Hudson v. American Founders Life Ins. Co. of Denver

Decision Date05 November 1962
Docket NumberNo. 19581,19581
Citation151 Colo. 54,377 P.2d 391
PartiesThomas K. HUDSON, Plaintiff in Error, v. The AMERICAN FOUNDERS LIFE INSURANCE COMPANY OF DENVER, Colorado, Defendant in Error.
CourtColorado Supreme Court

Clarence W. Button, Alice Loveland, Denver, for plaintiff in error.

Yegge, Hall & Shulenburg, Denver, for defendant in error.

DAY, Chief Justice.

In the trial court plaintiff, The American Founders Life Insurance Company, of Denver, Colorado, obtained a judgment against defendants Thomas K. Hudson and Robert E. Holland jointly and severally for $37,400.00 and costs. This judgment is questioned by separate writs of error filed each by Hudson and Holland. As to the judgment against Holland, that decision is announced this date. See Holland v. American Founders, Colo., 376 P.2d 162.

We shall refer to the parties as they appeared in the trial court or by name.

The complaint states four separate claims against Hudson, Forrest C. Roan and Robert E. Holland. We are concerned here only with the first claim as it relates to Hudson. The second and third claims were voluntarily dismissed by plaintiff before trial, and the fourth claim was dismissed on trial.

Plaintiff alleged that in February and March, 1956, Hudson was president of plaintiff corporation, a member of its board of directors, and, therefore, sustained a fiduciary relationship to the plaintiff. These allegations were admitted in Hudson's answer.

The complaint alleges that during February and March, 1956, Hudson was a director of Texas Adams Oil Company, Inc. and was fully familiar and conversant with the affairs, assets and business of said corporation; that in violation of his fiduciary relationship to plaintiff, Hudson unlawfully procured and caused the issuance of and delivery to Clarence W. Button of 15,000 shares of the common stock of plaintiff in exchange for shares of the Texas Adams Oil Company, Inc.; also that about said time he unlawfully procured and caused the issuance and delivery of 9,000 shares of the common stock of plaintiff to Alice Loveland and Charlotte Brown in a similar transaction involving exchange for shares of stock of Texas Adams Oil Company, Inc.; that at the time of the exchanges of stock the value of plaintiff's stock was $2.00 per share and that the Texas Adams Oil Company, Inc. stock was of doubtful value; at the time the complaint was filed the Texas Adams Oil Company stock was worthless and that said company was adjudged a bankrupt in March, 1957, and was defunct. The complaint stated that plaintiff had received only $1,000.00 for the Texas Adams Oil Company stock. Plaintiff prayed for damages in the sum of $47,000.00.

Hudson by his answer, in addition to an allegation that the complaint fails to state a claim, admitted the issuance and delivery to Button of 15,000 shares of the common stock of plaintiff and denied the material allegations of the complaint other than those above mentioned. As affirmative defenses he asserted: That there was contributed to plaintiff 8,000 shares of the common capital stock of plaintiff corporation as a donation in said transaction and that said stock was accepted and retained by plaintiff corporation in full accord and satisfaction; that plaintiff holds and retains as its property all stock of Texas Adams Oil Company received by it in the transaction and therefore is estopped to make any claim based upon such transaction; that all of Hudson's acts as an officer and director of plaintiff, and especially the so-called Texas Adams transaction, were ratified and confirmed by the stockholders of plaintiff at an annual meeting in March, 1956, and again at the annual meetings of plaintiff stockholders in 1957 and 1958.

Following trial to the court judgment was entered in favor of plaintiff and against defendants Hudson and Holland jointly and severally in the sum of $37,400.00. To the findings and conclusions of the court and to the judgment entered thereon Hudson assigns error under three categories:

1. That the evidence does not support the findings of fact or conclusions of law of the trial court nor the amount awarded as damages;

2. That the court erred in ruling out the defenses of accord and satisfaction and ratification;

3. That the court erred in failing to grant a new trial on the ground of newly discovered evidence.

1. ON THE QUESTION OF THE SUFFICIENCY OF THE EVIDENCE.

Under this point Hudson has grouped his contentions that there was no showing that he breached his fiduciary obligation to American Founders, and that even if the court should hold against him on that issue, the amount of damages is excessive and unsupported by the record. We deal with these points in that order.

The duties and obligations of executive officers and directors of corporations under Colorado law are stated in Kullgren v. Navy, etc. Co., 110 Colo. 454, 135 P.2d 1007:

'The relation which directors bear to the stockholders of a corporation, and the corporation itself, as 'universally conceded * * * is a fiduciary one;' and 'The law governing the obligations of fiduciaries is applicable to them.' Mackey v. Burns, 16 Colo.App. 6, 64 P. 485. 'A director of a corporation is in the position of a fiduciary; that is a principle deeply rooted in our law. He owes loyalty and allegiance to his corporation, a loyalty that is undivided and an allegiance that is influenced in action by no consideration other than the welfare of his corporation. He is held 'in official action, to the extreme measure of candor, unselfishness and good faith. Those principles are rigid, essential and salutary.'' Turner v. American Metal Co., Sup., 36 N.Y.S.2d 356, 369. 'The directors of a corporation act in a strictly fiduciary capacity. Their office is one of trust and they are held to the high standard of duty required of trustees. * * *''

To the same effect see Sprague v. Stratton-Massachusetts Gold Mines Co., 53 Colo. 315, 125 P. 490. Also see 13 Am.Jur., Corp. 939, § 985.

That Hudson was so bound is admitted and was fully established by the evidence. We, therefore, look to whether he violated the duties and obligations of such relationship.

The evidence is that Hudson procured or caused the issuance of the stock certificates to Clarence W. Button, Alice Loveland, and Charlotte M. Brown, and signed the certificates. When he signed the five stock certificates he knew they were being issued in exchange for Texas Adams stock as the only consideration and as 'payment in full' for stock of plaintiff corporation.

Button testified that his discussions regarding the issuance of the stock of plaintiff corporation in exchange for Texas Adams stock were solely with Hudson, and that he delivered the Texas Admas stock certificates to Hudson.

Hudson admitted full responsibility for the Texas Adams transaction. The minutes of the shareholders meeting of March 12, 1957, contained the following statement by Hudson: 'Mr. Hudson replied that this was not a cash transaction but rather an exchange of stock in The American Founders Life Insurance Company of Denver Colorado, for the stock in the Texas Adams Oil Company. At this point Mr. Hudson advised that as President of the company, he was assuming the responsibility for the investment and further stated that the President of many companies should not attempt to avoid responsibilities for those things which might occur and that he was not going to attempt to pass any blame onto any one else for anything which occurred in the company, * * *.' (Emphasis ours)

Issuance of The American Founders stock to Button, Loveland and Brown involved a breach of the so-called 'underwriting agreement' between plaintiff corporation and Colorado Management Corporation. Under that agreement Colorado Management Corporation was the sole and exclusive agent of plaintiff for the sale to the public of one million shares of stock in plaintiff corporation. The contract provided that the stock was to be sold at '$2.00 per share to the public;' and that the underwriter agreed 'to remit to the Company the sum of $1.60 per share on any share sold by it hereunder, the same being the sales price of $2.00 per share, less the commission of forty cents per share or 20% of the sale price of the stock to the public at $2.00 per share, and the Company agrees to issue such shares upon receipt of payment therefor as directed by the underwriter.' (Emphasis ours) The so-called 'underwriting' agreement therefore provided that the shares of the plaintiff corporation should not be issued until 'payment therefor' was received in cash at $1.60 per share. The prospectus of plaintiff corporation filed with the Colorado Securities Commission on October 20, 1955 stated that none of its securities would be used directly or indirectly to purchase any property, real or personal, tangible or intangible.

Other facts supporting the court's finding that Hudson violated his fiduciary obligations and duties to the plaintiff corporation were that Hudson did not consult with or discuss the Button transaction at any regular or special board meeting at which there was a quorum prior to the date of the transaction. The record on this point is that at an informal meeting in the Offices of the Colorado Management Corporation on February 9, 1956, Hudson discussed the transaction with Forrest Roan and J. R. Holt, both officials of Colorado Management Corporation. Franklin Stewart and Robert E. Holland, interlocking directors of the plaintiff corporation and also of Colorado Management Corporation, were present at this meeting. After discussing the proposed exchange of Founders offices of the Colorado Management Corporation asked if those present would favor a waiver of the provisions of the subscription agreement and underwriting agreement, which, in effect, limited sales to the public to 5,000 shares to any individual stockholder. Those present, including Holland, indicated that they...

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