Summary
In Boehme v. Rall, 51 N.J.Eq. 541, 26 A. 832, the court held that, where a foreign corporation executes in New Jersey a mortgage on property within that state to resident creditors to secure payment of debts contracted and payable there, the mortgage will not be held invalid because the execution thereof was contrary to the general statute of the state in which the corporation was incorporated.
Summary of this case from Washington-Alaska Bank v. Dexter Horton Nat Bank of Seattle, WashOpinion
05-22-1893
BOEHME v. RALL et al.
Edward Ruse, for complainant. Eugene Stevenson, for defendants.
Action by Reinhard Boehme, receiver of the New York Silk Bibbon Manufacturing Company, against Henry William Rail and William Deuster, trustees, to set aside a certain mortgage executed by such corporation to defendants as trustee for certain creditors of the company. Bill dismissed.
Edward Ruse, for complainant.
Eugene Stevenson, for defendants.
GREEN, V. C. On the application of Albert Strall, a stockholder and creditor as well as president of the New York Silk Ribbon Manufacturing Company, said company was declared insolvent, and by an order of this court the complainant was appointed its receiver on November 10, 1890. He qualified as such, and took possession of the real and personal property of the corporation. The real estate is situate at Haledon, in Passaic county, N.J. The personal property in question consists of machinery, stock, and manufactured goods in the factory at that place. The receiver discovered by an examination in the office of the clerk of Passaic county the record of two real-estate mortgages and one chattel mortgage executed by the company, the validity of which he does not question; and also a mortgage dated November 1, 1890, executed by the said company to Henry William Rail and William Deuster, as trustees for certain creditors, covering real and personal property, which he claims is invalid, and files this bill to set it aside. This mortgage, after reciting that, whereas the New York Silk Ribbon Manufacturing Company is justly indebted to certain named creditors in the respective amounts stated, aggregating the sum of $7,454, without interest, and for which debts the creditors held the promissory notes of said company, payable on demand, witnessed that the company, for better securing the payment of said sums of money to the said creditors, with the interest thereon, did grant, bargain, sell, etc., the premises described, and the goods and chattels specified, to the said trustees, to have and to hold the tract of land and premises therein granted, with the appurtenances, unto the said trustees, their heirs and assigns; and to have and to hold the goods and chattels therein bargained and sold unto the said trustees aforesaid, their executors, administrators, or assigns, forever; in trust, however, to secure the abovementioned debts to the therein named creditors, respectively; with the condition that if the said creditors should be paid the sums due them, then said instrument to be void; with other provisions anticipating the maturing of the obligation. The New York Silk Ribbon Manufacturing Company was organized on the 12th of March, 1887, under the law of the state of New York entitled "An act to authorize the formation of corporations for mining, manufacturing, mechanical, or chemical purposes," passed February 17, 1848, and of the several acts extending and amending said act. By its certificate it appears that the object for which the company was to be formed was the manufacture of silk ribbon and all other silk goods; that the amount of the capital stock of the company was to be $25,000; the term of its existence to be 25 years; the par value of the said stock to be $100 per share, and the number of trustees to manage the company nine; and that the operations of the company were to be carried on at the city of New York. The company was what is known as a "co-operative corporation," none but operatives in the business being permitted to be stockholders or officers, and none but stockholders being employed as operatives. After carrying on manufacturing for some time in the city of New York, it was deemed advisable to remove to the state of New Jersey, and on or about the 16th day of September, 1889, the corporation removed its plant, machinery, and stock to the village of Haledon, in Passaic county, in this state, having purchased real estate and established its factory there. It at the same time ceased to carry on any manufacturing or other business in the state of New York, and thereafter conducted all of its business operations, including the manufacture and consignment of goods, in New Jersey, holding all its trustee and formal stockholders' meetings therein. By an amended certificate filed in the office of the clerk of the county of New York, dated September 16, 1889, it was declared that "at a meeting of the stockholders of the company, regularly called, by vote or the stockholders representing two-thirds of the stock of said company, it was resolved to carry on some part of the business of said company (heretofore carried on only in the city and county of New York) outside of the state of New York, to wit, at Haledon, in the township of Manchester, in the county of Passaic, and state of New Jersey." The New York office was abandoned, but manufactured goods were consigned to a commission house in that city for sale. While the company was in operation in New Jersey, when in want of funds, money, for the purpose of carrying on operations, was advanced by the officers and stockholders, to whom, from time to time, the notes of the company were given for the money so advanced to the company. After continuing operations here for some time, it was found impossible to succeed, and the impending insolvency of the company was recognized. Thereupon, as appears by a certificate tiled in the clerk's office of the county of New York dated November 1, 1890, signed by various persons as stockholders of the said company, therein claiming to constitute a majority of all the stockholders thereof, and holding more than two-thirds of the capital stock thereof, their assent was given to the execution and delivery of a mortgage covering the factory property situated in the township of Manchester, in the county of Passaic, conveyed to the said company by William Bushman by deed dated January 17, 1889; and also covering the goods and chattels of said corporation on said land for the purpose of securing the indebtedness, amounting in the aggregate to $7,454, with interest thereon. The debts to be secured were contracted and payable in New Jersey; the property intended to be mortgaged was in this state; and the trustees and creditors intended to be secured thereby, 32 in number, were residents thereof, except 7 or 8, who resided in New York.
It is admitted, by conceding the validity of the first three mortgages, that by the laws of the state of New York a solventcorporation of this character was authorized to mortgage its property, but it is claimed that this authority did not pertain to this corporation at the time the mortgage attacked was given, in consequence of its anticipated insolvency. It is conceded that this mortgage does not contravene the provisions of the laws of the state of New Jersey. Wilkinson v. Bauerle, 41 N.J. Eq. 635, 7 Atl. Rep. 514; Vail v. Jameson, 41 N. J. Eq. 648,7 Atl. Rep. 520; Bergen v. Fishing Co., 42 N.J. Eq. 397, 8 Atl. Rep. 523. The bill alleges that this mortgage is illegal and void on several grounds, all of which were abandoned by counsel for complainant, with the single exception of that which related to its alleged invalidity under the laws of the state of New York. Upon this point the counsel for complainant relies on section 4, tit. 4, c. 18, pt. 1, Rev. St. N. Y. (1 Rev. St. 603.) Chapter 18 isentitled"Of Incorporations;" title 4 is entitled "Special Provisions Relating to Certain Corporations," a title inserted pursuant to the act concerning the Revised Statutes, passed December 10, 1828. Section 4, as it stood in 1890, when this mortgage was given, is as follows: "Whenever any incorporated company shall have refused the payment of any of its notes or other evidences of debt in specie or lawful money of the United States, it shall not be lawful for such company or any of its officers to assign or transfer any of the property or choses in action of such company, to any officer or stockholder of such company, directly or indirectly, for the payment of any debt; and it shall not be lawful to make any transfer or assignment in contemplation of the insolvency of such company to any person or persons whatever; and every such transfer and assignment to such officer, stockholder, or other person, or in trust for them or their benefit, shall be utterly void." On the trial, counsel for the defendants objected to the admission of this law of New York in evidence, on the ground that the same had not been properly pleaded. The rule undoubtedly is that, where a party relies upon the provisions of a foreign statute, either as the ground of relief or as a defense to the action, the substance of the act relied on ought to be set out. The rule is the same in equity as at law, the reason thereof being that the court cannot take judicial notice of the provisions of a foreign statute, and, if invoked, it should be so far stated that the court may see that the right or liability which depends exclusively on a statutory enactment arises by force of such statutory provision. Bank v. Hendrickson, 40 N. J. Law, 52-55. Counsel for complainant thereupon asked leave to amend his bill by properly pleading this statute. Defendants' counsel objected, on the ground that it was not a proper subject of amendment, that the statute avoided the merits of the case, and the application should be governed by the same rules as those which obtain where leave is asked of the court by a defendant to amend or plead out of time, viz. that it will not be granted except on terms that he does not interpose pleas of the statute of limitations, or pleas of the statute relating to usury, as a bar to the claim of complainant or plaintiff. The question of the amendment was reserved, the statute being introduced subject to the objection. The rule undoubtedly is that the court will not grant a favor to the defendant byway of extending time to plead, nor to answer, or to amend the same, where he has been in default, except by putting him on terms not to take advantage of certain pleas which are called unconscionable. But hero the application is not made by the defendants to interpose a defense to what may be a meritorious action by interposing a plea of a mere arbitrary bar created by legislative act without reaching the merits of the case, and which is termed and generally in fact is an unconscionable defense, but by the complainant, who is an officer of this court, seeking, in discharge of his official duty, to remove an incumbrance on property he is invested with for the benefit of creditors. Besides, the rule referred to is based on the ground that the party, by failing to plead in time, or omitting to plead a statute as a bar in plea or answer tiled, has waived the benefit therein made, and, in order to interpose some defense which he considers essential or desirable, he has to ask a favor of the court, and in extending the favor which he asks the court will do it only on the terms that he shall not act inconsistently with his waiver, and make use of a defense considered against conscience. In this case there has been no waiver. The counsel has pleaded the New York statute, but has done it imperfectly. It is not unconscionable, for, if the statute applies, the mortgage never had any validity. There is no surprise, for counsel frankly admitted on the argument not only that he was not taken by surprise as to the fact that complainant relied on the statute of New York, but that he was also fully advised of the phraseology and operation of the same. It seems, therefore, a proper case to permit the amendment, and it is accordingly allowed, and the statute of New York is, by amendment, to he properly pleaded.
Is, then, the validity of this mortgage to be governed by the laws of the state of New York or by the laws of the state of New Jersey? The first does not permit a company, in anticipation of insolvency, to in any way secure its creditors; and the other confessedly does. It is to be noted at the outset of this investigation that the section now relied on is not a part of the law under which the company was organized. That law, it appears, permits corporations or companies incorporated under the act, under certain conditions, to make and execute a mortgage; and under that law, if the company had been solvent, this mortgage would have been perfectly valid. The law invoked is a general one,—part of the Revised Statutes regulating all New York corporations not solvent,—and the question raised is to the extent of its operations. The case, as presented, that is, the power to make a mortgage, given by the act under which the company is incorporated, is taken away, in case of insolvency, by another general act regulating the management of corporations in certaincases. Both being statutes of New York, is the latter operative as to a mortgage executed in New Jersey, on property in thin state, to secure creditors who are residents of the state, for debts contracted and payable here? It is to be first remarked that its provisions are contrary to the policy of the law of New Jersey. At one time the law in this state enacted in the act to prevent frauds by incorporated companies (Nix. Dig. p. 340, § 2) was similar in effect to this law of the state of New York, but that was changed by the legislation attending the last revision, (Wilkinson v. Bauerle, supra.) It is argued that the company, by abandoning all business in New York, and removing all property and manufacturing to this state, transferring all its interest and operations from that state to this, has become not only subject to the restrictions and limitations of the local law where it is now situate, but that it has left behind, so far as its powers are concerned, the restrictions and limitations of the local law of the place from which it came, except such restrictions and limitations as are a part of the charter under which it is organized. That being a corporate entity, with power to contract, the exercise of that power in the place it is at present situated is regulated only by the local law, audit is sought to bring the case by analogy within the rule with reference to married women and others who may be under disabilities in one and not in another jurisdiction. But I think the distinction is clear. All natural persons, citizens of the United States, have under the constitution an absolute right of acquiring and holding property and making certain contracts, in whatever state they may be. In some jurisdictions the exercise of the right of disposing of property and of making certain contracts may be restricted by reason of personal conditions, such as infancy, coverture, etc., which do not obtain in others. These, it will be at once observed, are restrictions of a general power, dependent on conditions which attach to the person. Artificial persons or corporations, on the other hand, have no such general powers. The powers which they possess are those which they derive from their charters, or those which are incident thereto, to be exercised, by strict right, only in the jurisdiction which creates them. The right of a corporation created in one state to transact corporate business and make contracts in other states is not an absolute right, but one based upon the law of comity between the states, and that merely enables the corporation to exercise the franchise of acting in its corporate capacity in foreign states. Independent of statutory aid, the law of comity recognizes and permits only the exercise of the business functions of foreign corporations, including the purchase and sale of property, but is not extended to extraordinary powers and privileges; such as the power to condemn property, to enjoy a monopoly, to be exempt from taxation, and the like. Nor will the law of comity extend to a foreign corporation permission to exercise powers or franchises which are contrary to the established policy of the law of the locality, for it would be absurd to permit a foreign corporation to do that which the policy of the law prohibited a domestic corporation doing. While no solution of the question is to be deduced by analogy to the rights of natural persons under the constitution, I think the contention of counsel is, in the main, sustained by principle and authority.
The instrument involved is a mortgage of real as well as personal property owned by the company in this state. Doubt is entertained as to the power of a corporation to hold real estate in a foreign state, and enabling statutes have been passed in many states to establish such right, and to enlarge the scope of powers otherwise limited. Our own statute making it lawful for foreign corporations to hold, mortgage, lease, and convey such real estate in this state as may be necessary for the purpose of carrying on the business of such corporation in this state, etc., is prefaced by the preamble: "Whereas, doubts have arisen as to whether foreign corporations can hold, mortgage, and convey lands in this state." "Revision, p. 195, § 99. Whether the chartered powers of a corporation can be enlarged by the legislature of the foreign state to which it has removed it is unnecessary to consider in this case, because both by the law of New Jersey just quoted, and the law of New York, under which this company is organized, it has the power to mortgage its property; and the point involved is whether the company is hampered in the exercise of that power with reference to its properties in the state of New Jersey, by a general law of New York, suspending or taking away such right in the case of the insolvency of a corporation organized under the laws of that state. This Inhibition, as has been stated, is no part of the law under which this company is organized. It is contained in a general law of the state of New York relating to corporations. It is elementary that the general laws of a state have per se no extraterritorial force. This company brought with it from New York to New Jersey its chartered powers. It did not bring with it the general laws of the state of New York. The law of comity recognizes its right to do business in its corporate capacity in this state. Our statute law confers upon it the power to hold and mortgage real estate. It is the policy of the law of New Jersey that corporations, although insolvency may be impending, may mortgage their property to secure their creditors. To hold that the power of this corporation to mortgage its property in New Jersey to secure creditors living there is annulled by the law of New York, would be to hold not only that the general law of that state had extraterritorial force, but that comity required the courts of New Jersey to recognize the law of New York in violation of the policy of the law of New Jersey. The authorities make it equally clear. 2 Mor. Priv. Corp.
§ 967: "The charter contract alone is recognized. It is the charter alone which is recognized by the law of comity, and not the general legislation of the state in which the corporation was formed. The general laws and regulations of a state are intended to govern only within the limits of the state enacting them, and a state would have no power to give them extraterritorial force." In White v. Howard, 38 Conn. 342, the Connecticut court sustained a devise of land in Connecticut to a New York corporation, holding that, although devises to corporations are forbidden by the statute of wills of the state of New York, this does not prevent a New York corporation from taking the title to the land in Connecticut by the devise. Ellsworth v. Railroad Co., 98 N. Y. 553, is an extreme case. In it payment of bonds of the company was resisted on the ground, among others, that they had been originally sold at a price less than that required to be paid by the law of the state which chartered the company. After considering other questions, Rapallo, J., at page 559, says: "The defendant, however, takes the further position that the proofs upon the part of the defendant showed not merely that the issue of these bonds was ultra vires, but that it was illegal; the sale of them at less than par having been prohibited by the charter. On this branch of the case it is sufficient to say that the contract was in all respects a New York contract. The bonds were issued and sold in the city of New York, and the interest and principal are both payable in that city. There is nothing in the laws of New York which renders the contract illegal; and, even if the charter of the defendant (which was granted under the statutes of the states of Illinois and Indiana) should be so construed as to contain prohibitions which would have rendered the contract illegal in those states if made there, they do not have that effect here, except as restrictions upon the power of the corporation or its officers."
Again, the debts secured by the mortgage in question were not only made and are payable in this state, but the mortgaged property is also here. The mortgage embraces both real and personal property. As to the real estate, nothing can be better settled than that land in its devolution, conveyance, or incumbrance is subject exclusively to the local law. Whart. Coufl. Laws, § 273, says: "Jurists of all schools and courts of all nations are agreed in holding that land is governed by the law of the place where it is situated. Section 274. So far as concerns England and the United States, real estate, to adopt our distinctive phraseology in all jurisdictions, and by an uninterrupted current of authority, is held to be subject to the lex rei sitae." And this rule applies as well to mortgages as conveyances. Bentley v. Whittemore, 18 N. J. Eq. 366: "Whittemore, May 28, 1857, conveyed and assigned to two of the defendants all his property, in trust to sell and collect the same, and out of the proceeds to pay his debts in the order specified. These parties resided in the state or New Pork. Part of the property of the debtor was in this state. The assignment was good under the laws of New York, but was contrary to the law of New Jersey, which prohibited preferences, and, so far as it affected lands there, was held to be void." Chancellor Zabriskie says at page 373: "It is well settled in England and the states where the common law is in force that the transfer and descent of real property is governed by the law of the state in which it lies. This rule is without exception, and I am not a ware of any case or any authority in which it is questioned." Goddard v. Sawyer, 9 Allen, 78: Amortgage was made in New Hampshire by a resident in that state conveying land in Massachusetts as a security against liabilities subsequently to be created. Under the New Hampshire law such a mortgage was invalid. The Massachusetts court, however, sustained the mortgage. In this case the debt was valid and enforceable under the New Hampshire law; thelex loci contractus sustained the obligation. But the New Hampshire law prohibited a mortgage to secure that sort of obligation. The Massachusetts court, having to deal with a valid obligation under the law of New Hampshire, enforced its own law in regard to the mortgage of lands in Massachusetts given to secure that obligation. Sell v. Miller, 11 Ohio St. 331: By the law of Ohio a married woman over 18 years of age may contract. A mortgage on land in Ohio, executed by a nonresident married woman over 18 years but under 21, was held good, although by the law of her domicile she was incapable of contracting. Jones, Mortg. §§ 656-661. A mortgage considered as a mere security for a debt is valid or invalid, according to the law of the place which determines the validity or invalidity of the debt. (Section 662:) But as to the form and validity to the mortgage deed as a conveyance the law of the place where the land is situated must always govern. The debts for which this mortgage was given are admittedly honest and valid under the laws of the state of New York as well as under the laws of New Jersey. Any attack made on them by the bill is withdrawn. They could each and all be recovered in the courts of either state. The law of its charter having given the company the general power of mortgage, the exercise of that power is subject to the laws and policy of the state in which it lawfully holds the mortgaged real estate. Nor does any different rule apply to the chattel mortgage in this case. The contract was made in New Jersey, to be performed in New Jersey, and the goods were in this state. Mr. Justice Depue, in Safe Co. v. Norton, 48 N. J. Law, 410, at page 415, and 7 Atl. Rep. 418, at page 420, says: "When the place where the contract is made is also the place of performance and of the situs of the property, the law of that place enters into and becomes part of the contract, and determines the right of the parties to it." Whart. Confl. Laws, § 317: "The law in reference to a chattel mortgage is determinedby the situs;" citing Wattson v. Campbell, 38 N. Y. 153; Jones, Chat. Mortg. § 299. This being the law, the reasoning with reference to the real-estate mortgage will apply to the chattel mortgage.
Again, the part of the New York law which is invoked to invalidate this mortgage is essentially a bankrupt law,—it restrains a granted power from being exer cised by a corporation when it becomes insolvent,—and nothingis now better settled than that bankrupt laws have no extraterritorial force. Whart. Confl. Laws, § 625. Not only this, but the creditors who are secured by this mortgage upon property situate in New Jersey are citizens of this state. In Hoyt v. Thompson, 5 N. Y. 320, Paige, J., at page 348, says: "The statutes and laws of a country have no intrinsic extraterritorial force. They bind only its own citizens, and citizens of other countries while within its jurisdictional limits; and they bind directly only property within these limits. They do not affect or bind property out of its territory, or persons not resident therein, whether natural-born citizens or others. Whatever extraterritorial force these statutes and laws are permitted to have is the result of the voluntary consent of other nations. This consent is accorded upon the principle of the comity of nations alone, and not from any international obligation to yield to such statutes and laws the slightest obedience. Story, Confl. Laws, §§ 7, 8, 18, 20, 22, 23, 28, 38. But no nation, on any recognized principles of comity, is morally or otherwise bound to enforce foreign laws prejudicial to its own rights or to the rights of its own subjects. Id. §§ 244, 512. Bankrupt and insolvent laws come within this class. They have no extraterritorial force or validity. Their enforcement in any country other than that in which they were enacted would be prejudicial to the rights of the citizens of such country. The states of the Union are regarded as foreign to each other for ail purposes not embraced in the constitution of the United States, (Woodhnll v, Wagner, Baldw. 296;) and the bankrupt and insolvent laws of one state have no force or validity in any other states." I am of opinion that the mortgage attacked is valid, and that the bill should be dismissed, with costs.