Court Opinion

ID: 3889759
Source: CourtListenerOpinion
Date Created: 2016-07-06 09:19:04.149841+00
Date Added: 2024-06-11T10:03:37.799550
License: Public Domain

It appears from the record in this case that at and for many years prior to the month of May, 1921, the defendants, I.J. Gray and Ernest Gray, constituting a copartnership, had been engaged in the ice business in Rapid City under the name of Rapid City Ice Company. During the said month of May 1921, the plaintiffs, Newcomer, Miller, Weaver, and one W.F. Hesse decided to go into the ice business in competition with the said Rapid City Ice Company. Pursuant to this plan, they organized a corporation known as Mountain Springs Ice  Cold Storage Corporation. Their capital stock consisted of 500 shares, of the part value of $100 per share, and had a board of three directors. Two hundred shares of this stock was issued as follows: A.R. Weaver 42 shares; John D. Newcomer, 21 shares; O.L. Miller, 20 shares; W.F. Hesse, 116 shares; and J.H. Heald, one share. They constructed a plant and installed artificial ice-making machinery with a capacity of some thirteen or fourteen tons of ice per day. Other necessary equipment was acquired, and the company proceeded to manufacture ice and sell the same to the ice users in Rapid City. Hesse was elected general manager of the plant, and was allowed a salary of $200 per month. They continued this business until some time during the month of March, 1926. By this *Page 89 
time the venture, so far as any profit from the business is concerned, had proven to be a complete failure. The company not only had never paid a cent in dividends to any of the stockholders, but had continually run behind until the month of March, 1926, when it was in debt comething like $11,000, a sum considerably in excess of the value of its entire ice plant.
During the time the Rapid City Ice Company had been in business it owned a body of water near the city of Rapid City where natural ice formed during the wintertime. They had an icehouse with a storage capacity of some 1,600 tons of ice. This icehouse they usually filled with ice during the winter months and peddled it out to their customers during the remainder of the year. The winter and spring of 1926 was a poor season for the formation of natural ice, and the ice company was unable to cut and store a sufficient amount of ice to supply its trade for the coming season. They could buy artificial ice in Deadwood for $5 per ton, but preferred to use ice manufactured in Rapid City. In order to provide ice in Rapid City, they purchased the 116 shares of stock in the Mountain Springs Ice Company then owned by W.F. Hesse. This gave the Grays a majority of the outstanding stock and necessarily control of said corporation. Immediately thereafter a stockholders' meeting was held in which one of the Grays was elected a director of the company. The board of directors then became I.J. Gray, W.F. Hesse, and A.R. Weaver. Ernest Gray was elected to take the place of Hesse as manager at the same salary of $200 per month that Hesse had theretofore been receiving. Hesse then resigned as a director, and Ernest Gray was elected to take his place on the board of directors. As the Grays took charge of the management of the corporation, they discontinued the retail business of ice that had been carried on by the Mountain Springs Ice Company and turned the corporation's retail business over to the copartnership. They then purchased the entire output of the corporation's ice plant at wholesale, and sold the same to their customers in Rapid City and vicinity. This policy was continued for a period of approximately five years and until the trial of this action. The ice plant of the corporation had been operated continuously to its full capacity. The partnership allowed the corporation $5 per ton for its entire output delivered at the plant. The result was that during the time this policy was followed *Page 90 
the corporation not only paid all of its running expenses, including manager and secretary's salaries, and repairs, but had a sufficient surplus to pay, and did pay, all of the indebtedness against the corporation at the time the Grays took over the control of the corporation, so that at the time of the trial the corporation was entirely out of debt with all taxes paid. The plant had been kept in repair, so that at the time of the trial it was in as good condition as it was when first installed.
At the end of the first year after the Grays acquired their interest in the corporation, I.J. Gray was elected general manager in place of Ernest Gray, and Ernest Gray was elected secretary and treasurer. In general, this plan was continued until the time of the trial. At the time of the trial, the records showed that Ernest Gray had drawn a total amount of $7,233 as salary, and I.J. Gray had drawn $11,533, making a total sum of $18,766. There was evidence, undisputed, to the effect that both of these parties earned the salaries so paid to them, and that the services they had rendered to the company were of the reasonable value of the amount so paid to them. The trial court, however, was of the opinion that this was too much money for the services they had rendered, and entered a decree to the effect that the sum of $7,233 that had been paid to Ernest Gray should be reduced to the sum of $1,800, which was decreed to have been the full value of all the services he had rendered. There is no evidence in the record to support this finding. The court also found that the $11,533 that had been paid to I.J. Gray was too much money for the services he had rendered, and decreed that said sum should be reduced to $6,533, though there was no evidence in the record to sustain any such finding, and that the difference between these two sums, amounting to $10,433, and the amount they had received, should be returned to the corporation, and entered a joint and several judgment against the defendants for this amount; that is, the property of either one of these defendants may be applied in payment of the judgment against the other. In arriving at this conclusion the court substituted its own notion of what was a proper remuneration for these two defendants for the services they had rendered for the positive and undisputed testimony that was taken at the trial. *Page 91 
In plaintiff's complaint, the defendants are charged with all the shortcomings and misconduct it is possible for majority stockholders to commit in the operation of a corporation, but the court, in arriving at its judgment, considered only the excess salaries that had been paid to the defendants, and expressly found that: "In the management of the business of said corporation, however, the said defendants have at no time been guilty of any wilful waste of the property of said corporation, and have not been guilty of any misappropriation or embezzlement of funds, but have rendered a full and accurate account of all moneys received by them for and on behalf of said corporation."
In findings of fact Nos. 14 and 15 the court found:
No. 14: "* * * That the services of the defendant, Ernest Gray, rendered to said corporation, and for which he received the sum of $7233, were of the reasonable value of $1800.00 only, and that any seeming or apparent additional services by him rendered were more than offset by detriment caused to the corporation by his wrongful conduct and by subservience of his trust in the matter of the affairs of said corporation."
No. 15: "The court finds that the reasonable value of the services rendered by the defendant, I.J. Gray, to said corporation, for which he was paid $11,533.00 was and is the sum of $6533, and that any seeming or apparent additional services by him rendered were more than offset by detriment caused to the corporation by his wrongful conduct and by subservience of his trust in the matter of the affairs of said corporation."
The evidence shows that both of these defendants devoted all of their time to the interests of the corporation; that they made a market for the entire output of the ice plant running at full capacity, and that during the five years that they were in control of the management of the corporation they not only paid all the running expenses of the plant, paid for all repairs, and kept it in first-class condition all of the time, but paid all of the taxes, and paid all of the $11,000 of indebtedness that had existed against the corporation when they took charge of its affairs, and there is no evidence in the record that shows, or purports to show, any detriment caused to the corporation by either of the defendants.
It is claimed by the plaintiffs, and assumed by the court, that in all cases where either of the Grays was elected general manager *Page 92 
or secretary-treasurer he was so elected by his own vote. This is not true. An examination of the evidence will show that in all cases where either of them was elected to one of those offices he was elected by the vote of a majority of the board of directors without counting his own vote. During the years 1928, 1929, 1930, and 1931, one or the other of the plaintiffs was a member of the board of directors, and was present in each case when defendants were elected, but in no case did such director vote against such election.
After the commencement of the action, and prior to the time of the trial, a so-called audit was made of the accounts of the corporation by an expert accountant. This so-called audit was in fact no audit at all, but a mere juggling of figures to show a desired result. For instance, the audit showed a loss of a dollar per ton on each ton of artificial ice that was sold for $5, yet it is admitted that artificial ice could be bought in wholesale lots at Deadwood and Pluma at $5 per ton. It is not claimed that it cost any more to manufacture ice in Rapid City than in Pluma, and the record shows that a profit was realized during the management of the Grays sufficient to pay the indebtedness of approximately $11,000 that existed when the Grays took over the management of the corporation. Again this accountant charged off for depreciation, for the year 1926, $2,748; for 1927, $2,748.17; for 1928, $2,748.17; for 1929, $2,734.59; and for seven months of 1930, $1,505.16 — a total sum of $12,484.26, and more than the total value of the entire plant.
The audit shows that there had actually been spent for repairs for 1926, $692.93; for 1927, $149.64; for 1928, $818.84; for 1929, $381.40; and for seven months in 1930, $182.37 — or a total of $2,225.18; that this sum took care of all of the depreciation; that the plant was in first-class condition, with all depreciation fully paid for; and that the above arbitrary depreciation of $12,484.26 was wholly nonexistent, and was, in fact, a profit that was used to pay off the indebtedness that existed when the Grays took over the management of the corporation.
The plaintiffs failed wholly to establish the allegations of their complaint. The judgment ought to be reversed and the cause ought to be remanded to the trial court, with directions to dismiss the action at plaintiffs' cost. *Page 93