Ashby v. Peters
| Decision Date | 08 February 1935 |
| Docket Number | 29295. |
| Parties | ASHBY v. PETERS ET AL. |
| Court | Nebraska Supreme Court |
Syllabus by the Court.
1. Directors of a trust company may not delegate their responsibility, and are not excused from liability because they committed some of their duties to an executive committee, or to the directors of a wholly owned subsidiary of their corporation. They are held to that care which men of common prudence take of their own concerns.
2. Where the duty of knowing facts exists, ignorance due to negligence of duty on the part of a director creates the same liability as actual knowledge and a failure to act thereon.
3. A corporation has no thought or will of its own, and its every act is the act of the individuals who are running it.
4. Where fraud is committed by a corporation, it is time to disregard the corporate fiction and hold the persons responsible therefor in their individual capacity.
5. " A principal who authorizes an agent to conduct a transaction for him, intending that the agent shall make representations to another in the course of it which the principal knows to be untrue, is liable for such misrepresentations as if he himself had made them intentionally; if, although he does not intend that the agent shall make misrepresentations, he should know that the agent will do so, the principal is liable as if he himself had made them negligently." 1 Restatement, Law of Agency, 565.
6. It is the duty of directors to know that material statements in bonds issued under their authority, as in the case at bar and for the benefit of their company, are true. Such directors are liable for damages sustained by anyone buying such bonds who relied upon the truth of such statements which are now proved to have been false when made.
Appeal from District Court, Lancaster County; Shepherd, Judge.
Action by Minnie I. Ashby against Richard C. Peters and others. From a judgment for plaintiff, defendants appeal.
Affirmed.
Wells Martin, Lane & Offutt, Virgil J. Haggart, and W. C. Dorsey, all of Omaha, John J. Ledwith, of Lincoln, and Brogan, Ellick & Shoemaker, of Omaha, for appellants.
Howard Saxton, of Omaha, and Allen & Requartte, of Lincoln, for appellee.
Reed, Ramacciotti & Robinson, of Omaha, amicus curiae.
Heard before GOSS, C. J., EBERLY, DAY, and PAINE, JJ., and CHAPPELL and LOVEL S. HASTINGS, District Judges.
The petition charged a conspiracy to defraud against certain named directors of the Peters Trust Company, of Omaha. The jury returned a verdict for damages against all defendants, upon which verdict a judgment was duly entered.
This is the second appearance of this case in this court, the first opinion being found in 124 Neb. 131, 245 N.W. 408, in which certain legal principles were settled.
The original petition in the case at bar was filed against the five directors of the Keystone Investment Company and of the Peters Trust Company, and against Alfred C. Kennedy, who was secretary of the Keystone Investment Company, and charged that these defendants conspired with certain other persons, who were connected as salesmen, or otherwise, in the handling of said bonds, to cheat, wrong and defraud the plaintiff by fraudulent representations made to purchasers of the Keystone Investment Company bonds.
At the first trial in the district court for Lancaster county the trial court directed a verdict for the defendants, and this court reversed that judgment on the ground that, the testimony being in direct conflict upon many material points upon which reasonable minds might draw different conclusions, the cause should have been submitted to a jury for its determination.
After this decision was released, and on July 1, 1933, the plaintiff filed an amendment and supplement to her original petition, which had consisted of 17 paragraphs, and the amendment and supplement to the petition added paragraphs 18 and 19, alleging that the Peters Trust Company was the parent company of the Keystone Investment Company, which was its affiliate, and for the purpose of borrowing money for the benefit of the Peters Trust Company, without disclosing to the lenders of such money the fact that the Peters Trust Company was the actual owner of the leasehold, the Peters Trust Company acquired all of the 1,810 shares of the capital stock of the Keystone Investment Company.
The nineteenth paragraph alleged that James A. Sunderland, Willson O. Bridges, W. B. Tyler Belt, and another who was not served, were also parties to the fraud and conspiracy mentioned in the original petition, and were directors and stockholders of the Peters Trust Company, and conspired together with the other defendants for the purpose of defrauding purchasers of said bonds in the manner set out in the original petition; that is to say, all of the allegations of the original petition were, by general averment, made applicable to the three additional defendants.
Separate amended answers were filed by W. B. Tyler Belt, Willson O. Bridges, and James A. Sunderland, in which answers said defendants denied knowledge of any alleged fraud or conspiracy respecting the sale of the bonds to the plaintiff.
Trial was had in the district court for Lancaster county, and on April 18, 1934, the jury returned a verdict against all of the defendants in the sum of $2,068. A separate motion for new trial was filed by each of nine defendants, and each was overruled, and judgment entered. Notice of intention to prosecute appeal was filed by each defendant, and supersedeas bonds duly filed. Briefs were filed in this court by the plaintiff and appellee, while on behalf of the defendants and appellants briefs were only filed by the additional defendants, Sunderland, Belt and Bridges. These three defendants presented, in addition to their briefs, a printed abstract of the evidence, which has been of great value. It is indexed as to witnesses, stipulations, exhibits, and also as to the meetings of the stockholders, directors, and executive committee, the briefs and such abstract making altogether some 700 pages of printed matter.
The facts may be briefly summarized as follows: A seven-story office building at the northwest corner of Seventeenth and Farnam streets in Omaha was known as the Bee Building. The fee of this property was owned by the Bee Building Company, and was incumbered with a first mortgage of $250,000 to the New York Life Insurance Company. On February 1, 1917, the Keystone Investment Company secured a 99-year lease on said building. The entire capital stock of the Keystone Investment Company was afterwards purchased for $181,000, paid by the Peters Trust Company, and 1,806 shares of it placed in the name of the Peters Trust Company, and five certificates, of one share each, were issued to five directors of the Peters Trust Company, although never at any time their individual property, but so issued simply to qualify them to act as dummy directors of the Keystone Investment Company, it being at all times wholly owned by the Peters Trust Company.
It has been held that where a share of stock in a corporation was transferred to a person for the purpose of qualifying him as a director in the corporation, he constituted what is commonly called a " dummy" director. Hoopes v. Basic Co., 69 N.J.Eq. 679, 61 A. 979.
On May 8, 1919, the first bond issue of $400,000 was issued by the Peters Trust Company through its subsidiary, the Keystone Investment Company, to the Peters Trust Company as trustee, and sold to customers for $400,000, upon the property they had just purchased for $181,000. On May 17, 1923, the Peters Trust Company, through and in the name of the Keystone Investment Company, issued $400,000 of " refunding" bonds to take up its first issue of the same amount, maturing June 1, 1924. This refunding issue bore 6 per cent. interest from June 1, 1923, and matured June 1, 1933. These refunding bonds were each designated " Peters Trust Building Refunding First Mortgage Real Estate Gold Bond." The plaintiff purchased $1,600 of these bonds during the years 1923 and 1924. It is charged by plaintiff that the Peters Trust Company owned the leasehold, but did not disclose the fact of its ownership to the purchasers, bearers, owners, or holders of the Keystone bonds.
On December 10, 1929, the Peters Trust Company filed a voluntary petition in bankruptcy, and on the same date was adjudicated bankrupt. On October 15, 1930, the Bee Building Company secured judgment for possession and restitution of the Bee Building premises in an action of forcible entry and detainer, founded upon the default in the payment of the rentals of the 99-year lease by the Keystone Investment Company, and on November 5, 1930, a decree was entered in the district court for Douglas county, canceling said lease and quieting title to the real estate in the Bee Building Company.
The interest on the $400,000 issue of bonds of the Keystone Investment Company was paid promptly at the office of the Peters Trust Company up to and including the coupons due June 1, 1929, after which date the interest was not paid, and all of the bonds became absolutely worthless in the hands of their holders, including the plaintiff in this case.
James A. Sunderland, one of the defendants, testified that he was 73 years old, and had lived in Omaha over 50 years, during which time he had been an officer of the Sunderland Brothers Company continuously; that he owned 62 shares of stock in the Peters Trust Company, but that he never transacted any business with the company except in connection with his membership on its board of directors. The minutes of the stockholders' meetings show that he was elected a director each year from 1920 to 1925, but he testifies that he did not...
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