1. A corporation of New York having authority to mortgage its
property for the purpose of carrying on its business is not
prohibited by the laws of that state from executing such a mortgage
to secure the payment of money to be thereafter advanced.
2. A., as president of B., a corporation, applied to C. for a
loan. The latter then advanced $50,000, taking therefor a note of
B., payable to the order of D. & Co. -- of which firm A. was a
member -- and bearing their endorsement. A. also stipulated to
deliver to C. B.'s mortgage on its real estate for $100,000 as
security for said $50,000 and for any farther loans from C.
to B. The execution of the mortgage was assented to in writing
by B.'s trustees and by A., who was its creditor to a large amount
and the holder of nearly all of its capital stock. The mortgage
describes the individual obligation of A. as the liability to be
secured, but recites that its execution was authorized to secure a
loan of $100,000; that A. had given to C. his personal bond in that
sum to secure advances made as therein stipulated. It was
conditioned for the payment by B. of the amount that might be due
upon the instrument secured by it. The bond bears even date with
the mortgage. It recites that it was given to cover any advances
made or to be made to A. by C. to the amount of $100,000 or less on
condition that such advances and their payment should be endorsed
thereon as fixing the amount of indebtedness, for all of which
certain premises that day conveyed by B. to C. by indenture of
mortgage shall be liable. Upon the delivery of the bond and
mortgage to C., B.'s note for said $50,000 was renewed, and the
amount thereof endorsed on the bond as an advance of that date. The
bond shows two other advances to A. of $25,000 each, for one of
which a note of B. for that amount payable to his order and duly
endorsed, was delivered as collateral, and for the other a
warehouse receipt for oil given by B. to him. The receipt proved
worthless, and the note was subsequently
renewed. None of B.'s notes were paid, but the money advanced to
used for the benefit of B.
1. That it was the debt of B. and not that of A. which was
intended to be, and is, secured by the mortgage.
2. That parol evidence was admissible to show such intent.
The New York Kerosene Oil Company and the New York Guaranty and
Indemnity Company were corporations organized pursuant to the laws
of New York.
On the 15th of February, 1867, Abraham M. Cozzens, as the
president of the Oil Company, applied to the Guaranty Company for a
loan of $100,000. The sum of $50,000 was advanced to him, and he
thereupon delivered to the Guaranty Company the note of the Oil
Company for that amount of the date above
Page 101 U. S. 623
mentioned, payable to and endorsed by A. M. Cozzens & Co.,
and having sixty days to run. At the same time, he gave to the
Guaranty Company a memorandum signed by him as such president,
whereby he stipulated that he would cause to be prepared a mortgage
by the Oil Company to the Guaranty Company on the real estate of
the former therein mentioned for the sum of $100,000, to be held by
the latter as security for the $50,000 so lent, and for any further
loan thereafter made by the Guaranty Company to the Oil Company.
Cozzens thereupon procured a formal order to be made by the
trustees of the Oil Company that such a mortgage should be
executed, and the written consent of the holder of more than
two-thirds of the stock of the Oil Company was given to the same
effect. Both were necessary to the validity of the mortgage.
The capital stock of the Oil Company was $500,000, and Cozzens
owned of it $493,000.
Passing by some intermediate details not necessary to be
particularly stated, Cozzens caused to be prepared the bond and
mortgage here in question, and both were duly executed. The counsel
who prepared them made the mortgage describe the individual
obligation of Cozzens as the liability to be secured, instead of
the debt of the company, but the mortgage recited that the Oil
Company had authorized the giving of the mortgage to secure a loan
of $100,000, and that Cozzens had given to the Guaranty Company his
personal bond in that sum to secure advances, not to exceed that
sum, to be made to Cozzens, upon the conditions in the bond
mentioned, and that the requisite consent of stockholders had been
given. The mortgage was conditioned for the payment by the Oil
Company, and not by Cozzens, of the amount that might be due upon
the instrument secured by it. The bond is set out at length in the
record. It states that it was given to cover any advances then made
or thereafter to be made by the Guaranty Company to Cozzens to the
amount of $100,000 or less, on the condition that whenever any sum
was so advanced the amount and date of the advance should be
endorsed on the bond and signed by Cozzens, and that when any
payment was made by Cozzens, such payment should be endorsed in
like manner, and that the amount which, according to the
endorsements, should appear to be due on the
Page 101 U. S. 624
bond should be considered as the amount due,
"and for which the premises which have this day been conveyed to
the said New York Guaranty and Indemnity Company by the New York
Kerosene Oil Company, by indenture of mortgage bearing even date
herewith, shall be liable, and for no greater sum."
The mortgage and bond bear date on the 29th of April, 1867, but
were delivered and took effect on the 11th of May following. The
endorsements on the bond show that Cozzens received from the
obligee three several advances -- one of $50,000 and two of $25,000
each. No credits are endorsed. The note of the Oil Company,
endorsed and delivered to the Guaranty Company on the 15th of
February previous, when the first loan of $50,000 was made, was
renewed when the bond and mortgage were delivered, and the amount
was endorsed on the bond as an advance of that date. It was renewed
several times subsequently, and the Guaranty Company holds the last
renewal. When one of the advances of $25,000 was made, a note of
the Oil Company for that amount to Cozzens & Co. was endorsed
and delivered as collateral. That note was also renewed from time
to time, and the last renewal is held by the Guaranty Company.
When the other advance of $25,000 was made, a warehouse receipt
for oil, given by the Oil Company to Cozzens, was endorsed and
delivered as a collateral. The receipt proved worthless. Nothing
was ever received upon it. It is not controverted that the Oil
Company owed Cozzens more than $100,000 for his advances to it, nor
that every dollar of the loans in question were used for its
benefit. Not the slightest taint of dishonesty is shown in these
transactions, nor is anything disclosed which warrants the
suspicion of such a purpose.
The Oil Company was expressly authorized by the act under which
it was organized to secure the payment of its debts theretofore or
thereafter "contracted by it in the business for which it was
incorporated, by mortgaging any or all real estate of such
corporation," and it was declared that "every mortgage so made
shall be as valid to all intents and purposes as if executed by an
individual owning such real estate."
In March, 1868, Cozzens and the Oil Company became
Page 101 U. S. 625
Their paper went to protest. The business of the latter for the
time was ruinous, and both were engulfed in the vortex of common
disasters. Cozzens died about a week afterwards. "His death was
caused by his failure. His physician said so." The unsecured
creditors attacked the validity of the mortgage. The circuit court
sustained it, and the controversy has been brought here for
MR. JUSTICE SWAYNE, after making the foregoing statement,
delivered the opinion of the Court.
The analysis of this case in the preceding statement divests it
of all extraneous considerations and presents it in the nakedness
and simplicity of its material facts.
The central and controlling questions to be determined are:
Whether the Oil Company had the power to give a mortgage for
future advances, and
Whether the mortgage here in question is, in the view of a court
of equity, for the debt of the Oil Company or for the debt of
Abraham M. Cozzens.
The oral arguments of the eminent counsel who appeared before us
were addressed principally to these subjects. Numerous other points
are made by the counsel for the appellant in his brief, and have
been fully discussed in the printed arguments upon both sides. They
are minor in their character, and we think involve no proposition
that admits of doubt as to its proper solution. We are satisfied
with the disposition made of them by the circuit court, and shall
pass them by without further remark.
At the common law, every corporation had, as incident to its
existence, the power to acquire, hold, and convey real estate,
except so far as it was restrained by its charter or by act of
Parliament. This comprehensive capacity included also personal
effects of every kind.
The jus disponendi
was without limit or qualification.
It extended to mortgages given to secure the payment of debts. 1
Kyd, Corp. 69, 76, 78, 108; Angell & Ames, sec. 145; 2 Kent,
Com. 282; Reynolds v. Commissioners of Stark County,
Page 101 U. S. 626
5 Ohio, 204; White Water Valley Canal Co.
21 How. 414.
A mortgage for future advances was recognized as valid by the
common law. Gardner v. Graham,
7 Vin.Abr. 22, pl. 3.
See also Brinkerhoff v. Marvin,
5 Johns. (N.Y.) Ch. 320;
23 How. 14.
It is believed they are held valid throughout the United states,
except where forbidden by the local law.
The statute under which the Oil Company came into existence made
it "capable in law of purchasing, holding, and conveying any real
and personal estate, whenever necessary to enable" it to carry on
its business, but it was forbidden to "mortgage the same, or give
any lien thereon." This disability was removed by the later act of
1864, which expressly conferred the power before withheld. This
change was remedial, and the clause which gave it is therefore to
be construed liberally with reference to the ends in view.
The learned counsel for the appellant insisted that a mortgage
could be competently given by the Oil Company only to secure a debt
incurred in its business and already subsisting. This, we think, is
too narrow a construction of the language of the law. A thing may
be within a statute but not within its letter, or within the letter
and yet not within the statute. The intent of the lawmaker is the
law. The People v. Utica Insurance Co.,
15 Johns. (N.Y.)
357; United states v.
1 Black 55.
The view of the court in Thompson v. New York & Hudson
River Railroad Co.,
3 Sandf. (N.Y.) Ch. 625, was sounder and
better law. There, the charter authorized the corporation to build
a bridge. It found one already built that answered every purpose,
and bought it. The purchase was held to be intra vires
valid. Here the object of the authorization is to enable the
company to procure the means to carry on its business. Why should
it be required to go into debt and then borrow if it could, instead
of borrowing in advance, and shaping its affairs accordingly? No
sensible reason to the contrary can be given. If it may borrow and
give a mortgage for a debt antecedently or contemporaneously
created, why may it not thus provide for future advances as it may
need them? This
Page 101 U. S. 627
may be more economical and more beneficial than any other
arrangement involving the security authorized to be given. In both
these latter cases, the ultimate result with respect to the
security would be just the same as if the mortgage were given for a
preexisting debt in literal compliance with the statute. No one
could be wronged or injured, while the corporation, whom it was the
purpose of the law to aid, might be materially benefited. Is not
such a departure within the meaning, if not the letter, of the
statute? There would be no more danger of the abuse of the power
conferred than if it were exercised in the manner insisted upon.
The safeguard provided in the required assent of stockholders would
apply with the same efficacy in all the cases. The object of the
loan, the application of the money, and the restraints imposed by
the charter in those particulars would be the same whether the
transaction took one form or the other. According to our
construction, the company could give no mortgage but one growing
out of their business and intended to aid them in carrying it on.
In legal effect, the difference between the two constructions is
one merely of mode and manner, and not of substance.
Such securities are not contrary to the law or public policy of
the state. Many cases are found in her reported adjudications where
both judgments and mortgages for future advances have been
Our view is not without support from the language of the statute
that "every mortgage so made shall be as valid to all intents and
purposes as if executed by an individual owning such real estate."
If this mortgage had been given by individuals, the question we are
examining doubtless would not have been brought before us for
When a deed is fatally defective for the want of a sufficient
consideration to support it, such a consideration subsequently
arising may cure the defect and give the instrument validity.
2 Black 532. It is not necessary to go
through the form of executing a second deed to take the place of
the first one. This principle applies to the mortgage after all the
advances had been made, conceding that it had before been invalid
for the reason insisted upon.
The statute of 1864 neither expressly forbids nor declares void
mortgages for future advances.
Page 101 U. S. 628
If the one here in question be ultra vires,
no one can
take advantage of the defect of power involved but the state. As to
all other parties, it must be held valid, and may be enforced
accordingly. Silver Lake Bank v. North,
4 Johns. (N.Y.)
Ch. 370; National Bank v. Matthews, 98 U. S.
. In the latter case, this subject was fully
A corporation can act only by its agents. If there were any such
technical defect as is claimed touching the execution of this
mortgage, it has been cured by acquiescence and ratification by the
No one else can raise the question. All other parties are
concluded. Gordon v. Preston,
1 Watts (Pa.) 385.
Where money had been obtained by a corporation upon its
securities which were irregular and ultra vires
money was applied for the benefit of the company with the knowledge
and acquiescence of the shareholders, the company and the
shareholders were estopped from denying the liability of the
company to repay it. And the same result follows where such
securities are issued with the knowledge of the shareholders so far
as the money thus raised is applied for the benefit of the company.
In re Cork & Youghal Railway Co.,
Law Rep. 4 Ch.
A court of equity abhors forfeitures, and will not lend its aid
to enforce them. Marshall v.
15 Wall. 146. Nor will it give its aid
in the assertion of a mere legal right contrary to the clear equity
and justice of the case. Lewis v. Lyons,
13 Ill. 117.
The second point to be considered is whether the mortgage was
for the debt of Cozzens or for the debt of the Oil Company.
Cozzens occupied a twofold relation to the latter. He owned all
the stock but a trifle, and was the president of the company. At
the same time, he was largely its creditor. When he applied to the
Guaranty Company, he appeared in his official character, and
proposed a present loan to the Oil Company of $50,000 upon its
note, and further advances thereafter to the amount of $50,000,
making in the aggregate the sum of $100,000, the whole to be
secured by a mortgage from the company upon all its real
This offer was accepted. The proposition as to the mortgage was
in writing, and signed by Cozzens as president. It mentioned
Page 101 U. S. 629
a loan of $50,000 as already made to the Oil Company, and spoke
of "any future loan you may make to our company" as the liabilities
to be secured.
Let us pause for a moment and consider the position of the
parties at this point of time. So far, all that had been done and
all that had been proposed and agreed to be done was in form and
substance solely for the Oil Company. Nothing had been done or
proposed for Cozzens individually. There is no ground for the
allegation or suspicion that the transaction was in aught otherwise
than as we have stated it. It is true the Guaranty Company held the
endorsement not of Cozzens, but of Cozzens & Co. on the note of
the Oil Company for $50,000. But the Oil Company was primarily
liable. Cozzens & Co. were responsible as endorsers and
sureties, and were liable to be called upon only in the event of
the default of the principal debtor. Until that occurred, they
could not be required to respond, and in that contingency they
would have been liable as any other sureties are under the same
circumstances. The Oil Company was the principal debtor.
When the agreement between the Oil Company and the Guaranty
Company came to be carried out, the scrivener by whom the papers
were prepared without the request or knowledge of the Guaranty
Company described in the mortgage the penal bond of Cozzens as the
thing to be secured, but the mortgage recited that the president
had been authorized to make the loan and to execute the mortgage to
secure its payment, and that the requisite consent of the
stockholders had been given, and the condition of the mortgage was
that the Oil Company, and not Cozzens, should pay whatever might
become due upon the bond. It is true that Cozzens covenanted
personally in the mortgage to pay, while there was no such covenant
on the part of the company.
The first endorsement upon the bond was made upon the renewal of
the company's note of $50,000, held by the Guaranty Company. One of
those of $25,000 was for that amount advanced upon the note of the
Oil Company for the like sum. The remaining endorsement was for
that amount advanced upon a warehouse receipt for oil given by the
company to Cozzens and by him transferred to the Guaranty
Page 101 U. S. 630
All the moneys thus advanced were applied exclusively for the
benefit of the Oil Company.
There can be no question as to the first endorsement on the bond
of $50,000 being the debt of the mortgagor. It was the same debt
which subsisted when the first note was delivered to the Guaranty
Company, and the character of the debt was not changed by the
renewal of the note and the endorsement on the bond then made.
If a note secured by a mortgage be renewed or otherwise changed,
the lien of the mortgage continues until the debt is paid. Changes
in the form of the instrument are immaterial. Equity regards only
the substance of things, and deals with human affairs upon that
principle. The same state of things in effect occurred with respect
to each of the other sums advanced by the Guaranty Company. The
note and warehouse receipt given for them were the note and receipt
of the Oil Company, and it was responsible accordingly. Its needs
were the motive, and were at the foundation of every loan that was
made, and whether Cozzens acted as its agent in making them or
transferred the securities as a creditor acting for himself is
quite immaterial. The result is inevitably the same. In either
case, the Oil Company became directly liable upon the securities,
and to that amount, the principal debtor to the mortgagee.
The condition of the mortgage being that the company should pay
and not that Cozzens should, it could not be broken without the
company's default. Until that occurred, there could be no remedy
upon it either by foreclosure or ejectment. If Cozzens made
default, no such consequence would follow. He could be sued on his
covenant, but the rights and remedies of the mortgagee with respect
to the mortgaged premises would be neither more nor less on that
account. The covenant of Cozzens was collateral to the liability of
the company. No such covenant was needed from the Oil Company,
because the mortgage pledged its entire real estate, and the
mortgagee held in addition a direct liability for each advance upon
which a judgment at law could be taken. As before remarked, there
could be no breach of the condition of the mortgage without the
default of the Oil Company, and if it
Page 101 U. S. 631
had paid the amount due, that would have extinguished the
collateral liability of Cozzens and of Cozzens & Co., and if
the tender had been refused, it would have extinguished the
mortgage, though not the debt. Kortright v. Cady,
In all that Cozzens did, he acted as the agent of the Oil
Company, and it would involve an utter perversion of the facts to
hold that he, and not that company, was the principal debtor to the
We are satisfied beyond a doubt that it was the debt of the Oil
Company and not his debt that was intended to be secured and was
secured by the mortgage.
In examining this point, it was proper to consider all the
evidence in the record. This was objected to by the counsel for the
appellant. He insisted that the scope of our view must be limited
to the face of the mortgage and the obligation secured by it.
It is common learning in the law that parol evidence is
admissible to show that a deed absolute on its face is a mortgage,
to establish a resulting trust, to show that a written contract was
without consideration, that it was void for fraud, illegality, or
the disability of a party, that it was modified as to the time,
place, or manner of performance or otherwise, or that it was
mutually agreed to be abandoned; also to show the situation of the
parties and the surrounding circumstances when it was entered into
and to apply it to its subject, to show that a joint obligor or
maker of a note was a surety, and that the acceptor or endorser of
a bill or the maker or endorser of a note became such for the
accommodation of the plaintiff. Where a party has entered into a
written contract, it may be so shown that he did it as the agent of
another, though the agency was concealed and the principal not
disclosed, and the principal, in such case, may be held liable upon
it. A mortgage or a judgment may be assigned by parol.
These are but a small part of the functions which such evidence
is permitted to perform.
In no class of cases is it admitted with greater latitude and
effect than in that to which the one here in hand belongs.
In Shirras v. Caig &
7 Cranch 34, Mr. Chief Justice
Page 101 U. S. 632
"It is true that the real transaction does not appear on the
face of the mortgage. The deed purports to secure a debt of 30,000
sterling, due to all the mortgagees. It was really intended to
secure different sums, due at the time to particular mortgagees,
advances afterwards to be made and liabilities to be incurred to an
After remarking that such an instrument was liable to suspicion,
"But if, on investigation, the real transaction shall appear to
be fair, though somewhat variant from that which is described, it
would seem to be unjust and unprecedented to deprive the person
claiming under the deed of his real equitable rights unless it be
in favor of a person who has been in fact injured by the
misrepresentation. That cannot have happened in the present
The decree of the court was that the mortgagees were entitled to
have the mortgaged premises sold "and to apply the proceeds of said
sale to the payment of what remains unsatisfied of their respective
In Gordon v. Preston, supra,
it appeared that the
mortgage was for a greater amount than was owing to the mortgagee.
Chief Justice Gibson said the mortgage was good "for the sum
actually due." He said further:
"But the mortgage was in fact given for the benefit of other
creditors, whose debts are not disputed, and though the trust is
not expressed in the instrument, evidence was proper to explain the
true nature of the transaction and negative any imputation of
In Hurd v. Robinson,
11 Ohio St. 232, the condition of
the mortgage was:
and these presents are upon the
condition, that whereas the said Robinson is indebted to said bank
for money loaned, and for divers bills of exchange and promissory
notes, now if the said Robinson shall discharge his said several
liabilities in six months from this date, these presents shall be
void; otherwise, to remain in full force and virtue."
The condition was held to be sufficiently definite, and the
mortgage was sustained. The opinion of the court is able and
elaborate. Gill v. Pinney,
38, is to the
Page 101 U. S. 633
Other like cases might be multiplied to an indefinite extent. It
is unnecessary to encumber this opinion with further references.
The grounds upon which they proceed are that a thing is to be
regarded as certain which can be made certain; that evidence can be
adduced to apply the contract to its subject; that where there is
enough to put those concerned upon inquiry, the means of knowledge
and knowledge itself are, in legal effect, the same thing.
A multo fortiori,
was it proper to receive the evidence
referred to in the present case.
See in this connection also Chester v. The Bank of
16 N.Y. 336, and Horn v. Keteltas,