Smith v. Sinaloa Land & Fruit Co.

• Decision Date: 28 April 1913
• Docket Number: 2454
• Citation: 132 P. 556,42 Utah 445
• Court: Utah Supreme Court
• Parties: SMITH v. SINALOA LAND AND FRUIT CO

132 P. 556

42 Utah 445

SMITH v. SINALOA LAND AND FRUIT CO

No. 2454

Supreme Court of Utah

April 28, 1913

APPEAL from District Court, Third District; Hon. C. W. Morse, Judge.

Action by H. J. Smith against the Sinaloa Land and Fruit Company.

Judgment for defendant. Plaintiff appeals.

AFFIRMED.

Ray VanCott and M. W. Mansfield for appellant.

APPELLANT'S POINTS.

The charter of a private corporation, as the defendant is incorporated under general laws, consists of the articles of agreement, and the laws of the state. (7 Am. & Eng. 646.)

When a corporation assesses the stock held by individuals in the corporation, it is bound to a strict compliance with its authority to act, otherwise it has no power to forfeit the stock on a sale, or otherwise collect the assessment. (26 Am. & Eng., 923, 924; Cook on Corporations (6 Ed.), sec. 129; Thompson on Corporations, secs. 2126, 2129; Mitchell v Vermont Copper Co., 40 N.Y. S.Ct. 407; McNeely v Woodruff, 13 N. J. L. 352; Germantown, etc. v. Filter, 60 Pa. St. 130; National Par. Oil Co. v. Chappellet, 4 Cal.App. 505; Ruch v. Caladonia S. M. Co., 92 P. 194; Corcoran v. Sonora Min. Co., 8 Idaho, 660; Clise Inv. Co. v. W. S. B., 18 Wash. 8; Schwab v. The Frisco Min. Co., 21 Utah 258; Raht v. Mining Co., 18 Utah 290; Laws of Utah, secs. 354, et seq.)

The articles of agreement and the law of the state is the contract the stockholders entered into with each other and the plaintiff has the right to stand upon the terms of that contract. (26 Am. & Eng. 923.)

The notice of the purported assessment as attempted to be levied by the board of directors as given by the de facto secretary is not legal as to form, and the same is not given by a legal officer. Being defective in either of these particulars it is not notice under the law and the corporation has no power to sell the plaintiff's stock by reason of it. (Morris v. Land Co., 18 Wash. 327; Ruch v. Caledonia S. M. Co., 92 P. 194; Betheny v. Sperry, 10 Conn. 200; Reilly v. Ogleby, 25 W.Va. 36, 16 Am. & Eng. 929, 21 Am. & Eng. 839; Ibid, 852-3-4.) An assessment while a portion of a previous assessment remained unpaid, is void. (Sec. 357 Laws 1907; Hatch v. Lucky Bill Min. Co., 25 Utah 405; Strause v. Sylvester, 66 P. 662.)

Officers, to have power to levy and collect assessments, must be so in law, and not in fact only, and have all the qualifications required by law and the articles of agreement. (State Bank v. Chetwood, 8 N. J. L. 1; Lockwood v. Mechanic's National Bank, 9 R. I. 306; Schwab v. Frisco Mining Co., 21 Utah 258; State v. Kuehn, 34 Wis. 229; Jones v. Mining and Milling Co., 32 Utah 451.)

The directors must act as a board and the attempt to have the absent directors to ratify the action of those who were present and the attempt to have Jones, Jr., make the statement that he had notice of the meeting cannot be of avail nor help the defendant out the dilemma. (21 Am. & Eng. 865; Alleghany County Work House v. Moore, 95 Pa. St. 408; Twelfth St. Market Co. v. Jackson, 102 Pa. St. 269.)

N. V. Jones for respondent.

STRAUP, J. McCARTY, C. J., and FRICK, J., concur.

OPINION

STRAUP, J.

The defendant is a corporation. The plaintiff brought this action to restrain it from selling his stock for nonpayment of an assessment levied against it by the defendant. It is alleged in the complaint that on the 31st of October, 1911, a stockholders' meeting was called at which the stockholders "attempted to authorize a board of directors of said corporation to levy an assessment of four dollars per share on the outstanding capital stock of said corporation;" that on the 1st day of November the board of directors "attempted to levy an assessment of four dollars per share on the said stock, and said board ordered that the said assessment become due December 4th, delinquent December 6th, and that any stock on which said assessment should remain unpaid on the 23d of December should be sold to pay said assessment," which assessment was designated an assessment No. 4. Then it is alleged the assessment is void for the reasons: (1) "No legal notice of said assessment, nor of the meeting of the stockholders aforesaid, nor of the order of said board for the sale of said stock, was given to plaintiff;" (2) that "certain portions of previous assessments, Nos. 2 and 3, upon the outstanding capital stock of said corporation remained and have remained unpaid; that the power of said corporation has not been exercised in accordance with the provisions of chapter 4, tit. 14, Compiled Laws of Utah 1907, for the collection of said assessments, or any of them; that said previous assessments, or either of them, have not been enjoined or restrained; and that neither of said assessments is more than ten per cent. of the outstanding stock of said corporation;" and (3) "that no notice of the meeting of the board of directors at which the said assessment was attempted to be levied was given to certain of the directors of said corporation, and that said directors not notified were not present at said meeting and did not participate in the said action of said board, nor have they or either of them since ratified the said pretended action of said board in levying said assessment." Other allegations are made, but they are not material on this appeal. The defendant's answer put in issue all the material allegations of the complaint. The case was tried to the court, who found the issues in favor of the defendant and entered a judgment accordingly. The plaintiff appeals. He assails the findings on the ground of insufficiency of the evidence in the particulars: (1) That notice was given to the stockholders, and that the stockholders' meeting was duly convened; (2) that notice of the board meeting was given to the board of directors; and (3) that no portion of previous assessments remained unpaid when the assessment in question was made. As to the first it would be enough to say that it was not alleged that notice was not given the stockholders or that the stockholders' meeting was not regularly or properly convened and held. But the record shows, and there does not seem to be any conflict in the evidence, that notice of the stockholders' meeting was given to the stockholders, and that the meeting was regularly held. As to the only allegation made in that regard that legal notice was not given the plaintiff, no point is made in the brief.

However, the record also shows that notice was given him.

The defendant's property is in Mexico. Its principal place of business is in Salt Lake City, where its directors and officers reside. There are seven members of the board of directors. Notice of the board meeting was given to four of them, who, at the appointed time, held the board meeting and ordered the assessment as directed by the stockholders at their meeting held for that purpose. One of the directors was in Mexico, where the defendant's property is. He was corresponded with in relation to both the stockholders' and the board meeting. Of course he could not attend. His stock, however, was represented at the stockholders' meeting by proxy. Another of the absent directors was notified of the board meeting by telephone by the president and the secretary of the defendant and was told the specific object of the meeting and was requested to attend. He replied that he was unable to do so, requested that the four members proceed with the business, and stated that he approved and consented to the contemplated action. The other absent director was out of the state and was traveling somewhere in Idaho. The president and secretary of the company inquired of his wife in Salt Lake City where he might be reached and notified. She was unable to give them his address. Let it suffice by saying that the record discloses reasonable diligence was used to give him notice, but that it could not be given because of his absence from the state. These absent directors, on their return to Salt Lake, acquiesced in and ratified the action taken by the four members, and signed the defendant's record approving all that they had done in the premises. It is not claimed that the four members did not constitute a quorum or could not legally transact business on behalf of the board. All in that respect claimed is that all the members were not "legally notified" of the meeting, and for that reason the action of the board ordering the assessment which had theretofore been specifically directed by the stockholders was void. We think the contention without merit.

We have a statute (Comp. Laws 1907, sec. 357) which provides that "no assessment shall be levied while a portion of a previous one remains unpaid, unless: (1) The power of the corporation has been exercised in accordance with the provisions of this chapter for the purpose of collecting such previous assessment; (2) the collection of such previous assessment has been enjoined or restrained; or (3) the assessment falls within provisions of the next preceding section," which provides that "no assessment shall exceed ten per cent. of the outstanding capital stock of the corporation, unless the corporation is unable to meet its obligations or satisfy the claims of its creditors, in which case the assessment may be for the full amount unpaid upon its capital stock, or for any less amount that may be sufficient to meet such obligations or claims." It will be noticed how loose are the allegations of the complaint as to this.

But no advantage seems to have been taken of it. One of the attorneys (Mansfield) of record for the plaintiff testified on his behalf that on a previous assessment he was assessed $ 515 on stock held by him; that he paid $ 500 of it and still owed the defendant fifteen dollars when the assessment in question was levied. As...