Court Opinion

ID: 7368860
Source: CourtListenerOpinion
Date Created: 2022-07-27 23:54:21.329663+00
Date Added: 2024-06-11T16:20:51.013889
License: Public Domain

GARDNER, J.—
(1) It is insisted by counsel for appellant that the trustee in bankruptcy has established the invalidity of the mortgage here sought to be foreclosed upon either of two theories. It is not disputed that the mortgage was executed in the corporate name by the vice-president and attested by the secretary in due form as authorized by the board of directors at a regular meeting held for that purpose. The insistence, however, in the first place, is that the resolution of the board authorized the execution of the mortgage to secure money to be borrowed from B. L. Holt, and that, as there was not an actual loan of the money, the execution of the mortgage was' unauthorized (citing Koehler v. Black Falls Co., 2 Black 715, 17 L. Ed. 339; Davis v. Rock Creek Lbr. Co., 55 Cal. 359, 36 Am. Rep. 40), and that therefore it did not represent the act of the corporation.
If it be conceded, for the purposes of this case, that the language of the resolution of the board of directors was such as, under ordinary circumstances, would limit jfche authority to execute the mortgage, and authorize its issuance only upon the actual loan of the money, yet we are of the opinion under the facts here disclosed that this concession would not avail respondents in this cause. It appears without conflict that all of the members of the board of directors were present at the time these *78resolutions were passed and voted for the same, and that it was understood that a practical reorganization of the corporation was intended. It is also without dispute that the majority of the board fully understood that the mortgage to Holt was to secure the balance of the corporation’s indebtedness to Holt after he had surrendered a large portion of his indebtedness for additional stock, and that as a part of this transaction the balance of said indebtedness was to be extended for a period of 20 years, and the interest reduced to 6 per cent, per annum. It was also fully understood by a majority of the board that the transaction should take the form of a loan by Holt to the corporation of the said sum of $62,500, but that, in fact, no actual loan would be made, and the resolution was so worded.
One of the directors, Mr. Ellis, who insisted in his testimony that he was a “mere figurehead,” testified that he understood that there was to be no actual loan of the money; and another director, Mr. Doster, said that he was under the impression that the arrangement made would liquidate the indebtedness of the corporation and furnish it a surplus. .
The resolution was unanimously adopted, and the mortgage executed a few days thereafter. Additional stock was issued to Holt in payment of the indebtedness of the corporation to him not represented by this mortgage. The capital stock of the corporation being doubled, Holt advanced money to Pratt and Graham with which they could, and did, purchase additional stock.
Subsequent to the-execution of the mortgage, at a meeting of the board of directors, Mr. Doster offered a resolution expressly ratifying and confirming the act of Mr. Ellis as vice-president, and that of Mr. Graham as secretary and treasurer, in executing the mortgage to Mr. Holt.
The interest on the debt was paid by the corporation for one or two years, and the entire transaction was acquiesced in by the corporation and its' stockholders, so far as here appears; and no objection was made until that interposed by the trustee in bankruptcy more than three years after the execution of , the mort-. gage.
(2) Fraud is never presumed, but, when relied upon, must be distinctly alleged and proved.—Clements v. Clements, 72 South. 523. No fraud is alleged in the answer. The right and power of the corporation to execute this mortgage to secure a pre-existing debt of said Holt is not questioned by counsel on this *79appeal; nor is it questioned that those members of the board of' directors who fully understood that the transaction was to take this form, represented a majority, and had the full right and power to order its execution, but it is insisted that, while they had the right and power to so order, the language used in the resolution was inapt for that purpose, and that therefore the mortgage was unauthorized, and its execution did not represent the act of the corporation.
We are of the opinion, however, upon the facts here disclosed, notably that a majority of the board fully understood that the transaction should take this form, and that no fraud is alleged, that the act of the corporation sufficiently appears. Reduced to its last analysis, the insistence would lead to the invalidation of the mortgage because of a lack of full understanding on the part of an impotent minority of the board. We conclude that the insistence is not well taken.
A meeting of the stockholders was held on the same day as that of the board of directors, and at this meeting each share of stock issued and outstanding was represented, either in person or by proxy. A resolution similar in all respects to that of the board of directors was unanimously passed by the stockholders.
(3) It is urged, however, that the mortgage was invalid as having been executed without a compliance with subdivision 3 of section 3481 of the Code of 1907, requiring the consent of the persons holding the larger amount in value of the capital stock of the corporation, present and voting in person or by proxy, at a meeting of the stockholders called for that purpose or at a regular meeting, that the real property of the corporation be mortgaged. The evidence shows that said B. L. Holt owned the majority of the capital stock of the corporation, and that the resolution was unanimously passed by the stockholders, as previously stated.
The argument upon this theory of the case is rested largely on the same line of reasoning as that above discussed; that is, that the language of the resolution of the stockholders did not authorize the execution of the mortgage here involved where there was no actual loan made. The insistence which we have here first treated — that is, that the execution of the mortgage was not the act of the corporation because not authorized by its. board of directors — rested upon the theory also that the trustee in bankruptcy stands in the shoes both of the bankrupt and the *80creditors (Cartwright v. West, 173 Ala. 198, 55 South. 917; Collier on Bankruptcy, [10th Ed.] 1914, p. 278), and therefore that the trustee in bankruptcy was in a position to raise the point. The second theory, however, above referred to, that of noncon-sent of the stockholders, does not stand upon the same footing. That portion of subdivision 3 of section 3481 here involved was enacted for the benefit of the stockholders, and they have not complained.
This question is fully discussed by the United States Court of Appeals in Westerlund v. Black Bear Mining Co., 203 Fed. 599, 121 C. C. A. 627, where many cases are reviewed. It was there stated that statutes of this character are regarded by the great weight of authority as having been enacted for the protection of the stockholders, that neither the corporation nor one representing it or its creditors can invoke the statute against an executed contract, and that, the stockholders making no complaint, a trustee in bankruptcy is not in a position to invoke the aid of such a statute. We are of the opinion that the following cases of this court support this principle: West Point M. & M. Co. v. Allen, 143 Ala. 547, 39 South. 351, 111 Am. St. Rep. 60, 5 Ann. Cas. 532; Nelson v. Hubbard, 96 Ala. 238, 11 South. 427, 17 L. R. A. 375; Barrett v. Pollak, 108 Ala. 390, 18 South. 615, 54 Am. St. Rep. 172; Ala. I. & S. Co. v. McKeever, 112 Ala. 134, 20 South. 84; Anderson v. Bullock County Bk., 122 Ala. 275, 25 South. 523; Hillcrest Land Co. v. Foshee, 189 Ala. 217, 66 South. 478.
Much stress is laid by .counsel for appellant upon the case of So. Bldg. & Loan Ass’n v. Casa Grande Stable Co., 128 Ala. 624, 29 Smith. 654; Id., 119 Ala. 175, 24 South. 886. A careful examination of that case leads to the conclusion that the question here under consideration was not there presented.
We approve the following comment made upon the case by the Court of Appeals in the Westerlun Case, supra: “The question whether it or its stockholders alone had the right to avoid the mortgage for the lack of the latters’ assent was neither presented, considered nor decided. If it had been, the Supreme Court of Alabama undoubtedly would have decided, as it had repeatedly done before, that the stockholders alone had that right.”
See Ala. I. & S. Co. v. McKeever, supra; Barrett v. Pollak, supra.
*81We therefore conclude that, the stockholders/making no objection, the trustee in bankruptcy is in no position to complain. The decree appealed from is affirmed.
Affirmed.
Anderson, C. J;, and McClellan and Sayre, JJ., concur.