Lloydona Peters Enterprises, Inc. v. Dorius
658 P.2d 1209 (1983)
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Rule of Law:
A corporate president lacks the inherent authority to initiate litigation on behalf of the corporation without authorization from the board of directors. An exception to this rule exists only when litigation is essential to preserve corporate assets from immediate and irreparable loss.
Facts:
- Lloydona Peters Enterprises, Inc. (LPE) is a corporation equally owned by four sisters, including Jean P. Hull (president) and DeLoris P. Dorius (a defendant), who all serve as directors.
- In 1971, LPE and the Doriuses agreed to jointly purchase an office building, with each party contributing approximately half of the purchase price, and LPE was to receive a one-half interest in the property upon final payment.
- In 1978, the parties discussed the possibility of the Doriuses purchasing LPE's interest in the property, and LPE's board resolved to obtain appraisals.
- Following the appraisals, the Doriuses tendered a check for $14,000 to LPE's treasurer, Gay P. Driggs, allegedly representing the value of LPE's interest.
- At a January 1979 board meeting, the four directors were deadlocked 2-2 on whether to accept the $14,000 offer and sell LPE's interest.
- Despite the deadlock and the express objections of two directors (Hull and McKell), the treasurer, Driggs, deposited the $14,000 check into LPE's bank account.
- The Doriuses subsequently ceased making rental payments to LPE for its share of the property.
- Approximately two and a half years later, Hull, without board authorization, withdrew the funds, hired counsel, and filed a lawsuit on behalf of LPE to secure its interest in the property.
Procedural Posture:
- Jean P. Hull, as President of Lloydona Peters Enterprises, Inc. (LPE), filed a complaint against DeLoris and Dale Dorius in the district court (trial court) on behalf of the corporation.
- The defendants filed a motion to dismiss, asserting that Hull lacked the authority to initiate litigation on behalf of LPE.
- The trial court granted the defendants' motion to dismiss the action.
- LPE, the plaintiff, appealed the trial court's dismissal to the Utah Supreme Court.
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Issue:
Does a corporate president have the inherent authority to initiate litigation on behalf of the corporation without board approval when the board is deadlocked, and the litigation seeks to preserve a corporate asset that is not in immediate danger of being irreparably lost?
Opinions:
Majority - Hall, Chief Justice
No. A corporate president does not have the inherent power to institute litigation on behalf of the corporation without authorization from its board of directors unless the action is necessary to prevent irreparable loss. The general rule is that corporate authority is vested in the board of directors acting as a body, not in individual officers. While an exception exists for a president to act unilaterally to preserve corporate assets from dissipation, as established in Kamas Securities Co. v. Taylor, that exception is justified by the threat of 'irreparable loss.' Here, LPE faces no such threat; it received $14,000 in cash, an amount based on an appraisal all directors acknowledged as valid. Because the corporation has already received funds apparently equal to the value of its property interest, the facts do not justify a departure from the general rule prohibiting unauthorized acts by a corporate president.
Dissenting - Durham, Justice
Yes. A corporate president should have the authority to initiate litigation to preserve significant corporate assets when the board is deadlocked. The majority mischaracterizes the situation by claiming there is no danger of losing a significant asset. The complaint alleges that LPE is being deprived of both legal title to its undivided one-half interest in real property, which may be appreciating, and its share of ongoing rental income. These constitute 'significant assets' under the Kamas Securities exception. Accepting an appraisal as 'valid' is not equivalent to agreeing to a sale at that price, and the unauthorized deposit of funds cannot force a sale upon the corporation. This lawsuit is necessary to preserve LPE's assets, and the president was justified in filing it.
Analysis:
This decision narrowly construes the emergency powers of a corporate president, clarifying that the 'preserve the assets' exception requires a threat of 'irreparable loss,' not merely a dispute over the form of an asset (real estate vs. cash). It reinforces the principle of board centrality in corporate governance, even at the risk of corporate paralysis in the event of a deadlock. For closely-held corporations, this case highlights the potential for a deadlocked board to prevent the corporation from seeking legal redress, effectively leaving minority-bloc directors without a corporate remedy for perceived wrongs by another faction.
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