author: GLENN, District Judge.

text:
    UNITED STATES v. O’BRIEN.
    No. 3095.
    Circuit Court of Appeals, Fourth Circuit.
    June 17, 1931.
    Davis G. Arnold, Associate Gen. Counsel, U. S. Veterans’ Bureau, of Washington, D. C., and Luther B. Way, Sp. Asst, to U. S. Atty., of Norfolk, Va. (Paul W. Kear, U. S. Atty., and William Wolff Smith, Gen. Counsel, U. S. Veterans’ Bureau, both of Washington, D. C., on the brief), for the United States.
    R. C. Cole and L. S. Parsons, both of Norfolk, Va., for appellee.
    Before PARKER and NORTHCOTT, Circuit Judges, and GLENN, District Judge.
   GLENN, District Judge.

This appeal is taken by the government from a judgment in favor of the petitioners, Julia A. O’Brien (formerly Julia Jennings Cartier) individually and as guardian of William Lewis Gaither Cartier, Jr., Virginia Ruth Cartier, and Jacques Cartier. These petitioners below, appellees here, are the beneficiaries of a war risk insurance policy issued by the government to William L. G. Cartier, who had served in the United States Navy. The policy was admittedly in force up to March 1, 1921, and the petitioners have brought suit alleging that the insured had died on or about January 8, 1921, prior to the lapse of the policy. Cartier disappeared on that day and has never been seen or heard of by any one who testified. The petitioner, his widow, brought the fact of his disappearance to the attention of the Navy Department, and this department had found no trace of him at the time of trial in May, 1930. It is easily seen, therefore, that the decision of the case from the evidentiary standpoint turned entirely upon the proof of death before March 1, 1921, the date the policy lapsed for nonpayment of premiums.

Several months after the disappearance of Cartier, the petitioner, then Julia J. Cartier, brought suit and obtained a divorce. The substance of her allegations at that time are as follows: “That the said William Lewis Gaither Cartier has deserted and abandoned your complainant, that is to say on the 8th day of January, in the year 1921, the said William Lewis Gaither Cartier did voluntarily, willfully and without any justification whatever, leave his home for parts unknown to your complainant. Soon after he left, your complainant received a note from the said William Lewis Gaither Cartier in which he said he was leaving her forever and he would never return to her and your complainant has since that time made investigation to ascertain his whereabouts but has not from that day heard from him and that she does not know where he is or whether he be dead or alive.”

The petitioner testified that she brought the divorce proceedings on advice of counsel and out of an abundance of precaution. Her counsel, Mr. Cole, corroborated her statement to this effect. We see no great inconsistency between her allegations at that time and her contention now in bringing this suit. She had strong reason to believe at that time that her husband was dead. She alleged the receipt of two suicide notes from her husband in the pleadings asking for a divorce. The investigation up to that time had not disclosed his whereabouts and at that time she did not know positively “whether he be dead or alive.” Subsequent investigations have failed to reveal any trace of him and she has now brought suit alleging his death. Recovery was asked on the theory that the insured died in January, 1921. The government denied the death before the lapse of the policy. Two mistrials were had, and the jury on the third trial found for the petitioners. Mrs. O’Brien had qualified as guardian for her minor children, and we refer to her in her individual and representative capacity.

The petitioner testified as to her husband’s disappearance and as to his demeanor about that time: “From the time my husband returned from the war to the time he left and I never heard of him any more, he was morose and very seldom had anything to say at home. I never heard anything about a threatened prosecution the day before he disappeared, as suggested by counsel for the Govémment, He used to play with the children before he went away and was always jolly and lively around the house 'and after he came back he didn’t seem' to have any interest in «anything. What called my attention to his lack of interest was just his general way of treating us around the house. He would come in in the evening, sit down after dinner, read the paper and sit around and smoke. I mailed a check to the Bureau of War Insurance on December 28, 1920. I had sufficient funds in the bank at that time to take care of that check.”

Mr. W. P. Mason, who had employed the insured, testified as follows: “I am W. P. Mason, Norfolk, Virginia, in the manufacturing business, Multistamp Company, in which business I have been for about ten years. I knew William L. G. Cartier. I should say a year or more. He worked for me a short time, approximately two months before he disappeared. I saw him an average of twice a week, I should say, through the time or oftener. He was selling some article for me. So far as I know, I saw him on the day he disappeared. The last time I saw him was on Saturday morning. I do not remember the date. He never came back after that. I saw him in my office with some gentleman I can’t recall. The conversation was between Mr. Cartier and some gentleman I can’t, for the life of me, recall. There was a conversation between this other man and Mr. Cartier in reference to some obligation between them. The result of the conversation was that they left my office together and Mr. Cartier nor the other gentleman ever returned. There was a statement made to Mr. Cartier about making good an obligation by a certain hour that day. As I recall, it was then about 9:30 o’clock in the morning on a Saturday morning and the gentleman had a piece of paper in his hand. The statement he made to Mr. Cartier was that he would give him until 10:00 o’clock to make it good that day. They left together and I have not seen or heard from Mr. Cartier since that time.”

The record does not disclose whether this financial trouble referred to was simply a debt or whether it was some trouble which might have resulted in a prosecution. Manifestly he would have taken the threatened prosecution more seriously.

Mr. Mason, however, did not agree with the petitioner as to Cartier being morose, but ' on the contrary found him to be of a rather happy disposition. It is perfectly reasonable that he might have been of good humor around his business but have become melancholy when at home around his family and when contemplating the responsibilities which they entailed.

The petitioner testified that she received the following note, written on an order blank and in the handwriting of her husband, in the 2 o’clock mail January 8,1921:

“Jan. 8, 1921,
“10:30 A. M.
“Girlie:
“Am doing the most sensible thing I ever did and that is passing out of your life and out of the world forever. I have threatened to do it and can’t stand this life any longer. Have degraded you. enough and the only one thing to do is what I am doing. I hope you will try to forget the past although it will be mighty hard to do. Have taken the surest way of doing this as there is one which is positive. I know it is cowardly to do this but I can’t live any longer as I have lived — have tried hard to be right but have to give up and do the best thing I ever did and that is die. May God bless you and the kiddies.
“Billie”

Mrs. Cartier, during the next week after January 8th, received a second note, in which Cartier told her of his intended suicide. This note was in the following words:

“Have taken Cyanide of Potash and jumped in the River ending a wasted life every one will be better off by my passing out.
“W. L. G. Cartier.”

This second note was forwarded to her by a colored woman, Janie Grandy, who lived in the village of Northwest, Va. This village is near the Virginia North Carolina line and is on the Norfolk & Southern Railway, twenty miles from Norfolk. The note had been found in Cartier’s coat.

Willie Grandy, a colored boy, explained how the coat was found. In this regard he testified that he remembered a number of years ago seeing a man down at Northwest one Saturday afternoon sitting on a platform right at the bridge. That this man was facing the water and looking down at the ground and got up and walked toward North Carolina. That the man left his coat on the platform, and although Grandy called to- him and told him that he had left his coat, he never came back for it. That this was about 4 o’clock in the afternoon, and about 5:30 that evening he picked up the coat and carried it to his grandmother’s house. His grandmother could not write and he (Grandy) never did write anything for her with regard to this coat.

There was testimony tending to show that the petitioner made many efforts to find her husband, that she had written to the Navy Department at Washington and many other people in an effort to locate her husband, but was never able to find any trace of him. She testified that she went to Nags Héad, N. C., in-company with the representative of the Knights of Pythias to view^ a body that was found on the ocean side or somewhere near Nags Head in the last of January, 1921. She said: “The lodges were making some investigation. When I saw the body I could not determine whether it was the body of my husband on account of the condition the body was in. It didn’t look like a human being. I didn’t claim at that time that it was his body and to this day I don’t know whether it was or was not. There was one thing that might have led me to believe that it would have been him and that was the hair. He had red hair and had a gray streak in the red hair and this body had the gray streak but as far as being him was concerned, I couldn’t say to this day whether it was or was not.”

The defendant objected to the testimony with regard to this body, but the trial judge admitted it with the following instructions to the jury: “You may consider the fact that she went down there as showing a willingness to investigate any clues that came to her attention hut disregard it as indicating in any sense that it was the body of this man.” During the trial there arose considerable disT cussion as to the proper place of the Nags Head incident in the trial of the ease. We think that the trial judge in his remarks to the jury directed their attention to its proper place. The appellant insisted that it was simply injected to becloud the issues. We cannot agree with this contention. The petitioner did not seriously contend that the Nags Head body was her husband’s body, but the fact that she went to Nags Head to investigate had an important bearing on the good faith of her contention that her husband was dead. The trial judge showed by his remarks that he so understood this testimony.

The government, appellant, states its main contentions in the summary at the close of its brief in the following terms:

“It is submitted:
“1. That the Court clearly erred in admitting and retaining in evidence the two so-called suicide notes, in their very nature and essence self-serving declarations, because the issue was not how insured had died, hut whether he had died at all.
“2. That there is no evidence in the present ease which would warrant the presumption of death of the insured in this case at any time.
“3. Even granting that the insured’s death may be presumed from seven years absence, the presumption of death would not attach until the expiration of seven years from January 8, 1921, the time when the insured was last known to have been alive.
“4. That there is no evidence from which it can be fairly found or inferred that the insured died on or before March 1,1921.
“5. Upon any and all of the testimony in this case it is obvious that the court erred in refusing the Government’s motion to direct a verdict at the close of the plaintiff’s case and in submitting this matter to the jury for determination.”

Clearly the sum and substance of these contentions is that there was error on the part of the trial judge in admitting these so-called “suicide notes.” Apart from these notes there was not sufficient testimony in the case to justify its submission to the jury, but on the other hand if the notes were admitted, they, when taken in connection with other supporting evidence, justify its submission to the jury and the resulting verdict in favor of the petitioners.

We think that under all facts and circumstances of this ease, the trial judge properly admitted these notes.

The courts have discussed the admission of such notes in a number of cases, and the majority of courts have held that such notes under circumstances similar to those presented by this record are admissible in evidence. Two doctrines seem to have been followed in these rulings, but we think that under either of the doctrines the notes in this case are admissible.

The trial judge in this case admitted them on the legal principle commonly referred to as res gestee. The appellant admits that such notes are sometimes admitted on the principle of res gestae when they tend to explain an indepéhdent fact which is proven by independent evidence, but the contention here is that it is allowing the independent facts, which the notes tend to explain, to be proved by the notes themselves. In other words, that the petitioners in making out their case are lifting themselves by their own boot straps. Appellant insists that while the notes here might be admissible to explain the death of Cartier if that fact, viz., the death, had been extraneously proved, they cannot be used to prove the death itself. We do not think that the admission of the notes on the res geste doctrine is limited to any such narrow view. Suicide is innately an intentional act. There was evidence here quite apart from the notes, tending to show that the insured was in trouble of some kind and that he did actually go away from home.' The notes, if genuine, and the jury was satisfied on that score, were written right at the time when the insured was in the act of leaving his home and business and when he was shown to be in financial and perhaps criminal difficulty.

More than seven years have elapsed and the presumption of death has arisen, so that even on the narrow view of the admissibility of such notes we think that there was a sufficient showing as to the death of Cartier by evidence other than the notes themselves to justify their admission. Such notes have been commonly admitted to show the manner of death where that is the chief issue under investigation. We see no reason why such notes should not be admitted where the time of death is the chief issue to be ascertained. Deliberate suicide growing out of troubles is generally the result of continued worry. In the vast majority of cases when financial difficulties are the background out of which suicide grows, the suicide is accompanied by some note or final message explaining the reasons for taking this step. Spontaneity is the necessary requisite for the admission of statements oral or written on the principle of being a part of the res geste. A man’s note to his wife written shortly before actual suicide, and while under the compelling influence of a fixed determination to take his own life, flows from the fountain of strong emotion and fixed intention, just as genuinely as word of mouth spoken in the'very commission of the act itself.

It is true there are cases when a suicide note may be part of a fraudulent scheme to recover insurance, but the question then is as to the bona tides of the note. If the facts and circumstances suggest any serious question as to the suicide note being written in good faith, the trial judge would in his discretion exclude such a note. Or if admitted he would direct the attention of the jury to the question of good faith with proper comments. But in this ease there was not any substantial showing that Cartier was writing these notes for the fraudulent purpose of simulating a death and collecting along with his wife the proceeds of an insurance policy. We think that the trial judge exercised sound discretion in viewing these notes as spontaneous statements of the declarant made shortly before suicide and while under great stress of emotion and in contemplation of his own death.

The other theory on which’such notes have been admitted while closely akin to res geste theory is classified under separate headings by many of the text-books on evidence and in some of the cases. See paragraph 520, Elliott on Evidence vol. I. See also statement with citations 22 C. J. paragraph 297, page 281. This view is stated by United States Supreme Court in Mutual Life Insurance Co. v. Hillmon, 145 U. S. 296, 12 S. Ct. 909, 912, 36 L. Ed. 706. To summarize this view as we understand it, it is that such notes may be admitted as tending to show the intentions and state of mind or feeling of the writer where intention or state of mind is of itself a distinct and material fact. We quote in full a paragraph from the opinion of the court in that case: “But upon another ground suggested they should have been admitted. A man’s state of mind or feeling can only be manifested to others by countenance, attitude, or gesture, or by sounds or words, spoken or written. The nature of the fact to be proved is the same, and evidence of its proper tokens is equally competent to prove it, whether expressed by aspeet or conduct, by voice or pen. When the intention to be proved is important only as qualifying an act, its connection with that act must be shown, in order to warrant the admission of declarations of the intention. But whenever the intention is of itself a distinct and material fact in a chain of circumstances, it may be proved by contemporaneous oral or written declarations of the party.”

So whether we view the notes as explanatory of the otherwise proven disappearance and presumptive death, or whether we confine our views as to the admissibility of these notes to proof of the state of mind or feeling and intention of the insured on the day when last seen, we cannot escape from the conclusion that the notes were rightly admitted.

The appellant has cited cases where “suicide notes” and “oral declarations of suicidal intentions’? were held to be inadmissible, but in all of these there were particular facts which clearly distinguish them from the ease at bar. The ruling in United States v. Robertson (C. C. A.) 44 F.(2d) 317 is not in point on the admissibility of the notes at all. It contains at the end of the opinion a very clear statement of the law applicable to the presumption of death at the end of seven years, but it does not profess to deal with the admissibility of any particular evidence. The reported opinion in Prudential Ins. Co. v. Stewart (C. C. A.) 286 P. 321, 323, does not show whether the admission of a “suicide note” was assigned as error — but if it was made the basis of an assignment of error, the exception was overruled by general language at the end of the opinion. The statement of the rule as made by Greenleaf clearly covers the present ease (13th Edition vol. I, page 132): “So, also where a person * * * is upon a journey, or leaves home, or returns thither, or remains abroad, or secretes himself; or, in fine, does any other act, material to be understood; his. declarations, made at the time of the transaction, and expressive of its. character, motive, or object, are regarded as ‘verbal acts, indicating a present purpose and intention,’ and are therefore admitted in proof like any other material facts. So, upon an inquiry as to the state of mind, sentiments, or dispositions of a person at any particular period, his dectaxations and conversations are admissible. They are parts of the res gestee.”

The appellant directs our attention to the presumption of death arising from seven years’ absence. We think that the appellant has magnified the place of the presumption in the case at bar. We agree with the rule as stated in English v. U. S. (D. C.) 25 E. (2d) 335, 336:

“The presumption of death, created by the absence of a p'erson for a period of seven years, is not that he died within that period, but immediately upon the expiration of it. • * *
“But after all, under any view of the law, when one is not content to rest his case upon the common-law presumption of death, arising from absence, but seeks to establish a date of death prior to the end of seven years, he must produce additional evidence. • •

Manifestly if the petitioner was relying here solely upon the presumption of death, this would not constitute a sufficient showing as to the time of death to justify a jury in concluding that the death took place at any given date, but the presumption of death comes in here in aid of other substantial evidence that Cartier is dead. The jury’s conclusion that the death took place before the policy lapsed is manifestly founded upon this additional evidence. Whenever a man dies by drowning and his body is not found, each additional day adds some small weight to the evidentiary showing of his death. Simply because a verdict is consistent with the presumption arising from seven years’ absence does not mean that the verdict was founded upon that presumption alone. The trial judge said in this regard: “In this ease the Petitioner necessarily asserts that the insured is dead and that he did die within fifty days, between the 8th and 28th of the following month, after his disappearance. The fact that he has not appeared for seven years and the presumption of law which I told you about that applies in such cases doesn’t relieve the plaintiff of the burden of proving to your satisfaction, by the greater weight of the evidence, that he did die and that he did die within the particular period of time I have mentioned, namely the fifty days. That is the burden which the plaintiff in this case has imposed by law.” See U. S. v. Robertson (C. C. A.) 44 F.(2d) 317.

This court would be resorting to speculation to conclude that the jury attributed to; the presumption arising from seven years' absence a greater importance than was given to it by the trial judge in his plain and accurate instructions. The jury cannot resort to speculation to fix the time of death, neither can this court resort to speculation to set aside a verdict and judgment in the face of a full, accurate, and fair charge on the part of- the court and a verdict of a jury consistent with reasonable inferences from the testimony.

We think the trial judge correctly admitted the two suicide notes, and as all of the other assignment of errors are clearly without merit, the judgment of the trial court must be affirmed.

Affirmed.


source: Caselaw Access Project

author: McDERMOTT, Circuit Judge.

license: Public Domain

text:
    CLARK v. ANTHIS et al.
    No. 391.
    Circuit Court of Appeals, Tenth Circuit
    June 27, 1931.

      J. S. Severson, of Tulsa, Okl., for appellant.
    J. D. Simms, of Wewoka, Okl., and John M. Holmes, of St. Louis, Mo. (Thrift & Davenport, of Sapulpa, Okl., and Thompson, Mitchell, Thompson & Young and Joe T. Dickerson, all of St. Louis, Mo., on the brief), for appellees.
    Before COTTERAL, PHILLIPS, and McDERMOTT, Circuit Judges.
   McDERMOTT, Circuit Judge.

Fill Clark is a Creek Freedman, bom . September 22, 1904, and was the allottee of the lands in controversy; he brings this action to recover the allotment, to set aside all conveyances thereof, and for an accounting. The defendants claim under a deed made by Clark’s guardian in 1916, and under a quitclaim deed made by Clark after his majority. The plaintiff claims that the guardian’s deed is void because of a defect in the service of the notice of the petition to sell upon his next of kin; because of a defect in the publication of the notice of public sale; and because he was not personally examined at the hearing on the petition to sell, as required by Rule 5 of the Supreme Court of Oklahoma. The plaintiff claims his quitclaim deed was procured by undue influence, in that he was not advised of the fact that the guardian’s deed was void, and for other reasons.

The trial developed that the legal guardian of Clark filed a sufficient petition to sell his real estate in a court of competent jurisdiction; that the land was sold at public sale, and the sale confirmed. The decree of sale recites that it was made “upon due examination and consideration of said petition and after a full hearing upon the same and upon due consideration of the proofs offered in said matter.” The record discloses service by publication on the next of kin; it does not disclose'personal service, as then required by the Oklahoma statute (C. O. S. 1921, § 1472), although the order directed that such personal service be had. Except as quoted above, the record of the probate proceedings is silent as to the examination of the minor at the hearing, although at the trial of this case, Clark and his mother testified they were not present. As to the quitclaim deed; Clark testified that after he became of age, he gave a lawyer a contract for half of the allotment if the lawyer could get his land back; the lawyer later told him “he couldn’t do me no good.” Clark’s uncle, a witness for Clark, testified that “that was sometime before the boy was grown, and I told him may be when he got grown he could get some more money out of it, may be Mr. Anthis might pay him some more money, as he only had realized so much out of it. * * *• but anyhow finally we went up there to Mr. Anthis’ office, and we went in and explained it to him; he wanted to make a deal with him some way to get some money out of it, I haven’t never realized much out of it.”

In response to these advancements, Clark was paid $25 for his quitclaim deed.

The trial court denied the plaintiff relief, and we think rightly. AJ1 of the objections here made to the guardian’s deed were considered by this court in Weston v. Poland, 48.F.(2d) 738, and held to be without merit. The leading Oklahoma cases from Eaves v. Mullen, 25 Okl. 679, 107 P. 433, decided in 1910, to Dill v. Stevens, 141 Okl. 24, 284 P. 60, rehearing denied in 1930, were cited and followed. The ease of Rock Island Implement Co. v. Pearsey, 133 Okl. 1, 270 P. 846, decided in October, 1928, now relied on by appellant, was considered, and the conclusion reached that if it did come to a conclusion contrary to the otherwise unbroken current of Oklahoma decisions, that it was a stray. In any event, the rule was announced, fortified by controlling authority, and followed, that when the federal courts are dealing with local law, “a settled construction of a statute when titles are acquired becomes a rule of property and protects a purchaser.” Rule 5 was considered, and the case of Manuel v. Kidd, 126 Okl. 71, 258 P. 732, 739, was cited and followed. In that case the record of a probate sale did not affirmatively disclose that the minor had been personally examined as required by this rule. The guardian’s deed was collaterally attacked, and at the trial the minor and his mother testified that the rule was not complied with. The Supreme Court of Oklahoma declined to permit the decree of sale to be avoided by a collateral attack sustained by such testimony, and said: “Where particular facts must be proved in order to confer jurisdiction upon a court to enter judgment, the presumption arises when the validity of the judgment is attacked that such facts were proved.” In support of this statement, the Supreme Court cited 15 R. C. L. page 878, which states the rule to be that, when a court of competent jurisdiction has rendered judgment in a ease where facts were required to be proved to confer jurisdiction, there is a presumption that such facts were duly proved, although the record' is silent upon the matter, and that the judgment is not subject to collateral attack, unless the record affirmatively discloses that there was no proof of such jurisdictional facts.

The guardian’s deed being impervious to collateral attack, it is unnecessary to deal with the deed executed by Clark after his majority, except to say that the trial court was correct in holding that the evidence fell far short of that necessary to justify a court in setting aside a conveyance executed by one competent to contract.

The judgment of the trial court is affirmed.


author: HUTCHESON, Circuit Judge.

text:
    MERREN v. COMMISSIONER OF INTERNAL REVENUE.
    No. 6005.
    Circuit Court of Appeals, Fifth Circuit.
    June 15, 1931.
    W. Scott Wilkinson, C. Huffman Lewis, and Pike Hall, all of Shreveport, La., for petitioner.
    G. A. Youngquist, Asst. Atty. Gen., and Sewall Key, A. H. Conner, and Helen R. Carloss, Sp. Assts. to Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and E. Riley Campbell, Sp. Asst. Bureau of Internal Revenue, both of Washington, D. C., for respondent.
    Before BRYAN, SIBLEY, and HUTCH-ESON, Circuit Judges.
   HUTCHESON, Circuit Judge.

Petitioner, a resident citizen of the state of Louisiana, complains here of the conclusion of the Board of Tax Appeals that moneys received by him after his marriage, pursuant to a sale contract made before, did not fall into the community of himself and wife.

The facts are .brief and simple. They are stated in the finding of the Board of Tax Appeals, 18 B. T. A. 156, and a short statement of them will suffice here.

Petitioner, a single man, resident of the state of Louisiana where the lease was situate, being the owner with two others of an oil and gas lease, in January, 1920, sold and assigned his interest in it to a producing corporation for a consideration to be paid partly in cash, partly in stock, and part “to be paid from the proceeds of the oil from the lease if, as and when produced by the purchaser.” In the following month, petitioner was married.

Of the total of this consideration there was paid to petitioner in January, 1920, $30;-000, and during the period from March to December, 1920, $100,436.36, of which $55,-811.36 came from the proceeds of oil from the lease. Petitioner and his wife for 1920 filed separate income tax returns, in which each took credit as community income for one-half of the amount, which was paid to them from the production of oil from the lease. The Commissioner, declaring that not community property, but merely a change in form of separate property had resulted from the transaction, refused to recognize the separate returns, charged all of the receipts to petitioner, and determined the deficiency accordingly.

On appeal, the Board, reversing the Commissioner on other matters not before us, sustained him on this point, and the ease stands here on petition for review presenting the single question whether the $55,000 paid to petitioner after marriage, “from the proceeds of oil lease” in fulfillment of the agreement made before marriage, remained his separate property or fell into the general community of acquets and gains, which, under and in accordance with the laws of Louisiana, existed between petitioner and his wife after their marriage.

We think it not debatable in Louisiana or elsewhere, that moneys or things received in payment of or in exchange for property come to him who receives them impressed with the same character of title as the property whose place they take. That in Louisiana, as in the other community property states, property owned separately before marriage does not after marriage fall into the community as the result of its sale or exchange for money or other property for which the money or property was received in exchange, whether the sale or exchange was made before or after marriage. Peters v. Klein, 161 La. 664, 109 So. 349. Further, it is the general rule of law that even in eases of inchoate title to property acquired by the husband before marriage, upon a contract requiring the doing of acts or things on his part, some of which are performed after marriage; the property remains the separate property of the husband. McKay on Community Property, § 534; Welder v. Lambert, 91 Tex. 510, 44 S. W. 281; Estate of Moseman, 38 La. Ann. 219, for the property is deemed to have its origin and its title fixed as of the date of the contract. Here the ease is even stronger against petitioner than those cited, for the contract in question did not create a title inchoate to become perfected upon the performance by petitioner of conditions imposed upon him. The agreement was an absolute sale of his then owned property for a fixed consideration, part of it to be paid later, leaving nothing to be done by him. Under it he would either get the additional payments from the oil or he would not get them, as the result, not of his own acts, but of the purchaser’s, and of the chances inherent in the oil business. We do not understand petitioner to contest the correctness of these general conclusions as to the effect of an absolute and completed sale before marriage. He denies that such a sale occurred.

His real insistence is that while he did sell part of his interest in the lease for cash and for stock, and the cash and stock received in exchange for it of course remained his separate property, it must, because of the contingency involved in the agreement for part payment from the proceeds of oil to be produced from the lease, be considered that he did not sell it all, but retained that part. That after marriage he, as manager for the community, in effect, put the part retained to work and derived from it as fruits, by way of royalty, the $55,000 claimed here. Whether if the facts were as he claims them to be, and he stood here upon a record showing that the moneys which he claims for the community came in after marriage in payment of royalties from a lease executed by him before marriage, such moneys should be regarded as rents (Logan v. State Gravel Co., 158 La. 105, 103 So. 526), and therefore fruits of the land, we do'not now decide, for no such facts are here presented.

Petitioner never was in the position of a lessor who, owning land, executed a lease reserving an oil royalty. His ownership was of a part of the working interest granted by the lease, which interest in Louisiana gives “an incorporeal right to extract oil from the land and appropriate it when extracted.” Logan v. State Gravel Co., 158 La. 105, 103 So. 526. When he sold this working interest he parted with all that he had ever owned in or in connection with the oil for a fixed consideration, $185,000, to be paid in part by the delivery of stock at an agreed price, and in part by the absolute promise of the purchaser to pay $75,000 in cash, and the qualified promise to pay $80,000 from the proceeds of oil which not the petitioner, but the purchaser, was to receive and sell from the lease. There was a contingency which might prevent petitioner from receiving .the $80,-000; that contingency was the failure of the lease to produce oil, but there was no contingency upon which the title to any part of the right which petitioner had had before was to remain in or to revert to him. Pugh v. Commissioner (5th C. C. A.) 49 F.(2d) 76. Here was an absolute sale without retention by, or the possibility of, reverter to petitioner of any part of the right which before the sale he had. The thing sold was separate property; the thing received must likewise be.

The petition for review is denied. The judgment of the Board is affirmed.


author: WILSON, Circuit Judge.

text:
    SEARS et al. v. GREATER NEW YORK DEVELOPMENT CO. GREATER NEW YORK DEVELOPMENT CO. v. SEARS et al.
    Nos. 2535, 2536.
    Circuit Court of Appeals, First Circuit.
    June 29, 1931.
    F. H. Nash, of Boston, Mass. (Richard Wait, of Boston, Mass., on the brief), for Sears and others.
    Hugh D. McLellan, of Boston, Mass. (Clarence F. French, Alexander R. Smith, Jr., and French & Smith, all of Boston, Mass., on the brief), for the Development Company.
    Before BINGHAM, ANDERSON, and WILSON, Circuit Judges.
   WILSON, Circuit Judge.

This is an action to recover a sum as interest on bonds after their maturity, issued by the defendant company, and on the interest coupons attached thereto after their alleged date of maturity.

In 1901 the defendant company, organized to engage in the business of buying, selling, and developing real estate in New York City, issued two series of bonds; one, and the primary or senior issue being dated June 1, 1901, in denominations of $1;000 to run for twenty years with interest at 5 per cent., payable semiannually; and a second or junior series in denominations of $500 dated June 2, 1901, and also maturing on the 1st day of June, 1921. The junior series was denominated “Five Per Cent Income Bonds” and were used as a bonus in disposing of the senior issue, one bond of the junior issue of the par value of $500 being offered with each $1,000 bond of the senior issue. .

Both series of bonds with their interest coupons attached were made payable to the Old Colony Trust Company in Boston, and the plaintiffs’ testatrix subscribed through a Boston broker’s office for twenty-five of the senior issue and received income bonds of the aggregate par value of $12,500.

The senior issue held by the plaintiffs’ testatrix has been fully paid with interest, though not on its maturity date.

The issues here arose over the construetion of the provisions of the income bonds and the law as to the rate of interest to be computed -on any overdue principal of the bonds, and whether the plaintiffs were entitled to interest on the overdue coupons.

The provisions of the income bonds over which the disputes arose are:

“For Value Received the Greater. New York Development Company, a corporation under the laws of the State of New York, hereinafter called the Company, promises to pay to Bearer, or if registered to the registered holder, on the First day of June, 1921, at its agency in Boston, Mass., Five Hundred Dollars with interest at the rate of Five per centum per annum from December 1st, 1902 and until the principal of this bond shall become due payable on the First days of June and December in such instalments as the Board of Directors of the Company from time to time shall ascertain, determine and declare to be payable pro rata on the bonds of the series of which this is one, out of receipts from properties of the Company when and as such payments may seem safe in the judgment of the directors.
“The interest on this bond at the rate of Five per centum per annum shall be cumulative from December 1st, 1902. The respective coupons attached to this bond shall represent in the order in which they are numbered each of the corresponding instalments of interest which may be declared payable on this bond, and such instalments of interest as and when ascertained, determined and declared by the Board of Directors shall be payable to holders of the respective coupons representing such instalments, whether this bond itself be registered or not upon pres--entation and surrender of such coupons.
“Interest shall be declared payable in each instance at the rate of one half per centum, or a multiple of one half per centum. The determination of the Board of Directors whether any payment of interest can be safely made at any time, and as to the amount of such payment shall be conclusive and binding upon the Company and upon the holders of this bond.
“This bond is one of a series of Similar Five percent Cumulative Income 20 year Bonds dated June 2d, 1901 and amounting in the aggregate to $1,000,000, and may be drawn for payment by lot at any time before maturity and prepaid on any first day of June or December at par with interest at the rate of Five percent per annum to the date of payment, provided that notice that said bond has been drawn for payment shall have been published in some one newspaper published in said Boston, the first publication thereof to be not less than 21 days prior to the date fixed for payment.
“Alter the date fixed for payment interest shall cease upon this bond. The Company agrees with the holder of this bond that no dividend shall be paid on the stock of the company until this bond has been paid in full or provision made therefor.
“In case of final liquidation of the Company the 5 percent Bonds of the Company dated June 1st, 1901 shall have priority over the Bonds of this series both as to principal and interest.”

Each interest coupon attached to the income bond except as to numbering reads as follows:

“Coupons
“The Greater New York Development Company
“Will pay to bearer at the offiee of the Old Colony Trust Company in the City of Boston, Mass, or other Agency of the Greater’New York Development Company upon presentation and surrender of this coupon the First Installment of Interest on its $500 5% Cumulative Income Bond if and when such interest shall become payable in accordance with the provisions of said bond and provided that said bond shall not have been previously called for redemption as therein provided.”

Interest on the senior issue was paid regularly until 1918, when the receipts of the company and business conditions did not warrant the further payment of interest at that time or the payment of the principal at maturity. No interest was paid on the income bonds until after the senior issue was fully paid with all interest due on April 15, 1924.

The first issue being paid, the defendant was then able to devote all receipts to the payment of the junior issue. In April, 1925, it had sufficient funds to warrant the passing of the following vote by its board of directors:

“Voted that the board of directors of the Greater New York Development Company does hereby ascertain, determine and declare that the first installment of interest on the 5% Cumulative Income Bonds of said Company dated June 2nd, 1901, amounting to one hundred and twelve and one-half percent (112%) and being interest from December 1,1902, to June 1,1925, be payable on June 1st, 1925 to holders of coupons numbered ‘1’ originally attached to said bonds, upon, presentation and surrender of said coupons at the office of the Old Colony Trust Company in Boston, Mass.”
“Voted that the board of directors does hereby determine that the payment of interest, set forth in the foregoing vote, can be safely made.”

On May 11, 1925, the defendant notified the plaintiff and other holders of income bonds by a circular letter of the following tenor:

“In accordance with said vote the said coupons numbered ‘1’ for the first installment of interest on said bonds will be paid as set forth in said vote on the first day of June, 1925, at the office of the Old Colony Trust Company, 17 Court Street, Boston, Mass., as said coupons are severally presented and surrendered for cancellation.”

Following these votes, other votes were passed as to coupons Nos. 2 and 3 and a vote to pay the principal of the income bonds on January 5, 1926.

A dispute immediately arose as to the amount of interest due on the income bonds. The defendant proposed to pay on June 1, 1925, 112% per cent, of the face of the income bonds as interest from December 1, 1902, to June 1, 1925, to holders of coupon No. 1. The plaintiffs protested, but finally by agreement on January 5, 1926, accepted, without prejudice to their claim for additional interest, $1,125 on each bond or bonds of $1,000 par value held by them, or 112% per cent, to June 1, 1925, and 3 per cent, on the face of the bond from June 1, 1925, to January 1, 1926.

The plaintiffs claimed that they were entitled on January 5, 1926, as interest on each bond or bonds of the par value of $1,000, interest at 5 per cent, to June 1, 1921, when they matured, and at the legal rate of-6 per cent, from June 1, 1921, to January 5, 1925, when they were paid, aggregating $1,455.65, or a difference of $300.65 on each $1,000 par value of the bonds and a total on all the bonds held by plaintiffs of $3,771.25.

The District Court found that both the bonds and coupons matured on June 1,1921; that the interest on the bonds after maturity should be computed at the rate fixed in the bond under the rule in Massachusetts; that the coupons were negotiable instruments, and under the federal decisions interest should be allowed on their aggregate face value after maturity at the legal rate at the place where they were payable; and, therefore, that the plaintiffs were entitled to recover interest on the' par value of the bonds held by them at 5 per cent, from the date of maturity, or from June 1, 1921, to date of payment, which was January 5, 1926, and that the plaintiffs were also entitled to recover interest on the face value of all the coupons held by them at 6 per cent, from June 1, 1921, until the date of payment. From his decision as to the interest on the amount of the bonds after maturity, the plaintiffs appealed; and from his decision that any interest was due on the amount of the bonds or of the coupons after maturity, the defendant appealed.

The defendant says, first, notwithstanding- its offer of payment, that the holders of these bonds were not entitled to interest until the directors so voted and the receipts warranted; that the bonds themselves were not due until the receipts warranted their payment on June 1, 1925. But the bonds expressly provide that the defendant will pay the principal sum named therein on June 1, 1921, and we think the District Court was right in its construction of these bonds that they not only were due on J une 1, 1921, but that any unpaid coupons attached thereto also became due on that date, whether the receipts of the company then warranted their payment or not.

There was but one promise in the bond, viz., to pay on June 1, 1921, the face of the bond with interest at 5 per cent, from December 1, 1902, “and until the principal of the bond shall become due payable on June 1st and December 1st in such installments as the directors * * * shall ascertain, determine and declare * * * out of the receipts from the properties of the company,” etc.

We think the true construction of this provision is made clearer if the word “but” is substituted for “and” at the beginning of the above quotation. In other words, the company promised to pay the face of these bonds on June 1, 1921, with interest at 5 per cent, from December 1, 1902, payable in installments on June 1st and December 1st; but until the principal was due, the installments might not be paid, depending on the receipts and judgment of the directors as to the wisdom of the disbursements at the time. The interest, however, was cumulative, and, not being paid, all became due on June 1, 1921. The board of directors so interpreted the provisions of the bonds before any controversy arose. We think its construction should prevail.

The coupons being for a definite amount and definitely payable at some time, though they might be paid sooner, constituted a negotiable instrument. Chicago Rwy. Equipment Co. v. Merchants’ Nat. Bank, 136 U. S. 268, 279, 280, 284, 10 S. Ct. 999, 34 L. Ed. 349.

We have, then, as correctly held by the District Court, a bond and negotiable coupons due Junel, 1921.

On the issue raised by the plaintiffs in their appeal as to whether the holder of a bond was entitled to receive after maturity the legal rate of interest, or the interest named in the bond, we think the ruling of the District Court was right. What rate of interest is permitted is governed by local law, Holden v. Trust Co., 100 U. S. 72, 25 L. Ed. 567, and at the place where the bonds are payable, Scotland County v. Hill, 132 U. S. 107, 10 S. Ct. 26, 33 L. Ed. 261; Ohio v. Frank, 103 U. S. 697, 26 L. Ed. 531; Cromwell v. County of Sac, 96 U. S. 51, 24 L. Ed. 681. According to the rule in Massachusetts where the contrary is not indicated in the writing, the same interest is allowed after' maturity as is fixed in the instrument. Brannon v. Hursell, 112 Mass. 63; Union Inst. for Sav. v. Boston, 129 Mass. 82, 86, 95, 37 Am. Rep. 305; Lamprey v. Mason, 148 Mass. 231, 235, 19 N. E. 350. The phrase in the bonds, “and until the principal of the bond shall become due,” does not refer to the rate of interest, but the conditions of payment of interest following, and does not bring this case within the eases holding that where the rate fixed in the contract is expressly limited to the maturity of the principal, that after maturity interest is computed at the legal rate. See Ferris v. Hard, 135 N. Y. 354, 365, 32 N. E. 129.

The other issue is whether the coupons shall bear interest after maturity and at what rate. It is conceded that if the Massachusetts law governs the issue is doubtful, but the coupons being negotiable instruments, the question of whether interest is allowable after maturity is a question of general commercial law and the federal court will follow its independent judgment as determined in view of the weight of authority in all the states if it has been reasonably well settled. Swift v. Tyson, 16 Pet. 1, 19, 10 L. Ed. 865; Presidio County v. Noel-Young Bond Co., 212 U. S. 58, 73, 29 S. Ct. 237, 53 L. Ed. 402; Aetna Life Ins. Co. v. Moore, 231 U. S. 543, 34 S.,Ct. 186, 58 L. Ed. 356; American Trust Co. v. Proctor (C. C. A.) 42 F.(2d) 384. We think it is too well settled now by federal decisions to apply the local rule, whatever it may be, and that coupons whether detached or not, if negotiable instruments, bear interest after maturity at the legal rate where payable. Com’rs of Knox County v. Aspinwall, 21 How. 539, 16 L. Ed. 208; Gelpcke v. City of Dubuque, 1 Wall. 175, 17 L. Ed. 520; Aurora City v. West, 7 Wall. 82, 105, 19 L. Ed. 42; City of Lexington v. Butler, 14 Wall. 282, 20 L. Ed,. 809; Genoa v. Woodruff, 92 U. S. 502, 23 L. Ed. 586; Cromwell v. County of Sac, 96 U. S. 51, 24 L. Ed. 681; Walnut v. Wade, 103 U. S. 683, 696, 26 L. Ed. 526; Pana v. Bowler, 107 U. S. 529, 546, 2 S. Ct. 704, 27 L. Ed. 424: Scotland County v. Hill, 132 U. S. 107, 10 S. Ct. 26, 33 L. Ed. 261; Cairo v. Zane, 149 U. S. 122, 13 S. Ct. 803, 37 L. Ed. 673; Edwards v. Bates County, 163 U. S. 269, 272, 16 S. Ct. 967, 41 L. Ed. 155; Hollingsworth v. Detroit, Fed. Cas. No. 6613, 3 McLean, 472; Rich v. Seneca Falls (C. C.) 8 F. 852, 853. In the case of United States Mortgage Co. v. Sperry, 138 U. S. 313, 11 S. Ct. 321, 34 L. Ed. 969, sometimes cited as contra, it appears that the coupons were to be paid out of a special fund and did not bind the parties issuing, and were, therefore, not negotiable instruments,. and the question of interest was governed by local law. In the instant case the coupons were a binding obligation on the defendants at maturity of the bonds, whether earnings had been sufficient to pay them or not.

The judgment of District Court is affirmed, without costs.


author: WAY, District Judge.

text:
    TERRY v. UNITED STATES.
    No. 3166.
    Circuit Court of Appeals, Fourth Circuit.
    June 27, 1931.

      S. R. Price, of Roanoke, Va. (A. B. Hunt, of Roanoke, Va., on the brief), for appellant.
    C. E. Gentry, Asst. U. S. Atty., of Char-lottesville, Va., and John Paul, U. S. Atty., of Harrisonburg, Va.
    Before NORTHCOTT and SOPER, Circuit Judges, and WAY, District Judge.
   WAY, District Judge.

Appellant, Charles Terry, defendant, below, was jointly indicted with one Frank Ramsey for three sales of morphine hydrochloride, made in violation of the Harrison Narcotic Act (26 USCA §§ 211, 691-707). The sales were made in the city of Roanoke October 12, 18, and 22, 1928, respectively, and the indictment on which appellant was tried contained three counts.

At the trial Frank Ramsey pleaded guilty, appellant, Terry, pleaded not guilty, and was acquitted by the jury on the first and found guilty on the second and third counts, which latter counts covered the sales made on October 18th and 22d.

The testimony adduced on behalf of the government tended to establish the following facts:

In October, 1928, appellant, Charles Terry, and Frank Ramsey were taxicab drivers in Roanoke, Va., having their headquarters near the bus station at Jefferson and Railroad avenues. On the morning of October 12th, Harry Van Miller, a government informer, made arrangements with Frank Ramsey to buy from Ramsey $5 worth of morphine, and they agreed to meet at the Tenth street bridge in Roanoke that afternoon for that purpose. The bridge is in a rather remote section of the city and approximately a mile from said taxi stands. Appellant, Terry, was not present at this conversation, and his name was not mentioned.

At the appointed time, informer Miller proceeded alone in an automobile to the Tenth street bridge. About the same time Ramsey and Terry arrived at the bridge, riding in a Chevrolet sedan owned and then operated by Terry. Both Ramsey and Terry were in the front seat; Ramsey being on the right-hand side. As they approached in Terry’s automobile, Ramsey waved Van Miller to come over to the right-hand side of Terry’s automobile, and Ramsey and appellant, Terry, remained in the front seat of Terry’s automobile. Van Miller went over to them, handed.$5 to Ramsey, and in return Ramsey handed Van Miller a red-top match box containing twenty-four grains of morphine hydrochloride. Van Miller testified that while this exchange was being made he (Van Miller) dropped the $5 and remarked, “I am about to lose that $5.00 ;” and that appellant, Terry, replied, “Don’t lose the $5.00— that is the most important part of it.”

Van Miller further testified that on the morning of October 18th he met Ramsey in Jones’ restaurant in Roanoke and asked Ramsey if he could let him (Van Miller) have $5 worth of morphine, to which Ramsey replied, “Why don’t you take an ounce — I have just one ounce left?” that he then made arrangements with Ramsey to sell him (Van Miller) $5 worth of morphine and to deposit with Ramsey $10 on account of the ounce, and Ramsey agreed to hold the ounce until October 22d. They then agreed to meet that afternoon (October 18th) at the Tenth street bridge where the $5 quantity was to be delivered and Van Miller was to make the $10 deposit on account of the ounce. Terry was not present at this conversation, and his name was not mentioned.'

That afternoon Van Miller proceeded alone in an automobile to the Tenth street bridge. As on the previous occasion, Ramsey and Terry arrived in Terry’s Chevrolet automobile which Terry was again driving. Van Miller then purchased $5 worth of morphine from Ramsey and handed Ramsey $10 additional, saying, “Here is the $10.00 on the ounce, hold it.” While the transaction wa¡5 being consummated, both Terry and Ramsey remained sitting in the front seat of Terry’s automobile, and Terry never stopped his motor. It was also agreed by Van Miller and Ramsey in the same conversation that they would again meet at the Tenth street bridge in the afternoon of October 22d for the purpose of delivering the ounce on account of which Van Miller had just made a deposit of $10.' Van Miller testified that there was nothing he knew of to prevent Terry from hearing the entire conversation between him and Ramsey.

On the afternoon of October 22d, Van Miller went to the Tenth street bridge, taking with him $40 in bills, but was a little late in arriving. Ramsey arrived, again accompanied by Terry, in the automobile owned and driven by Terry. They came across the bridge, and apparently not seeing Van Miller turned back, but, when Van Miller appeared in an automobile, Terry drove to the opposite side of the road and stopped his ear. Van Miller then went over to the right-hand side of Terry’s ear. Both Ramsey and Terry remained in the front seat of Terry’s ear. Ramsey handed Van Miller a can containing an ounce of morphine, and Van Miller in return handed Ramsey $40 in bills, all of which occurred in the immediate presence of appellant, Terry.

On this last occasion a number of federal and city officers, in anticipation of the sale, had stationed themselves near the Tenth street bridge, some in a house and others in an automobile, and the transaction occurred in plain view of some of these officers. Immediately after this last sale, Ramsey and Terry were arrested by the officers. Federal Agent Tyson testified that he, in making a right-hand turn, ran his car head on into appellant’s automobile, jumped out, went up to Terry’s automobile, found both of the doors on the left side locked, and said: “Open these doors”, and that appellant, Terry, said, “I didn’t have anything to do with this business,” to which he (Tyson) replied, “What business?” to which Terry made no reply. Tyson further testified that when they reached the Federal building in Roanoke he started to search Terry’s automobile, whereupon Terry said: “There is no use to search, you have got everything.”

Appellant, Terry, testified that he had no knowledge of the morphine, that he never talked with Van Miller and did not know he was an addict, or that Ramsey was selling morphine to Van Miller, and that, had he known this, he would not have taken Ramsey in his automobile. In explanation of his action in taking Ramsey to the. Tenth street bridge on the occasions in question, appellant testified that on the first occasion Ramsey represented to him that his (Ramsey’s) car was broken down, on the second, that one of his (Ramsey’s) drivers had taken his (Ramsey’s) car out, and, on the third, that his (Ramsey’s) wife had phoned him to come home; that he (Terry) locked the doors on the left-hand side of the car because his banjo was in the back of the automobile.

In substance, Terry denied any connection with or guilty knowledge of the illegal business in which Ramsey was engaged and also denied making the statements the officers testified he made at the time of his arrest. On the other hand, the contention of the government is that, while Terry did not actually make the sales on the 18th and 22d of October, he nevertheless aided and abetted Ramsey in making these sales with guilty knowledge of the illegal business in which Ramsey was engaged and is therefore guilty as a principal.

Appellant, Terry, in his appeal, presents various assignments of error, which, for brevity, may be summarized as follows:

(1) That the District Court erred in permitting informer Harry Van Miller to testify to conversations which occurred between Van Miller and Ramsey in Jones’ restaurant, because said conversations were not in the presence of appellant, Terry, and were purely hearsay.

(2) That the evidence fails to show appellant, Terry, knowingly aided and abetted Ramsey in the sales of morphine by Ramsey to informer Van Miller on October 18th and 22d, 1928.

1. Did the District Court err in permitting witness Van Miller to relate in his testimony, over the objection of appellant, the conversation between Van Miller and Frank Ramsey which occurred in Jones’ restaurant on October 18th in the absence of and without the knowledge of Terry?

The conversation objected to is as follows: “On October 18th, about 2:30 o’clock, I met Frank Ramsey at Dick Jones’ Restaurant and I asked him if he could let me have $5.00 worth of drugs and Frank Ramsey said: 'Why don’t you take an ounce — I have just one ounce left;’ and I told Frank Ramsey that I did not have enough money at the time.”

In considering this contention, it is pertinent to determine whether or not the conversation between Van Miller and Ramsey on the occasion in question and under the circumstances disclosed by the record is in fact violative of the hearsay rule.

In 3 Wjgmore on Evidence, § 1768 (pages 2274, 2275), the author says:

“The true nature of the Hearsay rule is nowhere better illustrated and emphasized than in those eases which fall without the scope of its prohibition. The essence of the Hearsay rule is the distinction between the testimonial (or assertive) use of human utterances and their non-testimonial use. The theory of the Hearsay rule (ante, Sect. 1361) is that, when a human utterance is offered as evidence of the truth of the fact asserted in it, the credit of the assertor becomes the basis of our inference, and therefore the assertion can be received only when made upon the stand and subject to the test of cross-examination. If, therefore, an extrajudicial utterance is offered, not as an assertion to evidence the matter asserted, but without reference to the truth of the matter asserted,, the Hearsay rule does not apply.” (Italics supplied.)
“The prohibition of the Hearsay rule, then, does not apply to all words or utterances merely as such. If this fundamental principle is clearly realized, its application is a comparatively simple matter. The Hearsay rule excludes extrajudicial utterances only when offered for a special purpose, namely, as assertions to evidence the truth of the matter asserted.”

In 22 C. J. page 199, hearsay evidence is defined as follows: “Evidence is called hearsay when its probative force depends, in whole or in part, on the competency and credibility of some person other than the witness by whom it is sought to produce it.”

See, also, 10 R. C. L. 958 ; 6 Encyclopedia of Evidence 443.

That the conversation between Van Miller and Ramsey, objected to, is without the inhibition of the hearsay rule, defined above, is apparent. It was not offered as evidence of the truth of any fact asserted in the conversation. The truth of the statement of Ramsey that he had only one ounce left was not in issue in the case. The issue was whether Terry knowingly aided and abetted Ramsey in making the illegal sales to Van Miller at the Tenth street bridge on October 18th and 22d. That those dales were made was not and, in fact, could not have been successfully denied. Ramsey pleaded guilty to making them. Appellant did not deny that the sales were made by Ramsey, but only denied guilty knowledge of and participation in the sales. The issue which the jury had to determine from all the surrounding circumstances was whether Terry, as he contended, was innocently accommodating his friend Ramsey in taking him to the bridge, or whether, as the government contended, Terry was present there aiding and abetting Ramsey in the sales of ° morphine. Hence, as the conversation related purely to a collateral matter and the truth or falsity of the statements or assertions in the conversation was wholly immaterial to the real issue in the case, and was in no way put in issue, it follows that the admission of the conversation did not violate the hearsay rule.

Was this conversation properly admissible for any pur.pose f This must be answered in the affirmative. It explained Van Miller’s and Ramsey’s presence at the Tenth street bridge on the afternoons of October 18th and 22d, and thereby enabled both court and jury to have an intelligent picture of the situation. The conversation was not evidence of, but merely introductory to, the transactions which admittedly took plaee on the 18th and 23d, respectively, and did not tend in the slightest degree to implicate Terry in the illegal business. His implication therein resulted solely from his own acts of appearing with Ramsey upon the scene on the occasions in question and under the circumstances disclosed by the evidence. The action of the District Court in admitting the conversation for the purpose of completing the picture and explaining the presence of Ramsey and Van Miller at the bridge is amply supported by the authorities.

In 22 C. J. at page 165 it is said: “Preliminary and Explanatory Facts. Facts whose existence is a necessary preliminary to the relevancy of evidence, such as the accuracy of a photograph, or a set of books, or the identity of a cause of action, and the like, are properly received. So also facts which are otherwise irrelevant may be admissible because, by explaining or unfolding a situation, they establish the relevancy of evidence, or because they explain or render more certain and definite the evidence which has already been given, or substantiate ah inference which might be drawn therefrom.”

And in the same volume at page 168: “Discretion of cowrt. The trial court has. considerable discretion as to the latitude of circumstantial or collateral evidence; and it has been said that great latitude is to be allowed to circumstantial evidence.”

In Tolbert et al. v. United States, 11 F.(2d) 78, 79, decided by this court in 1926, Tolbert, a prohibition agent, and one Conrad were convicted of conspiring to demand money for not informing against violators of the National Prohibition Act. Exception was taken to the action of the District Court in permitting one of the witnesses to narrate a conversation between him and some third persons, not in the presence of the defendants. In passing upon that objection, the court, speaking through Circuit Judge Rose, said: “The only two.assignments of error now relied upon relate first to the admission of certain testimony over the objection of the defendants and to a passage in' the charge of the court. Prom what has already been said, the only important question of fact in controversy was as to whether the negroes and the Giberts were trying to bribe Tolbert not to do his duty, or whether he and Norris were seeking to extort money from them. Under these circumstances, we think it was quite within the discretion of the trial ¡judge to permit the witnesses on each side so to tell their story, as to make clear the sequence of events as they knew of them. The negroes or all of them who were accessible testified as to the demands for money made upon them by the defendants. We do not see that any harm was or could have been done by allowing Albert Gibert, when on the stand, to testify that three days after the defendants found the still the negroes came to him and asked him to lend them $200 upon mortgage of some of their stock so that they could make up $300 which the defendants had demanded to drop the ease. All this was followed up with testimony showing precisely what the Giberts did in consequence of this communication, all of which as has been already stated culminated in the arrest of the defendants.” (Italics supplied.)

In Hoback v. United States, 296 F. 5, 9, decided by, this court in 1924, objection was made by defendant to certain testimony, on the ground that it merely showed or tended" to show that an accomplice had told the truth about something which did not, of itself and apart from the story, prove or tend to prove that the defendant had any part in the crime. The testimony objected to was an account of what the witness and a third person had done and said in the absence of the defendant. In the opinion by Circuit Judge Rose, speaking for the court, it was said: “Often, as would have been true in the instant case, the exclusion of all such evidence would make it hard for the jury to understand just what had taken place, and would inevitably make them feel that something had been withheld from them, which they should know. Because, in telling the whole story of the transaction under inquiry, something may be admitted to which the jury may conceivably give greater weight than in reason they should, is not to our way of thinking a conclusive reason for excluding it. We leave to the judgment of 12 men our lives, our liberty, and our property. It would seem that we should assume that the 12, or at all events some of them, have a modicum of common sense. They may, and often, have their prejudices. Sometimes from lack of legal training they may not have a clear idea of the particular thing upon which they are to pass. Under such circumstances, the trial court must exercise such power as it has to shut out evidence that may inflame their prejudices or confuse them as to the issue they are to try. To prevent waste of time, the inquiry, whatever it is, must be kept from straying too far afield. Much must be left to the sound judicial discretion of the trial judge, subject, of eourse, to review, but not lightly to be overruled. Certain other lines of testimony are excluded by more or less arbitrary rules, so firmly established that they may not be changed, otherwise than by legislation. We are not willing to add to their number. There is small reason for doing so in the federal courts, where the judge may assist the jury by pointing out to them what evidence before them'is pertinent to each particular issue upon which they are to pass and what is not.”

2. With reference to the contention that the evidence fails to show appellant knowingly aided and abetted Ramsey in making the sales on October 18th and 22d, the most that may properly he said is that the evidence before the jury on that issue was conflicting and presented a question of fact for the jury to decide. The jury saw and heard the witnesses, including appellant, and observed their demeanor while they were testifying. In such eases the court may'not invade the province of the jury and substitute its judgment for that of the jury on the weight and credibility to be accorded to the testimony of witnesses. It is true the evidence relied on by the government is almost, if not wholly, circumstantial. The able District Judge in his charge, evidently having that in mind, cautioned the jury that “circumstantial evidence should be closely scrutinized and acted upon only with the greatest caution,” and “will not justify a verdict of guilty unless it is both consistent with the defendant’s guilt and inconsistent with any other reasonable hypothesis.” The court’s charge wa§ fully as favorable to appellant as he had a right to demand, and this is evidenced by the fact that appellant did not note a single exception to the charge.

It may be added in this connection that the authorities cited in the brief on behalf of appellant fail to support the contention that the judgment of conviction should be reversed for want of evidence to support it. Without here reviewing all of the authorities cited by appellant, the case of Howard v. Commonwealth, 138 Va. 835, 122 S. E. 112, 113, cited in appellant’s brief, will aptly illustrate the distinction between the facts in the cases cited by appellant and the facts in the instant ease. Howard was charged with illegally transporting whisky in an automobile. The court in Howard’s Case summarized the situation, as follows: “There is no evidence to show that Howard was an actor in transporting the whisky. He neither owned the ear nor had any -authority or control over the driver, nor aided or assisted Hetties in the transportation. He was a passenger, and there is no proof that he owned the whisky, ever had it in his possession, or knew it was in the ear.”

In the instant case appellant-, Terry, did own the ear in which the morphine was transported. He drove and controlled the car, and on each of the occasions in question was in such close proximity to Ramsey while the illegal sales of morphine were being consummated that it is, to say the least, hardly reasonably conceivable that he did not hear what was said and see what took place, and, if the jury believed the testimony of witnesses Tyson and Van Miller, as it had a right to do, statements made by appellant, Terry, strongly indicate that he had guilty knowledge of the illegal business in which Ramsey was engaged.

For the reasons herein expressed, it is our conclusion that the judgment of the District Court should be, and the same hereby is affirmed.

Affirmed.


author: COTTERAL, Circuit Judge.

text:
    JOHNSON v. UNITED STATES.
    No. 403.
    Circuit Court of Appeals, Tenth Circuit.
    July 1, 1931.
    E. J. Skeen, of Salt Lake City, Utah (J. D. Skeen, of Salt Lake City, Utah, on the brief), for appellant.
    E. C. Jensen, Asst. U. S. Atty., of Salt Lake City, Utah (C. R. Hollingsworth, U. S. Atty., and George H. Lunt, Asst. U. S. Atty., both of Salt Lake City, Utah, on the brief), for the United States.
    Before COTTERAL, PHILLIPS, and McDERMOTT, Circuit Judges.
   COTTERAL, Circuit Judge.

This suit was brought by the United States to cancel patente granted to appellant for public lands, situated in Rich county, Utah, embraced in an original homestead entry made July 7, 1921, and an additional stock-raising homestead entry made January 27, 1923, in support of which final proofs were taken before the county clerk of that county and presented to the Salt Lake City land office in July, 1926. The final certificates were dated August 29, 1926, and the. patents July 12, 1927.

It was alleged in the bill and admitted in the answer that the final proof affidavits of the appellant and two witnesses were, in substance, that appellant had actually resided on the original homestead tract from May, 1921, to May, 1922; from May, 1923, to May, 1924; from May, 1924, to January 27,1925; from May, 1925, to December, 1925; and from April 1, 1926, to date of final proof. It was further alleged that this showing was false and given with the purpose to deceive the officials of the local land office and the General Land Office, and they were induced thereby to issue the final certificates and patents. The answer denies the testimony was false or deceived the officials, and alleges it truthfully set out the facts and was given in good faith.

After a trial of the cause, the District Court found that the final proof affidavit of appellant, as well as those of his witnesses, was a fraud on the government with regard to his residence on the original homestead, that he resided with his neighbors, occasionally visiting the land and cultivating a portion of it, and ruled that the homestead law required an entryman, whether married or single, to maintain an actual home on the land, and that if appellant considered his acts as a single man satisfied the law, they were not truthfully represented. Por this reason, it was decreed that the patents be cancelled. Appellant complains of these findings and the decree based upon them.

A statutory requirement was imposed of residence and cultivation upon the original homestead for three years, and compliance therewith was essential to the acquisition of the title to the stock-raising homestead. Act Dec. 29, 1916, 39 Stat. 862 (43 USCA § 291 et seq.); Act June 6,1912, 37 Stat. 123 (43 USCA §§ 164, 169). It is a settled rule that a suit to cancel a patent may be sustained only by proof which produces conviction. Wright-Blodgett Co. v. United States, 236 U. S. 397, 35 S. Ct. 339, 59 L. Ed. 637. And the matter of inquiry in the courts is not whether they would have accepted the final proofs, but whether the officers passing on them were misled by false representations. United States v. Bucher (C. C. A.) 15 F.(2d) 783; United States v. Peterson (C. C. A.) 34 F.(2d) 245; United States v. Paiz (C. C. A.) 293 F. 755; United States v. Hays (C. C. A.) 35 P.(2d) 948.

In the present ease, it is not questioned that appellant improved the land by fencing, cultivation, and a habitable cabin. We refer to the evidence on the issue of residence and only so far as necessary to determine whether the findings are sustained.

Two of the witnesses who lived near the land rarely saw him there and never at night, but often saw him at neighboring ranches where he was employed, ate, and slept. One of his final proof witnesses justified his final proof testimony upon an understanding that a single man was not required to live on the land, and that it was satisfactory to work upon and improve it, from time to time.

In August, 1927, Inspector Keefe visited the land and did not find about the cabin the usual indicia of habitation. In an interview with appellant, the latter stated that in the years 1921 to 1925 he lived most of the time at Andrew Mattson’s ranch, stayed on the homestead one or two nights a week during the summer months, worked for Mattson practically all the time after making .the entry, took his meals there, cooked at the house occasionally when there early in the morning, but usually when at work on the land carried his dinner with him, when harvesting stayed at the house over night, during the summer months went to his cabin once and occasionally twice a week, was there about ten nights, and after making final proof stored his furniture in a granary. He claimed he was told, as he was a single man, he didn’t have to live on the homestead, but had to live within a radius of twenty miles.

J ohnson’s own account is that in 1921 he slept quite a bit on the land, ate there when at work and on some Sundays, took canned goods there to eat, was there practically every day, worked for the Mattsons staying there at night, once a day had to go up and keep the cattle from the garden, “maybe in the morning, maybe run up in the evening, some evenings stick around,” and “stayed over night several times”; in 1922 he was at the cabin every day, but spent most of the nights with Mattsons; and in 1923 he stayed at the cabin “maybe two or three nights a week,” in taking care of this place. He explained that his need required him to work off the land, and it was a lonely place about a half a mile away; but he claimed it was his only home.

The District Court was right in the interpretation of the homestead law as exacting of the entrymam an actual residence on the original homestead, and as not being satisfied by merely colorable acts consisting mainly of occasional visits to the land. And the findings of the court from the evidence are amply sustained that appellant’s final proof fraudulently represented that he maintained a residence on the land. We agree with the decision that the ease would have been different if the facts had been truly disclosed to the officials in the final proofs, and had been accepted by them, for in that ease the essential fraud in inducing their approval of the final proof would have been wanting. Instead, no intimation was given that the appellant in truth resided at the ranches of others and only visited the land and claimed that his pretense of residence was sufficient for him as a single man.

Appellant relies upon the Hays Case, where it appears a statement of the facts was made to the Commissioner before whom the proof was taken. An analogy is claimed from the reference of appellant’s proof to the field inspector. It is true he “clear listed” the land, but this was after the proof was taken, there was no communication by appellant with him, and the inspector made no protest, because he noticed one Kearl, whom he knew, was a witness in the final proof. The practice appears to have been to refer the proofs to the chief inspector for an investigation and report by a field inspector. Such a report doubtless has some influence, but nevertheless a final proof is always passed upon by the land officials in the course of their duties, and it is a representation of facts on which the title is granted to an en-tryman.

The findings of the trial court are to be accorded weight, in view of the favorable opportunity to estimate the testimony.

We are convinced there was no error in arriving at the facts in this case. The decree is accordingly affirmed.


author: PHILLIPS, Circuit Judge.

text:
    DARBY-LYNDE CO. v. ALEXANDER, Collector of Internal Revenue.
    No. 407.
    Circuit Court of Appeals, Tenth Circuit.
    June 29, 1931.

      Chas. P. Gotwals, of Muskogee, Okl. (John T. Gibson, Win. A. Killey, and Jas. D. Gibson, all of Muskogee, Okl., on the brief), for appellant.
    R. P. Hertzog, Sp. Atty., Bureau of Internal Revenue, of Washington, D. C. (Roy St. Lewis, U. S. Atty., of Oklahoma City, OH., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, of Washington, D. C., on the brief), for appellee.
    Before COTTERAL, PHILLIPS, and McDERMOTT, Circuit Judges.
   PHILLIPS, Circuit Judge.

The Darby-Lynde Company brought this suit to recover an alleged over-payment of income taxes. The trial court sustained a demurrer to the petition. The essential facts set up in the petition follow.

Plaintiff is a Delaware corporation engaged in producing and marketing oil and gas, with its principal office and place of business in Oklahoma. At the beginning of the taxable period, January 1, 1926, plaintiff was the owner of certain oil and gas properties in Kansas, a part of which were producing and a part of which were non-producing. Such properties were acquired by plaintiff after February 28,1913.

On July 1, 1926, plaintiff sold such properties to the Darby-Lynde Petroleum Company for one million dollars. In its original return for 1926, plaintiff claimed deduction for depletion based upon the income derived from the sale of oil and gas produced from such properties. Such return duly reflected the gross income derived from such sale. On May 26, 1927, plaintiff filed with the collector an amended return in which it sought to deduct a depletion allowance under see. 204 (e) (2), Revenue Act of 1926, 44 Stat. 16, 26 TJSCA § 935(c) (2) based upon 27%% of the income derived from both the sale of such properties and the sale of oil and gas produced therefrom. The collector ignored such amended return and plaintiff was compelled to pay, under threats of dis-traint, a tax computed upon the basis of the original return. Thereupon, plaintiff" duly filed a claim for refund of $35,072.81 based upon the disallowance of its amended claim for depletion. The Commissioner rejected such claim.

Section 204, Revenue Aet of 1926, 44 Stat. 14 (26 TJSCA § 935), provides in part as follows:

“(a) The basis for determining the gain or loss from the sale or other disposition of property acquired after February 28, 1913, shall be the cost of such property; except that— * * *
“(b) The basis for determining the gain or loss from the sale or other disposition of property acquired before March 1, 1913, shall be (A) the eost of such property * * * or (B) the fair market value of such property as of March 1,1913, whichever is greater. * * *
“(c) The basis upon which depletion, exhaustion, wear and tear, and obsolescence are to be allowed in respect of any property shall be the same as is provided in subdivision (a) or (b) for the purpose of determining the gain or loss upon the sale or other disposition of such property, except that—
“(1) In the case of mines discovered by the taxpayer after February 28, 1913, the basis for depletion shall be the fair market value of the property at the date of discovery or within thirty days thereafter. * * *
“(2) In the ease of oil and gas wells the allowance for depletion shall be 27% per centum of the gross income from the property during the taxable year. Such allowance shall not exceed 50 per centum of the net income of the taxpayer (computed without allowance for depletion) from the property, except that in no ease shall the depletion allowance be less than it would be if computed without reference to this para^ graph.”

Section 234, Revenue Act of 1926, 44 Stat. 41,26 U. S. C. A. § 986(a) (8), provides in part as follows:

“(a) In computing the net income of a corporation subject to the tax imposed by section 230 there shall be allowed as deductions : * * *
“(8) In the ease of mines, oil and gas wells, other natural deposits, and timber, a reasonable allowance for depletion and for depreciation of improvements, according to the peculiar conditions in each ease; such reasonable allowance in all eases to be made under rules and regulations to be prescribed by the commissioner with the approval of the Secretary. In the ease of leases the deductions allowed by this paragraph shall be equitably apportioned between tbe lessor and lessee.”

Counsel for plaintiff contend that tbe language “gross income from tbe property during the taxable year,” as used in section 204 (e) (2), supra, includes both operating income derived from the production and sale of oil and gas, and income derived from the sale of the oil and gas properties.

In the Revenue Act of 1913 and in each of the revenue acts since enacted, Congress has provided for some allowance for depletion in case of operating mines and oil and gas wells [26 USCA § 986 (8) and note]. By such provisions for a depletion allowance in the case of oil and gas wells, Congress recognized that oil and gas reserves are wasting assets and become exhausted through the process of producing oil and gas. The depletion charge, permitted as a deduction from gross income in determining taxable income, represents the reduction during the taxable year through the production of oil and gas from such wells, in the total deposit or reserve of oil or gas which may be captured thereby and produced therefrom. United States v. Ludey, 274 U. S. 295, 302, 303, 47 S. Ct. 608, 71 L. Ed. 1054; Lynch v. Alsworth-Stephens Co., 267 U. S. 364, 45 S. Ct. 274, 69 L. Ed. 660.

The primary rule in the construction of statutes is to ascertain and give effect to the intent of the legislative body. Stevens v. Nave-McCord Merc. Co. (C. C. A. 8) 150 F. 71, 75; Balanced Rock S. A. v. Manitou (C. C. A. 10) 38 F.(2d) 28, 30; Moffat Tunnel Imp. Dist. v. Denver & S. L. R. Co. (C. C. A. 10) 45 F.(2d) 715, 723. Where the language of a statute is plain and unambiguous and eonveys a clear and definite meaning, resort must not be had, ordinarily, to rules of eofistruction, but the statute must be given its plain and obvious meaning. United States v. Mo. Pac. R. Co., 278 U. S. 269, 277, 49 S. Ct. 133, 73 L. Ed. 322; Duke Power Co. v. Commissioner (C. C. A. 4) 44 F.(2d) 543; Eclipse Lumber Co. v. Iowa Loan & T. Co. (C. C. A. 8) 38 F.(2d) 608, 610. Where however the language is of doubtful meaning, or where adherence to the strict letter would lead to injustice or absurdity or result in contradictory provisions, it devolves upon the court to . ascertain the true meaning. United States v. Katz, 271 U. S. 354, 357, 46 S. Ct. 513, 70 L. Ed. 986; In re Chapman, 166 U. S. 661, 667, 17 S. Ct. 677, 41 L. Ed. 1154; United States v. Kirby, 7 Wall. 482, 486, 487, 19 L. Ed. 278. The general design and purpose of a statute should be kept in mind and its provisions should he given a fair and reasonable construction with a view to effecting its purpose and object. Low Wah Suey v. Backus, 225 U. S. 460, 475, 32 S. Ct. 734, 56 L. Ed. 1165; Takao Ozawa v. United States, 260 U. S. 178, 194, 43 S. Ct. 65, 67 L. Ed. 199; Feitler v. United States (C. C. A. 3) 34 F.(2d) 30, 33.

In Stevens v. Nave McCord Mercantile Co., supra, the court, speaking through Judge Sanborn, said:

“Cardinal rules for the construction of a statute are that the intention of the legislative body which enacted it should be ascertained and given effect, if possible, regardless of technical rules of construction and the dry words of the enactment; that that intention must be deduced not from a part but from the entire law; that the object which the enacting body sought to attain and the evil which it was endeavoring to remedy may always be considered for the purpose of ascertaining its intention; that the statute must be given a rational, sensible construction; and that, if this be consonant with its terms, it must have an interpretation which will advance the remedy and repress the wrong.”

It frequently happens that the true intention of a legislative body is not expressed by the language employed in a statute, when literally construed. In such eases, the intent of such legislative body can only be effectuated by a departure from a literal interpretation of the language employed. Where such intention is plainly discernible from the provisions of the statute when considered as a whole, the real purpose and intent of the legislative body will prevail over the literal import of the words employed. Holy Trinity Church v. United States, 143 U. S. 457, 12 S. Ct. 511, 36 L. Ed. 226; United States, for Use of Hill v. American Surety Co., 200 U. S. 197, 203, 26 S. Ct. 168, 50 L. Ed. 437;, Jones v. New York Guaranty & I. Co., 101 U. S. 622, 626, 25 L. Ed. 1030; Barrett v. Van Pelt, 268 U. S. 85, 90, 45 S. Ct. 437, 69 L. Ed. 857; Fleischmann Const. Co. v. United States, 270 U. S. 349, 360, 46 S. Ct. 284, 70 L. Ed. 624; Baltzell v. Mitchell (C. C. A. 1) 3 F.(2d) 428, 430; London & L. I. Co. v. Smoot, 52 App. D. C. 378, 287 F. 952, 956.

It is obvious that, as in prior Revenue laws, Congress intended by section 204 (c) (2) to provide an allowance for the exhaustion of oil and gas reserves resulting through the operation of oil and gas wells and the extraction of oil and gas therefrom.

We have a right to assume that Congress intended to provide a basis for ascertaining such allowance predicated on factors bearing a reasonable relation to the amount of depletion or exhaustion resulting from the operation of such oil and gas wells, and to adopt a rule which would lead to a rational rather than an absurd result.

Let us apply plaintiff’s theory to four supposititious cases. Assume two oil and gas properties each of which, for the purpose of ascertaining profit from sale for income tax purposes, cost $4,000,000, and that each was worth $10,000,000 on January 1, 1926. Assume, in the first case, that the owner operated his property for three months, exhausted 4% of the oil reserve, received an operating income of $400,000 and then sold the property for $9,600,000, making a profit of $5,600,-000. Assume, in the second case, that the owner operated his property for six months, exhausted 8% of the oil reserve, received an operating income of $800,000 and then sold the property for $9,200,000, making a profit of $5,200,000. Note that the selling price in each instance was the value on January 1, 1926, less the oil and gas produced during that year prior to the sale.

Applying plaintiff’s theory to the first case, the depletion allowance would be 27%% of the $400,000 operating revenue plus the $5,600,000 profit derived from the sale, or $1,650,000. Applying plaintiff’s theory to the second case, the depletion allowance would be 27%% of the $800,000 operating income plus the $5,200,000 from the sale, or $1,650,000.

In the first ease, the taxpayer would receive a depletion allowance of $1,650,000 for a $400,000 exhaustion. In the second case, the taxpayer would receive a $1,650,000 depletion allowance for a $800,000 exhaustion. The depletion allowances in both eases would be the same, but the actual exhaustion in the second case would be double that in the first case.

Again, let us assume, as a third ease, that the taxpayer operated his property for the entire year and exhausted 16% of his reserve, for which he received an operating income of $1,600,000. His depletion allowance would be $440,000. His sustained depletion would be four times that of the taxpayer in the first case, while his allowed depletion would be $1,210,000 less.

Finally assume, in the first ease, that the purchaser continued to operate the property during the last nine months of the year and exhausted 12% of the oil reserve, and received an operating income of $1,200,000. He would be entitled to a depletion allowance of 27%% of such operating income, or $330,-000. In the first case, the total depletion allowance would be $1,980,000 and in the third case $440,000, while the actual depletion in both cases would be the same.

Thus, it will be seen that the construction for which plaintiff contends would lead to absurd and unreasonable results. The reason for such results is that plaintiff’s theory takes into consideration income derived from an aet which does not in fact deplete the oil and gas reserves, and includes in the formula for computing depletion a factor which has no reasonable relation to the depletion actually sustained.

In order to reach a reasonable and rational result, the words “gross income” as used in see. 204 (c) (2) must be construed as meaning the gross income produced from the operation of such oil and gas wells. The language is clearly susceptible of the construction that it is income from or out of the property itself; not out of its sale.

The legislative history of the 1926 aet confirms this view. In the Revenue Acts of 1921 and 1924, in cases of oil and gas wells, Congress had provided, with certain limitations, for a depletion allowance based upon discovery value. See section 214 (a) (10) and section 234 (a) (9), Revenue Act of 1921 (42 Stat. 241, 256) and section 204 (c), Revenue Aet of 1924 (26 IJSCA § 935 note). When Congress wrote the provision for depletion allowance in the case, of oil and gas wells in the Revenue Act of 1926, it departed from the discovery value basis because of the difficulty of administration. The discussions before the Senate Finance Committee, where the amendment which ultimately became section 204 (e) (2), 26 USCA § 935 (c) (2) originated, discloses that the framers of this legislation had in mind operating income as distinguished from income derived from sales. See report of hearings before that committee, pages 153,154,177 and 179.

We conclude that the words “gross income,” as used in section 204 (c) (2), supra, mean income derived from the sale or other disposition of oil and gas produced, and not from the sale of the oil and gas properties.

The judgment is affirmed.


text:
    ROYAL INDEMNITY CO. v. AMERICAN BOND & MORTGAGE CO.
    No. 2579.
    Circuit Court of Appeals, First Circuit.
    June 29, 1931.
    Seldon Bacon, of New York City, for appellant.
    Robert Hale, of Portland, Me., for appel-lee bankrupt.
    Herbert J. Connell, of Portland, Me., for debenture bondholders.
    Before BINGHAM and WILSON, Circuit Judges, and MORTON, District Judge.
   WILSON, Circuit Judge.

On May 25,1931, an involuntary petition in bankruptcy was filed against the American Bond & Mortgage Company, Inc., in the District of Maine, the alleged bankrupt being a Maine corporation. Its principal business, however, appears to have been done in New York and Chicago, where it had offices.

On the same day a petition for the appointment of a receiver under section 2 (3) of the Bankruptcy Act (11 USCA § 11 (3) was filed, and heard by the District Court within a few hours after the* filing of the petition in bankruptcy on affidavits filed by the petitioning creditors with the petition, and on unauthentieated letters and telegrams submitted by counsel for alleged bankrupt without objection by counsel for petitioner. The District Court, 50 F.(2d) 441, denied the petition for a receiver, and the petitioning creditor applied to this court for leave to appeal under section 24 (b) of the act (11 USCA § 47 (b).

The order of the District Court denying the petition was in a “proceeding in bankruptcy.” In re Breyer Printing Co. (C. C. A.) 216 F. 878. And the allowance of the appeal therefrom is within the discretion of this court. Banco Commercial De Puerto Rico v. Hunter Benn & Co. (C. C. A.) 31 P. (2d) 921, 923; White v. Barnard (C. C. A.) 29 P.(2d) 510; Ahlstrom v. Ferguson (C. C. A.) 29 F.(2d) 515.

Tlie appointment of a receiver to take possession of an alleged bankrupt’s property does not follow as of course upon the filing of an involuntary petition. The Bankruptcy Act, section 2 (3), provides for the appointment of a receiver pending adjudication and the appointment of a trustee, but only in ease of “absolute necessity.”

It is clear from the language of the act that not only is it a matter of discretion with the District Court, but a discretion to be exercised only in extreme cases. As the courts have frequently said, it is a serious matter to take possession of a bankrupt’s property before he has been adjudicated a bankrupt, and only should be done when the necessity is dear. In re Hine-Watt Mfg. Co. (C. C. A.) 290 P. 902; In re Oakland Lumber Co. (C. C. A.) 174 F. 634. Consequently the only legal question presented on this application for an appeal is whether the District Court abused its discretion.

The affairs of the alleged bankrupt undoubtedly have become seriously involved, especially during the recent depression, but its affairs are now being conducted by a committee selected by some of its largest creditors and debenture bondholders, to whom its capital stock has been transferred under a voting trust. On the 21st day of May, 1931, a petition in bankruptcy was filed in the ‘Northern District of the State of Illinois, and on the same day an equity receiver was appointed under a creditors’ bill. It also appears that an equity receiver has been appointed in the District of Columbia of certain hotel property held in the name of a subsidiary of the alleged bankrupt, of which it holds the capital stock.

Its assets, some of which, it is claimed, are of questionable value and involved in foreclosures and receiverships, consist in the main of stock and bonds, equities in real estate, and an interest in an unpaid award by the city of New York in condemnation proceedings. However, with two petitions in bankruptcy pending, and one or more receivers in equity already appointed and presumably acting under bond, and with a committee in charge of its affairs representing banks which have made loans to the company and holders of certain debenture bonds, while it may be possible that under these conditions the assets of the company may be dissipated, it does not follow that the several persons now in control and in possession of its assets and responsible to the courts, will proceed in violation of their trust and dissipate the assets of this company, especially in view of the fact that its assets are theoretically, at least, already in custodia legis, and those having physical possession are accountable to the courts. Acme Harvester Co. v. Beekman Lumber Co., 222 U. S. 300, 307, 32 S. Ct. 96, 56 L. Ed. 208; Lazarus v. Prentice, 234 U. S. 263, 266, 34 S. Ct. 851, 58 L. Ed. 1305.

We do not think that there was such an abuse of the judicial discretion so carefully guarded by Congress under section 2 (3) of the Bankruptcy Act as to warrant this court in reversing the order of the District Court refusing to appoint a receiver upon the facts presented to it on the affidavits of the petitioners alone, especially when a committee representing over $4,000,000 of unsecured claims in the form of debenture bonds appeared and protested, and the judge expressly reserved the right to appoint a receiver at any time on “absolute necessity” being shown.

It is unnecessary to discuss the powers of a receiver prior to adjudication since the decision of the Supreme Court in Babbitt v. Dutcher, 216 U. S. 102, 30 S. Ct. 372, 54 L. Ed. 402, 17 Ann. Cas. 969, and the amendment of section 2 of the act, chap. 412, 36 Stat. 838 (11 USCA § 11), expressly granting ancillary powers to the several courts of bankruptcy in aid of trustees and receivers in proceedings pending in any other court of bankruptcy, and the decision in Lazarus v. Prentice, supra, 234 U. S. page 267, 34 S. Ct. 851, 58 L. Ed. 1305.

Petition for appeal denied.

MORTON, District Judge, concurs in the result.