Wootton Land & Fuel Co. v. Ownbey

• Decision Date: 30 March 1920
• Docket Number: 5266.,5265
• Citation: Wootton Land & Fuel Co. v. Ownbey, 265 F. 91 (8th Cir. 1920)
• Parties: WOOTTON LAND & FUEL CO. et al. v. OWNBEY. OWNBEY v. MORGAN et al.
• Court: U.S. Court of Appeals — Eighth Circuit

265 F. 91

WOOTTON LAND & FUEL CO. et al. v. OWNBEY.

OWNBEY v. MORGAN et al.

Nos. 5265, 5266.

United States Court of Appeals, Eighth Circuit.

March 30, 1920

These cases present an appeal and a cross-appeal from a decree in a suit for an accounting. It was brought by the holders of a majority of the capital stock of the Wootton Land & Fuel Company, a corporation (hereafter called the Wootton Company), and for the benefit of that company and of all its stockholders, and its main object was to secure an accounting from the defendant, J. A. Ownbey, as one of its officers, of corporate property and money received by him. The Wootton Company was incorporated in 1906 under the laws of Delaware. The company acquired a large amount of land in Colorado and New Mexico, operated extensive coal mines situated on this land, and owned and managed coal tipples, power house, and other shops and buildings connected with its mining operations. It had a large number of houses, in which miners lived as its tenants. It operated a general merchandise store. It also operated a ranch of over 10,000 acres, upon which it kept live stock. The laws of Delaware provided that the business of every corporation should be managed by a board of not less than 3 nor more than 13 directors. Rev Code of Delaware 1915, Sec. 1923. The articles of incorporation of the Wootton Company provided that its affairs should be managed by a board of 5 directors, who could adopt by-laws for the management of the company's business. The capital stock of the company was divided into 100,000 shares. At its organization this stock was owned as follows: J. P. Morgan, 41,667 shares; Ogden Mills, 16,667 shares; B. P. Cheney, 8,333 shares, and J. A. Ownbey, 33,321 shares. The remaining 12 shares then and ever since stood in the names of four other persons, for the purpose of qualifying them to act as directors; but the real ownership was in some of the principal stockholders named or in their successors in interest. The 5 directors at all times have been the 4 persons holding such qualifying shares and Mr Ownbey. Mr. Mills sold his stock early in 1909 to Morgan and Cheney.

The president of the corporation, from its organization until February 27, 1908, was William C. Prime, and thereafter was Thomas W. Joyce. Mr. Ownbey has been vice president and treasurer since the company's organization, and after February 27, 1908, was authorized to generally direct the operations of the company and to supervise and manage its affairs and employes. Mr. Ownbey resided in Colorado, and most of the time resided on the company's land, and was the active manager of the company's physical property there, and directed its business operations. Mr. Cheney was a visitor for a very short time at the company's property on several occasions, but Mr. Morgan never saw the property. Neither Mr. Morgan nor Mr. Cheney ware ever directors or officers of the corporation. The directors of the corporation held meetings from time to time, and minutes were kept of their action. Such meetings were held on October 7, 1906, on February 16 and March 5, 1907, on February 10 and February 27, 1908, and on March 28, 1910.

Under the issues formed by the pleadings, the propriety of an accounting was not disputed, and a master was appointed by the court for that purpose, and his report was confirmed by the court, over the exceptions of both parties, and each has presented an appeal to this court.

One of the chief questions in the case is the effect that is to be given to conversations between Mr. Morgan, Mr. Cheney, and Mr. Ownbey, in New York, in 1909, in which Mr. Ownbey claims that agreements were made, binding on the Wootton Company (1) that in consideration of some proposed slight changes in the amount of capital stock held by these 3 stockholders, and because of a proposed transfer to the company of some property, theretofore held for it in trust by Mr. Ownbey, it was agreed between these 3 stockholders that all claims between the company and these stockholders should thereafter be extinguished, and that this agreement was carried into effect at a meeting of the stockholders on April 16, 1910 when Mr. Ownbey presented a full report of his transactions with the company and it was approved; (2) that Mr. Ownbey was to have a salary from the Wootton Company of $1,000 per month, and also to have his living expenses, not to exceed $500 per month.

A special defense in Ownbey's answer set forth his claim that he had fully accounted for his transactions before April 16, 1910, as follows: 'Avers that on April 16, 1910, all of the acts and doings of this defendant, and all transactions by him had in the premises for and on behalf of said company, were duly and fully presented to the stockholders of said company at a meeting thereof held on said day at the town of Wootton, Colo., and at which all the stock of said company was represented and voting, and that all of his said acts and doings theretofore so had, done, and performed by him, for and on behalf of said company and said stockholders, were then and there fully ratified and confirmed, and in all respects approved thereby.'

Because of the issue presented by this special defense, the case was first referred to a special master, to hear testimony and to report whether, on April 16, 1910, the accounts between the Wootton Company and Ownbey 'were settled and adjusted, and, if so settled and adjusted, what balance of account, if any, existed and was fixed as the result of said settlement and adjustment, and against which of said parties. ' The master was also directed to report whether any such accounting or settlement was valid, so as to preclude any further accounting, and he was directed not to proceed with the accounting until after the court had disposed of this issue. After the hearing on this issue the master reported that Morgan, Cheney, and Ownbey were the only persons beneficially interested in the ownership of the capital stock of the Wootton Company on December 15, 16, and 17, 1909, and that then these three persons met in New York and agreed among themselves for the conveyance to the company of certain property, and that all claims between these three stockholders, and between the company and each of them, should be settled and adjusted, and the stock of the Wootton Company should be redistributed, and that a meeting of the company should thereafter be held to carry this agreement into effect. The master further found that on April 16, 1910, all of the stockholders were present or represented by proxies at a meeting of the stockholders at Wootton, Colo., that Ownbey then presented a report showing all of his transactions with the company, and the moneys received and paid out by him on its behalf, and that this report was examined and found correct, and by unanimous vote it was approved. He reported that no testimony had been offered to show what balance of account was shown by the report, and that he could not determine what balance, if any, existed, nor against which of the parties. He found that the property referred to was at that meeting conveyed to the Wootton Company and the stock redistributed. The master reported as his conclusion that the stockholders were therefore precluded from having an accounting for transactions prior to April 16, 1910. The court approved of this report, over objections of appellants, and ordered the accounting to proceed of transactions after April 16, 1910. After a prolonged hearing the master stated an account, and exceptions of both parties thereto were overruled, and the master's final report was approved, and judgement was rendered in favor of Ownbey for $53,280.67 against the Wootton Company.

Tyson S. Dines and Pierpont Fuller, both of Denver, Colo. (Henry T. Rogers, Daniel B. Ellis, Lewis B. Johnson, and George A. H. Fraser, all of Denver, Colo., on the brief), for Wootton Land & Fuel Co. and others and Morgan and others.

Harry S. Silverstein and Henry E. Lutz, both of Denver, Colo. (Herbert S. Hadley, of Boulder, Colo., on the brief), for Ownbey.

Before HOOK and STONE, Circuit Judges, and MUNGER, District Judge.

MUNGER District Judge (after stating the facts as above).

The special master allowed to Ownbey a sum of salary and his living expenses. This was based upon testimony by Ownbey and Cheney as to the alleged agreement between Morgan, Cheney and Ownbey, at Morgan's library in New York City, in December, 1909, whereby it is claimed Ownbey was to receive this allowance. The finding of the master that Ownbey was not required to account to the company for his transactions occurring before April 16, 1910, was also partly based upon this conversation and agreements claimed to have been made at that time. By proper exceptions the question is presented, upon such facts, whether those who are not directors or officers of a corporation, but are the owners and holders of almost all of the capital stock and are the beneficial owners of the remaining shares, which stand in the names of nominal owners, may bind the corporation by a contract between themselves whereby a debt in favor of the corporation is to be extinguished, and an obligation of the corporation in favor of one of them imposed, when the articles of incorporation place the management of the company's affairs in the hands of its board of directors. The further question is also presented whether such stockholders, assuming to contract on behalf of the corporation, are estopped from denying such an agreement to be the agreement of the corporation, if the obligee has acted upon the faith of this agreement as an act of the corporation. The general rule as to contracts and conveyances on behalf of the corporation was stated by Chief Justice Shaw in Smith v. Hurd, 12...