Edwards v. Snow Hill Supply Co

• Decision Date: 24 February 1909
• Citation: 150 N.C. 171,63 S.E. 742
• Parties: EDWARDS et al. v. SNOW HILL SUPPLY CO. et al.
• Court: North Carolina Supreme Court

63 S.E. 742

150 N.C. 171

EDWARDS et al.

v.SNOW HILL SUPPLY CO. et al.

Supreme Court of North Carolina.

Feb. 24, 1909.

1. Corporations (§ 542^*) — Mortgages — Mortgage to Officers—Validity.

Where the directors of a corporation, knowing that its liabilities exceeded its assets, executed a mortgage on all the corporate property to secure the president and two of the directors against loss as indorsers on notes theretofore given by the corporation for borrowed money, the mortgage was not a valid lien as to other creditors.

[Ed. Note.—For other cases, see Corporations, Cent. Dig. §§ 2154-2160; Dec. Dig. § 542.*]

2. Corporations (§ 309*)—Mortgage to Corporate Officers—Authority from Stockholders—Presumptions.

While the execution by a corporation of a mortgage deed in the manner prescribed by Revisal 1905, § 1130, when the corporate seal is affixed, is presumed to be authorized by the stockholders, this presumption is rebutted when the deed is executed to the corporation's officers.

[Ed. Note.—For other cases, see Corporations, Cent. Dig. § 1370; Dec. Dig. § 309.*]

3. Chattel Mortgages (§ 187*)—Validity as to Creditors.

A mortgage given by a corporation to its officers to secure a pre-existing debt, and covering all the corporate property, was, as to a stock of goods which was being continually depleted and renewed and possession whereof was retained by the corporation, void as to other creditors.

[Ed. Note.—For other eases, see Chattel Mortgages, Cent. Dig. §§ 372-392; Dec. Dig. § 187.*]

Appeal from Superior Court, Greene County; O. H. Alien, Judge.

Action by B. W. Edwards and others against the Snow Hill Supply Company, F. W. Faireloth, and others. From the judgment, said Faireloth and another appeal. Affirmed.

See, also, 63 S. E. 740.

L. V. Morrill and C. B. Aycock, for appellants.

W. C. Munroe, G. V. Cowper, and J. Paul Frizzelle, for appellees.

CLARK, C. J. On January 10, 1908, at a meeting of the stockholders of the Snow Hill Supply Company, it was arranged that the company would borrow $8,000 from the bank, and the stockholders agreed among themselves that if F. W. Faireloth, T. M. Dail, and A. C. Dail, the president and two of the directors, would individually indorse said note as sureties, the stockholders would place their stock in the company with said indorsers as collateral. On January 11th a note of the company for $4,000, and on March 18th a similar note for $2,000, with said indorsers, was discounted by the bank, and the proceeds used in the business of the company. A portion of the stock, as agreed, was deposited with said indorsers. On May 23, 1908, the board of directors, without any vote of the stockholders, nor any entry on the minute book of the company, executed and put on record a mortgage to said Faireloth, Dail, and Dail on real property described, together with all its stock of goods and accounts and notes to secure them against loss as indorsers upon said notes of $6,000, which mortgage on its face purported to have been executed February 15, 1908, and embraced all the property of the company subject to certain prior mortgages on the realty. At the meeting on January 10, 1908, the company's report showed that its assets were $2,000 to $5,000 less than its liabilities and capital stock. It does not appear whether the corporation was solvent when the mortgage was delivered on May 23, 1908, or not. It went into the hands of a receiver October 7, 1908, being then insolvent, and this is a controversy over the application of the assets to the indebtedness of the company.

The court properly held, sustaining the ruling of the referee, that the mortgage to Fair-cloth and others was not a valid lien, and that the $6,000 thereby intended to be secured should participate in the assets...