Opinion
No. 30369.
February 20, 1933.
1. CORPORATIONS.
Director, by receiving and collecting corporation's bonus check, impliedly consented to conditions imposed on issuance thereof at meeting of stockholders and directors in which she participated.
2. CORPORATIONS.
In director's action on corporation's note, corporation had burden of proof on counterclaim for recovery of amount of bonus check.
3. EVIDENCE.
Acts of board of directors of corporation held provable by parol, in absence of charter provision or by-law requiring written record of business transacted.
4. CORPORATIONS.
Evidence held insufficient to establish, in director's action against corporation on note, that bonus payment to director was unauthorized.
APPEAL from Circuit Court of Pearl River County.
H.H. Parker and J.M. Morse, both of Poplarville, for appellant.
It is the contention of appellant that the plea of set-off and counterclaim filed in this cause took the place of a declaration on the part of the appellee, as if appellee were filing a suit to recover in an original cause of action, that its claim was based on the written by-laws of appellee, which it alleged to have existed, that without such written by-laws, it would have no right or standing in any court on a suit by way of set-off or counterclaim; such a counterclaim is, in fact, a suit in favor of appellee against appellant, a cross action, and must be supported in the same manner and to the same extent as if it were an original instituted action, independent of any suit on the part of the appellant.
Denny v. Wheelingwright, 60 Miss. 733.
In actions founded on any writing a copy of such writing must be annexed to or filed with the declaration.
Palmetto Fire Ins. Co. v. Allen, 141 Miss. 690, 105 So. 769; Cotton Oil Co. v. Fire Ins. Co., 152 Miss. 522, 120 So. 214; Home Ins. Co. v. Newman, 147 Miss. 237, 111 So. 455.
The failure to make a record of the action of the directors at meetings does not invalidate their action.
7 R.C.L. 441, section 428; Pixley v. Western Pacific Railroad Co., 91 Am. Dec. 623.
The stockholders of a corporation are in fact the corporation, and no matter what the by-laws provide, the stockholders can override same and the stockholders can ratify or authorize any act of the officers at any time, and certain it is that where two thousand nine hundred ninety-nine shares out of three thousand shares of stock authorizing a thing to be done, it cannot be disputed that no by-law of the corporation could prevent such being done.
Russell v. Henry C. Patterson Co., 36 L.R.A. (N.S.) 199, 204.
The court will observe from this record that pursuant to the stockholders' authorization and in accordance therewith, the dividend was actually paid and delivered to the plaintiff, who was the secretary of the company. There is no contention that this was in fraud of any creditor, or that the company was insolvent; there is no contention that this act violated any law, or the charter power of the corporation, and we submit that under these circumstances it was an entirely legal, authorized payment of a bonus, and the funds having been paid, they could not be recovered from the plaintiff who received same.
McDonald v. Williams, 174 U.S. 397, 43 L.Ed. 1022.
When the money had been paid by a corporation to plaintiff, as is the case here, irrespective of its authorization, although plaintiff could not have forced the payment thereof, nevertheless, the corporation, the appellee, could not recover same back.
Mississippi Valley Utilities Co. v. Williams, 143 So. 889; Tidewater S.R. Co. v. Jordon, 41 L.R.A. (N.S.) 130.
The court will observe that the lower court gave instructions to the defendant to pass on and find on evidence in this case, which was never introduced, and therefore, these instructions were given with no evidence whatever to support same.
Southern Ry. Co. v. Lannine, 83 Miss. 161, 35 So. 417; Brister v. Illinois Ry. Co., 84 Miss. 33, 36 So. 142; Railroad Co. v. Harris, 108 Miss. 574, 67 So. 54; Godfrey v. Railway Co., 101 Miss. 565, 58 So. 534; Bank of Newton v. Simmons, 96 Miss. 17, 49 So. 616.
Hathorn Williams, of Poplarville, for appellee.
While appellee did not set up in its notice of special matter under the general issue and its plea of set-off and counterclaim that as a part of the condition and understanding upon which the five thousand dollars bonus was paid that the balance after cancelling the two thousand seven hundred dollars note should be refunded by appellant to appellee; yet it does appear that the testimony above set out showing such condition and agreement went to the jury without objection on the part of appellant; and it does further appear that appellant took issue with appellee on said testimony of appellee, which went to the jury without objection, by introducing appellant as a witness who contradicted this testimony; and it does further appear that appellant procured two instructions submitting this issue to the jury upon the said conflicting evidence. This variance between the evidence and the pleadings was cured by the statutes of Jeofails (section 600, Mississippi Code of 1930 Annotated). Appellant cannot complain of this variance on appeal.
Jackson v. Lewis, 142 Miss. 806, 108 So. 156; Knox v. Henderson Taylor (Miss.), 135 So. 214; Illinois Central Railroad Co. v. Cathey, 70 Miss. 332, 12 So. 253; Kembrough v. Ragsdale, 69 Miss. 674, 13 So. 830; Stier v. Surgent, 10 S. M. 154; Greer v. Bush, 57 Miss. 575.
The jury was fully warranted in bringing in its verdict awarding appellee a recovery over against appellant for three thousand eighty-eight dollars and eight cents on the issue of set-off and counterclaim under the evidence of Mr. Williams and Mrs. Koche that the five thousand dollars was paid to appellant upon condition and with the understanding that it would cancel the two thousand seven hundred dollar note sued on, and that the balance should be refunded to appellee.
A by-law of a corporation is, in a certain sense, a law and is to be applied in the government of such body whenever the circumstances arise for which it was intended to provide.
14 C.J. 346, para. 431.
The members of a corporation are as a general rule conclusively presumed to have knowledge of its by-laws and cannot escape a liability arising thereunder, or otherwise avoid their operation, on a plea of ignorance of them.
14 C.J. 345, para. 430.
Appellant was and is bound by this provision of the by-laws, and is conclusively presumed to have known of its existence and of its limitations upon the power of the president and her as secretary to issue and pay this bonus check to her out of the profits of the corporation. The payment of this money to appellant being without authority, it was an unlawful conversion of the same by appellant, who was a stockholder, director and officer in the corporation, and being such unlawful conversion the corporation had a right to recover the same from appellant by suit.
Argued orally by H.H. Parker and J.M. Morse, for appellant, and by F.C. Hathorn, for appellee.
The appellant sued the appellee, a corporation, on a promissory note, and the appeal is from a judgment denying her a recovery thereon and awarding the appellee a judgment over against her on a plea of set-off and counterclaim.
The declaration simply alleges the execution and delivery of the promissory note by the appellee to the appellant for the sum of two thousand seven hundred dollars and interest, and the failure of the appellee to pay it. The appellee filed a plea of the general issue under which it gave notice that it would introduce evidence to prove that, after the execution of the note, the appellee issued to its officers and employees checks for a bonus given them by the appellee, and that the appellant received, under this award, a check for five thousand seven hundred eighty-seven dollars and eighty-six cents, with the understanding and agreement that the note sued on would be liquidated thereby. It also filed a special plea of set-off and counterclaim, alleging that the bonus paid the appellant was out of the net profits of the corporation, and that one of its by-laws "prohibited such net profits from being paid for any other purpose than that of dividends to the stockholders of said corporation upon a unanimous order of the board of directors of said corporation;" that the bonus paid the appellant was not authorized by unanimous order of the board of directors, was therefore illegally paid, and the appellant was liable therefor; and prayed for a judgment against her for the difference between the amount thereof and the note sued on.
The appellant introduced in evidence the note, which was executed on July 16, 1925, and rested. The appellee then introduced evidence to the effect that, in December, 1925, its stock was owned by five persons, all of whom were directors of the corporation, and that at a meeting during that month all of these stockholders and directors were present except one, who owned one share of stock. At this meeting it was agreed to issue to each of the appellee's officers a bonus check, the net profits of the corporation being more than sufficient therefor; that the money collected on these checks should be thereafter returned either to the corporation or its president, it is not clear which; that the appellant's check should be applied to the liquidation of the note sued on, and the balance remaining thereafter to be returned by her either to the corporation or its president; that she collected this check, but failed to refund the surplus.
No by-law of the corporation was introduced in support of the plea, but a book said to contain the minutes of several meetings of the directors was introduced, and failed to disclose that this bonus was authorized at a meeting of the board of directors. The appellant was one of the stockholders and directors of the corporation, and was a participant in the meeting at which these bonus checks were authorized. The appellant admitted receiving and collecting the bonus check, but denied that she agreed that it should be applied to the liquidation of the note sued on, or that she agreed to the return of any portion thereof to the appellee; and the books of the corporation disclose that her note continued, after receipt by her of the bonus, to be carried in the bills payable account of the corporation as one of its liabilities.
At the close of the evidence, the appellant requested, but was refused, an instruction directing the jury to return a verdict in her favor. The case was submitted to the jury on instructions permitting it to return a verdict over against the appellant if it believed from the evidence that the appellant agreed to refund the amount of her bonus check in excess of the note sued on, or that the bonus check was issued to her without the unanimous approval of appellees's board of directors.
The appellant's contentions are: First, that the court erred in refusing to direct a verdict in her favor; second, that the allegations of the special plea are not supported by the evidence; and, third, that the pleadings contain no allegation of any claim of the appellee to judgment over on account of any promise made by the appellant to refund any part of the bonus check given her.
1. The first of these contentions is without merit. It is true that the evidence does not disclose an express promise on the part of the appellant that the check given her, which she collected, should be applied by her to the liquidation of the note; but she participated in the meeting of the stockholders and directors which authorized the issuance of the checks. If it was authorized and issued on the conditions disclosed by the appellee's evidence, she assented thereto by receiving and collecting the check.
2. The matters set forth in the appellee's plea of set-off and counterclaim are of an affirmative nature, and the burden of the proof thereof was on it. While the evidence does not disclose that the payment of this bonus could be authorized only by the board of directors, we will assume, for the purpose of the argument, that such is the fact. No charter provision or by-law requiring a written record of the business transacted by the board of directors to be kept was introduced, and, in the absence thereof, such a record was not necessary to the validity of the board's acts, but the same may rest in and be proven by parol. The evidence simply discloses no written record of the authorization of the board of directors of the payment of its bonus check, but non constat it may have been authorized at a meeting of the board without a record thereof being made.
It affirmatively appears that a majority of the members of the board of directors assented to the issuance of this bonus check; and though that fact is disclosed by the evidence of the appellee, and relied on for another purpose, we have left it out of view in this connection, so as not to complicate the case with the question of the validity vel non of acts done by boards of directors at informal meetings when less than the whole membership of the board was present. The appellant's second contention therefore must be sustained.
3. This brings us to the appellant's third contention. The instructions both for the appellant and the appellee deal with the appellee's right to a judgment over, based on the appellee's claim that the appellant agreed to refund the amount of the check in excess of the note sued on; and the appellee's contention in this connection is that its failure to allege such an agreement is cured by the statute of jeofails. As the case must be reversed on the second of appellant's contentions, we will express no opinion on the third, as, in all probability, the defect in the pleading on which it is based may not appear on another trial.
Reversed and remanded.