Enterprise Foundry & Machine Works v. Miners' Elkhorn Coal Co.

• Citation: 241 Ky. 779,45 S.W.2d 470
• Parties: ENTERPRISE FOUNDRY & MACHINE WORKS v. MINERS' ELKHORN COAL CO. et al.
• Decision Date: 09 December 1931
• Court: Court of Appeals of Kentucky

45 S.W.2d 470

241 Ky. 779

ENTERPRISE FOUNDRY & MACHINE WORKS v. MINERS' ELKHORN COAL CO. et al.

Court of Appeals of Kentucky

December 9, 1931

Appeal from Circuit Court, Johnson County.

Action by the Enterprise Foundry & Machine Works against the Miners' Elkhorn Coal Company and others, in which the Enterprise Wheel & Car Corporation was made a party. From an adverse judgment, plaintiff appeals.

Reversed and remanded.

Wheeler & Wheeler, of Paintsville, for appellant.

Kirk &amp Wells, of Paintsville, for appellee.

RICHARDSON J.

The Enterprise Foundry & Machine Works on January 31, 1923, was a corporation with its residence at Bristol, Tenn.-Va., engaged in selling completely equipped mining cars. On the same day the Miners' Elkhorn Coal Company was a corporation engaged in the mining of coal, with its chief office at Paintsville, Ky.

On January 31, 1923, the Enterprise Founddry & Machine Works, by written contract executed and delivered by it to, and accepted by, the Miners' Elkhorn Coal Company, sold and agreed to deliver to it 27 mine cars complete, f. o. b. at Bristol, Tenn., at $94.51, per car, amounting to $2,551.77 which amount was paid, less $725.88, for which notes were executed and delivered by the Miners' Elkhorn Coal Company to the Enterprise Foundry & Machine Works; one for $50, another for $50, and a third note for $725.75, dated July 10, 1924. This provision was in the written contract between the parties: "The title and ownership of the property described and specified herein shall not pass from the company until all payments regular or deferred, shall have been made fully in cash. Notes given or renewals thereof shall not be held to be payments until the notes themselves are actually paid. In case of default in any of the payments provided for above, the Company may repossess itself of the herein mentioned property, whereever found, and shall not be liable in any action of law on the part of the Purchaser for such reclamation of its property, nor for the repayment of any money or moneys, which may have been paid by the Purchaser in part payment for the said property, except as by statute provided."

The Enterprise Foundry & Machine Works delivered the cars as it agreed and endeavored to collect the balance due it. Failing to do so, it instituted this action to recover same and to enforce a lien on the 27 cars. Thereafter it sold its business and assets to the Enterprise Wheel & Car Corporation. By a proper pleading it was made a party with the permission to prosecute the action.

For its cause of action the appellant alleged in its petition the usual and necessary facts constituting its cause of action. In doing so it set out haec verba the contract between the Enterprise Foundry & Machine Works and the Miners' Elkhorn Coal Company. It further alleged that the Miners' Elkhorn Coal Company by its board of directors, Z. Wells, F. B. Preston, W. L. Preston, John Dills, and Mose Rice, with knowledge on their part of the existence of its written contract with their corporation, in March, 1927, executed and delivered to themselves as individuals a mortgage on the assets of the Miners' Elkhorn Coal Company, including the 27 cars, to secure themselves as indorsers on certain notes of their corporation, aggregating $7,000; that the mortgage was fraudulently and collusively executed by them to hinder and to prevent the Enterprise Foundry & Machine Works in the collection of its debts against their corporation; that in pursuance to this arrangement they caused to be filed in the Johnson circuit court an action wherein G. B. Rice, F. B. Rice, Z. Wells, Mose Rice, F. B. Preston, W. L. Preston, and John B. Dills were plaintiffs and the Miners' Elkhorn Coal Company was the defendant; that judgment therein was procured by the fraud and collusion of the parties to the action; the property of the Miners' Elkhorn Coal Company was sold by the master commission of the court under a judgment therein, and the property purchased by E. Wells for their use and benefit; that thereafter it was sold by them to the Northeastern Coal Company, and the proceeds were applied by them to the debts of the corporation for which they were liable.

The Miners' Elkhorn Coal Company, Z. Wells, F. B. Preston, W. L. Preston, John Dills, and Mose Rice, filed their answer thereto and offered to file an amended answer. To its filing the appellant objected. The court sustained its objection and refused to permit the amended answer to be filed. It was not asked by them to be made a part of the record by an order of court, nor was it so made a part of the record.

On submission, on the pleadings and evidence, a judgment was rendered against the Miners' Elkhorn Coal Company and F. B. Preston for $785.25. The petition was dismissed as to Wells, W. L. Preston, John Dills, Mose Rice, and the Northeastern Coal Company. It was further adjudged that the appellant had no lien on the 27 mine cars. To the judgment dismissing the petition as to them and as to so much of it as adjudged that it had no lien on the cars, the appellant excepted and was granted an appeal which is now being prosecuted.

A major portion of the testimony in the case is the same as that which was introduced in the case of H. B. Rice & Co. v. Miners' Elkhorn Coal Co. et al., recently decided by this court and reported in 234 Ky. 580, 28 S.W.2d 783. Many of the facts and some of the questions presented for consideration in the present case are stated in that one. It is necessary for a consideration of the present case to state the additional facts and questions herein, which were not involved in it.

At the time the mortgage of the corporation on its property was executed and delivered by virtue of an order of the board of directors to themselves, in addition to being a director, F. B. Preston was president, general manager, and treasurer of the corporation. The Miners' Elkhorn Coal Company was at that time indebted to the Paintsville National Bank in the sum of $7,000, $2,500 of which had been owing by the corporation for about five months, $3,000 about two months, and $500 for an indefinite time. The directors were indorsers of the notes of the Miners' Elkhorn Coal Company to the Paintsville Bank, except the $500 note. It was indorsed by F. B. Preston and W. L. Preston. When these three notes matured the directors executed to the bank their personal notes and left them with it covering the amount of the corporation's notes. Their personal notes were not dated, but after they were executed and delivered to the bank, they were merely attached to the three notes of the Miners' Elkhorn Coal Company. At the date of the execution of the mortgage the written contract between the two corporations for the sale of the 27 cars was neither acknowledged nor recorded.

The directors are here insisting that at the time the corporation executed and delivered the mortgage, they had no knowledge or information of the existence of applicant's written contract or its terms, between the Enterprise Foundry & Machine Works and the Miners' Elkhorn Coal Company, and that they are protected against the contract by the provisions of section 496, Ky. Statutes. They insist that at the date of the mortgage the assets of the corporation, estimated at a reasonable market value, were $60,000 and that its indebtedness was $24,000. It is disclosed by the evidence that before the mortgage was executed and delivered the president, general manager, and treasurer of the corporation reported to the board of directors the indebtedness of the corporation. From his testimony it appears that they had knowledge of the amount of the debts owing by the corporation, even if they had no actual knowledge of the names and addresses of the creditors, or of the amounts or the nature of their respective debts. It is not disputed that the 27 cars were purchased by the president, general manager, and treasurer of the corporation by the written contract in evidence, or that they were used by it in its operation of its mine. Of this latter fact it is admitted the directors had actual knowledge. It is shown that the board of directors did not formally authorize its president, general manager, and treasurer to contract for, or to purchase, the cars; but his general authority and the manner and extent of the exercise thereof by him were known to, and its exercise by him was acquiesced in by, the stockholders and members of the board of directors. A corporation must act through its officers and agents. The board of directors is the central power which authorizes the executive agents to enter into contracts and embark upon new business ventures. But where an officer of a corporation is held out by it as authorized to represent the corporation in any particular line of its endeavor, such as purchasing equipment and supplies, that corporation is bound by his acts even though the board of directors takes no specific action upon the matter and enters no formal order authorizing such officer to act for the corporation in that particular matter. So likewise it is bound when it permits its official in the regular course of business to make contracts and to carry on certain work without objection from its board of directors and thereafter receives and appropriates the same and recognizes such as its property. Hall-Watson Furniture Co. v. Cumberland Tel. & Telg. Co., 203 Ky. 90, 261 S.W. 883; Commonwealth v. Mehler & Eckstenkemper, 183 Ky. 11, 208 S.W. 13; Union Motor Co. v. Taylor, 206 Ky. 398, 267 S.W. 170.

In Hall-Watson Furniture Co. v. Cumberland Tel. & Telg. Co. supra, the court said: "It is nevertheless true that in practice a corporation may, and often does, bind itself by the actions of its executive officers and agents without formal...