Bishop v. Kent & Stanley Co.

• Decision Date: 04 August 1898
• Citation: 41 A. 255,20 R.I. 680
• Parties: BISHOP et al. v. KENT & STANLEY CO.
• Court: Rhode Island Supreme Court

41 A. 255

20 R.I. 680

BISHOP et al.

v. KENT & STANLEY CO.

Supreme Court of Rhode Island.

Aug. 4, 1898.

Suit by John W. Bishop & Co. against the Kent & Stanley Company. On separate applications of Stephen O. Edwards, assignee of the Kent & Stanley Company, Limited, and of Joshua S. Ingalls, both of whom had been made parties defendant, for the modification of a decree entered in the suit Modified.

Bassett & Mitchell, for petitioner.

Wilson & Jenckes, for respondent.

Kent & Stanley Co. Chas., Wm. R., & G. F. Tillinghast, for Brown, mortgagee.

Comstock & Gardner, for assignee of Kent & Stanley Co. Samuel Norris, Jr., for respondent Ingalls.

TILLINGHAST, J. This case is now before the court upon the application of Stephen O. Edwards, assignee of the Kent & Stanley Company, Limited, who upon his petition has been made a party defendant, for a modification of the decree in said cause by which the same was referred to a master to make sale of the premises described in the petition, in such manner that the net balance remaining in the bands of the master, after the payment of the amount of the petitioners lien, shall be paid to him as such assignee; and also upon a similar application of Joshua S. Ingalls, who upon his petition has also been made a party defendant, and who claims to have a mortgage upon the premises described in the petition, for the sum of $10,000, with accrued interest, and who asks that said decree may be so modified as to provide for the payment to him of so much of said net balance as is necessary to discharge said mortgage. The defendant Edwards, as assignee, opposes the application of said Ingalls, upon the ground that the mortgage held by him is invalid, and that he has no right to a lien upon the premises therein described, or upon the proceeds of the sale of the premises in the hands of the master.

The material facts in the case are these: The Kent & Stanley Company, Limited, in consideration of the conveyance to it of all the property belonging to the Kent & Stanley Company, agreed to assume all the obligations of that company. Said Joshua S. Ingalls brought an action in the United States circuit court for the district of Rhode Island against the Kent & Stanley Company to recover the sum of $21,000, which had been paid by him for treasury stock of that company, which he alleged he had been induced to purchase by false and fraudulent representations. Pending the trial of that case, it appearing to the satisfaction of the defendant's counsel therein that there was very little doubt that a verdict would be 'rendered against the company for the full amount of the plaintiff's claim, with interest, and also that such a verdict would end the company, —that is, that it would be unable to meet such a liability,—they advised a settlement; believing that if a compromise could be effected, whereby a small part of the claim could be paid at once, and the balance postponed for a considerable time, the company would be able to "weather the gale and get through." Thereupon an agreement was made between said Ingalls and the officers of the Kent & Stanley Company, Limited, and its counsel, by the terms of which the Kent & Stanley Company, Limited, was to pay Ingalls $1,500 in cash, $1,500 in unsecured notes of the company, and $10,000 in a note of the company secured by mortgage upon real estate, $1,000 to be payable each year from the date of the mortgage, which was December 22, 1896, and the balance at the end of five years from such date, with Interest at 5%, and also to issue to him 60 shares of the preferred stock at par; and thereupon the action was entered, "Settled." In order to carry out this agreement, a special meeting of the stockholders was duly called for January 5, 1897, at which meeting the total number of shares represented was 2,784; the record not showing what part of this was preferred and what part common stock. 1,773 shares voted in favor of the proposition of settlement as above indicated, and 1,011 shares voted against it. The vote was declared carried by the president, and subsequently the mortgage was executed by the proper officers of the company, in pursuance of the authority of said vote, and was delivered to said Ingalls, and by him duly recorded. On January 20, 1897, the annual meeting of the stockholders of said company was held, at which, among other things, the records of the last meeting—the one first above referred to—were read and approved. After the holding of said firstmentioned meeting, Messrs. Wilson & Jenckes, of counsel for the defendant, notified said Ingalls that the mortgage in question had been duly approved by the stockholders. June 21, 1897, the said company paid the interest on said mortgage note for six months, amounting to $250. Since the said meeting of the stockholders at which said vote of settlement was passed, no stockholder of the company has made any objection to the giving of said mortgage or the making of the settlement. Section 4 of the charter of the defendant corporation provides as follows: "Sec. 4. The holders of preferred and common stock issued under authority of this act shall have an equal voice in the management of the corporation on all questions of majorities and quorums and no bond of this company shall be issued, nor shall any mortgage De made upon any of its property, without the consent of the holders of record of at least 75% of the preferred and of the common stock." At the time of the meeting on January 5, 1897, the capital stock of the company consisted of 2,940 shares of preferred and 2,000 shares of common stock. On December 3, 1897, a receiver of the corporation was appointed, and on January 15, 1898, the corporation filed its voluntary petition in insolvency. It has since been adjudged insolvent, and the defendant Edwards has been appointed assignee.

In view of the foregoing facts, the question raised is whether said mortgage is valid. The defendant Edwards claims that it is not, but that it is absolutely null and void, because it was made without the consent of the holders of the requisite amount of stock. The defendant Ingalls, on the contrary, claims that the mortgage is valid, on the grounds (1) That the corporation is estopped to deny its validity; that one dealing with a corporation has a right to presume that instruments duly executed by the officers, and within the scope of the powers of the corporation, are duly authorized. (2) That a corporation receiving the benefit of a mortgage is estopped to deny its validity. (3) That neither the creditors nor the assignee in insolvency can question the mortgage. And (4) that acquiescence by the corporation ratifies the mortgage.

We think it is very clear, in the first place, that the mortgage in question is not void, but at most is only voidable. The making thereof was unquestionably an act within the scope of the corporate powers of the defendant company, although the power to give the mortgage was not exercised in accordance with the charter. Haynes v. Covington, 13 Smedes & M. 408; City of Memphis v. Ensley, 6 Baxt. 553; Mining Co. v. Baker, 3 Nev. 386; Ditch Co. v. Zellerbach, 37 Cal. 543. Even if the charter had expressly provided that a mortgage given without the consent of the holders of the requisite amount of stock "should be void and of no effect," there is abundance of authority to the effect that then...