Title: Carroll By and Through Miller v. Wyoming Production Credit Ass'n

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Carroll By and Through Miller v. Wyoming Production Credit Ass'n1988 WY 75755 P.2d 869Case Number: 87-33, 87-34Decided: 06/02/1988Supreme Court of Wyoming
GERTRUDE S. CARROLL, BY 
AND THROUGH MARGARET MILLER, THE TEMPORARY GUARDIAN OF THE PERSON OF GERTRUDE S. 
CARROLL AND CONSERVATOR OF THE ESTATE OF GERTRUDE S. CARROLL, APPELLANT 
(PLAINTIFF),

v.

WYOMING PRODUCTION CREDIT 
ASSOCIATION, A CORPORATION, APPELLEE (DEFENDANT), CARROLL AND CARROLL, A 
CORPORATION, AND HOWARD T. CARROLL (DEFENDANTS).

GERTRUDE S. CARROLL, BY 
AND THROUGH MARGARET MILLER, THE TEMPORARY GUARDIAN OF THE PERSON OF GERTRUDE S. 
CARROLL AND CONSERVATOR OF THE ESTATE OF GERTRUDE S. CARROLL, APPELLANT 
(PLAINTIFF),

v.

THE FEDERAL LAND BANK OF 
OMAHA, A 
CORPORATION, APPELLEE (DEFENDANT), CARROLL AND CARROLL, A CORPORATION, AND 
HOWARD T. CARROLL (DEFENDANTS).

Appeal from the District 
Court, AlbanyCounty, Arthur T. Hanscum, 
J.

John J. Rooney 
and William D. Bagley (argued) of Rooney, Bagley, Hickey, Evans & Statkus, 
Cheyenne, for appellant in Nos. 87-33 and 
87-34.

Jerry A. Yaap of 
Bishop, Bishop & Yaap, Casper, and Howard P. Olsen, Jr. (argued) of Simmons, 
Raymond, Olsen, Ediger, Selzer & Ballew, Scottsbluff, Neb., for appellee in Nos. 87-33 and 
87-34.

Before BROWN, C.J., and THOMAS, CARDINE, URBIGKIT 
and MACY, JJ.

CARDINE, 
Justice.

[¶1.]     Appellant, Gertrude 
Carroll, the majority shareholder of Carroll and Carroll, a Wyoming corporation, filed separate suits against 
appellees Wyoming Production Credit Association and Federal Land Bank of 
Omaha. She seeks 
to declare mortgages and accompanying notes, financing statements and security 
agreements of the corporation in favor of appellees void and to vacate and set 
aside judgments and decrees of foreclosure of the mortgages. She also seeks an 
award of damages for any conversion by appellees of property of the corporation 
pursuant to the judgments and decrees. The single issue raised by appellant is 
whether a mortgage that encumbers substantially all of the corporation's 
property, made by a director without shareholder approval, is valid. These 
consolidated appeals are taken from summary judgments foreclosing appellees' 
mortgages.

[¶2.]     We 
affirm.

[¶3.]     On January 13, 1955, 
Carroll and Carroll was incorporated in Wyoming with capital stock of $250,000 divided 
into 2,500 shares with a par value of $100 each. The corporate charter allows 
the corporation, among other things, "to borrow money, pledge its credit and 
property as security for loans or the purchase of merchandise and any and all 
other additional credits that may be necessary or beneficial in the conduct of 
[its] business." Three directors named at the time of incorporation were 
Gertrude S. Carroll, holding approximately two-thirds of the 1,832 outstanding 
shares, Frank N. Carroll (it is unclear from the record whether Frank owned any 
shares), and Howard T. Carroll, holding approximately one-third of the 
corporation's outstanding shares.

[¶4.]     On January 21, 1971, 
Howard T. Carroll was elected president of the corporation. He has continued as 
president since that time. Gertrude Carroll was a director from the date of 
incorporation until January 27, 1981. From January 7, 1975 to January 27, 1981, 
however, her physical and mental health was such that she did not participate in 
corporate affairs or attend the meetings of the Board. On January 27, 1981, 
Howard T. Carroll, Teri K. Carroll, and Ruth E. Satra were elected directors and 
have continued as directors since that time. Gertrude Carroll remained the 
majority shareholder of the corporation at all times.

[¶5.]     On December 1, 1982, 
and May 31, 1983, the corporation, through Howard T. Carroll and the other 
directors, executed two notes to Wyoming Production Credit Association (WPCA) in 
the amounts of $1,703,000 and $489,600. A similar note was executed on behalf of 
the corporation in favor of Federal Land Bank of Omaha (FLB) in the amount of 
$1,050,000. These notes were secured by mortgages and other security agreements 
encumbering all of the assets of the corporation. No shareholder meeting was 
called to discuss the encumbering of the corporation's assets, nor was any 
notice given to Gertrude Carroll. Each transaction, however, was authorized by 
corporate resolution. The proceeds of the transactions were applied in part to 
the corporation and in part to other businesses in which Howard T. Carroll was 
interested.

[¶6.]     In all the business 
transactions with WPCA and FLB, Howard T. Carroll represented that he was the 
majority shareholder of the corporation and had full authority to borrow funds 
and execute security instruments on behalf of the corporation. On September 30, 
1985, Howard T. Carroll filed Chapter 11 bankruptcy on behalf of the 
corporation, swearing in the petition that he was the sole stockholder of the 
corporation, owning 2,100 shares of stock. He later corrected this 
representation while testifying in the bankruptcy court on October 28, 1985, 
stating that he owned only about 700 of the 2,200 outstanding shares, and that 
the balance of the stock was owned by his mother in trust.

[¶7.]     Upon learning of the 
bankruptcy petition, WPCA and FLB filed foreclosure actions in the district 
court on the notes. The corporation defaulted by not answering the complaints, 
and the district court entered judgments and decrees of foreclosure against the 
corporation. Foreclosure proceedings are now pending.

[¶8.]     On December 6, 1985, 
Margaret Miller was appointed temporary guardian of Gertrude Carroll and the 
conservator of her estate. In that capacity, Margaret Miller filed two actions 
in district court - the first against WPCA, the corporation, and Howard T. 
Carroll, and the second against FLB, the corporation, and Howard T. Carroll - 
alleging that Howard T. Carroll executed the notes without the approval or 
authorization of at least two-thirds of the stockholders of the corporation, as 
required by § 17-1-502, W.S. 1977. Appellant asked the district court to declare 
the notes, mortgages and various financing statements and security agreements 
void, to vacate and set aside the judgments and decrees of foreclosure entered 
against the corporation, and to award damages to appellant for any conversion by 
WPCA and FLB of any of the properties of the corporation pursuant to the 
judgments and decrees.

[¶9.]     Appellees WPCA and FLB 
answered, alleging that Howard T. Carroll and the corporation continuously 
misrepresented the true ownership of the stock of the corporation and Howard T. 
Carroll's authority to act on behalf of the corporation; that Howard T. Carroll 
presented a proper corporate resolution by the board of directors authorizing 
the borrowing and execution of the security documents; and that the action was 
barred by the statute of limitations, the doctrine of laches, and the doctrine 
of estoppel.

[¶10.]  Appellant moved for partial summary 
judgment against WPCA and summary judgment against FLB. Appellees also filed 
motions for summary judgment with supporting affidavits and exhibits. The 
district court denied appellant's motion for partial summary judgment and 
entered summary judgments in favor of appellees. Appeal is taken from these 
summary judgments.

[¶11.]  The purpose of summary judgment is to 
eliminate formal trials where only questions of law are involved. Duffy v. 
Brown, Wyo., 
708 P.2d 433 (1985). Summary judgment is only appropriate when there is no 
genuine issue of material fact and the prevailing party is entitled to judgment 
as a matter of law. Greaser v. Williams, Wyo., 
703 P.2d 327 (1985); Hurst v. State, Wyo., 698 P.2d 1130 
(1985). A material fact is one which, if proved, would have the effect of 
establishing or refuting one of the essential elements of a cause of action or 
defense asserted by the parties. Colorado National Bank v. Miles, Wyo., 711 P.2d 390 
(1985).

[¶12.]  In this case we are asked to interpret §§ 
17-1-501 and 17-1-502, W.S. 1977, of the Wyoming Business Corporation Act. 
Generally, statutory interpretation is a question of law for the court. School 
Dist. No. 48, WashingtonCounty v. Fair Dismissal Appeals Board, 14 
Or. App. 634, 514 P.2d 1114 (1973). See also Noey v. Department of Environmental 
Conservation, Alaska, 737 P.2d 796 (1987). In interpreting 
statutes, "[i]t is our duty to ascertain the intention of the legislature as 
completely as possible from the language used in the statute itself," State, 
Department of Revenue and Taxation, Motor Vehicle Division v. Andrews, Wyo., 671 P.2d 1239, 1246 (1983), and "if such intent is expressed clearly and without 
ambiguity in the language of the statute, such intent must be given effect." 
Oroz v. Hayes, Wyo., 598 P.2d 432, 434 
(1979).

[¶13.]  In 1957, the Wyoming legislature 
adopted the Model Business Corporation Act (MBCA) which, with some modification, 
was titled the Wyoming Business Corporation Act. Sections 17-1-501 and 17-1-502, 
W.S. 1977, were modeled after §§ 71 and 72, respectively, of the MBCA. In 1957, 
§ 71 of the MBCA provided:

"The sale, lease, 
exchange, mortgage, pledge, or other 
disposition of all, or substantially all, the property and assets of a 
corporation, when made in the usual and 
regular course of the business of the corporation, may be made upon such 
terms and conditions and for such considerations * * * as shall be authorized by its board of directors; 
and in such case no authorization or consent of the shareholders shall be 
required." (Emphasis added.)

Section 72 
provided:

"A sale, lease, exchange, 
mortgage, pledge, or other 
disposition of all, or substantially all, the property and assets, with or 
without the good will, of a corporation, if not made in the usual and regular course 
of its business, may be made upon such terms and conditions * * * as may be 
authorized * * * [upon]

* * * * * 
*

"(c) * * * the 
affirmative vote of the holders of at least two-thirds of the outstanding shares 
of each class of shares entitled to vote as a class thereon and of the total 
outstanding shares." (Emphasis added.)

Both §§ 71 and 
72 included within the disposition of assets a mortgage or pledge of those 
assets.

[¶14.]  The Wyoming legislature, in enacting §§ 17-1-501 
and 17-1-502, adopted the MBCA with a modification that is of extreme importance 
to resolution of the question here presented. Section 17-1-501, W.S. 1977, 
provides:

"The sale, lease, 
exchange, mortgage, pledge or other 
disposition of all, or substantially all, the property and assets of a 
corporation, when made in the usual and 
regular course of the business of the corporation, may be made upon such 
terms and conditions and for such considerations * * * as shall be authorized by 
its board of directors; and in such case no authorization or consent of the 
shareholders shall be required." (Emphasis added.)

Section 
17-1-502, W.S. 1977, provides:

"(a) A sale, lease or 
exchange of all, or substantially all, the property and assets, with or without 
the good will, of a corporation, if not 
made in the usual and regular course of its business, may be made upon such 
terms and conditions and for such consideration * * * as may be authorized * * * 
[upon]

* * * * * 
*

"(iii) * * * the 
affirmative vote of the holders of at least two-thirds (2/3) of the outstanding 
shares of each class of shares entitled to vote as a class thereon and of the 
total outstanding shares." (Emphasis added.)

[¶15.]  The word "mortgage," present in § 72 of 
the MBCA, was deleted from the language of § 17-1-502. The change made by the 
legislature in enacting § 17-1-502 controls the disposition of this case. 
Appellant contends that the deliberate removal of "mortgage" from § 17-1-502 
indicates the legislature's intention that the statutes together be read to 
provide that a mortgage of all or substantially all of the assets of the 
corporation by the board of directors be permitted only when made in the usual and regular 
course of business of the corporation. Otherwise, appellant [¶15.] contends, the consent of the shareholders is 
required. We disagree.

[¶16.]  By declining to include "mortgage" in § 
17-1-502, the legislature demonstrated an express intention that a mortgage 
would not be considered as a disposition of assets made outside the usual and 
regular course of its business. Shareholder approval thus is not required for 
the giving of a mortgage by the corporation which, according to § 17-1-501, 
supra, is a transaction in the usual and regular course of business. Appellant 
invites this court to insert the word mortgage into § 17-1-502. We decline the 
invitation. The legislature deliberately left "mortgage" out of the statute. 
Omission of words from a statute must be considered intentional on the part of 
the legislature. Matter of Adoption of Voss, Wyo., 
550 P.2d 481 (1976). Moreover, where the legislature has specifically used a 
word or a term in certain places in a statute and excluded it in another place, 
the court should not read that term into the section from which it was excluded. 
Id. Finally, 
"`where a statute enumerates the subjects or things on which it is to operate, 
or the persons affected, * * * it is to be construed as excluding from its 
effect all those not expressly mentioned'" under the rule of "Expressio unius 
est exclusio alterius." Town of Pine Bluffs v. 
State Board of Equalization, 79 Wyo. 262, 333 P.2d 700, 708 (1958) (quoting 82 C.J.S. Statutes § 333 (1953)); see also State 
v. Michael, 111 Idaho 930, 729 P.2d 405 
(1986).

[¶17.]  In adopting § 17-1-502 in its present 
form, it is clear that the legislature had in mind the practicalities of 
corporate business finance. If a corporation were required to obtain shareholder 
approval for every mortgage or pledge of the corporation's property and assets, 
commerce would literally come to a standstill. "[I]t is a matter of common 
business practice for [a corporation] to mortgage * * * property in order to 
secure * * * necessary financing." Sailer v. Land-Livestock-Recreation, Inc., 
268 Or. 531, 522 P.2d 214, 216 (1974). Reading the statutes according to 
appellant's interpretation would abrogate the statutes' objective and purpose of 
promoting and encouraging free corporate enterprise.

[¶18.]  The conclusion we reach here finds 
support in the revision of §§ 71 and 72 of the MBCA (renumbered in 1969 as §§ 78 
and 79) wherein a "mortgage or pledge of assets" was deleted from former § 72 
and inserted into former § 71. Now the borrowing and giving of mortgages or 
pledges require only appropriate action by the board of directors of the 
corporation. This revision was in recognition of the fact that a mortgage or 
pledge is essentially and substantively different from a sale, lease, exchange 
or other disposition of assets. See 3 Model Business Corporation Act Annotated 
1320 (3rd ed. 1987). Thus, "mortgage[s] or pledge[s] of all or substantially all 
the corporation's assets [were treated] as a transfer in the usual and regular 
course of business and not subject to the requirement of shareholder approval." 
Id. at 
1321.

[¶19.]  As a matter of law, §§ 17-1-501 and 
17-1-502 do not require shareholder approval for borrowing and mortgaging as 
security all or substantially all of a corporation's property and assets. No 
genuine issue of material fact exists. Summary judgment in favor of appellees 
was properly entered.

[¶20.]  It is suggested that the legislature has 
declined to adopt the most recent amendment of the MBCA. We cannot help but 
wonder why the legislature should adopt the MBCA when § 17-1-502 already 
excludes mortgage from shareholder approval. The simple answer is that amendment 
is unnecessary, for § 17-1-502 applies only to "a sale, lease or exchange of 
all, or substantially all, the property [of a corporation]." The word mortgage 
does not appear in § 17-1-502. It would be the height of absurdity for the 
legislature to amend a statute to remove a word (mortgage) that does not appear 
in the statute. Sale, lease or exchange are words that have a 
plain meaning and are readily understood by all. They are not mortgages. It is 
our duty to apply statutes according to their plain meaning as we have done in 
this case. State Board of Equalization v. Tenneco Oil Company, Wyo., 694 P.2d 97 
(1985).

[¶21.]  Affirmed.

THOMAS, J., filed a concurring 
opinion.

URBIGKIT, J., filed a dissenting 
opinion.

MACY, J., filed a dissenting 
opinion in which URBIGKIT, J., joined. 

THOMAS, Justice, 
concurring.

[¶22.]  I agree with the result reached by the 
majority opinion in this case. Furthermore, I have no quarrel with the 
construction of the statutes set forth in the majority opinion. I find that I am 
impressed, however, with one of the contentions submitted by the Wyoming 
Production Credit Association and the Federal Land Bank of Omaha. Both insist, in 
their briefs, that the appellant, Gertrude S. Carroll, is not the real party in 
interest with respect to the claims asserted against them. This position is 
sound, and I would support the argument that the appellant is not the real party 
in interest with respect to the claims asserted in these 
cases.

[¶23.]  The real party in interest question was 
raised by the Federal Land Bank of Omaha and the Wyoming Production Credit 
Association in their respective Amended Answers, each of which included a Motion 
to Dismiss. The question also was briefed, but the district court entered 
summary judgment in favor of each of these appellees rather than granting their 
respective motions to dismiss. In a Reply Brief of Appellant, filed in each case 
in response to the briefs of the respective appellees, the appellant rather 
summarily asserts that there is standing because of the claim of fraud against these appellees, 
and she argues that this is really a derivative action. The latter contention is 
a mischaracterization of the complaint.

[¶24.]  The action which was pleaded on behalf of 
Mrs. Carroll sought to void conveyances by the corporation and requested 
individual damages for her with respect to property that had been converted by 
the appellees. The general rule appears to be that, in such instances, the cause 
of action is that of the corporation, which may be brought by a shareholder on 
behalf of the corporation in instances in which the responsible corporate 
officers will not pursue the action. 3A W. Fletcher, Cyclopedia of the Law of 
Private Corporations §§ 1282, 1283 at 606-609 (rev. perm. ed. 1986). There is an 
exception, which may be invoked in favor of a direct action against corporate 
officers, if the product of the derivative suit would result in the defaulting 
officers gaining control over the property or funds recovered because of their 
control positions in the corporation. 3A W. Fletcher, Cyclopedia of the Law of 
Private Corporations, supra, § 1282 at 608. Both the general rule and its 
exception have been recognized by this court. Lynch v. Patterson, Wyo., 701 P.2d 1126 (1985); Centrella v. Morris, Wyo., 597 P.2d 958 (1979); Smith v. Stone, 21 Wyo. 62, 128 P. 612 
(1912). Applying those propositions to this lawsuit leads to the conclusion that 
the appellant properly could maintain this action in her own right as to the 
director and shareholder who is named as an appellee.

[¶25.]  In effect, the reply brief suggests that 
the exception should be extended because of the participation by the Federal 
Land Bank of Omaha and the Wyoming Production Credit 
Association in the wrongful acts of the shareholder and director. The record, 
however, fails to support appellant's theory, and she cites no authority that 
justifies applying the exception to an outsider. Under these circumstances, her 
interests as a shareholder adequately are protected by the derivative action 
against third parties. The action against these two appellees was required to be 
pursued as a derivative suit.

[¶26.]  The pleadings do not appear to assert a 
derivative claim. The corporation is named as an appellee, which hardly seems 
consistent with a derivative action on behalf of the corporation, and the claim 
for damages is by the appellant for any conversion by either the Wyoming 
Production Credit Association or the Federal Land Bank of Omaha of any properties of 
the corporation, Carroll and Carroll. If an action such as this may be pursued, 
how can appellees such as the Wyoming Production Credit Association and the 
Federal Land Bank of Omaha be protected against having to pay the 
same claims twice? It does not seem that the concepts of either res judicata or 
collateral estoppel would foreclose Carroll and Carroll from asserting a claim 
against these appellees based upon the same contentions as those presented by 
the appellant. Prior recovery by the appellant, however, would not bar the 
subsequent recovery by the corporation under any concept of privity. See 3A W. 
Fletcher, Cyclopedia of the Law of Private Corporations, supra, § 1282 at 
606-611. The only estoppel that could arise would be out of a derivative suit, 
which I submit this case is not.

[¶27.]  I would affirm the trial court but upon 
the ground that the respective complaints failed to state a claim upon which 
relief can be granted.

URBIGKIT, Justice, 
dissenting.

[¶28.]  In addition to agreement with the 
practical and clear analysis of the statutes detailed in dissent by Justice 
Macy, I further write to reject the unfortunate standard for corporate authority 
created by this court. This case is to be seen as a result-oriented conclusion 
creating a standard that is singularly dangerous to shareholders as consequently 
unprotected from future unwise, improvident or fraudulent director action. 
O'Neal's Oppression of Minority Shareholders, Second Edition § 5:20, p. 
118.

[¶29.]  What this court will have done is to 
rewrite limitations on director action which in the past required a two-thirds 
shareholder vote to sell, lease, or exchange substantially all of the corporate 
assets if not within the usual and regular course of business, and a majority 
vote for a similarly emplaced mortgage. We now eliminate that shareholder 
protection for the divestive mortgage. See Commerce Trust Co. v. Chandler, 284 F. 737 (1st 
Cir. 1922). For the legislature to make such a change is discretional, albeit 
perhaps thoughtless in context of the Wyoming small-business corporate climate, but 
for this court to do this by overconstructive definition is singularly 
inappropriate. "The difference between legislative and judicial choice lies 
rather in the range of criteria that are available to the decisionmaker for the 
making of his choices." Christie, An Essay on Discretion, 1986 Duke L.J. 747 
(1986).

[¶30.]  The 1957 version of the Model Business 
Corporation Act existent when the Wyoming law was adopted as H.B. 3 and passed 
as Ch. 85, S.L. of Wyoming 1961 was revised in 1969, and now is rewritten to be 
the Revised Model Business Corporation Act of 1984. In the 1969 edition, § 78 
(earlier § 71 in the 1957 edition), the reference to mortgages as still found in 
Wyoming law 
was removed. Additionally, in 1984 an explicit provision was included in a 
comparable section, 12.01, that a mortgage, whether or not in the regular course 
of business, did not require shareholder approval. 3 Model Business Corporation 
Act Annotated Third Edition § 12:01, p. 1318.

[¶31.]  I would find it noteworthy that the 
Wyoming 
legislature has not made statutory changes to address shareholder approval of 
mortgages in the same fashion as did the Model Business Corporation Act of 1969 
or as now does the revised act of 1984. What the legislature has not enacted 
this court now promulgates.

[¶32.]  A recognized authority on corporate law, 
8 Cavitch, Business Organizations, critiqued Wyoming law at § 163.03[1], p. 
163-20:

"[Fn. 4] Wyoming: Wyo Stat §§ 17-1-501, 17-1-502. § 17-1-501: 
treats sales and mortgages alike."

and further 
lists Wyoming 
as a jurisdiction that has "declined explicitly to follow the Model 
Act":

"Their statutes treat 
mortgages and pledges in the same way as sales, leases, and exchanges; thus, in 
these jurisdictions, the relevant rules on shareholder approval apply alike to 
sales and mortgages." Id. at 163-21.

[¶33.]  In concurrence with Justice Macy in his 
dissent, I would leave for the legislature any decision to set the Wyoming corporate law 
standard which would authorize director mortgage approval even if involving 
essentially all of the assets of the corporation and when not even in the usual 
and regular course of business.

MACY, Justice, dissenting, 
with whom URBIGKIT, Justice, joins.

[¶34.]  I dissent. I disagree with the majority's 
reasoning that, by declining to include the word "mortgage" in § 17-1-502, W.S. 
1977, the legislature demonstrated an express intent to repeal the stockholder 
consent requirement contained in § 17-1-501, W.S. 1977, pertaining to mortgages 
made outside the usual and regular course of corporate 
business.

[¶35.]  Section 17-1-129, W.S. 1977, provides in 
material part that:

"If a quorum is present, 
the affirmative vote of the majority 
of the shares represented at the meeting and entitled to vote on the subject 
matter shall be the act of the 
shareholders, unless the vote of a greater number * * * is required by this act 
* * *." (Emphasis added.)

[¶36.]  When § 17-1-129 is read in pari materia 
with §§ 17-1-501 and 17-1-502, it is clear that the legislature intended to 
require the vote of a greater amount of the shares of stockholders to sell, 
lease, or exchange property of the corporation than to mortgage the 
property.