Seeley v. San José Independent Mill & Lumber Co.

McKee, J.: This was an action to recover judgment for a balance alleged to be due upon two promissory notes executed by the defendant corporation and delivered to the plaintiff, who was at the time of the execution and delivery of the notes, a Director of the company. The notes were given to secure payment to the plaintiff of twenty-five hundred dollars which he had paid for the defendant in satisfaction of three promissory notes, which were held by one Meacham against the defendant, and on which Meacham threatened to sue. To save the defendant from a lawsuit thereon, the plaintiff, at the request of the President and Superintendent of the corporation, paid the notes in full for the defendant, and delivered them to its Secretary, who wrote across the face of each of them as follows : “ Paid in full December 13th, 1878,” and then filed them away with the papers and vouchers of the corporation; and, as security to the plaintiff for the moneys thus paid by him for the defendant, it executed and delivered to him the promissory notes in suit. The notes were not authorized or exeecuted under the corporate seal of the defendant, but they were signed in the name of the defendant by its Secretary, and were afterwards recognized, sanctioned, and ratified as the notes of the defendant by its Board of Directors and its stockholders at their annual meeting.

The plaintiff had judgment, from which and an order denying a motion for a new trial, the defendant appeals, contending that the transaction, for which the notes were given, was one which the defendant corporation had no power to ratify; and that the claim arising out of the transaction was one [24]which the plaintiff, as a Director and Trustee of the defendant, could not purchase or enforce against the defendant.

The corporation was organized under the laws of the State for the purpose of manufacturing, planing, matching wood and lumber for building purposes, and for buying and selling, and dealing generally in lumber, and, also, to do a general contracting and building business, with an actual cash capital of five thousand dollars. Its President was the general agent and superintendent of the company, clothed with all the power necessary to carry on its business, so far as consistent with the laws of the State, the by-laws of the company, and directions of the Board of Directors. As general agent of the company he had power to raise money for the company to carry on the business of the corporation, and to pay off the debts for which it was liable. (Civ. Code, § 353, McKiernan v. Lenzen, 6 Pac. L. J. 436.) In exercise of this power he contracted with the plaintiff for the payment of the outstanding notes of the company, and the contract was one which fell within the scope of the powers intrusted to him. And when, in performance of this agreement with the President and general agent of the corporation, the plaintiff satisfied in full the indebtedness of the corporation, he became the creditor of the corporation. This transaction between him and the company, through the instrumentality of the President, was not a purchase.. It was equivalent to a loan for the purpose of paying its debts; and as a loan the transaction was one which the corporation by its own act or the act of its officers, could secure by the issuance of the ordinary evidences of indebtedness, and which its Board of Directors or stockholders could sanction and ratify.