#### Lyon vs. Ewings and others.

The decisions of this court in *Clark vs. Farrington,*11 Wis., 306, and other cases, as to the power of railroad companies to receive from a subscriber, in payment for stock, a promissory note secured by a mortgage on real estate, adhered to.

The Milwaukee & Mississippi Railroad Company, a corporation of this state, in 1851, executed its bond for the payment of $1,500, with interest at *ten*per cent., payable in New York city, and included in the bond an assignment of a note made in this state and of a mortgage securing the same, upon lan<J in this state; and delivered the bond, with the note and mortgage attached thereto, to its agent in this state, to be negotiated for money for its use. The agent negotiated the *62bond for a loan of §1,500 in Connecticut, and deposited the money in New York to the credit of the company. *MM,*1. That there is much reason to regard the contract of loan as governed by the usury laws of this state, in which case it is Valid under ch. 64, Laws of 1851. 2. That if the law of the place of performance is to govern, the contract is valid by the laws ofNewYork, which prohibit a corporation from interposing the defense of usury in any action.

Where a note is payable to order, delivery of it by the payee indorsed in blank, without recourse, transfers tbe title, and any subsequent holder is authorized to fill up the blank with his own name as indorsee.

One who takes a negotiable note as collateral security for a loan made at the time of the transfer, holds it with the same rights as to any equities between the maker and the payee, as if he had taken it by absolute purchase.

APPEAL from tbe Circuit Court for *Rock*County.

Tbe defendant *Orison Q.*Ewings, in 1851, executed to E. D. Holton, a mortgage of lands in tbis state, conditioned for tbe payment of a note of even date therewith, for $1,500, payable to said Holton or order, at Milwaukee in tbis state. As a part of tbe original transaction, and without any valuable consideration moving to him, Holton delivered tbe note, indorsed in blank “ without recourse,” and also assigned tbe mortgage, to tbe *Milwaukee & Mississippi Railroad Company,*which issued to *Ewings*therefor fifteen shares of its stock, of $100 each. Tbe company then attached tbe note and mortgage to its own bond for $1,500, payable to one Bean or bearer, in .ten years, at New York city, with interest at ten per cent, per annum, payable semi-annually at tbe same place on tbe presentment of interest coupons annexed to tbe bond ; and by a clause in tbe bond tbe company assigned to tbe bolder thereof, as collateral security, said note and mortgage, and authorized him, upon any default in tbe payment of principal or interest on said bond, to foreclose tbe mortgage, or take any other legal remedy on tbe note and mortgage against tbe mortgagor, or on the bond against tbe company. Tbe company placed tbe bond, note and mortgage in tbe bands of said Holton in tbis state, to be used by him, as its agent, in raising money; and Holton afterwards, in January, 1852, negotiated it to tbe plaintiff at Bridgeport, Connecticut, for an advance of 01,500, taking off tbe couppns which by *63tbeir terms fell due before tbe date of such negotiation. The plaintiff, at the time, knew that the consideration of the note and mortgage was stock of said railroad company. The amount thus advanced was deposited by Holton in bank in New York City to the credit of the company, and was subsequently drawn out on its orders. About the same time the company issued stock to more than five hundred different persons, and to an amount exceeding $870,000, payment for which was taken in notes and mortgages as in this case. The land described in the mortgage in suit lies more than four miles from the Milwaukee & Mississippi railroad, and no part of it was or is “ necessary for the construction, maintenance or repair of said road, or of the warehouses, machine shops or other fixtures connected therewith.” Certain facts are alleged in the answer in this case, and stipulated to be true by the parties, which were relied upon by the defendants to show a subsequent total or partial failure of consideration for the note; but it is not necessary to state them here. Default having been made in the payment of interest in 1858 and subsequently, this action was brought to foreclose the mortgage, and for a j udgment against *Ewings*and the *Railroad Company*for any deficiency.

The finding of the circuit court, beside the facts above stated, embodied the usury laws of New York and Connecticut in force in 1852. The court held that the company, under its charter, had no power to take the note and mortgage in payment for stock, and they were wholly void ; that the company was prohibited by its charter from taking a conveyance of land by either an absolute or a defeasible grant, and for that reason the mortgage was void from its inception, and the issue of stock therefor was also void; and also, that such note and mortgage, if valid, were held by the plaintiff merely as a pledge, and were subject in his hands to any defense which the maker had against the railroad company by reason of a total or partial *64failure of consideration, or otherwise. Judgment for tbe defendants, from which the plaintiff appealed.

*Simeon M*Small, for appellant.

*I. P.*Wallcer, for respondent:

1. The M. & M. R. R. Co. had not the power, by its charter, to take the note and mortgage in suit, in payment for its original capital stock, or as a means of combining or- creating its original capital stock; the note and mortgage being but one transaction in five hundred similar ones, constituting on the part of the company a practice and habit in the manner of combining and creating its capital stock. (1.) Where a power or franchise is created by a statute, which prescribes the mode of its exercise, it must be exercised in the mode pointed out by the act, and in no other mode. Ang. & A. on Corp., sec. *291;*6 Gill, 381; 3 Wend., 485 ; 7 id., 31; 2 Cow., 699; 5 Barb., 649 ; 19 Johns., 1; 1 McLean, 41; 1 Maulé *&*Sel., 593 ; 2 Pet., 527-540. (2.) The fifth section of the original charter of the company (approved February 11, 1847,) declares that the directors “ shall have power to declare the time and manner and proportions in which the stockholders shall pay the *money*due on their respective shares, and to forfeit to the use of the company the shares of every person failing to *'pay*any install ment so required, at a reasonable period, not less that thirty days, after the time by them appointed for the payment thereof: Provided, that no installment called in at any one time pba.ll exceed twenty dollars per share; and that no installment shall be called by the directors without at least sixty days notice thereof in the newspapers as hereinbefore mentioned.” The supplementary act, approved March 11,1848, after authorizing the company to extend its road to the Mississippi, and to increase its capital stock, declares (sec. 3) that “ all powers, regulations and restrictions, and all authority granted to, and liabilities of, said company, shall not in any manner be abridged, extended or altered by the increase of the capital stock and extension of the road as aforesaid, except such alteration, extension *65and increase as is authorized by the provisions of this act.” By these sections the company, in creating its capital stock, is restricted to payments in “ money,” and to twenty dollar installments at that, and is absolutely forbidden to deviate from its charter in that respect; and the attempt to do so was a nullity. 5 McLean, 197 ; 4 Denio, 480. 2. The second section of the original charter declares that the company ‘‘ shall be capable in law of purchasing, holding, selling, leasing and conveying estate, either real, personal or mixed, so far as the- same may be necessary for the purposes hereinafter mentioned, *and no farther."*The tenth section provides “that the said corporation shall not, in their corporate capacity, hold, purchase or deal in any lands within this territory other than the lands on which said road shall run, or which may be actually necessary for the construction or-maintenance thereof, and of the warehouses, machine shops and other fixtures connected therewith.” A provision of law so clear must be applied and enforced without judicial construction. 2 Wend., 277; 11 Pick., 490; 2 Pet., 662; 25 Wend., 177 ; 17 id., 804; Smith on Stat. Con., secs. 466, 478, 545, 548; Domat’s Civil Law, prel. B, p. 13, tit. 1, sec. 2, pi. 13 ; Vattel, b. 2, ch. 17, sec. 263 ; 6 Dane’s Abr., 600. The taking of mortgages upon land by the company for its stock is a direct fraud upon these prohibitory clauses, and an attempt to do circuitously what it is forbidden to do directly. The mortgages convey to it what “not only savors of the realty but partakes of it.” “A real interest arising out of the soil, though not the soil itself, is attempted to be taken by the mortgages; and this attempt, being in fraud of the prohibition, cannot be carried into effect.” 1 Powell on Mort., 106; 17 Vesey, 464; 10 id., 44; Ambl., 526, 704; 2 Hovenden on Fraud's, 308-312 ; 2 Bl. Com., 274, note 5 ; 5 McLean, 196-7; 4 Denio, 480. A mortgage taken by the company for the most meritorious debt would be void, and could not be foreclosed; and no judgment in favor of the company would constitute a lien upon land, or enable the company to *66execute it upon land, or acquire title to land under it by purchase. 7 Vin. Abr., PL 5; 1 Powell on Morfc, 107, note “A.” 3. The bond of the railroad company is void for usury. By the laws both of Connecticut and New York, the rate of interest is limited to *seven-per*cent.; and the instrument by'which a higher rate is reserved, and all deposits to secure a higher rate, are made void. The law of the place where the contract is to be performed, governs as to the validity of the contract Story’s Conflict of Laws, secs. 242, 242 a, 280, 291 — 2¡ 13 Pet., 65. It will make no difference that a security has been taken, by way of mortgage, upon land located in a state where the interest reserved is legal. Story, secs. 287, 288 a. If the bond was void for usury, the deposit to secure it was also void, and hence the plaintiff never acquired any interest in the note or mortgage. 4. Counsel argued that the consideration of the note had wholly failed, and that the defense on that ground was good against the plaintiff; that the latter held the note and mortgage as a mere pledge, and had only a special property in them, the general property remaining in the company; and that the utmost right of the plaintiff according to the most liberal rule of equity, was to be subrogated to the rights of the company, in which case the same equities could be set up against him as against the company. 1 Hoff. Oh. Rep., 166.

*By the Court,*

Cole, J.

The power of a railroad company to receive from a subscriber, in payment of its stock, a promissory note secured by a mortgage on real estate — instead of being paid therefor in cash — was distinctly affirmed in *Clark vs.*Farrington, 11 Wis., 306; *Blunt vs. Walker,*id., 334; and *Cornell vs. Hichens,*id., 353. Since those decisions were pronounced, many other cases have come before us involving the same question of power, and have been decided in the same way. These cases were all well argued, and were considered with all the care and attention we were able to bestow upon them consist-tently with a proper discharge of our other duties And as *67tbe result of our best judgment upon tbe matter, we were of tbe opinion that railroad corporations, under tbe provisions of tbe various charters that came before us, bad authority to take stock subscriptions in this manner, and that in so doing they were not acting *ultra vires.*Tbe argument on tbe part of the'' respondent in this case was confined almost exclusively to an examination of those decisions, particularly that in *Blunt vs.*Walker, tbe counsel contending that we bad entirely misapprehended tbe law upon this subject, and bad placed an erroneous construction upon tbe charter of tbe Milwaukee and Mississippi Railroad Company, under which the contracts in that case and this were made. But notwithstanding this point was argued at great length and with much ability, we confess our views heretofore expressed upon this question of power remain unchanged. We still think the Milwaukee and Mississippi Railroad Company, in exchanging its stock for a note and mortgage, with the evident design of selling those securities for the purpose of raising money with which to construct its road, did not exceed its corporate powers. Eor it seems to us that the power given the directors in those provisions of the charter referred to in *Blunt vs.*Walker, includes the right to employ the means requisite and fairly applicable to the attainment of the ends of such power, which are not precluded by restrictions or exceptions in the charter, or are not immoral nor contrary to public policy. And we can see no essential difference in the transaction, whether the stock subscriber should himself sell his note and mortgage to raise the money with which to pay for stock, or whether the company, on exchanging its stock for such securities, should itself convert .them into money and thus raise the means to build its road. But it is not proposed at this time to enter upon a discussion of the question whether the company acted outside its charter in receiving the note and mortgage in payment of its stock. Our views and reasoning upon this subject are fully disclosed in the opinions already rendered. Another argument would nec*68essarily go over the same ground covered in the previous decisions. It is believed that no objection was taken or authority cited to show a want of power on the part of the corporation to enter into these contracts, other than had already been raised or brought to the attention of the court in the argument of other causes. The question of power, therefore, will be permitted to rest upon the grounds upon which it has been placed; aud we will proceed to notice some, other questions raised upon the record and necessary to be considered. First, it is objected that the bond of the railroad company, for the payment of which the note and mortgage were transferred as collateral security, was void for usury. The material facts relating to this transaction were the following: The railroad company, in May, 1851, made and executed its bond containing an assignment of the note and mortgage, and, having attached together the note, mortgage and bond, delivered them so attached to its agent in this state, to be negotiated for money for its use. In January, 1852, the agent, at Bridgeport in the state of Connecticut, transferred the bond with the note and mortgage thus attached, to the appellant,- in consideration of a loan of fifteen hundred dollars made by him to the company at the time of such delivery, the coupons for interest to January 1, 1852, having been cut off and retained by the company. No contract had been made for this loan to the company previous to the time of said delivery to the appellant. The amount of the loan was received by the agent and deposited by him to the credit of the company in a bank in the city of New York, whence it was afterwards drawn out upon the order of the company. The bond draws interest at the rate of ten per cent., and the principal and interest, by the terms of the bond, were payable in New York.

If the contract is considered with reference to the laws of this state, then clearly it is valid, because the railroad company was expressly authorized to borrow money of any person or corporation at any rate of interest which might be agreed *69upon, any law upon the subject of usury of this state, or any other state where the loan might be effected, to the contrary notwithstanding. Chap. 64, Laws of 1851. This provision of law fully empowered the company to contract for any rate of interest which it might see fit to pay. If therefore the transaction is considered with reference to our laws, it was not prohibited by any law of usury. And that there is much reason for saying that the contract is a domestic one, and to be governed by the laws of this state, we think is manifest from the following considerations. The bond was made by the company in this state, and placed in the hands of its agent to be negotiated wherever it could be done for the best interests and advantage of the corporation. The company was organized to construct a railroad in .this state, and the money borrowed was to be used exclusively for the accomplishment of this object. The bond was secured by a note and mortgage given and payable in this state. And it is a more probable and reasonable inference that the company executed the bond wholly with reference to the laws of this state, than to say that it did so with the intention of evading the laws of some other state, upon the subject of usury.

But suppose we are mistaken in this, and that the contract must be construed with reference to the laws of New York, where the principal and interest were payable. By the law of that state a corporation was prohibited from interposing tho defense of usury in any action *(Curtis v. Leavitt,*15 N. Y., 9; *Butterworth v.*O'Brien, 23 id., 275); and it has been held that the act applied to a foreign corporation litigating in the courts of that state. *Southern Life Ins. & Trust Co. v. Packer,*17 id., 51. If therefore the place of performance is to” govern, then indubitably the railroad bond is a legal and valid obligation. And if the courts of New York would enforce this contract, for a much stronger reason should the courts of this state do so, in view of the provisions of the charter which permit the company to agree for the payment of any rate of interest *70on loans contracted for tbe purpose of constructing its road.

On tbe trial, tbe respondent *Ewings*attempted to defeat a recovery in whole or in part by showing a failure of consideration, or that be bad been injured by some action of the board of directors in reference to tbe transfer of bis stock upon tbe books of tbe company. And tbe admissibility of this defense depends entirely upon tbe question whether tbe appellant bolds these securities free and discharged from all equities existing between *Ewings*and tbe railroad company. We think it very clear that be does. It is not pretended that tbe appellant, at tbe time of tbe transfer, bad notice of any of these matters set up in tbe defense. And tbe fact that be took tbe note and mortgage as collateral security for money actually loaned at tbe time of such transfer upon tbe bond of tbe company, does not, within all tbe authorities, render him less entitled to tbe protection of tbe statute. Nor was there anything in tbe manner in which the note was transferred calculated to affect him with notice or put him upon inquiry. The note and mortgage were in terms made payable to tbe order of Edward D. Holtonf' who indorsed tbe note in blank without recourse. Such an indorsement we suppose transfers tbe title to and property in the note to any subsequent bolder. Therefore it is not neceesary to rely even upon tbe rule laid down in *Crosby v. Raub,*and *Kimball v.*Porter, recently decided by this court. 16Wis.,616. For here, although the payee transferred tbe note without rendering himself liable thereon, yet bis indorsement was valid according to tbe law merchant, and authorized any bolder to fill it up with his own name.

We therefore think the judgment of tbe circuit court should be reversed, and tbe cause remanded with directions to render judgment in favor of tbe appellant according to tbe prayer of the complaint.