author: L. HAND, Circuit Judge.

text:
    CHINA FIRE INS. CO., Limited, v. DAVIS, Director General of Railroads.
    No. 380.
    Circuit Court of Appeals, Second Circuit.
    June 8, 1931.

      Bigham, Englar, Jones & Houston, of New York City (Oscar R. Houston and Arthur W. Clement, both of New York City, of counsel), for appellant.
    Edward N. Abbey, of New York City (Russell H. Robbins, of New York City, of counsel), for appellee.
    Before MANTON, L. HAND, and CHASE, Circuit Judges.
   L. HAND, Circuit Judge.

The Goodyear Tire & Rubber Company shipped certain parcels of rubber from Singapore to Akron, Ohio, whieh were received by the Union Pacific Railroad Company at San Francisco for carriage over its line. While in its custody (the road being at the time in the possession of the Director General of Railroads), three hundred and thirty eases were burned under circumstances whieh made the carrier liable. The plaintiff had issued to the Goodyear Company’s .assignor certain policies of insurance, whieh contained no clause exempting the'underwriter pro tan-to from liability, in case the shipper recovered against the carrier for the loss. On the other hand, the through bill of lading under which the rubber was carried from San Francisco to Akron contained the following clause: “Any carrier or party liable on account of loss or damage to any of said property shall have the full benefit of any insurance that may have been effected upon or on account of said property so far as this shall not avoid the policies or contracts of insurance.”

The shipper, the Goodyear Company, made claim upon the defendant, whieh it recognized and paid under an agreement that the shipper should “proceed at once to make proof of loss” against the plaintiff, should “take all other necessary steps and attempt in good faith to collect,” and should pay to the defendant “the amount collected,” less the expense of collection. If the shipper was unable to collect, the defendant. was to decide whether itself to sue, or to arrange with the shipper to do so. Having so received the amount agreed, the shipper collected upon the policies from the plaintiff, concealing the fact of 'the defendant’s prior payment. ' In the negotiations whieh resulted in this payment, the plaintiff upon receiving the claim, wrote, “If you have not already done so, we would request that you immediately file claim against the carriers”; to whieh the shipper answered that it had done so. Moreover, at the time of payment the plaintiff took from the shipper a receipt reciting that it was a loan, to be repaid only to the extent that the shipper should recover from the carrier. About a year later the shipper paid to the defendant the same amount (less expenses of collection), as it had received from the plaintiff, but there is nothing to identify the money so paid with that received. For all that appears the shipper may have disbursed the avails of. the plaintiff’s check, and taken other funds to pay the defendant.

The plaintiff after a long interval, being advised that the shipper had already eol-'leeted, sued the defendant at law, charging fraud in the suppression of that fact, and the privity of the defendant with the whole transaction. The District Judge directed a verdict for the defendant on the ground that it had not made the shipper its agent to collect the policies, and that the shipper’s fraud, if any, was not to be imputed to it. The plaintiff appealed.

While it is true that the policies did not expressly reserve to the plaintiff any rights against the carrier, this was unnecessary; as between the two the carrier was principal, the underwriter, surety. If, however, the provision in the bill of lading was valid, which gave to the carrier the benefit of the shipper’s insurance, the loss finally fell upon the underwriter, who could not throw it upon the carrier, even though the shipper might in the first instance recover from him. Phœnix Ins. Co. v. Erie & West. Trans. Co., 117 U. S. 312, 6 S. Ct. 750, 29 L. Ed. 873; Wager v. Providence Ins. Co., 150 U. S. 99, 14 S. Ct. 55, 37 L. Ed. 1013. In that ease the defendant must succeed, because, although the plaintiff used a form of receipt, which made the payment a loan to the shipper, there was, as we have said, no provision in the policies, as in Luckenbach v. W. J. McCahan Sugar Co., 248 U. S. 139, 39 S. Ct. 53, 63 L. Ed. 170, 1 A. L. R. 1522, by which the underwriter became liable only to the extent that the earner was not. Moreover, even though the shipper procured payment from the plaintiff by fraud, it was no more than the defendant was entitled to under the bill of lading, for the shipper held the claim against the plaintiff in trust for the defendant, from the moment that the defendant paid. Any claim under the policies thereupon in equity became its own, and it is immaterial whether the plaintiff, the obligor, was fraudulently induced to pay that which was in any case due. Deobold v. Oppermann, 111 N. Y. 531, 19 N. E. 94, 2 L. R. A. 644, 7 Am. St. Rep. 760; Story v. Conger, 36 N. Y. 673, 93 Am. Dec. 546; Randall v. Hazelton, 12 Allen (Mass.) 413; Plews v. Burrage (D. C.) 19 F.(2d) 412.

If, however, the clause was invalid as an unlawful discrimination, the plaintiff may succeed upon the common count for money had. In that ease the shipper procured by fraud what the plaintiff was not obliged to pay, because it was in that case only surety for the loss, and the principal had already paid. Moreover, it paid only on the understanding that it should have the benefit of the. carrier’s liability, and that too by the same form of receipt as was used in Luckenbach v. W. J. McCahan Sugar Co., supra, though any other equivalent expression would have served. The Turret Crown, 297 F. 766 (C. C. A. 2). The learned District Judge held that even so, the defendant was not liable for the shipper’s fraud, because the shipper was not its agent. We are not clear that the correspondence between the shipper and the defendant did not create an agency, but we find it unnecessary to pass on that question. At least the shipper held the money on a constructive trust.

If it had turned'over to the defendant the very money received, the plaintiff’s right against (he defendant would have been equally clear; it would have traced the aetual fund received by the shipper to the defendant, who was not a bona fide holder, having paid nothing for it which by hypothesis it was not bound to. We might perhaps rest the result •upon the presumption that the shipper who was an express trustee, had not violated its duties to the defendant while it held the money, and that it turned over the same fund which it had received from the plaintiff. Knatchbull v. Hallett, L. R. 13 Ch. Div. 696. But it is not necessary to resort to that device.

No doubt the fund must be traced to the defendant. Schuyler v. Littlefield, 232 U. S. 707, 34 S. Ct. 466, 58 L. Ed. 806; St. Louis & San Francisco R. R. Co. v. Spiller, 274 U. S. 304, 47 S. Ct. 635, 71 L. Ed. 1060. However, assuming that in violation of its duty the shipper had disposed of the payment received from the plaintiff, it might make restitution. So it did, and the appropriation out of its own property of an equivalent amount, fixed the character of that sum as the trust fund. Had it, for example, misappropriated the fund, and later set apart an equal amount for the defendant, there can be no question that upon its bankruptcy the defendant could have claimed the account so segregated as its own. Gorman v. Littlefield, 229 U. S. 19, 33 S. Ct. 690, 57 L. Ed. 1047; Duel v. Hollins, 241 U. S. 523, 36 S. Ct. 615, 60 L. Ed. 1143; In re McIntyre & Co., 181 F. 960 (C. C. A. 2); Southern Cotton Oil Co. v. Elliotte, 218 F. 567 (C. C. A. 6); Baker v. N. Y. Nat. Exchange Bank, 100 N. Y. 34, 2 N. E. 452, 53 Am. Rep. 150. But the payment was itself as definitive an appropriation as any other, and the defendant, upon receiving- it, took it as the substitute for the original collection, impressed with whatever equities that had borne.

Thus, the case in any angle depends upon the validity of the clause in the bill of lading, which in turn depends upon whether as a result of it the carrier “indirectly, by any * * * device * * * collect (s), or receive (s) from any person * * * a greater * * * compensation for any service rendered * * * in the transportation of * * • property • • • than it * • • collects, or receives from any other person * * * for doing for him * * * a like and contemporaneous service * * * under substantially similar circumstances and conditions.” Section 2, title 49, U. S. C. (49 USCA § 2). The clause put it in the power of the shipper at his pleasure to take out policies which might, or might not, contain the now usual clause that the underwriter should be liable only so far as the shipper did not recover from the carrier. Thus the shipper was free in effect to insure the carrier or not, as he chose, and while we are not advised whether this choice involved a difference in premium, it is certainly possible that this may have been the case. In any event .such insurance appears to us to be “compensation” within the purport of the section. Certainly it had a present value, quite aside from whether it cost anything to the shipper, a value ascertainable by actuarial calculation. Nor does it matter that it was a favor from the shipper to the carrier, and not vice versa. Chesapeake & Ohio Ry. Co. v. Westinghouse Co., 270 U. S. 260; 46 S. Ct. 220, 70 L. Ed. 576. The statute forbids any discrimination, whichever side profits. It is quite true that the same option was given to all shippers alike, but that is in effect no more than to say that each might so far favor the carrier as his interests dictated. Pro tanto the carrier’s “compensation” was left open to the action of the parties in the particular case, which is what the statute forbids. In Duplan Silk Co. v. American & Foreign Marine Ins. Co., 205 F. 724, we held an agreement void as a rebate by which the carrier agreed to insure the shipper, and although section 6 (7), 49 USCA § 6 (7), was there involved, the same reasoning applies here, since a rebate is only one form of discrimination. So far as we can find, nothing else similar has hitherto arisen in the books.

There remains the question whether this is a matter which belongs primarily to the Interstate Commerce Commission, and which courts will not consider until the Commission has acted. It is indeed true that the bill of lading at large was before the Commission in 1908, and received its general approval (14 I. C. C. 346), but reconsideration of any detail was then expressly reserved, and the approval cannot be understood to have finally settled the question now before us. In any event no such action is conclusive, when the question is of conformity with the statute itself (Chicago, etc., Ry. Co. v. McCaull-Dinsmore Co., 253 U. S. 97, 40 S. Ct. 504, 64 L. Ed. 801), and a fortiori the same is true when a bill of lading or a tariff has merely been filed (Boston & Maine R. R. v. Piper, 246 U. S. 439, 38 S. Ct. 354, 62 L. Ed. 820, Ann. Cas. 1918E, 469; Union Pac. R. R. v. Burke, 255 U. S. 317, 41 S. Ct. 283, 65 L. Ed. 656; Adams Express Co. v. Darden, 265 U. S. 265, 44 S. Ct. 502, 68 L. Ed. 1010). We have recently discussed a similar question in United States Navigation Co. v. Cunard S. S. Co., 50 F.(2d) 83, where we concluded that under the Shipping Act the Shipping Board had primary jurisdiction over questions arising under the Anti-Trust Laws, and might dispense with them altogether. Moreover, while in that case certain offenses were charged, which conflicted with the statute, adequate relief against these was prescribed by recourse to the Board. The question now before us is, not where relief must be sought, but of the lawfulness of a provision in the contract of carriage which violates the statute, in an action where it arises collaterally.

Even so, it may not be for courts in the first instance; that depends upon whether the Commission has jurisdiction to approve such a stipulation; that is, whether there might be circumstances which made it lawful. The line, though capable of clear general statement, is at times difficult of application. The reasonableness of rates (Texas, etc., R. R. Co. v. Abilene Cotton Oil Co., 204 U. S. 426, 27 S. Ct. 350, 51 L. Ed. 553, 9 Ann. Cas. 1075; Keogh v. Chicago & N. W. Ry. Co., 260 U. S. 156, 43 S. Ct. 47, 67 L. Ed. 183), or of a practice (Baltimore & O. R. R. Co. v. U. S., 215 U. S. 481, 30 S. Ct. 164, 54 L. Ed. 292; Robinson v. B. & O. R. R. Co., 222 U. S. 506, 32 S. Ct. 114, 56 L. Ed. 288; Midland Valley Co. v. Barkley, 276 U. S. 482, 48 S. Ct. 342, 72 L. Ed. 664), or the propriety of intrastate rates (Board of Railroad Com’rs of North Dakota v. Great North. Ry. Co., 281 U. S. 412, 50 S. Ct. 391, 74 L. Ed. 936), are within the powers of the Commission; they plainly involve administrative questions which the statute does not profess to control. But where it is necessary . only to construe the statute, or indeed even a published tariff (Great North. Ry. Co. v. Merchants’ Elevator Co., 259 U. S. 285, 42 S. Ct. 477, 66 L. Ed. 943), we need not await the action of the Commission, which is in that ease predetermined (Turner Lumber Co. v. C., M. & St. P. Ry. Co., 271 U. S. 259, 46 S. Ct. 530, 70 L. Ed. 934, Texas, etc., Ry. Co. v. Gulf, etc., Ry. Co., 270 U. S. 266, 46 S. Ct. 263, 70 L. Ed. 578). Nor should the fact that a discrimination is involved put the matter exclusively in the hands of the Commission, any more than it does in the ease of rebates. Pennsylvania R. R. Co. v. International Coal Co., 230 U. S. 184, 33 S. Ct. 893, 57 L. Ed. 1446; Mitchell Coal Co. v. Penn. R. R. Co., 230 U. S. 247, 266, 267, 33 S. Ct. 916, 57 L. Ed. 1472. The character of the subject-matter cannot be determinative, if the statute is peremptory. True, we must decide that no evidence could justify the clause here in question; that to leave it open to shippers to insure or not insure the carriers could not be justified by any facts which might be developed at a hearing before the Commission. In asserting such a negative, as we do, we construe the statute in its declared terms. The service was the same in all cases; the choice was not controlled by any facts relevant for purposes of transportation; the “compensation” was granted or withheld at will. In the face of the section such a situation does not appear to us to leave open any problem of transportation, that requires the decision of those peculiarly versed in that subject.

The plaintiff in its assignments of error does not assert the defendant’s liability for the expenses of the shipper in collecting. We do not therefore consider the questions so raised. We hold that it was entitled to recover the amount paid to the defendant; and, since the money was unlawfully held ab ini-tio, with interest from the time of its receipt.

Judgment reversed.


source: Caselaw Access Project

author: CHASE, Circuit Judge

license: Public Domain

text:
    THE PATRICK A. DEE. THE HENRY AND MARION. THE NEW YORK CENTRAL NO. 16. MULQUEEN v. NEW YORK CENT. R. CO. THE MARGARET M. FEELEY. CODY v. NEW YORK CENT. R. CO.
    Nos. 373, 374.
    Circuit Court of Appeals, Second Circuit.
    June 8, 1931.

      Macklin, Brown, Lenahan & Speer, of New York City (Horace L. Cheyney, of New York City, of counsel), for appellants.
    Bigham, Englar, Jones & Houston and Jacob Aronson, all of New York City (A. J. McElhinney and K. O. Mott-Smith, both of New York City, of counsel), for appellees.
    Before MANTON, SWAN, and CHASE, Circuit Judges.
   CHASE, Circuit Judge

(after stating the facts as above).

The claimant prevailed in the District Court on the ground that the collision was the result of an inevitable accident. If the failure of the No. 16 to observe and make ready for the approaching storm could be laid aside, we should be able to agree for it is apparent that both tugs were, to avoid a collision, helpless and the situation hopeless as soon as the wind attained its maximum velocity. But the previous neglect of the No. 16 cannot be condoned. Although the evidence is overwhelming from witnesses, including an official weather observer, that the natural and usual indications which precede such a storm were multiplying around him, the captain of the No. 16 saw none of them, heard none of them, placed his tug and tow broadside to the wind, stopped his engines, and lay to in a position quite as vulnerable as he well might have been had he deliberately prepared for disaster. He cannot be excused for such indifference to the storm warnings nature gives an observant navigator. The burden of proving that the collision was due to inevitable accident rested on the claimant, The Edmund Moran (C. C. A.) 180 F. 700, and, in the face of the previous neglect of the master of the No. 16, to which his perilous position must be attributed, the claimant has, we think, failed to carry the burden.

Both decrees reversed.


author: SWAN, Circuit Judge.

text:
    JACOB BROS. CO. v. COMMISSIONER OF INTERNAL REVENUE.
    No. 286.
    Circuit Court of Appeals, Second Circuit.
    June 8, 1931.

      R. Kemp Slaughter and Hugh C. Bick-ford, both of Washington, D. C., for petitioner.
    G. A. Youngquist, Asst. Atty. Gen., Sewall Key and John MacC. Hudson, Sp. Asst. to Atty. Gen. (C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, Stanley Suydam, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for respondent.
    Before MANTON, SWAN, and CHASE, Circuit Judges.
   SWAN, Circuit Judge.

This appeal raises questions as to the computation of petitioner’s invested capital for the years 1919 and 1920. The petitioner was engaged in the manufacture and sale of musical instruments which it sold upon the installment plan; i. e., the purchaser made an initial cash payment, usually about 10 per cent, of the sale price, and agreed to pay the balance in weekly or monthly installments, the deferred payments being secured by a chattel mortgage or similar instrument on the merchandise sold. Prior to 1918 the petitioner’s books of account were kept upon the accrual basis, and its income tax returns for the years 1913 to 1917, inclusive, were filed on this basis. In consequence all installment sales were accounted for at the full sales price in the year when the sale was made, so that on December 31, 1917, profits, though uncollected, on installment sales made prior thereto had been fully reported for taxation and were included in the undivided profits and surplus account of petitioner.

In 1918 the company changed its method of accounting to the installment basis, and thereafter made its income tax returns for the year 1918 and subsequent years on that basis. On the installment basis a taxpayer returns as income of a taxable year that proportion of the installment payments actually received in that year which the total profit (that is, sales less cost of goods sold), realized or to be realized when the property is paid for, bears to the total contract price. Section 212 (d) of the Revenue Act of 1926, 44 Stat. 23 (26 USCA § 953(d); article 42, Treas. Reg. 69. Although the Commissioner, following the decision of Appeal of B. B. Todd, Inc., 1 B. T. A. 762, for a time denied the right of petitioner to report on the installment basis, it was stipulated before the Board of Tax Appeals that the income for the taxable years here involved should be computed on such basis in accordance with section 1208 of the Revenue Act of 1926 (44 Stat. 130 [26 USCA § 953a]) and section 705 of the Revenue Act of 1928 (45 Stat. 881 [26 USCA § 2705]).

The Commissioner then contended that petitioner’s capital stock and surplus for the taxable years in question should be adjusted to conform to the installment basis by eliminating therefrom all uncollected profits from sales. The capital stoek and surplus had been determined upon the accrual basis, unadjusted for federal income and profits taxes and including the full amount of uncollected accounts receivable on installment sales, as follows: As of January 1, 1919, $4,361,451.70. As of January 1, 1920, $4,-724,433.45. The profits included in such uncollected accounts amounted to the following totals at the beginning of each year: As of January 1,1919, $592,485.69. As of January 1, 1920, $662,799.76. The totals last mentioned included uncollected profits on sales made prior to January 1, 1918, in the following amounts: As of January 1, 1919, $244,488.71. As of January 1, 1920, $112,-307.83, The Board held that no part of the uncollected profits at the beginning of the taxable years could be included in invested capital for the respective years, following its earlier decisions in Appeal of Blum’s Incorporated, 7 B. T. A. 737; New Eng. Furniture & Carpet Co. v. Com’r of Internal Revenue, 9 B. T. A. 334; and J. B. Bradford Piano Co. v. Com’r of Internal Revenue, 15 B. T. A. 1045.

The questions presented are two: (1) Whether petitioner may include in invested capital as of January 1, 1919, and January 1, 1920, the uncollected profits contained in its accounts receivable outstanding on these dates and arising from sales of merchandise on the installment plan made prior to such dates; and (2) whether, if the entire amount of such uncollected profits may not be included, the portions of such profits resulting from installment sales made prior to January 1, 1918, and previously reported in income for taxation, may be so included. For convenience of discussion we shall deal with these questions in the inverse order to that in which they have been stated.

The petitioner’s invested capital must be computed in accordance with the definition of that term in section 326a of the Revenue Act of 1918 (40 Stat. 1057, 1092), which includes: “(3) Paid-in or earned surplus and undivided profits; not including surplus and undivided profits earned during the year. * * * ” Where a taxpayer’s hooks are kept upon the accrual basis, its undivided profits at the end of a given year will necessarily include uncollected accounts receivable not yet due. The Commissioner’s contention that, until collection, profits from installment sales are merely anticipated earnings or income which may or may not be realized by future collection is equally true of any sale on credit, and would prevent any determination of profits by the accrual method of accounting. If there had been no change in the accounting method, it seems to us perfectly clear that profits resulting from installment sales reported on the accrual basis should be included in the surplus and undivided profits account at the beginning of the taxable years in question. But, by changing to the installment basis of accounting, petitioner would have been obliged, were it not for section 705 of the Revenue Act of 1928 (45 Stat. 881 (26 USCA § 2705]), to report as income received in 1919 and 1920, a proportionate part of its collections in those years, respectively, on receivables which arose out of sales made prior to 1918. Section 705 permits the taxpayer to exclude from the later year’s income cash collected on installment contracts reported on the accrual basis in years prior to the change of method. In other words, the accrual method was allowed to stand unaffected in respect to income for years prior to 1918. Hence the surplus and undistributed profits account obtained by the accrual method is likewise unaffected by the change. We think the Board erred in deducting the item of $244,488.71 from the invested capital of 1919 and the item of $112,-307.83 from the invested capital of 1920.*

The situation is different as to the uncollected profits arising from sales made subsequent to January 1,1918. Those sales were never reported on .the accrual basis, and collections made on account of them in the years 1919 and 1920 must be reported, to the extent that they represent profits, in the income for such years respectively. In effect, this is accounting on the cash basis as to installment sales made subsequent to 1918, and on such basis uncollected accounts cannot be treated as income and carried into the account of surplus and undivided profits for the purposes of invested capital. It is true that, when the materials and labor which have gone into merchandise are converted by sale into accounts receivable, the merchant’s capital and surplus are increased by the amount of profits included in the accounts receivable; but not all capital and surplus can be carried forward into invested capital. By the express statutory definition, “surplus and undivided profits earned during the year” may not be included in the invested capital of that year. On the cash basis of accounting, profits are earned only when the accounts receivable are collected. Hence the petitioner may not use the cash basis in accounting for income and the accrual basis in determining invested capital for the same year. This was considered by the Board of Tax Appeals in Great Bear Spring Co. et al. v. Com’r of Internal Revenue, 12. B. T. A. 383, at page 391, where it was said: “Petitioners contend, however, that accounts receivable should properly be included in invested capital irrespective of the accounting method employed, since they are assets and tangible, and, as they state, represent an investment of cash. They cite section 325 of the Revenue Act of 1918. This is a section of definitions. Section 326 is the one that prescribes what may be included in invested capital: Assets, merely as such, are not. included. Invested capital embraces cash and property paid in for stock, or as paid-in surplus, and also earned surplus and undivided profits. Under the cash receipts and disbursements method of accounting, accounts receivable do not enter into earned surplus or undivided profits until after they have been collected. We, therefore, hold that the accounts receivable of the Spring. Company are not a part of invested capital for 1920, but that the accounts receivable at the beginning of 1921 may be included in invested capital for 1921.”

We hold that the Board was right in excluding from petitioner’s invested capital for the years in question the uncollected profits on installment sales made subsequent to 1918.

The order is' reversed, and the cause remanded for further proceedings in conformity with this opinion.


author: MANTON, Circuit Judge.

text:
    ONONDAGA CO. v. COMMISSIONER OF INTERNAL REVENUE. TEN EYCK CO. v. SAME.
    Nos. 320, 321.
    Circuit Court of Appeals, Second Circuit.
    Argued May 12, 1931.
    Decided June 8, 1931.
    J. C. Murphy, of Atlanta, Ga., for petitioners.
    G. A. Youngquist, Asst. Atty. Gen., Sewall Key and John H. McEvers, Sp. Assts. to Atty. Gen., and Dorothy A. Moneure, of Washington, D. C. (C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, of Washington, D. C., Frank M. Thompson, Sp. Atty., Bureau of Internal Revenue, of Washington, D. C., of counsel), for respondent.
    Before MANTON, L. HAND, and AUGUSTUS N. HAND, Circuit Judges.
   MANTON, Circuit Judge.

These petitions involve the same questions of the application of income and profit taxes for the year 1919 and one opinion will suffice. The Board of Tax Appeals made its redeterminations of the taxes due, January 30, 1930, and reviews are sought here under the provisions of the Revenue Act (1926, c. 27, §§ 1001-1003 [26 USCA §§ 1224-1226]).

The petitioners owned the Onondaga Hotel, in Syracuse, and the Ten Eyck Hotel in Albany, N. Y. The United Hotels Corporation is a holding corporation engaged in operating a chain of hotels, and controls the business operation, although not the stock control, of each of the petitioners. March 19, 1920, the United Hotels Company filed a consolidated return for 1919 for nine corporations, including the petitioners, and it disclosed all the facts necessary for the determination of the net income and invested capital of each of the companies reported as affiliated. On March 13,1920, the petitioner the Onondaga Company filed an informative return for 1919, which stated that its net income and invested capital was included in the consolidated return of the United Hotels Company. The Ten Eyck Company filed an informative return for 1919 on March 15, 1920, in like effect. From these petitioner the Onondaga Company had a net income of $157,123.20 and $23,866.50 of the total tax liability return was apportioned to this petitioner. The Commissioner ruled the corporations were not affiliated, and ordered separate returns. On July 27, 1923, petitioner the Onondaga Company did so, disclosing a tax liability of $58,276.71. It bore this notation: “Paid tax on consolidated return of United Hotels Company of America $24,649.01 and showed a balance of tax of $33,627.70.” This sum paid was refunded.

January 21, 1925, December 4, 1925, and December 23, 1926, waivers were filed by the petitioner extending the time for assessment of taxes to December 31, 1927. These waivers bore the name of the Commissioner and some initials indicating that the Commissioner’s name had been signed by the party whose initials appeared. December 15, 1926, the Commissioner mailed a 60-day deficiency letter to the petitioners, stating petitioner’s (the Onondaga Company’s) taxes for 1919 to be $45,627.44. Similar procedure was followed in the Ten Eyck Company Case.

The first question presented is the contention of the petitioners that the Commissioner did not determine a deficiency in taxes within the meaning of section 273 (1) of the Act of 1926, 26 USCA § 1047 (1), and therefore the Board of Tax Appeals did not acquire jurisdiction of the subject-matter. When on March 13, 1920, the petitioner the Onondaga Company filed its return for 1919, which stated that its net income and invested capital were included in the consolidated return filed for the United Hotels Company, it disclosed a tax of $23,866.50. When, on December 15, 1926, the Commissioner determined the petitioner’s tax for 1919 to be $45,627.44, there was a deficiency found to be due. Section 239 of the Revenue Act of 1918 (40 Stat. 1081) required, at the time of the return, that the petitioner make a return stating specifically the items of the gross income and the deductions and credits allowed by law. When the Commissioner acted under section 250 (b), 40 Stat. 1083, “as soon as practicable” after the return was filed, he found an amount of tax due of more than the return showed or was paid. The same provision (section 250 (b) was carried into section 250 (b) of the Revenue Act of 1921 (42 Stat. 264), where the amount determined to be due was declared to be a deficiency. These same provisions were carried into sections 271, 273, and 274 of the Revenue Act of 1924 and 1926 (26 USCA §§ 1045, 1047, 1048 et seq., 1048 note et seq.). Section 273 (1) of the Revenue Act of 1926 (26 USCA 1047 (1), says: “The amount by which the tax imposed by this title exceeds the amount shown as the tax by the taxpayer 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, credited, refunded, or otherwise repaid in respect of such tax. * * *”

Section 274 (a), 26 USCA § 1048 note, authorized an appeal to the Board of Tax Appeals when the Commissioner determines there is a deficiency, and section 283 (b), 26 USCA § 1064 (b), makes section 274 (a) applicable to amounts proposed to be assessed for previous years.

Petitioners’ informative returns made reference to the consolidated return where all the facts necessary for a determination of the net income and invested capital of the petitioners were disclosed and was therefore a return under section 239 of the Revenue Act of 1918 (40 Stat. 1081). U. S. v. Nat. Tank & Export Co., 45 F.(2d) 1005 (C. C. A. 5); Commissioner v. Stetson & Ellison Co., 43 F.(2d) 553 (C. C. A. 3). It was for this that the deficiency was determined. This was sufficient for jurisdictional purposes.

But it is argued that the return of January 27, 1923, disclosed a tax of $58,276.71, and it established the basis on which the deficiency was to be determined. Petitioner the Onondaga Company never agreed that it owed this sum of taxes. Its contention was that it was affiliated with the United Hotels Company, and it insisted upon a consolidated return. The January 27, 1923, return was involuntary and the amount of taxes was in dispute. Such return was supplemental and informative and not a return referred to in section 273 of the Revenue Act of 1926 (26 USCA § 1047). The Commissioner could not assess a tax over and above that disclosed in the original return without first sending his 60-day letter required hy section 274 (a), 26 USCA § 1048. Therefore any excess over and .above that shown in the consolidated return constituted a deficiency. The Board therefore had jurisdiction to determine the true deficiency (section 274 (e), 26 USCA § 1048c, and this court has power to review (section 1003 (b) of the Revenue Act of 1926, c. 27 [44 Stat. 9] 109, 110, 26 USCA § 1226 (b). A notation to the return of January 27, 1923,' stated that $24,649.01 had been paid, but concededly part of the tax had been refunded, and of course the petitioner was not entitled to credit for the refund. That part refunded the Commissioner was obliged to add to the deficiency. Section 273; Levy v. Com’r (C. C. A. 9) 48 F.(2d) 725, decided April 13, 1931. The determination of the Commissioner is presumed to be correct, and the burden is upon the taxpayer who asserts otherwise. Autosales Corp. v. Com’r, 43 F.(2d) 931 (C. C. A. 2).

Petitioner’s return was filed March 19, 1920. Section 250 (d), 40 Stat. 1083, required the assessment to be made within five years from the time the return was filed unless the taxpayer consented with the Commissioner to a later determination, assessment, and collection of the taxes. The later statutes are to the same effect. Section 277 (a) (2) of the Act of 1924, chapter 234, 43 Stat. 253 (26 USCA § 1057 note); section 277 (a) (3), Act of 1926, chapter 27, 44 Stat. 9 (26 USCA § 1057 (a) (3).

Waivers within the time and at three different times were signed extending the time to make assessment until December 31, 1927. These waivers were signed in the name of the Commissioner, but not by him personally. The Commissioner’s deficiency letter was mailed December 15, 1926. The contention is that these waivers are invalid because they were not signed personally or by a deputy commissioner. Is the Commissioner’s personal signature necessary to the validity of the waiver? Section 278 (c), 26 USCA § 1060 note, provides: “Where both the commissioner and the taxpayer have consented in writing to the assessment of the tax after the time 'prescribed in section 277 for its assessment the tax may be assessed at any time prior to the expiration of the period agreed upon.”

This provision was inserted for administrative purposes. Florsheim Bros. v. U. S., 280 U. S. 453, 50 S. Ct. 215, 74 L. Ed. 542; Stange v. United States, 282 U. S. 270, 51 S. Ct. 145, 75 L. Ed.-; Burnet v. Chicago Ry. Co., 282 U. S. 295, 51 S. Ct. 137, 75 L. Ed. -. The courts have taken the view that an initial signature, not in the Commissioner’s handwriting, will be presumed to be authorized within section 250 (d), where it appears in a waiver which has been the subject of official action. The courts have not said that a signature is unnecessary or that it is merely directory, not mandatory. The administrative character of the provision was considered in the Florsheim Case to show that a waiver was not a contract binding the government to the time named in it, • and in the Stange Case the administrative character of the provision was mentioned in deciding what power the Commissioner possessed before its enactment. It will be presumed that the signatures to waivers were properly affixed within the meaning of section 250 (d), since it was apparently affixed by some one connected with the Department. The Commissioner acted upon them in sending out the deficiency letter later. The Commissioner may delegate this authority, and the one signing the waiver under such delegation is authorized to do so. And such delegation is sufficient authority. United Thacker Coal Co. v. Com’r, 46 F.(2d) 231 (C. C. A. 1); Trustees for Ohio Coal Co. v. Com’r, 43 F.(2d) 782 (C. C. A. 4); Pantages Theater Co. v. Lucas, Com’r, 42 F.(2d) 810 (C. C. A. 9); Liberty Baking Co. v. Heiner, 37 F.(2d) 703 (C. C. A. 3).

It is argued by the petitioners that they were affiliated with the United Hotels Company in 1919, and that the Commissioner should have accepted the consolidated report. For affiliation of corporations, under section 240 (b) of the 1918 act (40 Stat. 1082), to exist, it must appear that one corporation owned directly or controlled two closely affiliated interests or by a nominee substantially all the stock of the other or others, so that substantially all the stock of the two or more corporations were owned or controlled by the same interest. Commissioner v. A. Hirsch & Co., 30 F.(2d) 645 (C. C. A. 2); Ice Service Co. v. Com’r, 30 F.(2d) 230 (C. C.. A. 2). While the United Hotels Company, through its officers, directed the business of both petitioners, it in no way exercised control over the stock which it did not own, and there is nothing to show that any other party or parties controlled the stock held by others. During the year 1919, the American Purchasing Company owned 83.53 per cent, of the stock of the United Hotels Company and no stock in either of these two petitioners. Those owning 21 per cent, of the stock of the Onondaga Company owned no stock in the Ten Eyck Company. The same interests did not own substantially all of the stock of these two petitioners. The stockholders did not control any of the stock which! they did not own, and they may not be regarded as affiliated. Handy & Harman v. Com’r, 47 F.(2d) 184 (C. C. A. 2). The American Purchasing Company is not shown to have controlled any stock which it did not own, and no other parties controlled its United Hotels Company stock. From this it appears that the petitioners are not affiliated with the United Hotels Company, and its consolidated return does not comply with the requirements of the statute.

Orders affirmed.


text:
    CITY OF SANFORD, FLA., v. CHASE NAT. BANK OF CITY OF NEW YORK.
    No. 394.
    Circuit Court of Appeals, Second Circuit.
    June 8, 1931.

      Charles A. Boston, of New York City (James H. Caldwell, of New York City, Lucien H. Boggs, of Jacksonville, Fla., and Mark F. Hughes, of New York City, of counsel), for appellant.
    Rushmore, Bisbee & Stem, of New York City (Henry Root Stern, H. G. Pickering, James F. Sandefur, and Bertram F. Shipman, all of New York City, of counsel), for appellee.
    Before MANTON, L. HAND, and AUGUSTUS N. HAND, Circuit Judges.
   MANTON, Circuit Judge.

This suit seeks the surrender and cancellation of three alleged certificates of indebtedness of the plaintiff, a municipality of Florida, in the amount of $600,000, because, it is claimed, they were executed without authority, by the mayor and city clerk, and were negotiated by the mayor without authority and without consideration. Defendant, a New York City bank, claims it holds these certificates as collateral for two notes issued by the Seminole County Bank of Sanford, Fla., now insolvent, the amount of which was over $500,000. The plaintiff further asks to enjoin the defendant from selling or disposing of unsold negotiable bonds it now possesses, amounting to $740,000, which the defendant claims to hold as additional collateral to the bank’s notes. Plaintiff claims these bonds came into defendant’s hands unlawfully, and it asks for the surrender of such bonds. This latter relief, the surrender of the bonds, was granted below, and the defendant appeals. The plaintiff was denied the fast relief, and it appeals. Defendant interposed nine counterclaims, on the certificates, for money had and received, and money paid for the use and benefit of the plaintiff, in the sum of $500,000. Money judgment for $450,000 was granted the defendant. Plaintiff seeks a review of this judgment.

Plaintiff was organized under a special act of the Legislature of Florida, which is now its city charter, chapter 9897, Sp. Laws of Florida, 1923, as amended. All legislative and executive powers of the city, material here, are vested in a city commission consisting of three members. The commission is obliged to hold regular meetings, keep minutes and records. The city ordinances and resolutions must be written or printed and recorded in a book kept for that purpose. By section 57 of the charter, the members of the city commission are ex officio trustees of the sinking fund of the city, with “duties and powers and responsibilities imposed by ordinance of the City of Sanford or by any law on any board of bond trustees now existing or that may have been heretofore elected.” The duties and powers of the bond trustees are to act as trustees of such funds as may be issued from time to time for legally authorized municipal purposes; they must advertise for sale and sell all city bonds or reject bids therefor. A majority constitutes a quorum. Moneys arising from such sale of bonds are to be placed in a depository to be drawn only by cheeks signed by two members of the board of trustees and countersigned by the president of the eouneil.

The legislative and executive powers of the city are vested in the commission as a whole, not in individual members. The may- or is elected by the city commission. He has no sole legislative or executive power as such. Section 22 of the City Charter provides : “Every ordinance or resolution shall, upon its final passage, be recorded in a book kept for that purpose and shall be authenticated by the signature of the presiding officer and the Clerk of the Commission. Every ordinance of a general or permanent nature shall be published once within ten days, after its final passage, in nonpareil type.”

The charter further provides for a city attorney whose duties are to act as legal adviser to the municipality and its officers in matters relating to their official duties. He may be required to give an opinion on any questions of law relating to these duties. The city’s power to borrow money and to issue bonds is provided by the city charter. As to the power to issue bonds, section 106 provides that street improvement bonds may be issued “to an amount not exceeding seventy per cent, of the proportionate part of the cost of said street improvements * * * and said bonds shall be issued upon the adoption of a resolution by the City Commission providing for the issue thereof without submitting the question as to the issuance of said bonds to a vote of the electors of said municipality.”

. Section 107 provides: “After the levy of special assessments for street improvement stand confirmed, and after the completion and acceptance of said improvement by the City Commission, the City Commission "may, by resolution, issue further bonds * * * to an amount not exceeding the unpaid assessments for said street improvement; provided, however, that if any bonds have been issued under the preceding section, upon an estimate of the cost of the improvement, the bonds issued under the preceding section and the bonds issued under this section shall not in the aggregate exceed the amount of the ■unpaid assessments.”

And section 119, as amended (Laws 1925, Ex. Sess., c. 11719), provides for the issuance of bulkhead bonds, and authorized that they be issued by resolution of the city commission providing for the issue thereof without submitting the question as to the issuance of said bonds to the vote of the electors of the municipality.

And section 123 (as amended by Laws Fla. 1925, Ex. Sess., c. 11718) provides: “The City Commission in its corporate capacity is authorized to issue from time to time bonds * * * for any and all municipal purposes mentioned in this Act, and for such other lawful purposes as may be determined by ■ordinance; provided, however, that (except .as otherwise provided in this Act) before the issue of any bonds shall be made, an ordinance shall be passed expressing in exact terms the amount of the bond issue and purpose for which moneys to be realized are to be used, which said ordinance proposing the issue of bonds shall subsequently be approved by a majority vote of the electors of the •city, * * * voting at am election held for that purpose, at such time and in such manner as may be prescribed by law and the city ordinances.”

Section 123 (A) provides for the issuance of negotiable public utility bonds which is limited in like manner to section 123 just quoted. Section 123 (E) provides that “any and all negotiable bonds * * * shall be advertised for sale on sealed bids which advertisement shall be published” (in a specified manner), and it is provided that, if any-bonds be not sold pursuant to such advertisement, they.may be sold at private sale at any time within sixty days after the date advertised for the reception of sealed bids. There is no provision of the charter which sanctions the issuance of certificates of indebtedness -either as negotiable or nonnegotiable. But defendant argues they are on the same basis as bonds.

The Seminole Bank is a state institution incorporated with a capital and surplus of $125,000. It became insolvent August 6, 1927, at which time a receiver was appointed. The mayor of the city of Sanford was also the president of the bank' at the times herein referred to, which fact was well known to the defendant. The city maintained accounts in the bank for current funds, and others for capital funds of the bond trustees. The, books of account of the bond trustees were kept in the Seminole Bank by its cashier, who was not employed by the city. The Seminole Bank and defendant for some years had carried on business relations.

On November 8,1926, the Seminole Bank executed its promissory note payable to the defendant for $300,000 maturing February 7,1927, with the personal indorsement of the mayor. The note recited as collateral a negotiable certificate of indebtedness of the plaintiff in the same amount, bearing 6 per cent, interest payable quarterly. The certificate was payable to the order of the Seminole Bank, and executed in the city’s name by the mayor, and attested under the corporate seal by the city clerk. The city minute and resolution books failed to disclose any authority for the execution of this certificate. The other two members of the city commission did not know of the issuance of the certificate prior to July, 1927. The city attorney, on November 8, 1926, furnished an opinion to the president of the bank, to be submitted to the state bank examiner, certifying to the legality of these certificates of indebtedness. This letter was sent to the defendant. The vice president of the Seminole Bank, by letter on the same day, directed the defendant to charge the' Seminole Bank with “the demand note for $100,000 which you now hold when the $300,000 note has been credited.” According to the defendant’s letter of November 10, 1926, this was done. The $100,-000 was paid, not as an obligation of the city, but as a demand loan made by the defendant to the Seminole Bank. The letter of the city attorney was legally inefficacious. The opinion was not given, as the charter provides, to any officer of the city, and was expressed in the face of want of power of the plaintiff to issue this evidence of indebtedness. Town of Bithlo v. Bank of Commerce, 92 Fla. 975, 110 So. 837. The certificate bore the unrestricted indorsement of the Seminole Bank.

On December 27, 1926, two additional collateral notes were executed by the Seminole Bank to the defendant, one for $100,000, and the other for $200,000. They were indorsed by the president of the bank. And two certificates of indebtedness of the plaintiff, one for $100,000, and the other for $200,-000, were given as collateral. Both were payable March 27, 1927. They bore the unrestricted indorsement of the Seminole Bank. No record of municipal authority for issuing these was found. The other two members of the commission did not know of their execution or delivery until July, 1927. On November 8, 1926, the date of the issuance of the first certificate, the bond funds available in the Seminole Bank were $1,209,418.15, and on December 30, 1926, when'the other two were delivered, $967,539.23, indicating no requirement, for issuing the certificates in question. When these last two notes were discounted by the defendant, credit for them was given to the Seminole Bank. The memorandum issued therefor contains no reference to the plaintiff. Renewals of the notes were given from time to time on request of the Seminole Bank, but no new certificates of indebtedness were substituted for those which had matured. It is clear that the defendant accepted these notes and advanced its money without evidence of proper municipal authority.

An account was opened by the mayor in the Seminole Bank, known as the “Bond Trustees’ 6% Savings Account,” and this was unknown to the other commissioners. The city auditor found that the city did not receive the benefit or consideration of the transactions which involved the three certificates of indebtedness in controversy. There was no consideration given therefor. It resulted only in the opening of an account as above; no cheeks were drawn against it, and there were no offsets against it except an item of $100,000 paid out of the very entries which produced the account, and there were no entries paid or received upon the books.

The court below held that the plaintiff was estopped to deny the validity of these certificates. Section 1898 of the Revised General Statutes of Florida of 1920 provides that the city or town council shall have power, with approval of the voters, to borrow money. Section 1899 authorizes the issuing of bonds for any municipal purposes. The plaintiff was a municipality governed by a commission with duties and powers expressly prescribed. Such authority is exclusive.

These certificates were not issued under section 7 of the charter for current expenses. The defendant knew they were for improvements and not for current expenses. If they be held valid as negotiable securities, they must be valid as bonds within the provisions of the city charter. Section 120 authorizes issuing bonds for the general municipal purposes mentioned in the charter and such other lawful purposes as may be determined by ordinances. It requires confirmation by a majority vote of the qualified electors. When bonds are negotiable, they are to be advertised for sale, if these certificates are not bonds, they are invalid; if they are equivalent to negotiable bonds, they are invalid, since they were not offered for sale, as required by section 123(E) of the charter, nor were they advertised as required. To sell on sealed bids, and after advertising, meets the full need of the plaintiff's credit. The defendant concedes the certificate were negotiable. Board of Com’rs of City and County of Denver v. Home Savings Bank, 236 U. S. 101, 35 S. Ct. 265, 59 L. Ed. 485.

There is no recital that deceived the bank into believing that section 123(E) had been complied with and that sealed bids had been asked for by advertising. The bank, in accepting these certificates, knew there had been no sealed bids or advertising as required. Moreover, the defendant knew the certificates were issued to finance the city’s improvements temporarily, 'until the issue of bonds provided for in the resolution were sold and funds became available. The correspondence between the plaintiff’s mayor and the vice president makes it clear that the defendant Was taking the certificates whenever the city needed the money, simply assuming that it would be repaid from the proceeds of the bonds sold. They knew that the requirement of advertising had not been fulfilled. Some of these bonds were sent at intervals of one week apart. The advertisement of bonds was referred to in the letter which accompanied the second certificate. The purchasers of municipal securities are charged with knowledge of the provisions of law governing their issuance. Dixon County v. Field, 111 U. S. 83, 92, 4 S. Ct. 315, 28 L. Ed. 360; Ogden v. County of Daviess, 102 U. S. 634, 641, 26 L. Ed. 263; Crow v. Oxford, 119 U. S. 215, 221, 7 S. Ct. 180, 30 L. Ed. 388; Barnett v. Denison, 145 U. S. 135, 139, 12 S. Ct. 819, 36 L. Ed. 652, The purchaser of bonds may not rely upon the recitals therein of compliance with statutory formalities when he knows the contrary to be true. Chaffee County v. Potter, 142 U. S. 355, 364, 12 S. Ct. 216, 35 L. Ed. 1040. And the defendant here may not say that it believed the certificates had been advertised for sale unless the statutes requiring public bidding had been complied with. Roberts & Co. v. Taft, 109 F. 826 (C. C. A. 6); Richardson v. Grant County, 27 F. 495 (C. C. Dist. Ind.).

In the course of the business between the ‘defendant and plaintiff, through the Seminole Bank, it had been the practice, as soon as a certificate was given to it, to charge the account of the proceeds from the sale of the bonds with the face of the certificate and with certificate and interest when it became due. It is thus clear that the bank knew the certificates had not been offered for sale. There can be no estoppel against, the plaintiff here grounded on the defendant’s ignorance of the charter’s provisions. Dixon County v. Field, 111 U. S. 83, 4 S. Ct. 315, 28 L. Ed. 360; Sutliff v. Lake County, 147 U. S. 230, 13 S. Ct. 318, 37 L. Ed. 145.

Moreover, there are no recitals in these certificates which might change the application of this principle. Presidio County v. Noll-Young Bond & Stock Co., 212 U. S. 58, 29 S. Ct. 237, 53 L. Ed. 402; Stanly v. Coler, 190 U. S. 437, 23 S. Ct. 811, 47 L. Ed. 1126; Gunnison County v. Rollins, 173 U. S. 255, 19 S. Ct. 390, 43 L. Ed. 689; Chaffee County v. Potter, 142 U. S. 355, 12 S. Ct. 216, 35 L. Ed. 1040. In Katzenberger v. Aberdeen, 121 U. S. 172, 7 S. Ct. 947, 949, 30 L. Ed. 911, the court said: “The recital, therefore, in its present form, is of matter’ of law only, because it implies the existence of no special facts affecting the ease, except the issue of the bonds under the ordinance to pay the subscription to the stock without any vote of the electors to be taxed therefor. It is in effect nothing more than a recital that bonds issued under such circumstances were ‘under and pursuant’ to law and the charter of the city. Such a recital does not estop the city from asserting the contrary. To hold otherwise would be to invest a’munioipal corporation with full legislative power, and make it superior to the laws by which it was created. Dixon County v. Field, 111 U. S. 92, 4 S. Ct. 315, 28 L. Ed. 363.”

Nor does the letter of the city attorney work an estoppel. It was no part of his duty to render an opinion to be used by the Seminole Bank for its purposes. His opinions are authorized only to be given to city officials.

Nor can the city be estopped from denying that the mayor and the city clerk were vested by the charter with power to borrow money for the municipality or to determine the facts necessary to authorize it to borrow money or to issue negotiable paper as evidence thereof. The resolutions of August 5, 1925, and February 8, 1928, did not delegate such power to the mayor of the city and the city clerk. Indeed, the certificates which were issued departed from the resolution of the city commission which referred only to time warrants. Admitting that the resolutions authorized the mayor and the city clerk to prepare proper recitals in the certificate of indebtedness, they did not profess to give the mayor authority to keep outstanding a fund of $450,000; if anything, they were limited to temporary financing of bond issues specially mentioned in the resolution. When the mayor undertook to make recitals in later certificates, he did not look to those resolutions, nor did he look to the provisions in the charter, for there were none that empowered Mm to issue other certificates or to make any recitals in them.

The authority which is given by the general statutes of Florida (section 1902, Rev. Stat. Fla. 1920) gives authority to the mayor and town clerk to sign bonds, but this statute is not applicable to a city governed by a commission. The section is qualified by section 1899 and section 1901 of the Revised General Statutes of Florida 1920. Section 1901 does not apply because it is limited to cities having no special charter, and section 1899 refers to city or town councils and to bonds authorized by two-thirds of the electors who reside, own realty, and pay taxes in the city. Section 123 of tMs city’s charter requires only a majority of the voters. They or the clerk could not sign bonds without authority from the commission.

While the commission might depute to the mayor and the clerk the duty of signing ■ and delivering bonds; it could not delegate to them the power to determine whether the legally prerequisite conditions had been complied with. It could only authorize them to make recitals of its determinations. In accepting the bond executed by them, the purchasers ran the risk of the existence of such authority. Rondot v. Rogers Township, 99 F. 202 (C. C. A. 6). Recitals authorized by the body charged with the issuance of the bonds can alone be binding. Town of Aurora v. Gates, 208 F. 101, L. R. A. 1915A, 910 (C. C. A. 8); Town of Newbern v. Nat. Bank, 234 F. 209, L. R. A. 1917B, 1019 (C. C. A. 6); Dixon County v. Field, supra.

The commission had given no actual authority to execute these certificates. The authority conferred by the resolutions of August 5, 1925, and February 8, 1926, even if it did include such certificates of indebtedness, had long since been exhausted, and the statutory powers of the mayor and the city clerk did not extend to the making of the recitals in bonds. The authority conferred by section 22 of the charter to authenticate ordinances and resolutions cannot be taken to mean that the mayor and clerk may also sign bonds. It would seem to exclude such authority. The mayor cannot execute bonds without authority from the commission or bind it by the recital he makes in them. Municipal bonds executed by the properly authorized officials will estop the municipality as against bona fide holders for value of the bonds from asserting that necessary conditions precedent to the issuance of the bonds have not been fulfilled. Knox County v. Aspinall, 21 How. (62 U. S.) 539, 16 L. Ed. 208; Waite v. Santa Cruz, 184 U. S. 302, 22 S. Ct. 327, 46 L. Ed. 552; Presidio County v. Noel-Young Bond Co., 212 U. S. 58, 29 S. Ct. 237, 53 L. Ed. 402. B.ut, if the municipality has no statutory power to issue the bonds under any possible situation of facts, it cannot be estopped by any recitals in them from setting up its lack of power. Northern Nat. Bank v. Porter Township, 110 U. S. 608, 4 S. Ct. 254, 28 L. Ed. 258; Merrill v. Monticello, 138 U. S. 673, 11 S. Ct. 441, 34 L. Ed. 1069. And at bar it appears that the mayor and city clerk who executed the certificates of indebtedness were not authorized to make recitals binding on the city. Moreover, the bank was not a bona fide holder entitled to rely upon such recitals.

With full knowledge either known or easily ascertainable of the requirements of this city charter, the plaintiff advanced these moneys to the Seminole Bank on its notes, and believing the same to be for the plaintiff’s use, expecting to be reimbursed from the sale of the bonds which it expected to sell. But, to impose liability on.this municipality, the law requires that the provisions of the city charter be complied with when it borrows money. With such lack Of power in the mayor to' bind the city with respect to these certificates of indebtedness, none may be implied by his action. The reeitals made in the certificate cannot in any way be regarded as an estoppel against the city, for the mayor lacked power to make such representations. Therefore the certificates of indebtedness must be surrendered and may be canceled by the plaintiff. The bonds on which the bank claims a lien are clearly invalid, and the court. properly ordered their surrender to the plaintiff.

The defendant’s counterclaim accordingly falls. The decree will be modified, striking out the money judgment entered against the plaintiff, and directing a surrender and cancellation of the certificate of indebtedness as well as the bonds.

Decree modified.


author: EVANS, Circuit Judge.

text:
    SHELTON v. UNITED STATES.
    No. 4555.
    Circuit Court of Appeals, Seventh Circuit.
    May 27, 1931.

      Harold J. Bandy, of East St. Louis, Ill., for appellant.
    Harold G. Baker, U. S. Atty., and Ralph F. Lesemann, Asst. U. S. Atty., both of East St. Louis, Ill.
    Before ALSCHULER, EVANS, and SPARKS, Circuit Judges.
   EVANS, Circuit Judge.

. This appeal is from a judgment sentencing appellant to serve a year in the Vermilion County Jail and to paya fine of $500. Errors relied upon deal with questions of evidence.

Appellant, with one George Martin, was charged in an information containing two counts with (a) illegal possession of intoxicating liquor, and (b) unlawful maintenance of a common nuisance in the city of East St. Louis. Martin was acquitted, and the appellant convicted on both counts.

The material facts are:

For some eight days previous to August 20, 1930, prohibition agents had been “listening in” over tapped wires leading to appellant’s telephone, and had recorded the conversations to which they listened, having previously, however, through other contacts, become familiar with appellant’s voice.

The messages thus overheard, which passed between appellant and others, tended to establish Shelton’s guilty participation in the liquor business. In fact, the messages showed Shelton to be a busy bootlegger. On August 20th, the government agents overheard messages which indicated appellant was about to convey a load of liquor to his home. The first information was received about 2:26 p. m., and appellant stated: “I will be in about six o’clock with that stuff.” About 5:20 p. m., appellant’s voice was again heard, and this time he conversed with his wife, stating that he was at a gasoline station having a tire fixed and would be home in about twenty minutes. The listening prohibition agent then notified Deputy Prohibition Administrator Hamilton, who testified that he had also been informed about 1:30 p. m. that appellant would convey a load of alcohol some time that afternoon. Without a search . warrant, Hamilton went to appellant’s premises, taking with him several prohibition agents, to await appellant’s arrival. They reached the street opposite appellant’s garage a few minutes .before appellant arrived. As appellant drove in, Hamilton and his assistants rushed to the garage, arrested appellant, searched his person, found no liquor upon it, then searched his car, but found no liquor therein. They then looked around the garage and found five five-gallon cans of alcohol. Appellant did not have time after arriving at the garage to unload any liquor from his car before the agents appeared.

Appellant objected to the evidence showing his possession of twenty-five gallons of alcohol on the ground that sueh evidence was obtained without a lawful search warrant. Justifying the reception of this evidence, ap-pellee made three contentions: (a) The search and seizure were permissible without a search warrant, (b) The search was made only after appellant had been arrested; his arrest without a warrant was legal because there existed probable eause for believing that he was committing a felony; that after making the arrest, the officers had a right to search appellant’s person, his automobile, and the garage wherein the arrest was made, (c) By failing to take steps to suppress the evidence before the trial began, appellant waived his objection to such evidence.

(a) The circumstances under which officers may search premises without a search warrant are sufficiently stated in Carroll v. U. S., 267 U. S. 132, 45 S. Ct. 280, 69 L. Ed. 543, 39 A. L. R. 790, and Husty v. U. S., 282 U. S. 694, 51 S. Ct. 240, 75 L. Ed. 629, decided February 24, 1931, as to require no restatement here. The only serious doubt, 'which could arise from the record before us, is due .to the time which elapsed between the receipt of the information and the search and seizure without a warrant. While it is true that the prohibition agents had some information as early as two o’clock in the afternoon that a load of alcohol was to be transported by appellant, the definite word of the exact hour was received only about thirty minutes before the car arrived. This was not sufficient time to permit the officers to secure the search warrant.

(b) But it is apparent from the record that the search was made as an incident to the arrest of appellant for the comíais-síon of a felony in the presence of the prohibition officers.

“The right without a search warrant contemporaneously to search persons lawfully arrested while committing crime and to search the place where the arrest is made in order to find and seize things connected with the crime as its fruits or as the means by which it was committed, as well as weapons and other things to effect an escape from custody, is not to be doubted.” Agnello v. U. S., 269 U. S. 20, 30, 46 S. Ct. 4, 5, 70 L. Ed. 145, 51 A. L. R. 409.

Here the information, which came to the prohibition officers about thirty minutes before appellant arrived at his garage, was such as to justify his arrest without a warrant. The arrest having been lawfully made, the arresting officers were authorized to make the search of the premises and of the person of appellant without a search warrant. The evidence conclusively establishes that the arrest was made before the search occurred.

Appellant argues, however, that notwithstanding the lawfulness of the arrest in the first instance the search was illegal because he did not in fact commit the felony for which he was arrested, nor did the property seized have any evidentiary value in proving such felony. Conceding, for the purpose of the argument only, that appellant did not commit the felony for which he was arrested and that the liquor found pursuant to the arrest did not tend to establish such felony, the search was nevertheless valid. If the arrest were lawful the search of the person of the appellant and the premises wherein the arrest was made was lawful. Evidence seized pursuant to a lawful search, following an arrest, does not become incompetent because it tended to establish an offense other than the one for which the arrest was made. Cornelius on Searches and Seizures, p. 171, § 49. Likewise a search of the person of the accused or of the premises where the arrest was made, following a lawful arrest is not illegal because of the subsequent acquittal of the accused on the charge for which he was arrested. Carroll v. United States, 267 U. S. 132, 45 S. Ct. 280, 69 L. Ed. 543, 39 A. L. R. 790. In other words, if the arrest were lawful the search and seizure which followed as an incident thereto was lawful. The evidence found upon such search of the person or premises where the arrest was made thereupon became competent evidence against the person arrested, either to establish the felony for which he was arcssted, or any other offense, provided, of course, it was relevant to any issue presented by such prosecution.

It is unnecessary to consider the third contention (c) relative to the admission of this evidence.

Other assignments of error were either waived upon oral argument or have been duly considered. We find no error in the trial of the case.

The judgment is affirmed.


author: WILBUR, Circuit Judge.

text:
    BUREN v. SOUTHERN PAC. CO.
    No. 6249.
    Circuit Court of Appeals, Ninth Circuit.
    May 8, 1931.
    Thomas F. McCue and Clifton Hildebrand, both of San Francisco, Cal., for appellant.
    Guy V. Shoup and Dunne, Dunne & Cook, all of San Francisco, Cal., for appellee.
    Before RUDKIN, WILBUR, and SAW-TELLE, Circuit Judges.
   WILBUR, Circuit Judge.

Appellant was employed by the appellee railroad-company as a brakeman. On August 6th he was engaged in running a freight train from San Francisco east. At Port Costa the train was run onto the Southern Pacific Company’s ferryboat Solano, and was ferried across the Carquinez Straits to Beni-cia. It was the duty of the appellant to tighten the brakes on the ears when they were run onto the ferryboat and to loosen them as they were about to be run off the boat. On arriving at Benicia, appellant climbed on top of a box car to loosen the brake, and while he was standing thereon the engine attached to the ear moved forward, and appellant’s head was struck against a steel girder extending athwart-ships for the purpose of strengthening the ferryboat. The accident occurred during the darkness, and appellant predicates his right of action against the Southern Pacific Company upon the alleged'negligenee of the company in failing to warn him of the overhead girder which caused the injury. Demurrer was sustained to the complaint, and thereafter appellant amended his complaint by alleging that he was acting as a brakeman at the time of his injury and that the ferryboat was employed entirely for transferring the Southern Pacific Company’s trains across the Carquinez Straits. The boat was not otherwise engaged in trade or commerce, but was used solely as part of the appellee’s railroad system to transport its trains over said straits.

It was alleged that appellee had secured the payment of compensation to its employees falling within the purview of the Longshoremen’s and Harbor Workers’ Compensation Act (44 Stat. 1424, 33 USCA §§ 901-950). The demurrer was sustained to the complaint as amended and judgment of dismissal entered, from whieh appellant takes this appeal.

The sole question involved in the appeal is whether or not the act above referred to applied to the appellant at the time and place of the injury. We are unable to distinguish the case in principle from that dealt with by the Supreme Court of the United States in Nogueira v. N. Y., etc., R. Co., 281 U. S. 128, 50 S. Ct. 303, 74 L. Ed. 754, where the subject was treated exhaustively. In that ease the injured employee was engaged in moving freight by hand truck onto a freight car on a float whieh was used by the railroad company in transporting its loaded freight cars upon the navigable waters in and about New York. It is there held that the Federal Employers’ Liability Act (45 USCA §§ 51-59), relied upon by the appellant in this case as the basis for his- recovery, did not apply, and that the Longshoremen’s and Harbor Workers’ Compensation Act, above cited, did apply to the injury in question. There seems to be no difference in principle between loading freight onto a- car upon a lighter or ferry and moving a loaded freight car onto a ferryboat or lighter. In either case, where those so engaged are injured by accident, the locus of the accident is upon navigable waters, and this is the test of admiralty jurisdiction in cases of tort. In London Guarantee & Accident Co. v. Industrial Accident Comm., 279 U. S. 109, 123, 49 S. Ct. 296, 300, 73 L. Ed. 632, it is said: “It is clearly established that the jurisdiction of the admiralty over a maritime tort does not depend upon the wrong having been committed on board a vessel, but rather upon its having been committed upon the high seas or other navigable waters. The Plymouth, 3 Wall. 20, 18 L. Ed. 125; Atlantic T. Co. v. Imbrovek, 234 U. S. 52, 59, 60, 34 S. Ct. 733, 58 L. Ed. 1208, 51 L. R. A. (N. S.) 1157.” See, also, State Industrial Comm. of State of New York v. Nordenholt, 259 U. S. 263, 42 S. Ct. 473, 66 L. Ed. 933, 25 A. L. R. 10-13.

While the ordinary duties of the appellant were performed upon land, his employment, according to the allegation of the complaint, required him to assist in the loading and unloading of the freight ears upon the ferryboat, and it was while he was so engaged that he was injured.

Appellant bases his contention as to the application of the Federal Employers’ Liability Act (45 USCA §§ 51-59) in the case at bar in part upon a misquotation, no doubt inadvertent, of an act of Congress (33 USCA § 901 note) amending the Longshoremen’s and Harbor Workers’ Compensation Act (33 USCA § 901 et seq.). This act, by its terms, is expressly limited to employees in the District of Columbia. Section 2 of the act,limits its applicability, even in the District of Columbia, but has no application in the ease of railroad employees injured outside the District of Columbia. The Supreme Court in Nogueira v. N. Y., etc., R. Co., 281 U. S. 128, 50 S. Ct. 303, 74 L. Ed. 754, supra, calls attention to the fact that this exception of an employee of a common carrier engaged in interstate or foreign commerce solely within the District of Columbia seems to indicate that, in the opinion of Congress, the Longshoremen’s and Harbor Workers’ Compensation Act does apply to such employees outside the District in eases of maritime tort.

Appellant’s remedy for the injury suffered is to be found under the provisions of the Longshoremen’s and Harbor Workers’ Compensation Act. Our attention has been called to a decision of the United States Employees’ Compensation Commission designated to carry out the provisions of that act holding that the aet applies to trainmen who ride locomotives and cars on and off ferries, and who, while on said ferries, couple and uncouple cars, or set and release ear brakes (Op. No. 29, issued January 29, 1928).

Judgment affirmed.

SAWTELLE, Circuit Judge, concurs.


text:
    EWBANK et al. v. UNITED STATES.
    No. 4485.
    Circuit Court of Appeals, Seventh Circuit.
    June 3, 1931.
    Rehearing Denied July 8, 1931.
    Louis B. Ewbank, Samuel Dowden, and Merlin M. Dunbar, all of Indianapolis, Ind., for appellants.
    George E. Q. Johnson, of Chicago, Ill., and George R. Jeffrey, U. S. Dist. Atty., of Indianapolis, Ind., for the United States.
    Before ALSCHULER, EVANS, and SPARKS, Circuit Judges.
   EVANS, Circuit Judge.

Appellants feel aggrieved by reason of the judgment entered in the District Court, 37 F.(2d) 383, dismissing the complaint by them filed wherein they sought to recover $526,869.22 previously paid under protest as a federal transfer tax upon the estate of Vol-ney T. Maiott, who died June 14,1921. Appellants, as trustees named in the will of said deceased Maiott, based their right to recover upon a construction whieh they give to the word “accrued” as it appears in the Revenue Aet of 1921, § 1400 (42 Stat. 320), which reads as follows:

“(a) That the following parts of the Revenue Aet of 1918 are repealed, to take effect (except as otherwise provided in this Aet) on January 1,1922, subject to the limitations provided in subdivision (b)
“(b) The parts of the Revenue Aet of 1918 whieh are repealed by this Aet shall (unless otherwise specifically provided in this Act) remain in foree for the assessment and collection of all taxes which have accrued under the Revenue Act of 1918 at the time such parts cease to be in effect, and for the imposition and collection of all penalties or forfeitures whieh have accrued or may accrue in relation to any such' taxes. In the case of any tax imposed by any part of the Revenue Aet of 1918 repealed by this Aet, if there is a tax imposed by this Act in lieu thereof, the provision imposing such tax shall remain in force until the corresponding tax under this Act takes effect under the provisions of this Aet. * * * ”
At the time of Malott’s death, the Revenue Aet of 1918 was in effect. The Revenue Act of 1921 repealed the Revenue Act of 1918, except as set forth in subdivision (b) and except for 1 USCA § 29, which reads as follows: “The repeal of any statute shall not have the effect to release or extinguish any penalty, forfeiture, or liability incurred under such statute, unless the repealing Act shall so expressly provide, and such statute shall be treated as still remaining in force for the purpose of sustaining any proper action or prosecution for the enforcement of such penalty, forfeiture, or liability.”
Section 406 of the Revenue Act of 1918 (40.Stat. 1099) provides: “That the tax shall be due one year after the decedent’s death; * ft ft 99

Appellants argued that the tax did not become due under section 406 until one year after the decedent’s death; therefore it had not accrued when the 1921 Aet was passed; that inasmuch as the exception to the section which repealed the 1918 Act applied to taxes, whieh had “accrued” under the 1918 Act at that time, it could not apply to a tax which, 'but for. the repeal, would have become due and payable on the Maiott estate.

The same question was presented to this court and decided adversely to appellants in Hodgkins et al., Executors, v. Commissioner, 44 F.(2d) 43. We are now asked to reconsider the decision in that case because the ai> gument now advanced was not fully considered in disposing of that case.

Our attention has been called to many decisions, some earlier and some later than the Hodgkins Case, which have met the same issue squarely. In each ease a conclusion contrary to the views of the appellants was reached. Alker v. U. S., 38 F.(2d) 879 (D. C.), affirmed 47 F.(2d) 229 (C. C. A. 2); O’Brien et al. v. Sturgess (D. C.) 39 F.(2d) 950, affirmed January 8, 1931 by Circuit Court of Appeals, 45 F.(2d) 1017; Flannery v. Willcuts, 25 F.(2d) 951 (C. C. A. 8); Schoenheit v. Lucas, 44 F.(2d) 476 (C. C. A. 4); U. S. v. Ayer, 12 F.(2d) 194 (C. C. A. 1); Page v. Skinner (D. C.) 293 F. 468, affirmed 298 F. 731 (C. C. A. 8); H. M. Hanna et al. v. U. S., 68 Ct. Cl. 45. A carefully prepared opinion was filed in this ease by Judge Baltzell, which but for space would be here set forth.

Notwithstanding the persuasive argument of counsel for appellants, we are convinced that the construction given to the statute by the various courts that have considered it is correct.

The judgment is affirmed.


author: WILSON, Circuit Judge.

text:
    SARGENT et al. v. WHITE, Collector of Internal Revenue.
    No. 2552.
    Circuit Court of Appeals, First Circuit.
    May 28, 1931.
    William T. Snow, of Boston, Mass. (Gas-ton, Snow, Saltonstall So Hunt, of Boston, Mass., on the brief), for appellants.
    J. Duke Smith, Sp. Asst, to the U. S. Atty., of Boston, Mass. (Frederick H. Tarr, U. S. Atty., of Boston, Mass., on the brief), for appellee.
    Before BINGHAM, ANDERSON, and WILSON, Circuit Judges.
   WILSON, Circuit Judge.

Frank W. Remick in 1921 made a transfer of certain securities in trust for the following uses and purposes:

“To pay over in their discretion as they may deem advisable the whole or any part of the net income of the trust estate to me, the .said Frank W. Remick, or in their discretion, in case they deem it advisable, to accumulate any part or the whole of the net income, and such part of the net income as is not paid to me shall in each year be added to and made part of the principal of the trust fund. If I survive my wife, Mary H. Remick, then upon the decease of my said wife, Mary H. Remick, said trust shall cease and the Trustees shall pay over, transfer, deliver and convey the Trust Estate absolutely free and discharged of every trust to me, said Frank W. Remick. If, however, my said wife, Mary H. Remick, survives me, then the Trustees shall upon my death pay over, transfer, deliver and convey the trust estate absolutely free and discharged of every trust to my said wife, Mary H. Remick.”

Mr. Remick died in October, 1926, survived by his wife. The Commissioner of Internal Revenue in assessing the transfer tax upon his estate included in his gross estate the amount of the trust funds which increased the estate tax by $9,022.72. The executors paid the full amount assessed and filed a claim for a refund of the amount assessed upon the value of the trust funds.

The section of the Revenue Act of 1926 (44 Stat. 70) under which the government included the trust funds in the gross estate of Mr. Remick, is 302. (c), 26 USCA § 1094 (c) which reads as follows:

. "See. 302. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated. * * *
“(c) To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, except in ease of a bona fide sale for an adequate and full consideration in money or money’s worth. * * * ”

Subdivision (h) of sec. 302 provides that subdivision (e) together with other enumerated subdivisions shall be retroactive. It is agreed by counsel that the transfer was not made in contemplation of death and that the Aet of 1926 governs the ease. -

We think the trust funds were properly included in the gross estate of the decedent. In effect he conveyed the trust funds to the trustees to hold during his life, with a contingent remainder in himself and in his wife. 2 Washburn, Real Property (4th Ed.), 547, 548, 559, par. 1.

It was clearly the intent of the decedent that the trust funds should not become absolutely vested during his life, or, in the words of the statute, that the remainder after the life estate in the trustees should not “take effect in possession or enjoyment” in his wife until his death. Upon his death and as a result, the entire trust funds then passed to his wife. See Klein v. United States, 51 S. Ct. 398, 75 L. Ed.-, decided by the Supreme Court April 13, 1931, which differs from this ease to this extent that the grantor by deed transferred a life estate in some real property directly to his wife, expressly reserving to himself the fee, which, or as in this case the absolute title to the trust funds, passed to the wife at his death in ease she survived him.

In the case of May v. Heiner, 281 U. S. 238, 50 S. Ct. 286, 74 L. Ed. 826, 67 A. L. R. 1244, the absolute disposition of the trust property was provided for in the trust instrument and only the income was reserved to the husband of the grantor and to herself for life, if she survived him.

The judgment of the District Court is affirmed with costs.


author: BUFFINGTON, Circuit Judge.

text:
    UNITED STATES ex rel. CUNNINGHAM v. MATHUES, United States Marshal.
    No. 3857.
    Circuit Court of Appeals, Third Circuit.
    June 13, 1930.
    For former opinion, see 33 F.(2d) 261, which reversed 26 F.(2d) 272.
    Ruby R. Yale, of Philadelphia, Pa., for appellant.
    Howard Benton Lewis, of Philadelphia, Pa., for appellee.
    Before BUFFINGTON, WOOLLEY, and DAYIS, Circuit Judges.
   BUFFINGTON, Circuit Judge.

After the opinion of this court was filed, 33 F.(2d) 261, the case of Barry v. United States ex rel. Cunningham, 279 U. S. 597, 49 S. Ct. 452, 454, 73 L. Ed. 867, was decided. Thereupon the government, conceiving that our decision was at variance with the holdings of the Supreme Court in that case, moved a rehearing be had. The motion was granted, and such rehearing was given. On due consideration the members of the court adhere to their views already expressed in the opinion and the dissent heretofore filed. We therefore confine the present opinion to a brief statement of why we-do not regard the Barry Case as ruling the present one. The indictment in the present case in the federal court for the District of Co-, lumbia concerns solely what had already taken place before a committee of the Senate. When Cunningham refused to answer the questions propounded by that committee, his crime of contempt, if such it be, was complete, and for that completed crime he was indicted. As his entire acts were set forth, in the indictment, the court, on the application for removal, was required to determine whether probable cause was shown. On that question we held the lack of probable cause was shown, in that the inquiry made of Cunningham was not pertinent, because no power had been conferred by the Senate on this committee to make such inquiry.

On the other hand, the case of Barry v. United States ex rel. Cunningham, supra, as held by the Supreme Court, concerned, what took place afterwards, namely the action of the Senate in attaching Cunningham and bringing him before it “then and there or elsewhere as it may direct, to answer such questions pertinent to the matter under inquiry as the Senate, through its said Committee, or the President of the Senate, may propound,” etc. It will thus be seen that, so far as questions to Cunningham are concerned, the indictment in the present ease concerned questions already asked and refused to be answered, while the Barry Case concerned questions to be asked in the future. In deciding the ease before it, the Supreme Court explicitly stated what it did and what it did not decide, namely:

“We must accept this unequivocal language as expressing the purpose of the Senate to elicit testimony in response to questions to be propounded at the bar of the Senate, and the question whether the information sought to be elicited from Cunningham by the committee was pertinent to the inquiry which the committee had been directed to make may be put aside as immaterial.
“It results that the following are the sole questions here for determination: (1) whether the Senate was engaged in an inquiry which it had constitutional power to make; (2) if so, whether that body had power to bring Cunningham to its bar as a witness by means of a warrant of arrest; and (3) whether, as a necessary prerequisite to the issue of such warrant of arrest, a subpoena should first have been served and disobeyed.”

This question of the pertinency of those questions, which the Supreme Court thus stated it did not pass upon, is the very question which we did then pass upon and whieh we are now constrained to pass upon in the present ease. Adhering, as we have said, to the respective views heretofore held on that question, we adhere to our previous opinion, and, in doing so, we do not, in our view, disregard the holdings of the Supreme Court.


author: PER CURIAM.

text:
    GEAR GRINDING MACH. CO. v. REO MOTOR CAR CO.
    No. 5131.
    Circuit Court of Appeals, Sixth Circuit.
    June 9, 1931.
    For former opinion, see 42 F.(2d) 965.
    D. Anthony Usina, of New York City (Melville Church, of Washington, D. C., and Whittemore, Hulbert, Whittemore & Belknap, of Detroit, Mich., on the brief), for Gear Grinding Mach. Co.
    J. L. Stackpole, of Boston, Mass. (Frederick P. Fish and H. L. Kirkpatrick, both of Boston, Mass., and Walter S. Foster, of Lansing, Mich., on the brief), for Reo Motor Co.
    Before DENISON, MOORMAN, and HICKENLOOPER, Circuit Judges.
   PER CURIAM.

The application for rehearing especially asks reconsideration of the alleged anticipation as to the Driggs-Seabury use. We find nothing that was not fully considered in the course of the preparation of the opinion, though it is not exhaustively there discussed. The proof falls short of the necessary certainty in detail; and, while it is true that the claim involved in the former suit differed from the claim now under consideration, yet the Driggs-Seabury use, if it had been sufficiently proved and had not been experimental, would have anticipated this present claim as well as that; the adjudication that, because experimental, it did not anticipate that ciaim, is an adjudication that it does not anticipate this one.

We have held this present application in the anticipation that in its disposition of the Wirebounds Patents Case, the Supreme Court might make some decision which would be applicable here. We conclude that it has-not done so. Saranac Co. v. Wirebounds Co., 282 U. S. 704, 51 S. Ct. 232, 75 L. Ed. 634. The validity of the method patent there somewhat involved was not decided. The comment which is made as to that method patent, postdating the product patent which disclosed the method, — whatever force the court may have intended to imply, — is applicable, at most, only to the facts of that case. In the present case, the general method patent and the patent for a machine for practicing that method in one of the numerous ways in which it might be applied, have plainly, we think, the character of relatively generic and specific patents; and it is pointed out in our opinion in the Wirebounds Case that it has long been the settled rule in this circuit, as in others, that where applications were co-pending the earlier grant of the specific did not invalidate the later grant of the generic. In the Wirebounds Case, the product patent had been practically and commercially efficacious to give a monoply upon the method; in the present ease, quite the contrary.

Upon the whole, we are satisfied that the decree in this ease should not be disturbed because of anything said in the Supreme Court opinion in the Wirebounds Case.

The rehearing application is denied.


text:
    ESTATE STOVE CO. v. GRAY & DUDLEY CO.
    No. 5236.
    Circuit Court of Appeals, Sixth Circuit.
    June 9, 1931.
    F. M. Bass, of Nashville, Tenn. (Greer Marechal, of Dayton, Ohio, Fyke Farmer and Bass, Berry & Sims, all of Nashville, Tenn., and Drury W. Cooper, of New York City, on the brief), for appellant.
    K. T. McConnico and C. P. Hatcher, both of Nashville, Tenn. (Pitts, McConnico & Hatcher, of Nashville, Tenn., on the brief), for appellee.
    Before DENISON, MACK, and MOOR-MAN, Circuit Judges.
   PER CURIAM.

Our opinion [41F.(2d) 462] erroneously assumed that the plaintiff (appellant) had characterized its product by the advertising catch word or “slogan,” “No, this is not a phonograph,” and thereupon held that defendant’s “No, this not a victrola,” in connection with a closely similar picture, tended toward deception, to an unpermissible degree. The fact is that the plaintiff’s advertising slogan was “Looks like a phonograph but is a furnace,” in variant forms; and in many ways plaintiff’s advertising emphasized the idea that the “Heatrola” looked like a phonograph, but really was not. In a broad way, as to the public impression produced, there is not much substantial difference between the fact and our erroneous assumption ; but defendant had a right to make this style of heater, and to use as an advertising text its resemblance to a phonograph; and, lacking that specific and unpermissible appropriation which we mistakenly found, defendant’s conduct cannot be made the basis of legal condemnation.

Our former decision must be vacated, *,nd the decree below affirmed.