International Bankers Life Insurance Co. v. Holloway

368 S.W.2d 567

• Court: Texas Supreme Court
• Decided: April 24, 1963
• Docket: A-8917
• Status: Published

Opinions

STEAKLEY, Justice.

International Bankers Life Insurance Company,, an insurance corporation, plaintiff below and so referred to in this opinion,, brought suit against Sterling C. Holloway,. D. D. Beasley and J. W. Walden, defendants below and so referred to. Plaintiff’s suit charged defendants with conspiracy, breach of fiduciary duties as officers and directors of plaintiff, mismanagement and misappropriation of corporate funds belonging to plaintiff, and the usurpation and appropriation of corporate opportunities.

The trial court entered judgment for plaintiff, based on jury findings, in the sum of $228,979.70, and, additionally, in the sum of $339,714.24 as exemplary damages.

The defendants Holloway and Beasley appealed. The Court of Civil Appeals affirmed the judgment for plaintiff to the extent of the recovery in the sum of $193,-904.70 and reversed and rendered the judgment as to exemplary damages. Tex.Civ. App., 354 S.W.2d 198.

The phases of the case before us for decision were submitted to the jury by means of special issues segregated as to the following transactions: a personal profit of $15,000.00 realized by defendants on the purchase by plaintiff of a tract of land identified as the Jennings property; the receipt by defendants of commissions in the sum of $9,260.58 on the sales to the public of a $20.00 stock issue of plaintiff and a conversion item relating thereto of $559.62; and profits in the sum of $169,084.50 realized by defendants from the sale of their personal stock in competition with the sale of plaintiff’s stock during the period of April 1, 1955, to September 6, 1955.

The basic issues found by the jury favorably to plaintiff regarding each of the foregoing transactions (other than the item of $559.62 for conversion) were phrased in terms of the defendants’ having “entered into a combination by their concerted action,” respectively, “to realize a profit to themselves” (Jennings property), “to receive commissions personally on the sale of the $20.00 stock issue of International Bankers,” and “to dispose of their personal stock in competition with the company stock during the period from April 1, 1955, to September 6, 1955.” Similar special issues were conditionally submitted, and were not answered, with respect to a combination of any two of the defendants; and, finally, with respect to the acts of the defendants individually.

Also, as to each transaction,, issues were submitted inquiring whether defendants acted with malice entitling plaintiff to exemplary damages; each of these issues was answered favorably to plaintiff and exemplary damages were found by the jury as to each transaction.

The judgment entered by the trial court was joint and several against the three defendants.

The points of error of defendants regarding the property, commissions and conversion transactions are, in essence that there is no evidence of a conspiracy or that defendants entered into a combination or engaged in concerted action; and that the trial court erred in the form in which their pleas of limitation were submitted to the jury.

Defendants asserted the same points of error with respect to the personal stock sales transaction and, in addition, that they may not be held liable by reason of the sales of their personal stock during the time of the public offering of plaintiff’s stock unless such personal sales deprived plaintiff of the opportunity to sell its shares. In this latter respect defendants say that there must be findings that plaintiff could or would have sold its new issue stock to purchasers of the stock of the defendants had defendants not sold their personal stock to such purchasers; that there is no evidence to support such findings; that defendants had the legal right to sell their personal shares while plaintiff was selling its new issue stock; that the profits realized by defendants on the sales of their personal stock are not a proper measure of plaintiff’s recovery; and that there is no evidence that the defendants realized the profits found by the jury.

Also, regarding their pleas of limitations, defendants urge additionally as to the personal stock sales transaction that plaintiff’s cause of action is barred by limitation for the reasons that certain officers and directors of plaintiff, including certain disinterested directors, had actual knowledge of such sales more than two years before suit was filed, which knowledge is chargeable to plaintiff; that the books and records of plaintiff reflected such sales more than two years before suit was filed which was notice to plaintiff; and that, in any event, there is a question of fact regarding notice to plaintiff, and whether the agents of plaintiff exercised diligence in discovering the alleged fraud of the defendants.

The defendants present no point of error attacking the form of the liability issues underlying the recovery of the plaintiff corporation for the profits realized by the defendants in the Jennings property transaction and in the commissions transactions. The defendants do attack the special issue submissions underlying plaintiff’s recovery for the profits realized by defendants from the sale of their personal stock in competition with the sale of plaintiff’s stock.

Plaintiff’s application for writ of error was granted on points of error complaining of the judgment of the Court of Civil Appeals reversing the judgment of the trial court awarding exemplary damages.

The following résumé of the facts will serve as the basis for the decisional sections of our opinion in which we hold there was no error in the judgments below awarding plaintiff a recovery of the profits realized by the defendants in the sale to plaintiff of the Jennings property and for the commissions, including the related conversion items, received by defendants on the sale of the $20.00 stock issue of plaintiff; in which we hold there was error in the judgment of the Court of Civil Appeals reversing and rendering the recoveries for exemplary damages ; and in which we hold there was error in the judgments below in favor of plaintiff for the profits realized by defendants from the sale of their personal stock in competition with the sale of plaintiff’s stock.

We also hold that the issues involved in the separate claims and transactions are severable within the contemplation of Rule 503, Texas Rules of Civil Procedure, and accordingly sever into one cause the claims of the plaintiff corporation based on the Jennings property, the commissions and conversion transactions, and into another cause the claim of the plaintiff corporation based on the personal stock sales of the defendants in competition with the corporation. This is in keeping with the disposition of a similar problem in Slay v. Burnett Trust, 143 Tex. 621, 187 S.W.2d 377, 398. Plaintiff’s suit involved one controversy between the parties but asserted separate claims against the defendants growing out of separate transactions. Each of the claims was based on a severable part of the controversy and a judgment on one would not be res judicata of the other. The situation is one where justice is done by the affirmance of the judgment as to severable issues fairly tried since they are sufficiently independent of the issues improperly tried so as not to prejudice the rights of either party.

HISTORY OF PLAINTIFF’S OFFICERS AND DIRECTORS; AND ITS STOCK INCREASES

Plaintiff was incorporated on November 25, 1952. From then until March 9, 1954, defendants were its principal officers and directors. Walden of the defendants was an officer during 1954; he was president and treasurer with Thomas L. White, his brother-in-law, as vice president, and Audine Jones as secretary. The board of directors was increased to six during the year, three of whom were the defendants, and in August of the year a seventh director was elected. At the annual stockholders meeting on March 9, 1954, defendants owned 55.7 per cent of the stock represented at the meeting, but by means of proxies their control was 81 per cent.

During 1955 (between April 1 and September 6 of which year defendants sold their personal stock) Walden was the only defendant who was an officer of the corporation; he was elected president on March 8, 1955, and resigned on April 12, on which date he was elected executive vice president. George V. Brooks succeeded Walden as president and apparently served until December 21 of the year at which time William J. Shirley was employed by the executive committee as president. The vice presidents were Thomas L. White and Edgar H. Kelt-ner, Jr. The secretary was Audine Jones, with Walden apparently serving as treasurer until December 21 when he was succeeded in this position by William J. Shirley. Audine Jones served as assistant treasurer from June 6, 1955, until January, 1956.

The three defendants served on the board of directors during the year 1955, and the defendant Beasley was chairman of the board until October 6, when he was succeeded by O. C. Armstrong. The board was increased to twenty members during the year. A two-man executive committee of the board of directors was authorized on March 8, 1955, with Walden and Armstrong as its members; this was increased during the year to four members, and later to eight members, with Beasley as chairman and Walden as a member. At the March 8, 1955, annual stockholders meeting, the defendants owned 43.5 per cent of the stock represented but controlled 83 per cent of the votes by proxies.

During 1956, William J. Shirley continued to serve as president until his resignation on March 22, with the office apparently vacant until December 17, 1956, when R. M. Hazle-wood was elected president. Walden served as executive vice president until his resignation on January 11. The office remained vacant until May 22, on which date Beasley was elected and served as executive vice president until December 17, 1956. Walden and Beasley served on the twenty-one member board of directors until Walden’s activities came under question, and on June 4, 1956, he was relieved of all positions with the corporation. Defendant Holloway was neither an officer nor director during 1956; he was elected to the board of directors and executive committee on the 10th day of September, but did not serve and formally resigned from both positions on November 26, 1956, effective as of the date of his election. The vice presidents of the corporation during 1956 were Beasley, Edgar H. Keltner, Jr., Minar Grizzard, and defendant Walden until he was relieved of all positions on June 4. Minar Grizzard served as secretary from March 13 until September 10, at which time he resigned. The record does not indicate that there was a permanent secretary between September 10 and December 17, 1956, at which time Edgar H. Keltner, Jr., was named to the office. William J. Shirley served as treasurer until his resignation on May 22.

It is thus seen that for the years 1955 and 1956, Walden was the only one of the defendants holding office during 1955; that the three defendants were three of a twenty-member board of directors and two of an eight-member executive committee; that Walden was relieved of all official positions with the corporation on June 4, 1956, from which time Beasley was the only defendant holding office as a member of the board of directors or of the executive committee. It also appears that the defendants had 39.5 per cent of the stock represented at the March 13, 1956, stockholders meeting, but by means of proxies controlled 53 per cent of the stock represented.

At the time of commencement of business in December of 1952, plaintiff corporation authorized and issued 2,500 shares of stock, ninety per cent of which was owned by the three defendants. On July 29, 1953, the corporation voted to authorize 13,750 additional shares of $10.00 par value stock to sell at $20.00 per share. The articles of incorporation were not amended at the time to increase the capital structure by the newly authorized shares; the plan was that subscriptions were to be sold on the to-be-issued stock and the articles were to be amended to reflect the additional subscribed stock when substantial subscriptions had been obtained. For example, on November 30, 1953, when it was reported that 2,500 shares of the new stock issue had been fully subscribed, the articles were amended to increase the capital structure to 5,000 shares, consisting of 2,500 shares authorized and sold at the time of the incorporation and the additional 2,500 shares. This practice continued until August 26, 1954, when 12,-500 shares were authorized.

On September 20, 1954, it was voted to discontinue the foregoing sales (about 3,-750 shares not having been subscribed) and to authorize a pre-emptive offering of 12,-500 shares of $10.00 par value stock. These new shares were to be offered on a pro rata basis, the offer to remain open for at least thirty days. The three defendants purchased 5,589 of these new shares, as follows: Beasley, 1,308 shares; Holloway, 1,550 shares; and Walden, 2,731 shares.

At the March 8, 1955, board of directors meeting it was voted to authorize two classes of stock consisting of common stock without par value and cumulative preferred stock with $10.00 par value. 350,000 shares of the new non-par common stock were to be issued with 250,000 shares to be exchanged for the 25,000 shares presently outstanding; the remaining 100,000 shares were to be issued and sold at such times and for such consideration as the board of directors might fix. Thus, there was a ten-to-one stock split which increased in the hands of its holders all the stock previously sold.

At a special board meeting on April 12, 1955, it was voted upon motion of the defendant Beasley, who was chairman of the board, to offer for sale the first lot (apparently consisting of 10,000 shares) of the 100,000 new shares at $10.00 per share. The record shows that a further special meeting of the board was held on May 30, 1955, at which time it was voted to offer for sale a second lot consisting of 10,000 shares at $12.50 per share. The record is not altogether clear at this point but indicates that at the time the offering price was increased from $10.00 to $12.50 per share, only a small portion of the original lot had been sold at $10.00 per share.

It is also to be noted that the defendants came into ownership of 88,930 shares of stock of the corporation at a cost to them of between $1.00 and $1.60 per share by means of the preemptive offering and the ten-to-one stock split; of the 88,930 shares, the defendant Beasley owned 20,580, the defendant Holloway 23,000, and the defendant Walden 45,350.

In the section to follow, reviewing the evidence pertaining to the separate transactions, references are made to a corporation identified as the Fort Worth Corporation. We agree with the Court of Civil Appeals that this corporation was the alter ego of the defendants Holloway and Beasley and that the corporate fiction is to be disregarded. The evidence establishes that the Fort Worth Corporation was a mere conduit for the accomplishment of the purposes of these defendants with respect to the Jennings property transaction and to the commissions received by the three defendants through the corporation; it will not serve as a shield to protect them from liability. See First National Bank in Canyon v. Gamble, 134 Tex. 112, 132 S.W.2d 100, 125 A.L.R. 265; Continental Supply Co. v. Gilmore Co., Tex.Civ.App., 55 S.W.2d 622, wr. dism.

THE SEPARATE TRANSACTIONS

a. The Jennings Property

A tract of land known as the Jennings property was purchased in the name of the Fort Worth Corporation for a consideration of $62,500.00. The purchase contract was dated January 30, 1954, and was in the name of one C. W. Trigg acting for the Fort Worth Corporation. The purchase contract required the payment of $5,000.00 to an escrow agent with one-half of the remaining purchase price to be paid at the time of the closing, and the remainder to be paid within 120 days. Holloway and Beasley loaned the Fort Worth Corporation the sum of $5,200.-00 with which to make the earnest money payment and for closing expenses. During the period of January 30, 1954, and April 1, 1954, with the defendant Beasley representing the plaintiff corporation, there was negotiated a contract of sale under which plaintiff purchased the Jennings property from the Fort Worth Corporation for the sum of $77,500.00; this represented a profit to the Fort Worth Corporation of $15,-000.00. The owners of the Jennings property executed a deed to the Fort Worth Corporation under date of March 25, 1954. The deed recited a consideration of $62,-500.00 and carried $68.75 in federal revenue stamps, which was the proper amount. The Fort Worth Corporation executed a deed to plaintiff under date of April 15, 1954, with the deed reciting a consideration of $10.00 and other valuable consideration, and carrying federal revenue stamps in the same amount of $68.75. Payment of the consideration of $77,500.00 to the Fort Worth Corporation was by means of two checks of plaintiff, one of which was signed by the defendant Beasley in the sum of $32,500.-00, dated April 1, 1954, and bearing the legend “part payment on building”; on this same date of April 1, the Fort Worth Corporation paid the Jennings heirs the sum of $26,023.12 on the purchase price of the property. The other check was signed by defendant Walden in the sum of $45,000.00, dated April 9, and bore the legend “final payment on building”; on this same date Fort Worth Corporation paid a bank loan, the proceeds of which had been used to pay a part of the consideration for the Jennings property. It has been noted above that the deed from Fort Worth Corporation to plaintiff was not executed until April 15. Under date of April 9 two checks were issued by the Fort Worth Corporation to defendant Holloway, one of which was in the sum of $2,600.00 and bore the legend “repayment of loan,” and the other in the sum of $4,928.00 and bore the legend “salary $5,000.00,” less social security. Under date of April 14 two checks were issued by the Fort Worth Corporation to the defendant Beasley, one of which was in the sum of $2,600.00 and the other in the sum of $4,-052.00, and bore the same legends as the two checks to the defendant Holloway. Under date of May 24 a check was issued by the Fort Worth Corporation to the defendant Walden in the sum of $5,750.00, and bore the legend “commission on real estate and stock transfers.”

b. Commissions

The second and third transactions (generally referred to herein as the commissions transaction) forming the basis of the jury findings pertained to commissions on the sale by plaintiff of its $20.00 per share stock issue which was authorized on July 29, 1953, at a time when the defendants were the principal officers and directors of plaintiff. The subscription price of $20.00 cash included a commission expense not to exceed 20 per cent. J. L. Walden, brother of J. W. Walden, was given a contract to sell the stock for a commission of $4.00 per share. An informal arrangement came about between the Fort Worth Corporation, J. L. Walden, and the plaintiff corporation, having to do with sales by J. L. Walden on an installment basis. The net effect of the evidence is that J. L. Walden split his commissions received from plaintiff with the Fort Worth Corporation to the extent of $13,035.50, the purported' consideration for which was assistance rendered Walden, particularly in financing installment sales. There is no evidence of any contract of guaranty between plaintiff and the Fort Worth Corporation pertaining to the installment purchases, or that the latter suffered any loss in connection therewith. It appears that stock purchased on an installment basis was not delivered to the purchaser until fully paid. The only advancement made by the Fort Worth Corporation to the plaintiff in connection with installment sales was on June 18, 1954, consisting of an advance of $12,500.00 which was repaid to the Fort Worth Corporation. The defendants Beasley and Holloway each received $2,950.00, and the defendant J. W. Walden received $3,360.58, out of the commissions which J. L. Walden received from plaintiff. This is the total sum of $9,260.58 found by the jury. After the termination of the $20.00 stock issue sale there remained in the stock subscription account of the corporation the sum of $559.62. Two checks in the sums of $83.00, dated March 4, 1955, and $476.62, dated March 7, 1955, were drawn on this account by checks signed by the defendants Beasley and Walden. The checks were payable to the Fort Worth Corporation, and depleted the stock subscription account. They were indorsed in the name of the Fort Worth Corporation to “Sterling Holloway, Agent.” These two checks are the basis of the conversion items of $559.62 found by the jury.

c. The Sales of Personal Stock

In the fourth transaction the jury found that the defendants realized a profit of $169,084.50 from the sale of their personal stock in competition with the sale of corporation stock during the period from April 1,1955, to September 6,1955. We have previously reviewed the stock ownership of the defendants resulting from the pre-emptive offering and the ten-to-one stock split authorized by plaintiff on September 20, 1954, and on March 8, 1955, together with the special board meetings on April 12 and May 30, 1955, authorizing a public offering of plaintiff’s stock in two lots of 10,000 shares at $10.00, and later $12.50 per share.

During the period in question the defendants sold 29,711 of their personal shares at prices either corresponding to, or below, the offering price of plaintiff’s stock. There was testimony by the purchasers of the personal stock establishing that in many instances they considered their purchases to be of plaintiff’s stock either because of representations to such effect by the salesmen or because of the use by the salesmen of the prospectus issued by plaintiff in connection with its public offering.

During the period in question, 7,500 personal shares of the defendants, divided 2,500 shares each, were contributed to a share pool established for the purpose of interesting outsiders in becoming directors of plaintiff and with the stock to be sold at $5.00 per share. At least six of the purchasers from this share pool accepted office as a director of plaintiff and various of them attended directors meetings during the years of 1955 and 1956.

THEORY OF RECOVERY

The recovery of plaintiff for the profits found by the jury to have been realized by the defendants in the various transactions is founded on the equitable principle which calls corporate officers and directors to account to the corporation for personal profits realized by them in breach of their fiduciary duties. Two classes of cases in the area of fiducial responsibility of officers and directors of a corporation are present here. One class involves contracts between the corporation and its fiduciary, represented by the Jennings property transaction in which the plaintiff corporation recovered the profits realized by the defendants through the instrumentality of the Fort Worth Corporation. The other class involves personal activities of a corporate fiduciary in matters of corporate interest, represented here by the sums received by the defendants through the Fort Worth Corporation from the sale of the $20.00 stock issue of plaintiff corporation, and by the personal profits realized by the defendants in the sales of their personal stock in competition with the sale by the corporation of its stock. In each instance the defendants have been found using the corporation for their personal profit in situations where they were under the duty of acting in good faith and for the benefit of the corporation; in neither instance is there a finding of fairness to the corporation of the transactions producing the profits received by the defendants.

Corporate officers and directors are fiduciaries, and the consequences of their acts as such are determinable under the facts in each case. Paddock v. Siemoneit, 147 Tex. 571, 218 S.W.2d 428, 7 A.L.R.2d 1062. Contracts between a corporation and its officers and directors are not void but are voidable for unfairness and fraud with the burden upon the fiduciary of proving fairness. This Court in Tenison v. Patton, 95 Tex. 284, 67 S.W. 92, considered the problem of whether a contract which a director makes with the corporation is voidable at the option of the corporation or its stockholders without inquiry into the fairness of the transaction. In adopting the rule that such a contract may be upheld, with the burden on the director of establishing the fairness of the transaction to the corporation, this Court expressed full assent to the principle “which declares that a trustee, in dealing with trust property, cannot claim for himself, but must yield to the beneficiary, any profit which he makes.” The opinion continued by saying that “The cases in which trustees have been held liable for profits, upon the principle stated, have generally arisen where, in the acquisition or disposition of property for the beneficiary, the trustee has received to himself a profit, as when he has sold property for one price, and accounted to the corporation for a less price, or has bought at one price, and sold to the company at a larger one, or has received a secret bonus or advantage in the transaction in which he has acted for the corporation.” See also Popperman v. Rest Haven Cemetery, 162 Tex. 2S5, 345 S.W.2d 715; Zorn v. Brooks, 125 Tex. 614, 83 S.W.2d 949; Milam v. Cooper Company, Tex.Civ.App., 258 S.W.2d 953, wr. ref. n. r. e. A corporate fiduciary is under obligation not to usurp corporate opportunities for personal gain, and equity will hold him accountable to the corporation for his profits if he does so. Transactions in which a corporate fiduciary derives personal profit, either in dealing with the corporation or its property, or in matters of corporate interest, are subject to the closest examination and the form of the transaction will give way to the substance of what actually has been brought about. One court has commented that a director of a corporation is held “in official action, to the extreme measure of candor, unselfishness, and good faith. Those principles are rigid, essential, and salutary.” Kavanaugh v. Kavanaugh Knitting Co., 226 N.Y. 185, 123 N.E. 148. In speaking of the wise interposition of the law in relations which excite conflict between self-interest and integrity, another court has commented that the law “acts not on the possibility, that, in some cases, the sense of that duty may prevail over the motives of self-interest, but it provides against the probability in many cases, and the danger in all cases, that the dictates of self-interest will exercise a predominant influence and supersede that of duty.” Michoud v. Girod, 4 How. 503, 11 L.Ed. 1076, 1099. A director who diverts profits from the corporation in violation of his fiduciary relationship is personally liable even though the profits are acquired by an agency controlled by the director. Durfee v. Durfee & Canning, Inc., 323 Mass. 187, 80 N.E.2d 522. The responsibility of the corporate fiduciary includes the dedication of his uncorrupted business judgment for the sole benefit of the corporation. Perlman v. Feldmann, 2 Cir., 219 F.2d 173, 50 A.L.R.2d 1134. The rule of corporate opportunity charges the interest acquired by an officer or director of a corporation in violation of his duty with a trust for the benefit of the corporation; “a constructive trust is the remedial device through which precedence of self is compelled to give way to the stern demands of loyalty.” Guth v. Loft, Inc., 23 Del.Ch. 255, 5 A.2d 503. Western States Life Insurance Co. v. Lockwood, 166 Cal. 185, 135 P. 496; 173 Cal. 734, 161 P. 498, considered the problem of profits received by the president, who was also a director of the corporation, as a secret partner in a firm contracting with the corporation to secure subscriptions to its capital stock. The court upheld recovery of the profits by the corporation against the contention that the services of the president and director were reasonably worth the amount received and that the amount was fairly earned. The court reasoned that the fiduciary was forbidden to make any secret profit and the activities of the fiduciary promoting the sale of subscriptions through the selling agency “must be held to have done in execution of his trust as such director.” which rendered him accountable to the corporation for the personal profits realized therefrom.

The application of the foregoing principles to the facts pertaining to each of the transactions here, and to the jury findings, is clear. These well-established rules governing the duties of one occupying a fiducial relationship to the corporation and its stockholders unquestionably cast upon the defendants the burden of proving the fairness of the personal profits realized by them in each transaction. The defendants owed the duty of obtaining the Jennings property for the corporation at the best possible price. The profit which defendants sought to make for themselves through the instrumentality of the Fort Worth Corporation must be held to belong to the corporation. The same is true with respect to the sums received by the defendants, likewise through the instrumentality of the Fort Worth Corporation, as a division of the commissions paid to J. L. Walden, the selling agent employed by the corporation. It is self-evident that it was the duty of the defendants to exert all efforts in behalf of plaintiff corporation to the end that the sale of its stock would net the corporation the greatest possible return. The sub-stantiality of the profit of $13,035.50 realized by the Fort Worth Corporation in the light of all of the circumstances of the arrangement is incompatible with the duty of good faith owed the plaintiff corporation by the defendants. The jury convicted defendants of entering into a combination to realize a profit of $15,000.00 in the Jennings property transaction, to receive commissions in the sum of $9,260.58 from the sale of the $20.00 stock issue, and to convert the sum of $559.62. Under the record in this case it cannot be said as a matter of law that the defendants did not combine to do these things, as later discussed, or that their doing them was not a breach of their fiducial obligations to the corporation and its stockholders. The judgments below representing a recovery by the plaintiff corporation of these claims against the defendants must therefore stand.

For the reasons later shown, we hold that the judgments below, awarding plaintiff a recovery of the sum of $169,084.-50 representing the profits realized by the defendants from the sale of their personal stock in competition with the company stock, were in error. We also hold that on further trial the burden is upon the defendants to establish the fairness of the personal sales transaction to the corporation, and that plaintiff does not have the burden of establishing that the corporation could or would have sold its stock had the defendants not engaged in their competitive sales activities. The latter is no more than evidentiary upon the question of fairness, and upon the question of exemplary damages. The plaintiff corporation had a vital interest and expectancy in the sales by the defendants of their personal stock in competition with the sale by the corporation of its stock. The probability of harm to the corporation is self-evident and the defendants had every reason to anticipate that their activities in promoting the sales of their personally owned stock, and, in some instances, at prices below that at which the stock of the corporation was offered, would probably capture opportunities which might otherwise have been available to the corporation. We agree with the defendants that only under special circumstances should stockholders who are also corporate fiduciaries have the burden of proving fairness to the corporation in the sales by them of their personally owned stock, or presumptively become liable for profits made in such sales. This is a case of such special circumstances. Here the interests of the corporation justly called for protection by the defendants of the opportunities for the sale of the stock of the corporation; they were under a duty to act in all respects to further the purposes of the corporation in offering its stock for sale and cannot seize the opportunities for themselves.

We do not hold that a corporate stockholder and fiduciary is presumptively guilty of fiduciary breach in all cases when he sells personal stock during a time when the stock of the corporation is also on the market. We do hold that the making of such sales, under circumstances such as here, imposed on the defendants as stockholder-fiduciaries the burden of proving fairness when called to equitable accounting by the corporation.

DEFENDANTS’ PLEA OF LIMITATION

By a general point of error referring to all of the transactions and by special points referring to the sales by defendants of their personal stock and the receipt by them of commissions, defendants complain of the form of the issues submitted under their pleas of limitation which limited the notice chargeable to plaintiff to that obtained in a directors meeting or an executive committee meeting.

For the reasons presently to be discussed, we hold that these issues were in error as too restricted but that the evidence presents a fact question on defendants’ pleas of limitation only with respect to the personal stock sales. In so doing, we hold as a matter of law that the suit of plaintiff for recovery of the profits of the defendants from the Jennings property transaction and for the receipts by them of the commissions, together with the conversion items, was not barred by limitation.

Under the basic issue regarding the personal stock sales, the jury found that the defendants entered into a combination by their concerted action to dispose of their personal stock in competition with the sale of corporation stock from April 1, 1955, to September 6, 1955. This suit was filed December 15, 1958, over three years thereafter. The two-year statute of limitations invoked by defendants will thus bar plaintiff’s suit in this respect unless operation of the statute had not commenced before December 15, 1956. See Glenn v. Steele, 141 Tex. 565, 61 S.W.2d 810. The manner employed by the trial court for this determination was by means of a special issue (answered affirmatively by the jury) reading as follows:

“Do you find from a preponderance of the evidence that the Directors of International Bankers in a Directors’ meeting, or an Executive Committee meeting, did not discover that the defendants, Sterling C. Holloway, James W. Walden, and D. D. Beasley, disposed of their personal stock in competition with the sale of company stock during the period from April 1, 1955, to September 6, 1955, if you have so found, prior to December 15, 1956?”

The effect of the issue as worded was that the statute of limitations did not begin to run unless there was actual discovery that defendants were competitively disposing of their personal stock; that this discovery could only be by directors of plaintiff; and that discovery could only be in a directors or executive committee meeting. The issue ruled out discovery by the exercise of diligence by the disinterested officers or directors of the corporation, together with actual discovery by them at any time other than in a directors or executive committee meeting.

In essence, plaintiff defends the restricted issue upon the propositions (a) that discovery can only be in an official meeting; (b) that under the facts of this case the only notice which would start limitation would be actual notice to its innocent officers and directors; (c) that limitations did not begin to run until defendants relinquished control of plaintiff (which plaintiff says was subsequent to December 15, 1956) and actual notice of the conspiracy was conveyed to plaintiff; and (d) that no officer or director had any hint of the conspiracy more than two years prior to suit under circumstances of imputable notice to plaintiff. It should be noted that the limitations issue inquired of discovery of the disposition of their personal stock by defendants, whereas the basic issue inquired if the defendants entered into a combination by their concerted action to dispose of their personal stock in competition with the sale of plaintiff’s stock. It follows that the correctness of the limitations issue as submitted is to be measured by notice, or not, of the personal stock sales and not of the alleged conspiracy.

In Courseview, Inc. v. Phillips Petroleum Co., 158 Tex. 397, 312 S.W.2d 197, we pointed out that “[1]imitation does not begin to run in favor of a trustee and against the cestui until the latter has notice of a repudiation of the trust, and there is no duty to investigate at least until the cestui has knowledge of facts sufficient to excite inquiry.” Further that “It is perhaps more accurate to say that the existence of a relation of trust and confidence does not change the rule that diligence in discovery of fraud is required but does affect the application of the rule.” We recognized in Courseview that there can be situations showing no lack of diligence and in which there is no legal duty to use means available for discovering fraud of the fiduciary (which consisted there of affirmative representations upon which the party could properly rely because of the relationship of the parties), but said “We are not prepared to say, however, that one in a relationship of trust and confidence is always justified as a matter of law in neglecting every precaution until something occurs to arouse his suspicions.”

Plaintiff as a corporation could act only through its agents, and in our opinion notice to a corporation sufficient to activate the statute of limitations is not categorically limited to that acquired by directors in official meetings. The authority cited by plaintiff (3 Fletcher Cyclopedia Corporations, Sec. 793) recognizes the rule that notice to an officer or agent is notice to the corporation in the circumstance where the officer or agent in the line of his duty “ought, and could reasonably be expected, to act upon or communicate the knowledge to the corporation.” We are clear in the view that it was the duty of the officers and directors of plaintiff to act upon notice, if such they had whether actual or constructive, of that which is charged against the defendants in this suit. The office of a corporation director or officer is more than nominal, and those assuming the duties and responsibilities of such offices are not justified in neglecting every precaution or investigation; it is their minimal • duty and responsibility to protect the corporation against acts adverse to the interest of the corporation, whether perpetrated by fellow directors or by strangers to the corporation.

In the light of the foregoing, and from our study of the present record, we are of the opinion that there was presented a fact question as to whether the disinterested officers and directors of plaintiff had knowledge of facts sufficient to require them to exercise diligence by using the means available for discovering the personal stock sales activities of the defendants. We do not regard the fact that the sales by defendants of their personal stock during the period of April 1, 1955, to September 6, 1955, were reflected in the stock transfer records charges the corporation with notice at such time as a matter of law. See Moore v. Waco Building Ass’n, 19 Tex. Civ.App., 68, 45 S.W. 974 (wr. ref.); Pacific Vinegar & Pickle Works v. Smith, 152 Cal. 507, 93 P. 85. This fact does make apparent that there were means available for discovering the activities of the defendants in the sales of their personal stock, and this becomes relevant if the disinterested officers and directors had knowledge of facts sufficient to put them on inquiry and impose on them the duty to exercise diligence by using the stock transfer records, and any other means available.

It is also our view that the present record presents a fact question as to the adversity of interest of C. B. Walden, Thomas L. White, Edgar H. Keltner, Jr., and Audine Jones. The defendants claim that each of the officers had knowledge of facts concerning the personal sales sufficient to put them on inquiry; plaintiff, in turn, attacks their disinterestedness. See Goldstein v. Union National Bank, 109 Tex. 555, 213 S.W. 584. This is particularly true of Audine Jones, who held the title of secretary of the corporation, and in such position handled the stock transfer records of the corporation. We add also that under the facts surrounding the original employment and duties of Audine Jones and her subsequent designation as secretary of the corporation, together with her responsibilities as such, it is our opinion that notice to her as custodian of the stock transfer records was not notice to the corporation as a matter of law of the personal stock sales of the defendants.

The point of distinction between the personal stock sales and the other transactions is that the facts concerning the latter are such that there is no reasonable probability that the disinterested officers and directors of plaintiff had knowledge of facts, or by reasonable diligence would have come into knowledge of facts, sufficient to put them on inquiry. This is illustrated by the method of handling the Jennings property transaction which is reviewed earlier in this opinion. The exclusive contract for selling the $20.00 stock issue was given to an outsider whose arrangements with the defendants were through the Fort Worth Corporation. The primary objective of the exclusive sales contract was the sale of the company stock for the net return authorized, and the extreme improbability that a fiduciary of the corporation would participate in the commissions authorized to be paid to the outsider is a strong circumstance against there being any basis for the disinterested officers and directors to have been put on inquiry.

The sale by the defendants of their personal stock, on the other hand, was a matter of widespread activity which included the share pool arrangement established by the defendants. At least six of the purchasers at a price of $5.00 per share subsequently accepted office as director of the plaintiff corporation. The factual differences between the various transactions illustrate the distinction recognized by us in Courseview.

CONSPIRACY

A civil conspiracy to be actionable must be one unlawful in itself or one accomplished by unlawful means; it consists of acts which would have been actionable against the conspirators individually. State v. Standard Oil Co., 130 Tex. 313, 107 S.W.2d 550; Delz v. Winfree et al., 80 Tex. 400, 16 S.W. 111. As heretofore discussed, the unlawfulness of the acts, and the means employed by, the defendants, inheres in the fiduciary breaches on their part and in the unfairness of the transactions to plaintiff corporation with respect to the personal profits realized by the defendants.

In view of the disposition of the judgments below based on the competitive sales by the defendants of their personal stock, we shall not consider the question of whether there was evidence to support the jury finding of conspiracy with respect thereto. The evidence on the retrial of this part of the case may differ and should not be prejudged by us.

With respect to the property and commissions transactions (as well as the personal stock sales transaction) the Court of Civil Appeals held “that there was ample evidence to support the jury’s findings of the three defendants’ conspiracy.” The defendants here assert that there was no evidence of conspiracy or that they entered into a combination or engaged in concerted action as found by the jury.

The problem of no evidence is to ascertain if there is any evidence of more than a scintilla. Gulf, Colorado & Santa Fe Ry. Co. v. Deen, 158 Tex. 466, 312 S.W. 2d 933.

It was early said by this Court in Jernigan v. Wainer, 12 Tex. 189:

“When men enter into conspiracies, they are not likely to call in a witness * * * In such cases the injured party must necessarily have recourse to circumstantial evidence. For it is only by the inferences and deductions which men properly and naturally draw from the acts of others in such cases, that their intentions can be ascertained. They are not likely to proclaim them in the hearing of witnesses.”

And in Whitmore v. Allen, 33 Tex. 355, that

“A conspiracy may be proven as well by the acts of the conspirators, as by anything they may say, touching what they intended to do.”

The general rule is that conspiracy liability is sufficiently established by proof showing concert of action or other facts and circumstances from which the natural inference arises that the unlawful, overt acts were committed in furtherance of common design, intention, or purpose of the alleged conspirators. Texas Public Utilities Corp. et al. v. Edwards et al., Tex.Civ.App., 99 , wr. dism.; Hawthorne et al. v. Walton et al., Tex.Civ.App., 30 S.W.2d 397, wr. dism.; American Rio Grande Land & Irrigation Co. v. Barker, Tex.Civ.App., 268 S.W. 506, no writ hist.; State v. Racine Sattley Co., 63 Tex.Civ.App. 663, 134 S.W. 400, no writ hist.; 12 Tex.Jur.2d § 22, p. 342; 11 Am.Jur. § 56, p. 585; 15 C.J.S. Conspiracy § 29, pp. 1043-1045.

The related acts of the defendants in the property and commissions transactions are reviewed in the forepart of this opinion. These acts give rise to inferences and deductions of concerted action and common design which may properly be drawn by, and are peculiarly within the province of, the trier of facts. They go considerably beyond scintilla, conjecture and surmise, and will not be further analyzed in view of the detailed factual résumé appearing elsewhere. It cannot be said as a matter of law that the defendants acted independently of each other and that there was no concert of action in their systematic activities in these transactions. To so hold would usurp the fact finding function of the jury, and of the Court of Civil Appeals, which in a conspiracy case is largely in the area of inferences and deductions which may be drawn from the facts and circumstances shown by the evidence. It is not required that each and every act of a conspirator be shown to have been in concert with the others or that it be established by direct evidence that all combined at a given time prior to each transaction. Inferences of concerted action may be drawn from joint participation in the transactions and from enjoyment of the fruits of the transactions on the part of the three defendants.

We agree with the defendants that there was error in the admission of the letter dated September 29, 1952, from the defendant Walden to one Don Hauer, a third party. The letter was written prior to, and was not shown to have any connection with, the incorporation by the defendants of the plaintiff corporation. There is no evidence that the defendants Holloway and Beasley had any knowledge of, or participated in, the writing of the letter. The letter did not pertain to any of the transactions in which the jury found conspiracy and was written considerably before the time of the transactions. It was not brought within the conditions of the rule permitting evidence of the declarations of a co-conspirator upon the establishment of a sufficient connection with the conspiracy forming the basis of recovery.

We do not, however, regard the admission of the letter reversibly harmful or prejudicial to the defendants with respect to the property and commissions transactions. The substantiality of the evidence and the proof of actual participation by the three defendants in these transactions, particularly in the fruits thereof, support the jury findings of concerted action. It is manifest from the text of the letter, which is quoted by the Court of Civil Appeals in its opinion, that its harm and prejudice to the defendants went chiefly to the personal stock sales and to the promotional aspects underlying the sales. There is nothing in the letter which is confirmatory of the property and commissions transactions; the plan of operation outlined in the letter refers to ways and means of inflating the value of stock for the benefit of those referred to in the letter as the original investors.

EXEMPLARY DAMAGES

In addition to the judgment of the trial court awarding the plaintiff corporation a recovery for the profits realized by the defendants in the transactions, the trial court also awarded judgment in the sum of $339,714.24 as exemplary damages. The Court of Civil Appeals held that the exemplary damages were erroneously founded upon the jury findings of the amount of profits which the defendants realized, and reversed and rendered this phase of the case for the defendants. Our agreement with the holding of the Court of Civil Appeals, which sustained the recovery of the plaintiff corporation for the profits realized by the defendants in the property and commissions transactions, requires a further decision upon the question of whether exemplary damages may be recovered with respect thereto. We hold that they may be as to these transactions hut here, also, we will not prejudge this question on the record which will be made in the retrial of the severed cause relating to the personal stock sales.

There is a division of authority on the question of whether a court of equity can or will grant punitive or exemplary damages as incidental to equitable relief. See the annotation in 48 A.L.R.2d 947. The jurisdictions denying exemplary damages do so on the basis of one or more of the theories that a court of equity does not have such power; that the awarding of exemplary damages is incompatible with the principles and practice of equity; and that a litigant waives all claims to exemplary damages by seeking equitable relief. The trend of our decisions has been otherwise.

In the early case of Oliver v. Chapman, IS Tex. 400, this Court affirmed a decree annulling certain deeds for fraud and awarding exemplary damages, and said:

“As to the alleged excessive damages, it has been settled by the repeated decisions of this court, that in actions of this nature, the jury may give exemplary damages, and in doing so, of course they were not restricted to the amount of damage, which the proof shows to have been actually sustained by reason of the fraudulent acts of the defendant.”

The above statement appears to be the basis for the decisions in Western Cottage Piano & Organ Co. v. Anderson, 45 Tex.Civ.App. 513, 101 S.W. 1061, wr. ref., which, in turn, was relied on in Mossop v. Zapp, Tex.Civ.App., 189 S.W. 979, wr. ref.

In Bush v. Gaffney, Tex.Civ.App., 84 S.W.2d 759, no wr. hist., the court upheld the refusal of the trial court to award exemplary damages, notwithstanding a jury finding, in decreeing a rescission, awarding a money judgment and establishing a • constructive trust. The court recognized that its holding was contrary to Oliver v. Chapman, Western Cottage Piano & Organ Co. v. Anderson, and Mossop v. Zapp, supra.

Briggs v. Rodriguez, Tex.Civ.App., 236 S.W.2d 510, wr. ref. n. r. e., involved a suit for rescission of a royalty deed on the ground of fraud, and for damages. The award for both actual and exemplary damages was affirmed. The majority opinion exhaustively reviewed the problem and cited Oliver v. Chapman as “[ajuthority for the proposition that a recovery of the consideration paid as a result of fraud constitutes actual damages, and will serve as a basis for the recovery of exemplary damages.”

Briggs v. Rodriguez was cited with approval in Kress v. Soules, Tex.Civ.App., 255 S.W.2d 244 (reversed on other grounds, 152 Tex. 595, 261 S.W.2d 703) and in Tashnek v. Hefner, Tex.Civ.App., 282 S.W.2d 298, wr. ref. n. r. e.; the court in the latter, case also cited Oliver v. Chapman and stated “[i]t is not the law, in our opinion, that in case of rescission of contract for fraudulent representation authorizing a rescission, that exemplary damages as well as actual damages may not be recovered.”

The point of these decisions to the problem here, and as analyzed in Briggs, is the recognition that the general rule (that a recovery of exemplary damages cannot be based upon a breach of contract) should be restricted to cases in which the breach of contract does not also constitute a wilful tort, and to cases where actual, as distinguished from fictitious, contracts are breached. Where a plaintiff may proceed either in tort or in accordance with the theory of a common law assumpsit count predicated upon a fictional agreement, an election to pursue the latter remedy should not diminish his rights. Exemplary damages should be allowed when the act giving rise to a fictitious implied contract, ártd its breach, amounts to a wilful tort since the' rule allowing exemplary damages where the defendant acted wilfully, maliciously or fraudulently is one of general application.

In the case at bar the plaintiff corporation has elected to sue for the profits gained by the defendants in breach of their duties as fiduciaries. The acts of the defendants supporting the recovery are acts which equity considers to be wilful and fraudulent, regardless of what may have been the actual motives of the defendants; here, of course, the jury has found that the defendants acted with malice. The remedy elected by plaintiff should not preclude the recovery of exemplary damages, although the remedy selected in relation to the actual harm done the plaintiff, together with the nature of the acts of the defendants, are proper considerations in weighing the amount of an exemplary damages award against a complaint of excessiveness and, indeed, may be such as not to justify an award of exemplary damages. It is consistent with equitable principles for equity to exact of a defaulting corporate fiduciary not only the profits rightfully belonging to the corporation but an additional exaction for unconscionable conduct. There should be a deterrent to conduct which equity condemns and for which it will grant relief. The limits beyond which equity should not go in its exactions are discoverable in the facts of each case which give rise to equitable relief. In the property and commissions transactions the recovery by the plaintiff corporation of the profits gained by the defendants represents what should have accrued to the corporation in the first instance, and is not punitive. The defendants should have been acting for the benefit of the corporation all the while. We should not say to defaulting fiduciaries that the most for which they can be held accountable in equity are the profits which would have remained theirs had they not been called to account.

The defendants as appellants in the Court of Civil Appeals presented points of error attacking the exemplary damages awards as being excessive, and- asserting that the jury findings supporting'the awards were against the great weight and preponderance of the evidence. The Court of Civil Appeals did not pass upon these points because of its reversal and rendition of the judgment of the trial court awarding exemplary damages.

We sever into one cause the claims of the plaintiff corporation against the defendants based on the Jennings property, the commissions and conversion transactions. With respect thereto, the judgment of the Court of Civil Appeals is reversed and the cause is remanded to that court with instructions to affirm the recovery by the plaintiff corporation of the sums of $15,000.00, $9,260.-58 and $559.62, and to consider the points of error of the defendants as appellants before the Court of Civil Appeals which asserted that the awards of exemplary damages in the sums of $30,000.00, $18,520.00 and $1,-119.24, in connection with the Jennings property, the commissions and conversion transactions, respectively, were excessive, and that the jury findings supporting the awards were against the great weight and preponderance of the evidence.

We sever into another cause the claim of the plaintiff corporation against the defendants based on the sales by defendants of their personal stock in competition with the sales of the stock of the plaintiff corporation. With respect thereto, the judgments of the trial court, and of the Court of Civil Appeals, awarding the plaintiff corporation the sum of $169,084.50, and the judgment of the Court of Civil Appeals reversing and rendering the judgment of the trial court awarding plaintiff corporation the sum of $250,000.00 as exemplary damages, are all reversed, and the cause is remanded to the trial court for a new trial.

SMITH, GREENHILL and HAMILTON, JJ., dissenting.