21 F.(2d) 124 chine in combination with a drip-saver located away from the rinsing instrumentalities to avoid contamination by the cleansing medium. In the Stubbs patent, to which defendant's expert witness attaches importance, and which may fairly be regarded as the best reference, there is shown a milk can-washing appllance having a milk saver with each can, inverted over a receptacle to allow the residue to drip into it; but there is no continuous or progressive traveling of the cans to the cleansing part of the machine. The construction of the jets was such that milk contact with the water was difficult to avoid without great delay. It was operated manually; each can requiring separate treatment. The patent was given consideration by the Patent Office at the time of passing upon the Blair application, and it was determined that the Blair improvement was patentable. The earlier Hood patents are not important references, because of their failure to adapt a drip saver; and Hood's later patent, wherein he included a can-draining feature, did not operate to prevent the saved milk from being contaminated by the rinsing operation, while his patent No. 949,121, dated February 15th, 1910, which, in combination, included a device for saving the drippings, was subsequent to the date of the Blair application. It is true that separate elements of the combination claims in suit are found in different prior patents and publications in evidence, but none disclose the combinations of the elements of the claims in suit, and none avoid the contamination of the milk by the washing operation, and none were capable of performing the functions of the Blair patent. The changes embodied in the Blair machine and combination of old elements may not now seem to have been a difficult accomplishment, but the problem of saving the remaining milk and cream and quickly washing the cans by co-operative means in rapid succession evidently did not find easy solution until Blair invented the means for doing so. It was not an obvious expedient to do this, but involved the inventive skill to make and adapt the necessary changes and bring about a harmonious result. Testimony has been given on the part of defendant by various witnesses claiming to show that defendant in 1902, prior to the filing of the Blair application, constructed a bottle-washing machine with a co-operative drip-saver embodiment. Such an apparatus is claimed to have been operated by Orlando Adams at a creamery on Allen street in this city. It is described to have been a galva nized iron pan suspended below the track, and that it had an outlet, the bottles being fed into the machine, the loose milk dripping into the pan, and the bottles then washed. But the witnesses testified solely from memory of an occurrence dating back 25 years, and, in the absence of a record or memorandum or machine produced to support the oral testimony, it cannot be accepted to overcome the showing of originality and novelty of the Blair patent. The rule with relation to prior use is that the court must be satisfied by the proof beyond reasonable doubt. It is held in Coffin v. Ogden, 18 Wall. 120, 21 L. Ed. 821, in the Barbed Wire Case, 143 U. S. 275, 12 S. Ct. 443, 36 L. Ed. 154, and in numerous other adjudications, that every reasonable doubt should be resolved against the witnesses so testifying. I am therefore constrained to reject the testimony of defendant as to any prior use of a similar machine as that described in the claims. [4] The burden is upon plaintiff to prove infringement of its patent by defendant, and, in this connection, defendant contends that there has been a failure to identify any alleged infringing machine; that plaintiff rested its evidence, as to infringement, upon the appearance of a machine sold to the Bowman Dairy Company by defendant, which embodied a step by step or oscillating movement of the cans, and not a continuous or progressive movement, as claimed by plaintiff. There was, however, additional evidence to substantiate the manufacture of machines by defendant of the same type as the Bowman dairy machine. The varying means of moving the cans on an endless carrier as in the Blair machine, or an intermittent feed, as in defendant's, are believed to be mechanical equivalents for accomplishing the same purpose. So, also, as to pipes, compartments, arrangements of drip saver, means of heating the vats, arrangement of trough, hood, etc. Claim 13 broadly covers a carrier cleansing means and spraying device towards the conveyed cans, together with a drip saver which receives the uncontaminated milk or cream. The endless chain carrier is not an element. The patent is not limited to a form of conveyance of the cans over the compartments in the tank, and defendant's adaptation of another form of conveyor and different arrangement of the details, vats, pipes, etc., does not avoid infringement, for such means are the substantial equivalents of the means described in the patent in suit. They function in the same way and achieve the same result. Other questions presented in argument need not be considered. The claims of the patent are valid and infringed by the defendant, and a decree, with costs, may be entered. 6. Banks and banking 80(9)-Credit belonging to bank with correspondent bank, from whom it had borrowed money and rediscounted notes, will be applied to primary obligation (Rev. Code S. D. 1919, § 757). Where, at time of bank's insolvency, it had credit with correspondent bank, to whom it had rediscounted notes and also borrowed money on collateral security, credit of such insolvent bank will, under Rev. Code S. D. 1919, § 757, be applied to payment of bank's primary obligation, rather than on contingent liability on redis MECHANICS & METALS NAT. BANK v. count. SMITH, as State Superintendent of Banks of South Dakota, et al. District Court, D. South Dakota. May 27, 1927. 1. Contracts 101(2)-Contract against public policy of state will not be enforced, though valid at place made. Contract against settled policy of state will not be enforced, although it may be valid at place where contract was made. 2. Contracts108(1)-Only evidence of state's public policy are its Constitution, laws, and judicial decisions. Only authentic admissible evidence of public policy of state on any given subject are its Constitution, laws, and judicial decisions. 3. Banks and banking97-South Dakota banks held without power to put up collateral securing rediscounted notes (Rev. Code S. D. 1919, § 8984, as amended by Laws S. D. 1919, с. 124; Laws S. D. 1925, c. 92). Under Rev. Code S. D. 1919, § 8984, as amended by Laws S. D. 1919, c. 124, banks are without power to put up collateral to secure notes rediscounted on theory that such rediscounting was merely a method of borrowing money, particularly in view of Laws S. D. 1925, c. 92, making exception in case of requirement therefor by rules of Federal Re serve Bank. Where, prior to bank's borrowing money and furnishing collateral as security, lender had rediscounted certain notes of borrowing bank, thereby creating relation of debtor and creditor, the subsequent giving of lien on collateral furnished for loan, so as to cover previous re discount notes, constituted unlawful "preference," and was void. [Ed. Note. For other definitions, see Words and Phrases, First and Second Series, Preference.] 5. Banks and banking 80(2)-Holder of rediscount notes from insolvent bank has sep arate and distinct claims on each unpaid rediscount. Holder of rediscount notes secured from insolvent bank before its liquidation has as many distinct and separate claims as there are unpaid rediscounts, neither of which were de pendent on, connected with, or affected by others, so as to facilitate the payment of divi dends thereon. In Equity. Action by the Mechanics & Metals National Bank against Fred R. Smith, as Superintendent of Banks of the State of South Dakota, and others. Decree in accordance with opinion. Bailey & Voorhees, of Sioux Falls, S. D., for plaintiff. Boyce, Warren & Fairbank, of Sioux Falls, S. D., for defendants. ELLIOTT, District Judge. I have been very greatly interested in the issues presented in Re Mechanics & Metals National Bank, Plaintiff, v. Fred R. Smith, as Superintendent of Banks of the State of South Dakota, and the Sioux Falls Trust & Savings Bank of Sioux Falls, S. D., defendants. The facts in this case are stipulated, and in substance are that the plaintiff is a national bank of New York City; that the Sioux Falls Trust & Savings Bank of Sioux Falls, at the times named in the complaint, was a South Dakota state banking corporation, located and doing business at Sioux Falls, S. D.; that on January 14, 1924, the affairs of said defendant bank were taken over by the defendant superintendent of banks of the state of South Dakota, and said superintendent ever since has been and now is in possession of the assets of said bank for the purpose of liquidation; the plaintiff bank filed its claim against the defendant bank, which claim was rejected by the superintendent of banks of the state of South Dakota. This suit is brought for the purpose of recovering upon the claim of the plaintiff against the Sioux Falls Trust & Savings Bank, the plaintiff claiming it is entitled to an allowance of all of the money represented by bills payable as hereinafter set forth, and also the entire amount of the notes rediscounted, being a total of $532,283.16; the plaintiff conceding that there is a credit to be applied of $41,634.27. It is stipulated: That "between the 28th day of August, 1923, and the 24th day of December, 1923, the Sioux Falls Trust & Savings Bank in due course of business rediscounted with the plaintiff, Mechanics & Metals National Bank of New York, various promissory notes. That some of said notes contained in the body thereof a clause providing: 'The makers, indorsers, and guarantors hereon specially waive presentment for payment, protest, and notice of protest for nonpayment of this note, and consent to any extension or extensions of time of payment hereon which may be given by the said payee or its assigns to the makers, indorsers, or guarantors hereof, or to either of said makers, indorsers, or guarantors.' And they are indorsed with the straight indorsement of the said Sioux Falls Trust & Savings Bank." 21 F.(2d) 128 It is further stipulated that others of the notes were collateral form notes containing in the body of the note the provision above quoted. It is further stipulated "that upon the 14th day of January, 1924, there was held by the plaintiff such rediscounted notes to the aggregate amount of $282,283.16." And there follows a list containing the names of the several makers of the notes, the dates of the notes, maturity, and the original amounts. It is further stipulated that "these rediscounts were made at different times between the 28th day of August, 1923, and the 24th day of December, 1923." It is further stipulated "that on or about the 28th day of December, 1923, the Mechanies & Metals National Bank loaned to the Sioux Falls Trust & Savings Bank the sum of $250,000, for which a note in that amount was executed and delivered as set out in paragraph 5 of plaintiff's complaint; that as collateral security for the payment of the said note of $250,000 there was pledged by defendant Sioux Falls Trust & Savings Bank, with plaintiff, various promissory notes aggregating the sum of $175,995.24, also various tax sale certificates, aggregating the sum of $52,737.54, and also various city and county warrants aggregating the sum of $75,051.48," with a list of the names, amounts, dates, etc., as set out in the complaint. It is further stipulated "that on the 14th day of January, 1924, there was due and owing from the defendant, Sioux Falls Trust & Savings Bank, to the plaintiff bank, for notes redicounted under the indorsement of the said Sioux Falls Trust & Savings Bank, as aforesaid, the sum of $282,283.16, and for bills payable as aforesaid the sum of $250,000, making a total of $532,283.16, and that there was at that time in possession of the plaintiff in an open account a balance in favor of the defendant Sioux Falls Trust & Savings Bank, upon the books of the plaintiff, in the sum of $41,634.27." 21 F.(2d)-9 There follow certain stipulations with reference to payments that had been made that are not in dispute here and do not necessarily affect the issues submitted. There is also attached to the stipulation a schedule of all collections that have been made, both upon the notes rediscounted to the plaintiff bank, and also upon the collateral notes, and upon this there is no dispute, it being stipulated by counsel that upon the announcement of the law applicable-computations can and will be made by counsel in accordance therewith. The court finds the note for $250,000 set forth in full in the complaint, and defendants admit upon the trial that such note was given. This note is as follows: "250,000.00. New York, December 28, 1923. "March 10, 1924, after date, for value received, the undersigned jointly and severally promise to pay to the order of Mechanics & Metals National Bank of the city of New York (hereinafter called the bank), at its banking office in New York City, two hundred and fifty thousand dollars, in United States gold coin or its equivalent, having deposited with the bank as collateral security for the payment of this note or any note given in extension or renewal thereof, as well as for the payment of any other obligation or liability. direct or contingent, of the undersigned or any of them, to the bank, due or becoming due, whether not existing or hereafter arising." Then follows the provision of the note for the carrying into effect the collection and application of the proceeds of the collateral notes to the payment of the $250,000. It was also provided, in substance, that after the payment of the $250,000, to appropriate and apply the proceeds of said collateral to the payment or extinguishment of any of the obligations or liability of the defendant bank then owing or thereafter contracted, and whether then due or not due, and provided further that "any of the moneys then or thereafter in the hands of the plaintiff bank, on deposit or otherwise, to the credit of or belonging to the undersigned or any of them, might be appropriated and applied by the plaintiff bank to any obligation of the defendant, whether due or not, whether the liability was primary or contingent." The defendants object to the claim that was presented by the plaintiff bank for the total sum as above stated, and urge: First. That the $250,000 borrowed by the defendant bank of the plaintiff bank, and evidenced by the note of $250,000, is a legitimate claim, upon the filing of a claim for that sum, and offers to allow the same. Defendants further concede that the collateral security in the hands of the plaintiff bank is legitimately held as security for the payment of said $250,000. Second. The defendants object to the claim that was presented for the various notes that were rediscounted at different times between the 23d day of August, 1923, and the 24th day of December, 1923, for the reason that the plaintiff simply presented one claim against the defendant bank for the entire principal sum of all of the rediscounts and money borrowed. In this connection defendant insists that each note discounted by the defendant bank constituted a separate and distinct transaction and constitutes a claim against the defendant bank, and that there are as many claims upon rediscounted paper, against the defendant bank, as there were notes rediscounted, executed by different makers. Plaintiff contends that the rediscounting of these notes in the manner above set forth, by the defendant, upon these various dates, constituted a borrowing of money; that the purpose and effect of the transactions between these two banks was that the New York bank furnished the Sioux Falls bank money to be used in the business of the latter, whether it was furnished by the giving of a promissory note by the defendant bank, or the rediscount of paper with the indorsement and guaranty of the defendant bank, and urges that in either case the plaintiff bank loaned a specific amount to the defendant bank, and that the loan was secured either by collateral given for the payment of the obligation of the defendant bank, or by the transfer to the plaintiff bank of security owned by the defendant bank, with its indorsement or guaranty upon it. Plaintiff urges that in either case the transaction was a loan pure and simple, and that this was the intention of the parties to the transactions, and urges that this, upon the stipulated facts, was the legal effect of these transactions, and that therefore, at the date of the failure of the defendant bank, January 14, 1924, there was owing to the plaintiff bank the sum of $532,283.16, from which should be deducted the sum of $41,634.27, the balance in the hands of the plaintiff bank belonging to the defendant bank, thus leaving a net indebtedness due plaintiff bank of $490,648.89, and asks that plaintiff's claim be allowed therefor, regardless of the collateral collected subsequent to the date of the closing of defendant bank. Plaintiff further urges that it is entitled to hold the collateral securities held by it as security for the $250,000 for the pay ment as well of the indebtedness represented by the rediscounted notes. The defendant admits the provisions of the promissory note for $250,000, and that they included authority to the plaintiff to make application of the proceeds of the collateral notes to the payment of the rediscounted notes. Defendant, however, questions the validity of this attempted transfer of these collateral notes to the payment of the rediscounts and urges that it is a violation of section 8984 of the Revised Code 1919, as amended by chapter 124, Session Laws of 1919, which, defendant urges, makes a distinction between bills payable and rediscounted paper. Said chapter 124 provides that: "No bank, banker or bank officer shall give preference to any depositor or creditor by pledging the assets of the bank as collateral security." And: "Provided, further, that any bank may borrow for temporary purposes and may pledge the assets of the bank, not exceeding fifty per cent. in excess of the amount borrowed, as collateral security therefor: Provided, further, that whenever a bank issues its bills payable for borrowed money, it shall within five days after the execution thereof forward to the superintendent of banks a duly verified copy of such bills payable and of such collateral pledge of security as may have been issued therewith." Nothing contained in this section shall prevent any bank from rediscounting in good faith and indorsing any of its negotiable paper: Provided, that whenever it shall appear that a bank is rediscounting habitually for the purpose of reloaning, the superintendent may require such bank to recall such rediscounts." "In all cases where money is borrowed a bank shall issue its 'bills payable' and shall show the true amount of borrowed money on its books, and in all reports and statements required by the provisions of this chapter, under 'Bills Payable.'" Plaintiff urges that there is nothing in these provisions of the South Dakota statute which prohibits the pledging of collaterals as security for the payment of rediscount notes, and that a proper construction of the statute discloses that it confers authority on banks in South Dakota to make such pledges of collaterals. In this connection plaintiff urges that the authorities are uniform to the effect that rediscounting and indorsing negotiable paper is simply a form of borrowing money. That said section 8984 expressly authorizes banks to borrow money and to pledge their assets as collateral security for the money borrowed, and that the statute above quoted expressly authorized rediscounting and indorsing of negotiable paper, and gives the legislative stamp of approval to the method of borrowing long employed in the banking business. Counsel for plaintiff then cites the holdings of the courts, starting with Fleckner v. Bank of U. S., 8 Wheat. 338, 5 L. Ed. 631, to the effect that "by the language of the commercial world, and the settled practice of banks, a discount by a bank means, ex vi termini, a deduction or drawback made upon its advances or loans of money, upon negotiable paper, or other evidences of debt, payable at a future day, which are transferred to the bank," and urges that the decision in this case turns upon the doctrine that the rediscounting of commercial paper was only one form of loaning money by banks. Subsequent cases cited by plaintiff refer to the case of Fleckner v. Bank of U. S., supra. 21 F.(2d) 128 [1-3] I have with care attempted to analyze all of these authorities, and am impressed that this determination reached by the courts was under circumstances differing materially from the situation that is presented in the case at bar. In none of the cases cited by plaintiff was there a state statute to interpret. The real question presented here is an interpretation of this statute of the state of South Dakota above set forth. It is clear that this statute expresses the policy of the state, and I am of the opinion that a contract against the settled public policy of the state will not be enforced, although it may be valid at the place where the contract was made. It is, therefore, no sufficient answer to defendants' position to say that the contract is valid in New York where it was made. Swann v. Swann (C. C.) 21 F. 299; 12 C. J. 438. The only authentic admissible evidence of the public policy of the state on any given subject are its Constitution, laws, and judicial decisions. It is conceded that the defendant bank was, at the dates in question, organized and existing as a state bank under and by virtue of the general banking laws of the state of South Dakota. There is no question but that the statutes of the state at the times named were as above set forth. It appears, therefore, that the statutes of the state of South Dakota specifically prescribe that no bank, banker, or bank officer shall give preference to any depositor or creditor by pledging the assets of the bank as collateral security. The same statute also provides that any bank may borrow money for temporary purposes and may pledge the assets of the bank, and in the same section prescribes the duty of the bank when it issues its bills payable for borrowed money, and requires that the same shall be reported to the superintendent of banks within five days after the execution of the note, with a copy of the bills payable and of the collateral pledged as security for the payment thereof. The statute goes further than that, and specifically recognizes the rediscounting of paper as an act separate and apart from the borrowing of money that has been provided for in the preceding section, and provides "that nothing contained in this section shall prevent any bank from rediscounting in good faith and indorsing any of its negotiable paper," with further provisions with reference to the power of the superintendent to recall such rediscounts. I am impressed that a reading of the provisions of the statutes of the state of South Dakota preclude the application to transactions by state banks in this state of the interpretation urged by plaintiff and sustained by authorities going back to In re Fleckner, supra. There is nothing in the stipulation of facts that takes this rediscounting of paper out of the ordinary terms of "rediscounting in good faith and indorsing" as used in the South Dakota statute above quoted. A fair interpretation of these provisions of the South Dakota statute is made elearer by the further provision of the chapter above quoted, which provides: "In all cases where money is borrowed a bank shall issue its 'bills payable' and shall show the true amount of borrowed money on its books, and in all reports and statements required by the provisions of this chapter, under 'Bills Payable."" As I have devoted time to this statute, I can find little to encourage one to question its meaning, and can find no foundation upon which to rest a finding that in this state rediscounting paper is merely a method of borrowing money. My attention is called to chapter 92 of the Laws of 1925, which provides: "Nothing in this section shall prevent any bank from rediscounting in good faith and indorsing any of its negotiable paper, providing however, that except as it may otherwise be required by the rules of the federal reserve banks it shall be unlawful for any bank to pledge any of its assets as collateral security for the payment of such rediscounts, and any agreement or pledge whereby any of the assets of any bank shall be pledged as security for such rediscounts, shall be null and void." This emphasizes the plain interpretation of the preceding sections. It is a matter of general information that this amendment was |