Tatem v. Eglanol Mining Co.
| Decision Date | 16 January 1911 |
| Parties | TATEM v. EGLANOL MINING CO. et al. |
| Court | Montana Supreme Court |
Appeal from District Court, Lewis and Clark County; J. M. Clements Judge.
Suit by Benjamin H. Tatem, as trustee, against the Eglanol Mining Company, in which Henry H. Fay and others intervened. From a decree for defendant, plaintiff appeals. Reversed and remanded.
Clayberg & Horsky, for appellant.
Gunn & Hall, for respondent.
Without reciting in detail the history of the Eglanol Mining Company it is sufficient to say that in November, 1902, it was a corporation organized under the laws of this state, with a capital stock of $200,000, represented by 200,000 shares, of the par value of $1 each. The property of the company consisted of placer mining claims, tools, machinery, and other property used in connection with placer mining operations. In 1903 the owners of a majority of the stock formed a pool of their stock and placed it in the hands of B H. Tatem, as trustee for the real owners. In 1904 the property had not been sufficiently developed to be operated successfully and profitably. The company was without funds and had outstanding debts amounting to about $4,700. A proposition was made to the minority stockholders that, if they would loan to the company $20,000 to discharge its indebtedness and prosecute development work, a first mortgage on all the property of the company would be given as security. This was refused. Soon thereafter the owners of the pooled stock agreed to sell a certain portion of that stock and loan the proceeds to the company for the purposes just named. Whether Edgerton was made the agent of the pool or was given an option on the stock to be sold is immaterial. The fact is that through the instrumentality of Edgerton and one Belcher 39,000 shares of the pooled stock were sold at 60 cents per share net, to the pool. As the money was received from the sale, it was turned over to Tatem, as trustee, loaned to the company, and demand notes of the company, executed by Chessman as president and Edgerton as secretary, were delivered to Tatem. The first note bears date May, 1904, and the last of the 21 notes was executed and delivered in April, 1906. The money thus procured by the company was used by it in discharging its indebtedness and in prosecuting the work of development. From some time prior to the execution of the first note until after the execution of the last one, Chessman was president of the company, Tatem vice president, and Edgerton secretary. These three were members of the board of directors and constituted a majority of the board. The amount loaned to the company and represented by the 21 notes was $23,400, the amount received from the sale of the 39,000 shares of pooled stock. Of the amount loaned, only $1,000 was repaid. On February 20, 1908, this action was brought by Tatem, trustee, against the company to recover the amount due on the notes. Apparently the company did not make any defense, but certain minority stockholders intervened and defended. Issues having been joined, the cause was brought on for trial before the court sitting with a jury. The plaintiff offered in evidence the 21 notes sued upon. The interveners thereupon objected to the offer of every one "on the ground that, under the pleadings in this case and the admitted facts, it conclusively appears that these notes, being demand notes, executed by the officers of the corporation defendant and issued to Mr. Tatem, the plaintiff, as trustee, are not binding upon the defendant corporation and were and are illegal, and were without authority and illegally issued by the officers of the corporation to the plaintiff." This objection was sustained. Counsel for plaintiff then amended the complaint by adding a common count for money had and received, and 21 counts for money loaned by plaintiff to defendant, and, issues having been framed, the cause proceeded to verdict and judgment against the plaintiff. From that judgment and an order denying him a new trial, he has appealed.
1. The first error assigned relates to the exclusion from evidence of the notes sued upon, and the question for determination is: Were those notes void under the facts disclosed by the pleadings? In March, 1904, this company was in debt. Its property was subject to seizure and sale at the instance of its creditors. The company was without funds to pay its indebtedness or protect its property. Money was necessary to prosecute development work. In addition to these facts --which are not disputed--let us assume the additional facts: (a) That the board of directors had made every reasonable effort to borrow money from persons who were not directors, and had failed; (b) that the property was in actual jeopardy of being seized by creditors; (c) that Chessman, Edgerton, and Tatem, and others who were stockholders but not directors, were willing each to advance a portion of the money necessary, and that the aggregate of these amounts equaled the sum necessary to be raised; (d) that each of the persons just mentioned contributed the amount which he was willing to advance to a common fund to be loaned to the company upon its promissory notes; (e) that the loan was made, but, for the purpose of convenience, the notes were taken in the name of Tatem, as trustee for all who contributed to the fund; and (f) that by reason of getting this loan the company rescued its property from the burden of debt and developed it into an immensely valuable property, with the result that the shares of stock were greatly enhanced in value. Upon this statement of actual and assumed facts, would these interveners be heard to say that these notes are void by reason of the fact that Tatem, with Chessman and Edgerton, for whom he acted in making the loan, constituted a majority of the board of directors? We think not. In our opinion it is wholly immaterial that the people who furnished the money to be loaned were members of the stock pool, or that they owned a majority of all the stock of the company. It is not claimed, and could not be, that a pool of this character is illegal, and there is not any contention made, and could not be, that such a pool cannot be lawfully formed by the owners of a majority of all the stock. So it is immaterial that the money was raised by the sale of pooled stock. It was the money of the people who contributed it, and it makes no difference whether it was raised by selling stock, by selling property not in any wise connected with the company, or by any other lawful means. It is likewise immaterial that the expenditure of money did not develop the property to a paying basis, for, if the notes representing the loan are void ab initio, they would have been equally invalid no matter what the result of the expenditure might have been.
Furthermore, it is immaterial to the determination of this question that one contributor to this fund was the wife of Chessman, or that another was the wife of Edgerton, or that the shares owned by Mrs. Chessman and Mrs. Edgerton, who were members the pool, were necessary to control the stock, or that Tatem in his own right owned a majority of the stock in the pool. Certainly there is not anything in the law to prevent a married woman owning stock in a private corporation, and in this day of advanced thought and action it would not do to suggest that the separate property of a married woman is controlled by her husband merely because of the relationship of husband and wife.
In March, 1904, when it became necessary for this company to raise funds, Chessman, Edgerton, Tatem, Mrs. Chessman, Mrs Edgerton, and others, whose names are not disclosed by the record, each contributed a sum of money which in the aggregate amounted to $23,400, and loaned it to the company, of which Chessman, Edgerton, and Tatem constituted a majority of the board of directors, taking the notes of the company in the name of Tatem as trustee. It would be a rather startling proposition to say that repayment of the loan cannot be enforced, or that the notes representing the loan are void. It is a fair presumption that the directors of a corporation know more about the value of the property of the concern than any one else; and if it should occur that a company became temporarily embarrassed for want of money, and that strangers would not loan money to it, and that the directors who were willing to advance the money could not do so without being confronted by the defense that their contract of loan would be void, the concern and every one similarly situated would be forced into bankruptcy. By reason of the fiduciary relationship existing between the directors of a corporation and the corporation as an entity, and its stockholders, a court of equity will always scrutinize carefully any transaction between the directors and the company; but there is not any reason whatever for branding every such transaction as fraudulent, without reference to the good faith of the directors, the necessities of the corporation, or the purpose to be accomplished. Coombs v. Barker, 31 Mont. 526, 79 P. 1. In the case just cited this court reviewed the authorities, and, after referring to the principle stated above, said: ...
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