Court Opinion

ID: 6962017
Source: CourtListenerOpinion
Date Created: 2022-07-24 01:47:14.880978+00
Date Added: 2024-06-11T16:08:28.332556
License: Public Domain

Mr. Justice Sheldon delivered the opinion of the Court: It is urged by appellants that the notes and mortgages executed to Hale, Lyon and Ingraham by the officers of' the hotel company, were so executed without authority from the stockholders or board of directors, and were, therefore, void. It is sufficient to say in this respect, that the notes were executed by Pulling, as president of the company; that the mortgages were executed by him as president, and Plainer as secretary, under the corporate seal of the company; that the notes were entered and appeared upon the bills payable book of the company, and in its statement of liabilities posted yearly in its Iowa office, as required by law; and that the resolution of the board of directors of October 8, 1878, authorizing and approving the sale of the listed property to Ingraham in satisfaction of the Lyon mortgage and the notes to Ingraham, assumes and recognizes such mortgage and notes as valid existing liabilities of the corporation. There was full adoption and ratification by the company of the notes and mortgages. As against the validity of the bill of sale of the hotel property to Ingraham, executed on October 8, 1878, by Pulling, as president, and Plainer, as secretary, under the corporate seal of the company, in pursuance of the resolution of the board of directors expressly authorizing the sale, it is insisted that such a sale of the entire assets of the corporation, without the authority of the stockholders in meeting convened, was wholly void; that the authority which was conferred upon the board of directors by article 5 of the articles of incorporation, providing that “the business of this company shall be under the control and management of a board of directors, ” etc., extended only to the management of the ordinary business of the company involved in the keeping of hotels, and not to the making sale of the entire property of the company; that the making of such a sale was the exercise of a corporate power, which remained with the corporation, to be exercised by it through its stockholders. By the articles of incorporation it is expressly provided that the company shall have “the right to purchase, sell, mortgage, control and lease hotel property, either real or personal, or both, and to exercise all such other incidental powers as shall be necessary and proper in conducting said business ” of keeping hotels. The 7th article provides: “At the annual meeting of the stockholders on the second Wednesday in April, 1877, or at any subsequent annual meeting, they may adopt such by-laws and rules and regulations applicable to this company, and for the government of the board of directors in the control and management thereof, as shall be deemed necessary, and not inconsistent with these articles, ” etc. No by-laws were ever adopted, but at the annual meeting of stockholders on the second Wednesday of April, 1877, the following resolution was passed: “Resolved, that it is not deemed necessary at this meeting to adopt by-laws, for the reason that the articles of incorporation provide that the control and management of the corporation shall be in the hands of the board of directors.” And at the annual meeting of stockholders in April, 1878, the same resolution was re-aclopted. We think it but the proper construction of this resolution to consider it as manifesting the intention, and amounting to an expression of the sense, of the stockholders, that the entire control and management of the corporate business should be entrusted to the board of directors; that they should have the right to purchase, mortgage .or sell the hotel property, in their discretion, and have full power and authority to do anything in that respect that the stockholders themselves or the corporation could do. Question is made by appellants’ counsel of the validity of the notes given by the hotel company to Hale and to Ingraham, on account of Pulling’s preexisting indebtedness to Ingraham before the formation of the corporation, in the respect of there being no consideration of benefit to the company for such notes. It is well enough settled that corporations may, by express agreement, assume obligations entered into by the promoters of the corporation prior to its organization, with a view thereto, where the corporation derives the benefit of that in respect of which such obligations were incurred. Wood v. Whelen, 93 Ill. 153; Railroad Co. v. Sage, 65 id. 332. And see Low v. Railroad Co. 46 N. H. 284. But it is denied that the liabilities on account of which the notes in question were given were incurred by Pulling and Cronkhite as promoters, or that the hotel company received the benefit of that for which the liabilities were incurred. The idea would seem to be, that as full paid stock was issued to Pulling for the hotel furniture he put in, this was payment by the company of full consideration for the furniture,' and that the superadded agreement to pay the personal debts of Pulling and Cronkhite was gratuitous, and without any consideration received by the hotel company. It is true the liability of Pulling to Ingraham was not strictly incurred as promoter of the corporation, or in view of its organization, but that of Cronkhite to Hale clearly was thus incurred. Pulling and Cronkhite, who were the only promoters of the enterprise, devised the scheme to organize the “Commercial Hotel Company” under the Iowa corporation law, and to bring into that corporation, as capital stock, the hotel furniture and fixtures of the Commercial Hotel, in Chicago, which Pulling was carrying on, and issue full paid stock therefor. To that end, in order to get control of the furniture and fixtures, divested of the lien which Ingraham had thereon, it was necessary to make some satisfactory arrangement with Ingraham. This was done through Cronkhite making a trade with Hale for the Hale building, Cronkhite giving therefor other property he owned and $20,000, and Ingraham being willing to take the notes of Pulling and Cronkhite for $100,000 of Pulling’s indebtedness to him, secured by a conveyance to him of the Hale building and $20,000 of hotel company stock when it should thereafter issue, and for the remaining $14,-780.56 due to him from Pulling, Ingraham was to have the hotel company notes. Soon after the organization of the corporation the company’s notes were given to Hale for the $20,000, the balance of the purchase money coming^ from Cronkhite for'the Hale building, and a chattel mortgage to secure the payment of the same, and the company’s notes were given to Ingraham for the remaining $14,780.56 due him from Pulling. Pulling and Cronkhite were two of the three directors, and as appears from the books of the corporation, shortly after the organization, they were substantially the only stockholders. We must believe, from the circumstances, that these notes and chattel mortgage of the company were given in pursuance of an arrangement, made prior to the organization, that they should be thus given. Not a dollar in money was subscribed for or paid in by any one. All the debts thus assumed by the company for which they gave their notes and chattel mortgage, as above named, were really for the property, which constituted the sole assets of the corporation, and which property, we may well suppose, could not have otherwise been obtained. We can have no doubt that such notes and chattel mortgage were given for full consideration received by the hotel company, and so far as respects sufficiency of consideration, were valid and binding obligations upon the company. They were, then, the company’s own debts, and not the mere personal debts of Pulling and Cronkhite, as is so strenuously urged. As to the remainder of the amount of the indebtedness from the hotel company to Ingraham, which was settled for and satisfied by the bill of sale to Ingraham, there is no question as to its being the company’s own indebtedness, being for moneys advanced by Ingraham directly to the corporation after its organization. Among the powers of a corporation organized under the laws of Iowa, conferred by the laws of that State, is “the right to make contracts, acquire and transfer property, possessing'the same powers in such respects as private individuals.” (Code of Iowa, 1880, sec. 1059, sub. 6.) That, unless prohibited, it may borrow money and execute a mortgage on the corporate property, and may make a contract the same as an individual can do, see Thompson v. Lambert, 44 Iowa, 239; Buell v. Buckingham & Co. 16 id. 291. Objection is taken to the action of the directors in the premises as being outside of the State of Iowa, and in the State of Illinois, it.being claimed that what they did were corporate acts, and that corporate acts can not be performed outside the territory of the jurisdiction under which the corporation was created. This is true as to corporate acts, strictly so called. And courts differ as to what are corporate acts, and what are acts merely of agents, some holding that the directors are only agents', and others holding their acts as directors to be corporate acts. (Green’s Brice’s Ultra Vires, 442-3, note a.) All the acts in question of the directors we look upon as being not corporate acts, but acts done by the directors in the exercise of their power as agents of the corporation, and such as might well be performed within this State, although the corporation was created in the State of- Iowa. There is abundant authority in favor of such view. Bellows v. Todd, 39 Iowa, 209; Galveston Railroad v. Cowdrey, 11 Wall. 476; Arms v. Conant, 36 Vt. 745; Miller v. Ewer, 27 Me. 517; Ohio and Mississippi R. R. v. McPherson, 35 Mo. 13. Although it may be otherwise as to corporate acts, it is not to be questioned that a corporation, by its agents, may make contracts and transact business in another State than that of its creation,—and the expressed object of this corporation, by its articles of incorporation, was the management, control and keeping hotels in the State of Illinois, as well as in the State of Iowa. We do not concur in appellants’ view that the debts in question were the mere private debts of Pulling, and that the transfer to Ingraham was a misappropriation of the company’s property to the payment of Pulling’s individual indebtedness. We find it to be the indebtedness of the company, and that the transfer of the property was but the payment of the company’s bona fide indebtedness. An individual may turn out part or the whole of his property in payment of his debts, and in so doing may prefer creditors. We do not see why this corporation might not do the same, and that through the action of its board of directors. We find nothing to impeach the good faith of the transaction. Kent lays it down: “Independent of positive law, all corporations have the absolute jus disponendi of lands and chattels, neither limited as to objects nor circumscribed as to quantity.” (2 Kent’s Com. 281.) In addition, here, the law of the State where the corporation was created conferred upon it the right to make contracts, acquire and transfer property, with the same powers in such respects as private individuals. But it is claimed that the board of directors had not the power to dispose of all its property, and thus destroy the corporation. The effeet'of this transfer of all the hotel property no doubt was to terminate the business of the corporation; but that was not the necessary effect. It is entirely clear, upon the authorities, that the disposal of all the property of a corporation has not the effect to end or dissolve the corporation. Buell v. Buckingham & Co. 16 Iowa, 284; Town v. Bank of River Raisin, 2 Doug. (Mich.) 530; State v. Bank of Maryland, 6 Gill & J. 205; Catlin v. Eagle Bank, 6 Conn. 233. The circumstance of Ingraham being a stockholder in the corporation, as he appears to have been, did not debar him from obtaining security for debts due to himself, to the exclusion of other creditors. Buell v. Buckingham & Co. supra; Whitewell v. Warner, 20 Vt. 425; Railroad Company v. Clayborn, 1 Speer’s Eq. 562; Sargent v. Webster, 13 Metc. 497. We are not satisfied, from the evidence as to its value, that the property transferred to Ingraham was any more than sufficient to satisfy the mortgage on which it had been taken,—that at. a public sale it would have brought more than the amount of the mortgage debt. If that be the case, then Ingraham really obtained no preference over other creditors in respect of his unsecured indebtedness. He but obtained satisfaction of the mortgage which he held. We think the decree dismissing the bill was right, and it is affirmed. Decree affirmed.