Johnson v. Stoughton Wagon Co.

Dodge, J. In approaching the crucial questions of fact in this case, an understanding of the general situation is a preliminary necessity, especially as the two litigants base their respective arguments upon radically different estimates thereof. The defendant proceeds upon the theory that plaintiff, as executive head of the business, was bound to know of and control every detail of every department thereof, and is liable for damages resulting from any act or omission which would have been negligent in one charged with the duty of such specific act. Plaintiff, on the other hand, contends that he is under no responsibility outside of certain defined departments of the business, and especially that the field'of activity delegated to the secretary, either by express by-law or the custom of the corporation, was wholly outside of his responsibility; that he and the secretary were co-ordinate officers, each independent and beyond the control of the other, and each responsible only for his own acts and omissions. Cases are cited bearing upon the measure and limits of liability upon these conflicting theories. Neither is entirely right, according either to evidence or finding. Plaintiff was not a mere co-ordinate of the secretary, each having entire independence of the other. He was the head of the business, charged with its entire general management, including finances, accounts, and collections; but, on the other hand, the secretary and the bookkeeping force working under him were not a mere, implement selected and entirely controlled by plaintiff. The secretary and his account books were existing institutions when plaintiff took office, created by the board of directors, and in detail, at least, not controllable by plaintiff, except by appeal to that board. They constituted, with the secretary’s authority to pay out money, one of the conditions under which plaintiff must manage the business. Nevertheless, the conduct of that department being one of the elements involved in successful prosecution of the business, we have no — 446 — doubt plaintiff owed duty of such attention thereto and supervision thereof, consistent with the limitations suggested, as the general prosperity of the enterprise demanded. Plaintiff’s duty, like that of all paid corporate officers, was that of absolute good faith, and such diligence, judgment, and exertion as the ordinarily capable, diligent, and prudent man would give under like circumstances. 4 Thomp. Corp. § 4671; 21 Am. & Eng. Ency. of Law (2d ed.) 874; North Hudson B. & L. Asso. v. Childs, 82 Wis. 460, 52 N. W. 600; Briggs v. Spaulding, 141 U. S. 132, 11 Sup. Ct. 924. Among those circumstances are the character of the service he was to render, the conditions under which he was compelled or expected to perform it, the means therefor which he had, or which were within his power to have, the extent to which attention to detail was consistent with proper consideration and direction of the more important general policy, and very many others. Taking up first defendant’s defensive contention that plaintiff has failed to perform his contract of service, by reason of the devotion of some portion of his time and attention to other affairs — especially the care of his mother’s property and investments, but also the performance of his duties as vice-president of a bank, and the looking after the finances of the sadiron business — we cannot feel justified in disturbing the finding of the court that no substantial breach, to the injury of the defendant, occurred. Of course, an agreement “to give his full time to the company’s service” is, in its nature, ambiguous. It certainly does not require twenty-four hours a day of an employee’s time, nor, indeed, every moment of his waking hours. Mobile & K. C. R. Co. v. Owen, 121 Ala. 505, 25 South. 612. On the other hand, it undoubtedly does-require that he shall make that employment his business, to the exclusion of the conduct of another business such as usually calls for the substantial part of a manager’s time or attention. We cannot think, however, that the business man who undertakes to make the affairs of a corporation or of a — 447 — firm his business, and to give to it his full time, absolutely excludes himself from everything else. Usually such men have some private affairs or interests of their own, which they are not expected to entirely abandon. They may seek and make investments of their private funds, so that they do not trespass substantially upon the ordinary business hours; and, in analogy, it certainly is recognized as customary that they may give the benefit of their judgment and supervision to the care of moneys of relatives not able to protect their own interests. It is also certainly customary that men who consider themselves engrossed in active business do not hesitate to occupy places on the directory of banks, or even more important offices in such institutions. It would be unfortunate indeed for the community if a line must be drawn so strictly that only people whose services were not needed in the conduct of important business could occupy such positions. In this ¡case it is made apparent that plaintiff devoted more than ordinary business hours to this corporation. He previously had a business as a dry goods merchant, which he gave up. He devoted his entire business days, of approximately nine liours, persistently to the defendant corporation, and in addition — what is certainly in excess .of the strict 'contract requirement — he spent approximately one half of his evenings in devotion thereto. In the light of such facts and considerations, we do not feel justified in repudiating the conclusion of the trial court that the evidence does not sustain the allegation of failure to give his full time to the service of the defendant. There is no evidence of any pecuniary loss to the defendant from the mere fact that plaintiff looked after his mother’s estate, or after the finances of the sadiron bxisiness, or that he occupied the vice-presidency of the bank; hence no counterclaim is sustained upon these facts. As to the failure to collect from the electric light company some $600 of interest which the court finds was justly owing "to the defendant, we also agree with the trial court that — 448 — plaintiff’s liability is not established, and we put onr agreement upon the ground that no negligence on the part of the plaintiff is shown, in failing to collect that amount. When plaintiff first found that the secretary bad allowed the electric light company to become a large debtor, bis conduct in putting a stop to it is characterized by most emphatic diligence. He allowed no delay — hardly reasonable time for the electric light people to examine the account before compelling that, company’s officers to pay the debt. He called on the bookkeeping department to furnish him a statement of the amount of that debt, and be collected the amount so shown. We are not prepared to say that it is negligence, in law, for the general manager of a business of this magnitude to rely upon trusted employees justly supposed to be diligent and capable, for the mere ascertainment of the amount due upon an open account. It surely is not unusual for men whose attention to general affairs is of so much more importance to their corporate employer than would be their knowledge of the mere detail of figures in books to refrain from personal inspection of all the items going to make up an account, and to act upon the reports made to them by those who are charged with such details. For this reason, even if it be conceded that the-amount found by the trial court was due from the electric light company, of which we have some doubt, we reach the conclusion that the finding that no damage resulted to the company from negligence of the plaintiff in that matter is sustained. Another basis of counterclaim which was repudiated by the-trial court is tbe failure to enforce payment from his mother’s estate of more than six per cent, annual interest upon her-overdrafts. That the company suffered loss thereby is predicated upon the alleged fact that at tbe time of any such overdrafts the company was paying a higher rate of interest to-the bank; but, as pointed out by the statement of facts, the company was also at all such times in tbe enjoyment of con — 449 — siderable amounts of money at exactly the 'rate which was charged to this estate, some parts of which, at least, were supplied by the plaintiff himself, or through his personal relationship to the lenders. It is not shown that even such personal contributions to the finances of the company were not fully equal to the amount of such overdrafts. Surely if plaintiff with one hand borrowed for the company an amount which he allowed to be borrowed from it with the other at the same rate of interest, his act could not be held to have caused pecuniary damage; hence we conclude that the court rightly refused allowance of any damages against plaintiff in this respect. We also concur with the trial court in finding plaintiff not liable for the loss of the account against the cash register company. When he had directed it to be collected, and was, in effect, informed that it had been, we aré not prepared to hold him negligent in not discrediting the secretary’s statement, and proceeding to investigate the assumption of the debt by Olson. The foregoing is all that seems to be necessary in consideration of the defendant’s appeal, upon which, therefore, we find no error prejudicial to it, and should affirm the judgment, if only that appeal were before us. 2. Turning now to the plaintiff’s appeal, which is from the allowance of damages against him upon the overdraft of the secretary, Lund, we must deem it sufficient to say that the finding of the trial court that plaintiff was guilty of negligence in failing to discover and thus in permitting the secretary to withdraw funds of the company in excess of his salary, through a period of some seven years — the secretary being pecuniarily irresponsible, though of excellent reputation and apparently economical habits — is supported by the evidence. We should not sustain the view that one occupying the position of general manager must at all times be cognizant with the condition of every account upon the books, even' — 450 — though they were kept by immediate subordinates of his— less so where kept under the control of an officer having such measure of independence as the secretary had in this case; but one who is charged with the care of a business of this magnitude certainly owes, as a mere'measure of ordinary diligence, the duty of some supervision, to see that others having access to its funds are not misappropriating them. Just what acts may constitute fulfillment or breach of that duty, it is unnecessary now to decide. We think it within the judgment of a trial court, in drawing inferences of fact, to hold that the ordinarily diligent man, in plaintiff’s position, would have discovered the depletion of its funds long before the plaintiff did. It„may reasonably be supposed, too, that, if that discovery had been made while the overdraft was comparatively trifling in amount, reimbursement by the secretary out of his salary might have been possible. When the discovery was made, the amount of the deficiency rendered such result improbable. Hence we cannot say that the court was wrong in concluding that the whole amount of Lund’s overdraft at the time of its discovery, in 1897, might properly be held to be damage resulting from plaintiff’s neglect to discover it in proper time, and take effective steps to prevent its increase and secure its repayment. As to the period of five months between the discovery of' this overdraft, in September, 1897, and the final discharge of Lund, in February, 1898, during which period the overdraft increased some $300, we have more doubt. Whether it was not consistent with ordinary prudence and diligence to make the experiment whether Lund might not reform his expenditure, and gradually reduce his indebtedness to the company, and, in promotion of such hope, to refrain from blasting his reputation and destroying the confidence of the directors in him, might at least be open to different opinions. But here, again, after careful review of the situation, we have come to the conclusion that the finding must stand, and the plaintiff be held negligent in thus giving — 451 — to a known defaulter the opportunity to take to himself further moneys of the corporation, whereby resulted this additional loss. We therefore conclude that the amounts actually drawn by Lund from the treasury of the company, and entered upon its books, up to the time of his discharge, were properly held to be damages resulting from the negligence of the plaintiff, and for which he must respond, as also for the interest thereon. At this point, however, we come in contact with a peculiar item, of $409.70, entered upon the books by Lund on the day of his discharge, the items composing which are not in evidence, but are stated to be a number of turned accounts, where Lund had receipted the accounts of debtors to the company in consideration of the discharge of his own indebtedness to such debtors. These he had never entered upon the books, and of them plaintiff never had any knowledge, nor, so far as the evidence goes, information of any fact to put him upon inquiry. We find ourselves unable to discover anything of negligence on plaintiff’s part to which can be ascribed the fact that these particular accounts were lost to the company, if they were lost. Such transactions were in no way called to his attention by any entry within his reach. They transpired wholly between Lund and the outside parties. Only by accident would any one of them be likely to come to plaintiff’s knowledge. To impute such knowledge to him would be to charge him with' a duty of omniscience. Further, however, there is no proof of damage to the defendant. The evidence does not disclose when these transactions took place, nor that the several debtors were not, even up to the time of the commencement of the present action, wholly solvent; neither does it disclose that'the indebtedness of any of them to the defendant had become barred by the statute of limitations. It hardly needs to be stated that such transactions as those of Ltind with debtors of the corporation could have no possible effect in discharging their debts to it. The — 452 — very fact that they gave as consideration only a cancellation of Lund’s personal liabilities to them, charged them in the fullest manner with notice of his breach of duty as an agent, and they remained, as before, the debtors of the corporation. Commercial Bank v. Ten Eyck, 48 N. Y. 305; Remington v. E. R. Co. 109 Wis. 154, 163, 84 N. W. 898, 85 N. W. 321. We are convinced that there is no evidence to warrant the conclusion of law that the plaintiff is liable for this part of the recovery awarded against him. Another item included in the so-called Lund overdraft is a charge of $145.79 on turning account with one Dow, made not until January 10, 1899. At that time Dow appeared as a debtor on account to the defendant, and an unexplained entry was then made, charging the above amount to Lund. There is not the slightest evidence to show that Dow parted with any consideration or changed his position in any way by reason of such book entry, or that it was made in pursuance of any agreement with him to which plaintiff was a party. No reasonable explanation is made by defendant of any theory on which it can be claimed that defendant lost anything thereby, and we find ourselves unable to discover any evidence to warrant the conclusion that Dow was any less, liable to defendant after than before such entry, nor, if he is, how the plaintiff’s acts have aided to that result. This item was erroneously included in the damages allowed. Another error, obviously clerical, has attracted our notice, which, although not mentioned by counsel, is covered by the general language of both an exception and an assignment of error, so that we must correct it. It consists in adopting as the increase of Lund’s overdraft between September 1, 1897, and February 8, 1898, the sum of $921.25, while the true increase was only $710.77, even including the turned accounts. This resulted from deducting an interest charge of $210.48 from the ledger balance of September 1, 1897, to get the true amount of overdraft to that time, and in omitting — 453 — to make tbe same deduction from tbe ledger balance of February 8, 1898, when tbat of September 1st was compared with it to ascertain tbe increase. From tbe foregoing, it results tbat tbe judgment is erroneous, to tbe prejudice of plaintiff, in tbe sum of tbe above-mentioned improper allowances, plus tbe interest thereon as included in tbe judgment! Deduction must therefore be made from tbe allowance on counterclaim as follows, as of tbe date of tbe findings, June 11, 1902: Turned-accounts item. $409 70 Clerical error. 210 48 Interest on both, February 8, 1898, to June 11, 1902. 161 55 Kobe Dow account, with interest as in findings. 175 75 Total deductions. $957 48 This deducted from tbe $4,510.83 awarded defendant on its counterclaim leaves as tbe true allowance, $3,553.35, which, being set off against tbe $3,630.77 allowed on plaintiff’s cause of action, results in a balance of $77.02, for which, with interest from June 11,- 1902, plaintiff should have judgment against defendant. By the Court. — On plaintiff’s appeal tbe judgment is reversed, and cause remanded with directions to enter judgment in plaintiff’s favor for seventy-seven and fW dollars ($77.02), with interest from June 11, 1902, and for bis costs. Defendant will take nothing on its appeal. Siebeckee, J., took no- part.