
171 U.S. 474 (1898)
HUBBARD, Assignee,
v.
TOD.
No. 24.
Supreme Court of United States.
Argued April 22, 25, 1898.
Decided October 17, 1898.
CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE EIGHTH CIRCUIT.
*494 Mr. Henry J. Taylor and Mr. John C. Coombs for Hubbard, Assignee. Mr. William Faxon, Jr., was on the brief.
Mr. John L. Webster and Mr. George W. Wickersham for Tod and others. Mr. Francis B. Daniels was on the brief.
MR. CHIEF JUSTICE FULLER, after stating the case, delivered the opinion of the Court.
It is provided by the judiciary act of March 3, 1891, c. 517, § 6, 26 Stat. 826, 828, 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 securities; (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.
*495 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 defence affected their rights as pledgees. Respondents stood on all their rights and were not put to an election. If the purchase was 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 re-hypothecation 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 *496 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 endorsed 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 million dollar loan, and to be turned into court in carrying out the reorganization scheme *497 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 entrusted, according to the understanding of all parties, with the right to sell the Sioux City & Northern bonds; that the Union Loan & Trust Company received the proceeds of a million dollars 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 entrusted to Smith, with very little, if any, supervision on the part of the directors or other officers of the corporation." 65 Fed. Rep. 564.
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.
*498 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; Mehlhop v. Ellsworth, 95 Iowa, 657.
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 thereof. 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.
*499 And it must be remembered that this proceeding 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 endorsees, 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 endorsed 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 securities 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.
*500 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 & Western bonds were overdue, and the mortgage in process of foreclosure, they were not negotiable and were taken subject to the alleged lien of the Trust Company. But they were assignable choses in action susceptible of being pledged, and were pledged to Tod & Co. until through the foreclosure and reorganization the new securities were substituted. As we have seen, the power of disposition had been lodged in Garretson by, or with the assent of, the Trust Company, and no secret equity could be set up by the latter.
So as to the fact that some of the shares of Sioux City & Northern stock delivered to Tod & Co. under the agreement of December 31, 1892, stood in the name of "A.S. Garretson, Trustee," the evidence disclosed that this stock belonged to Booge, one of the original members of the syndicate, and that he, having failed, had consented it should be put out of his name and held in trust, and that at this time there were no notes furnished by Booge to the syndicate outstanding. The Trust Company had no greater interest in this stock than in any other, and the word "trustee" was not intended to give and did not give notice of any rights claimed by the Trust Company.
Again elaborate argument is devoted to the point that Garretson was induced to assume the Nebraska & Western enterprise by false representations by the Manhattan Trust Company as to the condition of the Improvement Company; and that this led him to pledge the securities which he should have left with the Union Loan & Trust Company.
While we must not be understood as intimating in any degree that this charge of misrepresentation was made out, or, if it were, that Tod & Co. were cognizant thereof, it is enough that we are not satisfied that the transactions complained of involved notice of the claim of the Trust Company now set up.
But we do not feel called on to do more than allude to these *501 matters. Tod & Co. held the securities under the $1,500,000 loan in trust for the purchasers of the notes thereunder issued, and neither the Debenture Company, through which the transaction was made, and which holds a few of the notes, nor any other of the beneficiaries, was before the court. Nor was Garretson, nor any member of the syndicate, nor any holder of part of the million dollar loan, other than Tod & Co., a party to the record.
The Circuit Court correctly held that the prior transactions could not be overhauled under such circumstances; and applied the same principle to the last loan as well.
By the final decree petitioner was permitted to file a second amended petition, on which no issue could be, or was, joined, or additional testimony taken, and it was then set up, for the first time, that the loans were void because in contravention of the statutes of New York in relation to usury, and that petitioner was, therefore, entitled to reclaim the securities without compensation. The prohibition against usury of the New York laws (N.Y. Rev. Stat. Banks Bros., 7th ed. p. 2253) could not be interposed by corporations as a defence (Id. p. 2256; Laws, 1850, c. 172), nor could the endorsers of their paper plead the statute, Union National Bank v. Wheeler, 60 N.Y., 612; 96 U.S. 268; Stewart v. Bramhall, 74 N.Y. 85; Junction Railroad v. Ashland Bank, 12 Wall. 226; nor did it apply to demand loans of $5000 or upwards, secured by collateral. Laws, 1882, c. 237, § 1; Laws, 1892, c. 689, § 56.
Apart from these considerations, the Circuit Court disposed of this contention on the ground that petitioner, in order to any relief in equity, would be compelled to pay the sums advanced and interest, but had not tendered or made any offer of payment. This assumed that the point might have been passed on, if there had been such tender or offer, notwithstanding the Trust Company was not a party to the contract of loan, and neither the Bridge Company, nor Garretson, nor any member of the syndicate, nor the Debenture Company, nor any other loan holder, was a party to the record. We think the court was right if the question was properly before it. This was not a proceeding to enforce an alleged usurious agreement, but *502 it was petitioner who sought the affirmative aid of equity, which he could only obtain by doing equity. It is true that by a statute of New York (N.Y. Rev. Stat. 7th ed. 2255; Acts, 1837, c. 430, § 4), it is provided that whenever a borrower files a bill for relief in respect of violation of the usury law, he need not pay or offer to pay "any interest or principal on the sum or thing loaned;" but this act has been rigidly confined to the borrower himself (Wheelock v. Lee, 64 N.Y. 242; Buckingham v. Corning, 91 N.Y. 525; Allerton v. Belden, 49 N.Y. 373), and moreover, is not applicable to suits brought in courts not within the State of New York.
It is further urged that the transaction with the Bridge Company was ultra vires, and that, this being so, the securities should have been awarded petitioner free and clear from any condition whatsoever.
The Circuit Court held that the Bridge Company did exceed its powers, and that the matter must be treated as if that company had not been interposed as an actor in the transaction. Relief to the extent of redemption was on that account accorded, yet it was limited to that because there was nothing in the invalidity of the action of the Bridge Company which gave the Trust Company any greater right to the securities than it had before. The Bridge Company was not a party to the proceeding, and, indeed, if it had itself instituted suit for the cancellation of its notes, it could not have demanded possession of the securities. Clearly the Trust Company could not avail itself, in favor of its own alleged claim, of such an infirmity, if it existed, nor could the holders of the notes, which had passed into their hands as strangers, be deprived of the securities on the faith of which they had advanced their money; or have their rights adjudicated in their absence.
However, whatever the contention in the courts below may have been, the errors assigned here merely put forward the theory that the alleged usurious character of the contract by reason of the options granted and commissions paid, and its invalidity for lack of power in the Bridge Company, so took the transaction out of the ordinary course of business as to *503 charge Tod & Co. and the loan holders with bad faith and notice of the alleged claims of the Trust Company.
But we cannot perceive that the fact of usury between the parties to the contract, if usury there were, or action in excess of power, if that existed, either or both, can be laid hold of to justify the imputation of notice that Garretson was dealing with the securities in derogation of rights of the Trust Company. Doubtless there are cases where commercial paper or securities may be offered for negotiation under circumstances so out of the usual course of business as to throw such grave suspicion on the source of title that lack of inquiry, assuming that it would disclose defects, might amount to culpable negligence. But that doctrine has no application here.
Respondents had possession of all the Sioux City, O'Neill & Western bonds, and 7200 shares of Sioux City & Northern stock, in pledge to secure payment of $1,000,000 of Garretson's notes payable on demand, which amount had been borrowed for the purposes of, and was used in acquiring the Sioux City, O'Neill & Western Railroad for, the syndicate.
The syndicate was engaged in constructing a bridge across the Missouri River to connect the railroad in Nebraska with that in Iowa. The stock of the Bridge Company was all owned by the syndicate, and had been pledged with the bonds of the Sioux City, O'Neill & Western Railway.
Garretson applied for a new loan of $1,500,000, with which to take up the million dollar loan and get additional funds for the construction of the bridge.
As the railroads whose bonds and stock constituted the security were new and the securities were then without market value, the negotiation of the loan was made more attractive to the Debenture Company by the allowance of the commission and certain options. And since there seems to have been a question as to whether the agreements might not be obnoxious to the New York usury statutes and as notes of a corporation were supposed to be more readily salable than those of an individual, it was thought best to make the loan directly to one of the corporations owned by Garretson and his associates. The original suggestion was that the loan *504 should be made to the Sioux City, O'Neill & Western Railway Company, but objections being raised to this in view of certain provisions of the statutes of Nebraska, it was arranged between Tod & Co. and Garretson and his associates that the Bridge Company, which was equally owned by the syndicate, and to the purposes of which $500,000 of the loan were ostensibly to be devoted, should become the borrower. The sale of the securities, the issue of the notes secured thereby, and the making of the loan followed.
Garretson executed the indenture of trust to Tod & Co., the Debenture Company paid over $1,500,000 and interest to them, and they took up the million dollar loan, thereby releasing the Sioux City, O'Neill & Western bonds and 7200 shares of Sioux City & Northern stock; the balance of the latter stock was sent to Tod & Co. by the Trust Company; Tod & Co., as trustees, certified on the notes that the collateral had been deposited with them; and the notes were sold to various purchasers, who apparently advanced their money in good faith.
If the transactions, thus briefly stated, were unaffected by notice of any want of authority in Garretson in respect of the Trust Company as now alleged, it is not for that company to say that Tod & Co., or the holders of the loan, should be held chargeable with notice simply because the commissions and options might have constituted usury as between the parties to the loan, or the Bridge Company, its stockholders, or judgment creditors might have had cause of complaint of defect of power.
In letting petitioner in to redeem the Circuit Court went at least as far as the record would permit. Whether or not there was error in the decree of which respondents might have complained, we do not feel at liberty to decide.
Decree affirmed.
