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Notice to the director of a corporation is notice to the corporation and estops the corporation and its receiver from questioning the validity of a prior transaction.
In 2007, appellee/cross-appellant Wachovia Bank, National Association ("Wachovia") extended a loan to WL Homes, LLC ("WL Homes"). In exchange, WL Homes granted Wachovia a security interest in the $10 million bank account of a wholly-owned subsidiary called JLH Insurance Corporation ("JLH"). WL Homes eventually filed a bankruptcy petition and Wachovia sought a declaration in United States Bankruptcy Court for the District of Delaware that it had an enforceable security interest in the JLH bank account. The Bankruptcy Court granted Wachovia's motion for summary judgment, holding that Wachovia had a valid security interest in the account because JLH had consented to the pledge and, in the alternative, because WL Homes had use and control of the JLH account. The Chapter 7 trustee appointed to represent both WL Homes and JLH appealed. The District Court affirmed the grant of summary judgment on the basis of consent but reversed the use and control holding. Both parties appealed the decision of the District Court.
Was Stelmar, as JLH’s president, obligated to communicate to JLH the fact WL Homes had pledged its account as collateral?
The court held that a pledge of a corporation's capital reserves undoubtedly involves the "general business" of the corporation and was well within the scope of Stelmar's duties as president. Stelmar was thus obligated "in good faith and the exercise of ordinary care and diligence" to communicate to JLH the fact WL Homes had pledged its account as collateral. Cal. Civ. Code § 2332. Stelmar need not have been acting specifically in his capacity as JLH's president when he received this information. Cf. O'Riordan, 114 P.3d at 757 (imputing agent's knowledge to the principal even though agent acquired the relevant information before the agency relationship began). The undisputed facts demand that the court imputes Stelmar's knowledge of the pledge of the JLH account to JLH. That knowledge manifests consent. The court concluded that Wachovia had an enforceable security interest and is entitled to judgment as a matter of law.