Wall v. Rothrock

• Decision Date: 26 April 1916
• Docket Number: 389.
• Parties: WALL v. ROTHROCK ET AL.
• Court: North Carolina Supreme Court

88 S.E. 633

171 N.C. 388

WALL v. ROTHROCK ET AL.

No. 389.

Supreme Court of North Carolina

April 26, 1916

Appeal from Superior Court, Davidson County; Cline, Judge.

Action by J. E. Wall, trustee, against E. A. Rothrock and another. From a judgment for defendants, plaintiff appeals. Reversed and remanded.

Special issues as to admitted facts should not be submitted to the jury.

This is a civil action, tried at February term, 1916, Davidson superior court, upon these issues:

(1) Is the deed of mortgage mentioned in the pleadings the act and deed of the Southmont Spoke, Hub & Handle Company now bankrupt? Answer: Yes.

(2) Was the said Southmont Spoke, Hub & Handle Company at the time of the execution of said paper writing insolvent and unable to pay its debts? Answer: No.

(3) Was the said deed of mortgage executed with the fraudulent purpose and intent to defeat the rights of other creditors and unduly prefer the defendants? Answer: No.

(4) What amount, if any, were the defendants required to pay on account of the indebtedness secured in said mortgage and what amount, if any, is now due thereon to the defendants? Answer $3,350.16.

From the judgment rendered, the plaintiff appealed.

P. V Critcher, McCrary & McCrary, and Walser & Walser, all of Lexington, for appellant.

Raper & Raper, J. F. Spruill, Phillips & Bower, all of Lexington, for appellees.

BROWN J.

This action is brought by plaintiff as trustee in bankruptcy of the Southmont Spoke, Hub & Handle Company to set aside a mortgage made by the bankrupt to the two defendants, one of whom Rothrock was president and both of whom were directors of the said corporation. The mortgage is dated February 1913, was recorded January 15, 1914, and secures the defendants as indorsers of four notes of same date executed by the bankrupt to the Bank of Lexington for money loaned. The plaintiffs have paid the notes and now seek to foreclose their mortgage.

Plaintiff in apt time requested the following instructions:

(1) "If the jury find from the evidence that the mortgage was authorized by the directors and not by the stockholders, you will answer the first issue 'No.'

(2) "If the jury believe the evidence, they will answer the third issue 'Yes.' "

These instructions the court properly declined to give.

The first prayer raises the general question as to the right of directors ever to mortgage the corporate property without the consent of the stockholders. It is well settled that as a general rule, the directors of a corporation, unless they are specially restrained by the charter or by-laws, have the power to borrow money with which to conduct the business and to secure payment by mortgage on the corporate property. 10 Cyc. 765.

The power to borrow money carries with it by implication the power to secure the loan by mortgage. 2 Beach on Corp. § 388; 1 Morawetz, § 346. Cook says (volume 3, § 808):

"It is now the established rule that the board of directors without any action whatever by the stockholders has the power to authorize the execution of a mortgage on the corporate property."

Same author (section 712) says:

"The stockholders indeed have very few functions. The board of directors have the widest of powers. All the various acts and contracts which a corporation may enter into are entered into by and through the board of directors. The board of directors make or authorize the making of notes, bills, mortgages, sales, deeds, liens, and contracts generally of the corporation."

Our statute (Rev. 1905, § 1905) appears to recognize inferentially the power of a board of directors to mortgage the corporate property. In Duke v. Markham, 105 N.C. 135, 10 S.E. 1017, 18 Am. St. Rep. 889, it is said by the present Chief Justice that:

"A president and cashier, as such, cannot execute a mortgage of corporate property without special authority from the board of directors or the stockholders."

The other prayer was properly refused because fraud is generally a question of fact, and, taking the evidence as a whole, the court could not as matter of law pronounce the transaction fraudulent and void. It is true that it is held in Edwards v. Supply Co., 150 N.C. 171, 63 S.E. 742, that a mortgage on all its property, made by a corporation under authority of its directors with a note of the stockholders to secure them in their prior indorsements of the corporation's notes negotiated for the benefit of the corporation is void, otherwise had the mortgage been authorized at the time of the indorsements and receipt of the money to aid the corporation's business.

In that case it is also held that when a mortgage has been made on all its property by a corporation to its officers to secure a pre-existing debt, the company continuing in...