Morton v. Morton Realty Co.

• Decision Date: 10 December 1925
• Citation: 41 Idaho 729,241 P. 1014
• Parties: JOHN W. MORTON, Respondent, v. MORTON REALTY COMPANY, a Corporation, FOSTER CRANE and F. R. GOODING, Appellants
• Court: Idaho Supreme Court

241 P. 1014

41 Idaho 729

JOHN W. MORTON, Respondent, v. MORTON REALTY COMPANY, a Corporation, FOSTER CRANE and F. R. GOODING, Appellants

Supreme Court of Idaho

December 10, 1925

CORPORATIONS - SUITS BY STOCKHOLDERS AGAINST OFFICERS AND DIRECTORS-ACCOUNTING-EQUITABLE ACTION-RIGHT TO JURY TRIAL-REFEREE'S FINDINGS-APPEAL AND ERROR-OBJECTIONS-ASSIGNMENT OF ERROR.

1. Directors of corporations act in a fiduciary capacity. They hold the corporate property in trust, and any attempt on their part to divert the use of such property to their personal profit or interest is a violation of the trust imposed by virtue of their official position.

2. A stockholder may maintain an action against the officers who are also the directors of a corporation to restrain them from doing an intended unlawful act when such officers and directors are in complete control of the corporation.

3. A suit may be instituted by a stockholder against an officer or directors of a corporation to redress wrongs to the cor- poration, where a demand on the corporation to sue would be futile or useless and where the suit is to restrain the directors from doing an alleged intended unlawful act.

4. The remedy of such stockholder is in equity and therefore the parties are not entitled as a matter of right to a jury trial.

5. Complaint in this case examined and held to justify a stockholder in suing the directors and general manager to restrain the alleged intended unlawful disbursing of corporate funds.

6. Objection that a referee has exceeded his authority in making certain findings and conclusions must be made in the trial court, and such objection comes too late if made for the first time in the appellate court.

7. On appeal from a judgment based on findings of a referee, any adverse ruling of the referee appearing to have been excepted to, or by statute deemed excepted to and preserved in the reporter's transcript, where such transcript of the evidence has been settled and allowed as a bill of exceptions by the trial judge, may be assigned as error and will be considered by this court the same as if such proceedings had taken place before and in the course of a trial by the district court.

8. The cross-examination of an adverse party under C. S., sec. 8035 is confined by C. S., sec. 8034, to the material issues in the case.

9. In an action for an accounting where respondent, plaintiff below, had testified on cross-examination under the statute permitting the examination of an adverse party, that "I know the accounting isn't correct as far as we have investigated," it was prejudicial and reversible error to not allow the answer to the question, "Now, will you designate to the court that portion of the total that is incorrect?"

APPEAL from the District Court of the Fourth Judicial District, for Gooding County. Hon. H. F. Ensign, Judge. Action for an accounting. Judgment for plaintiff.

Reversed.

Bissell & Bird and W. T. Stafford, for Appellants.

J. G Watts and James & Ryan, for Respondent.

Where the ultimate relief sought in an action is the recovery of a money judgment, and equitable issues are only incidental, the action is one at law. (Johansen v. Looney, 30 Idaho 123, 163 P. 303.)Under such circumstances, if, without the consent of the parties, a statute authorizes a reference of the cause merely because it involves a long account, such statute is repugnant to art. 1, sec. 7 of the constitution providing that the right of trial by jury shall remain inviolate, and any reference made is erroneous. (C. S., secs. 6865, 6870, 6871, 6835 and 6857; St. Paul etc. Co. v. Gardner, 19 Minn. 132, 19 Gilf. 99, 18 Am. Rep. 334;; Russell v. Alt, 12 Ida. 789, 88 P. 416, 13 L. R. A., N. S., 146, with annotation at 12 Idaho 789, 88 P. 416, 13 L. R. A., N. S., 146.)Where an order of reference directs the referee to state an account between the parties only, but despite this limited authority the referee proceeds to make findings and conclusions upon all the basic issues of the pleadings and such findings are unauthorized and invalid, if a judgment based exclusively thereon is entered it is unfounded ands erroneous. (Taylor v. Peterson, 1 Ida. 513; Idaho Placer Min. Co. v. Green, 14 Ida. 294, 94 P. 161; Morris v. Lemp, 13 Ida. 116, 88 P. 761; McElroy v. Whitney, 12 Ida. 512, 88 P. 349; Bradshaw v. Morse, 20 Mont. 214, 50 P. 554; Best v. Pike, 93 Wis. 408, 67 N.W. 697; C. S., secs. 6870, 6871; Williams v. Benton, 24 Cal. 424; Ward v. Cochran, 150 U.S. 597, 14 S.Ct. 230, 37 L. ed. 1195.)The finding of a referee authorized to state an account between the parties is in the nature of a special verdict. (C. S. sec. 6877.)And such findings may be reviewed in the manner that verdicts of juries are reviewed. (United Slates v. Ramsey, 158 F. 488.) And may be-reversed or altered even though there be a substantial conflict in the evidence. (Jackson v. Cowan, 33 Ida. 525, 196 P. 216.)Art. 1. sec. 7 of the Idaho constitution, guaranteeing trials by jury, refers only to actions at law and not to equitable actions. (Christensen v. Hollingsworth, 6 Ida. 87, 96 Am. St. 256, 53 P. 211; Russell v. Alt, 12 Ida. 789, 88 P. 416, 13 L. R. A., N. S., 146.)Where the relationship between the parties is a fiduciary one, an action in accounting is an equitable action. (Fox v. Hall, 164 Cal. 287, 128 P. 749; 1 C. J. 612, 621; 1 R. C. L. 224; Pomeroy's Equity Jurisprudence, 4th ed., sec. 1421.)The relation between a corporation and its president acting as its general manager is a "fiduciary relation." (Tevis v. Hammersmith (Ind. App.), 81 N.E. 614.)Where an accounting has been had, and the evidence taken, it is then too late to interpose an objection that the remedy is at law. (1 C. J. 626, and cases cited; Drake v. Lucoe; 157 Pa. 17, 27 A. 538.)The findings of a referee based upon conflicting evidence will not be disturbed on appeal. (Clark, Wise & Co. v. Hauschildt, 28 Cal.App. 47, 151 P. 149; Mogenson v. Zubler, 36 Colo. 235, 84 P. 981; Bernard v. Sloan (Cal.), 2 Cal.App. 737, 84 P. 232; Stephens v. Parvin, 33 Colo. 60, 78 P. 688.)Objections to the report of a referee in an accounting that his findings are not sustained by the evidence and that his report goes beyond the scope of the order of reference will not be disturbed where not presented to the trial court at the hearing upon the referee's report. (Clark, Wise & Co. v. Hauschildt, supra; Mogenson v. Zubler, supra; First Nat. Bank v. McClellan, 9 N. M. 636, 58 P. 347.)An appellate court cannot consider assignments of error attacking the action of a referee before whom the case was tried, but such action must first be attacked in the district court, and the action of such court thereon may be then assigned as error. (Howe v. City of Hobart, 1907 OK 20, 18 Okl. 243, 90 P. 431; Northrup Nat. Bank v. Webster Refining Co., 91 Kan. 434, 138 P. 587; 89 Kan. 738, 132 P. 832; Meyer v. Eichler, 92 Or. 1, 179 P. 659; Porter v. Barling, 2 Cal. 72.)To entitle an appellant to review a judgment based upon the report of a referee and to attack the findings of fact, it is necessary that a motion for a new trial should have been filed in the trial court and overruled by that court. (Northrup Nat. Bank v. Webster Refining Co., supra.)C. S., sec. 6887, authorizes a new, trial in the case of a decision by a referee.In the case of a reference the lower court does not review the evidence but must render judgment in accordance with a report of the referee, unless objection thereto is made. (C. S.; sec. 6876; Northrup Nat. Bank v. Webster Refitting Co., supra.)Where a reference has been ordered and the referee makes his findings, the district court has no jurisdiction to determine the facts, but can only grant a new trial. (Northrup Nat. Bank v. Webster Refining Co., supra.)An appellate court will not give attention to any objections not urged before the lower court. (Meyer v. Eichler, supra; Porter v. Barling, supra; 1 C. J. 647.)Questions not passed upon and specifically decided by the lower court after a reference will not be considered by the appellate court. (Bernheim v. Louisville Property Co., 185 Ky. 63, 214. S.W. 801.)Where the defendant is an accounting party, as one occupying a fiduciary relation, the burden is on him to show the performance of his trust. (1 C. J. 643; Fox v. Hall, 164 Cal. 287, 128. Pac. 749; 1 Cyc. 448.)

GIVENS, J. William A. Lee, C. J., and Budge, J., concur.

OPINION

GIVENS, J.

Respondent John W. Morton, a stockholder of the Morton Realty Company, an Idaho corporation, commenced this action in February, 1919, against the corporation and Foster Crane and Frank R. Gooding, the latter two with respondent being the directors of the corporation, following the sale of She Buckeye ranch and all chattels on the same, owned by said company, to restrain appellant Foster Crane, also a stockholder, and president, treasurer and general manager, from disbursing the $ 105,000 or any part thereof, received as the purchase price of such ranch, until appellant made a complete accounting of all receipts and disbursements during his management and operation of the company's property. Appellant Crane had distributed $ 79,000 of the purchase price according to the several holdings of stock, and retained $ 26,000 of said purchase price upon a claim that the company was indebted to him in this amount for advances he had made during his management of the property. The complaint further alleges that the total stock of the corporation was 2,000 shares, that the defendant Foster Crane owned a majority of said stock, that the defendant Frank R. Gooding owned 500 shares and that respondent was the owner of 469 shares, and alleges that due to this fact the company had failed and refused to demand an accounting of defendant Foster Crane and because of...