North Confidence Mining & Development Co. v. Fitch

FINCH, P. J.

This action was instituted to cancel a promissory note and mortgage for the sum of $9,439.04 purporting to have been given by the plaintiff to defendant Fitch. The court found the note to be valid to the extent of $1,787.89 and enjoined the defendants “from collecting any greater amount thereon,” and adjudged the mortgage to be a lien on the lands described therein “to the extent of said sum of $1,787.89 with interest.” From this judgment both the plaintiff and the defendants prosecute separate appeals.

Plaintiff corporation was organized with a capital stock of $75,000 divided into 75,000 shares of the par value of $1 each. With the exception of a few shares issued to certain persons to enable them to serve as directors, the defendant Chute owned or controlled all the capital stock up to May 15, 1915. On that day he sold and conveyed 47,156 shares to Ella Kleinecke, but at all times, prior to July 28, 1919, he continued to be president of the board of directors and controlled all of plaintiff’s corporate acts. July 15, 1916, defendant Chute, claiming that the plaintiff was indebted to him, in the sum of $9,439.04 for money advanced by him as president, treasurer, and general manager, assigned his claim to defendant Fitch as security for moneys then owing from Chute to Fitch and the latter still holds said claim and the note and mortgage given in consideration thereof as such security only. Immediately thereafter Fitch commenced an action against plaintiff herein for the amount of the claim. The corporation was duly served and, on its failure to answer within the time allowed by law, judgment was entered against it July 31, 1916. Mrs. Kleinecke promptly moved to vacate the judgment and her motion ■ was granted October 6, 1916. April 18, 1917, Mrs. Klein

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ecke demanded a certificate for the 47,156 shares of the capital stock sold to her by Chute, the same then still standing in the latter’s name on the books of the corporation, but her demand was refused. April 21, 1917, a purported special meeting of the board of directors was held at which the note in suit was attempted to be authorized and on the same day was executed by Chute as president and E. W. Holland as secretary. May 3, 1919, the same officers executed the mortgage in question to secure payment of the promissory note. This mortgage seems to have been executed without any previous authorization, but at a purported special meeting of the board of directors held May 21, 1919, a resolution was adopted ratifying its execution. Mrs. Kleinecke testified and the court found that she had no knowledge of the execution of the note and mortgage until July 14, 1919. April 25, 1917, Mrs. Kleinecke commenced an action against the plaintiff herein and Chute to compel the issuance to her of a certificate for the 47,156 shares of the capital stock and the transfer thereof on the books of the corporation. Defendant Chute filed an answer in that action denying that Mrs. Kleinecke was the owner of the 47,156 shares of stock. Judgment was rendered in her favor and the defendants therein appealed. The judgment was affirmed and thereupon the certificate demanded was delivered to Mrs. Kleinecke June 27, 1919. July 28, 1919, at a meeting of the stockholders of the corporation, the same being the only meeting of the stockholders since the year 1907, a new board of directors was elected. From the time at which the new board was elected Mrs. Kleinecke has had the control and direction of the affairs of the corporation. This action was instituted October 25, 1919. The complaint alleges, among other things, that the promissory note and mortgage were given without consideration and that the execution thereof was neither authorized nor ratified by the board of directors at any valid meeting thereof. The board of directors was composed of seven members and the by-laws provided that four directors should constitute a quorum. At all meetings of the directors at which any action was taken relative to the authorization or ratification of the promissory note or mortgage five directors only were present. Of these five the defendant was one, though he did not vote