Court Opinion

ID: 7967421
Source: CourtListenerOpinion
Date Created: 2022-09-09 00:51:53.755844+00
Date Added: 2024-06-11T16:34:40.939656
License: Public Domain

Gilfillan, C. J.
The defendant bank is a banking corporation. The defendants Sheldon, Perkins, Featherst'one, Brooks, Boxrud, and William and Frederick Busch, and the plaintiff Hoyt, were, at the times hereinafter mentioned, and now are, its directors. The director defendants were and are stockholders, owning a large majority of the stock. The plaintiffs are stockholders. The defendant stock*486holders owned a lot and building. At a directors’ meeting on July 7, 1890, all the directors being present, it was resolved, all the directors except Hoyt, who protested, voting in the affirmative, that the corporation purchase at a price specified said lot and building, and on July 11th the owners executed a convéyance to the bank. The action is brought to set aside the transaction, and to prevent the funds of the bank being used to complete the purchase, and also to prevent a ratification by the stockholders, a meeting of whom had been called for the purpose; or, rather, to prevent such ratification by the votes of defendants.
There is no doubt that, within the rule in Rothwell v. Robinson, 39 Minn. 1, (38 N. W. Rep. 772,) the plaintiffs may bring such an action without first applying to the corporate authorities to bring it. The directors against whom complaint is made are not only a majority of the directors, but they own a majority of the stock, so that any application either to the board of directors or to the body of stockholders to bring the action would be equivalent to asking the alleged wrongdoers to bring suit in the name of the corporation against themselves. The law does not require of the minority stockholders to do so absurd a thing as a condition of seeking relief against the wrongful acts of the directors and majority stockholders.
The court below decided the ease in favor of the defendants on the proposition that, although the act of the board of directors was voidable, it was not ultra vires, and was capable of ratification ; and, where a majority of the stockholders have power to ratify the unauthorized act of the directors, courts will not interfere;.
We see no reason to think this purchase was ultra vires, — that the corporation had not power to make it. And, that being so, it may be conceded' that the "board of directors had authority to make a purchase for the corporation. And it is undoubtedly true that where a corporation has power to do a certain thing, though the authority to do it is not in the directors, the stockholders may ratify their act if they assume to do it on behalf of the corporation. But this transaction is not voidable because ultra vires,— because there was no authority in the directors to purchase; but it is voidable under the rule that one having authority from an*487other to purchase or sell for him cannot purchase from nor sell to himself. To do so is in law a fraud. The rule is absolute, and the matter of fraud in fact is immaterial. The party for whom the purchase or sale is made need not allege nor prove fraud or injury, but may disaffirm without taking any risk. The rule is inflexible in order to prevent fraud on the part of one holding a fiduciary relation, by making it impossible for him to profit by it, thus removing temptation from his way. This court has steadily adhered to and applied the rule since it first enunciated it in Baldwin v. Allison, 4 Minn. 25, (Gil. 11.) But in all cases of the kind the principal may, with full knowledge of the facts, ratify what has been done.
The act of the defendant directors was a violation of this rule, and the purchase was not binding on the corporation until ratified. The question is therefore presented under the allegation and relief asked in the complaint, had the defendants a right to vote as stockholders at the stockholders’ meeting called for the purpose upon the question of ratification?
While stockholders in a corporation owe the duty of good faith to each other in the management of the affairs of the corporation, they do not stand to each other in a fiduciary relation within the rule we have stated. They are not trustees nor agents for each other in the matter of voting upon any proposition that may come before a meeting of the stockholders. In voting, each must be guided by his own judgment as to what is for the best interest of the corporation. The fact that he may have a personal interest, separate from the others or from that of the corporation in the matter to be voted upon, does not affect his right to vote. It is not to be understood that the majority stockholders may use their power of voting for the purpose of defrauding the minority. It was said in Gamble v. Queens County Water Co., 123 N. Y. 91, (25 N. E. Rep. 201,) in which the right of a stockholder in such a case to vote was affirmed: “In such cases it may be stated that the action of the majority of the shareholders may be subjected to the scrutiny of a court of equity at the suit of the minority shareholders.” And in Northwest Transp. Co. v. Beatty, 12 App. Cas. 589, in which the same thing was held, it was said, in *488effect, that in such ease the ratification must not be brought about by unfair or improper means, nor be illegal or fraudulent or oppressive towards those shareholders who oppose it. A rule excluding stockholders from the right to vote merely because they might be personally interested to vote in a particular way, contrary to the interests of the other stockholders, would-be likely to lead to great confusion.
(Opinion published 53 N. W. Rep. 48.)
The rule laid down in the two cases cited is sufficient to secure the exercise of the good faith which one stockholder owes to the others.
Judgment affirmed.