[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 312 Section 6 of the Stock Corporation Law (Chapter 59 of the Consolidated Laws) provides that a stock corporation shall have power to borrow money and contract debts when necessary for the transaction of its business, or for the exercise of its corporate rights, privileges or franchises or for any other lawful purpose of its incorporation, "and it may mortgage its property and franchises to secure the payment of such obligations, or of any debt contracted for said purposes. Every such mortgage, except purchase-money mortgages and mortgages authorized by contracts made prior to May first, eighteen hundred and ninety-one, shall be consented to by the holders of not less than two-thirds of the capital stock of the corporation, which consent shall be given either in writing or by vote at a special meeting of the stockholders called for that purpose, upon the same notice as that required for the annual meetings of the corporation; and a certificate under the seal of the corporation that such consent was given by the stockholders in writing, or that it was given by vote at a meeting as aforesaid, shall be subscribed and acknowledged by the president or a vice-president and by the secretary or an assistant secretary, of the corporation, and shall be *Page 314 filed and recorded in the office of the clerk or register of the county wherein the corporation has its principal place of business. * * *"
The question whether the purpose of the statute is simply to protect the stockholders from careless, improvident or corrupt acts of the officers of a corporation or is intended to require the consent of the stockholders as provided in the statute in every case to make legal and effectual a mortgage on corporate property, has been a subject for consideration in this, and other states where similar statutes exist, and the conclusions reached are not uniform. In this state, however, the answer to the question was unmistakably given by this court in 1881 long before the enactment by the legislature of the Stock Corporation Law of 1890 and, of course, the amendments thereto and revisions and consolidations thereof since that time.
We refer to the decision in Vail v. Hamilton (85 N.Y. 453). In that case it appears that the Secor Manufacturing Company had a capital stock consisting of five thousand shares, all of which had been issued. In March, 1874, nine hundred and forty shares of the stock were transferred to and became the property of the company. In July five hundred of the shares so held by it were transferred on the books of the corporation to one C. for the purpose of securing an indebtedness of the corporation and a certificate therefor was delivered to him. On the 1st of October the company executed to defendants as trustees a mortgage upon its property to secure $100,000 of its bonds. At the time of the execution of the mortgage a written assent to it was signed by stockholders owning two thousand seven hundred and sixty-four shares of the stock and in addition a consent was signed by the company by its secretary and president claiming therein to be a stockholder to the amount of nine hundred and forty shares. C. did not know of nor assent to the mortgage. The company became insolvent in 1877 *Page 315 and the plaintiff was appointed its receiver and brought the action to set aside the mortgage upon the ground that the necessary assent of stockholders thereto had not been given. The court say: "But while a certain limited number of the stockholders, to be called trustees, were empowered in that character to manage this property and the stock and concerns of the company, neither in a corporate capacity, nor through its trustees, was it permitted to mortgage the same without first obtaining and filing `the written assent of the stockholders owning at least two-thirds of the capital stock of such' company. (Laws of 1848, chap. 40, §§ 2, 3; Laws of 1864, chap. 517; Laws of 1871, chap. 481.) It is noticeable that there is thus called into action, the corporation as an artificial entity, the body of the trustees as its agent, and lastly, the constituent members of the corporation or the several individuals composing it. To each of these a duty is assigned, and to make valid the transaction now before us, it is plain that something more than corporate action was required. The corporation might become a party to the mortgage, and the trustees direct its officers to execute it; but there must still be the assent of the stockholder. The will of the whole body, expressed by vote or resolution, cannot take its place." (p. 456.)
The court further held that the assent of the corporation claiming as an owner of nine hundred and forty shares is simply the assent of the corporation and should not be counted toward the assent required by the statute. The court further, in considering the particular shares transferred on the books of the corporation to C., say: "Including these shares as part of the stock to be represented, the assent required by statute was not given and the mortgage is of no validity. It was, however, an apparent lien upon the property embraced in it; and we concur with the General Term in the conclusion that the action was well brought by the receiver to remove it." (p. 459.) *Page 316
The judgments of the lower courts setting aside the mortgage were affirmed.
In Rochester Savings Bank v. Averell (96 N.Y. 467), which was an action brought to foreclose a corporate mortgage where the consent of two-thirds of the stockholders was not obtained at the time of the execution of the mortgage, the court say: "But no assent of the stockholders having been obtained, it was invalid and created no present lien upon the property. (Vail, Rec'r., v. Hamilton, 85 N.Y. 453.) In the case cited, this court affirmed a judgment setting aside at the instance of a receiver, a mortgage executed by a corporation organized under the act of 1848, on the ground that the assent of the requisite number of stockholders had not been obtained. The case is an authority for the proposition that the assent of stockholders is an indispensable condition to the creation of a valid mortgage under the act of 1864." (p. 472.)
In that case (Rochester Savings Bank v. Averell) the assent of stockholders was obtained before there were any intervening rights and the court held that the mortgage became valid as of the time when the assent was given. To the same general effect is the decision in Welch v. Importers T.N. Bank (122 N.Y. 177) and Martin v. Niagara F.P. Mfg. Co. (122 N.Y. 165).
In Lord v. Yonkers Fuel Gas Co. (99 N.Y. 547) the plaintiff sought to foreclose a corporate mortgage on real and personal property and also the rights, privileges and franchises described in the mortgage. Judgment of foreclosure and sale was entered from which an appeal was taken. It appears that the consent of two-thirds of the stockholders of the corporation to the execution of the mortgage covered only the real and personal property of the company and did not mention its franchises, privileges and rights. The court say: "This omission is, of itself, sufficient ground for holding the mortgage inoperative as to those rights. The judgment *Page 317 appealed from authorizes the sale of the real and personal property, and also of all the rights, privileges, and franchises described in the mortgage. In so far as it authorizes a sale of the corporate franchises of the company, the judgment should be reversed." (p. 557.)
The conclusion reached in the decision of this court in Vail v. Hamilton (supra) was approved, reasserted or expressly followed in Astor v. Westchester Gas Light Co. (33 Hun, 333);Farmers Loan Trust Co. v. Baker (20 Misc. Rep. 387);Matter of Wendler Machine Co. (2 App. Div. 16); Beebe v.Richmond L., H. P. Co. (13 Misc. Rep. 737, 742); Quee DrugCo. v. Plaut (51 App. Div. 607); London Realty Co. v.Coleman Stable Co. (140 App. Div. 495); Matter of Post DavisCo. (219 Fed. Rep. 171); Matter of Progressive Wall PaperCorporation (230 Fed. Rep. 171); Karasik v. Peoples TrustCo. (252 Fed. Rep. 324).
The decisions of this court relied upon by the appellant do not sustain his contention. In Greenpoint Sugar Company v. Whitin (69 N.Y. 328, 333) the court in the discussion of the question then before it say that its decision is made "Without considering the question whether any but stockholders may interpose the objection to the authority exercised in this case."
In Paulding v. Chrome Steel Co. (94 N.Y. 334, 341) the court, referring in substance to the question whether the assent required by the statute to the giving of a mortgage was simply for the benefit and protection of stockholders against improvident or corrupt acts of the officers of the corporation, or because the legislature regarded the mortgaging of corporate property without such assent as improper per se, say: "The question, however, does not arise here, for neither the policy of the act nor its beneficent action can be invoked for the agreement was in fact made and the mortgage authorized by all the stockholders."
In Black v. Ellis (197 N.Y. 402) a corporation had *Page 318 acquired title to chattels covered by a purchase-money mortgage. Its acquisition of title was subject to the lien of said chattel mortgage, and to a covenant to renew it in every year in proper form. The court held that the obligation to renew was a part of the purchase price of the chattels and that the statute requiring the consent of stockholders to a corporation giving a mortgage on its property did not apply to the renewal mortgage under consideration. The court say: "The statute manifestly applies to creating a new encumbrance on corporate property, not to keeping alive one existing on property acquired subject to mortgage and under agreement to continue as a valid and subsisting lien." (p. 411.)
As the question whether a corporate mortgage was executed with the consent of stockholders as required by the statute can be raised by the corporation and a receiver thereof, it is manifest that it can be raised by a general assignee for the benefit of all the creditors.
The judgment should be affirmed, with costs.
HISCOCK, Ch. J., COLLIN, CARDOZO, POUND, CRANE and ANDREWS, JJ., concur.
Judgment affirmed.