Court Opinion

ID: 6584674
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:41:30.433841+00
Date Added: 2024-06-11T15:57:25.336556
License: Public Domain

ROSS, C. J.
During the period covered by the accounting the defendant was a director, treasurer and principal manager of the orator. His solicitor does not contend that, while occupying these relations, he could make pui’chase for the orator, which would authorize him to pay therefor, as treasurer, more than the price required by the vendor ; nor, that he could make contracts, in the name of the orator, which would authorize him, as treasurer, to pay thereon more than required by the other parties to the contracts. He could not from such purchases or contracts, obtain authority to pay himself a commission, or profit, nor to pay any other director, or manager, of the orator a commission or profit thereon. Such is the well established law, by many decisions. In Cook’s Law of Stock and Stockholders, s. 649, it is stated :
“The law is well settled that a director cannot become a contractor with the corporation, nor can he have any personal and pecuniary interest in a contract between the company, of which he is a director, and third persons. The director cannot be interested in the construction company at the time the contract is made, nor subsequently, and it is immaterial that the contract is fair, or even to the advantage of the corporation. The corporation upon discovering the fact that the director is interested in the construction company, may compel him to pay over to the corporation all profits that he has derived from the construction contract. * * * Nor is a contract valid and enforceable against the corporation where the parties contracting with the corporation have given to the directors of the corporation a secret interest in the profits of the contract.’’
These propositions the author sustains by the citation in the notes of a large number of well considered decisions of courts of last resort. Rarely are there found in a single case more or more pronounced violations of these well settled principles of the law than are contained in the report of the master in this case ; and from his report it is evident that the violations were knowingly and fraudently committed.
Some of the items allowed by the master were errors in the defendant’s accounts as treasurer ; some, which were not such *585error, are now uncontested. We shall notice only the items contested.
I. The first contested item which the master allowed is item 5. In this the master allows against the defendant $3,006.25 commission allowed to the defendant and two other directors by Thompson-Houston Co., on a purchase made by the defendant in the name of the orator. This commission was paid through an apparent purchase of stock of the orator by Thompson-Houston Co. The stock was transferred to an agent of Thompson-Houston Co., and by him to the orator and the two other directors. The defendant charged himself with the price of this stock, as so much cash received, and credited himself with having paid Thompson-Houston Co. $3,006.25 more than in fact he did pay them. The stock was worth the price at which it was charged. The defendant signed the stock certificates as treasurer of the orator. The whole scheme was gotten up and carried out by the defendant secretly and unbeknown to the directors who did not share in this sum. The defendant insists that no recovery can be had for this sum of him alone, and, for this reason, none in this suit to which the other directors are not parties. But this stock was assets of the orator, for which the defendant was accountable, as fully as for its money. He treated it as so much money received by him. But whether treated as stock or money, the defendant is accountáble for it. If treated as stock he has converted so much to his own use by transferring it to himself anti the others wrongfully. Whether considered as stock or money, it was the property of the orator in his hands. He is accountable for it. His accountability is not lessened, nor affected, because he unlawfully transferred a part of the stock to two of the other directors who are not parties to this suit. In thus transferring the stock the defendant knew that he was parting with the property of the orator, without receiving anything for it in fact, and without accounting for it. To cover the fraud he charged himself with having *586sold the stock, at its par value, and with having received the money therefor, and then he credited himself with having paid Thompson-Houston Co. this sum more than he in fact paid them. He is clearly accountable in any view for this amount charged him by the master.
II. In item 7 the master has charged the defendant with the amount of the two notes given the orator for the purchase of its stock. The stock has never been transferred to the makers of the notes. The makers are financially responsible. The defendant has not turned these notes over to his successor in office and claims they never were the property of the orator, and says he does not know where they are. The master has found that the notes are valid, against responsible makers, belong to the orator, were in the hands of the defendant, and that he, not only does not pass them to his successor in office, but denies that they belong to the orator. They were the property of the orator in his hands, as its treasurer, and he has not accounted for them. It is contended, that on the facts found by the master, the orator could lawfully collect these notes of the makers and therefore the defendant is not accountable for them. The lawful right of the orator to collect them of the makers does not show an accounting for them by the defendant. He does not show that they have been lost without his fault. He claims they never were the property of the orator, and does not account for them as such. As its treasurer it was his duty to keep them safely and pass them to his successor in office. It was his duty to know where they were. When he denies that they are the property of the orator and says he does not know where they are, he impliedly admits that he has wrongfully parted with them, has exercised wrongful dominion over them. Under the circumstances we think his denial that they ever were the property of the orator and failure to pass them to his successor in office or to account for them is a conversion of the notes. Robbins v. Packard, 31 Yt. ^70. This entitles the orator to recover *587for the value of the notes. But in this case the defendant is entitled to control the stock of the orator, for which these notes were given.
III. The orator excepts to the master’s report because he has failed to allow item 37. This item is for §6,960 paid by him in fact to himself for installing fifty arc lights. The defendant caused the contract for doing this work to be made with Wing, the agent of the Thompson-Houston Co., on the understanding that it should be transferred to himself and other directors. It was so assigned, and the defendant and other directors performed the contract. The defendant procured votes to be passed by the directors of the orator, •directing him to pay this sum to Wing, under the contract. This was done to carry out his fraudulent scheme, and to keep all knowledge of it from the directors not engaged in it. Under these votes the defendant paid himself this sum. The master has found that a profit was made on the contract, but, from the manner in which the books were kept, under the defendant’s management, the master is unable to ascertain the amount of profit, and for that reason wholly disallows this item. It is apparent that this disallowance is made upon the basis that the burden was upon the orator to show the amount •of profit realized. In this consists the master’s mistake. From public policy and from the general principles governing the law of agency and of trusts, as well as from the authorities cited by the solicitors for the orator, the defendant, in either capacity, of director, treasurer, or general manager, could not by contracting, in legal effect, with himself, or with himself and other directors, bind the orator. Such contracts are void at the election of the orator. Doubtless the orator could hold the defendant and the other interested directors to the fulfillment of the contract if it so elected. The defendant and other interested directors could not take advantage of their own wrong if the orator, on being made aware of the contract, elected to hold them to its performance. By bring*588ing this suit, and calling upon the defendant to account for the money he paid to himself for the performance of the contract, or for installing the fifty arc lights, the orator has elected to treat the secret contract entered into, in the name of Wing, but in legal effect, in the name of the defendant and the other interested directors, as void, and has called upon the defendant to account for $6,960 of its money, which the defendant in form paid to Wing, but in fact paid to himself for performing this work. The orator having thus elected to treat the contract for the performance of this work as void, the contract is no longer the measure of the price of its performance. The defendant and other interested director's can be allowed for its performance only such a sum as it was reasonably worth, not to exceed its cost. The defendant must account for this sum of money belonging to the orator. But showing-this contract with himself and other interested director’s in fact, though in form a contract with Wing, and its performance by them, and their receipt of the money under it does not legally account for the sum of money because as regards the oi'ator the contract had no binding force. The burden is therefore upon the defendant to show that he has lawfully paid out this sum of money for the performance of the work. This he can only do by showing what the performance of this work under all the facts and circumstances was reasonably worth, not to exceed what it cost. He stands charged with this sum of money and the burden is upon him to show that he has legally paid out every dollar of it for the benefit of the orator. It matters not that other directors were interested with him in doing this work, and that he paid some of it to such other directors. He knew his and their relations to the orator and to this work, and can be credited in reduction of this sum only for so much as he can show that the performance of this work under all the attending circumstances was reasonably worth and cost. If he has paid some of it unlawfully to other interested directors, he did it at his peril. Neither-is his accountability lessened nor waived by the fact, *589if such is the case, that the orator might have pursued the other interested directors, or himself and other interested directors jointly. He had the orator’s money and must stand «charged therewith until he can show such facts as legally justified and authorized him to part- with it. This he has not done. From the facts reported it is evident that the master proceeded upon the wrong basis in wholly disallowing this item. The orator’s exception in regard to this item is sustained and the case must be recommitted to the master for him to proceed in regard to this item on the basis indicated.
Upon all the other items the finding of the master’s report is sustained.

Decree reversed, cause remanded -with a mandate in accordance with the views herein expressed.