Corney v. Saltzman, 12.

• Decision Date: 01 November 1927
• Docket Number: No. 12.,12.
• Citation: 22 F.2d 268
• Parties: CORNEY v. SALTZMAN et al.
• Court: U.S. Court of Appeals — Second Circuit

22 F.2d 268 (1927)

CORNEY v. SALTZMAN et al.

No. 12.

Circuit Court of Appeals, Second Circuit.

November 1, 1927.

David Haar, of New York City, for appellant.

Hovell, McChesney & Clarkson, of New York City (Sidney A. Clarkson, of New York City, of counsel), for appellee Saltzman.

Before MANTON, L. HAND, and SWAN, Circuit Judges.

MANTON, Circuit Judge.

The Massel Realty Corporation, a New York corporation, was petitioned in bankruptcy on November 19, 1925. On May 27, 1925, it owned two parcels of land, and on that day borrowed from the appellee Saltzman $5,500, agreeing to pay it back in installments of $500 a month. Notes were delivered as evidence of the debt, and there was given as collateral security for its payment the capital stock of the corporation, consisting of 250 shares, which were owned by the officers of the corporation. The first note fell due August 10, 1925, and was paid; the remaining notes were not paid. On October 6, 1925, the corporation executed and delivered deeds of these properties. Later they were conveyed to the appellee, Schneiderman, who subsequently reconveyed them to the appellee Saltzman. The transfer to Schneiderman was on November 20, 1925. The deed recites the consideration to be $100, which, in point of fact, was not paid.

In addition to the capital stock, there was also delivered in furtherance of the security a waiver of the notice of a special meeting of the stockholders of the bankrupt to be held May 27, 1925, and a resolution adopted at this special meeting expressing the authority for pledging the stockholders' stock and the seal of the corporation "and all of the real estate now owned by the Massel Realty Corporation"; also making all unpaid notes due immediately upon the nonpayment of any of them. This resolution was signed by the president and secretary. There is no authority in the resolution to mortgage the company's property as security for the loan. There was also delivered a stockholders' consent that the "corporation may pledge the real estate of the corporation; * * * said pledge is to be dated the 27th day of May, 1925, * * * as security for the payment of a loan," etc. There was also a consent of two-thirds of the stockholders, authorizing the borrowing of the money and the "execution and delivery by said corporation of its bond * * * and its mortgage. * * * The consent does not refer to a bond. The resolution or waiver of the special meeting refers to neither bond nor mortgage. No bond or mortgage was ever executed, delivered, or recorded.

The appellee Saltzman made the plea below, as he does here, that he has an equitable lien to the extent of the indebtedness, and asks to treat the deed as a mortgage and the lien thereof as of May 27th, and not a conveyance in fee of the real property. By thus obtaining the capital stock and the accompanying corporate papers, Saltzman possessed no title to the corporation's assets. What he had was a pledge for securing the payment of his notes. Possession of the stock did not convey ownership. It gave no power to use the stock as his own, either for the purpose of calling a stockholders' meeting or electing a new board of directors. He could not be elected president by a vote of this stock, as he attempted. By such election of officers of the corporation, they could not lawfully sign a deed of the corporation's property. The deed was held to be invalid below, and with this we agree.

The promises of the parties on May 27th, together with the pledges, might have created an equitable lien for Saltzman's benefit or protection; but the deed, declared below to be effectual as a mortgage, was made by the corporation within four months of November, 19, 1925, the date the petition in involuntary bankruptcy was filed. When executed and delivered on October 6, 1925, the corporation was insolvent. It is argued that the agreement to make the mortgage was as of May 27, 1925, and, since the deed was later made, it should be regarded as a mortgage, because the parties intended it as such, and that equity will regard that done which ought to be done, and which is agreed to be done. But the agreement to make a mortgage may not be regarded as a mortgage or transfer. While such an agreement may give rise to an equitable lien and be enforceable between the original parties, regard must be had for the rights of third parties or creditors who, as here, are represented by the trustee in bankruptcy. The lien is enforceable, even against a trustee, if the lien rises out of an agreement which confines the security to a specific res and purports to give an absolute present right. Sexton v. Kessler, 225 U. S. 90, 32 S. Ct. 657, 56 L. Ed. 995. Though the equitable lien is enforceable against the res in a contest between the original parties, its operation where third parties are involved is limited. Jones on Liens (3d Ed.) § 77.

The question we have for decision is not whether an agreement to execute a mortgage on this specific property in the future constitutes an equitable lien, but rather whether, conceding that such a lien is created by what the parties promised and did, the lien is enforceable as against the trustee in...