Opinion
No. 29682.
January 4, 1932.
1. CORPORATIONS.
Corporate officers and directors engaging in ultra vires act are liable at suit of receivers for funds lost as result.
2. CORPORATIONS.
Bill by receivers of cotton corporation against officers and directors for loss through dealing in cotton futures, an ultra vires act, stated cause of suit.
APPEAL from chancery court of Hinds county. HON. V.J. STRICKER, Chancellor.
Howie Howie, of Jackson, for appellants.
Unenforceable contracts for the sale of future delivery of cotton are those which are executed and dealt in without any actual bona-fide execution and the carrying out or discharge of such contracts upon the floor of such exchange.
Chapter 304, Laws of 1928, Section 1830, Code 1930.
Such actions on the part of the directors is not found to be authorized by any of the provisions of the charter of said corporation.
The contracts involved fall under the definition of "the kind commonly called `futures.'"
S.M. Wald Co. v. Austin, 107 Miss. 279, 65 So. 247; Ascher Baxter v. Moyse Co., 101 Miss. 36, 57 So. 299.
The association did not have title to the cotton grown by the members of the association and said association acted merely as an agent, and/or trustee, for said members for the purposes of handling said cotton and disposing of it to the best advantage. That such relationship was one partaking of a fiduciary nature. That the action of the directors in disposing of the proceeds of the cotton placed in their hands by the members of the association was a violation of their trust agreement, and because of such violation they are liable to the members thereof for their illegal acts and wrong doing.
Tobacco Cooperative Association v. L. Harvey Son Co., 47 A.L.R. 928, 189 N.C. 494, 127 S.E. 545; Haarperinne v. Butter Hill Fruit Growers Association, 119 A. 116; Rhodes v. Little Falls Dairy Co., Inc., 245 N.Y.S. 432; Johnson v. Staple Cotton Co-op Ass'n, 142 Miss. 312, 107 So. 2; Brown v. Staple Cotton Cooperative Ass'n, 132 Miss. 859, 96 So. 849; Cole-McIntyre-Norfleet Co. v. DuBard, 135 Miss. 20, 99 So. 474.
Butler Snow, of Jackson, for appellees.
The statutes in any way relating to the matter, in effect prior to April 26, 1928, are sections 977 and 978, Code of 1927, and Chapter 31 of the Code of 1927, and the contracts complained of so far as the allegations of the bill are concerned, were not condemned by any of these statutes.
The law now expressly authorizes contracts for the sale, for future delivery, of cotton and other commodities.
(1) When made in accordance with the rules of any board of trade.
(2) Actually executed on the floor of such board of trade and performed or discharged according to the rules thereof and
(3) When such contracts of sale are made through regular members of good standing of such exchange, provided the contracts conform to the United States Cotton Futures Act.
Chapter 32, Code of 1930.
All the cases show that the statutes in effect prior to April 26, 1928, condemned future contracts, where it was intended that the same should be settled by payment of the difference in price and where there was no intention of the parties to deliver the commodities covered by the contract.
Conn v. Brinson, 112 Miss. 348.
The intention of both parties must be that the commodities were not to be delivered.
Clay v. Allen, 63 Miss. 426; Western Union v. Little-john, 72 Miss. 1025; Asher v. Moyse, 101 Miss. 36; Faulk v. Anderson Mercantile Co., 138 Miss. 211.
There is not an allegation in the bill of complaint which charges facts showing that the association had violated the laws of the state prohibiting the purchase and sale of futures.
It is not unlawful to buy or sell commodities to be delivered at a future day, even if at the time of the purchase the seller has none to deliver and no means of obtaining them, except to go into the market and buy them, if the parties really intend and agree that the goods are to be delivered and the price paid.
Clay v. Allen, 63 Miss. 426; Long v. Eaves, 99 Miss. 888; Bergeson Co. v. Williams, 155 Miss. 351; Arkansas Coop. Cotton Ass'n. v. Brown, 168 Ark. 504; Edgar Coop. Assn. v. Speilzer, 20 A.L.R. 1417; Notes 25 A.L.R. 1113; 33 A.L.R. 247; 47 A.L.R. 936.
Even if the association in good faith sold cotton to be delivered in the future before it actually had the cotton in the warehouse, this would not constitute a violation of the law. The contract between the association and the members in so far as it dealt with a potential interest, was good both in law and equity, and was good in equity, even though the association had no actual or potential interest in the cotton to be grown.
Everman v. Robb, 52 Miss. 653; White v. Thomas, 52 Miss. 49; Russell v. Stephens, 70 Miss. 685; Fidelity Deposit Co. v. Sturdivant, 86 Miss. 409; Bacot v. Varnado, 91 Miss. 825.
The bill alone can only be looked to, and the allegations thereof are not helped by a reference to the charter.
Griffith's Chancery Practice, Section 289.
Argued orally by W.B. Fontaine, for appellant, and by George Butler, for appellee.
Appellants, as receivers of the Mississippi Farm Bureau Cotton Association, an insolvent corporation, filed their bill against the officers and directors of said corporation in which it was alleged, to state the substance in brief, that the corporation had been incorporated for the purpose of marketing the cotton of the farmers of the state, and for warehousing the cotton of those who had produced the same, so as to obtain the best prices possible; and, in the meantime, to assist the farmers in financing themselves while holding their cotton in the warehouses of the said cooperative corporation. It is further alleged that there were two optional contracts which the farmers who placed their cotton in the hands of the corporation could make, one under which the cotton was not to be sold until directed by the farmer, and the other under which the corporation could sell the cotton when the corporation deemed best; but in either event when sold, the proceeds, less the charges for the services rendered, should be immediately remitted by the corporation to the farmer whose cotton was sold.
The bill further alleged that during the years 1927, 1928, and 1929, although wholly unauthorized so to do by the charter of the corporation and although such course was entirely ultra vires, the officers and directors of the corporation took from time to time, and almost from day to day, the proceeds of the sales of the cotton sold by said corporation and therewith engaged in dealing in cotton futures, and that as a result of said unauthorized conduct on the part of said officers and directors there was lost from the funds of said corporation the sum total of two hundred seven thousand three hundred forty-one dollars and ninety cents; the said losses being itemized in the bill in lengthy detail. That by reason of said losses in dealing in cotton futures the said corporation became and is now insolvent, owing debts in excess of two hundred thousand dollars, no part of which it is able to pay; that the greater part of said debts is for cotton which was placed with the corporation by the producers, and which was sold by said corporation, the proceeds of which, instead of being remitted to the said farmer-producers, was wasted by said officers and directors in their ultra vires conduct of diverting said funds into the hazardous and unauthorized business of dealing in cotton futures.
A general demurrer was interposed and was sustained. The argument made in support thereof is that the bill does not show that the course of conduct pursued by said officers and directors was in violation of law. This argument overshoots the mark. The bill alleges that the said officers and directors were not authorized at all by the charter of the corporation to deal in futures; that such conduct was wholly ultra vires; that said officers and directors had no authority to deal with the proceeds of the cotton sold, otherwise than to remit to the respective owners thereof less the cost of handling the cotton so sold; and that the diverting of this money into the business of dealing in cotton futures was a misappropriation of the funds of the corporation.
Thus there is to be applied a simple, and as we think an elementary, principle of law: When an agent or fiduciary is intrusted with funds or property to be devoted to or managed for specified purposes, and the agent or fiduciary deviates from his trust and devotes or appropriates the money or property to uses or purposes outside of and beyond those authorized and a loss occurs as a result of such unauthorized uses, the agent or fiduciary must restore the funds or property so lost, and particularly is this true when the funds or property has been diverted into ventures known to be hazardous, as is the case here. And it is only another version of the ancient principle above stated, that when officers and directors engage in any enterprise or venture not authorized by the charter of the corporation, which is ultra vires and results in a loss or waste of the funds of the corporation, the officers and directors who acquiesce in or consent to such a deviation from their trust are liable at the suit of the receivers for the funds so lost.
Under the stated principle the bill states a cause of suit, and the general demurrer should have been overruled. There are some points of practice which have been urged, but, in view of the fact that the bill on its face is amply sufficient, we pretermit any further discussion.
Reversed and remanded.