Weber v. Della Mountain Mining Co.

• Decision Date: 13 July 1905
• Citation: 11 Idaho 264,81 P. 931
• Parties: WEBER v. DELLA MOUNTAIN MINING COMPANY
• Court: Idaho Supreme Court

81 P. 931

11 Idaho 264

WEBER v. DELLA MOUNTAIN MINING COMPANY

Supreme Court of Idaho

July 13, 1905

INJUNCTION PENDENTE LITE-CORPORATION RESTRAINED FROM SELLING STOCK ON ASSESSMENT.

1. Complaint and counter-affidavit examined and held that they constitute a sufficient showing to warrant the trial judge in exercising his discretion in favor of the granting a temporary injunction pending a determination of the case on its merits.

2. Where the proposed action of a corporation to sell the stock of an insane stockholder for the payment of an assessment is founded upon and instigated by the wrongful acts and conduct of a person who controls a majority of the capital stock, and a part of the stock going to make up such majority was procured by such person from the insane stockholder, and a cause of action for fraud and wrongful conduct is charged against the person so controlling a majority of the stock, a temporary restraining order against the corporation making such sale is incidental to the main action and is a proper relief to be granted in the sound discretion of the court until the case can be heard on its merits.

(Syllabus by the court.)

APPEAL from District Court in and for Blaine County. Honorable Lyttleton Price, Judge.

On return of a rule to show cause, the district judge granted an injunction pendente lite. From the order so made the defendants appeal. Affirmed.

Order affirmed. Costs awarded to respondent.

Sullivan & Sullivan, for Appellants.

Where "an assignment of the capital stock of a corporation has been made by a board of directors de jure, and there is no question as to any irregularity in the levy, or any want of authority on the part of the lawful board to make it, the assessment will be held valid, and an injunction to restrain its collection denied." (Chandler v. Sheep Rock Min. & Mill Co., 15 Utah 434, 49 P. 535.) "Stockholders owning a majority of the stock have a right to combine and secure the election of the board of directors." (2 Cook on Stock and Stockholders and Corporation Law, 3d ed., sec. 622; Havemeyer v Havemeyer, 86 N.Y. 618; Faulds v. Yates, 57 Ill. 416, 11 Am. Rep. 24.) "An officer de facto is one who has the reputation of being the officer he assumes to be and yet is not a good officer in point of law." (2 Cook on Stock and Stockholders and Corporation Law, 3d ed. , sec 713, notes.) To be an officer de facto one must be in actual possession of the officer under claim and color of an election or appointment, and in the exercise of its functions and discharge of its duties. (3 Clark & Marshall on Private Corporations, sec. 662.) Officers de facto holding under color of an election, having charge of the affairs of a company, are capable of finding it in all matters legitimately devolving upon directors of the company. ( Mahoney Min. Co. v. Anglo-California Bank, 104 U.S 192, 26 L.Ed. 707; Hussey v. Smith, 99 U.S. 20, 25 L.Ed. 314; Clark & Marshall on Private Corporations, sec. 662, and authorities cited in note; 8 Am. & Eng. Ency. of Law, 778.) Where the board of directors of a corporation have been nominally elected, organized as a board of directors, and acted as such, their acts as de facto officers in levying an assessment upon the subscribed capital stock are valid. ( San Joaquin L. & W. Co. v. Beecher, 101 Cal. 70, 33 P. 349; Covington Coal Creek & J. P. R. Co. v. Moore, 3 Ind. 510; Jeffersonville Assn. v. Fisher, 7 Ind. 699; Johnson v. Crawfordsville etc. R. R. Co., 11 Ind. 280; Steinmetz v. Versailles & O. Turnpike Co., 57 Ind. 457; Atherton v. Sugar Creek & P. Turnpike Co., 67 Ind. 334; Newcastle etc. Turnpike Co. v. Bell, 8 Blackf. 584; Barrell v. Lake View Land Co., 122 Cal. 129, 54 P. 594; Satterlee v. San Francisco, 23 Cal. 315; Central Trust Co. v. Wabash etc. R. Co., 23 F. 858; Hughes v. Parker, 20 N.H. 58.) In an action by a stockholder of a corporation to enjoin its consolidation with another corporation, the question whether its directors are bona fide owners of the stock standing in their names, and therefore authorized to be directors cannot be tried. (Langan v. Francklyn, 29 Abb. N. C. 102, 20 N.Y.S. 404; Raymond v. Spring Grove etc. R. R. Co., 21 Week. Law Bull. 103; Rice v. Rock Island etc. R. R. Co., 21 Ill. 93; Ohio etc. R. R. Co. v. McPherson, 35 Mo. 13, 86 Am. Dec. 128.) A court of equity will not interfere by injunction in matters relating merely to the internal government of a corporation so as to restrain directors de facto from acting as such, on the sole ground of the alleged invalidity of their titles to their offices. (1 Beach on Private Corporations, 319, 320; Nozley v. Alston, 1 Phil. 790.) The complaint alleges that the contract between Watt and Rockwell was entered into November 9, 1903, and further alleges that a guardian was appointed of Watt's person and estate on February 13, 1904. This action was not brought until December 27, 1904, and meanwhile the guardian of his person and estate and the plaintiff, Watt's guardian ad litem, in this suit, were both cognizant of the fact that the board of directors of the Della Mountain Mining Company were operating and managing said company. They were unaware of many of their acts and even paid the first assessment, though under protest, but then we contend that they allowed the directors to exercise their duties for ten months, without bringing a proper action to remedy any injury being done to the Watt interest, and are thereby estopped from so doing. ( Macon etc. Ry. Co. v. Vason et al., 57 Ga. 314; Raht v. Sevier M. & M. Co., 18 Utah 290, 54 P. 889; 2 Pomeroy's Equity Jurisprudence, sec. 965; Twin-Lick Oil Co. v. Marbury, 91 U.S. 587, 23 L.Ed. 329; Clay Co. v. Harvey, 9 Utah 497, 35 P. 510; Hayward v. National Bank, 96 U.S. 611, 24 L.Ed. 855; Johnston v. Standard Min. Co., 148 U.S. 360, 13 S.Ct. 585, 37 L.Ed. 480; Easterly v. Barber, 65 N.Y. 252.) If the plaintiff seeks to show mismanagement on the part of Rockwell, as manager of the corporation, we cannot conceive how he can seek to stop an assessment regularly and legally levied by the board of directors of the company to pay a debt which they thought just. Plaintiff might have an action against Rockwell, manager, to account for any breach of trust, but the jurisdiction for that purpose would be over him personally and not over the corporation. (Neall v. Hill, 16 Cal. 150, 76 Am. Dec. 508.) It would not be fair to declare that all acts of the board of directors were void, because the by-laws provide who may vote, and if the stock appeared on the books of the company as belonging to Rockwell, and he was allowed to vote it without any objection, then it would not be right for the party who sold the stock to him to come in with some secret reason why the original sale between himself and Rockwell was void, and thus defeat all the acts of the board of directors. The transfer became at least prima facie evidence of who are stockholders and entitled to vote. In some states by statute they are conclusive evidence. (Clark & Marshall on Private Corporations, 1991-1993; Smith v. Ferries & C. H. Ry. Co. (Cal.), 51 P. 710.)

N. M. Ruick and McFadden & Broadhead, for Respondents.

According to the allegations of the complaint, at the time the transfer of stock took place, November 9, 1903, Watt was insane--"incapable of taking care of himself and mentally incompetent to manage his property or of knowing or realizing the consequences of his acts or of acting intelligently in relation to his business affairs or estate." This allegation is nowhere denied. It follows, therefore, that such sale or transfer was void. (Cook on Stock and Stockholders, sec. 320.) And the purchaser acquired no title whatever. (Cook on Stock and Stockholders, sec. 427.) Upon the hearing counsel for defendants challenged the proposition that the contract of a lunatic is void. We maintain, however, that persons of unsound mind are incapable of making contracts. (Idaho Civ. Code, secs. 2735, 1987; Cal. Civ. Code, secs. 33, 1550.) A sale of personal property executed by an insane person is void, even as to an innocent purchaser. (Harris v. Harris, 64 Cal. 108, 28 P. 63.) The facts set forth in the affidavit of Rockwell constitute the transaction one of agency and all authorities agree that the power of attorney of a lunatic is void. ( Dexter v. Hall, 15 Wall. 9, 28 L.Ed. 73.) A corporation is bound absolutely to know of the lunacy of a transferrer (of stock), even though it allows a registry of his ordinary signature and transfer. The granting justice refusing to grant an interlocutory injunction rests in the sound discretion of the court. "The granting, refusing or continuing an interlocutory injunction rests in the sound judicial discretion of the inferior court, and the appellate court will only correct an abuse of such discretion." (High on Injunction, sec. 1696; Spelling on Injunction, secs. 1031-1148; Heinze v. Boston etc. M. Co., 30 Mont. 484, 77 P. 421; Parrott etc. Co. v. Heinze, 24 Mont. 485, 87 Am. St. Rep. 386, 64 P. 326, and cases cited, 53 L. R. A. 491.)

AILSHIE, J. Stockslager, C. J., concurs.

OPINION

AILSHIE, J.

This is an appeal from an order granting an injunction pendente lite. The contention made is that the complaint does not state facts sufficient to warrant the issuance of an injunction pending the final determination of the case. The only papers before the court at the time he passed upon the application were the complaint, demurrer to the complaint and the affidavit of the defendant Rockwell. Since the sufficiency or insufficiency of the showing made is with reference to the insanity of plaintiff's ward, and a certain transaction which appears to have taken place between the ward and the defendant Rockwell, on or about the month of November, 1903, it will be...