Lamb v. McIntire , 183 Mass. 367 ( 1903 )

Knowlton, C. J.

The question in this case is whether the mortgage given by the defendant, the Endicott Granite Company to the defendant Mclntire, is valid against the plaintiffs who are judgment creditors of the defendant corporation, and who attached the mortgaged property when they brought their suits, after the mortgage was given. This mortgage was executed by one Wilson in the name of the corporation while he was acting as its president and one of its directors. The plaintiffs contend that Wilson and his associates were not legally elected directors, because the same number of votes was cast for the opposing candidates as for them. At this election Wilson, who was a large stockholder in the corporation, and then its president, voted on his stock, and afterwards gave a casting vote as presiding officer. Article III. of the by-laws provides that “ The officers shall be chosen by ballot of the stockholders at the annual meeting.” Article XIV. declares that “ All votes shall be determined by a majority of all stock represented at any regular or special meeting.” Article IV. provides that the president “shall preside at all meetings of the stockholders and shall have a casting vote at such meetings.”

It would seem that this last provision cannot be given effect to enable a presiding officer who has voted on his stock at an election of officers, to cast an additional vote, and thereby determine the election. When this was done the plaintiff Lamb, who was a large stockholder, made objection, and made his protest a part of the record. Two weeks afterwards, on receiving notice of a meeting of the directors, he sent another protest to the persons declared elected by this vote, denying that they had any authority to act for the corporation. He took no measures to have the proceedings set aside, and he was present at. the next annual meeting of the corporation, held about a year and a half later, at which, as the evidence tends to show, there was a vote approving the records of the former meeting. But he had no knowledge of the mortgage until many months after it was made, and it is at least doubtful whether he was estopped from setting up the illegality of the election, as the master ruled. It appears, however, that these officers were directors defacto, aud that therefore, in favor of third persons who dealt with them in good faith, the corporation was bound by their acts.

The master has found that Wilson, in dealing with the defendant Mclntire in reference to this mortgage, was acting fraudulently as against the creditors of the corporation and the corporation itself, and that Mclntire participated in the fraud. Under these circumstances, the fact that Wilson was an officer defacto would not make the mortgage binding upon the corporation. The master found that there was little if any doubt that Mclntire understood when he took this mortgage that it was, in substance, a method of taking from Lamb property which equitably belonged to him, and giving it to Mclntire. He adds, “ At any rate, on his own testimony, I find that he was put on inquiry as to whether Wilson had authority to make the mortgage he did make, and was acting in good faith in the transaction, and that inquiry on his part would have disclosed Wilson’s fraud. I find, therefore, that the transaction is tainted with fraud, and that Mclntire is not entitled to enforce this mortgage as it now stands against the corporation and its attaching creditors.”

These findings make it unnecessary to decide some of the other questions which have been discussed, and leave for further consideration only the question whether the note and mortgage, having been made and received in part to accomplish a fraudulent purpose, can be enforced for the security of any part of the consideration that entered into them. We are of opinion that they cannot. They represent a single transaction which was affected with fraud. It is impossible to separate it into parts which were good and bad, respectively. We are of opinion that on the findings the mortgage must be held void. Brigham v. Potter, 14 Gray, 522, 524. Richardson v. Sibley, 11 Allen, 65, 72. Lynde v. McGregor, 13 Allen, 172, 181. Crowninshield v. Kittridge, 7 Met. 520.

The sums paid by Mclntire for taxes assessed upon the property for the years 1900 and 1901 stand differently from the loan. These sums were paid while he held the record title to the property, to save it from the enforcement of a statutory lien, and we are of opinion that in equity and good conscience the plaintiffs should repay them with interest, as a condition on which the relief prayed for is granted.

Decree affirmed.