684

FEDERAL REPORTER.

greater extent than are like averments in an affidavit to take deposition de bene esse under the act of congress. If an issue could be made upon these facts, and testimony taken, more time might be than would be necessary to take the depositions, and the whole object of the bill thus be defeated. This object is to obtain a summary examination of the witnesses, that their testimony may be perpetuated; and, as before observed, we doubt whether any of the matters of fact contained in the bill can be put in issue, except, perhaps, wi\h regard to the existence of the controversy. Nor can we review the opinion of the court in sustaining the demurrer to the original bill, unless, at least, it appears that this bill was so clearly frivolous that it ought never to have been filed, or plaintiff could have no reason to expect that his suit could be successful. We think plaintiff is entitled to a decree for an examination of his witnesses. .

BLAm

'V.

ST.

LOUIS,

H. & K. R.

CO.l

(Oircuit Oourt, E. D. Missouri.. December 8, 1885.)
1.

2

NOTICE-CONTENTS OF CORPORATE RECORDS.

A person dealing with a railroad company is not bound to. take notice of what its records show.

CORPORATIONS-CONVEYANCE OF ENTffiE ASSETS-PRIORITY OF RIGHT As BETWEEN UNSECURED CREDITORS OF GRANTOR AND MORTGAGE CREDITORS OF GRANTEE.

A., a corporation, being largely indebted to B. and others, its stockholders and officers, organized C., a new corporation, and transferred to it all of A.'s assets in consideration of stock in C., and of Co's assuming A.'s liabilities. The transfer was not recorded. C. thereafter mortgaged the property so transferred to D. to secure an issue of bonds. At the time of the execution of the mortgage B.'s claim had not been reduced to judgment, and D. accepted the mortgage without actual notice of said claim. B. has since obtaIned judgment against C. Held. that his lien is inferior to Do's.

In Equity. Cross-bill of Josiah Fogg and Sarah Parker. For previous opinions, see 17 Fed. Rep. 871; 22 Fed. Rep. 36; 24 Fed. Rep. 148. Theodore 1. Case, for complainant in original bill. Jas. Carr and Geo. D. Reynolds, for complainants in cross-bill. BREWER, J., (orally.) In the case of the cross-bill of Josiah Fogg against the St. Louis, Hannibal & Keokuk Railroad Company, argued and submitted to me the day before I left St. Louis, a few weeks ago, 1 will state that I have read the evidence and am prepared to render a decision. The facts in the case are that the St. Louis & Keokuk Railroad Company was organized under a charter of February 15, 1859. After its organization it commenced to do some work.
lReported by Benj. F. Rex, Esq., of the St. Louis bar.

Bum '11. ST. LOUIS, R. & K. B. CO.

685

On March 4, 1873, having done a limited amount of work it transferred all its assets to the St. Louis, Hannibal & Keokuk Railroad Company, a new corporation. That new corporation was composed of substantially the same persons, with substantially the same officers, and assumed the debts of the old, to the amount, at least, of $19,000,-enough to cover this claim. Prior to the transfer, the St. Louis & Keokuk Railroad Company had made a contract with the Missouri & Iowa Construction Company for building the road. The same contract was continued by the St. L.:.>uis, Hannibal & Keokuk Railroad, the date of the first being April lz, 1872, and the date of the second July 15, 1872. Under the provisions of this contract with the Missouri & Iowa Construction Company a Grust deed or mortgage was issued to Dewitt C. Blair and Clarence G. Mitchell, as trustees, the deed being dated October 1, 1875, and providing for bonds at the rate of $20,000 per mile. Fogg, the principal complainant, had done some work in the construction of the road prior to the transfer-prior to March 1st, 1872-for the St. Louis & Keokuk Railroad. His was recognized on the books of that corporation, (the old corporation,) and llubstantially assumed by the new corporation and recognized on its books. There was an intermediate mortgage to the Farmers' Loan & Trust Company, but that does not cut any figure in the case. The trust deed to Dewitt C. Blair and Clarence G. Mitchell was canceled and bonds surrendered, and a new trust deed issued August 1, 1877, to Dewitt C. Blair, as trustee, for $12,000 per mile, and that trust deed is the one which is being foreclosed in this suit. against both companies and each comThis claim of Josiah pany remained in parol, was not reduced .to judgment, and no suit commenced thereon until the twenty-first of September, 1880, when he brought suit on the law side of this court against both roads, the St. Louis & Keokuk and the St. Louis, Hannibal & Keokuk. That action was dismissed as to the St. Louis, Hannibal & Keokuk, and passed to judgment against the St. Louis & Keokuk, the old corporation, on October 8, 1882. Thereafter he sought, by a bill in equity filed on May 3, 1883, to charge that judgment against the St. Louis & Keokuk Railroad against the St. Louis, Hannibal & Keokuk. This suit passed to a decree against the St. Louis, Hannibal & Keokuk Railroad, May 5,1884. The transfer from the St. Louis & Keokuk Railroad to the St. Louis, Hannibal & Keokuk Railroad, though reduced to writing, was never placed on record, and the question that comes up now is whether this claim put in decree, on May 5, 1884, against the St. Louis, Hannibal & Keokuk Railroad is a lien upon that road prior to the trust deed executed in 1877 to Dewitt C. Blair, as trustee. It should be stated here, though, that of the bonds issued under that trust deed to Dewitt C. Blair a large proportion of them were not earned or delivered until after 1880, and then in pursuance of a contract with John 1. Blair and Moses Taylor for the construction of a certain portion of the road.

686

FEDERAl. REFORTER.

Now, it is unquestioned law that a party who holds the legal title to real estate may convey a full title to one who purchases in good faith and pays value; or may mortgage it to one who gives value, and give a prior lien to such mortgagee as against all undisclosed equities. The mortgagee or purchaser will take subordinate to such prior equities if, and only if, he has notice, either actual or constructive, of their existence. In this case there was no constructive notice. The contract between the old and new corporation was not placed on record. There was nothing on record to disclose that Mr. Fogg, or anybody else, had any claim against the St. Louis, Hannibal & Keokuk, or against the St. Louis & Keokuk Railroad. The only place where the information could be obtained outside the lips of witnesses was from the books of the corporation-one or the other. Now, I do not understand that a man, dealing with a private corporation, or even a quasi public corporation, like a railroad, is bound to take notice of what the records of that corporation show; for if it be so, no man can deal with a corporation in safety without first having access to and an examination of its books; and the converse of that would be true, that such a corporation is to show its records to whomsoever has dealings with it. In a certain sense, the books of a corporation, so far as persons dealing with it are concerned, are their own private records, and are not open to the inspection or knowledge of strangers, and persons are at liberty to deal with a corporation freely without danger of running against equities or claims unless they are disclosed by the public records, just the same as in dealing with an individual. You look to the record title he has, and if it is good you can deal with him on the faith of that in safety, and are not chargeable with notice of any undisclosed equities. The Missouri Statutes provide how a suit may become constructive notice by a filing in the register of deeds' or the recorder's office. There was nothing of the kind done here, and therefore nothing which, within the purview of those statutes, would charge this mortgagee, Dewitt C. Blair, or the principal bondholders, John 1. Blair and Moses Taylor, with constructive notice of any claim of Josiah Fogg. There has been taken, to show actual notice, the depositions of John 1. Blair and Dewitt C. Bla,ir. As far as Moses Taylor is concerned, who was with John 1. Blair the holder of nearly all the bonds, it appears from the testimony that the business was transacted wholly by John 1. Blair. Dewitt C. Blair, the trustee, absolutely knows nothing. Counsel commented upon the remarkable ignorance which he manifests, and seemed loth to believe that any man would take such a trust in such profound and dense ignorance of the facts concerning it. Well, if he had a pecuniary interest in the matter, possibly that criticism might be just, but if he was, as he seems to have been, simply a nominal party in this matter, a trustee having no further duties tban to deliver the bonds, and be the instrument of executing the orders of the officers of the compahy, it is not strange that the matter

BLAIR 11. ST. LOUIS, H. & K; R. 00.

687'

made very little impression on his mind, and that his knowledge of the condition of the road, and the contracts made with reference to it, was absolutely nothing. In reference to John 1. Blair, his testimony was substantially that his negotiations, or the negotiations of the Lackawanna Iron Company, of which he is president, were originally with this Missouri & Iowa Construction Company; and that in that com· pany were some gentlemen of railroad experience,-railroad builders of known financial ability; and that his contracts were made with that company, upon the faith of these facts; and that the bonds to be received were mainly in the way of a collateral security. Now, it does not seem to me so strange that a man dealing with a construction company, with men with whom he had had business transactions, and in whose financial ability he had confidence, that he, mainly relying on that ability, and on their character, should take the securities which they tendered, relying on their statements concerning them. He had also the statements of the president of this company that the roa4 was free from embarrassments and indebtedness; statements, which it would seem from Mr. Blair's testimony, were not only unreliable, but were coupled with many others since found to be untrue. . After reading this testimony through, .from its commencement to the close, (subjected, as both witnesses were, to a searching cross-examination,) it seems to me there is not one syllable to indicate that at the time the interest was acquired by John 1. Blair and Moses Taylor in those bonds they had any notice or information or intimation that Josiah :Fogg had any claim against the St. Louis, Hannibal & Keokuk Railroad. While counsel criticise this as strange, yet I think an opposing fact is eqnally strange. If Josiah Fogg had a claim, which it is now proved that he did have, a claim existing prior to March 4, 1873, a claim against both the St. Louis & Keokuk Railroad and the St. Louis, Hannibal & Keokuk Railroad, he permits that to rest unenforced,. unreduced to judgment, a mere matter of parol, until the twenty-first of September, 1880, more than seven yearl'!. It does not lie in his mouth to reflect or criticise tbe . apparent confidence of other persons dealing with the St. Louis, H!tnnibal & Keokuk Railroad Company, if he was willing to trust these parties all those years, and take his chances of voluntary payment. I suppose he had reason to believe it would be paid, and therefore did not take any steps to enforce it. It certainly does not lie in his mouth to complain that other people were equally confiding in trusting to the representations of the same officers. It seems to me that there was neither actual nor constructive notice to eit'her the trustee in this mortgage or to the principal bondholders of the existence of this claim at the time they became interested as trustee and as bondholders. It follows from that, that this claim, as well as that of; , Sarah Parker, similarly situated, is not entitled to priority to the bonds, and it is so ordered.

688

i'EDERAL REPORTER.

ALLEN tl. HALLIDAY

and others.!

November, 1885.)

(Oin'euit OOU'l't, E. D. Loui8iana.

1.

I.

EQUITY JURISDICTION-CLOUD UPON

TITLE. A suitor has no remedy at law to remove a cloud upon title to real estate of which he has the possession and is not disturbed therein.

SAME.

To maintain a suit"to remove a cloud upon the title of real estate, it is generally necessary that the plaintiff's title should have been established at law, but It suffices that it be founded on undisputed evidence or long-continued possession. Holland v. Ohatlen, 110 U. S. 20, S. C. 3 Sup. Ct. Rep. 495, followed.

In Equity. On demurrer. B. R. Forman, for complainant. R. H. Marr, for defendants. PARDEE, J. This case has been heard on demurrer to the bill. The bill is one in which the complainant, alleging himself to be the owner arid in possession of certain realty, complains of the defendants as pretending that a certain sheriff's deed outstanding is a prior and better title than complaiuant's, and that such preteusions, with a record of said sheriff's deed, will throw a cloud on complainant's title; and suitable relief is asked. "The first ground of demurrer urged is that the complainant has a complete and adequate remedy at law. Under the allegations of the bill it is difficult to point out what this remedy at law may be. Complainant is in possession, Rnd his possession is not disturbed,-only threatened, and that by pretensions of title. Neither ejectment nor trespass will lie. The petitory action, under the Code of Louisiana, must be brought against one in possession, and is therefore not available to the complainant. The possessory action may be brought by one in possession; but in such action no question of title can be adjudicated. It seems to me that if complainant has any remedy, it is the one he has sought in this bill, to-wit, to remove cloud from title and an inj unction. The other ground of demurrer is that equity will not interfere to remove a cloud upon the title to real estate until the complainant's title has been established at law. The general rule given by the supreme court is that the plaintiff should be in possession of the property; and, except where the defendants were numerous, that his title should have been established at law, or be founded on undisputed evidence or long-continued possession. See Holland v. Challen, 110 U. S. 20; S. C.'8 Sup. Ct. Rep. 495. And in that case this general rule was held to be further modified by the legislation and jurisprudance of the state in which the action is brought, going so far in the district of Nebraska as to maintain a bill to quiet title by one not in
1 Reported

by Joseph P. Hornor, Esq., of the New Orleans bar.