Opinion of the Court.

the latter was a debtor for value, and the transfer was valid. But the protection is not given by the rules of law to a party in such a predicament merely. He must not only have had no notice, but he must have paid a consideration at the time of the transfer, either in money or other property, or by a surrender of existing debts or securities held for the debts and liabilities. "But here the bank has merely possessed itself of the property transferred as auxiliary security for the old debts and liabilities. It has paid or given no new consideration upon the faith of it. It is, therefore, in truth, no purchaser for value in the sense of the rule.

After referring to Dickerson v. Tillinghast, 4 Paige, 215,1 in which it was held by Chancellor Walworth that the transfer of an estate upon which there was a prior unrecorded mortgage, in payment of a preexisting debt, without the transferee giving up any security or divesting himself of any right, or placing himself in a worse situation than he was in before, did not make the latter, who was without notice of the prior mortgage, à grantee or purchaser for a valuable consideration, Mr. Justice Story proceeded: "I do not say that I am prepared to go quite to that length, seeing, that by securing the estate as payment, the preexisting debt is surrendered and extinguished thereby. But here there was no such surrender or extinguishment or payment; and the general principle adopted by the learned Chancellor is certainly correct, that there must be some new consideration moving between the parties, and not merely a new security given for the old debts or liabilities without any surrender or extinguishment of the old debts and liabilities or the od securities therefor. So that upon this ground alone the title of the bank would fail. The case of Swift v. Tyson, 16 Pet. 1, does not apply. In the first place, there the bill was taken in payment or discharge of a preexisting debt. In the next place, it was a case arising upon negotiable paper, and who was to be deemed a bona fide holder thereof, to whom equities between other parties should not apply. Such a case is not necessarily governed by the same

1 S. C. 25 Am. Dec. 528.

Opinion of the Court.

considerations as those applicable to purchasers of real or personal property under the rule adopted by courts of equity for their protection." See also Rison v. Knapp, 1 Dillon, . 186, 200, 201.

In Johnson v. Peck, 1 Woodb. & Min. 334, 336, which was a case of a mortgage given to secure a preëxisting debt due from a mortgagor who had previously purchased the goods under such representations as entitled his vendor to sue to recover them back, Mr. Justice Woodbury said: "When rights of third persons intervene in this class of cases they are to be upheld, if those persons purchased the property absolutely and parted with a new and valuable consideration for it without notice of any fraud. . . But if they have notice of the fraud or give no new valuable consideration, or are mere mortgagees, pawnees, or assignees in trust for the debtor, or for him and others, such third persons are to be regarded as holding the goods open to the same equities and exceptions as to title as they were open to in the hands of the mortgagor, pawner, or assignor."

And so in 2 American Leading Cases, 5th Amer. ed., p. 233, it is stated, and we think properly, as the doctrine established by a preponderance of authority, that "whatever the rule may be in the case of negotiable instruments, it is well settled that the conveyance of lands or chattels as security for an antecedent debt will not operate as a purchase for value, or defeat existing equities." See 2 Leading Cases in Equity, 104, 3d Am. ed.; Strangham v. Fairchild, 80 Ind. 598.

Such, we think, is also the doctrine of the Supreme Court of Michigan. In Kohl v. Lynn, 34 Mich. 360, the court, after observing that the object of the statute is to protect those who have acquired rights under the circumstances which would render them liable to be defrauded unless protected against instruments of which they knew nothing when acquiring their rights, said: "It has always been held that a purchaser who had paid nothing could not be thus defrauded, and that no one could be protected as a bona fide purchaser, except to the extent of his payments made before he received such notice as should have prevented him from making further payments.

Opinion of the Court.

This doctrine has been too uniformly recognized to require discussion or citation of authorities. As Kohl had made no payments at all before the property was replevied from him, he was not a bona fide purchaser, and his rights are subject to the mortgage."

In Stone v. Welling, 14 Mich. 514, 525, where the issue was between the holder of an unrecorded mortgage and a subsequent grantee, who agreed to surrender indebtedness of the grantor to him and others, and put the deed on record without notice of the mortgage, the court said:

66

Welling claims that the agreement which was given for the deed was amply sufficient to support it, and to entitle him to the rights of a bona fide purchaser under the recording laws. It was satisfactory, it is said, to Hart; and as to the indebtedness held by Welling and Root against him, it would have the effect of a present discharge. That it was satisfactory to Hart can be of no consequence on this question, since, to constitute Welling a bona fide purchaser he must have parted with something of value, and not merely given a contract which he could avoid, if his title under the deed proved defective. Thomas v. Stone, Walker's Ch. 117; Dixon v. Hill, 5 Mich. 404; Warner v. Whittaker, 6 Mich. 133;1 Blanchard v. Tyler, 12 Mich. 339. Nor do we think the agreement had the effect to discharge any indebtedness. It was executory in its character, covering not only the claims of Welling and Root, but also other claims to be procured by them, and upon which it cannot be claimed that the agreement itself would have any effect whatever."

In Boxheimer v. Gwin, 24 Mich. 372, 379, the defendant in a suit brought to foreclose a recorded mortgage, relied upon a subsequent deed of the mortgagor, which he was induced to take under the representation of the latter, that the mortgage debt had been paid. After sustaining the claim of the plaintiff upon certain grounds, the court said that the defendant must fail in the suit upon the further ground that, although he acted with good faith, he was not a bona fide purchaser or

1 S. C. 72 Am. Dec. 65.

Statement of Facts.

encumbrancer for value, with equities superior to those of the plaintiff, because it appeared that the conveyance to him was "merely as a security for a precedent debt," without his paying or agreeing to pay any other consideration or relinquishing any remedy or right he may have had.

Without further discussion of the authorities cited by counsel, all of which have been carefully examined, we are of opinion that the claim of the bank to be a subsequent mortgagee in good faith cannot be sustained, because the mortgage of February 11, 1881, although first filed, was not given in consideration of its having surrendered, or agreed to surrender, or to postpone the exercise, of any substantial right it had against the mortgagors, but merely as collateral security for past indebtedness. Under such circumstances, the mortgage which was prior in time confers a superior right.

Other questions of a minor character are discussed by counsel, but it is not deemed necessary to consider them.

We perceive no error in the record, and the judgment is

Affirmed.

CHICAGO, BURLINGTON, AND KANSAS CITY RAILROAD v. GUFFEY.

ERROR TO THE SUPREME COURT OF THE STATE OF MISSOURI.

Argued January 3, 1887.- Decided March 7, 1887.

The provision in the state constitution of Missouri of 1865, that "no property, real or personal, shall be exempt from taxation, except such as may be used exclusively for public schools, and such as may belong to the United States, to this state, to counties, or to municipal corporations within the state" applies to stock issued for constructing branches of the St. Joseph and Iowa Railroad in that state under the provisions of the statute of March 21, 1868, “to aid in the building of branch railroads in the state of Missouri"; and the provision in the charter of that railroad company, enacted in 1857, that its stock should be exempt from taxation for state and county purposes, does not apply to the stock issued for branches constructed under the act of 1868.

Immunity from taxation by the state will not be recognized, unless granted in terms too plain to be mistaken.

Opinion of the Court.

THIS action was instituted in conformity with a local statute of Missouri, to recover certain state and county taxes alleged to be due upon the property of the plaintiff in error, situate in Putnam County in that state. The Federal question is stated in the opinion of the court.

Mr. Jeff. Chandler for plaintiff in error. Mr. L. T. Hatfield and Mr. A. W. Mullins were with him on the brief.

Mr. John P. Butler for defendant in error. Mr. B. G. Boone, Attorney General of Missouri, and Mr. S. P. Huston filed a brief for same.

MR. JUSTICE HARLAN delivered the opinion of the court.

The judgment which this writ of error brings up for review affirms the liability to taxation, in Missouri, for state and county purposes, of what was formerly known as the Central North Missouri Branch of the St. Joseph and Iowa Railroad, more recently named the Linneus Branch of the Burlington and Southwestern Railway Company, and now owned by the Chicago, Burlington, and Kansas City Railroad Company, a corporation organized under the laws of Missouri. The latter company claims to have succeeded to all the rights, privileges, and immunities granted to the St. Joseph and Iowa Railroad Company in its charter of 1857, among which was an exemption of its stock from taxation for "state and county" purposes. As the construction which the Supreme Court of Missouri places upon certain legislation, enacted after the charter of the St. Joseph and Iowa Railroad Company was granted, is inconsistent with the exemption claimed, the controlling question, on this writ of error, is whether the local statutes, as interpreted and applied by that court, impair the obligation of any contract which the company had with the state and thereby deprive its successor, the plaintiff in error, of any rights secured by the Constitution of the United States.

That question mainly depends upon the construction of an act of the General Assembly of Missouri, entitled "An act to aid in the building of branch railroads in the state of Missouri," approved March 21, 1868.