Dunham v. Isett

Wright, J. The motion to dissolve the injunction was based upon two general grounds: 1. That there is no equity in the bill: 2. That the Company had no authority to make the trust deeds. Hnder these general propositions appellant’s counsel has presented several questions for our consideration, which will be briefly noticed: 1. It is claimed that it does not appear that the bonds attempted to be secured by the deeds of trust, have been sold or hypothecated. The bill avers that the Company was desirous to obtain large sums of money for the purpose of constructing, &c., a certain Railroad then in the course of construction from, &c., that for this purpose the said Company issued their certain bonds, each for the sum of one thousand dollars, amounting in the aggregate to three millions and nine hundred and ninety thousand dollars, drawing interest at the rates of seven and eight per cent, payable semi-annually; that to secure the payment — 290 — of these bonds and make them current in market, the company by its legally constituted officers and in pursuance of law, executed and delivered to complainant, as trustee, their certain mortgages, “by which they granted,-transferred and conveyed,” &c. It is then particularly averred that on the 1st day of July, 1855, there was issued bonds, known as construction bonds, to the amount of $1,9-90,-000 ; and that there has been issued and sold $2,000,000 of land grant bonds, and that there is now due and unpaid on interest coupons on said bonds about the sum of $418,-309 ; that none of the principal and but a portion of the interest has been paid. What more could be legally required of the pleader than has been averred in this instance, it is difficult to imagine. It is stated that these bonds were “issued;” that they were “issued and sold;” in other words, that they were sent out and delivered for circulation; that there is now due and unpaid on the interest coupons over $400,000. How these averments could be true, and the bonds still remain in the hands of the treasurer or other officer of the Company for negotiation or hypothecation, we cannot conceive. The word “ issued ” is that employed in all the cases, when speaking of similar bonds after their negotiation, after they have passed to third parties, and its meaning is well understood. To use other or different language is not required,of the pleader. In this connection we remark, also, that there is no such negation of the existence or negotiation of these bonds in the respondent’s answer, as to authorize the Court, without further showing, to dissolve the injunction. 2. It is also claimed that complainant has a full and adequate remedy at law; that an action at law could be maintained against Isett and the Sheriff; that their insolvency is not averred and it is not shown that the action is brought to avoid a multiplicity of suits. Assuming for the present the validity of the mortgages, we deem it very — 291 — clear that the revenues so pledged are not liable to attachment or execution by the judgment creditors of the corporation. Galena & Chicago Union Railroad Company v. Menzies, 26 Ill., 121. And while it is possible that equity might not interfere if complainant was merely seeking to obtain possession of some specific, tangible property of the Company, not for foreclosure but to take its profits; the case is very different where he seeks protection and quiet in the possession of certain rights, incorporeal in their nature. And especially is this true when the nature of these rights, and their-liability to frequent interruptions and infringements render the powers of a court of equity almost indispensable to their complete protection. See Hale v. Sullivan Railway, opinion of Curtis, J., cited p. 582, Redf. on Railways. Says the Chancellor in Groton Turnpike Company v. Ryder, 1 John. Ch., 615: “ The equity jurisdiction in such a case is extremely benign and salutary ; without it the party would be exposed to constant and ruinous litigations, as well as to have his rights excessively impaired by frauds and evasion.” 3. These mortgages contain a provision, as stated by appellant, in substance, that “ all of the rights of the bondholders or trustee, are subject to the possession, control and management of the directors of said Company until default,” &c. It is now claimed that this stipulation means that the directors have the right to make any and all contracts, and' that when made before default, will be valid as against the trustee, giving the creditor a preference over the mortgage liens. This is not our understanding of this provision. So far as the mortgage relates to real property, the mortgagor would be entitled to the possession, control and management, until an entry for default or foreclosure as contemplated by the conveyance, without any such provision. And so far as it covers personal property, in the absence of some such stipulation, the legal title and right — 292 — of possession would have passed to tbe mortgagee. This clause, therefore, only provides for the ownership, possession and management of the property in a manner clearly recognized by our law. The lien of the mortgage is not affected thereby. Persons dealing with the Company, extending credit to it and the like, knew that this management and possession is subject to the incumbrances created by these mortgages, which may be enforced, if there is default in the payment of the bonds. If the question related to the right of a party purchasing some article of property covered by the mortgages, prior to the foreclosure or default, and while it was thus controlled and managed by the Company, it might involve different principles, and there would possibly be more plausibility in the argument' of the appellant. 4. Finally, it is insisted that these mortgages were made without authority of law, and are absolutely void. Under this head it is argued that the power to make such instruments did not exist at common law, and has not been conferred by statute; that unless derived from some statute, the corporation could not encumber or transfer its franchise, and that if there was no authority to mortgage the franchise, the Company could not make a conveyance or create a lien upon the future tolls or earnings of the road. And in these propositions we have the points principally relied upon by appellant to reverse this case. Jessup et al., Trustees v. Bridge et al., 11 Iowa, 572, clearly and conclusively recognizes the right of a Railroad Company to mortgage its future net earnings to secure the prompt payment of interest accruing on its construction bonds. And when the authority is conferred by statute, there can be no question as to the correctness of this ruling, sustained, as it is, by the numerous well considered cases there cited. And see 2 Law Reg., N. S., 527, and the cases there referred to; Morrell v. Noyes, reported in 3 Id., — 293 — 18, and the note of Judge Redfield; Pennock v. Coe, 23 How., 117; opinion of Judge Curtis in Hall v. Sullivan Railway, supra; Redf. on Railw., § 235, and notes 19, 20.) But it is insisted, that while the mortgage in the ease decided in 11 Iowa, may have been authorized by oh. .182, of the Laws of 1857, these mortgages were made before that time and are not sustained by any such statute. These instruments recite that this corporation was organized under the provisions of ch. 43 of the Code, entitled: “ Corporations for pecuniary profit.” This chapter provides, that any number of persons may associate themselves and become incorporated for the transaction of any lawful business, including the establishment of ferries, the construction of railways, canals, or other works of internal” improvement; “ but such incorporation confers no power or privilege not possessed by natural persons, except as hereinafter provided.” Among the powers conferred is that of making contracts, acquiring and transferring property, “ possessing the same powers in such respects as private individuals now enjoy.” By the Act of January 28, 1857, ch. 182, p. 278, it is declared that any mortgage or deed of trust made upon the lands, roads or property of any Company, shall bind and be a valid lien upon all the property mentioned therein, including rolling stock; and the purchaser, under a trustee’s sale or foreclosure of mortgage, shall have and enjoy all the rights of a purchaser on execution sale. Since the Act of March 20th, 1858, ch. 85, p. 119, there can be no question as to the legislative authority upon this subject, for this statute expressly confers the power to make mortgages and execute deeds of trust upon the whole or any part of the property and franchises of the Company to secure money borrowed for the construction and equipment of the road, which may cover not only the property then owned, but — 294 — that to be acquired, the rolling stock and personal property being deemed a part of the road. This last act cannot fairly be regarded as retrospective in its operation, and as the mortgages in the present case were made in 1855-6, they derive no validity from its provision. That of 1857 partakes more of the character of a curative or retrospective act, and, if necessary, we might with some confidence rely upon that as sustaining these mortgages. That it is competent for the Legislature to pass such retrospective acts we entertain no doubt. But without stopping to discuss this feature of the case, we recur to the provisions of the Code of 1851, above cited. In holding these mortgages valid, in view of the powers possessed by incorporated bodies, organized under that general law, it. is unnecessary to decide that they would have the power to mortgage, encumber or transfer their franchise, as well as real and personal property, including rolling stock and after-acquired tolls and incomes. For whether the corporate franchise can be transferred or mortgaged, when neither the charter nor the general laws of the State authorize it, is a question of much more difficulty than when the inquiry is restricted to the right to transfer or encumber the property of the Company — meaning by property in this connection, lands held for right of way, depot buildings, rolling stock, revenues and the like. In this connection we remark, that there seems to us great weight in the thought that the question whether the franchise may be conveyed is a matter between the State and the corporation, and with which third persons have nothing to do. The supposed inhibition rests upon grounds of public policy. Suppose the State waives the supposed forfeiture, or does not claim it, what right have creditors to insist upon it ? Or suppose from the general law, as well as the general course of legislation,' it is fairly inferable that the will of the Legislature, which as applied — 295 — to sucb a subject “ constitutes the public policy of the State,” tends to make operative such a transfer, shall the courts interfere and declare them invalid ? Keeping in view this distinction, we remark that we have only at present, to determine the validity of these mortgages, so far as they cover the tolls, incomes, issues and profits; or as applied to this particular case, the freights afterwards earned by the' Company. As already suggested, we think the question is well settled, that if the corporation has power to execute a mortgage or convey anee, it may include therein the future accessions and acquisitions of the road. Howe v. Freeman, 14 Gray, 566; Pierce Am. R R Law, 531; Holroyd, v. Marshall, 9 Jur. N. S., 213. By the law of its creation, this Company had the right to make contracts, to acquire and transfer property, in the same manner, and with like powers held and enjoyed by private individuals. And if a private individual could transfer or mortgage future accessions or acquisitions, or' speaking with perhaps more critical accuracy, that which is the product of present property in the mortgagor, or potentially his, so may an incorporation organized under this law. Individuals have the right to buy or sell real estate. So they have the right to borrow money. Under this general law corporations have like powers. And the' power to do these things — that is, to buy and sell, and to; borrow money — imply, aside from the existence of any1', express power, the power to mortgage such property, to secure the payment of the loan. Mr. Redfield, Railways, 575, citing Susquehanna Bridge Company v. General Insurance Company, 3 Md., 305, says, that this is but an elementary principle in the law of corporations, and requires no labored citation of authorities to sustain it. And says Sutherland, J., in Jackson, ex dem. The People, v. Brown, 5 Wend., 590, “It would be very extraordinary if this or any other corporation had not the power to appropriate its — 296 — property to the payment or security of its honest debts.” The power to make contracts, acquire, sell or transfer property, implies the power to mortgage. Gordon v. Preston, 1 Watts, 385. And see Union Bank v. Jacobs, 6 Humph., 515 ; Angell & Ames on Corporations, § 271; Redf., 574, 575, and notes. Affirmed.