Webb v. Duvall

Mitchell, J., delivered the opinion of the Court. The facts in this case, as they appear in the record, chiefly in a stipulation of counsel, with some brief testimony, may be stated, so far as necessary to a decision herein, as follows: The National Wholesale Liquor Company, a corporation, was engaged in the rectification of spirits, its plant being located in Baltimore County. For some time prior to March, 1937, the affairs of the company had not been ⁵⁹⁴ progressing' with financial success, resulting in the formation of a creditors’ committee, which committee designated Charles A. Webb, the appellant, as its representative to manage and operate the company’s plant. In the course of these duties he purchased certain printing presses and equipment to be used in the business, for which he paid $600 of his own money.

To secure himself he prepared a chattel mortgage, dated March 23rd, 1937, which was signed by Saul Fehlden as the company’s purchasing agent, witnessed by Joseph Mund as its vice-president, acknowledged by Fehlden and sworn to by Webb, and when offered in evidence bore the corporate seal. The amount named in the mortgage was $1500, the difference of $900 representing other indebtedness of the company to Webb. The instrument was duly recorded among the chattel records of Baltimore County, and, as recorded, the seal is wanting. On September 28th, 1938, a creditors’ bill was filed in the Circuit Court for Baltimore County, seeking a receivership of the corporation; and, on October 13th following, the receivers, appellees here, were appointed.

On February 16th, 1939, as the result of a fire in the building in which the printing plant was located, the presses and equipment were destroyed. This occurred ten days before the property was scheduled to be sold at auction by the receivers. A pro-rating of the proceeds of a fire insurance policy, which the receivers had obtained, covering all the property in the burned building, produced $472.66 as representing the equivalent of the machinery embraced in the mortgage. Webb having filed his claim in the receivership proceedings, based upon the chattel mortgage, it was resisted by the receivers, who contended that the instrument was defective, being at best an equitable mortgage, and that Webb could only share in the insurance proceeds pari passu with creditors becoming such after the date of the mortgage.

As claims totaling $7400 were filed by general creditors who became such after March 23rd, 1937, Webb’s share, as calculated by appellant’s counsel, would be approximately ⁵⁹⁵ $28. Webb, however, contended that the purchasing agent had authority to give a binding chattel mortgage on behalf of the company, without corporate action, notwithstanding the corporation at the time of the execution of the paper had officers and directors. The chancellor held that the instrument gave Webb only an equitable lien upon the chattels described therein, and ordered that, in the distribution of the insurance money, creditors subsequent to the date of the mortgage should share pari passu with Webb, but prior creditors should not share therein. From the decree against him, Webb has appealed.

The single question presented, therefore, involves the construction and effect of the so-called chattel mortgage. If it is a valid instrument for the purpose indicated by its contents, the appellant is a preferred creditor and entitled to the amount of his lien, so far as funds are available — $472.66. In determining the efficacy of the instrument to achieve its apparent intent, the circumstances immediately surrounding its execution must be considered, including the subsequent action or non-action of the governing officials of the corporation with respect to it, with knowledge of its existence. According to the stipulated facts, the corporation minutes show that there were subsequent meetings of the officers and directors, but in none of them is the mortgage mentioned, and of course no corporate action is disclosed therein giving authority to Fehlden or anyone else to execute the mortgage.

It is conceded that the printing presses were used in the plant until the receivers were appointed. The appellees suggest that there is no proof that Fehlden was the purchasing agent at the time the mortgage was given, and that, as a matter of fact, because Webb was buying supplies for the corporation, the latter was actually the purchasing agent. But the stipulation refers to the mortgage as being signed by “the purchasing agent, Saul Fehldenthe body of that document calls him “its purchasing agent;” the acknowledgment so designates him; and his signature to the instrument is over the word “president,” which has a line drawn ⁵⁹⁶ through it, and the words “purchasing agent” apparently added, in the same manner as Joseph Mund’s witnessing signature is followed by the lined-out word “secretary” and the apparently written-in words “vice-president.” Webb testified: “I was appointed by the creditors to go out there and run it, and there were no officers there, and when I qualified, I got the only officer that was there, I got the man that was running the whole place to do it.” We may, therefore, fairly assume that Fehlden was the purchasing agent at the date the mortgage was given. The picture presented by the record is that of a company, organized as a corporation, reaching a stage in which the corporate machinery functioned but weakly, if at all; and where creditors, fearing the enterprise was' headed toward failure, had undertaken- to divert its course; the situation culminating in the appointment of the receivers.

Before the receivership, however, Webb, representing the creditors’ committee, in his effort to rehabilitate the business, found. it advisable to install the printing presses,. and, first expending.his own funds in the purchase thereof, prepared an instrument to secure reimbursement to himself; when he looked.for someone to sign it, he found the purchasing agent, the vice-president acting as a witness to the document, because, as Webb states, “if there had been some other officers there, I would have gotten them, but when there is not, the vice-president takes the place of the president.” The presses being installed, were jised thereafter in the operation of the business and for its benefit; and, the mortgage being recorded, no protest emanated from the corporation officers, the corporation continuing to utilize this equipment up to the time the