Hamilton Trust Co. v. Clemes

Landon, J.: The findings of the trial judge, in effect, negative the charge of fraud in the issue of the mortgage and the bonds. The evidence does not support the charge of fraud, but justifies the finding that, •as between mortgagor and mortgagee and the bondholders, the mortgage and bonds were honestly issued as security for the payment of honest obligations. It seems to be elementary justice that a contractor who has added his own property, money and labor, of more than $150,000 in amount, to the real estate of another under a contract with him that he should be secured by a mortgage upon such-real estate, ought to have the mortgage, and that it should be a good one. Whatever irregularities, if any, attended the authorization, execution and the issue of the mortgage and bonds, the solution of this appeal, which is, in effect, between the bondholders and junior judgment creditors, must depend upon the answer to the question whether, as against the mortgagor, the mortgage and bonds are valid securities, for, if they are valid between the parties to them, in the absence of .fraud, they are valid against subsequent lienors. The liens of the judgment creditors are subsequent in time, and not superior in equity, and in such case equity follows the law, and the prior in time is prior in right. ' A creditor holds under and through his debtor, and, in the absence of fraud, is concluded by all the valid acts and assurances -of the latter. (Candee v. Lord, 2 N. Y. 275; Carpenter v. Osborn, 102 id. 552.) The defenses urged by the appellants rest upon alleged non [156] observance of some of tlie statutory conditions, precedent--to the valid execution of a corporate mortgage.'' It. is obvious that these requirements were not prescribed in order to enable a corporation to acquire, money and- property upon the faith of its mortgage, and then repudiate the mortgage, but to protect the corporation, its stockholders, and, in proper cases, its creditors, against the. improvident and wrongful acts of the officers' of the corporation. (Market & Fulton National Bank v. Jones, 7 Misc. Rep. 207, 210; affd., 90 Hun, 605; Paulding v. Chrome Steel Co., 94 N. Y.334; Rochester Savings Bank v. Averell, 96 id. 467; Lord v. Yonkers Fuel Gas Co., 99 id. 547; Welch v. I. & T. N. Bank, 122 id. 177, 187; Greenpoint S. Co. v. Whitin, 69 id. 328; Beebe v. Richmond Light & P. Co., 3 App. Div. 334.) If, however, the -instrument alleged, to be a mortgage is, from any defect, not the act of the Horicon Improvement Company, then the plaintiff has no case. The answer of the appellants admits the due incorporation .of the Horicon Improvement Company, and thus its capacity to make a mortgage within the statutory limitations, and by . observing the statutory .and legal requisites. - .. One of. these requisites is, that the written-consent of the -stock-. holders owning two-thirds of. its capital stock shall first be given and filed; and the appellants allege that this was not done, because the stockholders who gave such ■ consent were not stockholders- of record upon such a stock'book , as section 29 of the Stock Corporation Law requires a corporation to kéep.. The corporation had -no such book. It simply had the original certificate of incorporation, or a copy of it, showing the original subscription to the stock, the minutes of its directors showing to- whom stock-had been directed to be issiied, and a certificate book with stubs showing the then existing stockholders. Section 29 provides that: “ Ho transfer of stock shall be valid as against the corporation, its' stockholders mid creditors for any purpose- except to render the transferee liable for the debts of the corporation, according-to the-provisions of this chapter, until it shall have been entered in such book.” The words “ and creditors ” were .inserted in the revision in 1890.' Without attempting. to anticipate the full--scope :of .these added words, it ■ seems clear that they do meaii that when the creditor is [157] pursuing his remedies either against stockholder, director or corporation, he has the right to rely upon tlie evidence which this stock book affords as to the ownership of the stock, and perhaps if by other evidence he can establish such ownership, no transfer will prejudice him, unless it is entered therein. But they do not mean that the original subscriber must have his holding entered in this boob, for there must be an owner before there can be a transfer. (See Davidson v. Westchester Gas-Light Co., 99 N. Y. 558.) Giving to the words their literal force, and granting that Walter H. Peck, as the original subscriber to 1,400 shares of stock, and at the time of giving the consent the owner of 1,000 shares, held just two-thirds of the capital stock which he had never transferred, his consent alone satisfied the requirements of the statute, even if the Otis Company was incapable of giving consent. ( Welch v. Importers & Traders' Nat. Bank, supra.) A more satisfactory answer to the objection is that the corporation is estopped from raising the objection against its mortgagee so long as it holds the benefit of the property it acquired under the mortgage, and these judgment creditors, in the absence of fraud, stand subsequent to the mortgage. If the corporation wishes to' repudiate the mortgage, it should restore the benefits it has received under it. (Duncomb v. N Y., Housatonic & N. R. R. Co., 84 N. Y. 190.) It is urged that the four persons who Were added as directors at the meeting held the 16th of February, 1895, were not stockholders, and, therefore, were ineligible as directors. These persons, when made directors, were not actual holders of stock, although the understanding which was soon after carried out, was that they should become stockholders'. They were, however, directors defacto if not dejure. They were not usurpers, but were chosen by the original incorporators, whose subscriptions to the stock were assets of the corporation, and who, in consequence, rightfully were feting as stockholders. (Wheeler v. Millar, 90 N. Y. 353.) The stockholders subsequently ratified the issue of the bonds secured by the mortgage, and thus ratified the acts of the directors in issuing it. (Welch v. Importers & Traders' Nat. Bank, 122 N. Y. 177.) Directors de facto, recognized by the corporation and stockholders, may issue a valid mortgage. (Hackensack Water Co. v. De Kay, 36 N. J. Eq. 548.) [158] As to the amount of' the mortgage, the evidence shows- that $150,000 did not more than equal two-thirds of the value of..the corporate property,. $225,000, at the time the . bonds were issued. The Otis Company had expended, or caused to be expended, about $200,000 upon the property, and the evidence: will justify the finding that the property at the time the bonds were issued,' apart from the improvement, was worth more than $25,000. Subsequent expe-" ' rience mayor may not justify the expectations of the' promoters of this enterprise. The mortgagor and mortgagee undoubtedly, at the time^ .believed the property to Ipe worth all that. it had cost and moré, and neither is in á condition to reproach the other with an overestimate of value, since both justified '.their judgment by embarking their capital upon it. ■ Our conclusion is that the evidence does not impeach the validity Of- the- -mortgage, against- -the bondholders, and, therefore, the plaintiff was entitled to judgment. There are no other objections that require mention. ' The judgment should be .affirmed, with costs. , All concurred. Judgment' affirmed,, with costs.