Eastern Products Corp. v. Tennessee Coal, Iron & R. Co.

• Decision Date: 31 January 1925
• Citation: 269 S.W. 4
• Parties: EASTERN PRODUCTS CORPORATION et al. v. TENNESSEE COAL, IRON & R. CO.<SMALL><SUP>*</SUP></SMALL>
• Court: Tennessee Supreme Court

269 S.W. 4

EASTERN PRODUCTS CORPORATION et al. v. TENNESSEE COAL, IRON & R. CO.^*

Supreme Court of Tennessee.

January 31, 1925.

Appeal from Chancery Court, Marion County; T. L. Stewart, Chancellor.

Suit by the Eastern Products Corporation and others against the Tennessee Coal, Iron & Railroad Company. Decree of dismissal, and complainants appeal. Decree affirmed, and bill dismissed.

Brown & Spurlock and Spears & Spears, all of Chattanooga, and Percy, Benners & Burr, of Birmingham, Ala., for appellants.

Littleton & Littleton, of Chattanooga, and O'Brien, Boardman, Parker and Fox, of New York City, for appellee.

CHAMBLISS, J.

This suit was brought to collect $1,319,100 damages for breach of an executory contract of sale for future delivery of pig iron at a consideration of $485,000. The chancellor found that the assignor of complainant, a Tennessee corporation, at the time of the execution of the contract sued on had but $800 subscribed of a capitalization fixed by its charter at $2,000,000, and was therefore not lawfully authorized to enter bindingly into such a contract, and dismissed the bill.

In March, 1916, a charter was duly granted by the state of Tennessee to Chattanooga Steel Company, as a mining and manufacturing corporation, under the act of 1875; the capital stock being therein fixed at $2,000,000, of which $1,400,000 was common and $600,000 7 per cent. preferred. The incorporators, seven in number, promptly met on March 12th, accepted the charter, and adopted by-laws providing for customary officers and directors, fixing the shares at $100 each, and providing that —

"The books of the corporation shall be immediately opened and subscriptions taken and accepted for eight shares of the capital stock of the par value of $100 a share."

A resolution was thereupon adopted reciting that the books were opened at this meeting and that seven subscriptions for one share each were thereupon made and accepted. A meeting of these seven stockholders immediately followed, when the minutes of the incorporators meeting, including the by-laws, were approved, the directors elected at this meeting instructed to meet upon adjournment to elect officers, and these directors and officers "authorized to carry on the business for which the corporation was chartered, and to take all steps necessary and incidental thereto." This stockholders' meeting thereupon adjourned to March 17th. The meeting of directors elected a president, vice president, and a secretary and treasurer, directed the officers "to proceed with such business as the corporation might lawfully transact," appointed a committee of three to prepare and submit a set of by-laws to the adjourned meeting of stockholders, and thereupon adjourned to March 17th. At this meeting on March 17th the remaining share of stock of the par value of $100 of the eight shares provided for by article 5 of the originally adopted by-laws was subscribed for and an amendment to the by-laws was adopted, increasing the number of directors from seven to eight, and the new subscriber was elected to fill the vacancy thus created. This meeting thereupon adjourned to the 21st day of September following. At the meeting of directors on March 17th a second vice president was elected, and adjournment had to September 21st, after the adoption of a motion appointing C. E. James, J. B. Baird, and W. T. James, the president and two vice presidents, "a committee of three, with power to take charge of the construction of a steel mill and to do all things necessary or incidental thereto." It was in this situation of its corporate affairs that the contract sued on was entered into by its president on the 27th day of April, as hereinafter shown.

The adjourned meeting of stockholders was duly held on the 21st of September following, when, after accepting the resignations of two of the directors, a new set of by-laws was adopted, in which power was expressly conferred upon the president to execute for the corporation all contracts which it might lawfully make, and providing (in lieu of the original by-law provision limiting the taking of subscriptions to eight shares only of the capital stock) that "the full capital stock of the corporation authorized by the charter shall be divided into shares of the par value of $100 each, and shall be sold at par, on such terms and in such manner as the board of directors may from time to time direct." The article of the original by-laws theretofore in force had read as follows:

"The capital stock of the corporation shall be divided into shares of $100 each, and the books of the corporation shall be immediately opened and subscriptions taken and accepted for eight shares of the capital stock of the par value of $100 a share."

It thus appears that for the first time on September 21, 1916 (a) the president was expressly empowered generally to bind the corporation by the execution of contracts in its name, and (b) authority was granted by by-laws, or other action of the stockholders or directors, for the sale of any of the capital stock of the corporation other than the eight shares originally subscribed.

At the adjourned meeting of directors on the 21st of September, after formally accepting the resignations of two of their number, the following resolutions, prefaced by the minute recital herein copied, was adopted:

"And it appearing that there were no other stockholders from which other directors could be elected pursuant to the by-laws (the by-laws requiring a director to be a stockholder), it was resolved: That until there should be other subscribers to the stock of the corporation, from which directors may be elected, the board of directors shall consist of the remaining members of the board, to wit: [naming them] and until there shall be such subscribers to the capital stock of the corporation no other directors shall be elected to fill the vacancies caused by the resignation," etc.

The language italicized appears to have especial significance.

A motion was then passed authorizing the president "to proceed to do all things necessary and incidental to the business and purposes for which the corporation was organized, and to make all contracts and to take all steps looking to the furtherance of the business and purposes for which the corporation was organized, and to report his action to the next regular or special meeting of the board of directors." And finally it appears from the minutes that —

"Thereupon it was made to appear to the meeting that said C. E. James, for and on behalf of the corporation, had assumed numerous obligations and taken numerous steps in furtherance of the business for which the corporation was organized, and upon motion duly made, seconded, and unanimously carried all the acts of said C. E. James in the furtherance of the business of the corporation, and of the purposes for which it was organized, were in all things ratified, confirmed, and approved."

The last meeting of this corporation, minutes of which appear on the minute book, filed as Exhibit 1 to the deposition of C. E. James, and which he testifies "contains the minutes of the Chattanooga Steel Company," was held on the 26th day of September, 1916. At this specially called meeting of stockholders the secretary presented formally a certified list of all stockholders, with the number of shares held by each, which contains the name of the seven original subscribers, the incorporators, and one other, holding one share each. A formal waiver of notice was spread of record, and thereupon the president stated the object of the meeting to be a review of the minutes of all previous meetings, which, being read, were upon motion duly approved by formal resolution. The minutes of the special or called meeting of directors are to the same effect, and this exhibit concludes with a formal certificate by the secretary of the inclusiveness and correctness of the record. And C. E. James testifies that this minute book is the "exact record of every meeting we held." Question 273. Mr. James elsewhere testifies that one or more meetings were subsequently had of which no records were preserved and of which there is no evidence that any action of importance was taken, except that it is shown, although not on these, the recorded minutes, that the charter of the Steel Company was formally surrendered to the state in December, 1917. It does not appear that the corporation ever acquired title to any property, or had assets, other than the proceeds of the eight shares of stock, or ever conducted in its name any mining or manufacturing or other business operations. But it appears from the testimony of Mr. James that he took various preliminary steps of consequence looking to the prosecution of the enterprise contemplated by the charter, preparing a deed from another corporation, of which he was also president, to this one, covering land on which certain structural work was or had been done at his instance, final delivery of which was, however, withheld, and entered into contracts, including the one sued on, in considerable amounts, for materials. However, it is shown that the enterprice was finally abandoned, the deed canceled or withdrawn from what might be termed an escrow, and the materials engaged resold by Mr. James, resulting in the establishment or realization of neither assets nor liabilities of Chattanooga Steel Company, the sole claim for or against this corporation outstanding or asserted, as a result of its organization and operations as described, being that now sued on in this cause.

Turning now to the contract made the basis of this suit, it appears that on the 14th day of April, 1916, the following letter was addressed by C. E. James to the defendant company at Birmingham, Ala.:

                                        "April 14, 1916
                

"Mr. F. A. Burr, Sales Manager, T. C. I. Co., Birmingham, Ala. — Dear Sir: The Chattanooga Steel Company wants to get 30,000 tons of standard basic pig...