Court Opinion

ID: 5209304
Source: CourtListenerOpinion
Date Created: 2022-01-06 16:09:09.093517+00
Date Added: 2024-06-11T08:27:20.570984
License: Public Domain

Ingraham, J. (dissenting):
As stated in the opinion of Mr. Justice Clarke, the only question presented upon this appeal is upon the exception to the conclusion of law, no case having been made and settled, and the appeal being upon the judgment roll. The action is brought to declare null and void a chattel mortgage made by the Stirling Hotel Company to the defendant as security for the rent of certain premises leased by the defendant to one Anderson and which lease had been assigned to the Stirling Hotel Company. This mortgage was dated the 20th of March, 1907, and thereafter filed in the office of the register of the county of New York. The complaint alleges that this mortgage was not given for a present consideration but was given at a time when the corporation was insolvent to secure the defendant for a past indebtedness and in direct violation of section 48 of the Stock Corporation Law (Laws of 1890, chap. 564,* as amd. by Laws of 1901, chap. 354). It was further alleged that the said chattel mortgage is void and wholly invalid for the reason that it was executed and delivered without the consent of the stockholders of the said corporation or of at least two-thirds thereof as required by section 2 of the said Stock Corporation Law.
The court found that on the 27th of July, 1904, the Stirling Hotel Company, a corporation incorporated under the laws of this State, occupied certain premises in the city of Hew York under a lease made by the plaintiffs predecessor in title to one Anderson • that on or about the 20th of March, 1907, the said corporation was indebted to the defendant for back rent in a sum exceeding $7,500, and was indebted to other creditors for about $15,000, which the corporation was wholly unable to pay; that the corporation was then wholly insolvent and totally unable to pay its indebtedness or any considerable portion thereof, and that such insolvent condition was well known to the officers and stockholders of the said corporation ; that on the 20th of March, 1907, the Stirling Hotel Company executed and delivered to the defendant a chattel mortgage covering certain personal property in the said hotel which recited that this mortgage was given in conformity with a clause in the said lease of plaintiff’s predecessors in title to Anderson by which it was *152agreed that the tenant should execute a chattel mortgage upon the personal property contained in the hotel to secure the rent to the landlord; that the chattel mortgage dated March 20, 1907, was executed and delivered without the written consent of at least two-thirds of the stockholders of the Stirling Hotel Company having first been filed in the office of the clerk of the county of Hew York, and that such written consent was never filed therein; that the stockholders of said corporation aggregating at least two-thirds thereof were aware of the execution and delivery thereof prior to its delivery; that the total number of shares of capital stock of the said corporation issued at the time was one hundred and thirty-five shares; that one Boon, the president of the corporation, owned thirty-five shares; that one Gillingham, the vice-president, owned thirty-five shares; that one Scott, the secretary and treasurer of the corporation, owned thirty-five shares, and one Anderson owned thirty shares ; that Boon, Gillingham and Scott, owning one hundred and five shares of the one hundred and thirty-five shares outstanding, had knowledge of the execution and delivery of the said chattel mortgage prior to its delivery to the defendant, but that Anderson, the owner of thirty shares of the capital stock of said corporation, had no knowledge of the execution and delivery of the said chattel mortgage prior to its delivery, nor was she at any time consulted in reference thereto;. and that the said chattel mortgage was executed by the proper officers of the said company with the knowledge and consent of Boon, Gillingham and Scott, who constituted the entire board of directors and all the officers of the comjiany and were the holders of more than two-thirds of the issued capital stock of the company.
There is no finding as to which officers of the company actually executed the chattel mortgage and certainly there is no presumption that all three of these officers of the company joined in its execution or executed any instrument which would evidence their consent to the execution of the mortgage. I will assume that if the owners of two-thirds of the capital stock of the company had actually joined in the execution of the instrument, either individually or as officers of the company, that such an act would be a sufficient compliance with section 2 of the Stock Corporation Law to sustain the instrument, but it certainly cannot be presumed that the president, *153vice-president and secretary and treasurer joined in the execution of this instrument, and it is necessary that all three of these officers should consent to the execution of the mortgage either in writing or by a vote at a special meeting of the stockholders called for that purpose to constitute the two-thirds required by the statute. The court found that there was no meeting of the stockholders called for that purpose at which this question was considered or the consent to the execution of the mortgage given, so to sustain the mortgage it must appear that the holders of not less than two-thirds of the capital stock of the corporation consented in writing to the execution of the mortgage. Certainly there is no such consent found by the court, nor can such a consent be inferred from any of the facts found, but the court found that no consent had been filed. Section 2 of the Stock Corporation Law provides that every stock corporation “ may mortgage its property and franchises to secure the payment of such obligations or of any debt contracted for said purposes. Every such mortgage, except purchase money mortgages and mortgages authorized by contracts made prior to May first, eighteen hundred and ninety-one, shall be consented to by the holders of not less than two-thirds of the capital stock of the corporation, which onsent 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 ivas given by vote at a meeting as aforesaid, shall be subscribed and acknowledged l_r the president or a vice-president and by the secretary or an assistan' 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.” It is elementary that a corporation may only exercise the powers given to it and this provision as to the power by a corporation to execute a mortgage which shall create a lien upon its property is a limitation of the power of the corporation to execute such a mortgage. Unless it complies with the conditions imposed by the Legislature it has no power to execute a mortgage and, therefore, it necessarily follows that a mortgage executed without a substantial compliance with this condition was ultra vires and void. The condition expressly requires that the *154consent should be evidenced in one of two forms, either by a written instrument signed by two-thirds of the stockholders or by the vote of the stockholders at a meeting called for the purpose of giving such consent. It seems to me that a verbal consent of the stockholders would be entirely ineffectual to authorize the corporation to exercise this power conferred upon it by the Legislature. Such a verbal consent might well have been given because the stockholder giving it knew that it was not a compliance with the statute and, therefore, would not of itself authorize the execution of the mortgage until a formal consent had been presented for execution or a meeting of the stockholders of the company called to consider the proposition. If the language of the statute means anything it must mean that the consent of the holders of two-thirds of the capital stock of the corporation must be given in writing or at a special meeting called for the purpose of considering the question.
In Greenpoint Sugar Co. v. Whitin (69 N. Y. 328) the court held that the validity of the mortgage is made to depend upon the tiling of the assent and that from the time of filing such assent and the recording of the mortgage the mortgage is valid. In Paulding v. Chrome Steel Co., (94 N. Y. 334) the mortgage was executed by the president and secretary under the direction of the trustees of the corporation who were the only stockholders of the company and it was held that that, was a sufficient consent. And this was followed in the case of Rochester Savings Bank v. Averell (96 N. Y. 467). In that case the court, following Vail v. Hamilton (85 N. Y. 153) held that the mortgage was invalid in the absence of the assent of the stockholders having been obtained and created no lien upon the property, and that that case was an authority for the proposition that the assent of the stockholders is an indispensable condition to the creation of a valid mortgage. But though the trustees of a manufacturing corporation had executed a mortgage without the consent of the stockholders, that the stockholders could subsequently ratify the act and by a subsequent assent validate the original unauthorized transaction; and that such an assent made the instrument as of the time it is given a valid mortgage. In Martin v. Niagara Falls Paper Mfg. Co. (122 N. Y. 165) it seems to have been held that when the consent was actually given before the execution of the mortgage, and no rights of creditors *155intervening, there was a sufficient compliance "with'the statute to make the mortgage valid as against the company and its stockholders. In that case, however, it appears that there was a consent in writing actually executed by the stockholders and subsequently filed. But in no case has it been held that where the consent of two-thirds of the stockholders was not evidenced by an instrument in writing or by a certificate of the officers of that corporation that it had been given at a stockholders’ meeting called for that purpose was the mortgage sustained. That an action can be maintained by a receiver of a corporation to set aside a mortgage upon the ground that it had not been consented to by the stockholders was expressly held in Vail v. Hamilton (supra), and that authority has never been questioned. In the absence of a finding that at least two-thirds of the stockholders had actually consented to the execution of the mortgage in the manner prescribed in the statute, it seems to me that the plaintiff was clearly entitled to a judgment setting aside the mortgage both for the benefit of stockholders and creditors.
For that reason I think the judgment appealed from must be reversed and a new trial granted, with costs to the appellant to abide the event.

 See Laws of 1892, chap. 688.— [Rep.