# Larwill v. Burke

> Ohio Circuit Courts · January 15, 1900 · 19 Ohio C.C. 449

URL: https://www.frixlaw.com/law-library/cases/9289737

## Case

- **Full name:** JOHN C. LARWILL v. STEVENSON BURKE
- **Court:** Ohio Circuit Courts
- **Decided:** January 15, 1900
- **Citations:** 19 Ohio C.C. 449
- **Precedential status:** Published
- **Opinion:** Opinion of the court by Caldwell
- **Judges:** Caldwell, Hale, Marvin
- **Cited by:** 3 later opinions in the Frix Law Library

## Citator (automated)

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## Opinion text

Caldwell, J.
íhe plaintiff, John C. Larwill, brings this action against Stevenson Burke, Charles G. Hickox, as administrator of Charles Hickox,deceased, The Snow Pork & Cleveland Coal Company, W. D. Lee, Eli Hull and others; and in his amended petition he states for his cause of action that about the month of August, 1873,-The Snow Fork & Cleveland Coal Company was organized as a corporation under the laws of Ohio, for purchasing and holding mineral lands and mining and shipping coal and iron ores in the Hocking Valley in said state, That for this purpose it purchased the fee simple title to 5619.86 acres of valuable coal and iron ore lands situated in the Hocking Valley and on the line of the Columbus,Hocking Valley & Toledo Railway Company; that the capital stock of the company was 30,000 shares of $100 a share, and there was subscribed and paid up 27,849 shares, and no more.
The plaintiff "claims that he is the owner of 2,860 shares, fully paid up,of the capital stock of The Snow Fork & Cleveland Coal Company. He sets out the numbers of his certificates representing the shares that .he holds, and says that all of his certificates bear date of February, 24, 1874, ex *452 cept one which bears date of June 10, 1874.
On the 30th day of September, 1881, and for some years prior the defendants Burke, Lee, and Oharles Hickox, were directors and also comprised the executive committee of the Snow Fork and I mean by this, not that it has run against the legal action, but I mean to consider the matter as though the company never had any legal action, and the directors have instituted the only action that the company ever had. Then if the statute has run against that action, it is not important to determine whether the bar of the company’s action at law would be a bar to its action in equity. This being,true, we will consider, first, the question of whether the plea of the statute of limitations is good as against the action as instituted in this case.
It has been well settled in this state that the relation of the trustees to the corporation and the stockholders is one of trust and confidence, While the corporation owns the property, the directors deal with it as though they possessed it and owned it, and they are held accountable to the company and to the stockholders, as trustees, for the manner in which they deal with the property,
The question as to whether that trust relation is one denominated a continuing and subsisting trust, has never been decided by the supreme court of this state. It is a question upon which the authorities are greatly at variance. There are two schools: One holding that while the duties of the trustees are of a fiduciary character, yet there are so many elements that are contrary to the notions of a continuing and subsisting trust, that they refuse to denominate it as that kind of a trust. While there are other courts which hold that it is a continuing and subsisting trust.
*478 From all the decisions in this state upon the trust relation, we are inclined to hold, and do hold, that it almost necessarily follows that the trust relation is that of a fixed trust. It is not every continuing and subsisting trust that will not come under the statute of limitations.' If the trust is of a nature of a continuing and subsisting trust, and under the articles creating it, or the law creating it, there is given a legal action for the violation of the trust, then, although it is of this nature, the statute of limitations will run from the time that such legal action might have been brought.
Three things are necessary to constitute a trust which will not be subject to the bar of the statute: It must be, first, a direct trust; second, it must be of the kind belonging exclusively to the jurisdiction of a court of equity; and, third, the question must arise between the trustee and the cestui que trust.
Under the second head, it must be of the kind belonging exclusively to the jurisdiction of a court of equity. If any trust — no difference what its nature — does not belong exclusively to a court of equity, than it may be barred.
It is held in this state that an administrator occupies a position of trust and holds the funds of the estate in trust for the benefit of those to whom it is to go; and that in its nature is a continuing and subsisting trust.
But the law gives the ceótui que trust an action at law for a breach of duty on the part of the trustee, and hence the statute of limitations will run against that action at law.
This is equally true if an action in equity is given, especially in this state where all actions at law or in equity are simply civil actions.
It follows that if the plaintiff had a plain and adequate remedy at law or in equity which he might have brought at some particular time for any violation of duty on the part of the trustee,and did not bring that action until it was barred by the statute of limitations, he is cut off from any re-’ covery. And nearly all the courts seem to hold that the only continuing and subsisting trust that may not be barred is one where the cestui que trust has no cause of action that he can bring until such time as the trust is terminated fcy lapse of time.
*479 The weight of authority is that the corporation, or the stockolder for the corporation, has a right of action against the directors whenever they have done any act that is unwarranted by the law, or that is injurious to the property of the corporation, or that is ultra vires.
That being true, the right of action in this case accrued as early as December, 1881, and not being commenced until 1896, the statute of limitations has run and would bar the action,
Suppose that this is not true and that the relation of the directors to the corporation and to the stockholders is a continuing and subsisting trust, then it is true that if at any time the trustees have done any act to destroy the trust property,or to injure the cestui que trust, then a cause of action at once arises on behalf of the cestui que trust which must be prosecuted and against which the statute of limitations will run.
It is the bar to this action growing out of such a trust that bars the trust itself although, strictly speaking, the trust is not barred, but the wrongful execution of the trust or the destruction of the trust property, gives rise to a cause of action which may be barred.
In 1881, the company knew, under the allegations of the petition, that Burke and Hickox had received the money for which the Snow Fork lands were sold. The plaintiff knew it. He made his demands in December, 1881, upon Burke that he be let into the deal, and that he receive his proportion of the funds arising out of the deal.
He was denied, by Burke, any interest in the funds whatever. Not only was he denied, but he was told of an ad-. verse claim. Now it is claimed that this was not sufficient , to revoke the trust.
We believe it to be the law that when a trustee denies the trust to the cestui que trust and claims the trust prop- ' erty by a title independent of the trust and adversely to the claim of the beneficiary, the statute will run in his favor.
At that meeting in New York Burke told Larwill that he had no interest in the property. That was a denial of the trust. And Burke told Larwill that the property, represented by the stock of Wyeth, was in him and Hickox by a *480 title independent of the trust title,and that he was claiming the property adversely to him; and that was sufficient to give rise to a cause of action on the part of Larwill against Burke and Hickox, and which action,if not prosecuted within time, would be barred by the statute of limitations. This action was not commenced within any time required by the various sections of the statute of limitation after that interview, and it is, therefore, barred, and the plaintiff can not recover,
A great many authorities have been cited, showing when the statute will run against a continuing and subsisting trust, in the briefs of the counsel, as well as when it will not. Many of them have been reviewed in our former opinion in this case, and I will not refer to them.
The further consideration of the plaintiff's cause of action against Burke and Hickox we here leave until after we have determined the question between himself and Lee and Hull.
After the organization of the Snow Fork and Cleveland Coal Company in 1874, Lee commenced borrowing money from Larwill, or getting Larwill to discount his paper, with others as sureties thereon, and as these loans were made, Lee placed at different times on different loans a large amount of stock in the Snow Fork Company, belonging to himself and to others, and in this way Larwill became a sort of banker of Lee, and at various times he had large amoun ts of Lee’s and other parties’ notes in his possession to be discounted, and he continued to hold the Snow Fork Stock to be used as collateral whenever a loan was made, and they seemed to specify on the note in each case the amount of stock placed as collateral to that note, and when the notes would become due, Larwill attended to the renewal or he would pay the same off for Lee, often with Lee’s money. In this way we are satisfied that Larwill became possessed of large amounts of notes which had really been paid but never returned to Lee, and Lee so testifies.
This mode of business continued until perhaps 1877.
In April, 1877, Lee borrowed from Larwill $12,357, and he deposited for such loan, collateral 500 shares of his own stock in the Snow Fork Company, which stock Larwill already had in his possession and had held on a previous loan, and he deposited 400 shares of Hull’s stock in the *481 Snow Fork Company. That made 900 shares. Larwill had stock that had been pledged on a loan made by Mrs. Miller, of 550 shares of Lee’s stock in the same company. And Larwill held 300 shares; and on another loan Mrs. Miller held 250 shares, and also 150 shares. And on the Jones and Lee note of $^,000, this 150 shares was held. And as near as we can figure the matter out, Larwill and Mrs. Miller held, as collateral to their loans, 1,600 shares, The only account kept between Lee and Larwill as to these loans and payments made and stock put up, was kept by Lee. That was commenced about the 17th of April, 1877, at the making of the loan of |12,357. That was kept by Miller who is now dead. That seems to be the only account kept between them. There is evidence tending to show, and we believe does show, that Larwili as well as Lee had access to these books and from-time to time examined the account to see how it stood. The books of account only showed one settlement between Lee and Larwill of their financial transactions. That one is on the 10th of October, 1877, There was then, on th.at statement, found due to Larwill from Lee, the sum of 1373.85. Lee gave his check to Larwill to balance the account, and Larwill at that time agreed to return to Lee all his collateral stock in the Snow Fork Company held by him, and he said it was at his home and he would send it down.
After this settlement Lee and Larwill were involved in business of the Bessemer Company, thp Hocking Iron Company and the Buchtel Iron Company; and these companies being afterwards consolidated into the Standard Coal ¿Iron Company, and that company was afterwards reorganized.
Lee was in the east most of the time, and Larwill was at home still acting as a sort of broker or banker for Lee, if-he was not personally interested with Lee in their dealings. And the result of all those dealings was that the Standard Company finally went into the hands of a receiver, and its business was wound up through the courts
About the year 1883, the company undertook to reorganize and compromise with its creditors. It was then found that the acceptances cashed for Lee and Brooks by *482 Larwill, of which there was still outstanding and paid by Larwill $145,000.
They then made an agreement of settlement wherein J. Henry Brooks and W. D. Lee, of Newark, Ohio, acknowledged their indebtedness to Larwill in the sum of $145,000, exclusive of interest, which was paid in transactions of said Lee and Brooks, and fpr them by Larwill, and that it all related to the properties owned and held by the Standard Coal &. Iron Company, Then it recited that Larwill held two judgments against Lee: one in Richland county, and one in Delaware county, each for about $10,000 and some interest. And the contract recites that it was for the interest of Lee that Larwill should join the other creditors of the Standard Coal Company in the contract then being made by them with D. N. Stanton and Thomas F. Mason of New York, whereby it was proposed that such creditors shall accept the first mortgage bonds of the Standard Coal & Iron Company in payment for their claims against said Lee and Brooks growing out of the transactions whereby the properties of said company were acquired; and Brooks and Lee turned over to Larwill their entire claim against the said Iron Company. Larwill became one of its creditors. . The consideration was the cancellation of all the debts that Lee and Brooks, or Lee, owed to Larwill, including the judgments referred to
It was provided that the judgments should continue to remain a lien upon the property as a further security; and when any part of them was collected under such lien, a prorata amount of the Donds was to be given over to Lee by Larwill.
Lee testifies that this was a complete settlement of all matters and things between him aud Larwill, and the contract would seem to warrant such a conclusion. And we find it a fact in this case that that settlement did adjust all matters between Lee and Larwill,
But it is said that although this claim that was due from the Iron Company to Lee and Brooks was turned over to Larwill and he accepted the same and must have signed the composition agreement that was entered into by the creditors of the company, yet he says now, because he did not get the bonds that he was to have, that the claim turned over to him *483 will not act as a payment any further than he received money upon it. In other words, his claim is that the contract was never completed; that there was never a delivery under it, and he gives Lee credit for $25,000 that he got from the receiver of the company when the affairs of the company were closed up, and he claims the balance is due him.
But as we read this contract of agreement, what Lee and Brooks turned over to him was their account against the Iron Company. That was delivered and accepted by Larwill. And what Larwill was to do thereafter, and what he agreed to do thereafter, after that settlement was completed, was that he would scale with other creditors and accept the bonds of the Iron Company in place of his claim.
If this view of this matter is the correct one, which we believe it is, then the contract was all completed at the time that the accounts of Lee and Brooks against the Iron Company was turned over to Larwill, and all that remained to be done in regard to that matter was something that Larwill was to do himself and had agreed to do, not as a part of the transaction as warranted by Lee, but simply a part that he was to do as a creditor of the company.
Then, too, Larwill never repudiated the matter in any manner whatever. He held on to these claims, presented them and received his percentage upon them.
We find that this contract of agreement settled all matters between Lee and Larwill, and that any stock that Larwill had received from Lee should then have been returned to Lee, and that includes the stocks in controversy between them in this suit, and Larwill is not the owner of any stock that was issued to Lee.
Hull loaned Lee 400 shares of stock which Lee put up as collateral on a loan made to him from Larwill. This loan parties now agree was afterwards paid,and Larwill repeatedly promised Hull that he would return the stock to Lee that Lee might return it to Hull. This stock never was returned to Hull, nor was it ever returned to Lee by Larwill, and it is a part of the stock now in controversy between Larwill and Hull, and the stock belongs to Hull,and not to Larwill.
I refer now to the question of the trust as set up in the petition and the cross-petitions.
*484 This action is really not brought on behalf of the company, but it brought by the plaintiff and Lee and Hull to recover their proportion of the money realized from the lands of the Snow Fork & Cleveland Coal Company.
The first amended petition set up the fact that all the stockholders but Larwill had been paid their proportion of this fund, and that he had not been paid, and asked that Burke and Hickox be required to account to him for his proportion of the fund. That averment was omitted in the second amended petition; and it, therefore, became necessary to take testimony upon that question, and the testimony amounts to this: Burke and Hickox received that amount of money going to the stockholders of the Snow Fork Company, computing the sale at $150 an acre. So much of the stock belonging to Lee éfnd Hull and Nutter and Mahollan and others had been pledged at different places as collateral security, and it being uncertain just what stock was owned as represented on the books of the company, they undertook in paying off the different stockholders, to require the stockholders to turn in their stock to Burke and Hickox so that they might have the certificates of stock and a full receipt from the person who was the stockholder by the books of the company. But this was only a method of paying off the stockholders, and was evidently done in order to avoid paying those who were not entitled to the money; and, in this way, they got in all the stock of the company where there was no question as to the title of the stock and no question as to who was entitled to the money. And it proceeded as though Burke and Hickox were buying the stock, which was not. in fact,- or substance, a purchase of the stock; for they did not purchase at any market valúe that it would have, but they purchased at the value that- it would have under the division of the fund at $150 an acre for the land.
That left outstanding as unpaid, simply the stock of Wyeth, of Lee and Hull, of Nutter, Mahollan,and,perhaps, one or two others.
We feel, therefore, justified in bolding that the stockholders have all been settled with except Lee and Hull and Larwill and Nutter and one or two others, the ownership of whose stock was in dispute.
*485 The directors, Burke and Hickox, received this money, $150 an acre, for the Snow Fork lands, not for themselves, but for the company, and they so treated it as the company’s money,and paid it out to those who were entitled to it, and now stand ready to pay to any others who may establish a clear title to their stock; if not barred.
This action, then, amounts to nothing more than a suit on behalf of Larwill and Lee and Hull to recover their proportion of the money for the Snow Fork lands sold, and, in addition to that, establishing in equity or by means of an equitable action their title to the stock,
There was no formal proceeding taken by the corporation to declare a dividend of the amount of money realized for the lands, nor to settle the amounts paid out by the trustee for debts and obligations existing against the company, But this action must have been taken by the' directors who held this money for the company and never held it adversely to the company, but in all they did recognized themselves as holding it and paying it out for the company so far as it has been paid. And the fact of distribution of the proceeds of the land among all the stockholders except those whose stock is in dispute, is equivalent to declaring a dividend subject only to any deductions that may be made from the full amount realized at $150 per acre for any obligations standing against the company. It is equivalent to a dividend declared; and a dividend, while usually applied to the distribution of the profits among the stockholders, is equally applicable to a distribution of a part or the whole of the capital of the company. And the plaintiff, had he had his rights to the stock settled and determined before bringing the action for his money,might have sued Burke and Hickox for his proportion the same as any stockholder can sue the company for his proportion of the assets to be distributed, and he would have had a right, in bringing such action and prosecuting it, to have treated Burke and Hickox as holding the money,for the purpose of paying what was due upon the stock in question, If he had this right of action at law or in equity under the statutes of Ohio wherein the limitations apply to every civil action, the statute of limitations would apply to an action of that cháracter.
As long as Burke and Hickox were paying out this money *486 lawfully to the persons to whom it belonged, it would be useless for the company to claim the money from them, for after receiving it, it would call upon them to distribute the same, and the mere formality on páying it over to the company or to the treasurer of the company, and they paying out the same by way of dividends would be a mere difference in form, and not in substance.
Notwithstanding this right on behalf of the claimants now in court upon this fund, if they had commenced in time to prosecute their action, we are not prepared to say that they might-not have prosecuted it against Burke and Hickox as trustees holding this money in trust for them. All we intend to say is, that they, having a right of action to obtain the money by civil action and the statute having run against that civil action before this suit was commenced, the statute would be a bar.
And even if this is not so, and the trust governing the relation between them is of the nature claimed, still when all right of recovery was denied to Larwill, and when it was denied to him that he had any right or interest in this fund whatever,or that he was a stockholder in the company, there was such a revoking of the trust that the statute would then commence to run, and he could not recover.
If what was done by Burke and Hickox by way of paying the stockholders of the Snow Fork Company, was equivalent to declaring a dividend, then the amount of that dividend going to Larwill was due and payable as soon as he was denibd any interest in the fund, when he was told tha he was not a cestui que trust, and his right of action to recover the same was due and accrued when he claimed his interest in the fund and was denied the same; or, in other words, when he claimed his share of the dividend and was told that he had no interest in the fund whatever.
Hull and Lee never made any demand upon the company, nor upon Burke and Hickox for their proportion of the fund in litigation. And it is a rule of law that until there has been a demand and a refusal, there is no running of the statute of limitations; that the declaration of a dividend creates a debt of the corporation in favor of the stockholders, and that is a debt payable only on demand, and, until there has been a demand, there is nothing due. They never *487 having made any demand until the bringing of this action, which may be treated as a demand, the statute, as to them, has not run
It is, claimed that the plaintiff can have no • standing in court to bring this action because he is not a stockholder of record, He held certificates of stock endorsed in blank to him, which would give him the right to present them and have certificates of stock issued to him and thus become a stockholder of record if his'certificates had not all been in dispute by other parties.
The plaintiff claims, on the other hand, that all he needs to bring this action is to be an equitable owner of stock. That he claimed to be when he brought the action.
There are many decisions both ways upon his question. But when we take into consideration the provisions of opr code, that the real party in interest must bring the suit, and that in whatever form the party’,s title may be, if he has an interest, the code undertakes to provide a way in which he may protect that interest, we are in harmony with the provisions of the code in holding with the courts that say that he is entitled to bring the action.
The question that I left undecided as to whether a stockholder’s action,brought on behalf of the company,is barred if the company would be barred from bringing the action, is not material, inasmuch as we find the company had no action to bring, and' the stockholders had an action and a right to bring it strictly against the directors for their proportion of the fund in the hands of Burke and Hickox, for division. They (Burke and Hickox), acted as the company, and may be so treated.
It was proper to bring the action against Burke and Hickox and also against the company as the prime mover in making a distribution among the stockholders of the assets of the company,as the company and directors iq doing that, acted simply as the agents of the corporation, or as the corporation. But, as we have already said, whether the company does it by resolutions and by board meetings, or the stockholders who were in control as directors of the company, it is simply a difference in form, but not in substance.
Nutter is not máde a party to this action, and gs to any stock and any question that may exist between him and Larwill, we cannot adjudicate.
Henderon & Quail-, Dickey, Brewer & McGowan, for Plaintiff.
Burke & Ingersolls, II. H. Poppleton, for Defendants.
There are other minor questions involved in the pleadings, upon which there is no contest and which we leave to be determined in the decree, according to the present understanding and arrangement of the parties between themselves.
It seems that Mahollan holds stock in the company, and that he is indebted of Burke and Hickox, and that some arrangement has been made beween them for the adjustment of that matter, if it has not already been adjusted between them.
The decree in this case may be drawn according to the counclusions we have reached in this opinion.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9289737. Public record. Not legal advice.