Bent v. Priest

• Decision Date: 28 June 1881
• Parties: SILAS BENT, RECEIVER OF THE ST. LOUIS MUTUAL LIFE INSURANCE COMPANY, Respondent, v. JOHN G. PRIEST, Appellant.
• Court: Missouri Court of Appeals

10 Mo.App. 543

SILAS BENT, RECEIVER OF THE ST. LOUIS MUTUAL LIFE INSURANCE COMPANY, Respondent,

v.JOHN G. PRIEST, Appellant.

St. Louis Court of Appeals, Missouri.

Jun. 28, 1881.

1. One who acts as attorney for a corporation does not thereby bring himself into such a relation of personal trust and confidence with a director thereof as to make it improper for him to afterwards act as counsel in a proceeding against such director for money which the corporation has lost through a breach of his official trust.

2. An agreement by which the attorney of a receiver was to receive a percentage of the sum recovered, and was to indemnify the receiver for costs, cannot be shown for the purpose of defeating an action brought by the receiver, under authority granted by the court to bring such suit if indemnified for the costs.

3. A director of a corporation is a trustee of the corporation, and is chargeable with all profits secretly made out of the trust relation.

4. A director who proposes and votes for a contract out of which he secretly makes a profit, may be compelled to pay over to the corporation any profits thus made, irrespective of whether the contract was beneficial to the corporation.

5. In such a case the Statute of Limitations begins to run when the corporation discovers the secret consideration for the director's vote.

APPEAL from St. Louis Circuit Court, ADAMS, J

Affirmed.

A. J. P. GARESCHÉ and JOHN M. HOLMES, for the appellant: In cases of constructive trust, or, when a person claiming in his own right is, by operation of law, turned into a trustee, courts of equity always have applied the Statute of Limitations.-- Smith v. Riccords, 52 Mo. 581; s. c. 56 Mo. 553; Murray v. Coster, 20 Johns. 576; Hawley v. Cramer, 4 Cow. 717; Kane v. Bloodgood, 7 Johns. 114. “The next error is the exclusion by the court of evidence that the case was begun by Mr. Glover, and now prosecuted under a champertous contract. Because prosecuted under the bond, with surety of Mr. Glover to hold the receiver harmless for all costs in the event of defeat, and to receive if successful twenty-five per cent of the amount to be recovered.”-- Kinealy v. Macklin, post, p. 583; Duke v. Harper, 66 Mo. 61. The evidence does not show a cause of action. The facts do not show that this is a case in which a trustee having possession of the trust-fund has used the same for his personal benefit, and has reaped a profit from such use. Nor is it a case in which the trustee has received a profit by virtue of his position as trustee and has failed to account for it.THOS. T. GANTT and JOHN M. GLOVER, for the respondent: “If a trustee accepts any benefits in conducting the business of his cestui que trust, he will hold them in trust for him,” and “the directors of a corporation are trustees and agents of the corporation.”--Perry on Tr., sects. 206, 207; Lewin on Tr. 318; Gaskell v. Chambers, 26 Beav. 360.

THOMPSON, J., delivered the opinion of the court.

This action is prosecuted by the plaintiff, as receiver of the St. Louis Mutual Life Insurance Company, against the defendant to recover certain securities alleged to have been paid to the defendant to induce him, as director of said company, to consent to a proposed transfer of the assets of the company, to the Mound City Life Insurance Company. Before examining the merits of the case it is necessary to dispose of two extrinsic matters which are presented at its threshold:--

1. It is assigned for error that the court overruled a motion made by the defendant to exclude one of the plaintiff's counsel from participating in the conduct of the cause. The ground of the motion was, that the counsel in question had been counsel for the St. Louis Mutual Life Insurance Company in defending a suit which had been brought against it by the superintendent of insurance of the State of Missouri at the time of the alleged breach of trust by the defendant. The counsel concerned and his associate have, both in their printed and in their oral arguments, expressly declined to notice this assignment. We cannot see that the conduct in question was of a character to prejudice the legal rights of the defendant, nor can we see that it involved any professional impropriety whatever. We took occasion, all of us, to express this opinion from the bench during the argument, and after more deliberate consideration, we see no reason to modify it in any respect. The defendant's motion involved the fallacy of identifying a corporation with one of its directors. A corporation is one person, in the eye of the law, and its directors are other persons. In the eye of a court of law, the former is a principal, and the latter are its agents, or servants. In the eye of a court of equity, the former is a cestui que trust, and the latter are its trustees. One who acts as counsel for the aggregate body about a matter touching its interests does not thereby bring himself into such a relation of personal trust and confidence with one of its directors as to make it improper for him afterwards to act as counsel in a proceeding against such director for money which the corporation has lost through a breach of his official trust.

2. It is assigned for error that the court overruled a motion to dismiss the proceeding because instituted under a champertous contract between the receiver and his counsel, and that the court refused to hear evidence to prove the existence of such a contract. The answer alleges and the replication denies, that this suit was instituted and is being prosecuted under a champertous contract or bargain between the nominal plaintiff therein and his counsel, whereby the costs and expenses of the suit are to be borne by the latter, and the proceeds which may arise therefrom are to be divided between the said attorneys and the said nominal plaintiff. If this allegation had been made out, there are precedents which would have required the Circuit Court to dismiss the proceedings. Our Supreme Court has recognized the common-law rule as to champerty as existing in this State. Duke v. Harper, 66 Mo. 51. Two or three other courts have held or recognized the doctrine that, whenever it is made to appear in a court of justice that a suit is being prosecuted in pursuance of a champertous contract between the plaintiff and his counsel, by which the latter undertake to prosecute it at their own risk and costs, on consideration of receiving a part of the money or thing recovered, it is the duty of the court not to permit itself to become the organ and instrument of consummating such an agreement, but it must dismiss the suit. Webb v. Armstrong, 5 Humph. 379; Hunt v. Lyle, 8 Yerg. 142; Barker v. Barker, 14 Wis. 131; Allard v. Lamirande, 29 Wis. 502, 506; Greenman v. Cohee, 61 Ind. 201, 206. If the question were properly presented in this case, we should feel bound, not withstanding those decisions, to adhere to the rule laid down by this court in Lackland v. Smith, 7 Mo. App. 593, reaffirmed by us in the recent case of Million v. Ohnsorg, 10 Mo.App. 432, and held by the Supreme Court of Iowa in the recent case of Small v. Railroad Company, 12 Cent. L. J. 575; and to hold that the contract under which the plaintiff's attorneys are prosecuting the suit is a matter which does not concern the defendant at all, and which cannot be set up by him to prevent an examination of the merits of the controversy. But as the question is presented, we cannot see that the Circuit Court has committed any error in the premises. The record sufficiently discloses that on February 12, 1879, Mary L. Sheather, a policy-holder of the St. Louis Mutual Life Insurance Company, by John M. Glover, her attorney, who is one of the counsel of the plaintiff in this suit, filed a petition in the Circuit Court in a suit there pending between the superintendent of insurance of Missouri as plaintiff, and this company as defendant, stating that a large amount of assets of the company had been unlawfully divided among different persons who were solvent, and asking that the receivers of the company (there were then three receivers) should appear and show cause why they should not institute suits for the recovery of such assets. This petition was referred to the receivers with instructions to investigate and report to the court whether it was for the interest of the policy-holders and creditors to institute the proceedings suggested. There are statements in the record that the plaintiff (made sole receiver) made a report in pursuance of this order, and that, upon this report, the court directed or gave him leave to sue, provided he was indemnified against the costs and expenses of the ingation. The plaintiff, having testified as a witness, was asked on cross-examination, substantially the following questions: Whether John M. Glover one of his attorneys in this case, did not personally agree to pay and guarantee the expenses of this suit, and file a bond for that purpose, and to indemnify the plaintiff against such costs and expenses; and whether his counsel did not also agree to prosecute this suit as counsel for the plaintiff for the contingent fee of twenty-five per cent of the amount which might be recovered? These questions were, under the objection of the plaintiff, ruled out, and the defendant excepted. The receiver testified that he brought this suit in pursuance of the order of the court already spoken of, and that he had no other authority for bringing it. But neither this order nor the report of the receiver on which it is based is embodied in the bill of exceptions. Neither is the bond of indemnity which Mr. Glover is supposed to have given the plaintiff, found in the record. But it appears that the defendant served the plaintiff with a notice to produce it, and that he did not do so, and this would have let in secondary evidence of its contents if, in the state of the inquiry, the defendant might right fully demand the production of the bond itself.

How, then, does the question...