Larkin v. Hagan

ROSS, J. Appellant makes eleven assignments of error which may be condensed into three for the purpose of this decision, as follows: (1) The court erred in not sustaining appellant’s plea of res adjudicata. (2) The court erred in rendering judgment for appellees for the reason that the appellees had full knowledge of the execution of the trust deed, the necessity, purpose, and consideration therefor, and, as stockholders, had received their proportionate benefit therefrom, and were estopped from questioning the execution of or objecting to said deed of trust. (3) The court erred in rendering judgment for appellees for the reason that the trust deed was good and sufficient'in form and substance. It is the contention of appellees that in the foreclosure suit by Larkin against the copper company they intervened simply as stockholders, and that their motion to set aside and vacate the judgment in that case and their answer filed therein — 70 — were made and filed for themselves and others in like situation solely as stockholders. Without any doubt the corporation having secured the money from Larkin and having used it for paying for its property,—the mines,—with the knowledge and acquiescence of Hagan and James, the latter as stockholders should not be permitted to question the validity of the trust deed given as security on any account. The law is well stated in Jones v. Guaranty & Indemnity Co., 101 U. S. 622, reading page 628, 25 L. Ed. 1030, as follows: “A corporation can only act by its agents. If there were any such technical defect as is claimed touching the execution of this mortgage, it has been cured by acquiescence and ratification by the mortgagor. No one else can raise the question. All other parties are concluded. Gordon v. Preston, 1 Watts (Pa.), 385, 26 Am. Dec. 75. Where money has been obtained by a corporation upon its securities which were irregular and ultra vires, but the money was applied for the benefit of the company, with the knowledge and acquiescence of the shareholders, the company and the shareholders were estopped from denying the liability of the company to repay it. And the same result follows where such securities are issued with the knowledge of the shareholders, so far as the money thus raised is applied for the benefit of the company. In re Cork & Youghal Ry. Co., L. R. 4 Ch. App. 748. A court of equity abhors forfeitures, and will not lend its aid to enforce them. Marshall v. Vicksburg, 15 Wall. 146, 21 L. Ed. 121. Nor will it give its aid in the assertion of a mere legal right contrary to the clear equity and justice of the case. Lewis v. Lyons, 13 Ill. 117.” In the foreclosure suit of Larkin against the Cochise Consolidated Copper Company the judgment of the court is final and determinative of all the rights of the parties thereto and their privies, and, that judgment having foreclosed the lien of the trust deed as against the mines and made it prior and superior to all other liens, Hagan and James are certainly concluded thereby. “A judgment is conclusive against the parties and privies, unless impeached for fraud or want of jurisdiction. A stockholder of a corporation is so far a privy to a judgment against the corporation that he cannot attack the judgment in any collateral proceeding.” National Foundry & Pipe Works, Limited, v. Oconto Water Co. et al. (D. — 71 — C.), 68 Fed. 1006, 1007. Hagan and James, even though they had not been parties to the foreclosure suit against the company, under the facts of this case were estopped as stockholders from denying the validity of the trust deed. Jones v. Guaranty & Indemnity Company, supra. The appellant insists that Hagan and James did not appear only as stockholders in the foreclosure suit, but as creditors of the copper company. Hagan in both the motion to vacate the judgment and in the answer is described as one of the largest creditors of the company. It is also said in the answer of intervention that Larkin and other officers of the company had conspired to obtain title to mines, and thereby prevent “certain creditors of said company from realizing the amount due them.” Simultaneously with the filing of the motion to vacate and set aside the judgment by Hagan, James and others by the same attorneys, Hagan, Hagan Mercantile Company and James instituted their suits against the copper company and attached the mines. These facts, taken in connection with the further facts that the allegations in the answer of the interveners of a conspiracy in the execution of the trust deed and of illegal special meeting at which it was authorized were abandoned at the trial of the foreclosure suit, while the attachment suits instituted on the same day were prosecuted with all expedition, lend considerable weight to appellant’s contention that the intervention suit was simply an aid and ancillary to the attachment suits. No evidence of the alleged fraud or of the illegal special meeting of directors was offered by interveners. Indeed, they seemed to be satisfied with the vacation of the judgment; their further connection with that suit being more perfunctory than potential. The “certain creditors of said company” referred to in interveners’ answer, when taken in connection with the institution and conduct of the several suits, as certainly and definitely means Hagan, Hagan Mercantile Company and James as if they had all been named outright in the answer of intervention. The appellees Hagan, Hagan Mercantile Company and James, at the date of the trust deed to Larkin, March 23, 1907, were creditors of the copper company, and after that date extended more credit to the company with the knowledge that the money obtained by the company from Larkin had been used — 72 — in paying for the identical property involved in this suit. They knew as creditors, as well as stockholders, of the note and trust deed and of the uses to which the money gotten from Larkin was put. Nor do we think the Hagan Mercantile Company is in any better position to attack the trust deed than the stockholders and creditors, Hagan and James, for its president and treasurer, Hagan, had full information of the transaction, its necessity and purpose; and knowledge to him as president and treasurer was knowledge to the Hagan Mercantile Company. Granting that the acknowledgment of the trust deed was insufficient and the omission of the common seal was fatal to the validity of the instrument as to creditors and purchasers without notice, the situation of such parties is entirely different when they have notice. The appellees, as creditors, had notice of the loan made by Larkin to the. company, and, as we are indubitably convinced, of the security given. Therefore they are not in the position that entitles them to attack the trust deed on account of informalities or irregularities in its execution. Paragraph 749, section 29, Revised Statutes of Arizona of 1901 (Civil Code), as far as applicable to the facts in this case, reads as follows: “And •all deeds of trust and mortgages whatsoever, which shall hereafter be executed, shall be void as to all creditors and subsequent purchasers for valuable consideration without notice, unless they shall be acknowledged and filed with the recorder, to be recorded, as required by law, or where record is not required deposited with the recorder; but the same, as between the parties and their heirs, and as to all subsequent purchasers, with notice thereof, or without valuable consideration, shall nevertheless be valid and binding.” The trust deed in this case was by solemn judgment of the district court decreed to be valid and binding as between the parties to it, and, as the appellees herein had actual notice of the purpose, necessity, uses and existence of the trust deed, they may not attack it for irregularity or defects, nor collaterally attack the judgment, determining its validity. The points raised by the appellees that the acknowledgment is so defective as not to authorize the recordation of the trust deed and that the omission of the common seal was fatal to the validity of the trust deed, in the view we take, do not require consideration. However, it seems to us that, the ac — 73 — knowledgment substantially conforms to the requirements of paragraph 739, section 19, Revised Statutes of Arizona 1901 (Civil Code). When an acknowledgment is by a corporation, the insertion of the words “for the purpose and consideration therein expressed” is not necessary. This acknowledgment omits the word “free” before “act and deed,” and omits to insert that the instrument was “voluntarily” executed. These omissions will be considered as supplied by the recitals of the trust deed, which recitals, in turn, were shown by the evidence to be in conformity with a resolution of the board of directors. The territorial supreme court, in Copper Belle Min. Co. v. Costello, 11 Ariz. 334, 95 Pac. 94, held an acknowledgment of a corporation that omitted the words “free” and “voluntarily” as substantially conforming to the requirements of paragraph 739, supra. The recital of authority for the execution of the trust deed in the body thereof, as in this case, should carry as much, if not more, weight as a like recital made by the notary in his certificate, as in the Copper Belle case. The omission to affix the seal of the corporation was evidently a clerical error, as is shown by the recitals in the trust deed, and, as the adoption and use of a seal is for the protection of the corporation in its internal affairs, the failure to affix the seal to this instrument cannot be of avail to appellees. The acknowledgment of the trust deed being sufficient in form and substance, the instrument was entitled to record (par. 748, see. 28, Rev. Stats. Ariz. 1901 [Civil Code]), and would impart constructive notice. The appellees, therefore, had constructive notice, as well as actual notice, of the trust deed. Aside from the legal aspect of the case, we think the equities are decidedly on the side of the appellant. It was his money that paid for the property now in litigation, and without which payment the debtor would have had no effects for anyone, stockholder or creditor. He is simply asking that the property he saved to the company be now used to repay him. The appellees by redeeming from appellant’s execution sale would have had as much property of the company left, subject to their attachment lien, as they had before the trust deed was executed, besides a good title to the mines. It would be inequitable to allow the appellees to — 74 — collect their debt in the manner pursued by them to the exclusion of the appellant. The judgment is reversed, with directions to the superior court of Cochise county to enter judgment for appellant in accordance with the prayer of his cross-complaint. FRANKLIN, C. J., and CUNNINGHAM, J., concur. Application for rehearing denied. NOTE.—As to acquiescence and estoppel of stockholders in respeet of acts and obligations of company, see note in 97 Am. St. Rep. 49.