SCHERMERHORN tI. DE CHAMnnUN.
195
to $40,000, covering the lumber on both the easterly and westerly blocks. A loss occurred, solely upon the westerly block, to the amount of $30,982.02; and the only question to be determined is as to the' contribution to be paid under the several policies. It is agreed· that the values before the fire were $42,368.46 on the and $16,727.06 on the easterly block which was not damaged. All the policies were of the Minnesota standard fOITIl, andconmined the following cIa-use: "This company shall not be liable under this policy for a greater proportion of any loss on the described property than the amount hereby insured shall bear to the whole insurance oil oil oil covering such property." Plalntiffs contend that the $40,000 compound policies are available for the payment of the losl'l on the westerly block, only in the proportion that the valuation of the westerly block bears to the combined valuation of both blocks; or, in other words, thatamonnt is to be obtained by adding together the valuations of each block, dividing the $40,000 by that sum, and multiplying the dividend by $42,368.46, which gives the amount of $28,577.95; and it is stipulated that, if this view be correct, defendaJ;lt is liable for $2,002.56. On the other hand, defendant insists that the whole $40,000 is available, and it is agreed that, if this rule is to be applied, the defendant is liable for only $1,549.10, and for this sum it has offered judgment.
Kueffner, Fauntleroy & Searles, for plaintiffs. Kitchel, Cohen & Shaw, for defendant. NELSON, District Judge (after stating the fads). Under this dause in the Minnesota standard policy, which is the contract governing the case, the limitation of liability is for a proportionate part of the whole insurance covering the property; and the stipulati()n exempts the, defendant frop.1 any greater liability than a part of the loss, to be measured by the whole amount insured. This rule, it seems to me, must be applied whether the other insurance is by specific or compound policies. There is no intimation in the ,clause that compound or floating policies covering the same and other property are not to be considered as part of the whole insurance covering such property. Let judgment be entered for plaintiffs in the sum of $1,549.10. SCHERMERHORN v. DE CHAMBRUN. (CircuIt Court of Appeals, Second Circuit. October 16. 1894.) No. 136. 1. FRAUD-PARTIES IN PARI DELICTO.
C., who was engaged as agent of certain heirs of one J., in efforts to recover property formerly belonging to J., under an agreement for compensation contingent upon success, made a contract, in 1876, with defendant, a lawyer, for services. C. made the agreed payments, and afterwards paid defendant other sums for further services. During the year 1876, C. made contracts with sundry lawyers and other persons for services and advances, agreeing to pay them out of his share of the J. property, after payment of expenses and counsel fees, making their claims liens upon such share. In August, 1880,C. contracted in writing with defendant to pay him $30,000 in consideration of services rendered, the amount to bea lien upon Co's share of the J.property. Defendant had rendered and continued to render important services throughout the litigation. After i1:lit close, resulting in a comparatively small recovery, C. brought this suit to establish a trust for his benefit in the $30,000 which had been pald to defendant, alleging that the contract of August, 1880, was made upon a secret understanding between C. and defendant
196
.DDERALREPORTER,vol.
64.
:.that the in 1;rust.fQr C., In order to withdraw that a,mount froD;l ,the ;)ll3'nlil oHhe contracts lllade in 1876, by making it appear I ' to be paid. as cO'llUeel fee$. Defendant. denied the. of such trust. HeW that, assUJij.lIlg the a.lleged trust to be proved (as it did not appear t. cOJ1.13titute a fraud upon C.'s creditors under the contractsot J 1876,. and a ..means of fraud upon otherswitb whom he might contJ:ll,C:t,and equity would not aid C., to obtain, the fruits of such fraud 2. SAME.....ATTOBNEYAND·CLIENT.
tact that defendant was a lawyer would nQt bring the case wlthintheexceptlon as to tLansfers of property made by a <:lient to his attorJ.\eYlto defeat Cl"editors, since It did not appear that C. was induced alleged tlmst by defendant's suggestion or advice, and the ,exception' exists only Where cHent and attorney are not In pari delicto, , 'but 'the tormer acts under the advice .of the latter.
ThiSW'll!il a suit by PIerre DeC1\ambrun, as administrator of CharleS A.De Chambrun, against George J. Schermerhorn, to es-' tablish and enforce a trtIst, and is now heard on defendant's appeal from a decree of the circuit court in the Southern district of New York, sustaining the bill upon pleadings and proofs, and directing an accounting. 59 Fed. 504. The suit was originally brought by Charles A. De Chambrun, but after the complainant's prooflil' Imd been in part put in, he died, and his administrator was dulys"ibstituted. The words "complainant" or "De Chambrun," whereever ',.used· in this opinion, refer, of course, to the original complainant; Much' of the record in this suit was before this court in be Ohaltibi'UD.v.Oampbell'sAdm'rs, 54 Fed. 231, and reference may be made tlHhel'QluminOllS statement of facts contained in the opinion in that 'case, 'Dluch ofwhich is necessarily reproduced here. Arthur H.. ,Masten and touis Mllrshall, for appellant. Eyerett P. for appellee. Before W LACOMBE, and SHIPMAN, Circuit Judges. LACOMBE, Circuit Judge. Charles, Marquis De Chambrun, was a citizen of France, for some time prior to the transactions hereinafter set forth a resident of this couutry, and attached to the French legation at Washington as its counsel and legal adviser. He was by profession a lawyer, though, ()f course, being an alien, not a prac· titioner in the courts of this state. Defendant is a lawyer, admitted to the bar in 1867. Until 1869 he was employed as a law clerk,' the latter part of the time in the office of Edmonds & where he acquired some knowledge as to the Jumellitigation, hereinafter referred to. he entered upon the practice of 'hif! profession on his own continuing therein until the summer of 1876, when he m.et the complainant. For the period fr()erii1870 to July, 1873, howel'er, he was employed otherwise than a(the bar. For many.years· there was pending in the United states courts what was ku()wn,as the "Jumel litigation," which involved the title to valuable reaL estate in the upper part of the 'cif:y'ofNewYork, in the possession of Nelson Chase and others, who derived their title from Madame Jumel,. the widow of Stephen J'umel. Tl\is litigation found its way into the supreme court of 'the United States in the case of Bowen v. Chase, 94 U. S. 812, 98 U.
SCHERMERHORN tI. DE CHAMBRUN.
197
So 254. During the progress of that suit it was discovered that the property involved had at one time belonged to Stephen Jumel, and it was claimed that the title thereto was still vested in his heirs; This claim came to the knowledge of De Chambrun some time in 1875, through one Joseph B. Stewart, a lawyer in New York, and on July 8, 1875, he entered into a contract with Nathaniel Wilson, a lawyer in Wafil!hington, whereby they mutually agreed to undertake the recovery of the property for the heirs, and to divide between them the net proceeds of such percentage as the heirs might agree to pay. Thereupon De Chambrun set out to find the heirs, who were residents of France,-a result which he accomplished with the assistance of one Stanislaus Le Bourgeois,-and on April 20, 1876, he entered into a written contract with them. By its terms he undertook and agreed to commence and carryon proceedings for the recovery of the estate, and to bear the expenses thereof. The heirs agreed to pay him as compensation for his services and outlay a sum equal to 47! per cent. of any money or property recovered in such proceedings, and as security for such payment gave him a lien upon such recovery. They also executed a power of attorney, giving him full authority to aet for them, retain counsel, prosecute suits, negotiate, and compromise, but at his own risk and expense; At a subsequent stage of the proceedings further documents authorizing compromises, etc., seem to have been executed by the heirs, but they are immaterial here, and need not be referred to. De Chambrun thus became the attorney in fact of the heirs in the prosecution of their claim, and from this time on during the long, arduous, and complicated proceedings in and out of court, with the narrative of which the voluminous record in this case is filled, he is the central and dominant figure. Briefly stated, the history of the litigation is as follows: In September, 1876, an action was brought in the United States circuit court for the Southern district of 1{ew York, in which E. Delafield Smith appeared as solicitor and John A. Stoutenburgh as counsel. An amended bill was filed early in 1877, but after answers and replication the suit was discontinued, May 27, 1878. On the same day a second suit was begun in the same court, with Stoutenburgh as solicitor, and was prosecuted through its various stages until April, 1883. Its character and magnitude is described in a letter, put in evidence by complainant, from one of the counsel engaged in its prosecution, as follows: "After [the death of E. Delafield Smith. in April, 1878] the whole burden of the work fell upon De Chambrun and his new associates. The enormous work performed by them can hardly be explained or understood without a personal examination of the papers. Personal searches were made through the records of a number of countries, runniug back for throo-quarters of a century. Numberless old persons were hunted up and interrogated. All kinds of threads were followed up; in most cases with the result of discovering that they ran nowhere. Six years were consumed in this labor. Meantime the taking of testimOlllY began, and continued over three years. Of that it is enough to say that the record mal{es four large printed volumes. That the work was thus carried on was due to the indomitable energy and pluck of De Chambrun. That anything has been realized is due to him and his associates, whom he inspired with his own spirit."
tionin >tbe. ,¥alueof realttstateand other vicissitudes J;Ilost matel'ially redlloodJt3,l.Unount. In,Jv.ne, l880, William I. 01lase, one of the defendanm,r (\otnpromised'Qyconveying to the French heirs an un· divided ,ouersixth in part of the property claimed· by them, and thereafter'begananaetion in Partition. to distribute the same. In July, 18S1,' Nelson Qhase, another compromised by the can· veyanQe .01 a further one-sixth. in the same property, and on April 4, 1883, therema.ini:ng.. defendant, made a like compromise; iThepropertY'".after realized finally about $350,000, and ,the 47ipep cent., wbell distributed, amounted (by reason of durillg, the proceedings to adjust all claims) to $178,784.33.. DefendRllt'semploymellt in this litigation began ill thesununer,Qf 1876. From. that time till close he was constantly engaged ·il;1 the performance of the work that was. allotted t'Q him, .undto that. work he devoted practioallyhis entire time. He examined records in. public offi.ces and elsewhere, sought diligently for testimony, was present· at eVery arguIl).ent and on every hearing, marsb.aled the witnesses, the law points as they arose in. consultation with counsel, assisted in preparation of the pleadings to the extent at Jeast of furnishing to counsel the data he hadobta.ined, prepared: cligests, of the proofs and memoranda for guidan'Ce of cOunsel in the examination of witnesses, kept track of aUappointJ;llents and registers of all that was done, under authority of the solicitor si:gned the· solicitor's name to such formal papers as the conduct'of a suit requires, attended to the printing, and generally performed all the work which, when a suit is conducted by a well-equipped law office, is done by the clerks therein. With De Chambrun he was in CQllstant. e;ommunication. They consulted together aaUy When De Ohambrun was in town,and Schermerhorn wrote him almost daUy when he was absent, whereby complainant was kept fully advised of ,every step taken, and o.f all occurrences having any bearing on the, bu,silless in hand. Defendant was competent, careful, untiring, accurate,' painstaking, and it is manifest that the litigation was of such magnitude that the man who was willing to do all' this-and rodo it thoroughly and well-would find that hewaspracticallym.aking it the business of his life for the time being. Apparently he never examined a witness, nor participated in an argument, nor assumed to conduct the case, in the sense in which those words. are used when describing the duties of solici·tor and counsel. In the two suits together there were at one time .01' another .employed as counsel Joseph B. Stewart, E. Delafield Smith, LeyiS. Cllatfield, Q-ideon J. Tucker, John A. Stoutenburgh, Matthew H. QarPElnter,Douglass Campbell, and Roscoe Oonkling. ·&meof these have left in the case no record but their names, and the burden of the to have been borne first by Carpenter, afterwards by' Campbell, and to some extent by Stoutenburgh. But with whomsoever might for the time being be the counsel in charge Schermerhorn constantly consulted. He also
SCHERMERHORN V. DE CHAMBRUN.
199
took an ac.tive part in negotiations outside of the litigation for sales of the property partitioned. Whatever may have been De Chambrun's financial resources, they were evidently'wholly inadequate for initiating and carrying on any such litigation as this. From its very inception, therefore, he paid in promises, whioli, whether expressed upon their face to be contingent or not, were of no pecuniary value unless the litigation should prove successful, and the 47! per cent, become available for their payment. Partly because it was supposed that the property was very valuable, and partly because counsel of ability are unwilling to hazard the loss of time and labor, which might be given elsewhere for a fair cash remuneration, without some additional prospect of reward to cover the risk, these contingent promises were out of all proportion to the value of the services to be rendered. And, possibly because De Chambrun was, as the circuit court expressed it, impulsive, generous, and optimistic, possibly also because he was shrewd enough to know that the surest way to "inspire his associates with his own spirit," and stimulate them to devote themselves despite difficulties and discouragement and delays to the end in view, W3!S to awaken their avarice, the disproportion in this' case was enormous. Twenty-five thousand, thirty thousand, fortyfive thousand dollars-4 per cent., 7 per cent., one-tenth, one-sixth, in some instances one-fourth of a sum supposed to be within the millions suggested potentialities of speculation calculated to insure active and persistent exertions. The record in the case at bar, with its narrative of the transactions between complainant, defendant, and Campbell which followed the first compromise, when the end was in sight, and the spoils of a victory, less profitable than was hoped for, remained to be divided, is a pitiful exhibition of the baleful influence of such speculations upon the profession of the law. Suspicions, too often well-founded, of each other's intentions. efforts at combinations in which the individual combiners should "pool" their claims and unite to protect 'their interests against all other claimants,-efforts which proved abortive, because some one of the combiners was always sure to feel he was not getting his full share,-bitter recriminations, smooth words to patch up a hollow truce under cover of which new schemes to ward off other claimants might be arranged, broken promises, shifty devices, secret agreements, make up a history which we are fortunately spared the task of further reviewing. As before stated, defendant was first employed some time in the summer of 1876. On October 25, 1876, De Chambrun signed and delivered to him a written agreement, in which, "for services performed and to be performed during the next ninety days in the suit of Jumel et al. vs. Chase [the first suit supra]," he agreed to com· pensate him (1) by paying him $500 within 90 days, (2) by paying him, his heirs or assigns, the further sum of $10,000, when the title of the heirs should be established, either by suit or compromise. And to secure such payment he pledged his share under the CODtract ",ith the Jumels. Why De Chambrun should have thus agreed to pay defendant $3,500 a month for three months of such service
200
lI'EDERAL REPORTER,
vol. 64.
as :he could render we do not .know, and thisl'ecord does not tell us. It may be that he supposed the information as to the Jumel estate which Schermerhorn had acquired when in Edmonds & Field's office was valuable, and thatit was better to buy it with him at a high price than to spend less money and more time in obtaining it through some one else. It may be that his two or three months' acquaintance with Schermerhorn· had satisfied him that defendant was just the man he wanted, and that he wanted his whole time, and a devotion to the business in hand, which only some startling promise of reward would secure. It may be that he did not give the amount of compensation much thought; that he was merely improvident and reckless with his pr:omises, where the ultimate recovery would be so largeth;:lt $10,000 would be a trifling item. Why he promised thios sumwe:donot know,but we do know that it was promised for legal services; . was promised absolutely if such services were rendered and success obtained; that the bill concedes this., although it avers that the period of 90 days was not the real limit of the services; and that no claim is made that this contract is impressed with any resulting trust in favor of complainant. The $500 stipulated for w3tS paid in due course; the $10,000 was also paid at the foot of a judgment in Chester v. Jumel. That suit was brought in 1886, by the. assignee of Stoutenburgh, to obtain the latter's agreed compensation out of the fund resulting from sale in partition. All persons having claims thereon, including Schermerhorn and De Chambrun, were made .parties, and the decision therein settled priorities and a\varded thEf respective amounts. The 90 daysmamed in the agreement of 1876 expired on January 25, 1877. Subsequent to that date, and prior to August 28, 1880, when a further agreement to pay Schermerhorn $30,000 (hereafter to be considered) was signed, De Chambrun paid him from time to time, in various small amounts, $3,175, and subsequent to August 28, 1880, he paid him in like manner $2,100. These sums, aggregating $5,275, the bill avers 'were to be considered as advances subject to final adjustment and were to be credited to complainant upon final accounting as part of the compensation stipulated for in the written contracts. There is conclusive evidence to the contrary of these averments. In the Chester suit the question as to these cash payments was presented and litigated vigorously between the parties to the suit at bar. Schermerhorn· was cross-examined thereon at length, and the referee found that these payments were for services not covered by either written agreement, and were not intended to apply, nor were they applicable, on any indebtedness created by such contracts. These findings were incorporated in the judgment entered in Chester v. Jumel, and as between the parties here, who have thus once litigated the questions covered by them before a competent tdbunal, are conclusive evidence of the facts they set forth. As was shown before, the Jumel litigation continued long subse· quent to the 90 days mentioned in the contract of 1876,-long after the suit, which was pending when that promise was made, had been. discontinued. The counsel who had been prominent at its inception gradually disappeared. Stewart "went South," Smith was
SCHERMERHORN ". DE CHAMBRUN.
201
stricken with paralysis and died in 1878, Carpenter died, aDd in September, 1880, Campbell was employed, apparently to take his place. Through all these vicissitudes Schermerhorn remained active, diligent, seemingly the one man who thoroughly knew the history of the case from its inception in the first suit; knew where the evidence was to be found, which witnesses were living and which were dead; knew where to find each document or memorandum or reference to authority in the intricate mass of papers which such a litigation heaps up, wheat and c,haff together, in the office of its solicitors; knew from frequent consultations with the earlier group of counsel just what were their opinions and plans, adopted or abandoned, as to the conduct of the case,-a most desirable associate, undoubtedly, for new counsel about to take up an unfamiliar litigation. Whatever may have been the value of Schermerhorn as a coadjutor when De Chambrun first met him in 1876, he was undoubtedly worth far more in 1880, when the W. I. Ohase compromise gave promise of ulL1Illate success, and time had become an important consideration to persons wearied by four years of delay. On August 28, 1880,-two months after W. I. Chase's compromise, -De Chambrun and Schermerhorn executed the paper which is the subject of this action. It reads as follows: "It is hereby stipulated and agreed by and between Charles Adolphe De Chambrun, as attorney in fact of the heirs at law and next of kin of Stephen Jumel, late of the city of Ne.v York. and George J. Schermerhorn. attorney at law. at the city of New York, that in consideration of the services rendered by said Schermerhorn at the request of said ChambruD. and in behalf of said heirs at law and next of kin of said Stephen Jumel, in litigations involving the title to premises in the city of New York at one time owned by said Stephen Jumel, said Chambrun agrees to pay said Schermerhorn the sum of thirty thousand dollars ($30,000). and such sum of $30.000 is hereby made a lien upon any moneys or property which Mid Chambrun may receive for said heirs at law and next of kin as aforesaid. It is further agreed that this agreement shall bind the heirs. executors. administrators, successors, and assigns of the respective parties hereto. In witness whereof the abovenamed parties have herennto set their names and seals at the city of New York this 28th day of August, 1880. "Charles Adolphe De Chambrun. [L. S.] "George J. Schermerhorn. [L. S.] "In the presence of Walter R. Beach."
The bill charges that: "At the same time said contract was so executed It was understood and agreed between the said De Chambrun and defendant that the defendant should hold said contract, and should receive and hold any money or property which he might receive and hold under 1<, in trust for said De Chambrun; and that after his own services, mentioned in Exhibit A [the agreement of October, 1876], and hereinbefore alleged, should be paid for, he should transfer and pay over to said De Chambrun all such property and moneys."
The bill prays that it be adjudged defendant holds said assignment and contract and all moneys which he has received thereunder in trust for De Chambrun, and asks for an accounting and payment. Defendant received the full amount of this contract of August 28, 1880, under the judgment in Chester v. Jumel. The reason why this alleged secret trust was created 18 set out in the bill as follows:
mERALREPORTER,
vol. 64 .
.
The answer specifiCalllY denies all allegations that the contract is impi;essedwith any s'll(\h'trust, oris other than what it appears to be on its face,-an agreement to pay a specified sum for legal servicesreudered. The 'pooinise to pay is not contingent on success, blitwe" do not thhilithat fact· material. The evidence shows pretty' conclusively that De Chambrun's personal obligation for have bOOB of no particular value had the litigation and .the,W. I. Chase· compromise had made success reasopa,bly certain. . Tb,ere is nothing on the ff;ice of this contract to indicate the existenceofa trust, and the party. who seeks thus to vary the '·. :written instn:J.ll1entassuroes, the burden, of proving his claim bya fair prep(jn:derance of As the trial goes on, the weight of evidence roaY,shift from scale to scale, 'but the burden assumed atthe beginning must be sustained at t):J.e end of the case. We find in the record no direct proof of an agreement that the contract should beheld. in trl1st", and it is suggestive that throughout the voluminouS correspondeJ1.Ce of the parties there is no allusion to its existence. Some of the subsequent actions of complainant himself seem wholly irrreconcilable with any such theory as that now advanced on his behalf. His counsel suggests that there is a sufficient explanation of his attempt in the' Chester suit to have all the contra,cts (including Schermerhorn's) thrown out, as not constituting liens . the' fund, and all disallowed, because of champerty in the original since,in that event, all being forced to accept a quantum-meruit, De Chambrun would receive personally quite as much 8.$ he would under the alleged trust. But such explanation does not· 'cover his attempt to secure the rejection of Schermerhorn's contract, for the reason, peculiar to itself, that "if he [Schermerhorn] had a lien, ,* * * he waived such lien by having had under his eqntrol sufficient of said property to satisfy his lien, and with' the same without having asserted his iien having nor does it, explain why he endeavored to have the cash payments of $5,275 charged against Schermerhorn's contracts. If De Chmnbrull's objections to the contracts generally proved sound, this peculiar" objection to Schermerhorn's would be superfluous. If, however, the general objections proved unsound, then by his
SCHERMERHORN'll. DE CHAMBRUN.
203"
special objection complainant ran the risk of destroying the very ark of safety, which, as he now alleges, he himself constructed for the express purpose of securing $30,000 for his own share, "reserved and cleared from all liens or charges." Upon the whole case, giving due weight to all the circumstances near to or remote from the date of the transaction, we do not find evidence adequate to prove the trust alleged. It would be proper to give the time necessaI'Y to discuss at length the circumstances relied on by complainant in support of his contention, were it not that there is inherent in his case an equitable bar to sustaining that contention, even if the proof of such a secret agreement as is alleged were clear and convincing. The contracts made "during the year 1876" referred to in the complaint were these: Contract No.1: On March 3, 1876, with E. Delafield Smith, whereby, in consideration of $16,250, advanced by the latter for the purpose of negotiating and perfecting the ·purchase from the French heirs, De Chambrun assigned to him one-fourth of his interest in any contracts he should have or thereafter make with the French heirs. This contract was superseded by a agreement of the parties to it on January 5, 1877, which agreement is treated in the case at bar as among the "agreements made in 1876." Contract No.2: On March 3, 1876, with E. Delafield Smith. It recited the purchase by Smith of a one-fourth interest in De Chambrun's contracts with the French heirs; and that Nelson Chase, a tenant Upon and claimant of part of said Jumel estate, was indebted to Smith in the amount of about $25,000. Thereupon the parties further agreed that "the said sum of $25,000 or thereabouts shall also be paid to the said Smith out of the proceeds of said Jumel estate so acquired by the said heirs, or any further interest therein, after the payment of all proper disbursements, and is hereby made a charge on the same." The superseding agreement of January 5, 1877, above referred to, expreSSly mentioned this contract, and continues it in force. Contract No.3: On March 4, 1876, with Joseph B. Stewart, providing that in the contract already made with the French heirs, or in any agreement that may be made by De Chambrun with them, "the same, and every part thereof, after paying and discharging all expenses and charges, and the paying of all associate counsel fees, and for the use and advance of capital, shall be equally shared and divided by and between said De Chambrun and the said Stewart." Stewart, it will be remembered, was the one who, early in the summer of 1875, first called De Chambrun's attention to· the fact that there was property formerly of Stephen Jumel to which his heirs in France were probably entitled, and who sought to interest- . him in the matter. Contract No.4: On July 10, 1876, with Stanislaus Le Bourgeois, transferring to him 7i per cent. out of his 47i per cent. in consideration of his services in discovering heirs of Stephen Jumel who were unknown to De Chambrun, and in settling with them the basis of the contract of April 20, 1876.
J'lCDEBAL REPORTER,
"Contract No. 5: OnA.:dgust 8, 1876, with John A. Stoutenburgh, agreeing' to pay him 4: per cent. on the entire proceeds of ilie property, covenanting tha.t it should be a specific lien on the property recovere.d. Oonsideration, professional services. Contract No.6: On October 4, 1876, with Levi S. Ohatfield, agreeing to pay him $1,000 within a few days, and further to pay him, his heirs, or assigns, $4:5,000 when the title to the property should be established, and, if less than the whole should be recovered, or the rights of the heirs compromised for less than the whole amount, then to pay a pro rata share of the amount recovered. To these pay· ments De Ohatnbrun pledged his share and interest under the French contract. The consideration expressed is "for services performed and to be 'performed, and information communicated in relation to the interests of the legal heirs," etc. Ohatfield, like Stewart, was aware of the existence of the claim before De Chambrun heard of it. He seems to have been one of the counsel in the earlier Jumel litigations. In Ohester v. Jumel it was held that he performed the services and communicated the information, and no one here questions such finding. Contract No.7: On October 5, 1876, with Gideon J. Tucker, in which, for services performed and to be performed, and information he agreed to pay $10,000, and 1! per cent. of all that might be recovered by suit or compromise. Contract No.8: On October 25, 1876, with Schermerhorn, already Bet forth supra. Contract No.9: On October 26,1876, with Griswold and Chamberlain, assigning 5 Per cent. of the 471 per cent. for a cash advance of $6,600. . Contract No. 10: On November 9,1876, with Jesse O. Connor, assigning him 3} per cent. of 40 per cent. of the entire recovery fm.services to be rendered in relation to the prosecution and preparation of the case of the French heirs against Nelson Chase and others. Oontract No. 11: On January 5, 1877, with Smith, superseding contract No.1, and agreeing that he should receive out of the pro· ceedshis advance of $16,250, and one·tenth in value of the recovery in the Jumel proceedings. These are the eontracts as to which the bill alleges that it "was for the interest of De Chambrun that some portion of his share [the 471 per cent.] should beset aside and cleared from their lien and charge," and "so reserved that in any event, and whatever the amount of the recovery in the Jumel litigation, a certain sum of money, being a IJa:l't thereof, should belong to him," irrespective of the fact he had or had not already assj.gned· or promised it-to some one else. It was "for this purpose, and not otherwise," as the bill avers, that the written agreement with Sohermerhorn was executed. Its avowed object, on complainant's own showing, was to 'create a bogus claim against the fund, ostensibly for legal servo ices,-,...;.a claim which, as Schermerhorn had undotibtedly rendered legal services, would no doubt be paid, as a legitimate, although extrav,agant,. charge, and which, when, thus paid, was to be secretly reserved for De Chambrun, out of .the reach of any others who
SCHERMERHORN ". DE CHAMBRll'N.
might hold his promises to pay from his share of tIle· proceeds of the litigation. Complainant cannot take the first step towards reoovery under this bill without proving that the contract of August 28, 1880, was a sham, and when he has proved that (we are of opinion that he has not succeeded in doing so, but assumiug that he has), then the undisputed facts in the case stamp it as a fraudulent sham. Such a sham agreement would be a fraud on Stewart. It was indeed held in the Chester suit that his contract gave him no specifio lien upon the property or money in the hands of the trustee, Elliot, who held the proceeds of the compromise; but there is nothing before us to show that his contract with De Chambrun was not a valid and subsisting obligation. As he was the one who gave De Chambrun the information without which he would never have sought the heirs nor undertaken the prosecution of their claim, Stewart's contract was certainly based upon sufficient consideration. If, "after paying and discharging all expenses and charges, and paying all associate counsel fees," there should be $30,000 left for De Chambrun, Stewart would have been entitled to one-half the residue. If the creation of a sham claim of $30,000-for further counsel fees-ex· hausted the fund, there would apparently be nothing for De'Chambrun, and therefore nothing for Stewart, while in reality De Chambrun, secure in his secret trust, would quietly pocket the whole $30,000, and leave his original partner in the adventure in the lurch. If the agreement of August, 1880, were a sham, it was a fraud on Smith, or rather on his administratrix. His contract No.2 was constrned by this court in De Chambrun v. Campbell's Adm'rs, 54: Fed. 231. We there held that Smith was entitled to payment of $25,000, the amount of the Chase notes, only "after payment of all proper disbursements" by De Chambrun. To creatp. a bogue claim for legal services,-apparently a proper disbursement,-and thus deplete the fund from which the $25,000 stipulated for by Smith was to come, was a deliberate fraud upon his administratrix, and none the less a fraud because subsequently, and before the money was distributed, this contract No.2 had passed by assignment to Campbell for De Chambrnn's benefit. The agreement of 1880 is to be judged in the light of the situation at the time it was made; its inherent vice is not purged away by subsequent accidents. The agreement of August, 1880, if sham, was ripe with the potentiality of future fraud. On August 31, 1881, De Chambrnn, in consideration of $10,000 cash, ady,anced to him by Mrs. Frances A. Gesner on his note for that amount, assigned to her as security all right, title, and interest in all fees and money due or to become due to him for services or compensation in Jumel v. Chase, or under any settlement thereof, with a covenant, which, in view of the facts above set forth, is, to say the least, remarkable, that he had "not heretofore made or executed any assignment of the interest in the fees or compensation or the money due to me in said action, or under any settlement with any of the defendants therein to any pemon whomsoever, nor any part or portion· of the same." Manifestly what was to come to De Chambrunas due for his services and compensation wa1l only what was left after the claims of others for proper legal services were
206
.'lll'EDJmA.:r. BBPORTEB,
.vol.
paid: "'as.J,'eaUy for it would take precedence 'of }[flS. ,Gesner,and she would not be entitled to any portion of the,I)loneypajd under it. . If ltwere what the com· 'arrangement whereby De Ohambrun was to pay to. De Gesner's claim would be entitled to precedence, orta paymeqt out of its proceeds. Now, Mrs. Gesner was a claimant inthenGhester suit.tHer. contract came next after SchermerhorlFs AugUl$t"aigreement, and the various claims allowed were given priority in.their chron@logical order. Schermerhorn's was presented as what· it appeared· to be, an agreement to pay for legal service' rendered. De ChambNnwas present in person and by counsel,but gllve no hint that it was the sham he now claims it was. In COnlrequence,. the referee alloWed it, and its $30,000, added to earlier the fund that for Mrs.: Gesner there was left but$60Ml6for her genuine and righteous claiin for '10,000 and 10 years' Tbe theory; jtlitml, of complainant's claim is that,having deliberately eonct>.cted with. defendant a scheme whereby some of his creditors might be defr.auded, the', reflult of the scheme has been that his coconspirator has ,o.btained the money. which complainant expected to secure, andnowrefll$e8 to divide or pay over. The attitude of a court ofequity.tClwardslitigants thuStsituated is too familiar to require citations·f:rom: thi> repwts.. ls,tersely and forcibly set forth by Mr. JUl!\ticeLamar,delivecing the opinion of the court, in Dent v. Ferguson; 132 10 Sup. Ct. 13: "That court is not a divider of ,the,inhecitance of iniquity between · · · two confederates- .infraud!'· :While conceding this rule, however, complainant's, counsel contend, and the circuit court reached the conclusion, tbatthe case at bar falls within the well-recognized exception that I'as against an llttorney.and counselor the law will set made with his client by. which property is placed ,inA\S hands to kepp .it out of the reaeh·of the creditors of the client." The cases cHed lis sustaining and defining this exception are Ford v. Harrington, 16 N.Y. 285; Fisher v. Bishop, 108 N. Y. 25, 15 N. E. 331; Place v. Hayward, 11,7 N. Y. 487,23 N. E. 25; In re Howell, 10 Law. T.Rep, 367. When these cases are analyzed, however, it is that they do uotsnpport the proposition that the wholesome rule wldch refuses the aid of a court of equity to one of two fraudulent parties as against the other is to be done away with when both stand in pari delicto, merely because the defendant is a, lawycr,uor to make the path easy for lawyers to escape the application of the rule by choosing their law clerks as assignees. .In. each of the cases cited it will be found that "the parties, altb9;l1gh in delicto, did Dot stand in paridelicto."''lt would be a -Jl'eproach to our judicial tribunals should they allow their officers . f · ·.· thus toacquire,-pr:opertyby a prostitution of the trust so le.antided tothemj and then to interpose the fraud committed by their offieersasaBhield to them in such possession ,and enjoyment of that property." FOro, v·. Harrington, supra.' In .that case it appeared not only that themetl1ber of the bar was the :asBignor'. and counsel, but that it. was in aCCOl"dance with
!CHERM:ERHOBN ,. DB: CBAKBRUN.
207
and pursuant to his ad'\l'"ice as such counsel that the contract was assigned by COnway, who "was a mere instrument in the hands of the defendant." And that fact is expressly stated to be the reason why the rule which refuses relief between partners in fraud was not applied. The facts in Fisher v. Bishop, 108 N. Y. 25, 15 N. E. 331, present so different a case from the one at bar that they need not be discussed at length. In Place v. Hayward, 117 N. Y. 487, 23 N. E. 25, the scheme to defraud creditors "was concocted and carried out under the advice of the defendant," who was the instigator of the fraud, the plaintiff relying implicitly on his advice; hence the court held the parties were not in pari delicto. In the case at bar, however, there is no pretense that De Chambrun was induced to make the transfer by the suggestion or advice of Schermerhorn. The very bill uses language which indicates pretty plainly what must have been the fact, if the contract be, as complainant insists, a sham one. "It became and was for the interest of De Chambrun that lilome portion," etc., "should be set aside," etc., "and., to secure this end, that the legal title should be vested in some one," etc.; that "for [these] purposes said De Chambrun and defendant entered into and executed a certain contract," etc. There is not a sciI!tilla of evidence to show that Schermerhorn beguiled a conftding client into committing the fraud, or that it was in reliance upon his advice and in accordance with his suggestions that it was ,consummated. A review of all the evidence in the case satisfies us that in all these transactions De Chambrun's was the dominant mind. Of the threads of all his intricate contmcts and combinations he kept the control, and to a large extent the secrets, too, for as late as 1886, in reply to Schermerhorn's expressed surprise at hearing then for the first time of the Le Bourgeois assignment, De Chambrun writes, ''"When you have accepted my terms, and joined me absolutely and un· reservedly, then you. shall know everything." In everything-eertainly in everything outside of the actual suit in equity, where he may be regarded as a junior associate counsel-Schermerhorn was but a clerk, the mere hand of his employer, following his instructions and carrying out his wishes, until the time when, some years subsequent to August, 1880, he declined to join in an effort suggested by De Chambrun to set the old Wilson contract on its feet by the aid of a colorable assignment, and thus use it to defeat all subsequent contracts, including his own. We see no reason for extending the exception to the rule that one particeps doli shall not have the aid of a court of equity against the other to cover cases where the original designer of the fraud has chosen its own clerk as the instrument to carry it out, simply because that clerk is a member of the bar, where there is nothing to show that he suggested or advised the fraud. As complainant, therefore, could not obtain the relief prayed for even if the contract of 1880 to pay $30,000 for legal services was in fact a bogus one, it is unnecessary to discuss at length thearguments which he advances to show that it is. It is enough to say that in our opinion he has not proved that it is. The decree is reversed, and cause remitted to the cirouit court, with instructions to dismiss the bill
208 WEBERet aI. v. SPOKANE NAT. B,A.NK et al. Court of Appe81s, Ninth Oircuit. No. 156. 1. NATIONAlJ BANKB-AMOUNT OF INDEBTEDNESS-REV. ST.
October 23, 1894.) 5202.
Under Rev. St. U. S. § 5202, providing that no national bank shall "be inqebteq qrin any way liable to an amount exceeding the amount of Its capital 'stQck* ** .paid. in * * * except on" circulation, deposits, special funds, or declared divIdends, a n,ational bank is prohIbited from contracting debts or'liabilities, other than those within the four classes named, except to tbeextentot its paid-up, unimpaired capital stock; but, to that extent, .there is an implied authority to become Indebted upon within the scope of its powers, no matter what may be the any amount ot Itlldebt or liability upon demands within such tour classes. An indebtedness which a national bank incurs in the exercise of any of its authorized powers, and for which it has received and retains the not void from the fact that the amount ot. the debt surpasses the .1iJPit prescribed by, Rev. St U. S. § 5202. or Is :even incurred in violatioti 6f,the positive prohibition of the law in that regard. OF DEBT OONTRACTED IN VIOLATION OF STATUTE.
2.
SAME- V
In Error to the Oircuit Court of the United States for the Eastern Division of the District of Washington. Action at law by O. F. Weber and others against the Spokane National Bank and its receiver, upon promissory notes. Judgment for defendants. 50 Fed. 735. Plaintiffs bring error. George M'l!'0rster, for plaintiffs in error. F. T. Post, fpt defendants in error. Before MCKENNA and GILBERT, Circuit Judges, and HAWLEY, District Judge. GILBERT, Circuit Judge. The plaintiffs in error brought an action against the Spokane National Bank and its receiverjupon three promissory notes which had been given in payment for bank furniture and fixtures supplied by the plaintiffs for the bank building occupied by the defendant bank. The receiver pleaded as a special defense thatiat the time of the making of the notes, and the sale of the furnitureih consideration for which they were given, the bank had alreadyinollrl'ed indebtedness and had become liable for amounts aggregating a, Sum much greater than the amount of its paid-up capital stock; so that, by virtue of section 5202 of the Revised Statutes, it was prohibited from incurring the indebtedness sued upon. The case was tried by the court and a jury, and upon the conclusion of theevidenee·the court instructed the jury to return a verdict for the defendants," upon the ground that, under the· facts disclosed in support <lithe special defense· So ,pleaded, the plaintifl1scould not reo -eover. The evjdence sustaining the special defense was that at the time the notes Were the total liabilities of the bank, of whatsoeverdescri'fl1Jtorl, were $516,000, and,the capital stock paid in was $100,000. The plaintiffs' assignments of error bring under review theconstructilJn given by the circuit court to section 5202, above referren to. That section provides as follows:
WEBER V. SPOKANE NAT. BANK.
209
"No association shall at any time be indebted, or in any way liable, to an amount exceeding the amount of its capital stock at such time actually paId in and remaining undiminished by losses or otherwise, except on demands or the nature following: First, notes of circulation; second, moneys deposited with or collected by the association; third, bills of exchange or drafts drawn against money actually on deposit to the credit of the association, or due thereto; fourth, liabilities to the stock holders of the association for dividends and reserved profits."
The bank was shown to be indebted to an amount five times its capital stock. There was no evidence of the nature of its liability, but assuming, as we properly may, that its whole indebtedness was in the direction of the exceptions mentioned in the statute, the question arises whether the statute, while declaring that a national bank shall not incur debt to an amount exceeding its paid-up, unimpaired capital stock, otherwise than in the line of the four exceptions named, by implication grants the permission to incur indebtedness or liability to the limit so named upon transactions other than those indicated in the exceptions referred to. In other words, when a bank has notes of circulation, deposits, special funds subject to draft, or funds for the payment of declared dividends to stockholders, which, either alone or in the aggregate, equal its paid-up capital stock, is it prohibited from incurring a debt such as that sued upon in this action? We are of the opinion that such is not the true meaning of the statute. A national bank is a body corporate, with power to make contracts, to sue and be sued,· and to exercise all such incidental powers as shall be necessary to carry on the business of banking. But, while it has the power to enter into contracts and incur debts, a limitation is placed upon the extent of the indebtedness for which it may become liable. The purpose of this limitation may be conceded to be the protection of the depositors and others dealing with the bank. The inquiry is, how far does the protection extend? The question is one purely of interpretation of the language of the statute. What is the meaning of the words used? Taken in their ordinary sense and import, we take them to mean that a national banking association is prohibited from contracting debts or liabili· ties other than those within the four classes named,except to the extent of its paid-up, unimpaired capital stock, and that to that ex· tent there is an implied authority to become indebted u:(lon any con· tract or transaction which lies within the scope of its powers, no matter what may be the amount of its debt or liability upon its deposits, its notes of circulation, its special funds subject to draft, or its declared, but unpaid; dividends. We are not warranted in giving the words a meaning other than that of their plain import, fl'Qlll the consideration that if so construed the limitation may afford inferior protection to depositors. To hold as contended by defendantl:l in error would be to deprive a national bank of all power to incur an indebtedness such as that sued upon, practically from the moment it had begun business. Take the case of the bank in question. Its capital stock paid up was $100,000. It was authorized to mllintain a circulation on notes to the amount of $90,000. If it received that amount in notes, then, as soon as it should have received all much as $10,000 in deposits, it would have been deprived of its power v.64F.no.2-14
·2jO
FEDERA:L REPORTER)
its office,.f9rtheerection building, for thep,urchal!l,e of, real estate upon for of its'employes' salaries, of any of its ordinary business, save and except that portion of the banking business which is covered by the four ef:ooptiOl1g referred to. If congress had intended the protection which is contended for on behalf of defendants in error,it would its purpose so to do 'Would have been made manifest, and would have been· made certain. As it is, even if wea;dopt the construction contended for, a national bank has it in its, PQ:weJ: to render the protection largely nugatory without in any way 'v·iolating the prohibition. Thus, the bank in question was auto limit its notes in circulation to one·fourtb of its paid-up stock. Upon receiving its notes of circulllltion to that amount, an4 ,beiore. receiving deposits' or: doing any banking business, it could hayeincurredgeneraHndebtedness to the fullainountof its capital · stock, and,thereafter,could have·received deposits in an unlimited amount. The depositors, in such case, would have the protection, not of the full amount of the paid-up, capital stock, but simply such portion thereof as was protected by the deposit of bonds with the treasurer of the United .States, upon which its notes of circulation were issued. This sectiom of the' statutes was incidentally construed in the circnit.court.ofthe district;of!Vel.'Iriont, and the same conclusion was therereaclied concerning its interpretation. Eastern Tp. Bank v. National!:Bank)22 Fed. 186. A second. question; and the one which was prlncipallydiscllssed · upon the argwhent) concerns the effect of the statute upon the debt which is contracted in violation of its prohibition. The statute is directed to the banking'association) and prohibits it from incurring the proscribed liability. It does not, in terms, declare void the debt or liability so incurred; and no penalty is denounced against the bank for violation of the prohibition, miless it be the general penalty provided for in section 5289, where it is declared that if any of the prohibitions of the law governing national banks are violated, with the knowledge of the directors, the charter of the bank shall be forfeited. Is the inhibited debt void, and may the banking association retain the property which it acquires under such circumstances, and deny its liability for the stipulated consideration? We find no reporteddecis.ion of this question, but certain other sections of the statutes 'defining the, powers of nation81 banking associations, and prohibiting them from doing certain specified acts, have been the filbject of adjudication. The tendency of all the decisions has been to t refer to the general· government the power to .deal with all violations of the act, lin.d to·, hold that acts done without the scope of the prescribed powers oHM bank, or in violation of the express terms of the statute for their guidance) are not void, but are voidable only. ··Thus section 5136, by 'implication, ·prohibits a national. bank from loaning money upon realLestate security; yet it is held that a mOrtgage taken upon real estate to secure a contemporaneous loan or · future advances is not VOid, but meI'ely voidable, at the instance of the government. Bankv.Matthews, 98 U. S.621; Bank v. Whitney,
NORTHERN
V.
211
103 U. S. 99. Seetio:p 5201 expressly prohibits a loan by a national bank upon the pledge of its own shares; but it has been held that, if the prohibition could be urged against the validity of a transac· tion by anyone except the government, it could only be done before the contract was executed, and while the security remained pledged, and that the illegality of the transaction would not render the bank liable to the pledger for the payment to him of the money realized upon the sale of the security. Bank v. Stewart, 107 U. S. 676, 2 Sup. Ct. 778. Section 5200 provides that no bank shall loan to one per· son or:firm an amount to exceed one·tenth of its actually·paid capital stock; but it is held that, if a greater sum is loaned than is allowed by this section, that fact may not beset up in defense to an action for recovery of the money so loaned (Gold Min. Co. v. National Bank, 96 U. S. 640), and that the statute was intended as a rule for the government of the bank, and did not render the loan void (O'Hare v. Bank, 77 Pa. St. 96; Pangborn v. Westlake, 36 Iowa, 546). We think the reasoning upon which these conclusions are reached is applicable to the case before the court. We hold, therefore, 'that an indebted· ness which a national bank incurs in the exercise of any of its au· thorized powers, and for which it has received and retains the con· sideration, is not void from the fact that the amount of the debt surpasses the limit prescribed by the statute, or is even incurred in violation of the positive prohibition of the law in that regard. The defendants in error rely upon decisions of the supreme court in which it has been held that municipal bonds issued beyond the limit prescribed by the legislature are void. Crampton v. Zabriskie, 101 U. S. 601; Dixon Co. v. Field, 111 U. S. 83, 4 Sup. Ct. 315; Daviess Co. v. Dickinson, 117 U. S. 657, 6 Sup. Ct. 897; Litchfield v. Ballou, 114 U. So 190, 5 Sup. Ct. 820. Those decisions rest llpon principles entirely distinct from those involved in the case ll.t bar. The amount of the authorized issue of municipal bonds is always ascertainable by a reference to public records equally accessible to all; and the officers of the municipal corporation are public servants, whose unauthorized acts do not bind the public. In the case of a national bank, no such public record is provided, and no method is pointed out by means of which the status of the bank's indebtedness can be ascertained. The judgment is reversed, at the cost of the defendants in error, and the cause is remanded for a new trial.
NORTHERN PAC. R. CO. v. AUSTIN. (Circuit Court of Appeals, Seventh Circuit. November 27,1894.) No. RAIl,ROAD COMPANIES-AoCIDENTS AT CROSSINGS-CONTRIBUTORY NEGLIGENCE.
Where deceased was killed at a crossing where his view of the approaching train was obstructed, and the engineer did not see him Ull he was 20 feet from the crossing, and the engine 60 feet from it, hdd, that t1;le queBtion ot contributory negligence was for the jury.