July 1, 1862, to grant a right of way through those lands which by surveys should be found to be sections 16 and 36, the school sections which it intended to give to the future state of Nebraska. The demurrer to the answer will be sustained. DUNDY, J. The foregoing is the opinion of BREWER, J., and I fully concur therein. FRICK and others v. CLEMENTS and others. (Circuit Court, S. D. Georgia, W. D. 1887.) 1. UNITED STATES COURTS-PLEADING-SET-OFF. A set-off may be pleaded as a defense to an action brought in the United States courts in any state where that plea is permissible by the laws of the state. 2. SAME-REPLY TO SET-OFF. It is not, in the courts of the United States, a proper reply to a set-off showing a moneyed indebtedness to the defendant, for the plaintiff to show that the defendant has personal property in his possession belonging to the plaintiff, which the defendant will not restore to the plaintiff. (Syllabus by the Court.) At Law. Lanier & Anderson, for plaintiffs. Bacon & Rutherford, for defendants. SPEER, J. Frick & Co. have brought suit against Clements and others as principals, and M. J. Hatcher & Co. as indorsers, on two promissory notes for about $375 each. The makers of the notes make no defense. Hatcher & Co. defend on the ground that Frick & Co. are indebted to them for various sums, growing out of certain cross-obligations arising under the contract by which Hatcher & Co. became indorsers for Clements and others. Now, this is an action at law, and a set-off is permissible. In Partridge v. Insurance Co., 15 Wall. 573, it is distinctly held by the supreme court of the United States that a set-off may be pleaded as a defense to an action brought in the United States courts in any state where that plea is permissible by the laws of the state, and set-off is a familiar plea in Georgia. It is sought, however, to reply to the plea of set-off, (evidence in support of which, if worthy of belief, presents distinct matters of indebtedness on the part of the plaintiffs to the defendants Hatcher & Co.,) by replying that the defendants Hatcher & Co. have in their possession, under the same contract, certain engines and other personal property belonging to the plaintifls, which they refused to deliver to plaintiffs; and it is sought to oppose the value of these engines to the setoff which Hatcher & Co. have proven. Necessarily that involves the idea of unliquidated damages depending on tortious conduct. If this had been a suit in equity, and the allegations were that Hatcher & Co. were insolvent, or that the plaintiffs could not recover damages from them for the improper custody and detention of their engines, there might be some propriety in this reply. It is, however, an equitable reply to a legal defense, and cannot, in the opinion of the court, be entertained at common law. It is not alleged that Hatcher & Co. are irresponsible, nor could such evidence be heard in an action at common law. The plaintiffs can bring their action against Hatcher & Co. for trover, and recover their engines, if they are entitled to do so. They may either recover the property itself, or its highest value, since it was wrongfully converted by Hatcher & Co. So it is not a proper reply to Hatcher & Co.'s claim for commissions, etc., that they refused to turn over these engines, and the evidence is excluded. The plaintiffs thereupon took judgment against the maker of the notes, and dismissed the action as to Hatcher & Co. UNITED STATES v. SAYLOR and others. (Circuit Court, E. D. Michigan. January 27, 1887.) 1. POSTMASTER-LIABILITY TO GOVERNMENT-RENT OF OFFICE. Where a postmaster rented a post-office for the government at $1,000 per year, and received a secret rebate of $150 from his landlord, and also sublet portions of the space so rented for a news stand and a confectionery stand, and received rent therefor, held, that he and the sureties upon his bond were liable to the government for such rebate and rent. 2. SAME-DEFENSE-OFFSET. It is no defense to such claim for the rebate that the defendant had incurred expense in procuring and fitting up boxes, making repairs, etc., for which no allowance was made by the department. 3. SAME ACTS OF SPECIAL AGENTS. It is no defense to the claim for rent that the special agents of the department had frequently visited the office, seen the sub-tenants in possession, and made no claim for rent, it appearing that the department had no knowledge of these facts. (Syllabus by the Court.) This was an action against principal and sureties upon a bond given by defendant Saylor, as postmaster at East Saginaw, in this state. Two breaches were averred in the declaration: First, that defendant had returned vouchers for rent to a much greater amount than the rent actually paid; second, that he sublet to different persons portions of the post-office building, and received rent therefor, which he failed to report to the department. Plea, that if the said defendant did sublet as charged, and received rent therefor, the plaintiff, by its proper officers, had full knowledge, during all such period, of the facts of such subletting, and the receipt by said defendant of moneys therefor; that defendant openly treated said moneys so received as belonging to himself individually, for which he was not accountable to plaintiff in his capacity as postmaster, or otherwise; and the said plaintiff did not, although well cognizant of the facts, make any claim to the money so received, by way of reduction of the office rental allowed by plaintiff to the said defendant or otherwise, but did, during the whole of said period, settle and adjust with defendant quarterly the accounts and receipts of his office, and did treat and hold such sums so received by defendant from said subletting as no part of the official receipts in which plaintiff had any interest or concern, and plaintiff is now estopped from making claim thereto. That, upon the expiration of defendant's term of office, plaintiff, by its proper officers, still having full knowledge of the facts, went over in detail and adjusted the entire account of defendant for the full period of his official term. The case was tried before a jury by the district judge. The facts, as they appeared upon the trial, were substantially as follows: Defendant entered upon the duties of his office, under this bond, February 3, 1880, and rented of one Lloyd the entire first floor of a building upon Washington street; that, in order to keep the post-office on this street, Lloyd and other property owners agreed to pay him (Saylor) so much money yearly as an inducement to retain the office there, Lloyd's subscription being $150, independent of the rent; that when he paid the rent he took receipts for $1,000 per year, but actually paid in money but $850. Defendant offered to show that, at the time he first rented this building of Lloyd, there were no post-office boxes or fixtures belonging to the government in connection with the office, and defendant supplied himself with them at his own expense; that the cost of such fixtures was $1,200, besides the expense of removing them from the former office, refitting, and setting them up; that there were also continual expenses for repairs, enlargement of fixtures, and maintaining the requisite paraphernalia of the office. This testimony was ruled out by the court. In July, 1882, he removed the post-office from the Lloyd building to the Seligman building, and entered into substantially the same arrangement with Seligman that he had with Lloyd, except that Seligman agreed to do better by him, and gave him a rebate of $300 per year, taking receipts for a thousand dollars and paying but seven hundred. It also appeared that the defendant sublet a portion of the space rented for the post-office to one Gibbs, at a rent of $600 per year, to be used as a news-stand, and another portion to Jones & Ostrander at eight to ten dollars per month, to be used as a confectionery stand, and that he received the stipulated rent from these parties, which he did not account for. There was also evidence tending to show that the inspectors and special agents of the post-office department had full knowledge, from their own observation, of the existence of the news-stand; that they were frequently there, and made examination of the post-office premises, and the business; that no inquiry was ever made by such agents, or by the department relative to the fact of the subletting, or the amount, if any, received by defendant Saylor from that source; nor was any complaint made against the existence or continuance of such news-stand; nor was any claim ever made by the government or its officers for the receipts from such subletting, nor notice that the same were postal revenue, and the said defendant never so regarded or treated the same. Defendant Saylor in his testimony stated that, in his conversation with the special agent, the latter asked him what rent he paid, but did not ask him any questions about the matter of subletting. It further appeared that on January 7, 1882, the postmaster general addressed defendant a letter, stating that complaints had reached the department that a confectionery stand was kept in the post-office; that the department considered it improper in or around a post-office in a large city, and desired the business removed, which was done. There was also a news-stand kept in the Seligman building, of which the special agents had the same notice. There were quarterly settlements made with the government, and also annual settlements at the end of the fiscal year. A final account of all transactions with the defendant was settled June 30, 1884, after he left the office. The defendant also offered to prove that the practice of establishing newsstands and other business in offices of the first and second class was prevalent throughout Michigan and other states; that at Cadillac there was a bank in the building; that at Ann Arbor, Bay City, and West Bay City there were news-stands; that in the case of West Bay City the postmaster himself had charge of the news-stand, and occupied it, and sold papers in his own behalf; that all the special agents of the department were familiar with these facts; and that, in the instructions prepared and given by the department to its special agents and examiners, no inquiry is made as to subletting; also, commencing with 1860, a news-stand had been maintained in the office at East Saginaw to the knowledge of the government, from that day to the time the government first leased a building in its own behalf in 1885; and no claim for receipts from such subletting had been asserted by the department at any time. Defendant also offered to show, by the several defendant's sureties in their behalf, that these quarterly settlements were shown by him to his said sureties, and they were assured by him and assumed that everything pertaining to his accounts was all right; that they knew nothing about any claim made for receipts growing out of the subletting to the news-stand, and that they were advised by him that the settlements were made annually, and that the final settlement was made satisfactorily to the government. One Turner, a witness produced on his behalf, swore that he had been one of the inspectors of the post-office department during a portion of defendant's term, and had made one inspection of the Saginaw office on the blank form prepared by the department. On cross-examination, he swore that he never learned that defendant was renting a portion of the building out, and putting the money in his own pocket, and that there was nothing in the inspection made which brought any such facts to his knowledge; and that he made no inquiry with respect to this, and had no instructions so to do. Upon this state of facts the jury were instructed to render a verdict for the plaintiff for the excess of rent allowed over that actually paid, and also for the amount of rent received from the subtenants. Motion was made for a new trial, and the case was argued before the circuit and district judges. John A. Edget and S. M. Cutcheon, for the motion. JACKSON, C. J. After a careful examination of this case, I concur in the conclusion reached by his honor, the district judge, that the plaintiff is entitled to recover the amount for which judgment has been rendered, and that the motion for a new trial should be denied. It is perfectly clear that the postmaster cannot hold or legally claim the benefit of the rebates made by his several landlords. To the extent that said rebates reduced the rent below the sum allowed by the post-office department, the postmaster and his sureties are legally liable to refund to the governGood faith and his agency relation to the government required the bona fide expenditure of the allowance made, for rent actually paid; and the postmaster could not lawfully appropriate it otherwise, or by v.31F.no.9-35 ment. any collusive arrangement with his landlord derive a personal benefit therefrom in excess of the rent actually paid. If this were otherwise doubtful under the evidence of the postmaster himself, his quarterly vouchers for rent paid would conclude him on the question. On the other branch of the case, viz., the right of the government to hold the postmaster liable for the amounts received from subletting portions of the premises rented for post-office purposes, I had, at first, some doubt, but upon further reflection, and in view of the fact that the allowance made to the postmaster was for the whole space (the first floor of the building) rented and appropriated to the use of the government, as shown by the proof, I am forced to the conclusion that the postmaster could not devote any portion of such space to private use, or take a personal benefit to himself therefrom, without a breach of the duty which every agent owes to his principal whose business he is intrusted to manage, viz., that of good faith, and the obligation to conduct the business for the sole benefit of the principal. One of the department regulations (No. 72) required the postmaster to report whether "the clerk hire or other allowance was more or less than the service required." Under this regulation and requirement, could the postmaster, without a breach of official duty, neglect to report that the $600 or $900 allowance for rent was more than the service required, while actually receiving from subtenants rents for portions of the very space or premises appropriated for post-office purposes, and for which the allowance was made? I think not. He could not be allowed to say that, although the allowance is made in consideration of the appropriation of the whole premises (the entire first floor) for government use as a post-office, and the convenience of the public in connection therewith, there is nevertheless a certain portion of the space, so appropriated and allowed. for, which is not in fact needed to meet the wants of the government or the convenience of the public, and "I will therefore devote that portion of the premises to my private benefit, and thereby save a large part of the allowance made for rent." His agency relations required him to make that saving, out of space or premises rented for post-office purposes, for the benefit of his principal, the United States. It can hardly be doubted that, if he had reported the actual facts, his allowance for rent would have been reduced in exact proportion to his receipts from the post-office premises. The fact that the postmaster was himself the lessee of the premises from the owner of the property does not affect the question or change the principle on which we rest his liability. Take the allowance of $1,000 for clerk hire. Suppose the postmaster had employed a clerk at that salary, and had then entered into an agreement with a neighboring merchant that one-fourth of the clerk's time and services, embracing the hours covered by his employment, should be devoted to keeping the books of such merchant, and for which the postmaster was to be individually paid the sum of $250 per annum, would it be seriously insisted that the postmaster could retain the whole. $1,000 for clerk hire under the allowance? Hardly, and yet it is difficult to see wherein consists the difference between making a profit on the clerk's |