Diedrick v. Helm
Citation | 217 Minn. 483,14 N.W.2d 913 |
Decision Date | 02 June 1944 |
Docket Number | No. 33627.,33627. |
Parties | DIEDRICK et al. v. HELM et al. |
Court | Supreme Court of Minnesota (US) |
Appeal from District Court, Hennepin County; Lars O. Rue, Judge.
Representative action by Fred Diedrick and others, as minority stockholders of the Minneapolis Savings & Loan Association, against John W. Helm and others to recover certain amounts received by the P. M. Endsley Company as commissions as agent in procuring fire and tornado insurance. After adverse findings, plaintiffs appeal from an order denying their motion for a new trial.
Affirmed.
Leonard, Street & Deinard and Hyman Edelman, all of Minneapolis, for appellants.
James E. O'Brien, Kimball B. DeVoy, G. Aaron Youngquist, James G. Blaine McKusick, and O. A. Brecke, all of Minneapolis, for respondents.
This is a representative action brought by plaintiffs as minority stockholders of The Minneapolis Savings and Loan Association of Minneapolis, Minnesota (herein referred to as the association), to recover certain amounts received by the P. M. Endsley Company (herein referred to as the agency) as commissions as agent in procuring fire and tornado insurance. The claim is that the association is entitled to the commissions upon the grounds that the defendants, other than the association, through the agency, in breach of fiduciary duty, deprived the association of the opportunity to procure the insurance itself as agent, and that because of such breach of duty these defendants are chargeable for its benefit as constructive trustees of the commissions received by the agency. Other relief was sought in the court below, but the attrition of the litigation has left the single claim stated.
The case is here on a voluminous record and briefs. There are 27 assignments of error, some of which contain subdivisions. It is not necessary, nay, due regard for space prohibits our doing so, to state in detail the numerous claims made by the parties. The facts will be stated with sufficient adequacy to disclose the true picture and to show the applicability of the rules by which decision here is controlled.
Plaintiffs and the individuals named as defendants are stockholders of the association. The individual defendants also are directors of both the association and the agency. These defendants admit that they occupy a fiduciary relation to the association. About 75 per cent of the business from which the commissions were received by the agency was in connection with properties upon which the association made loans secured by real estate mortgages. Because of that circumstance, plaintiffs claim that the procuring of the insurance was a business opportunity open to the association, of which it was wrongfully deprived by the other defendants.
The association is a financial corporation with powers limited and defined by the statutes relating to savings and loan associations. It was organized in 1891. Its articles of incorporation state that the nature of its business is as follows:
The articles of incorporation also provide that the management of the business and the government of the corporation shall be vested in its board of directors and officers, and that the annual meeting of the stockholders shall be held on the third Saturday of December in each year.
During its entire corporate existence, the association has had a set of by-laws for its internal government. Section 23 thereof provides:
"All borrowers are required to cause the buildings on their mortgaged property to be insured for the benefit of the Association against fire and tornado in an amount and in some company to be designated by the Secretary. * * *."
Subsequent to 1936, the by-law was amended so as to provide that the amount of the insurance and the company should be such as was "satisfactory to the Association" instead of being "designated by the Secretary."
The by-laws also constitute the secretary the managerial officer in charge of the association's business.
From its incorporation to the time of trial, the association has conducted its business under its articles of incorporation and its by-laws. Its business has consisted of accepting deposits from its members and of lending the funds accumulated from such deposits to its members only upon security of first mortgages on real estate.
One P. M. Endsley was the first secretary of the association. From 1891 to 1917, he acted as the agent for insurance companies also and as such agent procured insurance for the association's borrowers to cover buildings upon properties upon which the association made loans. Endsley retained the commissions earned in procuring the insurance. Evidently, as we shall show later, the association's business and Endsley's income were small during the greater part of this period, and he acted as an insurance agent in placing insurance in connection with the association's loans to afford him some additional income to supplement his earnings as secretary of the association.
After the business of the association and the commissions earned from procuring insurance in connection with its loans had attained considerable proportions, the association twice considered the advisability of engaging in the insurance agency business and thus earning for itself the commissions in connection with that business. In 1911, the question was brought up for consideration at the January and February meetings of the stockholders. At the January meeting a resolution was adopted that any employe accepting a rebate or perquisite in connection with the business of the association and retaining the same should be discharged, after a hearing, by the board of directors. The resolution was referred to a committee to report at the February meeting. At that meeting the members of the committee presented majority and minority reports. The majority report provided in part as follows:
"* * * that we find the salary paid the Sec'y during the last year and for the past 20 years has been a very nominal one and that the practice of the Sec'y in engaging in the Insurance business and collecting fees from the borrower for services has been a benefit to the Association in reducing the expenses of the Assn. and that any sudden change from the present plan would result in increased expenses without any additional gain and would recommend no change at the present time, but that the salary be fixed for one year thus leaving the adjustment of salary, Insurance and expenses to the Directors at their next annual meeting."
The minority report signed by Mr. F. C. Harvey, a lawyer and at one time judge of the probate court of Hennepin county, provided in part as follows:
"(7) That all fees and commissions received by the Secretary or any other employee of the Association for fire insurance on property in which the Association is interested as mortgagee or owner shall be turned into the treasury of the Association and become part of its assets."
The minority report was adopted by the directors. The matter was brought up again at the March meeting. A resolution was adopted rescinding the action with respect to requiring the secretary to turn into the treasury of the association commissions received by him on fire insurance on property in which the association was interested. The resolution recited that subsequent to the February meeting "we have further considered said fire insurance business and find there are serious legal questions involved in carrying into effect" the report adopted at the February meeting. Thereupon a motion was adopted "That the Secretary retain all fire insurance business and commissions and his salary be fixed at $1,800 per annum." The vote was nine in favor and four against the motion. Judge Harvey voted with the majority in favor of the adoption of the motion. Mr. P. M. Endsley did not vote on the motion. Thus the matter rested until 1917.
At the August 1917 meeting of the board of directors, a committee was appointed "to investigate the insurance questions, as to the course to pursue in the future, and to report at the next meeting; that the salaries of the secretary and assistant secretary remain as they are until the next meeting." At the September meeting, the committee presented a report as follows:
"After careful investigation, we find in the judgment of the committee, and we so recommend, that the Association is by statutory provision absolutely prohibited from acting as agent or receiving premiums on insurance written."
The recommendations of the committee were unanimously adopted. Thereafter the matter was never considered by the directors.
Shortly after such action by the association's board of directors, P. M. Endsley organized the P. M. Endsley Company (the agency) for the purpose of engaging in business as an insurance agency. It had 100 shares of stock, of which 97 were issued to Mary E. Endsley, P. M. Endsley's wife, and one each to P. M. Endsley, Willis Endsley, his brother, and Frederick L. Endsley, his nephew. A few days after the agency was organized, P. M. Endsley died. His widow acquired his share. She continued to hold 98 shares of stock until her death in 1921. Shortly thereafter, Willis Endsley and Frederick L. Endsley purchased 23½ shares each from her estate, giving them 24½ shares each. In 1925, all the outstanding stock of the agency was retired, including that held by the Mary E. Endsley estate, which was purchased for the purpose, and reissued as...
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