Johnson v. Radio Station Wow, Inc.

Citation144 Neb. 406,13 N.W.2d 556
Decision Date10 March 1944
Docket NumberNo. 31685.,31685.
PartiesJOHNSON v. RADIO STATION WOW, Inc.
CourtSupreme Court of Nebraska

144 Neb. 406
13 N.W.2d 556

JOHNSON
v.
RADIO STATION WOW, Inc.

No. 31685.

Supreme Court of Nebraska.

March 10, 1944.


Appeal from District Court, Douglas County; Rine, Judge.

Action by Homer H. Johnson, on behalf of himself and all other members of the Woodmen of the World Life Insurance Society, against Radio Station WOW, Inc., and others, to have a lease and assignment of license cancelled and to enjoin the society from transferring the radio station or license thereto and to require the officers of the society to pay the society all the expenses incurred in connection therewith. From a judgment dismissing the action and from an order overruling plaintiff's motion for a new trial, plaintiff appeals.

Reversed with directions.


Syllabus by the Court.

1. The directors of a corporation have no authority to make or authorize contracts or do other acts which are beyond the powers conferred upon the corporation by its charter.

2. The wisdom and expediency of corporate business policies and the methods of executing them are left to the discretion and decision of the board of directors. In the absence of usurpation, fraud, gross negligence or transgression of statutory limitations, courts of equity will not interfere,

[13 N.W.2d 557]

at the suit of dissatisfied stockholders, merely to overrule the discretion of directors on questions of corporate management, policy or business.

3. Constructive fraud is a breach of legal or equitable duty which, irrespective of the moral guilt of the fraud-feasor, the law declares fraudulent because of its tendency to deceive others, to violate public or private confidence, or to injure public interests. Neither actual dishonesty of purpose nor intent to deceive is an essential element of constructive fraud.

4. The general rule that fraud is not presumed, but must be proved by the party who alleges it, does not mean that it cannot be otherwise proved than by direct and positive evidence. Fraud in a transaction may be proved by inferences which may reasonably be drawn from intrinsic evidence respecting the transaction itself, such as inadequacy of consideration, or extrinsic circumstances surrounding the transaction

5. Value of property is always a matter of judgment, and a contract based upon inadequate consideration will not be set aside for that reason alone, unless, as the rule is generally stated, the inadequacy is so great as to furnish of itself a convincing evidence of fraud.

6. In the determination of the interests of parties, equity looks through the form and regards the substance of the transaction.

YEAGER and CHAPPELL, JJ., and ELLIS, District Judge, dissenting.


Ralph W. Slocum and Stewart, Stewart & Whitworth, all of Lincoln, for appellant.

Brown, Crossman, West, Barton & Fitch, Rainey T. Wells, and Paul P. Massey, all of Omaha, Peterson & Devoe and Cline, Williams & Wright, all of Lincoln, and William P. Kelley, of Omaha, for appellees.


Heard before PAINE, CARTER, MESSMORE, YEAGER, CHAPPELL, and WENKE, JJ., and ELLIS, District Judge.

WENKE, Justice.

This action was commenced in the district court for Douglas county by Homer H. Johnson, as plaintiff, on behalf of himself and all other members of the Woodmen of the World Life Insurance Society, against Radio Station WOW, Inc., the Woodmen of the World Life Insurance Society, a corporation, De E. Bradshaw, T. E. Patterson, Farrar Newberry, William Ruess, W. C. Braden, R. E. Miller, Sterling C. Holston, and John J. Gillin, Jr., as defendants, to have the lease and assignment of license by the society of its radio station to Radio Station WOW, Inc., be declared illegal and void and that they be canceled and terminated and that the society be enjoined from transferring by lease, assignment or otherwise radio station WOW or its license thereto and that the officers of the society be required to pay to the society all expenses incurred in connection therewith. From a finding for the defendants and against the plaintiff and dismissing the plaintiff's action and the overruling of plaintiff's motion for a new trial, the plaintiff has appealed.

For the purpose of this appeal the appellant will be referred to as the plaintiff; the defendant Radio Station WOW, Inc., as the lessee; the Woodmen of the World Life Insurance Society, a corporation, as the society; De E. Bradshaw, T. E. Patterson, Farrar Newberry, William Ruess, W. C. Braden, R. E. Miller, and Sterling C. Holston collectively as the officers and directors of the society; and John J. Gillin, Jr., as Gillin.

The first question presented by this appeal is whether the board of directors of the society had the power to authorize the execution of the lease to the radio station. Section 44-1201, Comp.St.1929, provides in part as follows: “Any such society shall be deemed to have a representative form of government when it shall provide in its constitution and laws for supreme legislative or governing body composed of representatives elected either by the members, or by delegates elected directly or indirectly by the members, together

[13 N.W.2d 558]

with such other members as may be prescribed by its constitution and laws: ***.” Section 1, art. V of the Amended and Substituted Articles of Incorporation, provides: “The Sovereign Camp shall be the supreme representative governing body and shall be composed of its elective officers, members of elective committees, who are ex officio delegates thereto, and such other delegates as are now elected or as shall hereafter be provided for and elected pursuant to the provisions of its Constitution, Laws and By-Laws. Article VI thereof provides in part as follows “The Board of Directors shall have the general control and management of the business affairs of this corporation and all matters, except during the sessions of the Sovereign Camp.” Section 2 of the Constitution, Laws and By-Laws as amended in 1941 provides: “The Sovereign Camp shall have original and appellate jurisdiction in all matters pertaining to the general welfare of this Society. *** and shall have generally such powers and may perform such duties as it may deem wise for the welfare of the Society, ***.” It further provides in section 26(a): “All power and authority of the Sovereign Camp, when not in session, shall be vested in the Board of Directors, except as herein provided.” And in section 26(c): “It shall examine the transactions and reports of its officers and transact any business that cannot be delayed until a meeting of the Sovereign Camp.” Article IV of the Amended and Substituted Articles of Incorporation provides: “It may also purchase, erect, equip, furnish, maintain and operate radio stations; ***.” Section 3 of the Constitution, Laws and By-Laws as amended in 1941 provides: “The objects of this Society shall be *** own, maintain and operate radio broadcasting stations, ***.” While it is true, as stated in 2 Fletcher, Cyclopedia Corporations (Perm.Ed.) 399, § 511: “*** the directors of a corporation have no authority to make or authorize contracts or do other acts which are beyond the powers conferred upon the corporation by its charter.” However, tested by the provisions of the statute, the Articles of Incorporation and the Constitution, Laws and By-Laws of the Society, we determine that the board of directors had the power and authority to enter into and authorize the execution of the 15-year lease of its radio station.

The next question is, should a court of equity modify the lease? After the conclusion of the trial the plaintiff moved to amend the prayer of his petition by including therein conditions for modification of the lease. It is contended by the society, its officers and directors, lessee, and Gillin that this motion was never ruled on and therefore not properly here for consideration In Davey v. Aevermann, 110 Neb. 62, 192 N.W. 956, we held: “This court will not review an alleged ruling of the district court where the record brought to this court fails to disclose that such ruling was, in fact, made by the trial court.” The prayer of plaintiff's petition includes the following: “*** and for such other, further and different relief as equity and justice may require.” If we were inclined to consider the question of modification this part of the prayer would be broad enough to permit us to do so. However, as stated in 19 C.J.S., Corporations, p. 83, § 743: “Within the limits of their authority directors or trustees possess full discretionary power, and in the honest and reasonable exercise of such power they are not subject to control by the stockholders or by the courts at the instance of a stockholder, *** in the absence of usurpation, of fraud, or of gross negligence, courts of equity will not interfere at the suit of a dissatisfied minority of stockholders, merely to overrule and control the discretion of the directors on questions of corporate management, policy, or business.” And as stated in Royal Highlanders v. Wiseman, 140 Neb. 28, 299 N.W. 459, 460: “The accepted principle is that the wisdom and expediency of corporate business policies and the methods of executing them are left to the discretion and decision of the board of directors. In the absence of usurpation, or fraud, or gross negligence, or transgression of statutory limitations, courts of equity will not interfere at the suit of dissatisfied stockholders merely to overrule the discretion of directors on questions of corporate management, policy or business.” To like effect are McQuillen v. National Cash Register Co., 4 Cir., 112 F.2d 877,Wight v. Heublein, 4 Cir., 238 F. 321;City Bank Farmers' Trust Co. v. Hewitt Realty Co., 257 N.Y. 62, 177 N.E. 309. Therefore, in the absence of usurpation, fraud, gross negligence or transgression of statutory limitations this court will not interfere with the discretionary powers

[13 N.W.2d 559]

of directors on questions of corporate management, policy or business.

The next question is, did the officers and directors of the society in making the lease so...

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