Hill v. Gould

Decision Date04 June 1895
PartiesHill et al., Appellants, v. Gould et al
CourtMissouri Supreme Court

Appeal from Lafayette Circuit Court. -- Hon. Richard Field, Judge.

Affirmed.

Silas W. Dooley for appellants.

(1) The trial court committed error in not removing the directors of the coal company as prayed for by plaintiffs. (2) Dealings such as presented in the case at bar will be jealously scrutinized when questioned and a court of equity will make directors account to the corporation for all profits made in the use of the corporate property or caused to be diverted from its treasury. Bent v. Priest, 86 Mo. 482; Ward v. Davidson, 89 Mo. 454; Keokuk Packet Co v. Davidson, 95 Mo. 473; Stewart v. Railroad, 38 N. J. L. 523; Ryan v. Railroad, 21 Kan. 365; Jones v. Morrison, 31 Minn. 148; Coal Co. v Sherman, 30 Barb. 553; Beatty v. Co., 19 Am. & Eng. Corp. Cases, (Can.) 171. (3) A director can not take advantage of his influence over his co-director. Twin Lick Oil Co. v. Marbury, 91 U.S. 587; 34 Ohio St. 450; Miner v. Ice Co., 93 Mich. 97; Davis v Railroad, 22 F. 883; Sellers v. Iron Co., 13 F. 20; Jackson v. McLean, 36 F. 213. Nor enter into any agreement by which his official action would be influenced. Morawetz, Priv. Corp. [2 Ed.], sec. 519. (4) Directors of a corporation have no authority to represent it in transactions with another company in which they are stockholders, if their interests in the latter company might induce them to favor it at the expense of the company whose interests have been intrusted to their care. Morawetz, Priv. Corp. [2 Ed.], sec. 520; 14 N.Y. 85; Ins. Co. v. Ins. Co., 8 Mo.App. 408; 17 Barb. 132. (5) Directors and officers of a corporation occupy a position of trust and must act in the utmost good faith. They will not be allowed to deal with the corporate funds and property for their private gain. They have no right to deal with themselves and for the corporation at the same time, and they must account for the profits made by the use of the company's assets and for moneys made by breach of trust. Ward v. Davidson, 89 Mo. 458. The court should look to the cause of action shown, and if the plaintiffs are personally interested in obtaining the relief sought by them, their motive in bringing the suit has nothing to do with the matter. Ramsey v. Gould, 57 Barb. 398; Railroad v. Collins, 40 Ga. 582; Railroad v. Elkins, 37 N.J.Eq. 273; Morawetz on Priv. Corp. [2 Ed.], sec. 259; Forrest v. Railroad, 4 De G., F. & J. 131. (7) The necessity of such protection is greater in cases of mines than in any others, for the reason that the removal of the coal is practically taking away the entire substance of the estate, and works irreparable loss to the corporation and its stockholders. Mereed Mining Co. v. Fremont et al., 7 Cal. 317; Hill v. Taylor, 22 Cal. 161; U. S. v. Parrott, 1 McAllister; Iron Co. v. Remert, 45 N.Y. 703; Thomas v. Oakley, 18 Vesey, Jr. 184.

R. T. Railey and H. S. Priest for respondents.

(1) The undisputed evidence shows that Edwin Gould is a resident of New York, and that he and W. P. Coleman have had comparatively nothing to do with the practical management of the company's business, except at the meetings of the board of directors. Mr. McDowell, since 1885, has been the vice-president and general manager of said property, and has always pursued the course concerning same which to him seemed for the best interests of the company. (2) The rule of law is clearly settled, that a third party having no interest in either the railroad company or the defendant company can act as the agent of both parties without violating any principle of law, and especially is this true upon the facts in this case, when it appears that the plaintiffs, the railway company, and defendant company had knowledge of such facts, and no objection was ever made thereto. "That an agent may, by mutual consent and with full knowledge, represent two persons in a transaction relating to or embracing a matter respecting which their interests may be diverse or conflicting, having their assent so to do admits of no doubt." 1 Spelling on Priv. Corp., sec. 198; Taylor on Priv. Corp., sec. 642; Barth v. Robinson, 55 Md. 441; Building Ass'n v. Corriell, 34 N.J.Eq. 392; Mining Co. v. Senter, 26 Mich. 77; Spering's Appeal, 71 Pa. St. 24; 1 Beach on Priv. Corp., p. 394; Rolling Stock Co. v. Railroad, 34 Ohio St. 461; Bank v. Iron Co., 97 Mo. 45. (3) The evidence in this case fails to show any fraud, embezzlement or willful misconduct for their own benefit on defendants' part and the judgment of the trial court should be affirmed. Building Ass'n v. Corriell, 34 N.J.Eq. 392.

OPINION

Burgess, J.

The plaintiffs, who are a minority of the stockholders and directors of The Rich Hill Coal Mining Company, a corporation, bring this suit against Edwin Gould, R. M. McDowell and W. P. Coleman, the other directors of said company, and David S. H. Smith, its secretary and treasurer, to remove them from their respective positions on account of mismanagement of the business of the company under their charge and control, and for a decree against them individually for money which it is alleged has been misappropriated by them, as officers of said company, for an accounting and the appointment of a receiver for said company.

The suit was begun in Bates county, but the venue was subsequently changed to Lafayette county, where, upon trial had before the court, there was judgment for defendants dismissing plaintiffs' petition, and for costs. From the judgment, plaintiffs appealed.

The petition in a general way charges the defendants with improperly selling coal cheaper to the Missouri Pacific Railway Company than to other consumers, at a loss to the coal company, and in that way discriminated in favor of said company to the detriment of the defendant corporation; that defendant McDowell was at the time acting as fuel agent for said railroad company, and also general manager of the defendant company; that the railway company owned controlling interests in other coal companies, which, by reason of the facts stated, were permitted to sell coal upon the market at a fair price and good profit, while a large portion of the output of defendant company; was purchased by said railroad company at low prices, and without any profit to the defendant company, that the defendant company, by its codefendants and managers, sold to Havens & Company, of Omaha, Nebraska, coal at ninety-five cents per ton for "run of mine" delivered at Rich Hill, which was less than the market price, and without any profit to said defendant company.

The petition further alleges that it was the custom of the country for railroad companies to put in switches for the coal companies at their own expense, and that the railroad company, through these defendants, wrongfully compelled the defendant company at large expense to put in and pay for the switches from the main track of said railroad at Rich Hill to the coal mines of the defendant company.

The petition also states that Gould, McDowell, and Coleman entered into an illegal and fraudulent contract with said Coleman, who was lessee of a zinc works plant at Rich Hill owned by the Missouri Pacific Railroad Company, by which they agreed to sell and deliver to said Coleman large quantities of slack from said coal mines at a ruinously low rate, to wit, six and one quarter cents per ton, until the slack sold at the contract price amounted to $ 6,290.74, which is uncollectible by the reason of the insolvency of Coleman.

The petition alleges that the capital stock of defendant company is $ 500,000 divided into five thousand shares of the par value of $ 100, each; that plaintiff James A. Hill is the owner of twelve hundred and ninety-two shares of said stock; that plaintiff William S. Hill is the owner of two hundred and forty-five shares; that defendant Gould holds as trustee for the Missouri Pacific Railroad Company three thousand and fifty-two shares, and that defendants McDowell, Coleman, and Smith, own nominally one share each, but which in truth and in fact belong to said railway company; that defendant Smith also holds as trustee for defendant company, four hundred and eight shares of its stock which were paid for by its money.

By way of reply to answer of defendants' plaintiffs admit that E. H. Brown and J. Gould, the latter as trustee for the Missouri Pacific Railway Company, were promoters of the defendant corporation, but aver that said railroad company, by and through J. Gould as trustee, contracted with said E. H. Brown to organize the defendant company, and to pay for such coal as it received from said company one per cent. per bushel, or twenty-five cents per ton, above the costs of the coal.

The allegations in the petition being put in issue by the answer, in order to entitle plaintiffs to the relief sought the proof must show some fraudulent conduct or mismanagement on the part of defendants Gould, McDowell, Coleman, and Smith, or some of them, with respect of the business affairs of defendant corporation. Said defendants being a majority of the stockholders as well as directors, the law required of them the utmost good faith in their management and control of the corporate property. They stand as trustees for all stockholders, and the law will not permit them to handle or manage the property of the company for personal gain or to acquire an advantage over other stockholders. They can not deal with themselves and for the corporation at the same time, and must account for all moneys made with the property of the corporation. Ward v. Davidson, 89 Mo. 445, 1 S.W. 846.

"It often happens that a consolidation, lease, sale, or contract between two corporations is made where the directors of one of...

To continue reading

Request your trial
1 cases
  • Zandt v. St. Louis Wholesale Grocer Co.
    • United States
    • Missouri Court of Appeals
    • December 30, 1916
    ... ... Van Noy v. Ins. Co., 168 Mo.App. 287; States ... ex rel v. Bank, 197 Mo. 574; Davis & Rankin v ... Creamery Assn., 63 Mo.App. 477; Hill v. Gould, ... 129 Mo. 106. (3) There was no consideration for the alleged ... promise to pay for the services rendered by the promoter ... ...

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT