Hill v. Murphy

• Decision Date: 24 May 1912
• Parties: HILL et al. v. MURPHY et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

212 Mass. 1

98 N.E. 781

HILL et al. v. MURPHY et al.

Supreme Judicial Court of Massachusetts, Suffolk.

May 24, 1912

COUNSEL S. M. Child, of Boston, for plaintiffs.

J. R Murphy and W. A. Buie, both of Boston, for defendants.

OPINION

DE COURCY, J.

It must be assumed, for the purpose of the demurrer, that the following facts alleged in the bill are true. The defendants Murphy, Musgrave, Simonds, Jones and Mason, as directors of the Eastern Cold Storage Company and in its name, published a false and malicious libel of and concerning one Walter L Hill in connection with his official acts as treasurer and director of the company. Hill brought an action against the corporation for the libel and recovered judgment for a substantial amount; and this sum, together with the expenses incurred in defending the action, was paid by the defendants out of the treasury of the corporation. It is further alleged that the publication of the libel was wholly outside the legitimate business of the Eastern Cold Storage Company, that it was maliciously circulated by the defendant directors to injure the plaintiff and to gratify their own personal ends and that demand was made upon them to reimburse the corporation.

Clearly the bill sets out a cause of action in favor of the corporation against the defendant directors. When directors intentionally act ultra vires of the corporation, they are liable for the losses it sustains in consequence. Richardson v. Clinton Wall Trunk Co., 181 Mass. 580 64 N.E. 400; Greenfield Savings Bank v. Abercrombie, 211 Mass. 252, 97 N.E. 897, and cases cited; Leeds Estate Building & Loan Association v. Shepherd, 36 Ch. D. 787; Williams v. McDonald, 42 N. J. Eq. 392, 7 A. 866. And regardless of whether the publishing of the libel was within the powers of the corporation the tortious act, alleged to be willfully done by the directors to gratify their own personal ends, was a breach of the duty they owed as quasi-trustees and it has resulted in loss to the corporation. Fogg v. Boston & Lowell Railroad, 148 Mass. 513, 20 N.E. 109, 12 Am. St. Rep. 583. The liability of directors is not limited to cases where the loss to the corporation results from fraudulent misconduct on their part, or where they have received financial profit which in equity belongs to the company. Von Arnim v. American Tube Works, 188 Mass. 515, 74 N.E. 680; Greenfield Savings Bank v. Simons, 133 Mass. 415. And the familiar decisions of non-liability of directors acting honestly and within their powers for losses sustained by the corporation through their negligence, do not apply. Lyman v. Bonney, 118 Mass. 222; Overend, Gurney & Co. v. Gibb, L. R. 5 H. L. 480; Hun v. Cary, 82 N.Y. 65, 37 Am. Rep. 546; Savings Bank of Louisville v. Caperton, 87 Ky. 306, 8 S.W. 885, 12 Am. St. Rep. 488. See Phoenix Ins. Co. v. Frissell, 142 Mass. 513, 8 N.E. 348.

This liability ordinarily would be enforced in an action at law by the corporation, but where those in control refuse to act the minority stockholders may bring a bill in equity in behalf of and for the benefit of the corporation. The allegations in the bill, while somewhat meagre, fairly bring the case within the rule where the plaintiffs have no remedy within the corporation. Brewer v. Boston Theatre, 104 Mass. 378; Dunphy v. Traveler Newspaper Association, 146 Mass. 495, 16 N.E. 426.

It is conceded that if a case is stated against the directors then the corporation is a proper party. As to the defendant directors and the corporation the demurrer must be overruled.

But the demurrer of the defendant Smith must be sustained. He was not concerned in publishing the alleged libel, and did only his duty as treasurer in paying the execution against the corporation. The allegation that demand was made upon him to proceed 'in accordance with the by-laws of said corporation' to collect from the directors the sums expended in paying the judgment and expenses is insufficient without setting out by-laws that authorize such proceedings by the treasurer.

Upon the...