KROGER v. TRUITT (1945)

From a judgment in favor of plaintiff, after trial before the court without a jury, in an action to enforce an alleged trust in corporate stock, defendant appeals.

The evidence being viewed in the light most favorable to plaintiff (respondent), the essential facts are:

In January, 1936, Charles C. Truitt was president of ‘Dried Food Products Company’, a corporation. William H. Fisher was the owner of 75 shares of preferred stock of the aforementioned corporation. In order to finance the corporation, Mr. Truitt adopted a plan of borrowing shares of stock from various stockholders, selling the same and using the proceeds to finance the company. In January, 1936, Mr. Truitt borrowed from Mr. Fisher 75 shares of the preferred stock of the Dried Food Products Company, executing a written instrument addressed to Mr. Fisher which provided so far as material here as follows:

‘You have this day loaned to us personally 75 shares of the Pref. Stock in above Company.

‘We guarantee to return a like amount of Pref. as above to you within 90 days from date hereof and at the earliest possible date that the undersigned Truitt has same available or that the undersigned Kroger has same in his Trustee Account, but in any event not later than 90 days from date.

‘Said Truitt has also attached hereto an order on the Commissioner of Corp. for transfer of 75 shares of Common stock of above Company as security and hereby authorizes said Fisher to have said stock transferred if his Pref. Stock is not returned within 90 days. * * *’

Before Mr. Fisher would loan the shares of stock to Mr. Truitt he required Mr. Walter W. Kroger (brother of the plaintiff herein) to join in the aforementioned document as a guarantor. The stock not being returned to Mr. Fisher according to agreement, he became discontented and on August 24, 1937, Mr. Walter W. Kroger purchased Mr. Fisher's rights against Mr. Truitt and the following document was executed:

‘Los Angeles, Calif.

‘847 East 75th St.

‘August 24th, 1937

‘For value received I hereby assign, set over, transfer and sell to Walter W. Kroger all of my right, title and interest in and to 750 shares of the free common stock of the Dried Food Products Co. due me from Chas. C. Truitt; also $100.00 in cash loaned to him on or about Jan 12th, 1934 together with interest thereon as agreed, and I hereby direct said Chas. C. Truitt to pay said $100.00 and interest and to deliver said 750 shares of stock to Walter W. Kroger.

‘Wm. M. Fisher.

‘Accepted Chas. C. Truitt’

At the time of the execution of the foregoing document, all of the preferred and common stock of the Dried Food Products Company had been converted pursuant to a permit of the Corporation Commissioner into new stock of the par value of $1. Ten shares of the new stock being given for each share of preferred stock.

On April 9, 1938, Mr. Truitt died, and thereafter Mr. Hendrix was appointed administrator of Mr. Truitt's estate. The administrator prepared and submitted to Mr. Walter Kroger a written demand for 750 shares of the common stock of the corporation. This document was executed and delivered to Mr. Hendrix upon his representation that Mr. Walter Kroger's interest would thereby be fully protected and that he would receive his stock in due time. This claim was not approved by the probate court. On July 16, 1939, Mr. Hendrix died and defendant Rae Truitt was appointed administratrix of Mr. Truitt's estate.

On March 23, 1940, Mr. Walter Kroger assigned all of his interest in the alleged trust to his brother and sister-in-law, the brother being the plaintiff herein. Defendant did not learn of this assignment until February 5, 1943.

In October and November of 1941, a dispute having arisen between the stockholders, the corporation and Mr. Truitt, a meeting was held, which Mr. Walter Kroger attended, and the following statements were made by Attorney Parr:

‘I am attorney for Mrs. Truitt, who is administratrix of her husband's estate. She holds in that estate 17,145 shares of stock issued in Mr. Truitt's name. We are quite aware of that fact, that stock shown in the settlement of the estate must be delivered to various persons who traded with Mr. Truitt, gave him free stock in exchange for his promise to transfer from the escrow. We will have to keep those promises and will keep them, Mr. Lane, as I previously assured you, when the estate is closed. * * *

‘I stated the other night that these people about whom we knew would most definitely receive stock. If I gave you the impression I had a complete list, I don't mean to. I assured one or two of your clients that I did know they were entitled to receive stock and I assured them, upon the closing of this estate, they would receive stock; and I now wish to assure everyone else here who has claim for stock in that estate, that without their being really able to prove their claim, but on reasonable showing that they have stock coming, they will receive it.

‘You are quite true when you say the ‘hand of death intervened’; and Mr. Truitt couldn't carry out all promises. * * * Those promises will be settled.'

Various negotiations between the stockholders, the attorneys and Mr. Truitt resulted in an agreement that Mrs. Truitt should receive $43,500 from the corporation in consideration of which she executed a written agreement which was approved by the probate court, containing among others this provision:

‘3. First Party as Administratrix agrees that she will pay all claims now or heretofore filed or presented against the Estate of Charles C. Truitt for stock of Dried Food Products Co. agreed to be delivered by said Charles C. Truitt to any such claimant excepting as to any such case to which she, as such Administratrix shall have a bona fide defense. Said claims which have been disclosed by First Party to Second Parties are the following:

In the fall of 1942 there was some correspondence between Walter Kroger and defendant, Mrs. Truitt. Mr. Kroger writing Mrs. Truitt at one time as follows:

‘I filed my claim when your father was Administrator for $100 cash and 750 shares of stock (Free) of the Dried Food Products Co. I had acknowledgment from Chas. (Truitt) of these items and the claim was allowed by the then Administrator.’

On one occasion Mrs. Truitt wrote to Mr. Kroger as follows:

‘I think your claim was filed in the estate, my attorney said. Wish you would write me or Mr. Newcomer of Haight, Trippet & Syvertson—Rowan Bldg., Los Angeles—what you would be willing to take now in cash for your claims and maybe we can get together.’

On February 5, 1943, defendant first learned that Mr. Walter Kroger was not the real party in interest but had assigned his claim on March 23, 1940, to his brother and sister-in-law. Five days after learning this fact defendant notified plaintiff that she would not honor his claim. The present action was instituted Mr. 3, 1943.

In July 1943, pursuant to Mrs. Truitt's petition, the probate court distributed to her 5000 shares of the corporation stock.

This is the sole question necessary for us to determine:

Was plaintiff's cause of action barred by the statute of limitations, section 343 of the Code of Civil Procedure, since it was commenced more than four years after the death of Charles C. Truitt, the alleged trustee?

This question must be answered in the affirmative and is governed by the following pertinent rules of law:

1) Upon the death of a voluntary trustee the administrator of the estate becomes a constructive trustee, a cause of action immediately arises in favor of the beneficiary of the trust and the statute of limitations commences to run. (Norton v. Bassett, 154 Cal. 411, 415 et seq., 97 P. 894, 29 Am.St.Rep. 162.)

2) It is unnecessary to repudiate an involuntary trust in order to set the statute of limitations in operation. (Norton v. Bassett, supra.)

3) The recognition by an administrator of the existence of a trust does not change the relation of the latter to the trust property from that of an involuntary trustee to that of a voluntary trustee so as to toll the running of the statute of limitations. (Norton v. Bassett, supra, 154 Cal. 418, 97 P. 894, 29 Am.St.Rep. 162. See also Whitehurst v. Dey, 90 N.C. 542, 549, 550 et seq., and Huntington v. Bobbitt's Heirs, 46 Miss. 528, 534.)

4) An administrator may not waive the statute of limitations. (Estate of Lucas, 23 Cal.2d 454, 466, 144 P.2d 340; In re Estate of Cates, 195 Cal. 319, 324, 232 P. 972; Reay v. Heazelton, 128 Cal. 335, 339, 60 P. 977.

Applying the foregoing rules to the facts of the present case, upon the death of Mr. Truitt on April 9, 1938, his administrator became an involuntary trustee of the alleged trust and plaintiff's cause of action, if any, immediately arose; and since the administrator could not waive the statute of limitations or toll its running by recognizing the existence of the trust, plaintiff's cause of action was barred by the provisions of section 343 of the Code of Civil Procedure, as the suit was not instituted within four years from the date of the death of Mr. Truitt. The complaint in the present case was not filed until May 3, 1943, which was more than five years and one month after plaintiff's alleged cause of action arose.

The case of Cohn v. Cohn, 7 Cal.2d 1, 59 P.2d 969, relied on by plaintiff, does not change the rule in the Norton case. The plaintiff was indebted to Charles Cohn, the deceased, in the sum of $5000. Certain property had been transferred to Mr. Cohn to hold as security for this debt. The debt remained unpaid at the time of Mr. Cohn's death and he still held title to the security. The question was whether or not the cause of action to recover the title accrued at Mr. Cohn's death. The court held that it did not; stating that where legal title is held as security for the payment of a debt and the debt remains unpaid when the holder of the title dies, there is no immediate duty to transfer the property held as security and the statute of limitations is not set in motion by the death of the holder of the legal title. The present case is factually distinguishable from the Cohn case, since in the instant case there is no contention that any property was held as security by Mr. Truitt to secure any debt.

In view of our conclusions it is unnecessary to discuss other points argued by counsel.

For the foregoing reasons plaintiff's cause of action was barred by the statute of limitations and the judgment in his favor is reversed.

McCOMB, Justice.

MOORE, P. J., W. J. WOOD, J., concur.