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St. John v. Erie Railway Company/Opinion of the Court

'The association is required to deposit. . . stocks of the State of New York.'

'Now when the capital of the bank is required to be invested in stocks, and among others in United States stock.'

The court is here speaking of State debts and United States debts.

The statutes of the United States equally use the terms debt and stock as convertible. One of them, ex. gr., relating to a 3 per cent. loan, says:

'Any part of the principal of the said debt or stock, bearing an interest of 3 per cent., as shall be unredeemed, shall,' &c.

Then the use of the word 'stock' is nothing, and the only question is, does the contract, as expressed, mean what we assert that it does mean?

In settling that meaning it is to be noted that these preferred stockholders never sustained the ordinary relations of stockholders, general or preferred. They began as creditors. They never subscribed for stock, nor paid instalments, nor took part in creating a corporation, nor had an opportunity to share in unlimited profits, nor agreed to assume any of the ordinary risk of stockholders, nor bargained for so large a vote as to be able to protect themselves, but from the beginning relied on a peculiar contract relation, due notice of which they caused to be conspicuously published to all the world. They are in part creditors and in part stockholders, and not technically either. They have the rights which their contract gives them, and a name will not make those rights greater or less. Modern business and legislation have created relations which, according to the narrow views of the old laws and decisions, would be anomalous, and in them a person may be in some sense and at the same time a creditor and a stockholder. Such is the case of every preferred stockholder.

There is no use of considering what would be our condition in case of insolvency, and who would be then preferred. What has that condition to do with our rights during solvency? We will consider the case of insolvency when it arises.

It is matter of common knowledge that the Erie Railway has been largely built by English capital. The agreement whose meaning is now under consideration was doubtless made in all its parts by representatives of English capitalists. The expressions of English statutes, the views of English writers, and the decisions of the English courts may be looked to with more than common deference in interpreting it. Now, in the English law, preferred stock is commonly called debenture stock, the word debenture coming obviously from debere, to owe. So the dividends on preferred or debenture stock are commonly called interest; and the English law declares them to 'rank next to interest payable on the mortgages or bonds for the time being,' though it admits of course that the holders of it cannot require repayment of what they have paid for it.

Nor is there anything in the use of the word 'dividend' which of itself impairs our argument. If it was said, in terms, that the 'dividend' on preferred stock was to be paid out of net earnings from existing roads, and next after mortgage-interest, and prior to rent on any new leases, and prior to interest on any new loans, the meaning and the case would be clear. The word 'dividend' then is unimportant. And the only question is whether, in any way, the meaning and the case are clear? This so-called dividend, it will be noted, is to be declared from 'net earnings,' and is payable absolutely, each year, if earned, immediately after the mortgage-interest is paid. The payment may be called a dividend, but it is more analogous to interest.

If every common stockholder should be present and vote to have any such surplus of net profits used for some other designated purpose, this would confessedly not impair the claims of preferred stockholders to receive it.

In the case of Maryland v. Railroad Company, very lately decided by this court, the State of Maryland was, by a contract with the Baltimore and Ohio Railroad Company, entitled to have and receive a perpetual dividend of six per cent. per annum (upon $3,000,000 which the State lent to the company), out of the profits of the road. Does any one doubt that this made a debt from the company to the State in case any profits were made? And that calling the money to be paid a dividend was nothing?

Nor is there anything in the expression 'net earnings' which impairs our argument. Of course 'net earnings' are gross earnings after the deduction of every sort of cost, charge, and expense of administering and working 'the road.' But what road? That is the question to be settled. The language is 'the net earnings of the said road.' Does 'the said road' mean the road then known as the road of the Erie Railway Company-the road, and the only road, which had been before the contracting parties-with its then leased roads,-or does it mean that road-that 'said road'-with a score of different, distant, and most unprofitable roads, worked into its corpus as a part of it, and with $5,000,000 of debt created to equip and use them? That, we say, is the question.

The case made by the pleadings is a little obscure as to what road or roads absorbed the $5,000,000 borrowed. But that vast sum is not shown to have been expended on the line as it existed when the preferred stock was created. That line must have been completed and equipped, and it could never have been expected that such sums would be borrowed to use on such a road. Without doubt the money was expended in great measure on the newly leased lines.

II. Now, the defendant should have kept separate accounts of its newly leased roads, and been prepared to sustain their losses or demonstrate their profits. The plaintiff is entitled to have counted as gross earnings on the line as it existed when his stock was created, all the money thereon received and earned, and from this can be deducted only the expenses of operating such line, including, of course, rents payable for any portion of it. Such accounts are easily kept. On that basis the plaintiff will take his chances of a dividend, as the contract provides, and will regard his prospects as greatly improved. The company denies that right, and refuses such account and payment. This rule of separate accounts is the English rule. In Corry v. Londonderry, where there were five classes of stockholders, the court held that the company must keep separate accounts, and that the discretion of the directors over expenditures was limited by the rights conferred on preferred shareholders. Where net profits were pledged, as here, it was held they could not be diminished by subtracting from them 'money raised under the borrowing powers,' and that 'money procured for the purpose of completing the line cannot be paid out of profits.'

A material part of the reasoning of this case has been sustained by Taft v. The Hartford Railroad, in this country.

III. It will be said, doubtless, by opposing counsel, that our view of the law would obstruct all expansion of the company's business, by preventing the company borrowing money or leasing roads. If such was the effect, the fact would be no reason for the court refusing us our right. Such a contract made by the company, and sanctioned by the courts and the legislature, as this has been, would be valid, however inconvenient it might be. But such is not the effect. The company may lease, and borrow, and expand, and the preferred stock no more obstructs them than does a mortgage. They must first give us a dividend, if there be net earnings to pay it, just as they must pay mortgage-interest.

Mr. W. W. McFarland, contra, for the company.

Mr. Justice SWAYNE delivered the opinion of the court.

The question presented in the present case depends for its solution wholly upon the construction given to the fifth clause of the agreement of 1859, and the fourth section of the act of 1861. They are identical in effect as regards the point to be considered.

The original takers of the preferred stock were creditors. They abandoned that position and became stockholders. They thereupon ceased to be the former, and can only be regarded as the latter. They surrendered their debts and received in return stock of the same amount, which gave them a chance for annual dividends of seven per cent., and a voice by voting in the choice of those by whom the affairs of the company were to be administered. What they were to receive was not interest, but dividends; and they were to receive them in priority to the holders of the common stock. The latter could receive nothing until the former were satisfied. The maximum payable on the preferred stock was specified. It might be less, or nothing. It could not be more. The amount subject to the limit prescribed depended wholly upon the residue of the net earnings applicable in that way. The language employed is apt to express the relation of stockholders. None to express the relation of creditors is found in the instrument; and there is nothing from which the intent to continue that relation any longer can be inferred. If the mortgages were foreclosed and there were a surplus left insufficient to satisfy the general creditors, it is quite clear that the holders of the preferred stock could have no right to share in the fund.

The dividends were to be paid after the mortgage-interest and delayed coupons were paid in full.

This clause was inserted doubtless out of abundant caution, to prevent the possibility of a claim being set up to the prejudice of the holders of the mortgage securities. Whether the restriction was necessary, for that purpose, we need not consider. The preferred dividends were to be paid out of 'the net earnings of the road.' The lexical definition of net is 'clear of all charges and deductions.'-Webster. 'That which remains after the deduction of all charges or outlay, as net profit.'-Worcester. The popular acceptation of the term is the same. There is no controversy between the parties on this subject. Such net earnings must have been earned in 'the current year.' There are these four specific limitations. There are no others. It is not said that the preferred dividends shall be paid next after the mortgage interest and delayed coupons, nor after, nor pro rata with anything else, nor before anything else except dividends upon the common stock. Beyond the four restrictions named, the matter is left to be regulated wholly by the principles of law and the discretion of the company. Suppose in this case the holders of coupons of the sterling bonds and the holders of preferred stock claimed payment at the same time and the fund was insufficient to meet both demands, can it be doubted that the rights of the creditor would be held paramount to those of the shareholder, and that the interest must be fully satisfied before a dividend could be paid? The plainest principles of reason and justice as well as the law would require this result. A question is raised as to the source to which the phrase 'net earnings of the road' refers. The term road is used as an appellative, and was clearly intended to include the principal road and all its adjuncts. The complainant insists that the net earnings must be the net earnings of things as they were when the preferred stock was issued. We find nothing in the case, express or implied, to warrant this view. At the time referred to, the company held certain leases. If it was deemed best, and was found practicable, could not the company have rid itself of them? If the complainant's view be correct, this could not be done, at any rate not without the consent of the preferred stockholders. So if the company deemed it proper to take leases of other roads, in addition to those previously held, or in place of them, what was there to prevent it? Upon what ground can it be claimed that the category 'net earnings of the road' was not intended to embrace the net earnings of all the business of the company for the time being, whether done upon one or many roads?

There is nothing in the agreement or the statute, and we are aware of no legal principle which would authorize the stockholders in question to analyze the business, select out a part of it, and to say that the net earnings specified must be a predicate of that part, and of none other. The company had the right to conduct its operations, in good faith, as it might see fit; and it was from them and all of them that the materials for the computations of earnings were to be derived.

The only qualification prescribed in this connection is not as to the scope, means, or elements of the business, but is one in point of time. The net earnings from which the preferred dividends were to be paid must have been earned 'in the current year.' Whether the business of such year were large or small, or of what it consisted, is immaterial. The corporation never agreed to be limited in the exercise of its faculties and franchises, and the complainant must abide the result. If errors wee committed, and a loss ensued, a court of equity cannot relieve him. It is one of the chances of the enterprise in which he embarked.

The business of the road was a unit. If it had been diaintegrated as proposed by the complainant, we apprehend it would have been found that the correlations of the main stem and the branches were such, and that the expenses and charges incident to the entire business and those of the several parts were so interwoven and blended, that an accurate ascertainment of the net profit of the main line and any of the auxiliaries, taken separately from the rest, would have been impracticable. An ancillary road may be short and yield but little income, yet by reason of its reaching to coalfields, or from other local causes, its contributions to other roads of the series may be very large and profitable. Whether in this case the partial computation insisted upon could or could not have been made, the process was one upon which the company was neither bound nor had the right to enter.

We hold that the computation by the company for the year 1868 was made upon the proper basis, and that the complainant is concluded by it. We are of the opinion that the rents for that year, accruing under leases taken by the company after the issuing of the preferred stock, and the interest upon the sterling bonds for that year were properly paid, and that there were no net earnings earned in that year which could be properly applied in payment of preferred dividends. These views are fatal to the complainant's case. We have carefully examined all the authorities referred to by his learned counsel. None of them are in hostility to the conclusions at which we have arrived.

DECREE AFFIRMED.


text: Talk:St. John v. Erie Railway Company/Opinion of the Court

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Sloan v. Lewis

ERROR to the Supreme Court of North Carolina; the case being thus:

The Bankrupt Act enacts that any person owing debts and committing certain acts,

'Shall be adjudged a bankrupt on the petition of one or more of his creditors, the aggregate of whose debts provable under this act amounts to at least $250.'

This enactment being in force, Bell filed a petition in the District Court of the United States of North Carolina, praying that a certain Rhyne might be decreed a bankrupt. The petition alleged,

'That your petitioner's demands against the said Rhyne exceed the sum of $250, and that the nature of them is as follows.'

It then set forth three sealed notes amounting in the aggregate to $249.35; and on comparing the dates of the three notes with the date when the petition in bankruptcy was filed, it appeared that several years' interest was due on them.

The 'debt' therefore, using the word 'debt' in its strict common-law parlance, was less than $250; though, with the interest added, it much exceeded that sum.

The debtor was, on this petition, decreed, against his will, a bankrupt, and one Lewis was appointed his assignee.

Lewis now sued one Sloan in a State court of North Carolina to set aside certain conveyances made by the bankrupt, in fraud, as was alleged, of the Bankrupt law; and one of the defences in the action was that the adjudication of bankruptcy was void, because the record showed that the debt owing to the petitioning creditor was less than $250, and consequently that the court had no jurisdiction in the premises.

The State court in which the suit was brought, considered that the District Court of the United States which made the adjudication in bankruptcy had, in fixing the amount of the debt, properly added the interest to the principal of the debt. In addition it refused to allow the defendant to show that the debt of $249.35 had been reduced by a credit of $64 which the creditor petitioning in bankruptcy had not allowed; a reduction, it may be noted, which was not alleged in the pleadings. Its view was that 'the petition of Bell in the bankrupt court had been passed on by that court and the matter presented by it there adjudicated; and that other courts, no appellate, could not go behind the record.' And fraud on the Bankrupt Act being found in the conveyances made by the bankrupt, it set them aside. This decree being affirmed by the Supreme Court of the State, the case was now brought here by Sloan, claiming under the conveyances.

Mr. H. W. Guion, for the plaintiff in error:

I. Bankrupt acts are in the nature of penal acts. By a short, sharp process they take a man's property right out of his own hands. Such statutes are to be construed strictly.

1. Now the terms 'debt' and 'interest' are both technical terms in the common law, each having a specific sense of its own. Those senses have never been confounded. Even in the process of the courts, mesne or final, the distinction between debt and interest is persistently preserved. In the ''fi. fa.'' the sheriff is commanded to make a certain debt, and also a certain other sum, as damages for the detention of said debt, and also for the costs; these damages being interest.

The rule as to interest in England, previous to 3 and 4 William IV, ch. 42, is stated by Mr. Chitty, as follows:

'The general common-law rule is, that the law does not imply a contract on the part of the debtor to pay interest on the sum he owes, although the debt may be a fixed amount, and may have been frequently demanded. Nor is interest due as a matter of right in the absence of an express stipulation, even in the case of written instruments, unless they be commercial instruments of a negotiable nature, such as bills of exchange and promissory notes.'

Interest is thus but an incident to the debt, and not a part of the debt itself. But it is not the only incident, and if it is to be computed, why not the other incidents also, that at different times and in varied forms present themselves. Ex. gr. In the District Court of North Carolina, a petitioning creditor in bankruptcy some time since, when gold coin was forty per cent. in value above legal tender notes of the United States, set forth as his debt, a note for $200, payable in gold coin, and asserted that the amount was sufficient to confer jurisdiction, as with the then premium on gold coin his debt amounted to $280, in lawful money; and this was undeniably true. The court refused to compute this incident as a part of the petitioning creditor's debt. But if the argument of opposing counsel is right it committed, plainly, an error. Indeed, where-when you depart from a rule-are you to stop? In some States compound interest is allowed; in others but simple interest. Some notes and bills are payable in foreign currency, and might demand that the par of exchange be added. Some bills payable at different places may be protested, and the holder become entitled to damages by reason of the non-payment. All the incidents are damages, like interest, strictly due, and they are related to the debt, as intimately as the 'interest' itself.

2. Further than all this, and as respects this particular case. The petitioning creditor in his petition fails to claim interest as any part of his debt, and does not pretend or aver that the proceedings are founded on such interest. In Udall v. Steamship Ohio, this court held 'that no computation of interest will be made to give jurisdiction, unless it be specially claimed in the libel.' 'This,' it said, 'would certainly be the case at law,' and added that 'no reason is perceived why the rule should be relaxed in case of libel.'

3. Our whole Bankrupt Act is derived from the bankrupt acts of Great Britain; and when our act uses the same words which that act does, and the meaning of those words has been long settled by the judgments of the highest British courts, there is great reason why we should adhere to the interpretation so given. Those courts well deserve our respect; for the judges in them are, generally, consummate lawyers; able intellectually, and thoroughly trained in their profession. In addition to this, it is desirable, in the vast and constant commerce between the countries, that similar enactments on a subject intimately affecting both, should be similarly construed. The English act of 6 George IV, ch. 16, § 15, after presenting the form of commission reads thus:

'No such commission shall be issued unless the single debt of such creditor, or of two or more persons, being partners petitioning for the same, shall amount to 100 or upwards, or unless the debt of two creditors so petitioning shall amount to 150 or upwards, or unless the debt of three or more creditors so petitioning shall amount to  200 or upwards.'

The older English bankrupt acts used the same expressions.

Now, so far back as 1746, Lord Hardwicke upon this word 'debt' decided that interest could not be added to the principal; and that decision has been followed steadily to this day, alike in the bankrupt court, in the Common Pleas, and in the King's Bench.

If a question in law can become settled, this should be.

II. The point was made in the court below, that the adjudication making Rhyne a bankrupt, was not only erroneous but void for want of jurisdiction apparent on the record, and that the question whether he was properly adjudged a bankrupt was examinable in every court where the record was produced and relied upon by the party claiming the benefit thereof. The court summarily disposed of this question by saying: 'That the petition of Bell in the bankrupt court had been adjudicated by that court, and that this court could not go behind the record.'

But assuredly if a court acts without authority, its judgments and orders are nullities. Now here a 'debt' of a certain amount was indispensable to give jurisdiction. No such 'debt' was shown. It was alleged; but the evidence of the debt, as set out on the face of the record, disproved the allegation; for the evidence consisted of three sealed notes which on their face were less than $250.

Mr. Samuel Field Phillips, contra.

The CHIEF JUSTICE delivered the opinion of the court.

title: Sloan v. Lewis


text: Talk:Sloan v. Lewis

title: Talk:Sloan v. Lewis


text:
Sloan v. Lewis/Opinion of the Court

The Bankrupt Act provides for an adjudication of involuntary bankruptcy upon the petition of one or more creditors, the aggregate of whose debts provable under the act amounts to at least $250. It becomes necessary, therefore, to ascertain what constitutes a debt that may be proved. The plaintiff in error contends that it is limited to the principal of a sum of money owing, while the assignee claims that it includes the principal and all accrued interest.

To determine this question we must look in the first place to the act itself. If the intention of Congress is manifest from what there appears we need not go further. Section nineteen provides 'that all debts due and payable from the bankrupt at the time of the adjudication of bankruptcy, and all debts then existing but not payable until a future day, a rebate of interest being made when no interest is payable by the terms of the contract, may be proved against the estate of the bankrupt.' And again, 'all demands against the bankrupt, for or on account of any goods or chattels wrongfully taken or withheld by him, may be proved and allowed as debts to the amount of the value of the property so taken or withheld, with interest.'

There is certainly nothing here which in express terms excludes interest from the provable debt. On the contrary there is the strongest implication in favor of including it.

The object is to ascertain the total amount of the indebtedness of the bankrupt at the time of the commencement of the proceedings, and also the amount of this indebtedness owing to each one of the separate creditors. Accrued interest is as much a part of this indebtedness as the principal. It participates in dividends, when declared, precisely the same as the principal. One has no preference over the other, and for all the purposes of the settlement of the estate the bankrupt owes one as much as he does the other. Creditors prove their debts in order that they may participate in the management and distribution of the estate. Their influence in the management and their share on the distribution depend upon the amount of their several debts which have been proven. Hence, in order to fix the equitable representative value of a debt not due, provision is made for a rebate of interest. But if interest is to be rebated on debts not due, why not upon the same principle add it to such as are past due?

The provision for adding interest to the value of goods wrongfully taken and converted is equally significant. Certainly no good reason can be given for withholding interest in cases arising upon contract and allowing it in cases of tort, and because it is expressly given in the last and no provision is made for it in the first, the conclusion is irresistible that it was expected to follow the contract as a part of the obligation.

We are all, therefore, clearly of the opinion that accrued interest constitutes part of a debt provable against the estate of the bankrupt, and if it does it is necessarily part of a debt which may be used to uphold involuntary proceedings. It is only necessary, upon this point of jurisdiction, that the petitioning creditors should have owing to them from the debtor they wish to pursue, debts provable under the act to the required amount. The English cases referred to in the argument, in our opinion, have no application here. They are founded upon the English statutes and the established practice under them. Our statute is different in its provisions and requires, as we think, a different practice.

This is conclusive of the case. The petition filed in the bankrupt proceedings distinctly averred that the debts due the petitioner exceeded the sum of $250; and, if interest is added, the particular indebtedness specified amounts to more than that sum. The court found this allegation true. That finding is conclusive in a collateral action. We have so decided in Michaels v. Post, at the present term. Where the record shows jurisdiction, an adjudication of bankruptcy can only be assailed by a direct proceeding in a competent court. Evidence, therefore, to show that payments had been made which reduced the indebtedness below the required amount was inadmissible under any form of pleading in an action like this, but it was especially so in this case, because there is no averment in the pleadings contradicting the record. The sole objection is that upon the face of the record the error is apparent. A record cannot be impeached without previous notice by proper form of pleading.

JUDGMENT AFFIRMED.

title: Sloan v. Lewis/Opinion of the Court


text: Talk:Sloan v. Lewis/Opinion of the Court


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In re Chiles

ON motion by the State of Texas for a rule on John Chiles to show cause why he should not be dealt with as guilty of a contempt of this court in disobeying one of its decrees, and why he should not by proper instrument convey to the said State all his right, title, and interest to seventy-six certain bonds of the United States now in the possession of Droege & Co., of London.

The case was thus:

On the 12th of January, 1863-the State of Texas being then in rebellion against the United States-certain persons calling themselves its Military Board, and who were possessed, under a statute of the then so-called State, of actual power within its confines-entered into a contract with a certain G. W. White and J. Chiles, by which, in consideration of military stores to be furnished to the State, the State was to sell and transfer to them certain bonds of the United States which, long before the rebellion, the United States had given to the State of Texas as an indemnity for the surrender of certain territory claimed by it; and which bonds were thus known as the Texas Indemnity Bonds.

Two lots of bonds were mentioned in this contract. One of them was thus:

'2d. Seventy-six bonds with coupons attached, principal and interest amounting to $87,400, said seventy-six bonds and coupons supposed to be upon deposit with Droege & Co., England.'

The rebellion being suppressed, and the government of the State of Texas having passed again into the hands of persons loyal to the United States, the State filed a bill in this court against White & Chiles, one J. A. Hardenberg and several other persons, to establish its title to and to get control and possession of these bonds, or of their proceeds. The case is reported in 7th Wallace, page 700.

The bill recited the circumstances under which the United States issued and the State of Texas received the bonds known as the Texas indemnity bonds, and then alleged that these bonds fell into the hands of a combination of conspirators, who, assuming to be the lawful government of the State of Texas, sold them to White & Chiles, delivering one hundred and thirty-five of them, and selling the seventy-six above mentioned, which were then deposited with Droege & Co., in England. It alleged that the contract of sale by the military board of Texas, and the statute under which that board acted were void, because the object and purpose of both were to aid the rebellion in its efforts to overthrow the government of the United States; and it alleged that the bonds were not legally transferred for want of the indorsement of the governor of Texas, which, by a statute of that State, was made necessary to any legal transfer of them.

There was thus an assertion of title and ownership of these bonds both in law and in equity in the plaintiff, the State of Texas, with a recital of the origin and state of that title.

There was then an allegation of three distinct grounds on which the claim of the defendants was charged to be invalid: 1. That their possession was obtained through an unlawful band of conspirators who, taking possession of these bonds and of the political power of the State, had delivered the bonds to White & Chiles, without any authority to do so. 2. That such bonds could not be lawfully delivered or transferred so as to carry the title of the State to them to any person without the indorsement of the governor, which none of these bonds had. 3. That the contract under which White & Chiles received the bonds delivered to them, and claimed title to those not delivered, was void, because made with the intent to aid the rebellion.

A copy of this contract was set out as Exhibit 'A' of the bill, and mentioned, as already stated, specifically the seventy-six bonds.

White & Chiles filed separate answers to this bill, and took issue either as matter of law or of fact on all these grounds of complaint. They asserted the justice and legality of their title to the bonds and to all of them; and of course denied the right of the State to recover of them or of their vendees either these bonds or their proceeds in the treasury or their value.

On the 12th of April, 1869, a decree was entered in the case. It ordered—

'That the contract bearing date the 12th January, 1865, purporting to have been executed between the military board of the State of Texas and White & Chiles-which said contract is set forth as Exhibit A to the complainant's bill of complaint-is null and void and of no effect, and that the said White & Chiles, their agents and attorneys, and all others claiming to act in their behalf, be perpetually enjoined from asserting any right or claim under the same, and that the complainant is entitled to recover and receive the bonds and coupons mentioned in said contract as having been transferred or sold to the said White & Chiles, which at the several times of service of process in this suit were in possession or under the control of the defendants, respectively, and any proceeds thereof which have come into such possession or control with notice of the equity of the complainant.

'That the said G. W. White, John Chiles, J. A. Hardenberg, &c., and each of them, be hereby perpetually enjoined from setting up any claim or title to any of the bonds and coupons attached which are described in the first article of said contract filed as Exhibit A to the bill of complaint, and that the above complainant is entitled to restitution of such of the bonds and coupons and proceeds as have come into the possession or control of the said defendants, respectively, and as aforesaid.'

By the terms of the decree each party had leave to move for further orders.

In this state of things, Chiles, on or about the date of it, addressed and served on Droege & Co. this notice:

'July 17th, 1874.

'MESSRS. DROEGE & Co.,

'Manchester, England.

'You are again hereby notified that I am the owner, by contract with the State of Texas, of seventy-six Texan indemnity bonds of one thousand dollars each, and coupons attached, amounting in all to $87,400; and also of the balance of one hundred and fifty-one of said bonds, with coupons attached, placed in your custody by John Milton Swisher, of Texas. And you are hereby notified not to part with the possession of said bonds and coupons or any portion of them without due authority from me.

'My solicitors will wait upon you with the necessary process to bring the matter before a judicial tribunal as soon as the proper preparations can be perfected.

'JOHN CHILES.'

The State of Texas now, accordingly, made the motion on which the present rule to show cause was granted.

The petition on which it was granted charged that Chiles had continually and repeatedly asserted a claim to seventy-six of the bonds mentioned in the said decree, thereby seriously impeding a settlement and compromise by the State of Texas with persons who have possession of such bonds in England, and especially charging him with writing and serving the preceding notice to Droege & Co., as also a certain other notice to other persons in England, having some sort of relation to the proceeds of some of these Texas indemnity bonds; this last notice, however, not being much pressed by the counsel of Texas as a feature in the case, and the reliance being on the notice to Droege & Co. as to the seventy-six bonds, which were distinctly referred to in the bill in the original suit.

In answer to the rule to show cause, and in answer to interrogatories propounded to him by the complainant's counsel, Chiles admitted that he signed the abovementioned notices in the city of New York and caused them to be served on the parties, and that he had claimed, ever since the decree in the original case, and did now claim, as owner, the seventy-six abovementioned bonds. But he denied that he was guilty of any contempt or violation of the injunction of this court, on two grounds:

1st. That the decree of the court only enjoined him from asserting a claim under the contract between White & Chiles and the military board of Texas, which was the Exhibit 'A' mentioned in the decree, whereas the title which he now asserted to all the bonds, including the seventy-six, was, as he alleged, under a wholly different contract made by himself alone, on the 4th of March, 1865, with the said military board (which he deemed was the proper authority of the State of Texas), after the one which was declared void by the decree of this court, but before the suit was brought. And that in that last contract White had no interest whatever. He added that being in no wise forbidden, or not at full liberty to assert a claim as owner to the said bonds thereunder, he proposed to have the question of his right to the said bonds thereunder adjudicated by the proper court in England.

2d. That there could be no violation of the injunction until he asserted his claim by some kind of judicial proceeding, which he had not yet attempted to do.

The question therefore was whether, on this petition and answer, he could be properly punished for a contempt.

Mr. Albert Pike, against the rule:

I. The object of the original suit was to annul the contract made with White & Chiles. It had no other object. The injunction was but a mode of giving effect to the decree annulling it. And no other contract being mentioned in the suit or decree, the injunction cannot lawfully have the effect to forbid the assertion of right under any other. It can annul no contract that was not asked to be annulled, and properly impeached; certainly not by implication, one of the existence of which it was not even informed.

Although the second contract was made long before the decree, it had taken no effect at all as a transfer of the seventy-six bonds, until by the decree the first contract was annulled. Until then Chiles had no title under it, to these bonds, which he could set up. He could not plead a title before it existed.

Injunctions are granted to suppress vexatious suits; to remove improper impediments and defences at law; to restrain alienations of property; to prevent transfers; to prevent irreparable mischiefs and trespasses; to suppress publications; to compel delivery up of possession and to quiet possession; to restrain from carrying on a suit, or entering judgment in a foreign country, and for a number of other things; but we find none to prevent a man from saying, orally or in writing, by way of notice or otherwise, that he has a claim or right to property or to evidences of debt of any kind. A written notice to such effect is no more than an oral one. If one 'sets up' a claim, or 'asserts' a claim, so does the other. Chiles has had the right, ever since the decree was rendered, to stand at the street-corners and proclaim, if he saw fit, or to publish and advertise in the newspapers here and in London, and to tell, inform, advise, and notify to Droege & Co. that he believed and knew that he had a perfect right to and was the proprietor of the bonds in England or those which he and White had received under the first contract, notwithstanding the decree of this court. It is no contempt of the court to think and to say that its decision in any case is wrong. The court itself has declared that of its own decisions, and reversed them; and dissenting opinions are continual. In the very case of Texas v. White & Chiles-in which the decree which it is now said has been contemned, was given-there were dissenting opinions by Grier, Swayne, and Miller, JJ.; the opinion of each of them going to the foundation of the case,-the right, to wit, of the State of Texas to sue at all.

Besides, these bonds are in England, under a sovereignty distinct from any which this court has anything to do with. This court had no power to compel Droege & Co., or any other man in England, to come into these precincts, or to pass upon money held by them.

In the inquiry whether Chiles has violated the law, the decree is to be construed in his favor, and against the plaintiff: 1st, because it is penal in its nature; and 2d, because it is the decree of the plaintiff made in response to his prayer, and upon the case made by him in his bill.

The decree in this case, indeed, enjoined all the defendants from setting up any claim to any of the bonds described in the first article of the contract. But a court will always construe a decree with reference to the issues it was meant to decide. However broad and emphatic the enjoining words may be, the object of the bill in this case was to avoid and set aside the particular contract attacked by the bill; and the general words must be restricted within these limits.

II. Chiles has not, according to the legal meaning of the phrase, or according to its meaning as used in the decree, set up or asserted a claim to the seventy-six bonds in question, he not having instituted or commenced any suit, action, or proceeding whatever, for the enforcement of any right in himself to them, or of any interest in them.

Messrs. R. T. Merrick and T. J. Durant, contra:

The manifest conclusions to be drawn from a perusal of the letter of Chiles to Droege & Co. are, so far as John Chiles is concerned:

First. To ignore absolutely all the proceedings in the suit of Texas v. White & Chiles, reported in 7th Wallace, and to treat the elements of the thing adjudged therein, so far as the seventy-six bonds are concerned, as absolutely void.

Second. In violation of the decree and its accompanying injunction, to again claim the bonds as owner.

Third. To prevent, by the active interposition of Chiles, the State of Texas from reaping the fruits of the decree in the said case of Texas v. White & Chiles.

Any statement which can be made of the case now before the court shows that this is so, and that Mr. Chiles is in contempt. We do not insist upon the grounds for this assertion. The court will enforce them if it deems it necessary.

We now go further; and in view of what Chiles has done by his notices, in view of the embarrassments which by them he has caused and is causing, we ask that he be compelled to execute, under direction of a master to be appointed in the case, a proper instrument transferring to the State of Texas in form, the title to the seventy-six bonds in the hands of Droege & Co. And in view of his plain contempt of the court already committed, we ask that he be imprisoned until he execute such a transfer.

Mr. Justice MILLER delivered the opinion of the court.

title: In re Chiles


text: Talk:In re Chiles

title: Talk:In re Chiles


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In re Chiles/Opinion of the Court

The object of the bill filed by the State of Texas in the case of Texas v. White & Chiles, and reported in 7th Wallace, was to establish the title of the State of Texas to the bonds there claimed, and her bill of complaint made parties, so far as she knew and could bring them before the court, all persons who denied or contested that title. The bill was framed as carefully and as fully as it well could be for the purpose of establishing that title finally and conclusively. If out of abundant caution the bill sets out all the false and pretended claims of the defendants, and the grounds on which they were supposed to be false, that were known to complainant, is the final decree in her favor to be of no avail because one or more of the defendants had another and a different ground of defence which he did not set up in his answer, nor in any manner make known to the court?

Mr. White was called on by this bill to defend his title, his whole title, to these bonds, or to any part of them, or any interest in them. The prayer and object of the bill was to decide and determine the title, and to give all such relief as equity could give if the title was found in the complainant.

It would be to trifle with the court to make a proceeding in equity, designed to give full and final relief, and to administer complete justice, to depend upon the skill and jugglery by which a defendant might conceal some part of his defence to that suit until it was decided against him, and then set it up as an excuse for disobeying the final decree of the court, or hold it out as the basis of another suit for the title or possession of the same bonds. And whatever difference of opinion may be found in the authorities, on the nice distinctions involved in the question of what is concluded in suits at law, and without even the necessity of going as far as this court has gone in actions at law in holding that all that might have been set up as a defence in the action must be concluded by the judgment, we are of opinion that in such a case as this, in a suit in equity, when the obvious purpose of the bill is to establish and adjudicate the entire rights and title of the parties before the court to the bonds and their proceeds in all the forms in which they can be identified, the decree must be final and conclusive on all the rights of all the parties actually before the court.

As to the meaning of the decree on this subject it is too plain for argument.

The first paragraph or order declares the contract with White & Chiles void, and enjoins them and the other defendant from asserting any right or claim under the same; and it establishes plaintiff's right to said bonds and to their proceeds.

The second paragraph or order perpetually enjoins the defendants, including White & Chiles, from setting up any claim or title to any of the bonds and attached coupons which are described in that contract, but does not limit the prohibition to a title under said contract. There can be no use for these several orders of injunction except to make it certain that defendants are to assert no claim to these bonds, either under that contract or under any other claim or title.

In regard to the second ground of defence no authorities are cited by either side. The language of the enjoining order certainly is not limited to a prohibition of a suit in court. Nor are we satisfied that the purpose and object of the injunction would be obtained by such a limitation. The purpose of the suit was, as we have said, to establish the rights of plaintiff as owners of these bonds and to prevent further interference or obstruction in the assertion of that right. As to all the bonds in the possession of the parties, or when they or their proceeds were within the control of the court, this purpose was attained by other orders and decrees.

But as to these bonds which were in England, all that the court could do was to prevent by injunction any interference of the defendants with the efforts of complainant to recover them, and that was the meaning of the enjoining order of the court. Is it obeyed or its purpose attained while one of the defendants asserts openly and continually, 'I am the owner of these bonds notwithstanding the decree of the court; I shall in another jurisdiction maintain my right to them by all legal means?' That such a course would seriously embarrass the complainant in securing her right as established by this decree there can be no doubt. Would it be permitted when in a suit to quiet title to real estate defendant was enjoined from any further disturbance of that title or assertion of his own, that he could still continue to slander plaintiff's title, impair its validity, and prevent its sale, because he stopped short of instituting a suit for the land? The very ground of bringing a suit to quiet title is that the disturber, while asserting a claim which is a cloud on plaintiff's title, refuses to carry it to the test of a trial in court, and because he refuses to do this a court of equity stops his mouth. This also is a bill to quiet title, and the defendant is forbid to set up or assert a title in conflict with complainant's. This prohibition is not obeyed where the defendant continues the annoyance and the injury in any form short of bringing a suit for the bonds.

Without determining how far a mere loose verbal assertion of a right to these bonds could violate the injunction, we are of opinion that the deliberate service upon those who had them in possession, of a written notice of his claim of ownership, with a reference to further judicial proceeding in support of it, is a violation of the injunction of the court in this case, and that the defendant, Chiles, is guilty of a contempt in that regard.

Section 725 of the Revised Statutes declares that the courts of the United States shall have power to punish by fine and imprisonment for contempts of their authority. And among the cases specially enumerated are 'disobedience or resistance by any officer of the court, or by any party, juror, witness, or other person, to any lawful writ, process, order, rule, decree, or command of the said courts.' Such has always been the power of the courts both of common law and equity. The exercise of this power has a two-fold aspect, namely: first, the proper punishment of the guilty party for his disrespect to the court or its order, and the second, to compel his performance of some act or duty required of him by the court, which he refuses to perform. #fn-s-s

In the former case, the court must judge for itself the nature and extent of the punishment, with reference to the gravity of the offence. In the latter case, the party refusing to obey should be fined and imprisoned until he performs the act required of him or shows that it is not in his power to do it.

We are asked by counsel for the State of Texas to act upon this latter principle in the present case. But it is not pointed out to us very clearly what act it is in the power of defendant to perform commanded by the decree and which he refuses to do. The bonds are not in his possession or under his control. He cannot, therefore, deliver them up as the decree orders. There is no decree that he shall pay their value. The only order which he is shown to have violated is the one we have considered, enjoining him from setting up a claim to them.

The petition for the present rule on Chiles asks that he may be ordered by a proper instrument in writing to convey and transfer to the State of Texas all rights, titles, and interest which he appears or pretends to have in said bonds, and counsel in oral argument says he should be imprisoned for contempt until he complies with this order.

But the obvious answer to this is that no such order or decree has been made, and defendant can be guilty of no contempt in not doing this until he has been ordered to do it, and he is aware of it. To make an order now, and then punish for contempt or disregard of it before it was made, is ex post facto legislation and judicial enforcement at the same moment.

It is true that the original decree contains a provision for further directions in the enforcement of it, and it may be that such an order as is asked for now would be made on proper application and proper notice to the parties concerned, but such a proceeding can constitute no part of process for contempt in disregarding an existing order of the court. The granting or refusal of such an order is governed by very different considerations, and is to be brought to the attention of the court by very different proceedings than such as belong to the one now before us.

We are left, then, to the consideration of what punishment we shall impose upon Mr. Chiles for the violation of this court's injunction in a suit to which he was a party, where he was fully heard and his rights conclusively decided.

Without further comments, we think it our duty to order that he pay to the United States a fine of two hundred and fifty dollars and the costs of this proceeding, and that he stand committed to the custody of the marshal of this court until said fine and costs are paid.

Justices FIELD and HUNT dissented.

title: In re Chiles/Opinion of the Court


text: Talk:In re Chiles/Opinion of the Court

title: Talk:In re Chiles/Opinion of the Court


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Burnhisel v. Firman

APPEAL from the Supreme Court of the Territory of Utah.

Firman, assignee of Wright, a bankrupt, filed a bill in the court below against Burnhisel, to set aside a mortgage given by the said Wright, before his bankruptcy, to the said Burnhisel, the bill alleging that the mortgage was void under the Bankrupt Act.

The case was thus:

Wright executed three promissory notes, each payable 'in one year from date with interest at 25 per cent.'

The first, dated March 26th, 1866, was to Burnhisel, and for $2450.

The second, dated May 9th, 1866, was to Pond, and for $951.

The third, dated May 26th, 1867, was to Burnhisel, and for $950.

All three notes were secured by mortgages on the same property. It did not appear from anything in the case what rate of interest prevailed in Utah Territory when the notes were given; but on the 14th of February, 1868 (by which time all three of the notes had become due), a statute of the Territory enacted that it should be lawful to take 10 per cent. interest per annum when the rate had not been agreed upon by the parties; and by an act passed in 1869 it was enacted directly that parties might agree on any rate of interest, but that when none had been agreed on, the rate should be 10 per cent.

In this state of things, nothing having been paid on either of the notes to Burnhisel, he and Wright, on the 1st of August, 1871-that is to say, three years and more after statute had fixed the rate of interest in Utah at 10 per cent., where the parties had not agreed upon a different rate-made a settlement of the interest due on the two notes to Burnhisel. They computed it at 25 per cent., per annum, during the whole time, from the date of the notes down to the time of the settlement, and so made it amount to $4440. And for this sum, as arrears of interest, Wright gave to Burnhisel another note payable in one year with interest at 10 per cent.

On the 26th of April, 1872, Burnhisel having bought for what appeared due as principal ($951), the note to Pond, he (Burnhisel) and Wright made another settlement; making the sum due by Wright to be $9622, and Wright gave to Burnhisel two new notes secured by mortgage upon the same estate on which the three former notes had been secured. One note was for $4220, payable June 1st following (1872), with interest from 1st May at the rate of 25 per cent. payable monthly till the principal was paid. The other note was for $5402, payable at the same time as the other, with interest at the rate of 10 per cent.; this, too, payable monthly till the principal was paid. Satisfaction was entered on all the old mortgages, and the notes were surrendered to Wright, the words 'Settled by new arrangement and notes, April 26th, 1872,' being written upon them. Burnhisel was himself examined as witness, when this question was asked and this answer given:

'Question. At what rate of interest was the computation made to meet the amount of the two notes of April 26th, 1872?

'Answer. The principal at 25 per cent. per annum and the interest which had accrued up to the 1st of August, 1871, at the rate of 10 per cent. per annum, up to the date of the said two notes. There was no interest computed on the Pond note in the settlement of 1872, the same being put in at $951, just what I actually paid.'

Wright having been decreed a bankrupt within less than four months after the last two notes, and the mortgage to secure them was given, Firman, the assignee, filed a bill alleging that the mortgage was void under the thirty-fifth section of the Bankrupt Act. The bill set out fully all the notes and mortgages.

That section enacts that,

'If any person, being insolvent, within four months before the filing of the petition against him, with a view to give preference to any creditor or person having a claim against him, makes any pledge or conveyance of any part of his property, the person receiving such pledge or conveyance, or to be benefited thereby, having reasonable cause to believe such person insolvent, and such pledge or conveyance is made in fraud of the provisions of this act, the same shall be void, and the assignee may recover the property or the value of it from the person receiving it, or so to be benefited.'

By consent of parties the mortgaged property was sold and the proceeds ($7300) being in court, the question was to whom they should be awarded. The counsel of the assignee alleged that there had been a preference made by the last mortgage:

1st. In that interest, in being calculated for more than one year at 25 per cent., had been calculated on a basis that created a debt voluntarily, and that this debt-the interest, namely, for several years at 25 per cent.-had now, in April, 1872, and in contemplation of bankruptcy, been first secured by the mortgage then made.

2d. That the old debt, both principal and interest, at 25 per cent. for one year, and all other lawful interest, had been satisfied, and that the mortgage of April, 1872, was a new security.

The court below held the case fraudulent within the above-quoted section of the Bankrupt Act, and awarded the money to the assignee in bankruptcy. From that decree Burnhisel appealed.

Messrs. Snow and Hoge, for the appellant:

I. Where a person contracts to pay money, and nothing is said about the rate of interest, the presumption, of course, must be that the interest is to be at the ordinary rate. But that is not this case. Here the party contracted to pay within one year with interest at 25 per cent., and he does not pay within the year. Against the will of the other party he violates his promise and keeps in his own hands the money of that party. What is the presumption in that case? The lender, for all the time that he did lend, insisted on 25 per cent., and for all the time that the borrower professed to borrow he agreed to pay that rate. If the borrower, in breach of his contract, in violation of his own duty, and against the lender's will and rights, extend the time, shall he not be held to the rate at which he took the money? The authorities declare that he shall. In Kohler v. Smith, in the Supreme Court of California, a person had given note for $1000, 'payable in two months after date, with interest at the rate of 5 per cent. per month;' that is to say, at the enormous rate of 60 per cent. a year. The statute of California gives but 10 per cent. a year for all moneys after they become due, 'where there is no express contract giving a different rate of interest.' The case, therefore, was just like the one now before the court. The court held that the debtor being in default in not paying the principal, must pay for the use of it at the rate of 5 per cent. a month till he did pay it. That case decides, therefore, that where moneys are lent at a higher rate of interest than the statutory rate, and are payable at a day fixed, and are not paid at the day, the higher rate, in the absence of agreement otherwise, is to continue.

Ludwig v. Huntzinger, in Pennsylvania, is decided on the same principle of regard to the creditor, when made to suffer for a non-return of his principal by his debtor's breach of contract. There the contract was to pay $1144 in eighteen months from the date of the contract, with 3 per cent. interest per annum. The statutory rate in Pennsylvania is 6 per cent. The debtor, violating his contract by not paying the principal when due, was punished with the higher rate. The California and the Pennsylvania case do not conflict; though in the former the statutory rate was not taken and in the latter it was. In both, the creditor's interest was preferred; and in California the statutory rate was put aside because it would have given him less; while in Pennsylvania it was followed because it would give him more. The American Leading Cases, speaking about the cases where an obligation to pay interest generally arises, and those where it does not, says:

'In all cases, the question seems to be whether the debtor is in default.'

And this seems a reasonable view. Any other invites to and protects breach of contract and fraud. If, for example, a man borrow for one year only at 25 per cent., promising positively to return the principal at the end of that one year, but do not so return it, but on the contrary, in the face of his contract and duty, keep it for two more, and you charge him for those two years but at the rate of ten, has he not managed to borrow during the first year at the rate of 15? Certainly he has. He pays but 45 per cent. for the whole three years, which is at the rate of 15 for each year. By a trick and breach of contract he circumvents his creditor; and the creditor has no means of punishing him. Certainly he should be held in such a case to the highest rate possible.

In addition, the parties, by computing, on their settlement in August, 1871, the rate at 25 per cent. to that date, interpreted their original contract, and showed they meant that 25 per cent. should be paid continually if the debt was not paid within the year.

If this were not all so, and if statute in any event would govern such a case as this one, the statutes here which fix 10 per cent. interest, were both passed after these contracts were made. To make the statutes operate on these contracts, the statutes must be made to operate retrospectively; a mode of operation always disfavored.

II. The whole debt and interest for which the new mortgage was given, was secured by the old mortgages. What the parties did in April, 1872, when the new notes and mortgage were given was to have a settlement for the amount due, reduce all things to writing, and, by taking a new mortgage, which, of course, they recorded, give notice to third parties of what was done. The whole debt for which the new mortgage was given was secured by the previous mortgages, though part of it was for unpaid interest, a matter which third persons would not know except by some such thing as was here done. Of course, therefore, there was no purpose to give a preference. At worst the new mortgage could be bad only for any interest added, upon a wrong basis of calculation, to what was really due.

Messrs. C. M. Hawley and T. Marshall, contra, for the assignee:

I. The interest at 25 per cent. was due for one year only. It was an enormous rate. Suppose the debtor did break his contract, how does he become bound to pay in the second year an illegal rate because he agreed to pay it in the first? If he pays it as he contracted to pay, it is enough. For the rest he pays the usual rate. Twenty-five per cent. cannot have been a usual rate in Utah on the expiration of any of the first three notes, or a statute would not have been passed so near to that date fixing it at en. The interest fixed in August, 1871, as the true amount of interest due was, therefore, more than the debtor was bound to pay. And he gave the last mortgage to secure a debt which the first one did not secure. That was a preference.

II. The three old notes and the old mortgages given to secure them were extinguished and satisfied when the new notes and mortgages were given. These last are to be looked upon as a new security, and as such as having no virtue of a date earlier than the day when they were given. This was April 26th, 1872, within four months of the bankruptcy.

Mr. Justice SWAYNE delivered the opinion of the court; considering the two questions raised in the argument, in the order in which they were raised:

title: Burnhisel v. Firman


text: Talk:Burnhisel v. Firman

title: Talk:Burnhisel v. Firman


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Burnhisel v. Firman/Opinion of the Court

I. The bases of the calculation of interest made by Burnhisel and Wright were wrong, and the result was the aggregate amount of the two notes of April 26th, 1872, which was a sum much too large. Burnhisel was then entitled,

1st. To the face of the two original notes to him, with 25 per cent. interest upon each for one year, and the lawful rate of interest of the Territory where no rate is specified down to the date of the settlement; and,

2d. To the face of the note of Pond with the like lawful rate of interest after its maturity down to the same period. The implication of the 'act relative to interest,' of February 14th, 1868, is exactly the same as the affirmation of the act upon the same subject of 1869. The latter act was, therefore, unnecessary. Both these acts fix the rate at 10 per cent. where no rate has been agreed upon. What it was in such cases, prior to the taking effect of the first act, we are not advised.

For the amount due upon the two original notes to Burnhisel and upon the one to Pond, transferred to Burnhisel, the two later notes, with the rate of interest stipulated in them, and the mortgages securing them, were, aside from the objection arising under the Bankrupt law, unquestionably valid securities. In Pennsylvania, where there is a statute making usury penal, but not declaring the contract void, a usurious bond and mortgage may be enforced for the amount actually due.

II. In order to bring a security for a debt within the provision of the Bankrupt law, relied upon by the appellee, it is necessary that all the prescribed conditions should concur.

If either element of the combination be wanting, there is no infringement of the law. Among them, and the cardinal one, is that the security should be given by the bankrupt within the time specified, 'with the view of giving a preference to a creditor or person having a claim against him.' Are the securities here in question liable to this objection? The facts must give the answer, and they are undisputed. The several securities upon which the notes and mortgage attacked were founded, and for which the later ones were substituted, were given not only more than four months, but more than five years, before the filing of the petition in bankruptcy. The later ones were for the same liabilities consolidated, and for nothing else. The mortgage was upon the same property as the prior mortgage, and none other. They were intended to be for the amount due upon the former securities. They were for too much, as we now adjudge the law of Utah to be. In the view of equity they are as if they had been taken for the proper amount. The excess is a nullity. It has no efficacy or validity for any purpose. The bankrupt's estate, to be administered by his assignee, is just what it would have been if the new notes and mortgage had never existed. The rights of other creditors were in no wise affected by the substitution. The mortgaged premises, when sold, yielded a sum less than sufficient to pay the amount due on the original securities. It cannot be justly said that any property was withdrawn or any preference given within the four months. The withdrawal and the preference were years before. The new securities were only the recognition and continuity of those which preceded them. The change was one of form rather than of substance. It is as much the purpose of the law to sustain all valid claims arising beyond the time specified as it is to strike down the frauds within that time which it denounces. The assignee took the estate subject to the rights, legal and equitable, of all other parties. Our views in this case are in harmony with those expressed in several recent cases in which we had occasion to consider this section of the Bankrupt law. We hold that the section does not affect securities within the category of those before us.

There is another ground upon which a judgment for the appellant may well be placed. As before remarked, the new securities were intended to take the place of the prior ones. If the new ones are adjudged invalid, the cancellation and surrender of the prior ones will have been without the shadow of a consideration. If the cancellation and surrender are permitted also to stand, Burnhisel will have lost his debt without fault on his part, and contrary to the intent of both debtor and creditor in making the change of securities. Burnhisel will be in no better situation than if he had given up the old securities upon being paid in coin or currency which he believed to be good, but which turned out to be counterfeit. Where there is a failure of consideration and fraud or mistake in such cases, a court of equity will annul the cancellation and revive the securities. Upon being so revived they resume their former efficacy. This is an ordinary exercise of the jurisdiction of such tribunals. 'It is a rule in equity that an incumbrance shall be kept alive or considered extinguished as shall most advance the justice of the case.'

The application of this principle occurs most frequently in cases of usury. It is well settled that if a security founded upon a prior one be fatally tainted with that vice, and the prior one were free from it but given up and cancelled, and the latter one thereafter be adjudged void, the prior one will be revived, and may be enforced as if the latter one had not been given. The cases to this effect are very numerous. A vendor's lien may be revived under the same circumstances. In the same suit, wherein there is a failure to recover upon the void security, the valid one, on account of which it was given, may be enforced. In the case before us all the notes and mortgages are fully set out in the bill. There is, therefore, no obstacle arising from the state of the pleadings.

Embarrassment sometimes occurs in such cases from the attaching of intervening rights. Here there are none, and as regards the assignee there can be none. If the later securities were void, as insisted by the appellee, then the appellant would be entitled to relief in this view of the case.

DECREE REVERSED, and the case REMANDED, with directions to enter a decree

IN CONFORMITY WITH THIS OPINION.


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The Elgee Cotton Cases

APPEALS from the Court of Claims, in which court the representatives of one Elgee claimed the net proceeds in the Treasury of the United States of the sale of certain cotton under what is known as the Captured and Abandoned Property Act; the right of the said Elgee being disputed by a firm of Woodruff & Co., and also by a certain Mrs. Nutt, executrix of one Haller Nutt, M.D., both of which parties claimed adversely to Elgee and to one another; the United States at the same time denying the rights of all of them, or, at least, denying them in the way in which the parties asserted them. The case was thus:

The act 'to provide for the collection of abandoned property,' &c., passed March 12th, 1863, after providing for the sale of such property by the government, thus enacts:

'Any person claiming to have been the owner of any such abandoned or captured property, may, at any time within two years after the suppression of the rebellion, prefer his claim to the proceeds thereof in the Court of Claims, and on proof to the satisfaction of said court of his ownership of said property, of his right to the proceeds thereof, and that he has never given any aid or support to the present rebellion, receive the residue of such proceeds, after the deduction of any purchase-money which may have been paid, together with the expense of transportation and sale of said property, and other lawful expenses attending the disposition thereof.'

On the 31st day of July, 1863, J. K. Elgee and R. Chambers (the right of which last was immediately afterwards vested in Elgee alone) being the owners of a quantity of cotton in Wilkinson County, Mississippi, W. C. Gordon, their agent, entered, as appeared by the findings of the Court of Claims, into an agreement with C. S. Lobdell, thus:

'MISSISSIPPI, WILKINSON COUNTY.

'We have, this 31st of July, 1863, sold unto Mr. C. S. Lobdell our crops of cotton, now lying in the county aforesaid, numbering about 2100 bales, at the price of ten cents per pound, currency, the said cotton to be delivered at the landing at Fort Adams, and to be paid for when weighed, Mr. Lobdell agreeing to furnish at his cost the bagging, rope, and twine to bale the cotton unginned; and we do acknowledge to have received, in order to confirm this contract, the sum of thirty dollars. This cotton will be received and shipped by the house of Da Silva & Co., New Orleans, and from this date is at the risk of Mr. Lobdell. This cotton is said to have weighed an average of five hundred pounds when baled.

'W. C. GORDON,

'Agent for Messrs. Elgee & Chambers.

'C. S. LOBDELL.'

At the time when the contract was made the baled cotton was stored under a covering of boards, at some place not certainly designated. A portion, equal to about twenty bales unbaled, was in a gin-house on Buffalo Bayou, at a place known as 'The Rocks,' or 'Felter's Plantation,' about ten miles from the Mississippi River. At this latter place Lobdell and Gordon, the agent of Elgee & Chambers, met. Whether it was the same place where the bulk of the cotton was lying did not distinctly appear. Immediately after the contract Lobdell employed a certain J. Morris, living near where the cotton was stored, 'to watch and take care' of it, and paid him therefor, and Morris continued his care until the 2d of April, 1864, on which day the cotton was seized by the agent of the United States.

Lobdell sold his rights under the contract to Woodruff & Co.

So far as respects Elgee, on the one side, and Woodruff & Co. on the other.

The claim of Mrs. Nutt rested on certain facts found as follows, by the Court of Claims:

In the month of October, 1863, Haller Nutt, M.D., a citizen of Mississippi, employed as his agent Truman Holmes, to go from Natchez, then in possession of the military forces of the Union, into the territory of the Confederacy to purchase cotton.

At this time Dr. Nutt resided in the immediate vicinity of Natchez, and within the military lines and control of the Union forces; and he procured from the military authorities their permits for Holmes to pass out of and into said lines, on said agency.

In October, 1863, Holmes, as the agent of Dr. Nutt, contracted with Elgee for the sale from him of so much of the 2100 bales of cotton stored at Felter's plantation as he (Holmes) should get out in safety to a market, for the price of 15 per bale, to be paid at Liverpool. The risk of the cotton till got out to be on Mr. Elgee.

On the 8th of October, 1863, Mr. Elgee made and delivered to Holmes a writing in these words:

'ALEXANDRIA, October 8th, 1863.

'DEAR SIR: It having been agreed on between you and myself that I sell to you all the cotton of Elgee & Chambers, now baled and under shed, for the price of 15 sterling per bale, payable in Liverpool, you will cause the same to be placed to my credit with J. A. Jackson & Co., of Liverpool.

'Yours,

'J. K. ELGEE.'

'Captain TRUMAN HOLMES, present.'

The position, of course, of Elgee now was that no ownership of the property had passed out of him to anybody—

1st. That, as respected Lobdell or his assignees, Woodruff & Co., the sale was one for cash, and that no cash had been paid; that the amount to be paid was to be ascertained by weighing, and that no weighing had been had; that the contract was entire, and that the property was yet to be delivered; but that part of it was incapable of being delivered until it should be ginned and baled, a matter which had never been done; Lobdell, who was bound to furnish them having never furnished the prerequisite bagging, rope, and twine.

2d. That as respected Mrs. Nutt, executrix of Dr. Nutt, she had plainly no case on the contract found by the Court of Claims, a contract of which Elgee's above-quoted letter of October 8th, 1863, made no part; and which was but 'for the sale from him of so much of the 2100 bales stored at Felter's plantation as Holmes should get out in safety to a market;' that this was plainly executory and had never been reduced into certainty by any cotton at all being got out, it having all been seized by the Federal government previously.

On the other hand, and as respected the opposing claimants.

Mrs. Nutt, agreeing that no property had ever passed from Elgee to Lobdell or through him to Woodruff & Co., but on the contrary so far as regarded those parties, remained in Elgee, contended, as respected her husband, Dr. Nutt, that to him it had passed; and she relied strongly on the letter of Elgee of October 8th, 1863, to Holmes, the agent of her husband, as showing this, and as putting an interpretation by Elgee himself which could not now be controverted on the matter, while—

Lobdell and Woodruff & Co. (the latter-named of whom claimed under the former), treating the contract with Holmes for Nutt, and the letter of October 8th, 1863, as of no importance, contended that prior to either, the cotton had passed to Lobdell, of which conclusive evidence appeared in the expressions in the contract—

'We have sold to Mr. C. S. Lobdell our crops of cotton, and we do acknowledge to have received in order to confirm the contract the sum of $30. The cotton from this date is at the risk of Mr. Lobdell.'

As to the United States. Their presence in the matter was apparently that the government might assist the court in doing justice between the individuals interpleading; so that in finally paying money out of the treasury the government might do to each that which, upon the showing by all, seemed to be right.

The Court of Claims in deciding the case, made what it deemed an equitable division of the funds; appropriating a part to Elgee as payment for the cotton, at the price named in the contract with Lobdell, and appropriating parts to Lobdell and to Woodruff & Co. From its decree all the parties appealed; Elgee himself having died during the suit, and his representatives now taking his place.

A question was made, and in this court learnedly argued, as to whether both the contracts which were the subjects of consideration, were not forbidden by the non-intercourse acts of Congress, and whether, on that ground, the claims of all the parties claiming under them did not fall. Any report of that part of the case or of argument on it is, however, unnecessary in view of the fact that the property in the cotton was admitted by all parties to have been originally in Elgee; and that the judgment of this court was that, even conceding the contracts to have been lawful, no property passed under either out of Elgee.

Messrs. J. M. Carlisle, J. D. McPherson, and W. W. McFarland, for the representatives of Elgee; Messrs. B. F. Butler and R. M. Corwine, for Woodruff & Co.; Mr. Montgomery Blair, for Lobdell; Mr. Joseph Casey, for Mrs. Nutt, and Mr. S. F. Phillips, Solicitor-General, for the United States.

Mr. Justice STRONG delivered the opinion of the court.

title: The Elgee Cotton Cases


text: Talk:The Elgee Cotton Cases

title: Talk:The Elgee Cotton Cases