Norma Mining Co. v. Mackay

241 F. 640 | 9th Cir. | 1917

GIRBERT, Circuit Judge

(after stating the facts as above). It is contended that the finding that the notes and mortgages are valid obligations of the appellant is erroneous: First, because of failure of proof that Root, the president, was authorized to execute the same; and, second, because of failure of proof that any corporate purpose was served thereby, or that any consideration was received therefor. The records of the appellant contain no mention of authority to execute either of the notes or mortgages. There was parol evidence, however, that meetings were had for that purpose, and that both at meetings of the board of directors and at meetings of the shareholders, representing all the stock, the execution of the notes and mortgages was duly authorized. There was some testimony to the contrary, but we find no ground to disturb the conclusion of the trial court upon the conflicting evidence. As to the first mortgage, the finding is corroborated by a, paper which was inserted in the record book, and which contains the minutes of a meeting of the stockholders and a meeting of the directors of the appellant in July, 1913, signed by the secretary of the company, reciting that ail shares were represented, and con■taining the following:

“Whereas, the Norma Mining Company owes R. T. Root the sum of more than $25,000 for moneys advanced and expended upon its White Hills, Arizona, property, and desires to secure and pay the same:

“Resolved, that the officers of the company be and they are hereby authorized to issue and deliver to Hugh Mackay, at the request and for the account of R. T. Root, the note or notes of the company up to an aggregate of $25,000, and to secure the same by mortgage or mortgages upon all of the mines and property of the company; ® * * that such notes and mortgages shall be of such dates and form, and contain such terms and conditions, as said R. T. Root and said Mackay may hereafter agree upon, and that said notes and mortgages, when executed, shall apply and be credited upon the indebtedness of the company to said Root, and said indebtedness canceled to the extent of such notes and mortgages.”

[1] While the records o£ a corporation are the best evidence of the action of its directors or stockholders, in the absence of such records, parol testimony may be introduced to show that a resolution was passed authorizing corporate action. United States Bank v. Dandridge, 12 Wheat. 64, 6 L. Ed. 552; Denver & R. G. R. R. v. Ariz. & Col. R. R., 233 U. S. 601, 34 Sup. Ct. 691, 58 L. Ed. 1111; Allis v. Jones (C. C.) 45 Fed. 148.

[2] The conclusion of the court below that the execution of the notes and mortgages was sustained by an adequate consideration is sufficientljr supported by evidence tending to show that at the date of the execution of the first mortgage the appellant was indebted to R. T. Root in the sum of about $30,000. The appellee testified that, at the meeting at which the first mortgage was authorized, Root stated that the company owed him approximately $30,000, and said, “I don’t know the exact figures, but Mr. Dowry there does,” and that he further stated that “no one on earth could find fault” with any mortgage that was issued to him “to the extent of that amount.” Although Root, when called as a witness for the appellant, denied that the company was indebted to him, his evidence, we think, is substantially an admission that there was such an indebtedness. He testified:

That he did not charge up to any one the outlay and expenses which ho paid for the operation of the mining company. That he kept a record of some expenses, “but I do not recall to have made any charge. I keep no account between myself, of the expenses that I paid, in the operation of the Norma Mining Company, and the company. I claim and hold no account against the Norma Mining Company in the sum of about $30,000 for expenses and outlays in behalf of the company. * * « It was expenses on the property, not the company, for the development of the property. There was parties interested, whose money I used — I procured and used on the property, opening the property. I refer to my wife. She had furnished money which was used.”

Dowry, who had been the secretary, testified:

“Any money that was expended on that property was to be repaid. It was merely entered upon the books as an account, showing- what expenditures had been made, between Mr. Root, making the expenditures, and the corporation. It was regarded at ail times as an indebtedness of the corporation to him.”

Dowry further testified that he presumed the books containing the entries of these expenditures were in Root’s possession.

[3] At the time of the execution of the first mortgage, and as a part of that transaction, the appellant -gave to Root a receipt reciting that the note and mortgage were received for the purpose of selling them, and from the proceeds to pay the appellee $10,000 due for money which he, as tire 'executor of an estate, had loaned to Root, and to pay the balance of the proceeds to Root. It is contended that the decree is erroneous in finding that there was due the appellee under the first note and mortgage any more than the sum of $10,000, which was to be paid to him. The evidence indicates that the appellee waS extremely anxious to obtain the payment of the $10,000 trust funds, which as executor he had loaned to Root, and the testimony shows that strenuous efforts were made, both by the appellee and by Root, to sell the first note and mortgage; Root being anxious to obtain the surplus that might be realized on the mortgage. Their efforts resulted in failure, but the evidence shows that, at the date when the mortgage was executed, Root was in fact indebted to the appellee in the full sum of $13,000, and that for the remaining $3,000 the appellee, on August 30, 1913, gave Root a duebill, and that thereafter certain indebtedness on promissory notes executed by Root in November, 1912, to the appellee, and money received by Root on the sale of certain bonds belonging to the appellee, were applied to the extinction of the duebill, leaving the amount secured by the first mortgage the full sum of $16,000. These transactions between Root and the appellee subsequent to the date of the mortgage can have no effect upon the rights of the appellant in the present controversy, for the appellant at the time of the execution of' the mortgage received credit in the sum of $16,000, and the cancellation in that amount of its indebtedness to Root, and, so far as the corporation was concerned, that was the purpose for which the mortgage was executed.

[4, 5] Again, the trial court may have found, and we think it would have been justified in finding, that R. T. Root was in effect the corporation. There were 300,000 shares.' One share was issued to R. T. Root, one to his' son, and one was made out to Lowry, but not delivered. A certificate of 299,997 shares had been issued to one McDermott, and he had indorsed it in blank. The appellee testified that, just prior to the execution of the first mortgage, Root stated that he owned every share of stock, and that he exhibited the shares. Lowry testified that, at the meeting at which the mortgage was authorized, Root said that he owned all the shares of the corporation outside of the directors’ shares, and produced certificates signed in blank. Griermann, a disinterested witness, testified that on July 28, 1913, Root told him that, in order to avoid the possibility of any technical objection on the part of the party who might want to make the loan, he had the resolution passed, although he did not consider it necessary, because he owned all the stock. Root testified that the shares belonged to his wife. But there is the testimony of two disinterested witnesses that, prior to the mortgage, Mrs. Root knew of tire'purpose to procure money on the mortgage, and expressed her hope that the effort might be successful, and Root admitted that his wife learned of the mortgages soon after they were given. There is no evidence that she ever made objection to them. In view of such testimony, a court may properly look beyond the corporate form and hold that what would be binding upon the persons composing the corporation would be binding upon the corporation. Linn Timber Co. v. United States, 236 U. S. 574, 35 Sup. Ct. 440, 59 L. Ed. 725; Linn, & Lane Timber Co. v. United States, 196 Fed. 593, 116 C. C. A. 267, and cases there cited.

[6] It is contended that the trial court erred in striking from the deposition of Mrs. Root certain portions of her testimony. It appears that when, during the trial, application was made to take Mrs. Root’s deposition, the court, in view of the statement of appellant’s counsel that they had been taken by surprise by the testimony as to certain conversations had hv witnesses with Mrs. Root, permitted the deposition to be taken, but ordered that the interrogatories be confined to questions concerning those conversations with Mrs. Root. When the deposition was offered in evidence, it appeared that Mrs. Root had testified on other subjects, and the court, referring to the order that had been made, sustained objections to the admission of such other testimony. The order having limited as it did the scope of the inquiry, it was within the court’s discretion to exclude the other testimony, since it was within its discretion to determine in the first instance whether any deposition whatever could be taken during the progress of the trial. 13 Cyc. 865.

The decree is affirmed.