Mulford v. Torrey Exploration Co.

• Decision Date: 01 February 1909
• Citation: 100 P. 596,45 Colo. 81
• Parties: MULFORD v. TORREY EXPLORATION CO.
• Court: Colorado Supreme Court

100 P. 596

45 Colo. 81

MULFORD v. TORREY EXPLORATION CO.

Supreme Court of Colorado

February 1, 1909

Appeal from District Court, City and County of Denver; Jno. I Mullins, Judge.

Action by C. H. Mulford against the Torrey Exploration Company. Judgment for defendant, and plaintiff appeals. Reversed and remanded.

Jno. T. Jacobs, for appellant.

J. E Robinson, for appellee.

GABBERT J.

Appellant plaintiff below, commenced an action against the appellee, as defendant. In his complaint he set up two causes of action. In the first it was alleged, in substance, that George L. Torrey was the general manager of the defendant company, with full power to enter into contracts on its behalf; that on the 23d day of January, 1904, he entered into an oral contract with the defendant, through its manager, to purchase 50 shares of the capital stock of the company by paying therefor 25,000 shares of the capital stock of the Omar Gold Mining & Tunnel Company, and his promissory note for $1,250, due and payable six months after date, with interest at 7 per cent. per annum, with the understanding and agreement that he was to have the privilege at any time within six months from the date of the transaction of returning the stock to the company, and having his Omar stock and promissory note returned to him; that on or about the 15th day of June following the transaction he notified the defendant that he desired to exercise his right under his contract of purchase, and tendered to it the 50 shares of stock, and requested the defendant to return to him his note and Omar stock; that prior to the maturity of his note the defendant, for a valuable consideration, sold and transferred it to a bona fide purchaser; that he was compelled to pay the note to this purchaser; and that notwithstanding the agreement of the company it has failed and refused to return his Omar stock. Plaintiff further alleges that, by reason of being compelled to pay his note, he has been damaged in the sum of $1,305, and that the reasonable cash market value of his Omar stock is $500, and prays judgment accordingly. By his second cause of action, plaintiff alleged, in substance, the relation of Torrey to the company, and his authority to contract on its behalf, as stated in his first cause of action; that on the 19th day of March, 1904, he entered into a written contract with the defendant through Torrey, its manager, to purchase 40 shares of the capital stock of the company by paying therefor 20,000 shares of the capital stock of the Omar Gold Mining & Tunnel Company, and his promissory note for the sum of $1,000, dated March 19, 1904, due six months after date, with interest at 7 per cent., upon condition that, if at any time within six months from the date of the transaction he did not desire 20 shares of the stock so purchased, the company would cancel and return his promissory note; that thereafter, and on the 12th of September, 1904, he duly notified the defendant that he desired to exercise his right under his contract to return 20 shares of the stock transferred to him, and have his note canceled and returned, and tendered to the company the stock with the dividends thereon which had been paid to him; that the company negotiated and sold his note before maturity for a valuable consideration to a bona fide purchaser, whereby he was compelled to pay the same, amounting with interest to the sum of $1,035, and prays judgment for this sum, with interest. The defenses interposed by defendant were to the effect (1) that the contracts upon which plaintiff bases his cause of action were ultra vires and in violation of the statutes of this state; (2) that the general manager had no authority to make such contracts; (3) that the contracts were void as being a fraud on other stockholders; (4) that the oral contract upon which plaintiff relied, as set out in his first cause of action, was void because it varied the terms of a written contract; (5) that suit on the second cause of action was prematurely begun; (6) that the contract set out in the first cause of action was void under the statute of frauds. To these defenses plaintiff replied that the defendant was estopped from interposing them because of its silence, acquiescense, ratification, and receipt and retention of the benefits and considerations which it acquired by virtue of the contracts set out in the complaint. Judgment was entered for the defendant, and plaintiff brings the case here for review on appeal.

The testimony established beyond dispute that at the time of the transaction mentioned in the first cause of action plaintiff and defendant orally agreed that the former might return the stock purchased at any time within six months, and that upon such return his Omar stock and his promissory note would be returned to him.

With respect to the second cause of action, the testimony establishes a written contract between the parties substantially as stated in the complaint. It further appears that plaintiff within the time fixed in his agreements tendered to the company the stock transferred to him, and demanded the return of his Omar stock and promissory note; that his Omar stock has not been returned; that the defendant negotiated and sold the promissory notes of plaintiff before maturity; and that he has paid them to the purchasers thereof. The stock involved in the transactions was the treasury stock of the company. We shall consider the several defenses noted in connection with such further facts established at the trial as are relevant. The statute upon which the defense is based, to the effect that the contracts in question are in violation of the statutes of the state, is as follows: 'It shall not be lawful for such corporations to use any of their funds for the purchase of stock in their own company or corporation, except such as may be forfeited for the non-payment of assessments thereon, except as hereinafter provided.' Section 485, 1 Mills's Ann. St. This statute does not apply. The company desired to sell its treasury stock. It received the consideration agreed upon therefor. The plaintiff only purchased upon the condition that he should have the right to return the stock, and have the consideration which he gave therefor returned to him. There was but one contract, namely, for the sale and repurchase of the stock; each object being a consideration for the other. The sale was therefore conditional. Such a transaction is not prohibited by the statute. 10 Cyc. 416; Vent v. Duluth C. & S. Co., 64 Minn. 307, 67 N.W. 70; Browne v. St. Paul Plow Works, 62 Minn. 90, 64 N.W. 66; Porter v. Plymouth G. M. Co., 29 Mont. 347, 74 P. 938, 101 Am.St.Rep. 569. If, however, it could be successfully contended that the contracts in question are ultra vires, then the defendant cannot escape liability thereon for the reason that, where a corporation reaps and retains the fruits of an act which is merely unauthorized, it will not be permitted to interpose the defense of ultra vires. American Nat. Bank v. Hammond, 25 Colo. 367, 55 P. 1090.

Counsel for appellee contends that the contracts are divisible, and that those parts which relate to the sale of the stock are valid, while so much of the respective contracts as bind the company to repurchase is invalid. We have already pointed out that the contracts cannot be divided because each object therein is a consideration for the other. The company therefore, must stand by the contract as a whole, or repudiate it as a whole. A corporation...