Peters v. Woodmen Acc. & Life Co., 34768

• Decision Date: 22 July 1960
• Docket Number: No. 34768,34768
• Citation: 170 Neb. 861,104 N.W.2d 490
• Parties: James C. PETERS, Ruth Tucker Newberg, Helen A. Adamson and Arthur H. Newberg, Appellants, v. WOODMEN ACCIDENT AND LIFE COMPANY, a corporation, et al., Appellees.
• Court: Nebraska Supreme Court

Page 490

104 N.W.2d 490

170 Neb. 861

James C. PETERS, Ruth Tucker Newberg, Helen A. Adamson and Arthur H. Newberg, Appellants, v. WOODMEN ACCIDENT AND LIFE COMPANY, a corporation, et al., Appellees.

No. 34768.

Supreme Court of Nebraska.

July 22, 1960.

Syllabus by the Court

1. Actions in equity, on appeal to this court, are triable de novo, subject, however, to the rule that when credible evidence on material questions of fact is in irreconcilable conflict, this court will, in determining the weight of the evidence, consider the fact that the trial court observed the witnesses and their manner of testifying, and must have accepted one version of the facts rather than the opposite.

2. An officer or director of a corporation occupies a fiduciary relation to the corporation and to stockholders. He is treated by courts of equity as a trustee, and as such is ordinarily personally liable to beneficiaries of a fund for any misapplication of the fund to other beneficiaries not entitled thereto.

3. Within the limits of their authority officers and directors 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, fraud, or gross negligence, courts of equity will not interfere at the suit of dissatisfied stockholders, merely to overrule and control the discretion of directors on questions of corporate management, policy, or business.

4. 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 convincing evidence of fraud.

5. A civil conspiracy is a combination of two or more persons to accomplish by concerted action an unlawful or oppressive object or a lawful object by unlawful or oppressive means.

6. The principal element of conspiracy is an agreement or understanding between two or more persons to inflict a wrong against or injury upon another. It involves some mutual mental action coupled with an intent to commit the act which results in injury.

7. Fraud is never presumed, but must be clearly proved in order to entitle a party to relief on the ground that it has been practiced on him.

8. Fraud cannot be presumed or inferred without proof in a court of equity any more than in a court of law. However, courts of equity do not restrict themselves by the same rigid rules as courts of law in the investigation of fraud and in the evidence and proofs required to establish it. However, the proof must be sufficient to satisfy the conscience of the court that fraud is really existent, and to do this, it must be sufficient to overcome the natural presumption, which is always of considerable force, that men are honest and act from correct motives.

9. To prove fraud direct evidence is not always essential. Inferences or presumptions of fraud may be drawn from facts and circumstances. However, such inferences or presumptions must not be guess work or conjecture but must be rational and logical deductions from the facts and circumstances from which they are inferred.

10. What constitutes fraud is a matter of fact in each case. Deception finds expression in such a variety of ways that courts have studiously avoided reducing its elements to positive definitions. Courts content themselves with determining from the facts in each case whether fraud does or does not exist, for whatever satisfies the mind and conscience that fraud has or has not been practiced is sufficient.

11. In an action in which relief is sought on account of alleged fraud, the existence of a confidential or fiduciary relationship, or status of unequal footing, when shown, does not shift the position of the burden of proving all elements of the fraud alleged, but nevertheless may be sufficient to allow fraud to be found to have existed when in the absence of such a status it could not be so found, and thus to have the effect of placing the burden of going forward with the evidence upon the party charged with fraud.

12. Where evidence of a witness' prior evaluation of certain property, inconsistent with its present estimate, is introduced, the witness may explain the circumstances of his former evaluation and state why he now testifies differently.

Towle, Young & McManus, Max Kier, Janice L. Gradwohl, Lincoln, for appellants.

Woods, Aitken & Aitken, Peterson & Ackerman, Bert L. Overcash, Lincoln, for appellees.

Heard before CARTER, MESSMORE, YEAGER, CHAPPELL, WENKE and BOSLAUGH, JJ.

CHAPPELL, Justice.

Plaintiffs, James C. Peters, Ruth Tucker Newberg, Helen A. Adamson, and Arthur H. Newberg, brought this action as minority stockholders in Woodmen Central Life Insurance Company, for themselves and said company and all other stockholders thereof similarly situated, against defendants, Woodmen Accident and Life Company, a mutual insurance corporation, Woodmen Central Life Insurance Company, a stock corporation, and its named officers and directors. Plaintiffs sought thereby to obtain recovery of the value of an alleged agency force of Woodmen Central Life Insurance Company for which no consideration was included or paid under a reinsurance agreement whereby Woodmen Accident and Life Company, generally called Woodmen Accident, purchased the assets and reinsured the life and annuity contracts of Woodmen Central Life Insurance Company, generally called Woodmen Central. Plaintiffs alleged that officers of Woodmen Central were also officers of Woodmen Accident except Victor L. Toft and Ervin F. Rucklos, who were made directors of Woodmen Accident after the dissolution of Woodmen Central; that officers and directors of Woodmen Central and Woodmen Accident entered into a fraudulent plan, scheme, and conspiracy to cheat and defraud plaintiffs and other stockholders, and pursuant thereto and by false representations believed by and relied upon by plaintiffs, defendants obtained the reinsurance agreement and thereby wrongfully appropriated the value of the agency force of Woodmen Central, causing its stockholders to be defrauded thereof, for the use and benefit of Woodmen Accident and other defendants.

Plaintiffs' prayer was for an accounting and for judgment in favor of plaintiffs on behalf of stockholders of Woodmen Central and said company for the alleged reasonable value of its agency force. In that connection, all defendants were served except defendant Joseph A. Spangler, and he is not primarily involved here.

Defendant Woodmen Central answered separately, denying that plaintiffs' action was for the use and benefit of it or any of its stockholders; admitting the sale of its assets and the reinsurance of its insurance in force; alleging that said reinsurance agreement was entered into freely and voluntarily by the parties thereto and for a full and adequate consideration; and alleging that said agreement was duly adopted and approved by its stockholders at a meeting thereof held on December 20, 1954, at which 17,784 shares out of a total of 19,491 shares outstanding, were represented in person or by proxy who unanimously approved said agreement. Said defendant also alleged that the agreement was a valid and binding obligation of the parties thereto, and that defendants never received from plaintiffs or from any other stockholders any demand to bring this action or any similar action prior to the filing of this action. Woodmen Central's prayer was for dismissal of plaintiffs' petition at plaintiffs' costs.

The answer of other defendants admitted execution of the reinsurance agreement and denied all plaintiffs' allegations of fraud and conspiracy. They alleged that plaintiffs and all other stockholders were completely and fully advised of the transaction before its consummation; that there was no concealment or misrepresentation of any fact or information relating thereto; that complete records of Woodmen Central were open and available to plaintiffs at all times; that plaintiffs had a right and full opportunity to attend the business meeting of said company and cast their votes in person or by proxy concerning said transaction and otherwise protect their rights, if any; and that the price, terms, and conditions set forth in the reinsurance agreement represented the true, just, and fair value of all the assets involved, and reflected the sound business judgment of the respective parties based upon extensive study, consultation, and experience. Defendants also alleged that said agreement was unanimously approved by the directors of each company and was unanimously approved by the stockholders and policyholders present and represented by proxy at a meeting called for consideration of the agreement; that Woodmen Central, prior to 1936, was known as Cornbelt Life Insurance Company, which was in unsound financial condition and never became in such financial condition as would justify or permit distribution of earnings or surplus in the form of dividends to the stockholders. Defendants denied that Woodmen Accident appropriated an agency force of Woodmen Central, but alleged that it never had any separate agency force which was available and subject to appropriation by Woodmen Accident. Defendants specifically alleged that officers and directors of Woodmen Accident during 1954 and at the time of the reinsurance agreement transaction consisted of defendants Edwin J. Faulkner, Richard L. Spangler, and Walter S. Henrion, together with H. J. Requartte, Thomas C. Woods, Walter W. White, George P. Abel, Burnham Yates, and Thomas H. Wake; that with the exception of Edwin J. Faulkner, Richard L. Spangler, and Walter S. Henrion, none of said Woodmen Accident directors were officers, stockholders, directors, or otherwise interested in Woodmen Central; and that the negotiations and final recommendations on behalf of...