Green River Manufacturing Co. v. Bell

Brogden, J. The question of law is this: Are the deeds, lease and option executed to the defendant void or voidable at the election of the company without reference to the adequacy of the consideration or the absence of fraud? The plaintiff contends that the conveyances referred to, the lease and the option are void by reason of the fact that the deeds were executed in the name of the plaintiff by J. O. Bell, vice-president of the plaintiff company, to E. D. Bell, secretary of plaintiff company, and that by virtue of this fiduciary relationship the attempted conveyances are void. The effect of conveyances or leases made by a corporation to one of its officers or directors is thus expressed in Hospital Co. v. Nicholson, 189 N. C., p. 44: “When an officer or director of a corporation purchases or leases its property, the transaction is voidable, not void, and will be sustained only when openly and fairly made for an adequate consideration. The presumption is against the validity of such contract, *371 and when it is attacked the purchaser or lessee must show that it is fair and free from oppression, imposition and actual or constructive fraud. Eirmly established in our jurisprudence is the doctrine that a person occupying a place of trust should not put himself in a position in which self-interest conflicts with any duty he owes to those for whom he acts; and as a general rule he will not be permitted to make a profit by purchasing or leasing the property of those toward whom he occupies a fiduciary relation without affirmatively showing full disclosure and fair dealing. Upon this principle it is held that a director who exercises a controlling influence over codirectors cannot defend a purchase by him of corporate property on the grounds that his action was approved by them.” McIver v. Hardware Co., 144 N. C., 478; Crockett v. Bray, 151 N. C., 615; Pender v. Speight, 159 N. C., 612; Wall v. Rothrock, 171 N. C., 388; Caldwell v. Robinson, 179 N. C., 518. The controlling principles of law 'with respect to validity of deeds made by a corporation to its officers or directors may be summarized as follows: 1. The conveyance of the property must be authorized by the corporation or ratified by it. 2. The law presumes that such conveyances are invalid and imposes upon the purchaser the burden of establishing that the purchase is fair, open and free from imposition, undue advantage, actual or constructive fraud. 3. Such conveyances will not be declared void as a matter of law, but it is a question for the jury to determine upon all the evidence as to whether the vitiating elements enter into the particular transaction. In this case it appears that a resolution was adopted prior to the execution of said conveyances, authorizing the vice-president to make a sale of the land in accordance with his best judgment. “The courts of this country have generally adopted the common-law principle that if an act is to be done by an incorporated body, the law, resolution, or ordinance authorizing it to be done is valid if passed by a majority of those present at a regular meeting.” Cotton Mills v. Comrs., 108 N. C., 678; Everett v. Staton, 192 N. C., 216; Respess v. Spinning Co., 191 N. C., 809. The record in this case discloses that the resolution authorizing the sales was adopted by a majority of those present at a legal meeting. There was evidence tending to show that a resolution had been adopted in 1922 ratifying the sales, and that this resolution had been lost. Thereupon the witness was shown a resolution purporting to be adopted on 16 September, 1922, which was not offered in evidence. Referring to this resolution the witness testified that no reference was made to the price at which the lots were sold or to the prospective purchaser, but *372 that the resolution was not complete because it was “just a sketch of the minutes.” Thereupon the witness was permitted to testify as to conversations with the other officers who approved the sales, though not in a corporate meeting. This evidence was admitted for the purpose of showing good faith only. At this point the trial judge intimated, “it was a question of law as to whether or not the plaintiff was entitled to elect to void the transactions represented by the deeds referred to'in the pleadings and evidence, irrespective as to whether the property brought a fair price and the transactions were made open and in good faith.” Thereupon the court held that as a matter of law plaintiff was entitled to judgment. In this ruling of the court there was error, which must necessitate a new trial. If the corporate minutes referred to did not show all the transactions that took place at the corporate meeting, or if they were not complete in this particular, as testified to by the witness, then the omission could be supplied by parol testimony. This principle of law was thus declared in Motor Co. v. Scotton, 190 N. C., 194: “The general rule is that the recorded minutes of a corporation are presumed to cover the entire subject-matter or transaction and constitute the best evidence. But if the entire transaction is not recorded or the record is incomplete and fragmentary the presumption is not conclusive and parol evidence may be introduced to show what in fact was done. The incomplete records of private corporations are generally open to explanation by parol evidence.” Bailey v. Hassell, 184 N. C., 458; Everett v. Staton, 192 N. C., 216. Under the principles of law pertinent to such transactions it was a question for the jury as to whether or not the conveyances were properly authorized by the corporation and made in good faith for a fair consideration and free from the taint of imposition, undue advantage or fraud. Beyersed.