Marsters v. Umpqua Oil Co.

Mr. Chief Justice Bean delivered the opinion. 1. The evidence shows, and it is undisputed, that the defendant corporation, at the time of the execution of the several notes and mortgages in controversy, was, and had been for a long time prior thereto, acting as a corporation in pursuance of articles regularly filed. It had a board of directors and other corporate officers, and was exercising the functions of a corporation. The legality of its organization cannot, therefore, be inquired into in this action. It was at least a de facto corporation, and the rightfulness of its existence can be questioned by the state only: 10 Cyc. 256; Jones v. Hale, 32 Or. 465 (52 Pac. 311: 8 Am. & Eng. Corp. Cas., N. S., 150, with note on the validity of a mortgage to a director). 2. It is claimed that the mortgages in suit are void because given by the corporation to and for the benefit of one of its directors, and that all the directors did not have notice of the meeting at which they were authorized, and that there was not a quorum present at such meeting, exclusive of the plaintiff, who was interested and could not act. These questions would be important, and deserve careful consideration, if urged by the corporation or a stockholder; but a subsequent lien creditor can attack the mortgages on the ground of fraud only. The rule of law which disqualifies a director from binding the corporation by a transaction in which he has an adverse interest is for the protection of the corporation and its stockholders, and the same is true of the provisions of law and the by-laws of the company [378] relative to the meeting of directors, quorums, etc. A director is an agent of the corporation. He cannot, therefore, at the same time act for himself and his principal without full knowledge and free assent of the principal, and, if he assumes to do so, his acts may be avoided by the corporation or its stockholders. Such transactions, however, are not absolutely void; they are only voidable at the instance of the corporation or a stockholder. A corporation or its stockholders may, like an individual, elect to confirm a transaction which could have been repudiated on the ground that the agent had an interest in the matter adverse to his principal, or that the meeting authorizing the transaction was not regularly called or held; and, if the transaction is acquiesced in by the corporation and its stockholders, it becomes as valid and binding as if regularly authorized. A creditor does not, in this respect, stand in the position of the corporation or a stockholder, and he is not entitled to exercise the rights of either. The directors or officers of the corporation are not his agents. Nor is the provision relative to the meeting of directors, quorum and the like, for his benefit. His right to question a transaction of this character, which has not been repudiated or disaffirmed by the corporation or a stockholder, depends upon its fraudulent character, and not whether it was regularly authorized in the first instance. If it was in fact fair and honest, and not intended to hinder, delay or defraud creditors, it cannot be attacked by him: 10 Cyc. 1195; 3 Clark & Marshall, Corporations, 2358; 5 Thompson, Corporations, § 6165; O’Conner Min. & Mfg. Co. v. Coosa Furnace Co. 95 Ala. 614 (10 South. 290: 36 Am. St. Rep. 251); Campbell v. Argenta Gold & S. Min. Co. (C. C.), 51 Fed. 1. 3. Now, in this case, the mortgages in question have not been repudiated or disaffirmed by the corporation or its stockholders. Their validity is admitted by the failure to answer, and there is neither "averment in the pleading, nor evidence in the record, showing, or tending to show, that the notes and mortgages were not made'in the utmost good faith to secure the payment of money actually loaned to the corporation and used by it in the [379] prosecution of its enterprise. They cannot, therefore, be .questioned by a creditor who has acquired a lien upon the mortgaged property subsequent to their execution and recording. 4. It is also claimed that there is no proof that the note and mortgage executed by the corporation to the plaintiff has not been paid, or that the note and mortgage in favor of the Douglas County Bank has been assigned to him, or that he is now the owner of either of such mortgages. The secretary of the corporation testifies that the mortgage to the plaintiff has never been paid or discharged, and since it was made and delivered to him the presumption is that he continues to be the owner thereof. The president of the Douglas County Bank testified that the bank assigned and transferred the note and mortgage held by it to the plaintiff for and in consideration of the payment to it of the sum of $500. 5. A contention is also made that, because the plaintiff was surety on the note to the bank, the assignment of such note to him was, in effect, a payment and discharge thereof. The note on its face disclosed, and the evidence shows, that he was but a surety, and was therefore entitled, upon payment of the debt, to be subrogated to all the rights of the creditor as against his principal, and entitled to foreclose the mortgage given to secure the payment of such note. Decree of the court below is affirmed. Affirmed.