Sloo v. Law

22 F. Cas. 349, 1 Blatchf. 512

• Court: U.S. Circuit Court for the District of Southern New York
• Decided: October 15, 1849
• Status: Published

Opinion

NELSON, Circuit Justice.

The grounds of complaint in this case arise out of alleged infractions of the contract of the 17th of August, 1847, by which the defendants Law, Roberts, Wetmore, and Croswell bound themselves, for considerations therein stated, to construct and complete the five steam-ships, and to perform in all other respects the duties and obligations of the plaintiff under his contract with the government of the 20th of April in the same year. There are also charges and grounds of complaint against the trustees of that contract, and of the ships to be constructed and completed ready for service; all of which is put forth as the-foundation for the summary interposition of the court, to prevent great and irreparable loss and damage to the plaintiff. To this end we are asked: 1. To remove two of the trustees, and, in the meantime, until others are appointed in their places according to the ordinary course of the court, to appoint a receiver to take charge of the contracts with the government and with the defendants, and to take possession and charge of the ships constructed or in the process of construction, and to complete the same, and to proceed in all other respects under the direction of the court and carry into complete execution the terms and conditions of the aforesaid contracts. 2. To enjoin the defendants from interfering with the receiver thus appointed, or with the ships or their earnings, and from conveying away either of them so as to prevent the receiver from taking them into his possession.

The grounds upon which we are asked to remove the trustees are: 1. That two of them, Law and Roberts, who are also parties in interest in the construction of the ships and in the fulfilment in all other respects of the plaintiff’s contract with the government, have excluded their co-trustee Mcllvaine, who represents the plaintiff’s interest in the ships and their earnings, and in the proper management of -the joint concern, from any participation in the same; that they have denied the plaintiff’s interest, and the right of his trustee to act in the premises, and are collecting and appropriating to their own use and benefit the earnings of the ships, and the moneys received from the government for the mail service. 2. That they have repudiated the trust, by fraudulently procuring the ship Ohio to be registered in their own names individually, and not as trustees, excluding the name of the other trustee, Mcllvaine. 3. That they have neglected and refused to render to the plaintiff an account of the moneys- received from the earnings of the Falcon and Ohio, including compensation for the mail service, and are appropriating the same to their own benefit, in disregard of the trust.

These are the grounds mainly relied on in support of this preliminary motion to remove the two trustees and appoint a receiver; and It is apparent that, in order to comprehend the force and effect of them for the purposes claimed, we must first ascertain the precise powers and duties belonging to the trustees under the contract, and whether it confers upon them those in respect to which a breach and misfeasance have been charged. Their powers and duties are prescribed in the contract of the 17th of August, and to that, therefore, we must apply ourselves in endeavoring to ascertain their character and the extent of them.

Upon a careful examination of this-contract it will be seen, that the trustees have nothing to do with the construction of the ships, either in respect to the contracts for building, the funds to he provided, or the superintendence and direction in the process of construction and equipment. These are obligations and responsibilities resting exclusively upon the other defendants, which they assumed upon themselves and are bound to discharge; and the principal consideration for which is their interest, as stipulated, in the assigned contract with the government, and in the other earnings of the ships while engaged in the mail service. There are other advantages provided for. which doubtless had their influence; but these are the main considerations for the undertaking. Those defendants took the place of the plaintiff as the contractor with the government, so far as related to the construction and equipment of the five ships, and were subject only to the superintendence and direction of the naval constructor in the employment of the navy department— a power reserved by the secretary. The trust remains entirely passive until the ships or some one of them are constructed and ready to enter upon the mail service; and it is provided that then the trustees, to whom the government contract had already been assigned, shall cause them to be registered in their names, and shall thereafter have the sole management and direction of the ships and of their employment in the mail service and in carrying freight and passengers, of the collection and receipt of the earnings, including the moneys received from the government, and of the disbursement of the expenses, and shall account and I pay over the nett earnings, according to the j directions and in the proportions specially pointed out in the trust.

Now. in view of the provisions thus referred t.o, and some others which we shall hereafter consider, we have been unable to resist the conclusion, that, according to the plain and obvious import, of the contract of the 17th of August, the trust therein created does not begin to operate or become active until the ships or some one of them have been built and completely equipped, ready for the mail service, and have been accepted by the navy department; and that, down to that time, it is passive and inoperative, as no power is conferred, or duty enjoined, upon the trustees in respect to the ships, until they are accepted and prepared to commence the mail service.

There is another view arising out of the provisions of the contract, and bearing upon this construction, which seems to be equally decisive. The joint interest in the ships between the parties does not arise until they are accepted under the government contract. There is no stipulation or arrangement for the employment of the ships out of that service; on the contrary, the whole agreement is based upon it. If the vessels are not accepted. they are thrown back upon the hands of the defendants, and remain their projt-erty, subject to the mortgage. The ships are the only security they have for their outlays in the construction. If a loss is sustained in the building, they alone must bear it. Neither the plaintiff nor the trustees are at all concerned.

It was supposed on the argument, that the advance of money by the government, under the act of the 3d of August. ISIS, operated to vest an interest in the ships in the plaintiff. But this is an obvious misapprehension. The only security for the repayment of that advance is the ships; and, in the event of their not being accepted by the government, the defendants stand alone responsible. The money advanced must be repaid by them, or be realized, if at all, out of the ships, which are their property.

Again. The interest of the plaintiff in the earnings of the vessels, and which it is admitted creates an equitable right in the ships themselves and a direct interest in their proper management, does not begin until they are accepted and have entered upon the performance of the mail service. Till then, by an express provision in the government contract, no compensation is to be paid; and the provisions in the contract with the defendants, regulating the receipts and disbursements of the earnings, and the duty of the trustees to account therefor, are all based upon the employment of the vessels in that service. There are no joint accounts or ,ioint interest spoken of or provided for. until that begins; then the partnership interest commences, and is placed under the active management and control of the trustees.

This conclusion is also supported by the general stricture and arrangement of the articles of ag 'eement. The plaintiff brings into the common stock the government contract. which was and is, doubtless, regarded as very valuable; the defendants, the steam ships; and, when the ships are accepted in fulfilment of the contract, the common interest commences, and the whole of the capital —the government contract, the ships, and their management — is placed in charge of the trustees. This is the foundation of the arrangement between the parties. The additional provisions relate chiefly to the manner of carrying on the enterprise, for the common benefit, of disposing of the profits, and of winding up the concern at the end of the partnership.

The plaintiff might have provided for an accruing interest in the ships, and also for the vesting of the title to the same in the trastees, while they were in the process of construction; thereby acquiring additional security for the fulfilment of the contract on the part of the defendants. But no such provision has been made. He chose to take their personal responsibility; and very naturally. as they had become his security to the government for the performance of this very service. It is but just to add that, for anything appearing in the case or disclosed ' on the hearing, they are quite competent and able to perforin their engagements.

[For the subsequent proceedings in this cause, see Case No. 12.957.]

The act of the parties, in securing the advance made by the government towards the construction of the two ships, by a mortgage I upon them, was very strongly-urged, on the argument, against this construction. The mortgage was executed in the name of the j three trustees. The act of congress provided that the advance should be secured by, a lien on the ships, in such manner as the secretary of the navy should require. With all our respect for the judgment and intelli- ¡ gence of that officer, we must still construe the contract and give effect to it according to the convictions of our own judgments. No doubt all parties, as it respects the government. are estopped from controverting the validity of the lien. If the ships should never be accepted, and the advance not be refunded by the discount of the mail compensation, the ships would remain in the hands of the defendants subject to the lien, and to a sale under the mortgage, unless ' they should discharge it by payment. Neither the mode of executing the mortgage, nor the mortgage itself, can in any respect, or on any principle or rule of construction, vary or modify the contract of the 17th of August. That is .between different parties, and involves different interests and rights.

The conclusion at which we have arrived upon this branch of the case, disposes of the question as to the removal of the trustees, and, as a necessary consequence, of the application for the appointment of a receiver, and the granting of an injunction. It also disposes of the question arising upon the registry of the Ohio. As that vessel has not yet come under the trust, the registry was properly entered in the names of her builders and owners.

In respect to the delay in the construction j and equipment of the steam-ships, and the j action of the court prayed for in this prelim- i inary proceeding to be founded thereon, it is a sufficient answer to say. that, from the affidavits read upon the hearing, it appears that the delay has been assented to and acquiesced in by all the parties concerned, and has been occasioned by the very great enlargement of the tonnage and capacity of the ships. This has not only been assented to by the plaintiff, but was adopted by the defendants upon his urgent solicitation. Four of the ships provided for in the contract were to be of fifteen hundred tons burden, and to have machinery in proportion. The two nearly completed, the Georgia and Ohio — the latter entirely, with the exception of coppering — are almost equal in tonnage to the four, with machinery in proportion, and, as stated in the opposing affidavits, will cost an amount nearly equal to the cost of the four. Some indulgence on the part of the government might therefore be naturally expected. The plaintiff is as deeply interested in the enlargement of the capacity of the ships, as the defendants. The government is also interested, as one of the objects of the act of congress providing for their construction, was an eventual employment of them in the naval service of the country. For this reason, the act provides that they shall “be so constructed as to render them convertible, at the least possible expense, into war steamers of the first class.’’ The contract contains á similar provision, and also one for taking them into the exclusive service of the government.

In respect to the preliminary arrangement with the government, by which the Ohio and Falcon are employed in the mail service between New-Xork and New-Orleans, and Havana and Chagres, and the equitable interest of the plaintiff in the earnings of those vessels, no questions arising out of those matters are enquirable into in this stage of the proceedings. They will properly come up when the case is ready for a final hearing on pleadings and proofs.

The motion for a receiver and an injunction must be denied.