by the clerk. This report was overruled by his honor, Judge Hudson, who reversed the judgment of the referee and ordered that the complaint be dismissed with costs. Plaintiffs have appealed upon sixteen exceptions, which are as follows: I. In holding that the defendants had procured Maxwell, Lyman & Land to undertake the contract after they had failed to get other contractors to take the bid for $22,500. II. In holding that the defendants “were charged with no special duty in the matter except to call for bids; that they were not delegated to find the lowest bidders;” that “they were not entrusted with any special duty except to advertise for bids.” III. In holding that no fiduciary relation existed between plaintiffs and defendants after the bid of A. E. Simmons & Co. was accepted or before. IV. In holding that there was no collusion between defendants and Maxwell, Lyman & Land to make a profit for the former. V. In holding that the defendants acted in good faith in the transaction with their copartners. VI. In holding that plaintiffs were estopped by their conduct. VII. In holding that it was a plain, legitimate transaction between intelligent business men. VIII. In not finding that the defendants stood in a fiduciary — 59 — relation to the plaintiffs, both before an'd after the bid of defendants was accepted. IX. In not finding that the defendants concealed from their copartners facts which would have controlled their action in making the contract. X. In not finding that the defendants took advantage of their knowledge derived from their copartners, of the amount which would be paid for the building contract, and used such knowledge to their own advantage and to the injury of plaintiffs. XI. In not finding that the defendants procured the removal of S. B. Ezell, one of the original plaintiffs, from the office of secretary of the association, for the purpose of concealing from the plaintiffs their purpose to make profit for themselves from the contract. XII. In not finding that it was the duty of the defendants to give to the association of which they were members the benefit of any contract which they could make to- the advantage of the association. XIII. In not finding that a bond for $500 for the performance of a $22,500 contract was in itself prima facie evidence of an intended fraud upon the plaintiffs. XIV. In not holding that the failure of the defendants to complete the building was a breach of the condition of their bond. XV. In not finding that the defendants are liable to plaintiffs ■for at least the value of the work which Maxwell, Lyman & Land failed to do under their contract. XVI. In not finding that the report of the referee should be affirmed in his conclusions both of law and fact. We think these exceptions may be condensed into, and discussed under, the following propositions: 1st. Bid his honor err in failing to hold that such a fiduciary relation existed between the defendants and the plaintiffs as forbade the defendants from making the contract complained of, and especially under the circumstances of secrecy, &c., attending said contract? And 2nd-. Were the plaintiffs estopped by their conduct, as held by his honor ? We think the general relation between these parties was that of an ordinary partnership. They had united themselves together, — 60 — without a charter, however, for the purpose of erecting a building, a large portion of which was to be common property, and to be used as a hotel-for common benefit, the members agreeing to pay each an equal proportion of the cost of said building, and no doubt to share equally in the rental profits of the hotel. This made them a partnership and they bore to. each other the relation of partners. In addition to this general relation, which all of the members of the company sustained to each other, Bowden and Thompson, having been appointed a building committee, occupied the relation of agents to the company, for the discharge of such duties as might be required of them, in having the building erected. Now, were these relations, one or both, of such a fiduciary character as to bring the defendants under that well established equity doctrine, that a trustee cannot make profit out of the estate or property of his cestui que trust — that doctrine which vacates a purchase by a trustee from himself, regardless of the fact whether fraudulent or not, which declares illegal and forbids any such purchase without inquiring into the question whether or not it has been Iona fide ? Fox v. Macreth, 1 Lead. Cas. Eq. (Wh. & T.), 115. Without considering now the special circumstances under which the defendants obtained the building contract, the case presents the fact that three of the copartners, the defendants, did obtain such a contract from the firm. Is there any law which forbids one partner from being employed by the firm to do the work of the firm ? Does the relation of partners stand in the way of and prevent one partner from contracting with the firm to perform any special employment or work required by said firm for partnership’ purposes ? We know of no such law. On the contrary, it has been held in this State, that the mere relation of partners does not forbid a contract by one partner with the firm, and that such contract, if bona fide and free from fraud, will be sustained. Glenn v. Caldwell, 4 Rich. Eq., 175. • Next, what was the character of the relation of agency which existed between these parties? It seems that Bowden and Thompson were constituted a building committee when the company was first organized. What were the precise duties of this committee, does not appear in the testimony. It only appears — 61 — that they were instructed at one time to advertise for bids, which duty they performed, in response to which several bids were made. These bids having been rejected as too high, this committee was instructed to make another effort. Upon this second call for bids, the defendants put in one, which was lower than any former bid, and lower than any made then. This bid was accepted. The agency of Bowden and Thompson in this matter consisted in getting bidders. In the performance of this duty, why could they not bid themselves, after opening the bidding to the public? We cannot see that the relation arising from this limited agency could of itself have prevented them from bidding openly and in their own name. And if under such circumstances such bid had been accepted, the contract certainly could have been enforced on both sides. We conclude, them, that the mere fact of the defendants being partners with and agents of the plaintiffs, would not be sufficient in themselves to sustain plaintiffs’ claim. But the question .now arises, did the defendants act in good faith ? Did they observe that fairness and fidelity to the common interest which the relation of partners and agents demanded at their hands ? For while it may be true that partners and agents may not be absolutely precluded from dealing with the firm and the principal, yet such dealing is not entirely at arms’ length, as may be the case -with contracts between strangers. On the contrary, the utmost fairness is required. There should be no suppressio veri or suggestío falsi. The confidential relation which exists between such parties demands entire good faith and perfect frankness, and where these are absent, the contract should not be upheld; not so much on account of any actual fraud or injury which may have been committed, but because of opening the doors thereby and thereto. Pars. Part., §§ 223 et seq.; Pom. Eq. Jur., §§ 901 et seq.; Story Eq. Jur., §§ 206 et seq. Now, what are the facts of this case ? Bowden and Thompson and Harris bid under a fictitious name, and they bid the exact amount which, from being members of the firm, they had learnedthe firm would ultimately be willing to give. Why did they conceal their own names ? They must have had some purpose. They not only concealed their own names, but when the bid was presented, and the question was asked who composed Simmons & Co., they — 62 — replied that said firm was composed of responsible persons, thus leading their partners to suppose that they were outside parties. They must have concealed their names because they thought that the contract would not be awarded to them otherwise. And it was on motion of Thompson that they obtained the contract. They made the bid under a fictitious name, and then as members of the firm, in the meeting called to consider the bids, they used their influence to have their hid accepted. After this they sub-let the contract to Maxwell, Lyman & Land for $2,500 less than what they were to receive from the firm, by a contract which was a secret and expressly agreed to be kept secret. True, they after-wards informed the firm that they composed A. E. Simmons & Co., and obtained permission to have the contract made with these parties, Maxwell, Lyman & Land; but they still suppressed the fact that they were to retain the $2,500, and the contract was made out with Maxwell, Lyman & Land for $22,500. If this building committee could make a. contract for themselves at $20,000 with Maxwell, Lyman & Land, why could they not have made such a contract for the firm of which they were a part, and for whose common interest every member thereof, impliedly at least, was under obligation to work ? The fact that these defendants made such an advantageous arrangement for themselves with Maxwell, Lyman & Land, so soon after they had obtained the contract, is a strong circumstance to show that, with a little effort on the part of the building committee, said arrangement might have been made with Maxwell, Lyman & Land for the firm in the first instance, when the first bids were returned with the request that the bidders might reduce 'their bids. It seems that the firm never did learn directly from the defendants the true character of the contract between them and Maxwell, Lyman & Land. It “leaked out,” however, as it is said, and notwithstanding this, the parties qll continued to advance their proportion of the contract money at the $22,590 ; and this is claimed to have estopped the plaintiffs from questioning the transaction — which is the next question in the case. The ordinary doctrine of estoppel by conduct cannot apply here, for the reason that the defendants have in no way been injured, nor — 63 — induced to take action, nor put in any worse position by any act of the plaintiffs. It is said, however, that there was a confirmation of the contract made with the defendants, and of the sub-letting thereof to Maxwell, Lyman & Land. This is true, and after this confirmation the plaintiffs were perhaps bound, so far as Maxwell, Lyman & Land were concerned, but this did not include the assignment by Maxwell, Lyman & Land of the $2,500. The contract to Maxwell, Lyman & Land was for $22,500, and the assignment was kept secret. This being utterly unknown, it cannot be said to have been then confirmed. Nor can the subsequent payments of their proportions by the different members have the effect of such confirmation. As we have said, they had consented to the transfer of the bid of the defendants to Maxwell, Lyman & Land, and by the contract made with these latter parties they had obligated themselves to pay the contract price, which was $22,500, and the continued payment of their proportion of that sum cannot be held as a confirmation of the arrangement made between Maxwell, Lyman & Land and the defendants. There is no evidence that any official information was ever given to the firm of this arrangement. Nor does it seem that it was known or suspected until the building was under way, and when it became known, although the parties continued to pay the assessments, dissatisfaction was expressed. We do not think that payment under these circumstances can operate as a confirmation. It is the judgment of this court that the judgment of the Circuit Court be reversed, and that the case be remanded for such proceedings as may be required to enable the plaintiffs to recover six-ninths of $2,500, with interest from proper dates, to be ascertained by reference or otherwise, as by the Circuit Court may be deemed best.