author: FITZHENRY, District Judge.

text:
    UNITED STATES FIDELITY & GUARANTY CO. v. JONES.
    No. 4410.
    Circuit Court of Appeals, Seventh Circuit.
    March 26, 1931.
    Rehearing Denied June 8, 1931.
    Leonard F. Martin and John R. Cochran, both of Chicago, 111., for appellant.
    Caruthers Ewing, of New York City, and Thomas Francis Howe and Henry S. Rademacher, both of Chicago, 111., for appellee.
    Before ALSCHULER and SPARKS, Circuit Judges, and FITZHENRY, District Judge.
   FITZHENRY, District Judge.

Plaintiff (appellee here) sues to recover the amount of a supersedeas bond executed by defendant (appellant), which was given and approved in the case of Jones v. Thomas Rankin, in which Frank Graham Jones had recovered a judgment in the sum of $17,015.

.In this ease the declaration charges that the defendant surety company is indebted to plaintiff in the sum of $20,000 upon an alleged supersedeas bond executed May 21, 1926, by defendant, as surety, and Samuel L. Hastings, administrator of the estate of Thomas Rankin, deceased, as principal; that the bond was given by Samuel L. Hastings as administrator .of the estate of Thomas Rankin, deceased, to have reviewed a certain judgment of the District Court of the Northern District of Illinois, in favor of Frank Graham Jones and against Thomas Rankin (who died after judgment was entered), for $17,015; that the judgment of the District Court was affirmed by the Circuit Court of Appeals [18 F.(2d) 833], and a writ of certiorari was denied by the Supreme Court [275 U. S. 547, 48 S. Ct. 85, 72 L. Ed. 419]; that the judgment and interest thereon have not been paid; and that plaintiff is entitled to recover damages in the sum of $20,000.

Defendant filed its two special pleas. In the first plea it alleged that, after the judgment of the District Court in favor of plaintiff and against Thomas Rankin, the said Rankin, who'was a resident of Lake county, 111., died intestate; that Samuel L.' Hastings was appointed administrator of his estate by the probate court of Lake county, and he duly qualified and acted as such; that on May 21, ' 1926, an order was entered in the District "Court allowing Hastings, as such administrator, to prosecute a writ of error to this court, and on the same day the bond now sued upon was given, from which it appears the bond was executed by Hastings in his capacity of : administrator, with defendant as surety, and . payable in “due course of administration”; that the administrator paid all costs in the cause in the District Court, Circuit Court of Appeals, and Supreme Court; that the administrator has proceeded in accordance with the statutes of the state of Illinois and the orders and directions of the probate court of Lake County, by which he was appointed- to administer upon .the estate of the said Thomas Rankin; that plaintiff’s claim was filed by ’ the plaintiff in the probate court and allowed by said court as a claim of the sixth class under the Illinois statutes; that, after the payment of such claims as under the Illinois statutes are required to be first paid, there remained for distribution among creditors of 'the sixth class' the sum of $13,634.57; that due -notice was given to the creditors of said estáte of the date when the final, report of said administrator would be filed in the probate court of Lake county, and no objections were filed to said report; that such report was filed and approved, and the probate court directed the administrator to make distribution of the assets remaining in his hands among the creditors, and directed payment of plaintiff’s claim in the sum of $6,180.70, being the distributive share of the assets of said estate as adjudicated by the probate court, payable in due course of administration on said claim of plaintiff; that the administrator tendered said distributive share to plaintiff, but it was refused, and the administrator has at all times since been and is ready to pay such sum to plaintiff; and that therefore, defendant alleged, it is not liable to plaintiff in this suit.

The second plea alleged that the administrator had paid all costs taxed in the several courts, and therefore this suit could not be maintained.

Plaintiff demurred to both pleas. The demurrer was overruled as to the first plea and sustained as to the second, and leave granted plaintiff to reply to the first plea. Thereafter an amended replication was filed to the first plea, setting up the pleadings in the original cause in the District Court, the judgment against Thomas Rankin, the death of Rankin, the substitution of Hastings as administrator, as defendant, and the petition of the administrator for a writ of error, the order of the District Court allowing the writ of error, the bond executed by the .administrator, as principal, and defendant surety company, as surety.

Defendant demurred generally and specially to plaintiff’s amended replication, which was overruled by the District Court; defendant elected to stand by its demufrer; and judgment was entered in favor of plaintiff (appellee), as above seated.

The errors relied upon here for reversal are the overruling of defendant’s general and ' special demurrer to plaintiff’s amended replication to defendant’s first amended plea to the declaration, and in rendering judgment against defendant.

The real" issue raised by defendant’s first amended plea is that the bond sued upon was simply a bond to insure plaintiff, in the original suit, that the administrator would perform his' duties and pay the amount of plaintiff’s judgment, or the distributive share thereof, if the estate was insolvent, “in due course of administration”; that, having paid the costs which -'accrued in the original suit, by reason of its review in the Circuit Court of Appeals, and his effort to procure a writ of certiorari in the Supreme Court, and having tendered to plaintiff there his distributive share of the insolvent estate of the judgment debtor, plaintiff therefore was not to recover on the bond.

The amended replication to which defendant demurred is an interesting document, setting out substantially the entire record, in the original suit in the District Court of Jones v. Rankin, to recover the amount of the debt due and owing to Jones. It shows that on August 5,1915, at Memphis, Tenn., Jones loaned to Rankin $10,000 on purely personal grounds, and took from Rankin two promissory notes for $5,000 each, with interest coupons attached. The notes were executed by Rankin individually and by Lakeside Manufacturing Company Block, of which Rankin was president, and each of which notes was due one year after date. Before the maturity of the notes, Rankin went into bankruptcy, March 27,1916, and was discharged June 18, 1917. The amount of the indebtedness was' proved up against the bankruptcy estate, and this, it was alleged, was with the distinct and positive understanding with Rankin that, the indebtedness evideneed-by the notes being purely a personal and moral, debt, regardless of the bankruptcy proceedings and independent thereof, defendant expected to pay the debt as soon as he was able; and that the bankruptcy proceedings had been instituted by him (Rankin) to better take care of personal obligations for which he felt a moral obligation, and Rankin had told Jones he need pay no further attention to the bankruptcy proceedings. Jones' alleged that , he relied upon these assurances, and took no further interest in the bankruptcy proceedings, and, after their conclusion, Rankin frequently promised and agreed to pay the indebtedness; that on May 19, 1920, Jones and his agent called on Rankin to settle the indebtedness, due, when Rankin assured Jones he would within a few days from that date mail Jones a cheek, which he failed to do; that, since the discharge in bankruptcy, defendant Rankin sold his interest in the Nipple Manufacturing Company for $164,000, practically all cash, and was able to pay the amount of his indebtedness, as agreed, but failed to-do so; that the stock of or interest in the Nipple Manufacturing Company was held in the name of Rankin’s wife, and that she held the same for the use and benefit of Rankin, or that the same was issued to-or held -by Rankin’s wife for the fraudulent purpose of removing the same from the reach of Rankin’s creditors; that he was in truth and in fact and in law the real owner of the interest in the Nipple Manufacturing Company, and for a number of years subsequent to the alleged sale the Nipple Manufacturing Company had paid Rankin $15,000 per year; that, prior to the bankruptcy proceedings, Rankin had put large amounts of his property in the name of others to preserve and protect it for him against his creditors, etc.

Pleas to Jones’ declaration were filed and issue joined. Rankin pleaded for his first plea his discharge in bankruptcy; the second, the general issue; and, the third, the five-year statute of limitations. On the date set for the trial, Jones produced a number of witnesses to show that Rankin was able to pay the indebtedness; and that counsel for Rankin, in order to shorten the matter, admitted that “he is now able to pay.” Upon the request of Rankin and his counsel, on February 26th, there was executed and filed a stipulation of arbitration, expressly waiving trial by jury, in writing, and submitting the entire matter to Judge Carpenter, one of the District Judges; that the award of Judge Carpenter was to be a final decision as to all matters of fact and law; and that there was to be no appeal from a judgment upon his award. Following the execution of the stipulation, an effort was made on the part of Rankin to withdraw from the stipulation and agreement of arbitration.

Plaintiff’s 'objection thereto was sustained; whereupon, afterwards, Judge Carpenter filed his findings of fact, sustaining the contentions of Jones, and finding that there was due and owing to Jones the sum of $17,015, and judgment was entered accordingly and execution ordered as of February 24, 1926. May 19th following, Rankin died; on May 21st following, Hastings was appointed administrator by the probate court of Lake county, and on the same day Hastings, as administrator, filed his petition for a writ of error. In the order granting the writ of error, the administrator was ordered by the court to file a supersedeas bond in the sum of $20,000, and the bond here sued upon was filed on which appellant here appeared as surety. It recites the litigation and judgment, the condition of the obligors that the administrator “shall prosecute said writ to effect, and shall answer for all damages and costs that may be awarded against him as administrator if he fails to make his plea good.”

Appellant contends that, appellee having demurred to its special plea, and that demurrer having been overruled, appellee’s only right was to traverse the plea or confess and avoid; that the amended replication does neither, but is an attempt to raise the same questions of law as were passed upon adversely to her upon a consideration of her demurrer to the first special plea.

Upon considering the demurrer to the special plea in the light of the limited facts contained therein, the trial court might well have held that, if the obligation were a mere bond to secure the final administration of his trust by the administrator and to pay the costs, the plea presented a good defense to the declaration. In such ease it would have been proper to have overruled the demurrer. The plea sets out the contention that the obligation sued upon was one of an entirely different character from that contended on behalf of appellee. The effect of the amended replication, to which appellant’s demurrer was overruled, is to deny that the obligation is a mere cost bond, and pleads facts to show it was in truth and in fact a supersedeas bond, and its effect was a clear traverse of appellant’s amended first plea.

It is very earnestly contended that, because under the statutes of Illinois an execution might not issue upon the judgment against the administrator of the estate of Thomas Rankin, deceased, therefore there was nothing to supersede, and the execution of the judgment was stayed by force of the Illinois law, so that the force and effect of the bond given could only have been one to pay the costs of litigation.

If this were true, there would have been no reason for giving a bond in the sum of $20,000. As soon as the inventory had been filed and. the volume of indebtedness proved against the estate ascertained, it was within the power of the judgment creditor to pursue his remedies in equity by the filing of a creditor’s bill to recover assets which were undisclosed to the administrator, if there had been any. The facts pleaded in the amended replication show at least reasonable grounds to believe that there was a possibility of recovering something for the benefit of creditors. However, the stay order issued, conditioned upon the filing of the bond, in effect denying the judgment creditor the benefit of that remedy.

The federal statute governing bonds in error and on appeal is as follows:

“Bond in Error and on Appeal. Every justice or judge signing a citation on any writ of error, shall, except in cases brought up by the United States or by direction of any department of the Government, take good and sufficient security that the plaintiff in error or the appellant shall prosecute his writ or appeal to effect, and, if he fail to make his plea good, shall answer all damages and costs, where the writ is a supersedeas and stays execution, or all costs only where it is not a supersedeas as aforesaid.” USC title 28, § 869 (28 USCA § 869) R. S. § 1000.

Paragraph 2 of rule 36 of the Supreme Court of-the United States (28 USCA § 354) and paragraph 1 of rule 12 of the Rules of this Court, are substantially the same, and provide:

“Supersedeas bonds must be taken, with good and sufficient security, that the plaintiff in error or appellant shall proseeute his writ or appeal to effect, and answer all damages and costs if he fail to make his plea good. Such indemnity, where the judgment or decree is for the recovery of money not otherwise secured, must be for the whole amount of the judgment or decree, including just damages for delay, and costs and interest on appeal. * * *-”

The quotation above is from the Supreme Court rule formerly 29. The rule of this court gives the judge of the District Court a somewhat larger discretion.

The Circuit Court of Appeals for the Sixth Circuit had a similar question, involving similar rules, before it in American Surety Co. v. North Packing & Provision Co., 178 E. 810, 811, and the court, among other things, said:

“We have no doubt that the refusal and the ruling which the Surety Company claims to be erroneous were right. The appeal, as is not denied, operated as a supersedeas and stayed execution. This result could not have been obtained without security that the appellant should answer all damages and costs if its appeal proved unsuccessful. Rev. St. U. S. § 1000 (U. S. Comp. St. 1901, p. 712); Supreme Court rule 29 (3 Sup. Ct. XVI); rale 13 of this court (150 Eedi XXVIII, 79 C. C. A. XXVIII). Both the rules referred to further require that, where the decree appealed from is for the recovery of money not otherwise secured, the security must be Tor the whole amount of the decree, including just damages for delay, and costs and interest on the appeal.’ The obligors, in executing the bond, bound themselves to nothing less than the rules required. If there could ever have been any question as to the construction, for the present purpose, of the statutory provisions, or of the rules, or of a bond like this, given in compliance with them, the doubt has long since been settled. In deciding Rosenstein v. Tarr, 51 F. 368, 370, the Circuit Court for the District of Massachusetts said in 1892:
“ ‘There is no doubt that a supersedeas bond, conditioned according to the statute for prosecuting an appeal with effect and answering all damages and costs, covers not merely compensation for the delay arising from the appeal, but also the amount of the decree appealed from, so far as the latter directs the payment of money by the appellant to the appellee.’ ” ■ •

Even though it might be considered that the writ of execution could not have been issued upon the Jones judgment which was appealed from, it must not be overlooked that-there is a distinction between the word “execution,” referring to the writ, and anything that might lawfully be done in execution of the judgment. Where the statute above cited was under consideration and similar questions were involved, Judge Taft (the late Chief Justice) quoted from the opinion of Judge Dillon, with approval, the holding that, when an administrator pleads plene administravit, the plaintiff may admit the plea, and take judgment of assets quando aeeiderint. Fuller v. Aylesworth (C. C. A.) 75 P. 694, 702. Later in the same opinion Judge Taft said:

“The sureties, however, sign in no representative capacity. They contract as individuals'that the principal shall perform the bond at all events, and, if he does not do so, whether from lack of trust funds or otherwise, they must do so themselves. If an executor superseded a judgment against him de bonis testatoris, could a surety be heard to say, when the condition was broken by an affirmance in the appellate court, that the executor had no goods of his testator, and therefore the sureties' on the supersedeas bond were released from obligation to pay the judgment? Such a plea would be of no more avail than if the surety of an individual judgment debtor should seek to escape liability on the ground that the debtor was without funds.”

The District Court properly overruled appellant’s demurrer to appellee’s amended replication, and the judgment must be, and is, affirmed.


source: Caselaw Access Project

author: WILBUR, Circuit Judge.

license: Public Domain

text:
    ATCHISON, T. & S. F. RY. CO. et al. v. ARIZONA GROCERY CO. SOUTHERN PAC. CO. et al. v. SAME.
    No. 6284.
    Circuit Court of Appeals, Ninth Circuit.
    March 23, 1931.

      A. B. Baker, L. B. Whitney, L. H. Chalmers, H. M. Fennemore, and Thomas G. Naim, all of Phcenix, Ariz., E. W. Camp, of Los Angeles, Cal., and James L. Lyons and A. Burton Mason, both of San Francisco, Cal. (R. S. Outlaw and Gerald E. Duffy, both of Chicago, 111., of counsel), for appellants.
    Fred J. Elliott and Frank L. Snell, Jr., both of Phcenix, Ariz., for appellee.
    Felix T. Smith and Samuel L. Wright, both of San Francisco, Cal., Paul M. Gregg, and Jerry H. Powell, both of Los Angeles, Cal., and Allan P. Matthew, F. F. Thomas, Jr., and John 0. Moran, all of San Francisco, Cal. (Pillsbury, Madison & Sutro and Mc-Cutehen, Olney, Mannon & Greene, all of San Francisco, Cal., of counsel), amici curiae.’
    Before RUDKIN, WILBUR, and SAWTELLE, Circuit Judges.
   WILBUR, Circuit Judge.

This is an appeal from the judgment of the District Court enforcing a feparation order of the Interstate Commerce Commission. The reparation order was made in a proceeding before the Interstate Commerce Commission entitled Traffic Bureau of Phoenix Chamber of Commerce et al. y. Atchison, Topeka & Santa Fé Railway Company, No. 16742. The record of the decision is found in the reports of the Interstate Commerce Commission (140 I. C. C. 171.) The Interstate Commerce Commission in this proceeding declared the existing rate charged by the railway company to b.e unreasonable and unjust, fixed a future rate which it declared to be reasonable and just upon shipments of sugar in carload lots of 73 cents per 100 pounds from all points in Northern California, and 71 cents per 100 from points in Southern California, to Phcenix, Ariz. It declared the existing rates charged by the carriers to be unreasonable and unjust and awarded .reparations in the amount subsequently incorporated in the judgment of the District Court, from which the railroad companies, hereinafter designated as appellants, take this appeal. No attack is made on this appeal as to the reasonableness of freight rates fixed in the order of the Interstate Commerce Commission for the future, Nor is it denied that the law authorizes the Interstate Commerce Commission, upon declaring a freight rate unreasonable and unjust, to order reparations in favor of shippers damaged by reason of the excessive rates previously charged them. Appellants’ attack upon the order of the Interstate Commerce Commission awarding reparations, and upon the judgment of the District Court enforcing such reparations, is based upon the claim that the rates charged by them previous to the order of the Interstate Commerce Commission were Commission-made rates, and that while the Commission would have a right to award reparations as against an unjust or unreasonable rate fixed by the carrier, it had no power to award reparations upon finding that a rate fixed by the Commission was excessive, for the reason that such rates were conclusively presumed to be just and reasonable until changed by the Commission, and that such change must be prospective and not retrospective. Before discussion of the points raised by the appellants, and the answers thereto by appellee, further facts with relation to the controversy should be stated.

The above-mentioned decision of the Interstate Commerce Commission (140 I. C. C. 171) was the third in a series of decisions by the Commission dealing with the freight rates on sugar transported from California to Arizona points over the Atchison, Topeka & Santa Fé Railway Company’s lines, and also those of the Southern Pacific Company. These cases are referred to in the briefs as the first, second, and third ease.

In the first case, entitled Traffic Bureau of Phœnix Chamber of Commerce v. Director General et al., 62 I. C. C. 412, the Commission, on June 22, 1921, fixed the freight rate on sugar from all points in California to Phœnix, Ariz., at not exceeding 96% cents. In view of the importance of the findings and order of the Interstate Commerce Commission in the first ease we quote a portion of. the opinion as follows: “We find that the rates attacked were, are, and for the future will be, unreasonable to the extent that they exceeded, exceed, or may exceed 96.5 cents.”

In pursuance of this finding an order was entered June 22, 1921, prohibiting the carriers from publishing or collecting their present rates for the transportation of sugar in carload lots from California points to Phoenix, Ariz., and it was further ordered: “That .said defendants, according as they participate in the transportation, be, and they are hereby, notified and required to establish, on or before September 17, 1921, upon notice to this Commission and to the general public, by not less than five days’ filing and posting in the manner prescribed in section 6 of the Interstate Commerce Aet, and thereafter to maintain and apply to the transportation of sugar in carloads from California points to Phoenix, Ariz., rates which' shall not exceed 96.5 cents per 100 pounds. It is further ordered that this order shall continue in force until the further order of the Commission.”

In pursuance of this order the carriers established a rate, effective September 17, 1921, of 96 cents per 100 pounds. On July 1, 1922, they reduced this rate 10 per cent, in conformity with the recommendation of the Interstate Commerce Commission in its opinion entitled Reduced Rates 1922, 68 I. C. C. 676. The rate for sugar in carload lots from California points to Phoenix was thus fixed at 86.5 cents. On January 10, 1924, by voluntary order of the carriers, they fixed a new tariff rate of 84 cents. This change to the 84-cent rate was due to the change of the main line rates owing to the withdrawal of long and short haul relief asked for by the carriers from the Interstate Commerce Commission. Phoenix, although on a branch line, was given the benefit of the readjustment along the main line of the Southern Pacific. The shipments of sugar involved in this proceeding were transported between February 21, 1923, and February 10,1925, during the period when the rates fixed by the carriers was either 86.5 or 84 cents per 100 pounds.

In Traffic Bureau Phœnix Chamber of Commerce v. A., T. & S. F. R. Co., 95 I. C. C. 244, decided January 6, 1925, the Interstate Commerce Commission fixed the rate on sugar from the California points to Phoenix at not exceeding 71 cents per 100 pounds. It also decided that the complainants were entitled to reparations upon past shipments to the extent that charges theretofore paid by them exceeded the new rate. The order in pursuance of the findings in the second ease was substantially in the phraseology of the order of the first ease. The carriers were directed to cease collecting their present rates and to establish, before February 25, 1925, new rates “from all points in California to Phœnix, Arizona, rates which shall not exceed 71 cents per 100 pounds, minimum 60,000 pounds.” It is also provided that the order shall continue in force until the further order of the Commission.

No order for the payment of reparations was made in the second ease. The case was subsequently consolidated with the third ease, wherein the rates were fixed at 73 cents from Northern California and 71 cents from Southern California to Phoenix, as aforesaid. Reparations were finally ordered upon the basis of the findings in the third case and the period covered by the reparations ordered and involved in this decision, as already pointed out, is between the 21st day of February, 1923, and the 10th of February, 1925. That is to say, is within the period between the 21st of January, 1923, and the effective date of the order in the second case. The petition for relief in the second ease having been filed on November 3, 1922, the period in which reparation is involved was subsequent to the inception of the proceedings in the second case and prior to the effective date of the order rendered in the ease.

Appellee’s answer to the contention of the appellants is that the order of the Commission in the first case, fixing a maximum rate of 96.5 cents, was not a fixing of a just and reasonable rate, but that it was the duty of the carrier by its published tariffs to fix a rate which was just and reasonable, not exceeding the maximum rate fixed by the Commission. Therefore, it is claimed the rate attacked in the subsequent proceeding before the Interstate Commerce Commission was not a rate fixed by that Commission, but one fixed by the carrier, and if the rate so fixed by the carrier was in fact unjust and unreasonable, the Commission in the subsequent ease had a right to declare the rate charged by the carrier to be unjust and unreasonable and order reparations for the excessive charges of the past as well as to fix a rate for the future which it deemed to be just and reasonable. It is also contended, as we understand it, that even if the decision of the Commission in the first ease is held to be a fixing of a just and reasonable rate, nevertheless the rate thus established for the future was established in the exercise of the quasi-legislative power of the Commission and is not res judicata, and that upon the complaint of a shipper claiming to be damaged by the rates charged by the carriers, the Commission, acting in a quasi judicial capacity, can review its action theretofore taken in its quasi legislative capacity, can determine that the findings so made by it in its quasi-legislative capacity were erroneous, the rate established unreasonable and unjust, and render judgment in favor of the shipper for the difference between the rate as found by the Commission in its quasi legislative capacity and the rate found by it in its quasi judicial capacity to be reasonable and just. In this connection it may be of assistance to state the position of the Interstate Commerce Commission as disclosed by its opinion in the third case: “Defendants contend that they should not be required to pay reparation on shipments which moved under rates approved or prescribed by us. We have several times announced that the doctrine of res adjudieata is not applied by us. Goss v. Director General, 73 I. C. C. 649. We reserve the right, upon a more comprehensive record, to modify our previous findings, whether in the same or a previous case, upon matters directly in issue before us as to which it dearly appears that our previous findings would not accord substantial justice under the laws which we administer. We have such a case here. For the first time the record before us is comprehensive in the evidence which it contains bearing upon the reasonableness of the rates assailed. Upon this record we reach the conclusion that the rate prescribed in the first Phoenix case, during the period embraced in these complaints, was unreasonable and that a lower rate would have been reasonable during that period. If we are within our authority in finding that a lower rate would have been reasonable, then it must follow that shippers who paid the freight charges at the higher rate paid charges which were unreasonable, and are entitled to reparation upon adequate proof that they paid or bore such charges.”

It will be observed that the power of the Commission) as stated in the portion of the opinion just quoted, is not based upon the theory that the rate established in the previous order'was anything other than what was then declared to be a just and reasonable rate. In other words, no distinction such as is claimed by the appellee was made hy the Commission. It assumed in its opinion that the rate theretofore established by it, under the evidence then before the Commission, was determined by them to be a just and reasonable rate, but the Commission concluded that with more ample evidence, and after a more extensive investigation, its first decision was erroneous. It therefore redetermined the question of the reasonableness of the rate as fixed in its previous order as a just and reasonable rate and decided that the carriers, in exacting the rate thus fixed by the Commission, had exacted an excessive and unreasonable and unjust rate and for that reason must reimburse the shippers from whom the rates were exacted. So far as the opinion of the Commission is concerned, no distinction is made between its power to fix rates which are just and reasonable and its power to fix maximum rates. As this is one of the basic questions in the case at bar, we pause here to say that we are in aeeord with the apparent conclusion of the Commission that its order fixing a maximum rate was in legal effect a determination by the Commission in its administrative or quasi legislative capacity of a reasonable and just rate and that the carrier in establishing its tariffs as required by the Commission was justified in fixing its various rates within the maximum thus established and that the order of the Commission amounted to a decision that rates fixed by the carrier helow the maximum it had established were just and reasonable. It would be absurd, it seems to us, to say that the Commission was empowered to prohibit the further collection of a freight rate established by the carrier on the ground that it was unjust and unreasonable and to replace that rate with another rate which was also unjust and unreasonable, that is, not just and not reasonable. The statute does not authorize or suggest the imposition of tentative rates pending an investigation or of rates pendente lite in an investigation. Its power in the first place is to declare a rate unreasonable and unjust, and having so declared to replace it with a rate which is reasonable and just. It should be stated at this juncture that the contention of the appellee is based upon the language of section 15, subdivision 1 (49 USCA § 15, subd. 1), with relation to the fixing of rates for the future. This subdivision of section 15 is a very long and complex sentence. It contains the following clause: “ * * * The commission is authorized and empowered to determine and prescribe what will be the just and reasonable individual or joint rate, fare-, or charge, or rates, fares, or charges, to be thereafter observed in such case, or the maximum or minimum, or maximum and minimum, to be charged (or, in the ease of a through route where one of the carriers is a water line, the maximum rates, fares, and charges applicable thereto), and what individual or joint classification, regulation, or practice is or will be just, fair, and reasonable, to be thereafter followed, and to make an order that the carrier or carriers shall cease and desist from such violation to the extent to which the commission finds that the same does or will exist, and shall not thereafter publish, demand, or collect any rate, fare, or charge for such transportation or transmission other than the rate, fare, or charge so prescribed, or in excess of the maximum or less than the minimum so prescribed, as the ease may be, and shall adopt the classification and shall conform to and observe the regulation or practice so prescribed.”

The appellee places the phrase, “or the maximum or minimum, or maximum and minimum, to be charged,” in opposition to the individual rate to be prescribed as just and reasonable. We think the phrase “just and reasonable” applies throughout the whole portion of the sentence involved in rate making, and therefore applies to the maximum or minimum or to the maximum and minimum, as the ease may be. Otherwise, it would be absurd to provide that the carrier should thereafter be compelled to conform to the order of the Commission. The whole purpose of the act was to create and compel the enforcement without discrimination of rates which were just and reasonable. In our opinion the provisions in regard to the maximum or minimum rate were largely for the convenience of the Commission in dealing with the extremely intricate question of freight rates. In the case at bar freight rates were involved from a number of California points to a number of Arizona points. The Commission did not undertake to fix the rates from each separate point in California to each separate point in Arizona, but made a blanket order fixing a maximum rate, and not only authorized but directed the carrier to establish its rates within that maximum. In so doing it was ineumbent upon the carrier to conform to certain principles in rate-making, including, perhaps, the principle of long and short haul. In this connection it should be observed that when the Hepburn Act was passed, in 1906 (34 Stat. 589, § 4), section 15, with regard to the fixing of future rates, authorized the Commission “to determine and prescribe what will be the just and reasonable rate or rates, charge or charges, to be thereafter observed in such ease as the maximum to be charged; and what regulation or practice in respect to such transportation is just, fair, and reasonable to be thereafter followed”; and to provide that the carrier should not thereafter collect any rate or charge for such transportation in excess of the maximum rate or charge so prescribed. ‘ This act .was amended by the Mann-Elkins Act, June 18, 1910 (36 Stat. 551, § 12), by extending the clause to cover individual or joint rates, as follows: “ * * * The commission is hereby authorized and empowered to determine and prescribe what will be the just and reasonable individual or joint rate or rates, charge or charges, to be thereafter observed in such case as the maximum to be charged, and what individual or joint classification, regulation, or practice is just, fair, and reasonable, to be thereafter followed, and to make an order that the carrier or carriers shall cease and desist from such violation to the extent to which the commission finds the same to exist, and shall not thereafter publish, demand, or collect any rate or charge for such transportation or transmission in excess of the maximum rate or charge so prescribed, and shall adopt the classification and shall conform to and observe the regulation or practice so prescribed. * # V

It was thus evidently contemplated by Congress that the Commission would not fix a particular rate to the exact cents to be collected by the carrier, but should in every case fix a rate which is the maximum rate which the carrier can charge. This was the legislative method pointed out by Congress to the Commission for fixing by it of freight rates. It is true that the language of the subsequent amendment now in force and hereinabove quoted, taken alone and without considering the cardinal purpose of the act, might lead to the conclusion that the Commission might either fix a just and reasonable rate or a maximum rate, but in view of the history of the legislation and its cardinal purpose it is clear that the maximum rate to be fixed by the Commission must be a reasonable rate. In this connection it should be observed that in the numerous decisions by the courts considering the question of freight rates before the enactment of section 15 in its present form (Act Peb. 28,1920, 41 Stat. 484 [49 USCA § 15]), the court has invariably referred to the administrative power of the Commission as a power to fix rates that are reasonable. No other thought has apparently entered the mind of the judges who are so frequently called upon to pass upon the power of the Commission under the- Hepburn Act and the amendments thereto. Chicago, R. I. & P. Ry. Co. v. U. S. (D. C., 1925) 6 F.(2d) 888; Houston Cotton Exch. v. A. & A. R. R. Corp. (1924) 87 I. C. C. 392; Id., 93 I. C. C. 268; Chicago, R. I. & P. Ry. Co. v. U. S. (1927) 274 U. S. 29, 47 S. Ct. 486, 71 L. Ed. 911; Montrose Oil Ref. Co. v. St. L.-S. F. Ry. (D. C., 1927) 25 F.(2d) 750; Id. (1923) 78 I. C. C. 572; Id. (1924) 95 I. C. C. 96; Mellon v. World Pub. Co. (C. C. A. 1927) 20 F.(2d) 613; World Pub. Co. v. Director General (1919) 53 I. C. C. 491.

It is clear that a blanket order fixing a maximum rate from a state as large as California to an adjoining state might result in individual rates that would be in fact unreasonable and unjust. For instance, if a sugar factory were established on the west bank of the Colorado river it would be unreasonable, no doubt, to charge the maximum rate for transporting sugar across the river to Yuma, Ariz., but the Commission was bound to consider such a possibility in fixing its maximum rate, and no doubt did so. If new conditions arose later which rendered rates fixed by the carrier unreasonable, tbe shipper affected could ask for the establishment of a new rate. The Commission could then re-examine the situation and establish a new rate, but there is no reason why an allowance of reparations should be made. The shipper’s remedy would be a seasonable application for a change of rate before any serious damage had been suffered.

The contention is that the Commission could revise its original findings as to what was in fact a reasonable rate because in the first instance it acted as a law-making body (a legislature), and in the second it acted in a judicial capacity (as a court). Let it be granted that the Commission in awarding reparations acted judicially, as has been so often said (Baer Bros. Mercantile Co. v. Denver & R. G. R. R. Co., 233 U. S. 479, 34 S. Ct. 641, 58 L. Ed. 1055; Great N. Ry. Co. v. Merchants’ Elevator Co., 259 U. S. 285, 291 42 S. Ct. 477, 66 L. Ed. 943); let it be granted, also, that in fixing a reasonable rate for past transactions as a basis for its award of reparations it also acted judicially, as has also sometimes been said (Great No. Ry. v. Merchants Elevator Co., supra). What follows ? Is it not true that a court is bound in its determination by the law? Consequently, if the court finds that a rate has been fixed by law, by the Legislature, it must apply that law as a measure of right, and award as excessive only such charges as exceed the rate fixed by law. The Interstate Commerce Act (section 16, subd. 1 [49 TJSCA § 16, subd. 1]), delegating power to the Commission to award reparations, limits that power to parties “entitled to an award of damages under the provisions of this chapter [act] for a violation thereof. * * * ” (Italics ours.) Is the court (the Commission in its quasi judicial capacity) to say that a carrier has no lawful right to collect a rate established by law (that fixed by the Commission acting in its quasi legislative capacity), or, having collecting it, to retain it? It is true that the original order is not res judicata, but its effect is quite as final, it is a legislative fiat, good, if constitutional, in all courts and at all times until changed by the Legislature.

These considerations point to a clear distinction between Commission-made rates, that is, legislative rates, and those established by the carrier. In the latter case, however, we have also a legislative declaration by Congress that all rates established by the carrier must be just and reasonable (Interstate Commerce Act, "§ 1, subds. 4, 5 [49 TJSCA § 'l, subds. 4, 5]) and declaring that all rate which are “unjust and unreasonable” are “prohibited” and “unlawful.” It may be said in a broad sense that Congress itself by this enactment has fixed “just and reasonable rates” as those allowed to be charged and collected and has permitted the carrier in the exercise of its business responsibilities to tentatively ascertain and fix such reasonable rates, subject to supervision and revision by the Commission in ease of error. The carrier who fixes and charges excessive rates does so with the knowledge that its judgment is to be revised, and reparations awarded, if necessary to reduce such rates to what is just and reasonable. It is permitted to judge its own case in the first instance in fixing its rates, but does so in view of and because of such power of supervision and reparation in the Commission. When, however, in regularly pursuing its delegated power, the Commission establishes a specific rate as reasonable in fact, the legislative power has so definitely established the specific rate thus fixed as just and reasonable that there is no longer room for judicial decision as to what is a just and reasonable rate. Congress, through its agent, the Commission, has established the measure by which the reasonableness of the rate is to be judged. In considering an application for damages for charging unreasonable rates, a court, or the Commission acting as such, must confine its inquiry to the other factors involved in an award of reparations, such as the amount of freight moved, the point of origin and of delivery, the owner of the shipment, etc., but if there is no excess charge there can be no award, for where the rate is one fixed by law it is not excessive in any legal sense. Indeed, although the appellee insists that the fixing of rates as a basis of reparation for past shipments is a judicial or quasi-judicial act, it would be better, perhaps, for its position if the act were legislative, for a legislative body, unlike a court, can establish the law retroactively unless prevented by constitutional limitations. The fixing of a past rate by the Commission for purposes of awarding reparations certainly has some of the attributes of a legislative act, notably that it is of universal application to all past transactions, whether the shippers are parties to the proceedings or not. It is binding upon both the carrier and its shippers, and this because any other rule would destroy uniformity, which the act endeavors to establish and maintain. See discussion in Mitchell Coal & Coke Co. v. Penna. R. Co., 230 U. S. 247, 258, 259; 264, 265, 33 S. Ct. 916, 57 L. Ed. 1472. If the second fixing or refixing of tlie rate by the Commission as a basis for reparations is legislative, the only limits upon a retroactive act, other than the Constitution, would be the limitations of the Interstate Commerce Act defining the powers delegated to the Commission. ■ The only constitutional restriction upon the legislative power to retroactively reduce rates suggested by the appellant is the constitutional prohibition against the taking of property without due process of law. That is, it is argued, the Commission, having established a legal and lawful rate, the freight charges thus fixed, allowed and collected become the property of the carrier and cannot by a new retroactive law be arbitrarily taken away by legislative fiat. This position seems to be well taken. See Fletcher v. Peck, 6 Cranch (10 U. S.) 87, 135, 3 L. Ed. 162; Blodgett v. Holden, 275 U. S. 142, 48 S. Ct. 105, 72 L. Ed. 206; Twining v. New Jersey, 211 U. S. 78, 29 S. Ct. 14, 63 L. Ed. 97; Hurtado v. California, 110 U. S. 516, 4 S. Ct. 111, 292, 28 L. Ed. 232; Calder v. Bull, 3 Dall. (3 U. S.) 386, 1 L. Ed. 648, cited by appellant, where the subject of the constitutional limitation upon retroactive legislation is considered by the Supreme Court. That is to say, whether we regard the power of the Commission in establishing a just and reasonable rate as a basis of reparations as a judicial power or as a legislative power, in either event rates established by the legislative power and collected by the carrier cannot be taken from it because it is subsequently determined to be excessive, whether the belated determination is by court or legislature, or, to use the phrases more commonly applied to'the acts of the Commission, whether such subsequent determination is quasi-legislative, administrative or quasi judicial — 1 in either event a rate established by law — lawful when charged, remains lawful when attacked later by the shipper. The view we have expressed is supported by all the decisions of state courts construing laws establishing rate-regulating bodies having power to grant reparations for excessive rates charged by the carrier. Missouri-K. & T. Ry. Co. v. Railroad Commission of Texas (Tex. Civ. App.) 3 S.W.(2d) 489; Id. (Tex. Com. App.) 13 S.W.(2d) 679, 680; Mathieson Alkali Works v. N. & W. Ry. Co., 147 Va. 426, 137 S. E. 608; Miller Mill Co. v. L. & N. R. Co., 207 Ala. 253, 92 So. 797; Young Co. v. Payne, 127 Miss. 48, 89 So. 782; Bonfils v. Public Utilities Comm., 67 Colo. 563, 189 P. 775; Northern Pacific Ry. Co. v. Dept. of Pub. Works, 136 Wash. 389, 240 P. 362; Texas & Pac. Ry. Co. v. R. R. Comm., 137 La; 1059, 69 So. 837. To the same effect is the decision of the Railroad Commission of California, 2 Cal. R. R. Comm. R. 626. A similar decision was rendered September 16, 1930, by the United States District Court for the Southern District of Mississippi in Eagle Cotton Oil Co. v. So. Ry. Co., 46 F.(2d) 1006, wherein the order of the Interstate Commerce Commission in a ease of the same title reported in 140 I. C. C. 131, granting reparations for excessive rates that had been fixed by the Commission, was held void. The appellee cites the decision of the Supreme Court in U. S. v. M. & M. Traffic Ass’n, 242 U. S. 178, 37 S. Ct. 24, 61 L. Ed. 233, as decisive of the question as to the power of the Commission to make reparations on the basis that Commission-made rates were unreasonable. This decision, as we understand it, merely holds that a shipper who is not a party to a proceeding attacking a rate as unreasonable cannot properly ask for a rehearing of its decision, but should file a new application attacking the rate, as permitted by section 13 of the Interstate Commerce Act (49 USCA § 13). On such application he would be entitled to a hearing notwithstanding the previous determination of the Commission in the other case. This decision does not deal with the question of reparations. Our attention is also directed to a decision of the United States District Court (in a three-judge case), McLean Lbr. Co. v. U. S., 237 F. 460, 466, where that court held that a shipper could invoke the aid of a court to review the action of the Commission on the ground that the rate is unreasonably high. It is sufficient to say of this case that the question involved was not one of reparations, but of the power of the court to review the order of the Commission fixing a new rate, upon the ground that its action was not in pursuance of its authority and that the rate fixed was unreasonably high. The court held that it could entertain a bill to inquire into the matter at the instance of a party to the proceedings before the Interstate Commerce Commission, but it also held that the finding of the Commission as to the reasonableness of the rate it established was conclusive where supported by substantial evidence, 237 F. page 470. This decision has no bearing upon the question involved here as to the power of the Commission to award the reparations in conflict with its own previous findings as to the reasonableness of a rate.

The decision of the Supreme Court in Baltimore & O. R. Co. v. U. S., 279 U. S. 781, 49 S. Ct. 492, 73 L. Ed. 954, is cited as sustaining the power of the Commission to make an award in opposition to its finding in the “first case” and to make reparations accordingly. That case merely decided that when the order of the Commission was set aside by the court as illegal- the court eo-uld order a restoration of funds paid under the erroneous order as a part of the relief granted the parties attacking the validity of the order. This decision does not support the conclusion that a court could set aside a previous judgment, or decree, in a subsequent suit brought for that purpose, merely because in the former suit an erroneous view of the evidence had resulted in the judgment, or decree, nor is it authority for the proposition that' a court can set aside a law or legislative act because the legislators were induced to pass the legislation by false or erroneous or insufficient evidence. Such power does not exist. There are statements in the opinion of the Supreme Court in Reagan v. Farmers’ L. & T. Co., 154 U. S. 362, 367, 14 S. Ct. 1047, 1054, 38 L. Ed. 1014, that militate against the views herein expressed. We quote from that opinion the paragraph relied upon by amici curiae to sustain the power of the Commission to award reparations against past collections, of Commission-made rates.

- “It is doubtless true, as a general proposition, that the formation of a tariff of charges for the transportation by a common carrier of persons or property is a legislative or administrative, rather than a judicial, function. Yet it has always been recognized that, if a carrier attempted to charge a shipper an unreasonable sum, the courts had jurisdiction-to inquire into that matter, and to award to the shipper any amount exacted from him in excess of a reasonable rate, and also, in a reverse ease, to render judgment in favor of the carrier for the amount found to be a reasonable charge. The province of the courts is not changed, nor the limit of judicial inquiry altered, because the legislatme, instead of the carrier, prescribes the rates. The courts are not authorized to revise or change the body of rates imposed by a legislature or a eommis- ’ sion. They do not determine whether one rate is preferable to another, or what, under all circumstances, would be fair and reasonable, as between the earners and the shippers. They donot engage in any mere administrative work. But still there can be no doubt of their power and duty to inquire whether a body of rates prescribed by a legislature or a commission is unjust and unreasonable, and such as to work a practical destruction to rights of property,_ and, if found so to be, to restrain its operation. In Chicago, B. & Q. R. Co. v. Iowa, 94 U. S. 155, 24 L. Ed. 94, and Peik v. Chicago & N. W. R. Co., 94 U. S. 164, 24 L. Ed. 97, the question of legislative control over railroads was presented; and it was held that the fixing of rates was not a matter within the absolute discretion of the carriers, but was subject to legislative control.” (Italics ours.)

It is therefore argued that as the courts could formerly award reparations even against legislative rates, the Commission, acting as a quasi judicial body, can now exercise that function. In considering this decision it should be observed that the paragraph relied upon, so far as it refers to the power of the court to review a legislative rate because-such rate is excessive, was not involved in the case. The question-for decision was the power of the court to relieve a carrier from rates so low- as to be confiscatory (Id., 154 U. S, page 399, 14 S. Ct. 1047, 38 L. Ed. 1014), a power now universally conceded. This dictum in Reagan v. Farmers’ L. & T. Co., supra, is inconsistent with the theory of reparations for excessive or discriminatory rates stated in Mitchell Coal & Coke Co. v. Penna. R. Co., 230 U. S. 247, 259, 33 S. Ct. 916, 921, 57 L. Ed. 1472, supra, as follows: “Under the statute the carrier has the primary right to fix rates, and so long as they are acquiesced in by the Commission, the carrier and shippers are alike bound to treat them as lawful. After the rate had been abandoned, the carrier is still obliged to treat it as having been lawful, and cannot refund what has been collected under it until the Commission determines that what was apparently reasonable had in fact been unreasonable. But such a determination cannot be made by the courts, for they would not only have first to exercise an administrative function and make a rate by which to measure the reasonableness of the-charge collected, but would have to go further and treat as unreasonable a rate, past or present, which the statute had declared should be deemed lawful until it had been held to be otherwise by the Commission.”

This case dealt with the power of the courts under the Interstate Commerce Act (24 Stat. 382), the predecessor of the act involved here. In that case it was also said that: “The courts have not been given jurisdiction to fix rates or practices in direct proceedings, nor can they do so collaterally during the progress of a lawsuit when the action is based on the claim that unreasonable . allowances have been paid.” See, also, Skinner & Eddy Corp. v. U. S., 249 U. S. 557, 562, 39 S. Ct. 375, 63 L. Ed. 772.

The parties here concede that the Commission alone must declare the unreasonableness ■ if the past rate and ascertain the reasonable rate that should be charged as a basis for reparations. There is no helpful analogy between the common law power of the courts in giving relief against unreasonable rates and the statutory power of the Commission to make reparations, for in the latter ease juiisdietion is statutory and the new rate is one that upon- ascertainment must be applied in all subsequent applications for reparations covering that period.

It is contended by amici curiae that the rates established by the Commission June 22, 1921, in the first case, had been set aside and nullified by the act of the carrier in establishing a lower rate and by the proceedings of the Interstate Commerce Commission entitled Reduced Rates 1922, 68 I. C. C. 676, wherein the Commission advised certain blanket reduction of rates by percentages, which recommendation was acted upon by the carriers by making a reduction from 96 to 86.5 cents per 100 from California points to Phoenix. We cannot concur in this conclusion. It is based upon the claim, or perhaps it should be only considered a suggestion, to meet the appellants’ contention, that the maximum rate fixed by the Commission was the exact and only measure of reasonableness and that therefore a lower rate is necessarily a departure from reasonableness. This suggestion is based upon the assumption that the exact amount of a just and reasonable rate is capable of exact scientific ascertainment, as is the time of an eclipse, or the velocity of light, or as the weight of a cubic foot of water, whereas the extent to which freight rates are reasonable or unreasonable is a matter of judgment to be exercised by men and upon which they will and do differ. The ascertainment of a maximum rate is in effect a decision that any rate below that maximum is reasonable as to the shipper, and that the carrier below that maximum can be trusted to fix a rate that is not too low to protect itself. There was no change in the subsequent action of the Commission or of the carrier which affected the maximum; and no change in the maximum by the Commission, because the voluntary act of the carrier in reducing its rate to 86.5 made an order unnecessary. The nature of this blanket order of the Commission was considered by the Supreme Court in Brimstone R. & Canal Co. v. U. S., 276 U. S. 104, 48 S. Ct. 282, 72 L. Ed. 487.

Judgments reversed.


author: HUTCHESON, Circuit Judge.

text:
    HOWARD v. LOUISIANA & A. RY. CO.
    No. 5941.
    Circuit Court of Appeals, Fifth Circuit.
    April 30, 1931.
    Rehearing Denied May 23, 1931.
    Otis W. Bullock, of Shreveport, La., and 5. P. Jones, of Marshall, Tex., for appellant.
    R. F. White, of Alexandria, La., and A. L. Burford and C. Huffman Lewis, both of Shreveport, La., for appellee.
    Before FOSTER, SIBLEY, and HUTCHESON, Circuit Judges.
   HUTCHESON, Circuit Judge.

Appellant, plaintiff below, sued the defendant railway company under the Federal Employers’ Liability Act (45 USCA §§ 51-59) for alleged injuries claimed to have been suffered by him while in the defendant’s employ as a brakeman.

At the close of all the evidence a motion for a directed verdict in favor of the defendant was presented and argued, and the court, stating that if a substantial verdict for plaintiff was rendered by the jury the court would have to set same aside as contrary to the law and the evidence, granted the motion.

To the action of the court in refusing to submit the case to the jury on issues presented in charges requested by plaintiff, and in instructing a verdict for the defendant plaintiff duly excepted, and from the judgment on the verdict, this appeal is taken.

Appellee has filed a motion to strike plaintiff’s bills of exceptions as not filed in time. The point made is that though the bills were settled, ordered filed, and filed during the same term of court at which the cause was tried, they were filed too late because of the fact that plaintiff, having procured an order allowing- forty two days within which to prepare and settle his bills of exceptions, did not file them within that time; that by procuring the order plaintiff deprived the court of its jurisdiction to allow, approve, and order his bills of exceptions filed at any time during the term.

The point is without merit. That the preliminary order granting forty-two days has no effect upon the inherent power of the court at any time during the term to allow, approve, and order filed bills of exceptions is too elementary to require citation 'of authorities. The motion to strike is overruled.

On the merits of the appeal the single ■ question is presented, whether the court had the power, in the state of the evidence, to direct a verdict for defendant. Plaintiff insists that the action of the court has deprived him of that substantial right of trial by jury guaranteed by the Seventh Amendment to all litigants in the courts of the United States in suits at common law.

Hq insists that since there was testimony, ‘though given by himself, that not he but other employees were guilty of the negligence which caused the collision, and that he re- . eeived substantial injuries as the result of it, he was entitled to have a jury verdict op the issues tendered. Defendant vigorously opposes this view, contending that the plaintiff’s evidence was wholly discredited by the testimony of the other witnesses in the case both upon the issue of negligence and of ■injury, and that the evidence so overwhelmingly preponderated in its favor that the district judge was right in taking the case from the jury. It says, and the contention is supported by the testimony of its witnesses, that the fault which brought about the conditions complained of was that of the plaintiff himself. That he was the rear brakeman whose duty it was to attend to the setting of the brakes and to observe and guard against dangerous conditions at the rear of the train, and that having brought about by his own negligence the very conditions which caused the injury, he may not recover. It points to the finding of the district judge that though there has been some testimony on the part of plaintiff that Brakeman Nash was in charge of the rear end of the train instead of plaintiff himself, I think that is thoroughly disproved by all the evidence in the case” and cites Great Northern Ry. Co. v. Wiles, 240 U. S. 444, 36 S. Ct. 406, 60 L. Ed. 732; I. C. Ry. Co. v. Skaggs, 240 U. S. 66, 36 S. Ct. 249, 60 L. Ed. 528; New York, N. H. & H. R. Co. v. Murphy (C. C. A.) 204 F. 420.

It further contends, and points to the testimony of its witnesses and the statement of the trial judge, that “if a substantial verdict is returned it would have to be set aside” in support of the contention that the proof overwhelmingly establishes- that plaintiff in fact received no injury at the time in question; that he was a malingerer; and that he has had a past career as such.

Notwithstanding that, upon the point of negligence, plaintiff, though admitting that' his regular position was that of rear brakeman, testified positively that because of his inexperience on that run he and Nash had exchanged places, and that at the time of the happening of the conditions which caused the injury Nash and not he was acting as rear brakeman and upon the point of injury testified with unshaken persistence to the fact that he had received injuries, denied his ever having been a malingerer, and by his own testimony supported by that of a physieian made out-a ease of substantial injury, defendant, quoting from United Central Oil Corporation v. Helm (C. C. A.) 11 F.(2d) 760, 762, “It is well settled that the rule is this: Whenever it is clear that, if the jury should render a verdict for one party, the judge would be obliged to grant a new trial, in the exercise of sound discretion, it is his duty to direct a verdict for the other party,” contends that under this rule since the district judge did not believe the testimony of plaintiff to be true and had made up his mind that if the jury should return a substantial verdict in plaintiff’s favor he would have to set it aside, it was his duty not to let the ease go to the jury, but in the first instance to direct a verdict for the defendant..

Defendant’s contention confuses and seeks to blend two powers and functions possessed by a district judge presiding over a jury trial each, entirely separate and distinct from the other: The power primarily to instruct a verdict for want of evidence, recognized in Barney v. Schmeider, 9 Wall. 248, 251, 19 L. Ed. 648, “It is possible to have a jury trial in which the plaintiff, having failed to offer any evidence at all, or any competent evidence, the jury finds for the defendant for that very reason. And in such case it is strictly correct, if the plaintiff does not take a non-suit, for the court to instruct the jury to find for the defendant,” and the power always recognized as resident at common law in the trial judge to set a verdict aside when in the opinion of the judge it is not right that the verdict should stand: “Its [the seventh amendment] aim is not to preserve mere matters of form and procedure, but substance of right. , This requires that questions of fact in common-law actions shall be settled by a jury, and that the court shall not assume, directly or indirectly, to take from the jury or to itself such prerogative.” Walker v. New Mexico R. Co., 165 U. S. 593, 17 S. Ct. 421, 422, 41 L. Ed. 837.

The preservation of this right requires that the two functions of the trial judge, in the exercise of which he asserts his rightful powers of control over the results of jury trials, be never confused.

Two great eases, Capital Traction Co. v. Hof, 174 U. S. 1, 19 S. Ct. 580, 43 L. Ed. 873, and Slocum v. New York Life Ins. Co., 228 U. S. 364, 33 S. Ct. 523, 532, 57 L. Ed. 879, in which the scope and meaning of the right of trial by jury guaranteed by the Seventh Amendment are authoritatively examined and fixed, make clear the essential separateness of these two functions: “ ‘Trial by jury,’ in the primary and usual sense of the term at the common law and in the American constitutions, is not merely a trial by a jury of 12 men before, an officer vested with authority to cause them to be summoned and empaneled, to administer oaths to them and to the constable in charge, and to enter judgment and issue execution on their verdict;. but it is a trial by a jury of 12 men in the presence and under the superintendence of a judge empowered to instruct them on the law and to advise them on the facts, and (except on acquittal of a criminal charge) to set aside their verdict, if, in his opinion, it is against the law or the evidence. This proposition has been so generally admitted, and so seldom contested, that there has been little occasion for its distinct assertion.” Capital Traction Co. v. Hof, 174 U. S. page 13, 19 S. Ct. 580, 585, 43 L. Ed. 873.

In the Slocum Case it was declared that in no instance may the judge find the facts for the jury, and that while he may set the verdict aside, if he does so, another trial by-jury must follow. In that ease the court said: “It is the province of the jury to hear the evidence and by their verdict to settle the issues of fact, no matter what the state of the evidence; and that while it is the province of the court to aid the jury in the right discharge of their duty, even to the extent of directing their verdict where the insufficiency or conclusive character of the evidence warrants such a direction, the court cannot dispense with a verdict, or disregard one when given) and itself pass on the issues of fact.”

To permit a trial judge to do what defendant contends he may do, instruct a verdict for one party where there is evidence in support of the theory of the other, merely because the judge does not believe the evidence to be true, is in effeet to permit him to submit the case to the jury, and the verdict having come in contrary to the judge’s views, to render a verdict non obstante veredicto, thus recognizing his right to do indirectly that which he cannot directly do. Slocum v. New York Life Ins. Co., 228 U. S. 364, 33 S. Ct. 523, 57 L. Ed. 879.

In Gunning v. Cooley, 281 U. S. 90, 50 S. Ct. 231, 233, 74 L. Ed. 720, a malpractice case in which the judges of the Court of Appeals of the District of Columbia in dissenting and concurring opinions have gravely questioned the action of the trial court in submitting plaintiff’s case to the jury [Gunning v. Cooley, 58 App. D. C. 304, 30 F.(2d) 467], the Supreme Court re-examined and restated in an authoritative way the rules governing the submission of causes to a jury:

“ ‘When, on the trial of the issues of fact in an action at law before a Federal court and a jury, the evidence, with all the inferences that justifiably could be drawn from it, does not constitute a sufficient basis for a verdict for the plaintiff or the defendant, as the ease may be, so that such a verdict, if returned, would have to be set aside, the court may and should direct a verdict for the other party.’ Slocum v. N. Y. Life Ins. Co., 228 U. S. 364, 369, 33 S. Ct. 523, 525, 57 L. Ed. 879.
“A mere scintilla of evidence is not enough to require the submission of an issue to the jury. The decisions establish a more reasonable rule ‘that in every ease, before the evidence is left to the jury, there is a preliminary question for the judge, not whether there is literally no evidence, but whether there is any upon which a jury can properly proceed to find a verdict for the party producing it, upon whom the onus of proof is imposed.’ Improvement Co. v. Munson, 14 Wall. 442, 448, 20 L. Ed. 867; Pleasants v. Pant, 22 Wall. 116, 122, 22 L. Ed. 780.
“Issues that depend on the credibility of witnesses, and the effect or weight of evidence, are to be decided by the jury. * * * Where uncertainty as to the existence of negligence arises from a conflict in the testimony or because, the facts being undisputed, fair-minded men will honestly draw different conclusions from them, the question is not one of law but of fact to be settled by the jury. Richmond & Danville R. Co. v. Powers, 149 U. S. 43, 45, 13 S. Ct. 748, 37 L. Ed. 642.”

It is one thing for the trial judge in the exercise of his discretion after a verdict has come in to set that verdict aside, even though there is evidence which if believed would support it, where in his opinion justice has not been done. It is quite another thing for the judge to refuse to permit the case to go to the jury where there is evidence which, if believed, would support a verdict for plaintiff, because, as stated by the trial judge in this ease, he had reached the conclusion that if a substantial verdict should be rendered for the plaintiff he would be compelled to set it aside as against the law and the evidence.

In the first place, it is a quite usual experience with trial judges that the fact that twelve average men have agreed to give credence to evidence which has not impressed the judge invests that evidence with a substance of credibility which it had not theretofore had, and if the judge, notwithstanding such verdict, still feels that justice has not been done, he has a more authoritative guide to the correctness of his conclusion than he had before the verdict came in. But these considerations entirely aside, it is the law. that the trial judge, has no right, merely because he does not believe the evidence of a party, to refuse to take the jury’s verdict on it.

In view of the course which the trial took below, it will serve no useful purpose to abstract the testimony. It is sufficient to say that the evidence overwhelmingly made a ease of fault on the part of some one, and that without such fault the accident could not have occurred. Upon plaintiff’s testimony the fault was the defendant’s, and for the injury resulting it was responsible to plaintiff therefor. Upon the testimony of defendant the fault was plaintiff’s, and defendant was without responsibility. Upon the matter of injury upon the testimony of plaintiff and his witnesses plaintiff received substantial injury; upon the testimony of defendant and its witnesses he did not.

This state of the evidence requires that the issues of fact raised upon conflicting testimony “shall be settled by a jury, and that the court shall not assume, directly or indirectly, to take from the jury or to itself such prerogative.” Walker v. New Mexico R. Co., supra.

The action of the court below having taken from plaintiff the right to have a verdict of the jury on the issues which he tendered in his pleadings and by his evidence, the cause is reversed and remanded for further proceedings not inconsistent with this opinion.


author: STONE, Circuit Judge.

text:
    BENNETT v. LANGWORTHY et al.
    No. 8889.
    Circuit Court of Appeals, Eighth Circuit.
    April 6, 1931.
    Rehearing Denied May 9, 1931.

      Lee W. Hagerman, of St. Louis, Mo. (J. W. Allen, of Kansas City, Mo., and Max 0. Truitt and Staunton E. Boudreau, both "of St. Louis, Mo., on the brief), for appellant.
    Cyrus Crane, of Kansas City, Mo. (E. F. Halstead and John N. Monteith, both of Kansas City, Mo., on the brief), for appellees.
    Before STONE and BOOTH, Circuit Judges, and DEWEY, District Judge.
   STONE, Circuit Judge.

This is an action against the receiver of the Kansas City Land Bank and various other parties, brought by the representative of a holder and owner of six bonds issued by that bank. The action is in the nature of a creditor’s bill against officers of the bank to compel accounting and restitution of moneys alleged to have been diverted from the bank by the officers to their own use. Several of the defendants, not including Langworthy, the receiver, filed a motion to dismiss the petition on the ground that Langworthy was the duly appointed, qualified, and acting receiver of the bank; that he had filed a suit as such with the same purposes as this action; that there was no allegation in this bill that he was failing or refusing to take the necessary action to recover the assets, properties, moneys, funds, and credits due the bank; and that he alone had legal authority, under these circumstances, to enforce such accounting and collection as sought in this action. From an order sustaining the motion and dismissing this action for want of equity, this appeal is brought.

Two questions are argued here by the appellant. The first is that Langworthy has no standing in this court, since the dismissal of the action was upon a separate motion in which he did not join. There is no substance in this contention, as Langworthy is a defendant in the action, and is interested in the termination thereof. He is an appellee, and has a right to appear here as sueh.

The other contention relates to the merits of the matter, and is whether a receiver of a land bank has the power to recover funds of the bank improperly diverted by its officers. A receiver of a land bank is not an official of a court, appointed in an equitable action, for the purposes and with the powers of a receiver in equity. Decisions as to the powers and duties of an equity receiver are not controlling because based upon different considerations — for example, the custody of the property and property rights in the court. He is an official appointed by the Federal Farm Loan Board, an executive agency (USCA, title 12, §§ 963 and 961), and has the duties and powers given in the Federal Farm Loan Act, of which the above sections form a part. Sueh powers and duties are set forth in section 961 as follows:

“Such receiver, under the direction of the Federal Farm Loan Board, shall take possession of the books, records, and assets of every description of sueh association, collect all debts, dues, and claims belonging to it, and, with the approval of the Federal Farm Loan Board, or upon the order of a court of record of competent jurisdiction, may sell or compound all bad or doubtful debts, and, on a like approval or order, may sell all the real and personal property of sueh association, on sueh terms as the Federal Farm Loan Board or said court shall direct.”

We have not been cited to any decision which it is claimed directly passes upon the duties and powers of sueh receiver except Wheeler v. Greene, Receiver, 280 U. S. 49, 50 S. Ct. 21, 74 L. Ed. 160. That action involved the power of such a receiver to enforce the stockholders’ liability created by the above act. 280 U. S. at page 50, 50 S. Ct. 21, 74 L. Ed. 160. This decision is not controlling here, because it was determining the somewhat unusual liability of stoekholders, and because tbe determination was based upon a clear omission in tbe act. However, it is pertinent as declaring that this portion of this act was modeled after the National Bank Act; in basing the decision upon differences between the wording of those two acts; and in stating that “the receiver had power to collect the assets of the bank. Page 52 of 280 U. S., 50 S. Ct. 21, 22. Therefore the decision suggests that we make a similar comparison of the acts as to the matter here involved, and also ascertain if the right of recovery of diverted assets is to be considered a portion of the assets which this act empowers the receiver to recover. A comparison of this section 961 with the similar section of the National Bank Act (USCA, title 12, § 192) reveals that this portion of section 961 is an exact copy of the like part of section 192. Bach reads that: “Such receiver * * * shall take possession of the books, records, and assets of every description of such association, collect all debts, dues, and claims belonging to it. * * * ” It is a rule of statutory construction that, where one statute is patterned after another, and the earlier statute has been theretofore construed, it is presumed such construction was contemplated in the later enactment. Hecht v. Malley, 265 U. S. 144, 153, 44 S. Ct. 462, 68 L. Ed. 949. Applying this rule, we turn to construction placed upon the powers of a national bank receiver under the above-quoted language. In Cooper v. Hill, 94 F. 582, 587, this court said: “ * * * The directors and the other officers of a national bank become personally liable to the bank and its successor in interest, its receiver, for losses caused by their use of its funds for unauthorized purposes, as well as for culpable negligence in their use and for their fraudulent appropriation(Italics ours.)

In Cockrill v. Cooper, 86 F. 7, 13, this court said: “The directors of a bank, being agents of the corporation, are boupd by the law of agency to act within the scope of the bank’s charter and by-laws, and to exercise at all times a reasonable degree of care and diligence in the discharge of the duties which they have been appointed to perform. If they are guilty of a culpable violation of this obligation, and the corporation thereby sustains damage, the directors are personally liable therefor to the corporation while it is a going concern, and to its receiver when it has become insolvent; and this without reference to the fact that the franchises of the corporation have not been forfeited.” (Italics ours.)

Also see Briggs v. Spaulding, 141 U. S. 132, 11 S. Ct. 924, 35 L. Ed. 662; Adams v. Clarke, 22 F.(2d) 957 (C. C. A. 9); Curtis v. Connly, 264 F. 650 (C. C. A. 1). Aside from this convincing construction of the National Bank Act from which the statute before us is copied, the language used — that the receiver shall collect all “debts, dues, and claims” belonging to the bank — is certainly broad enough to include recovery of sums wrongfully taken from the assets of the bank, and would naturally do so.

We need not diseuss what the rights of the creditors of the bank would be as to prosecuting actions for recovery of such money if the receiver was not moving properly in the matter, because here the receiver is litigating these very claims against the former bank officers. Where this is the situation, only confusion and disturbance could result from permitting this duplication of litigation. We think the statute should be construed as empowering the receiver to make such recoveries and as preventing creditors from so doing if and so long as the receiver is doing so in good faith and with proper diligence. See Bailey v. Mosher, 63 P. 488, 491 (C. C. A. 8), as very suggestive on this point, although not directly decisive thereof.

The decree should be, and is, affirmed..


text:
    HANSEN v. WELCH, COOK, BEALS CO. et al.
    No. 8908.
    Circuit Court of Appeals, Eighth Circuit.
    April 6, 1931.

      Harold M. Kelley, of Omaha, Neb. (Robert J. Webb and S. Arion Lewis, Jr., both of Omaha, Neb., on the brief), for appellant.
    Charles B. Keller, of Omaha, Neb. (George Doane Keller, of Omaha, Neb., on the brief), for appellees.
    Before STONE and BOOTH, .Circuit Judges, and DEWET, District Judge.
   STONE, Circuit Judge.

This is an appeal from a decree according recovery to creditors under a stockholders’ ■double liability statute in Nebraska.

The sole point presented here is whether this action is barred by the statute of limitations which admittedly is one year. The real question is as to when the cause of action accrued.

The debtor corporation was adjudicated a bankrupt March 5,1924, on an involuntary petition filed January 12, 1924. A proceeding against the company was filed by a creditor on February 1, 1927, who secured judgment upon which an execution was returned unsatisfied May 12, 1927. This suit was brought on May 7, 1928. A petition in intervention of other creditors was filed in this proceeding September 4, 1929. Final distribution of the bankrupt estate was of July 3, 1929. Appellant contends that the cause of action accrued when the petition in bankruptcy was filed or at least when the adjudication was made. Either of these dates is more than a-year prior to the commencement of this action. The contention of appellee is that the cause of action accrued when the final report in the distribution of the bankrupt estate was made, July 3, 1929.

The. determination of the question before us depends upon the construction of section 470 of Compiled Statutes of Nebraska 1922, which creates this liability and which is as follows:

“Notice of debts of corporation — Liability of stockholders. Every corporation hereafter created shall give notice annually in some newspaper printed ifi the county or counties in which the business is transacted, and in case there is no newspaper printed therein, then in the nearest paper in the state, of the amount of all existing debts of the corporation, which notice shall be signed by the president and a majority of the directors, and if any corporation shall fail to do so, after 'the assets of the corporation are ■first exhausted, then all the stockholders of the corporation, shall be jointly and severally liable for all the debts of the corporation then existing, and for all that shall be eontraete.d before such notice is given, to the extent of the unpaid subscription of any stockholder to the capital stock,of such corporation, and in addition thereto the amount of capital stock owned by stieh individuals.” (Italics ours.)

The statute clearly contemplates that there shall be no liability thereunder against the stockholders until after the assets of the corporation are “first exhausted.” This language is plain, and its meaning is very different from a liability arising as soon as it is known that the corporation will not be able to pay all of its debts in full. The difference intended by the statute is that at the time the suit is brought thereunder it shall be known, not only that the corporation cannot pay its debts in full, but that all of its assets have been exhausted leaving nothing for further payment to creditors. That part of the language of the statute is: “If any corporation shall fail to do so, after the assets of the corporation are first exhausted, then all of the stockholders of the corporation, shall be jointly and severally liable for all the debts,” etc.

Determination of when the assets of a corporation have been exhausted may ba inade in several ways. The usual method is by the return of an execution unsatisfied. But where the assets of a corporation are in course of administration before a receiver, on assignment for benefit of- creditors or in bankruptcy, those assets are not exhausted until the final dividend has been paid to creditors and that fact judicially determined. It is not possible to know until then what amounts will be necessary to make up the deficiency in the indebtedness, and it is clearly the purpose of this statute to compel an exhaustion of the assets and an ascertainment or the possibility of an ascertainment of the remaining indebtedness before the cause of action apises thereunder. The return of an unsatisfied execution when the entire property of the debtor is in custodia legis is a bare legal formality which really determines nothing as to the exhaustion of the assets because they are not exhausted merely because they are in the protection of a court and cannot, for the time being, be reached by judicial process.

Appellees present here a motion to strike the statement of the evidence. .We need not determine this motion, as it is clear that the decree should be affirmed upon the merits.

The decree should be, and is, affirmed.


text:
    SCHULENBERG v. NORTON.
    No. 8876.
    Circuit Court of Appeals, Eighth Circuit
    April 6, 1931.
    Rehearing Denied May 4, 1931.
    John Knauf and Arthur L. Knauf, both of Jamestown, N. D., for appellant.
    Lemke & Weaver, of Fargo-, N. D., for appellee.
    Before STONE and GARDNER, Circuit Judges, and WYMAN, District Judge..
   STONE, Circuit Judge.

This is an action by the administrator of Anna Smith against the receiver of the Farmers’ National Bank of La Moure, N. D. The substance of the petition is that Mrs. Smith had intrusted $1,700 to the bank to be invested in 7 per cent, real estate mortgages ; that the bank had failed to make such investment, but had converted the funds to its own use; that, at the time the bank became insolvent and was taken over by the comptroller, there were funds therein of more than the above amount; that the receiver had, “on various occasions,” been requested to and had refused to allow this amount as a preferred claim or any claim against the bank; that this amount should be paid as a preferred claim from the assets. Subsequently, the prayer was amended to permit allowance as a general claim if the court deemed it was not preferential. The answer denied the petition, except as to appointment and qualification of the receiver, and it pleaded that the petition failed to state a cause of action. Evidence was introduced, and the court decreed that $1,700 "be allowed and paid as a general claim. From this decree, the receiver appeals.

There are. two general contentions here. One is that the amendment to the petition was improperly permitted. The other is that the evidence was insufficient to sustain the decree.

The objections urged here to the amendment to the prayer of the petition are that it was not to conform to the proof, and that it came too late. Amendments to pleadings are freely allowed where they are in furtherance of justice. The propriety of such amendments is a matter of discretion with the trial court, and will not be disturbed, unless it appears that such discretion has been unwisely exercised, in that the amendment allowed was not, under the ereumstanees, in furtherance of justice but a detriment thereto. USCA title 28, § 777; Thomsen v. Cayser, 243 U. S. 66, 89, 37 S. Ct. 353, 61 L. Ed. 597, Ann. Cas. 1917D, 322; and the following eases- in this court — Guardian Trust Co. v. Meyer, 19F.(2d) 186, 192; Chicago, St. P., M. & O. Ry. Co. v. Nelson, 226 F. 708, 712; Bankers’ Surety Co. v. Town of Holly, 219 F. 96, 102. This amendment came some time after the submission of the case, but before decision. It was not intended to affect the issues in the ease but the relief. There is no contention that it could have resulted in placing appellant in any disadvantageous position by surprise or otherwise. In a sense, it was to conform to the proof, as it was designed to permit plaintiff to secure alternative relief based thereon. There was no prejudice to appellant of which he can complain. It was not an unwise exercise of discretion to permit the amendment.

The contention that the amendment “came too late” is based upon the theory that the court had lost the power to permit amendment, because, it is claimed, the term at which the case was tried and submitted had closed before the amendment was offered. While the ease had been tried and submitted, it was still under such submission and undetermined when the amendment was allowed. Section 777 of title 28, USCA provides that the trial court “may at any time permit either of the parties to amend any defect in the * * * pleadings, upon such conditions as it shall, in its discretion and by its rules, prescribe.” “Any time” in the above statute has been construed to mean while the court “had control of the record, it had jurisdiction to act.” Mexican Central Ry. Co. v. Duthie, 189 U. S. 76, 77, 23 S. Ct. 610, 47 L. Ed. 715. It not only “covers every step of a case from summons to judgment” [In re Griggs, 233 F. 243, 246 (C. C. A. 8)], but amendments may be made even after judgment [Norton v. Larney, 266 U. S. 511, 516, 45 S. Ct. 145, 69 L. Ed. 413; Ward v. Morrow, 15 F.(2d) 660; 662, 663 (C. C. A. 8); McDonald v. Nebraska, 101 F. 171, 177 (C. C. A. 8); Chicago, R. I. & P. Ry. Co. v. Stephens, 218 F. 535, 540 (C. C. A. 6) ]. There is some dispute as to whether this amendment was made during the term, but that is immaterial, where no final judgment has been entered during the expired term, for the matter is yet within the bosom of the court for decision, and it has lost no control over the incidents of the trial. In fact, such an amendment may be regarded as made in the appellate court [Norton v. Larney, 260 U. S. 511, 516, 45 S. Ct. 145, 69 L. Ed. 413], or the appellate court may remand with instructions to set aside the judgment but not the verdict, to permit the amendment, and to re-enter judgment thereafter [Ward v. Morrow, 15 F. (2d) 660, 662, 663 (C. C. A. 8)]. It is claimed, also, that the amendment constituted a new cause of action. This cannot be, because the amendment made noi change in the facts relied upon for recovery, but merely as the remedy or result of such facts. There was no abuse of discretion in allowing this amendment; no statement of a different cause of action; and it was not out of time in a jurisdictional sense.

The next contention is that no general claim was ever presented to the receiver and that the claim alleging preference was not filed within time. The theory of this contention is that presentation of a claim to the receiver is a necessary prerequisite to suit thereon. No authority is cited to support this proposition, and we have been unable to find such. Section 194, Title 12, XJSCA, requires the receiver to ratably pay “all such claims as may have been proved to his satisfaction or adjudicated in a court of competent jurisdiction.” The Supreme Court has held that claims may be established in court as well as before the receiver. Bank' of Bethel v. Pahquioque Bank, 14 Wall. (81 U. S.) 383, 401, 20 L. Ed. 840; Kennedy v. Gibson, 8 Wall: 498, 506, 19 L. Ed. 476. There is no statutory provision requiring pri- or presentation of claims to such receiver. The statute provides an easy, speedy manner of determination of claims by permitting such to be presented to a" receiver appointed by the Comptroller, but this is quite different from limiting the ordinary and usual way of determining rights of creditors judicially. Nor is it material that this claim was, at first, urged as a preferred claim, since no ground of estoppel is or can be based thereon under the facts here.

On the merits, the claim is that there was no liability shown. There is no essential controversy in the evidence as to the transaction between Mrs. Smith and- the bank. Prior to June 3, 1915, Mrs. Smith had approximately $1,700' in the bank, represented by a certificate of deposit bearing 5 per cent, interest. At that date, she had a conversation with Hunt, cashier of the bank, to the effect that she wanted to cash the certificate in order to invest the funds to procure higher interest. Hunt told her the bank could not pay more than 5 per cent., but that he could invest the funds for her to secure 7 per cent, to which she consented. Thereupon and on that day the certificate was cashed, and Hunt testified that he “went through the note pouch and took out I think three or four good notes that I figured were absolutely good notes and put them in an envelope and marked on the envelope ‘property of Mrs. Smith’ and just put them in that envelope and put them in the vault and that was the start of it, and as those notes were paid I took other notes out of the bank and put in the place of them and she received her —maybe you don’t want me to answer that, it is hard to — that continued until the bank closed.”

These notes had been among the “bills-receivable”, on the books of the bank, and, when they were taken out and placed in the envelope for Mrs. Smith, her name was written at the end of the lines on the book where these notes were entered. This book contained only notes which were paid. Some months later (March 3, 1916), when Mrs. Smith was leaving La Moure, the cashier gave her evidence of the transaction in the form of a receipt as follows:

“La Moure, N. D. Mch. 3, 1916.
“Received of Mrs. Anna Smith Seventeen Hundred and no/Dollars. This money left with bank for investment purposes and she is to receive interest at 7% from Dee. 23,. 1915.
“$1,700.00'
“Farmers Natl. Bank of La Moure,
“T. S. Hunt, Cash.”

Mrs. Smith had no knowledge of what notes the money was * from time to time invested in. She knew only that the money was being invested so as to get her 7 per cent, .interest which was sent to her annually. Sometimes notes in Mrs. Smith’s envelope were paid and other notes placed therein, while sometimes notes were taken out and returned to the bank and other notes substituted therefor. This procedure continued until May 3, 1921, when, there were placed in the envelope the last three notes. Before the bank closed, Hunt took these notes out and placed them in his personal letter file and took them from the bank, and still has possession of them. These last notes were separately by Peter C. Peterson ($700), A. P. Smith ($630.37), and Fred Long ($373.-65). At the time the Smith and the Long notes were taken, those men were already indebted to the bank and unable to meet the principal or interest on such indebtedness, and had reached the legal limit of loans to them, “so I [Hunt] tried to find outside money so we could keep them going and get all the money.” To accomplish this result, their notes were placed, in Mrs. Smith’s envelope. The Peterson note was secured by a second mortgage. Before the bank closed, the Peterson note was taken out of Mrs. Smith’s envelope because of foreclosure of the first mortgage. Also; before that time, the Smith note was taken out of Mrs. Smith’s envelope and placed in the bank files of “collateral notes.” All of these three notes are worthless.

While the evidence might, in some respects, be more complete and clear, it compels the following conclusions: The bank took this money to invest for Mrs. Smith. Through its cashier, it made these investments in various successive notes taken from, its own loans which it segregated to Mrs. Smith. At least part of the time and as to most of the notes it made substitutions to its own pleasure and interests. The last notes so placed to Mrs. Smith were, to the •knowledge of the cashier, worthless, or, at least, of very doubtful value, and were so placed (the Smith and Long notes) for its own interests solely. Upon such conclusions as to the facts, what must be the result?

Appellant contends that there is no liability on the part of the bank because there was no deposit by Mrs. Smith in the bank when it closed; because there; is no allegation of fraud, and the investments were in the character of securities intended; and because the bank could not, under the statute, guarantee the worth of real estate loans.

While the petition alleges that the bank took this money under an arrangement to invest it in first mortgage real estate loans, it is not material that this method of investment was not shown. What the evidence does show is simply that the money was taken by the bank “for investment purposes” to yield 7 per cent, interest. No question of liability as for a deposit, in the ordinary sense, is here involved. The relation was for years after June 3, 1915, not of bank and depositor, but of agent and principal. Nor is the theory of guarantee applicable because the allegation of the petition is that the bank had not invested the money as it should have, but had “converted” it to its own use. True it is that there is no direct allegation of fraud, but the petition clearly intends that the bank, instead of using the money as it was in duty bound, used it for its own purposes.

The bank was intrusted with this money under an obligation to use good faith in the investment thereof. It has gained the use for itself; it has not used good faith; and, because it has not, this loss has occurred. In all good conscience the bank should respond for this loss through its failure to use good faith in handling money intrusted to it. The situation is, or is analogous to, that where recovery is accorded for money had and received. The law does not permit those who deal with money intrusted to them to profit through bad faith action in relations thereto.

The judgment is right, and is affirmed.