author: WOOLLEY, Circuit Judge. BUFFINGTON, Circuit Judge.

text:
    FEDERAL TRADE COMMISSION v. THATCHER MFG. CO.
    (Circuit Court of Appeals, Third Circuit.
    April 16, 1925.
    Rehearing Denied June 2, 1925.)
    No. 3167.
    1. Monopolies <§=20^Corporation held to have acquired stock of competing corporations in violation of Clayton Act.
    ' Corporation manufacturing milk bottles held1 to have acquired, not only physical assets and patent license rights - of competing corporations, but their capital stock, in violation of Clayton Act, § 7 (Comp. St. § 8835g).
    2. Monopolies @=>20 — “Acquisition,” as used in Clayton Act, defined; “ownership.”
    “Acquisition,” as used in Clayton Act, § 7 (Comp. St. § 8835g), prohibiting one corporation acquiring stock of competing corporations, means “ownership,” which involves title, legal and equitable.
    [Ed. Note. — For other definitions, see WordB and Phrases, First and Second Series, Ownership; Second Series, Acquisition.]

      3. Corporations <g=l — Courts look behind corporate fiction to do justice.
    Courts of equity will look behind corporate fiction, and, if one corporation is merely creature of another, it will be treated as practical owner of corporation, when necessary to do justice.
    4. Monopolies <@=20 — Clayton Act is remedial, and not punitive; sole purpose of order of Federal Trade Commission must be to remedy unlawful situation.
    Clayton Act, § 7 (Comp. St. § 8835g), prohibiting one corporation from acquiring stock of competing corporations, where effect is to reduce competition, is remedial, and not punitive, and sole purpose of valid order of Federal Trade Commission must be to’ remedy unlawful situation.
    5. Monopolies <@=20 — Order of Federal Trade Commission, requiring corporation to divest itself of property of competing corporations, held authorized.
    Order of Federal Trade Commission, requiring corporation to divest itself of • property of competing corporations, as well as of their stock acquired in violation of Clayton Act, § 7 (Comp. St. § 8835g), was authorized, where corporation, by its control of such stock, acquired ownership of their property, so that mere divesting itself of stock' would leave it in full possession of fruits of unlawful transaction.
    6. Monopolies <@=20 — Clayton Act construed.
    Not every acquisition by one corporation of stock of competing corporations is forbidden by Clayton Act, § 7 (Comp. St. § 8835g), but such acquisition must have effect of substantially lessening competition.
    7. Mortopolies <@=20 — Evidence held not to sustain finding that acquisition of stock of another corporation substantially lessened competition.
    Evidence held not to sustain finding of Federal Trade Commission that acquisition of stock of corporation chiefly manufacturing whisky and condiment bottles, and only a small quantity of milk bottles, by corporation manufacturing milk bottles, substantially lessened competition, within Clayton Act, § 7 (Comp. St. § 8835g).
    Buffington, Circuit Judge, dissenting.
    Petition for Enforcement of Order of Federal Trade Commission.
    Petition by the Federal Trade Commission against tbe Thatcher Manufacturing Company to enforce an order of the Commissi'o'n. Order of Commission modified, and, as so modified, its enforcement directed.
    W. H. Fuller, of McAlester, Old., and A. E. Brindley, of Washington, D. C., for petitioner.
    Herbert Knox Smith, of Hartford, Conn., and William W. Porter, of Philadelphia, Pa., for respondent.
    Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.
   WOOLLEY, Circuit Judge.

The Federal Trade Commission asks this court to enforce an order it has made against the Thatcher Manufacturing Company, the respondent, commanding it to cease and desist from the ownership and control of the assets and properties of three corporations which it obtained through its acquisition of their capital • stock, to divest itself of the assets and properties so acquired, and to divest itself of the stock or share capital of a fourth corporation. The proceedings were begun by a complaint filed by the Commission under section 7 of the Clayton Act (38 Stat. 730; Comp. St. § 8835g) charging the respondent, first with the acquisition of the entire capital stock of four competing corporations, and, next,' with its acquisition of all the assets and properties of three of those corporations through its stock control, the effect of which was substantially to lessen competition, restrain commerce and create in the respondent a monopoly in the business of manufacturing milk bottles. The order was made on elaborate findings of fact based mainly on a stipulation as to facts entered into by the parties and on other matters obtained from records which the respondent freely opened- and made available. There is therefore little dispute about the facts and no trouble in deciding that the Commission’s findings are, except in one matter, sustained by the evidence. The controversy turns on the inferences properly to be drawn from the facts and therefore on the single question whether the transactions were in violation of section 7 of the Clayton Act. As they were highly complicated we shall; in stating the case, give only enough to show their character and effect.

Of the corporate actors in this ease the Thatcher Manufacturing Company, the respondent, is a corporation of the State of New York with its principal office and manufacturing plant at Elmira, New York and branch manufacturing plants in West Virginia and Ohio. It was engaged in the manufacture of milk bottles by automatic bottle-blowing machines under an exclusive patent license from the Owens Bottle Company.

The Essex Glass Company was a corporation of the State of Ohio having its principal office at Mount Vernon, Ohio, and plants in Ohio and West Virginia.

The Travis Glass Company was a corporation of the state of West Virginia, with its principal office and manufacturing plant at Clarksburg, West Virginia, and a branch plant at Cedar Grove, West Virginia.

The Loekport Glass Company was a corporation of the State of New Jersey with its principal office and manufacturing plant at Loekport, New York.

The Woodbury Glass Company is a corporation of the State of Indiana with its principal office and manufacturing plant at Winchester, Indiana.

The J. T. & -A. Hamilton Company was a corporation of the State of Pennsylvania with its principal office and manufacturing plant at Pittsburgh, Pennsylvania.

All these corporations were engaged in manufacturing milk bottles and selling them in interstate commerce in competition with one another and with other concerns similarly engaged.

The Owens Bottle Company was a corporation of the State of Ohio, with factories in Ohio, West Virginia and Indiana, and was engaged in the manufacture and sale of glassware, but not in the manufacture of milk bottles. It had acquired the exclusive right to use the ,Owens bottle-blowing machines in the United States and had granted the respondent an exclusive license under the patents for the manufacture of milk bottles.

In 1917 the Hartford-Fairmont machine appeared in the art. This was another automatic bottle-making machine and it quickly demonstrated that it was the equal and in some respects the superior of the Owens machine. These two were the only successful entirely automatic bottle-making machines then in use. Exclusive licenses to use the Hartford-Fairmont machines for manufacturing milk bottles were secured by the Essex, Travis, Loekport and J. T. So A. Hamilton Companies. The Woodbury Company secured a non-exclusive license to use the Hartford-Fairmont machines for making bottles of other kinds.

Early in 1919, I. T. Axton, president of the Woodbury Company, conceived a plan of merging the Woodbury Company with the companies that held Hartford-Fairmont licenses. Axton controlled the common stock of the Woodbury Company and secured options on the entire capital stock of the Essex, Travis and Loekport Companies and an option on the machine, license and milk bottle business of the J. T. & A. Hamilton Company. Failing in his attempt to merge these corporations, Axton approached F. E. Baldwin, president of the respondent corporation, and suggested that he take over his options and carry out the merger. Baldwin consulted H. C. Mandeville, a director of the respondent, and also E. D. Libbey, president of the Owens Bottle Company, to that end. The Owens Bottle Company offered no objection to the plan and, being interested in competitive bottle-making machines, Libbey agreed to go into the deal and assist in raising the necessary money, provided he could acquire the Hartford-Fairmont patents. Baldwin,. Mandeville and Libbey then took over the Axton options and proceded to exercise them. Up to this time the respondent had not appeared in the transaction. This was in August, 1919; the options expired on September 1, following. With some haste Mandeville secured the incorporation of the Sterling Glass Company, Inc., to serve as a temporary means through which to exercise the options and effect the merger. This company was incorporated under the laws of New York with an authorized capital of $600,000. Stock for $500,000 was issued at par for cash. One half of its issued capital stock was taken by E. D. Libbey and the other half by the respondent. The sum of $2,-110,000 in cash was required to carry out the options. Of this, $500,000 was available from the Sterling Company.' The balance, or $1,610,000, Baldwin, Libbey and William Ford, the latter a business associate of Lib-bey, arranged to borrow from the Guaranty Trust Company of New York on their individual promissory notes, each note to be endorsed by the makers of the other two so that all were equally liable. On August 28, 1919, the stockholders of the Essex, Travis, Loekport and Woodbury Companies and Baldwin, Libbey and Ford met at the office of the Guaranty Trust Company. The precise order of the events which followed is difficult to ascertain. They were in substance as follows:

Baldwin, Libbey and Ford gave the Trust Company their notes for which they received money which they turned over to the Sterling Company, and the Sterling Company^ then being in possession of the full purchase price, paid the same to the holders of the stock of the Essex, Travis, Loekport' and Woodbury Companies and received their certificates endorsed in blank, which it turned over to the Trust Company as collateral security for the notes. With the balance of the money, the Sterling Company (or Baldwin) paid for the outright purchase of the machines, license ' and rights of the Hamilton Company. As the order under review does not require the respondent to divest itself of the physical properties purchased from the Hamilton Company, we shall not consider the part of the transaction affecting that company nor shall we mention it except when necessarily incidental to the other phases of the transaction.

Immediately after the capital stock of the four companies had thus been acquired, Baldwin appeared before the vendors and requested the officers of the four companies to remain in their respective positions and continue the operation of the companies until further directed. The respondent controlled these corporations under their respective managements until January 1, 1920, when their entire business was taken to Elmira and thereafter managed directly by the respondent. After the capital stock of the Essex, Travis, Lockport and Woodbury Companies had been acquired, Baldwin, Libbey, Eord and the Sterling Company entered into an agreement in which by preamble, they stated that it was their purpose at a later date to organize a permanent company to take over the plants and assets of the four companies together with the plants and assets of the respondent, and to that end they agreed that the Sterling Company should save harmless the other parties to the agreement from all liability arising from the notes and that “upon the payment of the said notes all of the collateral thereto shall become the property of the Sterling Company”; that if Libbey should not acquire the Hartford-Eairmont patents, or if the parties should fail to agree upon the form, capitalization, or organization of the permanent company, Libbey and Eord might at any time, on notice to' Baldwin, retire from the agreement; that in the event of their retirement, Baldwin should assume all liability under the contract and all liability upon the notes and repay Libbey the $250,000 he had invested in the capital stock of the Sterling Company; and that, thereafter, Baldwin should proceed with the organization of the permanent company in such manner as he might see fit.”

Shortly after entering into this agreement Libbey found that he could not acquire the Hartford-Eairmont patents and thereupon served notice on Baldwin of his intention, and the intention of Eord, to retire from the transaction. On the retirement of Libbey and Eord the plan for a permanent corporation, into which all the companies including the respondent were to be merged, came to an end and a new situation arose in which there were outstanding individual obligations of Baldwin, Libbey and Eord amounting to $1,610,000 due the Trust Company, the obligation of Baldwin to buy Libbey’s $250,000 of stock in the Sterling Company and his obligation to assume Libbey’s and Eord’s indebtedness. There was also outstanding an obligation on the part of the Sterling Company to save harmless all the parties to the agreement from all liability arising from the making and endorsing of the notes. The Sterling Company had no money, for it had expended its whole capital of $500,000 in supplying a part of the purchase money for the stock of the four companies. Here the respondent again entered the. transaction and gave the Sterling Company $250,000 with which it took up Libbey’s stock and received the certificates? The respondent then held $500,000 of the full-paid capital stock of the Sterling Company, all of which had entered into the purchase of the stock of the competing companies. With the Trust Company loan unpaid, the certificates for the stock of the Essex, Travis, Lockport and Woodbury Companies (held by the Trust Company as collateral) were sent to Elmira and there formally cancelled and new certificates issued to persons nominated by Baldwin, and then, on being endorsed in blank, they were delivered to the Trust Company as collateral security for the loan. All the new. certificates were issued to four persons, Baldwin, Mandeville, Elver and Collins, officers and employees of the respondent corporation. Baldwin was elected president and Collins secretary of the four companies. Eone of the persons to whom the stock was issued paid any money for it or gave any other consideration.

The relation of the respondent with the four companies continued financially intimate. It advanced $40,000 to the Woodbury Company and $25,000 to the Travis Company, and received $75,000 from the Essex Company which it mingled with its' funds and treated as its own. In an annual report which Baldwin made to the stockholders of the respondent corporation he referred in terms of congratulation to the merging of the Essex, Travis, Lockport and Woodbury Companies with the respondent and its purchase of the Hartford-Fairmont milk bottle machine and business of the Hamilton Company. Without quoting this communication it is enough to say that it states without doubt that the transactions of purchase and merger were made by the respondent corporation and were greatly to its financial advantage.

The indebtedness upon the three notes given by Baldwin, Libbey and Eord was still running, and in order to meet it when it should mature an agreement was made by Baldwin with two bond houses of Eew York. This agreement provided that the respondent should acquire all “the assets and business” of the Essex, Travis and Loekport Companies and all the shares of stock of these companies then owned by the Sterling Company (all the stock of the latter company being owned by the respondent), and that it should also acquire all the common stock of the Woodbury Company then owned by the Sterling Company, and that the respondent should assume all the obligations of all of these corporations and that, thereafter, they should be dissolved. It was further agreed that the respondent should increase its capitalization from $1,000,000, to $1,625,000 and should issue $2,000,000 of bonds to which the bond houses would prescribe. All this was eventually, and contemporaneously, carried out at a meeting at which all interested parties were present. At this meeting the Essex, Travis and Loekport Companies, by separate bills of sale, for the consideration of one dollar, conveyed all their property and assets of every kind to the respondent. The respondent delivered to the bond houses $2,000,000 of bonds secured by its mortgage or deed of trust covering all the property which it originally owned and all the property which it had just acquired by the bills of sale. The bond houses paid the respondent for the bonds. With this money the respondent paid the Trust Company the amount due upon the Baldwin, Libbey and Ford notes, and the Trust Company surrendered the shares of the four companies which it held as collateral. Some days later the Essex, Travis and Loekport Companies (together with the Sterling Company) were dissolved. The stock of the Woodbury Company was delivered as additional security for the bonds. In due course the bonds were called and retired and the mortgage or deed of trust given to secure them was canceled. The respondent now holds the entire common capital stock of the Woodbury Company, and all the properties of the Essex, Travis and Loekport Companies free of the lien of the mortgage or deed of trust and free of any obligation arising from the recited transactions.

The provision of section 7 of the Clayton Act which the Federal Trade Commission found that the respondent corporation had violated reads as follows':

“No corporation shall acquire, directly or indirectly, the whole or any part of the stock or other share capital of two or more corporations engaged in commerce where the effect of such acquisition, or the use of such stock by the voting or granting of proxies or otherwise, may be to substantially lessen competition between such corporations, or any of them, whose stock or other share capital is so acquired, or to restrain such commerce in any section or community, or tend to create a monopoly of any line of commerce.”

The Commission found that the respondent had violated this section by its “acquisition of the capital stock of the Essex Glass Company, the Travis Glass Company, the Lock-port Glass Company, and the common capital stock of the Woodbury Glass Company, on August 28, 1919, and in the subsequent developments and transactions stated in these findings” consisting mainly of the “transfer and conveyance to the respondent of the assets, rights and properties” of these companies, and their subsequent dissolution, and held that “these were an artifice and subterfuge of the respondent to evade the provisions of the said Act of Congress and to escape the penalties thereof.” The respondent, on the other hand, thought it discerned in the Clayton Act a difference between the acquisition of stock of a competing corporation and the acquisition of its physical properties and, accordingly, conducted the transactions along the line of that theory. It now complains that the Federal Trade Commission, by its order'and by its petition here presented for its enforcement, is endeavoring to enlarge the words and expand the meaning of section 7 of the act from the acquisition of stock of a competing corporation, which in terms is prohibited, to the acquisition of property of a competing corporation, which is not prohibited in terms. However this may be, the record in this ease does not raise a question involving this distinction but presents squarely the question whether by the transactions recited the respondent, in violation of the literal terms of the provision, did “acquire, directly or indirectly,” the stock of two or more corporations, “where the effect of such acquisition, or the use of such stock by the voting or granting of proxies or otherwise, may be” to bring about the forbidden situation in commerce.

For defense on this issue the respondent admits, of course, that it acquired the physical properties of the named competing corporations but denies that it ever acquired their stock, directly or indirectly. It takes the position that the adventure was Baldwin’s; that it was mainly with money borrowed on the credit of his name that the stock was bought; that on the withdrawal of Lib-bey and Ford the whole liability for meeting the notes and the whole responsibility for putting through the transaction were his; that the stock was transferred from the vendor holders to his nominees; that the shares were never transferred to the respondent nor was there ever any record evidence of its ownership; that the stock and the administration of the purchased corporations were likewise within the control of Baldwin to do ■with as he might see fit; that the most the respondent acquired in respect to the stock of the several corporations was the equitable title after these corporations had conveyed all their assets and properties to it; and that these conveyances made the stock whose equitable title the respondent had thus acquired valueless, because no assets or properties of any kind stood behind it. And finally, the respondent contends that the Act was not violated because the stock when acquired was not the stock of competing corporations within the sense of the Act because these corporations in disposing of their physical property to the respondent had also sold to it their licenses for bottle-making machines, without which they were not then able to do business and compete in commerce.

We have not been persuaded to this view of the transaction. To obtain the correct view we shall look at the transaction through the eyes of the statute. Primarily at least the statute (section 7) deals with acquisition of-stock of one corporation by another; in terms it is silent as to the acquisition of. property of one corporation by another. So, in this case, we shall look for stock acquisition, not for acquisition of property. Acquisition, as that word is used in the statute, means ownership; ownership involves title; and title is of two kinds, legal and equitable. In inquiring into the respondent’s ownership of the stock of the four companies we shall look at the title of the stock and follow it through its devolution. In doing this we first find title in the original unnamed owners who for money considerations sold their shares and divested themselves of all title. When the title left them it went to somebody else. Who was it? This question may be answered by finding whose money moved the title from the original owners. Of this money $500,000 was that of the Sterling Company, given it by the respondent and Libbey for the express purpose of buying these shares. The balance of the purchase money was obtained from the Trust Company by Baldwin, Libbey and Ford on their personal notes. On payment for the stock the original owners delivered the certificates endorsed in blank for negotiable purposes. Delivered them to whom? This is not clear; hut it is clear that, on delivery, the certificates were lodged with the Trust Company as collateral security for the loan to Baldwin, Libbey and Ford and that the title on leaving the original owners passed to someone else. To whom? This is difficult to answer, and we'think not necessary to answer just now, for the reason that' the transaction of purchase had not been completed and was then, by the terms of the agreement, liable to' transformation, as afterwards occurred. Baldwin had not contributed to the purchase any money of his own although admittedly the purchase money was in part raised on the credit of his name and in part with funds of the Sterling Company, a subsidiary of the respondent. Whether Baldwin and the Sterling Company thus became part owners of the legal or equitable title of the shares is also unnecessary to decide, for the next thing that happened was the transfer of the stock (while still held by the Trust Company as collateral) from the names of the original owners to names of men mentioned by Baldwin, of whom he himself was one. Concededly the other three men had contributed nothing to the stock purchase and never had title in themselves, unless, indeed, they held title for the real owners of the shares, whoever they were.

In this situation the respondent was operating the four companies from its central office, directing its affairs, making financial contributions to and receiving financial returns from some of them.

The next event touching title was the withdrawal of Libbey and Ford from the transaction, leaving Baldwin or someone else to pay their notes when they matured. Baldwin did not meet these obligations but arranged with the respondent to do it. And this the respondent did by first augmenting its assets by acquiring the physical assets and license rights of the three competing corporations and the common stock of the fourth and issuing its bonds for $2,000,000 secured thereby, and with the proceeds of the bonds paying the personal indebtedness of Baldwin, Libbey and Ford. Thus the respondent with its own money directly supplied the larger part of the purchase money, and with its own money, through the Sterling Company, indirectly paid the Balance of it. So in the last analysis the whole purchase price of the stock of the four competing corporations was paid by the respondent company with its own funds. While throughout the transaction Baldwin and the respondent kept the name of the respondent off the certificates .for the shares of the four companies, the fact remains that it was with its money that the shares were in part initially bought and at last wholly paid for.

It is difficult to see how the use of the respondent’s money in the purchase of the shares did not draw to it the ownership of the shares. The interposition of the Sterling Company, created by the respondent to spend its money in the purchase, was not the act of a legal entity which can blind the court to the real transaction or bar the operation of the statue. “Courts of equity will look behind a corporate fiction, and if it clearly appears that one corporation is merely a creature of another, the latter holding all the stock of the former, thereby controlling it as effectively as it does itself, it will be treated as the practical owner of the corporation, when necessary for the purpose of doing justice.” United States v. United Shoe Machinery Co. (D. C.) 234 F. 127; Id. 256 U. S. 451, 42 S. Ct. 363, 66 L. Ed. 708; Brown v. Pennsylvania Railroad Co., 235 F. 669, 149 C. C. A. 89; Id. 250 F. 513, 162 C. C. A. 529. “If any general rule can be laid down, in the present state of authority, it is that a corporation will be looked upon as a legal entity as a general rule, and until sufficient reason to the contrary appears; but, when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud,or defend crime, the law will regard the corporation as an association of persons.” United States v. Milwaukee Refrigerator Transit Co. (C. C.) 142 F. 247.

The respondent paid no money (or, to be specific, it paid only three dollars) for all the assets and plants of three of the competing corporations. It made this large purchase on merely nominal considerations by “use” of its control over these corporations, and its control was effected only because of its ownership of their stock. Baldwin did not own the stock because he had never paid any money for it. If, however, the shares belonged to Baldwin by virtue of their purchase with money partly raised on his note, then the shares still belong to him, for there is no evidence _ that he has sold them to the respondent. Yet the respondent admits that it holds the equitable title to the shares for the reason that finally the shares were paid for with its money.

Limiting our decision to stock acquisition as distinguished from property acquisition, we are of opinion that the respondent acquired the stock of the Essex, Travis and Loekport Companies in a manner inhibited by section 7 of the Clayton Act if the effect of the transaction was substantially to lessen competition between the corporations, or to restrain commerce, or to create a monopoly. We shall not review the evidence on the effect of the transaction. It will be enough to say that it sustains the finding of the Commission that the effect was that which the statute was enacted to prevent.

To carry out the purpose of the statute the Commission therefore made an order commanding the respondent (a) to cease and desist from the ownership and control of the assets and properties of the three corporations it had acquired through its acquisition of their stock; (b) to divest itself of the assets and properties thus acquired and of the control of the said stock; and (e) to submit for the approval of the Commission a plan for the performance of the order, jurisdiction for that purpose being retained. The respondent maintains that, aside from the merits of the ease, the order is invalid first, in that it exceeds the powers conferred upon the Commission by the Act, and second, in that it is, in the circumstances, impossible of performance. It bases its contention first on the statute which it says limits the authority of the Commission to a command addressed to the offending corporation to divest itself of the “stock” of another corporation acquired in violation of the Act, and next on the difficulty, or impossibility, of disassembling the assets of the corporations acquired from assets of its own. On the first position we hold that the Act is remedial, not punitive. Western Meat Company v. Federal Trade Commission (C. C. A.) 1 F.(2d) 95, rehearing 4 F.(2d) 223. Therefore the sole purpose of a valid order of the Commission must be to remedy an unlawful situation. In effecting the remedy, however, the Commission must meet the situation as the offending corporation has made it. If it created the situation so as to defeat the statute, the offending party cannot be heard to say that thereby the Commission is helpless and the law unenforceable. The familiar principal that a person can not profit by his own unlawful act applies. Not in every case can the Commission reach property acquired through stock acquisition, but where, as in this case, the offending corporation has stripped the stock of its value and where, accordingly, the mere divesting itself of the stock would leave the corporation in full possession of the entire fruits of the forbidden transaction, we are of opinion that the statute empowers the Commission to carry out its purpose by extending its hand to the property. Nor do the acts of the offending corporation in commingling the assets of the Corporation whose stock it has acquired in violation of the statute with assets of its own raise a legal barrier against remedying an evil which the law was expressly enacted to prevent. Just how, in a practical way, this shall be done in the case at bar the Commission purposely left open by the last paragraph of the order which directed the respondent to submit a plan to that end. As no plan has been submitted, none is before us. Therefore, with the way to do the thing we are not presently concerned.

The order of the Commission in so far as it relates to the stock and to the assets and properties of the Essex Glass Company, the Travis Glass Company, and the Lockport Glass Company is approved and its enforcement directed.

Not every acquisition by one corporation of the stock of a competing corporation is forbidden by section 7 of the Clayton Act. The Act, by express terms, says that section 7 dose not apply to a corporation “purchasing such stock * * * and not using the same to bring about, or in attempting to bring about, the substantial lessening of competition.” Testing the'transaction (as it affected the Woodbury Company) by the whole of section 7, the evidence discloses that before the respondent acquired the stock of the Woodbury Company that corporation was engaged chiefly in the manufacture of condiment and whisky bottles and that its manufacture of milk bottles was very small, amounting annually to about 8,000 gross out of a total production in the United States of over 1,000,000 gross. The evidence also shows that it was gradually getting out of the milk bottle business and that, indeed, before the transaction in ques-tion arose it had determined to do so. When its stock was acquired the respondent took over its outstanding contracts, one or two in number, and 'filled them. The respondent’s real object in acquiring the Woodbury stock, as we see it, was to acquire its patent license, that being a non-exclusive license to use the Hartford-Eairmont feeders in the manufacture of condiment bottles, fruit juice bottles, fruit containers, fruit jars, and glassware for carbonated soft drinks, branches of the glassware business in which the respondent was not engaged and therefore in which it was not a competitor. While the effect of the transaction upon the Woodbury Company was to stop its manufacture of milk bottles and accordingly to end its competition in milk bottle manufacture, the number of milk bottles the Woodbury Company made was so inconsiderable that the lessening of competition thereby was not substantial. We are therefore of opinion that the evidence does not sustain the Commission’s finding that the respondent’s acquisition of the stock of the Woodbury Glass Company substantially lessened competition between the corporations, restrained commerce and tended to create a monopoly. That part of the Commission’s order is therefore not approved and will not be enforced.

BUFFINGTON, Circuit Judge.

In view of this ease involving a far reaching question of jurisdiction I note my dissent. The original purpose Baldwin had in view, and which he finally carried out, was the acquisition and absorption of the several corporations involved by the purchase of their entire properties. If, in so doing, he suppressed competition the remedy for such wrong was vested in the courts and not in the trade commission.

The necessity for the prompt exercises of the options upon such properties, the un-looked for situation created by the withdrawal of his associates and the unloading of the whole financial burden on him together with the complicated stock handlings made necessary in the successful financing of his original plan, gave the matter the appearance, but -not the reality of a stock acquisition plan, but in my judgment the transaction as a whole, in its original plan, its execution and effect, was an acquisition of property, not of stock, and jurisdiction over it, if amenable to the law, was vested in the federal courts and not in the Federal Trade Commission.

Such being my view, I feel it my duty to respectfully record my dissent.


source: Caselaw Access Project

author: WESTENHAVER, District Judge.

license: Public Domain

text:
    LYTLE et al. v. UNITED STATES.
    (Circuit Court of Appeals, Sixth Circuit.
    April 8, 1925.)
    No. 4274.
    1. Searches and seizures <@=>7 — Search of automobile held not unreasonable.
    Search of an automobile by prohibition agents held) not unreasonable, where they believed, on reasonable grounds, that it was being» used for the illegal transportation of liquor.
    2. Criminal law <@=>1036(1), 1044, 1054(1) — Admission of evidence not objected to not error.
    Error cannot he assigned to the admission of the answer of a witness to a question to which no objection was made and where no exception, was taken and no motion made to strike it out.
    3. Criminal law <@=>419, 420(1), 681(1) — Preliminary inquiry as to admissibility of evidence necessary, and hearsay admissible thereon.
    Where no application was made before trial for the suppression of evidence as having been obtained though an illegal search and seizure, but objection is made to its admission on the trial, the court may properly consider evidence as to the legality of the search, and in such preliminary inquiry hearsay testimony, which would not be competent to establish the crime charged, may be admissible to show the grounds on which the searching officers acted.
    4. Criminal law <@=>519(3) — Voluntary state-, ments made after arrest admissible.
    Statements made by a defendant after arrest, if in fact voluntary, are admissible.

      5. Criminal law <@=>1036(3) — Objection to evidence waived by failure to object.
    Where evidence was competent as to some of the defendants tried together, its admission cannot be assigned as error by another defendant, in the absence of objection by him or request for an instruction limiting its application.
    6. Criminal law <@=>901 — Exception to denial of directed verdict waived by introduction of evidence.
    Exception to the overruling of a motion for directed verdict at the close of the government’s case is waived by the subsequent introduction of evidence, and unless the motion is renewed at the close of all the evidence, insufficiency of the evidence is not assignable for error in the appellate court.
    In Error to the District Court of the United States for the Western District of Kentucky; Charles H. Moorman, Judge.
    , Criminal prosecution by the United States against John Lytle and others. Judgment of conviction, and defendants bring error.
    Affirmed.
    L. D. Greene, of Louisyille, Ky. (Joseph M. Huffaker, Perry B. Miller, and T. J. No-halty, all of Louisville, Ky., on the brief), for plaintiffs in error.
    Lilbum Phelps, Asst. U. S. Atty., of Louisville, Ky. (W. S. Ball, U. S. Atty., and Claude Hudgins, Asst. U. S. Atty., both of Louisville, Ky., on the brief), for United States.
    Before DENISON and DONAHUE, Circuit Judges, and WE S TENHAVER, District Judge.
   WESTENHAVER, District Judge.

Plaintiffs in error were convicted and sentenced on three counts. The first count charges a conspiracy unlawfully to possess and unlawfully to transport intoxicating liquor and specifies as overt aGts: First, the unlawful possession of 105 gallons of red whisky; and, second, the unlawful transportation of 105 gallons of red whisky in a Packard touring car, license No. 186,299. The second count charges unlawful possession, and the third count unlawful transportation 'of the same whisky. A general verdict of guilty on all counts was returned, and a general sentence of one year and one day imprisonment imposed on each offender. No exception was taken to the charge. The errors assigned are to rulings on the admissibility of testimony and to.the sufficiency of the evidence to sustain the verdict. Of the assigned errors, we shall discuss those only which were urged on oral argument or in counsel’s brief. If error is not thus shown, certainly none appears in the record.

1. Lytle and Sehleeter were discovered by federal prohibition agents transporting on a public highway, in a Packard touring ear, license No. 186,299, 105 gallons of red whisky. Objection was made to the admission of evidence showing what the car contained, on the ground that an unreasonable search was made without a lawful search warrant. At the conclusion of the government’s testimony, motion was also made to exclude all evidence as to what was discovered by the officers. Exception was properly taken and error preserved and assigned to the overruling of the objection and motion.

Upon authority of Carroll v. United States, 45 S. Ct. 280, 69 L. Ed. -, decided March 2, 1925, by United States Supreme Court, we are of opinion that no error was committed. The evidence tending to show that the searching officers believed, and had reasonable grounds .for so believing, that whisky was being unlawfully transported, is substantially the same in both eases, but less weighty in the Carroll Case than in the instant case; hence the search and seizure were not unreasonable. No useful purpose will be served by reviewing the evidence.

2. Error is also assigned to the admission of the following item of testimony given by W. H. Elinnaijrd, one of the searching officers: In response to a preliminary question, he answered: “I had information that Crawford — didn’t say who was with him, but Crawford and one Packard automobile, No. 186,299, was going for whisky.” The record discloses an objection interrupting the preceding answer, in which the witness had said, “I saw a fellow in town who told me,” but no objection or exception was taken to the above:quoted answer, and no motion made to strike it out. For this reason, an assignment of error cannot be based thereon. Pennsylvania Co. v. Whitney (6 C. C. A.) 169 F. 572, 575, 95 C. C. A. 70; Robinson v. Van Hooser (6 C. C. A.) 196 F. 623, 624, 116 C. C. A. 294; Tucker v. United States (6 C. C. A.) 224 F. 833, 840, 140 C. C. A. 279; Moore v. United States, 150 U. S. 57, 14 S. Ct. 26, 37 L. Ed. 996.

As evidence of crime, this testimony was hearsay and inadmissible. A preliminary question of fact, however, had to be heard and determined by the trial judge as to the admissibility of the evidence obtained by the search and seizure. When the admissibility of testimony turns on a preliminary inquiry of fact, as whether a confession is voluntary, or a dying declaration is made under fear of immediate death and after all hope of recovery is gone, the trial judge must hear the evidence and determine that issue of fact before the evidence can be admitted. His finding is, according to some authorities, conclusive upon a reviewing court, if supported by any substantial evidence. According to other authorities, his determination is, in any event, entitled to the same weight as the like finding of a jury upon any issue of fact, and will not be disturbed in the absence of manifest error. Reynolds v. United States, 98 U. S. 145, 158, 159, 25 L. Ed. 244; Greenleaf on Ev. § 49; Jones on Ev. § 796; Wharton, Cr. Ev. (10th Ed.) § 275b; Wigmore on Ev. §§ 2549, 2550. If the evidence is admitted without this preliminary inquiry and finding, and later, during jthe course of the trial, its ineompeteney is made to appear,, then, .on motion, it may be stricken out. Wharton, .Cr. Ev. (10th Ed.) § 447. Whether the jury shall be excluded while this evidence is being heard is a matter usually within the sound discretion of the trial judge, and certainly, in the absence of a request for the exclusion of the jury, it is not error to hear it in the presence of the jury. Wharton, Cr. Ev. (10th Ed.) § 275b, note 2.

In applying the doctrine of Weeks v. United States, 232 U. S. 383, 34 S. Ct. 341, 58 L. Ed. 652, L. R. A. 1915B, 834, Ann. Cas. 1915C, 1177, the practice has become quite common to follow the course adopted in the instant case; i. e., hear all the evidence tending to show the lawfulness of the search and seizure and pass thereon by a ruling during the taking of the evidence. This appears to have been the course also followed in the Carroll Case. The testimony of Kinnaird above quoted was proper to be heard and weighed by the trial judge as bearing on this preliminary question. For the same reason it was proper to hear some other evidence excepted to and assigned as error but not specially urged. For these reasons, and particularly in the absence of a demand that this 'preliminary hearing should have been made first and separately and in the absence of the jury, no error could be found in the ruling complained of, even though exception had been properly taken and preserved for review.

3. The officers found Schleeter driving the ear containing this whisky, with Lytle riding beside him on the front seat, and certain statements were then made by them upon which an assignment of error is based. Officer Kinnaird testified as follows: “55. Go ahead and tell the jury what was said. A. Mr. Schleeter said he was foolish to go back out there. 56. Said who was foolish to go back out there? A. Tom Crawford. Then Mr. Lytle said — he said that ‘I tried to get Tom to put it in the Marmon when I came back and he wouldn’t do it, and he said there wasn’t anybody on the road but federal men,’ and I asked him who was on the road, and he said, ‘Who do you think would be on the road, Chief Braden ' and Mayor Quin ?’ ” These statements were made immediately after the car was halted and the whisky discovered. No motion was made to strike out these answers. Objection is,made to the initial question which elicited these answers, that the two parties were then under arrest, which objection was overruled and exception noted. Then, after the court had elicited that the statements were voluntary, objection was made on the further ground that Mr. Crawford was not present, which objection was overruled and exception noted.

That Lytle and Sehleeter were under arrest does not deprive the statements of their voluntary character nor render them inadmissible. Parilla v. United States (6 C. C. A.) 280 F. 761, 765. That Crawford was not present did not render the evidence inadmissible for all purposes; it was certainly admissible as to Sehleeter and Lytle; hence the objection as made was properly overruled. If it was otherwise objectionable, it was the duty of Crawford’s counsel to point out that ground of objection; otherwise it is waived. If this testimony was not admissible also against Crawford because the conspiracy had been then ended or its further performance frustrated, an objection should have been made by Crawford on this ground, or an instruction requested limiting its consideration to the two defendants present when the statements were made. In the absence of such a specific objection or request, the ruling as made was not improper and no error is shown of which this court is required to take notice. See Shea v. United States (6 C. C. A.) 251 F. 433, 163 C. C. A. 451; Tucker v. United States, supra; Nudd v. Burrows, 91 U. S. 427, 439, 23 L. Ed. 286; Sparf v. United States, 156 U. S. 51, 56, 715, 15 S. Ct. 273, 39 L. Ed. 343.

The assignment of error that the verdict is not sustained by substantial evidence cannot be urged upon this record. The exception to the overruling of defendants’ motion to direct a verdict of not guilty at the conclusion of the government’s testimony was waived by subsequent introduction of evidence in their behalf and was not renewed at the conclusion of all the testimony. The record does not even show- that the insufficiency of the evidence was urged in support of'the motion for a new trial. Loewenthal v. United States (6 C. C. A.) 274 F. 563, 568; Lockhart v. United States (6 C. C. A.) 264 F. 14; Moore v. United States, 150 U. S. 57, 14 S. Ct. 26, 37 L. Ed. 996. The testimony as to Crawford’s participation was only circumstantial, but on examination we do not find -it so plainly insufficient to sustain the verdict that this court should, of its own motion, in the absence of a proper preservation of the question for review, take notice of it and disturb a verdict approved by the trial judge.

The conviction and sentence are affirmed. Mandate will issue forthwith.

       In Weeks v. United States, 232 U. S. 383, 34 S. Ct. 341, 58 L. Ed. 652, L. R. A. 1915B, 834, Ann. Cas. 19150, 1177, the duty of rejecting testimony obtained by unreasonable search seems to be conditioned on a timely application after seizure and a hearing thereon in advance of trial. In Perlman v. United States, 247 U. S. 7, 38 S. Ct. 417, 62 L. Ed. 950, and in Burdeau v. McDowell, 256 U. S. 465, 41 S. Ct. 574, 65 L. Ed. 1048, 13 A. L. R. 1159, such an order was held to be appealable, either by the government or the accused. Following Gouled v. United States, 255 U. S. 298, 41 S. Ct. 261, 65 L. Ed. 647, and Amos v. United States, 255 U. S. 313, 41 S. Ct. 266, 65 L. Ed. 654, the practice has sprung up, pursued in the Carroll and the instant cases, of hearing all the testimony bearing on the admissibility of the evidence obtained by search and seizure and tending to show guilt, at the same time, and disposing of the matter by ruling during the trial. It is not to be inferred from anything said in this opinion that the law announced in MacDaniel v. United States (6 C. C. A.) 294 F. 769, is qualified or limited, or that'we approve the practice of commingling evidence of guilt and of competency in the manner adverted to this opinion.


author: CLAYTON, District Judge.

text:
    ROAD DIST. NO, 4 of SHELBY COUNTY, TEX., v. HOME BANK & TRUST CO.
    (Circuit Court of Appeals, Fifth Circuit.
    March 24, 1925.
    Rehearing Denied April 15, 1925.)
    No. 4393.
    Municipal corporations <§=>942 — Road district bonds enforceable in hands of bona fide purchaser.
    In view of Rev. St. Tex. arts. 619, 625, 632, 633, 2276, bonds of road district, duly authorized to be issued, are enforceable by purchasers for value without actual notice of illegality, even though record of commissioners’ court showed that they were unlawfully sold on installment contract, and that original purchaser dishonestly acquired possession of them and appropriated proceeds.
    Appeal from the District Court of the United States for the Eastern District of Texas; W. Lee Estes, Judge.
    Action by the Home Bank & Trust Company against Road District No. 4 of Shelby County, Tex. Judgment for plaintiff, and defendant brings error.
    Affirmed.
    J. M. Sanders and E. H. Carter, both of Center, Tex., and Oliver J. Todd, of Beaumont, Tex., for appellant.
    C. L. Carter and Homer L. Bruce, both of Houston, Tex., opposed.
    Before WALKER and BRYAN, Circuit Judges, and CLAYTON, District Judge.
   CLAYTON, District Judge.

This is an‘ action by the Home Bank & Trust Company, an Illinois corporation, for the principal amount of certain described bonds and the coupons of other bonds of the same series, issued by the defendant August 11, 1919.

The defense, in -its various aspects, was-that (1) the bonds and coupons were void,, because they were never lawfully delivered by the defendant district or by Shelby county to the plaintiff or its predecessors’in title; (2) invalid, because the bonds and coupons were not sold to the highest bidder for cash, as required by the statute; (3) neither the title to the bonds and coupons nor the lawful possession thereof ever passed out of the-district; and (4) the bonds and coupons unlawfully passed out of the possession of the commissioners’ court of Shelby county and the road district, without having been paid for as required by the statute, and are therefore without consideration.

The plaintiff set up that it and its predecessors in title were bona fide purchasers of' the bonds and coupons for value without notice of any defect or irregularity in their issuance, delivery, or promulgation, and that therefore sueh obligations are binding upon the district.

It was established on the trial in the District Court and admitted by the plaintiff, the appellee here, in its brief, that the minutes of the commissioners’ court showed the bonds and coupons were not sold by the commissioners’ court for cash, as required by the statute, but were disposed of under an unlawful agreement between the commissioners’ court and Twing, whereby Twing received the bonds under an agreement to sell and to pay for them in installments. There was convincing evidence that Twing .exceeded the agreement and dishonestly got possession of the bonds. Twing sold the bonds in open market to plaintiff’s predecessors, but never paid the county or road district anything.

On the trial it was shown that the bonds were purchased by the plaintiff’s immediate predecessors in title at a considerable discount, some of them having been bought for as low as 72 cents on the dollar, but that'they were, in each instance of purchase, bought by plaintiff’s predecessors in open market, and the price paid for them was their market value at the time of their purchase; and it was also shown that neither the plaintiff nor those of whom it purchased the bonds had any knowledge of any defect or irregularity in the original sale and delivery of the bonds, or of the agreement between the commissioners’ court and Twing.

It was further shown that, after the bonds in question had been approved by the Attorney General of Texas and registered by the comptroller, they were returned to the commissioners’ court, which was vested with the responsibility of making-a sale thereof and delivery to the purchaser in the method provided for by the Texas statutes. The certificate of the -Attorney General declared that (1) road district No. 4 was legally established at the time of the order of the commissioners’ court; (2) the taxable values of said district, according to the assessments last approved before the bonds were issued,amounted to $1,812,230; (3) the debt of said district, for the purpose .of which the bonds were issued, was increased thereby $300,000; (4) the order authorizing said bonds was in proper form and legally passed; (5) a tax of 1.49 cents on each $100 valuation of taxable property in said district was legally levied to pay interest on said bonds and to create a sinking fund to provide for their payment at maturity, and said tax was sufficient for the purpose named; (6) the bonds were in proper form and in accordance with the order authorizing their issuance, and that all the requirements of law under which they were issued had been complied with; and (7) in his judgment that said bonds were issued in conformity with the Constitution and laws of Texas and were valid and binding obligations upon road district No. 4 of Shelby county, Tex.

At the conclusion of the testimony the court directed a verdict in favor of the plaintiff for the amount sued for, and judgment was entered. The defendant, appellant here, reserved exceptions to the rulings and charge of the court, and now submits the-case upon appropriate assignments of error.

The Texas statute (article 619) relating to the county and municipal bonds referred to in article 633 of the Texas Revised Statutes, provides that “any county, city, or town in the state of Texas, desiring to issue bonds as authorized by the Constitution and laws of this state, shall, before such bonds are offered for sale, forward to the Attorney General the bonds to be issued, h certified copy of the order, or ordinance, levying the tax to pay interest and provide a sinking fund, with a statement of the total bonded indebtedness of. sueh county, city, or town, including the series of bonds proposed, and the assessed value of property for purposes of taxation, as shown by the last official assessment, of sueh county, city or town, together with sueh other information as the Attorney General may require; whereupon it shall be the duty of the Attorney General to carefully examine said bonds in connection with the facts and the Constitution and laws on the subject of the execution of such bonds, and if, as the result of sueh examination, the Attorney Gen¡-eral shall find that sueh bonds were issued in conformity with the Constitution and laws, and that they are valid and binding obligations upon such county, city, or town, by which they are executed, he shall so officially certify.”

And the other pertinent provisions of the Texas statutes are that:

(1) “Sueh bonds, when so issued, shall continue in the custody of, and under the control of the commissioners’ court of the county in which, they were issued, and shall be by said court sold to the highest and best bidder, for cash, either in whole or in parcels, at not less than their par value, and the purchase money therefor shall be placed in the county treasury of sueh county to the credit of the available road fund of sueh county, or of such political subdivision or defined district of such county, as the case may be.” Article 632.

(2) “Such bonds, after receiving the certificate of the Attorney General, and having been registered in the comptroller’s office, * * * shall thereafter be held, in every action, * * * in which their validity is » ■* * brought into question, prima facie valid and binding obligations. And in every action brought to enforce collection of such bonds, the certificate of the Attorney General * * * shall be admitted and received in evidence of the validity of such bonds, together with the coupons thereto attached: Provided, the only defense which can'be offered against the validity of said bonds shall be for forgery or fraud. But this article shall not be construed to give validity to any such bonds as may be issued in excess of the limit fixed by the Constitution, or contrary to its provisions, but all such bonds shall, to the extent of such excess, be held void.” Article 625.

And (3) “the court shall cause to be procured and kept in the clerk’s office suitable books in which shall be recorded the proceedings of each term of the court, which record shall be read over and signed by the county judge, or the member of the court presiding, at the end of each term and attested by the clerk.” Article 2276.

It was not, and is not now, questioned that the plaintiff in error was duly authorized to issue the bonds,,with coupons, sued on. Liability thereon is denied solely on the ground that they were illegally sold and delivered, in that they were not sold at par for cash, and it is insisted that the defendant in error was chargeable with notice of the illegality by reason of. the facts in that regard disclosed by the minutes of the body authorized to issue the bonds.

The defendant in error has cited numerous decisions of federal courts, expounding the general commercial law governing negotiable instruments, in eases more or less analogous to the one at bar. Some of them are Independent School Dist. v. Hall, 113 U. S. 135, 140, 5 S. Ct. 371, 28 L. Ed. 954; Manufacturing Co. v. Bradley, 105 U. S. 180, 26 L. Ed. 1034; Goodman v. Simonds, 61 How. 343, 15 L. Ed. 934; Bernards Tp. v. Morrison, 133 U. S. 523, 10 S. Ct. 333, 33 L. Ed. 726; Supervisors v. Schenck, 5 Wall. 772, 18 L. Ed. 556; Gelpcke v. Dubuque, 1 Wall. 175, 17 L. Ed. 520; Smith v. Sac County, 11 Wall. 139, 20 L. Ed. 102; Murray v. Lardner, 2 Wall. 110, 17 L. Ed. 857; 1 Daniel on Neg. Instruments, §§ 823, 838, 840; City of Lexington v. Butler, 14 Wall. 282, 20 L. Ed. 809; Myer v. Muscatine, 1 Wall. 384, 17 L. Ed. 564; County of Henry v. Nicolay, 95 U. S. 619, 24 L. Ed. 394; Pompton v. Cooper Union, 101 U. S. 196, 25 L. Ed. 803; Montclair v. Ramsdell, 107 U. S. 147, 2 S. Ct. 391, 27 L. Ed. 431; Scotland Co. v. Hill, 132 U. S. 107, 10 S. Ct. 26, 33 L. Ed. 261; Collins v. Gilbert, 94 U. S. 753, 24 L. Ed. 170; Brown v. Spofford, 95 U. S. 476, 24 L. Ed. 508; De Esterre v. City of New York, 104 F. 605; Quinlan v. Green Co., 205 U. S. 410, 419, 27 S. Ct. 505, 51 L. Ed. 860; Presidio County v. Noel-Young Bond Co., 212 U. S. 58, 65, 29 S. Ct. 237, 53 L. Ed. 402. None of them, to say the least, are in conflict with the conclusion hereinafter announced.

The Texas decisions are to the effect that a purchaser of such bonds and coupons as are here sued on, after they are issued and delivered, is not chargeable with notice of entries in issuer’s minutes showing the manner in which the bonds were delivered or disposed of, and that though, because of illegality in the original sale or delivery of the bonds, they were unenforceable in the hands of the original holder, such illegality does not render them unenforceable by innocent purchasers for value. In Mitchell County v. Bank, 91 Tex. 361, 43 S. W. 880, it was decided that county bonds, the issuance of which was duly authorized, were enforceable in favor of the holder, who paid value for them without actual notice that they were sold for an illegal purpose, notwithstanding the record of the order under which they were sold showed that the proceeds of the sale were to be applied to an unauthorized use. The following is an excerpt from the opinion in the ease:

“It is contended by the county that the purchaser of these four bonds was required to take notice of the order directing the clerk to issue them and prescribing the disposition of the proceeds. But we consider the latter order as simply a direction to the officer of the county as to the manner in which the bonds should be disposed of and the funds applied, that it does not constitute the source of power or authority for issuing the bonds, and the purchaser was not required to know the contents of that order.”

And in the very recent case of American Surety Co. of N. Y. v. Hill County, 267 S. W. 265, it was decided by the Commission of Appeals of Texas that illegality in the sale by a county of its road bonds, which it was authorized to issue, did not affect the enforceability of such bonds in the hands of innocent purchasers. Those who took part in getting such bonds from the county authorities without paying for them as required by law were held liable for the par value of them, the evidence in the case not excluding the inference that the bonds were in the hands of innocent purchasers. In the opinion rendered in that ease it was distinctly recognized that, though the bonds were unenforceable while in the hands of the original holders, the illegality of the transaction by which the bonds passed from the possession of the issuing body did not affect the legality of them in the hands of innocent purchasers.

Under the above-cited Texas decisions, bonds of municipalities or other public subdivisions of the state of Texas which were duly authorized to be issued are enforceable by purchasers for value without actual notice of illegality in the transaction by which the original holder acquired them; and this is so, though a record of the issuing body shows that in the sale or disposition of the bonds requirements of law as to price and terms of sale were not complied with. We are of opinion that this court, in passing on the question presented,, should give controlling effect to such decisions as to liability under bonds provided for by Texas statutes. It follows that the court did not err in ruling to that effect, and on the evidence the plaintiff was clearly entitled to recover. Therefore it was the duty of the court to so instruct the jury. Barrett v. Virginia Ry. Co., 250 U. S. 473, 476, 39 S. Ct. 540, 63 L. Ed. 1092.

The record does not disclose any error. Consequently the judgment is affirmed.


author: POSTER, Circuit Judge.

text:
    HODGKINSON v. UNITED STATES.
    (Circuit Court of Appeals, Fifth Circuit.
    March 11, 1925.
    Rehearing Denied April 6, 1925.)
    No. 4449.
    1. Perjury <©=s6 — False oath by surety on ball bond taken by commissioner constitutes perjury.
    An inquiry by a United States commissioner as to the,solvency of a surety on a bail bond for the appearance of an accused before the District Court is a judicial proceeding, and a willfully false oath made by the surety therein constitutes perjury.
    2. Bail <©=349 — Commissioner has discretion as to qualification of surety.
    A United States commissioner has considerable discretion in accepting a surety on a bail bond, and may take into consideration all the circumstances, and require the surety to-qualify in any amount which in his judgment is necessary to effect the purpose of the bond, and to show that he owns real estate subject to execution within the jurisdiction of the court; nothing in Rev. St. § 1014 (Comp. St. § 1674), or Code Or. Proc. Tex. 1911, §§ 325, 327, restricting this discretion.
    3. Perjury <©=32(8) — Evidence held properly excluded as incompetent.
    In a prosecution of the surety on a bail bond for perjury in making a fals'e oath as to the value of real estate owned by him and subject to execution, evidence of the market value of real estate which he had sold under contracts requiring him to give title on completion of the payments helé properly excluded.
    4. Criminal law <©=>901 — Motion fo'r directed verdict waived by introduction of evidence.
    A motion for directed verdict, made at the - close of the government’s case is waived by the subsequent introduction of evidence by defendant, unless renewed at the close of all the evidence.
    Bryan, Circuit Judge, dissenting.
    In Error to the District Court of the United States, for the Western District of Texas, San Antonio Division; Du Val West, Judge.
    Criminal prosecution by the United States against C. H. Hodgkinson. Judgment of conviction, and defendant brings error.
    Affirmed.
    Leonard Brown, of San Antonio, Tex., for plaintiff in error.
    John D. Hartman, U. S. Atty., and N. J. Morrison, Asst. U. S. Atty., both of El Paso, Tex.
    Before WALKER, BRYAN, and FOSTER, Circuit Judges.
   POSTER, Circuit Judge.

Plaintiff in error, hereafter called the defendant, was convicted of perjury in making a false oath to justify as surety on a bad bond of $500, taken before a United States commissioner, for the appearance of the accused before the District Court. The falsity charged is that he swore that he was worth $25,000 over and above his just debts and liabilities, in property subject to execution and sale, consisting of real estate located in San Antonio, Bexar county, Tex.

The only questions presented and argued on behalf of defendant are as to the materiality of the matter stated in the affidavit and its falsity. These questions are raised in vario'us ways by assigning error to the over? ruling of a demurrer, and a motion in arrest of judgment, to the action of the court in admitting and excluding certain evidence, to the refusal of special charges requested, and to portions of the general charge. There are 27 assignments of error. It -would be impracticable to treat each assignment separately.

The defendant contends that under the provisions of Revised Statutes, § 1014 (Comp. St. § 1674) his qualification as surety was governed by the law of Texas; that under the provisions of articles 325 and 327 of the Code of Criminal Procedure of Texas he was not required to justify in more than double the amount of the bond, or $1,000, therefore his affidavit that he was worth $25,-000 was immaterial; and further that he was not required to show that he had real estate subject to execution.

Article 325 of' the Code of Criminal Procedure of Texas provides that one surety may be sufficient on bail bonds, if it be made to appear that such surety is worth at least double the amount of the sum for which he is bound. This does not limit the discretion of the officer tahing the bail in inquiring as to the solvency of the surety. Article 327 of the same Code provides' a form of affidavit. The affidavit required of defendant is'substantially the same as that provided for by the Texas statute. The only difference is that the statutory form makes no mention of the kind of property owned by the surety and does not require that the affidavit show that the property is in any particular county. That is also immaterial to this case.

There could be no question that a United States commissioner has authority to hold an accused for appearance before the District Court, and the proceeding in which an inquiry is had as to the solvency of the surety is judicial. U. S. v. Jones, 134 U. S. 483, 10 S. Ct. 615, 33 L. Ed. 1007. It appears from the record that, when the defendant first presented himself as surety on the bond in this case, the commissioner declined to' accept him. He had previously signed three other bail bonds before the same commissioner, aggregating $2,500, and had sworn he owned real estate up to $20,000. The commissioner also knew that he was on other bail bonds in state courts.. The defendant then stated that he had acquired additional real estate and was now worth $25,000 over and above his debts and liabilities. On that statement the commissioner accepted him.

It is of paramount importance that one accused of crime in any court shall give solvent and adequate security for his appearance when wanted; otherwise, prosecution might be escaped, or at least delayed. A commissioner, therefore, has considerable discretion in accepting the surety, an.d may reject the person offered for any good and sufficient reason, such as that he is a habitual or so-called professional bondsman, or that recovery would be difficult in ease of default. It was well within the discretion of the commissioner in this ease to exact that the defendant should qualify in the amount of $25,000, and that he should show real estate of that value within the jurisdiction of the court and subject to execution. The matter stated in the affidavit was material; but, if there be any doubt as to the amount, it was at least material to the extent of $1,000.

On the question of the falsity of the statement there was evidence introduced on behalf of the government tending to show that the total amount of real estate standing in the name of defendant and subject to execution and sale was four lots, valued at $3,850. As against this he was liable on 3 bail bonds before the United States commissioner, aggregating $2,500, and on 11 bail bonds in the state courts of Bexar county, aggregating $4,800. It is not shown that any of these bonds had been escheated, and therefore, for the purpose of calculating his net worth, they may be eliminated from consideration. In addition, he was liable on seven promissory notes, a total of $12,250, all secured by mortgage and deed of trust on his real estate, with the further liability on an unsecured promissory note for $1,544.02. From this it is evident he was not solvent, even to the extent of $1,000, and it is further shown that he had acquired no new real estate at the time he signed the bond in this ease.

Defendant then offered to prove the market value of certain real estate sold by him under contracts in the nature of bonds for title. On objection of the United States attorney, this evidence was ruled out. These contracts are sales in due form of certain described land for a fixed consideration, payable in small monthly installments, with the agreement that, upon completion of payment of the purchase money, warranty deed would be executed, and with the condition that, if the purchaser should fail to pay the taxes, water rents, or fire insurance, or should default in the payment of any installments, the holder of the contract, presumably the defendant, would have the right to declare the entire indebtedness due and payable at once, or at his option declare the payments previously made forfeited for liquidated damages, with the right to possess himself of the property. Clearly this was not real estate subject to execution. Haynie Mercantile Co. v. Miller, 41 Tex. Civ. App. 79, 92 S. W. 262; Summerhill v. Hanner, 72 Tex. 224, 9 S. W. 881; Douglass v. Blount, 95 Tex. 369, 67 S. W. 484, 58 L. R. A. 699; Rutherford v Mothershed, 42 Tex. Civ. App. 363, 92 S. W. 1021; Willis v. Sommerville, 3 Tex. Civ. App. 509, 22 S. W. 781. The cases relied on by defendant are not in point.

There was no error in sustaining the objection to this evidence. The market value of the property was irrelevant, and the most that could have been shown, even on the question of good faith, was the equity of defendant in the property.

Defendant cites numerous eases to the effect that a charge of perjury cannot be predicated on an oath not required by law. There can be no question as to the correctness of the doctrine enunciated by these cases, but it has no application in the ease before us.

Defendant also assigns error to the overruling of a motion to direet a verdict in his favor at the close of the Government’s case. Further evidence was admitted on behalf of the defendant, and the motion was not renewed. It was not error to refuse, the motion in the first place, but it must be held as waived by the failure to renew it. Alderman v. U. S. (C. C. A.) 279 F. 259.

There is no reversible error in any of the poipts relied on by defendant. The judgment is affirmed.

BRYAN, Circuit Judge, dissents.


author: MANTON, Circuit Judge.

text:
    STILZ v. BABCOCK & WILCOX CO.
    (Circuit Court of Appeals, Second Circuit.
    December 2, 1924.)
    No. 97.
    Patents <®=»328 — Stilz patent, No. 1,066,161, claims I, 5-7, covering oil burner using mechanical atomizer in connection with jet of steam, held not infringed.
    Stilz patent, No. 1,066,161, claims 1, 5-7, covering oil burner embodying mechanical atomizer in connection with jet of steam, which in operation requires oil, high-pressure atomizing stream of air, and low-pressure combustion air, held not infringed by device using mechanical atomizer only, without steam, and using, only oil and low pressure combustion air.
    Appeal from the District Court of the United States for the Southern District of New York.
    Suit by Harry D. Stilz against the Bab-cock & Wilcox Company. Decree for defendant, and plaintiff appeals.
    Affirmed.
    Harry B. Stilz, in pro. per.
    Gifford & Scull, of New York City (Livingston Gifford and George F. Scull, both of New York City, of counsel), for appellee.
    Before ROGERS, HOUGH, and MAN-TON, Circuit Judges.
   MANTON, Circuit Judge.

This suit is for infringement of patent No. 1,066,163 granted July 1, 1913, to appellant. The claims in suit are 1, 5, 6, and 7, and are as follows:

“1. A nozzle having a small discharge orifice, means immediately adjacent to said orifice for producing a whirling motion in a liquid fluid passing therethrough, a easing surrounding said nozzle and having a restricted discharged port concentric with said orifice and means for causing a gaseous fluid passing through the space within said easing to enter said port in a whirling current.”
“5. A liquid spray nozzle having, a passage abruptly contracted at one end by a cone shaped surface into a small delivery orifice a transverse spiral within said passage and resting against the base of said cone shaped surface, a casing surrounding said nozzle and having a restricted discharge port in line with said orifice and means within said casing for whirling a gaseous fluid passing therethrough.
“6. In combination, a furnace having an admission hole through its casing, a nozzle having means for projecting a hollow cone shaped film of oil from a round unobstructed delivery orifice into said furnace through said hole, means surrounding said nozzle for producing a whirling stream of gaseous fluid directed' so as to penetrate said film of oil and means for supplying air into the furnace through said hole.
“7. In combination, a furnace having an admission hole through its casing, a lining of refractory material for said hole, a nozzle having means for projecting a hollow cone shaped film of oil into said furnace through said hole, means surrounding said nozzle for producing a whirling stream of gaseous fluid directed so as to penetrate said film of oil, ahd means for supplying air into the furnace through said hole.”

Oil burners have been used for many years commercially in burning fuel oil. The inventor says his invention relates to improvements in oil burners in which the oil is atomized principally by mechanical means ¿nd has for its object to produce a'bumer which .shall be simple in construction and reliable- and efficient in operation. In the patent appellant points out that in burning fuel oil, atomized ' in passing through the nozzles-which, spray it in a fine film by mechanical means, it has been necessary, for obtaining the best results, to preheat the oil to such an extent that a portion of it will flash into vapor on encountering the lower atmospheric pressure. He points out that with these burners, some trouble has been experienced in .starting the fire in a cold boiler without producing considerable smoke. He says that some fuel oils have such a small percentage of volatile matter that it is necessary to preheat the oil to such an extent that a portion of it will flash into vapor as it enters the furnace, and that when an ordinary mechanical atomizer such as a spiral, 15, and orifice, 14, is used, some trouble has been experienced in starting the fire in a cold boiler without producing considerable smoke. In order to secure perfect combustion with this kind of boiler, the inventor says that “a suitably directed jet of steam is a valuable adjunct for securing perfect atomization”; the steam introduced acts on the oil and produces results similar to those produced by the vapor where oils can be partially vaporized are used — steam is brought into action upon the oil in such a manner that the mechanical action (effect of spiral, 15, and pressure on oil) is not interfered with. The patent provides for a easing which is placed directly over the end of the' mechanical sprayer, the easing having an annular conical passage leading down to an orifice, 14 concentric with the orifice, 14, and closely adjacent to it, and he directs high-pressure steam through the pipe into the annular passage, the steam rotating around the passage, 18, and finding its way to the orifice, 19, cutting across and into the cone of liquid oil just emerging from the orifice, 14. When the mixture of steam and oil emerges from the orifice, 19, it is the combined energy of the oil pressure in the pipe, 9, and the energy given by the rapidly moving steam particles coming through the pipe, 10. Oil is then broken up into a fine spray under the conditions of the heat and pressure which would not be sufficient to form such a fine spray if the mechanical atomizer alone were used. This, his adjunct to his mechanical atomizer, takes the form of the jet of steam. The inventor also shows a preferred form of supplying combustion air. It is a register, 4, over the hole, 8, in the furnace wall, this register being supplied with openings, 5, through which the air will' be drawn by the furnace draft; this air will move in a path such that it will impinge upon the spray cone at approximately right angles to the path of the oil drops of the spray. He says he can reduce and even shut off completely the steam jet after his fire has been started and the high furnace temperature reached; the greatest quantity of steam being used when the fire is being started. One of the objects of the new- invention is the ability to shut off this “adjunct” and yet maintain perfect combustion. The steam may be shut off when the furnace is hot because the heat from the furnace will heat the burner and raise the temperature of the incoming oil so that the mechanical atomization alone will be sufficient to form the required spray. In other words, the steam adjunct is used merely to. supplement the mechanical atomizer when working conditions are bad. It is the atomizing of the oil or the formation of the spray that the inventor is chiefly interested in. The subsequent combustion is referred to in the patent, for it states that the hole, 8, in the furnace, is made large enough not to interfere with the cone of oil spray and yet small enough to compel the combustion air flowing through into the furnace through the hole, 8, to contact with the atomized oil. The patent points out that the inventor can either cause the spray cone to completely fill the hole, 8, or to pass through the hole spaced from its edge. This will depend on the distance of the burner from the opening, 8, and on the angles of the spray cone, and this latter in turn will depend on the adjustment as to a steam flow and oil pressure. There is refractory surrounding the hole, 8, and after the burner has been in operation a short time, the heat from this refractory will assist the combustion; the oil spray and the combustion* air having been mixed somewhat at least before reaching this refractory. In operation, it was found that the inventor’s burner atomized perfectly without the steam jet, and when the temperature or pressure or both were dropped until the mechanical atomizer would not atomize, then on turning on the steam jet, atomization would be produced. It was found also that the mechanical atomizer must be working to at least such an extent that a cone of liquid would be formed between the orifice, 14, and the orifice, 19, of sufficient angle to fill the orifice, 19, otherwise the stream would simply circulate around the chamber, 18, and out of the orifice, 19, through the space between its walls and the column of liquid being projected through the orifice, 19, and from the orifice, 14. Thus the steam jet, in order to have an effect, must be so inclosed that it -will be directed into the cone of . liquid which emerges from the mechanically atomized orifice. The oil did not leave the inner, orifiee in the conical spray. It has not broken into a spray at this time — it is a continuous liquid cone. If it were a spray, the steam would escape through part of the orifice, 19, without producing any effect on the oil. After the oil is- atomized, it is impossible to break up the drops. The atomizing steam must be directed at a point on the conical film of oil emerging from the mechanical atomizer at 14 before the oil has traveled far enough to break into any kind of a spray, and the orifiee must be restricted to the size of the outlet in 14 in order that the oil film will be caught by the rotating steam to be-perfectly atomized. Outlet port, 19, is therefore restricted, and the easing, 17, surrounding the nozzle, is provided for. In other words, port, 19, is made small enough so that the mechanical oil film will fill it and act like a valve to prevent the escape of the steam without penetrating the film so that it may be atomized.

In claims 1 and 5 this restricted discharge port means a small opening, 19, somewhat larger than the small discharge orifiee, 14, of the nozzle, 12, and in a casing, 17, surrounding said nozzle; that is, so close to it that the gaseous fluid (steam) will be directed into the conical film emerging from the small discharge orifiee. In claims 6 and 7, these elements are described as means surrounding the nozzle for producing- a whirling stream of the gaseous fluid (steam and compressed air) directed so as to penetrate said film of oil, while the hollow cone shaped film of oil is issuing from the orifice, 14, in a nozzle, 12. It thus appears the invention is limited strictly on the face of' the patent to the structures shown in the drawings.

In the appellee’s device, highly heated oil under high pressure, enters pipe 4', flows through passages 7' to the outer ends of tangential passages, 12', into the bottom of the conical recess, 15', where it is whirled as it moves to the orifice, 14'; this cone extending a very short distance from one-quarter to one-half an inch. The film then breaks up into fine drops which continue on in straight lines forming a continually enlarging cone of oil spray. The appellee’s device atomizes by the pressure on the oil only. It is a mechanical atomizer, not a combined mechanical and steam atomizer, as is the appellant’s. In order to mix combustion air with the oil spray before and as it enters the furnace chamber, the appellee provides an air register over the hole, 1, in a furnace wall, this register having openings, 5, through which the air enters. Openings, 5, are provided with movable vanes which are used to regulate the size of the openings, and therefore the amount of combustion air which will enter the furnace. These vanes also act to direct the air into the register tangentially and make it whirl. A casing, 3, leads from the register to the opening, 1, this casing being conical and having spiral blades in it at relatively low pitch to give a relatively slpw turning motion to the combustion air flowing into the furnace. The appellant’s embodies a combined mechanical steam atomizer either alone or as may he read from claims 6 and 7, in combination with means for supplying combustion air. Appellee uses a mechanical atomizer only as a means for supplying combustion air to the oil spray. This specific means is different in many respects from the appellant’s for supplying combustion air. When the appellant’s burner is operating, he is using' three fluids to produce his result, oil, high-pressure atomizing steam or air, and low-pressure combustion air, and the appellee uses two only, oil and low-pressure combustion air. The appellant can shut off one of the fluids and still have his device working satisfactorily at times, but the appellee cannot shut off one of the fluids without stopping the operation.

Appellant contends that the appellee’s mechanical casing, 3, surrounding the oil nozzle and the end of the easing as the restricted discharge port reads on claims 1 and 5— the means for whirling the gaseous fluid being the curved vanes in the easing, 3, and the inclined doors at the opening, 5. The gaseous fluid of these claims being £he combustion air.

The appellant seeks to read claims 6 and 7 by saying the impeller plate, 15, which has become the means for producing the whirling stream of gaseous fluid, directed so as to penetrate the film of oil while the casing, 3, and the openings, 5, have become the means for supplying air into the furnace. But in making this contention for claims 1 and 6, the appellant is obliged to designate' different parts of appellee’s structure to meet the same elements in the different claims. In 'claim 1 appellant employs language without regard to the meaning of the claim as determined by his specification, and this can be done because the functions of the elements are omitted in that claim. But as to claim 6, the elements are described by a recital of' other functions, and appellant necessarily selected the part, from which he argues that it has the function called for, and this part in appellee’s structure is not a part which responds to the description of the same element in claim 1. He argues that the impeller plate, 15, is the equivalent of a easing having a restricted discharge port. Notwithstanding the existence and use of both the impeller plate and the cone, 3, in appellee’s device, as the appellant argues, the impeller plate, 15, is the equivalent of easing, 3, in appellee’s structure. If the two devices were alike in structures or function, there would be no difficulty in reading one or many claims of the patent in suit in the same way on ap-pellee’s device, but there is no reason for designating different parts of appellee’s device as the same element in appellant’s claims according to whether the elaim describes that element geneneally or specifically. The sole function of the bladed cone, 3, of appellee, is to cause the low-pressure combination air to mix thoroughly within the oil spray after the latter is formed and it has nothing to do with the atomization. It is not contended in reading claims 6 and 7 to designate the air register cone, 3, of appellee as a means which directs the whirling stream "so as to penetrate the film of oil.” But instead, the impeller blade, 15, of appellee is assigned to that element of claim 6. The air passing through the impeller blade of appellee’s device plays no part in the atomization and does not penetrate the film of oil. The length of the mechanical film of oil in ap-pellee’s burner, measured from its apex to the atomizing orifice, is one-quarter to one-half an inch long before the oil breaks into a spray; the length of the cone depending on the pressure and the viscosity of the oii. If air in the appellee’s device is to have any function in atomization, it must be directed so as to penetrate said film of oil as it issues from the atomizing nozzle and before it breaks into drops.- Air directed in a cone of oil spray will not in any way affect the atomization; whereas, a stream of steam or air under high pressure directed into the oil film will have an atomizing effect; the pressure necessarily being sufficient to give velocity to the atomizing medium — steam or air.

We are satisfied that in the appellee’s structure the oil is not directed into the oil film but into the oil spray, the air is not moving at sufficient velocity to atomize even if it were directed into the oil film, and tests made on the appellee’s device prove that there is no difference in the atomization, whether the air is flowing or not. The air passing through the slots of the impeller blade is not directed to penetrate the oil film, because the impeller blade is too far in advance of tbe apex of the cone, and because the air continues to move away from the axis of the cone rather than toward it. The velocity of the air through the impeller blade, 15, would have no effect on the cone of oil film even if it did strike it. In the test made upon the appellee’s structure, where the white cards were passed quickly across the oil spray, one with the air on and the other with the air off, it resulted in showing that the oil drops in the two cases were about the same. The inflowing combustion air passing through the appellee’s impeller blade, 15, could not, in theory or practice, have any effect on the oil atomization, so that it does not function like the high-pressure steam of the appellant’s structure in the matter of atomization. It is apparent that the alleged infringing device will produce a better mixture of the combustion air and the oil spray so as to give more perfect combustion — not atomization — for in appellee’s device that is completed by the mechanical atomization alone.

Having reached these conclusions, there is no basis upon which to support the appellant’s claim of infringement. We therefore need not consider the question of the validity of the patent which has been argued at bar. The decree below holding that there is no infringement is affirmed.

Decree affirmed.