Lackenbach v. Finn

This is an action brought against the defendant, as sheriff of the city and county of San Francisco, for the alleged wrongful conversion of property by the taking thereof without having paid or offered to pay to the mortgagee the amount due on the mortgage.

The facts in the case are in substance as follows: It appears that Minnie Lackenbach, the daughter of the plaintiff, with others as partners, had been conducting the business of the Bellevue Hospital; that she bought out her partners, and later organized a corporation which took over the hospital business. It also appears that she was indebted to her mother the plaintiff, in the sum of one thousand five hundred dollars for money she had borrowed from plaintiff, and which money had been actually used in conducting said Bellevue Hospital and in buying out the interests of her partners, just prior to the formation of the corporation. It further appears that upon the organization of the corporation she transferred to it the furniture and equipment of the hospital; and the plaintiff having demanded a mortgage upon the furniture and equipment as security for said indebtedness, the chattel mortgage in question was thereupon executed, to wit, on August 15, 1910, and delivered to plaintiff. No money was loaned to the corporation by the plaintiff, but the corporation assumed, it seems, the indebtedness owing from Minnie Lackenbach to plaintiff. The board of directors of the corporation consisted of the plaintiff, her daughter Minnie Lackenbach, - and Mrs. R. P. Gabriel. A resolution authorizing the execution of the chattel mortgage was passed by the board, 'being carried by the votes of plaintiff and Mrs. R. Gabriel, Minnie Lackenbach not voting, having been excused at her own request. More than six months subsequently to the execution of the mortgage and in April, 1911, the defendant herein, acting under executions in the one case and

As before stated, the board of directors consisted of three members. Two, therefore, constituted a quorum (Civ. Code, sec. 305). At the meeting authorizing the execution of the chattel mortgage to the plaintiff all the directors were present, but one did not vote: The plaintiff, however, did vote; and as she was an interested party, defendant contends that both the resolution and chattel mortgage were void ab initio. The authorities in this state do not go to that extent. They hold that a contract between a corporation and one of its directors by which such director obtains property or some other advantage to himself, is not absolutely void, but is voidable at the instance of the corporation or its stockholders (Graves v. Mono Lake etc. Mining Co., 81 Cal. 303 , [ 22 Pac. 665 ] ; Fudickar v. East Riverside I. Dist., 109 Cal. 29 , 41, [ 41 Pac. 1024 ] ; Markers v. Umpqua Valley Oil Co., 49 Or. 374 , [ 12 L. R. A. (N. S.) 825 , 90 Pac. 151 ] ; 10 Cyc. 1195). It is thus seen that the rule defendant attempts to invoke is solely for the benefit of the corporation and its stockholders, and is not available to him as a defense. Of course the defendant here, if regarded as standing in the shoes of creditors of the corporation, might question the validity of the mortgage on the ground of actual fraud; and the cases hold that fraud will be presumed in favor of a creditor of the mortgagor at the time the mortgage was made. But the question of the good faith of the transaction was not an issue in this case; and if it had been, the findings of the court

The defendant persisted in holding the property under the writs mentioned, knowing of the existence of the chattel mortgage and the circumstances under which it was executed. The plaintiff was not required under the law in this state to go to the trouble and incur the expense and suffer the delay of following the property into the federal courts.

The judgment and order appealed from are affirmed.