In Wright v. Lake, 178 Ark. 1184, 13 S.W.2d 826, it was said: "It is well settled in this State that where there has been a fraudulent concealment of a cause of action, the statute of limitations does not begin to run until after the fraud is discovered."Summary of this case from McCoy v. Lockridge
Opinion delivered February 18, 1929.
1. PLEADING — PRESUMPTION. — Every reasonable intendment and presumption must be made in favor of a pleading, and a complaint will not be set aside on demurrer unless it be so fatally defective that, taking all the facts to be admitted, the court can say that they furnish no cause of action. 2. LIMITATION OF ACTIONS — FRAUDULENT CONCEALMENT. — Where there has been a fraudulent concealment of a cause of action, the statute of limitations does not begin to run until the fraud is discovered. 3. PARTNERSHIP — JURISDICTION AT LAW. — Plaintiff could maintain an action at law against a former partner to recover items fraudulently withheld in a settlement of the partnership, since the former partnership was in no way concerned. 4. ACTION — DEFENSES. — A defendant sued at law must make all the defenses he has, both legal and equitable. 5. TRIAL — RIGHT TO TRANSFER TO EQUITY. — Where any of the defenses made in an action at law are exclusively cognizable in equity, defendant is entitled to a transfer to equity.
Appeal from Union Circuit Court, Second Division; W. A. Speer, Judge; reversed.
M. A. Matlock and J. R. Wilson, for appellant.
Mahony, Yocum Saye, for appellee.
STATEMENT OF FACTS.
J. Byrd Wright and Paul Hanry brought separate actions in the circuit court against P. G. Lake to recover several items which, it is alleged, he fraudulently withheld in settling with each of them for three different years of the earnings of a partnership. In each case the circuit court sustained the demurrer of the defendant to the complaint, and dismissed the complaint at the cost of the plaintiff. Each plaintiff duly prosecuted an appeal to this court, and, by consent of the parties, the appeals were consolidated, because the issues in each case were the same. On that account it will only be necessary to abstract the complaint in one case. In the case of J. Byrd Wright against P. G. Lake the amendment to the complaint alleges that P. G. Lake was the principal stockholder and general manager of the Star Clothing House, which is a partnership in which P. G. Lake and Mrs. P. G. Lake had the principal interest, and J. Byrd Wright and P. E. Hanry also had an interest. Continuing, the complaint reads as follows:
"The book distribution of the earnings of the partnership for the year 1922, among other things, shows a distribution to the plaintiff's earnings in the sum of $1,187.17, and the actual distribution should have been $2,103.40, showing earnings on the stock of plaintiff in the sum of $916.23 more than was paid him. This was information which the defendant, P. G. Lake, had, but said information was concealed by the defendant for the purpose of avoiding the payment of said $916.23 which was due the plaintiff from the earnings of said company for the year 1922. A certified copy of the partnership return for the year 1922 is attached hereto and made a part hereof. During the year 1923 the earnings of the Star Clothing House were $1,374.73 on the stock of the plaintiff, and the defendant, P. G. Lake, paid to said J. Byrd Wright the sum of $936.60, and appropriated to his own use the additional sum of $435.13, which should have been paid to the said J. Byrd Wright as part of the earnings of his stock for the year 1923. A certified copy of the partnership return for the year 1923 is hereto attached, marked Exhibit C and made a part hereof. The return of the Star Clothing House on the earnings of stock of the plaintiff for the year 1924 shows the sum of $951.90, and the amount received by said J. Byrd Wright was $884.48, leaving a balance of $67.42, which was appropriated by the defendant, P. G. Lake, to his own use, and not paid over to the plaintiff. A certified copy of the partnership return for the year 1924 is hereto attached, marked Exhibit D, and made a part hereof."
The complaint then alleges that the plaintiff left the partnership in 1925, and on October 1, 1926, he received notice from the United States Revenue Department advising him that he owed the Government additional income for the year 1922. The plaintiff alleges that it had no means of ascertaining what the partnership earnings were, and relied upon the annual settlements made with him by the defendant, P. G. Lake. Continuing, the plaintiff alleges:
"The concealment practiced by the defendant constituted a fraud on the rights of this plaintiff, and this fraud was not discovered by the plaintiff until the first of October, 1926, and the plaintiff had no way of ascertaining the facts as to what was due him from the earnings on his stock in the Star Clothing House, and relied implicitly upon P. G. Lake, the manager, believing all the time that the amounts that were due this plaintiff for the years above mentioned, and this plaintiff, as soon as he discovered the fraud that had been practiced on him, immediately took steps to ascertain what was due him, and make collection of same."
The prayer of the complaint is for judgment for the several specified sums.
(after stating the facts). The court sustained a demurrer to the complaint in each case, and rendered judgment accordingly. The allegations of the complaint are the same, except as to the amounts due, and the demurrer confesses them to be true. Contrary to the common-law rule, under our Code every possible intendment and presumption is to be made in favor of a pleading, and a complaint will not be set aside on demurrer unless it be so fatally defective that, taking all the facts to be admitted, the court can say that they furnish no cause of action whatever. Sharp v. Drainage District No. 7, 164 Ark. 306, 261 S.W. 923, and Penix v. Shaddox, 169 Ark. 132, 273 S.W. 364.
Counsel for the defendant first seek to uphold the judgment of the circuit court on the ground that the cause of action is barred by the statute of limitations. We do not agree with counsel in this contention. According to the allegations of the complaint in each case, the defendant concealed from the plaintiff the withholding of certain part of the earnings of the partnership for the three years set out in the complaint. It is alleged that the plaintiff had no voice in the management of the business, and did not actively assist in carrying it on. On the contrary, it is alleged that the defendant Lake was the actual manager of the business, and fraudulently concealed from the plaintiff that he had failed to pay him a part of his earnings for the three years specified in the complaint and that he had converted same to his own use. It is further alleged that notice of the fraud was not acquired by the plaintiff until October 1, 1926. The original complaint was filed on the 8th day of April, 1927, and summons was served on the defendant on the 9th day of April, 1927. The amendment to the complaint was filed on May 26, 1928. Therefore the cause of action is not barred by the statute of limitations. It is well settled in this State that, where there has been a fraudulent concealment of the cause of action, the statute of limitations does not begin to run until the fraud is discovered. Conditt v. Holden, 92 Ark. 618, 123 S.W. 765; Dilley v. Simmons National Bank, 108 Ark. 342, 158 S.W. 141; Meier v. Hart, 143 Ark. 539, 220 S.W. 819; Greer v. Craig, 165 Ark. 209, 263 S.W. 400; and Valley Planting Co. v. Currie, 173 Ark. 862, 293 S.W. 746.
Counsel for the defendant also seek to uphold the judgment of the circuit court in sustaining the demurrer to the complaint under the well-settled rule that, in a suit for accounting and settlement of partnership affairs, the jurisdiction of equity is practically exclusive. Short v. Thompson, 170 Ark. 931, 282 S.W. 14; Tankersley v. Patterson, 176 Ark. 1013, 5 S.W.2d 309. The reason is that equity has almost exclusive jurisdiction in suits between partners where an accounting is necessary of some equitable relief required, such as opening up a settlement for the purpose of adjusting the accounts between the partners.
There are certain exceptions, however, to the general rule. In the instant case the partnership had been dissolved, and the plaintiff in each case had sold out his interest to the defendant Lake. The wrong complained of does not involve a readjustment of the partnership business or accounts. The contract of dissolution stands, and the partnership relation no longer exists. The ground of action is in no way connected with the state of the partnership business, except that the defendant is alleged to have withheld from the plaintiff a part of the profits for three different years and to have converted the same to his own use. A certain specified and definite amount is alleged to have been withheld by the defendant for three different years, and to have been fraudulently converted to his own use. The alleged fraud and deceit is not asked to be a ground for setting aside the settlement between the partners or for reforming the accounts. The right of the action in this case is the alleged tort of Lake in fraudulently withholding from the plaintiff in each case a certain part of the profits of the partnership for three different years, and converting the same to his own use. The former partnership between the parties is in no way concerned, and there is nothing in the former partnership relation which prevents the maintenance of this action for the alleged deceit. Crockett v. Burleson 60 W. Va. 252, 54 S.E. 341, 6 L.R.A. (N.S.) 263; Russell v. Grimes, 46 Mo. 410; French v. Mulholland, 218 Mich. 248, 187 N.W. 254, 21 A.L.R. 1, and case-note at 97; and Farnsworth v. Whitney, 74 Me. 370, where fraud was alleged in the settlement of partnership affairs, which case held that the defrauded partner could bring an action on the case for deceit.
This principle was recognized and approved by this court in Hamilton v. McGill, 152 Ark. 587, 239 S.W. 721, and Phillips v. Mantle, 136 Ark. 338, 206 S.W. 660. The reason is that no reopening or readjustment of the partnership accounts is necessary in such a case, and the plaintiff, having affirmed the dissolution of the partnership except as to the fraud alleged to have been practiced upon him, has a remedy at law for the alleged fraud and deceit.
It follows that the court erred in sustaining the demurrer to the complaint in each case, and for that error the judgment must be reversed, and the cause remanded for further proceedings. In this connection it may be stated that a defendant sued at law must make all the defenses he has, both legal and equitable; if any of them are exclusively cognizable in equity, he is entitled to a transfer to equity. Dunbar v. Bourland, 88 Ark. 153, 114 S.W. 467; and Automatic Weighing Co. v. Carter, 95 Ark. 118, 128 S.W. 557.
It follows that the judgments will be reversed, and the causes will be remanded for further proceedings according to law and not inconsistent with this opinion.