Pioneer Oil & Gas Co. v. Anderson

• Decision Date: 20 November 1933
• Docket Number: 30554
• Citation: 151 So. 161,168 Miss. 334
• Parties: PIONEER OIL & GAS CO. v. ANDERSON et al
• Court: Mississippi Supreme Court

151 So. 161

168 Miss. 334

PIONEER OIL & GAS CO. v. ANDERSON et al

No. 30554

Supreme Court of Mississippi

November 20, 1933

Division A

Suggestion Of Error Overruled January 15, 1934.

APPEAL from chancery court of Rankin county HON. A. B. AMIS, SR. Chancellor.

Bill by the Pioneer Oil & Gas Company against M. E. Anderson and others. From a decree dismissing the bill, complainant appeals. Affirmed.

Affirmed.

J. Morgan Stevens, J. M. Stevens, Jr., Powell Harper Jiggitts, all of Jackson, for appellant.

While we have been unable to find a concrete case in Mississippi, where a corporation is suing a director for property acquired by the director under circumstances reflected by the present record, yet the purpose and prayer of the original bill in this cause is amply supported by the general text book law on the subject and by the authorities from other jurisdictions and the general principles are in accord with the numerous decisions of the Supreme Court of Mississippi, holding directors to a strict account, and subjecting them to a suit for damages for negligence in the discharge of their duties.

Ellis v. Gates, 103 Miss. 560, 60 So. 649, 43 L. R. A. (N. S.) 982, Ann. Cas. 1915B 526; Ventress v. Wallace, 111 Miss. 357, 71 So. 636, L. R. A. 1917A, 921; Bramlett v. Joseph, 111 Miss. 379, 71 So. 643; Metzger v. Joseph, 111 Miss. 385, 71 So. 645; Orlansky v. Johnson, 74 So. 113; Kelly v. Applewhite, 115 Miss. 5, 75 So. 753; Boyd v. Applewhite, 121 Miss. 879; Hawkins v. Clay County Cotton Oil Co., 123 Miss. 471, 86 So. 291; Farwell v. Pyle National Electric Headlight Co., 289 Ill. 157, 10 A. L. R. 363, head notes 1, 2, 3 and 4; Memphis & Charleston Railroad Company v. Woods, 7 L. R. A. 605.

Directors of a business corporation act in a strictly fiduciary capacity. This office is a trust.

Stratis v. Anderson, 44 A. L. R. 567; Elliot v. Baker, 194 Mass. 518, 523, 80 N.E. 450; Cosmopolitan Trust Co. v. Mitchell, 242 Mass. 95, 120, 136 N.E. 403; Holcomb v. Forsyth, 113 So. 516; Tampa Water Works Company v. Wood (Ala.), 121 So. 789, headnote 4; Hooker v. Midland Steel Company, 215 Ill. 444, 74 N.E. 445, 106 Am. St. Rep. 170; 4 Thompson on Corporations (3 Ed.), par. 2535.

Where the trust duties of directors of a corporation and personal interests conflict, the latter must give way.

Young v. Columbia Land Co., 53 Ore. 438, 133 Am. St. Rep. 844; Allen-Foster-Willett Co., Petitioner, 227 Mass. 551, 1. c. 556, 116 N.E. 875; Black v. Simpson, 77 S.E. (N. C.) 1023, 46 L. R. A. (N. S.) 137; 2 C. J., p. 696, sec. 355.

If a director of a corporation acts for himself in matters where his interest conflicts with his duty to corporation, the law holds the transaction constructively fraudulent and voidable at the election of the corporation.

Du Pont v. Du Pont, 242 F. 98; 14a C. J. 116, par. 1883; Carper v. Frost Oil Co., 211 P. 370, 72 Colo. 345.

Although duty owed to corporation and its stockholders by directors as trustees for their benefit would not preclude them from bona fide entering into other business of same nature, they could not, in good faith, engage in rival business to its detriment.

Horner v. New South Oil Mill, 197 S.W. 1163, 130 Ark. 551; Lofland v. Cahall, 118 A. 1, 13 Del. Ch. 384; Zaring v. Kelly, 128 N.E. 657, 74 Ind.App. 581; Allen-Foster-Willett Co., Petitioner, 116 N.E. 875, 227 Mass. 551; Howell v. Poff, 241 N.W. 548.

Directors for all practical purposes are trustees of corporation called upon in equity to account.

Stanton v. Schenk, 252 N.Y.S. 172; Red Top Cab Co. v. Hanchett, 48 F.2d 236; McDermott v. O'Neil Oil Co., 228 N.W. 481, 200 Wis. 423; Schemimel v. Hill (Ind.), 169 N.E. 678; Gray v. Cornelius, 40 F.2d 67; Calkins v. Wire Hdw. Co. (Mass.), 165 N.E. 889; Beaudette v. Graham (Mass.), 165 N.E. 671; 3 Thompson, Corporation, pars. 4009-4011; Reed v. A. E. Little Co. (Mass.), 152 N.E. 918.

Corporate management is committed to officers who must act in good faith and they cannot acquire interests adverse to it.

Morganthaler v. First Nat'l Bank, 18 Ohio App. 108; 7 R. C. L., p. 479, sec. 461; 7 R. C. L., p. 487; De Bardeleben v. Bessemer Land & Improvement Co., 140 Ala. 621, 37 So. 511; Cavanaugh v. Cavanangh Knitting Company (N. Y.), 123 N.E. 148; Commonwealth Title Insurance, etc., Co. v. Seltzer, 227 Pa. 410, 136 Am. St. Rep. 896; Gay v. Young Men's Cons. Co-op. Mercantile Inst., 37 Utah 280, 107 P. 237; 7 R. C. L. 483, sec. 464; 7 R. C. L. 456; 14a C. J. 97, sec. 1866.

W. A. Shipman, of Jackson, for appellant.

Where the trust duties of directors of a corporation and personal interests conflict, the latter must give way.

Young v. Columbus Land Co., 53 Ore. 438, 133 Am. S. R. 844; Allen-Foster-Willett Co., Petitioner, 227 Mass. 551, l. c. 556, 116 N.E. 875; Black v. Simpson, 77 S.E. (N. C.) 1023, 46 L. R. A. (N. S.) 137.

Anderson was both a director and agent of appellant.

10 Cyc., p. 903, sec. b.

The power to appoint agents is vested in a corporation's board of directors.

14a C. J. 61, sec. 1816 (d); Hamilton v. Newcastle, etc., R. Co., 9 Ind. 359; Richardson v. St. Joseph Iron Co. (Ind.), 5 Blackf. 146; Johns v. People, 25 Mich. 499.

Anderson's appointment and authority to buy this lease is undisputed. Anderson simply said he knew nothing about it, but five witnesses said that he did; that he was present, but whether he was or not, whether he knew it or not, the law imputes knowledge to him as a director of what his board did.

2 C. J., p. 419, sec. 1.

Agency in its broadest sense includes every relation which one person acts for or represents another by its authority.

Keyser v. Kinkle, 122 Mo.App. 62-72, 106 S.W. 98; State v. Hubbard, 59 Kan. 797, 801, 51 P. 290, 39 L. R. A. 860; Mechem on Agency, sec. 1; Harkins v. Murphy (Tex. Civ. App.), 112 S.W. 136, 137; 2 C. J. 692, sec. 353; Kevane v. Miller, 4 Cal. A. 598, 602, 88 P. 643.

An agent must disgorge unfair profits.

2 C. J. 697, sec. 356; Leonard v. Armstead, 141 Iowa 485, 119 N.W. 973; Parker v. McKenna, L. R. 10, ch. 96; Dutton v. Wilner, 52 N.Y. 312; Farlow v. Augusta Naval Stores Co., 124 Ga. 261.

Mississippi court will strip agent and turn over unfair purchase to principal--Mississippi court makes agent trustee.

E. C. Gillenwaters v. Miller G. Co., 49 Miss. 150; Mathew Murphy v. William B. Sloan, 24 Miss. 658; Winn v. Dillon, 27 Miss. 494; 2 C. J. 705, sec. 362.

In case of a purchase by the agent in breach of his duty to purchase for his principal, he may be compelled to convey the property so purchased to his principal upon his being reimbursed, and upon the principal complying with the terms of the contract.

Quin v. Le Due (N. J. Ch.), 51 A. 199; Wellford v. Chancellor (46 Va.), 5 Gratt 39; 2 C. J. 694, sec. 354; Swindell v. Latham, 145 N.C. 144, 58 S.E. 1010; Bedford Coal, etc., Co. v. Parker County Coal Co., 44 Ind.App. 390, 89 N.E. 412; German Ins. Co. v. Mulford Independent Shool District, 80 F. 366, 25 C. C. A. 492; Wilber v. Lynch, 49 Cal. 290; 19 Am. R. 645; Tewkebury v. Spruivece, 75 Ill. 787; Copper, Coal & Iron Co. v. Sherman (N. Y.), 30 Barb. 553; Wright v. Oraville Gold, Silver & Copper Mining Co., 40 Cal. 20.

No advance tender was necessary in a case of this kind.

Note 20, page 706, 2 C. J.; Rhea v. Puryear, 26 Ark. 344; Quinn v. Le Due (N. J. Ch.), 51 A. 199.

Appellant had an expectancy in the leases and wells.

1 Bouvier Law Dictionary, p. 1156.

S. D. Redmond, of Jackson, for appellant.

Anderson, a very wealthy man, manager at that time of the Universal Life Insurance Company was most abundantly supplied with funds, and he simply lorded it over this little company, and its stockholders many of whom he had gotten to put money into, and take stock in the company. Should the court award these wells to appellant, appellant, of course, must pay Anderson their cost, and Anderson being the second largest stockholder in this company, he will also participate heavily in whatever benefits may accrue from these wells.

Hence, in view of these facts, it is infinitely more just and equitable that Anderson take his pay for these wells, and then participate in the increments from the wells as a stockholders, than to permit him to ruthlessly and deliberately take these leases from the very hands almost as it were of these eighty odd stockholders, and appropriate them to his own use and benefit.

Howie & Howie, of Jackson, for appellees.

The burden of proof was on the appellants to show that they were willing, able and ready to make good their tender to reimburse Anderson at the time they commanded that he convey these wells to him and at all times after that, yet their own bank accounts showed they had practically no money in the bank, and many outstanding bills unpaid and unsatisfied, and they were fighting among themselves for a little money that was coming into the hands of the company.

With reference to all cases cited by the appellants it is our judgment that when the facts have been established by the finding of the chancellor, that they are insufficient to make out a case under the law cited by appellants. In fact there is not a single case cited by appellants on the facts as established in the present case which shows that they are entitled to any relief whatever.

The directors of a corporation can trade privately in similar business.

64 A. L. R. 772; 12 R. C. L., p. 424; R. C. L., permanent supplement 3121; Crittenden & Cowler Co. v. Cowler, 72 N.Y.S. 701; McDermott Min. Co. v. McDermott, 69 P. 715; Bancroft v. Olymphia, Coal & Mining Co., 200 P. 1081.

No expectancy of value springs from the alleged fact that complainant has been negotiating for and endeavoring to purchase that interest at divers undesignated times.

Lagarde v. Anniston Lime & Stone Co., 28 So. 199.

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