148
:rEDERAL REPORTER,
voL 45.
ALLIS
'I).
JONES et al. 'I).
SKEEN et al.
ALLIS.
(Oircuit Court, D. Nebraska. lS91.)
1.
CORPORATION-MoRTGAGE-ULTRA VIRES.
Where the indebtedness that a corporation is authorized by its oharter to oontract is limited, the objection that a mortgage for a sum in excess of this amount is ultra vires cannot be successfully urged by an unsecured creditor, who became such after the mortgage was executed, and whose claim is open to the same objection.
2. SAME-OMISSION OF SEAL.
Where a mortgage is given by a corporation to secure a bonafide debt" and in a proceedil!g by an unsecured creditor to set it aside its execution is admitted, and its validity asserted by the company and all the stockholders and officers thereof, the mere omissicn to attach the corporate seal will not have the effect to invalidate it. ..
8.
SAME-CORPORATE AUTHORITY-PAROL EVIDENOE.
Upon an issue as to whether the execution of a mortgage by the president and $ecretaryof a corporation was authorized by its board of directors, in whom the Control and management of its aibirs was vested, parol evidence is admissible to prove the action of the board, when the record of the meeting fails to state it. A mortgage given for a bona fide debt by a creditor in failing circumstances; but containin,e; no trust, secret or expressed, in favor of anyone elSe,though in effect a,preference, is not invalid under the Nebraska assignment laws. '
INSOLVENCY--PREFERENOE.
In Equity. Harwood. Amell &: KeUy, for complainant and cross-complainant Skeen. A. J. Poppleton, for cross-complainant Red Cloud National Bank. G. M.; Lambertson and Case &: McNeny, for cross-complainants First National Bank of Denver and Red Cloud National Bank. CALDWELL, J. The plaintiff, alleging that he is a general creditor of the defendant corporations the Red Cloud Milling Company and the Alma Milling ,Company in the stim of $11,950, files this bill to annul certain mortgages executed by these milling companies to the Red Cloud National Bank and the First National Bank of Denver, and prays that the affairs of the milling companies may be wound up, and their assets distributed. The plaintiff holds as collateral seCurity for his debt certain shares of the capital stock of the milling companies belonging to the defendant Jones, and by him pledged as security for the plaintiff's debt against the companies. The defendant Skeen filed a cross-bill, making the same allegations and praying for the same relief as the plaintiff; but confessedly, on the pleadings and proofs, his debt is the individual indebtedness of the defendant Jones, and not the debt of the milling companies, and his cross-bill must for that reason be dismissed. The fact that he holds stock of the milling companies belonging to and pledged by his debtor, Jones, as collateral security for his debt gives him no standing in court on the proofs in this case, for, in any event, it is conceded the companies are hopelessly insolvent, and the stock worthless. The simple pledge of the stock by its owner, Jones, did not affect his right to vote and act in good
V. JONES.
149,
faith as a stockholder of the milling companies. 1 Mor. Priv. Corp. §483. The milling companies have filed their answers, admitting the execution of the mortgages, and alleging that they were executed for a bona fid8 indebtedness due from 'the companies, respectively, to the banks, and, averring that th'l debts of the plaintiff and the defendant Skeen were the individual debts of the defendant Jones, and not the debts of the milling banks filed their answer, denying the allegations of the companies. bill, and also filEd cross-bills, praying for a foreclosure of their mortgages. Numerous other creditors of the milling companies have intervened and answered, but there is no contest at present over their claims. All parties concede the priority of the mechanics' liens, and the only issues now to be determine(l are those arising on the plaintiff's original bill and cross-bill of who makes common cause with the plaintiff, and on the cross-bills of the banks, seeking a foreclosure of their mortgages. The, mortgages to thll banks are alleged to be void for the following reasons: "(1) Because, by the articles of incorporation of both ofsaid milling (lOm-: panies, the manlgement and control of the affairs of said corporations i/J' vested in a board of five directors, who alone have the power to authorizetbe, execution of said instruments by the president and secretary, and who in each and all of these ilstances failed to act. " ' "(2) Because none of said instruments were attested by the seal of said corporation, or any seal; nor does it appear that any form or description of seal was ever ad('pted by either of said corporations. "(3) Because Baid act is in excess of the corporate powers, and ultra vires. ' "(4) Because the gi ving of said mortgages and bills of sale on all of, the property of the defendant corporations, and the yielding of immediate dominion over the sam 3, is, in contemplation of law, an assignmeJit, and void under the ,general assignment laws of the state of Nebraska. .. (5) With ref pact to the notes, bills of sale, and mortgages to the First National Bank )f Denver, same are void because grossly in excess of the, ,amount due said defendant." Assuming th 1t the plaintiff is a general creditor of the milling companies, and thd, as a general creditor, he can maintain a bill of this kind, we will pl'oceed to inquire into the validity of the objections to the , mortgages to the b a n k s . ' '1. The prooJ shows that the first objection is not well founded in fact. A majority of 1he board of directors and all the stockholders directed " the execution of the, mortgages. If the authority to execute them before' they were given was notin all respects regular, their execution was erwards ratified. What may be authorized in advance may be ratified afterwards. Mor. Priv. Corp. §§ 228-231,623-625.' Parol evidence is admissible to gove-the action of the board of directors or stockholders' where the record fails to state it. U. S. v. Dandridge, 12 Wheat. 72. The opinion is by Mr. Justice STORY. Mining eo. v. Anglo-Califor-" -nian Bank, 101 U. S. 192; Eureka Co. v.Bailey 00., 11 Wall. 488; Whart. ,Ev. § 663; Davidson v. Bridgeport, 8 Conn.472; Ratcliff v. Teters 27. Ohio St. 6 Taymouth v.Koehler, 35 Mich. 22; Bank v. Kortrigh(, ; 22 Wend. 348. ' . is not' 2. The omls,ionw'attacb the corporate seal to the ia,talto their vdidityin equity. ,The companiesa<iwit
150:
FEDERAL R:tPORTBR:,
vol. 45.
and assert their validity. The owners of all the stock of the companies assert their validity. They were given for debts actually due from the' companies to the banks. The officers and stockholders of the milling companies had no pel:'sonal interest in the debts secured by the mortgages. No part of the money belonged to them, Dor were any of them sureties for its payment. On this state of facts, it' is not necessary to inquire whether these mortgages are legal and sufficient securities at law against the general creditors of the companies. They are undoubtedly good in equity. Love v. Mining 00., 32 Cal. 639 j Chase v. Peele, 21 N.Y. 581; Jackson v. Parkhurst, 4 Wend. 369; In re Howe, 1 Paige, 125; Payne v. Wilson. 74. N. Y. 348; Pom. Eq. Jur. §§ 383,1237; Lake v. Dowd, 10 Ohio,415; Daggett v. Rankin, 31 Cal. 321; Abbott v. God-. froy'sHeirs, 1 Mieh. 179; Peckham v. Haddock, 36 Ill. 39; Racouillat v. &n8evain,32 Cal. 376; Jones, Mortg. §§ 166, 168; Millerv. Railroad Co., 36 Vt.452; Gale v. Morris, 29 N. J. Eq. 222; Amer. Lead. Cas. 605; 1 Leadi'Cas. Ed.) 666, and cases there cited; Mor. Priv. Corp.§ 338. In Koehler v. Iron Co., 2 Black, 716, the court declined to treat a mortgage of a corporation not under seal as good in equity, because it was declared on as a legal, and not an equitable, mortgage. To 1lQat objection thl;l .ba.nks are granted leave to amend their crossbills by adding a special prayer, to the effect that, if the court should. hold them ineffectual as legal mortgages, that they maybe held and treated as equitable mortgages. ,The court may do this.' Hardin v. Boyd, 113 U. S.756,'5'Sup. Ct. 3. The mortgages were given to secure an indebtedness in excess of the amount of debts the companies, by their charters, were authorized to contract,!and it is said this renders the evidences of the indebtedness, dnd the mortgages given 'to secure -it, ultra vires and void. But on the facts of this case this position cannot be maintained. The money was received by the companies, and used in conducting and carrying on their legitimate corporate business, with the knowledgt> and consent of all the officer.ll and stockholders;i .. On these tactsthe banks are entitled to be re. paid their money, and the companies could execute a valid security for its paynlent.Mor;Priv; Corp; §§714-716;Jones, Mortg. § 127; Bank v. MattJiews,.98 U. S. 621; Jones v. IIabersham, 107 U. S. 188, 2 Sup. Ct. Rep. 336; .Railway Co.v. MeCarthy, 96 U. S.267. Skeen cannot be heard to urge this objection, because he is not a creditor of the milling companies, and Allis becalllesuch,if at all, after the debts to the banks had been created, and it would seem, therefore, that he is in no plight to raise thequestiou.The writteh promise of the milling companies, executed by their secretary a.ndtreasurer,to pay the plaintiff's debt, under all thecil'culllstahces,oHhis case, made it the debt of thl:l companies. But an. applicatipn tothe'.plaintiff's case of the. strict rules which he' seeks to.haveapplied ,totbebank's Claims and would un.' dou'ptedly undermine his ,own case, and Jeave him without anyclaim-' against the companies. ' of the mortgages by the companies to the banks did notconstituteatlJissignment for thebeneti,tof creditors under the laws
151 of Nebraska. mOJltgages wete given for bona fide debts due from the mortgagor to the mortgagees. There was no trust, secret or expressed, in favor of anyone else. This is a question of local law, ana the latest utterances of the supreme cOurt of Nebraska show 'very Clearly that the execution of these mortgages was not prohibited by, or Il. fraud on, \he assignment laws of that state, but were lawful and valid transactions. Britton v. Boyer, 27 Neb. 522, 43 N. W. Rep. 356jDavis v. Scott, 27 Neb. 642,43 N. W. Rep. 407. In the last case cited the court say: " Thatthis mortgage given to secure bona fide debts seems to be fully tablished, and in this state,under the holdings of this court, a creditor in lng circumstances may prefer his creditors. Justice would be subserved by requiring .an equitable distribution of the property between all creditors in such C;iSPS, and a change in the law on that subject is worthy of the consideration of the ll''gislature. But the common law in regarct to ,preferences is in full force in this state, and, as that law recognizes the right of a failing debtor to prefer his creditors, etrorcannot be assigned 'because of such erenee. The mortgagee, therefore, being a b01Ul fide Qredit<.Jr" and prior lien to that of the attaching creditors. was entitlesl; to the POS8i:1ll\ion of the property until a Bufficie\lt alD9unt had been s91c.l to'satisfy'tiis,c1a.iWs."
was
A private corporation, in a fa,ilingcondition,haa sallIe ,gpni.PJ.oP,lawrigbtthat a natural person bas to of payment, or b,y giving', security on its pl'Qperty\' one or theexolusionof others. ,-Moll; Priv. Corp. §, §335. -"The,' plaintiff will be allowed to proveip JW: the amount of his debt,tlll anJlns!;l<iured c1j\iQa,to be paiq. other unsecured debts, out of the if any, tllat'r\:lmains /lftersllk on isfying the. mechanics' liepi'J,mQr!gages, and 9tper debts that are the propfilrly;, and nsto all further relief the bill is ' i ; . The comp1ajnants in the cross-bU1s (the entitled to a foreclosing their respective,;lllortgages,as prayed. " .' , Let, be made to the master to ascertain ,and report :\)'jthout delay the order of priority and amount of theseveraJ, .liens on the prop-
MCCLASKEY
et' al.v.
BARR
etal.
8. D. Ohio, W. D; FebruarY 21,1891.) 1. ,, WJirNB\lS--MJ:JfORANDA TO REFRESH MElIIORy-SERVJOIll. OJ' PllOOE811.
Meinorailda made by an otnear, showing he served process, may be referre4 . to in order to refresh his memory in testifying as to the facts. . · A of process "Jacob Kraig" as served eient;'the names not being'idemsonana. " '.,
'".
SERVJOE OJ' PBoCBss-fl,ETURN!"'""mllllll SONANS.
on "Jacob Krug" iSlnium. ' , .
.'
., -
, ·
'In EqUity;' For fonneneportB, see 38 Fed. Rep. 165, 40,Fed. Rep. -559, and;42;Fed. Rep. '60th" , : ': ., ' ; ; : : . " " H' .· G1wan:&; ,Ferris, H. -'1. Fay,- and Oe"8On, Shieli!4.:,&; Carson, for -. complainants. .: i;