Appeal from the District Court of the Second Judicial District, Washoe County; W. H. A. Pike, Judge.
Boyd & Salisbury, for Appellant.
Mack & Green, for Respondent.
By the Court, Norcross, J.:
This is an action to set aside a default judgment and decree foreclosing a certain mortgage in an action brought by the said C. R. Lewis as plaintiff against the said Nevada Consolidated Mining and Milling Company as defendant. From the judgment in favor of the defendant, Lewis, and from an order denying a motion for a new trial, plaintiff has appealed.
On the 15th day of October, 1907, the said Nevada Consolidated Mining and Milling Company borrowed from the said Lewis the sum of $41,547.60, and as security therefor gave its promissory note payable one year after date with interest thereon at the rate of one per cent per month, and as further security made and executed a certain mortgage on certain mill-sites and property belonging to the said mining company. Action was brought to foreclose the said mortgage on the 24th day of October, 1908. In the foreclosure suit the law firm of Mack & Green appeared as attorneys for the plaintiff, Lewis. Summons was served upon Mrs. A. M. Warren, secretary and resident agent of the company. The defendant mining company having failed to appear or answer the complaint, default was entered, and subsequently proof was heard before the court and the judgment and decree of foreclosure ordered entered in the action.
At the time the mortgage was executed, Richard Kirman was president of the said mining company and also president of the Farmers' and Merchants' National Bank of Reno. C. E. Mack, one of the members of the said law firm of Mack & Green, was a director and vice-president of the said mining company and also a director of the said bank. The said C. E. Mack was also a director of the said bank and the said mining company at the time the action was brought to foreclose the mortgage, but had resigned the vice-presidency of the mining company some months previous. The said Mrs. A. M. Warren was at the time
of the execution of the said mortgage and at the time of service upon her of the summons in the foreclosure proceedings a director of said mining company and also a stockholder in said bank, and also at all said times a clerk and stenographer in the office of the said law firm of Mack & Green. It appears that the said Mack and the said Warren were the only directors of the company in the State of Nevada at the time the foreclosure suit was instituted. No notice was given to any of the other directors or stockholders in the mining company of the foreclosure proceedings. For some time prior to the foreclosure suit James T. Boyd and A. N. Salisbury, attorneys, had appeared in several cases as attorneys for the said Nevada Consolidated Mining and Milling Company and were representing the interests of certain eastern stockholders and creditors of the said mining company. The said Boyd & Salisbury were never regularly employed as attorneys for the mining company by the directors thereof prior to the foreclosure proceedings, but were employed in such capacity by W. L. Stevenson, the managing director of the company.
The said C. E. Mack and the said Mrs. A. M. Warren were both aware of the fact that the said Boyd & Salisbury had appeared in litigation as attorneys for the said mining company, and also that they had represented the interests of certain eastern stockholders and creditors of the said company. The reason stated why no notice of the foreclosure suit was given to the said Boyd & Salisbury or to any one else by the said C. E. Mack or Mrs. A. M. Warren was that the said Boyd & Salisbury were not regarded by them as attorneys for the said mining company, and further that they did not consider that the company had any defense to the action, and that W. L. Stevenson, the managing director of the company, had advised Lewis that the company could not longer keep the mill insured or maintain a watchman and that he (Lewis) would have to protect his own interests.
It appears that the said Boyd & Salisbury learned of the order of the court or a foreclosure decree prior to
the signing thereof by the district judge, and appeared before the judge and objected to the signing of the same. The said C. E. Mack upon being informed of such objection notified Messrs. Boyd & Salisbury that they were not attorneys for the said mining company and would not be recognized by the company as such attorneys. Thereupon said Boyd & Salisbury notified the eastern stockholders whom they represented, and were subsequently directed by them to take proceedings to protect the interests of such eastern stockholders and creditors. Subsequently and upon the 28th day of December, 1908, a stockholders' meeting of the said mining company was duly held, at which meeting James T. Boyd, R. H. Cowles, Paulding Farnham, A. N. Salisbury, and G. Landers were elected directors of the company. Subsequently and on the same day a meeting of the said directors was held, at which meeting the said R. H. Cowles was elected president and a motion was made and carried that James T. Boyd and A. N. Salisbury be employed as attorneys to take all steps necessary to protect litigation commenced by C. R. Lewis. In pursuance of said motion and the employment of the said Boyd & Salisbury as attorneys, this action to set aside the said decree of foreclosure was instituted.
The basis of the action was fraud in the procuring of the judgment. The principal allegations in the complaint other than those relative to the manner of service upon which plaintiff relied in part for a judgment setting aside the decree of foreclosure were as follows: That on or about the 1st of October, 1907, the plaintiff herein was in an insolvent condition, and had been insolvent for some time prior to said 1st day of October, and of which fact the directors of said plaintiff were fully aware, and of which fact the Farmers' and Merchants' National Bank was also aware. That on or about the 10th day of October, 1907, the said C. E. Mack, W. L. Stevenson, R. Kirman, and Mrs. A. M. Warren held a meeting of the directors of the plaintiff herein, and directed that the plaintiff corporation borrow from
C. R. Lewis the sum of $41,547.60, and to give its note and mortgage therefor, with interest on said sum from date until paid. That thereafter, to wit, on the 15th day of October, 1907, the said R. Kirman, as president, and the said A. M. Warren, as secretary, made and executed the said note as directed by the directors, for the sum of $41,547.60 to the said C. R. Lewis, and at the same time, and as security for said note, made and executed a mortgage, upon the quartz mill of the plaintiff herein, situated near the town of Wadsworth, State of Nevada, and estimated to be of the value of $200,000. That the only meeting of the stockholders ever held by said corporation, except the one hereinafter mentioned, was held on the 25th day of May, 1906, at which meeting the said R. Kirman was elected a director and president, C. E. Mack a director and vice-president, A. M. Warren a director and secretary and treasurer, and W. L. Stevenson managing director. That the stockholders and creditors were not informed of the amount of indebtedness owed by this plaintiff, nor were the creditors and stockholders ever informed of any intention of the said directors to make and execute a mortgage to the said C. R. Lewis, until long after the same had been made and executed to the said C. R. Lewis, and the same was made, executed and delivered without the knowledge or consent of the stockholders or creditors, except such as were directors of the plaintiff corporation herein. That at the time the said note and mortgage was made and executed, the said Nevada Consolidated Mining and Milling Company was insolvent, and was unable to pay its debts to its various and different creditors, and of this fact the Farmers' and Merchants' National Bank of Reno, Nevada, and its board of directors and C. E. Mack, R. Kirman, A. M. Warren, and W. L. Stevenson had full knowledge. That plaintiff is informed and believes, and upon such information and belief alleges the fact to be, that the said mortgage was made and executed to said C. R. Lewis for the benefit and for the purpose of securing the Farmers' and Merchants' National Bank, and that the
said mortgage was given in truth and in fact, to the Farmers' and Merchants' National Bank under the name of C. R. Lewis, and for the purpose of preventing the said Farmers' and Merchants' National Bank and C. E. Mack and R. Kirman from any loss or liability. That the said Farmers' and Merchants' National Bank and the said C. E. Mack and R. Kirman entered into an agreement whereby the said Farmers' and Merchants' National Bank would receive security for all indebtedness that might be and was due to said bank from the plaintiff herein by having the said C. E. Mack, R. Kirman, W. L. Stevenson, and Mrs. A. M. Warren make and execute said mortgage to said C. R. Lewis for the purpose of securing the same, and that all the property of the Nevada Consolidated Mining and Milling Company of any value would be pledged and mortgaged for the benefit of the Farmers' and Merchants' National Bank, and that the other creditors holding claims against the Nevada Consolidated Mining and Milling Company, amounting to the sum of about $550,000, would be unable to have any property sold or applied to the payment of their indebtedness unless they first paid the indebtedness due to the Farmers' and Merchants' National Bank. That plaintiff is informed and believes, and upon such information and belief alleges the fact to be, that the said mortgage was made and executed to said bank to secure a pre-existing debt due to said bank, and also to relieve the said R. Kirman and C. E. Mack of any liability, personal to themselves in regard to said indebtedness. That plaintiff is informed and believes, and upon such information and belief alleges the fact to be, that the said R. Kirman, C. E. Mack, and Mrs. A. M. Warren, as directors and officers of the plaintiff herein, failed and neglected to give any other creditors, or the eastern stockholders of the said corporation, any information of the condition of affairs of said corporation, or the amount of its indebtedness, and neglected, failed and refused, at any time prior to the execution of said note and mortgage, and for a long time
thereafter, to inform the stockholders of the execution of the said note and mortgage, or of the condition of the affairs of this plaintiff. That the board of directors of this plaintiff failed, neglected, and refused to call a meeting of the stockholders of this plaintiff, annual or otherwise, for the purpose of informing said stockholders of the condition of the plaintiff's affairs, or to elect a new board of directors at the expiration of the term of office of the said Mack, Kirman, Stevenson, and Warren, as directors of this plaintiff. That after the execution of said note and mortgage, the said R. Kirman resigned as president and director of the said Nevada Consolidated Mining and Milling Company, and that since said date the said R. Kirman has ceased to be an officer of said corporation.
The following findings, among others, were made by the trial court in this cause: That on said 15th day of October, 1907, defendant, C. R. Lewis, paid to plaintiff, Nevada Consolidated Mining and Milling Company, in consideration of the making, execution, and delivery of said promissory note and mortgage, the sum of $41,547.60. That said mortgage was made by plaintiff in good faith and in consideration of a then present advance to it of the said sum of $41,547.60 and without any intent, purpose, or design on the part of said corporation to hinder, delay, or defraud any creditor or creditors of said corporation. That said loan was made and secured by said corporation for the purpose of paying its then pressing obligations, and the whole amount of said $41,547.60 was received and used by said corporation in the payment of its just obligations. That said loan was made by said defendant, C. R. Lewis, in good faith and in consideration of the then present advance to said corporation of the full sum of $41,547.60 ...