mined that the proceeds of the sale of the assets of the Art Library Publishing Company by the receiver are the property of the partnership of Singerly and Beck, who conducted their business under the name of that company; that the petitioning creditor of the company is entitled, through the equitable right of Beck, to have such assets so administered that they shall first discharge the debts owing by the company; and that the property from the sale of which such assets were obtained was not the individual property of William M. Singerly during his life. A form of decree in conformity with this conclusion is

respectfully submitted.

The exceptions to the foregoing report were referred to the special master, who reported thereon as follows:

The exceptions raise three matters for resolution: First. The alleged partnership between Singerly and Beck after 3d August, 1897. Second. The imputed agreement between the two that Beck should be a partner (if one at all) in profits only. Third. The assignment or transfer by Beck of all of his right in the assets of the business, so that Singerly became and was, when he died, its sole owner.

(1) The facts with respect to the alleged partnership between Singerly and Beck after 3d August, 1897, are scarcely questioned. They are not denied, and are set forth in detail in the report. From these, and from these alone, it was and is inferred that the two intended the partnership relation inter sese. The inference is believed to be a strictly logical one. In the absence of a written partnership agreement (and in this case there was none), it is not easy to imagine a case in which the facts more potently demand this conclusion.

(2) When a partnership relation is found to exist, the presumption is that the partners have equal rights and duties, and, if the right of one is simply in profits, that is to be established by some evidence, or there are some facts to be found from which it may be logically concluded. There was no evidence of any kind that Beck was a partner simply in the profits, and there were no facts from which this was inferable. It is true that all the money capital had been contributed by Singerly, but all, or the greater part, of the business management was that of Beck. The business was a peculiar one, and an element of very great value in it was good will. In this Beck was equally interested with Singerly, and Beck took into the business an accumulation of profit from that business which preceded it, and which was not named capital, but in the bookkeeping treated as such. Hence it was, and still is, thought that, if Beck were a partner in profits, it was not made so to appear.

(3) The book entries of 17th February, 1898, are referred to as manifesting the transfer by Beck of all of his right in the assets of the business. It is not doubted that a partner may devest himself of all right in the assets, and invest his partners with them, so that creditors who otherwise would be entitled to payment from partnership assets cannot so claim, because that claim must be advanced through the equity which a partner has to have joint assets applied to partnership debts in the first place. But this transfer must be in good faith, not alone free from fraud, but in such conscience that the partnership creditors shall not be disappointed in the marshaling of the assets. And it is not either in good faith or conscience when made on the verge of insolvency, still less after actual though not declared insolvency. It has been found as a fact that the solvency of the Art Library Publishing Company "ended by the failure on 23d December, 1897, of the Chestnut Street National Bank, of which William M. Singerly,was president, and from which it had obtained its discounts." The transfer relied upon with so much confidence took place nearly two months after the solvency of the partnership so ended. At another time and place it might be not unpleasant, and even profitable, to follow the review of the cases to which the undersigned was invited for the purpose of discovering a principle of general application. But the matter in hand does not call for this. There is no well-considered case in which, on the eve of insolvency, a transfer of the kind under consideration has been deemed such an act of good faith to partnership creditors as to be upheld by a chancellor. In this connection the expression of Woodward, J., in Backus v. Murphy, 39 Pa. St. 397, commends itself as in a proper cause maintaining not only the right or equity of a partner, but the right of a partnership creditor. He says (page

3

402): "That is to say, whilst any partnership property remained, either partner might apply it or compel its application to the firm debts, and for this purpose might avail himself of the equity powers of the courts. And, possibly, creditors might compel him to allow them to use his name for this purpose if he were backward in protecting their rights." Hitherto this matter has been treated as though Beck actually assigned or intended to assign to Singerly, but the entries relied upon fall short of manifesting such an assignment. Above all, Beck's answers to the specific interrogatories filed, while not evidence against Singerly, are evidence against himself, and he has answered to the fifteenth interrogatory that by the transfers in the books of the Art Library Publishing Company he made no sale of any interest in the partnership assets to Singerly. None of the exceptions are sustained.

Asa W. Waters and W. H. Addicks, for receiver.
J. Howard Gendell, for exceptions.

MCPHERSON, District Judge. I have considered carefully the reports, arguments, and testimony in this case, and am of opinion that the exceptions of Mr. McCartney, as administrator of William M. Singerly, must be overruled. I agree entirely with the learned. master's findings of fact, with the inferences of fact that he draws therefrom, and with his conclusions of law. It would be superfluous to restate what he has already put so convincingly, and accordingly I shall content myself with adopting his reports as the opinion of the court. The exceptions are dismissed.

UNITED STATES v. FLINT & P. M. RY. CO. et al.

(Circuit Court of Appeals, Sixth Circuit. July 5, 1899.)

No. 582.

1. PUBLIC LANDS-FORFEITURE OF RAILROAD GRANT-BONA FIDE PURCHASERS. The effect of the acts of March 3, 1887 (24 Stat. 556), and of March 2, 1896 (29 Stat. 42), providing for the adjustment of railroad land grants, was to confirm in bona fide purchasers from a railroad company the title to lands which, when certified under the grant, were public lands of the United States, and not subject to individual claims, although at the time the grant attached they had been withdrawn from its operation, where they were subsequently restored to the public domain, were within the limits of the grant, and were earned by the company.

2. SAME-WHO ARE BONA FIDE PURCHASERS-EFFECT OF SALE IN FORECLOSURE. Where a railroad company to which a land grant was made, and to which lands were certified thereunder as earned, conveyed the legal title to such lands in trust for its bondholders, and on the foreclosure of a subsequent mortgage its equity of redemption was sold, leaving the title in the trustees, and subject to the rights of the first bondholders, such sale operated to extinguish all title and interest of the original grantee in the lands, and took the trustees out of the proviso of the act of March 3, 1887 (24 Stat. 556), excepting mortgagees from the provision in favor of bona fide purchasers, and the trustees and purchaser of the equity of redemption became bona fide purchasers, within the meaning of such provision and of section 1 of the act of March 2, 1896 (29 Stat. 42).

3. MORTGAGES-CONVEYANCE OF EQUITY OF REDEMPTION TO MORTGAGEE-CON

SIDERATION.

A deed made by a railroad company to trustees, to whom it had previously conveyed the legal title to lands to secure its bonds, purporting to convey to such trustees the equity of redemption for the benefit of the

bondholders, but for which no consideration was received, is ineffectual to devest the company of such equity.

Appeal from the Circuit Court of the United States for the Eastern District of Michigan.

This was a bill in equity filed by the United States in the circuit court for the Eastern district of Michigan, under authority of Act Cong. March 3, 1887, c. 376 (24 Stat. 556), providing for the adjustment of land grants made by congress to aid in the construction of railroads. The lands in controversy were situate in the county of Isabella, state of Michigan, and had an area of 21,751 acres. The bill charged that the lands had been wrongfully certified to the state of Michigan for the benefit of the defendant company, and the prayer was for the cancellation of such certification, and the restoration of the lands to the public domain. The bill was filed against the Flint & Pere Marquette Railway Company, and the Flint & Pere Marquette Railroad Company, W. W. Crapo, trustee, and a large number of individual defendants. The individual defendants were averred to be in possession of different parcels of the land under grants from the Flint & Pere Marquette Railway Company or its trustees. The circuit court, after a final hearing upon issues made by answers and replication and evidence, entered a decree dismissing the bill as to all of the defendants. An appeal has been taken from the decree in so far as it dismissed the bill as to 720 acres of land, the title to which stands now in the name of William W. Crapo, trustee, to whom it was conveyed by the Flint & Pere Marquette Railway Company.

By the act of congress of June 3, 1856 (11 Stat. 21), a grant of land was made in the state of Michigan to aid in the construction of certain railroads, of which one was from Pere Marquette to Flint. The grant was of every alternate section of land designated by odd numbers for six sections in width on each side of each of said railroads. And it was provided that if, when the lines of the roads were definitely fixed, it appeared that the United States had sold such sections, or parts thereof, or the right of pre-emption had attached to the same, an agent appointed by the governor of the state might select, subject to the approval of the secretary of the interior, other sections within 15 miles of the lines of the road which should be held by the state for the purpose of the grant. Lands theretofore reserved by the United States by act of congress, or in any other manner by competent authority, for the purpose of aiding in the object of any internal improvement, or for any other purpose whatever, were reserved from the operation of the act. Lands granted to the state by the act were made subject to disposal by the legislature for the purposes of the act. The manner of disposition by the state was prescribed as follows: "That a quantity of land not exceeding one hundred and twenty sections for each of said roads, and included within a continuous length of twenty miles of each of said roads, may be sold, and when the governor of said state shall certify to the secretary of the interior that any twenty continuous miles of any of said roads is completed, then another quantity of land hereby granted, not to exceed one hundred and twenty sections for each of said roads having twenty continuous miles completed as aforesaid, and included within a continuous length of twenty miles of each of said roads, may be sold, and so, from time to time, until said roads are completed." The legislature of the state of Michigan, by act of 1857 (Laws Mich. 1857, p. 346), conferred the grant of lands made to the state for the construction of the road from Pere Marquette to Flint upon the Flint & Pere Marquette Railway Company. By section 7 of this act, as amended in 1859 (Lays Mich. 1859, p. 442), and in accordance with the authority given by the act of congress of June 3, 1856, upon the completion of each 20 miles of railroad, and after the certificate by the governor and the secretary of the interior of such completion, the railway company was authorized to sell the 120 sections of land earned, and so on until the whole of its road was completed; and on the final completion of the entire road it was authorized to sell the remainder of the lands. The grant was accepted by the Flint & Pere Marquette Railway Company, which filed its map of definite location, approved by the governor of the state of Michigan, with the commissioner of the general land office on August 18, 1857, and thereafter proceeded to construct and complete its road from Pere Marquette to

Flint within the time limited by the act. As the construction progressed, the governor of Michigan then in office certified to the secretary of the interior the completion of the road, and the secretary of the interior certified the lands to the railway company. The total area of the land which the railway company would have received for the whole length of the road from Pere Marquette to Flint, if the land had been available within the 15-mile limit, was 586,828 acres. The amount of land certified within the 6-mile limit was 258,947 acres. The deficiency lands certified within the 15-mile limit amounted in area to 252,478 acres; making a total of lands actually certified to the railway company of 511,425 acres. This left a deficiency of 75,402 acres in the grant to the railway company. Of the lands so certified, 21,751 acres are the lands described in the bill. They are situate in the county of Isabella, and were within the 6-mile limit of the railroad. They were certified by the commissioner of the land office under date of September 24, 1862, and approved by the secretary of the interior, December 1, 1862. As already said, of the 21,751 acres, but 720 acres are involved in this appeal.

The averment of the bill was, and the claim on behalf of the appellant is, that the lands in controversy did not pass by the congressional grant, but were excepted therefrom by reservation for other purposes before and at the time of the grant. This claim rests on the following facts: By letter of December 20, 1854, the commissioner of the land office recommended to the secretary of the interior that the lands in Isabella county be withdrawn from the market, and be reserved for Indian purposes, or so much thereof as might be deemed expedient. The secretary of the interior, by letter of April 12, 1855, referring to the foregoing, recommended to the president the withdrawal of the lands "with the express understanding that no peculiar or exclusive claim to any of the land so withdrawn can be acquired by said Indians, for whose future benefit it is understood to be made, until after they shall, by future legislation, be invested with the legal title thereto." On May 14, 1855, the withdrawal was made by the president in the following words:

"Let the withdrawal of all vacant land in Isabella county be made with the. express understanding contained in the letter of the secretary of the interior to me of the 12th inst. Franklin Pierce."

The secretary of the interior advised the commissioner of the land office of this action of the president by a letter of the same date. On August 2, 1855, a treaty was made with the Chippewa Indians, in which it was stipulated that the United States should withdraw from sale, for the benefit of the Indians, all the unsold public lands in the state of Michigan, among which were embraced "six adjoining townships of land of the county of Isabella, to be selected by said Indians within three months of this date and notice thereof given to their agent." By letter of May 30, 1856, the land commissioner accordingly directed the suspension of sales and location of lands in Isabella county. The railroad company filed its map of definite location on August 18, 1857. After considerable correspondence between the railroad company's agent and the land department, the commissioner of Indian affairs, in 1859, reported the selection of six townships under the treaty of the Indians, specifying the townships, which did not include the lands here in controversy. In 1861 the remainder of the lands in Isabella county were restored to the market for sale. The question was then mooted whether the Flint & Pere Marquette Railway Company was entitled to take, the lands within the six-mile limit in Isabella township which had thus been reserved for selection by the Indians, and not used for that purpose. The secretary of the interior distinctly decided that the lands in controversy were lands which, under the grant of June 3, 1856, passed to the state of Michigan to aid in the construction of the road from Pere Marquette to Flint. This decision was rendered in 1861. The lands in controversy were certified to the railway company as lands granted to the state of Michigan, under act of congress of June 3, 1856, by the commissioner of the general land office, on September 22, 1862, and this certification was approved December 1, 1862, by the secretary of the interior.

The history of the title to the lands in question after the certification is as follows: On April 6, 1860, the Flint & Pere Marquette Railway Company executed a deed of trust to Clark, Knapp, and Edmunds, trustees, of the first 40 miles of the railroad running from Flint to Marquette, and 153,360 acres of

land earned by said construction, to secure the payment of $480,000 of bonds. The trustees were authorized to sell the lands, and apply the proceeds to the payment of the bonds. On September 25, 1866, the railway company executed another deed to Tucker, Prescott, and Knapp, trustees, conveying the first 60 miles of road and 153,600 acres of land,-being the land to which the company would be entitled upon the construction of the second and third divisions of 20 miles,-to secure $500,000 of bonds. On August 2, 1875, the railway company, to secure the payment of $378,500 of bonds known as the "Flint and Holly Bonds," and $800,000 of bonds known as "Consolidated Bonds," which were then outstanding, and for which the railway company was liable to the holders, conveyed to Tucker, Prescott, and Crapo all the lands embraced in the first two deeds, and not disposed of by sale, subject to the trusts of the first two deeds. The trustees were authorized to sell the land, and apply the proceeds to the payment of bonds. By death and other changes the title to the land in the foregoing deeds became vested in Prescott and Crapo, as trustees, and on the 23d of August, 1879, the railway company conveyed to Prescott and Crapo all the right, title, and interest and equity of redemption of the Flint & Pere Marquette Railway Company in and to all the lands which were embraced in the grant of lands in said railway company under act of congress, including the lands unsold and the land contracts for lands which were within said grant which had then been sold, or on which partial payments had been made, and the moneys due and to grow due on said land contracts, and all securities for the payment of the same, and reciting that the indebtedness secured was greater than the value, thereby purported to vest in Prescott and Crapo the absolute title and equity of redemption of the Flint & Pere Marquette Railway Company in all of said lands. The conveyance was in trust to Prescott and Crapo to carry out the trusts expressed in three previous deeds of trust. Prescott died in 1890, and the trust survived in Crapo. Under the three deeds of trust made in 1860, 1866, and 1875, conveyances of lands made by the trustees under the several deeds were joined in by the railway company. But after the deed of 1879 the trustees made sales of land in their own name, without joining the railway company as a grantor. The sales were, however, made as the property of the railway company, were advertised as such, and were sold at their full value. Since 1873 the trustees have paid taxes upon the lands unsold down to the date of the filing of the bill. On the 20th of June, 1879, the trustees under the trust deed or mortgage of 1872 securing the consolidated bonds filed a bill in the United States circuit court for the Eastern district of Michigan to foreclose the same. On the 21st of August, 1879, a supplemental bill was filed to foreclose an additional mortgage to secure the same bonds, which covered all the property of the Flint & Pere Marquette Company of every kind, including its interest in the lands in question. The receiver was appointed under the original bill, and continued to act under the supplemental bill; but the lands in controversy, being held by trustees, did not pass into the custody or control of the receiver. On June 12, 1880, a decree was passed in the suit, by which all the property rights and franchises of the Flint & Pere Marquette Company were decreed to be sold subject to the lien created by the earlier trust deeds heretofore recited. The bonds of the consolidated mortgage, amounting to $6.236.368, principal and interest, were declared to be a lien upon the entire property rights and franchises of the Flint & Pere Marquette Railway Company subject to the prior liens already mentioned. The decree contained the following clause:

"Fourth. That said complainants, Crapo, Pierce, and Rogers, as trustees, and representing the holders of the said consolidated bonds, are entitled to have all the lands and land assets (being the lands which were embraced in the land grant as stated in the pleadings) and moneys on hand, or that may be realized from lands heretofore sold, and not yet fully paid for, applied towards the payment and extinguishment of the prior liens aforesaid, for which the same were specially pledged, so far as said land and land assets will go for the payment of the same; and after the payment of said prior securities, for which said land and land assets are specially pledged, and the payment of the costs and expenses of administering said prior trusts, respectively, the said lastnamed trustees, as representing the holders of said consolidated bonds, are entitled to any surplus, if any there should be, from such land and land