United Transportation & Lighterage Co. v. New York & Baltimore Transp. Line

• Decision Date: 14 February 1911
• Docket Number: 143,144.
• Citation: 185 F. 386
• Parties: UNITED TRANSPORTATION & LIGHTERAGE CO. v. NEW YORK & BALTIMORE TRANSP. LINE. NEW YORK & BALTIMORE TRANSP. LINE v. UNITED TRANSPORTATION & LIGHTERAGE CO.
• Court: U.S. Court of Appeals — Second Circuit

185 F. 386

UNITED TRANSPORTATION & LIGHTERAGE CO. v. NEW YORK & BALTIMORE TRANSP. LINE.

NEW YORK & BALTIMORE TRANSP. LINE v. UNITED TRANSPORTATION & LIGHTERAGE CO.

Nos. 143, 144.

United States Court of Appeals, Second Circuit.

February 14, 1911

Keener & Lewis (A. Delos Kneeland and William A. Keener, of counsel), for appellant.

Hunt Hill & Betts (F. S. Laws and Geo. Whitefield Betts, Jr., of counsel), for appellee.

Before LACOMBE, COXE, and NOYES, Circuit Judge.

NOYES Circuit Judge (after stating the facts as above).

The amount due the libelant under the original libel was not disputed, and the matters set up in the cross-libel do not constitute matters of defense thereto except as they may serve to diminish the amount recoverable if established as an affirmative demand in favor of the respondent.

At the outset the libelant contends that the District Court had no power to entertain this affirmative demand and grant the respondent the relief prayed for in its cross-libel, because:

(1) The relief sought is not based upon the same cause of action as the contract which is made the basis of the libelant's claim.

(2) The relief sought is outside the jurisdiction of a court of admiralty.

The fifty-third rule in admiralty, under which the respondent claims the right to file its cross-bill, is printed in the footnote. ^[1]

A cross-libel may be filed 'upon any counterclaim arising out of the same cause of action for which the original libel was filed.' Undoubtedly, as the respondent says, this rule should be liberally construed. The interpretation given to the words 'same cause of action' by Judge Brown in Vianello v. Credit Lyonnais (D.C.) 15 F. 637, seems most proper:

'I am satisfied that the words the 'same cause of action' are here used in a more general sense, meaning the same transaction, dispute, or subject-matter which has been the cause of the action being brought.'

See also, Genthner v. Wiley (D.C.) 85 F. 797; The Highland Light (D.C.) 88 F. 296.

The first inquiry then is whether the demand set up in the cross-libel grows out of the same subject-matter as the contract upon which the original libel is based.

As shown in the statement of facts, the contract for the unpaid lighterage services (the subject-matter of the libel) was entered into after said Groves ceased to be general manager of the respondent, and is not subject to the objection that he was a common officer of both contracting corporations. It is true that this contract related to the same vessels which he had previously hired, and that the services were of the same nature, but the terms were different, and the later contract was in law a new one. As well said by the district judge:

'It does not advance matters to speak of this conversation as a modification of an existing contract. A contract once made cannot be modified except by a new meeting of minds, and when such mind-meeting occurs a new contract springs into existence.'

The respondent's demand in its cross-libel has wholly to do with the earlier contract. It is based upon the theory that this contract was voidable because Groves was an officer of both contracting corporations, and was so unreasonable and unfair as to be practically fraudulent.

Contracts between corporations having common officers are closely scrutinized by the courts. There is always the possibility of a conflict between interest and duty. But such contracts are not necessarily void, nor are they constructively fraudulent. If, however, there be actual fraud, or if undue advantage be taken in favor of one party over the other, the courts will grant relief.

But in this case the demand for relief based upon the fraudulent character of the earlier transactions-- transactions completed and the consideration paid--bore no relation to the suit to recover the amount admitted to be due under the later contract which was concededly valid. Such a demand did not arise 'out of the same cause of action for which the original libel was filed' and could not be set up by way of counterclaim in it. See, in addition to the cases already cited upon this point, Davidson v. Greer (D.C.) 127 F. 999; Hastorf v. Degnon-McLean Contracting Co. (D.C.) 128 F. 982; Emery v. Tweedie Trading Co. (D.C.) 143 F. 144; The Frank Gilmore (D.C.) 73 F. 686.

We think it clear that the counterclaim did not come within the rule. Still for the purpose of testing the claims we will assume that the rule would permit the demand to be set up if it were otherwise unobjectionable. Upon this assumption we have to meet the libelant's second objection that the relief prayed for in the cross-libel is outside the jurisdiction of a court of admiralty.

Ordinarily to obtain relief against a fraudulent contract made by a common officer of two corporations resort must be had to equity. Suit may be brought to enjoin the consummation of the transaction, or, if completed, it may be set aside. So, under certain circumstances, a bill will lie for an accounting.

In the present case the respondent contends that it is not required to go into equity, and says:

'The remedy of the Transportation Line, were it a plaintiff in an independent action, would not be in an action in equity for a rescission of the contract which it never made or ratified or if made by it were an oral contract, but would be an action at law based upon the equitable principle underlying the action for money had and received based upon implied contract or legal fraud.'

Of course the action of assumpsit for money had and received, while in form an action of law, is based upon equitable principles, and it is by no means obvious that it would be broad enough to afford relief in the case of such a transaction as is stated in the cross-libel. Still, for the purposes of this case, we will assume that the contention of the respondent is well founded, and that an action at law would lie against the libelant corporation upon its implied promise to repay moneys received by it which in justice and good conscience it ought not to retain.

But the conclusion that an action of assumpsit might be maintained lends no support to the claim that the demand can be the subject of a suit in admiralty. Courts of admiralty have no more jurisdiction over actions at law (unless the subject-matter be maritime) than they have over suits in equity. Similarly, we think that a court of admiralty has no more power to take cognizance of a distinctly equitable or legal demand when it is set up in a cross-libel than when it is the subject of an independent suit. Probably a court of admiralty has incidental chancery powers and may afford some degree of equitable relief in matters subsidiary to and dependent upon the cause of action of which it has jurisdiction. But no such exception to the rule could arise in this case. While the vessels involved in the different transactions were the same, relief against the alleged fraudulent contract was in no sense dependent upon or subsidiary to the cause of action for the moneys admittedly due.

We thus reach the question whether the demand of the respondent was maritime in its nature so that it could come either by original...