Court Opinion

ID: 6235246
Source: CourtListenerOpinion
Date Created: 2022-02-17 20:31:01.723471+00
Date Added: 2024-06-11T08:58:01.792995
License: Public Domain

Mr. Justice Mercur
delivered the opinion of the court,
This is substantially a corporation bill. It was filed by Evans and Kuhn, who are stockholders in the Keystone Zinc Company. Some two and a half years thereafter the bill was amended by adding two other stockholders as complainants.
The ground of complaint is, that in the formation of the company both the defendants and the plaintiffs were associated together ; that the defendants purchased certain mineral lands, and sold them to the corporation of which they were directors, for a *301sum many times greater than they actually paid for them ; that the price they paid was concealed from the plaintiffs, whereby a resulting trust has arisen, and the defendants are liable to account for the profits which they have made.
The master found the evidence sufficient to establish a constructive trust, but reported that the bill be dismissed by reason of the laches of the plaintiffs in filing it. The court confirmed the report and dismissed the bill.
We will therefore consider the sufficiency of the laches and attending circumstances, to justify the decree of the court.
In March 1864, the agreement for the formation of the company was made, and the defendants entered into a contract for the purchase of the land. The necessary act of incorporation was procured in a few days thereafter. Early in the next month, the defendants obtained a conveyance of the land, and sold it to the corporation, of which they were three directors, and certificates of stock were issued thereon, in pursuance of a resolution of the stockholders. At a meeting of the stockholders, early in 1865, .Kuhn swears that he obtained information “ of such a damaging character to the overseer and those having the management of it, that I at once determined to take legal measures for the recovery of my money, which I considered had been improperly made use of.” With that view he consulted counsel, but in consequence of other persons occupying a similar position, having brought actions on the case, which were then pending, he postponed instituting any proceedings. At another meeting of the stockholders, held in October of the same year, Kuhn and Evans were both present and participated in the proceedings. They voted their stock on the question of the acceptance of an amendment to the charter, authorizing the company to borrow money, issue bonds and secure the same by a mortgage on the estate and franchises of the corporation. It is true they voted against accepting the amendment; but that fact in no wise changes the legal effect of their action for the purposes we are now considering it. The amendment was adopted by a vote of the majority of the stockholders, representing a majority of the stock. At the same time a resolution was also passed authorizing the directors to borrow money on the security of the mortgage.
This bill was not filed until nearly four and a half years after that meeting. If the case rested on the lapse of time alone, that would be insufficient to bar the plaintiffs’ rights to file the bill.
As a general rule, a constructive trust in regard to personal rights or personal property may be asserted at any time within six years after a knowledge of the facts creating it. At the expiration of that time it is barred by analogy to the time fixed by the Statute of Limitations: Ashhurst’s Appeal, 10 P. F. Smith *302290. But laches for a much shorter time than six years, aided by other circumstances, will bar the right: Id.
There is another aspect of this case.' The relief prayed for is not that the defendants shall pay anything directly to the plaintiffs, but that they shall pay into the treasury of the corporation, whereby the plaintiffs may be benefited by the increased property of the company. The attempt is to obtain relief through the equitable rights of the corporation. Then the knowledge and conduct of the latter must he considered.
The bill is not to repudiate so much as it is to enforce a constructive or implied contract. The land was conveyed to the corporation 8th of April 1863. Nearly six years thereafter the bill was filed. The minutes of the corporation of the same month of April show the facts on which the present complaint mainly rests. The manner in which the certificates of stock were issued, and payment for the lands made, were sufficient to make inquiry a duty of all who were unsatisfied. No steps were taken to establish a resulting trust.
In October following the company accepted the amendment to its charter and authorized a loan, predicated thereon, to be made. The plaintiffs had full knowledge of this action, both present and prospective. They instituted no proceedings to prevent it. They acquiesced in it. They thereby encouraged the directors to borrow money in pursuance of the resolution of the stockholders. They thereby induced the defendants to believe that no legal proceedings would be instituted predicated of the original purchase of the land. Afterwards the defendants lent money to the corporation, but not under the authority of the amendment. The master has found that the directors “ seem to have fairly and honestly endeavored to manage its affairs for the advantage of the stockholders.” Nevertheless the company became embarrassed. Judgments were recovered against it by creditors. All its property, both real and personal, was sold and bought in for the benefit of the' creditors. Hence, since the plaintiffs had full knowledge, new business arrangements have been made and other rights have intervened. These proceedings were delayed, under the attending circumstances, an unreasonable time. Having been so delayed, the laches is fatal to the plaintiffs’ bill. This view is fully sustained by Ashhui’st’s Appeal, supra, and the numerous authorities there cited. Although the transaction was originally voidable, yet having been acquiesced in by the parties who might have avoided it, for a length of time less'than six yeai's, but by their conduct having induced the offending parties to believe it was not to be questioned, they are now debarred from avoiding it.
The two other stockholders, who became. plaintiffs by amendment, are in a worse condition than the original plaintiffs. Their first action was more than six years after they had full knowledge. *303This is not a creditor’s bill, in which a creditor, has come in during the progress of a suit which one creditor has instituted in behalf of himself and others. We are now dealing with a constructive trust. These latter plaintiffs are to be considered as such, with like effect only as if they had filed an original bill at the time they applied by petition to be added to the record as complainants.
Decree affirmed and appeal dismissed at the costs of the appellants.