Rettinger v. Pierpont
| Decision Date | 28 July 1944 |
| Docket Number | s. 31559-31561. |
| Citation | 15 N.W.2d 393,145 Neb. 161 |
| Parties | RETTINGER v. PIERPONT (three cases). |
| Court | Nebraska Supreme Court |
[Copyrighted Material Omitted]
Syllabus by the Court.
1. In legal effect, a stockholders' suit is one by the corporation conducted by the stockholder as its representative. The stockholder is only a nominal plaintiff the corporation being the real party in interest. The stockholders' suit is always one in equity, unless otherwise provided by statute. A stockholder cannot sue, as a representative of the corporation, by bringing an action at law, notwithstanding the corporation could have recovered in an action at law. Even where the only relief allowable is a recovery of damages the suit is nevertheless one in equity and not an action at law.
2. This being an equitable action it will be tried de novo in this court pursuant to section 20-1925, Comp.St.1929, and we will reach an independent conclusion without referring to the findings of the district court. Subject, however, to the condition that when the 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.
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. In an action brought by a corporation against its directors or officers for misconduct, the necessary proof is exactly of the same character as in an action brought by an individual against his agents, servants, or employees for like misconduct, and the character of the proof is not at all affected by the fact that the action is brought by the shareholders instead of by the corporation itself.
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. But 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. An officer or director of a corporation occupies a fiduciary relation towards the corporation and its stockholders, and is treated by courts of equity as a trustee.
11. Every violation by a trustee of a duty required of it by law, whether wilful and fraudulent, or done through negligence, or arising through mere oversight or forgetfulness, is a breach of trust.
12. Where a contract or other transaction has been entered into by defendants having an interest which conflicts with that of the corporation, it is for them to show that it was fair and free from fraud; and when trust funds are traced to their hands they have the burden of accounting for them. A third person in possession of alleged corporate assets does not have this burden unless some fraud is imputable to him.
13. It is the duty of a trustee to fully inform the cestui que trust of all facts relating to the subject-matter of the trust which come to the knowledge of the trustee and which are material for the cestui que trust to know for the protection of his interests.
14. An audit is made from the records of a company as shown by its books and, unless some special reason is shown therefor, an appraisal of the assets is no part of such audit. Ordinarily the officers and directors are entitled to rely on the records of the company as reflecting its true condition.
15. A depreciation charge is an estimate of the average loss in value that a certain class of property will sustain over a fixed period of time. It does not contemplate meeting the exact date when each piece or parcel of that class will no longer be usable or have any value. It is an estimate of what the average of all property of that class will depreciate, recognizing the fact that some will depreciate faster than others.
16. Transactions between corporations having common officers and directors are presumptively fraudulent and the burden is upon the defendants to sustain the transactions by clear and convincing evidence that they were fair.
17. 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.
18. Many factors have to be considered in fixing the value of property for sale purposes for it is elementary that anything that will affect the selling price in the market enters into the term 'value.'
19. Fraud is never presumed and the party alleging and relying thereon must prove it. However, 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 bee practiced is sufficient.
Seymour L. Smith, Ellick, Fitzgerald & Smith, Raymond G. Young, and Young & Williams, all of Omaha, for appellants.
Edward J. Peterson, Virgil L. Brown, McKenzie & Dugan, and Kennedy, Holland, DeLacy & Svoboda, all of Omaha, and Albert D. Jones, pro se, for appellees.
Heard before SIMMONS, C. J., and PAINE, CARTER, MESSMORE, YEAGER, CHAPPELL, and WENKEE, JJ.
This action was commenced in the district court for Douglas county by Edgar H. Rettinger, for himself and for and on behalf of the Standard Oil Company (Nebraska), a corporation, and for and on behalf of all stockholders of said corporation similarly situated, as plaintiff. He was subsequently joined by Edward J. Peterson, as an intervener. The action is against Henry W. Pierpont, Morse C. Palmer, Standard Oil Company of Nebraska, a corporation, and Standard Oil Company (Nebraska), a corporation, as defendants. From a decree in favor of the plaintiff and intervener, for and on behalf of the Standard Oil Company (Nebraska), for the use and benefit of the stockholders of said corporation, that they have and recover from the defendants, Henry W. Pierpont, Morse C. Palmer, and Standard Oil Company of Nebraska, a corporation, the sum of $1,465,180.73 with interest at six per cent from August 29, 1939, and the sum of $4,500 for services and costs, each of said defendants, Henry W. Pierpont, Morse C. Palmer and Standard Oil Company of Nebraska, a corporation, has separately appealed. For the purpose of briefs, argument and this opinion these appeals have been consolidated.
The intervener died January 6, 1944, and the action as to him was revived in the name of Maxine Peterson, as administratrix of his estate. For the purpose of convenience the plaintiff and intervener will be referred to as plaintiffs; the defendant Standard Oil Company (Nebraska), a corporation, as the old company; the Standard Oil Company of Nebraska, a corporation, as the new company; the individuals by their respective names of Pierpont and Palmer; and the Standard Oil Company (Indiana) as Indiana.
The action is a stockholders' derivative suit in behalf of the Standard Oil Company (Nebraska), a corporation, based on an alleged conspiracy by Pierpont, Palmer and associates together with the officers of Indiana to defraud the old company's stockholders by getting them to sell the assets of the old company to Indiana for less than their value.
We will not set out the extended allegations of the amended petition, on which this action was tried, for when the allegations of a petition are denied this court, on appeal, cannot look to them, except in so far as they are admitted by the answers, for the nature of the conspiracy to defraud but must look solely to the evidence.
Nor will we set out the findings of the lower court, for as stated in 13 Fletcher, Cyclopedia Corporations (Perm. ed.) 295, sec. 5939 and 299, sec. 5944: ...
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