Schneider v. Union Oil Co.

• Decision Date: 27 April 1970
• Citation: 6 Cal.App.3d 987,86 Cal.Rptr. 315
• Parties: Genevieve A. SCHNEIDER, Plaintiff and Appellant, v. UNION OIL COMPANY OF CALIFORNIA, Defendant and Respondent. Civ. 25772.
• Court: California Court of Appeals Court of Appeals

Page 315

86 Cal.Rptr. 315

6 Cal.App.3d 987

Genevieve A. SCHNEIDER, Plaintiff and Appellant, v. UNION OIL COMPANY OF CALIFORNIA, Defendant and Respondent.

Civ. 25772.

Court of Appeal, First District, Division 2, California.

April 27, 1970.

Hearing Denied June 24, 1970.

Richard E. Herndon, Williams, Herndon & Adams, San Francisco, for appellant.

David W. Lennihan, Brobeck, Phleger & Harrison, San Francisco, for respondent.

TAYLOR, Associate Justice.

Plaintiff appeals from a judgment of dismissal sustaining a demurrer, all of the without leave to amend a general demurrer to her second amended complaint to establish her status as a stockholder of defendant, on the ground that the action was barred by the statute of limitations (Code Civ.Proc. § 338, subd. 3). The only question on appeal is whether the running of the statute was tolled by plaintiff's ignorance of defendant's unauthorized transfer of her shares of stock.

On an appeal from a judgment of dismissal sustaining demurrer, all of the facts set forth in the pleadings must be accepted as true. Plaintiff's second amended complaint alleged the following: Between May 2, 1946, and January 4, 1954, for valuable consideration, defendant issued 468 shares of its capital common stock to plaintiff and her father, as joint tenants, with right of survivorship. Plaintiff's father died on February 14, 1966, and she became the sole owner of all 468 shares.

About June 3, 1966, several months after the death of her father, who had possession of the stock certificates, plaintiff learned for the first time that in 1954, without notice to her and without her knowledge or consent, all 468 shares of common stock had been canceled and her name removed from defendant's share register. Plaintiff did not affix her signature to the purported assignment of the stock certificates and did not authorize or empower any person to do so. Apparently, plaintiff's father had, without her knowledge, forged her signature and caused the stock to be transferred to Harris, Upham and Company on April 9, 1954.

After defendant refused to accede to plaintiff's demand for recognition and confirmation of her stock ownership and her rights and status as a stockholder, she commenced this action on April 20, 1967. Her second amended complaint set forth five causes of action: the first, to establish her status as a stockholder; the second, for an accounting ancillary thereto; the third, to quiet title to her shares; the fourth, for declaratory relief; and the fifth, in the alternative, for damages suffered by reason of defendant's breach of its fiduciary duty.

The demurrer filed by defendant asserted that plaintiff's cause of action was one for alleged conversion of shares of stock notwithstanding the fact that the relief sought may be equitable in nature and, therefore, the appropriate statute of limitations was the three-year period of Code of Civil Procedure, section 338, subdivision 3.

Plaintiff's contentions on appeal are that since her action is based on defendant's breach of fiduciary duty, the applicable statute of limitations is the four-year period of Code of Civil Procedure, section 343, and that the period here runs from the date of her actual discovery of the facts of the breach, regardless of the remedy sought. Plaintiff relies on Bennett v. Hibernia Bank, 47 Cal.2d 540, at pages 559 and 560, 305 P.2d 20, at page 32, wherein the applicable law was set forth as follows: 'The underlying theory is that a corporation holds its property in trust for the benefit of its shareholders and occupies a fiduciary position with respect to them; as a result the shareholder is entitled to assume that the corporation will not assert any adverse claim against him. (Citations.) In cases involving fraud or mistake the statute commences to run when the plaintiff discovers he has a cause of action or, through the use of reasonable diligence, should have discovered it. See Stafford v. Schultz, 42 Cal.2d 767, 776, 270 P.2d 1. However, a fiduciary has a duty to make a full and fair disclosure of all facts which materially affect the rights and interest of the parties, and, where a fiduciary relationship exists, facts which would ordinarily require investigation may not excite suspicion. Hobart v. Hobart Estate Co., 26 Cal.2d 412, 440, 159 P.2d 958; see Schaefer v. Berinstein, 140 Cal.App.2d 278, 296, 295 P.2d 113.'

Defendant contends that: 1) conversion is the only legally tenable theory available to plaintiff here; 2) Bennett v. Hibernia Bank, supra, and similar authorities wherein the corporation participated in the fraud, are distinguishable; 3) its transfer of title to plaintiff's stock on a forged endorsement was nothing more than the performance of a purely ministerial task which should not be characterized as a breach of fiduciary duty; and 4) the burden of preventing transfers cannot be equitably imposed on a corporation as only a shareholder can guard against theft and forgery.

As to defendant's first contention, it is well settled that in this state, plaintiff has an election of remedies as a result of defendant's breach of fiduciary duty, with an action for damages for alleged conversion (Payne v. Elliot, 54 Cal. 339) as only one of the available alternatives. As noted in the Bennett case, supra, the relationship of a corporation to its stockholders is a fiduciary one in the nature of trusteeship. Accordingly, a corporation shares the duty of all trustees to protect, so far as the exercise of proper deliberation and care can, the interests of the beneficiary. Therefore, like any trustee, a corporation in transferring title to stock, acts at its peril (Hurley v. Southern California Edison Co. (9 Cir.) 183 F.2d 125; Responsibilities and Liabilities of the Transfer Agent and Registrar, 4 So.Cal.L.Rev. 203). When a corporation transfers title to stock on a forged or unauthorized endorsement or refuses to transfer title at the demand of the owner, it commits an action which is both one of conversion and breach of trust. Defendant's reliance on Aronson v. Bank of America, etc., Assn., 9 Cal.2d 640, 72 P.2d 548, and Bell v. Bank of California, 153 Cal. 234, 94 P. 889, and similar authorities, is not helpful, as therein the plaintiffs either elected to sue for damages for conversion or did so because no other theory was available under the facts of the particular case. Herbert Kraft Co. Bank v. Bank of Orland, 133 Cal. 64, 65 P. 143, likewise does not support defendant's contention. In Kraft, a pledgee of stock maintained a suit in equity against the corporation which had sold the stock under a void assessment that it had no power to levy or enforce. The plaintiff sought to quiet title to the stock. The court, after noting at page 67, 65 P. 143, that a transfer on the books of the corporation without the consent of the holder under a forgery does not divest the real owner of his rights as a shareholder, held that equitable relief was available to the shareholder. The court specifically noted that while the plaintiff could have brought a suit for damages for conversion, it was not compelled to do so. There is no authority for defendant's contention that plaintiff's remedies are limited to conversion.

Furthermore, historically, the common law remedy of trover was available only for tangible personal property, not intangible shares of stock. As the modern action of conversion evolved, it became available as a remedy...