Miller v. Rutland & Washington Railroad

Barrett, J. Had the corporation legal competency to pledge its credit for the procurement of rails for its road, and to secure payment by a mortgage ? It is now to be regarded as settled beyond any proper ground of question, that a corporation may contract debts necessary for the due accomplishment of the purposes of its creation, and may give valid security for their payment by pledge or mortgage of any property, or interests in property, that are subject to its disposal, by virtne of the implied power existing in it, and without any. express provision of statute to that effect, provided it be not restricted by statute in this respect. The case of the Vermont and Canada R. R. Company v. Vermont Central R. R. Company et al., referred to in the argument, does not fall within this proposition ; for in that case, the transaction in question was a contract of leasing upon stipulated rent, and.of security for the payment of the rent; a transaction not within either the express or implied powers of the two corporations, till made so by statute. In the present case the end and purpose of the creation of the corporation, was the making and operating of a- rail road. It was necessary to such end and purpose that the company should — 474 — have rails as well as a road way. It was competent for it to contract>for their purchase, and to provide by proper means for the payment therefor. If it had not the money, it was competent to obtain a credit upon the pledge of its disposable rights and interests in property. The rails were purchased in due course of business,, and the obligations, called bonds, of the company were made and delivered in payment, purporting to be secured by a mortgage upon the road and its franchises. And this was done in pursuance of an agreement on the part of the company that the bonds should be so secured, and they were received upon the assurance, made by the representative agents of the company, that they were so secured, by an instrument designed to be executed in pursuance of a .vote of the directors authorizing the issuing of the bonds and securing them by mortgage, and authorizing the president, as agent of the company, to make such mortgage, accompanied with the opinion of eminent legal counsel that said instrument was .valid as a mortgage of the -corporation. It is satisfactorily established by the evidence that the directors, with the knowledge and concurrence of all the stockholders, designed that the mortgage of the corporation should be given, and that Mr. Clark, the president, designed, in executing his agency in that behalf, to make and execute a mortgage which should be the- deed of the corporation. It is also established that the corporation had no money, and no means otherwise, wherewith to pay for, or secure the payment for the rails. The rails thus procured were used by the corporation in the completion of its road. The intervention of the contracts for the completed- construction of the road, including the rails, with the modification of them as shown by the proofs, does not vary the legal or equitable aspect of the case, upon the question of the security claimed to have been created by the corporation for the bonds first issued. In the transaction of negotiating for the rails and other like things, and providing for, the payment, the corporation would act through the board of directors, as matter of course, under the express terms of section 6 of the charter, that “ five directors — 475 — shall form a board who shall be competent to transact all the business of the-company,” &c. See Bank & Middlebury v. R. & W. R. R. Co. et als, 30 Vt., 159. There is no question as to the legal formality with which the directors acted in the present case. If however, it was to be held, that for validity, the acts of the directors in this behalf must depend on authority conferred by the corporation, we find ample ground and reason for holding such authority to have been conferred, in the fact of the knowledge and concurrence of the-stockholders in all that transpired, while the matter of issuing and securing the bonds was in progress, and in the fact of ratification by repeated acts afterwards ; especially by what occurred at the meetings of stockholders in 1851 and in 1852, when the directors made their annual reports ; as well as by what occurred in connection with, and as part of the transaction of making the second mortgage in the latter-part of the year 1852, and the lease to Mr. Canfield in 1853, and a third mortgage in 1855 ; in all which the existence of the first mortgage, and of the bonds secured by it, was recognized and in no way repudiated by the corporation. The principle is unquestionably sound, as stated in Red. on Railways, 575 pi. 11, that, “ when the company receive the benefit of the money borrowed, they cannot avoid liability upon the mortgage given to secure its payment by denying the authority of those who contracted the loan on their behalf” ; and the pertinency of its application to the present point is obvious Noyes v. R. & B. R. R. Co., 27 Vt., 110. In Curtis and others v. Leavitt, 15 N. Y. p. 47, the language of Comstock, J., is to the same effect: — “ when a person receives and appropriates the proceeds of a transaction done in his name and by his assumed authority, there exists the highest possible evidence of his approval. “These rules are elementary, andaré grounded on the simplest ideas of justice in the dealings of men. They are also as plainly applicable to corporate as to other transactions, where the dealing is within the powers of the corporation. In such a case no possible reason can be suggested why a corporate, as well as a private principal is not bound by the dealings of its agent, which it has approved, and the benefit — 476 — of which it'has received and appropriated.” On page 49 he says : “ But corporations themselves, like other principals, may act and be bound in any of the inodes, not opposed to the general rules of law, applicable to such bodies. They may previously resolve — they may subsequently acquiesce — they may expressly ratify — they may intentionally receive aud appropriate the proceeds of the unauthorized transaction,-and so put it out of their power to dispute its validity.” Brown, J., on p. 136-7-8, expresses the same views. It is understood of course, that this could be applicable only in case of transactions such as the corporation could lawfully become a party to, and not to transactions in violation of corporate rights and duties, such as would be void, and could impose no liability. If it were doubtful whether the corporation had the right, in virtue of its inherent capacity, to issue the bonds, and make security for them' by way of mortgage, we think that the act passed Nov. 9, 1850, should be regarded'as operative to confer the right, and as effective upon the transaction in.question. Section 1 of that act is: “Every railroad corporation within the state shall have power to issue notes or bonds, for the purpose of building or furnishing their roads, of- paying any debts contracted for building or furnishing the same, bearing such a rate of interest, not exceeding seven per cent., and secured in such-manner as they may deem expedient.” It is true that the vote of the directors, authorizing and providing for the issuing of the bonds and the making of the mortgage, and the execntion of the instrument by Mr. Clark as President and agent, were prior to the passage of the act. But we find from the evidence that the bonds were not issued so as to become operative and obligatory as contracts upon the corporation, till the month of February next after. Of course the security did not become operative till the debt had existence: It was but an incident of the debt, and was of no force or effect till the delivery of the bonds. It must be assumed as beyond doubt, that the transaction, by the authorized agents of the corporation, of delivering these — 477 — bonds thus secured, in payment for the rails and for their transportation, was regarded by the corporation "to be warranted by lawful authority, either as existing inherently in the corporation, or as conterred upon it by the legislature ; and if it was so by either means, neither the corporation, nor any one standing on rights subsequently derived from it, can impeach the validity of the transaction, in this respect. The question then arises, -is the instrument executed by Mr. Clark, in pursuance of the votes of the directors, to be regarded as the deed of the corporation? As to'this, we think the' authorities firmly establish the negative. Though it was designed by him as such agent, as well as by the directors in voting the mortgage to be made, that it should be the deed of the corporation, and though that design is fully evinced by the face of the instrument itself, still it is affected with teehnical defects in form and mode, that prevent it from being, in contemplation of law, the deed of the corporation. The authorities cited by the counsel for the defendants are uniform and conclusive on this point, and are not met or countervailed by the books and cases cited by the counsel for the orators. This being so, the recording, of the instrument did not constitute constructive notice of its existence and contents. The next question is, can the orators stand in a court of equity on the' ground that the transaction,. as it was, operates in their favor as an equitable mortgage, to the intents and purposes designed, but which failed of being accomplished, by the instrument that was executed? As between the mortgagees and the corporation, and aside from any technical impediments, the ordinary sense of justice would at once prompt on affirmative answer. The corporation and its administrative agents designed to' make a valid instrument of security on the part of the corporation, and supposed they had done so. They issued the bonds in payment for, and obtained the rails upon that design and supposition. The rails were sold and delivered, and the bonds were received in payment, upon the same supposition, and with what seemed a most reliable assurance that it was verily true and well founded. The rails — 478 — were used by the corporation in the completion of its road, thus, at the same time, incorporating into it an indispensable element of construction, and adding so much to its value as property,, and for use, in carrying into effect the end and purpose of its existence. Assuming, then, that the corporation had the power to issue-the bonds and secure them by a mortgage, and that the directors were the proper agents of the corporation in this behalf, and that .their acts to this intent were lawfully authorized, how are these-acts, including what was done by Mr. Clark, to be regarded, in connection • with the fact that the corporation has received and and used the rails, as giving the orator an equitable right to the designed security? It seems to us that the contract was one which the corporation was bound by,: — that is, the bonds are obligatory as a debt against the-corporation | and that the contract as to'the security is equally obligatory, unless some technical impediment intervenes. Wherefore it is insisted that the statute of frauds has not been answered by what was done. Waiving any discussion of the question as to the effect of the delivery, and receipt, and use of rails, and the delivery of the bonds in payment, under the contract that they were to be secured by a mortgage, we regard the action of the directors, by their formal and recorded votes, as tantamount to a memorandum in writing sufficient to answer the requirements of the statute. It -constitutes evidence of the highest character, as against the corporation of the agreement to give the designed security. We also regard the deed itself, that was executed by .Clark, taken in the light of the recitals, as also evidence of the highest character as to the contract to give such security. It is true that by the strict rules of law, this instrument is not to be regarded as the deed of the corporation. If it were so to be regarded, the orators would stand upon a technical and valid mortgage at law. But that it is not so, is because it lacks efficacy to -convey the legal estate, — not by reason of any want of power in the corporation, nor for any want of authority in Clark, nor for .any want of intention on the part of the cor — 479 — poration, or of Clark to make an instrument that should convey the legal estate; but merely because Clark mistook the proper technical formalities and mode of making such an instrument. We do not fully apprehend the ground or purpose of the remark, that “ the private intention of Clark to make a mortgage against the company is of no avail, if it cannot be carried out by the rules of law.” If it be meant that the mortgage, failing as to its technical sufficiency to constitue at law a valid mortgage against the company, is of no avail for any purpose, we think it unfounded in principle, and not sustained by authority. If it be meant that the act of Clark, merely in pursuance of his private intention, would not affect the company, we assent to it; but this does not meet the point; — for it appears on the face of the instrument, in connection with the votes of the directors, that he was authorized to make a mortgage that should téchnically convey the estate, — that his ageucy in that behalf was for that very purpose, and that, in what he did, his design was to accomplish the purpose of his agency. We think “ this intent is so manifested as to give it legal validity,” in the language of the brief— not as a technical mortgage, operative to convey the legal estate ; but as evidence in writing as to the contract, that at the same time answers the requirements of the statute of frauds, and furnishes ground for asserting an equitable right in and to the security contracted to be given. The case differs widely from that cited from Ambler, 495, to sustain the position that Clark’s agency was ministerial and must be strictly pursued, and unless he in fact made a mortgage valid in every technical requirement, what he did is of no effect, even as evidence, to affect the equitable rights and duties of the parties. In that case the agent was empowered to sell at auction, but in fact, sold at private sale, thus departing entirely from the scope of his agency. In this case Clark was authorized to make a mortgage, valid in law to convey the legal estate. Acting within the scope of his agency, he came short of doing so,-by reason of mistake as to certain technical requisites. Though he thus came short of accomplishing the purposes of his agency, it would require a new rule both at law and in equity, to hold as nugatory, to every intent, what he thus did, even as matter of evidence¡ — 480 — In what is thus said, it is apparent that the case of Parish v. Koons, 1 Pars. Eq. Rep. 89 — furnished to the court in manuscript —is not applicable to the present, on the point of the authorization of the agent, to make in behalf of his principal, such a note or memorandum in writing as is required by the statute of frauds. In that case, there was a mere parol authorization, and it was held to be invalid under the statute of frauds. In connection with these remarks, it is appropriate to observe, that the court do not adopt the views of counsel in making another point, viz : that “ this, being clearly the sole private contract of Clark, cannot be controlled by parol in equity any more than at law, unless upon the ground of fraud or mistake.” We think that the contract was that of the corporation, but the instrument was so drawn and executed as, technically, not to render it operative in the specific character of a legal mortgage of the corporation. This was owing, not to any mistake on the part of the corporation as to matter of law, — for they intended, and fully authorized Clark, to make a valid technical mortgage, but owing wholly to a mistake on the part of the agent of the company as to the mode of adequately executing his agency. The corporation intended he should make an instrument that should be technically their deed. He, by mistake, made one that, technically could operate only as his deed. The corporation, as such, did not pass judgment upon the legal quality of the instrument. The agent, under the authority conferred, executed and delivered it. This we regard, not as a mistake in matter of law by the corporation, as to the meaning and operation of the instrument that was executed and delivered ; but as a failure on the part of the agent adequately to perform the office and purpose for which he was appointed. Hence we have no occasion to discuss the question, whether for mistake in matter of law, a court of equity will grant relief. In this connection it is to be further remarked, in view of what we have already said, that this is not, in our apprehension, a case in which “ the court is called on, to reform a written instrument, upon parol evidence merely, on the ground of a mistake, and thereby to repeal the statue.” As before said, we think the face of the instrument itself shows — 481 — clearly that it was the design to make it the deed of the corporation ; and all the recorded proceedings of the directors in this behalf, in pursuance of and to carry out which, the instrument was made, show clearly the same thing. The instrument and these recorded proceedings constitute reliable criteria whereby to determine in what respects, and to what intent, the instrument should be reformed, if such reformation is necessary as a means of enabling the orators to secure their rights through the intervention of the court in this respect. It also gives point and application to ancillary parol evidence, in such a manner as to preclude the hazard of being misled by it. In pursuance, and as the result of these views, it is clear upon familiar and unquestioned principles, .illustrated by very many adjudged cases, that as between the corporation and the orators, the transaction, as found by the court, entitles the orators, in equity,' to have the security, which it was within the power of the corporation to give by virtue of the proposed mortgage, — that it constituted an equitable mortgage to the same intents as a mortgage answering the technical requirements of the law. It is now to be considered how the rights of the orators stand in*relation to the second and third mortgages. We assume, for the present, that subsequent grantees take and hold the estate conveyed, subject not only to all legal incumbrances to which it was subject in the hands of the grantor, but to all equitable incumbrances of which they have notice. A case in point, as propounding and applying the principle is, Sumner v. Rhodes, 14 Conn. 134. The court are convinced by the evidence, that all the trustees under the second and third' mortgages, prior to and at the time such mortgages were executed and they became trustees, had notice and knowledge, in point of fact, that the first bonds had been issued, and that the same were secured by mortgage. All the circumstances and reasonable probabilities concur with the direct evidence, and leave no reasonable doubt of the fact. This being so, they stand chargeable with the legitimate effect of the right, whether legal or equitable, which existed in virtue of the — 482 — issuing of the said bonds with such security by way of mortgage as appertained to them; and that too, even though it were to be held, that the validity of that security depended upon acts of the corporation prior to the making of said second and third mortgages, by way of recognizing and ratifying the act of the directors in the transaction constituting the creation of the security, and even though the trustees under said mortgages had not, in fact, knowledge of those acts. When they had notice and knowledge of the issuing and existence of the bonds, and of their being secured by mortgage, if the fact existed, it had full operation and effect to subject the title which they took with such notice and knowledge, to the legitimate consequences of that. fact. The bonds, immediately upon being issued, having been received iji payment for the rails, thereby became effective in the hands of the holders, with the fixed right in them to the security provided in that behalf; and it was not in the power of the corporation or of any of its officers, without the concurrence of such holders, to divest or affect that right by any act of theirs thereafter ; so that, whatever was said or done by, or in behalf of the corporation, through its officers, in respect to other bonds and mortgages as affecting the rights of the holders of the first bonds, or by way of making other provisions for the debt evidenced thereby, was entirely' nugatory as against the holders of said first bonds. " They stood upon fixed and vested rights, over which the corporation had no control, except by paying said bonds. It makes no difference, as to the rights of said bondholders, what provision was made in this respect, either by means of, or under, the second or third mortgage, or whether the corporation, or its officers, acted in good faith or not in making or administering such provision. It is now to be considered how sueh notice and knowledge on the part of the trustees under the second and third mortgages affect the title they hold, in view of the relation they sustain to the bondholders under said mortgages respectively. In Pierce v. Emery, 32 N. H., p. 521, Ch. J. Perlet says:— “ Notice to Trustees, who take a conveyance for the mere pur483 “ pose of upholding an estate, without having any previous “ connexion with the title, is not always, nor perhaps usually “ regarded as notice to the •cestuis que trust. But the trustees “ under this act must be considered in the light of agents for the “ negotiating of the loan; they act for those who lend their “ money on the security of the mortgage ; they are charged with “ the duty of protecting the interests of the bondholders, who “ are unconnected individuals, having no ready means of acting “ together except through the trustees, whom the law appoints “ to act for them. Notice to the trustees would be all that could “ be given in this case.” It is well settled, as is said in Hill on Trustees, 513, that, “ Notice, either actual or constructive, will, be equally binding, “ whether it be given to the purchaser himself, or to a person “ acting as his agent, or solicitor, or counsel.'” We think, both upon principle, and from due regard to what alone is practicable in such cases, that notice to the trustees should be held to affect the title in their hands with reference to all rights existing in respect thereto under the trust. Though it is obvious and readily conceded, that bondholders acquire their rights, in reference to the security provided by the mortgage in trust, by the purchase of the bonds, and with such purchase the trustees have no connexion, nor any agency in reference to the transfer thereof, yet it is at the same time true, that, in reference to the security, for holding, enforcing and administering it according to the provisions of the trust, the trustees are the agents of the parties interested and entitled by reason of being bondholders. We are unable to assent to the proposition, that the trustees are only agents of the cestuis que trust for holding the legal titled They are agents for holding just such title as is created by the transaction, and for administering it according to the terms of the trust; and whatever title the cestui que trust have, whether legal or equitable, is through, and in virtue of, the title conveyed to, and held by the trustees. Even if it should be granted that the trustees were agents merely for holding the legal title, still, as the rights of the cestuis que trust depend upon, and are to be asserted through that legal title, whatever — 484 — affects such legal title in its creation in the trustees, must affect .the rights and interests that are dependent upon 'it. If the legal title is charged with an .incumbrance in its creation in the hands of the trustees, it is difficult to see how the cestuis que trust .-can have an equity suspended upon that legal title that shall override ^uch incumbrance. However that might be as a proposition applicable to a dry trust, still, as to a trust, which in addition to the holding of the title, is administrative of the property for the purpose of effectuating the security, the trustees must be -regarded sa the agents of the cestuis qu,e trust with reference to all their rights and interests, both in the title held, and in the administration and fruits of the trust, according to its terms and legal ópera-' tion. In Sturgis and Douglas v. Knapp et als., 31 Vt., 34, it was held that a mortgage by railrord company, where the only trust expressed was, to hold the property to secure the payment of the bonds named, created an active, administrative trust, even after a foreclosure, under which the trustees were authorized to make a lease of the road and property for ten years, against the protest and remonstrance of a large majority in amount of- the bondholders ; though contrary to my own opinion. But it is the adjudicated law of the subject in this state. In the present case, .however, the second and third mortgages provide specifically, and in detail, for the administration of the property, after the condition shall have been broken, for the satisfaction of the rights and interests of the bondholders under said mortgage. The fact that the bonds are treated as-negotiable, and pass from hand to hand like bank bills, does not affect the question of the agency of the trustees in reference to the security provided by the mortgage. Such bonds purport to be secured by a mortgage in trust to trustees who are designated and known. They are negotiated and purchased upon the. security thus existing. That security consists in the. property and title which exist in the trustees. By the purchase of the bonds, the purchaser .voluntarily adopts the security as it exists in the trustees, and becomes cestui que trust under them, thereby adopting said trustees as his agents for holding the existing title, and administering the property held thereby to the intents — 485 — specified in the creation of the trust. The question is not as to how cestuis que trust would be affected hy notice to trustees of transactions subsequent to the creation of the trust, or to their becoming cestuis under the trust, but as to how they are affected by notice to the trustees which, as to them personally, affects the legal estate at the time, and in the act of their becoming trustees. Then as to the practicableness of.a contrary doctrine: — The very fact that the bonds pass from hand to hand, and without any record or notice, and are changing, hands every day to a greater or less extent, shows that the matter of fixing an equity by notice would be practically impossible. It cannot be *known in whose hands all, or any considerable portion of the bonds are at any given time, nor in Whose hands they will be the next day, or next- month. Of course notice would affect only the party to whom it was given, as there is no joint interest; or .representative relation, between the different holders of the bonds. Nor would notice to a holder of specific bonds to-dayaffect a person who without notice should, in good faith, be the holder of the same bonds to-morrow. The result must necessarily be, that however well grounded an equity a party might have against the corporation, and against the trustees personally, attaching upon the legal title held by such trustees, it would prove barren and futile to any beneficial intent, by reason of the impossibility of knowing and notifying the ever shifting parties who have^an interest, and claim an equity, subsequently created and subsequently accruing. '’’On the other hand, it would be easy comparatively for persons, desirous of investing in railroad mortgage bonds, to apply to the trustees holding the security, and elicit the true state of the title! We think it no hardship that they should be required'to do so, if they would avoid the hazard of finding their security, subject to prior incumbrances, when it might be too late to save themselves from the consequences of such a state of the title. The only case that has been cited, or that we have been able to find, in which a contrary proposition has been asserted, is Curtis v. Leavitt, 15 N. Y. Rep. Several of the judges drew up opinions. Shankland and Paige concur with Comstock — 486 — and three other of the judges in the result, that the bondholders were entitled to the securites in the hands of the trustees, — those two putting it on the ground that they were Iona fide purchasers of the bonds, without notice of the defect in the manner in which the securities had been assigned to said trustees, one of whom knew of said defect; holding that the trustees were not agents of the bondholders, but only of the corporation making the assignment. The four other judges held the assignment itself to be valid, notwithstanding such' alleged defect in the manner of making it, on the ground that it being within the scope of the power of the corporation to make such an assignment, and the corporation having received the benefits resulting* from the issue and sale of the bonds, it had, by its acts of recognition and ratification, cured said alleged defect. Judges Shankland and Paige cite no authority upon the point to sustain their view ; and it was not one of the points decided in the case. ■ The securites assigned were bonds and mortgages, to be held by the assignees, and the avails to be held and applied as security and in payment of the bonds issued by the company, in the manner provided in the instrument of assignment. "We have no occasion to present any critical analysis and discussion of. that case, for the purpose of ascertaining whether the trustees and bondholder's in that case sustained such a relation to each other, and to the subject matter of their respective interests, as to constitute ground for the application of the same principle and rule as the case before us. For if it did, upon the views we have expressed, we should regard the point as held by Judges Shankland and Paige unsound. But it is sufficient, to say that it was not so decided in that case, and of course stands only upon the individual views of the judges named. It is to be noticed that, in what we have said, as to the trustees being agents of the bondholders, we confine that agency to the purposes of the trust with which the trustees were clothed, viz: that of holding the title as security, and enforcing and administering such security according to the provisions of the trust, both express and by law implied. We do not hold, nor do we assent to the position taken in the argument by one of the coun — 487 — sel for the defendants, in reference to the $250,000. of bonds under the second mortgage, put into the hands of Miller with the design of having them appropriated to the retirement of the first bonds, that the trustees have, under their trust, any agency to discharge, change or compromise the security which they hold as trustees. They are not .general agents of the bondholders, but special, and limited to the legitimate purposes of the relation they sustain to the security and to the parties entitled, under the trust with which they are clothed. Any act or omission of theirs, therefore, whether in bad or good faith, outside the scope and purposes and legitimate incidents of the trust, would not affect other parties in their rights under the trust, on the score of the agency existing in virtue of that relation. But it is insisted that the subsequent mortgagees cannot be subjected to the prior equitable incumbrance, unless the notice to them was such as to make it fraudulent in them to take and register said mortgages, in prejudice to the known title of the other party. To the principle embodied in this position we have no difficulty in assenting ; but we think that the impression, naturally resulting from the manner in which it is put, may not be precisely accurate. The notice, which the law regards as effectual to charge a subsequent purchaser, is such as, if duly heeded and properly pursued, would lead to a knowledge of the true character, in point of fact, of the prior incumbrance, and thus charges him with the legal consequences of such prior incumbrance, however he may judge of the validity, in point of law, of such incumbrance, or of the legal consequences that may flow from it. By the fact of such notice, being charged with a knowledge of such incumbrance, if in fact it existed, the law regards the taking of a subsequent conveyance in prejudice to such incumbrance, as being in lad faith on the part of the purchaser, even though in truth he took such conveyance, either in heedless disregard of the notice, or upon the supposition that the prior claim was invalid, or in doubt whether it was valid or not, and thought best to take his chances in that respect; and not with any wish or design to — 488 — defraud anybody. Indeed, the true idea of fraud, as involved in this subject, is not so much that there is fraudulent intent on the part of the subsequent purchaser in taking the conveyance, as that, to permit it to be set up and enforced, as against the prior equitable title, would operate a fraud as against that title. This is the elemental idea of an estoppel in pais, in its ordinary application ; to which the principle upon which a subsequent purchaser is charged by a notice of a prior equitable title is strikingly analogous, if not precisely identical with it. The next question is, had the corporation any right or interest in the subject matter of the mortgage, upon which said mortgage could lawfully be operative ? It purports to convey “the road and its franchises ; the location, survey and description of which has been duly made, &c.” It is not questioned, and is virtually conceded in the argument, that th'e right and interest of the corporation is so in the nature of real estate, or is such an interest in land, as might be the subject of conveyance in mortgage ; -but it is insisted that the corporation holds that right and interest so under, and in the character of, a franchise, in trust for the public, so as to be disentitled to make any conveyance of it. Much was said in the argument, and much is contained in the books, as to the incompetency of a corporation to make any conveyance or transfer of its franchises, unless specially authorized to do so by act of the legislature. It is claimed and insisted that the franchises are conferred upon a particular body of men constituting the corporation, implying a special confidence in them to answer the trusts in behalf of the public, which constitute the consideration for granting such franchises ; and that it is not competent for the corporation to disable itself from holding and fulfilling those trusts, either by disposing of its franchises, or of the means necessary for the execution- of such trusts. In order to make a practical test of the soundness and value of this proposition, it seems worth the while to consider the subject with reference to its actual elements. The end and object on the part of the public is, primarily, the — 489 — same as that on the part of the corporation, viz : the construction and operating of a railroad; the results of which, as the next and most important object, are on the one hand, serving the public convenience and interest, and on the other, the pecuniary-emolument of the corporation. The former is the consideration up'on which the corporation is created, and its franchises conferred by the legislature; the latter is the inducement which leads individuals to become members of the corporation. It is necessarily implied as being in contemplation, that the end of making and operating the road is to be attained through the use of the practicable means ordinarily resorted to in such enterprises. These are, first, money raised by subscriptions to the capital stock; second, money and materials obtained on such credit as can be made available for the purpose. If neither of these means prove effectual, there is an end of the enterprise, both with reference to the public and the corporation. The present ease is a clear illustration. The road was located and surveyed and put under contract, and was in the process of being built, by means obtained through subscriptions to the stock. It was necessary to have rails. The capital stock could not be made productive of the means of purchasing them. The only resource left was such credit as could be obtained. The only means of obtaining such credit was the pledge of such proprietary rights and interests as the corporation had ; and they consisted only of the road and its franchises. If these means could not be made available, the enterprise was doomed to stop at a stage when neither the public could derive any benefit from it, nor anybody else, and when all that had been done would be outright loss and sacrifice to everybody but the laborers who had got their pay. In this position of affairs, did public policy, did the trust for the public benefit, reposed in the corporation, as the consideration for creating it, and clothing it with its franchises, require that the enterprise should then come to an end, and the charter become forfeited ? On the other hand, looking to the purpose to be served to the public, viz: the service of the public interest by the making and operating of a railroad; would not public policy and the — 490 — character of the trust reposed in the corporation in behalf of the public, rather require that the corporation should pledge such means as it had for a credit that would enable it to go forward-with the enterprise to a successful result, in the reasonable and confident expectation of being able to redeem the pledge, and realize to the public and itself all the legitimate benefits of the undertaking ? On the subject of public policy, the- legislation of 1850, of 1856, and of 1857, is quite significant. The act of 1850 authorizing railroad corporations, to issue bonds, seemed in such manner as they may deem expedient, has already been recited. In 1856 it was enacted: — “ Sec. 1. All mortgages of railroad franchises, furniture, cars, engines and rolling stock of any kind when properly executed and recorded, shall be effectual to vest in the mortgagee a valid mortgage interest in and lien upon all such property without delivery or change of possession ; and for the purpose of mortgage, all such property shall be deemed part of the realty.” This is decisive that the legislature regarded it competent and proper for railroad corporations to mortgage franchises as well as tangible property. It is not creating a new power in such corporations, but only providing for the effectuation of a power assumed as already existing, and is clearly to be taken as additional toj and in furtherance of, the act of Nov. 9, 1850, to relieve the necessity of a change of possession, which, under the common law of the State, would be necessary in order to render security on chattels given under the act of 1850 effectual against sales and attachments. In 1857 it was enacted, — “ Sec. 1. In all cases where amortgage of any railroad, or any part thereof, made by any railroad company in this State to secure the' payment of bonds shall have been' foreclosed, and the legal title to the mortgaged premises vested in the mortgagees, any number of persons holding a majority in the amount of the principal of the bonds so secured, may form themselves into a corporation for the purpose of owning or maintaining and operating such railroad,” &c., providing in detail for their organization. Sec, 7 provides, in case of failure — 491 — of the bondholders to organize a new corporation, as before provided in case of foreclosure, or if the railroad on which the mortgage exists shall be sold or assigned by virtue of any order, decree or judgment of any court, the purchaser or purchasers, or grantee or grantees, shall have, take, or possess all the rights, powers and privileges before granted to a majority of the bondholders, and may .become a corporation, in the manner prescribed, with all the powers, privileges and franchises, and be subject to all the duties granted to, or imposed upon, railroad corporations. These enactments, all of weich are embodied in the General Statutes, p. 237, leave no ground for doubt as to public policy as bearing on the subject in hand. But, it is said, if the corporation is permitted to dispose of its franchises, and of its property essential to their exercise, it will disable itself from performing its obligations to the public. It might seem to be an answer in point, that unless it is permitted so to do, it will never ha;ye any ability to perform those obligations. But let us enquire a little into the legal and practical character of those obligations. , It is assumed by the court, that if a corporation would entitle itself to the enjoyment o;f its franchises, it must comply with the provisions and requirements of its charter, both express and implied, so far as its duty to the public, is ^ concerned. It must act under its charter for the accomplishment of the purposes designed by it. But it is at the option of the corporation whether it will do so or not. The only remedy in favor of the public is by a proceeding to enforce a forfeiture of the charter. The corporation cannot be compelled either to make or operate a rail road. Whether it will do so or not depends on the expectation of its being a feasible and prosperous enterprise. If it should find it to be a losing undertaking, it would be likely to cease to prosecute it. If it should find or expect it to be a profitable one, it would be likely to continue its prosecution. If the corporation should, for prudential considerations, see fit to transfer to others its property, with the franchises appertaining to such property, the same motives would operate upon the assignees, and to tfie — 492 — same intents, as upon the corporation. The assignees would hold subject to the obligations and duties to the public which rested upon the corporation, and, in order to take any benefit from the assignment, would find it necessary to answer to those obligations and duties. The same remedy would be effectual, so far as rights depending on the franchises of the corporation were concerned, upon the assignees, as upon the corporation. The assignees could no more pervert the road-way to other uses than could the corporation. They could no more turn to any other account than the operating of a railroad any of the corporate rights and privileges, than could the corporation. So far as property held in absolute title is concerned, the corporation and the assignees could equally dispose of it as they should see fit, whether such property was essential to the operating of the railroad or not. So long as the rights and privileges conferred upon the corporation should be exercised in accomplishment of the purposes for which they were conferred, there would seem to be not only no occasion, but no right, on the part of the public to interpose between the corporation and its assignees, — certainly not by way of taking a forfeiture of the charter ; and as it seems to us, equally none on the part of individuals, by way of questioning the validity of the assignment on the score of public policy. The idea of a particular confidence reposed in the particular persons, who compose the corporation, for the service of the public interests involved in the making and operating of the proposed rail road, seems to us altogether fanciful and theoretical. In fact, there is no such confidence. From the nature of the case there could not be. For, who shall compose the corporation at any given time, depends on who owns shares of the capital stock — one set of men to-day — another to-morrow, — some citizens of the state — some foreigners. The true idea is, that the public relies, for its assurance that its rights will be duly answered, upon the fact that they must be, in order that the conferred privileges may be held and enjoyed by the corporation, of whomsoever composed, — not upon any personal confidence which the legislature has in an indiscriminate body of persons, — men, — 493 — women and children — citizens and foreigners, daily changing, who may become or cease to be stockholders at their own pleasure and without restraint. 1 Now to recur to the-mortgage ; What does it purport to convey ? The premises mentioned in the following vote. “ Resolved, that Mr. Clark, the president of this company, be appointed attorney and agent, to execute a mortgage of their road and its franchise to Daniel S, Miller and Shepherd Knapp, &c. — that is, such title as the corporation had, and the privilege appertaining thereto, viz: the right to the road-way, for the purpose of making and operating a railroad, as provided by the charter, with the privilege of thus making and, operating it, and enjoying the emoluments thereof. We think, upon the views thus presented, as well as in conformity to several cases adjudged by courts of the highest character, as also to the opinion of eminent -.juridical authors, that it should be held that the corporation was competent to convey in mortgage what the mortgage purports to cover and convey, viz : the road and its franchise, as now construed. See Redfield on Railways, 574-591, and eases cited in notes. See particularly note 19, and the case of Hall et als. v. Sullivan Railway, in which we think the authority of the corporation to mortgage its franchise to build, own and manage a railroad, and to take tolls thereon, is put on sound and satisfactory grounds. See also the opinion of Davis, J., in Morrill et als, v. Noyes, recently decided in the Supreme Court of Maine, Law Register, Nov. 1863. It is to be noticed that the language of this mortgage, in describing the subject on which it was to operate, does not bring in question the much vexed subject of the power of a corporation to transfer its franchise of existence. It purports to convey only the uroad audits franchise;” which terms embrace only such rights and privileges as are involved in the owning, maintaining and operating of'the railroad, and in the receipt and enjoyment of the income and emoluments of so doing. The franchise convéyed is, by the language, restricted to the franchise that the corporation had in the road itself; and therefore cannot be regarded as touching other franchises, such as' that of being a — 494 — corporation, with the right of perpetual succession, of suing and being sued by corporate name, &c. The language of Bennett, J., in Bank of Middlebury v. Edgerton et als., 30 Vt. 190, we adopt in word and principle, as expressing the true-idea upon this subject as involved in the present case. He says: — “ It is not necessary in this case that we should hold that the franchise to this company, to be a corporation, is a subject of sale or transfer. The right to build, own, manage and run a railroad, or take the tolls thereon, is not of necessity, of a corporate character, or dependent upon corporate rights. It may belong to and be enjoyed by natural persons, and there is nothing in its nature inconsistent with its being assignable,” — citing Peter v. Kendall, 6 B. & C., 703; Comyn’s Digest, Grant, C. It is now to be considered what constitutes the road, within the meaning and operation of the mortgage. This is mainly matter of construction, in the light of the character, condition and circumstances of the subject matter. At the time the transaction took place, a road had been located between the two termini and put under contract, and was in the process of construction, but was in no part completed as a railroad ready for use. It could not be, that the mortgage was intended to be confined in its operation to the road in the condition in which it then was. Indeed, the very purpose of the mortgage was to enable the corporation to obtain an article of construction necessary to its completion as a railroad. It is too plain to require discussion, that it was the design of the parties, ■that 'the mortgage should take effect upon the road in its completed condition, proper and ready for use in running over it in the ordinary manner of that kind of business. And such is the legitimate import and force of the term as used. It was not a road, viz.: a railroad, in the condition it was in at the time of making the mortgage. It was a mere roadway in the process of -being wrought into a road. The mortgage is not of a roadway, -or -right of a roadway, or of a roadway in process of being wrought into a road, — but of “ their -road.” It also seems plain that the mortgage was designed to take — 495 — effect upon the road, as it should exist under the rights of the corporation, at the time the mortgagees should succeed to the rights of the corporation by virtue of the due enforcement of the mortgage. It may be taken as granted, that, in fact, the location of the road was changed, at different points, from the place fixed upon in the original location, after the mortgage took effect, and' that it has been located and constructed beyond one terminus of its location and survey as it was at that time. Still, if it is the railroad of the corporation under its charter, the whole becomes in our apprehension, subject to the mortgage. No other view is practicable without impeaching both parties of a very inadequate comprehension of the subject they were dealing with. The value of the security depended entirely on its capability of being used as a railroad. Only by reason of. its being so used would either the corporation or the mortgagees hold any right in reference to it; for the abandonment of such use would subject the rights to a forfeiture, and the land covered by the road-to a reverter to the owners of the fee. This fact seems conclusive as to what was the intent of the parties, so far as the change of the location is concerned — for, to the territory covered by the abandoned location, the corporation and their assignees lost all right by the fact of abandonment. So, too, in respect to the addition to one end of the road, the same rule applies. The idea, that two miles, more or less, of a railroad, continuous between two fixed limits, constructed in the same right, and to be used in the same' right, and as part of the same road, was to be severed and held by the corporation, as against the operation and effect of the mortgage, if it exists at all, must have had its origin at a period much more recent than the mortgage now in question. Such being regarded as the true construction of the mortgage, as to the meaning of the terms and the intent of the parties, it should be allowed to have effect accordingly, unless prevented by the intervention of some legitimate obstacle. And in this respect, it is asserted that the corporation had not acquired a right of way -to a considerable part pf the road at the time the — 496 — mortgage took effect, for the reason that it had not paid the land damages to the respective land owners. It seems to be a sufficient answer to this, that any defect of title, as between the mortgagor and mortgagee, to the subject conveyed by the mortgage, is a matter for them alone to take care of; and least of all could it properly be asserted, against a right to «foreclose the mortgage, either by the mortgagor or those standing upon rights under him as subsequent mortgagees. If the land owners have not got their pay, it is for them alone to look after their rights in this behalf. If anybody has paid any of them by request of the corporation, they can assert their rights to reimbursement of the party at whose request they did it, at such time and in such way as they should be advised. If somebody has volunteered to make such payments, it will be seasonable to determine as to their rights and remedies when a proper case shall be presented for adjudication. The rights and claims of parties in respect to the road-way, that may affect the security in the hands of the mortgagees, we think can not properly be brought in question, and much less adjudicated, in this proceeding to enforce the security against parties that are subjected to it. And this view relieves us from any need in the present case, of considering and discussing the effect of the consent, shown to have been given by the land owners, to the making of the road without an appraisal and payment of the damages as a condition precedent. In the view we have thus taken of the construction of the mortgage, there seems to be no occasion for discussing the mooted question, as to the operation of a mortgage upon subsequently acquired property, as accessory to the principal and present subject matter of the mortgage. The road, then in the process of construction, with the rights and privileges of the corporation in it as a road completed, was the thing mortgaged. The accessions to it, by way of completing it, are not susceptible of being regarded as after-acquired property, in the sense of the cases in which the subject has been discussed — distinct and separable from the principal thing, leaving that entire and complete, and being in themselves entire and complete ; but are to be regarded as con — 497 — stituting an incorporated and inseparable part of the one entire thing, viz., the road. Such being the meaning of the mortgage as to the intent and design of the parties, the operation we give to it is amply countenanced by the case of Willich v. Morris Canal and Banking Company, 3 Green’s Chancery R., 377 ; by Redfleld on Railways, 590, 591, and note 21, 22, 23, 24; by an article by the same author — Law Reg. for July, 1863, in which it is said: “ The assignment of future acquisitions will not become operative at law. But in equity it is settled by a long course of decisions that such an assignment is perfectly valid and effectual, if made upon a valid considerationciting several cases tin England, and giving the substance of Halroyd v. Marshall recently decided by the House of Lords, and reported in 9 Jurist N. S. 213, and closing with the following remarks, viz : “This decision, resting as it does upon most unquestionable grounds of principle and authority, cannot fail to have an important bearing upon similar contracts in this country, which have been numerous both in regard to railways, and the furniture and equipment of railways, and some of which have already been determined by our courts in favor of the equitable rights of mortgagees, without seeming to comprehend very fully the equitable grounds upon which they may be made to stand. See also, Hart v. F. & M. Bank, 33 Vt. 252 ; Pennock v. Coe, 23 Howard U. S. Rep. 117, where Mr. Justice Nelson, and the counsel in argument, go into an examination and discussion of this question in all its bearings ; and the learned Judge arrives at the same just conclusion, substantially, with that already indicated as being reached by the Hohse of Lords.” See also, Morrill v. Noyes, cited supra. It is to be understood that, in making these reference and quotations, nothing is to be regarded as adopted and decided in this case, beyond what is embraced and implied in giving the effect we do to the mortgage, in view of the sense and import of its terms, in their application to the subject matter. And here it is proper to say, that we do not regard the mortgage in question, as fairly by its terms, or by any just implications, to embrace any articles of property, by way of equipment and — 498 — furnishing, not entering into and constituting a part of the structure of the road, nor being erections upon land. This would therefore, exclude from its operation, what is called rolling stock, and other personal chattels that go to make up the usual and necessary equipment and furnishing of the road, but not so affixed to the land as to partake of the character of the realty. The mortgage is silent as to any subject of conveyance but the “ road and its franchise,” — differing in this respect from, the mortgages, or other conveyances, in all the cases referred to, where they have been held operative to convey movable property subsequently acquired. To the suggestion that the assignees can obtain and enjoy the fruits of this mortgage only in virtue of the continued existence and organization of the corporation, and the corporation, having parted with rights that aré indispensable to its fulfilling the ends for which it was created, would no longer be entitled to continue, and so the end for which it was created would be defeated ; — it ‘seems sufficient to say, that whether its potential existence and its organization would continue or not, would depend on whether it should have subjected itself to a forfeiture of existence, by the failure to answer the purposes for which it was created, in the matter of its duties to the public. So long as those duties should be performed, would not the claim of the public, as well as of individuals, be fully answered ? And is it to be presumed, in anticipation, that the assignees will fail to perform those duties as fully as the corporation would have done, when the same motives exist and would be operative upon the assignees as upon the corporation, and when the same remedies may be made available, both in favor of the public and of individuals, for a failure to operate the road, — viz: as to the public, a forfeiture of the rights granted by the charter, and in favor of individuals, a reverter of the land constituting the road-way ? As to the going' out of the corporation by abandoning, or ceasing to keep up, its organization as a corporation under its charter, it will be in season to consider the subject, and determine the rights and remedies of the parties interested, when an occasion shall have presented itself, — having in mind, in the mean time, — 499 — the statutory provisions of 1857, still in force, for proceedings of trustees and bondholders after foreclosure. G. S. 238 and following. We proceed now to consider the point made by the defendants,“that if the erators have not, by this pretended mortgage, a legal estate vested in them, they have no standing in court whereby they can sustain o this bill.” To serve this proposition, it is claimed that they cun only be made trustees of the bond-holders, by force of having the legal title vested in them. No case or book is cited to sustain these positions, and we do not apprehend upon what principle they can be maintained. The proposed security for the bonds was to be made by a conveyance to trustees, to hold the title, and to render the security available by such measures as the law might warrant, in case it should become necessary to enforce it. Whatever right or interest might appertain to the bond-holders in and to the security was the equitable one of cestms que trust, under, and by virtue of, the title conveyed to, and vested in the trustees. Whether that title was legal or equitable, the intervention of trustees was the means by* which its -beneficial purposes were to be made available to the bond-holders. In view of the purposes designed to be effectuated by the transaction of the attempted security of the bonds, the trustees became charged with the duty of asserting and enforcing such title as was vested in them, as a necessary means of effectuating such purposes. It would present a case of striking singularity if it should be held, because, the mortgage was equitable and not legal, that therefore, the trustees to whom it was made, were not entitled to enforce it in the character it possessed in contemplation of law, and for the ends for which it was created. In saying that “one object of the bill is to create them trustees by reforming the instrument, and until that is done, they have nothing to stand on, and of course at the institution of the suit they were without rights,” it would seem to be begging the the whole question. The bill is brought to foreclose what is claimed to be an existing, enforceable and foreeloseable mortgage. It sets forth all the facts upon which the claim is based. Amongst other things, it sets forth the doubt whether the instrument, as — 500 — executed, would be held for all technical purposes a legal mortgage, as the deed of the corporation; — and asserts that “ the orators are entitled to a decree that the same be, by the R. R. Company, formally and solemnly executed, so that it shall at law, and against all the defendants, he deemed to all intents and purposes a mortgage, and as such a binding first lien and conveyance upon, and of the said road, property and franchise.” But no prayer is predicated upon that averment, nor is it claimed in the closing argument of orators’ counsel as a form of relief. The bill claims a foreclosure, on the ground that the whole transaction constitutes an equitable mortgage, to the same intents in a court of equity, and for the purpose of enforcing the security, as if the instrument, executed by Mr. Clark, had been the technical deed of the corporation. Upon the familiar principle, that equity treats what is agreed to be, and ought to be done, as done, — and following the precedent of many adjudged cases, there would, for the purpose of the suit, — viz: the enforcement of the security — be no need of a preliminary decree for the reformation of the deed. The parties are not, in this court, standing upon rights that can be recognized only when they are created by a strict compliance with the technical rules of law; but npon rights which arise upon the substance and reality of the transaction, where there has been an accidental omission to comply with some technical requirement. Holding as we do, that the case stands in this court precisely the same, for the purposes of the relief sought, as if the instrument in question were the legal deed of the corporation, as matter of course, the same effect is to be given to it, in all respects essential to the remedy to be applied, as if it were such legal deed. It is obvious from what has foregone, that we do not regard the equitable right of the orators to be of so uncertain a character, as, according to a point made by the counsel for defendants, to render it improper for the court of equity to give it effect. Indeed, in our view, it is in no respect uncertain. Their right in equity is as well defined, and as well grounded, as their right — 501 — at law would liave heen, if the instrument executed by Clark had been the technical, valid mortgage of the corporation. The resolutions of the directors, and the instrument made by Clark, in connection with the fact that the corporation issued the bonds for the purpose of their being used for the purchase of the rails, and that the trustees under the subsequent mortgages had notice and knowledge of all these facts, constitute a groundwork upon which the law predicates a clear and definite equity in the orators, as trustees of the security thereby created. That the subsequent mortgagees misappreciated, and therefore doubted, the rights created by these facts, does not constitute such an uncertainty, as upon any principle, can be available to them against those rights. This is by no means such a case as Cordwell v. Mackrill, 2 Eden 244, cited by Judge Redeield, in his opinion as counsel in this case ; though we assent to, and adopt the entire doctrine embodied in the language of the Lord Chancellor, in saying that, “ a man must indeed take notice of a deed upon which an equity, supported by precedents, the justice of which every one acknowledges, arises ; but not the mere construction of words, which are uncertain in themselves, and the meaning of which often depends upon their location.” We also accord fully with what was said by the Master of the Rolls, 9 Ves., 588, Barker v. Brooks, viz: “ In Cordwell v. Mackrill, Lord Camden doubted wether the articles should be reformed, and there may be such a doubtful equity that a purchaser is not to be taken to know what will be the decision, and that is all Lord Camden means. But in this case the equity is clear.” Nor do we see wherein there appears to have been any negligence in the assertion of those rights. They have on all occasions been insisted upon whenever called in question. They have always been recognised and regarded by the corporation, and were recognised and regarded by all parties, in the transactions of making the second and third mortgages. This suit was commenced in about one year after the first instalment of $25,000. of the principal fell due. Moreover, it is to be remarked that the pleadings present no such ground of defence. The defence rests on the alleged incap — 502 — aeity of the corporation to make, or become bound by, such a mortgage, — on the alleged invalidity of the instrument, — on the subsequent mortgages taken in good faith, and, as alleged, without notice of the prior mortgage ; and on the alleged lack of title in the corporation to portions of the road. And we remark further, as to another suggestion of defendants’ counsel, that we do no|*^ghrd the orators as standing upon “ a naked equity, ag§dí¡J$ .&in '' equal equity and legal title com. bined.” On the co^iary, we^pSgard them as standing upon a prior and superim^iquit^n^^t-'a subsequent one depending on a legal titlmgMiwas take^ gfi^ged w-ip- such prior and superior iuthout furtháí’ discussion fof points, of coi^bent upon various lews and suggestions presented -in the arguhient, sufficient has saidÉo develope the views and opinion of the court upon the controlling points in the case. The ultimate conclusion is, that the orators are entitled to a decree of foreclosure, and, unless the sCim, found to be due upon the bonds issued under the mortgage to them as established by this decision, is paid by the time fixed by the court of chancery for jféáemption, with the costs of this suit, that they are entitled to hold as trustees, upon the trust created by said mortgage, the said railroad, as'-against^lshe defendants in this bill, with all and thp same rightá thereto for the purpose of maintaining and using the same as a railroad, that the corporation and the other defendants holding under said corporation would have, in (g/fee the mortgage to the orators should have been redeemed, in pursuance of the decree to be herein made, and unless so j^pmemed, that the orators are entitled to be put in possession^! said road by proper process of the court of chancery, in jfxecution of the decree of said court for such foreclosure, arid that the orators recover their costs in this court, and may have execution therefor. The decree of the chancellor is reversed, and the case remanded to the court of chancery, to ascertain in a proper way the sum due on the bonds secured by said mortgage, and to make a final decree, in conformity with this decision.