Affirming.
The perplexing question involved in these two actions is the validity of a contract entered into by the corporation by its president and general manager without an order or direction, to execute and deliver it, entered of record by the board of directors. *Page 755
Before May 1, 1929, E.J. Paxton was the owner of the majority of the stock of the Sun Publishing Company, a domestic corporation, engaged at Paducah, Ky., in publishing "The Paducah Evening Sun"; George H. Goodmen was the owner of the majority of the stock of the News Democrat Publishing Company, a corporation, engaged in publishing, in the same city, "The Paducah News Democrat."
The board of directors of the Sun Publishing Company held no meeting from August 14, 1922, until May 1, 1929. E.J. Paxton, as president, and the owner of the majority of the stock, assumed and exercised the authority of the corporation in all of its business with the acquiescence of the stockholders and directors as if he were the sole owner of the corporation, advising occasionally with a member of the board of directors, wherever they happened to meet, about any matter concerning the affairs, business, or property of the corporation. Acting in accordance with this custom, with the knowledge of the stockholders and directors, as president, general manager, and owner of the majority of the stock of the corporation, he and Goodman, the owner of the majority of the stock of the News Democrat Publishing Company, engaged in a deal for the purpose of the Sun Publishing Company, acquiring all of the stock of the News Democrat Publishing Company. The Sun Publishing Company, through E.J. Paxton, offered to purchase of Goodman the stock of the News Democrat Publishing Company, at the price of $200,000, payable according to terms agreed on by them. Goodman declined to accept the offer because he would be required to pay a large amount to the United States government as income tax. To take care of the estimated amount that Goodman would have to pay as income tax on account of the sale of his stock of the News Democrat Publishing Company, the Sun Publishing Company, through E.J. Paxton, offered to pay Goodman an additional sum of $20,000, the approximate amount of his income tax, $2,000 payable each year thereafter, by the month, for a period of 10 years, and for the Sun Publishing Company to execute and deliver to Goodman ten notes, each for $2,000 to be placed in escrow with the Mechanics' Trust Savings Bank of Paducah, Ky., where the monthly payment was to be made, by the corporation depositing to the credit of Goodman, as credit *Page 756 on the notes, $166 2/3 per month, the notes to bear interest after maturity, with the agreement that, if Coodman died, the notes were to be paid to his executors, heirs, or assigns, until they were all paid. Goodman accepted.
Two writings were prepared, one evidencing the sale of the stock, showing the agreed price, of $200,000, and the stipulations relating to the sale and delivery of the stock of the News Democrat Publishing Company to the Sun Publishing Company; another showing the agreement respecting the payment of the $20,000 and the execution and delivery in escrow of the ten $2,000 notes. These instruments were prepared and signed by the two corporations, E.J. Paxton signing for the Sun Publishing Company, and Goodman for the News Democrat Publishing Company, and the notes were also executed and placed with the Mechanics' Trust Savings Bank.
No meeting of the board of directors of the Sun Publishing Company was called or held, and the board of directors, as a body, did not by an order of record formally authorize, direct or approve either of the contracts. A meeting of the board of directors of the Sun Publishing Company, composed of E.J. Paxton, R. Rudy, W.P. Paxton, and J.D. Mocquot, was held May 4, 1929, when the secretary reported "that in accordance with the written consent of the stockholders of the corporation, certain amendments had been made to the articles of incorporation; the name of the corporation had been changed from Sun Publishing Company to "Paducah Newspapers, Incorporated." At this meeting Goodman was elected chairman of the board of directors; other officers of the corporation were elected. A resolution was thereupon offered and adopted, authorizing the issuance of 200 bonds in the sum of $1,000 each in behalf of the corporation to the Citizens' Savings Bank, as trustee, payable within from 1 to 15 years. On the 12th day of July, 1929, a meeting of the board of directors of the "Paducah Newspapers, Incorporated," was held and a new board of directors and another set of officers were elected for the "Paducah Newspapers, Incorporated." At this meeting Goodman resigned as chairman of the board of directors, and his resignation was accepted by the new board. *Page 757
The writing evidencing the contract between the Sun Publishing Company and Goodman, respecting the execution, delivery, and payment of the ten $2,000 notes, recites that the Sun Publishing Company thereby employed Goodman for a period of 10 years from its date, to serve as chairman of the board of directors, and that his duties as such "shall be only to act in an advisory capacity in the management and operation of newspapers to be published and operated by the Sun Publishing Company." From the execution and delivery of this writing to the resignation of Goodman, as chairman of the board of directors, he performed no service under the contract other than merely advise on one or more occasions with some of the officials of the corporation.
Two of the $2,000 notes, and $833.30 on a third one, were paid to Goodman by the month, as it was agreed in the contract they were to be paid. The last monthly payment was October 3, 1931. Thereafter the "Parucah Newspapers, Incorporated," declined to pay the balance of the third note and declared that the seven remaining notes were invalid on the ground that Goodman had resigned as chairman of the board of directors and ceased to perform the duties of such.
Goodman brought an action at law to recover $1,166.70, with interest from May 1, 1932, as the balance due on the note on which there had been paid the $833.30. The "Paducah Newspapers, Incorporated," filed an action in equity against Goodman and the Mechanics' Trust Savings Bank of Paducah to cancel all of the $2,000 notes and the contract evidencing the agreement in pursuance to which they had been executed.
Judgment was rendered in favor of Goodman for the $1,166.70, and denied relief to the "Paducah Newspapers, Incorporated," in its action to cancel the notes and the contract.
Goodman's contract and notes are attacked on the ground they were drawn for the purpose of evading the provisions of the income tax laws of the United States, and that they were executed without authority of the board of directors of the Sun Publishing Company. The first ground is not argued in the briefs; hence we shall regard it waived. *Page 758
The validity of the contract by which the Sun Publishing Company purchased the stock of the News Democrat Publishing Company was not attacked in either action.
To sustain the argument that Goodman's notes and contract are invalid and unenforceable, the Paducah Newspapers, Inc., cites section 551, Ky. Stats.; Haldeman v. Haldeman,
The general principles deducible from these authorities are not disputed. The board of directors cannot bind the corporation except when acting as a body (section 551, Ky. Statutes; Caddy Oil Company v. Somner,
Perceiving no error in either case, the judgment is affirmed.