[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 222 We are of opinion that the referee was right in holding that the bonds sold and delivered to Town, Farrell, *Page 224 Moffett and Ellis, and subsequently transferred to Vilas, or his administrators, were entitled to share pro rata in the proceeds of the sale of the real estate. Those bonds were issued in precise accordance with the authority conferred upon Williams, and the company received the full amount thereof in cash. They have never been paid or discharged by the company, and in the hands of the administrators of Vilas, to the extent of their interest therein, they were valid obligations against the company; and we can perceive no reason, legal or equitable, why they should not share in the proceeds of the real estate.
As to the bonds delivered to the banks for collateral security, a different question is presented. Those bonds were pledged to the banks to secure prior debts of the company. Williams had no authority to pledge the bonds. His sole authority was to negotiate them at a price not less than par and accrued interest, for the purpose of raising money to pay the floating debts of the company. He was bound to sell the bonds for money, or at least so to dispose of them as to pay the debts of the company. If he pledged them they paid no debts of the company, but rather increased than diminished such debts. It has been frequently held that an authority to sell does not authorize a pledge or mortgage (Cumming v. Williamson, 1 Sand. Ch. 17; Waldron v.McComb, 1 Hill, 111; Bloomer v. Waldron, 3 id. 361; AlbanyFire Ins. Co. v. Bay, 4 N.Y. 9; Merchants' Bank v.Livingston, 74 id. 223; Wright on Agency, 79; Meacham on Agency, sec. 356; Story on Agency, 78.) Therefore, if the banks as pledgees were claiming to share in the proceeds of the mortgage sale, their claim could be successfully resisted on the ground that the bonds had not become legal obligations against the company. Nothing has happened since the bonds were pledged to render them valid and legal. The pledge has never been ratified by the company, and the debts have never been paid, and the bonds have not accomplished the purpose for which they were authorized to be issued. Williams and the administrators of Vilas, by an arrangement between them and for their own protection *Page 225 as stockholders of the company, purchased and took an assignment of these debts from the banks, and with the debts took a delivery of the bonds held by the banks as collateral security. Williams afterwards assigned his interest in the debts and bonds to the administrators, and they, therefore, hold the debts as assignees, and hold the bonds as the banks held them, as collateral security to the debts. The bonds are invalid in their hands as they were invalid when held by the banks, and we see no ground whatever upon which they can legally claim to share in the proceeds of the mortgaged real estate.
Our conclusion, therefore, is that the orders of the General and Special Terms should be so modified as to divide the funds held for distribution pro rata between the respondents and the appellants, so far as the appellants represent bonds sold, as found and determined in the report of the referee, and as thus modified the report of the referee should be confirmed, and the orders affirmed, without costs to any of the parties in any of the courts.
All concur.
Ordered accordingly.