Home Fire Ins. Co. v. Barber

• Decision Date: 17 February 1903
• Citation: 93 N.W. 1024,67 Neb. 644
• Parties: HOME FIRE INS. CO. v. BARBER ET AL.
• Court: Nebraska Supreme Court

67 Neb. 644

93 N.W. 1024

HOME FIRE INS. CO.

v.BARBER ET AL.

Supreme Court of Nebraska.

Feb. 17, 1903.

Syllabus by the Court.

1. Subsequent stockholders have no standing, as a general rule, to attack prior mismanagement of the corporation.

2. Such a stockholder ought not to be allowed to sue, unless the mismanagement or its effects continue and are injurious to him, or it affects him specially and peculiarly in some other manner.

3. Stockholders who have acquired their shares and their interest in the corporation from the alleged wrongdoers, and through the prior mismanagement, have no standing to complain thereof.

4. Stockholders, as such, have no title to the corporate property which they may convey or incumber in their own name; but this is only another way of saying that the corporation must act through its proper agents and in the prescribed way.

5. Where a corporation is proceeding at law, or where it is asserting a title to property, or the title to property is involved, the corporation is regarded as a person separate and distinct from its stockholders, or any or all of them.

6. But where it is proceeding in equity to assert rights of an equitable nature, or is seeking relief upon rules or principles of equity, the court of equity will not forget that the stockholders are the real and substantial beneficiaries of a recovery; and if the stockholders have no standing in equity, and are not equitably entitled to the remedy sought to be enforced by the corporation in their behalf and for their advantage, the corporation will not be permitted to recover.

7. The proposition announced in the fourth paragraph of the syllabus in Fitzgerald v. Fitzgerald & Mallory Construction Co., 59 N. W. 838, 41 Neb. 374, was in effect, if not expressly, retracted on rehearing in Fitzgerald v. Fitzgerald & Mallory Construction Co., 62 N. W. 899, 44 Neb. 473, and is disapproved.

8. A plaintiff must recover on the strength of his own case, not on the weakness of the defendant's case. It is his right, not the defendant's wrongdoing, that is the basis of recovery.

9. Where service under a contract of employment for a fixed period continues after such period has expired, it is presumed to be under the same contract; but this presumption must yield to evidence showing a change of terms.

10. The general manager of a corporation, after expiration of a contract fixing his salary at $5,000 per annum, continued in the same employment, without any new agreement, and afterwards voluntarily reduced his salary to $3,000 per annum, drawing it from month to month thereafter on that basis for many years, until he gave up the office. After the original contract, no action was taken by the directors with reference to his salary; but the evidence that he took the less sum from time to time in full payment was clear and convincing. Held, that a judgment for back salary at the rate of $2,000 per annum could not be sustained.

Commissioners' opinion. Department No. 2. Appeal from district court, Douglas county; Keysor, Judge.

Action by the Home Fire Insurance Company against Charles J. Barber and others. From the judgment defendant Barber appeals and certain other parties bring cross–appeals. Reversed.Byron G. Burbank and Halleck F. Rose, for plaintiff.

W. W. Morsman and V. O. Strickler, for defendant Barber.

POUND, C.

The plaintiff is an insurance company, organized in 1884, with a capital stock of $100,000, divided into 1,000 shares of $100 each. Its business is conducted by a board of directors, a finance committee, an executive committee, and certain other officers, including a secretary and general manager. It appears that the secretary and general manager, at least down to December, 1899, was at all times intrusted with the active management and control of the company's affairs, and the president and the remaining officers appear to have given very little, if any, attention thereto. The appellant and principal defendant, Charles J. Barber, was one of the original incorporators of the company, and was a stockholder therein from its organization until December 2, 1899. During that period he was secretary and general manager, one of the directors, and a member of the executive committee. His codefendants, Lovett, Woodman, and Reynolds, were also original incorporators and stockholders, and from time to time, from its organization until December 2, 1899, were directors and members of the executive and finance committees. On December, 1899, the defendant Barber entered into a contract with one Funkhouser, whereby he agreed to sell to said Funkhouser all of the shares of the capital stock of said company, except 2 shares, which he was to obtain, if possible, and to procure the resignation of all the officers and a majority of the directors. He also agreed not to engage in the insurance business, directly or indirectly, for a period of three years. By the terms of the contract he was to furnish to Funkhouser a true and complete statement of all the assets and liabilities of the company, and if, upon investigation, the statement of assets and liabilities proved to be correct and satisfactory to Funkhouser, the latter was to pay the sum of $75,000 for said shares, less $200 for the two shares above mentioned, in case they could not be obtained, and a further sum of $40,000 as a bonus for obtaining all of the shares of stock and for procuring the resignation of the officers, relinquishing his control of the company, and agreeing not to engage further in the business of insurance. On December 2, 1899, pursuant to said contract, the defendant Barber delivered to said Funkhouser all of the shares of the capital stock of said company, except 8. He also delivered an option contract for 6 of the remaining shares, and subsequently procured and delivered the other 2. In payment therefor he received the sum of $94,380.60 in cash and $20,619.40 in assets of the company––namely, $12,350 of collateral loans, which he had agreed to accept at the time when the contract of sale was made, and certain other assets, amounting to $8,269.40, which Funkhouser had refused to accept at the time when the list of assets was under consideration. Accordingly the shares of stock were transferred on the books of the company, under the direction of Funkhouser, to himself and certain others, his associates in the transaction, and he and his said associates became thereupon, and now are, the only stockholders in the company. None of them had held stock therein theretofore. At the same time, pursuant to the contract, the defendant Barber resigned his office and procured the resignation of the defendants Reynolds, Woodman, and Lovett, and of the other principal officers and directors of the company, and a new board of directors was elected, and new officers took charge. On November 20, 1899, evidently in contemplation of a transfer of all his interest in the corporation, the defendant Barber drew out $2,200 of the company's moneys upon a claim of unpaid salary. Subsequent to the change in management of the company, this was discovered, and a controversy arose between Barber and the new management with reference thereto, as a result of which suit was brought by the company to recover said sum. Thereupon Barber made a counterclaim for some $10,000 of salary alleged to be due him and not withdrawn, and as a result of examination and investigation of the company's books with reference to this claim certain irregularities and mismanagement came to light, which were set forth in an amended petition and furnished the principal points of controversy in the case as finally tried.

Thus there are two branches to the case: Upon the one hand, a suit by the corporation to recover the money taken out by Barber as back salary just prior to the time he sold his stock, and certain other moneys which at various times he is alleged to have appropriated wrongfully to his own use; and, on the other hand, a suit to recover for Barber's mismanagement and for profits made by him through the use of the company's money at a time when he stood in a fiduciary relation thereto. The principal mismanagement consisted in borrowing funds of the company to purchase its stock, and in making a profit out of the purchase of the stock and the dividends accruing thereon. At the time the stock was bought with money borrowed from the company, it was worth about $55 per share. But seven years later, when the defendant Barber sold out his interest in the company, it had come to be worth $115 per share. During that time dividends had accrued in considerable amounts, and had been paid to and received by Barber. The decree compels Barber to account for the profits and for the dividends, on the ground that the loan of the company's funds and the use of those funds in purchase of the stock was unauthorized, and that the profits and the dividends belonged in equity to the company. Upon the issue as to salary, the court found that Barber was entitled to recover for back salary, as claimed, and applied the amount found to be due him thereon upon the amounts found due the company by reason of his mismanagement.

The facts with reference to the mismanagement, as found by the court, are substantially these: In January, 1892, and for some time prior to that date, the stockholders of the company were divided into two factions. The one consisted of the defendants, Barber, Lovett, Reynolds and Woodman, who held 237 shares, and some other stockholders, not sufficient, however, to constitute a majority. The other faction was controlled by one Hamilton, and held in the aggregate 507 shares. As the controversy became acute, the Hamilton faction required the Barber faction to purchase their 507 shares of stock, or else to submit to the election of a board of directors who would choose a new secretary and general manager and entirely alter the policy and management of the company. It appears that Barber and his associates were...