Opinion of the Court.

Company. But the contract of the Construction Company to build that line was made with the Frankfort Company on August 31, 1880, more than ten months before the St. Louis Company was formed, which was on the 9th of June, 1881. On the 10th of June, 1881, the Construction Company made a contract with the St. Louis Company to build a line of road for the latter company from Kokomo, Indiana, to East St. Louis, Illinois; and it was expected that when the Construction Company should receive the stock of the Frankfort Company, which it was to receive for constructing the road for that company, there would be a consolidation of the line of the Frankfort Company with the line of the St. Louis Company. The Construction Company in fact built the road for the Frankfort Company; and the latter held the legal title to the road in 1883, whatever equities the St. Louis Company might have had therein. The road was largely built, aside from the iron, before the last-mentioned company was organized. Practically all the right of way was secured by the Frankfort Company and in its name, and the line when built was leased by the St. Louis Company from the other company, and was so held until the receiver was appointed.

Moreover, in the decree of foreclosure of November 12, 1885, under which decree the appellant purchased and holds title, it is said: "Third. The court further finds that so much of said line of railroad, described in the aforesaid mortgages, as lies between the city of Frankfort, Clinton County, Indiana, and the line dividing the States of Indiana and Illinois, being about sixty-seven miles in length, was constructed by a company known as the Western Construction Company under a written contract entered into between it and said Frankfort and State Line Railroad Company on the 31st of August, 1880, except eleven and three-tenths miles that had theretofore been built." The Frankfort Company was a party defendant to the bill of foreclosure filed by the Central Trust Company. It answered that bill and contested the right of the bondholders to a lien upon the sixty-seven miles of road. The decree further finds that the trustees for the bondholders have in equity a lien on the road of the Frankfort Company,

Opinion of the Court.

and directs the $1,800,000 of stock of that company to be turned over to the purchaser at the sale.

The court was not deceived as to the true condition of affairs when it ordered the receiver's certificates to be issued, nor were the bondholders or their trustees deceived when they consented to such issue. The petition of the receiver stated. all the material facts fully and accurately, and substantially as they were found by the court in its final decree, under which the appellant claims title. It is shown that all of the facts set out in that petition were true, and that the trustees, by their counsel, consented to the issue of the certificates because they were uncertain what view the court might take as to the right of the trustees to a lien upon the line of road of the Frankfort Company, under a mortgage given by the St. Louis Company, which never had the legal title to that line of road. The testimony of Mr. Thomas E. Stillman, the attorney of the Central Trust Company in the foreclosure suit, shows that he consented to the issue of the receiver's certificates covering the road from Kokomo to East St. Louis, and leads to the before-named conclusion; and there is other evidence to the same effect. It does not appear that any one was deceived. The evidence shows that the stock probably would have sold in the market for enough to satisfy the claims made upon it. The master found that the amounts of the claims were correct. The claims, except those of Richie and McPherson, were examined and cut down before the St. Louis Company would give its notes for them; and the amounts of the Richie and McPherson claims were contested in the taking of testimony by the master, before the certificates were issued.

The fifth paragraph of the foreclosure bill filed by the Central Trust Company sets forth the facts connected with the construction of the road of the Frankfort Company, and avers that it was built by the Construction Company under a contract between it and the Frankfort Company, under which the former was to receive all the stock of the latter, except $200,000, and $10,000 per mile in mortgage bonds and all local aid; and that the Construction Company did receive $1,800,000 of the stock, and afterwards held the stock to

Opinion of the Court.

The bill then

secure the amounts due to its sub-contractors. sets out the trust agreement of March 20, 1883, and avers that, by its terms, when those debts should be paid, the stock was to become the property of the St. Louis Company. It then recites the failure of the last-mentioned company to pay those debts, and avers that the receiver had issued the certificates, under the order of the court, as a paramount lien on the line of the road from Kokomo to East St. Louis, wherewith to pay said debts, and was to hold the stock subject to the order of the court, if it should be redeemed, and then so held it. The bill further claims for the trustee an equitable lien on the sixty-seven miles of the road of the Frankfort Company. The final decree of foreclosure of November 12, 1885, recites the facts substantially as set out in the bill, and states that, with the consent of the Frankfort Company, the road of that company was built with money derived from the sale of the bonds issued by the St. Louis Company; and that, for that reason, and because the receiver's certificates had been issued to the sub-contractors as a first lien on the road from Kokomo to East St. Louis, and the court had come into possession of the $1,800,000 of stock which the sub-contractors had held in pledge as security, the first mortgage bondholders had in equity a lien on the road of the Frankfort Company; and it, therefore, directed that, on the sale of the road, that stock should be turned over to the purchaser of the line.

The creditors were induced by the intervention of the court and the action of the bondholders, acting through the trustees, to release their mechanics' liens and surrender the $1,800,000 of stock held by them as security, and which they were about to sell; and the bondholders procured from the court a decree giving them an equitable lien on that part of the line which was represented by the stock, to make good their title thereto; and the court directed the stock to be transferred to the purchaser. Now the bondholders, who became the purchasers of the road, ask to have the lien of the holders of the receiver's certificates set aside. This demand is entirely devoid of equity.

The interposition of the court in issuing the receiver's cer

Opinion of the Court.

tificates was eminently proper. Where such certificates are issued, and the court, as in this case, impresses upon them a preferential lien, good faith requires that its promise should be redeemed, unless, perhaps, it be shown that the issue of the certificates was actually fraudulent. The propriety of the issue of certificates, in a case like the present, has been sustained repeatedly by this court, by Circuit Courts of the United States and by courts of the States. Jerome v. McCarter, 94 U. S. 734; Wallace v. Loomis, 97 U. S. 146; Miltenberger v. Logansport Railway Co., 106 U. S. 286; Burnham v. Bowen, 111 U. S. 776; Kennedy v. St. Paul & Pacific Railroad, 2 Dillon, 448; Stanton v. Alabama & Chattanooga Railroad, 2 Woods, 506; Bank of Montreal v. Chicago, Clinton & Western Railroad, 48 Iowa, 518; Coe v. New Jersey Midland Railway, 27 N. J. Eq. (12 C. E. Green) 37; Hoover v. Montclair &c. Co., 29 N. J. Eq. (2 Stewart) 4; Meyer v. Johnston, 53 Alabama, 237.

In the present case, the creditors had in their hands, as a pledge for their debts, stock representing 67 miles of road, and that road was a link necessary in the continuous line of road. The bondholders had no legal mortgage thereon, but only an equitable lien. The bondholders, who now object to the priority of the receiver's certificates, were parties to the suit in which the decree was rendered, by their trustees and committee. No appeal was taken from that decree, nor were any steps taken to set it aside. On the contrary, the bondholders purchased the road and reorganized the company, and now hold the road under that decree. The sale of the stock to satisfy the debts of the creditors would have carried with it the title to the road, and put in jeopardy the continuity of the line. It was especially proper for the court to order the certificates to be issued, when the parties in interest consented. The equity of the creditors to whom the certificates were issued, especially as they had the legal title to the $1,800,000 of stock, was as high as the equity of the bondholders, who had no legal mortgage on the road of the Frankfort Company, and whose equitable right to a lien on the 67 miles of that road arose only out of the fact that the road had been built,

Opinion of the Court.

in part at least, with money arising from the sale of some of the bonds issued by the St. Louis Company.

The consent of the trustees to the issue of the certificates bound every bondholder. There is nothing to show that the trustees acted corruptly or fraudulently. Under all the circumstances of the case, the bondholders are precluded from claiming priority over the receiver's certificates, which were issued for the purpose of preserving the mortgaged property. In Union Trust Co. v. Illinois Midland Railway, 117 U. S. 434, 461, this court said: "As to receiver's certificates issued, with the sanction of the court, after the trustees become parties, the purchasers and holders should be accorded such rights as, by the settled principles of equity, are accorded to those who deal with judicial tribunals having jurisdiction in the premises." See also Miltenberger v. Logansport Railway, 106 U. S. 286; Jones on Railroad Securities, sections 539, 540; Humphreys v. Allen, 101 Illinois, 490, 499.

The appellant and those whom he represents are clearly estopped from setting up any claim against the priority of the receiver's certificates. Swan v. Wright's Executor, 110 U. S. 590; 2 Pomeroy's Equity Jurisprudence, sections 804, 805.

The certificates are all of them payable to bearer. No one of them is now held by the original parties, but they have all passed into the hands of third persons for a valuable consideration. Those persons had a right to rely on the promise of the court as to their priority, plainly borne on their face, when the consent of the trustees, and thus of the bondholders, was given to their issue.

The order is affirmed, with costs, as to all the appellees except the First National Bank of Mount Pleasant, Iowa, W. W. Whitney & Co., II. E. Bowers, Emily Worthington, T. P. M. Roome, Hugh Dougherty and William J. Craig, and as to them the appeal is dismissed for want of jurisdiction.

MR. JUSTICE GRAY was not present at the argument and took no part in the decision.