O'Conner Min. & Mfg. Co. v. Coosa Furnace Co.

• Decision Date: 01 December 1891
• Citation: 95 Ala. 614,10 So. 290
• Parties: O'CONNER MIN. & MANUF'G CO. v. COOSA FURNACE CO. ET AL.
• Court: Alabama Supreme Court

10 So. 290

95 Ala. 614

O'CONNER MIN. & MANUF'G CO. v. COOSA FURNACE CO. ET AL.

Supreme Court of Alabama

December 1, 1891

Appeal from chancery court, Etowah county; S. K. MCSPADDEN Chancellor.

Action by the O'Conner Mining & Manufacturing Company against the Coosa Furnace Company and others. Judgment for defendants. Plaintiff appeals. Affirmed.

Dunlap & Dortch, for appellant.

Aiken & Martin and Watts & Son, for appellees.

WALKER J.

The bill was filed by the O'Conner Mining & Manufacturing Company as a simple contract creditor of the Coosa Furnace Company, and its principal purpose was to reach and subject to the payment of the debt claimed certain property alleged to have been fraudulently conveyed by the Coosa Furnace Company,-first "first, by a mortgage executed on the 7th day of April 1884; and, again, as to a part of the property, by a deed of absolute conveyance executed on the 18th day of July, 1885. The specified ground of attack upon the conveyances in question is that they were executed for the purpose and with the intent to hinder, delay, or defraud the complainant, and to prevent it from enforcing collection of its just demands and that the debts the mortgage was given to secure, and also the considerations recited in the deed, were simulated, and not real. The execution of the two instruments is alleged in the bill, and is admitted in the answer. The instruments must stand, unless the particular infirmities charged against them are shown by the evidence. There are no allegations to support a contention that their formal execution by the corporation was insufficient in any particular. The charge that the considerations recited in the two instruments, respectively, were simulated, and not real, is not sustained by the proof. The defendants proved, without contradiction, that the debts secured by the mortgage were due from the mortgagor, and represented full value received by it; and also that the consideration mentioned in the deed was paid in the discharge of debts which were secured by the mortgage, and that the property conveyed was not at that time worth as much as the amount of the debts in payment of which it was received. We would have to ignore the uncontroverted evidence in the case to arrive at any other conclusion on the subject than that the debts correctly represented money actually advanced to the Coosa Furnace Company and bills contracted by it.

Much stress is laid in the bill and in the argument of counsel for the appellant upon the relations existing between the several defendants during the time covered by the transactions which are sought to be impeached. The dealings in question were between the Coosa Furnace Company, on the one side, and the Wabash Iron Company, the Vigo Iron Company, A. L. Crawford and his two sons, J. P. Crawford and A. J. Crawford, on the other side. It is true that each of the three corporations mentioned were controlled and dominated by the Crawfords. The great bulk of the stock in each of them was owned and held by members of the Crawford family. The board of directors in each of the corporations was composed of the Crawfords and their adherents. It thus plainly appears that the transactions were between the Coosa Furnace Company and some of its own stockholders and directors, and also two other corporations, having boards of directors composed of the same persons who managed and controlled the first-named company. The directors of a business corporation are its agents. Though they may not be trustees in the technical sense, yet they exercise functions of a fiduciary character. Their position implies that confidence is reposed in them. The duties which a director assumes to the corporation, and to the stockholders thereof, disqualifies him from binding the corporation in a transaction in which he is adversely interested. He cannot at the same time act for himself and for his principal without the full knowledge and free consent of the principal. In Morawetz on Private Corporations (section 528) it is said: "A person who is agent for two parties cannot, in the absence of express authority from each, represent them both in a transaction in which they have contrary interests. This rule is based upon the same reason as the rule which prohibits an agent from representing his principal when his personal interests are opposed to his duty. The principal stipulates for the judgment and skill of his agent, and the latter has no authority to act, when he is not in a position to give the principal the benefit of his best endeavors. It follows, therefore, that the directors, or other agents of a corporation, have no implied authority to bind the company by making a contract with another corporation which they also represent." If the same persons, as directors of two different companies, represent both companies in a transaction in which their interests are opposed, such transaction may be avoided by either company, or, at the instance of a stockholder in either company, without regard to the question of advantage or detriment to either company. Both the corporations are armed with the right to repudiate such a transaction, no matter how fair and open it may be shown to be. Railroad Co. v. Woods, 88 Ala. 603, 641, 7 South. Rep. 108. But the duty which disqualifies the directors from binding the corporation by a transaction in which they have an adverse interest is one owing to the corporation which they represent and to the stockholders thereof. A principal may consent to be bound by a contract made for him by an agent who, at the same time, represented an interest adverse to that of the principal. A cestui que trust may elect to confirm a transaction which he could have repudiated, on the ground that the trustee had an interest in the matter not consistent with his trust relation. In like...