Sander v. Newman

174 Wis. 321 | Wis. | 1921

The following opinion was filed March 8, 1921:

Siebecicer, C. J.

This is an action to recover funds from the defendants Newman, Dow, Morris, and Lyons which, it is alleged, they fraudulently obtained and appropriated to their own use out of the proceeds realized on the sale of the lands described in the complaint in the manner set forth in the foregoing statement of facts. The alleged grounds of recovery are that these four defendants entered into a conspiracy to retain secret profits out of the amount paid for the lands, aggregating the sum of $24,533.71. It is alleged that they obtained the sum in the form of cash, notes, and in paid-up interests in the lands purchased from the Mussel-shell Valley Land Company and sold to the Wheelock & Wheelock corporation on April 6, 1910. The alleged facts set out an executed conspiracy and that it was carried out by misrepresentations and fraudulent concealments by the four designated defendants and that the plaintiffs and others were thereby defrauded out of their just shares of the profits of this land deal. The action is planted in equity, and the complaint proceeds upon the idea that the facts alleged show that the arrangement entered into by all the parties to the land transaction constituted a partnership and all of the subscribers to the syndicate members thereof. An. examination of the facts fails to show that the parties intended to form a partnership. In the law of partnership the element of contract between the persons associated to form a co-partnership in the proper sense of the term is a fundamental requisite. The facts of the alleged transaction do nót establish the fact that the parties had such an understanding in this undertaking. Partnership contracts, like other contracts, are governed by the intent of the parties, and the generally accepted test of whether or not a partnership exists is that a partnership is formed when the parties involved in the transaction have the intention that they should be partners. 20 Ruling Case Law, p. 831, § 36. For as there pointed out: “Every partnership rests on the mutual consent of its members.” The general scheme of the syndicate, the manner of conducting its business from its inception to its conclusion, negatives the idea that the subscribers apprehended or thought of forming a partnership in the true and proper, sense of the term. We are convinced that no partnership was intended and that the transactions of the parties do not establish a partnership between the subscribers to the syndicate. The transaction was in substance a “joint adventure.”

“A 'joint adventure’ may exist where persons embark in an undertaking without entering on the prosecution of the business as partners strictly, but engage in a common enterprise for their mutual benefit; they each have the right to demand and expect from their associates good faith in all that relates to their common .interests.” Jackson v. Hooper, 76 N. J. Eq. 185, 74 Atl. 130.

The relation to such an adventure is fiduciary in its character, and each co-adventurer is obligated to his associates to deal in good faith in all matters pertaining to their enterprise. The relationship of the parties to such an adventure has been repeatedly recognized in the decisions of this court. See the cases cited in. the opinion of the court in Goldman v. Cosgrove, 172 Wis. 462, 179 N. W. 673. It is there declared:

“When one becomes a member of a group or association of individuals united for the purpose of prosecuting a joint or common enterprise, such as the purchase of property, each member of the group owes to every other member thereof the dut)!- of fair, open, and honest disclosure, and no member thereof can by connivance, deceit, or suppression of facts within the right, or. to the advantage of every other member thereof to know, procure or. accept secret profits, commissions, or rebates to the disadvantage of his co-adventurers. ... A violation of his duty in that regard constitutes actionable fraud, and the usual remedies for the redress of fraud are available.”

It is clear from the facts pleaded that the plaintiffs and defendants in this case did embark in an undertaking without forming a partnership, but for the mutual benefit of buying and selling the land on which Newman had an option, and to sell it to the Goodrich corporation at a profit, which was to be divided between them in proportion to the subscription they made to provide the fund to consummate the purchase and sale. Since the four defendants who are alleged to have received a secret profit out of the deal were fiduciaries in relation to all the other subscribers, they became responsible in damages to such other subscribers for the alleged fraudulent concealment and deceit. Viewing the complaint in the light of its allegations, it in substance and effect sets forth a claim, as the circuit court held, “. . .to recover from the four alleged conspirators the amount of secret profits which it alleged they obtained by fraud and deceit, whereby each of the plaintiffs suffered a wrong and proportionately were deprived of moneys to which they were entitled.” The remedy appropriate to redress such a wrong has been repeatedly applied in cases that have come before this court. In Jones v. Kinney, 146 Wis. 130, 131 N. W. 339, an action was sustained to recover damages for fraud in receiving secret profits in the sale of a lease of oil-bearing lands by some of the co-adventurers. To the same effect is Goldman v. Cosgrove, 172 Wis. 462, 179 N. W. 673, and cases there cited. See, also, Church v. Odell, 100 Minn. 98, 110 N. W. 346.

We think the facts as pleaded, and which must be assumed to be true on demurrer, constitute a cause of action in favor of the plaintiffs to recover any damages they sustained as the result of the alleged fraud by the four conspiring defendants in collecting secret profits and appropriating them to their own use and benefit. Such a claim was clearly enforceable in a legal action, and the right to sue thereon arose when the wrong was consummated, namely, April 6, 1910. In principle, then, the complaint presents a case like that of Pietsch v. Milbrath, 123 Wis. 647, 101 N. W. 388, 102 N. W. 342. The question arises: Do the statutes of limitation as embodied in sec. 4222 apply to the alleged cause of action ? It was there held that promoters concerned in buying land at a given price and “turning the same over to a corporation to be formed, at a much greater price, and to induce others to come into the corporation in ignorance of the facts, and such others contributed the actual capital necessary to fully accomplish the purpose of the promoters, the corporation, both before and. after the adoption of the Code, had a remedy at law to enforce the liability of the promoters to refund to the corporation their profits.” The application of the statute of limitations to such a cause of action was there most elaborately discussed, and it was held that such a cause of action is barred by the six-year statute of limitations. The cause of action in that case is of the same nature and kind as the cause of action alleged in the complaint in this action. The claim as alleged here is admittedly one arising out of alleged fraudulent conduct by the fiduciaries and hence is in its nature a legal claim, arising out of and produced by the deceit, and is in fact damages flowing from fraud.

The appellants seek to distinguish the liability of Morris from one for damages for deceit and fraud upon the ground that he acted as trustee of an express trust and hence is accountable as such in equity for the funds that came into his hands and therefore all causes of action against him were not subject to the six-year statute of limitations. The fundamental error of this claim is that the right of action alleged in the complaint, as above shown, is in its nature a legal one, which the co-adventurers under the law of this state had the right to enforce against him at any time after the fraud was committed, and hence is not one of that class of causes of action “for relief on the ground of fraud in a case which was, on and before the twenty-eighth day of February, A. D. one thousand eight hundred and fifty-seven, cognizable solely by the court of chancery.” Sub, (7), sec. 4222, Stats. The alleged right against Morris does not spring out of his alleged relation of trusteeship to the plaintiffs as members of the syndicate but out of the alleged fraudulent conduct. Such a cause of action against him constitutes a legal liability enforceable as such in law or equity. The fact that this action is planted in equity does not affect the right to invoke the statute of limitations against its enforcement. “The application of the statute of limitations in equity is determined by the cause of action stated, rather than by the nature of the relief demanded.” Boyd v. Mut. Fire Asso. 116 Wis. 155, 90 N. W. 1086, 94 N. W. 171. The policy of applying the statute of limitations respecting causes of action of the nature sought to be enforced against Morris as trustee is declared by the court in the Boyd Case in the following language:

“We feel induced to hold that as neither the statute nor the precedents of this court warrant exception from the protection of the limitation statutes of those who, though holding as fiduciaries and trustees, have at all times been liable to remedy by suit at law for their misconduct as such, we may not with propriety take from them that protection which the statute, in terms, gives.”

We find that the trial court was right in holding that the alleged fraudulent conspirators were liable in a legal action for the wrongful conduct of obtaining secret profits out of the joint adventure, and that such alleged cause of action accrued more than six years prior to the commencement of this action, and hence the cause of action alleged in the complaint is barred by the six-year statute of limitations.

By the Court, — The order, appealed from is affirmed.

A motion for a rehearing was denied, with $25 costs, on May 31, 1921.