Maryland Finance Corp. v. Duvall
Citation | 284 F. 764 |
Decision Date | 24 November 1922 |
Docket Number | 1999. |
Parties | MARYLAND FINANCE CORPORATION v. DUVALL. In re NATIONAL CONSUMERS' EXCHANGE, Inc. |
Court | United States Courts of Appeals. United States Court of Appeals (4th Circuit) |
Arthur W. Machen, Jr., of Baltimore, Md. (William Stanley and Hershey, Machen, Donaldson & Williams, all of Baltimore, Md on the brief), for appellant.
J Wallace Bryan, of Baltimore, Md., for appellee.
Before KNAPP, WOODS, and WADDILL, Circuit Judges.
This is an appeal from an order of the United States District Court for the District of Maryland, at Baltimore, entered on the 30th day of March, 1922, in the bankruptcy proceedings of the National Consumers Exchange, Incorporated, whereby the court denied to the appellant herein, the petitioner in said bankruptcy proceedings, the right asserted in said petition to a preferred lien upon the assets of the bankrupt's estate, because of the invalidity of the mortgage creating such lien, and dismissed the petition. The following is a succinct and brief summary of the facts stated in the opinion of the district judge (280 F. 449):
Appellant makes seven assignments of error to the rulings of the court. The first, second, sixth, and seventh relate to the action of the District Court (a) in dismissing the petition of appellant, and its failure to allow the asserted claim as a secured debt; (b) in holding invalid the mortgage attempting to secure the same; (c) for failing and refusing to hold the mortgage to be a valid and effectual security for the payment of the appellant's debt; (d) for its failure to decree in favor of the appellant in accordance with the prayer of its petition. Assignment 3 is for failure to hold the mortgage in question valid, because the same had been ratified by the bankrupt and its trustee; assignment 4, because the court erred in failing and refusing to hold the bankrupt's trustee estopped from denying the validity of the mortgage; and assignment 5, for error of the court in holding that said mortgage might be avoided and rescinded, without the trustee first restoring to the appellant the money advanced upon faith of the mortgage. These assignments will be considered in the order named, treating the first, second, sixth, and seventh as a single assignment, as they relate substantially to the same subject, that is, to the court's action in holding that the mortgage was invalid; that the debt therein secured was not a preferred claim, but on the contrary was ineffective and invalid, in so far as it sought to give the appellant a secured claim, and hence a denial of the prayer of the petition in that respect.
First. The mortgage involved admittedly was executed without any authority from the directors or stockholders of the company, by the president of the bankrupt corporation, who signed the corporation's name as president; the corporate seal being attached by the assistant treasurer of the company. The mortgage upon its face did not purport to have been executed pursuant to any lawful authority or direction of the corporation, acting either through its board of directors or stockholders, but was the sole act of the president, in concert with the assistant treasurer of the corporation. It was made at a time when the corporation was hopelessly insolvent, and in effect embraced all of the assets of the corporation, including its office furniture, except provisions in several stores of the company, and certain property fully covered by vendor's liens. The money raised upon this mortgage was used or dissipated largely in the payment of obligations for which the president was personally liable, and which at the time were not known to be obligations of the company.
In these circumstances, we think the District Court correctly held that the president of the corporation had no power to mortgage the company's assets without previous authority from the board of directors.
The fact that the president of a corporation cannot execute a valid mortgage under conditions such as here is well settled. There is no claim in this case that the mortgage was authorized by the stockholders, or board of directors, at any meeting called for the purpose, or that such directors or stockholders had actual knowledge of the making of the same or that they either directly or indirectly, collectively or as individuals, participated in the making of the mortgage, or had any knowledge of the execution thereof; and have never ratified the same since it came to their knowledge. The so-called mortgage was the outcome of an effort on the part of the president of the corporation, acting through and by a clerk of the company, to raise money by giving a preferred lien upon the company's assets, which was accomplished, though $750 was paid for the use of $4,250 for a period of three months, that is, more than 70...
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