Court Opinion

ID: 5509777
Source: CourtListenerOpinion
Date Created: 2022-01-10 03:32:51.186477+00
Date Added: 2024-06-11T08:34:08.067100
License: Public Domain

FOLLETT, J. (dissenting).
January 26, 1885, the A. B. Cleveland Company, Limited, was incorporated under chapter 611 of the *396Laws of 1875 (Business Corporation Act) with a capital of $65,000, divided into shares of $100 each. The stock was all issued for realty and personalty, no cash being paid in. By .chapter 394 of the Laws of 1888, section 13 of the act of 1875 was amended so as to read as follows:
“Sec. 13. It shall be lawful for all such corporations to borrow money for the legitimate purposes of such corporation, and for such purpose to issue bonds with or without coupons attached thereto, or to mortgage any real estate which it may have or possess, and bearing interest not exceeding six per centum per annum; but the amount of such bonds and such mortgages outstanding at any one time shall not exceed one-half of the value of the corporate property of such corporation. Any issue of such bonds and such mortgages beyond the amount herein specified, shall , render every director voting the same, personally liable to any holder of. such bonds or such mortgages, for any damage caused by such overissue to such holder. Nc such mortgage or mortgages shall be issued however, without first having obtained the written assent of its stockholders owning more than two-thirds of the stock of said corporation.”
By this section a business corporation is authorized to mortgage its “real estate” for an amount not exceeding one-half of the value of its corporate property. April 17, 1889, the president and treasurer of the corporation assumed to execute a mortgage to Conrad N. Jordan, Horace K. Thurber, and Peter W. G-allaudet upon all of the property of the corporation, real and personal, to secure the payment of $425,000, represented by 425 bonds of $1,000 each, and thereafter it immediately discontinued its business. Twelve days later the trustees took possession of all of the property of the corporation under said conveyance. In November, 1889, the trustees reported that the value of the entire assets of the corporation was $327,621.81. The value of its real estate, included in the above, was $45,530. December 1, 1890, the value of its assets had been reduced to $298,999.25, which included $45,000 of real estate, it is conceded that, when this mortgage was executed, the corporation was hopelessly insolvent, but it is asserted that it was not known to be so by its- directors and officers. This assertion does not seem to me to be sustained by the record. I think the mortgage should be declared void on two grounds: (1) That it was given in contemplation of insolvency; (2) that it covered all of the personal property of the corporation, and that it was given for more than twice the value of the corporate property of the mortgagor. In the prevailing opinion it is conceded that the corporation had no power to mortgage its personalty, but it sustains the judgment dismissing the complaint on the ground that the plaintiff was estopped. I am unable to find any evidence in the record upon which an estoppel can be based. I cannot assent to the proposition, contained in the opinion, that the power of a corporation to issue bonds- is not limited by the section above quoted, nor can I concur in the position that the only remedy for an overissue is an action' by a bondholder against the directors for his damages. This section was designed for the protection of shareholders and creditors- of such corporations, and they may resist the validity of a mortgage given in violation of its provisions. Any creditor or shareholder of a corpo*397ration has the right to maintain an action to set aside any securities given or conveyances made in violation of the statute, and if the corporation is insolvent any shareholder or creditor has the right to have it wound up in accordance with the provisions of the statute, even though every other creditor and shareholder think a better way than the statutory one has been devised.
I think the judgment should be reversed, and a new trial granted, with costs to the appellant to abide the event.