Opinion
No. 8313.
July 26, 1957.
APPEAL FROM 5TH JUDICIAL DISTRICT COURT, BANNOCK COUNTY, W.C. LOOFBOURROW, J.
Louis F. Racine, Jr., Pocatello, for appellant J.M. Hatch.
Bistline Bistline, Pocatello, for appellant Securities Credit Corp.
Jones, Pomeroy Jones, Pocatello, for respondent N.A. Jordan et al.
O.R. Baum, Pocatello, for other respondents.
In accepting monies from the appellant, Edward S. Barrett, as President of Motor Center of Pocatello, Inc., and as its principal officer and stockholder in depositing those monies to the account and for the use and benefit of Motor Center of Pocatello, Inc., bound that Corporation to repay the appellant for such monies, and appellant was a bona fide creditor of Motor Center of Pocatello, Inc., by reason of any such transactions. Lewiston Lumber Box Co. v. Garvey, 13 Idaho 257, 89 P. 940; First National Bank of Hailey v. G.V.B. Mining Co., 9 Cir., 89 F. 439; 95 F. 23; Rowley v. Stack-Gibbs Lumber Co., 19 Idaho 107, 112 P. 1041; Commercial Trust Co. v. Idaho Brick Co., 25 Idaho 755, 139 P. 1004; Hammitt v. Virginia Mining Co., 32 Idaho 245, 181 P. 336; Portland Cattle Loan Co. v. Hansen Livestock Feeding Co., 43 Idaho 343, 251 P. 1051; American Fruit Growers Inc. v. Walmstad, 44 Idaho 786, 260 P. 168; Dennis v. Co-operative Publishing Co., 46 Idaho 534, 269 P. 82.
Appellant was not a stockholder of Motor Center of Pocatello, Inc. Idaho Code, §§ 30-109, subsec. 1, 30-119, 30-124, 30-133, subsecs. 5, 6, and 7.
Acknowledgment and recording of mortgage establishes validity thereof against all creditors of mortgagor, subsequent purchasers and encumbrancers of property in good faith and for value. Idaho Code § 45-1103.
Though there be a defective acknowledgement, the chattel mortgage is good as to the immediate parties, and good as to any persons not described in the statute as in position to raise the question of any defect in the acknowledgement. Nohrnberg v. Boley, 42 Idaho 48, 246 P. 12.
Although a chattel mortgage is defective or invalid as to third parties, if the mortgagee take possession of the mortgaged property prior to any creditor or interested party or third party asserting his right and acquiring a claim against the property, attachment or execution or other lien, the security will be held valid and the mortgagee will be protected to the extent of his claim. Ryan v. Rogers, 14 Idaho 309, 94 P. 427; Martin v. Holloway, 16 Idaho 513, 102 P. 3, 25 L.R.A., N.S., 110; Idaho Code, § 45-1105.
Where the mortgagor, with the knowledge and consent of the mortgagee remains in possession of the chattels mortgaged, and with the knowledge and consent of the mortgagee continues to sell and "dispose of the same without applying the proceeds of the sales to the reduction of the mortgage debt," the existence of such facts, whether shown by the mortgage itself or by evidence aliunde, will invalidate and avoid the mortgage as against creditors and other interested third parties. Ryan v. Rogers, 14 Idaho 309, 94 P. 427.
Chattel mortgage in which the name of the mortgagor does not appear in the body of the mortgage, is invalid though signed by him. Burtrum Brothers Motor Company v. Dryden, La.App., 38 So.2d 88.
The law is well settled that decision of the trial court will not be disturbed because of conflict, if evidence supporting decision of the trial court would be sufficient, if uncontradicted to sustain decision. Harp v. Stonebroker, 57 Idaho 434, 65 P.2d 766; Jones v. Mikesh, 60 Idaho 680, 95 P.2d 575; Litalien v. Tuthill, 75 Idaho 335, 272 P.2d 311.
One who gives credit to an individual cannot subsequently claim satisfaction out of the assets of a corporation of which the debtor is sole shareholder; and this is true even though it was contemplated that the money loaned was to be used for corporate purposes. In re John Koke Co., 9 Cir., 38 F.2d 232; Tinnin v. Wilkirson, Tex.Com.App., 58 S.W.2d 69; Stevens on Corporations, page 72.
Not only are such holdings fair from the standpoint of the assumption of the parties when contracting, but they are frequently necessary in order to protect other corporate creditors. Stevens on Corporations, page 72.
This is an action for declaratory judgment, brought by N.A. Jordan as assignee for benefit or creditors, to determine who the creditors are and what preference, if any, they may have.
Motor Center of Pocatello, Inc., a corporation, operated as an automobile agency in Pocatello, Idaho. In 1952, the corporation was sold for $33,500 to Motor Center of Pocatello, Incorporated, a corporation. There were claims against the vendor in excess of $90,000, with appellant Dr. J.M. Hatch presenting a claim exceeding the sum of $55,000, and appellant Securities Credit Corporation being next with a claim in excess of $19,000. The appellant Dr. J.M. Hatch seeks to establish a claim as a general creditor, and appellant Securities Credit Corporation seeks to establish its claim as a preferred creditor. The trial court determined that certain chattel mortgages were void and unenforceable, and that Securities Credit Corporation, mortgagee, was not a preferred creditor, but a general creditor. The court, after hearing conflicting testimony, concluded on the following facts that J.M. Hatch was not a creditor of the corporation:
For the purpose of the sale of the business, Edward S. Barrett, as president of the corporation, executed an affidavit which recited the only persons to whom the corporation was indebted. The name of J.M. Hatch was omitted from this list of creditors. The record discloses that Edward S. Barrett personally obtained from J.M. Hatch from time to time sums totaling $52,823.04, and that during this period Barrett was president of the corporation. There is a conflict in the evidence as to whether or not appellant Hatch was a stockholder of the corporation during this time. Minutes of the company show that he was a stockholder and officer; however, he testified that this was not true. Hatch represented in writing to a bank that he was an officer of the corporation in order to obtain financing, waived a call of stockholders' meeting, and signed the minutes of the company. Barrett filed a verified petition in bankruptcy wherein Hatch was listed as a personal creditor. The evidence is conflicting as to whether or not the money used by Barrett in whole or in part was loaned to Barrett as an individual or to the corporation, or if the money was for stock or some other purpose. There is no mortgage or other instrument evidencing a corporate obligation to Hatch.
It appeared on the trial that Securities Credit Corporation had financed the "flooring" of automobiles to be sold by Motor Center of Pocatello, Inc. These automobiles were sold without paying off "flooring" loans in the sum of $27,000. As substituted security to protect itself, the Securities Credit Corporation prepared three chattel mortgages which were signed by Edward S. Barrett, the president of Motor Center of Pocatello, Inc., a corporation, on all parts, tools, shop equipment, machinery, and office equipment, which sum was later reduced by payments to approximately $19,000.
These three chattel mortgages were acknowledged by Edward S. Barrett as an individual, and recorded in the recorder's office in the county wherein the corporation was situated. In the decree, the trial court held the mortgages void and unenforceable.
That portion of the decree declaring the chattel mortgages between Securities Credit Corporation and Motor Center of Pocatello, Inc., a corporation, to be void is an inaccurate conclusion. As between the parties, the mortgages are enforceable, and will be given full weight. 1 Jones, Chattel Mortgages and Conditional Sales, Sixth Edition, sec. 248, p. 421; 14 C.J.S. Chattel Mortgages § 134, p. 738. This conclusion is further supported by the following statutes:
"Mortgage is a contract by which specific property is hypothecated for the performance of an act without the necessity of a change of possession."
I.C. sec. 45-903:
"The lien of a mortgage is special, unless otherwise expressly agreed, and is independent of possession."
I.C. sec. 45-906:
"A mortgage is a lien upon everything that would pass by a grant or conveyance of the property."
But the determination as to whether the mortgages will have priority over general creditors presents several problems, all hinging on whether there was notice given to the general creditors as to the existence of the mortgages. In Idaho this is, in effect, controlled by statute, I.C. sec. 45-1103:
"Except as provided in section 45-1105, a mortgage of personal property is void as against creditors of the mortgagor and subsequent purchasers and encumbrancers of the property in good faith and for value, unless it is acknowledged or proved as grants of real estate, and the mortgage, or a true copy thereof bearing the affidavit of the mortgagee or some one in his behalf to the effect that the copy is a true copy of the original, is filed for record with the county recorder of the county where such property is located at the time of such filing: provided, however, that such mortgage shall be void only as against such subsequent purchasers and encumbrancers in good faith and for value as acquire their rights in the mortgaged property, and such creditors as acquire specific liens thereon, prior to the time of such filing. * * *"
If there was no notice, or defective notice, of the chattel mortgages to the general creditors, then Securities Credit Corporation will assume the status of a general creditor. On the other hand, if there was notice to the general creditors of the mortgages, by compliance with I.C. sec. 45-1103, then the Securities Credit Corporation would be a preferred creditor. 14 C.J.S. Chattel Mortgages, § 137, p. 741.
The question at hand to analyze and resolve is to determine if there has been compliance with the Idaho statutes pertaining to chattel mortgages. Inasmuch as the mortgagor is a corporation, it must comply with the statutory requirements pertaining to execution and filing of chattel mortgages. Our statutes require the acknowledgment to be substantially the same as I.C. sec. 55-711:
"The certificate of acknowledgment of an instrument executed by a corporation must be substantially in the following form:
"State of Idaho, county of _____, ss.
"On this ___ day of ____, in the year _____, before me (here insert the name and quality of the officer), personally appeared _____ known to me (or proved to me on the oath of ____) to be the president, or vice-president, or secretary or assistant secretary, of the corporation that executed the instrument or the person who executed the instrument on behalf of said corporation, and acknowledged to me that such corporation executed the same."
The provisions of I.C. sec. 55-805 clearly prohibit the filing of an instrument not acknowledged in substantial compliance with the statutes:
"Before an instrument may be recorded, unless it is otherwise expressly provided, its execution must be acknowledged by the person executing it, or if executed by a corporation, by its president or vice-president, or secretary or assistant secretary, or other person executing the same on behalf of the corporation, or if executed in name of the state of Idaho or any county, political subdivision, municipal, quasi-municipal, or public corporation, by one or more of the officers of such state, county, political subdivision, municipal, quasi-municipal, or public corporation executing the same, or if executed in a partnership name, by one or more of the partners who subscribed the partnership name thereto, or the execution must be proved and the acknowledgment or proof, certified in the manner prescribed by chapter 7 of this title * * *."
The acknowledgment in each instrument executed by Barrett is substantially as follows:
"State of Idaho
:ss.
County of Bannock
"On this 12th day of June, 1952, before me, Charles Croshaw, a Notary Public, in and for said County and State, personally appeared Edward S. Barrett known to me to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same.
"In Witness Whereof, I have hereunto set my hand and affixed my official seal at _____ County, Idaho, the day and year in this certificate first above written.
"Charles Croshaw".
The acknowledgment on these instruments does not even pretend to comply with the corporate acknowledgment of I.C. sec. 55-711, and is therefore void because it fails to disclose that he was a corporate officer of the corporation and with the authority to execute it. This being a void acknowledgment, the instrument could not be filed for record under the mandatory provisions of I.C. sec. 55-805. By not having an acknowledgment and not being entitled to be recorded, the mortgages had no preference as to the creditors of the Motor Center of Pocatello, Inc., a corporation. Without a preference, the mortgagee was placed in the same category as the general creditors. The present action placed the property under the jurisdiction of the court. A judgment having been entered for the disposition of the property prevents the mortgagee from now availing himself of the statute by correcting the errors in the mortgages.
Therefore, the acknowledgments being void and the instruments not meeting the requirements by being property acknowledged and lawfully filed under I.C. sec. 45-1103, the mortgages were invalid as giving Securities Credit Corporation a preference over the general creditors of Motor Center of Pocatello, Inc., a corporation. Bank of Commerce of Anacortes v. Kelpine Products Corp., 167 Wn. 592, 10 P.2d 238; Yukon Inv. Co. v. Crescent Meat Co., 140 Wn. 136, 248 P. 377; Koht v. Towne, 201 Iowa 538, 207 N.W. 596; 1 Cal.Jur.2d, Acknowledgments, sec. 15, p. 482; 1 Jones, Chattel Mortgages and Conditional Sales, Sixth Edition, sec. 248, p. 420. Therefore, the final conclusion reached by the trial court that Securities Credit Corporation is a general creditor is a correct conclusion.
There being a conflict in the testimony as to whether the money given by Hatch to Barrett was for the corporation or for Barrett himself, it was proper for the court to consider all of the evidence in arriving at a judgment. Barrett's listing Hatch as a personal creditor in a bankruptcy proceeding has strong implications of the truth of the circumstances.
Dr. Hatch was found by the trial court not to be a creditor of the corporation. There being competent and substantial evidence upon which the trial court could make such a finding, it will not be disturbed upon appeal. Petersen v. Holland, 79 Idaho 63, 310 P.2d 810; Lesekatos v. Koehler, 79 Idaho 21, 310 P.2d 801.
The judgment of the trial court is affirmed.
Cost to respondent.
KEETON, C.J., and PORTER, TAYLOR and SMITH, JJ., concur.
On Petition for Rehearing
McQUADE, Justice.
In its petition for rehearing the appellant Securities Credit Corporation again urges that its mortgages having been filed prior to any action being instituted or any rights in the property acquired by any other creditor, its liens are valid under I.C. § 45-1103. Appellant contends that the mortgages, being actually of record, constitute valid notice to other creditors whether they were entitled to be filed for record or not.
The statute requires that the mortgage be "acknowledged or proved as grants of real estate, and the mortgage, or a true copy thereof" be filed for record. The proviso which preserves the lien of the mortgage, except as against "such creditors as acquire specific liens thereon, prior to the time of such filing" does not operate to preserve the lien of a mortgage which is not properly acknowledged. The proviso is expressly limited to the filing of a properly acknowledged instrument. The words "such filing" relate back to the properly acknowledged instrument described in the first sentence of the paragraph.
Appellant's mortgages not having been properly acknowledged and not being entitled to be filed for record, the result is the same as though they had never been filed at all. The other creditors acquired specific rights in the property by the assignment for the benefit of creditors prior to the time of any valid filing.
Rehearing denied.
KEETON, C.J., and PORTER, TAYLOR and SMITH, JJ., concur.