The answer to the objections is irrelevant and immaterial. The facts of the case, as found by the register, are substantially as follows: A few days after the making of the note which was given in settlement of a previous indebtedness the creditor asked the directors of the incorporation, or some of them, for security, at the same time giving them to understand that if the debt was secured he would not sue upon it at the following April term of court. The result was, that after some informal conversation between the four persons then acting as directors of the corporation, it was concluded between them that the security should be given, and thereupon an instrument purporting to be a mortgage by the St. Helen Mill Company of certain lots in St. Helen, belonging to it, was executed to the creditor, as follows: "In witness whereof, the said party of the first part has hereunto set their hands and seals the day and year first above written. ST. HELEN MILL CO.,

“WM. PICKERING, Secretary. [L. S.] "JAMES DART, President." [L. S.]

Said Dart and Pickering being two of the directors aforesaid, and acting president and secretary of the corporation; and on the same day said Dart and Pickering acknowledged said instrument "to be their free act and deed," before the county clerk of Columbia county. At the date of signing this instrument, and for some years previous, said corporation had a corporate seal and never had adopted or used any other seal upon that or any other occasion, and that said corporate seal was not affixed to said instrument aforesaid; nor did said directors, at any formal meeting, ever consider or authorize the execution of said instrument or the giving of any security to said Miles whatever. The capital stock of said corporation consisted of five hundred shares, and at the annual meeting of stockholders for the election of directors thereof, on January 6, 1873, there were only four hundred and six shares of said stock represented; and no notice of said meeting was given.

1049. A corporation cannot execute a deed otherwise than under its seal. Upon this state of facts the question arises: Is this instrument the deed of the corporation? for if it is not its deed, it is not a mortgage, and is therefore no security for the debt in question. It was an established principle of the common law that corporations aggregate could only act under their common seal. 1 Black. Com., 475; Kinzie v. Chicago, 3 Ill., 108. In this country the rule has been much modified, but I know of no case which goes so far as to hold that a corporation can execute a deed otherwise than under its corporate seal. The exceptions to the common law rule are confined to cases of simple contracts, or contracts not under seal. A conveyance of real property by a corporation must be under its corporate seal. Richardson v. Scott R. W. & M. Co., 22 Cal., 156. In Angell & Ames on Corporations, sec. 295, it is said: "To bind a corporation by a specialty it is necessary that its corporate seal should be affixed to the instrument. The corporate seal is the only organ by which a body politic can oblige itself by deed; and though its agents affix their private seals to a contract binding upon it, yet these not being seals, as regards the corporation, it is in such case bound only by simple contract." In Eagle W. M. Co. v. Monteith, 2 Oreg., 285, the supreme court held "that the deed of a corporation must be sealed with the corporate seal." Indeed, counsel for the creditor practically admits that this instrument is not the deed of the corporation, and therefore not a legal mortgage, but insists that it is an equitable one, and therefore entitled to be recognized and enforced in a court of bankruptcy as a security in favor of a creditor.

§ 1050. What is an equitable mortgage..

Where a deed or agreement of sale, absolute upon its face, was intended by the parties as a mortgage or security only, equity will treat it and give effect to it as such. Such an instrument is sometimes called an equitable mortgage, because equity treats it as a mortgage. 1 Wash., 502, 504, 507.

§ 1051. A lien by way of mortgage can only be created by deed.

But in this case the instrument which the court is asked to treat as a mortgage is in no sense the deed of the bankrupt. "It is impossible to create a lien by way of mortgage, by any instrument which is not a deed under seal. instrument not thus executed would not be a mortgage, though it might be a contract for a mortgage." 1 Wash., 504. But if it be admitted that this instrument, as between the parties to it, would be enforced in a court of equity as an agreement for a mortgage, still it does not follow that such effect can be given to it in this proceeding or in any proceeding between the parties now before the court. "An agreement to mortgage an estate as a security for a debt, though regarded in some cases as an equitable mortgage, can have no validity against third persons who acquire legal interest in or liens upon the property. Equity may, in some instances, reform an instrument, but

it cannot make one." 1 Wash., 514.

§ 1052. Assignee in bankruptcy represents the creditors. His powers. Now, since the date of this instrument the property mentioned therein has passed to the assignee. Upon the assignment he took the property in trust for the creditors, to apply the same upon their several claims as they then existed, with or without security. The assignee not only succeeds to the rights and liabilities of the bankrupt, but he also represents the rights of the creditors and each of them; and, as such representative, may maintain or defend proceedings in regard to the property of the bankrupt, which, on grounds of public policy or otherwise, the latter would not be allowed to. Carr v. Hilton, 2 Curt., 231; Brock v. Terrell, 2 N. B. R., 745; In re Wynne, 4 N. B. R., 6; Allen v. Massey, id., 76. § 1053. A corporation can only make a deed by its directors acting as a board of directors.

But this instrument is not even the contract of the corporation, and therefore equity would not treat it as an agreement for a mortgage. Upon the facts, it is plain that the corporation not only did not give the creditor a mortgage, but it never agreed to do so. The corporation act provides that "the powers vested in the corporation are exercised by the directors." Or. Code, 661. But to act, they or a majority of them must meet together as a board, and that fact, together with their conclusion, must appear from the "record of the official business" of the corporation, which section 9 of the corporation act requires to be kept by the secretary. Gashwiler v. Willis, 33 Cal., 16; The California, 1 Saw., 597; D'Arcy v. T. K. H. & C. R'y Co., 2 Exch., 158. In this case the record not only fails to show that at any meeting of the directors it was resolved or voted to give the creditor a mortgage or security for his debt, but the testimony of the directors who signed this instrument affirmatively proves that it was only signed by them in pursuance of an informal understanding among the majority of the directors, and that the subject never came before the directors as a board, or was acted upon by them at any meeting of the same.

§ 1054. A stockholders' meeting cannot elect a president and secretary of the corporation.

Besides, the directors who signed this instrument as "Pres." and "Sec." were

never duly chosen. It appears from the record that the stockholders present at the annual meeting in 1873, after the election of directors, proceeded to elect a president and secretary of the corporation. This was an unauthorized act and void. A stockholders' meeting has no power to elect a president or secretary. The authority to do this is vested in the directors "at the first meeting" after their election and qualification. Or. Code, 661; Gashwiler v. Willis, supra. Indeed, the stockholders' meeting at which these directors were elected was. illegal, being held without notice, and less than the whole amount of stock represented. The objections to the proof of debt, with security, are sustained at the costs of the creditor. (a)

RAILROAD COMPANY v. SOUTTER.

(13 Wallace, 517-526. 1871.)

APPEAL from U. S. Circuit Court, District of Wisconsin.

STATEMENT OF FACTS.-This was a bill in equity, filed by the Milwaukee & Minnesota Railroad Company against Soutter and others to recover back money paid, as complainants allege, under a mistake of fact. The La Crosse & Milwaukee Railroad Company made two mortgages. Under the second the trustee sold out the road, and it was bought by the beneficiaries of the trust, who organized as the company complainant in this bill. They paid the money now sought to be recovered in buying up the first mortgage, but a bill having been filed by certain judgment creditors of the original La Crosse, etc., Company, to declare the sale under the second mortgage fraudulent and to resell the property, complainants filed this bill to recover their money, admitting that the sale under which they hold title was fraudulent, and insisting that they paid off the first mortgage under a mistake of fact. There was a demurrer, which was sustained, and the bill dismissed.

Opinion by MR. JUSTICE BRADLEY.

The bare statement of the claim, even presenting it in the language of the bill itself, seems to us sufficient to condemn it. Who are the complainants? Are they not the very bondholders, self-incorporated into a body politic, who, through their trustee and agent, effected the sale which was declared fraudulent and void, as against creditors, and made the purchase which has been set aside for that cause? Was it ever known that a fraudulent purchaser of property, when deprived of its possession, could recover for his repairs or improvements, or for incumbrances lifted by him whilst in possession? If such a case can be found in the books, we have not been referred to it. Whatever a man does to benefit an estate, under such circumstances, he does in his own wrong. He cannot get relief by coming into a court of equity. By the civil law, the possessor, even in bad faith, may have the value of his improvements, if the real owner choose to take them. The latter has an option to take them or to require their removal. But this rule has never obtained in the common law, nor in the system of English equity. One of the maxims of the latter system is, "He that hath committed iniquity shall not have equity." And various illustrations of it are furnished by the books. See Francis' Maxims, maxim VII. § 1055. A sale under mortgage fraudulent in fact as against creditors is not void, but only voidable by those creditors.

But the complainants are wrong in asserting that the property was not theirs. It was theirs. Their purchase was declared void only as against the

(a) Affirmed in the Circuit Court, Ma. JUSTICE FIELD delivering the opinion.

creditors of the La Crosse & Milwaukee Railroad Company. In other words, it was only voidable, not absolutely void. By satisfying these creditors, they could have kept the property, and their title would have been good as against all the world. The property was theirs; but, by reason of the fraudulent sale, was subject to the incumbrance of the debts of the La Crosse company. This was the legal effect of the decree declaring their title void. Therefore they were, in fact, paying off an incumbrance on their own property when they paid into court the money which they are now seeking to recover back.

§ 1056. Mistakes of fact and of law.

They are wrong, also, in asserting that they made the payment under a mistake of fact. If it was made under any mistake at all, it was clearly a mistake of law. They mistook the legal effect of transactions of which they were chargeable with notice. They were the persons for whose benefit the purchase was made, which was declared to be fraudulent. They were the principal defendants in the creditors' bill, upon which this decree was rendered. All the evidence in that suit had been taken when they made the payment in question. The cause was pending, on appeal, in this court. There was not a fact, therefore, of which they were ignorant. They had full and actual notice of all the transactions, and all the evidence on which the decree was ultimately founded. All this appears from the statements of the bill in this case. We do not see how such a bill can possibly be sustained. The pleader who drew it evidently felt the force of these objections, and interjected some special circumstances for the purpose of showing that the case is distinguishable from the class of cases referred to. It is stated that Russell Sage, one of the defendants, who received a large portion of the money paid into court, was also a large holder of bonds under the Barnes mortgages, and advised and encouraged the sale by Barnes, and participated in the organization of the complainants' company. All these facts may be true, and on the demurrer to the bill must be taken as true; but they do not show, nor is it alleged, that Sage was personally a participant in the fraud which was committed in the sale under the Barnes mortgage. And if it were so alleged, can one fraud-doer obtain relief in equity against his particeps criminis ?

§ 1057. Individual changes of a corporate body of persons cannot change its rights and liabilities.

Again, it is alleged that the board of directors of the complainant was totally changed, and was, at the time of such payment, wholly composed of persons who had not participated personally in the foreclosure of the Barnes mortgage; and that a large majority of the stockholders and directors at the time of the said payment were persons who had no interest at the time of the foreclosure, and no participation in the proceedings. This cannot alter the case. A corporation aggregate retains its identity through all the changes that may take place in its individual membership. This corporation, by its own statement, was adjudged to be the child of a fraudulent and corrupt transaction, and entered upon its career as purchaser of the property, with all the risks of its illicit origin and fraudulent purchase upon its head. Change of membership cannot change its rights. If it can, when is the change effected? How many, or what proportion, of the members must be changed?

It is needless to pursue the subject further. If the present individual stockholders of the complainants have been wronged, that wrong cannot be redressed in this proceeding without violating the clearest principles of equity jurisprudence. The bondholders who received the money that was paid into court

were entitled to that money. It was due them. Had not the complainants interposed they could have sold the property and realized their claim from the proceeds. How can they be called to account? The present owners of the road have purchased it (it is to bc presumed) under the proceedings had in favor of the judgment creditors. How can their title be disturbed by the complainants? What equity would there be in subjecting the property in their hands to an incumbrance from which it was free when their purchase was made. The decree must be affirmed.

The CHIEF JUSTICE and JUSTICES MILLER and FIELD dissented.

§ 1058. Ultra vires.- An insurance company is estopped from setting up that its contract of insurance was ultra vires. Webster v. Buffalo Ins. Co., 2 McC., 348. See §§ 980, 1008. § 1059. Validity presumed. Where a corporation is empowered to contract under the authority of its charter or the laws of the state, the presumption of law arising in favor of its contracts is always in favor of their validity. It will be presumed that the debt was due or the obligation or other consideration was given in the lawful course of business until the contrary is shown. Toppan v. C., C. & C. R. Co., 1 Flip., 81.

§ 1060. Where a contract is not on its face necessarily beyond the scope of the power of the corporation by which it is made, it will, in the absence of proof to the contrary, be presumed to be valid. Railway Co. v. McCarthy, 6 Otto, 258.

§ 1061. In violation of law. A contract entered into by a corporation which has no powers except those which are given to it is void if made in violation of law. Root v. Godard,* 3 McL., 102.

§ 1062. Irregularities

Innocent party. Where a party deals with a corporation in good faith, the transaction not being ultra vires, and he is unaware of any defect of authority or other irregularity on the part of those acting for the corporation, and there is nothing to excite suspicion of such defect or irregularity, the corporation is bound by the contract although such defect or irregularity in fact exists. If the contract can be valid under any circumstances, an innocent party in such a case has a right to presume their existence, and the corporation is estopped to deny them. Merchants' Bank v. State Bank, 10 Wall., 645.

§ 1063. By an agent.- Where the agent of a corporation makes a contract in its behalf he should in the body of the contract name the corporation as the contracting party and sign it as its agent or officer. Gottfried v. Miller, 14 Otto, 527.

§ 1064. Whenever a corporation is acting within the scope of the legitimate purposes of its institution, all parol contracts made by its authorized agents are express promises of the corporation; and all duties imposed on them by law, and all benefits conferred at their request, raise implied promises, for the enforcement of which an action will lie. (Citing Bank of England v. Moffatt, 3 Bro. Ch., 262; Rex v. Bank of England, Doug., 524; Gray v. Portland Bank, 3 Mass., 364; Worcester Turnpike Corporation v. Willard, 5 Mass., 80; Gilmore v. Pope, 5 Mass., 491; Andover & M. Turnpike Co. v. Gould, 6 Mass., 40.) Bank of Columbia v. Patterson, 7 Cr., 306.

§ 1065. Proof - Condition subsequent.— An agreement, made prior to the sealing of an instrument by a corporation, and in no way connected with that act, of which the witness had no knowledge, that the instrument was not to be the deed of the corporation until a condition should be performed, is not admissible to show that it was not the deed of the corporation. Philadelphia, etc., R. Co. v. Howard, 13 How., 307.

§ 1065. Ratification.- A corporation may ratify a contract made by persons acting in its behalf before it was organized as a company, and when it was forbidden to do any business, on account of not having filed its articles of association. Whitney v. Wyman, 11 Otto, 396. § 1067. Change as to mode of payment.- Where one agreed with a railway corporation to be paid in the stock of the company for work done upon its road, it was held that a subsequent mortgage of its road made by the company did not convert its obligation to pay stock into one for the payment of money. Boody v. Rutland & Burlington R. Co., 3 Blatch., 25. See § 1038.

§ 1068. Signing.- The provisions of the charter of a bank, "that all bills, bonds, notes, and every other contract or engagement, on behalf of the corporation, shall be signed by the president and countersigned by the cashier; and the funds of the corporation shall in no case be liable for any contract or engagement unless the same shall be signed and countersigned as aforesaid," does not apply to contracts and engagements which the law implies. Mechanics' Bank of Alexandria v. Bank of Columbia, 5 Wheat., 335.