Fitzgerald v. Fitzgerald & Mallory Construction Co.

• Decision Date: 26 June 1894
• Docket Number: 5309
• Citation: 59 N.W. 838,41 Neb. 374
• Parties: JOHN FITZGERALD, FOR HIMSELF AND ON BEHALF OF ALL OTHER STOCKHOLDERS OF THE FITZGERALD & MALLORY CONSTRUCTION COMPANY, APPELLANT, v. FITZGERALD & MALLORY CONSTRUCTION COMPANY AND THE MISSOURI PACIFIC RAILWAY COMPANY, APPELLEES
• Court: Nebraska Supreme Court

59 N.W. 838

41 Neb. 374

JOHN FITZGERALD, FOR HIMSELF AND ON BEHALF OF ALL OTHER STOCKHOLDERS OF THE FITZGERALD & MALLORY CONSTRUCTION COMPANY, APPELLANT,
v.
FITZGERALD & MALLORY CONSTRUCTION COMPANY AND THE MISSOURI PACIFIC RAILWAY COMPANY, APPELLEES

No. 5309

Supreme Court of Nebraska

June 26, 1894

APPEAL from the district court of Lancaster county. Heard below before TIBBETS, J.

Judgment of the district court reversed and a judgment in favor of the Fitzgerald & Mallory Construction Company against the Missouri Pacific Railway Company.

Marquett, Deweese & Hall, for appellant:

The Construction Company should be allowed for the full amount agreed upon in bonds for building the first one hundred and fifty miles of road. The findings touching these two items are, in substance, that after the road was completed according to contract, they then modified it and threw off a thousand dollars a mile. There is no consideration for this pretended modification. The rule is well established that where the facts show clearly a certain sum to be due from one person to another, a release of the entire sum on a payment of a part is without consideration, and the creditor may still sue and recover the residue. (Fire Insurance Association v. Wickham, 141 U.S. 577; United States v. Bostwick, 94 U.S. 53-67; Lingenfelder v. Wainwright Brewery Co., 15 S.W. [Mo.], 848; Ayres v. Chicago, R. I. & P. R. Co., 52 Iowa 478; Sherwin v. Brigham, 39 O. St., 137; Laidlow v. Hatch, 75 Ill. 11; Wimer v. Overseers of the Poor, 104 Pa. St., 307; Vanderbilt v. Schreyer, 91 N.Y. 392; Tulane v. Clifton, 20 A. [N. J.], 1086.)

The court below found: "On the 15th day of June, 1886, the said Construction Company had ten miles of said road completed and ready for delivery to the Missouri Pacific Company; that on the 15th of July, 1886, the Construction Company had thirty miles of said road completed and ready for such delivery." The contract was that the bonds were to be delivered as each ten-mile section was built. There were no bonds issued for nine and one-half months after the first ten miles were built, and for eight and one-half months after the first thirty miles were built. For the non-delivery of the bonds the Construction Company should be allowed damages. The measure of damages is interest from the time they were due until they were delivered. (2 Sutherland, Damages, sec. 534; Hinckley v. Pittsburgh Bessemer Steel Co., 121 U.S. 264; McMahon v. New York & E. R. Co., 20 N.Y. 463; Skagit Railway & Lumber Co. v. Cole, 26 P. [Wash.], 535; Booth v. Spuyten Duyvil Rolling Mill Co., 60 N.Y. 487; Richardson v. Chynoweth, 26 Wis. 656.)

The sale by the directors, and purchase by the stockholders, of the Missouri Pacific bonds at a discount was a fraud. Neither directors of a company nor its stockholders can buy its property for less than its value, or sell it for less than its value, without making themselves and all those concerned in it liable for the true value of the property. (Farmers Loan & Trust Co. v. San Diego Street Car Co., 45 F. 527; Koehler v. Black River Falls Iron Co., 2 Black [U. S.], 721; Goodin v. Cincinnati & Whitewater Canal Co., 18 O. St., 169; Woodroof v. Howes, 26 P. [Cal.], 111.)

Without the aid of the Missouri Pacific this fraud in the sale of bonds could not have been committed. At a time when the Construction Company borrowed of Gould for sale $ 2,500,000 of bonds, there was due from the Missouri Pacific $ 3,170,000 of bonds. Gould had to act for the Missouri Pacific in withholding the $ 3,170,000 in order to loan his $ 2,500,000. The perpetration was the joint act of Gould and the Missouri Pacific. The Missouri Pacific acted with its directors and the stockholders of the Construction Company. The resolution by which the bonds were sold was passed for its benefit as well as theirs. It got part of the fruits of the sale, and cannot make defense by claiming that the acts by which the wrongs have been committed are not within the corporate powers conferred upon them. A corporation can be guilty of a conspiracy to defraud. (Cook, Stockholders, 698; Denver & R. G. R. Co. v. Harris, 122 U.S. 608; Hussey v. King, 3 S.E. [N. Car.], 923; Jackson v. Ludeling, 21 Wall. [U. S.], 628; Wayne Pike Co. v. Hammons, 27 N.E. [Ind.], 487; Barr v. New York, L. E. & W. R. Co., 96 N.Y. 444; Ervin v. Oregon Railway & Navigation Co., 27 F. 627; Peck v. Ellis, 2 Johns. Ch. [N. Y.], 131; Miller v. Fenton, 11 Paige Ch. [N. Y.], 18; Heath v. Erie R. Co., 8 Blatch. [U. S.], 347; Wilkinson v. Parry, 4 Russ. [Eng.], 271.)

The conspiracy and wrong must be viewed as a whole. If the Missouri Pacific did anything to aid the conspirators in this sale of bonds, it is responsible for the whole damages, or, after it has received the fruits, the money realized wrongfully, it is liable. A corporation may be a party to a conspiracy. (Cooley, Torts, 127, 133; Magill v. Kauffman, 4 Serg. & R. [Pa.], 318; Grand Rapids Safety Deposit Co. v. Cincinnati Safe Lock Co., 45 F. 671; Russell v. Post, 138 U.S. 425; Buffalo Lubricating Oil Co. v. Standard Oil Co. of New York, 42 Hun [N. Y.], 153; Morton v. Metropolitan Life Ins. Co., 34 Hun [N. Y.], 367; Reed v. Home Savings Bank, 130 Mass. 443; Krulevitz v. Eastern R. Co., 140 Mass. 573; Craigie v. Hadley, 1 N.E. [N. Y.], 537; McCartney v. Berlin, 31 Neb. 411.)

By the act of conspiring together for the purposes alleged, the conspirators assumed to themselves the attributes of individuality, so far as regards the prosecution of the common design, thus rendering what was said or done by any one in furtherance of the design the acts of all. (Walls v. State, 125 Ind. 400; Fogg v. Blair, 139 U.S. 126.)

Fitzgerald never received any benefits and never acquiesced in the settlement. In order to constitute one a wrong doer by ratification the original act must have been done in his interest, or intended to further some purpose of his own. No majority of a corporation, however large, can misapply the funds of a corporation. A single dissenting voice can frustrate the objects of the majority. (Cooley, Torts, 187*; 1 Morawetz, Private Corporations, sec., 249; Woodroof v. Howes, 26 P. [Cal.], 111.)

The court found that the majority of the directors and stockholders, in all matters where the interests of the Missouri Pacific and the interests of the Construction Company conflicted, acted for the benefit and interest of the Missouri Pacific. In other words, during all these transactions the Construction Company was in the hands of those hostile to it. In cases of this kind laches and acquiescence do not apply. 1 Morawetz, Private Corporations, sec. 531; Pacific R. Co. v. Missouri P. R. Co., 111 U.S. 521.)

On the issue of overcharges for materials hauled by the railway company for the Construction Company there was an agreement for a rate of three-quarters of a cent per ton per mile. The railway company claims exemption for itself from this agreement by published schedules of rates which it says it charged. It will thus be seen that what they claim to be their scheduled rates were in writing, and the only proof would be the printed schedule of what that rate was. It is necessary that the printed schedule should be produced. (Myers v. Bealer, 30 Neb. 281; Wiseman v. Northern P. R. Co., 26 P. [Ore.], 272; American Life Insurance & Trust Co v. Rosenagle, 77 Pa. St., 514; Houser v. Austin, 10 P. [Idaho], 37.)

The verbal agreement is good, and is unaffected by the rate established in the printed schedule. (Holly v. Blackman, 10 S.E. [S. Car.], 774; Snow v. Alley, 23 N.E. [Mass.], 576.)

The court erred in allowing interest at only six per cent. The regular rate in Kansas and Nebraska was seven per cent. The contract was to be performed in Kansas. If a contract is made with reference to the laws of another state the interest is to be calculated according to the place where the work is to be performed. (1 Sutherland, Damages, sec. 357; Boyce v. Edwards, 4 Pet. [U. S.], 111; Lefler v. Dermotte, 18 Ind. 246; Von Hemert v. Porter, 11 Met. [Mass.], 210; Healy v. Gorman, 15 N.J.L. 328.)

There is no proof of what the interest rate is in Kansas or in New York. It is therefore presumed to be the same as it is in Nebraska. (Wenger v. Taylor, 39 Kan. 757.)

As to the right of a stockholder to commence a suit of this kind: The corporation is under the control of the wrongdoers, George Gould, Russell Sage, Sidney Dillon, and Jay Gould, who own a controlling interest in both corporations, and virtually hold the purse-strings of both of them. A demand would be ordinarily nugatory under the circumstances, and it would be wholly contrary to established principles of justice to permit the authors of a wrong to conduct a litigation against themselves as agents of the injured complainants. (1 Morawetz, Private Corporations, sec. 252; Peabody v. Flint, 6 Allen [Mass.], 54; Brewer v. Proprietors of Boston Theatre, 104 Mass. 378; Wilcox v. Bickel, 11 Neb. 154; Ryan v. Leavenworth, A. & N. R. Co., 21 Kan. 365; Barr v. New York, L. E. & W. R. Co., 96 N.Y. 454.)

The majority of stockholders cannot combine against the minority. If they do, they are responsible for every wrong committed by that combination to the minority stockholders. (Ervin v. Oregon Railway & Navigation Co., 27 F. 625.)

B. P. Waggener and A. R. Talbot, for appellees:

No sufficient showing has been made to entitle the plaintiff as a stockholder to maintain this action. The cause of action set forth in his petition is not a cause of action in favor of Fitzgerald, but in favor of the Construction Company. The refusal of the board of directors to act is essential to give a stockholder any standing in court. (Hawes v. Oakland, 104 U.S. 450-460; Detroit v. Dean, 106 U.S. 541; Quincy v. Steel, 120 U.S. 246; Dimpfell v. Ohio & M. R. Co., 110 U.S. 210; Ivinson v. Hutton, 98 U.S. 79; Memphis City v. Dean, 8 Wall. [U. S.], 64; Cogswell v. Bull, 39 Cal. 320; Talbot v....