The record-union., 1895-07-06
THE DIEONS TO GET THEIR MONEY.
Judgment Against the Elk Grove
Water Company.
The Sum OF $4,000 Involved-Liabufty
of a Corporation for Its
Agents Acts.

cured by mortgage on the company .
property. Says the court:
The defendant is a corporation. organ
lied for the purpose of supplying Inc
town of Elk Grove with water for domes-
tic. etc.. purposes. The capital stock was
fixed at 50, 900, divided into shares OF SlO
each, 500 in ell, OF which number ZS1
were subscribed. Its affairs were man
aged by a Board of seven Directors. Inc
four plaintiffs are members of the board.
1t was thought prior to the incorpora-
ton that s., 800 were ample for the needs
of the proposed company. After arflhcial
life was breathed into defendant, and its
directors began to make the arrange
ments to carry out the objects, II was
found, as is usually the case, that
the estimates were far too low. How
ever, the board in good faith proceeded
to build tanks, purchase the necessary
machinery, lay pipes, and do such other
things as was necessary to carry out the
purposes for which defendant WAS lncor-
porated, until in Septemb bel, 1893, 1t found
itself out of funds, creditors pressing Tor
the material furnished, bankruptcy
threatening, il was likely to be suspended
from further operations and the object
for which it was organized defeated
On the 18th OF September, 1893. the
Board of Directors passed a resolution
that it borrow. upon mortgage upon It's
property, funds necessary to pay OIL the
outstanding claims and to complete the
plant.
On the 18th meeting of the stockhold-
ers, representing over two-thirds of the
stock, was called and ratified the action OF
the board, but no record was kept OF the
meeting. On the l4th an agreement or
acQuiescence in writing was drawn and
signed by over two-thirds OF the stock
authorizing the board to borrow money
by mortgage for the purposes named.
The Board of Directors made active
efforts to secure loans upon the property,
but were unable to do SO on account OF
the security offered. The amount neces-
sary to raise was the sum of Sf, 900. These
four plaintiffs finally made this arrange
ment: They secured from one Terry the
sum of $1,000 upon their personal notes,
and the other $1,000 was furnished by the
plaintiffs. each advancing 5000. A
note was drawn. secured by
mortgage, to one w. E. Dixon.
brother of one of the plaintiffs,
but prior to the commencement OF the
suit, it was assigned to plaintiffs, w. h.
Dixon's only interest In the matter being
that of a trustee. When the Terry note
became due it was paid by the plaintiffs.
The plaintiffs at all the times mentioned,
and at the time of the hearing of this
cause, were mem bers OF the Board of
Directors, and constituted a majority Of
the board. Plaintiff Hasman, however.
did not become member OF the board
until the 18th of September, 1893. Among
the claims against the defendant which
was unpaid on September 18th, was
sum of nearly $500 advanced by Hasman
to the laborers who were engaged in lay
ing the water pipes, ETC., small portion
being due to himself for labor, claim of
S52 which Plaintiff Eyerson had paid, or
advanced the money to pay.
These claims were paid out of money
borrowed by defendant upon the note
expended in the plant 1t is now COM
pleted and in operation. Its market
value is not much above one-half OF that
sum.
There is no claim of bad faith on the
part of plaintiffs, or that they in any way
took an advantage for themselves, or that
in any way they received any benefit
personally from the transaction. They
own in the aggregate about one-third of
the capital stock. Efforts were made TO
sell additional stock without success, and
there were and are no available funds to
meet the debt.
The defendant claims thar being ma
jority of the board they had no authority
to execute a note and mortgage to them
selves, and that they must lose their
money, although the defendant received
every dollar, and now has something to
show for every dollar they expended.
There is one principle we'll established
That corporation is liable for money or
other property received under contract
which is void because in excess of the
powers of its agents. Second vol. Mora
wetZ on Private Corporations, Section 7l5;
Visalia w. q. and Z. l.. Co. VS.. Sims, 10t
Cal. 332.) Then there Is one thing certain
that these plaintiffs should have their
money loaned to defendant, and used by
1t in this business.
The shareholders ratified the act of the
board OF the 18th OF Septemb Der by their
written instrument of the 18th of Septem-
ber. The board at that time, the 18th, di-
rected a mortgage to be drawn to w. L.
Dixon. It is evident that that fact was
generally known on the 18th when they
gave their written consent to the mort
gage. Ii was matter of general notoriety
among the stock kholders that the plaintiffs
were going to get the money through
their personal efforts.
Such facts certainly became well known
before much time had elapsed. n stock
holder interposed any objection thereto,
but stood by and saw the plaintiffs
money used for Defendants benefit, and
not until the debt became due did any
shareholder object 10 the act of plaintiff.
l think they as well as defendant are
estopped this day from objecting. (Sec-
tions 628. G29 and $50, second Morawetz
on Private Corporations; Bourse VS..
Burke, 9S CAL
Defendant cites a number of authori-
ties from our Supreme Court to sustain
its position, but in everyone of those
cases the directors were endeavorine 10
obtain an advantage, and the reason of
the rule given Is because of that advan-
tage.
The early cases were so stringent that
director, even where lie did not act, could
not recover il he loaned money to the
corporation, but that rule has been re-
laxed, and 8 director may now loan
money 10 corporation ii IL be needed,
if the transaction be open and otherwise
without blame. Beach on private cor
porations, 245; Twin Lick Oil Company
VS.. Mobury, 81 L. :. 9S7; Santa Cruz
Railroad Company VS.. Spreckels, 90 Cal.
193; Sutter-street Railroad Company vs..
Baum, 90 Cal. A.
In the latter case the court says, "Di-
rectors and other officers may, when they
deem it for the interest of the corpora
ton TO borrow, advance it money on
terms as favorable as any on which they
could have procured the money from
other sources, and they may lake from
the corporation security for their loan,'
etc.
In this case they could not borrow at
all on the faith OF the corporation from
outsiders. Ii was on their individual
credit that they secured two thousand of
the four thousand dollars. and they fur
n:shed the rest themselves. Their fellow
directors and the other shareholders re-
fused to come TO their assistance.
It would be an act little better than
bare robbery TO take the money of these
men thus. l have sifted the transaction
thoroughly in the light that il is before
me. / cannot see where these plaintiffs
have done one single act that was incoa-
sistent with honesty and uprighsness from
the time Of their assuming their duties as
officers of the corporation TO the time of
the commencement of this action. Il