Court Opinion

ID: 6872326
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:02:58.699188+00
Date Added: 2024-06-11T16:05:25.843384
License: Public Domain

SYMES, District Judge
(dissenting).
I regret I am unable to agree with the views of the court. The opinion sets out the many stock transactions between the Exchange National Company and the defendant Standeven in November, and December, 1930. The complaint, however, is grounded solely upon the purchases by Standeven of preferred stock of the Second National Investors Corporation from the company on various dates in November, 1929, and November, 1930, aggregating 500 shares, for $25,385, and his sale of the said 500 shares back to the company on December 31, 1930, at the same price. Standeven did not pay for the stock and the debit was thus balanced on the books.
In the meantime thg market price of stock on the New York market had declined from around $51 to $39 a share on December 30, 1930.- So it is as clear as arithmetic can be that Standeven profited, *963and the company was mulcted to the extent of the difference, $5,885.
The defendant’s motion for a directed verdict made and granted at the end of plaintiff’s case admits the above facts, to which we confine our discussion, setting aside all matters of defense set up in the answer and discussed in the briefs.
1. Standeven, president and director of the company, was liable for any profit he made at its expense. 14A C.J. p. 122. Any action on the part of an officer of a corporation that tends to sacrifice its interest is a flagrant breach of trust for which he is responsible; nor may he directly or indirectly derive any personal profit, benefit, or advantage by reason of his position, but will be required to strictly account for the same. 14A C.J. pp. 99, 122 et seq.
. It is idle to say that because the stock was bought and sold back to the company at the same price, no loss was sustained. But even so a recovery may be had if the defendant made money by such a transaction, irrespective of whether the company sustained -a loss or not. He has the burden of defending the transaction. 14A C.J. pp. 112, 123.
So a cause of action arose.
2. Section 101, O.S.1931, 12 Okl.St.Ann. § 95, statute of limitations, reads in part as follows: “Third. Within two years: * * * an action for relief- on the ground of fraud — the cause of action in such case shall not be deemed to have accrued until the discovery of the fraud.”
The defendant’s interest was hostile to that of the company and it was to his interest to conceal the facts. So his knowledge was not the knowledge of the corporation. Maryland Casualty Co. v. Tulsa Industrial Loan & Investment Company, 10 Cir., 83 F.2d 14, 15, 105 A.L.R. 529. The rule in Oaklahorria is: “Where the agent is committing a fraud it would be contrary to common sense to presume that he would communicate the facts to his principal.” Ætna Casualty & Surety Co. v. Local Building & Loan Association, 162 Okl. 141, 19 P.2d 612, 616, 86 A.L.R. 526.
“And in the case of a corporation which must act through agents, a different rule is applied; the fraud of the agent will prevent the operation of the statute in favor of the principal until a discovery»of the fraud.” 37 C.J. 980, § 364.
Furthermore the action is by the receiver of a defunct corporation in behalf of its stockholders and creditors and against an officer who betrayed his trust. No rights of third parties are involved.
The record does not disclose what other officers there were; but assuming, as the lower court did, that there were other directors, the court erred in charging them with constructive notice — at least until the defendant had been put to his proof of his affirmative defense. The case never got that far. So at the time the motion was granted there was nothing to bring the situation within the well-known rule that “The corporation is affected with constructive knowledge, regardless of its actual knowledge, of all material facts of which its officer or agent receives notice or acquires knowledge while acting in the course of his employment and within the scope of his authority.” 14A C.J. p. 482, § 2350.
Section 2351 following makes it clear that this rule applies to officers and agents only, as distinguished from directors, whose liability is discussed in the next section, 2352, and limits such knowledge on the part of directors to that which is communicated or possessed by them when assembled as a board, and that they have power to bind the corporation only when acting officially as a member; that therefore knowledge acquired by a director individually and not while acting as a member of the board is not notice to the corporation. If the rule was otherwise the corporation would incur the same liability for unofficial acts of directors that partners do for the acts of partners and its ^business would be subjected to extraordinary confusion and hazards. As a practical matter directors are seldom conversant- with the details of every transaction the books disclose. Logically carried out the holding of the lower court would eliminate the distinction between corporations and partnerships.
What is there is this record to disclose actual knowledge on the part of other directors, or of facts sufficient to excite their suspicion and require inquiry? The witness Ephriam testified the records of the! company revealed the total purchase price of the stock and what the defendant sold it back to the company for, but not the market price per share; that it was not common to put the current stock quotations on the ledger records. Assuming they knew *964all the hooks showed, was the corporation chargeable with knowledge which its directors, living in Oklahoma, could obtain only by consulting the financial sheets in New York publications. I think not.
In an old case, Vernon v. Manhattan Co., 17 Wend., N.Y., 524, cited with approval in 14A C.J. p. 488, note 28, it was held there was no presumption of law that a notice contained in a newspaper subscribed to by a corporation for the use of its officers had come to the eyes of such officers.
Curtis, Receiver, v. Connly, 257 U.S. 260, 42 S.Ct. 100, 101, 66 L.Ed. 222, is not authority here. That was an action against former directors of a bank for losses sustained because of dividends paid out of capital and improper loans made by the defendant directors. On the law Mr. Justice Holmes said no more than that the bank must be charged with knowledge of what appeared upon its books, and on the facts that “It is alleged unmistakably in the bill that all the directors were chargeable with notice and did in fact know that the dividends were paid out of assets and not earned and that the improper loans should be recalled.”
No question of constructive notice was involved.
Likewise in Cooper v. Hill, 8 Cir., 94 F. 582, in which the officers and directors expended bank money in operating a mine, it is stated that the books of the bank disclosed the transactions. Cases in point on the facts are Reid v. Robinson, 64 Cal.App. 46, 220 P. 676, 677; Mohr v. Sands, 44 Okl. 330, 133 P. 238, 144 P. 381; Carson v. Harrod, 91 Okl. 62, 215 P. 929; Highland Park Investment Co. v. List, 42 Cal.App. 752, 184 P. 48; Maryland Casualty Co. v. Tulsa Industrial Loan & Investment Co., supra. In Spalding v. Enid Cemetery Ass’n, 76 Okl. 180, 184 P. 579, 582, the minutes of the corporation showed that $400 was paid for a cemetery gate, but nothing to indicate the disparity between its true value and the amount allowed. This was held sufficient to toll the statute of limitations. Likewise in the case at bar ■the amount paid for the stock was disclosed by the books, but it was necessary for the -receiver to hire an expert auditor and search beyond the company records in order to discover the fraud.
In conclusion: It would seem this is not a case for-the application of the statute of limitations, at least not until the defendant has established a state of facts to which it can be applied.