Jones v. Guaranty & Indemnity Company
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101 U.S. 622 (1879)
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U.S. Supreme Court
Jones v. Guaranty & Indemnity Company, 101 U.S. 622 (1879)
Jones v. Guaranty & Indemnity Company
101 U.S. 622
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 A. was
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
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
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 insolvent.
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 review.