Merchants & Farmers Bank v. Harris Lumber Company

• Decision Date: 22 April 1912
• Citation: 146 S.W. 508,103 Ark. 283
• Parties: MERCHANTS & FARMERS BANK v. HARRIS LUMBER COMPANY
• Court: Arkansas Supreme Court

146 S.W. 508

103 Ark. 283

MERCHANTS & FARMERS BANK v. HARRIS LUMBER COMPANY

Supreme Court of Arkansas

April 22, 1912

Appeal from Union Circuit Court; George W. Hays, Judge; reversed.

Judgment reversed and cause remanded.

Patterson & Green, for appellant.

The court erred in excluding the mortgage as evidence. It is clear from the evidence that the directors and stockholders of appellee by their conduct and acquiescence ratified the act of Nelson in executing the note and mortgage, and are estopped from denying its validity. Morawetz on Private Corp. (2 ed.) §§ 618, 627, 633; 1 Beach on Private Corp §§ 194, 195; 10 Cyc. 1074 (E), 1076-2-a, 1077-b 1077-c; Morawetz on Priv. Corp. (2 ed.) § 630; 1 Beach § 197; 89 Ark. 446.

E. O Mahoney and Gaughan & Sifford, for appellee.

OPINION

FRAUENTHAL, J.

This is an action of replevin for the recovery of certain personal property to which the appellant claimed the right of possession by virtue of an alleged mortgage executed to it by appellee, in which default had been made. The appellee is a domestic corporation, and it resisted recovery upon the ground that the alleged mortgage was not executed by it or by any agent or officer of the company having authority to execute it. It also alleged a full settlement of the note, which was secured by said mortgage, and the satisfaction of the mortgage. Upon the trial of the case, the court refused to permit the introduction in evidence of said alleged mortgage, and thereupon directed the jury to return a verdict in favor of appellee, which was done.

It appears from the testimony that the appellee is a business corporation organized under the laws of the State of Arkansas, and that three persons owned all of its shares of stock and were its directors. D. F. Harris was the president of the corporation and M. A. Nelson was its secretary and treasurer; and John Jones was its remaining director and shareholder. In February 1909, appellee was indebted to appellant in the sum of $ 4,500, and on that day a note was executed to it for that amount, due six months after date; and at the same time, in order to secure the payment thereof, a mortgage was executed to it on certain personal property owned by the appellee, amongst which is the property in controversy. At that time said Nelson was also the general manager of appellee's business, and he signed said note and mortgage in the name of the corporation, by himself as its secretary and treasurer, and delivered same to appellant. The testimony on the part of appellant tended to prove that on the day the note and mortgage were signed the three directors of the appellee corporation met at appellant's bank, and there talked over the matter of the indebtedness of said corporation to the bank, and agreed that the note and mortgage should be executed by their corporation to appellant; that the three directors held their meeting in a rear room of the bank; and, while no formal resolution was offered and passed directing the execution of the note and mortgage, all the directors discussed the matter, and after such discussion all three directors favored and agreed to the execution thereof to appellant. Thereafter, on the same day, the note and mortgage were executed by the said secretary and treasurer of said corporation. The testimony tended also to prove that he executed said note and mortgage in the name of the corporation with the knowledge and consent of D. F. Harris, the president, and that shortly thereafter John Jones, the remaining director and shareholder, knew that they had been executed by said Nelson as secretary and treasurer of the corporation, and either expressed his approval thereof or made no objection thereto. Later, payments were made on the note by the appellee's president, amounting in the aggregate to $ 2,150. According to the testimony, no objection was made to the execution of the note and mortgage by any director or shareholder of said corporation until this suit was instituted, which was about two years after knowledge had been obtained by all of them of the execution thereof.

The trial court refused to permit the introduction of the mortgage, and it is urged by counsel for appellee that this ruling was correct because the mortgage was not legally executed by the corporation; that it was not authorized at any meeting of its board of directors, and its secretary and treasurer was not authorized by its board of directors to execute it, even if such meeting was held.

It is provided by our statute that the affairs of a business corporation shall be managed by a board of directors consisting of not less than three members. Kirby's Digest, § 841. It is well settled, we think, that the acts of a corporation which must be done or authorized to be...