HeNRY". TRAVELERS' INS. CO.:
363
thil'd, by the action of its executive department prior to 1883, whereby
it dir;;tinctly recognized and accepted the performance of such condition, and thereby induced these defendants to so alter their position in relation to the property that it would be unconscionable and unjust now to allege the contrary to their serious injury and prejudice. As an authority applicable to this case generally, see U. S. v. Road Co., 41 Fed. Rep. 493. Let it decree be entered dismissing the bill as to these defendantB.
HENRY
et ale v.
TRAVELERS'
INS. Co.
(Cir{)uit OO1.llrt. D. Oolorado.
May 15,1890.)
1.
ACCOUNTlNG-EvIDENCB-CORPORATB DEBTS.
Plaintiffalld defendant made a contract by which defElndant was to take bor..dlof certain ditch companies, in which they were interested, in payment of all debts due defendapt from the companies" and for advances thereafter to be made to them. Plaintiff was to surrender the obligations of the companies and those given by plaintiff for the benefit of the companies. This agreement did not apply to the private debts of plaintiff to defendant. On an accounting directed in a suit to enforce the contract, the master inauded in the debts of the cOIQpanies certain notes, on tbeir face the personal obligations Of plaintiff to defendant. All tbe other obligations were notes executed by the companies, and indorsed byplf.intiff. Attbetime plaintiff applied for the loan of defendant, for which all these notes were ,nven, be stated that he wanted for personal uses an amount equal to that for wbich the individual notes were given.' :Moreover, some of it was paid by defendant for tbe purpose of obtaining the release of stock owned by plaintiff indiVidually. Furthermore, in a statement of plaintiff's personal resources made after the loan, and under plaintiff's direction, for defendant, these individual notes were included in his per- . sonalliabilities. Held, that they were improperly included in the statement of the companies' debts. Defendant is entitled to receive bonds of the companies for advances made, since the commencement of this suit, for the completion of the companies' canals. OF CONTRACT.
2. 8.
SAj\{1!:..,..COLLATERAL NOTES.
Plaiutiff gave defendant certain chattel notes as collateral security for "past, present, or future indebtedness." Held that, in the absence of negligence, defend- . ant should be charged only with such amount as it had collected·
.. SAllE-INTEREST.
As judgments in Colorado draw interest, defendant should have been allowed Interest OIl to the time of its payment. Defendant should be allowed interest on its claims against plaintiff to the date of the master's report, and, on its claims against the complloBies, to the time it received, or should have received, bonds in payment.
5.
BAllE.
6.
.
BU{B-AcCOUNT-BoOK-EvIDENCE.
In the absence of proof that an entry in defendant's books,showinJ\' that a certain claim against plaintiff was paid, was made without the direQtion of some officer or agent of defendant having authority to dil'ect it, it will be presumed to have been made by its authority, and to be correct.
In Equity.. On exceptions to .report. For former reports, see 33 Fed. Rep. 132; 34 Fed. Rep. 258j 35Fed. 15. ·
364
FEDERAL REPORTER, vol.
42.
J. P. Broc1cway, for complainants. Wolcott &7 Vaile and D. V. Burns, for respondent. CALDWEf,L, J. This case is before the court on the defendant's exceptions to the master's report. For six days the court has listened to the reading ofthe tp.stimony bearing on the exceptions, and to an intelligent discussion of it by counsel. The perfect tamiliarity of counsel with the large volume of evidence in the case is highly creditable to them, and has proved extremely gratifying and helpful to the court. In considering the exceptions to the master's report in matters of fact, I shall observe and keep in view the rule recognized and affirmed by the supl'emecourt of the United States in Tilghman v. Procf,or,125 U. S. 136, 149, 1:) Sup. Ct. Rep. 894, and Callag1J;ap, v. Myers, 128 U. S. 617, 666, 9 Sup. Ct. Rep. 177, namely, that "the conclusions of the master, dependil1g upon the weighing of conflicting testimony, have every reasonable presumption in their favor, and are not to be set aside or modified unless there clearly appears to have been error or mistake on his part." establishing the contract between Mr. Henry and the insurance; company states the terms of that contract in these words: the contract was entered into on or about the month of November, A. and between the said complainant T. C. Henry and the defend· Insurance Company, as is alleg-ed in said complaint herein, b.y" whiC,h defendant agreed to take the bonds of the several ditch compa· n.ies, as, aforesaid , to be by them issued,for its holding of old bonds theretofore issnedbtaaid companies, and for aU advances which the defendant had made or SbOlll!l make on account of, or for t.he benefit of, the several ditch compa· nfell,I'lOmatter how they were evidenced. or by what security, in payment thereo.f, and in payment of all the notes and obligations held by it. given by thesa'idditch companies, or by the said T. C. Henry, 01' the Colorado Loan & Trust Company, for the benefit of the said companies mentioned in said com· bill. and that all of the said bonds issued by the said several ditch conipanies" to"wit, the Grand River Ditch Company in the am61mt of $200.000, the Uncompahgre Canal Company in the amount of $200,000. the Citizens' Ditch'(l/vLand Company in the amount of $200,000, and the Del Norte Land &CanalCcitnpany in the sum of $400,000, were issued by the said several ditch companies, and that all of the notes and obligations oe the said several ditcbcolnpanies,and of the said T. C. Henry, and of the said Colorado Loan & 'riust Company, given by them or either of them to the said defendant for llloneys advanced or paid to or for the said several ditch companies. have been satisfied by the deli very of said bonds of said several ditch campanjlesasaforesaid, which oondsthe said defendant agreed to take at par in paylllent of said ol>ligatiolls."
it. is /laid: "Of course, it is not claimed that this contract reaches to any matter outside the obl'i'gations of the ditch companies, or that the private debts of MI'. Henry were in any way or to be affected by it." 33 Fed. Rep. 143. .in th'e: decree, it is said: the court rendered on the modify the
IIi the opinion of the court rendered atthe time this contract was es-
HENRY tI. TRAVELERS'INS. 00.
865
"The defendant wishes the decree modified in two respects.-one by the Insertion of a clause excluding the private debts of the complainants Henry and the Colorado Loan & Trust Company. * * * So far as the first matter is concerned, it is clearly unnecessary. The decree does not include the private debts referred to; and when the decree was being prepared the language of the draft, as presented to me, was changed purposely, and with the knowledge of counsel, so as not to include such debts. The opinion which I filed indicated that they were not included, and thpir omission from the decree is fnlly as potent as a sper'ial clause exc1:.Jding them. The provision in the decree for a statement by the master of the account between complainants and defendant was made under the belief that, when the whole account was stated, if any single item was challenged by either party as improperly placed, either among Mr. Henry's private debts. or among those of the ditch companies, the matter could be separately inquired into by the court, and the error, if any there was, corrected, without a further reference to the master. "34 Fed. Rep. 258. The master's report has been filed, and among the exceptions to it are several alleging that he erred in placing certain items of Mr. Henry's private indebtedness (or of the Colorado Loan & Trust Company, which stands; as Judge BREWER has already decided, "for all the purposes of this case," for T. C. Henry) among the debts and obligations of the canal .companies, to be discharged, under the contract in the bonds of these .compariies, at par. The principal sum ofthe debts which italleged were thus erron,eously classified is $81,500, and comprises the following items: (1) Note dated May 22, 1884, for face value of $65,000, but on which $50,000 'only was advanced, and is, as both parties agree, to be treated ,as an obligation for the latter sum; (2) note of May 19, 1884, for$5,000j (3) note of June 23, 1884, for $25,000; (4) note of October 7, 1884, for $1,500. All these notes, on their face, appear to be either personal obligations of Mr. Henry, or the Colorado Loan & Trust Company, which f3tands for Mr. Henry. In the opinion in the main case, (33 Fed. Rep. 132,) Judge BREWER says: . "Mr. Henry applied to defendant for aloan of $250,000, some of which, h.., representpd, was needed bj' him for his personal interests, but the major por.' tion for the completion of these several canals. In order to secure this loan, he made llll .exhibit of his financial condition,-of the securities which he had tQ. .offer.--as well as the purposes for which the money was desirtld." . , By refereQce to the e,xhibits here referred to in Judge BREWER'S opinion,-and it is the statement of Mr. Henry himself,-we find exactly what portion of this $250,000 loan was wanted by Mr. Henry for his private or personal uses, and what portion for the irrigating canaloompanies. In the application, Mr. Henry, after giving a statement 'of the affairs of the Citizens' Callal Company, says: "This property * * * needs for present wants $40,000." Aner giving a like fOr the Grand River Canal, he says: "This enterprise * * * needs $20,000 to supply its financial wants." A like exhibit of the affairs of the Un.compahgre Canal is followed by the stateulent that "this enterprise needs for its financial wants $50,000." The exhibit of thecondition and prospects of ·llie Del Norte Land & Canal Company is. followed by the statement tbat it" $60,000." Having specified the exact wanted for the several canals, he then says:
"I thefollQwing purpostI$:, ."i,Citi zens\¢l'l)l\Vi1ornpany! . - " ; Grall.d -, OQmpany, .. Del NO,rte CaIHllqQmpany, Fqrgeneral purposes in Colorado, For general purposes ,in Kansas,
It be observed that the amciuI,lt wanted for general purposes in Coloradq,and general purposes in Kansas is $80,000, thel;'xact amount of the ,'pqtes in controversy, less the note for $1,500, which waa given for Btookspledged by Henry for his private debt, in order that the stock, might be put, UPI as a part of the pledge for the $250,,oOP Ipsn. This note was exec:uted some months after the statementQ.bove mentioned was made, and of course was not embraced in it. ;tIenry made anotqer statement in writing of his own and the canal debts, November 3, 1884, when negotiations were pending arrangement. Touching this arrangement, Mr. Henry says: , before me is scopy of. one prepared in Hartford under the dire.ctipll.,l>f Mr. Batterson and Mr. Dennis, and based upon information which pE-rsonally, and which was furnished them, from one source and they, another,'lLt, the time, which constituted the basis, in part. of the plan of funding the. indebtedness of the several canal enterprises, pt"oviding for their wants before referred to, and also bearing upon my own personal resources." !
will
:totlll,-
here referred to is in the form of a letter, .beginning as
follo,:,s: "jJ{r.Bfftterson: By an examination of my liabilities and as you have above set forth, after eliminating the Pawnee Canal matter from both, it ,will,apPtlar that I have, $502,550 of private assets to pay $275,000 of personal Jia,bUitie.s;"
a scheduieqftiotes which includes the notes we are considering. Questioned about-one of these statements, Mr; Henry says: whom wRS'that statement, inhoduced by yOll in connection with, yuur, telltimony in the rna,in Cllse, prel,ared? An.9wer. I do not recollect. Q. testify with reference to that statement with great particularity, in'your .dilfect examination in the main caslJ? A. 1. think I did. Q. know by whom that stlj.tement was prepared? A. It was undQubtCfdly prepal'ed at my instance. If you want to know who furnished it, ,and put it j'l1 testimony there, I did. What I waS trying to avoid was haVing personitllyprep:lred the statement. I assurnethe responsibility of Whatever appears in that evidence, as' (ar'as that is cOllcel'l1ed."
, In this statement he included among his personal liabilities, described,
to is'hellded "Statement of Indebtedness of Denver, Colorado, to the Travelers')nsurarice. 1884,?'. allcf,ircludes the Indllbtedness under conSIderatIon: .IJ;la'ddIhon to these wntten statements, Mr. Henrytestifiefl :' . ' : ', ' ,
y,
367 "Question. 'Didn't I understand that'the payments he [Hlat is, Mr. Dennis, the defendant's agent, who came to Colorado to look after disbursement of the $250,000 loan]made on account of these ditch enterprises when he o!lt bere were on account of this $250,000 loan, so far as it Wal! unpaid? Answer. No, sir; not to the ditch companies, because we had nut rece,ived a,ll that we were entitled to under the private Jj.C;c,C,unts. Q.What dOryOIl by' we?' " A., I m,eant,he Colorado Loan & Company and myself. We borrowed $70,000 or $80,000 on our _ Q. These secuFitiesyou were proposlqg pledge were not necessarily to the partIcular company or entexpnse, to which You wished to money, were they? A- Yes, sir; that was'my understanding at the time. Theidea wasto make, each company 'stand ,by itself. Q. But neither the North POlldr,e nor the State Land &, Canal Company were at that time ,proposing to obtain funds. In other words, these were securities which you held of your own, that you were pl'oposingto on this $250,000 loan?: 'A. Or in behalf of my own individual part or it. I did not' want to ;get that mixed up, but wanted each ditCh to rely upon its, own footing. Q. Before you on, Jet me ask you why you say that; ,tlJere was ,a $65,000 note given for a $50,000 loan for payment? 4. It is alittJe difficult to explain that. It was agree4, in making up the iteulsof the $250,000 loan, what security was to be pledged ascom,t:era1; and, when 'it came to the '$50,000 for the peI'l'onal use of myself, the Kansas property was to be used ;-and the' first idea was that the property should be absolutely conveyed as collateral to my note, Bnd afterwards it was decided to use the n,ote in, their assets as secured by the c911ateral, an,d for that r,eason the $65,000 mortgage on the real estate was given as collateral, and appears as collateral for the $50,000 advanced by the Travelers' Insurance Company. * * * Q. ,The $25,000, June 23d, note was a note given by you to the Travelers' InsutanceCompany upon the pay'ment by the Travelers' ·Insurance Company of an 1ndl'btedness of $25,000 to the '(l)jty National Bank in this city; and such payment was made, by the, Travelers' Insurance Com· ,panyforthe,purpose of the Circle Railroad stock, was itnot?A. At the time I applied for the loan, I that $75,000 or $80,000 · would come to me perso,nally, and it was agreed I should put up the .Abi. 'lene farm as seeu rity fot'the part of that motiey which was to come ,to me, and also thtlstock of the Circle Railroad, which waS my personal property, for $25,000 besides, both of which sums, and both of which securities, were part of the sums and part of the securities agreed upon ,at the time the $250,· 000 loan was ma4e; and, in accordance with that understanding,-that agree· ment,--.,this $25,000 was made some time in June, and the stock placed to it as collateral, and the money obtained upon it by draft in favor ,of the City National Bank; and tpresume it discharged so much of my indebtedness at that time to tbebatik, which they had been carrying for some time." Pending the of the witness on thi'3 subject, Mr. Brockway, plaintiff's ,stated to the master; "We will admit, f(lr the purpose of this examirration, that, the $25,000 Went Into'tbeCity National Bank, and paid trust company obligations." The trust company and Mr; Henry are, for the purpose of this accounting, considered as one person. Mr. Henry testified that he took to Col· orado Capital to the amount of $150,000. He further testified tha,t he $125,000 oftlHit sum in the Denver Circle Railroad, and that he invested$40,OOO or $50,000 in the exposition building., <ItwiU be obsiJrved that these two'investments more than absorbed aU the' ·that he took with him to' Colorado. In addition'to the two
REPORTER,
vol. 42.
Mr. Henry was engaged in numerous and diversified pur.8uitsand enterprises calling for the expenditure oflarge sums of money, as shown by the following questions and answers: ·'Question. You used your credit for the purpose of raising funds to build water'-works at Silverton; to carryon a coal-mining enterprise in New Mexico, .l&gold or silver mining enterprise there; to build water-works at Albuquerquel to build the Pawnee Canal; to pay for stock lind bonds of the Bush· Canal, and for twenty otber enterprises. -'did you not? Answer. Mote than that, I guess.Q. Then why do you say, in answer to my question. 'tbat tlds money was bOl'rowed from the City National Bank by the trust com· .l)any iit with these fOIli' callal enterprises? A. I haV'e not pretended to say it was. 1 sllid, in connection with ourown business affairs as 'Well astbe ditch companies. II If the question at issue rested on Mr. Henry's own. written statements and testimony, it would· have to be decided against him jbut, in addition to Mr. Hertry'sevidence, Mr. Dennis, the secretary of the defendant com'I>any, and' other witnesses,testified on behalf of the defendant that these the perilonaland private obligations of Mr. Henry, and were 'fiotes ·not il1c1,uded in the refunding contrapt. At the time of their execution. there was a memorandum, written in red ink across .the notes, stating :thattheywerethe personal obligations of Mr. Henry. It is not shown that Mr. Henry had knowledge oHhis memorandum, but it is neverthe· leS51l.nimportant item of evidence, .as it shows the present attitude of the, <1e(eI).dant il;1 referelice to these notes as not an after-thought on its part. L,rplle ditch company obligations were. in the form .of notes signed by the,ditch companies, and made papable to the order of T. C. Henry, and by, him indorsed. 'There was but one exception to this rule, and in that insumcethe ditch company and Mr. Henry were joint makers. The on. their face,are the personal obligations of Mr. Henry, or the Colorado Loan & Trust Company ,which stands for him. ,It is obv;icms from Mr. Henry's own. statements and testimony that, at · the time he obtained the $250,000 loan, and at the.tilne the refunding · contract was made, he owed many private debts in no manner connected,with the four ditches, and tha.t the demands upon him for pay· mentof these debts were:quite as pressing as they were for the debts growing out of the four ditches. Many of his enterprises were more or le$sspecula,tive in their character, find undeveloped or unfinished, and likely to call for an outlay of money largely in excess of any receipts ,froIrithem; It is clear lrOln the evidence that at least $81,500 of the $250,000 loan was used to pay private debts which had no connection wit-h'thefobrditches. But, if the $50,000 note included in the $81,500, which we have been considering, had in its inception been given for _ditc1l,indebteduess 'in bonds of, the ditch companies at par, it · was the written contract of March 30, 1887, converted into ,$ tponey <;lemand, alld was, in pursuance. of that contract, actually paidi That contract was entered into between Mr. Henry and the more than 2 years after the making of the refunding contract, and 18 monthaafter this suit was instituted. It contains several mutjUll ,coveuf\nts the parties, by which Mr. Henry agreed, in
HEIUtY tI. TRAVELERS' INS. 00.
869
consideration of certain things to be doneby the defendant, and which were done, to pay $50,000, which was to be credited on the $65,000 note; and it was stipulated "that the balance of said 865,000 note is to remain open to litigation, at the option of the said party, to determine the amount due thereon." It is admitted that each party performed his convenants contained in this contract, and that the $50,000 was paid and credited. It is not pretended that in the execution or the subsequent performance of tpis contract there was any fraud, accident, or mistake, or want of consideration. It is freely conceded that at the time the co,ntract was made, and at the time the Qloney was paid, the plain,tiff had full knowledge of all the facts now known to him. For some and to the court inexplicable, reason, the master set aside this contract, and required the defendant to pay back to the plaintiff the 850,000 received under it, and to accept payment of that sum in bonds of the ditch companies. The defendant insists that another and sufficient answer to the plaintiff's contention that these notes represent sumS paid by him on account of the ditches is found in the fact that he was, 'as he alleges in his bill, himself the contractor for the construction of these ditches, and was to take the stock and bonds of the ditch companies in payment. The defendant claims that, after he is charged with the stock and bonds he received or should have received under such conthe companies as he claims. tracts, there is no such sum due him The court is satisfied to rest its decision of this exception on the other grounds mentioned, and therefore expresses no opinion on this point. Tqe items going to make up this $81,500 must, in stating the account, be treated as the private debts of Mr. Henry. Advaru;es. The contract between the parties is declared by the decree of the court to be that "the defendant agreed to take the bonds of the several ditch com panies * * * .to be by them issued for its holding of old bonds theretofore issued by said companies, and for all advances which the defendant had made or should make on account of, or for the benefit of, the several ditch companies. * * *" It is obvious that, whatever else this contract embraced, it contemplated the completion of the ditches., That is plainly implied from: what is expressed. By the very letter of the contract established by the decree, the defendant is entitled to bonds for all advances it had made or should make on account of, or for the benefit of, the several ditch companies. In stating the contract, in his opinion Judge BREWER says: "The company agreed to takenew bonds for its holding of old bonds, and .for all ,advances which it had made or should make on account of these ditch companies." 33 Fed. Rep. 143.
The ditches were incomplete. In their unfinished condition, they were of little value. To p;ive value to them, and to the bonds that were to be issued hased upon them as a security, they must be completed. Without that,the bonds would be comparatively worthless ill the hands of any one. For the money advanced' for the construction of these cll:1alfj after as well as before the beginning af this suit, down to the date of ,the appointment of the receiver, the defendant is entitled, by the v.42F.no.7-24
·nJDEltAL·REPGRTER,
vo1.4Z.
tei-tri,S 6ftbe cOhtra,ct as 'by the court, to be paid in bonds at pa.t,ari'dthe,account reslated'll;ccordingly. . .. Abilene Ohattel Note8." What' are denominated in the record as the "Abilene Chattel N6tes,"innountihg to $13,104, were depoSited by Mr. Henry'withthe defendant as colJatetal security for his private indebtedness. The pledgeofth.ese and otherl cdllaterals was in writing, and expressly states that 'they aretbstand' 'as security for any "past, present, or future indebtedness;" The master charges the defendimt with the face value'of 'these' collatemls, no reason for so doing.. The proof shbwSthat $3,341;81 has been collected on therri.· The notes were se.nHo Abileneforeollectiori in duetitr.e, and the prooftends toshow that aU' has been collected on theddhat can be; but, wlietherthat be 1'30 or not, there is 'not a syllableoftestimohy to show th'tt .the defendant has' been guilty of the 'slightest' negligence in respect to' these collaterals, 'onhat tit has done anything, oroIIlitted to do anything, to render it liable for such portions of the collateral as it has not collected. And in ,tMs aceountingit is chargeable only with the amount collected, namely, $3;341.81. The 'lh'bune Note; By the laws of Colorado, judgments draw inter'est;' and the master erred'in not cornputinginterest on the judgment on the' $25,000 note, knoWn as the "Tribune Note," down to the date of its pa,Yttlentbythe sale ofthecollateral,na:mely, December 5,1887. 'Interest. The defendant is entitled: to have interest computed on the notes and demands he holds against Mr. Henry down to the date of the ,i:nll.Bter'sreporti' It is aled 'entitled to have interest computed on its demand against the ditch companies, and· for its advances to said compahies, until 'it received, Oi'should have received, bonds in payment; and the account will be reetatedaceordingly. '!he Balance OZainted' 'on the and Pht.en1,z Notes., The balimce·claimed to be due on the shee.p-ranch note of $lO,OOO, and the Phrenix 'note of $3,500, is stated to ha\'e' been settled in the first statementof accounts filed by the defendant. There is a conflict of evidence on the point, and 1 think the 'master, under all the circumstances, to the statement of its account as first made rightly held the, -and filed. " : ' " Oolorado"Delinqttent:Account. The account known as the "Colorado 79, was settled and Delinquent Account," to the amount of paid, as shown by an entry in the defendant's books, by two notes of$17,500 each, and by a payment oUB68.79 in cash. It is clarmedthat this' is anerroneolis entry, and that it Was made by mistake; but the agent or clerk of the defendant who' made the entry', which is very full, plain; and explicit, is not called to explain by whose diiiection or authority he made it, or that it was not made by the direc-tion alsome officer or agent of the defendant having authority to direct It. In the' absence of such proof, it must be presutned to have been made by' alithority Of the company: 'The verbal testimony'on thequestiono! this payment in the mode· stated is conflicting; but, in view. of the entry iiltbe books, the'master rightly held that this account had I '
S7l been settled to theamOUllt i;lt.!lted. to the Hazleton of $2, and the Baker item of $3,900, which belong to the Colo, rado delinquent account, are also overruled·. CO'lnmwsions. The exceptions to the commissions allowed Mr. IIenry are overruled. There is a conflict in the evidence relating to this item, and I will not disturb the finding of the master. Kanscl,s Delinquent Account. T. C. Henry & Co., of Abilene, Kan., as loan and collecting agents for the defendant, became indebted to the defendantfor moneys received and collected; and not accounted for, in about the sum of $77 ,000. To payor to secure this,-and whether in payment or as collateral security is the question in dispute,-Henry turned over to the defendant notes and obligations due Henry & Co. to the amount of about $80,000. It is quite obvious that the securities thus turned over were of much less value than the defendant's claim against Henry & Co. on account of their delinquencies. The· plaintiff is unable to produce any writing to show that these securities were taken in absolute payment. He introduces a letter, written by himself, referring to the Abilene business, which, as I construe it, supports the. defendant's. contention. Writing from Denver to his partner at Abilene, he says: "The Travelers [meaning the defendant] have all my property here, and I }Iave no way to protect the KanRRs office creditors, nnless it is done in your deal. I do not care for the Travelt>rs, and I want a list of the assets; and I want to there is no slip about paying debts before the office is actually sold, andeverytbing turned over to them. I have been caught once."
The Kansas office creditors-that is, the local creditors of the firm of T. C. Henry & Co.-were protected in the deal for the sale and pur chase oOhe Kansas office, embracing abstractl;l, furniture, etc. Thedefendant paid therefor $25,000, all of which went to satisfy the local or "Kansas office creditors;" but no provision was made in that "deal" for the delinquent account due the defendant. The transaction is witnessed by a written agreement which says nothing on the subject now under discussion. The officers and agents oLthe defendant company, including Mr. Carpenter, who was the partner of Mr. Henry in the Abilene businyss, and who, with Mr. Henry, constituted the firm T. C. Henry & Co., testified that they were taken as collateral; and I think the clear, and I might say the overwhelming, weight of the evidence supports that view. are circumstances connecte4 with that transaction, disclosed by the evidence, which satisfy me that thtse notes and obligations were taken as collateral, and not as payment of this indebtedness.. Note.of$5,OOO. On the question as to\Yhether tbenote of $5,000, dated June 24,1884, was settled in the sale to Carter-Cotton of the stock of the North Poudre Land & Canal Company, there is no written evidence, and. the oral testimony is conflicting; and, while I think there is a.slightpreponderance of evidence in favor of the defendant, that preponderance is not so clear and decided as to justify the court in setting aside the master's finding. r
prepare and submit to the court, for the signature of the judge, a decree in conformity to this fiuding. I take it for granted that the defendant desires to enter a prayer for appeal both from the original and present decree, and that the plaintiff desires to enter a prayer for appeal from so much of the present decree as sustains any exceptions to the master's report; and the conclusion of the decree will pray for these appeals, and note their allowance. The clerk will file this opinion in the record oithe case, and embrace it in the transcript to the supreme court,_ if an appeal is taken. . , ... ,!, ·
FID:EJ;.ITY IN!!. &:
SAFE-DEPOSIT
Co.
t1. SHENANDOAH
IRQlI Co.
(Circuit Court, W. D. Virainw.
May 14, lSSU.)
t.
PBIoluTT OJ' LABOR AlO) SUJ'PLT LIBN_MORTGAGB BONDI.
By the general of equity, claims for materials, supplies, and labor furnisbed to a mining and manufacturing company are not entitled to priority over the mortgage bonds thereof. .
DECISION OJ!' STATB COURT-PRIORITY O:rLIBNS.
·· CONSTITUTIONAL LAW-OI!JBCT EXPRBSSBD IN TITLB 01' ACT.
o
, ., The act of April 2, 1879, entitled" An act to amend and re-enact the first and S60ond sections of an act apPl'oved. March 21,1877, entitled' An act to secure the payment of the wages or Iialaries of certain em'ployes of railway, cnnal steam-boat, and other transportation companies,' » is in vlOlation of Const. Va. art. 5, § 15, which provid\ls that "no law embrace more than one object, and that shall be expressed in its' title, » in so far as it attempts to give the claims of employes of mining and manufacturing -companies a superior lien to that of the mortgage bondexpressed in the title relates to transportation comholders, because the only.
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EXC:E!:PTIONS' To MA.STlIB'S REPORT-ALLEGATIONS.
Where a master's report had given Jlriority to certain labor and supply claims under an uncr,mstitutio'lal st!,tute, which was in contravention of the general rules of eqUity, it was not necessary, on exception thereto, to aUege the unconstitutionality of the act. '
50
RBCBIvBBS' CBRTIFICATB!l-CoNsTBuCTION 01' ORDER.
Under an order authoriziI\g the issuance of receivers' certi1icates to pay taxes, "wages. and freights due andto become duel ':certificates given to secure a debt to a merchant, incurred by giVing ordersupbn nun to employes in payment of wages, were invalid.
SAME-COSTS.
One who signsexceptlonll to a master's report, as trustee' for numerous bond· holdllrs, is responsible'fot and an objection thereto for want of a party so chargeable is 0 0
T. ,SAMB;"'TiME OF FIW{G. U,n,d,e,r t,he rules of practice In, equity prOmUlgated, by the supreme court, i111842, r. exceptionS to a master's J:'eWrt may be flied at any time within amontll after the. Wing of tile report. ,
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In Equity. 0,n exceptions to a master's report.! J. S. Clark and lV. H. Travers, for mortgage bondholders.
FIDELITY INS. &: BAFJl:-DEPOSIT CO. II. SHENANDOAH IRON 00.
373
creditors.
Barton « Boyd, W. B. Compton, E. S. Conrad, and J. H. Smoot. for other
PAUL, J. On October 12, 1888, all parties in interest appearing by counsel and consenting thereto, it was ordered that the order entered on March 8, 1888, in the cause of Seventh National Bank v. Shenandoah Iron Co., appointing G. E. Lipeas special master to report certain accounts, the master's report thereunder, the exceptions thereto, and also the vouchers, accounts, and reports filed in said cause, be held and taken, to all intents and purposes, as if filed in this cause, with leave to parties in interest to file exceptions to said special master's report, dated June 15, 1888, and tiled October 12, 1888. On the same day, October 12, 1888, an order was entered in the suit of Seventh National Bank v. Shenandoah ImnCo. dismissing the same for want of equity; but the special master's report was, by consent of all parties in interest, filed in the cause now in hearing, to have the same effect as if it had been taken in this cause, and numerollsexceptions were filed thereto. The most important of those exceptions were filed by the first mortgage bondholders, and are as follows, iusubstance:(1)That claims 1-9 are erroneously in class 4, because, being for hay and oats furnished the Shenandoah Iron Company' before the appointment of the receivers, they are not entitled to priority over the first mortgage; (2) that claims 10-12, 14-17, $31,481.70, are erroneously classed in class 4, because they are not entitled to priority over the first mortgage; (3) that claim 13 is erroneously in class 4, because, being for iumber furnished the Shenandoah Iron Company before the appointment of the receiver, it i8 not entitled 00 priority over the first mortgage; (4) that receivers' certificates 2-13 are erroneously in class 2, been use exceptants insisttliat said receivers' certificates. are not liens prior to their mortgage. There are a number of other exceptions, but the questions presented by them will all be answered in the determination .of those above recited. Counsel for "other creditors" have, in argument, urged the following objections to the consideration of these exceptions: Fil'St. "That they are not signed by anyone who would be liahle for bondholder ill known ,costs under the provisions ofequity rule 84; by name in the record; and that, in the event of the failure of the. bondholders to maintain their exceptions, there is no one against whom costs .could be recovered." ·Itistrue that the bondholders are not parties to the suit by name. They are represented by their trustee, the plaintiff in this suit, and any step taken in their name is virtually taken in the suit. name of the trustee. They are really the parties in 'interest in They are the beneficiaries under the mortgage,-thecestuis que tr'U8tj and in tiling exceptions, by counsel, the bondholders are only doing what the trustee might do, and the court sees no difficultyin entering a,decree against the trustee for costs, in the event the bond,holders fail tosqstain their exceptions. It would be entirely impracticable to make all the bomlholders parties defendaJ;lt to the suit, or to have them .file excep- . ;tions in .tlleir pwn the master:s . ' Tbey ar.6. represented,
FEDERA..LREPORTER, voL 42.
hy' c(mnsel throughout the proceedIngs. This objection. the court considers purely technical, and cannot be sustained. . Second. "That the exceptions are not sufficiently specific, are too general :in their terms, and do not point out the grounds of l::xception." Counsel"argue that, as the counsel for the bondholders insist that the Virgiriia statute which gives priority'to material, supply, and wage claims is unconstitutional, this objection should have been specifically stated in the exceptions, and that it is too late to raise the question in the argument of the cause. This objection to the form of. the exceptions to a master's ,reportwaaaquestion presented and passed upon by the supreme court of the United States in Goddard v. Foster, 1 Black, 506. In that case, JusticeSwA.YNE, speaking for the court, said: "Before proceeding to consider the four rpmaining exceptions, we deem it proper.to advert to an objection made to their form by counsel for the complainant. It is said. that such all ex<...eption is in the nature ofa special demurrer, and that these,are not so full and,lIpeciliq that the court can consider them. Such is not. the rule of this court. t,l1at is is. that the exceptions should distinctly point out. the findings and conclusions of the master which it seeks to reverse. ' Having done so; it brings up for examination all questions of fact and of law arising upon the report of the master relative to that subject."
Applying the doctril1e as laid down in Goddard v. Foster to the exceptions,to be considered in this case, the court is very clearly of the opinion that the exceptions are sufl;iciently full and specific. "They distinctly point ouphe findings and conclusions of the master which they wish to reverse. II '. Third. Athird objection urged to the Clonsideration of'these exceptions is "that thyy were not take,nat the proper time; that they should have been filed before the master .before he had report. so that, if tHere Were -errors in the report, the master could have had the opportunity to correct theJD." This was formerly the English chancery practice; The niaster made a draft of his report, notified counsel of his find- ' ings, gave them an opportunity lopoint out errors, and the master considE:'redand corrected them. It was also the practice of the federal courts in, c'h'9.ncery. prior to tHe adoption of the equity rules of practice. This was the practice when Story v. Livingswn, 13 Pet. 359, was decided. This case has been st.renuouslyurged upon the attention of. the court as applicable to the exceptions under consideration. Story v.Livingston was decided in January; 1839. The rules of equity practice were promulgated by the supreri:Je court on March 2, since time the practice been different from that indicated in Story v. Livirigston. So far from its now being required that exceptibns shall be before the master during the time he is making up his'report, ohe month is allowed after the report has been completed r.eturned to the clerk's office in which to fl,leexceptions Rule 83 ofi-ules of practice in equity provides: "the master, l:I$soon as hisreliort is ,shall return the same into the clerk's office, and the day of the teturn shall be entered by the clt'rk in the order bookl Tile p,arties shalt have onelitonlh from the time of filing the
FIDELITY IKS.
tI. SHENANDOAH IRON
co.
375
report to file exceptions thereto; arid, if no exceptions are withi'n that period filed by either party. the ,rllPort shall stand confirmed on the next rule-day after the month is expired." This provision leaves no question as to the correcthess of the practice pursued. in .this case. This view is sustained in 'the opinion of Judge GRESHAM in Hatch v. Railroad Co., 15 Myer, Fed. Dec. 839, 9 Fed. Rep.
856-860.
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The most important question presented for the determination of the court in this case is as to the priority of lien between certain supply and wage claims which existed against the Shenandoah Iron Company before the appointment of the receivers and the mortgage bondholders. The priority of these supply and labor claims, as reported by the master, rests upon the provisions oian act of the geneml assemblyMVirginia, passed 1879. The first act.is March 21,1877, andamerided by act of entitled" An act to secure the payment of ,at .salaries to certain emplayes of railway ,canal, steam-boat, and other Qorporations," and reads as follows: "Be it enacted by the general assembly, that hereafter all conductors, brakemen,engine-drivers, firemen,captains, stewards, pilots, clerks, depot or office :agents, storekeepers, mechanics, or laborers. and all petsons furnishing railroad' iron, fuel. and aU otherstlpplies necessary fot tbe operation of trains and engines employed in the service of any railroad, canal. or other transportatioIicompany, chartered under the laws of this state. or doingbllsiness ,within its limits, shall have a prior lien on the the gross earnings, which is used in and on all the real and personal property of said operating the same. for andt<> the extent of the wages or salaries contracted to be' paid them by said company." ,
'l'h!l title and body of the act of April 2, 1879, read as follows: "An act to amend and 're-enact the first and second sections of ali act approved March 21, 1877, entitled' An act to secure the payment of wages or salaries to certain employes of railway, canal, and other transportation ,companies.' "(1) Be it enacted by the general assembly, that hereafter all conductors, .brakemen. engine-drivers, firemen, captHins, stewards., pilots, clerks, depot or office agents, storekeepers, mechanics, Or laborers. and all persons furnishing railr'oad iron, engines, cars, fuel, and all other supplies necessary for the operation of any railway, canal, or other transportation company, or of any mining or manufacturing company, chartered under or by the laws of this state, or doing .business within its limits, shall have a prior lien on the frimchises, the ,gross earnings, and on all the real and persona) property of said company which is used in operating the same, to the extent of the, moneys due them 'by said company for such wages or supplies." mortgage, deed of trust, sale, conveyance, or hypothecation hereafter executed of said property shall defeat or take precedence over said lien; but it is expressly provided that the liens of the employes and officials aforesaid shall be prior to all other liens whatsoever, "and shall .he the first discharged. Section 2 provides the mode of securing theli\llls provided for in the first section. " ' It is contended bJ'the bondholder!> that both the act of March 21, 1877, and the act amendatory thereof, are unconstitutional and invalid
176
, J'EDERAL REPORTER,
,as to material and, supply claims against a corporation of the oharacter of the Shenandoah Iron-Works; that they are also unconstitutional and invalid as to the provision which gives to labor claims a lien prior to that of the ,mortgage bonds. "This invalidity arises from a failure of the originaland amended acts:to comply with section 15, art. 5, of the constitution of Virginia, which reads: "No law shall embrace more than one object, and that shall be expressed in its title." The supreme court of appl::ld.s of Virginia' has recently decided these acts to be unconstitutional as to materials and supplies furnished a railroad company. Fidelity Ina.,ete., Co. v. Shenandoah Val. R. Co., 9 S. E. Rep. 759. Judge LEWIS; P."after referring to numerous decisions in other states as to the that the ti:tleshal1 embrace the subjects of the act, says: light of these,principles. there can be nQ reasonable doubt, we think, that of the aot, anfI act amendatory thereof. as is relied on in the present 'case is repugnant the constitution,and therefore void. The simple and single purpose indicate(l. by the titles to the two acts is to secure the payment of:wages or salarielNocertain employes: and we have only to regard the plain and well-understood meaning of these terms to see that by no possibility, made to li'mbrace the claims in question. The price of a locomotive. IS not wages or salary. and a person who builds and sells locomo,tives, .· ill, presumably, not an employe, but an employer. Bouvier ·defines · to be 'a compl'nsation gi \'en,to a hired person for. his or her and he ·a reward, or recompense for services perthepl'icl' pf hiring of,domestic servants and workmen;' formed.; , ..,,;;* though ;he usually applied. he says, to the reward paid to a public officer for the performance of his official dutips. We do not see how argument can 'make tbeinyalidjty of the act in the particular mentioned. The title is misleading and decl'ptive. It gave not"the remotest intimation of the provisions of the act relied on here, which are foreign to the SUbject expressed in the title; arid'to sustain the act in its entirety would be, in effect. by judicial construction, to eliminate from the constitution one of its most important provisions. \lr, at all events. to seriously impair its usefulness. This the courts have to do. Our duty. in such a case. is to maintain the constitution inviolate. and to declare void so much of the act as is inconsistent therewith·." ,
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; It is a well-settled principle that the decisions of the highest, state "courts, in 'the'construction of the state constitution and laws, are to be 'adopted by-the federal courts.. This doctrine is established by numerous :,decisions. Spear. Fed. Jud.645, 646; Shelby v. Guy, 11 Wheat. 361; 'Jac,k8on v. Chew, 12 Wheat. 153; Green v. Neal's Lessee, 6 Pet. 291; Oity ,ojRichmondv.Bmith, 15 Wall. 429. The decision of the court of appeals of Virginia in the case cited controls in this cause. The reasons assigned in that case for holding the acts unconstitutional as to supply claims against a railway company apply with equal force to supplies furnished a mininK ()r,manllfacturing. company; and the court decides that the. snpply claims existinll; prior to the appointment of the re;ceivers qav;e no priority over the lien ofthe mortgage bonds. The court has carefully examined the· question, as to the constitutionRlity of that provision of the amended act of April 2, 1879, which gives a lien to the employes of ruining ann. manufacturing companies superior bonds. As we,haye.seen, the original act made. to that ()f
FIDELITY INS. & SAFE-DEPOSIT CO. t1. SHENANDOAH IRON
877
no provision for the employes of such companies. The provisions of that act extend to 110 other employes than those of railroad, canal, and steam-boat companies. The title of the act uses the words "and corporations," but these words must be construed as meaning "like cor· porations" with those already enumerated. The title to the amendatory act is "An act to amend and the first and second sections of an act approved March 21, 1877. entitled' An act to secure the payment ofthe wages or salaries of certain employes of railway, canal, steam-boat, and. other transportation companies.'" There is no reference in this title to the wages and salaries of employes of mining and manufacturing companies. The title refers exclusively to transportation companies. The }?rovision in the body of the act giving a lien to the employes of mining and manufacturing companies is entirely foreign to the object declared in the title. It is in no manner germane to the legislation indicated by the title. A provision securing by lien the wages of farm laborers, or any other class of employes. would have been as appropriate as the provision inserted in regard to mining and manufacturing companies. The act is unconstitutional as to employes of mining and manufacturing companies, and the wage claims against the Shenandoah Iron Company existing prior to the appointment of receivers are .not liens on the property of said company, and will have to be classed with the claims of general creditors. This conclusion disposes of the question as to the priority of labor claims over other claims uue 'by the receivers. They have no such priority, alld all prop.er claims against the receivers must be paid pari passu. In this connection we will consider the exception filed by the bondholders to that part of the master's report which reports 14 receivers' certificates in favor of J. W. Rodgers. This exception must be sustained. The order of October 1, 1885, authorized the rt'ceivers to issue their cer'; tificates for a sum not to exceed $50,000 "to pay interest due on the bonds of the defendant company October 1, 1885, taxes overdue, and wages and ftflightsdue and to become due, before the business of the said defendant company to be prosecuted by the said receivers will realize sufficient to pay the same, and to pay for necessary materials in the prosecution of the said business." Mr. Rodgers' claim was not for wages, and the receivers were not authorized to issue to him certificates for it. The character of this claim was thoroughly discussed and carefully considered in the case of Seventh Nat. Bank v. Shena.ndoah Iron Co., 35 Fed. Rep. 436, and the same evidence considered then bears upon it now. It is simply a store·accountdebt against the Shenandoah Iron Company, existing by reason of orders given by the Shenandoah Iron Company to its employes on the store of Rodgers & Milner in payment of their wages. "The issue of the certificates is, however, confined strictly to the purposes expressed in the order, and these purposes· cannot be extended by implication." High, Rec. § 398d. Receivers' certificates, being merely evidences of indebtedness. can have no higher character than the debts of which they are the representatives. The debts for which these certificates were issued belonged to,the class of general claims, and the
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FE;J)ERAL R);jPORTER t vol.
certHicates must take . They cannot be allowed ae claims against the receivers, alHl given them over the mortgage , bonds. Theppsitiou: ta]{en by counsel, that the claims for materials, supplies, and labor furnished the defendant company. before the appointment of receivem hll.ve, under ihegeneral principles of equity, a preference given them oyer .the lien of the mortgage ,cannot be sustained. This been :applied to mining or manufacturing companies. doctrine has It is, owing to the quasi publi(l such companies, confined to railroad corporations. 'rhis. question was thoroughly and ably argued before this court in the case of Seventh Nat. Bank v. Shenan'floah Iron 00., 35 Fed. Rep. 438, 439. The court has found no reason to change its decision rendered in that and deems it unnecessary to repeat the vieWill therein ,expressed. Adl;lcrl;le will be entered in accordance with the opinion qere expressed. ','
KNox etal.
tI. COLUMBIA. LIBERTY IRON Co.
(Circuit COUTti W. D. Virl11,n'la. July 19, 1889.) 1. J;tEREA,BlNa-FINli, DEOREE. I
2.
Where a decree declaring the lien of certain labor and supply claims to be superior to that.o.f .mortgage bondholders was. fOU. n.ded. upon Acts Va. March 21, 1877, and . April 2; 18711, which were in contravention of the common law and which have since beeu declared unconstitutional by the court of appeals of Virginia, (Fidelity Ins.· etc.. Co.·v. Shenandoah Val. R. Co.,.9 S. E. Rep. 759,) a rehearing will be ,granted., ita,ppears that no ftnaJ. decree has been entered. "
s: FINAi. DEoBEE. "
.. . "The existence of the above facts presents a question of error on the face of the record, and" w1J.ere a fl.nal dlloree has been, entel'ed the petition for rehearing will be treated as a bill of review. A decree.of sale entered by consent of parties pending,a reference to settle the '. reooiver'sSCCllQpts. while the priority of certJUn liens claimed were undetermined, . and before any'dtstributilln was ordered among ante-receivership creditors, was not a finaJ.decree. . '
a.UI:E-BI1.LOF REVIEW.
In, Equity. On, petition for rehearing. G.R. Cqlveriand E. S. Conrad, for petitioners. H. C. AUen"and .J. E. Rolter,for labor, supply, and other creditors. ! ! j:
. bill in this case was filed June 10,1886, praying the appointment ,of a receiver who should continue and operate the business of the defenda,nt, subject to a. mortgage executed November 1, 1884, to secure the paymE\nt of certajJ;l. bonds of the company which, the petition. erS allege, 'WeJle issued for tbepl.lrcbase price of the property in the bill .OQJune.lO, 1886, receivers were appointed. On, October l4, 1886, ,tbe'c8,use was referred .to a waster to ascertain and report, in their orller of priorities, the debts against said company. After anum· b,er of thereto, and recommittals, the court, by de-