Morrison v. State Bank of Wheatland

• Decision Date: 16 June 1942
• Docket Number: 2219
• Citation: 126 P.2d 793,58 Wyo. 138
• Parties: MORRISON v. STATE BANK OF WHEATLAND ET AL
• Court: Wyoming Supreme Court

126 P.2d 793

58 Wyo. 138

MORRISON v. STATE BANK OF WHEATLAND ET AL

No. 2219

Supreme Court of Wyoming

June 16, 1942

APPEAL from the District Court, Platte County; HARRY P. ILSLEY Judge.

Action by Margaret Morrison and H. W. Loomis against the State Bank of Wheatland and others to compel defendants to declare and pay a dividend. The case was ordered dismissed as to plaintiff H. W. Loomis, and from a judgment for defendants plaintiff Margaret Morrison appeals.

Affirmed.

For the appellant, there was a brief and oral argument by W. B. Jones of Wheatland and James A. Greenwood of Cheyenne.

The record shows that while the bank was in a prosperous financial condition, it had paid no dividends during the year 1936 to 1940; that directors of the bank were active in purchasing outstanding shares of its stock for a grossly inadequate consideration; that dividends were withheld to induce shareholders to sell their stock for less than its real value in order to gain control and acquire unfair profits from the others. One of the original plaintiffs, H W. Loomis, who was a director, withdrew from the case before trial and the case was prosecuted by Margaret Morrison as the sole plaintiff. While the payment of dividends rests in the sound discretion of the directors, they will not be permitted to arbitrarily withhold the payment of dividends, nor be permitted to make personal profit at the expense of the trust and the owners thereof. 11 Fletcher Cyc. Sec. 5325; 14 C. J. 813; Knapp v. Jarvis Adams Co., 136 F. 1008; In re Brantman, 244 F. 101; Storrow v. Consolidated & Co., 87 F. 612; 13 Amer. Jr. Sec. 664; 55 A. L. R. 44. The rule applies to payments. Sec. 10-124, R. S., as amended by Chapter 24, Laws 1939. An officer or director of a corporation cannot use trust property for personal gain, nor take advantage of confidential relations. 3 Fletcher Cyc. Corporations, Sec. 838; 7 Amer. Jur. Sec. 293; Heims v. Jabes, 14 F.2d 29. Directors will not be permitted to prejudice the rights of minority stockholders by using surplus earnings for the payment of unreasonable salaries. Reynolds v. Diamond Mills Paper Co., 60 A. 941; 13 Amer. Jur. § 678; 14 C. J. 1234. The law requires reasonable protection to depositors. Morse on Banks and Banking, Par. 47, Fourth Edition, Chapter 24, Session Laws 1939, amending Sec. 10-124, R. S. Bank directors bear a certain fiduciary relation to their stockholders. Dunnett v. Arn, 71 F.2d 919. Their relation to stockholders is collective and individual. 7 Amer. Jur. §§ 292, 294; Backus v. Finhelstein, 23 F.2d 357; Westwood v. Continental Com. Co., 80 F.2d 494; 3 Fletcher Cyc. § 848; Dunlap v. Repair Co., 170 N.E. 917; Stewart v. Harris, 77 P. 277; Oliver v. Oliver, 45 S.E. 232; Goodwin v. Ozassez, 186 N.E. 659; Strong v. Repide, 213 U.S. 419; Hadsell v. First Nat. Bank, 150 P. 489; Groffain v. Burgess, 117 U.S. 180; Dawson v. National Life Ins. Co., 157 N.W. 929; Stewart v. Wyoming Cattle Ranch Co., 128 U.S. 383; Hoge v. George, 27 Wyo. 423; Burnett v. Taylor, 36 Wyo. 12; Claus v. Farmers State Bank, 51 Wyo. 45. The right of a single minority stockholder is stated in the recent decision of Drew v. Beckwith-Quinn, 115 P.2d 651. The decree of the court below is contrary to law, equity and the evidence in this case, and should be reversed.

For the respondents, there was a brief and oral arguments by Bard Ferrall, A. D. Walton and M. A. Kline, all of Cheyenne.

The general rule with refeernce to the payment of dividends by corporations is stated in 18 C. J. S. 1106; also Cook on Corporations (7th Ed) p. 1587. Courts will not interfere in the absence of fraud or breach of trust. Liebman v. Auto Strop Co. (N. Y.) 150 N.E. 505; Niedringhaus v. Niedringhaus Inv. Co. (Mo.) 46 S.W.2d 828; Nauss v. Nauss Bros. Co., 187 N.Y.S. 158; Trimble v. American Sugar Refining Company (N. J.) 48 A. 912; Blanchard v. Prudential Insurance Company (N. J.) 83 A. 220; Annotations, 55 A. L. R. 57; Reynolds v. Bank, 39 N.Y.S. 623; Mulcahy v. Savings and Loan Society (Cal.) 77 P. 910; Sarles v. Scandinavian American Bank (N. D.) 156 N.W. 556. Rulings on objections made to the cross-examination of plaintiff were correct. Financial statements by banks to the State Examiner are not open to public inspection. Sec. 109-535, R. S. 1931. A large surplus does not entitle stockholders to the payment of dividends. 18 C. J. S. 1106. Bank directors may charge off ledger items comprising bank assets. Secs. 10-135, 10-116, 10-117, R. S. 1931. One who alleges fraud must prove it by clear and convincing evidence. Goldberg v. Miller, 54 Wyo. 485; Kahn v. Traders' Ins. Co., 4 Wyo. 419; Patterson v. Andreesen Hardware Co., 7 Wyo. 401. The policy of the bank with respect to payment of dividends had been consistent since its organization. The purchases of the bank stock by defendants Brice and Kendig were neither illegal nor fraudulent. 18 C. J. S. 1174; Hubbard v. Schlump (Conn.) 137 A. 644; Smith v. Gray (Nev.) 250 P. 369; Annotations 84 A. L. R. 616. The evidence shows that defendants acted in good faith in conducting the bank's business. A judgment of a trial court based on conflicting evidence will not be reversed on appeal. The judgment being supported by substantial evidence should be affirmed.

Before Riner, Chief Justice; Blume, Justice; and Metz, District Judge. RINER, Ch. J., and BLUME, J., concur.

OPINION

METZ, District Judge.

This action was brought in the District Court of Platte County by Margaret Morrison and H. W. Loomis, as plaintiffs, against the above named defendants, The State Bank of Wheatland, Josephine M. Brice, Paul H. Toy, A. L. Kendig and Oscar O. Natwick, as members of the Board of Directors of said Bank, to compel them to declare and pay a dividend of "not less than $ 600.00 per share" upon the outstanding shares of the capital stock of said bank.

The attorneys for plaintiffs had made a demand upon the bank and its directors on September 20, 1939, for the payment of a dividend of not less than $ 500.00 per share. The defendant Brice replied to that letter on October 18, 1939. In her reply, she stated that the directors were anxious to pay the dividends and were bending every effort to that end, but that no dividend could be paid until all losses were eliminated. This reply was not satisfactory to plaintiffs and their attorneys, and, therefore, this action was brought by them on December 15, 1939.

At the meeting of the Board of Directors on January 8, 1940, the subject of the payment of dividends was brought before the board at a regular meeting of the Board for the first time since these defendants became directors, and upon motion of the plaintiff, H. W. Loomis, a dividend of 10% was declared. Later, on August 20, 1940, another dividend of 15% was declared, and on January 13, 1941, a further dividend of 25% was declared.

The plaintiff Loomis, who during all these times was a director of the bank, was satisfied with these payments of dividends, and thereafter he filed in the office of the Clerk of the District Court a paper in which he stated in effect that he was satisfied with the dividend payments that had been made and which were being made, and asked that the case be dismissed. Thereupon, the court made an order dismissing the case as to him. This left Margaret Morrison, who was the owner of only 12 1/2 shares out of a total of 400 shares of the bank's stock issued and outstanding, as the sole plaintiff in this action.

The plaintiff, as a basis for a recovery in this action, charged bad faith on the part of the defendants in the management of the bank's business and in the purchase and acquisition by them of the stock of other stockholders. These charges were denied by the defendants. The plaintiffs annexed to their pleadings certain interrogatories and demanded that the defendants answer said interrogatories categorically and under oath.

The trial lasted several days. At the close of plaintiff's evidence, the defendants jointly and severally moved the court for judgment. Their motion was sustained by the court and judgment was entered as prayed for, and it is from this judgment that the plaintiff has taken her appeal to this Court.

While the motion for judgment was made at the close of plaintiff's evidence, yet, as shown by the record, before that time plaintiff had called her former co-plaintiff, H. W. Loomis, and Hugh McDonald, as directors of the bank, and also the defendants Brice, Kendig and Natwick for cross-examination under the statute. In addition, the testimony of three of defendants' witnesses, A. E. Wilde, O. E. Bertagnolli and L. A. Christensen had been taken out of order. As a result of this procedure, much of defendants' proof as well as their sworn answers to the interrogatories propounded to them were before the court at the time the motion for judgment was made.

The plaintiff's petition alleged in substance that the defendant Bank, while in financial condition to do so, should and could have paid, during the years from 1936 to 1940 substantial cash dividends, did not do so because of an ulterior and dishonest motive of the defendant directors, Brice, Kendig and Toy, to gain control of the defendant Bank and acquire ownership of all its assets for a grossly inadequate consideration, by buying up all the outstanding shares of capital stock; that this scheme was conceived by defendant Brice at the time she became an officer and director of the defendant Bank, in which the defendants Toy and Kendig actively joined and participated, and the defendant Natwick, being in fact only a dummy director, unwittingly contributed to this scheme of the other three defendants in yielding to the solicitation of defendant Brice to become a director of the defendant Bank; that during all of the years from 1...