been exchanged for a previous issue of bonds, pears that the decree was in accordance with and in addition $1,008,600, making in all the the petition, that the receivers and managers issued, negotiated, and outstanding income were to be discharged and were ordered to and extension bonds $1,689,500, and leaving turn over to the Consolidated Railroad Comof the authorized issue $810,500 not appearing pany of Vermont, a corporation organized in to the court to be both issued and outstand- 1883, the entire property in question, and ing, and not treated by it as such; and since that provision was made for the satisfaction the court was passing upon the whole situa-by the Consolidated Company of the claims tion necessarily declared to be not outstand-embraced in the plan of reorganization and ing, and as a simple computation from the of no others. So the court again determined figures given shows, not entering into the sum the amount of the bonds of the receivers and of $4,357,000, referred to in the orator's ex-managers issued and outstanding to be $4,hibits as the total issue of trust bonds to be 357,000, and thereby fixed or undertook to fix provided for. the amount of income and extension bonds negotiated, and lawfully outstanding at $1,689,500, and not at $2,500,000.

In stating his case, the orator refers to a plan of reorganization and consolidation of the Vermont Central Railroad and the Ver- The master finds that income and extension mont & Canada Railroad, and says that it bonds to the full amount authorized, $2,500,was a part of this plan that all the obliga- 000, were duly executed and issued. But he tions created by the receivers, trustees, and finds that some of them were delivered as managers should be satisfied and taken care collateral simply, and he finds that the five of. He refers to the plan which was pro- ¦ bonds in question were a part of a lot of $222,mulgated by the American Loan & Trust 300 delivered in May, 1873, to J. Gregory Company of Boston, and makes it a part of his bill. The plan was promulgated November, 1882.

Smith, one of the receivers, who raised $200,000 on his personal note with the bonds so delivered as collateral, and he finds that of these collateral bonds, seventeen, including the five in question, were delivered to Hoyt & McKinney as collateral for $10,000 of the loan, and that all the collateral so delivered to J. Gregory Smith were returned except the bonds pledged to Hoyt & McKinney, which the master says appear never to have been returned, although the loan for which they were pledged was paid in March, 1874.

[3] The orator claims in his brief that it is entirely consistent with this finding, that the bonds were retained as security for some fresh loan, or because they were purchased by Hoyt & McKinney. But this claim is hardly more than a play upon words. If they were sold or again pledged, they were in legal sense returned as a preliminary to such later transaction. This specific claim does not appear to have been made before the master, otherwise his language might have been more explicit; but as it reads it fairly means that the pledgee's special title ceased, that there was a total failure of consideration, and that there was a good defense against the bonds. Wilbur v. Prior, 67 Vt. 508, 32 Atl. 474; Blaney v. Pelton, 60 Vt. 275, 13 Atl. 564; Tinker v. Midland Valley Co., 231 U. S. 681, 34 Sup. Ct. 252, 58 L. Ed.

The defendant admits the allegations with respect to this plan of reorganization and joins with the orator in referring to it. This plan so referred to and made a part of the case made provision for the satisfaction of the bonds of the receivers and managers amounting to $4,357,000 of bonds known, respectively, as equipment, income and extension, guaranteed, and Stanstead, Shefford & Chambly bonds. The amount named corresponded to a cent to the amount of outstanding bonds of receivers and managers as shown by this court in 53 Vt. 228, on page 260, and so made provision for income and extension bonds to the amount of $1,689,500, and no more, and assumed by the very terms of the plan which was to settle all disputes among security holders that that sum, and not $2,500,000 was the amount of income and extension bonds negotiated and outstanding. Of course there was nothing authoritative about this plan. But in further stating his case by allegations and exhibits referred to and made a part of the bill, the orator alleges that the plan of reorganization was assented to by the holders of a very large part of the claims of every description against the property in question, and that a petition was filed in the court of chancery looking to the reorganization of the property, and that after-ment is negotiated unlawfully or under cirwards, in 1884, a decree was rendered in accordance with the prayer of the petition, The petition and the decree are referred to by the orator and made a part of his bill, and the defendant admits the facts set forth in regard to such petition and decree and joins with the orator in referring to the petition and decree.

[4] Title is defective if a negotiable instru

cumstances which amount to a breach of faith. When commercial paper is held as collateral security merely, the holder has only a special property therein, and that ceases when the principal debt is paid, and the pledgee no longer has any interest in or title to the collateral note, and no claim to enforce thereby, and, if he thereafter negotiates it, it is good only in the hands of a holder in due course.

It appears by the petition that the whole issue of trust or receivers' bonds to be provided for was stated to be the sum previously [5] When this court, long after 1874, de

sion bonds issued, negotiated, and outstand- | Loan & Trust Company turned over to the ing, it made up the amount of two sums, $680,- Central Vermont Railroad Company. 900 issued in exchange for other bonds, and $1.008,600 otherwise negotiated, and took no notice of any bonds which had been issued as collateral. It in effect thereby said that the bonds issued as collateral had either been or returned or were unlawfully held, were not lawfully outstanding, and during all the subsequent proceedings which we have traced there is no suggestion of error in this respect; but, on the other hand, every circumstance is confirmatory.

[6] But it is said that the defendant has not pleaded any defense to the bonds. The orator was probably entitled to a more speeitic answer; but under the general practice in equity his way to get that was by exceptions to the answer. Blaisdell v. Stevens, 16 Vt. 179, 186; Ladd v. Campbell, 56 Vt. 529; Barrett v. Twin City Power Co. (C. C.) 111 Fed. 45.

In the spring of 1896 the Central Vermont Railroad Company became financially embarrassed, and, in a suit against it brought by the Grand Trunk Railway Company in the United States Circuit Court, the railroad property in question passed into the hands of receivers appointed by that court. The receivers were Charles M. Hays and Edward C. Smith. This receivership continued until 1899, when it was terminated by a foreclosure sale made under the direction and control of the United States Circuit Court. The purchaser at this sale was the Central Vermont Railway Company, a corporation organized and existing by virtue of No. 159 of the Acts of 1898, of the Vermont Legislature. It will be seen that, to an understanding of this case, it is necessary throughout to bear in mind the distinction between the Vermont Central Railroad Company, the Central Vermont Railroad Company, and the Central Vermont Railway Company; the last-named corporation being the purchaser at the sale last mentioned and the present owner and holder of the property in question.

The present suit in equity was brought by

way Company, the present owner of the property, in 1902, after the expiration of the 30 years named in the income and extension bonds issued by the receivers and managers in 1872.

[7] And under our practice (chancery rule 27), where, with an insufficient answer, a case has gone to hearing, and the evidence has been taken, or the facts have been found, the case is to be disposed of on appeal as finally made up. Here the defendant added to his answer allegations by way of a cross-the orator against the Central Vermont Railbill conformably to chancery rule 26. This cross-bill the orator in the original bill might have demurred to if he chose (chancery rule 26); but he chose to answer the cross-bill, and, the whole case having been referred to a master who has reported, the orator is not entitled in this court to have the case disposed of on bill and answer, but on appeal it will be treated as it was treated below. MeArthur v. Blondin, 84 Vt. 516, 80 Atl. 663. [8] We proceed to the question of whether the orator is a holder in due course, a holder in good faith.

The Consolidated Railroad Company of Vermont was a company formed as a part of the scheme of reorganization. By the decree of January 17, 1884, the Central Vermont Railroad Company was discharged as receiver of the Vermont Central and the Vermont & Canada Companies and directed to turn over to the Consolidated Company the property held by it as receiver and manager. In accordance with this decree on the 30th of June, 1884, the receivership property | was assigned and turned over to the Consolidated Company.

The exchange of bonds and preferred stock of the Consolidated Company for the earlier obligations, resting upon the property, was carried on by the American Loan & Trust Company until the 5th day of February, 1892, when the work of exchange was nearly completed. At that time the Central Vermont Railroad Company was the holder and operator of the railroad property in question, and the work of making the small amount of exchange remaining to be done under the

The judicial sale by the direction and under the supervision of the United States Circuit Court made provision for the payment of the bonds of the Consolidated Company | which had been issued in exchange for the income and extension bonds, but not for the payment of the latter bonds. However, we assume without deciding that, as the orator claims, notwithstanding the vicissitudes of the property, the orator is entitled to prevail in this suit if he is, within the meaning of the law, a bona fide holder for value of the five bonds in question, without notice of any defense. See Northern Pacific R. Co. v. Boyd, 228 U. S. 482, 33 Sup. Ct. 554, 57 L. Ed. 931.

The orator obtained the five bonds in suit from one William Jurgenson, of New York. They were offered to him May 17, 1899, in connection with other choses in action. Before buying the bonds, the orator consulted Poor's Manual, and found therein a pretty full history of the railroad property down to the reorganization of 1884. Among other things, he found that, of the bonds issued in exchange for previous liabilities, the familiar sum of $4,357,000 was to be exchanged for a like amount of "equipment," "income and extension," "guaranteed," and "Stanstead, Shefford & Chambly" bonds dollar for dollar, holders of such bonds to relinquish all claims for overdue interest on the same.

income and extension bonds were issued is referred to, and the decision of this court rendered in 1882 is also referred to. That is the case of Langdon v. Railroad Co., 54 Vt. 593, and that case refers for the facts to the case of Langdon v. Railroad Co., 53 Vt. 228, and quotes from the decision therein. The case in 54 Vt. is in fact, and appears on its face to be, supplementary to the decision in 53 Vt. So the orator was given notice that not the whole issue of income and extension bonds, namely, $2,500,000, was lawfully outstanding, but that of that issue only $1,689,500 had been considered by the court to be lawfully outstanding. Without reference to Poor's Manual, the orator was put upon inquiry as to the litigation in the course of which the obligations were issued both as to prior and subsequent proceedings therein. Mercantile Trust Co. v. Kanawha, etc., R. Co., 58 Fed. 6, 7 C. C. A. 3, opinion by Taft, Circuit Judge.

[9] Here, in consequence of the nature of the obligation as it was made to appear on the face of the instruments, and by the indorsement of the decree thereon, and by the information obtained from Poor's Manual, the orator was most emphatically put upon inquiry as to the litigation in the course of which the income and extension bonds were issued.

inates "the same bunch," these other securities to be held by Jurgenson until the orator should find a purchaser for them, the proceeds of any sale when made to be divided equally, after the deduction of all expenses connected therewith. The orator expended from $100 to $300 in trying to make collec tion of these other securities. When the orator bought the five bonds Jurgenson said that he bought them from the estate of William H. Guion, or that his friend, the man with him, so bought them. Nothing further was shown as to the purchase of the bonds by Jurgenson, except that it appears from the report of the master that, in purchasing the bonds,, the orator was dealing with a man with whom he had had no previous acquaintance or dealings, that Jurgenson's price for the bonds was $225, that the unknown man with Jurgenson, who claimed to have some interest in the bonds, required more, and that the demand of this unidentified man led to the raising of the price from $225 to $275.

On the day of the purchase of the bonds by the orator, that is, June 2, 1899, but after the transaction of sale and purchase. the orator wrote the American Loan & Trust Company that he held certain of the income and extension bonds, and that he had been advised by Mr. E. C. Smith, receiver, that In addition to examining Poor's Manual, they were exchangeable through the trust the orator wrote Mr. E. C. Smith, address-company for 5 per cent. bonds under the reing him as receiver of the Central Vermont organization of 1884, and that such bongs Railroad, saying that he held $5,000 of the¦ could be exchanged for 4 per cent. mortgage income and extension bonds, and asking to be advised if those bonds were convertible into any of the securities of the Central Vermont, or if they had any value at all. He closed by saying that he would be very glad to sell. Mr. Smith replied by referring the orator to the American Loan & Trusting interest." On the same day he sent the Company, saying that it would give information as to what should be done with respect to the exchange of the bonds referred to, explaining their exchangeability into 5 per cent. bonds under the reorganization of 1884, and the exchangeability of those 5 per cent. bonds into 4 per cent. bonds of the Central Vermont Railway Company under the reorganization of 1898. The letter closed thus:

"I have no doubt the American Loan & Trust Company will arrange for the exchange of your bonds into the Consolidated Bonds, and later. into the four per cent. bonds when issued, or will very likely find you a customer for them if you desire to sell."

Both the orator's letter and the reply contemplated the status of the issue of income and extension bonds in general, and nothing is said which has any reference to any particular bonds of that issue. After receiving, this reply, the orator bought the five bonds of Jurgenson, or of him and an unnamed man whom Jurgenson claimed had some interest in them, and who was present at the sale. As a part of the transaction the orator acquired a joint interest with Jurgenson in

bonds when the latter were issued. He ask ed the trust company to advise him regarding the exchange, and to advise him if he was entitled to any back interest or coupons, saying, "I note the bonds which I should have received some time ago have been pay

trust company a telegram which read: “Please answer my letter of this date fully by wire at my expense as soon as possible." The company by telegram and a letter of confirmation promptly informed the orator that its authority regarding the exchange inquired about had ceased several years before, and that all exchanges made since the time referred to by it had been made by the Central Vermont Railroad Company or its receivers.

Thereafter the orator was referred by one of such receivers to Charles M. Wilds, Esq., who was their attorney, and under date of June 9, 1899, seven days after the purchase, the orator wrote to Mr. Wilds, saying that Mr. E. C. Smith had referred him to Mr. Wilds in the matter of these income and extension bonds, that he desired to realize on the bonds promptly, and would be glad to pay any reasonable fee, that he had sent Mr. Smith the full particnlars regarding the bonds, but would furnish any further de tails. Mr. Wilds replied, repelling the sug gestion of a fee by saying. "I cannot act

Co., already referred to, and sought to have the lien which he now here claims therein established. After a hearing upon such petition, it was denied without prejudice.

proceeded to say that, if the bonds were en- [trict of Vermont in the suit of the Grand titled to conversion, he would endeavor to Trunk Railway v. Vermont Central Railroad see that the orator was not embarrassed in the matter. He asked for the history of the bonds. Down to this time, in addressing both Mr. Wilds and Mr. Smith, the orator had represented himself as holding or owning the bonds, making the same representation in that regard both before and after he bought them. In reply to the letter of Mr. Wilds asking for the history of the bonds, the orator did not claim to own them, but said that "his client" did not convert the bonds because he was not familiar with such things, and that, after holding them for a long time and getting no interest, the client asked a broker about them who said they had no value, and so the client laid them away for years, but that this friend, referring to the client, had recently met with misfortune and showed the honds to the orator, who had advanced money on them. The letter is a rather long one and need not be quoted, as it gives nothing that is both authentic and material about the history of the bonds as to which the orator had professed his willingness to give details.

The above narrative of the history of the bonds which the orator professed a willingness to give was in every particular untrue to the knowledge of the orator.

The master finds the orator chargeable with notice that the bonds at the time of his purchase of them were not in the hands of a bona fide holder for value, unless the unpaid coupons attached to them, the information obtained from Poor's Manual, the small price paid, and the orator's misstatements to Mr. Wilds, or these facts taken together, were no evidence on which to base such a finding. The master also in another place reports that, in making the above finding, he further took into consideration the conduct of the orator, especially in withholding the true history of the bonds so far as that was known to him, and in keeping back a specific description of them by serial numbers, which, the master says, would, if given, have enabled the defendant to trace their history. The master also makes the following finding:

"The defendant requests that I find, and I do find, that the orator was not a bona fide purthe said bonds for payment, he was not, and chaser for value, and that, when he presented is not now, a bona fide holder for value of the same."

These findings are challenged on the ground

Mr. Wilds replied by saying, among other that they are not warranted by the subordithings:

"Will you not have the kindness to give me the name of the owner of the securities which you wish to convert? I do not understandas you would perhaps infer from Governor Smith's letter-that the conversion can be accomplished as a matter of course."

The orator then wrote Mr. Wilds that of course he could not give the name of his "customer"; that he did not see what that had to do with the matter; that Gov. Smith's letter would lead any one to suppose there was no difficulty about the matter; that, if there were any objections to the bonds, he would like to know it. He made further reference as to his standing. He did not say that the bonds were his, rather than those of a client, but said by way of postscript that they might be considered his for all practical purposes, as they were in his possession with full authority to dispose of

them.

nate facts and findings on which they are based. The information which the orator got from Poor's Manual emphasized the orator's duty to inquire as to the proceedings in the course of which the issue of income and extension bonds was made. That inquiry followed up showed that not the whole issue of $2,500,000 of income and extension bonds had been treated by the court as lawfully outstanding; but that information gave him knowledge, or the equivalent of knowledge. that the amount of such bonds lawfully outstanding was $680,900 less than the maximum limit of the authorized issue, and was so treated in the plan of reorganization and the decree in accordance therewith made January 17, 1884, to both of which the orator refers and appeals. So he was given notice that, though his bonds had been issued, they might not be lawfully outstanding, and that. though 15 years had run since the exchange under the reorganization had begun, his bonds had not for some reason been exchanged.

Mr. Wilds' reply, omitting address and signature we give in full. It is as follows: "Your favor of June 16th is at hand. My Mere inadequacy of price might not have purpose in wishing to know the name of your been a circumstance for consideration. But customer is to trace the history of the secur- the purchase for $200 or $300 of bonds which, ities in question. Without knowing the entire history of these securities, I can give you no with the unpaid coupons attached thereto, satisfaction in the matter. I hasten to assure amounted to many thousands of dollars was you that your standing is in no way involved a circumstance which the master was entitled in the matter, and that the Central Vermont Railway Company will be very glad to recognize to consider in connection with other circumits legal obligation in the matter; but, in order stances. Parsons v. Jackson, 99 U. S. 434, to do so, the history of these securities must 441, 25 L. Ed. 457. be examined."

The mere circumstance that unpaid couTo this letter, the orator made no reply. pons were attached to the bonds was probaHe, however, filed an intervening petition in bly not entitled to any consideration. But

46 unpaid coupons attached to each bond representing interest promised to be paid, but which had remained unpaid during a period of 23 years, the last 15 of which covered the period since the reorganization of 1884. The coupons represented the chief part of the obligations which the orator was purchasing, and the master was entitled to consider these unpaid coupons in connection with the other circumstances.

The master also took into consideration the orator's misstatements to Mr. Wilds, and the fact that he withheld the true history of the bonds so far as it was known to him, and detailed a fictitious history, the fact that, having expressed his willingness to detail the history of the bonds, he concocted and put forth the untrue story which we have already referred to and withheld the few facts about the bonds and his purchase of them which he did know. But it is said by the orator that, as his correspondence with Mr. Wilds followed his purchase of the bonds, it is no evidence that he became their holder in bad faith. But one's belief and knowledge at one time is often evidence of his belief and knowledge at a closely related time.

[10] The orator's conduct in concealing and misrepresenting the character of the transaction had in the circumstances a tendency to show that the transaction had been consum

National, etc., Bank v. Morse, 163 Mass. 383, 40 N. E. 180.

Bad faith may be and usually is evidenced by circumstances, and a number of circumstances all pointing in the same direction often afford strong proof, where each circumstance taken by itself is of slight weight. Barney v. Quaker Oats Co., S5 Vt. 372, 384, 82 Atl. 113; Lawrie v. Silsby, 82 Vt. 505, 509, 74 Atl. 94.

This case was tried before the enactment of the negotiable instruments act which took effect June 1, 1913, and, if the act referred to applies to instruments of the character of these bonds, it is immaterial to consider it here, for by the express provision of the act it does not apply to instruments made and delivered prior to the taking effect thereof. Acts of 1912, No. 99, p. 114. In saying this, we do not say that the question of bad faith would stand any different under the existing law than under the former law. We make this suggestion only as a guard against any misconstruction of the decision.

The defendant insists that the orator was barred by the statute of limitations, the staleness of the claim, and the laches of the orator and his predecessors in title. We have taken no notice of these claims, as the conclu

sion reached renders such consideration immaterial.

The orator took 11 exceptions to the masmated in bad faith, just as one's conduct in ter's report. Exception was to a finding by concealing stolen goods, and making misrepresentations as to his acquirement of them, may the master that the orator's conduct fell far tend to show that he received them knowing short of the conduct of a prudent man, claimthem to be stolen. There does not seem to ing that the finding was not warranted by the be any doubt as to the principle or its appli- evidence. The finding was warranted; but we predicate nothing on it, and so we do not cation here. It would be a strange thing to discuss it. Exceptions 2, 3, 4, and 9 relate say that in law one cannot reason back from false statements and guilty conduct to a guil- to the findings as to bad faith, and raise no question not already considered. Exceptions ty or mala fide act as their explanation. The 5, 6, and 7 were taken because the master rebooks are too full of illustrations of the princeived and considered the testimony of E. C. ciple to make it worth while to single out cas-Smith, against objection and exception on es for citation, and the matter is one of the part of the orator, and, against like obstraight reasoning, and does not require the support of precedents.

jection and exception, received and considered certain books of account of the old receivership, and based certain findings on the evidence so received,

[11, 12] Mr. Smith testified that he was continuously associated with the property from 1871 to 1877 with his father, John Gregory Smith, one of the receivers, without holding any official position, being away at col

The findings of the master relating to bad faith were amply warranted by the subordinate facts found. Pierson v. Huntington, 82 Vt. 482, 74 Atl. 88, 29 L. R. A. (N. S.) 695, 137 Am. St. Rep. 1029; Capital Savings Bank V. Montpelier Savings Bank, 77 Vt. 189, 59 Atl. 827; Limerick Nat. Bank v. Adams, 70 Vt. 132, 40 Atl. 166; Stevenson v. Gunning's Es-lege and law school except during vacations. tate, 64 Vt. 601, 25 Atl. 697; Bromley v. Haw- After 1877 he testified that he had been asley, 60 Vt. 46, 12 Atl. 220; Ormsbee v. Howe, sociated with the property as attorney for 54 Vt. 182, 41 Am. Rep. 841; Gould v. Ste- the Central Vermont Railroad Company, vens, 43 Vt. 125, 5 Am. Rep. 265; Clough v. director, vice president, and president, suePatrick, 37 Vt. 421; Goodman v. Simonds, cessively, and as one of the receivers ap20 How. 343, 367, 15 L. Ed. 934; Vosburgh v. pointed by the United States Circuit Court Diefendorf, 119 N. Y. 357, 23 N. E. 801, 16 in 1896, acting as such at the time of the Am. St. Rep. 836; Parsons v. Utica Cement, hearing, and having the custody of the books. Co., 82 Conn. 333, 73 Atl. 785, 135 Am. St.. His testimony tended to show that the books Rep. 278; Tilden v. Barnard, 43 Mich. 376, 5 N. W. 420, 38 Am. Rep. 197; Perkins v. Prout. 47 N. H. 387, 93 Am. Dec. 449; Kel

were books of original entries made by the proper persons to make them, whose handwriting he identified; they being dead, as