U:-1rfED STATES V. FLINT & P. M. RY. CO.
551
402):
"That is to say, whilst any partnership property remained, either partner might apply it or compel its application to the film debts, and for this purpose might avail himself of the equity powers of the courts. And, possibly, creditors might compel him to allow them to use his name for this purpose if he were backward in protecting their rights." Hitherto this matter has been treated as though Beck actnally assigned or intended to assign to Singerly, but the entries relied upon fall short of manifesting such an assignment. Above all, Beck's answers to the specific interrogatories filed, while not evidence against Singerly, are evidence against himself, and he has answered to the tifteenth interrogatory that by the transfers in the books of the Art Library Publishing Company he made no sale of any interest in the partnership assets to Singerly. None of the exceptions are sustained.
Asa W. Waters and W. H. Addicks, for receiver. J. Howard Gendell, for exceptions. McPHERSON, District Judge. I have considered carefully the reports, arguments, and testimony in this case, and am of opinion that the exceptions of Mr. as administrator of William Singerly, must be overruled. I agree entirely with the learned master's findings of fact, with the inferences of fact that he draws therefrom, and with his conclusions of law. It would be superfluous to restate what he has already put so convincingly, and accordingly I shall content myself with adopting his reports as the opinion of the court. The exceptions are dismissed.
U:\'ITED STATES v. FLI:\'T & P. :\1. RY. CO. et aI. (Circuit Court of Appeals, Sixth Circuit. No. 582. 1. PUBUC LANDS-FORFEITURE OF RAILUOAD QUANT-BONA FIDE PURCHASERS.
July 5, 1899.)
The effect of the acts of March 8, 1887 (24 Stat. 55(;), and of :March 2, 1800 (29 Stat. 42), providing for the adjustment of railroad land grants, was to confirm in bona fide purchasers from a railroad company the title to lands which, when certified under the grant, were public lands of the United States,and not subject to individual daims, although at the time the grant attached they had been withdrawn from its operation, where they were subsequently restored to the public domain, were within the limits of the grant, and were earned by the company. 'Vhere a railroaCl company to which a land grant was made, and to whirh lands were certified thereunder as earned, conveyed the legal title to such lands in trust for its bondholders, and on the foreelosure of a subseqllt'nt mortgage its eqUity of rpdemption was sold, leaVing the title in the trustees, and suhject to the rights of the first bondholders, such sale operated to extinguish all title and interest of the original grantee in the lands, and took the trustees out of the proviso of tIre act of ]\[urch 3, 1887 (24 Stat_ 55(;), excppting mortgagees from the provision in favor of bona tide purchasers, and the trustees and purchaser of the equity of redemption beC!lm2 bona fide purchasers, within the meaning of such provision and of section 1 of the act of March 2, 189(; (29 Stat. 42). OF EQUITY OF REDEMPTION TO MORTGAGEE-CONSlDEHATlON. FIDE PUHClIASERS-EFFECT 01' SALE IN FOlmCI,osURE.
2.
SAME-WHO AHE
3.
A deed made by a railroad company to trustees, to whom it had preViously conveJ-ed the legal title to lands to secure its bonds, purporting to convey to such trustees the equitj' of redemption for the benefit of the
552
95
FEDERAL REPORTER.
bondholders, but for which no consideratIOn was received, is tnefl'ectual to devest the company of such equity.
Appeal from the Circuit Court of the United States for the Eastern Dist('ict of Michigan. . This ,vas a bill in equity filed by the United States in the circuit court for theEastern district of Michigan, under authority of Act Congo :Ylarch 3, 1887, C. 376 (24 Stat. 556), providing for the adjustment of land grants made by congress to aid in the construction of railroads. The lands in controversy were situate in the county of Isabella, state Of Michigun, and had an area of 21,751 acres. The bill churged that the lands had been wrongfully certified to the ,;tate of Michigan for the benefit of the defendant company, and the prayer was for the cancellation of such certification. and the restoration of the lands to the public domain. The bill was filed against the Flint & Pere :Vlarquette Hallway Company, and the Flint & Pere :Vfarquette Railroad Company, 'V. ,Y. Crapo, trustee, and a large number of individual defendants. The individual defendants were averred to be in posse,ssion of different parcels of the land under grants from the F'lint & Pere Marquette Railway Company or its trustees. The circuit court, after a final hearing upon issues made by answers and replication and evidence, entered a decree dismissing the bill as to all of the defendants. An appeal has been taken from the decree in so far as it dismissed the bill as to 720 acres of land, the title to which stands now in the name of 'Villiam 'V. Crapo, trustee, to whom it was conveyed by the Flint & Pere :Vfarquette Railway Company. By the act of congress of June 3, 1856 (11 Stat. 21), a grant of land was made in the state of Michigan to aid in the construction of certain railroads, of which one was from Pere :Vlarquette to Flint. The, grant was of every alternate section of land designated by odd numbers for six sections in width on each side of each, of said railroads_ And it was provided that if, when the lines of the roads were definitely fixed, it appeared that the United States had sold such sections, or parts thereof, or the right of pre-emption had attached to the same, an agent appointed by the governor of the state might select, subject to the approval of the secretary of the interior, other sections within 15 miles of the lines of the road which should be held by the state for the purpose of the grant. Lands theretofore reserved by the United States by act of congress, or in any other manner by Gompetent authority, for the purpose of aiding in the object of a:lY internal improvement, or for any other purpose whatever, were reserved from the operation of the act. Lands granted to the state by the act were made subject to disposal by the legislature for the purposes of the act. The manner of disposition by the state was prescribed as follows: "That a quantity of land not exceeding one hundred and twenty ;;ections each of said roads, and included within a continuous length of twenty miles of each of said roads, may be sold, and when the governor of said state shall certify to the secretary of the interior that any twenty continuous miles of any of said roads is completed, then another quantity of land hereby granted, not to exceed one hundred and twenty sections for each of said roads having twenty continuous miles completed as aforesaid, and included within a continuous length of tw-enty miles of each of said roads, niay be sold, and so, from time to time, until said roads are completed." The legislature of the state of :Vfichigan, by act of 1857 (Laws Mich. 1857, p. 346), conferred the grant of lands made to the state for the construction of the road from Pere :\larquette to Flint upon the Flint & Pere Marquette Railway Company. By section 70f this act, as amended in 1859 (Laws Mich. 1859, p. 442), and in ac.cordance with the authority given by the act of congress of June 3, 1856, upon the completion of each 20 miles of railroad, and after the certificate by the governor and the secretary of the· interior of such completion, the railway cOlJ,lpany was authorized to sell the 120 sedions of land earned, and so on until the whole of its road was completed: and on the final completion of the entire road it was authorized to sell the remainder of the lands. The grant was accepted by the Flint & Pere Marquette Railway Company, which filed its map of definite location, approved by the govel'lwr of the state of Michigan, with the commissioner of the general land office on August 18, 1857, and thereafter proceeded to construct and complete its road frow Pere Marquette to
UNITED STATES V. FLINT & P. M. RY. CO.
Flint within the time limited by the act. As the construction progressed,the governor of Michigan then in office certified to the secretary of the interior the completion of the road, and the secretary of the interior certified the lands to the railway company. The total area of the land which the railway company would have received for the whole length of the road from Pere )farquette to Flint, if the land had been available within the 15-mile limit, was 586.828 acres. The amount of land certified within the 6-mile limit was 258,947 acres. The deficiency lands certified within the 15-mile limit amounted in area to 252,478 acres; making a total of lands actually certified to the railway company of 511,425 acres. This left a deficiency of 75,402 acres in the grant to the railway company. Of the lands so certified, 21,751 acres are the lands described in the bill. They are situate in the county Isabella, and were within the 6-mile limit of the railroad. They were certified by the f'ommissioner of the land office under date of September 24, 1862, and approved by the secretary of the interior, December 1, 18H2. As already said, of the 21,751 acres, but 720 acres are involved in this appeal. The averment of the bill was, and the claim on behalf of the appellant is, that the lands in controversy did not pass by the congressional grant, but were excepted therefrom by reservation for other purposes before and at the time of the grant. This claim rests on the following facts: By letter of December 20, 1854, the commissioner of the land office recommended to the secretary of the interior that the lands in Isabella county be withdrawn from the market. and be reserved for Indian purposes, or so much thereof as might be deemed expedient. The secretary of the interior, by letter of April 12, 18i'i5, referring to the foregoing, recommended to the president the withdrawal of the lands "with the express understanding that no peculiar or exclusive claim to any of the land so withdrawn can be acquired by said Indians, for whose fnture benefit it is understood to be made, until after they shall, by future legislation, be invested with the legal title thereto." On May 14, 1855, the withdrawal was made by the president in the following words: "Let the withdrawal of all vacant land in Isabella county be made with the express understanding contained in the letter of the secretary of the interior to me of the 12th inst. Franklin Pierce." The secretary of the interior advised the commissioner of the land office of this action of the president by a letter of the same date. On August 2, 1855, a treaty was made with the Chippewa Indians, in which it was stipulated that the United States should withdraw from sale, for the benefit of thE' Indians, all the unsold public lands in the state of Michigan, among which were embraced "six adjoining townships of land of the county of Isabella, to be selected by said Indians within three months of this date and notice thereof given to their agent." By letter of May 30, 1856, the land commissioner accordingly directed the suspension of sales and location of lands in Isabella county. The railroad company filed its map of definite location on August 18, 1857. After considerable correspondence between the railroad company's agent and the land department, the commissioner of Indian affairs, in 1859, reported the selection of six townships under the treaty of the Indians, specifying the townships, which did not include the lands here In controversy. In 1861 the remainder of the lands in Isabella county were restored to the market for sale. The question was then mooted whether the Flint & Pere )farquette Railway Company was entitled to take the lands within the six-mile limit in Isabella township which had thus been reserved for selection by the Indians, and not used for that purpose. The secretary of the interior distinctly decided tbat the lands in controversy were lands which, under the grant of June 3, 1856, passed to the state of Michigan to aid in the construction of the road fl'om Pere' )farquette to Flint. This decision was rendered in 1861. 'rhe lands in were certified to the railway company as lands granted to the state of Michigan, nnder act of congress of June 3, 1856, by the commissioner of the general land office, on September 22, 1862, and this certification was approved December 1, 1862, by the secretary of the interior. The history of the title to the lands in question after the certification is as follows: On April 6, 1860, the Flint & Pere Marquette Railway Company executed a deed of trust to Clark, Knapp, and Edmunds, trustees, of the first 40 miles of the railroad running from Flint to Marquette, and 153,360 acres of
554
95 FEDERAL REF,PRTER.
land eaJ;ned by said construction, to secure,the payment of. $t!$O,OOO·of bonds. The trustees were authorized to sell the fands, and aPply :theproceeds to the, payment of the bonds, On September the railway eX,ecuted another deed to Tucker, r>rescott, and Knapp, trustees, ,co.riveyIng the first 60 uiiles of road and 15?,6PO acres of the laJ,J,d ,to whIch the company wouIdbe entitled upon the construction of the second; and third divisIons of 2Omiles,-tosecure $500,090.of bl/nds. Qn August 1875, the railway company,. to secure the paymeJ,J,t. of $378,500 of bonds knowp as the "Flint and HoIly Bonds," and $800,000 ·of bonds known ,as "Consolidated Bonds," which were then outstanding, and for whIch the railway company was HaNe to the holders, conveyed to :prescott, arid Crapo .all the lands embraced in the first two deeds, and not disposed of by sale, subject to the trusts of the first two deeds. The trustees were authorized to sell, the land, and apply the proceeds to the payment of bonds. By death and other changes the tItle to the in the foregoing deeds became vested in Prescott apd Crapo, as trustees, and on the 23d' of August, 1879, the J:ailway compllllY conveyed to Prescott and Crapo all the right, title, and interest and equity of redemption of th8 II'lint & Pere ,Marquette Railway COlllPa:I\y in and to all the lands which were embraced in the, grant of lands'In said company under act of congress, inclUding the lands unsold and the land contracts for lands. which were within s,'Lid grant which ,had then blien sold, or. on which partial. payments had been made, ,and the due and to grow· due on said land contracts, and all securities for the payment of the same, , and reCiting that the IIi'debtedness secured was greater than the value, thereby purported to vest in Prescott and Crapo the absolute titIeand equity of redemptipn of the Flint & Pere Marquette .' R,alIway, Company in all of saic,l. lands. The conveyance. was, trust to Prescott and Crapo to earrlY out the trusts expressed ip. three deeds of trust. Prescott died in 1890, and the'trust sUJ;yived in Crapo. Under the three deeds of trust mad!; in ;t86Q, 1866, and, ,1875" conveyances of lands made by the trustees under the several Wllre joIned in by the railway cOmpany. But after the. deed of 1879 the trustees Jl1.a(le sales, of lund in their OWD name, raihvaY company as .irt. grantor. TIle sales however, without made as' ther>roperty of tIle railway conlpany, were advertised ;l'S, such, and were sold at their full value. Since 1873 the trustees have paid taxes' upon the lands unsold down to the date of the fiHng'Of the bill.' 'On the'20tIl'of June, 1879, the ti'ustees under the trust deed' otmortgage of 1872 securing the consolidated bOnds filed a bill in the United: States circuit court for the Eastern district oj' II.fich'igan to foreciosethe' same. Oil the 21st Of August, 1879,a supplemental' blIl was· flied. to 'fOt'eclose an additional' mortgage to secure the SlllIle bonds, which covered ail the property oj', the' Flint &, PeriJ Marquette Company of every kind, includitig its" interest IIi the. lands in question. rhe receiver was'appointed under the original blll,ilhd' bon'tinued to' act under the suppledid not pass mental 'hill; , but the lands In controversy, being held by into the custody or control of:the receiver; On June 12, '1880, a decree was passed in the suit. by which 'all the property'rlghts arid' franchises of the Flint & PereMarquette Company were decreed to be sold subject to thll lien created by the earlier ,trust deeds heretofore reClted; The bonds OIthe consolidated $6;236,368, prinCipal aud interest,' were declared to be mortgage, a lien upon the' entire propettyrights and<franchises of thilFliilt & Pere Marquette Railway Company subject to tM 'priQr liens already mentioned. The decree contaip.ed the following 'clause: ' i : : "Fourth. Tbat said complidnants, Crapo; Pierce, and ROgers, as trustees, and representing the holders of tbe said consolidated bonds; lire entitled to have ull the laIids and land assets (being the lands which were embraced in the land grant as stated in the pleadIngs)' and moneys on hand, or that may. be realized from lunds heretofore sold, 'and not yet fully' paid f()r, applied towards the paymtmt and extinguishment of the priot liens aforesaid, for 'WhiCh the same were specially pledged,so far as said land and land assets wiII go for the payment of the same; and: after the payment of.'saidprior 'secuJ;itles, for which Raid land and land assets are speciaIly pledged, and the payment of the costs and expenses of admiriistEiring said pri.;Jr ·trusts, respectively, thil said lastnamed trustees, as representing the holders of said consolidated bonds, are entitled to any surplus, if any there should, be, from such land and land
in
555
assets; and that upon a sail' of the road of said defendant and its property under this decree the right to call said prior trustees to account for any such surplus shall pass to the purchaser or purchasers under this decree, or to his or their successor or successors. But this decree shall not, nor shall any right given under it, operate as an incumbrance upon said lands, nor interfere with the trustees of said prior trusts, respectively, in the disposition thereof in accordance with the terms of said several trust deeds; it being the intention to confine the operation thereof merely to the right to call said trustees, respectively, to account, to require the performance by them of their duties as trustees, respectively, and to call upon them, or any of them, for any SUl'plus that may be found in their hands after the provisions of the said several trust deeds shall, respectively, be fUlly executed." 'rhe sale was made to individual purchasers, and confirmed, and a deed executed by the master in· chancery conveying all the property of whatsoever kind of the Flint &, Pere Marquette Railway Company with the following exception, "Excepting from said sale the lands included in the iand grant made by the United States and state of Michigan to aid in the construction of the said Flint & Pere Marquette Railway. and also excepting moneys due or to grow due or heretofore collected from the sale of lands or timber from the lands embraced in said land grant, but including the right to call the land-grant trustees to account, and to demand and receive any surplus after the prior trust shall he satisfied as in said decree provided." The individual purchasers organized the Flint & Pere Marquette Hailroad Company, and conve:red the interest purchased by them to that company, to whom the trustees have since accounted for the lands sold by them nnder their trust. The purchasers at the judicial sale paid $1,000,000 for the property by the master under the decree of sale and by deed of the master. Part of this purchase price was paid in mortgage honds, under the usual prdvision in such cases. The 720 acres here in controversy are still held by the sole surviving trustee, Crapo, for the uses under the deeds of trust, subject to an accounting for the proceeds of the sale of the same to the new railroad company, the Flint &, Pere Marquette Railroad Company.
Wm. N. Gordon, for the United States. Benton Hanchett, for appellees. Before TAFT and LURTON, Circuit Judges, and SEVERENS, District Judge. TAFT, Circuit Judge (after stating the facts). We do not think that this case can be distinguished from the casp of U. S. v. Winona. & St. P. R. Co., 165 U. S. 463, 17 Sup. Ct. 368. In that case the controversy was in regard to lands certified under an act of congress of )fareh 3, 18'57 (11 Stat. 195), making a railroad grant to the state of Minnesota in all l:espeets similar to the act of June 3, 1856, here involved. At the tune of the passage of the act, the sections in lmit were covered by homestead entries and pre-emption filings, and it was contended by the United States, under the decision of the supreme court in Railway Co. v. Dumneyer, 113 U. S. 629, 5 Sup. Ct. 5GG, that the grant tinder the act was in prmsenti, and all land entered for homestead or pre-empted at the time of filing the map of definite location was excepted from the grant, and remained public land, although such entries were subsequently, and before the construction of the road, abandoned or canceled. The supreme court speaking' by Mr. Justice Brewer, held that the effect of the acts of March 3, 1887, c. 376 (24 Stat. 556), and of )Iarch 2, 189'6, c. 39 (29 Stat. 42), if the certification was made after the lands became restored to the public domain, and if the lands had been earned by the railroad ,company, was to confirm the title to the same in any pur-
556
95 FEDERAL REPORTER.
chaser in good faith of the lands, from the original patentee, the rail· road company. :Mr. Justice Brewer stated the case before the court as follows: "These facts appear: First. The raiIrQad' company has constructed its road, and has earned the land grant. Second. It has received no more land than congress, by the act referred to, proposed to grant to aid in the construction of the road. Third. At the time that tile lands were certified to the state for its benefit, they were not subject to any homestead or pre-emption entry. They were free from all claims other than thoseQf the railroad company itself, and were, except as subject to such claims, in the fullest sense public lands, and wlthi.p. the jurisdiction of the land department. Fourth. Up to March 2, 1885, (when Hailway, Co. v. Dunmeyer, 113, U. S. 629, 5 Sup. Ct. 566, was decidpd by this court), the uniform ruling of the land department had been that the title to railroad lands became settled at the time the line of the railroad was surveyed, staked out, and marked on the face of the earth, and not at the time of the filing of the map of definite location in the land department; that a homestead entry, though apparently regular and valid, was open to question by the railroad company, and, If shown to have been fraudulent or irregular In'inception, or that it had been abandoned before the right of the company attached, was held not to except the land from the grant; and also that a preemption claim existing at the time of the attaching of a railroad grant, if subsequently abandoned, and not consummated,-even though in all respects legal and bona flde,-dld not defeat the grant, but upon the failure of such claim the land covered thereby' inured to the grant as of the date when it became effective. Fifth. Under such rules of construction, the land In controversy was all properly certified to the state for the benefit of the railroad company. Sixth. The lands were sold and conveyed' by the railroad company to parties who paid full value, and bought In good faith, believing the title which the railroad company assumell to convey to be peJ;fect."
There is certainly no distinction between this case and the Winona Case unless we yield to the contention of counsel for the government that the lands here in suit were not sold by the railway company, the original patentee, but were merely conveyed by it in trust, and by way of mortgage, and are excepted from the remedial operation of the acts of 1887 and 1896, upon which the Winona decision rests, by an express proviso in the act of 1887. The act of 1887 was passed for the purpose ,of adjusting land grants to railroad companies, and restoring to the public domain land improperly certified under such grants, by bills in equity to be filed by the attorney general. 'l'he third and fourth sections contain exceptions based on equitable considerations. Section 4 of the act provides, in effect, that title to all lands-with certain exceptions, not here material-which have been erroneously certified or patented to a railroad company in aid of the construction of a railroad, and which have been sold by the grantee company to citizens of the United States, or to persons who have de· clared their intention to become such citizens, shall be confirmed in such purchasers buying in good faith, upon their making proof of the necessary facts to the secretary of the interior, and patents shall is· sue to them relating back to the original certification or patenting; but it is expressly provided "that a mortgage or pledge of lands by the company shall not be considered as a sale for the purpose of the act." The act of March 3, 1891, was an act of limitation, that all suits to annul a patent should be brought within six years after the issuing of such patent. The act of March 2, 1896, amends the limitation in one respect, but contains further important provi·
UNITED STATES V. FLINT &: P. M:. RY. CO.
657
sions in respect to bona fide purchasers. The first section ccmtains this clause: "But no patent to any lands held by a bona fide purchaser shall be vacated or annulled, but the right and title of such purchaser is hereby confirmed." The second and third sections provide that any bona fide purchaser of lands erroneously patented or certified may apply to the secretary of the interior prior to the bringing of a suit, and, if it appears that he is a bona fide purchaser, the secretary shall request the suit to be brought against the original patentee for the value of the land, and the title of the claimant shall stand confirmed; but, if the claimant is mad'e a party defendant to the suit, and is found to be a bona fide purchaser, the court shall decree a confirmation of the title in his behalf, and a recovery in behalf of the United States against the original patentee for the value of the land. This act expressly recognizes corporations as entitled to claim as bona fide purchasers under the act. The present bill in equity was filed before the passage of the act of March 2, 1896, but the supreme court, in the Winona Case, held that the act was intended to apply as well to suits then pending under the act of 1887 as to those thereafter brought. The act of 1887 limits the benefits of the fourth section to citizens or persons who have declared their intention to become citizens, and. if we were confined to that act, it might be argued with some force that this refers to a citizenship which only natural persons are capable of acquiring, and so excludes corporations; but we are relieved from this difficulty by the express inclusion of corporations among those who are to share the benefits of the act of 1896. The supreme court has left no doubt as to the meaning of the words "bona fide purchaser" in the act. Mr. Justice Brewer in the Winona Case, speaking of the acts of 1887 and 1896, said: "Our conclusion is that these acts operate to confirm the title to every purchaser from a railroad company of lands certified or patented to or for its benefit, notwithstanding any mere errors or irregularities in the proceedings of the land department, and notwithstanding the fact that the lands so certified 01; patented were, by the true construction of the land grants, although within the limits of the grants, excepted from their operation, providing that he purchased in good faith, paid value for the lands, and providing, also, that the lands were public lands in the statutory sense of the term, and free from individual and other claims."
It was thus held that the expression did not have the technical meaning it has in equity, and the opportunity of the purchaser by reference to public records to advise himself, before he bought, of the nullity of the certification, did not strip him of his bona fide character under the act, if, in fact, he believed that the original grantee had a good title. It is a question of some doubt whether the proviso of the act of 1887 excluding mortgagees and pledgees from benefits secured to the class of purchasers in good faith is to be regarded as a limitation of the class of bona fide purchasers protected by the act of 1896. Assuming, without deciding, that the two acts are in pari materia, and that the proviso of the earlier act continues its force in the later, we are of opinion that the defendants the Flint & Pere Marquette Railroad Company and W. W. Crapo, the trustee, are bona fide purchasers of the lands in question under an absolute sale by the Flint & Pere Marquette Railway C()mpany,
r.,
ti:leoriginalgrantee, and so within the ,saving of; the .,second and third the act of 1896. .The facts, shortly are that tbeorigilUlJ by three. deeds ·conveyed the fee ,of all the landgrant lanp:s to trustees to secure certain bond with power to sell the lands,and apply the proce,eds af sale to the payme;nt of the bonds. 'This was, so far trustees aJ;l.d the bOJ;l.dholders were conc(lrl).(ld,and \mtil the lan9s were sold, only a mortgage 01' pledge. The, equity of redemption in the lands remained in the original gra.'(ltee of the United States, the rail)Vay company. By.a subsequent deed the railway company purported to convey to the trustees the equity of redemption in the lands unsold. This, it is contended by counsel for the defendants and appellees, was a sale, because it passed all title to the trustees. We do not think so. The trustees still held the land under the same trusts as under the former deeds. Those trusts were to sell, the, land, to.· apply the proceeds to the bonds, and to account for them to the railway company. If the ra;ilway company, under the former deeds, had the right, as it bad by express provision, to tender the full amoll-nt of the indebt,to .the bondholders, and demand a reconveyance of the land did not extinguish unsold .from tbe trustees, the last deed this right. Although it purported to do so, yet no consideration moved to the railway company for such conveyance of the equity of redemption. The bondholders did n,otrelease the company from any part of its indebtedness in consideration of the ,conveyance, and the company expressly retained its tight to the trustees to account for their sales. The last deed was executed merely for the purpose of more completely assuring to the trustees the right and power to sell to third persons the interest .of the railway company in the land, so that the latter need not join in the conveyance. It fortified the purchasers from the trustees against the railway company in their fee-simple title, but, as between the trustees and the company, in respect of the equity of redemption in the land unsold, it worked no change at all. It is true that a mortgagee may purchase the equity of redemption from his mortgagor, but courts will view the transaction with suspicion, and will not uphold it when it appears that the consideration was not adequate. Webb v. Rorke, 2 Schoales & L.661 iFord v. Olden, L. R. 3 Eq. 461. Here, as there was noconsideratioD;the transfer was of no effect, and the equity remained in the old company. The deed we are discussing did not purport to c0!l'vey the legal title; the trustees already had that. It was only the transfer of the equity; ; and if, in equity, it did not work the transfer, it was, for such a purpose, as if it had not been made. It needed no action of a court to set it aside, for, as it dealt with an equity, it had no efficacy save inequity, and there it was a nullity. When,. therefore, the trustees. uwJer the railroad mortgages securing the consolidated bonds filed their bill in foreclosure, the legal title to the lands unsold was in the land trustees, with power of absolute sale to secure thebondbolders named in the deeds, and the equity of redemption was, in the debtor railway company, with iIjlcidental right to call the tru/iltees to account for their proceedmgs Ull,der the trust. The decree ,of sale and, the master's
can
559
deed conveyed to the purchasers all the interest of the defendant railway company in the l,ands, which interest was described in the decree and deed only' as its right to call the trustees to account, but which, of necessity, its equity of redemption. By the judicial sale, all interest of the defendant railway company was completely devested, and the title passed as absolutely as where a mortgagor sells the land incumbered by a mortgage or trust to a stranger. The proviso in the act of 1887 excludes mortgagees, but it does not exclude purchasers of the title subject to a mortgage. The purchasers pai.d $1,000,000 forthe proNrtyof the old railwaycompany,including its interest in these lil.llds. Because, before the sale, they happened to be, or to represent, bondholders and mortgagees of the old company, and paid part of the $1,000,000 by release of their mortgage debt, they are not the less outright purchasers for value, and not the more to be charged, under the statute of 1896, with knowledge of the defects in the title of the old company. .These purchasers transferred their interest in these lands to the new Flint & Pere Marquette Railroad Oompany. The equitable title of this company in these lands cannot be annulled under the acts of. 1887 and 1896. But it may be argued that the trustee's title to the lands has not been changed by the judicial sa,le; that he and the bondholders occupy the same position they did before the sale, to wit, that of a mortgagee of the old company, with power of sale; and are thus as much excluded by the proviso of 1887 as before. They derive no title, it is said, through the sale, and therefore cannot strengthen their previous defective title by reason of it. We do not think the proviso of the statute is to be construed so strictly. When the original grantee has parted with all its interests for a valuable consideration, whether by one absolute sale .or by a mortgage followed by a conveyance of the equity of redemption, we think the case has been taken out of the proviso, and the mortgagee and grantee are to be regarded as bona fide purchasers, within the meaning of the statute. The reason and justice of the proviso are not very apparent, and it is not the duty of the court to include more in it than its words require. Its language is that "a mortgage' or pledge' of said lands by the company shall not be considered as a sale for. the purpose of this act." This does not mean, if the words are given their natural meaning, that a mortgage and a sale of the equity shall not be so considered. The statute seems to contemplate'only two alternative modes of recovery for the one of the fee simple, and the other of the value of the land from the original p'atentee. It makes no provision for the recovery of the intere&t of a mortgagee of'the original patentee in land after the equity' has been purchased by a bona fide purchaser as defined by the statute. The value of such an interest, without special statutprydirection, would be difficult to determine, especially in a case like this, where' the land is only a part-and probably a small part -of the whole security. for the debt. We do not think congress intended a recovery against the mortgagee, but,at the most, only an avoiding of the mortgage. The purchasers at the judicial sale took title subject only to the interest of the bondholders. If that
560
is, vOid, the, purchasers would
the land f.reed from lien, and the would hold the legal title"for them; but the purchaser would be, estopped to deny the interest, of the !:londholders, for it is recited to be ayalid and prioi' interest in the deed and decree under can cll;iim ti,tle. Therefore the mortgage bondholders w'ould' acquire an ,interest through. the. very sale protected by the statute. It is suggested that the interest of the purchasers is only an equity at most, and that there is no such, thing known as a bona fide purchaser of an equitable interest. 'Latham v. Barney, 14 Fed. 446. We have referred to the fact that the supreme court has distinctly decided that the words "bona fide purchaser" in this statute are not to have their technical meaning in equity, and the failure to obtain the full legal title would, therefore, ,not prevent the purchasers of the whole interest in the land from claiming the benefit of the statute.Moreover, in the case at bar the legal title of the trustee would be under the control of the purchasers at the judicial sale if the trust in favor of the bondholders were void; a:p.d if, on the other hand, the trust deed and judicial sale are to be regarded together as a parting by the original patentee with the whole interest in the land, and a sale by it within the statute, then the bondholders and the purchasers have the legal title of the trustees in their control, so that they would have no difficulty, on this account, in claiming as bona fide purchasers, even under the strict equity rule. The decree of the circuit court is affirmed.
ST. LOUIS S. W. RY. CO. eta!. v. JACKSON. (Circuit Court of Appeals, EIghth Circuit. June 19, 1899.) No. 1,084. 1. ApPEAL-NECESSARY PARTIES. Receivers in a suit to foreclose a railroad mortgage, who, had been finally discharged prior to the filing of an intervening petition to establish a judgment recovered against them as a claim against a fund reserved by the court after sale of the road to cover such claims, and who were not made parties to the petition, are not necessary parties on an appeal from the decree entered thereon. 2. FORECLOSlJRJU OF RAILROAD MORTGAGE - SALE SUBJECT TO CLAIMS AGAINST RECEIYlCR"":'CONSTRUCTION OF DECREE. , 'Where; a circuit court,in Its decree for the sale of railroad property In a foreclosure suit, reserved the right to subject the property to the payment of claims which might be established against the receivers, but, in its order conti:l'mlng the ,sale, required the purchaser to pay" into, court an additional llum to meet such claims, and provided that "the payment of such sum shall not affect the liability of the road or the purc;haser for any other or greater sum or sums for which the receivership or railrOad may be liable under the orders of this court or the decree for the sale of said road," the payment into court of the SUm required by such order operated to discharge the road from liens, and thepurcJ;1aser from liability, pro tanto, .and to transfer the lien of claiins, to that extent, to the fund in court; and the loss of the fund, or a portion of It, by the failure of the bank which was the depositary of the' court, did not revive such liens against the road, or the liability of the purchaser.
