Opinion ID: 1149011
Heading Depth: 1
Heading Rank: 5

Heading: Is the Cause of Action Barred by the Statute of Limitations?

Text: [19] The general rules with respect to the statute of limitations in this type of action are set forth in Maguire v. Hibernia S. & L. Soc., 23 Cal.2d 719, 733 et seq. [146 P.2d 673, 151 A.L.R. 1062], where we stated that, if lapse of time can bar an action by a member or stockholder to establish his interest in a corporation, the statutory period does not commence to run until the stockholder has knowledge or notice that his rights are denied or that his status is repudiated or controverted by the corporation. Upon this basis we held that the complaint did not show on its face that the alleged causes of action were barred by the statute of limitations or by laches. [20] The underlying theory is that a corporation holds its property in trust for the benefit of its shareholders and occupies a fiduciary position with respect to them; as a result the shareholder is entitled to assume that the corporation will not assert any adverse claim against him. (See Yeaman v. Galveston City Co., 106 Tex. 389 [167 S.W. 710, 723-724, Ann.Cas. 1917E 191]; Mountain Waterworks Const. Co. v. Holme, 49 Colo. 412 [113 P. 501, 510]; Owingsville & Mt. S. Turnpike Road Co. v. Bondurant's Adm'r., 107 Ky. 505 [54 S.W. 718, 719]; Holly Sugar Corp. v. Wilson, 101 Colo. 511 [75 P.2d 149, 152-153]; Sharon v. Kansas City Granite & Monument Co., 233 Mo. App. 547 [125 S.W.2d 959, 963]; cf. MacDermot v. Hayes, 175 Cal. 95, 114-115 [170 P. 616]; Cooper v. Spring Valley Water Co., 171 Cal. 158, 162 [153 P. 936]; Hobbs v. Tom Reed Gold Min. Co., 164 Cal. 497, 499 [129 P. 781, 43 L.R.A.N.S. 1112].) [21] In cases involving fraud or mistake the statute commences to run when the plaintiff discovers he has a cause of action or, through the use of reasonable diligence, should have discovered it. (See Stafford v. Shultz, 42 Cal.2d 767, 776 [270 P.2d 1].) However, a fiduciary has a duty to make a full and fair disclosure of all facts which materially affect the rights and interest of the parties, and, where a fiduciary relationship exists, facts which would ordinarily require investigation may not excite suspicion. ( Hobart v. Hobart Estate Co., 26 Cal.2d 412, 440 [159 P.2d 958]; see Schaefer v. Berinstein, 140 Cal. App.2d 278, 296 [295 P.2d 113].) Mary was, of course, bound by facts known to Curtin, and plaintiffs are bound by everything Curtin or Mary knew. Defendants contend that, even if the by-laws adopted in and after 1864 did not have the effect of terminating membership rights or making such rights nontransferable, they nevertheless amounted to a repudiation of any claim that membership rights could pass by descent or assignment or could survive the closing of Curtin's deposit account. The allegations of the complaint are uncertain and obviously incomplete as to what transpired with respect to these by-laws, but the facts alleged do not establish as a matter of law that Curtin or Mary or plaintiffs knew or should have known that the adoption of the by-laws or any action taken pursuant to them amounted to a repudiation of membership rights acquired by Curtin. [22] The 1945 action, of course, repudiated any claims to membership rights which Mary may have had, but the complaint alleges that neither Mary nor any of the plaintiffs had any knowledge of the action prior to the death of Mary in January 1951. Defendants argue, however, that the statute commenced to run immediately upon the rendition of the judgment in 1946 and that the running of the statute did not depend upon knowledge of the judgment. We do not agree. The applicable statute is subdivision 4 of section 338 of the Code of Civil Procedure, which provides for a three-year limitation in actions on the ground of fraud or mistake and states that the cause of action shall not be deemed to have accrued until the aggrieved party has discovered the facts constituting the fraud or mistake. ( Cf. Anglo Calif. Trust Co. v. Kelley, 117 Cal. App. 692, 695-696 [4 P.2d 604].) It is also claimed that the proceedings taken in 1947 caused the statute of limitations to run against any membership rights which Mary obtained from Curtin. In that year the 15 defendants designated in the 1946 judgment as the sole persons entitled to membership took steps to convert Hibernia into a stock corporation, terminate the reserve fund and substitute for it capital stock together with surplus, change the name of the corporation to The Hibernia Bank, and issue to these 15 defendants shares of stock in lieu of their interest in the reserve fund and other assets of the corporation. Plaintiffs allege that, contrary to the Bank Act, [] a majority of the members were not present at the meeting in which these changes were authorized, that notice of the meeting was not mailed to all members but only to the 15 persons referred to above, and that Mary was not present at the meeting and had no knowledge thereof. Defendants take the position that these allegations show an actual invasion which constituted a conversion. [23] Ordinarily the statute of limitations applying in conversion actions (Code Civ. Proc., § 338, subd. 3) begins to run from the date of the conversion even though the injured person is ignorant of his rights. ( First Nat. Bank v. Thompson, 60 Cal. App.2d 79, 83 [140 P.2d 75]; Coy v. E.F. Hutton & Co., 44 Cal. App.2d 386, 389-391 [112 P.2d 639]; Rose v. Dunk-Harbison Co., 7 Cal. App.2d 502, 505-506 [46 P.2d 242].) This rule, however, is not absolute; for example, where there has been a fraudulent concealment of the facts the statute of limitations does not commence to run until the aggrieved party discovers or ought to have discovered the existence of the cause of action for conversion. ( Bartlett v. Pacific Nat. Bank, 110 Cal. App.2d 683, 694 [244 P.2d 91]; see Rose v. Dunk-Harbison Co., 7 Cal. App.2d 502, 505 [46 P.2d 242]; 2 Wood on Limitations (4th ed., 1916) 858-859; cf. Pashley v. Pacific Elec. Ry. Co., 25 Cal.2d 226, 229 [153 P.2d 325].) [24] Since a fiduciary has a duty to make a full disclosure of facts which materially affect the rights of the parties, it seems obvious that any act by him amounting to a conversion of trust property is akin to a fraudulent concealment. ( Cf. Airola v. Gorham, 56 Cal. App.2d 42, 45-47, 54 [133 P.2d 78] [breach of trust by secret delivery of deed to third person]; Bell v. Bayly Bros., 53 Cal. App.2d 149, 157 [127 P.2d 662].) This is in accord with statements in many decisions that statutes of limitation do not begin to run against an action for breach of a voluntary trust until there has been a repudiation which is brought home to the beneficiary. (See Estate of Clary, 203 Cal. 335, 341-342 [264 P. 242]; Hermosa Beach etc. Co. v. Law Credit Co., 175 Cal. 493, 496 [166 P. 22]; Cortelyou v. Imperial Land Co., 166 Cal. 14, 20 [134 P. 981]; Taylor v. Morris, 163 Cal. 717, 725 [127 P. 66]; Elizalde v. Murphy, 163 Cal. 681, 685 [126 P. 978]; Luco v. De Toro, 91 Cal. 405, 416 [18 P. 866, 27 P. 1082]; Alton v. Rogers, 127 Cal. App.2d 667, 679 [274 P.2d 487]; Mulli v. Mulli, 105 Cal. App.2d 68, 74-75 [232 P.2d 556]; Kornbau v. Evans, 66 Cal. App.2d 677, 683-684 [152 P.2d 651].) Similar principles were followed in Maguire v. Hibernia S. & L. Soc., supra, 23 Cal.2d 719, 735. The complaint alleges that Mary had no knowledge of the events which took place in 1947. [25] In view of the allegations indicating that a fiduciary relationship existed, the fact that a document disclosing these events was a matter of public record filed with the Secretary of State cannot alone cause the statute to run. ( Cf. Seeger v. Odell, 18 Cal.2d 409, 414-415 [115 P.2d 977, 136 A.L.R. 1291]; Stoll v. Selander, 81 Cal. App.2d 286, 292 [183 P.2d 935].) [26] The complaint does not show that the statute of limitations commenced to run as the result of the proceedings for extension of corporate existence in 1909. The documents filed in that year, while public records and constructive notice for certain purposes, are not sufficient to start the running of the statute in favor of the fiduciary as to those of its members who had no knowledge of them. The complaint alleges that neither Curtin nor Mary had any knowledge of these proceedings. [27] It does not follow from the fact that there may have been no fiduciary relationship between Mary and the 15 individual defendants that the statute has run in their favor. The complaint alleges that the individual defendants received their shares of stock in 1947 with full knowledge of, and subject to, the rights of Curtin and his successors as members. Accordingly, we must assume that these defendants had notice of any breach of fiduciary duty or trust upon the part of the corporation. In analogous situations it has been held that, if a trustee of an express trust improperly transfers trust property to a third person who has knowledge that the transfer is in breach of trust, the statute of limitations does not run on the beneficiary's action against the third person until such time as the beneficiary learns of the breach of trust or of facts sufficient to arouse his suspicion. ( Schofield v. Cleveland Trust Co., 149 Ohio St. 133 [78 N.E.2d 167, 171]; Davidson v. Stagg, 94 Mont. 272 [22 P.2d 152, 154-155]; Pennsylvania Co. for Ins. etc. Annuities v. Ninth Bank & Trust Co., 306 Pa. 148 [158 A. 251, 253]; In re Marshall's Estate, 138 Pa. 285 [22 A. 24, 26-67]; Baldwin v. Taplin, 113 Vt. 291 [34 A.2d 117, 121-122]; Hall v. Windsor Sav. Bank, 97 Vt. 125 [121 A. 582, 585, 124 A. 593, 596]; American Nat. Bank of Enid v. Crews, 191 Okla. 53 [126 P.2d 733, 742, 743]; State Bank & Trust Co. v. Commercial Trust & Sav. Bank, 300 Ill. App. 435 [21 N.E.2d 157]; see Rest., Trusts, § 327, comments i, k, Illus. 3; 3 Scott on Trusts (2d ed. 1956), § 327.2, p. 2378.) Defendants point to several California decisions which declare, in broad general terms, that where an involuntary trust is raised by operation of law the statute of limitations commences to run immediately and no repudiation is necessary. (See Kroger v. Truitt, 27 Cal.2d 288, 293 [163 P.2d 735]; Wrightson v. Dougherty, 5 Cal.2d 257, 264; Benoist v. Benoist, 178 Cal. 234, 236-237; Norton v. Bassett, 154 Cal. 411, 416; Broder v. Conklin, 121 Cal. 282, 288.) In none of these cases, however, did it appear that the beneficiary of the trust lacked knowledge of the transfer for a sufficient period to prevent the statute from being a bar. The distinction is material because the beneficiary's lack of knowledge of the breach of trust is the basis for tolling the statute, and, accordingly, the California cases cited above are not controlling here. [28] Plaintiffs must allege and prove facts showing the time and surrounding circumstances of the discovery of the cause of action upon which they rely. ( Hobart v. Hobart Estate Co., 26 Cal.2d 412, 441-443 [159 P.2d 958].) The purpose of this requirement is to afford the court a means of determining whether or not the discovery of the asserted invasion was made within the time alleged, that is, whether plaintiffs actually learned something they did not know before. In applying this rule it is important to recognize the distinction between cases where a plaintiff is under a duty to inquire and those in which he has no such duty until he has notice of facts sufficient to arouse the suspicions of a reasonable man. [29] Where there is no such duty, for example, because of the existence of a fiduciary relationship, a plaintiff need not disprove that an earlier discovery could have been made upon a diligent inquiry but need show only that he made an actual discovery of hitherto unknown information within the statutory period before filing the action. ( Hobart v. Hobart Estate Co., 26 Cal.2d 412, 442 [159 P.2d 958].) The circumstances of the discovery which, according to the complaint, was made within two years prior to the filing of the action are sufficiently alleged to meet the requirements of the rule set forth above.