Hall v. West Chester Publishing Co.

Corporations — Directors—Defacto officers — Confession of judgment. A judgment confessed by a corporation for a valid debt will not be stricken off because the confession of judgment was not authorized by a board of directors duly elected by the stockholders, where it appears that all of the stockholders were director’s, and that vacancies in the board of directors had been filled as they occurred, at directors’ meetings. The number of the directors of a corporation was three. At a meeting at which all of the stockholders were present, the number was increased to five. After this meeting all of the stockholders were directors, and vacancies in the board of directors were filled at the directors’ meeting. The board of directors as thus constituted confessed judgment to a person to whom the corporation was lawfully indebted. One of the directors who had served as a director since 1891, under an election not more regular than his associates on the board, petitioned the court to strike off the judgment. Held, (1) that the petitioner had no standing to object to the title of the other directors to their offices, or to allege that their action in confessing the judgment was illegal. Judgment — Striking off judgment — Practice—Corporation. A motion to set aside or strike off a judgment must be on the ground of irregularity appearing on the face of the record; amotion to open it is an appeal to the equitable power of the court to let the defendant into a defense. A judgment creditor of a corporation has no standing to ask that a judgment confessed by the corporation, and regular upon its face, shall be stricken off. A judgment confessed by a corporation for a valid debt, and regular on its face, will not be stricken off because the corporation is insolvent.

Appeal, No. 40, Jan. T., 1897, by John JB. Robinson, from order of C. P. Chester Co., Oct. T., 1896, No. 69, discharging rule to strike off judgment and to set aside sheriff’s sale. Rule to strike off judgment and set aside sheriff’s sale of personal property. Before Hemphill, P. J. The facts appear by the opinion of the Supreme Court. Errors assigned were in not setting aside the sale, and in not striking off judgment. To open the judgment, was not the relief Ave were entitled to ask. We were not the defendant to be let into a defense. The company’s indebtedness to Hall was not questioned, either wholly or in part, and there was no question of that kind to be determined by a jury after judgment opened. But here was a case to be determined by the court itself, i. e. as to the legal validity of this judgment. And if upon the evidence it appears to the court to be a judgment clearly invalid and void, the court surely has the power to strike it Avholly from the records : Bower v. Altland, 8 York, 137 ; Reeser v. Brenneman, 8 York, 138; Humphreys v. Rawn, 8 W. 78; Banning v. Taylor, 24 Pa. 289; Hutchinson v. Ledlie, 36 Pa. 113; Baker v. Singer Mfg. Co., 122 Pa. 363; Breckwoldt v. Morris, 149 Pa. 293; Moses v. Richardson, 8 B. & C. 421; Knox v. Flack, 22 Pa. 337 ; Ingersoll v. Dyott, 1 Miles, 245 ; Bryn Mawr Bank v. James, 152 Pa. 364; Miller v. Neidzielska, 176 Pa. 409; Sarver’s App., 81* Pa. 193. There were no annual elections of directors held, as required by law: Act of April 29,1874, P. L. 77; In re Lutheran Church, 15 W. N. C. 567; Freedley’s Corp. Law, 25; Act of June 17, 1887, sec. 1, P. L. 411; Anderson v. Storage Co., 26 W. N. C. 95. Nor does it avail anything that the directors and president, if not legally elected, were yet de facto officers of the corporation : Shellenberger v. Patterson, 168 Pa. 30. The company being insolvent when the judgment Avas confessed, under all the authorities this judgment could not legally be confessed by these usurping directors to one of their oavii number, even were they duly elected directors: 17 Am. & Eng. Ency. of Law, 122; Cook on Corporations, sec. 661; 2 M'orawetz on Corporations, sec. 787; Hopkins’s App., 90 Pa. 69; Neal’s App., 129 Pa. 72; Kersteter’s App., 149 Pa. 148. Directors of a corporation occupy a fiduciary relation to it, and they cannot, because they are directors, secure an advantage to themselves not common to other creditors: Hill v. Frazier, 22 Pa. 320; Coal Co. v. Humes, 157 Pa. 278; Aultman’s App., 98 Pa. 506; Drury v. Cross, 7 Wall. 302; Coal Co. v. Sherman, 30 Barb. 571; Butte v. Wood, 37 N. Y. 319; Koehler v. Iron Co., 2 Black, 715; Spering’s App., 71 Pa. 23; Coal Co. v. Parish, 42 Md. 598; Warner v. Hopkins, 111 Pa. 328; Brewster’s Equity Practice, 269; Watts’s App., 78 Pa. 370, Gravenstine’s App., 49 Pa. 320; Bayliss v. L. M. & B. By. Co., 8 Biss. 193. —A refusal to set aside a sheriff’s sale is not the subject of review by this court: Southwest Gas Co. v. Fayette Gas Co., 145 Pa. 13; Act of June 16, 1836, P. L. 755. Even if a sale was irregular, a general creditor of the defendant in the execution has no standing to object thereto in the absence of actual fraud: Yost v. Smith & Co., 105 Pa. 628. The court cannot strike a judgment from the record except for irregularity or illegality: O’Hara v. Baum, 82 Pa. 416; Weigley v. Teal, 125 Pa. 498; Adams v. Grey, 154 Pa. 258; Allen v. Krips, 119 Pa. 1; Bryn Mawr Bank v. James, 152 Pa. 365; North & Co. v. Yorke, 174 Pa. 349; 2 Cook on Stock and Stockholders, sec. 754; Tradesman’s Nat. Bank’s App., 149 Pa. 268; Borton v. Brines-Chase Co., 175 Pa. 209. Directors once elected, as they were here, continue in office until the stockholders shall elect others in their stead: Cook on Stock and Stockholders, sec. 624; Act of May 14, 1891, P. L. 61. When a collusive judgment comes into collision with the interests of creditors they must avoid the effect of it by showing it to be a nullity: Dougherty’s Est., 9 W. & S. 189; Thompson’s App., 57 Pa. 178; Clark v. Douglass, 62 Pa. 415; Mecldey’s App., 102 Pa. 541. An insolvent corporation may prefer a creditor, by confessing judgment to him, where there is no fraud in the .contracting of the debt, or in the confession of the judgment: Prouty v. Prouty, 155 Pa. 112; Stratton v. Allen, 16 N. J. Eq. 229. The appellant has no standing to question the validity of this judgment and sale. No one but the defendant could do so: Drexel’s App., 6 Pa. 272; Hauer’s App., 5 W. & S. 473; Thompson’s App., 57 Pa. 175; Moore v. Dunn & Fell, 147 Pa. 359. The rule to strike off a judgment is essentially a common law proceeding: 1 Mitchell on Motions and Rules, 75; Adams v. Grey, 154 Pa. 261. A stockholder’s petition to have a sheriff’s sale of the corporate franchises and property set aside, failing to aver when the petitioner became a stockholder and his holding, and to charge collusion, misconduct, or inability to act on the part of the directors, is fatally defective and gives no standing: Southwest Gas Co. v. Fuel Gas Co., 145 Pa. 13; Neal’s App., 129 Pa. 64.