628
FEDERAL REPORTER.
(Jurtisv, U. S., 2 Ct. Cl. 144,152; Trenton 0,. v. U. S., 12 Ct. Cl. 147. The fact that the appropriation was found to be exhausted a year and a. haJ,! afterwards, when the bill and the consul's accounts were presented for payment, does not constitute such proof. If authorized at the time it was issued and acted on; it could not be invalidated by the payment of subsequent charges or expenses to the extent of the appropriation. Trenton Co. v. U. S., 12 Ct. C1. 147, 159. The mere fact that when the bill was presented for payment there was no appropriation remaining, is, therefore, no bar to the present action. Section 10 of the act of March 3, 1887, provides as follows: "From the date of such final judgment or decree interest shall be computed thereon, at the rate of four per centum per annum, until the time when an appropriation is made for ment of the judgment or decree;" a recognition of the fact that a judgment may be rendered, in a proper case, although there is no present appropriation for its payment. CONCLUSION OF LAW.
Upon the above facts the petitioner is entitled to judgment against the United States for the sum of $72, and $14.21 interest amounting to $86.21, together with the costs provided by section 15 of the act of March 3, 1887 to be taxed. A stay of 60 days is allowed after service of a copy of this decision on the United States attorney. j
, SOUTH COVINGTON
&
C. S.
Ry.
CO. V. GEST.
(Circuit Court, S. D. Ohio, 1.
w: D.
March 81, 1888.)
JUDGMENT-RES ADJUDICATA-WHO CONOLUDED.
The trustee under a mortgage executed. py a Kentucky street-railway cor· poratioll tiled a bill in the chancery court of that state to foreclose. To these proceedings G., who resided in Ohio, and who was the manager and a large stockholder of the company, was made party by a "warning order," and an attorney appointed by the court to defend his interests, according to the laws of Kentucky. Pending suit, G. sold out· his interest in the concern, iIiclud· ing certain unpaid and overdue coupons secured by the mortgage which he warranted to be a first lien. to a purchaser who bought with the view,known to G. at the time, of biddiI\g' in the property and franchise at the foreclosure sale. The purchaser intervened, and set up the assignment from G:,who did not appear, save as a witness in behalf of his assignee. The court ruled .that the coupons had been paid, and that their holder was not entitled to come in under the. mortgage. Held, in an action in the federal court in Ohio by the purchaser agailistG. for damages for breach of warranty, that the Kentucky court, being a court of competent jurisdiction, and the proceeding inr8m, its finding as to the coupons was res adJudicata, and that G. was estopped to set up their validity as a defense to the action. .
2.
COUPORA'l'IONS-BoNDS AND MORTGAGI!:S-COtJPONS-PAYMlllNT.
G. agreed with B., a bondholder, and also the largest stockholder in llo street·rl\ilway company. to take his llOldings if B. would put G. into control. B. thereupon got the company to give him its notes for $15,000, which was about. the amount of its pressing debts, in considerr.tion for which he un· dertook to payoff the outstanding claims. These were made QP in the main
SOUTH COVINGTON & C. S. RY. CO. V. GEST.
629
of mortgage coupons, and the understanding was that B. was to hold these ./ coupons. when taken up, as collateral security, and that, as fast as the notes were paid. coupons to a proportionate amount were to· be surrendered. G. was then installed as manager, and the notes turned over to him. He raised the money on them, and paid it to B., who then gave him the coupons. Of these coupons-313 in number-but 192 belonged to B.'s bonds. The remainder had been paid when presented at the company's office, but they had passed into B.'s hands without the knowledge or consent of the former holders. G. took up the notes for $15,000 as they fell due, and the company then paid him the difference between their value and that of the coupons in consideration of their surrender, it being agreed that the coupons should thereafter belong to G. absolutely. Held, that as against the other bondholders secured by the mortgage, the coupons had been paid. and that G., who had sold them with a warranty that they were a lien under that mortgage, was liable in damages to the purchaller for a breach thereof. 8 SAME-CONFUSION OF ACCOUNTS.
After G.jlad gotten control of the compauy, as indicated. he chose hIe. own directors, inthe main from his own family and his clerkS. and exercised absolut\lalid exclusive authority over Its finances and business for many years. He kept nO separate account in bank of the company's funds, but deposited all mOJ1ey· earned by it to his own individual account, and paid coupons and current bills that were. presented for settlement in cash or in checks drawn upon the same account. Held, in the absence of proof that the moneys used totake up the coupons were individual funds, and in view of the fact that those who presented them for payment did so under the belief that they were to be canceled, that the coupons had been paid, and that G:, who had sold them with a warranty that they were a lien under the mortgage executed to secure the bonds from which they were cut, was liable in damages to the purchaser for a breach thereof.
.4.
SAME-ADVANCES BY PRESIDENT-RESOLUTIONS OF DmECTORS.
The president of a street-railway company, who was practically its sole owner, sold certain of its mortgage coupons under a warranty that they were unpaid. As a matter of fact they had been paid by the corporation. but the president, claiming to have advanced the money to pay them out of his own funds, procured the passage of a resolution by the directors who were controlled by him, subrogating him to the rights of the original holders.' Held, in an action for breach of the warranty, that the resolution was no defense; its recitals being false, and entitled to no more weight than the statements of the president himself to the same effect.
.:15.
JUDGMENT--'-AsSIGNMENT-SALE.
.e. j.
An agreement for the sale of the vendor's interest in a street-railway com· pany recited that he "hereby sells and agrees to deliver it * * the following securities: Three judgments against said company for $4.703.35, $1,282.12, and $1,029.53, respectively, which have been paid by him, and which he now holds against the company," reciting the facts as to said judgments fully and correctly·. The tirst two amounts represented money which the vendor, who was largely interested in the company, had paid a surety on the company's appeal-bond, who had been compelled to make them good. The surety had thereupon assigned and transferred to the vendor" all right. title, and benefit in and to the said sum." The last amount was a partial payment made by the vendor on a judgment against the company. The agreement contained no warranty as to these judgments. Held, that the fact that the judgments hadnot been entered to the ulle of the vendor was not ground for recovery of damages by the vendee. SALE-BREACH OF WARRANTy-DAMAGES.
In an action for a breach of warranty in the sale of mortgage coupons. where there is no evidence as to the murket value of the coup,ns at the date of sale, the price paid by the purchaser will be considered the market price, and that is the measure of damages.
In an actio!) to recov.er damages for fraudulent misrepresentation and concealment of material facts in the sale of mortgage coupons, the price paid by the purchaser with interest thereon is the measure of damages, where there is no evidence as to the market value of the coupons at the time of sale.
G30 8.. LIMIT:A.TIOlf ID!OhiO,
. FEDERAL REPORTER. OF AQTIONs-::.-EJl:CEPTIONS-:-FRAUD.
is. not a good to an action to recover damages for Jraqdulent misrepresentation and concealment of material facts in the Sale of mprtgage coullons,wherethe suit commenced within four years aHe;r the fraud was dlscovered.<
SimraU,&Mac1c·and John ·0. Benton, for plaintiff.. GeorgfHoadl,Y and Remelin & Remelin, for defendant.
At Law.
J4d1\sqN, J.. This is aauit to recover damages for breach of warranty and for fraudulent misrepresentations by defendant in the sale to plain. tiff of 768 coupons of the first mortgage bonds of the Covington Street. Rnilway Company, and of certain judgments against said company. The intervention of a jury having been waived, the cause was tried by the court under a stipulation of parties, made part of the record, which re. quires the court tq makes. special finding of the facts, on which its judgm.ent shall be rendered. In conformity with that requirement, the court, after a careful examination of the evidence, finds the material and relevant facts to be as follows, viz.: Firat.' After negotiationscommericedin the summer of 1881, and con· tinuedthrough the fall of that year,a certain contract was completed and executed between the parties therein named as follows: ,,",This agreement, made and entered into this 17th day of February, 1882, by'3ud:between Erasmus Gest, party of the first part, Anthony D. Bullocn, E. F.A,b):lott. John A. Williamson, and John G. Isham, of the second part, and'WmWmA. Goodman, of We third part: Witnesseth, that the party of the fitstp'111t hereby sells. and agrees to deHver, as hereinafter specified, to the partyottlle second part,t!J,1l following secUl'ltii's: (1) 1,677 shares (Which said.Ge.t guaranth's is the majol'ity) of the capital stock of the Covington Street.B.ailway Company, each of the par value of one hundred dollars. (2) 768 past due and unpaid coupons cut from the first mortgage bonds of said" each for thirty-five dollars. Some of these coupons, haVing been mialaid\ are to be delivered with the others as soon as found. and the said to make a thorough search for them at once. In case of the fui!. ure tofiJ'Jd them, he assigns his right to.collect them. and guaranties that rig;ut is perfect, and agrees to indemnify the party of the second part againsta,nyJiability to their production and claim of ownership by others, and to furnish them sufficient evidence of his ownership of the same, by.his own oath or otherwise, at any time upon demand. The amount of such mis. lai.d coupons does not exceed $3.500, exclusive of interest. The total amount of accrl.led intel'est on the. 768 coupons is computed approximately at about $8;1i:i9.. 1st of October, 1881. (3) Decree against Malcolm McDowell aM others: for purchase money of stable and for sale thereof, whichsald Gest now holds against the company, amounting in all to $2.551.0i:i, upon, whichAnterestto the 1st of October, 1881, to-wit, $1,652.35, being added, mlllkesthe amo.llnt of the decree 011 that date $4,203.40. (4) Lot on Pike street, near purchased at the cost of five hundred dollars from one Perkins. (Ii) 78 III ulps and horses now in use upon the Covington Street. or in the stables of said company; original cost being $10,212. (6) in favor of Amos Shinkle. trustee, against said company, all the past,dQecoupons,.case :No.J,397, Kentonchancel'Y court,.tpr $1,282.12, which has been paid ,Qysaid Gest, and which he now holds l;lgainst the company,
SOUTH COVINGTON '" C. S. KY. CO. ". GEST.
631
which, with interest to October 1, 1881, amounts on that day to $1,802.95. (7) Judgment in favor of the city of Covington against said company for $1,029.53, with interest from June 25, 1881, which has been paid by said Gest, and is now held by him against said company. (8) Judgment in favor of Amos Shinkle, trustee, with interest from November 18, 1881, $4,703.35, against said company, which has been paid by said Gest, and is now held by him against said company. (9) Claim of E. Gest against the Covington Street-Railway Company for that part of moneys advanced by said Geat behalf of the company, and paid in settlement of license claim with the city soliCitol', Clement Bates, which was fairly chargeable to the. Covington StreetRailway Company, estimated approximately at the sum of $1,200. (10) Bonds of the CoVington Street-Rail way Company, secured by mortgage to A. S. Winslow, trustee; principal $40,000, with all interest thereon. none having been paid. These bonds are transferred without recourse upon Erasmus Gest. (ll) Cash due Erasmus Gest on current account January 1, 1882, $1,922.48. '.rhe foregoing property is to be transferred and delivered to William A.Guodman on the 1st day of March, 1882, or on the first day thereafter that said Gest's counsel, George Hpadly, may be in the cit}' of Cincinnati, able to attend to business, If said Gest,on account of the absence of said counsel on said 1st day ofMarch, shall desire to postpone said delivery until the return of said counsel. " In consideration of the premises, said parties of second part agree to pay to said Gest in money on March 10, 1882, the sum ot thirty-live thousand donars, le.ss whatever part. if any, of the s,aid sum of $1,922.48 said Covington l:itreet-Railway' Company may have repaid to said Gest in the course of its curren t transactions with him before or on March 1, 1882. In further ,COllsideration of the premis'es, said parties of, the second part agree that immediately after the of the present session of the Kentucky legislature they wlll cause' all the property, real and personal, wheresoever situated, and of whatsoever composed; of the N Street-Railway Company to be conveyedto 'the South Covington & Cincinnati Street-Railway Company, free from all debts and incumbrances, and by a perfect title, except to the extent of fifty thousatiddollars bonded debt outstanding against tht' same, and that, at the time' of'such sale and conveyance. the South COVington & Cincin'nati Street-Railway Company shall execute and deliver to William A. Goodman, as trustee, its,deed of mortgage, properly executed and recorded, conveying by a petfect title, except as aforesaid, all its property; real and personal. wheresoever situated, and of.whatsoever composed, including such property so acquired from said Newport Street-Railway Company, in trust to secure the punctual paym«:>nt of the principal and interest of its two hundred and fifty bonds, for the principal sum of one thousand dollars each, dated March, A.D. nineteen hllndred and twelve, (1912;) said bond and mortgage to beln a form satisfactory to the counsel of said Gest, Of these bonds, fifty, with the coupons thereon. shall be retained by said Goodman, trustee,. to be exchanged from time to time. and so as to bring about and cancellation of the present mortgage debt of the Newport Street-Railway Company, which said parties of the second part agree to procure to btl done as soon as practicable. Twenty-five of said bonds, with the coupons thereon, are to be delivered ,to said Erasmus Gest, and the remaining one hUndred andseventy-liveof said bonds, together with all the se::uritiEls transferred' by said Erasmus Gest. are to be held by said William A. Goodman,ttustee, in escrow, upon the follOWing terms and conditions. viz.: The whole of said bonds, except as and of said soourities, are to be held by said Goodman --( I) As .for the to said Erasmus Gestof the sum of thirtyfive th()lISand dollars; with interest from tho 1st tlay Of March, 1882, within sit months from the da}· of the adjournment of the Kentucky legislatUl'e; bnt
632
tl;le said Goodman may permit said horses and mules to be used by said purchasers, they exercising ordinary diligence in .the care thereof. (2) Upon th'3 completion of suob ,pl,tyq.aent to said Gest of said sum of thirty-five thollsand dollars and the residue of said bond3, except as hereinafter stated, and all said securities so transferred by said Gest, are to be transferred by said Goodman to the South Covington & Cincinnati StL'eet-Railway Company as its absolqte propert.y. (3) The parties of the second part having gi ven, contemporaneously with the execution of this paper, to the said Gest, an option for the e);:l)hange of other coupons not held by him, secured by the first mortgage of the Covingt,oll Street-Railway Company for cash and bonds of the South Company, as in said agreement of Covington and Cincinnati option, is more specifically described, it is agreed that. notwithstanding the provisions aforesaid for the security of said Gest, said Goodman may deliver out of said one hundred and seventy-five bonds any which may be reqUired by the terms of said option, in case the same shall be exe,rcised in whole or in part;' "In consideration of the premises sa.id Gest agrees and undertakes that the property ,of the Covington Street-Hailway Company. so far as he knows or Heves, is free from indebtedness. except that transferred by him by the terms. of thiscontt'act, and as follows: (1) First mortgage for the principal sumof $100.000; also coupons. including those due January 1, 1882. and including interest to that date on the past due coupons to the approximate amount. beHeved by him to be. correllt,of thirty-five thousand five hundred and ninetyeight dollars ($3S.598.) (2) A disputed claim pending in the court of appeals. on behalf of the city of Covmgton for about six hundred dollars. against which said parties of. the secQnd part are to protect the surety for saId company. (3} A claim pending. on appeal in the court of appeals. fora trustee's fee.-about one hundred dollars,-against which said parties of the second part are to protect the surety of said company. (4) Part of the first item above-$3S,S98is embraced in a suit recently bronght by Charles W. West, in the circuit court. in Kentun county. which is not additional to the said first item. (S) Whatever court costs may be due upon the lawsuits pending or determined in OhiOo and Kentucky in which the said Covington Street-RallwayOompany is or has been ,engaged. (6) Whatever claims lawfull)' exist, all of which are disputed by said. Gest, in behalf of the city of Cincinnati, or of the city of COVington. (7) Amounts due on cUl'l'ent account to the Cincinnati Street-Railway Company.or for supplies, which said Gest agrees is less than the amounts due tathe Covington Street-Uai/way Company from the Newport Street-Hailway Company, the Cincinnati Htreet-Railwas Company, and the amount of supplies on hand. (8) Sl!-id Gest will pay all sums due from the Covingtun Street-Railway Oompany to its lawyers in Kentucky and Ohio for their services and expenses up to March I, 1882. and the several pending litigations in which said company is now engaged .shall thereafter be Controlled by the party of the second part free frOID any claim for lawyers' fees and expenses up to that day. but without lipon said Gest for any lawyers' fees or other expenses aftersaid day. Said William A, Goodman agrees to accept the trusts aforesaid, and to perform the duties thereby requITed. together with those imposed upon him by this contract. "In witness, whereof the said parties herein above first named have hereunto. and to 'a dnpliC'<l.te hereof. set their hands and seals the tlay and datehereinabove !il'St written, [::ligned] . "E. Gl;:B'J'. rseal' W. A. GOODMAN. JOlIN A. WILLIAMSON, Seal.] ..' \HROT'r. i:lcal. .. A: n. [Seal. JOlING. ISHAM, Seal.} "In presence of GEO. l!oAULY,"
t
l
SOUTH COVINGTON & Co S.BY. CO. t1. GEST.
633
While the negotiations, which terminated in said contract of February 17, 1882, were pending, Gest sent to the agent of plaintiff a list of the property, rights, and interests which he proposed to sell, fixing a ation on each item thereof, which together aggregated about or a little over $90,000. The sale and purchase were of specific articles or specially designated and de!lcribed property, on each item of which a separate and distinct valuation was placed; and by the terms of the contract there was to be paid for the 768 coupons of $35 each and interest thereon, the sum oU35,039, and for the three judgments in question the sum of$7 ,079.52. No valuation was placed upon the $40,000 bonds of the company, ferred to in the tenth claim of the contract as the" Winslow Mortgage Bonds." They were never in fact issued by the company, and did not belong to said Gest, nor were they sold by him. He held them for the company, and simply turned them over for the protection of the purchasers against the accident or contingency of their getting into the hands of innocent holders. Second. The evidence established, and the court so finds, the fact that in this contract with and purchase from said Gest, the said Abbott, Williamson, Bullock, and Isham were acting as the agents and for the fit of the South Covington & Cincinnati Street-Railway Company, which was the real principal in the transaction, and that this was known to and understood by said Gest. Said contract was fully performed by said purchasers, the South Covington & Cincinnati Street-Railway Company, {except in one particular, relating to the indemnity of a surety on anap. peal-bond of the Covington Street-Railway Company, which Gest subsequently paid, and which he sets up as an offset or counter-claim in connection with a claim for $300 on past due coupons cut from bonds issued by plaintiff.) Said Gest accepted this performance by and from the Routh Covington & Cincinnati Street-Railway Company. The court accordingly finds that the plaintiff, as the real principal in said contract, has the right to maintain this suit, and in so doing is not asserting a derivative right acquired by transfer or assignment from said Abbott, Williamson, Bullock, and Isham, as claimed by defendant. Third. Prior to the execution of said contract, Amos Shinkle, the trustee under the mortgage made by the Covington Street-Railway Company in 1867, to secure its first mortgage bonds and interest thereon as the same matured semi-annually on January 1st and July 1st each year after their issuance, had in December, 1881, at the instance of certain holders of past due coupons, instituted a foreclosure suit in the chancery court of Kenton county, Ky., against said Covington Street-Railway Company, which was a corporation chartered and organized under the laws otKentucky, was located in the city of Covington, and was invested. with full authority to issue its bonds, and secure their payment by mortgage upon its property and. franchises. The bonds issued by it in 1867 were 100 of $1,000 each, with interest warrants or coupons attached, at the rate of 7 per cent. ·per annum, payable on above dates at the Pank of America, New York. Said E. Gest, together with all other
634
Fll:DJj:RAL REPORTER.
known and unknown .holders of first mortgage bonds 01' coupons of said company; who were ol'might be elltitlE0, to share in the proceeds of the mortgaged property, were made defendants in said foreclosure proceedings; Gest, being a non-resident of Kentucky, residing at Cincinnati, Ohio,w.8S:not personally served with process, but under and in conformity,to court made a "warning order" as to him, and appointed an attorney to represent him and his interests in the suit, andhew,as duly notified on or about December 3 or 4, 1881, of the proceeding'and. of the appointment by the court of an attorney to him, but he took no steps in relation to the suit. It was fully understood 'by said Gest and by the representatives of the South Covington & Cincinuati.Street-Railway Company,with whom he was negotiating said sale 'of his interests in said Covington Street-Railway Company, that this suit by' :thetrustee, Shinkle, would result in a· foreclosure orthe latter's mortgage, and the sale of its property and franchises. It was also understood by said Gest that the object and purpose of the South ton and. Cincinnati Street-Railway Company in purchasing his 768 coupons "all,past due and unpaid coupons cut from the first mortgage bonds" ofsaidC()mpaby, then being procel.ldedagainst, was to obtain and secure: as many anda£ large an amount ofliens on the mortgaged property as possible (with the view and to the end of becoming·the purchasers thereof at th.e' foreclosure aale when made.) This was also the object and pose in buying the three judgmentsincluded in the contract, two of which were founded or based upon past due coupons. After acquiring said 76& coupons and judgments under the .contract of February 17. 1882, the South Covington & Cincinnati Street-Railway Company, in proper time and manner, aathe assignee of said Gest, duly intervened in said. foreclosure"proceedings, and· set up its rights as a lien claimant by virtu.e of said coupons andjudgments so bought of E. Gest. The holders}>f other bonds and unpaid cQupons contested the validity of said lieIj.s against the property or themselves. Said E. Gest wasexaminE0, .8'1111 witness on· 'behalf of the South Covington & Cincinnati Street-R&ilway Company, and in. support of its claim to an equality of lien on the mortgage property with other holders of bonds and coupons. He testified as to his connection with the mortgagor company, and generally afil .to how he had acquired said 768 coupons and judgments. Other testimony was taken on the subject, and the special commissioner to whom the matter was referred, on,November 9, 1883, filed his report in the cause, to the effect that said judgments and said 768 coupons were not valid current liens. on the mortgaged premises with the bonds and coupons held by other parties to the cause, and said report was duly confirmed by the court. The mortgage was duly foreclosed, and the proceeds of sale wel'e distributed prora{,a on the bonds and coupons recognized and declared liens by the 'court, to the exclusion of said 768 coupons and judgments sold by said Gest to the South Covington & Cincinnati Street-Railway Company.: Gest's testimony in that cause first disclosed to the plaintiff and its agents the manner in which he had obtained the possession of said 768 coupons.
SOUTH COVINGTbN &I C. S. RY. CO. !7. GEST.
635
F01lJ1·th. Pending the negotiations for their purchase, he had not informed Williamson, Abbott, Bullock, and Isham or any agent of plaintiff, how he had acquired said coupons. He stated that no questions were asked him on that sUbject; that no necessity arose for his telling; and that "for me to have told him [Williamson] would have been to obtrude upon him something that would not suggest itself to me, and wholly unnecessary. 'I He represented to the agents of tbe purchaser during the pendency of the negotiations for their sale and purchase that they were valid and unpaid obligations of the Covington Street-Railway Company; that they were the coupons althe first mortgage bonds of the company, and that they were the same kind of liens as were the first mortgage bonds. When these representations were made, on which plaintiff relied, and closed the purchase, with the view and for the purpose of enforcing them as liens on the mortgaged property,-which purpose was known to the defendant,-the said Gest, as he now states "really didn't believe that they were a first lien," but were only a valid indebtedness, "good in common with any other floating debt of the company." . The fact is established that he withheld for the purchaser the information on which this belief as to their not being first liens was based, and which proved to be well founded where the effort was made to enforce them as such; and that, while suppressing this important fact, known to himself, but not to the buyer, he mllde affirmative representations. not merely a,s to their validity as a debt against the company, but as to their being unpaid coupons, and having the same kind of lien as the first mortgage bonds. The court finds that these representations were made and were untrue; that they misled the purchaser, and formed an inducement to his purchase; that said Gest did not believe said coupons were first liens, or any liens, upon the mortgaged premises; that he was fully aware of the facts which deprived them of their lien right as against other holders of bonds and unpaid coupons; and that, in the concealment of these facts, and in the making of representations that they were first liens, contrary to his belief, he committed a fraud upon the purchaser. This fraud was not discovered by the plaintiff until the fall of 1883, when the testimony of said Gest and others was taken in the foreclosure proceeding. The court further finds that the description of the 768 coupons in item second of the contract as "past due and unpaid coupons cut from the first mortgage bonds of said company," read in the light of the surrounding circumstances, and the object of their purchase, constituted a warranty that they held the same position towards the company and the mortgaged property as other outstanding overdue coupons of said bonds, find stood upon the same footing in respect to the lien of the mortgage made to secure their payment. The plaintiff understood the representation as meaning that these "unpaid coupons cut from the first mortgage bonds" were of the character that entitled them to share equally with all others in the security provided by the mortgage. The defendant knew, or had every reason to suppose, that the plaintiff or its agents understood the terms in that sense. If this language was of doubtful import, the court would give to it that construction and meaning which de-
,·83'6
fendantknew plaintiff placed upon it, under the well-settled rule that, where the language of a promisor or vendor may be understood in more the sense in which he has reason senses than one, it is to be intended to suppose it was understood by the other contracting party. Whether given words are used in an enlarged or a restricted sense, other things being equal, that construction should be adopted which is most beneficial to the party acting upon them. Every intendment is to be made against a construction of a contract which would enable one party to entrap another, or,create a snare. White v. Hoyt, 73 N. Y. 505; Hoffman v. Insurance Co., 32 N. Y. 405; Potter v. Berthelet, 20 Fed. Rep. 240; and Smeltzer \T. White, 92 U. S. 395. The court finds that said 768 coupons were not unpaid coupons entitled to share equally with other past due coupons in the mortgage security; that, as against other bonds and coupons outstanding, they constitute no lien upon the property and franchises mortgaged; and that they were, when sold by defendant, and are now, wholly worthless, and. of no value as lien securities against the Covington Street-Railway Company, either to plaintiff or anyone. These facts are established both by the decree of said Kenton chancery court denying the right to share in the proceeds of the mortgaged property, on which .the court held they were not liens, and by the evidence in the present suit. 1. As to the foreclosure proceedings and decrees therein. The chancery court of Kenton county, Ky., had full and complete jurisdiction of the subject-matter of the suit, which sought no personal decree against said Gest, who ,was made a party defendant, and duly notified of the proceedings, and of the fact that the court had, in conformity to law, appointed an attorney to represent him and his interests in the mortgaged property. In such foreclosure suits, which are in the nature of proceedings in rem, the priority of liens is a proper matter to be settled by the court. Adverse rights between co-defendants may be determined in such cases by the court, and a party who had an opportunity to assert his rights will be bound by the decree. Oorcoran v. Canal Co., 94 U. S.741. Gest, having been made a defendant, had the right to make defense, file pleadings, examine alld cross-examine witnesses, and appeal from the judgment of the court relating to and affecting his interests in the subject-matter. He was actually examined as a witness in the cause in support of the validity or concurrent lien of coupons he had sold and warranted to plaintiff as first mortgage liens, and which he knew were then being contested and disputed by other lienholders. He was in complete privity with the proceedings,-was fully represented therein byattorney duly appointed, and by his assignee, who purchased pendente lite, and then intervened, set up and asserted bonafide, so far as the record discloses, the very rights and interests which said Gest had claimed and sold. Under s,uch circumstances Gest is not to be regarded as a stranger to the cause.' Being made a defendant, being directly interested in the SUbject-matter of the suit so far as related to the liflns of the coupons he held at the date of its commencRment, and thereafter sold with warranty, having full knowledge of its pendency, and knowing that the lien right
SOUTH COVINGTON &: C. S. BY. CO.
v.
GEST.
637
or claim of his vendee was di!!puted, it would seem that, under the principle laid down in Robbins v. Chieago, 4 Wall. 657, he should be concluded by the decree in that cause on the the question as to whether said 768 coupons were unpaid or constituted valid liens on the mortgaged property of equal rank with other past due and unpaid coupons. The principles announced in Pe:nnoyer v. Neff, 95 U. S. 714, are not in conflict with this conclusion. But aside from the decree in that foreclosure proceedinKs, and assuming that the action of the court in excluding said 768 coupons from par.:. ticipationin the mortgaged property isnot concluf."ive of the question as to their not being unpaid or non-lien coupons, the evidence in the ent case on that sUbject establishes the fact that they were not acquired, held, and owned by said Gest in a way to entitle him or those derive ing title from him to claim or assert them as valid and subsisting liens on the mortgaged property of the company as against other holders of first mortgage bonds and unpaid coupons thereof. The court finds that 313 of said coupons were obtained by said Gest in the manner and under the circumstances following, viz.: In September, 1870, C. S. Bushnell, who owned a majority of the Covington Street-Railway Company's stock, and 48 of its first mortgage bonds, held 192 unpaid coupons belonging to his own bonds, and 110 coupons which had been taken up by C. R. Russell, the secretary and treasurer of the company, with funds advanced by said Bushnell. These 110 coupons were not sold or transferred by the holder, who presented them at the company's office fOf payment, and received the money on them from its said treasurer without any knowledge or information, so far as the record shows, and as most of them swore, that said Russell was assuming to take them up for said Bushnell. Aside from his own 192 coupons there were then outstanding for the years 1869 and 1870 only 11 coupons, which matured July 1, 1870, held by. C. H. Kellogg. The company at this time was indebted to M. M. Benton in the sum of $150, and to A. L. Greer $1,389.36, being a balance on lot purchased of him, and which he was then to enforce by said suit in the circuit court of Kenton county, Ky. In this condition ofaffairs said Bushnell and the defendant entered into an arrangement by which it was agreed that Gest should purchase Bushnell's stock, (about 1,677 shares out of a total of 2,500,) provided it could be so arranged that said Gest should have the entire and absolute control of the company, and the benefit of such paper as Bushnell could obtain from the company with which to take up its debts then outstanding: Bushnell thereupon proposed to the company, which he really controlled, that he would provide for its outstanding liabilities, if the company execute and deliver to him its three negotiable promissory notes for $5,000, each, payable in two, three, and four years, respectively, and would appoint Erasmus Gest its superintendent, treasurer, and general managing agent. The company accepted this proposition October 3, 1870, and on the same day, by formal resolutions of its board of dhectors, appointed said Gest its superintendent, treas\lrer, "general managing agent, and defined his duties as follows:
is to have:entireeontrol of the-receipts and disl)ursemertts of tbe moneys of the cqropanyi as well as general management.of the road, and ,wl;1ile80 acting ,shall be ,ws.dgty to take prpper care,of 3011 the property placed un4t!j:Jlis and in hi$ CQHtrol; from time tQ time to e!Dploy suitable and ca'pable persons to discharge all the duties necessary for:the aforesaid. case and the ecoilOmical operating of the railroad of said company. He shall keep accilrateaccounts of all tiioneys by him or those under him and of all the moneys expended by him on account of the operating of said road, and make full in writing to the board of directors ofsaid company as often as .qlWe months. And he shall hold. after discharg. ip.g)iabilitles, includingco,upon interest as it falls due, subject to the order oithe board. Said notes (for $5,000 each) to be delivered upon the delivery of saiaBushneIl to this company an agreement to take up and hold the coupons and 'lloati ng debt li$ collateral to said notes, and he' shall surrender the evidences of the payment ofthe floating:debt as fast as the said notes shall be paid off, and shall delivel' coupons in proportion as fast as paid off. The agreement of tile said Bushnell $hallspecify the debts assumed to be paid and the amount of each debt." , The company executed its three notes for $5,000 ellchat two, three, and four years, bearing: 7 per cent. interest, payable to its own order, which were properly indorsed and delivered said Bushnell, who contemporaneously therewith, executed and delivered to the company his written agreement and undertaking, as followl:l: "KnQw; men by these presents, that on this 3d day of October, A. D. 1870, tile Covington Company has executed three (3) notes of five thollsand dollars ($5,000) each, payable to its own order, and indorsed by said company, and due respecti vely in two, three, and four (2, 8, and 4) )'ears from this date, bearing seven (7) per cent. per annum interest, payable semiannually at ,the Bank of America in New YOlk city, and delivered the same to C. 8., Buspnell, of New Haven, in tile state of Connecticut. in pursuance ofa propollition to the said railway company by said C. S. Bushnell, and accepted by said company at a meeting of its board of directors this day held, whereby Bushnell pl'oposes to take. up and hold for redemption fifteen thollsand doHars ($15,000) of the present indebtedness of said railway company, to:be surrendered to said company from time to time as said notes are paid off. "In pursuance of said agreement, and ill consideration of the execution and delivery to him of said three (3) nott's, said C. S. Bushnell now hereby agrees anI) binds himself 'with and to said street-railway company at once to payoff and take up the following debts of said railway company to-wit: 65 coupons doe January 1,1869; 100 coupons due .July 1, 1869; 48 coupons due January 1,1870; 100 coupons due July 1, 1870; 31a coupons in all of $35 each, and the ,interest now due on said coupons since their maturity; andalso a debt now sued upon in the Kenton circuit court of COVington, Ky., by A. L. Greer, amounting to tile sum of $1,389.36, and .also to Mr. M. M. Benton the sum Of $150,-in alli\IllOunting, by calculation, this day to the sum of fifteen thbusand dollars ($15,000.) SaId Bushnell is to be allowed to hold said coupons or portions of them as hereinafter set out as collateral security for thepay-mentof said notes. but said coupons are to be surrendered as follows:, t\aid Bushnell bindS himself to surrender to said company, upon payof the tirst notes aforesaid. ev.idence of the payment of the said debts and coupons amounting to the sum of five. thousand dollars, ($5,000,) and upon the payment of the second note, others of the said coupons amounting to the sum of $5,000, and upon the payment of the third note, the entire bal-
SOUTH (lOVINGTON
«
pO. V. GEST. liS
639 of this date
to the sum of fifteen tbousand dollars ($15.000.)
ance ofsatd coupons; In all said debt and coupons amounting
"In witness whereof, I, the, said C. S. Bushnell, ,have hereunto set my hand and seal this 311 day of October. A. D. 1870."
When said contract was executed, the notes delivered, which ap-, pears to have been done on October 3, 1870, the following entry was made on the company journal: "Sundries to bUls payable, $15,000; real-estate account, $1.389.36; expense account, $150; past due COUPODS account, $13,460.64. Gave C. S. Bushnell three notes at 2, :3, and 4 years from October 3, 18i'0, payable to the company's order, and inllorsed in blank by the president and secretary, for $5,000; the notes dra.wlng interest at 7 per cent. per annum, payable SAini-annually aUhe Bank.:otAmerica. New York; proceeds ,to be applied as above." In pursuance of their previous understanding and agreement, the notes of $5,000 each s\) issued by the company and delivered to Bushnell, were then inflorsed by said Gest individually, and used in raising the $15,000, which formed the consideration he was to pay Bushnell for his stockaqd'interest in the company. On the 14th of October, 1870, said BUflhheU; through C.R. Russell,the late secretary and treasurer of the comEany, turned over to said Gest 254 of the aforesaid coupons, gave a duebUlfor the 48 couponsof January 1, 1869, which were then in the east, 'and also gave him $385 in money or check to take up the llKellogg coupons of July 1, 1870,making the 313 coupons which by the contract:aushnell was.'totake up and payoff. The 11 coupons of July 1, 1870, were paid said Kellogg by the proper officers of the com;, pany, and regularly enteredtlpon the books of the company as paid by . These 11 coupons sold or assigned byKellogg, narwere they ever purchl1sed either by Bushnell or Gest. These 313 coupons for the years 1869' and 1870 werenot sold by Bushnell to E. Gest, turned over to him under this agreement, as the party who was to take up said three notes for $5,000 as they matured. Gest was fully iIiformeda! the 'contract between the company and said Bushnell, under and by the terms of which the proceeds of the notes were to be applied in takingu,p and paying off the company's outstanding liabilities, including said 313 coupons. These notes were subsequently, at their respective maturity, taked up by said, Gest. The interest thereon was paid by the company; and, after being taken up by said Gest, he collected the compant interest thereon at therllte of 8, 9, and 10 per cent. semiannuallyu?tiIOctober 31, 1876,wheiJ. an agreement between said Gest and the comp4ny was made, as follows: "In the matter of the indebtedness of the company to C. S. Bushnellm the sum of $15,00Q .eyidenced by three promissory notes of $5,000 each, dated Oc.. tober 3, ll:l70·.and payable in one, two, and.three years from their dates spectively, itw8Sagreed that .the holder of said notes should surrender them up to the' Company for cancellation. in consideration of the. payment to him by the company ot'the sum' of t wanty-five hundred and, five dollars and sixtyfour cents in, cash, being the difference between the 'value of the said notes and the securities heretofore ,beld by him 88 collaterals for the payment Qf
640
FEtlERAL REPORTER.
said ntltes, (said notes intended to cover the floating debt of the company at that time;) said securities being 813 coupons of the company's bonds of'$35 each, amounting to ten thousand nine hundred and fifty-five dollars, ($IO,955;) also a note made to A. L. Greer, secured by mortgage on the stable lot for thiJ;t.j:len hundred and eighty-nine 36-100 dollars; and the Benton against the company of one hundred and fifty dollars; paid by the company. Said coupons anci mortgage claimed to be held by him absolutely from thii!l date, and not collaterally as heretofore. The interest on these 313 coupons paid to this date. "
The notes were surrendered by said Gest to the company, and the 313 coupons were thereafter claimed by him as his absolute property. While said notes were outstanding, and before their maturity, it is clear that the 313 coupons in the hands of said Gest, and obtained under the circumstances stated, constituted no liability agaios,t, the company,much less a lien on the mortgaged property as other holders. of its first mortgage bonds or. coupons thereof, Bushnell had realized monev on the notes, nor is it at all material that thepl;oney thus realized foro-led to some extent or entirety the considersale of his stock, as between him and said Gest; and this llloney in his hands was applicable to the payment .of said 313 coupons which he undertook to payoff with the proceeds thereof. With the ceipt of that money said coupons, as between him and the company, we,re The coupons were not turned over to the party or parties who purchased or discounted and held the notes before maturity, but they were delivered up to E. Gest, who was then the sole financialagent of the company, and the proper officer to receive and cancel the no longer subsisting liabilities of the company. When therefore, pn o.etober 31, 1876, he made the arrangement with the company to surrender the notes imjl hold the coupons absolutely, they constituted· nothipg more than evidences of debt. Other holders of firs.t mortgage bonds and outstanding coupons due or. tobeconle due could not be .affected by the subf;ltitution, nor could said coupons be reinvested witll the lien, which had once ceased, even for a moment, to exist. If thecQlllpany had placed in Bushnell's hands $15,000 in cash, to apply ashe contracted to apply the proce\Jds of the company's negotiable notes, and the transa.ction had been conducted precisely as it was, there could be no doubt when the coupons to be taken up witll such fllnds came into his hands or the hands of Gest, they should eo instante be regarded as paid.. The giving of negotiable paper on which to raise such fundswhich paper is used by Bushnell without incurring any personal liability therefor Of thereon-in no way changes the principle, or distinguishes the case from that of placing actual money in his hands. The court accordingly finds as a fact established by the evidence that said 313 coupons were not unpaid coupons of the first mortgage bonds of said pany; that they constituted no lien upon its property and franchises mortgaged to secure said bonds and interest, especially against other bolclersof bonds and unpaid coupons; and that in tbeir.sale by defendant to plaintiff t4ey were not only warranted to be unpaid and subsisting liens, but were so represented to plaintiff's agents during the negotiations
SOUTH COVINGTON &I C. S. BY. CO. fl. GEST.
641
for their purchase, contrary to defendant's actual belief under a knowl· edge of the facts which fully justified his opinion, and which were not disclosed. The remaining 455 coupons, included in the 768 sold to plaintiff un· qer the contract of February 17, 1882, are fully identified by the agree. ment of parties, (pages 27 and 28 of the record,) showing their respective numbers, the particular bonds from which they were cut, and the several dates at which they matured. They were obtained by said Gest under the following circumstances, viz.: After acquiring a majority of the company stock, Gest selected his own directory, which consisted mainly of his brother, his nephew, and his clerks; took practically the exclusive control of the company, and exercised absolute authority over its business and finances. During his connection with the company as superintendent financial agent,-extending from October, 1870, and sole to February 17, 1882, inclusive,-earnings of the road to the amount of$682,996.91 were received by him. These moneys were in no instance and at no time deposited to the credit of the company, or to the credit of said Gest as agent or treasurer of the company, but were treated as his own funds; were deposited to his individual credit just as other private funds; and when needed to meet the bills and debts of the company were drawn and paid out on his individual checks. Coupons and current bills for supplies furnished the company were paid in the same manner by his individual checks on the deposits in bank there made, which included both his individual funds and those derived from the receipts and. earnings of the company. The earnings of the company were received, used, and appropriated by said Gest as being entirely his own, and were checked out and applied by him as he deemed proper. He took charge of the receipts and earnings of the company, blended them with his private funds, kept them in the hands of his private clerks, and on deposit in bank as his individual and absolute moneys, and dealt with them as such. The coupons maturing from and after July 1, 1870, to July, 1874, inclusive, were taken up, sometimes with cash paid therefor by Gest's clerk into whose hands the company's daily earnings first came, and in some instances by the individual checks of said Gest. These coupons were surrendered to the company anli canceled, and are not in controversy in this case. These coupons were presented and paid at the company's office in Cincinnati. Certain coupons were presented for payment in 1871 at the Bank of America in New York, and protested for non-payment, no funds· being then or afterwards placed there to meet said coupons; and thereafter said Gest, as the officer of the company, charged with the duty of applying the company's receipts to the payment of its liabilities, including past due coupons, gave notice to holders of bonds to present their coupons for payment after maturing at the company's office in Cincinnati, and in pursuance of this direction they were duly presented there. In 1.873 several holders of coupons-Bullock, Lewis, Cook, Sherlock, and Kellogg-refused to transfer their coupons, or to receive the money therefor and surrender them, except upon the condition that they were canceled on the company's books. On March 18; v.34F.no.8-41
64% D(E. and secretary of the company, as follows: . . "DR. Sm: Yours of the 6th inst., after detention in Covington,-then in, length me here this, morning. In response I can, only say trlat myself together 'With otherCil1c'inuati bondholders have placed our coupons in the hands of Jno:R. Sage. Esq., for settlement or collection, which step Was taken with a view to cancel, instead of transferring, the coupons. 1 refer you to Mr. Sage. with whom you can no doubt make satisfactoryarHereafter lean regularly Bend you coupons through bank, and, h()P,e o.ur, future relations may be mutually pleasant. , . . ' "CHARLES H. KELLOGG." ,,'
l873,
wrote from. New York tol,
Gerst, the agent, and brother.
The coupons were acco:rdingly canceled, and handed ovel' to he cOPlpany by said Gest or his clerk, Fuller. These coupons, mllt,UJ;ingafter July, 1870, and before January 1, 1875, Gest claims to have purchased from the holders thereof, and to hqve been by him surrepdered to ,the company from time to time, as it was in funds to take thllP! up. This claim is not suppOrWd by the evidence, nor by the con-, temporaneous entries UpOI;l the books Qf the compa.ny, or the annual reports of eaid Gest. On the contrary, the fapqs fully,established that they were never sold t9 him,hut were, in the-firstinstance, paid directly to the bOlqers thereof, who to company. Between January 1,1875, and February 17, 1882,past due coupons to the number of 455 were presented for payment at the company's office in Cincipnati, and were taken up, by aaid Gest or his clerks in some instances with cash and in others with his individual checks on banks in which he had made the commingled deposit of his own and the company's funcls, in the same way that the coupons maturing before January 1, 1875, had been paid and taken up. The evidence establishel'l the fact that these 455 Coupon,S were in no instance sold or transferred by the several holders thereof to snid Gest, nor were they aware that he was buying or claiming to be the purchaser of them. The holders in every instance presented them for and when they received the money on and for them,supposed they.were paid ,and taken up by the company. They neither knew or lw-dreason toirnow or believe that said Gest was taking up and holding said coupons On odor his Gest never so informed them, and there was nothing brought to their noticeduring the period of said trunsaction from. which they should reasonably have inferred that the coupOI;lS,lVerebeing. by Gest rather than paid by company. The fUIldl;l; used in taking up these 455 coupons, whether bypash or by Gest's private check, consi,sted of the improperly blended and cqmmingled moneys of the company and of said Gest. The state of his account with the company at seV'eraland respective dates, on which Baiqcoupons were taken up as aforesaid is not disclosed,and there is Oot4ing to show that there were not at said respective dates funds of the CQmpany in his properly appli<;able to the payment of said couPRns. ' These coupons 'fore cut chiefly fro:m bonds held by certain parin New Haven,Q<'>l1p" called in the record the "New Haven Hold. ers," to wbom Bushnell had transferred his 48 bonds in the latter part of:!870, andby C?ok, Lewis,Sh,erlock, nnd Garrick,and Charles,
SOUTH COVINGTON & CO. S .. p
ny. "
(',0.
11. GEST.
643 ' r ·
H. Kellogg, 331 of said 455 coupons beipg cut from the bonds, of sajd ,l(e]}ogg., The proof,cleBtrly establishes that Kellogg never sold 0,1,' intended toseH or transfer said coupons to said,Gest, as claimed by the latter; and such is the established fact in re(erenceto the other holders. Saidhblders, nor either. or any of them, were ever informed that Gest was 'claiming or assertipg'the right to take them up for his private bene-. nt and account. There were.no circmnstances connected with their payment calculated to give the, holders any notice of such fact, or that Gest was acting in the premises otherwise than as the financial agent of. the company, whose duty it was to take up said coupons for and on account of thecoIllpany. The holders wore postponed from time to time in abtainingpayment by the s'tatement of. Gest and his clerks that they wait till the. company the money with which to pay their coupons, and in most instances they were paid off in installments, or, as expressed by one witness, in "driblets." These coupons were not canceled, but were held by said Gest till sold and transferred under said contract of February 17, 1882. In view of Gest's relation to the company; of. his duty.as its financial agent, to receive and apply its earnings to the payment of its debts, including coupons as they matured; of the fact that said earnings w!3re not only received by him, but were mingled, blended, and confused with his private funds; and of his failure to show how hisaccollnts stood with the company at the several dates when said coupons were taken up,-there is no presumption of ownership arising from his retention or holding possession of said coupons. If, however, such an inference could properly be made, the court finds as a fact clearly established by the evidence that said Gest did not become the owner of 3aid 455 coupons by purchase, transfer, or assignment from the holders thereof, either before or after the maturity of the same, and that in his hands said coupons, if not actually paid with the funds of the company, constituted nothing more than vouchers for sums paid out by him for or on behalf of the company. The court further finds that, pending the negotiations for their sale and purchase, the said Gest made the fraudulent rt\presentations in regard to them already noticed, and by the contract under which they were transferred to plaintiff warranted them to be unpaid coupons belonging to himself, and entitled equally with all other outstanding coupons and first mortgage bonds to a first lien on the mortgage security, as above explained. The court accordingly finds that these 455 coupons were not unpaid in the way warranted or untruthfully represented by said Gest, .and that as to them as well as the 313 coupons already refer,red to, there has been a breach of warranty, and such fraudulent as entitles the plaintiff to recover on both of said grounds. After negotiations had been commenced for the purchase of his interests in the company, said Gest, on the 18th June, 1881, procured the passage by the board of the folloWing resolutions: "Whereas, the board of (lirectors of this company, by a resolution pas8,ed on the 3d day of October, 1870, appointed Erasmus Geat, Esq.· genera) super· intendent of all its affairs, with power to collect· and' disburse moneys, pay
644
FEDERA.L REPORTER.
debtlJ,aud attend generally to the management and control of the company's business land, whereas. the said Gest has continued to act as such general superintendent from tbat time to the present, and is still so acting, and has, at the instance and request of tbis company, and in order to protect its credit and to save its property, paid out of his own means large SUms of money to defray expenses incidental to the operating of its railway, and has at various time!'l purchased and paid for, and now bolds, coupons or interest warrants and other obligations and liabilities of the company to a large amount; and, Whereas, all of said payments and purchases were made by said Gest with the understanding that he should be with respect to the saIlle entitled to aU the rights and remedies belonging to the original holders of said debts, obligations, andliabilities:Now. therefore, resolved, that the said Erasmus Gest be and is herllby .substituted for and in the place of the original holders and ownerS of all the debts, coupons, obligations, and liabilities 'heretofore paid and purchased by him as aforesaid, and he shall be entitled to have and to enforce for the collection of the same all the liens and other securities held by such original holders or owners; and in case he shall hereafter payoff or purchase any other debt, obligation. or liability of this company, he shall, as tD such debts, obligation. or liabilities be substituted for the original holders thereof. and be entitled to the benefit of all liens and reml'dies belonging to them, it being the intention hereby to execute the agreement and understanding heretofore existing between said Gest and this company, and to continue the same in full force so long as he shall make payments and purchases as aferesaid. "No other business, upon motion adjourned. "J. HENRY GES:r, President. "Jos. J. GEST, Secretary." -Which.is relied on by defendant as. establishing his ownership of said coupons. But the resolutions, passed afler most .of said coupons were actually taken up, cannot have that effect, for its recital, so far as they relate to his purchase of said are not true in point of fact, and are not entitled to any more weight tha,n his own statement. It was passed at his instance and to serve his pUl;pose. It neither changes nor controls the actual facts as herein found by the court. In the latter part of October, 1881, Amos Shinkle, trustee as aforecourt of Kenton county, Ky., two said, recovereq. in the ments against the Covington Street-Railway Company, for $1,282.12, and the other for $4,703.35, on past due coupons for the. use and benefit of C. W. West, the holder ofthe coupons involved in the suit. These two judgments were paid in November, 1881, by William Ernst, the company's surety on the appeal or supersedeas bonds given in the progress of the cause. Said Ernst became surety at the instance and quest of said Gest, who furnished or refunded to Ernst the amounts paid by him in satisfaction of said judgments. At the time of tendering payment of said judgments, said Ernst moved the court to subrogate him to the rights of the complainants therein against th.e company. This was opposed by complainants, and was denied by the court. These judgments were tbereuponpaJd, and Ernst, having been refunded the sums advanced by him, soon thereafter assigned and transferred to said Gest "all right, title, and benefit in and to the payment"so made by him. The city of Covington iJ;!. the fall of1881 also obtained ajudgmentagainst
SOUTH COVINGTON&: C. S. BY. CO. "'. GEST.
645
the c6mpany, on which sa.id Gest for and on behalf of the compan.y mane a partial payment of$l,029.53. These three judgments were transferred to plaintiff under the contract of February, 1882. That contract contained no warranty on the part of said Gest as to said judgments, nor does the evidence establish any misrepresentation on his part in regard to them. He assigned and transferred what he undertook to sell. The written transfer which he made, and which plaintiff accepted without objections, recited the facts as to said judgment fully and correctly. Plaintiff is not, therefore, entitled to any recovery in report to saidjudgments. On the foregoing facts the court is of the opinion that this case-is clearly distinguishable from, and is not controlled by, the decision of the supreme court in the case of Ketchum v. Duncan, 96 U. S. 671; that it falls rat,!:J.er within the principle laid down and applied in the cases of Cam. v. Canal Co., 32 Md. 501; Haven v. Depot Co., 109 Mass. 88; Trust Co. v. Railway CV., 63 N. Y. 311. It may be that, upon an adjustment of the accounts between said Gest and the company, (the Covington StreetRailway Company,) said 768 coupons would not be treated as extinguished in law and in fact as between them. They might possibly be regarded as between him and said company as vouchers or evidences of amounts advanced or paid out for on behalf of the company. But as against other valid and subsisting lien claimants, such as the first mortgage bonds and unpaid coupous, they clearly had no concurrent equity or right to share in the mortgaged property or its proceeds. The conclusion of the court is that plaintiff is entitled to a recovery , against the defendant in respect to the 768 coupons, both upon the breach of warranty and for the fraudulent representations and suppression of the truth, by means of which plaintiff was induced to make the purchase, was deceived and misled, to its injury. There being no evidence as to the market value of the coupons at the date of sale, the price paid by the purchaser will be considered the market value in estimating the damages under the breach of warranty, as held by the supreme court in the case of Srndtzer v. White, 92 U. S. 395, and cases there cited. These coupons ,were tendered back to the attorney& of the defendant on the 16th July, 1886, who declined to accept them, and thereafter plaintiff brought them into court to be surrendered and delivered up to the defendant as the court might order and direct. The measure of damages in the cause of action based upon the fraudulent misrepresentation and concealment of material facts on the part of defendant. will, under the circumstances of the case, be the price for the coupons and interest on said sum. The plea of the statute of limitations to the amended petition setting up this second ground of recovery is not well taken, as said amended petition was filed within four years after the fraud was discovered by the plaintiff. The court finds and adjudges that the defendant is entitled to the setoffclaimed in his answer, viz., $1,067.20, with interest thereon from June 1(), 1883; $150, with interest since March 1,1884; and $150, with interest since September 1,1884; the two last amounts beir.g for coupons
,.of bonds issued 'by. 'plli.,ititiff and the defendant will be required ;deliver up to the clel'kofthis court for cancellation. Judgment will be . rendered,andia herehydirected, in:favor of the plaintiff against the defendant for the sUm lOt 835,039, being the amount paid for said 768 coupons, withinterel;t thereot\. at the rate of 6 per cent. per annum from July 1, 1882, which is about the average date of payment. The setoffs allowed defendant will be credited on, and be dedllcted from, the amount of this judgment, and the plaintiff will have execution against . the defendant for the balance with costs of suit. To each and all of said findings and conclusions of law the defendant excepts. FOTHERINGHAM: v. ADAMS EXPRESS Co. et al. (Oircuit Oourt, E. D. Mis.souri. E. D. April 12, 1888.) 1.. CoURT8---FEDERAL-FoLLOWING STATE ·LAWS· .The provisions 1· Rev. St. 1791·. 1794, providing that members of the grand jury may be compelled to disClose the names of wit· neSSes who have appeared before it, and the ovidence heard in the grand jury room, only(l) when it is necessary to show whether the testimony of a witness on the trial of an indictment. is consistent with or different from that given before the grand jury; and (2) when a person is on trial for perjury committed before: that body, establish much more thana rule of evidence. They are declaratory althe public policy of the state. and as such are binding On the federal courts sitting in the state. S. WITNESS-COMPETENCY-GRAND JURORS-MALICIOUS PROSECUTION. Under 1 Rev. St. Mo. 1879, 1791,1793,1794, relating to grand juries and their proceedings, 'a, member of that body can be called upon to disclose the . names of witnesses who have appeared before it, and the evidence heard in the grand jury room, only (1) when it isnecessary to show whether the testi· mony'of a witness on the trial of an indictment is consistent with or different from that given before the grand jury; and (2) when a person is on trial for perjury committed by him before that body.. Held, that the plaintiff, in an action for malicious prosecution, could not show by a member of the grand jury that found the· indictment at.the instigation of the defendant what tes· was given before that body at that time.
"
At Law. Action for malicious prosecution for causing the plaintiff to be indicted and proseCuted in the courts of the state for stealing $60,000. On the trial tlie plaintiff's counsel called one of the grand jurors, who had served on the grand jury by which the indictment was found, and proposed to show by him what testimony had been given before the grand jury when the indictment was found. C. P. J. D. Johnadn, Thoma8 B. Harvey, and Henry M. Bryan, for plaintiff. Martin, Laughlin Kern, for defendants. . THAYER, J. Bearing upon the question that was raised last evening, I read sections 1791, 1793, and 1794 of the Missouri Revised Statutes: l Section 1791: "Members of the grand jury may be required by any court to whether the testimony of a witness examined before sucll jury is conlliReV. St. MO.'1879, c. 24,pp. 802, S03.