author: NIELDS, District Judge.

text:
    KIMBERLEY & CARPENTER, Inc., v. FIREMAN’S FUND INS. CO. et al.
    No. 962.
    District Court, D. Delaware.
    Jan. 2, 1934.
    Clarence A. Southerland (of Ward & Gray), of Wilmington, Del., for plaintiff.
    Caleb S. Layton (of Bichaxds, Layton & Finger), of Wilmington, Del.,’ and S. Balph Warnken, of Baltimore, Md., for defendants.
   NIELDS, District Judge.

This is an equity suit removed to this court from the Court of Chancery of the state of Delaware. The dockets of the Superior Court for New Castle county, Del., record (1) two judgments in favor of the plaintiff against the defendants in the aggregate amount of $6,606.74 and $500 counsel fees, which judgments it is agreed are not vulnerable or subject to attack from any quarter; (2) a judgment in favor of defendants against the plaintiff for $5,000, with interest, upon which an attachment fi. fa. has issued. By the bill filed in this suit plaintiff seeks to enjoin the defendants from proceeding with the above attachment and “from issuing any further writ of execution on said judgment,” and from instituting any action on a certain mortgage given to secure the debt represented by that judgment.

The facts may be gathered from the stipulated statement. September 1,1925, plaintiff purchased a tract of land with dwelling house and bam erected thereon, and contemporaneously gave its bond and mortgage for $5,000 covering the same to Security Trust Company. May 25,1926, plaintiff sold the premises to Jacob D. Winslow and Catherine A. Winslow, his wife, subject to the above mortgage. On the same day the Winslows gave a second mortgage for $6,000 to plaintiff to secure part of the purchase money. May 27, 1926, each defendant insured the Winslows, as owners, against loss by fire for three years from May 25, 1926, for $6,000. The total insurance covering the dwelling house was $11,000. Both policies of fire insurance issued by defendants were the standard policies containing the condition that: “This entire policy * * * shall be void * * * if, with the knowledge of the insured, foreclosure proceedings be commenced or notice given of sale of any property covered by this policy by virtue of any mortgage or trust deed; or if any change, other than by the death of an insured, take place in the interest, title, or possession of the subject of insurance,” etc.

May 28, 1926, standard mortgagee clauses payable to the respective mortgagees were attached to each policy. The mortgagee clauses payable to Security Trust Company, as first mortgagee, were:

“Loss, or damage, if any, under this policy shall be payable to Security Trust and Safe Deposit Company as First mortgagee, (or trustee) as interest may appear, and this insurance, as to the interest of the mortgagee, (or trustee), only therein, shall not be invalidated by any act or neglect of the mortgagor or owner of the within described property, nor by any foreclosure or other proceedings or notice of sale relating to the property, nor by any change in the title or ownership of the property, nor by the occupation of the premises for purposes more hazardous than are permitted by this policy; Provided, that in ease the mortgagor or owner shall neglect to pay any premium due under this policy, the mortgagee (or trustee) shall, on demand, pay the same.

“Provided, also, that the mortgagee (or trustee) shall notify this company of any change of ownership or occupancy or increase of hazard which shall come to the knowledge of said mortgagee (or trustee) and, unless permitted by this policy, it shall be noted thereon and the mortgagee (or trustee) shall, on demand, pay the premium for such increased hazard for the term of the use thereof; otherwise this policy shall be null and void.

“This company reserves the right to cancel this policy at any time as provided by its terms but in such ease this policy shall continue in force for the benefit only of the mortgagee (or trustee) for ten days after notice to the mortgagee (or trustee) of such cancellation and shall then cease, and this company shall have the right, on like notice to cancel this agreement.

“Whenever this company shall pay the mortgagee (or trustee) any sum for loss or damage under this policy and shall claim that, as to the mortgagor or owner, no liability therefor existed, this company shall, to the extent of such payment, be thereupon legally subrogated to all the rights of the party to whom such payment shall be made, under all securities held as collateral to the mortgage debt, or may at its option, pay to the mortgagee (or trustee) the whole principal due or to grow due on the mortgage with interest, and shall thereupon receive a full assignment and transfer of the mortgage and of all such other securities, but no subrogation shall impair the right of the mortgagee (or trustee) to recover -the full amount of its claim.” (Italics supplied.)

Mortgagee clauses of similar tenor, payable to Kimberley & Carpenter, Inc., as second mortgagee, were also attached to the policies.

In May, 1928, the Winslows failed to pay an installment of principal and the interest then due on plaintiff’s mortgage, and, with their knowledge, foreclosure proceedings under this second mortgage were commenced and notice was given of the sale of the property covered by the policies. Judgment of foreclosure was duly entered, and on October 25, 1928, plaintiff purchased the property to protect its mortgage interest and received a deed therefor. About six months later, on April 11, 1929, the dwelling house was burned to the ground. Both plaintiff and Security Trust Company gave notice of the fire to defendants, together with proofs of loss. Defendants denied all liability to plaintiff on the ground that plaintiff ceased to be a mortgagee when it acquired title to the premises at the foreclosure sale.

Pursuant to the express provision in the mortgagee clause, on January 2, 1930, defendants.paid to Security Trust Company the whole principal with interest due on the mortgage of plaintiff, being the first mortgage on the premises, and -thereupon received a full assignment and transfer of the mortgage and of the bond accompanying same. Subsequently, on January 29, 1932, defendants caused judgment to be confessed upon said bond and a writ of attachment fi. fa. to be issued and laid in the hands of defendants through service upon the insurance commissioner of Delaware.

Plaintiff brought actions in the state court of Delaware to recover the amounts due to it under the policies. Issues of law and fact were tried. Kimberley & Carpenter v. National Liberty Ins. Co. (Del. Super.) 157 A. 730, 732. On March 30, 1932, it was determined that $6,606.74 was due to plaintiff from defendants, and judgments were accordingly entered.

From the above reeital one conclusion is bound to follow. When plaintiff foreclosed its mortgage — the second mortgage mentioned in the policies — and purchased the premises at sheriff’s sale on October 25, 1928, the insurance agreement between defendants and the Winslows, the owners, was rendered null and void. By the express condition and stipulation of the policies, hereinbefore set out, the obligation of defendants to the owners became void upon the foreclosure, sale, and change of ownership of the premises insured. Thereafter there was no agreement with owners or owner in either the policies or the mortgagee clauses. What obligation of defendants remained?

Standard mortgagee clauses like those contained in the policies before the court have been held for many years to be separate and largely independent contracts. Richards on the Law of Insurance (4th Ed.) § 279. “The effect of the joint consideration of the policy and the mortgagee clause is that two severable contracts are set up — one in favor of the insured-mortgagor and the other in favor of the insured-mortgagee. The latter is distinct from the former and the rights of the mortgagee are subject to be defeated only by a violation of the terms set out in the mortgagee clause.” Kimberley & Carpenter v. National Liberty Ins. Co., supra. Here each policy embraces three contracts: (1) The contract between defendants and the owners; (2) the contract between defendants and Security Trust Company in one mortgagee clause; and (3) the contract between defendants and plaintiff in the second mortgagee clause. In October, .1928, the policy became void as to the owners, yet the mortgagee clauses containing separate agreements remained. There may be some difficulty in detecting any contract relation between defendants, the underwriters, and the mortgagees. The mortgagees gave no consideration, and are not parties to any agreement. However, to reach a happy result, the courts have declared there is a contract relation.

The federal courts hold the mortgagee clause a separate contract. “The effect of the mortgagee clause is to make an entirely separate insurance of the mortgagee's interest, and he takes the same benefit from his insurance as if he had received a separate policy from the company free from the conditions imposed upon the owners.” Queen Ins. Co. v. People’s Union Sav. Bank (C. C. A. 3) 50 F.(2d) 63, 64. “It is equally true that the mortgagee clause of a policy, providing for payment of indemnity to the mortgagee in the event of loss, is not an assignment of the policy, yet that clause creates a separate and distinct agreement between the insurer and the mortgagee, binding even after the insured owner has alienated his property.” Newark Fire Ins. Co. v. Turk (C. C. A. 3) 6 F.(2d) 533, 535, 43 A. L. R. 496. “It is true,” said Judge Sanborn, “that the Bohns [the owners] paid the premiums for this insurance, but a promise to pay or indemnify is no less binding when the consideration is paid by a third party than when it comes directly from the payee or the insured. Insurance Co. v. Olcott, 97 Ill. 439, 454, and eases there c-ited. The agreement evidenced by this mortgage clause was therefore a valid contract between the mortgagee and the insurance companies, made upon sufficient consideration. * * *” Syndicate Ins. Co. v. Bohn (C. C. A.) 65 F. 165, 176, 27 L. R. A. 614.

Both plaintiff and Security Trust Company are alike beneficiaries and payees under separate contracts of indemnity in mortgagee clauses. Plaintiff as mortgagee (or as mortgagee-owner after the foreclosure) sued defendants on their agreement to indemnify plaintiff and recovered judgment against defendants. Plaintiff’s rights under its contract of indemnity have been passed upon by the state court. Kimberley & Carpenter v. National Liberty Ins. Co., supra.

In this court we are considering defendants’ rights. In the mortgagee clause on behalf of the Security Trust Company, as first mortgagee, there is an express provision giving defendants the right of subrogation whenever it appeared to the satisfaction of the court that no liability existed under the policies to the Winslows, the mortgagors. That defendants were not liable under the policies to the mortgagors or owners is admitted. Accordingly, defendants paid to Security Trust Company the whole principal due on their mortgage, with interest, and received a full assignment and transfer of the mortgage and of the judgjnent bond which the mortgage secured'. In due course judgment was confessed pursuant to the terms of the bond, and an attachment fi. fa. was issued, as before recited.

Defendants’ right of subrogation under one of the mortgagee clauses, also their right to the assignment of plaintiff’s bond and mortgage and their right to proceed at law thereunder, must be respected and protected quite as fully in a court of equity as plaintiff’s right of action against defendants on defendants’ agreement to indemnify plaintiff as mortgagee contained in the other mortgagee clause has been recognized and enforced in a court of law. This court recognizes defendants’ right of subrogation, and will not enjoin its exercise.

It is clear that the injunctive relief sought by plaintiff should be denied and that the hill of complaint should he dismissed.


source: Caselaw Access Project

author: CAEFEY, District Judge.

license: Public Domain

text:
    UNITED STATES v. WEXLER et al.
    District Court, S. D. New York.
    July 17, 1933.
    George Z. Medalie, U. S. Atty., of New York City (Thomas E. Dewey, Murray I. Gurfein, and Joseph E. Sharp, all of New York City, of counsel), for the United States.
    Charles G. E. Wahle and Abram M. Erumberg,-both of New York City, for Wexler.
   CAEFEY, District Judge.

The ninth item of the demand was withdrawn.

Upon the other items there was extensive oral argument on July 3. Elaborate briefs were submitted on July 13. I have examined these and have studied the principal authorities cited. The trial is set for August 7. The motion should therefore be disposed of promptly. If that is to be done, other absorbing court work compels me to refrain from lengthy discussion.

Determination of the issues raised turns partly upon the substantive law and partly upon the law governing procedure. Of the two, primary consideration must be given to the former; only in the light of the former can what, in the court’s discretion, is fair with respect to the latter be ascertained.

There is no danger of double jeopardy unless a bill of particulars be ordered. If there be an acquittal of the offense of violating, or of conspiring to violate, 26 U. S. Code, § 2146 (b), 26 USCA § 2146 (b), as now charged in the indictment, without other identifying details being furnished, the defendant will be fully protected against future prosecution for the same crime. Cf. Wong Tai v. United States, 273 U. S. 77, 47 S. Ct. 300, 71 L. Ed. 545.

There is no occasion, either in the indictment or by bill of particulars, to define the specific means employed in committing the offense. For that reason the defendant is not entitled to have the details called for by items 5 to 8. United States v. Simmons, 96 U. S. 360, 24 L. Ed. 819; United States v. Miro (C. C. A.) 60 F.(2d) 58. The inclusion in the indictment of more information than is essential does not create or afford a basis for compelling still further information to be given.

The defendant earnestly stresses items 1 to 4. He relies chiefly on Singer v. United States, 58 F.(2d) 74 (C. C. A. 3). This court is not bound by that decision. Mast, Foos & Co. v. Stover Manufacturing Co., 177 U. S. 485, 20 S. Ct. 708, 44 L. Ed. 856; Sanitary Refrigerator Co. v. Winters, 280 U. S. 35, 50 S. Ct. 9, 74 L. Ed. 147.

There are grounds, not present in the case at bar, upon which perhaps the Singer Case may be distinguished. If, however, it be not distinguishable on the facts, then I am persuaded (1), with great deference to the court which rendered the opinion, that it is wrong, and (2) that it is at variance with the fundamentals prescribed in the Miro Case, cf. Capone v. United States (C. C. A.) 56 F.(2d) 927, for the contents of an indictment of the type here involved, as well as with other decisions of the Circuit Court of Appeals for this circuit, which I am obligated to follow. Indeed, as I analyze the indictment, it seems'to me that the government could not comply with the demands as framed without injurious disclosure of its evidence. It is without dispute that a revelation of that character should not be required. Horowitz v. United States (C. C. A.) 262 F. 48. Moreover, as already pointed out, the voluntary incorporation in an indictment of more than is needed plainly cannot create a sufficient basis for compelling the statement in a bill of particulars of additional matter or the like elaboration of surplusage.

I do not concur in the inferences of the defendant (mentioned in his briefs) from the statements of the United States attorney at the oral argument, as set out in the stenographic minutes. So far from denial of the motion constituting an abuse of discretion, my feeling is that granting it would be an abuse of discretion.

I think the indictment, adequately and with reasonable certainty, apprises the defendant of the nature of the accusation against him.

Motion denied.


author: LINDLEY, District Judge.

text:
    TAYLOR v. SOUTHERN RY. CO.
    No. 180-D.
    District Court, E. D. Illinois.
    March 16, 1934.

      Royal W. Irwin, of Chicago, Ill., for plaintiff.
    Bruce A. Campbell, of East St. Louis, Ill., for defendant.
   LINDLEY, District Judge.

Plaintiff began this suit by p-raseipe and declaration on July 30, 1930. Thereupon summons issued, returnable to the September term, 1930, held in Danville on the first Monday of September. For some reason not appearing in the record, the summons was not delivered to the marshal until August 29, 1930. The then marshal returned it unexecuted, saying that it was received in the marshal’s office August 29,1930, too late for service for the September term. Thereafter no summons was issued until on the 20th day of January, 1934, at the request of counsel for plaintiff, alias summons was issued by the clerk of the court returnable on the third Monday of February, 1934. Defendant, though at all times amenable to service of process within the Eastern District of Illinois, had no notice of the suit until the latter mentioned summons was served on January 25, 1934.

Plaintiff seeks to recover damages for personal injuries under the Federal Employers’ Liability Act (45 USCA §§ 51-59). He sued defendant in the circuit court of Cook county at the March term, 1929, upon the same cause of action. Defendant there objected to the jurisdiction of the court by proper pleas, demurrer to which was sustained. Trial was had and resulted in a verdict and judgment for $30,000 in plaintiff’s favor in October, 1929. Upon appeal the Appellate Court on December 10, 1930', affirmed the said judgment, in 259 Ill. App. 271.

Thereafter, upon certiorari in the Supreme Court, on October 22, 1930', after decision, rehearing and second decision, the judgment was reversed upon the ground that the trial court had no jurisdiction. The cause was remanded with directions to overrule demurrer of plaintiff to the pleas to the jurisdiction of the court. See 350 Ill. 139, 182 N. E. 805. Thereafter on January 20', 1934, the circuit court of Cook county, in pursuance of the mandate of the Supreme Court, quashed the writ and abated the suit.

The Federal Employers’ Liability Act (section 6 [45 USCA § 56]) provides that no action shall be maintained thereunder unless commenced within two years from the day the cause of action accrued. This provision is not a mere limitation of action, but a condition precedent to the right to maintain an action and may not under any circumstances be waived. Bell v. Wabash Ry. Co., 58 F.(2d) 569 (C. C. A. 8th); Phillips Co. v. Grand Trunk Western R. R. Co., 236 U. S. 662, 35 S. Ct. 444, 59 L. Ed. 774; Davis v. Mills, 194 U. S. 451, 24 S. Ct. 692, 48 L. Ed. 1067. These decisions and others establish the rule that the time for beginning action is not extended by insanity of the employee, by infancy or by the fact that the delay in institution of the suit was caused by the fraud and deceit of defendant.

Plaintiff’s action was instituted in. this court within the time required by statute, but it is the contention of defendant that the delay in procuring service of process brings the case within authorities holding that laches or negligence to prosecute a suit for an unreasonable length of time gives the court the right to - exercise an inherent power to dismiss the suit for want of prosecution. Such is the case of Daly v. City of Chicago, 295 111. 276, 129 3ST. E. 139, 142. Defendant asserts also that a suit is not actually commenced unless at the time of the filing of petition or declaration there is no unreasonable delay in the service of process and evidence of a bona fide intention to prosecute the suit with diligence, relying upon Mound City Co. v. Castleman (C. C. A.) 187 F. 921; Linn Timber Co. v. U. S., 236 U. S. 574, 35 S. Ct. 446, 59 L. Ed. 725; Armstrong Cork Co. v. Merchants’ Refrigerating Co. (C. C.) 171 F. 778. It relies explicitly upon the case of Bowen v. Wilson, 56 App. D. C. 375, 15 F.(2d) 733, wherein the court held that failure to serve summons for nearly four years after issuance, although the defendant, for a long period of time, openly maintained a residence within the district, to plaintiff’s knowledge, justified the conclusion that plaintiff intended to discontinue and abandon her suit.

Admittedly, if a plaintiff begins suit and exercises no diligence to secure service of process but apparently abandons the prosecution of his cause of action for a number of years, it is only reasonable for the court to conclude that because of his laches and negligence, he intended to abandon his suit. As the Supreme Court said in the ease of Daly v. City of Chicago, supra: “Witnesses may die or remove, the memory become impaired, and temporary conditions change or be forgotten. Courts have the inherent power in the interest of justice to dismiss suits for want of prosecution.” In pursuance of such power, courts frequently of their own motion dismiss suits for want of prosecution where there has been no diligence upon the part of the plaintiff. This power arises out of the authority of the court, in the exercise of its discretion, to determine whether the circumstances are such that in justice plaintiff ought not to be allowed to proceed. It is very closely akin to the application of equitable principles in disposing of any suit, whether in law or equity. Such action, however, is justified only where the court can say as a matter of law, from the undisputed facts, that the plaintiff has clearly evidenced an intention to abandon his cause of action. The court, remembering that stale demands are not favored, may, in such situations, penalize the plaintiff for his own negligence.

However, the circumstances in the present case, it seemed to me, will not warrant the court taking such position. Plaintiff, when he began this suit, obviously did so because he was afraid the jurisdiction of the circuit court of Chicago, upheld in that court and later sustained in the Appellate Court, might fail by the decision of the court of final resort in Illinois. It is evident that with this idea in mind, after he had procured judgment for $30,006, he began a suit for the same cause of action in a court where the jurisdictional question could not arise. Hot until January 20, 1934, was the said litigation terminated adversely to his contention as to jurisdiction, whereupon he had alias summons duly issued in this court.

The record is silent as to any act upon the part of plaintiff or his counsel as to service upon the original summons. It was the marshal’s duty, when-he received the original summons, to serve the same, irrespective of whether or not ten days would intervene thereafter between the date of service and the first day of the term to which it was returnable. .Service in such situation was at that time valid under. the Illinois statute, which provided that the only effect of failure to serve ten days before the term begins would be to bring about a continuance of the cause to the next term of court and make it unnecessary for defendant to plead until such second term. Illinois Practice Act of 1907, § 3 (Smith-Hurd Rev. St. Ill. 1933, c. 110, § 3). Here the plaintiff filed his declaration, which he was not compelled to do until the second term. Within a month of filing suit, summons was delivered to the marshal. Apparently of his own motion and contrary to his legal duty, the marshal failed to serve same because ten days would not intervene before the first day of term. It does not appear whether plaintiff knew that the summons had not been served.

The material facts actuating the court in the decisions relied upon were acts or failures to act upon the part of the plaintiff indicating intention to abandon the suit. Here there are no such acts, except sueh as may bo inferred from the failure to procure issuance of alias summons after the marshal failed to perform his duty upon the first summons. Rather the acts of plaintiff indicated that he intended to prosecute his suit against defendant, for he was even then prosecuting the same in the state courts. The worst thing that could happen to him was failure of that suit because of jurisdiction, and his worst fears having been realized, he promptly indicated a desire to proceed with this suit.

I am of the opinion, therefore, that the court has not before it sufficient facts to say as a matter of law that there was such negligence or laches upon the part of the plaintiff that he should not now be permitted to prosecute his suit, or that it can be said that a suit was not commenced within the statutory period, in view of the fact that service was not obtained for some three and a half years afterwards.

As pointed out in Schroeder v. Merchants’ & Mechanics’ Insurance Co., 104 Ill. 71, the Legislature of Illinois has not declared what is the commencement of a suit at law, but as said by that court, jurisdiction of the defendant is not essential to such commencement. The court held that service of process upon an insurance company beyond the year provided for the commencement of actions did not nullify the commencement of the suit within the limited time, by filing a préecipe. In Fish et al. v. Farwell et al., 160 Ill. 236, 43 N. E. 367, the plaintiff secured process upon one of the defendants on October 3, 1888, but did not serve the other parties until 1892. The court held that this fact was immaterial and that the suit was commenced as against all parties when the praseipe was filed in the circuit court.

The motion to quash the writ of service and to abate and dismiss the suit will be denied^ The defendant will have an exception and will be ordered to plead over within thirty days from date.


author: LIND LEY, District Judge.

text:
    JOHN L. WALKER CO. v. ALDEN et al.
    No. 316.
    District Court, E. D. Illinois.
    March 12, 1934.
    Walter T. Gunn, of Danville, Ill., for plaintiff.
    Roy C. Martin, of Benton, Ill., for defendant.
   LIND LEY, District Judge.

Plaintiff brings this suit in equity against the receiver of the First National Bank of Benton, Ill., asking the court to impress the funds in the possession of the receiver with a trust in behalf of plaintiff to the extent of $9,560. The receiver contends that no trust relation exists, but that plaintiff is a general depositor entitled to share in the distribution of the assets as such.

Plaintiff in December, 1921, entered into a contract with the city of Benton to build a sewer for the sum of $191,200 payable in bonds of sewer district No. 1 of that city. In May, 1922, the bonds were sold by plaintiff to the Hanehett Bond Company of Chicago at 86% cents on the dollar of the face value. This contract was in writing and provided that the plaintiff would leave “five (5) points of the purchase price of the bonds with the bank for the benefit of the bondholders, pending the issuance of an order of the County Court approving the work and finally confirming the assessments.” Plaintiff was to procure also the approving opinion of Chapman and Cutter, attorneys. This opinion was never secured, but it was refused upon; grounds not material in this controversy. Upon compliance with the conditions aforesaid, the five points thus retained by the bank were to be delivered to plaintiff.

Subsequently the city engineer at Benton issued a certificate that the improvement had been completed in full compliance with the contract and in July, 1924, the county court entered an order approving the work and finally confirming the assessment.

It is agreed by the parties that the effect of the contract was to leave with the bank 5 cents on the dollar of the purchase price of the bonds to be held until the conditions mentioned could be complied with and then surrendered to plaintiff, and it is the resulting effect of this contract which furnishes the crucial point of this suit. The plaintiff insists that inasmuch as the money thus retained was held for the specific purpose of protecting the bondholders until the engineer and the court should approve the work as required by statute and was then to be surrendered to plaintiff, there was, by the receipt of the 5 per cent., an augmentation of the assets of the bank, the amount of which was retained for a specific purpose, and eventually upon satisfaction of the required conditions, was to become its property. It insists that this creates a trust relation out of which springs to it the right to have from the receiver, the fund represented by the 5 per cent., as against the general creditors. As against this the receiver contends that the money was deposited as any other deposit was made and that plaintiff is entitled to no preference.

From time to time the bonds were received by the bank and forwarded to the First National Bank of Chicago for delivery to the piirehaser, who remitted to the First National Bank of Chicago for them as they were sold. The latter bank thereupon credited the account of the Benton bank with the amount of the purchase price of the bonds. The Benton bank, upon advice of such credit, credited to the plaintiff in its general deposit in that bank all of the purchase price of the bonds except the 5 per cent. The credits representing the 5 per cent, of the purchase price to be retained by the bank were entered in a new deposit account opened June 15, 1922, the date of the first sale of bonds, reading as follows: “First National Bank, Trustee for John L. Walker Company and the Hanehett Bond Company.” The bank prepared a deposit slip for each of the installments representing the 5 per cent., crediting the same to this special account. Upon the reverse side of the first deposit slip the bank entered a notation “do not pay any checks on this account unless authorized by G. C. Cantrell.” The entry upon the deposit slip read: Deposited by First National Bank Trustee for John L. Walker Company and the Hanehett Bond Company, June 15, 1922, currency $1,750.00. The above amount is to be held by the First National Bank of Benton, Illinois, until the city of Benton accepts the work and the final adjudication for same, at which time the money shall be turned over to the John L. Walker Company.”

The bank wrote plaintiff stating that it had received proceeds of sale of bonds and that it had “set aside in a special deposit account five per cent of the face value of these bonds, namely $1,750.00, which is to be paid to John L. Walker Company” when the conditions should be complied with. This system of bookkeeping prevailed during the entire transaction. All the bonds were .sold and all the proceeds of the selling price were credited to the general account of plaintiff except the 5 per cent, which was credited to the account entitled “First National Bank, Trustee for John L. Walker Company and the Hanehett Bond Company.” Plaintiff received duplicate deposit slips for each item so credited. The amount of deposit was $9,-560. No cheeks were drawn against it, nor was it subject to cheeking. The fund remained on hand for several years and was in the same condition when the receiver was appointed in 1930. Upon two occasions six months’ interest was paid plaintiff and there has been credited to the account six months’ interest at the same rate.

In the correspondence between plaintiff and the bank, both the president of the bank and the plaintiff from time to time mentioned this fund as “escrow fund,” “trust fund,” and “deposit.”

A trust relation may grow out of express contract or it may result from facts and circumstances independent of contract. Many courts have held that a deposit made and executed on the condition that it is to be used to pay a particular obligation or to be held as security for some particular purpose will be treated as a trust fund. Upon these cases the plaintiff bases its claim. Illustrative of this proposition are many cases cited in the footnote. We shall not attempt to analyze all of them. Each arises out of the particular facts presented and in general they hold that a fund delivered to a bank for a specific purpose such as the payment of a note held by a third person or to be paid to another bank or a third person in fulfillment of a specific purpose such as the completion of the con-tract of a house or drilling of an oil well or to he delivered when a warranty deed should be received or when a certain guarantee had been completed, or to be transmitted to another bank to meet maturing coupons on bonds, or to pay a certain amount of taxes, when the amount could be determined, or to discharge mortgage to be delivered to the bank, or to pay a certain specified outstanding check of the depositor, or to secure a certain specified payment of rent, or speaking generally, to be held by the bank for the purpose of furthering a transaction between the depositor and a third person, or under such circumstance as to give rise to a necessary implication that it is made for such purpose is of trust character.

Here there is no question but that the fund was received for a certain specific purpose, namely the protection of the bondholders until certain conditions had been complied with, and upon such compliance, to be delivered to the plaintiff. However, certain difficulties are encountered. The receiver contends that inasmuch as the actual fund was not received but was created by bookkeeping credit for which corresponding credits were entered by the Benton bank, there was no augmentation of the funds of the bank and in fact no creation of a trust fund. It is undisputed that the First National Bank did in each instance credit upon its books the Benton bank with the proceeds of sale of bonds, and that from time to time in the general course of business such credit balance in the Benton bank’s favor decreased, until when the receiver was appointed there was a balance due the First National Bank of Benton of approximately $200 which was paid to the receiver.

The receiver admits that if a trust fund comes into actual existence, and, though it cannot be identified as such, if there remains sufficient funds on hand to satisfy the demands of such special deposit, the law will presume that in the dissipation of its funds, the bank spent first its own money leaving the trust fund intact, and it is shown here that there was at all times in the bank’s hands, currency sufficient to pay to plaintiff the amount of the so-called trustee’s account. Thus in Empire State Surety Co. v. Carroll County, 194 F. 593, 605 (C. C. A. 8th), the court said:

“Proof that a trustee mingled trust funds with his own and made payments out of the common fund is a sufficient identification of the remainder of that fund coming to the hands of the receiver, not exceeding the smallest amount the fund contained subsequent to the commingling * * * as trust property, because the legal presumption is that he regarded the law and neither paid out nor invested in other property the trust fund, but kept it sacred.”

And in the case of Fiman v. State, 29 F.(2d) 776, 780 (C. C. A. 8th), certiorari denied 279 U. S. 841, 49 S. Ct. 254, 73 L. Ed. 987, the court said:

“The trust having been established, to regain its funds it is then necessary for the claimant to show that the receiver, as such, has in his hands a common fund in which the claimant’s deposit is included. These matters being established the law adds thereto a presumption that the bank in expending the funds expended its own funds and not the trust fund; in other words, when the trust is proven and there is a showing that the receiver has a common fund in his hands, this, plus the presumption, makes a prima facie showing entitling the claimant to a preference in the event it is not overcome by the proof of the receiver.”

To the same effect is the late case of People v. People’s State Bank of Maywood, 354 Ill. 519,188 N. E. 853, where other cases are cited.

But the receiver contends that the rule mentioned does not apply to the case at bar for the reason that the plaintiff cannot show that the fund came into the possession of the bank as a special fund, in view of the fact that it arose merely from credits with the First National Bank of Chicago. Concerning this contention, the plaintiff insists that a credit transaction is recognized as augmentation of assets; that substantially all bank accounts are credit accounts; and that settlements between banks are made not in currency but in clearing house settlements. From this it follows, says the plaintiff, that if we are to follow the rule that the fund itself must be augmented by currency, equity would be defeated because in the vast majority of cases, the augmentation arises by virtue of a credit account.

With this line of reasoning the court finds itself in full accord. If a trust relation exists and a trust fund is accumulated upon the books of the bank, I see no justification for defeating the trust relation because the actual money is not there. It would seem entirely logical in such situation that the trust relation should apply to the moneys on hand. In other words, it being presumed that in reducing the funds on hand, the bank intended first to spend its own money, the trust should revert to- the balance on hand. Any other reasoning defeats the very purpose of protecting a trust. Thus in Schumacher v. Harriett, 52 F.(2d) 817, 819, 82 A. L. R. 1 (C. C. A. 4th), the court said:

“The doctrine of tracing trust funds has been greatly liberalized in reeent years. The old rule was that the right ceased when the property was turned into money and mixed and confounded in a general mass of property of the same description. The modem rule of equity, however, is that, 'where the fraudulent depositary so mingles goods which he has obtained by fraud with the mass of like goods of Ms own, the whole may be seized, or considered as held in trust, until equitable separation of the property of the defrauded party is made. So, advancing one step further, where money thus obtained has gone to swell the aggregate in the possession of the fraudulent party, it may, under proper proceedings, be segregated in amount from such aggregate sum, and made the subject of a trust, in order to accomplish the ends of justice.’ ”

In other words proof that the bank mingled a trust fund with the funds of the bank and made payment from the common mass should, in view of modern doctrines and usages, constitute a sufficient tracing and identification of the fiduciary fund in so far as there remains a balance in the common fund after such commingling and after an expenditure or dissipation of a part thereof. Empire State Surety Co. v. Carroll County, 194 F. 593 (C. C. A. 8th); Brennan v. Tillinghast, 201 F. 609 (C. C. A. 6th); Macy v. Roedenbeck, 227 F. 346, L. R. A. 1916C, 12 (C. C. A. 8th); American Surety Co. v. Jackson, 24 F.(2d) 768 (C. C. A. 9th).

In American Surety Co. v. Jackson, 24 F.(2d) 768 (C. C. A. 9th), the court held that where a trust deposit has been shown to be placed by the bank in its common fund and it is also shown that the common fund does not at any time fall below the amount of the trust fund, the burden is on the receiver to show that the withdrawals or disbursements therefrom were of trust funds and that the trust fund was dissipated or lost. See, also, Fiman v. State, 29 F.(2d) 776 (C. C. A. 8th); Schumacher v. Harriett, 52 F.(2d) 817, 82 A. L. R. 1 (C. C. A. 4th); Cuttell v. Fluent, 51 F.(2d) 974 (C. C. A. 8th).

However, there is another line of reasoning in most federal cases to- which reference should be had. Those courts have quite frequently adhered to the doctrine that in order to take a deposit out of the debtor-creditor class and clothe it with the qualities of a trust, there must be a showing that the parties intended to stamp a deposit as unusual and 'fiduciary in character. Thus in Keyes v. Paducah & I. R. Co. (C. C. A.) 61 F.(2d) 611, 86 A. L. R. 203, $8,000 was lodged with the court as security for a temporary restraining order. The order of the court provided: “This injunction is conditioned upon deposit by plaintiff in the National Bank of Kentucky of Eight Thousand Dollars, to abide the event of this ’cause, and it appearing to the court that this has been done, said sum so deposited shall be at all times subject to the order of this court.” The bank received the cash for the draft and advised the company that they were holding the proceeds in the form of a cashier’s cheek. Subsequently, the bark became insolvent. The company sought to have the $8,000 declared a special deposit of trust character. The court held that this language did not indicate any intention upon the part of the court or the parties that the funds were to be segregated and kept distinct from the general funds of the bank and that inasmuch as the bank had the right to use the money, only a debtor and creditor relation had been created. The following language is pertinent:

“There is á class of state cases which seem to hold that, whenever money is deposited with a bank to await the completion of a contract, the outcome of pending litigation, or as security, the deposit must be considered as having been received in trust for a specific purpose. * * * We think, however, that it is the necessary effect of the Supreme Court eases cited that the presumption that arises from the very nature of the banking business of a right to use deposited funds in the general business of the bank where there is absent any expressed or clearly implied intention otherwise precludes us from sustaining the conclusion of the conrt below that the fund here in question was a special deposit, or became impressed with a trust. We are sustained in this view by decisions in other federal circuits upon similar or analogous facts.”

In Minard v. Watts (C. C.) 186 F. 245, 247, the parties had agreed that certain rentals due a landlord should be deposited in the bank pending the disposition of certain litigation. The court refused to characterize the deposit as of anything other than the ordinary character:

“Banks are not created for the purpose of acting' as bailees of the property of others, either with or without hire. While a national bank by contract may possibly bind itself to such legal relation, it is quite clear this may be done only either by express contract or the transaction of deposit must, from its very nature, be of such character as to imply such obligation and relation.”

In Davis Trust Co. v. Smith, 226 F. 410, 412 (C. C. A. 4th), Davis had put money in the bank upon a stipulation providing that it should be “held by you on special deposit in trust on the conditions and for the purposes following, viz., $13,000 for the use of each of said children until they respectively arrive at the age of 21 years. * * * To each of said children upon his or her arriving at the age of 21 years, you shall pay the principal sum of $13,000, with any interest that may then be due upon the same.” The bank signed the receipts stating that it held the deposit “in trust for the purposes mentioned,” but the court refused to treat the deposits as anything other than as general in character. Other federal cases of similar import are Hirning v. Federal Reserve Bank (C. C. A.) 52 F.(2d) 382, 82 A. L. R. 297; Blakey v. Brinson, 286 U. S. 254, 52 S. Ct. 516, 76 L. Ed. 1089, 82 A. L. R. 1288.

In Connolly v. Lang, 68 F.(2d) 199 (C. C. A. 7th), a depositor intending to withdraw a savings account received a bank draft upon a New York bank for the amount thereof. Before the draft could be collected, the bank failed. The court refused to consider the relation anything other than that of debtor and creditor. See, also, Swan v. Children’s Home Soc. of West Virginia, 67 F.(2d) 84 (C. C. A. 4th); Pottorff v. Key, 67 F.(2d) 833 (C. C. A. 5th); Thompson V. Common School District, 67 F.(2d) 284 (C. C. A. 9th).

Apparently the parties herein contemplated that interest should be paid. As pointed out in various decisions, a recovery against the receiver of a national bank is not based upon any provision of the statute creating any lien or preference, for the statute forbids preferences, but is authorized in situations where the facts are such that the court must say in equity that the property is not that of the bank but that of the claimant. Payment of interest springs out of a debtor-creditor relation. One does not receive interest from property; he receives interest from a loan, while from property he receives profits. Consequently payment of interest is inconsistent with the existence of a trust relationship. In McNulta v. West Chicago Park Com’rs (C. C. A.) 99 F. 900, at page 905, the court said:

“A deposit upon which interest must be paid cannot be special or in trust, and, in case of the failure of the bank, must, for the purpo.se of payment, be on the same footing with other deposits or unsecured demands.”

The courts quite generally hold .that an agreement to pay interest necessarily implies the right of the bank to use the money; that it is not consistent with the relation of bailee and bailor but destructive of any presumption of a trust relationship. Scammon v. Kimball, 92 U. S. 362, 23 L. Ed. 483; People v. Robinson, 352 Ill. 596, 186 N. E. 484; Pittsburg Nat. Bank of Commerce v. McMurray, 98 Pa. 538; Leaphart v. Commercial Bank of Columbia, 45 S. C. 563, 23 S. E. 939, 33 L. R. A. 700, 55 Am. St. Rep. 800.

The fact that the money was deposited to the credit of the bank as trustee for plaintiff, that no checks were to be drawn upon it, and that it was at times spoken of as being “in escrow” or “in trust” is, in my opinion, insufficient to take the ease out of the rules announced by the federal courts in the cases referred to. Apparently, it was contemplated by the parties that the bank should have the right to use the fund just as it used other funds on deposit, by loaning the same to customers and by agreeing to account for the same when the conditions were complied with. In its essence the arrangement was not different from a long time certificate of deposit. It is presumed that money received by banks is to be received in the ordinary sense and used by it in the ordinary banking sense, and until the court can see that certain facts stand out forcing a characterization of the transaction as a deposit of some character other than the ordinary character, it is not justified in giving any preference to a deposit. As the plaintiff knew that the money was being received and deposited and that he was receiving interest upon the same, I do not believe that it did anything or that the bank did anything to take the deposit out of the ordinary debtor-creditor class of deposits.

Consequently, there will be a decree denying plaintiff’s claim for preference but allowing it as an unsecured debt. Proper decree may be submitted. Each party will pay its own costs.

       Montagu v. Pacific Bank (C. C.) 81 F. 602; Central Bank & Trust v. Ritchie, 120 Wash. 160, 206 P. 926; Capital National Bank v. Coldwater National Bank, 49 Neb. 786, 69 N. W. 115, 59 Am. St. Rep. 572; People v. City Bank, 96 N. Y. 32; Sawyers v. Conner, 114 Miss. 363, 75 So. 131, L. R. A. 1918A, 61, Ann. Cas. 1918B, 388; Lamb v. Ladd, 112 Kan. 26, 209 P. 825; Hudspeth v. Union Trust & Savings Bank, 193 Iowa, 706, 195 N. W. 378, 31 A. L. R. 466; Schulz v. Bank of Harrisonville (Mo. App.) 246 S. W. 614; Kimmel v. Dixon, 5 S. D. 221, 58 N. W. 561, 25 L. R. A. 309, 49 Am. St. Rep. 839; State ex rel. Ladenburger v. State Bank, 42 Neb. 896, 61 N. W. 252; Shopert v. Indiana Nat. Bank, 41 Ind. App. 474, 83 N. E. 515; Stoll v. Meade County Bank, 39 S. D. 136, 163 N. W. 565; Peak v. Ellicott, 30 Kan. 156, 1 P. 499, 48 Am. Rep. 90; Merchants’ Nat. Bk. v. School Dist. (C. C. A.) 94 F. 705; St. Louis v. Johnson, Fed. Cas. No. 12,285; Ryan v. Phillips, 3 Kan. App. 704, 44 P. 909; In re Jarmulowsky (C. C. A.) 258 F. 231; Lusk Development v. Glinther, 32 Wyo. 294, 232 P. 518; Brogan v. Kriepe, 116 Kan. 506, 227 P. 261, 37 A. L. R. 128; Mothersead v. Harrington, 123 Okl. 179, 250 P. 483; Blummer y. Scandinavian-American St. Bank, 109 Minn. 89, 210 N. W. 865; Corporation Commission v. Merchants’ Bank & Trust Co., 194 N. C. 125, 138 S. E. 530, 57 A. L. R. 382; Chapman v. First National (Tex. Civ. App.) 275 S. W. 498; Samuel Haas v. Service Association, 222 Mo. App. 307, 297 S. W. 129; Blythe v. Kujawa, 175 Minn. 88, 220 N. W. 168, 60 A. L. R. 330; Evans v. Peoples’ Bank, 222 Mo. App. 990, 6 S.W.(2d) 655; Greenfield v. Clarance Savings Bank (Mo. App.) 5 S.W.(2d) 708; In re Security Savings Bank, 205 Iowa, 171, 217 N. W. 831; Woodhouse v. Crandall, 197 Ill. 104, 64 N. E. 292, 58 L. R. A. 383; Dearborn v. Washington Savings Bank, 13 Wash. 345, 42 P. 1107; Starr Cutter Co. v. Smith, 37 Ill. App. 212; Carlson v. Kies, 75 Wash. 171, 134 P. 808, 47 L. R. A. (N. S.) 317; Northwest Lumber Co. v. Scandinavian American Bank, 130 Wash. 33, 225 P. 825, 39 A. L. R. 922; Boone County Nat. Bank v. Latimer (C. C.) 67 F. 27; People v. Auburn State Bank, 215 Ill. App. 133; Mutual Accident Association v. Jacobs, 141 Ill. 261, 31 N. E. 414, 16 L. R. A. 516, 33 Am. St. Rep. 302; Titlow v. Sundquist, 234 F. 613 (C. C. A. 9); Blakey v. Brinson, 288 U. S. 254, 52 S. Ct. 516, 76 L. Ed. 1089, 82 A. L. R. 1288; Howland v. People, 229 Ill. App. 23.


author: PATTERSON, District Judge.

text:
    In re CARNERA.
    No. 57584.
    District Court, S. D. New York.
    Nov. 24, 1933.

      Alexander & Green, of New York City (Edward W. Bourne and Donald M. Dunn, both of New York City, of counsel), for creditor.
    Max Roekmore, of New York City, for bankrupt.
   PATTERSON, District Judge.

Primo Camera filed a voluntary petition in bankruptcy on June 17, 1933, and was adjudicated the same day. In his petition he alleged that he had had his principal place of business and had resided or had his domicile at the Hotel Victoria in New York City and in this district for the greater part of the period of six months preceding the filing of the petition. Later a judgment creditor of the bankrupt made a motion to have the adjudication vacated and the petition dismissed on the ground that the bankrupt had not had his principal place of business, residence, or domicile here for the greater part of the six months’ period, and that jurisdiction over the case was therefore wanting. The issues raised by this motion were referred to a special commissioner who has reported that in his opinion the bankrupt both resided here and had his principal place of business here for most if not all of the period in question.

The bankrupt is a renowned Italian pugilist. His domicile is and always has been in Sequals, Italy. He first came to this country in January, 1930, being admitted as a temjzorary visitor. He stopped at a hotel in New York City, but spent considerable time traveling over the country in the fulfilment of boxing and theatrical engagements. He remained in the United States for the greater part of 1880 and 1981. After a trip to Italy that covered several months in 1932, he came here again in June, 1932, being admitted by the immigration authorities as a temporary visitor and receiving a permit to stay for six months. In December his permit was extended.

The six months’ period preceding bankruptcy begins with December 17, 1932. At that time Camera was in Western cities boxing, although he kept rooms at the Hotel Lincoln here. On December 31st he returned to New York and moved to the Hotel Victoria, remaining until January 15, 1933. From January 13th to February 10th he was in New Jersey training for a fight, coming to New York once or twice a week to spend the night. From February 10th to February 24th he was in New York City again, occupying his quarters at the Victoria. On February 24th he gave up his hotel rooms and sailed for Italy. He did not return until May 12th, when he came in again as á temporary visitor on a six months’ permit. He was at the Victoria from May 12th to June 1st, at which time he went to New Jersey to train for his fight with Jack Sharkey on June 29th- The petition in bankruptcy was filed on June 17th.

Camera’s quarters at the Victoria consisted of two rooms. There he received his mail and had his personal belongings. Correspondence files and a typewriter were kept there for business use by his manager. Contracts for fights and exhibitions were negotiated there; the manager taking the leading part in these activities., Trainers and sparring partners were paid'off there, and persons calling for business or for curiosity were received there.

Dza-ing the six months’ period three contracts for fights were made. In them Camera is described as of Venice or Sequals, Italy. In litigation here shortly before bankruptcy he alleged that in 1930 he was a resident of Italy. In the bankruptcy proceeding he testified that he had been a resident of New York City since his arrival in 1930.

Under the Bankruptcy Act § 2 (11 USCA § 11), a petition may be filed in the district where the bankrupt for the preceding six months or the greater part thereof had his residence, domicile, or principal place of business. The requirement as to residence, domicile, or principal place of business, while in the alternative, is jurisdictional, and, if all three are lacking, the adjudication must be vacated and the petition dismissed. In re Mitchell (C. C. A.) 219 F. 690; In re Pusey & Jones Co. (C. C. A.) 286 F. 88. See, also, Royal Indemnity Co. v. American Bond Co., 289 U. S. 165, 53 S. Ct. 551, 77 L. Ed. 1100. In this ease the element of domicile may be eliminated at once, for it is conceded that Camera’s domicile has at all times been in Italy.

I cannot agree with the commissioner that the bankrupt had a residence in this district. It may be granted that the residence referred to in the Bankruptcy Act is not the equivalent of domicile; a less permanent occupancy will answer for a residence. In re Garneau (C. C. A.) 127 F. 677; In re Lemen (D. C.) 208 F. 80; In re Davis (D. C.) 217 F. 113. But the bodily presence of a person in a place by no means makes that place his residence. In re Garneau, supra. I take it that a temporary visitor is not a resident, however loosely the latter word may be used. Camera’s status in this country has always been that of a temporary visitor. He originally gained admittance as a temporary visitor. Twice during the very period in question, in December, 1932, and in May, 1933, he declared to the United States government that he was no more than a temporary visitor. These declarations made ante litem outweigh his present testimony that he has been a resident of New York City since 1930. See Matter of Gaffney, 141 Misc. 453, 252 N. Y. S. 649. There is further proof that after his arrival here he regarded Italy as still his residence. He so stated only two weeks before bankruptcy in the answer that he interposed in a suit filed against him. He signed several contracts in which he described himself as of Venice or Sequals, Italy. The conclusion is irresistible that he never thought of Now York City as his residence until he decided to file a voluntary petition in bankruptcy.

The bankrupt’s position as to residence is no better if we regard that term as requiring nothing more than bodily presence in a locality. Here the proof is that from December 17, 1932, to June 17, 1933, Camera was physically within the confines of this district not over fifty-eight days, which is somewhat less than one-third of the entire period.

The case is otherwise as to the principal place of business. That Camera had a business, and apparently a lucrative one, is undeniable. The proof indicates that for more than half of the six months preceding June 17, 1933, the headquarters of that business were the bankrupt’s rooms at the Hotel Victoria. It was there that Camera or his manager discussed prospects, negotiated contracts, attended to correspondence, interviewed callers, paid off assistants and performed the other business details incidental to his performances in the ring. It does not matter that there was no sign on the door or that there were no office boys moving around. Camera and his staff had business, and the place where most of that business was carried on was his quarters at the Hotel Victoria. The commissioner’s finding that the bankrupt had his principal place of business in this district for the major portion of the six months prior to the filing of the petition is sustained by the evidence, and the report will be confirmed in this respect.

The petition was properly filed in this district, and the motion to vacate the adjudication will be denied.


author: VAUGHT, District Judge.

text:
    HAYNES v. CITY OF WOODWARD, OKL., et al.
    No. 4911.
    District Court, W. D. Oklahoma.
    Feb. 19, 1934.
    Howard Patton, of Woodward, Okl., and John Barry, of Oklahoma City, Okl., for plaintiff.
    M. M. Thomas, of Oklahoma City, Okl., for defendants.
   VAUGHT, District Judge.

The stipulation filed herein waives trial hy jury and admits all jurisdictional facts, that the plaintiff is the receiver of the First National Bank of Woodward, Okl., which bank failed on the 18th day of January, 1932; that the treasurer of the city of Woodward had deposited to the credit of said treasurer with said bank at the time it failed the sum of $145,450.88; that there had been delivered to said treasurer, to secure payment of said deposits by said bank, bonds in the sum of $120,000, $28,000 of which were Woodward, Okl., bonds and $92,000 of which were United States Liberty bonds.

It is further stipulated that said deposits were received and said bonds delivered to said treasurer to secure said deposits by L. L. Stine, as president, and H. H. Stallings, as cashier of the bank; .that the president and cashier of the bank were the responsible parties in charge of said bank.

The receiver brought this action to secure the possession of said bonds and contends in his petition that the bank acted beyond its power in delivering said securities, assets of said bank, to the city treasurer to guarantee payment of said deposits, for the reason that said assets were not delivered to the city treasurer as provided by law, in that no meeting of the board of directors was had at which, by a majority vote, the board authorized the officers of the bank to accept said deposits and deliver said assets of the bank to said city treasurer as security for said deposits.

The city for its defense alleges that the money belonging to said city was deposited in good faith with the bank. At the time of the deposit the treasurer of said city received said assets of said bank for the protection of said city and its treasurer in making said deposit in said bank.

The Act of June 25, 1930 (46 Stat. 809), section 90, title 12 USCA, in part reads as follows: “Any association may, upon the deposit with it of public money of a State or any political subdivision thereof, give security for the safe-keeping and prompt payment of the money so deposited, of the same kind as is authorized by the law of the State in which such association is located in the case of other banking institutions in the State.”

Section 9115, Okla. Stat. 1931, provides in part as follows: “No bank, banker or bank official shall give preference to any depositor or creditor by pledging the assets of the bank as collateral security or by selling or transferring any of the assets of any insolvent bank in consideration of any deposit in such bank; provided, any bank, by the unanimous consent of its board of directors, expressed by resolution duly entered in the minute book of such bank, may pledge the assets of such bank, except promissory notes, as security for postal savings funds, government funds, Indian funds under the control of the Federal Government, state funds of the State of Oklahoma, county, township, city, town, school district, benevolent or fraternal association funds deposited in such bank in all eases where no surety bond is given to secure such deposits. * * * ”

We therefore have before us a federal stat-ate authorizing a national bank to accept deposits of municipalities and to pledge assets of the bank to the said municipalities as security for said deposits..

We also have the state statute which provides that state banks may pledge the assets of said banks for city and other municipal deposits.

The question then for determination is whether or not the city, in accepting said pledge of assets, was protected therein by the federal statute.

In Fidelity & Deposit Company of Maryland et al. v. Kokrda, as Receiver, 66 F.(2d) 641, 642, the Circuit Court of Appeals for the Tenth Circuit, in a ease from Colorado, in which the national bank departed from the provisions of the Colorado state statute in pledging its assets to guarantee a deposit by depositing its assets with the Fidelity & Deposit Company for and on behalf of the municipality, and in which the receiver of the bank contended that the pledge was not made in strict accordance with the state statute, and therefore the receiver was entitled to recover certain bonds covered by the pledge, said: “Section 90, supra, does not say a national bank may give security in the same manner, but that it may give security of the same kind as a state bank may give. Kind means class, character, sort, description. Webster’s New International Dictionary. Had Congress intended to limit the manner of giving the security, we think it would have said, ‘of the same kind and in the same manner,’ or used words of equivalent import. The plain purpose of the statute was to remove any doubt of the power of national banks to give security for public deposits, and in that respect to enable them to invite public deposits on an equal footing with state banks. Baltimore & O. R. Co. v. Smith (C. C. A. 3) 56 F.(2d) 799, 802. It is our opinion that it authorizes a national bank to give the same kind of security for public deposits as state banks are authorized to give, in a state in which such national bank is situate, and leaves to state law the question of the procedure to be followed in the giving of such security. But if it authorizes a national bank to give security for public deposits only in compliance with the provisions of state law, the power existed to pledge the bonds, and the only question is, whether there was such a substantial compliance with chapter 83 (Laws Colo. 1927), supra, as would bind the bank.”

The same learned court continues: “The treasurer deposited the public moneys in the bank. It was the duty of the bank to give security therefor in accordance with the provisions of chapter 83, supra. This it undertook to do by pledging proper securities and depositing them with the surety company, instead of with an authorized bank. Under these circumstances we are of the opinion that the bank is bound by the pledge and cannot defeat it by setting up that it did not pledge the bonds in strict compliance with the statute.”

In this ease the city treasurer of Woodward deposited the public money of said municipality with the bank. The treasurer had her dealings with the president and the cashier of the bank, who were authorized to transact the business of the bank by the board of directors of said bank, and the treasurer, acting in good faith, had a right to rely upon the acts of the president and the cashier of tho bank as being the acts authorized by the governing body of the bank. In Fidelity & Deposit Company v. Kokrda, supra, the court further says in this connection: “Furthermore, the bank has not returned the deposit. When it received the deposit, it was its duty to secure the same in the manner provided in the statute. Under such circumstances it ought not to be permitted to recover the security without returning the deposit.”

Counsel for plaintiff and for defendants in their respective briefs have referred to the ease of Sneeden v. City of Marion, Illinois (D. C.) 58 F.(2d) 341, from the Eastern district of Illinois. The briefs referred to a District Court opinion dismissing the bill. In that ease, however, the judgment of the lower court was reversed by the Circuit Court of Appeals for the Seventh Circuit, 64 F.(2d) 721, and in a recent opinion by the Supreme Court of the United States, dated February 5, 1934, the judgment of the Circuit Court of Appeals was affirmed, City of Marion v. Sneeden, 54 S. Ct. 421, 422, 78 L. Ed. -. The court says:

“ * * * We are of opinion that the Act of 1864 did not confer the power to pledge assets to secure any public deposits except those made under section 45 by the Secretary of the Treasury of the United States. The power conferred by each later act, except that of 1930, was limited to securing specific federal funds. A national bank could not legally pledge assets to secure funds of a state, or of a political subdivision thereof, prior to the 1930 amendment; and since then it can do so legally only if it is located in a state in which state banks are so authorized. In some states national banks had, prior to the 1930 amendment, frequently pledged assets to secure public deposits of the state or of a political subdivision thereof; comptrollers of the currency knew that this' was being done; and they assumed that the banks had the power so to do. But the assumption was erroneous. The contention that such power is generally necessary in the business of deposit banking has not been sustained. * * *

“No Illinois statute confers in express terms upon banks organized under its laws either the general power to pledge assets to secure a deposit; or the general power to pledge assets to secure public deposits. A statute confers in terms the power to pledge assets to secure deposits of the states but there is none which so confers the power to pledge assets to secure public deposits of a political subdivision of the state.”

Our highest court, therefore, in affirming the Circuit Court of Appeals in reversing the District Court ease (City of Marion v. Sneeden, Receiver), in which the receiver of a bank sought to recover assets of the bank pledged to the city of Marion, Ill., to secure a city deposit when the laws of Illinois provided that a state bank could pledge its assets to secure the deposits of the state only, and made no provision for pledging the assets of a state bank to secure the deposits of a political subdivision of the state, based its decision upon the lack of authority granted by state statute to a state bank to guarantee a deposit of a political subdivision of the state.

The conclusion, therefore, to which this court is forced, is that, since the Oklahoma statute, section 9115, supra, expressly provides for the pledging of assets by a state bank as security for deposits of a political subdivision of the state and specifically of a city, town, township, county, or school district, and since the national bank of which the plaintiff is the receiver accepted the deposits of the city of Woodward and pledged for their security bonds which constituted assets of said bank, said pledge was consistent with the state law governing state banks and said federal statute and the receiver is not entitled to recover said bonds so pledged to said city.

It is true that originally the bonds were given by the bank to the treasurer of the city of Woodward to secure the deposit prior to June 25, 1930, the date on which the federal law was enacted. However, the Woodward bonds amounting to $28,000 were continued in the possession of the treasurer of the city of Woodward, after the enactment of the law herein set out of June 25, 1930, and, by the acts and conduct of both the city treasurer and of the bank subsequent to June 25, 1930, were treated as a pledge to the city to secure said deposit. The government bonds in the sum of $100,000 were pledged on March 26, 1930. On December 3, 1930, however, these bonds were surrendered, and there was substituted therefor United States Treasury bonds of the par value of $101,950. This act was approved by the officers of the bank. On June 10, 1931, the $101,950 of Treasury bonds were surrendered pursuant to the instructions of the.. First National Bank of Woodward and there was reissued to the treasurer $91,950 in bonds on a joint custody receipt signed by the First National Bank of Woodward; $10,000 of these bonds were surrendered to the hank.

However, the conduct of the bank at all times subsequent to June 25, 1930, approving the pledge to the city of Woodward, in the judgment of the court, would have the same effect as if said entix'e pledge had been made subsequent to June 25, 1930:

Judgment will be rendered in favor of the defendants, and an exception will bo allowed the plaintiff. Form of judgment may be prepared consistent with this opinion.


text:
    HAYNES v. UNITED STATES FIDELITY & GUARANTY CO. et al.
    No. 4906.
    District Court, W. D. Oklahoma.
    Feb. 19, 1934.

      Howard Patton, of Woodward, Okl., and John Barry, of Oklahoma City, Okl., for plaintiff.
    C. W. Herod, of Woodward, Okl., and Owen & Lindsey and M. M. Thomas, all of Oklahoma City, Okl., for defendants.
   VAUGHT, District Judge.

This matter is submitted to the court upon a stipulation of facts, a jury having been waived. The stipulation admits all jurisdictional facts. By stipulation Geo. L. Aycoek, receiver, is substituted for Sidney W. Haynes, receiver, as plaintiff. The plaintiff, as receiver of the First National Bank of Woodward, brings this action against the United States Fidelity & Guaranty Company and the city of Woodward, as intervener, alleging that the defendant guaranty company has in its possession and under its control certain securities belonging to the said bank and to the receiver thereof.

The facts stipulated are that on December 30, 1929, to secure a deposit of $25,000 made by said city with said bank, the said bank executed a surety bond in the sum of $25,000 and to secure said guaranty company against loss from making said bond the said bank deposited the securities set out in the plaintiff’s petition with said guaranty company and that said bond was continued from year to year and until the 30th day of December, 1931. On or about the 15th day of December, 1931, and prior to the expiration date of said bond, the said city of Woodward, through its attorney and its treasurer, advised the managing officers of said bank that said bond would soon expire and that said city wanted to withdraw its funds secured thereby unless said deposit was secured as by law required; that said bank, through its officers, assured the city attorney and the treasurer of the city of Woodward that the bond would be continued in force and effect and that the premium therefor had been paid by said bank and the continuation certificate issued by the bonding company was expected daily; that thereafter and immediately prior to December 30, 1931, the said city attorney again went to said bank and made a similar inquiry and demand, and again was assured by said bank and its officers that said bond would be renewed at its expiration and continued in full force and effect; that the representations of said bank and its officers were believed and were relied upon by the defendant city and its officers, who were thereby lulled into a sense of security until after December 30, 1931; that on January 12, 1932, the said city and its officers learned that said representations of said bank and its officers were not true; that said depository bond had not been renewed or continued in force and effect by said defendant surety company and no premiums therefor had been paid by said bank nor accepted by said surety company; that thereupon said city through its officers demanded payment of its deposit in the sum of $25,000; that said demand was refused, and said city and its officers were informed by said bank and its officers that the presentation of a check for said sum would be a vain and useless thing and that said deposit would not be paid by said bank and that the presentation of said cheek would result in the closing of said bank.

Thereupon, on January 12, 1932, the representatives of the city demanded the bonds and securities in the hands of the bonding company as a temporary substitute for the expired bond, and the bank authorized the bonding company to deliver the securities in the sum of $42,000 to the city, and in addition thereto gave the city $1,000’ in bonds from the assets of the bank, or a total sum of $43,000.

There is little or no difference in the contentions of the respective parties as to what actually occurred. This depository bond in the sum of $25,000 made to secure the deposit of the city of Woodward in said bank, was in full force and effect on December 15, 1931, and, while it was not made known to the city, the bank had been advised by the guaranty company that it would not renew the bond for another year unless additional securities were provided. This the bank not only failed to provide, but through its officers falsely represented to the city attorney and the city treasurer of Woodward that the surety bond had, been renewed, that the premium for an extension had been paid, and they daily were awaiting the certificate extending said depository bond over to the next year. The representatives of the city again made inquiry, immediately prior to the 30th day of December, 1931, and were assured that the bond was all right. The bank was also advised that the money would be drawn out if the bank did not renew said bond or protect the city against loss on its deposit. The said securities held by said guaranty company, by stipulation of the parties, were deposited with the clerk of this court subject to final disposition by order of this court.

The city’s contention is that said securities were placed with the surety company for the protection of the surety company and indirectly to secure the deposit of said eity. In other words, instead of depositing said securities with the eity to protect the city’s deposit, said securities were deposited with the bonding company, which company executed its bond to the city. The false and fraudulent statements made by the officers of the bank to the representatives of the eity induced the eity to leave its deposit in the bank.

The court is not inclined to believe that the bank or the receiver thereof should be permitted to profit by the fraud and deception practiced by the officers of the bank upon the city. As to whether or not the city was protected, in accepting assets of the bank to secure the city’s deposit, has been passed upon in another ease, to wit, Haynes, Receiver, v. City of Woodward, 6 R. Supp. 270, this day decided by this court, and reference is made to said opinion on that question.

Particular reference is made to Fidelity & Deposit Company v. Kokrda (C. C. A.) 66 F.(2d) 641, 643, wherein the court says:

“The treasurer deposited the public moneys in the bank. It was the duty of the bank to give security therefor in accordance with the provisions of chapter 83, supra. This it undertook to do by pledging proper securities and depositing them with the surety company, instead of with an authorized bank. Under these circumstances we are of the opinion that the bank is bound by the pledge and cannot defeat it by setting up that it did not pledge the bonds in strict compliance with the statute. (Citing authorities.)

“Furthermore, the bank has not returned the deposit. When it received the deposit, it was its duty to secure the same in the manner provided in the statute. Under such circumstances it ought not to be permitted to recover the security without returning the deposit.” (Citing authorities.)

In this case, the bank accepted the deposit of the city of Woodward, and, together with the surety company, guaranteed the safety thereof, and as a part of said guaranty transaction the bank placed the securities with the surety company.

Immediately prior to the expiration of the surety bond on December 30, 1931, the bank’s assurance that the bond would be extended induced the city to leave its money in the bank; otherwise the eity would have withdrawn the deposit from the bank.

The issue in tins case, as contended by the receiver, is whether or not the assets were taken and transferred at .a time when the First National Bank of Woodward was insolvent, or rather at a time when the officers, had they considered the situation, must have seen failure was inevitable. Under the evidence in this ease, however, the court finds that these securities or assets in question were not in the possession of the bank and had not been for some years. In fact at the time the bond was given in December, 1929, these securities were in the possession of the surety company, and they were placed with the surety company for the purpose of protecting the eity in this specific deposit. The securities, or substituted securities, remained with the surety company, and in December, 1930, the bond was extended until December 30, 1931, and, as hereinbefore stated, when the eity, through its representatives, conferred with the president and the cashier of the bank between the 15th of December and the 30th of December, 1931, relative to the renewal of the bond, advising the bank that, unless the bond were renewed, the city would withdraw its deposit, which it had a perfect right to do. The officers of the city were not negligent in their duties except that they relied upon the statements of the officers of the bank as true. The securities so pledged with the surety company had already been taken out of the bank, were not in the assets of the bank, unless they could be construed to be so constructively after the 30th day of December, 1931.

The court does not understand that there was ever any transfer of the assets of the bank. The city merely contended that the assets should continue to be used for the purpose for which they were set apart two years prior thereto, to wit, the protection of said deposit, and the hank then authorized the bonding company to deliver the pledged securities to the city.

It may be contended that these assets were not pledged to the city, that the city merely had a bond, and that these assets were pledged with the surety company to guarantee the surety company against loss and not to protect the city. The court, however, will look to the substance of the transaction rather than the form. These assets were pledged to protect this deposit, and they could have been pledged directly with the city under the statute, or in order to secure a bond to protect the city, they could have been pledged with a bonding company, which was done. The city therefore contends that, when the bond expired and the city had not withdrawn its deposit from the bank because of the false and fraudulent representations made by the officers of the bank, if the bonding company were to be relieved of its liability on the bond, the city should be protected, at least by having the same protection previously given the bonding company.

The hank has not suffered in this transaction, neither have the general depositors, for, if the bond had been renewed as stated by the bank, the bonding company would certainly have been entitled to hold these assets, and therefore, if the bank even had constructive possession of the assets so pledged, it was a constructive possession secured through fraud.

The bank was continued in operation until January 18, 1932. It may have been found by the examiner’s report to be insolvent because of depreciation of assets and general economic conditions, but the evidence does not disclose that an act of insolvency had actually been committed.

In other words, the assets of the bank were deposited with the surety company for the purpose of securing the city in its deposit, and, upon the failure of the bank to secure an extension of the bond, the city became subrogated to whatever rights the bank had in the pledged securities; that is, the city was entitled to the bond or the securities. The bank cannot, even through the receiver, contend in equity and good conscience or in law that it is entitled to keep the deposit of the city and also the assets which it in good faith pledged to secure or induce the deposit.

The laws governing the operation and management of banks ought not to be construed to show a greater solicitude for the protection of general depositors in a bank than in the protection of trust funds of a municipality deposited with the bank, which in fact are the funds of the taxpayers, assessed and collected for a public purpose. The court feels that this deposit of the city was retained under such questionable representations by the officers of the bank as to impress upon such deposit a trust in favor of the city, and because thereof the city has a lien upon the assets of the bank pledged by the bank originally to secure this particular deposit.

Judgment should he entered for the defendants, the city and its defendant officers, for possession of said securities to the extent in value of the amount of the deposit. If there be any equity in the securities in question in excess of the amount of the deposit, said excess sum should be paid to the receiver. An exception is allowed the plaintiff. A form of judgment may be prepared and submitted consistent with this opinion.


author: CAMPBELL, District Judge.

text:
    RADIO CORPORATION OF AMERICA et al. v. DUOVAC RADIO TUBE CORPORATION (two cases).
    Nos. E-5231, E-5233.
    District Court, E. D. New York.
    June 17, 1931.

      Stephen H. Philhin and J. V. Groner, both of New York City, for plaintiffs.
    Roosevelt & O’Connor, of New York City (Basil O’Connor and Clyde A. Norton, both of New York City, and Joseph Z. Willner, of Chicago, Ill., of counsel), for defendants.
   CAMPBELL, District Judge.

These are two motions made by the plaintiffs that paragraphs 9, 10, 11, and 12 of the answer filed in the first above-entitled action, and paragraphs 5, 6, 7, and 8 of the answer filed in the second above-entitled action, be stricken from the record on the ground that said paragraphs are irrelevant and immaterial.

These are suits in equity for patent infringement.

In the first above-entitled suit, General Electric Company, plaintiff, is alleged to be the owner of certain patents and a licensee of others, and Radio Corporation of America is alleged to be a licensee thereunder.

In the second above-entitled suit, American Telephone & Telegraph Company is alleged to be the owner of certain patents, and Radio Corporation of America is alleged to be a licensee thereunder.

The questions involved here are essentially the same in both suits.

The rights acquired by Radio Corporation of America as a licensee, it is alleged in both suits, is by virtue of agreements which are pleaded and proffered, and in the first above-entitled suit it is alleged that the right acquired by General Electric Company as licensee is by virtue of these agreements.

The allegations being as follows:

In the first above-entitled suit: “That, by virtue of duly executed and delivered agreements in writing by and between the plaintiffs, Radio Corporation has been since their execution, and now is licensed under the said Langmuir Letters Patent and Langmuir reissue patent and Mitchell patent, and General Electric Company has been since their execution, and now is, licensed under the said Sehottky Letters Patent and under the said Seibt Letters Patent, and your orators ask that the aforesaid Letters Patent, instruments, assignments, and licenses may be taken as part of this bill of complaint, profert being hereby made of the same as the Court may require.”

In the second above-entitled suit: “That by virtue of duly executed and delivered agreements in writing by and between the plaintiffs, Radio Corporation has been since their execution and now is licensed under the aforesaid Letters Patent, and your orators ask that the aforesaid Letters Patent, instruments, assignments and licenses may be taken as a part of this bill of complaint, profert being hereby made of the same as the Court may require.”

While there is no allegation in the bill of complaint in either suit that Radio Corporation of America or General Electric Company is an exclusive licensee, it is clearly the intention of counsel for plaintiffs to show that they are exclusive licensees, and that they have received such exclusive licenses under the said agreements of which profert is made.

The answers contain the usual twofold defenses of invalidity and noninfringement.

In addition thereto the answers set up, in the paragraphs which it is here sought to have stricken out, as an alleged defense, that plaintiffs have no standing in a court of equity, because “plaintiffs are parties to agreements which form an unlawful conspiracy and combination in restraint of trade”; that the said agreements are “illegal, void and of no force and effect whatever either in law or equity”; and that the plaintiff Radio Corporation of America had “no valid right, license or interest cognizable in law or equity * * * for the reason that the said instruments, assignments and licenses * * * fail to set up any sufficient interest to enable Radio Corporation of America to be joined as plaintiff herein.”

It is further alleged that the plaintiffs and others are defendants in a suit brought by the United States in the District of Delaware, alleging an unlawful conspiracy and combination in restraint of trade, and praying that the bill filed on behalf of the government “may be accepted as a part of this answer, with the same force and effect as if they were set .out in full in this paragraph.”

The Radio Corporation of America, by virtue of the agreements and licenses made profert of by the bills of complaint, is shown to be an exclusive licensee under the patents in suit, and had a right to be joined as plaintiff herein. Radio Corporation of America v. Lehr Auto Supply Co. (C. C. A.) 29 F.(2d) 162; Radio Corporation of America v. Emerson (C. C. A.) 296 F. 51; Radio Corporation of America v. Independent Wireless Telegraph Co. (C. C. A.) 297 F. 521, affirmed (sub. nom. Independent Wireless Tel. Co. v. Radio Corporation) 260 U. S. 459, 46 S. Ct. 166, 70 L. Ed. 357; De Forest Radio Telephone & Telegraph Co. v. Radio Corporation of America (C. C. A.) 20 F.(2d) 598; Shamrock Mfg. Co. v. Radio Corporation of America (C. C. A.) 37 F.(2d) 675.

Plaintiff contends that the alleged violation of Anti-Trust Acts is not a defense to a suit for patent infringement, and that the paragraphs containing the allegations thereof should be stricken out.

This contention of the plaintiff is supported by a long line of cases, among which are American Soda-Fountain Co. v. Green (C. C.) 69 F. 333; Brown Saddle Co. v. Troxel (C. C.) 98 F. 620; Otis Elevator Co. v. Geiger (C. C.) 107 F. 131; Independent Baking Powder Co. v. Boorman (C. C.) 130 F. 726; United States Fire E. C. Co. v. Joseph Halsted Co. (D. C.) 195 F. 295; Weyman-Bruton Co. v. Old Indian Snuff Mills (D. C.) 197 F. 1015; Harms v. Cohen (D. C.) 279 F. 276; General Electric Co. v. Minneapolis Electric Lamp Co. (D. C.) 10 F.(2d) 851; Radio Corporation of America et al. v. United Radio & Electric Corporation et al. (D. C. N. J.) 50 F.(2d) 206; Western Electric Co. et al. v. Wallerstein (D. C. W. D. N. Y.) 48 F.(2d) 268; Western Electric Co. et al. v. Pacent Reproducer Corp. et al. (D. C. S. D. N. Y.) 53 F.(2d) 639; Trico Products Corporation v. E. A. Laboratories, Inc. (D. C. E. D. N. Y.) 49 F.(2d) 404.

Defendant contends that Radio Corporation of America and General Electric Company must rely on the written agreements alleged for a cause of action, and cannot recover as licensees if the agreements on which they must rely are illegal, and cites the following cases: Independent Wireless Telegraph Company v. Radio Corporation of America, 269 U. S. 459, 46 S. Ct. 166, 70 L. Ed. 357; Miller v. Ammon, 145 U. S. 421, 426, 12 S. Ct. 884, 36 L. Ed. 759; McMullen v. Hoffman, 174 U. S. 639, 654, 19 S. Ct. 839, 43 L. Ed. 1117; The Charles E. Wisewall (C. C. A.) 86 F. 671, 674, 42 L. R. A. 85; Bement & Sons v. National Harrow Co., 186 U. S. 70, 87, 88, 22 S. Ct. 747, 46 L. Ed. 1058; Connolly v. Union Sewer Pipe Co., 184 U. S. 540, 22 S. Ct. 431, 46 L. Ed. 679.

The eases cited on behalf of the defendant do not appear to be in point.

The agreements pleaded and of which profert is made do not constitute assignments of any of the patents, nor do they transfer the legal title or any part thereof of any of the said patents, and none of the rights of the Radio Corporation of America or General Electric Company, as licensees, result from acquired ownership.

The suits in question are not for the enforcement of the terms of the alleged illegal agreements, but for the protection of patent rights.

The defendant was not a party to the agreements in question, and these shits are not based upon any violation by the defendant of any provision of the said agreements.

The monopoly which it is sought to protect and preserve in the suits in question is the monopoly granted by law to the owner of the patent, for the public good by encouraging invention.

The owner of the patent is one of the parties plaintiff in each of said suits, and, even if the agreements made by the owner with the licensee should be held to be in violation of the Anti-Trust Acts (15 USCA § 1 et seq.), the owner by making such agreements did not become an outlaw whose property could be despoiled by third persons, but that would be the effect of permitting a continued infringement (if such there be) of patents legally granted and the legal title to which is in the owners and not in the said licensees.

If there be any illegality in the agreements, it does not affect the defendant personally.

The owners of the patents had an undoubted right to give or refuse to give exclusive or nonexclusive licenses under the patents, and to sell or refuse to sell the patents, and, while this may have prevented the defendant from obtaining a license, it did not deprive the defendant of any of its rights.

The penalty for a violation of the AntiTrust Act does not include a forfeiture of the owner’s rights in said patents, and, as the owners as well as the exclusive licensees are parties plaintiff in each of said suits, and the only persons, firms, or corporations having any right, title, or interest in and to said patents are parties, a decree would be a bar to any other suits against the defendant for the same cause of action.

For the reasons stated it seems to me that the motions should be granted.

Respecting as I do the opinion of Judge Thomas, I am not aided by his denial of similar motions after argument without the submission of briefs or the delivery of any opinion, in the District Court of Connecticut, in Radio Corporation of America v. Majestic Distributors, Inc., a rehearing of which he has granted.

Standard Sanitary Mfg. Co. v. United States, 226 U. S. 26, 33 S. Ct. 9, 57 L. Ed. 107, cited by defendant, may be an authority in the suit by the United States against the plaintiffs Radio Corporation of America and General Electric Company and others, in the District Court of the United States for the District of Delaware, but not in the suits in question.

As the motions here made are directed to the pleadings, and no question of pleading was involved in Carbice Corporation of America v. American Patents Development Corporation & Dry Ice Corporation of America, 283 U. S. 27, 51 S. Ct. 334, 75 L. Ed. 819, decided March 9, 1931, it does not seem to me to be in point.

The motions are granted.


author: BOURQUIN, District Judge.

text:
    UNITED STATES v. NORTHERN PAC. RY. CO. (two cases).
    Nos. 850, 1621.
    District Court, D. Montana.
    March 15, 1934.
    James H. Baldwin, U. S. Atty., of Butte, Mont., and Arthur P. Acher, Asst. U. S. Atty., of Helena, Mont., and M. C. List, of Washington, D. C., for the United States.
    Gunn, Rasch, Hall & Gunn, of Helena, Mont., for defendant.
   BOURQUIN, District Judge.

These cases involve hours of service and operation of trains, respectively.

In the first is a motion for judgment on pleadings which disclose in the first count typical of seven, that the carrier permitted the dispatcher to remain on duty as follows: February 16, 1933, from 5 a. m. to 5:45 a. m. and from 8 a. m. to 4 p. m., and on the following day from 3 :30 a. m. to 4:20 a: m., or 9 hours and 35 minutes in the 24-hour, period from the beginning of duty as aforesaid. The dispatcher’s regularly recurring shifts began at 8 a. m. each day.

45 USCA § 62 provides that no dispatcher “shall be required or permitted to be or remain on duty for a longer period than nine hours in any twenty-four-hour period,” and a penalty is prescribed for any violation.

Plaintiff contends that “any twenty-four-hour period” contemplates that interval of time within which duty is performed, regardless of shift, citing U. S. v. Atlanta Co. (D. C.) 30 F.(2d) 109.

Defendant, that it imports the like interval beginning with the regular shift, citing U. S. v. Missouri Co. (C. C. A.) 244 F. 38.

The evil the statute designs to remedy is excessive labor by employees to the danger of themselves and the public, and so the statute must be liberally construed. See Atchison Co. v. U. S., 244 U. S. 342, 37 S. Ct. 635, 61 L. Ed. 1175, Ann. Cas. 1918C, 794; New York Cent. R. Co. v. U. S., 265 U. S. 44, 44 S. Ct. 436; 68 L. Ed. 892.

Evidently Congress believed a dispatcher on duty more than 9 hours in 24 spells danger, and it is equally evident that the danger is no less if the excessive duty oeeurs in 24 consecutive hours made up of parts of two shift-days, than if it oeeurs in the 24 hours of one shift-day.

The intent is to limit the dispatcher’s duty to a maximum of 9 hours in any consecutive 24 hours, and the statutory language is apt to that end.

To construe the indefinite “any twenty-four-hour period” to import a definite “the twenty-four-hour period commencing with the beginning of the daily shift,” a point not selected by Congress but by the carrier, would do violence to the language, tolerate the mischief, suppress the remedy, defeat the object, annul the statute.

Ease of computation like balance of danger is immaterial. See United States v. Northern P. Ry. Co., 254 U. S. 251, 41 S. Ct. 101, 65 L. Ed. 249.

Accordingly, the statutory "any twenty-four-hour period” admits of no reasonable interpretation other than its literal meaning, viz., the 24 consecutive hours following any point of time.

In U. S. v. Missouri Pac. R. Co. (C. C. A.) 244 P. 38, 43, it is said that the spokesman for the conference committee in the Senate declared the 24-hour period would commence when the employee “enters upon the duties of his twenty-four hours of labor.”

This does not make sense.

However, this extemporaneous and casual oral declaration is entitled to far less consideration than a carefully prepared written committee report; and even the latter cannot attach to a statute a meaning not within its language. See St. Louis, I. M. & S. R. Co. v. Craft, 237 U. S. 661, 35 S. Ct. 704, 59 L. Ed. 1160.

In view of the premises, plaintiff is entitled to recover, and $100 upon each count.

The second case is submitted on an agreed statement of facts, and consistent testimony, by which it appears that departing Spokane for Livingston, defendant’s freight train was 73 ears and caboose equipped with air brakes in order and use.

Before reaching Paradise, on the eighth ear from the tender the brake was cut out for cause, but the air line continued to function.

Said town was not then a repair poinl though it had been, and it was then a terminal with facilities to break and make local freight trains as necessary, road engines doing the work, and they, caboose, and crew there changed.

That the air brake was cut out was discovered by the new crew as the train “was moving out of Paradise,” and without change the train necessarily proceeded to Missoula, the first repair point out of Spokane and the nearest available, where the car was set out.

Amongst other things the statute (45 US CA § 9) provides that “all power-braked cars in such train which are associated together * * * shall have their brakes so used and operated” by the engineer.

Any power braked car is “associated” with other like ears when, like the car involved, its air brake is cut out and its air line is continued in use in the engineer’s operation of air brakes on ears beyond it. See New York Cent. R. Co. v. U. S., 265 U. S. 41, 44 S. Ct. 436, 68 L. Ed. 892.

The original statute (section 9, supra) imposes an absolute duty in behalf of public policy, and to that end excludes all inquiry in respect to knowledge, motive, intent, diligence, accident. See Chicago, B. & Q. Ry. v. U. S., 220 U. S. 578, 31 S. Ct. 612, 55 L. Ed. 582.

Whenever, however, wherever a secure air brake ear associated with like ears, in use became insecure, any further substantial operation of it incurred the penalty.

Of course, it could be moved to clear tracks and to repair, but probably none the less the penalty, if thereby, was substantial operation.

To some relieve the hardship is the amendment (45 USCA § 13) which provides that a ear equipped with secure air brake in use becoming insecure, and likewise in respect to other equipment prescribed, if necessary, can be hauled to the nearest available repair point, without penalty.

Contrary to plaintiff’s contention, this section does not limit such haulage to the defective . car as a separate unit, but contemplates haulage of the ear “as is,” associated in a train. See Erie R. Co. v. U. S. (C. C. A.) 240 F. 28.

And from this construction of the section is a single exception, viz., if the car is defective to the extent it must he coupled with chains, it must not be hauled “as is” or in trains unless loaded with live stock or perishable freight.

Expressio unius, etc.

Plaintiff further contends that be this granted, yet the defective car must be disassociated from other air brake cars and placed at the rear end of the train, citing New York Cent. R. Co. v. U. S., supra.

But that case so decides only when the car is hauled past an available repair point, which is not the instant case.

In support of plaintiff’s contention is nothing in the statute. Section 9 prohibits and penalizes hauling a ear with cut out air brake in association with other air brake cars.

Section 13 so far relieves from prohibition and penalty, that if the cut out occurs in transit, if necessary, the car “may be hauled * * * to the nearest available point” of repair.

In so far as haulage of air brake ears is concerned, both sections 9 and 13 contemplate them in association, and nothing in the latter liberally construed imports haulage in disassociation.

As section 9 neither prohibited nor penalized haulage of a cut out air brake ear disassociated from others, section 13 is unnecessary to authorize or relieve from consequences of any such haulage.

As some useful purpose must have inspired section 13, the only reasonable inference is the purpose to relieve from what section 9 does forbid, viz., haulage of such defective car in association with other like air braked cars.

Defendant is within section 13, and plaintiff is not entitled to recover any penalty.

Judgments accordingly.