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MUNSON Steamship Line, Libelant-Appellant, Decree affirmed 11 F.(20) 453. Decree for

v. Steam Tug HELMSMAN, Her Engines, defendants.
etc.; Robert Rogers and Frederick E. Jones,

The findings of fact and opinion of the Frederick E. Jones, Llbelant-Appellee,

special master were as follows: Steamship TUSCAN, Her Engines, etc.; Mun. Steamship Line, Claimant-Appellant,

Findings of Fact. Steam Tug Helmsman, Her Engines, etc., (1) Throughout the whole period during Robert Rogers and Frederick E. Jones, which the transactions involved in this acClaimants-Appellees.

tion arose and were performed, the plain(Circuit Court of Appeals, Second Circuit.

tiffs were copartners carrying on the business December 21, 1925.)

of manufacturers of snap fasteners at Nos. 122, 123.

Prague, Bohemia, now in the republic of Appeals from the District Court of the ment of said republic within the dominions of

Czecho-Slovakia, and prior to the establishUnited States for the Southern District of

the empire of Austria. New York.

(2) During such period two of said plainBurlingham, Veeder, Masten & Fearey, tiffs, Jindrich Waldes and Ignatz Puc, were of New York City (Chauncey I. Clark and residents of Prague, and the remaining two, Roy H. Caldwell, both of New York City, Edward Merzinger and Sigmund Waldes, of counsel), for appellants.

were residents of Dresden, Germany. Bigham, Englar & Jones, of New York (3) During said period the defendants City (Leonard J. Matteson, of New York were citizens of the United States and resiCity, of counsel), for appellees.

dents of the city of New York, carrying on Before ROGERS, MANTON, and

business as merchant bankers in the borough HAND, Circuit Judges.

of Manhattan in said city.

(4) On October 19, 1911, and prior therePER CURIAM. Decrees (11 F.[22] to, and until on or about February 20, 1917, 441) affirmed.

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 WALDES et al. v. SCHALL et al. day of August, 1916, was managed and con

ducted by said Sigmund Basch and M. Tay(District Court, S. D. New York. March 22, lor Dannreuther, both of the city of New 1924.)

York, as attorneys in fact for the plaintiffs, War O 12—Bankers held not liable for assets pursuant to a power of attorney executed

of foreign partnership, handled in dealing with and delivered on or about the said 12th day corporation conducting partnership’s United of August, 1916 (Plaintiffs' Exhibit 2). States' business, on theory incorporation was fraud participated in by bank (Trading with

(5) On or about October 19, 1911, the Enemy Act, $ 7 [b], 40 Stat. 416 [Comp. defendants agreed with the plaintiffs, under St. 1918, Comp. St. Ann. Supp. 1919, § their firm name and style of Waldes & Co., 31151/20]).

by letter of that date (Plaintiffs' Exhibit 1), Where attorneys in fact for a Prague part

as follows: “We are to pay the duties on nership, in February, 1917, incorporated under laws of New York with apparent hope of avoid- your importations to this country, collect the ing seizure of property

in event of war, held outstanding accounts resulting from the sale in view of Trading with Enemy Act, $ 7 (b), be- thereof, making payments for your account ing Comp. St. 1918, Comp. St. Ann. Supp. 1919,

as per your orders, and remitting to you as $ 3115120, bankers continuing to deal with corporation as they had with partnership until its required the balance in account; our compendissolution, at direction of Alien Property Cus- sation for attending to the above to be onetodian, were not liable to account to partner- half per cent.; interest to be credited at fair ship for assets on theory that incorporation rate based on the money market, usually from was an attempted fraud on both partnership and United States, in which banking firm par- 21/2 per cent. to 3 per cent.” (Plaintiffs' Exticipated.

hibit 1). Business continued under this ar

rangement between the plaintiffs and the deIn Equity. Suit for accounting by Jin- fendants until on or about the 26th day of drich Waldes and others, copartners doing February, 1917. business under the firm name and style of (6) The power of attorney executed by Waldes & Co., against William Schall and the plaintiffs to Basch and Dannreuther in another, copartners doing business under the August, 1916, confers upon them as attorneys firm name and style of Muller, Schall & Co. in fact the most sweeping powers in respect

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11 F.(2d) 444 to all the business and property of the plain- to incorporate the business of Waldes & Co. tiffs in the United States. The attorneys are under the laws of the state of New York, authorized to buy, sell, mortgage or lease real and to transfer to the corporation the plainand personal property; to collect and dis- tiffs' property under their control pursuant charge demands of every description; to to the authority conferred upon them in that have complete charge and management of regard by the power of attorney. The deall the plaintiffs' business interests in the fendants, after examining the power of atUnited States; and to do everything in re- torncy in respect to the authority of the spect thereto in the opinion of the attorneys plaintiffs' agents to incorporate the business, necessary or requisite for carrying on, pre- delivered the said bonds and bank stock to serving, and protecting the plaintiffs' inter- the said Sigmund Basch and M. Taylor ests as fully as plaintiffs themselves could do Dannreuther, who were both present at the if personally present. In addition to the time and received the same. general powers, to make, sign, indorse, and (8) On February 2, 1917, the plaintiffs' discount commercial paper, to select de- said agents in New York telegraphed by positaries of the business funds, and to sign radiogram to the plaintiffs in Prague: “We the names of the plaintiffs and the firm name intend to incorporate. Wire approval." of Waldes & Co., the attorneys are authorized (Defendants' Exhibit H.) This message was by subdivisions (g) and (k) as follows: received by the plaintiffs in Prague on or

"(g) To transfer any and all of our as- about February 5th. On or about February sets and business in the United States of 12th the plaintiffs' agents in New York again America to any person or corporation as telegraphed to the plaintiffs in Prague to may at any time seem proper to our said at- the effect that, having received no reply to torneys, and upon such terms and conditions their radiogram of the 2nd, they had incoras may seem proper to them, and we hereby porated, and this message was received by the empower them to transfer, not only personal plaintiffs in Prague on or about February 23, property, but any real property, which may 1917 (Plaintiffs' Exhibit 22). After the rebe owned by us in the United States of ceipt of these two messages, the plaintiffs in America, as may seem to them proper." Prague sent radiograms to their agents in

"(k) To sell any or all securities or shares New York on February 27, March 2, and of stock belonging to us in their possession, March 5, but in none of these made any refand to jointly execute all deeds or other in- erence to the messages received from their struments necessary or proper for transfer- agents in respect to the incorporation of the ring the same."

business in New York. The message from (7) Prior to February 3, 1917, the de the plaintiffs in Prague to their agents in fendants had purchased for the plaintiffs on

New York dated February 27, 1917 (Detheir order various railroad bonds, of the fendants' Exhibit I, the approved translation par value of $100,000, and at some time prior of which is attached, also marked Defendto February 2, 1917, had, by order of the ants’ Exhibit I), was not intended by the plaintiffs, sent the said bonds to the National plaintiffs to refer to their agents' messages City Bank in the city of New York for ac- of February 5 and 12 hereinabove mentioned, count of the plaintiffs. On February 2, 1917, and does not reply to the same.

These comthe plaintiffs' agents, Basch and Dannreuther, munications between the plaintiffs in Prague caused the National City Bank to return these and their agents in New York were not securities to the custody of the defendants. brought to the notice of the defendants. The defendants at the same time held for the (9) On or about the 20th day of Februplaintiffs, previously delivered to the defend- ary, 1917, the partnership business of Waldes ants by the plaintiffs' said agents, 798 shares & Co., previously conducted in the city of of the stock of the Bank of Europe, a state New York by the said Basch and Dannreuther bank formed under the laws of the state of as agents of the plaintiffs, was incorporated New York, and doing business in the city of under the laws of the state of New York unNew York. On February 3, 1917, Basch and der the corporate name of "Waldes & Co., Dannreuther, agents of the plaintiffs as Inc.," and a certificate of such incorporaaforesaid, called at the office of the defend- tion in due form filed with the secretary of ants, presented their said power of attorney, state of the state of New York (Plaintiffs' and requested the defendants to deliver to Exhibit 6). The said corporation, as apthem the said railroad bonds of the par value pears from said certificate, had an authorized of $100,000 and the whole 798 shares of stock capital stock of $500,000, and began business of the Bank of Europe, at the same time in- with an issue of 500 shares, of the par value forming the defendants that they intended of $100, in all $50,000. Paragraphs "eighth"


and "ninth" of said certificate provide as fol- taken over all the assets and liabilities of lows:

Waldes & Co. in America, and that in future Eighth. The names and post office addresses of all business relations in connection with which the directors for the first year, are as follows:

you have previously known Waldes & Co. in Names. Post Office Addresses.

America will be with Waldes & Co., Inc. Sigmund Basch. 938 St. Nicholas Avenue,

“Very truly yours,
Manhattan, New York

“Waldes & Company, Inc. Herman Basch. 400 West 160th street, Man

"[Signed] S. Basch, President. hattan, New York City. M. Taylor Dannreuther. 640 Riverside Drive, Man

“MTD/LH” hattan, New York City. Ninth.

(11) Upon receiving these notifications, The names and post office addresses of the subscribers of this certificate, and a statement defendants continued the account of "Waldes of the number of shares which each agrees to take in the corporation, are as follows:

& Co., Prague," as it then stood on their

books, except that on and after February

Post Office No. of Names.

Addresses. Shares. 26, 1917, they usually, though not always, Sigmund Basch.

938 St. Nicholas Ave- wrote at the top of the ledger page "Waldes enue, Manhattan,

& Co., Inc., New York,” or “New York City," New York City Herman Basch.

400 West 160th street instead of "Waldes & Co., Prague." This Manhattan,

New continued to be the title of the account on the York City

249 M. Taylor Dannreuther. 640 Riverside Drive,

defendants' books until about February, Manhattan, New 1918, when, after the dissolution of the corYork City


poration hereinafter mentioned, and the asThe incorporators executing the said cer- sumption of the liquidation by the Alien tificates were Sigmund Basch, Herman Basch, Property Custodian, the abbreviation “Inc.” and M. T. Dannreuther, and it is set forth in

was omitted. The business transacted by and said certificate that two-thirds of the said in- between Waldes & Co., Inc., and the defendcorporators are citizens of the United States. ants, subsequent to April 6, 1917, did not in

(10) On or about the 26th day of Febru- volve, directly or indirectly, transactions ary, 1917, the defendants received from with the plaintiffs personally or any comWaldes & Co., a formal notice of the transfer munications with them. of all the property of the firm to Waldes & (12) The federal statute known as the Co., Inc., as follows (Plaintiffs Exhibit 4): Trading with the Enemy Act went into ef"137 Fifth Avenue, New York,

fect on October 6, 1917 (Comp. St. 1918, "February 26, 1917.

Comp. St. Ann. Supp. 1919, SS 311512a“Muller, Schall & Co., 45 William St., time allowed by law for making reports un

31151/2ff, 3115129–3115121). Within the New York City—Gentlemen: This is to ad- der that act to the Alien Property Custodian vise you that we have, for good and valuable considerations, turned over to Waldes & Co., to the Custodian the origin of their corpora

the directors of Waldes & Co., Inc., reported Inc., all the outstanding accounts, cash on

tion and its relations to the plaintiffs whose hand, securities, good will, trade-mark and patent rights, and all other assets belonging become an enemy or ally of enemy. Two of

partnership after the declaration of war had to us, together with all liabilities. In accordance with the above, you will kindly recognize the partners resided in Dresden, Germany;

. the authority of Waldes & Company, Inc., in connection with all affairs and business mat- part of the Austrian empire, and the United

States did not declare war against Austria ters previously handled by you for Waldes

until December 7, 1917. The Alien Property & Co. “Very truly yours,

Custodian thereupon ordered the directors “[Signed] S. Basch, Atty.

of Waldes & Co., Inc., to dissolve their cor“[Signed] M. T. Dannreuther, Atty. poration in a voluntary proceeding, as stock

"Signed] M. T. Dannreuther, Atty. holders, under the laws of the state of New “MTD/LH”

York. The directors obeyed this instruction, At the same time defendants received and on or about January 29, 1918, the said from Waldes & Co., Inc., a similar notice in corporation was duly dissolved (Plaintiffs' the following form (Exhibit 3):

Exhibit 25). Thereupon the Alien Property “137 Fifth Ave., New York, Custodian took over the property of the

“February 26, 1917. corporation, placed a representative, known “Muller, Schall & Co., 45 William St., as a “supervisor,” in charge of the business, New York City-Gentlemen: This is to no- and proceeded to liquidate the same in the tify you that we, Waldes & Co., Inc., have name of Waldes & Co.

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11 F.(20) 444 (13) The Alien Property Custodian, on the plaintiffs, but had been transferred to the and after December 31, 1917, recognized the corporation at the time it was organized in account of Muller, Schall & Co. with Waldes February, 1917, and requested the defend& Co., Inc., as a correct and lawful account ants to sell the said bank stock for the ac(Defendants’ Exhibits E, F, and G), and count of the corporation. On or about Deduring the liquidation of Waldes & Co. by cember 31, 1917, the defendants returned the the Alien Property Custodian's supervisor said shares of stock of the Bank of Europe made payments amounting to $5,000 to the to Waldes & Co., Inc., as unsalable by them. defendants, to be credited on the balance due Thereafter the said shares were sold by or to them from Waldes & Co., Inc.

on behalf of the corporation to one Antonin (14) In July, 1919, the Alien Property Chapal. With this sale the defendants had Custodian turned over to Jindrich Waldes, nothing to do, and received no part of the one of the plaintiffs, then in the United proceeds thereof. The defendants on receiv, States, all the plaintiffs' patents and trade- ing these bank shares from Waldes & Co., marks, which had been transferred in Febru. Inc., on October 31, 1917, or thereafter, ary, 1917, to a corporation formed under while the shares remained in the custody of the laws of New Jersey under the name the defendants, did not notify the Alien "Waldes & Co., Inc.,” for the express pur- Property Custodian that such shares were pose of holding such patents and trade-marks. in their possession and were the property The Custodian also paid over to the plain- of alien enemies. These certificates of shares tiffs $4,500 in cash and $1,200 in Liberty in the Bank of Europe, when delivered to bonds then in his hands, arising from the the defendants for sale as aforesaid, were liquidation of the business by his supervisor, made out in the name of Waldes & Co., Inc. and also furniture, correspondence, books, (17) In all the transactions of the demachinery, and merchandise.

fendants involved in this action with Waldes (15) On February 26, 1917, the defend- & Co. of Prague, or with their agents in ants held on account of the plaintiffs in es- New York, or with Waldes & Co., Inc., subcrow $8,500 and in another and separate es- sequent to February 26, 1917, the defendcrow $2,784.96. On and after February 26, ants acted in good faith without any intent 1917, the defendants continued to carry these to defraud the plaintiffs or their agents, or escrow accounts for the new corporation, to Waldes & Co., Inc., or the United States, and which they had been transferred with the did not defraud any of them in any respect. other assets of the plaintiffs. On April 11, 1917, and February 6, 1918, these sums by

Opinion. order of Waldes & Co., Inc., were withdrawn With reference to the foregoing findings from the escrow accounts and credited to some comments on the evidence are necessary Waldes & Co., Inc., on current account (Ex- before considering the legal questions involvhibit K). On or about October 1, 1917, ed in the case. Both parties refrained from Waldes & Co., Inc., delivered to the defend- calling as witnesses either Basch or Dannreuants, as collateral for their advances, the ther, the agents of the plaintiffs in New railroad bonds, of the par value of $100,- York, and neither party introduced testi000, which had been delivered by the de- mony of either of these individuals by depofendants on February 3, 1917, to Basch and sition. Similarly, neither party called any Dannreuther then acting as agents for the official from the office of the Alien Property plaintiffs (Defendants' Exhibits B and D). Custodian, or attempted by any official docuOn December 26, 1917, the defendants were mentary evidence to give precise information ordered by Waldes & Co., Inc., to sell those of the relations of the custodian with Waldes bonds for account of the corporation, and & Co. There is no direct evidence of the reto credit the proceeds to its account with the port made to the Alien Property Custodian defendants (Defendants' Exhibit C). Be- by the directors of Waldes & Co. Neither the tween December 28, 1917, and February 19, terms of the report, nor the date when it was 1918, defendants sold the said bonds, re- made, nor the date of the seizure of the propceiving therefor in all $85,799.25, and cred- erty by the Alien Property Custodian, ited the sum so received to Waldes & Co., whether before or after the dissolution of the Inc., on current account.

corporation, have been definitely shown. All (16) On or about October 31, 1917, the evidence discloses in respect to such reWaldes & Co., Inc., delivered to the defend- port and seizure is some very scrappy testiants to be sold for account of the corpora- mony by the manager of the defendants' comtion, 798 shares of the stock of the Bank of mercial department, Ehler, that in NovemEurope, which had originally belonged to ber or December, 1917, Basch and Dannreuther, plaintiffs' former agents in New York, In their complaint the plaintiffs, alleging president and secretary respectively of the contract of October 19, 1911, between Waldes & Co., Inc., told him that they had them and the defendants, pray for an acalready been several times to Washington to counting by the defendants covering the see the Alien Property Custodian, and that whole period between the date of that conhe had instructed them to liquidate the cor- tract, October 19, 1911, and the commenceporation under the laws of the state of New ment of the action in November, 1922. The York.

defendants in their answer concede the right It is further proved that the corporation of the plaintiffs to an accounting up to Febwas liquidated in a voluntary proceeding un- ruary 26, 1917, when the corporation, Waldes der the laws of the state of New York, and & Co., Inc., was organized. By stipulation was dissolved about the end of January, between the parties (Exhibit L), the balance 1918. There is evidence, also, which shows due the plaintiffs from the defendants on that the Alien Property Custodian was con- December 31, 1916, was agreed upon, and it ducting the affairs of Waldes & Co. during was further agreed that any account filed 1918 and 1919 and communicating in respect by the defendants should commence on Januthereto with the defendants, receiving from ary 1, 1917. The defendants contend, howthem from time to time, between December ever, that in view of the organization of the 31, 1917, and March 18, 1919, statements of corporation, Waldes & Co., Inc., in Februtheir current account with Waldes & Co., and ary, 1917, and the notifications to them on acknowledging such receipt with apparent February 26, 1917, from the plaintiffs' approval (Defendants' Exhibits E, F and agents and the corporation that all the propG). In a letter of March 20, 1919 (Exhibit erty of every description of the plaintiffs in G), the Alien Property Custodian clearly ad- the United States had been transferred to mits the validity of the defendants' account such corporation, and that future dealings of against Waldes & Co., Inc., and his duty to the defendants should be with the corporapay it when he realized a sufficient sum from tion instead of with the plaintiffs or the the liquidation of its assets.

plaintiffs' former agents in the United States, There is no direct evidence of the place the only account to which the plaintiffs are of residence of Sigmund Basch and M. Tay- entitled terminates on February 26, 1917. lor Dannreuther, or of Herman Basch. But In order to save the defendants' point, the the plaintiffs have put in evidence a certified former special master, while the case was becopy from the office of the secretary of state ing heard before him, directed the defendants of the state of New York of the certificate to file an account stating in due form their of incorporation of Waldes & Co., Inc. transactions with the plaintiffs to February (Plaintiffs' Exhibit 6), from which it ap 26, 1917, and to file another account, to be pears under date of February 14, 1917, that entitled "Statement of Transactions by Multhe incorporators, and also the directors for ler, Schall & Co. with Waldes & Co., Inc.," the first year, were Sigmund Basch, Herman covering all the transactions with the corBasch, and M. Taylor Dannreuther, and that poration, Waldes & Co., Inc., and with in February, 1917, all of them resided in the Waldes & Co. as carried on by the Alien city of New York. It appears, also, from Property Custodian after the dissolution of the certificate, that at least two of the three the corporation. The defendants thereupon incorporators were citizens of the United filed such account and "statement,” which are States, and it appears from the testimony of returned herewith, identified, respectively, as Ehler that Herman Basch, wh was the Defendants' Exhibits J and K. brother of Sigmund Basch, one of the agents The accuracy of the items of credits and of the plaintiffs, could not serve as a director debits in the account and “statement” is not of the Bank of Europe, because he was not a questioned by the plaintiffs, and no formal citizen of the United States. From this it objections to either document have been filed. may be inferred that Sigmund Basch and The plaintiffs' contention does not involve Dannreuther were citizens. The plaintiffs any attack upon the accuracy of these achave also put in evidence (Plaintiffs' Exhibit counts, and in the view I take of the case on 25) a certified copy from the office of the the evidence presented the distinction besecretary of state of the state of New York tween these two papers is immaterial. The of the dissolution proceedings of Waldes & claim of the plaintiffs is rather difficult to Co., Inc., from which, under date of Janu- grasp, and it seems advisable to state it as ary 26, 1918, it appeared that at that time presented in their counsel's brief. He says: these three persons were still residents of the “The action, although brought for an accity of New York.

counting, does not, like the ordinary account


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