Central Gold Mining Co. v. Platt

By the Court.* Robinson, J. The plaintiffs-are a corporation formed under the General Manufacturing Act of this State (Laws of 1848, chap. 140) and the acts amendatory thereof, and institute this action to enjoin the defendant, Platt, from interfering with, or selling certain real estate owned by them, situate in Gilpin County, in the Territory of Colorado, which they mortgaged to him and one Belcher (since deceased), by a mortgage — 269 — or trust deed, by way of mortgage, dated May 13, 1865, and to adjudge certain bonds secured thereby, some of which are held by the defendants, Smyser and Peter, to be void. This mortgage was executed with the consent of at least two-thirds of the stockholders, as required by the second section of the amendatory act of 1864 (Laws of 1864, chap. 517), and their certificate was filed in the office of the Clerk of Gilpin County, March 20, 1865, prior to the execution and acknowledgment of the mortgage deed by the trustees, Platt and Belcher. The instrument in question recites that it was made to the mortgagees, as trustees, to secure the payment of certain coupon bonds of the company, payable to Platt and Belcher, or bearer, on the 13th day of May, 1867, with annual interest, 180 of which were for $500 each, and 100 for $100 each, and each bond recites that it was not to be obligatory until it should be authenticated by a certificate endorsed thereon and signed by the trustees. -The mortgage or trust deed by way of mortgage, contained a power authorizing the trustees, or the survivor of them, in case of default for sixty days in the payment of principal or interest, to enter upon and enjoy the mortgaged property, and on then own motion or upon requisition of the bondholders to advertise and sell the same, at public sale, in Colorado Territory, or in the city of New York. Default having been made in the payment of both principal and interest, the defendant, Platt (the surviving trustee), in accordance with the terms of the mortgage, has advertised the property for sale at the Trinity Buildings, in the city of New York, and was proceeding to sell accordingly, when he was restrained by a temporary injunction issued out of this Court, which, upon motion and after argument was continued, during the pendency of this action. Allegations are made in the complaint that the defendants, Smyser and Peter, are the holders of some of these bonds, but that the owners of the others of them are unknown. An appeal has been taken from the order continuing the injunction, and there does not appear to be any substantial grounds urged or presented for its maintenance, except— 1st. That the mortgage was wholly void, because (as is al — 270 — leged), it was made and executed to trustees, and not to real creditors; that it was not given to secure any absolute present and subsisting indebtedness of the corporation, or, in the language of the statute (Laws of 1864, chap. 517, § 2), for “ any debt heretofore (theretofore) contracted, or which may (might) be contracted by it (the corporation) in the business for which it was incorporated; ” and, 2d. That the surviving trustee cannot sell the property in the city of New York under the deed of trust, and could only effect a foreclosure and sale of the property by an action brought for that purpose. In aid of the first objection, it is alleged that of the $200,000 of bonds referred to in the mortgage, those to the amount of $20,500 were sold at par in satisfaction of a conditional debt of the company, that others, to the amount of $67,000, were sold at a discount of from 25 to 50 per cent., and that the remaining bonds, to the amount of $33,000, were, about May 12,1866, pledged to Wilson and Peter (of which firm the defendant, Peter, is survivor), on a loan of $5,000, which not being paid, they had caused the bonds to be sold, and had become the purchasers for the $5,000 and interest; and that such sum of $5,000 was borrowed, and applied to pay interest on said $67,000 of said bonds then outstanding. The question raised by this objection goes to the entire validity of the mortgage, and is one of serious moment to the holders of large amounts of bonds of a similar character issued by various corporations, and secured by mortgage to one or more trustees, providing for the payment of debts and obligations having no existence at the time of the execution of the mortgage, but which were- intended to be secured thereby, and to become the. subject of the security as they were subsequently contracted. Corporations formed under the General Manufacturing Act (chap. 140, of the Laws of 1848) were authorized “to purchase, hold, and convey real and personal property necessary to carry on such operations as were mentioned in their certificate of incorporation,” but were prohibited from mortgaging or giving any lien thereon. This prohibition was relaxed by the amendment of 1864, authorizing any of such — 271 — corporations, upon written consent of two-thirds of its stockholders being filed in the county where the property was sit- ■ uate, “ to secure the payment of any debt heretofore contracted or which may hereafter be contracted, in the business for which it was incorporated, by mortgaging all or any part of its real estate.” The General Railroad Act (Laws of 1850, chap. 140, § 28, sub. 10) authorizes railroad corporations to borrow such sums of money as may be necessary to completing and furnishing, or operating their railroad, and to issue and dispose of their bonds for any amount so borrowed, and to mortgage their corporate property cmd franchises to secure any debt contracted for the purpose aforesaid The similarity in the terms of the power to mortgage given by these acts, is such that any decision holding the lien of a mortgage in trust, given by a corporation incorporated under the former statute, to secure debts to be thereafter created, to be void, must necessarily invalidate the mortgages given to secure a great mass of bonds that have been issued under like powers, by railroad and other corporations. The opinion of Chief Justice Daly, upon granting the order appealed from, is adverse to the power of corporations formed under the act of 1848, to execute mortgages to trustees, intended to secure debts not existing cotemporaneously with the execution of the mortgage. In this I differ from him, and regard such a limited construction of the statutes in question as unnecessary and unwarranted by authority. Without legislative restriction, corporations have full authority to sell and convey their property, and this includes a power to convey upon any special trust (De Ruyter v. St. Peter’s Church, 3 N. Y., 238); also to mortgage or pledge their property for the payment of debts (Angell & Ames on Corp. § 191, Gordon v. Preston, 1 Watts (Pa.) 385; Clark v. Titcomb, 42 Barb., 122), and to"provide therein for the extension of the security to after acquired property (Pennock v. Coe, 23 How. U. S., 117). When the legislature prescribes the purpose for which or the mode in which any such act is to be performed, and it be — 272 — done in any other manner, it is a nullity and utterly void (McSpedon v. The Mayor, &c. of N. Y., 7 Bosw., 601; s. c. 20 How. Pr., 395; Hood v. N. Y. & N. H. R. R. Co., 22 Conn., 502). But the courts are disposed to construe such grants of power in a liberal way, and although our statutes (1 Rev. Stat., 600, § 3) enact that corporations shall only possess or exercise such additional powers beyond those given by their charter or some general law as are necessary to the exercise of those expressly given; such necessity is, however, not an absolute one, but includes such other things as are implied in the principal grant or are appurtenant thereto, or convenient and ordinarily exercised therewith. The power conferred by the amendment of 1864 to mortgage as security for debts then existing, or as might be contracted in the business of the corporation, was in general terms, and prescribed no particular form or mode in which such mortgage should be executed, and only restricted its creation to securing “ debts contracted in the business of the corporation.” It was a statutory grant to do what the corporation, if unrestricted by •its charter,1 might have done under its common law powers, and there is no apparent reason why it should be differently construed. Such a general power to mortgage for existing or future debts had reference to the several modes in which, and purposes for which, such an instrument could then be legally executed (Conger v. Hudson R. R. Co., 12 N. Y., 198), to wit: by agreement enforceable in equity to execute such an instrument, by absolute deed with a defeasance; or upon an agreement that it was given as security or to reconvey on payment of the debt; by mortgage with or without any statutory power of sale, and also by mortgage to one or more trustees for the.beneñt- of several creditors, as well for existing debts, as also to secure future advances or subsequently accruing obligations—such as for money to be thereafter raised, on the issuing of bonds therefor or upon the sale of such bonds. Mortgages of this latter character had, previous to the passage of these acts, received the express sanction and recognition of our Court of Appeals, in — 273 — King v. Merchants' Exchange Co. (5 N. Y. 547); Curtiss v. Leavitt (15 N. Y. 63, 169,206, 221, 268). See also Wright v. Brnidy (11 Ill . 398). They were mortgages of a well known character, standing as security for debts to be thereafter, from time to time, contracted by the corporation in the course of its business, and to be evidenced by the issue to the creditor of some one or more of the intended bonds on receiving a due consideration therefor. I am of the opinion that nothing is alleged in the complaint to show the invalidity of the title of the defendant, Platt, as trustee, for the benefit of any such outstanding creditors under the mortgage in question, or which should prevent him,. as surviving trustee, from enforcing the rights of such bona fide creditors as hold any of the bonds described in the mortgage in question. As to the second objection, to the attempted exercise of the power of sale contained in the mortgage or deed in trust, in the city of New York, in accordance with the terms of the agreement between the parties, upon the ground that it is void, I regard it as also untenable. The title of the mortgagees to the real estate mentioned in the mortgage, is governed by the laws of the State or Territory in which it is situated, and the validity of the mortgage in question and rights of the owners of the equity of redemption, depend upon the laws of Colorado relating to real estate which existed at the time of its execution. While the laws of the State or government in which a corporation is created, defines its capacity to act, -the laws of the State in which any real estate in or over which it attempts to acquire an interest or to exercise any act of ownership, is situated, must govern as to the force and effect of the act it seeks to enforce or perform. While the plaintiff, by the laws of the State of their creation, had general authority to mortgage their real property to secure debts contracted in their business, the laws of Colorado, within which the lands are situate, must govern as to their power to execute a mortgage upon them, as to the mode of its execution, the form and effect of the instrument, and as to such title as can be acquired in the manner prescribed by the local law, and this applies to mortgages as well as absolute deeds — 274 — (Hosford v. Nichols, 1 Paige, 220; Peck v. Cary, 27 N. Y. 11; Story on Conflict of Laws, §§ 364, 474). Aside from the mere power of corporations to mortgage their lands to secure debts contracted in their business with the consent of their stockholders, the validity or invalidity of the "mortgage, the rights of the mortgagee, and the mode of foreclosing the equity of redemption, all depend upon the laws of Colorado. If the rule of the common law prevails there, the absolute fee was vested in the mortgagee, and the interest of the mortgagor being forfeited by his default, he had no relief except through a bill to redeem. The mortgagee, as trustee for the bond-holders, is attempting to pursue his remedy according to the letter of his contract. The complaint discloses no ground for equitable relief against his proceedings in conformity with its terms, except such as are alleged against the legal efficacy of the mortgage and of the power of sale under it. , No averment is made as to the lex rei situ to show any illegality or inequity in the trustees proceeding to sell the property in the prompt and easy manner agreed upon by the parties, to enable the creditors to speedily realize their money, without the expense or delay of foreclosure by bill in equity (Richards v. Holmes, 18 How. U. S. 135); and no case of fraud, accident, or mistake is presented, requiring the interposition of a court of equity, for the purpose of compelling him to perform some áct or duty with respect to which it has, by the service of process, acquired jurisdiction and power of supervision over him. The summary mode of foreclosing mortgages on property situate within this State, and selling the same, is regulated by statute (2 Rev. Stat. 345, &c.), but such act has no extra-territorial application or reference to lands without the State, and a court of equity of this State has no authority to enjoin a mortgagee of lands, situate without the State, from selling the mortgaged lands by public sale within this State, according to the terms of the mortgage security, upon the mere allegation that such power is void, where no statute of the State or Territory where the lands are situated, nor any other invalidity in the power, is stated or made apparent. — 275 — In my opinion, this mortgage is (for aught that appears) perfectly valid and the power of sale rightly exercised. For these reasons, the order continuing the injunction should be reversed, and the injunction dissolved with costs. Order reversed. Footnotes [*] Present—Robinson, Loew, and Larremore, JJ.