Anderson v. Dunnegan

• Decision Date: 26 September 1933
• Docket Number: 41667.,Nos. 41488,41666,s. 41488
• Citation: 250 N.W. 115,217 Iowa 672
• Parties: ANDERSON v. DUNNEGAN et al. (McDANIEL, Intervener). J. J. DUNNEGAN CONST. CO. ex rel. ANDERSON v. DUNNEGAN.
• Court: Iowa Supreme Court

217 Iowa 672

250 N.W. 115

ANDERSON

v.DUNNEGAN et al. (McDANIEL, Intervener).

J. J. DUNNEGAN CONST. CO. ex rel.

ANDERSON

v.DUNNEGAN.

Nos. 41488, 41666, 41667.

Supreme Court of Iowa.

Sept. 26, 1933.

Appeal from District Court, Page County; K. R. Cook, Judge.

An action in equity and claim in probate to recover profits claimed in behalf of defendant corporation were consolidated and tried in the lower court, with the result that the petition and claim and petition of intervention were dismissed. Plaintiff and intervener appeal.

Affirmed.

See, also (Iowa) 245 N. W. 326.Carr, Cox, Evans & Riley, of Des Moines, and Stipe, Davidson & Davidson, of Clarinda, for appellants.

Stephens & Thornell, of Clarinda, and C. R. Barnes, of Shenandoah, for appellees.

CLAUSSEN, Justice.

In the beginning, a suit was commenced in equity by W. S. Anderson, a stockholder of the J. J. Dunnegan Construction Company, against the executrix of the will of J. J. Dunnegan, and said construction company to recover, in behalf of the corporation, moneys to which, it was claimed, the construction company was entitled, and for which it refused to sue. In a petition of intervention, the intervener, McDaniel, alleges that he is a stockholder in the construction company, and adopts the allegations of the petition of plaintiff. A claim was filed by W. S. Anderson for the construction company against the estate of J. J. Dunnegan. The suit in equity and the claim in probate were consolidated and tried together and are submitted in this case upon a single record. The appeals have been docketed in the office of the clerk of this court under Nos. 41488, 41666, and 41667, and are all disposed of in this opinion.

The amount involved in these actions is large; the pleadings are voluminous, embracing nearly 200 pages of the record, and a great mass of evidence was taken upon the trial, which when abstracted has produced a record of over 250 pages in addition to the exhibits which have been certified to this court. In consequence of this we can do little more than state our conclusions concerning the proper disposition of the appeals.

Prior to the year 1919, J. J. Dunnegan had been engaged in the construction of public works on a small scale. Dunnegan was not able to finance large jobs, and for the purpose of creating an organization capable of handling larger work Dunnegan cast about for associates who could supply credit. In that year a partnership was organized by him under the name of Dunnegan & Co., consisting of himself, E. S. Welsh, R. G. Berry, A. W. Murphy, E. A. Read, and E. H. Mitchell. In 1921 Mitchell sold his interest to appellant Anderson, and a new partnership was formed with Anderson as a member in the place of Mitchell under the name of J. J. Dunnegan Construction Company; the partnership contract reciting that the former partnership was continued with Anderson as a partner in the stead of Mitchell. On March 6, 1925, a Delaware corporation was organized by the members of the last-named partnership under the name of J. J. Dunnegan Construction Company. In view of the contentions of the parties, we will only say that substantially all, if not all, of the property of the partnership was taken over by the corporation and 3,000 shares of its stock were issued in blocks of 500 shares to each of the six partners.

In 1924, while the organization was still a partnership, the J. J. Dunnegan Construction Company bid on a large job in the city of St. Louis, which is referred to as the River des Peres job. It was not awarded the contract. The successful bidder failed in the performance of the work, and ultimately a proposition was made to Mr. Dunnegan by the officers of the city that the work be performed under a plan by which a percentage was paid beyond the actual cost, with a guaranty to the city that the cost would not exceed the amount of the bid. In December of 1924 Dunnegan signed a contract on that basis for the construction of a section of the improvement, between the city of St. Louis and the J. J. Dunnegan Construction Company. Attention is directed to the fact that the contract was entered into in the name of the construction company, because that fact is given great significance by appellants. Later on another contract was entered into by Mr. Dunnegan with the city of St. Louis for the construction of another section of work of the improvement, which also ran to the construction company. Both of these contracts were performed and a substantial profit was earned, due to the fact that by means of the second contract allowances were made for cleaning out silt and débris deposited by storms on the work undertaken in the first contract. About the time of the execution of the first contract Dunnegan discussed the proposition with three, and in all probability four, of his partners, each of whom questioned the advisability of taking the contract on account of the water hazard attending the work, and Dunnegan told each of them that he would take the work for Dunnegan & Briggs. Regardless of whether such discussions occurred prior or subsequent to the execution of the first contract, the contract was made in the name of J. J. Dunnegan Construction Company, and the record suggests, if it does not establish, that the second contract was made in the name of the construction company so that payment could be made under it for work which was necessarily incident to the construction of the work covered by the first contract and for which no payment could be made under the first contract. The work under both contracts was done by the Dunnegan & Briggs organization. At the time work was commenced, or very shortly thereafter, Dunnegan ordered a drag line dredge, a concrete mixer, and certain batch boxes belonging to the construction company, and a pump, owned by Dunnegan & Briggs and the construction company, sent on the work, and they were duly shipped and used on the work. At about the time work was commenced, Dunnegan drew a check on the construction company's account in a Chicago bank, payable to the First National Bank of St. Louis, and deposited this check in the name of the construction company in the First National Bank of St. Louis, and later on he drew and deposited another check in the same manner. The total amount of such checks was $11,000. Payments made for work done under the contracts were deposited in this account in the First National Bank of St. Louis and checks were drawn on the account as the work progressed. While the work was without question done by the Dunnegan & Briggs organization, the account was carried in the name of the J. J. Dunnegan Construction Company. It has been noted that the performance of both contracts resulted in a profit, and, without dispute, none of such profit was ever distributed through the construction company either as a partnership or corporation.

These actions seek to recover such profits for the corporation. It is contended by appellants that the corporation is entitled to such profits on account of the following facts:

(1) The contract was made in the name of the J. J. Dunnegan Construction Company, and while the company was a partnership when the first contract was made, upon the organization of the corporation it took over all the property of the partnership and consequently became the owner of the contract.

(2) The work was financed with construction company's money.

(3) The work was done with construction company's machinery.

[1] It will be well to consider the second and third claims of appellants before proceeding to the discussion of the first. As before stated the River des Peres work was done by the Dunnegan & Briggs organization. When the work was begun the construction company owed Dunnegan & Briggs over $40,000. The checks totaling $11,000, with which this work was carried on, were credited on the books of the construction company on its debt to Dunnegan & Briggs. Concerning the power of J. J. Dunnegan to draw the checks as he did, for application on the account of Dunnegan & Briggs, the record leaves no question. The contention that the River des Peres work was financed by construction company's money is conclusively negatived by the record. Concerning the contention that the work was done with construction company's machinery, the situation is this: In the first instance a dredge, a mixer, and certain batch boxes, owned by the construction company, and a pump, owned in equal shares by the company and Dunnegan & Briggs, were installed on the job. This machinery was purcased by Dunnegan & Briggs and paid for. There is nothing in the record to cast suspicion on the bona fides of the purchase. The sale of equipment among the organizations seems to have been a very common thing. Appellant Anderson purchased equipment from the company, and the record discloses other sales of machinery back and forth. The price at which the property was purchased was the subject of discussion between the parties, and the record indicates that the prices paid were approved by appellant Anderson; this is certainly true concerning the batch boxes and the mixer. There is no evidence concerning the value of the machinery purchased. In this situation there is no merit in the contention that the machinery used on the job was construction company's machinery.

[2][3] Adverting now to the circumstance that the contract was executed in the name of the construction company, it becomes necessary to consider appellants' claim that Dunnegan occupied a fiduciary relationship to them as partners and stockholders, in consequence of which he was not at liberty to divert the work from the construction company to Dunnegan & Briggs. Without particular attention to refinement in meaning, it may be conceded that a partner occupies a position of trust so far as the business of the partnership is concerned, and that a fiduciary relationship exists between partners. Such concessiondoes not aid in the determination of this case...