author: RUDKIN, Circuit Judge.

text:
    RIVERDALE CO-OPERATIVE CREAMERY ASS’N v. COMMISSIONER OF INTERNAL REVENUE.
    No. 6242.
    Circuit Court of Appeals, Ninth Circuit.
    April 6, 1931.

      Thomas R. Dempsey and A. Calder Mackay, both of Los Angeles, Cal., for petitioner.
    G. A. Youngquist, Asst. Atty. Gen., and Sewall Key, Helen Carloss, and Hayner N. Larson, Sp. Assts. to Atty. Gen. (C. M. Charest, Gen. Counsel, and Frank M. Thompson, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for respondent.
    Before RUDKIN, WILBUR, and SAWTELLE, Circuit Judges.
   RUDKIN, Circuit Judge.

This is a petition to review a decision of the Board of Tax Appeals determining deficiencies in income and profit taxes for the years 1920 and 1921, and denying a claim for exemptions under section 231 (11) of the’ Revenue Act of 1918 (40 Stat. 1076) and section 231 (11) of the Revenue Act of 1921 (42 Stat. 253), which provide, in identical language, that the following organizations shall be exempt from taxation:

“(11) Farmers’, fruit growers’, or like associations, organized and operated as sales agents for the purpose of marketing the products of members and turning back to them the proceeds of sales, less the necessary selling expenses, on the basis of the quantity of produce furnished by them.”

The facts as found by the Board, so far as deemed material, are as follows: The petitioner was organized as a co-operative association under the laws of the State of California by dairymen living in the vicinity of Riverdale, many of whom assisted in hauling machinery and material for the construction of the plant or dairy. The capital stock of the association was fixed at $10,000, represented by membership certificates for the sum of $100 each; no member being entitled to hold more than one of such certificates. The association commenced operations in January, 1911. In June of that year it borrowed the sum of $8,000 to meet contractual obligations and to enable it to carry on its business. In 1918 it borrowed the further sum of $40,000 on promissory notes guaranteed by members, for the purpose of enlarging its plant. During the years here in question, and in prior years, it gathered milk and cream from producers within an area of approximately ten square miles. In 1920 the average number of its patrons was 310, of which number 74 were members. The total income for that year was approximately $700,000; the amount paid to patrons approximately $520,000; operating expenses approximately $170,000; and the amount of indebtedness paid off $13,-000. In 1921 the average number of patrons was 351, of which number 79 were members. The total income for that year was approximately $600,000; the amount paid to patrons approximately $407,000; operating expenses approximately $168,000, and the amount of indebtedness paid off $17,000'. About 52 per cent, of the business transacted by the association during these years was for members and the balance for nonmembers. In carrying out the objects and purposes of the association, members and nonmembers were treated alike, aside from the fact that a dividend was paid to members, equal to 8 per cent, of the amount of their investments. But the operating expenses deducted from the proceeds of sales of products of both members and nonmembers included, not only necessary selling expenses, as provided by the statute, but also a reserve or sinking fund sufficient to pay the indebtedness of the association, with interest accruing thereon, the cost of the plant and equipment, and improvements and additions thereto, in which nonmembers had no interest. The respondent contends that the petitioner is not entitled to the exemptions claimed, for three reasons: First, because petitioner was not organized for the purposes specified in the statute; second, because the products marketed by the petitioner were not those of members only;- and, third, because the entire proceeds of sales were not turned back to purchasers less the necessary selling expenses.

' The purposes for which the petitioner was organized, as disclosed by its articles of incorporation, were quite general, and included the transaction of almost every kind of lawful business, but no reference was made to any such sales agencies as are defined in the revenue acts. However, if the petitioner confined its activities within the narrow sphere defined by the revenue acts, the claim of exemption should perhaps not be denied simply because of the generality of its powers in other respects. But it would seem that the exemption is necessarily limited to such associations as market the products of members only, and to such as return the proceeds of sales to their members, less the necessary selling expenses.

In construing the statutory exemption, we are confronted, by two well-established rules. One is, that the province of construction lies wholly within the domain of ambiguity, that rules of statutory construction are permissible to solve doubts, not to create them, and that it is not allowable to interpret what has no need of interpretation. Ruggles v. Illinois, 108 U. S. 526, 534, 2 S. Ct. 832, 27 L. Ed. 812; Hamilton v. Rathbone, 175 U. S. 414, 421, 20 S. Ct. 155, 44 L. Ed. 219; Wisconsin R. R. Com. v. C. B. & Q. R. R. Co., 257 U. S. 563, 589, 42 S. Ct. 232, 66 L. Ed. 371, 22 A. L. R. 1086. The other is, that exemptions from taxation are not favored, and that in construing statutes granting such ex emptions nothing is to be taken by inference or implication. Hoge v. Railroad Co., 99 U. S. 348, 355, 25 L. Ed. 303; Bank v. Tennessee, 104 U. S. 493, 495, 26 L. Ed. 810; Bank of Commerce v. Tennessee, 161 U. S. 134,146, 16 S. Ct. 456, 40 L. Ed. 645.

Treasury regulations promulgated under the Revenue Acts of 1918 and 1921 conform to the views we have expressed. Thus, article 522 of Regulation 45, relating to co-operative association, says: “Cooperative associations, acting as sales agents for farmers or others, in order to come within the exemption must establish that for their own account they have no net income. Cooperative dairy companies, which are engaged in collecting milk and disposing of it or the products thereof and distributing the proceeds, less necessary operating expenses, among their members upon the basis of the quantity of milk or of butterfat in the milk furnished by such members, are exempt from the tax. If the proceeds of the business are distributed in any other way than on such a proportionate basis, the company will be subject to tax. A farmers’ association is not exempt from taxation where in accounting to farmers furnishing produce for the proceeds of sales it deducts more than the necessary selling expenses incurred.”

Section 231 (11) of the Revenue Act of 1924 (43 Stat. 283 [26 USCA § 982 note] ) is in all respects similar to the revenue acts of the previous years, but the regulations promulgated thereunder are much broader than those promulgated under the earlier acts. Thus, article 522 of Regulation 65, relating to co-operative associations, says:

“Cooperative associations, acting as sales agents for farmers, fruit growers, live-stock growers, dairymen, etc., or engaged in the ' marketing of farm products, and turning back to the producers the proceeds of the sales of their products, less the necessary operating expenses, on the basis of the produce furnished by them, are exempt from income tax and shall not be required to file returns. Thus cooperative dairy companies which are engaged in collecting milk and disposing of it or the products thereof and distributing the proceeds, less necessary operating expenses among the producers upon the basis of the quantity of milk .or of butterfat in the milk furnished by such producers, are exempt from the tax. If the proceeds of the business are distributed in any other way than on such a proportionate basis, the association does not meet the requirements of the statute and is not exempt. The accumulation and maintenance of a reasonable reserve for depreciation or possible losses or a reserve required by state statute or a reasonable sinking fund or surplus to provide for the erection of buildings and facilities required in the business, or for the purchase and installa/tion of machinery and equipment, or to retire indebtedness^ incurred for such purposes, will not destroy the exemption.”

It will be seen that under this regulation the exemption is not limited to associations organized and operated as sales agents for the purpose of marketing the products of their members, and the deduction from the gross proceeds of sales is not limited to the necessary selling expenses, hut extends to a reasonable reserve for depreciation or possible loss and to a sinking fund or surplus to provide for the erection of buildings and facilities required in the business, or for the purchase and installation of machinery and equipment, or to retire indebtedness incurred for such purposes.

Section 231 (12) of the Revenue Act of 1926 (44 Stat. 40' [26 USCA § 982]) follows largely the regulations promulgated under the act of 1924, to which reference has been made. The 1926 act extends to associations organized and operated for the purpose of marketing the products of members or other producers, where the value of the products marketed for nonmembers does not exceed the value of the products marketed for members, and provides that exemption shall not be denied any such association because there is accumulated and maintained by it a reserve required by state law, or a reasonable reserve for any necessary purpose.

We are not particularly concerned with, the regulations promulgated under the act of. 1924, because the revenue aets in farce at tbe time are our guide, and we take it that exemptions allowed by Congress can neither be enlarged nor curtailed by administrative officers or by the courts. And, taking the statutes as our guide, we are of opinion that the exemptions claimed cannot be allowed, because the petitioner was not organized and operated during the years in question as a sales agent for the purpose of marketing the products of its members, and more especially because it did .not turn back to its members and producers the proceeds of sales less necessary selling expenses. In addition to necessary selling expenses, there was deducted or reserved from the proceeds of sales a sinking fund sufficient to retire the indebtedness of the petitioner, to provide for the erection of buildings and facilities required in the business, and for the purchase and installation of machinery and equipment. From this reserve there has developed a plant of considerable value, which belongs exclusively to the petitioner and its members. Expenses incurred for such purposes do not, in our opinion, fall within any reasonable definition' of the term necessary selling expenses.

Nor can the petitioner derive any benefit from the Revenue Act of 1926, because that act liberalized and extended the provisions of the earlier aets in a material way, and was not made retroactive. Shwab v. Doyle, 258 U. S. 529, 536, 42 S. Ct. 391, 66 L. Ed. 747, 26 A. L. R. 1454; Russell v. United States, 278 U. S. 181, 188, 49 S. Ct. 121, 73 L. Ed. 255; De Loss v. Commissioner of Internal Revenue (C. C. A.) 28 F.(2d) 803, 805; Commissioner of Internal Revenue v. Richfield Oil Co. (C. C. A.) 42 F.(2d) 360, 361.

Apparently, the petitioner places much reliance on the decision in United States v. Loan & Bldg. Co., 278 U. S. 55, 49 S. Ct. 39, 73 L. Ed. 180. The court there had under consideration the provisions of the different revenue acts exempting building and loan associations. No definition of such associations was given in any of the several aets, and the court held that associations of that kind and under that name, organized under the laws of the different states, and recognized as building and loan associations by the states in which organized, were entitled to the exemption, unless their operations were so related to mere money making as to constitute a gross abuse of the name. But in this ease there was no general exemption of co-operative associations. The exemption was expressly limited to associations organized and operated for a specific purpose and in a specific manner.

For these reasons, we are of opinion that the claim of exemption was properly disallowed, and the decision of the Board of Tax Appeals is affirmed.


source: Caselaw Access Project

author: HICKENLOOPER, Circuit Judge.

license: Public Domain

text:
    SOUTHWARK FOUNDRY & MACHINE CO. v. FRANZ FOUNDRY & MACHINE CO.
    No. 5652.
    Circuit Court of Appeals, Sixth Circuit.
    April 10, 1931.

      Clan Crawford, of Cleveland, Ohio (Squire, Sanders & Dempsey, of Cleveland, Ohio, on the brief), for appellant.
    Willis Bacon, of Akron, Ohio (Burch, Bacon, Sitting & Pheley, of Akron, Ohio, on the brief), for appellee.
    Before MOORMAN, HICKS, and HICKENLOOPER, Circuit Judges.
   HICKENLOOPER, Circuit Judge.

Appellee, plaintiff below, brought its action in the court of common pleas of Summit county, Ohio, upon an account for'work and labor done under contract with the defendant, a foreign corporation. The petition was drawn in the short or Code form. Return of summons shows service upon one David M. Donley, “managing agent” of the defendant. The cause was removed to the United States .District Court, and thereafter the defendant, appearing specially for the purpose of such motion and for no other purpose, moved the court to set aside and quash the pretended service of summons upon the ground that it was made upon the statutory agent of the company, designated under section 179 of the General Code of Ohio, that the cause of action stated in plaintiff’s petition grew out of business transacted by the defendant outside the state of Ohio and before the defendant was authorized to do business in such state, and that service upon such agent was therefore, not authorized in this ease. There is no contention that at the time of suit the defendant was not present, in so far as it could be present, and doing business in Ohio. Mitchell Furniture Co. v. Selden Breck Construction Co., 257 U. S. 213, 42 S. Ct. 84, 66 L. Ed. 201, is cited as controlling authority for the position taken. An affidavit setting forth these facts was filed with the motion and made part thereof by reference. The motion to quash being overruled, the defendant filed a general denial, stating, however, that it was “not waiving or intending to waive its motion to quash service of summons heretofore filed, or its objection to the jurisdiction of this court over its person, but still protesting that the court is without jurisdiction,” ete. The overruling of the motion to quash is assigned as the error principally relied upon.

In the early half of the nineteenth century all corporations were regarded as purely artificial legal entities, existing only in contemplation of law, and incapable of having a recognized legal existence outside the boundaries of the several sovereignties by which they were created. Cf. Bank of Augusta v. Earle, 13 Pet. 519, 10 L. Ed. 274. Whether this doctrine should continue to be accepted to its full import as the basis of judicial determination, in view of the changed and changing conditions of corporate business, is perhaps the determinative question here. It is common knowledge that Delaware and New Jersey corporations exist, for example, whose only plants and whose general offices are located, and all of whose business is transacted, except possibly the annual-meetings of stockholders or periodic meetings of the boards of directors, outside -the states of their creation. From the earliest-times, however, it was recognized that a foreign corporation might “consent” to be sued in a jurisdiction other than that of its creation. This consent was but a fietion of the law (Smolik v. Phila. & R. Coal & Iron Co., 222 F. 148 [D. C. N. Y.]; Penn Fire Ins. Co. v. Gold Issue Mining Co., 243 U. S. 93, 96, 37 S. Ct. 344, 61 L. Ed. 610), and was said to be implied from the designation of a statutory agent upon whom service of summons could be made, or even from transacting business within the state without making such designation; but the implication of consent, where relied upon, was extended no further than was expressly required by the legislation prescribing the conditions precedent to doing business within the state and the construction which had been placed upon that legislation by the court of last resort in such state. Simon v. So. Ry., 236 U. S. 115, 130, 35 S. Ct. 255, 59 L. Ed. 492; Mitchell Furniture Co. v. Selden Breck Construction Co., supra.

But .the. later decisions of the Supreme Court, although still as of course relying upon the established doctrine of a limited, implied consent where the corporation had not designated an agent to accept service, or, having designated such agent, had substantially withdrawn from doing business within the state, seem also to recognize at least a partial abandonment of the old doctrine that a corporation could have no legal existence outside the stqte of its creation (to avoid the effect of which the fiction of implied consent had been created), and to accept as a fact the more modem and practical view that a corporation may be transacting business in a foreign state to such extent “as to warrant the inference that it was present there.” St. Louis S. W. Ry. v. Alexander, 227 U. S. 218, 33 S. Ct. 245, 57 L. Ed. 486, Ann. Cas. 1915B, 77; Philadelphia & Reading Ry. Co. v, McKibbin, 243 U. S. 264, 265, 37 S. Ct. 280, 61 L. Ed. 710; Rosenberg Bros. & Co. v. Curtis Brown Co., 260 U. S. 516, 43 S. Ct. 170, 67 L. Ed. 372; Bank of America v. Whitney Bank, 261 U. S. 171, 172, 43 S. Ct. 311, 67 L. Ed. 594. Such position is wholly inconsistent with the earlier doctrine, and if, as held in St. Louis S. W. Ry. v. Alexander, page 226 of 227 U. S., 33 S. Ct. 245, 247, a corporation may be regarded as transacting business in a foreign state “to such an extent as to subject it to the jurisdiction and laws thereof,” either consent to be there served with summons, as any domestic corporation is served, must be implied in every such case, or an application of the doctrine of implied consent must be considered as no longer necessary where the facts warrant the inference of actual presence.

This we think is the distinction between the instant ease and the eases of Mitchell Furniture Co. v. Selden Breck Constr. Co. and Kelly v. Johnson Nut Co., 38 F.(2d) 177, 178 (C. C. A. 6). In each of these eases the defendant had withdrawn from the state. The question then was whether such consent to be sued in Ohio, as is implied from the designation of an agent to accept service of summons, extended to transitory causes of action which arose outside the state, or only to those which arose “in respect of business transacted within the state.” Both decisions recognized that jurisdiction over an absent defendant must depend upon the scope to be given to the implied consent, but neither decides that service upon the statutory agent is invalid if such service is made while the defendant is transacting business within the state, and while the inference of presence there is warranted- This last issue is the only one now raised.

In Maichok v. Bertha-Consumers Co., 25 F.(2d) 257, this court stated the settled rule in Ohio to be' “that a foreign corporation, actually doing business within the state and having therein a managing agent who is served, is subject to be sued therein upon a transitory cause of action arising outside of the state.” The question whether, under such conditions, service might be made upon' the statutory agent was not there decided; but, if considered from the viewpoint .either of implied consent or of the inference of actual presence, this decision must necessarily be regarded as defining the scope of such implied consent to include consent to be served under, and to the applicability of, the general laws of the state, or as. holding that the implication of consent to be sued is no longer necessary because of the inference of presence and of subjection to the jurisdiction of the state. From any viewpoint the present question resolves itself into one of the combined effect of the various statutes relative to service upon a foreign corporation entering Ohio to transact business there.

The statutes of Ohio regulating service •of summons upon corporations are quite broad in their provisions. General Code, § 11288, provides in general terms the methods of obtaining service of summons upon a corporation, by service upon its president or other chief officer, its cashier, treasurer, secretary, clerk, managing agent, ete. General Code, § 11290, provides: “When the defendant is a foreign corporation, having a managing agent in this state, the service may be upon such agent.” General Code, § 179, provides for the designation of an agent of a foreign corporation entering this state, “upon-whom process against the corporation may be served within this state.” All these sections are entitled to that liberal construction given to remedial statutes. All .must be read in pari materia. We are aware of some conflict in the nisi prius courts of Ohio as respects the cumulative or the exclusive character of these enactments, but we observe no ambiguity. General Code, § 10214, requires that they be “liberally construed, in order to * * * assist the parties in obtaining justice.” While such rule of liberal construction cannot convert that whieh is not good into a valid service, and while the legislative power of the state is limited, in providing what shall constitute valid service, to that which may reasonably be expected to give the notice aimed at, it seems to us that the manifest intention of the Ohio General Assembly was to facilitate the service of process upon corporations, foreign and domestic, by affording litigants a wide variety of choice as to the corporate representative upon whom such service might be made. Thus, in the absence of contrary ruling by the Supreme Court of the state, we must construe all these provisions as cumulative.

The courts of Ohio “are open to all who may seek relief therein, against any one who can be reached by its process.” (Italics ours.) Handy v. Insurance Co., 37 Ohio St. 366, 370. Passing by questions of the survival of the right to serve the statutory or designated agent after the foreign corporation has left the state, or, otherwise expressed, when it is not doing business in Ohio “in such manner as to warrant the inference that it was present there,” and giving cumulative effect to the provisions of General Code, §§ 179, 11288, and 11290, we are constrained to interpret the provision of section 179, for the appointment of an agent “upon whom process against the corporation may be served within this state,” as permitting service upon such designated agent in any action upon which the corporation was then amenable to suit in Ohio, by service in any of the various methods provided, and while the corporation was in fact exercising its franchises there with the consent of the state. Such construction only is consistent with the unqualified language of section 179 and with the apparent intent to simplify the service of process and to provide a large number of apparently interchangeable methods for making such service. We see nothing therein inconsistent with either the doctrine or dicta of Mitchell Furniture Co. v. Selden Breek Construction Co. If the service was valid if made upon the designated agent, as such, it would not be invalidated because such agent was denominated a “managing agent” in the return. Such irregularity, if it be one, might be corrected upon plea in abatement or motion to make the return conform to the faet. Cf. Monanchik v. Bertha-Consumers Co., 25 F. (2d) 257, 258 (C. C. A. 6). In truth, under liberal construction, the designated agent might well be regarded as legitimately included in the term “managing agent” as and for purposes of litigation.

We pass, without deciding, other questions arising upon the record, viz. whether the liability was rightly to be considered as “incurred” within the state (cf. General Code, § 181), since it arose from work and labor performed by plaintiff upon certain eastings of the defendant which were delivered by it to plaintiff in Ohio; whether the connection with “business transacted within the state” was not sufficiently close to permit action there under the doctrine of implied consent and regardless of the theory of presence (compare Louisville & N. R. Co. v. Chatters, 279 U. S. 320, 328, 329, 49 S. Ct. 329, 73 L. Ed. 711); and whether, by moving for judgment against itself for an admitted though limited sum, the defendant did not become an actor in the case, recognizing the action as in court, invoking the jurisdiction of the court for a final determination of the merits of the controversy, and thereby entering its appearance. For a general statement of the rule as to entering appearance, see Massachusetts Bonding & Ins. Co. v. Concrete Steel Bridge Co., 37 F.(2d) 695 (C. C. A. 4), and compare Merchants’ Heat & Lt. Co. v. Clow & Sons, 204 U. S. 286, 290, 27 S. Ct. 285, 51 L. Ed. 488. Since the service is sustained, a decision of these other points becomes unnecessary.

It is also contended that the short form of pleading was improperly used in this ease and indicated the purchase and sale of castings rather than work and labor performed upon them. Defendant argues that, had this not been so, various elements of counterclaim might have been urged to reduce the amount of recovery. Some of the elements of counterclaim suggested did not arise from the transaction in suit, and, as to these, the defendant certainly is not estopped by the judgment. As to the other elements of counterclaim, it is manifest that the defendant was in no way actually misled by the form of pleading. Nor did the defendant, by motion or otherwise, seek to clarify or reform such pleading. It was accepted as sufficient for the presentation of the issues, and, the defendant having elected to proceed thereunder, after its motion to quash -was overruled, cannot now be heard to complain that only a part of its defenses to, or in reduction of, recovery,, were presented. The contention is without merit, and we of course do not decide whether defendant is foreclosed by the judgment from still litigating all such claims in another action.

For the reasons above stated, the judgment of the District Court is affirmed.


author: MOORMAN, Circuit Judge.

text:
    DAVIS v. HAMILTON COUNTY, TENN.
    No. 5617.
    Circuit Court of Appeals, Sixth Circuit.
    April 15, 1931.
    J. A. Fowler, of Knoxville, Tenn. (H. G. Fowler and S. F. Fowler, both of Knoxville, Tenn., on the brief), for appellant.
    Frank Spurlock, of Chattanooga, Tenn. (Will F. Chamlee and Brown & Spurlock, all of Chattanooga, Tenn., on the brief), for appellee.
    Before DENISON, MOORMAN, and HICKENLOOPER, Circuit Judges.
   MOORMAN, Circuit Judge.

The opinion on the first appeal of this ease is reported in (C. C. A.) 278 F. 593. Whether the contract which Davis made with the bridge committee provided, in terms or by implication, that his total compensation was not to exceed 5 per cent, of the expenditures for a bridge costing not in excess of $500,000, was not determined on that appeal. The question decided was that the ratification by the county, after the dismissal of Davis, of contracts, made with contractors for the erection of the bridge, did not ratify an unauthorized contract between the bridge committee and Davis. The decision was based on the assumption, presumably indulged by the parties, that the contract with Davis was for 5 per cent, of the cost of the bridge, whatever' that might be. Upon the same assumption, we see no reason why a like decision must not be reached on the present ease, for, regardless of the power of the county, the committee had no authority to employ Davis to construct a bridge costing more than $500,000, and we have observed no ratification of such action in the record. But, apart from that consideration, we agree with the opinion expressed by the trial court that, in view of all the facts and circumstances, the contract is to be construed as providing for an engineering fee of 5 per cent, of the cost of a bridge not to cost exceeding $500,000.

Having reached the conclusion just stated, it is not necessary to consider whether the county court had the power, under the general statutes of Tennessee, apart from the Private Acts of 1913 and 1917, to contract for the erection of a bridge without limitation as to its cost. Even if the court had this power, it certainly never contemplated exercising it and never authorized the committee to contract with Davis upon such basis. Deciding to construct the bridge un-' der authority of the act of 1913, the court appointed ,a bridge committee to adopt plans, advertise for bids for, and superintend the erection of, the bridge. In the resolution which the court adopted, it was provided that the total cost of the bridge should not exceed $500,000. The committee advertised for bids, and Davis, seeing the advertisement, wrote the committee for information, and was informed that a bridge was to be built, but that the “cost for structure complete must-not exeeed $500,000.” Subsequently a number of engineers, including Davis, appeared before the committee. At that time Davis submitted a design for a concrete bridge, had extended conferences with the committee, and was repeatedly told that the bridge would have to be constructed within the appropriation of $500,000. Later he submitted designs of bridges which' he said could be built within that limit. In April of 1914 he was selected by the committee as its consulting engineer, and, after the War Department had approved the erection of the bridge, prepared complete plans and specifications for its construction. In September he requested a payment- on account of services. Replying to this request, the committee referred to its understanding with him that, if it were .ascertained that the bridge could not be built within the appropriation, he would be paid a reasonable fee for his services rendered np to that time, and then stated that, since it could not be ascertained what the bridge would cost until the bids were in, the advance payment would be made and be considered a part of the proposed reasonable compensation in ease the bridge could not be built for the sum named, or, in ease it could, as a payment on account of the 5 per cent, commission to which he would be entitled. This payment w.as accepted by Davis without question or condition. The bids of the contractors having come in, contracts were made with two construction companies, one to construct the concrete portion of the bridge for $342,491, and the other to construct the bascule, or movable span, for $119,-096. This did not take into account certain other expenditures it would be necessary to make, but it was thought by the committee, and seemingly by Davis, that the remaining $38,413 with the savings on an appropriation that the county had made for repairs on another bridge would be sufficient to take care of these further expenses.

Up to October 26th no formal contract had been made with Davis. On that date such a contract was signed by the committee. It provided that the county should pay Davis a sum equal to 5 per cent, of the total cost of all work involved in the construction and completion of the bridge; that $3,000 on account should be paid when the preliminary drawings were submitted to, and accepted by, the committee; that an additional $5,000 should be paid not later than October 27th; that, upon the award of any contract for construction, the estimated amount of the full commissions should be determined, and one-half thereof, less total previous payments, paid; and that the balance, 2% per cent., should be paid in monthly installments according to monthly estimates of the work done. The contracts for construction were let on October 31st and November 25th. The $5,000 due Davis on October 27th having been paid, on December 1st the committee sent to him two warrants totaling $3,539.67 as the amount then due him. This amount was arrived at, as he was advised, by computing his commissions on the contracts that had been let ($461,587), taking one-half thereof ($11,539.67), and deducting therefrom the amounts previously paid. Davis accepted the warrants and cashed them without question. Thereafter, until he was discharged, he was paid commissions of 2% per cent, on the monthly estimates of the contractors. As work on the bridge progressed, difficulties were encountered, additional borings were required, and it was found that the bridge would cost a great deal more than had been thought. The committee, later becoming dissatisfied with Davis’ services, dismissed him before it had exhausted its appropriation.

The nature of this action is one in damages for breach of contract. The critical question, in our view, is what was the essence of the contract — did it provide for compensation on the basis of 5 per cent, of the cost of construction, whatever it might be, or on the basis of 5 per cent, of a cost not to exceed $500,000? The contract in terms did not limit the compensation to any definite amount; it provided for the payment of “five per cent, of the total cost * * * of all work involved in the construction and completion of the said bridge.” The bridge was not described other than as “a new bridge” across the Tennessee river at the foot of Market street in Chattanooga, to be erected on a site “already seized or to be hereafter seized.” This referred, of course, to a bridge which Davis and the committee believed would not cost over $500,000, and for which the committee had said to him it could not expend more than that amount. It is true that the contract might Have provided for a fixed fee or for commissions on expenditures not exceeding a fixed amount. It did not, but both parties in their dealings with each other construed it as a contract fór commissions for the construction of a bridge not" to .cost more than $500,000. In the response to the first inquiry that Davis made, he was told that the cost of the “structure complete must not exceed” that amount. Bids were considered and accepted by the committee with this maximum authority constantly in mind, and always, after consultation with Davis. Before the formal contract was entered into, he was given a payment on account, and was informed that, if it should be ascertained that the bridge could not be built within the-appropriation, he would only be paid for services rendered to that time, but, if it could be built within the appropriation, the payment then being made should be on account of the 5 per cent, commission to which he would be entitled. His contract with the committee in its first paragraph referred to the resolution of the county court of January, 1914, limiting the committee to a “total cost” of $500,000. Both he and the committee contemplated at that time the erection of a bridge within that authority. In the light of that understanding and purpose, and lacking any intimation in its terms of an intention to expend more, the contract is to be construed, we think, as embodying the purpose of the parties to fix the maximum compensation at 5 per cent, of the authorized cost. Nelson v. Ohio Cultivator Co., 188 F. 620 (6 C. C. A.); Canadian Nat. Ry. Co. v. Geo. M. Jones Co., 27 F.(2d) 240 (6 C. C. A.).

The judgment is affirmed.


text:
    WHITE TOOL & SUPPLY CO. v. AIR REDUCTION CO., Inc.
    No. 5653.
    Circuit Court of Appeals, Sixth Circuit.
    April 15, 1931.
    Drury W. Cooper, of New York City (Cooper, Kerr & Dunham, of New York City, Kwis, Hudson & Kent and B. M. Kent, all of Cleveland, Ohio, on the brief), for appellant.
    Dean S. Edmonds, of New York City (Brockett, Hyde, Higley & Meyer, of Cleveland, Ohio, and Pennie, Davis, Marvin & Edmonds and Leslie B. Young, all of New York City, on the brief), for appellee.
    Before MOORMAN, HICKS, and HICKENLOOPER, Circuit Judges.
   MOORMAN, Circuit Judge.

This is a suit for infringement of claims 1, 2 and 4 of the Bueknam patent, No. 1,059,-329, for an apparatus for severing metals by means of gases. The defenses are invalidity and noninfringement. The court below denied both defenses, sustaining all the claims relied upon and holding them infringed.

The patented structure is used for making cuts of any desired form or design in metals of varying thicknesses. It consists of a blowpipe such as an oxyacetylene torch for making the cut, a tracer for following a design or pattern, a supporting structure for the torch and tracer which, when the tracer is moved according to the pattern, will cause a like movement in the torch and the cutting of a like design in the metal. The tracer is propelled by means of gearing which may be operated by hand or motor, the preferred means being a motor. The patent illustrates preferred and certain alternative forms. Claims 1 and 4 call broadly for a combination comprising three elements: (1) Means for delivering jets of gaseous heating and oxidizing agents; (2) means for supporting the jet for universal movement in a plane; and (3) means for propelling the jet-delivering means at uniform speed in any and changing directions. Claim 2 is more limited, calling for “pantographie connections” for producing relative movement between the jet-delivering means and the work in accordance with the movements of the tracer.

The claim of aggregation is based upon the ground that the elements of the claims were old, and that, as brought together, each of them performs its characteristic and well-known function without modifying the action or functions of the others. The elements, it is true, were old in other associations, but we do not find in any of the earlier .patents or older devices a functional or co-operative equivalent of the Bueknam combination. This is evidenced by the favorable reception that the device received from the trade when it was placed on the market. Before Buck-mam entered the field no one had thought of the advantages of a gas cutting torch that could be mechanically propelled at a uniform and regulable rate .of speed. His device embodied elements that brought about that character of operation for the first time, with the result that it was almost immediately accepted by the public and has since dominated the field in which it operates. Considered in this light, we have no difficulty in concluding that it is a true combination.

The object of the invention is not merely to cut metal, but “to secure accuracy, continuity and cleanness of cutting,” and, lacking uniformity of speed, this eould not be done to the high degree that it is done by the device as presently constituted. This element 'is stated in the patent specifications to be of “primary importance.” We do not find that it has been utilized in any of the earlier structures. The Foster patent, No. 978,012, which is perhaps the closest reference, was for an apparatus having a gas-delivering torch mounted on a pantographie machine used for making designs on leather. Undoubtedly this device might have been, reorganized and adapted to the cutting of metal, but it contained no suggestion of uniformity of speed which is the necessary result of the co-operative action of Bucknam’s mechanical means and is itself made an element at least of claims 1 and 4. It was the taking of the well-known older elements of Foster and other devices and combining them with an element not found in any of them that in our opinion constituted the Bueknam invention. Foster, lacking this additional element, does not amount to anticipation. Some of the patents in related arts, such as Palmer, No. 308,-982, for a quilting machine, and Edison, No. 847,746, for an electric welding machine, had mechanical propulsion which may be assumed to have been regulable, but in none of them was uniformity of speed sought or essential in attaining the objects of the patent. Other patents cited cover devices for supporting a movable gas cutting torch. Some of them eould be used to cut circular or curved pieces, but no patent cited except Foster was adaptable to the cutting of the irregular designs and shapes that Bueknam’s device cuts, and, as pointed out, Foster lacks the important feature of uniform speed control. None of the prior patents suggests this element, and none, in our opinion, anticipates claims 1 and 4. The prior publications relied upon show nothing that is not shown in the earlier patents.

i The claim of anticipation by prior public use is based on the use of the American Oxhydric machine. This machine comprised a slide movable longitudinally of the supporting base of the machine, on which there was a cross slide which carried a cutting torch with means manually to operate and control the movement of both slides so as to effect a movement of the torch in any direction in a plane. The machine had no tracer, and the slides were operated by separate screws. The line of the cut was marked out on the piece to be cut, and the operator was required to watch the progress of the cutting jet and move the torch to cause it to follow the line. The machine seemed to have been devised as a straight line cutter. Unless operated by an expert, it would seem to have been unfitted for cutting irregular shapes such as are cut by the Bueknam machine. In any event, it had no efficient means for propelling the cutting tool at a uniform speed. We think its analogy to the patent in suit is no closer than some of the patents cited in the prior art.

Nor do we think the patent must be declared invalid because of double patenting. A patent for a “pantograph apparatus” was issued to Bueknam on the same day as the patent in suit. This other patent bears a lower patent number, No. 1,059,271, than the patent in suit, and it is contended by appellant that it discloses the same invention. As the two were issued as the result of one application, the case is different on this point from Sandy MacGregor Co. v. Vaco Grip Co., 2 F.(2d) 655 (6 C. C. A.). Appellee contends that the present patent may be sustained as covering an essentially distinct and separable device. Miller v. Eagle Mfg. Co., 151 U. S. 186, 14 S. Ct. 310, 38 L. Ed. 121. The position of the appellant is that claim 21 of the lower numbered patent is eo-extensive with the claims in suit. The claim in question calls for a pantographie apparatus having a swiveled tracer, a cutting apparatus, and'means for causing the cutting apparatus to turn in unison with the swiveled tracer. Nothing is said about uniform speed control, and, in our opinion, “means for causing the cutting apparatus to turn in unison with the swiveled tracer” is not the equivalent of means for propelling the torch “at uniform speed in any and changing directions.” Moreover, while it is stated in the specifications that the device carried or propelled by the pantograph “may be of any desired nature,” as, for example, a gas cutting apparatus, the patent relates broadly to a “pantograph apparatus.” In the absence of any call in the claims for uniform speed control, we see no reason why Bucknam should not have been permitted to make claim to the two combinations either by separate claims on the same application or by the division route, and thus take a separate patent for a combination including this element not included in the other combination. The Patent Office evidently thought he ought to do so. Such a patent might well be valid, while a patent for the combination without the uniform speed means might not be. ' We think there was no double patenting, even if it be assumed that because of its lower number patent No. 1,059,271 was’an earlier patent.

On the question of infringement, it is contended that, if the claims are to be given a construction that avoids anticipation by the American Oxhydrie machine and by prior patents, the term “means” as used therein must be construed as limiting the patentee to the particular form .of means disclosed in the patent, and, as thus limited, appellant’s device does not infringe, because its tool carrying and tool operating frame is of the double carriage type, whereas appellee’s is panto-graphic. As previously stated, we think claims 1 and 4 are valid as disclosing a combination employing for the first time uniformity of speed. This conclusion is necessarily founded upon the view tliat “means,” as used in the claims, is not referable to the primary elements as such, but to the connecting parts as they co-operatively accomplish the perfected operation. As thus construed, the claims are to be given as broad equivalency as is consistent with the inventive step. Davis Sewing Machine Co. v. New Departure Manufacturing Co., 217 F. 775 (6 C. C. A.). The double carriage machine is the means appellant employs for supporting the cutting torch for universal movement in a plane. Appellee uses the pantograph as a preferred form, its patent drawings disclosing no other, and claim 2 calling for that particular type of means. Claims 1 and 4, however, are not so limited, but call for means “supporting the same [the cutting torch] for universal movement in a plane” or for mechanism “supporting and propelling the same at uniform speed in any direction.” The use of a pantograph for accomplishing this movement was concededly old, but it was also old to use the double carriage for a like purpose. Badger, No. 561,367, Gregory, No. 883,798. Both were familiar structures, and' we see no reason why “means” or “mechanism” for supporting the torch in universal movement in a plane, as called for in the claims, would not cover any well-known mechanism commonly used for accomplishing such movement. The fact that appellant’s pattern takes the form of a templet, the tracer being a rotating spindle moved along the edges of the pattern, while appellee’s pattern is a drawing or design which is followed by a swiveled roller, is immaterial.' The tracer which appellee uses is not referred to in claims 1 and 4. Its use adds nothing to the invention. The only difference between the appellant’s device and the device called for in claims 1 and 4 is in the type of the jet-supporting and jet-moving frame, and in our opinion the one is the equivalent of the other in such combination. Claim 2, however, is specifically limited to a pantographie form, and, even if valid, would not be infringed. We do not pass upon the validity of this claim; it beiñg sufficient for present purposes that claims 1 and 4 are valid and infringed.

The decree below, so holding, is affirmed, with costs..


author: HICKS, Circuit Judge.

text:
    LEACH v. St. LOUIS-SAN FRANCISCO RY. CO. (two cases).
    No. 5631.
    Circuit Court of Appeals, Sixth Circuit.
    April 15, 1931.

      Lowell W. Taylor and A. A. Hornsby, both of Memphis, Tenn., for appellants.
    Canada, Williams & Russell, of Memphis, Tenn., for appellee.
    Before MOORMAN, HICKS, and HICKENLO O'PER, Circuit Judges.
   HICKS, Circuit Judge.

These eases were heard together both in the District Court and here. Appellant Ernest K. Leach, Jri, sued appellee for damages for personal injuries. E. K. Leach, Sr., father of Ernest K. Leach, Jr., sued .upon the same accident for damages for loss of the services of his son and for the expenses incident to the treatment of his injuries. At. the time of the accident Ernest K. Leach, •Jr., was about 12 years of age. On his way home about 5 o’clock p. m., November 7, 1928, he was walking along appellee’s right of way near its intersection with MeLemore avenue in Memphis, and as one of appellee’s freight trains started, overtook, and was slowly passing him, he ran along beside it, climbed upon it, and took a position between two box ears, where he rode until his left foot was somehow caught between the cars and crushed. He extricated his foot and jumped to the ground after he had ridden about a thousand feet. The train was moving very slowly when he got on it, but gradually increased its speed to about 15 miles per hour. Appellants here challenge the correctness of directed verdicts in favor of appellee upon motions made at the close of appellants’ evidence. We think the motions should have been denied.

As to the case of Ernest K. Leach, Jr.: The uncontradicted evidence is that “the man on the engine” leaned out of the window and watched, the boy as he climbed upon the train and that “the defendant’s employee up on top of one of the box cars” otherwise styled “another one of those in charge of the operation of the trains” saw him climb upon the ears. The inference is that these employees were the engineer and a brakeman. Nothing indicates that either of them knew the boy. It is fair to assume, however, that to them he had the appearance in size of the average boy of his age and with the train increasing its speed the engineer and brakeman must have known or at least a jury might reasonably conclude that they knew that the situation was perilous for such a boy. Neither of them did anything about it. We think that whether it was negligence for the engineer and fireman to unconcernedly permit the boy to board the train and continue in such position was at least a jury question. If these employees knew of his danger, it is settled that it was their duty to use ordinary care to prevent his injury. Gilbert v. Erie R. Co., 97 F. 747, 752 (C. C. A. 6); Robbins v. Penna. Co., 245 F. 435, 441 (C. C. A. 6). This is the familiar doctrine of “discovered peril.” Even a trespasser is entitled to the observance of dne care for his protection after those in charge of the train know that he has exposed himself to peril. Newport News & M. V. Co. v. Howe, 52 P. 362, 369 (C. C. A. 6); Felton v. Aubrey, 74 P. 350, 356 (C. C. A. 6); Salt Lake & U. R. Co. v. Trumbull (C. C. A.) 246 P. 806, 808; Kalmich v. White, 95 Conn. 568, 572, 111 A. 845; Trevethan v. Phila. & Reading Ry. Co., 244 Pa. 414, 416, 90 A. 796; Thompson on Neg. (2d Ed.) Vol. 2, sec. 1806; Cooley on Torts, § 674.

We cannot say that there was no adequate time, after the boy mounted the ears, to make protective measures effective. He boarded the train just after it started and while it was running very slowly. A fair inference is that he rode a considerable distance before he was injured; that he then extricated himself and jumped off after he had ridden about a thousand feet. Fair-minded men might reasonably believe that after the boy was seen entering between the cars the engineer could have stopped the train and avoided the accident or that the brakeman might have given the boy some effective warning of his peril and aided him to alight in safety. The evidence tends to show that the brakeman was on one of the box ears. If these protective steps or any of them could have been taken, then the question of whether the situation demanded their exercise was for the jury. The law of course requires no more than ordinary or due care but after all such terms as “ordinary care,” “due care,” or “due diligence” are of relative significance. They yield to no fixed or arbitrary definition. The degree of care required in any given situation is that which is commensurate with the danger involved. We cannot say as a matter of law that ordinary precaution did not require the brakeman to at least call to the boy and admonish him or that ordinary prudence and diligence did not require the engineer to stop the train. We think different conclusions might reasonably be drawn. Some fair-minded men might believe that ordinary care did not require appellee-to stop its train for the protection of a trespasser old enough to be at large and large enough to mount the moving cars. Yet other men, equally as honest intellectually, considering the size and appearance of the boy together with his position between the cars and that stopping otherwise involved no more serious consequences than a short delay, might conclude that ordinary precaution and diligence required no less than that the train be stopped and the boy ejected.

We think, therefore, that the case should have been submitted to the jury (Grand Trunk R. Co. v. Ives, 144 U. S. 408, 417, 12 S. Ct. 679, 36 L. Ed. 485; Payne v. Haubert, 277 P. 646, 650 [C. C. A. 6]) unless all the substantial evidence indicates that the injury to the boy was proximately caused in whole or in part by his own contributory negligence. Upon its motion for a directed verdict the burden was upon appellee to establish this defense (Inland & Seaboard, etc., Co. v. Tolson, 139 U. S. 551, 557, 11 S. Ct. 653, 35 L. Ed. 270), and we think it failed. A boy 12 years of age may or may not as a matter of law be guilty of contributory negligence. The matter is to be. determined upon a consideration not of his age only but of his experience, mental 'capacity, and the circumstances of the particular case. Washington & G. R. Co. v. Gladmon, 15 Wall. 401, 408, 21 L. Ed. 114; Erie R. Co. v. Weinstein (C. C. A.) 166 P. 271, 274; Felton v. Aubrey, supra; Force v. Standard Silk Co., 160 P. 992, 1005 (C. C).

We briefly state the determinative evidence from which we think fair-minded men might reasonably draw different conclusions.

The witness Mikesel, athletic director of the Glenview Community Club, testified that the boy was well above the average intelligence for one of his age, but he gives no basis for this assumption. The extent of his acquaintanceship with the boy does not appear. There is nothing to indicate that Leach, Jr., ever attended school. There is evidence that he and a number of Ms youthful companions had a playhouse or shack upon a lot immediately adjoining appellee’s right of way; that they also played upon the right of way itself; that they had been in the habit for more than two. years of elimbMg upon trains, one of their objects being to procure coal for a fire in the playhouse. In addition, there was evidence tending to show that adults likewise rode the trains at tMs point; that this custom was known to and passively acquiesced in not only by the trainmen, but by a watchman at the McLemore crossing; and that in one instance, at least, a brakeman told Leach that he might go upon a moving train for coal. The boy testified that he had ridden trains so long without objection from the trainmen that he did not realize there was danger except from fallmg and that he took the position between the-cars to prevent his father or mother from discovering and punishing him.

Upon this evidence we conclude that fair-minded men might reasonably differ upon whether the boy exposed himself to danger under the impulse of childish instincts, tempted perhaps by the acquiescence if not the consent of the trainmen; or whether upon the other hand he was fully capable of self-protection and failed to exercise it. The desire to ride as well as to play is natural to children and a jury might reasonably conclude that in mounting the train the boy was impelled by the same childish impulse controlling him and his fellows in maintaining the playhouse.

As to the case of E. K. Leach, Sr.: From the above resume of the evidence, which we think is fairly stated, we find no conclusive proof that the father’s indifference to the whereabouts and conduct of his child would bar his right of action as a matter of law.

Judgment reversed.


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    LEVY et al. v. COMMISSIONER OF INTERNAL REVENUE.
    No. 6299.
    Circuit Court of Appeals, Ninth Circuit.
    April 13, 1931.
    A. George Bouchard, of Los Angeles, Cal., and Charles F. Blaekstoek, of Oxnard, Cal., for petitioners.
    G. A. Youngquist, Asst. Atty. Gen., and Sewall Key and Helen R. Carloss, Sp. Assts. to Atty. Gen. (C. M. Charest, Gen. Counsel, and Prew Savoy, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for respondent.
    Before RUDKIN, WILBUR, and SAWTELLE, Circuit Judges.
   RUDKIN, Circuit Judge.

This is a petition to review a decision of the Board of Tax Appeals redetermining a deficiency in estate taxes. There is no controversy over the facts. Achille Levy, a resident of the state of California, died testate February 20, 1922, leaving a surviving wife. All property owned by. the decedent and his wife at the time of his death was acquired during coverture, and was community property under the laws of the state. The petitioners, as executors of the will of the decedent, filed with the collector of internal revenue at Los Angeles, Cal., on February 16, 1923, a federal estate tax return for the estate, disclosing a net estate of $1,-568,432.71 and a tax of $109,711.92. The Commissioner of Internal Revenue assessed the tax due on the return, and the same was paid by the executors on the date of filing. In determining the gross estate subject to the federal estate tax, the executors included the entire value of the community property belonging to the decedent and his¡ wife. Some time after the payment of the tax, the petitioners filed with the Commissioner a •claim for a refund, upon the ground that, in determining the gross estate for federal tax purposes, the value of the entire community estate was erroneously included. Some time prior to April 14, 1925, the Commissioner made certain changes in the return, increasing the value of the net estate from $1,568,432.71 to $1,742,211.86. The estate tax, amounting to $43,858.37, was then assessed on one-half thereof, and a refund ordered of $65,853.55, being the difference between the amount originally paid and the amount of the tax as determined by letter of the above date. The refund thus authorized was paid on June 25, 1925. Thereafter, on August 11, 1926, following the decision of the Supreme Court in United States v. Robbins, 269 U. S. 315, 46 S. Ct. 148, 70 L. Ed. 285, the Commissioner redetermined a deficiency in estate taxes in the sum of $86,707.05, and on the same day mailed to the petitioners a so-called .deficiency letter which disclosed the method of computation by which the deficiency was ascertained and determined. The] Commissioner determined’ a total tax liability of $130,565.42, which was arrived at by deducting from the tax paid in the first instance the amount which had ■previously been refunded and giving credit for the balance, leaving a deficiency of $86,-707.05. From this redetermination the petitioners appealed to the Board of Tax Appeals, where the decision of the Commissioner was sustained. Hence the present petition.

On the foregoing facts the petitioners contend that, in determining a deficiency, the Commissioner cannot include in such determination a refund previously made to the taxpayer, even though the refund was made erroneously and without authority of law. With this contention we are unable to agree. Section 307 of the Revenue Act of 1926 (26 USCA § 1100). defines a deficiency as follows: “The amount by which the tax imposed by this chapter exceeds the amount shown as the tax by the executor upon his return; but the amount so shown on the return shall first be increased by the amounts previously assessed (or collected without assessment) as a deficiency, and decreased by the amounts previously abated, refunded, or otherwise repaid in respect of such tax.”

Under the law, we entertain no doubt as to the power of the Commissioner to redetermine the deficiency on August 11, 1926. Austin Co. v. Commissioner of Internal Revenue (C. C. A.) 35 F.(2d) 910. By that redetermination, the amount of the estate tax was fixed in a sum considerably in excess of the amount of the tax as disclosed by the original return, and from the ' amount thus fixed was deducted the amount paid and retained on account of the tax, ignoring for all practical purposes that portion of the tax which had been paid and wrongfully refunded. The course thus pursued was expressly authorized by the statute. If the Commissioner was without authority to do this, the deficiency found to exist, because of the fact that the tax paid on the original return was not sufficient in amount, would have to be collected by distraint or suit, as in other cases, and an independent suit would be necessary to recover the amount of the erroneous refund. This would necessitate two proceedings to collect a single tax from a single estate, without any corresponding benefit to either the government or the taxpayer; and the avoidance of such a multiplicity of suits would seem to have been one of the objects of the above section.

In Kelley v. United States (C. C. A.) 30 F.(2d) 193, cited by the petitioners, the executrix paid the estate tax .on the entire community estate, and a refund was made by the Commissioner because of a supposed error in including the entire community estate as a part of the net estate for tax purposes. Up to this point the two eases are analogous, but there the analogy ends. In the Kelley Case the Commissioner did not redetermine the amount of the tax or deficiency, but contented himself by simply making a formal demand on the appellee to pay the amount of the refund. Suit was thereupon instituted by the United States to recover the amount of the refund as a tax and to foreclose the tax lien. Under these facts, we held that the payment of the tax discharged the tax lien, that the refund of the tax did not restore it, and that the sole remedy of the government was an action at law against the executrix for money had and received. This was the only question determined, but in reference to a deficiency we said: “There was some discussion on the argument as to the meaning of a deficiency as defined in the revenue laws, but the entire tax imposed by the government was paid, and, if there was no tax, there could in the nature of things be no deficiency. Section 307 of the Revenue Act of 1926 (26 USCA § 1100), in defining a deficiency, refers to amounts previously abated or refunded or otherwise repaid, but such amounts can only be deducted from an existing tax, and, where there is no tax, there can be no deductions.”

In that case the government had an unquestionable right to recover the unauthorized refund in an action for money had and received, and whether the Commissioner had a concurrent right to redetermine a deficiency was not directly involved. The Kelley Case has been followed in other, jurisdictions [United States v. Standard Spring Mfg. Co. (D. C.) 23 F.(2d) 495; Champ Spring Co. v. United States (D. C.) 38 F.(2d) 988], but whether in such a case a deficiency can be redetermined for the sole purpose of recapturing an unauthorized refund we need not determine.

On the argument before this court, the petitioners refused to concede that the refund was unauthorized; but that is no longer an open question under the laws of California as they stood at the time of the death of the decedent. United States v. Robbins, supra; Talcott v. United States (C. C. A.) 23 F.(2d) 897; Kelley v. United States, supra.

The decision of the Board of Tax Appeals is affirmed.


text:
    OCEAN ACCIDENT & GUARANTY CORPORATION, Limited, v. SCHROEDER.
    No. 5664.
    Circuit Court of Appeals, Sixth Circuit.
    April 17, 1931.
    S. D. L. Jackson, Jr., of Toledo, Ohio (Tracy, Chapman & Welles, of Toledo, Ohio, on the brief), for appellant.
    Lee H. Schminek, of Toledo, Ohio (H. Thane Bauman and James H. Baker, both of Adrian, Mich., on the brief), for appellee.
    Before MOORMAN, HICKS, and HICKENLOOPER, Circuit Judges.
   HICKENLOOPER, Circuit Judge.

This is an action brought under Ohio General Code, § 9510-4 by the administrator of one killed in an automobile accident to recover against an alleged insurer. Appellant issued its policy of public liability automobile insurance to the Rentacar "Company of Toledo, Ohio, which company was engaged in the business of renting so-called “driverless” cars to members of the public. By special indorsement No. 1 coverage was extended “to indemnify in the same manner and under the same conditions as the named Assured is indemnified thereunder any person or persons hiring, ‘driverless’ cars from the named Assured * *. * but the coverage is not hereby extended to any individual to whom the recorded hirer of a car may .extend permission to use it.” By another special indorsement (No. 3) it was provided that, notwithstanding special indorsement No. 1, “it is understood and agreed that in the event that the person hiring an automobile from the Assured violates any of the provisions of the contract entered into with the Assured at the time the car is rented, this policy shall not cover such additional Assured' on account of said violation It was in contemplation of the parties that insurance by the renters of cars was to be optional with them, and if they elected to take it a fee was charged and collected therefor. The sole question hero presented is whether one George C. Arend, who rented a ear on November 17, 1925, and then elected to accept insurance coverage, was in fact covered by appellant’s policy, or whether he was to be excluded from the protection of such policy because of violation of his contract with the Rentacar Company. The pertinent parts of the contract between Arend and the Rentacar Company are printed in the margin.

As a matter of fact Arend never could and never did drive the ears he rented. There is evidence that on the occasion of his first rental, some twenty-one months before, he was asked who intended to drive. His reply was that his companion, a Mr. Dugan, would drive, to which the representative of the company responded, “Oh, you are just renting the car.” Cars were rented by Arend from time to time thereafter, and on each such occasion Arend brought with him a capable driver, usually a Thomas F. Kaueher, who was seen by representatives of the company to drive the car out and later return it, no question being raised at any time as to the propriety of such action.

The only contention now urged by appellant is that the written contract, comprising both the policy with its several indorsements and the agreement between Arend and the Rentacar Company, must be regarded as the sole contract between the parties, that the terms of such contract may not be varied by parol, but are binding upon Arend as written, and that by the terms of indorsement No. - -3 Arend had forfeited his insurance, if any he ever had (1) because of breach of the representation that he was an “experienced driver,” and (2) because of breach of the provision that he would not “sublet ear nor permit anyone else to drive same.” Obviously, if Arend could not recover upon the policy, the injured person could not do so by subrogation to Arend’s rights. Stacey v. Fidelity & Casualty Co. of N. Y., 114 Ohio St. 633, 151 N. E. 718.

It is not contended that the provision in the Rentacar contract that the lessee would operate the ear “in a careful and prudent manner” was effective to eliminate 'insurance protection in all cases of simple negligence. Perhaps there would be an implied fraud in selling a policy which in no ease could cover the principal purpose for which it was manifestly sold; but be that as it may, counsel distinctly disclaimed this aspect of defense at the oral argument, and it does not appear from the evidence that the liability of Arend may not have been predicated solely upon driving the car with knowledge of some mechanical defect, such as inefficiency of the brakes, with which the m,cmner of driving had nothing to do. Nor is it claimed that Kaueher was not a careful and experienced driver. The contention is that the policy covered a renter, under the standard Rentacar contract, only if and when such renter was himself driving the car.

Conceding for the purposes of this opinion that the knowledge of the Rentacar officials that Arend did not intend to drive the car himself when he signed the contract, and customarily did not do so, and the failure to object to bis employing Dugan or Kaueher for such purpose, would not constitute a waiver of the requirement that he would not permit any one else to drive it (Lumber Underwriters v. Rife, 237 U. S. 605, 35 S. Ct. 717, 59 L. Ed. 1140), we are still of the opinion that this employment of a chauffeur, as it were, was not such a breach as would forfeit the policy. Neither the insurer nor the Rentacar Company was concerned with aught but tbe ability of the driver. Such ability is not here questioned. By indorsement No. 1 coverage was not extended to Kaueher, but under the facts here presented we are constrained to the opinion that the phrase “to whom the recorded hirer of a ear may extend permission to use it,” of that indorsement, and the agreement not to “sublet ear nor permit anyone else to drive same,” of the Rentacar contract, are both directed at the same evil, that of turning the car over to another, of parting with the possession of it, or of placing it in the control of one who is an inexperienced driver. Neither was intended we think, to negative the right to employ a competent chauffeur, with the knowledge and consent of the Rentacar Company (although unwritten), and we are of the opinion that such knowledge on the part of that company of the custom universally followed by Arend when renting ears, even if not sufficient to establish a complete waiver, was at least sufficient to show the acceptance of Kaueher as chauffeur under the maxim qui facit per alium facit per se, practically to the same extent as if he had been supplied by the company itself, in which case hone would doubt that the company would be estopped to assert breach- of contract. Apparently both the representation and promise were so understood, and, when so considered, neither was breached.

Equally compelling is the fact that indorsement No. 3 provides that, in case of vio-lation of any of the provisions of the Rentacar contract, “this policy shall not cover such additional Assured on account of said violation.” We construe the portion above italicized as meaning “as to injury or damage caused by such violation.” Only so construed has the phrase any purpose or meaning in the instrument. But the employment of Kauehei* as driver for and in the presence of Arend and under his supervision, and with the knowledge and tacit consent of the Rentacar Company, was in no sense the cause of the accident. Had Kaueher not been an experienced driver, had Arend sublet or turned the ear over to him for his own purposes, had Arend, being inexperienced, attempted to drive the ear himself, or had other of the agreements been violated, our decision might have been entirely different. Then the violation might well be said to. have caused the accident. Here a condition only was created, and one which was apparently entirely acceptable to the Rentacar Company. If the employment of Kaueher to drive the car can in any true sense be said to have been a violation of the contract, it still cannot be said to have been a proximate cause of the accident, for the reason that no probability of injury could reasonably have been anticipated to f-ollow, all circumstances considered. Thus the coverage remains in force.

The judgment of the District Court is affirmed.

      All Italics are ours throughout the opinion.

       “2. Lessee states that he has driven automobiles for some time, is careful, experienced driver, is familiar with the starting and operation of Ford, Overland, gearshift cars, and is able to change tires; and he agrees personally to inspect, and test, immediately upon delivery, each car that he leases from the Company, and if same is not found to be in good working order, to reject and return same forthwith; otherwise to be personally responsible for all damages resulting from his use thereof, except as herein provided, and to release and hold the Company harmless therefrom.
      “3. Lessee agrees to use cars for legitimate purposes only, not to sublet car nor permit anyone else to drive same (without the signed permission of the Company), not to teach anyone to drive, using said car; he agrees to observe the rated capacity of the cars he rents; to operate same in a careful, prudent manner; * * * he agrees to observe the legal speed limit (not over 20 miles per hour with new cars driven less than 500 miles), not to transport passengers for hire nor drive cars while under the influence of intoxicating liquor in any degree whatsoever, nor to act in violation of any Federal, State or City laws. * * *
      “4. Insurance as of date of this contract, protecting Lessee against liability, imposed by law, resulting from the use of the Company’s cars, is as follows :
      “(a) Liability — For bodily injuries accidentally sustained by one or more persons (not in Lessee’s employ) not exceeding $10,000.”


author: HICKENLOOPER, Circuit Judge. MOORMAN, Circuit Judge

text:
    DETROIT TILE & MOSAIC CO. v. MASON CONTRACTORS’ ASS’N et al.
    No. 5715.
    Circuit Court of Appeals, Sixth Circuit.
    April 17, 1931.
    MOORMAN, Circuit Judge, dissenting.

      H. E. Smoyer and W. K. Stanley, both of Cleveland, Ohio (Eildew & De Gree, of Detroit, Mich., and Stanley, Horwitz & Kiefer, of Cleveland, Ohio, on the brief), for appellant.
    George A. Kelly, of Detroit, Mich. (Groesbeck & Kelly, of Detroit, Mich., on the brief), for appellees.
    Before MOORMAN, HICKS, and HICKENLOOPER, Circuit Judges.
   HICKENLOOPER, Circuit Judge.

This case at foundation presents the question of the right of union labor to strike, and to announce its intention to strike wherever the given situation may arise, as a means of compelling the employers of labor to adopt the “closed shop” rule in other, though related, trades. The District Court, after realigning the parties in accordance with what was considered their, basic or true interests in the underlying subject of the controversy, dismissed the bill for want of federal jurisdiction; such jurisdiction being finally asserted only upon the ground of diversity of citizenship. The complainant appeals. The jurisdictional question only is presented by the briefs.

The complainant is a corporation under the laws of Delaware, engaged as an open shop or nonunion tile contractor in the city of Detroit. The defendants named were of two general classes: (1) Bricklayers’, Masons’ and Plasterers’ International Union No. 2, and its officers, and Marble Mason, Tile Layer, and Terrazzo Workers’ Local Union No. 32, and its officers; and (2) Mason Contractors’ Association, and its officers, and Master Masons’ Association, and its officers. We shall refer to the second class collectively as the mason associations, and to the two unions as the Bricklayers’ Union and the Tile Setters’ Union. The mason associations were voluntary associations of general and masonry contractors, by whom contracts for supplying and installing decorative tile were sublet upon competitive bids. Their pecuniary interest undoubtedly lay in keeping this craft upon the open shop basis, and especially in the avoidance of strikes upon jobs for which they held the general or masonry contracts. To the latter end they had, over a long period of years, entered into a series of con-, tracts with the bricklayers’ local union fixing the terms and conditions of employment, forbidding strikes, and requiring that all matters of dispute between the individual members of the mason associations and the union should be settled by arbitration. The contract in force at the inception of this litigation was entered into .June 19, 1928, as effective from May 1,1928, to May 1, 1930.

There is some dispute as to whether this last contract forbade strikes, a reservation being appended by the International Union that it was understood that the agreement would not interfere with the right of the local union to obey all laws and rules of the International Union and the mandates of the executive board. We do not, however, consider it necessary to decide this issue, since the question of realignment depends primarily upon the allegations of the bill and the contentions of the complainant, rather than the ultimate decision of the meritorious question.

The complainant’s relationship to members of the mason associations had frequently been that of subcontractor, and was analogous, therefore, to that of an employee. The complainant was not a member of, nor otherwise related to, the masons’ associations. The bill alleges, and the proofs tend to support the claims, that, at the time of filing its bill, complainant was engaged in the performance of certain contracts theretofore entered into for the installation of decorative tile; that, notwithstanding its contract to the contrary, and out of sympathy for or co-operation with the Tile Setters’ Union, the Bricklayers’ Union, its officers and members, were conspiring among themselves and with the mason associations to boycott the complainant .and destroy its established business; and that unless restrained by order of the court, the mason associations would be coerced, by strikes and threats of strikes, into modifying their agreement with the Bricklayers’ Union, so as to permit sympathetic strikes and compel the employment of only union tile setters; and the members of said associations would be coerced into breaches of the contracts upon which complainant was then engaged. The prayer was, in substance, for an injunction against the continuance or enlargement of the alleged boycott, against any abrogation or modification of the contract between the mason associations and the Bricklayers’ Union, whereby sympathetic strikes would be permitted or members of the mason associations coerced into breaching their existing contracts with complainant, and generally against all strikes, publications, threats, coercion, and like action, adapted to prevent the letting of contracts to complainant and injure it in the conduct of its business.

Under these circumstances we are of the opinion that the two mason associations were improperly realigned with complainant. The gravaman'of, the complaint is the maintenance of a secondary boycott and of an unlawful conspiracy or combination to injure complainant in its business. Upon this phase of the case obviously the mason associations are not indispensable parties whether they were or were not shown to be parties to the conspiracy. • If parties to the conspiracy, they are properly made defendants. If not parties to the conspiracy, then relief may be granted or refused to complainant without affecting their rights.

Ancillary to relief from the maintenance of this conspiracy and boycott, and as a means to that end, complainant asks an injunction restraining any modification of the agreement between the Bricklayers’ Union and the mason associations, or any breach, upon compulsion of the Bricklayers’ Union, of the contracts which complainant was then performing. In this aspect of the case the mason associations were proper parties, possibly indispensable parties, but, since it was sought to have the injunction operative against the mason associations, in maintaining the status quo under the contracts, they must be regarded as parties defendant. It is asserted by complainant that a modification of the one contract, or a breach of the others, would constitute an important step in the maintenance, culmination, and effectiveness of the conspiracy, and that the mason associations may be compelled, albeit unwillingly, to lend this .assistance to 'the Bricklayers’ Union in the accomplishment of its allegedly unlawful purpose. The substance of this contention is that the mason associations would then become parties to a joint conspiracy. Cf. O’Brien v. Fackenthal, 5 F. (2d) 389, 390 (C. C. A. 6). The relief sought is preventive of this contingency. In such ease, the fact that the mason associations were desirous of retaining the open shop principle, or so-called American plan, for the employment of tile setters, or that their members inclined not willingly to breach their contracts with complainant, would not affect the status of the associations as defendants. A desire or willingness to submit to the right, and abstain from the commission of a wrong, is wholly immaterial upon the question of realignment. The essential question is whether the complainant is seeking to enforce, in whole or in part, a right of the defendant sought to be realigned as a complainant; and, if so, whether such defendant is an indispensable party so as, of necessity, to destroy the diversity of citizenship.

Thus in Niles-Bement-Pond Co. v. Iron Moulders’ Union, 254 U. S. 77, 41 S. Ct. 39, 65 L. Ed. 145, the union strikers were employees of the Niles Tool Works Company, a subsidiary of the complainant. The relief sought was the enforcement of the rights of the Niles Tool Works Company in its relationship as an employer of labor. Neither boycott nor conspiracy as against the Niles-Bement-Pond Company was involved. It was there rightly held that the Niles Tool Works Company was an indispensable party and, since the complainant was seeking to enforce the rights of its subsidiary, the latter must be aligned with it as a complainant. This decision is without application to the present case.

As we have already said, the briefs of counsel are limited to the jurisdictional question. The narrative statement of the evidence purports to include only “so much thereof as is necessary for a determination of the issues by the Appellate Court.” The court below did not decide the meritorious question. Under such circumstances we are constrained to adopt the same course and to abstain from deciding that 'which was not fully presented to us, nor decided below, viz., whether it is lawful for a labor union to compel the unionization of all crafts of the building trades by sympathetic strikes, or by threatening to strike if nonunion men are employed upon any branch of the work. Restraint of interstate commerce does not here appear, as it did in Bedford Cut Stone Co. v. Stone Cutters’ Ass’n, 274 U. S. 37, 47 S. Ct. 522, 71 L. Ed. 916, 54 A. L. R. 791; Duplex Printing Press Co. v. Deering, 254 U. S. 443, 41 S. Ct. 172, 65 L. Ed. 349, 16 A. L. R. 196; Loewe v. Lawlor, 208 U. S. 274, 28 S. Ct. 301, 52 L. Ed. 488, 13 Ann. Cas. 815; and Aeolian Co. v. Fischer, 40 F.(2d) 189 (C. C. A. 2), and the question of inducing a breach of the contracts already held by complainant (compare Hitchman Coal & Coke Co. v. Mitchell, 245 U. S. 229, 38 S. Ct. 65, 62 L. Ed. 260, L. R. A. 1918C, 497, Ann. Cas. 1918B, 461) may have become moot by this time. But, conceding both these facts as possibilities, there must remain in the ease the question whether the methods used by the unions to compel the introduction of the closed shop into all branches of the building trades are legal, as being justified by the end, or are illegal as regards the complainant, as constituting an unlawful conspiracy or a secondary boycott. See Gompers v. Buck’s Stove & Range Co., 221 U. S. 418, 31 S. Ct. 492, 55 L. Ed. 797, 34 L. R. A. (N. S.) 874; American Steel Foundries v. Tri-City Central Trades Council, 257 U. S. 184, 42 S. Ct. 72, 66 L. Ed. 189, 27 A. L. R. 360; Truax v. Corrigan, 257 U. S. 312, 42 S. Ct. 124, 66 L. Ed. 254, 27 A. L. R. 375; Beck v. Railway Teamsters’ Protective Union, 118 Mich. 497, 77 N. W. 13, 42 L. R. A. 407, 74 Am. St. Rep. 421, and eases there cited. Except as a review of prior decisions, the cases of United Mine Workers v. Coronado Co., 259 U. S. 344,42 S. Ct. 570, 66 L. Ed. 975, 27 A. L. R. 762, United Leather Workers’ v. Herkert, 265 U. S. 457, 44 S. Ct. 623, 68 L. Ed. 1104, 33 A. L. R. 566, and Industrial Ass’n v. U. S., 268 U. S. 64, 45 S. Ct. 403, 69 L. Ed. 849, do not touch the issue here remaining, for in each the decision was predicated, not upon the legality of the means used, but upon the absence of restraint of interstate commerce. The effect of section 20 of the Clayton Act is also to be considered. In brief, the importance and complexity of the questions arising upon a consideration of the merits are so great as not to permit a decision except on full presentation and after determination by the District Court.

Reversed and remanded.

MOORMAN, Circuit Judge

(dissenting).

I think this case is ruled by Iron Moulders’ Union v. Niles-Bement-Pond Co. (C. C. A.) 258 F. 408; Id., 254 U. S. 77, 41 S. Ct. 39, 65 L. Ed. 145. The realignment was ordered by the trial court, not upon the averments of the bill, but upon the proofs. These proofs show that the interests of the mason associations coincide with those of the plaintiff. The object of this suit is to restrain the labor organizations and their officers from preventing the members of these associations from employing nonunion labor in the craft to which the plaintiff belongs. Further than that plaintiff has no interest in the threatened strikes or the contract between the associations and their eodefendants. This, too, is the sole interest of the associations. The members of the associations have no controversy with the plaintiff, have never broken any contract with it, and have never agreed not to employ it. A majority, if not all of them, are members of the Associated Builders’ Employers, an organization having for its object the advancement of the open shop. The secretary of this latter organization encouraged, if he did not cause, the filing of this suit. Certainly he has actively participated in it in behalf of the plaintiff. One of the'assoeiations, through its executive committee, passed a resolution directing its secretary to give to the secretary of the Builders’ Employers all “the assistance I possibly could give him in this lawsuit.” Counsel for the Builders’ Employers is attorney for the plaintiff in this action; two of its directors have filed affidavits on behalf of the plaintiff; and neither of the associations has entered an appearance to or filed answer in the case. The interests of the associations thus not only plainly lie, but are actively employed, it seems to me, with the plaintiff.

Whether, in the circumstances indicated, the associations are indispensable parties depends upon whether a court of equity ought to proceed to a final decision without them. So far as it is sought to prevent the unions from breaking their present contract with the associations, the only rights that the plaintiff has are incidental to those of the associations. A court of equity, seeking “to put an end to litigation by doing complete and final justice,” ought not, it seems to me, adjudicate those rights without requiring the associations to be made parties to the litigation. The rights of the associations are also basically involved in the threatened coercion of the associations into making contracts that may injure the plaintiff. Thus in each instance the subject-matter of the litigation relates primarily to contract rights of the associations. Those rights ought to be adjudicated so as to bind all parties concerned, and in my opinion that cannot be done, at least as to the existing contract, without the presence of the associations. I think the decree should be affirmed.


author: COTTERAL, Circuit Judge.

text:
    BROWN v. FORD MOTOR CO.
    No. 358.
    Circuit Court of Appeals, Tenth Circuit.
    April 1, 1931.

      Joseph R. Brown and James B. McDonough, both of Ft. Smith, Ark., and Streeter B. Flynn, of Oklahoma City, Okl., for appellant.
    J. H. Everest, of Oklahoma City, Okl. (M. W. McKenzie, Robt. K. Everest, E. E. Gibbens, and Jno. H. Halley, all of Oklahoma City, Okl., Clifford B. Longley, and Wallace R. Middleton, both of Detroit, Mich., and J. B. Dudley, of Oklahoma City, Okl., on the brief), for appellee.
    Before COTTERAL, PHILLIPS, and McDERMOTT, Circuit Judges.
   COTTERAL, Circuit Judge.

The appellant complains of an adverse judgment on a demurrer to his amended petition in an action he brought to recover damages upon an assignment by the Dick Bruun Company of “any and every cause of action it has or might have against the Ford Motor Company,” either singly or jointly with him. We review the material averments of the petition, but in condensed form.

The Bruun Company had a Ford agency at Marion, Ohio, under a written agreement of - June 2, 1924, with the branch manager of the Ford Motor Company at Columbus, Ohio, for the purchase and sale of automobiles and accessories. By its terms the agreement was to be in force until canceled by either party.

Dick Bruun, the president of the Bruun Company, husband of the plaintiff’s sister, died in March, 1926. Six days later the Columbus branch manager of the defendant notified Mr. Chambers, the secretary of the Bruun Company, that the- agency contract was canceled. The plaintiff then went to Highland Park, Mich., and, in a conference there with Edsel B. Ford, president of the defendant company, requested permission to run the Marion agency until it could be disposed of advantageously, to which Ford replied the defendant “would co-operate in every way with Brown in working out the said business, in an effort to help him dispose of it in a way to save as much as possible for his sister,” and further that “under any circumstance, the Ford Motor Company will not change agents in Marion during the busy season, if you can see your way clear to run the business.” The plaintiff promised Ford he would supervise the business, and advised Ford he would see that it was run properly, put Chambers in éharge, and, when the agency should be sold, he wanted the successor to purchase the building which was recently erected by the Bruun Company and was too large for any other business, and the business would be sacrificed by a forced sale. Ford then repeated his statements, and added he -would write to the said branch manager about their conference. Relying on the agreement with Ford, in behalf of the defendant, plaintiff acquired a share of stock in the Bruun Company, becames its president, economized its policy, temporarily operated the business, sought prospective purchasers, placed Chambers in active management, and later advanced $17,000 to the company.

On June 17, 1926, the defendant, in violation of the contract under which the Bruun Company was operating, notified Chambers in writing that the contract was at an end, and the Columbus branch from which cars and supplies were obtained refused thereafter to sell them to the Bruun Company. The plaintiff claimed the Bruun Company sustained damages from a breach of the contract by way of depreciation of the building, losses in the sale of supplies and used cars and in the profits from May to October, and added expense in collecting notes and accounts.

The demurrer which challenged the petition for want of sufficient facts to constitute a cause of action was sustained, and, the plaintiff electing not to plead further, a judgment was rendered dismissing the action.

There is no contention that the original agency contract was not cancelled in keeping with its terms. The action was based solely on the breach of a new contract to continue the agency between the defendant and the plaintiff for the benefit of the Dick Bruun Company. This contract was made in Michigan, performance was due in Ohio, and the forum of suit was in Oklahoma. The appellant, as the assignee of the Bruun Company, can make claim only to the rights it acquired by the contract. If the company had no cause of action on the contract, then the plaintiff succeeded to none by the assignment to him. The company was not a party to the contract, but a mere beneficiary. The inquiry is therefore whether the contract conferred an enforceable right upon the company.

Counsel for appellant concede that under the laws of Michigan a third party may not enforce a contract made for his benefit. But they mistakenly apply to the contract the laws of Ohio and Oklahoma. The question is not where or how it may be enforced, but whether it affords a right of action at all; in other words, whether it is a valid contract in favor of the Bruun Company.

Counsel for appellee also err in contending that the laws of Michigan are presumed in the absence of contrary averment to be the same as those of Oklahoma, and that this contract is invalid when tested by section 5035, Comp. Okl. Stat. 1921, which provides that a written contract may be modified only by another in writing or an executed oral agreement. The presumption obtains in the state courts, but it does not where as in this ease the suit was originally brought in the federal court, which takes judicial knowledge of the laws of all the states. 7 Ency. U. S. Sup. Ct. Rep. pp. 692, 693; Martin v. Balt. & O. R. Co., 151 U. S. 673, 14 S. Ct. 533, 38 L. Ed. 311; Mills v. Green, 159 U. S. 651, 16 S. Ct. 132, 40 L. Ed. 293.

While the performance of a contract is governed- by the law where it is to be performed and the remedy by the law where suit is brought, all matters which bear upon the execution, interpretation, and validity of the contract are determined by the laws of the place where it is made. Scudder v. Union National Bank, 91 U. S. 406, 23 L. Ed. 245; Northwestern Mut. Life Ins. Co. v. McCue, 223 U. S. 234, 32 S. Ct. 220, 56 L. Ed. 419, 38 L. R. A. (N. S.) 57; Federal Surety Co. v. Minneapolis S. & M. Co. (C. C. A.) 17 F.(2d) 242.

The force and effect of the contract depend, therefore, on the laws of Michigan. The decisions in that state hold that a right of action at law is not available to a third party where no duty or obligation rests on the promisor toward such party. Linneman v. Moross’ Estate, 98 Mich. 178, 57 N. W. 103, 3.9 Am. St. Rep. 528; Edwards v. Clement, 81 Mich. 513, 45 N. W. 1107; Preston v. Preston, 205 Mich. 646, 172 N. W. 371; Claxton v. Margolis, 248 Mich. 199, 226 N. W. 820; Williston on Contracts, vol. 1, p. 694.

Applying these decisions, a breach of the contract in question could not be enforced by the Bruun Company or by the plaintiff as its assignee.

The result is the judgment of the District Court should be, and it is accordingly, affirmed.