Brinkerhoff Zinc Co. v. Boyd

• Decision Date: 21 December 1905
• Citation: 91 S.W. 523,192 Mo. 597
• Parties: BRINKERHOFF ZINC CO. v. BOYD et al.
• Court: Missouri Supreme Court

91 S.W. 523

192 Mo. 597

BRINKERHOFF ZINC CO. v. BOYD et al.

Supreme Court of Missouri, Division No. 1.

December 21, 1905.

1. MORTGAGES — FORECLOSURE — PROCEEDS — DISTRIBUTION.

Plaintiff corporation, being indebted to a bank for $5,500, issued $12,000 of mortgage bonds, covering its entire property, which were deposited with the bank as collateral security. Thereafter defendant B., who was a lessee of all plaintiff's property, paid the debt and accrued interest to the bank, receiving the bonds as collateral, after which he obtained by an illegal vote of plaintiff's directors a transfer of plaintiff's equity of redemption in the property, and then foreclosed the mortgage, and sold the corporation's property under the deed of trust for $13,500; the entire proceeds of the sale being paid to him by the trustee. Held, that B. was only entitled to the amount of the bank debt and interest advanced by him, the cost of foreclosure, and the amount paid on a second mortgage, and that the balance of the proceeds of the sale belonged to the corporation.

2. CORPORATIONS — BOARD OF DIRECTORS — MEETINGS.

Where the by-laws of a corporation authorized the president to call a meeting of the board of directors by giving notice in person, or by mail, action taken by the members of the board separately, not at a meeting, was void.

3. SAME—AUTHORITY OF DIRECTORS.

Directors of a corporation are trustees of its property for the benefit of the stockholders, and have no authority to give away the corporation's property to another for the purpose of reimbursing him for alleged misconduct of the corporation's president while acting as the grantee's personal agent.

4. FRAUDS, STATUTE OF—RIGHT TO PLEAD.

Where a corporation has orally agreed to deposit certain bonds part of a larger issue to secure an alleged indebtedness to a bank, a pledgee of the entire issue could not object that such agreement was void under the statute of frauds, so as to preclude the bank from sharing in a surplus arising on a sale of the corporation's property on foreclosure after payment of the pledgee's debt.

5. MORTGAGES—DEEDS OF TRUST—PAYMENT OF SURPLUS—LIABILITY OF TRUSTEE.

Where the trustee in a deed of trust securing the bonds of a corporation had knowledge at the time he sold the property under the deed that the corporation claimed a surplus arising on the sale over the amount for which the bonds had been pledged, but wrongfully paid such surplus to the pledgee's assignee, the trustee was personally liable for the amount so wrongfully paid.

Appeal from Circuit Court, Lawrence County; Henry C. Pepper, Judge.

Action by the Brinkerhoff Zinc Company against Charles L. Boyd and others. From a judgment in favor of defendant Boyd and others, plaintiff and defendant Bank of Aurora appeal. Reversed.

H. E. Howell and H. H. Bloss, for appellant Brinkerhoff Zinc Co. McNatt & McNatt, for appellant Bank of Aurora. H. Brumback and Edw. J. White, for respondent.

VALLIANT, J.

This is a suit in equity to cancel a transaction whereby the board of directors of the plaintiff corporation essayed to sell to defendant Boyd $12,000 of mortgage bonds issued by plaintiff, and to recover of Boyd and the trustee in the deed of trust a part of the proceeds of the foreclosure sale that is alleged in the amended petition to be in excess of the debt for which the bonds were hypothecated. There is little, if any, dispute as to the material facts of the case. The Brinkerhoff Zinc Company, the plaintiff herein, is a mining corporation in Lawrence county. Its total assets consisted of seven acres of land, which were supposed to contain valuable mineral deposits, and a mining plant thereon, consisting of buildings, machinery, etc. On November 1, 1897, the plaintiff was indebted to the Miners' & Merchants' Bank of Aurora, Mo., in the sum of $5,500, represented by two notes executed by the plaintiff to that bank. To secure that indebtedness the plaintiff executed its 120 bonds of $100 each—that is, $12,000 aggregate—of date November 1, 1897, due in five yeare from date, bearing 8 per cent. semiannual interest, secured by deed of trust on all its property, and delivered the same to the bank as collateral. The deed of trust was duly recorded. Afterwards, on August 13, 1898, plaintiff executed a lease of its land and mining plant to defendant Boyd for a term of 10 years, with prospecting and mining rights. The consideration for the lease was that the lessee was to carry on mining on the leased land and pay the plaintiff a royalty of 10 per cent. of the gross proceeds of the operation. If the lessee failed for 30 days to work the mines, the lessor could by giving him 30 days' notice terminate the lease. The lessee had the right at the end of his lease, either by expiration of its term or by forfeiture, to remove all buildings, machinery, and improvements he may have put thereon. Shortly after the execution of the lease Boyd entered into possession, and during the time he remained in possession he placed valuable mining machinery on the land; but he did little, if any, mining on it. He was at the same time interested in mining property on other land adjoining, and he carried on mining on that other land and used in that business the machinery, etc., which he had placed on the plaintiffs' land. He also subleased a portion of the leased premises to another concern that was owned and managed by relatives of his, and that other concern did no substantial mining on the land leased from the plaintiff. But the plaintiff never attempted to avail itself of the right given in the case to declare it forfeited on account of failure to operate the mine. Mr. Boyd resided in Chicago. Shortly after taking his lease he employed F. H. Brinkerhoff as his agent resident near the leased premises, and gave him a written power of attorney to represent him in his mining operations. This Brinkerhoff was also the president of the Brinkerhoff Zinc Company, the lessor. Brinkerhoff's wife was one of the principal stockholders in the concern, but he owned only two shares. Boyd, through the agency of Brinkerhoff, spent a considerable amount of money in machinery and in operating mines on adjoining land, but it was not spent on the land leased from plaintiff, and the plaintiff had no interest in the other lands. Brinkerhoff himself, however, had a fourth interest in them. The agency of Brinkerhoff continued from April, 1898, to January, 1899, during which period the defendant Boyd says he lost a great deal of money. In January, 1899, Boyd's son-in-law, Moore, supplanted Brinkerhoff as agent. Boyd in his testimony lays blame on Brinkerhoff for his losses, and accuses him of bad faith. After taking his lease Boyd advanced to the plaintiff money to pay two semiannual installments of interest on the $12,000 mortgage bonds, and that money, amounting to $480, was so applied and credited on plaintiff's notes held by the Miners' & Merchants' Bank. In December, 1898, this bank sold the $5,500 notes to Mr. Boyd, and, together with those notes, delivered to him the $12,000 collateral mortgage bonds. The price paid for the notes was $4,800, being a discount of $700. One of the bank officials testified that the reason they sold at that price was that they had held the notes for some time, and that the state bank examiner objected to their carrying them longer. It was not satisfactory bankable paper, and therefore they wanted to get rid of it. Soon after his purchase of the notes from the bank Mr. Boyd obtained from the directors of the plaintiff corporation a paper writing that is called in this record a "declaration of sale," which purported to convey to him the plaintiff's right of redemption in the mortgage bonds. This document was prepared by Mr. Boyd's attorney before he bought the notes from the Miners' & Merchants' Bank and was executed immediately afterwards. It recites that a meeting of the board was held at the company's office by consent of all the directors to consider the proposition of Mr. Boyd to pay the $5,500 debt of the corporation to the bank, and to purchase the $12,000 as mortgage bonds deposited with the bank as collateral security. Then follows: Whereas, the interest on the bonds since November 1, 1898, amounting to $480, is due, and the corporation has no means to pay it, and the bank is threatening to foreclose, and Boyd has theretofore advanced $480 to pay the interest which accrued in 1898, and "has expended large sums of money in improving the property of the company, and is a judgment creditor to the amount of $250; therefore, in consideration of his payment to the bank of the $5,500 debt and surrender of those notes to the company, the canceling of the debts he holds against the company, "and other good and valuable consideration," the president and secretary were thereby authorized to transfer to him all the right and title of the company in the bonds. The paper was signed by Brinkerhoff, as president, and Haswell, as secretary. There was, in fact, no meeting of the board of directors; only Brinkerhoff and Haswell were together at the latter's residence, and signed the paper. The board was composed of three members, Brinkerhoff, Haswell, and one Salmon. The latter was not in town at the time; but when he came back he signed the declaration at the request of Brinkerhoff.

The by-laws of the corporation authorized the president to call a meeting of the board by giving notice in person or by mail. No notice of this meeting was given. The $250 judgment in favor of Boyd, mentioned in the declaration of sale, was for that much of the $480 he had advanced to pay the interest which had accrued in 1898. There was no other consideration for the transfer of the right of redemption to Boyd beyond his payment of the $5,500 debt to the bank and the $480 advanced to pay interest. After the...