Ellsworth, J.
We do not discover any error in this record which calls for a reversal of the judgment below. On the contrary, we feel satisfied that the two main points made by the petitioners’ counsel can not be maintained, either on principle or authority.
The first and fundamental position of the petitioners’ counsel, that the deed of the Jerome Manufacturing Company to [39]*39Phineas T. Barnum, dated the Tth day of November, 1855, is, in itself, a deed of trust in behalf of creditors, who should afterwards hold the paper indorsed or accepted by him, constituting Barnum their trustee, and obliging him thereafter so to continue in spite of whatever he and the Jerome Manufacturing Company might do, although the parties were solvent, and no equities had arisen in behalf of the holders of the paper, can not, we think, be maintained as good law. It is claimed that this principle is but the legitimate consequence of the doctrine of equity, that when collateral security is taken for the protection of a debt, it shall be made effectual therefor, not only to the person who first takes the security, but to any other person who may afterwards become entitled to the debt, or be compelled to pay it as an indorser or surety.
That there is such a general doctrine of equity we do not deny. The authorities are too numerous to allow of any question with regard to it, and their good sense and propriety are most obvious; but when the doctrine is attempted to be applied to a case like the one before us, it is clear that an important distinction is overlooked.
We consider the deed to Mr. Barnum to have been given for the exclusive purpose of saving him harmless from the acceptances and indorsements he might give for the Jerome Manufacturing Company. This is the very language of the deed, and it was clearly its only object. Not a word is said about a trust or fund for third persons ; nor, we are sure, was any thing of the kind in the minds of the parties. It may be true that, under certain circumstances, a future equity might spring up in favor of creditors, which a court of equity would enforce ; yet here no such equity has arisen; and we remark, as it was so strongly urged upon us in the argument, that there is nothing in the phraseology of the condition of the deed — “ that the mortgagor is to pay the acceptances and indorsements” — which distinguishes it from an ordinary mortgage. The language points out the mode in which the Jerome Manufacturing Company agree to save Mr. Barnum harmless from his liabilities. The moi'tgage is both in effect and form for indemnity.
[40]*40If, then, the language of the deed does not create a trust, and we are to seek further for it, wherein is it to be found ? How is it superinduced upon the deed, or on Mr. Barnum the mortgagee? At that time the Jerome Manufacturing Company and Barnum were solvent and in good credit. Whatever paper had their names upon it was regarded as perfectly good, and no one thought of calling it in question. Why, then, might not the indorser give up or waive his security ? Why might he not let the Jerome Manufacturing Company take it back, and appropriate it to secure the Quinnipiack Bank, or any third party who would on that security loan money to the Company ? We think nobody but Barnum could object to this. Certainly Barnum was not obliged to take security in the first instance, nor, having taken it, is he of course obliged to hold it. Being solvent and no new equities having as yet arisen, the parties were entirely free to act their pleasure. This appears to us to be the only just conclusion; and the idea that the original transaction between the parties to the deed stamped it with a trust, placing the property beyond their control, locking it up in perpetuum, or until consent should be obtained from every person who might possibly hold a piece of the indorsed paper, is one that can not be entertained for a moment. Especially is this so where the party secured is, as here, an indorser, who does not stand on the same ground as a creditor, since an indorser seeks merely, by taking a mortgage, to secure himself from a possible loss, while the creditor who takes security, originally had his eye on the security itself, as a fund for payment in case of bankruptcy.
It is claimed that, whatever may have been the intention of the parties, and whatever was their situation at the time of the execution of the deed, an equity arises at once, and continues to adhere to the property, in favor of all and each of the subsequent holders of the paper in its circulation, until it is fully paid. Not that this is expressed or implied by the language of the deed, nor that the title to the security is itself negotiable or transferable without a proper deed of conveyance, but that it is just and equitable to hold the indorser to be a trustee [41]*41for creditors, and having become so by force of the deed, he must continue to be a trustee, although he has honestly and in good faith surrendered the property to the true owner. This course of argument assumes the very point in controversy, that the legal effect of the deed is such as to create a trust by its own operation, a doctrine to which we can not give our assent.
At what time the fifty thousand dollars of acceptances and indorsements of Barnum passed into circulation, and to whom, and upon what consideration or credit, does not appear. Certainly the time is not found, nor can it with any propriety be pretended that they ever passed into circulation upon the credit of the mortgage, for the mortgage was transferred in seven days after its date by Barnum to the Quinnipiack Bank, and the transfer was immediately put upon the public records. Its original state or condition does not appear to have been known or thought of by any person besides the parties. Such was the credit of the Jerome Manufacturing Company and of Barnum, that no persons had occasion to look, nor did they in fact look for further security. Besides, if it be important, the twelve acceptances discounted by the Quinnipiack Bank arp strictly within the condition of the mortgage deed to Barnum, and they were taken we know in good faith upon the credit of this real estate as a specific security, whereas the notes, or most of them, held by the petitioners, bear date in October, and therefore apparently were not embraced within the mortgage, which was given in November. How then, with so strong an equity in the Quinnipiack Bank, accompanied with the legal title which they have obtained from Charles Dorsett, a prior mortgagee, can they be disturbed in their right to the premises ? It is not possible to overlook the equitable circumstances accompanying the loan of the $30,000. The mortgage deed was before them at the time, and both the mortgagors and mortgagee agreed that it should pass to the bank as security. It was transferred accordingly, and soon after the title became vested in the bank in due form of law. The parties were solvent, and no equity had as yet sprung up in favor of strangers. There was no- doubt in their minds but that the indorser could [42]*42discharge any claim which he had upon the property for his indemnity, and he did fully and completely release and quit all title to it, and upon this release the money was obtained for the Jerome Manufacturing Company from the bank.
We make no question that the law is that if a creditor holds security for his debt, whether the debt be negotiable or not, if it is sold, the purchaser, nothing being said to the contrary, takes the security, if it has not been given up, as an incident to the debt.
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Ellsworth, J.
We do not discover any error in this record which calls for a reversal of the judgment below. On the contrary, we feel satisfied that the two main points made by the petitioners’ counsel can not be maintained, either on principle or authority.
The first and fundamental position of the petitioners’ counsel, that the deed of the Jerome Manufacturing Company to [39]*39Phineas T. Barnum, dated the Tth day of November, 1855, is, in itself, a deed of trust in behalf of creditors, who should afterwards hold the paper indorsed or accepted by him, constituting Barnum their trustee, and obliging him thereafter so to continue in spite of whatever he and the Jerome Manufacturing Company might do, although the parties were solvent, and no equities had arisen in behalf of the holders of the paper, can not, we think, be maintained as good law. It is claimed that this principle is but the legitimate consequence of the doctrine of equity, that when collateral security is taken for the protection of a debt, it shall be made effectual therefor, not only to the person who first takes the security, but to any other person who may afterwards become entitled to the debt, or be compelled to pay it as an indorser or surety.
That there is such a general doctrine of equity we do not deny. The authorities are too numerous to allow of any question with regard to it, and their good sense and propriety are most obvious; but when the doctrine is attempted to be applied to a case like the one before us, it is clear that an important distinction is overlooked.
We consider the deed to Mr. Barnum to have been given for the exclusive purpose of saving him harmless from the acceptances and indorsements he might give for the Jerome Manufacturing Company. This is the very language of the deed, and it was clearly its only object. Not a word is said about a trust or fund for third persons ; nor, we are sure, was any thing of the kind in the minds of the parties. It may be true that, under certain circumstances, a future equity might spring up in favor of creditors, which a court of equity would enforce ; yet here no such equity has arisen; and we remark, as it was so strongly urged upon us in the argument, that there is nothing in the phraseology of the condition of the deed — “ that the mortgagor is to pay the acceptances and indorsements” — which distinguishes it from an ordinary mortgage. The language points out the mode in which the Jerome Manufacturing Company agree to save Mr. Barnum harmless from his liabilities. The moi'tgage is both in effect and form for indemnity.
[40]*40If, then, the language of the deed does not create a trust, and we are to seek further for it, wherein is it to be found ? How is it superinduced upon the deed, or on Mr. Barnum the mortgagee? At that time the Jerome Manufacturing Company and Barnum were solvent and in good credit. Whatever paper had their names upon it was regarded as perfectly good, and no one thought of calling it in question. Why, then, might not the indorser give up or waive his security ? Why might he not let the Jerome Manufacturing Company take it back, and appropriate it to secure the Quinnipiack Bank, or any third party who would on that security loan money to the Company ? We think nobody but Barnum could object to this. Certainly Barnum was not obliged to take security in the first instance, nor, having taken it, is he of course obliged to hold it. Being solvent and no new equities having as yet arisen, the parties were entirely free to act their pleasure. This appears to us to be the only just conclusion; and the idea that the original transaction between the parties to the deed stamped it with a trust, placing the property beyond their control, locking it up in perpetuum, or until consent should be obtained from every person who might possibly hold a piece of the indorsed paper, is one that can not be entertained for a moment. Especially is this so where the party secured is, as here, an indorser, who does not stand on the same ground as a creditor, since an indorser seeks merely, by taking a mortgage, to secure himself from a possible loss, while the creditor who takes security, originally had his eye on the security itself, as a fund for payment in case of bankruptcy.
It is claimed that, whatever may have been the intention of the parties, and whatever was their situation at the time of the execution of the deed, an equity arises at once, and continues to adhere to the property, in favor of all and each of the subsequent holders of the paper in its circulation, until it is fully paid. Not that this is expressed or implied by the language of the deed, nor that the title to the security is itself negotiable or transferable without a proper deed of conveyance, but that it is just and equitable to hold the indorser to be a trustee [41]*41for creditors, and having become so by force of the deed, he must continue to be a trustee, although he has honestly and in good faith surrendered the property to the true owner. This course of argument assumes the very point in controversy, that the legal effect of the deed is such as to create a trust by its own operation, a doctrine to which we can not give our assent.
At what time the fifty thousand dollars of acceptances and indorsements of Barnum passed into circulation, and to whom, and upon what consideration or credit, does not appear. Certainly the time is not found, nor can it with any propriety be pretended that they ever passed into circulation upon the credit of the mortgage, for the mortgage was transferred in seven days after its date by Barnum to the Quinnipiack Bank, and the transfer was immediately put upon the public records. Its original state or condition does not appear to have been known or thought of by any person besides the parties. Such was the credit of the Jerome Manufacturing Company and of Barnum, that no persons had occasion to look, nor did they in fact look for further security. Besides, if it be important, the twelve acceptances discounted by the Quinnipiack Bank arp strictly within the condition of the mortgage deed to Barnum, and they were taken we know in good faith upon the credit of this real estate as a specific security, whereas the notes, or most of them, held by the petitioners, bear date in October, and therefore apparently were not embraced within the mortgage, which was given in November. How then, with so strong an equity in the Quinnipiack Bank, accompanied with the legal title which they have obtained from Charles Dorsett, a prior mortgagee, can they be disturbed in their right to the premises ? It is not possible to overlook the equitable circumstances accompanying the loan of the $30,000. The mortgage deed was before them at the time, and both the mortgagors and mortgagee agreed that it should pass to the bank as security. It was transferred accordingly, and soon after the title became vested in the bank in due form of law. The parties were solvent, and no equity had as yet sprung up in favor of strangers. There was no- doubt in their minds but that the indorser could [42]*42discharge any claim which he had upon the property for his indemnity, and he did fully and completely release and quit all title to it, and upon this release the money was obtained for the Jerome Manufacturing Company from the bank.
We make no question that the law is that if a creditor holds security for his debt, whether the debt be negotiable or not, if it is sold, the purchaser, nothing being said to the contrary, takes the security, if it has not been given up, as an incident to the debt. But if already delivered up, it is of necessity otherwise ; for the creditor has no longer power over it, nor is it any longer incidental to the debt. The state and condition of the security is generally a matter of inquiry by the purchaser at the time of the purchase, when of course the fact with regard to it will be learned; and if the seller of the debt misrepresents any material fact touching it, he will be liable for damages; but the security itself does not pass. And if this is so in the case of a creditor, much more is it in the case of an indorser, who never had any right in relation to the security beyond that of being kept harmless from the debt. Indeed, he can not be injured except through his indorsement, and through that channel a third person can not reach the security, if it has been bona fide released and returned to the' owner.
The foregoing doctrine is not now for the first time before our courts. In Thrall v. Spencer, 16 Conn., 139, this court carried it, at least in its application to the facts of that case, somewhat further than we propose; for there the indorser gave up to his mortgagor a part of the security after bankruptcy ; but he did it in good faith. Andrus had indorsed the notes of one Barber, and for his security had taken two mortgages, one of real estate and one of household furniture. The note passed into the hands of a third person. After the failure of the maker and indorser, Andrus in good faith released and returned the furniture to Barber, as unnecessary to his security, and Barber borrowed money upon the credit of it of Spencer the defendant. Thrall, who held the paper indorsed by Andrus for Barber, sought to obtain this furniture or its value from Spencer, but the court held, under the circumstances, that the release by Andrus was good and [43]*43valid, and should be upheld in favor of Spencer. The language of the court is very strong. “ In the first place, he (Thrall) has no legal title. The first mortgage of the furniture was not made to the holders of these notes, but to the accommodation indorser for his security. Even if Andrus were still the holder of the property, the plaintiff could only reach it through the intervention of a court of equity. But he has taken the notes without making any claim for the property while Andrus retained the title. He has lain still until the latter had parted with that title and the possession, and the property had gone into the hands of a bona fide holder for valuable consideration. • He therefore comes too late for relief. His case does not stand upon as high ground as if the mortgage had been made to the creditor to secure the payment of the debt. It was made to an indorser, not to secure the payment of the debt, but to secure him on account of his liability as an indorser. The latter may well relinquish his pledge, provided he acts in good faith, and without any fraudulent design, before any claim is made upon him for the property.”
In Homer v. The Savings Bank, (7 Conn., 478,) it appeared that the Eagle bank had conveyed a large amount of property to trustees, to secure and indemnify Mr. Homer as indorser of post notes of the bank. The notes not being paid at maturity, and the bank and Homer becoming insolvent, cer tain holders of the notes so indorsed brought their bill to compel the trustees to make application of the property in payment of the notes held by them. The court refused the prayer of the bill. They decided that the property was not held in trust for the payment of the notes, but only to indem nify Homer for his indorsement, and that Homer could have no claim to this fund, but on the ground of payments actually made upon his indorsements ; that the holders of post notes could claim the benefit of the trust only through Homer, and claiming through him must stand in his place and be subject to the same equity to which he would be subject were he claiming the execution of the trust; and, consequently, that the petitioners were not entitled to the relief sought by their [44]*44bill. The court, admitting the general doctrine already stated, that security in the hands of a creditor, indorser or surety, still retained, may pass with the assignment of the debt, by operation of law, to any person who is compelled to take it up for the benefit of the mortgagor, without a formal assignment, deny that any original trust is created by a mortgage given merely to indemnify an indorser and save him harmless from his liability.
- Nor is this doctrine to be regarded as called in question by the two cases cited by the petitioners’ counsel, that of New London Bank v. Lee, 11 Conn., 112, and that of Lewis v. DeForest, 20 id., 440. We regard those cases as confirming, our views, rather than the contrary.
In the first, H. & S. Lee, being indebted to the New London bank, procured the indorsement of S. H. P. Lee, and to secure him gave him a mortgage. The makers and indorser failed, leaving the notes unpaid. The parties still remaining in possession, taking the rents and profits, and refusing to have the premises or the rents and profits applied upon the note, the New London bank sought the interposition of a court of equity to bring about this result. The court held that the bank was entitled to the relief prayed for, and that as the mortgaged property remained in the hands of the indorser, he should pay the debt himself, or allow the bank to take his place and cancel the debt, as far as they could do it with the avails of the mortgage. Certainly a most just and equitable decision, but altogether aside from the question in the present case.
The case of Lewis v. DeForest is, in substance, the same as that of New London Bank v. Lee. It presents nothing but an attempt by an indorser of certain paper already charged with the debt and insolvent, to divert from an application to the paper indorsed by him, and then in the hands of third parties, the very security which he took, and still held, to indemnify himself for his indorsements. As he still remained liable to those very creditors, nothing could be more inequitable than his keeping back the property, and preventing the creditors from perfecting their title. The court say: — “ But the [45]*45property in question remains as it was when mortgaged to Lewis. He calls upon the court to give him a perfect title, but his creditors come in, and showing his insolvency and consequent inability to pay otherwise than by means of the property in question, ask that it may be applied in fulfillment of the trust.” We will not dwell at any greater length on this point in the case, being confident for the reasons stated that the petitioners are contending for what is not law.
The second point made by counsel, that the petitioners are bona fide holders of the paper they describe in the bill, and that it was taken by them upon the credit, either in fact or presumptively, of Barnum’s mortgage, is, in our judgment, even less tenable.
The three acceptances held by the New Haven County Bank must be considered to have been acquired on the 28th day of December, 1855, and not before, although the paper had before that time been in their possession. On that day the bank received them in exchange for other paper which the bank held, guaranteed by said Barnum; but it is found and agreed that at that time the County Bank had actual knowledge ef the mortgage to the Quinnipiack Bank and the loan of the $30,000 made to the Jerome Manufacturing Company, so that the County Bank acquired no better right or title than Barnum himself had, which certainly was none at all against the Quinnipiack Bank, but, as we view it, quite the reverse. And as to the acceptances held by Jones, he obtained them with Barnum’s money, and holds them as his agent exclusively, and of course subject to every equity existing against him.
If either of the petitioners fail in establishing a title, both must' fail, since the suit is brought jointly and requires a joint interest. We are persuaded however that neither of them has a valid title.
We need hardly remark that Barnum is not more estopped in this court by what took place between him and the Quinnipiack Bank at the time of the loan of the $30,000, than by what took place at the subsequent period when he recognized and confirmed a perfect title in the bank, particularly by the release deed given by him and his trustees on. the 23d day of [46]*46October, 1857, and his agreement of the 6th day of August, 1856. These ought forever to conclude him.
So too, it is not easy to see how the County Bank can claim any interest in the property through Barnum, given as it was to indemnify him against his indorsements, since the bank had released him from the indorsements on the 18th day of May,
1867. The covenant not to sue was in equity a release. Barnum had at • that time paid nothing on the debts, and of course could not be compelled to pay anything on them thereafter, so as by possibility to be damnified. As to him therefore, and all claim: ng under him, the mortgage would seem to have become inoperative. It isnot necessary however to decide this point, as the other points which we have considered are sufficient for the determination of the case.
There is no error in the judgment complained of, and it must be affirmed.
In this opinion the other judges concurred; except Sanford, J., who being disqualified by interest, did not sit.
Judgment affirmed.