Farmers' State Bank of Richardton v. Brown

• Decision Date: 30 March 1925
• Docket Number: No. 4838.,4838.
• Parties: FARMERS' STATE BANK OF RICHARDTON v. BROWN, Sheriff, et al.
• Court: North Dakota Supreme Court

52 N.D. 806

204 N.W. 673

FARMERS' STATE BANK OF RICHARDTON

v.BROWN, Sheriff, et al.

No. 4838.

Supreme Court of North Dakota.

March 30, 1925.

Syllabus by the Court.

It is not essential to the validity of a chattel mortgage, purporting to have been executed by a corporation, that the corporate seal should be attached, and, where the evidence shows that a mortgage was executed on behalf of the corporation, by its president, as security for a pre-existing debt, evidenced by notes given and renewed from time to time in the name of the corporation, by the president, and where the president was apparently in sole charge of the affairs of the corporation, it is held that the mortgage was executed by an officer having authority.

A corporation, though insolvent or in failing circumstances, may give a mortgage to a creditor to secure its existing indebtedness, and such mortgage will be valid, though it constitute a preference. Section 7218, Compiled Laws of 1913.

The validity of a mortgage, given by an officer of a corporation possessing authority, is not affected by the fact that the mortgage was not executed in the office of the corporation, where it appears that the sheriff had previously placed a lock on the door of the office, in attempting to levy upon the corporate property therein contained to satisfy a personal judgment against the president of the corporation.

Where it appears that two parties, each claiming prior right to resort to corporate property for the satisfaction of their respective indebtednesses, had dealt with their common debtor during the same period of time as a corporation, and where it is essential to the claim of priority of one party to establish the nonexistence of the corporation upon a given date within that period, such party sustains the burden of proving that fact.

An ex parte certificate of the secretary of state, to the effect that a corporate charter is canceled on the records of his office for failure to file an annual report, and not reinstated, is not competent evidence of the facts therein stated.

Whether cancellation of the corporate charter by the secretary of state, for failure to file an annual report and pay fees, under section 4518 of the Compiled Laws of 1913, and the failure of the corporation to be reinstated, under section 4521 of the Compiled Laws of 1913, as amended by chapter 99 of the Laws of 1917 and chapter 4 of the Laws of the Special Session of 1918, has the effect of terminating the corporate existence without a judicial proceeding, and whether third parties dealing with a corporation, after such defaults, are precluded from asserting the nonexistence of the corporation, are questions which are mooted but are not decided.

On Petition for Rehearing.

The legality of the existence of a corporation, and its right to exercise corporate powers, cannot be questioned collaterally.

Section 4518, Compiled Laws of 1913, which provides for the filing of an annual report by corporations, the payment of a filing fee, and makes it the duty of the secretary of state to enter upon the records of his office the cancellation of the charter for noncompliance, is construed, and it is held that thereunder the failure to pay the annual fee does not, ipso facto, work a forfeiture of the corporate charter.

Appeal from District Court, Stark County; H. L. Berry, Judge.

Action by the Farmers' State Bank of Richardton against George J. Brown, as Sheriff of Stark County, and another. Judgment for defendants, and plaintiff appeals. Reversed, and judgment entered for plaintiff.Murtha & Sturgeon, of Dickinson, for appellant.

S. E. Ellsworth, of Jamestown, for respondents.

BIRDZELL, J.

This is an appeal from a judgment in favor of the defendant in a claim and delivery action. A trial was had in the district court of Stark county, and, at the conclusion of the trial, the questions at issue being resolved by counsel into questions of law, the case was withdrawn from the jury, and, after being taken under advisement, was decided by the court. The essential facts are as follows: In 1910 there was organized a corporation known as E. Mottershead Company. About the time of its organization the corporation opened an office for the transaction of its business in Richardton. From this time forward its business affairs were principally, if not entirely, under the management of one Edmund Mottershead, who was president of the company. In the course of time, the company became indebted to the Farmers' State Bank, the plaintiff in this action, in the sum of about $1,200 and to one R. S. Brookings in the sum of $10,714.92. In addition to this, Mottershead became indebted to Brookings personally in a much larger amount. In October, 1922, suits were commenced by Brookings against the E. Mottershead Company and Mottershead personlly, and the following March judgments were entered in favor of Brookings against E. Mottershead Company for $10,714.92 and against Mottershead personally for $47,709.96. An execution was immediately taken out under the judgment against Mottershead personally, but there is no return in the record showing what was done thereunder. There is evidence, however, indicating that a levy was made upon some property belonging to the judgment debtor and upon the property of the corporation involved in this controversy. In May, following the entry of these judgments, another execution was taken out in an attempt to satisfy the judgment against the E. Mottershead Company, and this execution was levied upon the property involved in this controversy. On April 2d, a month prior to the issuance of the latter execution, the E. Mottershead Company, by E. Mottershead, president, gave to the plaintiff in this action a chattel mortgage on the property in question, consisting, in general, of the office furniture, fixtures, and supplies of the company, to secure a demand note previously given in renewal of a former indebtedness of the company. The plaintiff's claim in this case is based upon the interest acquired under this mortgage and the claim of the defendant is under the execution of May 2d. The trial court sustained the claim of the defendant, and the plaintiff appeals.

The principal contentions upon the appeal concern the validity of the mortgage. It is assailed as not having been properly executed by the corporation (1) because the corporate seal was not attached; (2) because there was no proof that the person signing the mortgage on behalf of the company was an officer authorized to execute mortgages of its property; (3) because the corporation was insolvent and the mortgage was not given in the ordinary course of business; and (4) because, prior to the giving of the mortgage, the corporation had failed to file with the secretary of state the annual report required by section 4518 of the Compiled Laws of 1913, and had suffered a cancellation of its charter, and that it had not been restored under section 4521 of the Compiled Laws of 1913, as amended by chapter 99 of the Laws of 1917 and chapter 4 of the Laws of the Special Session of 1918.

[1] We do not understand it to be contended by counsel that the chattel mortgage is altogether invalid by reason of the fact that the corporate seal was not attached, but rather that the absence of the seal deprives the mortgage of a prima facie presumption in favor of the authority of the officer executing it to act on behalf of the corporation. No statute is called to our attention which requires the corporate seal to be attached to a chattel mortgage executed on behalf of a corporation, and, in the absence of such a requirement, the mortgage would be valid if executed by any officer of a corporation with authority in fact or with ostensible authority.

[2][3] The evidence in this case shows that E. Mottershead had charge of the office of the E. Mottershead Company; that the office was located in the same building as the plaintiff bank and upon the same floor; that, according to the undisputed evidence of the cashier of the plaintiff bank, E. Mottershead was the only person in the office who had anything to say about it; that Marian Mottershead, the president's wife, held some office in the corporation (the witness did not know what office it was); and that the E. Mottershead Company had been indebted to the plaintiff bank for some time, for which indebtedness various notes had been executed in its name by E. Mottershead, president. We are of the opinion that this evidence sufficiently establishes the prima facie authority of Mottershead to execute a chattel mortgage upon the property of the corporation to secure its indebtedness. There being sufficient proof, in our opinion, that the mortgage was given by one with authority to execute it, we think there is no merit in the contention that it was not good as to the defendant because not given in the ordinary course of business. The corporation could give a mortgage to secure its existing indebtedness, even though insolvent or in failing condition at the time. This, at most, would make the mortgage operate as a preference, and in this state it is recognized that a corporation or an individual may prefer one creditor over another. Section 7218, Compiled Laws of 1913; John Miller Co. v. Harvey Mercantile Co., 38 N. D. 531, 165 N. W. 558. The fact that the mortgage was executed in the plaintiff bank in no manner affects the regularity of the transaction, especially in view of the fact that the sheriff, in an attempt to make effective a levy on the corporate property under an execution against Mottershead individually, had placed a padlock on the door of the office where the corporation did business-thus barring Mottershead from the office.

This brings us to the contention that the mortgage is ineffective by reason of the failure of the corporation to file with the secretary of state the annual report required by section 4518 of the Compiled Laws of 1913, and its failure to take steps to secure...