S.M. Anderson, Sr., as president and general manager was without authority under the by-laws of respondent corporation to fix or increase his son's salary, or to pay him a bonus out of the funds of the corporation. Section 2 of Art. V of respondent corporation's by-laws provides that no officer of the company shall receive any compensation for his services except the same be fixed by the board of trustees. The so-called salary increase of S.M. Anderson, Jr., was not fixed by the board of trustees nor was it ever mentioned at a meeting of the board. Both appellants admitted that two of the trustees, A.W. Middleton and Alex Polson, did not have any knowledge of the increase.
S.M. Anderson, Sr., president of respondent corporation,sanctioned the increase after talking it over with his two brothers, one of whom was "doing the same thing to Anderson Middleton," but this sanction of the "salary increase" was never mentioned to the other trustees. It is clear that this additional salary arrangement was fraudulent and that it was intended throughout to conceal the transaction. This additional salary arrangement was not made known to all of the trustees and brought before a board meeting and authorized by the board as required by the corporation's by-laws.
The bonus received by S.M. Anderson, Jr., for his services as manager in 1938 was authorized by the board of trustees, as disclosed by the minutes of the trustees' meeting for January 19, 1938. If the "salary increase" of which respondent complains had not been intended as a secret profit and a fraud, the transaction would have been authorized by the board of trustees and the record of authorization would appear in the minutes of the trustees' meeting. If it had not been intended to keep this matter secret the question immediately *Page 213 suggests itself to a normal mind, why was the only evidence of the sale price of the wood (letter from Mr. Anderson to the fuel company) absent from the office of respondent corporation when the audit was made in October, 1938? The explanation of the absence of that letter from the office for eighteen months is one that would not be accepted by a reasonable mind; it is a patent fabrication which only the most credulous would accept as true.
The majority opinion disregards the long established rule that a corporate officer will be held to a strict accountability for any individual secret profit made by him in dealing with assets of the corporation. A cardinal rule that should be ever present in the mind of a corporate officer is, "Thou shalt not make a personal profit out of your office." In the case at bar, the corporate officer made a contract on behalf of the corporation for the sale of corporate property. A part of the proceeds of the contract was retained by that corporate officer for his own use. This was done not only without authorization from the governing body of the corporation but was done with the sanction of the president-manager, who is the father of the officer making the secret profit.
There was — the evidence abundantly establishes the fact — a fraudulent misrepresentation of what the contract price for the sale of the corporation's wood fuel was to be and a fraudulent concealment, retention, and conversion of part of that sale price. The trial court's finding of fraud is sustained by competent evidence, and that finding, under the rule which we have so frequently announced, will not be disturbed unless we can say from our examination of the record that it is clearly against the preponderance of the evidence.
It will be noted, in the majority opinion, resort is had to apresumption "that the trustees of a corporation *Page 214 know of the corporate acts," which presumption, when considered with the facts in the case, compels the conclusion that the corporation had knowledge of the transaction in question during the time S.M. Anderson, Jr., was receiving the money, therefore "the statute of limitations has long since run against this claim."
The trial court found that respondent corporation did not learn that S.M. Anderson, Jr., had received payments individually from Grays Harbor Fuel Company until the fall of 1938. Counsel for appellants contend that there is no evidence to sustain that finding; that respondent proved no more than the date that F.A. Polson discovered the evidence of the acts of appellants; and that, in the light of the testimony of appellants, all of the trustees of respondent corporation at the time of the questioned acts knew of those acts.
True, S.M. Anderson, Jr., testified at the trial that he had discussed with his two uncles, who were trustees, the fact that he was receiving individually part of the profits of the Grays Harbor Fuel contract. S.M. Anderson, Sr., testified that the matter had been fully and completely discussed at trustees' meetings when all the trustees were present. S.M. Anderson, Sr., testified positively that he had discussed these payments with Alex Polson and A.W. Middleton. It must be borne in mind that this is not all of the testimony. S.M. Anderson, Sr., testified, when his deposition was taken, that the payments to his son were not discussed at the board meetings and that he did not talk to anyone about them except his two brothers, who already were aware of the facts because one of the brothers was doing the same thing to Anderson Middleton. The testimony of this gentleman at the time his deposition was taken was in conflict with the testimony he gave at the trial, but his deposition was *Page 215 taken at a time when A.W. Middleton and Alex Polson were living. Mr. Middleton and Mr. Polson were dead at the time of the trial.
It is unnecessary to cite sustaining authority for the rule that the guilty knowledge of S.M. Anderson, Sr., the father, and S.M. Anderson, Jr., the son, was not imputable to the corporation. Mr. Polson and Mr. Middleton did not know that appellants were defrauding respondent corporation, and there was nothing to put them on notice that the Andersons were defrauding respondent; hence, authorities cited by majority are inapposite. The trial court had the benefit of seeing and hearing the witnesses. The trial court found that, of the board of trustees, A.W. Middleton, Alex Polson, and H.N. Anderson never, at any time, had any knowledge of the course of conduct of S.M. Anderson, Sr., and S.M. Anderson, Jr., who were father and son, co-conspirators; and that the acts of appellants were not discovered by respondent corporation until the fall of 1938. This finding must stand unless we are ready to discard the rule that a finding of the trial court will not be disturbed unless it is clearly against the preponderance of the evidence.
There is no place, in this case, for the presumption that the trustees of respondent corporation knew of the fraudulent acts of the Andersons — father and son — prior to 1938 in view of the overwhelming evidence that the fraud was committed by the Andersons who saw to it that nothing came to the attention of the trustees before 1938 to put them on notice. The finding of the trial court is sustained by the admissions of appellants. I find no authority which will support reversal of the judgment in this case.
The judgment should be affirmed. *Page 216