Stamper v. Gammill , 354 P.2d 427 ( 1960 )

BLACKBIRD, Justice.

Plaintiff in error, an alleged former Sales Director for a life, health and accident insurance company, at a monthly salary of $700, brought this action, as plaintiff, against defendants in error, and other parties unnecessary to mention, as defendants, for funds allegedly due him after he resigned said former position in 1957, to become associated, under contract, with the defendant John S. Gammill in operating a new mutual insurance company, called Reserve National Insurance Company.

Under this contract entered into by and between plaintiff and Gammill, it was agreed that the Oklahoma City building, in which Gammill Printing Shop was located, would be transferred to the new insurance company for a consideration of $105,000 to be paid by it to Gammill. It was also agreed that plaintiff would “accept” the position of Executive Vice-President of the new company, at' a salary to be set by the Company’s board of directors. The contract contemplated that Gammill would contribute private funds to the company’s expenses, with indebtedness certificates bearing 6% interest, payable to the Company, being issued each month to him, equal to such amounts and other funds that might be withdrawn from the company by plaintiff.

By the contract, it was also agreed to change the Company from a mutual, to a legal reserve stock, or stipulated premium, Company, as soon as financially able, and in the event additional capital and/or surplus was then needed, such ad-ditonal amounts over and above the assets of the company at that time, would “be determined” in the “proportionate” percentages of 65% to Gammill, and 35% “to” plaintiff. ' In consideration for Gammill’s agreement “to convey” plaintiff the 35% of “such control and interest” as Gammill might have, plaintiff agreed to pay Gam-mill $7,000; and further agreed that he would not resell any such interest prior to February 15, 1960.

The contract also provided that “ * * * if any disagreement may arise between” the parties, Gammill agreed to buy, and plaintiff agreed to sell, his interest to Gammill for $7,000, less any indebtedness he owed Gammill.

In the Amended Petition, he filed in this action, plaintiff alleged, in substance, that, when he became associated with the defendant company under the above-described contract, and delivered to Gammill his promissory note for the $7,000 specified in said contract — but with the understanding that said note would be payable only from plaintiff’s share of the defendant company’s net profits, distributed in salary form — the company was operating at a financial loss, and for that reason, he thereafter drew a monthly salary of only $200, instead of the $700 earned in his former employment.

Plaintiff further alleged, among other things, in substance, that in November, 1958, by reason of his almost two years of service to it, the defendant Company was realizing a gross profit. The allegations of the Amended Petition clearly showed that, despite this, the defendant Gammill not only never transferred to plaintiff the 35% interest contemplated in the contract, but that in accord with a design formulated by Gammill to dispense with plaintiff, after receiving benefit and profits from his expert services, the aforesaid contract was breached by Gammill’s feigning “disagreement” between the two, and, on that purported ground, attempting to terminate his connection with the company under the above-quoted contract provision.

Reference was made in the Amended Petition to a letter (copied and attached to it as Exhibit “B”), which Gammill wrote plaintiff on December 11, 1958, in which, after quoting the above-described contract provision with reference to the purchase of plaintiffs interest, Gammill asserted his right, and expressed his intention, to buy “such interest” as plaintiff acquired under said contract. Among other things, the letter also set forth a purported statement of the interest accruals, as well as credits given, on plaintiff’s $7,000 note held by Gammill, and offered, upon plaintiff’s payment to Gammill of the •difference between these, in the amount of $271.78, to mark said note paid and surrender it to plaintiff.

The Amended Petition further alleged, that at a meeting on December 12, 1958, of the Company’s “nominal” Board of Directors, named and controlled by Gammill, plaintiff was “summarily and unjustifiably” discharged.

While the Amended Petition specifically concedes that “Gammill did not personally own and could not convey the assets” of the defendant company “ * * * while it remained in corporate form * * * ”, it quotes a provision printed into the Company’s applications for insurance, by which all “policyholder-members” had given Gam-mill, or his successor as President of the Company, their voting proxies for meetings of the Company’s members “ * * * unless otherwise ordered * * * ” by them “in writing sixty days prior to such meeting.” On the basis of this, the Amended Petition asserted that Gammill’s “absolute proxy control and power of distribution” of the Company’s income, when earned, “created in plaintiff the reasonable expectation “of ownership of, and profits from, a “35% stock interest” in the defendant company at “such, time as * * * (it) * * * should be financially able to be converted to a stock company.”

In the Amended Petition’s so-called “First Count”, in which the recovery sought was damages for defendant’s alleged breach of the “employment features” of the above-described contract, plaintiff prayed for alternative relief. He first asked for $60,000 as the amount he would have received under this contract, if it had not been breached, less the indebtedness represented by his $7,000 note to Gammill. In the alternative he prayed for a total of $11,000, computed by multiplying the $500 per month difference between the salary he had received, and the $700 salary of his former employment, by 22, which was the number of months he allegedly worked for the defendant company under the subject contract.

The cause of action plaintiff attempted to allege under the “Second Count” of his Amended Petition was based upon the asserted theory that, by reason of the alleged facts, there had been created a constructive trust with the 35% interest specified in the subject contract for plaintiff, as the trust res and plaintiff’s being the cestui que trust.

The trial court sustained separate demurrers filed on behalf of Gammill and the insurance company; and, when plaintiff elected to stand on his Amended Petition, entered judgment dismissing the action. It is from said judgment plaintiff has perfected the present appeal.

In his argument for reversal of the trial court’s judgment, plaintiff attempts to demonstrate that his Amended Petition stated two good causes of action. He says that the members, or those holding “stock” interests, in a mutual insurance company, like the defendant company, do not participate in the company’s profit by receiving dividends. He characterizes the defendants as co-trustees for such members, however, but argues that his and Gammill’s contract made them participants in a joint venture, as far as company profits were concerned, and created between them a fiduciary relationship. On the basis of this relationship, he maintains that defendants were co-trustees for him, as well as the policyholding-members of the company, and that the subject contract bound said defendant to continue plaintiff’s employment as the Company’s Executive Vice-President and to transfer to him a 35% “stock interest” in the defendant company. Plaintiff concedes that Gammill did not own the physical assets of the defendant corporation, but represents that Gammill’s holding of all of the corporation’s members’ voting proxies, allowed him to select the members of its board of directors and thus control the business’s operation and its distribution of profits when earned. Plaintiff admits he was never a member of the corporation and held no title to any of its physical assets. He says: “The ’property’ involved in the joint venture was Gammill’s power and control.”

One of defendant’s answers to plaintiff’s argument is that it is plain from his Amended Petition, and brief, that the causes of action he attempted to allege are based upon an agreement contemplating the sale, to plaintiff, of Gammill’s power, as the defendant Company’s President, to control its operations and the distribution of its profits. They take the position that such a corporation president’s promise to distribute the corporation’s profits, or to continue a person in its employ indefinitely, by exercising such so-called control, is invalid and unenforceable. They cite Old American Life Insurance v. Biggers, 10 Cir., 172 F.2d 495, 499, 8 A.L.R.2d 781, in which the court held:

“ * * * the fiduciary powers vested in a president of a corporation and'in one authorized to act as proxy for a member cannot be bartered or sold. Neither can they be transferred as the consideration for a contract.”

To the same effect is Sauerhering v. Rueping, 137 Wis. 407, 119 N.W. 184, also cited by defendants. There, it was demonstrated, that the attempted binding of company officials by private contract, to do things affecting the company’s operations, without respect to its welfare, is illegal, because it places them in a position where their obligations under the contract may be antagonistic, or incompatible, to the best interests of the company, and/or its members, and the duties they owe them.

In the present case, we think the contract provisions, upon which both counts of plaintiff’s Amended Petition are based, are unenforceable, not only because such attempted bartering away of Gammill’s control of the defendant company, through his voting proxies from its members, was illegal and against public policy (Reed v. Catlett, 228 Mo.App. 109, 68 S.W.2d 734, 736); but they were also unenforceable because such power, by the wording of the proxies themselves, was subject to being diminished, if not entirely wiped out, by the proxies’ withdrawal “sixty days prior” to members’ meetings. We agree with defendants that since the subject provisions were illegal, the contract would support neither of the causes of action plaintiff attempted to allege. The trial court therefore committed no error in sustaining defendants’ demurrers to plaintiff’s said pleadings, and, upon his election to stand thereon, in entering judgment dismissing the action. Said judgment is therefore affirmed.

WILLIAMS, V. C. J., and WELCH, JOHNSON and JACKSON, JJ., concur. DAVISON, C. J„ and IRWIN and BERRY, JJ., dissent.