Stiewel v. Webb Press Co.

• Decision Date: 14 May 1906
• Citation: 94 S.W. 915,79 Ark. 45
• Parties: STIEWEL v. WEBB PRESS COMPANY
• Court: Arkansas Supreme Court

94 S.W. 915

79 Ark. 45

STIEWEL v. WEBB PRESS COMPANY

Supreme Court of Arkansas

May 14, 1906

Appeal from Pulaski Chancery Court; Jesse C. Hart, Chancellor affirmed.

STATEMENT BY THE COURT.

This is a suit in equity to dissolve a domestic corporation, the El Dorado Compress Company, having its principal place of business at the city of Little Rock in Pulaski County, and to dispose of its assets and distribute the proceeds among its creditors and shareholders.

The suit was originally instituted by a receiver appointed by the Pulaski Chancery Court to take charge of the assets of the Bank of Little Rock, that concern being a creditor and the holder of shares of the capital stock of the compress company, but during the progress of the suit appellant, Abe Stiewel, was substituted as plaintiff, he having succeeded to the rights of the bank. It is alleged that the compress company is insolvent, and no longer performing its corporate functions.

Appellees Webb Press Company, Limited, of Minden, Louisiana, a foreign corporation, and R. L. Floyd, as trustee, were also made defendants, to prevent by injunction the foreclosure of a deed of trust, with power of sale, executed by the compress company upon its compress plant at El Dorado, Arkansas, to secure a debt of $ 15,000 due to the press company. It is alleged in the complaint that said trustee was about to sell said property, under the power contained in the deed, at public outcry in El Dorado, and that a sale for cash on short notice at that place would result in a sacrifice of the property. A writ of temporary injunction was issued, as prayed, preventing the sale by the trustee, and a receiver was appointed by the court to take charge of and protect the property pending the suit. Subsequently the property was sold under order of the court, and the proceeds of sale were ordered to be paid into court.

The press company filed its answer and cross-complaint, setting forth the contracts and trust deed executed by the compress company, and asking that its lien thereunder be foreclosed. The plaintiff, by answer to the cross-complaint, attacked the validity of the trust deed on the alleged ground that said deed had been executed by the president and secretary of the compress company without authority from the board of directors, one of the directors not having been present at nor received notice of the meeting at which the pretended authority was voted.

The facts established by the pleadings and proof are as follows:

On May 28, 1902, the El Dorado Compress Company was incorporated by E. H. Lake, J. S. Alphin, E. H. Smith and C. T. Walker; the capital stock specified in the articles of incorporation being 1600 shares of $ 25 each, subscribed, 780 shares by Lake, 580 shares by Alphin, 200 shares by Smith, and 40 shares by Walker. The four shareholders were named in the articles of incorporation as directors. Walker was named as stockholder and director only for the purpose of completing the organization. No stock was ever in fact issued to him nor did he ever pay anything. He never in fact acted as director, never attended a meeting of directors, or was notified of such meeting, or was consulted about the business of the corporation. He was cashier of the Bank of Little Rock.

On June 7, 1902, a written contract was entered into between the compress company and the press company, whereby the latter agreed to furnish and erect for the former at El Dorado, not later than September 1 of that year, a press of the kind and quality described, for the sum and price of $ 21,000, to be paid by the compress company in three installments of $ 2,000 each ending when the press should be ready for operation, and the remainder of $ 15,000 in six equal installments.

The contract contained the following stipulation with reference to these payments:

"Six notes are to be given for these six time payments, falling due respectively on the dates above mentioned, all said notes to bear interest at the rate of 6 per cent. per annum from September 1, 1902, and all accrued interest to be paid annually on May 1. Said notes to be secured by deed of trust to the entire compress plant in which this compress is to be erected, and are to be the first claim against said plant. Said notes are to further secured by first insurance policies taken in standard companies and written 'Loss, if any payable to the Webb Press Company, limited, as its interest may appear.' During the first thirty days after this press is erected, it is to be tested, and, if found to meet the guaranty herein given, it is to be at once accepted by the party of the second part, and the said six first-mortgage notes and the deed of trust securing same are to be at once properly executed and delivered to the party of the first part by the party of the second part."

Pursuant to this contract the press company delivered and erected the press, the payment of $ 6,000 was made, and the notes for $ 15,000 and trust deed or mortgage were duly executed on October 20, 1902, by the president and secretary of the compress company. A resolution of the board of directors authorizing the execution of the notes and deed of trust by the president and secretary was adopted at an informal meeting of the directors attended by Lake, Alphin and Smith but Walker was not notified thereof, and did not attend.

On final hearing of the case the chancellor rendered a decree in favor of the press company, declaring a superior lien in its favor for the amount of its debt, and ordering the same to be paid out of the proceeds of sale of the property.

The plaintiff appealed.

Decree affirmed.

J. M. Moore, W. B. Smith and J. M. Moore, Jr., for appellant.

1. If it is assumed that Walker was not a stockholder, yet until the first annual election of drectors he was eligible, since it is the rule under statutes like ours that directors selected at the organization are not required to be stockholders. Assuming that one can be a subscriber in the articles of incorporation without being a stockholder, he may still be a director and hold over until the regular annual election, and it is not material whether he takes his stock out or not. 2 N.E. 892; 163 N.Y. 425; 47 Ark. 269, 281; 33 A. 480. But Walker, having permitted his name to appear in the articles as a subscriber, and signed the same, became a stock holder. 54 Ia. 424; 67 N.Y. 249. 1 Cook on Corp. 161; 77 Md. 341; 1 Morawetz on Corp., § 56. If he was not a stock holder, still he was a de facto director. 2 Cook on Corp. 1479, 1480; Ib. 1196; 12 N.H. 205; 25 Wis. 447; 25 Mich. 449; 4 N.Y.S. 174; 8 Am. & Eng. Enc. Law, 823; 49 Ark. 442. No act binding upon a corporation can be done by the directors at a special meeting of which one of the directors had no notice, and therefore no opportunity to be present; and a corporate mortgage or deed of trust can only be authorized by a resolution where all the directors are present, or where all were notified, and a majority are present. 55 Ark. 473; 5 Thompson on Corp. § 6176; 54 Ark. 58; 16 Kan. 309; 26 Am. Dec. 75; 52 N.J.Eq. 78-82; 21 Am. & Eng. Enc. Law, 867 and note 5.

2. The corporation, under the circumstances of this case, is not estopped to deny the validity of the mortgage. It was an unauthorized act on the part of three directors, and there was none of the elements of ratification existing in this case. 26 Am. Dec. 75, 77.

3. If, as between the stockholders and appellee, the latter would be entitled to reformation for the purpose of establishing a lien by the action of the court, still, since the rights of creditors have supervened, the right of reformation does not exist as against them.

4. Appellee, having elected to dispense with the property and proceed to a foreclosure and sale to make the purchase price, can not afterwards change its attitude and insist upon retaking the property, dispensing with the purchase price. A person can not ratify and then repudiate the same transaction. 53 Ark. 515; 57 Ark. 632; 135 Mass. 172; 48 Ark. 160.

Ratcliffe & Fletcher, for appellee.

1. Since Walker had no interest in the company or duties to perform in reference to its affairs, and did not regard himself as a director, and since Lake, Alphin and Smith, the only stockholders, did not consider him a factor in the company, neither he nor they can complain that he was not notified, and was not present. The reasons for the rule requiring notice to every director is in this case inapplicable. See 54 Ark. 58; 62 Ark. 20; 67 Ark. 542; 71 Ark. 438; 57 F. 821; 91 F. 630.

2. The contract of Lake on behalf of the compress company with appellee was valid and binding the latter was permitted to carry out its part of the contract, and the compress company accepted the benefits of it, and made the cash payment. The receiver, stockholders and creditors are estopped to assert that, because Walker was not notified to take part in the meeting of directors to authorize the execution of the mortgage pursuant to the contract, the mortgage was without authority. 73 F. 951; 10 Wall. 604; 51 F. 1; 36 Ark. 577; 47 Ark. 270; 32 Ark. 346; 48 Ark. 254; 68 Ark. 306; 63 Ark. 268; 96 U.S. 258; 11 Wall. 459; 5 Thompson on Corp. § § 6159-6160; 121 F. 343. The corporation and all its directors are charged with notice of the contract and mortgage, and of the acts of Lake and Smith. 110 U.S. 7; 75 F. 769; 38 Ark 17; 86 N.Y. 200. Neither the compress company, its receiver nor its creditors can accept the benefits of the contract and at the same time reject its provisions. 30 Ark. 453; 91 N.W. 376; 65 Ark. 383; 56 Ark....