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961 (N. H.). The case may at first appear extremely startling, for it would seem to disregard at the same time two propositions: viz., that a contract cannot be rescinded in part and affirmed in part and also that in rescission the defendant must be placed in statu quo. But the result in fact, instead of being purely arbitrary, shows a thoughtful and correct application of the principles underlying this class of cases.
Restitution throughout the law is based on the equitable principle forbidding unjust enrichment.2 Quasi-contractual rights as well as restitution in equity are accordingly really of an equitable nature, although the remedy is furnished by courts of law which have acquired their jurisdiction under the fiction of an implied promise. The rights being of this character, the remedies necessarily partake of it also and hence if a plaintiff demands such equitable relief from the court, it is proper that he himself should do equity. Consequently, as it has often occurred that a plaintiff who demanded restitution had himself received some consideration from the defendant, he has been required, lest he be unjustly enriched at the defendant's expense, to do equity by restoring it, that is, to put the defendant in statu quo. But where the court could reach a proper result without this, it did not hesitate to do so, as where the consideration received by the plaintiff was valueless, or, if it was such that could not be returned in specie, unjust enrichment could be prevented by setting off its money value against recovery from the defendant.6
The principal case would seem to be one where it is unnecessary to put the defendant in statu quo. The defendant had sold bonds to the plaintiff for a consideration, paid partly in stock and partly in cash. The bonds were of less value than represented, as the plaintiff was forced to realize on them without collecting a large amount of interest. The plaintiff sought to regain merely the stock and the accrued dividends. In order to do equity himself, should he have been required to restore the value of the bonds and demand as well the return of his money payment with interest? The facts of this case show that the cash plus interest in the hands of the defendant is alone equal to or in excess of the proceeds of the bonds retained by the plaintiff. So if the defendant is solvent, the result is equitably the same if the stock alone is regained, and the money claims balanced off, which method avoids the cumbersome process of restoring money to the defendant and immediately bringing action for the same or a greater amount. Such an analysis shows therefore that in substance the whole transaction is rescinded and not merely a part of it, and while the defendant has not been put in statu quo in form, still an equitable result has been reached. But in the principal case the defendant was insolvent. Certainly the plaintiff's duty to restore is equitably only concurrent with the defendant's duty to repay, and as here the defendant cannot do so in full, the plaintiff acts fairly if he retains what he has. Nor can the defendant's creditors complain of this arrangement. The plaintiff's money is not and, as we have submitted, ought not to become part of the defendant's estate, and so the demand that the latter be put in statu quo would remit the plaintiff to his claim for a dividend and gives the creditors an undue advantage at his expense.
1 The parties were contesting claimants in an interpleader suit, but for convenience in discussion we have thus simplified the facts. For a more complete statement, see this issue of the REVIEW, p. 333.
2 KEENER, QUASI-CONTRACTS, pp. 16, 19; WOODWARD, QUASI-CONTRACTS, $$ 7-9. 3 KEENER, QUASI-CONTRACTS, P. 14; WOODWARD, QUASI-CONTRACTS, $ 2.
4 KEENER, QUASI-CONTRACTS, P. 302; WOODWARD, QUASI-CONTRACTS, $ 23; Coolidge v. Brigham, 1 Metc. (Mass.) 547.
5 Kent. v. Bornstein, 12 Allen (Mass.) 342; Martin v. Home Bank, 100 N. Y. 190, 54 N. E. 717.
6 Todd v. Leach, 100 Ga. 227, 28 S. E. 43; Richards v. Allen, 17 Me. 296; Day v.. New York Central R. Co., 51 N. Y. 583.
Because the requirement that the defendant be put in statu quo was a method of reaching a just result in the majority of cases, the idea became to some extent prevalent, that it was always necessary. Many courts, however, more recently have recognized the underlying equitable principle and have refused to be governed by any wooden rule regardless of the circumstances. Mere failure to replace the defendant in statu quo without more will not be a bar where the plaintiff gets no undue advantage by this failure, and where circumstances allow it, courts have been willing to set off corresponding claims when justice would be done and needless routine avoided.9 Thus the result reached by the New Hampshire court, being the one most conformable with the merits of the case, is entirely commendable.
ALIENS STATUS OF ALIEN ENEMIES IN THE COURTS OF A BELLIGERENT. In an action for personal injuries it appeared that the plaintiff was an alien enemy. The plaintiff was still resident in Canada by permission of certain Orders in Council. Held, that the plaintiff can recover. Topay v. Crow's Nest Pass Coal Co., 29 West. L. R. 555 (B. C.).
In an action on an insurance policy it appeared that the defendant was an alien enemy. Held, that the plaintiff can recover. Robinson & Co. v. Continental Insurance Co., 31 T. L. R. 20 (K. B. Div.).
For a discussion of the status of an alien enemy in the courts of a belligerent, see Notes, p. 312.
BANKRUPTCY PREFERENCES – EFFECT OF RE-TRANSFER TO DEBTOR BEFORE PETITION. – A preferred creditor surrendered his preference to the debtor gratuitously and in good faith before the petition in bankruptcy was filed. The property thus surrendered was wasted by the debtor and never reached the hands of the trustee. In a suit by the trustee to recover the value of this preference, the creditor pleads the surrender. Held, that the plea states a good defense. Lucey v. Matteson, 32 Am. B. R. 782 (Dist. Ct., N. D., N. Y.).
After adjudication a creditor should surrender his preference to the trustee and not to the bankrupt. In re Currier, Fed. Cas., No. 3,492. Between the filing of the petition and adjudication, a creditor making a surrender to the insolvent would probably be held responsible to see that it actually reached the trustee. Such a surrender before the filing of the petition, however, would seem to be sufficient to release the preferred creditor from further liability. The present bankruptcy law gives no indication to the contrary, and even allows a preferred creditor who gives the debtor further credit for property which becomes a part of the debtor's estate a set-off to that extent against the amount recoverable by the trustee. BANKRUPTCY ACT OF 1898, § 60 C. Moreover, it is unnecessary to show that such new credits remain a part of the debtor's estate at the time of adjudication. Kaufman v. Tredway, 195 U. S. 271. On similar principles, bonå fide surrenders to the debtor before the petition is filed should be protected, although as a practical matter a creditor would ordinarily hold his preference until forced to give it up. The result reached in the principal case is also in harmony with the general purpose of the Bankruptcy Act. Although there was a technical preference, still no one creditor would obtain a greater percentage of his debt out of the estate than any other. See Gans v. Ellison, 114 Fed. 734, 737.
7 Hunt o. Silk, 5 East 449; see Thayer v. Turner, 8 Metc. (Mass.) 550, 552; Beed 0. Blandford, 2 Y. & J. 278, 283.
8 Basye v. Paola Refining Co., 79 Kan. 755, 101 Pac. 658; Creveling v. Banta, 138 Ia. 47, 115 N. W. 598.
9 Sloane v. Shiffer, 156 Pa. 59, 27 Atl. 67; Farwell v. Hilton, 84 Fed. 293. See 12 HARV. L. Rev. 65.
BANKRUPTCY PROCEDURE AND PRACTICE DISMISSAL OF VOLUNTARY PROCEEDINGS BY CONSENT AFTER ADJUDICATION. - After being adjudicated a bankrupt on a voluntary petition, the debtor, with the consent of all his creditors, moved that the proceedings be dismissed. Held, that the motion be refused. Matter of McKee, 214 Fed. 885, 32 Am. B. R. 731 (Dist. Ct.,N.D., Tex.).
Section 18 g of the present bankruptcy act provides that upon the filing of a voluntary petition, the judge shall either “make the adjudication or dismiss the petition.” This provision, however, becomes inoperative after the adjudication, which is the final decree on the petition. See In re Hecox, 164 Fed. 823, 825. The adjudication itself may be set aside by the court on proof of some flaw in jurisdiction. In re New England Breeder's Club, 165 Fed. 517. But except for this general power, the statute specifically provides for the revesting of title in the bankrupt only upon the confirmation of a composition agreement offered by the bankrupt, accepted by a majority of the creditors, and administered under the direction of the court. BANKRUPTCY ACT OF 1898, S8 12, 70 f. Under practically uniform provisions in the act of 1867, it was held that an application for dismissal after adjudication came too late, and that a composition agreement was the only proper method. In re Sherburne, Fed. Cas., No. 12,758. An amendment subsequently provided expressly for the bankrupt's regaining both the title and control of his property in the manner desired in the principal case. BANKRUPTCY ACT OF 1874, § 14. As a matter of history, however, the frauds practiced by bankrupts in collusion with powerful creditors under cover of this section led to the repeal of the entire statute. The omission of the provision from the present act seems significant, and proper statutory construction therefore requires the same result that was reached under the former statute, before the amendment.
BANKRUPTCY PROPERTY PASSING TO TRUSTEE EFFECT OF 1910 AMENDMENT IN STATES WHERE DOWER IS CHATTEL FOR PAYMENT OF HUSBAND'S DEBTS. — By the local law of Pennsylvania the right of dower was made a chattel for payment of the husband's debts. The referee in bankruptcy now certifies to the court the question whether a trustee in bankruptcy can sell the bankrupt's realty free from the wife's right of dower. Held, that he cannot. Matter of Chotiner, 216 Fed. 916, 32 Am. B. R. 760 (Dist. Ct., W. D., Pa.).
Under the Pennsylvania law, judgment creditors of the husband could reach the wife's dower right by levying execution upon the land. Directors of the Poor v. Royer, 43 Pa. 146. Formerly it was held that this right did not pass to the trustee in bankruptcy. In re Schaeffer, 105 Fed. 352, 5 Am. B. R. 248; Porter v. Lazear, 109 U. S. 84. The 1910 amendment to § 47 (2), however, provides that as to property in the custody of the court, the trustee shall be vested with “the rights, remedies, and powers of a credit or holding a lien by legal or equitable proceedings thereon.” It would seem to follow that the trustee acquired an execution creditor's lien on the land of the bankrupt and could enforce it, in accordance with the local law, to the exclusion of the wife's right of dower. In re Codori, 207 Fed. 784, 30 Am. B. R. 453. The primary aim of this amendment was to prefer the trustee to the vendor in an unrecorded conditional sale. See 28 Harv. L. Rev. 204. The principal case, however, seems to fall equally within its purpose, for in both situations a third person has rights to property in the possession of the bankrupt which the latter's creditors can defeat by appropriate proceedings. If the decision is to be supported, therefore, it must be on the narrow ground that technical requirements of the Pennsylvania statute, with reference to inquisition by the sheriff and the like, were not satisfied, and could not be waived by the trustee. PENNSYLVANIA, P. L. 1836, 769, $8 48 ff.
BANKS AND BANKING — DEPOSITS — RIGHTS OF DEPOSITORS: EFFECT OF FAILURE TO NOTIFY BANK OF A FORGED INDORSEMENT. A depositor discovered that the bank had charged to his account a check paid by it on a forged indorsement, but failed to notify the bank within a reasonable time. The bank proved no prejudice from his failure to notify promptly. The depositor now seeks to recover the amount of the check from the bank. Held, that he cannot recover. Connors v. Old Forge Discount & Deposit Bank, 91 Atl. 210 (Pa.).
An unauthorized payment by a bank cannot, in general, be charged to the depositor's account. Welsh v. German American Bank, 73 N. Y. 424. But the depositor owes a duty to the bank, arising from the relation, to examine returned vouchers and report forgeries as soon as discovered. First National Bank v. Allen, 100 Ala. 476, 14 So. 335; Dana v. First National Bank of the Republic, 132 Mass. 156. See Ewart, ESTOPPEL, P. 41. Silence in the face of such a duty to speak will form the basis for an estoppel. See Freeman v. Cooke, 2 Ex. 654, 663. But estoppel is equitable in its nature and actual damage to the bank should be required to estop the depositor. Pratt v. Union National Bank, 79 N. J. L. 117, 75 Atl. 313; Wind v. Fifth National Bank, 39 Mo. App. 72. See EWART, ESTOPPEL, P. 133. The principal case, however, is not alone in holding that this estoppel will be available without affirmative proof of prejudice to the bank. Merchants' Bank v. Lucas, 13 Ont. R. 520; Findley v. Corn Exchange National Bank, 166 Ill. App. 57; McNeely Co.v. Bank of North America, 221 Pa. 588, 70 Atl. 891. Even without the elements of a complete estoppel, the principal case may perhaps be supported on the ground that a binding account stated between the parties arose from the depositor's assent to the statement of accounts and balance, presumably rendered by the bank shortly before the discovery of the forgery. In view of business usage, this statement amounts to an offer by the bank to the depositor to set off the mutual debts. See Leather Manufacturers' Bank v. Morgan, 117 U. S. 96, 106. LANGDELL, BRIEF SURVEY OF EQUITY JURISDICTION, 2 ed., 115. The failure of the depositor to object to the balance after a reasonable time may then be interpreted as an assent to the account stated, because of the duty imposed on the depositor from his relation to the bank to examine the bank book and vouchers, and report errors. Devaynes v. Noble, 1 Mer. 529, 535, 610; Schoonover v. Osborne, 108 la. 453, 79 N. W. 263. See Sherman v. Sherman, 2 Vern. 276; Leather Manufacturers' Bank v. Morgan, supra; PAGET, LAW OF BANKING, 2 ed., 150 et seq. This stated account would be conclusive on the depositor in the absence of fraud or mistake, neither of which appeared in the principal case, for the depositor had full knowledge of the forgery at the time his assent is to be inferred. Austin v. Ricker, 61 N. H. 97; cf. Leather Manufacturers' Bank v. Morgan, supra.
CARRIERS : PASSENGERS WHO ARE PASSENGERS — GRATUITOUS CARRIAGE BY CUSTOM: EFFECT OF VIOLATION OF STATUTE AGAINST FREE TRANSPORTATION. The plaintiff's intestate was an employee of a lumber company and was killed by a falling log while riding on the defendant's logging branch railroad, which the defendant held out for the carriage of passengers. There was a custom by which conductors carried lumbermen like the plaintiff's intestate gratuitously, both sides erroneously believing that it was in accordance with a contract with the lumber company. By statute, gratuitous carriage was made a misdemeanor in both carrier and passenger. Held, that the plaintiff cannot recover. Van Auken v. Michigan Central R. Co., 148 N. W.819 (Mich.).
A person who tenders himself as a passenger and is accepted as such by the carrier, thereupon becomes a passenger. Merrill v. Eastern R. Co., 139 Mass. 238, 239. See 19 HARV. L. REV. 250. The mere fact that the carriage is gratuitous does not negative this relation. Philadelphia R. Co. v. Derby, 14 How. (U. S.) 468. Nor is it important that the acceptance is by custom only, and contrary to the company's private orders, so long as it is within the apparent authority of the conductor. Waterbury v. New York Central & H. R. R. Co., 17 Fed. 671. Aside from the statute prohibiting gratuitous carriage, therefore, there seems to be no doubt that the relation of passenger and carrier arose in the principal case. In view of the arrangement believed to exist between the railroad and the lumber company, this statute carried no effective notice of a limitation on the conductor's authority. Nor did it deprive the passenger of the protection to which he was entitled by the law of public service. Southern Pacific Ry. Co. v. Schuyler, 227 U. S. 601. It is well settled that the carriers cannot defeat recovery on the ground that the passenger was riding in violation of the law. Carroll v. Staten Island R. Co., 58 N. Y. 126. And it would seem to follow that the railroad is not in a more advantageous position when both parties have violated a statute fixing a punishment of its own, without reference to the civil rights of the passenger. Southern Pacific Ry. Co. o. Schuyler, supra.
CONSTITUTIONAL LAW – PRIVILEGES, IMMUNITIES, AND CLASS LEGISLA
RIGHT OF STATE TO EXPEL FOREIGN CORPORATION FOR EXERCISE OF CONSTITUTIONAL PRIVILEGE. — Plaintiff, a foreign corporation, took out a license to do local business in Wisconsin, and acting thereunder acquired valuable property within the jurisdiction. Subsequently it was enacted that the local license of a foreign corporation should be revoked if it removed any suit against a citizen of the state from the state to the federal courts. The act also provided for annual reports in which the corporation should agree to obey the laws of the state. Having removed a cause against a citizen of Wisconsin from a state to a federal court, the secretary of state threatened to revoke its local license. Held, that the statute is unconstitutional and the revocation will be enjoined. Western Union Telegraph Co. v. Frear, 216 Fed. 199 (Dist. Ct., W. D., Wis.).
An Arkansas statute provided for the licensing of foreign corporations to do business within the state, but provided that the license should be revoked if the corporation should invoke the jurisdiction of the federal courts in a cause against a citizen of Arkansas. A foreign corporation procured such a license, and acting thereunder acquired valuable mining property within the jurisdiction. Upon the corporation's removing a cause to the federal court, the secretary of state cancelled its license. Held, that the act is constitutional and that mandamus will not lie to compel the revocation of the cancellation. State, ex rel. Kimberlite Mining & Washing Co. v. Hodges, 169 S. W. 942 (Ark.).
For a discussion of the extent of a state's right to use its power over foreign corporations to impair indirectly the jurisdiction of the federal courts, see NOTES, P. 305.