On January 23, 1887, a decree of foreclosure and sale was entered in the circuit court of the United States for the Northern district of Ohio in the case of American Loan & Trust Co. v. Toledo, C. & S. Ry. Co. In this decree there was a finding that on April 22, 1885, the defendant railway company, owning a line of railway, with appurtenances, extending from Toledo to Findlay, had issued 825 bonds of $1,000 each, and secured the same by a trust deed on all its property, and that it had defaulted in the payment of interest on the bonds; and an order for a sale of the property in satisfaction of the debt, principal and interest. On October 16, 1888, the property was sold for the sum of $600,000, to Stevenson Burke and Charles Hickox, who turned in on their purchase 713 of the outstanding bonds, and at the same time made claim of title to the remaining 112 not in their possession. On February 4, 1889, the sale was confirmed, and the dispute as to the ownership of the bonds not surrendered was referred to a special master, who on March 25, 1890, [155 U.S. 534, 535] reported adversely to the claims thereto of the said purchasers. This report was sustained by the court (47 Fed. 343) on December 20, 1890, and a final decree of distribution entered. Pending these proceedings Charles Hickox died, and an order of revivor as to his interest was entered in the name of Charles G. Hickox, his administrator. From the decree the appellants took this appeal. On the hearing in this court the only contention was as to the ownership of 80 of these bonds which had been delivered to the American Finance Company.
The dispute as to title grew out of these facts: Prior to April 14, 1884, Theophilus P. Brown was the owner of all the stock except a nominal amount, and of all the first mortgage bonds, amounting to $800,000, of the Toledo & Indianapolis Railway Company. The bonds were held in hypothecation, by various persons or corporations, to secure the payment of certain obligations of the railway company or of Brown. The railroad had been constructed from Toledo to Findlay, in the state of Ohio, a distance of about 41 miles, but was at the time in the hands of a receiver. There were also sundry lien claims for right of way, lumber, and material. In order to extricate himself and the railway company from the financial embarrassments, and to provide for extending the railroad, he, as party of the first part, on that day entered into a contract with the American Finance Company, as party of the second part. The contract provided conditionally for the organization of a new railroad corporation. To this new corporation all the stock, bonds, property, and franchises of the old corporation were to be sold and transferred, and the former was to issue tis stock and bonds,-of the former $25,000 per mile, and of the latter $20, 000 per mile,-such stock and bonds to be used in the purchase of the properties of the old corporation, in the payment of its debts and obligations, and in extending the road. The finance company was to undertake the work of organization, the settlement of the claims, and the procuring of a loan of from $300,000 to $400,000 in money, to be secured by the promissory note of the party of the first part, and a pledge of either bonds of the old or the new corporation, the money thus raised to be used [155 U.S. 534, 536] in payment of the debts and in extension of the road. Articles 6, 9, and 10 of the contract are as follows:
In pursuance of this agreement the finance company made arrangements with Israel B. Mason, of Providence, and Francello G. Jillson, of Woonsocket, in Rhode Island, for a loan of $325,000, but before the loan was actually consummated, and on September 24, 1884, a tripartite agreement was entered into between Brown, as party of the first part, the finance company, as party of the second part, and Mason and Jillson, as parties of the third part, which contained these recitals and stipulations:
Provision was also made in this contract for a substitution of the bonds and stock of the new corporation as soon as it [155 U.S. 534, 539] should be organized. These contracts were carried into effect, Mason and Jillson receiving the notes of Brown to the amount of $325,000, together with the bonds of the Toledo, Columbus & Southern Railway Company, the new corporation, $650,000 as collateral and $65,000 as bonus. The $80,000 bonds were delivered to the finance company. Subsequently, Brown, Mason, and Jillson sold out to Burke and Hickox, and transferred to them all the bonds then remaining in their possession, to wit, the 713 surrendered at the time of the purchase.
Stevenson Burke, for appellants.
Benj. F. Blair, for appellee.
Mr. Justice BREWER, after stating the facts in the foregoing language, delivered the opinion of the court.
The contention of appellants is that by the contract of April 14, 1884, the finance company was to receive a commission of 2 1/2 per cent. upon all moneys obtained by way of loans; that it has been paid such sum; that the 10 per cent. provided by article 9 was to be in compensation for the negotiation of the bonds, and to be paid over to the finance company from time to time pro rata as such bonds should be negotiated, sold, or exchanged for outstanding liabilities, or for property, labor, and material; that none were so negotiated, sold, or exchanged, and therefore nothing ever became due to the company on account thereof; that the tripartite agreement of September 24, 1884, reaffirms the same stipulation, for it provides that the bonds shall be 'appropriated as follows: ... to said American Finance Company, $80,000 thereof, in full payment of all its claims for commissions for negotiating said $800,000 of said bonds.'
We are unable to concur in this construction. Article 9 does not limit the 10 per cent. compensation to the case of bonds 'negotiated, sold, or exchanged,' but extends it to those 'otherwise used or disposed of'; and $720,000-that is, all of the $800,000 except the 10 per cent. received by the [155 U.S. 534, 540] finance company-were used in securing the notes for $325,000, and in payment to Brown. So that it might plausibly be urged that under the terms of the first agreement, taken by itself, the finance company had earned the $80,000 of bonds. But we are not limited to the language of the first agreement. The second provides that the $150,000 of bonds remaining after the pledge of the $650,000 to secure the payment of the money borrowed shall be 'appropriated' as follows: To the purchasers of the notes, a bonus of $65,000; to the finance company, $80,000; and to Brown, $5,000. And at the close of the words of appropriation, and applicable to each of them, is this language: 'Such appropriations and the delivery of said bonds to be made from time to time pro rata as said notes shall be disposed of.' The notes were all disposed of, and so, within the letter of this stipulation, the time had arrived for the appropriation and delivery of all of the bonds. The purchasers of the notes, as well as Brown, unquestionably took title to the bonds 'appropriated' to them. Why did not the company, the second of the three parties named, in like manner obtain title?
Not only had the time arrived for the 'appropriation' of these bonds to the finance-company, but in fact they had been delivered. Each bond carried on its face a proviso that it should not become valid or obligatory until authenticated by the signature of the trustee. As no question is made of the validity of these bonds, it must be assumed that they were thus each duly authenticated. Negotiable bonds-and these were negotiable bonds-may be transferred by the holder to a bona fide purchaser so as to vest in the latter a good title as against all equities between the maker and the original holder, and as a matter of fact the finance company did before this controversy appropriate all of these bonds as collateral security for loans made to it, and otherwise. Knowledge that these bonds could be thus used must be assumed, and, as there is no pretense that the finance company surreptitiously or fraudulently obtained possession, it is a fair inference that they were delivered to it with the understanding on the part of all the parties of its full right to them. [155 U.S. 534, 541] There is no full disclosure of all the circumstances under which the several holders received these bonds from the finance company, and no testimony to impeach their good faith in the transactions by which they received them. It is therefore difficult to see why, even if any doubt existed as to the title of the finance company, they are not protected as bona fide holders.
Still further, the tripartite agreement was, as we have seen, executed on September 24, 1884. Eight days before its execution, and on September 16, the president of the finance company wrote to Brown a letter, received by him on the next day, the 17th, in which letter it was stated: 'Our company cannot afford, of course, for the little 2 1/2 per cent. commission on the loan only, to use its position and capital to set the road on its feet, and take the risk of your death, and any contingency that might otherwise arise; and hence we, and Messrs. Jillson & Mason, are treating the negotiation as a sale of the bonds. But in doing this our company extinguishes all its claims for commissions, so far as the present portion of the road is concerned.'
With such statement of the understanding of the finance company, Brown signed the tripartite agreement, providing for the appropriation of the $80,000 of bonds to the finance company in full payment of all its claims for commissions. It is hard to believe, in the light of this letter, that the parties had any other idea than that, at least as soon as the notes were disposed of, the $80,000 should become the property of the finance company. Brown v. Finance Co., 31 Fed. 516.
Finally, it is found by the master that 'the finance company did in fact render important services to T. P. Brown under these agreements in the negotiating of said bonds and negotiating of loans, which enabled T. P. Brown to pay off the claims against the old Toledo and Indianapolis Railroad Company, and thereby secure possession and control of the bonds of said Toledo and Indianapolis Railroad Company which had been hypothecated to various parties to secure the claims for which said company was indebted.' [155 U.S. 534, 542] We think that the circuit court, in view of all of these considerations, did not err in its conclusion, and therefore its decree is affirmed.
Mr. Justice BROWN took no part in the decision of this case.