Ford v. Russell

The bill states that Samuel Cole, by his will, gave to. his exe*48cutors — of whom the defendant, Thomas J. Cole, was one — power to raise money upon the credit of his estate, by making notes and discounting them through banks, and to execute liens on his estate to those who might be procured as indorsers on said notes; that the defendant, Thomas J. Cole, is the only executor who qualified, and that, acting as executor with reference to the power given under the will, he drew various bills of exchange upon the complainants, as commission merchants, which they allege were accepted, discounted and paid by them; that, for the purpose of securing them, he gave a deed of trust upon the real and personal property of his testator; that Samuel Cole, in his lifetime, had executed a mortgage on the same property to H. W. Runnells and A. Russell, who were his sureties upon a large debt due the state; that this mortgage gave to Runnells and Russell the power of selling the mortgaged property; that Runnells is dead, and that Russell, as surviving mortgagee, had advertised to sell under the power of sale for ready money.

The bill charges that Russell cannot legally sell the property, and that the proposed sale would be ruinous to the interests of the complainants, and prays for an injunction against the sale by Russell, and that the property may be sold by order of this court, and the proceeds marshalled between the mortgage to Russell and the deed of trust to the complainants.

To this bill there is a demurrer, and several questions are raised, which dispose themselves into the following inquiries:

First. Can the defendant, Russell, sell under the power of sale in the mortgage made to him, without the aid of a court of chancery?

Second. Supposing the power to be given in the will of Samuel Cole in the form contended for by the complainants, could it be executed by Thomas Cole without the joinder of his co-executors, they being alive and not having refused?

Third. Does the power given by the will of Samuel Cole to his executors, to raise money upon the credit of his estate through banks, authorise them to raise it through private individuals?

The first position presented, questions the right of a mortgagee to sell under a power of sale to himself in the mortgage. The complainants assume that he cannot, and in this opinion I fully *49concur both upon principle and authority. A mortgagee with power of sale, is placed in a situation where his duties are in open conflict with his interest, and where the temptation to act unfairly and oppressively is too powerful to be tolerated. He is the trustee of the equity of redemption, with absolute power to dispose of it without reference to the will or interest of the mortgagor, (his cestui que trust.) To permit him to exercise such a power, would be to allow him to state his own account, to determine absolutely upon the amount due him, pronounce a decree of sale in his own favor, and act as his own commissioner in the execution of it. He is made the judge in his own case, and under circumstances, too, not very .favorable to an impartial decision. In a case of this kind before Lord Eldon, referred to in Powell on Mortgages, editor’s notes p. 9, his Lordship says:

“How can it be right that such a clause should be introduced into a deed under which the party is a trustee for himself? It must be recollected that-this is a clause not to be acted upon by a middle person, who is to do his duty between the mortgagor and the cestui que trust, but the mortgagee is himself made the trustee to do all those acts.”

In Clay v. Willis, 1 Barn. and Cres. 364, it was held that a deed of conveyance, with power of sale, for the security of money loaned, but having no proviso for redemption, was a mortgage with the right of equity of redemption. The same doctrine was held in the case of Wright v. Rose, 2 Sim. & Stu. 323. In 1 Randolph 306, the supreme court of Virginia fully sustained the grounds taken by the complainant.

The next inquiry is, Was there a proper execution of the power under the will of Samuel Cole? The language of the will by which the power is conferred is in these words:

“Now in case my executor's- shall jointly, at any time, deem it necessary, for the promotion of the interest of the estate, to borrow money out of any bank or banks, in such case I hereby will and bequeath the power to the said executors to execute a note or notes in their character of executors, payable in bank, which note or notes shall be binding upon my estate; and in case it shall become necessary, with a view to procure indorsers upon such notes, I further will that my executors may give liens in writing *50to such indorsers, upon a sufficient portion of my estate to indemnify them.”

Was the drawing of a bill of exchange, and discounting it with the complainants as commission merchants, and giving them a deed of trust upon the property of the testator, such a compliance with this power as can be sustained in equity? What constitutes a proper execution of a power, is said to depend on the substantial intention of the parties, as derived from the grant of power itself; and in furtherance of that intention, courts will usually place a liberal and equitable construction upon the instrument creating the power. See 4 Kent 318, and authorities there cited. But where a special mode of executing the power is pointed out and defined, there can be no room for construction; that mode must be strictly complied with, and especially if it is of the substance of the execution of the power. 1 Story’s Equity, 187; 4 Kent’s Com. 329. The particular mode indicated cannot be superseded by substituting what may be deemed its equivalent; and the reason of the rule seems to rest upon the undoubted right of the person who creates a power to define the mode of its execution, and to place upon it such checks and restrictions as he may choose. Sugden on Powers, 205-6, 220-9; 17 Vesey, 454; 3 East, 410. Thus, a power of appointment by will cannot be executed by deed, because it is said the intention of the power was that the donor should retain entire control over its execution until his death, which could not be the case if it were executed by deed. Reed v. Shergold, 10 Vesey, 378, 380. In this case the designation of the banks as a source of loan, was, I apprehend, not merely accidental or descriptive, but intended as a substantial part of the power. The negotiation of loans through banks is known to be made at a much cheaper rate of interest, and upon terms much more favorable as to time, than those which are- effected through private individuals. The testator may have been entirely willing to resort to a bank for a loan at known and established rates of interest, to preserve his property from sale, when, if the alternative had been presented him of making his paper and throwing it into market for discount, and submitting to the ruinous rate of exaction usually made by brokers and commission merchants in such cases, he would have considered the sale of *51bis property as much the most eligible mode of extricating his estate from debt. If the power to raise money generally, upon the credit of the estate, had been given by the will, there can be no doubt that the executor might have adopted whatever mode his discretion suggested. It is this latitude of power which the testator seems to have intended to guard against. Here the executor is restricted to a particular mode, and all discretion is cut oil. It is certain that the executor, as such, possesses no power to pledge the estate- of his testator for the loan of money, nor to create any lien upon it by deed or otherwise. Such power can only be exercised where expressly given by the will, and if it be special in its character, like all other special authority, it must be strictly pursued. In such cases, the instrument creating the power must determine for itself. Where power is given to raise money by mortgage, and a particular method of doing it is pointed out, it would seem clearly to imply a negative upon every other mode. 1 Powell on Mortgages, 66-7, 74 and note 2; 2 P. Williams, 13, 659; Mills v. Banks, 3 P. Williams, 5; 3 Bro. Ca. 503. The books furnish no rule of construction by which a power restricted and special in its terms, can be. construed as general and discretionary under the specious notion of carrying out the intention.

But it is argued that there has been a substantial execution of the -power, and that this court, in aid of the intention of the grantor, would supply any defect arising from a mere literal departure from its terms. It is true that acts done in the execution of a power, not strictly in accordance with its terms, nor variant from its general intent, may be upheld in equity. But this application of the remedial justice of courts of equity rests upon the general jurisdiction which they exercise in correcting mistakes and in reforming defective instruments so as to make them correspond with the real intention of the parties. Where that intention is obvious, courts of equity, no more than courts, of law, can sanction any departure from it. It is only where the language of an instrument is ambiguous or doubtful in its application, that rules of construction are resorted to for the purpose of extracting the intention. Judge Story, in treating of the relief given in equity in cases of defective execution of powers, remarks: “In all these *52cases it is to be understood that the intention and objects^ of the power are not defeated or put aside, but they are only informally attempted to be carried hato eifect. But where there is a defect of substance in the execution of the power, equity will not aid the defect.” 1 Story’s Equity, 187. I cannot regard the acts of the executor in this case, viz: making a bill, having it discounted with commission merchants, and giving a deed of trust to them to .secure the payment thereof, as being either in conformity with the terms of the will, or as a substantial compliance with the intention of the testator.

This view of the case renders it unnecessary to notice the other questions presented upon the argument of the demurrer.

I have felt throughout this case that it may be one of hardship upon the complainants, and would have been gratified could I have been justified by the authorities in coming to a different conclusion.

The demurrer must be sustained, and the bill dismissed.