Scott v. Cord, 4123

• Decision Date: 20 March 1959
• Docket Number: No. 4123,4123
• Citation: 336 P.2d 773,75 Nev. 179
• Parties: A. P. SCOTT, Appellant, v. E. L. CORD, Respondent.
• Court: Nevada Supreme Court

Page 773

336 P.2d 773

75 Nev. 179

A. P. SCOTT, Appellant, v. E. L. CORD, Respondent.

No. 4123.

Supreme Court of Nevada.

March 20, 1959.

John P. Thatcher, Reno, for appellant.

William J. Cashill and Robert Leland, Reno, for respondent.

McNAMEE, Justice.

In the court below respondent Cord sued Bedford Wilshire Company, a Nevada corporation, on three promissory notes executed by the corporation to him, one dated February 28, 1950, in the sum of $150,000, one dated September 20, 1950, in the sum of $145,000, and one dated January 31, 1952, in the sum of $44,000. Each note recited that all of the corporation's interest in any land scrip and in any stock of other corporations was pledged as security for payment of the same. The prayer of the complaint asks for a sale of certain of the pledged assets with the proceeds therefrom to be applied toward payment of said notes.

Appellant Scott and one Maggart intervened as interested stockholders claiming that the meetings of the corporation's board of directors which authorized the execution of said notes were illegal, because only two of the three directors were present, the third director, John P. Thatcher, not having had any notice of said meetings. Scott further contends that even if the resolution passed at the meeting held December 5, 1949, was valid and would authorize the execution of the first two notes, it was legally insufficient to give the officers the power to pledge any corporate assets as security.

Scott further alleges that although he, Cord, and Maggart agreed among themselves that they would use their joint efforts to acquire additional land scrip for the benefit of all, that Cord acquired in his own name scrip representing land in excess of 3,300 acres.

We are not concerned with Maggart's complaint in intervention because his appeal herein was dismissed on stipulation.

For simplicity we shall hereafter refer to respondent Cord as Cord, Bedford Wilshire Company as the corporation, and appellant Scott as Scott.

Cord in answering Scott's complaint in intervention counterclaimed for the sum of $16,250, being one half of the face value of two notes executed by Maggart and payable to Cord and Scott, alleging that he had advanced to Maggart $32,500 for the two notes on the promise by Scott that if the loan were made and if Scott were named as one of the payees in the notes given therefor, he (Scott) would reimburse Cord one half of said face value. It is further alleged that Maggart owes Cord and Scott the amount of said notes.

A pre-trial order approved by the interested parties determined the following facts:

In 1948 Maggart for a cash consideration transferred to Cord and Scott a 55% interest in certain land scrip and land scrip enterprises of which Maggart was sole or part owner. Thereafter on December 10, 1948, Cord, Scott, and Maggart entered into an agreement by which Cord and Scott were to transfer said 55% interest to Bedford Wilshire Company and Maggart was to transfer the 45% interest retained by him to said company with the understanding that 55% of the company's stock should issue to Cord and Scott and 45% to Maggart.

John P. Thatcher, Edward D. Neuhoff, and James P. Brice were elected directors of the corporation and in consideration of the transfer to the corporation of the scrip interests, the corporation issued to Cord 27,500 shares, to Scott 27,500 shares, and to Maggart 45,000 shares of its capital stock. Later Cord and Scott transferred their shares of stock to the First National Bank of Nevada as voting trustee, under a written agreement whereby neither could vote the stock unless both were in agreement.

The meetings of the board of directors authorizing the borrowing of the money and the execution of the said notes and the pledge of assets were held pursuant to the provisions of Article II, Section 6 of the By-laws ¹, and in accordance therewith, director Thatcher was not informed of the place or time of the holding of said meetings other than the constructive notice furnished by the by-laws. Thatcher was not present at said meetings, he did not waive notice thereof, nor did he demand any notice of such meetings.

The court found from the evidence that the situation leading up to the execution of the three notes was as follows:

1. Cord advanced to the corporation at least the sum of $339,000.

2. All of the stockholders were in agreement that Cord should have first claim on the corporation's assets for any such advances.

3. The corporation accepted the benefits of such advances.

4. The corporate acts in authorizing the execution of the notes were actually within the knowledge and were with the consent of all the stockholders including appellant Scott.

5. All of the stockholders gave implied authority to a quorum of the board of directors (i. e. two directors) meeting in accordance with the said provisions of the by-laws relating to regular directors' meetings to perform corporate acts without actual notice to the third director of the time and place of such meetings.

From the stipulated facts and the evidence presented the trial court determined that the various agreements entered into by and between Cord, Scott, and Maggart were not intended to nor did they create the relationship of a joint venture, but rather a corporate relationship. With such fact established as its premise, the lower court then found that there was an agreement among Cord, Scott, and Maggart, being all of the stockholders of the corporation, that Cord was to have secured promissory notes for his advances, that such advances were made, that pursuant to such agreement of the stockholders the board of directors authorized the issuance of secured promissory notes to Cord for such advances, at regular meetings duly held, and that both the corporation and Scott were estopped from denying the validity of the notes and pledges. The court further found that the acquisition by Cord of scrip in his own name was a transaction personal to him, said scrip having been purchased by him for his own account.

With respect to Cord's said counterclaim against Scott, the court found that the allegations of the counterclaim were true and that Scott was indebted to Cord in the sum of $16,250 thereunder.

The trial court thereupon entered judgment in favor of Cord and against the corporation in the sum of $339,000 plus attorney fees in the sum of $30,000, and ordered foreclosure of the pledged assets. ² Judgment was also entered in favor of Cord against Scott for $16,250 on said counterclaim.

As to controverted factual matters there was competent evidence to sustain the trial court's findings and with respect to the same we will not concern ourselves.

There remain however certain questions of law requiring determination.

That the corporation had power to authorize the issuance of the notes in the form as executed is not denied. It is appellant's contention however that the validity of the notes depends solely upon proper corporate procedure, and that the directors at the two meetings which authorized the execution of the notes acted improperly by failing to give actual notice of such meetings of director Thatcher.

The evidence reveals that at every meeting of the board of directors only two of the three directors had been present, that the minutes in each instance are silent as to actual notice to the absent director, and that this situation existed at the meeting of September 19, 1951, held after the alleged illegal...