2. TOWAGE 11(8)-NEGLIGENCE-DUTY OF TOWING VESSEL.

Where a channel was dredged in a river, marked and opened by the federal authorities, it is the duty of a tug, towing a vessel, to keep it in the channel; but, where the vessel was grounded in the channel on a hidden obstruction, the tug is not liable.

3. TOWAGE 15(2)-LIBEI EVIDENCE.

In a proceeding against a tug for the grounding of a canal boat in a channel dredged and opened by the federal authorities, a finding of the trial court that the canal boat grounded while in the main channel upon a hidden obstruction held warranted by the evidence.

Appeal from the District Court of the United States for the District of Rhode Island; Arthur L. Brown, Judge.

Libel by Hattie Dailey and others against the steam tug Westerly, claimed by the Westerly Towing Company. From a decree dismissing the libel, libelants appeal. Affirmed.

Pierre M. Brown, of New York City (James J. Macklin, of New York City, on the brief), for appellants.

Samuel Park, of New York City (Park & Mattison, of New York City, on the brief), for appellee.

Before DODGE, BINGHAM and JOHNSON, Circuit Judges.

DODGE, Circuit Judge. The steam tug Westerly undertook to tow the appellants' canal boat Elmer D. Walling, laden with paving. stones, from Westerly, R. I., to Stonington, Conn. While proceeding up the Pawcatuck river, the tug having the canal boat lashed to her port side and projecting about 40 feet ahead of her bow, the canal boat grounded on an obstruction, which so damaged her bottom that she filled and sank thereon, with her cargo, thus sustaining the damages for which her owners seek to recover. This happened during the afternoon of November 22, 1913. The libel was filed January 10, 1914, the answer on March 10, 1914, but the case was not brought on for hearing until two years later; the trial beginning April 29, 1916. On December 18, 1916, the District Court dismissed the libel, from which decree the libelants appeal.

The canal boat was raised and taken to New London for repair by a wrecking company belonging to that place. Its operations were begun on the morning of November 26, 1913, the fourth day after the accident, and occupied two days. In them, the tug Carrie, belonging to the wrecking company, a steamer, and a lighter took part.

The testimony coming from witnesses who were on board the Westerly or the canal boat at the time the latter grounded and sank as above, or from witnesses who were on board any of the craft employed in raising her after her sinking, or from witnesses who saw her while she lay aground before her removal, as to her exact position at the time of grounding, was conflicting. Her master, on board her when she sank and present while she was being raised, one of her owners, also present while she was being raised, and the master of the wrecking company's tug Carrie, called as witnesses by the libelants, testified that she lay upon or close to the northerly edge of the dredged channel below referred to. On behalf of the Westerly, her master,

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

in command of her when the sinking occurred, and who visited her again on the day after the sinking, and the manager of the towing company to which the Westerly belonged, who also visited her on the day after the sinking, testified that she lay right in the channel and within a few feet of the line indicated by the government ranges as its center line. They also testified to soundings made by them around her at the time. In so locating her position, five fishermen, called as witnesses on the Westerly's behalf, familiar with the channel and living in the vicinity, who claimed to have passed near her at various times while she lay aground, agreed.

[1, 2] It is undisputed that there is a dredged channel leading from the mouth of the river up to Stonington, in which, at mean low tide, there was supposed to be a depth of not less than ten feet. The dredging had been completed and the channel opened for navigation on that assumption, by the federal authorities, during the summer of 1913. Outside this channel the bottom is rocky, the water shallow in many places, and therefore unsafe. It was the duty of the tug to keep the canal boat in the channel. If she was allowed to ground outside it, or on its edge, the tug was negligent, and therefore responsible for the sinking. The case turns, therefore, upon the question whether the canal boat, which sank, as is not disputed, upon the obstruction which stopped her, lay in or near the center of the dredged channel or on its edge.

The canal boat was drawing 8 feet 3 inches, according to her master's testimony. If there are indications that this somewhat understated her actual draft, there is nothing to show that she could not have gone safely wherever 10 feet of water, at mean low water, was to be found. An obstruction in the middle of the dredged channel, without sufficient water over it for her safe passage, would have been such an obstruction as no one could reasonably have been expected to find there, after the channel had been announced, as above, as completed and open for navigation. The master of the tug had been for many years a licensed pilot engaged in towing up the river; but he had on other occasions followed channels other than the dredged channel in the neighborhood of the place where the canal boat grounded, and was using the dredged channel at the time as a measure of extra precaution, because of having the canal boat on his port side. This was the first occasion upon which he had used it.

The tug had the burden of excusing the failure in performance of her undertaking to tow the canal boat safely through a presumably safe and well-marked channel. Boston, Cape Cod, etc., Co. v. Staples, etc., Co., 246 Fed. 549, 552, 158 C. C. A. 519. It would be sufficient excuse if the grounding was in fact caused by an obstruction in the channel over which there was not water enough for the canal boat, because her master would have been justified in believing that no such obstruction was to be found there; but it was for the tug to show the existence of such an obstruction, and therefore to show that she had the canal boat in the middle of the dredged channel when she grounded, and not outside of it or on its edge.

[3] The District Court found the tug's contention that the canal

boat struck while proceeding on government ranges, and sank wholly within the channel near its center line, supported by the preponderance of the direct testimony given by those who observed her exact location while aground after sinking. All the witnesses by whom direct testimony of this character was given testified in person before the court, with the exception of the master of the canal boat, whose deposition was taken in New York shortly before the trial. We find nothing in the record sufficient to warrant us in holding the District Court's conclusion erroneous as to the result of the testimony of this class.

Besides the above testimony based on actual observation of the canal boat's position while aground in November, 1913, there was conflicting evidence at the trial relating to various attempts to fix her then position, made long afterward, by a different method.

In April, 1916, two days before the trial began, the Westerly went to the scene of the accident, having on board, besides her master, above mentioned the master of the Carrie. Under their direction, the bottom of the 100-foot channel was searched at what was considered to be the place where the canal boat had lain aground 29 months before. There was evidence from them tending to show that the result of this search was the finding of a rock or obstruction, such as would have accounted for the sinking, about 30 feet north of the center line of the channel. The cross-examination of one of the fishermen above referred to (Clarke) also brought out testimony from him, not given in his direct examination, that he had independently made soundings at what he considered to have been the sunken canal boat's position, four days before the trial, and had there found a rock, believed by him to be that upon which she struck, 10 or 12 feet north of the center of the channel.

The hearing was continued for a joint examination of the supposed place of sinking, and this was made on Wednesday, May 3, 1916. In this the Westerly and her master took part on the respondent's behalf, and on the libelants' behalf the government engineer from New London, under whose supervision the channel had been dredged, who came there in a government launch, accompanied by the libelants' counsel. His testimony, given in rebuttal, was the only testimony regarding the results of this examination. It tended to show that he was unable to find any rock at the place indicated by the Westerly's master, though he spent several hours in sweeping and sounding there; also that he took Clarke, later on the same day, to the place, while the Westerly was still there, but found Clarke unable to show him where he could find a rock in the channel by using a sounding pole. It further tended to show that he returned alone next morning, and then found a rock 10 or 12 feet outside the northerly limit line of the channel, having over it 6.2 feet at mean low tide. But it also tended to show that opposite this rock, and nearly in the center of the channel, he found a "spot" with a minimum depth of 8.9 feet at mean low water.

Much of the argument before us has related to the reliability of the conflicting testimony regarding these examinations of the channel in 1916, and to the proper inferences therefrom, as claimed by the one party or the other. We are unable to regard it as affording a satisfac

tory basis for any definite conclusion either for or against the contention that the canal boat grounded, in 1913, in mid-channel, and not on or beyond the northerly edge of the channel. The canal boat's actual location had become a matter of memory only. Three winters had intervened, and we cannot assume, in view of what appears regarding the general character of the material through which the channel was dredged, that its bottom in 1916 was as it had been in 1913. We think the District Court properly based its findings tipon "the conflicting testimony of eyewitnesses given more than two years after the event," and the appellants fail to satisfy us that the evidence of that character required different findings, or that the conclusion reached below was erroneous.

The decree of the District Court is affirmed, and the appellee recovers its costs of appeal.

(249 Fed. 942)

SEARLE et al. v. MECHANICS' LOAN & TRUST CO. et al.

In re STACK-GIBBS LUMBER CO.

(Circuit Court of Appeals, Ninth Circuit. April 1, 1918.)
No. 3110.

1. BANKRUPTCY 317-ESTOPPEL-EQUITABLE ESTOPPEL-WHAT CONSTI

TUTES.

Where creditors, who signed an agreement that the debtor's property should be operated by a trustee, who was to make advances, assumed that the agreement had been signed by the requisite number, and the trustee operated the property for more than five months, making advances, those creditors who signed the agreement are estopped, on the debtor's subsequent bankruptcy, to assert that the agreement had not been executed by the requisite number.

In view of the broad powers conferred by Bankruptcy Act July 1, 1898, c. 541, § 2, 30 Stat. 545 (Comp. St. 1916, § 9586), a court of bankruptcy, where an agreement between a majority of the creditors of the bankrupt and a trustee, who took possession of the bankrupt's property and made advances, gave the trustee an equitable lien on the interest of such creditors, has jurisdiction to order that dividends due and payable to such creditors be first applied to the satisfaction of the trustee's claim before any payment be made to the creditors.

In such case, where the trustee did not make the advances from its own funds, but obtained the same from a bank with which it was affiliated, and all parties to the transaction knew that the money was advanced with the understanding that a lien would be created, both upon the trust property and upon the interests of the consenting creditors, those creditors, who were parties to the agreement, cannot attack the preference lien of the trust company, which the bank prayed should be allowed, because the trustee did not advance its own funds.

4. BANKRUPTCY 52-COURTS-DISTRIBUTION OF PROPERTY.

The administration and distribution of estates in bankruptcy is a proceeding in equity, the property in the custody of the court being held in trust for those to whom it rightfully belongs, and its distribution should be conducted on equitable principles.

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

Appeal from the District Court of the United States for the Northern Division of the District of Idaho; Frank S. Dietrich, Judge.

In the matter of the Stack-Gibbs Lumber Company, a corporation. From an order denying the claim of the Mechanics' Loan & Trust Company and the Exchange National Bank of Spokane to a preferential lien on all the assets of the bankrupt, but directing that dividends, thereafter to be determined by the court to be due and payable to the creditors who signed a certain contract, should be paid to the Trust Company and to the Bank jointly until the full amount of their advances to the bankrupt should be paid, I. F. Searle, Minnie A. Gibbs, and Merrill, Cox & Co., creditors of the bankrupt, appeal. Affirmed.

The Stack-Gibbs Lumber Company, a corporation, operated a lumber yard in Idaho, and handled the product of the Dryad Lumber Company, a corporation, which ran a sawmill. The two companies were substantially one. They will be referred to herein as the Lumber Company. In the year 1915 the Lumber Company was involved in financial difficulties. Among its creditors was the Exchange National Bank of Spokane, to whom it owed $6,000. In January, 1916, a meeting of the creditors of the Lumber Company was held at Minneapolis, which resulted in the execution of an agreement between the Lumber Company and the majority of its creditors, whereby all the property of the former was transferred to the Mechanics' Loan & Trust Company as trustee, and it was provided, among other things, that the trustee should take possession of the property, operate the same, collect the debts owing to the Lumber Company, sell the salable property thereof, and that the trustee should advance such sums of money as it should deem necessary to meet the present pay roll of the Lumber Company, and discharge the claims of creditors who had not executed the instrument, "not to exceed, however, the sum of $100,000," and that the trustee should have a first and preference claim upon said trust estate for the amount of such advancement, the same to be repaid to it out of the first proceeds of sales of the trust property, or any part thereof, or the first proceeds of the collected accounts or bills receivable, together with interest thereon. It was provided, further, that the instrument should not take effect until creditors representing 90 per cent. in amount of the indebtedness of the Lumber Company should have attached their signatures thereto. At that meeting a large number of creditors, whose claims aggregated more than $600,000, signed the agreement; but the amount of the claims so represented did not quite equal 90 per cent. of all the claims. One H. J. Aaron, an attorney, of Chicago, prepared the trust deed, and signed it on behalf of creditors whose claims were $328,250. It was desired by the creditors that no notoriety be given to the transaction, and they gave the trustee a letter of instructions that the trust agreement should not be placed on record until it was found necessary to do so to protect the creditors' rights. It was estimated by those present that, if the signature of Mrs. Tolerton of Chicago, who was one of the creditors, were attached to the instrument, it would then have been signed by creditors representing 90 per cent. of all the debts. All were desirous that the trust agreement be executed as soon as possible. On February 9th Aaron telegraphed to Coman, a director of the trustee, that the contract had been signed by Mrs. Tolerton, and Coman replied that the trustee would go ahead and make advances to take care of the pay roll due. The trust agreement contained the provision that one Sigmund Katz, of Chicago, should be made the secretary and treasurer, and a director of the Lumber Company, and Aaron suggested that Katz go to Idaho and run the business, since by reason of their large interests the creditors were entitled to have their man on the job. Accordingly Katz went to Idaho, and on February 15th he was elected director, secretary, and treasurer of the Lumber Company. As soon as the trustee knew that Mrs. Tolerton had signed the trust agreement, it commenced to advance