Power County v. Evans Bros. Land Etc. Co. , 43 Idaho 158 ( 1926 )

On April 12, 1915, L.L. Evans and his sons, L.L., Jr., and Roland, executed and filed with the recorder of Power county, Idaho, articles of incorporation of the Evans Brothers Land Live Stock Company, hereinafter denominated the Evans Company. The declared purposes for which such corporation was formed were:

". . . . to carry on a general farming and livestock business, to buy, own, operate and sell real estate, horses, cattle, hogs, sheep and all kinds of personal property, to erect, buy, own and operate mills and factories, or any kind of manufacturing plants, to borrow and lend money, and to receive money and other property and hold the same in trust."

A certificate of incorporation duly issued, and the company was organized under a directorate, all stockholders and officers being members of the Evans family. On January 5, 1922, the company through its board of directors adopted and spread upon its minutes the following resolution:

"Resolved, that in furtherance of the business of this corporation, the officers hereof are empowered to sign as sureties, depository bonds, under which bonds the First State Bank of Rockland, or the First National Bank of American Falls, or the Evans State Bank of American Falls, Idaho, may be principals, for the purpose of securing public deposits in either of such banks."

Thereafter, the Evans State Bank, controlled by the Evans family, was consolidated with the First National Bank of American Falls under the latter's name, L.L. Evans and L.L. Evans, Jr., being directors, and respectively, president and vice-president thereof. Various members of the Evans family "were all the stockholders."

Prior to the consolidation of these banks, plaintiff had on deposit therein the respective sums of $8,964.33 and $40,760.04, all of which remained after consolidation in the said First National Bank. This bank was designated as a depository of plaintiff's funds; and desiring to retain said funds on deposit, and secure further deposits of similar funds, it executed and delivered to plaintiff on May 1, 1922, its depository bond to secure the same in the principal sum of $20,000. One of the sureties executing this bond was the Evans Company above mentioned. It obligated itself in the sum of $14,000.

At the time of tendering the bond, the Evans Company delivered plaintiff's board of county commissioners a certificate in words and figures as follows.

"Resolution: At a regular meeting of the Evans Brothers Land Live Stock Company held at the office of such corporation on January 5th, 1922, the following resolution was duly offered and adopted as appears by the minute books of such corporation;

"Resolved, that in furtherance of the business of the corporation the officers hereof are empowered to sign as sureties, depository bonds, under which bonds the First State Bank of Rockland, or the First National Bank of American Falls, or the Evans State Bank of American Falls, Idaho, may be principal for the purpose of securing public deposits in either of such banks.

"Dated January 22nd, 1922.

"L.L. EVANS, President.

"L.L. EVANS, Jr., Secretary.

"State of Idaho,

"County of Power, — ss.

"I, L.L. Evans, Jr., Secretary of the Evans Brothers Land and Live Stock Company, do hereby certify that the foregoing is a full, true and correct copy of a resolution appearing on the minute book of such corporation, offered and adopted as above stated.

"Witness my hand and the seal of such corporation the 2nd day of February, 1922.

"Corporate seal.

"L.L. EVANS, Jr., Secretary."

Plaintiff accepted the bond and relying thereon increased its deposits in said bank until the closing thereof on February 8, 1923, when the deposits totaled $52,844.93. After crediting on this amount the proceeds of other bonds, there remained an unpaid balance of $35,734.93, to recover which this action was brought.

The sole defense interposed by the Evans Company was that the execution of the surety bond was ultra vires.

J. Paul Evans, a son of L.L. Evans, intervened, claiming to own 100 shares of the company stock, and setting up the same defense as the defendant company. From a judgment in plaintiff's favor, both the company and intervenor have appealed, assigning as error: That the court erred in that it concluded that the acts of the defendant Evans Brothers Land and Live Stock Company, a corporation, were not ultra vires; that the court erred in that it found as a conclusion of law and without finding as a fact that said Evans Brothers Land and Live Stock Company has been benefited in its business on account of the execution of said bond, and is therefore estopped from denying its action in so signing the bond was, and is, intra vires.

Respondent moves a dismissal of the appeals upon the ground that heretofore and subsequent to the taking of appeal appellants brought an action in the trial court, claiming that the judgment had been fully paid and satisfied by execution, and praying injunctive relief against further threatened levies. Such satisfaction, however, must have been accomplished by a hostile proceeding to which appellants were in nowise parties. In order to maintain their appeals, they were not required to stay execution. They may either have been unable to furnish supersedeas bond, or elected to stand upon the appeal and sue for conversion in case of a successful issue. The motion to dismiss is denied.

At the time the Evans Company executed the bond, it was indebted to its principal, the First National Bank of American Falls, in the maximum sum by law allowed. Its officers were officers of the bank. Its directors were among the bank's directorate. Its stockholders were stockholders of the bank. The Evans family controlled both. The entire paid-in capital of the company had been advanced without obligation of repayment by L.L. Evans who handled the stock as he saw fit without objection or apparent inquiry by other members of the family who constituted the remaining stockholders. The company owned a large part of the property near the bank; and the Evans family had "a large part" of their finances tied up in the bank. Confronted with such an array of interlocking interests, it is difficult to conceive how any benefit inuring to the bank from the execution of this bond could fail to work a direct benefit to the company. The trial court so concluded, which conclusion was in effect a finding of fact supported by the evidence. But, granting that the court erred, it further appears that for over a period of nine months, while plaintiff was continually increasing its deposits, the defendant company had been advised and in fact believed its undertaking to be ultra vires and of no effect, yet took no steps to avoid its solemnly certified liability. It knew that plaintiff had changed and was changing its position, and parting with value by reason of the former's officially attested right to sign the bond; and by its silence and inaction encouraged and invited further change.

We think a strict interpretation of the company's express and implied charter powers would render the execution of the bondultra vires, but the act having been neither malum prohibitumnor malum in se was not void but voidable and as such subject to all equities applicable to like contracts. This court has formerly declared that the doctrine of ultra vires, when invoked for or against a corporation, should not be allowed to prevail where it would defeat the ends of justice or work a legal wrong. (First Nat. Bank v. Callahan Min. Co., 28 Idaho 627,155 P. 673.) Especially is this true where the contract has been executed in good faith by the party seeking to enforce it. (McQuaide v. Enterprise Brewing Co., 14 Cal. App. 315,111 P. 927; First Nat. Bank v. Callahan, supra; Burke Land etc.Co. v. Wells-Fargo Co., 7 Idaho 42, 60 P. 87; Darknell v.Coeur d'Alene etc. Co., 18 Idaho 61, 108 P. 536; FremontCounty v. Warner, 7 Idaho 367, 63 P. 106; Meholin v. Carlson,17 Idaho 742, 134 Am. St. 286, 107 P. 755; Pocatello I. SchoolDist. No. 1 v. Fargo, 38 Idaho 563, 223 P. 232; Citizens Bank T. Co. v.Pocatello M. E. Co., 41 Idaho 403, 240 P. 186; 14a C. J. 319; 3 Fletcher, Cyc. Corp., sec. 1547; Hutchins v. Bank,128 N.C. 72, 38 S.E. 252; Seeber v. Bank, 77 Fed. 957; Kanneberg v.Evangelical etc. Congregation, 146 Wis. 610, Ann. Cas. 1913C, 376, 131 N.W. 353, 39 L.R.A., N.S., 138; James Eva Estate v.Mecca Co., 40 Cal. App. 515, 181 P. 415; Maxwell v. Akin, 89 Fed. 178; Arkansas etc. Co. v. Lincoln, 56 Kan. 145,42 P. 706; Vought v. Eastern Bldg. Assn., 172 N.Y. 508, 92 Am. St. 761, 65 N.E. 496; Union Water Co. v. Murphy, 22 Cal. 620.) And, where there is a community or identity of interest between a surety and a principal in whose behalf the surety has undertaken an ultra vires contract. (First Nat. Bank v.Guardian Trust Co., 187 Mo. 494, 86 S.W. 109, 70 L.R.A. 79;Graysonia etc. Co. v. Goldman, 247 Fed. 423.) In the former case the court said:

"The president of the railroad company at the time of the execution of this note was also the vice-president of the trust company, and the testimony of this official, as disclosed by the record, clearly indicates the deep interest the defendant had in the success of the railroad company in the accomplishment of the purposes for which it was organized. That the business relations between the defendant and the Belt Railroad Company were close, and that the defendant was a large creditor of said railroad company, and therefore was interested in maintaining it as a going concern, cannot be disputed. . . . .

"The contract in the case was fully executed on the part of the plaintiff, and its money was parted with by reason of the execution of the note by the defendant. This being true, the question confronts us, should the defense of ultra vires, as interposed by the defendant, be availing under the facts as disclosed by the record? We have reached the conclusion that it should not be. It may be conceded that, under the powers conferred upon the defendant by the statutes under which it was organized, it would not be authorized to simply engage in the business of becoming a purely accommodation maker or indorser of promissory notes. . . . . It is apparent that the execution of this note by the defendant was not purely a matter of accommodation, but was induced by reason of the interest in the railroad company, not only as a stockholder, but also as a creditor, and that the procuring of the money upon this note to pay the pressing indebtedness on the part of the railroad company was not only of interest to the defendant as a stockholder, but at least increased the chances of finally realizing from its debts against the company."

In the facts disclosed by the instant record, it would be eminently unjust both to plaintiff and the other sureties were the defendant company permitted to escape the consequences of this contract evidently undertaken in good faith by all of the parties, and in good faith performed by all of them save appellant. Good conscience would hold it estopped to pleadultra vires.

In view of the fact that the intervenor was a stockholder in the Evans Brothers Land Live Stock Company, that he lived near American Falls and was in American Falls at various times during the approximately year and one-half that this bond was in force, that the bond was a matter of public record, having been filed with the county recorder as provided by law, that the minutes and recitals authorizing the giving of the bond were part of the files of the corporation and in view of the testimony of the intervenor, particularly the portion found on page 206, ff. 576, 577, as follows:

"Mr. Bissell, resuming:

"Q. You turned over so far as you were concerned — you allowed your father and your brother, L.L. Evans, Jr., to run the business?

"A. Yes, sir.

"Q. Anything they done was satisfactory to you?

"A. Well, I wasn't at any meeting.

"Q. Any business they done was satisfactory to you?

"A. Yes, sir.

"Q. And you were willing and allowed them to conduct the business to suit themselves?

"A. Yes, sir.

"Q. And whatever they wanted to do you would give your consent?

"A. I have never stopped them from doing anything; I never asked them not to do it.

"Q. Did you ever protest against their doing anything?

"A. No, sir."

And again at ff. 579, 580 and 581:

"Q. You were at all times willing to pledge any interest you had to assist your father and the bank?

"A. I was at that time, yes, sir.

"Q. Now, Mr. Evans, did you have anything to do with the conduct of the business of the Evans Brothers Land Live Stock Company?

"A. No, sir.

"Q. You did not have the active management of it?

"A. No, sir.

"Q. You didn't do any farming for it?

"A. I worked on the farms, I had no management of it, no direct management.

"Q. That control was vested in L.L. Evans, and L.L. Evans, Jr., was it not?

"A. As to the direct control possibly. As far as working out on the ranch, I done that. I worked out there putting up hay and running the cattle.

"Q. And you were perfectly willing that your father and your brother should conduct the business any way they saw fit?

"A. In the line they were in, yes, sir.

"Q. And anything else, were you not?

"A. Yes, sir.

"Q. Now Mr. Evans, did you ever protest against the signing of this bond by the Evans Brothers Land Live Stock Company?

"A. No, sir."

— it would seem that with reasonable diligence the intervenor should have known of the signing of this bond and should have protested long ere this. He, too, must be estopped.

The judgment is affirmed, with costs to respondent.

Givens and Taylor, JJ., concur.

(December 20, 1926.) ON PETITION FOR REHEARING.