2 N.E. 909 | NY | 1885
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *550 This action was brought for the foreclosure of two mortgages made by the corporation defendant to the plaintiff as trustee for bondholders, the first of such mortgages being dated November 1, 1880, to secure the payment of forty bonds of $1,000 each, and the second being dated February 5, 1881, to secure twenty like bonds of $1,000 each. All the bonds were payable to bearer on or before November 1, 1890, with semi-annual interest, and they recited that they were made to secure the payment of money borrowed by the company for the purpose of carrying on its business.
The two mortgages covered the real estate of the company, also certain tools, machinery, gas mains and chattels, also certain rights, privileges and franchises granted to the company by the corporation of the city of Yonkers, permitting the company to lay gas mains in the streets, and also the corporate rights and franchises of the company, including its right to be a corporation. *551
The company was organized under the General Manufacturing Law of 1848. Stockholders, owning at least two-thirds of the capital stock of the company, consented to the execution of mortgages upon its real and personal estate to secure said bonds, as required by chapter 517 of the Laws of 1864 and chapter 481 of the Laws of 1871, and their consents were duly filed, but no consent was given by any of the stockholders to the mortgaging of the "franchises, privileges, rights and liberties" of the company pursuant to chapter 163 of the Laws of 1878.
It appears from the findings of fact of the trial judge, that nine of said sixty bonds are still held by the plaintiff, unissued, and that the sum of $51,000, being the proceeds of fifty-one of said sixty bonds, was paid by the respective holders thereof to the said company after the execution of the mortgages, and before August 1, 1881, and was used in the payment of debts of said company contracted in carrying on its business after the execution of the mortgages; but it is also found that such money was paid to the company only as its debts became due, and in payment thereof, and that the holders of said fifty-one bonds were respective purchasers for value.
The trial court found that the said mortgages were a lien upon and bound all the personal property, rights, privileges and franchises described therein. Exception was taken to this finding.
It is now claimed on the part of the appellants that the mortgage is not a lien either on the real or personal property of the company or upon its rights, privileges or franchises, and the ground upon which the invalidity of the whole mortgage is placed is that it was not given to secure debts existing at the time of its execution.
The language of the act of 1864 (Chap. 517, as amended by the act of 1871, chap. 481) is very broad. It authorizes any corporation founded under the General Manufacturing Law of 1848, to secure the payment of any debt which may be contracted by it in the business for which it was incorporated, by mortgaging all or any part of the real or personal estate of such corporation, and declares that every such mortgage shall *552 be as valid as if executed by an individual owning such real or personal estate, provided the written consent of stockholders owning at least two-thirds of the capital stock of such corporation shall be filed as directed by the act.
This provision effectually relieves such corporations from the restriction upon their corporate capacity to give any lien upon their property by mortgage or otherwise, imposed by section 2 of the same law of 1848, and, reading the two acts together, it is evident that such restriction is intended only to limit the general powers of trustees of such corporations, and subject them to the control of the stockholders, in the matter of giving mortgages or liens, and was not founded on any supposed policy of withholding from that particular class of corporations the full control of their property and the corporate power of disposing of or incumbering it, which is possessed by corporations in general. With the prescribed consent of the stockholders, they are declared to be as competent as natural persons to secure the payment of their legitimate debts by mortgage upon their real or personal property.
This power has been the subject of consideration in several cases which have come before this court since the passage of the act of 1864, and the view has been repeatedly expressed in those cases that the power should be liberally construed, and that a substantial compliance with its conditions, according to their spirit and intent, was all that was required. In Carpenter v.Black Hawk Mining Co. (
The action was brought to have the mortgage declared void and a sale under it restrained, and judgment was rendered for the plaintiff on the report of a referee, who held that the mortgage was invalid because it was not given to any creditor to secure a debt of the company; that judgment was reversed at the General Term and the reversal was sustained by the judgment of this court, it being held by the Commission that the mode in which debts should be secured was left to the company; that the mortgage might be directly to the creditors, or to trustees for their benefit, or to secure bonds issued and delivered to the creditors, or sold to raise money to pay them; that as some of the bonds were used for those purposes the mortgage was, at all events, valid to the extent of the bonds which had been thus used, and was not invalid, even if also it covered bonds which were used for other purposes.
The learned commissioner delivering the opinion, (EARL, C.,) expressed the view that under the statute a mortgage could not be made merely to raise money to carry on the operations of the company. All the other members of the Commission concurred in the judgment, but they all declined, in terms, to express an opinion as to the validity or invalidity of the mortgage as a security for the bonds which were not delivered to pay debts, or used to raise money to pay debts, existing at the time the mortgage was executed. That question was thus left an open one, and it does not appear to have arisen in any subsequent *554
case in this State, though it is discussed in the case of Jones
v. Guaranty and Indemnity Co. (
Where money is lent to an individual or to a corporation authorized to borrow money, and the borrower at the time of the loan delivers his bond and mortgage as security for the repayment of the money so loaned, it can hardly be questioned that the bond and mortgage are given to secure a debt contracted by the borrower. The acts of 1864 and 1871 declare that where the requisite consent of stockholders is given, the mortgage shall be as valid to all intents and purposes as if executed by an individual. The only other restriction is that the debt secured by the mortgage must be one contracted in the business for which the corporation was incorporated. There is nothing in the statute which requires that it should have been contracted at any particular time. If it is contracted simultaneously with the giving of the security, and is a legitimate debt incurred in the business of the company, it comes within the letter of the authority conferred by the statute, which covers "any debt which may be contracted by it in the business for which it is incorporated." As to a mortgage given to secure future advances, different questions might arise, but where a bond secured by mortgage is given to the lender for money advanced at the time, the borrower becomes immediately indebted, and it would seem to be immaterial whether the money is applied by the borrower to the payment of some antecedent debt, or to other purposes for which he was legitimately entitled to borrow the money.
The only conceivable intent which could be attributed to the legislature of requiring that the power of mortgaging should be confined to the securing of debts other than those created simultaneously with the giving of the security, would be to put it beyond the power of the trustees or directors, even with the assent of the stockholders, to borrow money not needed for the payment of previously existing debts, and thus obtaining the control of funds which they might misapply. I fail to find any language in the act expressive of such an intent. It likens the power given to these corporations to that of an individual *555
to mortgage his own property to secure any debt which he may contract, and there is no restriction upon this power except that the assent of stockholders must be obtained. In Greenpoint SugarCo v. Whitin (
In that case the mortgage was given to secure the purchase-price of real estate conveyed to the company by the mortgagee on the same day the mortgage was executed, but which had been previously occupied by the company under a contract of purchase.
In Rochester Savings Bank v. Averell (
Adopting the comparison, suggested by the statute, with the act of an individual mortgaging his own property to secure the payment of his own debt, and supposing the case of a principal, having an agent authorized to borrow money to be used in the business of the principal, and that the principal should under that state of existing circumstances give a power of attorney to the agent empowering him to secure the payment of "any debt theretofore contracted, or which might be contracted by him in the business" of the principal, by mortgage *556
on his real estate, can it be doubted that a mortgage given by the agent to secure money borrowed by him in the business of his principal, simultaneously with the giving of the mortgage security, would be within the terms of the power? I can see no reason for applying a different rule of construction to an authority in the same words, contained in a statute. But in the present case we are not under the necessity of deciding that question or determining what the result would have been if the bonds had been sold, or money raised thereon by the company for purposes other than the payment of existing debts. It appears from the findings, not only that the money paid to the company for the bonds was used in the payment of its debts, but that the money was so paid by the bondholders to the company only as its other existing debts became due. The bonds secured by the mortgage did not acquire vitality until they were issued to purchasers paying value therefor, and did not until then become liens upon the mortgaged property, consequently when the mortgage lien was created, it was, as to each bond issued, created for the purpose of paying debts then owing by the company, and was so applied. There is nothing in the act which requires that in the case of a trust mortgage to secure negotiable bonds to be thereafter issued, the debts authorized to be secured should be in existence at the time the mortgage and bonds are prepared and executed. Every conceivable intent of the statute is effectuated, provided the bonds are negotiated only for the purpose of securing or paying debts contracted before the negotiation of the bonds. Where a bond of this description, having no previous vitality, is delivered to a creditor of the company to pay or secure his debt, the delivery of the bond is the act by which his debt becomes secured. The security to the creditor then for the first time comes into being, and is as effectual as if the mortgage were executed at the same time with the delivery of the bond. The effect is the same if the bond is sold to provide means to pay a debt existing at the time of the sale, and the proceeds are paid to the creditor. As held in the case of Carpenter v.Black Hawk Co. (
Our conclusion is that the judgment below should be affirmed in so far as it sustains the validity of the mortgage, as a lien upon the real and personal property of the company. But a further question is raised as to its validity as a mortgage upon its franchises.
In Carpenter v. Black Hawk Co. (
This power, which was not conferred by any of the previous statutes upon manufacturing corporations, was supplied by chapter 163 of the Laws of 1878, which enacts that any such corporation may secure the payment of any debt by mortgaging all or any part of its goods, or chattels, and also its "franchises, privileges, rights and liberties," provided the written assent of a majority of the stockholders, owning at least two-thirds of the capital stock of such corporation, shall first be filed.
The consent in the present case covered only the real and personal estate of the company, and contained no mention of its franchises, privileges, rights or liberties. This omission is, of itself, sufficient ground for holding the mortgage inoperative as to those rights.
The judgment appealed from authorizes the sale of the real and personal property, and also of all the rights, privileges, and franchises described in the mortgage. In so far as it authorizes a sale of the corporate franchises of the company, the judgment should be reversed.
We do not think that the act of 1878 operates as a repeal of the act of 1864, or the act of 1871, which authorizes the mortgaging of the real and personal property of the corporation, *558 with the assent of stockholders, owning at least two-thirds of the stock. The act of 1878 requires the assent of "a majority of the stockholders, owning at least two-thirds of the capital stock, etc." Whether the intention was to require the consent of a majority in number of all the stockholders of the company, as well as a two-thirds majority of the stock, it is not necessary now to determine, for we do not think that the act was intended to take away the previously existing power of the owners of two-thirds of the stock, to authorize the mortgaging of the real and personal property of the corporation, but only to give power to add to a chattel mortgage, a mortgage upon the corporate franchises. The alleged counter-claim set up in the answer was to the effect that some of the parties, who, at the time of the commencement of the action, were the holders of the bonds, were stockholders in other corporations, to whose interest it was to develop certain patented processes for manufacturing gas, and that they procured the corporation defendant to expend money and render services in developing such processes. There is no allegation that the bondholders so interested assumed any personal responsibility for such expenditure, nor do the allegations of the answer disclose any such liability. The exception to the exclusion of evidence, in support of the alleged counter-claim, is not well taken.
The judgment should be modified so as to exclude from the sale, thereby directed, the "franchises, privileges, rights and liberties" of the corporation defendant, and as thus modified, affirmed, without costs.
All concur, except EARL, J., not voting.
Judgment accordingly.