source: Caselaw Access Project

author: BONDY, District Judge.

license: Public Domain

text:
    UNITED STATES v. FUR DRESSERS’ & FUR DYERS’ ASS’N, Inc., et al.
    (District Court, S. D. New York.
    May 2, 1925.)
    1. Monopolies <®=»I2(I)— Suppression of competition or restraint of trade to render agreement or combination illegal must be unreasonable.
    An agreement is not illegal under the antitrust laws (Comp. St. § 8820 et seq.) merely because it suppresses competition or restrains trade, but suppression of competition or restraint of trade, to make agreements and combinations illegal, must be unreasonable.
    2. Monopolies <®=>I4 — Anti-Trust Act held inapplicable to association of fur dressers and fur dyers; “trade or commerce.”
    Anti-Trust Act (Comp. St. § 8820 et seq.) held inapplicable to an association of fur dressers and fur dyers, who neither buy nor sell furs, since the dyeing and dressing of furs does not constitute “trade or commerce,” but is only the performance of labor.
    Petition by the United States against the Pur Dressers’ & Pur Dyers’ Ass’n, Incorporated, and others.
    Petition dismissed.
    William Hayward, David L. L’Esperance, Jr., Rush H. Williamson, and Ryland W. Joyce, all of New York City, for the United States.
    Cadwalader, Wickersham & Taft, Edwin P. Grosvenor, and Herbert A. Koenig, all of New York City, for defendants.
   BONDY, District Judge.

The petitioner alleges that the defendants are engaged in a conspiracy to restrain and monpolize interstate trade in fur skins, in violation of the anti-trust laws (Comp. St. § 8820 et seq.), and prays that the defendants be enjoined from restraining trade, and from putting into effect the rules and regulations of the Pur Dressers’ & Pur Dyers’ Association, Inc., and that they be ordered to dissolve that association.

The defendants deny that any of their acts constitute a violation of the anti-trust laws, and allege that the constitution, by-laws, rules, and regulations of the Pur Dressers’ & Pur Dyers’ Association, Inc., are the rules of a legitimate credit association, conducted for the purpose of enabling the defendants to have available for their use information in regard to the credit of their customers, and to protect the defendants from losses arising out of the numerous insolvencies in the fur trade; that defendants have carried on their businesses at all times in competition with each other; that the defendants only render services, and are not engaged in interstate commerce; that the regulations of the association have no relation, direct or indirect, to interstate commerce; and that the observance thereof by the members does not constitute an unlawful conspiracy in restraint of commerce.

It has been stipulated that the fur dresser takes the raw skin, scrapes off the meat, and in many eases dyes the fur; that the defendants, other than the Pur Dressers’ & Pur Dyers’ Association, Inc., are fur dressers and dyers, and are paid by fur merchants and manufacturers for services rendered in the dressing and dyeing of skins; that the defendants do not deal in fur skins; that the fur dresser and dyer as a rule has only a small capital investment in his business; that his capital is principally technical knowledge of a process for dyeing skins a particular color; that about 80 per cent, of the expense of the business of the dresser and dyer consists of labor which must be paid every Saturday night; that there are in the United States about 10,000 fur merchants, manufacturers, and dealers, nearly all of whom are customers of fur dressers and dyers; that there are approximately 150 fur dressers and dyers, of whom 30 are members of the Pur Dressers’ & Pur Dyers’ Association, Inc.; that fur merchants, manufacturers, and dealers ship raw furs and furs which have been dressed and dyed to all points in the United States; that all the defendants are members of the Pur Dressers’ & Pur Dyers’ Association, Inc.; that membership is limited to those actually engaged in the dressing and/or dyeing of fur skins; that the members of the association do about 70 per cent, of all the business of dressing and dyeing fur skins in the United States, excluding the dressing and dyeing of rabbit skins, which constitutes an enormous business; and that, therefore, if rabbit skins are taken into consideration, the defendants do very much less than 70 per cent, of the total business of dressing and dyeing skins.

It also bas been stipulated that the defendants always have carried on and now are carrying on their businesses in competition with each other as to charges for dressing and dyeing skins, and that the charges made and collected by the various defendants for dressing and dyeing skins have at all times differed by reason of such competition. It also has been stipulated that the provisions of the constitution, by-laws, rules, and regulations of the association, which the government maintains are illegal, are those providing that each member shall deposit with the association the sum of $500 to secure the faithful performance of the by-laws,. rules, and regulations of the association; that any member who shall willfully violate any article of the constitution or any of the rules or regulations of the association shall be subject to a fine; that no member of the association shall allow any of its customers any discounts; that all bills shall be rendered net, payable at the end of the month next following the month of delivery; and that lists of persons who have failed to pay their overdue accounts to members of the association shall be prepared and distributed to the members each month for their information and use, and that no delivery of dressed or dyed skins shall be made to any person by any member of the association so long as the name of that person appears upon the said list, except upon payment by cash or by check upon delivery of the skins.

The rules of the association provide every conceivable method to prevent the listing of customers other than those who have failed to pay their bills, and every conceivable method for the immediate release of every customer from the list upon the payment of his bills. Only the names of customers who have not paid their accounts are listed, not the names of the members, nor the amounts that the customers owe the members, nor the names of customers who owe less than $100, or who honestly dispute unpaid accounts.

Information as to financial responsibility of customers and the lien which the law gives are not sufficient to protect the dressers or dyers, about 80 per cent, of whose expenses is1 labor that must be paid every Saturday night. There were 1,080 insolvencies in New York City in the fur trade during the years 1911 to 1923 among fur manufacturers and dealers with whom the defendants do business, with losses to creditors amounting to many million dollars. It became the general practice of customers of the dressers to make unwarranted and dishonest claims, and to pay only when it' pleased them to do so. Many customers would get credit from one defendant-after another, and then would not pay their bills for almost a year, - and then would insist on a cash discount of 5 per cent., besides another 15 or 20 per cent, on account of unfair claims, with the result that the fur dressers and dyers did not get half of what was due them.

The bills for dressing and dyeing average between $20 and $25 each. In many cases the collection of the claims would have cost more than the amount of the claims. The dressers and dyers are interested in knowing whether a customer pays his bills in full when due, in accordance with his promises, or whether he makes unwarranted claims, not whether he is rich or poor. Their chief concern is that their bills should be paid in full when due, not whether by the foreclosure of a lien or through prolonged litigation they may ultimately recover the agreed price for their services.

That fur dealers have not been subjected to hardship is established by the great growth of the fur business during the 10 years last past. The number of fur merchants, dealers, manufacturers, retailers, and furriers in New York City was 1,201 in 1915, and 3,199 in 1923. The transactions increased from 34,-484, amounting to $1,484,416.64, in 1915, to 101,398, amounting to $10,849,239.64, in 1923, and New York City has become the largest fur dyeing dnd dressing center in the world. Although the association has been operating nine years, the government has not proved, or even attempted to prove, any injury to any one.

Before its adoption in 1915, the plan was submitted to the fur merchants and manufacturers that were members of the Board of Trade of the Fur Industry, and was approved by them. Reputable dealers were competing at a disadvantage with those who were not paying their dressing and dyeing charges when due, nor in full.

The provisions that lists of customers who have failed to pay their overdue accounts to members of the association shall be distributed to members of the association for their' information, and that no delivery of dressed or dyed skins shall be made to any person by any member so long as the name of that person appears upon the list, except upon payment of cash or by cheek upon the delivery of skins, do not go beyond the reasonable requirement to correct the abuses which have crept into the trade. The provisions discriminate against none other than those who do not pay agreed prices for services rendered to them.

Compliance with the rules does not require any member to dress or dye furs for cash only, nor does it limit the amount of credit 'which a member may extend to a customer who meets his obligations, nor does it prevent any member from dressing or dyeing furs for a customer who has failed to pay his bills and whose name is on the unpaid aeeount list. The rules only require that the dressing and dyeing for customers who have failed to pay their bills should be done for cash. Every delinquent eq-n have his dyeing and dressing done, provided he pays cash, or pays his bills, and so re-establishes his Credit, or takes his skins to any one of the 120 dressers and dyers who are not among the 30 members of the association.

The regulation that bills shall be rendered net, payable at the end of the- month next following the month of delivery, provides for uniformity in the customs and usages of the trade, and, as has been conceded by the government, without in any manner affecting competition as to price. It is a reasonable requirement, to enable the members to determine whether a customer pays his bills upon the expiration of a reasonable and uniform credit.

The regulation that no member shah allow any customer any discounts refers only to unwarranted deductions from prices expressly agreed upon when the skins are received for dressing and dyeing, and, as is conceded by the government, arrived at in competition. This also is a reasonable requirement, to enable members to determine whether a customer pays his obligations without any unjust demands for deductions.

This provision does not prevent a member from making proper allowances, as, for instance, for damages to furs, or shortages in delivery, or other proper claims. The rules themselves provide that a copy of all credits and allowances made by members must be filed with the association., They also provide for the arbitration of disputed claims for credits and allowances, and that all claims must be made within five days after delivery. As a matter of fact, claims amounting to $4,672,555.63 have been allowed by members between the years 1915 and 1923.

The provision that each member shall deposit with the association the sum of .$500 to 'secure the faithful performance of the bylaws, rules, and regulations of the association is reasonable. The by-laws provide that for the expense of operating the association a tax of 1 per cent, is assessed on the gross amount of business done during the year, and that, if any deficiency occurs, it shall be assessed pro rata upon the members. The reasonableness of the provision is demonstrated by the fact that nine members who were admitted without making a deposit resigned while owing in the aggregate $6,-850.64 as their share of office expenses. If they had been required to comply with the by-laws, and to make a deposit of $500 each, the loss would have been reduced at least $4,500.

The provision that any member who shall willfully violate any article of the constitution, or any rule or regulation of the association, shall be subject to a fine, suspension, or expulsion, is not unlawful.

The rules provide that any member absenting himself from two regular meetings will be fined $5 for each nonattendance. They provide that the amount of the fine shall not exceed $250 in any case. In no event do these provisions operate to coerce any member to do anything. The rules provide that a member may resign at any time, and on resignation is entitled to a return of his proportionate share of his guaranty, with accrued interest, provided no charges are pending against him and no dues are outstanding and unpaid.

Notwithstanding that there have been 16,021 deliveries on open aeeount to listed concerns in violation of the rules during three years and seven months, no fines have been imposed for any violation, except a fine of $10 to secure attendance at meetings, and a fine which was subsequently remitted.

Not every agreement which suppresses competition or restrains trade is illegal. Only such agreements and combinations as unreasonably suppress competition or restrain trade are illegal. Chicago Board of Trade v. United States, 246 U. S. 231, 38 S. Ct. 242, 62 L. Ed. 683; National Association of Window Glass Manufacturers v. United States, 263 U. S. 403, 44 S. Ct. 148, 68 L. Ed. 358; Standard Oil Co. v. United States, 221 U. S. 1, 66, 31 S. Ct. 502, 55 L. Ed. 619, 34 L. R. A. (N. S.) 834, Ann. Cas. 1912D, 734; Moore v. New York Cotton Exchange (C. C. A.) 296 F. 61. Only such contracts and combinations are within the act as, by reason of intent or the inherent nature of the contemplated acts, prejudice the public interests by unduly restricting competition or unduly obstructing the course of trade.” Nash v. United States, 229 U. S. 373, 376, 33 S. Ct. 780, 781, 57 L. Ed. 1232.

In Chicago Board of Trade v. United States, 246 U. S. 231, 238, 38 S. Ct. 242, 244, 62 L. Ed. 683, the Supreme Court said: “The case was rested upon the bald proposition, that a rule or agreement by which men occupying positions of strength in any branch of trade, fixed prices at which they would buy or sell during an important part of the business day, is an illegal restraint of trade under the Anti-Trust Law. But the legality of an agreement or regulation can not be determined by so simple a test, as whether it restrains competition. Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of their very essence. The true test of legality is whether the restraint imposed is such as merely regulates, and perhaps thereby promotes, competition, or whether it is such as may suppress, or even destroy, competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts. This is not because a good intention will save an otherwise objectionable regulation, or the reverse, but because knowledge of intent may help the court to interpret facts and to predict consequences.”

“Persons have a right to associate for the purpose of advancing their own interests, by discriminating against other persons, if such discrimination is based upon proper and legal grounds, e. g., failure to pay bills due to members of the association (Brewster v. Miller, 101 Ky. 368, 41 S. W. 301, 38 L. R. A. 505), and is not merely coercive and arbitrary, as in Martell v. White, 185 Mass. 255, 69 N. E. 1085, 64 L. R. A. 260, 102 Am. St. Rep. 341, nor for the purpose of restraining interstate trade, as in Eastern States Lumber Association v. U. S., 234 U. S. 600, 34 Sup. Ct. 951, 58 L. Ed. 1490, L. R. A. 1915A, 788.” "United States v. King (D. C.) 229 F. 275; Woodhouse v. Powles, 43 Wash. 617, 621, 86 P. 1063, 8 L. R. A. (N. S.) 783, 117 Am. St. Rep. 1079; Putnal v. Inman, 76 Fla. 553, 80 So. 316, 3 A. L. R. 1580; Delz v. Winfree, Norman & Pearson, 6 Tex. Civ. App. 11, 25 S. W. 50.

The defendants neither buy nor sell furs. They only dress and dye furs belonging to others at their places of business. Dyeing and dressing furs do not constitute trade or commerce, but only the performance of labor. The rules and regulations of the association, and the agreement of its members to observe the same, if they restrain trade and commerce, therefore do so only indirectly and remotely, and do not come within the provisions of the Anti-Trust Act. “An agreement entered into for the purpose of promoting the legitimate business of an individual or corporation, with no purpose to .thereby affect or restrain interstate commerce, and which does not directly restrain such eommeTce, is not, as we think, covered by the act, although the agreement may indirectly and remotely affect that commerce.” United States v. Joint-Traffic Ass’n, 171 U. S. 505, 568, 19 S. Ct. 25, 31, 43 L. Ed. 259. See also Industrial Ass’n of San Franciseo v. United States, 45 S. Ct. 403, 69 L. Ed. -, decided by United States Supreme Court April 13, 1925; Federal Club v. National League, 259 U. S. 200, 42 S. Ct. 465, 66 L. Ed. 898, 26 A. L. R. 357; Blumenstock Bros. v. Curtis Pub. Co., 252 U. S. 436, 40 S. Ct. 385, 64 L. Ed. 649; Oliver Iron Mining Co. v. Lord, 262 U. S. 172, 43 S. Ct. 526, 67 L. Ed. 929; United Mine Workers v. Coronado Co., 259 U. S. 344, 42 S. Ct. 570, 66 L. Ed. 975, 27 A. L. R. 762; United Leather Workers v. Herkert, 265 U. S. 457, 44 S. Ct. 623, 68 L. Ed. 1104, 33 A. L. R. 566.

In Anderson v. United States, 171 U. S. 604, 615, 19 S. Ct. 50, 54, 43 L. Ed. 300, the Supreme Court said: “Where the subject-matter of the agreement does not directly relate to and act upon and embrace interstate commerce, and where the undisputed facts clearly show that the purpose of the agreement was not to regulate, obstruct, or restrain that commerce, but that it was entered into with the object of properly and fairly regulating the transaction of the business in which the parties to the agreement were engaged, such agreement will be upheld as not within the statute, where it can be seen that the character and terms of the agreement are well calculated to attain the purpose for which it was formed, and where the effect of its formation and enforcement upon interstate trade or commerce is in any event but indirect and incidental, and not its purpose or object.” And again: “The same is true as to certain kinds of agreements entered into between persons engaged in the same business, for the direct and bona fide purpose of properly and reasonably regulating the conduct of their business among themselves and with the public. If an agreement of that nature, while apt and proper for the purpose thus intended, should possibly, though only indirectly and unintentionally, affect interstate trade or commerce, in that event we think the agreement would be good.”

In United Leather Workers v. Herkert, 265 U. S. 457, 471, 44 S. Ct. 623, 627, 68 L. Ed. 1104, 33 A. L. R. 566, the Supreme Court said: “This review of the cases makes' it clear that the mere reduction in the supply of an article to be shipped in interstate commerce, by tbe illegal or tortious prevention of its manufacture, is ordinarily an indirect and remote obstruction to that commerce. It is only when the intent or necessary effect upon such commerce in the article is to enable those preventing the manufacture to monopolize the supply, control its price, or discriminate as between its would-be purchasers, that the unlawful interference with its manufacture can be said directly to burden interstate commerce.”

By-laws of an association, which provide that members thereof who violate its rides or regulations shall be fined or expelled, are not unlawful. Industrial Association of San Francisco v. United States, supra; Anderson v. United States, 171 U. S. 604, 618, 19 S. Ct. 50, 43 L. Ed. 300.

The government did not prove that the rules of the association or compliance therewith by its members in any manner directly or unduly affected interstate' commerce, nor that the defendants intended to restrain, or in fact did restrain, interstate commerce. The defendants did nothing that involved •interstate commerce. They created no monopoly. They fixed no prices. The association simply regulated business of its members in a way tending to promote, rather than restrain, legitimate trade. Nothing that the association did or could do under its by-laws was injurious to any of its members or the public. No one, except a person looking for an unfair or dishonest advantage, could object to its regulations.

The petition, therefore, must be dismissed.


author: ■ JONES, District Judge.

text:
    SCOTT v. EMPIRE LAND CO.
    (District Court, S. D. Florida.
    May 21, 1925.)
    No. 149.
    1. Equity <§=>133--Bill must aver facts on which complainant relies for relief.
    A bill in equity must aver facts on which complainant bases his right to relief sought.
    2. Deeds <§=>188 — Bill of complaint, seeking cancellation of deed for fraud, must allege facts.
    Bill of complaint to cancel deed must allege the facts constituting the fraud.
    3. Dismissal and nonsuit <@=>73 — Allegations of fact only, and not conclusions of pleader,
    . considered as admitted on motion to dismiss bill.
    In suit to cancel deed for fraud, allegations of fact only, and not conclusions of pleader, will be considered as admitted on motion to dismiss.
    4. Contracts <§=>270(2) — One who desires to rescind for fraud must, on discovery of fraud, announce purpose.
    A party, who desires to rescind a contract for fraud, must, at once on discovery of the fraud, announce his purpose to rescind.
    5. Contracts <§=>270(2) — Notice of facts suffi- • cient to put ordinary man on inquiry is equivalent to “knowledge of facts.”
    Notice of facts or circumstances which would put a man of ordinary intelligence on inquiry is equivalent to “knowledge of facts,” within rule that one who desires to rescind contract on ground of fraud must, on discovery thereof, announce purpose to rescind.
    6. Cancellation of instruments <§=>34(l) — Grantor held barred by laches from suing for cancellation of deed for fraud.
    Grantor, to whom grantee agreed to pay purchase price by delivery to grantor of bonds to be issued, secured by mortgage on land, or by payment of cash out of proceeds of sale of bonds, was barred by laches from bringing suit, more than 20 years after execution of deed, to cancel deed on ground that grantee fraudulently procured' conveyance without intending to pay price, where mortgage was executed, and bonds were issued and sold, and proceeds thereof were appropriated by grantee without payment of price to grantor a number of years before commencement of suit, with knowledge of such facts by grantor, since grantor in such case had knowledge of facts from which he should have known grantee’s fraudulent intent, and was guilty of laches in not sooner bringing suit, particularly in view of substantial increase in value of land.
    7. Equity <§=>64 — The' law serves the vigilant, and not those who sleep over their rights.
    The law serves the vigilant, and not those who sleep over their rights.
    8. Equity <@=>43 — Has no jurisdiction to relieve against fraud, where there is plain, adequate, and complete remedy at law.
    Courts of equity have no jurisdiction to grant relief against fraud, when there is a full, complete, and adequate remedy at law, under Judicial Code, § 267 (Comp. St. § 1244).
    9. Cancellation of instruments <§=>10 — Grantor, to whom grantee failed to pay purchase price, had plain, adequate, and complete remedy at law, precluding suit in equity for cancellation of deed for fraud.
    Grantor, who conveyed land in consideration of grantee’s agreement to. deliver certain number of bonds to be issued, secured by mortgage on land, or pay specified amount out of proceeds of sale of bonds, had a plain, adequate, and complete remedy at law, within Judicial Code, § 267 (Comp. St. § 1244), on grantee’s failure to deliver bonds or pay portion of proceeds of sale thereof, precluding him from suing grantee in equity for cancellation of deed on ground of fraud.

      10. Contracts <§=394(6) — Misrepresentations, to constitute “fraud,” must concern existing facts, or constitute promises made with no intention or ability to carry them out.
    Misrepresentations, to constitute “fraud,” must be concerning present existing facts, and may not be based on mere promises, which are not carried out, or which are falsely made; but such promises, where made with no intention or ability to carry them out, will be considered fraud, against which equity will grant relief.
    [Ed. Note. — For other definitions, see Words and Phrases, First and Second Series, Fraud.]
    11. Contracts <§=399 (3) — Fraudulent intent not to comply with promises must be shown by clear and unquestioned facts.
    Promises, to constitute fraud, on ground that they were made with no intention or ability to carry them out, must be proved by clear and unquestioned facts showing such intention, and equity in such cases will not enter into presumptions or surmises.
    12. Cancellation of instruments <§=334(3)— Delay in commencement of suit for cancellation of deed held not justified by grantee’s repeated broken promises over 20-year period.
    Grantee’s repeated promises to pay consideration, always broken, over a period of more than 20 years, did not justify delay in commencement of grantor’s suit to cancel deed on ground that grantee fraudulent procured conveyance without intending to pay the price agreed.on, and does not warrant equity in granting relief notwithstanding laches.
    Tn Equity. Suit by Charles H. Scott against the Empire Land Company. On motion to dismiss bill of complaint.
    Motion granted.
    W. M. Toomer, of Jacksonville, Ela., and Johnston & Garrett, of Kissimmee, Ela., for complainant.
    Wilson & Swearingen, of Bartow, Ela., and James E. Glen, of Tampa, Ela., for defendant.
   ■ JONES, District Judge.

The bill of complaint in this ease, after the necessary jurisdictional allegations, charges in substance that the complainant, on the 13th day of May, 1904, conveyed to the defendant, by warranty deed duly executed and delivered, certain described lands in Lee county, Fla.; that this deed set forth a, consideration in the sum of $46,080, receipt of which by the complainant is acknowledged in the deed; that the defendant went into possession, recorded the deed, mortgaged the property to the Girard Trust Company, collected and appropriated all the rents, issues, and profits from the lands for more than 20 years, and has never paid to the complainant the consideration set forth in the deed, nor any part of it;' that it was understood between the parties at the time of the conveyance that the lands were to be mortgaged as set forth above for the purpose of securing certain bonds to be issued by the defendant, and that the defendant was to pay the purchase price of said lands, either by delivering some of the bonds to the complainant, or paying the complainant in cash out of the proceeds of the sale thereof; that the bonds were duly issued, certified by the Girard Trust Company as trustee, and delivered to the defendant; that the complainant made repeated demands upon the defendant for the payment of the consideration, or the delivery to him of a portion of the bonds as agreed, but defendant failed and refused to do so; and the complainant “is advised and believes that the defendant is now negotiating a sale of 'said lands, and is threatening and about to convey the same to parties unknown to your orator.” The bill then alleges:

“That repeated promises, extending through the years that followed, were made by said defendant to deliver unto your orator the bonds 'described, or the cash consideration of said deed, but that none of said promises were kept, while, upon the contrary, the defendant' sold said bonds, appropriated the proceeds thereof, and has not paid your orator for his lands, either in money or in bonds.
' “Your orator, upon the premises herein-above recited, charges that a deliberate fraud was perpetrated upon him in this: That at the time of the execution, delivery, and receipt of said deed, and the representations made to your orator with respect to the delivery of money or bonds, the defendant did not’ intend either to pay your orator in money or to deliver to him the bonds mentioned, but upon the contrary intended to utilize your orator’s lands as one of the bases of its bond issue, to sell said bonds and appropriate the proceeds thereof, all of which it has done, without the payment of compensation or delivery of the bonds contracted for unto your orator. ■
“Your orator further alleges that throughout the years that intervened since the making of the said deed, to wit, since May 13, 1904, he continued to rely upon the promises of the defendant to pay him said consideration for said deed either in money or in bonds, and that he continued in this belief until it came to his knowledge, which was in the last three months, that the defendant was endeavoring to dispose of said lands, without having notified or informed your orator or paid the consideration aforesaid.”

The bill thereupon, based upon the allegations of fraud set forth above, prays the cancellation of the deed, an accounting and injunction. The defendant has filed a motion to dismiss, and the cause comes on for hearing upon this motion.

While there are five grounds set out in the motion, there are in fact only two objections raised: First, that the claim is stale arid barred by -laches; second, that the bill of complaint does not set forth facts which would entitle the complainant to the relief sought, or in fact any relief.

It is a well-settled rule that a bill in equity must aver facts on which the complainant bases his right to the relief sought: “Thus, before cancellation can be decreed for fraud practiced in the procurement of a deed, the bill must aver facts from which fraud may be legally deduced; averments which merely amount to conclusions on the part of the pleader, as to its existence, being insufficient.” 4 R. C. L. 518; Pratt Land & Improvement Co. v. McClain, 135 Ala. 452, 33 So. 185, 93 Am. St. Rep. 35.

Therefore the complainant in the instant case must be held to the strict rules of pleading, and only allegations, of facts, and not conclusions of the pleader, will be considered as admitted under this, motion to dismiss. We will first take up the question of laches:

The bill of complaint shows on its face that it seeks relief from an alleged fraud charged to have been perpetrated more than 20 years before the filing of this complaint. The general doctrine of laches is well set forth in Ruling Case Law, under the subject of “Equity,” as follows:

“It is a familiar doctrine that, apart from any question of statutory limitation, courts of equity will discourage laches and delay in the enforcement of rights. The general principle is that nothing can call forth the court of chancery into activity but conscience, good faith, and reasonable diligence. Where these are wanting, the court is passive and does nothing. The doctrine is founded principally on the equity maxims, 'he who seeks equity must do equity,’ 'he who comes into equity must come with clean hands,’ and 'the laws serve the vigilant, and not those who sleep over their rights,’ and is based on considerations of public policy. Its object is in general to exact of the complainant fair dealing with his adversary, and the rule was adopted largely because after great lapse of time, from death of parties, loss of papers, death of witnesses, change of title, intervention of equities, or other causes there is danger of doing injustice, and there can be no longer a safe determination of the controversy.” 10 R. C. L. 395; Hendrickson v. Hinckley, 17 How. 443, 15 L. Ed. 123; Slaughter v. Gerson, 13 Wall. 379, 20 L. Ed. 627; McLean v. Fleming, 96 U. S. 245, 24 L. Ed. 828; Sullivan v. Portland, etc., Railroad Co., 94 U. S. 806, 24 L. Ed. 324; Hammond v. Hopkins, 143 U. S. 224, 12 S. Ct. 418, 36 L. Ed. 134; McKnight v. Taylor, 1 How. 161, 11 L. Ed. 86; Johnson v. Toulmin, 18 Ala. 50, 52 Am. Dec. 212; Patterson v. Northern Trust Co., 231 Ill. 22, 82 N. E. 840, 121 Am. St. Rep. 299; McElrath v. Mc-Elrath, 120 Minn. 380, 139 N. W. 708, 44 L. R. A. (N. S.) 505; Comans v. Tapley, 101 Miss. 203, 57 So. 567, Ann. Cas. 1914B, 367; Calhoun v. Millard, 121 N. Y. 69, 24 N. E. 27, 8 L. R. A. 248; Pendleton v. Galloway, 9 Ohio, 178; Powers’ Appeal, 125 Pa. 175, 17 A. 254, 11 Am. St. Rep. 882; Selden v. Kennedy, 104 Va. 826, 52 S. E. 635, 4 L. R. A. (N. S.) 944, 113 Am. St. Rep. 1076, 7 Ann. Cas. 879.

Another well-established rule in this connection is to the effect that a party, desiring to rescind a contract on the ground of fraud, must at once, upon discovery of the fraud, announce his purpose to rescind, and notice of facts or circumstances which would put a man of ordinary intelligence on inquiry is, in the eye of the law, equivalent to knowledge of the facts. Grymes v. Sanders, 93 U. S. 55, 23 L. Ed. 798; Wood v. Carpenter, 101 U. S. 135, 25 L. Ed. 807; McLean v. Clapp, 141 U. S. 429, 12 S. Ct. 29, 35 L. Ed. 804; Hoyt v. Latham, 143 U. S. 553, 12 S. Ct. 568, 36 L. Ed. 259; Shappirio v. Goldberg, 192 U. S. 232, 24 S. Ct. 259, 48 L. Ed. 419; Patterson v. Hewitt, 195 U. S. 309, 25 S. Ct. 35, 49 L. Ed. 214; Davis v. Read (C. C.) 37 F. 418; Rugan v. Sabin, 53 F. 415, 3 C. C. A. 578; Scheftal v. Hays, 58 F. 457, 7 C. C. A. 308; Miller v. Rush (C. C. A.) 276 F. 641; Dill v. Camp, 22 Ala. 258; Young v. Arntze, 86 Ala. 116, 5 So. 253; Memphis & C. R. Co. v. Neighbors, 51 Miss. 422; Roemer v. Conlon, 45 N. J. Eq. 234, 19 A. 664. These rules, together with what constitutes “reasonable diligence,” and what facts or circumstances are necessary to put a party upon notice of a fraud, have been elucidated in numerous cases, and it will be of assistance to examine some of them.

The Circuit Court of Appeals for the Eighth Circuit, in the case of Rugan v. Sabin, 53 F. 415, 3 C. C. A. 578, after quoting the Supreme Court of the United States in Grymes v. Sanders, 93 U. S. 55, 23 L. Ed. 798, to the effect that, “where a party desires to rescind upon the ground of mistake or fraud, he must, upon the discovery of the facts, at once announce his purpose, and adhere to it, * * * ” says:

“Nor can a vendor industriously close his eyes, stop his ears, or refuse to believe the evidence of his senses, when notice of the fraudulent practices of a purchaser is placed before him, and thus escape from the application and effect of this principle of law. Notice of faets and circumstances which would put a man of ordinary intelligence and prudence on inquiry is, in the eye of the law, equivalent to knowledge of all the faets a reasonably diligent inquiry would disclose.”

In Wood v. Carpenter, 101 U. S. 135, 25 L. Ed. 807, the Supreme Court of the United States, speaking through Mr. Justice Swayne and referring to time of notice of a fraudulent’transaction or practice, says:

■ “ ‘Whatever is notice enough to excite attention' and put the party on his guard and call for inquiry, is. notice of everything to which such inquiry might have led. When a person has sufficient information to lead him to a fact, he shall be deemed conversant of it. * * * The presumption is that if the party affected by any fraudulent transaction or management might, with ordinary care and attention, have seasonably detected it, he seasonably had actual knowledge of it.’ * * * A party seeking to avoid the bar of the statute [laches] on account of fraud must aver and show that he used due diligence to detect it, and if he had the means of discovery in his power, he will be held to have known it.”

In a footnote to the case of Tarkington v. Purvis, 9 L. R. A. at page 608, will be found the following:

“If a party intends to rescind a contract on the grounds of its violation by the other party, he must do it promptly, on the first information of such breach. Memphis & C. R. Co. v. Neighbors, 51 Miss. 422; Dill v. Camp, 22 Ala. 258. * * * He should take prompt action to repudiate it when the fraud is discovered, and notify the seller of his purpose to disavow and disown it.- Davis v. Read, 37 E. 418. The right to rescind a sale on the ground of fraud'must be exercised within a reasonable time after the fraud is discovered, or the time when , it should have been discovered. Young v. Arntze, 86 Ala. 116. He must rescind as soon as possible after the discovery of the "fraud. Roemer v. Conlon, 45 N. J. Eq. 234.”

The Circuit Court of Appeals for the Eighth Circuit, in the case of Scheftel v. Hays, 58 F. 457, 7 C. C. A. 308, in considering a proposition of the appellant to the effect “that no time runs against the victim of a fraud while its perpetrator fraudulently and successfully conceals the faets that would disclose it, * * * ” says:

“Notice of faets and circumstances which would -put a man of ordinary prudence and intelligence on inquiry is, in the eye of the law, equivalent to knowledge of all the faets a reasonably diligent inquiry would disclose. * * * The victim of a fraud, who has received notice enough to excite his attention and put him on his guard, cannot evade the duty of speedy and diligent inquiry by merely calling on the chief perpetrator, whose interest it is to conceal the faets, to reiterate or prove his false statements.”

This same doctrine is laid down by the Circuit Court of Appeals for this circuit (the Eifth) in the ease of Miller v. Rush, 276 F. 641, wherein it is said:

“The right to a rescission or cancellation of a deed or contract because of fraudulent representations is lost, if the party seeking such relief fails, after discovering the falsity of the statements whereby he was influenced to enter into the transaction, to use reasonable diligence to disaffirm it; and notice of facts and -circumstances which would put a man of ordinary prudence and intelligence on inquiry is, in the eye of the law, equivalent to knowledge of all the faets a reasonably diligent inquiry would disclose.”

In the light of these authorities let us examine the bill in this ease, and see if the complainant acted promptly to disaffirm the conveyance of this property to defendant upon discovery of the alleged fraud, or of “faets and circumstances which would put a man of ordinary prudence and intelligence on inquiry.”

The fraud complained of is, as stated above, the intention of the defendant, at the time the conveyance of these lands was made, not to pay the purchase price agreed upon in cash or bonds. The bill of complaint shows that the mortgage or deed of trust covering these lands executed by the defendant to the Girard Trust Company was entered into on the 11th day of January, A. D. 1905; that -the bonds provided for in said trust deed were issued and delivered to the defendant; that they were sold by the defendant and the proceeds thereof appropriated to its own use, “without the payment of compensation or delivery of the bonds contracted for unto your orator.” While the bill is silent as to the date these bonds were sold and the money appropriated, as alleged therein, it shows that it was a number of years before this suit was brought, for, after alleging the execution of the mortgage or deed of trust on January 11,1905, and the delivery of the certified bonds to the defendant, the bill says:

“That repeated promises,, extending through the years that followed, were made by said defendant to deliver unto your orator the bonds described, or the cash consideration of said deed, but that none of said promises were kept, while, upon the contrary, the defendant sold said bonds, appropriated the proceeds thereof, and has not paid your orator for his lands either in money or in bonds.”

The bill of complaint also alleges:

“ * * * And notwithstanding, during the years intervening between the date of delivery of said deed, repeated demands have been made upon the defendant for payment of said consideration, but, on the contrary, the defendant has failed and refused to pay said consideration, or any part thereof,, and has caused your orator’s deed to it to said premises to be recorded (June 8, 1904), and has caused said lands to be included within the terms of a deed of trust to Girard Trust Company, which deed of trust or mortgage has been lately paid and satisfied.”

In addition to the above, the bill shows that during all the years since May 13, 1904, this defendant has “had the rents, issues, and profits of said premises, has made no accounting, statement, or settlement with your orator on account thereof. * * ” Are not these facts, known to the complainant “through the years that followed,” sufficient to have given notice to a “man of ordinary prudence and intelligence” that this defendant did not intend to make payment as agreed? It seems to me they are.

Through more than 20 years, the bill shows, the defendant exercised ownership over these lands, mortgaging the same, selling bonds secured by the mortgage, appropriating the proceeds thereof to its own use, using the rents, issues, and profits from the property, and in every way controlling the same, without any regard or consideration of any right supposed to have been in this complainant. During all these years, the bill shows, the defendant made “repeated promises” to pay, but repeatedly “failed and refused” to carry out his said promises; and it seems to me a man of “reasonable intelligence,” unless he did “industriously close his eyes, stop his ears, or refuse to believe the evidence of his senses,” would have known of the alleged fraud. No effort, during the years when both a court of law, in a suitable action to recover the purchase price of these lands, and a court of equity, to enforce a vendor’s lien therefor, afforded •adequate remedies, was made by the complainant to enforce these rights. He now comes to a court of chancery, after the statute of limitations has run against the above-•deseribed remedies, and asks this court to relieve against an alleged fraud, notice of which, “in the eye of the law,” he has had for many years.

“The law serves the vigilant, and not those who sleep over their rights,” and it is clear to my mind that this complainant, through failure to exercise “reasonable diligence,” has “slept over his rights,” has been guilty of laches, and therefore this court, sitting as a court of chancery, should “remain passive and do nothing.” The motion should be granted on the ground of laches.

We will now take up the second objection, that the bill does not allege facts justifying relief in equity. There are two doctrines as to the jurisdiction of courts of equity in matters of fraud. What is known as the English doctrine lays down the rule that courts of equity have jurisdiction to relieve against practically every species of fraud, such jurisdiction being concurrent with that of courts of law; and'the American doctrine, to the effect that courts of equity have no jurisdiction to relieve against fraud when there is a “full, complete, and adequate remedy at law.” This American doctrine is undoubtedly the rule in the federal courts, for the reason that the Judicial Code provides: '

“Suits in equity shall not be sustained in •any court of the United States in any ease where a plain, adequate, and complete remedy may be had at law.” Section 267, Judicial Code (36 Stat. 1163 [Comp. St. § 1244]).

There is no doubt in my mind that the ■complainant in this case, had he acted with “reasonable diligence,” had a “plain, adequate, and complete remedy at law” in a suit to recover the purchase price of these lands. Being convinced that complainant has not acted with the “reasonable diligence” required by the rules of equity, it might be sufficient to end the discussion here by saying that, having his remedy at law, a court of equity will not afford relief. Inasmuch, however, as the time to enforce his remedy at law has expired by statute of limitation, I will further consider the question of the sufficiency of the bill under this objection.

The well-established general rule, in eases of fraud, based upon misrepresent^,-tions, is that the misrepresentations must be concerning present, existing facts, and may not be based upon mere promises, which are not carried out, or which are falsely made. False representations must be of an existing and ascertainable fact, and not matter of opinion or advice, and must be false and known to be false by the party making them at the time, and on which the other party relies. Cooper v. Schlesinger, 111 U. S. 148, 4 S. Ct. 360, 28 L. Ed. 382; Shields v. Hanbury, 128 U. S. 584, 9 S. Ct. 176, 32 L. Ed. 565; Farnsworth v. Duffner, 142 U. S. 43, 12 S. Ct. 164, 35 L. Ed. 931; Church v. Swetland, 243 F. 289, 156 C. C. A. 69; Slaughter v. Gerson, 13 Wall. 379, 20 L. Ed. 627; Sawyer v. Prickett, 19. Wall. 146, 22 L. Ed. 105; Harrington v. Rutherford et al., 38 Fla. 321, 21 So. 283; Beach v. Williamson, 78 Fla. 611, 83 So. 860, 9 A. L. R. 1438.

There is, however, an exception to this general rule, which is to the effect that, where such promises are made, with no intention or ability to carry them out, the same will be considered fraud, and equity will relieve against such fraud; but in all these cases the facts to show the intention not to carry out promises must be clear and unquestioned, and courts of chancery in such eases will enter into no presumptions or surmises in this connection. “Fraud will not be presumed as matter of law or fact, except under circumstances which do not admit of any other interpretation, and facts showing the fraud must be averred in the pleadings.” Farrar v. Churchill, 135 U. S. 609, 10 S. Ct. 771, 34 L. Ed. 246; Davis v. Schwartz, 155 U. S. 631, 647, 15 S. Ct. 237, 39 L. Ed. 289; Moss v. Riddle, 5 Cranch, 351, 3 L. Ed. 123; Voorhees v. Bonesteel, 16 Wall. 16, 21 L. Ed. 268; Eyre v. Potter, 15 How. 42, 14 L. Ed. 592.

. The Supreme Court of the United States, in a well-considered opinion by Mr. Justice Harlan in the case of Richards v. Mackall, 124 U. S. 183, 8 S. Ct. 437, 31 L. Ed. 396, says: “That a parly who makes an appeal to the conscience of the chancellor should (quoting fz’om Badger v. Badger, 2 Wall. 87), 'set foz'th in his bill specifically what were the impediments to an earlier prosecution of his claim; how he came to be so long ignorant of his rights, and the means used by the respondent to fraudulently keep him in ignorance, and how and when he first came to á knowledge of the matters alleged in his bill; otherwise, the chancellor may justly refuse to consider his ease. * * * ’ ”

It seems to me that the law as here laid down applies to the ease under consideration and is decisive thereof. What facts are set forth in the instant bill of complaint showing any “impediments to an earlier prosecution of his claim”? The only allegation of fact that could be interpreted as such an explanation is the following:

“That repeated promises, extending through the years that followed, were made by said defendant to deliver unto your orator the bonds described, or the cash consideration of said deed, but that none of said promises were kept, while, upon the contrary, the defendant sold said bonds, appropriating the proceeds thereof, and has not paid your orator for his lands, either in money or in bonds.”

These repeated promises, always bz’oken, covering a period of more than 20 years, do not, in my opinion, show any justification for the delay. What facts are alleged to show “how he came to be so long ignorant of his rights, and the means used by the respondent to fraudulently keep him in ignorance”? The only facts are the allegations just quoted concerning the promises, and to offset these the bill shows that the complainant had knowledge for many years that these bonds had been delivered to the defendant and sold, and that the defendant, in “response to repeated demands” for payment, “failed and refused to pay said consideration, or any part thereof.”

What facts appear to show “how and when he first came to a knowledge of the matters alleged in the bill,” that is, knowledge of the fraud said to have been perpetrated? The only allegation in this connection is the explanation to the effect that “ * * * it came to his knowledge, which was in the last three months, that the defendant was endeavoring to dispose of said lands, without having notified or informed your orator or paid the consideration aforesaid.” It does not appear to me that the offer of the defendant to sell the land, without notifying the complainant, would be any moz*e evidence of its intention 20 year's or more ago to defraizd him, than the facts, known to him for years, that it had received the’ bonds, sold them, appropriated the pz’oeeeds therefrom, as well as all the rents, issues, and profits from the property, and through all these years “failed and refused” to meet repeated demands to pay in compliance with oft-made promises.

I feel that the position of the complainant in this ease is identical with that of the complainant in Richards v. Mackall, supra, described by Mr. Justice Harlan as follows: “But after the property has largely increased in value, and after sleeping upon Ms rigMs for nearly 12 years, with information, during the whole of that period, of every fact now relied upon by him, appellee. asks the aid of a court of equity to set aside the sale and conveyance, and adjudge him to be the owner of the property.”

This complainant had knowledge of facts, during practically 20 years, wMch were more indicative of defendant’s intent not to carry out its promises than the recent alleged offer to sell the property, and, as said in the above-referred to case of Richards v. Mack-all, “he is not in a position to claim the interference of a court of equity.”

The motion to dismiss, upon the ground that the bill does not set forth facts entitling complainant to equitable relief, should be granted. An order in accordance with tMs opinion will be entered.


author: JACOBS, District Judge.

text:
    In re HAMMELLS.
    (District Court, D. Arizona, Phœnix Division.
    May 22, 1925.)
    1. Bankruptcy <®=>443(I2) — Life insurance policy where beneficiary may be changed by bankrupt passes to trustee.
    The beneficiary named in a life insurance poliey, which gives the insured the right to change the beneficiary at will, has no vested interest therein, and on the bankruptcy of the insured the policy passes to his trustee, unless exempt under the laws of the state.
    2. Bankruptcy <@=>396 (3) — Policy of insurance held not exempt under law of Arizona.
    Civ. Code Ariz. 1913, par. 3302, exempting from legal process “all moneys received by or payable to a surviving wife or child upon the life of a deceased husband or father, not exceeding $10,000,” held not to exempt the cash surrender value of a poliey on the life of a bankrupt in which his wife is named as beneficiary, but which provides that insured may change the beneficiary at will.
    In Bankruptcy. In tbe matter of Henry A. Hammells, bankrupt. On review of order of referee.
    .Affirmed.
    Kibbey, Bennett, Gust, Smith & Lyman, of Phœnix, Ariz., for petitioner.
    Walter J. Thalheimer, of Phœnix, Ariz., for trustee.
   JACOBS, District Judge.

This is a bankrupt’s petition for review of an order of' the referee in bankruptcy involving the question of exemption of the cash surrender value of an insurance poliey on the life of the bankrupt.

The facts are as follows: Henry A. Ham-mells was on the 2d day of February, 1925, adjudged a bankrupt in tMs court. At the time of the adjudication, the bankrupt had a certain poliey of insurance issued on December 1, 1921, by the Pacific Mutual Life Insurance Company of CaliforMa on the life of the bankrupt in the amount of $5,000, payable to Mable S. Hammells, his wife, on proof of the death' of said bankrupt.

The poliey provides that the insured may, while the policy is in force, designate a new beneficiary, and that should there be no beneficiary living at the time the policy becomes a claim by death, the proceeds thereof shall be paid to the executors, administrators, or assigns of the deceased. There has been no assignment of the poliey by the bankrupt and no change of beneficiary by him. The premiums had been paid by the bankrupt maintaining the poliey in force to and including March 1, 1925. The cash surrender or loan value of the policy on February 4, 1925, the date of the filing of the petition in bankruptcy, was about $335.

On March 5,1925, the trustee in bankruptcy filed with the referee his report of exempted property, and, among other things, therein provided: “Exemption claim of Pacific Mutual Life Insurance No. 443160 payable to Mable S. Hammells, wife of bankrupt, disallowed to the extent of the cash surrender value of said policy.” On March 19, 1925, the bankrupt filed with the referee his exceptions to the trustee’s report of exempted property, and on March 20, 1925, after hearing had on said exceptions, the referee made his order overruling the bankrupt’s exceptions to the trustee’s report of exempted property and ordered that the cash surrender value of said insurance policy be collected by the trustee from the insurance company; the same not being exempt under the statutes of Arizona.

On April 2, 1925, the bankrupt filed with the referee his petition for review of the order. On April 4, 1925, a stipulation as to the facts was filed, and on April 15, 1925, the referee forwarded to this court the record for review. .

In order for the court to determine the question of exemption of the cash surrender value of this poliey of insurance, it is necessary to'first consider the interest of the beneficiary in the poliey, if any, and the interest of the insured at the time of adjudication.

One of the provisions of the poliey is “that the insured may, while the policy is in force, designate a new beneficiary.” In passing upon a policy containing a similar provision, the Circuit Court of Appeals, Second Circuit, in Greenberg’s Case, 271 F. 259, 20 A. L. R. 253, held that the beneficiary of a life insurance policy, who may at any time be removed from the benefited position by the insured and against the beneficiary’s will, cannot have a vested interest. In the case of Reid v. Durboraw (C. C. A.) 272 F. 99, it is held: “It is true that one named as beneficiary has no vested interest and is not entitled to notice of change; that the right to change a beneficiary is a property right of the assured, which in the case of insolvency the court can require him to exercise in favor of his creditors,” citing Cohen v. Sam-uels, 245 U. S. 50, 38 S. Ct. 36, 62 L. Ed. 143.

In the ease of Cohen v. Samuels, the Supreme Court, in passing upon subdivision 3 of section 70a of the Bankrupt Act (Comp. St. § 9654), held: “The declaration of subdivision 3 is that 'powers which he might have exercised for his own benefit k * * shall in turn be vested’ in the trustee, and there is vested in him as well all property (hat the bankrupt could transfer or which by judicial process could be subjected to his debts, and especially as to insurance policies which -have a cash surrender value payable to himself, his estate or personal representative. It is true the policies in question here are not so payable, but they can be or could have been so payable at his own will and by simple declaration. Under such conditions to hold that there was nothing of property to vest in a trustee would be to make an insurance policy a shelter for valuable assets and, it might be, a refuge for fraud.”

It is therefore well settled that under a policy of this character, the beneficiary has no vested interest in the proceeds of the policy; that the insured is the owner of the cash surrender value, with the sole power of disposition of the same by assignment; that immediately upon the insured being adjudged a bankrupt, the policy and its cash surrender value passes to the trustee for the benefit of his creditors, unless the same is exempt under the state law.

Is the cash surrender value of such a policy exempt under the Arizona statute? The Supreme Court of Arizona has never passed upon this question, and, as it frequently arises in bankruptcy proceedings in this district, I deem it advisable to express an opinion upon the subject.

Paragraph 3302 of the Civil Code of Arizona, Statutes of 1913, provides as follows: “The following property shall be exempt from execution, attachment or sale on any process issued from any court:” Subdivision 15: “All moneys received by or payable to a surviving wife or child upon the life of a deceased husband or father, not exceeding ten thousand dollars.”

It will be seen that the exemption created by the statute is “all moneys received by or payable to a surviving wife or child upon the life of a deceased husband or father.”

In the case of Hill v. Safe Deposit & Trust Co., 101 Md. 60, 63, 60 A. 446, 447 (4 Ann. Cas. 577), it is held: “In its ordinary as well as its legal signification, the" word 'survivor’ means one .who outlives another; one of two or more persons who lives after the other or others have died.”

The proceeds of the policy would not be payable to the wife until she became the “surviving wife,” and she could only become the surviving wife upon the death of her husband.

This policy contains what is commonly called “change of beneficiary” clause. Under such a clause, the insured may, at any time before death, designate another beneficiary, in which event, upon the death of the husband, there would be no money “payable to the surviving wife upon the life of a deceased husband” as contemplated by the statute.

I am therefore of the opinion that the cash surrender value of this policy in which the wife has no vested interest during the life of the husband, and over which she has no control, which may be transferred or assigned by the husband, or is payable to him upon a surrender of the policy, is not money “payable to the wife upon the life of a deceased husband” within the meaning of the statute. To hold that it was would be reading something into the statute that was not intended to be included by the Legislature.

The order of the referee is affirmed.


author: RUDKIN, Circuit Judge.

text:
    CRYSTAL COPPER CO. v. GAIDO et al. MONZETTI et al. v. CRYSTAL COPPER CO.
    (Circuit Court of Appeals, Ninth Circuit.
    June 8, 1925.
    Rehearing Denied June 22, 1925.)
    No. 4486.
    1. Partnership <§=>219(3) — Less than all suing as partners for breach of contract with firm may not have judgment.
    Several judgment in favor of part only oí plaintiffs, suing as partners for breach of defendant’s contract with the firm, has no support in the pleadings; such a complaint stating a cause of action in favor of the partnership only.
    2. Mines and minerals @=>97 — Interest in mine necessary for mining partnership of those working it not shown by evidence.
    Such an interest in a mine, under agreement with lessee, as will support claim of a mining partnership (as defined by Rev. Codes Mont. 1921, § 8050), existing between those actually engaged in working the mine, held, not established by the evidence.
    3. Corporations <®==>408 — No liability of corporation for breach of officer’s individual agreement for sale of his own stock.
    There is no liability of a corporation for breach of the individual agreement of an officer thereof for sale of his own stock.
    In Error to the District Court of the United States for the District of Montana; Charles N. Pray, Judge.
    Action by Lawrence Monzetti and others against the Crystal Copper. Company. Pete Gaido and another plaintiff had judgment on one cause of action, and on the other cause of action verdict was directed for defendant. Defendant brings error, and plaintiffs bring cross-error.
    Reversed and remanded.
    Walker & Walker and C. S. Wagner, all of Butte, Mont., for plaintiff in error and cross-defendant in error.
    H. A. Tyvand and P. E. McCracken, both of Butte, Mont., for defendants in error and cross-plaintiffs in error.
    Before GILBERT, HUNT, and RUDKIN, Circuit Judges.
   RUDKIN, Circuit Judge.

The complaint in this action averred that the plaintiffs, at all times therein mentioned, were mining co-partners in mine subleasing from the defendant; that the defendant was the lessee of a certain mine in Silver Bow county, Mont.; that the defendant sublet to the plaintiffs a certain portion of the mine; that under the terms of the sublease the plaintiffs were to enter into and upon the property and do eer-tain work; that the plaintiffs were to receive a certain royalty per ton, dependent on assays, on all ore shipped to the smelter from the mine, after deducting freight charges; that the plaintiffs entered upon the perform.ance of the work and continued therein for a period of about six months; that the defendant wrongfully excluded certain of the plaintiffs from the mine, and canceled and rescinded the sublease without cause; that at the time of such cancellation and rescission there was about 1,000 tons of ore on the hanging wall side of the lead within the demised premises; that the plaintiffs would have realized a profit of $16.67 per ton upon all such ore, if the sublease had not been canceled and rescinded; and that by reason of the cancellation and rescission of the sublease the plaintiffs were damaged in the sum of $22,162.67.

As a second cause of action the plaintiffs averred that, some time after the making of the agreement set forth in the first cause of action, they agreed to purchase and the defendant agreed to sell 5,000 shares of the capital stock of the defendant corporation at an agreed price of 25 cents per share, to be paid for by deducting $25 from the net return of each of the plaintiffs on each and every carload of ore shipped from the mine and sold to the smelter; that the- defendant arbitrarily refused to deliver 400 shares, which the plaintiffs had earned and paid for, and that by reason of the wrongful cancellation of the sublease the plaintiffs were unable to purchase the balance of the stock, amounting to 1,300 shares, upon which they would have realized a profit of $1.75 per share. It was then averred that by reason of the refusal of the defendant to deliver the 400 shares of stock, and the arbitrary rescission and cancellation of the sublease, and the arbitrary refusal of the defendant to permit the plaintiffs to go on with the sublease and complete their contract, the plaintiffs were damaged in the sum of $3,075.

The material allegations of the complaint were put in issue by answer. At the close of the testimony the court directed a verdict in favor of the defendant as to the second cause of action, and the jury returned a verdict in favor of two of the plaintiffs for the sum of $770.66 each. The verdict was silent as to the three remaining plaintiffs, and so was the judgment which followed. Each of the parties has sued out a writ of error; the plaintiffs because of the judgment against them on the second cause of action, and the defendant because of the judgment against it on the first cause of action. In view of the cross-writs of error, the parties will be designated here as in the court below.

The principal question discussed in the briefs of counsel and on the oral argument before this court is; Was there a sublease of the mine from the defendant to the plaintiffs, and were the plaintiffs mining partners, as that relation is defined by the Code of Montana? The plaintiffs earnestly maintain that there was a- sublease of the mine, and that they were mining partners, yet in the face of this contention they are confronted by a verdict and judgment in favor of two of the five plaintiffs, and, even as to these two, the verdict and judgment are several. The action was brought to recover damages for breach of an agreement with the partnership, and the complaint stated a cause of action in favor of the partnership only. It stated no cause of action in favor of any one or more of the several plaintiffs, as individuals. The rule is well settled that one partner, or any number less than the whole, cannot maintain an action for breach of a partnership agreement. Vinal v. West Virginia Oil & Oil Land Co., 110 U. S. 215, 4 S. Ct. 4, 28 L. Ed. 124; Van Atta v. Montana Nat. Bank (C. C. A.) 275 F. 548. The reason for the rule is obvious. No partner has any fixed interest in the partnership property or contracts until after the partnership affairs have been settled and wound up, and therefore one partner cannot maintain an action in his own right to enforce partnership rights or obligations; and if an individual partner, or two of five partners, may not maintain an action for breach of a contract with the firm, it would seem to follow as a matter of course that one or two of the partners may not recover judgment for the breach. The several judgment in favor of two of the plaintiffs finds no support in the complaint or pleadings, and must therefore be reversed.

In view of a retrial of the action, it becomes necessary to consider briefly the question of a mining partnership. “A mining partnership exists when two or more persons who own or acquire a mining claim for the purpose of working it and extracting the mineral therefrom actually engage in working the same.” Section 8050, Revised Codes of Montana 1921. “Under this definition, the ownership or acquirement of a mining claim, or of at least an interest therein, and the actual engagement in working such a claim, are both essential before a mining partnership exists by reason of the joint interest of the partners in a mining claim.” Michalek v. New Almaden Co., 42 Cal. App. 736, 184 P. 56.

What, if any, interest in the mine did the plaintiffs own or acquire by virtue of their agreement with the lessee? The nature of their claim may perhaps best be described by quoting at length from the testimony of one of the plaintiffs:

“The terms of the lease was to go down and sink the winze on the 500-foot level of the Goldsmith mine, northwest of the shaft, about 1,000 feet. The winze already extended down 35 feet south, and under the terms of. the lease the work that was to be done was to go down 15 feet more. We found some ore after we got down about 46 feet. We were to have any ore we discovered in the distance between 35 and 50 feet. Under that lease we were to get all the ore we could find, as far up as the 500-foot level, and as far east as the ore would go within the mining claim, and as far west as the claim would go. The royalties we were to pay on 25 to 30 rock was $11.30, and from 30 to 50 $23 royalty, and from 50 to 100 was $34.50, I think, and from 100 to 150 was $46, and from 150 to 200 was $56. The 'Crystal Copper Company was to furnish the equipment and the hoisting of rock and ore. We used to pump the water. The Crystal Copper Company furnished the pump. The company furnished the air for the drills. The company furnished the pump, and we used to do the work. We started on that lease on the 26th day of June, 1921. The first day we went there we went down and put in the pump and connected the pipe on it, and pumped the water. The men who went down to work were myself and Mr. Pagleero and Pete Gaido. The first work we did was pumping the water. After we had the water pumped out, we started to sink and clean up; started to pump, because the water was standing there for quite a while, and the ground was kind of loose and soft. We dug that winze as far as 75 feet. When we dug to the depth of 500 feet, we were not supposed to go any further, and we notified Mr., Alderson to see if we couldn’t sink any more, and, he said to go ahead, and follow the ore, he ,said, as far as it goes, as far as went to, as far as the ore goes. We found ore above that, found the ore about 48 feet deep; that is, from the top of the winze down 48 feet we found ore. Mr. Alderson said to extend the ore down as far as went on the ore. The ore went down as far as 75 feet. The conditions of the .extension of the lease when we had the 500-foot down, as far as we could go, was the same as before, the same terms and conditions; that is, we were to have the ore from the depth where we reached up to the 500 foot level, up to the east end of the claim and to the west end of it, if it should go there.”

The above testimony is as favorable to the contention made in behalf of the plaintiffs as any to be found in the record, and we have little hesitation in saying that it falls far short of establishing such an interest in the mine as will support the claim that a mining partnership existed between those actually engaged in working the mine. Wheeler v. West, 71 Cal. 126, 11 P. 871; Hudepohl v. Mining & Water Co., 80 Cal. 553, 22 P. 339; Michalek v. New Almaden Co., supra.

Perhaps this conclusion renders unnecessary any discussion of the cross-writ of error, but we may say that it appeared from the testimony that the agreement for the sale of stock was the individual agreement of the officer of the corporation for the sale of his own stock, not the agreement of the corporation, and the direction of a verdict for the defendant on the second cause of action was therefore proper.

The judgment is reversed, and the cause remanded for further proceedings.


author: BUFFINGTON, Circuit Judge.

text:
    ANCHOR BREWING CO. et al. v. UNITED STATES.
    (Circuit Court of Appeals, Third Circuit.
    May 27, 1925.)
    No. 3291.
    Courts <@=3348 — Equity rule 46 held not to preclude use of transcribed testimony taken on a preliminary hearing.
    In a suit to enjoin a nuisance under Prohibition Act, tit. 2, § 22 (Comp. St. Ann, Supp. 1923, § !0138%k), where testimony was taken on a motion for preliminary injunction, at which defendants appeared by counsel, introduced testimony, and cross-examined witnesses, but did not appear on the day set for final hearing, equity rule 46, providing that testimony shall be taken orally in open court, heldi not to invalidate a decree granting a permanent injunction on testimony produced by complainant and a transcript of the testimony taken on the preliminary hearing.
    Appeal from the District Court of the United States for the Western District of Pennsylvania; Frederic P. Sehoonmaker, Judge.
    Suit in equity by the United States against the Anchor Brewing Company and others. Decree for the United States, and defendants appeal.
    Affirmed.
    Oliver K. Eaton and R. P. Tannehill, both of Pittsburgh, Pa., for appellants.
    Walter Lyon, U. S. Atty., and George Y. Moore and David P. MacQuarrie, Sp. Asst. U. S. Attys., all of Pittsburgh, Pa,
    Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.
   BUFFINGTON, Circuit Judge.

In the court below the United States, on July 25, 1924, pursuant to section 22 of the National Prohibition Act (Comp. St. Ann. Supp. 1923, § 10138%k), filed a bill in equity," accompanied by sustaining affidavits, against the Anchor Brewing Company and certain individuals, praying for an injunction restraining them from. continuance of a nuisance. Thereupon, a temporary injunction was granted. On July 28, 1924, service of the subpcena and of the temporary injunction was accepted by counsel for all defendants, which subpcena provided that defendants were required to file an answer or defense on or before 20 days; “otherwise, the bill may be taken pro eonfesso.” No answer was filed. On August 7, 1924, a hearing was had on the continuance of the temporary injunction, at which defendants were represented by counsel, and witnesses on both sides were sworn, examined, and cross-examined by counsel. The testimony, thus taken viva voce and in the presence of the .court, was reduced to writing, and on August 30, 1924, filed in court. At the conclusion of the hearing on August 7,1924, the court entered an order that, “after hearing the testimony adduced and counsel for both sides, we are convinced that a nuisance exists on the premises set out in the bill of complaint, and that the preliminary injunction should be continued till final hearing.”

On September 30, 1924, the case came on for final hearing, at which time the court made this entry in the minutes: “This case was definitely set for final hearing and trial this date, the 30th of September, 1924. This, day was fixed in open court at the time of the preliminary hearing, at which time both the government and the defendants and counsel were present in court. A minute was made in the trial calendar of this court of the fixing of this date, and the case has now come on for final hearing.” The counsel for the defendants, who was in his office, had been called up, but did not appear or ask for any postponement, simply stating that the court had not definitely listed the case for the day, but had said it could not be heard before that day.

Thereupon the court proceeded to hear the case. The witnesses who had testified at the hearing of August 7th were on hand, but, as the defendants’ counsel did not and would not appear, the transcript of the testimony of the witnesses taken on the former trial was received in evidence. This included, inter alia, the testimony of the witnesses for the defendant and the cross-examination of the government’s witnesses. Thereupon the court held “the ease was set down for final hearing on the 30th day of September, 1924, at 10 o’clock a. m., at which time the government appeared with counsel and witnesses, and defendants did not appear. From the bill and proofs, we find that the allegations of the bill of complaint are sustained, and that a nuisance as defined by the National Prohibition Act exists on the premises of the defendant as alleged in the bill of complaint.” No steps were taken by defendants or their counsel to explain their absence, or from relief from their default, and on October 1st a formal decree was entered closing the premises.

Subsequently the defendants, on October 18th, entered this appeal and have appeared by other counsel, and assign for error, inter alia, that the court erred in entering said final order and decree, when said order and decree was not based on the testimony of any witnesses heard by the court when said cause .came on for final hearing, and that the court erred in receiving the evidence produced at the hearing on August 7th, and that “under the evidence and the pleading the court was without jurisdiction and power to enter its final order and decree of October 1, 1924.” And this result, it is argued, follows because of equity rule 46, which provides: “In all trials in equity the testimony of witnesses shall be taken orally in open court, except as otherwise provided by statute or these rules.”

In construing and applying rules, we inquire what mischief they were meant to overcome, and what advantage they were meant to secure. The purpose of this rule was to expedite the work of courts, by requiring the testimony to be taken in open court, where the testimony could be abridged by the rulings of a judge and the delays incident to the uncontrolled range of testimony when taken elsewhere. In the earlier days of this cause, the testimony had been taken in open court, the defendants had all been represented by counsel; the testimony of their witnesses had been taken, the government had examined its witnesses, and the defendants had cross-examined them; all of this testimony had been transcribed and filed, and the same question of injunction came up before the same judge at the final hearing, when the same witnesses were produced by the government for viva voce examination. It is manifest, therefore, that in the taking of the testimony in the earlier state of the case, and in the government’s preparedness to again call the same witnesses for viva voce examination, the spirit and purpose of the rule were met, and would have been carried out literally and exactly, had the defendant by its counsel done its bounden duty and been present in pursuance of the adjournment of the ease made by the court on August 7th. But the defendants made default, and do not now allege that the decree the court made was not justified by the proofs it received, or in view of those proofs that any other decree should now or hereafter be entered. They plant themselves entirely on the literalism of the rule. The entire testimony is before us, and, if permissible, it fully sustains the decree. Moreover, even if the literalism of the rule had compelled the court to call the witnesses and take their testimony viva voce a second time, the cause was ripe for a decree pro con-fesso, for the defendant had filed no answer and under rule 16 of the trial court such decree could be entered; and such being the ease, and this court having the power to remand the ease to the court below, and direct the entry of the decree pro eonfesso nunc pro tunc under rule 16, the court is of opinion that no real error is shown in the decree entered, and it is therefore affirmed.

       “It shall be the duty of the defendant, unless it shall be enlarged, for cause shown, by a judge of the court, to file his answer or other defense to the bill in the clerk’s office within the timp named in- the subpmna, as required by rule 12. In default thereof, the plaintiff may, at his election, take an order as of course that the bill be taken pro eonfesso, and thereupon the cause shall be proceeded in ex parte.”


text:
    UNITED STATES v. MAYSE. LEATHERMAN et al. v. SAME.
    (Circuit Court of Appeals, Ninth Circuit.
    May 25, 1925.
    Rehearing Denied June 29, 1925.)
    No. 4320.
    1. Judgment 142 — Erroneous order vacating judgment contrary to statute not given effect.
    Under Or. L. § 4363, providing that any person interested in land against which a decree of foreclosure has been entered, who was not served and did not appear, may be allowed to defend against the decree within one year thereafter, and if the defense is successful the decree shall be vacated, otherwise it shall stand, an ex parte order vacating the decree, erroneously entered on allowing the defense to be made, will not be given greater effect than the statute contemplates.
    2. United States <®=al27 — United States, as purchaser of property pendente lite, is bound by the judgment rendered.
    The rule that a purchaser of property pen-dente lite is bound by the judgment in the pending action is not changed by the fact that the United States is the purchaser.
    Appeals from the District Court of the United States for the District of Oregon; Charles E. Wolverton, Judge.
    Suit in equity by the United States against A. J. Mayse, with S. L. Leatherman and Otto E- Parry as interveners. Decree for defendant, and complainant and interveners appeal.
    Affirmed.
    For opinion below, see 299 F. 860.
    S. W. Williams, Sp. Asst. Atty. Gen., for the United States.
    Bennett & Swanton, of Marshfield, Or., and Wilson & Reilly, of Portland, Or., for appellants Leatherman and Parry.
    L. A. Liljeqvist, of Portland, Or., and J. J. Stanley, of Coquille, Or., for appellee Mayse.
    Before GILBERT, HUNT, and RUDKIN, Circuit Judges.
   RUDKIN, Circuit Judge.

By the Act of March 3, 1869 (15 Stat. 340), the United States granted to the state of Oregon, to aid in the construction of a military wagon road from the navigable waters of Coos Bay to Roseburg, alternate sections of public lands, designated by odd numbers, to the extent of three sections in width on each side of said road, the granting act providing: “That the grant of lands hereby made shall be upon the condition that the lands shall be sold to any one person only in quantities not greater than one quarter section, and for a price not exceeding two dollars and fifty cents per acre.” The state of Oregon transferred the •grhnt to the Coos Bay Wagon Road Company, and the title thus acquired thereafter became vested in the Southern Oregon Company. The land here in controversy is a part of that grant. By joint z’esolution of April 30, 1908 (35 Stat. 571), the Attorney General of the United States was authorized and directed to institute and prosecute any and all suits in equity, actions at law, and other proceedings which he might deem adequate and appropriate to enforce any and all rights and remedies of the United States in any manner arising or growing out of or pertaining to the act of 1869, among others.

Pursuant to the authority thus conferred, the Attorney General instituted suit against the Southern Oregon Company, in the name of the United States, in the United States District Court for the District of Oregon, claiming a forfeituz-e of the grant of 1869 on the ground that the provision requiring the lands to be sold in quantities not greater than 160 acres to any one person and for a price not exceeding $2.50 per acre constituted a condition subsequent, and that there had been a breach of that condition. A final decree was entered in that suit, enjoining the defendant from selling any of the lands in violation of the covenant in question, from making any disposition of the lands or of the timber thereon, and from cutting or authorizing the removal of any timber therefrom until Congress was given an opportunity to provide by legislation for the disposition of the lands in accordance with such policy as it might deem fitting under the circumstances. United States v. Southern Oregon Co. (D. C.) 225 F. 560. This decree followed the decree of the Supreme Court in Oregon & Cal. R. R. v. United States, 238 U. S. 393, 35 S. Ct. 908, 59 L. Ed. 1360.

The Act of February 26, 1919 (40 Stat. 1179), provided that upon the execution and delivery by the Southern Oregon Company of a deed, satisfactory to the Attorney General, reconveying to the United States all the right, title, and interests of the Southern Oregon Company in and to the land situated in the counties of Coos and Douglas, in the state of Oregon, embraced within the limits of the grant of 1869, the lands would again become a part of the publie domain, and the United States .would pay to the Southezm Oregon Company the sum of $232,463.07. The execution and delivery of a deed within 30 days from and after the approval of the act should be deemed an acceptance of the act by the Southern Oregon Company, and, upon approval of such deed, the Attorney General of the United States was authorized to dismiss the pending suit, and all matters of difference, controversy, and litigation between the United States and the Southern Oregon Company arising out of the grant should be deemed settled, adjusted, and terminated. Section 2 of the act provided that the taxes accrued, unpaid, and delinquent on the lands on the date of the delivery of the deed should be paid by' the Treasurer of the United States upon the order of the Secretary of the Interior as soon as might be after the act became effective, and a sum sufficient to make such payment and also to provide for the payment of the purchase price was appropriated from the public treasury.

February 27, 1919, the Southern Oregon Company reeonveyed the property embraced in the land grant of 1869 to the United States, and the same thereby became a part of the public domain. December 6,1915, A. J. Mayse purchased a certificate of delinquency for taxes levied against the property now in controversy for the year 1909, and thereafter made application for a tax judgment. Decree of foreclosure was entered May 29, 1916, followed by a tax deed June 17, 1916. November 27, 1916, the tax judgment was vacated on application of the Southern Oregon Company, defendant in the tax foreclosure proceeding, in order to afford the company an opportunity to answer. Answer was then filed and a demurrer thereto sustained. On September 19, 1922, a final decree was entered, wherein it was adjudged and decreed that the answer, defense, and objections filed by the Southern Oregon Company be dismissed, that the judgment and decree and all proceedings theretofore had in the ease stand unaffected by said defense, that the order theretofore made vacating the ta^ judgment and decree be set aside, and that the original tax judgment and decree' be reestablished and reaffirmed and declared to be in full force and effect.

The present suit was instituted by the United States to cancel and annul the tax deed, to the end that the taxes might be paid and the land redeemed from the tax sale. From a decree in favor of the defendant the United States and certain interveners have appealed. Briefly stated the contention of the government is this: The order vacating the tax judgment vacated the tax deed as well, and reinvested the title in the Southern Oregon Company; that title passed from the Southern Oregon Company to the United States by the deed of February 27, 1919, and from dnd after the execution and delivery of that deed the state court was without jurisdiction to make further orders or take further proceedings in the tax foreclosure suit.

It is apparent from an inspection of the record that the order of the state court vacating the tax judgment was improvidently made. Section 4363 of the Oregon Laws provides that any defendant or person owning or interested .in any lands, traets, or lots against which judgment and decree has been rendered, and who has not been personally served with the notice .or summons of the application for judgment or decree of foreclosure, and who has not appeared therein, may, upon good cause shown and upon such terms as may be proper, be allowed to defend and file his objections after such judgment or decree, and within one year after the entry thereof, upon such terms as may be just, and if the defense be successful the judgment or- decree, and all proceedings thereunder, shall be vacated, set aside, and held as though they had never been made or had, and if the defense is unsuccessful the court shall enter an order dismissing the defense and objections, and the judgment or decree and proceedings thereunder shall stand unaffected by such defense.

This statute provides for opening, not for vacating, judgments. “Opening a judgment is not setting it aside, annulling, or reversing it; it is but a mode of allowing defendant a hearing on the merits, the judgment meanwhile remaining in force and standing as security. If the defense is successful, the judgment is vacated; otherwise, when it is closed by the action of the court, it operates as if it had never been disturbed.” 34 C. J. 255. In view of the state statute, we do not think that the ex parte order vacating the tax - judgment, should be given any greater effect than the law contemplated that it should have. Such was doubtless the view of the state court, because, when the defense interposed by the answer was dismissed, no further order of sale was made.

Again, as a general rule, a purchaser of property pendente lite is bound by the judgment in the pending action, and that rule obtains in the state of Oregon. “It is now settled that the assignment or transfer by a defendant of his interest in the subject-matter of the litigation during its pend-ency does not defeat the suit, but that his purchaser is bound by any judgment or decree that may be rendered therein.” Posson v. Guaranty Loan Ass’n, 44 Or. 106, 74 P. 923. And the fact that the United States is the purchaser does not change the rule. In Ward v. Congress Const. Co., 99 F. 598, 39 C. C. A. 669, it was held that, while the United States cannot be sued or its property rights affected by a judgment, without the express authority of Congress, where it acquires property from a party to a pending suit its rights in such property are subject to the result of the litigation, the same as would be those of an individual.

For these reasons, we are of opinion that the United States acquired no title to the property in controversy under the deed from the Southern Oregon Company, and the individual appellants claiming under the government can have no greater rights than the government itself.

The decree of the court below is affirmed.