author: DAWKINS, District Judge.

text:
    SCHMITT v. LAMB.
    No. 6072.
    Circuit Court of Appeals, Fifth Circuit.
    April 9, 1931.

      Gerald FitzGerald, of Clarksdale, Miss., Marcellus Green and Garner W. Green, both of Jackson, Miss., and J. L. Roberson and Sam C. Cook, Jr., both of Clarksdale, Miss. (Maynard, FitzGerald & Venable, of Clarksdale, Miss., on the brief), for appellant.
    W. Calvin Wells, of Jackson, Miss., and Arvid B. Tanner, of Chicago, Ill. (Wells, Jones, Wells & Lipscomb, of Jackson, Miss., on the brief), for appellee.
    Before FOSTER, Circuit Judge, and GRUBB and DAWKINS, District Judges.
   DAWKINS, District Judge.

In this case the plaintiff alleged that he had been appointed receiver of certain property and funds found by final decree of the court below in suit in equity No. 129; to be impressed with a trust and lien in favor of creditors of W. P. Holland, husband of the defendant therein, Florence T. Holland; that the said original proceeding had been one in which the plaintiff, for himself and for the use and benefit of other creditors of the said W. P. Holland, had sought that relief against the wife as to the property and funds conveyed to her with the “actual and constructive intent of defrauding creditors of the husband”; that upon the filing of said original bill, all persons, including the defendant in the present proceeding, William E. Lamb, who was the attorney of said Florence T. Holland, became “charged with constructive knowledge of the rights of the plaintiff in said cause”; and that the defendant, Lamb, as well as other persons, “there- • after taking or receiving any part or portion of the said estate of the said Florence T. Holland took the same impressed with the trust aforesaid, and with knowledge of the rights of the parties aforesaid, and with the duty and obligation upon their part to return the same upon the due orders and judgment of this court and any other court of competent jurisdiction”; that the defendant Lamb, although a resident and citizen of Chicago, Ill., “was employed by the said Florence T. Holland to defend said suit aforesaid” (cause No. 129 in equity); that the said Lamb “accepted said employment and obtained, prior to the receipt of any moneys as herein set forth out of said estate, full and actual knowledge of the facts stated in said Bill of Complaint, and of the actual facts relative to the transactions mentioned and described therein”; that, notwithstanding said knowledge, he “caused the said Florence T. Holland, between the dates of August 8, 1928, and April 12, 1930, to pay him large sums of money in cash out of said estate, which said sums of money plaintiff alleges aggregated a total amount, of which plaintiff has knowledge of Seventy thousand, three hundred and eighty and 36/100 ($70,386.36) Dollars,” as shown by itemized statement attached, marked Exhibit A and made a part of the petition; that the said sums were paid by the said Florence T. Holland to the said defendant, under guise of the payment to the said William E. Lamb of fees as an attorney for the defense of said suit No. 129, but plaintiff states that the said Florence T. Holland was without right at law or in equity to pay the said sums out of said funds, constituting a trust as aforesaid, and said defendant was without lawful right to accept the same, and that in accepting the same he, the said defendánt, took the same impressed with- said trust. Plaintiff pra-yed for service and for the stating of an account between him and the defendant of the sums paid “by said Florence T. Holland, and that it be determined and adjudicated that the funds so received by the said defendant are trust funds as aforesaid, and that it be further decreed that the said sums of money so found be returned to the plaintiff, to be dealt with by him in accordance with the orders and decrees of this court in said ease No. 129.” Exhibit A attached to the petition showed payments made to defendant beginning August 8, 1928, in the sum of $10,001) and continuing to April 12, 1930; totaling the sum alleged, to wit, $70,386.36. The petition in this ease, in paragraph 3, also makes “reference to the said case (No. 129) * * * and special reference being made to the terms of said decree, whereby plaintiff was' appointed and empowered by the terms of said decree and by law to sue for and collect and receive the entire estate of Florence T. Holland, one of the defendants in said' cause Ho. 129.”

The citation of subpoena was in the usual form in equity, dated April 39, -1939, and on the same day was personally served upon defendant within the jurisdiction of the court below by the marshal thereof.

Defendant Lamb appeared and moved to quash the service “on the ground that he was then and there privileged and immune from service of any process issuing from this court in this ease,” for the reasons: (1) He was a citizen and resident of the state of Illinois; (2) that he was within the jurisdiction of the court below under compulsory process issued on a rule for contempt in'the said suit Ho. 129; (3) that he was further present in said jurisdiction as attorney for W. P. Holland, in certain suits brought against him in said court, and as “attorney of record for Florence T. Holland in cause Ho. 129 in equity, aforesaid * * * ”; (4) that he appeared in court on said 39th day of April, 1930, when the present suit was served “in answer to said citation (for contempt) following the entry of final decree in said cause Ho. 129; that after his appearance in response to said citation said judge entered an order continuing the hearing on said citation until June 9, 1939”; and that thereafter, while waiting to catch a train for the purpose of returning to his home in Illinois, the process in this ease was served upon him at Clarksdale, in said district) (5) that at the time of the attempted service, he had no other business that “caused or required him to be in said Horthern District of Mississippi, nor was he there in pursuit of pleasure or for any other cause or reason whatever than as hereinabove set forth”; and (6) “except for the matters hereinabove set forth, said William E. Lamb would not have been in the Horthern District of Mississippi at the time of the attempted service of process upon him.”

The court below quashed the service and dismissed the bill.

It could, of course, take cognizance of the proceedings in suit. No. 129 in equity, as to which the bill in the present case was ancillary. The original bill with the exhibits attached thereto, and interrogatories addressed to the several defendants therein, filed June 23, 1928, were offered in evidence and have been brought up with the record in the case. It was alleged therein that a receiver ■should be appointed to take charge of the estate, both real and personal, of the defendant Florence T. Holland, and on the 6th day of January, 1929', an amended bill was filed wherein it was further asked that a receiver be appointed “to take charge and conserve the corpus of the said estate of the said Florence T. Holland, * * * ” and attached thereto were additional interrogatories propounded to other persons.

The original bill in suit Ho. 129 was against the said Florence T. Holland and a large number of banks and other persons to have property rights, and credits, alleged to amount to several hundred thousands of dollars, decreed to belong to William P. Holland and to have them impressed with a trust and lien in favor of the creditors whose interests were represented by the plaintiff. As previously stated, both in the original and amended petitions, plaintiff alleged facts and circumstances warranting appointment and in the latter prayed for the appointment of a receiver and for an accounting.

On April 39, 1939, the lower court rendered a judgment, “the parties plaintiff and intervenor expressly agreeing thereto in open court and likewise the said Florence T. Holland are( ?) agreeing to the matters and things in this decree contained, the Planters Manufacturing Company not to be prejudiced hereby or William E. Lamb, or Butler, Lamb, Foster & Pope, not to be prejudiced hereby.” This decree found that William P. Holland was indebted to some fourteen banks by virtue of judgments rendered in the court below and in a state court of Mississippi, aggregating $7,612,739.84; it also stated that “the said indebtedness so evidenced by said judgments and so hereby decreed, is hereby declared to be fixed as a lien from the date of the filing of the original bill in this ease, upon the entire estate of the defendant, Florence T. Holland, consisting of property, real, personal and mixed, and of every kind wheresoever situated and especially upon the property as hereinafter described, and the said estate of the said Florence T. Holland is hereby declared to be and to have been from May 1, 1920, a trust fund held in trust by the said Florence T. Holland for the benefit of the plaintiff and intervenors in this ease, hereby decreed to be and to have been creditors of the said W. P. Holland.” The said decree further appointed a receiver “of the entire estate of Florence T. Holland, and she, the said Florence T. Holland, and all other persons whomsoever are hereby directed and commanded to deliver to him, as such receiver, forthwith, all of the property of every kind and character by her, they, or any of them held which said property, when-so delivered to said receiver shall be subject to the further orders of this court.” The said Florence T. Holland was further ordered to deliver a large quantity of stocks, notes, cash in banks, personal and real property, by specific description to the receiver. It was further provided in said decree as follows :

“Said Receiver is hereby invested with full power and authority to institute and/or prosecute in any Ceurt of proper jurisdiction at law or in equity any suit or proceeding against any and all persons whomsoever seeking to recover possession and/or control and/or damag-es in connection with the rights hereby vested in him.”

From what has been set forth herein-above, it is evident that, from the inception of the suit No. 129 in equity, it was intended that the lower court should take charge of said property and the subsequent decree of the court actually impressed upon all of it in the hands of Florence T. Holland, or under her control, a trust and lien in favor of the creditors of her husband, as having been conveyed in fraud of their rights. All of the parties to that litigation, particularly the defendant Florence T. Holland and her attorneys, knew that if the allegations of the bill were sustained and the relief sought was granted, the court would be compelled to draw to itself for administration and disposition all of the property and funds so claimed. That bill was filed on June 23, 1928, and the petition in the present case alleges that the payments were made to Lamb long after citation in said cause No. 129 and for services in defending said Mrs. Holland therein, beginning August 8, 1928, and continuing to April 12, 1930, some eighteen days before the final decree in said suit was entered and the citation in this case served on April 30th. In such circumstances, could the defendant, Florence T. Holland, or her agent, make any disposition which would defeat the jurisdiction of the court over the property upon which the trust and lien were sought to be created? There might be some question as to the effect of such a transfer, if the money had passed into the hands of an innocent third person without knowledge of the pendency of the bill; but it seems reasonably clear to us that neither she nor her agent or attorney, having knowledge of the suit and its purposes, could ignore it and dispose of the property to be affected in a manner to defeat that jurisdiction. Lang v. Choctaw Oklahoma, etc., R. Co. (C. C. A.) 160 F. 355. If she (Mrs. Holland) could remove a part, then she might do so as to the whole property, with the result that the court’s decree, when rendered, would be futile, or the plaintiff he compelled to pursue the property into whatever jurisdiction she might see" fit to carry it. Such is the possible consequence' of a holding of that nature, and we think demonstrates the soundness of the doctrine of constructive possession, flowing from a proceeding in equity of the character of suit No. 129. If the defendant could not do this herself, we can see no more reason for holding that it could be done indirectly through her attorney, whether under the claim of paying attorney’s fees, or otherwise.

“Where a bill in equity brings under the direct control of the court all the property and estate of the defendants, or of certain named defendants, or certain designated property of all or of either of the defendants, to be administered for the benefit of all entitled to share in the fruits of the litigation, and the possession and control of the property are necessary to the exercise of the jurisdiction of the court, the filing of the bill and service of process is an equitable levy on the property, and pending the proceedings such property may properly be held to be in gremio legis. The actual seizure of the property is not necessary to produce this effect, where the possession of the property is necessary to the granting of the relief sought. In such cases the commencement of the suit is sufficient to give the court whose jurisdiction is invoked the exclusive right to control the property.” Illinois Steel Co. v. Putnam (C. C. A. 5th Cir.) 68 F. 515, 517. See also Adams v. Mercantile Trust Co. (C. C. A. 5th Cir.) 66 F. 617, 626 and cases cited; C. J., Vol. 34, p. 200.

In view of this principle of the law, we do not think the court could be deprived of its power over a portion of the property or funds by the attorney for the defendant coming- into its jurisdiction and taking it away, even in satisfaction of his fees; neither do we think that process to prevent such a course or to compel restoration can he defeated by pleading the immunity usually accorded practitioners when actually e'ngaged in their professional duties before such court. This immunity is more for the protection of the court itself and to prevent interference with its proceedings, than for the benefit of the attorney. Stewart v. Ramsay, 242 U. S. 128, 37 S. Ct. 44, 61 L. Ed. 192. To allow it to defeat proper process for the control of such property would be to destroy the very basis of the rule itself, i. e., the orderly functioning of the court.

Our conclusion is that the service in this case was erroneously quashed.

Reversed.


source: Caselaw Access Project

license: Public Domain

text:
    CRAMER et al. v. LAMB.
    No. 6004.
    Circuit Court of Appeals, Fifth Circuit.
    April 9, 1931.
    Gerald Fitzgerald, of Clarksdale, Miss., Marcellus Green and Garner W. Green, both of Jackson, Miss., and J. L. Roberson and Sam C. Cook, Jr., both of Clarksdale, Miss. (Maynard, FitzGerald & Venable, of Clarksdale) Miss., on the brief), for appellants.
    W. Calvin Wells, of Jackson, Miss., and Arvid B. Tanner, of Chicago, Ill. (Wells, Jones, Wells & Lipscomb, of Jackson, Miss., on the brief), for appellee.
    Before FOSTER, Circuit Judge, and GRUBB'and DAWKINS, District Judges.
   DAWKINS, District Judge.

This cause involved a rule for contempt against William E. Lamb, because of the alleged taking from the jurisdiction of the court of certain funds and for which the ancillary bill was filed in the ease of Schmitt, Receiver, v. Lamb (No. 6072) 48 F.(2d) 533, this day decided. Citation upon the rule was also quashed on the same ground as in that case, that is, because defendant, a resident of the state of Illinois, was present in the jurisdiction of the court as an attorney at law and therefore immune from such process.

Appellants have moved to dismiss the appeal upon the grounds: (1) That this court “is without jurisdiction to review the judgment of the court below because the proceeding * * * was a contempt proceeding and because” it was not maintainable upon the facts alleged; and (2) the decree appealed from was not final.

The petition for the rule alleged that the defendant in suit No. 129 in equity, Mrs. Florence T. Holland, and her husband, W. P. Holland, had conspired with the defendant Lamb and his firm and had “set over and assigned” to him and them $90,000 of the trust fund estate involved in that cause, with full knowledge of its purpose to subject the same to the alleged trust and lien of the creditors of W. P. Holland, all in contemptuous disregard of the authority and jurisdiction of the court below. Among other things, the prayer was that the defendant and others therein named be cited to appear before the court “upon a day to be named by the court, there to show cause why they should not be held in contempt of this court.” The rule was filed on April 21, 1930, and on the same day the court signed an order to show cause on the following day at 9 o’clock a. m., why the defendant therein should not be punished as for contempt. The matter was continued to a later date, and on July 22, 1930, Lamb filed his motion to quash the service. Several grounds, other than his immunity as attorney, were set up, but the court below quashed the service for that reason alone and decreed “that the said motion of the said William E. Lamb to quash the process and dismiss the petition for the citation of W. E. Lamb for contempt, and for an order to turn over money paid him by -the defendant, be and the same is hereby sustained and the rule to show cause is hereby discharged, and the said petition is hereby dismissed, without prejudice to the rights of the plaintiff, the receiver or any interested party, to proceed civilly in the matter as they or any of them may be advised. * * * ”

For the reasons stated in cause No. 6072, this day decided, we think the funds were in the constructive possession of the court, to the knowledge of Lamb and his clients, and that plaintiffs were at liberty to proceed either by bill in equity, as was done there, or by rule for contempt, or by both means, to compel their restoration to the custody of the court’s officers. We are of the opinion, therefore, that the rule did state a ground for relief and the service under the circumstances was properly made.

The decree below dismissed the rule by quashing the service and hence was undoubtedly final, notwithstanding the reservation of the right “to proceed civilly.”

Reversed.


author: MANTON, Circuit Judge.

text:
    UNITED STATES v. BISCHOF.
    No. 188.
    Circuit Court of Appeals, Second Circuit.
    April 13, 1931.
    George Z. Medalie, U. S. Atty., of New York City (Frank W. Ford, Asst. U. S. Atty., of New York City, of counsel), for the United States.
    William E. Riseley, of New York City, for appellee.
    Before MANTON, L. HAND, and CHASE, Circuit Judges.
   MANTON, Circuit Judge.

Appellant filed this bill in equity under section 15 of the Naturalization Laws (34 Stat. 601, 8 U. S. C. § 405 [8 USCA § 405]) for the cancellation of appellee’s certificate of naturalization. Appellee’s application for citizenship was filed in the Supreme Court, Sullivan county, N. Y., May 15, 1925, and he was admitted to citizenship June 23, 1928. At the time of the hearing on his application, the Department of Labor was represented. It was made to appear that on January 30, 1925, the appellee was sued for absolute divorce on the ground of adultery, in the New York Supreme Court, and there was a finding that he had committed the offense charged. There was no defense entered to the divorce action. The government objected 'to his admission, not on the ground that the Immigration Law had not been followed, but because the applicant had not proven he was of good moral character and of good behavior within the five years previous to his application. The objection was not sustained. Thereafter this bill was filed.

It is conceded “that all the facts which are now presented to the Court were presented to the Supreme Court at the time'of the granting of the certificate of naturalization.” The court below dismissed the bill for want of equity. 35 F.(2d) 186. The Naturalization Act of June 29,1906 (34 Stat. 596) provides :

“Sec. 4. That an alien may be admitted to become a citizen of the United States in the following manner and not otherwise: • * *
“Fourth. It shall be made to appear to the "satisfaction of the court admitting any alien to citizenship that immediately preceding the date of his application he has resided continuously within the United States five years at least, and within the State or Territory where such court is at the time held one year at least, and that during that time he has behaved as a man of good moral character. * * *” 34 Stat. 598, U. S. C. title 8, § 382 (8 USCA § 382). '
“See. 11. That the United States shall have the right to appear before any court or courts exercising jurisdiction in naturalization proceedings for the purpose of cross-examining the petitioner and" the witnesses produced in support of his petition concerning any matter touching or in any way affecting' his right to admission to citizenship, and shall have the right to call witnesses, produce evidence, and be heard in opposition to the granting of any petition in naturalization proceedings.” (34 Stat. 599, U. S. C. title 8, § 399 (8 USCA § 399).
“Sec. 15. That it shall be the duty of the United States district attorneys for the respective districts, or the Commissioner or Deputy Commissioner of Naturalization, upon affidavit showing good cause therefor, to institute proceedings in any court having jurisdiction to naturalize aliens in the judicial district in which the naturalized citizen may reside at the time of bringing the suit, for the purpose of setting aside and canceling •the certificate of citizenship on the ground of fraud or on the ground that such certificate of citizenship was illegally procured. * * •” 8 USCA § 405.

The behavior of a man of good moral character is as necessary a qualification to '.naturalization as other requirements of the statute. United States v. Ness, 245 U. S. 319, 38 S. Ct. 118, 62 L. Ed. 321. There are several unreported District Court eases cited to us supporting the government’s position that adultery proved justified cancellation under section 15 because such an applicant had not met the statutory requirement of good behavior. But the difficulty here is that the state court, which granted the application for citizenship to the appellee, knew that a divorce had been granted and that it was based upon the charge of adulterous conduct. The only issue raised in the state Supreme Court was whether section 4, subdivision fourth, of the June 29, 1906, act (8 U. S. C. § 382 [8 USCA § 382]), referring to good behavior of the appellee, had been complied with. That .issue was decided in appellee’s favor, but, where essential prerequisites to a valid order of naturalization are lacking, as, a certificate of arrival (United States v. Ness, supra), cancellation will be granted under section 15. Such a certificate of citizenship is illegally granted. In the Ness Case, the court said (245 U. S. 325, 38 S. Ct. 118, 121, 62 L. Ed. 321):

“The remedy afforded by Section 15 for setting aside certificates of naturalization is broader than that afforded in equity, independently of statute, to set aside judgments, * * * but it is narrower in scope than the protection offered under Section 11. Opposition to the granting of a petition for naturalization may prevail, because of objections to the competency or weight of evidence or the credibility of witnesses, or mere irregularities in procedure. A decision on such minor questions, at least of a state court of naturalizatibn, is, though clearly erroneous, conclusive even as against the United States if it entered an appearance under Section 11.”

So where the questions of fact are determined by the court admitting to citizenship, such findings of fact are regarded as conclusive. United States v. Srednik, 19 F. (2d) 71 (C. C. A. 3) ; United States v. Richmond, 17 F.(2d) 28 (C. C. A. 3). The remedy of the government, if it feels aggrieved by the decision on such findings of fact, is by appeal. We pointed out the distinction between a jurisdictional prerequisite to naturalization and mere fact finding in United States v. Gokhale, 26 F.(2d) 360 (C. C. A. 2). There we held the law providing that the applicant must be a free white person must be complied with, and that a Hindu was not, and therefore could not be admitted. Section 15 grants leave to cancel a previous naturalization for fraud or illegal procurement in its inception. The causes for which a suit will lie áre such as permit a court to cancel its own judgment, and Section 15 gives to one court such power over the decree of another. United States v. Richmond, 17 F. (2d) 28 (C. C. A. 3); United States v. Luria, 184 F. 643 (D. C. S. D. N. Y.).

The question of fact determined by the state Supreme Court in favor of the applicant formed no basis for the claim of fraudulent or illegal means used in obtaining the certificate. The government having appeared and contested the one issue before the court, it is concluded by that decision on. the question of fact thus presented.

Decree affirmed.


author: AUGUSTUS N. HAND, Circuit Judge.

text:
    In re GOTHAM CAN CO. MERCHANTS’ TRANSFER & STORAGE CO. v. RAFFERTY.
    No. 347.
    Circuit Court of Appeals, Second Circuit.
    April 6, 1931.
    Oppenheimer, Haiblum & Kupfer, of New York City (Eli S. Silberfeld, of New York City, of counsel), for petitioner-appellant. Merchants’ Transfer & Storage Company.
    Joffe & Joffe, of New York City (Louis Jofiie, of New York City, of counsel), for respondent-appellee trustee in bankruptcy.
    Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.
   AUGUSTUS N. HAND, Circuit Judge.

Merchants’ Transfer & Storage Company, hereafter called finance company, advanced money to Gotham Can Company, the bankrupt,. prior to its adjudication, upon the security of accounts receivable assigned by the latter. The contract of the parties provided that the finance company should advance in cash 77 per cent, of the face value of the accounts and the remaining 23 per cent, upon collection of the accounts subject to the following charges:

(a) A charge of $5 per thousand on the first $100,000 of accounts assigned during any one year.

(b) A “service charge” of one-thirtieth of 1 per cent, per day upon the outstanding balance of uncollected accounts.

(e) Attorneys’ fees and other expenses incurred by the finance company in the collection of accounts not paid in full at ma/tuiity.

The bankrupt agreed to collect the accounts and to remit the proceeds in specie to the finance company. On October 3,1929, when the. adjudication in bankruptcy occurred, the finance company held accounts having a face value of $10,674.97 as security for actual cash advances of $8,231.25. After the bankruptcy, the finance company made collections of these assigned accounts to the amount of $8,156.21, and the trustee to the amount of $529.52. On February 28, 1930, the finance company filed a proof of debt against the bankrupt estate, and in March, 1930, it filed a petition praying that the trustee pay over the above collections of $529.52 in his hands, together with any further collection which he had received. As a basis for its petition, the finance company claimed that there was due it the following sums:

Amount advanced by it in excess of collections which it had received from assigned accounts $ 75.04
Service charges accrued after adjudication at the rate of one-thirtieth of 1 per cent, per day on outstanding accounts 384.87
Disbursements after adjudication incurred in collecting accounts ~ 29.95
Attorneys’ fees 300.00
$789.86

According to the contention of the finance company, there was therefore a balance of $260.34 due it in excess of the $529.52 representing accounts which the trustee had collected.

The trustee filed a cross-petition asking that the proof of claim of the finance company be expunged, that the service charges for $384.87 and the miscellaneous charges for $29.95 be disallowed, and that an allowance of reasonable attorneys’ fees be made by the court. The District Court directed the finance company to turn over the uncollected accounts receivable, then amounting to $1,854.57, to the trustee upon payment by him of $75.04, which was the difference between $8,231.25, the amount due at the date of adjudication, and the $8,156.21, which it had collected from the accounts. The court also ordered the referee in bankruptcy to fix the reasonable value of the fees of the attorneys for the finance company and expunged the latter’s claim.

The court rejected the item of $384.87 for service' charges on the ground that it in fact represented interest and that under the rule of Sexton v. Dreyfus, 219 U. S. 339, 31 S. Ct. 256, 55 L. Ed. 244, interest should not be allowed after the filing of the petition in .bankruptcy.

The arrangement between the parties was in form a sale of accounts receivable with an agreement on the part of the finance company to advance 77 per cent, of the face value of the accounts at once, and to advance the remaining 23 per cent, as soon as it might be received from the payment of the accounts, after deducting therefrom the charge of $5 per thousand on the first $100,-000 of accounts, the charge of one-thirtieth of 1 per cent, on all unpaid accounts, and, in the event of bankruptcy or other default, expenses incurred in making collections.

The finance company might be regarded as entitled to hold the accounts until they were all collected, even though its cash advances and expenses up to any particular date were satisfied. If so, the one-thirtieth of 1 per cent, daily charge could continue to roll up so long as any accounts remained unpaid. And this would be true whether the transactions were regarded as sales or loans. We think they were not sales, and to regard them as loans, which Gotham Can Company could not pay off until all the accounts were collected seems an unreal interpretation of the arrangement. Such a construction would imply that the Gotham Can Company borrowed on time and had no right to pay off its obligations until the accounts were all collected. No such obligation fairly appears from agreement of the parties.

The transactions were had under a contract whereby the Gotham Can Company warranted that every account assigned would be paid in full at maturity, and that, if it was not paid, the Gotham Can Company would make it good. Moreover, high rates were to be paid for its advances and these, together with its compensation and such expenses as might be involved in making collections, were to be paid out of the accounts. In decisions construing usury statutes, contracts of this kind have uniformly been held to be collateral loans. We see no reason to give them any other interpretation here. Home Bond Co. v. McChesney, 239 U. S. 568, 36 S. Ct. 170, 60 L. Ed. 444; In re Grand Union Co. (C. C. A.) 219 F. 353; National Trust & Credit Co. v. Orcutt (C. C. A.) 259 F. 830; Commercial Security Co. v. Holcombe (C. C. A.) 262 F. 657; Le Sueur v. Manufacturers’ Finance Co. (C. C. A.) 285 F. 490. The obligation of the Gotham Can Company to repay all advances in full and to pay certain percentages for the use of the- money, shows that the transactions were essentially collateral loans, and not sales, and that the relations of the parties are governed by the decisions we have cited.

The loans have been repaid, except for the small balance of $75.04, and all other claims, have been liquidated except the so-called service charges, disbursements, and attorneys’ fees secured by the contract, so that the accounts ought to be returned to the trustee in bankruptcy whenever these latter items, or such of them as are proper charges against the collateral, are repaid.

As no proof of debt can include interest or other charges accruing subsequent to the filing of the petition in bankruptcy, the claim of the finance company was properly expunged. Sexton v. Dreyfus, 219 U. S. 339, 31 S. Ct. 256, 55 L. Ed. 244; Board of Com’rs of Shawnee County, Kan., v. Hurley (C. C. A.) 169 P. 92, page 96; Bankruptcy Act, § 63a. (1), 11 USCA § 103 (a) (1).

No one disputes that the balance of $75.04 should be repaid by the trustee out of the $529.52, which he has collected. The same thing, in our opinion, is true of the $29.95 representing petty disbursements incurred by the finance company in collecting the accounts. The attorneys’ fees are in the same category (Boise v. Talcott [C. C. A.] 264 F. 61; In re Rosenblatt [D. C.] 299 P. 771; Security Mortgage Co. v. Powers, 278. U. S. 149, 49 S. Ct. 84, 73 L. Ed. 236), but they must be fixed by the court and not by the mere ipse dixit of the lender. When the finance company came into the bankruptcy court asking for payment of the proceeds of the accounts, it submitted itself to the jurisdiction, as indeed it seems to have conceded.

The only question remaining is whether it is entitled to payment of the $384.87 service charges out of the proceeds of the accounts in the hands of the trustee. This claim the court below disallowed upon the authority of Sexton v. Dreyfus, supra, but that decision has no bearing on the question in dispute here. It had nothing to do with the right of a creditor holding securities to have interest as well as principal paid out of the collateral, but related only to the amount for which a secured claim might be proved in bankruptcy. In that ease the secured creditor had sold his collateral and sought to apply the proceeds first to the payment of interest accrued since the filing of the petition. Such a mode of marshaling, when the security was insufficient to pay the entire indebtedness, would increase the creditor’s claim against the estate by the amount of interest accruing since the filing of the petition, though such interest could not in the ordinary case be included in his proof of debt. Bankruptcy .Act, § 63a (1). The Supreme Court, following the English decisions, accordingly held that a creditor in such circumstances must first apply his security to the liquidation of the debt, with interest to the date of the petition. It was never suggested that he could not pay interest accruing up to the very date of payment out of the proceeds of the collateral if he might thus satisfy his entire claim. That he may do this has frequently been held, and any other result would be contrary to section 67d of the Bankruptcy Act (11 USCA § 107 (d), which provides that valid liens given for a present consideration shall not be affected by the act. Coder v. Arts (C. C. A.) 152 P. 943, 15 L. R. A. (N. S.) 372; San Antonio Loan & Trust Co. v. Booth (C. C. A.) 2 P. (2d) 590; People’s Homestead Ass’n v. Bartlette (C. C. A.) 33 F.(2d) 561. Accordingly the item of $384.87 should be paid by the trustee out of the proceeds of the accounts in its hands.

The order of the District Court should be modified by directing the trustee to pay to the finance company from the proceeds of the accounts in his hands the foregoing items of $75.04, $384.87, and $29.95, and by 'directing the finance company to reassign to him any accounts remaining uncollected, as well as any proceeds from the accounts which may remain in its hands after the attorneys’ fees incurred by it have been fixed by the District Court, or by agreement with the trustee, and paid.


author: L. HAND, Circuit Judge.

text:
    THE EAST HAMPTON. ELECTRIC BOAT CO. v. EAST HAMPTON SHIPPING CO., Inc., et al.
    No. 307.
    Circuit Court of Appeals, Second Circuit.
    April 6, 1931.

      George E. Hall, of New York City, for appellant.
    Duncan & Mount, of New York City (Frank A. Bull, of New York City, of counsel), for appellee.
    Before L. HAND, SWAN and AUGUSTUS N. HAND, Circuit Judges.
   L. HAND, Circuit Judge.

On July 18,1930, the libellant had a claim against the East Hampton Shipping Company, In'e., a New York corporation, for repairs done upon its ship, the “East Hampton,” then at the wharf of the Thames Tow Boat Company in New London Harbor, where she had lain for about eleven months. The account being a year in arrears, the libellant on that day filed its libel in rem against her, and a stipulation for costs. The District Court at the same time issued a monition returnable, August fourth, under which the marshal arrested the ship, posted a notice upon her, and in the court house at New Haven, and published it in a New London paper. On August second the Thames Tow Boat Company filed an intervening libel in rem for other repairs and wharfage, and on the return day, no claimant having appeared, the District Court by interlocutory decree directed that default should be entered and that the ship should be sold, and .awarded the libellants the amount which should be found due upon a reference. A venditioni exponas issued on the sixth, which was executed on the twenty-fifth, the ship being struck off to Hayes, the appellant, for two thousand dollars.

Of all this the East Hampton Shipping Company had no notice, though the decree of sale recited the contrary. Having learned of the sale after it took place but before confirmation, it intervened in the suit on September ninth, and' on the thirteenth procured a rule nisi “to vacate the sale,” returnable on the twenty-second. Its petition alleged that it had had no notice of any of the proceedings, that the ship was worth $25,000, that there were liens of $3,500 upon it, that the rules of the court in the admiralty had been disregarded, and that it would pay into court any amount neeessary to cover the claims of both libellants.

Hayes, the purchaser, appeared in opposition on the return day, and submitted voluminous affidavits in answer. The matter chiefly litigated was the ship’s value, the appraisals varying between $2,000, the amount of the bid, and $50,000, the highest figure of the claimant’s affiants. The judge did not find what was the value of the ship,, and set aside the sale, not for “the gross inadequacy” of the bid, but because of the failure to give notice to the claimant. The decree provided that the claimant should pay the amount due the libellants with costs, repay Hayes his bid together'with the amount thereafter disbursed by him, and post a bond guaranteeing to bid $4,000 upon a new sale which was ordered. This decree was amended on October eighth in certain particulars, irrelevant except that among the recitals was incorporated the statement, made with the claimant’s consent, that it “waived so much of the prayers of said petition as relate to the reopening of the default decree * * * and informed the court that” it “only claimed so much of the prayers of said petition as related to the setting aside of the sale.” The appeal is from the decree of September thirtieth.

We held in The St. Paul, 262 F. 1021, following Butterfield v. Usher, 91 U. S. 246, 23 L. Ed. 318, that a decree, vacating a sale under a decree in the admiralty and directing a new sale, was not appealable before final decree in the suit át large. That decision would apply here, and deprive us of jurisdiction, except for an allegation in the petition for the amendment of the decree of September thirtieth, that both libellants had been paid. Since this put an end to the suit, the decree vacating the sale and directing the purchaser to deliver the ship has become final. In Butterfield v. Usher this was said to have been held in Blossom v. R. R. Co., 1 Wall. 655, 17 L. Ed. 673; and in any event it is plainly the ease. The only purpose of the suit was to collect the libellants’ claims; these being paid, there was nothing to justify another sale, for the claimant is under no duty to give the purchaser, Hayes, a second chance to buy its ship at public auction, because the first sale has fallen through. All that can remain to be done is to ascertain whether the first sale shall stand, and whether it does or not, the ease ends. Hence, though to do so we must look behind the form of the decree, in fact we can assume jurisdiction over the appeal.

We may therefore proceed to the merits. Rule five of the Admiralty Rules of the District of Connecticut provides that, “except by consent of the parties or by order of the Court,” there shall be no sale of the res by interlocutory decree “before the sum chargeable thereon is fixed by the Court.” (“By order of the Court” means something more than the decree itself, though separate orders are of course not necessary. The rule contemplates some special occasion and here there was none. The ship had already lain at her berth for nearly a year; it was summer; the wharfage was not high. There was not the slightest reason to sell her before final decree, when the claimant would have beefi entitled' under local admiralty rule twenty-eight to actual notice, if that were feasible. This would have given it the opportunity to protect its property, which perhaps the court supposed it had already had in fact, because of the false recital of actual notice. Admiralty Rule 12 of the Supreme Court (28 US CA § 723) provides for the sale of a ship when the owner “unreasonably neglects” to give a stipulation, “upon due cause shown”; it presupposes that there shall not otherwise be any sale, except as Rule 11 (28 USCA § 723) may require, that is, if the keep be unreasonably high.

It was therefore contrary to law to sell the ship when she was sold, and a wrong to the claimant, which this very contest shows to have had substance. As between the libellants and itself there can be no question of its right to reopen, and the only question is how far the court should recognize the owner’s interest against the bidder’s in his bid. Though his position changes upon confirmation, until then a bidder is not a purchaser, but merely an offerer to the court, which accepts his bid only by the confirming order. Camden v. Mayhew, 129 U. S. 73, 82, 9 S. Ct. 246, 32 L. Ed. 608; State of Tennessee v. Quintard, 80 F. 829, 835 (C. C. A. 6). It is quite true that a court will not refuse to confirm a bid merely, because higher bids are in sight, but this we conceive is not because the unconfirmed bidder has any vested right in the property. It is rather because such a practice, if made general, would tend to keep bidders away and chill the auction. Since, therefore, bids must be confirmed as well in the admiralty as in equity (The New Hampshire, Fed. Cas. No. 10160; The Sue [D. C.] 137 F. 133), we are to consider here, not so much the bidder’s interest, as whether it would be undesirable to allow such circumstances as these to interfere with the finality of judicial sales.

We agree that it would be difficult on these affidavits positively to conclude that the bid was so low as to “shock the conscience of' the court,” which would alone be enough. Graffam v. Burgess, 117 U. S. 180, 191, 192, 6 S. Ct. 686, 29 L. Ed. 839; Pewabic Mining Co. v. Mason, 145 U. S. 349, 367, 12 S. Ct. 887, 36 L. Ed. 732; Magann v. Segal, 92 F. 252, 259 (C. C. A. 6). Any appraisal, in the face of so much unwinnowed testimony, would be little more than a guess. We might perhaps say with some confidence that the ship was worth twice or three times the bid, but that would hardly serve. The inadequacy of the bid is not however the only reason which courts accept; in Magann v. Segal, supra, the negligence of other bidders to come prepared with the necessary cheques was thought enough. Inevitably some doubt is thrown upon all sales by accepting any excuse whatever, and the situation is the familiar one of balancing conflicting interests; but it seems to us enough that the owner has had no notice. Ordinarily, the prescribed procedure will not be ignored, so that such occasions will not often arise; when they do, the bidding has taken place without the bidder most interested to protect the property; it is in general regarded as of prime importance that a man should not lose his property without a hearing. Against these considerations the added uncertainty cast upon judicial sales does not appear to us a sufficient counterweight". Certainly such a situation justified the exercise of the judge’s discretion to refuse confirmation.

The recital incorporated in the decree by the amendment is riot material. Its purpose was clearly to allow the decree to stand, but not to forego any objection to the sale. The failure to give notice might indeed have even justified vacating the decree, had the claimant chosen to assert it; but it went further than that. It also vitiated the sale by keeping the claimant away, a grievance which the stipulation did not affect, but specifically reserved.

The decree is modified and the cause remanded with instructions to require the claimant as a condition upon retaking the ship to pay the marshal’s costs up to September 30, 1930; to restore to Hayes the amount of his bid and his outlay upon the ship, to be ascertained, together with interest upon both up to September 30, 1930; to allow the claimant thereupon to retake the ship; and to dismiss the libel. The costs of this appeal will rest upon the appellant.


text:
    UNITED STATES v. 10 BOTTLES OF SCOTCH WHISKY et al. SAME v. ONE ONE-QUART BOTTLE OF GLYCERINE et al.
    Nos. 337, 338.
    Circuit Court of Appeals, Second Circuit.
    April 6, 1931.

      Perkins & Bntler, of New York City, for appellant National Cash Register Co.
    Harry Edwards, of New York City, for appellant Domestic Electric Co.
    Leo De Nave, of New York City, of counsel, for appellants.
    Howard W. Ameli, U. S. Atty., of Brooklyn, N. Y. (J. Bertram Wegman, Herbert H. Kellogg, and Emanuel Bublick, all of Brooklyn, N. Y., of counsel), for the United States.
    Before MANTON L. HAND, and CHASE, Circuit Judges.
   L. HAND, Circuit Judge.

In the first ease the United States filed a libel of information to forfeit chattels, seized at 1286 Bedford Avenue, Brooklyn, among which was an “ice cube Frigidaire.” At that place one, Collins, “possessed” and had “custody and control” of “distilled spirits, subject to the tax imposed thereon by section 900 of the Revenue Act of 1926 [26 USCA § 245], and beer containing more than one half of one per centum of alcohol.” These Collins possessed for the purpose of selling in fraud of the Internal Revenue Laws “and with design to avoid the payment of said taxes.” ' The chattels were found and seized “within the place and building where the spirits and beer were seized.” The second libel alleged the seizure of another lot of chattels, among which was a cash register, at 140 Livingston Street, Brooklyn, where one, Powell, possessed certain liquor and beer with intent to defraud the revenue, and glycerine and alcohol to make gin for the same purpose. The chattels seized were “within the same place” as the liquor, beer and raw materials. The owner' of the Frigidaire in the first suit, and the cash register in the second, appeared, made claim, and excepted to the libels for insufficiency in law. The District Judge overruled the exceptions, and decreed a forfeiture, the claimants not wishing to plead over.

In Re Hurley (D. C.) 37 F.(2d) 397, 398, Judge Adler concluded that the clause in Rev. St. § 3453 (26 USCA § 1185) “all tools, implements, instruments, and personal property whatsoever,” must be confined to chattels used in the manufacture of raw materials into taxable articles with intent to defraud the revenue, and the Ninth Circuit adopted that view in Ryan v. U. S., 44, F.(2d) 951. This would dispose of the Collins suit, though not that of Powell. Judge Lowell held, in U. S. v. 33 Barrels of Spirits, Fed. Cas. No. 16,470, that the articles seized must be used in aid of the unlawful purpose, but, as the ease before him concerned manufacture, he had no occasion to say, and did not, whether the section applied when no manufacture took place. Judge Choate, in U. S. v. 16 Barrels of Distilled Spirits, Fed. Cas. No. 16,300, had before him a case involving the possession of finished spirits, possessed with intent to defraud the revenue, and he held that all personal property on the premises was confiscable, regardless of its connection with the unlawful purpose. He ameliorated the severity of the result by construing “place .or building” as including only those parts of the premises occupied by the possessor of the liquor. In U. S. v. One Ice Box (D. C.) 37 F.(2d) 120, Judge Woodward held confiscable the paraphernalia of a purveyor of liquors, who was not engaged in manufacture, the articles seized being, however, all in his possession in that part of the premises occupied by him. The same section was under discussion in U. S. v. Quantity of Tobacco, Fed. Cas. No. 16,106, and U. S. v. Distillery at Spring Valley, Fed. Cas. No. 14,963, but the point here at bar was not decided.

It appears to us that to construe the clause in question as limited to cases of manufacture. disregards the words, “such articles,” in the clause, “in the place or building, or within any yard or inelosure where such articles or raw materials are found.” 26 USCA § 1185. Except for the earlier form of this provision in the Act of 1864 (13 Stat. 240, § 48), there seems to be no room for doubt. The section begins by condemning all “articles” on which taxes are imposed. It extends this by the next sentence to “raw materials” intended for the manufacture of “articles of a kind subject to tax,” and concludes by including the tools, etc., in the place “where such articles or raw materials” may be. The apparent purpose was to cover the associates of manufactured articles as well as of raw materials ; nor is there any antecedent reason to impute any difference.

The Act of 1864 (13 Stat. 240, § 48) scarcely justifies the opposite view. Indeed, the clause was mere jargon, as originally enacted. It read as follows: “All tools * * * in the place or building * * * where such articles on which duties are imposed, as aforesaid, and intended to be used by them in the fraudulent manufacture of such raw materials, shall be found.” “Intended to bo used by them in the fraudulent manufacture of such raw materials,” does indeed more naturally refer to “tools, implements” and “instruments,” but the position of the clause does not permit of such attribution. Nor does it better the sense to assume a transposition of the clause, so as immediately to follow “property whatsoever.” The best escape, though it does much violence to the language, is to read the phrase as meaning, “and raw materials intended to be used by them in the fraudulent manufacture of such articles,” and this is the substance of the amendment of 1866 (14 Stat. Ill), when the section took its present form. Apparently the words were at once recognized as meaningless, and we think that the seeond version is alone to be taken as expressing the authoritative intent of Congress. Hence we hold that property is confiscable, when found in the same place or building as manufactured articles subject to tax.

It does not follow that the libels are good. The association of the chattels seized with the illicit liquor is alleged only by inference. In Collins’s case the libel alleged that “the premises 1286 Bedford Avenue” wer¿ within the Eastern District of New York, that Collins possessed the liquor “at the said premises,” and that the chattels seized were “in or within the same place and building” as the liquors. In Powell’s Case the allegations are in substance the same, except that the chattels are alleged to be “in or within the same place” as the liquors and raw materials. We adhere to the view of Judge Choate that the chattels must be in a part of the building occupied by the possessor of the illicit liquor, and we may add, in a part associated in use with that where the liquors are possessed. The opposite view would result in fantastic injustice which was certainly outside the purpose of the law. U. S. v. Stowell, 133 U. S. 1, 10 S. Ct. 244, 33 L. Ed. 555, concerned only a brewery, and it was necessary to decide no more than that the brewery was part of the same premises as the illicit distillery which had been set up within it. Upon exception we may perhaps read the libels as alleging that Collins or Powell occupied that part of the building where the illicit liquors were found, but it seems to us an undue extension to read the words “same place” as intended to mean that the other chattels were there as well. “Place” seems to have been used in the libels as the equivalent of the building at the street number mentioned, and it is consistent with the allegations that the chattels were anywhere in those buildings and that Collins or Powell were not in occupation of the part where they were. Hence, to succeed the libels must be amended to declare that the place where the chattels were seized was also in occupation of the possessor of the liquors, and was not divorced in use from that where the liquor or raw materials themselves were possessed.

This will not necessarily be enough. We do not now decide whether in addition it must appear that the chattels were in custody of the possessor, and if so, that they were being used as ancillary to the unlawful purpose. No doubt when the libels are amended the pleader will declare himself fully as to both these matters; we reserve judgment, since the questions may not arise.

Decrees reversed and causes remanded with leave to the libellant to plead over.


author: SWAN, Circuit Judge.

text:
    NORTH GERMAN LLOYD v. ELTING, Collector of Customs.
    No. 326.
    Circuit Court of Appeals, Second Circuit.
    April 6, 1931.

      George Z. Medalie, U. S. Atty., of New York City (George B. Schoonmaker, Asst. U. S. Atty., of New York City, of counsel), for appellant.
    John M. Lyons, of New York City (Roger O’Donnell, of Washington, D. C., of counsel), for appellee.
    Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.
   SWAN, Circuit Judge.

At various dates between December 22, 1924, and June 10, 1925, the plaintiff steamship company brought to the port of New York six aliens, each of whom was excluded by the immigration officials because of some physical defect which might affect his ability to earn a living. Aliens who are found to possess such defects and are so certified by the examining surgeon are excluded from admission to the United States by section 3 of the Immigration Act of 1917 (8 USCA § 136). Section 21, however, permits the Secretary of Labor to admit them in his discretion upon the giving of a suitable bond (8 USCA § 158); but it is not alleged that any of the six aliens in question was so admitted. With respect to each of them a fine was imposed upon the plaintiff under section 9 as amended (8 USCA § 145), which plaintiff paid under protest to the defendant collector of the port of New York. This suit was brought to recover the sums so paid, aggregating some $2,100.

The complaint contains six counts, each of which sets up a distinct cause of action based upon one of the several fines. Each count alleged transportation by plaintiff from Germany to the United States of an alien who exhibited a proper German passport *and a quota immigration visa issued by an' American consul; the exclusion and order to deport the alien because of a physical defect certified by the examining surgeon to be such as might affect his earning ability; the imposition of a fine upon plaintiff despite its submission of evidence to the Secretary of Labor in opposition to the proposed fine; plaintiff’s payment of the fine under protest, and defendant’s covering of part of the fine into the Treasury of the United States and delivery of the rest (the passage money) to the alien. These allegations the defendant’s answer admits. Eac-h count further alleged that the act of the Secretary of Labor in imposing the fine was without lawful authority and arbitrary; that in transporting the alien plaintiff acted on the visa of the American consul and the fact that the alien was a proper subject for admission under section 21 of the Immigration Act of 1917; that the alleged inadmissibility of the alien could not have been ascertained by the exercise of reasonable diligence by plaintiff prior to the alien’s departure from the port of embarkation; and that demand for payment had been made by plaintiff and refused by defendant. These allegations the answer denied. Upon these pleadings, judgment was entered for the plaintiff, and a certificate of probable cause was granted pursuant to section 989 of the Revised Statutes (28 USCA §»842).

By the terms of section 9 of the Immigration Act of 1917 as amended (8 USCA.§ 145), under which the Secretary of Labor assumed to act in imposing the fines upon plaintiff, no fine can be assessed unless “it shall appear to the satisfaction of the Secretary of Labor” that the physical defect of the alien “might have been detected by means of a competent medical examination” at the time of his foreign embarkation. This fact would seem to be put in issue by the plaintiff’s allegation that the inadmissibility of the alien was not then ascertainable by the exercise of reasonable diligence, and the defendant’s denial thereof. Hence a judgment on the pleadings can be sustained only if the issue raised can be said to be immaterial. Plaintiff so argues, and this view was accepted by the court below.

It is contended that since section 21 (8 USCA § 158) gives the Secretary of Labor discretion to admit upon bond aliens liable to be excluded because of physical defects which may impair their earning ability, such aliens must be privileged to come to the United States to invoke exercise by the Secretary of his discretion to- admit them,, and hence section 9 cannot reasonably be construed to impose a fine upon the transportation company which brings them here for that purpose. However persuasive this argument might appear if addressed to Congress, it cannot justify a court in overriding express statutory provisions to the contrary. Section 9 (8 USCA § 145) declares that “it shall also he unlawful for any person to bring to any port of the United States” physically defective aliens, and it expressly imposes a fine for so doing, if the Secretary of Labor be satisfied that the defect existed at the time of foreign embarkation and might then have been detected by a competent medical examination. The validity of similar provi-sio-ns in the Act of March 3, 1903 (32 Stat. 1215) was adjudged in Oceanic Steam Navigation Co. v. Stranahan, 214 U. S. 320, 20 S. Ct. 671, 53 L. Ed. 1013. By this language Congress expressly prohibited the bringing in of defective aliens. Of section 9 (8 USCA § 145) no less than of section 19 (8 USCA § 155) it may be said that it “is not aimed at the aliens of the excluded class, but at the owners of vessels unlawfully bringing them into this country.” United States v. Nord Deutscher Lloyd, 223 U. S. 512, 517, 32 S. Ct. 244, 245, 56 L. Ed. 531. Section 21 (8 USCA § 158) on the other hand, deals with aliens liable to be excluded because likely to become a public charge or because of physical disability (excepting certain named diseases), and says nothing concerning the owners of vessels who bring such aliens to this country. To hold that the latter section in effect repealed the former would ran counter to accepted canons of statutory construction. There is no necessary conflict between them. Moreover, the last sentence of section 9 (as amended by 43 Stat. 167 [8 USCA § 145]) forbids the construction contended- for. That sentence reads:

“Provided further, That nothing contained in this section shall be construed to subject transportation companies to a fine for bringing to ports of the United States aliens who are by any of the provisos or exceptions to section 3 of this Act exempted from the excluding provisions of said section.”

Some of the provisos in section 3 give the Secretary of Labor discretion to admit, and this was the basis of the decision in Dollar Steamship Line v. Hyde, 23 F.(2d) 910 (C. C. A. 9). Under the familiar maxim, “expressio unius est exclusio alterius,” this express reference to the provisos and exceptions to section 3 (8 USCA § 136) exhausted the exemptions from fine which Congress expressed the desire to grant to companies who should bring in aliens excluded by the terms of section 3. We may not add to this list by implication because section 21 also gives the Secretary discretion to mitigate harsh eases in favor of another class of aliens liable to be excluded. Section 21 had been on the statute books since 1907 (34 Stat. 907), and we ean not assume that the failure to refer to it in the last sentence of section 9, when that section was re-enacted in 1924, was mere inadvertence.

If the Secretary had exercised his discretion in favor of admitting the aliens, it may be that the vessel owner who brought them would incur no penalty. See Norddeutseher Lloyd v. United States, 213 F. 10, 14 (C. C. A. 2); Lloyd Sabaudo Societa, etc., v. Elting, 45 F.(2d) 405, 409 (D. C. S. D. N. Y.). That question is not now presented, for there is no allegation in complaint or answer that any of the aliens in question was admitted by the Secretary. Whatever the rale may be in that situation, it seems clear that the bringing of a defective alien who is not admitted by the Secretary falls squarely within the prohibition and the penalty of section 9. Nor is this conclusion inconsistent with our decision in Compagnie Erancaise de Navigation a Vapeur v. Elting (C. C. A.) 19 F. (2d) 773. There admission of the alien was not dependent upon the Secretary’s exercise of discretion. If the alien was, as he claimed to be, returning to a United States domicile, he was not in an excluded class, but was absolutely entitled to enter. Under the statute and the rules he was permitted to offer evidence in support of his claim, and this he could do only at a United States port. Under such circumstances, we held that a steamship company was not subject to fine for bringing him to this country though his claim was rejected. That doctrine cannot be extended to cover the case at bar for reasons already stated. The other eases cited by plaintiff, Clyde Steamship Co. v. United States, 33 F.(2d) 343 (D. C. S. D. N. Y.), and United States v. Compagnie Generale Transatlantique, 26 F.(2d) 195 (C. C. A. 2), are also clearly distinguishable. Lloyd Sabaudo Societa, etc., v. Elting, 45 F.(2d) 405 (D. C. S. D. N. Y.), is in accord with •our conclusion.

The plaintiff argues also that the alien’s possession of a proper passport with a quota immigration visa issued by an American consul precludes the imposition of a fine for the transportation of such alien. This is equivalent to contending that the Immigration Act of 1924 (43 Stat. 153 [8 USCA § 201 et seq.]) has abolished the requirement that a carrier determine at its peril by a competent medical examination at the port of foreign embarkation whether the alien is afflicted with a physical defect which excludes him from admission. The statute will not permit of such a construction. Section 25 (8 USCA § 223) expressly declares that the 1924 act is in addition to and not in substitution for the provision of the earlier immigration laws; and section 2(g), 8 USCA § 202(g), provides that the issuance of an immigration visa shall avail the alien nothing if he is found to be inadmissible upon arrival. While the statute is silent upon the subject of a medical examination prior to the issuance of a visa, the official instructions to consuls direct them to require immigrants to present medical certificates showing that they are not within any of the classes excluded by section 3 of the Act of 1917 (8 USCA § 136). This requirement was doubtless within the authority of section 2(f), 8 USCA § 202(f), but certainly there is nothing in the statute to support the conclusion that such medical certificates were to relieve the steamship companies of the obligation to make their own examination. On the' contrary, section 9 (8 USCA § 145), which imposes the fine if the defect might have been detected by the steamship company by means 'of a competent medical examination, was reenacted. The purpose of the 1924 act was more rigidly to restrict immigration, and a double examination would not be an unreasonable execution of that purpose.

It may be that, if the medical examination conducted under the direction of the consul did not disclose the physical defect which resulted in the alien’s exclusion, the Secretary of Labor would act unreasonably in determining that the defect existed and might have been discovered by the steamship company at the foreign port. That would turn upon whether the consul’s “medical examination” was a “competent” one, depending altogether on the circumstances of its making. We cannot hold as a matter of law that it was such, thus making the imposition of a fine arbitrary and unlawful. The pleadings raised- an issue as to whether the defect could have been discovered at the foreign port. That issue is material to the cause of action alleged. Consequently the judgment on the pleadings cannot be sustained.

Judgment reversed, and cause remanded.


text:
    MOUNT v. COMMISSIONER OF INTERNAL REVENUE.
    No. 132.
    Circuit Court of Appeals, Second Circuit.
    April 6, 1931.

      Clarence J. Hand and Larkin, Rathbone & Perry, all of New York City (John W. Drye, Jr., Hersey Egginton, and John M. Perry, all of New York City, of counsel), for petitioner.
    G. A. Youngquist, Asst. Atty. Gen., and Sewall Key and John H. McEvers, Sp. Asst. to Atty. Gen. (C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and R. N. McMillan, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for respondent.
    Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.
   SWAN, Circuit Judge.

The petitioner and his brother owned undivided half interests in real estate and personalty which they had acquired by inheritance from the estate of Susan Mount in 1917. In January, 1920, they caused to be organized a New York corporation, under the name of Clem Realty Company, with a capital stock of $1200, represented by twelve shares of stock. Forthwith they conveyed to it said real estate and possibly certain shares of bank stock, though there is much confusion in the record as to the stock. The Commissioner of Internal Revenue ruled that petitioner and his brother transferred the property to the corporation in exchange for its stock, resulting in a taxable gain under section 202 (b) of the Revenue Act of 1918 (40 Stat. 1060):

“(b) When property is exchanged for other property, the property received in exchange shall for the purpose of determining gain or loss be treated as the equivalent of cash to the amount of its fair market value, if any. * * *”

The Board of Tax Appeals confirmed the deficiency found. by the Commissioner, and the correctness of this ruling is presented by this appeal.

It is contended by petitioner that the twelve shares of stock were paid for in cash and the conveyance of the property was a gift to the corporation. But the corporate minutes, upon which he relies, do not bear out this contention. The resolution of acceptance provides that “the corporation shall take the properties at the values at which said properties were appraised in inheritance tax proceedings in the Estate of Susan Mount,” and further that, if upon appraisal of the various parcels of real estate there shall be an excess of value above that fixed by" the inheritance tax proceedings, such excess “shall be construed as a gift to the corporation.” There was no sense in speaking of the excess of value as a .gift unless the rest of the value was a consideration for some'-thing the corporation gave in return. It gave in return its shares. . It is true that it also agreed to indemnify the brothers against liabilities incurred or to be incurred in connection with another corporation known as Bronx Exposition, but such promise was backed by nothing except the assets obtained in exchange for its shares. The corporate minutes merely disclose a transparent at-' tempt to conceal the real nature of the trans-: action, which was to convert the individual ownership of the brothers’ property into ownership through a corporation whose shares should be equally divided between them.' Confirmation, were it needed, is found in the1 petitioner’s admission in the note attached' to his, income tax return, stating that the realty was conveyed in exchange for the “entire capital stock of the company.” The-Board was right in holding the transaction an exchange and not a gift.

The conveyance was made subject to existing mortgages, liens, and taxes. To provide a working capital, the Messrs. Mount agreed to supply $100,000, or such amount, up to that sum “as shall be realized from the sale of stocks received by them by inheritanee from Susan Mount upon liquidation of outstanding collateral loans, the corporation to have the right to take any or all of said securities up from time to time at the values at whieh they were appraised in inheritance tax proceedings,” and any excess over such; value to be received by the corporation as a gift. The brothers owned 538 shares of bank , stock acquired by inheritance. It may be inferred that this stock was taken over by the corporation at some time during the year 1920, though the record concerning it is most confused. It is impossible to tell when it was taken over, or what sum, if any, the corporation paid to release it from “outstanding collateral loans.” The Commissioner’s deficiency notice shows that he took 438 shares to have been transferred as of January 1, 1920, and apparently he valued it as of that date. The difficulties in sustaining a valuation as of that date are obvious, but we do not stop to consider this feature of the case, because even on the assumption that the bank stock may be treated exactly like the real estate, that is, that both were exchanged for the shares of the newly formed corporation, we think no taxable gain resulted.

Under the Revenue Act of 1921, § 202 (c) (3), 42 Stat. 230, such an exchange as this is explicitly excepted from taxation, and all subsequent acts express the same congressional intent; but the present ease must .be adjudged under the language of the 1918 act, already quoted. The exchange was taxable only if the shares had a “fair market value.” This is the clear implication of the statute and is the construction adopted by the Regulations. Regulations 45, § 1563. The Board made no finding that the shares had a market value; on the contrary, it said that no evidence was offered as to saleability or market value. As so frequently happens in tax cases,- the Commissioner relies upon the presumptive correctness of his determination. Wickwire v. Reinecke, 275 U. S. 101,105, 48 S. Ct. 43, 72 L. Ed. 184; Austin Co. v. Commissioner, 35 F.(2d) 910, 912 (C. C. A. 6). So the question comes down to how far we are to press the taxpayer’s burden of proof.

Here were six shares of stock out of a total of twelve held equally by two brothers, issued for a mixed lot of property composed of twenty-nine parcels of real estate incumbered by mortgages, liens, and taxes, and the equity in securities which had been pledged for collateral loans, the corporation itself also incumbered by an obligation to protect the brothers against indefinite obligations to creditors of Bronx Exposition. Such shares may have intrinsic value, but certainly the only reasonable inference is that they have no “fair market value.” See O’Meara v. Commissioner, 34 F.(2d) 390, 395 (C. C. A. 10); Holmes Fed. Income Tax (6th Ed.) § 332. As is said in section 1583 of Regulations 45:

“ * • • 'Market valué’ is the price at which a seller willing to sell at a fair price and a buyer willing to buy at a fair price, both having reasonable knowledge of the facts, will trade. Property received in exchange for other property has no 'fair market value’ for the purpose of determining gain or loss resulting from such exchange when, owing to the condition of the market, there can be no reasonable expectation that the owner of the property, though wishing to sell and any person wishing to buy will agree upon a price at which to trade unless one or the other is under some peculiar compulsion.”

There must be a limit beyond which the presumptive correctness of the Commissioner’s determination may not be stretched in order to defeat a taxpayer. On the facts appearing in this record, the burden which the taxpayer carried of establishing that there was no fair market value for his shares was sustained. The number of shares, their equal division, and the character of the property for which they were issued, required an inference that there was no market for them, in the absence of evidence of saleability or market value. This conclusion is in accord with the uniform holding of the courts, so far as we are advised, under similar circumstances. O’Meara v. Commissioner, supra; Tsivoglou v. United States, 27 F.(2d) 564 (D. C. Mass.), affirmed 31 F.(2d) 706 (C. C. A. 1); Bourn v. McLaughlin, 19 F.(2d) 148 (D. C. N. D. Cal.); Heafey v. Allen, 34 F. (2d) 941 (D. C. Neb.). Cf. Schoenheit v. Lucas, 44 F.(2d) 476 (C. C. A. 4). Our own recent decision in Insurance & Title Guarantee Co. v. Commissioner, 36 F.(2d) 842, is not inconsistent with this result, for there the Board had made a finding of market value based on actual sales of the new shares.

The order of the Board of Tax Appeals is reversed.


text:
    SHEARER v. COMMISSIONER OF INTERNAL REVENUE.
    No. 77.
    Circuit Court of Appeals, Second Circuit.
    April 6, 1931.

      Harry J. Campaign and George L. Shearer, both of New York City, for appellant.
    G. A. Youngquist, Asst. Atty. Gen., and Sewall Key and Norman D. Keller, Sp: Assts. to Atty. Gen. (C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and J. K. Polk, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for respondent.
    Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.
   L. HAND, Circuit Judge.

The taxpayer was one of a firm of attorneys in New York which kept its books upon a fiscal year other than the calendar year. His distributive share from the firm for the firm year ending in 1922 was large, and he included it in his return for that year as required by section 218 (a) of the Revenue Aet of 1921 (42 Stat. 245). In calculating his tax he split the share into two parts; that is to say, he calculated one tax upon the proportion allocable to 1921 as though it were alone, and another upon the remainder allocable to 1922, on t]ie same assumption. The Commissioner computed the tax upon the part allocated to 1922 at the rates for that year, including a surtax as though that part were alone included. To this he added a second tax calculated upon the part allocated to 1921 at the rates for that year, including a surtax as though that part were an addition to the part allocated to 1922. The surtax was therefore made up by putting the 1922 part in the lower “brackets” and the 1921 in the higher, and applying the rates accordingly. The Board affirmed the Commissioner and the taxpayer appealed.

During 1922 the taxpayer bought a motorcar, for which the dealer charged him by entering the excise tax under section 900 of the Aet of 1921 (42 Stat. 291), as an item separate from the purchase price, as provided in Article three of Regulations 47; the dealer in this way avoiding a tax upon any part of the separate item. This tax the taxpayer claimed the right to deduct from his income under section 214 (a), (3), 42 Stat. 239, and the Commissioner disallowed it. The appeal is also from the decision of the Board affirming this rule.

As to the first point, the difficulty arises from the omission from the Act of 1921 of section 206 of the Aet of 1918 (40 Stat. 1062), a confessed inadvertence corrected in the Act of 1924. That section had provided, and section 207 of the Act of 1924 (26 USCA § 938) later did provide, that when a partner’s distributive share from his firm fell in separate years, the surtax should be computed as the Commissioner proceeded in the ease at bar. By Article 335 of Regulations 62 he continued this method for the year 1922, and relies upon his power to do so here. Section 205 (c), which remained in all three acts (40 Stat. 1061, 42 Stat. 232, 26 USCA § 938 (b), provided that the rates for each year should “apply” to that part of the partner’s share allocable to that year, and that the share should be allocated proportionately to the fraction of each calendar year included in the firm year. We have first to consider what is the result of the Act of 1921, disregarding the repeal of section 206, and then how far that repeal changes the result.

In express terms section 218 (a) required the whole share to be included in the return for the later year; thus precluding the addition of the earlier part to the other income of the earlier year. The taxpayer’s method not only treats the earlier part as though it had accrued in the earlier year, but as though it were the only income of that year, since he does not, and of course could not, include it in his 1921 return. This is in effect to tax it as the whole income of another person received or accrued in 1921, though returned in 1922. It seems to us apparent that this result could not have been intended; section 218 (a) by requiring the whole share to be returned in one year, must have meant that the surtax should be computed upon it as though it were received in a single year. Section 205 (e) does not meet this inference; it does indeed distribute the rates of 1921 and 1922 among the allocated parts, but it does not suggest that the share shall lose its character as an entirety. The rates for each year may equally “apply” to the part allocated to that year, though the second part, whichever be chosen as second, be taken as part of a whole, that is, though it be placed in the higher “brackets.” Thus, regarding alone the relevant sections of the Act of 1921, the taxpayer’s pretension to treat the part allocated to 1921 as though it were a separate income for that year seems without warrant.

Nor do we think that the repeal of section 206 justifies an opposite inference. That section was designed to establish a special order in which the rates should be applied; the earlier rates to the later parts, the later to the earlier. The repeal can at most be understood as no more than to abrogate that method, which was indeed contrary to what would naturally have been selected. So far indeed we hold that it went, whether or no it was inadvertent. While at times the subsequent action of Congress has been held to throw light upon what had gone before, we know of no case where a repeal has been held to be brutum fulmen, because the repealed provision was later reinstated.

We are thus brought to the question whether the Commissioner had power to preserve the old method, despite the repeal. On the whole it seems to us that he had not. Had section 206 not been repealed, it would perhaps have been possible to say that the order in which the parts should be taken was within the compass of the Commissioner’s legislative powers, though even that is doubtful. Section 205 (c) in applying the rates of each year to the part allocable to that year, if taken by itself, can scarcely be supposed to have meant to invert the actual sequence in the accumulation of the income. True, the allocation is arbitrary, since it will seldom be that an income accrues proportionately with the lapse of timé. Nevertheless, the effort was to avoid perplexing inquiries by establishing a rule which in the long run would conform with the facts; not to disregard the fact that an income is accretive, and that the first part, whether or not it be arbitrarily computed, must accrue in the earlier period.

But whatever may be thought of the propriety of that interpretation, when the Commissioner has otherwise provided, it appears to us conclusive when coupled with the repeal itself. Section 206 having prescribed the inverted method, its repeal, unless we permit ourselves to disregard it because it was not deliberate, can only be understood as relieving the computation from this prescription, and to require the part allocated to the earlier year to be treated as the first part to accrue. It appears to us therefore that between 1918 and 1924, the law required the part allocable to the earlier year to be placed in the “lower brackets,” and that allocable to the later year to be placed in the higher. While this makes only a trifling difference to the taxpayer at bar, we think him entitled to so much relief.

As to the second point, the motor tax is imposed upon the dealer, not the purchaser. Section 900' (42 Stat. 291) levies an excise upon “the following articles sold * * * by the manufacturer,” and if it had been theoretically open to argument whether the dealer or the buyer was the subject of the tax, the question was set at rest by Lash’s Products Co. v. U. S., 278 U. S. 175, 49 S. Ct. 100, 73 L. Ed. 251. In that case a similar tax under section 628 of the Act of 1918 (40 Stat. 1116) was held to be imposed upon the dealer, and to be part of the purchase price upon whieh the percentage should be computed, though this results in taxing the tax itself when it has been “passed on” to the customer. Indeed, except that the regulation of the Commissioner to that effect had been confirmed by subsequent statute, it was intimated that no difference would arise, when the dealer separately “bills” the customer for the tax. We follow the language of the opinion in holding that, however set up in the sale, the tax is a part of the purchase price and that the dealer, and he alone, pays it.

It is true that, so looked at, the sum when collected by the dealer is treated as part of his gross taxable income from which he makes the deduction, though this income by hypothesis comes to him only because he must pay it out to the government as a tax. If the final incidence of the burden be traced, no doubt the only income, properly speaking, which has borne the tax is the customer’s, for it is a fiction to treat as income a sum received by the dealer, which, except for the tax, would never have come to him at all. In substance, therefore, we must agree that the only person who has suffered any diminution of what would otherwise have been an income, is the customer, and that a nicer accommodation of the tax to economic burdens would have distinguished between cases in which the tax could be shown to have been added, and those where the dealer had to bear it. But the final incidence of taxation is not a measure of the person on whom the tax is levied, and it seems to us that the form of the statute must control. The- fact that the Act of 1928 (26 USCA § 2001 et seq.) excluded those dealers who had succeeded in throwing the loss upon their customers, indicates no more than that Congress did not wish to make them a gratuity; it does not determine the original character of the tax.

Deeree modified in accordance with the foregoing.


author: CHASE, Circuit Judge

text:
    BRIEF ENGLISH SYSTEMS, Inc., v. OWEN et al.
    No. 317.
    Circuit Court of Appeals, Second Circuit.
    April 6, 1931.

      Arthur A. Beaudry, of New York City, for appellant.
    Clarence M. Crews, of New York City (Edgar M. Kitchin, of Washington, D. C., and White & Case and William St. John Tozer, all of New York City, of counsel), for appellee.
    Before MANTON, L. HAND, and CHASE, Circuit Judges.
   CHASE, Circuit Judge

(after stating the facts as above).

In so far as the plaintiff claims to have the exclusive right to the use of a published system of shorthand, this suit must fail. There is no literary merit in a mere system of condensing written words into less than the number of letters usually used to spell them out. Copyrightable material is found, if at all, in the explanation of how to do it. Guthrie v. Curlett et al. (C. C. A.) 36 F.(2d) 694, 696. Without suggesting that anything in its shorthand system this plaintiff would retain by copyright for itself alone might have been the subject of a valid patent, it may be said that the way to obtain the exclusive property right to an art, as distinguished from a description of the art, is by letters patent and not by copyright. For present purposes it is enough to recognize that the plaintiff’s shorthand system, as such, is open to use by whoever, will take the trouble to learn and use it. Baker v. Selden, 101 U. S. 99, 25 L. Ed. 841; Griggs v. Perrin (C. C.) 49 F. 15.

From this it follows that the claimed infringement by Owen’s book should be determined exactly as though he had been writing about the Dearborn shorthand system instead of one he claimed to have originated himself. When the copyrighted works and the claimed infringement are examined for piracy of composition, no substantial appropriation of manner, method, style, or literary thought can be perceived. Once concede that the defendant Owen could lawfully write, or write about, any system of shorthand his ability permitted and his book has nothing of consequence in common with what is covered by the plaintiff’s copyrights. The manner of treatment is substantially dissimilar and original. Without proof of the kind of appropriation mentioned above, the plaintiff has no cause of action. Baker v. Selden, supra; Griggs v. Perrin, supra; Chautauqua School of Nursing v. National School of Nursing (C. C. A.) 238 F. 151; Dymow v. Bolton (C. C. A.) 11 F.(2d) 690; Nutt v. National Institute (C. C. A.) 31 F.(2d) 236, 239; Holmes v. Hurst, 174 U. S. 82, 19 S. Ct. 606, 43 L. Ed. 904; Edwards & Deutsch Co. v. Boorman et al. (C. C. A.) 15 F.(2d) 35:

Decree reversed.


text:
    THE WHITE CITY.
    No. 319.
    Circuit Court of Appeals, Second Circuit.
    April 6, 1931.
    Florence J. Sullivan, of New York City, for appellant.
    James E. Freehill and Neil P. Cullom, both of New York City, for appellee.
    Before MANTON L. HAND, and CHASE, Circuit Judges.
   L. HAND, Circuit Judge.

The libellant is the assignee of one Frost, who is the owner of a motor yacht, “The Drifter,” built for him by'the Consolidated Shipbuilding Company, which had promised to deliver her at Port Newark, New Jersey. The builder’s yard was at Morris Heights, New York, and the yacht had to be towed down the Harlem and East Rivers through the Bay, the Kills, and into Newark Bay. For this purpose it made a contract with one Simpson to tow her and her cradle alongside & steamer at Port Newark. Simpson, finding it impossible to tow with his own vessel, substituted the claimants’ vessel here in suit, the “White City,” which undertook the work. She took the yacht and cradle upon a hawser and started out, there being no one on the tow ■except a servant of the builder, whose duties were no different from those of the ordinary bargee, and whom we shall consider to have been such. Due to delays in starting and en route, the “White City” did not reach Port Newark in time te deliver the yacht that day, and tied up for the night at a place called Fisher’s Dock in Bayonne. The bargee, not wishing to stay aboard, announced that he would leave, to which the master of the “White City” did not object] and he left. The next morning the steamer again got under way and delivered the yacht and cradle to the proper consignee before breakfast.

The libellant proved that the yacht had been delivered in good condition to the “White City,” and, upon evidence which satisfied the judge, that when delivered at Port Newark a hole had been stove in her side near the water line, for the cost of repairing which he sued. We see no reason to question the conclusion that the hole was made during the trip, and we dispose of the case upon that assumption. The claimants did not prove when or how the accident happened, or what care they took while towing, or indeed anything except the course they took, that they put fenders about the yacht while she lay at Fisher’s Dock, and that in the morning she was in the same condition as when they took her. They suggested that a piece of driftwood, of which there was much in the Bay at that season, might have stove in the yacht’s side, but this was merely an assumption. If a presumption of negligence arose from the mere fact of the delivery of the yacht in damaged condition, it had not been met. It extended to explaining how the injury occurred, or else that, however it did, it was not caused by their neglect. The testimony was too scanty to meet this test. The judge held that such a presumption existed from the contract, and that as it had not been rebutted, the libellant should recover. The claimants appealed.

There is no doubt that a towage contract, simplieiter, does not put the tow in bail to the tug (The Webb, 14 Wall. 406, 20 L. Ed. 774; Eastern Transportation Line v. Hope, 95 U. S. 297, 24 L. Ed. 477), but when the tow has no one in charge it has repeatedly been said, though generally obiter, that a bailment results [The D. Newcomb (D. C.) 16 F. 274; Bust v. Cornell Steam-Boat Co. (C. C.) 24 F. 188; The Seven Sons (D. C.) 29 F. 543; McWilliams Bros. v. Director General, 271 F. 931 (C. C. A. 2); The James McCue (D. C.) 37 F.(2d) 934; Delaware Dredging Co. v. Graham (D. C.) 43 F.(2d) 852]. Nor does the presence of a bargee change the relation. The Merrimac, Fed. Cas. No. 9478; The Princeton, Fed. Cas. No. 11433a, affirmed Fed. Cas. No. 11434; The Genessee, 138 F. 549 (C. C. A. 2); Doherty v. Pa. R. R. Co., 269 F, 959 (C. C. A. 2).

In the ease 'of charters which are demises, we have often held that redelivery in damaged condition raises a presumption of negligence which the demises must explain. Terry & Tench Co. v. Merritt & Chapman (C. C. A.) 168 F. 533; White v. Upper Hudson Stone Co. (C. C. A.) 248 F. 893; Schoonmaker, Conners Co. v. Lambert Transp. Co. (C. C. A.) 268 F. 102; Bushey v. Hedger (C. C. A.) 40 F.(2d) 417; Cummings v. Pa. R. R. Co. (C. C. A.) 45 F.(2d) 152. Swenson v. Snare & Triest Co., 160 F. 459 (C. C. A. 2), though at times cited for the same doctrine, is scarcely an authority, because the nature of the injury was such as to justify an inference, independent of presumption. We are committed in such cases to the doctrine which the District Judge applied to the towage of a barge manned only by a bargee. In principle we cannot distinguish between that and the situation at bar; and if free to choose we should follow the decision below. The reason for imposing a presumption appears to be here quite as strong as in demises; that is, the greater opportunity of the bailee to explain the injury, due to the immediacy of his access to the barge and the bailor’s absence. Though a distinction might have been drawn when a bargee is present, none ever has been, and the only ground we can imagine is that in a demise the period of custody is usually longer, not a satisfactory difference.

Our own decisions seem to us, however, to have too strongly established an exception to justify a departure now. Whether this has arisen from confusing an ordinary tow-age contract, where the owner of the tow remains in possession, with a contract like this where the tow is unmanned or manned only by a bargee, we cannot tell. Probably the doctrine generally applicable was carried over to this situation without observing the difference; so far as it appears, the anomaly has not hitherto been observed. The first case in this court that we have found is The Genessee, 138 F. 549, 550, where the tug was held because of “an accident such as in the ordinary course of things does not happen when a bailee uses due care”; but this is inconclusive as to the absence of a presumption arising from injury alone. The decision depended upon an inference from the evidence, as was also true in The Wyomissing, 228 F. 186; Kiernan v. Lake Champlain Transp. Co., 273 F. 499; The Primrose, 42 F.(2d) 827; and The Fred’k Lenning, 45 F. (2d) 691, all decided by this court.

In The Winnie, 149 F. 725, we spoke of the burden of proof alone, which is indisputably upon the bailor, and which has nothing to do with a presumption, though the two are often confused. The tug had made proof, and there was no need for discussing presumption; nor did we do so. The next case was The R. B. Little (C. C. A.) 215 F. 87, where it was doubtful whether the injury had happened during the towing. There was no proof as to what caused it, but wé dismissed the libel, using language equivalent to saying that there is no presumption. If proof of any kind does away with, “rebuts,” the presumption, this case is not an authority. That however is not the limit of its office, if it exists at all. While it ceases to play any part in the result as soon as the claimant has discharged his duty of “going forward,” yet if he cannot explain the injury, he must at least put in some proof to negative the existence of negligence in its occurrence. Once he has done that, the libellant must satisfy the judge of the fault. So understood, the R. B. Little, supra, seems to be a holding against such a presumption; the tug had not satisfied it, if it existed.

In The Clarence L. Blakeslee (C. C. A.) 243 F. 365, 366, the facts were all in evidence and showed just how the.barge had been damaged. Strictly therefore it was necessary to hold no more than that the libellant had failed to carry the burden. Nevertheless, we went further and said that negligence is “not presumed merely because the injury is not otherwise accounted for,” though The Winnie, which we cited, was scarcely an authority for that statement. In Aldrich v. Pa. R. R. Co. (C. C. A.) 255 F. 330, the barge had been stove in during the night, and nobody could explain how it had happened. Had she been on charter the bailee would have been-liable; his immunity could rest only upon the absence of any presumption in a towage contract. In The Greenwich (C. C. A.) 270 F. 42, the whole situation was brought out, and our comment that the injury raised no presumption was obiter; nevertheless, it shows the doctrine which we supposed applicable. The same is true of The W. H. Baldwin (C. C. A.) 271 F. 411. The libel in Hildebrandt v. Flower Lighterage Co. (D. C.) 277 F. 436, affirmed without opinion in (C. C. A.) 277 F. 438, was against, both tug and charterer, and the case was disposed of on a different theory as to each. Against the charterer a presumption was assumed, but not so against the tug,'whose negligence the libellant was called upon to prove. In Brigham v. Cornell Steamboat Co., 18 F. (2d) 92, we concluded that the breaking adrift, was due to the fault of the bargees, but we-said that the tow must prove negligence, by which we meant that it must so prove it in the first instance. We read The Ellen McGovern (D. C.) 27 F. 868, as imposing liability because of an inference of fact, though it is true that Brown, J., spoke of the burden of proof thereby thrust upon the tug, a not altogether clear statement.

The Seven Sons (D. C.) 29 F. 543, is a holding to the contrary, but not in this circuit. The Sea Lion (D. C.) 12 F.(2d) 124, Southgate v. Eastern Transp. Co., 21 F.(2d) 47 (C. C. A. 4), and The Ashwaubemie, 3 F.(2d) 782 (C. C. A. 4), contain at least dicta in accord with our view. We understand Delaware Dredging Co. v. Graham (D. C.) 43 F.(2d) 852, to hold that there is a presumption which does not extend, however, to explaining the cause of the injury. To neither of these propositions can we assent; first, we think that there is no presumption; second, if there were, that the bailee must explain the cause of the injury, or, if he cannot, that it was not due to his neglect. While we cannot find that there has been an authoritative ruling to the. contrary elsewhere, we should be bound by our- own decisions in any event. We think that they have settled the doctrine that in towage cases it makes no difference that the tow is in the possession or custody of the tug, and if so, the libellant did not make out a case.

Decree reversed; libel dismissed.