the original action was by trustees against a railway company to foreclose the mortgage and sell the entire property, franchises, and rights of the company. The question which the court had to consider in that case was whether certain rolling stock belonged to the mortgagor company so that it was covered by the mortgage, or whether it belonged to an intervening claimant, who alleged that, under the contract by which the company acquired the use of the rolling stock, the title still remained in him. The court below held that the vendor of the rolling stock still held the title in himself; that he was entitled to rent out of the proceeds of the sale of the mortgaged property. From this decree the complainants, representing the bondholders who would be entitled to the proceeds, appealed. The defendant railway company did not appeal. The appeal was considered on its merits. It is said the case is not authority, because the question of jurisdiction was not raised. It is, however, the well-known custom and disposition of the supreme court to make an independent examination of the record in every case for jurisdictional defects, and the fact that the question was not made by counsel by no means establishes that it was not considered by the court. The presumption is otherwise with respect to such a question. See, also, Farmers' Loan & Trust Co., Petitioner, 129 U. S. 206, 9 Sup. Ct. Rep. 265.

Second. We come now to the merits of the order in favor of the Adams Express Company. It is well established in the federal courts, by numerous decisions of the supreme court of the United States, that a court of equity which, in foreclosure or other suit, has taken into its custody railroad property, may authorize its Beceivers to borrow money for the preservation, maintenance, or necessary betterment of the road, and may, by its order, make the loans thus incurred a paramount lien on the income and corpus. Wallace v. Loomis, 97 U. S. 146; Union Trust Co. v. Illinois M.* Ry. Co., 117 U. S. 434, 6 Sup. Ct. Rep. 809. The court does not act as the agent for the parties in the sense that it creates the lien by contract of the parties with the lenders, but, by virtue of its custody of the property and its jurisdiction of the parties, it pledges its own faith to the lender that it will enforce such a lien against the property and the parties as a condition of its releasing the property, and of its enforcing any equities in favor of any of those who invoke its assistance. Now, it may enforce the lien in one of two ways: It may directly order out of the proceeds of sale the prior payment of the loans, or it may impose a continuing lien on the property by providing in its decree for sale that the purchaser shall take it subject to such a lien. If the latter method is followed, then a lien is established by contract with the purchaser in favor of the lender, which, appearing in the chain of title by which the purchaser holds, is attached to the property in the hands of all subsequent grantees of the purchaser, and may, of course, be enforced by the lender in an independent action. Swann v. Clark, 110 U. S. 602, 4 Sup. Ct. Rep. 241. the court may order the sale of the property free of all liens, in which case the purchaser takes a title freed from the burden,

But

as well of receiver's loans as of mortgage debts, and the pledge of the court that the receiver's debts shall constitute a paramount lien can only be fulfilled by the court in its distribution of the proceeds of sale. It is very clear from the record of the proceedings of the district court of West Virginia in the first foreclosure suit against this railroad that the final order and decree of that court was intended to and did vest in the purchasers a title free of all liens for receiver's debts. There was a deed of release expressly declaring and effectuating this intention. This was inconsistent with the order making the receiver's certificates, to be issued, a paramount lien on the road, and pro tanto it set that order aside, and transferred the lien, if any, to the proceeds of the sale.

But it is contended, and it was so held by the learned court below, that the permission given to the purchasing committee to pay part of the purchase money in bonds which were themselves subsequent in priority of lien to receiver's debts prevented the purchasers from taking as bona fide purchasers of the property for cash, without notice. The argument is that, as the bonds represented a lien inferior to the receiver's debts, the substitution of the property for them in the hands of the bondholders preserved the prior lien of the receiver's debts in the property in spite of the terms of the release, because the deposit of the bonds was only a constructive payment. Vilas v. Page, 106 N. Y. 439, 13 N. E. Rep. 743. The purchasers were permitted to deposit bonds in payment of the purchase price after paying into court sufficient cash to extinguish all costs and liens prior to the bonds, as adjudicated by the court; the bonds to be taken as equivalent to the cash which, if the price had been paid in money, their holders would have received on distribution. This was precisely the same as if the purchasers had paid the whole price in money, and had then withdrawn, on distribution, their pro rata share of the proceeds. Their rights cannot be different because they did not go through this useless formality. The railroad property, to the extent that it was paid for by bonds, was, in the hands of the purchasing bondholders, proceeds of sale. The real question here is, therefore, whether the holder of receiver's certificates could follow the proceeds of the sale into the hands of bondholders receiving the same on distribution by final decree of the court, because that court had failed to redeem its pledge to make the receiver's debts a paramount lien by providing on distribution for their payment. If the holder of receiver's certificates were in court at the time of the entry of the decree of distribution, protesting against and excepting to the same, it seems perfectly manifest that his only recourse would be by appeal from the decree, and, on a failure to appeal, the decree would finally cut off his rights. The controversy would then have become res judicata. He would be thereby estopped in any subsequent independent action to recover against the bondholders his equitable share of the proceeds of the sale. Does the Adams Express Company, as a holder of receiver's certificates, stand in any better position than if it had been present by counsel in court when the final decrees of confirmation,

release, and distribution were entered, objecting to the same? It is very clear that it does not. When the Adams Express Company received from Sharp the evidences of indebtedness on which it now relies for its lien, it was informed, by what was written thereon, that Sharp was a receiver acting under order of the district court of West Virginia, and having custody for the court of the Ohio Central Railroad, of which the court had taken possession in a case then pending before it, and that the lien assured to the express company on the face of the certificates was dependent on an order and adjudication of that court.

The doctrine of lis pendens would charge any one, who purchased this railroad, or acquired an interest in it, pending the litigation, with notice of the litigation, and would subject the property in his hands to the final action of the court, without his being brought into court as a party. If this be true of one acquiring an interest by deed, conveyance, or mortgage, a fortiori must it be true of one whose interest is acquired, and has its existence, only by virtue of the litigation.

The express company was put upon inquiry, then, as to all that had been done in that litigation, and was charged with notice of all the subsequent proceedings therein, much as if it had been a party to the record. It is said that the company had the right to await notice from the receiver before presenting its claims. We do not think so. If. it relied on the receiver, it was a personal trust, in which it has been deceived, and must bear the loss. It was its plain duty at an early day to advise the court of its claim against the receiver and the railroad. Inquiry would have shown it that the order authorizing the issue of these certificates was made ex parte. It was charged with notice, therefore, that by final action of the court the validity or security of the certificates might be prejudically affected. Said Mr. Justice Blatchford, speaking for the supreme court in Union Trust Co. v. Illinois M. Ry. Co., 117 U., S. 434--456, 6 Sup. Ct. Rep. 809:

"The receiver, and those lending money to him on certificates issued on orders made without prior notice to parties interested, take the risk of the final action of the court in regard to the loans. The court always retains control of the matter, its records are accessible to lenders and subsequent holders, and the certificates are not negotiable instruments."

For three years the company made no demand of any kind. This was laches of the grossest character, and entitles it to no consideration in a court of equity. Meantime an officer of the court had been especially authorized by decree of the court to investigate and report on the receiver's debts, and a final decree had been entered, adjudicating, in effect, that there were certain valid debts, not including that of the express company, and no others, and ordering confirmation and distribution. This is a final decree, unappealed from and unreversed. It estops the express company, as an alleged creditor of the receiver in the first foreclosure sale, from seeking payment of its claims against either the purchasers or the distributees in that suit.

v.58F.no.1-2

The case of Vilas v. Page, 106 N. Y. 439, 13 N. E. Rep. 743, which the court below relied on, is in our opinion quite distinguishable from the case at bar, because in that case, by the decree and by express agreement between the parties to the foreclosure suit, a lien was secured to the holder of the receiver's certificates, upon the property mortgaged, and the title of the vendees was made subject to the claim of the holder of the receiver's certificates, if any should be finally adjudged.

The decree in favor of the Adams Express Company is reversed, with instructions to dismiss its intervening petition.

GREENBANK v. FERGUSON et al.

(Circuit Court, N. D. Illinois. August 24, 1893.)

QUIETING TITLE-DEED AS MORTGAGE-FRAUDULENT Conveyance.

The grantee in a deed absolute in form brought suit to set aside, as a cloud on his title, a subsequent deed from his grantor. He claimed that his deed was given in payment of a note, but it appeared that he did not surrender the note, that he regarded his grantor as still indebted to him, and that he permitted his grantor to continue to pay the taxes and collect the rent. The grantor testified that the deed was given to keep the land from his creditors. Held, that the grantee had no right to the relief prayed, since his deed was either an equitable mortgage or a fraudulent conveyance, which a court of equity would not aid.

In Equity. On exceptions to master's report. Suit by John Greenbank against John S. Ferguson, Rachel Ferguson, D. B. Ransom, William Kelsey Reed, Henry C. Reed, James W. Converse, and the Illinois Land & Loan Company to set aside certain deeds as clouds on complainant's title. Bill of revivor against representative of Rachel Ferguson. There was a reference to a master, who reported in favor of the complainant. Defendants except. Bill dismissed.

The master's report was as follows:

1. I, Henry W. Bishop, master in chancery, to whom, by an order of the court entered on the 12th day of December, A. D. 1892, in the above-entitled cause, the same was referred for the purposes in said order expressed, hereby report that I have been attended at various times by Mr. Levi Sprague, solicitor for the complainant, and Messrs. Peckham & Brown and Mr. Pease, solicitors for the defendants, and by the witnesses whose testimony is herewith reported. The exhibits which are referred to in connection with the testimony have been examined by me, and also the evidence of witnesses taken elsewhere by stipulation of the parties hereto. I have also heard the arguments of counsel at length, and carefully examined the testimony and depositions and exhibits referred to in connection with the pleadings in the case. Upon consideration of all which, I find and report, as a matter of fact, that the material allegations of the bill and bill of revivor herein are sustained by the proofs.

2. That the deed of John Ferguson, dated November 10, A. D. 1874, and set out in said bill, conveying to said complainant the premises in question, was executed, acknowledged, and delivered to said complainant in the manner and for the purposes in said bill and bill of revivor set forth, and was accepted in full payment of a certain promissory note of the said defendant John Ferguson, which note was dated April 10, 1874, and was for the payment to said complainant of the sum of ten hundred and thirty-five

dollars. I find, also, that said deed was given and accepted as an absolute conveyance of said premises; that subsequently, and on the 25th day of January, A. D. 1882, said defendant John S. Ferguson and his then wife, Rachel Ferguson, at the request of said Rachel, executed and delivered to one D. B. Ransom a conveyance of the same premises without consideration, and without an actual delivery thereof to said grantee, which deed was recorded on the 28th day of March, A. D. 1887, and before the date of the record of said deed to complainant; that afterwards, and upon the same day last mentioned, the said Ransom conveyed said premises to said Rachel Ferguson, which last conveyance was also prior to the date of the record of said complainant's deed, and was without consideration.

3. That afterwards, to wit, on the 24th day of December, A. D. 1891, the said Rachel Ferguson died, leaving a last will and testament whereby she bequeathed to her husband, the said John S. Ferguson, defendant, the premises in question; that on the 19th day of August, 1874, William Kelsey Reed and Sarah C. Reed, his wife, executed and delivered their certain quitclaim deed of that date, conveying the said premises to the Illinois Loan & Land Company, which deed was on the 2d day of September, A. D. 1874, recorded in the office of the recorder of deeds in and for the county of Cook aforesaid, which said deed, I find, is shown, as a matter of fact, to have been made without right or title; that afterwards, to wit, on the 28th of June, A. D 1875, said Illinois Loan & Land Company executed and delivered its deed of conveyance of said premises to Henry C. Reed, which deed was afterwards, to wit, on the 2d day of August, A. D. 1875, recorded in the office of the re corder of deeds in said county of Cook, which deed, I find, also, was made without right; that afterwards, to wit, on the 12th day of November, A. D. 1881, said Reed and his wife executed and delivered a quitclaim deed convey. ing said premises to James W. Converse, which deed was on the 11th day of August, A. D. 1882, recorded in the office of the recorder of deeds in and for said Cook county; that said last-mentionel deed was made without right. I recommend, therefore, that an order be entered herein in conformity with these findings.

Levi Sprague, for complainant.

Peckham & Brown, and Mr. Pease, for defendants.

WOODS, Circuit Judge. I am not able to agree with the master's view of this case. I am convinced that the conveyance of November 10, 1874, instead of having been executed in discharge of the debt evidenced by the promissory note of April 10, 1874, was intended as a security additional to that theretofore given for the payment of that note, and perhaps for any other liability of Ferguson to Greenbank which might be incurred; and, this being so, the deed, though absolute in form, was, in equity, only a mortgage, and affords no support for this action. Or, if this is not so, then the deed was made, in fraud of creditors, upon a secret trust for Ferguson, or for his wife and children. The complainant, after receiving the deed, though in straitened circumstances, did not act as if he considered the land his. He retained possession of the note, which, if paid, should have been surrendered. He permitted Ferguson to pay the taxes upon the land, and to receive the rents from it. His testimony is by no means positive to the contrary; and his letters, especially that of April 2, 1891, show that he regarded Ferguson as still indebted to h.m; and that if the debt were paid the land ought to be reconveyed. The testimony of Ransom shows that Mrs. Ferguson understood that Greenbank had advanced money, and held the deed as a se curity. If guided by Ferguson's testimony alone, the court