author: MARKEY, Chief Judge. BALDWIN, Judge

text:
    Application of Lawrence W. DAILEY.
    Patent Appeal No. 8936.
    United States Court of Customs and Patent Appeals.
    June 28, 1973.
    Baldwin, J., concurred and filed opinion.
    Edward J. DaRin, John P. Grinnell, Christie, Parker & Hale, Pasadena, Cal., John A. Finken, Wynne & Finken, Washington, D. C., attorneys of record, for appellant.
    S. Wm. Cochran, Washington, D. C., for the Commissioner of Patents. Jack E. Armore, Washington, D. C., John W. Will, Classification Division, U. S. Patent Office, of counsel.
    Before MARKEY, Chief Judge, and RICH, BALDWIN and LANE, Judges, and ALMOND, Senior Judge.
   MARKEY, Chief Judge.

This appeal is from the decision of the Board of Appeals, affirming the rejection under 35 U.S.C. § 103 of claim 1 in appellant’s application, serial No. 669,950, filed September 22, 1967, entitled “Method for Introducing Hydrogen into a Hydrogen Consuming Reactor Circuit,” as unpatentable over Jackson. Claims 3-15 have been allowed. We affirm.

The Invention

Claim 1, with reference numerals inserted, read in conjunction with the following excerpt from the application drawing, is illustrative of appellant’s claimed invention:

1. In a relatively high pressure hydrogen consuming process of the type wherein hydrocarbon feed material [28] is introduced into a hydrogen consuming reactor circuit [10] and converted in at least one reactor [26] to form a reactor effluent stream [30] containing reactor products with the conversion occurring in the presence of hydrogen from a vapor stream [40], an improvement in the method of introducing the hydrogen into the hydrogen consuming reactor circuit comprising the steps of:
(a) producing a hydrocarbon diluent from the reactor effluent having a relatively high molecular weight compared to hydrogen;
(b) combining the diluent with hydrogen at a relatively low pressure to form a resultant stream [20] having an average molecular weight which enables compression of such stream by centrifugal compression to an introduction pressure which is sufficient for the resultant stream to enter the hydrogen consuming reactor circuit;
(c) compressing the resultant stream in at least one centrifugal compressor [24] to the introduction pressure;
(d) introducing the compressed resultant stream into the hydrogen consuming reactor circuit;
(e) separating at least a substantial amount of the diluent from the hydrogen ; and
(f) introducing the hydrogen separated from the diluent into the vapor stream.

Appellant further discloses in the specification that:

In addition, the hydrocracker reactor circuit is important to illustrate the point and condition of resultant stream entrance into the circuit. The point of introduction [34] is where the pressure of the reactor effluent and resultant stream 20 are essentially equal. Moreover, the introduction point is preferably where the temperature of the reactor effluent stream and the resultant stream are also essentially equal.
The liquid portion of the reactor effluent stream acts as a sponging medium to take out diluent and purify the vapor stream.

The mixed stream 34 which includes “reactor products, recycle gas, possible recycle liquid, diluent, and hydrogen” is reduced in temperature in heat exchanger 36 for the separating step in separator 38 into the vapor stream 40 (“50 to 90 mol per cent hydrogen”) and liquid stream 42. The vapor stream 40 is compressed in compressor 44 to provide a sufficiently high partial pressure of the hydrogen as required in the reactor.

The Prior Art

Jackson discloses a process that is quite similar to appellant’s disclosed process and differs mainly in that the hydrogen-diluent mixture (“90% hydrogen”) after being compressed is introduced directly into the vapor stream that is introduced into the reactor. The effluent stream exiting from the reactor of Jackson which includes the reactor product, the diluent, and unreacted hydrogen is directed to a separator where unreacted hydrogen is separated and recycled into the vapor stream containing the compressed hydrogen-diluent mixture, and the diluent and reactor product are passed out of the reactor circuit.

The Rejection

As stated in the solicitor’s brief:

The examiner stated in his final rejection that “while the Jackson reference discloses passing the hydrogen and diluent under higher pressure directly into the hydrogenation zone [reactor], since the diluent does not affect the reaction, it would be an obvious variant to separate the diluent under the high pressure by conventional means in order to avoid diluting the hydrogen required for the hydrogenation process,” and that “such an obvious variant over the teaching in the Jackson reference is within the skill of the art, not amounting to invention [unobviousness].” Since * * * [that] rejection was not reversed by the Board, * * * it is appropriately before [us]. In re Stephens, 47 CCPA 1028, 278 F.2d 980 [950] [126 USPQ 190].

The board held that claim 1 read directly on the Jackson disclosure and gave its reasoning as follows:

That the copied claim, through step (d) thereof, reads upon the disclosure of Jackson does not appear to be controverted by appellant. Step (e) is performed in [the] separator * * * of the reference and step (f) by [the] hydrogen recycle * * *. Both appellant and the examiner seem to be reading limitations into the claims which are not present therein.

A rule 132 affidavit, by one Beavon, stated that the effect of not removing the diluent as appellant discloses to be:

(a) a greater amount of gas must be circulated to meet the hydrogen demand of the reaction system; or
(b) the total pressure must be increased to obtain in a given volume the amount of hydrogen required for the reaction.

Appellant concludes that the affidavit is evidence that the partial pressure of the hydrogen “is raised” by the diluent removal and accordingly, a lesser amount of hydrogen-diluent mixture must be compressed. The board considered the affidavit to be “not relevant” insofar as all the claimed steps are performed by the Jackson patent. The board additionally noted that the affidavit did not take the compressor 44 into consideration. In his brief appellant states:

With reference to the drawing accompanying the application step (e) requires separating at least a substantial amount of the diluent from the centrifugally compressed hydrogen in separator 38 while step (f) calls for introducing compressed hydrogen after diluent separation into the vapor stream 40 for feed to reactor 26 within the hydrogen consuming circuit.
In removing the diluent, the effective particle pressure of hydrogen is raised to substantially the pressure achieved during centrifugal compression of the resultant gas stream.

From any reading of Jackson it is evident that the hydrocarbon diluent is never separated from the resultant stream following centrifugal compression to permit the result previously set forth. Yet, the Board found this teaching in Jackson from what is believed to be a patent misconstruction of the Drawing.

OPINION

It is abundantly clear, as noted in the above description, that Jackson separates the diluent from the effluent stream after and appellant before the hydrogen-diluent mixture passes through the hydrocracking reactor. But appellant’s reliance on his disclosure is misplaced. The claim does not require diluent separation ahead of the reactor and makes no distinction between diluent separation before and after introduction of the mixture into the reactor. Appealed claims in an application are given their broadest reasonable interpretation. In re Cummings, 390 F.2d 1018, 55 CCPA 951, 157 USPQ 47 (1968). Accordingly, we agree with the board that steps (a)-(e) of claim 1 are disclosed in the Jackson reference. Though the board’s rejection is couched in language evocative of 35 U.S.C. § 102, it sustained the examiner’s rejection under 35 U.S.C. § 103, as do we. A complete disclosure of the claim is the “ultimate or epitome of obviousness.” In re Kalm, 378 F.2d 959, 962, 54 CCPA 1466, 1470 (1967).

If steps (e) and (f) were interpretable as appellant argues, i. e., to require separation before introduction to the reactor, the rejection under 35 U.S.C. § 103 would not be erroneous. Appellant submits no evidence probative of unexpected results. The affidavit plainly does not establish that the amount of hydrogen-diluent mixture required to be compressed in compressor 24 would be reduced. It is not apparent that the circulation of diluent through the reactor is of consequence with respect to the requirements of compressor 24. If the “effective or partial pressure” of the hydrogen is governed by Dalton’s Law on Partial Pressures as appellant states, we have been provided with no factual evidence that partial pressure “is raised” by the removal of the diluent. Moreover, we note, as did the board, that appellant employs compressor 44 between his separator and reactor. That the partial pressure of the hydrogen, as stated by the affiant, “will become essentially equal to the total pressure generated” during centrifugal compression of the resultant gas stream would hardly have been unexpected. It is elementary that the level of partial pressure would depend on the mol per cent of hydrogen in the resultant stream. The decision of the board is affirmed.

Affirmed

BALDWIN, Judge

(concurring).

I agree that claim 1 is obvious within the meaning of 35 U.S.C. § 103. Such being the case, I see no reason to read a section 102 rejection into the board’s opinion, which affirmed a section 103 rejection.

Both Jackson and appellant are concerned with the use of diluent in order to render efficient the use of centrifugal compressors for introduction of hydrogen into what Jackson calls the “system 'loop’.” The difference between the system which appellant interprets his claim to cover and the specific system depicted in Jackson can best be appreciated by considering the portion of appellant’s drawing reproduced in the majority opinion, using appellant’s reference numbers for the identical apparatus shown in Jackson. In Jackson, the output line from the centrifugal compressor (24) is not fed into the loop prior to Jackson’s cooling system (36) as shown in appellant’s drawing. Rather, the hydrogen plus diluent is fed into the line (40) between Jackson’s separator (38) and his recycle hydrogen compressor (44). What the particular advantage may be to feeding the mixture into that line Jackson doesn’t say. In discussing the problem, Jackson states (again substituting appellant’s numbering):

In general, the discharge from compressor [24], may enter the system at any suitable location retentive of the recycle. Thus, for example, the discharge from compressor 15, may be * * * introduced elsewhere into the system “loop,” as to the suction side of compressor [44], The most advantageous point for introduction of hydrogen makeup from compressor [24] into the system “loop” is subject to calculation for a given case in hand.

In my view it would have been obvious for one of ordinary skill in the art, should he be bothered by the fact that Jackson, for. no apparent reason, puts his diluent through compressor 44, the reactor 26, and the cooling system before getting rid of it in separator 38, to obviate that problem by adding the mixture just prior to the separation system.

The Beavan affidavit adds no support to appellant’s case. It does not suggest that all of the factors discussed therein were not either known or obvious to those skilled in the art at the time appellant’s invention was made. At best, the affidavit indicates that appellant’s system had an advantage over Jackson’s system, but it does not establish that that advantage would have been anything other than obvious to those skilled in the art.

      . U.S. 3,401,111, filed July 5,1966, issued September 10, 1968.


source: Caselaw Access Project

author: MARKEY, Chief Judge.

license: Public Domain

text:
    COMPAGNIE FRANCAISE de PRODUITS CHIMIQUES et INDUSTRIELS du SUD-EST, Appellant, v. GAF CORPORATION, Appellee. Patent Appeal No. 8938.
    United States Court of Customs and Patent Appeals.
    June 14, 1973.

      J. Timothy Hobbs, G. Cabell Busick, Washington, D. C. (Mason, Fenwick & Lawrence, Washington, D. C.), for appellant.
    W. M. Webner, New York City, for ap-pellee.
    Before MARKEY, Chief Judge, RICH, BALDWIN, and LANE, Judges, ALMOND, Senior Judge.
   MARKEY, Chief Judge.

This is an appeal from the decision of the Trademark Trial and Appeal Board sustaining the opposition of appellee to registration of HELIANE by appellant for “vat dyes utilized in dyeing of fabrics.” Appellee relied on its prior registrations and use of HELIO for dyes and dyestuffs and HELIOGEN for pigment dyestuffs. We affirm.

OPINION

The goods are substantially identical and are sold in overlapping channels. Though appellant’s brief emphasizes use of appellee’s dyes in “plastics, paints and inks,” the testimony of record establishes use on fabrics and for inking fabrics. Though appellant’s .brief lists numerous non-textile oriented magazines in which appellee advertises, the record includes appellee’s ads in “Textile World.”

The marks, considered in their entireties and under all the circumstances of this case, are sufficiently similar to cause a likelihood of confusion, deception or mistake. Appellant argues strenuously that the common prefix “Heli” is descriptive of dyes, citing derivative definitions found in Webster’s Third New International Dictionary (1961). No evidence establishes familiarity of purchasers with those definitions or necessary application of those definitions by purchasers to appellee’s marks. Appellant then alleges that appellee’s marks are themselves substantially descriptive while its own mark HELIANE is arbitrary, coined and without meaning in the dye world. The record however contains appellant’s statement to the examiner that its mark “is from the Latin word ‘Helianine’ which has a meaning of a red coloring compound.”

The record further establishes appellee’s and its predecessor’s exclusive use in the United States, beginning almost half a century ago, of marks beginning with “Heli” and appellee’s active and successful efforts to maintain that exclusivity. In 1965-66, annual sales approximated $76,000 under HELIO and $6,000,000 under HELIOGEN. The case is thus unlike those illustrated by Air Products, Inc. v. Marquette Manufacturing Co., Inc., 301 F.2d 348, 49 C.C.P.A. 973 (1962), wherein prefixes used by both parties and constituting terms of common descriptive connotation were disregarded in determining a likelihood of confusion. We think viewers of HELIANE who are familiar with the fact that marks beginning with “Heli” have for so long indicated a single source of dyestuffs could believe HELIANE to be another dye from that source.

If there be doubt, the present case is an appropriate one for application of the practice of resolving doubt in favor of the long established user and against the newcomer to whom the entire lexicon is available for construction of an unquestionably distinct mark.

Appellant argues strongly that the board erred in refusing its motion to strike appellee’s brief. Appellee filed a single brief, designated “Reply Brief,” after appellant had filed its brief. Appellant has not made its brief of record here and we cannot therefore judge whether appellee included material not properly in reply to it. The board, in denying the motion, said it would not consider anything in appellee’s brief which was not properly in reply to appellant’s brief. We find support in the record for each holding of the board and are thus convinced that the board did exactly as it said it would. The failure to file a timely main brief to which appellant could have responded is not to be encouraged. We do not feel, however, that the board was influenced by or made its decision in response to any “non-reply” type material in appellee’s brief and cannot see therefore how appellant was in any way prejudiced by the action of the board.

Similarly, the board refused to allow appellant to rely on material introduced by appellee because (1) it was not introduced by appellant under the Trademark Rules and (2) because it was irrelevant, being related only to use of marks having the prefix “Heli” outside the United States. Since the board was clearly correct as to (2), appellant’s arguments regarding (1) are moot.

For all of the foregoing reasons, we find no controlling error in any aspect of the decision below. Accordingly, it is affirmed.

Affirmed.

      . Registration No. 180,180, issued February 26, 1924.

      . Registration No. 349,318, issued August 24, 1937.


text:
    Application of William H. DUTT.
    Patent Appeal No. 9040.
    United States Court of Customs and Patent Appeals.
    June 21, 1973.
    Rehearing Denied Oct. 4, 1973.
    Joseph C. Sullivan, New York City (Kane, Dalsimer, Kane, Sullivan, Ku-rucz & Goldstein, New York City), for appellant.
    S. Wm. Cochran, Washington, D. C., for the Commissioner of Patents. Raymond E. Martin, Washington, D. C., of counsel.
    Before MARKEY, Chief Judge, and RICH, BALDWIN, and LANE, Judges, and ALMOND, Senior Judge.
   MARKEY, Chief Judge.

This is an appeal from the decision of the Patent Office Board of Appeals sustaining the rejection, under 35 U.S.C. § 103 of claims 1 and 3-7 of appellant’s application serial No. 628,628, filed April 5, 1967, and entitled “Felt Having Reinforced Crosswise Yarns.” We affirm.

The Invention

The invention is a papermaker’s felt, comprising a multilayer fabric wherein the crosswise strands are formed of different yarn materials twisted together. The sole independent claim is claim 1:

1. A papermakers felt comprising a tightly woven multi-layer fabric in which first crosswise yarns are reinforced by twisting in combination with second crosswise yarns having superior tensile and compressive strength and in which means for securing the crosswise and lengthwise yarns against relative movement is provided.

Claim 3 says the “means” is the tightness of the weave. Claim 4 specifies the “means” as bonding at the intersections of crosswise and lengthwise yarns. Claim 5 limits the lengthwise yarns to nylon and the crosswise yarns to asbestos twisted about monel wire and limits the fabric to two layers. Claims 6 and 7 call for bonding with cured re-sorcinol-formaldehyde resin and cured urethane resin, respectively.

The Rejection

Claims 1 and 3 were rejected as obvious in view of Barrell 2,098,993, disclosing a two-ply woven papermaker’s felt with crosswise yarns of twisted asbestos and cotton or asbestos with cotton braided thereon, and Hall 2,506,667, disclosing a twisted asbestos and nylon yarn for papermaker’s felts. Wagner 3,248,802, disclosing chemical bonding at yarn intersections in a papermaker’s belt, was' added in rejecting claims 4, 6 and 7. Bacheldor 1,811,573, disclosing a filter fabric having a yarn formed by twisting abestos about a wire, was added to Barrell and Hall in the rejection of claim 5.

OPINION

Appellant argues that his contribution lies in “displacing” the crosswise yarns “from the neutral axis” which creates “a base beam construction” or a “truss like structure.” Appellant’s difficulty is that the claims don’t say so, directly or indirectly. Appellant’s reply brief says the “multi-layer fabric” of the claims is understood in the art to mean a single fabric whereas Barrell discloses two fabrics fastened together. The record, however, contains no evidence of such understanding in the art. Barren’s plies are joined by a warp strand and his felt is described as “woven” in two plies.

Appellant also argues that the prior art does not show “tightly” woven fabrics, yarns of “superior * * * compressive strength,” or “securing” by “tightness of the weave.” We agree with the examiner and the board that “tightly,” “superior,” and “securing” are nebulous terms incapable in this case of rendering the claimed structure unobvious over the prior art, the record containing no evidentiary basis for comparison of appellant’s weave tightness or yarn strength with those of the prior art.

We find in the references the clear suggestion of their combination as rer lied upon by the tribunals below and no impediment thereto. Accordingly, the decision rejecting the appealed claims is affirmed.

Affirmed.


author: LANE, Judge.

text:
    Application of KEEBLER COMPANY.
    Patent Appeal No. 8966.
    United States Court of Customs and Patent Appeals.
    June 14, 1973.

      A. W. Molinare, Chicago, 111. (Moli-nare, Allegretti, Newitt & Witcoff, Chicago, 111.,) attorneys of record, for appellant. Robert C. Williams, Chicago, 111., of counsel.
    S. Wm. Cochran, Washington, D. C., for the Commissioner of Patents. John W. Dewhirst, Washington, D. C., of counsel.
    Before MARKEY, Chief Judge, RICH, BALDWIN and LANE, Judges and ALMOND, Senior Judge.
   LANE, Judge.

This is an appeal from the decision of the Trademark Trial and Appeal Board, abstracted at 168 USPQ 608 (1970), sustaining the examiner’s refusal to register RICH ’N CHIPS for “cookies.” The specimen filed by appellant shows the use of the mark on a package of chocolate chip cookies, and it was the examiner’s position that the mark is merely descriptive of that product within the meaning of section 2(e) (1) of the Lanham Act, 15 U.S.C. § 1052 (e)(1), “because it indicates that there is an abundant supply of chips * * * [therein].” Appellant argued that the words “rich” and “chips” have many meanings in addition to those which would lead one to read RICH ’N CHIPS as though it said “abundant in chocolate chips.” However, the board held:

[W]e consider what the entire phrase would be representative of in the market place where the purchaser is likely to consider the purchase of applicant’s chocolate chip cookies. [Citation omitted.] In this environment, it is believed that the designation “RICH ’N CHIPS”, as applied to chocolate chip cookies, would merely inform the buyer of the nature and quality of the goods and not the source thereof. It is not unusual for manufacturers to extol their products to indicate better quality or value over like products produced by competitors. Language which merely describes these attributes should be free for all to use.

The board agreed with the examiner’s conclusion that the mark is merely descriptive, and we affirm the board’s decision.

Appellant contends that where the average purchaser has to mentally sort through various meanings of the words which comprise the trademark to arrive at that meaning which is descriptive of the goods to which the mark applies, the mark cannot be considered merely descriptive in the sense of § 2(e). Such a proposition cannot be held to be either universally true or universally false. Where the descriptive meaning of a phrase derives from obscure or less prominent individual word meanings, a conclusion of mere descriptiveness may well be untenable. The board properly approached the analysis in the present case by viewing the mark in its entirety in conjunction with the goods it has been used to identify and attempting to assess the impression likely to be conveyed.

We agree that as applied to chocolate chip cookies, the phrase RICH ’N CHIPS plainly conveys the impression that the cookies are abundant in the chips which they contain, i. e. chocolate chips. The phrase therefore describes to the consumer a purported quality of the product which would tend to entice the purchase of the product. As such, we agree that the phrase would not inherently serve to distinguish appellant’s goods from similar goods of others, but rather would be recognized as connoting a common quality which all such goods could be asserted to have. There is no evidence of secondary meaning within the purview of § 2(f) which would rebut these conclusions. Accordingly, we find no error in the refusal to register RICH ’N CHIPS on the ground of mere descriptiveness.

The decision of the Trademark Trial and Appeal Board is affirmed.

Affirmed.

BALDWIN, J., dissents.

      . Application Serial No. 309,177 filed October 8, 1968.


author: DAWKINS, District Judge.

text:
    FORT WORTH INDEPENDENT SCHOOL DIST. v. ÆTNA CASUALTY & SURETY CO.
    No. 5962.
    Circuit Court of Appeals, Fifth Circuit.
    April 1, 1931.
    Rehearing Denied April 29, 1931.

      R. M. Rowland, of Fort Worth, Tex., for appellant.
    Robert W. Harrison and John T. Pearson, both of Fort Worth, Tex. (Hubert Blalock, of Hartford, Conn., and Lassiter, Harrison & Pearson, of Fort Worth, Tex., on the brief), for appellee.
    Before BRYAN and FOSTER, Circuit Judges, and DAWKINS, District Judge.
   DAWKINS, District Judge.

The /Etna Casualty & Surety Company (hereinafter called surety company)'brought this suit in equity to recover of the Fort Worth independent school district (hereinafter called school district) the sum of $41,-985, alleging that, as surety upon the bond of H. K. Muse, contractor, for the erection of a school building of the school district, it had been compelled to pay to laborers and material men the said amount; that the school district had wrongfully turned over to the contractor funds which should have been applied to the satisfaction of said claims; that, under the contract and bond, defendant was required to retain in its hands 15 per cent, of the contract price of the work and all extras added thereto until the building was completed and all bills paid; and that plaintiff “became equitably entitled to and should receive from said defendant * * * the aforesaid retained percentage that should have been retained by the said School District.” Plaintiff prayed for an accounting and for judgment “for such sum with legal interest thereon, as plaintiff may he entitled to either in law or equity.”

Defendant first pleaded in abatement of this suit the pendency in a state court of Texas of an action wherein certain" furnishers of material had sued it, the contractor, and the surety company upon their claims, previous to the filing of this bill, and averred that, after the surety company had appeared and answered, the school board had filed its cross-bill against said surety and “prayed that all interested parties * * * be required to plead and have adjudicated all their claims and demands; * * * ” that the subject-matter involved therein was and is the same as in the present suit; that the jurisdiction of the state court had attached and it had power to afford full relief to all concerned, and for which reasons the instant case should be abated. Secondly, defendant averred that the present proceeding was essentially an action .at law, and should be transferred to the law side of the court. Upon the merits, defendant justified its payment of the funds to Muse under the terms of the contract and bond, and prayed that, if it should be found that plaintiff was entitled to receive the sum of $7,129.90 still in its hands, the judgment be without costs.

Both the plea in abatement and motion to transfer were denied. The case was submitted below upon an agreed statement of facts with attached exhibits, and there was judgment in favor of the surety company for the sum of $39,819.90, with 6 per cent, interest on $35,000 thereof from April 1, 1927. The school district has appealed.

Appellant has made ten assignments of error — the first being to the overruling of the plea in abatement; the second to the refusal to transfer the ease to the law side of the docket; the third to ninth, inclusive, to the striking from the school board’s answer of certain allegations; and the tenth to the awarding of judgment in plaintiff’s favor upon the facts.

As to the plea in abatement, we agree with the court below that it should have been overruled. There was no property or funds in the hands of the state court, neither did the present case seek to gain possession of either, but in eaeh instance the proceedings involve issues of the liability of the parties under the contract and bond. ' The suit, as originally instituted, was, as stated above, by materialmen to recover of the sehool board, contractor, and surety, the amount of their claims; the school board by its cross-action, under a statute of the state of Texas, sought to have the surety respond on its bond to these and all other claims which might be asserted against the contractor; the surety, feeling itself bound to pay the laborers and materialmen, discharged all such claims, took assignments thereof, and filed in the state court a dismissal on the part of all of said Creditors of the contractor, including W. B. Sloan, who had been drawn into it as indemnitor of the surety company, thus leaving as the only parties before the state court the sehool board, the contractor, and the surety company. So that as it remained at the time of filing the present suit, the case in the state court was merely a controversy between these parties as to their rights under the contract and bond. The bill in this ease was based upon the theory of equitable subrogation to the rights of the materialmen and laborers against the sehool board and for an accounting of the funds provided for the ereetion of the building. In this situation, we can see no conflict of jurisdiction or ground for abatement. The cause of aetion is in personam and arises from the alleged payment of the claims and the asserted right to equitable subrogation against the school board upon its obligations flowing from the contract and bond. It is not the same as the demand made by these creditors against the contractor, surety, and school district in the state court, or by the latter in its cross-action against the surety, but seeks to fasten upon the school district responsibility for its alleged diversion of the funds from the purpose to which they were dedicated. Kline v. Burke Construction Co., 260 U. S. 226, 43 S. Ct. 79, 67 L. Ed. 226, 24 A. L. R. 1077; U. S. v. The Haytian Republic, 154 U. S. 118,14 S. Ct. 992, 38 L. Ed. 930; Gordon v. Gilfoil, 99 U. S. 168, 25 L. Ed. 383; McClellan v. Carland, 217 U. S. 268, 30 S. Ct. 501, 54 L. Ed. 762; Groom v. Mortimer Land Co. (C. C. A. 5th Cir.) 192 F. 849; Slaughter v. Mallet Land & Cattle Co. (C. C. A. 5th Cir.) 141 F. 282; Ackerman v. Tobin (C. C. A.) 22 F.(2d) 541; International & G. N. R. R. Co. v. Barton, 24 Tex. Civ. App. 122, 57 S. W. 292.

We are also of the view that the case was properly brought in equity. Prairie State Bank v. U. S., 164 U. S. 227, 17 S. Ct. 142, 41 L. Ed. 412; National Surety Co. v. County Board (C. C. A.) 15 F.(2d) 993. It is not a suit upon contract or express obligation to pay by the school board, but arises from equitable subrogation to the rights of laborers and materialmen (who, although not parties to the contract and bond, were nevertheless beneficiaries thereunder) as well as from the alleged duty of the school board to properly administer and account for the funds which were specially set apart to pay for this work.

The subject-matter stricken from the answer and complained of in assignments 3 to 9, inclusive, had to do with the contention of the school board that, while it might have retained the 15 per cent, as stipulated under the contract, it w.as not compelled to do so; that the cheek for $35,000 was given to the contractor for the purpose of paying claims of laborers and materialmen, but that, when it was deposited in the Texas National Bank, the latter wrongfully appropriated it to the payment of a debt due by Muse, and the plaintiff in this case had its remedy against said bank; that the provision of the contract authorizing the architect to demand receipts of the contractor, showing payment of all claims, was optional; that at the time of said payment no claims had been filed, nor was there any reasonable evidence that any would be filed, nor had the contractor, so far as the architect and the school board knew, failed to pay all persons having claims against the building; and that in signing the bond, which made the contract a part thereof, plaintiff had authorized the school board and architect to alter the time and manner of payment to the contractor. However, sufficient was left of the answer to fully present what' we consider the principal issues of the cause, and we find nothing in these assignments to warrant us in disturbing the rulings of the court below.

As we see if, the principal question presented is as to whether the school board was justified in paying to the contractor the $35,-000, as was done under the paragraph of the bond, which we quote as follows:

“And provided, that any alterations which may be made in the terms of the Contract, or in the work to be done under it, or the giving by the Owner of any extension of time for the performance of the Contract, or any other forbearance on the part of either the Owner or the Principal to the other shall not in any way release the Principal and the surety or sureties, or either or any of them, their heirs, executors, administrators, successors or assigns from their liability hereunder, notice to the Surety or Sureties of any such alteration, extension or forbearance being hereby waived.”

As stated earlier in this opinion, the facts are stipulated, and the circumstances under which the payment was made, were as follows:

The contract price of the work was $254,-900, and the plaintiff became surety thereon to the extent of $84,970, and the contractor executed in favor of the surety company an agreement of indemnity, which was unknown to the school board. On April 1, 1927, the work had been substantially completed, “the unfinished work thereon having at that time an approximate value of $250.00, and shortly thereafter said work was fully finished and said contract completely and fully performed.” We quote further from the agreed statement of facts as follows:

“5. On April 1, 1927, and before the work was fully completed and the contract fully performed, W. G. Clarkson & Company, architects named in the contract, issued and delivered to Muse their Certificate No. 28 in the sum of $35,000.00, and thereupon and on the same date the School District issued and delivered its cheek or warrant to Muse for the same amount; Including this check, the amount paid by defendant on this contract to Muse, up to and ineluding April 1, 1927, was $249,200.00, leaving a balance of contract funds in the hands of defendant of $5,700.00, plus the value of some extras,
“6. When, ,and before, the aforesaid certificate and cheek for $35,000.00 wére given Muse on April 1, 1927, the architect required no evidence from Muse that payrolls, material bills and other indebtedness connected with the work had been paid, and Muse did not submit to the architect any evidence that such bills had then been paid. At that time Muse owed various material men and sub-contractors for materials and work .furnished for and used in the construction of said building an amount exceeding $45,000.-00.”

At the time of the payment of the $35,-000, none of the creditors of the contractors had given'the school board any written notice of their claims, in compliance with (Acts of Texas 39th Leg. (1925) c. 17 (Vernon’s Ann. Civ. St. arts. 5472a, 5472b), as defendant contends should have been done. The money was deposited by Muse in the Texas National Bank, who .applied it to indebtedness due to itself, and no part thereof went to satisfy claims against the building. The school board still held in its hands the sum of $7,284.90, the balance due upon the contract price and for extras. The amount in controversy, being the 15 per cent, which plaintiff contends was required to be retained under the contract, and for extras, was $39,-819.90.

The contractor was adjudged bankrupt on July 6, 1927, and his estate closed September 10, 1928. Prior to the institution of this suit, the trustee disclaimed any interest in the sub j echmatter.

The original contract provided that Muse should be paid 85 per cent, of the value of labor and material as the work progressed on the 1st of each month, “and upon substantial completion of the entire work, a sum sufficient to increase the total payments to eighty-five per cent, of the contract price, and balance upon completion and acceptance of the work.” We quote further from the contract as follows:

“Article 5. Acceptance and Final Payment. — Mnal payment shall be due ten days after substantial completion of the work provided the work be then fully completed and the Contract fully performed.
“Upon receipt of written notice that the work is ready for final inspection and acceptance, the Architect shall promptly make such inspection, .and when he finds the work acceptable under the Contract and the Contract fully performed he shall promptly issue a final certificate over his own signature stating that the work provided for in thiji Contract has been completed and is accepted by him under the terms .and conditions thereof, and that the entire balance found to be due the Contractor, and noted in said final certificate, is due and payable. Before issuance of final certificate the Contractor shall submit evidence satisfactory to the Architect that all payrolls, material bills, and other indebtedness connected with the work have been paid.”

The following is quoted from articles 24 and 32 of the general conditions annexed and made a part of the original contract, to wit:

“Art. 24. Application for Payments. — ■ The Contractor shall submit to the Architect an application for each payment, and, if required, receipts or other youehers, showing his payments for materials and labor, including payments to sub-contractors as required by Art. 37. * * *
“Art. 32. Idem. — Neither the final payment nor any part of the retained percentage shall become due until the Contractor, if required, shall deliver to the Owner a complete release of all liens arising out of this Contract, or receipts in full in lieu thereof and, if required in either ease, an affidavit that so far as he has knowledge or information, the releases .and receipts include all the labor and material for which a lien could be filed; but the Contractor may, if any subcontractor refuses to furnish a release or receipt in full, furnish a bond satisfactory to the Owner, to indemnify him against any lien. If any lien remain unsatisfied after all payments are made, the Contractor shall refund to the Owner all moneys that the latter may be compelled to pay in discharging such a lien, including all costs and a reasonable attorney’s fee.”

Of course, this being a'public building, the article last quoted was inapplicable in so far as liens were concerned.

It is well settled that a stipulation in a building contract that a percentage of the price shall be retained until the final completion and acceptance of the work, is as much for the benefit of the surety as for the protection of the owner, and a failure to comply therewith releases the former in so far as the rights of the latter are concerned. Prairie State Nat. Bank v. U. S., 164 U. S. 227, 17 S. Ct. 142, 41 L. Ed. 412; Globe Indemnity Co. v. United Railways Co. (C. C. A.) 272 F. 607; National Surety Co. v. County Board of Education of McDowell County (C. C. A.) 15 F.(2d) 993; Ætna Casualty & Surety Co. v. Robertson Lumber Co. (Tex. Civ. App.) 3 S.W.(2d) 895; Ætna Casualty & Surety Co. v. Russell (Tex. Com. App.) 24 S.W.(2d) 385; Commercial Casualty Ins. Co. v. Durham County, 190 N. C. 58, 128 S. E. 469; Williams v. Baldwin (Tex. Com. App.) 228 S. W. 554; Ryan v. Morton, 65 Tex. 258; Fidelity & Deposit Co. of Maryland v. Claiborne Parish School Board (D. C.) 35 F.(2d) 376, affirmed (C. C. A.) 40 F.(2d) 577. Did the peculiar provisions in the contract and bond in this case, quoted above, have the effect of relieving the school board from the duty of withholding 15 per cent, of the amount due, and permit it to pay the same before the completion of the work and without exacting of the contractor receipts or affidavits showing the payment of all bills for labor and material? Article 4 of the original contract provides that “upon substantial completion of the entire work (there shall be paid) a sum sufficient to increase the total payments to eighty-five per cent, of the contract price and balance upon completion and acceptance of the work.” Article 5 states specifically how and when the “final payment” shall become due and be made, that it shall be due “ten days after substantial completion of the work, provided the work be then fully completed, and the contract fully performed”; that “upon receipt of written notice” the architect shall inspect the building and if he “finds the work acceptable * * * and the contract fully performed, he shall promptly issue a final certificate” to that effect, “and that the entire balance found to be due the contractor and noted in said final certificate, is due and payable. * * * Before issuance of final certificate the contractor shall submit evidence satisfactory to the architect that all pay rolls, material bills and, other indebtedness connected with the work have been paid.” (Italics by the writer of this opinion.)

Section 24 of the general conditions attached to the original contract undoubtedly has reference to payments which are made during the progress of the work, but in that case also the contractor was bound to furnish vouchers or receipts showing payment for the labor and material “if required” by the architect. There appears to be nothing inconsistent between this and' the clear requirement of articles 4 and 5 of the original contract that the work should have been “fully performed” and the contractor should submit “evidence satisfactory to the architect that all payrolls, .material bills and other indebtedness connected with the work had been paid.” Neither do we find anything in article 32 of the general conditions of the contract, quoted above, to change this duty. This article deals solely with liens, was for the protection of the owner, and obligated the contractor, “if required” by the architect, to deliver “a complete release of all liens * * * or receipts in lieu thereof, * * * ” showing payment for labor and materials. As above stated, this being a public building, there was no legal possibility of attaching a lien thereto. The clause was no doubt part of a printed form used in dealing with private persons. It is highly probable that the inability to fix .a lien against the building caused the school board to be less solicitous about claims for labor and materials than it otherwise would have been. Had this been a private transaction, it is reasonably certain that no such payment would have been made without exacting evidence of satisfaction by the contractor of his indebtedness. We can see no justification on the part of the school board in disregarding the provision for retaining a percentage of the price, which, as has been said, was equally for the protection of the surety; but, on the other hand, it was called upon to respect the rights of the surety and to not do anything which was reasonably calculated to increase its obligation or risk under the bond. What the board did in this instance has undoubtedly brought about that very result, for the money dedicated to the payment of the claims has been diverted to other purposes, the surety has been compelled to pay the creditors, and the contractor is bankrupt.

It remains to be determined whether the paragraph of the bond quoted above can reasonably be said to have changed the requirement of the contract with respect to the retainage of 15 per cent. We think it cannot. That stipulation in the bond did not purport to authorize any substantial change in the contract, and we think was intended to prevent alterations “in the terms of the contract or in the work,” or because of “extensions of time or other forbearance on the part of either the owner or the principal” from operating as a “release * * *" of the surety * * * from * * * liability” under the bond; any such “extension or forbearance being hereby waived.” In the absence of such stipulation, the surety would have been released under the. facts of the case. See authorities above cited. Under the very terms of the bond itself, the surety bound itself to “pay all persons who shall have contracts directly with the principal for labor or materials,” .and this gave them the right to sue upon it in their own names. Federal Surety Co. v. City of Staunton, Ill., et al. (C. C. A.) 29 F.(2d) 9. So that, the quoted provision of the bond could have had no other reasonable object than to protect the school district against acts of the contractor, such as the failure to complete or abandonment of the work requiring outlays on the part of the owner, notwithstanding any forbearance toward him by it. A different interpretation would have the effect of destroying and rendering meaningless those provisions for the retainage, in so far as the surety was concerned, whereas the construction which we have adopted gives proper effect to all of the terms of the contract and bond.

Affirmed.


author: SWAN, Circuit Judge.

text:
    UNITED STATES v. MALLERY et al.
    No. 283.
    Circuit Court of Appeals, Second Circuit.
    March 16, 1931.
    R. M. Page, of Johnson City, N. Y., for appellant.
    Frederick E. Hawkes, of Waverly, N. Y., for appellees.
    Oliver D. Burden, U. S. Atty., of Syracuse, N. Y., for the United States.
    Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.
   SWAN, Circuit Judge.

George Sidney Mallery, a soldier in the American Army during the late war, on November 20,1917, took out insurance upon his life for $10,000 under the War Risk Insurance Act of October 6, 1917 (40 Stat. 398). He designated as beneficiaries of such insurance his mother for the sum of $5,000, and his father, the present appellant, for the sum of $5,000. He died in France in October, 1918, and thereafter‘payments on account of such insurance were made to his father and .mother, respectively, each receiving the sum of $28.75 monthly until the mother’s death on or about May 22,1922. Shortly thereafter .the question arose whether future installments on that half of the insurance of which the mother had been named beneficiary were payable to the father or to the deceased soldier’s estate. The soldier was survived by a widow and a minor daughter, who are appellees, as well as by his father and mother. By a nuncupative will duly-admitted to probate in a Surrogate’s Court for the county of Tioga, N. Y., he declared that he wanted his father and mother to have all his insurance and his wife to have none of it. The surrogate’s decree adjudged the will valid to pass personal estate, hut decreed that, since no provision had been made for the testator’s daughter, who was bom subsequent to the making of his will, she was entitled to the same portion of his estate as would have been distributable to her had he died intestate. This decree was affirmed on appeal without opinion. Matter of Mallery’s Will, 127 Misc. Rep. 784, 217 N. Y. S. 489, affirmed, 220 App. Div. 794, 221 N. Y. S. 859, and 247 N. Y. 580, 161 N. E. 190.

The father does not claim the insurance as a legatee under his son’s will. He contends that the will operated as a designation of himself as beneficiary of installments falling due after the mother’s death; that is, he claims under the contract of insurance and the federal statutes applicable thereto, not under the will as a testamentary disposition. If the will is sufficient as a designation of the father to receive installments payable after the mother’s death on that portion of the insurance as to which she was named by the insurance certificate as beneficiary, it is apparent that the ground is cut from under the will as a testamentary disposition; no such installments are left to pass under it for they never became estate of the testator. The correctness of this contention is the principal question raised by the appeal.

War risk insurance is of a peculiar nature, and differs from an ordinary policy of insurance payable to a named beneficiary. Under the ordinary policy, a beneficiary, who survives the insured, obtains a right to be paid the full amount of the policy; but a contract for war risk insurance, by virtue of the statutes authorizing it, provides only for a series of monthly payments to the beneficiary while he lives — in effect, a life interest— thus leaving a “remainder” not disposed of by the original designation. This so-called remainder will fall into the estate of the deceased soldier if no person within the permitted class of beneficiaries be designated “by the insured either in his lifetime or by his last will and testament.” Act Oct. 6, 1917, 40 Stat. 410 § 402; 43 Stat. 1310, 38 USCA § 514. Treasury Regulation No. 14 (T. D. 25 W. R.), applicable to war risk insurance, also provides that “a change of beneficiary” may be effected by the insured’s will. Thus both the statutes and regulations recognize the power of the insured to designate a beneficiary by will, and the question in the ease at bar. becomes one of construing the testator’s will to determine whether it expresses an intention to designate his father as beneficiary of the “remainder” of the $5,000 of insurance in which his mother had a “life interest.”

The statements probated as the soldier’s will recite that he had made out his insurance to his father and mother equally “and wanted them to have it all if anything happened to him.” “Said if he did not come back the insurance would leave his father and mother pretty well fixed. Whatever he had coming, wanted it to go to them. That he wanted his wife to have none of it, nothing that was his.” These declarations were made both before and after the soldier signed his application for insurance, and the appellees contend that the earlier declarations merely state what he proposed to do, and the later what he had done, in respect to taking out insurance. Hence, it is argued they disclose no intention either to change or to add to the designation made in his application. Were this argument to prevail, it would prove that the declarations were not testamentary. Sataffs Estate, 275 Pa. 420, 422,119 A. 478. But that issue has been conclusively settled against appellees by the admission of these words to probate as the soldier’s will. They clearly indicate the testator’s wish that all the insurance be paid to his parents. He expressly excluded his wife. There is evidence indicating that he knew of the advent of the child and disclaimed it. While he could not disinherit his child as to estate passing under his will, he could exclude it from the insurance by designating his parents as sole beneficiaries thereof. It is true that the will does not in very words direct that installments on his mother’s half of the insurance shall after her death be paid to his father, but the use of technical words to create a joint tenancy, or a tenancy in common with cross-remainders raised by implication, is not necessary even with respect to ordinary property. See Overheiser v. Lackey, 207 N. Y. 229, 233, 100 N. E. 738, Ann. Cas. 1914C, 229; Purdy v. Hayt, 92 N. Y. 446, 454. Much less should it be necessary when War risk insurance is involved. There the courts have gone to great lengths to give effect to the soldier’s actual intent, however informally expressed — farther, perhaps, than we should be willing to. follow in some of the cases. In the case at bar it puts no strain upon the testator’s language to construe it as expressing an intent to have the father receive installments accruing on the mother’s share of the insurance after her death. We hold that the will was a valid designation of the father as beneficiary of such installments.

The appellees contend that the father is' estopped to assert such a claim because of the surrogate proceedings which he initiated and in which he conceded that “the only estate left by the testator is the insurance.” The decree below adjudged that he was so estopped. With this conclusion we cannot agree. The issues before the surrogate were whether the decedent left a will and whether it was valid as. against his child for whom no provision had been made. On those issues the surrogate’s decree is conclusive. But whether the will could operate under the federal statutes as a designation of a beneficiary of the insurance is a question not before the surrogate, and one which the District Court was free to determine for itself. Nor did the surrogate adjudge what estate the testator left. Jurisdiction for probate of the will rested upon the residence of the testator (New York Surrogate’s Court Act, § 45), and what personal property comprised his estate was neither an issue, nor a fact material to any issue, before the surrogate. Hence it is impossible to see how anything which the parties may have stipulated as to insurance can estop the father from now asserting that the will operated as a designation of installments falling due after the mother’s death. Moreover, the concession will not bear the construction ascribed to it, for it was also conceded that the federal statutes relative to the war risk insurance are “to avail for all purposes in' this proceeding.” Hence it is apparent that rights conferred by such statutes were not intended to be waived; and the first-quoted portion of the concession may still be given effect, for, should the father die before receiving full payment of the insurance, unmatured installments, since there is no other designated beneficiary, will apparently, though the question is not now before us, fall into the son’s estate. Consequently the claim of the appellant was open for consideration by the District Court, and should have been decided in the manner above indicated.

We are asked to‘ allow interest upon the unpaid-installments, but no statutory authority has been discovered to justify it% Cf. United States v. Woolen, 278 U. S. 665, 49 S. Ct. 249, 73 L. Ed. 571.

The decree is reversed, and the cause remanded for further proceedings in conformity with the foregoing opinion.

       See Salzer v. United States, 300 F. 767 (C. C. A. 2); Cassarello v. United States (D. C.) 271 F. 486, affirmed 279 F. 396 (C. C. A. 3) ; United States v. Woolen, 25 F.(2d) 673 (C. C. A. 6); White v. United States, 270 U. S. 175, 46 S. Ct. 274, 70 L. Ed, 530.

       Construing valid wills. United States v. Napoleon, 296 F. 811 (C. C. A. 5); McCarty v. Haley, 36 F.(2d) 201 (C. C. A. 7); State Bank & Trust Co. v. United States, 16 F.(2d) 439 (C. C. A. 6); Reivich v. United States, 25 F.(2d) 670 (C. C. A. 6). Construing invalid or unprobated wills. Johnson v. White, 39 F.(2d) 793 (C. C. A. 8) ; Helmholz v. Horst, 294 F. 417 (C. C. A. 6); Schroeder v. United States, 24 F.(2d) 420 (D. C. Ohio). Construing letters, etc. Gregg v. United States, 15 F.(2d) 8 (C. C. A. 7); Claffy v. Forbes, 280 F. 233 (D. C. Wash.). Cf. Gifford v. United States, 289 F. 833 (D. C. N. J.) ; Chichiarelli v. United States, 26 F.(2d) 484 (D. C. Colo.).


text:
    HAMILTON RUBBER MFG. CO. et al. v. STEWART et al.
    No. 5986.
    Circuit Court of Appeals, Fifth Circuit.
    April 1, 1931.
    Rehearing Denied April 29, 1931.

      John Davis and Hoyt A. Armstrong, both of Dallas, Tex. (Peyton A. Ellison and H. A. Armstrong, both of Dallas, Tex., on the brief), for appellants.
    Geo. T. Burgess and D. H. Hardy, both of Dallas, Tex. (Maco Stewart, of Dallas, Tex., on the brief), for appellees.
    Before BRYAN and POSTER, Circuit Judges, and DAWKINS, District Judge.
   DAWKINS, District Judge.

Plaintiffs, alleging themselves to be judgment creditors of the United Tire Stores, Inc., with return nulla bona of executions thereon, brought this suit to recover of the defendants Elmo C. Tenison, Maco Stewart, Sr., and Maco Stewart, Jr., alleged unpaid subscriptions to the capital stock of said company. Plaintiffs further charged that' the corporation had been dissolved and its charter forfeited for failure to pay the franchise tax exacted by the state of Texas. Each of the defendants denied any liability for the»stock; Tenison averring that his stock had been paid for with property and merchandise conveyed to the company, and the other defendants claiming tlmt they had legally severed their connection with the corporation and been discharged from responsibility for the stock before the claims of the plaintiff arose, the details of which will be discussed later in this opinion.

There was judgment for the defendants below, and plaintiffs have appealed.

On August 30, 1926, Tenison and the two Stewarts executed a charter for the United Tire Stores, Inc., with an authorized capital of $100,000, consisting of 1,000 shares of $100 each, divided equally into common and preferred stock. Tenison subscribed $40,000' for 400 shares of the stock, Maco Stewart, Sr., subscribed for $49,900 of preferred and $5,000 of common stock, and his son, Maco, Jr., subscribed for $100 of preferred and $5,000 of common stock. The original charter, as filed with the secretary of state on September 3, 1926, showed that these subscriptions had been paid in cash. Shares of' stock for the full amount of $60,000 of preferred and common stock were delivered to Maco Stewart, Sr., by Tenison, and the latter executed a guaranty in favor of Stewart, Sr., against loss on the preferred stock. No cash was ever actually paid into the company for this stock. Stewart, Sr., delivered to his attorney his check for $5,000, to be turned over to the corporation only in event Tenison paid his subscription of $40,000 in cash. Tenison did not pay his subscription in cash, but claims to have turned over to the corporation merchandise and fixtures in settlement thereof. Having learned this fact, the Stewarts declined to go ahead with the formation of the eompány, and, after some negotiations with Tenison, it was agreed that the former should withdraw from the corporation. In carrying out the withdrawal of the Stewarts, there was first executed on December^31, 1926, an amendment to the charter, reducing the capital stock to $80,000) $50,000 of which was to be common and $30,-) 000 preferred stock. Attached to- this 'amendment was a statement of assets and liabilities ■showing merchandise, fixtures, etc., of the value of $80,686.82, and a list of creditors aggregating $686.82. The amendment, with lists, was fortified by affidavits of Tenison and the Stewarts and filed with the secret tary of state on January 24,1927. The cheek of Maco Stewart, Sr., for $5,000 was returned to him on December 21, 1926, with- advice from his attorney as to what was necessary to bring about the withdrawal of himself and son from the company, which was done by reducing the stock to $80,000, and TenU son conveying to the company merchandise; fixtures, etc., in payment therefor. The stock of the Stewarts was then assigned to Tenison and delivered to Stewart’s attorney with the assurance that it would not be surrendered until all liability therefor had been discharged.

In the meantime, that is, between the beginning of negotiations for the formation of the corporation and the period when the amendment was filed and arrangements made to have the Stewarts withdraw, Tenison had incurred obligations at the North Texas National Bank for .$25,000' and at the Mercantile National Bank for $15',000, respectively, upon the first of which Maco Stewart, Jr., had given a guaranty of payment on behalf of himself and father, while the $15,000 note was the individual obligation of Tenison. Under date of January 14, 192-7, and before the Stewarts surrendered their stock, the Mercantile National Bank addressed to them a letter stating that Tenison had, arranged with it to take up both of said notes by giving his personal obligation, secured, by collateral, on the conditions (1) that the secretary of state should approve the amendment and reduction in the capital stock; (2) that all outstanding stock not held by Tenison (which of course was that held by the Stew-arts) be transferred to him; and (3), that the amendment of the charter should be filed without delay. These notes were afterwards paid or taken up by execution of new obligations of Tenison, the amendment was filed and approved, and the Stewarts were released from the transaction, before the accounts of the plaintiffs Hamilton Rubber Manufacturing Company and the Birmingham Tire & Rubber Company were incurred. They were also fully advised of the withdrawal of the Stewarts and of the fact that the business was in the hands of Tenison. The claim of the Cupples Company Manufacturers arose out of dealings with Tenison, personally, before the United Tire Stores Company, Inc., was formed. It was for a carload of cheap inner tubes, which were kept, separate from the other stock of the company, and had not been mixed therewith or taken over by it prior to the filing of the amendment to the charter and the withdrawal of the Stewarts. The representative of the Cupples Company was advised from time to time that this was a separate obligation of Tenison and the United Tire Stores Company, Inc., would not pay it. The latter company was discounting its bills and owed not in excess of $600 or $700 when the Stew-arts withdrew. The stock formerly held by them was transferred to Tenison on the books of the corporation, and the corporate records showed that they were without any further interest therein. These facts all appear to be conceded by the appellants, but they contend the Stewarts and Tenison are, liable notwithstanding, because of their original subscriptions and the fact that the same were not paid into the corporation in cash as recited by the original charter. .

We agree fully with the suggestion of counsel for appellants that the subscriptions to the capital stock of a corporation constitute a trust fund for the benefit of creditors of the corporation, and upon its insolvency the subscribers may be compelled to pay the same in satisfaction of its debts.This is a necessary consequence of the protection and limited liability of stockholders who avail themselves of the corporate entity. But the-principle can have no greater force than^the reason for its existence. The charter is a contract between the state and incorporators for the protection of the latter and for the benefit of the creditors whose rights accrue in reliance thereon, but, if that relation on the part of any stockholder is lawfully ended before the rights of any given creditor arise, and he deals with, the new concern and its present stockholders with full knowledge of those conditions, then he must take the situation as he finds it and will not be permitted to exact, of those who in good faith have withdrawn at a time when he had no claim, the performance of an obligation which, by mutual consent of every one having an interest in the matter, to his knowledge, had ended before his rights accrued. Mathis v. Pridham, 1 Tex. Civ. App. 58, 20 S. W. 1024; Cole v. Adams, 19 Tex. Civ. App. 507, 49 S. W. 1052; First National Bank v. Gustin, 42 Minn. 327, 44 N. W. 198, 6 L. R. A. 676, 18 Am. St. Rep. 510; Handley v. Stutz, 139 U. S. 417, 11 S. Ct. 530, 35 L. Ed. 227.

If the tubes of the Cupples Company were transferred to or converted by the United Tire Stores, Inc., or used by it after the withdrawal of the Stewarts, this did not render them liable therefor; neither did it render Tenison liable on his stock subscription, for the obligation of a stockholder to pay a subscription to satisfy corporate debts means contractual undertakings and not torts. See Schrader v. Manufacturers, 133 U. S. 67, 10 S. Ct. 238, 33 L. Ed. 564. In any event, we think the record shows very convincingly that Tenison had. paid his subscription to the stock by transferring to the corporation merchandise and fixtures well worth the amount thereof, which was permissible under the laws of Texas. See section 6, art. 12, Constitution of Texas; article 1308, Revised Statutes of Texas, title 32, chapter 2.

Affirmed.


author: SWAN, Circuit Judge

text:
    AYER v. KEMPER et al.
    No. 217.
    Circuit Court of Appeals, Second Circuit.
    April 6, 1931.

      Archibald N. Jordan, of New York City, for appellant.
    Arthur M. Wickwire, of New York City, and Thomas H. Ray, of Boston, Mass., for appellee James C. Ayer.
    Merrill, Rogers, Gifford & Woody, of New York City (Charles L. Woody and Herbert P. Carter, both of New York City, of counsel), for appellee William T. Kemper.
    Before L. HAND, SWAN, and CHASE, Circuit Judges.
   SWAN, Circuit Judge

(after stating the facts as above).

The appellant contends that the court was not lacking jurisdiction to grant its motion, and this raises several questions upon which surprisingly little authority has been adduced. It is, of course, admitted that in general a court is without power to annul a judgment or decree after the expiration of the term at which it was entered, unless the proceeding seeking annulment was begun within the term. Delaware, L. & W. R. Co. v. Rellstab, 276 U. S. 1, 5, 48 S. Ct. 203, 72 L. Ed. 439; In re Metropolitan Trust Co., 218 U. S. 312, 320, 31 S. Ct. 18, 54 L. Ed. 1051; United States v. Mayer, 235 U. S. 55, 67, 35 S. Ct. 16, 59 L. Ed. 129. Under Rule 5 of the General Rules of the District Court “each term of court is extended for ninety days from the date of entry of the final judgment or decree.” The ninetieth day from-the decree of April 14, 1930, fell upon a Sunday, and the first dispute involves the effect to be accorded to that fact.

The decision of this court in Maresca v. United States, 277 F. 727, is cited as establishing that, when the last day of the term falls on Sunday, the term is not extended to the following day. That case involved the time within which a bill of exceptions in a criminal ease must be signed and filed. As was carefully pointed out in the opinion, the right to a bill of exceptions in a criminal case in the federal courts is statutory, and consequently the rule previously laid down in Siegelschiffer v. Penn. Mutual Life Ins. Co., 248 P. 226, 227 (C. C. A. 2), with respect to the construction of the statutory period provided for suing out an appeal or writ of error was deemed applicable. The- Maresca Case does not purport to lay down a broader doctrine. While the cases are not entirely uniform, there is ample authority for the view that, when the last day fixed by court rule for taking any proceeding falls on Sunday, performance on the following day is a sufficient compliance. See Austin, Nichols & Co., Inc., v. Gilman, 100 Conn. 81, 123 A. 32; Simkin v. Cole, 2 W. W. Harrington (32 Del.) 271, 122 A. 191; Neiswander v. Brickner, 116 Ohio St. 249; 156 N. E. 138; Feuchtwanger v. McCool, 29 N. J. Eq. 151; Cock v. Bunn, 6 Johns. (N. Y.) 326; Morris v. Barrett, 141 Eng. Rep. 768; Daniell's Chancery Pleading & Practice (6th Am. Ed.), p. * 354. That is the rule adopted in the Equity Rules of the Supreme Court (28 USCA § 723), Rule 80 providing: “When the time prescribed by these rules for doing any act expires on a Sunday or legal holiday, such time shall extend to and include the next succeeding day that is not a Sunday or legal holiday.”

Literally it may be said that “these rules” do not embrace Rule 5 of the District Court; but such a view seems to us too verbal. We believe that Rule 5 of the District Court, at least as applied to proceedings in equity, should be construed with reference to and in harmony with Equity Rule 80 (28 USCA § 723). Consequently, we think the appellant’s contention that the term included the ninety-first day is sound.

The question then arises whether enough was done upon July 14th to give the court jurisdiction to annul the decree thereafter. Several Supreme Court decisions contain expressions which imply that to carry over a motion to a subsequent term it must be “filed and entertained” during the judgment term. See eases eited and discussed in Payne v. Garth, 285 F. 301, 303-309 (C. C. A. 8). But certainly in actions at law it is enough if the motion be filed within the term, though not brought to the court’s attention until later. Kingman & Co. v. Western Manufacturing Co., 170 U. S. 675, 680, 18 S. Ct. 786, 42 L. Ed. 1192; Payne v. Garth, supra. In all reason it would seem that the rule should be the same in equity as at law; but in Graham v. Swayne, 109 F. 366 (C. C. A. 5), it was held, in reliance upon Equity Rule 88, the predecessor of the present Rule 69 (28 USCA § 723), that a motion to reopen an appealable decree must be called to the court’s attention and some action thereon be taken during the term. Whether we should follow that decision in the ease of a petition for a rehearing, for which Rule 69 provides, we need not now determine. The present motion is essentially a motion to intervene, for, unless the mover’s right to become a party is recognized, he has no standing to seek vacation of the decree. Cf. Sage v. Central R. Co., 93 U. S. 412, 418, 23 L. Ed. 933. We shall proceed, therefore, upon the assumption that Rule 69 does not apply, and that the filing of such a motion within the term and its subsequent entertainment by the court would be as effective in a suit in equity as it would in an action at law.

It is clear that serving notice on July 14 of the motion to be made on July 22d was neither the making nor the filing of a motion within the term. A notice of motion is but “a private paper in the hands of the party who gives it, and does not belong to the court until the motion is made.” Cheatham v. Howell, 6 Yerg. (Tenn.) 311, 313. See, also, Gunnells v. State Bank, 18 Ala. 676; Herrlich v. McDonald, 80 Cal. 472, 22 P. 299. But appellant did more than merely serve the notice on July 14th; the notice accompanied by an affidavit of service was left with the clerk of the court, who forthwith entered the motion in the motion book for July 22d, although he returned the notice with instructions to hand it up to the court when the motion was called. Under the practice prevailing in the Southern district of New York, appellant says it is not possible to file any motion papers, except a note of issue, until the argument of the motion. No note of issue was actually filed until July 18th, but the same result was accomplished on the 14th as though a note of issue had been filed on that date, namely, placing the motion upon the motion calendar. Hence, if filing a note of issue on July 14th would have been suffieient to give the court jurisdiction to consider the motion on the 22d, and we think it would, like effect should he given to the entry of the motion in the motion book. C'f. Gunnells v. State Bank, supra, apparently contra.

It will be observed that the motion asked no action by the court during the term at which the decree was entered. It neither requested nor contemplated any action until after the term had expired. Hence it may be argued that nothing was initiated during the judgment term to be carried over for action by the court during the subsequent term. Moreover, if it be .sufficient to file a motion returnable eight days after expiration of the judgment term, then why not one returnable eight weeks or eight months thereafter? Thus might a losing party find a ready means to extend the time within which a judgment or decree against him would become final and appealable. No federal authorities have been adduced which diseuss whether the motion must be returnable within the judgment term, nor disclose its precise form. A few state eases seem to sustain jurisdiction although the motion was returnable after the term. Flanery v. Kusha, 147 Minn. 156, 179 N. W. 902 ; Bowman v. Bowman, 47 Nev. 207, 217 P. 1102. To make the power of the court turn on the form of the motion seems highly artificial. A motion that eight days hence the court will be asked to annul its decree may well be given a double aspect, being construed as a motion presently initiated, when filed or noted in the motion book, with-a request that it be brought on for argument eight days hence. So construed, both of the objections above noted are met, for there is a present motion to' be carried over to the next term, and, if the mover has too long postponed the date for argument, the opposing party may call it up for earlier'action. We conclude, therefore, that enough was done on July 14th to give the court power to consider the motion after the term expired.

The notice of motion disclosed nothing as to appellant’s interest in the litigation; it asked annulment of the decree only upon the pleadings and prior proceedings in the suit. ' If the court were confined to papers filed within the judgment term, no basis whatever appeared for annulling the decree or allowing appellant, a complete stranger to the litigation, to intervene. However, if we are right in holding that the court had jurisdiction to consider the motion, we think it-also had jurisdiction to allow the motion papers to be, in effeet, amended after the term, and to consider the facts set forth in appellant’s petition, served on the attorneys of record on July 18th. Thus we reach finally the merits of the controversy involved in appellant’s motion.

In brief, its contention is that the decree of dismissal “with prejudice” bars all members of the class of similarly defrauded noteholders, and hence should not have been entered without giving to it notice and an opportunity to object. But, properly speaking, Ayer’s suit was not a class suit. There is not a single interest held by all the former noteholders, as, for example, when shareholders sue in the corporate right, or when several plaintiffs are cotenants or the like. See Smith v. Swormstedt, 16 How. 288, 302, 14 L. Ed. 942; Beatty v. Kurtz, 2 Pet. 566, 585, 7 L. Ed. 521; Supreme Tribe of Ben Hur v. Cauble, 255 U. S. 356, 363, 41 S. Ct. 338, 65 L. Ed. 673. It is true that the bill charged that the defendant was in a fiduciary relationship to each of the former noteholders and that he dealt with them without disclosing information which would have influenced their sales .to him; but a separate wrong'was .committed against each noteholder when the defendant dealt with him without disclosing the facts, and each transaction was in reality the basis for a separate suit, depending for its outcome upon how much was disclosed to the noteholder in question and any other circumstances which might affect his right. Nor is there any single fund in which all must share; on the contrary, the trust fund is separable, and Kemper must hold all that he made on resale of each note as constructive trustee for the defrauded holder of that note. The defrauded noteholders had no common fund. We may agree arguendo that Ayer might, if he chose, unite others similarly situated, but they became parties only upon intervention. Thus jurisdiction of the court would depend upon the amount of Ayer’s claim and could not be aided by adding to it the claims of others. Lion Bonding & Surety Co. v. Karatz, 262 U. S. 77, 85, 43 S. Ct. 480, 67 L. Ed. 871; Cohn v. Cities Service Co., 45 F.(2d) 687 (C. C. A. 2). Ayer’s suit was a “spurious class suit” (1 Street, Fed. Eq. Prac. § 548), and the decree does not bind those who are not parties (1 Street, § 552). Indeed, even in a class suit, continuance of the litigation seems to remain in the hands of the parties plaintiff. Hirshfield v. Fitzgerald, 157 N. Y. 166, 51 N. E. 997, 46 L. R. A. 839; Piedmont, etc., Co. v. Maury, 75 Va. 508; Bernheim v. Wallace, 186 Ky. 459, 217 S. W. 916, 8 A. L. R. 950. But however that may be, in a suit of the kind now under consideration it is clear that the decree of dismissal will not prejudice any rights which appellant may have. Wabash R. Co. v. Adelbert College, 208 U. S. 38, 28 S. Ct. 182, 52 L. Ed. 379; Compton v. Jesup, 68 F. 263 (C. C. A. 6).

Accordingly, appellant’s motion was properly denied, and the order is affirmed.

       See, also, the dictum in Cambuston v. United States, 95 U. S. 285, 288, 24 L. Ed. 448, where it is said, with a reference to the predecessor of Rule 69, that in suits-in* équity the practice is even more strict than at law. And in Giant Powder Co. v. Cal. Vigorit Powder Co., 5 F. 197, 201 (C. C. Cal.), Mr. Justice Field, who had entered the decree on circuit, said that the procedure to obtain a rehearing was to file a petition with the Circuit Court and procure an order on the opposite party to show cause.


text:
    LONG v. SILVER LINE, Limited.
    No. 259.
    Circuit Court of Appeals, Second Circuit.
    April 6, 1931.
    MANTON, Circuit Judge, dissenting.
    Charles J. O’Connor, of Brooklyn, N. Y. (Richard F. Lenahan and James M. Gorman, both of New York City, of counsel), for appellant.
    Lord, Day & Lord, of New York City (Thaddeus G. Cowell and Thomas Daly, both of New York City, of counsel), for appellee.
    Before MANTON, SWAN, and AUGUSTUS N. HAND, Circuit Judges.
   SWAN, Circuit Judge.

Long was employed by Morse Dry Dock & Repair Company in the capacity of “passer boy” to a riveting gang working on appellee's ship. His injuries resulted from a fall into an open tank while he was on the between-decks on March 1, 1928. His libel charged the vessel owner with negligence in having left open the tank and in having failed to light the between-decks. Other charges of negligence also were alleged, but as such matters had nothing to do with Long’s fall they may be ignored.

At the time of the accident, the vessel was lying at the Morse Company’s dock, but she was not out of commission and her officers and crew were on board. The repairs in question were to be made to the four deep tanks in hatch No. 3. They were of the usual construction. Each tank has an opening onto the between-deeks which can be closed by an iron cover that rests upon an eleven-inch combing surrounding the opening. The four openings are arranged in pairs near the center of hatch No. 3, and the combing surrounding them results in forming a fore and aft passageway along the floor of the between-decks between the openings to the port tanks and those to the starboard tanks, and asimilar passageway athwartships between the fore and after tank tops. The width, of the fore and aft passageway was four feet and that of the passageway leading athwartships forty inches. . Forward and aft of the tanks and also on their outboards sides there was considerable space on the between-deeks. In preparation for the repairs, the ship’s crew had removed the cover of each tank, placed it sidewise upon the combing, and lashed it down. This left each tank top uncovered for a space of about four feet fore and aft adjacent to the athwartships passageway. Tho covers had been in this position for a number • of days in order to give access to the tanks and to ventilate them (as was necessary) before work was done in them. A representative ó£ the Morse Company had seen the covers so arranged when he • inspected the tanks to determine what repairs were required before making the contract to perform them.

There were no lighting fixtures in the between-decks. Two days before the accident, the Morse Company installed a portable lighting system for use in the tanks and between-decks. The electric current was conducted by a feed wire from the dock to a switch box on deck into which could be plugged wires carrying portable lights. On the day of the accident, when the day shift of workmen left at 4:30 p. m., three such lights were in use. Each was a 200-watt bulb suspended below a reflector which east the light downward. Two of them were hanging in the two port tanks and the third was suspended to the strong back of the hatch to give light in the between-decks. But when the night shift, ■ of which Long was a member, came on board at 4:50 p. m., this third light was hanging -in No. 3 tank; henee the between-decks was in darkness except for such natural light as came through the partly opened hatch. Corris, libelant’s foreman, says that when he entered the between-decks “we were just about able to see.” But when the aeeident happened at 6:40 p. m. ,the natural light in the between-decks was negligible. A forge had . been set up in the passageway athwartships, , but this gave no light except in its immediate ; vicinity.

When Long came on board he proceeded from the main deek down to the between-decks and thence into tank No. 2. He saw Corris go into tank No. 1. Thereafter Long made several trips back to' the dock, and on one of these occasions, in company with Corns, hunted up the Morse Company’s electrician to ask for a light to hang in the between-decks. The electrician promised to come in a short time. Long then went back into tank No. 2 and was told by a fellow workman to go on deek and get a bloek of wood for use in the work. He proceeded to the between-decks, found a bloek of wood, and while returning with it fell into tank No. 4, the after tank on the starboard side. He has no recollection of how1 he came to fall. The only eyewitnesses say he was walking over the tankstops and stepped into the opening.

The fault of the ship, if any, was in failing to supply a light in the between-decks. There was no negligence in leaving No. .4 tank open, for this was necessary for entrance to the tank- and for ventilation in preparation for the work. The ship had no control over •the order of the work, and for all appellee knew tank No. 4 would he the first tank worked upon. It is well settled that there is no negligence in leaving open a cargo hatch if the ship is awaiting cargo. Smith v. United States (D. C.) 18 F.(2d) 110, affirmed 18 F.(2d) 111 (C. C. A. 2); The Saratoga, 94 F. 221 (C. C. A. 2); The Kongosan Maru, 292 F. 801 (C. C. A. 9); The Louisiana, 74 F. 748 (C. C. A. 5). The situation here is analogous, where the ship was awaiting repairs to all four tanks and the order in which they were to be made was controlled by the repairman.

With respect to lighting the between-decks, it should be noted that light was available if the light in No. 3 tank had been utilized. No work was being- done in that tank on the date in question, and that light could have been restored to the place where it was at 4:30 when the day shift left. How it came to be moved from there and why it was not replaced when Corris desired more light in the between-decks does not in aüy way appear. The situation is identical with that disclosed in The Hindustan (D. C.) 37 F.(2d) 932, affirmed by us in 44 F.(2d) 1015, except that there the ship supplied the lights which the contractor’s workmen failed to use, while here the contractor supplied them. That is not a valid ground-for distinction, unless we are prepared to say that the shipowner must stand by and see to it that the contractor’s workmen use the means ■ supplied by the contractor for their safety, though it need not do so when the means are 'supplied by the ship. : A majority of the court doe's not think the law imposes so extreme a duty. Although the Morse Company’s contract said nothing as to who was to supply the lighting, it had voluntarily undertaken to do so. No one asked, or expected, the ship to furnish the lights. See The Omsk, 266 F. 200, 201 (C. C. A. 4). Under the circumstances the utmost duty that the appellee could have owed Long was to warn him that it would be dangerous to walk about the between-decks in the dark. That knowledge Long already had. He had asked the Morse Company’s electrician for more light. He knew that two of the tank tops were open, and had no reason to assume the others were not in the same state. He could safely have gone to the main deek or the dock for the block of wood. There is no duty to keep a dark way safe if a light way is provided. Hardie v. N. Y. Harbor Dry Dock Corp., 9 F.(2d) 545 (C. C. A. 2). Although work had not yet begun upon ■ tank No. 4, we think the District Court correctly found that all four tanks-and the between-decks of hatch No. 3 were under the control of the Morse Company, and correctly held that the appellee was free from negligence. The ease is governed by the principles announced in such decisions as The Louisiana, supra; The Sara-toga, supra; The Jersey City, 46 F. 134 (D. C. S. D. N. Y.); The Clan Graham, 163 F. 961 (D. C. Or.); The Auchenarden, 100 F. 895 (D. C. E. D. N. Y.), and Willis v. Lykes Bros. S. S. Co., 23 F.(2d) 488 (C. C. A. 5), rather than by the eases relied upon by the appellant, all of which we regard as clearly distinguishable.

Decree affirmed.

MANTON, Circuit Judge, dissents.


author: SIBLEY, Circuit Judge.

text:
    JACOBS et al. v. FIRST NAT. BANK OF SHREVEPORT et al.
    No. 6016.
    Circuit Court of Appeals, Fifth Circuit.
    April 1, 1931.
    Rehearing Denied April 24, 1931.
    See, also, 35 F.(2d) 227.
    Albert P. Garland and Samuel F. Hyman, both of Shreveport, La., and Charles E. Dunbar, Jr., of New Orleans, La. (Samuel F. Hyman and Albert P. Garland, both of Shreveport, La., and Spencer Gidiere, Phelps & Dunbar, of New Orleans, La., on the brief), for appellants.
    Elias Goldstein and H. C. Walker, Jr., both of Shreveport, La. (Blanchard, Goldstein, Walker & O’Quin, of Shreveport, La., on the brief), for appellees.
    Before FOSTER, SIBLEY, and HUTCHESON, Circuit Judges.
   SIBLEY, Circuit Judge.

The appellant Mrs. Lotta F. Jacobs, joined by another as intervener, brought a bill as • minority stockholder in Florsheim Bros. Dry Goods Company, Limited, to recover judgment in behalf of the corporation against appellees First National Bank of Shreveport and six individuals, to wit, Andrew Querbes, Dave Mendelsohn, W. L. Young, O. L. Biedenham, J. H. Jordan, and Seymour L. Florsheim, because of misapplication of the funds of the corporation and damage done its business and good will by them. The decree was for the defendants, and the question here is the propriety of the decree under the evidence. The bill averred that the bank, its president, Querbes, and three others of its officers, Young, Biedenham, and Jordan, conspired in 1925 with Mendelsohn to get control of the corporation for the purpose of paying the bank a large pretended debt, and of then securing the property of the corporation for their own use, and that by threat of a receivership for the corporation in January, 1926, they compelled Mrs. Minnie Florsheim and other stockholders to transfer to said bank of-' fleers a majority of the stock and to substitute them and Mendelsohn as directors in lieu of the duly elected directors of the eompany, and thus to put control securely in them; that they had unlawfully kept charge of the corporation until December, 1928, when control had been yielded to Querbes and the bank, who had discharged the salesmen, stopped purchases, and disturbed the business as a going business to its damage in the sum of $225,000, and had diverted to the bank $133,000 in wrongful payment of the fictitious debt, with interest, and had wrongfully paid $1,100 to the attorneys of the bank, and $18,500 as salary to Mendelsohn for services as pretended president of the corporation since January, 1926. The only prayer was for a money judgment. The answer put all important allegations in issue.

The evidence is voluminous, and only its general results can be stated. The bank in January, 1926, held the notes of the corporation for $110,000 principal. The consideration of the notes was not shown. It was proven that in 1912 and 1913 the bank had paid numerous checks amounting to $233,155, drawn in the name of the corporation against its deposit account by Edgar Florsheim, payable to his own order, or to cash, or to a certain firm known to the bank to be brokers of cotton futures. Edgar Florsheim was then in charge of the finances of the company, and had full authority to draw checks. It was not proven, but only suggested, that these cheeks were really misapplications of the corporate funds, nor was any connection shown between them and the notes held by the bank. The bank officers testified that they had paid the cheeks in good faith and without question. So far as appears, the payment was never challenged by the corporation, and, if the bank was liable for having assisted in a misapplication of funds in 1912 and 1913, the matter has long since been barred by limitation, if not in fact ratified. There is no evidence that the notes for $110,000 were not good and valid debts against the corporation in January, 1926. At that date the bank, being dissatisfied at recent losses of the corporation and at very heavy overdrafts on it by its stockholders, members of the Florsheim family, demanded payment of its notes, and had its attorneys prepare papers to secure a statutory receivership against the corporation. There is no proof that any other object was in view than to collect the bank’s debt.

To avoid the receivership, Mrs. Minnie Florsheim, who held 252 shares out of a total of 300 shares of the stock, joined with her sons, Seymour, Louis, and Bernard Florsheim, who owned 14 shares, in an agreement with, the bank to assign 151 shares,, being a majority, in trust to Young, a director of the bank, and a share each to Jordan and Biedenham, two other directors, and a share to Mendelsohn, in order to qualify them to become directors of the corporation along with Seymour Florsheim; they to conduct the business of the corporation with a view to liquidating its debts and to continue it as a going concern, if it could be so operated without additional capital, or, if additional capital could be secured, the operation not to continue longer than a year unless agreed to by the bank and Mrs. Florsheim. The right to apply for a receivership was retained if the bank’s attorneys should at any time advise it to be necessary to the bank’s interest as a creditor, and the bank’s attorneys were to be paid their charges by the corporation. Mrs. Minnie Florsheim was to- be retained as vice president at a salary of $5,000, though inactive. Mendelsohn was a retired merchant from another city induced by the bank to come and take charge of the business as president and manager. He entertained at first a purpose of acquiring an interest in the business, but there is no proof of any corrupt conspiracy improperly to obtain the corporate property. The new directors were elected in stockholders’ meeting regularly called. The directors then elected the president and vice president as agreed, and fixed Mendelsohn's salary as president at $6,000 per year, giving him general supervision of the business, including the right to discharge and employ all employees. The directors had no salary. At the end of the year the agreement was extended for another year, and the same officers re-elected; Mrs. Florsheim’s salary as vice president being reduced to $3,000.

During 1927 Mrs. Florsheim died, and on October 15,1927, the complainant and the intervener were admitted with others as heirs in the succession of her estate. This apparently is the source of their ownership of the stock in the corporation. It does not appear what occurred in January, 1928, at the second expiration of the agreement, but the management seems to have continued as before. In December, 1928, Samuel Hyman, the husband of one of Mrs. Florsheim’s daughters and owner of 10 shares of stock, demanded that the stock held by Young as trustee, and by Biedenharn, Jordan, and Mendelsohn, be returned to the heirs of Mrs. Florsheim that the corporate control might be changed. Up tó this time the business had been prosperously managed, all the corporation’s mercantile debts were paid, and its credit and good will were well established. The bank, however, had been paid nothing. A dispute, resulted from Hyman’s demand, as a consequence of which, while Young, Mendelsohn, Jordan, and Biedenharn professed a willingness to surrender their stock to Hyman upon a proper showing of authority from all the heirs to receive it, the bank again prepared to obtain a receivership against the corporation. Seymour, Bernard, and Louis Morsheim disavowed Hyman’s demand, and represented that the stockholders wished to continue the former management until the business could be liquidated sufficiently to pay the bank. A written agreement to this effect to be signed by all the stockholders was drawn up and sent out for signature. By it Querbes, the president of the bank, was to exercise control during the liquidation, and the bank was to have the right to a receiver if the bank decided it to be desirable. Querbes did have Mendelsohn, as president, to discharge the salesmen, discontinue purchases, sell sample cases, and announce a probable liquidation, and otherwise to reduce expenses, while Bernard Florsheim undertook to force collections. The agreement, however, though efforts to perfect it were active as late as January 30, 1929, was never signed up: Nevertheless the policy of liquidation was continued, and by March 14, 1929, the date of filing this bill, the bank and all other creditors had been paid off. The directors met on March 16, and ratified all that had been done. Mendelsohn resigned as president and Young as secretary-treasurer, and Seymour Florsheim and Bernard Florsheim were elected in their places. A meeting of stockholders was called to elect directors on April 6, 1929', and Mendelsohn, Young, Biedenharn, and Jordan resigned as such.

Until December, 1928, we see no reason to doubt that every stockholder knew of, and acquiesced in, what was done, or that what was done was actually in line with the corporate interests. The corporation has no cause of complaint thereabout against its managing officers. The salary of Mendelsohn as president was regularly fixed, and was reasonable, being $1,500 less than was paid in 1925 and $4,000 less than paid in 1924. There is no case for recovery on that account.

The conduct after December, 1928, of Querbes and the bank, acquiesced in and abetted by the managing officers of the corporation, was high-handed and unjustifiable, apart from the expected consent of the stockholders, which was never given. But a receivership, the lawful remedy, would have been more drastic, and proceedings under it would have been along the same line but more expensive and harmful to the business as a going concern, and there was no resulting damage as it actually turned out, for, while no doubt the business of 1929 was curtailed, the testimony is that that was a bad year for merchandise jobbers”, and the general business collapse following the stock market crash in the fall of 1929 we may judicially notice. The smaller the credit business done in 1929, the better the final results. This corporation, when its affairs were turned over to the stockholders April 1, 1929, had a new clean stock of merchandise, owed no debts worth mentioning, had comparatively little uncollected accounts, a surplus of some $5,000 above its capital stock at par, and a good credit. No damage has been established as done by its partial liquidation. The payment of the bank’s .debt, with interest, was, of course, not a thing the corporation can complain of; it being a just obligation. The interest accruing on it also was a legal demand against the corporation. That merchandise creditors were paid first is no matter for complaint, nor that by forcing collection earlier than was finally done is it certain that interest would have been saved. Presumably the uncollected accounts themselves drew interest after maturity. Forcing collection is not always a good business policy, and it is not to be assumed that the capital borrowed from the bank was not needed while the business was actively going on. The payments to the bank’s attorneys when the receivership proceedings were abandoned, $1,000 in 1926 and $100 in 1929, were agreed to by the corporation, and actually fixed by conference with Mr. Hyman. They were just one-tenth the amount the corporation would have had to pay if the bank’s attorneys had continued to collect by law the bank’s notes of $110,000, for the notes promised 10 per cent, as attorneys’ fees if thus collected.

We think the decree for the defendants was fully warranted, and it is affirmed.