{ "id": 4974103, "name": "E. S. Auer and Charles S. Nelson, Plaintiffs Below. Charles S. Nelson, Appellant, v. Wm. Meyer Company et al., Appellees", "name_abbreviation": "Auer v. Wm. Meyer Co.", "decision_date": "1944-03-08", "docket_number": "Gen. No. 41,796", "first_page": "244", "last_page": "269", "citations": [ { "type": "official", "cite": "322 Ill. App. 244" } ], "court": { "name_abbreviation": "Ill. App. Ct.", "id": 8837, "name": "Illinois Appellate Court" }, "jurisdiction": { "id": 29, "name_long": "Illinois", "name": "Ill." }, "cites_to": [ { "cite": "125 Ind. 588", "category": "reporters:state", "reporter": "Ind.", "case_ids": [ 1385119 ], "opinion_index": 0, "case_paths": [ "/ind/125/0588-01" ] }, { "cite": "182 Ill. 76", "category": "reporters:state", "reporter": "Ill.", "case_ids": [ 3215472 ], "opinion_index": 0, "case_paths": [ "/ill/182/0076-01" ] }, { "cite": "275 Ill. 292", "category": "reporters:state", "reporter": "Ill.", "case_ids": [ 2411225 ], "opinion_index": 0, "case_paths": [ "/ill/275/0292-01" ] }, { "cite": "126 Ill. 310", "category": "reporters:state", "reporter": "Ill.", "case_ids": [ 5405238 ], "opinion_index": 0, "case_paths": [ "/ill/126/0310-01" ] }, { "cite": "6 Wheat. 481", "category": "reporters:scotus_early", "reporter": "Wheat.", "case_ids": [ 11730688 ], "opinion_index": 0, "case_paths": [ "/us/19/0481-01" ] }, { "cite": "120 Ill. 377", "category": "reporters:state", "reporter": "Ill.", "case_ids": [ 5385578 ], "opinion_index": 0, "case_paths": [ "/ill/120/0377-01" ] }, { "cite": "4 How. 503", "category": "reporters:scotus_early", "reporter": "How.", "case_ids": [ 1503911 ], "opinion_index": 0, "case_paths": [ "/us/45/0503-01" ] }, { "cite": "161 Ill. 522", "category": "reporters:state", "reporter": "Ill.", "case_ids": [ 3125352 ], "opinion_index": 0, "case_paths": [ "/ill/161/0522-01" ] }, { "cite": "194 Ill. 45", "category": "reporters:state", "reporter": "Ill.", "case_ids": [ 5582259 ], "opinion_index": 0, "case_paths": [ "/ill/194/0045-01" ] }, { "cite": "298 Ill. 537", "category": "reporters:state", "reporter": "Ill.", "case_ids": [ 5030179 ], "opinion_index": 0, "case_paths": [ "/ill/298/0537-01" ] }, { "cite": "241 Ill. 238", "category": "reporters:state", "reporter": "Ill.", "case_ids": [ 5655890 ], "opinion_index": 0, "case_paths": [ "/ill/241/0238-01" ] }, { "cite": "304 Ill. 190", "category": "reporters:state", "reporter": "Ill.", "case_ids": [ 4998682 ], "opinion_index": 0, "case_paths": [ "/ill/304/0190-01" ] }, { "cite": "231 Ill. 594", "category": "reporters:state", "reporter": "Ill.", "case_ids": [ 5635377 ], "weight": 2, "opinion_index": 0, "case_paths": [ "/ill/231/0594-01" ] }, { "cite": "289 Ill. 157", "category": "reporters:state", "reporter": "Ill.", "case_ids": [ 4966678 ], "weight": 2, "opinion_index": 0, "case_paths": [ "/ill/289/0157-01" ] }, { "cite": "325 Ill. 612", "category": "reporters:state", "reporter": "Ill.", "case_ids": [ 5182983 ], "opinion_index": 0, "case_paths": [ "/ill/325/0612-01" ] }, { "cite": "53 Ala. 371", "category": "reporters:state", "reporter": "Ala.", "case_ids": [ 3348231 ], "opinion_index": 0, "case_paths": [ "/ala/53/0371-01" ] }, { "cite": "23 Miss. 88", "category": "reporters:state", "reporter": "Miss.", "case_ids": [ 8834420 ], "opinion_index": 0, "case_paths": [ "/miss/23/0088-01" ] }, { "cite": "8 Ga. 486", "category": "reporters:state", "reporter": "Ga.", "case_ids": [ 1385633 ], "opinion_index": 0, "case_paths": [ "/ga/8/0486-01" ] }, { "cite": "119 Ill. 493", "category": "reporters:state", "reporter": "Ill.", "case_ids": [ 2902887 ], "weight": 2, "opinion_index": 0, "case_paths": [ "/ill/119/0493-01" ] }, { "cite": "71 Ill. 106", "category": "reporters:state", "reporter": "Ill.", "case_ids": [ 5310004 ], "opinion_index": 0, "case_paths": [ "/ill/71/0106-01" ] }, { "cite": "116 Ill. 170", "category": "reporters:state", "reporter": "Ill.", "case_ids": [ 2887237 ], "opinion_index": 0, "case_paths": [ "/ill/116/0170-01" ] }, { "cite": "137 Ill. 509", "category": "reporters:state", "reporter": "Ill.", "case_ids": [ 5439641 ], "opinion_index": 0, "case_paths": [ "/ill/137/0509-01" ] }, { "cite": "381 Ill. 106", "category": "reporters:state", "reporter": "Ill.", "case_ids": [ 2558174 ], "pin_cites": [ { "page": "114" } ], "opinion_index": 0, "case_paths": [ "/ill/381/0106-01" ] } ], "analysis": { "cardinality": 1317, "char_count": 38451, "ocr_confidence": 0.526, "pagerank": { "raw": 2.275313849732329e-07, "percentile": 0.784218500769736 }, "sha256": "4b715964640475cfefcb6b981552575ba8bc6733a17199c47c68c3bde1dfa3c2", "simhash": "1:c029dd7b158efd48", "word_count": 6488 }, "last_updated": "2023-07-14T21:14:26.272017+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [], "parties": [ "E. S. Auer and Charles S. Nelson, Plaintiffs Below. Charles S. Nelson, Appellant, v. Wm. Meyer Company et al., Appellees." ], "opinions": [ { "text": "Mr. Justice Sullivan\ndelivered the opinion of the court.\nThis action was instituted on June 18,1935 by E. S. Auer as plaintiff by filing what is commonly referred to as a minority stockholder\u2019s complaint against the defendants, the Wm. Meyer Company, a corporation, and L. R. Meyer, individually and as executrix of the estate of William Meyer, deceased, Oliver hi or den and Dwight C. Hudson, directors of The Wm. Meyer Company (hereinafter for convenience referred to as the Meyer Co.).\nOn January 3, 1936, Charles S. Nelson was granted leave to join as copl'aintiff and on the same day an amended complaint was filed by Auer and Nelson. Defendants filed their answer on May 11, 1936 and the cause was referred generally to a master in chancery. After the proofs were closed and argument before the master had been concluded defendants filed an amendment to their answer on April 29,1937, in which they alleged among other defenses that plaintiffs were guilty of laches. In his report the master found that plaintiffs were entitled to an accounting but he also found that they were guilty of laches and limited the accounting to the five-year period immediately preceding the filing of the complaint. The master recommended that the proceeding be dismissed as to L. R. Meyer as executrix of the estate of William Meyer, deceased. Plaintiffs\u2019 objections to the master\u2019s report, which were ordered to stand as exceptions, were overruled by the chancellor who entered a decree in conformity with the master\u2019s report. Prom that decree this appeal is taken by plaintiff Nelson. The complaint and the amended complaint were dismissed as to plaintiff Auer by stipulation between his attorney and the attorney for the defendants after the entry of the decree. Defendant Dwight C. Hudson died during the pendency of this proceeding in the trial court and it was stipulated not to make Ms personal representatives parties defendant.\nThe original complaint filed by Auer alleged in substance that he was a minority stockholder of Meyer Co., the defendant corporation; that the individual defendants and William Meyer, during his lifetime, as directors and officers of the Meyer Co., had unlawfully paid bonuses to themselves out of the funds and assets of said corporation; and that the amounts and the dates of payment of such bonuses were unknown to plaintiff and were known only to the defendant corporation and its directors. Discovery and an accounting were prayed for.\nThe amended complaint alleged that \u201con January 1, 1918, all capital stock of the defendant company was held and owned as follows:\nWilliam Meyer..................145 shares\nConrad E. Anderson............ 10 shares\nDefendant, L. R. Meyer.......... 5 shares\nDefendant, Oliver Nor den........10 shares\nPlaintiff, Charles S. Nelson...... 10 shares\nPlaintiff, E. S. Auer............ 10 shares\nDefendant Company (as Treasury\nStock......................... 10 shares\nTotal..........200 shares.\u201d\nIt then alleged that plaintiffs and L. R. Meyer and William Meyer continued to own and hold the aforesaid number of shares of stock in the defendant company until William Meyer\u2019s death; that William Meyer was the husband of defendant L. R. Meyer and died testate on August 6, 1934; that \u201cas executrix and sole beneficiary under the will of William Meyer, L. R. Meyer receives and takes the entire estate of said William Meyer, which includes 145 shares of said capital stock of the defendant company\u201d; and that \u201ccontinuously since the death of William Meyer the ownership and holding of all the capital stock of said company has been and now is as follows:\nDefendant, L. E. Meyer, as said\nexecutrix.....................145 shares\nDefendant, L. E. Meyer, individually ........................ 5 shares\nDefendant, Oliver Nor den........ 10 shares\nPlaintiff, E. S. Auer,........... 10 shares\nPlaintiff, Charles S. Nelson...... 10 shares\nE. F. Teigler.................... 2 shares\nDefendant Company, as Treasury\nstock ........................ 18 shares\nTotal..........200 shares.\u201d\nIt was further alleged that in the process of exploiting the defendant company the stock of William Meyer and Mrs. Meyer had been continuously controlled and voted as a single block; that by such control they had at all times elected themselves and other persons subservient to them as a majority of the Board of Directors and had elected themselves continuously to the offices of President and Treasurer of. the defendant company; that they had conducted the business of said company and diverted its assets to themselves in an arbitrary manner and in disregard of the best interests of the company; that they had caused and permitted no meetings of stockholders or directors to be held and had maintained and kept no minute book available for plaintiffs and other stockholders; that they had accumulated and continued to hold an excessive surplus in the treasury of the defendant company to plaintiffs \u2019 injury; that they had from time to time without consultation with or the knowledge of plaintiffs and without authorization by vote of the stockholders or directors of said company caused to be paid to themselves in excess of $500,000 as bonuses, which payments were without warrant in f\u00e1ct or in law and were wrongful misappropriations; that they had for the purpose of concealing these misappropriations destroyed or refrained from keeping proper books of account and records and had in other ways systematically diverted funds and moneys of the company and had made false entries which an investigation would disclose; and that many of the identical securities wrongfully taken by William Meyer and L. R. M\u00e9yer from the reserve fund in the treasury of the Meyer Co. were retained by said William Meyer up to the time of his death and were thereafter inventoried by L. R. Meyer, his executrix, who still claims them as her property. The amended complaint also sought discovery and an accounting.\nDefendants\u2019 answer specifically denied every charge of wrongdoing made in the amended complaint.\nThe pertinent findings contained in the master\u2019s report and his conclusions of fact and law thereon are as follows:\n\u201cThat during the period beginning with the year 1918 to and including 1934, William Meyer and L. R. Meyer drew large sums in an aggregate amount in excess of $325,000.00 as shown by the federal income tax returns of the company, as follows:\n\u201cThat said federal income tax returns designated the amounts drawn as aforesaid as \u2018Salaries\u2019 paid to William Meyer and L. R. Meyer, whereas these items were recorded upon the hooks of the corporation as items of \u2018Bonus.\u2019 Said amounts paid to L. R. Meyer were for services rendered by and for the use of William Meyer.\n\u201cThat no attempt was made by the officers or directors of the company, or particularly by William Meyer, who was president thereof from the date of the formation of the company to the date of his death, to keep accurate corporate records, or full minutes of said company, other than the appointment of officers and directors of the company from time to time; that no formal resolutions of any kind were drawn or recorded for the payment of said bonuses.\n\u2018 \u2018 The salary fixed in the by-laws of the company for the compensation of William Meyer as president was the sum of $50.00 per week.\n\u2018 \u2018 The Master finds that it is necessary that plaintiffs establish (1) that a fiduciary relationship exists between plaintiffs and the defendants; (2) that an active concealment of essential facts by William Meyer and L. R. Meyer which caused plaintiffs to be lulled into a sense of security so as to prevent them from making inquiry relative to or ascertaining the financial affairs of the company.\n\u201cThe relationship of employer and employee or director and stockholder is not such a fiduciary relationship which, standing alone, will cause a Court of equity to excuse the exercise of reasonable diligence or prevent the defense of laches from being invoked against plaintiffs.\n\u201cDuring the five year period directly preceding June 18, 1935, William Meyer and L. R. Meyer- received in the form of salaries for the years 1930, 1931 and 1934, as shown by the income tax returns, the aggregate sum of $15,645.00, which sum as disclosed by the records of the company was considered as \u2018bonus\u2019 payments; since said sum can only be considered as salary due William Meyer to the extent of $50.00 per week, the excess thereof must be considered as being applicable to bonuses due William Meyer; the basis for computing the amount of bonus to be received by William Meyer was arbitrarily arrived at by William Meyer and fixed without authorization by the directors of the company.\n\u201cPlaintiffs are guilty of laches in the assertion of their rights; that in view of the findings heretofore made which are the basis for the Master\u2019s conclusion of law that plaintiffs are guilty of laches, and particularly the finding that this proceeding must be considered in effect to be the action of the corporation, a Court of equity must follow the law and the Statute of Limitation of five years from July 18, 1935, should be invoked against the plaintiffs.\n\u201cSubsequent to the filing of the complaint, the defendant Dwight C. Hudson died and the plaintiffs stipulated not to make his personal representatives parties defendant; that the testimony submitted with respect to the liability of L. R Meyer as executrix under the will of William Meyer, deceased, after excluding testimony inadmissible by reason of statutory restrictions, is insufficient to sustain plaintiffs\u2019 complaint against said estate. The Master finds and recommends that this proceeding.be dismissed as to Dwight C. Hudson and L. R. Meyer as executrix under the will of William Meyer, deceased.\n\u2018 \u00cd The remaining defendants should be required to account for any and all items of bonus payments; that in addition thereto the plaintiffs are entitled to a full and complete accounting, said accounting to be limited to the period subsequent to the period June 18,1930.\n\u2018 \u2018 In conclusion the Master recommends that a decree for an accounting be entered in accordance with the findings and conclusions herein contained and that the costs assessed herein be taxed against the Wm. Meyer Company. \u2019 \u2019\nFor a proper understanding and consideration of the questions presented for determination a rather complete statement of facts is necessary.\nThe Meyer Co. was organized July 6, 1906 with a capital stock of $15,000 divided into 150 shares of $100 each. In the spring of 1913 the company merged with a firm consisting of Norden, Anderson and plaintiff Nelson, who were then conducting a similar business. Shortly thereafter the business of the company began to increase rapidly. At the time of the merger the Meyer Co. increased its capital stock to $20,000, divided into 200 shares, and issued to Nelson, Norden and Anderson 10 shares each. The capital stock was then held as follows: Nelson, Norden and Anderson 10 shares each, William Meyer 145 shares, Mrs. Meyer 5 shares, with 20 shares in the treasury. On December 4,1916, Auer acquired 10 of the treasury shares. On November 11, 1921, Anderson surrendered his 10 shares to the treasury. The defendant Hudson never owned any stock.\nThe Board of Directors consisted of three members. William Meyer and Mrs. Meyer were elected directors at the first meeting of the stockholders on July 6,1906. They continued as directors by virtue of this election in 1906 until re-elected on January 3, 1922. Without further election they continued as directors until William Meyer\u2019s death. In the beginning, one Fahrney was elected the third director. He was succeeded by Anderson in 1913 and on November 11, 1921 Anderson was succeeded by Tiegler, who served until August 24, 1934, when he and William Meyer were succeeded by Hudson and Norden.\nAt the first meeting of the Board of Directors on July 7, 1906, William Meyer was elected president and Mrs. Meyer treasurer. By virtue of this 1906 election William Meyer and Mrs. Meyer held their respective offices until re-elected thereto on January 3, 1922 \u2014 the ' same day on which they were re-elected directors. No other election of either president or treasurer was held until after the death of William Meyer in 1934. Plaintiff Nelson was neither an officer nor a director of the company at any time. A complete examination of the books and records of the company has not as yet been made, but Claude Wells, an accountant employed by plaintiffs, testified that from a 'spot audit of such books and records of the Meyer Co. as were made available to him, he found sums withdrawn from the Meyer Co. by William Meyer and Mrs. Meyer and credits given them in addition to their regular montMy salaries as shown in the following tabulation:\nA recapitulation of the foregoing tabulation shows:\nThe records of the company show no resolution or other authorization for the payment of bonuses to either William Meyer or Mrs. Meyer.\nThe ledger of the company does not disclose the payment of royalties to William Meyer. In two or three instances over items shown on the \u201cGeneral Bonus Account\u201d as bonuses paid to William Meyer, at some unknown time some unidentified person wrote in pencil the word \u201croyalties.\u201d Royalty payments as such are found, and found only, in the company\u2019s income tax returns. In January 1936, before the case was referred to the master, plaintiffs took depositions before a commissioner. Mrs. Meyer testified before such commissioner that no royalties were paid by the company to William Meyer or to anyone else up to 1922 and that she had no recollection of any such payments having been made after 1922. The records of the company showed no resolution or other authorization for the payment of royalties at any time. In the minute book, but as no part of the record of any meeting, appears the following in the handwriting of William Meyer which is signed by him:\n\u201cI hereby authorize the Wm. Meyer Co. to manufacture and sell until further notice apparatus and equipment under such U. S. and foreign patents issued or to be issued to me, the compensation to me for the use of such patents to be determined by me.\nWm. Meyer\nJune 19, 1925\u201d\nNeither the minute book nor any other record of the company shows that the payment of royalties to William Meyer was authorized by the directors by resolution or otherwise at any time. There was no contract between the company and William Meyer to pay him royalties. Certain royalty credits appear on the company\u2019s journal for the year 1922 and for the three years prior thereto but no entry concerning royalties appears in such journal for any year subsequent to 1922.\nDefendants offered in evidence 40 letters patent all or most of which covered apparatus and devices manufactured by the Meyer Co. According to the undisputed evidence the inventions for which these patents issued were in most instances designed and developed not only by William Meyer but by the joint efforts of Meyer and the employees of the Meyer Co. in an experimental shop maintained and manned by said company at its own expense. They were frequently inspired by the devices of the company\u2019s competitors or by suggestions of customers of the Meyer Co. Only 6 of the 40 patents were issued prior to the purported royalty credit of $20,968 to William Meyer in 1919. It does not appear what particular royalties, if any, were attempted to be charged against the company.\nThe following exhibit was received in evidence:\n\u201cStatement of Compensation of Wm. Meter and L. R. Meter and of Rotaltt Expense.\nFor the Years 1918-1934 both inclusive, as Disclosed by the Federal Income Tax Returns of Wm. Meyer Co. or by Revenue Agent\u2019s Report Thereon.\nThe records of the Meyer Co. show that, except for the years 1915 and 1916, it paid no dividends since 1913. Mrs. Meyer testified that no dividend had been paid \u201cfor 20 years or so.\u201d\nThe evidence discloses that $194,961 of the bonus payments to William Meyer were made by assignment to him of stocks and other securities belonging to the reserve fund of the Meyer Co. and that $60,000 of such securities were still in the hands of Mrs. Meyer as the sole beneficiary of her husband\u2019s estate.\nMrs. Meyer, in addition to'being a director and treasurer of the Meyer Co., was employed by said company in its office until about 1922 or 1923. Her salary never exceeded $25 a week and William Meyer\u2019s authorized salary as president was $50 a week.\nAll the withdrawals made by William Meyer and Mrs. Meyer from the Meyer Co. in 1918 and up to the time of Meyer\u2019s death in 1934, under the guise of bonus payments, were received by them without authorization of -the board of directors of said company and the funds and securities so withdrawn were misappropriated in exactly the same manner as were the bonus payments received by them during the five years immediately preceding the filing of the complaint herein. In his report the master made no mention of payments purportedly received by William Meyer as royalties from the Meyer Co. Such payments, if any, as were received by William Meyer under the guise of royalties are in the same category as the- bonus payments and constitute misappropriations, because the records of the Meyer Co. disclose that the directors of said company never authorized the payment of any royalties to William Meyer.\nInasmuch as the master and the chancellor both found that William Meyer and Mrs. Meyer were guilty of misappropriating the payments received by them by way of bonuses, \u201cbeginning with the year 1918 to, and including 1934,\u201d the principal question presented for our determination is whether the chancellor erred in confirming by his decree the further finding of the master that plaintiff was guilty of laches and that therefore the accounting should be restricted to the period of five years immediately preceding the filing of the complaint.\nIt should be noted that the master also found that the Meyer Co. was conducted by .Wm. Meyer as a \u201cone-man corporation\u201d and was controlled by him and his wife and that the amounts of the bonus payments re-, ceived by them were \u201carbitrarily arrived at by Wm. Meyer and fixed without authorization by the directors of the company. \u2019 \u2019 It should also be noted that defendants filed no objections to the master\u2019s report and are therefore bound by the findings contained therein.\nWe will now consider the findings of the master upon which he predicated his conclusion that plaintiff was guilty of laches. His report found that \u201cit is necessary that said plaintiffs establish (1) that a fiduciary relationship exists between plaintiffs and the defendants ; (2) that an active concealment of essential facts by William Meyer and L. R. Meyer which caused plaintiffs to be lulled into a sense of security so as to prevent them from making inquiry relative to or ascertaining the financial affairs of the company\u201d; and that \u201cthe relationship of . . . director and stockholder is not snch a fiduciary relationship, which, standing alone, will cause a court of equity to excuse the exercise of reasonable diligence or prevent the defense of laches from being invoked against plaintiffs. \u2019 \u2019\nAlthough the master found that the charges of fraud \u201cset forth in the complaint and amended complaint filed herein by the plaintiff have not been sustained,\u201d in our opinion such finding was against the manifest weight of the evidence. As already shown, the master himself found that the bonus payments received by the Meyers were in effect misappropriations and not only the documentary proof but the facts and circumstances in evidence show conclusively that the misappropriations were fraudulently made. Since the Meyers occupied the fiduciary relation of trustees and dealt with the subject matter of the trust relationship in such a manner as to gain advantage to themselves, they must be deemed to be guilty of actual fraud. (Doner v. Phoenix Joint Stock Land Bank, 381 Ill. 106, 114.)\nWas the relationship between the Meyers as directors of the Meyer Co. and the plaintiff stockholder such a fiduciary relationship as excused Nelson from the exercise of reasonable diligence to discover the fraudulent misappropriations on the part of the Meyers ? In Ellis v. Ward, 137 Ill. 509, in discussing the nature of the relationship between the directors of a corporation and the corporation and the stockholders thereof and in holding that all of the elements of an express trust exist in such relationship and that no mere lapse of time can bar the recovery of funds of a corporation misappropriated by its directors, the court said at pp. 520, 521:\n\u201cIt is a principle of general application, and recognized by this court, that the assets of a corporation are, in equity, a trust fund, (St. Louis and Sandoval Coal and Mining Co. v. Sandoval Coal and Mining Co., 116 Ill. 170,) and that the directors of a corporation are trustees, and have no power or right to use or appropriate the funds of the corporation, their cestui que trust, to themselves, or to waste, destroy, give away or misapply them. (Holder v. LaFayette, Bloomington and Mississippi Ry. Co., 71 Ill. 106; Cheeney v. LaFayette, Bloomington and Mississippi Ry. Co., 68 id. 570; 1 Morawetz on Private Corp. secs. 516, 517.) And it is equally well settled, that no lapse of time is a bar to a direct or express trust, as between the trustee and cestui que trust. (Chicago and Eastern Illinois Railroad Co. v. Hay, 119 Ill. 493; Wood on Limitation of Actions, sec. 200, and cases cited in note.) If the trust assumed by the directors of a corporation in respect of the corporate property under their control is to be regarded as a direct trust, as contradistinguished from simply an implied trust, then it is apparent, under the rule announced, the statute presents no bar to this proceeding by the receiver of the corporation. Ordinarily, an express trust is created by a deed or will; but there are many fiduciary relations established by law, and regulated by settled legal rules and principles, where all the elements of an express trust exist and to which the same legal principles are applicable, \u2014 and such appears to be the relation established by law between directors and the corporation. 2 Pomeroy\u2019s Eq. sec. 6; id. secs. 1088-1090, 1094 And see, also as respects stockholders, Hightower v. Thornton, 8 Ga. 486; Payne v. Bullard, 23 Miss. 88; Curry v. Woodward, 53 Ala. 371. The Statute of Limitations therefore presented no bar to a recovery by the receiver.\u201d (To the same effect are Dixmoor Golf Club, Inc. v. Evans, 325 Ill. 612; Farwell v. Pyle-National Elec. Headlight Co., 289 Ill. 157; Klein v. Independent Brewing Ass\u2019n, 231 Ill. 594.)\nIn so far as we have been able to ascertain, the principles of law enunciated in the Ellis case have never been overruled or modified. Defendants cite Becker v. Billings, 304 Ill. 190 and Foss v. People\u2019s Gas Light & Coke Co., 241 Ill. 238, as being in conflict with the broad principles applicable to directors in their trust capacity as announced in the Ellis case. It would serve no useful purpose to discuss the Becker and Foss cases since the facts are not comparable in either of them with the facts here and entirely different questions of law were presented in those cases.\nIn view of his express findings that the Meyer Co. was conducted as a \u201cone-man corporation,\u201d that the one man was William Meyer and that no one \u201cat any time doubted the integrity of William Meyer,\u201d the master might well have found that there was a trust relationship between William Meyer and plaintiff Nelson, independent of that arising out of the corporate directorship. In Lipscomb v. Allen, 298 Ill. 537, the court said at pp. 544, 54.5:\n\u2018 \u2018 \u2018 The term fiduciary or confidential relation, as used in this connection, is a very broad one. It has been said that it exists, and that relief is granted, in all cases in which influence has been acquired and abused, \u2014in which confidence has been reposed and betrayed. The origin of the confidence and the source of the influence are immaterial. The rule embraces both technical fiduciary relations and those informal relations which exist whenever one man trusts in and relies upon another. The only question is, does such a relation in fact exist?\u2019 (Mayrand v. Mayrand, 194 Ill. 45.) \u2018It is settled by the overwhelming weight of authority that the principle extends to every possible case in which a fiduciary relation exists as a fact, in which there is confidence reposed on one side and the resulting superiority and influence on the other. The relation and the duties involved in it need not be legal. It may be moral, social, domestic or merely personal.\u2019 (2 Pomeroy\u2019s Eq. Jur. \u2014 3d ed. \u2014 sec. 956.) \u201d\nIt is the established law of this State that the failure to use diligence is excused where there is a relationship of trust and confidence which renders it the duty of the party committing the fraud to disclose the truth to the other. It was stipulated before the master that plaintiff Nelson had no knowledge of the bonus or royalty payments received by the Meyers until shortly before he became a coplaintiff in this proceeding. In Farwell v. Great Western Tel. Co., 161 Ill. 522, wherein a bill in equity was also filed by minority stoclcholders, the language of the court is peculiarly applicable to the situation presented here. There it was said at pp. 567, 595 and 596:\n\u201cNo attempt was'made by the defendants to show knowledge on the part of the complainants or the company of the June 18 contract. The whole theory of the defense was confined to a denial.\n\" . . .\n\u201cNor can laches be imputed to these complainants who had no knowledge of the June 18 contract until about one month prior to the time of filing their bill in this cause. It was of such a character that the parties to it would be induced to conceal it on every principle of self-interest and care for their reputation for honesty; and the strenuous efforts of counsel for complainants in this cause to produce the original or to account for it, their final resort to a copy, and the laborious attempts of the parties to that contract to exclude the copy, are evidence of the difficulty with which these complainants were confronted in obtaining knowledge thereof. Neither is there evidence in this record of any facts known to complainants which would put them on inquiry. In Michoud v. Girod, 4 How. 503, it is said: 1 In general, lapse of time is no bar to a trust clearly established to have once existed, and where fraud is imputed and proved, length of time ought not to exclude relief. . . . Within what time a constructive trust will be barred must depend on the circumstances of the case. There is no rule which excludes the consideration of circumstances, and in a case of actual fraud we believe no case can be found in the books in which a court of equity has refused to give relief within the lifetime of either of the parties upon whom the fraud is proved, or within thirty years after it has been discovered, or becomes known to the party whose rights are affected by it.\u2019\n\" . . .\n\u201cWith reference to whether a cause of action is barred in equity the rule may be stated, that where a cause of action arises from a fraud, the Statute of Limitations will not begin to run nor laches apply until the discovery of the fraud, or from the time when the fraud could have been discovered by the exercise of reasonable diligence; but in the latter case the failure to use diligence is excused where there is a relation of trust and confidence, rendering it the duty of the party committing the fraud to disclose the truth to the other. Caswell v. Caswell, 120 Ill. 377; Sloan v. Sloan, 102 id. 581; Jones v. Lloyd, 117 id. 597; Harris v. McIntyre, 118 id. 275; Vigus v. O\u2019Bannon, id. 334; Reynolds v. Sumner, 126 id. 58; Whitlock v. McClusky, 91 id. 582; Prevost v. Gratz, 6 Wheat. 481; Gillett v. Wiley, 126 Ill. 310.\u201d (Italics ours.)\n(To the same effect are Klein v. Independent Brewing Ass\u2019n, 231 Ill. 594; Farwell v. Pyle-National Elec. Headlight Co., 289 Ill. 157; Voorhees v. Campbell, 275 Ill. 292 and Peim v. Fogler, 182 Ill. 76.)\nBeing an affirmative defense, the burden of proving laches was upon defendants and not upon plaintiff, as assumed by the master. Therefore the finding of the master that the burden was upon plaintiff to establish that there was \u201can active concealment of essential facts by William Meyer and L. R. Meyer which caused plaintiffs to be lulled into a sense of security so as to prevent them from making inquiry relative to or ascertaining the financial affairs of the company\u201d was contrary to law. So also was the finding of the master that11 the relationship of . . . director and stockholder is not such a fiduciary relationship which, standing alone, will cause a court of equity to excuse the exercise of reasonable diligence or prevent the defense of laches from being invoked against plaintiffs.\u201d It clearly appears from the applicable principles announced in the foregoing decisions that the finding of the master and the chancellor that plaintiff was guilty of laches was contrary to the established law of this State.\nWhile it is true that the Meyers between them owned 15/18ths of the stock of the Meyer Co. and might have honestly taken openly by way of dividends properly declared the major portion of the funds which they took secretly, the fact still remains that they misappropriated the funds of the company by paying to themselves the unauthorized bonuses and royalties. The conclusion is inevitable that they preferred to misappropriate the funds of the company rather than pay dividends to the minority stockholders.\nThere is no evidence in the record to support the finding of the master that the amounts received by Mrs. Meyer by way of bonuses were \u201cfor services rendered by and for the use of William Meyer.\u201d If it were true that her services, if any, were so rendered, it is difficult to understand why in filing the income tax returns of the Meyer Co. the bonus payments received by her were, conveniently or otherwise, credited to her own use.\nDefendants \u2019 counsel sought to justify the bonus payments received by the Meyers by showing that plaintiff Nelson and other employees of the Meyer Co. also received bonus payments. The bonus payments received by said employees were not at all comparable with the bonus payments received by the Meyers. As the master found in respect to the bonus payments made to the employees, \u201cthe company pursued a policy of compensating its employees for services rendered by the payment of a salary smaller than the usual compensation paid employees for similar services and by the payment of a bonus to each employee, determined solely by William Meyer arid based generally upon the amount of business of the company during the preceding year.\u201d The bonuses paid by the Meyers to themselves bore no relation to their fixed salaries or to either the net profits or the gross receipts of the company. According to the income tax returns, Mrs. Meyer received her largest so-called bonus of $30,000 in 1928, when she wasn\u2019t even in the employ or on the payroll of the Meyer Co. It appeared that during its more prosperous years the company accumulated a large surplus and it also appeared from its records that in 1928, when it suffered a net loss of $3,002.38, Meyer received a bonus of more than $68,000 and that in 1926, when the net income of the company was only $657.33, he received a bonus of $62,928.25.\nIn regard to the findings of the master that there was no evidence of active concealment on the part of the Meyers and that plaintiffs could have informed themselves at any time of the bonus payments to the Meyers, it should be stated that if the conduct of Mrs. Meyer since the institution of this proceeding is any criterion as to what the attitude of the Meyers would have been as to the concealment by them of the bonus payments, it is fair to assume that they would have concealed such payments in so far as they were able.\nIt is impossible within the confines of this opinion to set forth in detail the numerous instances that evidenced the studied effort on the part of Mrs. Meyer to conceal and withhold the truth as to the bonus payments received by her and the bonus and royalty payments received by William Meyer but the record is replete with such instances. One instance is typical. In the summer of 1935, before Nelson became a co-plaintiff and before the amended complaint was filed, defendants\u2019 attorney granted permission to Auer\u2019s auditor to examine the books and records of the Meyer Co. During the course of his examination the auditor discovered that the accounts of William Meyer and of Mrs. Meyer and the bonus account were missing from the looseleaf general ledger. The minute book of the corporation covering the period in question was also missing. Questioned about the missing ledger sheets containing said accounts and the minute book, Mrs. Meyer and the bookkeeper professed ignorance as to the wherabouts of same, and Mrs. Meyer refused to produce them. In 1937 at the master\u2019s hearing Mrs. Meyer reluctantly admitted, when forced to do so, that the missing ledger accounts and minute book were in her attorney\u2019s office and had been there for a year or two. After the master had signed a certificate for presentation to the chancellor that the missing accounts and minute book were essential to the hearing then in progress before him, they were finally produced.\nThe defense of this case can only be properly characterized as shifty. Mrs. Meyer\u2019s testimony is a maze of contradictions and evasions and contains within itself its own impeachment. Every possible effort was made by her and her attorney to impede the discovery of the truth as to the bonus and royalty payments and, as has been seen, the most essential records of the company showing such payments were removed from its office and suppressed and concealed until she was finally forced to produce them.\nIn Lockwood v. Rose, 125 Ind. 588, preliminary to trial and in preparation therefor, depositions were taken under a statute similar to our own. In this preliminary proceeding appellant refused to produce to be read in evidence an important letter \u201cuntil he was compelled to do so by order of the court.\u201d It was argued that \u201cno inference can be drawn against a party for not voluntarily producing papers where the code provides a means for securing their production, and that parties may stand upon their legal rights without any imputation of bad faith on that account. \u2019 \u2019 There the court said at pp. 594, 595:\n\u201cIt is often important to know whether a party to a suit is or is not willing that all the facts shall be known to the court or jury, or whether he has or has not suppressed or attempted to suppress important evidence in the cause. The fact that the code provides a means for compelling an unwilling party to furnish evidence under his control does not, in our opinion, affect the question of the inferences to be drawn from an attempt or refusal on his part to furnish the facilities at his command, for a fair and full investigation of the facts in the case.\u201d\nThe master recommended that \u201cthe costs assessed herein be taxed against the Wm. Meyer Company.\u201d In this connection it should be stated that Oliver Nor den did not become a director of the company until after William Meyer\u2019s death and it appears that he is merely a nominal defendant. That the costs should have been assessed against defendant Mrs. L. it. Meyer, individually, and not against the Meyer Co. is self evident, and the mere statement of this proposition is sufficient without further comment. The master and the chancellor found that \u201cthe testimony submitted with respect to the liability of L. R. Meyer as executrix under the will of William Meyer, deceased, after excluding testimony inadmissible by reason of statutory restrictions, is insufficient to sustain plaintiffs\u2019 complaint against said estate.\u201d In our opinion this finding is against the manifest weight of the evidence. There were no statutory restrictions against the testimony of the accountant, Claude Wells. His testimony and the documentary evidence in the record show clearly and conclusively that William Meyer was guilty of misappropriating funds of the Meyer Co. and his estate should be required to account for the funds so misappropriated by him.\nOther points have been urged and considered but in the view we take of this case we deem it unnecessary to discuss them.\nFor the -reasons stated herein the decree of the circuit court is reversed in so far as it restricted the accounting to the five year period immediately preceding the filing of the complaint, assessed the costs against the Wm. Meyer Company and dismissed this proceeding as to L. R. Meyer, as executrix under.the will of William Meyer, deceased, and the cause is remanded with directions that there be included in the decree an order that the Wm. Meyer Company, L. R. Meyer, individually, L. R. Meyer as executrix under the will of William Meyer, deceased, and Oliver Nor den fully and completely account to plaintiff, Charles S. Nelson, for all bonuses received by L. R. Meyer and all bonuses and royalties received by William Meyer during the period from and including 1918 to and including 1934, that the costs be taxed against L. R. Meyer, individually, that the decree include a provision that plaintiff, Charles S. Nelson, be reimbursed out of the fund recovered for the Wm. Meyer Company for the reasonable costs and expenses incurred by him or for which he became obligated in the prosecution of this suit and that the reference to take the accounting include a direction to the master for, a hearing on the issue of plaintiff\u2019s reasonable expenditures in connection with this proceeding in his effort to create the aforesaid fund for the Wm. Meyer Company.\nDecree reversed in part and cause remanded with directions.\nFriend, P. J., and Scanlan, J., concur.", "type": "majority", "author": "Mr. Justice Sullivan" } ], "attorneys": [ "Whitman, Holton & Tews, of Chicago, for appellant.", "Gustav E. Beerly, of Chicago, for appellees; John F. Difeenderffer, Jr. and Maurice J. Costello, both of Chicago, of counsel." ], "corrections": "", "head_matter": "E. S. Auer and Charles S. Nelson, Plaintiffs Below. Charles S. Nelson, Appellant, v. Wm. Meyer Company et al., Appellees.\nGen. No. 41,796.\nHeard in the second division of this court for the first district at the June term, 1941.\nOpinion filed March 8, 1944.\nRehearing denied March 24, 1944.\nWhitman, Holton & Tews, of Chicago, for appellant.\nGustav E. Beerly, of Chicago, for appellees; John F. Difeenderffer, Jr. and Maurice J. Costello, both of Chicago, of counsel." }, "file_name": "0244-01", "first_page_order": 264, "last_page_order": 289 }