Manhattan Hardware Co. v. Phalen

• Decision Date: 07 October 1889
• Docket Number: 316
• Citation: 18 A. 428,128 Pa. 110
• Parties: MANHATTAN HARDWARE CO. v. P. PHALEN
• Court: Pennsylvania Supreme Court

18 A. 428

128 Pa. 110

MANHATTAN HARDWARE CO. v. P. PHALEN

No. 316

Supreme Court of Pennsylvania

October 7, 1889

Argued March 8, 1889

ERROR TO THE COURT OF COMMON PLEAS OF BERKS COUNTY.

No. 316 January Term 1889, Sup. Ct.; court below, number and term not given.

On September 30, 1887, Patrick Phalen, to the use of Francis A Fales, assignee, issued a scire facias upon a mortgage executed by the Manhattan Hardware Company to Patrick Phalen dated February 21, 1887, and containing the following recital:

"Whereas at a duly convened meeting of the board of directors of the said Manhattan Hardware Company, held at their office in the city of Reading, on the twenty-first day of February, 1887 the following preamble and resolution were unanimously adopted:

"Whereas, The stockholders of this company, on the fourteenth day of February, 1887, did unanimously authorize the directors and officers of this company to execute and deliver the bond of the company, secured by mortgage upon any or all of its property, to Patrick Phalen, of Troy, N.Y., in the sum of twenty-five thousand dollars, upon such terms and conditions as the directors and officers may determine, which said bond and mortgage shall secure the said Patrick Phalen for any indebtedness now due or owing him by the said company, or any liabilities assumed by him on behalf of said company, or any renewals of the said indebtedness or liabilities, or any additional indebtedness or liabilities from time to time hereafter to be created or assumed, not exceeding in the aggregate the said amount, and did thereby expressly waive any meeting or election of stockholders for all or any of the foregoing purposes.

"Resolved, That the officers of this company be authorized and directed to execute and deliver the bond of this company and to secure the same by a mortgage upon all its property to Patrick Phalen of Troy, N.Y., in the sum of twenty-five thousand dollars for the purposes above set forth.

"And whereas, the said Manhattan Hardware Company is now indebted to the said Patrick Phalen in the said sum of twenty-five thousand dollars, for moneys now due and owing to the said Patrick Phalen, and for liabilities assumed by the said Patrick Phalen on behalf of the said Manhattan Hardware Company.

"And whereas the said Manhattan Hardware Company by its certain bond or obligation bearing even date herewith stands bound unto the said Patrick Phalen in the sum of fifty thousand dollars, conditioned for the payment of the sum of twenty-five thousand dollars in five years from the date thereof with interest at the rate of six per cent per annum, payable semi-annually, as by the said bond or obligation fully appears.

"Now this Indenture witnesseth," etc.

On October 10, 1887, James Nolan, as the receiver of the defendant company, filed the following affidavit of defence:

"Before me, the subscriber, a Notary Public, . . . personally appeared James Nolan, being receiver of the Manhattan Hardware Company, duly appointed by the Court of Common Pleas of Berks county in equity suit No. 423, 1887, and duly authorized by an order of the Court of Common Pleas aforesaid in the equity suit aforesaid, to defend the said action, and who being duly sworn according to law doth depose and say . . . .

"The said Manhattan Hardware Company is a corporation created by letters patent issued by the Governor of the State of Pennsylvania, bearing date September 22, 1885. At and prior to January 1, 1886, the said corporation owned a foundry, machine shop, and hardware manufactory situate at the corner of Ninth and Bingaman streets in the city aforesaid, and about 13 acres of land situate in the northern part of the said city. D. H. Fitzgerald, president of the said company, at or about the time aforesaid, proceeded to borrow large sums of money from divers persons, including Patrick Phalen and the firm of Church & Phalen, of which the said Patrick was a member, and to erect upon the 13 acres of land aforesaid, buildings, etc., and to remove the machinery from the property at Ninth and Bingaman streets aforesaid into the building so erected. The said moneys were so borrowed and the said buildings erected and machinery removed without any previous meeting held, resolutions passed, or action taken thereupon by the board of directors of the said company. No meeting of the stockholders of the said corporation was at any time called by resolution of the board of directors to vote for or against the borrowing of the said moneys from the said Patrick Phalen and the said firm of Church & Phalen, nor was any notice of the time, place, and object of any such meeting published once a week for 60 days prior thereto in at least one newspaper published in the city aforesaid, being the city wherein the chief office or place of business of the said corporation was and is situate, nor was any meeting of stockholders at any time held at the chief office and place of business of the said corporation or elsewhere for the purpose of taking an election of such stockholders for or against the increasing of the indebtedness which would result from such borrowing. That the moneys so borrowed are the moneys for which the said mortgage and the bond therein described were given and form the sole consideration for the same.

"That no meeting of the stockholders of the said corporation was at any time called by resolution of the board of directors to vote for or against the execution of the mortgage and of the bond therein described, nor was any notice of the time, place, and object of any such meeting published once a week for 60 days prior thereto in at least one newspaper published in the city aforesaid, being as aforesaid the city wherein the chief office and place of business of the said corporation was and is situate, nor was any meeting of stockholders at any time held at the chief office and place of business of the said corporation or elsewhere for the purpose of taking an election of such stockholders for or against the increasing of indebtedness which would result from the giving of the said mortgage and the bond therein mentioned.

"Wherefore the deponent is advised and avers that the said borrowing and the giving of the said bond and mortgage were and are void and of no effect, and did not and do not create any liability whatever on the part of the said corporation. The deponent further says that there are other creditors of the said corporation whose claims are valid, and who cannot be paid if the said bond and mortgage are permitted to be recovered upon, and that the plaintiff's attorney is also the attorney of the said corporation, and unless, therefore, the said deponent in behalf of those having valid claims against the said corporation, and in behalf of the stockholders of the same, defends against the said writ of scire facias, judgment will be entered thereupon by default, and under execution process issued upon such judgment the real estate of the said corporation will be sold by the sheriff, thus not only disturbing the deponent's possession and custody of the said real estate, but destroying the rights of those having valid claims against the said corporation, all of which is true to the best of deponent's knowledge, information, and belief, and all of which deponent expects to be able to prove upon the trial of this cause."

On January 3, 1888, a supplemental affidavit of defence was filed by Mr. Nolan in which he averred:

"That the borrowing of money from Partrick Phalen and from Church & Phalen, and the giving of the mortgage whereon this suit is brought, were an increasing of the indebtedness of the said corporation; that no such resolution as that recited in the said mortgage was ever adopted by the board of directors, nor was the unanimous consent of the stockholders of the said corporation at any time given to the execution of the said mortgage as therein mentioned; neither did the stockholders waive a formal election for or against the said increase as recited in the said mortgage; that no action was at any time taken, either by the stockholders or the board of directors, ratifying the giving of the said mortgage; and that, if the said mortgage be adjudged valid, it will render the said corporation insolvent and destroy the interests of the stockholders, and injure those who have valid claims against the said corporation."

In the paper books presented, but apart from the record, it appeared that the plaintiffs in the equity proceeding, referred to in the affidavit of defence, were William Kerns, Francis A. Fales, assignee for the benefit of creditors of Patrick Phalen, Patrick Phalen and Theressa, his wife, Joseph P. Egan and Timothy J. Hurley, stockholders of the Manhattan Hardware Company, and Samual J. Bedford, a creditor of the company.

On January 26, 1889, the court, ERMENTROUT, J., made absolute a rule for judgment for want of a sufficient affidavit of defence, and judgment was entered in favor of the plaintiff for $29,240.62. On the same day, leave was given to James Nolan, receiver of the Manhattan Hardware Company to purchase a writ of error from the Supreme Court. Mr. Nolan thereupon took this writ, assigning as error the order of the court entering...