70
FEDERAL "REli'ORI.rER,
vol. 52. .',
of his inlhUity.r tD!bOmply wi·thand carry but the same, and ,about tpe 'same time Baileyiresigned'ail'ditector, and afterwards, in the month of Septembeillj: Blake resigned as director and president; and thereupon chosen president of the company,and that the company wasgreatly.damaged,and its credit ruined, by the actions and doings of thealleg$d copartners, Kittel; Bailey, Blake, and. Green, in their recklesscomlluit of the management of the defendant company's interest, andtha total failure to construct the defenclant's road, and in the pretended placed upon the defendant 'company's "land grant, for th'eir own selfish uses and purposes. The deCI'eel ill the court below was in favor of the:complainant, recognizing andlfforeclosing the mortgages sued on, finding the sum of $33,270.86 due,l !ordering the company too pay within a short day ,and, in failure thereof,that the mortgaged property be sold, after public advertisement, by ll.',special master of the court. The railroad company, in bringing the case to this court, assigns the following errors: (1) The court erred in overruling the demurrer interposed to the bill'of complaint herein by the said defendant; (2) the court erred in rendering a decree against the above-named defendant. The demurrer interposed by. the defendant railroad company states the inconsistent piopositions that the legal title to the lands mortgaged is in the United States and also in the state of Florida. The counsel for the company contends in this court that the bill shows the legal title to the lands sought, to be sold to be in, the United States, and claims that what passed under the grant of 1850 was the legal title to swamp and' overflowed1lJ.hds·,: and what were and what were not swamp and overflowed lands was a question of fact, to be hereafter determined, when the question should be raised in the courts, upon proofs submitted; and he further contended that the certificate of the trustees guarded the United States upon. this point, and that the company received its certificate upon the express condition mentioned, and that the company, as well 88 the mortgagee, are bound by it; and that, in order for the court to sell the lands under this decree, it must, by some form of proof, determine that the land is in fact swamp land, under the act of 1850. The appellee contends that the legal title to the land passed to the state by the act of congress of September 28, 1850, without any patent, citing Wright v. Roseberry, 121 U. S. 488-503, 7 Sup. Ct. Rep. 985; and further, as follows: I
, "By the act of the Florida, J'anuary 6. 1856. this legal title passed to the board of trustees. defendants. who haVE) not appealed from the decree; and the trustees say in their answer they will cOllvey to appellant the remainder of the lands as Soon' as they recei ve the patent. They could convey before. The legal title passed by the grant to every acre of land· that is . Swamp and overflowed in point of fact. The appellant admits. by its mortgage. itis all swamp and overflowed land. The trustees admit. by their answer and exhibit thereto. it is swamp and overflowed lands. and are estopped from and do not s6l!k to controvert it. If at any future time the government of the United States should contend that any single piece of the one hundred and nine thousand acres is not swamp and overflowed land, it will
AUGUSTA, T.& G. R. CO. II. KITTEL.
71
be time enough to settle that cOl1troversy, whenever It arises. The defendant company, the appellant here, cannot and has not raised any such question in its answer. Apart from this, lc\ mortgagor can never raise a question of title, and say it had no title, as agkinst the mortgagee. The latter is entitled to have the property mortgagedsoJd to pay his debt, and the purchaser will get such title as the mortgagor holds." In our opinion, if the company has not a legal title to the lands mortgaged, it had a full equitable title. The language of the mortgages, in the granting part, is full and complete, conveying any and all interest of the railroad company in the lands, and passed whatever title the railroad company had. It. was sufficient to mortgage land .held by a full equitable title, as w.ell as that held by a legal title. Railroad Co. v. Hamilton, 134 U.S. 296-305, 10 Sup. Ct. Rep. 546; Trust Co. v. Kneeland, 138 U. S. 414-419, 11 Sup. Ct. Rep. 357. Whether the decree appealed from was correctly rendered in favor of the complainant, Kittel, depends upon the undisputed facts hereinbefore recited, and upon several contested propositions of law and fact, which may be stated and answered as follows: 1. Was M. W. Hayward the assistant secretary of the company from March 24, 1889, to September 11, 1890, and as such authorized to attach the seal of the company to the mortgages granted to complainant, Kittel? It appears that he was employed about the office of President Blake; that he was appointed by President Blake assistant secretary and assistant treasurer about February 1st. 1889; that up to the time of his resignation he acted as secretary, though signing as assistant secretary, transacting the business of the company, with the knowledge of most if not all·of the directors, and that in fact he transacted all the business of the secretary during the time mentioned. It is not necessary to determine whether he was an assistant secretary de jure, since it clearly appears that with the consent and knowledge of the president and board of directors, during the time mentioned, he was de facto secretary of the company. 2. Whether the board of directors authorized the president, Blake, to borrow money for the uses of the company, and to mortgage the land grant of the company to secure the repayment of sums borrowed. The minutes of the board. kept by Hayward, as secretary, show a resolution to that effect, passed at a meeting held on the 24th day of May, 1889. Other proceedings had that day, at the reported meetings of the board of directors, are undisputed, such as the appointment of Bailey as director and vice president; the authorization of the president to make a cuntract for the construction and equipment of the proposed line of the road to Augusta, Ga.; to authorize the president to appoint a general minutes of all of which were recorded by Hayward, while the stockholders' meeting reported to have been held the same day is disputed. That it was not held, is not proved. The record book does not appear to have been produced in evidence. The extracts given from it are not in order, or as in any.wise attempting to give an insight into the manner in which the book was kept. Whether
72
FEDERAL ItEPORTER,
vol. 52.
the resolution authorizing the president to mortgage the lands granted by the state ofFlorida was passed, depends upon the «redit given the testimony Qfpitectors Robert Cumming, William. Henry Gamble, ert B. Symingtqn, M. Zeh, and William Clark, which testimony is negative,-not recollecting the meeting,-rather than positive,-recollecting that no such resolution was passed. 3. Was Kittel a director of the company? There is no doubt he was elected at 'an informal meeting, during his absence in Europe; that he was notified in writing of the appointment very soon after his return; and that, about two months thereafter, he resigned as director. He was not the owner of any stock in the company, and was therefore ineligible. Renever in any 'wise acted as director, and his resignation was given under the advice of oounsel, and in order to clear the matter of doubt, as to whether he was or was not a director. 4. Was Kittelacting in good faith in the loans he made to the com· pany? The evidence shows that he acted under advice of experienced counsel, after a full of the records of the company as to the authority of the prel:lident to borrow on behalf oHhe company, and to give as security the mortgage on the land grant; There is no evidence whatever to show that he doubted the legality or honesty of the transaction; that he suspected the president's authority to borrow, or his authority to grant the mortgage; or that, to his knowledge, the money was in anYWise intended to be used otherwise than directly for the needs and benefits of the company; or that he had any idea that the money he loaned was money loaned to and for the benefit of the construction company, otherwise than as the construction company would be aided by funds in the hands of the railroad company. The loan does not appear to have been in any wise secret, for even Mr. William Clark, the moneyed man of the concern, admits that he was informed by Blake of the loan, just after it was made. The only suspicion with regard to the bonajideaofKittel in the whole transaction arises from the fact that, as part of the consideration for loaning the company money at an extraordinarily low raie of interest, considering the enterprise and the security offered, Kittel: was granted, in all, a three-twentieths interest in the construction contract. In our opinion, this circumstance is of small weight. The construction contract was authorized by the board of directors. They were cBarged with potice that Bailey, a director, was, at the making of the contract, interested in the same. President Blake's interest, even if unknown to the board of directors, would not render the contract absolutely void, if otherwise free from fraud or undue advantage. This contract had been made for four months; was apparently in process of execution, with the knowledge of all concerned; and Kittel's acceptance of an interest 'therein falls far short of showing that he was making himself a party to any contract or scheme to defraud or injure the railroad company; ,The construction contract, on its face,does not, as defendants Clark and the company claim, carry with it marks of extortion or fraud or bad faith, by reason of the compensation to be given for construction. In enterprisp.s like the one then in hand, whiC'h seem to con·
AUGUSTA, T. & G. R. CO.
v.
KITTEL.
73
sist of building and equipping a railroad on the proceeds of land grants, subsidies from favored towns, and the sale of securities on the railroad to be built, the second mortgage bonds are nearly always rated at a nominal value, the stock is nominal, and only the first mortgage bonds are valued at anything near par. Certainly, no experienced financier would value $16,000 per mile first mortgage bonds, $7,000 per mile of second mortgage land-grant hands, and $20,000 per mile of nominal stock, on a line of railroad to be built from the city of Carrabelle to Augusta, Ga., as worth in cash anything more than from sixteen to eighteen thousand dollars per mile. At the date of contract the company had succeeded in constructing 1H miles. How this construction was paid for-whether by mortgage bonds or sales of slack-does not appear; but the record does show that Mr. William Clark has recovered a judgment against the company, presumably for sums advanced for constructing that part of the road built at the date of the con,tract, for the sum of $432,228.42, which is at the rate of over $37,500 per mile. 5. As to the laches of the company. The evidence shows that the money loaned by Kittel was paid over to the railroad company, and used by the officers of the company for company purposes; that the knowledge of the first loan, of $25,000, was communicated to the principal dire('tor; Clark, a few days after the loan was made; that in December, 1889, about three months after its date, the mortgage was recorded in the state of Florida. and knowledge ofthat recordation was brought home to the directors other than Blake alid Bailey. Until the answer was filed in this case, March 9, 1891, there was no repudiation of the loan and mortgage, no denial communicated to Kittel, on the part of the board of directors, of the authority of the president to execute the notes and grant the Ip,ortgage. True it is that in November, 1890, llfter Blake's resignation as president, the directors, by resolution, rescinded the minutes of the meeting of May 24, 1889, so far as they showed a resolution authorizing the' president to execute a mortgage of the Florida lands; but this action was not notified to Kittel, nor followed by any proceedings. to nullify the mortgage or return the loan. In the mean time the company spent the money, and recognized the validity of the transaction by paying interest and renewing the notes, and Director Clark obtained, by default, his large judgment against the company. On the whole case, it seems to us that as Kittel loaned his money and took the mortgages in good faith, as the company had the benefit of the same, as the direCtors and officers of the company, by permitting Blake, president, to manage and control the affairs of the company wUhont oversight and scrutiny, and by neglect of their duties and responsibilities enabled Blake and Bailey to deceive Kittel, if he was deceived, and as the directors and officers, after discovering the loan by and mortgage to Kittel, failed to take prompt action of disaffirmance, and otherwise were guilty of laches, the transactions had between Kittel and the company should be treated as fully ratified on the part of the company. 'In Indianapolis Rolling Mill v. St. Louis, etc., Railroad, 120 U. S. 256,
.. : FEDERAL REPORTER.
voL 52.
7 Ct.:JBep.f 542, it was held that where a board of directQrs, when notified of jwbat,had been done by their agents, did not disaffirm their action within. siX! months, the disaffirmance came too late. This doetrine was affirmed in Pennsylvania By. 00. v., Keokuk &; H. Bridge Co., 131 tL 9 Sup. Ct. Rep. 770, as follows: "When the president of a corporation executes in its behalf, and within the scope Qfit$·charter, a contract which requires the concurrence of the board of directors, and t1)e board. knowing that he has dOlle so, does not dissent within will Qe presumed to have ratified his acts." a
And the same doctrine was again affirmed in Construction Go. v. Fitzgerald, 137 U.S. 109, 11 Sup. Ct. Rep. 36. , The lloppealed from should be affirmed; and it is so ordered.
CITY OF NEW ORLEANS 'lJ. PEAKE.
Court ! ':
0/: A.ppeaZs, Fifth Circuit. June 23, 1899.) No. 46.
1.· ,A.PPE,U.ABY'&; DlllCIill:E-"Fl'r'AL'rlY-CONFIRMATION OF SALE.
Acredltol';of:the dralna"e. fund held In trust by the elty of New Orleans caused, a re<:eIver of the fund to ,be appointed. to whom. by order of court. a transfer of Its assets was 'made. Thereafter the receiver sold : the ,the oourt :conflrnuld the lisle. Held, that the decree of confirmation wlls a final from which an appeal would ,lie, to the circuit , court ofaWe8Js; since It :ftnally dlsposed of the possession and ownership of the ,property. ,;, ! 'It from the record that the city wail the main de'fenllant in the court beloW, al1dthat'itelaimed t<lbe a Jarge oredit,or of the fund, and entitled to prefcreditor" it bad an interest entitling it to, appeal from the decree. notWithstanding that its title to the property was' divested Oy the notarial transfer;' . · , '
2. ·A1'J;>E.u.-l'ARTIES.
"
The of sale directed the delivery to the purchasers of good and valid titles free from,a,H'lleil's,mGrtgages, or incumbrances. In the advertisements of the sale ,the that,. in the absenQe of, (lbjeotion Oy the purchaser, thIS ,var.ranOE1 was immaterIal, espeCIally as it appears to be the duty of 'the receIver, un\1er Rev. St.La. § 3147. t<leithersell property free of taXes. or see that the pai\! title. 4. SAME-SUlil ,I". , The fact that the property was advertised and sold in blocks intersected by public streets niles not show that the COU1't either ordered or approved a sale of the fee in the streets, when it appears that the sale was in the same lots or blocks existing when the '¢ity acquired title, and When the property was transferred to the receiver by the notarial act, and that a large plat, showing the position of the streets, was exhibited at, the sale, thus charging the purchasers with notice of their location. '5. SoUlE-SUBDIVISION. It was not unlaWful to sell 'the property in such blocks, when it appears that to
3. ·JUD10IA,L.S,.,Lll:....'VUIDI1'Y:-VARIANOE BETWEBN ORDER A.ND
$Urvey and sUbdivide it
be very expensive,and without SUbstantial benefit.
of ,
Appeal from: tpe Circuit CO,urt for the Eastern District '. ,.,.,", ' by Jame&,W. Pel;\ke,a judgment creditor of the Orleans, in his. own behalf, as well as in behalf' 'pl\rties similarly situated,against the city, as trustee of the