112 Cal. 53 | Cal. | 1896
This is an action upon two promissory notes made by defendant to plaintiff—one for fifteen thousand dollars, and the other for fifteen hundred dollars, the latter being for interest due upon said first-named note. Judgment went for plaintiff, from which, and from an order denying a new trial, defendant appeals.
Each of the parties is a corporation. The respondent owns and operates a railroad from a certain point in the city of San Diego to another point in said city, about ten miles distant, known as Pacific Beach; and it is the only railroad running to the latter point. The appellant is a real estate company owning a large tract of land at said Pacific Beach, and engaged in subdivid
The main contention of appellant for a reversal arises out of these facts: The respondent had five directors, and the appellant nine; and, at the time the contract was made, four of the directors of the appellant were also directors of the respondent, and it is also claimed that before the completion of the contract a fifth
In this case there is no actual fraud, either alleged or found; and this distinguishes it from many of the cases cited by appellant. The contract seems to have been a fair, open one, and carried into effect before the eyes of all persons interested. Neither is there any question of ultra vires; and this also distinguishes the case from cases cited by appellant. The court found that appellant’s charter expressly gave it the power to make such a contract. (See, also, on this point Vandall v. South, San Francisco Dock Co., 40 Cal. 83.) The contention, therefore, at this point of the case,'is that the mere fact that there were common directors, as above stated, of the two corporations at the time of the contract makes it absolutely void; and this contention cannot be maintained.
Where two corporations, through their boards of directors, make a contract with each other, the directors who are common to both are not within the rigid rule of the cases which hold that one who acts in a fiduciary capacity cannot deal with himself in his individual capacity, and that any contract thus made will be declared void without any examination into its fairness, or the benefits derived from it to the cestui que trust. Two corporations have the right, within the scope of their chartered powers, to deal with each other; and this right is certainly not destroyed or paralyzed by the fact that some, or a majority, of the directors are common to both. Of course, if such directors should
In that case the court in its opinion says: “The stumbling-block in this case, however, seems to have been the double relation of agency of Collins, Dare, and Havermale, being at the same time officers and directors in both corporations,” and quotes approvingly from Adams Min. Co. v. Senior, 26 Mich. 73, and Leavenworth v. Chicago etc. Ry. Co., 134 U. S. 688, which cases strongly declare the rule above stated. The conclusion reached is correctly condensed in the syllabus as follows: “The fact that some of the directors of the bank were also directors of the cable company, does not prevent them from being distinct corporations who have the right to contract with each other in their corporate capacities, and, if the relation of the parties has not been abused, it constitutes no bar to a recovery of moneys advanced by the bank and used for the benefit of the cable company.” We will notice one or two other recent authorities to the same point. In Coe v. East etc. Ry. Co., 52 Fed. Rep. 543, Judge Pardee says: “That the East & West Railroad Company could lawfully contract with the Cherokee Iron Works, although all the stockholders of the one were also stockholders of the other, in the absence of fraud and misrepresentation, is indisputable; nor would the fact that the two corporations had substantially the same directors, ivho were the active agents negotiating the contract, render it void—at worst, only voidable, but subject to ratification.” In Jesup v. Illinois Cent.
The contract, therefore, was not void; and assuming-that it was voidable, and might have been avoided by the appellant at the proper time and in the proper-manner, it is clear that it was not so avoided, but that it was ratified. In the first place, there was no attempt to avoid it nor any intimation of such intention, until long after the time mentioned in the contract had expired, and respondent had performed all its covenants therein provided; until long after appellant had received all the benefits coming to it from respondent’s performance; and until long after it had become impossible to restore anything to respondent, or to put it, in whole or in part, in statu quo. And during this time appellant without objection paid, from time to time, the greater part of the principal and a large part of the interest which by the contract it had promised to pay, thus inducing respondent to perform the whole of its part
The contention of appellant that the contract could not be ratified except by the unanimous consent of all the stockholders cannot be maintained. That principle does not apply to acts which might have been authorized by a majority in the first instance. “The corpora
There is nothing in the contention that the ratifications were made without knowledge of what they meant. In the first place, this is not an action by individual stockholders to set aside a contract made by the corporation; the point is made by the corporation itself in a defense in which it seeks to violate its own obligation, and it would be absurd to say that it did not know what it was doing. But, if we assume that in this action the corporation could shield itself behind the ignorance of a few of its stockholders, it is clear that the latter knew, or ought to have known, the nature of the contract and the circumstances attending it. The respondent ran its railroad through the premises of appellant upon land purchased for that purpose by the former from the latter; there was a continuous operation of the road according to the contract, and a continuous payment from time to time by appellant of large sums of money under the contract; and the relations of the two corporations were of an intimate character. And, as was said in Blen v. Bear River Co., 20 Cal. 613, 614; 81 Am. Dec. 132: “The natural presumption is that it was fully considered, and the particulars inquired into and explained, and the idea that this was not done is certainly at variance with the usual mode of conducting business”; and, again, “a ratification supposes a knowledge of the thing ratified”; and “there is no evidence of any mistake in this case.” Moreover, at the meeting of the stockholders at which the contract was first ratified, the minutes of the meeting of the board of directors of appellant
With respect to the discussion by appellant of the value of the consideration for which it entered into the contract, it is sufficient to say that the wisdom, or good policy, of that contract is not a matter for decision here. The facts found show what the consideration was. In considering this case we have assumed without deciding that the contract involved was one which the appellant, if there had been no acquiescence or express ratification, might by prom.pt action have avoided.
The judgment and order appealed from are affirmed.
Temple, J., and Henshaw, J., concurred.