TYSON, J.
In this case, the bill was filed, by the appellant, claiming to be the owner of eight bonds issued by the Montgomery Real Estate Association of $1,000 each, secured by mortgage. The bill seeks a foreclosure of the mortgage and preliminary thereto, that the holder of these bonds, who is the trustee in the mortgage, be required to surrender them to him. A demurrer was sustained to the bill and this appeal is prosecuted to reverse that decree.
It appears that the mortgagor possessed certain real estate in the city of Montgomery subject to an annuity of four hundred and fifty dollars to one Sl'oane. That in October, 1888, it executed a deed of trust to the respondent, trustee, to secure eighty bonds of one thousand dollars each, bearing interest at six per centum, and due November 1, 1898. These bonds were sent to the trustee, in Philadelphia, to be sold for account of flie mortgagor. In each of them it is recited that “this bond is one of a series of first mortgage bonds * * amounting in all to the sum of $80,000, all of like tenor and date, and numbered from one to eighty inclusive, respectively, and is secured by a trust deed to all the real estate of said Montgomery Real Estate Association and particularly described as follows [describing the property], and said trust deed is a valid lien upon all of said property subject only to annuity charge of four hundred and fifty dollars per annum, which is secured by a deposit with the said Philadelphia Mortgage Com pany. trustee, of the sum of eight thousand dollars in cash, which with its income is so deposited for the purpose of securing the prompt payment of the annuity aforesaid, payable semi-annually during the life of Maria L. Sloan, the beneficiary,” etc. It appears that the trustee sold seventy-two of the bonds and accounted for the proceeds to the mortgagor, but never sold the remaining eight, but retained the same, and still holds them. The mortgagor never deposited the eight thousand dollars cash recited in the bonds as' being deposited. When the sale of the seventy-two bonds took place is not averred. It is stated, however, that the mortgagor, after the issuance of the bonds, paid the inter[437]*437est on those which had been sold and also the annuity until the sale of its property under execution to one Wright in 1892, since which time, the purchaser has paid the interest on them and the annuity.
The appellant, it is averred, in 1891, for a valuable consideration, bought from the mortgagor the eight bonds remaining with the trustee, but he has been unable to obtain posession of them — the trustee refusing to deliver them, claiming to hold them in lieu of the eight thousand dollars in cash which was not deposited with it by the mortgagor as recited in the bonds to meet the annuity. It'is alleged that the trustee has no right to do this.
The question is, whether or not the circumstances justify the retention of these bonds by the trustee. It is argued that there is nothing in the deed of trust about the deposit of cash to meet the annuity, and that the recital in the bonds was made by the directory without direction from the corporation. The bond is, in effect, a part of the trust deed, being a contemporaneous act and constituting, with the deed, but one transaction. The bonds are referred to in the deed as having been issued in accordance with the resolution of the corporation. This and the fact that they were sent to the trustee for sale and that they were put upon the market and sold and the proceeds received, Avith other circumstances, presently to be mentioned, dispel all doubt as to the corporation not being, privy to and bound by the recital in the bonds.' The fact that the corporation well kneAV of the existence of the lien upon its property for the annuity; that it warranted that the property was free from all incumbrances and its presumed knowledge of the difficulty of selling securities which Avere subject to a prior incumbrance, tend strongly to show that the corporation deliberately introduced, the recital in the bond that the deposit of cash had been made to meet the annuity and intended in good faith to keep it. And we are of the opinion that in fact, it did in substance keep it. The recital, we may be pardoned for repeating, is that the cash “whichwith its income is so deposited for the purpose of securing the prompt payment of the [438]*438annuity aforesaid.” It is clear that the intention was that the trustee was to invest the eight thousand dollars and from the income to pay the annuity. ’ For how could cash yield an income without being invested ?
Bearing in mind that the only property owned by the mortgagor was that conveyed by the deed of trust, the reasonable inference is that the eight thousand dollars was to be derived from a sale of the bonds. Indeed, it might be said it was the only source to which the mortgagor could resort for the purpose of raising this sum consistent with business'methods and in keeping with the recitals in the bonds and the mortgage.
There can be little doubt that if the trustee had sold the entire issue of bonds and retained eight thousand dollars of the proceeds as a deposit to meet the annuity, that the mortgagor would have had no right to recover it. For if the trustee had made sale of all the bonds and delivered the proceeds to the mortgagor without the indemnity provided for against the annuity, this would have been a fraud upon the purchasers of them, for which it would have been liable. The statement that the deposit had been made, certainly involves a promise, as between the mortgagor and trustee, that the mortgagor would make it. As to the purchasers of the bonds it was a representation both by mortgagor and trustee that it had 'been made, upon which they had a right to rely. Clearly, as against the purchasers of the seventy-two bonds it would be a fraud to permit either the mortgagor or the trustee to say that the deposit was not made.
It is not to be presumed that the trustees would have incurred this'liability. Nor is it to be presumed that the parties to the transaction left so important an item open and unadjusted, in violation of a plain duty owing by the trustee to the purchasers of the bonds.’ Good faith and common prudence would have induced a present understanding. The reception by the mortgagor of the proceeds of the -seventy-two bonds,'and an- acquiescence- by it of the retention by the trustee of the eight bonds, to -say the least of it, is “a potent fact'tending to show that there was some understanding between them. [439]*439All these circumstances, which are not negatived by the facts, omitting a consideration of the conclusion of the pleader:, averred in the bill, support the conclusion that the mortgagor and the trustee understood and regarded the retention of the eight bonds as the equivalent of the $8,000 and an investment of it by the trustee in these eight bonds. For, if the trustee had sold the entire issue, retained $8,000 of the proceeds and then purchased eight of the bonds as it had the right to do, the transaction would not have been materially dilferent as to the result, than a retention of the eight bonds without a sale of them. The failure of the trustee to adopt the circumlocutory method is of no consequence, since the result of the method adopted is the same as that winch would have been accomplished had it retained $8,000 of the proceeds of the bonds and invested it in the eight bonds in controversy. Equity has regard for substance rather than form.
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TYSON, J.
In this case, the bill was filed, by the appellant, claiming to be the owner of eight bonds issued by the Montgomery Real Estate Association of $1,000 each, secured by mortgage. The bill seeks a foreclosure of the mortgage and preliminary thereto, that the holder of these bonds, who is the trustee in the mortgage, be required to surrender them to him. A demurrer was sustained to the bill and this appeal is prosecuted to reverse that decree.
It appears that the mortgagor possessed certain real estate in the city of Montgomery subject to an annuity of four hundred and fifty dollars to one Sl'oane. That in October, 1888, it executed a deed of trust to the respondent, trustee, to secure eighty bonds of one thousand dollars each, bearing interest at six per centum, and due November 1, 1898. These bonds were sent to the trustee, in Philadelphia, to be sold for account of flie mortgagor. In each of them it is recited that “this bond is one of a series of first mortgage bonds * * amounting in all to the sum of $80,000, all of like tenor and date, and numbered from one to eighty inclusive, respectively, and is secured by a trust deed to all the real estate of said Montgomery Real Estate Association and particularly described as follows [describing the property], and said trust deed is a valid lien upon all of said property subject only to annuity charge of four hundred and fifty dollars per annum, which is secured by a deposit with the said Philadelphia Mortgage Com pany. trustee, of the sum of eight thousand dollars in cash, which with its income is so deposited for the purpose of securing the prompt payment of the annuity aforesaid, payable semi-annually during the life of Maria L. Sloan, the beneficiary,” etc. It appears that the trustee sold seventy-two of the bonds and accounted for the proceeds to the mortgagor, but never sold the remaining eight, but retained the same, and still holds them. The mortgagor never deposited the eight thousand dollars cash recited in the bonds as' being deposited. When the sale of the seventy-two bonds took place is not averred. It is stated, however, that the mortgagor, after the issuance of the bonds, paid the inter[437]*437est on those which had been sold and also the annuity until the sale of its property under execution to one Wright in 1892, since which time, the purchaser has paid the interest on them and the annuity.
The appellant, it is averred, in 1891, for a valuable consideration, bought from the mortgagor the eight bonds remaining with the trustee, but he has been unable to obtain posession of them — the trustee refusing to deliver them, claiming to hold them in lieu of the eight thousand dollars in cash which was not deposited with it by the mortgagor as recited in the bonds to meet the annuity. It'is alleged that the trustee has no right to do this.
The question is, whether or not the circumstances justify the retention of these bonds by the trustee. It is argued that there is nothing in the deed of trust about the deposit of cash to meet the annuity, and that the recital in the bonds was made by the directory without direction from the corporation. The bond is, in effect, a part of the trust deed, being a contemporaneous act and constituting, with the deed, but one transaction. The bonds are referred to in the deed as having been issued in accordance with the resolution of the corporation. This and the fact that they were sent to the trustee for sale and that they were put upon the market and sold and the proceeds received, Avith other circumstances, presently to be mentioned, dispel all doubt as to the corporation not being, privy to and bound by the recital in the bonds.' The fact that the corporation well kneAV of the existence of the lien upon its property for the annuity; that it warranted that the property was free from all incumbrances and its presumed knowledge of the difficulty of selling securities which Avere subject to a prior incumbrance, tend strongly to show that the corporation deliberately introduced, the recital in the bond that the deposit of cash had been made to meet the annuity and intended in good faith to keep it. And we are of the opinion that in fact, it did in substance keep it. The recital, we may be pardoned for repeating, is that the cash “whichwith its income is so deposited for the purpose of securing the prompt payment of the [438]*438annuity aforesaid.” It is clear that the intention was that the trustee was to invest the eight thousand dollars and from the income to pay the annuity. ’ For how could cash yield an income without being invested ?
Bearing in mind that the only property owned by the mortgagor was that conveyed by the deed of trust, the reasonable inference is that the eight thousand dollars was to be derived from a sale of the bonds. Indeed, it might be said it was the only source to which the mortgagor could resort for the purpose of raising this sum consistent with business'methods and in keeping with the recitals in the bonds and the mortgage.
There can be little doubt that if the trustee had sold the entire issue of bonds and retained eight thousand dollars of the proceeds as a deposit to meet the annuity, that the mortgagor would have had no right to recover it. For if the trustee had made sale of all the bonds and delivered the proceeds to the mortgagor without the indemnity provided for against the annuity, this would have been a fraud upon the purchasers of them, for which it would have been liable. The statement that the deposit had been made, certainly involves a promise, as between the mortgagor and trustee, that the mortgagor would make it. As to the purchasers of the bonds it was a representation both by mortgagor and trustee that it had 'been made, upon which they had a right to rely. Clearly, as against the purchasers of the seventy-two bonds it would be a fraud to permit either the mortgagor or the trustee to say that the deposit was not made.
It is not to be presumed that the trustees would have incurred this'liability. Nor is it to be presumed that the parties to the transaction left so important an item open and unadjusted, in violation of a plain duty owing by the trustee to the purchasers of the bonds.’ Good faith and common prudence would have induced a present understanding. The reception by the mortgagor of the proceeds of the -seventy-two bonds,'and an- acquiescence- by it of the retention by the trustee of the eight bonds, to -say the least of it, is “a potent fact'tending to show that there was some understanding between them. [439]*439All these circumstances, which are not negatived by the facts, omitting a consideration of the conclusion of the pleader:, averred in the bill, support the conclusion that the mortgagor and the trustee understood and regarded the retention of the eight bonds as the equivalent of the $8,000 and an investment of it by the trustee in these eight bonds. For, if the trustee had sold the entire issue, retained $8,000 of the proceeds and then purchased eight of the bonds as it had the right to do, the transaction would not have been materially dilferent as to the result, than a retention of the eight bonds without a sale of them. The failure of the trustee to adopt the circumlocutory method is of no consequence, since the result of the method adopted is the same as that winch would have been accomplished had it retained $8,000 of the proceeds of the bonds and invested it in the eight bonds in controversy. Equity has regard for substance rather than form. Especially is this true when, if the mere form of the transaction is allowed to govern, the result would be to impute bad faith to one of the parties to the transaction and bestow upon that party an unconscionable advantage. Besides it would have entailed upon the parties the useless ceremony by the trustees of sending to the mortgagor the proceeds of all the bonds and an immediate return to it by the mortgagor of $8,000, or a retention by the trustee of $8,000 of the proceeds and an investment of it.
Leaving out of Ariew all consideration of any understanding of a retention by the trustee of the bonds, the mortgagor could not after inducing the trustee, to give credibility and circulation to the representation that the annuity avus provided for by the deposit, recover the bonds Avithout a compliance AAdth that stipulation. While there Avas an implied promise on the part of the trustee to sell and account for the proceeds of the entire issue of bonds, there Avas a correlative promise on the part of the mortgagor to make the deposit. And, until the mortgagor makes good this promise, it cannot invoke the aid of a court of equity, to compel the trustee to fulfill its promise. Upon the plainest principle of equity, the mortgagor should not be permitted to im[440]*440pose a liability upon its agent by depriving it of the bonds which it holds, and this, too, in plain violation of its own promise which it is unable to fulfill by reason of its insolvency — to say nothing of the unconscionable benefits to the mortgagor, and the fraud upon the holders of the seventy-two bonds, whose interest it is the duty of'the trustee to protect.
The whole transaction was shortened and good faith kept between the parties by the sale of the seventy-two bonds and the retention of eight as an investment of the eight thousand dollars to meet the- annuity. We think the facts disclosed in the bill force this conclusion, which is certainly promotive of justice and fair dealing, and the enforcement of the contract as made in ■spirit nnd substance, if not in form.
The appellant does not claim to be and it is evident that he is not a bona fi,cle purchaser for value without notice. He, therefore, stands in the shoes of the mortgagor, and it would be inequitable, to put it mildly, to permit the latter, in its insolvent condition, to require the trustee to deliver up these bonds without provision being made for the payment of the annuity.
The decree of the city court is affirmed.