Court Opinion

ID: 3542266
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:53:49.958838+00
Date Added: 2024-06-11T13:41:53.667078
License: Public Domain

I dissent. The majority opinion is an able exposition of the general rule relating to the obligation of a director to his corporation, but the majority fails to recognize what I regard as a vital difference between the obligation of an active director and one, a mere dummy, who has no part whatsoever in the management of the corporate affairs. Bukvich, of course, should have resigned, but his resignation would have had *Page 581 
no effect on the affairs of the corporation about which he was never consulted. He never attended a meeting of the stockholders or directors. The record does not show that he was even advised of the dates meetings were to be held. The fact that he did not resign from a directorate wherein he exercised no power is not sufficient, in my judgment, to deny him the right to acquire a part of the public domain open to anyone who may choose to comply with the requirements incident to its acquisition. The majority opinion reverses the judgment of the district court as to the interest of Sam J. Bukvich's two associates in the Montana Boy claim. As a clear matter of fact, Sam J. Bukvich exercised no more power in the affairs of the plaintiff than his co-defendants. As the factual situation here is so vitally different from that in any similar case heretofore determined in this jurisdiction, I am impelled to analyze and compare adjudicated cases with the action at bar.
The case of Gerry v. Bismarck Bank, 19 Mont. 191,47 P. 810, 812, plaintiff contends "is directly in point." Such contention is not sustained by that case. Plaintiff fails (1) to differentiate between an act of a director or officer of a corporation who enriches himself out of the corporate property at the expense and to the injury of the corporation, and the director or officer who buys for himself out of his own funds property that is open or for sale to the first comer; and (2) there is another vital difference between the Bismarck BankCase and the case at bar, in that in that case the corporation was injured and suffered loss by the acts of two of its officials who directed and controlled its affairs, while here an inactive or "dummy" director holding a comparatively small amount of stock in the corporation and having no part whatever in its control or management acquired property by his own efforts and at his own expense which that corporation had ample opportunity to acquire but slept on its opportunity.
In the Bismarck Bank Case, which is typical of nearly all the cases cited to support plaintiff's contention on the question of Bukvich's violation of trust, the president and treasurer of the corporation "were the directors and officers who superintended *Page 582 
and directed the operations of the corporation." The president acquired title to a claim referred to as the "Valley" claim, an unpatented piece of ground but which adjoined the "Tecumseh," a patented claim owned by the corporation and from which ores had been extracted which resulted in dividends being paid to stockholders in the sum of $66,000. The president paid $45,000 for the Valley claim and he then took the treasurer into his confidence and the two, at the expense of the corporation, went to Boston to confer with other stockholders and represented to the Boston stockholders that the president had bought the Valley claim for $95,000; that it was worth $110,000, and induced the Boston stockholders to approve its purchase at that figure, and join in authorizing a mortgage on the two claims of the corporation to the Bismarck Bank to pay for the Valley claim. The Boston stockholders agreed and on their return to Montana the president and treasurer had the stockholders approve the purchase and the mortgage to the Bismarck Bank, and the stock controlled by the two was voted in favor of both the purchase and the mortgage and such stock was necessary in order to obtain the approval of a two-thirds majority of the whole number which was necessary to authorize the mortgage. The president and treasurer allowed the corporation to default in its obligation to the Bismarck Bank, and it became apparent to other stockholders that the two conspirators intended to acquire the title to the mining property, and a suit was begun under the title mentioned which resulted in the exposure of the president and treasurer for fraud and deceit. That case is a clear case of officials in a controlling position in the corporation using its assets to enrich themselves at the loss and injury of the corporation, and has no application here, where a dummy director located open ground belonging to the federal government and no corporate assets were involved in the alleged fraud.
A number of other cases are cited by the plaintiff in support of its contention that Bukvich violated his trust as a director of the plaintiff corporation, and among such cases are: Coombs
v. Barker, 31 Mont. 526, 79 P. 1; Stanton v. OccidentalLife Ins. Co., 81 Mont. 44, 261 P. 620; Mayger v. St. LouisM.  M. Co., *Page 583 68 Mont. 492, 501, 219 P. 1102; McConnell v. Combination M. M. Co., 31 Mont. 563, 79 P. 248; Hanson Sheep Co. v.Farmers  Traders' State Bank, 53 Mont. 324, 163 P. 1151;Kleinschmidt v. American Min. Co., Ltd., 49 Mont. 7,139 P. 785. In each of these cases, as well as all the cases from other jurisdictions I have been able to find the facts show that the official or director charged with violating his trust was in a controlling or dominating position in the supervision or management of the corporation's affairs, and that all dealt with the property of the corporation to enrich themselves and not with property belonging to a third person.
The plaintiff further cites section 1889 of 14A C.J., at p. 121, as follows: "A director or managing officer is precluded by his position from acquiring any interest in property adverse to that of the corporation. Where he does so he will be deemed tohold as trustee for the corporation and the stockholders, or he may be held liable for the loss to the corporation resulting from his breach of duty. He cannot dispute the title or possession of the corporation." Numerous cases are cited to support this text, among which are McCourt v. Singers-Bigger, (8 Cir.) 145 Fed. 103, 7 Ann. Cas. 287, and Du Pont v. Du Pont, (D.C.) 242 Fed. 98. Also among the number is Coombs v. Barker heretofore referred to. All the other cases cited to support the text are of similar import. The McCourt v. Singers-Bigger Case involved two very prosperous theater establishments in the city of Denver which were under the exclusive control and management of the president and one other director. This last-mentioned director was a representative of one of the principal stockholders of the corporation, a resident of London, England. The president and this director connived together and allowed some valuable leases on the places where the theaters were operated to lapse, incorporated a new company and took the leases in the name of the new company in which the two had a controlling interest, and this led to the litigation in that action.
The Du Pont Case is quite familiar to both bench and bar in nearly all jurisdictions. The head of that firm, being in poor health, took a long leave of absence and about the time of his *Page 584 
departure he proposed to sell a large block of his stock to the company which, he provided, should be resold at the same price to particular employees, whose services the president believed to have been of great value to the corporation. The finance committee of the corporation, under the leadership of the vice-president, who at the time was exercising the functions of president, considered the price of $160 a share fixed on the stock by the president that he proposed to sell to the corporation, to be too high, and made a counterproposal of $125 per share. On such offer being transmitted to the president through the mails, he rejected the counterproposal and withdrew the offer of sale. The vice-president continued to negotiate with the president for the purchase of his stock, organized a new company and offered the president $200 a share for his stock, which was accepted. It developed at the trial that the vice-president, by reason of his position as head of the corporation, in the absence of the president had gained knowledge relative to immense orders to be filled for powder and other explosives, of which the company was the principal manufacturer in this country, to be sold to foreign nations in the year 1915 during the World War, and such sales it was well realized would greatly enhance the value of the stock, and all of this information was suppressed by the active head of the concern when the negotiations were being carried on for the purchase of the stock of the president. These matters all came out at the trial, and the court held that the purchasers of the stock under such circumstances were held to be trustees for the other stockholders and interested parties who had been defrauded.
In all these cases, the facts are similar to those in the Montana cases which we have heretofore analyzed, namely,officers or directors in positions of control and authority hadused the corporate assets for their own enrichment at the expenseand loss of other interested parties.
The rule prescribing the limitations of a director's powers and his obligations to his corporation is clearly and correctly laid down in Hanson Sheep Co. v. Farmers  Traders' Bank, supra, where this court, speaking through Chief Justice Brantly, said *Page 585 
(53 Mont. 324, 163 P. 1154): "Of course, the president of a corporation has no authority to appropriate the assets of thecorporation to his own use. He and the other members of the board of directors cannot use their position for the purpose of enriching themselves at the expense of the other stockholders. They occupy a fiduciary relation to the stockholders. This imposes upon them the obligation to serve the purpose of their trust with fidelity, and forbids the doing of any act by them, or any one of them, by which the assets of the corporation arediverted to any use other than such as will serve the purpose of its organization. And when it appears that any one of them has been dealing with the corporation, the burden is at once upon him to show that his dealings have been fair and honest. (Gerry v.Bismarck Bank, 19 Mont. 191, 47 P. 810; McConnell v.Combination M.  M. Co., 31 Mont. 563, 79 P. 248; Coombs v.Barker, 31 Mont. 526, 79 P. 1; Kleinschmidt v. AmericanMin. Co., Ltd., 49 Mont. 7, 139 P. 785.)"
In all these cases the delinquent director or officer charged with violation of his trust is shown to have been one who dealt with corporate property to the corporation's loss and to his gain, and they do not apply to the situation such as that before us for the reasons stated. I have been unable to find in this or any other jurisdiction any well reasoned decision which holds directly, or by reasonable conclusion, that an inactive director, such as Bukvich was in the plaintiff corporation, is prohibited from acquiring property in the ordinary course of business from a third party whether it was desired by or was of value to his corporation or not.
No by-laws of the corporation or resolution of the board of directors is cited to show any power was ever vested in Bukvich, or any duty imposed upon him to acquire any property or perform any act for or on behalf of the corporation. Such being the situation, the rule laid down in the following cases I think applies: Colorado  Utah Coal Co. v. Harris, 97 Colo. 309,49 P.2d 429; Carper v. Frost Oil Co., 72 Colo. 345,211 P. 370; Bisbee v. Midland Linseed Products Co., (8 Cir.)19 F.2d 24; Backus v. Finkelstein, (D.C.) 23 F.2d 357; see, *Page 586 
also, Pioneer Oil  Gas Co. v. Anderson, 168 Miss. 334,151 So. 161; Anderson v. Dunnegan, 217 Iowa, 672, 250 N.W. 115;Greer v. Stannard, 85 Mont. 78, 277 P. 622, 64 A.L.R. 772.
In the Colorado  Utah Coal Co. Case, supra, it was said: "Harris, as such representative, could embark upon no business which would cripple or injure his principal or acquire interests adverse to it if thereby he would hinder or defeat the very purpose of its organization. But, if he had no duty to act orcontract for it with respect to the property in question, he was at liberty to act for himself." (Italics supplied.) Harris was the president of the corporation and acquired 160 acres of coal land in a mining district where his corporation owned a large amount of acreage carrying coal deposits. It was further said in that case: "Plaintiff seeks to establish a trust in which the alleged fraud of Harris, actual or constructive, is an essential element. Evidence thereof must be `clear,' `convincing,' `certain,' `unequivocal,' `trustworthy,' `conclusive.'" (Citing a number of cases.)
In the Backus v. Finkelstein Case, supra, it was said: "The stockholders of a corporation, as such, cannot participate in shaping its policies or directing its activities from day to day. They are obliged to look to and rely upon the managing officers, who in theory of law, and as a matter of fact, represent and act for all the stockholders. Officers of acorporation, who through the ownership of a majority of the stockcontrol its activities, occupy a fiduciary relation to the minority stockholders, and at their peril must act in the strictest good faith in guarding the interests of the latter." (Italics supplied.)
It was said in Bisbee v. Midland Linseed Products Co., supra (19 F.2d 28): "There might arise a situation in the affairs of a corporation which would impose a specific duty upon those in control of the corporation to deal in the stock on behalf of the corporation. The rule is stated as follows in Fletcher, Cyc. Corp., § 2282: `The test seems to be whetherthere was a specific duty on the officers sought to be heldliable to act or *Page 587 contract in regard to the particular matter as therepresentatives of the corporation, all of which is largely aquestion of fact. If there is no such duty, then the directors,or other corporate officer, may acquire outside interests,although the corporation may be more or less interested.'
[Italics supplied.] Instances may be imagined where this duty would arise. It would undoubtedly be a breach of duty for an officer to buy stock for himself, when he had been employed by the corporation to buy it for the corporation."
These cases make a clear distinction between officers and directors who have certain specific duties to perform, and those who, like Bukvich, had no voice in the corporation's management or control.
Another reason why I think the decision of the lower court should be reversed is that, if the plaintiff desires additional ground for dumping its tailings — and that was one of the reasons set forth in its pleadings for asking a decree compelling Bukvich to convey the claims to the plaintiff — it has a clear and specific remedy provided by section 9934, Revised Codes, under the power of eminent domain.
Rehearing denied July 14, 1939. *Page 588