!

the world as the absolute owners of the goods, and enjoy all the advantages resulting therefrom. It is idle to say that a resort to the record would have shown the existence of the mortgage, for men get credit by what they apparently own and possess, and this ownership and possession had existed without interruption for ten years. There was nothing to put creditors on their guard. On the contrary, this long continued possession and apparent ownership were well calculated to create confidence and disarm suspicion. But apart from this, security was not the leading object. If so, why does Mrs. Sloan's note remain overdue for twenty-one months, and why does Robinson continue to indorse? This conduct is the result of trust and confidence, which, as Lord Coke tells us, are ever found to constitute the apparel and cover of fraud.

In truth, the mortgage, if it can be so called, is but an expression of confidence, for there can be no real security where there is no certain lien.

on the subject which seems to us the safest and wisest. It is not difficult to see that the mere retention and use of personal property until de fault is altogether a different thing from the retention of possession accompanied with a power to dispose of it for the benefit of the mortgagor alone. The former is permitted by the laws of Indiana, is consistent with the idea of security. and may be for the accommodation of the mort gagee; but the latter is inconsistent with the nature and character of a mortgage, is no protection to the mortgagee, and of itself furnishes a pretty effectual shield to a dishonest debtor. We are not prepared to say that a mortgage under the Indiana Statute would not be sustained which allows a stock of goods to be retained by the mortgagor, and sold by him at retail for the express purpose of applying the proceeds to the payment of the mortgage debt. Indeed, it would seem that such an arrangement, if honestly car ried out, would be for the mutual advantage of the mortgagee and the unpreferred creditors. But there are features engrafted on this mort- Whatever may have been the motive which gage which are not only to the prejudice of actuated the parties to this instrument, it is creditors, but which show that other considera- manifest that the necessary result of what they tions than the security of the mortgagees, or did do was to allow the mortgagors, under their accommodation even, entered into the cover of the mortgage, to sell the goods as their contract. Both the possession and right of dis-own, and appropriate the proceeds to their own position remain with the mortgagors. They are purposes; and this, too, for an indefinite length to deal with the property as their own, sell it at of time. A mortgage which, in its very terms, retail, and use the money thus obtained to re- contemplates such results, besides being no seplenish their stock. There is no covenant to ac- curity to the mortgagees, operates in the most count with the mortgagees, nor any recognition effectual manner to ward off other creditors; that the property is sold for their benefit. In- and where the instrument on its face shows that stead of the mortgage being directed solely to the legal effect of it is to delay creditors, the the bona fide security of the debts then existing, law imputes to it a fraudulent purpose. The and their payment at maturity, it is based on views we have taken of this case harmonize the idea that they may be indefinitely prolonged. with the English common law doctrine, and are As long as the bank paper could be renewed, sustained by a number of American decisions. Robinson consented to be bound, and in Mrs. In the American editor's note to Twyne's case, Sloan's case it was not expected that the debt Smith, L. Cas.. p. 52, n., 7th Am. ed., most of would be paid at maturity, but that it would be the cases in this country on the subject are colrenewed from time to time, as the parties might lected and classified. See, also, Mittnacht v. agree. It is very clear that the instrument was Kelly, 3 Keyes, 407; Yates v. Olmsted, 65 Barb., executed on the theory that the business could 43; Barnet v. Fergus, 51 Ill., 352, In re Manly, be carried on as formerly by the continued in- 2 Bond, 261; In re Kahley, 2 Biss., 383. dorsement of Robinson, and that Mrs. Sloan was It is contended by the appellants that the rulindifferent about prompt payment. The correct-ings of the Indiana courts are in favor of the ness of this theory is proved by the subsequent validity of this mortgage, and the main case reconduct of the parties, for the mortgagees re-lied on to support this position is Maple v. Burnmained in possession of the property, and bought and sold and traded in the manner of retail dry goods merchants, from July 7, 1871, to August 7, 1873. During this period of twenty-five months Robinson indorsed as usual, and Mrs. Sloan was content with the payment of a small portion of the principal of her debt. Instead of getting it renewed, as contemplated by the mortgage, she seems to have been willing to let it remain dishonored, and the fair inference from the averments of the bili is that Robinson would have continued to indorse, and Mrs. Sloan exhibit the same easy indifference on the subject of her indebtedness, if the death of Seth A. Coolidge had not dissolved the firm and compelled an inventory and appraisement, showing the desperate condition of the mortgagors. It hardly need be said that a mortgage which, by its very terms, authorizes the parties to accomplish such objects is, to say the least of it, constructively fraudulent.

Manifestly it was executed to enable the mortgagors to continue their business and appear to

side, reported in 22 Ind., 139. The facts of this case are stated in the opinion of the court in a way to render it difficult for any practitioner outside of the State to understand the application to them of the legal rules which are discussed; but there is nothing to show that the mortgage there considered contained any provision permitting the mortgagor to remain in pos session of the property and deal with it as his own, nor does the judgment of the court involve any such question. The case would seem to be chiefly valuable as an authoritative exposition of certain points of nisi prius practice. Although we have been unable to find any case from Indiana of similar facts with the one at bar, yet the decision in the Ins. Co. v. Wilcoxson, 21 Ind., 355, would seem to imply that when such a case did arise it would be decided in accordance with the views we have presented. The point ruled in that case is, that if a mortgage is executed merely to protect property in the hands of the mortgagor from his creditors other than the mortgagee, the mortgagor re

taining possession and the right of disposition, and these facts appear upon the face of the mortgage, it would be fraudulent and void as against other creditors, and should be so declared by the court. And the court, to sustain this proposition, refer to Freeman v. Rawson, 5 Ohio, 1, a standard authority in this class of cases, for the views we have advanced on this subject.

Finally, it is insisted if the mortgage is held void in law, still the delivery of the goods in pledge vests a sufficient lien, prima facie, to enable the appellants to enforce their lien in eq uity.

The answer to this is, that the case made by the bill does not proceed upon such a delivery at all, but upon the mortgage and seizure un der it. Besides, if the appellants could turn the proceeding into a voluntary pledge by the debtors, it would not help them, for it would violate the preference clause of the Bankrupt Act, as they got the goods only twelve days before the petition in bankruptcy was filed.

The decree of the Circuit Court is affirmed. Cited-7 Biss., 416; 8 Biss., 136; 15 Bk. Reg., 152156, 375; 17 Bk. Reg., 237, 238, 428; 18 Bk. Reg., 67, 69; 2 McCrary, 17, 18; 24 Minn., 394: 91 N. Y., 221; 43 Wis., 124; 22 Kan., 147; 31 Am. Rep., 177, 180; 50 Texas, 647; 31 Am. Rep., 623.

JOHN PHELPS PUTNAM, HEMAN ELY,
AND HEMAN ELY as Admr., etc., AND
STEVENSON BURKE, Appts.,

v.

EZEKIEL R. DAY.

(See S. C., 22 Wall., 60-67.)

Bill of review, what examinable on-answer in -proper relief.

*1 On a bill of review in equity, nothing can be examined but the pleadings, proceedings and decree which, in this country, constitute what is called the record of the cause. The proofs cannot be looked into as they can on an appeal.

2. On such a bill filed by a defendant to set aside the decree, he is bound by the answer filed on his behalf by his solicitor, though he did not himself read it, unless he can show mistake or fraud in filing it. The answers of other defendants cannot

be read in his favor.

3. Where the defendant by his answer admits the claim to be due, and prays contribution from other defendants, without setting up any defense to the demand, he cannot, after a decree and on a bill of review, ask to have the decree set aside on the ground of laches, on the part of the complainant in bringing suit. [No. 124.]

Argued Jan. 22, 25, 1875. Decided Feb. 15, 1875.

ΑΙ

PPEAL from the Circuit Court of the United
States for the District of Indiana.

The case is stated by the court.

Mr. Justice Bradley delivered the opinion of the court:

This is a case in equity which, in the court below, came up on a bill, in the nature of a bill of review. To the character of a bill of review, it adds that of an original bill, seeking to set aside the decree in the principal suit, on the ground of inadvertence and mistake on the part of the complainant's solicitor and counsel. The bill was filed by Ezekiel R. Day, the appellee here, to reverse and set aside a decree which had been rendered against him for the sum of $6,230, in the suit referred to, in which John Phelps Putnam, Heman Ely and Stevenson Burke, the appellants here, were the complainants, and the New Albany and Sandusky City Junction Railroad Company, the City of New Albany, Silas C. Day, the said Ezekiel R. Day and divers other persons, stockholders of said railroad company, were the defendants. The original suit was a creditor's bill, filed in the Circuit Court of the United States for the Dis trict of Indiana, in January, 1868, by the complainants as judgment creditors of the said railthe name of certain trustees in the Floyd Counroad company, under a judgment recovered in ty Circuit Court of Indiana, in November, 1857, the beneficial interest of which judgment had been assigned to the complainants. The bill was filed against the City of New Albany, Ezekiel R. Day, and the other defendants thereto, holders of the New Albany and Sandusky City for the purpose of compelling them, as stockJunction Railroad Company, to pay the amounts alleged to be due and unpaid by them on their stock subscriptions to the said railroad company, so that the amount of said judgment due to the complainants might be paid and satisfied, it being alleged that the said railroad combeen exhausted in satisfying other claims. A pany was insolvent, and that all its property had decree was rendered in July, 1869, adjudging that there was due to the complainants, on their said judgment, upwards of $70,000; and that there was due on the stock subscriptions of said railroad company from the City of New Albany, upwards of $100,000; from the appellee, Ezekiel R. Day, $6,230; and from Silas C. Day $3,026, which sums were directed to be paid and applied pro rata in satisfaction of said judgment. The bill was dismissed as to the other defendants, it being found upon a defense to that effect set up by them, that they were not indebted on their subscriptions, most of their stock having been taken off their hands by the City of New Albany, under provision for that purpose, contained in the original subscriptions. The case of these defendants was considered by this court in Burke v. Smith, 16 Wall., 390 (83 U. S., XXI., 361).

The City of New Albany, in its answer, set up & defense peculiar to itself, to wit: a com

Messrs. Porter & Harrison, J. A. Garfield plete settlement and compromise with the rail

and S. Burke, for appellants.
Mr. M. C. Kerr, for appellee.
*Head notes by Mr. Justice BRADLEY.

NOTE.-Bill of review; nature of; when may be brought; who may maintain; time within which; what it should contain. See note to Bank of U. S. v. Ritchie, 33 U. S. (8 Pet.), 128.

How far admissions and statements of attorney or his clerk bind client. See note to Turner v. Yates, 57 U.S. (16 How.), 14.

764

road company in 1857, by which the bonds issued by the city in payment of its stock subscription were surrendered upon its assuming and paying a large amount of debts due by the company; and the city insisted that this settlement was made in good faith, and was for the benefit of the railroad company and its creditors; and that the complainants had lain by and slept on their rights too long to be permitted to disturb so proper and just an arrangement. The

that they advised him to file the bill, and ask for equitable relief, and claim a pro rata contribution among the stockholders; that he did not see the answer and cross bill which they prepared, and had no knowledge of the allegations contained in them; that he was informed that the court had acted on his answer and crossbill, and that he was out of court; that he relied principally on Mr. Collins, as Day was young and inexperienced; but that he never consulted Collins but once, though he saw him a second time; that he had no business in the case that needed any further explanation at the time; that Collins was sick much of the time, and died in May, 1869, during the pendency of the suit; that he saw his attorney, Day, occasionally after the suit was brought, and consulted with him and paid his expenses to Indianapolis, when he went there to file the answer and cross bill. This was all the material evidence in the case. The circuit court set aside the decree against Day, and the case is before us on an appeal from this decision.

case of the city was pending in this court, on | partners, to represent him as his counsel; and appeal, when the present bill of review was filed by Ezekiel R. Day. A decision has since been made in favor of the city, and will be found reported in 11 Wall, 96 [78 U. S., XX., 155]. Day, the present appellee, did not join the other defendants in the defense set up by them, but filed a separate answer and a cross bill, in which he admitted that he had subscribed stock in the railroad company to the amount of $36,100, and that $3,500 thereof remained unpaid. He then stated that the other defendants, including the City of New Albany, were subscribers to a large amount, which he set forth in a list; and he claimed that they had not paid as much in proportion on their subscription as he had paid on his; and prayed that they might be compelled to contribute until they had paid an equal proportion to himself; in which case he alleged there would be money due to him, instead of money due from him. His cross-bill, being de murred to, was dismissed; and the decree against him was made on the admissions of his answer, charging him with the $3,500 admitted to be unpaid, with interest thereon.

In January, 1870, the present bill of review was filed, to have this decree set aside as to the appellee, Ezekiel R Day. In this bill, which, as before noted, was a bill partly original and partly in review, the complainant states, briefly, the proceedings in the former suit; admits the filing of the answer and cross-bill before referred to, but alleges that it was filed by his at torney, and was never seen or read or sworn to by himself; and that it did not set up, truly, the facts, or the true grounds of his defense. He further states that the truth was, that his stock was taken by the City of New Albany, in the same manner as that of the other defendants, except certain shares which he subscribed, payable in lands; and that he was not indebted to the railroad company for any unpaid portion of stock subscribed by him. He also insisted, as a ground of review, that the decree in the former suit was erroneous, and should be set aside for three reasons specified in the bill of review: First. That Floyd County Circuit Court, in which the judgment had been rendered, had exclusive jurisdiction of the matter.

Second. That the original bill did not set out sufficient facts to show an indebtedness on his part.

Third. That the complainants were guilty of gross laches and negligence in seeking equitable relief. having lain by and slept on their right to equitable relief, if they had any, for more than nine years.

The appellants answered this bill, insisting upon the regularity and conclusiveness of the proceeding, and denying that Day had any defense to the original suit, or that he ever assigned his stock to the City of New Albany. To this answer a general replication was put in. Day was, himself, examined as a witness, and testified to the transfer of his stock to the city, except as stated in his bill, and to the payment of all dues thereon. He also testified as to his employment of an attorney to represent him in the original suit, and to the manner in which his answer and cross-bill were filed. His testimony on this point was to the effect, that when the suit was instituted, he employed James Collins and his own nephew, Addison Day, who were See 22 WALL. U. S., BOOK 22.

The complainant failed utterly, we think, to make out a case of fraud, mistake or want of authority on the part of his solicitors and counsel in filing the pleadings in the original suit, and taking the ground they did on his behalf. Of course fraud is not charged; but the complainant relied on the fact that he never saw the answer or cross-bill, and did not know their contents. This is no ground for allowing him to repudiate them now. It is not alleged that he would have placed his defense on any dif ferent ground had the answer and cross-bill been read by him. Indeed, they were drawn in pursuance of the advice received from his counsel and acquiesced in by him. His not having sworn to his answer, or even read it, is no excuse. It was his duty to have known its contents, if not to have verified it. If his counsel failed to make as good a defense for him as they might have done, it was his misfortune and cannot be rectified after the passing of the decree. Litigation would never come to an end if parties were permitted thus to shift their entire ground of attack or defense, after finding where the pinch of the cause lay. They must be estopped by the record, unless they can show that they were the victims of fraud or mistake.

Taking the cause, then, as it stood when the original decree was rendered, does the bill of review show any error for which it can be reversed?

It is to be remembered, that on a bill of review the proofs cannot be considered. 2 Dan. Ch. Pr., 1631, 3d ed. If the decree is contrary to these, remedy must be sought by appeal. Story, Eq. Pl., sec. 407. We are confined, then, to an examination of the pleadings, proceedings and decree, and the pleading of Day himself is to have controlling effect so far as it contains admissions against his own interest. It is apparent that the decree of the circuit court on the bill of review was based on the answers and evidence adduced by the other defendants, which tended to show that the appellee's case was similar to theirs. Day's own answer in the case was entirely disregarded. But is it possible to ignore it? Day was not necessarily in the same category with the other defendants. All

The court below evidently relied on its knowl-Wood, 242; 2 McCrary, 247, 250; 8 McCrary, 488; 1; edge and estimation of the proofs in the cause. The learned judge in his opinion, in summing up his views of the case, says so, in so many words: "When this court can see by the answer of the association subscribers and the evidence in the original case that there was no just claim on the part of the railroad company against the Days; that they had been released from such claim if any existed, years before the creditor's bill was filed, and even before the judgment was recovered on which it was founded, and that the court dismissed the bill as to persons equally liable with them, does such a rule apply?" Referring to the rule that the proofs cannot be

usurious bond and mortgage may be enforced for | creditor or a person having a claim against him, the amount actually due. who has a preference, to retain such preference, and recognizing it by appropriate evidence, is neither within the letter nor spirit of this section.

Argued Feb. 5, 1875. Decided Feb. 15, 1875. and having thereby elected to stand upon this