Sumner Coal Mining Co. v. Pleasant

Opinion -by STEPHENSON, C. O. E. Sumner and members of his family, who owned the majority stock in the Sumner Coal Mining Company, in October, 1922, sold the same to Lot Ravencraft. The purchaser executed. a series of notes in payment for the- stock, and pledged the stock as collateral security. The purchaser' also pledged other collateral for' the- payment of the indebtedness. "It later developed"-‘thát the notes and mortgages pledged to secure the páyment for the stock'were without value, and certain l’tigation occurred between'the Sumners and Ravencraft, hut this is not material in this case...... . - The proceedings of a ' directors’ meeting disclos.e that Carl Pleasant and O. E. Griggs were- elected, as members of the hoard of *175 directors at a meeting held November 3, 1922. The proceedings further show that a lease of the coal mining property and of the mine was made by the corporation to Lot Ravencraft for a period of live years, for a royalty of 50 cents per ton tor coal mined. The proceedings show on their face that Oarl Pleasant, although elected at the meeting as a member of the board of directors, was not present. The.records of the corporation disclose that the board of directors held a meeting on November 27th, at Which time the plaintiff was present and certain proceedings of November 3rd were referred to by the record. It appears that soon, after Carl Pleasant was elected to membership on the board of directors, and soon after the execution of the lease in question, and while the property was in the possession of Lot Raven-craft and being operated by him, he advanced various sums of money for the payment of laborers engaged in mining the coal. Other sums of money were advanced by the plaintiff in connection with the mining operations. On December 19, 1922, the Sumner Coal Mining Company, by its president. Lot Raven-craft, and its secretary, executed a note in the name of the corporation, payable to Oarl Pleasant, to secure the payment of the sums of money so advanced in the total sum of about $5,000. As a part of the same transaction the officers executed and delivered a mortgage in the name of the corporation, on its property, to secure the payee of the note. Default was made in the payment of the note, and the plaintiff commenced his action against the Sumner Coal Mining Company for a judgment on the note, and to foreclose the mortgage. The defendant coal company answered that the note and mortgage were exeuted and delivered by its officers without consideration, and' that the corporation received no benefits from the sums of money advanced by Carl Pleasant. The plaintiff replied that he had no knowledge of the execution and delivery of the lease, and of the matters pleaded by the defendant as a defense to recovery. The defendant offered in evidence the proceedings of the meeting of the board of directors, to which reference has been made. Also a copy of the lease was put in evidence. The evidence discloses that all property of the corporation was leased to Lot Ravencraft, and that he was in possession of the same at the time the sums of money were advanced to him by Carl Pleasant, and at the time the note and mortgage were executed and delivered. The record discloses that the note and mortgage were without consideration on the part of the coal company. The trial of the cause resulted in an instructed verdict in favor -of the plaintiff. The defendant has perfected its appeal, and assigns as error for reversal, the action of the court in instructing the jury to return a verdict for the plaintiff. The judgment for plaintiff must be made to rest upon the sufficiency of his reply, and evidence in -support thereof that he did not have- knowledge of the lease of the corporate property to Lot Ravencraft, and that he did not know that Lot Ravencraft was operating the property under the lease. The plaintiff testified that he was made a member of the board of directors in order that he oo-uld be advised of the conduct of the corporation’s business, in view of the fact that he was making the advancements for the mining operation. The record discloses that he was a member of the board of directors at the time the lease was made, at the time the advancements were made to Lot Ravencraft, and at the time the note and mortgage were executed. The proceedings of meetings of the board of directors are in evidence, which recite the leasing of the property to Lot Raven-craft on November 3, 1922. The powers of the corporation are exercised by and through its board of directors, and the property of the corporation is subject to the control of the board. Section 5334, C. O. S. 1921. It was said -by the Supreme Court of Utah, in the ease of Gay v. Young Men’s Consolidated Co-Op. Inst. et al., 107 Pac. 237, that: “No doubt the majority of the board, when regularly convened, may exercise any of the corporate powers in the absence of the minority, and bind such minority if the acts of the majority are n-o-t ultra vires, or in violation of some positive statute, or of some general law, or are void or voidable as against public policy. The minority is not only bound by the acts of the majority, but the minority members are charged with knowledge of all the legal corporate acts that are exercised as aforesaid.” The court further said that an officer or director of a corporation is chargeable with knowledge of all matters relating to- the affairs of the corporation which he actually knew, or of which it was his duty to know. This appeal presents the proposition of the defendant proving a want of consideration tor the note and mortgage sued on, as it may be affected by the fact that the plaintiff did not have actual knowledge of the existence of the lease at the time he extended *176 the credit to Lot Ravencraft. The defense of the plaintiff was not sufficient in law in this respect, as measured by the rules applied in the Gay Case. The regularity of the proceedings of the board of directors is not questioned by the plaintiff. The plaintiff stood charged, as a matter of law, that the property of the corporation was in the possession of Ravencraft, and that the latter was operating under the lease of the property from the corporation, at the time the money was advanced by the plaintiff for the mining operation. On this record, the defendant was entitled to an instructed verdict. The cause is reversed and remanded, with directions to render judgment for the defendant. By the Court: It is so ordered. Note. — See under (1) 14a C. J. Pl>. SI, S2, §1842. (2) 14a C. J. p. 100, §1867; 7 R. C. L. pp. 055 et seq.; 2 R. C. L. Supp. p. 427. (3) 3i4a C. J. p. 100, §1867 (Anno).. (4) 4 C. J. p. 1104, §3181.