Racine & Mississippi Railroad v. Farmers' Loan & Trust Co. (49 Ill. 331, 1868)

Mr. Justice Lawrence

delivered the opinion of the Court:

On the 17th of April, 1852, the legislature of the State of Wisconsin passed an act incorporating the Bacine, Janesville & Mississippi Bailroad Company, with power to construct a railway from Bacine, on Lake Michigan, to the Mississippi river. The company was duly organized in November, 1852. By an act of the legislature of Wisconsin, approved June 27, 1853, the company was authorized to build a branch road to Beloit, a town on the line between Wisconsin and Illinois, and by another act, approved July 9th, 1853, the company was authorized to connect its road at Beloit with any railroad then chartered or thereafter to be chartered in the State of Illinois, and to consolidate its stock with the stock of such Illinois road, and place the road under a joint board of directors, to be chosen as the consolidating companies should agree.

The legislature of the State of Illinois, by an act approved ■ February 10th, 1853, incorporated the Bockton & Freeport Bailroad Company, with power to build a railroad “ from a point on the north line of the county of Winnebago, through the village of Bockton, to Freeport, in Stephenson county.” The company was authorized to consolidate its stock with that of any Wisconsin company that had been or might thereafter be incorporated by the legislature of that State, running from the terminus of said road in the direction of Lake Michigan.

On the 23d of February, 1854, these two companies entered into articles of agreement, the object of which was declared, in the concluding article, to be, “ to fully merge and consolidate the capital stock, powers, privileges, immunities and franchises of the Bockton & Freeport Bailroad Company, with the Eacine, Janesville & Mississippi Railroad Company.”

On the 13th of February, 1855, the legislature of Illinois changed the name of the Eockton & Freeport Eailroad Company, to “ The Eacine & Mississippi Eailroad Company,” and on the 31st of March, of the same year, the legislature of Wisconsin changed the name of the Eacine, Janesville & Mississippi Eailroad Company, to “ The Eacine & Mississippi Eailroad Company.”

We will now state the facts in regard to a third road which ultimately was consolidated with the Eacine & Mississippi.

On the 21st of January, 1851, the Savanna Branch Eailroad Company was organized under the general railroad law of Illinois, for the purpose of building a road from Savanna, on the Mississippi river, in an easterly direction, to intersect the Galena & Chicago Union Eailroad, at a point in Stephenson county, not exceeding 15 miles from the town of Freeport.

On the 12th of February, 1851, the legislature passed an act, authorizing the company to build the proposed road, and, for that purpose, to condemn private property, thus recognizing the existence of the corporation. On the 23d of January,

1856, this company entered into articles of agreement with the Eacine & Mississippi Eailroad Company, by which its stock was consolidated with the latter company, and a majority in interest of the stockholders of the Savanna company, gave their written ratification of the articles. On the lith of February, 1857, the legislature of Illinois passed an act changing the name of the Savanna Branch Eailroad Company, to “ The Eacine & Mississippi Eailroad Company,” and confirming and declaring legal and binding the acts of consolidation entered into between the Eockton & Freeport company, and the Eacine, Janesville & Mississippi company, and those between the Savanna Branch company and the Eacine & Mississippi Company.

Prior to this time, and on the 1st of September, 1855, the Bacine & Mississippi Bailroad Company had executed and delivered to the Farmers’ Loan & Trust Company, a corporation existing in the State of New York, 680 bonds of $1,000 each, payable to said Loan & Trust Company or bearer, and to secure their payment, had executed a mortgage upon so much of their road as was situated. in Wisconsin, extending from Bacine to Beloit.

Subsequent to the above named act of confirmation, and on the 24th of April, 1857, the Bacine & Mississippi Bailroad Company executed to the same Farmers’ Loan & Trust Company 700 additional bonds of $1,000 each, and on the same •day, to secure the payment of said bonds, executed to said Loan & Trust Company a mortgage upon all its road in the State of Illinois, extending from Beloit, on the Wisconsin line,-.to Savanna, on the Mississippi river. The mortgage recited that the company was engaged in the construction of a railroad from Bacine to Beloit, in Wisconsin, and from Beloit to Savanna, in Illinois. These bonds and mortgage bore date June 2d, 1856, but the bonds were not sold, nor the mortgage acknowledged, until April 24th, 1857, after the passage of the confirmatory act. It is to foreclose this mortgage that the present suit is brought.

It should be further stated, the Farmers’ Loan & Trust Company, on the 3d of December, 1858, filed their bill in the circuit court of the United States for the district of Wisconsin, against the Bacine & Mississippi Bailroad Company, to foreclose the mortgage given on that portion of the road situate in Wisconsin, to secure the issue of bonds first above named, and on the 10th day of May, 1859, pending that suit, the railroad company executed to the Loan & Trust company a deed of surrender of the entire road. The road was «then fully completed in Wisconsin, and about 20 miles were finished in Illinois. After taking possession, the Loan & Trust company proceeded to complete the road to Freeport, as it was authorized to do by the deed of surrender, and it was opened for business on the 1st of September, 1859, having remained from that time to the present under the undisputed control of the Loan & Trust company. George A. Thomson, a party in this suit, acted as agent of said Trust company, in the management and control of said road.

After the execution of said deed of surrender, and in pursuance of its terms, a decree of foreclosure was pronounced in the then pending suit, giving the railway company five years from the completion of the road to Freeport, in which to redeem said property, and providing that if no redemption'should be made, the court should proceed to make such q£ner and further decree in the premises as might be necessary.,, redemption having been effected, on the 31st of March, 1865 the Farmers’ Loan & Trust Company filed their petition''in--'; said court, setting out in full their disbursements and re«fei| and praying a decree of sale. An account was stated by.- the master in chancery, which was approved by the court, and'"S' decree of sale was pronounced, under which George A. Thomson became the purchaser of the Wisconsin division of the road.

In order to comprehend certain questions arising upon the record, it is necessary to state some further facts.

On the 27th of June, 1857, the Eacine & Mississippi Eailroad Company executed to Morris K. Jesup and Curtis B. Eaymond, 700 bonds for $1,000 each, and to secure their payment, also executed a mortgage upon the entire line of road, from Eacine to Savanna. This mortgage was made expressly subject to the above named mortgages to the Loan & Trust Company on the Wisconsin and Illinois divisions of the road. On the 26th of December, 1859, Jesup and Eaymond filed a bill in the circuit court of Walworth county, in the State of Wisconsin, to foreclose this mortgage, and the Wisconsin portion of the road was subsequently sold, under a decree rendered in said suit, to said Morris K. Jesup, for $270,000. Jesup

subsequently conveyed the title thus acquired, to Eicliard Irvin and George A. Thomson, and Irvin afterwards conveyed to Thomson. On the 2d of December, 1863, Jesup and Eaymond filed their bill in the circuit court of the United States, for the northern district of Illinois, to foreclose their mortgage upon that portion of the road situate in Illinois. The court found the sum of $859,362 to be due said Jesup and Eaymond, and pronounced a decree of sale, under which the Illinois division of the road was sold and conveyed by the master in chancery to George A. Thomson for $70,000, and the sale was approved by the court.

That portion of the road running from Freeport westward to the Mississippi, was never completed in the name of the Eacine & Mississippi Eailroad Company, but on the 24th of February, 1859, the legislature of Illinois incorporated the Morthern Illinois Eailroad Company, with power to build a road from Freeport to the Mississippi. The company was organized in 1860, and George A. Thomson, then managing the Eacine & Mississippi road,' as agent of the Loan & Trust company, and therefore, under the deed of surrender, occupying a fiduciary relation to the Eacine & Mississippi Company, subscribed to all the stock of the northern Illinois Eailroad Company, except $3,800, and became the president. He then proceeded to build the road from Freeport to Savanna, in the name of the northern Illinois Eailroad Company, at no place diverging more than three miles from the track of the Eacine & Mississippi Company, and in places occupying its very track, which had been partially graded. This road was built with money obtained from the holders of the bonds of the Eacine & Mississippi Company, secured by the mortgages to the Loan & Trust Company.

After the road was completed, it was leased to the Loan & Trust Company, and operated by it, through Thomson as its agent, in connection with the line of the Eacine & Mississippi road.

Such are the substantial facts necessary to a comprehension of this case.

To this bill of foreclosure, which was filed in the circuit court of Stephenson county, on the 31st of December, 1864, the Eacine & Mississippi Eailroad Company filed their answer, and subsequently filed a cross-bill and an amended cross-bill, to which it made George A. Thomson and the FT orthern Illinois Eailroad Company parties. It prayed in the cross-bills, not only for the cancellation of the bonds and mortgage given to the Loan & Trust Company, upon which this suit is brought, and of the sale and deed to Thomson under the foreclosure of the Jesup and Eaymond mortgage, but also that the court should decree the Northern Illinois Eailroad to have been built in violation of its rights and franchises, by parties occupying a fiduciary relation towards itself, and that an account might be taken with said railway company, and such relief given as the case might require. Answers were filed to the cross-bills, and the original cause and the cross-cause having been brought to issue, and a great amount of proof taken, they came to a hearing, and the court pronounced a decree directing a sale of the road for the amount due upon the bonds, and authorizing the Eacine & Mississippi Eailway Company to redeem from the sale to Thomson, under the Jesup and Eaymond mortgage, by repaying the $70,000 which he had paid the road, and interest thereon, and also directing an account to be taken with the Northern Illinois Eailroad Company for the benefit of the Eacine & Mississippi Company, provided the latter should first redeem from Thomson by paying the $70,000 and interest, within 90 days from the decree. It was further decreed, that if the Eacine & Mississippi Company should fail to redeem within the 90 days, the Northern Illinois company need not come' to an account, and the road of the Eacine & Mississippi Company should be sold at once in payment of the amount found by the court to be due upon the Loan & Trust Company bonds, but should redemption be made from Thomson within the 90 days, no sale should take place until the statement of an account by the master with the Eorthern Illinois Eailroad Company, and the net profits earned by said company should apply as a credit on the bonds secured by the mortgage held by the Loan & Trust Company, and produced in this suit.

To reverse this decree, the Eacine & Mississippi Eailroad Company has prosecuted a writ of error.

It is urged by the counsel for plaintiff in error, that the consolidation contracts above named were void—that they were not aided by the confirmatory act of the legislature, and that, therefore, the corporation known as the Eacine & Mississippi Eailroad Company is merely a Wisconsin corporation, and has had no legal existence in Illinois. It is urged that this mortgage is merely a mortgage made by a Wisconsin corporation upon property in Illinois, to which it has no title, and over which it can rightfully exercise no control. It is further urged, that, even if the contracts of consolidation were not void, and if the Eacine & Mississippi Eailroad Company had a legal existence in Illinois, nevertheless, it had no power to make this mortgage. These objections we will consider.

It is first insisted that the contract between the Eockton & Freeport Eailroad Company and the Eacine, Janesville & Mississippi Eailroad Company was void, because not under the corporate seal; but the ancient doctrine of the common law, that a corporation could speak and act only by its corporate seal, has long since been exploded, and it is now too well settled, in this country, to need any citation of authorities, that a corporation, acting within the scope of its legitimate authority, is as much bound by a parol contract made by its authorized agent, as a natural person would be under like circumstances. 2 Kent, 288. In this case, the Eockton & Freeport Company, by a resolution» of its board of directors, had expressly authorized this contract to be made, and it was subsequently carried into complete execution by both companies, and thus ratified as completely as ratification could be made.

It is further urged, that the Eockton Company was authorized, by its charter, to consolidate its stock only on condition that the consolidated stock should be placed under the control of the board of directors of the Eockton company, whereas, by the contract actually made, the control was given to the directors of the Wisconsin company. The Eockton and Freeport company did not thus construe its charter, for, in the third article of the contract in which the control is given to the Wisconsin board, reference is especially made to the 10th section of the charter as giving authority so to do; and on reference to that section, we are of opinion the company was correct in its construction. That section is as follows:

“ Section 10. It shall be lawful for the said company to unite with any other railroad company which may have been, or may hereafter be, incorporated by the state of Wisconsin, and running from the terminus of said road in a direction towards Lake Michigan, and to grant to such company the right to construct and use all or any portion of the road hereby authorized to be constructed; also the right to purchase or lease, all or any part of said road; also the right to sell, lease or convey the same to said Company, or consolidate its stock therewith, and place the management and control of the same under said board of directors, upon such terms as may be mutually agreed upon between the said railroad companies.”

It will be perceived that this entire section is very awkwardly worded, but we are of opinion the company was correct in construing the concluding paragraph as designed to authorize it to place the management of its stock under the board of directors of the Wisconsin company, with which it might consolidate, if it should think proper so to do. The phrase, “said board of directors,” is improperly used, as no board had been mentioned, bnt we construe it as referring to the Wisconsin company mentioned in the same clause of the sentence.

These are all the objections to the contract between the Eockton and Wisconsin companies, we deem it necessary to notice.

The contract of consolidation between the Savanna Branch Eailroad Company and the Eacine & Mississippi Company, was made under the authority of the general law in regard to the consolidation of the stock of railway companies, approved February 28, 1854. That act authorizes companies in this State, where roads intersect by continuous lines, to consolidate their stock, and also to consolidate with companies out of the State, when their lines should connect.

It is objected by counsel for plaintiff in error, that this contract of consolidation was made between the Savanna Branch Company on the one side, and the Eacine & Mississippi Eailroad Company on the other, by a contract which describes the latter company as “ a corporation existing under an act of the legislature of. the State of Wisconsin,” and that the lines of the two companies did not connect, and therefore they could not consolidate. But “falsa demonstratio non nocetP It must be remembered, that prior to this date, the legislature of Illinois, acting upon the consolidation contract between the Eockton & Freeport Company and the Eacine, Janesville & Mississippi Company, had changed the name of the former to the Eacine & Mississippi Company, and the legislature of Wisconsin had done the like for the latter company. The stock of the two companies had been consolidated under a common board of directors, and with a common name, and it was with this board of directors that the contract of the Savanna Branch Company was made. It is wholly immaterial that the contract described the Eacine & Mississippi Eailroad Company as a corporation existing under the law of Wisconsin. It existed equally under the laws of Illinois, and the hoard of directors who made the contract of consolidation, represented, in so doing, a corporation deriving its existence from the laws of Illinois, as well as one deriving its existence from the laws of Wisconsin. It is immaterial that the contract gave only a partial description of the source of their authority, and it is idle to claim that they intended to contract only for the Wisconsin corporation. A separate consolidation with the stock of the Wisconsin company was impossible, because the stock of that company had already been consolidated with that of the Illinois company of the same name. It was with the consolidated stock of these two companies that the stock of the Savanna road was intended to be consolidated by this contract, and this intent was, in fact, carried into execution.

But it may be said, even if the contract with the Savanna company should be considered as having been made as much with the Racine & Mississippi company of Illinois, as with the Racine & Mississippi company of Wisconsin, it was illegally made, because of a non-compliance with the requirements of the statute, pointing out the mode by which Illinois companies may consolidate with each other.

We do not propose to discuss this question, for it is clear, so far as concerns the right of the Loan and Trust company to a foreclosure of its mortgage, it is wholly immaterial whether this contract with the Savanna company was executed in compliance with the requirements of the statute or not. We have already stated there was in existence, when this mortgage was made, an Illinois corporation under the name of the Racine & Mississippi Railroad Company, and we have held this corporation to have been legally constituted, by the contract between the Freeport & Rockton company with the Wisconsin company, and by the subsequent act of the legislature, changing the name of the old corporation to that of the new. The existence of this corporation was wholly independent of all contracts with the Savanna company. With this corporation the stock of the Savanna company was subsequently consolidated, as a matter of fact, and this mortgage was made, covering the entire road. FTow, suppose this consolidation to have been illegal. That surely would not aifect the validity of the mortgage as to so much of the road as the Racine & Mississippi company rightfully owned. Its mortgage would certainly be good to the extent of its own road, from Beloit to Freeport, and whether it created a valid lien over the road from Freeport to Savanna, is a question which the courts must be prepared to decide whenever called upon by' the original owner of said road, the Savanna Branch company, or by any stockholder therein, but which certainly, in this proceeding, is a question which the Racine & Mississippi Railroad Company can not raise. Whether it had an interest in the road from Freeport to Savanna, subject to mortgage or hot, it assumed to have, and made a mortgage upon it, and whatever interest it had, the mortgagee is entitled to have sold. If the contract of consolidation with the Savanna company was defective in the beginning, and if the defects have not since been cured, that company, or its stockholders, may assert their right to said road, whenever they shall think proper, and they will not be prejudiced by the decree in the present case, because neither that original company as a corporation, nor its individual members, are parties to this suit. All that the purchaser under a decree in this suit will acquire at the sale, will be such title as the Racine & Mississippi company had power to mortgage at the time, or as it has been since recognized as having had in such way as to conclude interested parties. But the Racine & Mississippi company cannot be permitted to set up, as a defense to a bill of foreclosure, that it had no title to the property which it has itself mortgaged. In such a proceeding the mortgagor is not permitted to deny his own title. Barbour v. Haines, 15 Wend. 618; Dew v. Van Ness, 5 Halstead, 102.

It may also be remarked, that the argument of counsel for plaintiff in error, that the consolidation contract with the Savanna company was illegally made, is wholly inconsistent with the claim made in the cross-bill, and upon which relief was granted in the decree, that the building of the road from Freeport to Savanna, by the Northern Illinois company, was a violation of the rights of the Bacine & Mississippi Company. The latter company had no rights west of Freeport, except as they were acquired by a consolidation with the Savanna company. Practically, it would seem to be for tlie interest of the Bacine & Mississippi company to have contract with the Savanna company pronounced valid, andtits right to an ■ account against the Northern Illinois comp'atíyí TORt-Vr. thus established, since it has itself never built the road iyest-;,-$ ward from Freeport, and there is nothing to be sold in á-qy^1 event, upon the line of the road between Freeport and Savanna,' under a foreclosure decree, except a naked and probably worthless franchise.

But there is another view of this branch of the case, similar in principle to that just presented, but assuming-that both contracts of consolidation were void, which we deem too important to pass over in silence. . As already stated, the legislature subsequently confirmed both contracts, and changed the name of the Savanna company to the Bacine & Mississippi Bailroad Company, as it had already changed that of the Bockton company. "W e shall not now stop to consider to what extent the legislature can cure defects in the contracts of corporations. It is sufficient for the present purpose that the legislature, by this act, recognized the Bacine & Mississippi Bailroad Company as an Illinois corporation created by the merger or consolidation of what had been the Bockton & Freeport company with the Savanna Branch company. Even, then, if both contracts of consolidation had been beyond the power of these companies to make, yet those contracts, and their practical execution by the companies, united to the confirmatory act of the legislature, gave to the Racine & Mississippi Railway Company at least a colorable legal existence as an Illinois corporation. That it was a corporation de facto, can not be denied, as the stock of the old companies had been exchanged for the consolidated stock of the Racine & Mississippi company, and this company was in full possession and control of the road, and proceeding in its construction without a whisper, so far as appears, either on the part of any member of the original corporations, or of any other person, that it was not the rightful owner.

In this condition of affairs, this company, having a corporate name which the legislature had given it, claiming to be a legal corporation, and having, even if the articles of consolidation had been illegal, at least a colorable right to make such claim, controlling and building a railway as an organized corporation, and asserting the right to condemn land for its corporate purposes, issues its bonds to the amount of seven hundred thousand dollars, and sends them on the markets of the world. To secure their payment it issues a mortgage upon the road it claims to own, and is engaged in building, and, in both bonds and mortgage, describes itself as a corporation existing under the laws of Wisconsin and Illinois. The bonds go into circulation, and the money which has been received for them passes into the treasury of the company, and is expended upon the construction of the road. In process of time, the coupons upon the bonds are left unpaid, and the holders come and demand their money. To this demand the company replies that, although it issued the' bonds and mortgage as a corporation, and thus procured the money, yet it was not a legally constituted corporation, and therefore will not pay the money, but will retain the road.

The ’doctrine of equitable estoppel has so often been expounded by the courts that it needs neither definition nor the citation of authority. • In our judgment a clearer case than this for its application has rarely arisen. We are not saying that a corporation is estopped by its bonds and mortgage from raising the question as to whether, in making them, it was acting within its chartered powers. The question whether the mortgage now under consideration was within the power of the company to make, we shall presently consider. But we do say, that where a company has issued its bonds and mortgage under the circumstances above detailed, the ,, courts of every civilized country must hold it estopped from denying its own corporate existence, for such a defense is repugnant to every sentiment of justice and good faith. That this doctrine of equitable estoppel, or estoppel in pais, by which a person who has represented to another the existence of a certain state of facts, and thereby induced him to act on the faith of their existence, is concluded from averring against such person and to his injury that such representations were false,is as applicable to corporations as to natural persons, will hardly be denied. Hall v. Mut. Fire Ins. Co., 32 N. H. 297, and Zabriski v. Columbus and Cin. R. R. Co., 23 Howard, 391.

The views we have here set forth are in harmony with those expressed by us in the case of Mitchell v. Deeds, post. p. 416, in which the validity of certain notes given to this same corporation was under consideration. We there held that irregularities in the consolidation, the stock having been in fact consolidated, could not be set up as a defense in a suit brought upon notes given to the Eacine & Mississippi Bail-road Company, and we might have contented ourselves with a mere reference to that case, in regard to some of these questions, if counsel had not pressed upon us so earnestly a reconsideration of the views there expressed.

It" is urged, however, by counsel for plaintiff in error, that admitting the corporate existence of the plaintiff in error under the contracts of consolidation, and as an Illinois corporation, this mortgage was nevertheless illegal, because the Bockton and Freeport company, by its original charter, was authorized to borrow money only to the amount of $225,000, which was the amount of its stock, and the Savanna company, it is insisted, was not authorized to make a mortgage at all, as it was incorporated under the general law, which gave no authority to mortgage. But this implied prohibition upon the power of the Eockton & Freeport company certainly had no application to the Eaeine & Mississippi company, which grew out of the consolidation with the Wisconsin company, as is evident from the third section of the general law in regard to consolidation. Gross’ Digest, 532. The power to make the mortgage under this statute, taken in connection with the 3d section of the act of February 12th, 1855, entitled “An act to enable railroad companies to enter into operative contracts and to borrow money,” Gross’ Digest, 548, we regard as so clear that it is only necessary to refer to these laws.

We have thus far in this opinion treated the mortgage in question as made by the Eaeine