Court Opinion

ID: 5209305
Source: CourtListenerOpinion
Date Created: 2022-01-06 16:09:09.097262+00
Date Added: 2024-06-11T08:27:20.572767
License: Public Domain

McLaughlin, J. (dissenting):
The facts and the statutory provisions applicable to this case are set forth at length in the opinion of Mr. Justice Clarke. The mortgage cannot be deemed a purchase-money mortgage and in order to be valid, under section 2 of the Stock Corporation Law, it was necessary that it should have been “ 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 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 * * * ai)d 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.”
The provision of the statute quoted was not complied with nor *156was any attempt made to comply with it. Holders of not less than two-thirds of the capital stock did not consent “ either in writing or by vote at a special meeting of the stockholders called for that purpose,” nor-was any certificate filed and recorded. But it is suggested that the mortgage is nevertheless valid because it was executed by the proper officers of the corporation and all of the directors had knowledge of that fact, did not object to it, and that they held more than two-thirds of the stock; in other words, that because the directors of the corporation held more than two-thirds of the stock and knew that the mortgage was given, this is a sufficient compliance with the statute. The answer to the suggestion is that a corporation can only give a valid mortgage by complying with the statute, which expressly provides that holders of two-thirds of the stock must consent either in writing or by vote at a meeting called for the purpose of determining whether or not the mortgage shall be given. It is this act of the stockholders, evidenced either in one way or the other, of which evidence is filed and recorded that gives validity to the mortgage. Except for the statute a corporation could not give a mortgage. There are cases where a bona fide attempt was made to comply with the statute, but where its provisions had not been strictly fulfilled, in which it was held that the mortgage ivas valid. Thus in Greenpoint Sugar Co. v. Whitin (69 N. Y. 328) the written consent did not specify the amount of the mortgage and in Rochester Savings Bank v. Averell (96 N. Y. 467) error was made in filing the consent. But there is no authority, so far as I have been able to discover, which holds that a corporation may give a valid mortgage when no attempt has been made to comply with the statute requiring the written consent or a vote of the stockholders and the filing and recording of evidence thereof. In Vail v. Hamilton (85 N. Y. 453) a mortgage was set aside on the ground that the requisite consent had not been obtained in an action brought by the receiver of the corporation, as the present one is. That case is cited with approval in Rochester Savings Bank v. Averell (supra). Judge Andrews, referring to it, said: “The case is an authority for the proposition that the assent of stockholders is an indispensable condition to the creation of a valid mortgage under the act of 1864.”
It is also urged that the mortgage may be held valid, inasmuch as *157the trial court found as a fact that the holders of more than two-thirds of the issued capital stock consented to its execution. It is perfectly evident from the decision what was meant by this finding when read in connection with the other findings. There is an express finding that the mortgage “ was executed and delivered without the written consent of at least two-thirds of the stockholders, * * * and that such written consent has never been filed;” that no stockholders’ meeting was called to consider the question of giving or executing the mortgage; nor was any notice of stockholders’ meeting for such purpose ever sent to the stockholders of the corporation; that the question of giving the mortgage was never considered or discussed at a stockholders’ meeting; nor does the minute book of the meetings of the stockholders contain any record of any assent of any of the stockholders to the execution of it; and that a minority stockholder, holding a considerable number of shares, had no knowledge of the execution of the mortgage prior to its delivery, nor was she at any time consulted in. reference thereto. Then comes the finding upon which it is said that the holders of two-thirds of the stock consented, which is that “ said chattel mortgage was executed by the proper officers of the said company, with the knowledge and consent of George O. Gillingham above named, Alice B. Scott above named, and Ella L. Boon above named, who constituted the entire hoard of directors, and all the officers of said company, and were the holders of more than two-thirds of the issued capital stock of said corporation.” Those persons consented to the execution of the mortgage in one sensé — that is, they did not object to it. .They had knowledge of it because they were directors of the corporation, and presumably two of them at least, being officers of the corporation, signed the instrument. But this is not the consent which the statute requires. To so hold is to entirely disregard the provisions of the statute and permit the validity of a corporate mortgage to depend upon oral proof that the holders of two-thirds of the stock knew of the mortgage, did not object, and thereby consented to it. It is not difficult to see that this would furnish an opportunity for fraud, to say nothing of the uncertainty and confusion which would arise as to the validity of instruments of this kind.
The fact that the corporation kept the mortgaged property and *158assumed the lease, which provided for the continuance of the mortgage, cannot affect the question, because the corporation could execute a valid mortgage only by complying with the statute, and could not by contract vary these requirements.' There was no attempt to comply with the statute, and however inequitable the result may seem (Wood & Selick v. Ball, 190 N. Y. 217), I am of the opinion that the mortgage is invalid.
The judgment appealed from, therefore, should be reversed and a new trial ordered, with costs to appellant to abide event.
Judgment affirmed, with costs.