Zeckendorf v. Steinfeld

• Court: Arizona Supreme Court
• Writing for the Court: SLOAN, J.
• Citation: Zeckendorf v. Steinfeld, 100 P. 784, 12 Ariz. 245 (Ariz. 1909)
• Decision Date: 20 March 1909
• Docket Number: Civil 1101
• Parties: LOUIS ZECKENDORF, Plaintiff and Appellant and Appellee, v. ALBERT STEINFELD, R. K. SHELTON, SILVER BELL COPPER COMPANY, a Corporation, and MAMMOTH COPPER COMPANY, a Corporation, Defendants, Appellees and Appellants

100 P. 784

12 Ariz. 245

LOUIS ZECKENDORF, Plaintiff and Appellant and Appellee, v. ALBERT STEINFELD, R. K. SHELTON, SILVER BELL COPPER COMPANY, a Corporation, and MAMMOTH COPPER COMPANY, a Corporation, Defendants, Appellees and Appellants

Civil No. 1101

Supreme Court of Arizona

March 20, 1909

APPEAL from a judgment of the District Court of the First Judicial District, in and for the County of Pima. John H. Campbell Judge. Affirmed.

For former opinion, see 10 Ariz. 221, 86 P. 7.

The facts are stated in the opinion.

Edwin A. Meserve, and Frank H. Hereford, for Appellant Zeckendorf.

Under the circumstances as disclosed by the evidence in this case Steinfeld was clearly and unquestionably a constructive trustee in the purchase of the mines and stock, the basis of this action. 1 Am. & Eng. Ency. of Law, 2d ed., 1071-1085; Kimberly v. Arms, 129 U.S. 512, 9 S.Ct. 355, 32 L.Ed. 764; 2 Pomeroy's Equity Jurisprudence, c. 7 particularly secs. 1089, 1090, and 1094; Curtis v Newton, 58 F. 495; Hallett v. Collins, 10 How 186, 13 L.Ed. 381; Thredgill v. Pintard, 12 How. 24, 13 L.Ed. 877; Ringo v. Binns, 35 U.S. (Pet.) 269, 9 L.Ed. 420; Cragin v. Powell, 128 U.S. 691, 9 S.Ct. 203, 32 L.Ed. 566; Gower v. Andrew, 59 Cal. 119, 43 Am. Rep. 242; Paige v. Akins, 112 Cal. 401, 44 P. 666; Lockhart v. Rollins, 2 Idaho, 503 (540), 21 P. 413, 16 Morr. Min. Rep. 16; McClendon v. Bradford, 42 La.Ann. 160, 7 So. 78, 8 So. 256; Blount v. Robeson, 56 N.C. 73; Kroegher v. Calivada Colonization Co., 119 F. 641, 646, 647, 56 C.C.A. 257.

A contract entered into between a director and a corporation of which he is in control or where there is not a quorum of directors acting independently of him is conclusively presumed to be fraudulent and is void at the election of the corporation or a stockholder suing in its behalf, and its fairness or unfairness cannot be inquired into. 2 Cook on Corporations, 4th ed., sec. 734, p. 1588; note p. 1549, also secs. 734-879; also sec. 741, p. 1617; 3 Clark and Marshall on Private Corporations, 1674-1678, 1683, 1690; Morawetz on Corporations, sec. 517 et seq.; 3 Thompson on Corporations, secs. 4042 et seq. and 6503 et seq.; 3 Pomeroy's Equity Jurisprudence, sec. 1095; 21 Am. & Eng. Ency. of Law, par. 12, pp. 897, 990, 991; 1 Beach on Corporations, 241, 242, 246, 276; Curtin v. Salmon River Co., 130 Cal. 345, 80 Am. St. Rep. 132, 62 P. 552; Bassett v. Fairchild, 132 Cal. 637, 64 P. 1082, 52 L.R.A. 611; Graves v. Mining Co., 81 Cal. 303, 22 P. 665; Wickersham v. Crittenden, 93 Cal. 17, 28 P. 788; Bensiek v. Thomas, 66 F. 104, 13 C.C.A. 457; Haywood v. Lincoln Lumber Co., 64 Wis. 639, 26 N.W. 184; Jones v. Morrison, 31 Minn. 140, 16 N.W. 854; 1 Am. & Eng. Corp. Cas. 313; Davis v. Memphis Ry., 22 F. 883; Sellers v. Phoenix Iron Co., 13 F. 20, 15 Morr. Min. Rep. 388; Miner v. Bell etc., 93 Mich. 97, 53 N.W. 218, 17 L.R.A. 412; Woodroof v. Howes, 88 Cal. 184, 26 P. 111; Beach v. Miller, 130 Ill. 162, 22 N.E. 464, 17 Am. St. Rep. 291, and the monographic notes to this case and the numerous cases there cited and reviewed; Smith v. Los Angeles Em. etc. Assn., 78 Cal. 289, 12 Am. St. Rep. 53, 20 P. 677; Goddell v. Verdugo Canyon Water Co., 138 Cal. 308, 71 P. 354; Hodge v. Price Steel Co., 64 N.J.Eq. 807, 54 A. 1, 60 L.R.A. 742; Slayback v. Raymond, 40 Misc. 601, 83 N.Y.S. 15; Shaw v. Davis, 78 Md. 308, 28 A. 619, 23 L.R.A. 294; Fox v. Hale & Norcross etc. M. Co., 108 Cal. 478, 41 P. 328; Wardell v. Union Pacific R.R. Co., 103 U.S. 651, 26 L.Ed. 509, 7 Morr. Min. Rep. 144; Bill v. Western Union Tel. Co., 16 F. 14; Copeland v. Johnson Mfg. Co., 47 Hun, 235; Sellers v. Phoenix Iron Co. (C.C.), 13 F. 20, 15 Morr. Min. Rep. 388; Fitzgerald v. F. & M. Co., 41 Neb. 374, 59 N.W. 838; Gray v. New York V.S.S. Co., 3 Hun, 383; Barr v. Northwestern etc. R.R. Co., 96 N.Y. 444; George v. Central R. & B. Co., 101 Ala. 607, 14 So. 752; Bell v. Montgomery L. Co., 103 Ala. 275, 15 So. 569; Hannerty v. Standard Theater Co., 109 Mo. 297, 19 S.W. 82; Knoop v. Bohmrich, 49 N.J. Eq. 82, 23 A. 118; Bohmrich v. Knoop, 50 N.J. Eq. 485, 27 A. 636; Hardee v. Sunset Oil Co. (C.C.), 56 F. 51; Martin v. Santa Cruz Water Storage Co., 4 Ariz. 171, 36 P. 36; McConnell v. Comb, M. & M. Co., 30 Mont. 239, 104 Am. St. Rep. 703, 76 P. 197; Robertson v. H.E. Buchlen & Co., 107 Ill.App. 369; The Telegraph v. Lee, 125 Iowa 17, 98 N.W. 364; Adams v. Burke (Ill.), 66 N.E. 235; Stewart v. Harris, 69 Kan. 498, 105 Am. St. Rep. 178, 66 L.R.A. 261, 2 Ann. Cas. 873; Cook v. Sherman, 20 F. 167, 4 McCrary, 20; Meeker v. Winthrop, 17 F. 48, 109 U.S. 180, 3 S.Ct. 111, 27 L.Ed. 898; Pickett v. School District No. 1, 25 Wis. 551, 3 Am. Rep. 105; Vandeveer v. Ashbury Park etc. Ry. Co., 82 F. 335; People v. Township Board, 11 Mich. 222; Cumberland Coal Co. v. Sherman, 30 Barb. 553, 572, 1 Morr. Min. Rep. 322; Ogden v. Murray, 39 N.Y. 202; Doe v. Northwestern etc. Co., 78 F. 67; Ten Eyck v. Pontiac St. R.R., 74 Mich. 226, 16 Am. St. Rep. 633, 41 N.W. 905, 3 L.R.A. 378; Borough of Milford v. Milford W. Co., 124 Pa. 610, 17 A. 185, 3 L.R.A. 122; Pearson v. Concord R.R. Co., 62 N.H. 537, 13 Am. St. Rep. 590; Lick Oil Co. v. Marbury, 91 U.S. 587, 23 L.Ed. 329; Hawes v. Oakland, 104 U.S. 450, 26 L.Ed. 827; Washburn v. Green, 133 U.S. 30, 10 S.Ct. 280, 33 L.Ed. 516; Thomas v. Brownsville etc. Co., 109 U.S. 522, 3 S.Ct. 315, 27 L.Ed. 1018.

An interested director cannot be counted to make up the quorum so as to authorize or ratify an action taken in his favor. Bassett v. Fairchild, 132 Cal. 637, 64 P. 1082, 52 L.R.A. 611; Curtin v. Salmon River etc. Co., 130 Cal. 345, 80 Am. St. Rep. 132, 62 P. 552.

A director and officer of a joint stock corporation occupies a fiduciary relation, and his dealings with the subject matter of his trust or agency and with the beneficiary or party whose interest is confided to his care, are viewed with jealousy and distrust by the courts and may be set aside on slight grounds. Washburn v. Green, 133 U.S. 30, 10 S.Ct. 280, 33 L.Ed. 516; Woodroof v. Howes, 88 Cal. 184-202, 26 P. 111; and Miner v. Belle Isle Ice Co., 93 Mich. 97, 53 N.W. 218, 17 L.R.A. 412.

Francis J. Heney, and Eugene S. Ives, for Appellees, Steinfeld et al.

Neither the findings nor the evidence are sufficient to support the judgment founded upon the allegations of the complaint. The allegations of the complaint preclude the plaintiff from any reasonable contention that Steinfeld held the stock as trustee for the corporation.

Where the findings are abundantly sustained by the evidence, the established rule of court is that they will not be disturbed by the court. No admissions on the part of the plaintiff will create a trust. A trust must result, if at all, when the papers and the title pass. Ducie v. Ford, 138 U.S. 587, 11 S.Ct. 417, 34 L.Ed. 1091. A constructive trust may only be imposed against one who buys for himself property which it was his duty to buy for another. Parker v. Nickerson, 137 Mass. 487; Steinbeck v. Bon Homme Min. Co., 152 F. 333, 81 C.C.A. 441; Lagarde v. Anniston, 26 Ala. 496, 28 So. 199, 20 Morr. Min. Rep. 545. In order to create a constructive trust it is necessary that either the party who wishes to enforce the trust should have had a then existing interest in the property, or that the action of the stockholders or directors would balk the corporation in effecting the purposes of its creation. The expressions of the defendant are not sufficient to constitute a constructive trust. Dilts v. Stewart, 43 Leg. Int. (Pa.) 205; Stonehill v. Schwartz, 129 Ind. 310, 28 N.E. 620; Acker v. Priest, 92 Iowa 610, 61 N.W. 236; Hamilton v. Downer, 152 Ill. 651, 38 N.E. 733; Scribner v. Meade, 10 Ariz. 143, 85 P. 477.

The test of a constructive trusteeship is the right of the party claiming to be the beneficiary, and therefore the true owner of the property to compel by suit in equity the party holding the legal title to convey or assign the corpus of the trust property. Pomeroy's Equity Jurisprudence, sec. 1058.

One undertaking to procure by decree the creation of a constructive trust must act forthwith and must offer to pay the money which had been advanced by the party against whom the trusteeship is sought to be enforced. Hoyt v. Latham, 143 U.S. 553, 12 S.Ct. 568, 36 L.Ed. 259; Patterson v. Hewitt, 195 U.S. 309, 25 S.Ct. 35, 49 L.Ed. 214; Wenham v. Switzer, 51 F. 351; Duffield v. Michaels, 97 F. 825; Johnson v. Mining Co., 148 U.S. 360, 13 S.Ct. 585, 37 L.Ed. 480, 17 Morr. Min. Rep. 554.

The agreement of the directors of a company prior to a meeting of the directors, in oral conversation, constitutes a contract of the company. "When a corporation consists of a small number of persons, they may transact all their business by conversation without formal votes, and it would be a violation of the plainest principles of justice to hold those who deal with them to prove all their acts by written votes which they do not keep or do not produce." Melledge v. Boston etc. Co., 59 Mass. (5 Cush.) 158, 51 Am. Dec. 59; Magowan v. Groneweg, 16 S.D. 29, 91 N.W. 335; 2 Cook on Corporations, 5th ed., sec. 714, pp. 1758, 1759, and notes.

Where findings are silent as to material facts, it will be presumed as against the party having the burden of proof that the court found against him as to such facts. Lemster v. Warner, 137 Ind. 79, 36 N.E. 900; Western Union Tel. Co. v. Brown, 108 Ind. 538, 8 N.E. 171; Bruner v. Brown, 139 Ind. 600, 38 N.E. 318.

Nothing short of action by all the stockholders in meeting assembled will in itself work a rescission of the contract, and by implication at least that when all the stockholders join in rescinding a contract, their action in itself constitutes a valid rescission. 2 Cook on Corporations, 5th ed., secs. 709 1721, note; Colorado Co. v. American Co., 97 F. 843, 38...