Johnston v. Johnston
| Citation | 119 N.W. 652,107 Minn. 109 |
| Decision Date | 11 February 1909 |
| Docket Number | 15,870 - (216) |
| Parties | CHRISTOPHER J. JOHNSTON v. WILLIAM E. JOHNSTON |
| Court | Supreme Court of Minnesota (US) |
Action in the district court for Winona county against the administrator of Frank A. Johnson to rescind an agreement of settlement entered into in October, 1890, between plaintiff and defendant's intestate, and for an accounting in the matters of a partnership between plaintiff and said Frank A Johnston relating to the mining business, and for an accounting in matters of said intestate's agency for plaintiff, on the ground that such settlement was procured by the false representations of the deceased to the plaintiff. The facts are stated in the opinion. The case was tried before Snow, J., who made findings and ordered judgment in favor of plaintiff in the sum of $25,082.32, and that on the payment thereof plaintiff must quitclaim to defendant one half of his interest in certain mines and mill sites. From the judgment entered pursuant to the findings, defendant appealed. Modified.
Limitation of Actions -- Discovery of Fraud.
The statute of limitations does not commence to run against an action to set aside a parinership accounting on the ground of fraud until discovery of the fraud.
Limitation of Actions -- Recovery of Trust Funds.
The statute of limitations commences to run against an action for the recovery of trust funds upon the performance of the trust, or when the trustee repudiates the trust, and the cestui que trust is notified thereof. The mere lapse of time without inquiry into the trusteeship, does not of itself constitute such laches as to preclude recovery.
Item Barred by Limitation.
The statute of limitations began to run against the $4,000 item involved in this case from the time respondent discovered that it had been paid to appellant's intestate.
Fitzpatrick & Buck, for appellant.
The mere fact that the aggrieved party did not actually discover the fraud will not extend the statutory limitation, if it appears that the failure sooner to discover it was the result of negligence and inconsistent with reasonable diligence. First National Bank of Shakopee v. Strait, 71 Minn. 69; Dunn v. Taylor, 42 Tex. Civ. App. 241; Boren v. Boren, 38 Tex. Civ. App. 139; Arkins v. Arkins, 20 Colo.App. 123; Donaldson v. Jacobitz, 67 Kan. 244; Dole v. Wilson, 39 Minn. 330; Morrill v. Madden, 35 Minn. 493; Marks v. Evans, 129 Cal. 18; Goggins v. Risley, 13 Pa. S.Ct. 316; Vodrie v. Tynan (Tex. Civ. App.) 57 S.W. 660; School District of DeWeese, 100 F. 705, 708; Nave v. Price, 108 Ky. 105; Hughes v. Littrall, 75 Me. 573; Rogers v. Brown, 61 Mo. 187, 189; Clark v. Van Loon, 108 Iowa 250; Reisse v. Clarenbach, 61 Mo. 310; Laird v. Kilbourne, 70 Iowa 83; Gebhard v. Sattler, 40 Iowa 152; Bishop v. Knowles, 53 Iowa 268; Wright v. Davis, 28 Neb. 479; Nash v. Stevens, 96 Iowa 616; Hawley v. Page, 77 Iowa 339. Plaintiff contends that these authorities are not applicable to this case for the reason that the relation of partners existed between the two and that Frank was bound to disclose the truth about the partnership property. There is nothing in the evidence that any of the property owned by Frank privately and personally belonged in any manner to the partnership. The partnership was formed for the purpose of locating mines in Idaho and selling interests in those mines to the "tenderfeet" in the East, and that was its only purpose. Frank's alleged false and fraudulent statements were concerning his own ability to pay his indebtedness to his partner arising out of the partnership transactions, and were no fraud upon his partner as such.
The statement by Frank to the agent of his brother that everything was gone, both his own property and his brother's, was evidence and notice to the plaintiff of a repudiation or of a breach of trust on his part. The relationship, from that moment, of trustee and cestui que trust ceased to exist. Mrs. Johnston and the plaintiff then knew that Frank had not been carrying out the terms of the trust. Frank became the debtor to his brother of the amounts then and there settled upon and admitted, and the statute of limitations commenced to run at that time in his favor. Wilson v. Welles, 79 Minn. 53; Smith v. Glover, 44 Minn. 260, 28 Am. & Eng. Enc. (2d Ed.) 1134, and cases there cited.
Brown, Abbott & Somsen, for respondent.
The plaintiff's position on the question of the statute of limitations is: (1) That the relation of Christopher and Frank as regards the partnership transactions was one of trust; that each owed the other the utmost good faith in reference to it. (2) That by means of false statements which constituted a violation of this obligation, Frank induced the plaintiff to make an agreement releasing him from all liability growing out of the partnership relation. (3) That the falsity of these statements was not discovered until about the time of the commencement of this action and consequently that the statute has not run against the action to set aside the release. (4) That if the statute of limitations has run against an action for accounting upon the partnership transactions, the plaintiff was induced to refrain from bringing his action for an accounting solely by reason of defendant's fraud, and that when the release has been rescinded the defendant is estopped by the settled principles of equity from asserting the statute of limitations. (5) That all moneys sent to Frank for investment were held by him under an express trust, and there has never been an accounting because of the false statements of Frank, to the effect that the property held in trust was "all gone." (6) That Frank is estopped to assert the statute of limitations as against the action for accounting after having induced the delay in demanding the accounting. (7) That there has been no repudiation of the trust and the statute has not commenced to run against it.
The statute of limitations did not run against the action to rescind the release. R.L. 1905, § 4076, subd. 6. The defendant is estopped to assert the statute of limitations against the accounting. Can a partner misrepresent the character, condition or existence of partnership property to his copartner, and by means of such misrepresentation procure a release of all claims and demands growing out of the partnership relations for an inadequate consideration, and then plead the statute of limitations when his fraud is discovered after the period of six years? Can a trustee falsely represent that all the trust property is lost and gone, and plead the statute of limitations as a defense to an action for an accounting after the expiration of six years after the making of the false statement? We do not think the statute of limitations has any application to the trust transactions, but assuming for the sake of the argument that it has, we will place the two propositions in the same category and argue them together. Good faith of the trustee toward the cestui que trust is one of the fundamental requirements of the trust relation. A court of equity will not permit a trustee to deceive the cestui que trust as to his profits, and then plead the statute of limitation because the fraud is not discovered for six years. Ludington v. Patton, 111 Wis. 208.
This trust was an express continuing trust. No restriction was placed upon Frank as to the nature of the investments which he should make, but it was expressly agreed that he should take this money and invest it for the benefit of Chris and return it to him. This was not a trust implied, but one created by the agreement of the parties and hence comes within R.L. 1905, § 4076, subd. 7. Wilson v. Welles, 79 Minn. 53; Stillwater & St. P.R. Co. v. City of Stillwater, 66 Minn. 176. At the time Susan came to Winona Frank had not repudiated this trust or neglected to discharge it, or claimed to have fully performed it, and hence the statute had not commenced to run under subdivision 7. Nor had it commenced to run at all. Smith v. Glover, 44 Minn. 260; Donahue v. Quackenbush, 62 Minn. 132; Thompson v. Crosby, 62 Minn. 324; Lamberton v. Youmans, 84 Minn. 109.
A trust of this nature is not within the statute of limitations because the possession of the trustee is presumed to be the possession of the cestui. Speidel v. Henrici, 120 U.S. 377, 386.
Respondent Christopher J. Johnston, and Frank A. Johnston, deceased, were brothers. The former resided in the territory of Utah in 1878, and Frank in the city of Winona. During that year they entered into a copartnership agreement for the purpose of acquiring, locating, developing, and disposing of mining properties. In 1890 the partnership was dissolved, at which time Frank was indebted to Christopher in a large amount of money growing out of the partnership business, and also in a large amount which had been intrusted to him for investment. In full settlement of the partnership indebtedness Frank paid to respondent the sum of $3,000, deeded to him certain property in Winona, and released all of his interest in the mining property held by the partnership, and was thereby released from all obligations by an instrument in writing. Nothing further transpired until the decease of Frank on August 24, 1905. William E. Johnston having been appointed administrator of the estate, this action was commenced for the purpose of setting aside the settlement and release, and to recover the full amount of the partnership indebtedness, with interest, upon the ground that respondent was induced to enter into the settlement and to execute the release upon the fraudulent representation by Frank that he was insolvent and unable to pay the amount in full, or any other amount than as provided by the terms of the release, whereas he was...
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