[ocr errors]

Did the directors have power to borrow money of one of their number, and execute to him a mortgage on the corporate property, with a power of sale? We have never known it questioned that a director or stockholder may trade with, borrow from or loan money to the company of which he is a member, on the same terms and in like manner as other persons. He then had power to loan money to the company, and they became liable to pay the same. But in doing so, he must act fairly, and be free from all fraud and oppression; and he, in so doing, must act for the interest of the company, and impose no unfair or unreasonable terms.

In this case we perceive nothing unfair on the part of Musick. The company had expended all of their means, and had

. failed to realize their expectations, and had reached a point at which the enterprise must be abandoned unless means could be procured to further prosecute the work; and so far as we can see, there was nothing reckless or nnbusiness-like in effecting this loan for the time, at the rate of interest or on the security given. They all seem to be according to the usual course of business. The loan, then, having been fairly made, for a proper pur

and on reasonable terms, we fail to perceive any reason why the debt could not be collected by a sale of a sufficient amount of the property to raise the necessary sum; but it is urged that the other directors had no legal right to purchase the indebtedness held by Musick, and to have the property sold to meet the obligations of the company held by them. Angell and Ames on Corporations, p. 214, lay it down as a rule that "the managers or directors of a corporation are not trustees of its property in such a sense as to disable them from purchasing the property and stock belonging to it, with the same effect as though they were not managers or directors ": and such is undoubtedly the general usage with the directors of all corporations. In this case, appellants liad the right to purchase the bonds of the company, and Musick's stock and the $3,000 note; nor does the purchase as made, raise a presumption of frand, nor do we find any proven.

On the same grounds, and for the same reason, the purchase of the certificate of purchase, under the decree for the mechanic's lien, was legal, and was as effective as if it had been thus acquired by a stranger.


If the company had possessed money, or property, or any assets that could be converted into money, with which to redeem, and discharge the debts, then these purchases would have been in bad faith; but there were no such means—the company was hopelessly insolvent, and its final dissolution was at hand. The stockholders had been called together, and they were urged to make advances in proportion to the stock they severally held, and thus relieve the company and preserve its existence, but this they refused to do; and as it conld not be preserved, and must come to an end by a sale under the power in the trust deed, no reason is perceived why appellants might not become the purchasers at the sale.

They were under no mural or legal obligation to advance their own means, pay the debts and preserve the property for the use of the other shareholders, who had declined to join in making pro rata advances to relieve it froin debt. Appellants seem to have acted fairly, as they purchased at a sum sufficient to pay all the debts of the company. They chose to do so rather than make an effort to obtain all of the property for the debts secured by the trust deed and the certificate of purchase. On the contrary, they gave many thonsand dollars more, that honest creditors might be fairly paid, and the company wrong no one.

This does not have the appearance of fraud. Appellants had faith that the enterprise could be carried out with success, and that they could thus save the means they had advanced; but appellees, by the course they adopted, manifested an entire want of confidence in its ultimate success. They were even offered the oppor. tunity to come in, for a considerable period afterward, and share in the new enterprise, by advancing a ratable portion of the means, but they all declined; but when success was achieved, they then saw the advantages they had lost, and then sought to set aside the sale and have the property restored to the old company, and thus reap the benefits arising from the enterprise and means advanced by others. To do so, they should show fraud, or a want of power to make the sale or the purchase by appellants, neither of which has been done.

It is next urged that the sale is excessive; that when property sufficient to pay the bonded indebtedness had been sold,


the sale should have been stopped. The first offered and sold were the lands, shaft, railroad tracks, rails and mining rights, etc., which were bid in at $11,000, which, it is contended, brought $70 more than the bonded debts. Conceding this to be true, still the principal thing was gone—the land, shaft, railroads and mining rights. The remaining property was but inere chattels, and could not be used by the company for the purposes for which they were acquired, unless other coal lands had been acquired and a new enterprise undertaken.

When the company had thus been reduced to this situation what was the plain moral and legal duty of the directors? Surely, every person would, without hesitation, say, sell the reinainder of the property and pay the debts of the company. This was dictated by every principle of justice and right. To have done otherwise would have been unjust and indefensible.

There can be no doubt that the directors had the power to sell the property, either at public auction or at private sale: or, if they chose, they could, as they did, authorize Musick to sell it at auction. In this there is no lack of power; but the question is, whether they could become purchasers at their own sale. Until the bonded debts were satisfied, the sale was that of Musick for the benefit of the holders of the bonds, forty of which belonged to other parties than appellants; but when the sale ainounted to a sufficient sum for that purpose,

all that was subsequently sold was by Musick as the auctioneer of appellants, and they purchased at their own sale. This they could not do, any more than they could fix a price on the property and appropriate it to their own use, which the law has nerer sanctioned with persons occupying the relation they did to the stockholders. The sale, then, of property over and above what was necessary to pay the bonded indebtedness, was void, inasmuch as it was purchased by the directors of the company.

But inasmuch as appellants have paid large sums of money to satisfy and discharge the indebtedness of the corporation, they have, in equity and at law, a right to have their money refunded; and in equity they should be subrogated to the rights of the oreditors whose debts they have paid, and should, in the final settlement and accounting with the stockholders, have a credit for the sum thus paid; and they should be required to account for all property sold by Musick after hie had sold a sufficient amount to pay off and discharge the bonds, at its value as may be shown by cvidence to be heard on the question, and if the property was of greater value than the amount paid by them on the debts, the balance should be treated and held as a fund for distribution among the stockholders in the original company; or if the first company is in existence and the shareholders desire to continue the organization, appellants should be required, after deducting their proportional share according to the amount of stock held by them, to pay over the remainder of such surplus to the directors of the original company. Appellees have resorted to equity to obtain their rights, and they must be required to do equity; and the distribution of the fund in the manner indicated, is equitable and just.

The decree of the court below is reversed and the cause remanded.

Decree reversed.


(4 Nebraska, 416. Supreme Court, 1876.)

Partnership attempting to prove corporate organization. Where one of porate franchise. The law and articles so filed, taken together, are considered in the nature of a grant from the State, and constitute the charter of the company.

an association of persons, charged as partners, seeks relief from liability on the ground that such association is a corporation legally organized and doing a corporate business, the burden of proof rests on him to show the existence of such corporation. Failing to establish it, he can not avoid liability on the ground that he does not appear as a subscriber to the capital stock of such association. And the question in such case is not so much, whether such person has held himself out as a partner, but whether he was a member of the company, assuming to act as a corporation-holding himself out to the public, using his name

and engaging in its transactions as such. Proof of organization or charter. To establish the existence of a cor

poration de facto, a charter or some law under which the assumed powers are claimed to be conferred, and user of the franchise thereby ob

tained, must be shown. Filing articles. In Nebraska, the filing of articles of incorporation with

the county clerk is a condition precedent to the existence of any cor

* Trowbridge v. Scudder, 3 M. R. 471.

This was a petition in error to reverse a judgment against S. C. Abbott, for the sum of $2,792.18 in the District Court of Donglas county. He was sued there, with several others as copartners, under the firm name of The Register Smelting and Retining Company, and on the trial asked the court to instruct the jury as follows:

1. Unless the jury believe from the evidence that Abbott held himself out to the public or plaintiff as a partner in the alleged company, or that he was entitled to receive a part of the profits, and bear a part of the losses, if any, they must find for the defendant.

2. That it is not sufficient of itself to charge. Abbott as a partner to show that his name was used as president of the alleged company, unless it further appears that he was entitled to receive a part of the profits and share the losses.

3. The jury are instructed to find for Abbott, upon the issues joined in the pleadings.

These instructions were refused by the court, and evidence offered by Abbott in defense of the claim set up against him, as one of said partners, excluded. Further facts appear in the opinion.

E. WAKELEY and Clinton Briggs, for plaintiff in error.
GEORGE E. PRITCHETT, for defendant in error.

The defendant in error, The Omaha Smelting and Refining Company, sued the plaintiff in error and others as copartners, doing business under the name of The Register Smelting and Refining Company, to recover the balance of an account, claimed to be due and owing to it from the plaintiff and others upon business transactions between them. The plaintiff and one Josslyn were the only parties served with process. The plaintiff in error answered the petition, and denied the copartnership or that he ever became indebted to the defendant in error in any sum whatever; but alleged that by virtue of articles of incorporation entered into by the

« ForrigeFortsett »