money was expended in the work of original construction. But, whether it was or not, the transaction was a simple borrowing of money upon commercial or business paper. It at best was an unsecured debt, not of the defendant company, but of the Pine Bluff & Eastern Railroad Company. A suit at law could not have been maintained against the defendant company by the payee named in the notes, or any of the indorsers thereon. It is, therefore, difficult to see how the amount of such notes can be declared a lien superior and paramount to that created by the mortgage in favor of the bondholders. The exceptions, so far as they relate to these notes, are in all things sustained.

The third intervention is for taxes upon the railroad of the defendant for the years 1891 and 1892, amounting in the aggregate to $3,100.82. These taxes were paid by a draft drawn by the secretary of the defendant company on George E. Barstow, who at that time was the president of said company. Shortly after the payment of these taxes, a bill was filed in this court by David Armstrong, receiver of the First National Bank of Little Rock, Ark., against the Stuttgart & Arkansas River Railroad, to enforce the payment of a judgment, and praying for the appointment of a receiver. Later on, the St. Louis National Bank filed a bill in this court against the defendant company, wherein the appointment of a receiver was also prayed; and, later on, Barstow filed a like bill, the object of which, among other things, was to have the taxes paid by him declared a lien. A receiver was appointed, and thereafter, by consent of all the parties, was discharged, with the reservation in the order discharging the same that, if the claims and demands against the defendant company were not paid off by a day certain, the court, at the instance of the holder of any of the demands presented in that suit or suits, would retake possession of the property of the defendant company. Before any attempt was made on the part of the creditors protected by the order referred to, the present suit was instituted. The taxes were a charge upon the corpus of the railroad, superior to the lien of the mortgage, and would have destroyed the security of the bondholders if the property had been allowed to go to sale. I think there is sufficient evidence in the record to show that the company made Barstow its agent for the payment of these taxes, and that he paid them, and thus preserved the interest of the bondholders.

It appears from the tax receipts that the total amount of taxes for the years 1891 and 1892 was $3,100.82, and from the other evidence that $250 was afterwards paid to Barstow; thus leaving due him the sum of $2,850.82. Upon the last-named sum he is entitled to interest at the rate of 6 per cent. per annum from May 20, 1893, and the same is declared to be a lien superior and paramount to that created by the mortgage, and the same is ordered to be paid out of the proceeds of sale.

MAGANN et al. v. SEGAL et al.

(Circuit Court of Appeals, Sixth Circuit. February 7, 1899.)

No. 683.

1. JUDICIAL SALES-RIGHTS OF PURCHASER-APPEAL.

A purchaser at a master's sale, in equity, acquires such an interest in the property, by the acceptance of his bid, as to entitle him to appeal from an order refusing to confirm the sale.

2. SAME-GROUNDS FOR SETTING ASIDE-INADEQUACY OF PRICE.

Mere inadequacy of price, unless so great as to shock the conscience, will not justify the setting aside of a sale and the reopening of biddings, but, to warrant such action, there must be additional circumstances, which render it inequitable to permit the sale to stand.

3. SAME-ACCIDENT PREVENTING BIDS.

A railroad was sold by a master for a price clearly inadequate, but not so greatly so as to justify a refusal to confirm. The sale was fairly conducted, and no fraud was practiced by the purchaser, but there was no opposing bid, because of the accidental failure of arrangements made by each of two intending bidders to make a deposit of $25,000 required to qualify them to bid. Each of such intending bidders was interested in the property, and the amount realized therefor, aside from any interest as a purchaser, and each had made an arrangement for the deposit, such as he might reasonably rely on without being chargeable with negligence. Held, that their failure to bid was due to accident, such as, together with the inadequacy of the price realized, justified the court in refusing to confirm the sale and ordering a new one, on a tender of bids 25 and 30 per cent. in advance of the selling price, and on application of nearly all the creditors interested.

Appeal from the Circuit Court of the United States for the District of Kentucky.

This is an appeal from a decree refusing to confirm the sale of a certain railroad, made by a commissioner acting under the order and direction of the circuit court. The same decree ordered a resale, beginning at a price tendered under an advanced bid made after the original sale had been reported. The appeal is by the original bidder, to whom the sale was made by the commissioner. The railroad property in question consisted of 63 miles of completed railroad, extending from Versailles, in Kentucky, to Irvine, in the same state, and some 36 miles of right of way, upon which much work had been done. This railroad was incorporated under the name of the Richmond, Nicholasville, Irvine & Beattyville Railroad Company. Against that company a bill was filed in the circuit court of the United States for the district of Kentucky, by the Central Trust Company of New York, for the purpose of foreclosing a mortgage made to secure an issue of bonds aggregating something like $2,000,000. Numerous creditors intervened, asserting mechanics', vendors', and contractors' liens, and claiming preference over the mortgage. A receiver was appointed, who thereafter operated the railroad under directions of the court, who, by leave of the court, issued certificates of indebtedness amounting to some $125,000, yet outstanding and unpaid. Under this bill, and the interventions mentioned, the court settled the amount of the mortgage and other debts, and determined that liens existed in favor of contractors, material men, vendors, and holders of receiver's certificates aggregating about $500,000, which were entitled to preference over the mortgage in the sale of the property, and a sale was ordered accordingly. From this decree an appeal was taken to this court, where the decree of the circuit court was modified in some particulars, but affirmed for the greater part, and the case remanded, with directions to modify the decree and proceed with its execution. The case is reported in full in 31 U. S. App. 704, 15 C. C. A. 289, and 68 Fed. 105. An upset price of $550,000 was fixed, and the special commissioner directed to accept no bid below that sum. The property was accord

ingly offered, but no bids were received. The court thereupon reduced the upset price to $250,000, and it was again exposed to sale, without any bids being received. In July, 1897, the court again reduced the upset price by fixing it at $160,000, which was about sufficient to meet the expenses of the litigation and discharge the receiver's debt, which was a first liability. Under the sale had under this decree, the property was bid off by a committee, representing the contractors' lien claims, for the price of $301,000, and the sale reported to D. A. Shanahan and others, representing nearly all of the lien claimants of the class mentioned. Some disagreement among this class resulted in an assignment of this bid to one Adolph Segal, who, by agreement of parties, not necessary to explain, was substituted as purchaser at the price of $255,000, and Shanahan and associates released. Segal paid $25,000 in cash, and executed two bonds, with security for the remainder of the purchase price, and a lien, with right to retake and resell the property in case of default in reserved payments, was retained. Segal assigned his purchase to the Louisville & Southeastern Railroad Company, a corporation organized by him to take and operate the property. Segal made default, and the security upon his bonds failed, and made an assignment. Thereupon, on July 2, 1898, a decree was entered against him and his security, and the said Louisville & Southeastern Railroad Company, ordering a resale of the property. This resale was ordered to be made at Versailles, a small town about 70 miles from Louisville, Ky. The upset price was again fixed at $160,000. By the provisions of this decree, no one was qualified to bid without first depositing with the commissioner the sum of $25,000 in money or a certified check for that amount satisfactory to him. Under that decree, the property was again offered for sale on October 6, 1898. The only bid made was $160,000 by the appellants, George P. Magann and associates. On October 28, 1898, the commissioner reported this sale to the court, and on same day the purchaser moved for confirmation. This was resisted by D. Shanahan and other large creditors and holders of liens subordinate to the receiver's certificates, and by Adolph Segal, the then owner of the property, all of whom filed petitions praying the court to refuse confirmation and reopen the biddings. These petitions were accompanied by affidavits tending to support the application for a reopening of the biddings. Segal supported his petition with an offer to make an advance bid of $200,000 if the biddings should be reopened, and presented security therefor. Shanahan presented with his petition an offer to open the biddings at $210,000, made by John Stites, trustee, which was secured by the tender of $100,000 in money.

The facts which seem to be established by the petition, exhibits, and affidavits as ground for reopening the biddings are that two intending bidders, who were present at the sale in person, or represented, were prevented from bidding by an accidental inability to qualify themselves as bidders by depositing with the special commissioner the amount required by the decree of sale. One of them was the appellee Adolph Segal, the owner of the property under his purchase at the former sale, who had made default in payment of the purchase price. Segal resided in the East. He was diligently endeavoring to protect himself against loss by putting himself in position by which he could bid the property up to a price which would secure himself against a deficiency. He arranged with a correspondent in Philadelphia to deposit in a Philadelphia bank $25,000 to the credit of a bank in Louisville, and with the Louisville bank to issue its certified check to his counsel in Louisville, Mr. D. W. Fairleigh, and that the latter should attend the sale and bid the property up to $240,000. His arrangement was that his Philadelphia correspondent should on day of sale, by 10 a. m., Philadelphia time (9 a. m., Louisville time), make the necessary deposit in the Philadelphia bank, and that the latter should then advise its Louisville correspondent by telegram to issue its check to Fairleigh. Fairleigh was advised of this plan on the afternoon of the 5th of October, the day preceding the sale. As the sale was to occur at Versailles, and not at Louisville, he arranged with the Louisville bank to issue, on the 5th, its certified check, payable to his order, and place it in the nands of Judge Alexander P. Humphrey, who was to attend the sale at Versailles, and hold the check until advised that Segal's deposit had been made in the Philadelphia bank as arranged. Judge Humphrey, with this

check, attended the sale. Upon communicating with the bank over the telephone, he was advised that the Louisville bank had not yet received the expected notice from its Philadelphia correspondent. The sale proceeded. Farliegh, though present with authority to bid for his client, Segal, could not do so, because the latter had not made the necessary deposit. Within an hour or two after the property had been knocked down to appellants, who were the only qualified bidders present, Judge Humphrey was notified by the Louisville bank to deliver its check to Fairleigh. This was too late. The sale was over. The fault lay with one of Segal's correspondents, who failed to make the deposit he had agreed to do, and failed to notify Segal's agent in time for the latter to make other arrrangements promptly enough to meet the exigencies of the case.

As to the second intending bidder: Shanahan and one Walker, who together owned or controlled nearly one-half of the preferential debts, had arranged to protect their claims by bidding upon the property up to $200,000. Walker agreed to furnish the necessary $25,000 to qualify them as bidders, and Shanahan was to furnish the security for deferred payments. This arrangement held down to the day before the sale, on which day Walker came to Louisville from Pittsburg with the necessary certified check to carry out the plan. After reaching Louisville, his nerve seems to have failed him, and he expressed a wish to be relieved from his arrangement with Shanahan. The latter had relied upon Walker to furnish the money to make the deposit, and saw no way, in the short time remaining, to obtain so large a sum. He agreed, however, to release Walker, provided the latter would lend him this certified check, and this Walker agreed to do, and indorsed the check, and placed it in the hands of Judge Humphrey, to be deposited with the commissioner. Thus prepared, Shanahan attended the sale, accompanied, however, by Walker. While the commissioner was reading the notice of sale, Walker again underwent a change of mind, and instructed Judge Humphrey not to give the check to Shanahan. To this the latter protested, but Judge Humphrey obeyed instructions, and thus Shanahan was unable to bid, through this failure of his plan. Upon this state of facts, Judge Barr refused to confirm the sale to appellants, and ordered a resale. the biddings to commence at $210,000, and from this decree the bidders at the sale have appealed.

Bennett H. Young, for appellants.

D. W. Fairleigh, A. P. Humphrey, and W. A. Sudduth, for appellees.

Before TAFT and LURTON, Circuit Judges.

After making the foregoing statement of facts, the opinion of the court was delivered by LURTON, Circuit Judge.

1. The objection that an appeal will not lie in favor of a purchaser at a master's sale from a decree refusing to confirm the sale and reopen the biddings is not well taken. Such a purchaser, though not entitled to be regarded as the owner of the property or to the benefit of his contract till after the master's report of the biddings has been confirmed, has nevertheless, by compliance with the terms of the sale, acquired what Chancellor Walworth called "inchoate rights" in the property, such as to entitle him to a hearing upon the question of reopening the biddings and to an appeal from any decree denying confirmation improperly. Delaplaine v. Lawrence, 10 Paige, 602. This question was expressly decided in Blossom v. Railroad Co., 1 Wall. 655, 656, where it was said:

"A purchaser or bidder at a master's sale in chancery subjects himself quoad hoc to the jurisdiction of the court, and can be compelled to perform his agreement specifically. It would seem that he must acquire a corresponding right

to appear and claim, at the hands of the court, such relief as the rules of equity proceedings entitle him to."

In Mining Co. v. Mason, 145 U. S. 349-365, 12 Sup. Ct. 887, an appeal was entertained by one who interposed, after confirmation, for the purpose of setting aside the sale and opening the biddings upon an advance bid made by himself.

2. Judicial sales under the decretal orders of an equity court are usually conducted by a special master appointed by the court and subject to its guidance. Any sale which that officer may make is not final until reported and confirmed by the court. Even after confirmation, the court may, for good cause shown, set aside the confirmation and reopen the biddings. But, to justify the reopening of the biddings after confirmation, a stronger case must be made than would be necessary before, both because it is the duty of one objecting to a sale to interpose before confirmation, as well as because the purchaser's rights are thereby much strengthened. Mining Co. v. Mason, 145 U. S. 349-367, 12 Sup. Ct. 887; White v. Wilson, 14 Ves. 151; Houston v. Aycock, 5 Sneed, 406.

In 1 Sugd. Vend. (9th Eng. Ed. 1836) p. 76, it is said:

"The determinations on this subject assume a very different aspect when the report is absolutely confirmed. Biddings are, in general, not to be opened after confirmation of the report. Increase of price alone is not sufficient, however large, although it is a strong auxiliary argument, where there are other grounds."

In respect to the circumstances which should be regarded as sufficient to reopen a sale before confirmation, over the objection of the bidder, the equity rules promulgated by the supreme court afford no express guide. It is true that the ninetieth rule adopts the rules of equity practice as they existed in 1842, so far as found consistent "with our local circumstances and conveniences." But, if we turn to the English practice in this matter at that time, we find it in a state of transition, if, indeed, there had ever been any uniform rule upon the subject. In 1 Sugd. Vend. (9th Eng. Ed.) p. 74, the learned author states:

"Where estates are sold before a master under the decree of a court of equity, the court considers itself to have a greater power over the contract than it would have were the contract made between party and party; and, as the chief aim of the court is to obtain as great a price for the estate as can possibly be got, it is in the habit of opening the biddings after the estate is sold." He adds:

"Mere advance of price, if the report of the purchaser being the best bidder is not absolutely confirmed, is sufficient to open the biddings, and they will be opened more than once, even on the same application of the same person, if a sufficient advance be offered; but the court will stipulate for the price, and not permit the biddings to be opened upon a small advance, and, although an advance of 10 per cent. used generally to be considered sufficient on a large sum, yet no such rule now prevails."

In Andrews v. Emerson, 7 Ves. 420, decided in 1802, there was a motion to open the biddings upon an offer of an advance of £80 upon the sale of a lot for £800, being precisely 10 per cent. Lord Eldon said:

"That rule of ten per cent. was not a wise rule to establish. The consequences are, you never get more. I remember the time when no such rule