association to applicants for a loan. Transactions of a local nature were put in charge of the local attorney, who represented the company at his locality, and loans were consummated by him and papers sent to him by the company for such action as was necessary for the completion of a loan. The knowledge. of the attorney and of the president of the board in regard to a matter coming within the sphere of their duty, and acquired while acting in regard to the same, and sending to the company in New Orleans their report which it was their duty to make, must be imputed to the company. The fact that those agents committed a fraud can not alter the legal effect of their acts or of their knowledge with respect to the company in regard to third parties who had no connection whatever with them in relation to the perpetration of the fraud, and no knowledge that any such fraud had been perpetrated. There is no pretense of any evidence that the defendants had any connection with these alleged frauds, and no pretense that they had any knowledge of their existence, if they did exist. In such case the rule imputing knowledge to the company by reason of the knowledge of its agent remains.

But, even if it be assumed that the company had no more than a knowledge of the equity suit and its dismissal without prejudice, it simply shows that the company was willing to take the risk of the title, although confessedly questionable.

Upon these facts we can not see that the defendants can be held liable to the plaintiffs on account of any failure of duty on defendants' part. If the buildings were being erected by Bradshaw, there was certainly no duty on the part of defendants to notify him of their title to the property, and we can not see that there was any such duty resting upon the defendants to endeavor to find out through what sources Bradshaw obtained the money to erect the buildings, and to inform the person who was loaning the money that the defendants claimed the property as theirs.

Assuming even that the company made the loan in the bona fide belief that Bradshaw had title and that the claims

of the defendants to the ownership of the lots were not well founded, and also that no knowledge of the agents of the company in Washington could properly be imputed to it, and we still have the fact that the company loaned its money with knowledge of the equity suit and of the allegations of the bill therein regarding the title of the defendants and the lack of any title in Bradshaw. Imputing no knowledge to the company other than it actually possessed, the same course should be taken with the defendants. In that case we have their sworn denial, unaffected with any proof to the contrary, that they had any actual knowledge of the existence of the deed of trust or of any connection of the company with Bradshaw, or of any advances made by it to Bradshaw, until February, 1895 (long after all the moneys had been advanced), and even in regard to Bradshaw himself they notified the contractor early in January, 1894, that they owned the property and they would not be responsible for any expenditures made by Bradshaw, and that if the contractor went on he would be regarded as a trespasser.

There is no finding that Bradshaw was insolvent, or that the defendants had any knowledge of it if he were insolvent, and hence there is nothing to lead to the assumption that the defendants knew the buildings could only be erected by Bradshaw with borrowed money, and nothing to show any duty on the part of defendants to take active steps and make a search to endeavor to find out who was loaning him money, and on what security. And yet this is the contention on the part of the complainant. We think it must be regarded as an extraordinary contention and an unreasonable application of the doctrine of constructive notice. This is the language used by the Court of Appeals, and it properly describes the situation. Certainly constructive notice can not be applied to the owner of property in regard to the existence of a mortgage thereon, placed there by some one who did not own such property. The owner of real estate is under no obligation whatever to watch the records to see whether some one who

not own his property has assumed to place a mortgage

upon it or convey it by deed to some third person. The de

does

fendants

ts knew Bradshaw was in possession and they saw buildings being erected on the lots. Were they to assume that Bradshaw was borrowing the money and that they must, therefore, go to work to find out from whom he was borrowing and notify him of the facts? They in fact knew nothing of the deed of trust, but, by imputing knowledge, the claim is made that a duty founded upon such imputed, but not upon any actual, knowledge, rested upon defendants, for the failure to discharge which the defendants ought to be held liable.

No case has been called to our attention which in any degree resembles the claim made by the company herein. The man who actually erected the buildings knew all about the state of the title, and that it was contested by the defendants in the most earnest and emphatic manner in their actions of ejectment to recover the lots. The evidence fails to show that the company was, before the money was advanced, entirely innocent of any knowledge on its part which would lead to doubt as to the ownership of the property by Bradshaw. But even its actual good faith, in the popular sense, can not charge the defendants with the duty of active investigation to discover from what source Bradshaw obtained the money to build. The simple facts are that the defendants were in possession of the property when this suit was commenced, and they ask no aid from a court of equity to place them in possession. They had recovered it in their actions at law, and a court of equity will not, even in the case of a bona fide improver, grant active relief in such a case. 2 Story Eq. (12th ed.) secs. 1237-1238; Williams v. Gibbes, 20 How. 535-538; Anderson v. Reid, 14 App. D. C. 54; Canal Bank v. Hudson, 111 U. S. 66, 79; Searl v. School District, &c., 133 U. S. 553, 561, and other cases, cited by the trial judge in his opinion, and in the opinion of the Court of Appeals. The case of the company is not strengthened by its knowledge that the title of Bradshaw was questionable.

Juris.

Argument for Plaintiff in Error.

204 U.S.

Morgan v. Railroad Co., 96 U. S. 716, 720, cited, among other cases, by the appellant, has no application. The facts are so wholly different in their nature as to present a case which does not touch the principle decided herein. There was conduct on the part of the appellant which was such as to amount to fraud or misrepresentation, leading appellee to believe the existence of a fact upon the existence of which appellee acted. We find no cases in opposition to the result we have arrived at.

The decree of the court below is

Affirmed.

MERCHANTS HEAT AND LIGHT COMPANY v. J. B. CLOW & SONS.

ERROR TO THE CIRCUIT COURT OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS.

No. 118. Argued January 15, 1907.-Decided January 28, 1907.

While a non-resident defendant corporation may not lose its right of objecting to the jurisdiction of the court on the ground of insufficient service of process by pleading to the merits pursuant to order of the court after objections overruled, it does waive its objections and submits to the jurisdiction if it also sets up a counterclaim even though it be one arising wholly out of the transaction sued upon by plaintiff and in the nature of recoupment rather than set-off.

At common law, as the doctrine has been developed, a demand in recoupment is recognized as a cross demand as distinguished from a defense.

THE facts are stated in the opinion.

Mr. W. H. H. Miller, with whom Mr. James W. Fesler, Mr. C. C. Shirley and Mr. Samuel D. Miller were on the brief, for plaintiff in error:

While Schott was buying material to be used in the con

204 U.S.

Argument for Plaintiff in Error.

struction of defendant's plant, which was purely local, at Indianapolis, and while he was using the credit of the company in making such purchases, yet he was, in fact, an independent contractor, and as between him and the plaintiff the company was his surety only.

The mere purchasing of materials or other work he is found to have been doing in this matter in Chicago was not doing business for defendant in Illinois, in the sense of the statute and decisions, necessary to give jurisdiction. What is meant by that statute is that the foreign corporation is doing some part of the business it was organized to carry on, some part of the business which it has no right to do in a foreign State except by the procuring a license so to do.

In order to authorize service upon an agent of a foreign corporation found within the State, such agent must be there doing business for his corporation. Goldey v. Morning News, 156 U. S. 518; Conley v. Mathieson Alkali Works, 190 U. S. 406; Lumberman Ins. Co. v. Meyor, 197 U. S. 407.

It is not enough that one be an officer of the company, or an agent; but he must be an officer or agent engaged in the business of the company in the State where the service is sought to be made effective. The question then arises in what kind of business of the company he must be engaged. Not every transaction in the State in the way of business will authorize service. The business done must be something in the line of that for which the corporation was organized. Central Grain Co. v. Board of Trade &c., 125 Fed. Rep. 463; N. K. Fairbanks & Co. v. Cin. &c. Ry. Co., 54 Fed. Rep. 420; Wall v. Chesapeake &c. R. R. Co., 95 Fed. Rep. 398; Fitzgerald Co. v. Fitzgerald, 137 U. S. 98; St. Clair v. Cox, 106 U. S. 350; New England Mut. Life Ins. Co. v. Woodworth, 111 U. S. 138; St. Louis Wire Mill Co. v. Consolidated Barbed Wire Co., 32 Fed. Rep. 802; Good Hope Co. v. Ry. Barbed Fencing Co., 22 Fed. Rep. 635; United States v. Telephone Co., 29 Fed. Rep. 37-41; Maxwell v. Atchison &c. R. R. Co., 34 Fed. Rep. 286; Weller v. Penna. R. R. Co., 113 Fed. Rep. 502.