Summary
In Carpenter v. Black Hawk Co. (65 N.Y. 50), it was held that a corporation could not, without some statute allowing it, either sell or mortgage its franchises, and that the result was that the mortgage before the court, in that case, was inoperative so far as it purported to convey the franchises of the company.
Summary of this case from Lord v. Yonkers Fuel Gas Co.Opinion
Argued September 30, 1874
Decided January term, 1875
T.B. Eldridge for the appellant.
Joshua M. Van Cott for the respondents.
The referee held that the mortgage was void and of no effect, and that it should be delivered up and canceled, and that the defendants White and Wall, the trustees, should be perpetually restrained from selling the mortgaged property under the power contained in the mortgage. Hence, if the mortgage was a valid security for any amount, the General Term properly reversed the judgment entered upon the report of the referee.
This company was organized under the general act "to authorize the formation of corporations for manufacturing, mining, mechanical or chemical purposes." (Chap. 40, Laws of 1848.) The second section of that act provides that any company formed under that act shall be capable in law of purchasing, holding and conveying any real and personal estate whatever, which may be necessary to enable it to carry on its operations, "but shall not mortgage the same or give a lien thereon." This latter clause is an abridgement of the powers which such corporations would otherwise have. Corporations, unless restrained by their charters, have the power to mortgage their property to secure borrowed money, or their debts. (Angell Ames on Corp., 191; De Ruyter v. St. Peter's Church, 3 N Y, 238; Barry v. Merchants' Exchange Co., 1 Sandf. Ch., 280; King v. Same, 5 N.Y., 547; Richards v. Merrimack Railroad, 44 N.H., 127.) This clause was modified by section 2 of chapter 517 of the Laws of 1864, which provides that any corporation formed under the act of 1848, "may secure the payment of any debt" "by mortgaging all or any part of the real estate," "provided that the written assent of the stockholders, owning at least two-thirds of the capital stock of such corporation, shall be first filed in the office of the clerk of the county where the mortgaged property is situated." This provision removes the restraint as to mortgaging real estate, leaving the restraint, as to mortgaging personal property, still in force. A mortgage upon real estate is allowed only to secure the payment of debts. It cannot be made to raise money merely to carry on the operations of the company.
It was manifestly the intention of the directors of this company, and of the stockholders who gave their assent to the mortgage, that the bonds secured by the mortgage should be used not only to pay debts, but also to raise money to carry on the business of the company. It is also manifest that the bonds were used for both purposes; and it is claimed that this invalidates the mortgage. There is no proof or finding that the bonds were fraudulently issued, or that the mortgage was fraudulently made, and hence it cannot be claimed that the mortgage was void or voidable on that account. Some bonds were issued and used for a proper purpose, and so far as the mortgage secures such bonds, how can it be held illegal and invalid? Creditors, who have taken such bonds for the payment of the debt of the company due them have the right, through the trustees named in the mortgage, to rely upon and resort to the security. It may be that the bonds not delivered to the creditors were taken and are now held by bona fide holders, and that they are valid in their hands; and that as against such holders the company which has appropriated and had the benefit of the bonds issued is estopped from claiming the invalidity of the mortgage, and that without restoring what it has received, it cannot repudiate either the bonds or the mortgage. And it is quite plain that the same principle which in such cases would estop the company would estop any stockholder of the company. ( Zabriskie v. Cleve., Col. and Cin. R.R. Co., 23 How. [U.S.], 381; Parish v. Wheeler, 22 N.Y., 499; Ranger v. Great-western Railway Co., 5 H.L.C., 86; Mackay v. Commercial Bank of New Brunswick, 5 Privy Council Cas., 394; Moran v. Commissioners of Miami County, 2 Black., 722; State v. Trustees of Union Township, 8 Ohio St., 394; Society for Savings v. City of New London, 29 Conn. 174.,) Hence there is nothing in the preliminary proceedings, nor in the circumstances thus far alluded to, which lay the foundation for the decision of the referee.
Neither is the mortgage invalid because it purports to mortgage the franchises of the company, and its personal property as well as its real estate. A corporation, without some statute allowing it, can neither sell nor mortgage its franchises. ( Susquehanna Can. Co. v. Bonham, 9 Watts S., 27; Arthur v. Coml. and R.R. Bk., 9 Smedes M. (Miss.), 394; New Orleans, etc., R.R. Co. v. Harris, 27 Miss., 517; Stewart v. Jones, 40 Mo., 140.) Hence this mortgage, so far as it purports to convey the franchises of the company, is simply inoperative. The trustees therein named could not sell and give title to the franchises, and there was no occasion for any interference of a court of equity to prevent such an attempted sale. Unless the doctrine of estoppel should apply, the mortgage was also, upon its face, invalid as to the personal property, and the trustees could not sell and give title to the same. But there is no reason for equitable interference as to the personal property. If the trustees had the right to sell it, equity ought not to interfere. If they had no right to sell it under the mortgage, then there is no ground disclosed in the evidence or the findings of the referee which call for equitable interference. It does not appear how much personal property there was, nor how or to what extent the company or the stockholders would be damaged by its sale. If equity could interfere at all in such a case, it would be only to prevent a serious and irreparable mischief. But, in any event, the mortgage would be valid as to the real estate, and that is sufficient for our present purpose.
If this mortgage can properly be said to have been given to secure the payment of any debts, I can perceive no objection to its form. The statute prescribes no form, and there is no rule of law which requires a mortgage upon real estate to be in any particular form. The mere deposit of title deeds to secure the payment of money borrowed is an equitable mortgage. ( Rockwell v. Holby, 2 Sandf. Ch., 9; Jackson v. Parkhurst, 4 Wend., 369.) An absolute conveyance given as security and a defeasance bearing the same date is a mortgage. ( Jackson v. Green, 4 Johns., 186; Peterson v. Clark, 15 id., 205.) A sealed grant of land for the term of one year on rent, and conditioned to be void on payment of a certain sum, with a covenant to pay it, is a mortgage. ( Elliott v. Pell, 1 Paige, 263.) A deed absolute on its face may be shown to be a mere security for money, and thus a mortgage. ( Hodges v. The Tennessee Mar. and Fire Ins. Co., 8 N Y, 416; Murray v. Walker, 31 N.Y., 399.) In all cases, no matter what the form of the mortgage may be, there is a right of redemption before foreclosure. In this case, the instrument executed to secure the bonds appears upon its face to be a mortgage, and to have been given simply as security. It may, in one sense, be called a trust deed, but it was intended as a mortgage security.
It is not in conflict with the statute, because it mortgaged the future as well as present real estate of the company. There is nothing in the statute which limits the effect of the mortgage to the present real estate of the company, and nothing in the nature of a mortgage security which can thus limit its effect ( Seymour v. Canandaigua and Niagara Falls R.R. Co., 25 Barb., 284; Fisk v. Potter, 2 Abb. N.Y. Ct. of App. Dec., 138); besides, there was no proof that there was any after-acquired real estate.
There is no objection to the mortgage because it authorized a sale, after certain notices specified, in the city of New York, of real estate situate in Colorado. Our statute in reference to the sale of mortgaged premises under a power of sale contained in a mortgage has reference only to real estate and mortgages recorded in this State. ( Elliott v. Wood, 45 N.Y., 71.) In the absence of any statute regulation, under any system of laws, the parties to a mortgage must have the power to agree upon the manner in which the property may be sold to realize the security. In Elliott v. Wood ( supra), Judge ALLEN says: "The power of sale was a part of the security, and its terms, so far as consistent with law, were matters of conventional arrangement between the parties."
Our statutes have no force in Colorado, and there was no proof or claim upon the trial that a sale under this mortgage in the city of New York was in conflict with any law of Colorado. The terms provided in the mortgage upon which sale could be made were fair and just, in no sense oppressive, and not illegal, and hence they furnish no ground for equitable interference in this case.
I am now brought to the last question which I propose to consider. The referee, as appears from his opinion, held the mortgage to be void, upon the ground that it was not given to some creditor to secure some debt of the company. He construed the statute of 1864 to authorize a mortgage only to some creditor, and this view of the statute the General Term held to be erroneous, and I agree with it. The object of the statute was to enable a company to secure its debts. It could not have been contemplated that it should be obliged to execute a separate mortgage to each one of its creditors. Such a construction of the statute would be mischievous and inconvenient. It would enable one creditor to get a priority over others, and would largely increase the expenses in case of default. A single mortgage to one person, in trust for the security of all the creditors, will accomplish the purpose of the statute, and lead to no mischievous consequences which I can perceive. Such a mortgage is given to secure the payment of the debts of the company. The statute does not, in its terms or its spirit, require that it should be given directly to the creditors. Mortgages to one person in trust for the benefit of others have frequently been used, and upheld by the courts. ( De Ruyter v. St. Peter's Church, 3 N.Y., 238; King v. Merch. Exch. Co., 5 id., 547; Bucklin v. Bucklin, 1 Abb. Ct. of App. Dec., 242.)
But it is further claimed that this mortgage was not given to secure the payment of debts, because it was given to secure the payment of the bonds, and this was also the view of the referee. All the statute requires is, that the mortgage should be given to secure the payment of the debts. The mode in which this should be done was left to the company. It might be by a mortgage directly to the creditors, or to trustees for their benefit, or by a mortgage to secure bonds issued and delivered to the creditors, or sold to raise money to pay them. In either form, the mortgage secures the payment of the debts, and accomplishes the purpose of the statute. As to the bonds actually delivered to the creditors, there can be no question. The debts due to them continued to exist, and were secured by the bonds and mortgage in every sense. The same is true of the bonds sold for money to pay the debts, The company owed $250,000; suppose that it had sold bonds for the whole amount and used the proceeds to pay the debts. It would still owe $250,000, and, in a broad sense, it would be the same debt. Its form, and the persons holding it, would simply be changed. Hence, I think that neither the letter nor spirit of the statute was violated by this mortgage. ( Richards v. Merrimack R.R., 44 N.H., 127.)
The order of the General Term must be affirmed, and judgment absolute ordered against the plaintiff, with costs.
LOTT, Ch. C., GRAY, DWIGHT and REYNOLDS, CC., concur, except that they express no opinion as to the validity or invalidity of the mortgage as a security for the bonds which were not delivered to pay debts, or used to raise money to pay debts existing at the time the mortgage was executed.
Order affirmed, and judgment accordingly.