Jesup v. City Bank of Racine

By the Court, Paine, J. This action was brought to foreclose a mortgage upon the Racine and Mississippi Railroad. It was issued to secure seven hundred bonds of $1,000 each, under the authority of a resolution of the board of directors. The resolution in general terms authorized the president to issue a mortgage, without Refining -any of its covenants or conditions, beyond saying that it was to secure bonds “running fifteen years, with semi-annual interest.” Each of the bonds issued contained a provision that on default of paying any instalment of interest when due, and on its remaining unpaid for sixty days, after demand, the whole principal sum should Become due at the option of the holder. The appellants’ counsel insists that the president had no authority to insert this provision in the bonds; and we are [338] °P^on‘ ®-e ^011^ undoubtedly Rave bad autbori-to insert sucb covenants and conditions as are usually in-gerted in mortgages of tbat kind. But we do not understand tbat provisions of tbis sort are usual. It is true tbey are . . , „ 7 .. sometimes inserted, but tbey are of a severe and extraordinary nature, amounting to a conditional defeasance of tbe entire objects of tbe contract, so far as tbe interests of one of tbe parties are concerned. The resolution provided for bonds “running fifteen years,” wbicb, in tbe absence of any qualification, means running absolutely fifteen years. But these only run conditionally for tbat time, and tbe payment of tbe whole sum might be enforced under them in less than one year. If conditions of tbat kind were usual, then tbe terms of tbe resolution would be qualified by tbe implied authority to insert tbe usual provisions; but being unusual, and there being consequently no implied authority to insert them, we think they must be considered as repugnant to tbe language of tbe resolution under wbicb tbe president acted, authorizing only “bonds running fifteen years.” Tbe counsel for the plaintiffs endeavored to support tbe act of tbe president by referring to a resolution passed by the board of directors several years before tbe one authorizing tbis mortgage, wbicb appointed Durand, tbe president, and Marshall M. Strong, agents of tbe company, and authorized them jointly or severally to make loans for the company, and on making sucb loans, to execute sucb bonds, contracts or agreements, as they or either of them should deem advisable, for the purpose of securing such loans, and then giving them, or either of them, power to bind the company “in any manner and upon any terms which tbey shall deem advisable, for the purpose of raising money for said company.” But it seems clear to us tbat the authority given in tbat resolution was intended to be and is properly applicable only to tbe objects therein provided for. They were authorized to bind tbe company in any manner they saw fit, in the bonds, contracts or agreements which they should give to secure the loans they were authorized by tbat resolution to make. Tbe general rule requiring provisions of this character to be construed in connection with their subject matter, [339] and limited by it, demands this construction. That resolution was not deemed sufficient to authorize 'the president execute this mortgage, but a new one was passed specifically for that purpose. And it would be very unsafe, assuming that such new one, adopted for that express purpose, contained no such authority, to transfer .to this subject matter provisions in an old resolution which never contemplated this, but was passed for entirely different purposes. We are satisfied, therefore, that the president,' under the authority to execute a mortgage to secure bonds running fifteen years, had no authority to stipulate that the whole principal should become due at the option of the holder on any default in paying interest. The result, of this conclusion is, that the bonds are valid, with the exception of that provision. They amount to a good execution of the power without that, and the rule in such cases is, that where the agent adds something beyond his authority, the excess will not invalidate that which may well stand without it. It was claimed by the counsel for the respondents, that even if there was a want of authority originally, still the board of directors had ratified the- issuing of these bonds with that provision. If that had been done, it would undoubtedly render them valid; but we see no sufficient evidence of it. It is true Durand testifies that he had authority to dispose of these bonds. But whether that evidence was based upon his general authority as agent to dispose of all securities of the company, or upon any specific authority with respect to these particular bonds, given after they were issued, so that the directors must be presumed to have known their contents, he does not say. He may have relied entirely on his previous general authority, and if so, that would of course have been no ratification. But even if the bonds had been valid as drawn, another serious error in the judgment would be, that it is given for the full amount of all the bonds, with interest. For the testimony shows that these bonds were pledged by the company as collateral securities for its own indebtedness, the amount pledged being usually about double the amount of the indebtedness. That being so, it is clear that no judg340 nient should have been rendered beyond the actual indebtedness which the bonds were given to secure. In cases where they had been lawfully sold by the pledgee, the holders might be entitled to their full amount; but where the original pledgee still held them, it is obvious that he would be entitled to no more than his indebtedness, and beyond that there would be no one entitled to enforce their collection. It appears also that a judgment was rendered against the company for the deficiency. We felt compelled to hold in the case of Sauer vs. Steinbauer (ante, p. 170,) that since the repeal of the statute authorizing it, the legal cause of action on the bond or note could not be joined with the equitable one to foreclose the equity of redemption, unless both causes of action affected all the parties, according to the provisions of the Code on that subject. And it is obvious that where some are made parties as subsequent incumbrancers only, they are not affected by that cause of action which seeks for a personal judgment against the mortgagor. And consequently in such cases no personal judgment for the deficiency could be taken. This result, if it is an unfortunate one, is owing to the repeal of the statute which has existed so long that some of the profession seem to think it ought to be held to be the law even after it is repealed, but we do not feel at liberty so to hold. But this objection, not being taken by demurrer in the court below, was waived. Cary vs. Wheeler, ante, p. 281. The counsel for the respondents further claimed that the appellants, who are subsequent incumbrancers, have no right to raise the questions hereinbefore discussed, inasmuch as the company has not appealed. In the case of Boyd vs. Sumner, 10 Wis., 41, we held that a subsequent incumbran-cer could not contest the propriety of the judgment against the mortgagor who did not appeal, without showing by some evidence, that he was, or probably might be, aggrieved by it if allowed to stand. But we think this case is distinguished from that by the fact that it does appear that these appellants would probably be aggrieved by the errors complained of. It fully appears from the complaint as well as [341] the testimony, that the railroad company was in an insolvent condition; that this mortgage was' subject to a prior mortgage upon the whole road ; that execution after execution had been returned unsatisfied; that sequestration proceedings had been instituted, and proceedings by creditor’s bill; ■and that the creditors of the company are struggling to save themselves against each other. .In view of these facts we must assume that the appellants have a sufficient interest in the amount of the judgment against the company to entitle them to contest it. The judgment is reversed, with costs, and the cause remanded for further proceedings.