Heylman v. Idaho Continental Mining Co.

• Decision Date: 27 September 1926
• Citation: 250 P. 1081,43 Idaho 129
• Parties: FANNIE L. HEYLMAN, Appellant v. IDAHO CONTINENTAL MINING COMPANY, a Corporation, IDAHO CONTINENTAL COMPANY, a Corporation, KLOCKMANN BROTHERS, a Corporation, and ALBERT KLOCKMANN, Respondents
• Court: Idaho Supreme Court

250 P. 1081

43 Idaho 129

FANNIE L. HEYLMAN, Appellant v. IDAHO CONTINENTAL MINING COMPANY, a Corporation, IDAHO CONTINENTAL COMPANY, a Corporation, KLOCKMANN BROTHERS, a Corporation, and ALBERT KLOCKMANN, Respondents

Supreme Court of Idaho

September 27, 1926

CORPORATIONS-LEASE OF CORPORATE PROPERTY TO DIRECTOR-LACHES OF STOCKHOLDER IN ASSERTING RIGHTS-FINDINGS ON ACCOUNTING.

1. Although lease of property of corporation to its directors or any one of them is open to suspicion, such act is not void or necessarily fraudulent, where it is within the power of the corporation and is subsequently ratified by stockholders.

2. Lease of property to corporate director held not in fraud of minority stockholders, in view of fact that corporation was insolvent and foreclosure proceedings were about to be instituted.

3. Corporate stockholder, having failed for nine years after lease of corporate property to director to assert any rights held guilty of laches to such extent that court of equity will not grant relief.

4. Findings of trial court relative to accounting will not be disturbed, when supported by substantial evidence.

APPEAL from the District Court of the Eighth Judicial District, for Boundary County. Hon. John M. Flynn, Judge who tried equities. Hon. W. F. McNaughton, Judge who tried accounting.

Action by plaintiff Fannie L. Heylman on behalf of herself and others similarly situated to cancel lease, certain contracts relating thereto and modifying the same, and subleases made thereunder on certain mining property, for the appointment of a receiver and for an accounting. Judgment for defendants. Affirmed.

Judgment affirmed. Costs to respondent. Petition for rehearing denied.

Isham N. Smith and S. S. Gundlach, for Appellant.

The power of one corporation to hold stock in another for the purpose of controlling it is extraordinary and not incidental or implied, and can exist only by express grant in the governing law and the charter. (Riley v. Callahan Min Co., 28 Idaho 525, 155 P. 665; Hotchkin v. Third Nat. Bank, 219 Mass. 231, 106 N.E. 974; Franklin Bank v. Commercial Bank, 36 Ohio St. 350, 38 Am. Dec. 594; Hermitage Hotel Co. v. Dyer, 125 Tenn. 302, 142 S.W. 1117; First Nat. Bank v. Hawkins, 174 U.S. 364, 19 S.Ct. 739, 43 L.Ed. 1007; 2 Fletcher on Corporations, p. 1793, sec. 824; Oregon R. & Nav. Co. v. Oregonian Ry. Co., 130 U.S. 1, 9 S.Ct. 409, 32 L.Ed. 837; Central Trans. Co. v. Pullman Palace Car Co., 139 U.S. 24, 11 S.Ct. 478, 35 L.Ed. 55; Small v. Minneapolis Electro Matrix Co., 45 Minn. 264, 47 N.W. 797; Parsons v. Tacoma Smelting & Refining Co., 25 Wash. 492, 65 P. 765; Dunbar v. American Tel. & Tel. Co., 224 Ill. 9, 8 Ann. Cas. 57, 115 Am. St. 132, 79 N.W. 423; Anglo-American Land etc. Co. v. Lombard, 132 F. 721, 68 C. C. A. 89.) And no corporation can acquire the stock of a foreign corporation unless express statutory authority is found in each parent state and is recited in the articles of incorporation of both such companies. (Central Life Securities Co. v. Smith, 236 F. 170, 149 C. C. A. 360; Golden v. Cervenka, 278 Ill. 409, 116 N.E. 273; 2 Fletcher on Corporations, sec. 1125; Hunt v. Hauser Malting Co., 90 Minn. 282, 96 N.W. 85; Allen v. Francisco Sugar Co., 92 N.J. Eq. 391, 110 A. 37; Doe Run Lead Co. v. Maynard, 283 Mo. 646, 223 S.W. 600.)

All transfers of corporate franchises, whether by lease or otherwise, are void unless expressly authorized. (McCutcheon v. Merz Capsule Co., 71 F. 787, 19 C. C. A. 108, 31 L. R. A. 415; Byrne v. Schuyler Elec. Mfg. Co., 65 Conn. 336, 31 A. 833, 28 L. R. A. 304; Thomas v. West Jersey R. Co., 101 U.S. 71, 25 L.Ed. 950; People v. Ballard, 136 N.Y. 639, 32 N.E. 611; Earle v. Seattle L. S. & E. R. Co., 56 F. 909.)

Transactions between the trustee and beneficiary--between corporations controlled by interlocking directors or dominating stockholders--are regarded with suspicion and are permitted to stand only when the trustee affirmatively shows that the agreement is entirely fair and advantageous to the beneficiary and that there was no fraud, concealment, undue influence or unconscionable advantage. (2 Fletcher on Corporations, p. 1786, sec. 811; 4 Fletcher on Corporations, p. 3643, sec. 2389; 6 Fletcher on Corporations, pp. 6844, 6845, sec. 4035; 2 Pomeroy's Eq., 4th ed., p. 2039, secs. 956-958; Harrington v. High, 39 Idaho 555, 228 P. 883; Jensen v. Sidney Stevens Imp. Co., 36 Idaho 348, 210 P. 1003; City Trust Co. v. Bankers' Mortgage Co., 102 Neb. 532, 167 N.W. 785; Mathieson Alkali Wks. v. Arnold, Hoffman & Co., 280 F. 132; Bentley v. Zelma Oil Co., 76 Okla. 116, 184 P. 131; Farmers' State Bank v. Haun, 30 Wyo. 322, 222 P. 45; Heimbaugh v. Hitchcock, 115 Kan. 182, 222 P. 114; Glengarry Consol. Mining Co. v. Boehmer, 28 Colo. 1, 62 P. 839; Steinfield v. Nielsen, 12 Ariz. 381, 100 P. 1094; Rice's Appeal, 79 Pa. 168; Higgins v. Lansingh, 154 Ill. 301, 40 N.E. 362; Doe Run Lead Co. v. Maynard, supra.)

No beneficiary can be charged by his trustee with laches until the trustee has renounced his trust to the beneficiary's unequivocal knowledge. (Ryan v. Old Veteran Min. Co., 37 Idaho 625, 218 P. 381; Madison v. Madison, 206 Ill. 534, 69 N.E. 625; Hovey v. Bradbury, 112 Cal. 620, 44 P. 1077.)

The defense of laches is not available against a continuing breach because all breaches are tacked together and each gives a new cause of suit. (McConnell v. Combination Mine & Mill. Co., 31 Mont. 563, 79 P. 248; Bergman v. Evans, 92 Wash. 158, Ann. Cas. 1918C, 848, 158 P. 961; Miner v. Belle Isle Ice Co., 93 Mich. 97, 53 N.W. 218, 17 L. R. A. 412; Hughes Lumber Co. v. Culver, 126 Ark. 72, 189 S.W. 850; Tierney v. Pocahontas Coal Co., 85 W.Va. 545, 102 S.E. 249.)

Neither laches nor estoppel constitute a defense against an act of a corporation void for ultra vires. (Central Trans. Co. v. Pullman Palace Car Co., supra; Oregon R. & Nav. Co. v. Oregonian Ry. Co., supra; Roth v. Robertson, 64 Misc. 343, 118 N.Y.S. 351; Montgomery Lt. Co. v. Lahey, 121 Ala. 131, 25 So. 1006.)

Post & Russell and O. C. Wilson, for Respondents.

It is not ultra vires for a corporation in failing or in insolvent condition to lease for a term of years or sell all of its property. Neither is it a fraud upon the minority stockholders for the majority of the stockholders and the directors to lease for a term of years or sell all the property of the corporation when the corporation is in a failing or in an insolvent condition. (Geddes v. Anaconda Copper Min. Co., 254 U.S. 590, 41 S.Ct. 209, 65 L.Ed. 425; Anderson v. Shawnee Compress Co., 17 Okla. 231, 87 P. 315, 15 L. R. A., N. S., 846; Cook on Corporations, 8th ed., sec. 662, p. 2527; Marks v. Merrill Paper Co., 203 F. 16, 123 C. C. A. 380 (Sale); Collins v. Penn-Wyoming Copper Co., 203 F. 726 (Sale); Cowell v. McMillen, 177 F. 25, 100 C. C. A. 443 (Contract and Lease); Buchler v. Black, 213 F. 880 (Purchase of Mortgage); Rhea v. Newton, 262 F. 345 (Sale and Transfer to Creditor); Bartholomew v. Derby Rubber Co., 69 Conn. 521, 61 Am. St. 57, 38 A. 45 (Lease); Theis v. Spokane Falls Gas Light Co., 49 Wash. 477, 95 P. 1074 (Sale); Bergman Clay Mfg. Co. v. Bergman, 73 Wash. 144, 131 P. 485 (Sale); Plant v. Macon Oil & Ice Co., 103 Ga. 666, 30 S.E. 567 (Lease); Cardiff v. Johnson, 126 Wash. 454, 218 P. 269; Beidenkopf v. Des Moines Life Ins. Co., 160 Iowa 629, 142 N.W. 434, 46 L. R. A., N. S., 290 (Sale); Smith v. Stone, 21 Wyo. 62, 128 P. 612 (Sale); Nye v. Storer, 168 Mass. 53, 46 N.E. 402 (Lease); Bjorngaard v. Goodhue County Bank, 49 Minn. 483, 52 N.W. 48; Merriman v. National Zinc Corp., 82 N.J. Eq. 493, 89 A. 764.)

While a lease of the property of a corporation to its directors or any one of them is open to suspicion it is not void, and the fact alone that the lessees are directors does not sustain an allegation that it is fraudulent where it is within the powers of the corporation and has been ratified by the stockholders. (Nye v. Storer, supra; Wainwright v. P. H. & F. M. Roots Co., 176 Ind. 682, 97 N.E. 8; Union P. R. R. Co. v. Credit Mobilier, 135 Mass. 367.)

A stockholder who receives prompt notice of transactions made by the directors which are ratified by a majority of stockholders at regular meetings called for that purpose and then waits eight or nine years thereafter before complaining is guilty of laches and is estopped in his effort to have the transaction set aside. (Marks v. Merrill Paper Co., 203 F. 16, 123 C. C. A. 380; Pigeon River Ry. Co. v. Champion Fibre Co., 280 F. 557; Twin Lick Oil Co. v. Marbury, 91 U.S. 587, 23 L.Ed. 328, 3 Morr. Min. Rep. 688; Hotel Co. v. Wade, 97 U.S. 13, 24 L.Ed. 917; Sanford Fork & Tool Co. v. Howe, 157 U.S. 312, 15 S.Ct. 621, 39 L.Ed. 713; Indianapolis Rolling Mill v. St. Louis Ft. S. & W. R. R. Co., 120 U.S. 256, 7 S.Ct. 542, 30 L.Ed. 639.)

WILLIAM A. LEE, C. J. Wm. E. Lee, Budge, Givens and Taylor, JJ., concur.

OPINION

WILLIAM A. LEE, C. J.

This is an action by Fannie L. Heylman, plaintiff and appellant on behalf of herself and other stockholders similarly situated and interested, to cancel a lease, certain contracts relating to and modifying the same and subleases made thereunder on mining property in that part of Boundary county that was formerly a part of Kootenai county, and for the appointment of a receiver, and for an accounting of the minerals and ores extracted from said mining claims during the period covered by said leases, to have the several acts of the several defendants, respondents here, mentioned in the complaint, declared fraudulent and void, and that respondents be adjudged to pay appellant and such other stockholders as may join her their proportionate share of the value of the ores and minerals extracted from said mining property by virtue of, under and pursuant to any or either...