
    Bundy v. Iron Co.
    A stockholder in a manufacturing corporation indorsed notes of the company in consideration that the payment of the notes should he secured and the indorser protected by mortgage on the property of the company. Through mistake the mortgage was made by the stockholders in their own names instead of in the name of the corporation. A subsequent mortgage was made in the name of the corporation to its creditors, and recorded, which, by its terms, was subject to the first. Held:
    
    1. That the mortgage by the stockholders was a good, equitable mortgage against the corporation, which, independently of our statute, could be enforced against subsequent judgment creditors.
    2. That the second mortgage operated to give priority to the first both as against parties claiming under the second mortgage and those claiming liens under judgments subsequently rendered.
    3. An express acceptance of the second mortgage by the mortgagees is not required. The acceptance may he implied from circumstances. Nor is it necessary that all the mortgagees should accept the mortgage ; part may accept though others refuse to do so.
    Error to District Court of Jackson county.
    The defendant in error, tlie Ophir Iron Company, was a manufacturing corporation, incorporated under the laws of Ohio, and consisted of tens stockholders including H. S. Bundy, the plaintiff in error. December 3, 1874, the company being in embarrassed circumstances, applied to Bundy for assistance, and thereupon, at the request of, and for the sole benefit of said company, Bundy endorsed the two certain promissory notes of the company of $5,000 each, one of them dated December 5, 1874, and the other dated January 1, 1875; and both payable to the order of Bundy in four months after their respective dates. To secure the said Bundy against said indorsements, and to save him harmless on account thereof, the company undertook to execute to Bundy a mortgage upon its real estate, which, excepting the description, is as follows :
    “Know all men by these presents, that Robert Hoop, George Hoop, "William T. Washam, Rufus Hunseger, Harrison IT. Gilliland, James Harper, D. Wayland Evans, Samuel Baker and John Garrett, the grantors in this instrument, and who, together with IT. S. Bundy are the sole members and stockholders in the Ophir Iron Company, a corporation duly organized. under the laws of the state of Ohio, having its principal place of doing business in Jackson county, in the state aforesaid, in consideration of ten thousand dollars paid by said H. S. Bundy to said Ophir Iron Company, the receipt whereof is hereby acknowledged, do hereby grant, bargain, sell, and convey to the said H. S. Bundy, his heirs and assigns forever, all the right, title, interest and estate, legal and equitable, of the aforesaid grantors in and to the following lands and tenements of the said Ophir Iron Company, situate in the county of Jackson,” &'c.....“to the only proper use of the said H. S. Bundy, his heirs and assigns forever. Provided, nevertheless, that whereas the said Ophir Iron Company has execubed to the said H. S. Bundy, and payable to his order at the First National Bank, of Jackson, Ohio, its two certain promissory notes of $5,000 each, one dated December 5, 1874, the other dated January 1, 1875, and both due, respectively, four months after the respective dates thereof, and which said notes the said H. S. Bundy has indorsed, and thereby has become the security of the said Ophir Iron Company for the payment of the said notes. Now, if the said Ophir Iron Company shall pay said promissory notes so indorsed by the said H. S. Bundy, as well as any and all renewals thereof, either in whole or in part, together with all interest and discount of the same, and hold and keep the said H. S. Bundy harmless, by reason of any liability he may have incurred or may incur by having indorsed said notes, ór by indorsing any renewals thereof and thereby becoming the security of the said Ophir Iron Company or otherwise, then these presents shall be void ; otherwise, to be and remain in full force and virtue in law. In witness whereof, the said grantors have, hereunto set their hands and seals, this 3d day of December, in the year of our Lord 1874.”
    It is signed with the individual names and sealed with the individual seals of the nine persons named as grantors in the granting clause, by whom, as grantors, it is also acknowledged as their voluntary act and deed.
    This mortgage was, on December 5, 1874, delivered to the recorder of Jackson county, and by him on the same day duly recorded.
    The record shows that one of the by-laws of the Ophir Iron Company requires a l’ecord to be kept by the secretary, of every business transaction, and that there is no record of any resolution or other action of the stockholders or directors, authorizing the execution of a mortgage to H. S. Bundy.
    The said notes were, after the execution and delivery of the mortgage, discounted by the company, and the proceeds, in gdod faith, used for the benefit of the company. April 17, 1875, after the first note was due, and had been taken up by Bundy, and before any judgments were rendered, the company being pressed by their creditors, some of whom had suits then pending, on which judgments were afterwards rendered, and in order to secure equality among their unsecured creditors, executed a second mortgage upon the same premises as those described in the mortgage to Bundy, in due form, and duly executed by the corporation through its president, to the other defendants in error, who are now claiming as judgment creditors, and some eighty others, (not including Bundy), “and such other creditors of Ophir Iron Company as may not be included' in the (list of grantees named) above.”
    This mortgage expressly recites that it is made “ subject, however, to a mortgage in favor of Hezekiah S. Bundy for the sum of $10,000, of record in said county of Jackson in the record of mortgages,” and was filed for record April 19, 1875, and recorded April 22, 1875.
    At the May Term, 1875, of the Jackson county common pleas court, Lewis Wald & Co., and other creditors of the corporation obtained judgments against'it, which took effect as liens upon the land described in the mortgages from May 24, 1875.
    The company having failed to pay the notes indorsed by Bundy, and he having paid them, and the company refusing to repay him, on August 13, 1875, Bundy commenced his action in the common pleas court of Jackson county to foreclose his mortgage, making Lewis Wald & Co., and other creditors of the company parties, who filed answers and cross petitions setting up their respective claims. At the May Term, .1876, of that court, the court found that the lien of Bundy under his mortgage was prior to the liens of all the defendants therein, except the lien of Charles Walden and Peter Pickrel & Co., and that the proceeds of the sale (the property having been, by the consent of all parties, sold during the pendency of the suit), being insufficient to satisfy the costs of suit and these three liens, it was unnecessary to determine the priorities of the other defendants.
    On appeal to the district court that court found that the mortgage of Bundy was invalid as against the subsequent creditors of the company.
    This proceeding is prosecuted by Bundy to reverse the judgment of the district court.
    
      The further facts necessary to an understanding of the case will be found in the opinion.
    
      W. W. Johnson, with whom were John T. Moore, Porter Du HaJway and J. £. Foraker, for plaintiff in error :
    I. This was a suit in equity, and in equity at least, if not in law, the mortgage to Bundy is a valid lien, prior to that of all subsequent judgment creditors, with or without actual notice. It is admitted in the pleadings and appears in the proofs, that the contract to give this mortgage, was a corporate contract ; that all the stockholders agreed to it; that it was made in good faith, to relieve the company from embarrassment and enable it to prosecute its business; that the money realized was received by the company and went to its benefit, and that the corporation undertook to fulfill it; but it now appears that, technically, the corporate name was not used in the granting clause of the mortgage. The stockholders were unanimous in their assent to this contract, and in their endeavor to perform this contract, and as such stockholders and for the corporation, they individually made this mortgage. It will not be doubted that if this were an action by Bundy against the corporation alone, to enforce this mortgage, equity would grant the relief he asks. These judgment creditors, by their judgments and levies, acquired no greater interest as against Bundy’s mortgage than the corporation had. His mortgage had become absolute before the judgments were rendered, and these judgments only attached to the equity of redemption, and not to the fee.
    II. In this state there is no general statute prescribing the form and mode in which a corporation shall execute a deed or mortgage. The act relating to the execution of deeds does not in terms apply to corporations. Shehan v. Davis, 17 Ohio St. 580.
    III. In a manufacturing corporation, under 'the statutes of Ohio, the fundamental law vests the powers conferred by the charter 'in the stockholders. The directors and other officers are always subject to their control, and are but the agents of the stockholders, who are principals. We ask special attention to this distinction between the powers of stockholders under our statute, and their powers when the charter, as is generally the case, vests the powers conferred in boards of directors or other officers. An examination of the cases shows that the respective powers of directors and other officers and of stockholders depends upon the fundamental law of the corporation. If the management of affairs are by this fundamental law committed to a board of directors, or trustees, they alone have the power to manage its concerns and may exercise their discretion without being subject to the control of the stockholders, except for a breach of trust. But in manufacturing corporations in Ohio the fundamental law only vests the general management of the corporate business in the directors, and this, subject always to the control of the stockholders. Here the power of the directors to manage the corporate bsuiness are general, but not sole or exclusive, but always subject to the control of stockholders. They are the controlling authority, and may make all lawful contracts, and bind the corporation in defiance' of the directors. So far as I know, the attention of the courts and the bar has not been called to this important feature of the law, as to these manufacturing corporations. It is so important, and of such direct bearing upon the point under discussion, that I beg to extend the argument. The statute (1 S. & C. 301-303) provides the steps to be taken by persons to become a body corporate. When these steps are taken it is provided that these persons and their associates and assigns shall be a body corporate, and they and their successors and assigns shall have and exercise the corporate powers conferred by the statutes. Here the corporate powers are directly vested, not in a board, but in the corporators and stockholders. The next section (1 S. & C., 301) provides for the organization of the company and for a board of directors, and defines their powers. “ The directors shall have the general management of the affairs of the company, .... subject always to the control of the stockholders.” It is provided that these directors shall be elected at an annual meeting, held for that purpose, “ and for the transaction of such other lawful business, as the stockholders may deem necessaiy and proper.” Looking, then, “ to the law of the creation of the company,” to learn “ on whom the governing or controlling power has been conferred,” to quote from Judge Gholson, we find that the general management is vested in the directors, president, superintendents, &c., but that the corporate power is primarily in the stockholders, and that this management by the officers is governed and controled by the stockholders. They are the principals, representing the corporate entity; the directors are their agents, to carry on the corporate business. Among the corporate powers, is one to make contracts. That the company could, under the circumstances, borrow money and give this mortgage, will be conceded. Hayes v. Gallion Gas L. Co., 29 Ohio St. 330. That the corporation was bound by its notes and contract with Bundy cannot well be disputed, and the discussion is narrowed down to this: was the giving of this mortgage by the stockholders on the company property, to secure a company debt, incurred for its benefit and the money used in paying its. debts and running up stock, binding in equity on the corporation ? It was the unanimous act of all the stockholders, within the scope of corporate authority, and for the benefit of the company. These stockholders undertook to bind, not themselves, but the corporation. They covenanted that the company should pay these notes, and save Bundy harmless, and if it did not do so, they further covenanted that this mortgage should become absolute against the corporation. It is a well known rule of construction, in cases of contract made by an agent, that it will be so construed as to give it effect, either upon the principal or agent. Abbey v. Chase, 6 Cush. 54; Ellis v. Pulsifer, 4 Allen, 165; Field on Corporations, § .211. It is a corollary from this rule, that when the principal has received the benefit of the contract he will be liable on it. We claim, therefore, that this mortgage was the act of the corporation, by the stockholders, and that in equity it is a valid lien on its property, paramount to subsequent judgment liens — and this, independent of any subsequent ratification. But should the court think that, technically, the legal title of the land was not conveyed but remained in the corporation, we then claim:
    
      IY. That the corporation, subsequently and prior to any judgments, ratified and confirmed this mortgage, and thereby made it a corporate obligation as fully as if originally made in its name, 1st. By receiving and using the money thus obtained ; 2d. By express words in its second mortgage, duly and formally executed in the corporate name.
    1. By receiving and using the money raised on this mortgage. Mayor v. Bay, 19 Wall. 468; Angel and Ames on Corp. § 304, and cases cited; Field on Corporations, §§ 207-208 and cases cited; Allegheny v. McGlurhcm, 14 Fa. St. 81; Olcott v. Tioga B. B. Go., 28 N. Y. 546.
    2. It was expressly ratified by the corporation in the second mortgage : This instrument was duly made and acknowledged by the corporation. It was made for a lawful purpose, and was a commendable act; i. e., to secure equality. It conveys to all its creditors this same property, “subject, however,” to Bundy’s mortgage. This corporate act is a solemn recognition and ratification of the previous mortgage.
    Y. We deny that this second mortgage was never accepted. We deny that any express acceptance was necessary; and we claim that its legal effect was not only to ratify the first, but to convoy this estate for the equal benefit of all creditors, and that no creditor or part of the creditors could disregard or ignore it and thus obtain a preference.
    1. If any express acceptance was necessary, it was so accepted by at least three of the creditors, Stroud, Anthony and the Webster Fire Brick Company. Their sworn answers were filed, setting up this mortgage and claiming under it. The fair presumption is, that all the creditors who have not by word or act dissented have assented.
    2. We deny that any formal acceptance was necessary, and claim that this mortgage, being for the equal benefit of the company, then much embarrassed and in fact insolvent, took effect from delivery to the recorder for record, and its acceptance will be presumed in the absence of proof to the contrary. The second mortgage is subject to the first, and the judgments are subject to the second. Coe v. Railroad Co., 10 Ohio St. 374; Bercaw v. Cockerell, 20 Ohio St. 166.
    
      
      Wilby (&■ Wald, and C. A. Atkinson, for Louis Wald & Co.:
    I. The mortgage to Bundy is in no sense the act of the corporation, but as to it is absolutely void. It does not purport to be the deed of the corporation. It is the deed of nine persons conveying their rights, &c. The corporation is not named as grantor. 2 Savigny, System des heutigen Roemischen Rechts, 347; Ward v. Ins Co., 7 Paige, 294; Harris v. Mfg. Co., 4 Blackf. 267; Cabot Bank v. Morton 4 Gray, 156, 159; Gashwiller v. Willis, 33 Cal. 1, 19; Gorham v. Gilson, 28 Cal. 479; Wheelock v. Moulton, 15 Vt. 519. As already remarked, what the mortgage to Mr. Bundy grants and conveys, is not the title of the corporation to the property, but is in terms expressly the title of the nine individual stockholders thereto. They had absolutely no title, properly speaking, to the land. What they owned was personal property, shares of stock in the corporation, not realty. The limit of their -right was, upon the dissolution of the corporation, and after the payment of the debts of the corporation, and not before, to have the proceeds of the corporation’s property, in the proportion that their shares of stock bore respectively to the entire stock, paid to them. This was the utmost which they could by the deed convey to Mr. Bundy. They profess only to convey their right title and interest; nemo plus juris quam habet dare potest.
    II. But apart from any principle peculiar to the Jaw of corporations, there is another reason why this mortgage cannot be foreclosed against the corporation. This mortgage is under seal; it is not executed by the corporation ; the corporation is nowhere mentioned as a party to it. It is a general rule of both law and equity, applicable to corporations and natural pei’sons alike, that those persons only can sue or be sued on an instrument under seal who are parties to it. The cases to this effect are so numerous that there is embarrassment in choosing which to refer to. A recent case strongly in point, decided by the court of appeal in chancery is In re International Contract Co., Pickering's Claim, L. R., 6 Ch. App. 525. And see Lessce of Anderson v. Brown, 9 Ohio, 151; Hatch v. Barr, 1 Ohio 390.
    Of the very many cases in the reports which hold that no one can be sued on an instrument under seal, who has not executed it as a party, we cite: Beckam v. Drake, 9 M. ife W. 95, per Parke, B.; Lord Southampton v. Brown, 6 B. & O. 718; Huntington v. LLnox, 7 Cush. 371, 374, per Shaw, O. J.; Lessee of Clarke v. Courtney, 5 Pet. 319, 350; Elwell v. Shaw, 16 Mass. 42; Brimley v. Mann, 2 Cush. 337; Stinchfield v. Little, 1 Greenl. 231; Zóller v. Afe, 1 Neb. 439; v. McElroy, 1 Sneed, 341; LLall v. Cockrell, 28 Ala. 507; City of Providence v. Miller, 11 R. I. 272; Furni/ual v. Coonibes, 5 M. & Or. 736.
    III. It is claimed, however, that the corporation ratified the act of the nine stockholders so as to make the mortgage signed by them its own. To this we reply that no ratification could make that instrument the deed of the corporation. Story on Agency, § 251, a; Wilson v. Tumman, 6 M. & Gr. 236; Vere v. Ashbey, 10 B. C. 288, 298; Collins v. Swan, 7 Robertson (N. Y.) 623, 633; Sanderson v. Griffith, 5 B. & C. 909; Roby v. Cossitt, 78 Ill. 638. Ratification simply supplies the want of previous authority. If authority existed previously, ratification is superfluous. If a man acts expressly on his own behalf, and not in the name of another, there can be no authority to act on behalf of that other to be supplied by ratification. Here the stockholders do not profess to act on behalf of the' corporation; they expressly and solemnly under their seals convey not the corporation’s but their own right, title and interest in and to the land. Here is no want of previous authority to be supplied by ratification; if the conveyance of their right and title were a thousand times confirmed and ratified, it would still be the conveyance of their, and no one’s else right and title. If I without authority from B., quit-claim his interest in Blackacre to C., B. can by ratification make my act his own; but if I quit-claim to C. my own interest in Blackacre, it is clear that here is nothing upon which a ratification by B. can operate.
    IY. The alleged ratification moreover consists in the fact that on April 17, 1875, the corporation executed, and on April 22 caused to be recorded a mortgage of the property-embraced in the former mortgage, and containing the clause, “Subject, ho-wever, to a mortgage in favor of Hezckiah S. Bundy, for the sum of $10,000, of record in the said county of Jackson.” It does not say a mortgage “executed by the stockholders of this company.” Moreover, there is not any evidence in the record to show that the mortgage here referred to is the same one which is now sued upon; there is nothing to show what mortgage is meant. Non constat, but that there was a prior mortgage by the company which has been paid. But further, this so-called second mortgage was not assented to by any of the mortgagees. True, three of them did assent thereto, after we had obtained liens on the land by taking judgment, but such assent cannot relate back to our injury. The doctrine of relation is a fiction, applicable only when demanded by considerations of justice, and not admitted when it will defeat the intervening rights of third persons. Cook v. Tullis, 18 Wall. 332. The mortgage to Mr. Bundy herein sued on is void as to us as not complying with the requirements of section J106 and section 4133 of the Revised Statutes. Under the former a mortgage of lands is required to be signed and sealed by the grantor or maker, and such signing and sealing must be acknowledged by the grantor or maker, in the presence of two witnesses, who shall attest the signing and sealing, and subscribe their names to the attestation, and such signing and sealing must be acknowledged by the grantor or maker, before the proper officer; and under the latter it is of no effect until delivered to the recorder of the proper county for record. “A series of authoritative decisions have been made in this State, holding that such mortgages only as were signed, sealed, witnessed and acknowledged, in accordance with the first section of the act first above referred to, were entitled to be recorded; and that none but mortgages so executed and so delivered for record or recorded could have any effect whatsoever, either at law or in equity, as to third parties, whether such third parties had notice of the defectively executed mortgages or not.” Strang v. Beach, 11 Ohio St. 283, 288; White v. Denman, 1 Ohio St. 110; Erwin v. Shuey, 8 Ohio St. 510; Fosdick v. Barr, 3 Ohio St. 471. The mortgage sued on was never signed, sealed or acknowledged by the corporation as grantor. The so-called second mortgage never took effect as a mortgage at all, and was not entitled to record, because there was but one party to it, the corporation; the purported mortgagees never accepted but on the contrary dissented from it. But even were it entitled to record, the statement in it that it was subject to a prior mortgage for §10,000 to TIezekiak S. Bundy of record in the county, could not operate as a signing, sealing and acknowledgment by the corporation as grantor, and a recording of such prior mortgage.
   "White, J.

The controversy in this case is between Bundy, claiming as first mortgagee, subsequent judgment creditors, and creditors claiming under the second mortgage.

Two questions arise for consideration: (1) Whether the execution and record of the mortgage of December 5,1874, to Bundy give him priority ? and, (2) If not, does the recognition of the first mortgage in the second, of April 17, 1875, have that effect?

As to the first question: The consideration upon which Bundy indorsed the notes as surety of the corporation, was that the latter should give him a mortgage upon its property, conditioned that it would pay the notes at maturity, and save him harmless on account of his indorsements. The execution by the stockholders of the first mortgage was the attempted fulfillment of the agreement on the part of the corporation.

The Opliir Iron Company was incorporated under the act of April 12,1858, providing for the creation and regulation of manufacturing companies. S. & C. 301, 304. Under that act the directors of the company are required to be stockholders ; and while it is declared “ the directors shall have the general management of the affairs of the company,” yet they are made “subject alwmys to the control of the stockholders” in reference to such management.

The mortgage to Bundy now in question, not being made in the name of the corporation, cannot, as against it, be regarded as a legal mortgage; but it is a good, equitable mortgage against the corporation. And if such direction were necessary, it might be considered as equivalent to a direction by the stockholders to the proper officers to make a mortgage in the name of the corporation to Bundy. But such direction was not necessary from the stockholders. The directors, under the agreement by which they obtained Bundy’s indorsements of the notes of the corporation, were bound to secure him by the mortgage of the corporation. This they failed to do, by sheer mistake, in the form of executing the mortgage, which it was competent for a court of equity to correct; and which it was their duty to correct without the action of the court. Clayton v. Freet, 10 Ohio St. 544.

If it were not for our statute on the subject of mortgages, this equitable mortgage would prevail over all lien-holders and other claimants, except bona fide purchasers, for value. But it has been held, in a long series of decisions, that a mortgage has no effect, under the statute, either in law or equity, as against subsequently acquired liens, until its execution according to the statute, and its delivery to the recorder of the proper county for record. Strang v. Beach, 11 Ohio St. 283; Bercaw v. Cockerill, 20 Id. 163.

But such execution and delivery for record are not required as between the original parties or their heirs. Bloom v. Noggle, 4 Ohio St. 45; Sidle v. Maxwell, Id. 236.

The second question is: Does the recognition of the first mortgage in the second have the effect to give it priority ?

We think this question must be answered in the affirmative. The second mortgage was executed in due form by the corporation, and was made expressly subject to the mortgage to Bundy. Hence, all subsequently acquired liens that are subject to the second mortgage are necessarily also subject to the first. Coe v. Railroad Co., 10 Ohio St. 374; Bercaw v. Cockerill, 20 Id. 166.

It is, however, claimed on behalf of some of the judgment creditors that the second mortgage was not accepted by the mortgagees. In. the first place it may be said that no express acceptance is necessary. The assent of the mortgagees may be implied. Less than a fourth of the mortgagees filed answers in the case, and three of these, as already remarked, claim under the mortgage. The remainder of the answering defendants make no reference to the second mortgage; but set up their judgment liens, and claim that such liens are paramount to the first mortgage, thus ignoring the existence of the second. It is not necessary to the validity of the second mortgage that all the mortgagees should accept under it or assent to it. It is made to. the creditors severally to secure their respective claims; and those who accept it are entitled to its benefits without regard to those who decline to take under it. The refusal of some to accept cannot defeat the rights of those who do accept; and, if it takes effect as to any of the mortgagees, it inures to their benefit and to the benefit of the first mortgage.

From the testimony in the bill of exceptions, it appears that the plaintiff, Bundy, saw a number of the creditors and told them that he had a mortgage of record securing him the ten thousand dollars above referred to, and that unless an extension could be obtained with the consent of all the creditors, the company would execute a mortgage,- subject to his, upon all its lands, in behalf of all its creditors, so that they would all stand alike. That several of the creditors with whom he conversed said that would be the right way to do; that none of the creditors objected to having the second mortgage issued as above stated; that none consented, and none knew of its execution. The effect of this evidence, as we understand it, is that none knew of the execution of the mortgage at the time it was made, or expressly consented to its execution otherwise than by stating that it would be the proper thing to do in case the extension was not obtained. In another part of his testimony, as reported, he is said to have stated that “none of the creditors ever recognized or claimed under the mortgage.” This language is ambiguous, and is certainly inaccurate in one respect, for at the time of the trial several of the creditors had filed answers in which they recognized and claimed under the second mortgage. The probability is that the witness means no more than this, that none of the creditors with whom he conversed after the execution of the mortgage declared their recognition of it, or that they claimed under it. At any rate, from a consideration of the whole evidence, we think that the assent of a large part of the creditors must be presumed, upon the principles laid down in Mitchell v. Ryan, 3 Ohio St. 377.

Whether Bundy does not stand in such relation to the second mortgage, as to entitle him to insist upon it, both as against the corporation and -the subsequent judgment creditors, without reference to its acceptance, may admit of question. But it is a question that need not now be considered. Upon the case as made in the record; the court erred in denying to Bundy the priority to which he was entitled. The judgment must therefore be reversed; and the cause is remanded for further proceedings.

Judgment accordingly.

Johnson, J., being formerly of counsel did not sit in the case.  