Greenpoint Sugar Co. v. Kings County Manufacturing Co.

Talcott, J.:

The main question in this case is as to the validity of the mortgage of November 4, 1869, for $44,244.24. This mortgage was made by the Kings County Manufacturing Company to the plaintiff, to secure the payment of a balance due from the Manufacturing Company for the purchase-money of the land, and money advanced to erect the buildings on the premises, purchased by the Manufacturing Company of the plaintiff, for the purpose of establishing thereon the manufactory of the Kings County Company. By the act to authorize the formation of corporations for manufacturing purposes, under which the Kings County Company was formed (Laws of 1848, chap. 40), such companies were expressly prohibited from giving any lien upon their corporate property, by mortgage or otherwise. This act was amended by chapter 517 of. the Law of 1864, whereby it is provided that such corporations may secure any debt heretofore contracted, or which “may be contracted by it in the business for which it was incorporated, by mortgaging all or any part of the real estate of such corporation, and every mortgage so made shall be as valid to all intents and purposes as if executed by an individual owning such real estate; provided, that the assent of the stockholders, owning at least two-thirds of the capital stock of such corporation, shall first be filed in the office of the clerk of the county where the mortgaged property is situated.” The question as to the validity of the mortgage of November 4th, 1869, arises upon the construction of the amending act of 1864. It is claimed by the defendants : First, that no such assent as the statute requires -was given ; second, that it was not filed before the mortgage was executed ; third, that it was not assented to by the owners of two-thirds of the capital stock. A written assent, signed by stockholders claiming to be the owners of more than two-thirds of tlie company, Avas signed, in the words following: “ Know all men by these presents, that Ave the undersigned, stockholders of the Kings County Manufacturing Company, and owning mom than two-tliirds of the capital stock of the.said company, do hereby severally consent that the said Kings County Manufacturing Company execute to tbe Greenpoint Sugar Company a bond conditioned for the payment of-, and a mortgage to secure the same upon the lands and premises by them owned, situate in the city of Brooklyn, county of Kings, in the State of New York, or any part thereof. Dated October 21, 1869.”

The defendants deny that this assent is in a form sufficient to satisfy the statute, inasmuch as the amount of the bond to be secured by the mortgage is not specified therein. The statute prescribes no form in which the assent shall be given. The object of the act is the protection of the stockholders, and to guard against the poAver of the officers of the company to incumber its property without the consent of at least two-thirds of the stockholders. The Avrifcten assent is the evidence required by the statute, and as no particular form is specified or required, any form Avhicli they may choose to adopt, and which contains reasonable eAÚdence of the consent of-two-thirds of tbe stockholders to the making of-the mortgage in question, is sufficient. If the instrument contains enough to specify and identify the mortgage to which tbe stockholders intended to give their assent, it is sufficient. Iu this case it seems that tbe amount of the condition of the bond was left iu blank, owing to tbe uncertainty as to the precise amount Avhicli would be due tbe Sugar Company, on a settlement then about to be made of tlie accounts between the two companies. I do not see why the stockholders might not assent to the making of a mortgage without specifying the precise amount. Of course, in order to be valid, the mortgage must be founded on the consideration mentioned in tbe statute. True, a consent to tbe execution of a mortgage for tbe amount, of an unascertained indebtedness, exposes the corporation to the risk of the fraud of its officers, as an individual, is exposed to the fraud of his agent, who intrusts the latter with a blank promissory note or check. The instrument specifies the mortgage, aud the statute supplies the additional fact. that it is to bo for a debt contracted by the mortgagor in the business for which it was incorporated. It seems to me to be the same in legal effect, as though the instrument had recited the fact, that the parties signing it assented that the Kings County Manufacturing Company should make a mortgage to the Sugar Company to secure the payment of the indebtedness, whatever it might amount to, of the former to the latter company, and I do not doubt but that such would be a sufficient assent to comply with the amendment of 1861. The statute prescribes no language in which the assent shall be couched, and no particulars which shall be stated °in it. It is hot required to be acknowledged, proved or recorded, nor is it to have any effect as evidence, or by way of notice, upon subsequent grantees or incumbrancers. It has no force except., when duly proved, as evidence of the assent required by the statute. The filing in the clerk’s office is apparently only for the benefit of the mortgagee, or his assigns, to preserve the evidence of the assent which might otherwise be forgotten, lost or destroyed. Those who signed the instrument in this case, .unquestionably assented to the making’ of some mortgage. It is a mere question of identity. The defendants insist, not that the description in the instrument of assent is false, in which case it might be doubtful if it could be corrected by parol evidence, but that the description is imperfect. Andón the question thus raised as to the identity of the mortgage in fact executed, and that referred to in the assent, I think the parol evidence, so far as it was of any importance, was admissible. I think, therefore, the instrument of assent was, in form, a sufficient compliance with the act of 1861. It was provided in the articles of association of the Kings County Manufacturing Company, that the capital stock of the corporation should consist of 2,500 shares of $100 each. But in point of fact only 2,000 shares had been issued or taken, or agreed to be taken. The two-thirds of the capital stock referred to in the act of 1861, must be held to refer to the capital stock issued, or agreed to be issued or actually subscribed for, instead of the mere nominal amount to which the capital stock is limited in the certificate of incorporation. The object of the act of 1861, is to prevent the real estate of such corporations being incumbered, except by the formal consent of two-thii'ds of those interested. The amount of the capital stock named in the certificate of incorporation is merely a limitation upon the amount which can be issued. Such of the stock as has not been issued, or agreed so to be, or even subscribed for, belongs to nobody, lias no existence as capital stock within the meaning of the act of 1864, and is not capable of representation in a vote of the stockholders. The whole intent of the act of 1864 is satisfied by requiring the assent to a mortgage, of two-thirds of the actual stockholders. . The defendants claim that as to-109 shares of stock standing on the books in the name of Clinton Furbish, as a part of 234 shares standing to his credit, that the certificate therefor had never been delivered to him, and that there-was no proof that he had ever subscribed or paid for the same; in fact, that the said 109 shares were no part of the actual existing outstanding shares of the capital stock of the company. If the views hereinbefore taken, as to what constitutes the capital stock of the company within the meaning of the act of 1864, are correct, it becomes unnecessary to examine as to whether the finding of the court as to these 109 shares is supported by the evidence or not, as the finding becomes wholly • immaterial. The actual existing stock of the company being only 2,000 shares, 1,334 shares constituted two thirds thereof. The amount held by the parties who signed the assent, as appeared by the stock ledger, was 1,696 shares, deducting the 109 shares from the amount credited to Clinton Furbish, and as to which the title is questioned, there still remain represented by the signers of the assent more than two-thirds of the actual capital stock of the company, capable of representation. It is objected by the defendants that the assent was not filed in the office of the county clerk before the execution of the mortgage in question, while the statute requires the assent to be “ first filed.” The facts are that the assent dated on the twenty-first day of October was signed by all the signers between that time and the date of the execution of the mortgage. The assent was delivered to the counsel of the mortgagee with the mortgage, and was sent to the clerk of Kings county at the same time with the mortgage. The provision of the act of 1864 is, that “ every mortgage so made, etc., shall be as valid to all intents and purposes, as if executed by an individual owning such real estate,” provided, that the written assent, etc., “ shall first be filed,” etc.

It is not provided that the mortgage shall be void if executed before the written assent is filed, or even given. The only effect which it is necessary to give the statute, in accordance with its intention, is that the mortgage shall not take effect as a valid instrument until after the filing of the assent.. And I think that the assent required by the statute, even if executed after the execution of the mortgage, and filed after the recording of the mortgage, would render the mortgage valid and effectual from the time of the filing of the assent. And that the mortgage would take effect from that time, notwithstanding the omission to file the assent until after the execution and recording of the mortgage. It is not at all probable or necessary, to carry out the intention of the act, to believe that the legislature meant to make the validity of the mortgage depend upon which paper happened to be first deposited in the clerk’s office. If this view is correct, it is of no consequence which paper was first executed or filed. But the finding of the justice at the Special Term, was, probably, technically correct and according to the legal presumption. It appears by the stipulation of facts that the assent was filed with the clerk of the county of Kings, on the fourth day of November. The clerk is not required to note the hour of the filing, and no proof was given to overthrow the presumption that it was filed at the earliest moment of the fourth of November, at which business could be transacted at the county clerk’s office. The mortgage bearing date on the fourth day of November is presumed to have been made on that day, and not before, and as it appears from the clerk’s certificate, which is required to specify the time when the mortgage was recorded, it was recorded, or left for record on the said fourth day of November, .■at fifteen minutes past three p. m. So that the legal presumption ■establishes what was possibly the fact, that the assent was filed ■before the mortgage was delivered to the clerk for record. The ■objection made to the validity of the second mortgage is, that the .assent was not filed before the mortgage was executed. The assent to this mortgage is a more formal instrument than the one referring to the mortgage of November fourth, and the objection taken to this assent is, that it was not filed before the execution of the mortgage to which it refers. If the views herein expressed in considering the question as to the filing of the assent referring to the mortgage of November fourth are correct, they furnish an answer to the objection as to the filing of the assent to the making of the second mortgage. It is claimed that the taking of the first mortgage by the plaintiff was ultra vires, and that it is therefore void. It appears that at least a part of the amount secured by that mortgage was advanced by the plaintiff, the Sugar Company, to the Kings County Company, in payment for buildings in process of erection on the premises, the legal title to which was still in the plaintiff, but which it had contracted to sell to the Kings County Company. Non constat, but it was a part of the agreement between the two companies, when the Kings County Company agreed to purchase the premises, that the Sugar Company should advance apart of the money toward the erection of the buildings on the premises by the Kings County Company, and take security on the premises and buildings when erected for the whole amount, including both the price of the land and the amount advanced for building. The Sugar Company retained the legal title to the premises, including the buildings, until they received the mortgage of November four. Such an arrangement is not unusual. It is usually made to facilitate the sale of the ground, and as against this objection will be presumed to have been done by the plaintiff for that reason, and to have been necessary to aud a part of the agreement whereby the Sugar Company was enabled to sell the land, and therefore to have been within the purview of its legitimate business. Mr. Ezra Tucker sets up in his answer an agreement on the part of the plaintiff to extend the time for the payment of the mortgage. The court, at Special Term, have found that no such agreement was made, and the finding is supported by the evidence.

The judgment is affirmed, with costs of the appeal to the respondent.

Present —Talcott and Pratt, JJ. Barnard, P. J., not sitting.

Judgment affirmed, with costs.