Annotate this Case

143 S.E.2d 312 (1965)

265 N.C. 148

Eva R. BENNETT, surviving widow, and Clifton C. Bennett, surviving son of C. C. Bennett, deceased, and Eva R. Bennett, Administratrix of C. C. Bennett, deceased, Plaintiffs, v. The ANSON BANK & TRUST COMPANY, Executor of the Estate of Rosalie Polk Bennett, and The Anson Bank & Trust Company, Administrator, c. t. a., d. b. n. of the estate of Purdie Richardson Bennett, Defendant.

No. 541.

Supreme Court of North Carolina.

July 23, 1965.

*315 Long, Ridge, Harris & Walker, by George A. Long, Burlington, and Theron L. Caudle, Wadesboro, for plaintiffs, appellants.

Taylor & McLendon by H. P. Taylor, Jr., Wadesboro, for defendant, appellee.

SHARP, Justice.

By this action instituted September 9, 1963, plaintiffs seek an accounting for a partnership which was dissolved March 16, 1936, by the death of a partner under whom they now claim. They further seek to trace partnership assets into the estate of the widow of the surviving partner and impress *316 a trust upon such assets. Defendant, as administrator c. t. a., d. b. n. of the partner who survived in 1936, and as executor of his widow, pleads the lapse of timeover 27 yearsin bar of plaintiffs' right to an accounting. Specifically, defendant pleads G.S. § 1-47, 10 years; G.S. § 1-49, 7 years; G.S. § 1-50, 6 years; and G.S. § 1-52, 3 years. Upon defendant's plea of the statute of limitations the burden devolved upon plaintiffs to show that their action was not barred but was instituted within the time permitted by statute. Jewell v. Price, 264 N.C. 459, 142 S.E.2d 1; Fulp v. Fulp, 264 N.C. 20, 140 S.E.2d 708.

Before plaintiffs can obtain a money judgment against defendant upon a demand arising out of the partnership transactions of Bennett Brothers, there must be an accounting of partnership affairs and a balance struck. Pugh v. Newbern, 193 N.C. 258, 136 S.E. 707, 58 A.L.R. 617; Baird v. Baird, 21 N.C. 524, 539. Their first task, therefore, is to show that their right to an accounting has not been lost by lapse of time.

The partnership existing between the Bennett brothers created a fiduciary relationship imposing upon P. R. Bennettthe managing partner, according to plaintiffs' evidencethe duty to render to C. C. Bennett at any time upon his request "a full and actual account of partnership affairs." Prentzas v. Prentzas, 260 N.C. 101, 103, 131 S.E.2d 678, 680; accord, Pentecost v. Ray, 249 N.C. 406, 106 S.E.2d 467; Casey v. Grantham, 239 N.C. 121, 79 S.E.2d 735. As between the partners themselves the statute would not begin to run on the cause of action for an accounting until one partner had notice of the other's termination of the partnership and his refusal to account. This is but an application of the rule that the statute of limitations does not commence to run against a trustee until he repudiates his trust. Fulp v. Fulp, supra; Prentzas v. Prentzas, supra; 40 Am.Jur., Partnership § 335 (1942).

In the absence of an express agreement to the contrary, every partnership is dissolved by the death of one of the partners. In re Estate of Johnson, 232 N.C. 59, 59 S.E.2d 223; Bank of Hollingsworth, 135 N.C. 556, 47 S.E. 618; 40 Am.Jur., Partnership § 286 (1942). This common-law rule is now codified as G.S. § 59-61.4. Upon the death of C. C. Bennett, P. R. Bennett immediately stood "in the relation of trustee charged with the duty of faithful management and accounting to those entitled to the surplus of the deceased partner's interest after settling the debts of the partnership and winding up its affairs." In re Estate of Johnson, supra at 60, 59 S.E.2d at 225; accord, Walker v. Miller, 139 N.C. 448, 52 S.E. 125, 1 L.R.A.,N.S. 157. It was the duty of P. R. Bennett, as his surviving partner, to have filed with the Clerk of the Superior Court, within 12 months of the death of C. C. Bennett, a verified account stating his action as surviving partner, and, unless the Clerk had extended his time for good cause shown, to have come to a settlement with Mrs. C. C. Bennett, as administratrix of his deceased partner. N. C. Code of 1935, § 3285 (now G.S. § 59-82). The Clerk of the Superior Court did not extend the time for P. R. Bennett to account, and he died without ever having accounted. Clearly, therefore, on March 16, 1937, plaintiff administratrix had the right to sue P. R. Bennett for an accounting. In re Johnson, supra; see Ewing v. Caldwell, 243 N.C. 18, 89 S.E.2d 774; Sherrod v. Mayo, 156 N.C. 144, 72 S.E. 216. Within 3 years thereafter, nothing else appearing, plaintiffs' action for an accounting would have been barred by G.S. § 1-52(1). Prentzas v. Prentzas, supra; Weisman v. Smith, 59 N.C. 124; 40 Am.Jur., Partnership § 345 (1942). Plaintiffs contend, however, that here something else appears from their evidence: that in the lifetime of C. C. Bennett, his surviving partner, P. R. Bennett, the brother-in-law and uncle of plaintiffs, had fraudulently misappropriated partnership funds; that after C. C. Bennett's death he fraudulently concealed from *317 plaintiffs the existence of their cause of action against him for his prior defalcations, which he had actively continued while making positive misrepresentations to plaintiffs that no such assets existed and that an accounting would be a futile thing.

In order to exercise their right to an accounting 26 years after it accrued, plaintiffs must establish that they exercised it within 3 years of the time they discovered or ought by reasonable diligence under the circumstances to have discovered the fraud of P. R. and Rosalie P. Bennett. In 1937, plaintiffs knew of their right to require P. R. Bennett to account. If we take their evidence as true, as we must in passing upon a motion for nonsuit, National Spinning Co. v. McLean Trucking Co., 263 N.C. 807, 140 S.E.2d 534, their failure to exercise this right was the result of P. R. Bennett's statement that the partnership had no assets"that there was nothing to settle." If this statement was trueand plaintiffs say they believed it, the institution of an action to require an accounting would have been a vain and an expensive gesture.

Under the circumstances here, plaintiffs' evidence must, in order to repel the bar of the statute, tend to establish (1) the falsity of P. R. Bennett's statement that there were no partnership assets; (2) that they reasonably relied upon the statement; and (3) that P. R. Bennett had misappropriated the assets and was actively concealing his breaches of trust. In other words, the facts which plaintiffs say caused them not to require the accounting are also the facts upon which they base their action to recover partnership assets. If P. R. Bennett misled plaintiffs so as to repel the bar of the statute, he had converted partnership assets. To prove the first is to prove the second.

Defendant contends that plaintiffs should have insisted on their legal right to an accounting in 1937; that, had they done so and had P. R. Bennett been guilty of the misappropriations with which plaintiffs now charge him, such an accounting would have disclosed the misappropriations; that in failing to require the accounting plaintiffs failed to exercise reasonable diligence to discover the fraud they allege, and they are therefore barred by G.S. § 1-52(9) from any relief whatever.

Plaintiffs' evidence, should the jury accept it, would support but not compel a finding that C. C. Bennett and P. R. Bennett were general partners; that P. R. Bennett was the business manager of the partnership, which was "land poor"; that, in order to dispose of land, the partnership borrowed $100,000 from the Bank of Wadesboro; that this money was fraudulently misappropriated by P. R. Bennett and his wife, both of whom led C. C. Bennett and his heirs to believe that it had been lost by unfortunate investments; that 3,284.09 acres, plus two lots and a "tract," were conveyed to the Bank of Wadesboro in 1935 for a consideration, determined from the revenue stamps on the deeds, of about $35,500; that, from 1932 through 1936 the partnership also conveyed to other grantees 5,000.18 acres, plus 3 lots, a "tract," and "Bk 51-380," less an "exception" from a conveyance of 12,279 acres, for a consideration, similarly determined, of about $44,000; that P. R. Bennett bought stocks and bonds in his wife's name with the proceeds of the loan from the Bank of Wadesboro; that, by 1956, Rosalie P. Bennett had spent $60,000 in funds originating from the loan and that she still had $100,000 in stocks and bonds derived from it.

The credibility of this evidence is not for the Court. Our task is to determine (1) whether, taken as true, it constitutes more than a scintilla of evidence of fraudulent misappropriation of partnership funds by P. R. and Rosalie P. Bennett and of their active, fraudulent concealment of these misappropriations from the heris of C. C. Bennett; and (2) whether the failure of P. R. Bennett to account in 1937, considered in connection with his relation to plaintiffs and his statement to his nephew that there was nothing to account for, was sufficient to alert plaintiffs and set the statute running.

*318 "It is generally held that where there is concealment of fraud or continuing fraud, the statute of limitations does not bar a suit for relief on account of it, and thereby permit the statute which was designed to prevent fraud to become an instrument to perpetrate and perpetuate it. * * * The law applicable is well stated in 34 Amer.Jur., Limitation of Actions, par. 168, p. 135, as follows: `Where a confidential relationship exists between the parties, failure to discover the facts constituting fraud may be excused. In such a case, so long as the relationship continues unrepudiated, there is nothing to put the injured party on inquiry, and he cannot be said to have failed to use due diligence in detecting the fraud. * * * Similarly, an agent, sued for fraud, cannot set up that the principal should have suspected him.'" Small v. Dorsett, 223 N.C. 754, 761, 28 S.E.2d 514, 518.

A failure to use such diligence as is ordinarily required of two persons transacting business with each other may be excused when there exists such a relation of trust and confidence between the parties that it is the duty, on the part of the one who committed the fraud and thereby induced the other to refrain from inquiry, to disclose to the other the truth. Vail v. Vail, 233 N.C. 109, 63 S.E.2d 202; accord, Gillett v. Wiley, 126 111. 310, 19 N.E. 287, 9 Am. St.Rep. 587; 34 Am.Jur., Limitation of Actions § 168 (1941); Annot., 25 Am.St. Rep. 227. In Lataillade v. Orena, 91 Cal. 565, 27 P. 924, a case on all fours with ours, the plaintiff, on February 21, 1887, brought a suit to compel an accounting by his stepfather and guardian, who had handled his affairs since 1849. The California Code, like G.S. § 1-52(9), provided that an action for relief on the grounds of fraud or mistake was not deemed to have accrued until the discovery by the aggrieved party of the facts constituting the fraud or mistake. Counsel for the defendant contended that the action was not one for relief on the ground of fraud. The court said:

"It is true, the action was for an accounting, but the grievance complained of was that defendant knowingly received and held moneys in trust for plaintiff, and appropriated the same to his own use, and at all times fraudulently concealed from plaintiff the fact that he had ever received or held any such moneys or any money in which plaintiff had any interest. It seems to us, therefore, that the averments make a case of the class provided for in the section of the Code above cited." Id. at 577, 27 P. at 926.

Although plaintiffs' evidence is susceptible of inferences to the contrary, yet the jury could find from it that, in view of the confidential relationship existing between plaintiffs and P. R. Bennett, the former were not indiligent by reason of failing to require the latter to account within 3 years from March 16, 1937. We conclude, therefore, that plaintiffs were entitled to go to the jury on all the issues raised by the pleadings. These include, inter alia, the issue whether plaintiffs' right to an accounting is barred by the statute of limitations. Needless to say, defendant's evidence, not yet heard, might disclose a version entirely different from that of plaintiffs. The question of tracing trust funds will arise only if the jury, after hearing the evidence of both sides, establishes plaintiffs' right to recover a sum of money from defendant. See Edgecombe Bank & Trust Co. v. Barrett, 238 N.C. 579, 78 S.E.2d 730; McGurk v. Moore, 234 N.C. 248, 67 S.E.2d 53.

The judgment dismissing the action as of nonsuit is