author: BYEB-S, District Judge.

text:
    BEE LINE TRANSP. CO. v. CONNECTICUT FIRE INS. CO. OF HARTFORD.
    No. 14110.
    District Court, E. D. New York.
    May 8, 1934.
    Single, Atkins & Tyler, of New York City (Christopher E. Heckman, of New York City, of counsel), for libelant.
    Bigham, Englar, Jones & Houston, of New York City (George S. Brengle, of New York City, of counsel), for respondent.
   BYEB-S, District Judge.

Hearing on exceptions to answer which pleads no defense, and puts libelant to its formal proof.

The libelant seeks to recover from the respondent the amount alleged, to be due under a marine insurance policy because of the following circumstances:

The libelant’s tug Wyoming in November of 1927 was towing four vessels containing coal, including its own numbered barges 891 and 896; these two sank while the tow was en route to Woods Hole, from New London, when in the vicinity of Point Judith.

The circumstances! appear in the ease of The Wyoming (D. C.) 58 F.(2d) 789. The barges’ seams opened, causing them to leak from pounding in heavy seas, with the result stated; the court found that the tug was at fault for proceeding with her voyage under the circumstances disclosed, and consequently she was held liable for the loss of the cargo.

The question for decision is whether, under the terms of the insurance policy issued by the respondent to the owner of the tug, recovery can be had for the liability so imposed.

The policy contains collision and tower’s liability clauses as follows:

“And it is further agreed that if the vessel hereby insured, or her tow, shall come into collision with any other vessel, craft or structure, floating or otherwise, or shall cause such other vessel or craft to strand and/or strike the ground or any substance or thing (other than water); and the assured shall in consequence thereof become liable to pay, and shall pay by way of damages, to any other person or persons any sum or* sums not exceeding in respect of any one such collision the value of the Vessel hereby insured, we, the assurers, will pay the assured such proportion of such, sum or sums so paid as our subscriptions hereto bear to the value of the vessel hereby insured. And in eases where the liability of the vessel has been contested, with the consent, in writing, of a majority of the underwriters on the hull and machinery (in amount), we will also pay a like proportion of the costs thereby incurred or paid; but when both vessels are to blame, then unless the liability of the owners of one or both of such vessels becomes limited by law, claims under the Collision Clause shall be settled on the principle of Cross Liabilities, as if the owners of each vessel had been compelled to pay to the owners of the other of such vessels such one-half or other proportion of the latter’s damages as may have been properly allowed in ascertaining the balance or sum payable by or to the assured in consequence of such collision; and it is fwrther agreed that this policy shall also extend to and cover the said ‘vessel’s legal liability for any collision and/or grounding and/or stranding and/or loss or damage which may occur to any vessel or vessels or craft while in tow of said vessel, subject to all the terms and conditions of this clause. It is hereby further agreed that the principles involved in this clause shall apply to the case where two or more of the vessels and/or structures involved are the property in part or in whole of the same owners, all questions of responsibility and amount of liability as between such ships or vessels being left to the decision of a single arbitrator, if the parties can agree upon a single arbitrator, or failing such agreement, to the decision of arbitrators, one to be appointed by the managing owners of such vessels, and one to be appointed by the. majority in amount of underwriters interested in each vessel; the two arbitrators chosen to choose a third arbitrator before entering upon the reference, and the decision of such single or of any two of such three arbitrators, appointed as above, to be final and binding.

“Provided always that this clause shall in no ease extend to any sum which the assured may become liable to pay, or shall pay, for removal of obstructions under statutory powers, or for loss of life or personal injury.” (Italics added for ready identification.)

Legal liability has been established as against the Wyoming, and the question is whether this policy covers it.

If the policy had provided that it was to “extend to and cover the said vessel’s legal liability” without more, there could be no doubt that the respondent would be held; but that is not the form of the engagement. The quoted expression is followed by limitations upon the nature of the legal liability for which responsibility is assumed, namely, collision, grounding, stranding, and loss or damage to any vessel or craft while in tow of the vessel insured.

Nothing is said or suggested about legal liability for cargo, or to any other person.

Then follow the words “subject to all the terms and conditions of this clause.” Just what this expression means; for present purposes, may not be entirely clear, but “this clause” can refer to nothing which precedes the semicolon which divides the provisions touching the liability of both vessels for collision damage, from that part of the contract which deals with the legal liability of the Wyoming.

To relate back that liability to earlier-clauses in the paragraph having to do with the responsibility of the Wyoming to answer for collision on' her own part or that of her tow to any other person [i. e., a cargo owner, Marine Transit Corporation v. Northwestern Fire & M. Ins. Co. (C. C. A.) 67 F.(2d) 544] would be to construe the word “clause” to mean “paragraph.” No authority is cited for so disregarding the choice of words employed by the parties to this contract.

Even if this were to be done, it is open toi grave doubt that so important an undertaking would be found to reside in such an expression as “subject to all the terms,” etc., which ordinarily are words of restriction rather than expansion.

If the parties had intended that the obligation to insure against legal liability of the tower was to be other than general in its ■reach, and apparently they did, and they still intended it to cover loss of cargo, i. e. damages paid to any other person, it was open to them to contract upon that basis. This decision is based upon their failure to do so.

If the foregoing is correct, it follows that the exceptions to the answer must be overruled.

Settle order.


source: Caselaw Access Project

author: NIELDS, District Judge.

license: Public Domain

text:
    FRETWELL v. GILLETTE SAFETY RAZOR CO.
    No. 1009.
    District Court, D. Delaware.
    May 10, 1934.
    William G. Mahaffy, of Wilmington, Del., Herbert J. Jacobi, of Washington, D. C., and Israel H. Perskin, of Brooklyn, N. Y., for plaintiff.
    E. Ennalls Berl (of Ward & Gray), of Wilmington, Del., and George P. Dike (of Macleod, Calver, Copeland & Dike), of Boston, Mass., for defendant.
   NIELDS, District Judge.

This is the usual bill in equity charging Gillette Safety Razor Company with infringement of United States letters patent No. 1,467,930, granted to Julian W. Fret-well, the plaintiff, September 11, 1923. The invention is stated by the patentee to be for “new and useful Improvements in Locked Razors.” The defense is noninfringement.

What did Fretwell contribute to the art? 'He testified to observing that inmates of jails and asylums were only shaved weekly and were not permitted the free use of razors. He conceived the idea of taking a Gillette type safety razor and fitting it with means controlled by a key for locking the blade into shaving or nonshaving position. To provide for the nonshaving position, a V-shaped groove was employed just hack of the rounded edges of the guard teeth into which the cutting edge of the blade was disposed. When in that position the razor blade could not be used either for shaving or for any other purpose. Should anjr one attempt to remove the blade from the holder when in locked position by inserting a pointed instrument in the groove below the cutting edges or picking at it, he would, to use the language of the patentee, “break the blade as literally to pieces as the manufacturer desired to make it.” Plaintiff also had in mind a domestic use for his invention. If the master of the house did not desire a servant, child, or other person to use the razor, it could be locked into nonshaving position and the key removed.

Having conceived the locked razor, plaintiff also provided for a special blade for use in a safety razor. It is with this blade that we are concerned.

In his specification, Fretwell says: “My improvements are designed more particularly for embodiment in a certain well known type of safety razor.” Fretwell here refers to the well-known Gillette type razor with the three-hole transversely flexible Made. As objects of his invention he states:

“One object of my said invention is the provision of a locked razor — i. e., a razor so constructed that its blade is locked against removal and against surreptitious use by servants. * * *

“Another object of the invention is the provision in a razor characterized as set forth, of a flexible blade provided with a multiplicity of closely arranged apertures adjacent to each of its edges so that in the event of an insane person seeking to pick at the blade with a view to removing the same, the blade will be broken into fragments and rendered unfit for use.”

“Manifestly a razor characterized as indicated may be placed in tbe hands of an insane man for legitimate use,” says tbe patentee, “without liability of the patient being able to remove the blade and use tbe same in a suicidal effort. Also, a razor of the kind stated may be left in bis room by the owner without possibility of any person using the razor, the locking means being preferably controlled by a key to be carried by the owner, and manipulation of such key being absolutely necessary in order to dispose the blade for use.”

The patent contains four claims. The first three are directed to a locked razor— the combination of holder and blade. Claim 4, the only one in suit, is for a blade only. It reads:

“4. As a new article of manufacture, a transversely flexible razor blade having a sharpened edge and also having adjacent to said edge a multiplicity of minute, closely arranged apertures.”

For over thirty years defendant has manufactured the Gillette razor and blade in Boston. It has distributing agencies throughout the world. The razor consists of a holder and a transversely flexible blade. Until 1921 the standard Gillette blade had three holes of approximately the same size spaced along the longitudinal axis of the blade. The center hole engaged a threaded stud which secured the clamping holder in place. The two end holes each engaged positioning studs to properly position the blade for shaving. Between 1921 and 193(1 two new models of Gillette razors were manufactured. Each of these used the standard thrcc-hole blade. Since 1930 the new Gillette model has been manufactured. This razor lias a central longitudinal bar for positioning the blade and calls for a long slot in the blade. In that year there was a merger between defendant and Auto-Strop Safety Razor Company, the manufacturer of a safety razor called “Proba k.” That razor had positioning means of various sizes and shapes. The established practice of defendant was that every blade put out by it should fit very razor put out. After the merger, defendant modified the slots and other cut-out portions of its blades to fit not only all preceding Gillette razors but also all preceding Probak razors. Some slots or cut-out portions were also added to provide a blade to fit a razor which defendant expeeted to manufacture, and the added slots would he necessary to engage the new positioning means.

Plaintiff contends that all of defendant’s blades other than the original three-hole Gillette blade upon which plaintiff’s improvement is based are infringements of bis patent.

Plaintiff seeks a broad construction of his claim because he realizes such a construction is essential to his case. He invokes the language of the specification to justify that construction. The terms of the claim, however, measure a patentee’s right to relief. The specification may be referred to to limit a claim. It can never he available to expand it. When a claim is explicit, tbe courts cannot alter or enlarge it. Tbe patentee is bound by it and cannot claim anything beyond it.

The claim in suit calls for “a multiplicity of minute, closely arranged apertures a. « adjacent to” the sharpened edges of the blade. It is expressed in plain and unambiguous language. It contains four definitely limiting words or expressions: (a) “A multiplicity”; (b) “minute”; (c) “closely arranged”; and (d) “adjacent” the cutting edge. Plaintiff’s contention that the claim should be given a broad interpretation and liberally construed is based upon a single word in the specification. Referring to figure 4, the patentee says: “Figure 4 is a plan view of a blade of flexible character, weakened in accordance with my invention for the purpose indicated.”

Upon the word “weakened” in the specification plaintiff builds his case. He argues that Fretwell contributed to the art a blade adaptable for use in a Gillette razor having a new function. The new function which Fretwell claims he contributed was super-flexibility in the blade. He contends that such a superflcxible blade possessed an additional feature of safety because it would readily break under certain circumstances. Plaintiff entirely ignores the statement in the specification that the weakening of the blade was “for the purpose indicated.” That purpose was not to increase flexibility but to increase fragility. Nowhere in the specification or claim does the patentee mention or describe a superflexible blade. There is no suggestion that the multiplicity of holes were to increase flexibility. Everything about superflexibility introduced into this ease is foreign to the invention. What Fretwell was seeking was a blade that was readily breakable at the edges of the blade when picked at. To accomplish his purpose, he put in his blade a number of small holes adjacent ta the cutting edge so that the blade' would* break if picked at or attempted to be removed from the holder. If the patentee intended to include superflexibility as a function of his new blade, he failed to describe it in his specification or to include it in his claim.

That Fretwell did not contemplate super-flexibility or a weakened blade is confirmed by the file history. Claim 3 of the application as originally filed called for a blade “provided adjacent to one edge with a multiplicity of small apertures, whereby the blade is weakened.” This claim was rejected. The rejection was acquiesced in and the claim canceled without comment by the applicant. While the rejection was on the ground of aggregation, the idea of a weakened blade was not pressed, and it did not again appear in any suggested claim. Plaintiff having specified the number, size, relationship, and function of elements of his claim, he cannot now be permitted to depart from the plain meaning of the language used and claim for such language a broad construction.

There is another complete answer to plaintiff’s contention that the claim should be liberally construed. The patent in suit is a paper patent. Though it issued in 1923> the blade has never been manufactured or sold. It has made no impression in the art. Meanwhile defendant has manufactured and sold many millions of the alleged infringing blades. Under these circumstances, the claim is not entitled to a broad construction. Elvin Mechnical Stoker Co. v. Locomotive Stoker Co. (C. C. A. 3) 288 F. 309, 311; Deering v. Winona Harvester Works, 155 U. S. 286, 295, 15 S. Ct. 118, 39 L. Ed. 153. The doctrine of equivalents has no application.

Does defendant infringe? This question can be better answered by illustrating the different blades.

The purpose and function of the apertures of the claim is to produce a blade readily breakable into fragments in the event of a person picking at the edges of the blade in an attempt to remove it from the holder. Assuming that the cut-out portions of defendant’s blades may be considered “apertures,” they are not the apertures of the claim of the patent. The cut-out portions of defendant’s blades, with the exception of a central opening, which serves no useful purpose, are solely positioning means of various sizes and shapes inserted to enable the blades to fit all Gillette and Probak razors that had been or were expected to be manufactured. The cut-out portions of defendant’s blades are not “adjacent to” the sharpened edges of the blade, but are along the longitudinal axis of the blade and extend equally to each side thereof. While cutting out a portion of metal from a blade necessarily weakens it in some respects, the cut-out portions of defendant’s blade do not weaken and are not for the purpose of weakening defendant’s blades so as to cause them to break into fragments as is the intent and function of the minute apertures of the blade of the claim of the patent. The cut-out comers of defendant’s blades are to lessen and not to enhance blade breakage. It is obvious that none of the cut-out portions of defendant’s blades perform the function or achieve the results of the two rows of minute holes in the blade of the claim adjacent each cutting edge, nor do the cut-out portions allow defendant’s blade to be flexed beyond a normal amount or into a groove in the razor holder.

Again, “a multiplicity of minute, closely arranged apertures,” an important element of the claim, are not found in defendant’s blades. One of tlie objects of the patentee was to produce a weakened, blade readily breakable along the cutting edge. Such breakage as there has been in defendant’s blades has always been considered prejudicial, and defendant has spent much time and effort to overcome blade breakage.

The plaintiff took the standard three-hole Gillette blade and placed therein a double row of small holes adjacent the cutting edges for the purpose of making it fragile and breakable along the cutting edges should an attempt be made to remove the blade from the holder when in locked position. The defendant, on the other hand, changed the slots or cut-out portions of its three-hole blade so that the blade would be adapted to lit the different models of holders with different positioning means. At all times defendant was seeking means and methods of manufacture to prevent breakage, not enhance it.

Defendant’s blades do not infringe.

It is unnecessary to refer to the prior art. It is sufficient to state that, if claim 4 of the Fretwell patent were construed broadly enough to cover defendant’s blades, it would be invalid in view of the prior art.

This opinion contains a statement of the essential facts and of the law applicable thereto in conformity with Equity Rule 70% (28 USCA § 723).

The bill of complaint must be dismissed.


author: PATTERSON, District Judge.

text:
    CHILDS v. COUNTY TRUST CO. OF NEW YORK.
    District Court, S. D. New York.
    Jan. 16, 1933.
    Zalkin & Cohen, of New York City, for plaintiff.
    Daniel J. Mooney, of New York City (Saul S. Myers and Selden Bacon, both of New York City, of counsel), for defendant.
   PATTERSON, District Judge.

Suit in equity was brought By the trustee in bankruptcy of Singer Furniture Corporation to recover tbe sum of $15,000’ from the defendant bank. By consent of the parties tbe ease was sent to a special master to hear and report. The special master has reported in favor of the bank recommending that the suit be dismissed without costs, and the ease is here on exceptions filed by the trustee.

The bankrupt was a New York corporation engaged in business as a retail furniture dealer. One Kritzer, secretary of the company, managed its affairs. His wife was also an officer and director. The stock was owned entirely by Kritzer, bis wife, and his father-in-law. On August 7, 1928, the bankrupt was indebted to the bank upon two notes, one for $7,500 due September 7, 19E8, and tbe other for a like amount due October 5, 1928. Both notes bore the indorsements of Kritzer and bis wife. On August 7, 1928, Kritzer stated to tbe bank that as tbe business was not making money it had been decided to liquidate it. On tbe same day, in satisfaction of tbe unmatured debt, he paid the bank $5,-000 by the bankrupt’s check upon its account with the bank and executed four new notes, each for $2,500 and due on August 20, August 31, September 10, and September 24. The new notes were made by tbe bankrupt and were indorsed by Kritzer and wife. As they fell due they were paid by the bank’s debiting them against tbe bankrupt’s account. These are the payments complained of by the trustee.

There is no doubt that on August 7th and continuously thereafter the bankrupt was insolvent, both in the sense that its liabilities exceeded its assets and in the sense that it was unable to meet its obligations as they matured. Nor is there the least doubt that Kritzer was aware of the insolvency. For many months the business bad been carried on at a loss. In-the year ending May 31, 1928, there bad been a loss of some $40,000, which reduced tbe then net worth according to the books down to $11,000’. A further loss of $3,500 had been suffered for tbe month of June. On August 6th, tbe day before the $5,000 payment, the bankrupt sold for $600 such store fixtures as it did not _ abandon. These fixtures had been carried on the books at $20,000. By this transaction there was a deficit on the bankrupt’s own books of $12,'-000 ; tbe real deficit was larger. At tbe same time arrangements were made for the bankrupt to vacate the store by September 22, 1928, and for another concern to move in. Two weeks later there was an auction sale at which practically all the merchandise was sold, realizing about $11,000’. At about the same time the bankrupt sold accounts receivable totaling $10,000 for $6,900’. It is plain that the insolvency that existed on August 7th became progressively worse until September 26th, when an involuntary petition in bankruptcy was filed. At that time the bankrupt had assets of $20,000 against liabilities of $60,000.

The bankrupt bad no bank account other than that with the defendant. In this account the daily balance during August and September ranged for the most part from $4,000' to $17,000. On August 6th it was $10,534.24. At bankruptcy it was $10,036.35.

Suit was brought in June, 1929. The plaintiff’s claim -to recover the $15,000 is based on two charges. The first is that the payments were preferences voidable under section 60b of tbe Bankruptcy Act (11 USCA § 96 (b). The second is that the payments were invalid under section 15 of the New York Stock Corporation Law (Consol. Laws, e. 59), which then provided that no transfer by a corporation should be valid “when the corporation is insolvent or its insolvency is imminent, with the intent of giving a preference to any particular creditor over other creditors,” except as to purchasers for valuable consideration without notice.

The special master made findings of fact and conclusions of law in favor of the defendant. Among other things, he found that the bankrupt had no intent to prefer the bank and also that the bank had no reasonable cause to believe that it was being preferred over other creditors. The bank now insists that in a reference on consent the findings of' a master on the facts are conclusive if supported by any evidence. This is doubtless the rule where the reference is on consent and is to hear and decide the issues in the ease. Kimberly v. Arms, 129 U. S. 512, 9 S. Ct. 355, 32 L. Ed. 764. But it is not the rule where the reference on consent is merely “to hear and report.” In eases of the latter type the master’s findings of fact are treated as no more than advisory and the district judge has full power to review them. Denver v. Denver Union Water Co., 246 U. S. 178, 38 S. Ct. 278, 62 L. Ed. 649; Detroit Carrier & Mfg. Co. v. Dodge Bros. (C. C. A.) 33 F.(2d) 743. Here the reference which was stipulated was one to hear and report. The court therefore has the duty of reviewing the facts.

The trustee did not make out a case of voidable preference under section 60 of the Bankruptcy Act (11 USCA § 96). The proof does not show that the bank had reasonable cause to believe that the payments to it would result in its being preferred over other creditors, and some such proof is of course necessary to render a preference voidable under the Bankruptcy Act. The bank did know that Kritzer had decided to wind up the business, that he wanted the maturities of the notes shortened, and that he and his wife were contingently liable on the notes. That is all that it knew. Its part in the transactions was a passive one throughout.

The ease under the New York Stock Corporation Law raises other issues. Por a recovery on this ground a plaintiff must show that at the time of the transfers the financial condition of the corporation was such that its insolvency was existent or at least imminent, and the insolvency referred to in this statute signifies an inability to meet its obligations as they mature. Brouwer v. Harbeck, 9 N. Y. 589; Abrams v. Manhattan Brewing Co., 142 App. Div. 392, 126 N. Y. S. 844; Bielaski v. National City Bank (D. C.) 58 F.(2d) 657. He must also prove that a preference was intended. There is a distinction between a transfer made by a corporation which, though insolvent, has fair hopes that it will pull through a temporary emergency and pay all creditors equally, and a transfer where it is realized that the chances are that other creditors will not receive as favorable treatment. On the question of intent, the question is whether the transfer was made in contemplation of continuing business in good faith, or in eontemxdation of insolvency and winding up as an impending fact. Van Slyck v. Warner, 118 App. Div. 46, 163 N. Y. 8. 1, affirmed in 192 N. Y. 547, 84 N. E. 724; Wills v. Venus Silk Glove Co., 176 App. Div. 352, 156 N. Y. S. 115; Cardozo v. Brooklyn Trust Co. (C. C. A.) 228 F. 333. But the plaintiff was not required, under the statute as it stood in 1928, to make a showing as to the creditor’s state of mind. How much the creditor knew or believed as to the debtor’s intent or as to the effect of the transfer is of no significance. Brouwer v. Harbeek, supra; Bielaski v. National City Bank, supra.

In this ease the bankrupt was insolvent as early as August 6th. By that date it had ceased meeting its bills in the ordinary course of business. The existence of an intent to prefer the bank is equally clear. It was proved that by August 6th Kritzer had decided to wind up the business in September and was in actual course of liquidation. He knew the condition of the company and realized that all creditors would not be fully X>aid. It was to his personal interest, however, to make sure that the debt owed to the bank was paid in full, for he and his wife were individually liable on that debt. So the bankrupt under his guidance commenced paying the bank off before maturity, in order that Kritzer and wife might escape personal liability. There can be no doubt that this was Kritzer’s motive in arranging for an acceleration of the notes. In this respect the situation is similar to that in Grandison v. Robertson (C. C. A.) 231 F. 785, and in Kolkman v. Manufacturers’ Trust Co. (C. C. A.) 27 F.(2d) 659, where officers who had indorsed commercial paper for their companies saw to it that the companies paid up those particular obligations before the debacle. See, also, Smith v. Powers (D. C.) 255 F. 582.

The point is made by the bank that even if the payments were declared void, the effect would be merely to increase by $15,666 the bankrupt’s balance on the date of bankruptcy, against which the bank would have the right to set off the $15,000 notes. The answer is that it is the deposits that are the objectionable transfers — deposits made by an insolvent debtor to give the bank the means of applying them in payment of the notes or of using them as a set-off. This is certainly the rule laid down by the Circuit Court of Appeals in the Kolkman Case, supra, and also in Matters v. Manufacturers’ Trust Co. (C. C. A.) 54 F.(2d) 1610, 1013. Upon the facts in the present' case there is no question but that Kritzer from August 7th on meant to deposit and to leave on deposit enough money to clear off the new notes that he had executed. The fact that he deposited more does not change his intent. But the bank’s point is meritorious as to the balance of $10,-534.24 in the bankrupt’s account on August 6th. There is no proof that any of the deposits that made up this sum had been placed there with preferential intent. To this extent, therefore, the bank would have the right of set-off. Kolkman v. Manufacturers’ Trust Co., supra; Matters v. Manufacturers’ Trust Co., supra.

The further point is made that there were two respo2isiblc indorsers on the notes, that by the transaction the bank lost its right of recourse against them, and that this constitutes the bank a purchaser for value within the meaning of the New York statute. The point is a good one where indorsers have nothing to do with the preferential payment (Perry v. Van Norden Trust Co., 192 N. Y. 189, 84 N. E. 804), but not where they participate in it (Kolkman v. Manufacturers’ Trust Co., supra). Here Kritzer played the leading part in the affair, both as to what happened on August 7th and as to the later preferential deposits made by the bankrupt. He then was not discharged and the bank lost no right of recourse against him. But the case is otherwise with his wife. Though an officer and stockholder of the bankrupt, she took no part in running the business and apparently had nothing to do with the building up of the deposits. Under such circumstances it must be held that the bank lost its rights over against her and was a purchaser for value without notice as to all the payments. Matters v. Manufacturers’ Trust Co., supra, at page 1014 of 54 F.(2d).

While the master was in error in finding that the bankrupt had no intent to prefer the bank, he was right in concluding that the bank was a purchaser for value without notice within the meaning of the New York statute and that the suit should be dismissed on the merits.

The bill will accordingly be dismissed.


author: HOLLY, District Judge.

text:
    HAMILTON v. SCHEETS.
    No. 41432.
    District Court, N. D. Illinois, E. D.
    April 7, 1934.
    Mighell, Allen & Latham, of Aurora, Ill., for plaintiff.
    Cassels, Potter & Bentley, of Chicago, HI., Frank R. Reid and Plain & Plain, all of Aurora, Ill., for defendant.
   HOLLY, District Judge.

This is an action by the receiver of the First National Bank of Aurora to enforce the liability of defendant as a stockholder of said bank. In the amended declaration plaintiff sets out his appointment as receiver of said bank by the comptroller, the determination of the comptroller that it would be necessary to enforce the personal liability of the shareholders of the bank in order to pay the debts thereof, an order of assessment upon the shareholders and the demand of the comptroller upon each shareholder, including defendant, for payment. Defendant in his third amended pleading has filed two pleas, the first being the plea of the general issue. In the second plea defendant sets up several defenses some of which are equitable in their nature.

To this second plea plaintiff has demurred but defendant contends that the plea being equitable in nature a demurrer does not lie, a motion to- strike being the only proper method of attack, citing Duell v. Greiner (D. C.) 15 F.(2d) 725. In that case both a demurrer and motion to strike were filed, and the court held that a demurrer not being applicable to a plea setting up equitable defenses, it had considered the motion to strike instead. It is true that a motion 'to strike is the proper method of testing the sufficiency of an equitable plea, but if a demurrer is filed it may be treated as a motion to strike, and the demurrer will he so treated in this case.

The first matter of defense set up in the second plea is a contract between the First National Bank of Aurora, the bank involved in this case, hereafter and in the contract referred to as the Old Bank and the First National Bank in Aurora, hereafter referred to as the New Bank. By the terms of this contract, dated July 30,1931, and ratified by the shareholders September 26, 1931, and which recited that the condition of the Old Bank was unsatisfactory, its capital stock and surplus fund impaired and an assessment pending which was considered to be dangerous to the bank, the two banks agreed that the Old Bank should transfer certain of its assets to the New Bank .-and execute and deliver its note or notes to the New Bank for the par value of the difference between the assets of the Old Bank accepted by the New Bank and the capital stock, surplus, and reserves of the Old Bank, such note or notes to be secured by transfer of the remaining assets of the Old Bank to certain trustees who were given authority to convert such assets into money, to apply the proceeds in payment of such note or notes, and distribute the remainder among the shareholders of the Old Bank. In consideration of such transfer of assets and the giving of the note or notes the New Bank assumed and agreed to pay the liabilities of the Old Bank which appeared upon the general statement of the Old Bank as of July 20, 1931, except the liability for circulation notes, the liabilities not shown on the general ledger of the Old Bank as of the close of business on the day aforesaid, and the liability to shareholders as such.

There is no averment in the plea that the note or notes mentioned in the contract to be given by the Old Bank to the New Bank (and in the brief filed by defendant it is admitted that such note or notes were given) have ever been paid. They are still outstanding obligations of the Old Bank. Defendant seeks to avoid the effect of this fact by the allegation that the note or notes given by the Old Bank did not evidence any indebtedness of the Old Bank to the New Bank for the reason that the trusteed assets of the face value of over $1,000,050 were taken by the New Bank as full payment of the difference in the amount between the liabilities and assets of the Old Bank assumed by the New Bank and that said purported note or notes were merely given as a memorandum of the amount of the assets when liquidated. But the terms of the contract do not warrant such a construction. The trusteed assets were merely collateral security to said note.

It is further averred in the plea that it was not the intention or purpose of the officers of the Old Bank that the “agreement should constitute any liability of the shareholders of the Old Bank for the payment of said note,” and that it was represented by the officers of the both banks to the shareholders of the Old Bank that the agreement relieved the shareholders and the shareholders relying on such representations ratified the agreement. But the purpose and intention of the officers of the Old Bank is immaterial, and the shareholders cannot be relieved from liability by oral representations varying, or attempting to vary or change the plain terms of the written agreement.

It appearing then that the Old Bank had an outstanding liability at the time it was taken over by the comptroller and the present suit instituted, defendant cannot question the necessity of an assessment or the amount thereof as determined by the comptroller. This is settled by a long line of decisions commencing with Kennedy v. Gibson, 8 Wall. 498, 19 L. Ed. 476, and Bushnell v. Leland, 164 U. S. 684, 17 S. Ct. 209, 41 L. Ed. 598.

A ease quite similar to the ease at bar is Crawford v. Gamble (C. C. A.) 57 F.(2d) 15. There the officers and directors of the First National Bank of Hazard, Ky., transferred its assets to the First National Bank in Hazard, the contract by which the transaction was effected being quite similar to the one in the instant ease. The comptroller having taken possession of the Old Bank, levied an assessment and brought suit against a shareholder to recover the amount of the assessment against him. The shareholder defended on the ground that the transaction was not ratified by the shareholders of the Old Bank and the note given by the Old Bank was therefore not a valid obligation; that the assets of the Old Bank transferred to the New Bank were much greater in value than the liabilities of the Old Bank; and that to induce the comptroller to sue the stockholders of the Old Bank the officers and directors of the two banks fraudulently concealed the real condition of the Old Bank. The court held that defendant could not question the insolvency of the Old Bank, nor the amount of the assessment nor the necessity therefor, these questions having been conclusively determined by the comptroller. Further, the court held that defendant was not entitled to a judicial ascertainment of whether the note given by the Old Bank to the New Bank was a valid obligation for which an assessment might be made for this would be the equivalent of a purely collateral attack upon the assessment already made by the comptroller. To the same effect is Wannamaker v. Edisto Nat. Bank (C. C. A.) 62 F.(2d) 696, another ease in which the facts are quite similar to those in the case at bar.

Defendant attempts to distinguish this ease from those which have-held that the determination of the comptroller as to the insolvency of the bank, the necessity for an assessment, and the amount thereof may not be questioned by a shareholder. Counsel say that in the present ease the assessment of the comptroller “is the result of fraud, error or mistake of law.” But the only averments as to fraud, error, or mistake of law are that the comptroller did not acquaint himself with all the facts of the transaction by which the assets of the Old Bank were transferred to and its assets assumed by the New Bank, “and as a consequence his assessment was the result of error or mistake of law (presumably the pleader intended to say mistake of fact) or, if he did know all of the said facts then his assessment is an act of fraud upon this defendant.” But this is a mere conclusion of the pleader. And if the facts set up do not constitute a defense, an allegation by the pleader that the comptroller has acted upon a mistake of fact or fraudulently are of no avail.

It is further averred in the plea that after the Old Bank ceased to do business, a meeting of the stockholders was held and at that meeting it was voted to put the bank into voluntary liquidation as provided in U. S. Code, title 12, § 181 (12 USCA § 181), with the New Bank as liquidating agent, and that the Old Bank continued in liquidation until the comptroller appointed a receiver who thereupon took over the assets of the Old Bank then in the possession of the New Bank and has continued to hold the same and has collected and realized moneys from said assets, and is continuing to collect moneys on such assets which belong to defendant and all other stockholders of the Old Bank, and that said receiver should account to defendant and all other shareholders of the Old Bank.

While section 181, title 12, U. S. Code (12 USCA § 181), does authorize a banking association by vote of the stockholders owning two-thirds of the stock to go into voluntary liquidation, it can hardly be held that it was the intention of Congress in authorizing such liquidation 'to deprive the comptroller from taking over the affairs of the association if, in his opinion, it is insolvent. Washington National Bank v. Eckels (C. C.) 57 F. 870.

Further averments of the plea are that the comptroller has taken into his possession the First American Safe Deposit Company, an Illinois corporation, all the stock of which was and is held in trust for the benefit of defendant and other shareholders of the First National Bank of Aurora, and that he is collecting the rents and profits of said company which belong to defendant and said other shareholders and of which this court should require an accounting; that plaintiff is receiver of both the Old and New Bank and that the interests of the two are antagonistic in that there has been a commingling of the funds of the New Bank and the trusteed assets of which this court should require an accounting; that plaintiff, as receiver of both banks, is representative of both vendor and vendee in the transaction between the Old Bank and the New'Bank and should be removed from one or both positions.

But none of these things, if true, constitute a defense to this suit. If the receiver is not properly administering the affairs of the Old Bank, the only one in which defendant is interested, that matter may be adjudicated when the receiver files his accounts. In the meantime defendant under the repeated decisions of the courts must pay the assessment levied by the comptroller.

Lastly defendant alleges that the receiver has no authority to maintain an action to enforce the shareholder’s liability because he, the receiver, is not a creditor of the bank as required by U. S. Code, title 12, § 65 (12 USCA § 65). But the receiver does not bring this action under that section of the Banking Act, but by virtue of the authority of section 191 (12 USCA § 191).

The matters of fact set np in this second plea do not constitute a good defense to plaintiff’s aetion and the demurrer will be sustained. .

This aetion was commenced prior to January 1, 1934, and at a timo when the Illinois Practice Act of 1907 was in force in this state. Under the provisions of section 55 of that act (Smith-Hurd Rev. St. Ill. 1933, c. 110, § 55), plaintiff filed an affidavit of claim and defendant filed with his pleas an affidavit of merits. Plaintiff has moved to strike the affidavit on the ground that defendant did not set up a defense. Defendant says that as his second plea sets up an equitable defense, an affidavit of merits is not required. Possibly the affidavit is not necessary where the plea does actually set up an equitable defense, but here it does not. Tfie affidavit contains the same statement of facts as is set np in the plea and those facts do not constitute a defense. The affidavit will be stricken. The same order will be entered in cases Nos. 41505, 41667, 41604, 41479, and 41431.


author: LETTS, District Judge.

text:
    FEDERAL INS. CO. v. HERRESHOFF MFG. CO.
    No. 1698.
    District Court, D. Rhode Island.
    Feb. 24, 1934.
    Bigham, Englar, Jones & Houston and Charles A. Van Hagen, Jr., all of New York City, and Archibald C. Matteson, of Providence, R. I., for libelant.
    William H. Edwards and Edward Winsor (of Edwards & Angelí), both of Providence, ,R- I., for respondent.
   LETTS, District Judge.

This is a libel in admiralty brought by the Federal Insurance Company, a New Jersey corporation, against the Herreshoff Manufacturing Company, of Bristol, R. I., to recover the sum of $4,400. The libelant was the insurer of the yacht Resolute, and sues, by right of subrogation, to recover the sum in question which was paid by it under its policy of insurance to one E. W. Clark, the owner of the yacht. The sum sought to be recovered represents $4,000 paid for a new mast to replace one destroyed and $400 for repairs to the boat. The mast was furnished, and repairs made, by the respondent, which ‘is charged with negligently having caused the damage occasioning this expenditure.

The facts upon which the libel is brought may be briefly stated. In tbe spring of 1929 Mr. Clark made arrangements’ with the Herreshoff Manufacturing Company, widely known as designers, builders, riggers, and repairers of yachts and vessels, to change over the rigging of the yacht Resolute from a Marconi schooner to a Marconi sloop. This task involved the construction, stepping, and rigging of a single Marconi mast of a height of 137 feet above deck. For this purpose the defendant utilized the schooner’s main mast, building it np to the required strength and length.

On April 24, 1929, the mast had been completed, including the attachment of all standing rigging, ready for stepping. The following morning at 7 o’clock the yacht was hauled around to the end of the wharf under the shears and the mast stepped into place. The forestay and two shrouds on each side were made fast and set up by tackle blocks. The yacht was then returned to her slip alongside the wharf, where the riggers were to proceed with the work of making fast the shrouds, stays, and backstays. This was about the middle of the forenoon. It appears that considerable preparation had to be made before the riggers could proceed with their work. It was necessary to erect scaffolding, collect the tumbuekles, which were in a locker aboard the yacht, as well as assemble other parts of gear. As this work was in progress, it was found that the shackles which axe closely fitted into the deck or chain plates did not permit the insertion of the pin or bolt necessary to effect their attachment, necessitating a delay while a workman from the shop effected the necessary corrections.

In the meantime, and in accordance with what appears to have been the practice at the Herreshoff yards, other workmen, assisted by members of the crew of the yacht, proceeded to fasten by blocks and tackles all the items of the standing rigging. These blocks and tackles were threaded with manila rope. It does not appear that any other type of block and taekle was available for use. No part of the rigging was permanently attached during the afternoon of the 25th. So far as the testimony indicates, however, had there been no delay incident to the failure of the shackles to properly fit the chain plates, only a few items of the rigging could have been permanently fastened that afternoon.

During the day, and after the yacht had been removed from the end of the wharf to its slip, which was on the south side of the wharf, the weather conditions, which had appeared promising in the morning when the work was started, changed. A strong wind came up from the southwest, developing toward night into a blow of considerable velocity. Capt. Berry, who was master of the Resolute and in the employ of its owner, had been in attendance while the work was in progress throughout the day, and assisted in attaching the various items of rigging by the blocks and tackles for the temporary support of the mast. About 5 p. m. he left the yacht, and returned on board some time between 7 and 8 in the evening. At this time he describes the wind as blowing strong and as “the strongest breeze coming into the dock that I have experienced there.” He pulled in the slack on one taekle and made it fast and inspected the other lines of rigging. He described the yacht as “jumping about.”

He further testified in substance that in his opinion everything possible to protect the mast for the night had been done, pending the permanent attachment of the tumbuekles and the anchoring of the rigging to the deck plates.

At another point in his testimony Capt. Berry further commented upon the conduct of the respondent as follows:

“Q. When the Herreshoff people left the boat at five o’clock you did not make any suggestion as to anything else that ought to be done? A. No, I did not.

“Q. You did not think that any other steps were necessary to be taken at five o’clock to make that mast safe, did you ? A. No, sir.

“Q. You talked with the Herreshoff people when they quit the job at five? A. I did.

“Q. I suppose there was discussion as to whether everything was made fast and safe for the night? A. Yes, between Mr. Alder and myself.

“Q. You thought that everything prudent had been done, did you not? A. Yes.”

Shortly after Capt. Berry had returned on board, and in the midst of what was described by several of the witnesses as a blow of unusual intensity for Bristol Harbor, the mast broke some ten or twelve feet above deck, falling across the end of the wharf and a yacht moored on the northerly side. The mast was a complete loss, and some damage was done to the hatches, skylights, and rail of the Resolute.

The libelant settled the loss, under its policy of insurance with the owner, for $4,-400. The settlement was the exact sum paid by the owner, Clark, to the respondent, by whom the repairs were made. The libelant now contends it should be repaid this sum by the Herreshoff Company on the ground that the loss was caused by its negligence. As grounds of negligence, the libel alleges (a) that the respondent did not proceed with the fastening of all the tumbuekles, regardless of the usual 5 o’clock quitting time; (b) that the respondent did not leave a sufficient force of men to take up on the taekle; (e) that the yacht should have been placed in the north slip, rather than in the south slip; (d) that the yacht should have been taken from the slip and moored to a buoy in the harbor; (e) that the respondent should have observed the weather indications and informed itself of the storm warnings and forecasts.

Most of these grounds are unsupported by any convincing testimony. Capt. Berry testified that just hefore the mast broke he had inspected the tackles, making fast the rigging, ancf that all were in order with the exception of one, the slack in which he himself took up. If that be so, the absence of a larger force of men on bdard to take up the tackle was not a contributing factor to the breaking of the mast. The evidence also is convincing that as of the time the weather conditions had developed so that the yacht would have been more safely moored at a buoy in the harbor, or in the north slip, it would have been hazardous to have undertaken to move her. Nor is there substance in the claim of negligence for not observing the weather signals and forecasts. As already pointed out, the testimony is undisputed that at 7 o’clock in the morning, when the stepping of the mast was undertaken, the weather conditions were satisfactory. No warnings had been given until after the time the mast had been stepped and approximately the time that the yacht had been moved to its slip south of the wharf.

The only claim of negligence presented, in respect to which the testimony gives sufficient support to warrant a fuller consideration, is that incident to the failure of the respondent to proceed to accomplish the permanent fastening of the rigging with turnbuckles to the chain plates.

It is clear that there was a delay because the shackles did not fit the chain plates. It is undisputed also that the chain plates were made by the respondent in accordance with its own design. The negligence, however, alleged in the libel is not that the respondent was remiss in the construction or designing of these plates, but that it was negligent in not fastening all tumbuekles, “regardless of the usual knocking off time at five p. m.” It appears from the testimony of Peterson, the head rigger, that, had there been no difficulty with the chain plates, there would have been time on the 25th to have spliced and permanently attached but three lines of the rigging. There appears no substantial dispute in the testimony that so doing would not have given any real added security to the mast, as this number of lines would have constituted only about one-sixth of the total. Nor can one be impressed with the argument that work should have continued after 5 p. m., when the testimony shows that from about 4 p. m. on the weather was too rough to have permitted any splicing from the scaffolding on which the riggers had to work.

In view of these circumstances, it is difficult to discern in what respect the conduct of the respondent’s employees was negligent or unreasonable. As said by the court in the ease of Baltimore & P. R. Railroad Co. v. Jones, 95 U. S. 439, 441, 24 L. Ed. 506: “Negligence is the failure to do what a reasonable and prudent person would ordinarily have done under the circumstances of the situation, or doing what such a person under the existing circumstances would not have done.”

The fact of the loss of the mast and the resulting damage to the yacht is in no degree indicative of negligence, even though it be granted that the damage would not have occurred had the yacht been moored in some other place, or the mast removed earlier in the day and replaced in the yard when the wind first began to freshen, or if the work had not been started at all on April 25. Negligence is to be determined by considering the reasonableness of the foresight used, not by what could have been avoided by now employing aftervision.

The libelant has the burden of establishing that the conduct of respondent’s employees, as each situation presented itself on the day in question, was unreasonable and not the conduct of a prudent person or what would ordinarily have been done. This the libelant has wholly failed to do.

I have examined the libelant’s motion to amend its libel which was filed some days after the testimony was closed and both sides had rested. Nothing is presented by the amendments requested which would alter my decision if permission to amend were granted. This motion is denied.

The libel is dismissed, with taxable costs to the respondent.


author: TUTTLE, District Judge.

text:
    CINDERELLA THEATRE CO., Inc., et al. v. SIGN WRITERS’ LOCAL UNION NO. 591 et al.
    No. 6191.
    District Court, E. D. Michigan, S. D. .
    May 8, 1934.
    See, also, 6 E. Supp. 164.
    Ralph E. Routier, of Detroit, Mich., for plaintiffs.
    William L. Thorp, of Detroit, Mich., for defendants.
   TUTTLE, District Judge.

Upon issue joined by bill and answer, proofs were taken in open court and a decree entered dismissing the bill with costs to the defendants to be taxed. The defendants have now, in advance of taxing costs in the usual manner before the clerk of the court, petitioned the court to assess damages against the plaintiffs gnd the ¿Etna Casualty & Surety Company of Hartford, Conn., for loss, expenses, and damages caused to defendants by temporary injunction issued in this cause, including all reasonable costs (together'with a reasonable attorney’s fee) and the expenses of defense against said temporary injunction and against the injunetive relief sought in this proceeding and denied by the court in the decree. It is further prayed that when the said damages and costs have been so determined, an amended or supplemental final decree may be entered therefor against the plaintiffs and against the ¿Etna Casualty & Surety Company of Hartford, Conn., said surety company having become the surety upon the bond required by statute to be filed prior to the issuance of the temporary injunction. Proper notice of the hearing on this petition was given to the plaintiffs and to the surety company.

Only two questions are presented, namely, the right to damages and expenses in addition to the usual taxable costs, and the actual amount of such damages and expenses. These questions will be now considered.

1. The Act of Congress of March 23, 1932 (chapter 90, 47 Stat. 70-73), being sections 101-115 of title 29 of the United States Code (29 USCA §§ 101-115), entitled “An Act to amend the Judicial Code and to define and limit the jurisdiction of courts sitting in equity, and for other purposes,” has already by this court and in this ease been held to be valid and applicable to this ease. The portion of this act applicable to the particular questions now involved reads as follows :

“See. 7. * * * No temporary restraining order or temporary injunction shall be issued except on condition that complainant shall first file an undertaking with adequate security in an amount to be fixed by the Court sufficient to recompense those enjoined for any loss, _ expense, or damage caused by the improvident or erroneous issuance of such order or injunction, including all reasonable costs (together with a reasonable attorney’s fee) and expense of defense against the order or against the granting of any injunctive relief sought in the same proceeding and subsequently denied by the court.
“The undertaking herein mentioned shall be understood to signify an agreement entered into by the complainant and the surety upon which a decree.may be rendered in the same suit or proceeding against said complainant and surety, upon a hearing to assess damages of which hearing complainant and surety shall have reasonable notice, the said complainant and surety submitting themselves to the jurisdiction of the court for that purpose. But nothing herein contained shall deprive any party having a claim cr cause of action under or upon such undertaking from electing to pursue his ordinary remedy by suit at law or in equity.”

The bond signed by the plaintiffs, as principals, and by the ¿Etna Casualty & Surety Company, Hartford, Conn., as surety, read in part as follows:

“Whereas, on January 6, 1934, the above hounden did institute a cause of action in equity in the United States District Court of the Eastern District of Michigan, Southern Division, in Equity, as plaintiff, Cause #6191, against the above-named defendants * * * and an order for temporary injunction was issued on January'8,1934, conditioned upon the giving of a bond in the penal sum of one thousand andmo/lOO ($1,-000.00) dollars,

“Now, Therefore, the condition of this obligation is such that if the defendants in the above-entitled cause shall recover or bo awarded any costs, attorneys fees or damages in this cause against the plaintiffs and the plaintiffs shall eause the same to be paid to the defendants in an amount not to exceed one thousand and no/100 ($1,000.00) dollars, being the amount of this bond, then this obligation to be void, otherwise of full foree and effect.”

No objection to the form of this bond was made by the attorney for the defendants when the bond was approved by the court and filed in the ease and no question is now raised by the attorney for the plaintiffs relative to the form of the bond. The question presented is whether the statute above quoted applies and the defendants are entitled in this kind of a ease to their actual expenses in conducting their defense in this suit to the extent that such actual expenses are reasonable, or the defendants are to be limited to the arbitrary amounts allowed in taxing costs in the ordinary equity case. Counsel for the defendants relies upon the language of the statute above quoted for. his claimed allowance. Counsel for plaintiffs, in opposing, relies upon those sections of the code which control in taxing costs in the usual case. Decisions are cited by counsel for plaintiffs in whieh courts have held that the provisions of the code were controlling as to the amount to be taxed for attorneys’ fees, rather than the value of the services rendered by the attorney. These were all cases of the ordinary type and are cases which arose prior to this 1932 act which is here applicable. Those eases have no bearing upon this question. No eases have been cited and I have found none interpreting this particular statute. The provisions of the 1932 act are plain and are within the power of Congress. The bill asked temporary and permanent injunction against the defendants. A temporary injunction was issued and the statutory bond was given. On final hearing it was held that no injunction should issue and the bill was dismissed. The case comes clearly within the statute, whieh provides that defendants are entitled to recover their loss, expense, and damage caused by the improvident and erroneous issuance of the temporary injunction, including all reasonable costs (together with a reasonable attorney’s fee) and expenses of defense against the temporary injunction and against the permanent injunctive relief sought, all of whieh has now been denied by this court. I take this to mean that defendants are entitled to recover all damages and all reasonable expense caused them by this suit. Local Union of Brotherhood of Painters, etc., v. Barker Painting Co., 58 App. D. C. 51, 24 F.(2d) 879.

2. The second question has to do with the amount of such damages and reasonable expense. It is entirely a question of fact. I have heard proof in open court as to such damages and such expenses. These are my findings:

(a) There was no damage to defendants because of the issuance of the temporary injunction. There was no damage of any kind to the defendants as a result of the suit other than those whieh will immediately be considered under the heading of reasonable costs and expenses.

(b) I fix $500 as a reasonable attorney’s fee for the attorney for the defendants for all of his services of every kind and nature in connection with this suit. This to cover his services both in court and out of court. I have taken into consideration the time spent, the quality of the work done, the importance of the matter involved, the results obtained, the usual charges made by lawyers in Detroit, and all other matters disclosed by the evidence, records, and files. In order that the files may disclose as much as possible about the manner in whieh this ease has been prepared and submitted to the court, I am this day filing in the case all briefs which have been submitted to me for my consideration.

(c) The defendants paid $29 to the court reporter for his services. I find that this was a reasonable expense incurred by defendants in conducting their defense.

(d) As to the officers of the defendant union and as to other witnesses at the hearings on the temporary and permanent injunctions, I find that none of them were needed in court except for the purpose of testifying; that none of these parties and witnesses is entitled to any allowance except the usual per diem and traveling fees for the witnesses who were actually called by the defendants and gave testimony in court. None of them came within a proper definition of expert witnesses. The defense was almost entirely a legal defense based upon the failure of the plaintiff to make out a case. I hold that any payment to any of these witnesses in excess of the usual statutory fee of $1.50 per diem and 5 cents per mile traveling fee was unnecessary and unreasonable.

(e) The defendants are, of course, entitled to tax and recover the ordinary and actual fees paid to the clerk. The clerk is to tax the costs for the defendants in the following manner: He will tax for defendants an attorney fee of $500, a stenographer’s fee of $29, and such items for clerk’s fees and witness fees as are ordinarily taxed under the statutes and the rules of this court.

The decree in this case for the costs and expenses so taxed shall, pursuant to the statute, run against the said plaintiffs and the said surety company.


author: ATWELL, District Judge.

text:
    CADE et ux. v. UNION CENTRAL LIFE INS. CO. et al.
    No. 192.
    District Court, N. D. Texas, San Angelo Division.
    May 8, 1934.
    Wilkinson & Wilkinson, and Collins, Jackson & Snodgrass, of San Angelo, Tex., for complainants.
    Locke, Locke, Stroud & Randolph and Albert Sidney Johnson, all of Dallas, Tex., for respondents.
   ATWELL, District Judge.

In 1912, the complainants appealed to the respondent insurance company for a loan to retire an indebtedness against their home place. The loan was granted, and in 1922 the new amortization plan that had been worked out by the respondent for the use of its customers was made use of to retire the 1912 indebtedness. The amount of the unpaid principal, at that time, was $2,650. The repayment of this was planned in installments of $290.30 each, extending over a period of twenty years. These installments included a part of the principal and a payment of interest at 9 per cent. At the expiration of twenty years, the total to be returned to the lenders was and would have been $5,888.78. $3,238.78 was interest.

The acceleration provision, leaving out unimportant provisions, for its study, provided: “Now, if the said Thomas J. Cade shall well and truly pay, or cause to be paid, to the order of said, The Union Central Life Insurance Company, its successors or assigns, the said several sums of principal and interest, according to the tenor and effect of said notes * * *; and if default shall be made in the payment of any of said notes, or any interest thereon, or any portion thereof, when the same shall become due and payable, * * * then said notes, together with all accrued interest thereon, shall, at the option of said company, its successors or assigns, become at once due and payable, without notice, and the said Louis Breiling, Trustee * * * shall be, and is hereby authorized and empowered * * * to sell the said property at public auction for cash, * * *, and to receive the proceeds of said sale, which shall be applied, as follows: * * * Second. To the payment of said notes to the amount of said principal sum * * * and all accrued interest thereon * * *. Third. The remainder, if any there shall be, after payment of * * * principal * * * and the interest of said note shall be paid to Thomas J. Cade or his heirs or assigns.”

Mr. and Mrs. Cade maintain that under this written pontraet, the lender may demand and enforce by sale, out of the proceeds of the property, in the case of default, not only the principal, hut the $3,238.78 interest, whether the time had run for its earning.

They contend that the Texas usury statute and the interpretation and enforcement thereof by the Texas courts require the lender to respond to statutory penalties if the contract for the use of the money shows the intent to exact an usurious rate.

The respondent places a different interpretation upon the contract and maintains that such a reading is harsh, unreasonable, and oppressive. It claims that it has never sought to collect usury in this or any other loan, and that the contract was only meant to give it the right to collect the principal and the earned interest, rather than any unearned interest.

It presented testimony tending to show that it had been engaged in lending money in Texas for more than forty years; had loaned many millions of dollars and had made many thousands of loans. That in all of its transactions, it constantly refused unearned interest and maintained that it had no right and no desire to collect that which had not really accrued. Testimony was also offered tending to show that when the amortization plan was placed in use, its scriveners and attorneys worked over the forms and debated the result of the wording therein, so as to preelude any thought that its contracts might he construed as permitting the collection of unaecrued interest. While maintaining that the contract between it and the complainants did not justify the conclusion that it authorized or provided for the collection of that which had not been earned, still, it pleaded, if such a result were apparent to the court, that it was the result of the mistake of the parties. That neither it nor the complainant intended that any such construction or privilege should result, and having offered testimony in its own ranks to support .such a plea, it fortified the same by the testimony of the complainants that they had nothing of that sort in mind at the time of the execution of the instrument.

While one will not be permitted to explain away the result of plain words by of-fering to'show an harmless intent, the rule is, I think, that where the words of a contract are such that two constructions may be given it, one of which is lawful, and the other of which is unlawful, testimony of cleanliness of purpose may be offered. Such cases as Lloyd v. Scott, 4 Pet. (29 U. S.) 224, 7 L. Ed. 833; Bank of U. S. v. Waggener, 9 Pet. (34 U. S.) 399, 9 L. Ed. 163; Omaha Hotel Company v. Wade, 97 U. S. 13, 24 L. Ed. 917; Call v. Palmer, 116 U. S. 98, 6 S. Ct. 301, 29 L. Ed. 559; In re Mansfield Steel Corp’n (D. C.) 30 F.(2d) 832; Equitable Trust Co. v. A. C. White Lumber Co. (D. C.) 41 F.(2d) 60; Cunby v. Armstrong (C. C. A.) 133 F. 417; Medical Arts Building v. Southern Finance & Development Co. (C. C. A.) 29 F.(2d) 969; Atwood v. Deming Investment Co. (C. C. A.) 55 F.(2d) 180, so suggest. While the statement must be considered in its appropriate limitations, it may also be conceded that usury rests in an intent to exact more than the legal limit for the use of money.

Likewise, if parties erroneously draft their contract for repayment so as to show a viciousness of intent that was not in the heart, equity may relieve it of such wording. Hunt v. Rousmanier's Administrators, 8 Wheat. (21 U. S.) 174, 5 L. Ed. 589; Allen v. Hammond, 11 Pet. (36 U. S.) 63, 9 L. Ed. 633; Bradford v. Union Bank of Tennessee, 13 How. (54 U. S.) 57, 14 L. Ed. 49; Equitable Safety Insurance Co. v. Hearne, 20 Wall. (87 U S.) 494, 22 L. Ed. 398; Ivinson v. Hutton, 98 U. S. 79, 25 L. Ed. 66; Snell v. Insurance Company, 98 U. S. 85, 25 L. Ed. 52; Walden v. Skinner, 101 U. S. 577, 25 L. Ed. 963; Elliott v. Sackett, 108 U. S. 132, 2 S. Ct. 375, 27 L. Ed. 678; Adams v. Henderson, 168 U. S. 573, 18 S. Ct. 179, 42 L. Ed. 584; Philippine Sugar Estates Development. Co. v. Government, 247 U. S. 385, 38 S. Ct. 513, 62 L. Ed. 1177; Moffett Co. v. City of Rochester (C. C.) 82 F. 255; affirmed, 178 U. S. 373, 20 S. Ct. 957, 44 L. Ed. 1108; Great American Insurance Co. v. Johnson (C. C. A.) 25 F.(2d) 847; Cert. Denied, 278 U. S. 629, 49 S. Ct. 29, 73 L. Ed. 548; Columbian National Life Ins. Co. v. Black (C. C. A.) 35 F.(2d) 571, 71 A. L. R. 128; Clarksburg Trust Co. v. Commercial Casualty Insurance Co. (C. C. A.) 40 F.(2d) 626.

In Shropshire v. Commerce Farm Credit Company (Tex. Civ. App.) 266 S. W. 612; Id. (Tex. Com. App.) 280 S. W. 181; Id., 120 Tex. 400, 30 S.W.(2d) 282, 39 S.W.(2d) 11, 12, 84 A. L. R. 1269, it was said: “The court must give to the terms of the contract, if fairly susceptible of it, a construction that will make it legal, but'has no right to depart from the terms in which it is expressed to. make legal what the parties have made unlawful. * * . * if the transaction was such as to render the intention of the parties doubtful, the court would adopt that construction which would attribute to them a legal intention.”

This thread of righteousness in construction runs through all of the Texas eases. Dugan v. Lewis, 79 Tex. 240, 14 S. W. 1024, 12 L. R. A. 93, 23 Am. St. Rep. 332; Hughes v. Bryson (Tex. Civ. App.) 29 S.W.(2d) 898; Spiller v. Bell (Tex. Civ. App.) 55 S.W. (2d) 634; Clement v. Scott (Tex. Civ. App.) 60 S.W. (2d) 258; Walker v. Temple Trust Co. (Tex. Civ. App.) 60 S.W.(2d) 826; Reynolds Mortgage Co. v. Thomas (Tex. Civ. App.) 61 S.W.(2d) 1011; American Trust Co. v. Orson (Tex. Civ. App.) 65 S.W.(2d) 779; Aetna Life Ins. Co. v. Foster (Tex. Civ. App.) 66 S.W.(2d) 428; Marble Savings Bank v. Davis, 69 S.W.(2d) 812, by the Texarkana Court of Civil Appeals, 1934; Bankers’ Life Co. v. Miller (Tex. Civ. App.) 68 S.W.(2d) 574.

There is nothing surprising in the watchfulness of the courts for the protection of the borrower from the stealthy, or the premeditated usurious lender. There is reason, too, in the refusal to consider one a wrongdoer who has never done wrong and who protests at a charge of wrongdoing, especially when the language relied upon to show such evil is susceptible of a different and a proper construction. The one who maintains one’s right to the “pound of flesh” doctrine stands in a different group.. The one who joins in the use of such words as convey but one meaning also has his place.

It will be noticed, reverting to a consideration of the contract quoted above, that the expression, “sums of principal,” and the parceling of the funds after a sale, if the borrower fails to meet his payments, support the thought that the insurance company is pressing here. While a surface reading of the acceleration clause might justify the conclusion that unearned interest, since it was included in the installment notes for .all of the period, should be paid, a more critical and charitable construction, which is justified by the paths above explored, results in the conviction that the respondents are right. They did not intend it. The contract does not plainly show that they intended it. The testimony of all parties negatives it.

The result is that the complainants’ bill must be dismissed. The respondents’ cross-action granted and a foreclosure decreed.


author: GALSTON, District Judge.

text:
    ZAVON CO. v. ATLAS GUM SIZING CO., Inc., et al.
    No. 6697.
    District Court, E. D. New York.
    May 10, 1934.
    Joseph Nicchia, of New York City (Charles A. Morton, of Brooklyn, N. Y., of counsel), for plaintiff.
    Moses & Nolte, of New York City (Frank S. Busser and George J. Harding, both of Philadelphia, Pa., of counsel), for defendants.
   GALSTON, District Judge.

This is a patent infringement suit involving patent No. 1,407,297 issued February 21, 1922, to Thomas W. Pritchard. The patent covers a cleaning and scouring compound, and the process for manufacturing it.

Invalidity and noninfringement are urged as defenses.

The patentee states that the essential element of his compound is pine oil, which he describes as: “The oil obtained from resinous pine or fir wood by destructive distillation or by any process by which turpentine is obtained, and is a clear liquid of oily consistency varying in color from white to yellow having an odor somewhat suggestive of freshly cut pine saw-dust having a specific gravity varying from .89 to .95 at 20° C. and a refractive index at 20° C. approximately around 1.4860 and is free from turpentine and also free from any creosote or other products of destructive distillation of the wood.”

The inventor thus sought to define a specific variety of pine oil, for he says: “The precise composition of pine oil is somewhat variable and all its constituents are not known to me. Furthermore, in recent years the article sold as pine oil has varied considerably in its composition. I am, therefore, as yet unable to say the precise constituent or constituents of pine oil which give to it the great advantage that I have discovered in the treatment of textiles. In referring herein to pine oil, therefore, I wish to be understood to mean those volatile distillates containing an effective proportion of the essential constituents of pine oil or equivalents thereof.”

In describing the process of manufacture, the specification states: “I take one part of neutral vegetable oil soap, such as eastile soap and three parts of water and dissolve the soap in the water. I then heat the solution and add gradually the pine oil sufficient to form a gelatinous mixture of about the consistency of table jelly. The amount of pine oil necessary is about two parts to 4 parts of the mixture so that the mixture when complete contains about one part by weight of soap-, two parts of pine oil and three parts of water.”

All five claims of the patent are in issue. They read:

“1. The herein described cleaning and scouring compound consisting of soap produced from natural fat and alkali, water, and pine oil produced from resinous wood by distillation and free from turpentine.”

“2. The herein described cleaning and scouring compound consisting of soap produced from vegetable oil and alkali, water, and pine oil produced from resinous wood by distillation and free from turpentine.”

“3. The herein described cleaning and scouring compound consisting of soap produeed from vegetable oil and alkali, water, and pine oil produced from resinous wood by distillation and free from turpentine, combined together to form a colloidal mass.”

“4. The herein described cleaning and scouring compound consisting of soap produced from vegetable oil and alkali, water, and pine oil produced from resinous wood by distillation and free from turpentine, in the proportions of one part of soap, three parts of water and two parts of pine oil.”

“5. The herein described process of forming a colloidal mass containing pine oil produced from resinous wood by distillation and slightly soluble only in water, which consists in dissolving soap produced from natural fat and alkali in water, heating the solution and gradually introducing the pine oil.”

It will be noted that claim 1 defines the compound broadly, without limitation of the percentages of the three ingredients. Claim 2 is somewhat narrower, limiting the natural fat, from which the soap is produced, to vegetable oil. Claim 3 limits claim 2 by referring to the combination as a colloidal mass. Claim 4 defines the proportions of the compound: Soap, one part; water, three parts; pine oil, two parts. Claim 5 is the process claim.

In contending that the patent is invalid, the defendants assert not merely lack of invention, but set forth anticipations in the form of patents, publications, and prior uses.

From these it is reasonably clear that standard commercial pine oil was known in the art long prior to September 24, 1917, the filing date of the application for the patent in suit.

In the patent to Ellis, for example, No. 1,006,736, granted October 24, 1911, it is said: “Pine oil obtained from the long-leaf pine or from other sources, is a desirable disinfectant, particularly when in a finely divided form, such as is effected by means of soap emulsions.” No further limitation of the kind of pine oil is set forth.

In British patent, No. 15,643, of 1915 to Farley, for an improved cleansing compound, pine oil is referred to as an ingredient, but with no definition of its essential characteristics.

In the specifications of the United States Navy, issued March 1, 1915; the properties of pine oil for Navy Department use are defined:

“Pine oil must be a properly prepared light straw-colored oil produced by redistillation of heavy, high boiling point fractions resulting from the steam distillation of wood turpentine, and shall have a strong aromatie odor resembling turpentine. The specific gravity shall be not greater than 0.937 and not less than 0.933 at 60° F.

“(a) One hundred c. c. of the oil when subjected to distillation in the standard Engler distilling flask must yield at least 95 per cent of distillate between the temperatures 375° F. and 475° F.”

In an article by J. E. Teeple, published in the Journal of the American Chemical Society in 1908, pine oil is defined as a byproduct in the extraction of turpentine by means of steam.

The plaintiff contends that one of the disadvantages of the pine oil in use prior to his invention was the offensive odor of the preparation employed. It is therefore significant, in determining what Teeple meant by pine oil, to notp: “When properly refined it has a very pleasant odor which leads to its use by the essential oil trade in general and by soap makers in particular for perfuming cheaper soap's.” And he adds: “The commercial long leaf oil, as it comes on the market, is either clear and water white, containing 3 or 4 per cent, of dissolved water, or it may have a very faint yellow color and be free from dissolved water. The •specific gravity ranges from 0.935 to 0.947, depending on freedom from lower boiling' terpenes. A good commercial product will begin distilling at about 206° to 210° and 75 per cent, of it will distill between the limits 211°-218°, and 50 per cent, of it between 213-217°. A sample having a density of 0.945 at 15.5° showed a specific rotation of about (a) 20°n — II°, and an index of refraction of n/d 1.4830. In fractional distillation of the oil the specific gravity of the various distillates rises regularly with increasing temperature, becoming steady at about 0.947 at 217°.”

Pine oil thus described seems reasonably within the range defined by Pritchard. The color is the same. The odor is agreeable. The specific gravity ranges from 0.935 to 0.947 (Pritchard’s maximum is .95 at 20° C,) and the index of refraction is stated as 1.4830 as against Pritchard’s figure of 1.4860 at 20° C. Moreover, from the proof in the ease it appears that a pine oil which begins distilling at 206° to 210° C cannot contain turpentine; nor can a pine oil, of which 75 per cent, distills between the limits of 211-218° and 50 per cent, between 213-217°, contain any substantial proportion of creosote.

Pine oils from steam distillation are also referred to in thé Veitch and Donk article published December 12, 1911. The specific "gravity of such pine oil, as obtained from steam distillation, is set forth in ranges from 9.8890 to 0.9600; refractive index from 1.475 to 1.500. The distillation is said to begin at 165° to 180° 0, and generally complete at from 215 to 240'°; the larger quantity of most pine oils distilling between 190° and 225°.

The absence of creosote and tar is referred to, and Donk, a witness in the case, testified' that pine oil, at the time of the writing of the article, did not contain either turpentine or creosote.

I conclude, therefore, that pine oil as defined by Pritchard was known as a commercial article prior to the .date of his application for letters patent.

Claim 1 describes a compound of soap produced from natural fat and alkali, water, and pine oil. The Maekie Pine Products Company, in the year 1915, manufactured and sold a composition containing the following ingredients:

Pine oil, 144 gallons.

Vegetable fat (rosin oil), 16 gallons.

Alkali solution in water (NaOH), 24 gallons.

The Fulton Bag & Cotton Mills, in the year 1915, manufactured and sold a composition consisting of:

Pine oil, 60 per cent.

Rosin soap, 22 per cent.

Water, 18 per cent.

The American Disinfecting Company, Inc., in 1915, manufactured and sold disinfectants consisting of:

Pine oil, 50 gallons.

Corn oil — linseed oil soap, 240 pounds.

Water, 5 gallons.

And another preparation:

Pine oil, 75 pounds.

Rosin, 25 pounds.

Caustic solution (NaOH), 10 pounds.

Water, 1 gallon.

The Midland Chemical Company, also prior to September, 1915, sold a disinfectant consisting of:

Pine oil, 100 gallons.

Soap, 200 pounds.

The soap consisting of:

Corn oil, 135 gallons.

Caustic potash, 760 pounds.

Water, 202% gallons.

In view of these uses, and since the pine oil defined in claim 1 was in 1915 and prior thereto a commercial standard article, I am of the opinion that claims 1 and 2 are too broad in scope and are invalid for want of invention.

Taking up now claim 3, the limitation expressed in that claim is that the soap, pine oil, and water are combined to form a “colloidal mass.” If there is anything novel in the claim, it must depend upon that limitation.

The patent to Ellis, heretofore referred to, is for a solidified oil. Ellis sought definitely to obtain a “sufficiently solid form so that it can be handled readily, or so as to mingle with water in a satisfactory way.” He melted 1 pound of stearic acid, added to it 2 gallons of pine oil, and when that mixture was thoroughly incorporated, added 1 pint of an aqueous solution carrying about 4 ounces of caustic soda. The mixture was churned thoroughly with the pine oil and warmed to 90 degrees C. On cooling, a solid material resulted in which the soap remained largely in the solution in the pine oil “and in setting, causes the desired solidification and renders the pine oil capable of readily emulsifying with water.” He says: “With lesser amounts of the stearate, the composition may be made to solidify to a clear transparent solid or jelly. With still smaller amounts, the composition may be liquid carrying gelatinous particles, which, however, is not a satisfactory form, as it is too fluid for convenient handling.”

Ellis suggests another composition consisting of 1 part of oleic acid dissolved in 4 parts of pine oil, to which mixture % part of caustic potash dissolved in % part of water is added, stirred vigorously and heated to 80 or 90 degrees C. A quantity of sodium stearate or palmitate sufficient to saturate the solution is added and the mixture heated until the soap is dissolved. Ellis says: “The composition is then allowed to cool when it gelatinizes to a stiff jelly, clear and transparent.”

The plaintiff contends that the Ellis composition is anhydrous. On the contrary, it is not free from water. He limited the amount for ease in transportation. The composition described by Ellis is a colloidal mass within the meaning of claim 3 of the patent, for it may be noted that claim 3 does not specify the percentage of water to be used.

I find, therefore, that claim 3 is invalid for want of invention and because of anticipation.

The matter of infringement of the remaining claims will now be discussed.

Three compositions made and sold by the defendants are asserted to infringe:

Soap (sodium oleate), 19-20 per cent.

Pine oil, 11 — 12 per cent.

Moisture (water), 68-70 per cent.

Soap (sodium oleate) 18-20' per cent.

Pine oil, 4 — 5 per cent.

Moisture (water), 78-75 per cent.

Soap (sodium oleate), 18-20 per cent.

Pine oil, 6 per cent.

Turpentine, 6 per cent.

Butanol, 2 per cent.

Water, 66-68 per cent.

The third of these compositions does not infringe, since apparently turpentine was added deliberately in order to avoid infringement.

Claim 4 is not infringed because there is a substantial variation in the pine oil content. The first of the defendants’ compositions contains from 11 to 12 per cent, of pine oil, and the second from 4 to 5 per cent, of pine oil, as against 33% per cent, recited in claim 4. The finding of noninfringement as to claim 4 makes it unnecessary to discuss the question of validity of that claim.

Claim 5 is the process claim.

The defendant Yon Zwehl, in cross-examination, was asked how the plaintiff’s product, Zavon, was made, and he answered that it was made from red oil, pine oil, caustic soda, and water. The examination then proceeded :

“XQ72. You give me the constituents. How was it made? A. I will give it as far as I would make it.
“XQ73. Yes. A. Prom the analysis I would take red oil and water, heat it up, add caustic soda and add the pine oil. As far as their method which they had, I never asked them.
“XQ74. Yery simple proposition, isn’t it? A. Yery simple, right.
“XQ75. And that is the way you make it, isn’t it? A. It is.
“XQ76. You take red oil and caustic? A. Right.
“XQ77. In solution, and yon heat them together? A. Right.
“XQ78. In the proper proportions? A. Right.
“XQ79. And then you take pine oil? A. Right.
“XQ80. Any particular pine oil? A. Hercules Middol Pine Oil.
“XQ81. Hercules, what name? A. Mydol or Middol.
“XQ82. How do you spell that? A. M-i-d-d-o-1. That is one of the brands we have used.
“XQ83. Is that the brand you are using now? A. At the present time, yes.”

And he said: “I would take red oil and water, heat it up, add caustic soda, and add the pine oil. As far as their method which they had, I never asked them.”

This process certainly falls, within the limitation of claim 5 of the patent, although it is true that Von Zwehl did not say, nor was he asked, whether the pine oil was added gradually.

So much attention was focused at the trial on the compound that little or no discussion was had of the novelty of the process, nor is the matter argued in the defendant’s brief. The lack of novelty of the Pritchard compound would, of course, not negative validity of the process. The specification says: “In preparing the cleaner and scouring compound I take one part of neutral vegetable oil soap, such ás castile soap and three parts of water and dissolve the soap in the water. I then heat the solution and add gradually the pine oil sufficient to form a gelatinous mixture of about the consistency of table .jelly.”

The emphasis is upon the gradual'introduction of the pine oil up to the time that the gelatinous mixture is formed. This is exactly the result obtained by the defendants; and hence the addition of the pine oil must have been gradual. At least, the result is not otherwise accounted for.

Plaintiff’s expert Alexander’s demonstration in court was in this respect convincing. It appears that as more oil is added, the emulsion breaks and a different composition, in appearance at least, is produced. Grelatinization is restored only by the addition of a quantity of soap solution. His demonstration and his explanation of why defendants’ witness Pickett failed with Exhibit K convince me that Pritchard defined a patentable process, at least so far as this record discloses.

I conclude that claims 1, 2, and 3 are invalid ; that claim 4 is .not infringed; and claim 5 is valid and infringed.

If this opinion is not in sufficient compliance with the rule requiring findings of fact and conclusions of law, submit findings of fact and conclusions of law in accordance therewith.

       Though the witness refers here to “red oil,” the stipulation as to the constituents of defendants’ product recites the use of sodium oleate, apparently the same substance.


author: MOSCOWITZ, District Judge.

text:
    In re LUNA AMUSEMENT CO.
    No. 24542.
    District Court, E. D. New York.
    March 6, 1934.
    Kaufman, Weitzner & Celler, of New York City; for alleged bankrupt.
    Stephen Callaghan and Herman S. Baehraeh, both of Brooklyn, N. Y., receivers, in person.
    Appleton, Rice &> Perrin, of New York City, for objecting creditor.
   MOSCOWITZ, District Judge.

This is a motion to confirm the composition and fix the compensation to be paid to each receiver, there being two in number. Specifications have been filed by the Manhattan Company objecting to the composition.

The specifications are insufficient and overruled. Motion to confirm the composition is granted.

Each receiver has requested an allowance of $2,231.34. No objection has been made to this allowance. In fact, counsel for the alleged bankrupt has filed a consent dated February 27, 1934, as follows:

“In behalf of Luna Amusement Company, alleged bankrupt, we stipulate that we have no objection to the entry of an order of this court which shall provide that the commissions of the Receivers, as fixed by the Referee, Edward B. McDonald, in his report on composition in the above matter, be increased, as follows:

“1. An' additional allowance of $200, based on the sum of $20,000. which amount constitutes the Receivers’ obligations which are to be paid to creditors and to be disbursed in connection with effecting the composition, making the total commissions payable to the Receivers the sum of $2,231.34.

“2. Each Receiver shall be entitled to said commissions, amounting to $2.,231.34, instead of the sum of $2,031.34, allowed to both Receivers, as provided in the report of Referee McDonald.”

If there were but .one receiver, his total compensation under title 11 USCA § 76 would be $2,231.34.

The only decision called to the court’s attention is the unreported decision of Judge Hough, in Re Cottier, vol. 1, District Court Decisions, Southern District of New York, 1915. I know of no decision in this district permitting full compensation to each of two receivers appointed in bankruptcy. It is the practice in this district not to allow full compensation to each of the receivers. No reason is shown why this practice should not be followed.

If it were the intention of Congress to allow full compensation to each of the receivers, it could have expressed that intention in no uncertain language.

The only ease that I have been able to find bearing upon this subject is In re Mills Tea & Butter Co. (D. C.) 235 F. 813, in which the court said, at page 815: “By the settled practice in this district, the total compensation to receivers is not to be increased by the fact that there is more than one receiver. See section 48b [11 USCA § 76 (b)], relating to trustees.”

In this ease the sum of $2,231.34 paid to each of the receivers would be small compensation for the work which they have done.

The receivers will be allowed $2,231.34 to be divided equally between them. This allowance is not in the exercise of discretion. It is solely upon the ground that they cannot be paid more under title 11 USCA § 76.

It might be desirable to have the Circuit Court of Appeals pass upon this question, as I regard it of some importance.

Settle order on notice.


author: BYERS, District Judge.

text:
    UNITED STATES v. MACK et al.
    District Court, E. D. New York.
    May 7, 1934.
    ■Howard W. Ameli, U. S. Atty., of Brooklyn, N. Y. (Alfred C. McKenzie, Asst. U. S. Atty., of Brooklyn, N. Y., of counsel), for the United States.
    Louis Halle, of New York City (Milton R. Kroopf, of New York City, of counsel)-, for defendant Mack.
   BYERS, District Judge.

Motion for an order of dismissal, made by the surety upon a bond given November 1, 1930, for release of a vessel seized under section 26 of title 2 of the National Prohibition Act (27 USCA §40).

The undisputed facts are that on July 31, 1930, the collector of customs of this port arrested Cathell and Van Austin, and seized the motor boat Wanda while intoxicating liquors were being transported by the former two on the vessel.

On October 31, 1930, the owner of the Wanda and the defendant above named executed a bond for the release of the vessel, conditioned upon the return thereof on the day of the criminal trial of the individuals so arrested, and the bond having been approved, the vessel was released.

Cathell and Van Austin, having been in-dieted, appeared in this court on January 26, 1931, pleaded guilty to possession of intoxicating liquors incidental to- transportation, and were sentenced.

The vessel was not then produced; nor was it at any time thereafter.

Action was brought at law upon the bond, the complaint having been filed on July 19, 1933, almost two and one-half years after the termination of the criminal proceeding.

There was nothing impetuous about that.

Answer was filed on August 25, 1933, which in effect merely put the government to formal proof.

The defendant now seeks dismissal because of the repeal of the Prohibition Law, the argument being that the bond was can-celled in effect by the adoption of the Twenty-First Amendment.

If no bond had been given, the vessel would have been subject to forfeiture when the individuals pleaded guilty to the indict; ment, under the terms of the statute; or the forfeiture could have been sought as the result of a libel filed for that purpose. The Harbour Trader (C. C. A.) 42 F.(2d) 858.

The forfeiture in either case would have been the result of judicial action independent of the judgment in the criminal cause. Ho such forfeiture has been had, and could not now be granted; nor could it have been after the effective date of the Twenty-First Amendment. U. S. v. Chambers & Gibson, 291 U. S. 217, 54 S. Ct. 434, 78 L. Ed. -, 89 A. L. R. 1510.

If this is so, it seems to be equally true that no judgment upon the bond which was given as bail for the vessel’s return to- the custody of the seizing officer can be entered, for otherwise the surety could be held while the res could not.

Motion granted. Settle order.