Baker v. Harpster
42 Kan. 511
Kan.
1889
Check Treatment

Opinion by

Clogston, C.:

The claim made by the plaintiff in error, and upon which a reversal of this judgment is asked, is that the notes and mortgages executed to Harpster under a resolution of an informal meeting of the board of directors is absolutely void, not only in the hands of Harpster, but in the hands of the savings bank. First, for the reason that as to Harpster, he having full knowledge of the manner in which the special meeting of the board of directors was called, and the fact that only a part of the board had knowledge of the meeting, the notes and mortgages in his hands would be void; that, as the savings bank obtained no interest or possession of the notes and mortgages until after the commencement of the action to close up the corporation and to appoint a receiver, and for the cancellation of the notes and mortgages, it was bound to take notice of the fact of the pendency of the action, and could acquire no interest during the litigation. On the part of the defendants in error, Harpster and the savings bank, it is insisted that the court erred in rendering judgment for only $20,000, including the claim of the bank; that, under the finding of the court, a valid indebtedness existed for more than $50,000 from the company to him; that the mortgages were given to secure that sum, and that he was entitled to a judgment for the entire amount, and for a foreclosure of the mortgages upon, the property of the company.

*517One fact over which there is no dispute, or which at least is conclusive so far as the court is concerned, is that the indebtedness actually existed between the corporation and its president, B. F. Harpster. It -is also clear that the old indebtedness of some $57,974.32, due from the old company to him, was authorized by the board of directors, and that a first lien was given upon their property for its security. It is also shown that the advances of $60,000 made to the new company were made with the full knowledge of the directors of the new corporation, and that they were so made upon the strength of the old arrangement by which he was to have a lien upon the property for security. This much may.fairly be said to be conclusively established by the findings of the court. If this be true, the new’company, having received the proceeds and property of the old company, tacitly or mutually assuming its liabilities and allowing the business of the company to go on unchecked and unchanged, and advances to be made under the new arrangement as they were made under the old, without objection or complaint, is in no condition to deny the existence of a first lien upon its property for the payment of this claim; and if this be true, then it is of very little importance whether the mortgage be foreclosed and the property sold thereunder, or whether a judgment be rendered and such judgment be declared a first lien upon the property of the corporation. In either event, as far as the State Savings Bank of St. Joseph is concerned, it'would give it complete protection. Whether it had knowledge, or was bound to take knowledge of the pendency of the action seeking to cancel and set aside the mortgage and notes, would be immaterial. . Its security would be the same, a first lien upon the property of the corporation; and if this is true as to the bank, it would be equally true in the case of Harpster; he, having a first lien upon the property for the security of his claim, would be in no better condition by having a foreclosure of his mortgage than he would to have the judgment made a first lien thereon.

.But we are not prepared to say that these mortgages are void even as to Harpster, and perhaps it is not necessary to *518decide whether they are or not. The result will be the same in either event. The meeting of the directors was at least voidable, and upon this direct attack would have to fall; but beyond that, might not the officers of the corporation, knowing of this indebtedness to Harpster, carry out the spirit and intent of the contract under which the money had been furnished, and make the equitable contract and mortgage a specific or a legal one? If they could do that, then they had the power to execute the mortgages and notes — the evidences of that debt. It was creating no new lien upon the property, or placing the company under any greater obligations, nor was it placing its property in any new position or danger. They had power under the contract to make the notes, and these notes were to be secured by a first lien upon all the property of the company, and under all the findings made by the court we are compelled to hold that the officers of the company, under said contract and arrangement, had ample authority to execute the notes and mortgages sued on.

With this view the judgment of the court below must be set aside, and upon the findings of fact we feel called upon to direct such judgment as ought to have been rendered by the court below: that the State Savings Bank of St. Joseph, Missouri, have and recover a judgment against the plaintiff for the sum of $17,525.41, with interest at the rate of ten per cent, per annum from the 20th day of February, 1887; that B. E. Harpster have and recover a judgment against the plaintiff for the sum of $50,000, less the judgment of the State Savings Bank of St. Joseph, Missouri; and that this judgment bear interest at the rate of twelve per cent, per annum from the 7th day of November, 1884, and the mortgages to secure said sum be foreclosed.

By the Court: It is so ordered.

All the Justices concurring.