Henry Gold Mining Co. v. Henry

• Decision Date: 18 December 1913
• Citation: 137 P. 523,25 Idaho 333
• Parties: THE HENRY GOLD MINING COMPANY, a Corporation, Respondent, v. S.E. HENRY, Appellant
• Court: Idaho Supreme Court

137 P. 523

25 Idaho 333

THE HENRY GOLD MINING COMPANY, a Corporation, Respondent, v. S.E. HENRY, Appellant

Supreme Court of Idaho

December 18, 1913

CORPORATION-ORGANIZATION OF-QUESTIONING REGULARITY OF-RIGHT OF CORPORATION TO RATIFY AND ADOPT THE ACTS OF THE PROMOTERS MADE IN ITS BEHALF PRIOR TO ITS FORMATION-RIGHT TO SUE FOR SPECIFIC PERFORMANCE AGAINST A PROMOTER WHO REFUSES TO COMPLY WITH CONTRACT-EVIDENCE-PREPONDERANCE SUPPORTING FINDINGS-NO ERROR JUSTIFYING REVERSAL.

1. Individuals cannot in collateral suits avail themselves of any defects in the organization of a corporation. This may be done only by the power creating them in a direct proceeding instituted for that purpose.

2. A person who has been instrumental in the formation of a corporation and who has contracted with the corporation with full knowledge of its transactions is not in a position to contest the legality of its formation.

3. Where four promoters made an agreement to form a corporation and after the corporation was formed became its sole stockholders, officers and directors, and made contracts and transacted business on behalf of the corporation relating to a contract previously entered into between the promoters, and had knowledge of the transactions which preceded the formation of the corporation and the contract that the promoters made prior to the organization of the corporation and this knowledge was imputable to the corporation when they became stockholders, officers and directors, and the evidence shows that the corporation by its acts and conduct has adopted and ratified the agreement made by the promoters before the corporation was organized, and the corporation brings suit against one of the promoters who has not fully complied with his contract entered into as a part of the promoters' arrangement, the plaintiff, the corporation has a legal cause of action and may sue for specific performance of the contract.

4. Where it is shown by the record that the evidence in the case is conflicting, and the opinion of this court is that there is substantial evidence supporting the findings of the trial court, this court will not reverse the judgment on the ground that the evidence does not support the findings.

APPEAL from the District Court of the Eighth Judicial District for Bonner County. Hon. John M. Flynn, Judge.

Action to enforce the specific performance of a contract. Affirmed.

Judgment affirmed. Costs awarded to respondent.

Herman H. Taylor, for Appellant.

A contract of promoters cannot be ratified. A new contract must be shown or a specific adoption. (Penn Match Co. v. Hopgood, 141 Mass. 145, 7 N.E. 22; Abbott v. Hopgood, 150 Mass. 248, 15 Am. St. 193, 22 N.E. 907, 5 L. R. A. 587.)

Certainly this could not be done by a corporation before it had any existence at all. (Wall v. Mines, 130 Cal. 27, 62 P. 386; Bash v. Culver Gold Min. Co., 7 Wash. 122, 34 P. 462.)

If any action lies, it is by the promoters against Henry for failure to perform his contract and for their damages sustained thereby. (5 Cook on Corporations, 183, 186, 707.)

G. H. Martin and Peter Johnson, for Respondent.

Individuals cannot avail themselves of any defects in the organization of a corporation. This may be done only by the powers creating the corporation in a direct proceeding instituted for that purpose. (Boise City Canal Co. v. Pinkham, 1 Idaho 790; 10 Cyc. 259; 1 Clark & Marshall on Corp., secs. 80, 256.)

Where an association under color of legal existence is in the exercise of its corporate franchise, inquiry cannot be made collaterally into its corporate existence. To permit this would be to invite endless litigation. (1 Clark & Marshall on Corp., secs. 80, 81; Douglas Co. v. Bolles, 94 U.S. 104, 24 L.Ed. 46; Dollar Co. v. Huidekoper, 154 U.S. 654, 14 S.Ct. 1190, 25 L.Ed. 974; Puget Sound Nat. Bank v. Fisher, 52 Wash. 246, 17 Ann. Cas. 526, 100 P. 724.)

By contracting with the plaintiff the defendant admitted that it was a legal corporation in whose favor a liability might be incurred and at whose suit a liability might be enforced, and in this proceeding his admission would be conclusive upon him, and he is precluded from alleging the incompetency of the plaintiff. (Grande Ronde Lumber Co. v. Cotton, 12 Colo. App. 375, 55 P. 60; First Cong. Church v. Grand Rapids etc. Co., 15 Colo. App. 46, 60 P. 948; Plummer v. Mercantile Co., 23 Colo. 190, 47 P. 294; Lynch v. Perryman, 29 Okla. 615, Ann. Cas. 1913A, 1065, 119 P. 229.)

Ratification or adoption may be implied where it is within the scope of the powers of the corporation. (1 Clark & Marshall on Corporations, p. 309; Cook on Corporations, 6th ed., sec. 707.)

"As a corporation may, in most states, ratify or adopt a contract made on its behalf by its promoters before incorporation, and thus become liable thereon, it may also acquire the right to enforce the same. By such ratification or adoption it makes the contract its own, and may sue thereon in its own name." (1 Clark & Marshall on Corporations, 315; Paxton Cattle Co. v. First Nat. Bank, 21 Neb. 621, 59 Am. Rep. 852, 33 N.W. 271, note in 13 Am. St. 29, 30; Whitney v. Wyman, 101 U.S. 392, 25 L.Ed. 1050; Scadden Gold Min. Co. v. Scadden, 121 Cal. 33, 53 P. 440; Chater v. San Francisco etc. Refining Co., 19 Cal. 219.)

See, also, as to the enforcement of the remedy of specific performance in cases of mining corporations, Treasurer v. Commercial Min. Co., 23 Cal. 392; Shorb v. Beaudry, 56 Cal. 450; Hunt v. Davis, 135 Cal. 31, 66 P. 957; Wall v. Niagara Mining & Smelting Co., 20 Utah 474, 59 P. 399.

A promoters' agreement may be ratified by the acts and conduct of the corporation after it comes into existence. (Mantle v. Jack Waite Min. Co., 24 Idaho 613, 135 P. 863.)

STEWART, J. Sullivan, J. , concurs, Ailshie, C. J., concurs in conclusion.

OPINION

STEWART, J.

This is an action for the specific performance of a contract to convey to plaintiff an undivided one-fourth interest in and to the Boston, Chicago and Minneapolis mining claims located in the Pend d'Oreille mining district, Bonner county, Idaho, and to compel the defendant to make conveyance to the plaintiff of such interest. The facts are as follows: That on January 15, 1909, the defendant, Henry Riser, E. E. Fry and Frank Zimmerman entered into an agreement for the formation of a corporation under the laws of Idaho for the purpose of taking title to said one-fourth interest in said three mining claims and seven other mining claims, for the purpose of procuring money with which to develop the same; that it was agreed by each of said parties that he would, and he did, subscribe for 10,000 shares of the capital stock of the corporation; that it was agreed between defendant and Riser, who owned jointly the seven claims known as the Washington, Oregon, Idaho, Iowa, Colorado, California and Arizona, that they would convey to the corporation, when formed, all their interest in the seven claims last mentioned, and that it was agreed by the defendant that he would convey to the corporation when formed his undivided one-fourth interest in the Boston, Chicago and Minneapolis mining claims, and it was agreed that the corporation when formed should issue to Riser 300,000 shares of the capital stock of said corporation and to defendant 300,000 shares of the capital stock of the corporation in payment for the conveyance to the corporation of the mining claims aforesaid and the interest of the said parties therein. Thereafter a corporation was formed by the execution of articles of incorporation January 30, 1909, by the filing thereof February 8, 1909, and the issuance of a certificate of incorporation by the state of Idaho February 26, 1909; that said corporation was organized with a capital stock of 1,000,000 shares of the par value of ten cents each; that upon the completion of the organization of the corporation and the making of the agreement referred to in this opinion, Fry, Zimmerman and Riser transferred and released to the corporation all their rights which they had acquired under the agreement heretofore referred to and the corporation ratified and adopted the same; that Fry, Henry Zimmerman and Riser subscribed to the capital stock; that the corporation issued to Riser 300,000 shares for his interest in the seven mining claims above mentioned, and to the defendant 300,000 shares of its capital stock in payment for his interest in the ten mining claims above mentioned, and that by compliance by the plaintiff with the agreement the plaintiff became the owner of the undivided one-fourth interest in the Boston, Chicago and Minneapolis mining claims; that Riser and Henry conveyed to the corporation their interest in the Washington, Oregon, Idaho, Iowa, Colorado, California and Arizona mining claims by deeds, executed March 4, 1909, and August 25, 1909.

The complaint filed in the case sets forth practically the facts above mentioned, but the same was not verified. The defendant filed a general denial. The case was tried to the court upon the evidence. Findings of fact and conclusions of law were made and a decree entered in favor of the plaintiff, that the plaintiff is the owner in fee simple of an undivided one-fourth interest in and to the mining claims situated in the Pend d'Oreille mining district in Bonner county Idaho, to wit: The Boston, Chicago and Minneapolis, located about three and one-half miles north of the town of Hope, in Bonner county, Idaho, the adjoining claims being the Colorado and Iowa on the north, and the Washington and Oregon on the south. It was also commanded that the defendant convey to the plaintiff such undivided one-fourth interest in and to said mining claims by a deed sufficient in law to transfer to the plaintiff the defendant's title thereto, and such...