Sec. 1070. Borrowing In Excess Of Limitation Of Indebtedness
Description
This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
Sec. 1070. Borrowing In Excess Of Limitation Of Indebtedness
If a corporation borrows money in excess of its limitation of indebtedness,the weight of authority is that the corporation is liable therefor,1 at least to the extent of benefits received in the transaction,2 or as far as it is used to pay pre-existing indebtedness.3 One lending money is subrogated to prior debts as far as they are discharged by the new loan,4 but is not subrogated to the security or priority of such creditors.5 Subsequent creditors who knew that the prior indebtedness exceeded the limit cannot attack the validity of a mortgage given to secure such debt.6 Its mortgage for such indebtedness cannot be attacked by subsequent lienholders.7 Some jurisdictions hold that the corporation is liable only up to the amount limited,8 and where the subsequent creditors do not know of the prior debt the mortgage is void as to the excess above the limit of indebtedness as against their rights, and recording the mortgage is not notice.9
1 Weber v. Bank, 64 Fed. 208; Wood v. Water Works Co., 44 Fed. 146; 12 L. R. A. 168; Warfield v. Canning Co., 72 Ia. 666; 2 Am. St. Rep. 263; 34 N. W. 467; Garrett v. Plow Co., 70 Ia. 697; 59 Am. Rep. 461; 29 N. W. 395; Humphrey v. Association, 50 Ia. 607.
2 Peatman v. Centreville, etc., Co., 100 Ia. 245; 69 N. W. 541; Beach v. Wakefield, 107 Ia. 567, 591; 76 N. W. 688; modified on rehearing, 78 N. W. 197.
3 In re Cork, etc., Co., L. R. 4 Ch. App. 748; Powell v. Blair, 133 Pa. St. 550; 19 Atl. 559.
4 In re Cork, etc., Co., L. R. 4; Ch. App. 748.
5 In re Wrexham, etc., Ry. (1899), 1 Ch. 440; 68 L. J. Ch. 270.
6 Central Trust Co. v. Columbus etc., Ry. Co., 87 Fed. 815; (citing Union National Bank v. Matthews, 98 U. S. 621; National Bank v. Whitney, 103 U. S. 99; Fritts v. Palmer, 132 U. S. 282; Logan, etc., Bank v. Townsend, 139 U. S. 67) ; Beach v. Wakefield, 107 Ia. 567, 591; 76 N. W. 688; 78 N. W. 197.
7 Beach v. Wakefield, 107 Ia. 567, 591; 76 N. W. 688; 78 N. W. 197.
8 Covington First National Bank v. Kiefer, etc., Co., 95 Ky. 97; 23 S. W. 675; Kraniger v. Building Society, 60 Minn. 94; 61 N. W. 904.
9 Bell, etc., Co. v. Glass Works, 106 Ky. 7, 23; 50 S. W. 2, 1092; 51 S. W. 180; reversing on rehearing 48 S. W. 440.
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