Hatch v. Lucky Bill Mining Co.

McCARTY, J., after stating the foregoing facts, delivered the opinion of the court. Respondent contends that the assessments under consideration were absolutely void, and that no right or legal claim was or could be acquired by the company to the stock sold under and by virtue of them, because the directors levying the assessments did not represent a majority of the stock, and because previous assessments had not all been collected, and that assessments Nos. 29 and 31 are void for the further reasons that some of the directors, at the time the levies were made, had not filed their oath of office in the office of the county clerk, and others of the directors were not notified of the meetings and had no opportunity to be present. Appellant, on the other hand, contends that, while these irregularities might have rendered the sales voidable at the option of the stockholders injuriously affected thereby had they acted with promptness, and proceeded to have the sales set aside before the rights of innocent third parties became involved, they are not void, as the levying of assessments is one of the general powers of a corporation. The rule is elementary that/when a corporation acts within the scope of its general powers, and .such acts are irregular, and performed in a manner not authorized by 1 its charter, but are neither criminal, opposed to good morals, nor against public policy, they are not void, but voidable onlyVand a stockholder aggrieved thereby may acquiesce *412 in and ratify wbat has been done, or may disaffirm and repudiate the voidable proceeding. It is incumbent upon him, however, if he does not intend to be bound by the act, to demand reparation, and, if it is denied, to institute proceedings for redress within a reasonable time after he learns of the injury done him. The question as to what is a reasonable time can not be decided by the application of purely legal principles, but must necessarily be determined by the particular facts and circumstances of each case. What would be a reasonable time in which to commence an action in one case under a given state of facts might be regarded as inexcusable neglect in another,, where the facts and circumstances are entirely different. It is conceded that the directors present at the meetings when the assessments were levied did not represent a majority of the capital stock of the corporation. Counsel for the appellant contends that the provision of the articles of incorpora* tion prohibiting the directors from levying assessments unless they, at the time of such levy, represent a majority of the stock of the corporation, is in conflict with the spirit and intent of the statutes of this State regulating and defining the powers of corporations. This question is not necessarily involved, as the determination of the decisive issues in this case does not depend upon the validity or invalidity of the provision of the articles of incorporation in question; therefore we refrain from expressing an opinion on this point. It also appears from the record that there were small amounts of previous assessments uncollected. This appears to have been the uniform practice of the company almost from; the time of its organization. During the time plaintiff 2 was an officer of the company there were twenty-two assessments levied, and with but very few exceptions he was present, and took part in the meetings as director, president, and business manager, and at no time did the directors present represent a majority of the stock, and at the time of *413 each levy there were small amounts' of each of the previous assessments remaining uncollected. The plaintiff must have known of these alleged irregularities, as it was his duty as an officer to know and understand the manner in which the business affairs of the company were being conducted. It was also a part of his duties as president, director, and business manager to have seen to it that the company took the necessary steps to collect all the assessments that were levied while he was superintending and managing the business affairs. During all this time he made no attempt to correct these irregularities, and up to the commencement of this action made no objection to the assessments under consideration on either of these grounds. Therefore he can not now be heard to complain of acts and omissions of the company which were largely due to his own negligence, and for which he is in a measure responsible. 2 Cook on Corp., 730, 731. Respondent further objects to assessment No. 29 on the ground that the five directors who levied the assessment were not qualified to act as such, because they had not taken and filed their oath of office in the office of the county clerk. 3 Three of the directors were holdovers;-that is, they were elected and took their oaths of office in 1897, and had continued to act as directors until after the levy under consideration was made. The other two directors had taken their oath, but had not filed it It is well settled that a director once elected may continue to act until his successor is elected and qualified. Therefore the three holdover directors were still in office, and qualified to act. 2 Cook on Corp., 624; 2 Morawetz on Corp., 640. Respondent, in support of his contention on this point, relies upon and cites the case of Schwab v. Mining Company, 21 Utah 258, 60 Pac. 940, recently decided by this court. In that case, a short time before the levy was made, three of the five directors were elected for the first time, and at the time of the levy had not taken the oath required by section 317, Revised Statutes 1898, which *414 reads as follows: “Before the first or any other officers shall enter upon the duties of their respective offices, they shall take and subscribe an oath of office, that they will discharge the duties of such office to the best of their judgment, and that they will not do nor consent to the doing of any matter or thing relating to the business of the corporation with intent to' defraud any stockholder or creditor or the public, which oaths shall be filed in the office of the county clerk.” It will be readily observed that the facts in the two cases' are not at all similar. In the case of Schwab v. Min. Co., supra, a majority of the directors had not qualified by taking the oath required by section 317, Id., whereas in the ease under consideration the directors had taken the required oath, but some of them, at the time of the levy, had not filed it in the office of the county clerk. As stated in the case above cited, the object of the statute is to protect the stockholders and all parties doing business with a corporation against fraud and dishonesty on the part of its officers by requiring such officers to perform their duties under the high sanctions and obligations of an oath. The filing of the oath does not make it any more binding, nor would the fact that it is filed be likely to add to its influence, on the directors when in the performance of their duties. The object of the statute in requiring the oath to' be filed undoubtedly is to give notice to all parties who' may have dealings with a corporation that its officers have taken and subscribed to an oath “that they will not do nor consent to the doing of any matter or thing relating to the business of the corporation with intent to' defraud any stockholder or creditor or the public.” While this provision of the statute is an important 4 one, and should be observed and followed, yet when as in this case, the oath was in fact taken and subscribed to by the directors with a bona fide intention of filing it later, and which was done, we are of the opinion, and so hold, that the irregularity is not of sufficient importance to authorize a. court of equity to set aside the proceedings; and especially *415 so when, as in this case, no one appears to Lave been misled or injured thereby. Respondent’s objections to assessment No. 31 present a more doubtful question, and one not so easily disposed of. There were present at the meeting when this levy was 5 made four of the seven directors who had just been elected. No notice of the meeting was given or sent to the three directors who were absent. The directors of a corporation are its agents, and are elected by the stockholders to supervise, direct and manage its affairs. The stockholders are entitled to the benefit of the experience, judgment, and influence of each director at the board meetings, and, in order to insure this, each director must be given" an opportunity to be present. Singer v. Salt Lake Copper Mfg. Co., 17 Utah 143, 53 Pac. 1024, 70 Am. St. Rep. 773; Morawetz, Priv. Corp., 531, 532. If one or more of them are prevented from being present because of a failure to give the required notice, the directors present, even though they are a majority of the entire board, have no authority 1» act as such (2 Cook Corp., 129), and any stockholder whose interests are affected injuriously by any proceeding of theirs while assuming to act as a board of directors may challenge such proceedings, and have them set aside, provided, of course, he has not acquiesced in what has been done, is not guilty of laches, and the rights of third parties are not involved (Schwab v. Min. Co., supra). Applying this rule to the facts in this case, so far as they relate to assessment No. 31, we are forced to the conclusion that the directors present acted without authority in making the levy,-and that the stockholders whose stocks were sold under this assessment are entitled to recover, unless acquiescence or laches on their part have been shown and established by the evidence in the case. These defenses having been pleaded to each of the causes of action, we will now determine to what extent they affect the ease in its entirety. Plaintiff stated at a stockholder’s *416 meeting held in June, 1899, that be would like to' dispose 6 of bis stock at two cents per share if be could get some “greenhorn” to take it, which tends to show that he placed but little value, if any, upon it. When he received notice of the twenty-eighth assessment, he wrote to the secretary of the company, requesting him to apply a credit he (the plaintiff) had with the company on the assessment, and to sell sufficient of his stock -to pay the balance, which was done. He made no objection to paying this assessment, and at the trial of the case testified that he wanted to pay it. L. E. Riter, one of plaintiff’s assignors, was the owner of 4,500 shares that were sold for assessment No. 28. The record shows that at the request of himself and other stockholders whose stock was advertised the sale was postponed for thirty days. A report showing the financial condition of the company was prepared and submitted to them. Upon looking the report over, Riter stated he would not pay the assessment; that he guessed he would let it go. He made no< objections whatever to the assessment or the sale. When the twenty-ninth assessment was levied, plaintiff was still a director, and the only objection he made to' it was that the secretary had received a credit of $300 for services rendered the company, which he (the plaintiff) claimed to be excessive. Six months after the sale of his stock he stated, referring to the defendant company, “I am not interested in it any longer;” that he let his stock go for assessments; and again: “I don’t consider it worth a d-n anyway. I never got anything out of it anyhow but a few crystals” — meaning water crystals. On another occasion he stated that he hadn’t anything to- do with the Lucky Bill (defendant company) ; that he had let it drop. About November, 1900, and more than a year after his stock was sold, there was a rich strike in the Quincy, amine situated in the neighborhood of the Lucky Bill mining claims, which gave to the stock of the defendant company a speculative value. Two or three months after the strike in the Quincy, plaintiff *417 offered to pay the back assessments and redeem his stock, but the offer was declined by defendant. After the commencement of the action, Joseph 'Hatch, Jr., son of plaintiff, and one of his assignors, in a conversation with George Hasson, who was at one time a stockholder in the company, made the following statement: “Q. Joe, how has the old man (referring to plaintiff) fixed up with the Lucky Bill? A. I don’t know. Q. What have you done with your stock ? A. I haven’t paid any assessments. I suppose it’s gone. Q. Isn’t it a fact that your stock is in this suit ? A. I don’t know. Q. Now, what’s the matter with your people anyway? A. Well, you fellows have got people with money in here, and I guess the old man is trying to bleed them.” He also stated that he “didn’t consider his stock of any valuethat he “didn’t consider it worth the assessment.” The stock that was sold for the thirty-first assessment was assigned to plaintiff by W. W. Hall, S. T. Ricketts, and S. D. Evans. Hall was a witness, and testified, in substance as follows: “I sold a small number of shares in the Lucky Bill Mining Company. I received notice of the assessment. I didn’t pay the assessment. I didn’t intend to. I presume it was sold. I sold the stock to Mr. Sweet [plaintiff’s attorney] . I told him he could have it at his own price. I knew of the assessment, and knew the stock was going to be sold. I didn’t pay any attention to it. I said I wouldn’t pay any more assessments, and let it go. I simply abandoned it. I didn’t consider the stock as being worth the assessment at . the time it was levied and when it became due.” S. D. Evans testified in part as follows: “At one time I was a stockholder in the Lucky Bill Mining Company. I parted with these certificates (representing about 8,000 shares of stock) April 21, 1901. The negotiations were had with Mr. Sweet. He wanted me to' join in a suit against the company. I rather objected. Stated thac I didn’t believe I wanted to join in that, but that I would sell. *418 I controlled other stock besides my own — Ricketts’ 500 shares and Officer’s. I disposed of the stock to Mr. Sweet, and- said to him: ‘Now, this transaction is between yon and me, and yon understand that I place no value on these certificates, so far as the company is concerned.’ I told him I didn’t consider the stock valid stock. That I had consented to the assessment, and refused to pay it. I had heard of some irregularity. I had notice of the assessment, but I didn’t pay it, because I didn’t want to. I didn’t believe it was worth paying any money on. That was one reason, and another reason was that I didn’t have the money just at the tima These were the only reasons that I had for not paying the assessments. I knew the sale was being made. I had legal' notice that it would occur at such a time. I preferred that it should be sold, rather than pay another assessment.” Where the property involved is of a speculative character, and is constantly changing hands and fluctuating in value, it is incumbent upon a party complaining of fraud or other wrong by which he is deprived of his property to be prompt in instituting proceedings for its recovery. He can not remain passive, with full knowledgp of what has been done, and when, through the energy, risk, and expense of others connected with the business or enterprise, the property suddenly becomes valuable, compel its restoration to him. “It. is also settled that the stockholder must take the requisite proceedings to be relieved against the company at once upon his discovery of the truth. Any unreasonable delay, and any act on his part tending to show acquiescence, will debar him of relief.” Pom. Equity Jur., 881; 2 Cook on Corp., 732; Raht v. Min. Co., 18 Utah 290, 54 Pac. 889; Pollard v. Clayton, 1 K. & J. 480; Twin Lick Oil Co. v. Marbury, 91 U. S. 587, 23 L. Ed. 328; Johnson v. Standard Min. Co., 148 U. S. 360, 13 Sup. Ct. 585, 31 L. Ed. 480; Penn., etc., Ins. Co. v. Austin, 168 U. S. 685, 18 Sup. Ct 223, 42 L. Ed. 626; Curtis *419 v. Lakin, 36 C. C. A. 222, 94 Fed. 251, 255; Sayre v. Citizens’ G. & L. Co., 69 Cal. 207, 7 Pac. 437, 10 Pac. 408. That the officers acted in perfect good faith, and as they believed for the best interest of the company and its stockholders, is not questioned. The plaintiff and his assignors being 6 fully advised of the assessments and sale of their stock, and with every opportunity to know and understand the manner in which they were made, if they desired to recover their stock, they should' have commenced proceedings within a reasonable time. Instead of doing so, they waited nearly three years after the first, nearly eighteen months after the second, and more than ten months after the last sale before commencing suit. In the meantime the other stockholders continued to take the risks of their precarious and hazardous enterprise. They paid these and other assessments, aggregating 7 1-2 cents on each share of stock, and thereby enabled the company to meet its obligations and prevent its property from being sacrificed to pay debts. Innocent third parties, relying upon the books and records of the company, which showed the stock in question to be treasury stock, invested $15,000 in the purchase of stock outstanding. Under these circumstances, to restore to plaintiff the stock sold for the twenty-eighth and twenty-ninth assessment would be an injustice to the other stockholders, and unequitable in principle. The stock involved in this suit that was sold for the thirty-first assessment was owned and controlled by W. W. Hall and S. D. Evans. Their evidence shows conclusively that Evans, who owned and controlled all but 102 shares of this stock, was advised of some irregularity in the assessment, and that neither of them made any objection to it, but on the contrary, acquiesced in the sale, and renounced and abandoned all’ claims, to the stock, and all claims they may have had against the company because of its forfeiture. The plaintiff procured the assignment of this stock with full knowledge of these facts; 7 hence is bound by them. 2 Cook on Corp., 733. *420 It is evident that neither tbe plaintiff nor bis assignors ever bad any intention or disposition to question tbe regularity of tbe assessments until after conditions bad changed, and- tbe stock, wbicb was without any market value at tbe time it was bought in by tbe company, bad advanced to forty cents per share. We are of tbe opinion, and so bold, that plaintiff is not only barred by laches from asserting any claim to tbe stock, but by the repeated declarations of himself and assignors to' tbe effect that they bad voluntarily abandoned the enterprise they^aequieseed in tbe forfeiture of their stock. The case is reversed, with directions to the trial court to dismiss the action. Costs to be taxed against the respondent. BART'CH, J., concurs. BASKIN, O. I., dissents.