276 N.W. 651 | Minn. | 1937
1. Recovery is predicated upon the ground that plaintiff's officer Storr wrongfully appropriated corporate property to the payment of his individual obligations. If this were the only question presented plaintiff would be entitled to prevail. An officer of a corporation does not have authority to use corporate property to pay his personal obligations unless all the stockholders consent, and an action will lie by the corporation to recover property from one by whom it is so received. The gist of the right of recovery is the unauthorized appropriation of corporate assets to noncorporate purposes. 2 Dunnell, Minn. Dig. (2 ed. Supps. 1932, 1937) § 2116; Gross Iron Ore Co. v. Paulle,
2. Defendant urges that plaintiff and its stockholders are bound by their consent and acquiescence. The findings below are sustained insofar as it is found that neither plaintiff's directors nor stockholders formally authorized Storr to transfer plaintiff's property for his personal benefit. But "a broader and more sinister situation" *398
than the facts specifically found below, to observe the distinction in a similar case, Anderson v. Missouri State L. Ins. Co. (C.C.A.)
Storr dominated and controlled plaintiff's corporate activities. Plaintiff is a "family" corporation, incorporated on December 26, 1929, in which all of the 500 shares of stock, except one, are owned by members of the Storr family. The corporate arrangement was favorable, if not conducive, to Storr's domination and control. The one share is held by the secretary to qualify him as such. Mrs. Storr owned 498 shares from December 31, 1929, to July 1, 1930, when she transferred 497 shares to their son, John K. Storr, and J. Norman Storr has at all times owned only one share. At the first directors' meeting, on December 26, 1929, at which the owners of all stock then outstanding were present, by-laws were adopted which, among other things, authorized the president, or in his absence or inability to act, the vice-president, to execute in the name of the corporation, deeds, leases, contracts, and other instruments and affix thereto the corporate seal. The by-laws further provided that all checks were to be signed and indorsed by the president or treasurer.
Only five directors' meetings were held, one on December 26, 1929, in connection with the organization and election of officers, one on December 31, 1929, to accept a transfer of certain property from Mrs. Storr, one on September 30, 1933, to adopt a resolution to renew a mortgage on certain property in its name and to grant an easement, one on May 24, 1934, to call a stockholders' meeting on May 26, 1934, and another on May 26, 1934, to accept the resignation of one George as secretary and to elect one Ingram as secretary in his place. Only one stockholders' meeting was held, and that was on May 26, 1934, to repudiate the transfer of plaintiff's property to defendant. Except as stated, no business was transacted by the directors or stockholders. The corporate machinery was not used by those who owned the corporation. The stockholders and *399 directors exercised no control or supervision over plaintiff and its officers and did not participate in the corporate activities. The corporation functioned only at the will and pleasure of Storr. Whatever business was transacted was transacted by Storr. The corporation declared no dividends.
What purported to be expressions of plaintiff's corporate will were but Storr's personal acts. He kept the corporate books in his office, exercised general control over plaintiff's operations, managed its business, banked its moneys, signed its checks, and withdrew money from the bank at his pleasure on his signature. With the secretary, he signed deeds, mortgages, and other instruments in plaintiff's name. He controlled all financial operations. He made the entries in the stock book, hired and discharged employes at will, and when the secretary George resigned, Storr's employe Ingram was made secretary.
Storr used plaintiff to transact his individual business. He placed plaintiff in charge of his property and in its name collected rents, brought and settled lawsuits, assigned and satisfied judgments, held and collected fire insurance. Fire insurance on the Colonnade Annex, amounting to $31,500 in Storr's name as purchaser under deed, was indorsed to plaintiff. When a fire occurred, $14,000 for damage to the building and $785 for loss of rents was collected by Storr in plaintiff's name upon proofs of loss in which he falsely swore that, except for the mortgage, no person or persons other than plaintiff had any right, title, claim, or encumbrance thereon. The insurance money was placed in plaintiff's bank account. He expended in plaintiff's name out of the insurance moneys in excess of $10,000 for repairs to the building and decorating and withdrew the balance of over $4,000, which he pocketed.
He controlled plaintiff's affairs so that only he received benefits. Although plaintiff has an authorized capital of only $50,000, which was paid by a transfer to it of some real estate of Mrs. Storr, Storr without express authorization withdrew, between 1930 and 1934, for his personal use, about $18,000, and invested another $4,000 in another corporation which he controlled. No withdrawals were made by any other officers and stockholders, nor were any dividends paid *400 to them. They received nothing. Storr took all the benefits. Although the by-laws allowed him only a commission on sales as compensation, he disregarded the by-law. Storr took not what the bylaw allowed, but what he himself determined to take. He also shifted assets of plaintiff and other corporations which he and Mrs. Storr controlled from one to the other, amounting to from $40,000 to $50,000 per year. He exercised control and dominion over the corporate property as if it belonged to him individually.
Plaintiff's stockholders consented and acquiesced in Storr's domination, control, and management of plaintiff. All his acts were open and without concealment. That J. Norman Storr, Mrs. Storr, and the secretary were bound as officers and stockholders seems clear. Barrett v. Smith,
Ordinarily, the rule stated that an officer of a corporation does not have the power to use corporate property for his own personal benefit or do other ultra vires acts obtains. Where such acts are done with the consent of the directors, the stockholders may complain. *401
Stockholders of a corporation may by their unanimous consent, either by direct act or acquiescence, invest officers of the corporation with general corporate powers involving ultra vires
acts and appropriation of corporate assets to noncorporate purposes, where, as here, rights of creditors and violations of law are not involved, so that all acts done within the scope of such powers are the acts of the corporation, binding upon it and the stockholders. Barrett v. Smith,
Where the authority of the officer is not conferred by formal action, it may be established by evidence other than the records of the corporation. Gross Iron Ore Co. v. Paulle, Sweet v. Lang, and Anderson v. Missouri State L. Ins. Co.supra; Hoosier Lbr. Co. v. Spear,
It is urged that plaintiff had no knowledge of the transfers by Storr to defendant until after they had been made. This is not decisive. The transfers were within the authority conferred upon Storr. It is sufficient to show that the acts done were within the authority granted, and it is not necessary to show such authority with respect to each irregular act. The general authority comprehends the particular case. Anderson v. Missouri State L. Ins. Co. and other cases supra. Plaintiff is charged with Storr's knowledge under these circumstances. State Bank of Morton v. Adams,
3. Plaintiff contends that all acts by Storr in the use of its corporate name and organization were without its knowledge and consent, with the intent to hinder and delay, if not defraud, creditors, by placing his property beyond their reach. The contention does not help its case where, as here, it appears that it has consented and acquiesced in the acts of which it complains. In some cases the facts asserted would justify a court in disregarding the corporate entity altogether. Where the corporation is used by an individual as an instrument of fraud, or to hinder and delay and, if possible, defraud creditors, or for other wrongful purposes, "courts will go as far as necessary in disregarding the corporation and its doing in order to accomplish justice." Matchan v. Phoenix Land Inv. Co.
Defendant contends that Storr not only had authority to make the transfers but that all of his acts were ratified by the stockholders. Inasmuch as our decision upon the question of authority *403 disposes of the case, we do not deem it necessary to pass on this question.
Since undisputed evidence requires findings that plaintiff authorized Storr to transfer its property, defendant is entitled to judgment.
Reversed with directions to enter judgment in favor of defendant.