Appeals from the District Court of the United States for the Southern District of New York.

Burlingham, Veeder, Masten & Fearey, of New York City (Chauncey I. Clark and Roy H. Caldwell, both of New York City, of counsel), for appellants.

Bigham, Englar & Jones, of New York City (Leonard J. Matteson, of New York City, of counsel), for appellees.

defendants.

The findings of fact and opinion of the special master were as follows:

Findings of Fact.

(1) Throughout the whole period during which the transactions involved in this action arose and were performed, the plaintiffs were copartners carrying on the business of manufacturers of snap fasteners at Prague, Bohemia, now in the republic of Czecho-Slovakia, and prior to the establishment of said republic within the dominions of the empire of Austria.

(2) During such period two of said plaintiffs, Jindrich Waldes and Ignatz Puc, were residents of Prague, and the remaining two, Edward Merzinger and Sigmund Waldes, were residents of Dresden, Germany.

(3) During said period the defendants were citizens of the United States and residents of the city of New York, carrying on

PER CURIAM.

441) affirmed.

"'d π13 (21) 453.

WALDES et al. v. SCHALL et al.

the plaintiffs maintained a branch of their business in the city of New York, of which one Sigmund Basch was at first manager, and which, subsequent to on or about the 12th day of August, 1916, was managed and conducted by said Sigmund Basch and M. Tay

1924.)

War 12-Bankers held not liable for assets of foreign partnership, handled in dealing with corporation conducting partnership's United States' business, on theory incorporation was fraud participated in by bank (Trading with Enemy Act, 8 7 [b], 40 Stat. 416 [Comp. St. 1918, Comp. St. Ann. Supp. 1919, § 31152d]).

Where attorneys in fact for a Prague partnership, in February, 1917, incorporated under laws of New York with apparent hope of avoiding seizure of property in event of war, held in view of Trading with Enemy Act, § 7 (b), being Comp. St. 1918, Comp. St. Ann. Supp. 1919, § 31152d, bankers continuing to deal with corporation as they had with partnership until its dissolution, at direction of Alien Property Custodian, were not liable to account to partnership for assets on theory that incorporation was an attempted fraud on both partnership and United States, in which banking firm participated.

In Equity. Suit for accounting by Jindrich Waldes and others, copartners doing business under the firm name and style of Waldes & Co., against William Schall and another, copartners doing business under the firm name and style of Muller, Schall & Co.

York, as attorneys in fact for the plaintiffs, pursuant to a power of attorney executed and delivered on or about the said 12th day of August, 1916 (Plaintiffs' Exhibit 2).

(5) On or about October 19, 1911, the defendants agreed with the plaintiffs, under their firm name and style of Waldes & Co., by letter of that date (Plaintiffs' Exhibit 1), as follows: "We are to pay the duties on your importations to this country, collect the outstanding accounts resulting from the sale thereof, making payments for your account as per your orders, and remitting to you as required the balance in account; our compensation for attending to the above to be onehalf per cent.; interest to be credited at fair rate based on the money market, usually from 22 per cent. to 3 per cent." (Plaintiffs' Exhibit 1). Business continued under this arrangement between the plaintiffs and the defendants until on or about the 26th day of February, 1917.

(6) The power of attorney executed by the plaintiffs to Basch and Dannreuther in August, 1916, confers upon them as attorneys in fact the most sweeping powers in respect

to all the business and property of the plaintiffs in the United States. The attorneys are authorized to buy, sell, mortgage or lease real and personal property; to collect and discharge demands of every description; to have complete charge and management of all the plaintiffs' business interests in the United States; and to do everything in respect thereto in the opinion of the attorneys necessary or requisite for carrying on, preserving, and protecting the plaintiffs' interests as fully as plaintiffs themselves could do if personally present. In addition to the general powers, to make, sign, indorse, and discount commercial paper, to select depositaries of the business funds, and to sign the names of the plaintiffs and the firm name of Waldes & Co., the attorneys are authorized by subdivisions (g) and (k) as follows:

"(g) To transfer any and all of our assets and business in the United States of America to any person or corporation as may at any time seem proper to our said attorneys, and upon such terms and conditions as may seem proper to them, and we hereby empower them to transfer, not only personal property, but any real property, which may be owned by us in the United States of America, as may seem to them proper."

"(k) To sell any or all securities or shares of stock belonging to us in their possession, and to jointly execute all deeds or other instruments necessary or proper for transferring the same."

(7) Prior to February 3, 1917, the defendants had purchased for the plaintiffs on their order various railroad bonds, of the par value of $100,000, and at some time prior to February 2, 1917, had, by order of the plaintiffs, sent the said bonds to the National City Bank in the city of New York for account of the plaintiffs. On February 2, 1917, the plaintiffs' agents, Basch and Dannreuther, caused the National City Bank to return these securities to the custody of the defendants. The defendants at the same time held for the plaintiffs, previously delivered to the defendants by the plaintiffs' said agents, 798 shares of the stock of the Bank of Europe, a state bank formed under the laws of the state of New York, and doing business in the city of New York. On February 3, 1917, Basch and Dannreuther, agents of the plaintiffs as aforesaid, called at the office of the defendants, presented their said power of attorney, and requested the defendants to deliver to them the said railroad bonds of the par value of $100,000 and the whole 798 shares of stock of the Bank of Europe, at the same time informing the defendants that they intended

to incorporate the business of Waldes & Co. under the laws of the state of New York, and to transfer to the corporation the plaintiffs' property under their control pursuant to the authority conferred upon them in that regard by the power of attorney. The defendants, after examining the power of attorney in respect to the authority of the plaintiffs' agents to incorporate the business, delivered the said bonds and bank stock to the said Sigmund Basch and M. Taylor Dannreuther, who were both present at the time and received the same.

(8) On February 2, 1917, the plaintiffs' said agents in New York telegraphed by radiogram to the plaintiffs in Prague: "We intend to incorporate. Wire approval." (Defendants' Exhibit H.) This message was received by the plaintiffs in Prague on or about February 5th. On or about February 12th the plaintiffs' agents in New York again telegraphed to the plaintiffs in Prague to the effect that, having received no reply to their radiogram of the 2nd, they had incorporated, and this message was received by the plaintiffs in Prague on or about February 23, 1917 (Plaintiffs' Exhibit 22). After the receipt of these two messages, the plaintiffs in Prague sent radiograms to their agents in New York on February 27, March 2, and March 5, but in none of these made any reference to the messages received from their agents in respect to the incorporation of the business in New York. The message from the plaintiffs in Prague to their agents in New York dated February 27, 1917 (Defendants' Exhibit I, the approved translation of which is attached, also marked Defendants' Exhibit I), was not intended by the plaintiffs to refer to their agents' messages of February 5 and 12 hereinabove mentioned, and does not reply to the same. These communications between the plaintiffs in Prague and their agents in New York were not brought to the notice of the defendants.

(9) On or about the 20th day of February, 1917, the partnership business of Waldes & Co., previously conducted in the city of New York by the said Basch and Dannreuther as agents of the plaintiffs, was incorporated under the laws of the state of New York under the corporate name of "Waldes & Co., Inc.," and a certificate of such incorporation in due form filed with the secretary of state of the state of New York (Plaintiffs' Exhibit 6). The said corporation, as appears from said certificate, had an authorized capital stock of $500,000, and began business with an issue of 500 shares, of the par value of $100, in all $50,000. Paragraphs "eighth"

and "ninth❞ of said certificate provide as follows:

Eighth. The names and post office addresses of the directors for the first year, are as follows:

Names.

Sigmund Basch.

Herman Basch.

M. Taylor Dannreuther.

Ninth.

The names and post office addresses of the subscribers of this certificate, and a statement of the number of shares which each agrees to take in the corporation, are as follows:

No. of

938 St. Nicholas Ave

enue,

Manhattan,

New York City

400 West 160th street

Manhattan, York City

New

640 Riverside

Manhattan, York City

Drive, New

2

249

taken over all the assets and liabilities of Waldes & Co. in America, and that in future all business relations in connection with which you have previously known Waldes & Co. in America will be with Waldes & Co., Inc. "Very truly yours,

"MTD/LH"

"Waldes & Company, Inc. "[Signed] S. Basch, President.

249

The incorporators executing the said certificates were Sigmund Basch, Herman Basch, and M. T. Dannreuther, and it is set forth in said certificate that two-thirds of the said incorporators are citizens of the United States.

(10) On or about the 26th day of February, 1917, the defendants received from Waldes & Co., a formal notice of the transfer of all the property of the firm to Waldes & Co., Inc., as follows (Plaintiffs' Exhibit 4):

"137 Fifth Avenue, New York,

"February 26, 1917. "Muller, Schall & Co., 45 William St., New York City-Gentlemen: This is to advise you that we have, for good and valuable considerations, turned over to Waldes & Co., Inc., all the outstanding accounts, cash on hand, securities, good will, trade-mark and patent rights, and all other assets belonging to us, together with all liabilities. In accordance with the above, you will kindly recognize the authority of Waldes & Company, Inc., in connection with all affairs and business matters previously handled by you for Waldes & Co.

"Very truly yours,

"[Signed] S. Basch, Atty. "[Signed] M. T. Dannreuther, Atty. "MTD/LH"

At the same time defendants received from Waldes & Co., Inc., a similar notice in the following form (Exhibit 3):

"137 Fifth Ave., New York, "February 26, 1917. "Muller, Schall & Co., 45 William St., New York City-Gentlemen: This is to notify you that we, Waldes & Co., Inc., have

(12) The federal statute known as the Trading with the Enemy Act went into effect on October 6, 1917 (Comp. St. 1918, Comp. St. Ann. Supp. 1919, §§ 31152a31152ff, 31152g-31152j). Within the time allowed by law for making reports under that act to the Alien Property Custodian the directors of Waldes & Co., Inc., reported to the Custodian the origin of their corporation and its relations to the plaintiffs whose partnership after the declaration of war had become an enemy or ally of enemy. Two of the partners resided in Dresden, Germany; the other two in Prague. Prague was then a part of the Austrian empire, and the United States did not declare war against Austria until December 7, 1917. The Alien Property Custodian thereupon ordered the directors of Waldes & Co., Inc., to dissolve their corporation in a voluntary proceeding, as stockholders, under the laws of the state of New York. The directors obeyed this instruction, and on or about January 29, 1918, the said corporation was duly dissolved (Plaintiffs' Exhibit 25). Thereupon the Alien Property Custodian took over the property of the corporation, placed a representative, known as a "supervisor," in charge of the business, and proceeded to liquidate the same in the name of Waldes & Co.

(13) The Alien Property Custodian, on and after December 31, 1917, recognized the account of Muller, Schall & Co. with Waldes & Co., Inc., as a correct and lawful account (Defendants' Exhibits E, F, and G), and during the liquidation of Waldes & Co. by the Alien Property Custodian's supervisor made payments amounting to $5,000 to the defendants, to be credited on the balance due to them from Waldes & Co., Inc.

(14) In July, 1919, the Alien Property Custodian turned over to Jindrich Waldes, one of the plaintiffs, then in the United States, all the plaintiffs' patents and trademarks, which had been transferred in February, 1917, to a corporation formed under the laws of New Jersey under the name "Waldes & Co., Inc.," for the express purpose of holding such patents and trade-marks. The Custodian also paid over to the plaintiffs $4,500 in cash and $1,200 in Liberty bonds then in his hands, arising from the liquidation of the business by his supervisor, and also furniture, correspondence, books, machinery, and merchandise.

(15) On February 26, 1917, the defendants held on account of the plaintiffs in escrow $8,500 and in another and separate escrow $2,784.96. On and after February 26, 1917, the defendants continued to carry these escrow accounts for the new corporation, to which they had been transferred with the other assets of the plaintiffs. On April 11, 1917, and February 6, 1918, these sums by order of Waldes & Co., Inc., were withdrawn from the escrow accounts and credited to Waldes & Co., Inc., on current account (Exhibit K). On or about October 1, 1917, Waldes & Co., Inc., delivered to the defendants, as collateral for their advances, the railroad bonds, of the par value of $100,000, which had been delivered by the defendants on February 3, 1917, to Basch and Dannreuther then acting as agents for the plaintiffs (Defendants' Exhibits B and D). On December 26, 1917, the defendants were ordered by Waldes & Co., Inc., to sell those bonds for account of the corporation, and to credit the proceeds to its account with the defendants (Defendants' Exhibit C). Between December 28, 1917, and February 19, 1918, defendants sold the said bonds, receiving therefor in all $85,799.25, and credited the sum so received to Waldes & Co., Inc., on current account.

(16) On or about October 31, 1917, Waldes & Co., Inc., delivered to the defendants to be sold for account of the corporation, 798 shares of the stock of the Bank of Europe, which had originally belonged to

the plaintiffs, but had been transferred to the corporation at the time it was organized in February, 1917, and requested the defendants to sell the said bank stock for the account of the corporation. On or about December 31, 1917, the defendants returned the said shares of stock of the Bank of Europe to Waldes & Co., Inc., as unsalable by them. Thereafter the said shares were sold by or on behalf of the corporation to one Antonin Chapal. With this sale the defendants had nothing to do, and received no part of the proceeds thereof. The defendants on receiv. ing these bank shares from Waldes & Co., Inc., on October 31, 1917, or thereafter, while the shares remained in the custody of the defendants, did not notify the Alien Property Custodian that such shares were in their possession and were the property of alien enemies. These certificates of shares in the Bank of Europe, when delivered to the defendants for sale as aforesaid, were made out in the name of Waldes & Co., Inc.

(17) In all the transactions of the defendants involved in this action with Waldes & Co. of Prague, or with their agents in New York, or with Waldes & Co., Inc., subsequent to February 26, 1917, the defendants acted in good faith without any intent to defraud the plaintiffs or their agents, or Waldes & Co., Inc., or the United States, and did not defraud any of them in any respect.

Opinion.

With reference to the foregoing findings some comments on the evidence are necessary before considering the legal questions involved in the case. Both parties refrained from calling as witnesses either Basch or Dannreuther, the agents of the plaintiffs in New York, and neither party introduced testimony of either of these individuals by deposition. Similarly, neither party called any official from the office of the Alien Property Custodian, or attempted by any official documentary evidence to give precise information of the relations of the custodian with Waldes & Co. There is no direct evidence of the report made to the Alien Property Custodian by the directors of Waldes & Co. Neither the terms of the report, nor the date when it was made, nor the date of the seizure of the property by the Alien Property Custodian, whether before or after the dissolution of the corporation, have been definitely shown. All the evidence discloses in respect to such report and seizure is some very scrappy testimony by the manager of the defendants' commercial department, Ehler, that in November or December, 1917, Basch and Dannreu

ther, plaintiffs' former agents in New York, president and secretary respectively of Waldes & Co., Inc., told him that they had already been several times to Washington to see the Alien Property Custodian, and that he had instructed them to liquidate the corporation under the laws of the state of New York.

It is further proved that the corporation was liquidated in a voluntary proceeding under the laws of the state of New York, and was dissolved about the end of January, 1918. There is evidence, also, which shows that the Alien Property Custodian was conducting the affairs of Waldes & Co. during 1918 and 1919 and communicating in respect thereto with the defendants, receiving from them from time to time, between December 31, 1917, and March 18, 1919, statements of their current account with Waldes & Co., and acknowledging such receipt with apparent approval (Defendants' Exhibits E, F and G). In a letter of March 20, 1919 (Exhibit G), the Alien Property Custodian clearly admits the validity of the defendants' account against Waldes & Co., Inc., and his duty to pay it when he realized a sufficient sum from the liquidation of its assets.

There is no direct evidence of the place of residence of Sigmund Basch and M. Taylor Dannreuther, or of Herman Basch. But the plaintiffs have put in evidence a certified copy from the office of the secretary of state of the state of New York of the certificate of incorporation of Waldes & Co., Inc. (Plaintiffs' Exhibit 6), from which it appears under date of February 14, 1917, that the incorporators, and also the directors for the first year, were Sigmund Basch, Herman Basch, and M. Taylor Dannreuther, and that in February, 1917, all of them resided in the city of New York. It appears, also, from the certificate, that at least two of the three incorporators were citizens of the United States, and it appears from the testimony of Ehler that Herman Basch, who was the brother of Sigmund Basch, one of the agents of the plaintiffs, could not serve as a director of the Bank of Europe, because he was not a citizen of the United States. From this it may be inferred that Sigmund Basch and Dannreuther were citizens. The plaintiffs have also put in evidence (Plaintiffs' Exhibit 25) a certified copy from the office of the secretary of state of the state of New York of the dissolution proceedings of Waldes & Co., Inc., from which, under date of January 26, 1918, it appeared that at that time these three persons were still residents of the city of New York.

In their complaint the plaintiffs, alleging the contract of October 19, 1911, between them and the defendants, pray for an accounting by the defendants covering the whole period between the date of that contract, October 19, 1911, and the commencement of the action in November, 1922. The defendants in their answer concede the right of the plaintiffs to an accounting up to February 26, 1917, when the corporation, Waldes & Co., Inc., was organized. By stipulation between the parties (Exhibit L), the balance due the plaintiffs from the defendants on December 31, 1916, was agreed upon, and it was further agreed that any account filed by the defendants should commence on January 1, 1917. The defendants contend, however, that in view of the organization of the corporation, Waldes & Co., Inc., in Febru ary, 1917, and the notifications to them on February 26, 1917, from the plaintiffs' agents and the corporation that all the property of every description of the plaintiffs in the United States had been transferred to such corporation, and that future dealings of the defendants should be with the corporation instead of with the plaintiffs or the plaintiffs' former agents in the United States, the only account to which the plaintiffs are entitled terminates on February 26, 1917.

In order to save the defendants' point, the former special master, while the case was being heard before him, directed the defendants to file an account stating in due form their transactions with the plaintiffs to February 26, 1917, and to file another account, to be entitled "Statement of Transactions by Muller, Schall & Co. with Waldes & Co., Inc.," covering all the transactions with the corporation, Waldes & Co., Inc., and with Waldes & Co. as carried on by the Alien Property Custodian after the dissolution of the corporation. The defendants thereupon filed such account and "statement," which are returned herewith, identified, respectively, as Defendants' Exhibits J and K.

The accuracy of the items of credits and debits in the account and "statement" is not questioned by the plaintiffs, and no formal objections to either document have been filed. The plaintiffs' contention does not involve any attack upon the accuracy of these accounts, and in the view I take of the case on the evidence presented the distinction between these two papers is immaterial. The claim of the plaintiffs is rather difficult to grasp, and it seems advisable to state it as presented in their counsel's brief. He says:

"The action, although brought for an accounting, does not, like the ordinary account