Fred Macey Co. v. Macey
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Opinion of the Court
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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 de *150 fendant 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 sim *151 ilar 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 *152 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 *153 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.
*154 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.
Concurrence
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Hooker, J.
I concur in the opinion of my Brother Grant in this cause.
My understanding of the bill is, that it alleges that the defendant and two former partners, conducting a business, desired to increase the capital employed, and did so. by selling preferred stock in a copartnership association, limited. That in selling the stock, of which a large amount was marketed, they made representations at variance with' a secret contract, made between themselves,, under which the defendant has since claimed, and appropriated royalties, upon the goods manufactured. It is. charged, that being treasurer of the company, he has paid himself alleged royalties, to the amount of $10,000 and more, and that he claims that said contract is a valid and subsisting obligation, under and by virtue of which he may hereafter become entitled to royalties upon future business of the concern. The bill prays a cancellation upon the ground of fraud. The defendant demurred, and. has appealed from an order overruling the demurrer.
The contention of the defendant’s counsel rests upon the proposition, that the complainant has a right to sue for the money heretofore appropriated, in a court of law, and that the decision in that case will settle the questions raised by the bill. I am of the opinion that the well-settled rule in chancery, throughout the country, is that it. has jurisdiction in all cases of fraud, where the complainant is entitled to relief specifically equitable, and that it does not in all cases depend upon an absence of legal remedy. Inasmuch as the question has been settled in this State, there is no occasion to cite cases from other courts. In the case of John Hancock Mut. Life-Ins. Co. v. Dick, *155 114 Mich. 337 (43 L. R. A. 566), the doctrine was adhered to that an insurance policy, obtained by fraud, might be the subject of a bill to cancel, notwithstanding the fact that the company might successfully defend an action upon the policy upon the ground of fraud. In that case an action at law had been commenced and was restrained. It was shown that a different rule in the Federal courts rests upon a statute, and the cáse of Teft v. Stewart, 31 Mich. 367 , cited and quoted from in the opinion of my Brother Grant, was commented upon. The complainant in that case made two points: (1) That courts of equity and of law have concurrent jurisdiction in cases of fraud. (2) That the former may grant more complete relief, where an instrument is fraudulently obtained, by compelling cancellation, or surrender, and other equitable relief.
The case of John Hancock Mut. Life-Ins. Co. v. Dick was followed in a later case, viz., Mactavish v. Kent Circuit Judge, 122 Mich. 242. It was very similar in its facts to John Hancock Mut. Life-Ins. Co. v. Dick , so much so that the opinion said that “the principal effort of counsel appears to be directed toward inducing us to overrule the case of John Hancock Mut. Life-Ins. Co. v. Dick , etc.” We placed our decision plainly upon the ground, that where one has obtained an executory writing by fraud, equity has jurisdiction to cancel it, and that such jurisdiction is not affected by any legal redress that might be obtained in an action at law whether it had been already commenced or not. ' We said:
“ The question there was not whether it was a hardship upon the plaintiff to be compelled to try the question of fraud in equity, rather than before a jury, but — First, whether equity has jurisdiction to cancel a contract obtained by fraud; and, second, whether such jurisdiction is cut off by the institution of á prior action at law upon the writing. There is but one answer to these questions. The jurisdiction of equity for cancellation is well settled, and courts cannot curtail such jurisdiction because the same evidence that would justify a decree of cancellation *156 may constitute a defense to an action upon the instrument. The authority to restrain the pending action at law is based upon the equitable jurisdiction to prevent a multiplicity of suits, and this is as well established as any other jurisdiction of equity. Then, the fraternal society had a right to sue in equity, and the court must entertain the suit. It might or might not restrain the beneficiary from prosecuting the pending action at law. That was a matter for the discretion of that court, and not for us. These propositions are elementary, and, as shown in John Hancock Mut. Life-Ins. Co. v. Dick , are fortified by authorities. The briefs in this case furnish additional support to the claim of respondent.
“ It is urged that the circuit court for the county of Bay first obtained jurisdiction, and that no other court could deprive it of such jurisdiction, or itself take jurisdiction of this controversy. What force there is in this contention applies to cases where two courts have concurrent jurisdiction. These courts have not concurrent jurisdiction, for the court of law has no power to cancel, as was shown in the case of John Hancock Mut. Life-Ins. Co. v. Dick , which is a case upon all fours with the present. * * *
‘ ‘ This attack upon a well-settled chancery jurisdiction has-as a foundation the proposition that a person claiming under an insurance policy has a right to try the question of fraud before a jury, and therefore equity should in all cases permit the case to be tried by jury. But counsel does not stop there; he would have us go further, and hold that a chancellor has no discretion, but must yield his own jurisdiction in all such cases, and that, if he does not, we will compel it. There, would be no more propriety in our curtailing equity jurisdiction than there would be in denying some legal jurisdiction. But suppose we were to do so, and hold that equity could not restrain the prosecution of an action of this sort; what should we do where the suit.for cancellation is begun first? Will the next step be the contention that we should deny the jurisdiction of chancery in such a case, because we may think the right to make a legal defense is remedy enough ? If so, and we yield to it, all concurrent jurisdiction would be taken from equity; and not only that, but the same would be true in all cases where, as in this case, equity has jurisdiction to give greater relief than a court of law can do. The right to equitable procedure and relief would not then depend upon established rules, but upon the ques *157 tion whether the complainant ought to be satisfied with some lesser relief, which, in the opinion of an appellate court, would, or could be made to, answer his purpose. We understand that equitable rights are as sacred and as well guarded by the Constitution as the right of trial by jury, and we see neither the occasion nor the opportunity to increase the latter at the expense of the former.”
These two decisions do not leave the question in doubt. They clearly sustain inviolate, the jurisdiction of equity, where the equitable right to cancellation exists, and refuse to permit it to be swept aside upon the insistence of interested parties, that their preference and not that of the complainants be allowed to prevail. These cases were, however, questioned again in the case of Edwards v. Investment Co., 132 Mich. 1 , where they were approved, Mr. Justice MOORE'writing the opinion.
The case of Northwestern Mut. Life-Ins. Co. v. Amos, 136 Mich. 210 , was a case of a bill filed to cancel a policy, upon the ground that it was fraudulently stamped, either by the instigation of the beneficiary, or the representative of the assured. A demurrer was sustained to the bill, three of five judges being of the opinion that the bill did not allege fraud. The majority opinion said, after citing the Dick, Mactavish, and Edwards Cases, that:
“ Those cases have no application here. The basis of the equity jurisdiction there sustained was fraud — active fraud in the procurement of the policies, of the renewals thereof, after they had lapsed. The sole question in this case is one of fact, viz.: Were the policies delivered and the premiums paid, or their payment waived ? The doctrine in the Dick Case will not be extended to include cases of this character, where the questions involved are purely legal, no fraud is charged, and there is no possible reason for the interposition of a court of equity.”
It is obvious that those cases were not overruled. A dissenting opinion was filed in this case, indicating a contrary view of the question, of whether the bill stated a charge of fraud, and collecting the authorities applicable *158 to the question of jurisdiction. The following language is pertinent here, especially as we do not understand that it was questioned in that case except as to the premises assumed:
“ Under such allegations chancery has jurisdiction and it does not depend upon what the proofs may show. The bill states a case of fraud, and jurisdiction must depend upon that. This question arises upon demurrer, whereby the allegations of the bill are admitted. Edwards v. Investment Co., 132 Mich. 1 . It is possible that a hearing upon the merits may show these allegations to be unsupported by the evidence, as was the final result in John Hancock Mut. Life-Ins. Co. v. Dick .
“ If there is jurisdiction in equity on the ground of cancellation, it is not limited to cases where a defense might not be made in a court of law. * * *
“ The remedy is a concurrent one, and to hold that it depends upon the inadequacy of the legal remedy, is to abridge the equity jurisdiction, which our Constitution and laws guarantee, as unqualifiedly and effectively as they do legal remedies, and the right to trial by jury, as we held in John Hancock Mut. Life-Ins. Co. v. Dick, supra. The court should as carefully guard and protect this jurisdiction as any other.”
The case of Mack v. Village of Frankfort, 123 Mich. 421 , again discussed the Dick Case, and distinguished it. It was not a cancellation case, and while all concurred in sustaining the demurrer, but two of the members of the court assented to the opinion filed.
Another case written by Mr. Justice Moore is Edwards v. Investment Co., 132 Mich. 5 . That was a case of a fraudulent contract. Undoubtedly an action at law would have been proper, and perhaps in a sense adequate, certainly as nearly adequate as in the present case. But the concurrent jurisdiction was sustained as follows:
“ The second important ground for demurrer is that complainant has a complete and adequate remedy at law; counsel citing,among others, the two cases mentioned above. [Rehberg v. Surety Co., 131 Mich. 135 , and Barney v. Surety Co., 131 Mich. 192 .] It is not always true that, because a remedy might be pursued upon the law side of *159 the court, the chancery side may not also have jurisdiction. The bill alleges that complainant’s money was obtained from her by means of fraud; that defendants conspired together, and were parties to the fraud; that a large business was done by the corporation; that it is insolvent ; that defendants have converted the money taken in by the corporation, including the complainant’s money, to their own use; that dn accounting is necessary, and an examination of the books of the corporation. If the case stated in the bill is true — and it must, on demurrer, be deemed to be true — under the repeated decisions of this court the chancery side of the court has jurisdiction. Wheeler v. Clinton Canal Bank, Har. Ch. (Mich.) 449; Wallace v. Harris, 32 Mich. 380 ; Wyckoff v. Machine Co., 43 Mich. 309 ; Tompkins v. Hollister, 60 Mich. 470 ; Sherman v. Stove Co., 85 Mich. 169 ; Cogswell v. Mitts, 90 Mich. 353 ; Warren v. Holbrook, 95 Mich. 185 ; John Hancock Mut. Life-Ins. Co. v. Dick, 114 Mich. 337 (43 L. R. A.566); Blodgett v. Foster, 114 Mich. 688 ; Lieberman v. Sloman, 118 Mich. 355 ; Mactavish v. Kent Circuit Judge, 122 Mich. 242 ; Noble v. Grandin, 125 Mich. 383 .”
It must be apparent that we are “threshing old straw” in a further discussion of this question. We will, however, refer to some of the earlier cases which vindicate the jurisdiction of equity, in those classes of cases clearly within the several branches of equity jurisdiction, where there is an equitable right involved, whether there may or may not also be a legal remedy, which we may think practically adequate. There are many such cases. Suit upon a note might be - an adequate remedy, yet it is no reason for denying a foreclosure of a mortgage or suit to enforce a lien securing it. As in the Edwards Case an action for damages is many times adequate to enforce a right growing out of a fraud. And a suit for money had and received might answer every purpose, yet circumstances may justify an accounting or an injunction. In Wheeler v. Clinton Canal Bank, Har. Ch. (Mich.) 457, it was said, “Courts of chancery have also concurrent jurisdiction in cases of fraud.” In Wales v. Newbould, 9 Mich. 45 , a bill to restrain a pending suit at law, on a *160 promissory note, and for the surrender of the same and other personal property for fraud, was demurred to, upon the ground that complainant had an adequate remedy at law. The court held that notwithstanding the remedy at law was adequate, as respected the personal property, the bill for surrender would be sustained, and that as to the note, the remedy was not adequate, because complainant was entitled also to have the note surrendered, and not simply to defeat the action. In Wright v. Hake, 38 Mich. 525 , a bill was filed to restrain an action at law on a replevin bond, on the ground of fraud. . The court sustained the jurisdiction, Judge Cooley saying:
“We have only to notice further the objection taken to the remedy in equity. It is urged in defense that the equities here insisted upon were available to the parties at law, and might have been relied upon in defense to the suit on the bond. This may be true, but it does not follow that equity could not take jurisdiction of the case. Equity has general jurisdiction in cases of fraud, and sureties have often been relieved under circumstances analogous to the present.”
In Wyckoff v. Machine Co., 43 Mich. 309 :
“It is objected that complainant had ample.remedy at law; and this is probably true. There has nevertheless always been a concurrent remedy in equity in cases of fraud; Wheeler v. Clinton Canal Bank, Har. Ch. (Mich.) 449; Edsell v. Briggs, 20 Mich. 433 ; and as equity in this case could require the surrender of the agreement and the machines on just terms, its remedies would be more complete and ample than any which a court of law could afford.”
In Tompkins v. Hollister, 60 Mich. 479 , Morse, J., wrote:
“ And it makes no difference that she may have an adequate remedy at law. Equity has concurrent jurisdiction in cases of fraud, and she can enforce her rights in this suit.”
In Brown v. Kalamazoo Circuit Judge, 75 Mich. 274 (5 L. R. A. 226), a question of fact was decided by a *161 jury, by direction of the judge in a chancery cause, under a then recent statute. This court said:
“The cognizance of equitable questions belongs to the judiciary as a part of the judicial power, and under our Constitution must remain vested where it always has been vested heretofore.”
Sherman v. Stove Co., 85 Mich. 169 , was a bill to cancel a subscription. The objection that there was an adequate remedy at law was overruled. In Cogswell v. Mitts, 90 Mich. 355 , Montgomery, J., said:
“It is contended, however, that jurisdiction in equity to cancel a writing does not exist if it appear that the complainant has a complete remedy at law, except in cases where fraud is shown. But we think the evidence in this case shows that there was an actual fraud.”
That was a bill to cancel a promissory note. Obviously the fraud could have been shown as a defense at law. Chicago, etc., R. Co. v. Miller, 91 Mich. 166 . In Warren v. Holbrook, 95 Mich. 185 , Grant, J., said:
“ It is first contended that complainant’s remedy at law is adequate and complete, and that, therefore, this bill cannot be maintained. Complainant might have maintained an action at law, and either attached or garnished the fund- in the hands of Sweet. It requires no citation of authorities, however, to show that courts of equity have in many cases concurrent jurisdiction with courts of law. The general rule is that courts of equity have jurisdiction to compel an accounting where fiduciary relations exist, or fraud is charged. * * * In such case choice of remedies is with the party aggrieved, and he may proceed in equity for an accounting, and pursue the fund.”
See, also, Wallace v. Harris, 32 Mich. 380, 389 , where it is said:
“ When the cause is only colorably one for partition, and the true end and purpose is evidently to obtain a determination of rights respecting title and possession which are purely legal, and no matters appear to create obstacles to a. full, fair and final disposal of the controversy in a court of common law, there is solid ground for claiming *162 that the litigation ought to be carried on in such a tribunal. But the reason for remitting the investigation to a common law court is one of policy and fitness, rather than of any inherent want of power in a court of equity; and hence, if chancery decides, and there is no reversal in a proceeding directed to that end, the result is not void, but must stand and be respected.”
It is not too much'to say that these cases show that there is a concurrent remedy in cases of fraud, where there is an equitable right. It would not be much of a “ concurrent remedy ” which would be allowed only when there was no other. In view of these cases and the more recent ones of John Hancock Mut. Life-Ins. Co. v. Dick, Mactavish v. Kent Circuit Judge , and those in which they have been distinguished, and not in any way disapproved, the right of the complainant to this remedy should not be denied.
The cases relied on by counsel for the defendant are Left v. Stewart which was cited and distinguished in the Dick Case; Mack v. Village of Frankfort , the opinion in which did not meet the approval of a majority of the court; and some Federal cases, which, as shown in the Dick Case, involve a Federal statute which has no bearing here. The decree of the learned circuit judge should be affirmed.
McAlvay and Montgomery, JJ., concurred with Hooker, J.
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