,6S2
FEDERAL ltEPORTER,vol.
38.
made to·' appear, as well as any action or orders made by the probate court. ,to:uching the proceeds thereof. If this ill not done in the pleadin flome form it will have to be presented by the evidence.
POTTS
HAHN
et ale
(DI'Btrlct (Jourt. D. N&w JerBey. May 11. 1889.) FRA.UDULENT CONVEYANCES.
Conveyances made without in contemplation ofbanl(mptc1.. and ,witn the intent, participated in by'the grantees, to defraud creditors. WIll be set aside. ·
In Equity., Bill to set aside conveyances. ·On final hearing. For opinion on demurrer to bill, see 32 Fed. Rep. 660. G. A. Sei:rJa8, for complainant. SamueZ' iJfali8ch,. for defendants. ,
,
, WALES, J r; This is a bill to set aside a certain' mortgage, and a conveyance ofreahlstate,:J11ade bythedefendant John Hahn, and also a chattel 'mortgage .made by the same ·defendant, on the ground that· the said conveyance' and mortgages .were made without any valid consideration, in contemplation of bankruptcy, and in fraud oficreditors; and that his co-defendants'acted, hi concert with the said John Hahn in a scheme'.tohinder, delay, and defmudhis creditors, knowing 'at the time that lie' was in failing oircumstances,atid that proceedings in bankruptcy had been,or soon would be, taken against him. The testimony fully establishes 'the 'truth of the material averments contained in ;The proof of fraud on the part of John Hahn, and of conscious co-operation therein on the part of the co-defend,connivance 'ants, is complete and overwhelming, and. the conclusion admits of no disPllte. Let· a decree be entered for the complainant.
;
i
I
,'i,,' I.
','"
, SumONS 'I).
TAYLOR
et 01. ,
(Oif'cuit(Jourt, 8. D. Iowa, (J. D. May 13,1889.)
:REDEMl'TION BY SECOND
'1'0 a :biU tl:I t:oreclose the, first mortgage on the property ofa railroad com· of the income mortgage, the second mortgage onthe , 'PI\ny:, tbe , property, W,as made a party, but, the decree failed to foreclose the lien of the "f Income mortgage. On a cross-bill to foreclose the second mortgage and to redllOm, the court held ,tbat the purchaser at the fOreclosure sale under the cir·
683 cumstances succeeded to the redemption rights Of the otiginal owner.' 'fIeld. that it was entitled to present and be heard upon all objections that could fairly be made to the validity of the bonds sought.to be recovered upon under the provisions of the income mortgage. S. SAME.
As the income mortgage bondholders are seeking the aid of equity after t11e lapse of many years, and after interests have been acquired in reliance on the absolute title of the purchaser, they must come into court with clean hands, and as their right to redeem is based upon the lien of the income mortgage which was not foreclosed, they are only protecte,d to the amount of the bonds which were Claims enforceable at the time of the foreclosure decree, and therefore the validity of the bonds sought to be proved up is open to gation. ;
S. SAME-VALIDITY OF BONDS.
The question of the validity of the bonds is to be determined by the wellestablished rule that. "if fraud or illegality in the inception of negotiable paper is shown, an indorsee, before he can recover, must prove that he is a holder for value. The mere possession of the paper, under such circumstances, i8 not enough. "
4.
SAME-BoNA FIDE HOLDERS.
After the decree and sale under the first mortgage, a question arose &s to whether the decree foreclosed the income mortgage. An examination of the record was had. \md the conclusion reached that it did not. The inc()me m,ortgage bonds were then sought out by certain parties, who purchased them at from 3 to 20 per cent. of the amount apparently due. The bonds had attached unpaid coupons nearly ,equal to their face value, and a cross·bill was then pending seeking a decree for the principal and interest on them. ,These pur· chases were made solely for speculative purposes, and for thejurpOse of en· forcing them through the lien of the income mortgage. Hel, that the purchasers were not bonaji,deholders, and could only enfQrce the bonds wbidl were enforceable by the parties from whom they were purchased. Held that, as it was invoking the aid of equity to enforce such right, the de-
6.
SAME-USURY.
The holder of a bond alleged title to it as collateral to a debt jUlltly due it.
fense of ullurywas open to the purchaser company, and its right to demand proof of a valid debt on' the part of the holder was not affected the fact that the debt had been reduced to judgment, as it ,was neither a party nor priVy thereto. ; 6. SAME-RELEASE AND DISCHARGE.
The income mortgage covered the main line of the mortga;gor company. and also its separate division. After the decree foreclosing the first mort· gage, the holders of certain of the income bonds brought an action to enforce redemption against theP. division. A settlement was had in which com· plainants expressly reserved their rights against the mortgagor company and Its members. but,released aU claims and demands against the purchaser com· pany or against any of its railway or other property by reason of said income bonds. and the action was dismissed. Held, that the release barred the right of those parties to enforce a redemption of any property passing to the purchaser under the forpclosure sale. The utmost right that the income bondholders are entitled to upon the fan· ure of the purchaser company to pay the amount found due them i8 the right to redeem from the sale already had, and on failure to redeem within the time limited in the decree their right will be forever barred. SIlIRAS, J., '
'1.8AME-REDEMPTION-DECREE.
InEquity. On excp.ptioll to master's report. FOfopinion on the cross-bill for redemption, see 23 Fed. Rep. 849. HubbardkOlark and A.bboUBro8., fOf complainant. . Thoa. F. Withrow and i Tko8. S. Wright, for defendants. Before BREWER, LoVE, arid SHIRAS, JJ.
684
FEDERAL REPORTER,
vol. 38.
PER CURIAM. Upon the rendition of the interlocutory decree in thi& cause the. same was sent to the master for the purpose of ascertaining what number of the bonds described in the mortgage known as the "Income and Equipment Mortgage" were held by parties entitled to prove bp the same as valid claims under said mortgage, and also of ascertaining and stating the amount necessary to be paid in order to redeem the property from the lien of the first deeds of trust thereon, represented by Frederick Taylor, trustee.· The master has returned an exhaustive report upon these matters, and counsel for the parties in interest having respectivelyexcepted to portions of the report of the master, the case is before the court upon these exceptions. Upon the issue of the amount of bonds entitled to be proved up as valid in. the hands of the present holders several questions arise, and will be considered in their order. 'Fourteen hundred of the bonds are pre'sented by Lawrence Tumure, who claims to be the owner thereof by purchase,from the Lackawa,nna Iron &. Coal Company. The master finds that thesebnnds were never issued on behalf of or for the benefit of the ;Burlington, Cedar Rapids & Minnesota Railway Company; that when #ley passed. ioto the hands of the Lackawanna Company they had not heen signed by the trustee, and that the subsequent indorsement thereof did not impart validity thereto. The evidence fails to show that the present holderis an innocent purchaser for value, and there is no ground, therefore, for holding these bonds to be valid or enforceable. The master further reports that there was a series of these bonds, 428 innumber l delivered to Henry Clews & Co. under such circumstances that, as between Clews & Co. and the railway company, they are not enforceable, being without consideration. Of these bonds 81 are now presented for allowance by Henry Clews, and the master finds that they are entitled to recognition on the ground that the Burlington, Cedar Rapids & Northern Railway Company is not in a position to question the validitt of these bonds; and this upon the theory that the present company is but'a purch!lSel at the foreclosure sale, and is not interested in the question of the amount due upon the income mortgage, which stands as a second mortgage upon the property. In support of this view the case of Graham v. RailrQad Co., 102 U. S. 148, is cited. In that cause Graham, having a judgment against the, La Crosse & Milwaukee Railway Company, sou.ght to set aside a conveyance made of certain realty by the corporation to some of its officers, on the ground 'that the transfer was for inadequate sum, and made in 'fra,ud of the rights of stockholders and creditors of the company. The evidence showed that Graham was not a creditor of;the90mpany wheQ the transfer was made, nor had he any title to or iriterest in the realty itself. The court held tllat he was not in a position to assail the transfer. He had no title in the realty. He was not a creditor when the transfer was made, and could not, therefore, claim tha,tit had: been made to defraud him. It appeared that the officers of the company to.whom the property had be.en conveyed had paid and its then fair value. ,The company had acquiesced 'in the was not then questioning it. Under, these circumstances the court held
SIMMONS fl. TAYLOR.
681)
that Graham, as a subsequent creditor, could not attack the previous conveyance. The difference between that case and the one at bar is marked. The present railway company derives its title from the sale had upon the foreclosure of' the first mortgage. It not only has a title in the property in question, but the source thereof was in existence when the transaction with Clews & Co. took place. Moreover, this court has already held that, under the peculiar facts of this case, the present company must be held to have succeeded to the redemption right of the original mortgagor, and is entitled to perfect its title to the property by paying off the amount due upon the income and equipment mortgage. I t has a direct interest in the \iuestion of the amount due upon the latter mortgage; and, having such interest, it is entitled to present and be heard upon all objections that can be fairly made to the validity of the bonds sought to be recovered upon, under the provisions of the income mortgage. But, aside from these considerations, there is another and sufficient ground upon which the court may hear and determine the question of the validity or invalidity ofthe bonds sought to be recovered upon in this proceeding. The holders thereof are invoking the aid of a court of equity to grant them relief. On the ground that the holders of the bonds are bonafide creditors of the Burlington, Cedar Rapids & Minnesota Railroad Company, and that there is justly due them certain sums evidenced by the bonds held by them, the court is asked to grant a decree compelling the present company to come to an accounting, and either to pay what is due upon the second'mortgage. or to submit to a redemption of the property; the' effect of which will be a tearing up of the present system, and a separation of the main line and the branches, thereof, to the manifest detriment of many parties whose interests were created in the belief that the ownership of the present company was absolute. To successfully invoke the aid of the conrt after the lapse of so many years, and when so many other interests have become attached to the property, the parties seeking the equitable aid of the court must have substantial merit in their cause, and must come befa,re the court with clean hands. The complainants in the present cross-bill are asserting the right to redeeDl the property notwithstanding the saJe had under the foreclosure of the prior mortgages, on the ground that the income mortgage was, when such sale took place, a second lien 011 the property, and that the decree did not cut off the lien then existing, and the consequent right of redemption. If, as has been already held in the interlocutory decree, the right of redemption still exists, it is the right that was in existence when the decree foreclosing the prior mortgages was entered. Whatever bonds were then valid claims under the income and equipment mortgage had reserved to them the right of redemption; that is to say, being then claims enforceable under the income mortgage, the lien of that mortgage protected them. That mortgage, however, was a lien only to the amount .of the bonds then valid and enforceable thereunder; and, whelJ, the present company took the title of the property under the foreclosure sale, it was subject to a right of redemption in favor only ofsuch bonda as were then, through the income {llortgage, liers tJpon· the property· i For these