AUGUSTA,']). ,&G. B. 00., V. KITTEL.
DlasS'\ ,giv)pg(to tpe pa.rty irljpred by the uplav,rtul !liversion; II priority of right
thepossessor.", ' " , This ruie was recognized as correct and applied by the supreme court in Nationaj,Bank v. ,104 U. 8.56,67; PeteJrsv. Bain, 133 U. S. 694, 10 Sup. Ct. Rep. 354; ,and its application to the facts illleged in the bill in the present elise is sufficient'to sustain it. Demurrer overruled.
", t:.,.
¥t Co. et al. V.KITTEL. NO.4!.
1.RA1LBoADOOMPANIES....MoRTGAGES-ATJTlIORITY 011" I'RES1DENT.....EsTOPPEL.
Wllen th. president' of a company!chartered by, jibe state of Florida for the eonunde,r of board of direcj;ors, mortgages the company's lKrld, and tile' money, which is ldaned in good faith, is used by the officers of the company; for COlDpany purposes, aJ;ldtbe validity; of the transaction is by payment of ,and is brought notice of the'directors, bOtb actually and by re'cordatlOn of the deeds, andtbere IS no repudiation of the or denial lif the authority of,the president in the premises, a by parto! the directOrs, made long afterwards, disapprovingand' the president's authority, does not invalidate the transaction or p,r6\"eDt a to:teelosure; ·since:theC,Gll1papy tacitly rl'otified the 'act of the president, by not promptly disaftl,rming,t'hetransaction. B; BAME.;.;..MoRTGAGB 011' LAlm GRAN1'-TlTLE. '1'he.land,·._.as g.ranted. to the COlD.pany by the ;Florida, to. lVhich it had,.been donated,.u,nd"r the overflowed lands act, (Act Congo Sept. Themortgi,ge conveyed all and antintere5t tlie company might !:lave in. the land. HeUl, that lUhe company did nllt have a legal title to the land; by reason of the absence. ohpatent i.D the original grant to the state: it had a full equitable title, and the mortgage passed whatever title the company uad. .. BAXB-'-AoTS'OJ' 13EORBTARY DB FAC'ro'-EsTQPPBL. Wben an assistant secretary of a railroad cO/Ilpany acts as the secretary inJact, transactillg,the business of the company, with knowledge of tbe directors, and, as 8uch''dil1aeto secretary, attaches the seal&' of the company to mortgages executed by thjl, COmpany on its land, it is not necessary for the mortgagee, in establishing the validity of the mortgages, to show that he was an assistant secretary oojWre.' ',' ., .. BAME-CoNSTRUCTION CONTRAOT-VA.LIDITY-l!'RAUD.
T.he mer.e fact that the president of a, railroad compaJ;ly, unknown tel the other directors, ,is interested in a construction 'contract let by the company, does not make the contract void. if it is otherwise free from ira-uIL
Circuit of the United States for .the Northern Distt:ict of Florida. ,, In Equity_, Bill by J. IGttelagainst the Augusta, Tallahassee & Gulf Railroad Company and others to foreclose a mortgage. De-cree for complainant. Defendant company alone appeals. Affirmed. ,J. B. a. l!Jrew, for appellant. ," , 1I. .. ee. , '.. ' . ' , ",Before :pABDE,E aod McCon?4lCK, Circuit Judges, and LOCKE, District Judge. , '
HDERAL.iREPORTER,
vol. 52.
appellaQti wel'ejoined 'as defendants, in the court below, the trustees' of' tlie 'i&ternal improvement funcbof,the state of FlOrida, and. William Clark; .'.As these 'last-named defeJ)dants ,were not substantially affected by the decree of the court b17 low, they did not join. in the appeal. SeverllDce\being had, as to de-feud8inll. Clark.therail.road company alone appeJ!lled. The Augusta, Tallahassee & Gulf Railroad Company was chartered by the legislature of the state of Florida to construct a railroad from the city of Carrabelle, on the Gulf of Mexico, to the Georgia state line, by way of Tallahassee, and thence onwards to the city of Augusta, Ga., under a charter obtained the last-IIwnti9Iteq stMe,-a of about 300 miles. of the'state of FluTida granted the railroad company 15,000 a,cres of land per mile, of the lands donated to the state under the swamp andoveHlowed lands act, enaeted bybongress in 1850. Prior to the matters giving rise to the present suit, the company had constructed and equipped 11 f Ihiles of its line, from the gulf to a point onthe"west bank of river, for whicllthey had received; ,under the land grant aforesaid, a certificate (No.,13,909) entitling 99lJlPllIlY to Under the charter of the company, the board of directors was to be compose.,d ofn;ne stockhold:ers, each the 'bona fide owner of not less thah five sharesof'the stock of the company;_. On May 24. 1889"thel'e seemed tobebu,t R.lt, Symh)gtqn"Chlides M. Zeh, William Clark, W; Uampbell Henry Gamble, and Robert Cumming. Of these seven 'BJake $as presidentjWiIliam Clark,the'1>Urported capitalist of the company j' and ,the other five, a pplI.tel:itl;r; 't:eJ)ri\sentative.i of WilHam, Olark's, interest)'-'-all but Dr. Zeh being his 'clerks andpartuers" his familyphysician. Such of them "ware th e'l;1earhig of this case,shp:wed 'by t,beir testimony that they were, inthe1rl.ll.in, perfuncto1'y,directote, the lead and wishes ofWiUiam Clark. oithe on;tdI;iY 24, 1889,Jhe record shows that a, stockbomers',meetingand "aO?-eetihg ·ofthe directors were held': .At the stockholders' meeti'i1g,so far as the evidence iIi U\is case the following proceedings were had: ".A. the ,&Gulf road was beld at No. 400 Broadway. this day. at 3 'o'clock P. M ·· pursuant to adjournment; a majority of all the stockholders being present. First. rathe,Qqnding of S0111e of the property of the ,rllilmadcompany.the following resollHion was presented and lInanirnouslyadopted. to wit: 'And, for the purp?ses aforesaid. the board Q,f, directors are also empowered to dispose 'ofabd "Sell all the said 'bonds. or any part of them, and also to dispose of and sell stock of·this' oompany not already issued and sub· llC.tibe<iJQT. i1;lSl1ch manJ;J.er as the, board may deem to be ,expedient fqr the best interests of the company; or, 'in case the boardsbould deem it expedient for the best interests of the company to sell, pledge. mortgage. or otherwise use the,wbole or any part of the, lands now owned or coming unto this com· pany from a'tid'under'the said land grant from the stateo! Florida, or h any manner than as heretofore authorized, either permanently or tempora-
'plIlDEE,' Circuit Judge.
as
AUGUSTA, T.·& G. R. CO. V. KIT1'EL.
65
rily, they are empowered so to do. Resolved, that resolutions or parts of resolutions inconsistent herewith, are hereby rescinded and annulled.'" The board of directors, at their meeting; (whether one continuous' meeting or in adjourned sessions does not appear,) resolved as follows: "New York, May 24, 1889, a meeting of the board of directors of the Augusta, Tallahassee & Gulf Railroad Company was held at No. 40U Broadway, this day, at 4 o'clock P. M., pursuant to adjournment; a majority of the board First, reciting and providing for carrying out provisions in being the resolutions of the .meeting of the stockholders of the same date. it is further provided, in the event, however, that the president should at any time deem it expedient to negotiate, sell, pledge, mortgage, or otherwise use the whole or any part of the lands now owned or coming to this company from and under the before-mentioned land grant from the state of Florida, and in any other manner and form than as heretofore authorized, either permanently or temporarily, he is hereby empowered, in his discretion, so to do; and the proper executive oflicers of the company are hereby empowered and instructed toexecllte and deliver any necessary and proper papers, and to do any and all proper and necessary things, under the direction of the president, to carry this proviSion into effect. The president is further authorized and empowered to make or to cause to be made any contract for the construction and eqUipment of the proposed line of road uf this company from its present terminus to Augusta. Georgia, or any part of it, together with all things usual, necessary. incident thereto. upon such terms and conditions as he deems best, ; and to therein con tract for the payment or sale of any or all said bonds. stock, and la,nds." It further appears, from the same record of proceedings, that the followingr'esolution was presented and unanimously adopted, to wit: "Resolved, that William Bailey, of St. Louis, Mo., be and hereby is electelJ a mem ber of this board. to fill one of the vacancies now existing, and also that said Bailey be and hereby is elected to be vice president of this company. to fill the existing vacancy." On the same day a resolution was passed, authorizing the president to appoint a general manager of the company, and to fix his salary. On Ma)'28, 1889, four days following, the president of the com pany; negotiated and executed a construction contract with one Frank M. Green, represented by his attorney in fact, William Bailey, for the construction of the road. By the terms of the contract, Green was to be paid for constructing the railroad to Augusta, in bonds and shares of the company, to wit, $16,000 first mortgage bonds, $7,000 second mortgage land-grant bonds, and $20,000 stock of the company, for each completed mile. William Bailey, the newly-elected vice president, not only appears as attorney for said Green in the said construction contract, but for the sum of one dollar, and other valuable considerations, he guarantied the performance of the contract on the part of Green. This construction contract was signed by the Augusta, Tallahassee & Gulf Railroad Company, by Henry A. Blake, president, John L. Rooney, secretary, with the seal of the company attached. After the making of the said contract, it appears the president, Blake, appointed Contractor Green assistant general manager of the company. About the middle of September following, the appellee, Joseph J. v.52F.no.l-o
66:
, J'JiIDERAL llEPORTER.
Kittelt'_omething ofa to his own evidence, became interest'edhib the affairs oftheei>mpany. According to the evidence, a.bQUt J;Xlentioned, he WIlS approached bya brQkerto loan mqney"alld ,w:asby him introduced to Bailey, vice presiat;ldafter\Vllrds"to. The result of. the negotiation was that,onJpe.t8th .:tItteJ loaned the ra.llroad company the sum o{; $2Q 1000, thereof three several promissory notesl' wherein the said.com.iJjanypromised to pay to Kittel, or his order,the.afdresaid sum of $2'0'000' from the date of the Joan at ,5l 'J,>8ree'nt. per artlmni ,bi!gold Min' of the Urtited States, at its tnellsw.n411rd#lue,in the IU,116l.1ntS·llndat the times specified , that is tQ for$lP,OP,O;: plloyable 6 months after date, with interest aforesaid from Septembl;lr 18,. 18$9; one note for $7,500, payable 7 tnOhthsaBd 10 days after date, 'With interest aforesaid from October 28,· for $7 .500jpayable 8 months and 10 days after dat'e. with interest aforesaid '(tom: 'November 27, 1889. To .seCUle the paYl,11 etit,df notes and the said sum of $25,.. 000, accrlf:e,.tnereOn, the railroad executed al;ld delivered to Kittel a mortgage of the 109,000 ofland heretofore referred .to. . Said contained various provisions, not necessary toreCllpitulate. . .' ',' This transaCtiori' was entered' irito'on the part of Kittel under the advice of counsel, after an examination of the books and records of the company in' to the poweNlDdauthority of Blake, president, to make the loan arid execute the mortgage. .The evidence shows that the, saidsumqf ,$25,QOO .to the contract"in four different checks drawn by Kittel, on: the Union Trust Company, to the mder of the taBroadcompany,':Blaker president, indorsing for $10,000, and M, W. Hayward, assistant treasurer, for $15,000, thereof. On the same day ·tbe Dotes were executed, anp as a part of the same trs,lYlllction, an agreemeJ;1:twas entered into between Frank M. GJ:eeu; of,l{ansas City., Mo.,reprelilen,ted by William Bailey, hisattoriprfact, Willil'lIU Bailey Henry A.: Blake, ofthe city of New Yprk,pl1rties of the J.olleph J. Kittel, of the city of New York, pllortyol :the,secQndpart,.8tQdJhe Augusta, Tallahassee & Gulf Railroad ,C()lillpll-ny,.partyof thetWrd,part. Thiscont,ract recited that. in ooosider31oion, of the by Kittel to the roilroad company, asap /.l.dditiQnaJ inducementto,and siInultaneously with. the malting of .the parties qf,the first part, claiming tQ>Qe the., only .perj;lQns wbol;iap" interest in or right to tht;l constructiOn!:lPlltract to, tmnsferred and set over t() the said, Kittel"party, of the, one tenth interest. in the structiQn the <:ompany and Green on the 28th.daY,:filf;}lay,1889'.. 1,'Qepa,r!tyof the third part, the railroad company,_ stipum:ted in said one tenth of each and every One of the: installments due and tp grow due to the said Frank M,. Green. or his assigns, by virtue <;If the. agreement for the constru,ction of railr:oad, until su,ch time or party of .the second. part
AUGUSTA', T. & G.R. CO.
61
said Kittel was to receive one tenth of the proceeds of the said contract, cost from the said one tenth was to be deducted one tenth of the construction. About the time of the making of the aforesaid mortgage and contract, it seems thatthe president, Blake, appointed Joseph J. Kittel land conimissioner, although there is no direct proof of the same in the record; and thereafter it appears that Kittel went to Europe, according to his testimony, on private business. During his absence, and on October 30th, at an informal meeting, in which the Clark directors participated, Kittel was chosen a director of the railroad company. On his return, December 14, 1889, he was served with a notice of such election as director. It does not appear that he was a stockholder in the company, and eligible as a director, that he accepted the appointment, or ever in any way acted as a director of the railroad company; and on February the 14, 1890, he tendered his resignation, in a communication, advice of counsel. as follows: "Robert Cumming, Esq., Sec1'etary and Treasurer, &C.-DEAR 8m: There being some doubt in my mind whether I am a director and' general land commissioner' in your railroad, in order to clear the matter, I bereby tender my resignation as director and 'general land commissioner,' in the Augusta, Tallahassee and Gulf RailrolUi Company, the same totake effect immediately. ' ,"Yours, etc.. J. J. KITTEL."
to 'such paymentjit being stipulated in the said ,contract that, while the
shll;!l, by written instrmrientto that effect, prescribed by him, consent
of
In December, 1889, during Mr. Kittel's absence in Europe, the mortgage granted to him by the railroad company was recorded in different counties in Florida in which the land lay, by the direction of Kittel's attorney, Judge Bischoff, on a report from Bailey that Blake, president, in connection with others, was depredating on the lands. On January 25, 1890, the said Kittel made another loan to the railroad company, of $4,450; on a promissory note payable 52 days from the date thereof, with interest at 5! per cent., and by writings made the same day the railroad company granted Kittel a further mortgage upon the 109,000 acres ofland aforesaid; and President Blake, Frank M. Green, and William Bailey, in consideration of the loan of $4,450, transferred to said Kittel an additional interest of one twentieth in the construction contract; the railroad company, by Blake, president, appearing in the contract, and guarantying and stipulating to hold one twentieth of the proceeds of the construction contract, less the one tenth cost of actual construction, to the account of said Kittel. The mortgage granted at this time appears to have been duly recorded in Florida, February 3, 1890. On March 18, 1890, the note due in six months by the contract of September 18, 1889, fell duej and under the stipulations of the mortgage the company had the right to renew the same. This appears to have been done by the payment of the interest due on the part of the company, and the execution of a new note in the sum of $10,000, pay able in six months from date; and on the same day the note for $4,450
68
FEDERAL REPORTER.
and was renewed, under the terms of the mortgage, for a period by the company paying the interest to that date, and execuWlg the proper writing. A,pril 28, 1890, the note for $7,500, secured by the first mortgage, falling due in 7 months and 10 days from date, fell due. and was renewed, and a new note given by the railroad company, Blake, president. And, again, on May 28, 1890, the note for $7 ,500, Recured bY,the first mortgage, due in 8 months and 10 days on the payment of interest and the exfrom qate, was likewise ecutionof a new note.,All the renewal notes secured by both first and se,cond mortgage were at maturity unpaid, ahd were duly protestedj the last one .· the 1st day of December, 1890. In March, 1890, on account of differences between Blake and Bailey, the said Frank M. Green threw up and,llbandoned the construction contract, and notified the company of .his inability to comply with and carry out the contractj and, about April 12th, Bailey resigned as a director, vice president, find general manager of the defendant company. And iu September following the proceedings appeared to have been had: "At a meeting of the board of directors September 11.1890, at the office of the cotn,pany, 10 Wall street, at 1 P. M., pursuant to adjournment.-present: H.4..:all1lte, R. B. Symington, Chas. M. Zeb, Jno. E. Jarvis, Wm. Sheriff, and HeuryGamble,-onmotion of R. B. Symington, seconded by Mr. Henry Gamble; Mr. Cbas. M. Zeh was duly and unanimously elected president of his resignation as assistant secrethis cQIl;lpany. M. W. tary, which. upon motiohtnade and' carried. was dUly accepted." Atameetingof the board of directors held at New York on November 17,1890, at which were present directors Zeh, Symington, CumGamble, and Sheriff, it was resolved thatming, records of this board, contai,ned pages 6.7. 8, alld64 ()f, the rel;ord books,l1e, 'and the same are, hereby dIsapproved, 'annuUea(and declared void and 01110 effect'." ,n :': ,t;!, ) ,;,,, '. of the thus rescinded include a part of the proceedings.(jf the poard of directors held on May 24, 1889, in which augiven to th,e president to mortgage the land grant, and to make a contract for the and equipment of the road. InJuly, 18,91, Kittel &led his bill for foreclosure of the aforesaid mortgage. In addition to pr,oper averments, setting forth the issuance of the mortgages and default, he averred that one notes an<l the granting of William Clark claimed to have a judgment at law,entered on default, against the said railroap company, in the sum of $432,228.42, which, it. was averred, said qark claimed as a lien on said property, covered by the mortgage prior thereto. The prayer of the bill was for an account as to the amount due upon the promissory notes givenJ:>y the railroad pany to the forec;lpsure of the mortgage given to secure the said notes, sale of the property described in the rnortgagej for,a decree' against William Clark, postponing his alleged lien to that of the mortgage, and an injunction restraining him from selling or attempting to saUany, of the lands mentioned and described in the mortgage, -in satisfaction of his judgment. The railroad company and William Clark
fell
AUGUSTA, T. & G. R. CO. fl. KITTEL.
69
appeared, and severally filed demurrers to the bill, for want of equity. and because, according to the bill, the title to the land in which the mortgage is sought to be adjudged is in the United States, and also because the title to the land upon which the mortgage lien is sought to be adjudged and enforced is in the strtte of Florida. These demurrers, after hearing, were overruled by the court, and thereupon Clark and the railroad company filed separate answers, substantially setting up the same facts, denying the indebtedness to complainant, admitting the company's ownership to the tract of land described in the mortgage, denying the recording of the mortgage, setting forth the construction contract between the railroad company and Frank M. Green,and averring that Green was a brother-in-law of Bailey; that. at the time of the execution of the contract. Bailey was a director and vice president and general manager of the company,-and, upon information and belief, charging that Blake, president, and Bailey, vice president, were secretly and jointly interested in the construction contract with Green, for a division of the inordinate profits of the same between themselves and such other persons as might thereafter become associated with them; that all' the negotiations resulting in said contract were conducted by the said Blake and Bailey; that the said Bailey was really the contractor, and was known to be such by the said Blake; that the agreement between Bailey, Blake,and Green for division of the profits of the construction contract was entirely unknown to the other directors and officers of the defendant company, and remained unknown to them until after a copy of the agreement 'made between the complainant, Kittel, Bailey, Blake, and Green was furnished to counsel, after the resignation of Blake, president, in November 1890; that there was a fraudulent and corrupt combination between Kittel, Bailey, Green, and Blake, to loan money to therailrmid for the use of the construction company, and at the same time to retain possession of the land grant; that in pursuance of such combination the notes and mortgages and agreements were executed; that part of the $25,000 advanced by Kittel under the contract was paid to Blake, and by him paid to Bailey and Green in carrying out their contract for constructing the defendant's railroad, and that some of the money was received by the said complainant, Kittel, and the said Bailey. on a claim for brokerage; that the resolutions alleged as having been passed at the meeting of stockholders, and approved by a meeting of the directors, authorizing the mortgage of the land grant, were never passed or approved by any meeting of the directors; that the person who signed the said mortgage and agreements as assistant secretary of the company, and attached the seal of the company thereto, was not the secretary of the company, and had no authority to act as the secretary; that the said notes and mortgage set forth in the bill of complaint were without the authority and knowledge of the directors, stockholders, or officers of the defendant company, except Blake, Kittel, Bailey, and Green, and are void and of no effect. The answers further allege that in March, 1890, the said Frank M. Green .abandoned the construction contract, and notified the company j
70
FEDERAL "REli'ORI.rER,
vol. 52. .',
of his inlhUity.r tD!bOmply wi·thand carry but the same, and ,about tpe 'same time Baileyiresigned'ail'ditector, and afterwards, in the month of Septembeillj: Blake resigned as director and president; and thereupon chosen president of the company,and that the company wasgreatly.damaged,and its credit ruined, by the actions and doings of thealleg$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
