Fitzgerald v. Fitzgerald & Mallory Const. Co.

• Decision Date: 04 April 1895
• Court: Nebraska Supreme Court
• Parties: FITZGERALD v. FITZGERALD & MALLORY CONST. CO. ET AL.

44 Neb. 463

62 N.W. 899

FITZGERALD

v.FITZGERALD & MALLORY CONST. CO. ET AL.

Supreme Court of Nebraska.

April 4, 1895.

Syllabus by the Court.

1. The term “scope of authority,” as used in the law defining the liability of corporations for the tortious acts of their officers and agents, is not susceptible of a precise definition, but is limited to acts in some way incident to the employment and duties of such agents, and having some relation to the obvious purpose of their appointment.

2. A railroad company delivered to a construction company its bonds, which had been earned by the latter in building certain lines of road. Afterwards the directors of the construction company, a majority of whom were officers of the railroad company, or controlled by it, voted to sell said bonds, then worth their face, to the stockholders of the construction company, pro rata according to the number of shares held by each, at a discount of 10 per cent. The minority stockholders not being able to pay for the amounts thereof allotted to them, said bonds were, by a subsequent resolution, disposed of at the same rate to the directors interested in the railroad company. No part of the proceeds of said bonds was returned to the last-named company, nor did it profit in any way by the transaction. Held, in an action by a minority stockholder of the construction company against the railroad company for an accounting, that the action of the directors named in disposing of said bonds at a discount was not within the scope of their authority as officers of the last-named corporation, and that said company is not liable for the loss thereby occasioned.

3. The fact that such bonds may have been withheld for a considerable time after they were earned by the construction company, to the damage of the latter in the loss of promised subsidies and prospective profits, although actionable in the proper proceeding, will not render the railroad company liable for loss by reason of the negligent or corrupt action of the directors of the last-named company in disposing of said bonds for less than their value.

4. In all actions for damages, the wrong done and the injury sustained must bear towards each other the relation of cause and effect, and the damages must be the natural and proximate consequence of the act complained of.

5. Held, from an examination of the evidence, that the loan to the construction company of $2,500,000 of the bonds of the railroad company by the president of the latter was a personal transaction, in which said corporation was in no wise interested, and not made in pursuance of a conspiracy to which it was a party, having for its purpose the wrecking of the construction company. Second. The last-named company ratified said transaction by receiving and appropriating the bonds, and subsequently paying interest thereon, with the knowledge and consent of all of the stockholders.

6. The illegality of an agreement, unless disclosed by the pleadings or proofs of the party claiming through it, must, in order to be available to the adverse party, be specially pleaded.

7. Agreement examined in the light of the evidence, and held not void as against public policy.

8. A debt will not be extinguished by the payment of a less sum than the amount actually due, unless based upon a new and sufficient consideration.

9. The settlement of a doubtful or disputed claim is generally a sufficient consideration for a compromise. But, in order to have such effect, it is essential that there be in fact a dispute or doubt of the rights of the parties. An arbitrary refusal to pay, based on the mere pretense of the debtor, made for the obvious purpose of exacting terms which are inequitable and oppressive, is not such a dispute as will of itself support a compromise resulting in a reduction of the amount of his indebtedness.

10. Persons who are directors of two corporations have no implied authority to bind either by contracts with respect to subjects in which their interests are adverse; and all such agreements, unless subsequently ratified, may be avoided at the suit of nonconsenting stockholders.

11. When money is paid or concessions exacted through necessity, in order to obtain property illegally withheld, where its detention is accompanied by immediate hardship or irreparable injury, such transaction may be avoided on the ground of compulsion, although perhaps not amounting to a technical duress.

12. Acquiescence by a principal in the fraudulent or unauthorized act of his agent is, in effect, a new agreement, made with an intent to condone the wrong done, and will not be inferred from doubtful evidence, but should be established like any other material fact, by the party asserting it.

13. Mere lapse of time, unaffected by other circumstances, will not bar the right to rescind a voidable transaction, since it is not for a wrongdoer to impose extreme vigilance or promptitude as conditions to the exercise of the rights of the injured party.

14. But the failure of the injured party to object after knowledge of the wrong is evidence of ratification, and may, especially when long continued, be sufficient of itself to warrant a finding for the party alleging such fact.

15. Objection on account of the absence of parties who are not indispensable to a determination of a controversy should be made by answer or demurrer, otherwise the court may determine the rights of the parties before it.

16. The courts of this state will not examine an order of the circuit court of the United States remanding a cause for want of jurisdiction, in order to determine whether such proceeding is in accordance with the practice of that court. Such an inquiry should be made only in the court by which the order is made.

17. It is no objection to the appointment of a receiver of a corporation, in an action by a stockholder for an accounting in its behalf against a corporation indebted to it, that the debtor corporation was summoned as garnishee of the first-named corporation in an action against it by attachment, where the attachment proceeding has been abandoned, and judgment entered for damage only, without any reference to the garnishee.

18. It is a rule recognized alike by state and federal tribunals that the court which first acquires jurisdiction of the subject of an action will retain such jurisdiction until the final determination of the controversy.

19. Fitzgerald v. Fitzgerald & Mallory Const. Co., 59 N. W. 838, 41 Neb. 374, so modified as to authorize a decree in the name of the plaintiff for the benefit of the construction company in the sum of $300,906.33.

On rehearing. Modified.

For former report, see 59 N. W. 838.

Deweese & Hall and J. M. Woolworth, for appellant.

B. P. Waggener, John L. Webster, A. R. Talbot, and Isham Reavis, for appellees.

POST, J.

This cause was argued and submitted to us in the month of July, 1892; but leave to reargue was subsequently requested and allowed, and the cause assigned for hearing before the commissioners by whom were submitted the opinions heretofore filed. See 41 Neb. 374, 511, 59 N. W. 838. A consideration of motions filed subsequent to the decision above mentioned having suggested a doubt of some of the propositions therein approved, a rehearing was ordered, and the cause again submitted on its merits. It will be necessary on this hearing, for reasons which will hereafter appear, to notice but few of the many questions originally presented, and in the consideration of those our endeavor will be to apply well-established principles of equity to the admitted facts of the case, rather than an analysis of the multitude of authorities cited in the numerous briefs and on the oral argument. The result of our examination, it may be noted, is substantially in accordance with the views of the court as constituted at the time of the hearing first alluded to, although, in justice to Mr. Commissioner RYAN, it should be remarked that the different conclusion stated in the opinion mentioned was reached after consultation with the majority of the court, and fairly reflects the views then entertained by us.

It will not be necessary at this time to state in detail the facts out of which this controversy arose, in view of the elaborate statements in the former opinions. We will first notice the question presented by the claim of the plaintiff based upon the sale of the bonds of the Missouri Pacific Railway Company. Briefly stated, the facts are these: The construction company held certain bonds of the Missouri Pacific Company, which had been received by it in payment for the construction of certain roads in which the first-named company had acquired a controlling interest, and which, to the amount of $5,000,000, were, by resolution of the board of directors of the construction company, sold to certain of its stockholders at a discount of 10 per cent. of their face value, resulting in an apparent net loss to the company of $500,000. In this connection it should be remembered that the action is not against the favored stockholders for a misappropriation of the funds of the construction company; neither is it in form or substance an action to pursue property which in equity belongs to the company. That a corporation is entitled to recover against an unfaithful officer for the misappropriation of its funds is elementary law. And if, as alleged, the sale of the bonds was the consummation of a conspiracy on the part of George Gould, Russell Sage, and other directors, having for its ultimate object the wrecking of the construction company, they are without doubt answerable for their wrong when called upon for an accounting in an appropriate action. It may also be assumed, although the question is not necessarily involved in this hearing, that contracts whereby officers of a corporation realize large profits, directly or indirectly, at its expense, are presumptively fraudulent, and voidable at the election of the latter. But is the Missouri...