Commercial Trust Co. v. Idaho Brick Co., Ltd.

• Decision Date: 28 October 1913
• Citation: 25 Idaho 755,139 P. 1004
• Parties: COMMERCIAL TRUST COMPANY, Respondent, v. IDAHO BRICK COMPANY, LTD., L. L. HAYNES and ABBIE R. HAYNES, Appellants
• Court: Idaho Supreme Court

139 P. 1004

25 Idaho 755

COMMERCIAL TRUST COMPANY, Respondent, v. IDAHO BRICK COMPANY, LTD., L. L. HAYNES and ABBIE R. HAYNES, Appellants

Supreme Court of Idaho

October 28, 1913

CORPORATION-CONTRACT-WHEN RATIFIED-FINDINGS OF TRIAL COURT-RECEIVER-POWER TO APPOINT-BILL OF SALE NOT A MORTGAGE.

1. Where H. owns practically all but a few shares of stock in a corporation and conducted the company's business and made contracts for the company and borrowed money for the benefit of the company which was used and appropriated by the company, and the obligations of H. were ratified and appropriated by the company for a period of five years, and no stock was issued until after the execution of the obligations and contracts made by H., the company is liable for such debts and contracts made on behalf of and for the benefit of the company.

2. Where the trial court made findings of fact, and it is conceded, that the evidence upon which the court finds is in conflict, this court will not reverse the findings where the evidence shows preponderance in favor of the findings.

3. Sec 4329, Rev. Codes, subds. 2, 5 and 6, provides the grounds for appointment of receivers: "2. In an action by a mortgagee for the foreclosure of his mortgage and sale of the mortgaged property, where it appears that the mortgaged property is in danger of being lost, removed or materially injured, or that the condition of the mortgage has not been performed, and that the property is probably insufficient to discharge the mortgage debt. 5. In the case when a corporation has been dissolved, or is insolvent, or in imminent danger of insolvency, or has forfeited its corporate rights. 6. In all other cases where receivers have heretofore been appointed by the usages of courts of equity."

4. A court of equity has the power and authority in a proper case to appoint a receiver to take charge of the property and to care for and protect the same, and to decree the charges therefor as a prior claim and lien against the property, paramount to all mortgages or other liens or encumbrances.

5. Where an instrument is in controversy as to whether it is a mortgage or a bill of sale, and the record shows that the trial court found, and the testimony sustains the findings that said instrument was an absolute bill of sale and was intended as such both by the trust company and the brick company, such finding will not be reversed upon appeal.

6. Held, in this case that the evidence supports the findings and judgment.

APPEAL from the District Court of the Second Judicial District for Nez Perce County. Hon. Edgar C. Steele, Judge.

An action to collect a debt and foreclose a mortgage. Affirmed.

Judgment affirmed. Costs awarded to the respondent.

Ben F Tweedy, for Appellants.

The Idaho Brick Co. has an absolute right to have the brick covered by the bill of sale, sold on decree of foreclosure under sec. 4520, Rev. Codes, and since the respondent was foreclosing the deeds as mortgages, the appellants had a right to have the bill of sale foreclosed in the one action. (Murphy v. Russell, 8 Idaho 133, 67 P. 421.)

The court cannot hold that the bill of sale is not a part of the security which the respondent got from the Idaho Brick Company to secure its indebtedness to the respondent.

The authorities support the respondent's interpretation and construction of its security as it construed and interpreted its security in its complaint as originally filed and before it amended its complaint. (Bergen v. Johnson, 21 Idaho 619, 123 P. 484; Kelley v. Leachman, 3 Idaho 392, 29 P. 849; Wilson v. Thompson, 4 Idaho 678, 43 P. 557; Reitze v. Humphreys, 53 Colo. 177, 125 P. 518; Bartels v. Harris, 4 Me. 146; Eiland v. Radford, 7 Ala. 724, 42 Am. Dec. 610; 6 Cyc. 992, notes 31, 32 and 33; Pritchard v. Butler, 4 Idaho 518, 43 P. 73; secs. 3388 and 3421, Rev. Codes.)

Having concluded that the bill of sale is a part of the entire security executed by the Idaho Brick Co. to the respondent, it is the duty of the court to enforce the purpose of the legislature to protect the "debtor from the summary sale of the mortgaged property by the creditor," by denying the right to foreclose the undestroyed part of the security and by refusing to render a deficiency judgment. (Rein v. Callaway, 7 Idaho 634, 65 P. 63; Commercial Bank v. Kershner, 120 Cal. 495, 52 P. 848; Mascarel v. Raffour, 51 Cal. 242; Woodward v. Brown, 119 Cal. 283, 63 Am. St. 108, 51 P. 2, 542.)

The purpose of a receivership in a foreclosure action is to keep the mortgaged property for sale on the final decree of foreclosure, and to collect the rents, issues and profits arising from the mortgaged property, if covered by the mortgage, to apply them on the mortgage debt, or indebtedness, and not to seize the nonmortgaged property of the mortgagor. (Title Ins. and Trust Co. v. California Development Co., 164 Cal. 58, 127 P. 502.)

Subd. 2, sec. 4329, Rev. Codes, is the only authority for appointment of a receiver in a foreclosure action, and it limits the receivership to the mortgaged property. (Baker v. Varney, 129 Cal. 564, 79 Am. St. 140, 62 P. 100; Scott v. Hotchkiss, 115 Cal. 89, 47 P. 45; Eureka Mining etc. Co. v. Lewiston Nav. Co., 12 Idaho 472, 86 P. 49.)

If the appointment does extend to non-mortgaged property in a foreclosure action, the appointment is void. (Staples v. May, 87 Cal. 178, 25 P. 346.)

The corporation deed has no corporate seal affixed; and, therefore the respondent, before it has a right to introduce it, must prove affirmatively that it was authorized by the board of directors, or ratified by the board of directors. (Fudickar v. East Riverside Irr. Dist., 109 Cal. 29, 41 P. 1024; Salfield v. Sutter County etc. Reclamation Co., 94 Cal. 546, 29 P. 1105; 10 Cyc. 1019 (d).)

The president and manager of a manufacturing corporation cannot execute a mortgage on its property, machinery, or a part thereof without the authorization of the board of directors, there being no habit or custom of the corporation from which such authorization of the board of directors can be implied, as in the case at bar, and no habit or custom of business as transacted by the president and manager, from which the authorization of the board of directors can be found as having been expressly given by those having a right to grant it. (Secs. 2728, 2731, 2789, Rev. Codes; 5 Cook on Corporations, 2d ed., sec. 716, p. 1766; 10 Cyc. 903, 910, 914, 907, 927, 1198, 1199, 1201; Leggett v. New Jersey Mfg. etc. Co., 1 N.J. Eq. 541, 23 Am. Dec. 728; Citizens' Securities Co. v. Hammel, 14 Cal.App. 564, 112 P. 731; Despatch Line of Packets v. Bellamy Mfg. Co., 12 N.H. 205, 37 Am. Dec. 203; Trent v. Sherlock, 24 Mont. 253, 61 P. 650; Bank of Deer Lodge v. Hope Min. Co., 3 Mont. 146, 35 Am. Rep. 458; Helena Nat. Bank v. Rocky Mt. Tel. Co., 20 Mont. 379, 63 Am. St. 628, 51 P. 829; 10 Ency. of Ev., pp. 6-15.)

Fred E. Butler, for Respondent.

"The board of directors and the corporation are bound by the contracts of a director or other person who has assumed to contract for the company, and has been allowed by the board to so act and contract." (Cook on Corporations, 6th ed., sec. 712; Mills v. Boyle Mining Co., 132 Cal. 95, 64 P. 122.)

A person contracting with a corporation is not bound to know that a by-law requires that contracts of a certain kind shall be approved by the board of directors. (Barnes v. Black Diamond Coal Co., 101 Tenn. 354, 47 S.W. 498; Cook on Corporations, sec. 725, and cases cited; First Nat. Bank v. Eureka Lumber Co., 123 N.C. 24, 31 S.E. 348; Produce Exch. Trust Co. v. Bieberbach, 176 Mass. 577, 58 N.E. 162.) Notes of a corporation are valid, even though the by-laws provide that they shall be signed by the president and they are actually signed by another officer. (Grant v. George C. Treadwell Co., 82 Hun, 591, 31 N.Y.S. 702; Underhill v. Santa Barbara Land etc. Co., 93 Cal. 300, 28 P. 1049; Blanc v. Germania Nat. Bank, 114 La. 739, 38 So. 537; 3 Clark & Marshall on Corp., 2721.)

Even though the directors have not especially authorized a mortgage, yet if the person who owns practically all of the stock takes part in the transaction and the corporation receives the benefit of it, the mortgage is good. (Auten v. City Electric St. R. Co., 104 F. 395; 10 Cyc. 351, 352; Louisville etc. Ry. Co. v. Louisville Trust Co., 174 U.S. 552, 573, 19 S.Ct. 817, 43 L.Ed. 1081.)

"A transfer of title by a debtor to a creditor in payment is in effect a sale and not a mortgage." (35 Cyc. 37; Hammer v. O'Laughlin, 8 Wash. 393, 36 P. 257; Krippendorf-Dittman Co. v. Trenoweth, 16 Colo. App. 178, 64 P. 373; Camp v. Thompson, 25 Minn. 175; Prentiss Tool etc. Co. v. Schirmer, 136 N.Y. 305, 32 Am. St. 737, 32 N.E. 849; Cohen v. Stewart, 98 N.C. 97, 3 S.E. 716; Powell v. Kelly, 82 Ga. 1, 9 S.E. 278, 3 L. R. A. 1391.)

A creditor has only to establish the fact that the corporation of which he is such creditor is insolvent to make it the duty of the proper court to appoint a receiver to take possession of the property of such corporation and close up its affairs. (Oleson v. Bank of Tacoma, 15 Wash. 148, 45 P. 734; Davis v. Consolidated Coal Co., 41 Wash. 480, 84 P. 22.)

The old rule has by statute been changed in Idaho as the supreme court of Washington says it has been in that state, so that, at the present time, if a corporation is insolvent, that is sufficient to justify the appointment of a receiver, whether the creditor seeking to collect his debt has reduced his debt to judgment or not. (Gibbs v. Morgan, 9 Idaho 100, 72 P. 733; Hall v. Nieukirk, 12 Idaho 33, 118 Am. St. 188, 85 P. 485.)

Upon the showing made in the complaint, the trial court did have the power to appoint a receiver. (Dalliba v Winschell, 11 Idaho 364, 114 Am. St. 267, 82 P. 107; ...