Hamilton Trust Co. v. Clemes

• Decision Date: 12 June 1900
• Citation: 163 N.Y. 423,57 N.E. 614
• Parties: HAMILTON TRUST CO. v. CLEMES et al.
• Court: New York Court of Appeals Court of Appeals

163 N.Y. 423

57 N.E. 614

HAMILTON TRUST CO.

v.CLEMES et al.

Court of Appeals of New York.

June 12, 1900.

Appeal from supreme court, appellate division, Third department.

Action by the Hamilton Trust Company against G. Hector Clemes and others. From a judgment of the appellate division (45 N. Y. Supp. 141) affirming a judgment for plaintiff, defendants appeal. Affirmed.

This action was brought to foreclose a mortgage for $150,000, dated March 1, delivered June 1, and recorded June 12, 1895, given by the Horicon Improvement Company to the plaintiff, as trustee for the bondholders, upon certain premises near Lake George, known as the ‘Lake House and Prospect Mountain Properties.’ The appellants, as subsequent judgment creditors of the mortgagor, defend upon the ground that the mortgage is illegal and void as to them because it was given with intent to defraud, and without complying with certain statutory requirements. The trial justice decided all the issues in favor of the plaintiff, and the appellate division affirmed, but not unanimously, so far as appears.

C. H. Sturges, for appellants.

Edwin C. Low, for respondent.

VANN, J.

When the Horicon Improvement Company was organized, its charter provided for only three directors, but when the mortgage in question was given, a few months later, the number of directors had been increased to seven. As the resolution to mortgage could not have been passed without the vote of one or more of the additional directors, who were not stockholders of record at the time, but simply assignees of a certain number of shares, represented by a stock certificate issued in the name of another person, it is claimed by the appellants that the mortgage is invalid, because it was authorized by directors who, not having been recorded as stockholders upon the stock book, were ineligible under the statute (Stock Corp. Law; Laws 1890, c. 564, §§ 20, 24, 29). The appellants also claim that the mortgage is void because the sum secured thereby exceeded ‘an amount equal to twothirds of the value of its [the corporation's] corporate property at the time of issuing the’ bonds,-such value being more than the amount of the paid-up capital stock,-in violation of said statute (section 2). It is further claimed that the mortgage, although authorized by all the stockholders there were, was not in fact authorized by any stockholder, because there was no stock book, as required by section 29, and hence no stockholders, within the meaning of the statute. These objections to the validity of the mortgage, as against subsequent judgment creditors, were urged, among others, in the courts below, but they were all disposed of upon satisfactory grounds by the opinion of the learned appellate division. Hamilton Trust Co. v. Clemes, 17 App. Div. 152,45 N. Y. Supp. 141. We are also of the opinion that there is still another conclusive answer to the position taken by the appellants, which we will briefly discuss, as it has not thus far been considered.

The Horicon Improvement Company was organized under the business corporation law (Laws 1890, c. 567; Laws 1892, c. 691). The three original directors named in the certificate of incorporation became such by direct command of the statute, and not through an election by stockholders. In the nature of things, there can be no stockholders at the date of incorporation, and hence the provision that the directors shall be chosen ‘from the stockholders * * * by a majority of the votes of the stockholders voting’ has no application to ‘the directors for the first year’ named in the certificate pursuant to law. Stock Corp. Law, § 20; Business Corp. Law, § 2, par. 8; McDowall v. Sheehan, 129 N. Y. 207, 29 N. E. 299;Davidson v. Light Co., 99 N. Y. 558, 565,2 N. E. 894. In the case last cited the court, referring to a similar provision of another statute, said: ‘The language of section 1 of the act by express terms makes the persons named in the certificate of incorporation, as such, directors of the company for the first year of its existence, and confers upon such persons full power to act as directors in the performance of any corporate duty after the filing of such certificate. The corporate authority of such an organization must, from necessity, be coincident with the inception of its corporate existence, and antedate the acquisition by it of property, or the issue of stock certificates representing such property.’ The three original directors, therefore, were directors de jure, clothed with all the powers of the corporation, and authorized to make any contract in its behalf that it was capable of making. While they were the sole directors, and in January, 1895, they caused the Horicon Improvement Companyto enter into a contract with the Otis Engineering & Construction Company, whereby the latter agreed to lend the former the sum of $30,000 in cash, and to make extensive improvements upon the Lake House and Prospect Mountain properties. Upon performance of this agreement by the Otis Company, the Horicon Company agreed to give it $50,000 in full-paid stock, and $150,000 in bonds, of $500 each, bearing interest at the rate of 6 per cent., to be issued by the company last named, and duly secured by a first mortgage. Early in June, 1895, said contract was fully performed by the Otis Company on its part, the $30,000 paid over, and the improvements completed and accepted. These improvements so increased the value of the property of the Horicon Company as to make its assets exceed by more than one-third thereof the amount of the proposed mortgage. In the meantime the number of directors of the Horicon...