Court Opinion

ID: 3988287
Source: CourtListenerOpinion
Date Created: 2016-07-06 10:44:21.727263+00
Date Added: 2024-06-11T14:18:24.733345
License: Public Domain

after making the foregoing statement, delivered the opinion of the court.
The first contention made on this appeal is that the trial court erred in overruling defendant's motion for a nonsuit. Appellant insists that, as the contract of June 7, 1894, between Burke and Salisbury and Snyder and others, provided the $34,000 was to be paid out of the proceeds of ore sales, compromises, or otherwise, it was incumbent upon respondent to prove by a preponderance of the evidence that the profits of the mines were sufficient to pay plaintiff's claim after liquidating other claims which took precedence of, and were, under the terms of the contract, superior in point of time to, the claim sued on. This same question was raised and squarely presented to this court in the case of McIntyre v. Ajax Min. Co., supra, and Mr. Justice Baskin, now Chief Justice, speaking for the court, said: "To understand the full bearing of the testimony, it is necessary to construe the terms `that said two sums shall be paid pro rata out of the proceeds of ore sales, compromises, or otherwise,' as used in the contract of June 7, 1894. Following these terms it is provided that no other money shall be paid out, except for necessary operations, until after the payment of the sums mentioned in said contract. From this provision it is clear that the term Proceeds of ore sales' was intended to include only the proceeds left after paying the expenses of necessary operations, or, in other Words, the net proceeds. It is clear that the Parties did not intend that payment was to be immediately made, or should depend exclusively on the proceeds of ore sales and compromises, or that said claims should become due and payable only when sufficient funds to pay said claims should be received from the proceeds of ore sales or compromises, because, if such had been the intention, the term `or otherwise' would not have been used. The proper construction of these terms is that, if the net proceeds of ore sales and that derived from compromises did not, within a reasonable time, amount to a sum sufficient to liquidate said claims, then payment was to be made otherwise; which means that after a lapse of a reasonable time the obligation to pay was to become absolute, and not dependent upon either the proceeds of ore sales or compromises. (Bearting upon this question, see cases cited in Johnson v. Schenck, 15 Utah 490 [50 P. 921].)" This same general doctrine was reaffirmed by this court in the case of Busby v. Century Gold Min. Co., 27 Utah 231, 75 P. 725. There. fore, under the law as declared in those cases, which we again reaffirm, the court did not err in denying defendant's motion for a nonsuit.
The claim made by appellant that McIntyre paid nothing for the account is not supported by the record. The written assignment by which it was transferred to him reads as follows: "And the said Henry M. Ryan In consideration of the purchase of said stock by said Knox and McIntyre, hereby assigns and transfers and sets over unto the said Knox and McIntyre, all the claims of said Ryan against said Ajax Mining Company, aggregating $9,015, and all securities held by said Ryan to secure the payment of the same." It will thus be observed that the account in question was a part of the consideration received by Knox and McIntyre for the. $18,697.56 paid by them in the transaction whereby they purchased from Ryan 49,812 shares of the capital stock of defendant company, which transaction is fully set forth in the foregoing statement of facts.
Nor was the purchase of this claim by McIntyre a fraud against the company. The company had repeatedly, through its board of trustees, by resolutions which were made matters of record, acknowledged the account as a valid and binding obligation on its part, even to the extent of authorizing the execution of trust deeds and mortgages on the company's property to secure the payment of this and other items of its indebtedness. At the time McIntyre purchased the account the corporation was solvent, and he was in no way charged with a duty by the company to pay off and discharge the claim for its benefit. Nor were the rights of creditors prejudiced, or in any way involved, in the transaction. Therefore, under these circumstances, we fail to comprehend upon what theory the purchase of a valid claim against a corporation by one of its directors should be deemed fraudulent. As stated by counsel for respondent in their brief, this is not a case "where the corporation is insolvent, and the question arises between the director and other creditors of the corporation. In such a case it is very properly held that the property of a corporation constitutes a trust fund; that the director is to be regarded as a trustee; and that he may not, by purchasing outstanding claims against the company at a discount, and putting them in for their face value, thus reap an advantage, because of his position over the general creditors of the insolvent company; nor where the director or other officer of the company is charged with a present duty to pay off or discharge a claim for the benefit of the company, he may not acquire it in his own name at a discount, and compel the company to pay him the full face value." In fact, it is settled by the great weight of authority that a party may contract with a corporation of which he is a director, provided he acts in good faith. In 10 Cyc. 807, the rule is stated as follows: "There is no sound principle of law or equity which prohibits one or more of the directors of a corporation from entering into contracts and dealings with the corporation, provided they act in good faith, and provided there is a quorum of directors on the other side of the contract, so that the vote of the interested director is not necessary to the adoption of the measure; and even in the latter case the contract is good in law." (See cases cited in note.) This being the law, it necessarily follows that a party may rightfully purchase a bona fide existing claim against a corporation of which he is a director, provided that, as in this case, the rights of other creditors are not involved, and he is under no present duty to act in the transaction for the corporation. Seymour v. Cemetery Ass'n, 144 N.Y. 333, 39 N.E. 640, 26 L.R.A. 859; Carpenter v. Danforth, 52 Barb. 581; St. Louis, etc., Ry. Co. v. Chenault (Kan.)12 P. 303; 1 Morawetz, Corp. (2d Ed.) § 521.
The contention of appellant that Burke and Salisbury represented to the promoters of the corporation that they had an absolute and clear title to the mining property mentioned in the contract of June 7, 1894, and for which the company agreed to pay $34,000, and that defendant, relying upon such representations, was induced to purchase the property, and that it subsequently transpired that Burke and Salisbury had no title thereto, is not supported by the evidence. The contract by which defendant purchased and came into possession of these mining claims recited that certain litigation was pending, and contained provisions for the payment of the expenses of such litigation, and then, referring to the $34.000 purchase price of said mines and the expenses of the litigation, further recited as follows: "And that said two sums shall be paid back to said parties pro rata out of the proceeds of ore sales, compromises, or otherwise." It is evident that the term "compromises" had reference only to the then pending litigation, as such litigation was the only matter covered by the contract that was at that time susceptible of a compromise. In fact, counsel for appellant, in their brief, say: "That in 1894 p. C. Burke and Frank Salisbury claimed to be the owners of 19/24 of the Champlain No. 2 mining claim and all of the Fraction claim; that there was litigation pending between them and the American Eagle Mining Company, a corporation, claiming to own said claim, and also adjoining properties. Burke and Salisbury were unable to carry on the litigation, or to develop the property claimed by them. Accordingly they entered into a contract with W. I. Snyder and others by the terms of which the latter were to pay the expenses of the litigation. * * * The litigation was concluded, and the company entered upon the work of developing its properties." The record further shows that at the time the contract was entered into appellant was in possession of an abstract of the title to the property, which showed that the title was clear and unclouded. Therefore the contention of counsel, in the face of the record and their own statement of the case that the promoters of this enterprise were ignorant of the adverse claims that were being made to the property and as to the character of title held by Burke and Salisbury, is unwarranted, and not supported by the record.
We find no reversible error in the record. The judgment is therefore affirmed, with costs.
BASKIN, C. J., and BARTCH, J., concur.
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