Doernbecher v. Columbia City Lumber Co.

• Decision Date: 01 February 1892
• Citation: 28 P. 899,21 Or. 573
• Parties: DOERNBECHER v. COLUMBIA CITY LUMBER CO. et al.
• Court: Oregon Supreme Court

28 P. 899

21 Or. 573

DOERNBECHER v. COLUMBIA CITY LUMBER CO. et al.

Supreme Court of Oregon

February 1, 1892

Appeal from circuit court, Multnomah county; LOYAL B. STEARNS Judge.

Suit by F.S. Doernbecher, a creditor, against the Columbia City Lumber Company, William Dunbar, H.W. Wallace, C.J. McDougall and W.W. Plympton, to enforce the individual liability of Dunbar, Wallace, and Plympton, stockholders, for unpaid subscriptions for stock. Decree for plaintiff. The stockholders appeal. Affirmed.

A.C Emmons, C.J. McDougall, and Joseph Simon, for appellants.

R. & E.B. Williams and J.M. Bower, for respondent.

BEAN J.

This is a suit by a judgment creditor of the insolvent defendant corporation to enforce the individual liability of defendants Dunbar, Wallace, and Plympton, stockholders, for their stock subscribed and unpaid. It is sufficient to say that the complaint is in the usual form, and the answer avers a general assignment by the corporation, prior to the commencement of this suit, of all its property for the benefit of creditors, and the sole right of the assignee to collect all moneys due for stock subscribed and unpaid. The validity of this assignment is the only question necessary to consider in this case.

The defendant corporation was organized in 1883 by the election of defendants Dunbar and Wallace, and D.W. Council, C.J McDougall, and William Lowe, directors,--Dunbar being president, McDougall secretary, and Lowe treasurer; and there has been no change in the officers since the organization of the company. No resolution or by-law was ever adopted providing for the time or place of meeting of the directors, nor does any record of the proceedings of the board seem to have ever been made or kept. The custom was to hold the meetings of the board for the transaction of business at such times as the necessities of the business required and the convenience of the members permitted. The company being largely indebted to William Lowe prior to the 14th day of May, 1889, Lowe assigned his claim to plaintiff, who on that day duly commenced an action against the company to recover the amount due thereon, which finally resulted in a judgment in plaintiff's favor. After the commencement of this action, and before final judgment, directors Dunbar, Wallace, and McDougall, without any notice to the other directors, assembled by mutual consent at the office of Emmons & Emmons, in the city of Portland, and pretended to pass a resolution authorizing the president and secretary of the company to assign all its property to R.W. Emmons for the benefit of its creditors, after which a deed of assignment was executed in due form.

It is claimed by plaintiff that the proceedings of this meeting are illegal and void, because it was convened without notice, verbal or written, to the directors who did not attend; and in this we think he is abundantly supported both by reason and authority. It is indispensable to a legal meeting of the directors of a corporation for the transaction of business that all the directors have notice, actual or constructive, of the time and place of the meetings; otherwise it might happen that a bare majority of the quorum present, being a minority of the whole, would do some act contrary and in opposition to the will of the majority. The stockholders and other persons interested in the corporation are entitled to the "combined wisdom" of all the directors. Where the time and place has not been fixed by some other competent authority, such meetings must be called by personal notice to each member of the board of directors. "It is not only a plain dictate of reason," says Mr. Justice COWEN, "but a general rule of law, that no power or function intrusted to a body consisting of a number of persons can be legally exercised without notice to all the members composing such body." People v. Batchellor, 22 N.Y. 134. And this is so for the transaction of even ordinary business. But here an extraordinary act was to be performed,--the assignment and transfer of all the property of the corporation; and there was therefore the greater reason that all the directors should be informed of the meeting, so that their advice and counsel might be had before this important step was taken. The board consisted of five members, a bare majority of whom assembled to perform the act and dispose of the property of the company. In such case it might happen, if no more were notified, that two of the five directors would perform it, although against the will of the remaining three. To prevent such a possibility, it is necessary that all be notified.

It is no excuse to say that the three who were present all voted for the resolution, and, had the other two been present, the result would have been the same. The right to deliberate, and by their advice and counsel convince their associates, if possible, is the right of the minority, of which they cannot be deprived by the arbitrary will of the majority. Com v. Cullen, 13 Pa.St. 133. All persons interested in the corporation are entitled to the advice and influence, as well as the votes, of all the directors. And, says Mr. Morawetz, "while it may not be the duty of every director to be present at every meeting of the board, yet it is certainly the intention of the shareholders that every director shall have a right to be present at every meeting, in order to acquire full information concerning the affairs of the corporation, and to give the other directors the benefit of his judgment and advice. If meetings could be held by a bare quorum without notifying the other directors, the majority might virtually exclude the minority from all participation in the management of the company." ...