265 F. 91 | 8th Cir. | 1920
(after stating the facts as above).
“The individual members of the corporation, whether they should all join, or each act severally, have no right or power to intermeddle with the property or concerns of the bank, - or call any officer, agent, or servant to account, or discharge them from any liability. Should all the stockholders join in a power of attorney to any one, he could not take possession of any real or personal estate, any security or chose in action, could not collect a debt, or discharge a claim, or release damage- arising from any default, simply because they are not the legal owners of the property, and damage done to such property is not an injury to them. Their rights and their powers are limited and well-defined.”
And this rule has often been followed. Humphreys v. McKissock, 140 U. S. 304, 312, 11 Sup. Ct. 779, 35 L. Ed. 473; De La Vergne Co. v. German Savings Inst., 175 U. S. 40, 53, 54, 20 Sup. Ct. 20, 44 L. Ed. 65; Sellers v. Greer, 172 Ill. 549, 50 N. E. 246, 40 L. R. A. 589; Puritan Coal Mining Co., v. Pennsylvania R. Co., 237 Pa. 420, 85 Atl. 426, 432, Ann. Cas. 1914B, 37; 2 Cook on Corps. (7th Ed.) § 709. See, also, First Nat. Bank of Memphis, Tenn., v. Towner, 239 Fed. 433, 440, 152 C. C. A. 311; Woodruff v. Shimer, 174 Fed. 584, 586, 98 C. C. A. 430; Denver Engineering Works Co. v. Elkins (C. C.) 179 Fed. 922.
But the principle of equitable estoppel is frequently applied to deny a defense that might otherwise have prevailed. Nothing is better settled than that one, who, by his acts or representations, or by his silence when he ought to speak out, intentionally or through culpable, negligence, induces another to believe certain facts to exist, and the latter rightfully acts on such belief, so that- he would be prejudiced, if the former is permitted to deny the existence of such facts, is thereby conclusively estopped from making such denial. Dickerson v. Colgrove, 100 U. S. 578, 580, 25 L. Ed. 618; Union. Pacific Ry.
In this case Morgan and Cheney, stockholders, but assuming to act for the corporation, are said to have made a contract for the benefit of the corporation with Ownbey, the owner of the remainder of its stock, and Ownbey, claiming to have relied upon those agreements, alleges he has executed his part of the agreement. If the contracting stockholders permitted Ownbey to render services and expend moneys, and to act in accordance with such a contract, they may not be heard, in a suit brought for the benefit of themselves, as the only other owners of stock, to deny the validity of the assent of the corporation. Colorado Springs Co. v. American Pub. Co., 97 Fed. 843, 853, 38 C. C. A. 433; United States v. Milwaukee Refrigerator Transit Co. (C. C.) 142 Fed. 247, 255; Breslin v. Fries-Breslin Co., 70 N. J. Law, 274, 282, 58 Atl. 313; In re Newman, [1895] L. R., 1 Ch. Div. 674, 686; Ebelhar v. Nave (Ky.) 119 S. W. 1176; First Nat. Bank v. Winchester, 119 Ala. 168, 24 South. 351, 72 Am. St. Rep. 904; Bundy v. Iron Co., 38 Ohio St. 300-311, 312; Brown v. De Young, 167 Ill. 549, 555, 47 N. E. 863.
The court, on an application of the master for instructions relating to the taking of the account, ordered the master to disregard all matters of pleading and to proceed with the accounting in accordance with equity rule No. 63 (198 Fed. xxxvii, 115 C. C. A. xxxvii). No exception was taken to this order, and it is now too late to insist that Ownbey was limited to the proof of an implied contract for services.
This brings us to the next controverted question — whether agreements were made such as Ownbey claims. As to the salary and living expenses, both Cheney and Ownbey testified repeatedly that a verbal agreement was made at a meeting of the three men in Morgan’s library by which Ownbey was to continue as the business manager of the company, and that he was to receive for such services $1,000 per month and also his living expenses for himself and family, not to. exceed $500 per month. Morgan’s death before this suit was brought precluded the possibility of testimony from the only other participant in this alleged transaction, but there are many circumstances that
' In his answer he set forth a counterclaim for the reasonable value of his services, but did not plead any agreement that he was to be paid a salary or be allowed his living expénses. The plaintiff employed an accountant in December, 1915, to go over the company’s books, and he told Ownbey that the books showed a balance against him, and that, there was nothing on the books to show an allowance for salary or living expenses. Ownbey replied that there should be such entries, and that he had an agreement, and that it was in tire correspondence; but, failing to find it, he claimed it was in the minutes, and, again failing to find any note of it there, claimed it was a verbal agreement. He was asked as to the amount of his salary, but he deferred answering until he had seen his attorney, and then stated that he was to have $1,000 per month for both salary and expenses after April 16, 1910. Ownbey, on behalf of the corporation, in 1912 asked for a loan from a bank, and the bank required an audit of the books. Ownbey hired auditors, who reported to Ownbey in writing that no salary was charged for him, but that he was credited witn profits on the boarding house for 1911. The bank made the loan on the faith of this report. The corporation records are silent as to any allowance to Ownbey for these purposes.
• [3] Ownbey explains some of these admissions by the statement that he did not wish the bookkeepers to be advised of the amount of his salary, lest they should demand higher salaries, and this was pursuant to an understanding he had with Cheney and Morgan. Own-bey gave practically his entire time to the management of the company’s affairs, and they were extensive and required the careful supervision by some one who lived at the scene of operations. It is not incredible that some one should have been employed and have been given a liberal salary and a liberal allowance for living expenses "for doing this work, inasmuch as Cheney and Morgan were absent, and
The finding that the plaintiffs were not entitled to an accounting of transactions between the corporation and Ownbey prior to April 16, 1910, rests upon the testimony of Ownbey and Cheney laten upon the hearing upon the special defense, and upon the interpretation of the minutes of the stockholders’ meeting held on that day. The court may have been influenced in its final confirmation of the master’s findings by the lestimony of these same witnesses as to this conversation, which was again given later during the hearing and upon other features of the case. A careful review of the evidence of these witnesses leads to the conclusion that the agreement claimed to have been made, in the conversations at Morgan’s library and completed at the stockholders’ meeting, was not, as defendant now claims, for an accord and satisfaction between the corporation and Ownbey for any balance of account that should be outstanding at the time of the stockholders’ meeting, provided that Ownbey made the conveyances and that the stock was redistributed in the agreed proportions. While some of the testimony of these witnesess, stating conclusions rather than the conversations, might bear this interpretation standing alone, the rational construction to be put upon their testimony is that these stockholders agreed that a stockholders’ formal meeting should be held soon thereafter, and that at .that meeting, in the language of Cheney, they were “to consummate and put into legal form this agreement which we had had”; that Ownbey would then convey to the Wootton Company the property held by him in trust for it; that there would be a redistribution of the capital stock, by which Ownbey’s proportion would not be changed, and Morgan’s would be changed but very slightly, and this would be a settlement of the proportionate stock interests. This preliminary agreement was in December, and the stockholders’ meeting occurred in the following April. Manifestly, it could not be known what balance of account would be owing to or by Own-bey at that time.
Ownbey admits a balance was due to the company from him of $8,287.83 on April 16, 1910, and that he is accountable for it, which would not have been true, if all accounts were to be then balanced at zero. It is also shown that he had other balances in banks belonging to the company of $11,072.94. His page of the ledger account in the books of the Wootton Company showed a further indebtedness
In stating the account between' the .parties after April 16, 1910, a balance was found by the master at that date, as has been stated., of $8,287.83, consisting of cash on hand in the company’s office and a deposit in the Trinidad National Bank. This amount was evidently derived from Cheney’s testimony, but he did not testify, nor was there other evidence to show, what balance was shown by Ownbey’s report, which was approved by the minutes of the stockholders’ meeting, as has been stated. Moreover, Cheney does not testify that this was all the cash on hand as a fact, but only as a conclusion, and as true so far as he knew, and the evidence shows no sufficient basis
Exceptions were taken to many items of credit and discharge claimed by Ownbey. The master found that many of these items were improper charges against the Wootton Company, and disallowed them, and no exceptions on the part of Ownbey now call in question this action. The credits allowed Ownbey, and which are now questioned by appellants, are claims of disbursements of the company’s funds by Ownbey. The items are very numerous, and the evidence relied upon cannot profitably be set out in detail. So far as the findings of the master depend upon conflicting testimony or credibility of witnesses, and the evidence in support of the item is legally competent, the finding must be allowed to stand. But where items are supported by no competent evidence the findings must be disregarded, because founded upon a mistake in law. The defendant was permitted to testify to general statements that he had never used, taken, nor expended any funds of the Wootton Company for his personal use, without having them charged to himself on the company’s books. He qualified this denial by an admissiqn that he had used some of these funds for his living expenses, but claimed that in such cases the withdrawals had been charged to the company’s general expense account. The master evidently was influenced by this testimony in allowing many of the credits, for other evidence is lacking in support of them as matters of discharge. The rules of law that were applicable in the taking of the accounting may be briefly stated:
It follows as a corollary to these principles that the duty to account is not fulfilled by a mere general statement that the money was expended for the principal’s benefit or business, or by a general denial that any of the principal’s money was taken for the personal use of the trustee. Such statements are but the conclusions of the witness, and afford no reasonable opportunity to the principal to test the fact or the propriety of ihe expenditures, and give the court no basis for determining from the facts of each transaction whether the trustee has faithfully performed his duty. 1 Mechem on Agy. (2d Ed.) § 1344; New York Bay Cemetery Co. v. Buckmaster (N. J. Ch.) 33 Atl. 819; Webb v. Fordyce, 55 Iowa, 11, 14, 7 N. W. 385; Farmers’ Warehouse Ass’n v. Montgomery, 92 Minn. 194, 200, 99 N. W. 776; Willis v. Clymer, 66 N. J. Eq. 284, 287, 57 Atl. 803; In re Gaston, 35 N. J. Eq. 60, 64; Romig’s Appeal, 84 Pa. 235, 237; Wolf Co. v. Salem, 33 Ill. App. 614, 617; 2 Bates, Fed. Eq. Proc. § 764; 2 Daniell, Ch. Pl. & Pr. (6th Am. Ed.) 1227, 1228.
Applying these principles to the groups of credits claimed by Own-bey makes the proper disposition of them comparatively simple. The “general expense” items which are attacked amount to $2,288.75. As to each of the numerous items there are either admissions by Ownbey as a witness, or evidence from the checks or vouchers or book entries, or a lack of testimony showing an expenditure for the company’s purposes, that requires the rejection of the claims. Ownbey confesses a lack of memory as to the circumstances of the expenditures, except that he insists in general statements that they were for the benefit of the company, which we have held does not discharge his duty to account. The “living expenses” group of items amounts to $22,484.57.. The master finds this was received by Own-bey by checks that he drew or from checks deposited, and was used by him in payment of his living expenses; but the maste'r also finds that there was no evidence of the amount expended by Ownbey for these living expenses in any one month or any one year, and that the evidence as to the expenditures of moneys in this account is very unsatisfactory. Fie allowed the amount because of the manner
Traveling expenses allowed and attacked amount to $10,866.85. Ownbey claimed and 'was allowed a large sum as credit for traveling expenses in connection with the company’s business, and another group of such claims was disallowed. The items composing the balance now in controversy were not supported by receipts or written memoranda showing tlie expenditures to have been for the company’s benefit, nor was there other competent evidence of that fact; $1,365 of the amount was charged on the company’s books against Own-bey’s personal account. Under the proofs the amount was improperly credited to Ownbey.
The “legal expense” account was a large one. Some of it was allowed and some disallowed, and the balance in controversy is $5,368.61. The evidence again shows either a lack of knowledge on the part of Ownbey, as the only witness testifying on the subject, or else evidence is entirely lacking, to show that these expenses were incurred on behalf of the company. Much of the amount was drawn by checks payable directly lo Ownbey. lie must be held to have failed to have sustained the burden of proof required of him.
Intoxicating liquors, $1,914.97. This amount is shown to have been disbursed to the dealers who sold liquors, and was for liquors furnished to the Wootton ranch house or given by Ownbey as donations to other persons. Appellants’ objection to the item is because of lack of evidence showing the portion of the liquor used by Ownbey for his personal uses. He testified it was all used for the company, and we think that was sufficient to support the master’s finding, as further particularization coidd not reasonably be required of the final use of these liquors.
Taxicab expenses, $1,436.25. There are proper receipts for these bills, and Ownbey’s testimony shows that the expenditures were all for the company’s business, and for the same reasons as stated relating to the previous item the master’s allowance of the amount *hould stand approved.
Interest on notes, $1,392.38. This sum was used in paying interest on notes, but the notes were not entered upon the company’s books. The Wootton Company’s notes were entered on its books, and the interest on those notes was also entered. There was a lack of testimony on the part of Ownbey, and he did not sustain the burden that was laid upon him to show that this was a proper charge. The item should have been disallowed.
Miscellaneous items, $1,788.79. A number of items are embraced in this total, and each presents its separate state of facts. The charges for expenditures to Sager, $500; for turkeys, $88.45; for travel expenses of Bailey and others, $75; for expense in settling for death of a miner, $250 — total, $913.45, are supported by sufficient evidence. The remainder, aggregating $775.34, entirely lack evidence to support them, and should have been disallowed.
Supplementary account. The allowance in favor of Ownbey of two checks of $1,000 each was called to the attention of Ownbey as a witness, but he was unable to remember the purposes of the expenditures, and they were otherwise unsupported, and should have been disallowed. As we have held Ownbey chargeable with the balances in the First National Bank of Boulder and in the American Exchange National Bank of New York, he is entitled to credit for $2,260.55 for checks drawn on those banks, as shown in his supplemental account.
Another item of $250 to C. E. Stratton was improperly allowed, because it was paid on April 22, 1909, and, if it is a valid charge, should be entered against the company as of that date, and it was not involved in the accounting subsequently to April 16, 1910, which ■was referred to the master. The disallowance of these items that have been referred to is traceable entirely to Ownbey’s failure to furnish sufficient proof. Ownbey appears to have been accustomed to business transactions, and the books were properly kept as to most transactions of the company, and vouchers and receipts were commonly supplied. The bookkeepers for the company appear to have been skilled, and to have kept the accounts properly so far as their information enabled them to do so. They depended on Ownbey for much of the important information needed by them, and the failure of the records; as well as the failure of the testimony as to these particular expenditures, is traceable to Ownbey’s failure to record or remember the times, amounts, or purposes of the expenditures for which he now asks credit.
Summarizing, the decree should be modified, so that Ownbey will be charged with the amounts that we have disallowed, but credited with the amount of salary allowed by the master. The master’s statement of the account of his transactions with the company since April 16, 1910, will then stand modified as follows:
To balance due to coinpany as per master’s report... .$ 4,328.85
To pasturage.............. 629.27
To balances in First National Bank of Boulder and in American Exchange National Bank of New York.. 11,072.94
To general expenses, items disallowed............... 2,283.75
To living expenses, items disallowed ................. 22.4S4.57
To traveling expenses, items disallowed............... 10,866.65
To legal expenses, items disallowed ................ 5,368.00
To telephone expenses, items disallowed .............. 1,413.55
To interest expenses, items disallowed .............. 1,392.39
To miscellaneous expenses, items disallowed......... 775.34
To supplementary account, items disallowed......... 2,250.00
$62,870.91
Credits.
By amount of salary.......$57,609.52
By clieeks on First National Bank of Boulder and American Exchange National Bank of New York.. 2,260.55
$59,870.07
Balance due from Ownbey- to the Wootton Company $3,000.84. In addition to this amount, the plaintiff is entitled to an accounting of transactions prior to April 16, 1910. Whether the balance of indebtedness claimed to be shown against Ownbey on the ledger of the company of $23,638.78 is a correct charge, or whether' the claim of a further indebtedness of Ownbey at that time is correct, is a matter that was not heard fully on proofs by the court below, because of the holding that the accounting should not extend to transactions prior to April 16, 1910, and cannot now be decided upon this record, and no opinion is expressed thereon.
For the reasons stated, the case will be remanded, with directions to proceed further with the accounting ordered for the period prior to April, 1910, if the parties are <<0 advised, and otherwise the decree will be modified to conform to the views expressed herein. The appellants are entitled to their costs expended on the appeal in case No. 5265; no costs to be taxed to either party in No. 5266.