Court Opinion

ID: 3594110
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:42:00.943838+00
Date Added: 2024-06-11T07:41:31.771618
License: Public Domain

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The main question presented by this appeal depends on section two of the Stock Corporation Law, as in force on the 20th of March, 1907, the date when the chattel mortgage in question was executed and delivered. That section, after authorizing a stock corporation to borrow money and contract debts when necessary for the transaction of its business, provided that "Every such mortgage, except purchase-money mortgages * * * shall be consented to by the holders of not less than two-thirds of the capital stock of the corporation, which consent shall be given either in writing or by vote at a special meeting of the stockholders called for that purpose, upon the same notice as that required for the annual meetings of the corporation; and a certificate *Page 409 
under the seal of the corporation that such consent was given by the stockholders in writing, or that it was given by vote at a meeting as aforesaid, shall be subscribed and acknowledged by the president or a vice-president and by the secretary or an assistant secretary, of the corporation, and shall be filed and recorded in the office of the clerk or register of the county wherein the corporation has its principal place of business." (L. 1890, ch. 564, § 2; L. 1901, ch. 354, § 1, amending said section 2; L. 1905, ch. 745, § 1, further amending said section 2. See, also, section 6, ch. 59, Consol. Laws.)
The Special Term was of the opinion that the limitation of power contained in said section did not apply to the mortgage in question because it was a purchase-money mortgage, and one of the justices of the Appellate Division was of the same opinion. The other justices of that learned court, however, divided equally upon the question whether the statute was so substantially complied with that a court of equity would not set the mortgage aside. (Black v. Ellis, 129 App. Div. 140.)
All the writings executed by the original parties on the 23d of July, 1904, including the lease, the bill of sale of certain chattels and the mortgage back thereon, were parts of the same transaction and should be read together with the same force and effect as if all were contained in a single instrument. What was the legal situation when that transaction was completed? Annie M. Anderson had rented certain real estate of Gunn  Grant and had agreed in the lease to pay them the sum of $7,500 as liquidated damages if she broke any covenant thereof. She had covenanted, also in the lease, to secure the payment of said sum by a mortgage on certain chattels already belonging to her and upon certain other chattels concurrently sold to her by Gunn  Grant. She gave the mortgage accordingly and that was a purchase-money mortgage, because she had not paid for the chattels sold her by Gunn  Grant and she acquired title thereto by virtue of all the writings taken together, of which the mortgage was a part.
But she had further covenanted in the lease that every year *Page 410 
during the term thereof, she would, on or before a day named, execute and deliver to Gunn  Grant "a new chattel mortgage in proper shape and form so as to entitle it to be filed and to be a first lien upon the household furniture and chattels hereinabove agreed to be covered by the chattel mortgage given simultaneously herewith * * *."
What was the legal situation when the second transaction was completed? Annie M. Anderson had transferred her interest in the lease to the Sterling Hotel Company and had sold and delivered to it all said chattels, subject to the mortgage covering the same, and the hotel company, in consideration of the sale of said chattels and the transfer of said lease, had assumed all the obligations of the lease on the part of the tenant to be performed, had accepted title to said chattels subject to the lien of the mortgage and had entered into possession of the premises covered by the lease. These instruments had been duly filed or recorded so as to give constructive notice to all the world. The mortgage, but four days old, was still a purchase-money mortgage, and the Sterling Hotel Company had acquired title to the chattels covered thereby, taking such title subject to the lien of the purchase-money mortgage and under a covenant on its part to renew it every year in proper form. In other words, the hotel company did not pay for the chattels in money, but by assuming the purchase-money mortgage thereon and agreeing to renew it every year. The obligation to renew was part of the purchase price of the chattels. Thus, the mortgage in question was a purchase-money mortgage in effect through two independent transactions, because the title to the chattels passed to the first purchaser by virtue of the first transaction, including the mortgage, and to the second purchaser by virtue of the second transaction including the covenant to keep the mortgage good by successive renewals. As was said by Mr. Justice HOUGHTON in his concurring opinion below: "The corporation took the property subject to the chattel mortgage given by Anderson, and took the assignment of the lease from her whereby it was agreed that the mortgage should be kept *Page 411 
alive. If the corporation chose to keep the property and the lease as it did, it was under obligation to keep the chattel mortgage alive as the lease provided. Being under such contractual obligation as a consideration of obtaining and holding title to the property and enjoying the lease, I do not think the statute as to consent of stockholders to giving a mortgage applied. The statute manifestly applies to creating a new incumbrance on corporate property, not to keeping alive one existing on property acquired subject to mortgage and under agreement to continue as a valid and subsisting lien." (p. 150.)
At any time after the date to renew came around, a court of equity upon proper application would have compelled the hotel company to perform its contract by giving a new mortgage. No consent of the stockholders would have been requisite, and a decree for specific performance would have followed if all the stockholders had united in opposition thereto. (Coman v.Lakey, 80 N.Y. 345; Wisner v. Ocumpaugh, 71 N.Y. 113;Hale v. Omaha National Bank, 49 N.Y. 626.)
The facts in the case first cited arose under a statute which authorized corporations created thereby to purchase property, both real and personal, but prohibited them from mortgaging the same or giving any lien thereon.
The controversy arose between the assignee of a chattel mortgage given by the corporation to secure the purchase price of the property covered thereby and a judgment creditor of the corporation, with an execution in the hands of the sheriff and a levy made by virtue thereof. The court held that the owner of the chattel mortgage was entitled to hold the property as against all except bona fide purchasers until the purchase money was paid. Chief Judge CHURCH said: "The statute does not prohibit a corporation from owning incumbered property, nor from buying such property subject to incumbrances, nor from taking a qualified title, nor from taking property by a conditional sale. The transaction must be construed as a whole, and all the papers must be *Page 412 
read together, and in effect it was a sale upon condition of payment of the purchase price within a specified period. * * * Courts of equity regard the substance, and not the form of a transaction, and one of the favorite maxims is to regard that as done, which has been agreed to be done, and ought to have been done. * * * The corporation received this property cum onere, * * *. Suppose the corporation had refused to execute a mortgage for want of power, would it have been permitted to hold the property discharged of the lien? Clearly not. They must have restored the property, or have held it as upon a conditional sale, which was not prohibited by the statute. The vendor's rights are secured by a law higher than, and independent of, statute. They grow out of the transaction itself, and are not dependent entirely upon the act of the corporation in creating a lien, but arise from the act of the vendors in transferring the property, subject to the payment of the purchase money, and are secured by the rule which protects equitable liens of vendors, and which courts will be astute to enforce, in order to effectuate the real intent of the parties, and require them to do whatever is necessary to conform their acts to the essential nature of the transaction." (p. 350,) The principle of that case went beyond the principle upon which we found our decision, but it strongly suggests the attitude which courts of equity take under circumstances somewhat analogous to those now before us.
The claim, made at the trial, but apparently not at the Appellate Division and certainly not before us, that the new mortgage was given in violation of section 48 of the Stock Corporation Law, which prohibits certain transfers by a corporation, its officers and directors, in contemplation of its insolvency, was properly disposed of by Mr. Justice McCALL in his opinion at Special Term, as follows: "This mortgage, executed on March 20th, 1907, when it may be conceded the corporation was insolvent, was but the observance of contractual obligations entered into and assumed in July, 1904, at which time no question exists as to its absolute soundness. *Page 413 
* * * That which transpired on March 20th, 1907, does not fall within the prohibition of the statute, but must be construed as relating back to May, 1904, and simply effectuating the contractual obligation at that time assumed."
The judgment should be affirmed, with costs.
CULLEN, Ch. J., GRAY, EDWARD T. BARTLETT, HAIGHT, WERNER and HISCOCK, JJ., concur.
Judgment affirmed.