Murray v. Beal

65 P. 726, 23 Utah 548, 1901 Utah LEXIS 49

• Court: Utah Supreme Court
• Decided: June 15, 1901
• Status: Published

Opinions

MINEE, O. J.

(after stating the facts). — 1. The appellant claims that the deed of conveyance by the corporation to Beal to secure the payment of the borrowed money was void, because not authorized by resolution in a meeting of the board; that the corporation did not borrow or authorize the board to borrow it, or ratify their acts; that the certificate of acknowledgment thereto was not made and sworn to in compliance with section 1989, Eevised Statutes 1898; that the deed was not filed for record until within thirty days prior to the filing of the petition in bankruptcy, and that the corporate seal was not attached to the deed — all of which rendered the deed void as to the appellant. Section 1989, Eevised Statutes 1898, reads as follows: “The certificate of acknowledgment of an instrument executed by a corporation must be substantially in the following form: State of IJtah, County of-. On the -day of-■, A. D. -, personally appeared before me A B, who being by me duly sworn (or affirmed) did say, that he is the president (or other officer or agent as the case may be) of (naming the corporation), and that said instrument was signed in behalf of said corporation by authority of its by-laws (or by resolution of its board of directors as the case may be), and said A B acknowledged to me that said corporation executed the same.” Section 1975, Id., reads as follows: “Every conveyance of real estate, and every instrument of writing, setting forth an agreement to convey any real estate, or whereby any real estate may be affected, to operate as notice to third persons, shall be proved or acknowledged and certified in the manner prescribed by this title and recorded in the office of the recorder of the county in which such real estate is situated, but shall be valid and binding between the parties thereto without such proof, acknowledgment, certification, or record, and to all other persons who have had actual notice.” The acknowledgment of the deed given to the respondent by the officers of the corporation was not in compliance with section 1989, which requires the officers executing a conveyance to make oath that they are the officers named in the instrument acknowledged, and that they executed the same as such by authority of the board of directors. The object of the statute was to secure good faith on the part of the officers of a corporation in its behalf, protect the public against their unauthorized acts, and secure the stockholders against the wrongful acts and fraud of the directors, under the presumption that they would perform their duty under oath more faithfully than without it. Schwab v. Milling Co., 60 Pac. 940, 21 Utah 258. The acknowledgment, while not necessarily a part of the deed, was a necessary ingredient in order to admit it of record, or to admit it in evidence without further proof. It had reference to the proof of execution, not to the force, of the deed itself, especially when third parties were not concerned. Gray v. Ulrich, 8 Kan. 112; Devl. Deeds, sec. 464; sections 1975, 2001, Rev. St. 1898; Hunter v. Watson, 12 Cal. 363, 73 Am. Dec. 543.

As between the parties, and' all persons who had actual notice of it, a deed does not require acknowledgment to render it valid. Section 1975. Under section 2001, failure to record a deed will render it void only as against subsequent purchasers in good faith and for a valuable consideration. Hunter v. Watson, 12 Cal. 363, 73 Am. Dec. 543. A deed without any sufficient certificate of acknowledgment, if good as against a bankrupt, is good as against his assignee or trustee. Branden, Bankr., pp. 436, 435; In re Kansas City Stone & Marble Mfg. Co., 9 N. B. R. 76, Fed. Cas. No. 7,610; 1 Encyc. Pl. and Prac., 514, 515. A trustee in bankruptcy represents the bankrupt estate and the creditors. The acknowledgment was not sufficient, under the statute, to admit it of record, nor was its acknowledgment and record, as such, notice to the appellant, or to subsequent purchasers in good faith, or to third persons, under sections 2001, 1975. But under section 1975, it was binding between the parties without such proof of acknowledgment or record, and on all other persons who had actual notice. Under section 2001, it was void as against subsequent purchasers in good faith for a valuable consideration. Hunter v. Watson, 12 Cal. 363, 73 Am. Dec. 543. The record shows that the deed was signed, imperfectly acknowledged by the bankrupt, and delivered as security for the prior loan in question. As such, it was admissible in evidence, when properly proved. Devl. Deeds, sec. 1136; Gray v. Ulrich, 8 Kan. 112; Rev. St. 1898, sec. 1975.

2. The fact that the corporation kept no books of record of their meetings was a gross neglect of duty, but.it would be a reflection on that justice wbicb courts are bound to administer to permit such corporation, or the trustees and successors, to take advantage of such neglect as a meaUs of defeating a claim of an honest creditor, of the justice of which all had actual notice.

3. The objection was made that parol evidence was not admissible to prove the acts of the corporation in the absence of a record of its acts. The general rule is that a party is bound to produce the best evidence, and if the corporation has, by its own carelessness or neglect, prevented a party dealing with it from producing record evidence of its acts, it is his right to resort to such dther oral evidence as can be legitimately produced to establish it.

4. It does not appear that any seal was attached to the deed, or that the corporation had a seal. In this State the absence of a seal from such an instrument does not invalidate a conveyance. The statute does not require the use of a seal by a private corporation. Sections 323, 1976, Rev. St. Utah 1898; Wood v. Wheeler, 93 Ill. 153; 2 Cook, Corp. (3 Ed.), sec. 810.

5. The directors of a private corporation can only bind it when they speak through its board of directors. Their unauthorized acts are void unless they are directly or impliedly adopted or ratified by the corporation. The authority to borrow the money from or through Beal on September 7, or to the giving of the deed to secure it on December 28, was not granted by a formal resolution of the board of directors at a regular or special meeting, properly convened, at which a record was kept of its proceedings, as should have been done; but authority was given the president and secretary and treasurer, at an informal meeting held on the seventh of September, at the company’s store, to borrow $1,000 in money, and secure its payment by deed of the property in question. That money was borrowed from Beal on the present promise of the officers to secure its payment by deed to the property, which was not executed and delivered until the twenty-ninth of December, and within four months prior to the time of the filing of the petition in bankruptcy. The deed only amounted to a mortgage. The corporation obtained $800 on similar proceedings, on the twenty-ninth of October, which was within four months of the time when the petition in bankruptcy was filed. Both these proceedings were so informal and unwarranted as to invalidate the conveyance to Beal as against the claims of subsequent purchasers in good faith for a valuable consideration, unless it appears that each act for the borrowing of the money by such officers was ratified by the corporation with full knowledge of all the facts, and that such ratification occurred more than four months prior to the filing of the petition in bankruptcy, under section 3 of chapter 541 of the Bankruptcy Law of 1898.

As we have seen, at the time when the assignment was made the assignee and trustee in bankruptcy had full notice that the Beal deed covered the property assigned. ImrnedL ately after the $1,000 was borrowed from Beal, on the seventh of September, it was deposited in the bank to the credit of the corporation. It was immediately taken, received, and used by the corporation, and by its officers and directors, with full knowledge that it was acquired from Beal upon the promise by the officers to secure its payment by deed to the real estate in question. Such money was used by the corporation to pay its debts and erect buildings on the corporate property. It was borrowed in good faith, and loaned by Beal without any intent to hinder, delay, or defraud any creditor of the corporation, or to secure any preference over any creditor, more than four months prior to the time of filing the petition in bankruptcy. When the deed was finally executed, on December 28, all the officers and directors had a full knowledge of what was being and had been done, and consented thereto, and retained the money borrowed, and from thence hitherto have never offered to return the same. As a general rule, a private corporation bas power to direct its directors, and tbe directors bave power, in a proper way, to borrow money, and execute a conveyance to secure its payment. So tbe corporation, by its officers, bad power to ratify tbe acts of tbe trustees, if no intervening rights interposed. When there are no intervening rights, tbe ratification inures back to the inception of tbe transaction ratified; that is, to the date when tbe money was borrowed and tbe security was agreed to be given. It was not necessary that there should bave been a direct proceeding or resolution of tbe board of directors to ratify tbe act. Such ratification could be done indirectly, and by acts of recognition or acquiescence, or any act inconsistent with a repudiation or disapproval. In re Kansas City Stone Co., 14 Fed. Cas. 128 (No. 7,610); Scott v. Methodist Church, 50 Mich. 528, 15 N. W. 891; Sherman v. Fitch, 98 Mass. 59; 4 Thomp. Corp. secs. 4624, 5304, 5286; Bank v. Weaver (Cal.) 31 Pac. 160; Tayl. Corp. (3 Ed.), secs. 212-214; Moyle v. Society, 16 Utah 69, 50 Pac. 806; Witter v. Flouring-Mill Co., 78 Wis. 543, 47 N. W. 729. In 4 Thomp. Corp., section 4624, it is said: “If tbe person dealing with the corporation is driven to make proof of tbe authority of its president to act for it and bind it in tbe particular transaction, then there is a principle that this proof need not be made in the form of a resolution of the board of directors, duly entered upon the records of the corporation, but that the act of the directors may be shown by an oral vote, and may be otherwise proved by parol, and often, equally well, by circumstantial evidence.” In Tayl. Corp. (3 Ed.), section 212, it is said: “A formal ratification is not requisite. If there is no express ratification, by the action either of the body corporate, or of superior agents having authority, whether or not an act has been ratified is a question of fact for the jury. And, in general, it may be said that whether the alleged ratification be that of the body corporate, or of superior corporate agents, it may be proved by continued acquiescence on tbe part of tbe persons competent to ratify, when knowledge of tbe facts may be shown, reasonably inferred, or presumed to have been bad by tbe persons acquiescing. Thus, if tbe president of a manufacturing company, in excess of bis authority, executes a mortgage, tbe mortgage will be binding on tbe company if tbe directors who could competently have authorized it- knowingly acquiesce for a considerable time.” By receiving tbe money obtained on tbe deed on September 28, and using it to pay tbe corporate debts and other corporate purposes, with a knowledge of all tbe facts, tbe corporation at that time ratified the acts and agreements of its directors in borrowing tbe money. From tbe time of such ratification such claim became an equitable lien upon tbe real estate in question, as binding upon tbe bankrupt and bis estate as if secured by a mortgage upon the premises. Tbe subsequent execution and delivery of the deed to secure tbe debt in December was also a ratification of the former act, in so far -as tbe directors and tbe corporation were at that time legally capable of ratifying it under tbe provisions of tbe bankrupt act.

6. It is also very zealously insisted by tbe able counsel for tbe appellant that tbe mortgage deed was given at a time when tbe corporation was insolvent, with intent to create a preference in favor of tbe respondent, and within four months from tbe time of tbe filing of tbe petition in bankruptcy, and that, therefore, tbe deed was void under tbe provisions of section 3 of tbe Bankrupt Act of 1898, and that no legal ratification could occur. Tbe record shows that tbe $1,000 was obtained September 7, and that tbe $800 was obtained October 29. Tbe latter sum was received within four months from tbe time of filing tbe petition in bankruptcy, on February 13, 1899. Tbe respondent had made frequent requests for a delivery of tbe deed after be bad paid over tbe $1,000, but through tbe neglect or oversight of the officers, and without any intent to defraud any creditor or to obtain any preference to the respondent, tbe deed was not executed and delivered to Beal until December 28, 1898. No fraud is shown in connection with the transaction. Under the facts, is the respondent entitled to hold the security which he claims by deed upon the property of the bankrupt for the $1,000 loan made in September, and the $800 loan made in October? It appears to us that the $1,000 loan was made and money accepted and used by the corporation, and the acts of directors ratified it September 7, 1898 — a time more than four months prior to the time of filing the petition in bankruptcy, and at a time when the corporation had power to ratify acts of its directors. Under the considerations stated, the author of the misfortune should not himself escape the consequences of his act, and cast the burden upon another. The party or its representative, who appointed the directors and clothed them with power which enabled them to obtain the $1,000 for the corporation from an innocent party, and thereafter ratified their acts, ought to suffer, rather than an innocent party. The conclusion follows that the deed relied upon as security should be treated and decreed to be security for $1,000 and interest borrowed in September, and as the debt of the corporation to that extent, and that the appellant and trustee of the bankrupt corporation is and should be concluded by it to the extent to which it would be binding upon the corporation had not the petition in bankruptcy been filed. To this extent the deed, which, in effect, is simply a mortgage for the payment of money, may be enforced by the respondent as a mortgage against the appellant, the corporation, and the bankrupt estate to the extent of $1,600 and interest from the date of the note. The deed should be and is decreed to be a mortgage to secure the payment of such loan to the respondent. It is held in Sabin v. Camp (C. C.), 98 Fed. 974, that “a transfer of property to a creditor by a debtor within four months prior to his adjudication as a bankrupt does not constitute a preference under the' bankruptcy law, in the ábsence of fraud, where the transfer was made pursuant to the terms of a prior contract, under which the transferee advanced the money with which the property was acquired, reserving a lien thereon.”

7. The above rule will not extend to cover the $800 borrowed from the respondent on October 29, 1898. The corporation could not ratify this act of the directors until after the money was obtained. This money was obtained within the four months fixed by the bankruptcy act prior to February 13, 1899. While it is true that ratification relates back to the inception of the transaction, and has a complete retroactive effect, and a ratified act is to be treated as if originally authorized by the principal — that is, by relation of law the act of one is given the effect of the act of another — yet the law will not permit a wrong by making valid an invalid act or defeat the rights of others. In other words, the law-will not permit a ratification of the acts of an agent which will defeat the intervening rights of third parties. Therefore the above doctrine will not apply to third parties, strangers to the transaction, or, in this case, to the bankrupt estate or other creditors. The act of ratification, to relate, must take place at a time and under circumstances by which the ratifying party might himself have lawfully done the act which he ratifies. The twenty-eighth day of December was within the period fixed by the bankruptcy act wherein the corporation could do no act in fraud of the rights of its creditors or assigns, and the ratification by the corporation at that time of the acts of its officers, in borrowing the $800 on October 29, and in giving the deed to secure its payment, would be within the prohibitory provision of the bankruptcy act, and, if permitted, would defeat the intervening rights of the trustee in bankruptcy, and the creditors he represents, for whose benefit the ratification claimed will not be permitted to relate so as to bind the appellant and the estate. In McCracken v. City of San Francisco, 16 Cal. 591, Fields, C. J., said: “It follows, also, from .the general doctrine, that a ratification is equivalent to previous authority; that a ratification can only be made when the principal possesses at the time the power to do the act ratified. He must be able, at the time, to make the contract to which by his ratification he gives validity. The ratification is the first proceeding by which he becomes a party to the transaction, and he can not acquire or confer the rights resulting from that transaction, unless in a position to enter directly upon a similar transaction himself.” This doctrine is approved in Re Kansas City Stone Co., 14 Fed. Cas. 128 (No. 7610). Under section 3 of the bankruptcy act, the loan of the $800, and the deed given to secure that sum, and such ratification of that loan as was made or attempted on October 29, was a preference, and, therefore, a legal fraud against the creditors of the corporation, because the whole transaction occurred within four months prior to February 13, 1899, when the petition in bankruptcy was filed. In the case last quoted it is held that “where an officer of a corporation, without authority, executed a deed of trust of its property as security for a negotiable instrument, more than four months prior to commencement of proceedings in bankruptcy, and his act is afterwards ratified by the corporation, but within the four months prior to commencement of the proceedings, the validity of the deed must be determined by the circumstances existing at the time of the ratification, and not by those of the time of the original execution.” In re Wright (D. C.), 96 Fed. 187; Williams v. Clark, 47 Minn. 53, 49 N. W. 398; Burdick v. Jackson, 7 Hun, 488; Douglass v. Vogeler (D. C.), 6 Fed. 53; Bush v. Boutelle, 156 Mass. 167, 30 N. E. 607, 32 Am. St. Rep. 442; Head v. Horn, 18 Cal. 212. We are of the opinion that the court erred in allowing the claim for $800 and interest, loaned in October, 1898, as a part of the consideration for the deed. Tbe decree and findings should be modified so as to reject the claim for the $800.

(June 28, 1901.)

Errors are assigned upon other questions, but as they are not discussed in the brief of counsel, and are necessarily subordinate to the questions passed upon, we have refrained from a discussion of them. The judgment of the district court should be modified in accordance with this opinion, and as modified affirmed; costs of both courts to be equally divided between both parties.

Baskin and Bartch, JJ., concur.