Hewitt v. Speyer
| Decision Date | 07 March 1918 |
| Docket Number | 187. |
| Citation | 250 F. 367 |
| Parties | HEWITT v. SPEYER et al. |
| Court | U.S. Court of Appeals — Second Circuit |
This cause comes here on appeal from a decree entered on October 19, 1917. The action is one in equity to impress a lien on a fund paid to the defendants by the republic of Ecuador out of the customs duties collected by that republic upon which a prior lien had been created in favor of the holders of certain bonds, some $50,000 of which are held by the complainant; and it is alleged that the fund so received by the defendants substantially amounts to $1,500,000, and that they received it with full knowledge of the prior lien. The complainant sues on his own behalf and that of all other bondholders of the Guayaquil & Quito Railroad Company, under a mortgage dated January 2, 1899, who may join in the prosecution of the action.
It appears that a contract was entered into on June 14, 1897 between the government of Ecuador and one Archer Harman for the construction of a railroad, from Guayaquil, its principal seaport, to Quito, its capital, a distance of 286 miles. The total cost of the work was estimated at $17,532,000, which sum was to be raised by the issue of $12,282,000 6 per cent bonds and $5,250,000 7 per cent. preferred stock of the company, which was to be organized under the laws of the United States to finance the undertaking and construct and operate the railroad for a period of 75 years, when it was to become the absolute property of the government. In addition to the bonds and the preferred stock, there was to be issued $7,032,000 common stock, of which 49 per cent. was to be held by the government of Ecuador and 51 per cent. by Archer Barman and his associates.
The bonds were issued as contemplated, and a mortgage to secure their payment was executed and recorded; the mortgage being upon the railway property and its appurtenances. On each bond was printed in English the following:
Condition 9 of the bond referred to in the foregoing statement provided that 'the lien on the custom house duties, which duties are stated by the government of Ecuador to amount to six million sucres (6,000,000) annually, is subject to following liens for the following sums payable monthly; that is to say. ' Then follows a list of the prior liens covering existing indebtedness, aggregating 104,637.74 sucres.
In December, 1910, Ecuador needed money for administrative and extraordinary military expenses, and it obtained from the defendant Speyer & Co. 2,550,000 sucres, or $1,238,662.50. The contract, dated December 31, 1910, provided that the government of Ecuador should issue treasury certificates to the fact amount of 3,000,000 sucres, for which Speyer & Co. agreed to pay 85 per cent. of their par value. These certificates were payable to bearer, and bore interest at 6 per cent. per annum, and were payable in 12 months. For the payment of principal and interest the government pledged and specially designated: (a) 50 per cent. of the entire amount of export duties, including recharges, from June 1, 1911 (or before that time on a certain contingency), and 500,000 sucres of that part of the liquor tax belonging to the treasury. (b) And all custom house revenues immediately subject to the 'gravamenes' [1] which they bear up to the present time. It was provided that the certificates were to be received at par for principal and interest in the custom houses of Ecuador in payment of the export duties (50 per cent. of the export duties, including all recharges) from June 1, 1911, and the custom house collectors were forbidden to take money in payment of such duties. Speyer & Co. were to designate the bank or agents to sell the certificates.
The treasury certificates were not actually sold to exporters, as contemplated in the contract, but were, at the request of the government of Ecuador, deposited to the credit of Speyer & Co. with the Bank of Ecuador, where, by order of the government, the moneys from the export duties and from the liquor tax designated to retire the certificates were also from time to time, as they were collected, deposited to the credit of Speyer & Co., and thereupon to the extent of such credits the certificates were surrendered to the government and by it canceled and burned. The Speyer certificates were paid in full; Speyer & Co. receiving in payment the sum of $1,559,485.59. All the coupons on the railway bonds falling due up to and including July 2, 1912, have been paid, but those falling due on the first mortgage bonds since then remain unpaid.
The complainant insists that the contracts and the mortgage upon which his rights rest constitute a special law of Ecuador, and that such a law takes precedence over the Civil Code, and creates a definite lien or charge upon the customs revenues, which is enforceable against third parties, who take with notice of the existence of such a lien, and that Speyer & Co. had such notice. The defendant Speyer & Co. assert that no lien upon the customs revenues was created in favor of the bondholders or their trustee. The theory of the bondholders is that the custom house revenues, including export as well as import duties, were specially assigned to them prior to the Speyer contract, and in answer to their protest Speyer & Co. agreed that they would deposit and hold in a separate account any moneys received by them from customs duties, and would not withdraw these moneys without 30 days' notice in writing. This notice was given on October 15, 1915.
Thereupon complainant began this suit, and obtained an ex parte order to show cause why Speyer & Co. should not be restrained from distributing the moneys pending the suit, with a temporary stay. A final decree has been entered in the District Court, dismissing the bill of complaint upon the merits, and vacating the injunction pendente lite obtained ex parte by complainant.
Masten & Nichols, of New...
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