McConnell v. Combination Min. & Mill. Co.

• Decision Date: 21 January 1905
• Citation: 79 P. 248,31 Mont. 563
• Parties: McCONNELL et al. v. COMBINATION MIN. & MILL. CO. et al.
• Court: Montana Supreme Court

79 P. 248

31 Mont. 563

McCONNELL et al. v. COMBINATION MIN. & MILL. CO. et al.

Supreme Court of Montana

January 21, 1905

On hearing.

For former opinion, see 76 P. 194.

BRANTLY C.J.

It is not necessary to restate the facts of this case. The statement preceding the opinion delivered on the former hearing (30 Mont. ___, 76 P. 194) is entirely sufficient to meet present requirements, except certain inaccuracies therein to which attention is called before taking up a discussion of the merits. In that statement it is said that "the mines of the company were operated until June or August, 1893, when they were closed down and remained closed until June, 1895, when operations were resumed," etc. In fact, they were closed down until January, 1895. It would not be important to notice this inaccuracy but for the fact that it might mislead the trial court in taking the account which will be hereafter directed. The error was induced by a like error in the statement of facts in respondent's brief. Further along in the statement it is also said that the records of the company from July 6, 1892, the date at which the company's office was removed to St. Louis, until October 1898, when it was reopened in Butte, are in a somewhat chaotic condition. This is not justified by the facts appearing in the record, except so far as it applies to the records of the stockholders' meetings. The books of the company, except in this particular, seem to have been properly kept. All of the records were kept by the secretary or acting secretary, as is the rule with such companies. It was not necessary for the treasurer to keep separate accounts of his receipts and disbursements. The items of these properly appear in the books of accounts kept by the secretary, and this seems to have been the mode pursued throughout the history of this company.

After a re-examination of the record and the questions arising thereon in the light of the argument presented by counsel at the rehearing, we are consent, except as appears hereafter to let the case rest upon the conclusions stated in the former opinion. At the hearing much stress was laid upon the fact that the complaining stockholders had expressly authorized the removal of the office of the company from the city of Butte to St. Louis, Mo., by resolution passed at the meeting in Butte on June 27, 1892, and the contention was made that by this action they estopped themselves from making complaint that the office was thereafter kept by the directors in St. Louis, even though this was not authorized by law. It might be conceded that this contention could be successfully maintained as to the other plaintiffs; yet, so far as this record shows, it does not affirmatively appear that the plaintiff's Thompson and Merrill took part in that meeting, or that they voted their stock, either in person or by proxy. But, further than this, if all of the plaintiffs had agreed to a removal of the office to St Louis, and had thus estopped themselves to complain that it was kept there to their injury, they did not thereby agree that the funds of the company should be diverted from their appropriate uses; and, in so far as wrong was committed by the defendant directors in this regard, all the plaintiffs are in position to complain, and to have the offending directors brought to book. That they may maintain this suit for this purpose is too well settled to permit of further argument, as appears from the authorities cited in the first paragraph of the former opinion.

Again, the levy by the directors of the assessment complained of, without observance of the formalities required by law as to notice, etc., and the threatened sale of the plaintiffs' stock as delinquent, is to itself sufficient to sustain the action. The complaint is not drawn after the most approved model, and might, perhaps, have been open to the objection that different causes of action are jumbled therein. Yet no such objection was made in the district court, and, if made here, would not be considered.

The only questions deserving further consideration arise touching the items with which the defendant directors should be charged. It is clear, under the authorities cited and discussed in the opinion, that the directors of a corporation have no power to vote salaries to themselves, as was done by the defendants. Four of them adopted by-laws providing for these salaries, and then voted three of their number salaries, who thereafter and until the bringing of this action drew them regularly, whether the company was engaged in active operations or not. Their good faith in doing this is altogether immaterial. The law characterizes such action as fraudulent. As to the stockholders, the directors are trustees, besides being agents of the company and stockholders, and may not be permitted to so deal with the trust properly as to secure therefrom a profit to themselves. MacGinniss v. B. & M. C. C. & S. M. Co., 29 Mont. 428, 75 P. 89; Gerry v. Bismarck Bank, 19 Mont. 191, 47 P. 810; Coombs v. Barker, 79 P. 1, 31 Mont. 526. In Gerry v. Bismarck Bank, after commenting upon the argument of counsel made in an attempt to draw a distinction in legal effect between actual fraud of the trustees of a banking corporation and a violation of their fiduciary obligations as showing constructive fraud only, this court said, through Mr. Justice Buck: "That a trustee should not be allowed to profit by his trust is a well-known fundamental doctrine of equity. No evasions, no technical subtlety of reasoning, no empty distinctions should be tolerated when the assertion of this principle becomes necessary. It is true that when the motives of a trustee in the neglect of his duty are not essentially bad, or are readily reconcilable with ordinary honesty of purpose, certain courts have applied this rule leniently. It is true that, when in patently willful violation of duty appears, many judges have shown a disposition to check its force. It is true that weak toleration from the bench of frail, but penitent, humanity, has often apparently robbed the principle of its very life. But such precedents serve only to increase plausible devices for evading its consequences. They encourage the natural tendency of designing selfishness to substitute the vague expression 'business enterprise' for 'business honesty'." The directors had power to adopt a code of by-laws (Comp. St. 1887, div. 5, § 454); but they could not, even under a by-law, vote a salary to one of their number, when the vote of such director was necessary to make up a quorum.

Under the application of this principle it makes no difference whether the trustees intended to defraud the company and the stockholders of the amount of money appropriated for the purpose of paying their salaries, or whether they acted in the utmost good faith. The result is exactly the same; and, whether the recovery of the plaintiff's be put upon the ground of actual or constructive fraud, they are nevertheless entitled to recover upon the facts shown in this record.

These remarks apply to the items of $14,374.78, paid to Chas. D McClure as president; to the item of $1,038.15, paid to Vice President Fusz for his salary; to the item of $2,010.28, paid to Treasurer Moses Rumsey for his salary as treasurer and acting president; and to the item of $50, paid Ewing for auditing the books. These items are chargeable to the defendant directors. A portion of these sums was paid out for services never rendered, because the salaries were fixed by resolution of the board on February 25, 1893, which made the salaries payable from the 1st day of January of that year. It is true that at the meeting of the board of directors held in Butte, Mont., on October 27, 1898, the directors themselves undertook to ratify their own action in fixing and paying these salaries; but the record shows that there were present at that meeting Directors Ewing, Fusz, L. M. Rumsey, Williams, and one Merrill. Williams did not vote. Fusz was one of the officers to whom a salary had been voted at the St. Louis meeting in 1892. The resolution passed at that time could not be held to be a ratification of the action of the board in paying the salaries, unless it be conceded that Ewing, Rumsey, and Merrill were a majority of the seven directors, or were entitled to count Williams; vote in favor of the resolution. Nor can it be maintained that the resolution passed at the various stockholders' meetings amounts to a ratification of the action of the board of trustees, when the meetings were called, not for that purpose, but for the purpose of electing directors only, and no statements were presented to the stockholders as to the condition of the company, or as to what business had been transacted by them during the year. So far as the record shows, the stockholders were not informed as to the payment of these salaries by the board of directors, and the resolution itself, which is set out in the sixth paragraph of the former opinion, was not a direct and substantive act on...