FORD v. CENTRAL TRUST CO., 70 F. 144

CALDWELL, Circuit Judge, after stating' the case as above, delivered the opinion of the court. . In support of the relief he asks, the appellant cites and relies on Fosdick v. Schall, 99 U. S. 235; Burnham v. Bowen, 111 U. S. 781, 4 Sup. Ct. 675; Trust Co. v. Souther, 107 U. S. 591, 2 Sup. Ct. 295; Barton v. Barbour, 104 U. S. 126, and other railroad cases. We recently had occasion to show that the doctrine of these cases had never been applied to any case except that of a railroad. Hanna v. Trust Co., 70 Fed. 2.

Assuming, but not deciding, that the doctrine of these cases is applicable to a corporation under obligation to furnish a city and its inhabitants with water, still the appellant cannot maintain his claim, for the following reasons: 1.

The claim which the intervener seeks to have made a charge upon the property of the water company, paramount to that of the mortgage, accrued nearly three years before tlie petition of intervention was filed; and shortly aftdr It accrued ihe water company executed to tlie intervener its negotiable notes therefor, which the intervener indorsed and transferred, before their maturity, to one of Ms creditors, as collateral security for a debt which he owed tlie creditor, which debt lie has never paid: and the creditor still bolds Hie notes as collateral security.

The creditor who holds these notes as collateral security is a bona fide bolder thereof, for value. Railroad Co. v. National Bank, 102 U. S. 25.

And if the claim for which they were given constituted an equitable lien on the mortgaged property superior to the mortgage, or if the holder thereof liad any equitable preference right to have the same paid out of the earnings of the property, or the proceeds of the sale thereof, all such rights passed to the indorsee of the notes; and while these notes remain unpaid, and are held by the indorsee as collateral security, the indorser cannot maintain a suit to collect the debt evidenced by them.

The intervener is seeking to recover on the open account for services and materials for which the notes were given; averring in his petition “that said notes were made for the purpose of evidencing said indebtedness, and none other.” But the debt, and all equitable rights attached thereto, passed to the indorsee of the notes. Trust Co. v. Walker, 107 U. S. 597, 2 Sup. Ct. 299; Trust Co. v. Lamont, 69 Fed. 23. 2.

For nearly three years after the debt for which the notes were given accrued, the intervener continued to act as superintendent of the water company, and during that time collected, by authority of the company, water rents to an amount exceeding the claim for making the water connections, which he applied in payment of his salary, and for work done long after the water connections were made.

Without regard to any technical rule for the application of payments, it would be inequitable for the intervener to collect in full all sums due to himself from the water company for salary and work for two or three years, and then throw upon the mortgagee the burden of paying a debt which accrued to him at a much earlier date. 3. The mortgage bondholders contributed $10,000 in bonds, which were sold for $9,000 or $9,500 in cash, for the express purpose of paying the claim set up by the intervener, and other debts incurred in putting in the Wagner Steam Wells.

The amount turned over to the company by the bondholders to pay these claims largely exceeded the amount of the claims. The intervener was superintendent of the water company, and knew that the bondholders had provided the water company with the means to pay these claims, and took no steps to compel the officers of the company to pay them, but permitted the company to use the funds for other purposes, in violation of its trust.

Under these circumstances, the intervener, if he still owned the claim, would have no equity to ask, in effect, that the bondholders be required to furnish the money to pay it a second time. The decree of the circuit court is affirmed.