temple enterprises v. combs, 164 or. 133, 100 p.2d 613, 128 a.l.r. 856 (or., 1940)

8/19/2019 Temple Enterprises v. Combs, 164 Or. 133, 100 P.2d 613, 128 A.L.R. 856 (Or., 1940)

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Temple Enterprises v. Combs, 164 Or. 133, 100 P.2d 613, 128 A.L.R. 856 (Or., 1940)

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164 Or. 133

100 P.2d 613

128 A.L.R. 856

TEMPLE ENTERPRISES, INC.,

v.

COMBS ET AL.

Supreme Court of Oregon.

Argued February 13, 1940.

Reversed April 2, 1940.

Corporations — Organization —

Statutes

1. Where one-half of the stock of a

corporation formed under the laws of the

state is subscribed and directors are elected as

provided by statute, the corporation comes

into full and complete existence with power tosue and be sued, to contract and to begin the

prosecution of business or enterprise for

which it was organized, notwithstanding

statute requiring not less than $1,000 of

capital of corporation issuing no par stock to

be paid in before it shall begin business.

Corporations — Organization —

Statutes

2. Where corporate existence has been

achieved, statutory requirement thatcorporation issuing nonpar stock shall not

begin business until less than $1,000 of the

capital is paid in is construed as a "condition

subsequent" the failure to observe which

cannot be called into question collaterally but

only by the state in a direct proceeding to

forfeit the corporate charter.

Corporations — Transaction of

business

3. Corporations having stock without par value are on the same footing with others in

respect of their rights to transact business,

with the sole exception that, if they fail to

meet the condition of the statute requiring

payment of at least $1,000 of capital before

beginning business, they are liable to have

their charters forfeited at the suit on the state.

Corporations — Corporation de

jure

4. Where articles of incorporation fixed

corporation's capital at 50 shares of common

stock without par value and there was

evidence that one of the stockholders had

spent more than $500 in business and that

another stockholder tendered check for

similar amount and all preliminary statutory

steps were taken by incorporators and

stockholders of the corporation before it

commenced to do business, corporation was a

"corporation de jure" and was not deprived of

capacity to transact business or to maintain

an action on leases executed by it by reason of

statute requiring not less than $1,000 of

capital to be paid in where corporation issuesnonpar stock.

Corporations — Action by directors

5. Evidence warranted finding that

majority of board of directors who owned 26

of 50 shares of stock issued by corporation

voted in favor of resolution to take

appropriate action to enforce terms of certain

leases, and hence corporation was authorized

to bring suit.

[164 Or. 134]


6. Generally, corporate action can be

taken only at meeting of board of directors,

but such rule has no application when the

directors are themselves the only

stockholders, and in such case action taken by

all of them informally and without a meeting

is corporate action.


7. Where all stockholders in corporation

gave approval to a lease entered into between

corporation and theater owner, stockholders'

assent, though not attended with the


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formality of meeting of board of directors of

corporation, was binding upon corporation.

Evidence — Written agreement —

Parol evidence

8. Where, at the time agreement to leasetheater was being discussed, attorney wrote

down the terms of each agreement as dis-

discussion proceeded and had each of the

parties affix his initials to the memoranda

and thereafter prepared an instrument which

was signed by the parties and lessor agreed to

the precise rental terms which were

incorporated in lease, parol evidence to vary,

add to, or contradict the terms of written

agreement was inadmissible.

Landlord and tenant — Lease —

Consideration

9. Where theater owner agreed to build

and lease theater to corporation which agreed

to purchase equipment to be installed by

lessor, part of purchase price of which was to

be paid when theater was turned over to

corporation and balance in installments, and

contemporaneously a lease was executed for

term of ten years at rental to be determined

by box office receipts, the two instruments were a single contract and the mutual

promises of parties furnished consideration

for agreement, and agreement to pay

percentage of gross proceeds of theater

business to lessor as rent constituted valuable

consideration for lessor's conveyance creating

tenancy.

Specific performance —

Repudiation of contract

10. Where theater owner agreed to buildand lease theater to corporation which agreed

to purchase equipment to be installed by

lessor, part of purchase price of which was to

be paid when the theater was turned over to

the corporation and balance in installments,

and contemporaneously a lease providing for

term of ten years at rental determined by

percentage of box office receipts was

executed, and lessor, at time that theater and

equipment was to be turned over to lessee,

refused check for part of consideration then

due and made it plain that he had repudiated

his contract, no further tender was required

nor was it incumbent upon the corporation to

pay money into court at time of filing suit for

specific performance.

[164 Or. 135]

Specific performance — Contracts

— Mutuality

11. The rule that a contract must be

mutual in the sense that it must be such that

it might at the time it was entered into have

been enforced by either party against the

other no longer exists in Oregon.

Specific performance — Equity —

Law

12. Whenever a contract concerning

realty is in its nature and incidents entirely

unobjectionable, it is as much a matter of

course for court of equity to decree specific

performance of it as it is for a court of law to

give damages for the breach of it.

Specific performance — Lease

13. A lease being a conveyance of an

interest in land, specific performance would

lie to compel its performance.

Specific performance — Landlord

and tenant — Lease

14. Where damages would be difficult of

ascertainment and remedy would not be ascomplete and adequate to accomplish the

ends of justice as remedy of specific

performance, suit for specific performance of

a lease and for accounting of rents and profits

of leased premises was properly maintained

where lessor refused to comply with terms of

lease.


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Specific performance — Courts —

Discretion

15. The discretion of a court of equity in a

suit for specific performance is judicial in its

nature, and the relief is not of grace and

judicial remedies are not in any sense

discretionary, but are governed by established

principles and rules which constitute the body

of equity jurisprudence.



16. Where contract whereby lessees

agreed to purchase theater equipment at time

theater was turned over to them and

contemporaneous lease of theater for term of

ten years' rental based on percentage of box

office receipts were certain in their terms and

evidence did not disclose that the reserved

rental was inadequate so as to suggest fraud

and lessor refused to perform contract, a suit

for the specific performance of the

agreements would lie.



17. Where owner of property agreed to build a theater and lease it to corporation,

which agreed to purchase equipment to be

installed by the owner and

contemporaneously leased, for term of ten

years, the theater at a rental determined by

percentage of box office receipts, that theater

cost more to build than was anticipated, and

that son of owner, whom owner desired to

establish in the theater business as a member

of a corporation, was

[164 Or. 136]

hostile to the corporation, could not be urged

as grounds for refusing specific performance.

Informality of meeting of directors as

affecting action taken

thereat, note, 64 A.L.R. 712. See, also, 13 Am.

Jur. 910.

18 C.J.S., Corporations, § 65.

In Banc.

Appeal from Circuit Court, Yamhill

County.

ARLIE G. WALKER, Judge.

Suit for specific performance of a lease

and for an accounting of rents and profits of

leased premises by the Temple Enterprises,

Incorporated, against Averill Combs and

others. From a decree dismissing the suit,

plaintiff appeals.

REVERSED.

Robert R. Rankin and John P. Lipscomb,

Jr., both of Portland (Wood, Matthiesen &

Rankin, of Portland, on the brief), for

appellant.

George Neuner, of McMinnville (Burdett

& Neuner, of McMinnville, and R.H.C.

Bennett, of Newberg, on the brief), for

respondents.

This is an appeal by the plaintiff from the

decree of the circuit court dismissing a suit

for the specific performance of a lease and for

an accounting of the rents and profits of the

leased premises.

The controlling facts are free from

serious dispute.

The leased premises, a lot improved with

a theater building in the city of Newberg,Oregon, are owned by the defendants Averill

Combs and Millie Combs, his wife, as tenants

by the entireties. Mrs. Combs acquired her

interest by deed from her husband dated

January 5, 1937. The defendant, Avery

Combs, is their son. For

[164 Or. 137]


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convenience Averill Combs will be herein

referred to as Combs, Sr., and Avery Combs

as Combs, Jr.

Prior to the inception of the transactions

which give rise to the present litigation,

Combs, Sr., had owned and managed motion

picture theaters at Wallowa, Burns, and

Coquille. He had also been a farmer, and

operated hotels and a sawmill. In November,

1936, at the suggestion of Melvin Keller, a

salesman of motion pictures for Vitagraph,

Inc., he purchased real property in Newberg,

Oregon, as a site for a theater. One of his

main purposes in doing so was to establish

his son, then a senior at the University of

Oregon, in the motion picture business. At a

meeting held November 28, 1936, in the officeof Robert S. Farrell, an attorney at law in

Portland, attended by Mr. and Mrs. Combs,

their son, Keller and Farrell, it was agreed

that Combs, Sr., would erect a theater

building upon the Newberg property at a cost

of approximately $20,000 and lease it to a

corporation to be organized by Keller and

Combs, Jr. The lessee was also to purchase

the equipment of the theater, when installed,

at cost, and pay $6,000 on the purchase price

at the time it took possession, and of this sum

Keller was to advance to the corporation$2,000 and Combs, Jr., $4,000, and Combs,

Sr., agreed that he would furnish the sum of

$4,000 to his son for that purpose. This latter

agreement was never reduced to writing.

Farrell later prepared the necessary writings

incorporating the various agreements made at

this meeting, and also attended to the details

of organizing the corporation to be known as

Temple Enterprises, Inc., the plaintiff here.

The written agreements which are of

importance now may be summarized as

follows:

[164 Or. 138]

An agreement dated November 28, 1936,

signed by M.F. Keller and Avery Combs

(Combs, Jr.), in which, after reciting that

Combs, Sr., had agreed to erect a theater in

Newberg and lease it to a corporation to be

formed by Keller and Combs, Jr., for a term of

10 years, with options for additional terms of

five years each, at a rental of 10 per cent of

the gross receipts from the operation of the

theater, they agreed that they would purchase

the equipment in the theater from Combs, Sr.,

and that, on the day the theater was ready for

occupancy Keller would pay on the purchase

price of the equipment $2,000 and Combs,

Jr., $4,000 to Combs, Sr., the balance of the

purchase price to be paid in equal monthly

installments over a five-year period; that, up

to the time of final payment, Keller and

Combs, Jr., are to own equal interests in the

equity in the equipment, and on final

payment, it will become the property of thecorporation. This instrument also contains a

provision giving to each of the parties

executing it the option to purchase the

interest of the other subject to certain stated

conditions. It gives to Keller the control of the

buying and booking of attractions for the

theater, and the parties agree that each of

them shall place to the credit of the business

the sum of $500 for a period of 90 days, and

that no salaries are to be paid to either of

them.

An agreement dated December 4, 1936,

executed by Combs, Sr., as party of the first

part, and Temple Enterprises, Inc., by M.F.

Keller and R.S. Farrell, Jr., secretary, party of

the second part. By this instrument Combs,

Sr., agreed to build the theater, the

corporation agreed to lease it from him on the

terms and for the period hereinbefore

mentioned, and to purchase the equipment

and to pay to Combs, Sr., the sum of $6,000

[164 Or. 139]

on the purchase price of the equipment on the

day that the theater should be turned over to

the corporation, and the balance to be paid as

previously stated.


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A lease dated December 4, 1936, executed

by Averill Combs (Combs, Sr.) as lessor and

Temple Enterprises, Inc., (by M.F. Keller,

president, R.S. Farrell, Jr., secretary,

approved by Avery Combs), as lessee of Lot 7,

Block 2, Everett's Addition to the City of

Newberg, Yamhill County, Oregon. The lease

is for a term of 10 years, to commence from

and after the date of the architect's certificate

of the completion of the theater and

installation of the necessary equipment. The

rent reserved is 10 per cent of the gross

admission receipts of the theater, payable

monthly. For accounting purposes it is

provided that the admission tickets shall be

numbered serially. The lessee agreed to pay

premiums on fire insurance and the lessor to

pay taxes, street assessments and other lienscreated by law against the premises; the

lessee to carry $40,000 public liability policy

of insurance in a company satisfactory to the

lessor. There is a provision granting the lessee

the option of renewal for two additional terms

of five years each. The lessor agrees that the

building to be erected will cost approximately

$20,000, that construction will commence

about January 15, 1937, that the theater will

have a seating capacity for at least 500

persons. It was also stipulated that the

equipment should remain in the theater as

security for the faithful performance of the

lessee's covenants. Other provisions of a

standard type and ordinarily found in leases

of this character need not be mentioned.

The corporation was organized by Keller

and Combs, Jr., subscribing each to 24

shares, and Farrell to two shares of the

authorized capital stock of 50

[164 Or. 140]

shares, without par value, and by electing

directors and officers, and the adoption of by-

laws.

The record book of Temple Enterprises,

Inc., shows that the execution of the foregoing

lease by the president and secretary of the

corporation was authorized by a resolution

adopted at the first meeting of the board of

directors of the corporation on December 4,

1936.

All the foregoing agreements were

executed on or about the dates which they

bear, though Combs, Jr., seems not to have

affixed his signature to the lease until about

December 20, 1936.

After these things were done Combs, Sr.,

proceeded with the construction of the

theater building.

In the latter part of February, 1937,

Keller, at the insistence of Combs, Sr., agreed

to a modification of the terms of the lease

with respect to the rental reserved. This

modification was incorporated in two

writings. One of these is dated February 24,

1937, executed by A. Combs on the one part

and Temple Enterprises, Inc., by M.F. Keller

and R.S. Farrell, Jr., secretary, on the other

part, and styled a supplemental indenture

lease. It recites that it is made for the purpose

of altering one feature of the original lease;

that in all other respects the original lease

shall remain in effect; and it is agreed that the

rental reserved shall be "a sum equivalent to10% of the first $500.00 of the gross receipts

of said theatre, 12 1/2% of the second

$500.00 of said gross receipts of said theatre,

and 15% of any and all sums in excess of

$1,000.00 of the gross admission receipts of

said theatre." The accounting periods are

monthly, as in the original lease.

Apparently, on the same day, although

the instrument is dated back to December 4,

1936, the same parties

[164 Or. 141]

entered into a new lease which is identical in

terms with the original lease, with the

exception of the agreement for rent, which

reads as follows:


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"The rental reserved is a sum equivalent

to 10% of the first $500.00, 12 1/2% of the

second $500.00, and 15% of the balance of

any sum in excess of this first $1000.00 of the

gross weekly admission receipts of said

theatre."

It is to be observed that the provision

regarding rent in this instrument differs from

that in the so-called "supplemental indenture

lease" in that in the latter the percentages are

based upon the gross admission receipts,

while in the former they are based upon the

gross weekly admission receipts of the

theater. Combs, Jr., had no knowledge of the

execution of the new lease at the time. He

first learned of it from his father about the

middle of March when he came home fromcollege for the spring vacation, and offered no

objection to it.

The reason which Combs, Sr., thought

entitled him to an increase in rent over that

originally agreed upon and which he urged

upon Keller was that he had ascertained that

the building would cost him more than he at

first anticipated.

About the middle of June, 1937,

according to the testimony of Combs, Jr., hehad a conversation with Keller in which the

former said that there should be a new lease

because his father was putting more money

into the project than he had at first thought

would be needed. Keller answered that they

already had a lease, and at that time there was

some discussion of the lease which had been

entered into in February, 1937, in the absence

of Combs, Jr.

The theater opened on August 20, 1937,

and shortly prior thereto there were

conversations between the parties regarding

further modifications of the lease.

[164 Or. 142]

The witnesses are not in entire agreement as

to what was said. According to Keller, on the

18th or 19th of August at Newberg, Combs,

Sr., told him that, due to increased cost of

construction of the theater, he would have to

have more rent — at least 20 per cent of the

receipts. And on that occasion he says he

tendered Combs, Sr., his personal check for

$2,000 made payable to Temple Enterprises,

Inc., which Combs, Sr., refused to accept.

Keller returned to Portland and saw Farrell,

and the two of them went to Newberg on the

evening of August 20th and saw Combs, Sr.,

and his son just before the theater was to

open. According to Farrell and Keller they

told Combs, Sr., that they were ready, able

and willing to go through with the agreement,

and Combs, Sr., answered that they had no

lease. Combs, Jr., substantially corroborated

their version of the incident.

Combs, Sr., testified that on Saturday,

August 14th, at Newberg, he told Keller that

the theater would open the following Friday

and that "I told him I wanted this thing

settled by Wednesday night — that was to

make up that new lease that we were

supposed to make, and pay that $2,000.00."

In this conversation Keller, according to

Combs, Sr., said he was worried about how he

was going to get the money, but he insisted

that the corporation had a lease. Combs, Sr.,further testified that when Farrell and Keller

demanded possession of the theater on the

evening of the opening he said: "That depends

upon whether you fix up your lease and pay

your money or not." He denied that Keller

had ever tendered him a check for $2,000

prior to the latter part of November, 1937.

Later, Keller employed his present

attorneys, who endeavored without success,

to induce Combs, Sr., to

[164 Or. 143]

give the plaintiff possession of the theater

under the lease. On January 3, 1938, a special

meeting of the board of directors of the

plaintiff corporation was held, attended by

the entire board, namely, Combs, Jr., Keller


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and Farrell. A motion was made authorizing

Mr. M.M. Matthiesen, of the legal firm,

Wood, Matthiesen & Rankin, to take

appropriate action to enforce the terms of the

lease and to obtain an accounting of the

proceeds of the operation of the theater.

Keller and Farrell voted in favor of the motion

and Combs, Jr., against. Combs, Jr.,

challenged the right of Farrell to vote, but his

challenge was overruled by the chair.

Thereafter this suit was commenced.

LUSK, J.

Header ends here.

The circuit court made no findings of

fact, but simply entered a decree dismissing

the suit. It appears, however, from the

abstract of record that the basis of the decree

was the court's ruling that the plaintiff

corporation lacked capacity to enter into a

lease or otherwise transact any business or to

maintain the suit because of its failure to

comply with one of the provisions of § 25-225,

Oregon Code 1930. That section has to do

with corporations issuing shares of capital

stock without any nominal or par value, and

reads in part as follows:

"In cases of original incorporation of any

such corporation the articles shall also set

forth the amount of capital to be paid in

before the corporation shall begin business,

which amount shall in no event be less than

$1,000. No corporation authorized to issue

shares of stock without par value in

pursuance of the provisions of this act shall

begin to carry on business or incur any

indebtedness until one-half of the par value

stock, if any, which the corporation is

authorized to issue, shall have been

subscribed, and the amount of capital with

which it shall begin business as stated in

pursuance

[164 Or. 144]

of this section shall have been fully paid up in

cash or in property taken at its actual value."

The articles of incorporation of the

plaintiff fix its capital stock at 50 shares of

common stock without nominal or par value,

and the amount of capital to be paid in before

it should begin business at $1,000. The circuit

court held that the evidence failed to show

that any part of the capital thus fixed had

been paid up, and that this constituted a fatal

defect in the plaintiff's case.

There was evidence that Combs, Jr., had

spent more than $500 in the business, and

that on August 17, 1937, Keller tendered to

Combs, Jr., who was treasurer of the

corporation, his check for $500. The circuitcourt thought that these facts failed to show a

compliance with the statute. Whether that

conclusion was right or not we need not

determine, because we think that in any event

the plaintiff was a corporation de jure, and

that only the state can call it to account for its

neglect to provide itself with the capital fixed

by its articles of incorporation.

1. The prior decisions of this court make

it abundantly clear that when one-half of the

stock of a corporation formed under the lawsof this state is subscribed and directors are

elected, as provided in § 25-209, Oregon Code

1930, the corporation comes into full and

complete existence, with power to sue and be

sued, to contract, and to begin the

prosecution of the business or enterprise for

which it was organized. Goodale Lumber Co.

v. Shaw, 41 Or. 544, 69 P. 546; Nickum v.

Burckhardt, 30 Or. 464, 468, 47 P. 888, 48 P.

474, 60 Am. St. Rep. 822; Holladay v. Elliott,

8 Or. 84, 91; Coyote Gold and Silver Mining

Company v. Ruble, 8 Or. 284, 293;

Willamette Freighting Co. v. Stannus, 4 Or.

261. The

[164 Or. 145]

record here shows that these, as well as the

other preliminary statutory steps were all


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taken by the incorporators and stockholders

of the plaintiff corporation before it executed

the agreements here sued upon; and the

question, therefore, is what effect is to be

given to the corporation's neglect, — if it was

so — to have its fixed capital paid up.

2. We take it to be the well-established

rule that where corporate existence has been

achieved, a statutory provision of this kind is

construed as a condition subsequent, the

failure to observe which cannot be called in

question collaterally, but only by the state in a

direct proceeding to forfeit the corporate

charter. The difference between conditions

precedent and conditions subsequent in this

connection is thus explained in the leading

case of Mokelumne Hill Canal & Mining Co.v. Woodbury, 14 Cal. 424, 427, 73 Am. Dec.

658:

"* * * There is a broad and obvious

distinction between such acts as are declared

to be necessary steps in the process of

incorporation, and such as are required of the

individual seeking to become incorporated,

but which are not made prerequisites to the

assumption of corporate powers. In respect to

the former, any material omission will be fatal

to the existence of the corporation, and may be taken advantage of, collaterally, in any

form in which the fact of incorporation can

properly be called in question. In respect to

the latter, the corporation is responsible only

to the government and in a direct proceeding

to forfeit its charter. The right of the plaintiff

to be considered a corporation, and to

exercise corporate powers, depends upon the

fact of the performance of the particular acts

named in the statute as essential to its

corporate existence."

The case involved the construction of a

statute which required a certificate in writing

(articles of incorporation)

[164 Or. 146]

to be filed in the office of the county clerk,

and a duplicate in the office of the secretary of

state, and provided that "when the certificate

shall be filed as aforesaid, the persons

executing the same * * * shall be a body

politic and corporate." The incorporators had

neglected to file the duplicate with the

secretary of state, and it was contended that

there was no corporation. The court held

otherwise, saying:

"The intention of the Legislature clearly

was, that so far as individuals are concerned,

the corporation should acquire a valid legal

existence upon the filing of the certificate.

The filing of the duplicate is exclusively a

matter between the corporation and the State.

The rights and privileges conferred by thestatute, vest in the corporation upon the filing

of the certificate, and can be divested only by

a direct proceeding for that purpose."

In W.L. Wells Company v. Gastonia

Company, 198 U.S. 177, 49 L.Ed. 1003, 25

S.Ct. 640, it appeared that the charter of the

plaintiff corporation contained this provision:

"The capital stock of said corporation

shall be $50,000, divided into shares of $500

each, and as soon as $10,000 of said stock issubscribed and paid for, said corporation

shall have power to commence business."

The plaintiff sued a foreign corporation

in the federal court on a contract, and the

defendant contended that, because $10,000

of the plaintiff's stock had not been

subscribed and paid for, it was not a

corporation, and the federal court was,

therefore, without jurisdiction. But the court

held that the provision in question was a

condition subsequent, saying:

"If the commencing of the business for

which it was incorporated before a certain

amount of capital stock was subscribed and

paid for was in violation of the

[164 Or. 147]


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company's charter, that was a matter for

which it could be called to account by the

state, and did not affect the existence in law of

the company as a corporation."

To the like effect are: 1 Fletcher,

Cyclopedia Corporations (Perm. Ed.) 551, §

167; 14 C.J. "Corporations" 156; 18 C.J.S.

"Corporations" 452, § 66; Clark on

Corporations (2d Ed.) 55, § 26; 1 Morawetz on

Private Corporations (2d Ed.) 31, § 31;

Stevens on Corporations 104, § 23; 1

Thompson on Corporations (3d Ed.) 237, §

198; 1 Machen, Modern Law of Corporations,

160, § 177, 219, § 265; Quinn v. Woods, 134

Miss. 621, 99 So. 510; Hammond v. Straus,

53 Md. 1; Ryland v. Hollinger, 117 Fed. 216;

Harrod v. Hamer, 32 Wis. 162; Granby Mining & Smelting Co. v. Richards, 95 Mo.

106, 8 S.W. 246; Merrick v. Reynolds Engine

and Governor Company, 101 Mass. 381;

Brown v. Wyandotte & S.E. Ry. Co., 68 Ark.

134, 56 S.W. 862; Matter of Shakopee

Manufacturing Co., Insolvent, 37 Minn. 91,

33 N.W. 219; Murphy v. Wheatley, 102 Md.

501, 63 Atl. 62.

Counsel for the defendants call our

attention to the case of Eastern Products

Corporation v. Tennessee Coal, Iron & Railroad Company, 151 Tenn. 239, 269 S.W.

4, 40 A.L.R. 1483, in which it was held that a

corporation could not lawfully transact

business until all or a substantial portion of

its capital stock had been paid up, and that

the question could be raised by the defendant

in an action brought by the corporation whose

capacity was assailed to recover damages for

breach of contract.

The case is strongly relied on by

defendant, and we have therefore examined it

with care. A Tennessee corporation was

organized with an authorized capital stock of

$2,000,000 and shares of $100 par value.

Only eight shares were subscribed, but it was

conceded that

[164 Or. 148]

the formation of the company as a body

politic was complete. The statute provided

that in the case of a corporation so formed,

"the validity of the same in any legal

proceeding shall not be collaterally

questioned". The court drew a distinction

between a corporation "to be" and one "to

do", and held that, while this corporation was

undoubtedly the former, subscription to at

least such an amount of its capital stock as

would afford reasonable provision for the

performance of its part of the contract sued

upon was a condition precedent to its

entering into the contract or incurring any

indebtedness.

3, 4. The force of the decision as a

precedent is weakened by a pointeddissenting opinion, which observes that,

although the majority may have announced a

sound rule of public policy, they had

disregarded the statute of the state. It is

against the strong current of authority in this

country, and we think it can easily be shown

that many of the cases and texts which the

court has called to its aid, not only do not

support, but are in conflict with its

conclusion. It would consume too much space

to elaborate upon these matters. It is enough

for present purposes to say that theunderlying thesis of the Tennessee court, that

there may be a full-fledged corporation

wanting power to transact the business for

which it was organized, has, as far as we

know, never been accepted in this state. As to

corporations having par value stock only,

paid-up capital, either in whole or in part, is

not a prerequisite to the transaction of

business. In the case of corporations having

stock without par value, we are unwilling to

assume, in line with the Tennessee court'sreasoning, that the statutory requirement of

paid-up capital was intended to insure the

ability of the corporation to fulfill its

agreements and

[164 Or. 149]


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pay its indebtedness, since, regardless of the

magnitude of the corporation's undertakings,

it may comply with the provision by fixing a

sum no greater than $1,000 as the amount

with which it is to begin the transaction of

business. Our statute, which, as hitherto

construed by this court, authorizes a

corporation to exercise the powers granted to

it by the state upon subscription to half of the

capital stock and the election of directors,

(the other preliminary steps having been

taken) applies to all corporations, including

those having stock without par value. Since

this is so, it follows that, under the settled

rule of construction which controls the

meaning and effect of a provision like the one

in question, enjoining the performance of

some act by a corporation already in esse, corporations of this state having stock

without par value are on the same footing

with others in respect of their right to transact

business, with the sole exception that, if they

fail to meet the conditions of the statute, they

are liable to have their charters forfeited at

the suit of the state.

5. We are of the opinion that the plaintiff

had full capacity to enter into the contracts

and leases here involved, and to institute this

suit. We think, also, that the objection urgedthat the bringing of the suit was not properly

authorized by the board of directors, cannot

be sustained. That objection rests upon a

claim that it was agreed that Farrell's stock

was to have no voting power. Regardless of

the question of the legality of such an

agreement, we find from the evidence that it

was not made.

The complaint pleads both the original

lease executed on or about December 4, 1936,

and the later one actually entered into about

February 24, 1937, though dated December 4,

1936, and prays for the specific performance

[164 Or. 150]

of whichever one the court may find to be

binding upon the parties. Obviously, the later

lease was intended to take the place of the

earlier, and will be enforced by the court

unless it is invalid or the remedy of specific

performance is not available to the plaintiff.

Plaintiff's counsel have suggested that the

agreement for an increase in rent in the later

lease is probably without consideration since

the parties were already bound by an existing

lease (35 C.J. "Landlord and Tenant" 1145, §

397 (a)), but they expressly waive the point,

and we will, therefore, treat the lease entered

into December 4, 1936, as having been

superseded.

6, 7. It is contended by the defendants

that the lease of February 24, 1937, was not

the act of the corporation because its

execution was not authorized at a meeting ofthe board of directors. The general rule is that

corporate action can only be taken at such a

meeting, but this rule has no application

when the directors are themselves the only

shareholders. In that case action taken by all

of them, informally, and without a meeting, is

corporate action. First National Bank of

Burns v. Frazier, 143 Or. 662, 678, 19 P. (2d)

1091, 22 P. (2d) 325; Vawter v. Rogue River

Valley Canning Co., 124 Or. 94, 257 P. 23,

262 P. 851; Stevens on Corporations 555, §

140. The record leaves no doubt in our mindsthat Combs, Jr., gave his approval to the later

lease which his co-directors had previously

executed, and, since the three directors

owned all the stock, their action, though not

attended with the formality of a meeting, was

binding upon the corporation.

It is urged next that all the terms and

conditions agreed on by the parties were not

incorporated in the writings which "left

certain terms open for future negotiations

between the parties." This issue is tendered

[164 Or. 151]

by allegations in the answer, in substance

that, at the time that the various contracts

and leases were signed, the parties agreed

that, should the cost of the theater building


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exceed $20,000, the rental would be

increased accordingly.

8. Since there is no pleading nor evidence

of fraud or mistake, and the writings are free

from ambiguity, proof of such allegations

could not be admitted without a palpable

violation of § 9-212, Oregon Code 1930, which

is our statutory expression of the rule

prohibiting the reception of parol evidence to

vary, add to, or contradict the terms of a

written agreement. The whole of the evidence,

including the testimony of Combs, Sr.,

himself, shows that Mr. Farrell incorporated

in the writings only what the parties agreed

upon in their discussion in his office. So

careful was Farrell in this regard that he

wrote down the terms of each agreement asthe discussion proceeded and had each of the

parties affix his initials to these memoranda,

which accord with the terms of the

instruments prepared by him and signed by

them. Combs, Sr., was a businessman of

rather wide experience. He admitted, in

response to questions by the court, that he

agreed in Farrell's office to the precise rental

terms which were incorporated in the first

lease, and he at no time denied that he agreed

to the change in those terms as found in the

second lease. Evidence of a collateral oralagreement at variance with those terms is so

clearly incompetent that citation of authority

is unnecessary.

It is said that the contracts and leases are

without consideration. It is only necessary to

consider this question with reference to the

contract between the plaintiff and Combs, Sr.,

for the purchase of the equipment and the

lease entered into February 24, 1937. The

[164 Or. 152]

point calls for no extended discussion. There

is authority to the effect that a lease, being a

conveyance of land, is valid without a

consideration. 1 Tiffany, Landlord and

Tenant, 164, § 16. We need not explore that

question, however, as we think that both

instruments are supported by valuable

considerations. Professor Williston says:

"An ordinary lease is a partly bilateral

contract. The main part of the consideration

furnished by the lessor is furnished by him

when the lease is made. At this time he

conveys to the lessee an estate for years. The

lessor, however, ordinarily makes some

executory covenants besides. On the part of

the lessee the consideration is normally

wholly executory, consisting of covenants to

pay rent and render such other performance

as the lease requires of him." 3 Williston on

Contracts (Rev. Ed.) 2519, § 890; see 35 C.J.

"Landlord and Tenant" 1145, § 397;

Restatement of the Law of Contracts § 290.

9. The contract for the purchase of the

equipment, having been executed at the same

time as the original lease and relating to the

same subject matter, and the later lease being

a substitute for the earlier one, the only

change being in the agreement for rent, the

two instruments may properly be considered

as parts of a single contract. Viewed in that

light, the agreement of the lessor to install

and sell the equipment is an executory

contract on his part. To that extent the

contract is bilateral, and the mutual promisesof the parties to the agreements are the

consideration which supports it. Livesley v.

Johnston, 45 Or. 30, 41, 76 P. 13, 76 P. 946,

65 L.R.A. 783, 106 Am. St. Rep. 647; 12 Am.

Jur., "Contracts", 570, § 79; Restatement of

the Law of Contracts 80, § 75. And the

plaintiff's agreement to pay a percentage of

the gross proceeds of the theater business

[164 Or. 153]

to the lessor as rent and its other

undertakings expressed in the lease constitute

a valuable consideration for the lessor's

conveyance creating the tenancy. Sherman,

Clay & Co. v. Buffum & Pendleton, 91 Or. 352,

179 P. 241; Roussel v. Dalche, 158 La. 742,

104 So. 637; Van Avery v. Platte Valley Land

& Investment Co., 133 Neb. 314, 275 N.W.


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288; Thompson on Real Property 406, §

1050.

We come now to consider whether the

remedy of specific performance is available to

the plaintiff. The argument under this head

on behalf of the defendants is somewhat

confused, but we gather that the objections, in

addition to those already disposed of, are

these: First, that no tender was made by the

plaintiff of the cash payment on the purchase

price of the fixtures; second, that the contract

lacks mutuality; and, third, that it would be

inequitable to enforce it.

10. First, as to tender. In our opinion the

evidence preponderates in favor of the claim

that on August 20, 1937, the day the theateropened, Keller tendered to Combs, Sr., his

personal check for $2,000 in favor of Temple

Enterprises, Inc., and that he then had

sufficient funds in the bank to pay the check.

Indeed, defendants' brief admits that the

check was "exhibited" to Combs, Sr., though it

disputes the legal effect of what was done.

Before that, Combs, Sr., had informed Keller,

in substance and effect, that he would not

give the corporation possession under the

lease unless Keller had $2,000 to pay on the

equipment and a new lease was made; hereiterated the requirement for a new lease at

the time tender was made; and, at the trial, in

answer to a question of counsel for the

plaintiff, he said that he would take the

$2,000 if a new lease were entered into.

These facts make it unnecessary for us to

consider

[164 Or. 154]

the objections that have been urged as to the

form or amount of the tender. Combs, Sr.,

made it plain to the plaintiff before the

tender, at the time of the tender, and on the

trial, that he had repudiated his contract.

Under those circumstances any tender would

have been a vain and useless act, and none

was required, nor was it incumbent on

plaintiff to pay any money into court at the

time of filing the bill. Tortora v. Wyatt, 125

Or. 240, 266 P. 251; McCarty v. Helbling, 73

Or. 356, 374, 144 P. 499; 58 C.J. "Specific

Performance" 1084, § 346, 1149, § 463.

11. The defendants, in their brief, attack

the lease, by which term we mean, as well, the

agreement for the sale of the equipment, as

lacking mutuality both of obligation and of

remedy. The question of mutuality of

obligation is disposed of by our conclusion

that the contract is supported by a valuable

consideration and is the written memorial of

the agreement actually made by the parties.

The rule that the contract must be mutual in

the sense that it must be such that it might, at

the time it was entered into, have been

enforced by either party against the other, forpractical purposes no longer exists. It was

repudiated by this court in City of Dallas v.

Gates, 133 Or. 300, 308, 289 P. 497. See,

among many authorities, 5 Pomeroy, Equity

Jurisprudence (2d Ed.) 2191, § 769;

McClintock on Equity 112; Restatement of the

Law of Contracts, §§ 372 (Subd. 1), 373; 5

Williston on Contracts (Rev. Ed.) 4022, §

1440; Zelleken v. Lynch, 80 Kan. 746, 104 P.

563, 46 L.R.A. (N.S.) 659; Epstein v. Gluckin,

233 N.Y. 490, 135 N.E. 861. In the case last

cited Judge Cardozo said:

"What equity exacts to-day as a condition

of relief is the assurance that the decree, if

rendered, will operate without injustice or

oppression either to plaintiff or

[164 Or. 155]

to defendant (citing authorities). Mutuality of

remedy is important in so far only as its

presence is essential to the attainment of that

end. The formula had its origin in an attempt

to fit the equitable remedy to the needs of

equal justice. We may not suffer it to petrify

at the cost of its animating principle."

The Restatement, supra, § 373, says

"Specific enforcement may properly be

refused if a substantial part of the agreed


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exchange for the performance to be

compelled is as yet unperformed and its

concurrent or future performance is not well

secured to the satisfaction of the court"; and

Professor Williston comments, with reference

to this rule, that it "is flexible enough to allow

wide discretion in granting or refusing

specific performance" and "where the

contract is executory on both sides, the court

may still give specific performance if it is

satisfied that the person seeking relief will

continue to perform. This may be shown by

past conduct; or the person seeking specific

performance may have such a strong

economic interest in the carrying out of the

contract by reason of extensive investment of

his funds and labor that default on his part is

highly improbable." Williston, ibid. On thelatter ground the court granted specific

performance of an oral agreement to make a

lease of mineral land for mining purposes in

Zelleken v. Lynch, supra, saying: "But the

court has no occasion to anticipate culpable

conduct on the plaintiffs' part and speculate

upon how the defendants might protect

themselves should they some time need

protection. It may be assumed that the

plaintiffs will obey the law and keep their

promise."

12, 13. A fundamental rule of this branch

of equity jurisprudence is that whenever a

contract concerning real property is, in its

nature and incidence entirely unobjectionable

[164 Or. 156]

— that is, when it possesses none of those

features which appeal to the discretion of the

court — it is as much a matter of course for a

court of equity to decree a specific

performance of it as it is for a court of law to

give damages for the breach of it. Slattery v.

Gross, 96 Or. 554, 559, 187 P. 300, 190 P.

577; Restatement of the Law of Contracts, §

360; 5 Pomeroy, Equity Jurisprudence, 4869,

§ 2167. A lease, being a conveyance of an

interest in land, there would seem to be no

good reason for withholding application of

this rule to a contract of that character.

Specific performance of a lease was approved

by this court in Wallace v. Scoggins, 17 Or.

476, 21 P. 558, and in the following cases

from other jurisdictions: F.B. Norman Co. v.

E.I. Du Pont De Nemours & Co., 12 Del. Ch.

155, 108 Atl. 743; Duckworth v. Michel, 172

Wash. 234, 19 P. (2d) 914; Mattingly v.

Brents, 155 Ky. 570, 159 S.W. 1157; Shea v.

Keeney, 155 A.D. 628, 140 N.Y.S. 912; Brune

v. Vom Lehn, 183 N.Y.S. 360, 112 Misc. Rep.

342. There is an opposing dictum in

Genardini v. Kline, 19 Ariz. 558, 173 P. 882,

influenced, we think, by the statute of that

state, which, under the particular facts of the

case, afforded the plaintiff an adequate

remedy at law.

In applying the criteria of the modern

authorities to the present case it is necessary,

for the moment, to look behind the corporate

entity to the individuals who compose it and

whose rights will be affected by the court's

decision. Farrell, the attorney, has only a

nominal interest. Combs, Jr., is taking his

father's part in resisting this suit. Keller alone

is demanding relief. Keller, at all times since

the completion of the theater, has stood ready

to pay the sum of $2,000, to which he was

obligated, on the purchase price of theequipment. The only reason why the full

$6,000 has not been available

[164 Or. 157]

to the corporation for this purpose is because

Combs, Jr., has not contributed the

remaining sum of $4,000 as he agreed. The

alignment of Combs, Jr., alongside his father

is his father's doing. Combs, Sr., has

obviously controlled his son's course of

conduct. He agreed, as he testified, to

advance to his son the sum of $4,000 for

payment on the purchase price of the

equipment, and he has not kept his

agreement. Keller, the only individual

interested on the plaintiff's side of the case, is

prepared to invest $2,000 in the enterprise, a


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not inconsiderable sum for him, and to go

through with it.

We are not unmindful of the difficulties

that stand in the way of performance by this

"house divided against itself"; but they are

difficulties, not of Keller's making, but created

by the defendants, and, as we think, without

legal justification. Equity would be a

misnomer if a court assuming to exercise

equitable powers should allow wrongful

conduct to be used as a weapon of defense

against one invoking its aid. And we are of the

opinion that, considering the strong

inducement which Keller has to make a

success of this venture; the security which will

be required to be given by the decree; and the

comparatively slight risk of loss to Combs, Sr.,on account of the recurring monthly

obligations of the lessee; the court should not

concern itself overmuch with the possible

remedies of the lessor should the plaintiff fail

to perform.

14. We think, also, that the jurisdiction of

equity is properly invoked because the

plaintiff's damages would be difficult of

ascertainment, and that remedy would not,

therefore, be as complete and adequate to

accomplish the ends of justice as the remedyof specific performance (Restatement of the

Law of Contracts,

[164 Or. 158]

§ 361); and "then, too, the lessee has a right to

the land and is not compelled to accept

damages." F.B. Norman Co. v. E.I. Du Pont

De Nemours & Co., supra.

15. Coming now to the defendants' claim

that it would be inequitable to grant specific

performance in this case and that the court

should exercise its discretion to refuse the

remedy, it must be remembered that the

discretion of a court of equity in cases of this

character is judicial in its nature and the relief

is not "of grace"; that, within the domain of

equity, judicial remedies are not in any true

sense discretionary but are governed by the

established principles and rules which

constitute the body of equity jurisprudence.

Wetherby v. Griswold, 75 Or. 468, 474, 147 P.

388; Hawkins v. Doe, 60 Or. 437, 446, 119 P.

754, Ann. Cas. 1914A, 765; Pomeroy's Specific

Performance of Contracts 114, 116, §§ 36, 37.

We do not find in this record any of those

elements which should deter the granting of

the relief sought.

The contract and lease are definite and

certain in their terms. Any doubt that

otherwise might have existed as to the

purchase price of the equipment is removed

by the allegation in the complaint and the

admission in the answer that it was to be sold

at cost.

16. The evidence does not disclose that

the reserved rental is inadequate, certainly

not so inadequate as to suggest fraud. The

testimony of Farrell, who has had a large

experience in the motion picture business and

was a fair witness, is to the effect that leases

of motion picture theaters are customarily

made on the basis of a rental measured by a

percentage of the gross receipts. There is no

evidence that the percentage which the

parties agreed upon is unreasonably low,except the unsupported opinion of Combs, Sr.

[164 Or. 159]

17. We are unable to say that enforcement

would be either harsh or oppressive. It is the

same contract which Combs, Sr., a man fully

able to take care of himself, entered into

freely when the parties were dealing at arm's

length. There is no evidence of undue

influence, fraud, deception or overreaching of

any character. After a contract has been made

there may come such an alteration in the

circumstances as to impel a court of equity to

withhold its aid. The only changes that this

record discloses are that the theater cost more

to build than was anticipated, and that

Combs, Jr., whom his father desired to

establish in the motion picture business as a


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member of the plaintiff corporation, is now

hostile to the plaintiff. The former

circumstance was a contingency which could

have been foreseen and was in the

contemplation of the parties; the latter was

brought about by the act of Combs, Sr., and

neither can be urged as a ground for refusing

specific performance. Pomeroy's Specific

Performance of Contracts 453, § 178; 58 C.J.

"Specific Performance" 894, § 48. Nor is there

any merit in the complaint that the plaintiff

is, as the defendants' brief puts it, "nothing

more than a dummy". The plaintiff is the legal

entity to which Combs, Sr., leased the theater.

It follows that the plaintiff is entitled to a

decree of specific performance of the lease

and contract for the purchase of theequipment, and the case will be remanded to

the circuit court for further proceedings and

the entering of such a decree. The circuit

court will determine the cost of the

equipment covered by the contract. The

plaintiff must execute and deliver to the

defendant, Combs, Sr., a note for the balance

owing on the purchase price of the equipment

in accordance with the terms which the

parties have already agreed upon.

[164 Or. 160]

Legal title to the equipment will remain in the

lessor to secure the payment of such note and

the performance by the plaintiff, on its part,

of all the terms and conditions of the lease. At

the time that possession of the theater is

given to the plaintiff, the latter must pay to

Combs, Sr., the sum of $2,000, and must

have taken out a public liability policy of

insurance in the sum of $40,000, as provided

in the lease. When the sum of $2,000 has

been paid, as herein required, the plaintiff

may take credit for the payment of $6,000 on

the purchase price of the equipment, in

conformity to the agreement of Combs, Sr., to

furnish his son with the sum of $4,000 to be

used by the corporation in making the initial

payment of $6,000 on the equipment. The

complaint asks for an accounting of the rents

and profits of the theater from the time that it

was opened, but, we understand, from the

plaintiff's brief, that this claim has been

waived. We know of no relief within the

power and jurisdiction of a court of equity to

grant as against the defendant, Combs, Jr.,

under the issues as framed, and the suit will,

therefore, be dismissed as to him, without

prejudice to any remedy to which the plaintiff

may be entitled in another forum. The

plaintiff will recover its costs and

disbursements against the other defendants.

The decree of the circuit court is

reversed, and the cause remanded for further

proceedings not inconsistent with this

opinion.

RAND, C.J., and ROSSMAN, KELLY,

BELT and BAILEY, JJ., concur.

BEAN, J., not sitting.

temple enterprises v. combs, 164 or. 133, 100 p.2d 613, 128 a.l.r. 856 (or., 1940)

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