Manhattan Hardware Co. v. Phalen

18 A. 428, 128 Pa. 110, 1889 Pa. LEXIS 773

• Court: Pennsylvania Court of Common Pleas, Berks County
• Decided: October 7, 1889
• Docket: No. 316
• Status: Published

Opinion

Opinion,

Mb. Justice McCollum:

The creditors of the Manhattan Hardware Company have no standing to contest this mortgage: Gordon v. Preston, 1 W. 385; Jones v. N. Y. Guaranty Co., 11 Otto 622. It is not a void instrument nor fraudulent as to them. It was given to secure a debt incurred by the company in the improvement of its property, and it was clearly within the power of the corporation to create the debt, and to execute the mortgage. It could" hold, purchase and transfer such real and personal property as its purposes required, not exceeding the amount limited by its charter or by law, borrow money on bond and mortgage and secure its indebtedness by them: Act of April 29, 1874, P. L. 73. But it is objected that the debt was not authorized by a previous meeting and consent of stockholders, as directed by § 7, article XYI. of the constitution, and the act of April 18,1874, P. L. 61. This objection assumes that the debt secured by the mortgage was an increase of indebtedness within the intendment of the constitution. It is consonant to reason and settled by authority that the debts incurred by a corporation in the conduct of its ordinary business, are not affected by the constitutional provision or by the act of assembly referred to. The liabilities of a bank, created by its deposits, do not fall within them: Ahl v. Rhoads, 84 Pa. 319. The debts of a manufacturing corporation, accruing in the employment of labor and the purchase of materials in the prosecution of its ordinary business, do not, we think, constitute such an increase of indebtedness, as requires a previous meeting and consent of stockholders to validate them.

But in the view that we take of this case we need not decide to which class the debt under consideration belongs. The corporation received and applied to the improvement of its property every dollar of the loan covered by the mortgage. It is not denied that the stockholders knew of this improvement and of the loan to effect it; nor is it alleged that any stockholder ever protested against either. It may be assumed, therefore, that with full knowledge of both they allowed the mortgagee to advance his money to the corporation, and the money so advanced to be applied to the uses for which it was borrowed, without a word or act to indicate their dissent. The corporation possesses and enjoys the fruits of the loan, and neither it, nor its stockholders, can now be permitted to allege as a defence to the mortgage given to secure it, that it was unauthorized by a previous meeting and consent of stockholders. “ When an act done by directors is in excess of their authority, yet it has been done with the bona fide intent of benefiting the corporation which they represent, and a shareholder knowing thereof does not dissent within a reasonable time, his assent to the act W’ill be presumed, and he will be estopped from gainsaying it:” Watts’s App., 78 Pa. 394. It was said by this court, in Gordon v. Preston, supra, that “ the maxim which makes ratification equivalent to a precedent authority, is as much predicable of ratification by a corporation as it is of ratification by any other principal, and it is equally to be presumed from the absence of dissent.”

It is claimed that even if the debt is valid, the mortgage given to secure it, is not. The ground of this claim is the alleged absence of a resolution by the directors, empowering the president of the corporation to make the mortgage. But the mortgage recited such a resolution, and it is not denied that it is contained in the minutes of the corporation. The mortgage is under the corporate seal, signed by the president and attested by the secretary -of the Manhattan Hardware Company. The mortgagee knew that the corporation had power to borrow money upon bond and mortgage, and in the utmost good faith advanced his money to the corporation and accepted the mortgage as security for it. Upon its face the mortgage represented that it was duly authorized by the directors, and under the circumstances he was not bound to look beyond it. He had the right to assume as against the company that all matters of internal management had been complied with. The minutes of the corporation were not for his inspection, and if he had been allowed access to them, would have sustained the recital in the mortgage. No director or stockholder has ever claimed that the mortgage was unauthorized, but'on the contrary, stockholders owning a clear majority of the stock issued by the corporation have recognized its validity in their bill for the appointment of a receiver. It is the receiver appointed upon their bill, who is now seeking, against their protest, to destroy it. For aught that appears in his affidavit of defence, every director and stockholder of the company knew of the loan and mortgage and ratified hoth by acquiescence. As neither the corporation, its stockholders, nor its creditors, can now allege a want of authority to make the loan and mortgage, the receiver cannot do so for them.

The judgment is affirmed.