In re Riggi Bros. Co.

• Decision Date: 09 June 1930
• Docket Number: No. 303.,303.
• Citation: 42 F.2d 174
• Parties: In re RIGGI BROS. CO., Inc.
• Court: U.S. Court of Appeals — Second Circuit

42 F.2d 174 (1930)

In re RIGGI BROS. CO., Inc.

No. 303.

Circuit Court of Appeals, Second Circuit.

June 9, 1930.

Riggi Bros. Co., Inc., a New York corporation doing business in Vermont, filed its voluntary petition in bankruptcy on the 8th day of November, 1926, in the District Court for the District of Vermont, and was duly adjudicated a bankrupt. A trustee in bankruptcy was elected and qualified. On April 13, 1929, the court, after notice and hearing, approved a compromise agreement the trustee had made with three banks who claimed to be in part secured creditors by virtue of a chattel mortgage covering certain property of the bankrupt given to one of them as trustee. At the time the compromise agreement was made, the property of the bankrupt had all been sold under a stipulation by which the trustee held the proceeds of the sale subject to the respective rights of all parties in interest to the same effect as though the property had not been sold. The chattel mortgage had been given more than four months before bankruptcy, but its validity was in dispute, both on the ground that it had not been authorized by a vote of at least two-thirds of the stockholders of the mortgagor as required by the New York law, and on the ground that the affidavit attached to it was insufficient under the law of Vermont, where the mortgage was executed and where the property was located, although it did appear that the mortgagee had taken possession of the property under the mortgage before the petition in bankruptcy was filed. The sufficiency of the description in the mortgage was questioned, and in addition to this the trustee claimed to be entitled to have certain attachment liens on the property preserved for the benefit of the estate and had filed a petition for that purpose. Petitions had been filed by the banks for various purposes relating to their claims upon the property of the bankrupt estate and in general had for their ultimate object deficiency allowances as unsecured creditors after the proceeds of the property on which security was claimed had been exhausted.

The compromise agreement provided for the waiver of any claims for such deficiencies; for the waiver of any claim to security except on the excess of the proceeds of the sale of all property in the bankrupt estate after the expenses of administration, all preferred claims, and 10 per cent. on each unsecured claim proved and allowed had been paid; that the trustee should waive all claim to any balance of the funds in his hands over that required to pay as above stated and should not contest the validity of the mortgage.

This mortgage was executed on May 3, 1926, to secure three notes — one for $7,500 of like date with the mortgage, one for $10,000, dated April 10, 1926, and also any subsequent indebtedness. It was given with the consent and approval of Joseph A. Riggi and Joseph A. Riggi, 2d, who together then owned 1,001 shares of the common stock of the corporation. There were outstanding 1,500 shares of common stock and 10 shares of preferred stock.

Section 16 of the Stock Corporation Law of New York (Consol. Laws, c. 59) in force at the time provided that:

"Power to borrow money and mortgage property. 1. Every stock corporation other than a moneyed corporation shall have the power to borrow money and contract debts, when necessary for the transaction of its business, or for the exercise of its corporate rights, privileges or franchises, or for any other lawful purpose of its incorporation; and it may issue and dispose of its obligations for any amount so borrowed, and may mortgage its property and franchises to secure the payment of such obligations, or of any debt contracted for such purposes. The consent to the execution of such mortgage, except a purchase-money mortgage, by the holders of not less than two-thirds of the total number of shares outstanding entitled to vote thereon, given either in writing, or by vote at a meeting of the stockholders called for that purpose in the manner prescribed by section forty-five, shall be required. A certificate that such consent was given by the stockholders in writing, or that it was given by vote at a meeting as aforesaid, shall be subscribed, acknowledged and verified by the president or a vice-president and by the secretary or an assistant secretary of the corporation, and shall be filed and recorded in the office of the recording officer of each county within the state in which the mortgage is filed or recorded, or, if no part of the mortgaged property be located within the state, in the office of the clerk of the county wherein the office of the corporation is located. * * *"

The affidavit attached to the mortgage was executed by Joseph A. Riggi, "Director and Agent Mortgagor," and by Harvey T. Rutter, "Director and Treasurer of Mortgagee," and set forth that "* * * the foregoing mortgage is made for the purpose of securing the debts specified in the condition thereof, and for no other purpose whatever, and that the same are just debts honestly due and owing, and to become due, from the mortgagor to the mortgagee, as Trustee."

At the time, sections 2788, 2789, and 2790 of the General Laws of Vermont provided as follows:

"Sec. 2788. Affidavit required of parties; form. A mortgagor and mortgagee, or, in the absence of the mortgagee, his agent or attorney, shall make and subscribe an affidavit in substance as follows:

"`We severally swear that the foregoing mortgage is made for the purpose of securing the debt specified in the conditions thereof, and for no other purpose, and that the same is a just debt, due and owing from the mortgagor to the mortgagee.'

"Such affidavit with the certificate of the oath signed by the authority administering the same shall be appended to such mortgage, and recorded therewith.

"Sec. 2789. Affidavit, when corporation is party. When a corporation is a party to such mortgage, the affidavit required may be made and subscribed by a director, trustee, cashier or treasurer...