Davis v. Memphis City Ry. Co.

22 F. 883, 1885 U.S. App. LEXIS 1855

Opinion

Hammond, J.

The only ground for a new trial, which is pressed with serious confidence by the counsel for the defendant, is the error assigned in charging the jury that the president of the company had authority to employ additional counsel in the litigation against the company, especially in the Bills case. It is frankly conceded, as it must be, that, as between the attorneys employed and the company, the president might bind the corporation to the employment without any contract under seal, or other formal action, by the directory. Bank of Columbia v. Patterson, 7 Cranch, 299; Osborn v. Bank, 9 Wheat. 738; Alexandria Canal Co. v. Swann, 5 How. 83, 89; Weeks, Attys. 333, § 190; Boone, Corp. § 114; Memphis v. Adams, 9 Heisk. 518.

But it is insisted that, as between the president himself and the company, in a suit for damages, or where his wrongful use of the money of the corporation is challenged, as by this plea of set-off, the rule of decision is differeñt, and that his action must be measured alone by his powers under the charter and by-laws. It is argued that the charter and by-laws of the company provide a directory to manage its affairs, and an executive committee; that there were monthly meetings, and power in him, as president, to call special meetings when occasion required. Unquestionably, the plaintiff should have taken the course indicated by this argument, particularly under the circumstances of that Bills ease, and it is never safe for a president or other officer of a corporation to assume the responsibility that he did, except in an emergency — which did not exist in this ease — that renders it unwise to delay action until the corporate management can be consulted and its judgment invoked. He makes himself liable for damages if he does so act without corporate authority. Stokes v. New Jersey Pottery Co. 46 N. J. Law; S. C. 24 Amer. Law Reg. 75. He is not, however, liable, unless his action results in injury to the company ; and the courts do not proceed upon any theory of punishment for not consulting the corporate management. When the question arises, either in an action for damages or by plea of set-off, the law will not mulct the president in damages or withhold what he has justly earned, simply because he has not pursued the charter and by-laws. If he did only what the directory might and .should properly do, and his action has resulted beneficially and not injuriously, why should he be liable for damages? At most, the damage could be only nominal to vindicate the law, and certainly he should not be made to pay where there was no injury to the company. Now, this is precisely the question the court submitted to the jury, and it approves their verdict. They were told distinctly that, if Davis was using the money for the fraudulent purpose of paying his own counsel, in a litigation in which the company had no interest, or if it was an unwise, wasteful, and unreasonable use of the money, the defendant’s set-off should be allowed. It was a question alone for the jury, and their decision should be final.

On a motion for a new trial, tho court cannot set aside the verdict of a jury because it cloos not life it, or would have found the facts differently. It will protect the parties against misconduct or prejudice on the part of tho jury, but will not usurp its function, under tho disguise of determining whether the verdict is against the weight of the testimony. Kirkpatrick v. Adams, 20 Fed. Rep. 287. But tho court is satisfied with this verdict, and does not think it contrary to the evidence. There was a factional strife between the minority and majority stockholders. The minority sued the directory for damages for maladministration. One of the directors, Barrett, joined with the plaintiffs in that case against his co-direetors. The Davis faction represented the majority; the Barrett faction, the minority. Davis bought the Bills’ stock, and Barrett continued the litigation with a cross-hill. Tho learned chancellor decreed against the directors, including Barrett himself, for large personal liabilities, and thereupon tho parties, as they had a right to do, representing the whole body of tho stockholders, compromised that litigation without entering a decree. If may be very doubtful, since tho parties to that suit repre¿ sented tho entire stock of the company, whether it is precisely correct to say that tho company — that entity we call the corporation — had any further or separate interests in the controversy. Perhaps it did in the interest of creditors; but, at all events, in such a struggle it would have been wiser if the directory had employed eoupsel to represent the company who were wholly independent of either faction. Still, while this was not dono, and both the regular and associate counsel seem to have also represented the Davis taction in the litigation, the court cannot see that, on the proof, this resulted in any injury to the creditors, the only outside parties to the contest, or to the corporation itself; and, doubtless, the jury took the same view of it. The argument that it did so result in its ultimate analysis comes to this: that the best interest of the company laid in the direction of an alliance with the Barrett faction, and not the Davis faction, and that it is by this test we must determine whether the money paid to Humes & Poston was paid in the interest of the company; and this is the contention actually mado before the jury and on this motion for a new trial.

There are several answers to this: First. While it is true the chief object of that litigation was to hold the directors to a personal liability, it was not alone against Davis that this remedy was sought, but as much against Barrett himself. And, in fact, the chancellor’s oninion held him to a large liability, and but for the compromise he would have had it. to pay tho same as the rest. An alliance with him, therefore, was subject to tbe same objection as tbe other: that' the company was acting as the partisan of a particular stockholder. Secondly. Davis and his friends owned a majority of the stock, and were in possession of the control, rightfully so. It belonged to the-directory, acting by its own majority and under its responsibility, in this matter as in others, to determine where the best interest of the-company lay, and to shape its corporate part in the litigation accordingly. This discretion belonged to it under the charter, and the courts, cannot control it or supervise it. 3 Pom. Eq. §§ 1088-1097, and notes. Surely, not in this suit and on the issues we have here could we be required to exercise that function if it exists anywhere. Lastly.. We have nothing to do with the test suggested. We cannot be required to overhaul the record- in that acrimonious and immense litigation, so important in its character to all concerned,, tc determine whether 'the corporate action should have allied the corporation with the one faction or the other. Naturally, that alliance would go to the majority rather than the minority; and,' now that the control has changed, we cannot go back and undertake to determine whether it should not have been made with the rival faction in the interest of the entire company. If so, the entire company must suffer for the error in judgment of the directory. It is useless to argue now that the minority were right in the litigation and the majority wrong. It •has been ended, and the parties have compromised it. It may have been better, as is now argued, to have had a receiver, as the minority wanted, and to have sustained the injunction against the directory, as. the minority wished it, but the able chancellor did not think so, and, if we were willing to review his action, we have not the power, under the circumstances, to do it. The creditors are the only parties who-would have a right to complain, and now that the stockholders inter sese have compromised that litigation, they, being able to take care-of themselves, are not here making complaint, if indeed they could make it anywhere.

It has constantly suggested itself to the court, since this question was. first agitated in the case, that the last consideration was. an end of this branch of the defense, and that the compromise between the-stock-holders, after Chancellor Morgan’s opinion, closed all questions arising out of the controversy, and that the company’s liability to pay its share of the attorney’s fees could be no longer mooted;, yet the court submitted the question to the jury as if that compromise had never been made, in deference to the very cogent reasoning of the-defendant’s counsel that Davis’ whole conduct about this business was open to investigation in this suit for his salary. But the only proper question was that submitted to the jury; , and, inasmuch as it abundantly appeared from the proof that the minority had not confined themselves, in their litigation, to seeking a personal liability from, the directors for maladministration, but had gone further and involved the company itself, by enjoining the management from issuing bonds. io pay its debts, and for other purposes of corporate enterprise, and. by applying for a receiver to oust that management entirely, there could be no doubt of the company’s liability to pay the lawyers for preventing those things, useful though we may now think them to have been if we think with the then minority, or disastrous as they ■would have been if we think with the then majority.

It was their own fault thus to involve the company in the litigation, and the minority cannot complain at the payment of the fees. True, the company was a necessary party in any view, but would have been only nominally a party if the litigation had boon confined to its personal features against the directors, and in that event, of course, Davis would not have been authorized to pay counsel fees on its ac•count. But it was not, so confined, and the jury decided correctly. A question has been made that the company already had counsel in its regular employment; but that was also submitted to the jury, whether under the circumstances of the magnitude of the ease and its character, it was reasonable to associate counsel with the regular attorneys. The jury approved it, and so does the court. Again, the •whole body of directors were defendants, and must have known of this ■employment of additional counsel, a,nd who were representing the company. A few weeks after the suit was brought, there were some changes in the directory, and two of the new directors testified they knew of the employment of Humes & Poston, — one that he advised it, and the other that he approved it. This was acquiescence and ratification, and now, the fact that there lias been an entire change in the control of the company does not confer the right to revoke that corporate action by disapproval and refusal to pay the compensation of the counsel.

The motion for a new trial must be overruled, and a judgment entered on the special verdict for the plaintiff. So ordered.