
    ANDERSON v. O’BRIANT.
    (No. 402.)
    Court of Civil Appeals of Texas. Eastland.
    Feb. 17, 1928.
    Rehearing' Denied March 16, 1928.
    1. Mines and minerals <g=»l05(1)— Resolution by corporate directors, authorizing sale of corporation’s property pursuant to authority to sell assets at percentage of stock value, showed sale of holdings, not stock.
    Resolution by board of directors of oil corporation, authorizing sale of company’s holdings, consisting of. property, both real and personal, for about 25 per cent, of face value of stock, pursuant to authority to sell entire assets of company at minimum price of 25 cents on the 100, showed sale of company’s entire holdings, and not sale of corporate stock.
    2. Corporations <§=>182 — Objection by corporate director to sale of company’s assets held not to prevent stockholders or directors from directing sale.
    Objection by officer and stockholder of corporation to sale of company’s holdings, both at stoekliolders' meeting and directors’ meeting, could not have legal effect of preventing stockholders from directing sale of company’s assets or sale by directors.
    3. Bills and notes <§=>92(1)— Notes to stockholder, for difference between share of proceeds and face value of stock, after sale of corporate assets, held without consideration and unenforceable.
    Where interest of stockholder and director in holdings of corporation passed by sale of entire assets of corporation, though he opposed sale, notes to such stockholder, representing difference between share of proceeds of sale and full face value of stock, were without consideration and unenforceable, since stockholder then owned no interest in assets of company.
    4. Contracts <§=>108(2) — Notes for sale of interest in corporation, given pursuant to contract against public policy, held unenforceable.
    If contract for sale of interest in corporation is illegal and void for reasons of public policy, recovery on notes given pursuant thereto will be denied.
    5. Corporations <§=>314(1) — Corporate directors are held to high standard of conduct, and must not permit official conduct to be swayed by private interests.
    Directors of corporation are subject to very high standard of conduct, and must not in any degree permit their official conduct to be swayed by their private interest, unless that interest is interest held in common good of corporation and its stockholders.
    6. Contracts <§=»l 13(3) — Notes to corporate directors for secret profits, or as bribe, are unenforceable.
    Notes executed to corporate directors for secret profits, or as gift or bribe to influence official action, which may or may not be prejudicial to company, are unenforceable.
    7. Corporations <§=>312(5) — Corporate directors must obtain highest price for corporate assets, and directors selling at minimum authorized price and obtaining full value for own stock were guilty of breach of duty.
    In sale of entire corporate assets, directors of corporation by virtue of their official position were under duty to obtain for stockholders highest possible price for its assets, though stockholders authorized sale of assets at minimum price of 25 per cent, of face value of corporate stock, and directors selling, assets at minimum price and undertaking to obtain for themselves full face value of their stock were guilty of breach of duty and disloyalty to stockholders.
    8. Contracts <§=>! 13(3) — Notes to director inducing sale of corporate assets at 25 cents ■ on the dollar, representing balance on face value of stock, held unenforceable.
    Where stockholders authorized sale of corporate assets at minimum price of 25 per cent, of stock value, directors able to sell assets at greater price were guilty of breach of duty to corporation and stockholders in selling at 25 cents on the dollar, and hence notes given to director by purchaser of assets, representing difference between share of amount brought on sale and full face value of stock, to induce director to sell interest in corporation at 25 cents on the dollar, if passing anything to purchaser, were based on illegal consideration, contrary to public policy, and unenforceable.
    9. Contracts <§=»II3(3) — Director’s failure fully to comprehend legal significance of transaction does not cure its invalidity.
    , In suit by corporate director on notes based on illegal consideration, failure by director fully to comprehend legal significance of transaction has no effect on enforceability of notes.
    10. Contracts <§=>(38(4) — Maker of note 'may set up illegal consideration.
    Courts will not enforce notes based on illegal consideration, even though objection is made by maker of notes.
    Appeal from District Court, Taylor County ; M. S. Long, Judge.
    Suit by William O’Briant against R. O. Anderson. Judgment for plaintiff, defendant’s motion for new trial was overruled, and defendant appeals.
    Reversed and rendered.
    Wagstaff, Harwell & Wagstaff, of Abilene, for appellant.
    Cox & Hayden, of Abilene, for appellee.
   LESLIE, J.

William O’Briant, plaintiff, instituted this suit in the district court of Taylor county, Texas, to recover on two promissory notes, each in the sum of $1,625, executed by R. O. Anderson, defendant, and payable to the order of plaintiff, 0>’Briant. The defendant, Anderson, pleaded that the notes were without consideration, and that they constituted a part of a fraudulent transaction, in itself against public policy, for which reason the plaintiff, O’Briant, ought not to recover. The case was submitted to a jury, and upon the verdict a judgment was entered by the court in favor of the plaintiff. Motion for new trial was overruled, and the case is properly before this court.

Under the assignments and various propositions based thereon the verdict of the jury and the judgment of the trial court are attached as being unsupported by the evidence, in that the notes were shown to be without consideration, and to be a part of a transaction contrary to public policy. The litigation grows out of the following state of facts:

The Silver Lake Oil Company was a corporation engaged in the production of oil. Its capital stock consisted of 40,000 shares, held by numerous stockholders. Among these were the plaintiff, William O’Briant, defendant, R. O. Anderson, J. T. Anderson, J. S. Swan, and others. O’Briant owned stock of the face value of $4,400.

At a meeting of the stockholders, March 11th, 1922, the stockholders with practical unanimity voted to sell the entire assets of the company at a “mimám/um price of twenty-five cents on the hundred,” meaning thereby that the sale price was to be a sum equivalent to 25 per cent, of the capital stock. At this same meeting, on motion of J. T. Anderson, seconded by William O’Briant, a nominating committee was appointed to select and present names for a new board of directors for the Silver Lake Oil Company. After “due deliberation,” as stated by the record, J. S. Swan, William O’Briant, R. O. Anderson, and two others were suggested by the committee for such directors, and the entire list recommended were unanimously elected. The stockholders’ meeting adjourned. The new board of directors proceeded to organize by electing J.- S. Swan president, William O’Briant vice pi-esident and general manager, and R. O. Anderson secretary and treasurer. Thereupon the board adjourned subject to call.

Pursuant to the above authority, said directors met May 10th, 1922, and by resolution then adopted voted “a sale of the company’s holdings, consisting of property, both real and personal, of every hind, character,' and description,” for the amount of $10,927.-50. This was estimated to be about 25 per cent, of the face value of the stock. The sale was thus directed upon the basis of the minimum value placed thereon by the stockholders at their March meeting. This action of the directors, as well as that of the stockholders, March 11, 1922, evidence but one purpose, and that the sale of the company’s entire “holdings.” The testimony of O’Briant, R. O. Anderson, and J. S. Swan confirms this view, and we do not regard the transaction as being a sale of the corporation stock. The resolution adopted by the directors above referred to, and signed by the plaintiff, O’Briant, is conclusive on that point.

O’Briant’s testimony is to the effect that he opposed the sale, both at the stockholders’ meeting and in the directors’ meeting, but his mere dissent on those occasions could not have the legal effect to prevent or hinder the stockholders directing the sale of the company’s assets, nor their sale by the directors, as evidenced by the resolution of May 10th. For all intents and purposes his interest in the holdings of the company passed by'the sale as fully and completely as did the interests of the consenting stockholders. This being true, O’Briant, at the time R. O. Anderson executed and delivered the notes in suit -to him, as well as at the time he agreed to execute and deliver the same, owned no interest in the assets of the company, and hence sold him nothing as a consideration for the notes. In the succeeding portions of this opinion other facts bearing upon the lack of consideration will be detailed, but enough has been indicated, we think, to justify our conclusion that the notes were executed without consideration. Hatchett v. Hatchett, 28 Tex. Civ. App. 33, 67 S. W. 163; Richarz v. Wolchen, 34 Tex. 102.

The second contention of the appellant is that recovery should be denied to plaintiff, because the transaction of which .the notes are a part was against public policy, in that, if there was a consideration, it was an illegal one. If thei contract is illegal and void for reasons of public policy, recovery on the notes will be denied. The standard of conduct imposed by law upon those who have assumed the duties and obligations of directors in a corporation is very high, and rightly so. They must not, in any degree, permit their official conduct to be swayed by their private interest, unless that interest is the interest they have in the common good of the corporation and its stockholders. The private interest of a director must always yield to his official duty to the stockholders. Thompson, in his work on Corporations (volume 2, § 1342), says:

“The principle requiring directors to account for secret profits also requires them to account for and surrender to the corporation any gifts, gratuities, or bribes received by them for the purpose of influencing their official action. If the directors of a corporation receive a sum of money as a bribe for the doing of a certain act which may or may not be prejudicial to their company, they are trustees in equity of the fund so corruptly received, and the corporation may also proceed against them for any damages it has thereby suffered.”

To the same effect is 14a Corpus Juris, § 1893, p. 125.

This indicates the general view the law takes of such transactions, and what the corporation may do to protect its stockholders in such instances. The authorities are general that notes executed under such circumstances and for such considerations are unenforceable. With these principles in mind, reference may again be bad to portions of tbe testimony in tbis record. Referring to tbe resolution by tbe directors authorizing tbe sale of tbe company’s property, O’Briant testified:

“I signed that. I would not sign it then, and I never did sign it until Mr. Anderson made arrangements with me to buy it. I did not sign that at all until afterwards. I refused to sign it, and refused to .sell my interest for that amount of money. I finally sold it when he fixed it with me. I say that I did not sign those minutes and agree to it until Mr. Anderson fixed me. I did not. intend to sell my stock at that price. * ⅜ * I clicl sign those minutes, and that resolution, when he fixed me and gave me those notes. I did finally agree to that sale going through, in' consideration of Mr. Anderson executing to me these notes sued on. As to these notes which were given being the difference between 25 cents on the dollar of the sale there and the full value of my stock, that is the full par value of my stock. * ⅞ * It is a fact that the officers and directors of the company were to get 100 cents on the dollar. * * * I signed it (referring to the resolution) after Mr. Anderson told me he would pay me that. * * * R. O. Anderson wás handling all the transaction. * * * I refer to R. O. Anderson when I say I know be bought it. * * * My interest in the corporation, as shown by my stock certificates, ■ amounted to 4,400 shares. * * * I have my stock certificates now which I had when I sold my interest for 25 per cent, with the rest of them. * * * x not deliver these stock' certificates to Mr. Anderson when I sold out. He did not ask for them. * * * He gave me 25 per cent, in cash and these notes here, signed by R. O. Anderson. * * ⅝ These notes were signed after. * * * After that, I can’t tell exactly when, it was, but it was one or two weeks, or maybe three weeks, * ■ ⅜ * after the sale, he ⅜ * * fixed up the notes.” '

R. O. Anderson apparently made tbe same kind of arrangement with'tbe vice president, J. S. Swan, for Swan testified:

“He did give me a note for my 75 per cent. He paid that note. I got my own money in full.”

While O’Briant further testified that Anderson told him be meant to pay tbe other officers in full, and it is not denied by Anderson, yet there is no evidence in tbe record that they were, in fact, so paid. In any event, that would have no bearing upon tbe issues in tbis case. As before noted, tbe property was conveyed to J. T. Anderson, a stockholder in tbe company, who was also tbe father of R. O. Anderson. All tbe negotiations were conducted by R. O. Anderson. In the! greater portion of his testimony it is indicated that be is purchasing tbe property for himself, and in other portions merely assisting bis father to make tbe purchase. Tbe conveyance of tbe property to' J. T. Anderson has no special significance.. R. O. Anderson further testified that be executed tbe notes with tbe understanding that they were to be paid if be was successful in making any money out of tbe property. An issue bearing upon tbis proposition was submitted ,to tbe jury and found against him.

Tbe pertinent portions of tbe testimony have been sufficiently indicated. Unquestionably tbe stockholders authorized tbe sale of tbe entire assets of the corporation at a minimum price of not less than 25 per cent, of tbe face value of tbe corporation stock. No other limitation was prescribed, and doubtless it was tbe wish and desire of tbe stockholders 'that tbe assets might be marketed for a much greater sum. By virtue of their official position in tbe company it was tbe duty of tbe directors to obtain, not for themselves exclusively, but for tbe “numerous” stockholders in tbe ill-fated Silver Lake Oil Company, tbe highest possible price for its assets. Tbis they failed to do. . As noted, J. S. Swan testified that be was paid' in full. O’Briant contends that R. O. Anderson promised him as much, • as is evidenced by tbe notes involved in tbis suit, and from tbe manipulations 'between these officers, each of them must have deemed tbe assets of tbe company of sufficient value to justify R. O. Anderson in paying tbe extra amount necessary to make up tbe difference between tbe face value of their respective shares and tbe amount to which O'Briant and Swan were respectively entitled upon the pro rata distribution of tbe amount received for tbe assets of tbe company. Evidently these particular diijeetors regarded the assets of tbe company as having a value much in excess of tbe amount they were to receive for tbe sale on tbe basis of 25 per cent It cannot be denied that it was tbe duty of the directors to obtain for tbe company’s assets tbe highest possible price, and that the individual stockholders were entitled to nothing less. These directors seem to have lost sight of that fact, and undertook to obtain for themselves an amount equal to tbe face value of their stock. In tbis they proved recreant to their duties and obligations as directors, and exhibited a disloyalty to tbe stockholders that has been uniformly condemned in tbe courts of tbis country.

If R. O. Anderson, in taking these assets, either for himself or his father, could afford to pay O’Briant and Swan 100 cents on tbe dollar, it was because the value of tbe assets justified tbe bargain. O’Briant and Swan evidently so estimated tbe value of tbe assets. Anderson must have held like views. Therefore, if be could afford to make a contract to pay these parties tbe amount indicated in tbis transaction, then clearly these directors were under obligations to and evidently could have sold tbe assets for more than 25 cents on tbe dollar, and, tbis it was their duty to do. Tbe effect of tbe arrangement which R. O. Anderson bad with O’Briant and Swan, all being directors in tbe company, was to make a bargain which involved, on bis part and on theirs, a violation of their duty to tbe corporation and to tbe individual stockholders. Therefore we conclude, if nothing was obtained by the bargain, the notes were without consideration. If anything was' obtained thereby, the consideration was illegal, and tibie transaction ‘must be held contrary to public policy, and therefore unenforceable. We deem this a proper application of the legal standard to the facts involved. Anderson v. Freeman (Tex. Civ. App.) 100 S. W. 350; Reed v. Brewer, 90 Tex. 144, 37 S. W. 418; Landes v. Hart et al., 131 App. Div. 6, 115 N. Y. S. 337; Reed v. Johnson, 27 Wash. 42, 67 P. 381, 57 L. R. A. 404 ; 3 R. C. L. p. 961, § 166; State v. Wilson, 73 Kan. 334, 80 P. 639; 84 P. 737, 117 Am. St. Rep. 479, page 512, c. Secs. 1 and 2; Dickson et al. v. Kittson et al., 75 Minn. 168, 77 N. W. 820, 74 Am. St. Rep. 447.

This record bears evidence that O’Briant did not fully comprehend the legal significance of the transaction he negotiated with Anderson, but that can have no effect on the consequences visited thereon by the law in the interest of sound public policy. It is immaterial that he may not have understood the law applicable to the facts. The objection upon the part of R. O. Anderson that the contract is illegal and against public policy does not sound well in his mouth, but it is not for his sake that the objection is here allowed, and O’Briant denied a recovery; but it is allowed and rests upon a general principle or policy that the courts will not lend their aid in the enforcement of a contract based upon such a consideration. Standard Lumber Co. v. Butler Ice Co. (C. C. A.) 146 F. 359, 7 L. R. A. (N. S.) 467.

Each assignment urged by the appellant is sustained. If we are correct in our views, plaintiff cannot show a good cause of action upon another trial. The testimony has been fully developed.

The judgment of the trial court is reversed, and judgment is here rendered, denying the plaintiff a recovery upon the notes sued on. 
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