Court Opinion

ID: 8656913
Source: CourtListenerOpinion
Date Created: 2022-11-24 21:16:53.874833+00
Date Added: 2024-06-11T16:56:46.074531
License: Public Domain

GIDEON, J.
(dissenting). The defendants separately demurred to the amended complaint on the following groundsj (1) The complaint does not state facts sufficient to constitute a cause of action. (2) The cause of action attempted to be stated is barred by the statute of limitations and laches. The district court sustained the demurrer of each defendant on the ground that it affirmatively appears from the complaint that the cause of action is barred by the statute of limitations and that plaintiff is chargeable with laches.
The following controlling facts appear from the allegations *472of tbe complaint and are set out in tbe opinion of Mr. Justice FRICK:
(a) In the year 1902 plaintiff was tbe owner and in possession, subject to tbe paramount title of tbe United States, of tbe mining claim in question. Tbe notice of location of said mining claim was recorded in tbe county recorder’s office of Salt Lake county in 1891, and tbe annual assessment work upon said claim had been performed to and including the year 1901.
(b) In tbe year 1902 Thomas B. Jones, now deceased, was a director, and the sole director .(unless the defendant Reamer was a. director), of tbe plaintiff.
(c) In the year 1902 tbe said Jones, together with tbe defendants Reamer and Price, entered into a fraudulent conspiracy to relocate tbe mining claim in tbe name of Reamer with a view of defrauding plaintiff of its interest therein. Said Jones died in 1905.
(d) One Miller, who died in 1901, and whose family resided in tbe state of New York, owned a majority of tbe capital stock of the plaintiff company and was its first president.
(e) Tbe fact of tbe plaintiff’s interest in this mining property was concealed from both tbe Miller and Jones beirs (1) by Jones in 1903 when be advised one of the Miller beirs, who was temporarily in Utah, that tbeir interests would be protected; (2) by Reamer in failing as the executor of Jones’ will to report to the court or to tbe beirs of tbe estate that tbe estate owned any stock in plaintiff company or bad any interest in this mining property.
(f) The defendants Reamer and Price, and likewise the defendant mining company, were cognizant at all times of tbe plaintiff’s interest in the mining property and of tbe fraudulent conspiracy entered into in 1902 by Jones and tbe defendants Reamer and Price to deprive plaintiff of such interest.
(g) Tbe fraud or conspiracy was not discovered until the year 1917.
(h) There has been no change in the property by reason *473of the expenditure of money so as to render the claim of the plaintiff inequitable or unjust as against the claims of the defendants.
(i) No evidence of the transactions has been lost by the lapse of time.
(j) The stockholders of -plaintiff had no knowledge of their interest in the mining property, and the fact that they had any such, interest was withheld from them by the fraudulent acts of the defendant Reamer and the director Jones, his eoconspirator.
(k) No innocent third parties have acquired any interest in the property, or, if so, their interest is not superior to the equity of the plaintiff.
Whatever diversity of opinion may have been expressed by the courts and text-writers respecting the relationship of directors to corporations, it is agreed by all that that relationship is one of a fiduciary character.
The conclusions deducible from the authorities is succinctly stated by the author in 4 Fletcher, Cyc. Corps. 3509, as follows:
“But whether or not directors and other corporate officers are strictly trustees, there can he no doubt that their character is that of a fiduciary so far as the corporation and the stockholders as a body are concerned. In other words, it is unquestionably true that, as agents intrusted with the management of the corporation for the benefit of the stockholders collectively, they occupy a fiduciary relation, and in this sense the relation is one of trust.”
It is alleged that neither the director Jones nor either of the defendants ever, at any time, renounced the trust or gave any notice to the plaintiff or its stockholders that they were claiming the mining property adversely to the interests of plaintiff company, unless the relocation in 1902 by Reamer under the conspiracy alleged be held to constitute such renunciation. Jones, standing in a fiduciary relationship to the plaintiff, and to that extent being a trustee of this property, and the defendants Price and Reamer, with knowledge of that fact, having entered into a conspiracy with Jones to defraud the plaintiff, it follows that Reamer and Price took such property burdened with the same trust in favor of the *474plaintiff company as bad existed between Jones as a director and tbe plaintiff company. “It is a universal rule, that if a man purchase property of the trustee, with notice of the trust, be shall be charged with the same trust in respect to the property as the trustee from whom he purchased.” Perry, Trusts (6th Ed.) section 217. This principle was adopted by this court in Schenck v. Wicks, 23 Utah, 576, 65 Pac. 732. The second headnote in that case, which reflects the opinion, is as follows:
“Where a person purchases property from the trustee, with notice of the trust, he is charged with the same trust in respect to the property as the trustee from whom he purchased.”
See, also, 2 Pom. Eq. Jur. (4th Ed.) section 688; Gautier v. Douglass Mfg. Co., 13 Hun (N. Y.) 514.
It may be stated as a general principle upon which there is no conflict of authority that—
“Whenever a person obains the legal title to land by any artifice or concealment, or by making use of facilities intended for the benefit of another, a court of equity will impress upon the land so held by him a trust in favor of the party who is justly entitled to them, and will order the trust executed by decreeing their conveyance to the party in whose favor the trust was created.” Felix v. Patrick, 145 U. S. at page 328, 12 Sup. Ct. 865 (36 L. Ed. 719).
True it is that courts will not encourage nor lend aid to the enforcement of stale claims; but that aid is refused, not because the courts condone the wrongs out of which the claims arose, but because it is often and is generally more inequitable to disturb present vested rights than to leave stale claims unenforced. The grounds on which such refusals are usually based are loss of evidence, expenditure of money, change in the condition of the property, innocent parties having acquired an interest in the property, or, possibly, such increase in its value by reason of improvements that it would be inequitable to enforce prior existing rights. 16 Cyc. 152 et seq. Under the allegations in this action, which this court must accept as true with all necessary intendments, none of these elements exist. If the allegations of the complaint are true, the property is still in the same state of nature as it was at the time of the alleged conspiracy. No innocent third *475parties have acquired any interest in the property. Two of the parties to the original conspiracy, if any conspiracy existed, are defendants here and are still living. Their testimony can be obtained. It is reasonable to suppose that if Reamer violated his agreement, as alleged in the complaint, to reconvey this property to Jones within one year after relocation, Jones’ testimony would be more favorable to the plaintiff than to the defendant, so that by reason of Jones’ death defendants are not deprived of any testimony that would likely be in their favor. Moreover, both Reamer and Price knew of the existence of the conspiracy, if one existed, and their testimony can be obtained as they are both defendants in this action.
It is provided in the statute quoted in the opinion of Mr. Justice FRICE that a cause of action for relief on the ground of fraud or mistake is not deemed to have accrued until the discovery by the aggrieved party of the facts constituting the fraud or mistake. It is affirmatively and repeatedly alleged in the complaint that the alleged fraud was not discovered until the year 1917. If therefore the action is to be defeated, it must be upon the ground of laches. The defense of laches in every case must be determined by its own particular facts. There is no conflict in the- authorities upon that point. The defense of laches "rests upon the ground that the equity of the respondent arising from the acts or acquiescence of the plaintiff is greater than the equity set up in the complaint.” In 4 Pom. Eq. Jur. (4th Ed.) section 1442, the author quotes with approval the following language from Wilson v. Wilson, 41 Or. 459, 69 Pac. 923:
“If, however, upon the other hand, it clearly appears that lapse of time has not in fact changed the conditions and relative positions of the parties, and that they are not materially impaired, and there are peculiar circumstances entitled to consideration as excusing the delay, the court will not deny the appropriate relief, although a strict and unqualified application of the rule of limitations would seem to require it. Every case is governed chiefly by its own circumstances.”
In section 1447 of the same volume the author again quotes *476with approval the following from Hall v. Otterson, 52 N. J. Eq. 522, 28 Atl. 907:
“A person cannot be deprived of bis remedy in equity on the ground of laches, unless it appears that he had knowledge of his rights. As one cannot acquiesce in the performance of an act of which he is ignorant, so one cannot be said to neglect the prosecution of a remedy when he has no knowledge that his rights have been invaded; excepting always that his want of knowledge is not the result of his own culpable negligence. It is not a little difficult to determine what knowledge is necessary to place the party in the position of negligently delaying his action.”
See, also, section 1448 of tbe same volume.
None of the elements usually invoked to defeat stale or ancient claims are present in this action. To affirm the judgment of the district court closes the door not only against the Cardiff Mining Company but against Reamer and Price as well. If the allegations of the complaint are true, these two defendants have valuable property which ought to be the property of plaintiff and its stockholders. They were both active in concealing from the plaintiff the information that it or its stockholders had any interest in the property in controversy. No third party would be in any way affected or disturbed in requiring these defendants to account to the plaintiff for. any gain realized by them growing out of the conspiracy entered into with the director of the plaintiff company. These defendants are still living. They can easily explain their acts, if there is an explanation, in connection with obtaining this property, and no injury would be done to any innocent party by permitting the court to hear the testimony and determine the facts.
The record, in my judgment, does not warrant the statement that the plaintiff now coolly comes into court and demands the title to. the mining claim in question without offering to do equity. True it is that in the prayer the complaint asks that the defendant mining company be adjudged to hold the property in trust for the plaintiff, but, at the same time, the prayer is that if that cannot be granted the defendants Reamer and Price be required to account to the plaintiff for any stock they may have received from their *477eodefendant by reason of conveying this property to such, eodefendant. There is also a prayer for general relief. Under that state of the record, it is clearly within the power of a court of equity to require the plaintiff to do equity before granting any relief agáinst any or all of the defendants. Accepting the allegations of the complaint as true, as we must, and, as the defendants by their demurrers admit, I do not believe a ease can be found anywhere under a similar state of facts where plaintiffs have been denied a hearing upon the merits.
It is not contended by any one that the statute of limitations has not defeated plaintiff’s cause of action unless the acts of the defendants have prevented it from running. Counsel for the plaintiff make no contention that the possession of this property would not defeat plaintiff’s claims if the defendants had not entered into a conspiracy and concealed the fraud by which they obtained possession. True, obtaining a patent from the government is notice to all the world of that fact, but what court has ever held that a party who was not advised that he had any interest in the property for which patent was being obtained, and where the fact that he had such interest had been concealed from him by the party obtaining title, that such notice would put the statute of limitations in action? It is of little moment to argue and recite facts which would cause the statute of limitations to run. No one disputes that or makes any contention to the contrary, but I do contend that there is no authority to make such notice binding upon any one who is not cognizant of his interest and who has been kept in ignorance by the fraudulent acts of the conspirators who obtained the property. The facts in Patterson v. Hewitt, 195 U. S. 309, 25 Sup. Ct. 35 (49 L. Ed. 214), cited in support of the opinion of the court, are different from the facts here. In that case the plaintiffs knew of their interest in the property in question but did nothing to assist in the development work, and only attempted to assert their rights after valuable ore had been discovered by great labor and expenditure of money *478by the defendants. .Tbe court in that case, in discussing lacbes, says: i
“True, lapse of time is one of the chief ingredients, hut there are others of almost equal importance. Change ih the value of the property between the time the cause of action arose and the time the bill was filed; complainant’s knowledge or ignorance of the facts constituting the cause of action, as well as his diligence in availing himself of the means of knowledge within his control, are all material to be considered upon the question whether the suit was brought without unreasonable delay.”
It is doubtless true that the party defrauded must be diligent in making inquiry; likewise, that means of obtaining knowledge of facts that would put a prudent person upon inquiry is equivalent to knowledge, but “none of the cases holds, nor are we aware of any case elsewhere which holds, that a man must be so keenly on the scent of effort to defraud him that, without knowledge of any facts which would lead a prudent man to suspect that he has been defrauded, he is bound to make investigations which he is not obliged to make for other purposes, merely because it is within his power to make such investigations.” Raymond v. Sohriever, 63 Neb. 722, 89 N. W. 309.
In the opinion of the court the allegation respecting the loss of the books is discussed. The books, I assume, would naturally be in the hands of the officers of the company, since they are the legal custodians of the records of the company, and presumably were in the possession of the officers of the company in the year 1902. I regard that allegation as wholly immaterial, but the query naturally arises why should any stockholder who is not aware of the fact that he is interested in the corporation attempt to hunt up its records and be charged with laches by failing so to do ?
It is suggested in the opinion of the court that if relief were granted to this plaintiff there may be others, even hundreds of corporations, which would shortly come to life and demand recognition in the courts in attempting to enforce some imaginary right. I assume that if there are other corporations which have been, by the fraudulent acts of their directors, deprived of their property, and the acts have been *479such that the statute of limitations has not run, and the parties have not been guilty of laches, the courts ought to be open to permit those corporations to enforce such rights regardless of whether there may be a hundred or many hundreds of such cases.
In this state the powers of a corporation are exercised by a board of directors. Comp. Laws Utah 1917, section 871. It is a matter of common knowledge that in the management of corporate property the stockholders frequently know very little of the actual property owned and controlled by such corporation. This is especially true of mining companies. The promoters usually retain a majority of the capital stock of such companies. The remaining or treasury stock is sold to purchasers of small blocks and often in widely separated localities. Such stockholders seldom have any absolute knowledge of the location or nature of the property controlled by the company. The title to the land is usually in the general government, and a failure to do the annual assessment work leaves the property open to relocation. In such cases, if the directors and other officers are permitted to disregard the interests of the company and its stockholders, a gateway is left wide open for dishonesty. The facts alleged in this action are illuminating as illustrating the injustice that may follow any relaxation of the inflexible rule announced by all the courts that absolutely fair dealings by the directors in their relationship to the corporate property, either as agents or trustees, must be insisted upon. Parties fraudulently dealing with any one standing in the relationship that a director does to his corporation should be bound by the same rules that apply to the director.
It is insisted by respondent that the plaintiff is a corporation and that any acts of the defendants in concealing from its stockholders the fact that they owned stock or were interested in the corporation cannot be invoked as an excuse or justification on the part of the corporation for failing to institute this proceeding at an earlier date. True it is that the plaintiff is a corporation and as such has a legal entity independent of its stockholders, but it is likewise true that *480as such it can act only through officers elected by the stockholders. Whether there are other stockholders in addition to the Miller and Jones heirs does not appear from the complaint. Jones, as the sole director, could have called a stockholders’ meeting at any time prior to his death. Neither the Miller nor the Jones heirs knew of their ownership of stock until 1917. The facts were concealed from the Jones heirs by the failure of defendant Reamer to report such property as an asset of Jones’ estate. Jones, one of the alleged conspirators, by his statement to one of the Miller heirs in the year 1903, lulled them into inaction by his statement that such heirs would be protected in any interest they might have in the mining property in which their father was interested.
-The ultimate rights of the parties are not before this court for consideration in this appeal. The only question is whether, accepting as true the facts stated in the complaint, the action is barred by the statute of limitations or by laches of the plaintiff. In my opinion it is not. The allegations are such that the chancellor ought to hear the testimony and determine the rights of the parties from the facts so developed. I therefore dissent.
WEBER, J., concurs.