Pullan v. Struthers

• Decision Date: 09 February 1926
• Docket Number: No. 36978.,36978.
• Citation: 207 N.W. 235,201 Iowa 1179
• Parties: PULLAN v. STRUTHERS ET AL.
• Court: Iowa Supreme Court

201 Iowa 1179

207 N.W. 235

PULLAN

v.STRUTHERS ET AL.

No. 36978.

Supreme Court of Iowa.

Feb. 9, 1926.

Appeal from District Court, Polk County; James De Land, Judge.

Action at law to recover from the corporation and certain of its officers and directors the amount paid for corporate stock on the ground that the purchase had been induced by fraudulent representations. From a judgment on a verdict for plaintiff, the defendants appeal. Affirmed.Clark & Byers, of Des Moines, for appellants.

Chester J. Eller and Lehan T. Ryan, both of Des Moines, for appellee.

VERMILION, J.

The action is to recover the amount paid by appellee for stock in the appellant Bankers' Loan & Investment Company, which, it was alleged in the petition, appellee was induced to purchase by certain false and fraudulent representations of the individual appellants, who were officers of that corporation, and who, it is charged, conspired to thereby obtain the money of subscribers to such stock, and convert it to their own use. It is alleged that appellee subscribed for the stock on September 9, 1918; that in September, 1923, he first discovered the fraud that had been practiced upon him, and on September 17, 1923, notified appellants of his election to rescind, and demanded the return of the money paid for the stock. It is further alleged that appellee was prevented from discovering the fraud within five years from the date of purchase of the stock by certain fraudulent acts and declarations of the appellants whereby the true condition of the corporation was concealed and misrepresented. The action was commenced October 20, 1918. The appellants pleaded that appellee's action was barred by the statute of limitations.

I. The action was commenced more than five years after the purchase of the stock. It was therefore barred by the statute of limitations (section 3447, Code of 1897 [section 11007, Code of 1924]), if the statute began to run from the date of purchase of the stock.

[1] There is no claim that section 3448, Code of 1897 (section 11010, Code of 1924), is applicable. That section applies only to actions of which, before the enactment of the statute, chancery had exclusive jurisdiction. McGinnis v. Hunt, 47 Iowa, 668;McKay v. McCarthy, 146 Iowa, 546, 123 N. W. 755, 34 L. R. A. (N. S.) 911;Birks v. McNeill, 185 Iowa, 1123, 170 N. W. 485.

[2] But, entirely aside from this statutory provision, it is well settled that, where a party against whom a cause of action exists in favor of another, by fraud or actual fraudulent concealment, prevents such other party from obtaining knowledge thereof, the statute of limitations commences to run only from the time the right of action was discovered, or might by the use of diligence have been discovered. This doctrine was first announced in this state in the case of District Township v. French, 40 Iowa, 601, which was an action to recover from a public officer money received by him and appropriated to his own use, and where, by fictitious entries in his books and fraudulent representations and concealments, the defendant kept from plaintiff's knowledge the fact of his receipt of the money. The rule was followed in Findley v. Stewart, 46 Iowa, 655, which was an action to recover real property by the heirs of a grantee, where the grantor had obtained possession of his unrecorded deed and fraudulently destroyed it, and concealed this fact. It was applied to an action to recover from a justice of the peace money collected by him on a judgment, where he had reported that nothing had been collected. Bradford v. McCormick, 71 Iowa, 129, 32 N. W. 93. The rule has been applied, where a fiduciary relation existed, to fraudulent concealment by mere silence. Wilder v. Secor, 72 Iowa, 161, 33 N. W. 448, 2 Am. St. Rep. 236;Blakeney v. Wyland, 115 Iowa, 607, 89 N. W. 16;Cress v. Ivens, 155 Iowa, 17, 134 N. W. 869; and Faust v. Hosford, 119 Iowa, 97, 93 N. W. 58. In Mullen v. Callanan, 167 Iowa, 367, 149 N. W. 516, by false and fraudulent representations that plaintiff acquired no title under a conveyance of land to her, she was induced to reconvey, and subsequently repurchased the land at an increased price. In an action to set aside her conveyance and for an accounting, we held the action was not barred, because the cause thereof was deliberately concealed from plaintiff, and she had no notice of facts putting her upon inquiry.

[3][4] Here there was no fiduciary relation between the parties in respect to the transaction of the sale of the stock, and something more than mere silence on the part of the appellants must be shown to toll the statute. Wagner v. Standard S. T. Co., 194 Iowa, 1330, 191 N. W. 314. It is insisted there is no evidence to sustain a finding that the action was not barred, under the instructions of the court.

The alleged fraudulent representations relied upon to avoid the sale of the stock related, in part, to the operations of the corporation, the character of its business, its investments, the expense of doing business, and its earnings and profits available for dividends. Without going into detail, it will suffice to say that the evidence fully warranted a finding that the representations were expressly authorized by the individual appellants; that they were false, and known by them to be false. As bearing on the fraudulent concealment of the original fraud, it appears that the corporation declared a dividend in January following the sale of the stock to appellee, and another year later; that in June, 1920, the corporation by a circular letter sent to appellee asked his assistance in the sale of its stock, saying that substantial dividends had been paid and large additions made to the surplus, and that the annual statement showed no officer or director drew a dollar of salary for their services, and urging appellee to increase his holdings. In January, 1921, the corporation issued and sent to appellee a circular letter in which it was said the company had had a good year; had handled a number of profitable transactions; and had more applications for loans than it could fill; that, due to the extraordinary demands for mortgage loans, it was deemed advisable to postpone the payment of a dividend until the use of the money in the mortgage loan department would not be as profitable as at that time.

There was testimony that the corporation never had any profits from which to pay dividends; that it operated at a loss; and that a few months before the first dividend was paid its losses amounted to over $23,000; that property was carried on its books at fictitious values; that there were no applications for loans in its files; that some of the individual appellants received commissions on the stock sold; that appellant Struthers received large sums for property or securities of doubtful value.

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