Curtis v. Lakin

THAYER, Circuit Judge,

after stating the case as above, delivered tlu' opinion, of the court.

The bill of complaint is disingenuous, in that it fails to state certain facts with that degree of fullness and accuracy which a court of chancery has a right to expect in a case of this- character and magnitude, and in that it fails to give information concerning the plaintiffs’ conduct in certain respects and on certain occasions, which obviously might have been given had the pleader been disposed to make a frank disclosure of all the material facts and circumstances touching the transactions out of which the controversy arises, and on which the plaintiffs’ right to equitable relief depends. For example, the bill does not state the amount of money or property which the plaintiffs advanced to create the general fund which was to be used for the benefit of the alleged partnership, the allegation in that respect being siinplv that they “contributed to the assets of said co-partnership by furnishing Lakin with money and supplies to travel,” etc. It fails to show whether the plaintiffs ever made any complaint to Lakin, in person, because he located the Sacramento and Excelsior claims in his own name, or whether they ever demanded a conveyance to themselves of their alleged interest therein. It fails to allege at what time during the year 1893 the plaintiffs ascertained that Lakin had sold an undivided one-half interest in said claims for the sum of f15,000, or from what source the plaintiffs derived such information; and what is of more importance, perhaps, the bill does not show that the plaintiff's ever communicated with Lakin after being advised of the sale, or that they attempted to do so, for the purpose of obtaining an account of his stewardship, or of ascertaining what he proposed to do with the mining claims in fn-ture, although the sale appears to have been contrary to their wishes, and was made as early as July 27, 1894. The bill does not disclose that the plaintiffs have communicated with their alleged partner in any form, or he with them, at any time since March, 1894, when he left Sacramento for the purpose of going to Utah; while it appears that they waited for about one year before bringing this action, after they were advised that the mining claims in controversy had been conveyed by Lakin and his associates to a corporation, and were therefore aware that the stock of the corporation was liable to be placed upon the market, and pass into the hands of innocent purchasers at any moment. It is not even averred that the stock issued to Lakin which the plaintiffs seek to recover is still in his hands, or that any efforts were made prior to the filing of the bill to prevent him from disposing of the same for value to third persons. Besides, the excuse which is given -in the bill for waiting a year or more after th? mining claims were conveyed to the corporation, before bringing a suit or taking any other steps to preserve their right to the- property, is unsatisfactory, and therefore insufficient. It is somewhat remarkable, to say the least, that an agreement, upon which the plaintiffs’ right to a large interest in a mine, supposed to be of great value, depended, should have been misplaced, and not found for a year, and that intelligent business men should have supposed that the loss of the agreement would necessarily prevent them from establishing their right to an interest in the Utah claims, and that no effort was made in the meantime to obtain from their alleged co-partner other recognition of their interest in the property. In short, the allegations of the bill', in the respect last mentioned, are so vague and unsatisfactory, and the failure of the plaintiffs to disclose whether they have ever held personal communication with the defendant Lakin since 1894, and demanded from him an account or an explanation of his conduct and purpose, is so significant, that we are forced to infer that, for at least two years prior to the filing of the bill, the plaintiffs were well aware that Lakin intended to assert a right to dispose of the Utah claims as his own, without accountability to any one. The facts stated in the complaint, no less than those which might have been stated, but are left undisclosed, leave little room for doubt that Lakin’s intentions with respect to the Utah mines, and his assertion of an absolute title thereto, have'been well known to the plaintiffs at least since 1895, when they learned that he had sold a half interest therein for $15,000, and had appropriated the proceeds. Men of average intelligence and business sagacity would not ordinarily permit mining property in which they had a large interest, and which they believed to be valuable, to be sold and otherwise dealt.with by a third person as his own, without remonstrance on their part, and without seeking for an explanation, unless they were well aware that he asserted a legal right to so deal with it, and that any remonstrance on their part or attempt to obtain a recognition of their rights would be vain and useless, unless it took the form of a suit to enforce their alleged rights. We think, therefore, that the conclusion is well warranted by the allegations of the bill that for mor-e than two years before it was filed the plaintiffs remained silent and inactive, knowing that Lakin claimed tbe Utah mines as his own, yet intending' to assert a title thereto in case they proved to be productive and valuable, but to deny all interest therein and all liability for obligations which Lakin might incur in attempts to develop them, provided they proved to be barren and valueless. This seems to be the only reasonable explanation of the plaintiffs’ silence and inaction for a period of two years or more, in view of facts that were then well known to them, when their actions are judged by the tests which are usually applied to determine the motives which prompt human conduct.

It results as a matter of law, from the views which we have thus far expressed with reference to the allegations of the bill, that it was filed too late to obtain redress, for the alleged grievances, in a court: of chancery. It may be conceded, for present purposes, that the agreement of February 1, 1892, between the plaintiffs and Lakin, created a co-partnership, and that the Utah claims were located thereunder, and that the title thereto, when taken by Lakin in his own name, was held by him in trust for the benefit of himself and hie co-partners. Nevertheless, when the plaintiffs were advised, by Lakin’s conduct with respect to the claims, chat he intended to repudiate the trust and treat them as his own, they were bound to assert their rights with reasonable diligence. The rule that lapse of time will never bar the enforcement of an express trust is applicable to those cases where there has been no repudiation of the trust, or where the beneficiaries have no reasonable ground to believe that the trust has been or will be denied. Wood v. Carpenter, 101 U. S. 135, 141; Oliver v. Piatt, 3 How. 333, 411; Hunt v. Patchin, 35 Fed. 816, 819, 820; Miles v. Thorne, 99 Am. Dec. 390, 391. When a trustee of an express trust openly repudiates it, and asserts a title in himself to the trust estate, and the fact of such repudiation becomes known to the beneficiary, we are aware of no reason why the same degree of diligence should not be exercised by the injured party in making complaint and in asserting his rights which courts of chancery always require to be exercised when a litigant seeks to fasten upon another a constructive trust or to rescind a contract upon the ground of fraud or mistake. The reasons requiring the exercise of diligence in the latter class of cases have been stated many times with great clearness and force, and they are no less applicable to the former class of cases than to the latter. Naddo v. Bardon, 4 U. S. App. 642, 681, 2 C. C. A. 335, and 51 Fed. 493; Godden v. Kimmell, 99 U. S. 201; Wood v. Carpenter, 101 U. S. 135, 139; Lemoine v. Dunklin Co., 10 U. S. App. 237, 239, 2 C. C. A. 343, and 51 Fed. 487; Gallilier v. Cadwell, 145 U. S. 368, 373, 12 Sup. Ct. 873; Kinne v. Webb, 12 U. S. App. 137, 144, 4 C. C. A. 170, and 54 Fed. 34; Scheftel v. Hays, 19 U. S. App. 220, 225, 226, 7 C. C. A. 308, and 58 Fed. 457; Wetzel v. Transfer Co., 27 U. S. App. 594, 12 C. C. A. 490, and 65 Fed. 23; Id., 169 U. s. 237, 241, 18 Sup. Ct. 307.

gpecial reasons existed in the case in hand which required the plaintiffs to be prompt in the assertion of their rights when they became aware that Lakin claimed the Utah property as his own. In the first place, the property consisted of mining claims, which were subject to great and sudden fluctuations in value, and the rule is that one claiming an interest in property of that nature must take steps to establish his title with all convenient speed, if he has reasonable grounds to believe that such asserted interest will be denied by those in possession of the property who are at the time engaged hi developing it. In cases of the latter kind/ courts of equity will refuse to grant relief if the complainant has failed to bring suit for a comparatively short period after the denial of his rights became known to him, unless a'good excuse is offered for such delay; and they will more readily hold that the cause of action is barred by laches if it appears that the failure to sue was occasioned, in whole or in part, by a desire on the part .of the complainant to ascertain how development work in progress on the property would affect its value. Where delay is occasioned by motives of the latter sort, —that is, by waiting to see whether developments undertaken by those in possession will be successful or otherwise, — a litigant is justly chargeable with bad faith, which courts of chancery always aim to discourage. Oil Co. v. Marbury, 91 U. S. 587, 592, 593; Johnston v. Mining Co., 148 U. S. 370, 371, 13 Sup. Ct. 585; Clarke v. Hart, 6 H. L. Cas. 633, 656; Bush v. Sherman, 80 Ill. 175.

In the second place, the conveyance of the Utah claims to a corporation, and the issuance of a large quantity of stock representing their value, was an act which made it the duty of the plaintiffs to be prompt in asserting their rights, to protect third parties from loss and damage which they might possibly sustain by purchasing the stock. According to the averments of the bill, the defendant corporation, when it accepted a conveyance of the Sacramento and Excelsior claims, had no notice of the plaintiffs’ alleged interest therein, except such as wras imputable to it from the fact that Lakin became the president of the corporation and one of its directors. It is not averred that the persons to whom Lakin sold a one-half interest in the claims in the year 1894, and who subsequently conveyed their interest to the corporation and joined in its formation, were advised of the plaintiffs’ alleged interest at the date of either of said transactions, and, in the absence of such knowledge, it is obvious that they, as well as all other persons who may have acquired stock in the corporation by purchase from any of the original promoters, are entitled to full protection against the claims which are now asserted by the plaintiffs, and that they ought not to be subjected to the costs of litigation in defense of their rights. In addition to an accounting, the relief sought, as against the corporation, is that it be compelled to issue fully one-third of its capital stock to the plaintiffs, all of which stock was issued on the organization of the company at least one year before this suit was instituted, and the bill does not show that it is possible to afford such relief without injury to numerous third parties into whose hands the stock in question, or a large portion of it, may have passed during the period which elapsed before the bill was filed.

For the reasons stated, we are of opinion that the plaintiffs have been guilty of such negligence in the assertion of their.rights, in the light of known facts which should have inspired earlier action, that their bill ought not to be entertained by a court of equity. The decree below is accordingly affirmed.