Hill v. Rich Hill Coal Mining Co.

Sherwood, J. I. Under charter provisions, the board of directors of the defendant corporation is composed of five members, and at the time the facts occurred which gave origin to the present litigation, and since that date, consisted of the following persons, to-wit, Edwin A. Gould, R. M. McDowell, W. P. Coleman, James A. Hill, and W. S. Hill. Edwin Gould was president of the corporation, and McDowell general manager. In this posture of affairs, the following proposition, being the same referred to in plaintiff’s petition, was made to defendant by plaintiff: “Rich Hill, Mo., May 19,1890. 11 Mr. Fdwin Gould, President the Mich Hill Goal Mining Co.,New York City, N. Y. “Dear Sir: — I have succeeded in purchasing from E. B. Adams a tract of land, embracing about 360 acres, a mile or two south of Rich Hill; also 611-) acres — 20 — from Bobert M. Handley, adjoining the foregoing. Tbe location of these tracts is undoubtedly familiar to you. I have done this to secure the lands, believing them to be valuable, but will transfer them to the Bieh Hill Goal Mining Company if it wants the same. If the Bich Hill Coal Mining Company concludes to take these lands, I will turn them over at the same price and terms at which I purchased them, any time between now and the 29th inst. The cost of the Adams property is $10,800. Terms: One-third down; balance in one and two years, with six per cent, interest. The cost of the Handley property is $30,575 cash. To the above should be added some incidental expenses. Yours, truly, “W. S. Hill.” Pursuant to this proposition, a special meeting of the directors was held in New York on the twenty-second of May, 1890, at which were present Edwin Grould, James A. Hill, and plaintiff. The other members -of the board were hot present, nor were they notified in writing Or otherwise; indeed the meeting was had upon an agreement made on the same day it was convened, and within a few minutes after such agreement was reached. Article 13 of the by-laws of the defendant, which was adopted in 1880, and has been in force ever since, provides that “a special meeting of the board of directors may be called at any time by the president or a majority of the members of the board, giving ten days7 notice in writing, to each of the directors.77 During the same year, another by-law (number 11) was adopted by the defendant corporation: “The attendance of ¿ majority of the board of directors shall be necessary to constitute a quorum for the transaction of business; a less number may adjourn from time to time.7 7 The decree finds that the board of directors con — 21 — sisted of five members; that there were but three of the directors present at the meeting in New York; that no notice was given to the others of the meeting, as required by the by-laws, and “that the said William S. Hill and James A. Hill were, at the time of the making of said contract, both interested in making said sale to defendant, but that they were not acting as trustee, or in any representative capacity.” The petition avers “that on the nineteenth of May, 1890, the plaintiff proposed in ivriting to sell said land [which had been theretofore in the petition particularly described] to defendant for $30,575, and his incidental expenses incurred' in the purchase thereof; that on the twenty-second of May, 1890, at a meeting of its board of directors held in the city of New York, the defendant, in writing, duly accepted said proposition.” . The resolution adopted at that meeting, whereby the proposition was accepted was the following: “Resolved,.that the plat of land located in Bates county, Missouri, known as the ‘R. M. Handley and E, B. Adams land,’ be purchased by this company according to the terms of the proposition for sale of same, contained in a letter from Mr. William S. Hill, dated May 19,1890, addressed to Mr. Edwin Glould, president; and the proper officers of this company are hereby fully authorized and instructed to carry out said purchase in behalf of this company.” In the present case, then, there were only three of the board of directors present at the meeting held in New York city on the twenty-second of May, 1890, which professed to accept the written proposition of plaintiff, which was the only offer or proposition made by plaintiff to sell the land to defendant, which offer was not in any manner changed or modified at any subsequent period. As before stated, the lower court found that plaintiff and James A. Hill were both — 22 — interested in making the sale of the land to defendant. That plaintiff was thus interested is too apparent for comment; and the evidence adduced fully sustains the finding of the lower court that James A. Hill, his father, was also interested. He had advised his son to buy the land, and had furnished him with the money for the purpose, etc., and was therefore in no position to be a disinterested adviser of the defendant. This being the case, as there were not but three of the directors present, and two of these disqualified-by reason of interest, it results that as there was no valid quorum present, that no binding contract was made by plaintiff with the defendant corporation in regard to the land in question. The books abound with instances illustrating the wholesome principle that no one, especially in an official position of trust and confidence, is permitted to be exposed to the temptation necessarily incident to a situation where duty prompts to go one way, and self-interest another. Such, of course, would be the situation of a director when attempting to sell for himself, and to buy for the corporation. He can neither make such a contract in the beginning, nor enforce it in the end. It is true, the court below, while finding that plaintiff and his father were directors, and interested in the subject-matter of the proposed contract, yet at the same time finds, in paragraph 4 of the decree, that “they ivere not acting as trustee, or in any representative capacityHow this could be, it is inexpressibly difficult to understand. Though a director is not technically a trustee, yet, as an accurate author aptly remarks: ‘ ‘The relation between the directors of a corporation and the company itself is, however, in many respects, a fiduciary or trust relation. * * * The directors of a corporation are ordinarily invested with the most extensive powers of management. They are empowered to represent the — 23 — company in all of its' business transactions and ventures, and the entire corporate affairs are placed in their charge, upon the trust and confidence that they shall be cared for and managed for the common benefit of the shareholders, and in accordance with the provisions of the charter agreement. It is manifest, therefore, that the directors of a corporation occupy a position of the highest trust and confidence, and that the utmost good faith is required in the exercise of the powers conferred upon them. * * * They have no right,, under any circumstances, to use their official positions for their own benefit, or the benefit of any one, except the corporation itself. It is for this reason that the directors have no authority to represent the corporation in any transaction in .which they are personally interested iii obtaining an advantage at the expense of the company. The corporation would not have the benefit of their disinterested' judgment under these circumstances, as self-interest would prompt them to prefer their own advantage to that of the company. Accordingly, it has been held, in numerous cases, that the directors of a corporation have no authority to bind the company to any contract made with themselves personally, or to represent it in any transaction with third personsj in which they have a private interest at stake.” 1 Mor. on Priv. Corp, [2 Ed.], secs. 516, 517. Upon the principle thus announced, this court has always firmly stood, as shown by the cases cited from our own reports, and there are none in those report's which, when rightly understood, assert a different doctrine. Wherever, in those reports, a director has been a contracting party, there have been others disinterested, sufficient to constitute a valid quorum. Touching the same point, it is said in a comparatively recent case: “He (Munson) stood in the — 24 — attitude of selling as owner and purchasing as trustee. The law permits no one to act in such inconsistent relations. It does not stop to inquire whether the contract or transaction was fair or unfair. It stops the inquiry when the relation is disclosed, and sets aside the transaction or refuses to enforce it, at the instance of the party whom the fiduciary undertook to represent, without undertaking to deal with the question of abstract justice in the particular ease. It prevents frauds by making them, as far as may be, impossible, knowing that real motives often elude the most searching inquiry, and it leaves neither to judge nor jury the right to determine, upon a consideration of its advantages or disadvantages, whether a contract made under such circumstances shall stand or fall. It can make no difference in the application of the rule in this case, that Munson’s associates were not themselves disabled from contracting with the corporation, or that Munson was only one of ten directors, who voted in favor of the contract.” Munson v. Railroad, 103 N. Y. 73. The case just cited, as will be seen, takes even stronger ground than our own court has taken. II. Now, as to notice to the other directors. Article 13 of the by-laws requires ten days’ notice to be given in order to call a special meeting. This course was not pursued in respect to the meeting in New York, as plainly appears from the evidence. In People v. Batchelor, 22 N. Y. 134, Judge Selden forcibly remarks: “It is not only a plain dictate of reason, but a general rule of law, that no' power or function entrusted to a body consisting of a number of persons, can be legally execised without notice to all the members composing such body.” To the same effect see 1 Mor. Priv. Corp. [2 Ed.], secs. 479, 481, 531, 532; Green’s Brice’s, Ultra Vires, 438, and notes; Tel. Co. — 25 — v. Tel. Co., 44 N. J. Eq. 573; Doernbecherv. Lumber Co., 21 Or. 573; Angel and Ames Corp., sec. 492; 17 Am. and Eng. Encyclopaedia of Law, 93 et seq., and other cases cited by counselfor defendant. Under these authorities, the special meeting in New York must be held void for the additional reason that no notice of it was given to the absent directors. III. The same line of remarks as aforesaid are applicable to the meeting of the board of directors in St. Louis on June 10,1890, because only McDowell and the two Hills were there present, and Director Coleman, though notified by telegram, was not present. Edwin Glould was not notified, as he testifies, and Dr. Smith does not testify to the contrary. He merely says he thinks he notified G-ould by telegram, though when he notified him he does not state. On the twenty-ninth of May, it seems, it was agreed between James A. Hill and McDowell to hold a meeting in St. Louis on June 2; they consented to the waiving of the ten days’ notice.” This meeting was not held on June 2, nor was any record of its convening entered, nor any adjournment of record made. It seems that James A. Hill informed Dr. Smith, the secretary of the defendant corporation, of W. S. Hill’s absence, and requested the secretary to adjourn the meeting. In this way it appears that-the special meeting was “postponed” to June 9; but it was not held then, because there was no sufficient number of directors present, and no adjournment of record was then made, and no notices were served on the absent directors, except such as were served on the twenty-ninth of May aforesaid. Article 14 of the by-laws of the defendant, heretofore quoted, gave authority tó a less number than a majority of the directors to “adjourn from time to time.” Of course, this means a formal adjournment, entered on the records in the usual way; and if this — 26 — had been done on June 2, and the hour fixed for the meeting on June 9, and a similar adjournment taken on the latter date to a certain hour on June 10, then the meeting on the latter date would possibly have been valid, provided the directors had all been properly notified for ten days prior to June 2. Thompson v. Williams, 76 Cal. 155; Manufacturing Co. v. Vassault, 50 Cal. 534; Warner v. Mower, 11 Vt. 385; Stockholders, etc., v. Railroad, 12 Bush, 62. And these observations are subject to the further qualification that the notice given on May 29, had emanated from an authoritative source, In the ease at bar, what notices were given by the secretary, Dr. Smith,. were given May 29, but it does not appear that he was authorized to call a meeting. Under article 13 of the by-laws, already quoted, a special meeting of the board of directors could only be called by “the president or a majority of the members of the board,” etc., so that a meeting otherwise called possesses no validity. Society v. Sperry, 10 Conn. 200; Reilly v. Oglebay, 25 W. Va. 36; Stebbins v. Merritt, 10 Cush. 27; 1 Mor. Priv. Corp., section 480. And it is clearlyi laid down in the authorities that the by-laws of a corporation, when properly adopted, are as binding on the members of such body as is a provision contained in the charter itself (1 Mor. Priv. Corp. section 490); and the same principle of law which dominates the giving notice of time, place, and manner requisite in calling stockholders’ meetings equally applies to meetings of directors (Id. sec. 531). From this, it necessary follows that two of the directors were powerless to waive the ten days’ notice which article 13 of the by-laws required. The meeting in St. Louis on June 10 must, therefore, be regarded as invalid as that held in New York. IY. But conceding, for argument’s sake, the — 27 — validity of the meeting in New York, and of the subsequent one in St. Louis, a question arises on the pleadings themselves, which pow requires consideration. The resolution already copied from the minutes of the meeting held in New York, which resolution was introduced by James A. Hill, and seconded by plaintiff, shows in an unmistakable manner that but one contract was attempted to be made between plaintiff and those who profess to represent the corporation. This resolution also conforms in that respect to the previously written letter of plaintiff, in which he speaks of the two tracts as contiguous, and proffers “to turn them over at the same price and terms at which I purchased them,” etc. One of the witnesses also testified that the two tracts were in one enclosure. And both letter and resolution are in accord with the conversation had by Edwin G-ould with plaintiff prior to the resolution being adopted, for Grould testifies, and his testimony is undisputed: “lashed him whether we could buy one of these tracts without the other, and he said that they both %uent together. Sis offer was to sell the two. The facts undoubtedly show the alleged contract for both tracts of land to be an entirety. Where such a contract is thus made, the authorities are unbroken in their uniformity in the assertion that it must be enforced as an indivisible integer, or not at all; it cannot be enforced by piecemeal. Fry on Spec. Perf. of Contracts [3 Amer. Ed.], secs. 802, 804, 806; Wat. on Spec. Perf. of Contracts sec. 389 et seq; 2 Story’s Eq. Jur. [13 Ed.], sec. 778, and cases cited; Dalby v. Pullen, 3 Sim. 29; Baldwin v. Fletcher, 48 Mich. 604; 2 Beach, Mod. Eq. Jur., secs. 623, 625; Kenner v. Bitely, 45 Fed. Rep. 133; Cato v. Thompson, 9 L. R. Q. B., div. 616. As plaintiff is attempting to enforce only a portion of the alleged contract, that attempt cannot prove successful, as is shown by all of the authorities. It would be — 28 — beyond all reason and precedent to permit liim to split his contract in two, — retain such portion of the land as suits him, and then enforce specific performance as to the residue, which he does not desire to retain. The bare announcement of such a claim is sufficient for its prompt repudiation. Y. There are other reasons equally cogent for the denial of the relief plaintiff seeks. The land in question, to-wit, the whole tract alleged to have been contracted for, was evidently purchased for coal land. This was the chief object in view in making the purchase. Yet when McDowell began prospecting on the Handley land, as was the custom in that country when coal lands were about to be bought, plaintiff forbade this to be continued, and it was stopped. This action of plaintiff would seem to have been the result of a fear that no coal would be discovered on the land if the prospecting were allowed to continue. Taking this conduct of plaintiff in connection with that already related at the two different meetings aforesaid, in which while directly interested in the subject-matter, he contributed by his vote to produce the result desired, such conduct cannot be regarded in a favorable light by a court of equity, where relief of the character here invoked is asked. The contract in this instance is executory; and where this is the case, and its enforcement is sought, it will be refused where, considering all the circumstances of the case, it is not certain, fair and just in all its parts, because such enforcement is not a matter of absolute right in any circumstances, but resting in the sound discretion of the court; and such an agreement will not be enforced, if the decree would produce injustice between the parties, or where it would be inequitable under all the circumstances. For this reason it is that a court of equity will permit a party to defend — 29 — himself by evidence to resist a decree, where a plaintiff . would not be permitted to make out his case by like evidence. 2 Story on Equity Jurisprudence [13 Ed.], secs. 769, 770; Veth v. Gierth, 92 Mo. 97. Here, plaintiff does not come into court with clean hands, for it was by an abuse of his fiduciary relation to the defendant corporation as director that he secured the alleged contract on which he now relies. On this ground, also, a court of equity should decline, to interfere in his behalf. YI. Recurring to paragraph 4 of the decree and quoting it in full, it is as follows: “That the said William S. Hill and James A. Hill were, at the time of the making of s^tid contract, both interested in making said sale to defendant, but that they were not acting as trustee, or in any representative capacity, the other interest in the stock of defendant not held by them being held for the Missouri Pacific Railway com- ' pany, represented at the time by said Edwin Grould, who at the time held a controlling vote in the meeting, being at the same time the owner of a large májority of the stock as trustee for said railway.” It will be at once perceived that the lower court took the singular view that notwithstanding the meeting in New York was held without notice, notwithstanding plaintiff and his father were directors, and were interested in the'alleged contract then made, yet, that, as Edwin Grould held a large majority of the stock in the defendant corporation as trustee for the Missouri Pacific Railway company, and that as he “held a controlling vote in the meeting,” therefore, the meeting in New York, without notice and without a quorum, was valid, and the assumed contract made thereat also valid. But this view leaves entirely out of consideration the idea that the directors are the governing body of a corporation, and cannot either represent or bind — 30 — such, corporation, except when duly assembled and acting as a board, and not otherwise. It is needless to say that many, authorities speak this language. 17 Am. and Eng. Encyclopaedia of Law, 83; Baldwin v. Canfield, 26 Minn. 43; Finley Co. v. Kurtz, 34 Mich. 90; Turnpike Road Co. v. Craver, 45 Pa. St. 386; Johnson w. School District, 67 Mo. 320, and numerous other cases. Were the law otherwise, it is éasy to see that an individual director could destroy the corporation by his own individual and unaided action. Baldwin v. Canfield, supra, and cases cited. Moreover, Edwin Gould did not have a “controlling vote at the meeting.” He had but one vote as director, and that was all. VII. But, further, as to the alleged contract made in New York. Plaintiff based his right to relief upon it, but yet took a departure from it in his reply, set up an alleged estoppel, and was permitted, as shown by paragraph 9 of the decree, to recover thereon. But, of course, this was erroneous. The plaintiff had a right to relief, if at all, on his alleged contract in writing. Failing in that, he had no standing in court, because of the provisions of the statute of frauds. Ringer v. Holtzclaw, 112 Mo. 519. See, also, Lanitz v. King, 93 Mo. 513, and Mohney v. Reed, 40 Mo. App. 99, as to introducing matter in reply which belongs to the petition. VIII. There is no finding in the decree, nor is there any evidence in the record to show that possession was taken of the Handley land by defendant. Indeed, under plaintiff’s contract with Handley, he had no right to take possession of that land until payment was made therefor. Besides, plaintiff requested McDowell to quit his borings on the land, which was done. Furthermore, the boring was done under a prevalent custom, and, unless it was shown to have been done in a manner referable solely to the alleged — 31 — contract made in New York, it would amount to nothing. Emmel v. Hayes, 102 Mo. 186. IX. Something has been said in plaintiff’s' brief about the action of the Missouri Pacific Eailway Company’s owning the major portion of the stock in the defendant corporation, and having it held by Edwin Grould as its trustee, and thereby influencing the affairs of the latter corporation, falling under the ban of section 7 of ’article 12 of the constitution, which declares: “No corporation shall engage in business, other than that expressly authorized in its charter or the law tinder which it may have been or hereafter may be organized, nor shall it hold any real estate for any period longer than six years, except such as may be necessary and proper for carrying on its legitimate business.” However this may be, it is certain such a matter could not be taken advantage of in a collateral way, but must be investigated by the state in its sovereign capacity. Martindale v. Railroad, 60 Mo. 508; Kinealy v. Railroad, 69 Mo. 658; Hovelman v. Railroad, 79 Mo. 632, and cases cited. And, at any rate, the fact of disobedience to constitutional commands would afford no excuse for rendering a decree .against the property of the offending company, and against that of its trustee, Edwin Grould, without bringing them before the court, or giving .them an opportunity to be heard. An ordinary regard for fundamental principles of justice requires that no one should be passed upon, either in person or estate, without such opportunity aforesaid. X. There are numerous other errors assigned and apparent on this record. It is unnecessary to notice or discuss them, since ample grounds have been shown why the decree should not be permitted to stand., It is accordingly reversed and the cause remanded, with' directions to the lower court to enter a decree dismiss — 32 — ing plaintiff’s petition and canceling the resolutions aforesaid, on which the petition is grounded. All concur,.