The order provides that, in case the court shall ultimately decide that any of the trees which the railroad company takes under it are obtained without the sanction of the acts of Congress, the company shall be charged with the manufactured value of the ties, or of the wooden materials made therefrom. The railroad company must ultimately be charged with the value of the property it wrongfully takes, but whether that value shall be the stumpage value or the manufactured value should be left for determination at the final hearing, after the evidence and the arguments have been presented to the court. The order forbids the railroad company to cut, use, or apply any timber upon or from any of the lands for the purpose of repairing or reconstructing with standard-gauge ties any line of its railroad originally constructed upon the narrow-gauge plan. This inhibition may be safely removed. The question whether or not the railroad. company has the right to take timber for such ties is a serious one, which must not be determined without grave consideration, nor before all the evidence and the arguments of counsel upon the final hearing are before the court. Meanwhile no serious injury will be inflicted upon the government if the railroad company is permitted to take and to report the timber and ties which it needs for this purpose, subject to the other restrictions which are contained in the order. The order seems to forbid the railroad company from taking timber from lands adjacent to any one of the eight lines of railway numbered and specified in the original articles of incorporation for use in repairing any other of those eight lines. The question suggested by this statement is at least a debatable one, and this embargo may well be removed until the final hearing of the case. The act of Congress takes no note of the eight lines of railway, but grants the right to take the timber from lands adjacent to the right of way of the Denver & Rio Grande Railway Company, as though it had but one right of way and but one line, and it has been held that timber may be taken anywhere along the line of this railroad to construct any part of it. Denver & Rio Grande R. Co. v. U. S. (C. C.) 34 Fed. 838, 842; U. S. v. Denver, etc., Railway, 150 U. S. 1, 12, 14 Sup. Ct. 11, 37 L. Ed. 975. The order and injunction appear to prohibit the railroad company and its agents from transporting the timber from the places of taking to the railroad by rail. The United States can derive no benefit from compelling the railroad company to transport logs or lumber by the use of teams, and the use of railroads for this purpose cannot inflict any injury upon the government. This embargo may therefore be raised. It is accordingly ordered that the injunction and the order granting the injunction herein made by the Circuit Court on December 18, 1902, be, and the same are, so modified that the Denver & Rio Grande Railroad Company, until the further order of the Circuit Court, may within a distance of six miles laterally from any of its lines of railroad fell trees sufficient to furnish such ties or other wooden materials as may be lawfully appropriated and applied in the repair of its lines of railroad, and out of such trees may cause such ties and other wooden materials to be properly manufactured or prepared either with or without the use of sawmills and sawmill processes; that within the same lateral distance of any line of its railroad not yet constructed it may, until the further order of the Circuit Court, fell trees upon the public lands sufficient in quantity to furnish such ties, or other wooden materials as may be lawfully appropriated and applied to the construction of such line, and may manufacture them by sawmill or other processes for the purpose of such construction; that it may transport such timber from the place of its taking by rail or otherwise; that for all timber, ties, and other wooden materials secured under this order to which it is not lawfully entitled the railroad company shall pay the value which shall be determined at the final hearing; that the railroad company may take timber under the terms of the original order, as hereby modified, to repair or reconstruct with standard-gauge ties any line of its railroad originally constructed upon the narrow-gauge plan prior to June 8, 1882; that all the restrictions and terms of the original injunction and order not expressly removed hereby remain in force; that the reports of the railroad company of the timber taken and the manufactured product shall include and separately state the surplus lumber not used for railroad purposes, the character, value, and disposition of the product manufactured therefrom; that the commissioner, Johnson, shall inspect the cutting, removal, and use of the timber. taken under the order and injunction, as modified hereby, to the end that a careful compliance therewith may be secured, and shall report to the court from time to time; and that the railroad company shall seasonably notify the commissioner when and where it intends to cut and take timber in any considerable amount, so as to enable him to inspect it and report to the court before it is felled, if he should be so advised; and the injunction and order as thus modi, fied are hereby affirmed, without costs. POLLOCK V. JONES. (Circuit Court of Appeals, Fourth Circuit. July 17, 1903.) No. 480. 1. PARTNERSHIP-POWER OF PARTNER TO BIND FIRM-SEALED INSTRUMENTS. Under the law of South Carolina, a partner cannot bind his firm by a sealed obligation or conveyance without the authority or ratification of his copartner. 2. BANKRUPTCY-PREFERENCE-MORTGAGE. A mere promise by a debtor at the time the debt was contracted to give a mortgage to secure it, without specifying the nature of the mortgage or the property on which it was to be given, does not create a mortgage, and the giving of one on a subsequent renewal of the debt, at a time when the debtor is insolvent, and within four months prior to his bankruptcy, constitutes a transfer of property to secure an antecedent debt, and creates a preference. 12. See Bankruptcy, vol. 6, Cent. Dig. § 263. 8. SAME-VALIDITY OF MORTGAGE-INTENTION TO HINDER OR DELAY OTHER CREDITORS. A chattel mortgage given by a partner while the firm was insolvent, and within four months prior to its bankruptcy, to secure a single creditor, and covering all of the property of the firm, the fact not being disclosed at the time or afterward to his partner, must be held to have been given on his part with the intent to hinder, delay, or defraud his other creditors, and is void, under Bankr. Act July 1, 1898, § 67e, 30 Stat. 564, 565, c. 541 [U. S. Comp. St. 1901, p. 3449]. 4 ASSIGNMENT FOR BENEFIT OF CREDITORS-MORTGAGE COVERING ALL DEBTOR'S PROPERTY-VALIDITY. Under the law of South Carolina, such a mortgage also amounts to a general assignment, and is void under Civ. Code, § 2647, because preferential. Appeal from the District Court of the United States for the District of South Carolina, in Bankruptcy. This case comes up on appeal from the District Court of the United States for the district of South Carolina, sitting in bankruptcy. J. D. Jones and J. W. Duff were copartners in a general business of merchandising at Blacksburg, S. C., under the firm name of Jones & Duff. Jones, the senior partner, lived at Gaffney's, some distance from Blacksburg, and the active management of the business was in the hands of Duff, a resident of Blacksburg. Jones visited Blacksburg from time to time, and examined into the affairs of the firm, as shown to him by his partner. One of these visits was shortly before the 15th July, 1902. At this time the accounts of the firm, as exhibited and explained by Duff, showed an apparent surplus of from $3,000 to $3,500. Duff died suddenly on the 14th July, 1902. Upon his death it was at once discovered that the firm was utterly insolvent. Many claims unknown to and never disclosed to Jones appeared in existence, among them the claim of A. H. Pollock, the subject-matter of this appeal. Jones, the surviving partner, thereupon, on the 21st July, 1902, filed his petition in voluntary bankruptcy, making up the schedules as best he could. He was duly adjudicated a bankrupt on that day. The case was referred to G. W. Speer as referee, and J. R. Healen was subsequently made trustee. He possessed himself of all the stock in trade and assets of the firm, and under an order of the court has disposed of the stock, obtaining $3,588. Other assets brought about $200. The open accounts are of the face value of $2,000 or $3,000. At the time of the hearing of this case below the debts proved against the estate were over $12,000 in the aggregate. Mr. Jones says in his testimony that his examination of the books of the firm showed that the great volume of this indebtedness was created between 1st February and 1st May, 1902. The record does not show that the books were produced in evidence. On the day of the death of Duff, A. H. Pollock placed upon record a chattel mortgage, dated 28th May, 1902, covering the entire stock, dry goods, groceries, notions, hats, shoes, furniture, fixtures, safe, and everything connected with the business of Jones & Duff; all the stock of goods then in the storehouse belonging to R. R. Brown, in Blacksburg, S. C., and all goods, both dry goods and groceries, that may have to be added to said stock and in said storehouse; one bay horse and one one-horse wagon; also all crop, buggies, wagons, and household goods; two shares stock in the Blacksburg Spinning & Knitting Mill; 100 cords wood, more or less, situated on lands of Mariah Young, in said county and state; also all open accounts at that date on the books of Jones & Duff; all notes, liens, and mortgages payable to Jones & Duff, a list of which was intended to be attached to the mortgage, which list is made part of the mortgage, the same appearing in ledger No. 5 of the said firmthe mortgagor, Duff, agreeing to pay Pollock all expenses that he may incur in the collection of the note and mortgage. Default in payment of any notes secured by the mortgage renders the whole sum due, with full power of sale In the mortgagee in case of default. This mortgage was given to secure a note in the aggregate sum of $2,000, dated 28th May, 1902, in installments payable June 25, 1902, $500; July 25, 1902, $500; September 25, 1902, $500; October 25, 1902, $500-which note to bear interest at 8 per cent. per annum after maturity, and 10 per cent. attorney's fee in addition thereto if collected by suit. The mortgage was signed in the firm name, with the seal attached, and the note secured by the mortgage is also a sealed note, the seal following the name of the firm. All the description of the property mortgaged was either written or typewritten, except the words: "Also all my crop, buggies, wagons, and household goods," etc. A statute of South Carolina passed in 1901 (Civ. Code S. C. § 3002) requires property mortgaged in a chattel mortgage to be described in writing or typewriting, but not printing on the face of the mortgage; otherwise the mortgage shall be invalid. On the 29th July, 1902, A. H. Pollock proved before the referee a debt of $2,000, and 10 per cent. attorney's fees, consideration of which is stated to be cash loaned. There is no set-off or counterclaim to the same, the proof of debt stating that the only securities held for it was this mortgage, and declaring that the lien of the mortgage is neither waived nor released by proving the same, but the same is asserted. The history of this mortgage as detailed by Mr. Pollock is that he sold to the firm of Jones & Duff about the 1st February, 1902, cotton for the price of $1,040; that he took no security, as he trusted the firm. On the 29th April thereafter Duff told him that he had the money to pay him, but that he wanted more money, and then proposed that Pollock would add $960 to the debt, making in all $2,000, and at the same time promised to give him the mortgage. The character of the mortgage was not specified. Pollock consented, and deposited $960 to the credit of Jones & Duff in bank, and took four notes, bearing date 29th April, 1902, for the amounts and for the periods subsequently specified in the note of the 28th May. No mortgage was executed at the time, Pollock considering the firm perfectly good, but on the 28th of May, 1902, the mortgage was executed and delivered to Pollock, who did not put it upon record until the death of Duff. The statute law of South Carolina requires a mortgage to be recorded within 40 days from the date of execution, in which case it constitutes lien from the day of execution. If recorded after 40 days, it creates a lien only after the date of recording. As has been seen, the notes and mortgage were signed and sealed by Duff in the name of the firm; Jones, the other partner, never having authorized a transaction of this character, knowing nothing of the transaction, and never having been informed of the transaction either by Duff or Pollock, until the mortgage was recorded upon the death of Duff. The court below finds that there is no ground to believe Pollock knew that the firm was insolvent at the time the mortgage was executed, but the judge also finds that at that date, and at the date of the loan, on April 19th, the firm was insolvent. Pollock having presented his claim, it was resisted by the general creditors and the trustee acting in their behalf. The case was referred to the referee, who found that Duff had no authority to sign and seal the notes or to seal the mortgage. He also found that this transaction with Pollock was unlawful preference under the bankrupt act, and a claim for a lien invalid. When the case came before the court below the conclusion of the referee as to the invalidity of the claim was sustained. An appeal was allowed, and the case is here on assignment of error. Hill Montague and N. W. Hardin, for appellant. Before SIMONTON, Circuit Judge, and MORRIS and KELLER, District Judges. SIMONTON, Circuit Judge (after stating the facts as above). There can be no doubt that under the law of South Carolina a sealed note given by one member of a firm creates no obligation against the firm, unless the partner so signing and sealing has authority from his copartner at the time to do the act, or unless when the act is brought to the knowledge of the other partner he acknowledges it or ratifies and confirms it. The evidence in this case shows that Jones never knew of the execution of the note or of mortgage until after the death of Duff, and that he never acknowledged, assented to, or ratified it, although both Duff and Pollock had frequent opportunity of informing him of the transaction. This act of Duff, being unauthorized, did not bind the firm. Sibley v. Young & Napier, 26 S. C. 415, 2 S. E. 314; Hull v. Young, 30 S. C. 121, 8 S. E. 695, 3 L. R. A. 521. In the case first quoted the Supreme Court of South Carolina says: "Here the instrument sued upon is a single bill, which the law requires shall be executed under seal, and hence the proposition contended for by the appellants cannot be sustained." That was that the seal being unnecessary it did not affect the transaction. "It is very true that the plaintiffs might have taken a promissory note to secure the payment of the amount due them by defendants, which Napier would have had authority to give in the name of the firm, but they chose to take a different security, one of such a character as Napier had no authority to give, and when they come to enforce such security they cannot avail themselves of the protection which the law would have afforded them if they had seen fit to take a different security. Indeed, if the proposition contended for by appellants should be admitted, we do not see how the question whether partner could be made liable on a sealed note, the execution of which he had not authorized or ratified, could ever arise; for it might always be said in such a case that the debt secured by the sealed note might have been evidenced by a promissory note, and therefore all the partners should be held liable. The question turns upon what has been done, and not upon what might have been done. The plaintiffs elected to secure their claim by an instrument of such a character as required a seal, and, under the well-settled law, when they bring their action on such a paper they cannot recover except upon the proof that it was executed by proper authority or has been subsequently ratified." In South Carolina a sealed note is synonymous with a single bill. In the same case it had been argued that placing the seal on the note was surplusage, and might be disregarded. This the court emphatically denied. This consideration alone would sustain the conclusion reached below. But it is a case made under the bankrupt law, and the court below based its conclusion entirely upon the provisions of that law, and this point will now be discussed. When the notes for $2,000 were made, subsequently consolidated into one note, they covered a pre-existing indebtedness of $1,040, and a cash loan of $960, as of the 29th April, 1902. At that time no security was given for the $2,000. Pollock says that a mortgage was promised. He is the only witness to this point. Apart from the fact that he is detailing occurrences between himself and a party then deceased, in a suit between himself and the assignee in bankruptcy of the party deceased, and so his evidence was incompetent under the statute law of South Carolina in such case made and provided (Code Civ. Proc. S. C. § 400), we are of the opinion that the bare promise to give security, not expressing in terms the character and subjectmatter of the security, could not create either an equitable or a legal mortgage. So the loan of $2,000 at the date of the mortgage of the 28th of May was for unsecured antecedent debt, both as to the $1,040 |
