Court Opinion

ID: 6900322
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:54:20.281077+00
Date Added: 2024-06-11T16:06:08.839780
License: Public Domain

Mu. Chief Justice Bean
delivered the opinion.
The defendant corporation admits the validity of the lien sued upon by the plaintiff, and it is denied by Knapp alone. Unless he has a valid, and subsisting mortgage upon the property against which it is sought to enforce the lien, he is not in a position to question the legality thereof. It requires no argument or citation of authorities to show that, upon the facts as they appear from the records of the corporation defendant, and the several written agreements and contracts offered and admitted in evidence, the mortgage from the defendant company to Knapp was void and of no effect. This evidence shows that it was given by the authority of the directors of a corporation, a majority of whom were personally interested, to secure the payment of a debt from one of such directors to another, and not for any consideration moving to the corporation. It is common learning that the directors and officers of a corporation act in a representative and fiduciary capacity, and have no right to mortgage the corporate property for their personal benefit or to represent the corporation'in contracts or transactions in which they are personally interested, and, if they do, the contract or transaction is void: Clark, Corporations, 508; Curtin v. Salmon River Min. Co. 130 Cal. 345 (62 Pac. 552: 80 Am. St. Rep-. *75132); People v. Township of Overyssel, 11 Mich. 222; Haywood v. Lincoln Lum. Co. 64 Wis. 639 (26 N. W. 184).
It is urged, however, that the organization of the defendant corporation, and the making of the several contracts and agreements mentioned, were merely designed as a means of enabling Knapp to sell and dispose of his mining property, and the effect of the transactions was to sell such property to the corporation for $45,000, and the mortgage in question was given to him to secure the corporate debt. But the intention of the parties, and the legal effect of their acts, must be determined by what they did, and not by what Knapp supposed they were doing. It is undisputed, that the corporation was regularly organized with Knapp’s knowledge and assistance; that he subscribed for all of its capital stock except two, shares, and conveyed to it the mining property in question in payment for such stock and received certificates therefor. The corporation thus became the owner of the mining property, and Knapp of the stock, and the property was paid for by the corporation, by the issuing and delivering to Knapp of such stock. He thereafter contracted and agreed to sell his stock to Sorenson for the sum of money named, and Sorenson thereby became liable to him for the purchase price of such stock, and there is no process of reasoning by which this indebtedness can be transferred from Sorenson to the corporation. The resolution of the board of directors, reciting that the corporation was indebted to Knapp for the purchase price, was not in accordance with the undisputed facts, and could not have been adopted without the vote of either Sorenson or Knapp, who were directly and personally interested therein; and it is therefore of no force or effect, and cannot be deemed an assumption by the corporation of the debt due Knapp from Sorenson on the purchase price of the stock, if such an act would have been valid in any event.
It is contended, however, that the stock placed by Knapp in escrow in the bank under the contract for the sale thereof to Sorenson was, upon the execution of the note and mortgage by the corporation, turned over by Knapp to Sorenson for the use *76and benefit of the corporation, and that the corporation cannot repudiate or deny the validity of the transaction without returning the stock to Knapp. This contention is not supported by the evidence. The testimony is that upon the exechtion of the mortgage Knapp released the shares of stock theretofore deposited by him with the bank as securitjr for the purchase price, and authorized the bank to deliver all that remained unsold thereof, and released all claims thereto. There is no evidence to whom or for whose benefit the stock was released, but the necessary presumption is that it was delivered to Sorenson, who had contracted to purchase it, and who was entitled to its possession under the terms of the contract between himself and Knapp, and, in the absence of proof of any agreement or understanding to the contrary, the stock must be held to have been delivered to Sorenson for his own benefit, and not that of the company.
Again, it is contended that the corporation was liable in damages to the holders of the overissue of stock sold by Sorenson, and that Sorenson was enabled to take up and cancel such overissue with that delivered to him by Knapp, and thus release the company from liability on account of such overissue; and that this constituted a sufficient consideration to support the mortgage from the company to Knapp. That an indirect benefit of this kind is not a sufficient consideration to make a valid and binding transaction, where the directors of the corporation have, in violation of their duty and trust, mortgaged or pledged the corporate property to secure the payment of a debt of one director to another, is too evident to need elaboration. Sorenson was one of the directors of the corporation, and its president. Knapp was another director, and its vice-president. The two constituted a majority of the board, and it was by their votes that the mortgage was authorized. It was therefore void, and cannot be given validity, because the corporation may be indirectly benefited in some way by the transaction.
Affirmed.