The Webster Loom Company v. Higgins.

THE WEBSTER LOOM COMPANY

vs.

ELIAS S. HIGGINS AND OTHERS. IN EQUITY.

In a suit in equity on a patent, the defendant, more than one year after the plaintiff's proofs were closed, moved to amend the sworn answer, by averring, on information and belief, that the patented invention was in public use for more than two years before the patent was applied for, and that it was described in a prior patent granted by the United States. The only excuse offered for not inserting the first defence in the original answer was, that the counsel who prepared such answer was under the impression that the suit was subject to the law as it stood prior to the patent Act of July 8th, 1870. As to the second defence, the excuse was, that such counsel had no knowledge or information of any description in any patent prior to the plaintiff's, of a certain device: Held, that the motion must be denied.

(Before JOHNSON, J., Southern District of New York, May 13th, 1876.)

JOHNSON, J. The answer in this case was sworn to on the 4th of September, 1874, a replication was filed, and the complainant's proofs were taken and were closed on the 9th of October in that year. On the 30th of December, 1875, the defendants gave notice of the present motion to amend their former answer, by interposing two new defences. They seek to aver, on information and belief, that the complainant's alleged invention was in public use for more than two years prior to the application for the letters patent to Webster, and and that the same is described in letters patent of the United States, granted to William Weild, dated January 13th, 1857, and numbered 16,415.

The only excuse offered for the omission to insert the first of these proposed defences in the original answer is found in the affidavit of the defendants' counsel who prepared the answer, that, when he prepared it, he omitted to state the fact now proposed to be inserted, because he was under the impres

The Webster Loom Company . Higgins.

sion that the suit was subject to the law as it stood prior to the Patent Act approved July 8th, 1870. He does not say that his impression has since changed, although that may, perhaps, be inferred from his present motion; nor is it claimed that the facts were not known at the time when the answer was interposed. If the suit is governed, in the respect in question, by the Act of July 8th, 1870, or by the equivalent provision of the Revised Statutes, and if the law is, that a public use in this country for more than two years before the application of an inventor for a patent, bars his right to a patent, or avoids the patent after it has been granted, irrespective of his consent to, or acquiescence in, such use, then I think that a party who wishes to avail himself of such a defence, ought, under all ordinary circumstances, to do so at the earliest opportunity. If he fails to do so, something more must be established than that he has been guilty of laches, to induce a Court to excuse his neglect and allow so harsh a defence to be interposed.

Nor do I think the defendants entitle themselves to be now allowed to interpose the other defence proposed. The patent they seek to set up as an anticipation of the Webster patent they owned for a number of years and until it expired. They must be taken to have known its specification and claims. Their counsel does not state that he was not acquainted with the patent, nor that he had not, before the answer was put in, examined and considered the specification. His statement falls very far short of that. It is, that, when he prepared the answer, he had no knowledge or information of any description in any patent prior to the patent on which the suit is brought, of a cylinderwire motion such as is referred to in the affidavits of Duckworth and Hicks. He does not say that he has any such knowledge now, nor give the Court any reason to consider that he finds in that patent what the two affiants, Duckworth and Hicks, are understood to say they conceive to be described there. These persons also base their statements upon the ground of a particular construction to be put on a claim in the Webster patent, which the plaintiffs do not assert and have not asserted, and which seems to me quite

Platt v. Archer.

incapable of being maintained. I am of opinion, therefore, that justice does not require that the amendment should be permitted to be made, in view as well of the laches which has occurred, as of the substance of the amendment itself. The motion to amend the answer must be denied.

Clarence A. Seward, for the plaintiff.

George Gifford, for the defendants.

JOHN H. PLATT, AS ASSIGNEE IN BANKRUPTCY OF THE SruyVESANT BANK, a Bankrupt

vs.

OLIVER H. P. ARCHER. IN EQUITY.

A. was appointed receiver of an insolvent corporation, by a State Court. The corporation being afterwards adjudicated a bankrupt, the assignee in bankruptcy, in this suit against A., obtained a decree that the appointment of A. as receiver, and the transfer thereby of the property of the corporation to him, was void, as against the rights of the plaintiff under the bankruptcy Act, and that A. must account to the plaintiff for the property. In taking such account, Held,

(1.) The services of attorney and counsel were properly and necessarily rendered to A., as receiver, so far as such services benefitted and preserved the estate, and were not hostile to the proceedings in bankruptcy;

(2.) Nothing can be allowed to A., out of the fund, for the services of his counsel in this suit, or in reference to the bankruptcy proceedings, he having unsuccessfully resisted such proceedings, or in the matter of the accounting of A. before the State Court, which took place after this suit was brought, or for the referee's fees in such accounting.

(Before BLATCHFORD, J., Southern District of New York, May 22d, 1876.)

Platt v. Archer.

BLATCHFORD, J. In disposing of the exceptions to the master's report, I held that the services of attorney and counsel were properly and necessarily rendered to the defendant, as a receiver appointed by the State Court, of the property of the insolvent corporation, so far as such services "benefitted and preserved the estate of the corporation, and were not hostile to the proceedings in bankruptcy." I also held that "the principle on which allowances for such services out of a fund in Court, or in the hands of an officer of the Court, are made, and the only principle upon which they can be supported, is, that the services rendered were rendered for the benefit of the fund." I also held, that nothing could "be allowed the defendant out of the fund for the services of his counsel in this suit;" that "the services in reference to the bankruptcy proceedings, and to this suit, were services in hostility to the fund, not for its benefit, and were unsuccessful;" and that "whatever claim the defendant might have had upon the assets in his hands as receiver in the State Court, for reimbursement of his expenses for the services of counsel out of such assets, if he had successfully resisted the bankruptcy proceedings and this suit, this Court has no right to divert the fund to pay the expenses of such unsuccessful resistance." I regard these principles as established by the weight of authority in like proceedings under the bankruptcy Act. (Street v. Dawson, 4 Nat. Bkey. Reg., 207; In re Stubbs, Id., 376; Burkholder v. Stump, Id., 597; In re Cohn, 6 Id., 379; In re Hope Mining Co., 7 Id., 598.)

I am earnestly pressed, however, to allow to the defendant, out of the fund, all the expenses he has incurred for the services of attorney and counsel in resisting the bankruptcy proceedings and in defending this suit. It is contended, for the defendant, that, having been appointed receiver by a Court of the State, he has been compelled, as a part of the execution of such trust, to have the services of attorney and counsel down even to the present time; that he has been guilty of no breach of his trust, and has committed no fraud in fact, but has only done what was voidable, as in legal fraud

Platt v. Archer.

of the bankruptcy Act; and that a trustee is always to be reimbursed out of the trust fund for his expenses incurred bona fide in the execution of his trust.

It is not possible to recognize any legal distinction, under the bankruptcy Act, between the position of a person who is appointed a receiver by a State Court, and, in accepting such trust, makes himself amenable to the provisions of law which prohibit certain transfers, and a person who makes himself amenable to such provisions in any of the other ways specified in the statute, such as becoming a vendee, assignee or transferee by a direct sale, assignment or transfer from the insolvent debtor. The transferee is a voluntary transferee, whether he be appointed by a State Court or by the insolvent debtor, and he takes upon himself the risk of the impeachment of the transfer by an assignee in bankruptcy. The right and title of the assignee in bankruptcy are paramount, and, although the transfer which he attacks was not void, but only voidable, yet, when the assignee in bankruptcy succeeds in his suit to set aside the transfer, it necessarily follows, that, from and after the commencement of the suit, the resistance of the transferee was wrongful, as against the assignee in bankruptcy, and as against the fund which becomes his as of the time of the commencement of the suit. The fund which may have been, up to that time, a trust fund in the hands of the transferee, by virtue of his trust appointment, ceases from that time to be held in his hands by virtue of such trust appointment, and, from that time, passes out from under such trust appointment. The decree in the suit, so far as such trust appointment is concerned, relates back to the commencement of the suit, and, from that time, the fund becomes a trust fund in the hands of the assignee in bankruptcy, under his trust appointment. Therefore, in such case, there is not, after the commencement of the suit, any trust fund for the defendant to administer, as between himself and the authority which created such trust, and no trust fund out of which such authority can reimburse to him his expenses incurred after that time. All his expenses after that time are incurred to diminish a fund which

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