Court Opinion

ID: 6655378
Source: CourtListenerOpinion
Date Created: 2022-07-20 20:57:23.373286+00
Date Added: 2024-06-11T15:59:53.141114
License: Public Domain

The following opinion on rehearing was filed February 17, 1904. Judgment of cMstriot court reversed:
Sedgwick, J.
Upon reargument of this ease, we are satisfied that the former opinion prepared by Mr. Commissioner Oldham is wrong. There can he no doubt that the Lincoln Medical College of Cotner University was formed for the personal profit and emolument of its stockholders, and Avas a busi*556ness corporation. Tlie authorized capital stock was $50,000, and it Avas provided that a part of this should he paid for in cash, but the larger part was to be paid for in services of the subscribers to be rendered for the benefit of the corporation. About one-half of the authorized capital stock had been subscribed for and issued, and was held by individuals at the time of the organization of the new corporation. The principal business of the corporation Avas to conduct a medical college. The evidence shows that it was intended that the college should be conducted in connection with Cotner University. The plaintiffs and the intervener, Dr. Reynolds, Avere for several years stockholders and directors of the corporation and members of its medical faculty. During the first years of its operation, no questions seem to have been raised in regard to the different schools of medicine whose tenets were being more or less inculcated by the different members .of the faculty, and Avhen such questions arose in the faculty, there seems to have been a clash among its members; some favoring one particular school of medicine, but a large majority favoring another. The majority seem to have excluded the minority from the faculty, and no reason appears from the evidence for the fear, which seems to have arisen in the minds of the majority, as to their ability to control the school and to determine the character of the instruction to be given, as well as the personality of the faculty and the board of directors.
If Ave assume, as the defendants here strongly insist, that the plaintiffs and the intervener, Dr. Reynolds, had conspired together to control the policy of the school, and to cause the faculty, of at least a majority thereof, to be selected from the particular school of medicine to which they belong; and if we further assume that the plaintiffs and the intervener, Dr. Reynolds, were determined to either bring about such a change in the school or to destroy the school altogether, still the evidence fails to show that the defendants, avIio were a majority of the stockholders and of the directors, as well as the faculty, were not able to *557control the corporation and its policies, and to protect the school from the machinations of its enemies by the usual legal and equitable remedies invoked in such cases. If they could not so protect themselves and the school, it would still manifestly be unlawful to use the means pursued by them.
“A person who is agent for two parties can not, in the absence of express authority from each, represent them both in a transaction-in which they have contrary interests. * * * It follows, therefore, that the directors, or other agents of a corporation, have no implied authority to bind the company by making a contract with another corporation which they also represent.” Morawetz, Private Corporations (2d ed.), sec. 528.
This principle of law has been announced by this court in Fitzgerald v. Fitzgerald & Mallory Construction Co., 44 Neb. 463, 491, and Miller v. Brown, 1 Neb. (Unof.) 754. In the opinion in the latter case the following language is quoted from Cook, Stock and Stockholders (2d ed.), sec. 653:
“One of the most frequent’ frauds perpetrated upon a corporation and its stockholders is where one or more of the directors purchase property from the corporation directly or indirectly or participate in the profits of such a purchase. The law is well settled that a director’s purchase of property from the corporation is voidable at the option of the corporation, even though the directors paid fully as much as or more than the property is worth. * * -x- qq^ corporation may reclaim the property upon payment to the director of the amount he paid therefor.” Indeed the citation of authority upon this proposition is unnecessary, since it is the universal rule of all the cases. The true meaning, as well as the just application of the rule, is well shown in 10 Cyc. 285, 286, and authorities cited in the notes.
The case of O’Conner Mining & Mfg. Co. v. Coosa Furnace Co., 95 Ala. 614, 36 Am. St. Rep. 251, is construed by the defendants in their brief as authority for a *558different rule; but it will not bear such construction. It is merely held in that case, as it is in nearly all other cases, that the transaction complained of was not absolutely void, but was voidable; and that creditors of the corporation, who were not prejudiced in the collection of their claims, by the transaction, could not attack the transaction as fraudulent as to them, but in order to do so, must furnish proof of the insolvency of the corporation at the time of the transaction, or that it was entered into with intent to hinder, delay or defraud creditors. The language of the syllabus is:
“Such dealings are not absolutely void, but are voidable at the election of the respective corporations, or the stockholders thereof, and they become binding if acquiesced in by the corporations and their stockholders.”
In the case at bar the majority of the stockholders, for the manifest purpose of getting rid of the minority stock, ■ organized a new corporation to which they gave substantially the same name as the old one, the original name being, “Lincoln Medical College of Cotner University.” In the corporate name of the new corporation they omitted the words, “of Cotner University,” but the corporation had commonly been known by the name of Lincoln Medical College and was so styled even upon the records of the corporation itself. The incorporators of the new corporation were not only stockholders of the old, but also constituted in the main its board, of directors; and, at the meeting at which they organized the new corporation, they made arrangements to transfer all of the property, good will, and business of the old corporation to the new. Prom that time until the trial of this case in the court below, they appear to have conducted the business in the same manner that it had been conducted under the old corporation, there being no change except that the troublesome minority stockholders were not allowed to take stock in the new corporation, and the words, “of Cotner University,” were dropped from the corporate name as before stated.
They appointed a committee to fix the value of the as*559sets, including the property and good will of the old corporation, and, acting as the board of directors for both corporations, they made a contract of sale of this property and good will from the old to the new corporation. Further statement of the facts in the case, as disclosed in the evidence, may be found in former opinion. It may be that they have accomplished no more by this transaction than could have been done under the old corporation and in its name, but that fact makes the more apparent the illegality of the transaction. It may be that they have acted in good faith, with the purpose to promote the best interests of the school they had in charge, and that their action has been a direct benefit, not only to the school and to the majority of the stockholders, but also to the minority of the stockholders themselves who are now complaining, but this question was not for the majority to determine in the way that it was determined. No man can be compelled to dispose of his stock in a corporation, or other property interests, because, in the judgment of the parties so compelling him, it is for his interest financially and otherwise so to do. The trial court under this evidence should have found that the attempted transfer of the property from one corporation to another was void as against the old corporation and the minority stockholders who are now complaining; and that these directors who are now styling themselves directors of the new corporation, and who were, at the time of the transaction complained of, the directors of the Lincoln Medical College of Cotner University, are still the directors of that corporation and are conducting the business as such.
The decree should have canceled the transfer of the property ; and should have fixed the right of the Lincoln Medical College of Cotner University to said property and good will of the college; and should have protected that corporation in the exercise of its rights.
Twenty-one of the students of the Lincoln Medical College of Cotner University have intervened in this case, and have objected to the appointment of a receiver to take *560charge of the property of the college as prayed for in the petitions of the plaintiffs and the intervener, Dr. Reynolds. Their objection to the appointment of such receiver is well taken. It does not appear that there are any rights or interests of the plaintiffs or intervener, Dr. Reynolds, that can not be amply protected by a court of equity without appointment of such receiver, whereas it does appear that the appointment of a receiver to manage the affairs of an educational institution might be detrimental to the students as well as the interests of the institution itself.
Changes may have intervened since the trial of the case in the court below, making it necessary to take further evidence in order to properly determine and protect the interests of the respective parties.
The decree of the district court will be reversed and the cause remanded for further proceedings in accordance with this opinion.
Reversed.