1. An instrument purporting to be a mortgage, made by a
corporation is not a legal mortgage, and a bill to foreclose it as
such cannot be sustained unless it be sealed with the corporate
seal of the mortgagor.
2. The mere fact that such a mortgage deed has the corporate
seal attached to it, does not make it the act of the corporation if
the seal was not affixed by a person duly authorized.
3. The presumption is that the seal was rightfully affixed to a
deed, or other instrument on which it appears, but that presumption
is not conclusive, and may be repelled by parol evidence.
4. Where it is proved that the officers who executed a mortgage
did not seal it then nor afterwards, that the officer who had the
seal in his custody never affixed it nor authorized another to do
so, and that the mortgage was recorded without a seal, the burden
is thrown on the mortgagee to prove that it was properly sealed,
and if he fails the conclusion of law is that the seal was
wrongfully and fraudulently affixed.
5. A mortgagee whose bill seeks a foreclosure on the sole ground
that the mortgage is a legal one cannot be decreed an equitable
mortgagee unless he files a new bill in which his equitable rights
are set forth.
6. The officers and directors of a corporate body are trustees
of the stockholders, and in securing to themselves an advantage not
common to all the stockholders, they commit a plain breach of
duty.
MR. JUSTICE DAVIS.
This was a bill in chancery, brought in the District Court of
Wisconsin by Jacob Koehler, Daniel Koehler, and Harry Pfiffner
against the "Black River Falls Iron Company," to foreclose a
mortgage.
Page 67 U. S. 716
The bill alleges that, on the 13th of August, 1858, at La
Crosse, in Wisconsin, the "Black River Falls Iron Company" -- a
corporation created by the laws of Wisconsin -- executed and
delivered their promissory note to Daniel Koehler and Caspar
Bircher for $15,000, payable in nine month, to secure which a
mortgage of even date, under the corporate seal, was also executed
and delivered -- which mortgage was witnessed, acknowledged, and
recorded; that on the 21st day of September, 1858, Casper Bircher,
by an instrument of writing under seal, for the consideration of
$7,000, transferred to Jacob Koehler and Henry Pfiffner his
interest in said note and mortgage, which was also witnessed,
acknowledged, and recorded; and that the note and mortgage being
over due and unpaid, the aid of the court is asked to decree a
foreclosure.
William M. Hubby, having filed his petition stating that he was
a stockholder, and that in his opinion the directors did not intend
to make defense, was allowed to appear and defend. Leave was given
to the complainants to amend their bill so as to make Julius W.
Haas and others, junior mortgagees, party defendants. Answers and
replications were filed, proofs taken, and the cause was heard at
the October Term 1860. The court dismissed the bill without
prejudice and the complainants appealed.
The answers deny that the "Black River Falls Iron Company" ever
executed under its corporate seal this mortgage, which denial, if
sustained by the evidence, is decisive of this case. If the seal of
the corporation was not affixed to the instrument by proper
authority, but was surreptitiously obtained, then the deed is not
the deed of the corporation, was not duly executed as the bill
charges, and is not a legal mortgage, and cannot be fore closed as
such.
The mere fact that a deed has the corporate seal attached, does
not make it the act of the corporation, unless the seal was placed
to it by someone duly authorized.
Jackson v. Compbell, 5
Wendell 572;
Damon v. Granby, 2 Pick. 345, 353;
Bank
of Ireland v. Evan, 32 Eng.L. & E. 23; Angell & Ames
on Corporations, Sec. 223.
Page 67 U. S. 717
This mortgage had the corporate seal attached, and the
presumption was that it was there rightfully, and the court
properly admitted it to be read in evidence; but the presumption
thus raised was not conclusive, and parol evidence was admissible
to overthrow it.
St. Mary's Church, 7 Serg. & R. 530;
Berks & Dauphin Turnpike v. Myers, 6 Serg. & R.
16.
The evidence is conclusive that the corporate seal was affixed
to the mortgage wrongfully.
The mortgage purports to have been executed on the 13th of
August, 1858, and signed by Charles Hauser, president, and J. M.
Levy, secretary
pro tem., who both swear that the
corporate seal was not present, that they did not then, nor did
they ever place the seal to the instrument, and have no knowledge
how it came to be sealed. It was recorded shortly after being
given, and no seal was to it.
Henry Richter, the secretary of the company, was the custodian
of the seal, and testifies that he was not present when the
mortgage was given, that he had the seal in his possession, and did
not then, or at any time afterwards, affix the seal or authorize
anyone to do it for him.
When the defendants proved that neither the president nor the
secretary
pro tem., who signed the mortgage, nor the
regular secretary, who was the rightful custodian of the seal, had
any knowledge of the way in which the mortgage became sealed, then
the burden of proof was thrown on the complainants to show the
circumstances under which the instrument was in fact sealed, and
that it was rightfully and properly done.
Failing to do so, the conclusion is irresistible, that the seal
was fraudulently abstracted from the lawful custodian of it, and
wrongfully affixed to the mortgage.
The Revised Statutes of Wisconsin of 1849 were in force when
this mortgage was given, and section 1 of chapter 59 prescribes the
manner in which conveyances of real can be made, and it is as
follows:
"Conveyances of lands or of any estate or interest therein may
be made by deed, signed and sealed by the person from whom the
estate or interest is intended to pass, being of lawful age, or
Page 67 U. S. 718
by his lawful agent or attorney, and acknowledged or proved and
recorded as directed in this chapter, without any other ceremony
whatever."
Section 30 of this same chapter defines what is meant by
conveyances as thus used, and is as follows:
"The term conveyance, as used in this chapter, shall be
construed to embrace every instrument in writing by which any
estate or interest in real estate is created, aliened, mortgaged or
assigned, or by which the title to any real estate may be affected
in law or equity, except wills, leases for a term not exceeding
three years, and executory contracts for the sale or purchase of
lands."
This mortgage, not having been sealed by the Iron Company or
under its authority, was not executed in conformity with law, and
is therefore invalid and of no force and effect as a legal
mortgage.
It is argued, that if not a legal mortgage, it is an equitable
one, and that the court should not have dismissed the bill, but
granted such relief as equity could give. But this bill seeks a
foreclosure on the
sole ground that a legal mortgage was
given.
If the complainants have any rights under this instruments as an
equitable mortgage, they can be tested, on a proper bill filed, in
another suit.
The defendants in their answers further insist that this
mortgage was given without authority of law and by fraud and
collusion on the part of the directors.
The Black River Falls Iron Company was incorporated by the
General Assembly of Wisconsin March 31, 1856, to explore for
minerals, and to mine, manufacture, and vend them. The
administration of the affairs of the company was lodged in the
hands of directors chosen from the stockholders to hold office for
one year, and to be controlled by the rules and bylaws adopted by
the stockholders. The power to sell and mortgage, and procure a
common seal, was given.
By-laws were adopted, fixing the place of business at New
Danemora, Jackson County, limiting the number of directors to five,
who should appoint a secretary having no vote, and providing
Page 67 U. S. 719
"that all documents, orders for the payment of money and
receipts to be valid, must be signed by the president and
secretary."
A stockholders' meeting was held May 19, 1858, and the following
memorandum was entered among the minutes:
"May 19, afternoon session. Mr. C. W. Schmidt makes the motion
that the directory hereafter to be appointed shall be authorized to
endeavor before all, the effecting of a loan of the highest
possible amount, and in case of success to close it, and they are
empowered to encumber for the same the works with buildings and
appertaining lands, carried."
At the same meeting a board of directors was elected, to-wit:
Charles Hauser, president, and John C. Fuhr, H. Pfiffner, Jacob
Koehler, and John M. Levy, who chose Henry Richter as
secretary.
The company was evidence embarrassed and in grant need of money,
and as the necessity was urgent and pressing the directors were
instructed neglecting all other business to obtain as large a loan
as they could, and so secure it by a mortgage on the lands and
works. The stockholders clearly contemplated a loan of money to
carry on their business, and if a loan could not be affected
without real security, power to mortgage was given to the
directors. No authority was given to them to secure preexisting
indebtedness, and certainly none to secure themselves in preference
to other creditors.
Did these directors, as guardians of an important trust
committed to their care, endeavor, in good faith, to accomplish the
object which their principals so much desired?
They met on the 13th day of August, 1858, at La Crosse, and not
at their usual place of business, and failed to notify their
regular secretary, who had the records in his charge, and who had
acted as secretary since the organization of the company, to
attend. No reason is assigned why the secretary was not notified,
but as he was a large creditor, and was not to be favored, it is
barely possible that the directors thought his presence would be
embarrassing.
As the bylaws required that all instruments of writing should be
signed by the president and secretary, it was found necessary
Page 67 U. S. 720
to appoint a secretary
pro tem., and one of the
directors was selected, who, unlike the regular secretary, was
fortunate enough to have his debt provided for.
A note and mortgage were given to Daniel Koehler and Caspar
Bircher for $15,000, who were to let the company have $1,200 in
money, and $800 in provisions, and to pay the following debts of
the corporation:
Metzer, Koehler & Swab, a note and interest . . $3,570
John C. Fuhr. . . . . . . . . . . . . . . . . . 1,900
Jacob Koehler . . . . . . . . . . . . . . . . . 1,256
John M. Levy, two notes and interest. . $2,528
Less $124 charged . . . . . . . . . . . 124 -- 2,404
John C. Fuhr, Jacob Koehler, and John M. Levy, who were so lucky
as to have their debts to the amount of $5,500 provided for, were
themselves directors, and it might be inferred that Koehler, the
director, was interested in the firm of Metzer, Koehler & Swab,
but there is no evidence of it. It is little singular that the
mortgagees, in order to get security for the $2,000 which they
agreed to advance, were willing to assume the payment of $9,130.
Such is not the usual course of dealing with those who in good
faith make advancements and require security. The mortgage was
signed and delivered by Hauser, the president, to Koehler, the
director, for the mortgagees, who were neither of them present, and
who did not actually make the advancements in money or provisions
until some time afterwards. And Bircher, one of the mortgagees, as
if to fix the true character of this transaction beyond cavil, in a
few weeks from the giving of the deed, for the expressed
consideration of $7,000, transfers his entire interest to Koehler
and Pfiffner, two of the directors. Instead of honestly endeavoring
to effect a loan of money, advantageously, for the benefit of the
corporation, these directors, in violation of their duty, and in
betrayal of their trust, secured their own debts, to the injury of
the stockholders and creditors. Directors cannot thus deal with the
important interests entrusted to their management. They hold a
place of trust, and by accepting the trust are obliged to
Page 67 U. S. 721
execute it with fidelity, nor for their own benefit, but for the
common benefit of the stockholders of the corporation.
In executing this mortgage, and thereby securing to themselves
advantages which were not common to all the stockholders, they were
guilty of an unauthorized act, and violated a plain principle of
equity applicable to trustees.
"The directors are the trustees or managing partners, and the
stockholders are the
cestuis que trust, and have a joint
interest in all the property and effects of the corporation, and no
injury that the stockholders may sustain by a fraudulent breach of
trust can, upon the general principles of equity, be suffered to
pass without a remedy."
Angel & Ames on corporations, edition 1861, sec. 312.
The Charitable Corporation v. Sutton, 2 Atkyns 404;
Robinson v. Smith, 3 Paige 220;
Hodges v. New England
Screw Co., 1 R.I. 321;
York & North Midland Railway
Co. v. Hudson, 19 Eng.L. & E. 361
The decree dismissing the bill is affirmed.