author: AUGUSTUS N. HAND, Circuit Judge SWAN, Circuit Judge

text:
    UNITED STATES NAV. CO., Inc. v. CUNARD S. S. CO., Limited, et al.
    No. 5.
    Circuit Court of Appeals, Second Circuit.
    May 18, 1931.
    SWAN, Circuit Judge, dissenting.

      Rumsey & Morgan, of New York City (Mark W. Maclay and John Tilney Carpenter, both of New York City, of counsel), for appellant.
    Burlingham, Veeder, Fearey, Clark & Hupper, of New York City (Roscoe H. Hup-per and Burton H. White, both of New York City, of counsel), for appellees.
    Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.
   AUGUSTUS N. HAND, Circuit Judge

(after stating the facts as above).

The agreement set forth in the amended bill of complaint involved a violation of the Sherman Anti-Trust Act, 15 USCA §§ 1-7, 15 (United States v. Pacific & Arctic Co., 228 U. S. 87, 33 S. Ct. 443, 57 L. Ed. 742; Thomsen v. Cayser, 243 U. S. 66, 37 S. Ct. 353, 61 L. Ed. 597, Ann. Cas. 1917D, 322), at least in the absence of approval by the United States Shipping Board pursuant to section 15 of the Shipping Act (46 USCA § 814). That section provides that “all agreements * * * made after the organization of the board shall be lawful only when and as long as approved by the board, and before approval or after disapproval it shall be. unlawful to carry out in whole or in part, directly or indirectly, any such agreement. * * * Every agreement * * * lawful under this section shall be excepted from” the Sherman Act and acts supplementary thereto.

As the amended bill alleges that the agreement declared upon has not been approved by the Shipping Board, the exception of section 15, supra, does not apply. Prom this the plaintiff reasons that an injunction may be properly sought under section 16 of the Clayton Act (15 USCA § 26), which permits “injunctive relief” to private parties “against threatened loss or damage by a violation of the anti-trust laws.”

Prior to the enactment of the Clayton Act in 1914, private parties were not entitled to sue to restrain violations of the anti-trust laws embodied in the Sherman Act, though injunctive remedies were given to the government. Minnesota v. Northern Securities Co., 194 U. S. 48, 24 S. Ct. 598, 48 L. Ed. 870; Paine Lumber Co. v. Neal, 244 U. S. 459, 37 S. Ct. 718, 61 L. Ed. 1256.

The Clayton Act (section 16 [15 USCA § 26]) provided that no person except the United States shall be entitled “to bring suit in equity for injunctive relief against any common carrier subject to the provisions of the Act to regulate commerce * * * in respect of any matter subject to the regulation, supervision, or other jurisdiction of the Interstate Commerce Commission.” The Supreme Court has held that, while a combination of land carriers to fix rates may be illegal under the Anti-Trust Acts and may he¡ prosecuted by the United States, private^ shippers who claim to be injured must seek their remedies against such a combination under the Interstate Commerce Act (49 USCA § 1 et seq.) (Texas & Pac. Ry. v. Abilene Cotton Oil Co., 204 U. S. 426, 27 S. Ct. 350, 51 L. Ed. 553, 9 Ann. Cas. 1075), and cannot even sue at law to recover dam-, ages under section 7 of the Sherman Act (15 USCA § 25). Keogh v. C. & N. W. Ry. Co., 260 U. S. 156, 43 S. Ct. 47, 67 L. Ed. 183. The court below, per Caffey, J.,; applied similar reasoning to the combination of water carriers in the ease at bar and dismissed the amended bill on the ground that relief must be sought under the Shipping Act.

It is said, however, that the Clayton Act contains no exception, affecting carriers by water, similar to the provision of section 16 of that act (46 USCA § 815), which precludes private parties from bringing suits for injunctive relief against land carriers in respect to matters subject to the regulation of the Interstate Commerce Commission; and it is therefore- insisted that the general provisions of the Clayton Act permitting in-junctive relief to private parties “against threatened loss or damage by a violation of the antitrust laws” should have unrestricted application to the ease at bar.

But, in spite of the provision in the Interstate Commerce Act that nothing contained therein “shall in any way abridge or alter the remedies * * * existing at common law or by statute” and that its provisions “are in addition to such remedies” (49 USCA § 22), the Supreme Court has been increasingly disposed to treat the remedies afforded by that act as exclusive. Private parties have not been permitted to pursue remedies under the Sherman or Clayton Acts in cases where the Interstate Commerce Act has afforded relief. Keogh v. C. & N. W. Ry. Co., 260 U. S. 156, 43 S. Ct. 47, 67 L. Ed. 183.

It is said that remedies afforded by the Interstate Commerce Act have been held exclusive only where administrative questions have been involved. But the tendency to extend the requirement of a preliminary inquiry by the Commission is significant.

In the pioneer ease of Texas & Pac. Ry. v. Abilene Cotton Oil Co., 204 U. S. 426, 27 S. Ct. 350, 51 L. Ed. 553, 9 Ann. Cas. 1075, it was held that the right of a shipper to recover a rate alleged to be discriminatory must first be submitted to the Interstate Commerce Commission. Robinson v. Balt. & Ohio R. R., 222 U. S. 506, 32 S. Ct. 114, 56 L. Ed. 288, and Mitchell Coal Company v. Penna. R. R. Co., 230 U. S. 247, 33 S. Ct. 916, 57 L. Ed. 1472; were to the same effect. In Balt. & Ohio R. R. v. Pitcairn Coal Co., 215 U. S. 481, 30 S. Ct. 164, 54 L. Ed. 292, Morrisdale Coal Co. v. Penna. R. R., 230 U. S. 304, 33 S. Ct. 938, 57 L. Ed. 1494, and Midland Valley R. R. v. Barkley, 276 U. S. 482, 48 S. Ct. 342, 72 L. Ed. 664, the question involved was whether a distribution of coal ears to shippers was discriminatory. It was held that the matter involved preliminary action by the Interstate Commerce Commission, in „the absence of which the federal courts had no jurisdiction. Similarly in Tex. & Pac. Ry. Co. v. American Tie Co., 234 U. S. 138, 34 S. Ct. 885, 58 L. Ed. 1255, the question whether a tariff established by the-Commission covered a certain product was held to require the preliminary determination of the Commission. In Northern Pac. Ry. Co. v. Solum, 247 U. S. 477, 38 S. Ct. 550, 62 L. Ed. 1221, the reasonableness of a practice of routing shipments was held to involve preliminary administrative determination. In Western & Atlantic v. Public Service Comm., 267 U. S. 493, 45 S. Ct. 409, 69 L. Ed. 753, a bill which was filed to enjoin a state commission from enforcing an order directing a railroad to maintain service on-an industrial switch track was dismissed because the question was one which must first be presented to the Interstate Commerce-Commission. In Board v. Great Northern Ry., 281 U. S. 412, 50 S. Ct. 391, 74 L. Ed. 936, it was held that the question whether intrastate railroad rates ordered by state authority should be set aside as working unreasonable discrimination against interstate-commerce must be determined in the first instance by the Interstate Commerce Commission, and a suit to enjoin a state commission from enforcing an order as to such rates was dismissed.

In the following situations suits were allowed without preliminary resort to the Interstate Commerce Commission because pure questions of law were thought to be involved: In Pennsylvania R. R. v. Sonman Coal Co., 242 U. S. 120, 37 S. Ct. 46, 61 L. Ed. 188, the coal company sued to recover damages from the railroad on the ground that the latter had failed to supply a sufficient number of cars and had discriminated against it unjustly. It was found that conditions of traffic were normal and that the railroad had plenty of cars for the coal company if it chose to supply them. In these circumstances there was no administrative question to be passed upon. The court emphasized the fact that section 22 of the Interstate Commerce Act (49 USCA § 22) preserved such “appropriate common law or statutory remedies” as could be enforced consistently with the purpose of the act, that no administrative question was presented, and held that the claim might therefore be prosecuted without any precedent action by the Commission. In Great Northern Ry. v. Merchants’ Elev. Co., 259 U. S. 285, 42 S. Ct. 477, 66 L. Ed. 943, where the question whether a tariff established by the Commission covered a certain product involved no matters of fact as it had in Tex. & Pac. Ry. Co. v. American Tie Co., 234 U. S. 138, 34 S. Ct. 885, 58 L. Ed. 1255, but only a construction of the meaning of the word “lumber” in the tariff, a suit by a shipper to recover alleged overcharges by the railroad was sanctioned without preliminary resort to the Commission. In Tex. & Pac. Ry. v. Gulf, etc., Ry., 270 U. S. 266, 46 S. Ct. 263, 70 L. Ed. 578, a direct judicial remedy was allowed under paragraph 20 of section 402 of the Transportation Act of 1920, 49 USCA § 1 (20). In Turner Lumber Co. v. C., M. & St. Paul Ry., 271 U. S. 259, 46 S. Ct. 530, 70 L. Ed. 934, the question whether the Commission had violated the Constitution in fixing so-called penalties for demurrage of cars was held properly determinable by a court without prior resort to the Commission, since it involved the jurisdiction of that body and its right to proceed at all.

It seems evident that the Supreme Court, after first holding in the Abilene Case, 204 U. S. 426, 27 S. Ct. 350, 51 L. Ed. 553, 9 Ann. Cas. 1075, that prior resort to the Commission must be had where uniformity of rates is affected by the decision of a question of fact, has proceeded far beyond the natural limitations of such a doctrine, and has, in general, insisted upon prior resort to the Commission wherever complicated questions of fact will arise and experience in technical matters is required. Thus in Midland Valley R. R. v. Barkley, 276 U. S. 482, 48 S. Ct. 342, 72 L. Ed. 664, the carrier’s practice of distributing coal cars was involved. Though the question was not one of discrimination •or of rates, but of the reasonableness of the practice, yet prior resort to the Commission ■was held to be necessary. So in Northern Pac. Ry. v. Solum, 247 U. S. 477, 38 S. Ct. 550, 62 L. Ed. 1221, it was specifically contended that the rule which requires preliminary determination of questions by the Commission applied only to cases where a particular rate was unreasonable or a particular practice was discriminatory, but the court said, at page 483 of 247 U. S., 38 S. Ct. 550, 553: “It applies, likewise, to any practice-of the carrier which gives rise to the application of a rate.” In Board v. Great Northern Ry. Co., 281 U. S. 412, 50 S. Ct. 391, 393, 74 L. Ed. 936, where a commission of the state of North Dakota had made an order prescribing intrastate class rates and reducing the existing rates about 10 per cent., a suit was brought by the carriers against the state commission 'to enjoin enforcement of its order pending the determination by the Interstate Commerce Commission of the Question whether the intrastate, rates would cause unreasonable discrimination against interstate commerce. In discussing the powers of the Interstate Commerce Commission, the court said: “The controlling principle, * * * was derived from a consideration of the nature of the question and of the inquiry and action required for its solution. The inquiry would necessarily relate to technical and intricate matters of fact, and the solution of the question would demand the exercise of sound administrative discretion. The accomplishment of the purpose of Congress could not be had without the comprehensive study of an expert body continuously employed in administrative supervision. Only through the action of such a body could there be secured the uniformity of ruling up on which appropriate protection from unreasonable exactions and unjust discriminations must depend.” It was held that the federal court had no authority to1 enjoin the enforcement of the state order pending the determination by the Interstate Commerce Commission of the question whether the intrastate rates unduly affected interstate commerce. The question was primarily not one of discrimination, for within the state of North Dakota there would have been no discrimination. It was really whether the rates so affected interstate business as to be unreasonable under all the circumstances.

It seems evident under the most recent interpretation of the Interstate Commerce Act that questions of reasonableness and of fact affecting land carriers must first be raised before the Interstate Commerce Commission. The Sherman Act as now construed only prevents unreasonable restraints of trade. Standard Oil Co. v. United States, 221 U. S. 1, 31 S. Ct. 502, 55 L. Ed. 619, 34 L. R. A. (N. S.) 834, Ann. Cas. 1912D, 734; Am. Tob. Co. v. United States, 221 U. S. 106, 31 S. Ct. 632, 55 L. Ed. 663; National Ass’n of Window Glass Mf’rs v. United States, 263 U. S. 403, 44 S. Ct. 148, 68 L. Ed. 358. Therefore, even had the agreement set forth in the present bill related to land carriers, it would have had to be passed upon by the Interstate Commerce Commission before resort to the courts. In Keogh v. C. & N. W. Ry. Co., 260 U. S. 156, 43 S. Ct. 47, 49, 67 L. Ed. 183, it was observed that damages for the exaction of rates which the Commission had found to be illegal because unreasonably high or discriminatory would be recovered in proceedings before the Commission, and that it could not be supposed that Congress had intended to provide the shipper “with an additional remedy under the Anti-Trust Act.” In the opinion in the Keogh Case it was further observed that a combination of carriers to fix nondiseriminatory rates might still be illegal under the Anti-Trust Acts and the government might have redress by criminal proceedings under section 3 (15 USCA § 3), by injunction under section 4 (15 USCA § 4) and by forfeiture under section 6 (15 USCA § 6); but, while the approval of the rates by the Commission would not bar proceedings by the government, a private shipper who had lost the benefit of rates which except for the conspiracy he would have enjoyed, could not recover damages under section 7 of the Sherman Act (15 USCA § 15).

The decisions that the Sherman Act can be invoked by the government against combinations involving the fixing of rates by land carriers can therefore have no application to original suits by private parties, whether brought under section 7 of that act or otherwise. Actions at law under section 7 are barred by no statutory proscription such as section 16 of the Clayton Act (15 USCA § 26), which forbids injunctive relief in respect to matters “subject to the regulation, supervision, or other jurisdiction of the Interstate Commerce Commission,” but because the remedies given by the Interstate Commerce Act are exclusive. Keogh v. C. & N. W. Ry. Co., 260 U. S. 156, 43 S. Ct. 47, 67 L. Ed. 183; Central Stock Yards Co. v. Louisville & N. R. Co. (C. C.) 112 F. 823; Cohen v. Schofield, 299 Pa. 496, 149 A. 710.

The trial judge said in his opinion: “The means alleged to have been employed were unreasonably excessive differentials between contract rates and open or tariff rates, coupled with viciously discriminatory practices in applying the differentials. Shippers, in a variety of ways, were thereby coerced, it' is said, to divert general cargo from the line-of the plaintiff to the lines of the defendants. Without a scale of unreasonably high tariff.' rates or unreasonably low contract rates, the-differentials could not have existed as a device.”

If, as we believe, the foregoing analysis-of the charges in the amended bill is correct, the gravamen of the cause of action in the case at bar was the unreasonableness of the-agreed rates of carriage, which, had land carriers been concerned, would have been a matter requiring primary resort to the Interstate Commerce Commission. ■

But a reason, other than the analogy off the rule, starting with the Abilene Case, that' administrative questions must first be submitted to the Interstate Commerce Commission, required the decision of the • court below. That rule was originated by the Supreme-Court, and has been extended in scope in spite of section 22 of the Interstate Commerce Act (49 USCA § 22), prescribing that1 nothing contained therein should “in any way abridge- or alter the remedies * * *• existing at common law or by statute, but the-provisions of this act are in addition to such remedies.” The Shipping Act, on the other hand, contains no clause preserving general legal and equitable remedies, but provides ample remedies of its own. It empowers the Shipping Board under section 15 (46 USCA § 814) to approve such agreements as it shall; not find to be “unjustly discriminatory or-unfair as between carriers, shippers, exporters, importers, or ports, or between exporters-from the United States and their foreign-competitors or to operate to the detriment of the commerce of the United States, or to be in violation of this Act. * * *” The-act broadly forbids only contracts that are-“unfair or unjustly discriminatory” (section 14 [46 USCA § 812]), and the giving of “any undue or unreasonable preference or advantage” (section 16 [46 USCA § 815]). It thus seems evident that Congress has set up-a standard for the shipping business quite-different from that applicable to trade agreements affecting business on land. Approval-under section 15, supra, does not depend on whether a trade agreement fixes rates or restricts competition, but on whether it injures the welfare of the industry. The determination of whether an agreement fixing rates is for the benefit of the industry or is an unreasonable and oppressive burden which cannot be justified requires a special fact finding tribunal having an intimate acquaintance-with the needs and practices of the business ■and constant experience in resolving the merits of conflicting interests in a vast and complicated industry. We have no doubt that the questions arising in this case should be passed upon by the Shipping Board, and that the Shipping Act created a tribunal •adapted to exercise this precise function.

The most important objection to the conclusion of the trial court that the jurisdiction of the Shipping Board is primary and exclusive is due to the provision of section 15 (46 USCA § 814) of the Shipping Act that •agreements made after the organization of the Shipping Board' “shall be lawful only ■when and as long as approved by the board, •and before approval or after disapproval it shall be unlawful to carry out in whole or in part, directly or indirectly, any such agreement. * * *■” While 'section 15 excepts from the operation of the Sherman Act, and acts supplementary thereto, agreements “lawful under this section,” it excepts none other, •and, as the agreement set forth in the amended bill is alleged not to have been approved 'by the Board, it is ex vi termini unlawful.

It is said that the foregoing clause leaves •a private suitor free to seek an injunctive remedy under the Clayton Act so long as the agreement has not been filed and approved. Doubtless the government would have such a right, but it does not follow that •the right inheres in private persons. The Shipping Act provides complete remedies for .all the alleged wrongs, and, in the absence of investigation by the Shipping Board, it is impossible to say whether there is a substantial grievance. The exception as to “approved” agreements seems to have been inserted in the act in order to make it clear that some agreements may be sanctioned by the Shipping Board which would offend the Anti-Trust Acts, rather than for the purpose ■of retaining remedies which under the Interstate Commerce Act (49 USCA § 1 et seq.) and the Packers & Stockyards Act (7 USCA § 181 et seq.) have been held to be superseded by remedies afforded by those acts. Keogh v. C. & N. W. Ry. Co., 260 U. S. 156, 43 S. Ct. 47, 67 L. Ed. 183; Sullivan v. Union Stockyards Co. (C. C. A.) 26 F.(2d) 60.

Section 15 of the Shipping Act (46 USCA § 814) provides that every carrier by water “shall file immediately with the board a true copy, or, if oral, a true and complete memorandum, of every agreement, with another such carrier * * * to which it may be a party * * * fixing or regulating transportation rates or fares; giving or receiving special rates, accommodations, or other special privileges or. advantages; controlling, regulating, preventing, or destroying competition; * * * or in any manner providing for an exclusive, preferential, or cooperative working arrangement. * * *” The Board shall approve such agreements as it does not find “to be unjustly discriminatory or unfair.” Section 14 (46 USCA § 812) prohibits agreements to allow “deferred rebate" and likewise prohibits “unfair or unjustly discriminatory” contracts with shippers “based on the volume of freight offered.” Section 16 (46 USCA § 815) provides that it shall be unlawful for any common carrier “to make or give any undue or unreasonable preference or advantage to any particular person, locality, or description of traffic in any respeet whatsoever, or to subject any particular person, locality, or description of traffic to any undue or unreasonable prejudice or disadvantage in any respeet whatsoever.” Section 17 (46 USCA § 816) prohibits carriers by water from demanding any rate that is “unjustly discriminatory” and authorizes the Board to make orders to discontinue charging such rates.

It appears from the foregoing that the failure to secure the approval of such an agreement as is alleged, the granting of deferred rebates, the alleged spreading of false rumors about the business of the plaintiff, and the persuasion of shippers to cancel existing contracts with it, are all forbidden by the Shipping Act, and come either within its express prohibitions or within the general language of section 16 (46 USCA § 815), which makes it unlawful “to subject any particular person * * * to any undue or unreasonable prejudice or disadvantage in any respeet whatsoever.”

Section 17 (46 USCA § 816) specifically authorizes the Board to order that a carrier discontinue “any * ■* * unjustly_discrim-inatory or prejudicial rate.” Section 22 (46 USCA § 821) allows “any person” to file with the Board a complaint setting forth “any violation of tfie Act” by a common carrier by water and asking reparation for the injury, if any, caused thereby. It provides that the Board shall “investigate it in such manner and by such means, and make such order as it deems proper.”

The words of section 22 (46 USCA § 821) authorizing the Board upon complaint and investigation to “make such order as it deems proper” and to “direct the payment * * * of full reparation,” and the words of section 17 (46 USCA § 816) authorizing the Board to make an order that the carrier shall discontinue charging any “unjustly discriminatory or prejudicial rate, fare, or charge,” afford ample remedies for all the, •wrongs recited in the amended bill., Section 29 (46 USCA § 828) covers the enforcement of orders of the Board against recalcitrant persons and provides that any party injured by the violation of an order “may apply to a district court having jurisdiction of the parties; and if, after hearing, the court determines that the order was regularly made and duly issued, it shall enforce obedience thereto by a writ of injunction or other proper process, mandatory or otherwise.” Section 31 (46 USCA § 830) makes the judicial procedure in regard to orders of the Interstate Commerce Commission applicable to orders of the Shipping Board.

We believe we have shown that, where a tribunal like the Shipping Board has been created with supervisory powers over a business and with peculiar facilities for dealing with complicated questions of administration and economies, the remedies afforded under the aet creating it ought to be exhausted before recourse may be had to the courts.

The Shipping Board may determine whether any agreement such as is described in the bill has actually been made, and, if it has, may order it filed and require the parties to cease from acting under it unless and until it is approved. Under section 22 of the aet (46 USCA § 821) the Board may award reparation to the plaintiff for any wrongs it has suffered because of practices forbidden by sections 14 and 16 and under section 17 (46 USCA § 816) may require the defendants to discontinue any unjustly discriminatory rates. Proof of the existence and extent of the grievances complained of will require investigations in a special field demanding expert knowledge. The alternative to proceeding before the Board seems appalling. In every ease where complaints like the present are made by private persons, it would be necessary for a court to enter upon the trial of an anti-trust suit in order to determine whether the alleged illegal combination and practices exist and at any moment to become substantially ousted of jurisdiction by the filing of the agreement (if shown to have been entered into), with a resultant reference to the Shipping Board of the question as to how far it should be canceled, modified, or approved. It is difficult to suppose that Congress ever intended to give private parties two sets of remedies, under each of which reparation as well as other relief might be had, and still harder to imagine that these remedies might be pursued pari passu. If suits for violations of the Anti-Trust Acts cannot be brought either at law or in equity against land carriers, though the Interstate Commerce Aet has in terms preserved judicial remedies, it is hard to see why they may be brought against ocean carriers, where the .Shipping Aet contains no such reservation and has provided for the approval of agreements which, at least so far as the parties are concerned, may not accord with the requirements of the Anti-Trust Acts.

No doubt, if the allegations in the amended bill are' found to be correct, the Anti-Trust Acts have been violated, but the . Shipping Act has been violated as well. Though the remedies under the Anti-Trust Acts are thought by plaintiff’s counsel to apply, it does not follow that they do, where the frame of the Shipping Act indicates another procedure. We find that all the wrongs alleged are violations of the Shipping Act, and hold that the plaintiff must seek its remedy thereunder.

It is said that the present suit ought to- ' lie-because the Shipping Board has already held in the proceeding of Eden Mining Co. v. Bluefields Fruit & Steamship Co., 1 U. S. S. B. 41, that exclusive contracts similar to those set forth in the amended bill are-unlawful. It is true that certain decisions-under the Interstate Commerce Aet to some-extent support this reasoning. Mitchell Coal Co. v. Penna. R. R. Co., 230 U. S. 247, 33 S. Ct. 916, 57 L. Ed. 1472; National Pole Co. v. Chicago & N. W. Ry. Co. (C. C. A.) 211 F. 65. But the Interstate Commerce Aet preserved legal and equitable remedies,whereas the Shipping Act contains no such reservations, and prior resort should be had to it as to all matters within its jurisdiction. Moreover, without having a burdensome trial, it is impossible to know whether the situations in the Eden proceeding and the present suit are parallel. Certainly they are -prima facie much less comparable than eases relating to rates of transportation for identical' services, where in one of them the rate-making function has already beqn exercised, as in Mitchell Coal Co. v. Penna. R. R., supra. The difficulty with treating a single decision of the Shipping Board as a binding precedent, where it deals with a rate agreement involving complicated and difficult questions of law and fact, may be appreciated by exam-fining the opinion of Judge Lacombe in United States v. Prince Line (D. C.) 220 F. 230, in which the three other Circuit Judges •of this circuit concurred. It held that an •extensive combination of steamship companies, which had agreed upon rates, restricted •competition, and even granted rebates, was .not so far repugnant to the “rule of reason” that it violated the Sherman Act. Irrespective of the legal merits of that decision as a precedent for the construction of the Sherman Act, it certainly indicates how slight a •basis the interpretation of a single trade ■agreement furnishes for settling the law relating to other combinations. Especially is this so since the creation of the Ship- ■ ping Board and the delegation to it of broad powers to approve trade agreements which will benefit the shipping business as a whole.

It may possibly be suggested that the facts set forth in the amended bill have been .admitted on demurrer and that consequently no administrative questions are left for determination by the Shipping Board. But the Shipping Act, as we have already said, does . not provide that nothing* contained therein ' “shall in any way abridge or' alter the rem- • edies * * * existing at common law or by statute,” but, by its own terms, empowers the Board to “make such order as it deems proper” to remedy private wrongs and also ■ empowers any injured person to apply to the courts for enforcement of orders of the Board which are not obeyed. Not only, therefore, may the Board consider and determine •questions of law as well as of fact affecting matters within its jurisdiction, but admissions taken to be made because of the motion to dismiss, which was founded primarily • on the objection that the plaintiff had no right to apply for an injunction in advance •of resort to the Shipping Board, cannot justify the continuance of the present suit. It is notorious that such charges as are made here are not disposed of by admissions, but •in the end result in protracted trials and in the resolution of complicated problems, and •disputed questions of fact and economics. A choice must be made between the two possible ■remedies of a suit under the Anti-Trust Acts and a proceeding before the Shipping Board. Every practical consideration favors resort to a tribunal specially equipped and experienced to deal with such matters. The Shipping Board seems to have been designed to aid the courts and to relieve them by its investigation and preliminary determination. We think that every reason of policy and convenience should prompt the courts to “take arms against a sea of troubles” by requiring resort to the Shipping Board in situations like the present. That tribunal has exclusive jurisdiction here, because of the nature of the questions involved and the broad powers given to it under the act.

It is argued that private suits for violation of the anti-trust statutes ought to lie by the analogy of the decisions under the Eederal Trade Commission Act (15 USCA §§ 41-51). But that act not only in terms preserves remedies under the Anti-Trust Acts, as the Shipping Act does not, but, under the ruling of the Supreme Court, is held not to afford private persons an administrative remedy. The analogy therefore fails. Federal Trade Comm. v. Klesner, 280 U. S. 19, 50 S. Ct. 1, 74 L. Ed. 138, 68 A. L. R. 838.

It seems clear that any disposition of this suit other than that by the court below would not only add enormously to judicial labors, but would hopelessly complicate the situation we have before us by applying ,two separate and in some respects inconsistent remedies to transactions already difficult enough in themselves. We hold that the analogy of the decisions under the Interstate Commerce Act is complete, and that the broad powers given by the Shipping Act furnish added reasons for denying injunctive relief.

The decree is affirmed.

SWAN, Circuit Judge

(dissenting).

I am not convinced that the Shipping Act (46 USCA § 801 et seq.) should be construed to oust the courts of jurisdiction to issue an injunction under the circumstances here disclosed. The agreement under which the carriers acted and are threatening to act to plaintiff's prejudice has not been filed with and approved by the Board. Hence the acts doné under it are forbidden by the Shipping Act as well as by the Sherman AntiTrust Act (15 USCA §§ 1-7, 15). Conceded-1 y, on the facts alleged, the plaintiff should have an injunction unless this remedy has been taken away from him because similar relief may be obtained from the Shipping Board. The act does not expressly repeal existing rights and remedies, and repeals by implication are not favored. An injunction forbidding the carriers from acting under the agreement unless and until they shall file it and obtain the Board’s approval of it would in no way hamper the Board’s administrative functions; indeed, under the allegations of the complaint (admitted by the demurrer), the Board could not legally approve the agreement, nor can I see that such an injunction would he inconsistent with the rights and remedies given the plaintiff by the Shipping Act. The attempt to apply the principle that repeals by implication are not favored leads me to the belief that the similar injunctive relief which I have assumed the plaintiff might obtain from the Board, though the language of the act does not seem to be so clear as to put the matter entirely beyond question, should be considered an additional remedy, not a remedy in substitution for that which the plaintiff might seek in the courts. While the construction placed by the Supreme Court on the Act to Regulate Commerce in such cases as Keogh v. C. & N. W. Ry. Co., 260 U. S. 156, 43 S. Ct. 47, 67 L. Ed. 183, and Texas & Pac. Ry. v. Abilene Cotton Oil Co., 204 U. S. 426, 27 S. Ct. 350, 51 L. Ed. 553, 9 Ann. Cas. 1075, tends to support the view taken by my colleagues, I do not regard the decisions as controlling of the present problem. In the Keogh Case the rates complained of as violating plaintiff’s rights had been approved by the Interstate Commerce Commission, and in the Abilene Case the tariff schedule had been duly filed and published and not found unreasonable by the Commission. In the ease at bar, however, the agreement complained of has not been, and cannot legally be, approved by the Shipping Board. I think the decree should be reversted.


source: Caselaw Access Project

author: MANTON, Circuit Judge.

license: Public Domain

text:
    BURROWES v. GOODMAN.
    No. 379.
    Circuit Court of Appeals, Second Circuit.
    May 18, 1931.
    Herman C. Pollack, of New York City, for appellant.
    Mackey & Marchisio, of New York City (Francis L. Driscoll and Richard J. Mackey, both of New York City, of counsel), for appellee.
    Before MANTON, L. HAND, and CHASE, Circuit Judges.
   MANTON, Circuit Judge.

Summary judgment, on a motion therefor, was obtained against appellant, on a complaint alleging a personal liability as a stockholder of the First National Bank of' Dunn, N. C., pursuant to the National Banking Law (sections 5151, 5234, Rev. Stat. [12 USCA §§ 63, 192]; section 1, c. 156, Act of June 30, 1876 [12 USCA § 191]; section 23,. Federal Reserve Act [38 Stat. 251, 12 USCA § 64]). The appellee was appointed receiver pursuant to section 5234 of the Revised Statutes. The appellant is the executrix under the will of Harry Goodman by appointment of the register of wills of Philadelphia-county, Pa. All the property of the estate is-in Pennsylvania. Her testator owned tern shares of stock of the par value of $100. On. December 31, 1928, the Comptroller of the-Currency levied an assessment against the-stockholders of the bank, payable February 7, 1929, and the amount - of the assessment levied against the appellant’s testator was-$1,000.

The’ appellant, as executrix, appeared generally in- the suit brought to recover this sum, and the court below held that jurisdiction of the appellant might be sustained. Appellant being a Pennsylvania executrix, by appointment, argues that she might be sued only in Pennsylvania. But the question is presented as to whether a foreign executrix,, having entered a general appearance, may submit to the jurisdiction of a court outside the district where she has been appointed to administer the estate. There is no statute in New York authorizing suit by or against a foreign executor. Section 160 of the Decedent’s Estate Law of New York (Consol, Laws, c. 13) was repealed by chapter 660 of the Laws of 1926. In Lawrence v. Nelson, 143 U. S. 215, 12 S. Ct. 440, 36 L. Ed. 130, doubt was expressed as to the validity of an administrator’s appearance. The judgment entered, however, was supported because later the administrator filed a bill of review under the local statute of Arkansas and a decree thereon was entered which confirmed the original decree. But that decision does not authorize a foreign executrix to consent to be sued. The same may be said of the appellee’s other authority to which we are referred. Helme v. Buckelew, 229 N. Y. 363, 128 N. E. 216. A foreign executor filing a complaint for an accounting was held subject to a decree against him, as parties are held in sucli a proceeding. Lackner v. McKechney, 252 F. 403 (C. C. A. 7).

Ordinarily an executrix’ office is conferred by the appointing judge and is limited to the confines of the domiciliary jurisdiction. To obtain standing in another jurisdiction, in another state, he must have the permission of the laws of that state. His recognition to title or assumption of obligation is by consent of the state or through ancillary letters. With no recognition accorded by New York state, appellant could not sue and she cannot force herself upon the court’s jurisdiction. Moore v. Mitchell, 281 U. S. 18, 50 S. Ct. 175, 74 L. Ed. 673. In the Moore Case, an action was brought by a county treasurer of Indiana in the United States District Court of the Southern District of New York. The trial court dismissed the complaint [28 F.(2d) 997], which dismissal was affirmed by this court [39 F.(2d) 600, 65 A. L. R. 1354], and on appeal to the Supreme Court it was held that, so far as a county treasurer’s capacity to sue goes, the District Court is indistinguishable from the New York courts. “He * * * has no better standing to bring suits in courts outside Indiana than have executors, administrators, or chancery receivers without title, appointed under the laws and by the courts of that state. It is well understood that they are without authority, in their official capacity, to sue as of right in the federal courts of other states. From the earliest times, federal courts in one state have declined to take jurisdiction of suits by executors and administrators appointed in another state.” In McMaster v. Gould, 240 N. Y. 379, 148 N. E. 556, 558, 40 A. L. R. 792, it was held that the power to grant an order of continuance without the executor’s consent could not be sustained. Speaking of section 160 of the Decedent’s Estate Laws as amended, the court said it gave sueh power, but it was unconstitutional, saying: “Regarding the foreign executor as a trustee rather than as an owner,■ even his presence in the state as an individual does not imply his presence as executor unless assets in the state or other trust duties to be performed here makes his presence an incident of his fiduciary capacity, and , he must be present in the state as executor before judgment in personam can be entered against him.” In an action by a resident creditor to have assets in New York state administered and applied to the satisfaction of his debts, where the foreign executrix was made a party and on her death the administrator with the will annexed, the state court in New York said that the judgment recovered “will bind the foreign administrator only to the extent of its interest in the res in the state of New York, which is the subject of the action.” Thorburn v. First Nat. Bank of Port Arthur, Texas, 232 N. Y. 544, 545, 134 N. E. 565. In the absence of property of the estate within the court’s jurisdiction, sueh a judgment may not be rendered. Helme v. Buckelew, 229 N. Y. 363, 128 N. E. 216; Jefferson v. Beall, 117 Ala. 436, 23 So. 44, 67 Am. St. Rep. 177; Greer v. Ferguson, 56 Ark. 324, 19 S. W. 966; Gordon v. Estate of Simonton, 10 Fla. 179; Judy v. Kelley, 11 Ill. 211, 50 Am. Dec. 455; Elting v. First Nat. Bank, 173 Ill. 368, 50 N.E. 1095; Rentschler v. Jamison, 6 Mo. App. 135; Braithwaite v. Harvey, 14 Mont. 208, 36 P. 38, 27 L. R. A. 101, 43 Am. St. Rep. 625; Flandrow v. Hammond, 13 App. Div. 325, 43 N. Y. S. 143. Restatement of conflict of law, § 589: “The appearance of a foreign administrator * * * does not render the judgment‘binding against him in his representative capacity, or provable against the estate of which he is administrator.”

The only way a foreign executor can be present is by the granting of ancillary letters. Since the court below ‘did not have jurisdiction of the appellant, it was error to grant summary judgment.

Judgment reversed.


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    In re BANKSHARES CORPORATION OF THE UNITED STATES.
    No. 360.
    Circuit Court of Appeals, Second Circuit.
    June 1, 1931.
    Falk & Orleans, of New York City (Ilo Orleans and Arnold Dumey, both of New York City, of counsel), for appellant.
    Javits & Javits, of New York City, and McCarter & English, of Newark, N. J. (J. K. Javits, of New York City, of counsel), for Irving Trust Co., trustee in bankruptcy.
    Before MANTON, SWAN, and CHASE, Circuit Judges.
   MANTON, Circuit Judge.

The Bankshares Corporation of the United States, a New Jersey corporation, carried on business and had property within .the jurisdiction of the District Court for the Southern District of New York. On May 12, 1930, the Chancery Court of New Jersey appointed Samuel I. Kessler receiver of that corporation. An involuntary petition in bankruptcy was filed by three creditors, to which consent was given by the directors through their attorney, in the Southern district of New York, on the 6th of June, 1930, and a receiver in bankruptcy was appointed. The consent given by the attorney for the bankrupt, acting under a resolution of the board of directors of the bankrupt certified by its secretary, admitted its inability to pay its debts and its willingness to be adjudged a bankrupt.

The chancery receiver, in a petition to intervene, challenges the authority and right of the board of directors to give this consent after the Chancery Court in New Jersey has acted. The decree entered in the Chancery Court in New Jersey provided:

“Ordered, adjudged and decreed that the business of the Bankshares Corporation of the United States has been and is being conducted at a great loss and greatly prejudicial to the interests of its creditors and stockholders, so that its business cannot be conducted with safety to the public and advantage to the stockholders, and that an injunction issue against the defendant corporation, according to the bill of complaint, and that the said Bankshares Corporation of the United States, its officers, servants and agents absolutely desist and refrain and they are hereby enjoined and restrained from exercising any of its priviliges or franchises, and from collecting or receiving any debts, or paying out, selling, assigning or transferring any of its estate, moneys, funds, lands, tenements, or effects except to a Receiver appointed by this Court. * * *”

A receiver may be appointed for a solvent corporation, under the New Jersey statute, and the order appointing such receiver there recited “that the business of the Bankshares Corporation of the United States has been and is being conducted at a great loss and greatly prejudicial to the interests of its creditors and stockholders, so that its business cannot be conducted with safety to the public and advantage to the stockholders.”

General Corporation Act of New Jersey (Laws 1896, c. 185, p. 298) § 66, and section 65 as amended by Laws 1912, c. 300, p. 535, § 1 (Comp. St. Supp. N. J. § 47 — 65), provide for the appointment of a receiver, 'the powers of such receiver, and the issuance of an injunction against the corporation enjoining its officers, servants, or agents from carrying on the business authorized by the corporation to be carried on or from collecting or receiving any debts, or paying out, trans-' ferring, or selling its property.

Assuming the position that the receiver is the corporation, the appellant argues that the receiver alone may consent to the adjudication in bankruptcy, and that he alone may contest, in behalf of the corporation, the issue of insolvency which he wishes to. have presented to the District Court for the Southern District of New York. He maintains that the board of directors had no authority to meet and give consent to the adjudication and refers us to the following authorities: Cavagnaro v. Indian Tire & Rubber Co., 90 N. J. Eq. 532, 107 A. 643, In re Gold Run Mining & Tunnel Co., 200 F. 162 (D. C., Colo.), and Matter of Hudson River Electric Power Co. (D. C.) 173 F. 934.

The New Jersey receiver as such Las no standing to intervene in the District Court for the Southern District of New York. Moore v. Mitchell, 281 U. S. 18, 50 S. Ct. 175, 74 L. Ed. 673; Burrowes v. Goodman (C. C. A. 2) 50 F.(2d) 92, decided May 18, 1931. The injunction issued against the board of directors by the New Jersey Chancery Court does not extend beyond the jurisdiction of that court. The corporation had its prideipal place of business within the-Southern district of New York, and the directors met there and passed a resolution authorizing its attorney to consent to the adjudication in bankruptcy. See Bonnifield v. Thorp (D. C. Alaska) 71 F. 924. The Bankruptcy Act is paramount. In re Watts & Sachs, 190 U. S. 1, 23 S. Ct. 718, 47 L. Ed. 933. The New Jersey act is not in conflict with the provisions of the Bankruptcy Act. There is no provision of the Bankruptcy Act which exempts a New Jersey corporation from an adjudication thereunder merely because of insolvency proceedings resulting in a receivership, pending in the state of its creation. No state enactment may limit the jurisdiction of the bankruptcy court. International Shoe Co. v. Pinkus, 278 U. S. 261, 49 S. Ct. 108, 73 L. Ed. 318. By section 68 of the New Jersey Corporation Law (Laws 1896, c. 185, p. 299, § 68 [2 Comp. St. N. J. 1910, p. 1644, § 68]), all the property of an insolvent corporation, wherever situated, vests in the receiver upon appointment, and the corporation is divested of title thereto. But nothing therein contained can extend beyond the territorial limits of the state of New Jersey. We think that Vice Chancellor Lane in Cavagnaro v. Indian Tire & Rubber Co., supra, recognized this limitation. See Shachat v. Standard Auto Supply Co., 106 N. J. Eq. 105, 150 A. 183; Singer v. Nat. Bedstead Mfg. Co., 65 N. J. Eq. 290, 55 A. 868. As stated by Van Syckel, J., in Reynolds v. Stockton, 43 N. J. Eq. 211, 215, 10 A. 385, 386, 3 Am. St. Rep. 305: “The receiver had no power to transfer to a foreign jurisdiction any question touching the appropriation and distribution of such assets. He could not thus deprive the court which appointed him of its authority over him, and over the fund which he held as its officer.” Affirmed 140 U. S. 254, 11 S. Ct. 773, 35 L. Ed. 464.

But it is argued that the receiver occupies a dual capacity — as receiver and as representative of the corporation. He receives his authority to represent the corporation only by virtue of his appointment. The territory in which he may aet as such representative is necessarily limited to the jurisdiction of the court appointing him. The appointment of a receiver under the New Jersey aet does not dissolve the corporation. Second Nat. Bank of Patterson v. New York Silk Mfg. Co., 11 F. 532 (C. C. N. J.); Barthen v. Lodi Corporations, 94 N. J. Eq. 177, 119 A. 189. Any aet done by the hoard of directors beyond the jurisdiction of the Chancery Court of New Jersey is not a nullity.' Standard Roller Bearing Co. v. Hess-Bright Mfg. Co., 264 F. 516 (D. C. Del.), affirmed 275 F. 916 (C. C. A. 3). In Struthers Furnace Co. v. Grant, 30 F.(2d) 576 (C. C. A. 6), the state court receiver sought to intervene for the purpose of vacating an adjudication in bankruptcy, and advanced the claim that the corporation had consented in the state receivership to bar itself from entering into a voluntary bankruptcy petition under section 4a of the Bankruptcy Act, 11 USCA § 22 (a). But this contention was overruled. In that case, the Ohio state statute for the appointment of a state receiver vested all the property of the corporation with such receiver, and the receiver was no mere custodian, but had full power to aet for the corporation. Throckmorton’s Ohio Code (1926), § 11945, Rev. St. § 5658; section 11897, Rev. St. 5590. A bankruptcy petition will supplant a state court receiver on application therefor. In re Dressier Producing Corp., 262 F. 257 (C. C. A. 2). The authorities appellant relies on, referred to above, are not inconsistent with these views.

The chancery receiver has no standing to intervene, either as such receiver or upon the basis of representative of the corporation under the New Jersey statute.

The order is affirmed.


author: SWAN, Circuit Judge.

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    THE ARABIC.
    No. 215.
    Circuit Court of Appeals, Second Circuit.
    June 1, 1931.

      Burlingham, Veeder, Fearey, Clark & Hupper, of New York City (Chauncey I. Clark and Paul Tison, both of New York City, of counsel), for appellant.
    Bigham, Englar, Jones & Houston, of New York City (Leonard J. Matteson, of New York City, of counsel), for appellee Clayton.
    Haight, Smith, Griffin & Deming, of New York City (James McKown, Jr., of New York City, of counsel), for appellee Borton.
    Loueks, Connet & Cullen, of New York City (J. Harvey Tumure and Dorman T. Connet, both of New York City, of counsel), for appellee McCague.
    Joseph P. Nolan, of New York City (Frank T. Hendl, of New York City, of counsel), for appellee Schmid.
    Before MANTON, SWAN, and AUGUSTUS N. HAND, Circuit Judges.
   SWAN, Circuit Judge.

The facts out of which this proceeding arose and upon which the District Court predicated fault on the part of the vessel and her owner are stated in the opinion of Judge Thaeher, reported under the title of The Arabic (D. C.) 34 P.(2d) 559. It is unnecessary to repeat them here. He held that the question of faulty navigation depended upon what the navigators of the Arabic knew, or should have known, of the approach of the hurricane, because it was admitted by her master that, had he known of it, good seamanship required him to head for deeper water. Upon the evidence adduced, the judge found that, if the wireless operator Marsh had been attentive to his duties, he would have received the warning of the approaching hurricane that was broadcast from the Arlington Station on the evening of August 25th, but that he either failed to receive it or failed to report it to the ship’s officers. The officers were also criticized for remaining indifferent to the fact that the weather bulletins broadcast from Arlington were not reported to them, and making no effort to obtain the information from other stations.

The appellant would have us reverse these findings of fact that the ship was at fault in not having obtained radio bulletins of the approaching hurricane; but the record sustains them. Marsh, the senior wireless operator, was on watch from 8 to 12 on the evening of August 25th and from 8 to 12 on the following morning. It was during his watches that the Arlington bulletins were broadcast. He testified that reception was all right on the night of the 25th, but very bad on the following morning. While he was positive he had received no weather reports on the 26th, he could not remember whether or not he had received any on the evening before. Hence his general denial that he had not received any warning of the hurricane is of no avail, for, on his own testimony that reception was good on the 26th, he should have received it if attentive to his duties. Kill, another wireless operator, was on duty from 4 to 8 p. m. on the 25th and 4 to 8 a. m. on the 26th. Reception during his watches was “quite satisfactory.” Yet no effort was made during his morning watch to seeure weather reports, despite the fact that no Arlington bulletin for the previous evening had been communicated to the navigating officers and despite.unmistakable signs of an approaching storm, the barometer having fallen 17 points between 2 and 8 a. m., and 10 points of the drop having occurred during the last two hours of that period. Doubtless Captain Hickson thought his ship,large enough to ride out any storm he would meet on this coast, but he must be charged with any information which should have been received, and on his own statement knowledge of the approaching hurricane would have required him to seek deeper water. While it is true that, even had he done so, the vessel might not have avoided disaster from the terrific storm, nevertheless it was a fault not to do so and this fault caused the vessel to be where she was when the destructive waves went over her; hence the causal relation between the fault of navigation and proximate damages sustained by passengers from the tremendous seas is established. The appellant’s claim to exoneration from liability for faulty navigation cannot prevail.

It is further contended by appellant that the passengers cannot recover because their injuries resulted from their own negligence in getting into positions of danger in disregard of warnings given them. See Elder Dempster Shipping Co. v. Pouppirt, 125 F. 732 (C. C. A. 4); The Tourist, 265 F. 700 (D. C. Me); The Empress of Scotland (D. C.) 11 F.(2d) 783, affirmed 24 F.(2d) 1018 (C. C. A. 2). The appellees, on the other hand, deny assumption of risk or contributory negligence, and assert a failure by appellant to give adequate warnings of danger as an additional ground of liability. These questions were not passed upon by Judge Thacher, who referred to a commissioner the validity of claims of passengers as well as the proof of damages. Such action has been assigned as error by the appellees. The merits of their several claims have been briefed and argued, and should be settled now rather than postponed to a possible later appeal. We shall therefore consider the evidence of warnings and the contention that the appellees disregarded them.

Mrs. Clayton’s claim: She left her stateroom when water rushed in, causing her and her husband to fear they would “drown like rats in a trap.” She went into an adjacent room, where she sat upon .a bed, holding onto the foot of it, as the Arabic had taken a serious list to port. When another great wave hit the vessel, her hold was loosened and she was thrown across the room, sustaining injuries which confined her to a hospital for two weeks after she reached New York. It is said her injuries would have been avoided had she remained in her berth in her own stateroom; but surely there is no contributory negligence or assumption of risk when a frightened passenger under sueh circumstances leaves her cabin in search of greater safety. No orders had been issued requiring passengers to remain in their rooms, and the steward’s testimony that he had previously tucked her in her berth and asked her to stay there cannot be taken as a warning not to leave under any circumstances.

Mrs. Schmid’s claim: She was standing in a vestibule on B deck holding onto a rail and looking out at the storm, when a wave crashed through the door and carried her down the stairway. There is no evidence that she had been warned not to stand up or move about inside the ship. She saw many passengers sitting or lying on the floor, but at least one passenger was standing near her. The danger that a wave might crash through a closed door was not so obvious to an inexperienced passenger as to make it negligence to be where she was.

Mrs. Taube’s claim: This claim is not substantially different from that of Mrs. Schmid. She left her room on the E deck to seek a stewardess. Seeing water coming down the stairway, she became frightened and started to go up to the lifeboats on the top deck. As she reached B deck she was knocked down and injured by a wave which crashed through a door. She had received no warning to stay in her room.

Miss Borton’s claim: This passenger was injured by a big sea while sitting in her usual deck chair on B deck. There is testimony by numerous officers and employees of the ship that orders had been given to passengers to stay inside, but the testimony does not show a very well-organized scheme for keeping the passengers in, although it seems likely the orders reached most of them. Miss Borton and Williams, who was sitting beside her, admit that they had been ordered off the A deck, but assert that no one warned them against the B deck' either before or after they sat down. They sat there about fifteen minutes before the accident and saw several other passengers sitting on the deck. While some of the deck chairs had been stacked and lashed, others had been allowed to remain in their accustomed position and constituted an implied invitation to use them unless an order to the contrary or knowledge of the danger was clearly brought home to the passengers using them. Miss Borton testified that she had no idea there was danger in occupying her chair, and that she had neither received any warning not to do so, nor heard warnings given to any one else. "She is not chargeable with assumption of risk or contributory negligence.

Miss MeCague’s claim: This young woman sustained her injuries by being washed under a lifeboat on the after part of the A deck. After luncheon she and her companion, Miss Hurst, had attempted to go to the forward end of the A deck. A deck steward warned them away. They then went aft, and a passenger obtained chairs for them which were placed near the skylight on the starboard side of the after end of the deck. Other passengers were on the deck and in the veranda café. The claimant and Miss Hurst testify that they were not warned of danger on the after end of the deck. Several witnesses for the ship testified to giving such warnings. But they could scarcely have been given in such a manner as to bring home to these inexperienced travelers an appreciation of the danger of their position. It seems far more probable that these young women did not have adequate warning than that they consciously disobeyed orders and placed themselves in a position of known danger. First Officer MacDonald, who, among others, testified to warning them, said, “I just simply passed the remark to them that they were looking for trouble if they were going to stay there.” He did not tarry to see whether they acted upon his advice (it can scarcely be called an order). A master is in supreme command of his ship, and should make plain his orders for the safety of passengers and see that they are carried out. Although Miss MeCague’s case is more doubtful than that of the others, we find that she too was free from contributory negligence.

Ticket clauses: At the trial appellant offered in evidence the passage tickets of the appellees. Objection was made to their admission as not within the pleadings, and leave was denied to amend. .They were received in evidence “conditionally” with the statement that the court would later rule as to them, but subsequently such ruling was reserved until the commissioner should report upon the legal effect of the ticket clauses. The appellant has not argued the validity of the ticket clauses on this appeal nor informed us of the particular clauses upon which it desires to rely. In so far as the ticket clauses are supposed to present a complete defense to the appellant’s liability to the appellees, they should be disposed of on the present appeal; in so far as they are relied upon as limiting the amount of recovery for injury to baggage, their legal effect (and the failure to plead them) may be considered on the reference on damages. The clause which attempts to secure exemption from liability for negligence and the clause which requires notice of suit to be given within three days after landing are invalid within our decision in Oceanic Steam Navigation Co. v. Corcoran (C. C. A.) 9 F.(2d) 724, 57 A. L. R. 163.

With respect to the claims of appellees Borton, Clayton, Schmid, Taube, and Mc-Cague, the decree is modified so as to refer to the commissioner only questions as to the amount of their proximate damages; in all other respeets the decree is affirmed.


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    WARREN & ARTHUR SMADBECK, Inc., v. HELING CONTRACTING CORPORATION.
    Nos. 391, 392.
    Circuit Court of Appeals, Second Circuit.
    June 1, 1931.

      Haight, Smith, Griffin & Deming, of New York City (John W. Griffin, Wharton Poor, and James McKown, Jr., all of New York City, of counsel), for appellant.
    Samuel J. Rawak, of New York City, for appellee.
    Before MANTON, SWAN, and CHASE, Circuit Judges.
   MANTON, Circuit Judge.

Appellee’s dredge was chartered, under contract dated September 5, 1928, for use in dredging sand used for making land on Long Island. She was delivered at Mastick, Long Island, on the 17th of September, 1928, and was used off and on until November 5,1928, when she was destroyed by fire, together with a barge which we find was not the subject of the charter, but which the appellee consented appellant might use. There was some oil on the barge at the time, which was used by the appellant, and, it is claimed, was not paid for. It became necessary to make repairs and supply new parts to the dredge because her machinery broke down from time to time.

The charter contained the following provision : “Twenty-second: The charterer agrees to always maintain the dredge, wherever located, in good operating condition, the usual wear and tear excepted. In the event of the loss of or damage to said dredge by reason of fire and/or other casualties during the pendency of this charter, or any extensions thereof, this charter or any extension thereof shall continue in full force and effect in so far as the obligations of the charterer are concerned.”

The cause of the fire was unknown. The court below held the appellant responsible for the loss because it had failed to return the dredge at the end of the charter period and 'that the failure to do so imposed on the charterer an absolute liability to pay for the vessel; that the burden of proving the cause of the fire, or negligence in the care of the vessel rested on the appellant. Moreover, it held that there was no agreement to suspend the obligations of the charterer even though a fire destroyed it. The court held that the barge had been taken from the possession of the appellee wrongfully and that the appellant was therefore responsible for its destruction.

The proof shows that the- shipowner prepared this charter, and liability is attempted to be imposed under the provision quoted above. There is no clause in the charter which holds the charterer liable as an insurer against fire, and no provision should be read into it reaching that result unless it be stated clearly and in unambiguous language. Whenever a-charterer has been held responsible, it has appeared that he has promised to return the barge in the same condition as received with the usual wear and tear excepted and has failed to show that his care of the vessel excuses him. Sturm v. Boker, 150 U. S. 312, 14 S. Ct. 99, 37 L. Ed. 1093; Shamrock Towing Co. v. City of New York, 32 F.(2d) 684 (C. C. A. 2); Kohlsaat v. Parkersburg & Marietta Sand Co. (C. C. A. 4) 266 F. 283, 11 A. L. R. 686; Mulvaney v. King Paint Mfg. Co., 256 F. 612 (C. C. A. 2). A mere promise to return in like condition does not impose an absolute obligation and is conditioned upon the continued existence of the vessel. Under the provision of this charter (clause 21), delivery was fixed at Mastic, N. Y., “at the termination of this charter or any extensions thereof, or, if the dredge is not at Mastie, N. Y., at the expiration of this charter or any extension thereof, the charterer agrees to tow or to cause the dredge to be toyred to any point named by the owner equal to the distance which the dredge then, is from Mastic, N. Y.” _ -

The ease of Sun Printing & Publishing Ass’n v. Moore, 183 U. S. 642, 22 S. Ct. 240, 46 L. Ed. 366, contained a provision whereby the charterer assumed liability as an insurer.. Wandell v. New Haven Trap Rock Co. (C. C. A.) 285 F. 339. But the provision (twenty-second) of the charter quoted above does not assume the obligation of an insurer against loss from fire. The phraseology of the clause is not clear, but in any cage, it does not assume the obligation of an insurer against total loss by fire destruction. There is some evidence in the record that the parties discussed the insurance on the dredge, and, although contradicted by the appellee’s witness, it was testified that the appellee agreed to insure the vessel against fire loss.

To establish liability on the part of the appellant for fire loss, it was necessary for the appellee to prove some negligence which caused the fire. Southern Ry. Co. v. Prescott, 240 U. S. 632, 36 S. Ct. 469, 60 L. Ed. 836; Cau v. Tex. & Pac. Ry. Co., 194 U. S. 427, 24 S. Ct. 663, 48 L. Ed. 1053; Memphis & C. Railroad Co. v. Reeves, 10 Wall. (77 U. S.) 176, 19 L. Ed. 909. Nor is there a presumption of negligence arising by reason of the fire. Accidental fires occur without negligence, and the occurrence of the fire does not justify the inference of negligence. In the absence of some explanation as to the origin of the fire and evidence tending to show that it was within the power of the ap^ pellant to have avoided its occurrence by the exercise of reasonable care, no presumption of negligence is raised so as to justify the imposition of liability. Moreover, the appellant submitted all the evidence within its power, and established that the dredge had worked up to 5 o’clock; that its watchman went on board the dredge after the repairmen had left that day and discovered no fire. The dredge had electrical appliances on board, and it is possible that a short circuit may have caused the fire, but, in any ease, there was no evidence to establish fault on the part of the appellant, and the cause of the fire remains unknown.

The barge was offered to the charterer at the time of the charter, and the appellant stated that it did not want it at that time. ¿Later the appellant was obliged to take off ..the cutter because it was unable to work and the barge was necessary to store it. The charterer’s superintendent sent a man to get it, telling the man to get permission from the .'owner’s representative. He could not be found. The barge was urgently needed, and the charterer’s man brought it to the dredge, and it was used to store the cutter. The owner was informed of this within the next day or two, and he acquiesced in its use and permitted it to stay there from September 24, 1928, when it was brought to the dredge, until November 5, 1928, the date of the fire. The charterer used oil from the barge. While the cutter lay on the barge; the owner was making arrangements to have it repaired. We do not agree that the charterer was told to return the barge at once. It remained there for six weeks, and apparently no demand or effort was made to recapture it, as would be expected if it was taken without permission as claimed. It was serving a useful purpose for repairing the broken-down cutter. The same reasons which exonerate the appellant from liability for the loss of the dredge, apply to the loss of the barge.

The appellant should pay the balance due of the charter hire up to the day of the fire. The various breakdowns disclosed in the record showing that from time to time the dredge was out of repair and unable to do. the appellant’s work, and the consequent loss of time was not of such great magnitude as to warrant a deduction from charter hire. The ap-pellee may have a decree for the amount thus due. It may also have a decree for such oil as was used and not paid for.

The appellant argues that the admiralty court had no jurisdiction, for the reason that the dredge had been chartered for a nonmaritime adventure in sucking sand from the bottom of the Great South Bay and discharging it on shore for the purpose of building up new land. But the charter upon which the suit rests was a maritime contract, and the admiralty court had jurisdiction. Bowers Hydraulic Dredging Co. v. Federal Contracting Co., 148 F. 290 (D. C., S. D. N. Y.), affirmed 153 F. 870 (C. C. A. 2).

Decree modified accordingly.


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    UNITED STATES v. WESTERN UNION TELEGRAPH CO. et al.
    No. 230.
    Circuit Court of Appeals, Second Circuit.
    June 1, 1931.
    George Z. Medalie, U. S. Atty., of New York City (Harry G. Herman, Asst. U. S. Atty., of New York City, of counsel), for the United States.
    Francis R. Stark, of New York City (Denis O’L. Cohalan, Francis N. Whitney, and Robert C. Barnett, all of New York City, of counsel), for appellee Western Union Telegraph Co.
    Arthur L. Shipman, of Hartford, Conn. (William Brosmith, and Robert C. Dicken-son, all of Hartford, Conn., of counsel), for appellee Northwestern Telegraph Co., etc.
    Before MANTON, SWAN, and AUGUSTUS N. HAND, Circuit Judges.
   MANTON, Circuit Judge.

The appellant sues to impress a lien for taxes due for the years 1917 to 1922 from the Northwestern Telegraph Company upon funds in the possession of the Western Union Telegraph Company, which, by agreement, the latter paid to the shareholders of the former. The shareholders were made defendants.

On May 7,1881, the Western Union Telegraph Company leased the telegraph lines of the Northwestern Telegraph Company for ■ 99 years, for which it agreed to pay a sum of money on each share of stock, semiannually, direct to the individual stockholders of the Northwestern Telegraph Company. The Western Union Telegraph Company agreed to indorse upon each certificate of stock a promise to pay such pro rata share to each shareholder. The appellant claims such payments are subject to income and profit taxes assessed against the Northwestern Telegraph Company.

The collector, of internal revenue served upon the Western Union Telegraph Company notice of a lien for the unpaid corporation income tax of the Northwestern Telegraph Company. Such liens were filed in the District Court clerk’s office in the Southern district of New York.. This suit followed, asserting as valid the liens upon $75,-000 in the possession of the Western Union Telegraph Company on January 1,1924, for a tax of $90,000 plus penalties.

Two questions are presented: (a) Whether such payments by the Western Union Telegraph Company to the shareholders constitute income of the Northwestern Telegraph Company and are subject to a tax; and (b) whether the appellant could enforce a lien upon the annual payments, for the taxes duly assessed, against the Western Union Telegraph Company.

The appellant cites for the proposition that the payments made to the shareholders require payment of taxable income of the Western Union Telegraph Company the following : Old Colony Trust Co. v. Com’r, 279 U. S. 716, 49 S. Ct. 499, 73 L. Ed. 918; Rensselaer & S. R. Co. v. Irwin, 249 F. 726 (C. C. A. 2); Northern R. Co. of N. J. v. Lowe, 250 F. 856 (C. C. A. 2); West End St. Ry. Co. v. Malley, 246 F. 625 (C. C. A. 1); United States v. Looney, 29 F.(2d) 884 (C. C. A. 5); Hamilton v. Ky. & I. Terminal R. R. Co., 289 F. 20 (C. C. A. 6). But, in the view we take of this issue, we need not consider the applicability of these authorities here.

The appellant’s position is that of a creditor seeking to recover a tax debt. Income taxes, apart from the right of preference in payment, are but debts. Price v. United States, 269 U. S. 492, 46 S. Ct. 180, 70 L. Ed. 373. As against the Western Union Telegraph Company, the' appellant’s rights are no better or greater than those of the Northwestern Telegraph Company. The method of collection of this tax indebtedness is defined by the statute. The Northwestern Telegraph Company could not prevent the Western Union Telegraph Company from paying the stockholders after this agreement. Rensselaer & S. R. Co. v. Irwin, 249 F. 726 (C. C. A. 2). The shareholders are entitled to their share of the rent as provided in the stock certificate, and can maintain an action for its payment without joining the Northwestern Telegraph Company. Bowers v. Interborough Rapid Transit Co., 121 Misc. Rep. 250, 201 N. Y. S. 198; Peabody v. Interborough R. T. Co., 124 Misc. Rep. 801, 209 N. Y. S. 376; 213 App. Div. 857, 209 N. Y. S. 893, affirmed 240 N. Y. 708, 148 N. E. 768.

While, in view of the decision of the New York 'courts just cited, the holding of the Rensselaer Case that a tax may be assessed as though a lessor had money may be doubtful, in any event it does not follow that it can be collected on the same hypothesis, by the claim of a lien therefor. Appellant’s right in this proceeding must be coextensive with the lessor’s beneficial interest in the payments. Unless some statute creates a special method of relief or remedy for appellant to proceed in equity, there is no general jurisdiction to render a decree in personam at the instance of appellant, a creditor, directing the Western Union Telegraph Company, either as a debtor of the Northwestern Telegraph Company or as a trustee, to satisfy the tax indebtedness. The ordinary procedure to enforce the rights of a judgment creditor must be followed.

The appellant relies upon title 26, U. S. Code, § 115 (26 USCA § 115 note) Rev. St. § 3186, which provides for a lien for taxes “upon all property and rights to property belonging to such person; but such lien shall not be valid as against any * * * judgment creditor until notice of such lien shall be filed by the collector in the office of the clerk of the district court of the district within which the property subject to such lien is situated.” Also title 31, U. S. C. § 192 (31 USCA § 192), Rev. St. § 3467, referring to liabilities of fiduciaries.

Section 3186 contemplates a lien on tangible property only, personalty or realty or estates in real or personal property which are or may be the subject of a present sale or assignment by the delinquent taxpayer. There is no provision in this section for the protection of a debtor of a taxpayer who pays his debt without notice of the receipt of the assessment list. Consequently, it would seem that the lien does not apply to a debt. The effort here is to make the Western Union Telegraph Company, a contract debtor of the Northwestern Telegraph Company, pay the debt after the assessment list, has been received by the collector and without actual knowledge or notice that it would be liable to pay the debt again to the United States. • The statute does not authorize gar* nishment, and it does not authorize the United States to proceed against a debtor of the Northwestern Telegraph Company, prohibiting the debtor from paying its debt to the company. Sinee there is a direct liability owing by the Western Union Telegraph Company to the shareholders to pay under the terms of the agreement in successive installments, the lien under section 3186 cannot attach to the payment of future rents.

The provisions applicable to fiduciaries provide that “every executor, administrator, or assignee, or other person, who pays any debt due by the person or estate from whom or for which he acts” before paying debts to the United States for such person or estate, is liable for the debts so due to the United States. Rev. St. § 3467 (31 USCA § 192). But this provision is in pari materia with section 3466 (31 USCA § 191) providing that, whenever any person indebted to the United States is insolvent or whenever the estate of any deceased debtor in the hands of a fiduciary is insufficient to pay all the debts due from the deceased, then the debts due to the United States shall be first satisfied. United States v. Butterworth-Judson Corp., 269 U. S. 504, 46 S. Ct. 179, 70 L. Ed. 380. And it creates no lien, either present or continuing. Bramwell v. United States Fidelity Co., 269 U. S. 483, 46 S. Ct. 176, 70 L. Ed. 368. It has no application to a payment by a stranger occupying no fiduciary capacity, as in the case of a debt due in the usual course of business to a solvent debtor.

Indeed, the government adduced no reason why it should be able to reach what the Northwestern Telegraph Company never in fact had, and its right in the proceedings should be coextensive with that company’s beneficial interest in the payments. The Northwestern Telegraph Company had an interest to compel payment to its shareholders but its refusal to exercise that power would not prevent independent action by the shareholders to compel payment. Thus, unless the Northwestern Telegraph Company had a beneficial interest in this rent paid, it is impossible for the government to reach it. If the Western Union Telegraph Company is a mere debtor in any case, no trust may be created which would compel it to hold the funds as trustee, so as to aid in the collection of taxes.

Decree affirmed.


author: SWAN, Circuit Judge. CHASE, Circuit Judge

text:
    LAWYERS’ MORTG. CO. v. BOWERS, Collector of Internal Revenue.
    No. 16.
    Circuit Court of Appeals, Second Circuit.
    June 1, 1931.
    CHASE, Circuit Judge, dissenting.
    For opinion below, see (D. C.) 34 F.(2d) 504.
    Robert E. Manley, Acting U. S. Atty., of New York City (Samuel C. Coleman and Frank Chambers, Asst. U. S. Attys., both of New York City, of counsel), for appellant.
    Shearman & Sterling, of New York City (Harry W. Forbes, of New York City, of counsel), for appellee.
    Before L. HAND, SWAN, and CHASE, Circuit Judges.
   SWAN, Circuit Judge.

After this appeal was taken, the defendant died. Upon the argument this fact was suggested, and his executor, appearing by attorney and so requesting, was admitted as a party to the suit pursuant to Rule 17 of this court. Some question was raised by the appellee, though the point was not pressed, whether the appeal ought to be continued by the defendant’s executor or by his successor in the office of collector of internal revenue. In the light of the authorities, it seems clear that the executor may properly be substituted. An action for the recovery of taxes illegally collected is based on the collector’s personal liability resulting from the receipt of money wrongfully exacted by him; hence it cannot be initiated against a successor in office who had no part in the collection or disbursement of the taxes, nor, despite the Act of February 8, 1899 (30 Stat. 822 [28 USCA § 780-note]), can it be continued against such successor in office. Smietanka v. Indiana Steel Co., 257 U. S. 1, 5, 42 S. Ct. 1, 66 L. Ed. 99; Union Trust Co. v. Wardell, 258 U. S. 537, 542, 42 S. Ct. 393, 66 L. Ed. 753, Although the Act of February 8, 1899; was amended in 1925 (43 Stat. 941 [28 USCA § 780]), we see nothing in the amendment to cause a change in the rule of the Wardell Case. That question, however, need not be now determined, for there has been no effort to bring in the defendant’s successor in office. That the cause of action survived against the defendant’s executor is settled by Patton v. Brady, 184 U. S. 608, 22 S. Ct. 493, 46 L. Ed. 713. Hence Rule 17 of this court is applicable, permitting the personal representative of the deceased party to come in voluntarily.

The taxes in dispute were assessed and collected under section 1000- of the Revenue Act of 1921 (42 Stat. 294). They were paid voluntarily, but, as the plaintiff now asserts, erroneously. Claims for refund having been rejected, this suit resulted. The sole question it presents is the same as that discussed in Home Title Ins. Co. v. United States (C. C. A.) 50 F.(2d) 107, this day decided, namely, whether the plaintiff is to be deemed an insurance company within the meaning of section 246 of the Revenue Act of 1921 (42 Stat. 262). The faets in the two cases are, however, somewhat different.

The main difference is that Lawyers’ Mortgage Company, unlike the plaintiff in the other ease, issues no policies of title insurance. It was incorporated in 1893 under article 5 of the Insurance Law of the state of New York (Laws N. Y. 1892, c. 690), pertaining to title and credit guaranty corporations, and it is subject to supervision by the insurance department of the state, with the requirements of which it has always complied. Prior to amendment of its charter in 1913, its sole business was issuing policies of mortgage insurance; that is, policies guaranteeing payment of existing mortgages owned by the persons applying for its policies. In that year the statute under which it was incorporated was amended to permit mortgage guaranty companies to invest their own funds in mortgages and to sell the same accompanied by the company’s guai-anty. N. Y. Laws 1933, c. 215. Plaintiff’s charter was amended accordingly, and during the taxable years in question the main part of its business was done by making mortgage loans in its own name and selling them to investors, accompanied by its guaranty, and only a small percentage of its business was issuing policies guaranteeing mortgages it had never owned. Thus the bulk of its business was such as might lawfully be done by a corporation organized under the Banking Law of New York (Consol. Laws N. Y. c. 2), and subject to supervision by the state banking department rather than the insurance department.

Plaintiff’s loans were made on application by prospective borrowers, and, when the loan was closed, the borrower received the face amount of his bond and mortgage less plaintiff’s charges, consisting of disbursements, chiefly the cost of procuring title insurance from a title insurance company, and of a lending fee, or, on the renewal of a mortgage, an extension fee. Such lending fees and extension fees included plaintiff’s charges for appraisals, and were at the prevailing rates charged by other lenders. In disposing of its mortgages, plaintiff either assigned the bond and mortgage in its entirety, accompanied by its regular policy of mortgage guaranty, or assigned fractional interests or participations in a specified mortgage, in which ease it issued to the purchaser its “Guaranteed First Mortgage Certificate,” which combined an assignment of a fractional interest in the specified bond and mortgage and a guaranty similar in terms to plaintiff’s regular policy of guaranty. In either event plaintiff made no profit on the sale, but sold for the face amount of the mortgage. Its primary purpose in making such loans Was not investment, but sale at face value, accompanied by its guaranty.

By the terms of its policy, which is the same whether or not plaintiff sells the mortgage to the holder of its policy, it guarantees to the holder payment of interest at a specified rate within five days after it becomes due under the mortgage, and payment of the principal as and when collected, but in any event within eighteen months after written demand by the policyholder, provided his demand is made after the principal has.become due under the terms of . the mortgage. By accepting the policy, the holder appoints plaintiff his agent to collect interest and principal as it falls due under the mortgage, authorizes plaintiff to retain interest collected in excess of the guaranteed rate, usually one-half of 1 per cent., as the “premium” for its guaranty, and agrees that, upon payment by plaintiff of the principal of the mortgage after it has become due, the bond and mortgage are to be assigned to plaintiff.

Commencing with the year 1921, there was a marked increase in building activity in New York City, and a corresponding increase in the demand for mortgage loans, especially building loans. During the taxable years in question, plaintiff’s income derived from lending fees and extension fees, was nearly half of its total income^ and was considerably greater than its “premium” income, and more than twice its “interest” income.

The appellant’s contentions are, first, that plaintiff does no insurance whatever, because its policy of guaranty is not a contract of insurance; and, second, that, even if the guaranteeing of mortgages be deemed insurance, it was but incidental to dealing in investments, which constituted the great bulk .of plaintiff’s business.

It is to be noted that the first contention is as applicable to the guaranty of mortgages which plaintiff has never owned as to those which it sells accompanied by its guaranty. In effect the argument denies the possibility of mortgage insurance, if the “insurer” promises unconditionally to pay the interest and principal upon specified dates whether or not they have been collected from the mortgagor. The argument is too verbal to persuade us. The risk of noneolleetion is assumed by plaintiff in return for the “premium” reserved out of interest collected. The business of assuming such risks we have held to be insurance for reasons more fully stated in Home Title Ins. Co. v. United States, supra.

The second contention is likewise not sustainable, and was also dealt with in the case last mentioned. Plaintiff made and sold mortgage loans not to make profit on the sales, for there was none, but to enable it to guarantee the mortgages. Its profits lay in its “premiums” and in its lending and extension fees. Such fees we regard as incidental to its business of insuring mortgages. It is true that during the years in question this item grew to enormous proportions, becoming substantially as large as the combined income from premiums and interest. Are we to say that this made plaintiff any less an insurance company? We think not. These incidental fees were the outgrowth of the genuine business of insurance and in earlier years had constituted but a small part of its income. Their tremendous increase in the years in question was during a period of great activity in building loans. Premiums also mounted, but not in like proportion, for they, being based upon interest, were extended throughout the term of the mortgage, while the incidental fees were collected in bulk when the loan was made. It would be possible to say that companies should shift in and out of the class of insurers according as such an incidental item of their income rises or falls. But, as the District Judge pointed out, such a result would have disadvantages from the standpoint of administering the tax law, and is not a result likely to have been intended by Congress when the character of the taxpayer’s business has not changed, and the only difference arises from the sudden flaring of what had previously been clearly an incident. Consequently, although the facts here presented are somewhat less favorable for the taxpayer than they were in the Home Title Insurance Company Case, the result should be the same, and the judgment is affirmed.

CHASE, Circuit Judge

(dissenting).

In doing that portion of its business which it claims gives it the standing of an insurance company for purposes of taxation, the plaintiff uses some of the language of insurance and of bargain and sale to put into being what seems to me, at least, no more than the obligation of a borrower on collateral security toward its so-called purchasers of mortgages. It has painted a word picture that creates an illusion of insurance, but the language is so transparent that it should not be allowed to obscure the real obligations assumed.

What this plaintiff really does is to lend money, in the first instance, on the security of real estate first mortgages which it approves and is paid by the borrower for approving. It then becomes necessary for it to tap the reservoir of money controlled by the investing public to replenish its funds for use for additional lending on first mortgages on real estate. To do this, it goes through the form of selling all, or a share only, of a mortgage it holds to some one who is willing to invest money at a rate of return one-half of 1 per cent, less than the plaintiff receives on its mortgage. In this way, it gets back the face amount of its mortgage in cash, often, if not always, more than it has withdrawn from its own funds to take the mortgage, as the fees charged its borrower have been deducted from the face of the loan it has made, and retains all its rights under the mortgage it appears to sell, including, of course, the sole right to collect both principal and interest. It has merely subjected the mortgage to reach by the “purchaser” in the event only that the plaintiff ultimately fails to repay that “purchaser” as it has promised. There can be no such default by.»the plaintiff until the expiration of a period of grace after the due dates of the mortgage both as to principal and interest; that is, its own obligation is fixed in time by a reference to tbe due dates of the mortgage. But, if it does not pay as it has agreed, it is as much in default if the mortgage has been fully paid and discharged as if it has not.

Although use is made of an elaborate verbal means to bring in the money the plaintiff uses in its business and it collects fees and “premiums” as the successive steps are taken both to place money on real estate loans and to obtain money to be so placed, the insurance business, which my brothers see so clearly, appears to me to be only an investment business disguised as insurance. Because of its own high credit and the borrowing power resulting from that, the plaintiff can, and does, become a borrower itself to the extent of the full face value of the mortgage it has obtained in making its loan and at a lower rate of interest than its own borrower has to pay, and this, upon no additional security than that of the mortgage it holds. Mere enlargement of business and the multiplication of such transactions can neither serve to spread the risk nor result in insurance of any kind, unless it can be said that the credit of a large and frequent borrower who makes a business 9f lending the money borrowed is for that reason alone better than the credit of one whose transactions of that nature are comparatively small and few; and so-, for some reason I cannot perceive, one who lends to the former gets some kind of insurance by volume. What one of the plaintiff’s “purchasers” gets is the promise of the plaintiff to pay unconditionally and this absolute obligation, unrelated to any default by the mortgagor, accrues merely with the lapse of time. The financial responsibility of the plaintiff is fortified by the security of the mortgage. Whatever recognition of the rights of a purchaser of a mortgage are first written into the contract, the plaintiff calls a policy and gives to those from whom it obtains money to use in its business are all written out before the end. The result is that a policyholder has only the’primary obligation of the plaintiff to repay the principal of the loan it has received; to pay the agreed rate of interest on it; and, by operation of law, the right to look to the collateral security of the mortgage if the plaintiff defaults.

The taxes the plaintiff has already paid were lawfully assessed and collected.

I would reverse the judgment and remand, with directions to enter judgment for the defendant.