Wright v. Oroville Gold, Silver, & Copper Mining Co. , 40 Cal. 20 ( 1870 )

Wallaoe, J.,

delivered tbe opinion of the Court, Temple, J., Cbockett, J., and Bhodes, C. J., concurring:

It appears that Jennings; being the owner of certain min-. ing property and grounds, tbe Oroville Gold, Silver and Copper Mining Company was organized and incorporated with a view to purchase them. Tbe capital stock of the corporation consisted of 2,000 shares, of tbe nominal value of $100 per share, and Jennings sold this mining property to tbe corporation for 990 full paid shares of its stock, and tbe remaining 1010 shares, issued to tbe other stockholders, were to be assessed so as to carry forward the working of the mine, etc.

In point of fact, however, the assessment upon these shares, afterward imposed, did not exceed twenty per cent, upon their nominal value, and the result was a debt incurred by the corporation to one Josephi, a mortgage by the corporation to secure its payment, a foreclosure of the mortgage, and a sale under a decree for upward of $8,000, at which sale Josephi, at that sum, became the purchaser of these entire mining grounds, which were worth some $16,000, and were all the property owned by the corporation. There was no effort on thepart of the corporation to redeem from the sale; in fact, the president of the corporation was himself interested with Josephi in the mortgage debt, and the president and some of the trustees, who controlled the corporation, contrived to bring about this mortgage sale with a view to deprive it-of tbe title to tbe property and cause it to vest in Josepbi. Tbe result of tbis maneuver (and doubtless its purpose) was to wrong Jennings out of tbe entire consideration be was to receive for tbe property wbicb be bad sold to tbe corporation.

In pursuance of tbis scheme nearly tbe whole period of time allowed by law for redemption was permitted to elapse without an effort on tbe part of tbe corporation or its officers to redeem from tbe sheriff’s sale. In fact tbe last redemption day bad arrived, and still no step toward a redemption bad been taken. Under these circumstances, and near tbe tbe close of that day, Jennings himself, in behalf of tbe corporation, tendered to tbe sheriff tbe necessary amount to effect a redemption, and that officer, under tbe direction of Josepbi, tbe purchaser at tbe sheriff’s sale, accepted tbe money so tendered.

Subsequently, Jennings assigned to tbe plaintiff, Wright, all bis shares of stock and bis claim against tbe corporation by reason of tbe redemption from tbe Josepbi sale; and thereupon tbe plaintiff, Wright, made a demand upon tbe corporation, who still retained possession of tbis property, for tbe repayment of tbe moneys so advanced by Jennings to effect tbe redemption, and upon refusal, be brought tbis action.

Tbe Court below adjudged that tbe corporation repay tbis amount, with interest, within sixty days, and if not so paid, then that tbe title to tbe mining property vest in tbe plaintiff,

Nrom tbis decree the corporation brings tbis appeal.

Tbe mere legal title to tbis mining property is undoubtedly vested in tbe corporation itself, and not in tbe stockholders as such. Tbe board of trustees may, therefore, control tbe property, provided that, in doing so, it do not act beyond tbe limit wbicb tbe law has assigned to tbe exercise of corporate authority. Corporate acts, by wdiich corporate property is alienated, if done pursuant to tbe prescribed mode, and not being in themselves ultra vires, are, in point of mere law, binding upon tbe corporate title; and, through tbat title, equally binding upon tbe interest of the stockholders themselves. The Board of Trustees is the elected representative of the shareholders, who have, by the fact of election, conferred this authority upon it.

But the Courts of equity, in dealing with the relations between the corporation and its officers upon the one hand, and the stockholders upon the other, in the management of the corporate affairs, look beyond the mere observance of the forms of law, and inquire if the authority has been, in good faith, exercised to promote the interest of the stockholders. The corporate authority is considered to have been conferred by the stockholders upon the trust and confidence that it will be exerted at least with the view to advance the interest of the stockholders, and not used with a purpose to injure or destroy that interest. And it is settled that Courts of equity in this country will, at the instance of a stockholder, control a corporation and its officers, and restrain them from doing acts even within the scope of corporate authority, if such acts, when done, would, under the particular circumstances, amount to a breach of the very trust upon which, as we have seen, the authority itself has been conferred. (Dodge v. Woolsey, 18 How. 341.)

And upon the same principle the Court will, even after such an act has been done, relieve an injured stockholder from loss if, in the meantime, no superior equity has intervened, nor the rights of innocent third parties attached.

It appears, in this case, that the corporation, having acquired all its property from Jennings, gave him as the consideration therefor a little less than one half of its entire capital stock, and issued to other persons the remainder of the stock. By this means Jennings lost the control of the property; and while it was agreed that the necessary working funds should be raised by assessment of the stock of these other persons, those who were to be thus assessed were clothed with the entire authority of regulating the assessments. Jennings would, of course, be outvoted whenever a question of the propriety of levying an assessment was in hand. The assessment-paying majority had the most absolute security, in tbis case, against tbe levying of excessive assessments upon tbem, and seem to bave made good use of that security. Tbe same majority, with tbe president and trustees at tbeir bead, soon found it more convenient to allow tbe corporation to contract a large debt than to. assess themselves at all.

Tbe record exhibits tbe grossest breach of duty and good faith upon .the part of tbe president and trustees toward Jennings. They not only did not keep tbeir promise to him— that they would provide tbe means of working tbe mine by levying assessments on tbe assessable stock — but they actively engaged in a scheme to deprive him of bis property altogether, and used tbeir corporate power to promote that end.

Tbe president, who was bound by every consideration of honesty and honor to use bis earnest endeavors to protect tbe interest of Jennings, (which bad been put in peril by tbe failure to collect tbe stipulated assessments) acquired for himself an interest in tbe debt to Josepbi. He was thus become really a creditor of tbe corporation and of Jennings, while be seemed to be a joint debtor with tbem. He was a trustee of Jennings, by virtue of bis position as a member of tbe Board, while really be was exercising all bis authority to sacrifice tbe interest of bis cestui que trust, and to place tbe trust property into tbe bands of a stranger. At tbe last moment, Jennings prevented tbe consummation of tbe wrong by paying off tbe debt with bis own funds. There was then remaining no other means to defeat tbe scheme. It is difficult to see why Jennings might not protect himself in tbis manner.

Nor was tbe payment Jennings thus made merely voluntary on bis part, in that sense which would deprive him of recourse against tbe corporation. His relation to tbe Josepbi debt, arising out of bis being a stockholder in tbe corporation, and as being, therefore, to some extent, personally liable therefor, gave him such an interest in tbe discharge of tbe debt as not only entitled him, if be chose, to pay it off altogether, but tbe circumstances here appearing constituted Mm tbe equitable assignee of tbe certificate of sale, and subrogated bim to tbe rights of Josephi himself as tbe purchaser of tbe property at tbe foreclosure sale.

I see no error in tbe judgment — certainly none against tbe appellant.

Judgment affirmed.

Sprague, J., expressed no opinion.