Melgard v. Moscow Idaho Seed Co.

Decision Date03 December 1952
Docket NumberNo. 7922,7922
Citation251 P.2d 546,73 Idaho 265
PartiesMELGARD et al. v. MOSCOW IDAHO SEED CO., Inc.
CourtIdaho Supreme Court

J. H. Felton, William J. Jones, Lewiston, for appellants.

Clements & Clements, Cox, Ware & Stellmon, Lewiston, Roy A. Redfield, Spokane, Wash., for respondent.

TAYLOR, Justice.

The plaintiffs (appellants) brought this action to recover upon four promissory notes given by the defendant (respondent) for unpaid wages due W. R. Melgard for services to the defendant as its general manager. The defendant admits its liability upon the notes. By counterclaim it sought and obtained judgment against the plaintiffs for a loss, in excess of the amount due on the notes, occasioned to it by a breach of duty on the part of Melgard while acting as a director and general manager of the defendant.

The defendant was established and its business carried on for many years by one Joe Zeb, who in his lifetime owned most of the stock and conducted the business as his personal affair. The business consisted of the buying, milling, processing, and selling of grains, beans, peas, lentils, etc. For a number of years prior to the death of Mr. Zeb in 1942, the plaintiff, W. R. Melgard, was employed by him and acted as assistant manager. Joe Zeb left a will by which the ownership and control of the corporation passed to his widow and she was made the trustee of an expressed trust in favor of his employees, by the terms of which the employees were to share in certain excess profits anticipated in the continued operation of the business. Following the death of Mr. Zeb, Mr. Melgard was employed as general manager at a salary of $3,000 per annum, plus 15% of annual net profits computed before income tax and bonuses. Thereafter Mr. Melgard served as a director of the corporation and had practically complete management of the business until 1947.

One Harry Graser, a son of Joe Zeb's widow, became an employee and director in 1946. August 14, 1947, a resolution was adopted by the board of directors requiring certain purchase orders to be countersigned by either Graser or the secretary-treasurer, D. C. Wilson. August 18th, at an adjourned session of the same directors' meeting, Mr. Melgard announced that it was to be expected that Mr. Graser would assume the management at some time in the future, and that he thought Graser would be qualified, and that he would be ready to step out and let Mr. Graser take over on July 1, 1948. Mr. Melgard continued in the management with Graser as assistant manager until July 1, 1948, when his connection with the business ended.

During the years of his active management, it was a part of the duty and function of Mr. Melgard to arrange for the financing of the company's business at the First Trust and Savings Bank in Moscow where its banking was carried on. In this connection he frequently signed short term and demand notes for the company as its manager. This he did up to and including June, 1948.

In October, 1947, anticipating the buying of peas by the Department of the Army, Melgard began negotiations for the purchase of peas. On October 24th, by telephone from his, the manager's office of the defendant, he inquired of the American Fruit Growers, Inc., of Oaksdale, Washington. He told the sales manager of that company that he wanted two million pounds of dry peas for which he was offering $5.85 per hundredweight, and gave the number of the long distance telephone in his, the manager's, office of the defendant, for the reply. Later the same day the sales manager at Oaksdale, by phone, advised Melgard that his firm would supply the peas at the price named. On the same day a confirmation of sale was drawn up by the Oaksdale company in the name of Moscow Idaho Seed Company as purchaser, the original of which was mailed to the company and received by Melgard as its manager. Sometime in October, Mr. Melgard and one McCowan organized a partnership or joint venture under the name of North Idaho Brokerage Co., and began buying peas in anticipation of the Army purchases. On or about October 31st, Melgard requested the American Fruit Growers, Inc., to change the confirmation of sale from the Moscow Idaho Seed Company to the North Idaho Brokerage Co. This was done and in January and February, 1948, the peas were shipped according to Mr. Melgard's directions. The secretary of the Oaksdale firm then requested an assignment of the original confirmation of sale, from defendant to North Idaho Brokerage Co. In response to this request Mr. Melgard mailed to that firm the original confirmation of sale without any endorsement or assignment. In the meantime the Army's invitation for bids having been extended to the industry, on December 8th Mr. Melgard submitted bids (offers to sell) for 5,480,000 pounds of peas at $.0799 per pound in the name of the North Idaho Brokerage Co., and for 4,000,000 pounds at $.0803 per pound in the name of the Moscow Idaho Seed Company, Inc. Both bids were accepted and the peas were shipped, received, and paid for by the Army.

By its counterclaim the defendant sought to offset and have judgment for the profits realized by Melgard on the total sales to the Army made by the North Idaho Brokerage Co. The court, however, allowed recovery for only the 2,000,000 pounds purchased from the American Fruit Growers, Inc., and originally contracted in the name of the defendant. The profit on this transaction was found to be $32,150. From this the court deducted 15%, which theoretically the plaintiff would have received as his share of the profit had the deal been completed in the name of the defendant. This left a net profit of $27,327. From this was deducted the amount due on the notes as of June 30, 1948, to-wit: $22,669.76, leaving an excess in favor of the defendant of $4,657.74, plus interest at the statutory rate from July 1, 1948, for which judgment was entered for the defendant on its counterclaim. This appeal is from that judgment.

In 1948, the widow of Joe Zeb, as trustee under his will, filed a petition in the district court of Latah County against former and current employees of the Moscow Idaho Seed Company, Inc. This petition sought a declaratory judgment defining her rights and duties as trustee and particularly to have the court determine who were the beneficiaries of the trust as employees under the will of Joe Zeb, and how the profits to be distributed to such beneficiaries were to be determined, and the date of the inception of the trust. Mr. Melgard was named as one of the defendants. He answered by disclaiming any interest as a beneficiary of the trust. Other employees answered, contending that the four notes given by the defendant to Melgard (upon which this action was brought) represent payment of the 15% of profits accruing under the agreement by which he was employed as general manager, and that the payment of such compensation was in violation of the trust and should not be allowed as a credit to the trust in the computation of the profits to be distributed under the will. The court in that case held that the notes represented a part of the expenses incurred in the operation of the business, allowed them as a credit to the trustee and, the notes having been admitted in evidence, directed they be returned to Melgard. The appellants contend that the judgment in that action is a bar to the counterclaim interposed here on the ground of res judicata. The trial court properly held against this contention. The former action was not between the same parties and the issue raised by the counterclaim here was not before the court in that case. § 10-1211, I.C.; Hilton v. Stewart, 15 Idaho 150, 96 P. 579; Rogers v. Rogers, 42 Idaho 158, 243 P. 655; Kralick v. Shuttleworth, 49 Idaho 424, 289 P. 74; Mochel v. Cleveland, 51 Idaho 468, 5 P.2d 549; Collard v. Universal Automobile Ins. Co., 55 Idaho 560, 45 P.2d 288; Evans v. Davidson, 57 Idaho 548, 67 P.2d 83.

We have examined the transcript and conclude that the evidence preponderantly supports the findings of the trial court and the judgment as entered.

'Officers and directors shall be deemed to stand in a fiduciary relation to the corporation, and shall discharge the duties of their respective positions in good faith, and with that diligence, care and skill which ordinarily prudent men would exercise under similar circumstances in like positions.' § 30-142, I.C.

As such fiduciary, director, and general manager of the defendant, it was Melgard's duty to devote his time, skill, knowledge and judgment to the welfare of the company, and to avoid any engagements, activities, or dealings which would render his personal interests antagonistic to those of his company.

'* * * if there is presented to a corporate officer or director a business opportunity which the corporation is financially able to undertake, is, from its nature, in the line of the corporation's business and is of practical advantage to it, is one in which the corporation has an interest or a reasonable expectancy, and, by embracing the opportunity, the self-interest of the officer or director will be brought into conflict with that of his corporation, the law will not permit him to seize the opportunity for himself. And, if, in such circumstances, the interests of the corporation are betrayed, the corporation may elect to claim all of the benefits of the transaction for itself, and the law will impress a trust in favor of the corporation upon the property, interests and profits so acquired.' Guth v. Loft, Inc., 5 A.2d 503, at page 511.

'In short, there is demanded of the officer or director of a corporation that he furnish to it his undivided loyalty; if there is presented to him a business opportunity which is within the scope of its own activities and of present or potential advantage to it, the law will not permit him to seize the opportunity for himself; if he does so, the corporation may elect to claim all of...

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