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3 F.(2d) 618

plus the value of that of which the decedent had dispossessed herself in her lifetime, which dispossession was not to become effective until her death. The conveyance of an estate in remainder after the death of the grantor, or the conveyance of property reserving a life estate in the grantor, is claimed to be (although property which is not a part of the decedent's estate) nevertheless the kind of property which is to be included in the measure of the tax.

This takes us to the act of Congress. Act Feb. 24, 1919, § 402, 40 Stat. 1097 (Comp. St. Ann. Supp. 1919, § 633634c). Its pertinent language is that there is to be added to that of other property the value of "any interest" which the decedent had in any property "with respect to which" the decedent had "at any time created a trust, in contemplation of or intended to take effect in possession or enjoyment at or after" the death of decedent. The real difficulty in all cases of this general type is that words are used in wholly different senses.

The word "property" is one of them. There are physical things, and the concept of the right of property in things. The word "property" is indiscriminately used to convey the thought of either. When the word is used, in which of these two senses is it used? Inasmuch as this grantor reserved to herself the right and power to occupy as long as she lived the premises, the title to which she had conveyed away, it can be said with perfect truth that the grant to the remainderman was "intended to take effect in possession or enjoyment" of the physical premises "after the death" of the grantor. Inasmuch, however, as (ignoring the trust features) there was an absolute conveyance in presenti of an estate in fee in remainder to the grantee, it can be said with equal truth that the interest or estate or "property" granted to the remainderman at once took effect in both possession and enjoyment, and was not postponed until the death of the grantor.

We do not see that the circumstance that the conveyance took the form of a conveyance of the legal title in trust, nor that the trustees are directed to convey the legal title to the remainderman upon the death of the grantor, works any real difference in results. Disrobed of all its form features, what the deed of conveyance did was to vest in the remainderman an estate in fee (that is, all the estate and interest and all the right of ownership which a citizen of Pennsylvania can have in real estate) in remainder after a particular life estate had

been carved out of it. The direction to the trustees to convey to the remainderman the legal title was under the law of Pennsylvania wholly superfluous. The trust was then a dry trust, and the statute of uses made as effective a conveyance of the legal title as the trustees could do. When, and indeed before, the trustees made the contemplated conveyance, it had already been made by the law. The act of Congress does not, however, use the word "property" of common speech, but the word "interest," which is a word of legal import and a word of art. What was the "interest" which (before the grant) the grantor had in the real estate premises? Her "interest" or estate was a fee simple, the full and absolute ownership. This gave her several rights of property. One was to possess and enjoy the physical premises for life or as long as she chose, another was to part with her ownership for a consideration if she so chose, another was to pledge it for a loan, and still another was to transmit it to her heirs or to devise it to whom she chose. All of these rights, except only the first, she granted absolutely and irrevocably to another. The grant was not in futuro, but in presenti. What she granted was real estate. This is not a thing, but a right, interest, or estate in land, and what has become so far incorporated with land as to be a part of it. The possession and enjoyment of this estate or interest was immediate, and not postponed to the time of the death of the grantor, because admittedly the estate conveyed was a vested interest.

These distinctions are so well known, and indeed so obvious, that they must have been in the legislative mind. The thought at once obtrudes that if Congress had meant that for which the defendant contends, it could have been and would have been unmistakably expressed. What is expressed is, as already quoted, "any interest." Here the "interest" was in land. Land in its law phase is not a corporal, physical, tangible thing. It is a concept-the concept of the right to appropriate a described portion of space. It is associated, of course, with material things, which have some more or less permanent relation to this space. What is commonly called ground is one of them. Brick and mortar, in the form of a building reared upon the ground, is another. Almost anything in the form of what is called personal property may (coupled with the concept of a fixture) be thus associated with, and in this sense become incorporated

with, the concept of land. The land would remain, if everything upon the ground were razed and removed. It would remain, even if it were possible in some cataclysm of nature that the very ground itself should disappear. So it is with the "possession and enjoyment" of any "interest" in land. This "possession and enjoyment" may be and commonly is unconnected with any physical contact with the material thing. The physical thing itself is divisible by lines of cleavage in any direction. The right, estate, or interest is likewise divisible. Whatever the interest is, it passes at the time of the grant, whenever it is what is called vested, and the grantee is in the "possession and enjoyment" of the right, although he may not touch the thing to which the right relates.

[1,2] This is true of this remainderman. She never received anything more than passed to her by the grant. She could not have been given anything more in what she had by any deed or will or other instrument of conveyance. She could, of course, have been granted something else, as, for instance, this particular estate for life; but this would have been another "interest" in the real estate. There is not merely a distinction, but a real difference, between the transfer of an interest and the ending of it by its own limitations. Under the facts of this case this particular life estate ended with the life of the grantor, but in no real sense did it pass to the remainderman. It no more added to what the remainderman already had than the ending of the term of a lease adds to the estate or interest of the owner of the real estate. It is, of course, true that there is an accompanying or incidental practical result or consequence of the death of the life tenant, which may be and usually is of benefit to the remainderman, just as the "falling in" of leases may be of benefit to the owner. This is not, however, always even the practical result. If rentals were higher when the rent was reserved than at the expiration of the lease, the landlord owner might well regret the close of the term. So, also, when (as here) the life tenant had assumed the obligation to keep down incumbrances, by paying taxes and other current charges, the remainderman might under some conditions be worse off by the ending of the life estate. The expression "land poor" is often more than a phrase. It may be a truth as well as a fact. What is an "interest" in land is a question of land law, which is determined here by the law of Pennsylvania. That un

der the land law of the state the "interest" of this remainderman was a vested interest, the "possession and enjoyment" of which passed to her before the death of the life tenant, is undoubted. A sufficient citation is the case of Houston's Estate, 276 Pa. 330, 120 A. 267.

It must, however, be conceded that this is not altogether the question now presented. The question rather is: What did Congress mean to be the measure of this tax? Did it mean that, when an interest was created which did not pass to the grantee until the death of the grantor, this should be included in the measure of the tax, or did it mean that, whether an interest passed by the grant or not, the thing in which the estate was given should be included, if the grantor reserved a life estate to himself or herself? The conclusion indicated is that, if Congress had meant the latter, it would have said so.

Two other features have been brought into the discussion. It happened in the instant case that the remainderman died before the life tenant, and this "interest" of the remainderman figured in the measurement of the tax which her estate paid. Another fact is that they died within five years of each other. These features we pass without comment. It only remains to inquire whether the conclusion indicated is in accord with the decided cases. Houston's Estate, supra, is, of course, not authoritative upon the tax question before us. It has none the less great informative value.

We have been referred to a number of cases, some of which we do not deem to be in point; others turn upon the meaning of a statute in respect to whether what has passed to a grantee is to be viewed from the standpoint of its practical results, affecting the physical enjoyment of the subject-matter of the grant, or whether it is to be viewed from the standpoint of the legal estate or "interest" which has passed. These latter cases are helpful, but not authoritative. Houston's Estate, supra, is one of them. The cited cases are: Todd's Estate, 237 Pa. 466, 85 A. 845, 43 L. R. A. (N. S.) 869; Reish v. Commonwealth, 106 Pa. 521; People v. Danks, 289 Ill. 542, 124 N. E. 625, 7 A. L. R. 1023; Vanderbilt v. Eidman, 196 U. S. 480, 25 S. Ct. 331, 49 L. Ed. 563; Blodgett v. Union & New Haven Trust Co., 97 Conn. 405, 116 A. 908; Schuh's Estate, 66 Mont. 50, 212 P. 516; Fulham's Estate, 96 Vt. 308, 119 A. 433; Masury's Estate, 28 App. Div. 580, 51 N. Y. S. 331; Douglas County v. Kountze, 84

3 F.(2d) 621

Keeney v. Comp-
S. Ct. 105, 56 L.

Neb. 506, 121 N. W. 593;
troller, 222 U. S. 525, 32
Ed. 299, 38 L. R. A. (N. S.) 1139; Safe
Deposit v. Tait (D. C.) 295 F. 429; Shu-
kert v. Allen (D. C.) 300 F. 754. In addi-
tion there is the T. D. case of Mercantile
Trust Co. v. Hellmich (oral opinion).

In some of these cases the grant was held to be testamentary in substantial effect, and in others not. We are thus brought back every time from the perusal of any case to the effect of this deed of conveyance. The test applied in Fulman's Estate, supra, and the accompanying expression is very illuminating. It is whether the estate or interest or property or right which passed to the grantee "took effect independently of the death of" the grantor, and whether the grantee had the uncontrolled right or power to dispose of his "interest" at any time after the grant. Such was the effect of the grant here in question.

We think the plaintiff may recover back the tax paid, but to give definiteness of date to the judgment none is now rendered, but formal judgment may be entered in ac

cordance herewith.

4. Pledges 25-Agreement on condition of guaranty, not delivered, not binding.

An agreement to waive right of immediate possession of securities pledged to defendants by brokers through whom plaintiff purchased them, being conditional on plaintiff receiving a satisfactory guaranty, was not binding; guaranty being delivered.

no

Action by Jacob L. Fisher and another against James F. A. Clark and others. Verdiet directed for plaintiffs.

Everett, Clarke & Benedict, of New York City (Herman S. Hertwig, of New York City, of counsel), for plaintiffs.

Guggenheimer, Untermyer & Marshall, of New York City (Clarence J. Shearn, of New York City, of counsel), for defendants.

GARVIN, District Judge. At the conclusion of plaintiff's case both sides moved for a direction of a verdict. The jury was thereupon excused, under a stipulation that the verdict might be rendered by the direction of the court in the absence of the jury.

The action is brought to recover for the

alleged conversion of securities belonging to plaintiffs, who were customers of the firm

revd & I (d) 588. of Chandler Bros. & Co., stockbrokers, havOff 22 F(21) 295 (ad)

FISHER et al. v. CLARK et al.

(District Court, S. D. New York. October 22, 1924.)

1. Brokers 23-May pledge securities bought by them on orders of margin account custom

ers.

Brokers may pledge securities bought by them on orders of customers maintaining a margin account, as security for advances made by them or by other brokers, for their account, in the execution of such orders.

2. Pledges 24-Security of pledgee not forfeited by statute making broker criminally liable for pledging customer's property.

Penal Law N. Y. § 956, as amended in 1913 (Laws 1913, c. 500), making a broker criminally liable, under certain circumstances, for pledging property of a customer, does not forfeit any security which a pledgee in good faith and without notice would otherwise have.

3. Estoppel

70(3)-Brokers' pledgees held estopped to claim, lien on securities by not asserting it when securities were demanded

by owner.

Brokers' pledgees, who took over the management of the business of the brokers are estopped to assert lien on stock of customer, which they failed to assert when the customer

demanded the securities; the customer being prejudiced because he refrained from taking steps which would have resulted in investigation by the Stock Exchange.

ing traded through the Philadelphia office of that firm for several years. Defendants are stockbrokers, having their principal office in New York City. In 1921 and for some time prior thereto they did a considerable amount of business, representing the Chandler firm. Plaintiffs had bought the securities involved in this action through Chandler Bros. & Co., who carried the same on margin and apparently hypothecated them with the defendants, in connection with their account with the latter, upon which defendants were making advances upon which security was required. In the early part of the year 1921 Chandler Bros. & Co. became financially involved, and the defendants' firm, to which they were heavily indebted, took over the management of their business.

At about this time the plaintiffs desired to withdraw their securities from Chandler Bros. & Co. to place them elsewhere, and accordingly paid that firm the entire amount due on the securities which said firm was This enticarrying for plaintiffs' account. tled the plaintiffs to the possession of their securities upon demand. They demanded possession, were referred to defendants' firm as managers of the Chandler Bros. & Co. business, and plaintiff, Jacob L. Fisher, had several interviews with defendant James F. A. Clark. During these interviews the lat

cert den 7 6 4 1 j 570, 70-£ Ed. 417 46 P. (7.

ter repeatedly stated that plaintiffs could not have their stocks, except under an arrangement which was proposed, but never fully carried out. The conversion is alleged to have occurred on May 25, 1921.

It is contended by defendants: (1) That any claim held by plaintiffs against Chandler Bros. & Co. was assigned by the former to the Interstate Assets Corporation. (2) That the securities had rightfully come into their possession, hypothecated by Chandler Bros. & Co. to secure the latter's account with defendants, and that they are entitled to retain them under the pledges so made, notwithstanding the fact that they were the property of plaintiffs when pledged. (3) That plaintiffs have waived all right to possession of the securities alleged to have been converted.

The first contention was not pressed at the trial, is not urged in defendants' briefs, and need not be considered.

[1] Defendants have discussed in great detail the facts surrounding the purchases for plaintiffs by Chandler Bros. & Co. of the securities involved and of the deposit thereof with, or transfer to defendants by, Chandler Bros. & Co., from time to time, to secure the defendants for advances made by them in connection with the Chandler Bros. account. These facts are not in dispute, and the legal proposition asserted by defendants, that "Chandler Bros. & Co., as brokers, had a right to pledge securities bought by them on orders of customers maintaining a margin account, as security for advances made by them or by other brokers, for their account, in the execution of such 'orders," is correct. In re Ennis, 187 F. 720, 109 C. C. A. 468; In re Toole (C. C. A.) 274 F. 337.

[2] Plaintiffs rely upon the 1913 amendment (Laws 1913, c. 500) to section 956 of the Penal Law (Consol. Laws, c. 40) of the state of New York. That section now reads as follows:

"Hypothecation of Customers' Securities. A person engaged in the business of purchasing and selling as a broker stocks, bonds or other evidences of debt of corporations, companies or associations, who

"1. Having in his possession, for safe keeping or otherwise, stocks, bonds or other evidences of debt of a corporation, company or association belonging to a customer, without having any lien thereon or any special property therein, pledges or disposes thereof without such customer's consent; or "2. Having in his possession stocks, bonds or other evidences of debt of a corporation,

company or association belonging to a customer on which he has a lien for indebtedness due to him by the customer, pledges the same for more than the amount due to him thereon, or otherwise disposes thereof for his own benefit, without the customer's consent, and without having in his possession or subject to his control, stocks, bonds or other evidences of debt of the kind and amount to which the customer is then entitled, for delivery to him upon his demand therefor and tender of the amount due thereon, and thereby causes the customer to lose, in whole or in part, such stocks, bonds or other evidences of debt, or the value thereof,

"Is guilty of a felony, punishable by a fine of not more than five thousand dollars or by imprisonment for not more than two years, or by both.

"Every member of a firm of brokers, who either does, or consents or assents to the doing of any act which by the provisions of this or the last preceding section is made a felony, shall be guilty thereof."

This section makes a broker criminally liable, if he pledges specified property of a customer without complying with the requirements of the law, but the pledgee who in good faith and without notice advances money upon such property does not thereby forfeit. the security. The broker has committed a crime, but the law, as settled by the foregoing decisions, remains unchanged.

The position of the defendants is the same as to all securities bought by them on Chandler Bros.' order for advances made by defendants in the execution of such orders, without regard to whether the orders were transmitted by Chandler Bros. as a principal or were understood to be for unidentified customers. Le Marchant v. Moore, 150 N. Y. 209, 44 N. E. 770; Skiff v. Stoddard, 63 Conn. 198, 26 A. 874, 28 A. 104, 21 A. L. R. 102.

[3] Some, at least, of the statements made by James F. A. Clark, supra, were made subsequent to May 10, 1921, and in reply to plaintiffs' demands for possession of the securities. It was on that day that defendants took over the management of the business of Chandler Bros. & Co. Defendants contend that they held the securities in pledge prior to May 10, and that all the securities of the kind involved had been converted prior to said date by Chandler Bros. & Co.

This date, May 10, 1921, is of no consequence, in view of the point upon which this case must be decided. The plaintiff, Jacob L. Fisher, testified clearly, with em

8 F.(2d) 623

phasis, and, as the court believes, truthfully, that defendant Clark repeatedly, on and before May 25, 1921, told him that defendants' firm had the securities and that they would be delivered upon certain specified conditions. No suggestion of a lien of any character was made. The court is constrained to accept this testimony as true. Clark was available, and he made no denial. Thus are the defendants estopped from now relying upon the actual facts as set forth, in view of Clark's failure to disclose them to Fisher at the time of his demands. Goodman v. Purnell, 187 F. 90, 109 C. C. A. 408; Rand v. Morse (C. C. A.) 289 F. 339; Railway Co. v. McCarthy, 96 U. S. 258, 24 L. Ed. 693.

The claim of estoppel was presented as a result of an amendment to the complaint, allowed by the court, upon plaintiffs' motion, during the trial. An amendment of such a character was not allowed, of course, until the court had carefully inquired whether defendants claimed surprise, in order that, if such claim were made, ample time might be allowed to meet plaintiffs' new contention. Defendants did not claim surprise, and did not object to the trial proceeding without interruption. The defendants were in no way prejudiced by the amendment and it was the duty of the court to permit the facts, as each party claimed they existed, to be pleaded, taking care that neither side was surprised and prejudiced, as a consequence.

It is urged by defendants that plaintiffs were not misled to their prejudice by Clark's failure to assert that his firm had a lien on the securities. This contention does not seem to be well founded. Fisher testified, and the court accepts his testimony, that as a result of his talks with Clark he refrained from giving an order to Block, Maloney & Co. to demand the stock from defendants. If that demand had been made, defendants would have had to comply therewith, or an immediate investigation would have been made by the Stock Exchange. The same result would have followed a complaint by Fisher to the committee on business conduct of the Stock Exchange. Neither was desired by defendants—indeed, was to be avoided at all cost if their plans to reorganize and rehabilitate the business of Chandler Bros. & Co. were to succeed. Undoubtedly plaintiffs were prejudiced.

[4] Defendants claim that on May 4, 1921, plaintiffs made an agreement covering their securities, as a result of which they waived the right to immediate possession

thereof. The difficulty with this contention is that the agreement referred to was conditional upon plaintiffs' receiving a satisfactory guaranty. As no guaranty was delivered the agreement was not binding.

If the foregoing conclusions are correct, it follows that the motion to direct a verdict in favor of plaintiffs should be and hereby is granted.

FIRST NAT. BANK OF COLUMBUS, OHIO, V. OBION COUNTY, TENN., et al. (District Court, W. D. Tennessee, E. D. October 28, 1924.) No. 27.

1. Courts 264 (1)—Jurisdiction of court extends to matters incidental to main issue.

A federal court which has jurisdiction of a suit to recover on county bonds may determine all incidental questions necessary to render its judgment effective.

2. Counties ~173(1)—County without power to issue bonds except as expressly authorized by state Constitution and statutes.

A county in Tennessee is without power to issue negotiable bonds except under authority expressly conferred by the Constitution and statutes of the state.

3. Counties 173(1)—Laws authorizing counties to issue bonds strictly construed.

State laws authorizing issuance of bonds by counties are strictly construed.

4. Counties 183(1)-County bonds issued without statutory authority are void.

Bonds issued by a county without statutory authority are void and nonenforceable.

5. Counties124 (2)-County cannot ratify void action.

A county is without power to ratify a contract which it was wholly without authority to make.

6. Counties 183(3)-County estopped to deny recital in bond that it was issued under statute giving the county authority.

If any authority exists in a county to issue bonds and a bond is issued which by its recitals purports to have been issued under such authority, the county is bound by such recitals and estopped to deny its liability, as against a bona fide holder.

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