Court Opinion

ID: 5438761
Source: CourtListenerOpinion
Date Created: 2022-01-08 17:58:27.905186+00
Date Added: 2024-06-11T08:31:56.110448
License: Public Domain

By the Court:
The defendant was incorporated as a turnpike road company under the act of May 12, 1853 (Statutes 1853, p. 169), and the action is upon a note and mortgage executed by the board of directors as security for a debt contracted in the construction of the road. The defense is that the board of directors exceeded its authority in executing those instruments, which, it is claimed, were void ab initio. At the trial, the court excluded the note and mortgage when offered in evidence by the plaintiff, and this ruling is assigned as error.
Section 19 of the statute under which the defendant was incorporated, provides that the corporate powers are to be exercised by the board of directors, “with such limitations and restrictions, and to the extent only that may be prescribed in the by-laws of the company. It is expressly understood that the directors and officers have no powers, except such as are given by the stockholders in their resolutions and by-laws.” The same section further provides “that said board of directors shall not be empowered, in any manner, to mortgage, or otherwise to hypothecate the property of the company, until twenty-five per cent, of the capital stock has been paid in and vested in the construction of said road; nor then, unless by a vote of two-thirds in interest of the stockholders.” At the trial, the by-laws were not produced, nor their contents proved; but the plaintiff offered to prove that at a stockholders’ meeting, at which sixty-six out of one hundred and twenty-two outstanding shares were represented, it was resolved by a unanimous vote that an assessment should be levied for the purpose of paying off the note and mortgage, and that the assessment was afterwards collected from more than two-thirds of the stockholders, with the understanding on their part that the money was to be applied towards the satisfaction of the note and mortgage. The evidence was excluded by the court, and this ruling is assigned as error.
The statute is very peculiar, and apparently denies to the board of directors the right to exercise any powers whatso*343ever, “except such as are given by the stockholders in their resolutions and by-laws.” The by-laws not having been produced, nor their contents proved, no light can be educed from that source as to the authority of the directors to execute the note and mortgage. But it was competent for a majority of the stockholders assembled in a stockholders’ meeting to pass a resolution authorizing the execution of a promissory note by the directors on behalf of the corporation; but, as we have seen, it required the assent of two-thirds in interest of the stockholders to authorize the execution of a mortgage. The note and mortgage, therefore, stood upon a different footing in this respect, and while there was no proof that the execution of either the note or mortgage was authorized by a prior resolution of the stockholders, we think the subsequent resolution adopted by a majority of the stockholders, to levy an assessment for the express purpose of liquidating the note, was equivalent to a previous authority to execute it. It was a distinct recognition by a majority of the stockholders that the note was a valid and subsisting obligation of the corporation; and standing, as they did, in the relation of principals toward the board of directors as their agents, it was competent for them to ratify, by their subsequent approval, any act which they might originally have authorized. We are, therefore, of opinion that the vote should have been admitted in evidence, in proof of this act of ratification by a majority of the stockholders. But the mortgage stands upon a different footing. It could not originally have been executed so as to bind the corporation, except by a vote of two-thirds in interest of the stockholders, and it could not be ratified by the vote of a less number. The fact that two-thirds in interest of the stockholders paid the assessment after it was levied, with the understanding that the money was to be applied towards the liquidation of the note and mortgage, does not tend to prove a ratification of the mortgage. The assessment being valid, they had no option but to pay it, and their understanding that the money ivas to be applied to the payment of a valid note of the corporation, did not tend to show that they thereby admitted the validity of the *344mortgage. In no sense was this equivalent to a ratification of the mortgage by a vote of two-thirds in interest of the stockholders at a stockholders’ meeting.
We attribute no force to the suggestion that the note was void because of the failure to file a copy of the by-laws with the county recorder. By the very terms of the statute, that consequence would follow in respect only to contracts made after the by-laws were filed, and which were not in accordance therewith.
Judgment and order reversed, and cause remanded for a new trial. Remittitur forthwith.
Neither Mr. Justice Rhodes nor Mr. Justice McKinstrt expressed an opinion