Stout v. Cunningham
| Decision Date | 26 February 1921 |
| Citation | 33 Idaho 464,196 P. 208 |
| Court | Idaho Supreme Court |
| Parties | W. OAKLEY STOUT, HELEN M. STOUT, FRED E. STOUT, J. HAROLD STOUT, LUCILLE L. STOUT, O. SEQUIST, MICHAEL P. RYAN, JULIA A. DECOSTER, ZEULA MENDENHAL, HARVEY F. WILLIAMSON, MABEL S. GARDNER, ANNIE E. SCOTT, HELEN S. JOHNSON, J. BRYANT SCOTT, CAROLYN W. MANTON, WILLIAM A. INGRAHAM, and E. J. ROUSE, Appellants, v. J. W. CUNNINGHAM, DENMAN BLANCHARD and BLANCHARD & COMPANY, a Corporation, Respondents |
CORPORATIONS-OFFICERS-STOCKHOLDERS-PURCHASE OF STOCK BY GENERAL MANAGER-FIDUCIARY RELATION-FRAUDULENT MISREPRESENTATIONS-STATUTE OF LIMITATIONS-CAUSE OF ACTION-ACCRUAL OF.
1. An officer or director of a corporation, or a general manager who is neither a stockholder, officer nor director, but merely an employee of the company, does not sustain a fiduciary relation to an individual stockholder with respect to his stock, and consequently may purchase stock from him with the same freedom as though he were a stranger, and in so doing the mere failure to disclose information as to the value of the stock or the fact that he will be able to dispose of it at a higher price will not render him liable in the absence of actual fraudulent misrepresentations.
2. In this case the defendant Blanchard & Company sent to the shareholders of the Boise power company a circular letter in which the following language was used: "A proposition in the nature of a sale and merger has been made us on behalf of the shareholders." This was followed by a letter to the shareholders from the City Trust Company referring to the first letter, and advising shareholders to send their shares of stock to the latter company, properly indorsed, to be by said trust company delivered upon payment being made, together with other information showing that a sale of such stock was being negotiated. Held, sufficient notice to put shareholders upon inquiry as to who was assuming to act in their behalf and what interest he had in such proposed sale.
3. A cause of action on the ground of fraud is barred under the provisions of C. S., sec. 6611, subd. 4, within three years.
APPEAL from the District Court of the Third Judicial District, for Ada County. Hon. Charles P. McCarthy, Judge.
Action for an accounting. Judgment of dismissal. Affirmed.
Judgment affirmed, with costs to respondent Cunningham.
Wood Driscoll & Wood, for Appellants.
The particular facts alleged in the amended complaint bring the conduct of the defendants Cunningham and Blanchard within the following decisions, which are controlling in this case: Stewart v. Harris, 69 Kan. 498, 77 P. 277, 66 L. R. A. 261; Oliver v. Oliver, 118 Ga. 362, 45 S.E. 232; Strong v. Repide, 213 U.S. 417, 53 L.Ed. 853, and note; Barbar v. Martin, 67 Neb. 445, 93 N.W. 722, cited 1 Cook, Corp., p. 900.
The managing officers of a corporation are not only trustees in relation to the corporate entity and the corporate property, but they are also to some extent and in many respects trustees of the corporate stockholders. (Stewart v. Harris, supra; Pomeroy, Equity Jur., par. 1090; Jackson v. Ludeling, 21 Wall. 616, 22 L.Ed. 492, see, also, Rose's U. S. Notes; Sargent v. Kansas Midland R. Co., 48 Kan. 672, 29 P. 1063.) In such cases concealment is equivalent to misrepresentation. (Stewart v. Wyoming Cattle Ranch Co., 128 U.S. 383, 9 S.Ct. 101, 32 L.Ed. 439, see, also, Rose's U. S. Notes; Strong v. Repide, supra.)
Richards & Haga, for Respondent Cunningham.
Actions for fraud must be brought within three years, unless the plaintiff alleges and proves that he did not discover the fraud within that time, that he has exercised due diligence to discover the facts and could not have discovered the fraud within the time, even with the exercise of such due diligence. (C.S., sec. 6611, subd. 4; Thayer v. Kansas Loan & Trust Co., 100 F. 901; Wood v. Carpenter, 101 U.S. 135, 25 L.Ed. 807, see, also, Rose's U. S. Notes; Murray v. Chicago & N.W. Ry. Co., 92 F. 868, 35 C. C. A. 62; Wilson v. Lemoyne, 204 F. 726, 123 C. C. A. 30; Smith, Law of Fraud, sec. 86.)
A knowledge of facts sufficient to put plaintiff upon inquiry is equivalent to a knowledge of the fraud within this section. (Williams v. Shrope, 30 Idaho 746, 168 P. 162.)
An officer or director does not sustain a fiduciary relation to an individual stockholder with respect to his stock, and consequently he may purchase stock from him with the same freedom as from a stranger, and in so doing the mere failure to disclose information as to the value of the stock or the fact that he will be able to dispose of it at a higher price will not render him liable in the absence of actual fraudulent representations.
McCarthy, J., did not sit at the hearing and took no part in the opinion.
This is an action by some of the stockholders of the Boise-Payette River Electric Power Company, a corporation, hereinafter called the Boise power company, against James W. Cunningham, Denman Blanchard and Blanchard & Company, for an accounting by the latter for the purchase price of certain stock formerly owned by the former in the Boise power company. Cunningham was at the time of the transactions complained of the resident general manager of the Boise power company in Boise. Denman Blanchard was a stockholder and one of the directors of said company. Blanchard & Company, which, according to the allegations of the amended complaint, was essentially owned and dominated by Denman Blanchard, was a corporation organized and existing under the laws of the commonwealth of Massachusetts, with its place of business in Boston.
The respondent, James W. Cunningham, demurred to the amended complaint on the ground, among other things, that the cause of action attempted to be alleged therein was barred by the provisions of C. S., sec. 6611, subd. 4, and upon the further ground that the facts therein alleged were insufficient to constitute a cause of action.
The demurrer was sustained, and appellants refusing to plead further, judgment was entered dismissing the action. This appeal is from the judgment.
The questions presented by the specifications of error involve a consideration of the sufficiency of the amended complaint.
From the allegations of the amended complaint it appears that on the twenty-eighth day of February, 1907, Cunningham entered into a contract with William and Sinclair Mainland, whereby he agreed to deliver to them the outstanding capital stock held by certain stockholders of the Boise power company, among them these appellants. The price which the Mainlands were to pay, if all of the stock should be obtained, was $ 250,000 cash and 1,500 shares of the par value of $ 100 each of the preferred stock of a corporation organized under the laws of the state of Maine, called the Idaho-Oregon Light & Power Company, or a total purchase price of $ 400,000 in cash and preferred shares of stock in said above-named company at their par value. The contract was to be treated as fulfilled when seventy-five per cent of the stock should be delivered to the Mainlands, in which event the sale price was to be at the same rate, according to the proportion of the stock delivered. Cunningham then entered into a contract with Blanchard & Company, which latter company sent out a circular letter to the various stockholders, advising them what they could receive for their stock if they desired to sell. The City Trust Company, also of Boston, was used by Blanchard & Company in conducting the negotiations, and also sent out a letter to the stockholders, dated May 13, 1907, in which reference is made to the letter of Blanchard & Company of date April 30, 1907, to the effect that the latter company was then in a position to complete the sale of the stock of the Boise power company in accordance with the terms of their circular letter, and requesting that the stock of the Boise power company be forwarded to them, and advising the manner of indorsement of the stock certificates, that the signatures of the holders thereof should be witnessed, and inclosing a form of acceptance of the purchase price upon the terms set forth in the letter from Blanchard & Company, together with a form of deposit, in the nature of an offer to sell and power of attorney to transfer the stock of the various stockholders, upon payment of the purchase price.
As a result of these negotiations, the stock for which Cunningham was to receive $ 250,000 and the preferred stock in the Idaho-Oregon Light & Power Company under his contract with the Mainlands was sold by the various stockholders, among them these appellants, who sold directly to the Mainlands with the exception of appellant William A. Ingraham, for the sum aggregating $ 200,000, together with certain preferred stock of the Idaho-Oregon Light & Power Company. The Mainlands paid Cunningham in...
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