KNAPP v. KNAPP

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District Court of Appeal, Fourth District, California.

KNAPP v. KNAPP et ux.*

Civ. 2324

Decided: August 24, 1939

Ray D. Johnson, of El Centro, and Cyril F. Marelia and Wm. T. Eckhoff, both of San Francisco, for appellant. Childers & Roberts, of El Centro, for respondents.

The action involved in the present appeal was commenced by appellant in Imperial county on October 11, 1938. An amended complaint was filed on November 28 of that year. In this pleading, appellant John H. Knapp sets out that he is a brother of respondent Charles W. Knapp and that respondents Charles W. Knapp and Florence R. Knapp are and at all of the times involved have been husband and wife; that on or about February 14, 1911, the two brothers became sole owners in undivided shares of certain described land in San Bernardino county, the record title to which was, however, by deed, recorded in that county on that date, taken in the name of respondents; that thereafter appellant departed from the state of California and has ever since been absent therefrom; that about January 1, 1917, respondents stated and represented to appellant, who then resided in Illinois, that they had sold said land to one Michaels and had realized a total of $4,000 therefor and that $2,000 represented one-half of the whole amount realized therefrom and was the entire amount accruing to appellant from his interest therein held in trust by them. It is alleged that, in confirmation of said representations, respondents forwarded to appellant the promissory note of Charles W. Knapp for $2,000, dated January 1, 1917, and payable on or before two years from its date with interest at 5 per cent per annum, payable annually, and that the note contained a provision as follows: “And we, and each of us, do hereby agree that the holder of this note may extend the time of payment thereon without notifying us and that we will remain sureties thereon.” Since the note has been alleged to have been signed by one person only, the presence of the language quoted must have resulted from the use of a form. The amended complaint alleges that the note, as so forwarded, carried, across its face, an endorsement in the words following: “This note not negotiable. In full settlement for John H. Knapp's interest in the Cucamonga, California, orange grove which was owned by payor and payee hereto.”

It is alleged that because of the blood and family relationship existing between appellant on the one hand and respondents on the other, and because of appellant's trust and confidence reposed in respondents and because of the fiduciary nature of the relation existing between them in connection with said land, appellant believed and relied upon said representations and continued to do so until just prior to the commencement of this action; but that in fact the representations so made were each and all untrue from the time they were made and then and ever since known to respondents to be untrue; that said representations were made and said note forwarded to appellant with the deliberate intention on respondents' part of betraying their trust, absconding with moneys derived from appellant's interest in said land and cheating appellant out of his share of the profits and proceeds arising out of said land; that the forwarding of said note was a device to mislead appellant and convince him of the bona fides of the representations and that he was misled and defrauded thereby.

The amended complaint goes on to allege the fact to be that respondents sold the land in divers parcels at divers times and realized therefrom, between the time that appellant departed from California and the time that the note was forwarded, amounts in excess of $10,000. Various particulars of these transactions are specified. It is alleged that between February 14, 1911, and July 15, 1914, in appellant's absence, and without his knowledge or consent, respondents granted an option for the purchase of part of the land for which they received $500, but that the option was never exercised and that they retained the money. It is alleged that on July 15, 1914, while appellant was absent, and without his knowledge or consent, respondents sold and conveyed to one Chambers the east half of said land for $2,000 in cash plus certain lots in Pasadena, worth $1,500, which consideration respondents received. It is alleged that on or about January 14, 1916, in appellant's absence, and without his knowledge or consent, respondents sold and conveyed to one Michaels the west half of said land for more than $6,000, part of which consideration they received in the form of real property situated in the city of El Centro in Imperial county, California, and a further part of which consideration they received by taking title to a shoe store and a stock of shoes; that as respects this last sale appellant does not know the value of the consideration received by respondents for the property sold, so far as it is in excess of such $6,000. It is further stated that at all times respondents have deliberately and wilfully concealed from appellant the conduct complained of and have never informed him of any part thereof nor accounted to him for one-half of the things of value received by them out of said land nor any part thereof; nor for any income or profit realized by them therefrom, nor for any part thereof; that in further pursuance of respondents' scheme to defraud appellant, respondent Charles W. Knapp has refused to honor or pay his said note and that respondents have appropriated to their own use all of the income of said property and the whole of the selling prices thereof, and that appellant has received no part thereof.

It is alleged that appellant, on or about October 1, 1938, for the first time discovered the facts constituting the fraud so perpetrated against him and the untruth of said representations under circumstances as follows: That he, on or about November 12, 1937, brought suit against respondent Charles W. Knapp on said note and immediately before the date for which such action was set for trial, as a part of his preparation for such trial, caused an investigation to be made in California, as a result of which he, on or about October 1, 1938, learned the truth.

In his amended complaint appellant asks judgment that respondents be required to account to him for his half of all income, profit, moneys and things of value received by them from the disposition of said land, and also for his half of everything derived by respondents from the possession and use of the income of said land and of the profits from its disposition, whatever may be the form which such assets have now taken. An injunction is asked against the dissipation by respondents pendente lite of any moneys or assets derived by them from the transactions recited, and appellant asks that upon the completion of the accounting he have judgment against them for such sums as shall be found due him, together with $20,000 exemplary damages and costs.

To this amended complaint the respondents interposed a demurrer, both general and special, pleading, inter alia, in bar of the cause of action attempted to be stated, subdivision 4 of section 338, section 343 and subdivision 1 of section 339 of the Code of Civil Procedure, and generally, that appellant appears on the face of the amended complaint to have been guilty of laches, and that it appears therefrom that there is another action pending between the same parties for the same cause, also, that there is a misjoinder of parties defendant in that respondent Florence R. Knapp never had any interest in the land claimed to have been jointly owned by appellant and her husband. This demurrer having been sustained by the trial court without leave to amend, and judgment entered accordingly, the appeal now before us is taken.

Counsel for appellant say that the trust here to be enforced is rather a constructive than a resulting trust. The difference between these, of course, is that the latter merely arises by operation of law from the taking of title to property in the name of some one other than he who has paid the consideration for it (Civ.Code, sec. 853), whereas the former is a relation having its origin ex maleficio. Civ.Code, sec. 2224; Fulton v. Jansen, 99 Cal. 587, 591, 34 P. 331. While it cannot be ascertained from the amended complaint whether the beneficial interest alleged to have been vested in appellant in 1911 in the San Bernardino county land arose out of a resulting or an express trust in his favor, it is wholly immaterial which it was, since the allegations of the amended complaint indicate that it was one or the other. But, assuming, for the purpose of considering the demurrer, that the allegations of the amended complaint are true, after the San Bernardino county land was sold, respondents, as appellant's counsel correctly say, held any secret profits made out of the sale, as far as appellant's half interest was concerned, not on any resulting trust nor yet on any express trust for him, but rather on what was strictly a constructive trust in his favor.

The question mainly discussed in the briefs is whether or not appellant appears on the face of the amended complaint to have been guilty of such laches as to bar his present effort to enforce such constructive trust. The mere lapse of time, however extended, does not necessarily establish laches though the extent of the time that has elapsed is one element to be considered in that connection, but the existence or non-existence of laches in cases where long periods of time have intervened since the origin of the cause of action depends on the circumstances peculiar to each particular case. Cahill v. Superior Court, 145 Cal. 42, 47, 78 P. 467; Miller v. Ash, 156 Cal. 544, 557, 105 P. 600; McGibbon v. Schmidt, 172 Cal. 70, 74, 155 P. 460; Goodfellow v. Barritt, 130 Cal.App. 548, 560, 561, 20 P.2d 740. We find it laid down in 25 California Jurisprudence, page 262, that, where the action involved is against a trustee, it is necessary, in order to make out the defense of laches, the following facts must appear: “1. Hostile conduct on the part of the trustee; 2. Knowledge of such conduct on the part of the plaintiff; 3. Lapse of time before institution of the suit; and 4. Prejudice resulting from an enforcement of the trust.”

In the instant case, as far as the conduct of the respondents is concerned, there is, of course, no doubt that, according to the allegations of the amended complaint, it was hostile to appellant. As respects the second requirement specified in this quotation from California Jurisprudence, it is said in Lady Washington Consol. Co. v. Wood, 113 Cal. 482, 487, 45 P. 809, 810, that, “As the means of knowledge are equivalent to knowledge, if it appears that the plaintiff had notice or information of circumstances which would put him on an inquiry which, if followed, would lead to knowledge, or that the facts were presumptively within his knowledge, he will be deemed to have had actual knowledge of these facts. These principles are so fully recognized that mere reference to some of the cases in which they have been enforced will be sufficient.” Citing Martin v. Smith, 1 Dill. 85, Fed.Cas. No. 9,164; Wood v. Carpenter, 101 U.S. 135, 25 L.Ed. 807; Hecht v. Slaney, 72 Cal. 363, 14 P. 88; Moore v. Boyd, 74 Cal. 167, 15 P. 670; Lataillade v. Orena, 91 Cal. 565, 27 P. 924, 25 Am.St.Rep. 219. The same doctrine has been laid down in later cases. Bancroft v. Woodward, 183 Cal. 99, 108, 190 P. 445; First National Bank v. Thompson, 212 Cal. 388, 401, 298 P. 808.

The bearing of the third requirement laid down in California Jurisprudence, as above quoted, to the maintenance of the defense of laches, namely, lapse of time, may, as we just saw, be considered in its relation to the second requirement, that the plaintiff have knowledge, or what amounts in legal effect to knowledge, on the one hand; and with relation to the fourth of the specified requirements, on the other hand, that is, prejudice resulting from such lapse of time to the party against whom the relief is sought. In the case before us the lapse of time admitted was far from inconsiderable. From the time that the beneficial ownership of the land in San Bernardino county is stated in the amended complaint to have vested in the two brothers in 1911 to the time when the action before us was commenced in 1938, more than 27 years elapsed. From the time that, according to the amended complaint, respondents sold the last parcel of the property in 1916 to the time when the action was commenced, more than 22 years elapsed. From the time when appellant received the note for the amount claimed to represent his share of the sales proceeds to the time when this action was commenced, more than 21 years elapsed. The amended complaint contains no suggestion that during the time between 1911 and 1917, when appellant said he was notified that the land had been sold, he ever took any interest in it, either by assisting in the payment of taxes, or asking his share of any rent which may have been collected, or asking any accounting; neither does he claim to have asked any accounting of receipts or to have offered to meet his share of any disbursements for such intervening period when he was informed in 1917 that the land had been sold. He says that in view of what had been told him he was content to take his brother's note. Though the note had been in his possession since 1917 and the interest fell due on it annually, he does not, in his amended complaint, claim that he ever collected or undertook to collect any of the interest or that any interest on it was ever paid or that he ever asked payment of the principal prior to commencing suit on the note in 1937. In other words, as far as appears, he did nothing whatever about it for 20 years. While we might hesitate to say, as a matter of law, that the lapse of time in its bearing on any one of these phases of the case should, in itself alone, be treated as charging appellant with seasonable notice that respondents' whole conduct toward him required investigation, we think the trial court could not properly have done otherwise than to hold that in the circumstances recited, when all considered together, the lapse of time did have that effect.

As respects the fourth requirement laid down in the passage from California Jurisprudence, above quoted, namely, that before it can amount to laches the delay must be such as to prejudice those against whom relief is sought, should such relief be granted, we think the trial court justified if we assume it to have believed that the amended complaint does show that the delay would result in such prejudice to respondents if relief to appellant were now given. While no effort has been made in the amended complaint to fully state the disposition made by respondents of all the consideration they are said to have received from the land sold, it nevertheless there appears that a considerable part of it was not represented by money but by real property in Pasadena and in El Centro. It does not appear whether such real estate still remains in respondents' hands or not, nor whether or not, since their acquisition of it, it has yielded them any rent. Manifestly, if it did not, and respondents still have it, they must have been at no small charge in the intervening years for taxes and other carrying expenses. Part of the consideration received by them was a shoe store and its stock. The conduct of a mercantile business, if they have since conducted it, or its disposition if they have disposed of it, has presumably worked a material change in their positions and arrangements. The situation is one in which it would be practically impossible now to replace the respondents in anything like the position they would have been in had they been called to account for their conduct 20 years or more ago instead of now.

In fine, it appears to us that there are in considerable degree here present, all of the four elements laid down in the text cited, as necessary to substantiate the defense of laches.

It is indeed claimed that respondents are, by their misrepresentations made for the purpose of misleading appellant and avoiding any inquiry on his part, estopped to rely on his laches. Citing such cases as Mabry v. Randolph, 7 Cal.App. 421, 94 P. 403, and Long v. Los Altos Country Club, 122 Cal.App. 116, 121, 9 P.2d 600. That doctrine might be persuasive under the facts alleged in the amended complaint had appellant's delay not been greater than could be deemed attributable to the deception practiced. When, however, subsequent events, such as the repudiation here of the note or even the unexplained failure to meet it, have transpired, tending to throw suspicion on the sincerity of the parties guilty of the original deceit and to put the one deceived on notice of their want of good faith; and when, as here, as far as appears, he has allowed these subsequent wrongs to go on for two decades before inquiring into their cause or seeking any redress for them, he is in no position to interpose, as against the plea of laches, the doctrine of estoppel that he might, but for such later occurrences, have been entitled to invoke. It is true, as appellant pointed out, that the repudiation of the note was in some degree a different transaction from the original fraud, yet the amended complaint itself charges that it, too, was “pursuant to said scheme to defraud plaintiff”, and it is hard to see how it could have failed to put appellant on notice generally that there was, in all probability, a want of good faith on respondents' part from the beginning.

As was said by the Supreme Court in Phelps v. Grady, 168 Cal. 73, 80, 141 P. 926, 928, with respect to the claim of certain parties, there involved, to special consideration on account of their absence: “There is an absolute failure to show not only due diligence but any diligence in seeking to discover during all this intervening time whether or not they had parted with their property at a fair valuation. The fact that they lived at a distance is, of course, no excuse. They were under no other disability. Says the Supreme Court of the United States: ‘Parties cannot thus, by seclusion from the means of information, claim exemption from the laws that control human affairs and set up a right to open up all the transactions of the past. The world must move on, and those who claim an interest in persons or things must be charged with knowledge of their status and condition, and of the vicissitudes to which they are subject.’ Case of Broderick's Will, 88 U.S. (21 Wall.) 503, 22 L.Ed. 599.”

While we cannot know upon what reasoning the trial court sustained the demurrer to the amended complaint, we think that, taken as a whole, that pleading presents what has become a stale claim and that, on the face of appellant's statement, his right to relief has become barred by laches. This conclusion makes it unnecessary to discuss the other questions raised by the demurrer. Counsel for appellant have disclaimed any desire further to amend and it must, therefore, be assumed that they have stated their case in the strongest terms that the facts can justify.

The judgment is affirmed.

HAINES, Justice pro tem.

We concur: BARNARD, P.J.; GRIFFIN, J.