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I have no doubt that Congress might very properly, under the constitutional provision giving it the entire power of control over interstate commerce, assume control of the avenues of interstate commerce, of the railroads which are engaged in interstate commerce, and of all rates which are collected by those railroads, whether within the states or without the states, because the matter of those rates would affect these avenues of interstate commerce, and might affect their ability to continue as avenues of interstate commerce. The rates, if they were fixed by the states, might be fixed so low in one state, and another, and all of them, that the railroads could not exist and could not perform their functions as carriers of interstate commerce, and for the purpose of securing these railroads as carriers of interstate commerce, Congress would have the power, under that provision, to take the entire control of the regulation and the rates which the carriers of interstate commerce, upon the avenues of interstate commerce, would have the right to charge, the same as Congress has assumed the right, under the very same clause, to control the navigation of the coastwise waters, bays, and lakes, and the rivers running through the country, even if the rivers are entirely within a particular state. They have as much control of the Mississippi river above the Falls of St. Anthony as they have between St. Louis and New Orleans; the same control of the Minnesota river, which is entirely within the state—both of which streams have been used for the purpose of navigation within my recollection. On the upper Mississippi, above the falls, there were two lines of steamboats, before the war, for some years, and upon the Minnesota river there were several lines of steamboats, running as far up as Ft. Ridgeley, I think, and after Congress assumed the control of navigation entirely, it applied this control to those rivers just as much as to rivers that run between states and through several states, and applied it to the bays and inlets on the coasts of the ocean, where there was navigation running from one state to another. The same with the coasts upon the Great Lakes. I think there is no doubt but that matter would be within the control of Congress. But, as has been held by the Supreme Court in many cases, where Congress has the power to exercise control, as long as it fails to exercise it, the states may exercise control in all matters that are proper-police regulations at any rate. And until Congress does exercise that control, and certainly while the Supreme Court continues to hold, as it has, that the states may regulate the local commerce that is entirely within the state, I do not think it would be proper that I should attempt to hold that these acts are void as invasions of the right of Congress to control exclusively the avenues of interstate commerce, although I must confess that the arguments to the effect that these particular acts of the Minnesota Legislature do interfere, necessarily and directly, with interstate commerce, are extremely cogent.
Now, with respect to the order of the Railroad and Warehouse Commission which went into effect on the 15th of November last, and which was accepted by the railroad companies, and which they acted under from that time to the commencement of this action, and in respect to the passenger rates, which were fixed by the act of April 4th of the present year, and were accepted by the railroad companies, it is claimed that no preliminary injunction should issue having the effect to stop the operation of that order and that act, and that the office of a preliminary injunction is simply to keep matters in statu quo until the final decision of the case. That is, ordinarily, the effect of a preliminary injunction, and ordinarily it ought not to be extended beyond that. It is true that there may be cases—for instance, where a trustee of property is attempting to put that property in the hands of a third person and to defraud the
cestui que trust of the property or of its use or benefit, and where that is made clear, and where it has not gone fully into effect, but has partly gone into effect, and that is made clear, a preliminary injunction may be made so far mandatory as to require—where the property has been partly taken away from the hands of a trustee, perhaps by his own fraudulent consent, and the cestui que trust is likely to be deprived of it—that even a preliminary injunction may be made mandatory so far as to require that that property be restored to the hands of the trustee, or into such hands as the court may place it, to preserve it for the benefit of the cestui que trust. But that exercise of authority ought not to extend beyond cases where there is actual fraud; where the person receiving the property has no fair claim of right, no fair color of right to the property. If he can show that he has a fair color of right which may be litigated, he ought not to be deprived of an opportunity to preserve the status quo until the matter should be properly determined. Now, in this case, in respect to the rates fixed by the Railroad and Warehouse Commission, it is claimed on behalf of the state (and claimed, no doubt, honestly) that these rates are not confiscatory, that they do afford an adequate compensation for the services rendered, in view of the property which is used in the business, and that they are entirely valid; and the same way with the passenger rates. The state insists (and, no doubt, entirely in good faith) that these rates are compensatory, that these acts are not confiscatory, and that they are not in violation of the constitutional provision in any manner. And it seems to me, under those circumstances, that the preliminary injunction cannot go against the enforcement of the rates fixed by the Commission, nor the passenger rates which have been accepted by the railroads and are in operation. I say this without any reference to the fact that the court would have no right to fix rates if it should be determined to enjoin either of these rates. And this will obviate the necessity, upon this hearing, of determining whether the rates fixed by the Commission, or the passenger rates, together or singly, are confiscatory, and do not afford reasonable compensation for the services rendered and a proper allowance with respect to the property employed. These, I think, need not be considered.
But the act of April 18th, fixing the commodity rates, has not yet gone into effect. It has been restrained by the preliminary order of this court. And if it appears on this hearing that the rates fixed by that commodity act, in view of the lessening of the rates by the Railroad and Warehouse Commission and the lessening of the rates by the act of April 4th, are not sufficient to be compensatory, and are in fact confiscatory, the preliminary injunction ought to go against the putting of those rates into effect. As has been said, the showing in the case is that, under the rates that were in effect prior to any of these mentioned going into effect, the amount of compensation received by the railroad companies for the services done within this state, in respect to transportation within the state, of property and persons, was not compensatory; that in the case of the stronger roads, although it came very nearly being compensatory, in relation to the others they were far from compensatory. And it was virtually admitted that the effect of the order made by the Railroad and Warehouse Commission was to reduce the amount of compensation which the railroad companies would receive upon the articles that were covered by that order, on merchandise within the state of Minnesota, some 20 per cent. to 25 per cent. (I think that appeared in the report made by the Railroad and Warehouse Commission to the Legislature), and that the effect of the act of April 4th, with respect to passenger rates, cutting the rate from three cents to two cents per mile, which, upon the face of it, would be a cut of 331/3 per cent., was in fact, in view of all conditions, actually a cut of about 22 per cent. or 23 per cent. of the amount which was paid before for like services. It seems to me, upon this evidence of the conditions before either of those new rates were put into effect, and the reductions made by those rates, that, if there is added the reduction which is attempted to be made by the commodity act, it will reduce the compensation received by the companies below what would be a fair compensation for the services performed, including an adequate return upon the property invested. And I think, on the whole, that a preliminary injunction should issue, in respect to the rates fixed by chapter 232, talked of as the commodity rates, and that there should be no preliminary injunction as to the other rates, although the matter as to whether they are compensatory or not is a matter which may be determined in the final determination of the action.
An order will be entered overruling the demurrers in each case.
In re TINDAL.
(District Court, E. D. South Carolina. June 27, 1907.)
BANKRUPTCY-PREFERENCES-KNOWLEDGE OF CREDITORS-EVIDENCE-FINDINGS.
Evidence held to sustain a referee's finding that certain mortgagees, who took their mortgages within four months before the filing of a bankruptcy petition, had no knowledge that at the time the mortgages were given the bankrupt was insolvent, and that a preference was intended, but that another mortgagee, whose mortgage was executed only eight days before the bankruptcy petition was filed, had sufficient knowledge of the bankrupt's actual condition to put him on inquiry, and his mortgage was therefore void as a preference.
Lee & Moise, for Harby.
The following is the opinion of I. C. Strauss, Referee:
"On the 18th day of March, 1907, at a meeting of creditors in the abovestyled matter, A. D. Harby, as executor of and trustee under the will of Horace Harby, deceased, for and in behalf of his coexecutors and trustees and himself, offered for allowance as a secured claim proof in the form prescribed by law of an indebtedness due to the estate of Horace Harby by the bankrupt, evidenced by a bond executed by the bankrupt on the 1st day of November, 1906, conditioned for the payment of $2,442.43, on the 1st day of February, 1907, with interest from date at the rate of 8 per cent. per annum, payable annually, unpaid interest to bear interest at the same rate; the security therefor consisting of a mortgage executed on the same day by the said bankrupt, covering all of the right, title, and interest of the bankrupt, being an undivided sixth interest and share in and to the property and estate of James E. Tindal, deceased, real and personal. Objections were entered by the trustee to the allowance of this claim as a secured claim, on the ground that the execution of the mortgage in question constituted a preference, under section 60a of the bankruptcy act of July 1, 1898, c. 541, 30 Stat. 562 [U. S. Comp. St. 1901, p. 3445], in favor of Harby & Co., and, under section 60b of the bankruptcy act, was voidable at the suit of the trustee. No charge was made by the trustee that the said mortgage was executed by the bankrupt with intent and purpose on his part to hinder, delay, or defraud his creditors, or any of them, and that this transaction did not fall within the inhibition of section 67e of the act. Testimony was taken. The bond and mortgage in question are in evidence, and were in fact filed with the proof. The bond was executd by A. J. Tindal unto 'H. J. Harby in his own right, and H. J. Harby, A. J. Harby, J. M. Harby, and Horace Harby, as executors and trustees under the will of Horace Harby, deceased, doing business as Harby & Co.' The condition of the bond was stated in the following language: "That if the above bound A. J. Tindal, his heirs, executors, and administrators, shall and do well and truly pay or cause to be paid unto the above-named H. J. Harby, in his own right, and H. J. Harby, A. D. Harby, J. M. Harby, and Horace Harby as executors and trustees under the will of Horace Harby, deceased, doing business as Harby & Co., their certain attorneys, etc., the full sum of twenty-four hundred and forty-two and 43/100 dollars,' etc. The mortgage recited the bond as having been executed unto the executors and trustees under the will of Horace Harby, deceased, and in no way referred to the copartnership existing under the firm name of Harby & Co. H. J. Harby, in testifying, and his counsel, took the position that the estate of Horace Harby was the owner of the bond and mortgage in question, and had loaned the money secured thereby to the bankrupt on the date of the papers, and was an innocent purchaser for a present bona fide consideration. The trustee took the position that the bond and mortgage were executed primarily to secure Harby & Co. The testimony shows, and it was conceded by counsel on both sides, that the bond and mortgage were executed (1) for an advance in money made at the time of $500; and (2) for the purpose of paying Harby & Co. $1,900 for fertilizers advanced in the spring of 1906. Harby & Co. is a mercantile copartnership, consisting of H. J. Harby in his own right and of the estate of Horace Harby. Henry J. Harby managed the business of Harby & Co., and was the leading spirit and practically the sole manager of the affairs of the estate of Horace Harby; he being one of the executors and trustees under the will of the said Horace Harby.
"The bond and mortgage in question are indorsed as follows: "For value received, the within security and the debt thereby secured are assigned unto the estate of Horace Harby. [Signed] Harby & Co. [L. S.].' The bond and mortgage are dated 1st November, 1906. The check of Harby & Co. on the Sumter Savings Bank for the sum of $500, dated November 14, 1906, was introduced in evidence to show the cash payment of $500 said to have been made at the time of the execution of the papers. The mortgage was recorded in the office of the clerk of the circuit court for Clarendon county, both as a mortgage of real estate and as a mortgage of personal property. The estate of Horace Harby is the claimant. I find, as a matter of fact, that the said bond and mortgage were in the first instance intended to be executed and delivered to Harby & Co., and were in fact so executed and delivered. I find that subsequently the said bond and mortgage were on January 21, 1907, assigned, transferred, and delivered by Harby & Co. unto the estate of Horace Harby, and the estate of Horace Harby is now the owner and holder thereof.
“Having ascertained these facts, it is evident that the trustee, under ordinary circumstances, would be relegated to his action at law against Harby & Co. to recover any preference which may have been made by the bankrupt to the said Harby & Co., but under the peculiar circumstances of this case, H. J. Harby having acted in a dual capacity, first as the managing partner in the firm of Harby & Co., and, second, as the leading spirit and practically the sole manager of the affairs of the estate of Horace Harby, the estate of Horace Harby would be charged with notice of all facts known to the said H. J. Harby, and, if the execution of said bond and mortgage to Harby & Co. constitutes a preference voidable under section 60b as against Harby & Co., the estate of Horace Harby, as assignee of the said bond and mortgage, could claim no higher rights than Harby & Co., and in the hands of the estate of Horace Harby the said bond and mortgage would likewise be voidable as a preference. A creditor will not be permitted to obtain a preference indirectly by transfer of his account, procuring a third party to loan money to the debtor for payment of such creditor, or other colorable device or transaction intended to evade the provisions of the bankruptcy act.' Hackney v. Raymond Bros. & Clarke Co., 10 Am. Bankr. Rep. 218, 94 N. W. 822; In re Beerman, 7 Am. Bankr. Rep. 431, 112 Fed. 662.
"The voluntary petition of the bankrupt was filed herein on the 13th day of February, 1907, and on the 14th day of February, 1907, adjudication of bankruptcy was made. The bond and mortgage in question were executed on November 1st, and were filed for record on the 14th day of November, 1906, so that it is clear that the said bond and mortgage were executed within four months before the filing of the petition herein.
"Section 60a provides : “A person shall be deemed to have given a preference if, being insolvent, he has within four months before the filing of the petition, or after the filing of the petition and before the adjudication, procurred or suffered a judgment to be entered against himself in favor of any person, or made a transfer of any of his property; and the effect of the enforcement of such judgment or transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class.'
“By section 1 (25) 'transfer is defined as follows:
“ "Transfer shall include the sale and every other and different mode of disposing of or parting with property, or the disposition of property absolutely or conditionally, as a payment, pledge, mortgage, gift, or security.'
"From the testimony herein, and all of the facts and circumstances in this matter, including the sworn appraisal of the bankrupt's estate, and including his accounting for the disposition of his property and funds, I must conclude, and I find as matter of fact, that Andrew J. Tindal was insolvent on the 1st day of November, 1906, the date of the execution of the bond and mortgage in question, and therefore the mortgage to Harby & Co., if enforced, would enable Harby & Co. to obtain a greater percentage of their debt than other creditors of the same class at the time of the execution of the mortgage. Consequently, under the authority of section 60a, the said bankrupt, by the execution and delivery of the said bond and mortgage, gave to Harby & Co. a preference.
"Section 60b, provides as follows:
“'If a bankrupt shall have given a preference, and the person receiving it, or to be benefited thereby, or his agent acting therein, shall have had reasonable cause to believe that it was intended thereby to give a preference, it shall be voidable 'by the trustee, and he may recover the property, or its value from such person.'
“Therefore, the only question remaining to be considered is whether Harby & Co. had reasonable cause to believe that the said mortgage was intended as a preference. This is a question of fact, and must be determined from all of the facts and circumstances of the case. The bankrupt testified with ref