Pacific State Bank v. Coats

• Decision Date: 21 May 1913
• Docket Number: 2,193.
• Citation: 205 F. 618
• Parties: PACIFIC STATE BANK v. COATS. In re RAYMOND BOX COMPANY et al.
• Court: U.S. Court of Appeals — Ninth Circuit

205 F. 618

PACIFIC STATE BANK v. COATS.

In re RAYMOND BOX COMPANY et al.

No. 2,193.

United States Court of Appeals, Ninth Circuit.

May 21, 1913

[Copyrighted Material Omitted]

H. W B. Hewen, of South Bend, Wash., Maurice A. Langhorne and Elmer M. Hayden, both of Tacoma, Wash., for appellant.

Charles E. Miller, of South Bend, Wash., for A. S. Coats, John T Welsh, of South Bend, Wash., and Martin C. Welsh, of Raymond, Wash., for appellees answering creditors.

Before GILBERT and MORROW, Circuit Judges, and WOLVERTON, District judge.

WOLVERTON District Judge.

A. S. Coats is trustee in bankruptcy of the Raymond Box Company, a corporation. On December 2, 1910, the company executed and delivered to appellant, the Pacific State Bank, a note for the sum of $23,400 and a mortgage to secure its payment upon certain real and personal property of the bankrupt. The bank in due time filed its claim with the trustee, asserting preference over the general creditors as to such property by reason of its mortgage. Objections having been interposed to the validity of the mortgage on account of alleged irregularities attending its execution, acknowledgment, and recording, the cause was submitted to the District Court for its determination, and, the decision being adverse to the bank, it has appealed to this court.

Three questions have been urged for decision. The first relates to the authority of the officers of the Raymond Box Company to execute the mortgage; the second to the right of the trustee, in his capacity as such, to insist upon the invalidity of the mortgage, if invalid; and the third to the regularity of the acknowledgment of the mortgage, and as to the personal property the regularity of its recording. The mortgage is signed as follows: 'Raymond Box Company. By J. A. Heath, President. Attest: Miles H. Leach, Secretary' and has the corporate seal attached. It purports to have been executed 'with the authority of the Board of Trustees'; but it is objected that the board of trustees did not, by resolution or otherwise, specifically direct the execution of such instrument, nor did the board by any act upon its part as a board delegate to such officers the requisite authority therefor. For this reason, it is urged that the mortgage was executed without the requisite power on the part of the president and secretary, and hence that it is a nullity and void. Upon the other hand, it is insisted that the president and secretary, according to the record of the company, are its only stockholders, and, being the only trustees of the concern, might regularly execute the mortgage, although not specifically directed and empowered to do so by resolution or other authority of the trustees acting together as a board.

Three principles apply here, and will aid in the solution of the problem. When an instrument is proven to have been signed by corporate officers and the corporate seal is attached, the courts will assume that the seal was affixed by proper authority, and that the execution was duly authorized. Such execution and attachment of the corporate seal is at least prima facie the act of the corporation. Thompson on Corporations, Secs. 1893, 1928; Milton v. Crawford, 65 Wash. 145, 152, 118 P. 32.

'Persons dealing with corporate agencies have a right to rely upon the apparent authority of those in charge of the corporate business, and for acts done within the scope of that authority the corporation is bound. ' Parker v. Hill, 68 Wash. 134, 146, 122 P. 618, 623.

And, where money is received and used for the benefit of a corporation by its executive officers who are also its trustees, the corporation ratifies the contract under which the money was paid, and it is estopped to deny the authority of its agents to make the same. Kirwin v. Washington Match Co., 37 Wash. 285, 79 P. 928.

In the case at bar we have the president and secretary, who are not only the sole trustees of the corporation, but its sole stockholders, receiving money to the use and benefit of the corporation, and executing a mortgage on the company's property to secure the payment thereof; and they attach the corporate seal. To what other source could one look for corporate power to do the thing that was done? And then we have the apparent authority and the ratification. Can it be that this instrument is void, and will be so declared by a court of justice, because these two stockholders, officers, and trustees did not convene in board meeting, and solemnly declare and resolve that they, as officers, be authorized to execute the instrument given to secure moneys that such officers received to the use and benefit of the corporation? It could hardly seem so. In such a case the act of meeting together and authorizing themselves to do the thing we call executing the mortgage becomes a mere formality which the law does well to disregard, and the mortgage ought not to, and will not be, held to be a nullity because of the omission of the formality.

There is a question made as to whether Heath was the owner of any stock in the Box Company, which is based upon the fact that he at one time agreed to sell an undivided half interest in 40 shares, and thereafter breached his contract. But it appears that Heath retained the voting power respecting the stock, and must be deemed to have been the holder so far as the management of the business affairs of the company is concerned.

Is the trustee in bankruptcy in a position to controvert the validity of the mortgage either as a real or chattel mortgage? It is insisted on the part of the bank that, because the trustee represents only creditors who became such after the date of giving the mortgage, he cannot question the validity of such mortgage. The bankruptcy statute provides that:

'Such trustees, as to all property in the custody or coming into the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a creditor holding a lien by legal or equitable proceedings thereon; and also, as to all property not in the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a judgment creditor holding an execution duly returned unsatisfied.'

This is an amendment to section 47, cl. 2, sub. 'a,' adopted June 25, 1910, ch. 412, Sec. 8, 36 Stat. 840 (U.S. Comp. St. Supp. 1911, p. 1500). It is the purpose of this amendment to vest in the trustee for the interest of all creditors the potential rights of creditors possessing or holding liens upon the property coming into his custody by legal or equitable proceedings. The trustee no longer stands in the shoes merely of the bankrupt, with the limited rights of the bankrupt to attack unrecorded liens which may be valid and unimpeachable by such bankrupt; but the amendment by operation of law vests in him a lien equivalent to such as would be acquired by legal or equitable proceedings upon the property coming into his custody by virtue of the bankruptcy proceedings. 'The class of cases, unprovided for by the original act, and intended to be reached by the amendment,' says Mr. Collier in his work on Bankruptcy (9th Ed.) p. 659, 'was that in which no creditors had acquired liens by legal or equitable proceedings and to vest in the trustee for the interest of all creditors the potential rights of creditors potential with such liens. ' 'This provision of the Bankruptcy Act,' says Witner, Judge, in Re Hartdagen (D.C.) 189 F. 546, 549, 26 Am.Bankr.Rep. 532, 535, 'puts the trustee, in so far as the assets of the estate are concerned, in the position of a lien creditor,' distinguishing the case of York Mfg. Co. v. Cassell, 201 U.S. 344, 26 Sup.Ct. 481, 50 L.Ed. 782, and others of its character, which it is thought inspired the amendment. Mr. Collier is further of the view that:

'The purpose of Congress was to embrace within these words every class of creditors with liens by legal or equitable proceedings favored by the varying registration laws of each of the states. ' Collier on Bankruptcy, p. 660.

See, also, In re Calhoun Supply Co. (D.C.) 189 F. 537, 26 Am.Bankr.Rep. 528; In re Franklin Lumber Co. (D.C.) 187 F. 281; In re Williamsburg Knitting Mill (D.C.) 190 F. 871, 27 Am.Bankr.Rep. 178; In re Bazemore (D.C.) 189 F. 236.

The acknowledgment of the mortgage is in the following language:

'Be it remembered that on this 2d day of December, 1910, before me, the undersigned, a notary public in and for the state of Washington, personally appeared the within named J. A. Heath and Miles H. Leach, each to me well known to be the identical persons above named and whose names are subscribed to the within and foregoing instrument, the said J. A. Heath, as president, and the said Miles H. Leach, as secretary of said corporation, and the said J. A. Heath acknowledged to me then and there that he as president of said corporation had affixed said name together with his own name, freely and voluntarily as his free act and deed and the free act and deed of said corporation; and the said Miles H. Leach also then and there acknowledged to me that he as secretary of said corporation had signed the above instrument as secretary of said corporation by his free and voluntary act and deed and the free and voluntary act and deed of the said corporation.'

Attached to the mortgage is the affidavit of J. A. Heath and Miles H. Leach, which reads:

'We, J. A. Heath and Miles H. Leach, president and secretary respectively of the Raymond Box Company, a corporation, the above-named mortgagor, after being duly sworn on oath, say that the foregoing mortgage is made in good faith and without any desire to hinder, delay or defraud creditors.'

The mortgage was duly filed in the...