Foreclosure of mortgage on lines of street railway and appurtenant property in the city of Los Angeles, alleged to have been given as security for an issue of bonds of the Pacific Railway Company. The defendants in the action are numerous, but only the company named prosecutes the present appeal. There was a former appeal from the judgment by certain other defendants (Illinois Trust etc. Bank v. Pacific *336 Ry. Co., 115 Cal. 285 ); the questions there raised, however, have little or no affinity with those made here; these relate mainly to the personal liability of the Pacific Bail way Company to pay said bonds; the court below made findings on which followed certain provisions of the judgment to the effect that the bonds were the lawful obligations of said company, and that if the available proceeds of sale of the encumbered property, which was subject to the lien of a prior mortgage for a large sum, should be insufficient to discharge the sum found due on the bonds, then that said company pay the amount of the deficiency; to those findings appellant directed its motion for new trial.

The Los Angeles Cable Bailway Company, one of the defendants, a corporation organized under the laws of this state, was in the year 1889 the owner of the street railway property aforesaid, and had incurred large indebtedness—both floating and bonded—in the acquisition and construction of the same; there were bonds of said cable railway company outstanding to the amount of $836,000, secured by a mortgage on the said property, dated September 15, 1887, to Alvord and Brown, trustees. About the month of August, 1889, the railway system of the said cable railway company being then nearly completed, the holders of a majority of the capital stock of that company, residing at the city of Chicago, Illinois, associated themselves in the incorporation of the appellant, Pacific Bailway Company, under the laws of the state of Illinois; its object, as stated in its articles, being to build, extend, purchase, acquire, maintain, operate, sell, etc., street-cars and street railways in the city of Los Angeles, California, and elsewhere. The purpose of the promoters of the new company was to substitute the same in the ownership of the property, rights, and interests, of the said cable railway company, and thus carry on the enterprises initiated by the latter and assume also its liabilities. Accordingly nearly all of the stock in the cable railway company was transferred by the holders thereof to the *337 new Pacific Railway Company in exchange for shares of the latter, and on October 9,1889, the cable railway company made a deed purporting to convey all its franchises and other property to the Pacific Railway Company. On August 24, 1889, the last-named corporation made formal provision for an issue of its bonds to the amount of $2,500,000, secured by mortgage to the plaintiff here as trustee, bearing date on said August 24, 1889, which mortgage in terms covered all the property the Pacific Railway Company owned, or might thereafter acquire, specifically including that to be acquired from the said cable railway company. These bonds, which are the occasion'of the present controversy, were 2,500 in number, each for the sum of $1,000, and were payable to bearer in lawful money of the United States at the office of the trustee in the city of Chicago, on January 1, 1920, with interest payable semi-annually; each contained a provision that the principal might become due in case of six months’ default in payment of interest, according to the conditions of the mortgage, which allowed the trustee, in such case, upon the request of the holders of a majority of the bonds outstanding, to declare the principal thereof at once due and payable. The Pacific Railway Company endeavored to exchange part of this issue for the bonds of the cable railway company issued previously and secured by the mortgage to Alvord and Brown; 836 of the new bonds were set apart in the hands of the trustee for that purpose, but the measure failed—the holders of the cable railway company’s bonds declining the proposal. The remaining 1,664 bonds were certified by the trustee as secured by said mortgage of August 24,1889, and were delivered to appellant for disposition; all were duly attested by the signatures of the president and secretary of the company and the impress of its corporate seal.

On May 1, 1890, the Pacific Railway Company received possession of the lines of street railway and other property described in the deed of the cable railway company, and thereafter controlled and operated the *338 same. On Jane 25, 1890, and after the negotiation of a large part of the bond issue, the Pacific Railway Company made a so-called supplemental agreement with plaintiff purporting to provide, among other things, that engraved bonds might be substituted for the entire issue of August 24, 1889 (which had been printed by the lithographic process), and that such engraved bonds should be payable in gold coin, and, at the option of the holder, either in Chicago or New York, and that all provisions of the mortgage made to secure the lithographed bonds should stand for the security of the engraved bonds; holders of the former description of bonds were to be allowed to exchange them for the latter. The form of trustee’s certificate indorsed on the engraved bonds differed from that on the lithographed bonds in that it stated the substance of said so-called supplemental agreement, but there was no change in the terms of the bonds themselves—the verbiage of the engraved bonds being the same as that of the lithographed. There was some replacement of lithographed with engraved bonds; but precisely how many were so replaced is not clear.

Afterward the Los Angeles Cable Railway Company executed a deed dated July 18, 1880, in favor of the plaintiff and of the Pacific Railway Company, both of whom expressly signified assent thereto. In such deed most of the proceedings we have described were recited —that the said cable railway company had by deed, dated October 9, 1889, conveyed all its effects, real and personal, to the Pacific Railway Company; that the latter had, by measures legally taken, provided for an issue of bonds in the sum of $2,500,000, and, to secure the same, executed to plaintiff the mortgage of August 24, 1889; and that such mortgage had been supplemented by the agreement of June 25, 1890, to pay the bonds in gold coin, etc.; the deed then in terms granted and confirmed to the plaintiff, in trust for the uses and purposes specified in the said mortgage of August 24, 1889, all the right, title, and interest of the cable rail *339 way company in the property aforesaid, to be held by the trustee for the benefit and security of the holders of the bonds of the Pacific Railway Company, and the cable railway company adopted as its own the said mortgage of the Pacific Railway Company to the extent that that instrument purported to pledge the property for the payment of the bonds. This confirmatory deed of the cable railway company was approved by the board of directors of that company and the vote of all its stock; a majority of said directors were officers or employees of the Pacific Railway Company, however, and 24,975 of the total 25,000 shares of such capital stock were held and controlled by the plaintiff, Illinois Trust & Savings Bank, to whom they had been hypothecated by the Pacific Railway Company, as part of the security for the bonds.

Tnere are questions in the case relating to the manner of disposition of the bonds and the authority of the officers of the Pacific Railway Company in that behalf; some account of its internal organization and procedure is therefore proper. One C. B. Holmes was the president of both the said Cable Railway Company and the Pacific Railway Company, and he was, as the evidence shows, the “ financial manager” of the Pacific Railway Company from the beginning. It was provided in the by-laws of the latter company that its affairs should be managed by a board of five directors who might appoint a general manager to have direct charge of the business transactions of the company; that the board might incur indebtedness by resolution, and secure payment of the same by mortgage or trust deed of the property of the company, or any part thereof; the terms and amount of such indebtedness to be entered on the minutes of the board, and notes or other obligations given therefor executed in such manner as the board might prescribe; ^ that all bonds, contracts, or other instruments required to be made on behalf of the company should be executed by the president, and “ also be signed by the secretary”; that the president should not execute any such bond, *340 contract, or other instrument without previous authority from the board. The resolution of the board of directors adopted preliminary to the mortgage and bonds of 1889 recited that the company had in contemplation the purchase of the street railway system then owned by the cable railway company, and had, therefore, acquired the major part of the capital stock of that company; that the plan for such purchase involved the advancement of funds by the Pacific Bailway Company to meet maturing obligations of the cable railway company, and to complete its undertakings, and that it was to the interest of the Pacific Bailway Company that such advances be made. It was then declared that the Pacific Bail way Company would furnish funds for those purposes to the cable railway company, the amounts and objects of such advances to meet the approval of the board of directors of the Pacific Bailway Company; and to that end it was resolved that the president and secretary of the Pacific Railway Company were authorized and directed to execute, seal, and negotiate in its corporate name $2,500,000 of first mortgage bonds, and, as security for payment thereof, execute to the plaintiff here a mortgage, etc.

There was evidence tending to show that of the 1664 bonds available, 513 were sold, 1119 were pledged as collateral for other obligations amounting to $980,000, and 32 were not disposed of at all. So far as shown by the evidence, the various pledgees of bonds received them from C. B. Holmes, president of the Pacific Bail-way Company, as collateral security for promissory notes executed to them, respectively, by him in the name of the company, the nominal amount of bonds pledged being in each instance somewhat greater than the note secured. On January 24, 1890, the board of directors of the Pacific Bailway Company adopted a resolution requesting the trustee to deliver to the president “ the remaining $500,000 of bonds held by said trustee, for the purpose of negotiating the same and obtaining money for the use of the company.” There was evi *341 dence that all the moneys received from the hypothecation of the bonds—and it seems also the proceeds of those sold—were used and expended by the Pacific Railway Company for its corporate purposes, and mainly, if not wholly, for the purposes indicated in the resolutions of the board of directors providing for the bond issue, viz., paying the debts contracted by the cable railway company in constructing its roads, and to complete and equip the same. Default occurred in the payment of interest on the bonds, and when this had continued for a period of six months, the trustee, being thereunto instructed by the holders of a majority of the bonds outstanding, declared the bonds to be immediately due according to their terms, and gave written notice of such action to the Pacific Railway Company, and demanded payment; thereafter, this action was instituted. The court below found and adjudged that there is due to plaintiff, as trustee for the benefit of the holders of the bonds of the Pacific Railway Company, the sum of $1,360,000 principal (not $1,323,353.75, supposed in appellant’s brief; the latter sum was the amount found to be due on the prior mortgage of the cable railway company to Alvord and Brown), and a further sum of $317,101 for accrued interest.

1. It was the opinion of the superior court, expressed in its findings, that the deed made in October, 1889, by the Cable Railway Company, of all its property, franchises, etc., to the Pacific Railway Company, and also the supplementary agreement between the Pacific Railway Company and the trustee and bondholders, dated June 25,1890, were void, and of no effect. We need not inquire into the grounds of correctness of that conclusion, for that it was correct is virtually assumed by both parties to the appeal. But that court held that the tripartite agreement of date July 18,1890—whereby the cable railway company adopted the mortgage executed to plaintiff by the Pacific Railway Company, and undertook that its property should stand charged for the payment of the bonds in question—was effectual, *342 and created a valid lien on the property subordinate to the lien of the prior mortgage to Alvord and Brown. This result is combated by the appellant, though it can hardly be that the decision in that particular operated to appellant’s detriment, except in so far as it tended to sustain the right of plaintiff to sue as trustee for the benefit of the bondholders. The objections are, in brief, that the deed was ultra vires of the cable railway company, and that the plaintiff controlled the cable company’s stock, and the Pacific Railway Company its board of directors. Clearly, these matters are of no concern to appellant; if, by any means, it coerced the cable railway company into the hypothecation of the latter’s property to secure appellant’s bonds, that is no ground upon which appellant can defeat such security. The judgment, from which the cable company has not appealed, is conclusive upon that company that its deed and contract of July 18, 1880, was not ultra vires, but was valid and operative, and the appellant is in no position to contest such results; nor would it be even if it had not expressly assented to that contract. (Baines v. Babcock, 95 Cal. 581, 591-2 ; 29 Am. St. Rep. 158 ; Campbell v. Argenta etc. Min. Co., 51 Fed. Rep. 1; 5 Thompson on Corporations, 6028, 6030, and cases cited.) These considerations suffice also to answer the further objection, that plaintiff has no standing to sue, and that the right of action, if any exists, is in the several holders of the bonds. Since there is mortgage security for the bonds, the action must be directed to enforcement of the security (Code Civ. Proc., sec. 726), and is properly brought by the plaintiff as mortgagee in trust.

2. But it is said that the bonds themselves were issued in contravention of law and are void in the hands of the holders; this is asserted, as we understand appellant’s contention, because of the connection between the issue of the bonds and the attempted acquisition by the Pacific Railway Company of the property and franchises of the cable railway company, on which it was supposed when the bonds were authorized that *343 they would be secured; the argument necessarily assumes, though it is not precisely so stated, that whoever bought a bond thereby promoted an illegal enterprise and must lose his money. We dissent from this view. Granting that it was ultra vires of the Pacific Bail way Company to mortgage the property of the cable railway company, it was still intra vires for it to borrow money and issue evidence of indebtedness; this is not disputed; consequently its bonds were not invalidated by the want of power to make the mortgage by which they were in terms secured. (Philadelphia etc. R. R. Co. v. Lewis, 33 Pa. St. 33; 75 Am. Dec. 574 .) If then there was any taint of illegality in the sale or pledge of the bonds it must have lain in the purpose to "which the proceeds were designed by the Pacific Bail way Company—paying the debts of the cable railway company, completing and extending its scheme of street transit. There was nothing criminal or against good morals in the effort of the Pacific Bail way Company to acquire the entire plant and franchises of the cable railway company; at the most, it was an attempt at something beyond the charter powers of the companies and forbidden by considerations. of public policy; but that was a vice which infected only the contract of the two corporations; the' issue and disposition of bonds to third persons constituted a series of transactions each resting on a new consideration and connected only indirectly with the contract between the corporations. Admitting, as urged by appellant, that the holders had notice of the purposes of the Pacific Bailway Company, yet they did nothing to promote those purposes beyond parting with their property on the faith of its obligations; they do not found their right of recovery on the illegal contract between the companies; and in our opinion they are not affected by it. (Taylor v. North etc. Min. Co., 79 Cal. 285 ; Armstrong v. American etc. Nat. Bank, 133 U. S. 433, 469 ; Milborne v. Royal Benefit Soc., 43 N. Y. Supp. 1026 ; Curtis v. Leavitt, 15 N. Y. 94, 296 ; Anheuser-Busch Assn. *344 v. Mason, 44 Minn. 318 ; 20 Am. St. Rep. 580 ; House v. Soder, 36 Tex. 629 .)

3. By the constitution of Illinois it is provided that no railroad corporation shall issue stock or bonds except for money, labor, or property actually received and applied to the purposes for which such corporation was created; the constitution of this state, Article XTI, section 11, contains a similar provision—omitting the clause as to application of the money, labor, or property. Upon these provisions appellant contends that it had no power to pledge its own bonds as collateral security. When the bonds were so pledged and money or other property was actually received in consequence of such use of them, it seems to us that in a just and natural sense the bonds were issued “ for” such money or property; they served the purpose designed by the company— procured value for it. The cases upon the subject uphold the right to pledge as included in the right to sell. (Farmers’ Loan etc. Co. v. Toledo etc. R. R. Co., 54 Fed. Rep. 759; Leo v. Union Pac. Ry. Co., 17 Fed. Rep. 273; Nelson v. Hubbard, 96 Ala. 238—decided in view of a constitutional provision substantially the same as that of California in this particular; Duncomb v. New York etc. R. R. Co., 84 N. Y. 190 .) Some of these cases recognize the right of the corporation to pledge its bonds to secure a precedent debt. Appellant relies somewhat on Brewster v. Hartley, 37 Cal. 15 ; 99 Am. Dec. 237 , where it was held that certificates of stock issued by a corporation in pledge to secure its debt, are illegally issued; an examination of the grounds upon , which the decision went in that case shows, we think, that the question here presented is widely different; it seems unnecessary to enlarge upon the points of diversity. (See, besides the cases cited above, 1 Morawetz on Corporations, secs. 349, 350; Pfister v. Milwaukee etc. Ry. Co., 83 Wis. 86 .)

4. But now it is claimed that Holmes had no authority to borrow money in the company’s name and pledge the bonds for repayment thereof; that it had no knowledge of his proceedings in that behalf, and is not bound *345 thereby; this aside from the question of the corporate power of the company to make that use of the bonds. It is plain enough that the president had precedent authority to negotiate the bonds; the language of the resolution providing for their issue, “That the president and secretary are hereby authorized and directed to execute, seal, and negotiate,” etc., is to be taken distributively; both the president and secretary were to sign the bonds, and, in that sense, execute them; such was the provision of the by-laws; but the company committed the negotiation of them to the president; this is apparent from the evidence that he was at all times the financial manager of the company, and was allowed to control the disposition of the bonds, and from the resolution adopted by the board of directors January 24,1890, requesting the trustee to deliver to the president “the remaining $500,000 of bonds for the purpose of negotiating the same and obtaining money for the use of the company.”

Whether the authority to negotiate the bonds carried with it the power to pledge need not be inquired, though it seems that under proper circumstances an agency to negotiate securities includes the right to pledge them. (See the cases collected in 15 Am. & Eng. Ency. of Law, 478, n. 4.) In the present case, the subsequent conduct of the Pacific Railway Company defined the scope of the president’s authoritj7' in that particular, and its objection to his power to pledge the bonds comes too late. For the purposes which were the inducing cause of the issue of bonds, the company expended the large sums raised by pledge thereof. The practice of the president to pledge the bonds extended over a period of more than a year. There is no proof that the company had not actual notice of his transactions, and it is scarcely credible that it had not; but this is immaterial; it can hardly be that a company situated as this was—relying chiefly, if not solely, on the avails of the bonds to carry through the enterprise on which it had embarked, having committed the negotiation of the bonds to the *346 president, and expending the funds raised by him to promote its corporate objects—can be heard to say that it did not know the manner in which he was disposing of the bonds, and so enjoy the benefit but evade the concomitant liability of that disposition; such knowledge is imputed. ( Underhill v. Santa Barbara etc. Co., 93 Cal. 300 ; San Diego etc. R. R. Co. v. Pacific Beach Co., 112 Cal. 53 ; Lady Washington Co. v. Wood, 113 Cal. 482 ; 5 Thompson on Corporations, secs. 5293, 5308; Carpy v. Dowdell, 115 Cal. 677 .) Besides, the holders of such bonds as collateral have the same right as outright purchasers to press for a sale of the mortgaged property (Jones on Corporate Bonds, sec. 394); here they did so press, and, at their instance mainly, the trustee declared the principal of all bonds outstanding to be due, and notified such declaration in writing to appellant, together with demand for payment. It does not appear that appellant made objection that any bonds had been improperly placed by the president, then, or ever at all, until more than a year later, when, on Sep-' tember 6, 1892, its answer to the amended complaint was filed; and then the objection, if such it may be called, consisted only in denials for want of information and belief that any bonds had been issued, and the like. This failure to repudiate liability to the holders of pledged bonds within a reasonable time after it was thus imperatively asserted, is further ground for the conclusion we have reached that the company acquiesced in and so ratified the president’s assumption that his agency to negotiate the bonds extended to the hypothecation of them. (Union Gold Min. Co. v. National Bank, 96 U. S. 640 ; Pittsburg etc. Ry. Co. v. Keokuk Bridge Co., 131 U. S. 371, 381 .)

In some instances bonds were pledged for liabilities of the cable railway company, there being a novation of the Pacific Railway Company in the stead of the cable company. We do not understand appellant to lay much stress on this circumstance, and, in our opinion, it does not affect the case; it was part of the plan *347 of the Pacific Eailway Company to take up the obligations of the cable company, and, in the process of accepting the bonds as security, the creditors of the cable company gave up their demands against it, and so parted with value, which, so far as appears, was the equivalent of cash.

It is said that the notes given by Holmes, signed, in the name of the Pacific Eailway Company, by him as president, were executed in contravention of the bylaws. But this is not important if our views regarding the effect of the approval of his action by the conduct of the company are correct. A corporation whose internal polity requires its contracts to be executed in a certain manner may, by acquiescence, become liable upon contracts made by its agents in some other manner. (Argenti v. San Francisco, 16 Cal. 256 ; Underhill v. Santa Barbara etc. Co., supra; 2 Morawetz on Corporations, 633, 675.)

5. It is contended that the evidence fails to sustain the decision as to the amount of appellant’s liability— $1,360,000, besides interest—and it is to be admitted that the datum from which the court found that to be the precise sum due is not apparent. But, as there was evidence that 513 bonds were sold, establishing a liability on these of $513,000, and that 1119 were pledged as collateral security for indebtedness amounting to $980,000, and these sums together considerably exceed the amount of the finding, the appellant has not suffered injury in this behalf. The evidence concerning the total number of bonds disposed of was not as definite as it should have been, but it was received without objection and made a prima facie case; since appellant had received the custody of the bonds from the trustee, it would seem that the falsity of plaintiff’s showing as to the number outstanding might easily have been proved, if false it was.

Not much is said in argument concerning the engraved bonds which were issued in lieu of lithographed bonds of corresponding numbers; on the face of them *348 they did not differ in terms from the lithographed bonds, and the judgment in no way discriminates between the obligation of the two classes of instruments; we think, therefore, the engraved are to be regarded as mere duplicates or reissues of the lithographed bonds, for which they were exchanged. (Thompson on Corporations, sec. 6231.) Questions of pleading discussed by counsel, as well as some minor matters, are not important to be considered in view of the conclusions we have stated on the merits of the case.

The order appealed from should be affirmed.

Searls, C., and Haynes, C., concurred.

For the reasons given in the foregoing opinion the order appealed from is affirmed.

Harrison, J., Van Fleet, J., Garoutte, J.