son, as trustees, conveyed the property to the new company in exchange for the issue of the bonds and stock.

Pending the issue of the engraved bonds of the Sioux City, O'Neill & Western Railway Company, a temporary bond was issued and delivered to Tod & Co., and afterwards exchanged for the engraved bonds.

All the bonds of the company were thus pledged to secure the $1,000,000 loan with the full knowledge and participation* of Garretson, and of Smith, secretary and treasurer of the Union Loan & Trust Company.

Some of the notes issued under this loan were sold to various parties, and some retained by Tod & Co.

It having been intimated that payment of the $1,000,000 loan would be required, Garretson applied to Tod & Co. for the negotiation of a loan of $1,500,000. It was contemplated that the notes of the Sioux City, O'Neill & Western Railway Company for that amount should be given, to be secured by the bonds of that company and the stock of the Sioux City & Northern Company, then in pledge with Tod & Co. But Tod & Co. were advised by their counsel that the railway company was not authorized, under the law of Nebraska, to contract so large an indebtedness in excess of its outstanding bonds, and thereupon it was suggested that Garretson should sell the securities to the Pacific Short-Line Bridge Company, and receive back the notes of that company for $1,500,000, to be secured by a pledge of said securities, and that Tod & Co. should negotiate a sale of these notes on the strength of the securities thus pledged.

The Pacific Short-Line Bridge Company was a corporation of Iowa, organized for the purpose of constructing a bridge across the Missouri river at Sioux City, as a part of the Nebraska & Western enterprise. Its stock was divided into 20,000 shares of $100 each, which were issued November 13, 1891, in four certificates of 5,000 shares each, in the name of "A. S. Garretson, Trustee," and these certificates were delivered by Garretson, November 19, 1891, to Tod & Co., who, on December 14th, delivered them to the Manhattan Trust Company, as trustee under the mortgage of the Sioux City, O'Neill & Western Railway Company, pursuant to the $1,000.000 loan agreement of October 1, 1891. The bridge company had executed a mortgage to secure $1,500,000 of bonds, but of these only $500,000 had been certified by the trustee, and it did not affirmatively appear that any had been negotiated. Garretson testified that the purpose of the $1,500,000 loan was to take up the $1,000,000 loan, and to get "additional funds with which to carry on the construction of the bridge to a point where we could get money from the bonds of the bridge to complete it."

December 26, 1892, the Pacific Short-Line Bridge Company, at a meeting of its board of directors, passed a series of resolutions, by

which it agreed to purchase the bonds of the Sioux City, O'Neill & Western Railway Company, and 10,200 shares of the capital stock of the Sioux City & Northern Company, and to give therefor its promissory notes in the sum of $1,500,000, to the order of Garretson, dated December 30, 1892, and to pledge said bonds and stock to Garretson as security. Accordingly, on December 31, 1892, a contract was entered into between Garretson, Hedges, Hornick, and Haakinson (the remaining member of the syndicate, Booge, having failed and dropped out), and the Pacific ShortLine Bridge Company, by which the bridge company purchased the securities, and agreed to give its notes therefor, payable to Garretson's order, February 1, March 1, and April 1, 1894, bearing date December 30, 1892, to be forwarded to Tod & Co. to be delivered to Garretson or his order, or held by Tod & Co. as trustees to secure the payment of said notes. The notes were to provide, and when issued did provide, that, on 30 days' default in payment of interest, the principal was to become due and payable at the option of Tod & Co., on behalf of the holders, to be exercised on the written request of a majority.

Tod & Co. negotiated a sale of the notes through the Union Debenture Company, a corporation of the state of New Jersey, which was evidenced by a contract under date of December 30, 1892, between Garretson and that company, which recited that the notes were to be secured by the 2,340 Sioux City, O'Neill & Western bonds, and 14,200 shares of the Sioux City & Northern stock, by an indenture of trust with Tod & Co. December 31st, Garretson entered into this indenture of trust, whereby he pledged the said bonds and stock to Tod & Co., as trustees, for the equal and pro rata benefit and security of all the holders of the notes; it being provided that, if default should be made in the payment of the principal or interest of any of the notes, the trustee, on request, might declare the* principal and interest due, and sell the bonds and stock at public auction, and that the holders might appoint a purchasing trustee, in whom, if he bought at the sale, would vest the right and title to the bonds and stock in trust for all the note holders in proportion to the amounts due them respectively.

The note holders were given certain options, and Garretson agreed to pay the debenture company 31⁄2 per cent. commission.

As already set forth, Tod & Co. then held the 2,340 bonds and 7,200 shares of Sioux City & Northern stock. Of the remaining 7,000 shares of this stock to be pledged under the agreement, 6,190 shares were delivered to Tod & Co. by Garretson in December, 1892, in New York, and certificates for 1,000 shares. were sent to Tod & Co. by Smith, secretary, January 16, 1893. All these shares weretransferred by members of the syndicate. In March, 1893, Tod & Co., as authorized by the indenture of trust, at the request of Garretson, released and delivered to the treasurer of the

Great Northern Railroad Company 3.600 shares, which Garretson had sold to that company for $350.000 in cash, all of which was received by Garretson. W. S. Tod testified that his firm supposed the proceeds of this sale were to be applied towards the construction of the bridge, and the evidence tended to show that the money was paid over to the Union Loan & Trust Company, to be applied in payment of notes of the syndicate.

The notes for the $1,500,000 were executed and indorsed by Garretson, and the transaction closed January 30, 1893; and on that date the Union Debenture Company turned over to Tod & Co. $1,507,500, being principal, with accrued interest; and thereupon Tod & Co. paid off the $1,000,000 loan, with accrued interest, $1,004,833.33. They thus released the $2,340,000 Sioux City, O'Neill & Western bonds, the 18,000 shares of Sioux City & Western stock, and 7,200 shares of Sioux City City & Northern stock, and delivered to themselves, as trustees, under the indenture of trust, the bonds, 10,200 shares of Sioux City & Northern stock, and also 4,000 of the latter stock, and certified and delivered the bridge notes to the debenture company.

*These notes contained the provision that they might be declared due on default in payment of interest or principal, and that they were secured by the indenture of trust of December 31, 1892, and the deposit of the bonds and stock as collateral.

The Union Debenture Company was a corporation of New Jersey, with a capital stock of $300,000 and over $800,000 of assets, and had issued and had outstanding $500,000 of 20-year debenture bonds, which had been sold mainly in England, Scotland, and Holland. Tod & Co. owned one-third of the capital stock, and the business of the company was transacted through Tod & Co. as brokers. The notes in question, except about $40,000 retained by the debenture company, were sold by them as brokers to various persons, including $500,000 to parties abroad, and $500,000 to the Great Northern Railway Company, but Tod & Co. took no part of the loan.

The commission of 3% per cent., $52,500, was paid to the debenture company by Tod & Co.

The remainder of the proceeds of the $1,500,000 loan, after the discharge of the $1,000,000 loan, the payment of the commissions, and of a temporary loan of $30,000 to Garretson, was paid over, on Garretson's drafts, to the Union Loan & Trust Company, to be applied to the payment of bridge estimates, and to the credit of Hornick, trustee. About $200,000 was applied on bridge account.

All the members of the syndicate were parties to the agreement by which the bonds and stock in controversy were sold to the bridge company, and knew of the use Garretson proposed to make of the notes and securities. They did not repudiate the transaction, and never made any complaint or gave any notice to Tod & Co. that Garretson was wrongfully

pledging the collateral. Tod & Co. rendered full accounts of the two loans to Garretson, which were sent by him to Smith as they were received.

Garretson was a prominent man in banking, financial, and railroad circles when he began his dealings with Tod & Co., and continued to be so until 1893. He had been, or was, an officer of many business corporations or com panies; and one* of the chief promoters and• builders of the Sioux City & Northern Railway, and organizers of the Union Loan & Trust Company. He was highly recommended to Tod & Co. by the president of the Great Northern Railway Company, of which J. Kennedy Tod was a director. Mr. Tod stated that they believed during the negotiations between their firm and Garretson that he was a man of large wealth.

The Tods testified that they knew nothing of the dealings between the Manhattan Trust Company and the improvement company, or of the loan transactions of the improvement company, and had no connection therewith; that they had no knowledge or notice of any claims of the Union Loan & Trust Company to these securities at or before the time they were pledged to secure either the loan for $1,000,000 or the loan for $1,500,000; and the first information they had of any such claim was after default had been made in the payment of interest on the latter loan.

The interest on the notes was payable July 1, 1893, and January 1, 1894; and the interest due July 1, 1893, not having been paid, and the default having continued for 30 days, Tod & Co., on a request of a majority of the note holders, declared the principal due, and advertised the securities for sale on September 19th, in accordance with the indenture of trust, due notice being given, which sale was adjourned to September 26th, at the instance of the creditors of the Union Loan & Trust Company, when the sale took place; and Tod & Co. bought the securities as purchasing trustees, thereto duly appointed, and held the same for the benefit of the holders of the notes. Certificates were issued by Tod & Co. as such purchasing trustees that they so held the securities, and that each of the note holders was entitled to a three-hundredth part interest for every $5,000 note deposited.

After the interest had defaulted, Tod & Co. were interviewed on behalf of some of the creditors of the Union Loan & Trust Company, and an offer to pay the defaulted interest was made, on condition that such creditors should be put in control of the board of directors of the Sioux City & Northern Railroad Company, but with this condition Tod & Co. were* without authority toʻ comply, and the creditors' committee declined to pay. No money was tendered.

According to the evidence of the Tods, it was then, for the first time, that Tod & Co. received any intimation that their right to hold the securities was questioned by the

Union Loan & Trust Company or its credit

ors.

The circuit court entered a final decree authorizing the redemption of the securities by the intervener on payment to Tod & Co., as trustees, of the sum of $1,500,000, with interest thereon from December 30, 1892, computed with semiannual rests, to the date of payment.

The opinion is reported in 65 Fed. 559, and it appears therefrom that District Judge Shiras, by whom the cause was heard, held that the transactions prior to the million and a half loan could not be passed on, but that the inquiry at issue was to be determined by considering the contracts under which Tod & Co. obtained possession of and claimed title to the 10,600 shares of Sioux City & Northern stock, and the $2,340,000 of Sioux City, O'Neill & Western bonds held by them.

After a brief review of the formation of the syndicate and its dealings with the Union Loan & Trust Company, the conclusion was drawn: "That the trust company, as against the members of the syndicate, is entitled to the benefit of the securities which were placed in its possession, and upon the faith of which it may be assumed it indorsed the syndicate paper"; but that it was fairly deducible from the evidence that "the trust company parted with the possession of the securities, knowing that it was intended to rehypothecate them"; and that "it is not now open to the trust company to repudiate the acts of its secretary and treasurer in regard to these securities, by whose action in placing the same in the possession and under the control of Garretson the latter was enabled to repledge the same as security for further advances." That "the fair inference from the entire evidence is that the trust company consented to the repledging of these securities, in order that further funds might be procured for carrying on the work in question, but by so doing it did not abandon its lien upon or equity in the securities, but only subordinated its rights to those created by the repledging of the securities."

That the sale of the securities by Tod & Co., under the provisions of the trust agreement of December 31, 1892, did not devest the trust company or its assignee of the junior lien on the securities; and that its right to redeem remained, because the $1,500,000 of notes were not purchased in the ordinary course of business, nor in fact issued by the bridge company in connection with its business, but made at the dictation of the syndicate, on the suggestion of Tod & Co., and operated as a fraud on the bridge company. That the use of its name was in reality a matter of form merely, and was so understood; and that the transaction must be considered as a loan to the syndicate, secured by a pledge of the collateral, which lien was superior to that existing in favor of the trust company.

The suggestion as to usury was dismissed,

on the ground that, in any view, equity required the payment of the sums advanced, with interest, and no offer to do this was made by the intervener.

From the decree the intervener prosecuted an appeal to the circuit court of appeals for the Eighth circuit, assigning as error, in substance, that the circuit court erred in not finding that intervener had a prior lien; that the securities were wrongfully taken from the Union Loan & Trust Company, and that defendants were not bona fide holders, and took with notice; that the loans were usurious and void, and defendants, therefore, unable to hold the securities as against the intervener.

Defendants also appealed from the decree, assigning as error the failure of the court to sustain objections to certain evidence; the allowance in the final decree of leave to intervener to file his second amended petition; and the award of redemption.

The cause was heard in the court of appeals by two circuit judges, and the decree affirmed by an equal division; but on a petition for rehearing by the intervener an opinion was filed, from which it appeared that both judges were agreed that appellees'* lien on the securities was paramount to any claim of intervener, but that they were divided on the question whether or not the right of redemption was cut off by the auction sale under the loan agreement. 22 C. C. A. 606, 76 Fed. 905.

The intervener then applied to this court for a writ of certiorari, which was granted.

J. C. Coombs, H. J. Taylor, and Wm. Faxon, Jr., for appellant. J. L. Cadwalader, G. W. Wickersham, John L. Webster, and F. B. Daniels, for appellees.

Mr. Chief Justice FULLER, after stating the facts in the foregoing language, delivered the opinion of the court.

It is provided by the judiciary act of March 3, 1891, that any case in which the judgments or decrees of the circuit court of appeals are thereby made final may be required, by certiorari or otherwise, to be certified to this court "for its review and determination, with the same power and authority in the case as if it had been carried by appeal or writ of error to the supreme court."

This case belongs to the class of cases in which the decree of the circuit court of appeals is made final by the statute, and, having been brought up by certiorari on the application of petitioner below, is pending before us as if on his appeal.

And, as respondents did not apply for certiorari, we shall confine our consideration of the case to the examination of errors assigned by petitioner.

These errors as assigned in the brief of counsel are, in short, that the circuit court erred (1) in not establishing the priority of petitioner's lien or right in and to the se

curities; (2) in subordinating that lien or right, and decreeing foreclosure unless payment was made as prescribed; (3) in not entering a decree giving priority to petitioner because respondents set up absolute title by purchase, which was not sustained by the court; (4) in not restraining respondents by injunction, and not ordering the surrender of the securities to petitioner.

*The supposed errors in decreeing foreclosure, and that respondents were entitled to hold as pledgees notwithstanding their title by purchase was so far defective as to let in redemption, may readily be disposed of.

This was not a proceeding by Tod & Co. to obtain foreclosure. It was petitioner who sought the aid of the court, and this by an application which was, in effect, a bill to reclaim the securities absolutely and free from incumbrance. The circuit court treated the pleading as if framed in the alternative, and allowed redemption on conditions stated, the right thus accorded being necessarily declared to be extinguished if the conditions were not complied with as prescribed. And no error is assigned to the particular terms imposed.

Nor is there any tenable basis for the proposition that respondents' failure to sustain their purchase at the sale as a defense affected their rights as pledgees. Respondents stood on all their rights, and were not put to an election. If the purchase were valid, the equity of redemption was wiped out. If invalid, the original lien remained. If superior, its superiority was not displaced by the claim of absolute title derived through the pledge as set forth in the pleadings.

Assuming that, as between the Union Loan & Trust Company and the syndicate, the company or its assignee had a lien on the securities in question, did the circuit court err in holding that the rights of respondents in respect thereof were paramount to those asserted by the intervening petitioner?

If not, then, although the circuit court may have erred in holding that the sale of the securities did not absolutely cut off the claim of the company or its assignee, that would be an error of which petitioner could not, of course, complain.

Petitioner contends that his alleged lien or right was entitled to priority, because the securities "were wrongfully and fraudulently abstracted and diverted from said trust company in subsequent rehypothecation with respondents"; and respondents did not hold them as received in good faith, in due course of business, for value and without notice, but acquired possession through transactions known to be*fictitious, usurious, ultra vires, fraudulent, and void, and with notice.

The circuit court and the circuit court of appeals agreed that respondents' right to the securities was superior to that asserted by petitioner, and we entirely concur in that conclusion.

So far from the securities being wrongfully

abstracted from the trust company, we think that, whatever the agreement between the trust company and the syndicate, the trust company must be held to have parted with such of the securities as were ever in its custody, with full knowledge that they were to be hypothecated by Garretson; that, indeed, the evidence fairly shows that those which at any time came into the possession of the trust company were either deposited there by Garretson or by his order and direction, with the understanding on his part that he was authorized to withdraw them for the purpose of sale, pledge, or otherwise, and that he always acted on that theory, with the consent and participation of Smith, as secretary and treasurer; and that, in any view, Smith's acts in the company's behalf must be held to have been performed with the actual or implied authority of the directors.

Smith, as secretary and treasurer, was the person who was actively engaged in the management of the affairs of the Union Loan & Trust Company, and held out to the public as having unlimited authority to manage its business and dispose of any of its securities. He indorsed in the company's name every note it put out, signed every letter that it wrote, and was, as respected the public, the trust company itself. Throughout all the transactions his conduct conceded that Garretson was the lawful holder of the stock and bonds tendered by him as collateral to the loans he negotiated. As such officer, he directly transmitted the securities of the Sioux City & Northern Railroad Company to New York, and likewise the $1,433,000 of Nebraska & Western bonds to Garretson at Omaha, to be delivered to the agent of Tod & Co., under the contract for the $1,000,000 loan, and to be turned into court in carrying out the reorganization scheme*in accordance with which the Sioux City, O'Neill & Western bonds were to be issued.

It appears to us indisputable on the face of this record that Garretson was intrusted, according to the understanding of all parties, with the right to sell the Stoux City & Northern bonds; that the Union Loan & Trust Company received the proceeds of $1,000,000 of those bonds, thus ratifying the transaction; and that the proceeds of the balance were applied with Smith's knowledge, without objection on his part, or that of any other officer or director of the trust company, to taking up. notes secured thereby, which had been given by Garretson to acquire the Nebraska & Western bonds, which he afterwards pledged to Tod & Co., and which were exchanged for the bonds of the Sioux City, O'Neill & Western Railroad in controversy.

None of the securities ever stood in the name of the Union Loan & Trust Company; and they were delivered in such form as to enable Garretson to hold himself out as the owner or lawful holder thereof, with full power of disposition.

The district judge well said: "It is entirely

clear that E. R. Smith, the secretary and treasurer of the company, dealt with these securities as though he had full authority from the company so to do, and he obeyed Garretson's instructions in regard to the same without demur; and it does not appear that the trust company, or any officer thereof, ever objected to such disposition of the securities; and, furthermore, so far as the evidence in this case discloses, the general management of the business of the trust company was intrusted to Smith, with very little, if any, supervision on the part of the directors or other officers of the corporation."

The truth of the matter seems to be, as the -circuit court held, that, in order that the various properties represented by the stock and bonds should become valuable, it was necessary that the enterprises on which they were based should be carried through, and this required additional funds, to procure which the trust company consented to Garretson's negotiations with Tod & Co. and the debenture company, and the pledging of the securities.

*The presumption on the facts is that the securities were delivered by the company to Garretson for use, and, if they had ever been pledged to the company, that the pledge was discharged by the voluntary parting with possession. There is nothing to show an intention to limit the use to a hypothecation in subordination to a prior pledge, let alone the question whether any such pledge existed, and the absence of evidence of any assertion thereof.

Certainly, under the circumstances, the company could not be allowed to set up its alleged title as against third parties taking in good faith and without notice. And the same principle is applicable to its assignee and to creditors seeking to enforce rights in his name. So far as this case is concerned, there is nothing to the contrary in the statute of Iowa regulating assignments for the benefit of creditors as expounded by the supreme court of the state. Code Iowa, tit. 14, c. 7; Schaller v. Wright, 70 Iowa, 667, 28 N. W. 460; Mehlhop v. Ellsworth, 95 Iowa, 657, 64 N. W. 638.

Section 2127 of the Code provides: "Any assignee, as aforesaid, shall have as full power and authority to dispose of all estate, real and personal, assigned, as the debtor had at the time of the assignment, and to sue for and recover, in the name of such assignee, everything belonging or appertaining to said estate, and, generally, do whatsoever the debtor might have done in the premises."

Conveyances by insolvent debtors in fraud of their creditors may be attacked by their statutory assignees, though equity would not aid the debtors themselves to recover the property, for the property transferred would, in the eye of the law, remain the debtors', and pass to the assignees, who would not be subject to the rule that those who commit iniquity have no -standing in equity to reap the fruits there

of. But equities or rights belonging to particular creditors are not, by operation of law, transferred to such assignees.

The trust company did not own these securities, and did not transfer them in fraud of its creditors, prior to the assignment, so as to entitle the assignee to treat the transfers as void, and the securities as belonging to the company.

*And it must be remembered that this pro-* ceeding is an attempt on behalf of the holders of railroad syndicate paper, which constituted only a portion of the liabilities of the trust company, to establish equities in the securities on the ground that they were pledged to the company to secure it against liability on its indorsements of such paper, and that these equities, if any, must be worked out through the company.

The difficulty with the contention that the trust company was bound to hold the securities for the benefit of the holders of syndicate paper, that they were not duly parted with, and that Tod & Co. took with notice of the alleged interest of the trust company, and the equities of those holders, is that it does not appear that any of the syndicate paper was taken on the strength of these particular securities, or that Smith acted otherwise than with the knowledge and assent of the directors, or that Tod & Co. had notice of any claim of the trust company or its indorsees, or of any defect in Garretson's right to dispose of the securities.

The securities were railroad bonds, payable to bearer, and certificates of stock in the names of Garretson and his associates, with transfers indorsed by them in blank; and they were, in large part, sent to Tod & Co. by the trust company, at Garretson's request, with presumably full knowledge that they were to be used as collateral to loans he was procuring, without anything to indicate that the trust company had any interest in them, or any intimation of such interest. The se curities did not stand in the name of the trust company, and Garretson did not, in any of his dealings with Tod & Co., assume to act for the company. The mere fact that he was one of its officers was not in itself sufficient to call for an inference that he was acting as such in these transactions, nor did he make his requests of Smith in that capacity, nor were they complied with by Smith as on that theory.

There was no actual notice, and, as the visible state of things was consistent with Garretson's right to deal with the securities as he did, such notice cannot be presumed or implied. Nor do we regard the conduct of Tod & Co. as so negligent as to justify the application of the doctrine of constructive notice.

499

The circumstances relied on as imputing* notice or requiring inquiry which would have resulted in notice are, in our judgment, inadequate to sustain that conclusion.

Thus, it is said that because the Nebraska