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Bank of Bethel v. Pahquioque Bank/Opinion of the Court

Associations for banking, formed pursuant to the act to provide a National currency, and duly authorized by the Comptroller of the Currency to commence the business of banking, become bodies corporate and have a succession for the period of twenty years from their organization, unless sooner dissolved according to the provisions of their articles of association, or by the act of the shareholders owning two-thirds of the stock, or unless the franchise shall be forfeited by a violation of the act under which the association was formed. Such an association is allowed to select, subject to certain conditions and the approval of the Comptroller of the Currency, another such association at which it will redeem its circulating notes at par, but the provision is that nothing in that section shall relieve any such association from its liability to redeem its notes in circulation at its own counter, at par, in lawful money, on demand; and in case of failure so to do, the holder may cause the same to be protested in one package by a notary public, unless the president or cashier of the association which issued the notes, or the president or cashier of the association designated as the place for redeeming the same, will waive demand and notice of protest and execute an admission in writing stating the amount demanded and the fact of non-payment, and it is made the duty of the notary forthwith to forward the admission or notice of protest, as the case may be, to the Comptroller of the Currency for his information and action in the premises.

Notes to a large amount, issued by the corporation defendants for circulation, were held by the corporation plaintiffs, and the plaintiffs presented the same to the defendants for redemption, and the defendants failing to redeem the same, the plaintiffs offered the notes for protest, but the defendants having waived demand and notice of protest, and having tendered an admission in writing stating the amount demanded and the fact of non-payment, the plaintiffs accepted the written admission, and the notary forwarded the same to the Comptroller of the Currency as required under such circumstances. Pursuant to the requirement of law the Comptroller of the Currency appointed a special agent to ascertain whether the facts set forth in the protest were true, and the agent so appointed having reported that the defendants had failed to redeem in lawful money their circulating notes when payment thereof was duly and lawfully demanded, he, the Comptroller of the Currency, appointed a receiver of the delinquent association, with all the powers, duties, and responsibilities given to or imposed upon such an appointee in such case made and provided, and the record shows that the receiver entered upon the duties of his office and took possession of all the books, records, and assets, real and personal, of the association, and that he has ever since had the exclusive possession of the same, to be disposed of according to law. Before the commencement of the suit the Comptroller of the Currency caused notice to be published requiring all claimants to present and make proof of their claims against the delinquent association, and the record also shows that the plaintiffs presented the claim in controversy to the receiver for allowance, and that the receiver having disallowed the same, the plaintiffs instituted the present suit in the State court to recover the amount. Appropriate proceedings followed, as in an action of assumpsit, and the parties having been heard the subordinate court where the suit was brought made a finding of facts, but reserved the question whether the case ought to be dismissed for want of jurisdiction, and if not, what judgment ought to be rendered in the case, and all questions of law arising upon the facts found, for the opinion and advice of the Supreme Court of Errors. Proper measures were adopted to obtain the opinion and advice of the appellate tribunal, and they were duly received, and thereupon the subordinate court rendered judgment in favor of the plaintiffs for the whole amount claimed in the declaration. Proceedings in the nature of a writ of error were instituted by the defendants, by which the cause was removed into the Supreme Court of Errors, where the parties were again heard and the decision of the Court of Errors was that the judgment should be in all things affirmed. Final judgment having been rendered in the State court, the defendants sued out a writ of error under the twenty-fifth section of the Judiciary Act and removed the cause into this court.

Four only of the errors assigned will be examined, as the others, in the view of the case taken by the court, either involve substantially the same considerations or present questions not re-examinable in this court under a writ of error to a State court. Briefly stated the errors assigned to be examined are as follows:

(1.) That the State court had no jurisdiction of the case or of the parties at the time the suit was commenced.

(2.) That the defendant association prior to the institution of the suit had forfeited its franchise by a violation of the act under which it was formed and had been dissolved by the action of the Comptroller of the Currency.

(3.) That the defendant association could not be impleaded at the time the action was commenced, as prior to that time the association was prohibited by the act of Congress from paying or satisfying any of its creditors.

(4.) That the decision of the receiver disallowing the claim of the plaintiffs was final and was not subject to review in the State court.

Support to the first proposition is supposed to be derived from the conceded fact that such associations are created by an act of Congress and that they are instruments of the National government intrusted with the power of carrying on the business of banking and of employing and circulating treasury notes as a National currency, subject to the supervision and direction of the Comptroller of the Currency and of the Secretary of the Treasury. Banking associations, it is said, were established as instruments by which the government may perform the trust of furnishing and regulating the National paper currency, and the argument is that inasmuch as they are instruments of the government to carry into effect a National purpose they cannot be impleaded in a State court. Confirmation of that view is also attempted to be drawn from the fact that such associations are controlled by the Treasury Department, that all the notes which they circulate as money are received from the Comptroller of the Currency, and that they cannot issue any instrument for circulation or use as money except the notes intrusted to them by the Comptroller of the Currency, as authorized by the act of Congress.

Beyond all doubt such associations are created by an act of Congress and for the purposes assumed by the defendants, but the conclusion attempted to be drawn from those facts cannot be sustained, as express provision is made by the fifty-seventh section of the act that suits, actions, and proceedings against any such association may be had 'in any state, county, or municipal court in the county or city in which said association is located, having jurisdiction in similar cases.' Commenced as the action was in the proper court of the State where the association is located and in a court having jurisdiction in similar cases, which is not denied, it is quite clear that the objection to the jurisdiction of the court founded upon the character of the association as an instrument of the National government, must be overruled. Jurisdiction in such suits is unquestionably vested in any circuit, district, or territorial court of the United States held within the district in which such association may be established, but the decisive answer to the objection of the defendants is that the same section of the act of Congress gives authority to creditors to prosecute such controversies in 'any state, county, or municipal court in which said association is located' in all cases where it appears that such courts have jurisdiction under the State laws in similar controversies. Proceedings to enjoin the Comptroller of the Currency under that act must, it is true, be instituted and prosecuted in a circuit, district, or territorial court of the United States, but the act allows creditors to sue in the proper State courts in all suits, actions, and proceedings against the association, as specifically provided in the fifty-seventh section of the act. Authorities to support the proposition are not necessary, as it rests upon an express provision in the act of Congress.

II. Associations of the kind have a succession for the period of twenty years from their organization, unless sooner dissolved in some one of the modes pointed out in the act under which such associations are formed, and throughout that period, unless sooner dissolved, they may make contracts in the name designated in their organization-certificate and may sue and be sued or complain and defend in any court of law or equity as fully as natural persons. Such corporate franchises cease to exist when the term for which they were granted expires, and the association may at any time go into liquidation and be closed by the vote of its shareholders owning two-thirds of the stock, but it is not necessary to remark upon those topics, as it is not pretended that the defendant association has ceased to exist or been dissolved in either of those modes. All such associations are bound to redeem their circulating notes either at their own counter or at such other similar association as they are allowed to select for that purpose, and the provision is that if any association shall fail either to make the selection or to redeem its notes as required, the Comptroller of the Currency may, upon receiving satisfactory evidence thereof, appoint a receiver, in the manner provided in the act, to wind up its affairs. Holders of the circulating notes of such an association may demand payment thereof at the office of such association or at its place of redemption designated as aforesaid, and if the association fail to redeem the same in lawful money they may cause the same to be protested, as before explained, and the notary on making such protest or upon receiving such admission, shall forthwith forward the same to the Comptroller of the Currency for his information and action in the premises. Being informed of the default of the association in that mode, it is made the duty of the comptroller to make an examination into the facts, and if satisfied that the default has been committed, to give notice to the association; and the same section provides that from that time it shall not be lawful for the association suffering the default to pay out any of its notes, discount any notes or bills, or otherwise prosecute the business of banking, except to receive and safely keep money belonging to it and to deliver special deposits. On receiving such notice the Comptroller of the Currency, with the concurrence of the Secretary of the Treasury, may appoint a special agent to examine into the facts of the case, and if satisfied from the protest or the report of the special agent that the charge of default as made is true, he shall, within thirty days, declare the bonds and securities pledged by the association forfeited and give notice to the holders of the circulating notes to present the same for payment at the treasury, and the provision is that in that event he may in his discretion cause an amount of the bonds pledged, equal at current rates to the amount paid to redeem the outstanding notes of the association, or he may cause such an amount of the bonds pledged as may be necessary to redeem the outstanding notes, to be sold at public auction; or, if he shall be of the opinion that the public interest will be best promoted thereby, he may sell at private sale any of the bonds so pledged and receive therefor either money or the circulating notes of such failing association. Power is also conferred upon the Comptroller of the Currency in such a case forthwith to appoint a receiver to take possession of the books, records, and assets of every description of the association and to collect all debts due and claims belonging to it, and upon the order of a court of record of competent jurisdiction he may sell or compound all bad or doubtful debts and may sell all the real and personal property of the association on such terms as the court shall direct, and may, if necessary to pay the debts of the association, enforce the individual liability of the stockholders, as enacted by the twelfth section of the act. All moneys so made by the receiver he is to pay over to the Treasurer of the United States, subject to the order of the Comptroller of the Currency, and he is also to make report to that officer of all his acts and proceedings. Receivers may also be appointed for other causes than those already mentioned; as, for example, in case the money reserve which the association is required to have on hand shall fall below the prescribed amount, and when notified to make it good the association shall fail for thirty days to comply with the requirement, or shall fail for thirty days to increase the capital stock of the association to the minimum amount required, where the same has been reduced below that amount by the delinquency of the shareholders and consequent sale and reduction of the stock; or, in case any such association which is required to keep undiminished the twenty per centum surplus mentioned in the twelfth section of the act, shall fail to keep it good, in which event the provision is that the Comptroller of the Currency may compel said banking association to close its business and wind up its affairs, as provided in the act under which it was organized. Whenever a receiver is appointed the comptroller is required to give notice of the fact, requesting all persons having claims against the association to present the same and to make legal proof thereof. Provision is first to be made by the comptroller for refunding to the United States any such deficiency in redeeming the notes of the association as is mentioned in the act, and having refunded that amount the comptroller is required in the next place to make a ratable dividend of the money paid over to him by the receiver on all such claims as may have been proved to his satisfaction or adjudicated in a court of competent jurisdiction. Claims proved to the satisfaction of the comptroller are to be included in the list, and he is also to include in the list all claims adjudicated in a court of competent jurisdiction, which shows conclusively that claims disallowed by the comptroller may be prosecuted in a court having jurisdiction in such cases. Where the whole assets are not collected and distributed in the first dividend, further dividends on claims proved and adjudicated may be made as the proceeds of the assets are collected and paid to the treasurer, and the remainder, if any, shall be paid to the shareholders.

None of these proceedings, however, support the theory that the association ceased to exist when the receiver was appointed, nor at any time before the assets of the association are fully administered and the balance, if any, is paid to the owners of the stock or their legal representatives.

Delinquent associations whose notes have been protested, and whose officers have been notified by the comptroller that proceedings for liquidation under the act have been instituted, cannot lawfully pay out any of their notes, or discount any notes or bills, or otherwise prosecute the business of banking, except to receive and safely keep money belonging to the association, and to deliver special deposits, which of itself refutes the theory that the association at that stage of the proceedings has ceased to exist. Evidence to refute that theory is also found in the proviso to the fiftieth section of the act, which empowers the association, if they deny having failed to redeem their circulating notes, to apply, within ten days after being so notified by the comptroller that such proceedings have been commenced, to the nearest circuit, or district, or territorial court of the United States to enjoin further proceedings in the premises, and those courts are invested with full jurisdiction to hear and determine the matters put in issue by such an application.

Such associations are authorized to elect or appoint directors, and the directors are empowered to exercise all such incidental powers as shall be necessary to carry on the business of banking. They may make by-laws, discount and negotiate promissory notes, drafts, bills of exchange, or other evidences of debt; receive deposits, buy and sell exchange, coin, and bullion; loan money on personal security and obtain, issue, and circulate notes, according to the provisions of the act to provide a National currency. Throughout they are enjoined to conform to the regulations of that act, and the provision is that if they knowingly violate any of its provisions or knowingly permit them to be violated, all the rights, privileges, and franchises of the association derived from the act shall be thereby forfeited; but the further provision is that such violation, before the association shall be declared dissolved, shall be determined and adjudged by a proper circuit, district, or territorial court of the United States, which shows conclusively that the act of the comptroller in appointing a receiver does not work a complete dissolution of the association, as is supposed by the defendants.

III. Express power to sue and be sued, complain and defend, in any court of law and equity, is conferred on such associations by the eighth section of the act providing for their organization, and it seems quite clear that the association is a proper party to be sued in all matters in which the corporation is interested, unless the association is disqualified for that purpose by virtue of the appointment of a receiver or by his subsequent action as such under his appointment. Neither power to sue nor to be sued in such cases is anywhere in terms conferred upon the receiver, nor upon the Comptroller of the Currency in any case except when he institutes a suit to forfeit the rights, privileges, and franchises of the association, and in that case the provision is express that the suit shall be in his own name. Beyond doubt the appointment of a receiver supersedes the power of the directors to exercise the incidental powers necessary to carry on the business of banking, as the receiver is required to take possession of the books, records, and assets of every description of the association, and from that moment the association is forbidden to pay out any of its notes, discount any notes or bills, or otherwise prosecute the business of banking, but the corporate franchise of the association is not dissolved, and the association, as a legal entity, continues to exist, as is shown to a demonstration by the fact that it is required safely to keep the money on hand belonging to it, and may deliver special deposits in its keeping to the rightful owners.

Much aid cannot be derived from authorities in the examination of this proposition, as the question turns chiefly if not entirely upon the construction of the act of Congress, and suffice it to say that we are all of the opinion that the act contains nothing in its subsequent provisions inconsistent with the theory of the plaintiffs, that the association may sue and be sued, complain and defend, in all cases where it may be necessary that the corporate name of the association shall be used for that purpose in closing its business and winding up its affairs under the provisions of the act which authorized its formation.

Suits and proceedings under the act, in which the United States or their officers or agents are parties, whether commenced before or after the appointment of a receiver, are to be conducted by the district attorney under the direction of the solicitor of the treasury, and no doubt is entertained that the directors, from the time a receiver is appointed, cease to have any power in respect to such matters, and that the control and supervision of the same are vested in the proper officers of the United States. Claims presented by creditors may be proved before the comptroller or may be established by a suit against the association in any court of competent jurisdiction. Creditors, say the court in that case, must seek their remedy through the comptroller, in the mode prescribed in the act of Congress, and cannot proceed directly in their own names against the stockholders or debtors of the corporation. Suits may be brought by the receiver, both at law or in equity, and the express decision there is that he may sue in his own name or in the name of the association for his use, and no reason is perceived to doubt the correctness of the rule adopted in that case, though the act of Congress does not in terms give him authority to sue in his own name.

IV. Enough has already been remarked to show that the fourth proposition of the defendants cannot be sustained, as the act of Congress provides that the receiver, in making the basis for a dividend, shall include in the list not only claims proved before him to his satisfaction, but claims also adjudicated in a court of competent jurisdiction.

Attempt is made to show that the adjudicated claims there referred to are only such as had been adjudicated before the receiver was appointed, but the court is of the opinion that such a construction is not warranted either by the language employed, or the subject-matter to which it relates, or the purpose to be accomplished, or by the analogies of the law or the usual rules of interpretation which courts apply in ascertaining the meaning of a legislative provision of a remedial character. Tested by any one or all of these criterions the court is of the opinion that the construction assumed by the defendants is quite too narrow to carry into effect the intention which the framers of the provision had in view at the time it was adopted. Claims presented by creditors may be proved before the receiver, or they may be put in suit in any court of competent jurisdiction, as a means of establishing their validity and to determine the amount owed by the association, but the judgment when recovered will not give the creditor any lien on the property of the delinquent association, nor secure to the judgment creditor any preference over other creditors whose claims are proven before the receiver. All alike must await the action of the Comptroller of the Currency, and be content with a just and legal distribution of the proceeds of the assets collected by the receiver and liquidated by the comptroller according to the act of Congress in such case made and provided.

Nothing further need be remarked in respect to the other errors assigned, as it is clear that the conclusions announced dispose of all the questions in the case which are examinable under a writ of error to a State court.

JUDGMENT AFFIRMED.


text: Talk:Bank of Bethel v. Pahquioque Bank/Opinion of the Court

license: Creative Commons - Attribution Share-Alike - https://creativecommons.org/licenses/by-sa/4.0/


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O'Dowd v. Russell

ON motion to dismiss a writ of error to the Supreme Court of the State of Georgia.

Walker, Jones, and O'Dowd were sued in the Superior Court of Richmond County, Georgia, upon a bond given by Walker, as principal, and Jones and O'Dowd, as sureties, for the faithful discharge by Walker of his duties as vendue-master in the city of Augusta.

The breach alleged was that Walker, having received, as vendue-master, certain goods for sale, and having sold them and received the proceeds in his capacity as vendue-master, failed to account. The defendants pleaded Walker's discharge under the bankrupt act, and the plea was sustained; but the sureties were held liable under the 33d section of that act, notwithstanding the discharge of their principal. Two writs of error were prosecuted upon this judgment to the Supreme Court of Georgia. One by Jones and O'Dowd to reverse the judgment against them, upon the ground that the discharge of Walker was a bar to the suit against them as sureties; and one by the plaintiff in the action, upon the ground that Walker could not avail himself of his discharge, the debt having been created by his defalcation as a public officer, and while acting in a fiduciary capacity.

The judgment of the Superior Court in favor of Walker was, on the 31st of October, 1871, reversed by the Supreme Court, and the judgment against the sureties on the same day affirmed. To reverse the judgment of the Supreme Court, O'Dowd prosecuted a writ of error. He had given written notice to both Walker and Jones of his intention to carry the case to this court, and requested their co-operation; but each declined to carry on the controversy longer.

The writ (dated by mistake, October 16th, 1871), issued November 10th, 1871, returnable to the first Monday of December following, and was served by filing in the clerk's office, and the case on that day removed by service of the writ. The bond was dated on that same day, but when it was allowed, or when it was filed, did not appear; nor did it appear that any copy was lodged in the office of the clerk of the Supreme Court for the defendant in error.

Mr. H. M. Hilliard, for the defendant in error, now moved to dismiss the case on these, among other grounds—

1st. Because it had been prosecuted by O'Dowd alone, and without summons and severance of Walker and Jones.

2d. Because the judgment was not 'final' within the meaning of the Judiciary Act, which gives a writ of error only on judgments which are 'final.'

3d. Because the writ, the bond, the citation, and the copy of the writ of error for the defendants, were not seasonably served or filed.

As to this last ground assigned for dismissing the writ, the reader will, of course, remember that the 23d section of the Judiciary Act enacts that—

'A writ of error shall be a supersedeas and a stay of execution in cases only where the writ of error is served by a copy thereof being lodged for the adverse party in the clerk's office where the record remains, within ten days, Sundays exclusive, after rendering the judgment and passing the decree complained of.'

Mr. J. P. Carr, contra.

The CHIEF JUSTICE delivered the opinion of the court.

title: O'Dowd v. Russell


text: Talk:O'Dowd v. Russell

title: Talk:O'Dowd v. Russell


text:
O'Dowd v. Russell/Opinion of the Court

Several grounds are assigned for dismissing this writ. It will be necessary to notice but three of them.

The first of these is, that the writ of error is prosecuted by O'Dowd without summons and severance of his co-defendants. Formerly this was held to be necessary when one of several defendants desired to prosecute his writ of error alone. But, in the case of Masterson v. Herndon, we held that such a writ of error would be sustained, if it appeared from the record that the defendants, not joined, had been notified in writing, and had refused to join. In this case it appears, by the record, that written notice was given to the co-defendants of O'Dowd, and that they declined to join. This was equivalent to summons and severance.

It is also insisted that the motion to dismiss must be allowed, because the judgment was not final. The judgment against Walker was reversed, because he was held not entitled to the exemption which he claimed under the Bankrupt Act, and the judgment against the sureties was affirmed, because they were held not entitled to the benefit of his discharge. We think that both judgments were final, and that both are brought under review by the writ of error.

Another reason assigned for dismissal is, that the writ of error, the bond, the citation, and the copy of the writ of error for the defendants, were not seasonably served or filed. It appears, from the record, that the judgment of the Supreme Court was rendered on the 31st of October, 1871, and on the 10th of November, 1871, a writ of error was issued returnable on the first Monday in December, and was served by filing in the clerk's office. The writ is dated on the 16th of October, 1871. This was before the judgment was affirmed, and is obviously a mistake. It does not, however, vitiate the writ. The case was removed by service on the 10th of November.

The citation was served on the 3d of February, 1872. This was sufficient to advise the opposite party that the cause had been removed to this court, and was served and returned within the term.

It does not, however, appear, from the record, that any copy of the writ was lodged for the defendants in error in the clerk's office of the Supreme Court. It was necessary that such a copy should be filed within ten days to make the writ of error a supersedeas. #fn-s-s Nor does it appear when the bond was allowed and filed. It bears date of the 10th of November. The allowance is not dated; nor is its filing noted.

We are of opinion, therefore, that a writ of error cannot operate as supersedeas; but the motion to dismiss must be

DENIED.

title: O'Dowd v. Russell/Opinion of the Court


text: Talk:O'Dowd v. Russell/Opinion of the Court


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The Steamer Webb

APPEAL from the Circuit Court for the District of Southern New York; the case, as assumed by the court on a considerable body of evidence, which it examined and recapitulated, having been essentially thus:

In March, 1859, the steamer Webb, a steamer of good character, belonging to the port of New York and engaged in towing ships at sea, was in Boston, having just then, under charge of coast pilot named Sherwood, towed a ship to that port. This pilot Sherwood had had twelve years' experience as a coast pilot and was recommended by insurance companies. The owners of the Webb had engaged him to take the steamer back to New York, and they had agreed also with the owners of another ship, then lying at New Bedford, to stop for her on the way and tow her to New York, and that this towage should be under direction of the same pilot.

In these circumstances one Hazard, master of the ship Shooting Star, lying at Portsmouth, New Hampshire, applied to the owners of the Webb to tow her to New York. The owners agreed in writing accordingly 'to tow the ship and furnish coast pilot for $625.' Having gone to Portsmouth and taken her tow, the Webb, under the pilotage of Sherwood, set off with a good complement of men on her voyage for New York. The course of the voyage lay south, past and round Cape Cod, through the waters that lie between the island of Nantucket on the south side and Barnstable County, Massachusetts, on the north, into what is known as the Vineyard Sound; and so through Long Island Sound to New York. The approaches to the Vineyard Sound (which for the purpose of this case may be considered as beginning with 'Handkerchief Shoal' on the east of it, and as you leave the main ocean to enter the passages made by islands and the main land of Massachusetts) abound with shoals and with currents, which last, though close to each other, run in opposite directions. But the currents follow each its own direction, and, like the shoals, are marked with precision upon the charts.

About a hundred yards south of Handkerchief Light-a light upon the shoal-the Webb and her tow found themselves at about 2 or 2 1/2 o'clock A.M.-nearer the latter time, perhaps, than the former-on the morning of March 23d. This was the exact position where they ought to have been in order to reach New York; and their route to that port was by a single straight course west, three-quarters south, to a light called Cross Rip Light, eleven nautical miles (rather less than thirteen statute or land miles) distant from the Handkerchief. This Cross Rip Light is on a boat where there is a fog-bell, audible in fogs, three miles off. The rate of the vessels as they passed the Handkerchief was about twelve knots an hour. The tide, at this time, had just turned ebb, the effect of which was to make the current for about half-way from Handkerchief to Cross Rip run north, and for the rest of the distance to run southwest. There was a light wind from the southeast; it was raining, but not so that they could not see the coast-lights which they had passed, and even that on the northeast point of Nantucket, more than five miles off. Soon after passing the Handkerchief Light the wind died out, the weather became misty, and in half an hour, and by the time that they got half-way from the Handkerchief to Cross Rip it was so thick that they could not see even the lights of the ship astern; though up to this point the fog had not been thus thick. Lookouts were properly posted. When the fog rose they were on the course mentioned, going, as already stated, twelve knots. The pilot decided to keep up this speed for thirty minutes, expecting at the end of that time to be within hearing of the bell from Cross Rip. Captain Hazard objected to going on through this fog and desired to anchor, but on the pilot's statement that a vessel which once anchored where they were had been obliged to cut some spars to avoid running aground, and on an assurance that there was no danger in running to Cross Rip, he yielded and consented to keep on. The pilot gave the course west half south, but the steamer was headed by her compass west-southwest, in order to allow for a variation from local attraction caused by iron on board the vessel, which Captain Hazard supposed to be one and a half points south of their true course when running west, diminishing to zero, when running south. They ran on this course at full speed for thirty-two minutes, and then, not hearing the bell, shut off steam, reducing their rate to between two and three knots, and having the lead cast by another pilot named Wilson, the captain of a Boston packet, who as a friend of Sherwood's had been allowed a free passage to New York. After running slow for forty-five minutes they found themselves in shallow water, which Sherwood took for a shoal called Horseshoe Shoal, that lies about a mile north of Cross Rip. To avoid this he turned his steamer towards the south, and immediately the ship was aground. She had run on Tuckernuck Shoal, a point about four miles southeasterly from both the Horseshoe and Cross Rip, about nine miles southwest by west half west from the Handkerchief Light, and fully three and a third miles to the south of the course in which the vessels ought to have been. This was at half-past three, or a very little later, in the morning. After some vain endeavors to drag her off, the steamer left the ship and cast anchor in the neighborhood.

After daylight the steamer tried to approach the ship, to give her the end of the towing hawser, the ship having drifted off the shoal and then riding at anchor. The crew began to heave on the anchor. As was alleged by the people on the steamer, they on the ship hove short, and the vessel picked up her anchor and drifted away. But the ship had, in fact, lost her anchor. She soon went ashore again, her stern resting on the sand. The wind getting very strong and the sea violent, under a gale which had suddenly sprung up, the ship, in order to prevent her bow being thrown upon a ridge, which, if she struck, her captain thought might dash her to pieces, after losing the port anchor cast out the starboard one. The ship swung directly upon the flukes of this anchor and knocked holes in her bottom through which she filled with water. Before this she had not leaked. The gale was so high and the sea so rough and boisterous that communications between the vessels could not be made. The steamer then went to Edgartown, a town on the island of Martha's Vineyard, for a steam-pump and wreckers. In the meantime, and before the Webb got back, one Levi Hotchkiss-a part owner of the vessel, who happened to be aboard-got on to a sloop and, acting with energy, procured relief from Boston and Nantucket. Thus aided, the ship got off, and her leaks having been temporarily stopped, she was got into New York and sent into dock for repairs.

After the accident, the Webb's compass was carefully examined and tested; and considerable testimony tended to prove that the variation from local attraction (the iron on the vessel) on the west course was one and a half points to the north, instead of to the south, as had been supposed by the captain and pilot.

Hereupon the owners of the ship, by proceeding in rem, libelled the Webb for $17,500 damages, and the marshal seized her. She was, however, discharged from his custody on her owners entering into bonds for $18,000 as the value of the ship, and $250, the sum estimated as possible amount of costs, conditioned to pay what might be awarded by final decree.

To establish the case of the ship the testimony of Hotchkiss, already mentioned, one of her part owners, had been taken, June 20th, 1859, 'saving the exception as to the competency of the witness;' the statute of July 16th, 1862, which allows parties and interested witnesses to testify not having then passed. Damages suffered by the ship, and much exceeding $18,000, were proved by the bills of repairs produced and by other witnesses than Hotchkiss. The deposition of Hotchkiss was not read in the District Court; without hearing which that court decreed against the steamer, and referred the case to a commissioner to ascertain damages. The commissioner, however, did hear the deposition, and awarded $20,378 damages; this being followed by a final decree in the District Court for $24,590. On appeal to the Circuit Court, that court not reading the deposition, affirmed the decree, and gave a final decree there for $28,292. From that decree the case was brought here by the owners of the steamer, the record which came here including Hotchkiss's deposition.

Mr. E. C. Benedict, for the appellants:

The owners of the steamboat were not common carriers nor insurers. All they contracted for was a propelling power to tow the ship with reasonable skill and care. They did not guarantee successful towing, free from all accident and injury. Like the professional man, they are responsible only for actual negligence, for the lack of such care as a careful man would give to his own property. And this negligence must be proved by the libellant. The presumption is against the negligence, and the burden is on him to prove it affirmatively, not only that there was negligence, but culpable negligence that caused the damage.

Now here the steamer and the care and precaution on board of her were of the best kind. The pilot, Captain Sherwood, was a competent pilot, of large experience and well recommended; and he had the aid of Wilson, a skilful friend. The lead was heaved, shoals were watched, and there was a good lookout.

The damage was caused by the perils of the sea-the inevitable accidents of the navigation-the act of God; the rain, the fog, the darkness, the variable, conflicting, and imperceptible currents and the winds. The waters through which this navigation lay are very peculiar waters. Islands and shoals, and swashes, and channels abound. The currents do not flow regularly, six hours one way and six hours another. At different parts of the tide it will run in the same place two hours in one direction, and in the next two hours in the opposite direction in the same ebb or flow; and in some places, when the tide will be running west, the same tide, at a little distance off, will be running southwest, or south. These uncertain and contradictory currents and tides, make the navigation dangerous in the night in fair weather, even when the many lights in light-houses and light-ships are visible. Of course they make it doubly so when nothing is visible in consequence of dense fog. And when such a fog shuts suddenly down, there is no retreating nor evading or escaping, except by slow and careful going on, with abundant lookout and a constant casting of the lead. All that we gave. We slackened speed; we heaved the lead; we kept a sharp lookout, with in fact two pilots.

Shutting off the steam was a plain duty, and yet doing this caused the vessel to run more slowly, and allowed the currents to have more effect on it. The ship would thus be under the influence of two equal forces operating nearly at right angles; steam driving her to the westward and the current bearing her to the southward. The combination of those two forces would force her between the two on a diagonal line directly upon. Tuckernuck Shoal on which she struck.

There is no sufficient evidence to discredit the compasses. They were in good condition. Their variation, caused by the iron on board, as is the case in all steamers, was regular and well known. On an east or west course it was a point and a half; that is to say, to make a west course you would have to steer west by south half south, and on an east course, the same rule. This variation was properly allowed for in all courses.

But after all, the injury to the ship was caused by her own mismanagement after she struck the shoal and cast her port anchor. She got off the shoal where she first grounded without any injury, and if after that she had been guilty of no negligence there would have been no damage. Instead of remaining quietly at her anchor where the steamer might take hold of her, and take her out with a long chain, on her voyage, they hove the anchor short, and the ship then picked up her anchor and went ashore-broke adrift, and drove astern on to the shoals. This heaving short was a great negligence, and was the first and material cause of damage. She then lay with her stern on the sand, her bow swinging and straining on her short chain, which parted; and if left to herself she would have gone over the shoal into deep water. It was a great negligence which let go the starboard anchor on the starboard side of the ship when she was swinging to starboard, her stern lying aground. As a natural consequence she swung on the anchor and stove holes in her bottom, the second and the principal cause of the damage. If no anchor had been thrown out, the ship would have gone through the shoal into deep water and floated without any damage except scraping the copper.

Neither was the steamer in fault. Her duty to the ship was to tow her to New York, to act as her propelling power, to use all reasonable care and diligence to do so, and if she got in difficulty to endeavor to extricate her. It had this extent; no more. The captain of the steamer was not under the least obligation to throw his boat alongside of that ship in the midst of breakers and uneven and rolling shoals in a tempestuous gale. It could not possibly do the ship any good, and might destroy them both. It was his duty not to do it, and it was his duty to go to the nearest port and procure surf-boats and wreckers to aid her, which was just what he did. During the time that the ship was ashore, the steamer tried to get to her, making repeated efforts, backing in towards her, but was unable to get to her. The noise made by the gale prevented hailing, and the ship could not fail to know when the steamer turned toward Edgartown that it was going for assistance, without which nothing useful could be done.

Under the contract 'to furnish a coast pilot,' the pilot was the servant of the ship and not of the steamer. The mate of the tug was not responsible for the conduct of the pilot. His only contract as to the pilot, was to get a pilot for the owner of the ship, and to get one of good repute for skill and diligence. Hazard was the agent of the owner of the ship, who accepted and approved his choice of a pilot.

The commissioner also allowed the deposition of Captain Hotchkiss, which was incompetent, to be read in evidence before him on the question of damages. The deposition, not being competent when taken, did not become competent by lapse of time, or by any subsequent statute. This improperly affected the final decree, which on account of the result which the error caused ought to be reversed.

The libellants at best are entitled to a decree for but $18,250. The sureties are only bound to the extent of the obligation expressed in their bond.

Mr. D. D. Lord, contra.

Mr. Justice STRONG delivered the opinion of the court.

title: The Steamer Webb


text: Talk:The Steamer Webb

title: Talk:The Steamer Webb


text:
The Steamer Webb/Opinion of the Court

The libel filed in this case against the steamer is to recover the damages sustained by the ship in consequence of the alleged careless and unskilful towage, and the first question is whether the towage was either unskilful or negligent.

It must be conceded that an engagement to tow does not impose either an obligation to insure, or the liability of common carriers. The burden is always upon him who alleges the breach of such a contract to show either that there has been no attempt at performance, or that there has been negligence, or unskilfulness to his injury in the performance. Unlike the case of common carriers, damage sustained by the tow does not ordinarily raise a presumption that the tug has been in fault. The contract requires no more than that he who undertakes to tow shall carry out his undertaking with that degree of caution and skill which prudent navigators usually employ in similar services. But there may be cases in which the result is a safe criterion by which to judge of the character of the act which has caused it. Had the ship in this case been towed upon a shoal ten miles north or ten miles east of Handkerchief Shoal, after leaving that shoal for Cross Rip, it cannot be doubted that the fact of the stranding at such a place, would, in the absence of explanation, be almost conclusive evidence of unskilfulness, or carelessness in the navigation of the tug. The place where the injury occurred would be considered in connection with the injury itself, and together, they would very satisfactorily show a breach of the contract, if no excuse were given. At least they would be sufficient to cast upon the claimants of the tug the burden of establishing some excuse for the deviation from the usual and proper course.

In the present case the departure from the true course was not so great, but it was enough to devolve upon the tug the duty of explanation. The ship was, as we have noticed, towed upon a shoal more than three miles south of the proper course to Cross Rip Light. Had the course been a long one the deviation would not have been so remarkable. But as the entire distance from Handkerchief Shoal to Cross Rip is less than thirteen statute miles, and as the ship was stranded when only about three-quarters of this distance was passed, it is apparent there must have been either bad management of the tug, or some unusual cause must have operated to produce the disaster, a cause against which ordinary prudence was not bound to guard. Certainly this is enough to impose upon the tug the necessity of explaining how she came to be so far off her course in running so short a distance. We do not say that in order to excuse her it must be shown the accident was inevitable, but it ought to appear that so remarkable a deviation from her correct course, made so soon after leaving Handkerchief Light, was consistent with cautious and skilful management.

The weight of the evidence is that the ship was run upon the shoal in a little more than an hour, manifestly not more than an hour and a half, after she passed Handkerchief Light. All the witnesses agree that it was between three and four o'clock when she took ground. It follows that the entire departure from the true course was made within this period of an hour, or at most, an hour and a half.

The excuses set up in behalf of the steamer are that the night was foggy and dark, and that the currents were variable, conflicting, and imperceptible. There is no evidence that there was any wind which could have caused embarrassment until some time after the ship had stranded. It blew lightly from the south and east, and its tendency, therefore, was to keep the steamer up to the northward of her true course. It was raining, but there was no fog until after Hardkerchief Light had been passed. Soon afterwards the weather began to grow misty and thick, but the clear preponderance of the testimony is that it was not until they had passed over about half the distance to Cross Rip that the fog became so dense that the lights could not be seen. If this is so there was no difficulty in determining the position of the steamer. It is not perceived, however, that this is very material. The fog, whether dense or thin, was itself no embarrassment to the steamer's taking and keeping the right course, a course marked on the chart, and well known by the pilot and by the captain.

Though the currents were variable in the direction of their flow, yet both their direction and their force were well known. All that was needed was to give them careful attention, and to make allowances for their operation. So much prudent navigation required. There is no evidence that they were of unusual strength on the night of the disaster, or that they ran in an unusual direction, and there was nothing in the state of the weather to cause a difference from what was common. Ordinary skill was quite sufficient to enable the pilot of the tug to counteract their force, and to keep both the tug and the tow on the proper course. It was during the first third of the tide that the passage was made over the first third of the course from Handkerchief Light to Cross Rip, as stated by the pilot. During this time the current or tide was setting northwest, bearing the steamer northward, and on the last half of the course, on which she entered before the steam was shut off, the ebb-tide was setting southwest. Such is the evidence, as also that, after the steam was shut off, the motion of the steamer through the water was at the rate of two or three knots an hour, and that she was thus moving about forty-five minutes before the ship struck. If this is so, she was constantly making westing during that three-quarters of an hour, if headed right; and, if she was in the right position when the steam was shut off, the calculation is easy that shows a southwest current could not have carried her on to Tuckernuck Shoal. It is plain, therefore, the stranding of the ship was not the fault of the currents. They do not account for it, even if nothing was done to counteract their known tendency.

There is nothing else in the case that tends to show that the disaster was not due to the negligence of the tug. On the contrary, there is very considerable evidence that her compasses were untrue, and so deranged as on a westerly course to head her too much to the south. This, of itself, would account for the deviation, and this of course would be the steamer's fault.

It has been strenuously argued that the great injury to the ship was caused by her own mismanagement after she had struck the shoal and cast her port anchor. After daylight, when the steamer was about to back down in order to attach herself again to the ship, which had then got off the shoal and was riding at anchor, the ship's crew commenced heaving on the anchor; and it is alleged they hove short, so that the anchor was picked up, and, a gale coming on to blow suddenly, she went again upon the shoal. The anchor, however, instead of being picked up, was lost, and it was proper to heave upon it in order to bring the ship nearer the stern of the steamer, and thus aid in the effort to renew attachment to the steamer. We do not discover in this any negligence on the part of the ship. What was done was rendered prudent, if not necessary, by the prior misconduct of the tug. Nor was casting the starboard anchor, after the ship broke adrift, negligence under the circumstances, though it proved unfortunate, and though the ship afterwards swung upon it and bilged. The port anchor had been lost, and the wind was then blowing a gale. Probably the bilging was what saved the ship from total destruction; and, if casting the starboard anchor was an act of mistaken judgment, it cannot excuse the tug, which negligently brought the ship into the peril from which she sought thus to escape.

The attempt to escape responsibility under the allegation that the wrong, if any, was that of the pilot, and that the pilot was the employee of the ship and not of the steamer, wholly fails. Neither the written contract for towage nor the antecedent negotiation establishes any such thing. Under the engagements of the steamer, assumed before the contract of towage was made, it was impossible to have any other pilot than Sherwood, who was the pilot of the steamer, and there is nothing to show that the ship undertook to run the risk of pilotage.

It is finally objected that the deposition of Levi Hotchkiss was allowed to be read, though he was incompetent when it was taken. It does not appear to have been used in either the District or the Circuit Court, though it was read before the commissioner appointed to ascertain the damages. Objection was made to it there, and it must be conceded the deposition should not have been received, but its reception can hardly justify us in sending the case back for a new trial. When the commissioner received it, if it was intended to insist upon the objection, application should have been made to the court for an order to exclude it. This was not done. Conceding, however, that the error was not thus cured, still the evidence before the commissioner related only to the amount of damages, and without the testimony of Hotchkiss, the damages were plainly more than the libellants are entitled to recover in this proceeding. The libel was in rem, against the steamer, and the decree cannot be for more than is within the jurisdiction of the court. The steamer was discharged from arrest, on stipulation in the sum of eighteen thousand dollars for value, and two hundred and fifty dollars for costs. The stipulators, to the extent of their stipulation, have been substituted for the steamer, and thus nothing but the eighteen thousand dollars value and two hundred and fifty dollars for costs is within the control of the court. To that extent and no greater the stipulators have subjected themselves to the judgment of the court, and they cannot be made liable as stipulators beyond it. This was determined in the case of The Ann Caroline, and we need not repeat what was then said. The decree in this case was largely in excess of the stipulation, and while it is affirmed upon its merits, it must be modified in regard to the amount of damages recoverable from the stipulators.

The decree of the Circuit Court is AFFIRMED, WITH THE MODIFICATION that it be reduced to the sum of eighteen thousand dollars damages and two hundred and fifty dollars costs; and it is further ordered that each party pay his own costs in this court.

title: The Steamer Webb/Opinion of the Court


text: Talk:The Steamer Webb/Opinion of the Court


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Smith v. Mason

APPEAL from the Supreme Court of the District of Columbia; the case being this:

The Bankrupt Act enacts:

'SECTION 1. That the several District Courts of the United States be courts of bankruptcy, and they shall have original jurisdiction in their respective districts in all matters and proceedings in bankruptcy, and they are hereby authorized to hear and adjudicate upon the same according to the provisions of this act. . ..

'The said courts shall be always open for the transaction of business under this act, and the powers and jurisdiction hereby granted and conferred shall be exercised as well in vacation as in term time, and a judge sitting at chambers shall have the same powers and jurisdiction, including the power of keeping order and of punishing any contempt of his authority as when sitting in court.

'And the jurisdiction hereby conferred shall extend to all cases and controversies arising between the bankrupt and any creditor or creditors who shall claim any debt or demand under the bankruptcy; to the collection of all the assets of the bankrupt; to the ascertainment and liquidation of the liens and other specific claims thereon; to the adjustment of the various priorities and conflicting interests of all parties, and to the marshalling and disposition of the different funds and assets so as to secure the rights of all parties and due distribution of the assets among all the creditors; and to all acts, matters, and things to be done under and in virtue of the bankruptcy, until the final distribution and settlement of the estate of the bankrupt and the close of the proceedings in bankruptcy. The said courts shall have full authority to compel obedience to all orders and decrees passed by them in bankruptcy, by process of contempt and other remedial process, to the same extent that the Circuit Courts now have in any suit pending therein in equity.'

The second section, in its first clause, gives to the Circuit Courts 'a general superintendence and jurisdiction of all cases and questions arising under this act; and, except when special provision is otherwise made,' authorizes them, upon bill, petition, or other proper process of any party aggrieved, to hear and determine the case as in a court of equity.

By its third clause the act enacts thus:

'Said Circuit Courts shall also have concurrent jurisdiction with the District Courts of the same district of all suits at law or in equity which may or shall be brought by the assignee in bankruptcy against any person claiming an adverse interest, or by such person against such assignee, touching any property or rights of property of said bankrupt transferable to or vested in such assignee.'

The eighth section of the act gives appeals and writs of error from the District to the Circuit Courts, when the debt or damage claimed amounts to more than $500. The section proceeds:

'And any supposed creditor, whose claim is wholly or in part rejected, or an assignee who is dissatisfied with the allowance of a claim, may appeal from the decision of the District Court to the Circuit Court from the same district.'

The ninth section enacts:

'That in cases arising under this act no appeal on writ of error shall be allowed in any case from the Circuit Courts to the Supreme Court of the United States, unless the matter in dispute in such case shall exceed $2000.'The forty-ninth section enacts:

'That all the jurisdiction, power, and authority conferred upon and vested in the District Courts of the United States by this act in cases in bankruptcy are hereby conferred upon and vested in the Supreme Court of the District of Columbia. . . when the bankrupt resides in the District of Columbia.'

So far as to provisions of what is called the Bankrupt Act.

The Supreme Court of the District of Columbia, referred to in the section last quoted, and from which court this appeal came, was reorganized by an act of March 3d, 1863. The act gives it a general jurisdiction in law and equity. It is made to consist of four judges. Any one of them may hold the District Court of the United States for the District of Columbia, in the same manner and with the same powers and jurisdiction possessed and exercised by other District Courts of the United States.

In this state of statutory law Frederick P. Sawyer, the bankrupt in this case, was the senior member of the firm of Sawyer, Risher & Hall, of Washington, D. C., who held a claim against the United States, which they had put in the hands of George Taylor, for collection. On the 20th January, 1867, and while the claim was pending, the firm assigned it to Biddle & Co., of New York, by an order on Taylor to pay the proceeds over to them collected, which order was accepted by Taylor. Biddle & Co. assigned the order in turn, on the next day, to one Smith. Taylor collected about $100 on the claim, which he remitted to Smith, according to the arrangement. Some time after this payment, and before any further collection was made, Sawyer went into bankruptcy (one Mason being appointed his assignee), and the firm of Sawyer, Risher & Hall was dissolved, Risher and Hall closing the business of the firm, as remaining partners. After this date Taylor, by consent of all parties, received a further sum of $4744.19, and there was an uncollected draft yet to be paid to him.

At the time of these collections the accounts between the bankrupt partner and the remaining ones were unsettled, and the partnership debts were unliquidated. The assignee, therefore, filed a bill for an account, but the remaining partners had not answered. At this stage of the proceedings Mason, the assignee of Sawyer, on the 13th of October, 1868, presented a petition to one of the judges of the Supreme Court of the District of Columbia, sitting in bankruptcy, setting forth that he had filed his bill against Risher & Hall, the partners, carrying on the business of Sawyer, Risher & Hall, for the settlement of the partnership accounts; that Taylor had collected the sum of $4744.19, above mentioned, and that other funds would come into his hands for Sawyer, Risher & Hall; that prior to the bankruptcy of Sawyer the firm made the assignment (already mentioned) to Biddle & Co., as collateral security for the payment of a debt to the said firm, which debt had been paid; and that Biddle & Co. had assigned its claim to Smith.

Mason accordingly prayed an injunction on Taylor against his payment of the money pending his suit against Sawyer, Risher & Hall. This application for an injunction was in truth apparently made at Taylor's instance, in order that in any payments which he made of money that he received, he might act under an order of court. He did not appear, and the injunction was granted. Mason then, on the 7th of April, 1869, filed a petition against Smith, asking for an order on him to show cause why the money should not be decreed to him, Mason, as assignee. Smith appeared and set up his claim to the money.

On the 10th of April, 1869, Risher & Hall, the remaining partners, now intervened, and also claimed the money, on the ground that the order on Taylor was a mere hypothecation of the claim, and that Biddle & Co. had been fully paid.

The court thereupon went into an examination of the accounts between Sawyer, Risher & Hall, and Biddle & Co., and (Biddle & Co. not being present, and having had no notice or order served upon them) decided that the debt originally due to Biddle & Co. had been satisfied; and that the funds in the hands of Taylor should be paid over to Mason, the assignee of Sawyer.

From this decree an appeal was taken by Smith. The court in banc reversed the decision of the court in bankruptcy, dissolved the injunction, and ordered the money to be paid over to Risher & Hall, the solvent and surviving partners, thus deciding the right of Biddle & Co. and Smith without notice to Biddle & Co., and in favor of the surviving partners.

From this decree Smith took the present appeal. Counsel for the appellee appeared generally. The record, which was not a very full one, did not perhaps show very well notice of the appeal, but it showed clearly enough that the appeal had been duly claimed, and that the appellant filed his appeal bond in open court, and that it was duly approved by the chief justice of the Supreme Court of the District, who presided at the hearing when the final decree was entered in the case.

Messrs. Moore and Bright, for the appellant:

If any jurisdiction existed under the first section of the Bankrupt Act, and in a summary way, all parties to be affected should certainly have had notice. The court, without notice to Biddle & Co., and in their absence, went into the examination of their accounts and decided that their claim had been paid and discharged, and that they were bound to return the order on and acceptance of Taylor to the firm of Sawyer, Risher & Hall.

But the case was not one for summary jurisdiction under the first section at all. The case was plainly one for a proceeding in equity under the third clause of the second section, when all parties in interest would have been regularly brought in and accounts could have been regularly taken.

Mr. G. W. Paschall, contra:

No appeal lies in a case from the general term of the Supreme Court of the District of Columbia to this court in a strictly bankrupt proceeding. If it be conceded that the ninth section of the Bankrupt Act, by a negative pregnant, allows appeals from the Circuit Court to this court in all cases where the matter in controversy exceeds $1000, it does not follow that such appeal lies from the Supreme Court of the District of Columbia, much less that such power has been exercised in a manner to give this court jurisdiction.

There is, in fact, no appeal order by the court; there is no appeal bond, such as is required by the statute; there is no notice of appeal, and no evidence that the appeal was taken in term, or ever, in fact, taken at all. These are all jurisdictional facts.

But conceding the jurisdiction, we insist that, under the first and second sections of the Bankrupt Act, and the broad principles of Ex parte Christy, the court, in the exercise of the powers given, had the right to do precisely what was done in this case; that is, to determine the right of the claimants to a fund in which the bankrupt estate had an interest. The suit was brought originally by the assignee against the partners of the bankrupt for account. This fund was in the District, in the hands of the attorney of this firm, and the assignee brought the suit to enjoin the payment, either to the non-accounting partners or to Smith, who was understood to have set up some claim to the fund. Smith was properly cited to assert his claim to the fund. At this point the surviving partners intervened and set up their rights. The bankrupt court, in the exercise of its legitimate powers, acquired a summary equitable jurisdiction over the subject-matter and the parties; and, having become thus possessed of the cause, it might fully proceed to adjudicate the right.

Smith, as also Risher and Hall, were claiming an interest in the bankrupt's assets, and no disposition could be made of this fund until the rights of these claimants should be settled. The jurisdiction of the District Court expressly extends 'to the collection of all assets of the bankrupt;' 'to the marshalling and disposition of the different funds and assets among all the creditors; and to all acts, matters, and things to be done under and in virtue of the bankruptcy, until the final distribution and settlement of the bankrupt's estate, and the close of the proceedings in bankruptcy.' The Circuit and District Courts have given an enlarged interpretation to this section.

Mr. Justice CLIFFORD delivered the opinion of the court.

title: Smith v. Mason


text: Talk:Smith v. Mason

title: Talk:Smith v. Mason


text:
Smith v. Mason/Opinion of the Court

Jurisdiction, power, and authority in cases in bankruptcy, when the bankrupt resides in this District, are conferred upon, and vested in, the Supreme Court of the District, to the same extent and subject to the same rules, regulations, and restrictions as are enacted and prescribed in respect to the jurisdiction, power, and authority of the District Courts of the United States, where the bankrupt resides in any one of the judicial districts within the several States.

By the terms of the act establishing the Supreme Court of the District the court consists of four justices, any three of whom may hold a general term, and any one of them may hold a Circuit Court or special term for the purposes and under the conditions therein prescribed, or may hold a District Court of the United States, in the same manner and with the same powers and jurisdiction as are possessed and exercised by the Federal District Courts within the several States.

Enough appears in the record to show that one Frederick P. Sawyer, of the firm of Sawyer, Risher & Hall, was adjudged bankrupt by the Supreme Court of this District sitting in bankruptcy, and that George Mason, the appellee in this case, was appointed assignee of his estate by decree of the bankrupt court. He commenced the proceeding in this case by the petition exhibited in the transcript, in which he represents that George Taylor, as agent of that firm, had collected from the United States the sum of four thousand seven hundred and forty-four dollars and nineteen cents for the firm, and that other funds due to the firm, it was expected, would soon come into his hands; that Risher & Hall, the other two members of the firm prior to the bankruptcy of the senior partner, made an assignment of the claim, from which that amount was realized, to George E. Biddle & Co., as collateral security for the payment of a certain indebtedness of their firm to the said assignees, which indebtedness the petitioner believes has been paid; that the assignees of the claim afterwards made an assignment of their interest in the same to James R. Smith, as collateral security for their indebtedness to him, which, as the petitioner believes, has also been paid: wherefore he prayed that the said George Taylor might be restrained from paying out said money, or any other money which might come into his hands belonging to the same firm, pending the petition, and that the respondent might be required to give bond for the safekeeping of the money and for its production in court when ordered.

Such an order was issued, and the party holding the money was enjoined and required to give bond as prayed. Subsequently the petitioner presented another petition to the same court, in which he represented that James R. Smith also claimed an interest in the fund in question, and prayed that an order might be made requiring him to show cause on a day therein named why the fund should not be paid to the petitioner. Smith appeared and filed an answer to the rule, to the effect following: (1.) That the court had no jurisdiction to proceed against him in that mode. (2.) That the money enjoined came to him by regular assignment for a valuable consideration before the senior partner of the firm was adjudged bankrupt, and that he was, and is, the bon a fide owner of the claim. (3.) That neither the assignee of the bankrupt's estate nor his creditors have any right to any part of said funds.

Before the hearing the other partners of the firm, to wit, Risher and Hall, intervened, and alleged that the money enjoined rightfully belonged to them and not to the respondent in the rule, because the assignment of the claim, as they represented, was made by the senior partner of their firm merely as a security to the said assignees, to be applied by them to the payment of the debt due by their firm to those assignees; that it was expressly understood that if the assignors paid the debt before the claim was collected from the United States the claim should revert to them, the assignors; that they paid their entire debt to those parties before the claim was allowed at the Treasury Department, and that they, as the representatives of the firm since the bankruptcy of the senior partner, are entitled to the money: wherefore they pray that an order may be passed directing the depositary to pay the same to them, or, if it be paid to the said assignees, that it be so paid to their use.

Evidence was introduced by the intervenors tending to show that the indebtedness of the original owners of the claim to the assignees of the same had been paid, and that the respondent in the rule held the claim merely as collateral security for his assignors. On the other hand the respondent in the rule was examined, and he testified that he obtained the assignment of the claim in good faith and for value, without notice that his assignors held it subject to any conditions, or that it was not their property in case the indebtedness of their assignors was discharged before the claim was collected. He produced the assignment duly executed by the original owners, directing the depositary to pay the amount to the assignees when collected at the proper department, and also introduced the deposition of the senior partner of the firm to which the claim was assigned, and he deposed that his firm transferred and assigned the same to the respondent in the rule with the knowledge and consent of the original owners; that they, the assignees, took the order or draft at its date in the regular course of business, and that they assigned the same for value to the respondent, and that the accounts of the original owners with his firm have never been settled, but that they are still largely indebted to his firm. Hearing was had, but the court was of the opinion that the respondent took the order or draft merely as collateral security; that he was not a bon a fide purchaser of the same; that he was to credit the proceeds when collected to his assignors, and that they were to credit the same to the original owners.

Pursuant to that finding the court entered a decretal order that the depositary of the claim should pay the net balance in his hands to the assignee in bankruptcy for the benefit of the creditors of the original owners. Immediate application was made by the respondent for an appeal to the general term, which was granted on the following day. Due appearance was entered not only by the appellant but also by the intervenors as well as by the assignee in bankruptcy, and they were again heard before all the justices of the court; and the court being of opinion that there was error in the decree and that the intervenors, as the solvent partners of their firm, were entitled to the money, entered a decree dissolving the injunction, and directing the depositary of the money to pay the net balance in his hands to those parties as the survivors of the original owners of the claim: whereupon the respondent appealed to this court.

Instituted as the proceeding was to restrain the depositary of the claim from paying out the money which he had collected, or any which might thereafter come into his hands, it is quite clear that the alleged purpose of the petitioner was accomplished when the injunction was granted as prayed in the petition, as the party respondent in that proceeding never filed any answer and testified in the case that the order restraining him from paying out the money was procured by him so that he might not be required to act without the directions of the court. Had the matters terminated there the appellant would not have had any right of appeal to this court, as he was an utter stranger to the proceedings. He was not made a party to the petition nor was he served with process, nor did he voluntarily appear. Whatever the purpose of the petition was, or by whomsoever the injunction was procured, the proceeding was commenced and terminated without the knowledge of the appellant, and before any steps were taken by the petitioner or any one else to connect the appellant with the litigation. More than a year and a half before that petition was filed the original owners of the claim had assigned and transferred the same to the assignors of the appellant, and had directed, in writing, the depositary in whose hands they had placed it for collection to pay the same when collected to their said transferees, and the record shows that the depositary of the claim accepted the draft or order at the time and agreed to pay the same as directed whenever the same should come into his hands, less expenses and commissions. None of these facts are contradicted, and the appellant proved that the assignees of the claim, within a few days after receiving the same, assigned and transferred the same to him for full value in the usual course of business.

Beyond all doubt, therefore, the case is one where the appellant claimed absolute title to and dominion over the matter in controversy between him and the assignee of the bankrupt's estate. Absolute title to the matter in controversy is also claimed by the assignee in bankruptcy, as appears by his second petition, in which he prayed that the appellant might be summoned to show cause why the fund should not be paid to him as such assignee.

Suggestion may be made that the decree gives the fund to the intervenors, but the court will at present re-examine the case as between the parties first made in the second petition, before the solvent members of the firm to which the claim originally belonged were permitted to intervene in the litigation, as it is quite obvious that the whole proceeding subsequent to their intervention is irregular, and that the decree must be reversed if it be held that the bankrupt court had no jurisdiction to proceed and determine the right of property as between the assignee and the transferee of the same for value in that mode of proceeding.

Neither the depositary of the fund nor the appellant claimed anything from the estate of the bankrupt, and the appellant contends that the bankrupt court cannot take jurisdiction in such a case by a rule to show cause, served on a stranger to come in and answer in support of his title or claim to such a fund or to any other property over which he claims absolute dominion.

Power and jurisdiction in all matters and proceedings in bankruptcy are conferred upon the District Courts, and those courts as courts of bankruptcy are authorized to hear and adjudicate upon the same according to the provisions of the Bankrupt Act. Examined separately the clause of the first section of the act, which provides that the powers and jurisdiction therein granted and conferred may be exercised as well in vacation as in term time, and that a judge sitting in chambers shall have the same powers and jurisdiction as when sitting in court, would seem to afford some support to the views of the assignee in this case, that all the powers and jurisdiction of the District Courts, when sitting as courts in bankruptcy, may be exercised in a summary way without process, as by a rule to show cause, as in a motion to set aside a verdict in an action at common law, or in a collateral proceeding in a suit in equity. Most matters and proceedings in bankruptcy may doubtless be heard and adjudicated by the District Court in that way, but that general clause in the first section, which is referred to as supporting the unlimited scope of that power and jurisdiction, must be considered in connection with all the other provisions of the Bankrupt Act, as is expressly required by the preceeding clause of the same section, in which it is enacted that the District Courts shall hear and adjudicate upon all matters and proceedings in bankruptcy according to the provisions of the Bankrupt Act. Superadded to that general clause, and as an exposition of the same, is another and more important clause, in which is given a specific enumeration of the cases and controversies to which that general jurisdiction extends, and it is plain that the enumeration does not include 'suits at law or in equity which may or shall be brought by the assignee in bankruptcy against any person claiming an adverse interest, or by such person against such assignee touching any property or rights of property of said bankrupt transferable to or vested in such assignee.' On the contrary, the third clause of the second section expressly enacts that Circuit Courts shall have concurrent jurisdiction with the District Courts of all such suits at law or in equity, provided the suit at law or bill in equity shall be brought within two years from the time the cause of action accrued.

Controversies, in order that they may be cognizable either in the Circuit or District Court under that act, must have respect to some property or rights of property of the bankrupt transferable to, or vested in, such assignee; and the suit, whether it be a suit at law or in equity, must be in the name of one of the two parties described in that clause and against the other, as appears by the express words of the provision. Such a suit, whether at law or in equity, may be commenced either in the District or Circuit Court, at the election of the party suing, and if in the former it is clear that the case, when it has proceeded to final judgment or decree, may be removed into the Circuit Court for re-examination by writ of error, if it was an action at law, or by appeal if it was a suit in equity, provided the debt or damages claimed amount to more than five hundred dollars and the writ of error is seasonably sued out, or the appeal is claimed and the required notices are given within ten days from the rendition of the judgment or decree. None of those regulations, however, apply to petitions for revision under the first clause of the second section, nor does the Bankrupt Act fix any precise limitation to the right of a party aggrieved by the ruling, decision, or decree of the District Court to file a petition for that purpose in the Circuit Court. Power to revise all cases and questions which arise in the District Courts, in such a proceeding, 'except when special provision is otherwise made,' is conferred upon the Circuit Courts by the first clause of the same section, but the court is of the opinion that the power conferred by that clause does not extend to any case where special provision for the revision of the case is otherwise made, as where it is provided that an appeal will lie from the District Court to the Circuit Court, or where a writ of error will lie from the Circuit Court to the District Court in the manner provided in the laws of Congress allowing appeals and writs of error.

Special provision is made for the revision in the Circuit Court of controversies like the one exhibited in this record, and the court is of the opinion that such causes cannot be commenced by a petition for a rule to show cause, as in this case, nor be determined in a summary way by the District Court sitting in bankruptcy, without due process of law. Cases of the kind before the court fall directly within the third clause of the section under consideration, and must, in the judgment of the court, be determined by a suit in equity or an action at law, as the case may be; and where an action at law is the proper remedy the parties are entitled to a trial by jury if the value in controversy shall exceed twenty dollars. Concurrent jurisdiction in such cases, it must be conceded, is vested in the Circuit and District Courts, and it is equally clear that either party, where the proceeding is correct, may remove the cause, in a proper case, when it has proceeded to final judgment or decree, into the Supreme Court for re-examination, as provided in other causes outside of the Bankrupt Act.

Possession and control of the claim had been surrendered by the original owners long before the senior partner of the firm was adjudged bankrupt, and the depositary of the same had duly accepted the order or draft transferring the proceeds of the same to the assignors of the appellant, showing that the assignee in bankruptcy had neither the possession nor the right of possession to the same at the time the petition for the rule was filed. Independent of the injunction, which was granted without notice to the appellant, he was apparently entitled, and if the evidence he introduced is believed, he was in fact entitled, to demand and to receive the whole fund as his own property. Suffice it to say, without expressing any opinion as to the weight of the evidence, the appellant claimed the fund as his own property, and if his claim is just and legal, the possession of the depositary was his possession, and if the assignee in bankruptcy would divest him of the possession and control of the fund he must do it by a suit at law or in equity, as provided in the third clause of the second section of the Bankrupt Act. Equity would certainly have jurisdiction in such a case, as in that mode of proceeding all the parties could be brought before the court. Extended remarks in respect to the decree in the case appears to be unnecessary, as it is as clear as any thing in legal decision can be that the intervenors could no claim to divest the appellant of his interest in the funds be becoming parties to a rule like the one before the court, not in any other manner than by due process of law.

Objection is also made that the appeal is irregular, as having been prosecuted from the Supreme Court of the District, but the regulations of the forty-ninth section of the act afford a satisfactory answer to that objection, which is all that need be said upon the subject. Want of notice of the appeal comes too late after a general appearance, but the record shows that the appeal was duly claimed and that the appellant filed his appeal bond in open court and that the same was duly approved by the chief justice who presided at the hearing when the final decree was entered in the cause.

Strangers to the proceedings in bankruptcy, not served with process, and who have not voluntarily appered and become parties to such a litigation, cannot be compelled to come into court under a petition for a rule to show cause, as in this case; nor is the exercise of such a jurisdiction necessary, as the third clause of the second section of the Bankrupt Act affords the assignee a convenient, constitutional, and sufficient remedy to contest every adverse claim made by any person to any property or rights of property transferable to, or vested in, such assignee.

DECREE REVERSED and cause remanded for further proceedings,

IN CONFORMITY TO THE OPINION OF THIS COURT.

title: Smith v. Mason/Opinion of the Court


text: Talk:Smith v. Mason/Opinion of the Court


text:
Mowry v. Whitney

APPEAL from the Circuit Court for the Eastern District of Pennsylvania; the case being thus:

Asa Whitney, of Philadelphia, had obtained, on the 25th April, 1848, a patent for fourteen years for an improvement in annealing and cooling cast-iron car-wheels. This patent expired, of course, by its terms on the 25th of April, 1862.

Just before its expiration, that is to say, on the 21st of March, Albert Mowry, of Cincinnati, also obtained a patent for fourteen years, for a process for annealing car-wheels, of which he professed to be the inventor.

In March, 1862, Whitney-the expiration of his patent now approaching-applied to the Commissioner of Patents for an extension of the patent for seven years more. This extension was applied for in pursuance of a provision of the Patent Act of 1848, which authorizes an extension where the patent has not been remunerative, and the act, therefore, requires that the patentee when applying for the extension shall—

'Furnish to the Commissioner of Patents a statement in writing, under oath, of the ascertained value of the invention, and of his receipts and expenditures sufficient in detail to exhibit a true and faithful account of loss and profit, in any manner, accruing to him from, and by reason of, the said invention.'

Whitney did furnish to the commissioner a statement, which purported to be such as the act required; and accordingly the extension was granted April 25th, 1862, for seven years from that date, or in other words, until 25th of April, 1869.

On the 21st of March, 1866, Whitney filed a bill in the Circuit Court for the Southern District of Ohio, to enjoin Mowry against proceeding in his business of annealing carwheels, on the ground that he Mowry by his process of annealing was infringing his Whitney's patent; and it being decided in the Circuit Court April 5th, 1867, on the hearing of the case, that Mowry was by his plan of annealing, infringing Whitney's patent, the question of damages came up. This being referred to a master, Whitney, in order to swell his damages, sought to prove (as Mowry alleged) that his profits had been very large; greatly larger than what he had sworn they were in the statement which he made before the commissioner, when seeking his extension.

Hereupon, April 7th, 1870, Mowry filed a bill in chancery in the court below, representing the fact of Whitney's patent, and of the extension of it (annexing as exhibits all the patent, the certificate of extension, and all the affidavits and estimates on which the extension had been granted); setting forth his own patent, that he was sued by Whitney in a suit still pending; that in the progress of investigation necessary to his defence in that suit he had discovered the fraud by which the extension was obtained, and praying that it might be declared that Whitney's letters, granted on the 25th of April, 1848, and extended on the 7th of April, 1862, were, and are void and of no effect from and after the 25th of April, 1862.

The Patent Act of 1836, it should be added, by its 16th section thus enacts:

'That whenever there shall be two interfering patents, or whenever a patent, on application shall have been refused on an adverse decision of a board of examiners, on the ground that the patent applied for would interfere with an unexpired patent previously granted, any person interested in any such patent either by assignment or otherwise, in the one case, and any such applicant in the other case, may have remedy by bill in equity; and the court having cognizance thereof, on notice to adverse parties and other due proceedings had, may adjudge and declare either the patents void, in the whole or in part, or inoperative and invalid in any particular part or portion of the United States, according to the interests which the parties to such suit may possess in the patent or the inventions patented; and may also adjudge that such applicant is entitled according to the principles and provisions of this act to have and receive a patent for his invention as specified in his claim, or for any part thereof, as the fact of priority of right or invention shall in any such case be made to appear. And such adjudication, if it be in favor of the right of such applicant, shall authorize the commissioner to issue such patent, on his filing a copy of the adjudication and otherwise complying with the requisitions of this act: Provided, however, That no such judgment or adjudication shall affect the rights of any person except the parties to the action, and those deriving title from or under them, subsequent to the rendition of such judgment.'

To the bill filed as above mentioned by Mowry, Whitney demurred, on these two, among other grounds:

1. That it appeared from the bill that the government of the United States was a necessary party complainant, but that the government was not made a party, nor was the suit brought at the instance of, nor by the authority, nor with the consent of the government.

2. That it appeared by the bill that the term for which the letters-patent sought to be cancelled were granted and extended had expired before the commencement of the suit.

The court below sustained the demurrer on these grounds and dismissed the bill. From that decree Mowry took this appeal.

Messrs. A. G. Thurman and C. B. Collier, for the appellant:

The bill charging and the demurrer confessing that the extension was procured by fraud, the extended patent must be regarded as void, ab initio, and as conferring no monopoly upon the patentee as against the public or the complainant.

Notwithstanding the expiration by limitation of Whitney's patent prior to the filing of the bill, the extended patent, until declared void for fraud, was and is alive and in effect for all purposes of suit for infringements of it that occurred during its existence.

By reason of the fact that Whitney's patent had expired prior to the filing of the complainant's bill, the government was neither a necessary nor a proper party to the bill, and by reason of such expiration the bill could not have been maintained in the name of the government, it having no interest in the subject-matter of the controversy.

Mowry, as appears on the face of his bill, has a direct and personal interest in the subject-matter of the suit; he is sued by Whitney for an alleged infringement of his patent in the Circuit Court for Ohio; he cannot avail himself of the fraud of the patentee as matter of defence to the suit in that court and in that cause; he is without remedy save in the court and according to the manner in which he has sought it by this proceeding.

The extension of the patent having been confessedly procured fraudulently, and the government not being able to maintain a suit in relation to the patent by reason of its expiration, and having no further interest in it, the suit was properly and could only be brought by one who had a continuing interest in the patent, and whose rights were, notwithstanding its expiration, affected by it.

The primary object of the suit is that the complainant may be relieved from a prosecution whic is contrary to equity and good conscience, and the court is asked to find and declare that the patent, having been procured fraudulently, was ipso facto void as antecedent to obtaining the relief prayed for.

Mr. Henry Baldwin, Jr., contra:

There is no provision of law for any such proceeding as this to repeal a patent; and any proceeding for that purpose must be at the instance of the government. Instead of this bill being filed by the authority or with the consent of the government, it is on its face filed by an adjudged infringer against a patentee whose rights he has invaded, and whose statute remedy he now seeks to enjoin.

The demurrer admits the facts stated in the bill only so far as they are relevant and well pleaded. On the complainant's own showing, the allegations of fraud and suppressions and concealment stated in the bill are refuted by the exhibits annexed thereto and making part thereof.

The account rendered by the respondent to the Commissioner of Patents in connection with his application for extension, and a copy of which is annexed to the bill, is a public document on file and of record in the United States Patent Office at Washington City, for more than eight years prior to the commencement of this suit. During all this time it has been accessible to the knowledge and inspection of this appellant. Upon recourse to these records he could have discovered what he now relies on as newly-discovered evidence.

The bill shows that the extended term of the respondent's patent expired April 24th, 1869, while this proceeding was not commenced until April 7th, 1870, nearly twelve months thereafter.

There is consequently no equity to support this application to set the extension aside, nor does anything remain which can be the subject of a suit.

Mr. Justice MILLER delivered the opinion of the court.

title: Mowry v. Whitney


text: Talk:Mowry v. Whitney

title: Talk:Mowry v. Whitney