Court Opinion

ID: 6516838
Source: CourtListenerOpinion
Date Created: 2022-07-19 18:27:26.476566+00
Date Added: 2024-06-11T15:55:02.812223
License: Public Domain

HEAD, J.
In November, 1890, the Lady Ensley Coal, Iron & Railroad Company was organized as a mining and manufacturing corporation, under the general laws of this State, with an authorized capital of three million dollars, divided into 30,000 shares of one hundred dollars each. Twenty thousand shares were subscribed foi1, as follows : by Enoch Ensley, 19,000 ; Martin Ensley, 350; Thomas D. Radcliffe, 330, and Walter Moore, 320 shares. These persons combined, but in different interests, owned large separate mining and iron manufacturing properties, valued at $3,500,000. The said Lady Ensley Company was really organized with the view of acquiring these properties, and combining and operating them under one general management. The ownership in these properties, of each of said above named subscribers, was, in value, in the proportion which the number of shares taken by him bore -to the whole number of shares subscribed for, viz., 20,000 shares. By regular and orderly proceedings and agreements duly and legally entered into and carried out, these subscribers sold the said properties to the company at the price of $3,500,000, of which $2,000,000 were applied to the payment in full of their said stock subscriptions, and for the remainder, to-wit, $1,500,000, the company agreed to issue and deliver to the vendors fifteen hundred twenty-year, five per cent, bonds, of the denomination of $1,.000, and to secure the same by mortgage deed, to the said properties, to be executed to the Central Trust Company of New York, as trustee. The bonds, when issued, were to be distributed, ratably, to the said vendors, each to receive $750 of bonds to each' $1,000 of stock owned by him. The stock was entered upon the stock books of the company, to the credit of the several owners, as fully paid stock; the bonds and trust deed were duly executed and delivered to the Central Trust Company and the properties were conveyed to the company. The mortgage was recorded in the several counties of Alabama, wherein the properties lay. Without distribution of the bonds to those entitled to them, and while they were yet in the hands of the Central Trust Company, Enoch Ensley, the principal stockholder and *239creditor, to-wit, on November 18, 1891, died, and Ms widow, the complainant in this bill, became the executrix of Ms will. She resided in Memphis, Tennessee, where her husband lived at his death. In March thereafter, she executed a paper as follows :
“This is to witness that I hereby nominate, constitute and appoint J. H. P. Hodgson my attorney in fact, and agent to represent me and to vote the stock held by me, as executrix of Enoch Ensley, deceased, of the Lady Ensly Coal, Iron & Railway Company, at a meeting of the stockholders of said company, to be held at Sheffield, Alabama, on March 16, 1892.
“ [Signed] Mary L. B. Ensley, Executrix.” “Witness :
“B. B. Beecher,
“Henrtette E. Hodgson.”
Hodgson was her step-son-in-law, and had become a stockholder and director of the company. A meeting was held at the time and place designated, and Hodgson attended and acted under this proxy. The only business transacted, was the adoption of the following preamble and resolution : ‘ ‘Whereas, we deem it best for the welfare and interest of this company that the mortgage of date February 2, 1891, heretofore made to the Central Trust Company of New York, as trustee, and now on the-records of five counties in the State of Alabama, as well as the $1,500,000 of bonds secured therein, and now in the hands of the Central Trust Company, having never been used or negotiated, should be cancelled and annulled, and thus remove an incumbrance on the properties of the Lady Ensley Coal, Iron & Railroad Company; now, therefore, be it resolved, that the board of directors of this company be and are hereby authorized and requested, to take such action as they deem best to have said mortgage and bonds cancelled, and to have such cancellation properly appear on the records of said five counties in Alabama in which said mortgage has been recorded.”
About the same time, the following paper was executed by the parties whose names are signed thereto— the said Hodgson signing the name of Mrs. Ensley, under • no other than the authority conferred by said proxy:
*240“Sheffield, Ala., March 16, 1892.
“We, the undersigned, owners of bonds and stock of the Lady Ensley Coal, Iron & Railroad Company, agree that the mortgage heretofore made by the Lady Ensley Coal, Iron & Railroad Company, of date February 2, 1891, and bonds therein described, shall be cancelled and annulled, with the view and purpose of the said company of disencumbering the said company of such mortgage and bonds : and we authorize and ask the board of directors to procure such cancellation. Each of the undersigned to retain in lieu of our said bonds so cancelled our respective interest in the properties of the company.
Shares. (Signed)
19,000 Mary L. B. Ensley, Executrix, By J. H. P. Hodgson, proxy.
300 Walter Moore,
850 Martin Ensley,
300 Thos. D. Radcliffe,
30 W. M. Sneed,
20 J. H. P. Hodgson.”
20,000.
Thereafter, the Trust Company destroyed the said bonds, cancelled the mortgage, and entered upon the records where it had been recorded, acknowledgment of satisfaction thereof by the pajunent of the debt secured thereby. It is not pretended that this was done otherwise than by the authority of the said resolution and agreement, there having been, in fact, no payment or other satisfectiou of the bonds. The main purpose of the bill, which is filed by Mrs. Ensley, as executrix, is to re-instate and enforce the bonds and mortgage.
Without undertaking to ascertain the meaning of the said agreement of March 16, and the resolution to which it is related, we will assume that they mean something, and, if binding on the complainant, effectuated something ; and will proceed to inquire whether or not, upon the averments of the bill, they do bind the complainant.
We think it cannot be open to serious doubt that the proxy given by Mrs. Ensley to Hodgson did not confer upon him authority to adopt the said resolution, or to execute the said agreement. The resolution, in its for*241mal and technical import, is a novel one. Considered as emanating from a meeting of corporate stockholders, it is, in effect, a declaration by a mortgage debtor, that it, the debtor, deems it best for its welfare and interest, that its mortgage and bonds thereby secured be cancelled and annulled, and removed as an incumbrance on its property; and an order to its directors to proceed to have it done. It is apparent, of course, that such a declaration, considered as the act of a debtor, is, without more, utterly nugatory. Without the concurrence of the creditor,it is impossible of execution. When a meeting of stockholders of a body corporate is called, or convenes in regular session, the presumption is that they meet to transact the business of the company in their capacity as stockholders, and within the limitations of that capacity. They meet to perform strictly corporate functions, done in the legitimate prosecution of the corporate enterprise. They can lawfully act in such meeting in no other character than as stockholders ; and any act done, affecting the rights of those absent, not assented to, which is without the scope of corporate business and authority, is utterly void as to the affected party, not assenting. When, therefore, the meeting of the stockholders of the Ensley Company of March 16th was approaching, and Mrs. Ensley gave to Hodgson her proxy, she gave him warrant only to represent her as a stockholder, and only to do, for her, those things which pertained to the authority of stockholders, as such.
The meeting, in question, in realty, was not a stockholders’ meeting, when tested by what was done. No corporate function whatever was performed, unless it be that corporate assent to the cancellation'of the bonds and mortgage, by the creditors, was manifested by the action taken. It was, essentially, a meeting of creditors of the company, acting solely upon the subject matter of their securities. Those present, it is true, were stockholders and (including Mrs .Ensley, if she had been legally represented) owned all the stock ; but that fact only shows the inducement and consideration upon which, as creditors , they mutually agreed to release their claims. We emphasize : The act done, and now the subject of complaint, was the release of the debtor from an existing indebtedness ; and it would be absurd to say that representatives of the debtor (stockholders) acting in their *242capacity, as such, could do the act. If the creditors who alone could effectuate it, happened to be also the representatives of the debtor, their act in creating the release must necessarily be attributed to their character as creditors. Mrs. Ensley did not empower Hodgson to attend a creditors’ meeting and represent her interests as creditor, and nothing he could do affecting her rights as a creditor would bind her at all, unless she subsequently ratified it. If I, being a stockholder of a corporation, and also a creditor, give A. my proxy to re£)resent me in stockholders’ meeting, it would be shocking to hold that he could lawfully represent me and vote away my rights as a creditor.
So, the question is, whether the bill shows Mrs. Ensley afterwards ratified the acts of Hodgson?
The bill gives substantially, the following history: "When Mrs. Ensley became executrix, she did not know of the various transactions of, and touching, the Ensley Company, whereby her testator had become entitled to these bonds, or to payment for the purchase price of property conveyed by him to the company ; and did not learn of the same until about the middle of September, 1894, say 35 or 40 days before she filed this bill. She was twenty-four years of age at her husband’s death, and had no knowledge of practical affairs, and knew very little concerning the business interests and dealings of her husband. • For a long time after his death, she was stricken with grief and confined to a bed of sickness ; and being entirely ignorant of the rights of the estate in reference to said purchase money and bonds, and being-unable to attend to any business, or to properly understand and appreciate her duties as executrix, she signed and executed the said proxy to Hodgson, while in bed, at her home in Memphis. She says, moreover, that Hodgson was a young physician, who had married a daughter of Mr. Ensley by his first wife, and was, himself, ignorant as to business affairs, and did not know the rights of the estate in regard to said bonds and mortgage, and that in all he did, at said meeting, he was prompted by, and acted under the advice and instructions of, one W. M. Sneed, a Memphis lawyer, who had become president of the company, and Thomas D. Radcliffe, the secretary. She says, also, that Sneed was in close business relations with certain Memphis banks *243and individuals who acquired nearly a half million dollars of mortgage bonds of the company, issued shortly after said release was affected, to which reference will presently be made ; that he was a brother-in-law of the president of one of said banks, and was the agent and factor of the Ensley Company, as well as of said banks and individuals, in the negotiations which resulted in the acquisition of the bonds by them.
The bill contains the following allegations: “Complainant knew, and states it as a fact, that said Enoch Ensley had, by his own money, brains and industry, acquired the property which afterwards went into the possession of the corporation (which he had caused to be created) designated as the Lady Ensley Coal, Iron & Railroad Company, and which was sold to the Ensley Company. She had known also that he had acquired other large and valuable properties, or a large interest in them, and that it was his purpose to put them all into one vast aggregate, so that they might be more economically as well as profitably and largely developed. She had always regarded these properties as her husband’s private property, which had been bought and collected together, and was to be developed by his money and brains ; and she knew no ‘corporation’ in the business, and had no reasons to suppose that any ‘corporation’ owed him anything. She was utterly ignorant, not only of the facts whereby said Ensley Company was organized as a corporation and acquired said properties, but of the said Enoch Ensley’s claims and demands against said corporation.
‘ ‘It was mentioned to her when she was stricken down and sick, and unable to think and care for such things, that there were a mortgage and bonds which were to be cancelled, and that new ones were to be issued, to save the credit of the company, but only a small portion of them were to be used, and that the total indebtedness of the company was only about $200,000, including the debt of $41,000 to the estate for money advanced and loaned by said Enoch Ensley to said company; and that there was enough iron on the company’s premises in Russellville to pay off a large part of this indebtedness ; and complainant was led to suppose that this $1,500,000 mortgage, and the bonds secured thereby, were merely the evidence of an unfinished and incomplete transae*244tion; that no money had been advanced on them, no rights had become attached to or vested in them, and that therefore no one could be harmed by their cancellation and destruction, which would be merely like the tearing up of an uncommunicated letter. She did not know the connection «of the Central Trust Company with the matter, nor even the fact that the mortgage had been recorded. She only knew that there were a mortgage and bonds, but did not know that the bonds or mortgage had been used, or delivered to any one ; but 'under such circumstances as these she gave the proxy to said Hodgson to vote the shares standing in her name on the books of the company as executrix of said Enoch Ensley’s estate, and under such circumstances she subsequently gave the power of attorney and proxy to said Hodgson, presently to be explained.”
On May 23, 1892, Mrs. Ensley executed to said Hodgson a written appointment, as her agent and attorney in fact, to represent her and vote her stock held, as executrix, in said company, at a meeting of stockholders to be held at Russellville, Alabama, on May 24, 1892, confirming and ratifying all votes and acts given and agreed to, in matters appertaining to the business of the company, at such meeting, as fully and effectually as if she were personally present and consented thereto. This meeting was held; Hodgson represented her ; an issue of $500,000 of bonds, secured by mortgage on all the company’s property to be executed to said Central Trust Company, as trustee, was authorized, and the bonds and mortgage were subsequently issued and executed. It is stated in the briefs of counsel on both sides, that these bonds appear, upon their faces, to be the first mortgage bonds of the company, though the omission from the transcript, by agreement, of the exhibits to the bill, leaves the fact not shown by the record before us. $400,000 of these bonds, the bill avers, were pledged by Sneed or Radcliffe with certain named New York and Memphis banks and certain named individuals, who are made parties to the suit, as collateral security for the payment of existing debts of the company. The averments fully deprive these holders of the bonds of the character of bona fide holders, for value, without notice of prior equities. It is averred that twenty of said bonds ($20,000) were delivered to defendant, Walter Moore, *245and that he, or one of the other defendants resident in Memphis, has possession or control of them. Eighty of said bonds ($80,000) were delivered to the complainant by said Radcliffe, to secure the estate, so she was informed, and so she supposed, for a debt of $41,000 due to it by said company, for money loaned, and which was otherwise unsecured. At some time prior to the present suit, complainant brought a suit in the court below having reference to said claim of $41,000; but when brought, what its nature and how disposed of, do not appear. The complainant offers to surrender these 80 bonds, to be disposed of as the court may see proper, provided such surrender is deemed necessary to the relief she seeks.
It is remembered that there is here, no question of vacating the acts of Hodgson as having been wrongfully induced for we have seen that they were not the acts of the complainant, through a lawfully authorized agent; and we have given the above stated history as constituting the facts which counsel earnestly contend show ratification by the complainant.
In order to ratification, knowledge of all the material facts essential to intelligent action on the part of the party ratifying is necessary. When based upon omission to act, it involves acquiescence, and of course, there is no acquiescence without knowledge. Ratification is not presumed. It is matter which must be affirmatively alleged and proved by him who relies upon it. The principle that where a party, prima facie chargeable with lapse of time as laches, relies upon ignorance of facts to repel laches, he must clearly allege and explain his ignorance of the facts, and how and when he learned them, cannot apply when the charge is ratification of an unauthorized act, by acquiescence. Until it is alleged and shown against him, that- he knew of the unauthorized act done for him, he is not called upon to state or show anything in reference to- it. The burden, we repeat, is upon him who relies upon acquiescence, to allege and prove it. Without commenting upon the facts, all of which are above substantially set out, it is enough to say that they show, practically, no act of ratification, and absolutely no knowledge, on the part of complainant, which would render her omissions to act a ratification, until 85 or 40 days before the filing of the bill. *246The authority given by her to issue a half million of bonds, and her acceptance of some of them to secure a debt, though they appear on their face to be first mortgage bonds, did not affect her right to insist upon her after discovered priority; nor did the fact of her retaining the bonds, after learning the facts, affect her right to insist on her priority. She had the right to retain them as security of the debt for which she received them, secondary to the prior purchase money mortgage ; and so far as appears by the bill, it was not necessary that she offer to surrender them. If the company owes the debt for which she receives them, they are her property, though the prior purchase money bonds and mortgage be reinstated, and take precedence over them.
We think one situated as the complainant was, could not well have been expected to prepare and file a suit of this character, magnitude and importance, in less than thirty-five to forty days after discovering her rights, and that there is no element of laches or ratification involved in that delay. There was in it, no evidence of an intention to abide by the release ; no injury accrued to any one from it. If it be said that Hodgson was informed of the previous existence and cancellation of the purchase money bonds and mortgage, when he represented complainant under the power of attorney of May 28 d, and voted for the $500,000 of bonds, as first mortgage bonds, thereby recognizing the prior cancellation, it is a sufficient answer that his information was acquired before that power of attorney was executed, and hence possessed at and before he acted in execution of the power. He was under no fiduciary duty to communicate to his principal information so acquired.
To the extent that there was a failure of title to any of the property sold by complainant’s testator to the company, the latter may have abatement of the purchase money. Probably a cross bill is necessary, if the abatement be not tendered by the complainant in the original bill. Surely, the vendor will not be barred of enforcing his security for the purchase money, at all, because there was a failure of title to a part of the property sold. Equitable abatement, in such cases, accomplishes ample justice.
It is unnecessary to construe the resolution and agreement, adopted and signed by Hodgson, in March, 1892, *247since we hold, upon the allegations of the bill, that the complainant is not bound by them.
There is no error in the decree of the chancellor, and it is affirmed.