Halsted v. Colvin. payment of the purchase-money, into a right to a title, no estate in the land, either equitable or legal, can vest in the mortgagor, and, until he has an estate in the land, it is impossible, under exising legal principles, for a mortgage made by him to grasp the land. But this is quite aside from the complainants' main ground. They are the owners of the Elliott mortgage and also of a mortgage for a little over $1,100, made by the Keyport Brick and Tile Manufacturing Company on the conveyance to it of the twenty-five-acre tract, to its grantor, to secure a part of the purchase-money of that tract. The defendants admit that the mortgage last mentioned is the first lien on the twenty-five-acre tract. The real dispute in the case is as to the relative rank of the Elliott and Gallup mortgages as liens on a twelve-acre tract. This tract is covered by both mortgages. The complainants claim that the Elliott mortgage stands first in rank. This claim is based, of course, on the contract of September 21st, 1888. One of the main purposes of that contract was, as is plainly declared on its face, to induce some person, having money to invest, to lend $16,000 on what was made to appear to be an unquestionably good security, to a corporation to be formed thereafter, in order that such corporation might become the successor in property and business of the mortgagor corporation, which was then in course of liquidation as an insolvent corporation; and it is manifest that the hope was that, by this expedient, the land and works covered by the Gallup mortgage might be maintained as a living and active manufacturing property. At the time the contract was made, the situation was this: The property of the mortgagor corporation had been in the custody of a receiver, unsold and idle, for nearly a year. During all that time a suit had been pending to compel the specific performance of a contract to convey land to the corporation, but the receiver was without means to pay for the land in case a conveyance should be decreed. So that success in that suit, in the then condition of affairs, was more likely to increase than diminish the difficulties of the situation. It was manifest, to permit the property to continue to remain idle, and further delay its sale, must Halsted v. Colvin. result in constantly-increasing decay and deterioration, and that, unless some plan was speedily devised for its extrication from the perils surrounding it, a ruinous loss must ensue. The contract was made for this purpose-to rescue the property from its perilous position and preserve it for the benefit of the bondholders under the Gallup mortgage. The bondholders, in making the contract, yielded nothing which it was not believed would result, ultimately, in strengthening their security, for it will be observed that they simply waived their priority, under the Gallup mortgage, to a sufficient extent to enable the new corporation to raise money enough to acquire the property of the old and to pay for the land in litigation. It is obvious then, I think, that the condition of affairs existing, when the contract was made, presented very cogent reasons why the bondholders should not only be willing, but eager to assent to the contract. But the two contesting defendants say that they did not sign the contract, nor assent to it, either in person or by an agent, and they consequently insist that they are not bound by it. This defence, so far as it is made by Mr. Bigelow, appears to be true. He acquired his bonds by purchase, as he swears, in the fall of 1887, nearly a year before the contract was made. He took possession of them when he bought them, and they have remained in his possession ever since. He did not sign the contract, and, so far as appears, never saw or heard of it while it was in course of execution. A person by the name of John T. Collins claimed, when he signed the contract as the owner of other bonds, to be the owner of those which it now appears were the property of Mr. Bigelow and in his possession. He signed, representing that he owned bonds to the amount of $9,500; he, however, produced only $7,500; the other $2,000, he stated, were temporarily in the possession of another person. The course pursued in executing the contract was this: When a bondholder came forward to sign, he was required to produce his bonds, and on their production, all the coupons, except those maturing on and after July 1st, 1889, were cut off; his bonds were then stamped across their face with these words, in red ink: "The payment of the principal of this bond is extended to Jan Halsted v. Colvin. 66 uary 1st, 1889" (or, if for fifteen years, to January 1st, 1904), interest, after the 1st day of January, 1889, to be four per cent. per annum." And after he had signed the contract his bonds were returned to him. Mr. Bigelow's twelve bonds are not stamped; the other one hundred and sixty-eight are. As the evidence now stands, there is not only a total failure of proof, going to show that Mr. Bigelow has waived any of his rights, but it is shown, on the contrary, that he has done nothing which can have the effect to degrade his debt from the rank which it held when his bonds were first issued. He is entitled to a decree directing that his debt be first paid out of the proceeds of the twelve-acre tract. The defence of Mrs. Colvin rests on an entirely different state of facts. It is true, as she alleges, that she did not, in person, sign the contract of September 21st, 1888, nor authorize any person to sign it for her; but it is also true, that, when that contract was executed, her fourteen bonds were produced, stamped and signed for. Her right to the bonds arose in this way: In March, 1887, it became necessary for the Union Brick and Tile Manufacturing Company to raise $7,000, in order to effectually exercise its right to buy the twenty-five-acre tract. It had no money and the time limited for it to exercise this right had nearly expired. The land had already been conveyed to another purchaser. At this juncture, three persons connected with the corporation consented to pledge bonds they held for a loan of $7,000 to the corporation. They were J. Warren Lawton, who furnished $2,000; John T. Collins, who furnished $3,000, and Henry W. Colvin, who furnished $2,000. The bonds were put in the hands of Henry W. Colvin to raise the money on them. He was a son of Mrs. Colvin and an officer of the corporation. Mrs. Colvin advanced $7,000 on the bonds, at the instance of her son, under a written contract, by which the corporation agreed, that the $7,000 should be used to pay for the land, and that immediately on its conveyance, the corporation should convey it to Mrs. Colvin, and she in turn agreed to lease it to the corporation for a term of years, at an annual rent of $920, payable quarterly, and also to convey it to the corporation at any Halsted v. Colvin. time within two years, on the payment of $7,000, together with such rent as should have accrued up to the date of the purchase. On these payments being made, the bonds were to be surrendered, not to the three persons who furnished them, but to the corporation. The $7,000 were not used to pay for the land, but were used to make an offer of payment. The vendor, however, having refused to accept, they were subsequently applied to other purposes. Though the money was advanced about March 23d, 1887, the bonds were not delivered to Mrs. Colvin and were never in her possession, but, from the time the money was advanced, they remained constantly in the possession of her son, Henry W., up to the time of his death in February, 1891. On the execution of the contract of September 21st, 1888, he produced his mother's bonds and stamped them as his own. Neither Stillman, Ivery nor Mr. Elliott, nor any person concerned for either, had notice, prior to the acquisition of their rights in the mortgaged premises, that Mrs. Colvin either owned or had any claim upon the bonds; nor had either knowledge of anything which made it their duty to seek further information before accepting the deed and mortgage made to them respectively. These facts make it perfectly plain, as I think, that whether the contract of September 21st, 1888, was executed, in respect to the bonds of Mrs. Colvin, by her authority or not, she must be held to be bound by it, so far as the complainants are concerned. This result is inevitable, for the reason, that where one of two innocent persons must lose in consequence of the unauthorized act or fraud of a third, he must bear the loss who caused the credit to be given which produced the loss. Though the forms in which this principle has been expressed are somewhat variant, they all stand, in their substance, in almost perfect accord. Chief-Justice Holt, in Hern v. Nichols, 1 Salk. 289, said: "For seeing that somebody must be the loser by this deceit, it is more reason that he who employed and put trust and confidence in the deceiver should be the loser than a stranger." In Fitzherbert v. Mather, 1 T. R. 12, 16, Justice Buller said: "It is a common question every day at Guild Hall, when one of two innocent persons must suffer by the fraud or negligence of a third, Halsted v. Colvin. which of the two gave the credit." And then added, that, as it appeared in that case that the plaintiff had given the credit, he must take the consequences. And Justice Ashhurst, in the leading case of Lickbarrow v. Mason, 2 T. R. 63, 70, in stating the same doctrine, said: "Whenever one of two innocent persons must suffer a loss by the acts of a third, he who has enabled such third person to occasion the loss must sustain it." And in Barnard v. Campbell, 55 N. Y. 456, 463, the rule was laid down in this form: "That as between two persons equally innocent, a loss, resulting from the fraudulent acts of another, shall rest upon him by whose act or omission the fraud was made possible.' This principle has been recognized by the courts of this state in the following cases: Booth v. Wonderly, 7 Vr. 250, 255; Denton v. Cole, 3 Stew. Eq. 244; S. C. on appeal, 3 Stew. Eq. 732; Heyder v. Building Loan Association, 15 Stew. Eq. 403, and Lawson v. Carson, 5 Dick. Ch. Rep. 370. The last two are so directly in point as to require special mention. In Heyder v. Building Loan Association, the principal facts were that a mortgagee had permitted his mortgagor to get possession of his mortgage and retain it for a considerable period. While the mortgage remained in his possession, the mortgagor criminally endorsed a receipt on it, showing that it had been paid, and then procured it to be canceled of record. Subsequently, the land which the mortgage had embraced was conveyed to a bona fide purchaser for value. The purchaser took title and paid his money, reposing full faith in the validity of the cancellation. On a bill filed to establish and enforce the mortgage, notwithstanding its cancellation, the court of errors and appeals held, that, in consequence of the mortgagee's negligence in allowing the mortgagor to acquire such dominion over the mortgage as enabled him to use it, with apparent authority, as a means of fraud, no relief could be given to him. Mr. Justice Knapp, who delivered the opinion of the court, stated the principle on which its judgment rested, in these words: "Where one gives another the power to practice a fraud upon innocent parties, the court will not interfere in his protection at the expense of those who have been deceived and misled by such |