Kuser v. Wright
| Decision Date | 05 March 1895 |
| Citation | 52 N.J.E. 825,31 A. 397 |
| Parties | KUSER et al. v. WRIGHT. |
| Court | New Jersey Supreme Court |
(Syllabus by the Court.)
Appeal from court of chancery; before Chancellor Bird.
Bill by John Wright, receiver of the Ott & Brewer Company, against Anthony R. Kuser and others. There was a decree for complainant (28 AtL 719), and defendants appeal. Reversed.
G. D. W. Vroom, Edwin R. Walker, and Chauncey H. Beasley, for appellants.
James Buchanan, for respondent.
VAN SYCKEL, J. The Ott & Brewer Company was organized under the laws of this state, with three directors, viz. Brewer, Tucker, and Bell. In June, 1801, Bell made an assignment for the benefit of creditors, and soon after that left the state. In November, 1891, the Ott & Brewer Company, by the two directors, Brewer and Tucker, executed a mortgage on its real estate and certain goods and chattels to the First National Bank of Trenton, to secure a pre-existing Indebtedness. This mortgage was recorded as a real-estate mortgage, but was not sworn to or recorded as a chattel mortgage. In August, 1892, the safe company, by the same two directors, executed three several chattel mortgages to A. R. Kuser, John L. Kuser, and Albert Brewer, respectively, to secure to each of them the sum of $5,000 at that time loaned by them to the said company. In May, 1893, a bill was filed in the court of chancery alleging that the said the Ott & Brewer Company was insolvent, and thereupon John Wright was appointed receiver of the said company. The receiver exhibited his bill to set aside all these mortgages. The alleged infirmity chiefly relied upon is that two directors had no power to establish a lien upon the property of the corporation.
Our act concerning corporations (section 16) provides "that the business of every such corporation shall be managed and conducted by the directors thereof, who shall respectively be shareholders therein." Section 17 provides: "The directors shall not be less than three in number, and they shall be chosen annually by the stockholders at such time and place as shall be provided by the by-laws of the company, and shall hold their office for one year, and until others are chosen and qualified in their stead." Section 20 provides that "when any vacancy occurs among the directors, or secretary or treasurer, by death; resignation, removal or otherwise, it shall be filled for the remainder of the year in such manner as may be provided for by the by-laws of the said company." Section 47 provides that "It shall not be lawful for any person to be elected a director of any body corporate in this state issuing stock, unless that person shall be, at the time of his election, a bona fide holder of some of the stock thereof." Section 48 provides that "when any person, a director of any body corporate, shall cease to be a bona fide holder of some of the stock thereof, he shall cease thereupon to be a director thereof." The point made against these mortgages is that under our statute there must be at least three directors to manage the corporate business; that by the assignment made by Bell for the benefit of his creditors he ceased to be a stockholder, and by force of the statute ceased at the same time to be a director, of the company, thereby leaving the corporation without a board of directors legally qualified to conduct its affairs. That such a result justly or legally flows from these premises cannot be conceded. It is apparent that dealing with these corporate bodies would be in the highest degree hazardous and unsafe if the public, without notice in fact, is chargeable in law with knowledge of a latent infirmity in the title of every director of the company. A doctrine so destructive to the security of commercial transactions, now so largely conducted by corporate action, has no support in the law. The receiver stands for the corporation, and cannot impeach any act which the corporation itself could not successfully assail. Bell's original title to the office of director was good. It is not denied that he was legally elected. The corporation held him out to the public as one of its duly-authorized agents by failing to declare his office vacant and electing his successor.
In Doremus v. Dutch Reformed Church, 3 N. J. Eq. 349, Chancellor Vroom said that, "where the original title of an officer is sufficient, though good cause of amotion be shown, even in a case where the charter declares that for such cause of amotion the officer shall vacate his office, the office is not determined until there be an amotion." He also said that, "where persons are officers de facto, they are in colore officii, and their acts will be valid until they are lawfully ousted; and more especially as they respect third persons they are binding on the corporation." The authorities are cited in the opinion. This rule has never been departed from in this state. Vice...
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...true where the corporation deals with innocent third persons. 14a C. J. 462. Ashley Co. v. Ill. Co., (Ill.) 45 N.E. 410; Kuser v. Wright, (N. J.) 31 A. 397, 7 R. C. L. Mills v. Mining Co., (Calif.) 64 P. 122, 104 P. 470. Plaintiff is the holder in due course. 3985 C. S., and may enforce pay......
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