author: KENNAMER, District Judge.

text:
    In re UNIT LOCK CO.
    No. 1123-B.
    District Court, N. D. Oklahoma.
    April 10, 1931.
    Mauzy & Coppedge, of Tulsa, Old., for trustee in bankruptcy.
    G. Ellis Gable and Kleinschmidt & Johnson, all of Tulsa, Okl., for petitioners.
   KENNAMER, District Judge.

A petition for review of an order of the referee in bankruptcy brings this case up for decision. The facts, over which there is no controversy, are that the bankrupt is a corporation, and while operating its business, employed a number of employees. The bankrupt was engaged in the manufacture of locks.

Claimant, the Urates Company, is in the insurance and bonding business, as an agency for various insurance and bonding companies, and, as such, wrote certain policies of compensation, public liability, and fire and tornado insurance for the bankrupt. It has filed its claim for the sum of $90.32 as a general or unsecured claim for unpaid premiums on policies of public liability, and fire and tornado insurance, about which there is nothing for review before the court. It also filed a claim for the sum of $225.58, claiming priority for this sum for unpaid premiums on policies of compensation insurance, which premiums accrued on September 1 and 2, 1929.

Certain laborers are asserting claims for priority on account of services performed by them in the regular course of their employment to the corporation. None of said services, and none of the insurance premiums for compensation insurance accrued or became due because of insurance written or labor performed within four months preceding the filing of the bankruptcy proceedings against the corporation. Claimants ask that their claims be allowed and paid in the order of priority provided for under section 64b (7) of the Bankruptcy Act, as amended by Act May 27,1926, § 15 (11 USCA § 104 (b) (7). The claims were allowed by the referee as general or unsecured claims, but denied priority. This ruling of the referee constitutes the objection of the claimants for which the petition to review was filed.

On December 23,1929, in an action pending in the district court of Tulsa county, Okl., a receiver was appointed for the corporation ; the business of the corporation was operated by the receiver under the order of the appointing court, until the intervention of the bankruptcy. On April 23, 1930, an involuntary petition in bankruptcy was filed against the corporation in this court, and on April 30, 1930, a receiver was appointed in the bankruptcy proceeding. The bankruptcy receiver superseded the state court receiver ,and continued to operate the business of the bankrupt. On June 30, 1930, an order was entered in the bankruptcy proceeding adjudging the corporation to be bankrupt, and shortly thereafter its assets were sold and converted into cash under the order of the bankruptcy court.

It was agreed that the premiums for insurance for which priority was claimed, accrued within three months prior to the appointment of the receiver in the state court, but not within three months prior to the filing of the petition in bankruptcy. One of the grounds .alleged in the petition for the adjudication of bankruptcy was the appointment of the receiver in the state court. The receiver appointed by the state court was in charge of the assets of the bankrupt from the time of his appointment to the time of the appointment of the receiver in bankruptcy. The facts further disclose that there was no adjudication of insolvency of the corporation in the state court receivership proceedings. The first adjudication of insolvency was the adjudication in bankruptcy. The evidence shows that no statement of a claim of lien upon any of the assets of the corporation was ever filed hy the claimants, as provided by the state laborer’s lien law, and no attempt was ever made to enforce the claim of the Frates Company, or any of the laborers, during the pendency of the state court receivership, which existed for a period of four months prior to the filing of the petition in bankruptcy.

Section 7307, Compiled Oklahoma Statutes 1921, as amended by section 10, chapter 61, Session Laws of Oklahoma 1923, provides: “The right of compensation granted by this Act, and .any claim for unpaid compensation insurance premium, shall have the same- preference or lien, without limit of amount against the assets of the employer as is now or' hereafter may be allowed by law for a claim for unpaid wages for labor..”

By virtue of the above statutory provision, the claim of the Frates Company for unpaid premiums for compensation insurance places it in the same position and gives it the same status as' laborers. Its claim can therefore be considered along with the claim of laborers, all of which seek priority. The applicable provisions of the Oklahoma statute should be considered in order to determine the question presented.

Section 1, chapter 106, Session Laws of Oklahoma 1927, is .as follows: “Section 1. When any corporation, formed under the-provisions of the laws of the State of Oklahoma, or any corporation doing business within this State shall become insolvent, the employees performing labor or services of whatever character in the regular employ of such corporation, shall have a lien upon the assets of such corporation for the amount of salary or wages due them, not exceeding four (4) months’ salary or wages which shall have accrued prior to the adjudication of the insolvency of such corporation. Which lien shall be paid prior to any other debts,, charges or'claims against said corporation,, except taxes due the United States Government or the State of Oklahoma. The word 'employees’ shall not be construed to include any of the officers of such corporation.”

Section 7468, Compiled Oklahoma Statutes 1921, affords a lien to laborers for unpaid wages, independent of any contingencies, such as the adjudication of insolvency, as required in the above quoted statute. It is as follows:

“7468. Lien Created. Laborers who perform work and labor for any person under a verbal or written contract, if unpaid for the same, shall have a lien on tke production of their labor, for such work and labor;. Provided, that such lien shall attach only while the title to tl;e property remains in the original owner.
“7469. How Enforced. .The lien provided for in this act may be enforced as in an ordinary action or by attachment proceeding as provided in the Code of Civil Procedure.
“7470. When Lien Attaches. .Liens under the provisions of this act are in full force and effect from and after the time the labor is performed.
“7471. Time for Enforcement. The proceedings under this act shall be commenced within eight months after the work is done.
“7472. Priority of Lien. Liens created under this act shall take precedence over all other liens whether created prior or subsequent to the laborer’s lien herein created and provided.”

Section 64b (5), Bankruptcy Act, as amended by Act May 27,1926, § 15,11USCA § 104 (b) (5), provides that laborers shall be entitled to priority on account of their claim for services performed within three months immediately prior to the adjudication in bankruptcy, but not exceeding $600. Subdivision 7 of the same section and subsection of the Bankruptcy Act requires the payment of “debts owing to any person who by the laws o£ the States or the United States is entitled to priority.” The Oklahoma statute, as set forth above, clearly places a claim for unpaid premiums for compensation insurance on the same basis as a- claim of a laborer for unpaid wages. It then becomes necessary to determine whether a laborer is entitled to a lien or priority under the statutes of Oklahoma, or whether the applicable provision of the Bankruptcy Act concerning priorities for unpaid wages of laborers, is to determine the- rights in bankruptcy. If the provisions of the Oklahoma statute are to govern, then a construction of that statute becomes necessary. However, I am of the opinion that the provisions of the Bankruptcy Act relating to priorities for unpaid wages are to govern, unless the assets of, the bankrupt are charged with liens by operation of the state law, or by adjudication of the state courts, prior to the adjudication in bankruptcy. In other words, if -the assets come into the bankruptcy court charged with liens then in existence, the bankruptcy court must receive the assets subject to existing liens. If the assets come to the bankruptcy court free of liens, then the Bankruptcy Act must govern, where provision is made therein for the particular subject or claim for priority.

Considering section 1 of chapter 106, Session Laws of Oklahoma 1927, provision is made for employees performing labors or services for a corporation for a lien upon the assets, for the amount of salary or wages due them, not exceeding four months salary or wages, which shall have accrued prior to the adjudication of insolvency. The act applies only to corporations, and creates a lien in favor of employees only upon the contingency of the adjudication of insolvency of the corporation. The act, standing alone, is ineffective to create liens in favor of employees or laborers until there is an adjudication of insolvency. However, provision is made in section 7468, Compiled Oklahoma Statutes 1921, for a lien for laborers for unpaid wages. This provision of the statute is not self-executing, but the laborer or employee is compelled to perform the requirements of the statute in order to perfect his lien. Such legislation is intended to protect the laborer, and give him the advantage of priority and liens over the general creditors. In order to avail himself of its benefits, he must meet the requirements of the statute in order to perfect his lien. If he has npt done so and the corporation is adjudged insolvent, then he is given a lien by operation of law, but his lien and priority is limited to four months’ wages. The statutory enactment does not state what four months’ salary or wages shall be entitled to priority or lien, excepting that it shall have accrued prior to the adjudication of insolvency. It does not-indicate whether the four months’ salary or wages shall be those immediately prior to the adjudication, or may be any four months’ salary or wages.

If the view is to be taken that any four months’ salary or wages are to be entitled to priority, then its provisions may conflict with the general statutes, which limit the time within which proceedings shall be commenced, and the diligent .laborer, or the laborer who is employed immediately prior to the adjudication of insolvency, may be required to share the priority afforded him with a laborer who has performed services many months or years prior to insolvency, and who has not been diligent in prosecuting his claim for lien and payment. To limit the laborer to the four months immediately prior to the adjudication of insolvency appears to be the reasonable and proper construction to be placed upon the above quoted statutory provision. The law aids the diligent, and if a laborer who depends upon his wages for his livelihood is to be protected, certainly the protection is founded upon the necessity of receiving his wages for his sustenance. If the statute is to accomplish its purpose and is to aid laborers, it seems that those laborers .are to be given priority who performed their services immediately prior to the adjudication of insolvency. Adequate provision is made for laborers obtaining liens and priorities for unpaid wages earned for services rendered more than four months, as the statute provides for eight months after the performance of the work in which to enforce the lien. Therefore, the special statutory provision relating to corporations, is designed to protect laborers performing services four months immediately prior to the adjudication of insolvency.

In the instant ease, it is conceded that the labor was performed and the claim for unpaid premiums on compensation insurance accrued more than four months prior to the adjudication of insolvency, and more than four months prior to the adjudication of bankruptcy.

Furthermore, if the Oklahoma statutes gave laborers a lien for four months’ services, without regard to the time the services were performed, still the claims to priority in this ease should be denied because the services were not performed and the unpaid premimas for compensation insurance did not accrue three months immediately prior to the adjudication of bankruptcy. It is a well-settled principle of statutory construction that when a special provision is made, it displaces the application of general provisions to the particular subject which is treated in the specific provision. The subject of claims for wages is specifically regulated by the Bankruptcy Act and its provisions express the intent of the legislative body enacting it with respect to priority for such claims. The general provision allowing priority, for debts owing to any person who, by the laws of the state or United States, is entitled to priority, must be limited to those which are not included in specific provisions of the act.

This question has been passed upon by the Circuit Court of Appeals for the Second Circuit in Re Slomka, 122 F. 630. The Seventh Circuit Court of Appeals passed upon the question in Be Bouse, Hazard & Co., 91 F. 96, and held that the specific provisions of the bankruptcy law governed and that wages of laborers earned more than three months before the commencement of proceedings are not entitled to priority, although the laws of the particular state granted priority to such claims, without any limitation as to the time of their accrual.

The same principle has been followed by the District Courts in the following cases: In re Crown Point Brush Co., 200 F. 882; In re McDavid Lumber Co., 190 F. 97; In re Inglis Manufacturing Co., 292 F. 907; In re Caledonia Coal Co., 254 F. 742.

In the ease of In re Slomka, supra, the court states that they were unable to regard In re Laird (C. C. A.) 109 F. 550, 557, as correct. In Be Laird, the Sixth Circuit Court of Appeals held: “It is undoubtedly true that the bankrupt act has made provision for the payment of certain perferred claims, and that the provision of that act in administering an estate in bankruptcy supersedes the state law upon the same subject; but where the lien has attached before the fund has been turned over to the bankruptcy court, and is not one avoided by the act, it will be respected, although it may have arisen under a state statute.”

Judge Day in this case was construing the Ohio law giving employees a lien for three months’ wages accruing preceding the placing of the employer’s property in the hands of an assignee, receiver, or trustee over general creditors. It was clearly stated in the opinion that the lien was one created by the state statute and was not such a lien'as was avoided or nullified under section 67 of the Bankruptcy Act 1898, subsees. (c) and (f), 11 USCA § 107 (c) and (f). Subsection (c) which avoids liens obtained in a' suit at law or in equity, nor does such statutory lien come within subsection (f) of the same section relating to levies; judgments, attachments, or other liens, obtained through legal proceedings against a person insolvent, at any time within four months prior to bankruptcy.

It may be here observed the opinion holds that the provisions of the Bankruptcy Act are paramount over the state law involving the amount of wages entitled to preference but recognizes and holds enforceable liens created by operation of law and not within the class avoided under the Bankruptcy Act. The conclusion reached is. in no manner in conflict with the principle that the specific provisions of an act govern and supersede general provisions. The reasoning of the opinion is sound, and I fail to observe any material conflict in this opinion with the case of In re Slomka, supra.

The order of the referee in bankruptcy is affirmed, and the claim of the Frates Company and the laborers, whose claims accrued more than three months prior to the commencement of proceedings in bankruptcy, are denied priority.


source: Caselaw Access Project

author: DAWKINS, District Judge.

license: Public Domain

text:
    PALMER v. BENDER, Collector of Internal Revenue.
    No. 1904.
    District Court, W. D. Louisiana, Shreveport Division.
    March 4, 1931.

      Fred R. Angevine, of New York City, and Smitherman, Tucker & Mason, of Shreveport, La., for plaintiff.
    Philip H. Meeom, tJ. S. Atty., and J. Fair Hardin, Asst. U. S. Atty., both of Shreveport, La., and E. O. Hanson, of Washington, D. C., for defendant.
   DAWKINS, District Judge.

Plaintiff brings this suit to recover the sum of $212,937.80, paid under protest as income taxes for the years 1921 and 1922. If is one of forty-five similar eases consolidated for the purpose of trial. The claim arises out of two agreements affecting oil production, known as the “J. E. Smitherman Special Account” and George 0. Baird partnerships, respectively.

. With respect to the J. E. Smitherman special account partnership, I find as follows:

Smitherman, for himself and associates, during the year 1919, made an agreement with property owners in the vicinity of Haynesville, La., that, if provided with mineral leases to as much as 15,000 acres of land, he would drill within eight months a test well for the discovery of oil or gas. The leases also provided for the payment of 50 cents per acre, as rentals, and a royalty of one-eighth of the minerals produced. Approximately 26,000 acres were leased, in which the interest of plaintiff was .15% per cent. A number of dry holes were drilled during the years 1919, 1920, and 1921, but on March 30th of the latter year a well was brought in on what was known as the Anna Taylor lease, covering the northwest quarter of section 14, township 23 north, range 8 west, Louisiana meridian, with an established daily production of 7,000 barrels. The discovery was made in what was conceded to have been “wild-cat” territory.

On April 18, 1921, Smitherman entered into a contract with the Gilliland Oil Company, in which, for the sum, of $750,000, “to be paid in cash and property as hereinafter set forth,” he agreed to “sell, assign and set over” to said company, and it agreed “to buy, without warranty, but with full subrogation of all rights and actions of warranty,” an undivided one-half interest in one 40 acres of the said Anna Taylor tract, to wit, the northwest quarter of the northwest quarter of section 14, township 23 north, range 8 west, on which the discovery well was located, and 80 acres in section 11, adjoining it, together with' all drilling wells, equipment, tankage, derricks, etc., situated on the Taylor property, as well as the oil which had been produced; and, of which price, the sum of $600,000 was to be attributed to the property so described. For the balance of $150,-000, Smitherman hound himself to convey certain other leases. As part of the consideration, he agreed to áceept, at a value' of $250,000, a one-half interest in a certain tank farm, equipment and facilities for handling the oil, including pipe lines built and to be built. It was also stipulated that all of the property, including that to be conveyed by Smitherman, and in which he was to acquire an interest, should be “operated as a partnership property,” under the control and supervision of the Gilliland Oil Company, but with the right of the former to be consulted as to the general policy of “drilling and exploiting the leases and marketing the oil.” Further provision was made allowing Smitherman to sell his part of the oil, if he saw fit, and all expenses were to be borne equally by the parties, with settlements to be made on the 15th of each month for the month preceding. Other details of operation were provided which are unimportant to this ease.

Thereafter, on April 21st, the parties, that is, Smitherman and the Gilliland Oil Company, entered into a second agreement, in which it was stipulated that the former, “for the consideration hereinafter set forth, a- * <•> does j,y these presents, sell, assign, set over, transfer and deliver, without warranty, but with full subrogation of all rights and actions in warranty” to the latter, “its successors and assigns,” an undivided one-half interest in the 40 .acres on which the discovery well was located, the said well and all equipment, the oil, etc., and “a like interest in and to the drilling well known as Taylor No. 4, subject, however, to the obligation of the assignee to pay and discharge oneJialf of the costs and expense of drilling said well. * * *» qijjg consideration stated was $600,000.00, “cash in hand paid, * • * ” the receipt of which was acknowledged. It was further provided that “all conditions be^ tween the parties” should extend to their heirs and assigns.

On April 23, 1921, which was also within the 30-day period provided by the revenue law of that time for a revaluation for depletion, another agreement was made with the Ohio Oil Company covering the remaining 120 acres of the northwest quarter of the northwest quarter of section 14, township 23, range 8 west, known as the Anna Taylor tract. The contract recited that Smitherman, for the consideration expressed, did “sell, assign, set over, transfer and deliver, without warranty or recourse, hut with full subrogation of all rights or actions of warranty,” the said 120 acres. The price stipulated was $3,000,000.00, “cash in hand paid, * * * and the obligation of said the Ohio Oil Company to pay over and deliver unto the assignor, his successors and assigns, the sum of $1,000,000.00 out of one-half of the first oil produced * * * subject to the further obligation * * * to pay over and deliver into said assignor, his heirs, executors and assigns, the equal one-eighth of all oil produced * * * as an excess royalty.” Provision was also made with respect to casing head gasoline, and for settlement on the 15th of each month.

The $3,000,000 was paid in cash, and the additional $1,000,000 was subsequently received from the proceeds of one-half of the oil, as agreed.

Simultaneously with the execution- of the agreement, there was delivered to Smitherman the following letter from the Ohio Oil Company: “With reference to the act of assignment executed this day by you unto The Ohio Oil Company transferring and conveying unto said company one hundred and twenty-eight ojl, gas:and mineral leases covering and affecting lands situated in Claiborne Parish, Louisiana, in Twp. 22 North Ranges 7 and 8 West, and in Twp. 23, North, Ranges 6, 7 and 8 West, this writing is addressed to you for the purpose of expressing the agreement of this company that if at any time hereafter we shall elect to release, surrender, or cancel all or any part of any one or- all of said leases then before effecting such release or cancellation, such lease or leases, or part or parts thereof will be first offered to you, and if you shall request, same will be reassigned or reconveyed to you by this company instead of being released or surrendered dire'et to the lessors.”

Subsequently, on July 12, 1921, Smitherman and the Ohio Oil Company executed a further contract, providing for the gathering, storing, and disposing of the one-eighth royalty which had been reserved by the former and for the conveyance to Smitherman of one-eighth of the interest held by the Ohio Oil Company in certain other leases, including tanks erected thereon, upon the payment of $1,500 cash and one-eighth of the expenses incident to erecting the tanks. Further stipulations were made for the marketing of Smitherman’s one-eighth interest in the oil, covering the construction of switch tracks, for the giving of division orders and deelaring that the company should not be responsible to Smitherman for his portion of any oil lost by evaporation, fires, etc.

The plaintiff in this case was also a member of the Geo. 0. Baird partnership. Baird, acting on behalf of himself and associates, acquired a lease on a tract of land in the Homer field of Claiborne parish, and discovered oil thereon on August 23, 1919. The Commissioner of Internal Revenue recognized his right to the benefits of depletion. On December 10th of the same year he made a contract to sell the property to one J. Rogers Flannery, for the price of $2,500,000, under terms and conditions which required the execution of a transfer, after the payment of a certain portion of that price. A first payment of $350,000 was made, but the contract was not otherwise performed, and suit was brought by Baird for its annulment. On January 9, 1921, the state court rendered judgment annulling the agreement, on condition that the $350,000 paid by Flannery should be returned to his assignee1, John Mun-hall, Jr.

On November 16, 1920, Baird made an agreement with the Gulf Refining Company of Louisiana, reading as follows:

“This agreement between George O. Baird, husband of Estella Mitchell, a resident of Caddo Parish, Louisiana; and the Gulf Refining Company of Louisiana, a corporation under the laws of the State of Louisiana, and domiciled at Orleans Parish, witnesseth:
“1. That said Baird is the owner of an oil and gas lease covering all of the S% of the NE^ of Section 24, Township 21 North, Range 8 West, less the West 30 acres thereof; and less also about one (1) acre in a Square in the southwest corner of said described property, as to which one acre, however, the said Baird is the owner of an undivided one-half (%) interest, the Gulf Refining Company of Louisiana being the owner of the other undivided one-half interest in the lease covering the said one aere; the least above referred to including the eleven (11) oil wells on the said property, all the equipment thereto annexed and attached, together with the interest of the said Baird in the one well located on said one acre tract hereinabove referred to.”
“2. For and in consideration of the obligations and agreements hereinafter set out, the Gulf Refining Company of Louisiana has obligated itself and does hereby agree to take possession of the said lease, to equip same properly at its own expense, and to operate such wells diligently for the production of oil, and to maintain the said production as long as oil may he produced therefrom in paying quantities; all such equipment and operation to be at the entire expense of the Gulf Refining Company of Louisiana and free from any expense whatsoever to the said Baird. And all taxes of every character legally assessed and charged against said lease, including all severance tax on the production therefrom, except as to the royalty interests, shall be paid by the Gulf Refining Company of Louisiana.”
“3. For and in consideration of the obligation of the Gulf Refining Company of Louisiana, to equip and to operate said property free of expense to him, the said George O. Baird agrees that the Gulf Refining Company of Louisiana may retain from the production of the said property, forty per cent (40%) of the oil produced therefrom, the agreement between the parties being that out of the said 40 percent so retained by the Gulf Refining Company of Louisiana, the Company shall deliver the royalty of one-eighth (%) of the oil, as provided for in the lease covering said property, and shall in addition deliver to the said Baird for a term of three (3) years, beginning the 1st day of November, 1921, one-twenty-fourth (%i) of all the oil that may be saved from that produced from the said property, the said delivery to be made in the same manner in which the royalty is to be delivered to the lessors, under the provisions of the original lease.”
“4. In consideration of this obligation and agreement, as hereinabove set out, the Gulf Refining Company of Louisiana shall have, however, the right to all of the gas, including easing-head gas, extracted from the wells on the said property, and all profits therefrom accruing, subject to such contracts as it may be able to secure from the lessors of the said property, and free from any obligation to account to the said Baird for any of the said gas or any of the profits derived from its manufacture or sale.”
“5. The Gulf Refining Company of Louisiana has this day loaned to the said George 0. Baird, the sum of Three Hundred and Fifty Thousand ($350,000.00) Dollars, on the sole security of the said lease, without any personal liability. And, in order to secure the repayment of the said sum within thirty (30) months from this date, the said Baird has, and does by these presents, mortgage and hypothecate unto the said Gulf Refining Company of Louisiana, all of his right, title and interest thereto, and, in addition to further seeure said obligation, pledges unto the said Gulf Refining Company of Louisiana, ail of the oil that may he saved from that produced from the said leased lands, after the delivery of the royalty of one-eighth (%) to the lessors, and the one-twenty-fourth (%i) to the said Baird, as hereinabove provided.”
“It is distinctly agreed and understood, however, that the Gulf Refining Company of Louisiana will, as hereinabove set out, deliver to the said Baird sixty percent (60%) of the oil produced from the said property, notwithstanding the said mortgage and pledge and free from any claim thereunder, until the said Baird shall have received from the said production sufficient oil to yield him, at the market price prevailing on the date of delivery, and at which price he will be able to sell said oil, the sum of Three Hundred and Twenty-Five Thousand ($325,000.00) Dollars, from the 60 percent (60%) of the oil produced from the said property, which the said Gulf Refining' Company of Louisiana has under this agreement obligated itself to deliver.”
“After the said Baird shall have received from the 60 percent of the oil so delivered to him the sum of $325,000.00 or after the expiration of the 30 months from this date, if the said Baird shall not have received such amount from the said production within that time, then the Gulf Refining Company of Louisiana shall have the right to apply such 60 percent of the oil, or the proceeds thereof, to the repayment of the said loan until same shall have been paid out in full, without interest.”
“6. In consideration of the obligations and agreements hereinabove entered into on the part of the Gulf Refining Company of Louisiana, the said Baird now agrees and obligates himself that whenever there shall have been produced from the said property by the Gulf Refining Company of Louisiana, such quantity of oil that the 69 percent which the said Gulf Refining Company of Louisiana has agreed herein to deliver to him, shall have £>rodueed the sum of Six Hundred and Seventy-Five Thousand ($675,000.00) Dollars (the first $325,000.00) of the proceeds of the sale of such oil to be retained by Baird as above provided, and the remaining $350,000.00 to be retained by said Company, to be applied by it to the liquidation of -the indebtedness above set out, that he will then sell, assign, convey, and deliver to the said Gulf Refining Company of Louisiana the entirety of the said mineral lease hereinabove referred to and forming the subject matter of this contract, for the consideration of the obligation upon the part of the Gulf Refining Company of Louisiana to continue to operate said property for the production of oil therefrom in paying quantities, and to deliver to him, or his transferees, the one-twenty-fourth (%4th) royalty out of the oil, as hereinabove provided, until the expiration of three (3) years from this date, and a royalty of one-thirty-seeond (%2nd) of all the oil that may be saved from that produced, after said date, and as long thereafter as oil may be produced from the said property in paying quantities.”
“7. As further security to the Gulf Refining Company of Louisiana, for the performance of the obligation to sell as set out in the last preceding paragraph, the said Baird has this day executed an assignment in favor of his entire interest in the said lease, which said assignment he agrees to deposit 'in escrow with such depositary as may be mutually agreed upon by the parties, to be retained by said trustee and to be delivered to the Gulf Refining Company of Louisiana, when it shall have complied with the obliga^ tions above set out and made a consideration of said assignment; said assignment so delivered in escrow shall moreover be considered between the parties as a further security for the pledge and mortgage hereinabove stipulated.”
“In witness of which, this agreement has this day been executed in duplicate, the said Gulf Refining Company of Louisiana being represented therein by its Third Vice-President, C. R. Minor, being herein authorized, and this agreement being executed as of and effective from seven-thirty o’clock A. M., November 1, 1921, Shreveport, La., Nov. 16th, 1921.”

As required by this agreement, the $350,-000 was paid by the Gulf Refining Company of Louisiana to Munhall, and none of it was actually received by Baird.

The Gulf Company took charge of the property, and a deed was executed and placed in escrow, as stipulated, but was not delivered until 1927. During the years 1921 and 1922 the contract was performed according to its stipulations.

The plaintiff made a timely, return of his income taxes for the year 1921, including therein his distributive shares in both the Smitherman special account and Geo. 0. Baird partnerships, deducting therefrom as depletion, based, as to the former, upon a claimed discovery value applying both to the cash bonuses and royalties received, and, in the latter partnership, depletion was claimed on the revaluation previously determined by the Commissioner. Plaintiff also omitted as income the $350,000 paid by the Gulf Refining Company of Louisiana to Munhall.

For 1922, similar returns were filed and deductions for depletion were made.

The claims for depletion were disallowed by the Commissioner, who also increased the net income by adding the $350,000 paid to Munhall. The plaintiff in this case on January 4, 1927, paid, under protest, his proportion of the taxes, interest, and penalties resulting from this additional assessment by the Commissioner, and made timely claim for a refund thereof on May 4, 1928, which was rejected.

The principal contention on the part of the Commissioner is that the agreements between Smitherman, the Gilliland Oil Company, and the Ohio Oil Company in the one instance, and between Baird and the Gulf Refining Company in the other, were all assignments or sales of the interests of the partnerships in the leases; while the taxpayer claims that they were subleases, entitling him to depletion during both years, based upon discovery value.

There is an additional issue of whether, in the Baird partnership, the Commissioner was correct in assessing as income the $350,000 paid to Munhall as Flannery’s assignee.

It is conceded in the brief of plaintiff that the transfer to the Gilliland Oil Company was not a sublease. It is necessary, therefore, to consider only the transactions had between Smitherman and the Ohio Oil Company in the one instance, and between Baird and the Gulf Refining Company in the other. There are really three aspects to be considered in the claim for depletion in the Smitherman-Ohio Oil Company transaction: (1) As to the $3,000,000 paid in cash at the signing of the agreement; (2) the $1,000,000 paid out of one-half of the first oil produced; and (3) the overriding royalty of one-eighth.

I think I may say, from the arguments of both sides, that Smitherman, who was the original lessee, holding seven-eighths of the minerals which might he produced from the lands, would have been entitled, after discovery, had he developed the property himself, to such a rate of depletion throughout the life of production as would, when the minerals had been exhausted, have returned to him the fair market value of his interest in the leases at the time of discovery, or within 30 days thereafter. This appears to have been the clear intent and purpose of the Revenue Law.

in those states where the lease or other conveyance of minerals is recognized as a sale or transfer of an interest in the land, sums received as bonuses, fall within the category of capital gain, to be assessed at the flat rate of 12% per cent, upon income derived from that source. See Ferguson v. Commissioner of Internal Revenue, 45 F.(2d) 573 (C. C. A. Fifth). As was said in the ease just cited, the amendment to the Revenue Law, differentiating that class of income and subjecting it to a flat rate of taxation, was to promote trade and to relieve the taxpayer from the heavy burden of the high rates of income taxes upon the proceeds of a capital asset. Of course this does not, affect directly the question of whether or not, in a situation like the present one, the taxpayer is entitled to depletion, but it does serve to illustrate the point that Congress, in the opinion of the court, was seeking to subject to ordinary income taxation profits from trade, business and industry, and to avoid imposing it upon capital assets, except to the limited extent thus provided. That the enhanced value of property, whether it he land or mineral leases, resulting from the discovery of a rich oil pool, becomes a capital asset, which does not hear ineome taxes until it has been realized, either through production or conveyance of some part of such-property, and then only subject to these statutory advantages, seems beyond question. Therefore, to relieve from those burdens the taxpayer, who is fortunate enough to own property in a state like Texas, or who has means to himself develop and produce the minerals while imposing them upon one in a situation like the plaintiff, works a discrimination which should not be attributed to the lawmaking body, except it be required by clear and inescapable provision of the Revenue Law.

As to the lessor, the Treasury Department recognizes the right to depletion upon bonuses or advanced royalties. That is provided for in article 215 of regulation 62 and article 216 of regulation 65 (Treasury Decision 3938) from which quotation is made as follows: “Art. 216 (215) Depletion—Adjustment of Accounts based on bonus for advanced royalty, (a) Where a lessor receives a bonus in addition to royalties, there shall he allowed a depletion deduction, in respeet of the bonuses, an amount equal to the proportion of the cost or value of the property on the basic date which the amount of the bonus bears to tbe sum of tbe bonus and tbe royalties expected to Be received. Such allowance shall be deducted from the amount remaining to be recovered by the lessor through depletion, and the remainder is recoverable through depletion deductions on the basis of the royalties thereafter received.”'

Hence, if the owner of the land or original lessor had himself discovered the minerals and had leased the property to the Ohio Oil Company, receiving the bonuses paid to the plaintiff here, and retained the customary one-eighth royalty, under the Treasury Department’s own regulations and method of determining the tax to be paid, he would undoubtedly have been allowed depletion, in conformity with the above-quoted formula, for the bonuses paid in cash, and by the same token, would have received similar allowance upon the additional sum subsequently paid out of one-half of the first oil produced. Had such owner sold for a lump sum the land, or the whole of the mineral interest, he would have been entitled to report and be taxed upon the discovery value as a capital gain. Under the above method of calculation, the Treasury Department (as to an owner) treats the matter as a present depletion or exhaustion pro tanto of seven-eighths of the capital value (including discovery value on the basic date), by discounting the amount of such bonus, so that the sum presently allowed will be the equivalent of what would have been received over the estimated life of production, and to which is added, by return through deduction from year to year, the estimated value as of the basic date of the remaining one-eighth reserved as royalty. The result is to ultimately return to the taxpayer the full amount of the cost of the property, plus discovery value as determined under the statute.

Actually, in this state the lessee’s seven-eighths interest in the minerals, when he comes to make a conveyance thereof and retains an overriding royalty, is not different (except that he does not own the land, but an exclusive right to enter and withdraw the minerals) from a practical standpoint to that of the lessor or owner of the land. The latter has no right under a lease (except for default by the lessee) to a return of the prop^ erty until the minerals have been exhausted. It has been held that this circumstance, i. e., the right to a reversion of the land from which the minerals have been removed, is no reason for sustaining the right to depletion in favor of the landowner as against that of the lessee, who has an interest in the mineral production by virtue of an overriding royalty. See Lynch v. Alworth-Stephens Company, 267 U. S. 368, 45 S. Ct. 274, 69 L. Ed. 660. Under tbe law of Louisiana, the extent of the property interest conveyed by the landowner, and that passing by an assignment from a lessee, is the same, that is, a right in the nature of a real servitude, giving to each transferee the exclusive right to enter upon, explore for, produce, and reduce to possession the minerals. Frost-Johnson Lumber Company v. Sailings’ Heirs, 150 La. 855, 91 So. 207. There is no more reason in logie or law for treating the cash bonus, received by the owner of the land for that undivided portion of the interest conveyed, as advanced royalties, subject to depletion, than there is in the ease of a lessee who makes a similar conveyance of only a part of' his seven-eighths leasehold. I repeat that the nature of the title to the minerals under the law of this state, in each instance, is identical, whether the transfer be by what is termed a sale, assignment, or sublease. Running through the logic of all the cases which I have been able to find, as well as the regulations and decisions of the Treasury Department, the important element in determining the right to depletion appears to be the retention of an interest in the minerals which, remain to be produced.

Counsel for the plaintiff argue that the issue turns upon the point as to whether the transfers amount to a sublease under the civil law of this state, as distinguished from the principles of common law. While I think the distinction contended for clearly exists, still to my mind it makes no difference what the conveyances are called, the all-important fact is that the plaintiff retained a definite and valuable interest in the property (the minerals) represented by his overriding royalty, which supplies the essential element entitling him to depletion, both under the regulations of the Treasury Department and the decisions of the Supreme Court. Lynch v. Al-worth-Stephens Company, supra.

As I attempted to point out in a dissenting opinion in the ease of Herold v. Commissioner of Internal Revenue (C. C. A.) 42 F.(2d) 945, the statute, section 214 (a) (10) of the Revenue Act of 1921 (42 Stat. 241), does not distinguish, or, in my judgment, authorize the distinction, as between lessors and lessees, which the ruling of the Commissioner in this case has made. It declares:

“That in computing net income there shall be allowed as deductions: * * *
“In the case of mines, oil and gas wells, other natural deposits, and timber, a reasonable allowance for depletion * * * according to the peculiar conditions in each-case, based upon cost * * • in the ease of mines, oil and gas wells, discovered by the taxpayer * * * where the fair market value of the property is materially disproportionate to the cost, the depletion allowance shall be based upon the fair market value of the property at the date of the discovery, or within thirty days thereafter. * * * ”

The exclusion of the lessee from the benefits of these provisions is based upon a process of reasoning and interpretation which, in my opinion, is not only not supported by anything in the section itself, but is contrary to the spirit and purpose behind its enactment. Common-law authorities are cited which are not applicable in Louisiana. The Department itself, I think, recognized this underlying purpose in the Manual of Instructions which it furnished to the industry under the Revenue Act of 1918 (40 Stat. 1057-), as appears from the following quoted therefrom: “The Clause from Sections 214 (a) and 234 (a) of the tax law referred to above was inserted to protect the prospector or ‘wildcatter’ who goes into an unknown field and overcoming hazards of the business discovers a new and valuable deposit of oil or gas, and by so doing increases the value of his holdings to sueh an extent that their value at the time of discovery or within thirty days thereafter is materially disproportionate to their cost. The discovery may refer to the opening up of a new pool or field or it may refer to the tapping of a new and previously unknown sand or zone in an old pool or field. The benefits, however, will accrue solely to the holdings of the taxpayer actually making the discovery. And it will affect him only in so far as he is able to prove that his discovery was bona fide, and that it has so increased the value of his holdings as to make it materially disproportionate to the cost.”

The view which I have expressed above applies with whatever force it may have whether the property be situated in this state or elsewhere. However, as stated heretofore, I think there is a clear distinction between the common and civil law as to what constitutes a sublease. Under the former, there appears to be support for the proposition that there must remain some reversionary interest in the sublessor; but this is not necessary in Louisiana, where the civil law obtains. It is true that in Smith v. Sun Oil Company, 165 La. 907, 116 So. 379, there was an express provision for forfeiture in event of the failure of the transferee to comply with the obligations in favor of the lessee, but this stipulation had the effect merely of writing into the contract that which the codal provision supplied without it.

Under the common law, a lease is considered a partial alienation of the fee, with a reversion to the lessor. R. C. L. vol. 16, p. 619, verbo Landlord.& Tenant, § 100. On the other hand, estates in reversion and remainder are unknown to the Louisiana law. Therefore, in the common-law states, as settled by that system, there must always be in a contract of lease, provision for reversion, express or implied, of some part of the estate (in the ease of minerals alone, a portion of the mineral estate as distinguished from the land). Hence, a lessee who .transfers the whole of his leasehold estate, reserving nothing in reversion for himáelf, does not become a sublessor, even though he receives a greater or different yearly or monthly consideration therefor. Whereas, with us, the very nature of a mineral contract, whether it be in the form of sale, assignment, or lease, is sueh as to convey only a right upon the property, and not a title or estate in the minerals themselves.

Our Revised Civil Code defines a lease as follows:

“Art. 2669. Lease or hire is a synallagmatic contract, to which consent alone is sufficient, and by which one party gives to the other the enjoyment of a thing, or his labor, at a fixed price.”
“Art. 2674. To let out a thing is a contract by which one of the parties binds himself to grant to the other the enjoyment of a thing during a certain time, for a certain stipulated price which the other binds himself to pay him.”

The main difference between a lease and a sale or alienation in this state is that the former gives only the right of enjoyment for the specified period, while the latter vests an ownership or interest in the fee, with the consequence that in the former the lessor warrants or obligates himself to the lessee for the full enjoyment of the premises, even to the extent of necessary repairs and liability for damages for violation of sueh warranty; while in a sale or alienation any loss from those sources short of eviction is at the risk of the vendee or alienee. See Knapp v. Guerin, 144 La. 754, 81 So. 302, and authorities therein cited; see, also, Rev. Civ. Code La. arts. 2711, 2729.

At common law, a conveyance of mineral rights which does not expressly stipulate a reversion falls into the category of a sale or assignment, and cannot be construed as a sublease. In Louisiana, regardless of the terms used, if the lessee conveys anything less than the whole of his rights, and stipulates that the 'transferee shall pay him a rental, which is the same under our law as royalty, whether for the whole term or less, the result is to create a sublease, with all of the rights incident thereto, "such as a lessor’s lien and right of pledge, action to annul, etc. Batallion Washington Artillery v. Schwartz, 161 La. 925, 109 So. 764; Smith v. Sun Oil Company, supra; Spence v. Lucas, 138 La. 763, 70 So. 796; Logan v. State Gravel Company, 158 La. 105, 103 So. 526; Board of Commissioners v. Pure Oil Company, 167 La. 801, 120 So. 373.

George O. Baird Partnership.

The Court of Appeals for this circuit, in the ease of Herold v. Commissioner, 42 F. (2d) 942, 943, involving the same contract and issues out of which plaintiff’s present claim arises, held that the George O. Baird partnership could not be charged with the $350,000 paid by the Gulf Refining Company to Munhall, assignee of Flannery. As one of the -judges participating therein, I concurred and still believe the conclusion correct. Otherwise, the dissenting opinion which I filed in that case expresses the views which I still entertain with respect to the ■ $325,000 which was to be paid in oil, and the overriding royalties retained by Baird.

However, the claims for depletion as to both of the partnerships herein have been decided by the Court of Appeals of this circuit contrary to the views above expressed. Waller v. Commissioner (C. C. A.) 40 F.(2d) 892; Herold v. Commissioner, supra. For this reason, I feel bound to follow those rulings until that court or the Supreme Court reaches a different conclusion.

The plaintiff is entitled to. recover his proportionate share of the income taxes assessed against the $350,000 paid by the Gulf Refining Company to Munhall, but otherwise his demand must be rejected.

Proper deeree may be presented. The rights of all parties are reserved to present and have settled, their exceptions.


author: CAMPBELL, District Judge.

text:
    THE DOMIRA. THE IRLAND. THE PINAR DEL RIO.
    Nos. 10801, 10922.
    District Court, E. D. New York.
    Feb. 21, 1931.

      Kirlin, Campbell, Hiekox, Keating & MeGrann, of New York City (Robert S. Erskine and Henry P. Elliott, both of New York City, of counsel), for the Domira. -
    Bigham, 'Englar, Jones & Houston, of New York City (T. Catesby Jones and James W. Ryan, both of New York City, of counsel), for Niles-Bement-Pond Co. and others.
    Burlingham, Veeder, Fearey, Clark & Hupper, of New York City (Chauneey I. Clark and P. Fearson Shortridge, both of New York City, of counsel), for the Irland.
    Lord, Day & Lord, of New York City (Allan B. A. Bradley and James S. Hemingway, both of New York City, of counsel), for the Pinar Del Rio.
   CAMPBELL, District Judge.

These are cross-suits to recover damages alleged to have been caused by a collision between the motor vessel Irland and the steamship Domira, in a fog, in which both vessels and the cargo of the Domira were damaged.

I find the faets as follows:

At all the times hereinafter mentioned and at the time of the trial herein A/D Det Dansk Franske Dampskibselskab was a Danish corporation and the owner of the motor-ship Irland.

At all the times hereinafter mentioned and at the time of the trial herein a British subject was the owner of the steamship 'Domira.

At all the times hereinafter mentioned and at the time of the trial herein Santa Clara Steamship Company was a British corporation and the owner of the steamship Pinar-Del Rio.

Niles-Bement-Pond Company and the other persons and corporations mentioned in the intervening petition were, at all the times hereinafter mentioned and at the time of the trial herein, the owners of the cargo of the steamship Domira; that those alleged to be corporations were corporations as alleged, and that the petitioners not incorporated have a legal status as alleged.

■During the currency of process herein, the motorship Irland, the steamship Domira, and the steamship Pinar Del Rio have been within the Eastern district of New York and the jurisdiction of this court.

The partly loaded motor vessel Irland,. gross tonnage 3,175, net tonnage 1,928, length 326.2 feet, width 50.1 feet, depth 20.8 feet, arrived from Boston on the morning of December 31, 1927, and anchored off Ambrose Light Vessel, where the weather was hazy.

At 10:27 o’clock a. m. the weather had cleared, and the Irland got under way again and moved up toward the entrance of Ambrose Channel.

About 10:45 o’clock a. m. the Irland’s engines were stopped and the pilot boat sighted.

About 11 o’clock a. m. Sandy Hook pilot Smith boarded the Irland.

At that time the weather was clear, wind south, tide flood, and the Irland entered the Ambrose Channel and proceeded up on her starboard side. She passed buoy 8-A close aboard to starboard.

The fog shut in thick, visibility was reduced to 600 feet, and fog signals were being sounded by the Irland at regular intervals of one-half minute.

The Irland proceeded at various speeds until she was in the vicinity of buoy 10, when a fog signal was heard from a steamship ahead, which proved to be the Steel Inventor, and at 11:46 o’clock a. m. the Irland stopped her engines.

At 11:47 o’clock a. m. the Irland’s engines were put slow ahead again, and she rounded buoy 10 under a port helm on her starboard hand about 200 feet off. The Ir-land then proceeded up the channel. and rounded buoy 14 under a port helm on her starboard hand about 2p0 feet off, and started on a course north magnetic at slow speed.

The set of the tide was to the Irland’s port, and the Irland was put on the course north instead of the usual channel course from buoy 14 of north % west to compensate for any tidal set to port.

The steamship Pinar Del Rio, gross tonnage 3,066, net tonnage 1,830, length 321.1 feet, breadth 46.7 feet, depth 23.2 feet, which was outward bound, had been at anchor at the northern entrance to the channel to the eastward of buoy 18 for over 24 hours, on account of the dense fog.

She got under way just before noon on December 31, 1927, proceeded across the channel, and steadied until she had buoy 17) close to which she passed, on her starboard hand about 100 feet off.

The pilot and master of the Pinar Del Rio had thought it was going to clear when she got under way, but it shut down quite thick when she passed buoy 17, and the visibility was exceedingly short.

After passing buoy 17, the Pinar Del Rio headed down the channel on what was intended to be the channel course at slow speed, but passed buoy 15 slightly to the westward' on her port hand, about 15 or 20 feet off, passing between buoy 15 and the spar marking buoy.

After the stern of the Pinar Del Rio cleared the buoy, she headed around southeast to get further out in the channel, and proceeded diagonally across the channel at slow speed.

At 7:30 o’clock p. m. on December 30, 1927, the steamship Domira, gross tonnage 3,852, net tonnage 2,412, length 352.3 feet, breadth 50.0 feet, depth 24.7 feet, left the pier at Twentieth street, East River, loaded with cargo outward bound.

The fog became very thick, and at 7:45 o’clock p. m. she anchored just above the pier.

About 10:15 o’clock p. m. she again got under way and proceeded down to the anchorage at the upper end of the Statue of Liberty and anchored there about midnight.

At about 9:30 o’clock a. m. on December 31, 1927, the Domira again got under way and proceeded down to Gravesend Bay, where she anchored.

At 11:47 o’clock a. m. the Domira time (as were the times of her movements formerly enumerated), the weather was clear, visibility 1%. miles, the Domira again got under way and proceeded to pass Craven Shoal to starboard and then down the channel, passing buoy 17 to starboard; the visibility was then 600 feet.

The course of the Domira is not definitely established, but she was on her starboard the west side of the channel.

The several vessels mentioned then proceeded as follows:

The Irland proceeded at slow speed on course north magnetic, sounding regulation fog signals, and a fog signal was heard from a vessel ahead, which later proved to be the Pinar Del Rio. . The engines of the Irland were stopped immediately, and she ported her helin.

Shortly afterward the Pinar Del Rio was sighted ahead, on about the course she had been put on after rounding buoy 15, crossing the channel diagonally from the Irland’s port to her starboard side.

A two-blast passing signal was blown by the Pinar Del Rio to the Irland, which was answered by the Irland with a two-blast signal, and she starboarded her helm so as to pass starboard to starboard as agreed by said signals.

The Domira then appeared out of the fog, moving faster and somewhat to the south of the Pinar Del Rio, which she was following close astern, but with the Domira on the Pinar Del Rio’s starboard quarter crossing the channel diagonally from the westerly to the easterly side.

The Domira was not on the same course as when she passed buoy 17, but was following and overtaking the Pinar Del Rio - on what appeared to be nearly a parallel course, but on the Pinar Del Rio’s starboard side.

The danger of collision was obvious, and the Irland immediately put her engines full speed astern, sounded three blasts of her whistle, and let go both anchors.

The Domira was coming on with greater speed than either the Pinar Del Rio or the Irland, and when she sighted the Irland she stopped, put her engines astern, sounded three blasts, and after the pilot on the Pinar Del Rio had sung out to the Domira to let go her anchor, she did let go her port anchor.

The Domira’s way was not stopped, and she came on across the bow of the Irland, the starboard side of the Domira coming into contact with and twisting the stem of the Irland to starboard, at 12:12 o’clock p. m. Irland's time.

Both the Irland and Domira and the cargo of the Domira suffered damage.

The place of collision was on the Irland’s starboard side, the east side of the channel.

The Pinar Del Rio -had swung to starboard and was passing the Irland starboard to starboard about 100 feet off at the time of the collision.

The tide was flood, and the Irland backed for one and one-half minutes, dragging her anchors somewhat to the west, and with her anchors down the effect of the flood tide and backing was to swing the Irland around, changing her heading.

Her anchors were on 20 to 30 fathoms of chain, and when she was heading east southeast buoy 15 was by estimate 500 to 600 feet astern.

There is no evidence showing that the Domira was sounding fog signals, and no fog signals from the Domira were heard by the Pinar Del Rio or the Irland.

The pilot, master, and third officer of the Irland were on the bridge, and the helmsman at the wheel in the pilot house, and the first officer and lookout were forward, and the lookout was efficient.

The pilot of the Domira testified that the master of the Domira was on the bridge with him, and that the chief officer and lookout were forward, but none of them were called as witnesses, nor were their depositions taken.

The Pinar Del Rio did not interfere with the navigation of either the Irland of the Domira.

Prom the facts as found, the fault of the Domira is clearly established.

No claim has been made on behalf of the Irland that the Pinar Del Rio was at fault; on the contrary the proctors for the Irland took by deposition the testimony of the master and second officer of the Pinar Del Rio, before the Pinar Del Rio was made a party to either of these actions;" therefore the testimony of the second officer is inadmissible against the Pinar Del Rio, and the objection of the advocate of the Pinar Del Rio to its reception as binding on the Pinar Del Rio is sustained.

The testimony of the master of the Pinar Del Rio is admissible as against the Pinar Del Rio, notwithstanding the fact that she was not a party at the time the deposition was taken. The position he occupied made his statement admissible against the vessel and owner, and the objection of the ¿Avócate of the Pinar Del Rio to its reception is overruled.

All of the depositions taken on behalf of the Irland were taken before any claim had been made against the Pinar Del Rio, and before she had been made a party to either action, and of course no notice was given to the Pinar Del Rio of the taking of such depositions and she had no opportunity for cross-examination. Such depositions are not admissible against her, therefore the objection of the advocate to the reception of such depositions as against the Pinar Del Rio or her owners is sustained.

The hypothetical questions asked of the expert Robinson, called on behalf of the Domira, were all in some considerable degree based upon the testimony of the officers and crew of the Irland taken by deposition, the objection to the admission of which as against the Pinar Del Rio I have sustained; therefore the objection on behalf of the Pinar Del Rio to the reception in evidence as against the Pinar Del Rio of the said hypothetical questions, and Exhibits 3 and 4, are sustained, and the motion on behalf of the Pinar Del Rio to strike out the answers to such questions, and Exhibits 3 and 4, as against the Pinar Del Rio, is granted.

While we are considering the questions with reference to the Pinar Del Rio, it may be as well to dispose of the question of her liability, if any.

As I have hereinbefore said, the Irland has never claimed that the Pinar Del Rio was at fault, and the sole fact witness produced on behalf of the Domira and her cargo, the Sandy Hook pilot in charge of her navigation, testified on the trial of these actions that the Pinar Del Rio did nothing to interfere with him, and that he had no fault to find with her at all.

Both of these statements are supported by the evidence, and it seems clear to me that the Pinar Del Rio is without fault.

The rule laid down in The Pennsylvania, 19 Wall. 125, 22 L. Ed. 148, invoked by the advocate for the cargo owners, does not apply. But, even if it did, the Pinar Del Rio might rebut the presumption by showing beyond fair doubt that the alleged violation did not contribute to the collision, and she has shown by the evidence, beyond fair doubt, that no act of hers contributed to the collision.

On the trial of the two above-entitled actions, what seems to me to be a novel experiment was attempted. No logs of the Domira were presented, and neither her master nor any officer or member of her crew was -called as a witness nor their depositions offered.

The only fact witness as to the navigation of the Domira who was called was the Sandy Hook pilot who was navigating that vessel.

In addition, however, and apparently as a substitute for the missing witnesses, there was called as an expert witness a gentleman whose qualifications are beyond question, but who in response to hypothetical questions gave answers which, if allowable, left nothing for this court to decide.

' This goes far beyond the province of an expert, and is in fact usurping the province of the court, and cannot be allowed. Castner Electrolytic Alkali Co. v. Davies (C. C. A.) 154 P. 938; United States v. George A. Fuller Co., Inc. (D. C.) 300 F. 206; Hunt v. Kile (C. C. A.) 98 F. 49.

In addition to this, the expert based his conclusions upon facts not in evidence, and in my opinion upon inferences that cannot be properly drawn from the faets proven.

The objections to the hypothetical questions asked by Mr. Jones of the expert witness Robinson, and by Mr. Erskine of the expert witness Robinson, are sustained, and the motions to strike out the answers to such questions are granted, on the ground that the questions ask for and the answers give opinions of the expert that go far beyond the province of an expert, and in fact usurp the province of the court, and upon the further ground that the expert based his conclusions upon facts not in evidence, and in my opinion upon inferences that cannot be properly drawn from the facts proven. The objections to Exhibits -3 and 4 are sustained, and the motions to strike out the said exhibits are granted upon the same grounds.

It is quite true, as the advocate for the Domira contends, that no presumption arises against the Domira for the nonproduction of her logs, as there was no showing that their production had ever been demanded.

I do not think the rule is quite so plain, however, with reference to her failure to present any of her officers or crew, but I have not found it necessary in the decision of these cases to consider that question, and therefore it is unnecessary to pass upon it.

I do hold, however, that the Domira must be held to her pilot’s testimony, and eannot be aided by any presumption that any of the officers or crew did any particular act.

The uncertainty as to the Domira’s version of the accident is somewhat confusing, inasmuch as there were four of them, viz. that of the original libel, that of the amended libel, that of her pilot, and that of her advocate on the trial, which it was attempted to support by the rejected testimony of the expert.

Whatever version be considered, the fact remains that the collision did not occur as contended in any one of those versions.

As in all collision eases, the most important question here is, Where did the collision occur? And it seems certain to me that it occurred on the easterly side of the center of the channel, and this is supported by the position of the Irland at her anchors when she swung around with the tide after the collision.

The Pinar Del Rio was crossing the channel diagonally on a southeasterly course, and crossed the bow of the Irland. The exact point was not fixed, but the Pinar Del Rio was not just entering the channel after passing buoy 15 to port, but had been on that course for some time.

The compass course which the Domira was on was not shown by any positive evidence, but it certainly was not the channel course, because, if it had been and the Pinar Del Rio was crossing her bow, the Domira would have been headed toward some part of the port side of the Pinar Del Rio; and, if the Pinar Del Rio had crossed her bow, the Dontira would have gone under the stern of the Pinar Del Rio and have been on a course parallel or nearly so with that of the Irland, but in the opposite direction, and probably 1,000 feet distant.

Instead of this, however, we have the Pinar Del Rio on a diagonal course southeasterly across the channel with the Domira, which had evidently swung under the stern of the Pinar Del Rio, on a course nearly parallel with* the Pinar Del Rio and a little to the southerly thereof, with the bow of the Domira on the starboard quarter of the Pinar Del Rio.

When the change of course of the Domira may have started I do not know, but the Domira, instead of proceeding down on her starboard side of the channel was undoubtedly, just prior to the collision, following the Pinar Del Rio, and, by reason of her more southerly position, was unable, to safely cross the bow of the Irland as the Pinar Del Rio had done.

Many nice calculations are presented as to elapsed time and speed and distance, but all of these are at best but estimates; but the fact that the Pinar Del Rio was crossing the channel diagonally cannot be questioned, and if, as I have found, the Domira was following the Pinar Del Rio, then the Domira was also crossing the channel.

It seems to me to have been impossible for the collision to have occurred as it did at an angle of 45° between the starboard sides of the Domira and the Irland, if the Domira was following the channel course on her starboard side of the channel, as in that event the Irland would have had to come from the western side, if not from outside the western limits of the channel, and be crossing the channel diagonally in a northeasterly direction, and there is no evidence on which any such contention may be based, although perhaps it might be worked out by making assumptions not warranted by the evidence.

The cause of the collision was the error of the Domira in following the Pinar Del Rio across the channel, instead of proceed' ing down the channel on her starboard side.

The Domira was moving at a much higher rate of speed than the Pinar Del Rio, and this is clearly shown, as she was overtaking her, and was on the starboard quarter of the Pinar Del Rio while the Irland was stopped.

No accurate proof was offered as to the engine movements of the Domira, and, as to the attempted statement by the pilot from memory of notes given him by one of the Domira’s officers as to her engine movements, nothing further need be said than that it is -to me entirely unconvincing.

There is no evidence that the Domira was sounding regulation fog signals, and neither the Pinar Del Rio nor the Irland heard fog signals from the Domira, and I am therefore of the opinion that she was not sounding them.

Notwithstanding the fact that the pilot Of the Domira says he stopped her engines when the fog signal was heard by him apparently forward of the Domira’s beam, I am not convinced that he is correct, but, if he is, then from the evidence with reference to the relative positions of the Domira and the Pinar Del Rio before the collision, when the Domira let her port anchor go, the Domira was certainly proceeding at an immoderate rate of speed in a fog, with such short visibility.

It is difficult to understand how the Domira could get herself in the position she was in, if the pilot, helmsman, and lookout were attentive to their duties.

With both the Pinar Del Rio and the Ir-land sounding fog signals, they should have been reported, and the Domira should have much earlier reduced her speed. The pilot should have seen that the Domira was kept on the channel course, and, if that was the order of the pilot, the helmsman should have kept the Domira on that course.

The Domira was at fault for a violation of the narrow channel rule in not keeping on her own side of the channel, and for crossing the channel in a fog, for failing to sound regulation fog signals, and for proceeding in a fog at immoderate speed, in violation of' article 16 of the Pilot Rules; and I believe that, under the meager testimony that is pre-' sented as to the lookout, there is a doubt as to that duty having been properly performed on the Domira, and that doubt should be resolved against her. The Ariadne, 13 Wall. 475, 20 L. Ed. 542.

The Irland was on her own side of the channel and must have been with a course north magnetic and passing close to all red-buoys, as the evidence shows.

She was sounding regulation fog signals, and these were heard by both the Pinar Del Rio and the Domira.

The Irland sounded her two-blast signal to the Pinar Del Rio, after and not before the vessels came in sight of each other.

There has been much discussion of the speed of the Irland before she passed buoy 10, but that is immaterial as it is her speed above buoy 10 which counts. She passed buoy 10 at 11:46 o’clock a. m. and the collision occurred at 12:12 o’clock p. m., elapsed time between 25 and 26 minutes, and the distance about 1% miles, average less than three knots. This was a proper speed in a fog. The Umbria, 166 U. S. 404, 412, 17 S. Ct. 610, 41 L. Ed. 1053; The Martello, 153 U. S. 64, 14 S. Ct. 723, 38 L. Ed. 637; The Colorado, 91 U. S. 692, 702, 23 L. Ed. 379.

The Irland maintained a good lookout and stopped her engines as required by the second paragraph of article 16 of the Inland Rules of Navigation, immediately upon first hearing the fog signal of the Pinar Del Rio.

No fog signal was heard from the Domira, and therefore the engines could not he stopped because of a signal from her; but the fact is that the Irland did not start her engines ahead after they were stopped for the Pinar Del Rio, and therefore the Irland’s engines were stopped when the Domira came in sight, and, appreciating the danger of a collision, the Irland reversed her engines and let go both her anchors.'

In all instances I have given greater weight to the testimony of those on the vessel as to what that vessel did than to the opinion of those on other vessels, except where, from all the facts, it seemed clear to me that the witness on the vessel was in error.

The faults of the Domira were clearly established, and are ample to account for the collision, and she cannot relieve herself in whole or in part by raising a doubt with regard to the management of the Irland, and there is no reason why this court should be astute to find fault on the part of the Irland. The City of New York, 147 U. S. 72, 13 S. Ct. 211, 37 L. Ed. 84; Steffens v. United States (C. C. A.) 32 E.(2d) 206; The Livingstone (C. C. A.) 113 F. 879.

I find as conclusions of law:

The steamship Domira is solely at fault for negligently coming into contact with the motorship Irland and damaging the Irland and the cargo on board the Domira, and in not keeping on her own starboard side of the channel, for failing to sound regulation fog signals, for proceeding in a fog at immoderate speed, and in failing to maintain a proper and efficient lookout.

The motorship Irland is without fault.

The cargo on the steamship Domira is without fault.

The steamship Pinar Del Rio is without fault.

Cross-libelant A/D Det Dansk Eranske Dampskibselskab, owner of the motor vessel Irland, is entitled to recover its damages, interest, and costs against the steamship Domira.

The intervening petitioners Niles-BementPond Company are not entitled to any recovery against the Irland or the Pinar Del Rio.

The steamship Pinar Del Rio is entitled to a dismissal of the libel-as against it in the first above entitled action, with costs, against the libelant in that action.

The motorship Irland is entitled to a dismissal of the libel as against it in the first above entitled action, with costs against the libelant in that action.

A decree may be entered in the first above entitled action in favor of the motorship Ir-land dismissing the petition of the intervening petitioners, and the libel as to it, with costs against the libelant Thomas Finnie, master of the steamship Domira, and in favor of the steamship Pinar Del Rio dismissing the petition of the intervening petitioners, and the libel as to it, with costs against the libelant Thomas Finnie, master of the steamship Domira.

A decree may be entered in the second above entitled action in favor of the libelant A/D Det Dansk Franske Dampskibselskab against the steamship Domira, with costs and the usual order of reference.

Settle on notice.

If this opinion is not considered a sufficient compliance with rule 46% of the Rules in Admiralty, findings of fact and conclusions of law in accordance’ herewith may be submitted.