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sacks of rice, alleged to have been shipped from New Orleans, Louisiana, by Martin J. Wynne to the plaintiff at Timmonsville, South Carolina. and to have been lost while in the possession of the defendant carrier, and also to recover fifty dollars' penalty for failure to adjust and pay the claim within ninety days, as prescribed by the act of February 23, 1903. The magistrate gave judgment against defendant for the amount claimed, and that judgment, on appeal, was affirmed by the Circuit Court, and then again by the Supreme Court of the State in this case. The Supreme Court held that the last proviso of the second section of the act of February, 1903, had no application to carriers into whose possession the goods had come, and referred to the opinion of the court in Seegers v. Railway, 73 S. C. 71, 73, where it was said: "The duty to make prompt settlement for loss or damage to goods is but an incident of the duty to transport and deliver safely and with reasonable diligence. The statute in question was designed to effectuate an important public purpose, viz., to compel the common carrier to perform with reasonable diligence the duty which peculiarly appertains to his business as a carrier of freight. The penalty is but a means to that end." And see same case, 207 U. S. 73.
The Supreme Court, after making that quotation, thus proceeded (78 S. C. 41):
"While it is not easy to define the exact limits of the operation of state laws as affecting interstate commerce, we have no hesitation in saying that the statute in question, as it affects carriers doing business in this State, who fail or refuse to adjust and pay the loss of or damage to goods while in their possession, is no unlawful interference with interstate commerce, even as applied to an interstate shipment. The penalty imposed is for a delict of duty appertaining to the business of a common carrier, and in so far as it may affect interstate commerce, it is an aid thereto by its tendency to promote safe and prompt delivery of goods, or its legal equivalent-prompt settlement of proper claim for damages. No penalty can at
tach except upon the establishment in a court of a default of duty imposed by statute. The statute does not attempt to regulate interstate commerce and imposes no tax or burden thereon. It is supported by the general principle declared in Sherlock v. Alling, 93 U. S. 89, 104, and enforced in Smith v. Alabama, 124 U. S. 465, and Nashville &c. R. R. v. Alabama, 128 U. S. 96, that state legislation relating to the rights, duties and liabilities of citizens, and only indirectly and remotely affecting the operations of commerce is of obligatory force upon citizens within the territorial jurisdiction, whether on land or water, or engaged in commerce, foreign or interstate, or in any other pursuit.""
In the case of Western Union Telegraph Co. v. James, 162 U. S. 650, a statute of Georgia requiring telegraph companies to transmit and deliver dispatches with impartiality, good faith and diligence, under penalty of $100 in each case, in the absence of legislation by Congress on the subject, was held not to be an unwarrantable interference with interstate commerce as to messages without the State, and Mr. Justice Peckham, delivering the opinion of the court, said, p. 660:
"The statute in question is of a nature that is in aid of the performance of a duty of the company that would exist in the absence of any such statute, and it is in nowise obstructive of its duty as a telegraph company. It imposes a penalty for the purpose of enforcing this general duty of the company. The direction that the delivery of the message shall be made with impartiality and in good faith and with due diligence is not an. addition to the duty which it would owe in the absence of such a statute. Can it be said that the imposition of a penalty for the violation of a duty which the company owed by the general law of the land is a regulation of or an obstruction to interstate commerce within the meaning of that clause of the Federal Constitution under discussion? We think not."
And see Chicago, Milwaukee & St. Paul Ry. Co. v. Solan, 169 U. S. 133, 137; Pennsylvania R. R. Co. v. Hughes, 191 U. S. 477, 491; Missouri Pacific Ry. Co. v. Larabee Flour Mills Co.,
211 U. S. 612, 624. The present cases fall within the rules there laid down, and Central of Georgia Ry. Co. v. Murphey, 196 U. S. 194; Houston & Texas Central R. R. Co. v. Mayes, 201 U. S. 321; and McNeill v. Southern Ry. Co., 202 U. S. 543, cited to the contrary, are really not in conflict therewith.
ZARTMAN, TRUSTEE IN BANKRUPTCY, v. FIRST NATIONAL BANK OF WATERLO0.
ERROR TO THE SUPREME COURT OF THE STATE OF NEW YORK. No. 74. Argued January 12, 1910. Decided February 21, 1910. The jurisdiction which equity has to decree correction of errors in written contracts caused by mutual mistake is not suspended by the bankruptcy law; and the trustee takes property as the debtor. had it at the time of the petition subject to all valid claims, liens and equities, including the power of a court of equity to correct manifest error by mutual mistake in an agreement made prior to the petition.
Where a contract is reformed to correct a mutual mistake and make it conform to the intent of the parties a new lien is not created, but the original lien is adjudicated and determined.
189 N. Y. 533, affirmed.
THIS was a suit brought in the Supreme Court of the State of New York by the First National Bank of Waterloo against Francis Bacon and George E. Zartman, as Bacon's trustee in bankruptcy, to procure the reformation of a written contract made by plaintiff and defendant Bacon February 15, 1902..
Before the contract was made, Bacon was president of the First National Bank of Waterloo, New York, and also of the Waterloo Wagon Company. He was active in the office of the Wagon Company, while the business of the bank was looked after by its cashier Becker. The Waterloo Bank had extended credit to the Wagon Company and to Bacon- individually, discounting paper and taking notes.
The Exchange National Bank of Seneca Falls, New York,
held, by assignment from Bacon, 461 shares of the stock of the Wagon Company and 253 shares of the Waterloo Bank, as continuing collateral security for any existing or future indebtedness of Bacon or the Wagon Company.
The contract between Bacon and the Waterloo Bank provided that the shares were "to be held by said bank as a continuing collateral security for the payment to it of any indebtedness or liability of any kind, absolute or contingent, due or not due, now existing or that may hereafter exist, arise, accrue or be contracted, on the part of himself or of the Waterloo Wagon Company Limited, to said bank, and the said Francis Bacon hereby agrees with the First National Bank of Waterloo that the said certificates of stock above named are transferred to and may be held by the said First National Bank of Waterloo as a continuing collateral security for the payment to it of any indebtedness or liability of any kind, absolute or contingent, now existing or that mạy hereafter exist, arise, accrue or be contracted on the part of the Waterloo Wagon Company Limited, or himself, to said bank and said shares of stock upon their surrender by the Exchange National Bank shall be deposited with the said First National Bank of Waterloo."
The words in italics were omitted from the contract by mutual mistakes made in preparing and executing it, and the New York Supreme Court, by its decision, reformed the contract by inserting them. In the meantime, however, Bacon had become a bankrupt, having been so adjudicated May 4, 1904, and defendant Zartman had been appointed trustee. This action was begun October 17, 1904. The trustee alone defended.
The judgment was unanimously affirmed by the Appellate Division of the Fourth Department, 113 App. Div. 612, and on appeal to the Court of Appeals the decision of the Appellate Division was unanimously affirmed without opinion. 189 N. Y. 533. The remittitur was filed below November 9, 1907, and this writ of error was thereupon allowed.
Argument for Defendant in Error.
Mr. George E. Zartman pro se for plaintiff in error:
216 U. S.
The interest which the trustee took could not be diminished by the action of the court; reformation of the contract would be in direct violation of the bankrupt act. Under § 67a claims which for want of record or for other reasons could not have been valid liens as against the claims of the creditors of the bankrupt shall not be liens against his estate.
No lien in this case could be created on the stock affected except by delivery, and there was no delivery in this case. Wilson v. Little, 2 N. Y. 446, 457; 3 Pom. Eq. Jur., § 1235; Stephens v. Perrine, 143 N. Y. 476; Skilton v. Coddington, 185 N. Y. 80.
The day the petition is filed separates past and future as to liens and as to when rights of parties are to be adjusted. Re Peare, 4 Am. Bk. Rep. 578; Goldman v. Smith, 2 Am. Bk. Rep. 104; Morgan v. Campbell, 22 Wall. 381; Thompson v. Fairbanks, 196 U. S. 516; Re McDonald, 21 Am. Bk. Rep. 358; Security Co. v. Hand, 143 Fed. Rep. 32, aff'd 206 U. S. 415.
The rights of the trustee as representing the receiver were not regarded by the state court. The receiver took the legal title.
The trustee is entitled to the same protection as a bona fide purchaser for value. Re Book, 98 Fed. Rep. 975; Re Thorpe, 12 Am. Bk. Rep. 195; Fourth Street Bank v. Milbourne Mills, 22 Am. Bk. Rep. 442.
The judgment reforming the contract created a new lien, and both judgment and lien are void as against the trustee.
Mr. W. H. Sholes for defendant in error:
The bankruptcy law does not suspend the important branch of equity jurisprudence which has to do with the correction of mistakes in written instruments caused by the oversight or carelessness of the parties thereto or their scriveners.
Plaintiff in error claims that the mistake made in dictating or writing out the contract is an asset in his hands as a part of