Bovay v. H. M. Byllesby & Co.

• Citation: 29 A.2d 801,27 Del.Ch. 33
• Parties: HARRY E. BOVAY and KENYON D. WELLS, Trustees in Bankruptcy of VICKSBURG BRIDGE & TERMINAL COMPANY, a corporation of the State of Delaware, v. H. M. BYLLESBY AND COMPANY, a corporation of the State of Delaware, and FEDERAL SECURITIES CORPORATION, a corporation of the State of Illinois
• Decision Date: 07 January 1943
• Court: Court of Chancery of Delaware

29 A.2d 801

27 Del.Ch. 33

HARRY E. BOVAY and KENYON D. WELLS, Trustees in Bankruptcy of VICKSBURG BRIDGE & TERMINAL COMPANY, a corporation of the State of Delaware, v. H. M. BYLLESBY AND COMPANY, a corporation of the State of Delaware, and FEDERAL SECURITIES CORPORATION, a corporation of the State of Illinois

Court of Chancery of Delaware, New Castle

January 7, 1943

BILL IN EQUITY, filed by the Trustees in Bankruptcy of the Vicksburg Bridge & Terminal Company, to recover certain specified large sums of money, alleged to have been improperly procured from that corporation, by contract or otherwise, by H. M. Byllesby and Company, and applied to its use, at a time when a fiduciary relation existed between the two corporations.

Byllesby and Company demurred to the original bill: (1) That no ground of equitable jurisdiction was alleged, and (2) that the complainants had an adequate remedy at law. The demurrer was sustained on the first ground. 25 Del.Ch. 1, 12 A.2d 178. An amended bill was subsequently filed, and was demurred to for the same reasons, and on the additional ground that it appeared therefrom that the complainants were guilty of laches, barring any possible right of action. That demurrer was overruled. 26 Del.Ch. 69, 22 A.2d 138. In the opinion filed, it was held that the apparent unreasonable delay in filing the complainants' bill had been sufficiently excused by its allegations. 26 Del.Ch. 69, 22 A.2d 138 supra. The defendants subsequently filed a plea of the statute of limitations, alleging that the bill had not been filed within three years after the discovery of the alleged fraud, and that the complainants, therefore, had no enforceable right of action. On motion of the complainants the legal sufficiency of that plea was set down for argument the motion also included a request that it be stricken from the record for insufficiency in both form and substance.

The case was heard on those issues.

Complainants' motion denied.

Caleb R. Layton, 3rd, of the firm of Hastings, Stockly & Layton, for complainants.

Aaron Finger, of the firm of Richards, Layton & Finger, for defendants.

OPINION

HARRINGTON, Chancellor.

The real question is whether the statute of limitations is a good plea.

In cases coming within its exclusive jurisdiction, a court of equity is not bound to follow the statutory period of limitations, governing similar actions at law, in determining whether a complainant is guilty of laches, barring his right of action. Bovay, et al., v. Byllesby & Co., 25 Del.Ch. 1, 12 A.2d 178; Id., 26 Del. Ch. 69, 22 A. 2d 138. In the absence of some unusual circumstances, the analogous statutory period of limitations is frequently, and, perhaps, usually applied, in determining that question. Id. Its application is, however, merely by analogy, rather than by compulsion. Godden v. Kimmell, 99 U.S. 201, 25 L.Ed. 431; 2 Pomeroy's Eq. Jur., (5th Ed.) §§ 419 a, 419 e. In such cases, an apparent unreasonable delay could, perhaps, be excused, and a plea of the statute of limitations would be unnecessary. See Story's Eq. Pl., §§ 756, 760; Talmash v. Mugleston, 4 L. J. Ch. (O.S.) 200 (2 Chafee and Simpson Cases on Equity 1259). But, in cases coming within their concurrent jurisdiction, it seems that courts of equity consider themselves bound to apply the analogous statutory period of limitations, governing actions at law. The old Court of Errors and Appeals so held in Perkins v. Cartmell's Adm'r., 4 Har. 270, 42 Am. Dec. 753; see also Dodd, Adm'r., v. Wilson, 4 Del.Ch. 399; Gootee v. Riggin, 12 Del.Ch. 91, 107 A. 452; Bush v. Hillman Land Co., 22 Del.Ch. 374, 2 A.2d 133; Haas v. Sinaloa, etc., Co., 17 Del.Ch. 253, 152 A. 216; Rugan v. Sabin, (9 Cir.) 53 F. 415; Blue v. Everett, 56 N.J.Eq. 455, 39 A. 765; Kane v. Bloodgood, 7 Johns. Ch. (N.Y.) 90, 11 Am. Dec. 417; 2 Pomeroy's Eq. Jur., 5th Ed., § 419 e.

In Perkins v. Cartmell's Adm'r., supra, referring to that rule, the court said:

"Courts of equity consider themselves within their [statutes of limitations] spirit and meaning; and that sound policy and public convenience require their adoption."

They, apparently, take the view that it would be unjust to permit a litigant, having a legal right, to evade the statute, barring its enforcement, by seeking the aid of another court, having concurrent jurisdiction, merely because it could give more adequate and complete relief. Blue v. Everett, supra; Wood on Limitations, 277; 2 Pomeroy's Eq. Jur., (5th Ed.) § 419 e; 34 Amer. Jur. 55.

In other words, it seems that if a "legal right gets into equity, the statute governs". 2 Pom. Eq. Jur., (5th Ed.) § 419 e; 17 R. C. L. 736. In such cases, the statute of limitations, as such, rather than the doctrine of laches, is applicable, and may be pleaded accordingly. Story's Eq. Pl., § 756; Talmash v. Mugleston, supra. This distinction was overlooked in both of the opinions previously filed. Bovay, et al., v. Byllesby & Co., 25 Del.Ch. 1, 12 A.2d 178; Id., 26 Del Ch. 69, 22 A.2d 138.

In determining whether the statute of limitations is a valid plea, the precise question is whether it appears that the defendant company is in the position of a trustee of an express trust; but the above principles govern the case. An express trust is within the exclusive jurisdiction of a court of equity, and the statute of limitations, therefore, does not, ordinarily, run against the rights of the cestuis que trust. Colwell v. Miles, 2 Del.Ch. 110; Hayden v. Thompson, (8 Cir.) 71 F. 60; Boyd v. Mutual Fire Ass'n., 116 Wis. 155, 90 N.W. 1086, 94 N.W. 171, 61 L. R. A. 918, 96 Am. St. Rep. 948; 2 Pomeroy's Eq. Jur., (5th Ed.) § 419 a, note. Until the relation is clearly repudiated, the possession of the trustee is presumed to be the possession of the cestuis que trust. Hayden v. Thompson, supra; Felsenheld v. Bloch Bros. Tobacco Co., 119 W.Va. 167, 192 S.E. 545, 123 A. L. R. 347; 17 R. C. L. 708. But mere implied trusts are in an entirely different category. They are not within the exclusive jurisdiction of a court of equity, and the statute of limitations is applicable, and may be pleaded accordingly. Cooper v. Hill, (8 Cir.) 94 F. 582; Jones Mining Co. v. Cardiff Min. & Mill. Co., 56 Utah 449, 191 P. 426; Landis v. Saxton, 105 Mo. 486, 16 S.W. 912. This case is within that rule.

It appears from the allegations of the bill that H. M. Byllesby and Company was a stockholder in the Vicksburg Bridge & Terminal Company, and promoted its organization. It, also, appears that it controlled the actions of a majority of the officers and agents of the Bridge Company, when the transactions, complained of, occurred. Byllesby and Company was in the position of a fiduciary, but it does not follow that it was a trustee of an express trust. The officers and directors of a corporation are fiduciaries (Jones Mining Co. v. Cardiff Min. & Mill. Co., supra; Cooper v. Hill, supra; 1 Bogert on Trusts and Trustees, § 16, p. 59; Pomeroy's Eq. Jur., (5th Ed.) § 1089; see, also, Guth v. Loft, Inc., 23 Del.Ch. 255, 5 A.2d 503); but they are not real trustees. Id. They do not hold the legal title to the corporate property. Id. They occupy a position of extreme trust and confidence toward all interested parties, and exercise great powers in managing corporate affairs, but they are not trustees of an express trust in the true sense of that term. Id. The fact that the Vicksburg Bridge & Terminal Company was insolvent since its very organization does not change that rule. Boyd v. Mutual Fire Ass'n., supra; Hayden v. Thompson, supra; Winston v. Gordon, 115 Va. 899, 80 S.E. 756; Lexington & O. R. Co. v. Bridges, 7 B. Mon., (Ky.) 556; 46 Am. Dec. 528. The so-called trust fund theory is not involved, and need not be considered.

Statutes of limitations are intended to prevent the enforcement of stale demands, and are based on reasons of sound policy; they are statutes of repose, intended to exact diligence. Carey, Adm'r., v. Morris, 5 Del. 299, 5 Harr. 299; Boston v. Bradley's Exr., 4 Del. 524, 4 Harr. 524. As a general rule, courts will not read into them conditions or exceptions that do not appear; and usually no considerations of mere inconvenience or hardship will control their apparent meaning. Lewis v. Pawnee Bill's Wild West Co., 22 Del. 316, 6 Penne. 316, 66 A. 471, 16 Ann. Cas. 903; 34 Am. Jur. 150, 151; 17 R. C. L. 829. The Supreme Court recently emphasized that general rule of statutory construction. Federal United Corp. v. Havender, 24 Del.Ch. 318, 11 A.2d 331. But it seems that the statute does not apply when the alleged fraudulent acts are concealed from the plaintiff; in such cases, it is said that its application is suspended until his rights are discovered, or could have been discovered by the exercise of reasonable diligence. Lieberman v. Wilmington First Nat. Bank, 18 Del. 416, 2 Penne. 416, 45 A. 901, 48 L. R. A. 514, 82 Am. St. Rep. 414. The theory seems to be that it would be inequitable and unjust to permit the defendant to profit by his own fraud. 17 R. C. L. 854, 855; 34 Amer. Jur. 152. The same rule has been applied in the law courts of this State. Trainer v. Deemer, 5 W. W. Harr. (35 Del.) 396, 166 A. 657. The complainants seek to extend that rule, and to imply other exceptions on the ground of alleged necessity. They point out that it appears from the allegations of the bill that the suit was started shortly after the Bankruptcy Court had authorized it. They claim that, prior to that order, they, as trustees, had no authority to file the bill, and that the application of the statute must have been intended to be suspended accordingly. Hutchinson v. Hutchinson, 92 Kan. 518, 141 P. 589, 32 L. R. A. (N.S.) 1165. But the facts alleged do not bring the case within any exception appearing in the statute. Chap...