State National Bank v. Union National Bank , 168 Ill. 519 ( 1897 )

Mr. Justice Craig

delivered the opinion of the court:

It is true that the John Moran Packing Company, when the mortgage was executed to complainant, was largely indebted and may have been insolvent; but complainant was a dona fide creditor, and it had the right to obtain security, and the corporation had the undoubted right to secure one creditor in preference to another, if it saw proper to do so. In this State the law is well settled that mere insolvency of a corporation does not deprive it of the power to dispose of corporate property in good faith, by way of paying or securing corporate indebtedness, although the result may be to give one creditor a preference over others. (Warren v. National Bank of Columbus, 149 Ill. 9; Gottlieb v. Miller, 154 id. 44; Blair v. Illinois Steel Co. 159 id. 350.) The mortgage in question can not, therefore, be defeated on the ground that the mortgagor may have been insolvent when it was executed.

Section 20, chapter 32, of the Revised Statutes, provides : “The by-laws of every corporation shall provide for the calling of meetings of the directors, trustees, or other officers corresponding to trustees; and when all such officers shall be present at any meeting, however called or notified, or shall sign a written consent thereto on the record of such meeting, the acts of such meeting shall be as valid as if legally called and notified: Provided, that the action of any meeting held beyond the limits of this State shall be void unless such meeting was authorized or its acts ratified by a vote of two-thirds of the directors, trustees, or officers corresponding to trustees, at a regular meeting.”

The meeting at which the resolution was adopted authorizing the execution of the mortgage to complainant was held in the State of Missouri. The holding of the meeting beyond the limits of this State was not authorized by a vote of two-thirds of the directors of the corporation; nor was the action of the meeting held in Missouri, at which the resolution authorizing the execution of the mortgage was adopted, ever ratified by a vote of two-thirds of the directors. Under the reading of the statute the mortgage could not be regarded as a valid instrument on the day it was recorded and on the day the Union National Bank of Chicago sued out an attachment and levied on the Chicago property. Unless, therefore, the mortgage is not controlled by the statute referred to, and can be aided and sustained by some other principle, it is apparent that it cannot prevail over the lien acquired by the Union National Bank under and by virtue of the levy under the attachment. It is, however, contended in the argument, that as the mortgage was executed in due form by the president and secretary of the corporation, and duly acknowledged and recorded before the property was attached by the bank, it must be regarded as a valid instrument, even if the meeting of the directors of the Moran Packing Company on February 18, 1895, had never been held.

The rule seems to be well established in this State that the ordinary affairs of a corporation, such as custom has imposed upon or necessity requires of the president of a corporation, may be performed by him without express authority. (Chicago, Burlington and Quincy Railroad Co. v. Coleman, 18 Ill. 297; Mitchell v. Deeds, 49 id. 416; Smith v. Smith, 62 id. 493.) Under this rule the president of the corporation no doubt had the power to collect debts due the corporation, make all contracts necessary in the transaction of its business, and, under his general powers as president, he might secure a debt due from the corporation by a mortgage on some of its property. But it is manifest from the record that the mortgage in question was not executed by the president of the corporation by virtue of or under his general powers as president. The resolution of February 18, 1895, “instructed the president and secretary to execute the deeds,” and in the resolution of the directors’ meeting of March 25, 1895, it is recited that said deeds were afterwards executed by this company pursuant to said resolution. Whether the mortgage might be sustained had it been executed by this president of the corporation under the general powers conferred upon him by law is a question that does not arise here, as it was executed pursuant to the resolution adopted by the board.

But it is said the mortgage was ratified, and hence became valid. As has been seen, the Union National Bank sued out an attachment and levied on the property February 19, 1895. At this date the mortgage held by complainant was invalid, and the bank acquired a lien on the property as it was then situated. When, therefore, the directors of the corporation met on March 25, 1895, and by resolution confirmed the mortgage previously made or authorized a new one, this action could only be taken subject to the lien which, in the meantime, the bank had acquired on the property.

McKeag v. Collins, 87 Mo. 164, is a case in point. There a question arose between the grantee in a deed and a purchaser under a judgment. The deed, although invalid originally, it was claimed had been ratified. In passing upon the question presented the court said: “It is manifest from the evidence that Chambers had no authority to execute this deed, and the only reliance of defendants is upon the alleged acquiescence of the bank. * * * Cummings’ judgment was rendered in December, 1880,—about six months after the deed in question was executed by Chambers. * * * When Cummings obtained his judgment, in 1880, there were no grounds for the position that the bank had, by acquiescence, ratified the deed executed by Chambers, and certainly a ratification which occurred after he acquired a lien upon the land, and after this plaintiff purchased the land under that judgment, cannot avail against his title. * * * Neither the doctrine of ratification nor estoppel has any application to this case. There are no facts upon which to invoke it. There is not a particle of testimony showing that at the time Cummings obtained his judgment the bank had obtained any act amounting to a ratification, and certainly a sufficient length of time had not intervened to warrant a presumption of acquiescence.” The same principle has been declared in Trumbull v. Union Trust Co. 33 Ill. App. 319, and the same doctrine has been announced in Holland v. Drake, 29 Ohio St. 441, Fulton v. Darling, 66 Wis. 155, and Stein v. LaDow, 13 Minn. 412.

It is true that neither stockholders nor directors of the corporation, so far as appears, ever objected to or called in question the mortgage. It is also true that the act of a president and secretary of a corporation in executing mortgages for the corporation may be ratified by acquiescence of the stockholders and directors of the company. But the Union National Bank sued out its attachment and levied on the property the next day after the mortgage was executed. There was therefore no acquiescence in behalf of any person whatever before the validity of the mortgage was challenged and the property levied upon by the bank. On March 25, 1895, a meeting of the board of directors of the company was, after notice to all of the directors, held at the general office of the company in Chicago, Illinois. At this meeting of the board of directors there were present four members of the board, namely, John Moran, C. W. Taylor, P. Fogarty and W. T. Nash. A resolution ratifying and approving the acts and resolutions adopted at the meeting held on February 18.1895, and directing the president and secretary to execute new deeds upon the same trusts and for the same purposes as the deeds ordered and executed on February 18.1895, by way of further assurance, was adopted by an affirmative vote of three directors, namely, Moran, .Taylor and Fogarty. Nash voted against the resolution. Acting under this resolution, the company, by its president and secretary and under its corporate seal, executed the mortgage to complainant dated March 25, 1895, securing the same notes described in the mortgage of date February 18, 1895. This mortgage was duly acknowledged and accepted by complainant and placed on record March 26, 1895. This action of the board could not be regarded as a ratification of the mortgage executed on February 18, because not passed or adopted by a vote of two-thirds of the directors, as required by the charter. This action of the board authorizing the making of a new mortgage conferred undoubted power on the president and secretary to make a new mortgage which would be valid from the time executed, or it might be treated as a confirmation of the mortgage executed on February 18, subject to the rights of third parties acquired in the property before this action was taken. While the action taken on March 25,1895, may be regarded as binding and conclusive on the directors of the corporation and its stockholders, yet we regard the law as well settled that in so far as third parties may have acquired rights in the mortgaged property, the action of the board cannot become effectual so as to defeat rights of third parties bona fide acquired before such action was had.

But it is contended that the statute providing that the action of the directors of a corporation beyond the limits of the State is invalid, was enacted for the benefit of stockholders, and that creditors cannot take advantage of it. Section 20 of the act, prohibiting meetings outside of the State, does not allude to stockholders, nor is there anything appearing in the section or chapter of the act to indicate that it was passed exclusively for stockholders. It is one of a number of sections relating to corporations, and if it had been intended that the section should have a limited or qualified meaning, it is strange nothing is found in the act indicating such intention. Moreover, in other States where similar statutes have been passed, creditors have been allowed to avail of the provisions of such statutes. (Hoyt v. Thompson, 5 N. Y. 320; McKeag v. Collins, supra; Bank v. Asheville Lumber Co. 116 N. C. 827; State Nat. Bank v. Vigo Bank, 141 Ind. 352.) Here the contest is between two creditors, the complainant claiming a prior lien under a mortgage, while the defendant is claiming a prior lien under proceedings by attachment. The stockholders and directors of the company are indifferent. They have no direct interest in the controversy between the two contestants, and if they, and they alone, can claim the benefit of the statute, in this case and in many others that might arise the statute would be a nullity. We think creditors as w'ell as stockholders may avail of the provisions of the statute.

In the affidavit for the attachment it was alleged that the company had, within two years last past, fraudulently conveyed or assigned its property so as to hinder and delay its creditors, etc. The packing company, the defendant, filed a plea traversing the grounds of attachment set up in the affidavit. "After the case had stood in this condition for some months, by agreement of the parties, on December 14,1895, the plea in abatement was withdrawn and judgment was rendered for the amount claimed by the bank, and it is claimed that this action on behalf of the parties released the lien of the attachment. We do not concur in that view. Where the plaintiff in the attachment sustains the grounds upon which the attachment issued and prosecutes his case to final judgment, the lien of the judgment relates back to the levy of the writ of attachment. Here the defendant in the attachment abandoned its defense, withdrew its plea and suffered a judgment to be entered. This it had the right to do, and a judgment entered for the plaintiff in the attachment under such circumstances has the same validity as it would have if there had been a trial of the issue presented and the plaintiff had recovered. A similar question arose in Adler v. Anderson, 42 Mo. App. 189, and it was there held that an agreement made by the attachment defendant, after the attachment, to withdraw his plea in abatement and let judgment be rendered in favor of the plaintiff, does not, in the absence of fraud in fact, destroy the lien of the attachment.

The appellant has, however, cited Murry v. Eldridge, 2 Vt. 388, and Hall v. Walbridge, 2 Aiken, 215. We do not think these cases sustain the position of counsel. In the first case cited two attachments were sued out before a justice of the peace. Before the return day of the first attachment the debtor came before the justice and consented to an immediate trial. The trial was had and judgment entered against the debtor. The second attachment was regularly prosecuted to judgment, and the court held that the lien of the first attachment was lost by obtaining a judgment before the return day; that the trial before the return day was not a trial in the action of attachment. In the other case cited the attachment lien was lost for the reason no judgment was rendered in the attachment suits, but, on the other hand, judgment was confessed before the return day of the attachment. The cases are so different from the case under consideration that they cannot control.

The judgment of the Appellate Court will be affirmed.

Judgment affirmed.