Davies v. Meisenheimer

• Decision Date: 12 April 1949
• Parties: DAVIES v. MEISENHEIMER et al.
• Court: Wisconsin Supreme Court

254 Wis. 419

37 N.W.2d 93

DAVIES

v.MEISENHEIMER et al.

Supreme Court of Wisconsin.

April 12, 1949.

Appeal from a judgment of the Circuit Court for Milwaukee County; Otto H. Breidenbach, Circuit Judge.

Affirmed.

This is an action by Laura B. Davies, plaintiff, against Edward J. Meisenheimer, Gillis Meisenheimer, Edward A. Meisenheimer and Meisenheimer Printing Company, a Wisconsin corporation, defendants, commenced on June 7, 1946. The action is for the purpose of enforcing payment to the corporation of an indebtedness owed it by defendant Edward J. Meisenheimer, its president. The action was commenced by Laura B. Davies and Gertrude S. Salentine, as executors of the estate of Elizabeth M. Meisenheimer, deceased. During the pendency of the action Laura B. Davies was substituted as plaintiff. The action was tried to the court without a jury, findings of fact and conclusions of law were duly made and entered and on October 5, 1948 judgment was entered dismissing plaintiff's complaint. Plaintiff appeals.

The material facts will be stated in the opinion. Wood, Warner, Tyrrell & Bruce, of Milwaukee, for appellant.

Lines, Spooner & Quarles, of Milwaukee (Charles B. Quarles and Irving T. Babb, both of Milwaukee, of counsel), for respondents.

WICKHEM, Justice.

For many years defendant, Edward J. Meisenheimer, has been a director and president of Meisenheimer Printing Company, a Wisconsin corporation. More recently he has also been treasurer of the company. The company is a closely held family corporation and prior to 1940 the directors were Edward J. Meisenheimer and his brothers, Adam and Rudolph and Joseph. A sister, Daisy, was the only stockholder other than the directors. Since 1930 there has been a practice in the corporation of having the corporation advance sums to pay personal obligations and expenses of Edward J. Meisenheimer and other directors. These withdrawals were acquiesced in by all the stockholders although after the custom had started there was insistence by some of the directors that the indebtedness be repaid. The printing company operates in a building which had been owned by the father of the stockholders but title to which is now in a corporation known as The Meisenheimer Family, Incorporated. The Printing Company rents the premises from the Family Corporation. The stockholders in the Family Corporation are the same as those in the Printing Company but the percentage of stock owned by each is different. For example, plaintiff, Laura B. Davies, owns 20% of the stock in the Family Corporation and only 1.37% of the stock in the Printing Company. EdwardJ. Meisenheimer, on the other hand, owns 15% of the stock in the Family Corporation and 36.37% of the stock in the Printing Company. In 1940 Adam Meisenheimer died. At that time the company was indebted to him and unable immediately to liquidate this debt. His shares of stock went to his widow and one of these shares was transferred to his son, Edward A. Meisenheimer, who was thereupon elected a director and put on the company's payroll as a sales consultant, although he had a full time job elsewhere. Rudolph Meisenheimer died in 1943 and at that time was indebted to the Printing Company. This indebtedness was settled by cancelling his stock in the Printing Company and also in the Family Corporation. Thereafter Edward J. Meisenheimer gave ten shares of his stock to his son, Gillis, who was then elected a director. Gillis had been employed by the company for about twenty years prior to this time. In 1945 Daisy Meisenheimer died leaving her shares of stock in both corporations to plaintiff, Laura B. Davies. Through Edward L. Wood, her proxy, she caused an investigation into the affairs of the two companies. This disclosed that as of April 30, 1946 Edward J. Meisenheimer owed the company $37,436.63 in addition to $10,000 owed the company upon a mortgage loan. Joseph Meiseheimer, brother of defendant, Edward J. Meisenheimer, had worked for the Printing Company for fifty years in July of 1945 when he was discharged as an employee and at the stockholders' meeting in 1946 was dropped as a director and replaced by the attorney for Edward J. Meisenheimer.

The court upon sufficient evidence found that Edward J. Meisenheimer had been charged with interest on advances to him; that the present value of his stock is in excess of his indebtedness to the Printing Company; that the latter has sustained no damages by reason of the advances and that the indebtedness was sustained with the consent of all the stockholders and without any objection until that made by plaintiff in 1946. It is not disputed that Edward J. Meisenheimer owes the indebtedness of which plaintiff complains. Plaintiff was not a stockholder when the indebtedness was sustained and any acquiescence by her must be the result of imputing to her the assent of her predecessor in title.

Plaintiff contends that defendant as president-treasurer and director of the Printing Company is a trustee as to the stockholders; that as such trustee he owes the utmost fidelity to the corporation and must deal with it in the highest good faith. Hinkley v. Sagemiller, 191 Wis. 512, 210 N.W. 839; that it is held in Wisconsin that ‘directors of a corporation are not permitted to use their position of trust and confidence to further their private interests, nor to become parties to contracts concerning corporate affairs intrusted to their management which conflict with a free and impartial discharge of their duties toward the stockholders.’ Timme v. Kopmeier, 162 Wis. 571, 156 N.W. 961, 962, L.R.A. 1916D, 1114. It is contended that the rule of the Wisconsin cases is that ‘no dealing by one in fiduciary capacity with himself individually can prejudicially change the situation of the beneficiaries or their property. The application of this rule is not dependent upon the existence either of fraud or mismanagement; for its foundation is in a sound public policy, which would exclude all necessity of investigation of either the honesty or the wisdom of such dealings in a dual capacity.’ Shaw v. Crandon State Bank, 145 Wis. 639, 129 N.W. 794, 799. See also in Matter of Filardo, 221 Wis. 589, 267 N.W. 312, 105 A.L.R. 438;Kline v. Little Rapids Pulp Co., 206 Wis. 464, 240 N.W. 128;Federal Mortgage Co. v. Simes, 210 Wis. 139, 245 N.W. 169, 173. In the latter case this court said:

‘It is one thing for a stockholder or director to deal with a corporation in a transaction in which he does not represent the corporation. Even in such cases the transaction will be closely scrutinized to see that no advantage has been taken of the corporation. But quite a different principle applies where a director represents both himself and the corporation in such a transaction. In the latter situation it does not matter whether the transaction results in injury to the corporation or not. * * *’ See also Koelbel v. Tecktonius, 228 Wis. 317, 280 N.W. 305.

In Restatement of Trusts, Sec. 170(1)l, it is said in respect of the use of trust property for trustee's own purposes:

‘The trustee violates his duty to the beneficiary * * * where he uses the trust property for his own purposes. Thus, he cannot properly use trust money in his business, or lend trust money to himself, or lease to himself land which he holds in trust * * *.’

It is further contended that a corporation has no power to make loans to a corporate officer in the absence of statutory authority, citing Lindemann v. Rusk, 125 Wis. 210, 104 N.W. 119, 128. The foregoing puts as forcibly as we know how to do so the principal contentions of plaintiff.

Defendants' reply that the indebtedness results in no disadvantage to the Printing Company or its stockholders; that Edward J. Meisenheimer has at all times been a minority stockholder subject to the direction of his fellow stockholders and directors; that, in fact, the board of directors is made up of the owners of less than the majority of stock and could be removed at any time; that neither the directors nor the company is dominated by Edward J. Meisenheimer; that the advances were approved at the time of making by all existing stockholders and directors and that no demand for repayment was...