Coeur D'Alenes Lead Company v. Kingsbury, 6500

• Citation: 85 P.2d 691,59 Idaho 627
• Decision Date: 20 December 1938
• Docket Number: 6500
• Court: Idaho Supreme Court
• Parties: COEUR D'ALENES LEAD COMPANY, a Corporation, Respondent, v. HENRY B. KINGSBURY and WALTER H. HANSON, Appellants

85 P.2d 691

59 Idaho 627

COEUR D'ALENES LEAD COMPANY, a Corporation, Respondent, v. HENRY B. KINGSBURY and WALTER H. HANSON, Appellants

No. 6500

Supreme Court of Idaho

December 20, 1938

CORPORATIONS-RELATION OF DIRECTORS AND OFFICERS TO CORPORATION-MANAGEMENT OF CORPORATION AFFAIRS-SALE OF STOCK TO OFFICER-ACTIONS ON BEHALF OF CORPORATION-COSTS AND EXPENSES - EVIDENCE - FAILURE TO PRODUCE - PRESUMPTION - INTEREST-UNLIQUIDATED CLAIM.

1. The directors and officers of a corporation stand in a fiduciary relation to the corporation. (I. C. A., sec. 29-141.)

2. Directors who permitted a penalty to be charged against corporation by negligently failing to promptly pay certain federal documentary taxes after they had collected the money by assessment for that specific purpose were liable to the corporation for amount of penalty, notwithstanding that directors had allegedly not paid the tax when due on advice of counsel because not justifiably imposed.

3. An agreement permitting director to retain certain stock on which assessments were delinquent and giving him an option to buy or return such amount as he might desire without in the meantime paying any assessments levied thereon was not valid, since it placed director on a different footing than other stockholders and resulted directly in loss to the corporation. (I. C. A., sec. 29-156.)

4. Where a stockholder brings an action for the benefit of the corporation and the suit terminates favorably to the stockholder and thus inures to the benefit of the corporation, the stockholder is entitled to reimbursement for his expenses, including attorney's fees.

5. Where stockholder sued on behalf of corporation to compel director to return stock which corporation had sold him with an option to buy or return such amount as he might desire without in the meantime paying any assessments levied thereon, but it was not adjudicated therein that action by stockholder was essential to corporation's benefit corporation could not subsequently recapture from director attorney's fees which it paid for director in the suit by stockholder.

6. Corporation was entitled to recover from directors the amount of stock assessments which directors had illegally collected from stockholders and retained.

7. When there was no justification for refusing to permit stockholder to inspect books of corporation, trial court was justified in holding, in action against former directors, that no attorney's fees should have been charged against corporation for services rendered in defending action by stockholder to secure inspection of books. (I. C. A., sec 29-143.)

8. Where no real attempt was made by the state to enforce statutory penalty for removal of corporate books out of the state, amount of penalty could not be recovered against former directors of corporation. (I. C. A., sec. 29-143.)

9. The rule that where a party possessed of knowledge of a matter does not produce such evidence there is a presumption that if he did so it would be inimical to his side was applicable to an action against former directors of corporation to recover moneys alleged to have been wrongfully diverted from corporate funds, where the directors did not testify.

10. Where recovery from former directors of corporation of amounts not wholly unliquidated, alleged to have been wrongfully diverted was susceptible of ascertainment by computation, interest was recoverable.

APPEAL from the District Court of the First Judicial District, for Shoshone County. Hon. Clarence J. Taylor, Presiding Judge.

Action against former directors of a corporation to recover certain moneys as wrongfully diverted from corporate funds. Judgment for plaintiff and defendants appeal. Affirmed as modified.

Judgment affirmed. Costs awarded to appellants.

Chas. E. Horning and F. C. Keane, for Appellants.

Courts will not substitute their judgment for that of directors as to the business management of a corporation. (Kranich v. Bach, 209 A.D. 52, 204 N.Y.S. 320; North Hudson Mutual Building & Loan Assn. v. Childs, 82 Wis. 460, 52 N.W. 600, 33 Am. St. 57; Warren v. Robison, 19 Utah 289, 57 P. 287, 75 Am. St. 734.)

Respondent's demand against appellants was uncertain and unliquidated, the amount due being unascertainable, and our statute (sec. 26-1904) not authorizing collection of interest, it cannot be allowed or collected. (English v. King, 39 Idaho 531; 15 R. C. L. (sec. 7) 9; Coburn v. Goodall, 72 Cal. 498, 14 P. 190, 1 Am. St. 75; Young v. Kimber, 44 Colo. 448, 98 P. 1132, 28 L. R. A., N. S., 626; Curtin v. State, 61 Cal.App. 377, 214 P. 1030; McFarland v. Carpenter, 18 Cal.App. (2d) 205, 63 P.2d 859.)

James A. Wayne and Gray & McNaughton, for Respondent.

Directors are liable to the corporation for loss occasioned by their deliberate wrongful acts or neglect of duty. (Fletcher Cyclopedia Corporations, vol. 3, sec. 990.)

Directors of a corporation stand in a fiduciary relation to the stockholders and property of the corporation, and their transactions in such capacity with themselves should be fully explained and scrutinized. (I. C. A., sec. 29-141; Ryan v. Old Veteran Min. Co., 37 Idaho 625, 218 P. 381; Riley v. Callahan Min. Co., 28 Idaho 525, 155 P. 665.)

The directors have no right to use the funds of the corporation for their own enrichment or personal advantage or any purpose not germane to the business interests of the company. ( Jesse v. Four-Wheel Drive Auto Co., 177 Wis. 627, 189 N.W. 276; Colley v. Wolcott, 187 F. 595, 109 C. C. A. 425; Grant v. Lookout Mountain Co., 93 Tenn. 691, 28 S.W. 90, 27 L. R. A. 98; Forrester v. Boston M. Con. & S. M. Co., 29 Mont. 397, 74 P. 1088-1091, 76 P. 211.)

This being an action for an accounting, it sounds in contract, and specific, definitely ascertained items wrongfully abstracted or misappropriated draw interest from the date of the misappropriation. (Bailiee v. Columbia Gold Mining Co., 86 Ore. 1, 166 P. 965; McMillan v. National Wool Warehouse & S. Co., 28 F.2d 793.)

GIVENS, J. Holden, C. J., and Morgan, Ailshie and Budge, JJ., concur.

OPINION

GIVENS, J.

Respondent, an Idaho Corporation, with assessable shares, for that reason a reorganization of the Idaho Carbonate Hill Mining Company, a Washington corporation whose shares were not assessable, with sole assets of 500,000 shares of the Atlas Mining Company, likewise an assessable corporation, derived its only revenue from assessments on its shares, which as to the 500,000 shares of the Atlas Mining Company were in turn paid by assessments on its stockholders, and thus respondent raised, during the time involved herein, by seven assessments some $ 65,000.

Respondent claims in the present action that appellants, directors of respondent company from its organization to July 7, 1931, together with their co-directors, non-residents of Idaho and not served though sued herein, retained $ 711.45 which they now admit and offer to pay, hence no further discussion thereof is necessary; suffered a penalty of $ 576.06 to be charged against the respondent because of negligent failure to promptly pay certain documentary taxes to the Internal Revenue Department of the United States Government; retained $ 204.92 of an invalid assessment, and made unjustifiable payment of $ 5,030 attorney's fees in connection with three suits and various transactions.

Directors and officers of a corporation stand in a fiduciary relation to the corporation (sec. 29-141, I. C. A.; Ryan v. Old Veteran Min. Co., 37 Idaho 625, 218 P. 381; Riley v. Callahan Min. Co., 28 Idaho 525, 155 P. 665).

Appellants contend, with regard to the delay in payment of the stamp tax to the federal government they consulted counsel and considered no tax was leviable and thus it was merely an error of judgment and not a wrongful retention or diversion to other purposes of the assessment collected for that purpose. Plaintiff's Exhibit 14, a statement from the office of the Internal Revenue Collector for the District of Idaho, shows the tax was due on or before July 8, 1931, and $ 2,000 was paid on that date. Plaintiff's Exhibit 15 shows an assessment was collected by these directors May 1, 1931, to raise $ 2,425 in addition to the $ 1,000 then on hand; the notice to the stockholders stating:

" . . . . As the money comes in from this assessment it will be applied upon the payment of the stamp tax which the government has assessed against the company as explained earlier in this letter."

Assessment No. 7, introduced in connection with Plaintiff's Exhibit 4C shows $ 2,702.95 was paid by the stockholders on this assessment by the end of June, 1931, but Plaintiff's Exhibit 14 shows only $ 2,000 was paid the government by July, 1931, when the full amount of the tax could have been paid. It was not a question, therefore, of whether in the first instance on the advice of counsel or otherwise appellants had not paid the tax when due because not justifiably imposed, but reimbursement to the corporation is justified on the ground that contrary to their obligation to the corporation and its stockholders they did not pay when they had the money, which had been collected by assessment for that specific purpose, and loss resulted because by not so paying a penalty and interest were imposed, whereas if the payment had been promptly made, loss to the extent of the $ 576.06 would not have ensued.

On October 26, 1929, an agreement was made with appellant Kingsbury whereby he was to retain certain stock on which assessments were delinquent and thus sold to him, with, in effect, an option to buy or return such amount as he might desire, but not, in the interim, to pay any assessments levied thereon; and he did not, though on the return of the stock the corporation paid him interest on what he had initially...