5 Wn.2d 20, HENRY R. EAGLES et al., Appellants, v. GENERAL ELECTRIC COMPANY, Respondent, R. L. RUTTER et al., Defendants, THE STATE OF WASHINGTON, Appellant
[No. 27595. Department One. Supreme Court      August 1, 1940.]
HENRY R. EAGLES et al., Appellants, v. GENERAL ELEC-
TRIC COMPANY, Respondent, R. L. RUTTER et al.,
      Defendants, THE STATE OF WASHINGTON,
                     Appellant.«1»

"`"Whatever the rule may be in other jurisdictions, it is firmly established in this state that a void tax deed may constitute a sufficient basis for the running of the statute of limitations."'"

The opinion in White v. Gehrman, supra, not only reaffirms that declaration, but goes on to hold that the

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rule applies even though the deed be void upon its face.

Appellants contend, however, that this is not the kind of action delimited by Rem. Rev. Stat., § 162. Since, in our opinion, the result of the appeal turns upon this section of the statute, we again quote it in part:

Appellants urge that they have not prayed the court to set aside or cancel the deeds, but merely to find that the General Electric Company holds the land impressed with a trust. It is true that they have not used the specific words "set aside or cancel" either in their allegations or in their prayer for relief, but they pray that the tax deeds be decreed null and void and held for naught. This is equivalent to a prayer for cancellation. Furthermore, the language of the statute covers, not only actions "to set aside or cancel," but actions "for the recovery of lands sold for delinquent taxes." The impressment of a trust is an object of the action, but it is not the ultimate object. It is but a step toward the attainment of the real and ultimate object of the action, which is unquestionably to recover lands sold for delinquent taxes.

[2] Appellants point out that the property of the corporation was trust property at the time the tax deeds were issued; first, because the corporation was insolvent and the trust fund doctrine had attached, and second, because of the specific provisions of Rem. Rev. Stat., § 3846, which are as follows:

"If, however, within the period named within which a corporation may make application to be reinstated

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such corporation shall not have made such application, the secretary of state shall enter upon his records a notation that such corporation is dissolved, and it shall thereupon be dissolved and the trustees of such corporation shall hold the title to the property of the corporation for the benefit of its stockholders and creditors to be disposed of under appropriate court proceedings." (Italics ours.)

[3] Having made the point that the trustees held the title after the dissolution and at the time the tax deeds were issued, the appellants quote the following from Goodwin v. American Surety Co., 190 Wash. 457, 478, 68 P. (2d) 619:

"Where a trustee, such as an administrator, guardian, or other representative of a person under legal disability, has been guilty of converting the estate of his cestui que trust, neither the trustee nor one who has received the estate from him with knowledge of the facts may plead the bar of the statute. . . . This is upon the principle that the title of the cestui que trust has not been affected by the transfer."

As noted in the preceding paragraph of the decision, however, this rule is but an exception to the general rule that, whenever a right of action which exists in favor of a trustee is barred by the statute of limitations, the right of the cestui que trust is likewise barred.

Appellants further rely upon the text of Pomeroy's Equity Jurisprudence, as quoted in our opinion in Paysse v. Paysse, 86 Wash. 349, 150 Pac. 622. The first sentence of the quotation reads as follows: "`Wherever property, real or personal, which is already impressed with or subject to a trust of any kind, express or by operation of law, is conveyed or transferred by the trustee, not in the course of executing and carrying into effect the terms of an express trust, or devolves from a trustee to a third person, who is a mere volunteer, or who is a purchaser with actual or constructive notice of the trust, then the rule is universal that such heir, devisee, successor, or other

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Aug. 1940] Opinion Per ROBINSON, J.

voluntary transferee, or such purchaser with notice, acquires and holds the property subject to the same trust which before existed, and becomes himself a trustee for the original beneficiary.'"

A great number of decisions are cited in appellants' brief which apply the above rules. But these rules are inapplicable to the facts presented by the instant case. Here, no trustee converted trust property, as is assumed in laying down the rule stated in the Goodwin case, or conveyed or transferred trust property, as is assumed in the rule quoted from Pomeroy. The conveyance in this case was made by the sovereign to a third party through its statutory agent, the county treasurer, in the exercise of its sovereign power to levy and collect taxes. We assume that it will not be contended that the sovereign may not levy and collect general taxes with respect to property held in trust, or that the rule that the property of an insolvent corporation constitutes a trust fund for the benefit of its creditors renders such property immune from the collection of general taxes by foreclosure and sale.

The law applicable to the situation here presented is well stated in 4 Bogert, Trusts and Trustees, 2772, § 954. We quote portions of that section:

"Causes of action which arise out of ordinary acts of trust administration or out of wrongdoing toward the trust property are vested in the trustee alone. . . . It is true that the cestui can under special circumstances maintain an action against such third party, joining the trustee as defendant, namely, in cases where the trustee is unable or unwilling to sue the third person; but in those instances the cestui is enforcing a cause of action which in fact runs to the trustee. The cestui is then merely acting as a representative of the trustee, because of the necessity of the case.

"Since such causes of action are vested in him who is the legal owner of the trust property and who makes

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contracts on behalf of the trust, the delay of the trustee in pursuing his remedies should bar the cause of action under the terms of the statute of limitations. The diligence or improvidence of the owner of the cause of action should govern. The cestui has no right of action of his own against such a third person. He has merely the right to force the trustee to action, to hold him liable for failing to act, or to assert the trustee's cause of action on behalf of the trustee where the trustee is disabled or will not act. The third party against whom the cause of action lies is entitled to the benefit of the doctrine of repose after the statutory period has elapsed since the cause of action has been vested in a party who is sui juris. If the sole trustee, in whom is vested such a right to sue, is non compos mentis, or an infant, or under other disability which suspends the running of the statute, there should be an extension of time in favor of the trust; but the disability of the cestui on the one hand, or his negligence on the other, should not be of importance.

"The cases sustain the principles outlined above, and hold that the delay of the trustee in enforcing his causes of action against third persons, where there is no mistaken or collusive breach by the trustee in participation with the third party, bars both trustee and cestui, whether the latter is under a disability or not and is a present cestui or a remainderman cestui." (Italics ours.)

Among the footnotes citing cases supporting the text quoted, we find the following:

"95. . . . Schiffman v. Schmidt, 55 S. W. 451, 154 Mo. 204 (trustee's carelessness allowed taxes to become delinquent and tax sale to take place) ; . . . " That is exactly the case here. In lieu of encumbering this opinion with a long list of citations, we cite an excellent note in 2 A. L. R. at page 41. This note contains a long list of authorities which support the rule stated by Professor Bogert. It appears from these citations that the rule has been enforced for many years, probably from the very beginning of the

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Aug. 1940] Opinion Per ROBINSON, J.

development of the law of trusts. We call particular attention to the excerpt therein quoted from the English decision of Lewellin v. Mackworth, decided in 1740 [2 Eq. Cas. Abr. 579, 22 Eng. Reprint] which reads as follows:

"`The rule . . . that the Statute of Limitations does not bar a trust estate holds only as between cestui que trust and trustees, not between cestui que trust and trustee on one side and strangers on the other, for that would be to make the statute of no force at all, because there is hardly any estate of consequence without such trust, and so the act would never take place; therefore, where a cestui que trust and his trustee are both out of possession for the time limited, the party in possession has a good bar against them both.'" (Italics ours.)

We also call attention to the excerpt from Molton Henderson (62 Ala. 426], an Alabama case decided in 1878, and the excerpt from the Kentucky case, Edwards v. Woolfolk, decided in 1865 [17 Monroe (Ky.) 376]. Both of these cases state the reason for the rule under discussion. In the Woolfolk case, it is said:

"`The principle is, that the legal cause of action is in the trustee, and it is his duty to sue a stranger who has obtained the possession of the trust property, and is holding it adversely; and the cestui que trust may require him to perform this duty; and, upon his refusal, may bring an action in equity against the trustee and the person in the possession of the property, for its restoration to the custody of the trustee. For this reason, the equitable right is barred by the statute whenever the legal right is barred.'"

In this case, the plaintiffs, as cestuis, bring the action in equity against the trustees and the person in possession of the property; and, since the legal right is barred, the equitable right asserted by the plaintiffs is also barred.

It follows also that the circumstance that the

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appellants did not learn the facts until May, 1938, is wholly immaterial. They sue as representative of the trustees, and the trustees are not alleged to have been under any disability, but, at the most, to have been negligent. Their negligence, as we have seen, does not prevent the running of the statute.

The A. L. R. note, above cited, was published in 1919. Since that time, many cases have been decided to the same effect, and at least one since the instant case was argued before us, Broussard Trust v. Perryman, 134 S. W. (2d) (Tex. Civ. App.) 308. In that case, which was brought by a plaintiff cestui who was non compos mentis during the entire period of limitation, the action was nevertheless held barred by the statute because the statute had run against the trustee; and that, in our opinion, is the case here, unless the statute be inapplicable for some other reason.

[4, 5] Appellants contend that § 162 cannot be resorted to by the respondent in this case. Our attention is directed to the fact that the respondent was organized, and exists, by virtue of the laws of the state of New York, and to the accepted rule of law that a corporation is deemed a resident of the state which created it. It is then alleged that, since it is a resident of that state, it must needs be a nonresident of this, and it is therefore contended that it has no right to rely upon the limitation statute, citing Rem. Rev. Stat., § 168 [P. C. § 8175], which is as follows:

"If the cause of action shall accrue against any person who is a nonresident of this state, or who is a resident of this state and shall be out of the state, or concealed therein, such action may be commenced within the terms herein respectively limited after the coming, or return of such person into the state, or after the end of such concealment; and if after such cause of action shall have accrued, such person shall depart from and reside out of this state, or conceal himself, the time of

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Aug. 1940] Opinion Per ROBINSON, J.

his absence or concealment shall not be deemed or taken as any part of the time limit for the commencement of such action."

Appellants say that, while the question they raise has never been decided by this court, the correctness of their contention appears to have been conceded in Ilse v. Aetna Indemnity Co., 69 Wash. 484, 487, 125 Pac. 780. The respondent, on the other hand, says that the court conclusively answered the question in the case of Earle v. Froedtert Grain & Malting Co., 197 Wash. 341, 85 P. (2d) 264, in which the contention that a foreign corporation could not rely upon the statute of limitations was rejected. Appellants counter with the claim that § 168 was not mentioned in that opinion. As to that, the briefs in that case show that the contention was in fact based upon the provisions of § 168. However, since the so-called limitation pleaded in that case was the six months' limitation with respect to actions brought by receivers to recover unlawful preferences (Rem. Rev. Stat., § 5831-1 [P. C. § 4532-1]), which is not in a true sense a statute of limitations at all (Morris v. Orcas Lime Co., 185 Wash. 126, 53 P. (2d) 604; Peeples v. Hayes, 4 Wn. (2d) 253, 104 P. (2d) 305), it would have been a sufficient answer in that case to have said that § 168 could not possibly apply; and that, in our opinion, is likewise a sufficient answer to appellants' contention in this case.

It is said in the very case upon which appellants rely, Ilse v. Aetna Indemnity Co., supra:

"It must be remembered that our statute, Rem. &Bal. Code § 168 [now Rem. Rev. Stat., § 168], is an exception to the general statute of limitations. Without this exception, the statute would run in favor of a foreign corporation to the same extent as a domestic corporation or a private individual." (Italics ours.)

Section 168 is an amendment of § 36 of the code of

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1881, specifically made so by the enacting clause of chapter 132, Laws of 1927, p. 114. Its application is to be determined from what it says:

"If the cause of action shall accrue against any person who is a nonresident of this state, . . . such action may be commenced within the terms herein respectively limited. . . . " (Italics ours.)

The word "herein," italicized in the foregoing quotation, refers to the code of 1881, as amended from time to time, and it is only to limitations contained in that code or amendments thereto that § 168 applies.

Section 162, the limitation relied upon here, which provides that:

"Actions to set aside or cancel [tax deeds]must be brought within three years . . . " (Italics ours.) was never a part of the code of 1881, or of any general statute of limitation, although the codifiers - we presume for reasons of convenience - have included it in Title 2, chapter 3, entitled, "Limitation of Actions." It was enacted by the 1907 legislature as chapter 173, 398, of the laws of that session, as an independent act without any reference to any other code, statute, or system of statutes whatsoever. Neither § 168 nor any other of the general provisions contained in Title 2, chapter 3, of Remington's Revised Statutes, applies to, or limits, § 162, not even § 155 [P. C. § 8160], which provides:

". . . but the objection that the action was not commenced within the time limited can only be taken by answer or demurrer."

Inferentially, at least, this has been the previous holding of the court, for, if § 162 were an ordinary limitation and subject to § 155, the plaintiffs' right in such an action would survive the plea of the statute, the remedy alone being affected. But we have held, in

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substance, that a tax deed, under our statutes, institutes a new and complete title, subject to defeasance only by a suit by the former owner which must be brought within three years. It is said in Sparks v. Standard Lumber Co., 92 Wash. 584, 586, 159 Pac. 812:

"The legislature has for twenty-five years, by the clearest expressions, made a tax foreclosure a proceeding in rem, and a tax title a favored title as contradistinguished from the ordinary conception of a tax titlea title tainted with the suspicion of illegitimacy. In keeping with its purpose, it has even made a title issued under a void tax foreclosure a good title if not attacked within three years. [Citing seven former decisions.