Hughes Manufacturing & Lumber Co. v. Culver , 126 Ark. 72 ( 1916 )

Hart, J.

(after stating the facts).

(1-2) It is first insisted that the suit should, have been brought in the name of the Culver Company and not in the name of Mary C. Culver. It will be remembered that Mary C. Culver owned practically all the stock in the corporation and that the fraudulent conduct complained of was that of the managing officers of the corporation. The directors were the guilty parties in the sale of which complaint is made. The directors who were charged with wrongdoing and the corporation itself were made parties defendant and under the circumstances we think the plaintiff was entitled to maintain the action in her own name. Where the managing directors of the corporation are the guilty parties, it cannot be said that the management of a suit to uncover their fraud should be left under their control. Red Bud Realty Co. v. South, 96 Ark. 281; Pomeroy’s Equity Jurisprudence, 3rd ed., Vol. 3, § 1095; 10 Cyc. 978-980.

(3) It is contended by counsel for the defendants that there is a conclusive presumption that the officers who executed the deed were authorized to do so. The by-laws authorized the president and the secretary of the Culver Company to execute deeds when authorized to do so by the board of directors. In the case of Sibly v. England, 90 Ark. 420, the court held that because a certified copy of the record of a deed is admissible as evidence, under the statutes of this State, to prove the execution of the deed and that the seal was attached, the presumption arises that the officer who executed the deed was authorized to do so. There is a class of cases which hold that where the act in question is that of one representing the corporation as a general agent whose authority depends on compliance by himself with the preliminary regulations, the presumption of regularity against the corporation is conclusive. The rule is said to be founded on the very limited opportunities of the public to know with certainty the circumstances of the internal management of the corporation. The rule, however, is only applied in those cases where one in good faith has advanced value on the faith of the presumption. Louisville Trust Co. v. Louisville, N. A. & C. Ry. Co., 22 C. C. A. 378, and cases cited. The principle of the right of the public to conclusively presume that the corporate acts are valid as above stated and to proceed on that presumption apply only in cases of a bona fide purchaser for value, without notice of the defective act of the corporation. Hence, it is not necessary for us to decide this question; for the Hughes Company was not a bona fide purchaser for value.

(4) In the instant ease the record shows that neither the Culver Company nor Mary C. Culver, who owned nearly all its stock, ever received any part of the consideration for the deed or reaped any benefit from it. The whole consideration of the deed went to E. W. Culver and H. A. Culver and the officers of the Hughes Company knew this fact. They had notice of the illegal appropriation of the consideration for the deed and knew that the consideration passed to the benefit of H. A. Culver and E. W. Culver. Therefore this does not belong to that class of cases where one in good faith has advanced -value on the faith of the presumption of the regularity of the acts of the officers of the corporation and the corporation is not permitted to prove to the contrary. Under the rule above announced in Sibly v. England it was incumbent upon Mary C. Culver to satisfy the court that the president and secretary acted beyond their authority. On this point it is quite clear that the president and secretary were not authorized by the board of directors to execute in'the name and in behalf of the corporation the deed in question. The records of the corporation were produced and did not show that the board of directors ever authorized the execution of the deed. The president and secretary had no authority to execute the deed by virtue of their offices. They could only do so under the direction or approbation of the board of directors.

H. A. Culver testified in positive terms that no such resolution was passed by the board of directors and Mary C. Culver testified that she did not know that the deed had been executed and gave no such authority. The records of the corporation do not show that any such resolution was passed by the board of directors.

It is next contended that a corporation may approve the unauthorized acts of its agents and make them their own and that this may be done directly or indirectly. We do not think, however, the facts and circumstances disclosed by the record show any ratifi-. cation on the part of the corporation or by Mary C. Culver.

(5) Counsel for the defendants insists there was a ratification because the records of the corporation show that at a call meeting on December 16, 1912, the board of directors passed a resolution reciting that there being no further assets of the corporation, nor indebtedness, the president and secretary are authorized to wind up all the affairs of the corporation and to surrender to the State of Arkansas its charter. Mrs. Culver did ■ not know that this action had been had by the board of directors and there is nothing to show that she in any way was participating in the meeting. Section 957 of Kirby’s Digest provides that a corporation may surrender its charter by resolution adopted by the majority in value of the holders of the stock. Hence we are of the opinion that there was no ratification of the execution of the deed in question.

(6) It is also insisted that Mary C. Culver is barred of relief by laches. Her testimony shows (and no attempt is made to contradict it) that as soon as she discovered the fraud, she submitted the facts to an attorney in Arkansas and filed the present suit as soon as he had completed his investigation and advised her to do so. Under these circumstances she was not guilty of laches. Besides, there were no intervention of equities in favor of the defendants, and the delay, if any, did not work any injury to the defendants. Hence, she was not barred by. laches. Tatum v. Arkansas Lumber Co., 103 Ark. 251.

In November, 1914, Mary C. Culver and the remaining stockholders and officers of the Culver Company executed a quitclaim deed to C. L. Flack to a one-half interest to all the lands involved in this suit. C. L. Flack was permitted to intervene and set up his rights under the deed. A demurrer to his intervention was sustained by the court, and in this, it is insisted that the court erred. We need give this point but little consideration. The record shows that a reply was filed to this intervention.

Mary C. Culver testified that the deed in question was executed and only to be delivered to Flack under certain conditions which were never performed by him, and for that reason the deed was not delivered. She is the only witness who testifies on this point. Neither Thos. Hughes nor Flack, President and Vice President of the Hughes corporation, have seen fit to testify in the case. The testimony of Mary C. Culver on this point was sufficient to entitle her to a decision on the merits of the case and it becomes immaterial that the chancellor sustained a demurrer to the intervention of Flack.

(7) Finally it is insisted that the court erred in permitting the attorneys of'Mary C. Culver to file an attorney’s lien. This is a matter that could only concern Mary C. Culver. Having decided that the defendants have no interest in the lands, they have no cause of complaint and are not entitled to have that question heard on appeal.

The decree will be affirmed!