author: Me VICAR, District Judge.

text:
    SMITH v. BALTIMORE & O. R. CO. et al.
    No. 2493.
    District Court, W. D. Pennsylvania.
    March 5, 1931.
    Shelby, Hackney & Ray, of Uniontown, Pa., for plaintiff.
    Smith Buchanan, Scott & Gordon, of Pittsburgh, Pa., for defendant Baltimore & O. R. Co.
    William A. Wilson and C. Roscoe Hoffman, both of Pittsburgh, Pa., for defendant Bank of Pittsburgh, Nat. Ass’n.
   Me VICAR, District Judge.

The bill of plaintiff, receiver of a national bank, prays the court to decree an agreement illegal and void between the bank and the Baltimore & Ohio Railroad Company (wherein were pledged certain assets of the bank as security for a deposit of tbe railroad company); that tbe securities be delivered to plaintiff; and for an injunction. It is alleged therein that the bank was without power to make the agreement. The answers of the defendants deny that the agreement was ultra vires, illegal, and void, and aver that plaintiff was without power to disaffirm the contract even if ultra vires, as he had not returned, or offered to return, the deposit received.'

From the written stipulation of facts of the parties, the following findings of fact are made:

Findings of Fact.

1. On and prior to the 23d day of February, 1928, the Baltimore & Ohio Railroad Company, a corporation organized and doing business under the laws of the state of Maryland (hereinafter called “Railroad”), carried certain of its funds on deposit with the First National Bank of Connellsville, a banking association organized under the banking laws of the United States and having its principal place of business in the city of Connellsville, county of Fayette, and state of Pennsylvania (hereinafter called the “First Bank”).

2. On or about February 11, 1928, the Railroad wrote the First Bank requesting that its balances on deposit from time to time be protected either by a deposit of bonds or a bond with acceptable corporate security thereon. A copy of said letter of February 11, 1928, is attached to the bill and by reference is made a part hereof.

3. Thereafter, in compliance with the request of the Railroad and to prevent the threatened withdrawal of the Railroad Company’s funds on deposit, a written agreement, dated the 23d day of February, 1928 (but actually signed by the First Bank on the 24th day of February, 1928, and by the Railroad on the 7th day of March, 1928), was entered into between the First Bank and the Railroad, whereby it was agreed, in substance, that the First Bank, as security for- the deposits already made or which might thereafter be made by the Railroad, would deliver to the Bank of Pittsburgh, N. A., as trustee, certain bonds and securities, listed in an exhibit attached to said agreement, of the aggregate par value of $54,000, and whereby, on the failure of the First Bank to pay any cheek drawn upon it by the Railroad, provided the; Railroad should have on deposit sufficient funds for the payment thereof, the trustee should sell at the market price such amount of said securities as would be sufficient for the payment of said cheek; three days’ notice of such sale to be given to the First Bank. A copy of said agreement is attached to the bill and by reference is made a part hereof.

4. This agreement was signed on behalf of the First Bank by Robert Norris, president, and attested under the corporate seal by H. C. Norton, cashier, they being the duly elected and qualified officers of the First Bank. The execution of the said agreement was authorized and approved by the board of directors of the First Bank at a meeting of said board, attended by all of the members of the board, duly convened on the 23d day of February, 1928, at which time the following preambles and resolution were unanimously adopted:

“Whereas the Baltimore & Ohio Railroad Company has on deposit in this institution this day and the sum of thirty thousand five hundred ninety-three and 39/100 ($30,593.39) dollars and has demanded security for the payment of said deposit, and for such other sums as may be deposited from time to time; and

“Whereas, this institution has agreed to deposit with the Bank of Pittsburgh, N. A., the bonds and securities hereinafter listed, of the par value of fifty four thousand ($54,-000.00) dollars, under the terms and conditions of an agreement between this institution and the Baltimore & Ohio Railroad Company, submitted and read at length at this meeting;
“Now be it Resolved, that the President and Cashier be, and they hereby are authorized, empowered and directed to execute and deliver the said agreement, and to deposit the said bonds and securities under the terms thereof, with the Bank of Pittsburgh, N. A., as provided therein.”

5. Notice of the action of the directors was sent by the First Bank to the Railroad by means of the following letter, dated February 24, 1928:

“At a meeting of the Board of Directors last evening it was resolved to pledge securities of the par value of $54,000.00- to secure your deposit. Our attorneys thought there should be an agreement covering this and accordingly prepared a form; we are enclosing two copies thereof, each signed by the bank. If satisfactory to you, sign.them and return one to us. If not in satisfactory form suggest changes’you desire. We are taking the securities together with a copy of this agreement to the Bank of Pittsburgh, N. A., today.
“Hoping that this is satisfactory to you, we axe,”

6. In pursuance of the terms of said agreement, the First Bank delivered, on or about the 24th day of February, 1928, to the Bank of Pittsburgh, N. A., the bonds and securities listed in Exhibit A attached to the agreement, Exhibit 2, of the aggregate par value of $54,000, together with a copy of said agreement, Exhibit 2 (not at that time executed by the Railroad), since which time until the present time said bonds have remained on deposit with the Bank of Pittsburgh, N. A.

7. The Bank of Pittsburgh, N. A., accepted the trust contemplated in said agreement, as appears by letter dated February 24, 1928, from the Bank of Pittsburgh, N. A., to the First National Bank of Connellsville, a copy of which is attached to the bill and by reference is made a part hereof.

8. Shortly after February 24, 1928, the said agreement, Exhibit 2, was executed by the Railroad Company. An original executed copy of said agreement of February 23, 1928, remained from that time until March 28, 1928, in the possession of the First Bank, and, from March 28, 1928, in the possession of the Citizens’ National Bank of Connellsville, a banking association organized under the banking laws of the United States. The Railroad has likewise had in its possession since the execution by it of same, an original executed copy of said agreement, Exhibit 2.

9. The balances on deposit to the credit of the Railroad with the First Bank fluctuated between the dates of February 23, 1928, and March 10, 1928, having been as follows at the close of business on said respective days:

February 23,-$30,593.39.
February 24, $38,900.22.
February 25, $42,637.87.
February 27, $19,087.69.
February 28, $9,111.84.
February 29, $3,950.03.
March 1, $10,461.20.
March 2, $19,668.82.
March 3, $16,608.82.
March 5, $22,636.52.
March 6, $34,388.97.
March 7, $39,574.72.
March 8, $46,064.02.
March 9, $40,000.
March 10, $40,000.

On March 10, 1928, the balance on deposit as aforesaid was $40,000, and that balance remained on deposit thereafter until the closing of the Citizens’ Bank as hereinafter mentioned.

10. Deposits were made by the Railroad almost daily after March 10, 1928, but on each day deposits were made, the First Bank (until March 28, 1928) and the Citizens’ Bank (after March 28, 1928), pursuant to instructions from the Railroad, would remit the amount of such deposit to the Railroad by drawing a draft on a correspondent bank, mailed to the Bank of Pittsburgh, National Association, with instructions to place the amount thereof to the credit of the Railroad.

11. On March 28, 1928, the First Bank and the Citizens’ Bank entered into a written agreement whereby the First Bank assigned and transferred to the Citizens’ Bank all of-its assets (with certain exceptions, not material to the present suit), including the securities pledged under Exhibit 2 hereof, and the Citizens’ Bank assumed and agreed to pay and discharge all of the liabilities and obligations of the First Bank. A true and correct copy of said agreement (with the exception of the schedules attached thereto) of March 28, 1928, is attached to the bill and by reference is made a part hereof.

12. The said securities as aforesaid were later absorbed by the Citizens’ Bank and credited by the Citizens’ Bank to the “First National Bank Asset Account,” as provided for in the eighth and subsequent paragraphs of said agreement of March 28, 1928, so that the Citizens’ Bank has succeeded to all the rights and obligations of the First Bank under said agreement of February 23, 1928.

13. On the morning of July 30, 1930, the amount on deposit with the Citizens’ Bank to the credit of the Railroad was the sum of $40^000. On the same day, a deposit of $2,915.83 was made by the Railroad for credit to the same account. Later, on the same day, pursuant- to a long-standing previous arrangement between the Citizens’ Bank and the Railroad, the Citizens’ Bank drew its draft No. 11839 on First National Bank of Pittsburgh, Pa., a correspondent bank, in the amount of $2,915.83, to the order of the Bank of Pittsburgh, and mailed the said draft to the Bank of Pittsburgh, with instructions to place it to the credit of the Railroad. The said deposit balance of the Railroad as shown by the books of the Citizens’ Bank was thereupon reduced by the amount of the said draft, leaving the balance on deposit in the said account, as shown by the books of the Citizens’ Bank at $40,000. At the same time, the amount of the said draft was deducted from the balance due to the Citizens’ Bank from the First National Bank of Pittsburgh, Pa., as shown by the Citizens’ books.

14. On July 31, 1930, the Citizens’ Bank was found and declared to be insolvent by the Comptroller of the Currency of the United States, and thereupon on said date the said Comptroller duly appointed Lloyd Littrell receiver of the said bank.

15. Before the said draft for $2,915.83 could be presented for payment, the Citizens’ Bank had closed and a receiver appointed as aforesaid. Shortly thereafter, the said dra'ft was presented to the First National Bank of Pittsburgh for payment, but payment was refused because of the closing of the said Citizens’ Bank.

16. At the time the Citizens’ Bank was closed, the amount due the Railroad was the sum of $42,915.83, represented by the balance of $40,000 in the deposit account of the Railroad as shown by the books of the Citizens’ Bank, and by the amount of $2,-915.83 due upon the said draft as shown by the books of the Citizens’ Bank.

17. On September 25, 1930, the Railroad drew its two cheeks, both dated September 25, 1930, one for the sum of $40,000 and the 'other for the sum of $2,915.83, upon said ■Citizens’ Bank. Said cheeks were promptly presented ' to the receiver of the Citizens’ Bank for payment and demand for payment made, but payment was refused and the said ■checks were returned "unpaid with a pencil notation thereon stating, “Bank Closed.” True and correct copies of said cheeks are .attached to the bill and by reference is made a part hereof.

18. On January 13, 1931, the Railroad gave notice to the Bank of Pittsburgh, N. A., requesting the Bank of Pittsburgh, N. A., to sell at the market price such amount of said securities deposited with said Bank ■of Pittsburgh, N. A., under the terms of said agreement, Exhibit 2, as would be sufficient for the payment of the two said cheeks, Exhibit 5 and 6. A copy of said notice is attached to the bill and by reference is made a part hereof.

19. Within three days of such notice and prior to the time that the Bank of Pittsburgh, N. A., under the terms of the agreement, Exhibit 2, aforesaid could make sale of said securities, this suit was instituted by George H. Smith, receiver for Citizens’ National Bank of Connellsville, against the Bank of Pittsburgh, N. A., joining the Baltimore & Ohio Railroad Company as defendant.

20. The above-mentioned Lloyd Littrell resigned as receiver of the Citizens’ Bank on August 7, 1930, whereupon the Comptroller of the Currency duly appointed George H. Smith receiver of said bank. The said Smith duly qualified as receiver of the said bank and is now acting as such receiver, winding up the affairs of the Citizens’ Bank under and by .virtue of the laws of the United States, under the direction of the said Comptroller.

- 21. At the time the Citizens’ Bank was closed, there were over 11,200 depositors and other creditors of the said bank, the amount of the liabilities to the said creditors being approximately $2,800,000. The said Citizens’ Bank was insolvent at the time of closing and the amount of the total dividends to be paid to the creditors of the bank is uncertain.

22. Examinations of the books and records of the Citizens’ Bank, made between February 23, 1928, and July 31, 1930, by examiners duly appointed by the Comptroller of the Currency, disclosed the execution of the said agreement of' February 23, 1928, and the deposit of securities, thereunder. Prior to the closing of the Citizens’ Bank, neither the Comptroller nor his representatives communicated to the First Bank, the Citizens’ Bank, or the Railroad any objection to the said agreement of February 23, 1928, or to the deposit of securities thereunder.

23. However, during, before, and after the said period of February 23, 1928, to July 31, 1930, whqp the said Comptroller was requested by national banks or others for an opinion upon the power of national banks to pledge securities to secure a private depositor, in every instance the Comptroller disapproved of such pledges by stating that in his opinion national banks had no such power. Neither the First Bank, the Citizens’ Bank, nor the Railroad had knowledge or notice of any such opinion until after July 31, 1930.

24. It is stipulated and agreed by counsel for all parties to this suit that this case shall be decided by the court on the assumption that the acts complained of were not in violation of Rev. St. § 5242 (section 52 of the National Banking Act, 13 Stat. 115,. now U. S. Code, title 12, § 91 [12 USCA § 91]).

Conclusions of Law.

1. The agreement of February 23, 1928, between the First National Bank of Connellsville and the Baltimore & Ohio Railroad Company, is illegal and void.

2. The receiver of the Citizens’ National Bank of Connellsville, successor to the First National Bank of Connellsville, has a right to disaffirm the agreement of February 23, 1928, to have delivered to him the securities received by the Bank of Pittsburgh, National Association, thereunder without payment of the deposit of the Baltimore & Ohio Railroad Company.

3. Plaintiff is entitled to a perpetual injunction restraining the Bank of Pittsburgh from selling or otherwise disposing of the securities received under the agreement of February 23, 1928.

4. The Baltimore & Ohio Railroad Company, defendant, should pay two-thirds of the costs, the George H. Smith, receiver of the Citizens’ National Bank of Connellsville, should pay one-third of the costs.

Opinion.

The first question for determination is: Did the First Bank, a national bank, have the power to pledge part of its assets as security for the deposit of the Baltimore & Ohio Railroad Company?

The powers of a national bank are conferred by Rev. St. § 5136 (title 12 U. S. Code, § 24 [12 USCA § 24]), which provides that such a bank shall have power to adopt and use a corporate seal, to have succession for ninety-nine years, to make contracts, to sue and be sued, to elect or appoint directors and officers, to prescribe by-laws, and—

“Seventh. To exercise by its board of directors, or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits; by buying and selling exchange, coin, and bullion; by loaning money on personal security; and by obtaining, issuing, and circulating notes according to the provisions of this chapter.”

It is evident (and it is admitted) that national banks do not have express powers to make such a pledge. ' If such power exists, it is an incidental or implied power. There is no decision, federal or state, determining whether national banks possess such an implied pofwer. In determining whether national banks do possess such an implied power, I will consider whether federal or state decisions (when made) should control; the primary purpose for which a bank is created; the effect and consequences of an interpretation holding that national banks possess such a power; whether such an interpretation would be in conflict with public policy; the administrative construction of the act; the legislative interpretation thereof; the implied powers of a national bank; and the federal and state decisions relating to pledges to secure private deposits, public deposits, sureties on bonds for public deposits.

In Ex parte Tyler (1893) 149 U. S. 164., 187, 13 S. Ct. 785, 791, 37 L. Ed. 689, it is stated:

“Where the questions involved arise under tlje state constitution and laws, the decisions of its highest tribunal are accepted as controlling. Where, the constitution or laws of the United States are drawn in question the courts of the United States must determine the controversy for themselves.”

See also Kansas City Structural Steel Company v. Arkansas (1925) 269 U. S. 148, 150, 46 S. Ct. 59, 70 L. Ed. 204.

The question under consideration being the power of a national bank under the laws of the United States, this court must determine the question for itself as there is no federal precedent.

In 7 C. J. 473, it is stated:

“A bank is ‘an association or corporation whose business it is to receive money on deposit, cash checks or drafts, discount commercial paper, make loans, and issue promissory notes payable to bearer, called “bank notes.” ’ ”

Also at page 475 that:

“Originally the business of banking consisted only of receiving deposits for safekeeping and even at the present time a bank is primarily a place for the deposit of money, and the receiving of the money of others on deposit is a distinctive feature of the business of banking.”

It is therefore a primary purpose of a bank to furnish to all persons desiring to avail themselves of the privilege, a safe place to deposit their money during such time or times as they may not desire to use it otherwise. To protect' depositors, national banks are required, under the law, to have a specified minimum capital stock and to create and maintain a surplus fund. Double liability is placed upon the stockholders. Directors are required to take an oath before entering on their duties. There is a limit placed upon the indebtedness which such banks may create. The financial condition of the bank must he published and its accounts are examined by the government.

It is a fundamental rule in the interpretation of a statute that the effect and consequences of the interpretation which may be made thereof should be considered. This rule is stated in Re Chapman, 166 U. S. 667, 17 S. Ct. 677, 680, 41 L. Ed. 1154, as follows:

“But nothing is better settled than that statutes should receive a sensible construction, such as will effectuate the legislative intention, and, if possible, so as to avoid an unjust or an absurd conclusion.”

If the act under consideration was interpreted so as to confer an implied power on national banks to pledge their assets to secure private deposits, it would follow that a bank could pledge all its assets to secure the deposits of a few depositors. Arkansas-Louisiana Imp. Dist. v. Taylor, 177 Ark. 440, 6 S.W.(2d) 533 (1928). This would mean that most of the depositors in a bank would not have the principal security that was intended for their protection. Such depositors being without notice of such a condition would be misled in some eases to their injury, and the greatest security, which was intended for their benefit, would be secretly withdrawn. An act should not be construed so as to produce such an effect unless the language thereof requires it to be done.

All the legislation on the subject under consideration should be considered. North American Commercial Co. v. United States, 171 U. S. 110, 128, 18 S. Ct. 817, 43 L. Ed. 98. An act should be construed, unless its language plainly requires it so to be done, so as to be not in conflict with public policy. The Main v. Williams, 152 U. S. 122, 132, 14 S. Ct. 486, 38 L. Ed. 381.

The public policy of the United States in relation to national banks appears in the acts of Congress. These acts provide a set of rules such as we have already observed, which have for their primary purpose the safe-keeping and protection of the deposits of all the depositors of a bank. If the act under consideration is construed so that national banks posses's implied power to pledge all their assets, dr a material portion thereof, .as security for a few private depositors, it takes away from the great majority of the depositors the greatest security which the law intended that they should have, and it violates the public policy of the nation as declared in its national banking laws.

In United States v. Jackson, 280 U. S. 183, 193, 50 S. Ct. 143,146, 74 L. Ed. 361, it is stated:

“It is a familiar rule of statutory construction that great weight is properly to be given to the construction consistently given to a statute by the Executive Department charged with its administration. United States v. Cerecedo Hermanos y Companía, 209 U. S. 337, 28 S. Ct. 532, 52 L. Ed. 821; Robertson v. Downing, 127 U. S. 607, 8 S. Ct. 1328, 32 L. Ed. 269; United States v. Healey, 160 U. S. 136, 16 S. Ct. 247, 40 L. Ed. 369; and such construction is not to be overturned unless clearly wrong, or unless a different construction is plainly required. United States v. Johnston, 124 U. S. 236, 253, 8 S. Ct. 446, 31 L. Ed. 389; Hawley v. Diller, 178 U. S. 476, 488, 20 S. Ct. 986, 44 L. Ed. 1157.”

See also Brewster v. Gage, Collector of Internal Revenue, 280 U. S. 327, 336, 50 S. Ct. 115, 74 L. Ed. 457.

The Comptroller of the Currency, being the officer charged with the administration of all national banking laws, has always advised national banks, beginning with a time before the pledge was made in this case and continuing until and after the appointment of a receiver, that national banks do not possess such a power. . The Comptroller had knowledge of the pledge in this case and took no action thereon.

As already stated, the statutes of the United States do not confer on national banks express power to pledge their assets as security for private deposits. The statutes do confer such power for public deposits. Rev. St. § 5234 (title 12 U. S. Code, § 192 [12 USCA § 192]), Rev. St. § 5153 (title 12 U. S. Code,. § 90 [12 USCA § 90]), provides that national banks shall be depositories of public money and that the Secretary of the Treasury shall require such banks to give satisfactory collateral security for such money. This section was amended June 25, 1930 (12 USCA § 90), by conferring upon such banks the power for state or municipal' deposits, to give such security therefor as is required of state banking institutions by the laws of the state where the national bank is located.

It is fair to assume that Congress, in enacting the above provisions, was of the opinion, either that national banks did not have such power as to publie deposits, or it doubted the existence of such a power. If this position is correct, then there is a stronger reason for believing that Congress did not intend to confer an implied power on national banks to pledge their assets as security for private deposits.

In State ex rel. v. F. N. B. of St: Louis, 297 Mo. 397, 249 S. W. 619, 623, 30 A. L. R. 918 (1923), it is stated:

“Despite this fact where, as here, there is a general grant of power, however clear that grant may be, the enactment of subsequent legislation containing a specific kindred grant of power will afford at least persuasive support to the conclusion that the latter was not included within the former or the original grant. Such is the effect of the Aet of Congress of March 3, 1865, section 5155, 3 U. S. Comp. Stats. 1901, p. 3467, now U. S. Comp. St. § 9695. This aet provides that any bank or banking institution organized under a state law and having branches, may in conformity with existing law become a national bank and retain its branches. In the passage of this aet it is evident that the legislative construction of the original is that it did not authorize the establishment of branch banks. Otherwise the subsequent section 5155 would not have been enacted.”

There seems to have always been in the United States, and in some states, a marked distinction made between the security which a bank may give for a public deposit as distinguished from private deposits. The Comptroller seems to have consistently held that national banks may pledge its assets as securities for public deposits (see Eeport 1657, House of Bepresentatives, 71st Congress, 2d Session, to accompany Senate Bill 486), while he has always taken the position that national banks do not possess this power as to private deposits.

I doubt the wisdom of the rule that banks should 'have implied power to give security for public deposits, which seems to be based on custom and on the assumption that the public, in its governmental capacity, should have a greater security for its deposits than private depositors have. It is to be noted, however, that the aggregate of public deposits is generally very small as compared with the aggregate or total of private deposits.

The implied powers of national banks, as stated in Bev. St. § 5136, are “all such incidental powers as shall be necessary to carry on the business of banking.” In an early ease, Mr. Chief Justice Waite said in relation to incidental powers: — “are such as are required to meet all the legitimate demands of the authorized business, and to enable a bank to conduct its affairs, within the general scope of its charter, safely and prudently.” First Nat. Bank of Charlotte v. National Exchange Bank (1876) 92 U. S. 122,127, 23 L. Ed. 679.

In Logan County National Bank v. Townsend, 139 U. S. 67, 11 S. Ct. 496, 498, 35 L. Ed. 107, Mr. Justice Harlan said:

“It is undoubtedly true, as contended by the defendant, that the national banking aet is an enabling aet for all associations organized under it, and that a national bank cannot rightfully exercise any powers except those expressly granted by that act, or such incidental powers as are necessary to carry on the business of banking, for which it was established.”

While there is no decision, either state or federal, determining whether national banks do possess such an implied power, there is a strong dictum to the contrary.

In Parks v. Knapp, 29 F.(2d) 547, 550 (C. C. A. 8, 1928), it is stated:

“We are not .advised that the transfer of a bank’s assets to secure a depositor has become a general custom and thus so linked in practice with its express powers as to be recognized in the banking business as an incidental or implied power. We are inclined to believe with the Kentucky Court of Appeals and the Supreme Courts of Minnesota and North Dakota that such a practice is not in keeping with sound banking methods, can only result in unfair discrimination and preferential treatment of its depositors and ought not to be judicially approved. It enables those who are wary, usually because of large deposits, to gain advantage over the great number of small trustful depositors, and thus public confidence in hanking institutions is shaken, to the public’s detriment.”

If the cases of the First National Bank of Charlotte v. National Exchange Bank, 92 U. S. 122, 127, 23 L. Ed. 679, and Logan County National Bank v. Townsend, 139 U. S. 67, 11 S. Ct. 496, 35 L. Ed. 107, state correctly the rule which is to govern in determining the implied powers of a national bank, then such banks have implied powers to do that which is “necessary to carry on the business of banking” and to do such acts “as are required to meet all the legitimate demands” of its authorized business and which are necessary “to conduct its affairs, within the general scope of its charter, safely and prudently.”

The power to pledge its assets to secure private depositors is not necessary to carry on the business of a national hank. Banks should properly keep a large part of its own assets and of its deposits invested. Depositors may abnormally withdraw their deposits so as to make it necessary for .a bank to raise money by loan and as an incident thereto, to pledge a portion of its assets. There is no such necessity for private deposits. In fact, such pledges, if they become known, would probably threaten the safety of ja bank.

In Commercial Banking & Trust Co. v. Citizens’ Trust & Guaranty Co., 153 Ky. 566, 156 S. W. 160, 163, 45 L. R. A. (N. S.) 950, Ann. Cas. 1915C, 166 (1913), it is stated:

“The exercise of such a power is there1 fore clearly beyond the terms of the law, or any reasonable or necessary implication whieh the court would be authorized to deduce from the language of the statute, and would tend to lessen the usefulnefes of banks as great public institutions by destroying public confidence in them. Such a practice, if indulged and authorized, might work great injustice and inflict financial loss, not only upon the depositors, but upon the stockholders as well. Large depositors, if secured, might absorb the greater part of the assets of the bank, and inflict loss upon unsecured depositors and financial ruin upon innocent stockholders under the double liability law. The law contemplates, and was evidently framed to insure, fair and uniform dealings by the banks with all of their depositors. A secret pledge to secure one, while others are left without security, although it may be without specific intent to defraud, would nevertheless, in case of loss, justify such an inference. Public policy will not, therefore, tolerate a practice whieh might, sooner or later in the event of financial trouble with the bank, enable it to pay and protect the favored few at the expense of the equally deserving many. If the fact was known that a bank had secured some one or more of its depositors and left the others unsecured, no prudent person would deposit with -it. No bank would advertise that if engaged in such a practice, because depositors, who were not provided for, would be driven away. The very fact that the transaction is one that will not stand the test of publicity is a strong argument against its legality, as well as its necessity. Banks publish statements of their assets, .and individuals deposit on the faith of these published statements. It is well known that good statements as to assets induce people to deposit their money in banks making such statements. It would be a crowning act of injustice to hold that deposits thus induced are nevertheless cut off from sharing in these assets until some unknown favored few, who have been secretly secured, are satisfied; and it would be a palpable fraud on the part of a bank thus to procure deposits, when its assets were secretly pledged.”

Such a power is not necessary to carry on the business of banking; it is not safe, and, therefore, it should not be implied.

Our attention has been called to two state decisions, Ahl v. Rhoads, 84 Pa- 319, and Ward v. Johnson, 95 Ill. 215, which are said to hold that state banking institutions may pledge their assets to secure private deposits. In Ahl v. Rhoads (1877), a state banking institution assigned a mortgage held by it to a depositor in order to induce him not to withdraw his loan, .and it was provided in the agreement that instead of the depositor’s account being subject to payment on call it should be payable one year thereafter. In foreclosure proceedings, judgment was entered for plaintiff, whieh judgment was affirmed by the Supreme Court of Pennsylvania. That court sustained the validity of the pledge although the principal discussion in the opinion is whether the indebtedness created by the mortgage was done in violation of a provision under the state constitution. It is to be noted, however, that the deposit in this ease seems to have been changed from a deposit to a loan.

In Ward v. Johnson, it appears that a state bank organized an investment department under whieh parties loaning money to the bank or making deposits were secured by a deed of trust for the payment of their loans or deposits; said deed of trust being on property of the bank. This was held to be valid. The transaction could properly be classified as a loan.

The state courts are in conflict as to-whether state banking institutions have implied powers to pledge their assets as security for public deposits. In Richards v. Osceola Bank, 79 Iowa, 707, 45 N. W. 294 (1890), Andrew v. Odebolt Savings Bank, 203 Iowa, 1335, 214 N. W. 559 (1927), and First National Bank & Trust Co. v. Palm Beach, 96 Fla. 247, 117 So. 900, 65 A. L. R. 1398 (1928), it is held that state banking institutions do possess such implied power. In Cameron v. Christy, 286 Pa. 405, 409,133 A. 551, it is held that the Pennsylvania statute conferred on state banking institutions the power to receive deposits and issue obligations therefore implied a power to pledge assets as securities therefor.

In Divide County v. Baird, Receiver, 55 N. D. 45, 212 N. W. 236, 51 A. L. R. 296 (1926); Farmers’ & Merchants’ State Bank v. Consolidated School District, 174 Minn. 286, 219 N. W. 163, 65 A. L. R. 1407 (1928); Farmers’ State Bank v. County of Marshall, 175 Minn. 363, 221 N. W. 242 (1928); Arkansas-Louisiana Highway Improvement Dist. v. Taylor, 177 Ark. 440, 6 S.W.(2d) 533 (1928); and Austin v. Lamar County (Tex. Com. App. 1930) 26 S.W.(2d) 1062, it is held that state banking institutions do not possess such an implied power.

The state courts are in conflict as to whether state banking institutions have implied power to pledge their assets in favor of a surety on a bond given for a public deposit. In McFerson v. National Surety Co., 72 Colo. 482, 212 P. 489 (1923); Page Trust Co. v. Rose, 192 N. C. 673, 135 S. E. 795 (1926); United States Fidelity & Guaranty Co. v. Bassfield, 148 Miss. 109, 114 So. 26 (1927); and Ainsworth v. Kruger, 80 Mont. 468, 260 P. 1055 (1927), it is held that banking institutions do possess such an implied power. In Commercial Banking & Trust Co. v. Trust & Guaranty Co., 153 Ky. 566,156 S.W. 160, 45 L. R. A. (N. S.) 950, Ann. Gas. 1915C, 166 (1913), and Schornick v. Butler (Ind. Sup. 1930) 172 N. E. 181, it is held that state banking institutions do not possess such an implied power.

In Mothersead v. U. S. F. & G. Co., 22 F.(2d) 644, 653 (C. C. A. 8, Okl. 1927), the court said:

“These securities therefore could have been pledged directly to the state or municipality for the public ‘ deposit. Here the pledge was to the surety company, which in turn secured the deposit by its surety bond. Under well settled principles of suretyship law, the securities pledged were held by the surety company in trust for the obligees in the bonds. Chamberlain v. St. Paul & S. C. R. Co., 92 U. S. 299, 23 L. Ed. 715; Tompkins Co. v. Catawba Mills (C. C.) 82 F. 780, 784; Eastman v. Foster, 8 Metc. (49 Mass.) 19; Chambers v. Prewitt, 172 Ill. 615, 50 N. E. 145; 21 R. C. L. p. 1094, § 132; Section 5161, Comp. St. Okl. 1921. On the other hand, if the pledges- had been made directly by the banks to the state or municipality, the surety company would now be subrogated to such securities. Maryland Casualty Co. v. Repass (C. C. A. 4) 253 F. 328; Ricker v. Ricker, 248 Mass. 549, 143 N. E. 539 ; 25 R. C. L. pp. 1377, 1378, § 6061; Stearns on Suretyship (3d Ed.) § 247.”

On the question of the implied powers, the result seems to be that there is no decisión, federal or state, determining whether national banks do possess such power as to a private deposit. There is a strong dictum in one circuit against the existence of such a power. There are two old and rather feeble decisions which hold that state banking institutions havle such implied power as to private deposits. The state decisions are in conflict as to whether state banking institutions have implied power to pledge their assets' for public deposits, or to sureties on bonds for public deposits.

It is argued that a national bank having implied power to borrow money and to pledge its assets as security therefor, that the same implied power should exist as to deposits. In each ease the relation of creditor and debtor exists. As banks may, at times, find it necessary to make loans, there is a necessity that it be enabled to exercise such power by the pledging of collateral. No such necessity exists as to a private deposit. If a bank deems it advantageous to secure a depositor by giving security for his deposit, it may do so by giving a surety bond. This can be done without taking from other depositors the protection .which the law intended that they should have. For cases which illustrate the distinction between a loan and a deposit, see Farmers’ & Merchants’ State Bank v. Consolidated School District, 174 Minn. 286, 219 N. W. 163, 65 A. L. R. 1407 (1928), and Divide County v. Baird, 55 N. D. 45, 212 N. W. 236, 51 A. L. R. 296 (1926).

By reason of the disastrous effect and consequences likely to result from conferring on national banks, power to pledge all their assets or a material portion thereof, to secure private deposits; that such an interpretation would be against public policy as declared in the national banking laws; and the administrative interpretation is against such power; that the legislative interpretation recognizes its nonexistence, and such a power being not necessary or even safe to carry on the business of banking — the question under consideration is answered in' the negative, that the First Bank did not have power to pledge part of its assets as security for the deposit of the Baltimore & Ohio Railroad Company.

If the First National Bank did not have the power to pledge its assets as security for the deposit of the Baltimore & Ohio Railroad Company, has the receiver a right to disaffirm such contract and recover the assets pledged thereunder? Counsel for the Railroad Company contend that the said bank could not 'disaffirm the agreement and, therefore, the receiver cannot disaffirm. In support of this contention counsel cite Cameron v. Christy, 286 Pa. 405, 133 A. 551; Page Trust Co. v. Rose, 192 N. C. 673, 135 S. E. 795; Logan County National Bank v. Townsend, 139 U. S. 67, 11 S. Ct. 496, 35 L. Ed. 107, and Central Transportation Co. v. Pullman’s Car Co., 139 U. S. 24, 60, 11 S. Ct. 478, 35 L. Ed. 55.

If we are correct in our conclusion that national banks do not possess implied power to secure private deposits by pledges of their assets, that to so hold would cause disastrous consequences to such banks and their depositors, that such an interpretation of the act, or a contract with such provision, would be against public policy, and therefore void, it would seem to logically follow that the law will not permit to be done indirectly that which cannot be done directly, and that the doctrine of estoppel should not be permitted to circumvent the. public policy of the Nation.

In California Bank v. Kennedy, 167 U. S. 362, 371, 17 S. Ct. 831, 835, 42 L. Ed. 198, it is stated:

“As was said by this court in ’ Union Pac. Ry. Co. v. Chicago, etc., Railway, 163 U. S. 564, 16 S. Ct. 1173 [41 L. Ed. 265],• speaking through Mr. Chief Justice Fuller (page 581, 163 U. S., and page 1180; 16 S. Ct.):
“‘A contract made by a corporation beyond the scope of its powers, express or implied, on a proper construction of its charter, cannot be enforced, or rendered enforceable, by the application of the doctrine of estoppel.’ ”

See 14a Corpus Juris, 309, § 2158.

In Porter v. Canyon County Farmers’ Mutual Fire Insurance Co., 45 Idaho, 522, 263 P. 632, 634 (1928), it is stated:

“The defendant insurance company adroitly argues that the commissioner stands in the shoes of the bank, and, not having rescinded or offered to return defendant’s deposit, is estopped to demand relief. In other words, the parties being in pari delicto, the law will not aid the one as against the other. The fallacy of the argument is at once evident. While it is true, as was said in State v. City of Sapulpa, 58 Okl. 550, 160 P. 489; that, ‘where the bank commissioner assumes possession of a state bank, he does not take the assets thereof for value and without notice, but subject to all claims and defenses that might have been interposed against the bank had it continued under its corporate management,’ this cannot serve to defeat equities superior to those of parties asserting the particular defense. Under the laws of this state, the commissioner stands as a trustee to protect the rights of all claimants, particularly those of depositors and general creditors. Under the law, the right of the defendant can be only that of a general depositor as such; it can acquire no greater right than that inuring to any other general depositor as such. Such equity as it may claim under its pledge agreement rests upon a nullity, an outlawed contract, and would work an injury to every other depositor in its own class. Furthermore, ‘the doctrine of estoppel has no application to a contract void because it violates an express mandate of the law or the dictates of public policy.’ 6 Cal. Juris 150; § 106. There is no place here for the doctrine that the law will leave the parties where it finds them. The basis of such a rule is that the courts will not aid or reward a wrongdoer. The depositors whom the commissioner represents have done no wrong. As was said in Divide County v. Baird, supra. ‘Shall they be punished for the misdeeds of the guilty?’ * * *
“Were defendant’s contention sustained, the purpose of the statute would be defeated. Once the parties were successful in executing their unlawful scheme, the victims of the legal fraud, although they were also the beneficiaries of the statute which had been flouted, would be helpless. As to them the statute would have been wholly abrogated, and the Legislature made a laughing stock. It must therefore follow that the defendant cannot retain the assets which the bank attempted to hypothecate, and thereby sorely defraud the very persons for whose protection the statute was enacted.”

In Divide County v. Baird, 55 N. D. 45, 212 N. W. 236, 242, 51 A. L. R. 296 (1926), it is stated:

“The validity of the pledge is here challenged by the receiver. He represents more than the insolvent bank; he represents the creditors and general depositors of the bank. Miehie, Banks and Banking, vol. 1, § 77 (3b). The latter are innocent parties and have equities which are superior to those of the plaintiff against whom the defense of ultra vires is interposed. See Lyons v. Benney, 230 Pa. 117, 34 L. R. A. (N. S.) 105, 79 A. 250. As between the creditors and depositors of an insolvent bank, whose contractual relation with the corporation was created lawfully — intra vires — and the plaintiff, whose contract of pledge was ultra vires of the bank and unlawful, the former must be preferred, and the rule is that they are not estopped to assert the want of power. * * *
“It is said that this court must leave the parties to the illegal contract where it finds them, and that the receiver will not be permitted to recover the securities. To be left where and as found is precisely all the county ean desire — with the illegally obtained collateral in its possession. In some way, which does not clearly appear, the receiver, although he represents the depositors and it is his duty to protect their interests, is supposed to be estopped from recovering the possession unless he first pays the money, or ‘deposit,’- which the bank received at the time when it and the county entered into the unlawful arrangement.
“It appears to me that this position fails to take note of the status of the receiver of an insolvent bank. He is an arm or officer of the court appointing him, yet, at the same time, he represents the creditors and stockholders of the corporation in more than a merely theoretical or academic sense. Viewed from this standpoint, his status is such that it is his duty to vindicate and protect the rights of the depositors. Under the law, they have the legal right to demand that the assets of the bank shall not be pledged to secure favored depositors. * • * *
“It is the duty of the receiver to administer the estate for the benefit of those who may ultimately establish a right to share in its distribution; and he must assert the equitable as well as the legal rights of the creditors. See, generally, 23 R. C. L., pages 7 and 8, and cases cited.
“This court has adopted the view that the receiver of an insolvent bank, in addition to being an officer of the court, represents the creditors (depositors) as well. * * * The basis of the rule that the courts will leave the parties to an illegal contract where it finds them is that it will not aid or reward a wrongdoer. Here the depositors are guilty of no wrong; shall they be punished for the misdeeds of the guilty? When the wrong was done, they were powerless to speak or prevent it; now an officer of the court is charged with the duty of protecting their interests. Shall we say to him that there is no remedy whereby the innocent may be protected from the consequences of the unlawful conduct of others? Section 22 of our Constitution provides that: ‘The
courts shall be open, and every man for an injury done him * * * shall have remedy by due process of law. * * * ’
“And yet it is said that the court, after finding the injury, ean only slap the defunct bank and the delinquent county on the wrist, and say to the depositors: ‘We must leave you where we find you; we can do nothing, because the transaction was illegal, and you have not returned something which, not you, but the bank got from the plaintiff.’
“To state the position ought to be sufficient to demonstrate its utterly untenable character. Such a holding would be a confession of judicial impotence to which this court is not prepared to subscribe. It would mean a notiee to the people of this state that we are alike powerless to correct the wrongs which have been committed in the past and to prevent their repetition in the future. Once the parties are successful in executing their unlawful purpose, the victims of the legal fraud, although they are also the beneficiaries of the statutes which have been flouted, are helpless, and this court can do no more than convert itself into a debating society where legal theories may be expounded without practical or useful results. A tribunal without power to do justice is not a court of equity, but an academy. If we are powerless to give effect to the plainly expressed purpose of the Legislature to protect depositors, it is a usurpation to assume the name and put on the semblance of a court of equity.”

In Farmers’ & Merchants’ Sta(e Bank v. Consolidated School District, 174 Minn. 286, 219 N. W. 163,166, 65 A. L. R. 1407 (1928), it is stated:

“Were it otherwise, the right of bank creditors to share in the assets unaffected by unlawful pledges thereof to favored depositors would be of little value.”

In our opinion, the principles laid down in the three preceding cases are sound and should be followed: That the doctrine of estoppel should not be applied as was done in Cameron v. Christy and Trust Company v. Rose, supra.

There are cases decided by the Supreme Court where it has been held, although a contract was ultra vires and void, that recovery would be permitted of the benefits received thereunder because it would be inequitable and unconscionable to hold otherwise. An example of such a case is Citizens’ Central National Bank of New York v. Appleton, Receiver, 216 U. S. 196, 30 S. Ct. 364, 54 L. Ed. 443, where a bank guaranteed a note and by virtue thereof received money thereon. It was held that although the bank’s attempted guaranty was ultra vires and void, it would he unjust to permit the bank on this ground to keep the money which it would not have otherwise received. Another illustrative ease is Logan County National Bank v. Townsend, supra, wherein plaintiff sold certain bonds to the hank under an agreement that the bank, upon demand, would replace the bonds at the same or a less price. Subsequently plaintiff demanded compliance with his contract, hut the bank refused on the ground that the agreement was ultra vires. The court held that although the contract was ultra vires, the bank was not exempt from liability to either return the bonds or to pay the price which it had agreed to in lieu thereof.

These cases are distinguishable from the present ease. In those eases the return of money received by virtue of a guaranty, or the return of the bonds, or the payment of the priee agreed upon worked no injury to the bank, its creditors or stockholders, and while the contracts were ultra vires, they were not against public policy. In this ease the contract is against public policy. The execution thereof was a fraud upon the general depositors of the bank, as they had a right to believe and assume that all of-the assets of the hank were a security for their deposits (other than public deposits), while the effect of the contract was to secretly reduce the amount of the security of the general depositors.

I therefore conclude that the receiver had a right to disaffirm the contract and recover the securities pledged.

Let a decree he prepared and submitted in accordance with the foregoing findings of fact, conclusions of law, and this opinion.


source: Caselaw Access Project

author: JAMES, District Judge.

license: Public Domain

text:
    OBISPO OIL CO. v. WELCH, Collector of Internal Revenue.
    No. 3334.
    District Court, S. D. California, Central Division.
    April 1, 1931.
    Dana Latham, Joseph D. Peeler, and Melvin D. Wilson, all of Los Angeles, Cal., and Miller & Chevalier, of Washington, D. C., for plaintiff.
    Samuel W. MeNabb, U. S. Atty., and Alva C. Baird, both of Los Angeles, Cal., and C. M. Charest, Counsel, Bureau of Internal Revenue, of Washington, D. C., for defendant.
   JAMES, District Judge.

This action is brought to recover for what is alleged to have been an overassessment of income and profits taxes paid by the plaintiff for the year 1920.

Plaintiff,"prior to the year 1914, was engaged in the development and production of crude petroleum. It was a successor in title to a claim held under a placer mining location, covering forty acres of land in the Keru River district, Cal. The placer location was made in the year 1900. This land came within the effect of a withdrawal order issued by President Taft on September 27, 1909. This order purported to temporarily withdraw from all forms of “location) settlement, selection, filling, entry or disposal” areas designated. The withdrawal order contained the' condition that “all locations or claims existing and valid at this date may proceed to entry in the usual manner after field investigation and examination.” Notwithstanding the order of withdrawal, possession was maintained of the land in question and drilling operations were prosecuted, with the result that in December, 1913, a well was completed, which became a heavy producer of oil. Other wells were thereafter drilled and the output thereby increased.

In March, 1914, the government instituted an action against the plaintiff here and others to oust them from possession and to recover proceeds of oil theretofore produced. The United States District Court in that action appointed a receiver to take charge of the property, with direction to impound the proceeds therefrom. From that time until the year 1920, the plaintiff proceeded to produce and market oil under the direction of the receiver, making return to the latter of the proceeds thereof. For each year during the incumbency of the receiver, the plaintiff made its income tax return to the government, and therein accounted for income and profits as though it were in undisputed ownership and possession.

The court passed its decree, which was in favor of the government, and an appeal was taken by this plaintiff to the Circuit Court of Appeals for the Ninth Circuit. In that suit, the oil company' (plaintiff here) maintained that it was holding under a valid location which, having been completed prior to the withdrawal order of September 27, 1909, was unaffected thereby. The trial court determined that the location was in all respects properly made and that the oil company was claiming in good faith, but that as it had not made discovery of oil or gas at the date of the withdrawal order, it had no right to resist the effect of the latter. Congress in June, 1910, passed an act (amended August, 1912) giving express authority to the President to issue withdrawal orders, with the limitation that the rights of persons bona fide occupants or claimants of oil or g.as lands, who at the date of the withdrawal order were in diligent prosecution of work leading to discovery, should not have their right impaired. 43 USCA §§ 141, 142.

In February, 1920, a further act was passed with the evident purpose of furnishing a means of adjustment where questions of dispute had arisen as to the application of the withdrawal order of September 27, 1909 (30 USCA § 227). This act provided that if within six months after the date thereof, claimants under placer mining locations to oil or gas bearing land would relinquish to the United States “all right, title, and interest claimed and possessed prior to July 3, 1910, and continuously since * * * and upon payment of a royalty to the United States of % °f oil and gas already produced, the claimants should be entitled to a twenty year lease of the land, to pay, nevertheless, a royalty of not less than 12% per cent, of all oil and gas produced. * * * ” Also that “upon the delivery and acceptance of the lease, as in this section provided, all suits brought by the Government affecting such land may be settled .and adjusted in accordance herewith and all moneys impounded in such suits * * * shall he paid oner to the parties entitled thereto.”

The case of the United States against this plaintiff, hereinbefore mentioned, was pending on appeal in the year 1920, and the claimant made request to relinquish its rights and take a lease as provided by the act above referred to. The Land Office was favorable to this action, ,and the Commissioner of the General Land Office reported his view to the Secretary of the Interior, in .the course of which communication, he said: “I have, therefore, the honor to recommend that the Attorney General be requested, in the absence of any objection which may be a bar to sueh action, to cooperate with this department with a view to securing a dismissal of the suit, the payment to the United States of the % value of past production, and the release of the remaining funds to the applicant company. I have .also to recommend that the applicant be granted a lease, substantially in the form set out in the leasing regulations, for a term of twenty years, with a provision for the payment of the royalty prescribed in the leasing regulations. * * * ” A stipulated mandate was thereupon returned from the Circuit Court of Appeals and the adjustment was completed. The receiver at that time had in his custody the proceeds from sales of oil, which had accumulated during the period of his receivership, and after there was deducted, pursuant to the terms of the adjustment, one-eighth thereof, the remainder was delivered to the plaintiff. A considerable part of these oil returns was represented by Liberty bonds, in which the receiver had made investment. These bonds at cost value amounted to $891,607.62. In 1920, when the plaintiff received them from the receiver, their market value was $843,785, or $47,822.62 less than cost.

The Commissioner of Internal Revenue, in fixing the amount of plaintiff’s income and profits tax for the year 1920, charged as income for that year the total value of the property relinquished by the receiver to the plaintiff, included in which were the Liberty bonds at their cost price. The tax amounts paid by plaintiff as for returns on oil sales for the several years during which the receiver was in charge, were treated as over-assessments by the commissioner and credit was given the plaintiff on the amount assessed in the year 1920, with the result that the difference between the total tax paid during the receivership years and the grand total assessed on the account stated in 1920 was $266,162.43. This amount plaintiff seeks to recover after having protested payment'.

It is contended, first, that the commissioner was not justified in including in his 1920 assessment the total amount of oil proceeds theretofore impounded in the hands of the receiver. As before noted, the plaintiff had regularly made its returns for each year that the receiver was in charge, and had paid taxes as imposed by the Revenue Acts in full at the respective times. If the plaintiff is right in its contention that the funds in the hands of the receiver, being definite and segregable as to the different years when they accrued as a result of marketing operations, were properly chargeable only to it as returns for the separate years, then it follows that.the amount sued for was illegally exacted.

There are two other matters of question argued as affecting the correctness of the commissioner’s assessment — one is as to the valuation of the Liberty bonds at cost rather than their value as of the year when they were delivered to the plaintiff, and the second refers to the method adopted by the Revenue Department in computing deductions for depletion of property by reason of the removal of the oil. The depletion deductions referred to the several years during the period of receivership, and the basis of calculation was referable to the state of the law in the separate years. The plaintiff’s position is that if the oil proceeds received from the receiver were chargeable as ineome in total for the year 1920, depletion deductions should be made under the law as it existed ip the year 1920, which would make an apparent difference in plaintiff’s favor of deductible depletion in the amount of almost $500,000. It will be seen that if plaintiff’s contention that the income from oil sales were chargeable only against it for the particular years when such income was produced is sustained, then the separate points as to the valuation of the Liberty bonds and the depletion deductions are eliminated from the case.

It seems quite clear that the Leasing Act of 1920 (30 USCA § 181 et seq.), was originated with the purpose of settling troublesome controversies which had arisen as a result of the withdrawal order of September 27,1909. Suits no doubt were pending, similar to the one brought by the United States against the plaintiff here, to eject persons holding under, properly recorded placer claims from land included within the withdrawal order.

Counsel for the government argue that property or money, the collection of which is contingent or questionable, cannot be included within a tax return for any year when such uncertain condition exists. There can be no question .about the general application of such a rule. But, in this case, neither can there be a question but that the government, by its lease settlement, recognized that -the plaintiff had some right which might be by the courts adjudicated in its favor. The leasing act provided .a means of settlement of controversies. By such settlement, the government conceded the right in the plaintiff to-have the proceeds of the oil as separately received during the different years of the receivership. That money had been identified and determined in amount at and for each of those years. There was nothing contingent about the amount or the fact of possession thereof in the hands of the receiver. When the government settled its case with tjie plaintiff, it ratified the claim of the plaintiff to each of the separate amounts of production return, with the contract condition that one-eighth thereof should be paid over.

Let us suppose that in the suit brought by the government against the plaintiff, no receiver had been appointed, but that pending determination of the action the plaintiff had pursued its regular business of developing and marketing its oil from the property in dispute. Also that it had made due return each year for income and profits on its oil sales. Could it have been contended, when in 1920' the same lease settlement that was concluded had been made, that the government could charge, as income for the year 1920, the full amount of the proceeds from oil sales? The only difference in this situation, and the one that did exist, was that the arm of the court had interposed to hold the stakes at suit undisturbed and beyond the reach of either party to dispose of the same. When the settlement was made it related back and assured the title of plaintiff to seven-eighths of the oil sales proceeds as collected during the separate years. Plaintiff had during each of those years fully accounted to the government for those same proceeds in its income tax payments. It ought not to be compelled to do more.

Findings and judgment will be entered in favor of plaintiff.


author: THOMPSON, District Judge.

text:
    SCOVILL MFG. CO. v. BALISTOCKY et al.
    No. 4961.
    District Court, E. D. Pennsylvania.
    April 8, 1931.
    John P. Croasdale, of Philadelphia, Pa., Philipp, Sawyer, Rice & Kennedy, H. M. Humason, and M. C. Massie, all of New York City, and Thomas G. Haight, of Jersey City, N. J., for plaintiff.
    Harry Balis, of Philadelphia, Pa., A. D. T. Libby, of Newark, N. J., and Clifton Y. Edwards, of New York City, for defendants.
   THOMPSON, District Judge.

This is a suit in equity brought by the Seovill Manufacturing Company against the defendants, trading as Post Radio Company, for an injunction and for damages for alleged infringement of patent No. 1,258,423, issued to Fritz Lowenstein on March 5,1918, upon an application filed August 10, 1916, which is a division of an earlier application filed June 28, 1910. The defenses are non-infringement and invalidity because of lack of invention and also by reason of anticipation.

The patent in suit, whieh is owned by the plaintiff under mesne assignments, relates to variable electrical apparatus and more particularly to condensers adapted for use in wireless or radio work. The patent was in suit in the district of Connecticut. Judge Thomas' sustained the validity of claims 1, 2, 3, and 4. See Scovill Manufacturing Co. v. Satler (D. C.) 21 F.(2d) 630.

No clearer description of variable condensers and of the condenser of the patent could be given by the writer than the following statement by Judge Thomas, including his observations on the meaning of claims 1, 2, 3, and 4:

“The invention of the patent in suit relates to variable condensers adapted for use in radio or wireless work. Broadly defined, a condenser comprises a plurality of surfaces insulated from each other, which afford an area on whieh an electrical charge is stored. The invention of the patent in suit is more particularly directed to that type of electricál condenser whieh comprises a set of stationary spaced metal plates and a series of movable spaced metal plates; the latter being adapted to be interspersed to a greater or less degree between the stationary plates to effect changes in the capacity of the condenser.
“In the most commonly known variable electrical condensers of the type mentioned, both sets of plates are semicircular; the stationary plates being separated from each other a uniform distance, while the movable plates, which are mounted on a rotatable shaft, are also separated a uniform distance from each other in absolute parallelism. The layers of air between juxtaposed surfaces of the plates constitute the. insulating medium or dielectric of the condenser. The dielectric prevents an electrical charge whieh is collected on the juxtaposed surfaces from jumping across and thus short-circuiting and rendering the condenser useless. The ability of a eondenser to store electrical charges is known as capacity, whieh is measured in micro-microfarads, which in turn is one-millionth of a millionth of a farad; the farad being a very large unit. The capacity of a condenser depends directly on its .area, so that area and capacity are equivalents in speaking of condensers.
“In the condenser just described, the ■change in area of the movable plates active between the stationary plates is always the same for equal angular movements of the shaft, with the result that for a given angular movement of the shaft there will be the same increase or decrease of capacity throughout the range of movement of the movable plates, no matter where that movement may be made. The movable plates turn through -an angle of 180°. In other words, this variable condenser is so designed that equal angular movements or displacements of the movable plates within the working range of the instrument produce unequal percentage variations in capacity.
“The main object of the invention described in the patent in suit is to so design the instrument, for a purpose hereinafter described, that a given angular displacement of the movable plates produces substantially the same percentage change in capacity at any point within the range of the instrument. The condenser described in the patent in suit includes, preferably, a set of semicircular stationary condenser plates 14, supported in parallel relation by rods 15, which depend from a cover plate and are clamped thereto by nuts 16 and 17. The stationary condenser plates are uniformly spaced apart by collars 18. The parallel movable condenser plates 21a are secured to a central vertical shaft 22, which is supported at its lower end on a pivot 23 and is held at its upper and in a bearing 24 in the cover plate. Spacing collars 25 are provided to maintain the plates 21a the proper distance apart, and they are securely clamped in position between nuts 26 and 27. The relative positions of the fixed or stationary plates and the movable plates are such that, when the central shaft is ■turned, the movable plates enter the spaces between the fixed plates. The movable plates, with the exception of five at the top of the set which are of equal size and a little more than semicircular, are cut off at angles which are progressively greater from the top downward. As a result, the edges of the movable set of plates are arranged in step-like fashion, so that the movable plates enter successively between the stationary plates as the shaft is turned. The proportioning of the plates and their arrangement is such that the capacity of the condenser is variable, following substantially the law of geometrical progression or in accordance with a logarithmic law fully set forth in the specification of the patent in suit. It is due to such proportioning and arrangement of the plates that a given angular displacement of the movable plates produces substantially the same percentage changes in capacity at any point within the range of the instrument and that the change in capacity is much more gradual than in a condenser where both sets of plates are semicircular.
“For the purpose of understanding the invention described and claimed in the patentan suit, it is sufficient to note that the band of frequencies assigned to various radio broadcasting stations in the United States is from 500 kilocycles to 1500 kilocycles, and that the difference between the frequencies of successive stations in the United States is assumed to be 10 kilocycles-so as to prevent the sendings of the various broadcasting stations from interfering with each other. Broadly speaking, the condenser is used to separate the frequency of one station from another in tuning, and it is obvious that the frequency on which one broadcasting station operates should not be so near to the frequency of another station that the condenser cannot separate one from the other. Considering now the action of a semicircular plate condenser, it is to be noted that the changes in the amounts of capacity required for a given change of frequency when tuning in that range of the condenser which covers the high frequencies and short wave lengths are much less than when tuning in that range of the condenser which covers the long wave lengths and low frequencies. If it is assumed that the movable plates are fully within the stationary plates, the condenser is then in condition to give the greatest amount of capacity. Then it may be assumed that we are tuning for a frequency of, say, 500 kilocycles, which is the longest wave length and lowest frequency of the band used in the United States. If now we decide to pass from a station operating on a frequency of 500 kilocycles to a station operating on 510 kilocycles, the amount of capacity required will call for a movement of about 7° of the movable plates of this condenser; that is to say, they must move out about 7° from the stationary plates. Assuming that we are tuned for this station at 510 kilocycles, and we now desire to tune for a station at 520 kilocycles, we will not get the required capacity if we move another 7°. As a matter of fact, the turn required will be 6.6°.- If after tuning for this station-at 520 kilocycles we desire to tune for one at 530 kilocycles, the movement of the movable plates will again be less than the preceding movement. It will be 6.2°. Skipping the intermediate stations in passing from a station at a frequency of 500 kilocycles to one having a frequency of 600 kilocycles, in order to tune for this station, the movable plates of the semi-circular plate condenser would have to be moved about 55°. In other words, in tuning for the first ten stations between 500 and 600 kilocycles, 55° of the possible 180° of turn of the movable plates will have been consumed, leaving only 125° for the remaining stations. When we operate this condenser at the other end of its range — that is, the range covering the short wave lengths and high frequencies- — so much of the area of the movable plates has been withdrawn from the stationary plates that only very minute movements of the movable plates can be made to give the required changes in capacity, and this operation becomes increasingly difficult and consequently increasingly ineffective. As a matter of fact, there are • only 3° left of the area of the movable plates to be divided among the last ten stations; that is, the stations between 1,400 and 1,500 kilocycles. While the operation of the semicircular plate condenser in the range of short wave lengths and high frequencies is not impossible, it requires such minute movements that its operation is extremely difficult.
. “The condenser described and claimed in the patent in suit differs from the semicircular plate condenser, because minute movements of the movable condenser plates are not required when tuning in that range of the condenser which covers the short wave lengths and high frequencies, and for the additional reason that it introduces or subtracts the plate area or capacity more evenly' throughout its range. This mode of operation and result is obtained by redistributing the plate area of the old semicircular condenser in such a manner that a given angular displacement of the movable plates produces substantially the same percentage change in capacity at any point within the range of the instrument, or throughout the working tuning range.
“The plaintiff relies on claims 1, 2, 3, and 4, which read as follows:
“ '1. A condenser comprising á set of stationary parallel plates suitably spaced apart, and a set of movable parallel plates adapted to enter between the stationary plates, the plates of one of said sets being so formed that a given angular displacement of the movable plates produces substantially the same percentage change in capacity at any point within the range of the' instrument.’
'2. A condenser comprising . a set of stationary parallel plates suitably spaced apart, and a set of movable parallel plates ' adapted to enter between the stationary plates, the plates of one set being so designed and arranged with respect to those of the other, that movement of the movable plates produces variation of capacity in accordance with the law of geometric progression.’
“ ‘3. A condenser comprising a set of stationary parallel plates suitably spaced apart, and a set of movable parallel plates adapted to enter between the stationary plates, the plates of the movable set being cut off in such manner that equal displacements of the movable plates give equal percentage changes in capacity.’
“ ‘4. A condenser comprising a plurality of relatively movable plates so dimensioned that the change in capacity produced by a movement of the movable plates is to the movement that produced said change as C is to x in the equation
where a, b, and d are constants.’
“The meaning of claims 1 and 3 is clear from the foregoing discussion of the differences between the ordinary semicircular plate condenser and the improved plate condenser described in the patent in suit. Claim 2, on the other hand, while differing in terms from claims 1 and 3, defines the same improved condenser, if we take into consideration that, in order to produce equal percentage changes in capacity of the improved condenser, the law of geometrical progression must be followed. Claim 4, on the other hand, expresses in different terms and in a mathematical formula the variations in capacity of the improved condenser.”

In the instant ease, the plaintiff relies also upon claims 9' and 10, which read as follows:

“9. Variable electrical apparatus comprising a fixed element and a movable element cooperating therewith to give a variable electrical value, the arrangement of said elements being such that the variations in electrical value produced by movement of said movable element follow substantially the law of geometric progression.
“10. Variable electrical apparatus comprising relatively movable elements cooperating to give a variable electrical value, tbe arrangement of said elements being sucb that the variations in electrical value produced by relative movement of said elements follow substantially tbe-law of geometric progression.”

Before taking up tbe specific issues in tbe case, it is pertinent to consider tbe history of tbe patent in suit in tbe Patent Office as it appears in tbe file wrapper of tbe parent application, filed June 28, 1910,- for wireless telegraph apparatus, upon which patent No. 1,618,017 was granted February 15, 1927. In that application Lowenstein included a separate claim for a variable condenser substantially as described as in the claims in suit, which condenser was a part of the apparatus described. That claim was rejected by the Patent Office as not properly included in tbe application for tbe system described. Tbe applicant’s attorneys persistently endeavored to have tbe claim allowed, but tbe ruling of tbe Patent Office was that tbe claim was for a condenser per se, and it was only after years of discussion between tbe Patent Office and tbe applicant’s attorneys that tbe latter finally yielded to tbe ruling of tbe Department and filed Lowenstein’s divisional application on August 10, 1916.

Tbe purpose of tbe invention, as derived from tbe specifications and claims, is to obtain accurate tuning through logarithmic change in tbe capacity of tbe condenser, whether tuning in at high frequency or low frequency within tbe broadcasting range. It is tbe contention of tbe defendants that, if the plaintiff’s condenser is to be regarded as a condenser per se, it is not infringed, because tbe defendant’s condenser is a gang condenser which does not come within the logarithmic rule in its variation of capacity, and because, in view of tbe history of tbe patent in suit shown by the file wrapper of the parent patent, the Lowenstein patent was for a condenser per se, that, inasmuch as tbe movable plates of tbe patented condenser are so constructed as to vary tbe area fixing tbe capacity in accordance with the logarithmic law, tbe condenser is not only a condenser per se, but is, as shown by tbe claims and description, a condenser logarithmic per se. That contention arises because tbe defendant’s apparatus is a gang condenser composed of two condenser units operating upon tbe same shaft, and therefore is adapted to vary tbe capacity of tbe entire range of tbe receiving set, including tbe circuit not only of a single unit of tbe gang condenser, but tbe total circuit capacity, while it is contended that tbe Lowenstein patent, as shown by tbe drawings and tbe claims, takes into account only tbe capacity of tbe condenser itself.

But, in tbe application of tbe parent patent, Lowenstein says in bis specifications:

“When all of tbe capacity of an oscillatory circuit is located in the capacity instrument tbe simple logarithmic characteristic is given to this capacity instrument. When a fixed capacity, however, is in series with tbe instrument capacity, tbe instrument capacity has to be given such capacity values as will in conjunction with the fixed capacity give a resultant capacity of tbe circuit having tbe logarithmic characteristic.”

Those descriptive terms may be read into tbe later patent. A divisional application is no more than an amendment of the original application. Dwight & Lloyd Sintering Co. v. Greenawalt (C. C. A.) 27 F. (2d) 823.

It follows, therefore, that, when in series with outside capacity, tbe condenser in suit may be operated under tbe patent so that tbe entire circuit capacity, including tbe condenser capacity and tbe outside capacity, are varied according to logarithmic law. It is therefore, still a condenser and a condenser per se, but not a condenser per se in tbe sense asserted by tbe, defendant, for it may be applied to vary logarithmically tbe capacity of tbe entire circuit with which it is in series.

While tbe mechanical construction of tbe units in tbe defendant’s gang condenser is not identical with tbe plaintiff’s construction, considering either one of tbe units singly, it is a condenser having a redistribution of area of tbe movable plates so that tbe capacity is introduced more gradually at tbe high frequency end than a semicircular plate condenser having tbe same maximum and minimum capacity and more rapidly at the low frequency end. It is a condenser that does tbe same thing that tbe Lowenstein condenser does, in that it introduces capacity gradually at first and more rapidly later.

The plaintiff relies upon the law as laid down in Winans v. Denmead, 15 How. 330, 343, 14 L. Ed. 717, where the claims of tbe patent described tbe construction of a car body as the frustum of a cone and the shape of the defendant’s car body was octagonal. The Supreme Court said:

“The exclusive right to tbe thing patented is not secured, if tbe public are at liberty to make substantial copies of it, varying its form or proportions. And, therefore, tbe patentee, having described bis invention, and shown its principles, and claimed it in that form which most perfectly embodies it, is in contemplation of law, deemed to claim every form in which his invention may be copied, unless he manifests ah intention to disclaim some of those forms.
“Indeed it is difficult to perceive how any other rule could be applied, practically, to cases like this. How is a question of infringement of this patent to be tried? It may safely be assumed, that neither the patentee nor any other constructor has made, or will make, a car exactly circular. In practice, deviations from a true circle will always occur. How near to a circle, then, must a car be, in order to infringe? May it be slightly elliptical, or otherwise depart from a true circle, and, if so, how far?
“In our judgment, the only answer that can be given to these questions is, that it must be so near to a true circle as substantially .to embody the patentee’s mode of operation, and thereby attain the same kind of result as was reached by his invention. It is not necessary that the defendant’s cars should employ the plaintiff’s invention to as good advantage as he employed it, or that the result should be precisely the same in degree. It must be the same in kind, and effected by the employment of his mode of operation in substance.”

The application of the rule depends upon whether the plaintiff has shown by its evidence that the defendant’s condenser is so constructed as substantially to embody the plaintiff’s construction and mode of operation and thereby obtain the same kind of result as was reached by his invention. Quoting the opinion: “It must be the same in kind, and effected by the employment of his [the plaintiff’s] mode of operation in substance.”

The patent states that a principal object of the invention is to provide a condenser such that equal angular movements of the movable plates produce equal percentage changes in capacity, and in claim 1 the condenser is defined as being so formed that a given angular. displacement of the movable plates produces substantially the same percentage change in capacity at any point within the range of the instrument. The range of the instrument, if in series with outside capacity, includes the entire circuit. While the defendant’s condenser has not the same arrangement in graduation of area of plates, the testimony is convincing that, when arranged in a gang, it produces substantially the same percentage change in capacity at any point within its range. The result is that, although having a construction in which the plates are movable upon a shaft differently fixed with relation to the plates from that of the plaintiff, it produces the same result in substantially the same way.

The patents, cited by the defendant as anticipations of the Lowenstein Patent, were considered by Judge Thomas in Seovill Manufacturing Co. v. Satler, supra, and were excluded by him as having no application. I see no reason to form a different conclusion, as to those patents, from that reached by Judge Thomas.

As to the Belgian patent No. 222,216, issued to E. Girardeau, the mere showing of the date of the application for a foreign patent is not sufficient to establish the prior art, unless it is satisfactorily shown that the description of the invention was open to the public prior to the filing of the parent application by Lowenstein on June 28, 1910. There is nothing on the record sufficient to satisfy me that the patents cited by the defendant became open to the public prior to the date of the parent application or prior to the existence of an actual condenser made in accordance with Lowenstein’s invention during the latter part of December, 1909, or early in January, 1910.

Some argument was-made on behalf of the defendant that knowledge derived of foreign publications, if applied to other publications or to patents which do not disclose the precise conception of the patent in suit in their own terms, may be read together in order to show anticipation. These contentions are not tenable. The description in the printed publication of the statute is to be found within the four comers of such printed publication. Badische Anilin & Soda Fabrik v. Kalle & Co. (C. C. A.) 104 F. 802; Hanifen v. Godshalk (C. C. A.) 84 F. 649; Seymour v. Osborne, 11 Wall. 516, 20 L. Ed. 33; Snook-Roentgen v. Stetson (D. C.) 237 F. 204; General Electric Co. v. Hoskins (C. C. A.) 224 F. 464.

The defendant has not, in my opinion, overcome the presumption of the validity of the patent by proof of anticipation by the prior art.

A decree may therefore be entered holding the claims of the patent in suit valid and infringed, with an injunction, accounting, and costs.

Findings of Fact.

1. The condenser of the patent in suit is so constructed' that given angular displacement of the movable plates produces substantially the same percentage changes in capacity at any point within the range of the instrument.

2. The condenser of the patent in suit having the logarithmic characteristic is not by its claims limited to a construction where all the capacity is located in the condenser as a single" unit.

3. The patent in suit includes a condenser, the capacity of which may be in series with a fixed capacity, resulting together in a circuit capacity having the logarithmic characteristic.

4. The logarithmic characteristic of the patented condenser is accomplished by such a distribution of the area of the movable plates that, by the turning of the shaft, the capacity is introduced more gradually at the high frequency end of the working range of the instrument than at the low frequency end.

5. The defendant’s gang condenser is so constructed that given angular displacement of its movable plates produces substantially the same percentage changes in the total circuit capacity at any point within the range of the instrument.

6. While the defendant’s gang condenser is not shown to be so constructed that given angular displacement of the movable plates of each unit active between the stationary plates is in accordance with the logarithmic law, the result of the displacement of the movable plates of the units acting together in series with the entire circuit is substantially the same as in the patented condenser, and it is accomplished in the same way.

7. The patent in suit is not anticipated by the prior art.

Conclusions of Law.

1. The patent is found to be valid.

2. The defendant is found to have infringed the patent in suit.


author: MOSCOWITZ, District Judge.

text:
    MASON v. PAN AMERICAN PETROLEUM & TRANSPORT CO. et al. THE CRAMPTON ANDERSON. THE N. Y. C. NO. 33.
    No. 10869.
    District Court, E. D. New York
    Nov. 26, 1930.
    Burlingham, Veeder, Masten & Fearey, of New York City (Chauncey I. Clark, and Stanley R. Wright, both of New York City, of counsel), for the Crampton Anderson.
    Otto & Lyon, of New York City (Henry B. Otto and Edward P. Platow, both of New York City, of counsel), for libelant Mason and the Viking No. 2.
    O’Brien, Malevinsky & Driscoll, of New Pork City (Edward J. Clark, of Buffalo, N. Y, of counsel), for Frank H. Van Schaack.
    Kirlin, Campbell, Hickox, Keating & McGrann, of New York City (Roger Siddall, of New York City, of counsel), for respondent Tide Water Oil Co.
    Foley & Martin, of New York City (John R. Stewart, of New York City, of counsel), for the Newark and New York Towboat Co.
    Macklin, Brown, Lenahan & Speer, of New York City (Paul Speer, of New York City, of counsel), for Standard Transportation Co.
    Bigham, Englar, Jones & Houston, of New York City (C. W. Hagen, of New York City, of counsel), for libelant The New York Central R. Co.
   MOSCOWITZ, District Judge.

These suits are for salvage services claimed to have been rendered by six tugs, Newark, Viking No. 2, Socony No. 17, Socony No. 15, Socony No. 6, New York Central No. 33, and two individuals, Wilfred F. Mason, super cargo on the tug Viking No. 2, and Frank H. Van Schaack, as master of the tug New York Central No. 33. in assisting the Crampton Anderson from her berth alongside Pier 1, Tide Water fail docks, Bayonne, N. J., to an anchorage in Kill van Kull, and later to an anchorage off Tompkinsville, Staten Island.

The dimensions of the vessels involved and their values were stipulated or testified to without dispute, as follows:

“Crampton Anderson — steel steam tanker of 6998 tons gross; 435 feet long, 56 feet • beam and 33 feet depth of hold; 2,700 horsepower; value $650,000; value-of cargo $48,-000.
“Soeony 6 — iron steam tug of 89 tons gross; 72 feet long, 18 feet beam, 9 feet depth; 250 horsepower; value $15,000.
“Soeony 15 — steel steam tug of 164 tons gross; 91 feet long, 22 feet beam, 9 feet depth; 500 horsepower; value $35,000 to $40,000.
“Soeony 17 — steel steam tug of 175 tons gross; 96 feet long, 23 feet beam, 11 feet depth; 650 horsepower; value $35,000 to $40,000.
“Newark — -wooden steam tug of 69 tons gross; 68 feet long, 19 feet beam, 8 feet depth; 150 horsepower; value $35,000.
“Viking II — wooden motor tug of 49 tons gross; 70 feet long, 17 feet beam, 8 feet depth; 220 horsepower; value $30,000.
“N. Y. C. No. 33 — steel diesel electric tug of 242 tons gross, 103 feet long, 26 feet beam, 11 feet depth; 800 horsepower; value $165,000 to $170,000.”

The steamship Crampton Anderson, with a cargo of crude oil, had docked during the afternoon of February 10,1928, and had been discharging her cargo by means of hose connections and lines running from the steamship to the dock since 2 o’clock. At about 7 o’clock in the evening, the weather being clear and the wind light, the Crampton Anderson was lying, bow in shore, on the east side of pier 1, with some of her tanks partly unloaded, when a fire broke out on pier 2. The stem of the Crampton Anderson slightly overhung the end of pier 1, which was about 570 feet long. Pier 2 was about 430 feet long, and the outer end was covered with a wooden shed. About 150 feet of water separated the two piers. The tug N. Y. C. No. 33 was lying moored to the west side of pier 2, and the tug Viking No. 2, with her gasoline barge, Mileage 15, was made fast on the east side of pier 2 at the bulkhead. The tug Newark was proceeding down the Kill van Kull with a tow. The Soeony No. 6 was op fire watch at the Standard Oil Company’s terminal further up the Kill van Kull, and the Soeony No. 15 and Soeony No. 17 were somewhere in the immediate vicinity. Although there was some difference of opinion as to the extent of the fire which broke out on the east side of pier 2 and destroyed the covered portion thereof, it appears that the fire was serious in .nature. Chief Officer Roebuck of the Crampton Anderson testified that, before clearing the slip, the ship was thirty feet away from the fire, and it was scorched as a result. The testimony of Roebuck, as to the spread of the fire after the ship had cleared the slip, is significant, in view of the fact that claimant contends that there was no fire at pier 1. He testified as follows:

“Q. As a matter of fact, within five minutes- after the steamer left the slip, wasn’t Pier 1 ablaze? A. Yes.
“Q. And the steamer was in the slip between Pier 2 and Pier 1 ? A. Yes.
“Q. So that if Peir 1 was ablaze, the Crampton Anderson would have been ablaze before Pier 1, wouldn’t it? It was in the range of fire, wasn’t it? Isn’t that a fact? A. Yes.
“Q. Now on Pier — A. But that started after we got away from the slip.
“Q. About five minutes? A. Yes. We could see that after we got away from the dock — it seemed to spread.” '

Roebuck further testified that the slip where the Crampton Anderson had been moored was also on fire. It is apparent that he regarded the fire as serious, and that it was of vital importance that the ship be removed from the scene of the fire. He testified as follows:

“Q. What was the condition of the fire at the time the steamer was making stemway? A. The dock was a total mass of flame.
. “Q. Did the flames shoot high into the air? A. Yes, they did.
“Q. Approximately how high? * * * A.' Well now, I should say from the top of the covered shed — about 40 feet.
“Q. Did the steamer Crampton Anderson receive any scorching or burning? A. She did.
“Q. Was the steamer on the starboard side pretty well scorched ? A. The amidship lifeboat and the amidshiphouse was scorched.
“Q. Is that all? A. The booms — the ship’s booms.”
“Q. Minutes meant a lot at that time, didn’t, they? A. Yes.
“Q. Five more minutes and you might not be here to testify? A. I would say probably that.
“Q. Did you ever have any fires before? A. Not like this.
“Q. This was the werst fire you had ever been through on a tanker, isn’t that a fact? A. Yes.”

At the time of the fire there were twenty-two members present out of the full complement of forty-one officers and crew on the Crampton Anderson. The officers, under the command of Chief Officer Roebuck, immediately took up their positions. The first assistant engineer went to the engine room and started warming up the engines, while the boatswain began to chop off the lines and hose. The third assistant engineer ran. aft and took charge on the stem, after ordering the pump man to shut off the cargo pumps. Five minutes after the fire was discovered, the engines of the ship were going, and about three minutes later the ship was backing clear of the slip aided by tugs. In going out, the ship broke some of the lines which had not been cut or east off. While backing out, her stem canted slightly to port and within 20 to 30 feet of the burning pier. The ship continued out into the stream, and was anchored near Port Johnson Stakes at a point about 500 feet off pier 1, and later, with the assistance of several tugs, the ship proceeded to an anchorage off Tompkinsville, Staten Island.

While it is true that the Crampton Anderson could have backed clear of the slip without any assistance, the tugs were instrumental in preventing unnecessary delay. The element of time was extremely important in this emergency. The fire on pier 2 was spreading toward pier 1, and the fact that the Crampton Anderson, partly loaded with oil, was lying moored on that side of pier 1 nearest to pier 2, does not justify the contention of the claimant that the Crampton Anderson was in no immediate danger. Any delay in moving the vessel from this perilous position would have been dangerous. However, the tugs which assisted are only entitled to partial credit. There was considerable conflict on the trial as to which tug arrived first and the services performed by each. If all the testimony is to be believed, eaeh of the tugs, with one or two exceptions, arrived first at the scene of the fire. The testimony upon this point goes to the credibility of the witnesses. But it is not controlling which tug arrived first, for this decision must depend upon the services performed by the tugs.

The Newark, while passing abreast of the Tide Water Oil Plant, observed a flame suddenly shoot up on pier 2, and immediately proceeded to the assistance of the Crampton Anderson. As it neared the end of pier 1, a violent explosion occurred, and a short time thereafter several men on the end of pier 1 east one of the mooring lines of the Cramp-ton Anderson from the pier to the Newark, which line was made fast. The Newark immediately started to pull the Crampton Anderson out of the slip. While backing out, the stemway of the steamer was increased, due to the fact that the Crampton Anderson’s propellor was working astern, and the Newark thereupon took a position on the Cramp-ton Anderson’s port side, going full speed ahead. This was done to hold and keep the steamer straight while she was backing out, for it was imperative that the stern of the Crampton Anderson be held up into the flood tide in order to prevent the ship from canting in the slip and becoming jammed between the two piers. At about this time the Viking No. 2 arrived, and one of the Crampton Anderson’s stem lines was passed to the Viking No. 2, which took a position on the port quarter and maintained that position until the Crampton Anderson first dropped anchor. Shortly after the arrival of the Viking No. 2, the Soeony No. 17 and Socony No. 15 arrived and took a position on the port quarter of the ship as soon as the Crampton Anderson was in a position to allow them to do so. These four tugs concerted in their efforts to hold the stem of the steamer up into the tide as the steamer was backing out. Thereafter the Soeony No. 6 joined the other tugs on the port side of the Crampton Anderson while she was backing out of the slip. The tug N. Y. C. No. 33, which was lying moored to the west side of Pier 2 at the time the fire started, caught fire due to the spray of oil. Apparently, the crew was more concerned with putting out the fire on its tug than in aiding the Crampton Anderson. However, after the fire was extinguished on the tug N. Y. C. No. 33, and while the Crampton Anderson was going out of the slip, the N. Y. C. No. 33 proceeded to the Crampton Anderson and took up a position about amidship. The services rendered by the tug N. Y. C. No. 33 were nob as valuable as those rendered by the other tugs. The Crampton Anderson was fairly well out of danger when she arrived at her first anchorage, and the towing of the ship, thereafter, to Tompkinsville, Staten Island, was largely a matter of the ordinary towage services.

It has been pointed out that the Crampton Anderson could have pulled out of the slip alone. I cannot agree with the libelants’ contention that the absence of one of the four blades of the ship’s propellor interfered very seriously with her movements. The blade had been broken for some time, and the vessel had traveled 3,000 miles with it in that condition, attaining the same rate of speed that she had made on previous trips with four good blades. At the same time claimant cannot deny that the tugs contributed valuable service. Time was very important, and it is manifest that the Crampton Anderson was removed from a perilous position in a shorter period of time than would have been possible had the vessel been unaided.

A claim was made by Captain Mason of the Viking No. 3 and one Gonigal, mate of Socony No. 17, for special services. Mason went on the Crampton Anderson after the Viking No. 2 arrived at pier 1, and subsequently aided in piloting the ship to Tompkinsville, Staten Island. For these services he is entitled to $50. Gonigal boarded the Crampton Anderson before she got away from the slip; this involved some risk on his part. He was of some aid to the chief officer in guiding the ship out of the slip, for which services he should be paid $50.

The following awards will be made:

Newark........................ $2,500.00
Viking No. 2................... $1,750.00
Socony No. 17..................$1,250.00
Socony No. 15..................$ 750.00’
Socony No. 3................... $ 500.00
N. Y. C. No. 33................. $ 400.00

Between the steamtugs and their crews the award will be one-third to the crew and two-thirds to the owners. Settle decree on notice.