fendant, and hence, in departing from the usual decree, it was but natural to put in assent thereto on the part of all the parties. Unless the court was making a decision upon the case as made, there would be no need for the carefully phrased language of the decree. The decree certainly imports such discussion. It may have been without argument, and it is reasonably inferrible that it was; but argument is not necessary to make it a hearing, for it is being heard when what the parties say in bill and answer is being considered by the court. In this case the court says it decrees on a hearing of that kind, and we cannot say that the decree does not import, by its phraseology that there was such hearing. The decree received the approval of all the parties, through their counsel, who entered their assent in writing upon the decree; but because of that assent the decree was not made any less a decision of the court that Horner's title, which had been assailed, was good, and thereafter could not be questioned. Under the ruling in Stiger's Case, it was competent for John W. Royston, although a lunatic, (and before he was so declared,) to have an attorney whose conduct of the case would bind him. He would be presumed to be competent to appoint an attorney, and he would not be presumed to be acting otherwise than fairly and honestly by his client. But appellants contend that Stigers' Case has no bearing on this case, because the notes in that case, upon which the lunatic was sued, after he became a lunatic, had been executed when he was confessedly of sound mind. This contention cannot be sustained, because, when the suit was instituted, and defeuse had to be made, and he needed an attorney to make the defense, he was of unsound mind; and the court recognized the attorneys, and rendered a judgment. The court said there was no irregularity in the appear. ance of the two skillful lawyers who defended the lunatic, for, being of full age, the lunatic properly defended by attorney, and the law presunes him of sufficient capacity for that purpose. The court cites 2 Saund. Pl. & Ev.; 1 Tidd, Pr.; Shelf. Lun.; and Freem. on Judgm.,-as authorities in point. They also rely on Tomlinson's Lessee v. Devore, 1 Gill, 345, as controlling authority for their jurisdiction to render a judgment against a lunatic duly summoned and appearing by counsel. Stigers' Case, like the one we consider, was in equity; and there was no charge of fraud in obtaining the judgment in that case, nor of fraud in obtaining its decree, which is pleaded in bar in this case. Without such allegation and proof, as we construe the decree, we cannot but hold that the plea interposed was a flat bar, and that the decree must be affirmed. Decree affirmed, with costs.

(75 Md. 577)

HOFFMAN et al. v. GoSNELL et al. (Court of Appeals of Maryland. March 17, 1892.) ABSOLUTE DEED-SECRET TRUST-RIGHTS OF GRANTEE'S CREDITORS.

1. D. and H., being largely indebted to their father's estate, and to their brother, J., adminIstrator of said estate, individually, executed to

J. a deed to certain property absolute on its face, which deed was duly recorded, and there was nothing on the record to qualify J.'s absolute ownership. At the time the deed was executed the parties executed a declaration of trust setting forth that J. was to sell the property for the purpose of first paying the indebtedness of D. and H. to their father's estate. Subsequently J. was removed as administrator, and plaintiffs were appointed, and J. made an assignment, including this property, for the benefit of his creditors. The declaration of trust had never been recorded. Held, in a suit by plaintiffs to acquire from J.'s trustee control of the property as assets of their decedent's estate, that the declaration of trust, not being recorded as required by the registry laws, was of no effect as against those who in good faith became creditors of J., after the deed to him, and that the most that plaintiffs can ask is to share pari passu with the other creditors in the distribution of the proceeds of the property.

2. The mere fact that one of the grantors in an absolute deed continued in possession of the property is not sufficient to render a secret unrecorded trust between the grantors and the grantee effective as against subsequent bona fide creditors of the grantee.

Appeal from circuit court, Baltimore county, in equity.

Bill by William E. Hoffman and David H. Flack, administrators of the estate of Thomas J. Flack, deceased, against Frank Gosnell, trustee, and others, to gain control of certain property. Decree for defendants. Plaintiffs appeal. Affirmed.

Argued before ALVEY, C. J., and MILLER, ROBINSON, BRYAN, BRISCOE, MCSHERRY, FOWLER, and IRVING, JJ.

S. Teackle Wallis and Wm. E. Hoffman, for appellants. Thos. M. Lanahan, Frank Gosnell, Barton & Wilmer, Field C. Slingluff and Morrison, Munikhuysen & Bond, for appellees.

IRVING, J. In 1874. Thomas J. Flack, of Baltimore city, died, intestate, leaving four children and some grandchildren, the children of a deceased son, his heirs at law and distributees, together with his widow. Letters of administration were granted to his son James W. Flack,' who undertook the settlement of the estate. Henry H. Flack and David Hudson Flack, sons of the deceased, Thomas J. Flack, were largely indebted to their father's estate in their individual capacity and as partners in trade. They were also. largely indebted to their brother, James W. Flack, individually, who administered on their father's estate. On the 10th day of July, 1877, David Hudson Flack and Henry H. Flack and wife conveyed to James W. Flack in fee a lot of ground and improvements situated in Canton, Baltimore county, known as the "Distillery Property," and on the same day the deed was recorded among the land records of Baltimore county. This deed is absolute on its face, and professes to be "in consideration of the sum of one hundred and sixty-five thousand dollars, lawful money, paid to them [the grantors] by James W. Flack, the receipt whereof is hereby acknowledged." The record thus made disclosed nothing to qualify the absolute ownership in fee of this property by James W. Flack. On the 11th of October, 1890, James W. Flack executed and delivered to the appellee Frank Gosnell a deed of all his property, in trust for the benefit of

his creditors without preference or priority, which deed was duly recorded in Baltimore city, and also in Baltimore county. Under this deed the grantee, Frank Gosnell, applied to the circuit court of Baltimore city to assume jurisdiction of the trust created by the deed; and on the 18th of October, 1890, that court passed an order directing the execution of the trust under the direction of that court. The bill of complaint in this cause assails that deed, quoad the distillery property, and alleges that when the deed from David Hudson Flack and Henry H. Flack for the distillery property was executed to James W. Flack, he was the administrator of his father's estate; but that, after the execution of the deed by him to Frank Gosnell, his letters of administration were revoked, and the complainants were appointed administrators of Thomas J. Flack's estate. It avers that on the 10th of July, 1877, when the deed to James W. Flack was executed, the grantors David Hudson Flack and Henry H. Flack, as copartners trading as Thomas J. Flack & Sons, were indebted to James W. Flack in the sum of $31,761.08, and as Flack Bros. in the sum of $17,451.79; making a total of $49,212.87 due to James W. Flack; and that they were indebted to the estate of their father, of which James W. Flack was administrator, as partners trading as Thomas J. Flack and Sons, in the sum of $92,090.92, and as copartners trading as Flack Bros. in the sum of $57,254.86; and that Henry H. Flack was individ. ually indebted to his father in the sum of $23,000, and David H. Flack was indebted to his father in the sum of 17,000; making a total of $189,345.65. By payments in various ways, including the application of the distributive shares of Henry and David in their father's estate, in accounts already passed by the administrator, the indebtedness to their father's estate has been reduced to $132,337.86, and the indebtedness to James W. Flack individ ually has been reduced to $33,837.53. The contention of the bill is that this Canton distillery property was conveyed to James W. Flack for the purpose of sale to pay this indebtedness to the estate of Thomas J. Flack, and that it is and ought to be regarded as assets of that estate; and the appellants, as administrators of the estate, appointed in the place of James W. Flack, removed, ask to be given control of the same as receivers in the place of Frank Gosnell, grantee of James W. Flack.

In support of their contention they file with their bill the following paper, executed simultaneously with the deed to James W. Flack, but never recorded. It is designated as "Exhibit H & F, No. 4:" "This agreement, made in duplicate this tenth day of July, one thousand and eight hundred and seventy-seven, between James W. Flack & Mary E. Flack, his wife. of the first part, and Henry H. Flack and David & Hudson Flack, of the second part, witnesseth, that, whereas, the said Henry H. Flack and David Hudson Flack, being indebted as hereinafter expressed to the estate of Thomas J. Flack, late of the city of Baltimore, deceased, (of which estate

James W. Flack is the administrator,) in the sum of one hundred and eighty-nine thousand three hundred and forty-five dollars and seventy-eight cents, and to the said James W. Flack in the sum of fortynine thousand two hundred and twelve dollars and eighty-seven cents, have, in partial extinguishment thereof, (so far as the same may avail,) conveyed to the said James W. Flack, in fee simple, by deed of even date herewith, absolute on its face, and intended to be so in form and effect, without derogation thereof by reason of anything herein contained, certain lands in Baltimore county, in the state of Maryland, being the same land which is described in a deed from the Canton Company, of Baltimore, to the said Henry H. Flack and David Hudson Flack, recorded among the land records of said county in Liber E. H. A. No. 73, folio 543. The said indebtedness of the said Henry H. Flack and David Hudson Flack to the said estate has arisen as follows, namely, by them as copartners trading as Flack Bros., to the amount of fifty-seven thousand two hundred and fifty-four dollars and eightysix cents; by them as copartners trading as T. J. Flack and Sons, to the amount of ninety-two thousand and ninety dollars and ninety-two cents; by Henry H. Flack to the amount of twenty-three thousand dollars; and by David Hudson Flack to the amount of seventeen thousand dollars; and their said indebtedness to the said James W. Flack having arisen as fcllows, namely, by them as copartners trading as Flack Brothers, to the amount of seventeen thousand four hundred and fif-. ty-one dollars and seventy-nine cents, and by them as copartners trading as T. J. Flack & Sons, to the amount of thirty-one thousand and seven hundred and sixtyone dollars and eight cents. And whereas, the said Henry H. Flack and David Hudson Flack, two of the distributees of the estate of their father, the said Thomas J. Flack, deceased, will be entitled in the settlement of said estate to a large sum of money, the precise amount of which has not yet been ascertained. And whereas it was agreed by and between the said James W. Flack and the parties hereto of the second part, at the time of the execution of said deed, that the entire amount of the distributive shares of the said parties hereto of the second part in the aforesaid estate should be applied, as soon as ascertained, towards the payment of their aforesaid indebtedness to said estate, and that the net income of the property so as aforesaid conveyed to James W. Flack, from the date of said conveyance to the time of the sale hereinafter provided for, (after the payment of all necessary charges on said property,) and the net proceeds of sale of said property, after the payment of the expenses of such sale and all necessary charges on said property which its income may not have been sufficient to meet, should be applied pro rata towards the payment of the residue of said indebtedness of said estate, and the aforesaid indebtedness to the said James W. Flack, whensoever the said James W. Flack, in the exercise of his judgment and discretion, should see fit to sell the said

property: Now, therefore, the said James W. Flack agrees that when he shall hereafter see fit to sell the said property convoyed him as above mentioned, he will apply the aforesaid net proceeds of said sale to the payment aforesaid. And it is declared to be the agreement of the parties hereto that the entire amount of the distribution of the said Henry H. Flack and David Hudson Flack in the said estate shall be first applied towards the payment of their aforesaid indebtedness to said eatate; and that when sale shall be made as aforesaid of the said property, the aforesaid net proceeds of such sale, together with the aforesaid net income of said property, shall be applied when and as received in the manner and to the purposes herein before expressed for the application thereof. And the parties hereto of the first part, in consideration and furtherance of the premises, covenant with the parties of the second part that the said Mary E. Flack will join in the execution of deeds of conveyance of said property, releasing her right of dower therein, whereas said property shall be conveyed by the said James W. Flack; and that, in event of the death of the said James W. Flack before such conveyance shall be made, she will execute and deliver such deed or deeds to the purchaser thereof as may be lawfully required for the fulfillment of this agreement; and, further, that she will not at any time assert any claim of dower whatever in said property, or any claim to the proceeds thereof, it being understood that she hereby relinquishes all her rights, present and prospective, in the premises as the wife of the said James W. Flack. Witness our hands and seals on the day and year first herein written. JAMES W. FLACK. [Seal.] MARY E. FLACK. [Seal.] HARRY H. FLACK. [Seal.] DAVID HUDSON FLACK. [Seal.]"

This instrument was duly acknowl. edged before a justice of the peace of Baltimore city, but the same was never recorded. It recites that it was executed in duplicate, but was really executed in triplicate, in order, manifestly, that James, Henry, and David might each have an original; and from that fact an inferential argument is drawn by the appellees that the same was intended to be preserved as a secret agreement between the parties, and was never designed to be recorded. Hence, also, it is contended by the appellees that this paper is not admissible in evidence, and cannot be allowed to have the effect of qualifying in any degree the deed to James W. Flack, which was duly recorded, against the creditors of the said James W. Flack, who were wholly ignorant of the existence of any such paper, and were justified in supposing that property to be the absolute and unqualified property of James W. Flack, as the records said it was. The bill does not charge that it was agreed by the parties that this paper was designed to be reorded. It simply asserts that James W. Flack failed to have it recorded. In his answer to the bill he asserts it was never intended for it to be recorded; and the complainant D. H. Flack, in his testimony on the subject, says not one word was

said at the time of the execution of the papers about its record, and as far as he knew it was not necessary to record the paper, and that, as far as the recording was concerned, he knew nothing about it. Whatever may have been the design of the parties, the paper was not recorded; and, in view of all the facts connected with it, we may assume it was not intended to record it. That would seem to be the natural and reasonable inference from the form and manner in which it was executed. The main question in the case therefore is, can that paper in any way control or restrict the effect of the deed to James W. Flack? The bill calls the paper a "defeasance," and relies on it as such. This it certainly is not. A defeasance is an instrument executed at the same time with some other deed, and intended to defeat the force of the latter upon the performance of certain conditions expressed therein. The instrument relied on as a defeasance does not pretend to avoid the deed upon the happening of any condition whatever. On the contrary, that instrument says that the deed is not only absolute on its face, but was intended to be so, both in form and effect, without derogation thereof by anything contained in that paper. It expressly disavows any purpose to make that paper in any event void or of no effect. If the paper is to have any effect at all, it can only do so by reason of its being, in effect, a declaration of trust. This it may be called, for it does declare for what purpose the deed was made, and what application was to be made of the proceeds of sale of the property when made by James W. Flack, the grautee of the deed. The appellees insist that this paper, not having been recorded, cannot be taken to contradict the express declaration of the deed that it was made for the consideration of $165,000. By section 1, article 21, of the Code, it is provided: "No estate of inheritance or freehold or any declaration or limitation of use shall pass or take effect unless the deed conveying the same shall be executed, acknowledged, and recorded as herein provided." This paper is under seal, and is acknowledged before a justice of the peace, and is a deed. It does declare a certain use for certain people mentioned in it, in respect to certain real estate in it described; and therefore the appellees say that the registry law of this state required it to be recorded to secure it any effect, aud, not having been recorded, it cannot be used to defeat or qualify the effect of the deed to James W. Flack as against his creditors for whose benefit he has conveyed the property to Frank Gosnell. Greater force and effect certainly cannot be claimed for this paper, whatever it may be technically, than if the instrument was a formal deed of trust or a mortgage. If a deed or a mortgage, to give it any effect as against creditors or purchasers without notice, it would have to be recorded (if not recorded within time) before it could have any effect under section 19 of article 21, or under the provisions of section 33 of article 16, of the Code, upon application to and order of the court of chan. cery; and in either of those cases it could

see

tors, nor for the same purposes for which they had jointly occupied it. One grantor still was there, and, the other having entirely withdrawn after the deed, certainly the contention of the appellants is not supported. David was occupying as tenant of James, and inquiry could have so disclosed, and he promptly surrendered to the assignor of James when asked. If they had gone further, and asked the taxgatherer, they would have found that James paid the taxes. We cannot that the simple fact that one of the grantors still occupied a part of the property, or even the whole of it, can detract from the Force and effect of the recorded deed conveying absolute title for a larger money consideration, and deprive the creditors of James W. Flack, the grantee, of the protection which the unqualified deed for the property of record gave them in dealing with and trusting him. As we have said, the failure to record that declaration of trust deprived it of right to priority over creditors of James W. Flack who became such after the execution of the deed and agreement or declaration of trust. Creditors of James W. Flack subsequent to the deed and agreement are wholly unaffected by that agreement. In the language of the court in Dyson v. Simmons, 48 Md. 207, they "get exactly what they would have received if the mortgage had not been executed, and in justice they can claim no more." In that case it was an unrecorded mortgage, and the court held that, while their claims were not to be affected by the enforcement of the mortgage, they should not be allowed to take any special advantage from it. The distribution in Carson v. Phelps, 40 Md. 73, so strongly relied on by appellants, was made in accordance with the rule now adopted; and in doing so that case followed the rule laid down by Chancellor JOHNSON in Pannell's Case, 7 Har. & J. 207, and which has been followed in all the cases which have arisen since. In thus deciding we are giving that effect to our registry laws which their language and object requires. We could not do less without wholly disregarding their provisions, which, as we think, required the record of that declaration of trust in order to make it effective against others than the parties to it. It has been strenuously argued that this ruling makes these laws operate for the protection of the creditors of the grantee, when the statute only contemplates protecting the creditors of the grantor; but in reply to this suggestion it must be noted that in fact in this case the creditors of the grantor of that unrecorded declaration of trust are the ones protected. But, in our view, the object of the registry laws was to prevent frauds, actual or constructive, from being perpetrated through the medium of unrecorded instruments, which are intended to qualify muniments of title which gave record notice of absolute ownership. The mischief intended to be prevented was the holding out of false colors of title to property, by means of which credit could be secured; and to carry out that object everybody participating in the deception must be held to the consequences of participation in such false

showing. Here the visible record evidence of title showed James W. Flack to be the owner. The public had a right to believe he was so in fact. Presumably the record told the truth. The grantors gave no record notice of right in prejudice of absolute ownership. They concealed their claim through the declaration of trust, and allowed the public to suppose there was no lien on the property. It seems to us that the case falls directly and fully within the mischief intended to be prevented, and that the policy, object, and scope of our registration laws would be in large degree disregarded and frustrated if we did not hold that the creditors of the grantee should also be protected, where the transaction takes such form as to make them the subject of deception. The claimants under the declaration of trust by their conduct have enabled their grautee of the Canton prop. erty to get large credit on the faith of his unincumbered ownership of the property; and they ought not to be permitted by a court of equity to use their incumbrance -their declaration of trust-to the detriment of persons whom they have helped to deceive, although they may not have designed such result. In effect it is but applying to them the equitable rule laid down in Busey v. Reese, 38 Md. 269, and Blennerbassett v. Sherman, 105 U. S. 100, that, where one of two persons must suffer loss by the action of a third person, the loss should fall on him who has enabled the third person to occasion loss." The innocent creditors of James W. Flack ought not to be made to suffer loss in the interest of those whose conduct has brought about loss. Their claim against James W. Flack as creditors cannot be shut out, but their lien for it must be. All that equity can or ought to do for the plaintiffs is to allow them to share pari passu with the other creditors in the distribution of the proceeds of the property. The decree must be affirmed.

66

1. A contract for the construction of a branch railroad provided, in accordance with the vote of the directors authorizing the contract, that $35,000 of the bonds of the road issued for the construction of branches should go to the president of the road, though they knew that no such sum was owing him. Held, that this was a fraud on the company, furnishing sufficient ground for the interference of a court at the instance of a stockholder.

2. The contract being on its face one to aid in the construction of the road of another corporation in another state, as well as for the road's own branch, is illegal.

3. Railroad companies being authorized by Act 1889, c. 166, to build only such branches as a judge of the superior court has decided to be of "public necessity and convenience," a vote of the stockholders authorizing the construction of branches in any direction will be construed to