Gorham v. Gilson

By the Court, Sanderson, C. J. The complaint in this case alleges in substance: That a corporation called the Gilson Quartz Mining Company was duly formed in 1858, which subsequently, in 1861, became indebted to one John Kryster, and to secure the payment of the debt, mortgaged to him its entire corporate property, consisting of a certain quartz vein and quartz mill situated thereon. That subsequently, in 1868, the corporation being unable to pay, Kryster foreclosed,'and became the purchaser at the sale at a price less than the amount of his judgment by some three , or four hundred dollars. That in consequence of. certain false and fraudulent representations as to the condition and value of the corporate property made by defendants, plaintiffs w-ere induced to assent to a sale and conveyance by the corporation of its equity of redemption to Kryster, in consideration of a release of his entire claim. That at the date of the mortgage and deed by the corporation to Kryster, the plaintiffs and defendants were the only stockholders, and each owned a fourth of the stock of the corporation. That after Kryster became vested with the title, the defendants purchased the corporate property from him in pursuance of a previous understanding with him to that effect, but it is not pretended that Kryster was a party to the alleged fraud. That the defendants took possession of the mine and mill under the title thus obtained, and worked the same, making therefrom large profits. Plaintiffs ask a decree directing defendants to convey one half [483] of the mine and mill to them upon the payment by them to the defendants of one half of the sum paid by them to Kryster for the property, and requiring the defendants to account with and pay over to the plaintiffs one half of the profits. No demurrer to the complaint was interposed, but an answer was filed putting in issue all the material allegations of the complaint so far as the gravamen of the action is concerned. The case was tried, and plaintiffs obtained the relief for which they prayed. A motion for a new trial was made and denied, and the defendants have appealed from both the judgment and the order. * Several points have been made which we shall not notice, because in our judgment the first, which is to the effect that the plaintiffs cannot maintain this action, is conclusive of the case. This action proceeds upon the theory, (and it could be maintained upon no other,) that in equity the defendants, by reason of their fraudulent acts, have become the trustees of the plaintiffs to the extent of an undivided half interest in the property in question, holding and working the same for their use and benefit. But we think it clear that the facts set out in the complaint do not sustain that theory. Where, by fraud and deceit a party is induced to do that which, but for the fraud and deceit, he would not have done, equity will interfere, and, so far as it can be done, restore him to his original rights. If the defrauding party has obtained by such means the title to property, equity will convert him into a trustee for the defrauded party, and will compel the execution of the trust by ordering the deed so obtained to be cancelled or the property reconveyed, thus placing the property and the parties where they were originally; thus undoing what has been done, and .putting the title where it was before, or, in other words, adjudging that the title remains unchanged and unaffected by the conveyance, because the same is in equity null and void, by reason of the fraud and deceit by which it was obtained. Such relief, however, the plaintiffs are not in a position to [484] claim. They never had any title, legal or equitable, to the property in question. They have not only not conveyed anything to the defendants, but they had nothing to convey. The property belonged to the corporation and not to them, and the corporation and not they conveyed it away under the fraudulent inducements in question. So far as any right to the form of relief sought in this action is concerned, the fraud was committed against the corporation and not against them. It may be that they could maintain an action sounding in damages, but we think it clear that they are not entitled to the kind of relief which they are now seeking. That they can only obtain indirectly through the action of the corpora- „ tian. Should the corporation refuse to act, however, it is possible that the plaintiffs might maintain an action for the relief in .question, by alleging that fact and making the corporation a party defendant, in which case the Court (the requisite parties being before it) might direct an account and transfer of the property to the corporation for the benefit of all concerned. But upon this point we express no opinion. (Hervey v. Veasie, 24 Maine, 9; Smith v. Hurd, 12 Metcalf, 385; Abbott v. Meriam, 8 Cush. 589; Robinson v. Smith, 3 Paige, 232.) The judgment is reversed and the Court below directed to dismiss the action.