author: LEWIS, Circuit Judge.

text:
    CONTINENTAL INV. CO. et al. v. TOELLE et al.
    (Circuit Court of Appeals, Eighth Circuit.
    May 4, 1925.)
    No. 6738.
    Judgment ®=»457 — Company claiming property attached in suit against show company not entitled to enjoin clerk’s payment to plaintiff of amount of judgment recovered and paid into court by surety on bond to discharge attachment.
    Where judgment was obtained against surety company in action in state court on bond given to discharge attachment levy in action against a show company, and amount of such judgment paid to clerk of court in which judgment was obtained, held,, investment company, alleging that attachment levy, taking of bond, and recovery against show company were all result of a conspiracy, and that property attached belonged to investment company, and when attached was under lease to a show company other than that against which judgment had been recovered, could not by suit, in which neither first show company nor surety company were made defendants, enjoin clerk from paying to plaintiff in original action money paid into court by surety company.
    Appeal from tbe District Court of tbe United States for tbe District of Kansas; John- C. Pollock, Judge.
    Suit by tbe Continental Investment Company and another against John Toelle and others. Decree for defendants, and plaintiffs appeal.
    Affirmed.
    John T. Bottom, of Denver, Colo. (Frank M. Lowe, of Kansas City, Mo., and A. J. Herrod, of Kansas City, Kan., on tbe brief),for appellants.
    J. Francis O’Sullivan, of Kansas City, Mo. (Joseph H. Brady and T. Forrest Railsback, both of Kansas City, Kan., on tbe brief), for appellees Toelle, O’Sullivan, and Fincke.
    Maurice J. O’Sullivan, Harry Friedberg, and Ralph L. Adams, all of Kansas City, Mo. (Myer M. Rich, of Kansas City, Mo., on the brief), for appellees O’Sullivan, Brady, and Railsback.
    James F. Getty, of Kansas City, Kan., for appellee Wright.
    Before SANBORN and LEWIS, Circuit Judges.
   LEWIS, Circuit Judge.

This suit was brought by appellants to restrain the clerk of the district court for Wyandotte county, Kan., from paying over money in his hands which he received from the National Surety Company for John Toelle, and was dismissed on demurrer to the bill. The money was received by the clerk under these circumstances :

John Toelle recovered a judgment in the district court for Wyandotte County, Kansas, against Sells-Floto Shows Company, a corporation, on account of personal injuries inflicted on him while he' was an employé of that company, and that judgment was affirmed on appeal. Toelle v. Sells-Floto Shows Co., 111 Kan. 562, 207 P. 849. On bringing his action Toelle sued out an attachment and caused levy to be made. Thereupon the Shows Company, as principal, with National Surety Company as its surety, gave bond under the State statute to plaintiff Toelle as obligee, conditioned that if the Sells-Floto Shows Company would pay any judgment that might be rendered against it in Toelle’s action the obligation of the bond would be void; otherwise to remain in full force and effect. Under the statute the bond discharged the attachment levy and released the property that had been levied upon. SellsFloto Shows Company answered Toelle’s complaint and the ease went to trial, with the result that has been stated, but the Shows Company failed to pay the judgment against it. Then Toelle brought an action on the bond against National Surety Company and recovered judgment against it for the amount of the unpaid prior judgment. This judgment was also affirmed on appeal. Toelle v. National Surety Co., 115 Kan. 425, 223 P. 256. The Surety Company then paid to the clerk of the court in which both judgments were recovered the amount of the judgment.against it. Immediately thereafter complainants, Continental Investment Company and Champion Shows Company, corporations, filed this hill against Toelle, his counsel and the sheriff, alleging the facts that have been stated, and further alleging that the attachment levy, the taking of the bond and the recovery of the judgment by Toellp against Sells-Floto Shows Company were all the result of a conspiracy between the defendants, that the property attached and the circus of which it was a part all belonged to Continental Investment Company and was at the time of the attachment levy under lease by it to its eo-eomplainant, the Champion Shows Company, and that SellsFloto Shows Company at that time had no title to or interest in it whatsoever. The history of that ease, disclosed in the opinion of the Supreme Court of Kansas, informs us that the chief defense made by Sells-Floto Shows Company in the -action against it was that Toelle had sued the wrong party; but the court held, after a careful review of the evidence, that there was sufficient proof to sustain the jury’s finding on that issue. 111 Kan. 562, 207 P. 849, supra. But whatever the real facts may have been in that respect they are of no importance here and are not open for inquiry as long as that judgment remains and has not been vacated. Until that has been done by final decree the obligation on the bond is absolute and the surety unconditionally bound. All of the allegations in this bill constitute an attack on the judgment recovered by Toelle against SellsFloto Shows Company, that company is not a party to this suit, and it is an indispensa<ble, party to any relief against that judgment. Nor is the National Surety Company a party here. Steele v. Culver, 211 U. S. 26, 29 S. Ct. 9, 53 L. Ed. 74. In that ease the bill sought, as here, to enjoin the collection of a judgment rendered 'by a State Court against a railroad company and also a judgment against a surety on a bond given by it when it took the ease to the appellate court. The Supreme Court there said:

“So long as the judgment against the railroad stands, that against its surety cannot be impeached. By its bond the surety undertook to pay the judgment, if rendered, against its principal, whether right or wrong. If the principal remains liable under that judgment the surety is bound to pay. " * * The bill, as we have said, is founded solely on allegations of fraud in getting the first judgment, and must be maintained upon them if upon any. The railroad company is an indispensable party if that issue is to be tried. It is unnecessary to’consider other objections to the suit.”

Some help for the bill is thought to lie in this allegation:

“That under and by virtue of the obligá-tions of the plaintiffs herein to the said,the National Surety Company of New York, made generally before the beginning of the circus season of the year 1920, for the furnishing'of bonds from time to time for the protection of the said Continental Investment Company as owner and the Champion Shows Company as lessee of the property and operator of the circus, they were compelled to pay unto the said the National Surety Company of New York, the amount of said last mentioned judgment, interest and costs, and the said the National Surety Company has this day paid to the said defendant Carl W. Fineke as Clerk of the District Court of Wyandotte County, Kansas, the said judgment, interest and costs. * * “ ”

That allegation may dispel the notion that the plaintiffs are strangers and intermeddlers complaining about things in which they have no interest, but it brought them under an obligation to the surety. They became indem-nitors, and the allegation relied on rebuts the claim that the bond was not given for their benefit.

Affirmed


source: Caselaw Access Project

author: SANBORN, Circuit Judge.

license: Public Domain

text:
    MURPHY v. KERR.
    (Circuit Court of Appeals. Eighth Circuit.
    April 30, 1925.)
    No. 6734.
    1. Covenants <§=>53 — Intent that covenant should not run with land not Indicated by absence of specifio statement that it should so run.
    Absence from deed of specific statement that covenant should run with land does not indicate that it was intended not to do so; the customary method of creating a covenant running with the land not being by use of such a statement, but by clearly expressing in the covenant grantor’s agreement that it shall bind his assigns, those to whom the title to the land he retains shall subsequently pass, as well as himself.
    2. Covenants <§=>70 — Intent to have covenant to pump water run with land held indicated by terms thereof.
    Terms of covenant to have water pumped to reservoir on land conveyed helé to leave no doubt that grantor intended it to run with the land, and vest in grantee an easement and water right in the lands retained by grantor, and the dam and power plant thereof, while owned by her assigns.

      3. Covenants <@=70 — Affirmative covenant may run with land.
    An affirmative covenant, as one to pump water to reservoir, as well as a negative or restrictive covenant, may rim with the land.
    4. Easements <©=I — Essential qualities stated.
    Essential qualities of an “easement” are that it is an incorporeal right, appertains and relates to two distinct corporeal properties, a dojninant property, to which the right to it belongs, and a servient estate, on which its obligation or burden is imposed, and it must be substantially beneficial to the dominant property, and generally rests in a written grant or covenant, and ordinarily there is privity of estate between the properties.
    [Ed. Note. — For other definitions, see Words and Phrases, First and Second Series, Easement.]
    5. Waters and water courses <@=I54(I) — Covenant to pump water to reservoir on granted land held to create easement in grantor’s remaining land and plant.
    Covenant running with land to pump water from river to reservoir on granted land held, to give grantee a water right and easement in grantor’s remaining land and the dam and power plant thereon. _
    6. Appeal and error <@=843(2.) — Suggested questions, which have not yet arisen, not discussed.
    Questions suggested that, if decree be affirmed, suit for specific performance of duty imposed thereby, by reason of easement, on company in hands of receiver, to pump water from its lands to defendant’s, will probably be instituted, and that a court of equity will probably be without jurisdiction to compel discharge of that duty, will not be discussed, as they have not yet arisen, and probably never will arise.
    Appeal from the District Court of the United States for the District of New Mexico; Orie L. Phillips, Judge.
    Suit to quiet title by William E. Murphy, receiver of the Carlsbad Light & Power Company, against Cesarine A. Kerr. Erom an adverse decree (296 E. 536), complainant appeals.
    Affirmed.
    John E. Simms, of Albuquerque, N. M., for appellant.
    C. J. Roberts, of Santa Fe, N. M., for appellee.
    Before SANBORN and LEWIS, Circuit Judges, and POLLOCK, District Judge.
   SANBORN, Circuit Judge.

On' May 9, 1907, Mary E. Tansill was the owner of a tract of land in the county of Eddy, N. M., through or adjoining which the Pecos river flowed, and on that day she conveyed a part of that land, which for convenience will be called tract A, by a warranty deed, which was recorded forthwith, to Cesarine A. Lewis, who is now Cesarine A. Kerr and the defendant in this suit. At that time there had been for many years, was, and still is on that part of Mrs. Tansill’s land which she did not then convey, herein called tract B, a. dam across the Pecos river, a power plant and suitable pipes and connections operated by the power derived from the use of the water impounded by the dam, by means of which she had for many years caused and was causing water from the river to be pumped up and delivered into a large reservoir on tract A about 80 feet higher than the power plant, and for many years she had been using and was then using the water from this reservoir to irrigate tract A and for other beneficial purposes. She had also used and was using and thereafter continued to use the water so'impounded by the dam by means of the power plant to generate and to supply to the residents of Carlsbad, N. M., electricity for power purposes. The warranty deed by which she conveyed tract A to the defendant recited a consideration of $10,000, and contained, in addition to the customary terms of such a deed, this agreement and covenant: “The party of the first part hereby agrees and binds herself, her heirs, executors, administrators and assigns to have water pumped from the Pecos river at what is known as the Tansill power dam to the reservoir located upon the property herein conveyed not to exceed eight hours per each day of twenty four (24) hours, it being understood that the second party, her heirs, executors, administrators and assigns is entitled to have the water pumped as herein provided whenever she so demands of the persons in eharge.of said power dam and the plant in connection therewith, and the party of the first part further agrees and binds herself, her heirs, executors, administrators and assigns, to make provision for having said water pumped as herein provided by any purchaser, lessee or lessees of said power plant located as aforesaid to whom she or her successors may sell, rent or lease the same. This agreement to pump water as aforesaid shall be binding upon the first party, her heirs, executors, administrators, and assigns, so long as said power dam or any substitute therefor may be maintained by her, her heirs, executors, administrators, and assigns.”

The defendant took possession under this deed of tract A on May 9, 1907, and has since occupied and used that tract as her residence and home. On July 9, 1919, Mrs. Tansill conveyed, for a recited consideration of $40,000) to the Carlsbad Light & Power ■Company, a corporation, 11 acres of tract B, the power dam upon and adjoining it, the power plant, and all their appurtenances. At some time prior to December 16, 1922, the complainant, William F. Murphy, was appointed the general receiver of the Carlsbad Light & Power Company by the court below under the laws of New Mexico on account of the insolvency of that corporation. From the day Mrs. Tansill delivered her deed to the defendant in May, 1907, until the day she conveyed the 11 acres of tract B, the dam, power plant, and their appurtenances to the Carlsbad Company in July, 1919, she pumped the water to the reservoir on tract A, and complied with all the terms of the covenant in that regard in her deed to the defendant, and from the time she conveyed the 11 acres, the dam, power plant, and appurtenances to the Carlsbad Company, until after the complainant was appointed receiver thereof, that corporation complied with the terms of that covenant, and supplied the water to the reservoir of the defendant.

On December 16, 1922, however, the complainant, as receiver of the Carlsbad Company, brought suit to quiet the title to that 11 acres and the dam, power plant, and appurtenances against the claim of the defendant to the performance by the corporation and its receiver of the covenant in the deed to the defendant to supply her land and reservoir with water. The defendant answered that that covenant ran with the land and vested in her a water right — an easement — in the 11 acres, the dam, power plant, and appurtenances to the pumping and supply by the Carlsbad Company and its receiver of water to her reservoir and land according to the terms of the covenant. Evidence was received, a final hearing was had, and the court -in an elaborate opinion (296 F. 536) sustained the claim of the defendant and rendered a decree that the complainant take nothing by his complaint, and that the title of the defendant to her right to have water pumped from the Pecos river by the Carlsbad Company and its receiver to her reservoir on tract A in accordance with the covenant and deed to her be confirmed and quieted. From this decree the complainant has appealed.

Counsel for the receiver concedes that the covenant in the deed to the defendant was a legal and binding obligation upon Mrs. Tansill, the grantor, but he maintains that it did not run with the land; that it did not burden tract B, which-she retained, with any easement or water right in that tract, or any part of it, after her conveyance thereof to the grantee, the Carlsbad Company. He argues that she never intended that her covenant should burden and run with the land, she retained (1) because she made no statement in her deed to the defendant that her agreement “to have water pumped” was to run with the land; and (2) because she did in that covenant expressly “bind herself, her heirs, executors, administrators, and assigns, to make provision for having said water pumped as herein provided by any purchaser, lessee, or lessees of said power plant located as aforesaid to whom she or her successors may sell, rent, or lease the same.” But the absence from the deed of the specific statement that the covenant should run with the land fails to indicate that the grantor did not intend that it should so run, because the use of such a statement is not the usual method of creating a covenant running with the land. The customary method of creating such a covenant is clearly to express in the covenant which the grantor intends shall run with the land the grantor’s agreement that this covenant shall bind his assigns, those to whom the title to the land he retains shall subsequently pass, as well as himself. This Mrs. Tansill did three times. Her covenant reads: (1) “The party of the first part hereby agrees and binds herself * * * and assigns to have water pumped * * * to the reservoir located upon the property herein conveyed;” (2) “and the party of the first part further agrees and binds herself, K and assigns, to make provision for having said water pumped as herein provided by any purchaser, lessee,” etc.; and (3) “this agreement to pump water as aforesaid shall be binding upon the first party, * * * and assigns so long as said power dam * 81 may be maintained by her, her heirs, executors, administrators and assigns.” A thoughtful consideration of these terms of the covenant leaves no doubt that Mrs. Tan-sill intended that this covenant to pump the water should run with the land, and should vest in the defendant an easement and water right in the 11 acres, the dam, power plant, and appurtenances, while owned by her assigns, to have the water pumped into the reservoir of the defendant on tract A in accordance with the provisions of the agreement.

The next position of counsel for the receiver is that the covenant to pump and supply the water to the reservoir of the defendant is an affirmative covenant, a covenant actively to perform it, and that, while restrictive or negative covenants to suffer or not to do may run with the lands, affirmative covenants may not do so. He cites and is sustained in this contention by Miller v. Clary, 210 N. Y. 127, 103 N. E. 1114, Ann. Cas. 1915B, 872, L. R. A. 1918E, 222, and some English, cases; but the overwhelming weight of reason and of authority' in the United States is otherwise, and the established law upon this subject here is that affirmative covenants, as well as negative or restrictive covenants run with the land of the covenantor and with the land of the covenantee to which they relate. Shaber v. St. Paul Water Co., 30 Minn. 179, 182, 183, 184, 14. N. W. 874; Adamson v. Black Rock Power & Irrigation Co. (C. C. A.) 297 F. 905, 912; Bolles v. Pecos Irrigation Co., 23 N. M. 32, 40, 41, 42, 167 P. 280; Sexauer v. Wilson, 136 Iowa, 357, 113 N. W. 941, 942, 943, 14 L. R. A. (N. S.) 185, 15 Ann. Cas. 54; 2 Tiffany, Real Property (2d Ed.) pp. 1429, 1430, § 395; Hinchmam v. Consolidated Arizona Smelting Co. (D. C.) 198 F. 907, 911; 3 Pomeroy’s Equity Jurisprudence (4th Ed.) § 1295, p. 3124, where the author writes: “I have, as it will be seen, continued to state the doctrine in its most general form as applying to affirmative as well as to restrictive covenants, and as rendering the owner liable to the affirmative duty of specifically, performing the covenant, as well as to the negative remedy of restraint from violating it, notwithstanding the very recent decisions by the English court of appeal holding that the doctrine applies only to restrictive covenants, and does not extend to those which stipulate for affirmative acts. In my opinion, the doctrine has been fully established, in its most general form, without such limitation, by the overwhelming weight of authority, English and American.”

Counsel for the defendant asserts and counsel for the receiver denies that the covenant in the deed to the defendant and the latter’s purchase and acceptance thereof vested in her a water right and easement in the 11 acres, the dam, power plant, and its appurtenances, to the pumping of the water according to the terms of the covenant by the Carlsbad Company, or any subsequent assign or immediate or remote grantee of the 11 acres and the dam, power plant, and appurtenances. Essential qualities of an easement are that it is an incorporeal right, that it appertains and relates to two distinct corporeal properties, a dominant property, to which the right to it belongs, and a,servient property, upon which its obligation or burden is imposed. It must be substantially beneficial to the dominant property, and a private easement generally rests in a written grant or covenant, and ordinarily there is privity of estate between the properties. A thoughtful comparison of these essential qualities of an easement with thé water' right of the defendant to the pumping of'the water to her reservoir based on the covenant in Mrs. Tansill’s deed to the defendant demonstrates the fact that it possesses every one of these qualities, and the rational and logical result is that there was no error of law or mistake of fact in the decision and decree of the court below that the defendant had a water right and easement" in the 11 acres, dam, and power plant of the Carlsbad Company for the pumping of water from the Pecos river into her reservoir in accordance with the terms of the covenant in Mrs. Tansill’s deed to her. Pitch v. Johnson, 104 Ill. 111, 120, 121; Bolles v. Pecos Irrigation Co., 23 N. M. 32, 40, 41, 167 P. 280; Snow v. Abalos, 18 N. M. 681, 140 P. 1044; Grand Valley Irrigation Co. v. Lesher, 28 Colo. 273, 65 P. 44, 48, 49; Carr v. Lowry’s Adm’x, 27 Pa. 257, 258; West v. Probst (Tex. Civ. App.) 251 S. W. 289, 291, 292.

Finally, the receiver’s counsel suggests that, if the decree below be affirmed a suit for specific performance of the duty imposed upon the Carlsbad Company and its receiver will probably be instituted, and that a court of equity will probably be without jurisdiction and power to compel the discharge of that duty by the receiver or the insolvent corporation. This court must decline to enter upon the discussion of the question or questions thus suggested, because they have not yet arisen and probably never will arise. The rights and duties of the parties to this litigation have now been considered by the court below and by this court with some care and thought, and they have been decided. The property of the Carlsbad Company is held by the court below by its receiver in trust, to be administered and applied in accordance with the respective rights and equities of the parties interested therein, and to that court the power has been given, and upon it the duty 'has been imposed, so to apply and administer the property and its proceeds by the present or some other receiver. The water right and easement of the. defendant in the 11 acres, the dam, power plant, and appurtenances were created in May, 1907. They are prior in time and superior in equity to the rights in that property of the Carlsbad Company, its creditors, and any other party claiming a right or interest therein that arose subsequent to May, 1907. A court of equity may vary, qualify, restrain, and modify the remedy it applies, so as to avoid inequity and to do equity to the adverse claims and substantial rights of the parties in interest, and we do not doubt that this will be readily and easily done by the court-below.

The decree below is affirmed.


text:
    PARRAMORE et al. v. DENVER & R. G. W. R. CO.
    (Circuit Court of Appeals, Eighth Circuit.
    April 30, 1925.)
    No. 6730.
    I. Negligence <§=>82 — “Contributory negligence” proximate cause of injury.
    “Contributory negligence” is not question as to whose negligence was more proximate cause of injury, but whether or not negligence of injured person directly contributed to cause injury.
    [Ed. Note. — For other definitions, see Words and Phrases, First and Second Series, Contributory Negligence.]
    2.. Railroads <©=>330(3) — Railroad’s failure to discharge duty does not excuse highway traveler.
    Railroad’s failure to sound whistle, ring bell, or discharge other duties does not excuse highway traveler from discharging duties in matter of exercise and care.
    3. Railroads <©=>327(12) — Automobile passenger held negligent.
    Passenger in front seat of Ford automobile, who had unobstructed view for 186 feet before reaching railroad crossing, held contributorily negligent as matter of law for failure to discover train approaching at rate of 15 to 20 miles an hour in time to have avoided collision.
    4. Railroads <©=>327(12) — Passenger in automobile charged with duty to exercise care.
    Free riding passenger in automobile or other vehicle, on invitation or with consent of owner or driver, is charged with duty to look, listen, watch, and act with reasonable care to prevent injury at railroad crossings or other places in vicinity of railroads, and failure to do so is culpable negligence, which; if it contributes to injury, will bar recovery.
    5. Courts <§=>372(1) — In considering questions of general or commercial law, national courts not bound to follow state courts.
    In considering question of contributory negligence, or other questions of general or commercial law, national courts are not bound by or required to follow decisions of state courts.
    6. Death <©=>!03(3) — Presumption of exercise of care held not to require submission of issue of contributory negligence.
    Presumption that decedent exercised due care from natural instinct of self-preservation, arising where accident results in instant death, held insufficient to require submission to jury of question of contributory negligence, where there were physical facts and substantial testimony or evidence to the contrary.
    In Error to the District Court of tibe United States for the District of Utah; Tillman D. Johnson, Judge.
    Action hy Mary Ann Parramore and others against the Denver & Rio Grande Western Railroad Company. Judgment for defendant, and plaintiffs bring error.
    Affirmed.
    Mahlon E. Wilson, of Salt Lake City, Utah, for plaintiffs in error.
    W. Q. Van Cott, of Salt Lake City, Utah (Van Cott, Riter & Farnsworth, of Salt Lake City, Utah, on the brief), for defendant in error.
    Before SANBORN and LEWIS, Circuit Judges, and POLLOCK) District Judge.
   SANBORN, Circuit Judge.

Joseph Par-ramore, while riding in the Ford automobile of the owner and driver, John Reynolds, on the latter’s invitation, was carried onto the track of the railroad of the Denver & Rio-Grande Western Railroad Company in front of a moving engine of that company and instantly killed. His widow, his minor heirs by their guardian, and the Cudahy Packing Company of Nebraska, as assignee of the. dependent heirs, brought an action against the railroad company under section 6505 of the Compiled Laws of Utah of 1917, for damages resulting to them from his death, which they alleged was caused by the negligence of the railroad company. That statute authorized the maintenance of such an action. The defendant denied the charge of its negligence and pleaded that the deceased was guilty of negligence, which directly contributed to cause the collision and his death. The case was tried by a jury, the plaintiffs and the defendant produced witnesses and introduced their testimony to sustain their respective claims, and at the close of the trial, on a motion by counsel for the defendant, the.court instructed the jury to return a verdict in its favor, on the ground that the evidence was conclusive that Mr. Parramore was guilty of negligence which directly contributed to cause his death. The plaintiffs assigned this ruling as error. The only material question ’ in this ease, therefore, is whether or not the proof of contributory negligence of the deceased was such that a verdict for the plaintiffs could not have been lawfully sustained by the court, if the jury had been permitted to render it..

We omit discussion of the alleged negligence of the defendant, although the weight of the evidence on that subject seems to be heavily, if not conclusively, in favor of the railroad company: (1) Because in an action for damages for negligence causing death the question of contributory negligence is not whether the negligence of the decedent or that of the defendant was the more proximate cause of the death, but it is whether or not the negligence of the decedent directly contributed to eause it. (Marshall v. Hines [C. C. A.] 271 F. 165, 169, and cases there cited), and (2) because the failure of the railroad company or'its employees to sound whistles, ring bells, or to discharge other duties when operating the engines and trains of the company is no exeuse for the failure of travelers on the highways to discharge their respective duties. They are still bound by the law effectively to look and listen and with reasonable care to watch and act to prevent collisions and to protect themselves and the operators of and passengers on the railroads from injury and death (Chicago, M. & St. P. Ry. Co. v. Bennett, 181 F. 799, 803, 104 C. C. A. 309; Chicago Great Western R. Co. v. Biwer [C. C. A.] 266 F. 965, 969; Bradley v. Missouri Pac. R. Co. [C. C. A.] 288 F. 484, 488, 493; Chicago, R. I. & P. R. Co. v. Houston, 95 U. S. 697, 702, 24 L. Ed. 542; Schofield v. Chicago, etc., Ry. Co., 114 U. S. 615, 618, 5 S. Ct. 1125, 29 L. Ed. 224.

The collision which was fatal to Mr. Parramore occurred about 7:15 in the morning of a clear August day in 1921, at the crossing at grade of the railroad of the defendant by the highway on which the deceased was riding. The railroad extended north and south, and the highway east and west. East of the defendant’s railroad and nearly parallel with it at the crossing were the railroad tracks of the Oregon Short Line Railroad Company. Mr. Reynolds, who was driving the automobile, approached the crossing on the highway from the east, and intended to drive westerly across all the railroad tracks to the plant of the Cudahy Packing Company, on the west side of the railroad tracks of the defendant at this crossing. The distance from the west rail of the Oregon Short Line tracks to the east rail of the defendant’s tracks was 119- feet. Before Mr. Reynolds arrived at any of the tracks, he had invited Mr. Parramore to ride with him; the latter had accepted that invitation, and had taken the front seat on the north side of the car, by the side of Mr. Reynolds; and Mr. Thomas had asked Mr. Reynolds for a ride, the latter had granted his request, and Mr. Thomas had seated himself in the back seat of the automobile. There was an engine headed south on one of the tracks of the defendant, about two blocks north of the crossing, as the occupants of the automobile drove west across the tracks of the Oregon Short Line Railroad. This engine was plainly visible to the occupants of the ear all the time after they reached a point on the highway 186 feet east of the east rail of the defendant’s railroad. When they were about 125-feet east of that rail, Reynolds looked north and saw the engine, but testified that he was not certain whether the engine was moving or stationary. He testified that he then looked south, and that he did not look north again until Thomas, when - they were 30 or 40 feet from the defendant’s track, at a time too late for Reynolds to avoid the collision, shouted, “Here comes a train.”

As the automobile came over the Oregon Short Line tracks, and over the space between those tracks and the east rail of the defendant’s, it was going at a speed of from 15 to 25 miles an hour, and it could have been stopped in from 14 feet to 27 feet. It was driven so far onto the track in front of the engine that when the collision occurred the engine threw the automobile and all its occupants off on the west side of the track. The speed of the engine from the point where Reynolds first saw it to the point of the collision was from 15 to 20 miles an hour. The curtains to the automobile were up, and there was no obstacle to interrupt the vision of Mr. Parramore from the point 186 feet east of the east rail of the defendant’s railroad to that rail. Mr. Parramore sat on the front seat of the automobile, on the north side of it, on the side from which the engine which struck it came, and Mr. Thomas, who was in the automobile with him, testified that he did not see Mr. Parramore do anything. Mr. Reynolds, who sat by his side on the front seat, testified that Mr. Parramore did. not say a word or try to get out of the ear before the engine struck it. The railroad track and the engine were constant warnings to him of the danger of crossing that track.

The driver of the ear was bound by his legal duty carefully to operate and control the speed and the direction of the ear, and to look and listen for engines and trains on each side and in front of him before he attempted to cross the track on which this engine came. Unconsciously he may have relaxed his vigilance and failed, as he did, to look to the north from the time he crossed the tracks of the Oregon Short Line. Railroad, because he was trusting Mr. Parramore, who sat on the north side of him and had the better op -portunity to look and listen for engines and trains coming from the north, to give him notice of the approach of engines from that direction. However that may be, Mr. Parra-more had the best opportunity of any one in the automobile to look, listen, watch, and act to prevent the collision and the injury that might result from engines coming from the north, and his legal duty so to do was not less clear and imperative under the evidence in this ease than was that of the driver of the car so to do. He had nothing else to do or to distract his attention. If he had discharged his duty to look, the car would undoubtedly have been stopped before it reached the track on which the engine was moving, and the collision and death would have been avoided. In this state of the record there seems to be no escape from the conclusion that the evidence so conclusively established the negligence of Mr. Parramore, which directly contributed to cause the collision and death, that there was no material issue for the jury to try and that it was the duty of the court to instruct them, as it did, to return a verdict for the defendant.

Counsel for the plaintiffs argue and cite authorities to the effect that an invited guest of the owner or driver of an automobile, riding as Mr. Parramore was without compensation, owes no duty to look, listen, or act to avoid collisions or injuries at railroad crossings. But a thoughtful consideration of these arguments and authorities has again failed to convince that this is the general law, or that it is a just or reasonable rule. This question has been repeatedly and exhaustively considered and discussed by this court, and its conclusion 'has been and still is that the general law and the more reasonable rule is that a person riding without paying compensation in an automobile or other vehicle, on the invitation or with the consent of the owner or driver of the car or his agent, is charged with the duty to look, listen, watch, and act with reasonable care to prevent collisions, deaths, injuries, and accidents at the crossings of railroads and at other places in the vicinity of railroads, and that his failure so to do is culpable negligence, for which he is liable if it causes or contributes to cause such a collision, death, injury, or accident. This conclusion, the reasons for it, and the authorities pertinent to it have been so often considered and set forth in the opinions of this court that they will not be here repeated. Davis v. Chicago, R. I. & P. Ry. Co., 159 F. 10, 18, 88 C. C. A. 488, 16 L. R. A. (N. S.) 424; Rebillard v. Minneapolis, St. P. & S. S. M. Ry. Co., 216 F. 503, 506, 133 C. C. A. 9, L. R. A. 1915B, 953; Atchison, T. & S. F. Ry. Co. v. McNulty (C. C. A.) 285 F. 97; Bradley v. Missouri Pac. R. Co. (C. C. A.) 288 F. 484; 489; Noble v. Chicago, M. & St. P. Ry. Co. (C. C. A.) 298 F. 381, 383, 384.

Counsel for plaintiffs contends that this rule and the authorities which sustain it are inapplicable to the action in hand, because it is founded on the statute of Utah, section 6505, supra, creating the cause of action. He invokes the rule that the national courts uniformly follow the decisions of the highest judicial tribunals of the state construing the statutes of those states respectively in all cases that involve no question of general or commercial law and no question of right under the Constitution and laws of the nation. Clapp v. Otoe County, 104 F. 473, 476; Nielsen v. Chicago, B. & Q. R. Co., 187 F. 393, 396. He then calls attention to the fact that the Supreme Court of Utah held in Cowan v. Salt Lake & U. R. Co., 56 Utah, 94, 189 P. 599, in an action not founded on this death statute, but on the general law of negligence, that an invited guest of the driver of an automobile, which collided with an interurban car at a crossing while the guest was riding in the reay seat of the ear holding another person on her lap, was not negligent as a matter of law, and they argue that the eourt below ought to have followed that decision in this case and submitted this case to the jury.

But that decision was not a construction or interpretation of the statute on which the present action is based. It was a decision on a question of general law, the question of contributory negligence, and in the consideration of that and other questions of general or commercial law the national courts are not bound by or required to follow the decisions of the state courts. On the other hand, the power is granted to them and the duty is imposed upon them, in cases in which, > as in this ease, their jurisdiction is properly invoked, to consider and decide questions of general and commercial law, with proper respect and esteem for the opinions of the state courts, but nevertheless as their own knowledge, wisdom, and judgment dictate. The court below was not required to follow the decisions of the Supreme Court of Utah upon the question of contributory negligence, or upon the question of the submission of the question of contributory negligence to the jury, but it was required to determine these questions by its own knowledge and judgment. 2 Foster’s Federal Practice (3d Ed.) p. 880, § 375; 40 L. R. A. (N. S.) 441; Elliott v. Felton, 119 F. 270, 278, 56 C. C. A. 74; Hemingway v. Illinois Cent. R. Co., 114 F. 843, 846, 52 C. C. A. 477; Beutler v. Grand Trunk Railway, 224 U. S. 85, 87, 32 S. Ct. 402, 56 L. Ed. 679. This case falls far within the rule of law tersely stated in 40 L. R. A. (N. S.) 441, in these words: “State court decisions are not conclusive upon the federal courts as to questions which, though arising in a statutory action for death, are not distinctive or peculiar to that character of actions.”

Counsel finally cite Northern Pacific Railway Co. v. Spike, 121 F. 44, 57 C. C. A. 384, Evans v. O. S. L. R. Co., 37 Utah, 431, 108 P. 638, Ann. Cas. 1912C, 259, Lewis v. Rio Grande Western Ry. Co., 40 Utah, 483, 123 P. 97, and Ready v. Peavey Elevator Co., 89 Minn. 154, 94 N. W. 442, in support of the proposition that, where an accident results in instant death, the presumption arising from the natural instinct of self-preservation is that the decedent exercised due care, and that that presumption warrants a recovery for his death, in the absence of countervailing testimony, and insist that in view of this presumption this case should have been submitted to the jury. But the decision of this court in Northern Pacific Railroad Company v. Spike practically has been overruled by the later decisions of this court, and the rule firmly established that this is only a prima facie presumption which, in the presence of any physical, facts or substantial testimony or evidence to the contrary, disappears and ceases to have effect. Wabash R. Co. v. De Tar, 141 F. 932, 934, 938, 939, 73 C. C. A. 166, 4 L. R. A. (N. S.) 352; United States v. Homestake Mining Co., 117 F. 481, 486, 54 C. C. A. 303; Bradley v. Missouri Pac. R. Co. (C. C. A.) 288 F. 484, 494. And the time when this collision occurred, the physical facts and the circumstances surrounding it, and the testimony of Reynolds and Thomas to the failure of Mr. Parramore to exercise any care or take any action to protect himself or others, constitutes such irresistible countervailing proof in this ease that Mr. Parramore neither exercised reasonable nor any care to protect himself or others, that no doubt of his contributory negligence or of the duty of the court below to instruct the jury to return its verdict in favor of the defendant exists.

The judgment below must therefore be affirmed ; and it is so ordered.


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    DAKOTA TRUST & SAVINGS BANK OF SIOUX FALLS, S. D., v. HANSON. In re TORNBERG.
    (Circuit Court of Appeals, Eighth Circuit.
    May 4, 1925.
    Rehearing Denied July 31, 1925.)
    No. 6714.
    1. Partnership <§=>282 — Property held to become individual property of partner on withdrawal of other member of partnership.
    Partnership property held to become individual property of partner, who, pursuant to dissolution agreement, assumed all of partnership debts on withdrawal of other partner.
    2. Bankruptcy <§=188(3) — Partnership creditor held not entitled to equitable lien on property of partnership after dissolution and bankruptcy of partner who acquired partnership interests.
    Where creditor of partnership, with knowledge that it was insolvent, acquiesced in dissolution agreement whereby one partner withdrew and then loaned money to remaining partner for use in continuing business, it was not entitled, when sueh partner subsequently sold business and went into voluntary bankruptcy, to equitable lien on property which had belonged to old partnership.
    3. Partnership <§=180 — Partnership creditor has no specific lien on partnership assets.
    Partnership creditor has no specific lien on partnership assets, even while .they continue to belong to partnership.
    4. Partnership <§=180 — Creditor’s right by sub-rogation to have partnership assets applied to firm debts cannot be recognized until , property is in custodia legis for administration.
    Partnership creditor may be subrogated to partner’s equitable right to have firm assets applied first to payment of firm indebtedness, but such right cannot be recognized or enforced until property is in custodia legis for administration or distribution.
    5. Subrogation <§=35 — Subrogation is an equitable right, which may be waived or barred by laches.
    Subrogation is an equitable right, which may be waived or barred by laches.
    6. Fraudulent conveyances <§=47 — Bulk Sales Law held inapplicable to transfer of partner- . ship assets to one partner on dissolution.
    Where one of two partners, by assuming partnership debts on withdrawal of other partner, acquired title to partnership property, heldi, South Dakota Bulk Sales Law did not apply, so as to avoid trhnsaction or affect partner’s title to property.
    Appeal from the District Court of the United States for the District of South Dakota; James D. Elliott, Judge.
    In the matter of the bankruptcy of E. R. Tomberg; Harry N. Hanson, Trustee. From an order holding attachment levies void, the Dakota Trust & Savings Bank of Sioux Falls, S. D., appeals.
    Affirmed.
    E. O. Jones, B. C. Matthews; J. H. Fitzpatrick, T. Gr. Owen, and Odean Hareid, all of Sioux Falls, S. D., for appellant.
    Before SANBORN and LEWIS, Circuit Judges, and POLLOCK, District Judge.
   LEWIS, Circuit Judge.

This is an appeal from an order holding attachment levies made within four months of bankruptcy adjudication to be void under section 67 of the Bankruptcy Act (U. S. Comp. St. § 9651), and directing that the property levied upon be delivered to the trustee of the. bankrupt estate.

From March 15,1922, up to August 1st of that year the bankrupt, E. R. Tomberg, carried on an automobile business in a rented garage at Sioux Falls, S. D., where he did repair work and kept a stock of supplies for that purpose, made charges for the storage .of automobiles and sold new ones when he could find a purchaser. On. the last-named date he sold out his business, and on. October 20, 1922, went into voluntary bankruptcy. He was insolvent. The business up to March 15, 1922, had belonged to and had been carried on by him and H. C. Lembkey as partners. On that day the partnership was dissolved by written agreement, Lembkey withdrew as a partner and transferred to Tom-berg all of his interest in the partnership business, its property and good will. He received nothing from Tomberg on dissolution except Tomberg’s assumption of' the firm’s debts and his promise to pay them, and he gave Tomberg his note for money he had taken from the partnership. After dissolution, which was duly published, the business was at once taken over by Tornberg.

The firm was indebted to appellant bank, it was insolvent and the bank knew it was insolvent. It appears to have been the desire of .the bank, officials, as well as of Tomberg, that Lembkey should get out and that some one else be found to go in with Tomberg. Its officers had discussed this plan before the dissolution agreement was drawn. Its vice president was present when the agreement was executed, and immediately thereafter a copy of it was delivered to the bank. In the following month the bank loaned Tomberg $1,000 to be used by him in carrying on the business. It continued, however, to hold the firm’s notes for the partnership indebtedness, and on August 2d, the day after Tornberg sold out, it sued in the State Court on those notes, got out a writ of attachment and served garnishments on the purchaser from Tomberg, who had not paid over the purchase price for the business, and also on others who were debtors to the old firm. These levies were held to be void by the Bankruptcy .Court. Under the dissolution agreement by which Lembkey transferred all of his interest in the partnership property to Tomberg that property thereupon became the individual property of Tornberg. Sargent v. Blake, 160 F. 57, 87 C. C. A. 213, 17 L. R. A. (N. S.) 1040, 15 Ann. Cas. 58; Case v. Beauregard, 99 U. S. 119, 25 L. Ed. 370; Fitzpatrick v. Flannagan, 106 U. S. 648, 1 S. Ct. 369, 27 L. Ed. 211; Crawford v. Sternberg, 220 F. 73, 135 C. C. A. 641; Titus v. Maxwell (C. C. A.) 281 F. 433; Stringer v. Stevenson, 240 F. 892, 899, 153 C. C. A. 578. The property being that of Tomberg individually when the garnishments were served, the adjudication that he was bankrupt within four months thereafter rendered those levies void. This is not seriously refuted, but the bank claimed on the hearing in the court below and now contends that inasmuch as part of the property sold by Tornberg had belonged to the partnership, it, as a creditor, was entitled to a preference in payment of its claim out of that property, and it objected to being classed as a general creditor of the bankrupt estate. It says it has an equitable lien on all of the property which had belonged to-the old partnership. But such a creditor has no specific lien upon partnership assets, even while those assets belong to the firm. Emerson v. Senter, 118 U. S. 3, 17, 6 S. Ct. 981, 30 L. Ed. 49; Peck v. Jenness, 7 How. 612, 620, 12 L. Ed. 841; Hollins v. Coal & Iron Co., 150 U. S. 371, 385, 14 S. Ct. 127, 37 L. Ed. 1113.

Through the equitable right of a partner to have firm assets applied first to the payment of firm indebtedness a firm creditor may be subrogated to that equity when firm assets are brought into a court of equity for administration. This equitable right, however, cannot be recognized and enforced until the property is in custodia legis, for administration and distribution between conflicting claimants. Case v. Beauregard, supra.' The writ of attachment sued out by appellant was not a-n enforcement of this right. Levies made under it created statutory liens and withheld the property levied upon from the Bankruptcy Court, a court of equity in which appellant’s claimed right of preference might be recognized and granted, if there were no valid objections to the granting of such relief. Relief of that character has been granted by Bankruptcy Courts, but under facts and circumstances that- do not prevail here. In re Filmar, 177 F. 170, 100 C. C. A. 632; Rapple v. Dutton, 226 F. 430, 141 C. C. A. 260. In the Filmar Case the rights of third parties had not intervened when relief was sought, all of the property scheduled by the bankrupt partner who continued the business had been property of the partnership, and the retiring partner joined the firm creditor in asking that a preference be given him against firm assets. In the present case none of those facts appear. Between March 15th and August 1st substantial changes from conditions that prevailed on March 15th had taken place, additional property had been bought by Tornberg on credit •extended to him and mingled with the old stock, and Tornberg had incurred other indebtedness in carrying on the business. In Rapple’s Case he, as the retiring partner, .asked for an order on the trustee compelling him to apply the partnership assets to the payment of a firm debt.

But again, the facts in that case and the principle on which the court seems to have rested its conclusion are so unlike this situation and the principles applicable here that we think it has no application. The conclusion in that ease was put upon the ground that a transfer by a partner of his interest in an insolvent concern was in fraud of the firm creditor. But the creditor there had not, as the creditor here had, participated in the transfer. Here appellant bank knew that the partnership was dissolved and that Tornberg was to continue the business. It acquiesced, evidently believing that it would be to its interest to get Lembkey out, and it loaned Tornberg $1,000 to be used by him in continuing the business in his individual name, knowing that changes would thereafter be made from day to day in the relation of that business to third parties. 'Tornberg contracted indebtedness in continuing the business, which was unpaid when he became bankrupt. Subrogation is an equitable right, which one may waive or bar himself by laches from asserting. In Ward v. Sherman, 192 U. S. 168, 177, 24 S. Ct. 227, 229 (48 L. Ed. 391) it is said that laches is “9 * c principally a question of the inequity of permitting the claim to be enforced — an inequity founded upon some change in the condition or relations of the property •or the parties. 9 ' 9 ° In other words, where a court of equity finds that the position of the parties has so changed that equitable relief cannot be afforded without doing injustice, or that the intervening rights of third persons may be destroyed or seriously impaired, it will not exert its equitable powers in order to save one from the consequences of his own neglect.”

Furthermore, it is said in Case v. Beauregard, supra, and reannouneed in the Fitzpatrick and Huiskamp (121 U. S. 310, 7 S. Ct. 899, 30 L. Ed. 971) Cases, that: “It is indispensable, however, to such relief, when the creditor's are, as in the present case, simple-contract creditors, that the partnership property should be within the control of the court and in the course of administration, brought there by the bankruptcy of the firm, or by an assignment, or by the creation of a trust in some mode. This is because neither the partners nor the joint creditors have any specific lien, nor is there any trust that can be enforced until the property has passed in custodiara legis. Other property can be followed only after a judgment at law has been obtained and an execution has proved fruitless. So, if before the interposition of the court is asked the property has ceased to belong to the partnership, if by a bona fide transfer it has become the several property either of one partner or of a third person, the equities of the partners are extinguished, and consequently the derivative equities of the creditors are at an end. It is, there-, fore, always essential to any preferential right of the creditors that there shall be property owned by the partnership when the claim for preference is sought to be enforced.” And so, on this branch of the case we think the claimed equitable right did not exist at the time the bank undertook to assert it.

It is further claimed by appellant that because the requirements of the Bulk Sales Law of South Dakota (Rev. Code 1919, § 914 et seq.) were not complied with when Lembkey, on March 15, 1922, transferred his interest in the partnership property to Tom-berg, that transaction was void and title to 'the property of the partnership continued to remain in it. Brown v. Kossove, 255 F. 806, 167 C. C. A. 134; William Tackaberry Co. v. German State Bank, 39 S. D. 185, 163 N. W. 709; Butler Bros. v. Mason (S. D.) 198 N. W. 560, are relied on. Under the Bulk Sales Law every purchaser in bulk of a stock of merchandise and fixtures is required to give notice personally or by registered mail to each of the creditors of the seller that he is about to purchase or trade for the stock. The seller must furnish to the purchaser a list of his creditors and the notice given by the purchaser must be served not less than seven days prior to payment of the purchase price. The purchaser is made a trustee of the amount he agrees to pay for the use of the seller’s creditors until the law is complied with, and thereupon he becomes a purchaser in good faith. In two of the cases relied on there were sales in bulk of stocks of merchandise, in the other there was an exchange of a stock of merchandise for land, and in none of them was the requirement as to notifying creditors complied with. In each the purchaser was held liable as trustee to the creditors — for the purchase price in two cases, and for the value of the land in the other. Perhaps the principal reliance of appellant is on the statement of this court in Brown v. Kossove, supra, that a sale made without compliance with the law is a void sale. But acceding to all that is claimed by appellant, based upon those eases, we fail to see that any of the principles which they declare have .application here. We do not believe the Bulk Sales Law can be applied to the transaction between Lembkey and Tom-berg. At that time the partnership owned the business and property. It was not owned by either of the partners individually. If one or both of the partners, acting for the partnership, had made a sale of all of the "property to someone else, it will be conceded that the transaction would have come within the terms of the law relied upon, and partnership creditors would have had the remedial. rights given by the law. But no such sale as that, no sale in bulk, was made. Lembkey retired from the business as a partner, in consideration of Tomberg’s agreement to assume and pay the firm’s debts. He was not paid anything by Tomberg, Tom-berg did not agree to pay him anything, and did not become a trustee for partnership creditors. We are not able to see how the requirements of the law could be applied to that transaction in behalf of the bank as a creditor of the partnership. If the bank has a case under that law it would have to put itself in the attitude of a creditor of Lemb-key as seller, and its relief, given by the law, would be sought against Tornberg and his property as purchaser. But Tomberg held no purchase price in trust for any one’s creditors, nor did he purchase a stock of goods in bulk from the owners. The sole purpose of that law is to protect creditors of the vendor, and no one else is in a posi-' tion to make complaint.

Affirmed.


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    DOYLE DRY GOODS CO. v. LEWIS. In re WELCH.
    (Circuit Court of Appeals, Eighth Circuit.
    April 30, 1925.)
    No. 6713.
    1. Bankruptcy <§=>303(1) — Trustee in bankruptcy has burden of proving voidability of mortgage as preference.
    Trustee in bankruptcy, alleging that mort•gage is voidable preference under Bankruptcy Act, §§ 60a and 60b, as amended (Comp. St. § 9644), because made when mortgagor was insolvent and when mortgagee had reasonable cause to believe that mortgage, if enforced, would cause preference of its claims, had burden of proof of such facts by preponderance of competent evidence.
    2. Bankruptcy <§=>303(3) — Evidence held insufficient to establish insolvency of bankrupt at time of giving mortgage.
    Evidence held insufficient to establish mortgagor’s insolvency at time of giving mortgage within four months preceding bankruptcy.
    3. Evidence <§=>318(3) — Testimony as to taxes paid by bankrupt held incompetent on question of solvency at time of giving mortgage.
    Testimony as to taxes paid by bankrupt on personal property by witness, who had inspected county tax books, and real estate tax statements, consisting of unverified papers, held hearsay and incompetent on question of solvency of bankrupt at time of giving mortgages sought to be avoided.
    4. Appeal and error <§=>837(11) — Appellate court not bound by findings of fact based on incompetent testimony.
    Appellate court is not bound by findings of fact of referee or lower court, where record indicates consideration of incompetent testimony.
    5. Bankruptcy • <@=>303(3) — Evidence held insufficient to show that mortgagee had reasonable cause to believe that mortgage would result in preference.
    Evidence held insufficient to show that mortgagee, at time of accepting mortgage, within four months preceding bankruptcy, had reasonable cause to believe that mortgage, if enforced, would cause preference of its claim.
    Appeal from the District Court of the United States for the Eastern District of Oklahoma; Robert L. Williams, Judge.
    In the matter of the bankruptcy of W. A. Welch; H. V. Lewis, trustee. Prom a decree in effect declaring a mortgage a voidable preference and allowing the claim only as a claim of a general creditor, the Doyle Dry Goods Company, mortgagee, appeals.
    Reversed and remanded, with directions.
    E. F. McFaddin, of Hope, Ark., for appellant.

      Harry P. Daily, of Ft. Smith, Ark. (John P. Woods, of Ft. Smith, Ark., on the brief), for appellee.
    Before SANBORN and LEWIS, Circuit Judges, and POLLOCK, District Judge.
   SANBORN, Circuit Judge.

The question in this case is whether or not a mortgage made by Mr. W. A. Welch for $6,764.25 on four pieces of his real estate, worth about $7,000, on May 9, 1921, and duly recorded on that day, to secure to Doyle Dry Goods Company, a corporation of Little Rock, Ark., payment for dry goods it had sold to him, constituted a voidable preference under sections 60a and 60b of the Bankruptcy Act of 1898 as amended. Section 9644 (a), (b), U. S. Comp. St. The answer to that question was conditioned by the answer to the questions: (1) Was Mr. Welch insolvent on May 9, 1921? and (2) did the dry goods company have reasonable cause to believe on that day, which was within four months pri- or to the filing of the petition in bankruptcy against Mr. Welch in August, 1021, that the enforcement of that mortgage would effect a preference of the claim of the dry goods company over the claims of other creditors of Mr. Welch of the same class? By proper pleadings and proceedings these questions were presented to, heard, and decided upon evidence and argument by the referee in bankruptcy, who answered them in the affirmative, and by the court below, which confirmed those answers and rendered a decree to the effect that the mortgage constituted a voidable preference, and that the claim of the dry goods company as a secured claim was disallowed, and its claim as the claim of a general creditor was allowed. From this decree the dry goods company has appealed.

The mortgage and its lien upon the property described in it were presumptively just, legal, and valid. They were voidable only in case Mr. Welch was insolvent when they were created and the dry goods company then had reasonable eause to believe that their enforcement would eause the alleged preference. The trustee in bankruptcy alleged, and the burden was on him to prove, the insolvency and the reasonable eause of the dry goods company to believe that the alleged preference would result, and, if the trustee failed to make this proof by a fair preponderance of the competent evidence, the mortgage was not voidable. Calhoun County Bank v. Cain, 152 F. 983, 82 C. C. A. 114; In re Gaylord (D. C.) 225 F. 234, 239.

The reeord discloses these facts: On May 9, 1921, Mr. Welch was an owner and dealer in real estate in a small town in Oklahoma. He owned about 800 acres of land and about 20 town lots, two store buildings, and two or three small houses. This real estate was the greater part of his property, and was worth from $35,000 to $50,000. He also owned and operated a stock of goods suitable for a village or country store. That stock of goods, his notes and accounts receivable, his implements, wagons, and fixtures, were worth from $8,000 to $12,000. He had been operating this store for more than six years; the dry goods company had been selling him goods during this time, and when he needed time to pay for them it had previously given him such time and taken a mortgage or mortgages on some of his real estate to secure his payment of his debt. His indebtedness on May 9, 1921, was about $40,000.

The question, whether or not he was insolvent, whether or not his property at its fair market value was of sufficient value to.pay his debts, depended largely upon the fair value of his real estate. There were more than 20 separate pieces of this real estate. W have carefully read and compared the testimony of the witnesses as to the value of each of these pieces of property. These witnesses testified in August, 1923, more than two years subsequent to the date of the mortgage, to the value of this real estate on May 9, 1921, when the market value of real and personal property alike was much more than it was in August, 1923, and when it was obviously difficult for them to prevent the depleted values of 1923 from affecting their estimates of the values in 1921. It is evident, from an examination of the testimony of these witnesses, that Mr. Bird, the principal witness for the trustee, upon the question of the values of the real estate, estimated its value in some cases much too low. For example, he placed a value on a store building and two lots that were, and for many years had been, in May, 1921, renting for $30 a month, at $1,000. The rent from that property was 6 per cent, per annum on $6,000. He testified that the value of a lot and a two-story building, which on May 9, 1921, had been and were renting at $20 per month, at $1,750. This rental was 6 per cent, per an-num on $4,000. He estimated the value of 280 acres of land at $40 an acre, $11,200. One of the witnesses for the dry goods company estimated this tract worth $50 an acre, or $14,000, and another estimated its value at $60 an acre. This witness testified that he was 50 years of age; that he had lived in the county where this land was located'33 years, had been in the grocery and mercantile business, and for the last 12 or 14 years had been on a farm; that during this time he had bought and sold farms in the neighborhood, and that he was familiar with the market value of this 280 acres in 1921; that his own land adjoined this 280 acres; that Mr. Welch’s tract was better than his; that he paid $50 .an acre for his tract, and that he offered to buy this 280 acres of Mr. Welch for $60 an acre and he refused it. The testimony of these two witnesses seems to us to be more reliable and persuasive than that of Mr. Bird and one other witness who testified for the trustee upon this subject.

Turning to the value of the personal property on May 9, 1921, we find that the testimony for the trustee, is that of Mr. Stem-burg and Mr. Goodwin. The former took an inventory of the stock of Mr. Welch in August, 1921, about three months after the mortgage was made, and found it to consist, at the inventory prices, the prices at which it was bought, of dry goods, $2,211.81; shoes, $1,671.75; groceries, $843.18; dry goods and toilet articles, $1,381.81; hardware, $713.82; implements and wagons, $2,750.44; fixtures, $1,782.50 — making a total of $11,335.50. Then he testified that he separated the implements from the remainder of the merchandise, because the former came from the John Deere Plow Company, and that the remainder of the stock was worth about $2,-000; that it was old and dirty and consisted of remnants. He did not testify what this stock was worth on May 9, 1921. But Mr. Welch testified that he had been selling out of it up to August, and that he thought the stock was worth about $2,000 less in August than it was on May 9, 1921. Mr. Goodwin testified that he saw the stock just prior and just subsequent to May 9, 1921, and in his opinion it was worth about $2,000. 'Mr. Lewis, the trustee, testified that he collected $4,100 out of Mr. Welch’s accounts receivable, and Mr. Welch testified that he had $3,-000 due him from the Indians in May, 1921, that he could have collected, if he had been permitted to continue in business. There seems to be no escape from the conclusion that there must have been on May 9, 1921, a value of at least $4,000 in the stock of goods, $800 in implements and wagons, $800 in fixtures, and $5,000 in notes and apeounts — aggregating $10,600.-

It is not difficult, from the testimony in this ease, by taking low estimates of the values of the real estate and the personal property of Mr. Welch on May 9, 1921, to prepare a plausible statement showing his indebtedness in excess of the value of his property. But a • careful examination and thoughtful consideration of all the evidence has satisfied that its fair market value, at the time the mortgage was given, has not been proved by the evidence in this case to have been insufficient to pay his debts, and the fact has not been established that he was not solvent at that time.

Counsel for the trustee hele invoke the familiar rule that, where the referee and the District Court have considered conflicting evidence and have made a finding or decree thereon, it is presumptively right, and it may not be reversed, unless it clearly appears that they have fallen into some error of law, or have committed some serious mistake of fact. First National Bank v. Abbott, 165 F. 852, 91 C. C. A. 538. But in this case, over the objection and exception of the dry goods company that such evidence was hearsay and incompetent, the testimony of Miss Taylor, that she had made a personal inspection of and taken off from the tax books of Le Flore county the taxes due on the real property and personal property of Mr. Welch; that the total amount of his taxes on personal property for 1911 and 1912, with the penalties, was $5,600, was admitted. 1 Again, statements of taxes on the real estate of Mr. Welch, tending to show that the total taxes claimed by the county treasurer of Le Flore county against the-lands on which the Doyle Dry Goods Company held its mortgage were $3,262, were-admitted. None of this evidence or testimony was admissible, and it came in under-proper objections and exceptions.

The books from which Miss Taylor-testified she drew her information were not, offered in evidence or produced in court, so-that opposing counsel could examine them. There was ‘no proof that these books had been regularly or correctly kept by officials, of the county, or under their direction, or-under the direction of their clerks, and Miss Taylor’s testimony did not rise to the rank of oral hearsay or written hearsay. The pieces of paper received by the referee as evidence of the real estate taxes did not rise • to the dignity of hearsay of any kind. There was no admission, or verification under oath or otherwise, of these pieces of paper, or the statements upon them; no testimony who made them or that they had any verity. Nevertheless it seems probable from these rulings that these statements about taxes were considered- as evidence by the referee and the court below in reaching their con-•elusion, when the fact was that the trustee had produced, and there was no competent ■evidence in the case of the amount of the taxes on either the real or personal property of Mr. Welch. An appellate court is not bound by findings of a referee or court on such a record.

Did the dry goods company or its agent have reasonable cause to believe on May 9, 1921, that its mortgage, if enforced, would cause a preference of its claim over the claims of other creditors of Mr. Welch ■of the same class? Mr. Blanks was the secretary and vice president of the dry goods company and was in charge of its credits 'in May, 1921. He asked Mr. Welch to pay his debt to the company. Mr. Welch asked for an extension of time to pay it. Mr. Blanks requested him to come to Little Rock. Mr. Welch complied with his request, and when he reached there Mr. Blanks asked him for a statement of his debts, his property, and its value. Mr. Welch then stated to him that he had merchandise in hand worth $20,000, open accounts worth $3,500, and secured accounts worth $6,500. He listed his various pieces of real estate, and stated his estimate, of the values thereof. He stated that he owed from $30,000 to $35,000. The value of his property, according to his statement, aggregated $72,000, and the amount of his debts about $35,000. His statement of the value of his various pieces of real estate, according to the evidence that has been taken since, was not above its fair market value at that time, with the exception that he owned only ls/27 of 340 acres of land, worth $17,-000, and in his statement he claimed the •ownership to that entire tract. After receiving this statement and talking with him, Mr. Blanks told him that he must pay or secure his debt, but that he would carry him until fall, just as he had done in years before, if he would give a mortgage upon some of his property to secure the payment of his debt. He then called Mr. Jean, the general field man of the company, talked over the matter with him, and sent him out to Oklahoma to cheek over Mr. Welch’s statement and compare it with the property described in it. Mr. Jean went to Oklahoma and did this. He testified that he compared the. different pieces of property with Mr. Welch’s statement, estimated the value of the store, the dwelling, and other real estate, and then took the mortgage; that, if he had thought Mr. Welch was in a bad condition, he would have reported it, but that he thought it was all right. Mr. Blanks further testified that this matter was handled in the usual way such matters were conducted by the company, and that when the investigation was completed he was satisfied that Mr. Welch was perfectly good, and that he did not take the mortgage for any preference. ■

This transaction lacks many of the customary evidences of a voidable preference. The mortgage was not taken upon the stock of goods, or upon any of the equipment for carrying on the mercantile business of the mortgagor. It was not taken on all or nearly all the property of the debtor. It covered property worth less than one-fourth of the value of the debtor’s property. It was not taken hurriedly or secretly. It was recorded on the day it was dated; and a thoughtful consideration of all the evidence relative to the transaction and all the facts and circumstances surrounding it has persuaded that the charge of the trustee that the dry goods company had reasonable cause to believe, when it took the mortgage, that its enforcement would effect a preference of its •claim over the claims of other creditors of the same class, was not proved by a fair preponderance of the evidence in this case.

The decree .below must therefore be reversed, and the case remanded to the District Court, with directions to render a decree for the dry goods company for the relief prayed in its petition as intervener.


author: STONE, Circuit Judge.

text:
    CITIZENS’ TRUST CO. OF BUFFALO, N. Y., et al. v. EAVES et al.
    (Circuit Court of Appeals, Eighth Circuit.
    April 13, 1925.)
    No. 6689.
    1. Fraudulent conveyances @=>95(2) — Deeds of land, in consideration of money and past services rendered by grantor’s wife and daughter, held supported by sufficient consideration.
    Where wife and daughter gave inheritance and money earned in aid of farming enterprise, and themselves worked in aid of it, held,, conveyance of portion of land accumulated to them, prior to investments by husband of which they did not approve, were supported by sufficient consideration, regardless of husband’s right to convey in consideration of love and affection.
    2. Fraudulent conveyances @=>154(1) — Deeds held not rendered fraudulent as to creditors through failure to record.
    Failure for two years to record deeds to grantor’s wife and daughter heldi not to render them fraudulent as to creditors of grantor, where such creditors had not relied on lands conveyed in extending credit, and failure to record was unintentional, and merely overlooked by one instructed to do it.

      3. Fraudulent conveyances @=>70 — Conveyances to grantor’s wife and daughter held not invalid, as made with view to fact that grantor might or would become indebted.
    Deeds to grantor’s wife and daughter, constituting a division of property jointly accumulated prior to grantor’s entry on enterprise of which wife did not approve, held not invalid on theory that they were executed with a view to fact that grantor might or would become indebted.
    Appeal from the District Court of the United States for the Eastern District of Oklahoma; Orie L. Phillips, Judge.
    Action by the Citizens’ Trust Company of Buffalo, N. Y., and the City National Bank of Galveston, Tex., against J. J. Eaves and others. Judgment for defendants, and plaintiffs appeal.
    Affirmed.
    Earl Q. Gray, of Ardmore, Okl. (H. C. Potterf, H. H. Brown, R. B. Brown, and J. E. Williams, all of Ardmore, Okl., on the brief), for appellants.
    Stephen A. George, of Ardmore, Okl. (J. B. Champion, Thomas W. Champion, and Lois A. Van Reed, all of Ardmore, Okl., on the brief), for appellees.
    Before STONE and LEWIS, Circuit Judges, and SCOTT, District Judge.
   STONE, Circuit Judge.

This is a hill by the Citizens’ Trust Company, a judgment creditor, against James J. Eaves, Edna E. Eaves, his wife, and Mamie A. Brady, their daughter, to set aside two deeds, one by Eaves to his wife conveying 485 acres of land and one by Eaves and his wife to Mrs: Brady conveying 965 acres of land, all located in Oklahoma. Other creditors intervened as holders of similar judgments. The deeds in question are dated February 1, 1920, and acknowledged the following day. They were not recorded until February 20, 1922. On July 10, 1920, a note which was the basis of the Citizens’ Trust Company judgment was executed by Eaves. The trial court sustained the conveyances as not being fraudulent and dismissed the bill on the merits. From that decree, this appeal is brought.

In support of their position here, appellants present several contentions.

It is suggested, in limine, that because of the relationship of the parties to these deeds the burden of proof is upon appellees to disprove the fraud. Be this as it may, in our opinion, they have abundantly sustained that burden.

The first contention concerning these deeds is that they were not drawn or executed upon their purported date, but were actually executed shortly before recordation on February 20, 1922. Another contention is that the deeds were without fair or adequate consideration. These two contentions may be treated together.in considering the applicable facts which are as follows:

E^ves and his wife came from Texas to Oklahoma more than 30 years before the date of these deeds. They possessed at that time only two teams with wagons and $300 in money. All of this property, under the laws of Texas,' was community property. They located in the neighborhood of the land here involved and engaged in farming and stock raising. Not long after coming to Oklahoma, Mrs. Eaves received a small inheritance from her father. This was invested in cattle. During the next 30 years, Mrs. Eaves, besides attending to her household duties, worked as.a hand in the fields. When Mrs. Brady, their only child, became large enough to help, she did the same. Mrs. Brady'also accumulated small sums of money from time to time from stock given to her by her father. Later, she taught school for several years, turning over her salary to her father for investment in cattle and land. The money thus made by the three people was invested from time to time in land and cattle. By 1919, they owned over 4,000 acres of land, 500 or 600 head of cattle, a few horses and mules and had about $11,-000 on deposit. All of this property stood in the name of the father except 1,280 acres, which had been bought in equal parts in the name of the mother and daughter respectively 'from unallotted Indian land sold by the government. They had no indebtedness except that the father, with other parties, had signed notes to a rather 'large amount with and for one J. S. Mullen, who was a promoter and oil speculator on a large scale and generally thought to be at that time a very wealthy man. About that time the father determined to buy land in the Rio Grande Valley. The mother was bitterly opposed to this investment and to his selling or incumbering the Oklahoma land for that purpose and insisted on having some division which would protect her and her daughter from any such situation. It was to meet these views and to divide the property that these deeds were executed. This is the positive evidence of all parties who were familiar with the transaction, it accords with events and with the financial situation of the parties as it apparently seemed to them at that time and we think is the truth. The evidence that the date in the deeds is accurate is the same by all of the parties and by the notary who made them and there is really no substantial evidence to the contrary. The deeds state that they are in consideration of $1 and love and affection. The notary and abstractor (Westerheide) swears positively that this form of expression of the consideration was suggested by him but there is no serious question in our mind that the real consideration was the mutual division of this property, to the accumulation of which, all three had contributed their efforts and means. Such a transaction affords valuable and sufficient consideration to support these deeds aside from any question of the right of a husband or parent to make a bona fide conveyance in consideration of love and affection. We think the deeds must be held good against the objections of predating and lack of consideration.

Appellants contend, also, that, even though the deeds had been valid in the beginning, they became fraudulent by being concealed and withheld from the record. It is a general doctrine that a deed, to be fraudulent as to creditors, must be such either by intent or in its effect. Because the effect of concealment of a valid deed might enable the grantor to establish a fictitious credit based upon the apparent ownership of the deeded property, such concealment may operate as a fraud upon creditors. Obviously, however, this effect cannot be present where the creditors have no knowledge of or do not rely upon such property. All of the notes upon which the judgments of appellants rest were notes made by J. S. Mullen who was regarded, at the time they were executed, as a very wealthy man. Eaves and others executed these notes with and for the benefit of Mullen. There is no evidence as to any investigation of Eaves’ financial standing except by the Citizens’ Trust Company. That investigation consisted of a letter written to a banker in Oklahoma (which was excluded from the evidence and does not appear in the transcript), the personal recommendation of a Texas banker and a financial statement made by Eaves. This financial statement sets forth assets of various indicated kinds aggregating more than $115,-000. One item of this statement is as follows :

“Three thousand and ten acres of land located in Carter county, Oklahoma, ‘worth twenty dollars an acre, $60,200.”

As a matter of fact, with these 1,450 acres (included in these two deeds) excluded, Eaves, at that time, would have had ownership of much less than 3,010 acres, with a mortgage upon 370 acres additional which he had conveyed a short time previously. With the land covered by the two deeds, he would have had at that time considerably more than 3,010 acres. Either way there was a discrepancy in the statement made by Eaves and it is evident that his estimate of the land owned in Carter county was a mistake, not intended to create a false impression. The probable explanation of this acreage in the statement is as follows: As nothing had ever been paid upon the 370 acres of land Eaves had sold and upon which he held a-mortgage, he testifies that he had regarded it as really his land. He also owned 365 acres of land in Texas. If these two acreages be added to the 2,280 acres of land in Oklahoma which he owned, it will make 3,015 acres, which is within 5 acres of the amount set forth in his statement to the bank. But, however innocently this misstatement may have been made, it was made and it was not true. However, it is shown that the bank made no further investigation of Eaves’ standing or of this land. Therefore, whatever rights it might have against Eaves because of this false statement, it could not have been deceived by the fact that these deeds were not recorded or otherwise made known to' it. Hence, it would seem to follow that the bank has no ground of complaint based upon a false appearance of ownership created by withholding the deeds, because it did not know' of such false appearance.

' Again, the evidence seems clear that at the time the notes represented by the judgments here sought to be enforced were made, there was no intention or purpose by any of the parties to these deeds to withhold them from record. The positive and undisputed testimony of the parties to the deeds and of the notary and abstractor is as follows: That at the time the deeds were made, Mrs. Eaves and her daughter wanted the notary to have them recorded. Having in his own mind that it might affect the business standing of Mr. Eaves, but not communicating that fact clearly to either of the women, he suggested that they be not recorded at once. To this they acquiesced. A few months later, however, and before any of these notes were executed by Eaves, the mother and daughter went to the notary, insisted that he record the deeds and gave him the necessary recording fees. He told them the deeds would be recorded at once. He put the fee into his pocket and apparently forgot the transaction entirely. It was not until almost two years later that some question arose about the recording, of the deeds and it was ascertained that it had never been done. The notary swears positively that he intended to record the deeds and thought they had been recorded and the grantees are positive that they thought the recording had occurred as they had directed. From this evidence it sufficiently appears that the holding from the record at the time these notes were made was not only accidental and unintentional but was directly opposed to the intention and desires' of the grantees who had the direction of the matter. We think, therefore, that this contention as to failure to record is not sus^ tained.

The next contention of appellants is that the deeds were fraudulent because executed with a view to the fact that J. J. ■Eaves might or would become indebted. We think it unnecessary to pass upon the existence or limits of the general rule of law thus involved. In our judgment, the facts shown here would not justify the application of such a rule. There is no dispute in the evidence that one of the moving purposes, if not the governing motive, back of the wife’s desire to have a division of the property was that she feared the • husband might be unsuccessful in his Rio Grande venture and lose or imperil their land. However, that would be an entirely legitimate reason for the action taken. At that time no liability had been incurred by the husband, he had no question of the advisability of making that investment nor of its success and none of them had any thought of defrauding anyone.

What has been said above disposes of two other contentions presented by appellants to the effect that the trial court erred in holding that the Citizens’ Trust Company must not have relied upon this particular land rather than upon the general ownership of such land and that the deeds being fraudulent as to one would be fraudulent as to all.

We think the decree should be and it is affirmed.