Fergus Falls Woolen Mills Company v. Boyum
| Decision Date | 11 May 1917 |
| Docket Number | 20,225 - (64) |
| Citation | 162 N.W. 516,136 Minn. 411 |
| Parties | FERGUS FALLS WOOLEN MILLS COMPANY v. IVER J. BOYUM |
| Court | Minnesota Supreme Court |
Action in the district court for Otter Tail county to recover $50,000. The facts are stated in the opinion. Defendant's demurrer to the complaint was overruled. The case was tried before Parsons, J., who, when plaintiff rested, denied defendant's motion to dismiss the action, and a jury which returned a verdict for $3,000. From an order denying his motion for judgment notwithstanding the verdict or for a new trial, defendant appealed. Affirmed.
Corporation -- powers of manager -- liability for violation of by-laws.
1. The manager of a corporation entrusted with the transaction of its business affairs is bound by the restrictions imposed upon the corporation by its charter and by-laws, and, if he transgresses such restrictions, is liable for the damages resulting to the corporation therefrom.
Corporation -- evidence.
2. Defendant as manager of plaintiff corporation, having contracted debts in excess of the limit prescribed by the charter, in consequence whereof it became necessary to dispose of plaintiff's merchandise at an assignee's sale and at a loss, is liable in damages.
Ultra vires acts -- ratification by all stockholders.
3. As the restriction violated was imposed upon the corporation itself by its charter, the ultra vires acts of defendant could not be ratified by the directors, but only by the unanimous action of the stockholders after full knowledge of the facts.
Waiver by stockholders.
4. The claims of the creditors appearing to be valid and enforceable, the recognition by the stockholders of liability to the creditors did not waive the right to hold defendant responsible for the damages resulting from his ultra vires acts in contracting such claims.
Measure of damages -- charge to jury.
5. The court instructed the jury in effect, that if they found that the existence of the excess indebtedness made an immediate or forced sale of plaintiff's merchandise necessary and was the sole cause of such necessity, they should allow as damages the difference between the value of such merchandise for sale at an immediate or forced sale and its value for sale in the usual course of business, not exceeding the actual loss shown by the evidence. Held justified by the facts shown by the evidence.
N. F Field and James A. Brown, for appellant.
Barke & Barke and Hilton & Thompson, for respondent.
Plaintiff is a corporation engaged in manufacturing woolen goods, and is authorized to sell its own products, and also to buy and sell other goods at wholesale or retail in the state of Minnesota and elsewhere. It had a paid-in capital stock of $131,400, and its articles of incorporation or charter provided that its indebtedness should never exceed one-half the amount of the capital stock actually paid in. Defendant was the principal stockholder and the president and general manager of the company, and took complete charge of its business affairs. The company did a profitable business for several years prior to 1913. In the spring of 1913, it had a considerable quantity of unsold products on hand, and to increase sales defendant, without consulting the board of directors, established retail stores at various places in the states of Minnesota and North Dakota, in which he placed the goods manufactured by the company and also other goods purchased from wholesalers and jobbers. In these transactions he incurred an indebtedness on behalf of the company which at one time amounted to some $200,000. In the fall of 1913, the company was unable to pay its debts then past due or to secure further extensions of time, and, at the demand of creditors and to escape threatened suits, conveyed its property to three trustees on December 23, 1913, in trust to be converted into money and applied in the payment of its indebtedness. At this time the indebtedness of the company was approximately $110,000, and the value of its assets was approximately $255,000. The trustees converted the goods on hand into cash, and, after paying all the debts and the expenses of the trust, returned the remainder of the property consisting of the manufacturing plant, the book accounts and $6,000 in cash, to the company. The value of the property so returned was approximately $60,000. On January 15, 1914, the stockholders held their annual meeting and elected a new board of directors. Shortly thereafter this suit was brought. At the trial the court eliminated all claims set forth in the complaint as grounds for recovery, except the claim that defendant was liable in damages for incurring debts on behalf of the company in excess of the limit fixed by its charter. Defendant admitted contracting the excessive indebtedness charged, but insisted that the contracting of such indebtedness had been acquiesced in and ratified by the directors and stockholders of the company. Plaintiff denied any ratification thereof. The jury returned a verdict of $3,000 for plaintiff, and defendant appealed from an order denying his alternative motion for judgment notwithstanding the verdict or for a new trial.
Although the charter and by-laws vested the management and control of the company in a board of seven directors, and gave the finance committee, of which the secretary was chairman control over the manager and other officers, yet in fact defendant was permitted to manage and operate the business as he saw fit without interference by any one. He had transacted all the business of the company so long that we shall assume that he was authorized to transact any and all business and to incur any and all obligations which the company was authorized to...
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