Security State Bank v. Fischer

164 N.W. 326, 38 N.D. 132

• Court: North Dakota Supreme Court
• Decided: July 28, 1917
• Status: Published

Opinion

Bikdzell, J.

This action isifor the recovery- of $1,500 which was alleged to have been wrongfully -taken and converted by. the, defendants From a judgment of dismissal and costs, rendered upon the verdict of a jury, and from an order of the trial court denying a motion for a new trial, the plaintiff appeals to this court. The facts are as follows: The •defendant, when president and a director of the plaintiff bank, made a claim of $1,500 for services and expenses as an official of the bank. Upon this statement defendant made or caused to be made a credit slip, crediting him with the amount claimed and debiting the bank. This was on the 15th or 16th of November, 1912, and, in pursuance of the direction afforded by the slip, the assistant cashier of the plaintiff bank caused the necessary entries to be made upon the books. These entries simply credited the defendant with $1,500 and increased the expense account by a similar amount, thereby reducing the undivided profits of the bank. At the time this was done the defendant was the largest stockholder in the bank, owning sixty of the one hundred shares. Immediately following the foregoing transaction the defendant sold his shares upon the basis of their book value, and the book value was the value reflected by the statement of the condition of the bank after the entry of the above transaction in its books. A special meeting of the board of directors, which comprised all of the stockholders of the bank, was held on the 16th of November, 1912, at which, defendant claims, the attention of the directors was called to the credit that he had caused to be entered in his favor. Defendant claims that at this meeting the directors ratified the transaction, but some of the plaintiff’s witnesses who were present at the meeting testified that the subject was not drawn to the attention of the board at all. It appears to be undisputed, however, that the defendant disposed of all of his stock in the bank at this meeting, to persons who were present at the meeting, at its book valuation as determined by the books of the bank after the $1,500 item was placed to the credit of the defendant.

The trial judge instructed the jury that an assumption of dominion over the funds of the plaintiff bank, such as was alleged and proved, would constitute a conversion by the defendant, and that, unless the same was later ratified by the board of directors, the defendant would be liable to the bank. There is no question but what the instructions of the trial court were sufficiently favorable to the plaintiff throughout, unless the court erred in charging that the defendant would not' be liable if the board of directors ratified his acts. This part of the instruction is the chief ground of the plaintiff’s complaint on this appeal.

The assignments of error raise two main points for the consideration of this court. First, whether, in the absence of an express agreement, a stockholder, a director, and officer of a corporation may retain moneys of the corporation as compensation for services rendered; and, second, assuming that the attempt by the defendant to obtain compensation for past services, not being in pursuance of an express contract, was wholly unauthorized and amounted to a conversion of the funds qf the corporation, could his acts in so doing be ratified by the board of directors ?' As to the first proposition, we are not prepared to say that the law is. as contended for. On the contrary, it would seem that, under certain circumstances, the law implies an obligation on the part of a corporation to pay for services rendered by an officer or director, but it is true that in such cases the claim to compensation will be closely scrutinized. See 10 Oyc. 1035. Under the facts of this case, this question is not so important as the question of ratification. This is not an action by an officer of a corporation to recover compensation, but an action by the corporation to recover back moneys which the defendant procured as compensation.

As to the question of ratification: The record discloses a dispute as to the facts going to establish a ratification, and it appears that the jury were properly instructed as to such issue. There is ample evidence to substantiate the verdict. The testimony of Henn, the assistant cashier, who was plaintiff’s witness, tends to corroborate that of the defendant. Henn testified that, at the meeting of the board of directors on the 16th of November, “Air. Fischer said that he had charged up $1,500, I believe, and that he had taken credit for it,— something similar to that.” Furthermore, the undisputed facts, with reference to the purchase of defendant’s stock at the book valuation, tend strongly to corroborate the defendant’s version of the entire transaction. In the face of this testimony, and of the circumstances disclosed, it cannot be doubted that an issue of fact was presented for the consideration of the jury. Appellant contends that there can be no ratification short of action which would be sufficiently formal to authorize the payment of salary to an officer in the first instance before it is earned, but this is untenable. We are aware of no arbitrary rule of law requiring that effect shall not be given to an informal ratification made, as it is contended this ratification was made, by all of the stockholders of the bank, convening as a board of directors. To hold with the appellant on this contention would be to’regard the corporate fiction as the whole substance, and ignore entirely the acts of the owners and managers of the corporation.

Appellant also argues that the evidence concerning'the ratification by the directors of the - plaintiff -bank was ■ inadmissible because such ■defense was not pleaded in the answer. In response to this contention it need only be observed that the plaintiff was the first to go into the question of ratification upon the trial, and that the question was not raised in the court below, except by a motion to strike- out testimony relating to the ratification after considerable - evidence touching this issue had been submitted without objection. Under these circumstances it is manifest that no error was committed in denying ¡the motion "to strike out the testimony and in submitting the quéstion to the jury.

The judgment of the trial court is affirmed. - .