text:
    FIRST NAT. BANK OF FORSYTH, MONT., et al. v. FIDELITY & DEPOSIT CO. OF MARYLAND.

    No. 6316.
    Circuit Court of Appeals, Ninth Circuit.
    March 23, 1931.
    Sterling M. Wood and Robert E. Cookfe, both of Billings, Mont., for appellants.
    Thomas A. Mapes, of Denver, Colo., and Thomas E. Davis, of San Francisco, Cal., fo^ appellee. . , ,
    Before RUDKIN, WILBUR, and SAWTELLE, Circuit Judges. ......

      Rehearing denied May 11, 1931.

   RUDKIN, Circuit Judge.

G. G. Davis was county treasurer of (Rofefebud county, Montana, from the first Monday of March, 1923, until the first Monday of March, 1925. March 7, 1923, the board of county commissioners of the county made an order designating certain banks as depositories of county moneys and approving thfe bonds of the banks so designated; We are here only concerned with the First National Bank of Forsyth, Montana. That'bank was designated as one of the depositories’and’its bond in the sum of $100,000 Was áp'provédi The order approving the bond hu'thorize'd Dhvis, as county treasurer, to deposit county moneys in the Forsyth Bank to an amount not exceeding the amount or penalty of the bond as approved. The bond was executed pursuant to the requirements of section 4767 of the Revised Codes of Montana 1921, as amended by chapter 89, Laws of Montana, 1923, which provides that it shall be the duty of the county treasurer to deposit all public 'moneys in his possession and under his control in a bank or banks to be designated by the board of county commissioners, and no other. The section further provides that the treasurer shall take from the bank such security as the board of county commissioners may prescribe, approve, and deem fully sufficient and necessary to insure the safety and prompt payment of all such deposits on de- • mand, together with the interest thereon. October 3, 1923, a second order was made approving certain other depository bonds, including a bond of the Forsyth Bank in the sum of $100,000. This bond apparently superseded the former. At least, there is no claim that the security at any time exceeded the amount or penalty of either bond. The latter order was silent as to any limit on the amount of deposits that might be made in any of the several depositories named. December 13,1923, the Forsyth Bank became insolvent and closed its door. On that date the balance due on the account of the county treasurer, as disclosed by the bank ledger, was $100,369.98. There was an additional amount of $18,290.66, represented' by two checks issued to the county by the cashier of the bank on December 3 and December 7, 1923, for county funds deposited with the bank on these dates. Subsequent to the closing of its doors, the bank became further liable to the county upon a draft, for protest fees, a returned cheek, and for interest on deposits, in amounts aggregating approximately $4,700. After the failure of the bank, the county brought an action against the Fidelity & Deposit Company of Maryland, as surety on the official bond of the county treasurer, to recover certain sums of money, including the sum or sums in excess of the amount authorized to be deposited by the county treasurer in the Forsyth Bank, and for.other .purposes. This suit was later compromised by the payment of the sum of $20,-734.75, and upon such payment the county assigned to the surety all its right, title, and interest in and to its claim against the Forsyth Bank. December 18, 1923, a receiver was appointed for the bank, and when the receiver took charge there came into his possession and custody $5,393.82 in cash, representing the actual cash on hand in the bank at that time. There was also on deposit in three corresponding banks further sums aggregating $6,030.05. The present suit was instituted by the surety against the receiver to recover as a preferred claim the amount 'paid on the settlement .above referred to, less the amount of certain dividends received. The court below entered a decree in favor of the plaintiff for the sum of $11,381.66, made up of the following items: First, $5,351.61, the smallest amount of cash and cash items in the bank between the time of the unlawful deposits and the close of the bank; and, second, $6,030.05, the amount on deposit in the three corresponding banks, to which was added interest at the rate of 8 per cent. per. annum from March 1, 1923. From this decree the defendant has appealed.

The foregoing summary covers the facts stipulated by the parties, so far as deemed material. On these facts the appellant contends that there was no trust ex maleficio as against the bank; that the deposit of county funds did not augment the assets of the bank; that the deposits have not been traced to the funds that came into the hands of the receiver; and that the .allowance of interest was contrary to law.

In American Surety Co. v. Jackson, 24 F. (2d) 768, 769, this court said:

“If the city funds were lawfully deposited in the. depository bank, the relation of debtor and creditor existed between the city and the bank, and it is well settled that neither the -city nor those claiming under it can under such circumstances claim any preference over general creditors. On the other hand, if the deposits were made by the city treasurer in violation of the laws of the state, it is equally well settled that the bank became a trustee, and that the city, or those claiming under it, may, recover from the receiver the amount of thp trust fund, if less than the amount of cash coming into his hands at the inception of the receivership, unless it is made to appear that some portion of the trust fund had theretofore been paid ‘out or dissipated by the bank. Spokane County v. First Nat. Bank (C. C. A.) 68 F. 979; Merchants’ Nat. Bank v. School District No. 8 (C. C. A.) 94 F. 705; Smith v. Mottley (C. C. A.) 150 F. 266; Board of Com’rs v. Strawn (C. C. A.) 157 F. 49, 15 L. R. A. (N. S.) 1100; In re J. M. Acheson Co. (C. C. A.) 170 F. 427; Titlow v. McCormick (C. C. A.) 236 F. 209. We do not understand that this rule is controverted.”

The appellant contends that there was no trust ex maleficio because the deposits made by the county treasurer in excess of the amount of penalty of the bond approved by the board of county commissioners were, not in violation of law, citing City of Missoula v. Dick, 76 Mont. 502, 248 P. 193, 195, and Missoula County v. Lochrie, 83 Mont. 308, 271 P. 710. In the City of Missoula Case it was held that deposits by a city treasurer in excess of the amount or penalty of the bond approved by the city council were not in violation of law, and constituted a general deposit from which no trust could arise or be implied. But the court significantly added:

“As the matter of the amount of security was left to the discretion of the council, it was its duty, if it deemed the bond on file insufficient to protect the full amount of the deposits, to prescribe what further bond should be furnished and to so notify the treasurer, or it might with propriety have directed the treasurer, at the time it prescribed the bond for the period mentioned, not to deposit to exceed .a certain amount until further security was prescribed and approved; it did neither, and therefore, as the bond prescribed was in effect and covered all deposits made the law was complied with and the - deposits made became merely general deposits.”

Here, there was an express direction from the board of county commissioners to the county treasurer not to make deposits during his term of office in excess of the amount or penalty of the bonds approved by the board, and this explicit direction was wholly disregarded. The act of the county treasurer in making the excess deposits, and the act of the bank in receiving them were therefore clearly wrongful and in violation of law.

The contention that the deposits wrongfully made did not augment or increase the assets of the bank is apparently based on the fact that the stipulation used the term county funds instead of public moneys, as employed in the statute relating to deposits of public moneys. This contention is fully answered by the decision of this court in American Surety Co. v. Jackson, supra, where we said:

°“But, in the absence of proof to the contrary, we must presume that the city treasurer obeyed the law and that he accepted and deposited nothing but cash, or the equivalent of cash.”

The further contention, that the deposits have not been sufficiently traced, is fully answered by repeated decisions of this court which were followed by the court below, in so far as concerns the cash which actually came into the hands of the receiver upon his appointment. Thus, in Merchants’ Nat. Bank v. School Dist. No. 8, 94 F. 705, 708, this court said:

“In the former case it was held that the depositor of a fund intrusted to a bank, by which it has been misapplied, is not entitled to' a general lien upon the assets of the bank for the repayment thereof, but that he can follow the same, so far as it can be traced in the possession of the bank, either in its original form or in forms to which it has been converted, or into a general fund, with which it has been commingled, and that his right to recover it in the latter instance will depend upon whether or not a sum of money still remains in the possession of the bank equal to the amount so due him; it being the presumption of the law that, if moneys has been disbursed out of such fund, it was the money which the bank had the right to pay out, and not the money which was intrusted to it in a fiduciary capacity.”

This rule, however, would not include moneys on deposit in corresponding banks, because as to them there was no commingling of funds or property. The reason therefor is thus clearly stated by Judge Lurton in Board of Com’rs v. Strawn (C. G. A.) 157 P. 49, 52, 15 L. R. A. (N. S.) 1100:

“But the.complainant assigns as error that the court did not extend this rule to the balances to the credit of the Galion Bank in banks with which it kept a deposit account. The balances to the credit of the Galion Bank in these hanks which have been received by the receiver aggregate something, over $6,000. The balances with these several banks was shifting from day to day during the currency of the tax deposit account. The credits given to the Galion Bank are shown to have sometimes come from collections, .sometimes from proceeds of rediscounts, and sometimes from moneys sent from the vaults of the Ga-lion Bank to these reserve or corresponding banks. On the other hand, the account was drawn against'when exchange was sold and for other purposes. The trust fund is not traced into any of the rediscounts or collections, which in part made up the credits in these banks. That the moneys remitted were' not out of the trust fund is to be presumed,; for the presumption upon whieh equity acts in respect of the character of the funds drawn out of the mingled mass of money in the bank’s vaults is that the bank drew out only its money, leaving in its vaults the money which it was obligated to retain and not use for any private purpose. The court below was right in holding that no part of the money deposited with the corresponding banks and which has come to the receiver’s possession has been identified.”

The court below awarded interest at the legal rate from March 1, 1923, which according to the decree was the date of the filing of the bill of complaint. The date thus fixed is manifestly a clerical error, because March 1, 1923, antedated the deposits -complained of by several months and the actual date of the filing of the complaint by three years. The error in this regard should have been corrected by motion in the court below; but it w.as error to allow interest at all prior to the final decree. This court so held in Merchants’ Nat. Bank v. School Dist. No. 8, supra, and the ruling in that case is supported by the weight of authority. Butler v. Western German Bank (C. C. A.) 159 F. 116; Poisson v. Williams (D. C.) 15 F.(2d) 582; Smith Reduction Corporation v. Williams (D. C.) 15 F.(2d) 874. Such is the rule in the state of Montana. Guignon v. First Nat. Bank, 22 Mont. 140, 55 P. 1051, 1097.

The decree of the court below is reversed, with instructions to enter a decree in favor of the plaintiff below for the sum of $5,351'.-61, with interest at the legal rate from the date of the former decree, and for costs in that court. The appellants will recover costs •in this court


source: Caselaw Access Project

author: SPARKS, Circuit Judge.

license: Public Domain

text:
    AMERICAN BANK & TRUST CO. v. HON.
    No. 4444.
    Circuit Court of Appeals, Seventh Circuit.
    March 28, 1931.
    Harry W. Lippincott, Charles S. Deneen, and Roy Massena, all of Chicago, Ill., for appellant.

      Louis J. Behan and William J. Corrigan, both of Chicago, Ill., for appellee.
    Before ALSCHULER, EVANS, and SPARKS, Circuit Judges.
   SPARKS, Circuit Judge.

The State Commercial & Savings Bank and the Milwaukee-Western State Bank, hereinafter referred to respectively as savings bank and state bank, were Illinois banking corporations, and on June 5, 1928, the name.of the state bank was changed to American Bank & Trust Company.

Appellee, on June 8,1922, filed suit in the District Court against the savings bank, which resulted in a judgment by that court, on February 1,1928, against the savings bank for $8,200. Execution was issued on that judgment, and was returned not satisfied in any part. In 1924, during the pendency of that action, proceedings were instituted in the circuit court of Cook county on relation of the auditor of public accounts of the state of Illinois against the savings bank, and a receiver was therein appointed who took possession of the property of the bank. On December 15, 1924, the state bank submitted to the receiver a proposal to purchase the assets and property of the savings bank, and as a consideration therefor it agreed to assume and to pay all liabilities of the savings bank, and to pay all costs of administration, receiver’s fees and expenses, and attorneys’ fees. By order of the court, of December 15,1924, the receiver was authorized to accept such proposal and to comply with its term's, and thereupon an order was entered dissolving the savings bank. On January 6, 1925, the receiver reported to the court that he had complied with the proposal by assigning and delivering to the state bank all tbe property and assets of the savings bank .except $32,600, which he retained as fees and expenses of the receiver and his attorneys. He further reported that the state bank had assumed the liabilities and obligations of the savings bank, and that, because of such assumption of liability, he did not give notice to the creditors of the savings bank to present their claims against it.

The court thereupon approved and confirmed the transaction in all respects.

The instant bill alleges that appellee’s judgment is a liability assumed by the state bank, and that, because of the transfer of the assets to the state bank, appellee is unable to collect his judgment by legal process; that the savings bank has no assets subject to execution, by reason of which appellee has no adequate remedy at law. The prayer is that the American Bank & Trust Company, which is the present name of the state bank, b§ directed to pay appellee’s judgment, with interest, costs, and attorneys’ fees, and, failing to do so, that execution issue therefor.

Appellant filed its motion to dismiss the bill for the reason that appellee has an adequate remedy at law, and for the further reason that the judgment is void and unenforceable. This motion was overruled, and thereupon appellant filed its answer, in which it admitted the proceedings in the circuit court of Cook county against the savings bank, but alleged (1) that the liabilities of that bank which were assumed by the state bank, exclusive of appellee’s claims, exceeded the value of the assets received by more than $58,-000, which appellant has paid; (2) that no claim of appellee was included in the statement of liabilities furnished to the state bank by the receiver; (3) that neither the state bank nor appellant has possession of any assets of the savings bank; (4) that the proceedings in the circuit court of Cook county were prosecuted in strict conformity with the Illinois statutes with relation to notice to creditors; (5) that appellee’s judgment is void for the reason that it was entered after the savings bank had been dissolved by the decree of the circuit court of Cook county.

The District Court rendered judgment for appellee, directing appellant to pay appellee’s judgment, with interest and costs, within twenty days, that execution issue, and that jurisdiction' be reserved for the purpose of enforcing the decree by such proceedings as may be deemed proper; and it is from this decree that the present appeal is prosecuted.

It is contended by appellant that appellee’s judgment against the savings bank, having been recovered after that bank had been dissolved by order of the Cook county circuit court, is void; and cannot form the basis of the instant action.

In passing upon this controversy, this coúrt will be governed by the laws and declared public policy of Illinois in so far as they aré not inconsistent with the basic law of the United States. New York Life Ins. Co. v. Cravens, 178 U. S. 389, 20 S. Ct. 962, 965, 44 L. Ed. 1116; McClain v. Provident Sav. Life Assurance Soc. (C. C. A.) 110 F. 80, 91; Bucher v. Cheshire Railroad Co., 125 U. S. 555, 8 S. Ct. 974, 31 L. Ed. 795; Blackwell v. Southern Pac. Co. (C. C.) 184 F. 489, 495.

In the case of New York Life Ins. Co. v. Cravens, supra, the pourt, referring to the meaning, which-the Supreme Court of Missouri had given to a statute of Missouri, said: .“Our review.is only invoked of that part of the opinion whieh decides that the Missouri statute is the law of the policy, and which annuls the provisions of the policy whieh contravene the statute. And even of this part our inquiry is limited. If we are bound by the interpretation of the statute we need not review the reasoning by whieh that interpretation was reached. And we think we are bound by it. * * * The interests of the state must be deemed to be expressed in its laws. The public policy of the state must be deemed tó be authoritatively declared by its courts. Their evidence we cannot oppose by speculations or views of our own. * * * Against them no intention will be inferred or be permitted to be enforced.”

In the case of McClain v. Provident Sav. Life Assurance Society, supra, the court said: “In extending the judicial power of the United States to controversies between citizens of different states, the only purpose indicated by the constitution was to provide another forum than that of the state, not another law than that of the state. In this case the court below was exercising a jurisdiction concurrent with that of the court of the state of Pennsylvania. It was administering the law of that state, and was as much bound by its statute and common law, and its declared public policies, as would be the state courts in a like case.”

In the ease of Blackwell v. Southern Pac. Co., supra, the court said: “ * * * the matter for decision involving no federal question, the ease being here merely by reason of diversity .of citizenship, this court will adopt the declared policy of the state in which it sits, as found either in its statutes or the decisions of its highest tribunal.”

The decree, by/virtue of which appellant claims that the savings bank, was completely dissolved, pro.vides, among other things:

“Third: That upon the filing with this court of a report by said Receiver setting forth the execution. oL such deeds and the making of .such.'transfer, conveyance and assignment by either said Bank and its officers or directors or said Master in Chancery, as the ease may be, said State Commercial and-Savings Bank be dissolved and all of its corporate rights, privileges, and franchises ■ declared forfeited! and terminated, and all of its powers extinguished and terminated forever.”
“Fifth: That * • .* the Receiver heretofore appointed * * * be, and he is hereby, authorized and directed * * * to institute and prosecute in his own náme as such Receiver, or otherwise, all such suits and proceedings of every kind and nature, * * * as he may deem necessary, proper or advisable for the collection of moneys now due or whieh may hereafter become due said State Commercial and Savings Bank * * * and that * * * he be further authorized to defend all such suits-as may have heretofore been or as may hereafter be brought against said State Commercial and Savings Bank or against himself as such Receiver.”

It is not denied that the receiver made report to the court as contemplated in the third section, as above quoted.

In the case of Life Association v. Fassett, 102 Ill. 315, the court said: “if is not denied, or even questioned, that by the common law a corporation which has been dissolved absolutely, for all purposes whatsoever, stands upon the same footing as a dead person with respect to any power in the courts to enter a valid judgment against it. In the absence of any statutory-provisions, on the subject, the manifest logic and reason of the thing is the same in both cases.”

The court, however, in the same opinion, used the following language: “In addition to the.reasons already given why we hold the company to be still existing for the purposes of enforcing the claim of defendant in error, it may be further stated, that although the decree of the St. Louis circuit, court, in terms, declares the corporation dissolved, yet by other portions of the decree, for the purpose of winding up the business of' the company, paying its debts, etc., suits are authorized to be brought and defended in the name of the corporation, and it is also authorized, for the same purpose, to make, in its corporate name, all necessary conveyances of its'property and effects. It is thus clear, when all the provisions of the decree are considered together,' as they should be, the corporation is not absolutely extinguished for all purposes, but, on the contrary, is expressly kept alive, so far as its existence may be necessary, to collect and apply- its assets to the payment of its debts (Ramsey v. Peoria Marine & Fire Ins. Co., 55 Ill. 311), and therefore it eannot with propriety be said to be civilly, dead, to the extent of abating suits pending against it in a foreign State.”

In the ease of Commercial Loan & Trust Co. v. Mallers, 242 Ill. 50, 89 N. E. 661, 662, 134 Am. St. Rep. 306, 17 Ann. Cas. 224, the trust company recovered a judgment against Mailers prior to December 2,1898, on which last-named date the trust company went into voluntary liquidation. On January 6, 1909, an execution was issued to enforce the collection of the judgment, and levy was made. Mailers thereupon moved to quash the execution on the ground that the trust company had gone into liquidation prior to the issuing of the execution, and by reason of that fact the trust company was without legal capacity to sue out the execution. The court said: “It was held in Life Association of America v. Bassett, supra, that it is a part of the settled publie policy of this state that- upon the dissolution of a corporation, no matter how the dissolution may be effected, the corporation shall nevertheless be regarded as still existing for the purpose of settling up its affairs. In this case the suit was commenced while the defendant in error was a going corporation, and we see no reason why it should not be permitted to prosecute its suit to final judgment for the purpose of collecting its assets and settling up its affairs, even though it went into voluntary liquidation pending the litigation. * * * We can see no reason why a banking corporation should not be held to fall within the general public poliey of the state which permits a corporation to do such acts as may be necessary to collect its debts and settle up its affairs after dissolution.”

It seems quite clear under the Illinois decisions that a publie poliey has been adopted for this state in relation to the controversy before us which is at variance with appellant’s contention, and that the rights of the claimant and the corporation in such cases are reciprocal'.

It is contended, however, by appellant, that the Illinois decisions on this subject are based upon a provision of the general incorporation laws which are not applicable to banks, and that there is no such provision in the Illinois laws relating to the incorporation of banks, and for this reason it says the decisions are erroneous and not binding. This contention cannot be sustained, for, under the rule laid down in New York Life Insurance Co. v. Cravens, supra, we are bound by the interpretation of the statutes and publie policies of Illinois as laid down by its Supreme Court, regardless of whether we think them right or wrong, in cases such as the instant one, where there are no federal questions presented.

It is further contended by appellant that in the proceedings to dissolve the savings bank it will be presumed that the auditor of publie accounts did his duty, under paragraph 11, c. 16a (Cahill’s Rev. St. Ill. 1929), relating to giving notice to claimants to present their claims to the receiver; and, inasmuch as appellee failed to present his claim to the receiver, he is precluded from enforcing it against appellant. It will be observed .that the section referred to does not require the auditor of publie accounts to give the notice, but it provides that he shall cause the notice to be given. In the proceeding for the appointment of the receiver and the dissolution of the savings bank, he was the relator, and in the decree the court specifically orders the receiver to give the notice as required by the section referred to. 'If the auditor requested this order for notice to the creditors to be placed in the decree, and if the receiver had given such notice, then the auditor would be considered as having .complied with the statute in so far as notice to the creditors is concerned. It is quite apparent that some one suggested this order to the court, and we know of no one more likely to do so than the auditor in his capacity of relator, as the duty of causing notice to be given was enjoined upon him, if he had not already done it. The suit apparently was not contested, and it is quite evident that the complainant was the moving spirit, as the decree bears the “O. K.” of all the defendants and of the receiver. The relator certainly knew the contents of the decree, and if he had already given the notice to creditors there was no necessity of having the notice duplicated. Neither he nor the court will be presumed to have done a useless thing, especially when it would have added considerable unnecessary expense to the estate. To have done so would have been a clear violation of the auditor’s duty. It is admitted that the receiver gave no notice, and under the circumstances we think the trial court was right in concluding that the statute in that respect had not been complied with.

It is further contended by appellant that the decree is erroneous in holding that the purchase of the assets of the savings bank from the receiver by appellant’s predecessor amounted to fraud in law as against appellee. It is evident that appellant misconstrues the court’s finding, for it said the fraud upon appellee consisted “in receiving the property and assets of State Commercial & Savings Bank in the manner in which the same were received and transferred, 'as hereinbefore found, and by failing to pay the amount due to the complainant.” The gist of the fraud as considered by the trial court was appellant’s failure to comply with its agreement after its purchase of the property at judicial sale. It cannot be considered as a collateral attack upon the sale itself, but it is an effort to enforce the terms of the sale. In other words, appellant has failed to- pay the consideration for that which it received at judicial sale, and the fact that it received assets less in value by some $58,000 than the liabilities assumed cannot relieve it from its promise to pay. The sustaining of appellee’s contention in this respect will not, as suggested by appellant, warrant every debtor who has executed a promissory note and fails to pay it being subjected to a suit in equity for fraud. Such a statement of facts does not fairly describe appellee’s situation.

It is insisted by appellant that the decree is merely a personal judgment against it, and is not justified by the pleadings and evidence, and that appellee should not have been permitted to proceed in both law and equity, as his remedy was at law. The trial court answered this objection correctly in the following language, which we adopt:

“That the assets of a dissolved corporation will be protected in equity as a trust fund for creditors and stockholders, and that persons receiving them with notice of their character take, them subject to such trust and to the decrees of a court of equity with respect thereto, is well recognized. Ruling Case Law, vol. 7, p. 740; Wheeler v. Pullman Iron and Steel Co., 143 Ill. 197, 32 N. E. 420, 17 L. R. A. 818; Curran v. State of Arkansas, 15 How. 304, 14 L. Ed. 705; Clokey, Adm’x, v. International, etc., Co., 28 Misc. Rep. 326, 59 N. Y. S. 878. Chapter 22, § 49, of Illinois Revised Statutes, is sufficiently broad in its terms to confer upon courts of equity this well-recognized jurisdiction. * * *
“It is urged that, inasmuch as defendant, in consideration of the conveyance of the bank’s assets to it, promised to pay the debts of the bank, plaintiff, as a creditor of the latter, may sue at law; that such remedy is adequate, and that therefore a court of equity is without jurisdiction. Granted that such right exists upon the theory that a third person may sue upon a contract made .for his benefit, it does not follow that the demonstrated right in equity to reach the trust funds is thereby defeated. One may have a right to sue at law a solvent mortgage debtor, but that right does not prevent' him' from also seeking to reach the property héld in trust ■* * * to secure his debt.” ■;

Erom the facts surrounding this-case we cannot say that the court erred in' retaining jurisdiction for the purpose of enforcing, if necessary and proper, its order and decree.

The decree of the District Court is affirmed.


author: HICKENLOOPER, Circuit Judge.

text:
    TAYLOR et al. v. AMERICAN LIABILITY CO.
    No. 5685.
    Circuit Court of Appeals, Sixth Circuit.
    April 10, 1931.
    J. Smith Hays and D. L. Pendleton, both of Winchester, Ky. (M. C. Redwine, V. W. Bush, and H. T. Lisle, all of Winchester, Ky., on the brief), for'appellants.
    B. R. Jouett, of Winchester, Ky. (John T. Metcalf and Jouett & Metcalf, all of Winchester, Ky., on the brief), for appellee.

      Before MOORMAN, HICKS, and HICKENLOOPER, Circuit Judges.
   HICKENLOOPER, Circuit Judge.

This was originally an action by the insurer to cancel a policy of automobile liability insurance because of misrepresentations material to the risk in the schedule of warranties. The defendant filed his answer and by counterclaim also sought judgment for a policy loss which he is alleged to have suffered. When the ease was called for trial, the two issues, at law and in equity, were submitted together, a jury being waived by stipulation as to the issue at law, i. e., the counterclaim. The “Decree” held that the complainant was entitled to cancellation, which was granted, and further held that the defendants “are not entitled to recover anything from this complainant upon their Answer and Counterclaim * * * presented in this action." Since the latter holding must necessarily follow as a result of or concomitant to the first, we treat the appeal as one in equity, and the only question raised as that of a right in the insurer to cancellation.

The schedule of warranties, being part 6 of the policy, contained the following: “8. During the past three years * * * no accident has been caused by an automobile owned or driven by Assured; nor any claim made against Assured as the result of an automobile accident except — No exceptions;” and “9. During, the past three years no company has refused to issue Automobile Insurance to the Assured, nor cancelled any insurance after issued, except — No exceptions.” It is not disputed that these representations were material to the risk and that the answers were false. The defense is that the soliciting agent made no inquiries whatever with reference to this subject-matter, but himself inserted the .answers knowing them to be false, and that the insured did not read the policy nor know of the representations which he was apparently charged with making.

This defense cannot prevail. The ease is, we think, controlled by our decisions in Columbian Nat. Life Ins. Co. v. Harrison (C. C. A.) 12 F.(2d) 986, and Maryland Casualty Co. v. Eddy (C. C. A.) 239 F. 477. The policyholder is held strictly to knowledge of the contents of his policy (New York Life Ins. Co. v. Fletcher, 117 U. S. 519, 534, 6 S. Ct. 837, 29 L. Ed. 934; Lumber Underwriters v. Rife, 237 U. S. 605, 609, 35 S. Ct. 717, 59 L. Ed. 1140; Wyss-Thalman v. Maryland Casualty Co., 193 F. 55 [C. C. Pa.]; Conner v. Manchester Assur. Co., [C. C. A. 9] 130 F. 743, 70 L. R. A. 106; Louis P. Hyman & Co. v. U. S. Cast Iron P. & F. Co., 225 Ky. 510, 9 S.W.(2d) 226; Metropolitan Life Ins. Co. v. Freedman, Exec., 159 Mich. 114, 123 N. W. 547, 32 L. R. A. (N. S.) 298; the eases already cited from this circuit, and many others), and retention of it constitutes an adoption of the application and of the representations upon which such policy was issued. Nor is knowledge of the soliciting agent of the falsity of the answers to be imputed to the principal. By so falsifying the application or schedule of warranties, if such was the fact, the agent would make himself a party to a fraud upon the company, and his knowledge is not then to be imputed to the principal, although under the statutes of some states, not applicable here, the defense may not be available to the insurer. See New York Life Ins. Co. v. Goerlich, 11 F. (2d) 838 (C. C. A. 6); Mutual Life Ins. Co. v. Hilton-Green, 241 U. S. 613, 36 S. Ct. 676, 60 L. Ed. 1202; and compare: Thomson-Houston Elec. Co. v. Capitol Elec. Co., 65 F. 341 (C. C. A. 6), and Kean v. National City Bank, 294 F. 214, 219, et seq. (C. C. A. 6).

Affirmed.


author: McDERMOTT, Circuit Judge.

text:
    UNITED STATES v. JUN.
    No. 337.
    Circuit Court of Appeals, Tenth Circuit.
    March 10, 1931.

      William Earl Wiles, Asst. U. S. Atty., of Oklahoma City, Okl. (Roy St. Lewis, U. S. Atty., of Oklahoma City, Okl., on the brief), for the United States.
    E. E. Blake .and Mr. J. S. Estes, both of Oklahoma City, Okl., for appellee.
    Before COTTERAL, PHILLIPS, and McDERMOTT, Circuit Judges.
   McDERMOTT, Circuit Judge.

The government brought this action at law to recover $4,184.27. There are six causes of action in the petition, the plaintiff seeking judgment (1) for $500 for possessing an unregistered still; (2) for $500 for setting up a still without first obtaining a permit therefor; (3) for $1,000 for engaging in the business of .a distiller without giving notice thereof; (4) “under Section 35 of the National Prohibition Act,” for $1,000 for illegally and unlawfully manufacturing intoxicating liquor; (5) for $1,166.67 for carrying on the business of a distiller in the state of Oklahoma contrary to the laws of that state; and (6) “under Section 600 of the Eevenue Act of 1918, ,as amended by the Eevenue Act of 1926,” for $17.60 for the manufacture of 2.75 gallons of distilled spirits. In answer, the defendant pleaded that the acts complained of were violations of the National Prohibition Act, and that he had been convicted for such acts, and that such conviction w,as a bar to the prosecution of this action under section 5 of the Willis-Campbell Act (27 USCA § 3). The government moved for judgment notwithstanding the answer; this motion was denied; the government declined to plead over; and the trial court entered judgment on all counts in favor of the defendant.

The government concedes that recovery on the first, second, third, and fifth causes of action is barred by the Willis-Campbell Act. This leaves for consideration the fourth and sixth causes of action.

The fourth cause of action is based on title 2, section 35, of the National Prohibition Act (27 USCA § 52), which imposes “a tax * * * in double the amount now provided by law, with an additional penalty of * * * $i,000 on manufacturers.” The sixth cause of action is based upon section 600(a) of the Internal Eevenue Act of February 24, 1919, as amended by the Act of February 26, 1926 (26 USCA § 245). This section imposes a tax of $1.65 a gallon on liquors manufactured between January 1, 1927, and January 1, 1928, which is the period involved in this case; the same section provides that there shall be a tax of $6.40 a gallon imposed on such liquor if it is diverted to beverage purposes. The recovery sought on the sixth cause of action is for $6.40 a gallon.

It thus appears that the government seeks to recover a penalty under both the ■fourth .and sixth causes of action. The sum sought to be. recovered under the fourth cause of action is a specific penalty. The sum sought to be recovered under the sixth cause of action is a penalty in part, $1.65 a gallon being tax, and the balance in fact being a penalty, .although described as a tax. Waterloo Distilling Corporation v. United States, 51 S. Ct. 282, 75 L. Ed.-.

In United States v. La Franca, 51 S. Ct. 278, 280, 75 L. Ed.-, the Supreme Court of the United States ruled that, “if an exaction be clearly a penalty it cannot be converted into a tax by the simple expedient of calling it such.” It further ruled that a civil action .to recover penalties is a “prosecution” under section 5 of the Willis-Campbell Act, and is barred by a prior conviction for the same acts or offenses. That decision disposes of this case.

The judgment is therefore affirmed.


author: PER CURIAM.

text:
    GAY v. NEW YORK LIFE INS. CO.
    No. 5811.
    Circuit Court of Appeals, Sixth Circuit.
    April 10, 1931.
    J. M. Benton and S. T. Davis, both of Winchester, Ky., for appellant.
    Wm. Marshall Bullitt, of Louisville, Ky. (Leo T. Wolford, John E. Tarrant, and Bruce & Bullitt, all of Louisville, Ky., on the brief), for appellee.
    Before MOORMAN, HICKS and HICKENLOOPER, Circuit Judges.
   PER CURIAM.

Following the former appeal to this court in the instant case, New York Life Ins. Co. v. Gay, 36 F.(2d) 634, the plaintiff below, now appellant, amended his reply by denying that Gay, the insured, made any fraudulent misrepresentations or that he was guilty of fraudulent concealment, either at the time the application was made or at the time the policy was delivered. The evidence introduced at the second trial was substantially identical with that introduced at the first. The same arguments are now urged as were then made, to the effect that, by reason of advance payment of the first year’s premium, the policy was written as effective on the date of the application, that the court may not look to the application to see what disclosures were or were not made therein, the copy of such application attached to the policy being said to have been illegible under the statutory rule in Kentucky (sections 656 and 679, Kentucky Statutes), and, no other evidence being competent, it is claimed, to show false representations, that it was therefore impossible to establish the defense of either fraudulent concealment or fraudulent misrepresentation as of the time of making the application, and that, by making the policy effective as of the date of the application, the company assumed the risk of any changes in the condition of health of the insured between the date of the application and that of delivery of the policy.

We see no good reason for departing from our decision upon the former appeal. There we found it unnecessary to determine whether the copy of the application was or was not legible, or whether that was a question of fact or of general law upon which we must be guided by our own judgment, or one of construction of local statutes in which we would follow the court of last resort of the state. It seemed to us sufficient that Gay had good reason to believe that he was suffering from cancer at the time of his application, even if he did not positively know this to be the fact, and that his fears were confirmed and made certain between that date and the delivery of the policy. Under these circumstances, to uphold the validity of the policy would operate as a distinct fraud upon the defendant company. We applied the doctrine of Stipcich v. Metropolitan Life Ins. Co., 277 U. S. 311, 48 S. Ct. 512, 72 L. Ed. 895. Our views in this respect are unchanged.

On the authority of New York Life Ins. Co. v. Gay, supra, the judgment of the District Court is affirmed.


author: RITTER, District Judge.

text:
    UNION INDEMNITY CO. et al. v. FLORIDA BANK & TRUST CO.
    No. 945-M.
    District Court, S. D. Florida.
    March 17, 1931.

      Miller & McKay and James A. Dixon, all of Miami, Fla., for complainants Union Indemnity Co. and United States Fidelity & Guaranty Co.
    Hudson & Cason and Park H. Campbell, all of Miami, Fla., for complainant Hartford Accident & Indemnity Co.
    Gedney, Johnston & Lilienthal and Harry A. Johnston, all of West Palm Beach, Fla., for defendant Florida Bank & Trust Co.
   RITTER, District Judge.

This cause comes on for final hearing upon an agreed statement of facts, and the court, having considered the same and heard argument of counsel, finds as follows:

On 'March 20, 1926, the First American Bank & Trust Company, a state bank under the laws of Florida, was appointed by due order of this court as a depository of bankrupt funds of estates in the hands of receivers or trustees. In order to qualify such depository, First American Bank & Trust Company executed four certain bonds, to wit, $70,000* with Union Indemnity Company as surety, $35,000 with United States Fidelity & Guaranty Company as surety, and two bonds aggregating $19,000 with Hartford Accident & Indemnity Company as surety. Each of the said sureties have instituted separate actions in this court against the defendant, all of similar import, and a decision in this cause of the Union Indemnity Company shall be accepted as a decision in the other eases.

On the 18th day of June, 1928, the First American Bank & Trust Company became insolvent and was taken over under the state banking law by the comptroller of the state of Florida ' designating W. H. Tunnicliffe as receiver, said appointment being under the proper proceedings and confirmation as provided by law. Said receiver has been succeeded by J. F. Cochrane, and later by Florida Bank & Trust Company as liquidator. At the time of such suspension of business there was on deposit in said First American Bank & Trust Company the funds of several bankrupt estates totaling $90,629.09, said deposits being in the name of the respective trustees or receivers of said bankrupt estates, and were subject to check as provided by acts of Congress relating to bankruptcy, as follows:

The bills of complaint in the other cases, namely, United States Fidelity & Guaranty Company, No. 946-M Equity, and Hartford Accident & Indemnity Company, No. 947-M Equity, set out like deposits of different trustees or receivers of bankrupt estates. The respective trustees or receivers aforesaid filed claims with the said liquidator, asking that the funds on deposit in said bank be considered as debts due the United States and given preference on account thereof. The said liquidator has denied said claims as preferred.

After such denial, the said trustees and receivers made demand upon the surety companies, and the surety companies paid to the United States the sums of money secured by their respective bonds and received an assignment of the claims of the said receivers and trustees, subject to an approval order of this court. The surety companies, after making such payments, again filed claims with the receiver as preferred creditors, and the preference was again denied. The suits are brought for the purpose of establishing these claims as preferred claims under sections 191 and.193, title 31, USCA.

Conclusions of Law.

1. There is a controversy arising out of and based upon the laws and statutes of the United States. There are the requisite jurisdictional matters present in this case and the other two cases hereinbefore enumerated, and the court has jurisdiction of the subject-matter of this and the other such cases.

2. The question presented for decision is whether the claims of the complainant are debts due the United States under section 191 and 193, title 31, USCA. If they are, complainant is entitled to a judgment of preference.

Section 191 provides:

“Whenever any person indebted to the United States is insolvent ® * * the debts due to the United States shall be first satisfied.”

Section 193 provides that where a surety on a bond, as presented in this case, pays the obligation, it shall have “the like priority for the recovery and receipt of the moneys out of the estate and effects of such insolvent or deceased principal as is secured to the United States; and may bring and maintain a suit upon the bond, in law or equity, in his own name, for the recovery of all moneys paid thereon.”

Is this a debt due the United States?

The possession of the trustee is the possession of the court. The trustee is only the agent of the court. Remington on Bankruptcy, § 2365.

The money so deposited was in custodia legis. When it was deposited in the bank, there was created the relation of debtor and creditor, as exists between any ordinary depositor. The title to the money in the bank vested in the trustee who deposited it, and was in his possession, and under such conditions it»is considered as placed in the custody of the bankruptcy court. Property in custodia legis is so when it is shown that it has been and is subject to the official custody of a judicial executive officer. McFarland Carriage Co. v. Solanes (C. C.) 108 F. 532; In re Franklin Lumber Co. (D. C.) 147 F. 852.

In re Bologh et al. (D. C.) 185 F. 825, 829, is a case with similar facts, but where the court was petitioned to take summary action for the return of the deposit. This the court declined to do, but said:

“A receiver or other officer of the court who deposits money in a trust company, in my opinion, simply creates thereby the same relation of debtor and creditor as is created by any bank deposit. The debt may have a preference, but it i's nevertheless a debt, and I do not think that the bankruptcy court can, exercise the same summary authority over such a depositary that it can over a receiver.”

In the instant ease, the parties are before the court in an action at law. The above ease is the only ease among the federal decisions which may be considered as paralleling' the case we are considering.

In Gardner v. Chicago Title Company, 261 U. S. 456, 43 S. Ct. 424, 67 L. Ed. 741, 29 A. L. R. 622, the court says:

“We assume that when money is deposited in a designated bank under § 61 of the Bankruptcy Law of July 1, 1898, c. 541, 30 Stat. 562 [11 USCA § 101], it is deposited as other money is, and becomes the property of the bank, leaving the bank a debtor for the amount.”

I think the case of Bramwell v. U. S. F. & G. Co., 269 U. S. 483, 46 S. Ct. 176, 70 L. Ed. 368, is in point. It is true that the deposits considered in that case were of moneys arising out of the guardianship of Indians on the reservation, and the United States was charged with the care and distribution of the funds. Title was in the United States until the money was paid out. In the case at bar, title is in the bankruptcy court as a matter of fact, which is the United States in effect, until paid out by the officers of the court under court order and direction.

In 208 Iowa, 1248, 224 N. W. 499, is considered the ease of Andrews, State Superintendent of Banking, v. Crawford County State Bank of Denison, Iowa, et al., decided April 2, 1929, in which that court holds that the Crawford County State Bank had been designated by the Federal District Court as a depository for the funds of bankrupt estates. The bank becoming insolvent, claims were made as are asserted in the instant case. The court disallows the claims as preferred claims because they are not debts due the United States within the meaning of the considered statute, refusing to follow Bramwell v. U. S. F. & G. Co., supra, but the reasoning of the court does not appeal to me as being correct.

I cannot escape the conclusion, after considering the theory of administration of bankrupt estates, as provided by the acts of Congress, that it was the intention of Congress that the obligation of the depository for bankrupt estate funds should be construed as a debt due the United States so as to be entitled to a preference. The statute should be given a liberal construction, and protection should be afforded the United States as far as such construction will permit.

I conclude that the deposits presented in this ease are debts due the United States, and so hold, and the complainant is entitled to have the same allowed as preferred claims. This same ruling will apply to case No. 946-M Equity and No. 947-M Equity, and judgment will be entered accordingly.


author: KNOX, District Judge.

text:
    THE DALZELLITE. THE W. F. DALZELL. THE FRED B. DALZELL, Jr. SUN OIL CO. v. DALZELL TOWING CO., Inc.
    District Court, S. D. New York.
    Nov. 25, 1930.
    Duncan So Mount, of New York City (Frank A. Bull and Charles R. Millett, both of New York City, of counsel), for libelant.
    Burlingham, Veeder, Fearey, Clark & Hupper, of New York City (Chauncey I. Clark and P. Fearson Shortridge, both of New York City, of counsel), for respondent.
   KNOX, District Judge.

The trial of this suit developed the following state of facts:

On May 15, 1925, the steamship Sabine Sun, laden with oil, was off Stapleton, Staten Island. She was desirous of delivering the cargo at the dock of Texas Oil Company, at Bergen Point, N. J. On the preceding day, Leopold A. Turnbull, assistant marine superintendent of Sun Oil Company, in the ordinary course of his duties, had telephoned to respondent, and requested that tugs be sent to the Sabine Sun to take her to Bergen Point. Realizing that the waters leading to' that destination were shallow at certain points, the libelant’s representatives told respondent that the vessel would be lightered so as to bring her draft to twenty-four feet. When this had been done, the tug W. F. Dalzell proceeded alongside the steamer. The tug captain went upon the lighter’s bridge to act as pilot. The tanker, using her own steam, accompanied by the tug, got under way. When the vessels were opposite St. George, they were joined by the tug Dalzellite. The three boats then proceeded through the Kill von Kull, and off Port Richmond, the tug Fred B. Dalzell, Jr., became a part of the flotilla. Her master, Howard B. Port, ascended the bridge of the Sabine Sun to assume the role of pilot, relieving Captain Bennett of°the W. P. Dalzell, who nevertheless remained on board. Turnbull, the captain of the tanker, his third officer, and a quartermaster were also there. The weather was clear, the tide was within an hour of high water, and the wind was such that it played no part in subsequent events.

In passing, it should be observed that Port, in order to equip himself with knowledge of conditions existing along the channel through whieh the steamer was to go, and whieh was in process of being dredged, and which was also unmarked with the usual aids to navigation, had visited the locality on the previous day, and taken soundings of the depths of water through which the steamer was to move. He had also communicated with the engineers of the War Department, in an endeavor to procure a blueprint of the work then in progress. This he secured. He also bought a copy of the latest chart of the waters. These aids, it is said, were not of a character to furnish him with accurate knowledge of what he might expect to find. As a result, Port was apprehensive of his ability to get the vessel to her destination in safety. In fact he states that he explained the difficulties of the situation to Turnbull, and that, had the latter not remarked that he would “take the risks” and would be very much pleased if the job were executed as well as when it was last performed, he (Port) would have returned the ship to anchorage. Turnbull denies that any such conversation occurred. Whatever may be the truth as to this feature of the case, the tanker, using her own steam, with a tug on either quarter, and one forward on the port side, proceeded on her way. In navigating the vessel, Port took his ranges from a, gas tank and a street end on Staten Island that he had used successfully on former occasions when taking vessels into Newark Bay. On this trip, however, as he was rounding about Bergen Point, on an angle of 90 degrees to starboard, the forward part of the Sabine Sun struck against some obstruction, and went fast aground. She so remained for about three hours, during whieh time she was lightened of a part of her cargo. When this had been accomplished, the vessel floated, and, under the pilotage of Captain Fountain, who was brought aboard, was taken to her dock. The grounding of the vessel injured some of her plates, and this suit is designed to recover the resultant damages.

Captain Fountain testifies that, when he went on board the steamer, she was out of the channel and I so find. When Fountain took charge and the steamer had been floated, he backed her into the Kill von Kull, and then maneuvered in such fashion that the turn in the channel, which Port had apparently missed, was made without trouble. On reaching1 the dock of the Texas Oil Company, Fountain returned the vessel to Port, who warped her into the berth.

Upon the facts as they have been recited, it is clear that libelant can have no recovery against the tugs, or any of them. None of them contributed to the accident in any way, shape, or form. Por this reason, each of them must be exonerated. The Edward G. Murray (C. C. A.) 278 P. 895.

But, as for the respondent’s part in the occurrence, somewhat different considerations must receive attention.

The first of these is that the representative of the owners of libelant, paid, or rather gave, the sum of $15 to Port upon the completion of his work in handling the vessel. This payment, I think, should be regarded as a mere gratuity, and in no way determinative of the question of respondent’s liability in the premises. See The Edward G. Murray, supra, and The Procida (D. C.) 243 P. 251.

So far as the conversation, in whieh Port says that Turnbull assumed the risks incident to the navigation of the Sabine Sun, is concerned, I am of the belief that it should not, granting that it took place, affect the question of liability. There is an element of the ease that renders Port’s disclaimer of responsibility, if he actually made it, more or less academic. It is that respondent’s engagement with respect to the Sabine Sun was qualified by a claim appearing upon its rate sheet, and bills for services, which reads as follows:

“When the captain of any tug furnished to or engaged in the service of assisting a vessel which is making use of her own propelling power goes on board said vessel, or any other licensed pilot goes on board said vessel, it is understood and agreed that said tugboat captain or licensed pilot becomes the servant of the owners of the vessel assisted in respect to the giving of orders to any of the tugs furnished to or engaged in the assisting service and in respect to the handling of such vessel, and neither those furnishing the tugs and/or pilot nor the tugs, their owners, agents or. charterers shall be liable for any damage resulting therefrom.” ■

Copies of respondent’s “Pro Forma Tow-age Rates and Contract with Dalzell Towing Company, Iné.,” containing the above-quoted clause, were forwarded to libelant’s office on November Í5, 1923, December 28, 1923, and June 10, 1924, in response to inquiries concerning towage charges. One of such copies was received by Mr. Innis, a clerk in libel-ant’s office; another by the office manager of libelant’s marine office; and a'third by Mr. Turnbull himself. In a letter which accompanied the rate schedule which was sent to libelant and received by Innis, the respondent said: “We are attaching herewith a tow-age schedule and would like to call your attention to the last paragraph marked with an 'X.’ ” This reference was to the pilotage clause set out above.

Respondent usually handled the vessels of libelant in this port, and, inasmuch as the pilotage clause is printed on the bills for services rendered by respondent, to say nothing of the attention which was drawn to the clause by respondent’s letter, there can be no doubt that libelant should be charged with knowledge of the terms on which respondent offered to furnish towing services. So far as appears, libelant never informed respondent that it would not accept towage services on the terms proposed, as was the fact in McWilliams Bros., Inc., v. Davis, Director General (C. C. A.) 285 F. 312. Not was the existence of the pilotage claim only brought to the attention of a superannuated and inactive employee of the respondent, as was done in G. Robitzek & Bro., Inc., v. Davis, Director General (C. C. A.) 296 P. 107. On the contrary, the responsible officials had every opportunity to know of the limitation contained in the terms of respondent’s offer to undertake engagements such as it assumed for - libelant. While Turnbull denies that he had ever actually read the clause pri- or to the trial, he does admit that he had “heard of it.” ' The faets here present bring the ease within the rule of law as announced by the Circuit Court of Appeals in this circuit in The Oceaniea, 170 P. 893; in Ten Eyck v. Director General (C. C. A.) 267 P. 974, and in The Cutchogue (C. C. A.) 10 F.(2d) 671, to the effect that, under circumstances such as those now before me, the tow assumed the risk of injury. The principle of these eases must here be'recognized. Appreciation is had, of course, of the circumstance that the law of this circuit on the question now before me is not in harmony with that followed by the appellate courts ■of several other circuits, and may indeed be in conflict with the pronouncement of the Supreme Court in The Syracuse, 12 Wall. 167, 20 L. Ed. 382. • It is true, nevertheless, that the latter court refused-to-review the Ten Eyck Case, supra, and there is nothing which indicates that the appellate court of the circuit is inclined to change its previous rulings on the question. Until that change be made, I shall follow the law as it has been here repeatedly declared. As for the contention that the Supreme Court cited its decision in The Syracuse as a basis of its conclusion in The Wash Gray Case, 277 U. S. 66, 48 St. Ct. 459, 72 L. Ed. 787, it needs only to be remarked that the facts- recently before the court in that litigation are easily and fundamentally distinguishable from those in the ease at bar.

Prom what has-been said, it would seem as though libelant cannot escape the binding effect of the' decisions of the local Circuit Court of Appeals, to which reference has been made, even though it be assumed that Port was guilty of negligence in getting the Sabine Sun out of the channel and onto the ground. By reason of my conclusion, I need make no finding on the question of Port’s negligence.

The libels axe dismissed.


author: McCLINTIC, District Judge.

text:
    PUGH v. UNITED STATES.
    No. 2637.
    District Court, S. D. West Virginia.
    May 11, 1931.
    Edgar J. Goodrich, of Charleston, W. Va. (Price, Smith & Spilman, of Charleston, W. Va., on the brief), for plaintiff.

      James Damron and Okey P. Keadle, both of Huntington, W. Va., for the United States.
   McCLINTIC, District Judge.

This is a petition filed by the plaintiff to recover an alleged overpayment on an assessment for income tax in the sum of $1196.20. With a slight exception, the facts are stipulated.

Plaintiff was a partner in the firm of Pugh Furniture Company on the 1st day of January, 1926, and owned 77% per cent, of the ■business. E. G. Hubbard owned 17% per ■cent. Helen M. Moore owned 23ío per cent E. 0. Byrd owned 2§io per cent. Early in the year 1926 plaintiff purchased the interest of E. G. Hubbard, which gave him 95 per cent, ownership of the business of the Pugh Furniture Company. Immediately upon such purchase, plaintiff transferred and set over as a gift to his wife, Flora B. Pugh, the ownership of 40 per cent, of the partnership, attempting to make her a partner in the business.

There was a net taxable income of the Pugh Furniture Company for the year 1926 of $22,108.92. Flora B. Pugh received 40 per cent, thereof, which amounted to $8,843.57, and she reported that amount under her invidual income tax report for the year 1926— and paid the tax thereon.

Plaintiff received 55 per cent, thereof, amounting to $12,159.90, and reported that amount on his individual income tax report for the year 1926, and paid the tax thereon. The other partners reported their shares and paid the tax thereon.

On the 13th day of April, 1926, the Commissioner of Internal Eevenue assessed a deficiency tax against plaintiff, and of the deficiency assessed, $1196.20 resulted from the act of the commissioner in adding to the return of plaintiff’s income the entire sum reported as income from the Pugh Furniture Company by Flora B. Pugh, on the ground that a husband and wife cannot contract together to form a partnership, under the laws of the state of West Virginia, and that Flora B. Pugh was not a member of the partnership and was not entitled to a distribution of profits therefrom.

Plaintiff paid this deficiency assessment and filed a claim for refund of that amount and interest in the proper way and manner, which claim was rejected by the commissioner and plaintiff notified of the rejection. Thereupon, plaintiff instituted this suit within, the statutory period.

I further find as a fact that the plaintiff made this gift to his wife, Flora B. Pugh, not in fraud of any creditors, and that Flora B. Pugh had a very substantial estate of her own, and that due notice was given to the mercantile agencies, and to other persons with whom the partnership dealt, of the fact of the new partner coming in, and that a substantial amount was added to the credit side of the partnership by reason of the advent of Flora B. Pugh as a partner with the amount of the separate estate owned by her, and that she took an active part in the business of the partnership, and worked and labored therein.

Upon the foregoing findings of fact the question arises: “What is the position of Flora B. Pugh in law?” The defendant claims that under the statutes and decisions of the state of West Virginia, a husband and wife cannot be partners, and that for that reason the decision of the commissioner is correct. The plaintiff claims that she was, in fact, a partner in the Pugh Furniture Company, and as such was entitled to her distributive share of the earnings thereof, which should be and was included in her individual taxable income for said year, and further that if the court should hold that she was not a partner, nevertheless, 40 per cent, of the earnings thereof belonged solely to and was receivable by and taxable to her as the return on property owned by her as separate estate.

Plaintiff cites a decision of the United States Board of Tax Appeals, Docket 15255 and promulgated March 26, 1929, entitled J. W. Biggs, Sr., Petitioner, v. Commissioner of Internal Revenue, Respondent, 15 B. T. A. 1092. This case came from West Virginia, and the Board of Tax Appeals held that where the petitioner, his wife and two sons, with four others, formed a partnership for operating a coal mine, during the taxable years there should be included as taxable income to the petitioner only the share of the partnership’s net earnings that did not belong to the others, and, in effect, held-that under the laws of West Virginia, a wife can be a partner with the husband.

The claim was made in that particular case by the commissioner that the petitioner and his wife and sons were not, in fact and in law, partners in the particular company, and that the agreement of partnership-, so far as it related to the petitioner and his wife and two sons, amounted to nothing more than a gift of income by petitioner to his wife and two sons. The claim was made therein that in West Virginia a partnership between a husband and wife is void.

In the brief of defendant, filed in that ease, the action of the commissioner was based on the ease of Bolyard v. Bolyard, 79 W. Va. 554, 91 S. E. 529, 530, L. R. A. 1917D, 440. This same case is likewise quoted in the present case as authority for the claim that a partnership between a husband and wife is void.

A. careful consideration of the Bolyard Case convinces me that the Supreme Court of the State of West Virginia did not intend to hold, nor did it hold, that a partnership between a husband and wife was void. It did hold that in law a contract between a husband and wife is not recognized. The language of the court in the opinion on this subject is as follows:

“The disability of the husband and wife to contract with one another, though absolute in the legal forum, is purely technical. Their contracts are enforceable in equity, if just and fair. They are denied a legal status to the end and purpose that they may be always within the power of the chancellor for enforcement, annulment, or modification, as the equities of the situation require. The ban under which such contracts fall is only partial. They' are not wholly bad, nor are they prohibited by positive law. They are merely unenforceable in courts of law, or by strict legal process. In the broad sense of the law, including the equity jurisprudence as well as the legal, they are valid. The partial .condemnation does not rest upon anything vicious in the sense of immorality. It goes no farther than exclusion from legal cognizance, and this exclusion is effected merely to place them within the exclusive cognizance of that class of courts whose procedure and remedies are sufficiently flexible and varied to enable them to do justice under all circumstances. To put them on a par with contracts fraudulently procured and contracts prohibited by positive law, as being morally or economically vicious, would be logically indefensible.”

This language primarily indicates that the opinion of the Supreme Court of the State of West Virginia was and is that such partnership was not void, and while the rights there^ under could not be enforced at law, they could easily be taken care of in equity.

I am of opinion that the income of Mrs. Pugh from such partnership is solely her own sepárate property, and that while she is taxable thereon, her husband is not. It necessarily follows, from this view, that there should be judgment for the plaintiff for the amount set out in his petition.


author: KENNEDY, District Judge

text:
    GENERAL MFG. CORPORATION v. GRAY et al.
    No. 1073.
    District Court, W. D. Oklahoma.
    March 21, 1931.
    J. S. Estes, Frederick B. Owen, and E. E. Blake, all of Oklahoma City, Okl., for plaintiff.
    Edward Spiers, of Oklahoma City, Old., and Arthur C. Brown, of Tulsa, Old., for defendants.
   KENNEDY, District Judge

(of Wyoming, sitting in the Western District of Oklahoma) .

The above-entitled cause is before the court upon a citation for contempt particularly directed to two of the defendants, Lyman J. Gray and W. H. Coyle. A sketch of the history of the litigation and the transactions involved wi’l be necessary for the proper consideration of the controversy.

One Jacob Young of Oklahoma, the inventor, made application for patent upon a mechanical ball game for which thereafter and on May 14, 1929, letters patent No. 1,-713,247 were issued to General Manufacturing Company, his assignee and plaintiff herein. Some time thereafter in the same year, a controversy arose between the plaintiff and a number of defendants, including those against whom relief is here sought, claiming infringement of plaintiff’s patent together with the uses of apparatus of defendants in the manufacture of the patented machine. Before the suit came to trial a compromise was effected between the litigating parties, or such of them as were actually interested in the litigation, and an agreement perfected whereby the defendants in interest here were by a written contract given certain privileges and rights, presumably as licensees, to manufacture and sell the patented machine in certain designated territories and under certain prescribed conditions. Terms were provided by which the plaintiff would receive certain consideration from the sales thereof. Thereupon a consent decree was entered in said infringement suit by the terms of which defendants were restrained and enjoined from any infringement of plaintiff’s patent. The evidence tends to show that the defendants here attacked thereupon proceeded with the attempted manufacture and distribution of the plaintiff’s apparatus which they claim did not result satisfactorily. Some difficulty evidently arose in the set-up of the machine, and the inventor Young, whose interests were aligned in the proceeding with those of the plaintiff, was taken into the manufacturing plant for the purpose of aiding in the mechanical development of the patented apparatus. Some time thereafter, and when the breach between the plaintiff and defendants had widened considerably through the alleged failure to pay royalties and properly label the few machines which were turned out in accordance with the demands of the plaintiff, the defendants began the manufacture of another machine in conjunction with one Carpenter, who purported to invent such machine and make application thereon for a patent. A company was organized in which the defendants are actively interested. Thereupon in September, 1939, the plaintiff made an application for a citation against the defendants Emenhiser, W. H. Coyle, and Cray as for contempt on account of their alleged acts amounting to a violation of the injunetional order contained in the final decree heretofore referred to. At the trial, the proceeding against the defendant Emenhiser seemed to have been dropped, as he did not appear to have been longer connected with the alleged infringement. A citation was issued by the court, and upon its return the defendants W. H. Coyle and Cray appeared and made a response which in substance admits the former decree and the contract and alleges that the machines attempted to be manufactured under plaintiff’s patent were inoperative and unsaleable, which frailties the plaintiff was unable to correct, although repeatedly requested by defendants so to do. They further allege that the machine which they are now manufacturing is á different machine from that covered by plaintiff’s patent and in no way an improvement upon or an infringement of plaintiff’s device, but that it is a machine being manufactured as an invention of one George W. Carpenter for which an application for patent is pending.

The case thereupon proceeded to a hearing upon the citation and the response of the defendants W. H. Coyle and Gray. At the hearing the issues were narrowed to the consideration of two points by counsel for defendants, the first being to the effect that the plaintiff had not pursued the proper remedy, it being the contention of counsel for the defendants in this respeet that the remedy of the plaintiff was properly a suit at law upon the contract which purported to cover and regulate the relations between plaintiff and defendants concerning the manufacture of plaintiff’s apparatus. This position on the part of defendants I hold to be untenable, for the reason that the issue tendered by the application and citation is solely one of infringement which contemplates the manufacture and distribution of a slightly different machine than that of plaintiff’s but so similar as to represent but a colorable imitation. Likewise the response of the defendants' in substance meets this tendered issue. If there should be a determination of infringement, the matter of stipulated amounts set forth in the contract might possibly govern the question of damages as to manufactured and distributed machines. The second issue, as indicated is, whether or not the machine admittedly manufactured by the defendants is an infringement of plaintiff’s patent, and to this issue the attention of the court will therefore be directed.

At the outset, for a judge rather inexperienced in patent law, a surprise was occasioned by the fact that counsel devoted such slight attention in argument and brief to the scope of an investigation upon a eon-tempt proceeding in patent cases. This may have been based upon the erroneous presumption that one called to sit in a ease of this character was already advised. However, it appears to me important to analyze the nature of the proceeding here for a correct solution of the main infringement issue. A brief review of the authorities will be helpful.

In California, etc., Paving Co. v. Molitor, 113 U. S. 609, on page 618, 5 S. Ct. 618, 622, 28 L. Ed. 1106, a contempt proceeding in a patent case, Mr. Justice Bradley, speaking for the court, says: “It is a question which the circuit court must decide for itself in the ordinary way. If the judges disagree there can be no judgment of contempt; and the defendant must be discharged. The complainant may then either seek a review of that decision in this court, or bring a new suit against the defendant for the alleged infringement. The latter method is by far the most appropriate one where it is really a doubtful question whether the new process adopted is an infringement or not. Process of contempt is a severe remedy, and should not be resorted to where there is fair ground of doubt as to the wrongfulness of the defendant’s conduct.”

In Crown Cork & Seal Co. v. American Cork Specialty Co., 211 P. 650, on page 653 (C. C. A. 2), the following language is found: “Complainant moved to attach for contempt because of the use of this reorganized machine. It has been the practice in this circuit (Bonsack Machine Co. v. National Cigarette Co. [C. C.] 64 P. 858) not to deal with modifications of a machine held to be an infringement, on motions to punish for contempt, unless the change was plainly a mere colorable equivalent; if the change was substantial, fairly arguable as to its being covered by the patent, it has been the practice to leave the patentee to an application to enjoin its use.”

In Charles Green Co. v. Henry P. Adams Co., 247 P. 485, at page 486 (C. C. A. 2), Judge Hough observes:

“The practice of reaching evasive and persistently infringing defendants by supplementary injunction we have already substantially approved. Bead Machinery Co. v. Jaburg, 223 P. 1022,138 C. C. A. 659. That approval we reiterate, but the propriety of granting such relief should be ascertained with due regard to settled rules regarding alleged contempt of patent injunctions.
“Modifications of enjoined devices have not been dealt with on motions to punish for contempt ‘unless the change was a mere colorable equivalent’ (Crown Cork, etc., Co. v. American, etc., Co., 211 P. 653, 128 C. C. A. 154).”

In the more recent case of Electro-Bleaching Gas Co. v. Paradon Engineering Co. (D. C. N. Y.) 15 P.(2d) 854, at page 855, the court says: “The plaintiffs must establish the law and the facts relied on to make out the alleged contempt; but, as this is a proceeding to have the defendant adjudged guilty of a civil contempt, I am not prepared to say that the plaintiffs must establish their case beyond all reasonable doubt. Gompers v. Buck’s Stove & Range Co., supra [221 U. S.] at page 444 (31 S. Ct. 492 [55 L. Ed. 797, 34 L. R. A. (N. S.) 874]). But the burden is heavy on the plaintiffs, and where there is reasonable ground to doubt as to the wrongfulness of the conduct of the defendant, it should not be adjudged in contempt. California Artificial Stone Paving Co. v. Molitor, 113 U. S. 609, 5 S. Ct. 618, 28 L. Ed. 1106; Hanley v. Pacific Live Stock Co., 234 P. 522’, 148 C. C. A. 288; General Electric Co. v. McLaren (C. C.) 140 P. 876.”

One of the most concise and clear statements of the rule, evidently well supported by authority, is made by District Judge Pollock of Kansas in the case of Wire Rope Appliance Co. v. Eureka Tool Co. (D. C.) 256 P. 677, on page 678, in his pronouncement:

“The entire question of infringement in this case has passed to' final decree absolute; hence no such issue is here raised, or may be determined. True, if the defendant and its officer here proceeded against are, and since the decree herein entered against them have been, engaged in good faith in making and vending a socket so different in its character and nature from' the infringing device defendant was enjoined from making, vending, and using by the final decree herein as not to fall within the issues of the case in which the decree was entered, in such case it would be the duty of plaintiff to file a new bill to have such determination made, and the application for contempt denied. Howard v. Mast, Buford & Burwell Co. (C. C.) 33 P. 867; Temple Pump Co. v. Goss Pump & Rubber Bucket Manuf’g Co. (C. C.) 31. P. 292; Crown Cork & Seal Co. v. American Cork Specialty Co., 211 P. 650, 128 C. C. A. 154; Kelsey Heating Co. v. James Spear Stove & Heating Co. (C. C.) 158 P. 414; Bonsack Mach. Co. v. National Cigarette Co. (C. C.) 64 P. 858.

“On the other hand, if the change made from the original infringing device is merely colorable, and not substantial, and a court can clearly see the obvious intent of those enjoined from infringement was to further infringe upon the rights protected by the decree and thus escape punishment for wrongdoing, contempt will be adjudged. Frank F. Smith Metal Window Hardware Co., v. Yates, 244 F. 793,157 C. C. A. 241; Davis v. Perry, 120 F. 941, 57 C. C. A. 231; New York Scaffolding Co. v. Whitney, 224 F. 452, 140 C. C. A. 138; Leeds & Catlin v. Victor Talk. Mch. (No. 2) 213 U. S. 325, 29 S. Ct. 503, 53 L. Ed. 816; Parsons Non-Skid Co. v. Atlas Chain Co., 198 F. 399,117 C. C. A. 286.

“The question thus raised is this: Do the appliances themselves in evidence in this case and the proofs adduced on this hearing clearly show the change made by defendant and its president, Towne, to be such a mere color-able mechanical equivalent as will be disregarded in this proceeding for contempt?”

Clearly, then, the issue in the case at bar is not solely the question of infringement which might be determined in a new proceeding or one supplemental to' plaintiff’s original suit, but it is whether or not the invention and device which it is claimed the defendants are manufacturing and selling is merely a colorable equivalent or imitation of plaintiff’s patented device.

Proceeding therefore to an investigation of the principal issue in the light of these authorities, we are confronted with the contention of the plaintiff that under the law of patents laid down in Title 35 TJSCA, § 69, which provides that only upon giving thirty days’ notice in writing to the plaintiff the defendant may prove on the trial that plaintiff’s device had been patented or described in some printed publication prior to his supposed invention or discovery thereafter for more than two years prior to his application for patent therefor, and the defendants not having given said thirty days* notice are precluded from offering testimony in regard to the prior state of the art through evidence of prior patents. In regard to this, the defendants respond that under a construction by the courts this estoppel is a limited one and does not restrict against evidence to assist the eourt in determining the scope of the patent. Authorities supporting this view are 48 C. J. p. 356, which says:

“Under general issue defendant may show the prior state of the art, that plaintiff’s device is not operative, or matters, other than statutory defenses, which affect the validity of the patent and cannot well be made the subject of a special plea; and he may give in evidence the act of congress relating to patent tability.
“Statutory defenses. Under the statute providing for proof at the trial of certain special matters of defense, all relating to the Validity of the patent, where defendant has given previous written notice thereof, such" matters are admissible in evidence for the purpose of defeating the patent where they have been pleaded or sufficient statutory notice thereof has been given; but not otherwise, unless notice thereof is waived, as by failure to object to' the reception of the evidence. However, matters which are inadmissible under the foregoing rule for the purpose of showing the invalidity of the patent may nevertheless be admissible to show the state of the art and to aid in the construction of the patent.”

In Brown v. Piper, 91 U. S. 37, at page 41, 23 L. Ed. 200, is found the following language:

“There is another view of the ease that may properly be taken.
“Evidence of the state of the art is admissible in actions at law under the general issue, without a special notiee, and in equity eases without any averment in the answer touching the subject. It consists of proof of what was old and in general use at the time of the alleged invention. It is received for three purposes, and none other, — to' show what was then old, to distinguish what was new, and to aid the eourt in the construction of the patent.”

See, also, Grier v. Wilt, 120 U. S. 412, 7 S. Ct. 718, 30 L. Ed. 712, in which the pertinent syllabus reads as follows: “In a suit in equity for the infringement of letters-patent, prior letters-patent, though not set up in the answer, are receivable in evidence to show the state of the art, and to aid in the construction of the claim of the patent sued on, though not to invalidate that claim on the ground of want of novelty, when properly construed.”

We therefore arrive at the conclusion, in the light of these authorities, that prior patents and the file wrapper of plaintiff in connection with his patent are admissible in this proceeding, not for the purpose of invalidating plaintiff’s claim on the ground of want of novelty, but for the purpose of distinguishing what was at the time then old and what was new and to properly assist the court in the construction of the patent.

Having proceeded this far in the analysis of the limited scope of the issue and the evidence admissible to determine that issue, we shall proceed to consider plaintiff’s patented machine and the defendants’ alleged infringing machine.

Plaintiff’s specifications outlined in patent No. 1,713,247, in lines 1 to 31, inclusive, read as follows:

“This invention relates to mechanical hall games, and particularly to a mechanical basketball game.
“The general object of the invention is tó provide a miniature basketball court enclosed in glass and having the similitudes of baskets at the opposite ends of the glass ease, and provide manually controllable means whereby the ball may be shifted from one end of the court toward the other by one player or in a reverse direction by the other player and whereby the ball may be discharged upward, if possible, to make a goal from the field.
“A further object is to provide a device of this character having the floor of the ease formed to provide a plurality of depressed portions, each depressed portion having a cup-shaped center in which the ball will lodge, each cup-shaped depression having a kicker or finger disposed therein, half of the cups having their kickers connected to one operating means for one player and the other half of the cups having their kickers operatively engaged with another operating means operated by the other player, the kickers or fingers being so disposed that when it is operated it will tend to throw the ball from one cup to another cup of the same players and so on until the ball is in position for a try for goal.”

The alleged infringing machine is similar in mechanical equipment and general design, with the exception that the substantial difference between the two machines is that while plaintiff’s machine is designed to kick the ball in a diagonal course across the field through the cups of a corresponding series where the basket may be thrown from two cups, the defendants’ machine is so arranged that the attempt is made to throw the desired basket from each and every cup of its own series. As is stated in the patent, the device is intended to simulate a basketball game, and in this respect experts testify in this hearing that there are, speaking generally, two different methods of playing such a game in a genuine contest with living players. One is known as “nursing” or “dribbling” the ball across the field toward the desired goal until a player near the basket is better able to accomplish the result than by a long throw. This method is the one commonly in use, as was testified among the more skilled teams. The. other method is where the players usually without such nursing or dribbling attempt to throw baskets from any point where the player may be located without particular regard to his proximity to the basket, which the expert professional coaches in basketball denominate the “amateur” or “dub” game.

On first impression, the similarity would be so close that one might easily say that the second is clearly an imitation of the first. A closer scrutiny, however, is needed if we are required to examine the prior state of the art with respect to former patents, together with the representations of the plaintiff patentee prior to the issuance of his patent concerning the scope' of his patented machine. It appears from the file wrapper in connection with plaintiff’s patent, that certain claims of plaintiff were rejected in the light of six prior patents for similar devices. Only three of the claims of plaintiff were allowed, to wit: Claims 5, 6, and 9, whereupon the plaintiff amended his claims and upon such amended claims the patent was granted. At the same time the patentee made representations to the Patent Office in the way of remarks which indicated the distinction between his device and that shown by patents already granted to others for similar devices. In the amended claims, claim 5 as allowed was made claim 1, in which the following language appears: “Said kickers being so arranged as to project the ball in the general direction of the next succeeding cup of a series.” Original claim 6 allowed was thereafter'ineorporated in the amended claims as No. 3,. in which the following language appears:' “The kickers of one series being arranged to discharge the ball from a cup of one series to an adjacent cup of the same series and into the corresponding goal.” In original claim 9, which as amended became claim 6, the following language appears: “The kickers of one series of cups being arranged to direct the ball from one cup of a series to the next adjacent cup of the series in a direction toward one end of the casing.” It must therefore b.e apparent that this particular feature of plaintiff’s patented machine, in each instance directing the ball in a diagonal course across the field from one cup of a series to the next succeeding cup of the same series until the ball is in a position to be thrown from a cup designed only for the purpose of throwing the basket, is an integral part of plaintiff’s device.

Further, it appears by the former patents introduced in evidence, to which reference was made by the Examiner passing upon plaintiff’s patent and respecting a portion of the claims, that there was no expression of the “nursing” game at the time in case of the Smith, Bush, Johnson, Biertuempfel, and Garver patents, many features of which otherwise resembled in mechanism and result the features of plaintiff’s machine, and as a consequence the scope of plaintiff’s patent in view of this prior state of the art was considerably limited. The contention of defendants is not that plaintiff did not have a patentable device which was novel, nor do they now attempt to dispute the patentability of plaintiff’s device, but they contend that in view of the prior state of the art and in view of the limitations imposed upon plaintiff, the scope of his patent is so limited that he cannot now assert an alleged infringement on the part of defendants. The defendants contend that the rule which should be invoked is fairly laid down in the ease of Barley v. G. E. Witt & Co. (C. C. A.) 261 P. 77, at page 84, where the court says:

“We are unable to expand the claims of the patent in question beyond the fair meaning of their terms, and we cannot find that identity of mechanical elements, as well as identity of function, necessary to sustain the charge of infringement. Notwithstanding the fact that there are the same mechanical elements present in the device of the patent in suit as in the construction of appellants, the manner of operation described in the patent claims determines whether there has been infringement; and, as we understand it, appellants do not use the manner of operation described by the patent claims.
“Believing, therefore, that there is a lack of substantial identity between the combinations in respect to their capacity to do the same work in substantially the same way, appellants are not shown to infringe. Westinghouse Co. v. Boyden Power-Brake Co., 170 U. S. 537,18 S. Ct. 707, 42 L. Ed. 1136; Pittsburgh Meter Co. v. Pittsburgh Supply Co., 109 F. 644, 48 C. C. A. 580; Westinghouse Air Brake Co. v. New York Air Brake Co., 119 F. 874, 56 C. C. A. 404; Imperial, etc., Co. v. Crown Cork & Seal Co., 139 F. 312, 71 C. C. A. 442; Thacher v. Transit Co. (D. C.) 228 F. 905

The thought is also expressed in the case of Puller v. Yentzer, 94 U. S. 288, at page 296, 24 L. Ed. 103, where Mr. Justice Clifford, in speaking for the court, says:

“Valid letters-patent undoubtedly may be granted for an invention which consists entirely in a new combination of old elements or ingredients, provided it appears that the new combination of the ingredients produces a new and useful result; but the rule is equally well settled that the invention in such a case consists merely in the new combination, and that a suit for infringement cannot be maintained against a party who constructs or uses a substantially different combination, even though it includes the exact same elements or ingredients, if the combination is in fact new and useful, and substantially different from the one which preceded it. Gill v. Wells, 22 Wall. 14 [22 L. Ed. 699].
“Such an invention, if it produces a new and useful result, is the proper subject of a patent, and such a patent is valid and operative; but the right of the patentee under it differs in one respect from those of a patentee for an invention which consists of an entire machine, or of a new and useful device, as the rights of a patentee for a mere combination of old ingredients are not infringed, unless it appears that the alleged infringer made, used, or sold the entire combination. Gould v. Rees, 15 Wall. 194 [21 L. Ed. 39]; Prouty v. Ruggles, 16 Pet. 341 [10 L. Ed. 985]; Vance v. Campbell, 1 Black, 428 [17 L. Ed. 168].”

There remains to be considered the representations and statements made by the patentee plaintiff in the' matter of securing a patent, which are pertinent in determining its scope. Shepard v. Carrigan, 116 U. S. 593, 6 S. Ct. 493, 29 L. Ed. 723; I. T. S. Rubber Co. v. Essex Rubber Co., 272 U. S. 429, 47 S. Ct. 136, 71 L. Ed. 335. In the latter case, on page 443 of 272 U. S., 47 S. Ct. 136, 141, 71 L. Ed. 335, the late Mr. Justice Sanford, speaking for the court, said:

“It is well settled that where an applicant for a patent to cover a new combination is compelled by the rejection of his application by the Patent Office to narrow his claim by the introduction of a new element, he cannot after the issue of the patent broaden his claim by dropping the element which he was compelled to include in order to secure his patent. Shepard v. Carrigan, 116 U. S. 593, 597, 6 S. Ct. 493, 29 L. Ed. 723. If dissatisfied with the rejection he should pursue his remedy by appeal; and where, in order to get his patent, he accepts one with a narrower claim, he is bound by it. Shepard v. Carrigan, supra [116 U. S. 597, 6 S. Ct. 493, 29 L. Ed. 723]; Hubbell v. United States, 179 U. S. 77, 83, 21 S. Ct. 24, 45 L. Ed. 95. Whether the examiner was right or wrong in rejecting the original claim, the court is not to inquire. Hubbell v. United States, supra [179 U. S. 83, 21 S. Ct. 24, 45 L. Ed. 95]. The applicant having limited his claim by amendment and accepted a patent, brings himself within the rules that if the claim to a combination be restricted to specified elements, all must be regarded as material, and that limitations imposed by the inventor, especially such as were introduced into an application after it had been persistently rejected, must be strictly construed against the inventor and looked upon as disclaimers. Sargent v. Hall Safe & Lock Co., 114 U. S. 63, 86, 5 S. Ct. 1021, 29 L. Ed. 67; Shepard v. Carrigan, 116 U. S. 598, 6 S. Ct. 493, 29 L. Ed. 723; Hubbell v. United States, supra [179 U. S. 85, 21 S. Ct. 24, 45 L. Ed. 95]. The patentee is thereafter estopped to claim the benefit of his rejected claim or such a construction of his amended claim as would be equivalent thereto. Morgan Envelope Co. v. Albany Paper Co., 152 U. S. 425, 429, 14 S. Ct. 627, 38 L. Ed. 500. So where an applicant whose claim is rejected on reference to a prior patent, without objection or apt peal, voluntarily restricts himself by an amendment of his claim to a specific structure, having thus narrowed his claim .in order to obtain a patent, he ‘may not by construction, or by resort to the doctrine of equivalents, give to the claim the larger scope which it might have had without the amendments, which amount to a disclaimer.’ Weber Elec. Co. v. Freeman Elec. Co., 256 U. S. 668, 677, 41 S. Ct. 600, 603, 65 L. Ed. 1162.
“It results that as the claims in suit were limited by the proceedings in the Patent Office to the specific form of a three-point contact lift, they are not infringed by the heels made by the Essex Company, which, are not three-point contact lifts, their upper side edges having no vertical curve and lying entirely in the same horizontal plane as the rear edge and breast comers.- Hof can they be held to be infringements even if we assume that, as asserted, they function in the same manner as three-point contact lifts, and would infringe, as was conceded in the District Court, if the claims were not restricted by the- limiting clause and were entitled to a construction warranting a wide range of equivalents. By the limitation of the claims in the Patent Office proceeding to the three-point contact lift the patentee made this precise form a material element, and having thus narrowed the claims, cannot, as was said in the Weber Electric Company Case, now enlarge their scope by a resort to the doctrine of equivalents. This would render nugatory the specific limitation.’* -

While, strictly speaking, it may not be contended that the plaintiff in the matter of securing his patent injected a new element in his amended claims known here as the “nursing” or “dribbling” element, yet it does appear that he relied upon this feature as distinguishing it from other devices already patented or known to the art as being generally capable of the same general results. On page 3 of plaintiff’s response to the action of the Patent Office in rejecting a portion of plaintiff’s claims, the following representations were made: “A nearer citation is the patent to Bush which is in some respects similar to applicant’s ball game in that there is a field provided with cups arranged in two series with a plurality of ball projectors arranged in two series each series of projectors being adapted to be operated by corresponding handles, but these projectors are not arranged to project the ball diagonally or in other words in the general direction of the opponent’s goal but diagonally across the field nor is there a projector arranged on the median line of the board and adjacent the goal whereby a goal may be made as called for in the last two claims nor are the cups arranged in two series in staggered relation to each other and alternating with cups of the other series.”

On page 4, in discussing the features of other patents cited by the examiner, the patentee says: “The kickers or strikers are entirely different, the mechanism whereby the game is played is different, the ball is not kicked diagonally across the field from a pocket of one series to a poeket of the next series or in that direction.”

From this undisputed evidence it would appear that one of the principal features upon which the plaintiff relied for a patent, in distinguishing his invention from that of previous patentees,' was the kick of the ball diagonally across the field from cup to cup of the same- series and attempting to discharge thé ball from certain cups in close proximity to the desired basket as representing the so-called “nursing” game of basket-bad.

In view of this development,of the entire evidence in the ease, I feel unwilling to say that the alleged infringing device of the defendants is a mere colorable equivalent or imitation upon which to base a finding of contemptuous conduct in violation of the original decree of the court; especially in view of the fact, that the two devices, when considered in the light of purporting to simulate a basketball game, are really intended to play such a game by different methods. The ease is at least close enough in my opinion so that the question of infringement under the authorities ought to be determined in a proper proceeding brought for that purpose.

For the reasons stated, the defendants will be discharged from the alleged citation for contempt, and findings of fact and conclusions of law with an appropriate decree in accordance with the views herein expressed may be submitted within thirty days from the date of this memorandum, reserving to the plaintiff proper exceptions.