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Ketchum v. St Louis/Opinion of the Court

The present appeal brings before us for examination a decree of the Circuit Court rendered April 25, 1877, adjudging that the county of St. Louis had an equitable lien or charge upon the earnings of the Pacific Railroad of Missouri, to whomsoever the same may be transferred or conveyed, prior and paramount to any mortgage or other lien thereon, to the extent of $4,000 per month, payable monthly, from the first day of April, 1876, and $1,000 payable in each month of December, to meet the interest upon $700,000 of bonds issued by the county of St. Louis in the year 1875, and by it loaned to the Pacific Railroad Company, such payments to continue until the bonds are fully paid by the company.

The decree declared the lien to exist, and to be enforceable on the railroad property and franchises, against the funds in the hands of the receiver in this suit as well as the purchaser under the mortgage foreclosure sale to be hereafter referred to.

The learned judge who heard this cause in the Circuit Court rested the decree upon the proposition of law that 'if a debtor by a concluded agreement with a creditor sets apart a specific amount of a specific fund in the hands, or to come into the hands, of another from a designated source, and directs such person to pay it to the creditor, which he assents to do, this is a specific appropriation binding upon the parties and upon all persons with notice who subsequently claim an interest in the fund under the debtor.'

Was there an agreement of the character indicated in this statement?

That is the first question to which we shall direct our attention.

The Pacific Railroad Company was incorporated by the legislature of Missouri in the year 1849, with power to construct a line of railway from St. Louis to Kansas City, a distance of nearly three hundred miles. For the purpose of aiding in the construction of the road, the State from time to time loaned its bonds to the company. They amounted in the year 1855 to more than $7,000,000, and were secured by a first mortgage upon the property, franchises, and income of the company, with power of sale upon default in meeting the interest and principal of the bonds. Less than two hundred miles of the road was completed at the beginning of the recent civil war, and during its continuance but little progress was made in the work of construction.

By an act approved Feb. 10, 1864, the company was authorized to borrow money 'for the completion of the main road to Kansas City,' and, for that purpose, to issue its bonds to the amount of $1,500,000, 'to be secured by a first mortgage on the main line of the road west of Dresden,'-so much of the bonds as were necessary to be applied to the completion of the road from its then terminus to Kansas City, and to no other purpose. For that object, and to that amount and extent only, the State, by the express words of the act, relinquished her first mortgage lien and right of forfeiture upon the road west of Dresden, retaining, however, a second lien and mortgage thereon,-such second lien and mortgage to become forthwith, upon the payment in full of the principal and interest of the bonds authorized by that act, the first lien and mortgage, in every respect and as fully as those held by the State.

The act created the office of fund commissioner, to be filled by appointment of the governor, subject to confirmation by the Senate. It declared that such office should 'continue until the bonds issued for the completion of the road, and the State bonds loaned to said railroad company, with interest thereon, are fully paid out of the earnings, or exchanged for the first-mortgage bonds of said road,' as thereinafter provided. The fund commissioner became entitled, and it was made his duty, to take possession of the $1,500,000 of bonds authorized to be issued, negotiate the same, and their proceeds, together with the gross earnings of the road, from whatever source, to control and apply as directed in the act.

Without referring to other provisions of the act, it is sufficient to say that the State, through the fund commissioner, acquired, for its security, complete control of the earnings and income arising from the property.

Following the course of events in the history of this railroad, we find that in September, 1864, the State of Missouri was invaded by insurrectionary forces, which destroyed much of the property belonging to the company, including bridges, depots, machine-shops, and track. The cost of repairing the injury thus done and of completing and putting the road in successful operation was estimated by the board of directors at the sum of $700,000. These facts were communicated to the county court of St. Louis County by a committee of the board, in a memorial, stating: 'This sum we have lost as the result of the invasion. This amount we want the county to provide by issuing to the company the bonds of the county (under authority to be given by the legislature), bearing seven per cent interest, the same to be a loan to complete the road, the company to refund to the county the principal and interest as the same matures.'

The memorial concluded in these words: 'If completed, we believe that the earnings of the road will soon furnish all the equipments required for the increased business, pay off the $1,500,000 mortgage, provide for the payment of the county bonds now asked for, and in six or seven years commence paying on the bonds issued by the State for our benefit. But should the financial success of the enterprise not equal our expectations, the importance of the road as a great artery of trade and commerce will justify the expenditure asked for.'

The justices composing the county court seem to have concurred in the propriety of the loan, but differed as to the conditions upon which it should be made. One of their number presented for adoption an order reciting the conditions which, in his judgment, should be embodied in any law authorizing bonds to be issued, viz. that the State should relinquish so much of its mortgage upon the road as covered the rolling-stock, which should then be mortgaged by the company to the county as security for the $700,000 of bonds to be issued; that the company should pay into the county treasury, at least thirty days prior to the maturity of the interest, the full amount thereof, in default of which the whole debt should become due, with power in the county to foreclose the mortgage; and, finally, that the proposed act should be submitted for acceptance or rejection to the actual tax-payers of the county.

Another member of the county court offered as a substitute the draft of an order embodying, among other things, an act to be submitted to the legislature authorizing the proposed issue of bonds. This substitute declared that, in view of the importance of the completion of the road to the tax-payers of the county, the court would concur (in case application should be made by the company) in the propriety of the passage of an act 'securing the completion of said road and the interest of the county of St. Louis in the said bonds.' The proposed act contained this provision:--

'Said bonds to be issued under such conditions as may be agreed upon between said county court and the board of directors of the Pacific Railroad; and the fund commissioner of the Pacific Railroad Company shall pay every month $4,000, and $1,000 additional each month of December, to the treasurer of St. Louis County, to meet the interest on the above seven hundred bonds; said payments to continue until said bonds are paid by the Pacific Railroad Company.'

The substitute was adopted by the county court, and, being submitted to the legislature of Missouri, that body, on the 7th of January, 1865, passed an act containing additional provisions. It is here given at length, since the case depends mainly, if not altogether, upon the construction which may be given to its provisions:--

'SECT. 1. The county court of St. Louis County is hereby authorized to issue seven hundred county bonds of the denomination of $1,000 each, having twenty years to run, and bearing interest at the rate of seven per cent per annum, payable semi-annually, the principal and interest payable in the city of New York, and loan said bonds to the Pacific Railroad Company for the completion of said road; said bonds to be issued under such conditions as may be agreed upon between said county court and the board of directors of the Pacific Railroad Company, such conditions to be binding on the parties, but shall not impair or affect the validity of the bonds after they are issued.

'SECT. 2. The fund commissioner of the Pacific Railroad, or such person as may at any time hereafter have the custody of the funds of said railroad company, shall, every month after said bonds are issued, pay into the county treasury of St. Louis County, out of the earnings of said Pacific Railroad, $4,000, and $1,000 additional in each month of December, to meet the interest on the said seven hundred bonds; said payments to continue until said bonds are paid off by the Pacific Railroad.

'This act to take effect and be in force from and after its passage.'

This act was accepted by the railroad company. It expressly agreed to comply with all its provisions. In conformity therewith bonds were issued by the county and delivered to the railroad company as follows: One hundred bonds on 20th February, 1875, two hundred bonds on 7th March, 1875, and four hun dred bonds on 5th May, 1875. They were sold by the company, and the proceeds applied in the completion of the road to Kansas City.

On 15th of July, 1868, the company executed a first mrotgage on its franchises and property for $7,000,000; on 1st of July, 1871, a second mortgage for $3,000,000; and on 10th July, 1875, a third mortgage for $4,000,000,-the latter being the same mortgage which was foreclosed by decree rendered on 6th June, 1876, in Pacific Railroad v. Ketchum, supra, p. 289. The decree of foreclosure and sale in that case was passed in the Circuit Court, and has been affirmed here, at the present term, but without prejudice to the lien claim of St. Louis County.

In view of these and other facts to be presently detailed, it is difficult to believe that the officers of the company had any expectation whatever that the county would make a loan of $700,000, without security of some sort, and upon the bare promise or covenant of a railroad corporation, staggering under an enormous indebtedness and without credit, that it would meet the interest upon the loan. We have seen that the committee appointed by the company to seek financial aid from the county expressed, officially, the belief that upon the completion of the road its earnings would soon furnish all the equipments required for increased business, pay off the $1,500,000 mortgage, provide for the payment of the county bonds then asked for, and in six or seven years thereafter commence paying on the bonds issued by the State for the benefit of the company. But more significant as to the intention of the company and as to the impression which it sought to produce upon the county court is the fact that, immediately upon the passage of the act, the president of the railroad company, with a view, of course, to influence the action of the county court, presented to that body the written opinion of its counsel, prepared with unusual care, in which he declared: 1. That if the act should be accepted by the company, and the county should make the loan authorized, the act would be binding upon all the parties, in favor of the county court, to wit, the company, the fund commissioner, and the State. 2. That an agreement executed by the company expressing its assent to such appropriation of the earnings of the road would create in favor of the county an equitable lien or charge upon the earnings, pro tanto. 3. That the direct authorization of such appropriation of the earnings, or rather the direction to the fund commissioner (the trustee) to pay this monthly appropriation out of funds, to the benefit of which it (the State) was entitled, was unquestionable a waiver or postponement of the interest of the State, cestui que trust, in favor of the county, to the extent and for the purpose specified in the act.

'The act,' said counsel, 'admits of no other construction.' That opinion was filed and preserved by the clerk of the county court among its records.

If the railroad company deemed it possible that the county would make a loan of $700,000 upon the simple promise of the corporation to save it harmless,-if they had not believed that the county court would exact ample security for the protection of its constituents against liability, it would scarcely have been suggested through counsel that the acceptance of the act of Jan. 7, 1865, would amount to a specific appropriation of so much of the earnings as would suffice to meet the interest until the bonds were paid off.

We next inquire whether any different belief was indulged by the county court. Did its members intend the loan to be made without securing the county in some effectual mode? These questions must, in view of all the circumstances, be answered in the negative. We have seen that, when the original application was made to the county court, one of the justices submitted a proposition requiring the company to secure the loan by a mortgage upon the rolling-stock, the State to that extent surrendering its mortgage or lien. The substitute which was adopted described the act which it was proposed to submit to the legislature as an act 'securing the completion of the road and the interest of the county of St. Louis in the issue of said bonds.' The security which the proposed act provided was a direction to the fund commissioner to pay the amount necessary to meet the interest, and to continue such payments until the bonds were paid by the company. It is quite clear that a proposition to make this loan, without providing some security against liability, would not have been entertained by the county court.

As to the State, it is abundantly clear, from the language of the act of 1865, without reference to the circumstances under which it was passed, that the legislature, as an inducement to the county of St. Louis to come forward and save an important enterprise, in which the State was largely interested financially, intended to waive the prior statutory lien of the State to the extent necessary to secure the prompt liquidation of the interest on the proposed loan, during the whole period the bonds were outstanding and unpaid. The State, at that time, had control of the entire earnings of the railroad, and if the legislature did not intend to forego any priority or advantage then enjoyed by the State, but designed only to give authority to the county to issue its bonds, that purpose could have been accomplished by the first section of the act of 1865, leaving the county and the railroad company to make such terms and conditions as suited them.

The second section of the act shows, beyond question, that the purpose of the legislature was not so restricted,-that its intention was to provide full security to the county in the event the county court exercised the authority given by the act. The draft of the statute submitted by the county court to the legislature contained only a general direction to the fund commissioner to pay the interest, and to continue such payments until the bonds were paid off by the company. But so fixed was the legislature in the purpose to protect the county, that it extended that direction to 'such person as may at any time hereafter have the custody of the funds of the company,' and, by express words, required the payments of interest, whether by the fund commissioner or by such other person, to be made 'out of the earnings of said Pacific Railroad.' The object of these additions to the act, as submitted by the parties, cannot be mistaken. The office of fund commissioner was created by statute, and, consequently, its continuance depended upon the will of the legislature. To meet the contingency of the abolition of that office, the same duty was imposed upon such person as at any time thereafter should have the custody of the funds of the company. And that there might be no misapprehension as to the source from which funds to meet the interest were to be derived, the legislature, in effect, gave the assurance that the earnings of the railroad, by whomsoever held, should supply the amount necessary to that end.

In this connection we may notice another important difference between the act in the form in which it was submitted to the legislature and that in which it finally passed. The former provided that the bonds should be issued 'under such conditions as may be agreed upon between said county court and the board of directors of the Pacific Railroad.' But the legislature added the words, 'such conditions to be binding on the parties, but shall not impair or affect the validity of the bonds after they are issued.' These last words, but for the succeeding section of the act, would have placed the county at the mercy of the railroad company, and rendered it liable to holders of bonds, whether the company complied or not with the conditions upon which the loan was made. It is manifest that while the legislature intended, by the language last quoted, to facilitate the sale of the bonds, and thereby secure the early completion of the road, it intended also by the second section of the act to assure the county of St. Louis that its absolute liability to holders of its bonds was largely nominal, since, by that section, out of the earnings of the property, to the extent necessary, and whether the funds of the company were in the custody of the fund commissioner or of some other person, the interest on the bonds should be paid at maturity, and such payments continued until the bonds were paid.

That the legislature intended by the act of 1865 to make a specific appropriation of the earnings for that purpose; that the prior lien of the State was, to that extent, waived in favor of the county; and that such appropriation and waiver were, by agreement of all the parties then interested in the property and the disposition of its income, to continue until the bonds themselves were paid or the county discharged from liability thereon, we entertain no doubt. It was not a simple, naked covenant to pay out of a particular fund; but the act, being accepted by the parties interested, operated as an equitable assignment of a fixed portion of that fund,-an assignment which became effectual without any further intervention upon the part of the debtor, and which the party holding the funds of the company, whether the fund commissioner or some other person, could respect without liability to the debtor for so doing. It was an arrangement, based upon a valuable consideration, which neither the State nor the company, nor both, nor parties claiming under either, with notice, could disregard without the assent of the county, expressed by those who had authority to bind it. It was an engagement to pay out of a specially designated fund, accompanied by express authority to its custodian to apply a specific part thereof to a definite object, in the accomplishment of which all the parties to the arrangement were directly interested. To construe the act otherwise will not only do violence to plain words, requiring no construction, but convict the legislature of a deliberate design to entrap the county of St. Louis into incurring an enormous debt primarily for the benefit of the State, which controlled the earnings of the property for its own benefit.

It remains to inquire whether this agreement or arrangement can be carried into effect consistently with the settled principles of equity.

We remark that all parties claiming under mortgages executed by the company after the acceptance of the act of 1865 (none others are interested in the determination of this case) are chargeable with notice of the appropriation of earnings made by that act. 'In this country,' says Mr. Sedgwick, 'the disposition has been, on the whole, to enlarge the limits of the class of public acts, and to bring within it all enactments of a general character, or which in any way affect the community at large.' Sedgwick, Stat. and Const. Law., p. 25. That act related to matters in which the general public were concerned, and all were bound to take notice of its provisions.

We are of opinion that no insuperable obstacle exists in the way of a court of equity giving effect to this agreement or contract between the parties as against those whom the law charges with notice thereof. The relief granted by the decree seems to be in accordance with established rules in such cases.

In Legard v. Hodges, Lord Thurlow said: 'I take this to be a universal maxim, that wherever persons agree concerning any particular subject, that, in a court of equity, as against the party himself, and any claiming under him voluntarily, or with notice, raised a trust. These persons have so claimed; and, therefore, this is a pure trust estate,' and they must be declared trustees. 1 Ves. Jr. 478. In the report of that case in 3 Bro. C. C. 531, the Chancellor says: 'I take the doctrine to be true, that when parties come to an agreement as to the produce of land, the land itself will be affected by the agreement.' Upon rehearing, the former decree was affirmed. 4 id. 422.

In Re Strand Music Hall Company (3 De G., J. & S. 147), the question arose whether that company had created a valid charge on their real property. 'There can, I think,' said Lord Justice Turner, 'be no doubt that it was intended by these agreements to create a charge upon the property of the company, but it was said on the part of the official liquidator that this intention was not well carried into effect. I apprehend, however, that where this court is satisfied that it was intended to create a charge, and that the parties who intended to create it had the power to do so, it will give effect to the intention, notwithstanding any mistake which may have occurred in the attempt to effect it.'

The doctrine is thus stated by Mr. Justice Story in his Equity Jurisprudence, vol. ii. sect. 1231: 'Indeed, there is generally no difficulty in equity in establishing a lien, not only on real estate, but on personal property, or on money in the hands of a third person, wherever that is a matter of agreement, at least against the party himself, and third persons who are volunteers or have notice; for it is a general principle in equity that as against the party himself, and any claiming under him voluntarily or with notice, such an agreement raises a trust.' The author cites, in support of these views, Legard v. Hodges, supra.

So, also, in Pinch v. Anthony and others, 8 Allen (Mass.), 536. 'It is well stated that a party may, by express agreement, create a charge or claim in the nature of a lien on real as well as on personal property of which he is the owner or in possession, and that equity will establish and enforce such charge or claim, not only against the party who stipulated to give it, but also against third persons who are either volunteers, or who take the estate on which the lien is agreed to be given, with notice of the stipulation. Such agreement raises a trust which binds the estate to which it relates, and all who take title thereto with notice of such trust can be compelled in equity to fulfil it.'

In the recent work of Mr. Jones on Mortgages (vol. i. sect. 162) the author remarks: 'In addition to these formal instruments which are properly entitled to the designation of mortgages, deeds, and contracts, which are wanting in one or both of these characteristics of a common-law mortgage, are often used by parties for the purpose of pledging real property, or some interest in it, as security for a debt or obligation, and with the intention that they shall have effect as mortgages. Equity comes to the aid of the parties in such cases, and gives effect to their intentions. Mortgages of this kind are therefore called equitable mortages.' So, also, in his treatise on Railroad Securities, p. 57, the same author says: 'An agreement of a company to set apart specific earnings or property in the hands of a third person to meet the interest or principal of its bonds, creates an equitable lien or charge.' Willard, Eq. Jur. 462; Watson v. The Duke of Wellington, 1 Russ. & Myl. 602; Yeates v. Groves, 1 Ves. Jr. 279; Lett v. Morris, 4 Sim. 602; Ex parte Alderson, 1 Madd. 39.

Further citation of authority would seem to be unnecessary. If any doubt exists as to the case coming within these recognized principles of equity, it is sufficient to say that the appropriation of the earnings of the railroad company as security for the loan by the county was in pursuance of a special act of the legislature; and in sustaining the decree below we give effect to the legislative will as to matters over which its authority unquestionably extended.

It will be observed that we have made no allusion to the act of March 30, 1868, subsequently to the passage of which the first, second, and third mortgages were executed. In behalf of the plaintiffs in error, it is contended that the act of 1868 shows the construction given by the Circuit Court to the act of 1865 to be inadmissible. The answer to this proposition is twofold: 1st, The act of March 30, 1868, furnishes, upon its face, evidence to all that the State felt itself under obligation to provide for the security of the county on account of the loan made to the railroad company, under the authority of the act of Jan. 7, 1865. 2d, Be that as it may, if, as we have held, the act of 1865, and its acceptance by the parties, constituted a contract by which the State waived its lien, in favor of St. Louis County, to the extent and for the purpose therein indicated, and by which the State, the railroad company, and the county appropriated the company's earnings to the payment of the interest on the county's bonds, such payments to continue until the bonds were paid off by the company, no subsequent legislation could deprive the county of the security thus acquired. Nor could parties, who claim under subsequent incumbrances, and who are chargeable with notice of the appropriation made by the act of 1865, destroy the equitable lien of the county, even with the consent of the railroad company. With that lien the property itself was chargeable by whomsoever it or the funds accruing therefrom are or may be held.

By an order heretofore made in this court, the city of St. Louis was allowed to intervene in this cause for the purpose of protecting such interest as it may have herein, and for the purpose of being heard at the argument. The claim of the city is, that, by the Constitution and laws of Missouri, it has assumed the position formerly occupied by the county of St. Louis under the act of Jan. 7, 1865,-that the instalments of money required by the act to be paid monthly into the county treasury are due and payable to the city treasury, and that it has been subrogated to the rights and liabilities of the county as to all matters arising out of the issue of the bonds in question.

Since the making of that order, a written stipulation has been filed in this court signed by all the parties to the record, including the city, agreeing that in the event the decree below is affirmed, the city of St. Louis shall be substituted therein in lieu and place of the county of St. Louis. The stipulation will be entered at large upon the record, and an order entered substituting the city to all the rights acquired by the county in virtue of the decree below.

We deem it unnecessary to allude to any other points discussed by counsel. We have noticed all deemed by us material. What has been said is sufficient to dispose of the cause upon its merits.

Perceiving no error in the decree, it is, in all respects,

Affirmed.

MR. JUSTICE STRONG and MR. JUSTICE BRADLEY dissented.

MR. JUSTICE STRONG.

I cannot concur in the judgment given in this case. I am unable to discover in the contract between the company and the county, or in the act of the legislature, or in both, any thing that created an equitable lien upon the earnings of the railroad company, or upon any of its property. Nothing more is expressed than a confident expectation that the earnings would prove sufficient to pay the interest on the county loan


text: Talk:Ketchum v. St Louis/Opinion of the Court

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Smith v. Ayer Smith

APPEALS from the Circuit Court of the United States for the Northern District of Illinois.

The facts are stated in the opinion of the court.

The first case was argued by Mr. H. G. Miller and Mr. T. G. Frost for the appellants, and by Mr. W. C. Goudy for the appellees.

The second case was argued by Mr. H. G. Miller, Mr. T. G. Frost, and Mr. P. C. Smith for the appellants, and by Mr C. C. Bonney for the appellees.

MR. JUSTICE FIELD delivered the opinion of the court.

title: Smith v. Ayer Smith


text: Talk:Smith v. Ayer Smith

title: Talk:Smith v. Ayer Smith


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Smith v. Ayer Smith/Opinion of the Court

These are suits in equity to compel the delivery to the complainants of two promissory notes, each for $39,250, alleged to belong to the estate of Renick Huston, deceased, brought by the administrators de bonis non of that estate and the administrator de bonis non of the estate of Thomas T. Renick, deceased. They were commenced in a court of the State of Illinois, and upon application of the defendants, Ayer et al., in the first case, and of the First National Bank of Westboro', Mass., in the second case, were transferred to the Circuit Court of the United States for the Northern District of Illinois. That court dismissed the bill in both cases, and from its decrees they are brought here on appeal.

The facts out of which the suits arise are substantially these: In February, 1864, one Renick Huston, then a resident of Ohio, died possessed of a tract of land, about eighty acres in extent, near Chicago, Ill. The legal title to the land stood in the name of Job R. Renick, but it is admitted that he held it as trustee for the estate of Huston, and to reimburse Thomas T. Renick for certain expenditures incurred on account of the property. The deceased left a will, by which, after making certain bequests, he devised one-third of the residue of his estate to Thomas T. Renick, whom he named as his executor, and to whom letters testamentary were issued. The property having been sold at different times for taxes, and being subject to various charges, Renick advanced money to a large amount, stated to be between twenty and thirty thousand dollars, to redeem it from the sales, and to pay off the claims upon it. He was authorized under the will to sell the real estate, and accordingly, in July, 1872, he sold it to one Joel D. Harvey for $157,000, payable one-fourth in cash and the balance in one, two, and three years, for which notes were given, secured by a trust-deed of the property executed to one J. Edwards Fay. There were six notes in all, three being each for $39,250, and the other three for the instalments of interest as they fell due. They were all made payable to the order of Thomas T. Renick individually. The cash payment was sufficient to reimburse him for his outlays, and he held the notes as executor of Huston's estate.

In August, 1873, Thomas T. Renick died in Ohio, leaving a will, and appointing his brother Benjamin executor of his estate. Letters testamentary were accordingly issued to Benjamin, and the notes of Harvey subsequently came into his possession as executor. At the time of his death the deceased held in his name an interest in a commercial firm, known as Tower, Classen, & Co., engaged in the manufacture and sale of chromatic printing-presses, at Canton, Ohio, which he had acquired by funds belonging one-third to himself, one-third to the children of a deceased brother, and one-third to a sister. In his will he made a request that the whole interest should be retained in the company, under the control of his brother, so long as the latter should deem it profitable. His own interest he bequeathed to his brother in trust for himself and certain nephews and nieces mentioned, in equal proportions, to be held and controlled by him so long as he should deem it advisable. Several other bequests were made by the testator to different parties, and the payment of an annuity to one of his brothers was directed. Soon afterwards Benjamin purchased the interest of Tower in the company, and then the firm name was changed to that of B. T. Renick & Co.

In September, 1873, the complainants, Palmer C. Smith and Job R. Renick, were appointed administrators de bonis non with the will annexed of the estate of Huston. And when the second note of Harvey was about maturing, application was made to Smith, as such administrator, to consent to extend the time of its payment and that of the third note. After some negotiation, and the maturity of one of the notes, Smith signed an agreement, in which, after reciting that the notes were the property of the estate of Renick Huston, deceased; that a suit was pending in Ohio affecting the property of the estate, and that until its termination it was desirable that the money should be invested; and that other parties-the West Chicago Land Company, to which portions of the real property had been sold-had assumed the payment of the notes and interest, he stipulated not to press the payment of the notes until such time as he should require the money by reason of the termination of the suit, the extension in no event to exceed two years. This agreement bears date Sept. 12, 1874. The parties who had assumed the obligation to pay the notes were not content with the agreement without the signature of Benjamin Renick, executor of the estate of Thomas Renick, as the notes were in his possession and were payable to the order of his testator. After a good deal of negotiation, his signature, as executor of the estate of Thomas Renick, was obtained to a similar agreement for an extension of time, stipulating that he also would not press the payment of the notes unless he should require the money to make a settlement of that estate. It does not, however, contain the recital of the one signed by Smith, that the notes were the property of the estate of Huston. This agreement was not executed until the 19th of February, 1875, though it was dated back to the date of the one signed by Smith, and both agreements were placed in the hands of one James R. Goodman. On the same day the following indorsement was made on each of the notes:--

'FEB. 19, 1879.

'Payment of the within notes extended, as per contract of Sept. 12, 1874, now in the hands of James R. Goodman, Esq., for a period not exceeding two years from July 15, 1874.

'J. EDWARDS FAY, Trustee, &c.

'B. T. RENICK,

'Executor and Trustee of Thomas T. Renick, deceased.'

In May following, the firm of B. T. Renick & Co., the successors, as mentioned, of Tower, Classen, & Co., applied, through a broker in New York, to the defendants, J. C. Ayer & Co., of Lowell, Mass., for a loan of $39,250, and offered to pledge as collateral security for the money one of the notes of Joel A. Harvey, given upon the purchase of the land near Chicago, and secured by a trust-deed of the property. Ayer & Co. agreed to make the loan if the security was approved by their attorney, to whom it was referred to examine and report as to its sufficiency. The attorney made the examination. He testifies that he examined the two notes of Harvey and the deed of trust securing them, an abstract of title to the land, and a copy of the will of Thomas T. Renick; that he talked with the trustee under the trust-deed, and with Benjamin Renick, the executor of Thomas T. Renick, in whose possession the notes were at the time; that Benjamin informed him that he wished to use the money borrowed in the business of B. T. Renick & Co., manufacturers of chromatic printing-presses; that the establishment was the one designated in the will as that of Tower, Classen, & Co.; and that the notes had each the indorsement of the extension mentioned. The attorney reported to Ayer & Co. that the security was valid and sufficient to pay the notes, and advised them to take the note first maturing. Immediately afterwards he was directed to complete the loan. He accordingly took the note of B. T. Renick & Co. for $39,250, dated May 26, 1875, payable to Ayer & Co., at their office in Lowell, Mass., and, as collateral security, received the note first falling due of Harvey for the same amount, both of which he transmitted to Ayer & Co. It is to compel a surrender of this note to the complainants that the first of the above-named suits is brought.

In June following this transaction, the firm of B. T. Renick & Co. desired a further loan of $30,000, and employed J. Edwards Fay to obtain it on the security of the third note of Harvey for $39,250. Fay applied to the First National Bank of Westboro', Mass., for the loan. He showed to its officers the note of Harvey, having the indorsement extending the time of payment for a period not exceeding two years, pursuant to the agreement deposited with Goodman, and informed them of the trust-deed executed to him to secure its payment. The indorsement, as already seen, showed that the note was held by B. T. Renick as executor. He also told them of the loan made by Ayer & Co. upon the security of the second note, the examination then made by their attorney into the sufficiency of the security and his favorable report. He also mentioned the relation which Benjamin Renick, as executor of Thomas T. Renick, deceased, bore to the firm of B. T. Renick & Co., and that he made the application for the loan at the request of that firm. The bank thereupon agreed to make the loan. A note of B. T. Renick & Co., for $30,000, dated June 1, 1875, payable on the 15th of July, 1876, was accordingly executed and delivered to it, with the note of Harvey as collateral security, and the money received. It is to compel a surrender to the complainants of the note thus pledged as collateral that the second of the above suits is brought. Soon after the bills were filed, Benjamin Renick resigned his position as executor of the estate of Thomas T. Renick, and Edward J. Van Meter was appointed in his place as administrator de bonis non with the will annexed, and by leave of the court a supplemental bill was filed in both cases, and he was allowed to appear in each as a co-complainant and join in the prayer for relief.

There is no question as to the actual ownership of the notes of Harvey taken by Ayer & Co. and the First National Bank of Westboro'. They belong to the estate of Renick Huston. The only interest which Thomas T. Renick had in them grew out of his relations to that estate for advances and services and as a residuary legatee. The question for determination is whether Ayer & Co. and the bank took the notes under such circumstances as to be able to hold them or either of them against the demand of Huston's estate, or of that of the estate of Thomas T. Renick, from whose executor they were received. So far as the present suits are concerned, it is of no consequence to the defendants whether the notes be regarded ultimately as the property of the estate of Huston or of the estate of Thomas T. Renick. They can only insist that, as in their negotiations they knew nothing of the claims of Huston's estate, and dealt with the notes as the property of Renick's estate, they shall be entitled to all the protection which that fact may confer. We shall so treat the cases and consider their rights. There is no doubt that Ayer & Co. relied entirely upon the judgment of their attorney as to the power of the executor of the estate of Thomas T. Renick to pledge the note for moneys borrowed to be used in the business of the firm of B. T. Renick & Co. Still they must be held to know the law, and the limitations which it prescribes to the powers of executors in the disposition of property coming into their hands as such officers; and, however free from intentional wrong, they must bear the responsibility of a mistaken judgment with respect to those limitations. The facts brought to the knowledge of their attorney in his inquiries respecting the note and the authority of Benjamin T. Renick to pledge it are considered in law as brought to their knowledge Information to him of all essential matters affecting the subject he was investigating was in law information to them, and their action must be adjudged accordingly. The law, indeed, goes much further than this: it considers the principal as affected with notice of all facts, notice of which can be charged upon the attorney. Here the attorney examined the will of Thomas T. Renick; he knew that the note in question was held by Benjamin T. Renick in his character as executor of Thomas' estate, and not in his own right; the agreement referred to in its indorsement of extension of time of payment made him acquainted with that fact. It stipulated not to press for payment of the note until the money was required for the settlement of that estate; and he was informed beforehand that the money to be borrowed on the pledge of the note in question as security was to be used in the business of B. T. Renick & Co.

The Bank of Westboro' had no attorney of its own in the transaction. It relied upon the representations of the attorney of B. T. Renick & Co., employed to negotiate the loan. He informed the bank, however, of all facts essential to its knowledge, or acquainted it with such matters as upon inquiry would have given the information. It knew that the note was held by B. T. Renick as assets of Thomas T. Renick's estate, and not in his own right; it was so informed by the attorney; the indorsement on the note declared the fact also; and the agreement to which the indorsement referred, and to which its attention was called, would have removed all doubt on the subject, if any could have existed. It must be presumed to have known what it could thus easily have ascertained; and, dealing with an executor exercising his power of disposition of the personal assets of an estate in his hands, ostensibly to raise money, not for the estate or the settlement of its affairs, but for the business of a commercial firm, it was bound to look into his authority to make such a disposition of them, and is held to a knowledge of all the limitations which the will as well as the law put upon his power.

There is no doubt that, unless restrained by statute, an executor can dispose of the personal assets of his testator by sale or pledge for all purposes connected with the discharge of his duties under the will. And even where the sale or pledge is made for other purposes, of which the purchaser or pledgee has no knowledge or notice, but takes the property in good faith, the transaction will be sustained; for the purchaser or pledgee is not bound to see to the disposition of the proceeds received. But the case is otherwise where the purchaser or pledgee has knowledge of the perversion of the property to other purposes than those of the estate, or the intended perversion of the proceeds. The executor, though holding the title to the personal assets, is not absolute owner of them. They are not liable for his debts, nor can he dispose of them by will. He holds them in trust to pay the debts of the deceased, and then to discharge his legacies; and, as in all other cases of trust, he is personally responsible for any breach of duty. And property thus held, acquired from him by third parties with knowledge of his trust and his disregard of its obligations, can be followed and recovered. The law exacts the most perfect good faith from all parties dealing with a trustee respecting trust property. Whoever takes it for an object other than the general purposes of the trust, or such as may reasonably be supposed to be within its scope, must look to the authority of the trustee, or he will act at his peril.

The adjudications in support of this doctrine are very numerous. The doctrine pervades the whole law of trusts. In Colt v. Lasnier, reported in 9th Cowen, Chief Justice Savage, of the Supreme Court of New York, after reviewing the cases, concludes that the correct rule both in England and in that State is, 'That any person receiving from an executor the assets of his testator, knowing that this disposition of them is a violation of his duty, is to be adjudged as conniving with the executor, and that such person is responsible for the property thus received, either as purchaser or pledgee.' And so in many cases it has been held that the payment by the executor of his own private debt with the assets of the testator is a devastavit; that is, a wasting of the estate. There are, indeed, some exceptions to this, as where the executor has paid debts of the testator with his own money to the value of the assets used. But, beyond a few exceptions of this kind, such a use of the assets is considered entirely indefensible, and the party receiving them will not be permitted to retain them, on the ground that the transaction itself gives him notice of their misapplication, and thus necessarily involves him as a participator in the fraud. And the doctrine is supported by many authorities that where a party has reasonable grounds for believing that an executor intends to misapply them, or is in the very transaction converting them to private uses, such party can take no advantage from the transaction. In the case of Miller v. Williamson, the Court of Appeals of Maryland held that the fact that the executor made an assignment of such assets to secure a debt owing to parties by a mercantile firm of which he was a member, was sufficient, in contemplation of law, to notify them that he was about to commit a devastavit. 5 Md. 219. And where an administrator had assigned promissory notes of the estate in his hands for goods for his own use, the Supreme Court of Indiana held that it was a waste of the assets; and that if the assignee had knowledge, even from the nature of the transaction, that the administrator was thus acting in violation of his trust, the right of property in the notes was not divested, and he could not hold the notes or profit by such assignment as against those rightfully entitled to them. Thomasson, Admr., v. Brown, 43 Ind. 203. See also Field v. Schieffelin, 7 Johns. (N. Y.) Ch. 150, and Petrie v. Clark, 11 Serg. & R. (Pa.) 377.

In the cases at bar, the defendants Ayer & Co. and the directors of the bank knew that the pledging of the assets of the estate, of which Benjamin T. Renick was executor, to secure a loan for the business of a commercial house, was a misuse of them, unless, indeed, the will of his testator authorized it. The law imputed such knowledge to them. They could not say that such assets could be rightfully used as collateral security for loans to be employed in the business of a commercial house. It would be attributing to them the lack of ordinary good sense to suppose they entertained any such notion. The question then arises, whether the will of Thomas T. Renick authorized the assets of his estate, or the moneys to be raised upon them, to be used in the business of B. T. Renick & Co.

In that will the testator mentions a certain interest in the firm of Tower, Classen, & Co., acquired by funds belonging to him, a sister, and the children of a deceased brother, and he desired that such interest should be continued in the firm, under the control of his brother, so long as the latter should deem it profitable; and that his own share should be retained in like manner for certain parties, so long as he should deem it advisable; and he bequeathed it to him as trustee for that purpose. It did not authorize the use of any of the general assets of the testator in that business, or the borrowing of money on its account. It may, indeed, be doubted whether the new firm of B. T. Renick & Co. can be considered as the same firm as Tower, Classen, & Co. The change of the old firm by Tower's withdrawal may have taken from it the person upon whose judgment alone the testator relied for a wise management of its business. We cannot say that a confidence reposed in the firm which existed when the will was made would have been extended to another firm consisting of different associates. But, assuming that its identity remained after the change of members and name, it is perfectly clear that the authority of the executor to continue a specifically designated existing interest in the firm did not extend to the use in its business of any other funds of the estate, or to the use of any property which he received in his official character, to raise funds for that purpose. In Burwell v. Mandeville's Executors, reported in 2d Howard, this doctrine is stated by this court with great distinctness. There the testator and one Cawood had been partners, and in his will the testator desired that his interest in the partnership should be continued until the expiration of the term limited by the articles between them, the business to be continued by his partner, and the profit and loss to be distributed in the manner there provided. After his death, his partner carried on the business of the partnership, but failed before the expiration of the stipulated term; and the object of the suit was to reach the general assets of the estate of the testator to pay certain debts of the firm contracted after his decease. It was held that the general assets were not thus liable. The court observed that it was competent for partners to provide by agreement for the continuance of the partnership after the death of one of them; or for one partner by his will to provide for the continuance of the partnership after his death, and if it was consented to by the surviving partner, it would become obligatory. 'But then,' continues the court, speaking through Mr. Justice Story, 'in each case the agreement or authority must be clearly made out; and third persons, having notice of the death, are bound to inquire how far the agreement or authority to continue it extends, and what funds it binds; and if they trust the surviving party beyond the reach of such agreement, or authority, or fund, it is their own fault, and they have no right to complain that the law does not afford them any satisfactory redress. A testator, too, directing the continuance of a partnership, may, if he so choose, bind his general assets for all the debts of the partnership contracted after his death. But he may also limit his responsibility, either to the funds already embarked in the trade, or to any specific amount to be invested therein for that purpose; and then the creditors can resort to that fund or amount only, and not to the general assets of the testator's estate, although the partner, or executor, or other persons carrying on the trade may be personally responsible for all the debts contracted.' And after citing several authorities from the English reports in support of these positions, the learned justice remarks, 'That nothing but the most clear and unambiguous language, demonstrating in the most positive manner that the testator intends to make his general assets liable for all debts contracted in the continued trade after his death, and not merely to limit it to the funds embarked in that trade, would justify the court in arriving at such a conclusion from the manifest inconvenience thereof, and the utter impossibility of paying off the legacies bequeathed by the testator's will, or distributing the residue of his estate, without, in effect, saying at the same time that the payments may all be recalled if the trade should become unsuccessful or ruinous.' Ex parte Garland, 10 Ves. Jr. 109; Ex parte Richardson, &c., 3 Madd. 79; Pitkin v. Pitkin, 7 Conn. 306; Lucht, Adm'r, v. Behrens, 28 Ohio St. 231.

According to the doctrine of this case,-and many others to the same purport might be cited,-there is no authority in the will of Thomas T. Renick justifying the use of the general assets of his estate in the business of B. T. Renick & Co., even if this firm be identical with that of Tower, Classen, & Co. Applying the notes of Harvey held by his executor, or using them to obtain money for that purpose, was a misappropriation of them, as much so as if they had been used for any other private business. The parties receiving them, knowing of the directions of the testator, cannot hold them against the claim of his representatives. The resignation of the executor who connived at this misappropriation having been accepted, and the administrator de bonis non with the will annexed having been appointed in his place, there is no objection to the prosecution of the suits in the latter's name, in conjunction with the representatives of Huston's estate, to compel the restoration of the notes. And as the notes in fact belong to the estate of Huston, the administrators de bonis non of that estate may insist that, when they are returned by Ayer & Co. and the National Bank of Westboro', they shall be delivered over to them.

In what we have thus said of the misappropriation of the notes, we have assumed that they belonged to the estate of Thomas T. Renick; for the defendants Ayer & Co. and the Bank of Westboro' contend that they had a right to so treat them, as they were in the possession of his executor, claiming them as part of the assets of his testator. But the want of authority on the part of the executor to pledge them is only the more marked from the fact that his testator only held them as executor for another estate, although that fact has not been allowed to affect the defence.

The decree in each case must, therefore, be reversed, and the court below directed to enter a decree, in the first case, that the defendants, Ayer & Co., surrender the note of Harvey taken by them to the complainants, the administrators de bonis non of the estate of Renick Huston; and that a like decree be entered in the second case against the First National Bank of Westboro', to surrender to the same complainants the other note of Harvey held by it, and that all other parties be enjoined from interfering with their collection of the said notes; and it is

So ordered.

NOTE.-A petition for a rehearing in the first case, and for a modification of the decree in the second case, having been filed, at a subsequent day of the term,

MR. JUSTICE FIELD delivered the opinion of the court.

The petition for a rehearing in the first case, and the petition for a modification of the decree in the second case, are both denied. The pledging of the notes of Harvey, belonging to the estate of Renick Huston, or to the estate of Thomas T. Renick,-and for the purposes of these suits it matters not to which, as the representatives of both estates are parties complainant,-as security for moneys borrowed for the use of a mercantile firm, was a plain misappropriation of the property of one of the estates. Our decree was that each of the notes should be returned to the representative of the estate from which it was taken. The defendants retain their claims against the firm of B. T. Renick & Co., on its notes, and can prosecute them before the ordinary tribunals; and if any members of the firm have interests in the estate of Renick Huston, or of other deceased parties, they can seek to subject those interests to the payment of the claims without prejudice from our decree in these cases.

Petitions denied.


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


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Water-Meter Company v. Desper

APPEAL from the Circuit Court of the United States for the District of Massachusetts.

The facts are stated in the opinion of the court.

Mr. Andrew McCallum for the appellant.

Mr. J. E. Maynadier, contra.

MR. JUSTICE BRADLEY delivered the opinion of the court.

title: Water-Meter Company v. Desper


text: Talk:Water-Meter Company v. Desper

title: Talk:Water-Meter Company v. Desper


text:
Water-Meter Company v. Desper/Opinion of the Court

This is a bill in equity filed by the Union Water-Meter Company, the appellant, to restrain the infringement of a patent and for an account of profits and damages. The letters-patent alleged to be infringed are reissued letters No. 5806, being a reissue of original letters-patent No. 109,372, granted 22d November, 1870, to Phinehas Ball and Benaiah Fitts for certain improvements in water-meters; the reissue being made to the complainant as assignee, on the 24th of March, 1874. The defendants, by their answer, deny that the reissued patent was for the same invention described in the original; aver that the invention claimed was covered by another patent granted 20th July, 1869, to the same patentees, Ball and Fitts; deny that they were the first and original inventors of the alleged improvement, specifying various older patents in which, as they allege, it was described, and divers persons who had known and used it; deny infringement; and aver that all water-meters made by the defendants are constructed according to letters-patent No. 144,747, granted 18th November, 1873, to Henry A. Desper, one of the defendants, except in the omission of a certain adjusting screw.

The water-meter which is the subject of the patent consists of two parallel horizontal cylinders, each traversed by two pistons, connected together by a connecting-rod of such length that when one piston is at one end of the cylinder the other is at a sufficient distance from the other end, to leave the requisite space to be filled with the quantity of water to be measured at each stroke. This water being discharged, the pistons are made to traverse the cylinder and allow the opposite end to be filled with water, and discharged in like manner. By this reciprocating motion of the pistons, regulated quantities of water are constantly received and discharged into and out of the two ends of the cylinder alternately. The pressure of the water from the source of supply, admitted by means of proper valves, gives to the pistons this reciprocating motion. The valve gear between the two parallel cylinders is so arranged as to cause the pistons in one cylinder to move in an opposite direction from those in the other. A rotary valve is used for both cylinders, situated between and below them, being circular, or funnel-shaped, having holes, or ports, in its side for the induction and eduction of the water into and out of the cylinders, and being crowned with a bevel-gear to give it a circular motion. Across and over the valve, extending from one piston-rod to the other, is placed a shaft, having a crank at each end, and a bevel pinion near one of the cranks, meshing into the bevel-gear of the valve; the two cranks are arranged at right angles with each other, and each has a crank-pin which is inserted in a slot made in the centre of the piston-rod with which it is connected,-the side of the cylinder being removed, or open, between the end portions that receive the water. The slot which receives the crank-pin is perpendicular, and at right angles with the length of the piston-rod, and is wider than the diameter of the pin, and enlarged in the middle in order to give the pin room, and allow the crank to turn freely over after the piston has been stopped. The pistons are prevented from coming into contact with the ends of the cylinders by means of adjusting stops, slightly projecting therefrom inside. Projecting stops for arresting the movement of the pistons, and much of the mechanical arrangement between the crank-shaft and the slots in the piston-rods, used for giving the proper motion to the crank-shaft, are to be found described in a patent granted to Mr. Ericsson in 1851 for a water-meter having slide valves instead of a rotary valve, but in which a rotary motion was communicated to the indicator.

The patent in question does not cover any of the separate parts of the meter, it being conceded that these were all known and used before the application for the patent. The claim relied on by the complainant is for a combination only, being the fourth claim in the reissued patent, which is in the following words:--

'4. The combination in a liquid meter of the following instrumentalities, to wit, a rotary valve, g, provided with suitable ports or openings, through which the liquid to be measured can be supplied to the meter and discharged therefrom; two cylinders, b and b, for the reception and measurement of the liquid; the double-acting pistons, c and c, each carrying a rod, d, and each of these provided with a single cam-slot, e, arranged as described, and of a width greater than the diameter of the wrist n of the crank-shaft, so as to permit of the adjustment of the pistons, that they may discharge at each stroke, as nearly as possible, the exact quantity of water required of them, and so as to allow each of the crank-wrists n freely to pass its dead-centre after its own piston has ceased to act on it; adjusting stops, o, by means of which the adjustment of the length of the stroke of the pistons at either end is effected; and, lastly, a crank-shaft, i, through which motion from the pistons is imparted to the valves, the whole operating in the manner substantially as described.'

The combination here claimed consists of five parts or elements, viz.: 1st, the rotary valve; 2d, the two cylinders; 3d, the double-acting pistons, connected by a rod having a cam-slot at right angles with the length of the rod; 4th, the adjusting stops; 5th, the crank-shaft with its pinion, and cranks, by means of which rotary motion is imparted from the pistons to the valve. The rotary valve, and the combination of the cylinders, piston-rods, crank-shaft, and rotary valve were the subjects of a previous patent granted to Ball and Fitts on the 20th of July, 1869. The only additional elements in the present patent are the adjusting stops and the rectangular position of the slots in the piston-rods.

It is a well-known doctrine of patent law, that the claim of a combination is not infringed if any of the material parts of the combination are omitted. It is equally well known that if any one of the parts is only formally omitted, and is supplied by a mechanical equivalent, performing the same office and producing the same result, the patent is infringed.

The first question, therefore, is, whether the defendants infringe the claim referred to,-whether they do, in fact, in their water-meters, use all the parts of the combination above specified.

The meter manufactured by the defendants is different in several respects from that described in the complainant's patent. It has a rotary valve like the latter, but without any bevel-gear; it also has two cylinders, with an immaterial difference of position, being placed at right angles with each other instead of being parallel; each cylinder is likewise provided with two double-acting pistons, connected by a piston-rod, the same as in the complainant's meter; the cylinder-heads are also furnished with Ericsson's stops projecting inside for arresting the movement of the pistons, though these stops are fixed and not adjustable. But the meter of the defendant's has no crank-shaft, and no semblance of a crank-shaft, for imparting motion from the pistons to the rotary valve; on the contrary, their valve is connected directly with the piston-rods in the following manner: The piston-rods cross each other at right angles, having transverse slots, and being halved together, one lying immediately on the other, so that the axes of the pistons are in the same plane. The valve below is connected directly with the piston-rods by a single crank which is keyed on to its upper solid stem, and has a crank-pin which works in the two slots of the respective piston-rods. Thus arranged, the successive reciprocating movements of the two double pistons impart a circular motion to the valve, which, by duly arranged induction and eduction ports, alternately fills and empties the respective cylinders.

From this it appears that, in the construction of defendants' meter, the crank-shaft, with its two cranks, pinion, and gearing connection (which is an essential feature of the complainant's meter), is altogether dispensed with. The defendants effect the desired result of communicating rotary motion to the valve without any such shaft, or any thing equivalent thereto. The entire part, with all its appurtenances, is thrown out of their machine. They use a crank, it is true; but it is attached directly to the rotary valve, and is a part of it. The use of a crank in converting reciprocating into rotary motion is an old device. It was applied to the steam-engine a century ago, and has been applied to hundreds of different machines since that time. Ball and Fitts had no claim to it, but only to the particular method and device by which they employed it, in combination with the various other parts of their meter. Instead of the crank-shaft, had they in their patented combination claimed every method, and all methods, of communicating motion from the piston-rods to the rotary valve by means of a crank, the defendants' meter would have been an infringement. But such a claim might not have been valid. At all events, it was not allowed.

The specification was evidently drawn with great care, and it is to be presumed that the patentees claimed all that the Patent Office considered them entitled to. We cannot say that the crank-shaft was an immaterial part of their combination. The patent, as it stands, occupies very narrow ground. It requires the presence of every one of the elements specified in the combination secured by it. We think that the defendants do not use all of these elements, but that they dispense with one of them at least which is material in the complainant's meter. Our conclusion, therefore, is, that they do not infringe the complainant's patent.

It may be observed, before concluding this opinion, that the courts of this country cannot always indulge the same latitude which is exercised by English judges in determining what parts of a machine are or are not material. Our law requires the patentee to specify particularly what he claims to be new, and if he claims a combination of certain elements or parts, we cannot declare that any one of these elements is immaterial. The patentee makes them all material by the restricted form of his claim. We can only decide whether any part omitted by an alleged infringer is supplied by some other device or instrumentality which is its equivalent. We think no such equivalent is supplied in this case. The general construction of the defendants' meter, and the arrangement of its parts, are so different from that described in the complainant's patent, and claimed therein, that the defendants are enabled to dispense with the entire part referred to.

Decree affirmed.


text: Talk:Water-Meter Company v. Desper/Opinion of the Court


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Railroad Company v. Tennessee

ERROR to the Supreme Court of the State of Tennessee.

The facts are stated in the opinion of the court.

Submitted on printed briefs by Mr. Benjamin J. Lea, Attorney-General of Tennessee, and Mr. J. B. Heiskell, for the State; and by Mr. George Hoadly and Mr. E. L. Andrews, contra.

MR. CHIEF JUSTICE WAITE delivered the opinion of the court.

title: Railroad Company v. Tennessee


text: Talk:Railroad Company v. Tennessee

title: Talk:Railroad Company v. Tennessee


text:
Railroad Company v. Tennessee/Opinion of the Court

On the 19th of January, 1838, the State of Tennessee established a bank in its own name and for its own benefit, and pledged its faith and credit to give indemnity for all loses arising from any deficiency in the funds specifically appropriated as capital. The State was the only stockholder, and entitled to all the profits of the business. The bank was by its charter capable of suing and being sued. At that time the Constitution of the State contained this provision: 'Suits may be brought against the State in such manner and in such courts as the legislature may by law direct.' Art. 1, sect. 17. No law had then been passed giving effect to this express grant of power, but in 1855 it was enacted that actions might be instituted against the State under the same rules and regulations that govern actions between private citizens, process being served on the district attorney of the district in which the suit was instituted. Code, sect. 2807. No power was given the courts to enforce their judgments, and the money could only be got through an appropriation by the legislature.

In 1865, this law was repealed, and after that there was no law prescribing the manner or the courts in which suits could be brought against the State. On the 16th of February, 1866, an act was passed to wind up and settle the affairs of the bank, under which an assignment of all the property was made to Samuel Watson, trustee. Afterwards, on the 16th of May, 1866, the State and the trustee filed a bill in equity, in the Chancery Court at Nashville, against the bank and its creditors, for an account of debts and assets and a decree of distribution. At the November Term, 1872, of the court, the Memphis and Charlestown Railroad Company was admitted as a defendant to this suit, and given leave to file a cross-bill. This cross-bill was accordingly filed, and set forth an indebtedness from the bank to the railroad company, which accrued while the law allowing suits against the State was in existence, and sought to enforce the liability of the State under the indemnity clause of the charter. To this bill both the State and Watson, the trustee, demurred, and assigned for cause, among others, that the State could not be sued. The demurrer was sustained by the Chancery Court, and the cross-bill dismissed. An appeal was then taken to the Supreme Court of the State, where the decree below was affirmed, upon the express ground that the repeal of the law authorizing suits against the State was valid, and did not impair the obligation of the contract which the railroad company had. All other questions were waived by the court, and the decision placed entirely on the ground that as the State could not be sued in its own courts, the bill must be dismissed. To reverse that judgment this writ of error was brought.

The question we have to decide is not whether the State is liable for the debts of the bank to the railroad company, but whether it can be sued in its own courts to enforce that liability. The principle is elementary that a State cannot be sued in its own courts without its consent. This is a privilege of sovereignty. It is conceded that when this suit was begun the State had withdrawn its consent to be sued, and the only question now to be determined is whether that withdrawal impaired the obligation of the contract which the railroad company seeks to enforce. If it did, it was inoperative, so far as this suit is concerned, and the original consent remains in full force, for all the purposes of the particular contract or liability here involved.

The remedy, which is protected by the contract clause of the Constitution, is something more than the privilege of having a claim adjudicated. Mere judicial inquiry into the rights of parties is not enough. There must be the power to enforce the results of such an inquiry before there can be said to be a remedy which the Constitution deems part of a contract. Inquiry is one thing; remedy another. Adjudication is of no value as a remedy unless enforcement follows. It is of no practical importance that a right has been established if the right is no more available afterwards than before. The Constitution preserves only such remedies as are required to enforce a contract.

Here the State has consented to be sued only for the purposes of adjudication. The power of the courts ended when the judgment was rendered. In effect, all that has been done is to give persons holding claims against the State the privilege of having them audited by the courts instead of some appropriate accounting officer. When a judgment has been rendered, the liability of the State has been judicially ascertained, but there the power of the court ends. The State is at liberty to determine for itself whether to pay the judgment or not. The obligations of the contract have been finally determined, but the claimant has still only the faith and credit of the State to rely on for their fulfilment. The courts are powerless. Every thing after the judgment depends on the will of the State. It is needless to say that there is no remedy to enforce a contract if performance is left to the will of him on whom the obligation to perform rests. A remedy is only wanted after entreaty is ended. Consequently, that is not a remedy in the legal sense of the term, which can only be carried into effect by entreaty.

It is clear, therefore, that the right to sue, which the State of Tennessee once gave its creditors, was not, in legal effect, a judicial remedy for the enforcement of its contracts, and that the obligations of its contracts were not impaired, within the meaning of the prohibitory clause of the Constitution of the United States, by taking away what was thus given. This renders it unnecessary to consider whether in this suit a cross-bill could have been maintained by the railroad company if the right to sue had been continued, and also whether a remedy given after the charter of the bank was granted, but in force when the debt of the bank was incurred, might be taken away without impairing the obligation of the contract of the State to indemnify the creditors against loss by reason of any deficiency in the capital. Neither do we find it necessary to determine what would be a complete judicial remedy against a State, nor whether, if such a remedy had been given, the obligation of a contract entered into by the State when it was in existence would be impaired by taking it away. What we do decide is that no such remedy was given in this case.

Judgment affirmed.

MR. JUSTICE SWAYNE and MR. JUSTICE STRONG dissented.


text: Talk:Railroad Company v. Tennessee/Opinion of the Court


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Langford v. United States

APPEAL from the Court of Claims.

The facts are stated in the opinion of the court.

Mr. Benjamin F. Butler and Mr. Thomas Wilson for the appellant.

The Attorney-General for the United States.

MR. JUSTICE MILLER delivered the opinion of the court.

title: Langford v. United States


text: Talk:Langford v. United States

title: Talk:Langford v. United States


text:
Langford v. United States/Opinion of the Court

This suit was brought by the plaintiff against the United States to recover for the use and occupation of certain lands and buildings. The judgment of the Court of Claims was rendered against him, and he appealed here.

The first question arising in this case concerns the jurisdiction of the Court of Claims upon the suggestion of the Attorney-General that the claim is not founded on contract, either express or implied. That court could have no cognizance of the case on any other ground, according to the express language of the statute defining its jurisdiction. Rev. Stat., sect. 1059.

The findings of the court leave no doubt that the Indian agents acting for the United States, and without the consent of the American Board of Commissioners for Foreign Missions, took possession of the buildings which that board had erected upon the lands, and have since retained them by force and against its will or that of Langford, who claims title under it. The United States always asserted that their possession was by virtue of their own title, which was hostile to that of the claimant. The military of the United States was at one time ordered to protect by force the occupation of the agents.

Conceding that the title, or even the right to the possession of the premises, was in claimant, it would seem that the facts above stated show that the act of the United States in taking and holding that possession was an unequivocal tort, if the government can be capable of committing one, and that if the case were between individuals every implication of a contract would be repelled.

Counsel for claimant, admitting this to be true, makes a very ingenious argument to prove that the government, in taking and using the property of an individual against his consent, and by force, cannot be guilty of a tort, because the nature of the relation of the government to its citizens, and the provisions of the Constitution, create an implied obligation to pay for property, or for the use of property, so taken. The argument rests on two distinct propositions: 1. That the maxim of English constitutional law, that the king can do no wrong, is one which the courts must apply to the government of the United States, and that therefore there can be no tort committed by the government. 2. That by virtue of the constitutional provision that private property shall not be taken for public use, without just compensation, there arises in all cases where such property is so taken an implied obligation to pay for it.

It is not easy to see how the first proposition can have any place in our system of government.

We have no king to whom it can be applied. The President, in the exercise of the executive functions, bears a nearer resemblance to the limited monarch of the English government than any other branch of our government, and is the only individual to whom it could possibly have any relation. It cannot apply to him, because the Constitution admits that he may do wrong, and has provided, by the proceeding of impeachment, for his trial for wrong-doing, and his removal from office if found guilty. None of the eminent counsel who defended President Johnson on his impeachment trial asserted that by law he was incapable of doing wrong, or that, if done, it could not, as in the case of the king, be imputed to him, but must be laid to the charge of the ministers who advised him.

It is to be observed that the English maxim does not declare that the government, or those who administer it, can do no wrong; for it is a part of the principle itself that wrong may be done by the governing power, for which the ministry, for the time being, is held responsible; and the ministers personally, like our President, may be impeached; or, if the wrong amounts to a crime, they may be indicted and tried at law for the offence.

We do not understand that either in reference to the government of the United States, or of the several States, or of any of their officers, the English maxim has an existence in this country.

The other point is one which requires more delicate handling.

We are not prepared to deny that when the government of the United States, by such formal proceedings as are necessary to bind it, takes for public use, as for an arsenal, custom-house, or fort, land to which it asserts no claim of title, but admits the ownership to be private or individual, there arises an implied obligation to pay the owner its just value.

It is to be regretted that Congress has made no provision by any general law for ascertaining and paying this just compensation. And we are not called on to decide that when the government, acting by the forms which are sufficient to bind it, recognizes that fact that it is taking private property for public use, the compensation may not be recovered in the Court of Claims. On this point we decide nothing.

What is pertinent to the present case is that, conceding that principle, it does not confer on that court the authority to decide that the United States, in asserting the right to use its own property, is using that of an individual, and in taking possession of such property under claim of title, and retaining it by force against an opposing claimant, has come under an implied contract to pay him for the use of the property. In the first case, the government admits the title of the individual and his right to compensation. This right to compensation follows from the two propositions, that it was private property and was taken for public use, neither of which is disputed.

It is a very different matter where the government claims that it is dealing with its own, and recognizes no title superior to its own. In such case the government, or the officers who seize such property, are guilty of a tort, if it be in fact private property. No implied contract to pay can arise any more than in the case of such a transaction between individuals. It is conceded that no contract for use and occupation would, in that case, be implied.

Congress, in establishing a court in which the United States may primarily be sued as defendants, proceeded slowly and with great caution. As at first organized, the Court of Claims was merely an auditing board, authorized to pass upon claims submitted to it, and report to the Secretary of the Treasury. He submitted to Congress such confirmed claims as he approved, with an estimate for their insertion in the proper appropriation bill. Such as he disapproved demanded no further action.

It was by reason of that feature of the law that this court refused to exercise the appellate jurisdiction over awards of that court which the act of Congress attempted to confer, because the court was of opinion that the so-called Court of Claims was not, in the constitutional sense, a court which could render valid judgments, and because there could be no appeal from the Supreme Court to the Secretary of the Treasury. Gordon v. United States, 2 Wall. 561. An act of Congress removing this objectionable feature having passed the year after that decision, the appellate power of this court has been exercised ever since. The jurisdiction of that court has received frequent additions by the reference of cases to it under special statutes, and by other changes in the general law; but the principle originally adopted, of limiting its general jurisdiction to cases of contract, remains. There can be no reasonable doubt that this limitation to cases of contract, express or implied, was established in reference to the distinction between actions arising out of contracts, as distinguished from those founded on torts, which is inherent in the essential nature of judicial remedies under all systems, and especially under the system of the common law.

The reason for this restriction is very obvious on a moment's reflection. While Congress might be willing to subject the government to the judicial enforcement of valid contracts, which could only be valid as against the United States when made by some officer of the government acting under lawful authority, with power vested in him to make such contracts, or to do acts which implied them, the very essence of a tort is that it is an unlawful act, done in violation of the legal rights of some one. For such acts, however high the position of the officer or agent of the government who did or commanded them, Congress did not intend to subject the government to the results of a suit in that court. This policy is founded in wisdom, and is clearly expressed in the act defining the jurisdiction of the court; and it would ill become us to fritter away the distinction between actions ex delicto and actions ex contractu, which is well understood in our system of jurisprudence, and thereby subject the government to payment of damages for all the wrongs committed by its officers or agents, under a mistaken zeal, or actuated by less worthy motives.

The question is not a new one in this court.

In Nichols v. United States (7 Wall. 122), where a suit was brought in the Court of Claims to recover back money exacted of an importer in excess of the duties allowed by law, the court held that no contract to refund was implied, because the money, though paid under protest, was paid voluntarily, and for this reason, among others, that court had no jurisdiction.

In Gibbons v. United States (8 id. 269), an army contractor, who had agreed to furnish two hundred thousand bushels of oats at a fixed price, had, as this court held, after delivering part of the amount, been legally released from the obligation to deliver the balance. He was, however, carried before the military authority in a state of fear and trepidation, and to save himself further trouble agreed to and did deliver the remainder of the oats. He sued in the Court of Claims for the difference between the contract price and the market price of the oats at the time of the delivery. One ground of his claim was that he acted under duress and the constraint of fear, and that his agreement to deliver at the contract price was void.

This court said, in answer to this argument, that 'it is not to be disguised that this case is an attempt, under the assumption of an implied contract, to make the government responsible for the unauthorized acts of its officers, those acts being in themselves torts. . . . The language of the statutes which confer jurisdiction upon the Court of Claims excludes, by the strongest implication, demands against the government founded on torts. The general principle which we have already stated as applicable to all governments, forbids, on a policy imposed by necessity, that they should hold themselves liable for unauthorized wrongs inflicted by their officers on the citizen, though occurring while engaged in the discharge of official duties. . . . These reflections admonish us to be cautious that we do not permit the decision of this court to become authority for righting in the Court of Claims all wrongs done to individuals by the officers of the general government, though they have been committed while serving the government and in the belief that it was for its interest. In such cases, where it is proper for the nation to furnish a remedy, Congress has wisely reserved the matter for its own determination.'

With the reaffirmation of this doctrine, which excludes the present case from the jurisdiction of that court, its judgment dismissing the petition of plaintiff is

Affirmed.


text: Talk:Langford v. United States/Opinion of the Court


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Creswell v. Lanahan

APPEALS from the Supreme Court of the District of Columbia.

The Freedman's Savings and Trust Company, and John A. J. Crewell and others, its commissioners, filed, June 26, 1875, two bills in equity in the court below against Thomas M. Lanahan and others. One bill charges that Juan Boyle, on or about July 31, 1871, being indebted to the company in the sum of $2,500, for which it held his note of that date, payable in one year, executed and delivered to Eaton and Stickney to secure its payment, a deed of trust of the same date (duly recorded), with the usual power of sale, conveying certain real estate in Washington.

It further charges that the note held by the company as part of its assets was, June, 1874, unlawfully, and to the prejudice of its depositors and creditors, taken from its assets, and delivered to Lanahan, who is now holding it in his possession and pretending to be the owner of it. The delivery and transfer of the note to him are then charged to have been unlawful and void, upon the ground that the act of Congress of March 3, 1865 (13 Stat. 510), organizing the company, requires the affirmative vote of at least seven members of the board of trustees to transfer any securities or assets belonging to the corporation, and the complainants charge that the note was transferred without any vote whatever, and without the knowledge and consent of any of the trustees.

The prayer of the bill is for general relief, and specially, that the pretended transfer of the note to Lanahan be declared null and void; that he be directed to bring it into court to be disposed of according to law; and that the trust property be sold and the proceeds applied to the payment of the note, for the benefit of the company and its creditors.

The other bill makes the same averments and claims the same relief as to a note for $8,000, executed to the company by Anna E. Boyle and others, secured in the same manner as the note of Juan Boyle, and transferred to Lanahan in the same way.

Lanahan answered, stating the circumstances under which he came into possession of the notes in question, and setting up a title thereto. They and so much of the charter of the company as relates to the case will be found in the opinion of the court.

The bill in each case, was, on final hearing, dismissed, and the commissioners appealed.

Mr. Enoch Totten for the appellants.

Mr. S. Teakle Wallis for the appellees.

MR. JUSTICE SWAYNE delivered the opinion of the court.

title: Creswell v. Lanahan


text: Talk:Creswell v. Lanahan

title: Talk:Creswell v. Lanahan


text:
Creswell v. Lanahan/Opinion of the Court

Several of the documents referred to by the witnesses in one of the cases have been lost or destroyed, and there is some uncertainty and conflict in the testimony with respect to them and the transactions to which they relate. The discrepancies are not material, and the substantial facts appear with sufficient clearness to enable us satisfactorily to dispose of the controversy. A statement, somewhat condensed, will be sufficient for the purposes of this opinion.

In 1873, the Freedman's Savings and Trust Company, the corporation represented by the appellants, found itself seriously embarrassed for the want of means to meet its current daily liabilities. In November or December of that year, it borrowed from the appellee Lanahan the sum of $10,000, for which it gave its note, payable at sixty or ninety days, probably bearing a high rate of interest, and secured by $20,000 of the improvement bonds of the District of Columbia at their par value. The note was executed by the actuary of the company. The loan was negotiated by the appellee, Juan Boyle, who acted as the agent of the company, by virtue of a written document under the hand of its president and its corporate seal. The money was applied in payment of depositors. The institution was suffering from the financial revulsion initiated and precipitated by the failure of Jay Cooke & Co., which swept over the entire country. It was deemed better to make loans at the interest paid, whatever it was, than to sell securities at the rates which then ruled in the markets.

About the 1st of May, 1874, it was agreed between Lanahan and Boyle that the former should lend the latter $21,000, including the note of the company for $10,000, and that Boyle should procure the company to transfer to Lanahan a note of Anna E. Boyle and others to the company for $8,000, secured by deed of trust to Eaton and Stickney, and the note of Juan Boyle to the company for $2,500, secured by another deed of trust to the same parties. Other collaterals, with which the company had nothing to do, were also to be delivered by Boyle to Lanahan. Boyle thereupon delivered the note for $10,000 to the company, and the company transferred and delivered to Lanahan the two notes of $8,000 and of $2,500. Both these notes were then overdue. This terminated Lanahan's dealings with the company, and these are the notes involved in this controversy. The bill, without imputing fraud, avers that Lanahan is not entitled to hold them, and prays that he may be decreed to deliver them to the complainants.

At the same time that Boyle delivered to the company is note for $10,000, he made a full and final settlement with it of all the liabilities of himself and of Juan Boyle & Co. He was found indebted to the company, after deducting the note of $10,000, in the sum of $28,522.38. Boyle thereupon gave the note of Juan Boyle & Co. for $28,000, secured it by certain collaterals, and paid the balance in cash. Subsequently the collaterals proved to be worthless, the firm became insolvent, and the debt is hopelessly lost to the company. It was considered safe by the actuary at the time of the transaction. Eaton, one of the trustees in the deeds of trust, died, and by proper proceedings the respondent Cull was substituted for him and Stickney. The third section of the act of Congress chartering the institution is as follows:--

'The business of the corporation shall be managed and directed by the board of trustees, who shall elect from their number a president and two vice-presidents, and may appoint such other officers as they may see fit; nine of the trustees, of whom the president or one of the vice-presidents shall be one, form a quorum for the transaction of business at any regular or adjourned meeting of the board of trustees; and the affirmative vote of a least seven members of the board shall be requisite in making any order for, or authorizing the investment of any moneys, or the sale or transfer of any stock or securities belonging to the corporation, or the appointment of any officer receiving any salary therefrom.'

On the 18th of September, 1873, the board of trustees authorized and empowered the officers of the company to assign and transfer any of the registered stock of the United States standing in its name.

On the 13th of December in that year, the same board directed the finance committee to authorize those officers to negotiate the securities of the company in such manner as to relieve the bank from its embarrassment.

There was no formal order touching either of the transactions of Lanahan with the company, but they were communicated, as were all others, daily to the individual members of the board. There is no proof that any objection was ever made. Several of the trustees expressed an earnest desire that the company should escape from the embarrassments by which it was surrounded, and be able to avoid bankruptcy. The threatened catastrophe proved inevitable. On the 29th of June, 1874, the company closed its doors, and a few days later went into liquidation. In the transactions with Lanahan in making the loan and giving the note in one case, and in transferring and handing over the two notes in the other, the actuary was governed by the settled usage of the bank in all such cases.

It is a striking fact that there is nothing in the record which casts the slightest shadown of bad faith upon either of the respondents, or upon the president or actuary of the company. It does not appear that a dollar of its means went fraudulently into the pockets of either of those parties.

The case naturally divides itself into two parts, each of which requires separate consideration:--

1. As to the loan of $10,000, and the note given to the lender.

2. The transfer of the two Boyle notes.

The question presented as to the first point is easy of solution. The money was fairly borrowed. The note was given for it, and the fund was honestly applied in payment of pressing liabilities of the company. The trustees individually were advised of the transaction and made no objection. It would be a perversion of the plainest principles of reason and justice to permit the validity of such a security to be effectually denied. It cannot be done. De Groff v. American Linen Thread Co., 21 N. Y. 124; Parish v. Wheeler, 22 id. 494; Bradley v. Ballard, 55 Ill. 413; Steamboat Company v. McCutchen & Collins, 13 Pa. St. 13.

Courts do not look at such transactions with the microscopic eyes of a special demurrer.

The second point hardly admits of more doubt than the first one.

The company took up its note given to Lanahan, and gave him in place of it the two notes of the Boyles, amounting together to $10,500. When this was done, Juan Boyle paid the company $522.38. This was more than the difference in amount between the note first named and the other two. Certainly the company could sustain no possible injury from this exchange. It paid a debt overdue, and took up its note by parting with two of its securities. With the residue of the settlement between Boyle and the company Lanahan had nothing to do. He was neither a party nor privy. As to him it was res inter alios acta. It cannot in any wise affect his rights, and may properly be laid out of view.

If the two notes which he received can be wrested from him, the company will have had the full benefit of the loan, and have got back its note without paying any thing, while he will have lost the entire amount. This is a suit in equity. It would be a singular equity that could work out such a result.

But further: the actuary who made the exchange of securities was held out to the world as competent to do what he did. It was done in conformity to the established usage of the company in all such cases. Under such circumstances, the institution cannot be permitted to deny that he had all such powers as he habitually exercised, and thus assumed to have. Merchants' Bank v. State Bank, 10 Wall. 604.

The transaction, like all others, was made known to the trustees individually, and they never objected. This intelligent acquiescence was a binding ratification. Kelsey v. National Bank of Crawford County, 69 Pa. St. 426; Hillard v. Goold, 34 N. H. 230; Christian University v. Jordan, 29 Mo. 68; Sherman v. Fitch, 98 Mass. 59.

The arrangement was first challenged after the company became bankrupt and went into the hands of the appellants.

The company was concluded, and the appellants can be in no better position. They, like assignees in bankruptcy, can have no rights, legal or equitable, but those of the insolvent party whom they represent. Gibson v. Warden, 14 Wall. 244.

The appellants are not entitled to any relief.

Other legal views which are applicable lead to the same conclusion, but it is unnecessary to pursue the subject further.

This opinion disposes also of the second case. The two cases are the same, mutatis mutandis.

Decrees affirmed.


text: Talk:Creswell v. Lanahan/Opinion of the Court


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Christian Union v. Yount

APPEAL from the Circuit Court of the United States for the Southern District of Illinois.

The facts are stated in the opinion of the court.

Mr. W. J. Henry for the appellant.

Mr. E. S. Terry, contra.

MR. JUSTICE HARLAN delivered the opinion of the court.

title: Christian Union v. Yount