Court Opinion

ID: 7277735
Source: CourtListenerOpinion
Date Created: 2022-07-25 20:02:11.480137+00
Date Added: 2024-06-11T16:18:56.430429
License: Public Domain

Mr. Chief Justice Shepard
delivered the opinion of the Court;
1. The first ground of the demurrer is not well taken. In our opinion the bill, though unnecessarily elaborate in some parts and lacking in specification in others, sets out facts shotving fraudulent misrepresentations by defendant in material respects. That defendant was manager of the Beaty Lumber Company and plaintiff a director and stockholder thereof did not necessarily constitute such a fiduciary relation between them as would render the transaction of December 21, 1899, voidable for that reason alone. Smith v. Hurd, 12 Met. 371-384, 46 Am. Dec. 690; Crowell v. Jackson, 53 N. J. L. 656, 23 Atl. 426; Hooker v. Midland Steel Co. 215 Ill. 444-451, 106 Am. St. Rep. 170, 74 N. E. 445; Krumbhaar v. Griffiths, 151 Pa. 223, 25 Atl. 64. But the facts alleged, substantially, that plaintiff, though a director, took no active part in the management, and relied, as the defendant knew, upon him as manager and friend and fellow shareholder to keep him informed of all matters relating to the operations and financial condition of the corporation. That under these circumstances he sought plaintiff, to apparently induce him to constitute defendant his agent to sell and pass title to his stock and interests, would seem to have imposed not only a moral but an equitable obligation upon him, when dealing with the plaintiff, to disclose to him the material facts of the situation. Oliver v. Oliver, 118 Ca. 362, 45 S. E. 232; Stewart v. Harris, 69 Kan. 498, 66 L. R. A. 261, 105 Am. St. Rep. 178, 77 Pac. 277, 2 A. & E. Ann. Cas. 873; Tate v. Williamson, L. R. 2 Ch 55, 15 L. T. N. S. 549, 15 Week. Rep. 321.
The liability of the defendant does not rest upon this proposition, however; for, not content with the concealment of the *329facts and his opposing interests, the defendant misrepresented the situation, and by his false statements alarmed the plaintiff as to the financial condition of the corporation, with the intent to induce him to part with his holdings for a grossly inadequate consideration. Instead of the actual purchase which he intended to accomplish, and which, if disclosed, might have aroused the suspicion of the plaintiff, and prevented the success of his scheme, the defendant wrote an instrument which made him, not the purchaser, but the agent, for sale; and obtained a power of attorney to carry it into execution. Instead of finding a purchaser at the price named, he secretly took the title to himself, and proceeded to carry out the contemplated scheme for the organization of the Kaleigh Lumber Company and its acquisition of the holdings of the Beaty Lumber Company. This latter scheme could have been carried out as well by fair dealing with plaintiff, and the only conceivable object of the deception was to profit by plaintiff’s loss. Aside, then, from any question as to the relations between the two parties at the time of the transaction, the facts alleged show a case of actual fraud and deceit, entitling plaintiff to relief, if his demand has been prosecuted in the proper forum and without inexcusable delay.
What has been said of the transactions between the parties is necessarily based upon the assumed truth of the allegations of the bill. If they do not truly present the facts, it is the fault of the defendant, who preferred to demur rather than to answer and clear himself of the imputation of fraud.
2. Whether the case presented by the allegations of the bill is one cognizable in equity is a serious question. It was raised by the demurrer, though not the first ground thereof, as it should have been, and must be determined on its merits. Although the subject-matter of the suit belongs in a general class, over which courts of equity ordinarily take jurisdiction by virtue of the superiority of their remedies, that does not necessarily determine the question in the particular case, for, notwithstanding the classification, the jurisdiction does not exist if it appears from the case presented that a court of law *330is competent to take cognizance of it and afford a plain, adequate and complete remedy. In every such case the defendant is entitled to his constitutional right of trial by jury. Hipp v. Babin, 19 How. 271-278, 15 L. ed. 633-635. But that thi/r remedy at law shall be plain, adequate, and complete, it must be as practical and efficient to the ends of justice and its prompt administration, as the remedy in equity. Boyce v. Grundy, 3 Pet. 210-215, 7 L. ed. 655-657.
This constantly recurring question of jurisdiction in equity was carefully re-examined in a case on which the appellee strongly relies (Buzard v. Houston, 119 U. S. 347-352, 30 L. ed. 451-454, 7 Sup. Ct. Rep. 249). There, as here, a fraudulent contract had been obtained, and there was a prayer for its rescission; but it was plain that a judgment for pecuniary damages, under the particular facts in the case, would adjust and determine all the rights of the parties, and was the only redress obtainable. The court said: “In cases of fraud or mistake, as under any other head of chancery jurisdiction, a court of the Hnited States will not sustain a bill in equity to obtain only a decree for the payment of money by way of damages, when the like amount can be recovered at law in an action sounding in tort, or for money had and received.” In so far as the plaintiff, in the case at bar, seeks to recover pecuniary damages sustained through the deceit practised in obtaining and misusing the agreement of December 21, T899, his case comes within the rule enounced in Buzard v. Houston, supra, for such damages would be assessed in an action of deceit at law. The same may be said of the prayer for the cancelation of the said agreement. It could serve no useful purpose to have the agreement canceled. The effect of it, so far as it passed plaintiff’s interests in the Beaty Lumber Company, cannot now be impaired; nor does the plaintiff seek to do so. To that extent it has been practically ratified by him. Moreover, it would be treated as voidable at law, in an action of deceit, by reason of its fraudulent procurement. Nor can the prayer that defendant be declared a trustee for plaintiff itself furnish a ground of jurisdiction; for there is no attempt *331to fasten a trust upon any particular piece of property into which the funds of plaintiff may be traced. The stock and interests of the plaintiff, as well as the defendant, in the Raleigh Lumber Company, passed by the sale of the stock and holdings of that company, in which plaintiff acquiesced. All that can be accomplished in equity is an ascertainment and recovery of the damages sustained by the plaintiff. Unless this can be done as readily and accurately in an action at law, there is jurisdiction in equity. In Buzard v. Houston, supra, there was no difficulty in this respect: having found deceit practised, a jury could as readily and accurately compute the damages sustained as could a master in chancery or an auditor, and more promptly.
In the case at bar, the defendant is not an express trustee against whom, for that reason alone, a bill for an account would lie. But the relations between the two were of a fiduciary nature. The defendant, possessing the confidence of the plaintiff, and knowing that the latter relied upon him for information, and reposed confidence in his discretion and fairness, sought to act as his agent for sale, and procured a contract and power of attorney to that end. Acting under this agency, however procured, he was bound to act in the interest of his principal, and could not make a profit out of the relation. Any profits so made he would hold in trust for the plaintiff. The ascertainment of these profits, which constitute the damages sustained by the plaintiff, is by no means a simple matter, of easy computation. The following facts are involved: The actual value not only of the stock held by plaintiff in the Beaty Lumber Company on December 29, 1899, but also the value of his actual interest, at the time, in the assets of that corporation and the Glade Creek & Raleigh Railroad; the value of the interest that plaintiff was fairlr entitled to in the stock of the Raleigh Lumber Company under its purchase of the interests of the Beaty Lumber Company; and also the value of the interest to which plaintiff was entitled in the assets of the Raleigh Lumber Company, not sold, but retained for the benefit of the former stockholders thereof. Against these are to be charged *332the money actually received by plaintiff under the agreement’ of December 21, 1899, as well as the value of the stock of the Raleigh Lumber Company, received under that agreement, and such amounts as he may have received from the retained assets of the Raleigh Lumber Company in the hands of the trustee, Smith. Aside from the trust raised by the conduct of the defendant, the account of which is to be taken, the ascertainment and adjustment of this account involves the examination of books and accounts, and the investigation of corporate transactions of a complex nature, necessitating a wide range of evidence also, for which a court of equity is peculiarly competent, and these duties a jury could not satisfactorily perform. In such cases a court of equity will always take jurisdiction. Fowle v. Lawrason, 5 Pet. 495-503, 8 L. ed. 204-207; Morgan v. Beloit, 7 Wall. 613-618, 19 L. ed. 203-205; Pom. Eq. Jur. sec. 1421; Bispham, Eq. p. 661, ¶ 484.
3. It remains to consider whether the demurrer was properly sustained on the ground of laches.
It is clear from the recitals of the bill that the plaintiff was under no equitable obligation to bring his suit until after the receipt of the first information, in 1906, of the wrong that had been done him. Some time elapsed while he was investigating the sources of information, and further delay was caused by the representations of the defendant. Consequently plaintiff’s delay began about April, 1907. Within three years from that date his bill was filed. Three years is the period fixed for the bringing of such an action at law. Code, sec. 1265 [31 Stat. at L. 1389, chap. 854]. Without regard to the analogy of the statute of limitations, a plaintiff asking a remedy for fraud must exercise his right within a reasonable time after the discovery of the fraud.
As was said in a former case (Pryor v. McIntire, 7 App. D. 417-430): “The familiar maxim that ‘equity aids the vigilant’ is a typical doctrine of equity jurisprudence, and in its application best illustrates the beheficient spirit of its administration. The rule is neither arbitrary nor technical; but capable of rigid contraction on the one hand and of wide ex*333pansion on the other, in the sound discretion of the chancellor, according to the special circumstances of eaeh particular case. This idea is well expressed by Mr. Justice Brewer in the following words: ‘The length of time during which the party neglects the assertion of his rights, which must pass in order to show laches, varies with the peculiar circumstances of each case, and is not, like the matter of limitations, subject to an arbitrary rule. It is an equitable defense, controlled by equitable considerations, and the lapse of time must be so great, and the relations of the defendant to the right such, that it would be inequitable to permit the plaintiff to now assert them.’ Halstead v. Grinnan, 152 U. S. 412, 416, 38 L. ed. 495, 496, 14 Sup. Ct. Rep. 641.”
If the situation of the parties has been materially changed during the delay, — for example, if there has been a great rise in the value of the property involved, or the defendant has been influenced by the delay to make valuable improvements,— if there has been the death of the defendant or witnesses, and the probable loss of material evidence, and the like, — then, if it shall appear that the plaintiff, with full knowledge of his rights, or the means of such knowledge at hand, has slept upon them, it would be inequitable, under such circumstances, to entertain his suit. On the other hand, where no such conditions have arisen — no such equities intervened — mere lapse of time that is not so excessive as to warrant a presumption of their existence ought not to bar relief where actual fraud has been committed. McIntire v. Pryor, 173 U. S. 38-54, 43 L. ed. 606-612, 19 Sup. Ct. Rep. 352; and cases there reviewed.
To bar relief against actual fraud, laches must not only consist of delay, but of delay that has worked a disadvantage to the opposing party. If there have been, in the meantime, no change of title, no great rise in the value of the property, no loss of material evidence, in general, no intervention of substantial equities, it is not of controlling importance that a right shall have been pressed with promptness. So great is its abhorrence of fraud and the violation of fiduciary obligations, *334that a court of equity will look with some indulgence upon mere delay, from which no material injury has occurred.
According to the allegations of the bill in this case, which are admitted by the demurrer, a great fraud has been perpetrated upon the plaintiff by one in fiduciary relation with him. The delay has not been excessive. There are no changes shown in the conditions and relations of the parties, and no intervening equities whatever. The acquiescence of the plaintiff in the sale of the stock and assets of the Raleigh Lumber Company, and his willingness to profit by that sale, have been urged as reasons why he should be denied relief. We see no force in this contention. Failure to bring a suit that might have prevented that sale, and acquiescence in it, was not unreasonable conduct on the part of the plaintiff, under the circumstances. It could not impair his right to relief against the defendant, who was presumably benefited by the transaction. It did not alter his relations with the plaintiff, nor prejudice his defense against the plaintiff’s demand.
We are of the opinion, therefore, that the allegations of the bill disclose no such unreasonable delay on the part of the plaintiff as should bar his right to relief.
The decree will be reversed, with costs, and the cause remanded for further proceedings not inconsistent with this opinion. ReversedL ■