author: COTTERAL, Circuit Judge.

text:
    EXCHANGE TRUST CO. v. CAPITOL LIFE INS. CO.
    No. 339.
    Circuit Court of Appeals, Tenth Circuit.
    April 13, 1931.

      Edward P. Marshall, of Tulsa, Okl. (C. Guy Cutlip and Thomas J. Horsley, both of Wewoka, Okl., and F. A. Bodovitz, of Tulsa, Okl., on the brief)., for appellant.
    A. A. Davidson, of Tulsa, Okl. (Wm. E. Hutton, of Denver, Colo., and West, Gibson, Sherman, Davidson & Hull, of Tulsa, Okl., on the brief), for appellee.
    Before COTTERAL, PHILLIPS, and McDERMOTT, Circuit Judges.
   COTTERAL, Circuit Judge.

The Exchange Trust Company, executor of the estate of J. Coody Johnson, deceased, appeals from a judgment which denied a recovery in a suit it brought upon a life insurance policy issued to the decedent by the Capitol Life Insurance Company of Denver, Colo.

The policy was issued on September 11, 1925, insuring the life of Johnson, for $50,-000, inuring to his estate, in consideration of an .annual premium of $4,305.50. He died on February 28, 1927, and a proof of claim being made by the executor payment was refused by the company.

In terms the policy is based on the payment in advance of the annual premium and renewals in semiannual or quarterly installments, at the home office of the company in Denver, or to a designated collector, but in any case only on receipt signed by the president, a vice president, secretary, treasurer, or actuary, countersigned by the collector. And it provides that “failure to pay any premium when due shall cause this policy to cease and determine except as herein provided.” Reinstatement was authorized within five years after default in the premium, “upon furnishing evidence of insurability satisfactory to the company and the payment of all past due premiums,” with interest. Another stipulation is that “only the president, a vice-president, secretary, treasurer, or actuary has power in behalf of the company (and then only in writing) to make or modify this 'or any contract of insurance, or to extend the time for paying any premium, and the company shall not be bound by any promise or representation heretofore or hereafter made by any agent or person other than above.”

The petition of the executor contained three counts. The third was dismissed on its motion. The other two allege as grounds of recovery: (1) The first annual premium was paid and the second was adjusted by a cash payment and a-note for the balance, and the company by retaining the note and demanding its payment after maturity waived a forfeiture of the' policy; and (2) the failure of the company to act oh decedent’s application for reinstatement of the policy combined with the retention of a draft for $500, which he remitted as payment on premium, for an unreasonable time, was an acceptance of the application. The company answered by a general denial and other defensive matters. A jury being waived, the case was tried to the court. The questions of law involved were duly saved for review. There was no serious dispute of fact. We observe that the findings of the trial court are conclusive in so far as they are based on substantial evidence. Stinson v. Business Men’s Association (C. C. A.) 43 F.(2d) 312.

The first annual premium was paid by the assured. He made an adjustment of the second by sending to the branch office of the company at Oklahoma City, on September 11, 1926, a cash payment of $339, covering term insurance for two months, and his note of that date for the balance of $3,970.50, due in sixty days, which provided that if it should not be “paid when due it is not to be considered as payment of premium, and the policy on account of which the note is given will become forfeited and void.” The note was never paid, and there was a forfeiture of the policy, unless it was waived. The note and payment were forwarded to the Denver office for entry on its books, and later the note was sent to the Oklahoma City office, with an unsigned receipt form. The note, when overdue, was returned with the receipt, on January 5, 1927, to the Denver offiee, at its request, and an entry of cancellation was there made, dated January 12, 1927. The note was retained there according to custom,, after lapse of a policy, as evidence of nonpayment of the premium.

The wife of the company’s agent at Oklahoma City and cashier of that offiee, without advising the Denver office of the fact, mailed an unsigned notice to Johnson as follows:

“Notice of Note.
“The Capitol Life Insurance Company “Home Office: Denver, Colorado.
“The following described note, given in settlement of premium, will become due at the Home Office of this Company. Kindly give its payment your prompt attention and favor us with remittance covering the same.
Policy No. Date Due Amount Interest Total
64552 Nov. 11-26 3970.50 & Interest
“Will thank you to advise us your decision as to reinstatement of your policy per previous correspondence.'
“J.- Coody Johnson, “203 Seminole Ave., “Wewoka, Ok.
“Bring this notice with you or attach to remittance.”

According to the testimony of Johnson’s wife, he received the notice about February 18,1927. This was the supposed demand for payment of the note which in connection with its retention is relied upon by the executor as constituting a waiver of the forfeiture of the policy.

The District Court ruled that it was insufficient, because it was to be considered with the language concerning reinstatement, which qualified it, and because a waiver implies an estoppel, based on reliance by the assured that a forfeiture of the policy would not be enforced, and there was none in this case. It was rightly conceded that a forfeiture clause in an insurance policy is a term beneficial to the insurer'which it may elect to waive, leaving the policy in force. Knickerbocker Life Ins. Co. v. Norton, 96 U. S. 234, 240, 24 L. Ed. 689; Grigsby v. Russell, 222 U. S. 149, 32 S. Ct. 58, 56 L. Ed. 133, 36 L. R. A. (N. S.) 642, Ann. Cas. 1913B, 863; Thompson v. Ins. Co., 104 U. S. 252, 26 L. Ed. 765; Columbian Nat. Life Ins. Co. v. Morey (C. C. A.) 26 F.(2d) 580; Concordia Ins. Co. v. School District, 51 S. Ct, 275, 75 L. Ed.- (Feb. 24,1931). But the request was for payment, and for advice as to reinstatement of the policy which was dependent both on payment of premium and evidence of insurability satisfactory to the company. Viewed as requiring both, the notice was not such an unqualified demand as would work a reinstatement of the policy.

Again, Johnson was in no way influenced by the notice, for, as the correspondence hereinafter referred to shows, he had been notified by the Denver office of the lapse of the policy, he had already acknowledged the fact and was negotiating for a reinstatement, and he later for that pappose made a remittance of $500 and furnished a medical report. For this reason, also, the notice was not effective to waive the forfeiture of the policy. Equitable Life Assur. Society v. McElroy (C. C. A.) 83 F. 631; Globe Mutual Life Ins. Co. v. Wolff, 95 U. S. 326, 24 L. Ed. 387; Columbian Nat. Life Ins. Co. v. Morey (C. C. A.) 26 F.(2d) 580. It was essential that a.waiver or a course of conduct be shown which afforded the assured a'just and reasonable ground to infer that a forfeiture would not be exacted. Thompson v. Ins. Co. 104 U. S. 252, 26 L. Ed. 765.

But for another all-sufficient reason the notice is unavailing to the executor, and that is it was not authorized by the company. The note was in the custody and control of the Denver offiee. The policy itself provides that the president or other designated officers of the company shall have the sole authority to make or modify the contract or extend the time for paying any premium, and that it shall not be bound by the promise or representation of any other agent or person. The notice did not purport to be and was not so authorized, and it did not bind the company. Counsel for the executor contend, however, that the authority to send the notice was-admitted under the state procedure, since it was alleged in the petition and not denied under oath. It may be conceded that there is no such denial when it is qualified by an admission of the fact. But the answer in this case is verified, and it contains first a general denial of facts alleged, and a specific denial that the notice was sent and received, and then alleges that the notice if sent was not an attempt to effect a reinstatement, or was not an acknowledgment of it, but was an inquiry. as to the purpose of Johnson in meeting the requirements for reinstatement. We think the denial was sufficient to make an issue of the authority for mailing the notice, and the proof is conclusive there was none.

The fact that the company held the note as proof of nonpayment of the premium in the first instance was of no materiality. Thereafter its retention was proper for the purpose of collection if Johnson should establish his insurability.

From these considerations, we agree with the District Court in holding that the notice of note was insufficient to waive the forfeiture of the policy.

That court ajso ruled there was no reinstatement of the policy, upon the theory advanced that it was implied from a failure to grant the application, and held that the company rightfully asked a showing of insurability, as no inference arose from the evidence that it acted arbitrarily or in bad faith.

The negotiations for a reinstatement occurred between Johnson and the Denver office. They began with a letter of January 29, 1927, in which it called his attention to the lapse of the policy and offered to advise him as to its terms for reinstatement. The next day he answered that letter acknowledging its contents, adding he had been unable to take the note up before it was due, he had asked the company to extend the note, it had agreed to do that on payment of $300, he had remitted the amount by draft, had been ill, etc., he would not like to have the policy lapse, yet he didn’t blame the company as it was a matter of business, and concluded he would appreciate any requirement he could meet to have his policy reinstated. That draft was never received by the company. On February 5, 1927, the company wrote him, enclosing for the purpose of reinstatement blank forms for his report and án examina^ tion by his physician, and stating that upon its receipt and approval and the payment of the note, the company would give the reinstatement its attention, and if payment was inconvenient, he could remit $500 on account and the note would be renewed to April 11, 1927. On February 12, 1927, he wrote the company he would comply. On February 24, 1927, he sent the company a draft for $500 and application, consisting of his own report and that of Dr. Perkins, his physician, noting the extension was given until May first and asking permission to make semi-annual payments. That letter was received by the company on February 26. Johnson died two days later. On Mareh 2, 1927, the company addressed a letter to him, saying that its medical board requested, without prejudice to Dr. Perkins, an examination by Dr. Knight, due to the amount of insurance involved, and on the same day it requested that examination. Also, on that day, the Oklahoma City office mailed to the company a notice of Johnson’s death, which was the first notice it had of the fact. On Mareh 18,1927, the company mailed the draft for $500 to Johnson’s address.

The company did not fail to act in a reasonable time. It did act promptly, but did not approve the application, because it was not a satisfactory showing, as required by the policy. His letters had disclosed his ill health. There was no reference in the application to any present affliction, although he lived but four days after he mailed the application. He was doubtless in extremis; and the trial court so found. The company was entitled at its option to a further medical report by its own examiner in keeping with the policy. It was certainly not bound to accept a report in which his true condition was concealed. Equitable Life Assur. Society v. McElroy, supra. A different question would arise if the company had proposed absolutely to accept the report of the assured, and then failed to act upon it. The authorities cited by counsel for the executor are inapplicable, because they are based on such a proposal.'

In order to procure a reinstatement of the policy in suit, an application to reinstate and an acceptance thereof were necessary. Equitable Life Assur. Soc. v. McElroy, supra; International Life Ins. Co. v. Mowbray (C. C. A.) 22 F.(2d) 952; Wastun v. Lincoln Nat. life Ins. Co. (C. C. A.) 12 F. (2d) 422. Those essentials were not shown in this case. The mere retention of the application was not sufficient for the purpose. Davis v. N. Y. Life Ins. Co., 47 F.(2d) 1051 (8 C. C. A., Mar. 11, 1931); Kan. City Life Ins. Co. v. Phillips, 31 Ariz. 122, 250 P. 882. The company was put in the possession of the application and draft as an attempted com-' plianee with the requirements imposed. There was no occasion for a return of them pending the negotiations, and the assured did not ask it. Besides, he was in no way misled, as he knew he was bound to satisfy the company of his insurability. There was no undue delay in returning the draft. It was held only two days before his death. Its retention thereafter was not prejudicial, as in that period a compliance with the conditions of reinstatement was impossible and was not attempted.

In view of the facts, the District Court committed no error in deciding there was no reinstatement of the policy.

The judgment of the District Court is therefore affirmed.'


source: Caselaw Access Project

author: KENYON, Circuit Judge.

license: Public Domain

text:
    WESSEL et al. v. UNITED STATES.
    No. 8892.
    Circuit Court of Appeals, Eighth Circuit.
    April 9, 1931.
    H. J. Requartte, of Lincoln, Neb. (T. S. Allen and O, C. Wood, both of Lincoln, Neb., on the brief), for appellants.
    Charles T. Hendler, Sp. Atty., Internal Revenue, of Washington, D. C., and Charles E. Sandall, U. S. Atty., of Omaha, Neb. (Robert Van .Pelt, Asst. U. S. Atty., of Lincoln, Neb., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, of Washington, D. C., on the brief), for the United States.
    Before KENYON and VAN VALKENBURGH, Circuit Judges, and DAVIS, District Judge.
   KENYON, Circuit Judge.

This suit was brought by Sam Wessel (now deceased) in the District Court of the United States 'for the District of Nebraska, Lincoln Division, to recover certain income taxes in the sum of $9,500, alleged to have been erroneously collected from him.

The trial court made findings of fact and announced conclusions of law denying Wessel (whom we will hereinafter term the taxpayer) the relief demanded. Prom the judgment of the trial court in favor of the United States, this appeal is taken.' Since this appeal was perfected, Wessel has died, and his executors substituted as appellants.

The action was brought under section 41, title 28, USCA, which provides for original jurisdiction in the District Court concurrent with the Court of Claims in certain cases in suits against the United States, and under subdivision 20 of said section such suits are tried by the court without a jury. It is not a ease under section 773, title 28, USCA, which provides for waiver of jury in civil cases by written stipulation.

Section 226 of title 28 provides for a review, in suits of this nature in the Circuit Court of Appeals, of judgments of the District Court the same as other judgments' therein, and section 764 provides that -it is the duty of the trial court to cause a written opinion to be filed “setting forth the specific'findings by the court of the facts therein and the conclusions of the court upon all questions of law involved in the ease, and to render judgment thereon.”

The findings of fact show: That taxpayer on March 31, 1920, was the owner of all the common stock of the Western Furniture & Manufacturing Company (hereinafter called the manufacturing company). At that time he surrendered his stock in exchange for the assets of the corporation, and assumed the corporation’s liabilities. The common stock wás canceled, and the corporation dissolved. There was no cash payment involved in the liquidation of the business. There was.no balance sheet to determine the surplus of the corporation as of March 31, 1920, the date of the liquidation. March 15, 1921, taxpayer filed his income tax return showing the amount of income and surtaxes which he claimed to be due from him to the government for the calendar year 1920, in the sum of $5,043.23, which was paid. February 17, 1923, the Commissioner of Internal Revenue notified taxpayer of a proposed assessment of additional income and surtaxes for the year 1920 in the sum of $13,958.56. Over taxpayer’s protest, on October 12, 1923, an assessment of an additional tax in the sum of $13,938.20 was made. February 26, 1924, taxpayer paid said additional assessment under protest, and in July, 1924, filed claim for refund, which was denied.

Finding of fact No. 8 of the court was as follows: “That the Commissioner of Internal Revenue based his computation of plaintiff’s income and Excess Profits Tax for the year 1920 upon figures furnished by the plaintiff and which were contained in the books of account regularly k°ept by the Western Furniture and Manufacturing Company, a corporation, and this plaintiff during the years of 1919 and 1920.”

The amount of gain or profit in the transaction was arrived at by the Treasury Department as follows: there was a balance sheet of the Manufacturing Company as of December 31, 1919 (introduced in evidence by taxpayer), which was computed on the basis of cost of the various items contained therein, and showed a surplus as of December 31, 1919, of $49,917.58. The investigating officer of the Treasury Department determined the net income of the corporation for the period from January 1, 1920, to March 31, 1920, to be $6,342.76, arriving at a gross surplus as of March 31,1920, of $56,-260.34. From this he deducted accrued and unpaid corporation taxes in the sum of $9,-852.75, leaving the alleged net surplus of the corporation March 31, 1920, as $46,407.59. To this was added the par value of the common stock in the sum of $30,000, making a total of $76,407.59, from which he deducted the- cost to taxpayer of his stock in the corporation, to wit, $32,500, which left a net profit to taxpayer out of the liquidation of the manufacturing company of $43,907.59.

It was stipulated in the case that the balance sheet of December 31, 1919, introduced in evidence, was correctly made by an internal revenue agent from figures contained in the books of the manufacturing company.

The trial court found that the computations made by the Commissioner of Internal Revenue of taxpayer’s income and excess profits taxes for 1920 were based upon figures furnished by taxpayer and were contained in the books of account regularly kept by the manufacturing company, and were mathematically correct; that the accuracy of the' books of account kept by the taxpayer during the years 1919 and 1920 have not been questioned. The court in its conclusions of law held that the taxpayer’s income and excess profits tax for the year 1920 was correctly computed, and according to law; that the evidence of the values offered on behalf of the taxpayer was not sufficient to entitle him to recover even if the theory should be adopted that the value of the stock should not have been based upon the value of the assets as shown by the books and trial balance of the manufacturing company.

Appellee introduced no evidence.

Findings of fact and conclusions of law sustaining his theories were asked by the taxpayer.

The taxpayer originally made two contentions : First, that there was no gain realized by the liquidation of the corporation and the transfer to him of its assets; that it was not a purchase and sale of stock. This contention, in view of the decision of the Supreme Court in Hellmich v. Hellman, 276 U. S. 233, 48 S. Ct. 244, 72 L. Ed. 544, 56 A. L. R. 379, has been abandoned. The other contention urged on this appeal is that the trial court considered itself bound as to the fair market value of the assets by the statement of such value in the books of the corporation. The taxpayer urges that he was entitled to show, and did show, that the fail-market value of the assets was much less than the figure at which they were carried on the books of the corporation.

The government‘contends that the sole province of this - court is to determine as a matter of law whether the facts found by the trial court support the judgment, and that the question as to any competent evidence to support the conclusions of fact is not here; there being no proper assignment of error covering that point. Further, the government claims that no motion was made by the taxpayer for judgment, and that this court cannot reverse a special finding of fact by the court below or reverse the judgment thereon for any error of fact. The special findings of fact by the trial court have tho same effect as the verdict of a jury. Cramp v. United States, 239 U. S. 221, 36 S. Ct. 70, 60 L. Ed. 238; Crocker v. United States, 240 U. S. 74, 36 S. Ct. 245, 60 L. Ed. 533; Brothers v. United States, 250 U. S. 88, 39 S. Ct. 426, 63 L. Ed. 859; Stone v. United States, 164 U. S. 380, 17 S. Ct. 71, 41 L. Ed. 477.

If the question of whether or not there is any substantial evidence to support the findings of fact was properly raised at the trial and preserved for review by this court, we are satisfied that it is our duty to pass on that question as one of law; all the evidence being before us. Collier v. United States, 173 U. S. 79, 19 S. Ct. 330, 43 L. Ed. 621; United States v. Buffalo Pitts Company, 234 U. S. 228, 34 S. Ct. 840, 58 L. Ed. 1290.

There is some doubt whether the assignments of error sufficiently cover this point. However, we have concluded, notwithstanding that doubt, to consider the same.

As to the government’s contention that no motion was made by the taxpayer for judgment, and no declaration of law was requested on the subject of whether there was any competent evidence to warrant the findings of fact, we may say that the question was, we think, sufficiently raised by the requests made for conclusions of law on the part of the taxpayer.

In the ease of Federal Intermediate Credit Bank of Omaha v. L’Herisson, 33 F.(2d) 841, 843, cited by the government, it was held by this court: “If a party seeks to have reviewed the question whether the record contains any substantial evidence to support the findings and judgment against him, it is incumbent upon him to make a motion for judgment in his favor on that ground, or to request a declaration of law to that effect, or to take some other equivalent step, and secure a ruling by the trial court, and to take exception to such ruling.” Such equivalent steps were here taken.

It will not be necessary for us to enter the field of inquiry further in this ease than to determine whether there was any substantial testimony to support the findings of fact of the trial court, for there can be no doubt that the findings of fact justify the court s conclusions of law.

It was the duty of the taxpayer to establish his claim by proof satisfactory to the court. It was the province of the court under the statute to determine the profit or gain in the transaction in question. That was measured by the fair value of the property received, less the cost of the stock. It was not bound by the statements of the corporation books. The corporation was an entity, separate and distinct from the stockholders. While the statements on the books of the value of the assets were not conclusive, they were of evidential value, and, of course, it was proper for the court to consider them in arriving at its ultimate conclusion as to the facts. Speaking of books of account as showing values, the Supreme Court said in Doyle v. Mitchell Brothers Co., 247 U. S. 179, 187, 38 S. Ct. 467, 470, 62 L. Ed. 1054 s “Nor is the result altered by the mere fact that the increment of value had not been entered upon plaintiff’s books of account. Such books are no more than evidential, being neither indispensable nor conclusive. The decision must rest upon the actual facts, which in the present case are not in dispute.” That would seem a clear statement of the law. See, also, Robert P. Hyams Coal Co. v. United States (D. C.) 26 F.(2d) 805.

The only point really urged here is that the court should not have accepted as correct, the value of the assets as appeared on the books, in view of the opinion evidence offered by taxpayer that the market value was less, but the court was bound neither by the opinion evidence nor the balance sheet, both of which the taxpayer introduced. The opinion evidence had no more probative force than did the books.

The court found in determining the net profit or gain derived by taxpayer from the exchange of the assets of the manufacturing, company for his stock that the figures of the Commissioner of Internal Revenue as to net, profit, namely, $43,907.59, were correct, and found as a fact just how this net profit of $43,907.59 had been reached by the Treasury Department. Certainly there was evidence in the balance sheet from the books of account of the manufacturing company, of which taxpayer owned all the stock, to justify the court’s findings as to the value of the assets and the net profit, and this court is not concerned with the mental processes .of the trial court in arriving at its conclusion.-

Counsel for appellant in his brief states: “The trial court could not properly say that. there was no evidence upon which to base a finding, even if the stipulation had been the only evidence introduced in the case.” The court did not say in its conclusion of law there was no evidence upon which to base a finding different from the one it did. It said: “The evidence of values offered on behalf of the plaintiff is not sufficient to entitle the plaintiff to recover.” That was a conclusion of law based on the evidence. We are satisfied there was competent substantial evidence to support the findings of fact, and that such findings warrant the conclusions of law.

The judgment is affirmed.


text:
    ARMAND CO., Inc., v. HUEGEL.
    No. 8953.
    Circuit Court of Appeals, Eighth Circuit.
    April 9, 1931.
    Ralph T. Finley, of St. Louis, Mo. (James C. Jones, Lon O. Hocker, Frank H. Sullivan, and James C. Jones, Jr., all of St. Louis, Mo., on the brief), for appellant.
    Harry S. Rooks, of St. Louis, Mo. (Edward W. Foristel, O. J. Mudd, James T. Blair, Oscar Habenicht, and Harvey B. Cox, all of St. Louis, Mo., on the brief), for appellee.
    Before KENYON and VAN VALKENBURGH, Circuit Judges.
   KENYON, Circuit Judge.

This is an appeal from a judgment secured by appellee against appellant in an action in the United States District Court for the Eastern District of Missouri, brought to recover commissions on certain sales of merchandise.' Appellant is a manufacturing company of Des Moines, Iowa, engaged in the manufacture and sale of toilet preparations. It employed a number of salesmen, of whom appellee was one, who sold on commission. Appellee’s territory included St. Louis and adjacent territory in Missouri. It is the claim of appellee that about January 1, 1922, while in the employ of appellant, he entered into an additional contract whereby he was to receive 5 per cent, commission on all sales made by appellant to jobbers in appellee’s territory, in consideration of appellee’s calling on the retail trade and endeavoring to create a demand for the goods of appellant; that under said contract he entered upon the new work in addition to the old, and continued therein until May 1, 1926.

It was admitted at the trial that sueh jobbing business in appellee’s territory for the year 1922 amounted to $54,036. The verdict, returned was $2,700, which was substantially 5 per cent, on this sum. A large amount; of similar business was done in tbe other years up to 1926, and in his complaint appellee claimed a commission of 5 per cent, on all of -said business, which would have amounted to a very large sum. We need not concern ourselves with that phase of the matter.

Appellant concedes that some arrangement was made at a certain meeting in the city of Des Moines in January, 1922, to permit salesmen to participate in the profits of the company by the allowance of some commission to such salesmen on sales made by the company to jobbers, and that this was additional to the commissions allowed on sales made by the salesmen direct to dealers in their territory, but claims that no particular commission was agreed upon; that such subject was for future consideration, and that in October, 1922, the salesmen at a convention in Des Moines were notified that it would be impossible to pay commissions on sales to jobbers, and each of them was given a cheek in liquidation of any obligation under said arrangement; that appellee received a cheek for $300 on October 31, 1922, in liquidation and full settlement of any obligation on account of commissions on sales by appellant to jobbers in appellee’s territory.

At the close of the evidence appellant re-. quested an instructed verdict in its favor, which was denied by the court. Appellant also requested the following instruction: "The Court instructs the jury that under no circumstances is the plaintiff entitled to recover jobber’s commissions from the defendant after October 31, 1922.” This was refused by the court.

The ease was submitted to the jury, and verdict in the sum of $2,700 returned with interest, as before suggested.

There are a number of assignments of error, but we think it unnecessary to discuss questions arising under any of them except two, which present the alleged error of the court in refusing to instruct the jury that appellee could not recover any commissions on jobber’s business after October 31, 1922, and the question of whether the verdict of the jury was supported by the evidence.

This action is on a claimed express contract. Appellant urges that the evidence is totally insufficient to show such contract. Appellee had been for some time engaged in the business of a traveling salesman for appellant. It is evident that some irritation was created in his mind because appellant was selling directly to the jobbers in his territory. Naturally this affected his business. The matter was brought up at the meeting in Des Moines in January, 1922, and the evidence of the sales manager, Mr. Gibson, confirms appellee’s claim that there was some arrangement in regard to paying.the salesmen commissions on sales made directly to jobbers by appellant. The question of just what was to be paid was a disputed question of fact. There was sufficient evidence for a jury to say that an agreement had been entered into, as claimed by appellee.

It is urged by appellant that no consideration existed for said contract; that appellee merely agreed to do what he was bound to do under his previous arrangement with appellant. The sales by appellant to jobbers • in appellee’s territory of course affected his business, and a contract to give him a commission on such sales in consideration of his working up the business of selling directly to jobbers was not a strange or unnatural contract, and, if he remained in the business, relying on such agreement, and proceeded to act thereunder, there was ample consideration for said contract. George A. Fuller Co. v. Brown (C. C. A.) 15 F.(2d) 672. The contract was for an indefinite time, and the work to be done thereunder was not the same as that to be done under the existing contract.

The record shows, we think conclusively, that any agreement for jobber’s commissions that may have been made was terminated at the end of October, 1922. At that time it seems there was a meeting in Des Moines of some of the officers of the company and the salesmen, at which the salesmen were presented with bonus cheeks. Appellee received one for $300, which he says was a bonus for good work during the year 1922, but which appellant claims was in settlement of anything due him under any claim for commissions. Whether that is true or not was a question of fact, but, in any event, appellee was informed at that time by appellant that there would be no more commissions, and the evidence shows he so understood the situation. It is clear that after that time he did not expect commissions. Two letters are in evidence written by him after he left the company, one dated December 22, 1926, in which he brings up the question, of commissions on jobbing business in Missouri for 1922. The other of January 12, 1927, written -to Mr. Perry, attorney for appellant, refers to claim for commissions on jobbing business during 1922. There-is no evidence that he ever requested any commissions during the four years after 1922 that he remained in the service of the company.

In our judgment the court should have given the instruction limiting the recovery to commissions on business done prior to October 31, 1922. How does that situation leave the case?

The jury found the appellee entitled to 5 per cent, commission on jobber’s sales for the full year 1922. Appellee argues that the evidence authorized such verdict. We do not think so. Appellee’s counsel state in their brief that the jury could find that, after December 31, 1922, he had no further reason to expect and did not expect or rely on commissions thereafter on the jobbing business. The evidence shows that appellee could not expect any commissions after October 31, 1922. How could a jury under this evidence figure out the amount of business done with the jobbers by appellant between January 1, 1922, and October 31, 1922? It would be a mere guess and entirely speculative. Juries cannot wander into a field of this nature and return verdicts on mere guesses. The jury evidently found that the contract had been terminated some time in 1922, as it did not allow commissions for the other four years. There is nothing in the evidence to indicate what part of the verdict is based on commissions upon business done prior to October 33, 1922. Hence, under well-settled principles, the verdict cannot be sustained. As the verdict cannot stand for the reasons we have pointed out, and as the case must be remanded for further action, there is no use in considering other alleged errors suggested, as they may not occur upon a retrial.

The judgment is reversed, and the case is remanded for further proceedings in harmony with this opinion.

Reversed and remanded.


author: PHILLIPS, Circuit Judge.

text:
    JOHNS-MANVILLE CORPORATION v. NATIONAL TANK SEAL CO.

    No. 360.
    Circuit Court of Appeals, Tenth Circuit.
    April 13, 1931.

      Odin Roberts, of Boston, Mass. (Mason, Williams & Lynch, of Tulsa, Okl., Roberts, Cushman & Woodberry, of Boston, Mass., Herbert D. Mason, of Tulsa, OH., and Robert Cushman and William Gates, Jr., both of Boston, Mass., on the brief), for appellant.
    Howard Lee Smith, of Tulsa, OH., for appellee.
    Before COTTERAL, PHILLIPS, and McDERMOTT, Circuit Judges.

      Rehearing denied June 1, 1931.

   PHILLIPS, Circuit Judge.

Johns-Manville Corporation brought this suit against the National Tank Seal Company for infringement of Claim 1 of United States patent No. 1,184,673, granted to Charles C. Fardon on May 23,1916, for improvement in storage tanks.

Claim 1 of the patent reads as follows:

“1. In a storage tank, a receptacle and a roof therefor, a sheathing covering the roof, a fabric engaging the sheathing and extending from the roof to the sides of the receptacle for sealing the joint between the roof and receptacle, and a binding means for binding the fabric against the side of the receptacle.”

The defendant installed two tank top coverings for the Prairie Oil & Gas Company at Caney, Kansas,- which plaintiff alleged infringed the patent.

From a decree dismissing the bill, plaintiff has appealed.

In the specification of the patent, it is stated:

“The invention * * * relates to a method for converting ordinary roofs of storage tanks into leak-proof roofs, so that storage tanks now in common use may be made safe from danger, due to explosions and from waste due to evaporation of the contents of the receptacle.”

At the time of the Fardon invention, oil tanks consisted of a cylindrical shell, a bottom, and a top or roof consisting of a fiat cone shaped wooden plank deck with a sheathing of thin sheet metal thereon. When crude oil was stored in tanks so constructed, great waste resulted due to evaporation and escape of volatiles, such as benzine, gasoline and the like. The purpose of the Fardon invention, embraced in Claim 1, was to prevent evaporation and escape of such volatiles by sealing the seams in the top and the joint between the roof and the side or cylindrical shell of the tank.

The patent drawings are as follows:

In his specification, Fardon describes his invention as follows:

“It is the purpose of the inventor to rearrange the metal sheathing of the roofs now in common use by removing the fastenings at the joints thereof and applying a roofing cement 8 between the overlapping sections forming the joints so that when the sections of the roof are brought together and the cement is hardened or set between the sections of the roof sheathing, gas tight joints will be formed to accomplish the result stated. It has been found in practice that the most effective method for securing the metallic roofing to the board cover of the tank is by nails 9 extending into the said board cover at an angle of 45°, the relation of these parts being well shown in Fig. 1. The metal cover is then covered or coated with heavy paint, which coating covers the same and preferably projects about three inches on each side so as to preclude the entrance of moisture.
“A further means for confining the gas except where the vents are located is to cover the joint between the tank and the roof; this being accomplished by applying preferably a fabric known as dueHng to the roof near its edge and to the tank at the top thereof, the said fabric being continuous from the roof to the tank so that the joint between these two portions of the tank is effectually sealed. The fabric 10 shown in the drawing may be attached to the roof by cement or other known means and it is likewise secured to the outer wall or surface of the tank by cement or other known means. * * *
“I have furthermore provided a means for firmly pressing, the fabrie against the tank, the same consisting of a binding wire or rod 12 extending round the said tank, the ends of said binding wire being connected by a turn buckle 13 which engages eyes or loops 14 on the ends of the said binding member, the same being effective to bind the fabric as stated closely against the side of the tank and this fabrie is preferably coated with material which will render it impervious to gas or water.”

The elements of Claim 1 are, in a storage tank, (a) a receptacle, and (b) a roof therefor, (c) a sheathing covering the roof, (d) a fabric engaging the sheathing and extending from the roof to the side of the receptacle for sealing the joint between the roof and the receptacle, and (e) a binding means for binding the fabrie against the side of the receptacle.

The following is a correct illustration of the alleged infringing device.

In the patented device, a cloth fabrie, coated with some material to render it impervious to gas, is used to seal the joint between the top and the side or cylindrical shell. In the alleged infringing device, a flexible sheet metal is used to perform this function. In the patented device, a binding wire is used to bind and hold the fabrie against the cylindrical shell; while in the alleged infringing device a row of closely spaced screw bolts is used to bind the sheet metal sealing strip to the top of the angle iron, an extension of the cylindrical shell.

The primary question presented is whether such flexible sheet metal and such row of screw bolts are the mechanical equivalents respectively of the fabric and the binding means, which are elements of Claim 1.

Counsel for the • defendant contends that the Fardon patent makes no allowance for expansion and contraction of the metallic cylindrical shell, due to temperature changes, and that a device built on it will not function successfully because such expansion and contraction will loosen the fabrie and destroy the seal. He contends that, on the contrary, the sheet metal sealing strip, used in the alleged infringing device to cover the joint between the top and the side of the tank, is flexible and will yield to expansion and contraction without breaking the seal. This contention is not predicated upon the introduction of any new element in the alleged infringing device but upon a structural difference between the patent drawings and the alleged infringing device. In the patent drawings, the fabrie is shown to be drawn down tightly over the joint so as to produce a rigid, non-flexible eaves joint seal. While in the alleged infringing device, the sheet metal is permitted to bulge outwardly instead of being drawn down tightly over such joint, thereby creating a flexible instead of a rigid eaves joint seal. The latter construction is used in plaintiff’s commercial device.

There is nothing in Claim 1 or in the specification which expressly or impliedly limits such claim to a rigid construction. In his specification, Fardon suggests, as the fabrie, ducking which has been treated so as to make it impervious to gas. The claim states that the fabrie shall engage the sheathing and extend from the roof to the side of the receptacle, and shall be attached to ths side of the receptacle by a binding means. The element Which Fardon suggests permits o£ a flexible rather, than rigid seal between the roof and side. Neither the specification nor the claim states that such fabric shall be drawn tightly over the roof and side so as to form a rigid eaves joint seal. Any mechanic would know that a metallic oil tank will contract and expand with temperature changes, and he would not attach a flexible sealing fabric so tightly that expansion would loosen the attachment of the edges thereof to the roof and side, when it is inherently flexible and permits of an attachment which will result in a flexible eaves joint seal.

A patentee is not restricted to the precise form of construction shown in the patent drawings, especially where that particular form is not essential to or embodied in the principle of the invention claimed. National Hollow Brake-Beam Co. v. Interchangeable Brake-Beam Co. (C. C. A. 8) 106 F. 693, 715.

A device reads on the patent, provided it adheres to and embodies all of the essential principles disclosed by the patent, notwithstanding the drawings are departed from to the extent of simple changes which an ordinary mechanic would see and make in building a device on the patent. Manhattan Book Casing Machine Co. v. Fuller Co. (C. C. A. 2) 204 F. 286.

The mere fact that, in order to make the device operative and commercially successful, it is necessary to make a slight departure from the drawings, such as attaching the ends of the fabric so it will bulge outwardly and permit contraction and expansion without breaking the seal, does not, in our opinion, require a holding that the patent is inoperative. Neither do we think that one who follows the principle of the patent may escape infringement by making such an obvious structural change.

In National Hollow B.-B. Co. v. Interchangeable B.-B. Co. (C. C. A.) supra, 106 F. 693, at page 710, the court said:

“One who invents and secures a patent for a machine or combination which first performs a useful function is thereby protected against all machines and combinations which perform the same function by equivalent me-' chanieal devices; but one who merely makes and secures a patent for a slight improvement on an old device or combination, which performs the same function before as after the improvement, is protected against those only who use the very device or improvement he describes or mere colorable evasions thereof. In other words, the term ‘mechanical equivalent,’ when applied to the interpretation of a pioneer patent, has a broad and generous signification, while its meaning is very narrow and limited when it conditions the construction of a patent for a slight and almost immaterial improvement. Adams Electric R. Co. v. Lindell R. Co., 77 F. 432, 440, 23 C. C. A. 223, 231, 40 U. S. App. 482, 498; Stirrat v. Manufacturing Co., 61 F. 980, 981, 10 C. C. A. 216, 217, 27 U. S. App. 13, 42; McCormick v. Talcott, 20 How. 402, 405, 15 L. Ed. 930; Railway Co. v. Sayles, 97 U. S. 554, 556, 24 L. Ed. 1053; Brill v. Car Co., 90 F. 666, 33 C. C. A. 213, 62 U. S. App. 276. But the great majority of patents falls between these two extremes. They are neither for pioneer inventions nor for improvements so slight as to be almost immaterial. While they do not evidence the first or the last step in the progress of the art to which they relate, they often mark signal advances and protect useful improvements. The doctrine of mechanical equivalents conditions the construction of all these patents, and in determining questions concerning them the breadth of the signification of the term is proportioned in each case to the character of the advance or invention, evidenced by the patent under consideration, an'd is so interpreted by the courts as to protect the inventor against piracy and the public against unauthorized monopoly.”

While plaintiff’s patent is for an improvement and is not a pioneer patent, it is primary in the sense that Fardon invented the first device to seal oil storage tanks in order to prevent loss of volatiles through-evaporation. It was a marked improvement. in the art and is entitled to a substantial range of equivalents.

There are two well recognized tests of equivalency: (1) “Identity of function”; and (2) “substantial identity of way of performing that function.” Walker on Patents (6th Ed.) § 417; Hyman v. F. W. Woolworth Co. (C. C. A. 8) 28 F.(2d) 833; Allen v. Wingerter (C. C. A. 3) 17 F.(2d) 745, 746; Superior Skylight Co. v. August Kuhnla, Inc. (C. C. A. 2) 273 F. 482, 485; Magic City Kennel Club v. Smith (C. C. A. 10) 38 F.(2d) 170, 172; Bundy Mfg. Co. v. Detroit Time-Register Co. (C. C. A. 6) 94 F. 524, 539; In re Husted, 39 F.(2d) 713, 715, 17 C. C. P. A. 1002.

The Standard Dictionary defines “fabric,” as follows: “Something that has been fabricated, constructed, or put together.” Webster’s Dictionary defines “fabric,” as follows: “The structure of anything; anything manufactured.” In the broad sense of the term, a flexible sheet metal is undoubtedly a fabric.

Patents should be liberally construed, with a view of protecting the invention which the patentee intended to secure. Tompkins-Hawley-Fuller Co. v. Holden (C. C. A. 2) 273 F. 424, 430; Permutit Co. v. Wadham (C. C. A. 6) 13 F.(2d) 454, 455; United States Industrial Chemical Co. v. Theroz Co. (C. C. A. 4) 25 F.(2d) 387, 392; Winans v. Denmead, 15 How. 330, 341, 14 L. Ed. 717. “That interpretation which sustains and vitalizes the grant should be preferred to that which strikes down and paralyzes it.” National Hollow B.-B. Co. v. Interchangeable B.-B. Co., supra, 106 F. 693, page 715.

We conclude that the word “fabric” should be construed in its broad sense and that it includes material such as sheet metal.

The flexible sheet metal extends from the top to the side of the receptacle and covers the eaves joint between the top and side. It is sealed to the top by cement, and to the side of the receptacle by cement and a row of spaced screw bolts. Therefore it performs the same function in substantially the same way as the fabric in Claim 1 of the patent in suit. A row of closely spaced bolts and cement are employed to seal and hold such sheet metal to the side or cylindrical shell. They are clearly a binding means within the meaning of that term as used in Claim 1 of the patent. The specification and drawings call for a binding wire and cement as such binding means. The row of spaced bolts and cement perform the same function in substantially the same way as such binding wire and cement.

It may be that the metallic sheet employed in the alleged infringing device is more durable, more flexible and better suited to the function for which it is. employed than the material suggested in the patent specification. However, infringement is not thereby avoided. One may not avoid infringement by making a device which differs in form, or is more or less efficient than the patented device, where he appropriates the principles and mode of operation of the patented device and obtains its result by the same or equivalent mechanical means. Lourie Implement Co. v. Lenhart (C. C. A. 8) 130 F. 122, 129; Smith Cannery Machines Co. v. Seattle-Astoria Iron Works (C. C. A. 9) 261 F. 85, 88; Angelus Sanitary Can Mach. Co. v. Wilson (C. C. A. 9) 7 F.(2d) 314, 318; Shaver v. Skinner Mfg. Co. (C. C. Iowa) 30 F. 68, 71, 72; 48 C. J. p. 304, § 503.

Furthermore, where one part or element of a device performs the same function as an element of the patented device, infringement will not be avoided merely because it also performs an additional function. Holmes Burglar Alarm Tel. Co. v. Domestic T. & T. Co. (C. C. N. J.) 42 F. 220, 226; De Laski & Thropp Circular Woven Tire Co. v. William R. Thropp & Sons Co. (D. C. N. J.) 218 F. 458, 461; Powell v. Leicester Mills Co. (C. C. A. 3) 108 F. 386, 391; Rockwood v. General Fire Extinguisher Co. (C. C. A. 2) 8 F. (2d) 682, 688 ; 48 C. J. p. 307, § 505.

In Union Paper Bag Machine Co. v. Murphy, 97 U. S. 120, at page 125, 24 L. Ed. 935, the court said:

“In determining the question of infringement, the court or jury, as the case may be, are not to judge about similarities or differences by the names of things, but are to look at the machines or their several devices or elements in the light of what they do, or what office or function they perform, and how they perform it, and to find that one thing is substantially the same as another, if it performs substantially the same function in substantially the same way to obtain the same result, always bearing in mind that devices in a patented machine are different in the sense of the patent law when they perform different functions or in a different way, or produce a substantially different, result.”

Defendant’s device performs substantially the same functions in substantially the same way and obtains the same result as Claim 1 of the patent in suit. Therefore it infringes Claim 1.

The decree is reversed, and the cause remanded for further proceedings in accordance with this opinion.


author: McDERMOTT, Circuit Judge.

text:
    MALONEY TANK MFG. CO. v. MID-CONTINENT PETROLEUM CORPORATION et al.
    No. 331.
    Circuit Court of Appeals, Tenth Circuit.
    March 30, 1931.

      ■William F. Tucker, of Tulsa, Okl. (Hulette F. Aby and William H. Martin, both of Tulsa, Okl., on the brief), for appellant.
    Frank E. Lee, of Oklahoma City, Okl. (F. A. Rittenhouse and John F. Webster, both of Oklahoma City, Okl., on the brief), for appellees.
    Before COTTERAL, PHILLIPS, aud McDERMOTT, Circuit Judges.
   McDERMOTT, Circuit Judge.

The Mid-Continent Petroleum Corporation owned a battery of oil tanks located near Seminole, Okl. On February 1, 1927, its vice president directed his subordinates to have these tanks dismantled by the Maloney Tank Manufacturing Company. While they were being dismantled, one of the workmen stopped in his work to light a cigarette, and threw the match on the ground. The ground was oil-soakéd, and a fire ensued whieh destroyed the tanks and the oil therein. The North British & Mercantile Insurance Company paid the petroleum corporation $18,~ 371.38 to apply on the loss. The total loss was alleged to be $20,000. The petroleum corporation and insurance company joined in a suit against the tank company for the damage. The petition alleged an oral agreement with defendant to remove the tanks in question, and that, while defendant was engaged in such work of removal, the tanks were destroyed by a Are caused by the negligence of the defendant, its agents, servants, and employees. The tank company answered denying that it entered into the oral agreement alleged, or that its employees were engaged in removing the tanks when the fire occurred; it also alleged that, if any of its employees did light a cigarette, such act was not within the scope of his employment.

Upon the issues so joined there was a trial and much conflicting evidence. The trial court charged the jury that, before the plaintiffs could recover, the following facts must be established to the satisfaction of the jury: (a) That there was an oral agreement between the petroleum corporation and the tank company as alleged'; (b) that the workman who started the fire was' a servant of the defendant; (e) that the lighting of the cigarette was a careless act under the circumstances; and (d) that such act was in the scope or line of work for which the servant was employed. There was a verdict for the plaintiffs for $17,185, a motion for a new trial was denied, and defendant appeals.'

The principal errors assigned are that there was no evidence from which a jury could find that there was, a contract between the parties, or that the workman lighting the match was in the employ of the defendant, and, even if he was, that, as a matter of law, lighting a cigarette, even under the highly dangerous conditions existing here, is beyond the scope of the servant’s employment. Since the jury passed upon the disputed facts, our inquiry need not be further pursued than to determine whether there was substantial evidence to support their verdict.

1. The Maloney Tank. Manufacturing Company manufactures steel tanks and had at one time maintained an office in Seminole, Okl., with its company name on the windows. The petroleum corporation had done considerable business with it, buying tanks of it and employing it to set, reset, and dismantle tanks. About three months before this fire, a new and small corporation was formed, called “The Maloney Sales Corporation,” which was a representative of and distributor for the Maloney Tank Manufacturing Company. After that date, the tapk company sold its tanks to the sales corpora? tion, and the sales corporation sold them to the public and did such work as setting and dismantling of tanks. The sales corporation used the former office of the tank company at Seminole, no change being made in the signs on the windows. The tank company sent out all the bills to the public for tanks sold or work done by the sales corporation and collected the money therefor. The tank company followed this practice because the sales corporation was not financially able to take care of the business, and for the protection of the tank company. All invoices sent out were in the name of the tank company, and carried the printed notation “Labor and material furnished by our representative, Maloney Sales Corporation, Tulsa, Oklahoma.”

Mr. Moody, the vice president of the petroleum corporation in charge of such work, had never heard of the sales corporation when he directed this work to be done by the tank company with which he had theretofore dealt. The employees who did the work thought they were working for the tank company. The tank company billed the petroleum corporation for the work, and the petroleum corporation paid the tank company for it. A large number of orders from the petroleum corporation for similar work was introduced in evidence, all given about the same time as the one in question; all of the orders run to the “Maloney Tank Company”; in each ease the tank company sent invoices for the work in its own name, and accepted and cashed checks drawn to it for such work. There is ample evidence to justify the conclusion that the job in question was handled the same way as all other such work was handled during this period, to wit, a written order to .the tank company,' an invoice from the tank company, and payment to the tank company. It is true that an ex-employee of the petroleum corporation, testifying for the tank company, said he knew he was transmitting orders for such work to the sales corporation; but, in view of the fact that ho was the one who signed the written orders to the tank company, the jury were not required to believe him. It is proven that the sales corporation hired'and paid the workmen, and that collections for such work were credited on the tank company’s books to the sales corporation. But this evidence is consistent with what the jury found and what we believe the facts were, and that is that the tank company contracted to do this work and received the pay for it, using the sales corporation as an instrumentality of its own • selection for the performance of it. We-conclude that the record, including the written orders, invoices, and cheeks, discloses ample and satisfactory evidence that there was a contract, as the jury found.

2. Appellant’s brief treats the case as one sounding in tort; it is argued that, whatever the rule may be in actions on the contract, “the actual facts control in tort actions,” and that “the rule of ostensible agency does not apply, this being a tort action.” The appellant approaches the case by disregarding the fact that the workmen, by whomever employed, were doing work at appellee’s request and for it, and treat the whole ease as if appellee were a stranger to the transaction, i. e., as if it were the owner of adjacent property to which the fire had spread. We cannot concur in this view. The petition does leave room for doubt as to what wrong was sought to be redressed, but this is a common fault in the loose pleading invited by the Codes. But the doubt disappears if the entire record is considered. The petition does allege a contract, as its first and basic allegation; a considerable part of appellee’s evidence in chief was in proof of the contract alleged. If this were a tort action, the appellee need not have assumed the burden of pleading or proving the contract. The trial court charged the jury at length as to the elements of a contract, and charged that appellee must prove such contract before it could recover. .We are of the opinion that the action is one to recover for the failure to perform the work of dismantling the tanks in a workmanlike and careful manner. There is, of course, an implied undertaking in all building and construction contracts “to perform his work in a proper and workmanlike manner,” and “a builder is responsible to his employer for defective performance.” 9 C. J. 749 and 751, and cases cited in notes 85 and 87.

3. Considered as an action on the contract, all difficulties disappear. The appellant undertook to dismantle the tanks with reasonable skill and in a workmanlike manner; it did not do so. So considered, it makes no difference whether the appellant employed the workmen directly, or employed the sales corporation to employ them. The work the appellant contracted to do was not done as agreed.' But the result would not be otherwise if the action be considered as sounding in tort. Ordinarily, in tort actions, the doctrine of respondeat superior is applicable only against the actual employer, the person who has actual control over the servant. Standard Oil Co. v. Parkinson (C. C. A. 8) 152 F. 681; Texas Co. v. Brice (C. C. A. 6) 26 F.(2d) 164; Golden v. Southwestern Utilities Corp., 121 Kan. 793, 250 P. 286; Schmitt v. Kier, 111 Okl. 23, 238 P. 410; Riverland Oil Co. v. Chisholm, 143 Okl. 120, 287 P. 379; National Cash Register Co. et al. v. Rider (Tex. Com. App.) 24 S. W. (2d) 28; Inman v. Gulf Refining Co., 194 N. C, 566, 140 S. E. 289; Jung v. New Orleans Railway & Light Co., 145 La. 727, 82 So. 870; 18 R. C. L. 782.

Mr. Meehem, in his excellent treatise on the Law of Agency, states the rule and' the reason therefor as follows: “Inasmuch as the whole doctrine of powers by estoppel rests upon the theory that the other, party has been led to rely upon appearances to his threatened detriment, it is obvious that the doctrine can apply only in those cases in which this element of reliance was present. It can therefore apply only to cases in which credit has been extended, action has been induced, delay has been obtained, or some other change of position has occurred, in reliance upon the appearance of authority, and not to cases of mere tort, such as negligence, trespass, assault. Actions based upon the contract furnish, of course, the most frequent opportunity, but actions for deceit or misrepresentation may also be included within the category. Reliance upon the appearances, however, does not ordinarily induce the assault, slander, trespass, or negligent injury, and the cases must be very rare, if any, in which it could be an element.” Meehem on Agency, vol. I, p. 512., § 724.

Mr. Meehem thus recognizes the rule that the doctrine of ostensible authority is applicable to all cases, contract or tort, where the injured party has been led to rely upon an appearance of authority. Ordinarily, as he suggests, men who are struck by careless drivers do not rely upon any ostensible authority. But several well-considered opinions have applied the rule to negligence cases. In Hannon v. Siegel-Cooper Co., 167 N. Y. 244, 60 N. E. 597, 52 A. L. R. 429, a' customer patronized a dentist who was maintained as a part of the store’s service to its customers; he was, however, not an employee, but a tenant. The store was held liable because it had invited its customers to avail themselves of his services, and the plaintiff relied upon the belief that he was an employee. In Fields v. Evans, 36 Ohio App. 153, 172 N. E. 702, the same rule wás applied where a customer was burned by an. employee of a beauty shop, which was maintained by a department Store under independent contract. S.ee, also, to the same ef-. feet, Friedman’s Shop v. Yeates, 216 Ala. 434, 113 So. 299, and note, Michigan Law Review, March, 1931, p. 640. This rule is applicable here; even if no contract were proven, the circumstances were such that the petroleum corporation had a right to rely upon the supposition that the work was being done by the servants of the responsible company it believed it was dealing with. The least that can be said of the evidence is that the petroleum corporation believed, and had every reason to believe, that it was dealing with the tank company. The appellant herein should not be permitted-to continue to accept orders in the usual way, collect the pay therefor, and then when disaster comes escape responsibility by the plea that the work was done by its financially irresponsible representative which was doing business at the old stand and under the old name. The doctrine of corporate entity may be disregarded if it is apparent that a wrongdoer is undertaking to use it to play hide and seek with an injured party. Boatright v. Steinite Radio Corp. (C. C. A. 10) 46 F.(2d) 385.

4, Appellant next contends that, even if the workman was its servant, the lighting'of a cigarette was not an act done in the course of his employment. Considered as an action in contract, the point is immaterial, for the agreement was to take down the tanks and not to bum them. But we cannot agree with counsel even if we treat the action as one in tort. There is a conflict of authority upon the point, but on principle the rule does not seem to be elusive. Workmen are not employed to smoke, any more than chauffeurs are employed to drive their cars on sidewalks. Smoking is a pastime of the employee, but one which employers know is a common habit of workmen. Under ordinary circumstances, it is not an act accompanied with danger to others. We have no quarrel with cases that decline to hold a master where a servant has stepped aside from his employment and has lighted a cigarette in surroundings where it could not reasonably be anticipated that damage would follow that act. Adams v. Southern Bell Telephone & Telegraph Co. (C. C. A. 4) 295 F. 586, 589; Morier v. St. Paul, M. & M. Ry. Co., 31 Minn. 351, 17 N. W. 952, 47 Am. Rep. 793; Ireton v. Railway Co., 96 Kan. 480, 152 P. 625, L. R. A. 1917F, 1120. But the law is otherwise where the master sends out servants to do work, the nature of which is such that the master knows that damage is apt to occur if the servant smokes or strikes a match. In such a case the' duty devolves upon the master to see to' it that his servants exercise due care under the existing circumstances. Jefferson v. Derbyshire Farmers, Ltd., [1921] 2 K. B. 281; Palmer v. Keene Forestry Ass’n, 80, N. H. 68, 112 A. 798, and note 13 A. L. R. 997. There , are eases which do not recognize the master’s liability, even where the smoking is done in dangerous surroundings. Eaton v. Lancaster, 79 Me. 477, 10 A. 449; Williams v. Jones, 3 H. & C. 256, 159 Eng. Reprint 528; Heard v. Flannagan, 10 Vict. L. R. Law 1; Yore v. Pacific Gas & Elec. Co., 99 Cal. App. 81, 277 P. 878. We cannot agree with these cases, but do agree with the doctrine of the later English case of Jefferson v. Derbyshire Farmers, Ltd., supra, and the excellent statement of Circuit Judge Rose, in Adams v. Southern Bell Telephone & Telegraph Co , supra. After reviewing many American and English authorities, Judge Rose, in discussing this late English case, stated the distinction as follows: “The decision was based upon the ground that the task the servant was set to do was inherently dangerous. One who wished it done was bound to see that its obvious perils were guarded against, and therefore the taking of the neeessary precautions was within the scope of the task committed to whoever was told to do it.”

The work these employees set o,ut to do was inherently dangerous. The tank company knew that the outlet pipes on these oil tanks, some of which it had manufactured a few months before, were above the floor of the tank; it knew there would be a residuum of sediment in the tanks which must be removed and which was highly inflammable. The ground was oil-soaked, as it naturally would be. The appellant, like all employers, knows that workmen are apt to smoke unless restrained. Whiting-Mead Comm. Co. v. Commission, 178 Cal. 505, 173 P. 1105, 5 A. L. R. 1518; Rish v. Portland Cement Co., 186 Iowa, 443, 170 N. W. 532; and eases cited in note, 5 A. L. R. 1521. It is our conclusion that where a master undertakes work in inflammable surroundings, he is responsible if his workmen are careless in the use of fire.

5. Error is assigned because the trial court denied a motion for a new trial. Rulings on motions for a new trial are not reviewable unless there has been a clear abuse of "discretion. General Motors Co. v. Swan-Carburetor Co. (C. C. A. 6) 44 F.(2d) 24; Bailey v. Crump (C. C. A. 4) 41 F.(2d) 733; Kenyon v. Youngman, 59 App. D. C. 300, 40 F.(2d) 812; Escanaba Traction Co. v. Burns (C. C. A. 6.) 257 F. 898. The, principal error Here complained of concerns the amount of the verdict, and the lack of direct evidence as to the “market value” of the tanks. There was no evidence of a market for tanks on this lease; there was evidence that the tanks were nearly new, and were as good as new; evidence of the price which the defendant charged for five of them a few months before; evidence that the insurance company had settled for its loss at cost less 5 per cent, depreciation; there was other •evidence as to the amount of depreciation, the defendant producing evidence that the depreciation was 50 per cent. The jury allowed a 10 per cent, depreciation on the tanks, and the market value of the oil destroyed. There was no abuse of discretion in denying the motion.

6. Error is assigned because the trial court admitted orders from the petroleum corporation to the tank company, and invoices therefor, covering other work, about the time of the accident. This was pertinent, persuasive, and material evidence; it proved a uniform course of dealing quite at variance with defendant’s claim of no contract. Complaint is made because of the admission of a conversation of one Elliott with the vice president of the petroleum corporation, after the fire, admitting the liability.- The objection is that it was not shown that Elliott represented the defendant. But that faet is involved in the issue of whether the petroleum corporation contracted with the tank company or the sales corporation.

The case was fairly tried, and a just verdict rendered. The judgment is therefore affirmed.


author: MeDERMOTT, Circuit Judge.

text:
    LARABEE FLOUR MILLS CO. v. CARIGNANO.

    No. 377.
    Circuit Court, of Appeals, Tenth Circuit.
    March 30, 1931.

      A. A. Davidson, of Tulsa, Old. (H. M. Noble and McCune, Caldwell & Downing, all of Kansas City, Mo., and West, Gibson, Sherman, Davidson & Hull, of Tulsa, Okl., on the brief), for appellant.
    S. A. Horton, of Oklahoma City, Okl. (Claud Briggs, of Wilburton, Okl., on the brief), for appellee.
    Before COTTERAL, PHILLIPS, and McDERMOTT, Circuit Judges.

      Rehearing dented June 1, 1531.

   MeDERMOTT, Circuit Judge.

This is an action at law for breach of a contract to buy flour. The jury returned a verdict for the defendant — the buyer — and plaintiff appeals. The principal error assigned is that plaintiff was entitled to an instructed verdict for the amount of damage fixed by the contract. This assignment calls for the decision of two questions: Was the contract confirmed? If so, is the agreement as to the amount of damage enforceable?

There is little law involved in the first question. The order for the flour, was signed by the buyer, the “party to be charged” under the Oklahoma statute of frauds (Comp. St. Okl. 1921, § 5034, subsee. 4). Edgar v. Reeser (C. C. A. 10) 46 F.(2d) 277; Kingfisher M. & E. Co. v. Westbrook, 79 Okl. 188, 192 P. 209; Harper v. Goldschmidt, 156 Cal. 245, 104 P. 451, 28 L. R. A. (N. S.) 689, 134 Am. St. Rep. 124; Beckwith v. Clark (C. C. A. 8) 188 F. 171; Williston on Contracts, vol. I, § 586. The order provided that “this contract is subject to confirmation by the seller.” It was therefore necessary that the order be confirmed within a reasonable time, and the fact of, confirmation communicated to the buyer. But confirmation need not be in writing, nor in any particular form. Confirmation of an order is but an acceptance of an offer, and may be accomplished orally, or by acts, or by both. Milliken-Tomlinson Co. v. American Sugar Refining Co. (C. C. A. 1) 9 F.(2d) 809; Williston on Contracts, vol. I, §§ 70, 90, 93.

Whether an offer has been accepted is a question of fact. On'an appeal in an action at law, conflicting evidence must be resolved in favor of the prevailing party, and a verdict of a jury is conclusive if it is supported by substantial evidence. If, on the other hand, all of the substantial evidence is one way, the question presented is one of law, and the «trial court shoúld direct a verdict. A scintilla of evidence will not support a verdict in the United States courts. Gunning v. Cooley, 281 U. S. 90, 50 S. Ct. 231, 74 L. Ed. 720; Small Co. v. Lamborn & Co., 267 U. S. 248, 45 S. Ct. 300, 69 L. Ed. 597; Woolworth v. Davis (C. C. A. 10) 41 F. (2d) 342, 347; Waddell v. A. Guthrie & Co. (C. C. A. 10) 45 F.(2d) 977, 978.

The first point then turns on the facts. Defendant concedes that on July 17, 1928, he signed a document entitled “Millers’ National Federation Uniform Sales Contract” and handed it to W. Brooks, a salesman of plaintiff. That contract recites that the plaintiff sells and the defendant buys “the following commodities, to be manufactured, F. O. B. cars to initial carrier at shipping point.” The commodities listed were 5000 barrels of Cream Loaf flour at $6.40 per barrel, and 100 barrels of Dixie Dream flour at $7.65 a barrel. The time of shipment was fixed as June 1, .1929, the buyer having the right to order out the flour at any time in the interim on fourteen days’ notice. The contract was signed by defendant, but was not confirmed on the contract itself, although a space was provided for that purpose.

The next day, the home office, by telephone, instructed Mr. Brooks.to wire a confirmation of the order, and pursuant to that authority ha wired defendant as follows:

“C. Carignano, Wilburton, Oklahoma. Confirm five thousand barrels loaf six forty June first.
“Larabee Flour Mills.”

The defendant admits receiving this wire; it sufficiently identifies the contract intended to be confirmed, for, while it does not mention the small item of 100 barrels of Dixie Dream flour, the amount, price and time of shipment of the 5000 barrels of Cream Loaf flour is specified. The defendant,- in his testimony, makes -no -point of the omission of the 100 barrels, hut claims that later in the day Brooks telephoned him that “I wired you the confirmation I try to put it' through and you going receive confirmation from the headquarters.”

The plaintiff then bought 23,460 bushels of wheat to cover -this -flour contract, although there is no proof that defendant was advised of this purchase. On August 9, defendant, in writing, sent plaintiff shipping instructions for 600 sacks of “iEtna Best” flour." It appeared that plaintiff-and defendant had entered into a contract during the previous wheat-year for flour- at $6.90 a barrel, of which about 300 barrels remained unshipped when the new contract was made. When the ■ August 9 shipping instructions came in, plaintiff advised defendant that it was applying the order against the old contract at $6.90, instead of against the new contract at $6.40. When defendant received this advice, he wired to cancel the order of August 9. An agreement was then made to cancel the unfilled portion of the old and higher priced contract, and to apply the August 9 order against the newer and lower priced contract, applying the usual differential on account of the difference in brands. The defendant accepted the shipment.

During the next eight months there were fluctuations in the price of flour, of which defendant was advised; at intervals defendant ordered out 885 barrels of flour. Yet, no matter what the current market was, the defendant was always billed at the contract price, and defendant uniformly accepted the flour and paid for it at the contract price. In instructions given for such shipments, signed by defendánt, a price would be fixed for feed stuffs and certain brands of flour; but on Cream Loaf or Dixie Dream, either no price would be extended in the column for price, or there would be written in the symbol “Con.” standing for contract. That defendant ordered out this flour, accepted it, and paid for it at the contract price, is undisputed. In his amended answer, defendant explains this by alleging that “in each instance the delivery by plaintiff and acceptance by defendant of flour thereafter, was on independent purchase contracts as to each separate shipment thereof.” But this explanátion would not hold water, for the shipping orders carried no price, and the flour was all paid for at the same price, although ordered out at intervals and when current prices did not conform. So in the evidence no attempt was made to establish this explanation; instead, an explanation was offered that was not pleaded, to wit, that defendant intended these shipping instructions to apply against the contract of the year before. This explanation does not dovetail into th'e record facts. The old contract was at $6.90 a barrel; he only paid $6.40 for the flour; there were only 300 barrels due on the old contract on July 1, 1928, but he ordered out 885 barrels; and the old contract was canceled by mutual consent before any of these shipments was ordered out. Defendant asserts that some salesman voluntarily reduced the old contract from $6.90 to $6.40 a barrel, but no proof of any such authority is shown or claimed. The other inconsistencies are not explained.

The plaintiff wrote defendant on January 2, 1929, and again, on January 30, calling attention to the unfilled balance of the contract, and urging him to order out the flour more rapidly. No answers were received, except that defendant ordered out three shipments of flour thereafter. On June 1, 1929, plaintiff exercised its contract right to terminate the contract.

Defendant undertakes to meet this formidable evidence in several ways. He contends that he wrote plaintiff on July 31, 1928, saying he had not received any confirmation, and asking whether it was going to confirm. It is doubtful if this letter was admitted in evidence, for the stenographer’s report of the trial does not so disclose; if admitted, it should not have been, for there was no proof of mailing. But it is immaterial; the proof is undisputed that no such letter was received, and if received, it would have no evidentiary bearing on the proof of confirmation as above narrated. He further testified that about the middle of August Mr. Brooks, the salesman, told him that “headquarters he don’t confirm the contract because he don’t want you speculating.” In passing it may be observed that Brooks, a witness for defendant, does not corroborate this. But, in any event, Brooks had no authority to make or cancel a contract. Before that alleged conversation, defendant had received the telegram of confirmation, and about that time had received flour on the contract; and after the conversation, defendant repeatedly ordered, received, and paid for flour under the contract.

In our opinion, this evidence presents no issue of fact for a jury. The defendant concedes his signature to the contract; concedes the receipt of the telegram of confirmation; concedes that over a period of eight months he ordered out flour and received it at the contract price, no matter what the current market'was. The explanation offered by him is not pleaded, and, what is of more consequence, it is at variance with undisputed record evidence. In short, it will not wash. “When the testimony of a witness is positively contradicted by the physical facts, neither the court nor the jury can be permitted to credit it.” American Car & Foundry Co. v. Kindermann (C. C. A. 8) 216 F. 499, 502; Missouri, K. & T. Ry. Co. v. Collier (C. C. A. 8) 157 F. 347, cert. denied 209 U. S. 545, 28 S. Ct. 571, 52 L. Ed. 920; Woolworth Co. v. Davis (C. C. A. 10) 41 F.(2d) 342, 347; Kelly v. Jones, 290 Ill. 375, 125 N. E. 334, 8 A. L. R. 792, and annotation 796, 798. The plaintiff was entitled to a directed verdict.

As to the question of damages. The contract provides:

“If the buyer shall fail to furnish shipping instructions or packages as herein provided, the seller may (1) cancel the contract, or (2) terminate the contract, the buyer to pay to the seller as liquidated damages the sum of:
“(a) One-third of one cent (1/30) per day per barrel of flour from the date of sale to the date of termination as the expense of carrying, plus
“(b) Twenty cents (200) per barrel as the cost of selling, and
“(c) Plus or minus the amount of the difference between the market value of wheat on the date of sale and on the date of termination, times four and six-tenths (4.6) times the number of barrels of flour. This amount is to be added if the price of wheat is lower and subtracted if the price of wheat is higher upon the date of termination.”

The trial court submitted to the jury the question of whether this provision was in violation of an Oklahoma statute which provides that, where “an obligation of any kind appears to create a right to unconscionable and grossly oppressive damages, contrary to substantial justice, no more than reasonable damages can be recovered.” - In this, we think, there was error. There was no evidence from which a jury might find that this contract was within that statute. The principal element of damage is based on the market value of the 4.6 bushels of wheat that it takes to make a barrel of flour. Flour is sold by salesmen, and a breached contract involves a loss of selling expense, and the evidence is uncontradicted that 20 cents a barrel is a fair approximation of that loss. Where a buyer is given the option to order out flour at any time during the contract period, either wheat or flour must be carried in stock to enable the seller to comply with its contract. That involves interest, taxes, insurance, unloading, storage and fumigation. The evidence is uneontradicted that % cents per day is a fair approximation of the carrying charge. If the parties are at liberty under the law to contract as to damages, the stipulation bears a reasonable relation to the probable damage for the breach. Kothe v. R. C. Taylor Trust, 280 U. S. 224, 50 S. Ct. 142, 74 L. Ed. 382.

Counsel for defendant justify the charge under sections 5068 and 5069, C. O. S. 1921,. which prohibit stipulations as to damages, except “when, from the nature of the case, it would be impracticable or extremely difficult to fix the actual damage.” Counsel state that this statute is a codification of the-common law, and argue that the damage is readily ascertainable and is the difference between the contract price and the market value of the flour at the time and place of delivery. If the commodity sold was wheat or oil, for which there is a ready market, and if the contract called for delivery at a specified time, the argument would be sound. But that is not the contract. The contract was one to manufacture and deliver flour at the buyer’s option as to time, within a period of ten months. Nor does the record disclose any exchange for flour sales, such as the Boards of Trade maintain for wheat; on the contrary, it shows that a market for flour must be searched for, and that salesmen are employed for that purpose. There is an overhead charge in maintaining a manufacturing, plant in order to be ready to furnish particular brands of flour at any time within ten months. The plaintiff is not a broker; it is a manufacturer, and the rule suggested by defendant is not an adequate measure for the actual damage. Erie Baking Co. v. Hubbard Milling Co. (C. C. A. 3) 217 F. 759. Without detailing the evidence, which is uncontradicted, we are entirely satisfied that the record brings this ease within the precise words of the statute — that it is “impracticable or extremely difficult to fix the actual damage,” as well as within the authorities hereafter cited. Similar provisions in contracts for the manufacture and sale of flour-have been many times sustained. Yerxa, Andrews & Thurston v. Randazzo Macaroni Mfg. Co., 315 Mo. 927, 288 S. W. 20; Sheffield-King Milling Co. v. Jacobs, 170 Wis. 389, 175 N. W. 796; Sheffield King Milling Co. v. Domestic Science Baking Co., 95 Ohio St. 180, 115 N. E. 1014; International Milling Co. v. Reierson et al. (S. D.) 225 N. W. 218; New Prague Flouring Mill Co. v. Hewett Grain & Provision Co., 226 Mich. 35, 196 N. W. 890; H. H. King Flour Mills Co. v. Bay City Baking Co., 240 Mich. 79, 214 N. W. 973.

Furthermore, there is a distinct trend toward a relaxation of the rules as to liquidated damages. Courts have always abhorred penalties, and have looked closely to see that . penalties were not masquerading as liquidated damages. And if the stipulation is in fact a penalty — if it bears no fair relation to the damage contemplated — it will not be enforced, no matter what it may be called. And if there is available an accurate and readily ascertainable method of fixing the damages, courts will assess the damages accordingly. In the complexities of modern business, breaches of contract involve more incidental but real damage than when business was less complicated; in later years, • business men and associations of business men have been more desirous of contracting as to damage, in order that their liability 'may be a known rather than an unknown quantity. Responding to these changing conditions in the business world, thé courts have been much less reluctant than formerly to enforce provisions for liquidated damage.

In Sun Printing & Publishing Ass’n v. Moore, 183 U. S. 642, 22 S. Ct. 240, 253, 46 L. Ed. 366, decided in 1902, the Supreme Court made a comprehensive survey of the decisions as to provisions for liquidated damage and held that such provisions were valid, where fairly entered into, where the damages sustained are “uncertain in amount.” In 1907 the Supreme Court upheld a contract providing for damage of $35 a day for delay in the manufacture of each gun -carriage, although the contract designated it as a “penalty.” The court said: “The courts at one time seemed to be quite strong in their views and would scarcely admit that there ever was a valid contract providing for liquidated damages. Their tendency was to construe the language as a penalty, so that nothing but the actual damages sustained by the party aggrieved could be recovered. Subsequently the courts became more tolerant of such, provisions, and have now become strongly inclined to allow parties to make their own contracts, and to carry out their intentions, even when it would result in the recovery of an amount, stated as liquidated damages, upon proof of the violation 'of the contract, and without proof of the damages actually sustained.” United States v. Bethlehem Steel Co., 205 U. S. 105, 119, 27 S. Ct. 450, 455, 51 L. Ed. 731.

The Supreme Court again reviewed the question in 1919, in Wise v. United States, 249 U. S. 361, 365, 39 S. Ct.'303, 304, 63 L. Ed. 647, and held:

“The subject of the interpretation of provisions for liquidated damages in contracts, as contradistinguished from such as provide for penalties, was elaborately and comprehensively considered by this court in Sun Printing & Publishing Association v. Moore, 183 U. S. 642, 22 S. Ct. 240, 46 L. Ed. 366, applied in United States v. Bethlehem Steel Co., 205 U. S. 105, 27 S. Ct. 450, 51 L. Ed. 731, and the result of the modern decisions was determined to be that in such eases courts will endeavor, by a construction of the agreement which the parties have made, to ascertain what their intention was .when they inserted such a stipulation for payment, of a designated sum or upon a designated basis, for a breach of a covenant of their contract, precisely as they seek for the intention of the parties in other respects. When that intention is clearly ascertainable from the writing, effect will be given to the provision, as freely as to any other, where the damages are uncertain in nature or amount or are difficult of ascertainment or where the amount stipulated for is not so extravagant, or disproportionate to the amount of property loss, as to show that compensation was not the object aimed at or as to imply fraud, mistake, circumvention or oppression. There is no sound reason why persons competent and free to contract may not agree upon this subject as fully as upon any other, or why their agreement, when fairly and understandingly entered into with a view to just compensation for the anticipated loss, should not be enforced.
“There are, no doubt, decided eases which tend to support the contention advanced by appellant, but these decisions were, for the most part, rendered at a time when courts were disposed to look upon such provisions in contracts with disfavor and to construe them strictly, if not astutely, in order that damages, even though termed liquidated, might be treated as penalties, so that only such loss as could be definitely proved could be recovered. The later rule, however, is to look with candor, if not with favor, upon such provisions in contracts when deliberately entered into between parties who have equality of opportunity for understanding and insisting upon their rights, as promoting prompt performance of contracts and' be cause adjusting in advance, and amicably, matters the settlement of which through courts would often involve difficulty, uncertainty, delay and expense.”

From these controlling authorities, the conclusion is clear that the contract is valid and enforceable. There being no dispute as to amount of flour which the defendant refused to accept, nor any dispute as to the computation, it follows that the trial court should have directed a verdict in favor of the plaintiff for the amount sued for.

Other assignments of error are argued, but, in view of this disposition of the case, need not be considered. More than half of the printed record, and a part of the briefs, is devoted to a controversy over the settlement of the bill of exceptions, and the trial held on that settlement. Little need be said. A bill of exceptions is, of course, a vehicle for bringing onto the record certain proceedings at the trial. If it did not happen at the trial, it does not belong in the bill of exceptions. Where the trial is reported by a competent stenographer, there should be little argument over what actually happened. Errors will occur, however, and if the stenographer has omitted something that did take place, or incorrectly reported it, the trial court should correct the omission, generally after notice to counsel. Since the appellate court does not have ready access to the trial transcript, it is helpful to us if such additions to the transcript are indicated as such in the bill of exceptions, as was done in this case. In the controversy here presented, the question of whether the stenographer correctly reported' the trial, as plaintiff contends, or whether there ‘were important omissions, as the trial court found, is not material and need not therefore be determined.

The judgment is reversed for further proceedings in conformity with this opinion.

Reversed.