Fred Macey Co. v. Macey

Grant, J.

(after stating the facts). 1. The ground of demurrer most strenuously urged is that complainant has an adequate remedy at law which bars the jurisdiction of the chancery court. It is claimed that to maintain this suit in equity deprives the defendant of his constitutional right to a trial by a jury. The learned counsel for the defendant say that (l) complainant, if sued at law by the defendant, can plead the fraud and invalidity of the contract as a defense, and (2) that he may now bring a suit at law to recover the amount appropriated by the defendant from the complainant. They have filed an able and exhaustive brief citing many authorities to sustain their contention.

Courts of law are not clothed with the sole power to try issues of fact. The jurisdiction of the court of chancery in this State to try cases and grant relief from the consequences of fraud is as old as the jurisprudence of the State. In the early case of Wheeler v. Clinton Canal Bank, Har. Ch. (Mich.) 449, the court, after holding that the complainant’s remedy at law was difficult and doubtful, said: “ Courts of chancery have also concurrent jurisdiction in cases of fraud.” See, also, Wales v. Newbould, 9 Mich. 45. The same principle runs through, many cases from that time to the late case of Edwards v. Investment Co., 132 Mich. 1, in which many authorities are cited.

Counsel recognize that this case is ruled by John Hancock Mut. Life-Ins. Co. v. Dick, 114 Mich. 337 (43 L. R. A. 566), and Mactavish v. Kent Circuit Judge, 122 Mich. 242, and therefore argue strenuously for the overruling of those cases. They insist that they are overruled by the later case of Northwestern Mut. Life-Ins. Co. v. Amos, 136 Mich. 210, and that the writer of that opinion failed to distinguish it from those cases. We may have failed in distinguishing them, but we were evidently of the opinion that we did distinguish them. At all events it is manifest that there was no intention to overrule the former cases, but, on the other hand, to approve them. Our attention is called to no case in which we have cast any doubt upon the correctness of those decisions.

The concurrent jurisdiction of courts of equity and of law where relief from fraud is asked, is too firmly established in the jurisprudence of this State to be now overruled. We deem it unnecessary to again travel over the ground and cite the many authorities upon the subject. We may, however, state that Barrows v. Doty, Har. Ch. (Mich.) 1, and Teft v. Stewart, 31 Mich. 367, and similar cases cited by defendant, have no application to this case.

In Barrows v. Doty complainant sought relief in chancery from a judgment in a suit at law on two promissory notes, where he might have set up the same facts as a defense upon which he claimed relief in his equity suit.

In Teft v. Stewart a decree for money alone was asked. Complainant asked no relief as to the instruments upon which the transaction was based.

Courts of chancery, not only in this jurisdiction but in others, are clothed with power to grant relief in the cancellation of instruments which, until their invalidity is determined, may annoy and harass one’s business and impair his credit. The language of New York, etc., R. Co. v. Schuyler, 17 N. Y. 592, is so applicable here that we quote it:

“There is no head of equity jurisdiction more firmly established than that which embraces the cancellation of instruments which are capable of a vexatious use after the means of defense at law may become impaired or lost, or when they are calculated to throw a cloud upon the title or' interest of the party - seeking relief. * * * Whatever their character, if they are capable of being used as a means of vexation and annoyance, if they throw a cloud upon the title or disturb the tranquil enjoyment of property, then it is against conscience and equity that they should be kept outstanding, and they ought to be canceled. These principles of general jurisprudence are believed to be decisive in favor of the right of this corporation to demand the cancellation of the false stock and to maintain a suit in equity for that purpose.”

The bill alleges the existence of an instrument, intended by the parties who made it to bind the corporation. Silence for a long time on the part of the corporation might endanger its rights.

It is undoubtedly true that complainant might bring a suit to recover the money which it alleges the defendant unlawfully took from its treasury. If in that suit the binding force of this contract upon the complainant were decided, the judgment would undoubtedly determine the rights of the parties for all time; but it is apparent, under the facts alleged in the bill, that that case might be disposed of without deciding the main question here sought to be litigated. The defendant might concede that the conditions had not, in fact, arisen which entitled him to the royalties, and therefore might repay the amount taken before trial. Or the court might dispose of the case on other grounds than the validity of the contract. However this may be, the concurrent remedy in equity lies. The bill alleges in substance that the three promoters of the complainant corporation, nominally subscribing for the entire stock, made a secret and burdensome contract which is claimed to be binding upon the corporation; that other officers and stockholders of the corporation knew nothing about it, but believed that the corporation was buying complete title to these patents, and that they took the entire property free from any burdens. ■ The main relief sought is not a decree for money, but relief from a continuing contract, claimed by defendant to be binding upon the complainant though it was not a party signatory to it. Under the allegations of the bill it will, unless declared inoperative as to the complainant, injure its business and impair its credit.

These promoters occupied a fiduciary relation to the complainant and the other stockholders. 2 Cook on Corporations (5th Ed.), § 651; Warren v. Holbrook, 95 Mich. 185. They were agents of the corporation, and will not be permitted to take a secret advantage of the other stockholders. Dickerman v. Trust Co., 176 U. S. 181.

The knowledge of this contract by the three promoters and subscribers to the capital stock did not bind the purchasers of the stock who had no knowledge thereof. The stock evidently was not sold as their individual property, but as the stock of the corporation, the proceeds of which were to be paid into the treasury as a working capital. The case is one with which a court of equity can most effectually and may most appropriately deal, and in one suit settle and determine all the questions affecting the rights of the parties.

We think it immaterial that the complainant has alleged this contract to be a cloud upon its business. We need not therefore discuss the question whether a bill will lie merely to remove a cloud upon one’s business. The bill does allege that the transaction was a fraud upon complainant and its stockholders who purchased without any knowledge of the transaction — and the facts upon which this fraud is based are stated. These allegations are sufficient to call for an answer and proofs; and the allegation that it is a cloud upon its business may be treated as surplusage.

2. Complainant’s cause of action is not under the bill barred by laches. It protested promptly after discovering the fraud, and entered into negotiations for a peaceable settlement, which failed. Under the bill there has been no such failure to assert rights or such lapse of time as will justify the court upon demurrer in holding the complainant guilty of laches. A similar question was raised in Compo v. Jackson Iron Co., 49 Mich. 39, where more than 35 years had elapsed since the making of the agreement which was the basis of the suit. The court held that “ lapse'of time alone will not necessarily operate as a disseisin in law or in equity, and the bill does not indicate any considerable delay since the company gave up negotiating, and denied her rights.”

3. Fraud may be consummated by suppression of facts and of the truth, as well as by open false assertions. Fraudulent concealment is a matter of equitable jurisdiction as well as fraudulent assertion. The point, therefore, that no fraudulent representations were made by the defendant to the complainant or its stockholders, is not well taken.

We deem it unnecessary to discuss the other questions presented by the demurrer. The decision of most of the questions may be controlled or affected by the proofs.

The decree is affirmed, with costs, and the case remanded for leave to answer in accordance with the rules, and practice of the court.

Blair, Montgomery, and Hooker, JJ., concurred with Grant, J.