Case Name: John D. MARSH, Appellant, v. Tom GENTRY, Appellee
Court: Supreme Court of Kentucky
Jurisdiction: Kentucky
Decision Date: 1982-11-02
Citations: 642 S.W.2d 574
Docket Number: 
Parties: John D. MARSH, Appellant, v. Tom GENTRY, Appellee.
Judges: STEPHENS, C.J., and AKER, CLAYTON, O’HARA, PALMORE, STEPHENSON and STERNBERG, JJ., sitting.
Reporter: South Western Reporter Second Series
Volume: 642
Pages: 574–579

Head Matter:
John D. MARSH, Appellant, v. Tom GENTRY, Appellee.
Supreme Court of Kentucky.
Rendered Nov. 2, 1982.
Rehearing Denied Dec. 28, 1982.
Harry B. Miller, Jr., Miller, Griffin & Marks, P.S.C., Lexington, for appellant.
Weldon Shouse, Shouse & Burrus, Lexington, for appellee.

Opinion:
O'HARA, Justice.
This matter comes to this court on a direct transfer from the judgment of the Fayette Circuit Court dismissing the plaintiff's complaint. The original action grows out of an existing partnership relationship in which the appellant (plaintiff) J.D. Marsh sought an accounting by reason of sale of thoroughbred stock by the appellee (defendant) Tom Gentry to himself. The appellant alleges a conversion and actual damages. The trial court found for the defendant Gentry, and in an amended conclusions of law, deferred the issue of an accounting until an appeal could be had. We reverse on the issue of a breach of the partnership relationship and remand for proceedings consistent with this opinion.
The trial court, in a very detailed findings of fact and conclusions of law, made the following significant factual conclusions upon which we rely for the ultimate disposition of this controversy:
1. That a partnership existed between Tom Gentry and John D. Marsh on and after November 12,1976, which partnership had as its object buying horses and selling them and their offspring for profit.
2. The partnership assets involved in this controversy are a mare named Champagne Woman which was purchased as a partnership asset in November, 1976, for $155,000.00, and a filly which was a foal of Champagne Woman named Excitable Lady.
3. Champagne Woman was consigned to Keeneland for sale in November, 1978. Gentry never told Marsh that Gentry might bid on Champagne Woman when she was sold. Marsh did not know Gentry was going to bid on Champagne Woman at the sale.
4. On the day of the auction Gentry decided to bid on Champagne Woman, but he did not tell Marsh.
5. Although Marsh was at the sale when Champagne Woman was auctioned off for $135,000.00, he did not make any bid on Champagne Woman. Marsh did not know Gentry was bidding on Champagne Woman through his agent nor did Gentry ever tell him he was going to bid on Champagne Woman. Gentry did not tell Marsh at the auction that he had purchased Champagne Woman.
6. On September 28, 1979, Marsh wrote Gentry reminding him that Gentry had promised Marsh that he would be paid his share on the sale of Excitable Lady by August 15, 1979. Marsh thought that Gentry had sold Excitable Lady to some purchaser.
7. Marsh did not ratify the sale of Champagne Woman or Excitable Lady to Gentry.
8. Marsh did not waive any right which he had to object to the sale of Champagne Woman or Excitable Lady or to have the court impose a constructive trust for the benefit of the partnership.
The above findings were made by the trial court and, in our review of the entire record in this case, we hold that such findings are consistent with the evidence. However, the following facts were overlooked by the court, and are most significant to the sole legal issue presented in this case:
9. That it was eleven months after the November, 1978 sale of Champagne Woman before Marsh first discovered that Gentry had, in fact, purchased Champagne Woman for himself.
10. That Gentry told Marsh that the filly Excitable Lady had been sold to a third party in California and refused to furnish the name of the purchaser. Marsh consented to the sale of the filly to the California purchaser.
11. That Marsh specifically demanded in writing to know the purchaser of the filly.
12. Marsh did not know Gentry bought the filly until May, 1981, when it ran and won at Churchill Downs.
13. That Marsh would not have sold his one-half interest in either horse had he known Gentry was buying.
The controlling statute which is disposi-tive of this case is KRS 362.250(1), a codification of the common law passed by the legislature in 1954:
Every partner must account to the partnership for any benefit and hold as trustee for it any profit derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of its profit.
(Emphasis added).
Applying the clear and unambiguous language of the statute to the facts of this case, it becomes instantly apparent that Gentry did not comply with the evident intent of the law when he withheld and misled his partner concerning the two "transactions" involved in this controversy.
We look first to the sale of Champagne Woman at auction in November, 1978. The actual bidding was done, by a secret agent of Gentry without the knowledge of Marsh. In addition, when the auction was completed, the sale was listed in the name of a third party separate and distinct from Gentry or his secret agent. Every sale has as its basic elements a seller, a purchaser, and a price. Obviously the seller in this case was the Gentry/Marsh partnership. The price was established via the auction itself. As it turns out, the purchaser was Gentry himself. At no time did Gentry inform Marsh of his intentions to purchase Champagne Woman for himself and, additionally, the two covert acts surrounding the sale lend further credence to the intended "secrecy" of the purchase by Gentry. Admittedly, at an auction sale, the specific identity of a purchaser cannot be ascertained before the sale, but KRS 362.250(1) required a full disclosure by Gentry to Marsh that he would be a prospective purchaser.
As to the private sale of Excitable Lady, Gentry informed Marsh that he had a prospective purchaser in California. Marsh consented to a sale from the partnership, at a specified price, to the prospective purchaser in California. Gentry informed Marsh that a purchase would be made, and advanced to Marsh a portion of the anticipated sale price. Marsh later demanded not only the remainder of his share of the sale price, but also the identity of the purchaser of the filly. Gentry sent him the remainder of his money, less expenses, and informed Marsh that he would be given the identity of the purchaser at a later date.
Even though Marsh obtained the stipulated purchase price, a partner has an absolute right to know when his partner is the purchaser. Partners scrutinize buy-outs by their partners in an entirely different light than an ordinary third party sale. This distinction is vividly made without contradiction when Marsh later indicated that he would not have consented to either sale had he known that Gentry was the purchaser. Under these facts, it is obvious that Gentry failed to disclose all that he knew concerning the sales, including his desire to purchase partnership property.
Case law written prior to and subsequent to the adoption of the Uniform Partnership Act (KRS Chapter 362) requires partners, in their relations with other partners, to maintain a higher degree of good faith due to the partnership agreement. The requirement of full disclosure among partners as to partnership business cannot be escaped. See, e.g. Van Hooser v. Keenon, Ky., 271 S.W.2d 270 (1954); Smith v. Gibson, 310 Ky. 114, 220 S.W.2d 104 (1949); Ehrman v. Stitzel, 121 Ky. 751, 90 S.W. 275 (1906). Had Gentry made a full disclosure to his partner of his intentions to purchase the partnership property, Marsh would not later be heard to complain of the transaction.
Finally, Gentry maintains that it is an accepted practice at auction sales of thoroughbreds for one partner to secretly bid on partnership stock to accomplish a buy-out. The record, however, does not support this contention. One of Mr. Gentry's own witnesses testified that he had never engaged in that practice in twenty-seven years, and observed that it would be an honest treatment under the circumstances to provide full disclosure to his partner. In any event, the truth behind this statement is not at issue here. We would emphatically state, however, for the benefit of those engaged in such practices, that where an "accepted business practice" conflicts with existing law, the law whether statutory or court ordered, is controlling. To hold otherwise would be chaotic.
Accordingly, the judgment of the Fayette Circuit Court is reversed, and this cause is remanded to it for the entry of judgment consistent with this opinion and for further proceedings to determine the rights of the parties as adjudicated herein.
STEPHENS, C.J., and AKER, CLAYTON, O'HARA, PALMORE, STEPHENSON and STERNBERG, JJ., sitting.
Concurring Opinion by PALMORE, J.
Dissenting Opinion by STEPHENSON, J., which is joined by STERNBERG, J.