In a suit brought by the United States to charge the defendant
with a trust in respect to funds obtained by another through fraud
against the United States,
held that the personal
representative of a third party claiming an interest in the funds
under an agreement indemnifying him as bail of the party
fraudulently procuring such funds was, under the circumstances of
this case, entitled to intervene.
A contract that certain specific assets in the hands of a
trustee should be held as security for a specific contingent claim
is necessarily express, and is nonetheless so if conveyed by acts
importing it than if stated in words.
Where the intervenor has not legal title and is not claiming
against an admitted prior equity as a purchaser without notice,
allegations of ignorance of facts not admitted and not finally
established are not essential.
Bail no longer is the
mundium, and distinctions between
bail and suretyship are nearly effaced.
Quaere whether a
contract to indemnify bail which is legal by statute in New York
where made is void as against the public policy of the United
States.
Page 224 U. S. 568
In this case, as the intervenor did not know of the suit or the
position taken by defendant, who was legally her trustee, she
should not be held guilty of laches.
184 F. 433 reversed.
The facts are stated in the opinion.
Page 224 U. S. 573
MR. JUSTICE HOLMES delivered the opinion of the Court.
This is a petition for leave to intervene in a suit brought by
the United States to charge the defendant Kellogg with a trust in
respect of funds alleged to have been received by him from Greene,
and to have been obtained from the plaintiff by Greene through his
participation in the well known Carter frauds. The funds specially
referred to were certain shares of railroad stock standing in
Kellogg's name, but held in trust for Greene. The nature of the
alleged frauds can be gathered from
United States v.
Carter, 217 U. S. 286.
See Greene v. Henkel, 183 U. S. 249. The
bill of intervention alleges the indictment of Greene, and that the
plaintiff's deceased became surety upon Greene's bail bond "upon
the understanding and condition that the securities held in trust
or on deposit" by Kellogg from Greene, being the above-mentioned
railroad stock, should remain in Kellogg's hands as security and
indemnity to Leary for signing the bond. It goes on to allege
Greene's failure to appear, a forfeiture of the bond, a suit upon
it brought September 10, 1903, and a judgment for the United States
against the intervener on January 6, 1908. Finally the bill sets
forth that the United States not only has got an injunction
pendente lite forbidding Kellogg to deliver the fund to
the intervener to be used in partial liquidation of the judgment
against her, but is pressing the collection of the judgment;
Page 224 U. S. 574
and that the United States has no equity unless subject to that
which the intervener claims.
This suit was begun on December 19, 1903. The evidence had been
taken, and it was ready for final hearing when the petition for
leave to intervene was filed, April 18, 1908. But the action on the
bond seems to have been contested, and no judgment was entered
until January 6, 1908, as we have said. The circuit court intimated
an opinion that the bill of intervention was defective for want of
an allegation that Leary at the time of his agreement, did not know
the facts alleged in the principal bill to raise a trust for the
government, and also that, so far as appears, it might be brought
upon a supposed implied contract, whereas no such undertaking of
indemnity would be implied by the law, citing
United States v.
Ryder, 110 U. S. 729. But
observing that the petition might be amended in these respects, it
held that amendment would be unavailing, as the contract was
against public policy and void. 163 F. 442. The circuit court of
appeals, without deciding upon this last point, affirmed the decree
on the above-mentioned ground that Leary's knowledge was not
negatived, and also on that of laches, apparent and unexplained.
184 F. 433.
The result is that the petitioner is denied her chance to be
heard for want of amendments which the court that might have
allowed them told her that it was no use to make, as it was going
to decide against her whatever she did. Even if the court would
have allowed them, which is a speculation, it is holding a party to
very technical rules to say that, while one case was being dealt
with below, he ought to have contemplated having to meet a
different one above. But we need not consider that matter, as we
are of opinion that the bill, without amendment, showed a
sufficient right to intervene.
We lay on one side the suggestion that the intervention goes
only upon an implied contract in its proper sense of
Page 224 U. S. 575
an obligation raised by the law, irrespective of any real
promise. That would seem to us a perverted interpretation of the
words "upon the understanding and condition," even if the contract
were only a general one to indemnify; but a contract that certain
specific stock in the hands of a trustee should be held as security
for a specific contingent claim could not exist unless it was
express. It would be nonetheless express if it was conveyed by acts
importing it than if it was stated in words. The point that Leary's
knowledge ought to have been denied impresses us hardly more. The
plaintiff has not the legal title, and is not claiming against an
admitted prior equity as a purchaser without notice. Her position
is that she does not know whether the United States has any equity
or not, but that whatever rights the United States may have are
inferior to hers. She is not called on to allege Leary's ignorance
of facts that she does not admit and that are not yet finally
established. We are of opinion that anyone reading the bill in the
same way that he would read an untechnical document would have no
doubt that the plaintiff meant to put her case as we have taken
it.
The only matters that seem to us to need argument are the
questions of public policy and laches. As to the former, the ground
for declaring the contract invalid rests rather on tradition than
on substantial realities of the present day. It is said that the
bail contemplated by the Revised Statutes (§ 1014) is a common law
bail, and that nothing should be done to diminish the interest of
the bail in producing the body of his principal. But bail no longer
is the
mundium, although a trace of the old relation
remains in the right to arrest. Rev.Stat. § 1018. The distinction
between bail and suretyship is pretty nearly forgotten. The
interest to produce the body of the principal in court is
impersonal and wholly pecuniary. If, as in this case, the bond was
for $40,000, that sum was the
Page 224 U. S. 576
measure of the interest on anybody's part, and it did not matter
to the government what person ultimately felt the loss, so long as
it had the obligation it was content to take. The law of New York
recognizes the validity of contracts like the one alleged, and,
without considering whether the law of New York controls, we are
content to say merely that the New York decisions strike us as
founded in good sense.
Maloney v. Nelson, 144 N.Y. 182,
189,
s.c. 158 N.Y. 351.
As to laches, there is no legal presumption that the petitioner
knew of this suit, and still less that she knew the position taken
by Kellogg. He set up that the stock was taken as indemnity to
himself for his promise to indemnify Leary, etc., and said nothing
about the petitioner's claim. If that claim is well founded and she
knew of this suit, it was not laches in her to assume that Kellogg
would do his duty as her trustee. She might be bound by a decree
against him, but before decree, on discovering his conduct, she
fairly may ask a chance to protect herself. Moreover, as she
disputed liability on the bond, she had an additional reason for
not moving until the case against her had gone to judgment.
See
Anonymous, 11 Mod. 2. On the whole matter, it seems to us that
she was dealt with too technically. She presents a case which,
unless read with an adverse mind, is a good one on its face, and
whatever misgivings we may entertain, we are of opinion that she
ought to be allowed to try to prove it. In the circumstances it
seems to us that the leave to intervene may be granted, subject to
the condition that the evidence already in shall be taken to be
evidence against her, subject to her right to recall and
cross-examine such witnesses for the government as she may be
advised.
Decree reversed.
MR. JUSTICE McKENNA and MR. JUSTICE PITNEY dissent.