Case Title: Connell v. Saco Oil Co.

Citation: 170 Kan. 91, 223 P.2d 1020

Docket Number: 37,985, 37,986

State: kansas

Court: Kansas Supreme Court

Date: 1950-11-10T00:00:00Z

Document:
170 Kan. 91 (1950)
223 P.2d 1020
O.J. CONNELL, JR., as Administrator of the Estate of O.J. Connell, Deceased, Appellee,
v.
THE SACO OIL COMPANY, INC., a Kansas Corporation; and M.M. BUIST, F.J. BUIST and E.J. BRIBACH, as individuals and as officers and purported officers of the Saco Oil Company, Inc., a Kansas Corporation, (M.M. BUIST and F.J. BUIST), Appellants. O.J. CONNELL, JR., as Administrator of the Estate of O.J. Connell, Deceased, Appellee,
v.
THE YUMA OIL COMPANY, INC., a Kansas Corporation; THE SACO OIL COMPANY, INC., a Kansas Corporation; and M.M. BUIST, F.J. BUIST and E.J. BRIBACH, as individuals and as officers and/or purported officers of the above named corporations, (M.M. BUIST and F.J. BUIST), Appellants.
Nos. 37,985, 37,986 Nos. 37,985 and 37,986 Consolidated

Supreme Court of Kansas.
Opinion filed November 10, 1950.
K.M. Geddes, of El Dorado, argued the cause, and George J. Benson, also of El Dorado, was with him on the briefs for the appellants M.M. Buist and F.J. Buist.
Gale Moss, of El Dorado, argued the cause, and A.W. Hershberger, J.B. Patterson, and Richard Jones, all of Wichita, were with him on the briefs for the appellee.
*92 The opinion of the court was delivered by
WERTZ, J.:
These two actions were brought by the administrator of the estate of O.J. Connell, deceased, to recover as part of the decedent's estate corporation stock transferred from decedent either before or after his death. They were heard together in the court below and consolidated here. Two of the defendants, M.M. Buist and F.J. Buist, demurred to plaintiff's amended petitions. In each case the demurrer was overruled by the court. Pleadings in each case insofar as the pertinent question on appeal is concerned are identical; therefore, in the interest of brevity, one case only will be stated and the conclusion reached therein will be equally applicable to the other case.
The actions were commenced June 9, 1949, by the filing of petitions which, in each case, were later amended to conform with court orders. We will narrate the formal parts of the petition in case no. 37,985 and quote those parts pertinent to the question involved here.
Plaintiff for his cause of action against defendants, The Saco Oil Company, Inc., a Kansas corporation, and M.M. Buist, F.J. Buist, and E.J. Bribach, as individuals and as officers of the Saco Oil Company, alleged plaintiff's residence to be El Dorado, Kan.; that he was appointed administrator of the estate of O.J. Connell, deceased, by the probate court of Butler county, Kansas, on August 13, 1947; that the action was commenced by virtue of an order of the probate court; that the Saco Oil Company is a corporation and that M.M. Buist is secretary-treasurer of the corporation, F.J. Buist is vice-president, and E.J. Bribach is acting in the capacity of president. The residence of all parties was set forth. It was alleged that O.J. Connell died intestate at El Dorado on August 3, 1947; that he had been president of defendant corporation from the time of its organization in 1934 until his death; that according to the stock record books of the corporation, twenty-three stock certificates were issued by the date January 12, 1948; that until May 5, 1939, the capital stock consisted of 500 shares of which O.J. Connell owned more than 51 percent; on May 5, 1939, the outstanding capital stock of defendant corporation was increased to 1,500 shares; certificate No. 16 was issued to O.J. Connell for 500 shares and certificate No. 15 to E.J. Bribach for 500 shares.
Paragraph 18 alleges that certificate No. 19 is in the possession of the district court of Butler county, Kansas; certificate No. 20 is in the possession of E.J. Bribach; and certificate No. 21 is in the possession of M.M. Buist and/or F.J. Buist.
Paragraph 21 alleges that a stockholders meeting was called by the defendants on May 10, 1948, at the offices of defendant corporation; that the defendant M.M. Buist, secretary-treasurer of the corporation, orally announced that the records at that time showed the stockholders and stock held by them were as follows: M.M. Buist, 2 shares; M.M. Buist and/or F.J. Buist, 493 shares; F.J. Buist, 1 share; E.J. Bribach, 502 shares; L.M. Nixton, 1 share; O.J. Connell estate, 501 shares; that the purported stockholders meeting was conducted by defendants and the meeting conducted as if they were the owners of said stock, and the purported board of directors was elected, being composed of the defendants herein and others; and that said purported meetings of the stockholders and the board of directors were illegal and unlawful by reason of the facts set forth in paragraph 16 and 17 of the petition hereinbefore set out.
Paragraph 24 alleges that no demand was made because it would have been futile.
Paragraph 26 of the petition is a prayer for relief by declaring the cancellation of capital common stock certificates No. 11, 12 and 13 to be fraudulent and void; by declaring the issuance of capital common stock certificates No. 20 and 21 to be the result of fraudulent, dishonest, illegal and unlawful acts of the corporation and the defendants named; by declaring the purported meetings of the common stockholders and the board of directors held on May 10, 1948, and all acts and business transacted by them to be null and void; by directing defendants M.M. Buist, F.J. Buist and E.J. Bribach to surrender capital common stock certificates No. 20 and 21; by requiring defendant corporation through its officers to correct the records of the corporation to speak the truth in relation to the shares of capital stock owned by the estate of O.J. Connell, deceased, to be 833 1/3 shares; and for an accounting and other relief not material to this appeal.
M.M. Buist and F.J. Buist filed motions to make definite and certain and to strike certain allegations from the petition, which motions were by the court overruled in all particulars except one, and the petition was amended in conformity thereto.
To the petition as amended, appellants M.M. Buist and F.J. Buist filed their separate demurrers setting forth five grounds therefor:
On November 1, 1949, appellants argued their demurrers confining their arguments to the fifth ground thereof, i.e., that the amended petition does not state facts sufficient to constitute a cause of action. The matter was submitted to the court and taken under advisement until November 14, 1949, at which time the demurrers were overruled by the court.
A careful analysis of appellants' claims of error reveals that in the lower court they relied on the theory that appellee's cause of action was barred by the statute of limitations. For that reason other matters presented here will be disposed of early in this opinion.
As to appellants' claim of error on the court's ruling on their motions to strike and make definite and certain, we have repeatedly held that such motions are addressed to the sound discretion of the trial court and ordinarily refusal to grant them will not be disturbed unless it clearly appears that the trial court's discretion has been abused. A close examination of the motions and the petition discloses that substantial rights of appellants were not affected by such ruling and it cannot be said the trial court abused its discretion. (Krey v. Schmidt, and cases cited therein, ante, p. 90, this day decided.)
As to appellants' claim of error on the court's ruling on their demurrer, it is noted that the first three grounds of the demurrer were not presented to the lower court and are neither briefed nor argued in this court, and under our decisions they must be regarded as abandoned. (Dalton v. Hill, 169 Kan. 388, 392-3, 219 P.2d 710, and cases therein cited.)
Appellee challenges appellants' right to be heard on the fourth ground of the demurrer: that several causes of action were improperly joined. While appellants raise the question in this court and present oral arguments and briefs thereon, an examination of the record discloses that this ground of the demurrer was not presented nor argued in the lower court. Counsel for appellants argued only matters contained in the fifth ground of the demurrer. We have held that questions not presented to nor considered by the trial court cannot be raised and urged in this court for the first *99 time. (Herd v. Chambers, 155 Kan. 55, 122 P.2d 734; In re Estate of Gereke, 165 Kan. 249, 256, 195 P.2d 323.)
Appellants' final contention is that the amended petition shows upon its face that the cause of action is barred by the statute of limitations. It is alleged the fraud was committed sometime between December 31, 1946, and May 10, 1948, and this action was begun June 9, 1949. G.S. 1935, 60-306 (3) requires an action to be brought within two years of the discovery of fraud. Appellants further contend that  giving the petition the most liberal construction in favor of appellee  no allegation is made that O.J. Connell did not discover the fraud until within two years of the bringing of this action.
The petition expressly alleges that on December 31, 1946, the records of the corporation disclosed that the original certificates of stock in question stood in the name of O.J. Connell; that on February 13, 1947, O.J. Connell became ill and incapacitated, and on that date and at the time of his death August 3, 1947, he was owner of the certificates of stock in question. It further alleges the fiduciary relationship existing between appellants and O.J. Connell; that the original certificates were endorsed in blank by O.J. Connell and delivery thereof was made to no person but that they were removed by appellants from the books, records and papers of O.J. Connell without his knowledge or consent and the stock books of the corporation were caused to show that the same were canceled and new certificates issued to appellants and E.J. Bribach on April 1, 1947, without the knowledge or consent of O.J. Connell, and at a time when he was ill and incapacitated; that the purported signature of O.J. Connell, president, on the new certificates purportably issued by these appellants for the corporation was a forgery and not the signature of O.J. Connell but that of some other person; it is further alleged that O.J. Connell had no reason during his lifetime to believe these appellants to be untrustworthy or dishonest, and that the appellee administrator did not discover the fraud until April 25, 1949, less than two months prior to filing the petition herein.
The petition does not allege that the wrongful acts in issuing the new certificates were committed on April 1, 1947, as contended by appellants. It alleges that appellants caused the stock record books to show that said cancellation of stock took place on April 1, 1947; however, the petition states that new stock certificates issued *100 to E.J. Bribach were not delivered and accepted by him until July 31, 1947, well within the two years provided by statute for filing the petition.
Appellants would have us place a strict construction on the pleadings by holding as a matter of law  admitting all the facts set forth in the petition  that O.J. Connell, being president of the corporation and knowing he was owner of the stock in question December 31, 1946, should have discovered the fraud perpetrated by appellants prior to becoming incapacitated on February 13, 1947, or before his death on August 3, 1947. We feel the petition has alleged facts sufficient to toll the statute. Courts will not lightly seize upon some small circumstance or by strict construction when a liberal construction should be made, deny relief to a party plainly shown to have been defrauded against those who defrauded him, on the ground he did not discover that he had been cheated as soon as he might have. Only where a party defrauded would plainly have discovered the fraud except for his own inexcusable inattention, will he be charged with a discovery in advance of actual knowledge on his part. (Rutherford v. Rideout Bank, 11 Cal. 2d 479, 80 P.2d 978, 117 A.L.R. 383.) In view of the fiduciary relationship existing between O.J. Connell and appellants, it cannot be said he owed any obligation to examine the records daily between December 31, 1946, and the date he became incapacitated February 13, 1947, or until the date of his death August 3, 1947.
Appellants contend that the amended petition fails to allege that by the exercise of reasonable diligence O.J. Connell could not have discovered the fraud earlier, and in support of their contention they cite Malone v. Young, 148 Kan. 250, 81 P.2d 23, and Schulte v. Westborough, Inc., 163 Kan. 111, 180 P.2d 278. This same theory was advanced and given serious consideration, and determined by this court contrary to appellants' contention, in the case of Dalton v. Hill, supra, where we said:
The court sees no reason to reverse or modify its position set out above.
There is sufficient information in the petition to reasonably apprise appellants of the nature of the action. Failure of the appellee to plead additional facts which would have further disclosed his inability to discover the fraud by the exercise of reasonable diligence is neither fatal nor required.
The judgment of the lower court is affirmed in each case.
WEDELL, J., (concurring in part and dissenting in part):
O.J. Connell, decedent, was president of the defendant corporation, the principal office of which was located in El Dorado, the city of decedent's residence. As president of the corporation decedent, of course, had the right of access to the stock books of the corporation at all times. The petition alleged decedent became ill and incapacitated on February 13, 1947. It also alleged decedent remained president of the corporation until the date of his death, August 3, 1947. It is alleged the fraudulent acts were performed without decedent's knowledge or consent and that he had no reason to believe those charged with the fraud were untrustworthy.
The mere fact the transfers were not made with decedent's knowledge and consent is not an allegation he did not later acquire such knowledge or that, in the exercise of reasonable diligence, he could not have obtained notice of the fraud thereafter. I fail to find an allegation he did not acquire such knowledge.
*102 As previously stated, however, the petition did allege decedent became ill and incapacitated on February 13, 1947. There is, of course, both physical and mental incapacity and many degrees of each. What the nature or extent of decedent's incapacity may have been is not indicated. However, I find no motion to have the allegation of the petition made more definite and certain by stating the nature or extent of decedent's incapacity. Absent such a motion I shall assume decedent was incapable of exercising reasonably diligent investigation to discover the fraud. On that basis I concur in the order overruling the demurrer to the petition.
I do not, however, concur in various statements of law and intimations in the opinion with respect to what a petition based on the fraud statute (G.S. 1935, 60-306, Third) must contain in order to disclose plaintiff's right to maintain an action thereunder. Touching that subject I adhere to the views expressed and based on the authorities cited from this and other jurisdictions in the dissenting opinion in Dalton v. Hill, 169 Kan. 388, 396-400, 219 P.2d 710. For the importance of allegations disclosing exercise of reasonable diligence in the discovery of alleged fraud, see, also, emphasis placed on such allegations in Dalton v. Lawrence National Bank, 169 Kan. 401, 412-414, 219 P.2d 719, decided on the same date as Dalton v. Hill, supra.
The rule laid down in the decisions referred to is not a technical one in any sense. It is based on sound doctrine and tends to promote justice and fair dealings between men where belated actions based on fraud are filed long after material evidence may be lost and important witnesses no longer may be available. The rule merely requires that a person relying upon a belated discovery of fraud can no longer allege only ignorance of the fraud but must allege facts disclosing such fraud, in the exercise of reasonable diligence, could not have been discovered earlier than two years before the action was instituted.
The fraud statute was early recognized by this and most other courts as an exception to the general rule that a cause of action accrues on the date a wrongful act, or acts, are committed. Persons relying on the exception provided by the statute are required to bring themselves within it in order to maintain the action. Although the early decisions of this and some other courts were that it was sufficient merely to plead earlier ignorance of the fraud than the date alleged the majority of the courts are now committed to *103 the sounder doctrine that in order to maintain such an action facts must be pleaded to show the fraud, in the exercise of reasonable diligence, could not have been discovered earlier than two years before the action was filed. (Schulte v. Westborough, Inc., 163 Kan. 111, 180 P.2d 278, 172 A.L.R. 259.) See exhaustive annotation following the Schulte case in 172 A.L.R. 265.
If a good cause of action can be stated without alleging facts disclosing such diligence then obviously proof of such diligence by a plaintiff is likewise unnecessary to support a judgment. Such an interpretation, in my opinion, violates the true intent and purpose of the statute.