Cornell v. Hichens

By the Court, Dixon, C. J. The facts in these three cases are so nearly identical, that they may be disposed of by a single opinion. The two first are actions to foreclose mortgages given originally to the Racine & Mississippi Railroad Company. Each mortgage was given to secure the payment of a negotiable promissory note accompanying the same. In the first, the note and mortgage were executed and delivered to the company on the 27th day of July, 1855, and were given to secure a previous indebtedness of $400, due from the defendant to the company, and to insure the payment of $600 for six shares of the capital stock of the company, on that day purchased by the defendant. In the second case, the note and mortgage for $600 were given on the 26th day of July, 1855, to secure the payment for six shares of the capital stock at that time purchased by the defendant, Wiliford. The third, is an action commenced originally before a justice of the peace, to recover the interest alleged to be due upon a promissory note for $500, given by the defendant Lawton, to the company, and bearing date the 21st day of July, 1-855. It was taken by appeal to the circuit court for Racine county. This note was also accompanied by a mortgage upon real . estate, and was given to secure the payment for five shares of capital stock taken by the defendant at the time of its execution. All the notes were made payable to the company or [368] bearer, at their office in the city of Racine, five years .from the 10th day of August, 1855, with interest at the rate of ten per cent, per annum, payable annually, at the same place. In each case, the plaintiffs received and became the holders of the notes and mortgages from the company, in the regular course of business, without notice of any equities or defects, and for a valuable consideration. In the first, it is admitted by the defendants, that the plaintiff purchased the note and mortgage from the company, on or about the 20th of November, 1855, paying therefor the sum of $950 18, in cash. In the second, it was proved that he purchased them about the same time, paying therefor, in like manner, the sum of $570 11. In the third, it was shown that the plaintiff, by his agent, purchased them on or about the third day of November, 1855, and paid therefor the full sum which the note upon its face called for. The defendants, by their answers, alleged that the notes and mortgages were obtained by fraud and misrepresentation on the part of the agents who solicited them to take the stock; and claimed also, that the company had no power to receive them upon such subscriptions. Upon the trials which took place before the judge alone, some evidence tending to establish the fraud, was introduced, but it was very vague and unsatisfactory. Although the circuit judge in the last case, (the evidence upon that subject being nearly the same in all three,) found that the charge of fraud and misrepresentation was proved, yet it seems to us very plain that it was not made out with that clearness and certainty which the law requires, in order to enable a court to pronounce a contract void. With this exception, he found the facts in all the cases as we have above stated them. As conclusions of law, he found that the company had no power to receive the notes and mortgages on the sale of its stock, and and that they were therefore void in the hands of innocent [369] holders. From these judgments the plaintiffs appealed to this court. The provisions of the charter of the Racine and Mississippi Company, in relation to the issue and sale of its capital stock, are in substance, the same as those contained in the charters of the La Crosse & Milwaukee, and Milwaukee & Mississippi Companies, and its power to receive the notes and mortgages in question, must therefore be deemed settled by the decisions of this court in the cases of Clark vs. Farrington and Blunt vs. Walker. Those cases therefore seem to be decisive of the present. There is another principle by which these plaintiffs would be protected, even though the company had not the power to receive notes and mortgages upon sale of its stock. It is a well settled rule of law that if there be any purpose for which a corporation may receive a negotiable instrument, the bona fide indorsee of one which is given for an unauthorized purpose, shall not thereby suffer. He may rightfully presume that it was received by the corporation in the lawful exercise of its powers; and unless notice of the illegality be brought home to him, he will be protected. In the absence of a statutory declaration to that effect, the contract is not absolutely void; and all persons being alike chargeable with a knowledge of the law, but not of the facts, a party thus disobeying its commands by unlawfully dealing with a corporation, will not be permitted to take advantage of his own wrong to the injury of an innocent person. That the company could take notes and mortgages in the prosecution of its legitimate corporate business, is undoubted. This power was recognized by the circuit judge in giving judgment in the first case for the #400 and interest. The plaintiffs being bona fide holders for valuable considerations, the defendants could not, if it had existed, have availed themselves of such a matter as a defense. As to the notes, this conclusion depends, in [370] a principle of mercantile law, with which all are familiar; and as to mortgages given to secure the payment of negotiable paper, it has long been held in this state, that the holders of the latter stand in the same relation to them that they do to the paper itself. Fisher vs. Otis, 3 Chand., 83; Martineau vs. McCollum, 4 id.,163, and Croft vs. Bunster, June term,1859, 9 Wis., 503. For this reason it was error to allow the defendants to give evidence of the consideration for which the notes and mortgages were given, after it appeared that the plaintiffs received them in good faith, and in the regular course of business. Our attention was called to, and the counsel for the defendants relied in argument upon the provisions of chapter 49, of the laws of 1858, entitled “ An act declaratory of the rights of defence of mortgagors in certain cases.” As these provisions must be known to all, they need not be repeated here. In relation to them, it is sufficient for us to say, that the legislature cannot interfere with, or impair the obligations of past contracts, by declaring, that as against persons not previously affected by them, certain facts, if set up in the pleadings, and established in evidence/shall be a defence and operate to defeat actions brought to enforce them. It seems a hidden way of attempting to accomplish indirectly that which it was felt could not be done directly. The blow might better have been aimed directly at the contracts themselves; for the legislature might with equal propriety have declared that they should not be evidence in any court of justice, or that all the courts of the state should hold the makers discharged from them. This salutary and fundamental principle of our constitution and government has under almost every variety of circumstances, been so repeatedly • asserted, and universally recognized by all the judicial tribunals of the land, and has been so often applied by this Court, that we are not disposed to enter upon its discussion. In general [371] it may be said, that whenever, by the voluntary acts of the parties, and the force and operation of the law, whether statutory or common as applied to those acts at the time, a right accrues to the one to have or demand something of the other, such right cannot, against the will of the party to be injuriously affected, be divested, modified or controlled by any subsequent legislation. In these cases the plaintiffs had, by the act of transfer and the operation of the law as then in force, an immediate and vested right to look to the makers for full payment, regardless of any equities which existed as between them and the company. This right the legislature could not destroy, or cut off, either by changing the rules of pleading or the laws of evidence; or by endeavoring to operate directly upon the right itself. The judgment in each case must be reversed. The two first causes must be remanded to the court below with directions that judgment be entered in accordance with the prayers of the respective complaints. In the third case a new trial is awarded.