Farmers State Bank of Richardton v. Brown , 52 N.D. 806 ( 1925 )

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] This is an appeal from a judgment in favor of the defendant in a claim and delivery action. A trial was had in the district court of Stark County and at the conclusion of the trial, the questions at issue being resolved by counsel into questions of law, the case was withdrawn from the jury and, after being taken under advisement, was decided by the court. The essential facts are as follows: In 1910 there was organized a corporation known as E. Mottershead Company. About the time of its organization the corporation opened an office for the transaction of its business in Richardton. From this time forward its business affairs were principally, if not entirely, under the management of one Edmund Mottershead who was president of the company. In the course of time the company became indebted to the Farmers State Bank, the plaintiff in this action, in the sum of about $1200.00 and to one R.S. Brookings in the sum of $10,714.92. In addition to this, Mottershead became indebted to Brookings personally in a much larger amount. In October, 1922 suits were commenced by Brookings against the E. Mottershead Company and Mottershead personally, and the following March judgments were entered in favor of Brookings against E. Mottershead Company for $10,714.92 and against Mottershead personally for $47,709.96. An execution was immediately taken out under the judgment against Mottershead personally, but there is no return in the record showing what was done thereunder. There is evidence, however, indicating that a levy was made upon some property belonging to the judgment debtor and upon the property of the corporation involved in this controversy. In May, following the entry of these judgments, another execution was taken out in an attempt to satisfy the judgment against the E. Mottershead Company, and this execution was levied upon the property involved in this controversy. On April 2nd, a month prior to the issuance of the latter execution, the E. Mottershead Company, by E. Mottershead, president, gave to the plaintiff in this action a chattel mortgage on the property in question, consisting, in general, of the office furniture, fixtures and supplies of the company, to secure a demand note previously given in renewal of a former indebtedness of the company. The plaintiff's claim in this case is based upon the interest acquired under this mortgage and the claim of the defendant is under the execution of May 2nd. The trial court sustained the claim of the defendant and the plaintiff appeals.

The principal contentions upon the appeal concern the validity of the mortgage. It is assailed as not having been properly executed by the corporation (1) because the corporate seal was not attached; (2) because there was no proof that the person signing the mortgage on behalf of the company was an officer authorized to execute mortgage of its property; (3) because the corporation was insolvent and the mortgage was not given in the ordinary course of business; and (4) because, prior to the giving of the mortgage, the corporation had failed to file with the Secretary of State the annual report required by § 4518 of the Compiled Laws of 1913 and had suffered a cancellation of its charter and that it had not been restored under § 4521 of the Compiled Laws of 1913, as amended by chapter 99 of the Laws of 1917 and chapter 4 of the Laws of the Special Session of 1918.

We do not understand it to be contended by counsel that the chattel mortgage is altogether invalid by reason of the fact that the corporate seal was not attached, but, rather, that the absence of the seal deprives the mortgage of a prima facie presumption in favor of the authority of the officer executing it to act on behalf of the corporation. No statute is called to our attention which requires the corporate seal to be attached to a chattel mortgage executed on behalf of a corporation, and in the absence of such a requirement the mortgage would be valid if executed by any officer of a corporation with authority in fact or with ostensible authority.

The evidence in this case shows that E. Mottershead had charge of the office of the E. Mottershead Company; that the office was located in the same building as the plaintiff bank and upon the same floor; that, according to the undisputed evidence of the cashier of the plaintiff bank, E. Mottershead was the only person in the office who had anything to say about it; that Marian Mottershead, the president's wife, held some office in the corporation (the witness did not know what office it was) and that the E. Mottershead Company had been indebted to the plaintiff bank for some time, for which indebtedness various notes had been executed in its name by E. Mottershead, president. We are of the opinion that this evidence sufficiently establishes the prima facie authority of Mottershead to execute a chattel mortgage upon the property of the corporation to secure its indebtedness. There being sufficient proof, in our opinion, that the mortgage was given by one with authority to execute it, we think there is no merit in the contention that it was not good as to the defendant because not given in the ordinary course of business. The corporation could give a mortgage to secure its existing indebtedness, even though insolvent or in failing condition at the time. This, at most, would make the mortgage operate as a preference, and in this state it is recognized that a corporation or an individual may prefer one creditor over another. Comp. Laws 1913, § 7218. John Miller Co. v. Harvey Mercantile Co. 38 N.D. 531, 165 N.W. 558. The fact that the mortgage was executed in the plaintiff bank in no manner affects the regularity of the transaction, especially in view of the fact that the sheriff, in an attempt to make effective a levy on the corporate property under an execution against Mottershead individually, had placed a padlock on the door of the office where the corporation did business — thus barring Mottershead from the office.

This brings us to the contention that the mortgage is ineffective by reason of the failure of the corporation to file with the Secretary of State the annual report required by § 4518 of the Compiled Laws of 1913 and its failure to take steps to secure re-instatement under § 4521 of the Compiled Laws of 1913, as amended by chapter 99 of the Laws of 1917 and chapter 4 of the Laws of the Special Session of 1918. Before taking up this contention, it is important to note the state of the record as to proof of the facts upon which the contention is based. Obviously, the question of the effect of the alleged default of the corporation is not involved unless the default itself be established by competent evidence. The only evidence of default offered at the trial was a purported certificate of the Secretary of State as follows:

"To All To Whom These Presents Shall Come, I, Thomas Hall, Secretary of State of the State of North Dakota certify that

"Charter of E. Mottershead Co., of Richardton, was canceled on the records of this office October 25, 1921, for failure to file annual report for the year 1921. That said charter has not been re-instated on the records of this office.

"In Testimony Whereof," etc.

The record shows this exhibit was offered as a part of the foundation for the objection to the introduction, at the instance of the plaintiff, of the original certificate of incorporation of E. Mottershead Company.

It is to be observed that, during the period covered by the transactions in question, all the parties concerned here treated the corporation as in existence. Indeed, the claim of the defendants to the property in question is based upon an execution issued upon a judgment in favor of Brookings against the corporation. This judgment had been obtained in March. No steps had ever been taken to substitute the directors as trustees and, the levy being made upon the property in question as the property of the corporation, the defendants are clearly in no position to question the existence of the corporation originally. The existence of the corporation on the crucial day of April 2nd, the date of the execution of the chattel mortgage, is only drawn in question by the denial in the answer "that said E. Mottershead Company referred to in the amended complaint had, on April 2, 1923, any legal existence or authority to do business within the State of North Dakota." Taking the view most favorable to the defendants, and assuming that they may raise the question of the corporation's existence on April 2nd, we are of the opinion that the defense is an affirmative one and that they sustain the burden of going forward with evidence to establish it.

The defendants' offer is as follows:

"Mr. Ellsworth: In connection with the offer of the certificate, Plaintiff's Exhibit No. 1, the defendant now offers a further certificate of Thomas Hall, Secretary of State of North Dakota, under the great seal of the State of North Dakota, to the effect that the charter of the E. Mottershead Company, Plaintiff's Exhibit No. 1, is canceled on the records of the office of the Secretary of State, for failure to file its report, its annual report, for the year of 1921, and that the said charter has not been re-instated on the records of their office."

To this there was an objection that it was not the best evidence; that there was no foundation laid; that the statute does not authorize certification of this fact by the Secretary of State or by his deputy, and that the certificate does not purport to be a copy of any record, to which might have been added the objection that it was hearsay. We are clearly of the opinion that the certificate was inadmissible for all of the foregoing assigned reasons. Cross v. Pinckneyville Mill Co. 17 Ill. 54; Billingsley v. Hiles,6 S.D. 445, 61 N.W. 687. An ex parte certificate or statement by a public officer is not evidence of the facts stated, unless made so by statute.

In the Illinois case, supra, where it was sought to use the certificate of the Secretary of State as evidence that a duplicate certificate of corporate organization had not been filed in his office, it was said in the opinion:

"I am not aware of any statute or rule of law that makes such certificate evidence of anything. The certificate of the Secretary will be sufficient to authenticate the laws of the United States, of other States (Rev. Stat. p. 233, § 6), and ``all laws, acts, resolutions (of our own State), or other records, appertaining to his said office,' id. p. 491, § 5. But I deem it a misapprehension of the true object of such a certificate, when offered to prove what is not of record, or that this certificate is not of record."

The certificate offered and received below is not competent evidence of the facts sought to be established.

But the respondent contends that, as the plaintiff sought to prove the existence of the corporation by offering the original certificate of the Secretary of State, made when the corporation was organized, it was proper for the court to admit the certificate of cancellation as a part of the cross examination had for the purpose of laying a foundation for an objection to the original certificate. The argument, as we understand it, is, substantially, that one certificate of the Secretary of State is just as admissible as the other. It is difficult to see how any facts voluntarily certified to by a public officer ten years after the issuance of a certificate required by law to be made (Comp. Laws 1913, § 4512), can have any bearing in determining the admissibility of the earlier certificate. We are at a loss to understand how it could constitute any foundation for an objection. Without passing upon the question as to whether or not the original certificate was admissible for the purpose of establishing corporate existence, we are satisfied that the subsequent certificate was not properly admitted as a part of the cross examination in laying a foundation for an objection.

In our view of the case it is unnecessary to consider whether or not the certificate was likewise inadmissible for an additional reason, also assigned, namely: that cancellation of the articles of incorporation in the office of the Secretary of State would not affect the right of the corporation to continue to do business until the Attorney General, through action brought, had secured a cancellation of its charter in a judicial proceeding. Nor need we consider the kindred question of the right of the defendants to question the corporate existence. On these questions see: People ex rel. Sabichi v. Los Angeles Electric R. Co. 91 Cal. 338, 27 P. 673; Duggan v. Colorado Mortg. Invest. Co. 11 Colo. 113, 17 P. 105; State ex rel. Long v. Brownstown R. Valley Gravel Road Co. 120 Ind. 337, 22 N.E. 316; Chesapeake O. Canal Co. v. Baltimore O.R. Co. 4 Gill J. 1, 76, 86, 87; Briggs v. Cape Cod Ship Canal Co.137 Mass. 71; State v. Fourth N.H. Turnp. Road, 15 N.H. 162, 41 Am. Dec. 690; People v. Manhattan Co. 9 Wend. 351, 383; New York L.I. Bridge Co. v. Smith, 148 N.Y. 540, 42 N.E. 1088; State ex rel. Spartanburg v. Spartanburg, C. G.R. Co. 51 S.C. 129, 28 S.E. 145; Houston v. Houston Belt M.P.R. Co. 84 Tex. 581,19 S.W. 786; Greenbrier Lumber Co. v. Ward, 30 W. Va. 43, 3 S.E. 227; Atty. Gen. v. Superior St. C.R. Co. 93 Wis. 604, 67 N.W. 1138; 2 Morawetz, Priv. Corp. 2d ed. §§ 1006-1015; note in 8 Am. St. Rep. page 193.

The mortgage in question appears to be valid and prior to the defendants' levy. It follows that the judgment must be reversed and that judgment should be entered for the plaintiff. It is so ordered.

CHRISTIANSON, Ch. J., and BURKE, JOHNSON, and NUESSLE, JJ., concur.

On petition for rehearing.