author: ALSCHULER, Circuit Judge.

text:
    WARK v. ERVIN PRESS CORPORATION.
    No. 4492.
    Circuit Court of Appeals, Seventh Circuit.
    March 20, 1931.

      Irving Breakstone, of Chicago, Ill., for appellant.
    J. Robert Cohler and Samuel E. Hirsch, both of Chicago, Ill., for appellee.
    Before ALSCHULER, EVANS, and SPARKS, Circuit Judges.
   ALSCHULER, Circuit Judge.

In this ease bill and answer were filed, and, on motion of plaintiff for a decree pro eonfesso, decree was entered accordingly.

The bill charged that the plaintiff had established a business of creating, manufacturing, and selling an advertising service for those engaged in the business of dry cleaning; that plaintiff had customers and business in all parts of the country; that in December, 1927, appellant, Wark, entered plaintiff’s employ as a traveling sales manager at $85 a week, remaining in such capacity until March, 1929, when the employment ended; that after about six months he re-entered plaintiff’s employ as its special sales executive, under written agreement for service from September 1, 1929, to December 31, 1930, at $150 a week.

The sixth paragraph of the agreement (set out in the margin) provides, in substance, that if, with or without cause, the agreement shall terminate, Wark will not thereafter reveal any of the employer’s trade secrets, nor enter into nor be connected with any other business which sells or supplies advertising material for dry cleaners, and that he will not, for a period of five years from cessation of the employment, engage in the dry cleaning business or be employed in any capacity by any person or corporation engaged in the dry cleaning business, except in the states of New Mexico, Arizona, Montana, North and South Dakota, and Delaware.

The bill further charges that Wark, through his employment and contact with the trade, became acquainted with the plaintiff’s business methods and customers in various parts of the United States through personal calls upon the customers and through meeting them at conventions of the dry cleaning industry, and that on or about January 30, 1930, Wark left plaintiff’s employ, and in February entered the service of C. E. Falls Service Company, another corporation likewise engaged in creating and selling advertising service to dry cleaners; that Wark thereupon availed himself of his knowledge of plaintiff’s business and its business secrets, and of plaintiff’s lists of customers and prospective customers, employing all this knowledge for the benefit of his new employer, and soliciting plaintiff’s customers by personal calls and by correspondence, whereby plaintiff has been and will be greatly damaged; and that such conduct was contrary to Wark’s undertaking in and by 'said agreement.

The bill asks for temporary and permanent injunction restraining Wark from disclosing any of the business methods or secrets of plaintiff, from remaining in the service of his new employer, or from being connected with any such business'for such period of five years in the territory above specified, and from using, or enabling others to use, lists of plaintiff’s customers or prospective customers.

A temporary injunction was granted restraining Wark from disclosing to his then employer, or to any other person, any of the secret business methods or other secrets of the plaintiff, and from soliciting customers or prospective customers of plaintiff whose names were obtained or made known to said Wark while in plaintiff’s employ, and from in any manner using names or lists of names of customers or prospective customers of plaintiff obtained by him while in plaintiff’s employ.

Answer to the bill was filed, in which it was admitted that plaintiff was engaged in the business described in the bill, and that’ plaintiff solicits practically all the leading dry cleaning establishments in the United States. The answer admits the execution of the written agreement, but denies that plaintiff disclosed to Wark any trade or business secrets and lists of customers and prospective customers, but stated that Wark made his own contacts and solicited those engaged in the dry cleaning business wholly from names obtained from trade journals and financial reports. It denies that plaintiff possessed any trade secrets or secret methods of doing business, but stated that its method of designing and producing its products was well known to all those engaged in similar business.

The answer further states that on January 30, 1930, Wark was discharged by plaintiff without cause, and that thereby he was relieved from the obligations of the contract; that he thereafter entered into the service of his then employer as sales manager, and that said employer was and is a competitor of plaintiff and likewise engaged in selling advertising service to dry cleaners, but that its service is in a far broader field, and is not confined exclusively to dry cleaners, as is that of plaintiff; that approximately only half of said employer’s business is devoted to the dry cleaning trade; that Wark does not in any manner participate in designing the advertising service of his employer, nor ip creating and manufacturing it; that said employer solicits the entire dry cleaning trade from its own catalogs and lists of customers, which are compiled as the result of its own efforts, and entirely independent of plaintiff or of any compilation on'the subject by the plaintiff; that said employer was familiar with the entire advertising service and business methods and distribution to the trade of such product long before the time of plaintiff’s employment of Wark; that Wark’s services to plaintiff were not extraordinary or unique; that he has not, since employed by said employer, made use of any trade secrets or methods of plaintiff, or solicited any of plaintiff’s former customers or prospective customers; and that he has not circularized any lists of customers or prospective customers of the plaintiff, or personally solicited any of them. But the answer admits that Wark has sent announcements to personal friends in the trade, advising them of his new connection and employment.

The answer further alleges that Wark’s duties with plaintiff were such that they could be satisfactorily performed, and are being performed, by others, without any difficulty to plaintiff in engaging a successor equally capable, and denies that plaintiff has suffered any damage as a result of Wark’s change in employer. The answer further alleges that paragraph 6 of the agreement is unilateral, unreasonable, unconscionable, and lacking in mutuality, both as to obligation and remedy, and therefore void.

The final decree made permanent the preliminary injunction, and further restrained the defendant, for five years from January 20, 1930, from being associated or employed by or from participating in the business of his then employer, and from being connected with, or entering or engaging in, within the United States, except the above named six states, any business of selling or "supplying •advertising or display service in any form to dry cleaners, and from being engaged or employed in any capacity by any association of dry cleaners. -

Coneededly the plaintiff was not entitled to any relief concerning any allegations of the bill which were sufficiently denied by the answer. The answer sufficiently denied that the plaintiff in its business possessed any trade secrets or secret methods of doing business, and that Wark had imparted to the Falls Service Company any secret information of plaintiff’s business, or had given that employer any list of plaintiff’s customers or information respecting plaintiff’s business, and denied that plaintiff sustained any damage by reason of any of defendant’s alleged acts or doings.

The preliminary injunction was limited to restraining defendant from disclosing to his new employer, or any other person in the dry-cleaning industry, plaintiff’s business secrets and secret business methods, and from soliciting customers or prospective customers of plaintiff whose names became known to defendant while in plaintiff’s employ. Since the answer sufficiently denies that plaintiff had any trade secrets or secret methods of transacting its business whereof Wark became possessed, so much of the final decree •as makes permanent that part of the preliminary injunction against making such revelations is unwarranted, and, to that extent, the final decree should in any event be modified.

The answer, while denying generally the solicitation of plaintiff’s customers, does not specifically deny the writing of letters, one of which the bill sets forth, or the allegation that other letters of similar nature were written by Wark to customers of the plaintiff, with whom Wark had, while in plaintiff’s employ, come in business contact. The letter which the bill sets forth plainly indicates direct solicitation of this customer of plaintiff for the new employer. As to the writing of such letters, the answer admits that Wark sent announcements to personal friends of the trade, advising them of his new connection. It does not deny that such personal friends in the trade were also plaintiff’s customers in the dry cleaning business as alleged, nor that the letters were, to all intents and purposes, a bid for business relations on behalf of the new employer. The answer also admits that the new employer was engaged in the business of supplying advertising matter for dry cleaners, although alleging it was advertising of a different kind. Nevertheless in its relation to dry cleaners it was in direct competition with plaintiff’s advertising business.

To the extent, therefore, that the answer admits, or does not deny, material allegations of the bill, so much of the decree as is predicated upon the allegations so admitted, or not denied, must stand, if the matters are such as, if proved, would entitle plaintiff to the decree.

The answer alleges that there was nothing extraordinary or unique about Wark’s services, and that he could be replaced without injury to his former employer, and that therefore the negative or restraining covenants of paragraph 6 of the contract are not enforceable. The trend of modem authorities is that such covenants, when reasonably limited as to time and place, and when reasonably calculated to protect the lawful business of the employer, will be enforced, even though the service is not of that unique and special nature as has often been the subject of judicial consideration. Erikson v. Hawley, 56 App. D. C. 268,12 F.(2d) 491; Eureka Laundry Co. v. Long, 146 Wis. 205,131 N. W. 412, 35 L. R. A. (N. S.) 119; Walker Coal & Ice Co. v. Westerman, 263 Mass. 235, 160 N. E. 801; 32 C. J. 220.

The circumstances here presented tend to indicate that Wark was considered by plaintiff to be, and he was in fact, a particularly useful and valuable employee. His experience with such business began with his first employment by plaintiff. His salary was comparatively large, but for some reason the employment ceased after somewhat over a year, and then the new contract was made at an initial salary nearly double what it had been.

The mere statement of the fact would indicate that in the course of such employment the good will of plaintiff’s business was, in considerable degree, in the hands of this employee, and it was to protect the good will of the business that paragraph 6 was made a part of the agreement.

It is true that the territorial limit of his restriction is large — all of the United States save six of the less important states — but plaintiff’s trade, as well as that of the competitor, extended all over the United States, and so presumably did the business contacts of Wark, made during his employment with plaintiff. Under the circumstances, we cannot say that the territorial limit of the covenant, nor its tíme limit, were more tfian sufficient reasonably to protect plaintiff’s business and good will. Harrison v. Glucose Sugar Refining Co., 116 F. 304, 58 L. R. A. 915 (C. C. A. 7th); Davis et al. v. A. Booth & Co., 131 F. 31 (C. C. A. 6th).

It is contended that the agreement is unilateral because there was no agreement to give Wark employment for any specified time, but would be effective in case from any cause, .or without cause, the employment ceased. We do not think this is essential to the lawfulness of such covenant.. If such a covenant were made in bad faith, with intent on the part of the employer that the employment would be only long enough to bind the employee to the covenant, and with a view only of preventing him from working elsewhere, a different situation would be presented. The facts disclosed by the pleadings do not raise a suspicion of the bona tides of the contract; and, made as it was in the view of Wark’s previous employment with plaintiff, and his knowledge of its business, we can reach no other conclusion than that there was consideration for Wark’s promise, and that paragraph 6 is valid and enforceable. Meurer Steel Barrell Co., Inc. v. Martin, 1 F.(2d) 687 (C. C. A. 3d); Hunt v. Stimson, 23 F.(2d) 447 (C. C. A. 6th).

The denial in the answer that Wark voluntarily quit the employment, and his allegation that without cause he was discharged by plaintiff, will not affect the merits of the controversy, unless possibly, as above suggested, the discharge was in pursuance of a fraudulent purpose on the part of the employer not to give employment to Wark, but only to prevent him from being employed by others. Under such a covenant it is not important whether the employee was discharged or voluntarily left the employment. Cali v. National Linen Service Corp., 38 F.(2d) 35 (C. C. A. 5th); New York Linen Supply Co. v. Schachter, 125 Misc. Rep. 805, 212 N. Y. S. 72.

We are of opinion that the decree should be limited to enjoining Wark for the five-year period from retaining employment with C. B. Falls Service Company, and from soliciting on behalf of said C. B. Falls Service Company, or any other person or persons directly or indirectly engaged in the business of supplying advertising service to dry cleaners, the names of any customers of plaintiff who, to Wark’s knowledge, were such during the time of his employment with plaintiff, and from directly or indirectly soliciting any such customers on behalf of any person engaged in supplying'advertising service to dry cleaners dpring the period or within the territory as specified and/or in the decree. The decree is directed to be thus modified, and thereupon to be affirmed. Bach party shall pay one-half of the costs of this appeal.

       “Sixth: Upon the termination of this agreement or of any modification, renewal or extension thereof. whether such termination takes place in accordance with the provisions of this agreement or for any reason whatsoever, whether with or without cause, the Employee agrees that he will not thereafter reveal the business methods of the Employer or any of the business secrets of the Employer to any one at any time and that he will not practice or make use of them himself, nor will he enter into, engage in, or be connected with any business selling, leasing or supplying advertising, advertising materials or advertising or display services in any form to dry cleaners or men’s or women’s wearing apparel stores, or to any one connected with the dry cleaning industry or with men’s or women’s wearing apparel stores, either directly or indirectly, in his own behalf or for any person, persons, firm or corporation; and the Employee further agrees that he will not go into, or engage in, the dry cleaning business or be employed in any capacity by any person, persons, firm or corporation; and the Employee further agrees that he will not go into, or engage in, the dry cleaning business or be employed in any capacity by any person, firm or corporation engaged in the dry cleaning business, or by any association of dry cleaners, for a period of five years from the date of such termination, any where in the United States, except that he may work for dry cleaners or men’s or women's wearing apparel stores and may sell advertising, advertising materials or advertising service to dry cleaners or men’s or women’s wearing apparel stores, in the States of New Mexico, Arizona, Montana, North Dakota, South Dakota and Delaware.”


source: Caselaw Access Project

author: LEWIS, Circuit Judge. McDERMOTT, Circuit Judge

license: Public Domain

text:
    UNITED STATES v. AMALGAMATED SUGAR CO. et al.
    No. 39.
    Circuit Court of Appeals, Tenth Circuit.
    March 5, 1931.
    Charles R. Hollingsworth, U. S. Atty., of Salt Lake City, Utah (Seth W. Richardson, Asst. Atty. Gen., and Nat M. Lacy, Sp. Asst. to Atty. Gen., on the brief), for the United States.
    Emmett M. Bagley, of Salt Lake City, Utah (Robert L. Judd and Paul H. Ray, both of Salt Lake City, Utah, and T. H. Devine, of Pueblo, Colo., on the brief), for appellee Amalgamated Sugar Co.
    Before LEWIS, COTTERAL, and MeDERMOTT, Circuit Judges.
   LEWIS, Circuit Judge.

This is an appeal from an order of June 30, 1928 dismissing appellant’s amended bill of complaint, brought to recover eighty acres of land in Utah which had been certified to that state by the Secretary of the Interior and the Commissioner of the Land Office under sections 12 and 13 of Act of July 16,1894 (28 Stats. 110). The amended bill alleged that Godfrey Euhriman, now deceased, and Ferdinand Zollinger, Jr., with others whose names are unknown to' plaintiff, formed a plan to obtain title to certain lands of plaintiff, including the eighty acres here involved, by inducing said state to select the said eighty acres and other lands under said statute by falsely representing that they were non-mineral in character, when they well knew said eighty acres contained valuable mineral deposits, to wit, limestone; that Godfrey Fuhriman on or about April 3, 1903, made and filed with the state of Utah an application to purchase certain lands including the eighty acres, and in support thereof he, at the same time, made a false affidavit therein stating there were not within the limits of said land mineral deposits; that the state in reliance upon the representations made by the said Fuhriman and pursuant to said application did on or about April 10, 1903, file with the Commissioner of the General Land Office its selection list,, including among the lands selected by it under said statute for the establishment and maintenance of an institution for the blind as provided in said act, the said eighty acres; and thereafter, on or about October 10, 1903, the Secretary of the Interior approved the selection of said eighty acres, and said eighty acres was on December 3, 1903, certified by the Commissioner to the state of Utah; that in approving and certifying said eighty acres the Secretary and Commissioner relied upon the false statements as to the non-mineral character of said land, and the statements and representations of the state of Utah as to its non-mineral character made by it at the persuasion'of the said Fuhriman, believed said statements to be true and were in ignorance of their falsity and were deceived thereby when said approval and certification was made. That Fuhriman then induced the state to issue to him a certificate of purchase of the eighty acres; that in May, 1904, the state issued its piten t conveying said land to one Badger who held the title for Fuhriman; that Badger conveyed to Fuhriman and Fuhriman conveyed to a corporation owned and controlled by him and Zollinger, and the corporation on November 13, 1914, conveyed the eighty acres to the Amalgamated Sugar Company, a Utah Corporation, and “that at the time of said conveyanee to said defendant, Amalgamated Sugar Company, as aforesaid, and at all times, the said defendant, Amalgamated Sugar Company, well knew the fraudulent manner in which the said land was acquired from the plaintiff as hereinabove alleged”; that the value of the eighty acres is $50,766.00; that during every year since 1905 the defendants had received or taken from the eighty acres limestone to plaintiff’s damage of $79,655.00.

The bill prayed that the court decree the certification to the state, so far as it affects the eighty acres, to be null and void, that the eighty acres be decreed free and clear of all claims of defendants and the title thereto re-vested in plaintiff as of original right and quieted against the claims and pretensions of defendants, that the Sugar Company be divested of its title and enjoined from setting up or claiming any right, interest or title thereto, and from creating any cloud upon plaintiff’s title. It is further prayed that the plaintiff recover damages for the value of the limestone taken, but that in the event the court should not decree the title to be re-vested in plaintiff as of original right and quieted against the claims of defendants, and each of them, that the plaintiff in that event recover damages in addition to the value of the limestone, the value of said eighty acres, to-wit, $50,766.00. The suit was instituted twenty-two years after approval and certification of the eighty acres to the state. The Sugar Company, Zollinger and Fuhriman’s administrator were made defendants.

Each defendant moved to dismiss the amended bill on several grounds, some going to the merits, and one that the suit was barred by the statute of limitations: Act March 3, 1891 (26 Stat. 1099, U. S. Code, title 43, § 1166 [43 USCA § 1166]). That Act provides that suits by the United States to vacate and annul any patent shall only be brought within six years after the date of issuance of such patent. The court sustained the several motions on the ground that the statute in bar was applicable, and it ordered the suit transferred to .the law side of the court and gave appellant twenty days within which to conform its pleadings to an aetion at law. Equity Rule 22 (28 USCA § 723). The plaintiff excepted to this action of the court but complied with the court’s order, and filed its complaint on the law side which in substance is a copy of the amended bill, except it only sought recovery of damages for the claimed value of the land, to-wit, $50,-766.00. The Sugar Company filed a demurrer to the complaint on the law side which the court sustained on November 18, 1927.

In June of the next year appellant petitioned the court for leave to withdraw its complaint on the law side and to permit it to stand on its amended bill on the equity side. An order was entered granting the request and also dismissing the amended bill to which said motion to dismiss had been sustained on June 30, 1927, but no order of dismissal was then entered. Appellees have moved to dismiss the appeal on the ground that it was not taken in time. It was taken within three months after the order of dismissal on June 30, 1928. No order of dismissal of the amended bill was made until that time. When the court on June 30, 1927, sustained the motion to dismiss on the ground that the suit was barred, it could not dismiss the amended bill and at the same time transfer the suit to the law side. It did the latter. Transference from law to equity (U. S. Code, title 28, § 397 [28 USCA § 397]) is neither a final order nor decision nor an interlocutory order from which an appeal can be taken. Weaver v. Atlas Oil Co. (C. C. A.) 39 F.(2d) 847. In that, respect we see no difference when the transfer-is made under equity rule'.

Ás already said, the complaint on the law side is a copy of the amended bill on the equity side. In the amended bill the appellant prayed for equitable relief, special and general. The complaint on the law side asked for relief at law, damages. Appellees insist that when appellant- filed its complaint on the law side and prosecuted that remedy until the court on general demurrer held the complaint bad, it was an election of remedies ; that it could not then go back to equity; and that by its procedure in seeking relief at law it elected and was bound to pursue that remedy. But appellant did not of its own choice seek relief at law. Its choice was in equity, and under protest it followed its case from equity to law on the court’s order; and when the court ruled against it there, it asked and was granted permission to return to its choice, the equity side. Henderson Tire & Rubber Co. v. Gregory (C. C. A.) 16 F.(2d) 589, 49 A. L. R. 1503. One other point requires consideration. Appellees say the court was right in applying the statutory bar. Counsel for appellant reply that it may be conceded, arguendo, that the limitation statute applies to titles by certification (which they deny), as well as to titles by patent, still the court erred, because the frame of the amended bill entitled appellant to a decree that the Sugar Company took and has held the legal title as trustee ex maleficio for appellant, and the three defendants are liable for the limestone taken. This view, if sustained, renders the plea of limitation of six years in which to sue bad, for the uncancelled certification is no obstacle to the trusteeship which equity imposed when title was taken with notice of the fraud. The opinion in Lockhart v. Leeds, 195 U. S. 427, 25 S. Ct. 76, 49 L. Ed. 263, sustains appellant’s contention on the point stated. See also Walden v. Bodley, 14 Pet. 156, 164, 10 L. Ed. 398. The order dismissing the amended bill is reversed. The trial court will vacate that order and require answers.

McDERMOTT, Circuit Judge

(concurring).

I concur in the opinion of the Court with serious misgivings. The United States parted with the legal title of the land involved on December 3, 1903. This aetion was commenced in 1926. The specific prayer is that the certification of 1903 be declared null and void, and that the United States be decreed to be the owner, and that it recover the possession of, the land. There is a prayer for general relief, but no specific prayer that the title be impressed with a trust.

Section 8 of the Act of March 3,1891 (26 Stat. 1099, 43 USCA § 1166 provides that “suits by the United States to vacate and annul any patent * * * hpreafter issued shall only be brought within six years after the date of the issuance of such patents.” The avowed purpose of this statute, as disclosed by its legislative history, was to give stability to land titles and to encourage settlement of public lands. The statute applies although the patent was procured by fraud. United States v. Winona, etc., R. Co., 165 U. S. 463, 476, 17 S. Ct. 368, 41 L. Ed. 789. If this statute is to serve the purpose for which it was passed, it would seem -that it should not be circumvented by asking for the same relief in a different form of aetion. And the Supreme Court has so held. In United States v. Chandler-Dunbar Co., 209 U. S. 447, 450, 28 S. Ct. 579, 580, 52 L. Ed. 881, the United States filed a bill to remove a eloud from its title to certain lands. The defendant relied upon this statute. The government replied that the action was not one to vacate and annul a patent, but to quiet title. The defendant prevailed, the court holding that—

“In form the statute only bars suits to annul the patent. But statutes of limitation, with regard to land, at least, which cannot escape from the jurisdiction, generally are held to affect the right, even if in terms only directed against the remedy. Leffingwell v. Warren, 2 Black 599, 605,17 L. Ed. 261, 263; Sharon v. Tucker, 144 U. S. 533, 12 S. Ct. 720, 36 L. Ed. 532; Davis v. Mills, 194 U. S. 451, 457, 24 S. Ct. 692, 48 L. Ed. 1067, 1071. This statute must be taken to mean that the patent is to be held good, and is to have the same effect against the United States that it would have had if it had been valid in the first place. See United States v. Winona & St. Peter R. R. Co., 165 U. S. 463, 476,17 S. Ct. 368, 41 L. Ed. 789, 795.”

This reasoning seems to me to be sound. I have difficulty in reconciling myself to the proposition that if, by reason of the statute, the government may not bring suit to annul its patent, it may nevertheless recover the land by impressing a trust on the title. True, the latter action saves the rights of bona fide purchasers; but those generally are saved by other sections of the statute. The situation is aggravated when, as in the case at bar, the form of the action is one to vacate the certification.

If it be assumed that the statute applies to certifications as well as patents (a question that has not been ruled by this Court), the conclusion that a suit to recover the lands may be maintained, notwithstanding the statute, is justified by two decisions of the Supreme Court. In Lockhart v. Leeds, 195 U. S. 427, 436, 25 S. Ct. 76, 49 L. Ed. 263, cited by Judge Lewis, it was held that a trust might be impressed upon land, notwithstanding there was no specific prayer therefor, and although such relief is at variance with the theory disclosed by the specific prayer of the bill. It is proper, therefore, to treat this bill as one seeking to impress a trust upon real estate. While the Amalgamated Sugar Company is entitled, as a constructive trustee, to the benefit of any statute of limitations, the Supreme Court has held, in United States v. New Orleans Pac. Ry. Co., 248 U. S. 507, 39 S. Ct. 175, 178, 63 L. Ed. 388, that a statute similar to the one in question does not bar an action to impress a trust. That was an action by the United States to recover certain lands for the benefit of certain homestead claimants. The prayer was to cancel the patents or declare a trust. The Supreme Court disposed of the statute of limitations by holding:

“As the patents were issued before, and the suits were brought more than five years after, the Act of March 2,1896, c. 39, 29 Stat. 42 [43 USCA §§ 900-902], the prayer that the patents be canceled must be put out of view, and the alternative prayer — that the title under the patents be declared to be held in trust for the homestead claimants and the trust enforced — must be regarded as if standing alone.”

It is suggested that Independent Coal & Coke Co. v. United States, 274 U. S. 640, 47 S. Ct. 714, 71 L. Ed. 1270, is to the same effect. But in that case the United States had been decreed to be the owner of the lands in an action brought within the statutory period, and the latter suit was in aid of the earlier decree. But the ease of United States v. New Orleans Pac. Ry. Co., supra, is analogous on the facts, and the decision is clear-cut. While the result seems to be to enable the government to escape the statutory bar in all cases except where a bona fide purchaser is involved, and to disturb the repose sought by the statute, I feel that the two Supreme Court eases cited are determinative, and therefore coneur.


author: WILLIAM C. COLEMAN, District Judge.

text:
    BURNET, Commissioner of Internal Revenue, v. LIVEZEY.
    No. 3072.
    Circuit Court of Appeals, Fourth Circuit.
    March 13, 1931.

      Helen R. Carloss, Sp. Asst. to Atty. Gen. (G. A. Youngquist, Asst. Atty. Gen., Sewall Key, Sp. Asst. to Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Allin H. Pierce, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for petitioner.
    John T. Delaney and E. L. Hogsett, both of Huntington, W. Va. (Livezey; Hogsett & McNeer, of Huntington, W. Va., on the brief), for respondent.
    Before PARKER, Circuit Judge, and McCLINTIC and COLEMAN, District Judges.
   WILLIAM C. COLEMAN, District Judge.

Tbe present case arises on petition to review a decision of the United States Board of Tax Appeals to tbe effect that compensa^ tion paid to respondent in 1923, by tbe state of West Virginia, for bis services as counsel for tbe Public Service Commission of that state, was exempt from federal income tax on tbe ground that tbe respondent was an employee of tbe state of West Virginia, and that therefore bis salary as such was exempt from such taxation by virtue of section 1211 of tbe Revenue Act of 1926 (26 USCA § 1065b). That section provides as follows: “Any taxes imposed by tbe Revenue Act of 1924 or prior Revenue Acts upon any individual in respect of amounts received by him as compensation for personal services as an officer or employee of any state or political subdivision thereof (except to the extent that such compensation is paid by the United States Government directly or indirectly), shall, subject to tbe statutory period of limitations properly applicable thereto* be abated, credited, or refunded.”

Tbe Commissioner of Internal Revenue bad found a deficiency "in respondent’s income tax for tbe year 1923 in the sum of $355.09, because the Commissioner found that tbe compensation above referred to, paid to respondent, was taxable. From this determination respondent appealed to tbe Board of Tax Appeals, which reversed tbe Commissioner.

Tbe law of West Virginia creating tbe Public Service Commission and defining its powers and duties contains the following provision: “Tbe attorney general shall perform legal services under this act when required by tbe commission; provided, however, that tbe governor may appoint counsel for tbe commission, who, shall act as legal ad-visor to tbe commission, and who shall perform such other legal services in representing tbe people in matters under the jurisdiction of tbe commission as tbe governor shall direct. It shall be tbe duty of such counsel to appear for tbe people in all cases where they are not represented by counsel, but be shall not have control of cases, either before tbe commission or on appeal therefrom, where tbe people are represented by counsel. The compensation of such counsel shall be fixed by tbe commission and be shall be paid as other employees of tbe commission.” Barnes’ West Virginia Code, Annotated, 1923, e. 150, § 1.

It appears from tbe findings of fact made by tbe Board of Tax Appeals, to which we are here confined, that pursuant to this provision, on September 1, 1921, tbe Governor of West Virginia appointed respondent counsel for tbe commission, without specifying tbe term. He accepted tbe appointment, bis salary was fixed by tbe commission at $5,000 a year, payable monthly, and be received that amount, during 1923. Tbe services which be performed during that year consisted of rendering written opinions on legal questions submitted to him by the commission, representing the commission in all litigation in the state and federal courts, appearing in hearings before the commission when specially requested, or when the public were not represented. He was not required by the commission to spend any specific number of days at the office of the commission, but his employment was continuous, and he gave preference to his official duties over the demands of his private law practice, which he continued at his residence in Huntington, W. Va., the principal office of the Publie Service Commission being at Charleston, the state capital, about fifty miles distant. The nature of the questions propounded by the commission related to the regulation of public utilities, the fixing of their rates, and the regulation of their duties and responsibilities to the publie. In the preparation and trial of eases, the respondent conferred with the commission as to the facts and the policy to be assumed by the commission, which latter was largely determined and controlled by the commission itself.

There is no question but that respondent’s compensation is taxable as income derived from salary or compensation for personal services within section 213 of the Revenue Act of 1921 (chapter 136, 42 Stat. 227, 237), unless falling within the exemption provided in section 1211 of the Revenue Act of 1926, above quoted. The finding of the Board of Tax Appeals that it was so exempt is not subject to reversal unless “not in accordance with law.” Revenue Act 1926, § 1003 (b), 26 USCA § 1226 (b); Bishoff v. Commissioner (C. C. A.) 27 F.(2d) 91; Ox Fibre Brush Co. v. Blair (C. C. A.) 32 F. (2d) 42, 68 A. L. R. 696, affirmed Lucas v. Ox Fibre Brush Co., 281 U. S. 115, 50 S. Ct. 273, 74 L. Ed. 733. The question therefore is, Does the record disclose evidence sufficient to support the Board’s conclusion that respondent was an employee of the state of West Virginia? There can be no doubt but that the commission was itself an agency of the state, performing governmental functions, and also that the present respondent assisted in the performance of those functions. Was this sufficient, therefore, to constitute him an employee of the state within the meaning of section 1211 of the Revenue Act of 1926 ? Of course the fact that the law of West Virginia refers to him as an employee of the commission in providing that his compensation “shall be fixed by the Commission and he shall be paid as other employees of the Commission,” is not conclusive. The relation of employer and employee is a question of fact. The Supreme Court has stated that the determining feature is whether there is, in a given ease, such liberty of action as to exclude “the idea that control or right of control by the employer which characterizes the relation of employer and employee and differentiates the employee or servant from the independent contractor.” Metcalf & Eddy v. Mitchell, 269 U. S. 514, 521, 46 S. Ct. 172, 173, 70 L. Ed. 384. .

We believe that the present respondent’s employment by the commission was sufficiently under the control and guidance of the commission as to bring him within the aforegoing definition of employee. It is true he was allowed to continue his private law practice. He had no definitely defined working hours for the commission, and was free to use his own means and methods in performing his work for the commission. It is also true that the term of his employment was indefinite. Nevertheless there existed more than the ordinary relation of attorney and client, for the respondent was not employed from time to time on specific eases or pieces of work; nor was the amount of his compensation directly regulated or determined by the value of the services performed or to be performed. Furthermore, even though the commission may not have exercised control over the details of respondent’s performance of his services, nevertheless it possessed the right so to do, and upon any differences of opinion the will of the commission ultimately controlled.

The facts in Metcalf & Eddy v. Mitchell, supra, are clearly distinguishable from those in the present case. ■ There a consulting engineer, engaged as such by political subdivisions of states for work that was not permanent or continuous in character, on publie water supply and sewage disposal projects, with duties prescribed by contract, was held to be neither an officer nor an employee under a provision of the War Revenue Act, providing for exemption of state officers and employees, similar to the statutory provision here involved. Clearly in that ease, as the Supreme Court found, the taxpayer was an independent contractor, and so also was the taxpayer in the later cases in which the Supreme Court, relying upon this decision, reversed the action of the lower courts in granting exemptions. Lucas v. Howard, 280 U. S. 526, 50 S. Ct. 87, 74 L. Ed. 593; Howard v. Commissioner (C. C. A.) 29 F.(2d) 895; Lucas v. Reed, 281 U. S. 699, 50 S. Ct. 352, 74 L. Ed. 1125; Reed v. Commissioner (C. C. A.) 34 F.(2d) 263. In the first of these cases the taxpayer claimed exemption with respect to fees paid for legal services rendered by him to municipalities in specific pieces of litigation. In the second ease, the exemption claimed was upon income received in the form of attorney’s fees for services as special counsel in representing the state in collecting its inheritance taxes; the taxpayer being designated for this specific employment by the Attorney General, pursuant to statutory authority.

A case, the facts in which more nearly approach the' present situation, is that of Blair v. Mathews (C. C. A.) 29 F.(2d) 892, where the taxpayer, an attorney at law, was employed by the commissioners of Duval county, Fla., to attend to all legal matters for that county, at a fixed monthly compensation, for a period of two years, the employment including compulsory attendance as legal adviser to the county commissioners at all of its meetings, and he was otherwise at the beck and call of the commissioners, although he was not required to discontinue his private practice of the law. In reversing the Board of Tax Appeals and deciding that the taxpayer’s compensation thus earned was exempt under the same provision of the law here involved, the Circuit Court of Appeals for the Fifth Circuit said, page 894 of 29 F.(2d): “The contract bound the taxpayer for a period of two years to attend to all legal matters for the county. He was not engaged to accomplish any particular result in a way chosen by himself, but was obligated to render any legal service for the county to which at any time during the period mentioned he was assigned by the board of county commissioners. One whose services are so at the command of another for a definite time is an employee of the latter, though the services contracted are legal services of a lawyer, who is not forbidden to render professional services to others. Seaboard Air Line Railway v. Continental Trust Co. (C. C.) 166 F. 597.”

The Mathews Case was not reviewed by the Supreme Court as were the Howard and Reed Cases, and it is urged on behalf of the Commissioner of Internal Revenue that this decision, in view of the reversal in those cases, has become of doubtful authority because decided before the reversals in those eases. However, we are not impressed with this argument, because we believe that the eases are clearly distinguishable on their facts.

On behalf of the Commissioner of Internal Revenue, it is also urged that, in determining the degree of control, actual or potential, it is important to consider the exclusiveness of the services rendered, and in support of'this the case of Blair v. Byers, a decision of the Circuit Court of Appeals for the Eighth Circuit, 35 F.(2d) 326, is relied upon. There the compensation involved was paid to the taxpayer for legal services rendered to the board of waterworks trustees of the city of Des Moines, Iowa, over a period of several years, at a stipulated yearly rate, without prohibition against engaging in private practice. In this decision, which found such compensation nonexempt, and thus reversed a contrary finding of the Board of Tax Appeals, the court may have been somewhat influenced by its own finding that the building and operation of a waterworks system by a municipality constitutes the exercise of a proprietary, rather than of a governmental, function. In any event, the duties of the respondent in the present ease are created and at least broadly defined by statute, which does not appear to be true with respect to the attorney’s duties in the Byers Case, and this may alone suffice to distinguish the two cases. See, also, Ogilvie v. Commissioner (C. C. A.) 36 F.(2d) 473.

Similarly, commissions received as compensation for services in collecting delinquent state and county taxes, such services being rendered under contracts with a state tax commission and boards of county commissioners, are not exempt because the taxpayer was an independent contractor. Roberts v. Commissioner (C. C. A.) 44 F.(2d) 168. Nor for the same reason are fees received as attorneys for state court receivers in special cases exempt. Elam v. Commissioner (C. C. A.) 45 F.(2d) 337. Nor fees paid an attorney as counsel for a bridge district of the state Of Arkansas whose position and duties were not defined by statute, other than by the broad authority which the state Legislature gave to the bridge district, in creating it, to appoint all officers and agents deemed necessary and suitable for the conduct of its business. Burnet, Commissioner, v. McDonough, 46 F.(2d) 944,

In view of our finding that the respondent was an employee of the Public Service Commission of West. Virginia and therefore of the state of West Virginia, it becomes unnecessary to determine whether he was also an officer of that state, a question properly to be determined by the definition given to the word “officer” by the law of that state, which, it may be said, we do not find to be. different from the generally accepted definition of that term. See State ex rel. Key v. Bond, State Auditor, 94 W. Va. 255, 118 S. E. 276; also Metcalf & Eddy v. Mitchell, supra; Suncrest Lumber Co. v. North Carolina Park Commission (C. C. A.) 29 F.(2d) 823; State Tax Commission v. Harrington, 126 Md. 157,159, 94 A. 537.

Similarly, in view of our conclusion, it becomes unnecessary to discuss the larger question whether to tax the compensation here involved would be unconstitutional as imposing a burden upon a state instrumentality, a question which might still arise in the event of a finding that the respondent were neither an officer nor an employee of the state of West Virginia within the meaning of the Revenue Act of 1926, section 1211. It is sufficient to say that from McCulloch v. Maryland, 4 Wheat. 316, 4 L. Ed. 579, down through The Collector v. Day, 11 Wall. 113, 20 L. Ed. 122, and the many other decisions of the Supreme Court, the basis of every so-called extension of the doctrine of mutual immunity, which is inherent in both the state and the federal government, from the taxing power of each other, has always been that the person, agency, or res sought to be taxed is an instrumentality of government.

For the aforegoing reasons, we find that there was no error in the decision of the Board of Tax Appeals, and therefore that decision must be affirmed.


text:
    PARKERSBURG IRON & STEEL CO. v. BURNET, Commissioner of Internal Revenue.
    No. 3073.
    Circuit Court of Appeals, Fourth Circuit.
    March 13, 1931.

      W. W. Spalding, of Washington, D. C. (Mason, Spalding & McAtee, of Washington, D. C., on the brief), for petitioner.
    William Cutler Thompson, Sp. Asst. to Atty. Gen. (G. A. Toungquist, Asst. Atty. Gen., Sewall Key, Sp. Asst. to Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and William E. Davis, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on'the brief), for respondent.
    Before PARKER and NORTHCOTT, Circuit Judges, and COLEMAN, District Judge.
   WILLIAM C. COLEMAN, District Judge.

The present appeal arises upon a petition to review the action of the'Board of Tax Appeals in disallowing, ás a deduction from gross income for the year 1918, the sum of $11,210.88 claimed by the petitioner to be deductible as an ordinary and necessary expense of carrying on its business during that year. The 'Commissioner of Internal Revenue determined a total tax deficiency of $38,-396.06 against the petitioner for the same year. The Board of Tax Appeals redetermined the deficiency to be $26,426.21, but the other items which form the basis of this total deficiency are not involved here. In short, the only question here presented is whether the above contention of petitioner is correct with respect to the item of $11,210.88, or whether as the Board of Tax Appeals found, that item represented an expenditure on account of permanent improvements or betterments, for which deduction is not allowable.

The controlling provisions of the Revenue Act of 1918 (40 Stat. 1057, 1069, 1077) are the following:

“Sec. 215. That in computing net income no deduction shall in any case be allowed in respect of— * * *
“(b) Any amount paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate. * * * ”
“See. 234. (a) That in computing the net income of a corporation subject to the tax imposed by section 230 there shall be allowed as deductions:
“(1) All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered, and including rentals or other payments required to be made as a condition to the continued use or possession of property to which the corporation has not taken or is not taking title, or in which it has no equity. * * * ”

In a proceeding of this kind, this court is confined to the facts as found by the Board of Tax Appeals. The latter’s decision on such facts may not be upset unless “not in accordance with law.” Revenue Act 1926, § 1003 (b), 26 USCA § 1226 (b); Burnet, Commissioner, v. Livezey, 48 F.(2d) 159, decided by this Court this term; House & Hermann v. Lucas (C. C. A.) 36 F.(2d) 51; Bishoff v. Commissioner (C. C. A.) 27 F. (2d) 91. The burden of proof is upon the petitioner. Botany Mills v. U. S., 278 U. S. 282, 49 S. Ct. 129, 73 L. Ed. 379; Ox Fibre Brush Co. v. Blair (C. C. A.) 32 F.(2d) 42, 68 A. L. R. 696, affirmed in Lucas, Commissioner, v. Ox Fibre Brush Co., 281 U. S. 115, 50 S. Ct. 273, 74 L. Ed. 733.

The following facts, material to the present issue, were found by the Board. The petitioner, a corporation with its principal office in Parkersburg, W. Va., is engaged in carrying on a sheet mill business, manufacturing black, blue, and galvanized sheets. During 1938 petitioner manufactured corrugated sheets, stove pipes, and stove pipe elbows under government war contracts. Approximately two-thirds of the work done in petitioner’s plant, during that year, was in the production of articles under such contracts. At the time of acceptance of these contracts in 1918, petitioner was carrying on its manufacturing operations in a three story building. The greater part of the operating machinery was located on the first floor. The second and third-story lofts were used principally for storage purposes, but a few machines were operated on the second floor. The building, in general, was satisfactory and adequate to the needs of petitioner’s business.

Early in 1918, engineers of the United States Army, following an inspection of the plant, requested that, in order to improve the lighting conditions, certain changes in the building construction, and rearranging of factory rooms, be made, and this request was complied with. All of the machinery on the two upper floors was removed to the first floor, necessitating a general rearrangement oí machinery there. This rearrangement of machinery necessitated the abandonment of certain machine foundations and the laying of new ones, with the result that the first floor was so cut up the petitioner found it necessary to lay an entirely new floor. The second and third floors were tom out, skylights were installed, and the electric lighting system was rearranged. The tearing out of the two upper floors also necessitated a rearrangement of all line shafting for the machines. The productivity of the plant.was not increased by reason of these alterations.

In affirming the. Commissioner’s disallowance of these expenditures as an ordinary and necessary .expense in carrying on petitioner’s business in the year 1918, the Board stated its conclusion as follows: “Upon the record before us we entertain no doubt that the expenditures incident to' making sueh alterations and changes are of a capital nature, and that the respondent correctly disallowed the item in question as a deduction from gross income. Various reasons are suggested by the petitioner as the basis for the allowance of the disputed item, none of which appeal to us as proper grounds for the action sought to be taken. It is contended that the making of the alterations was an involuntary' act, done upon orders of engineers of the Army; that neither the efficiency, productivity, nor the value of the plant has been increased by virtue of the alterations; and that the petitioner has been placed at a decided disadvantage in making the alterations by reason of having to provide additional storage space, and of the cramped and congested operating conditions existing in the building because of the removal of all of the machinery to one floor. Assuming all such conditions and circumstances to be true, and we do not decide that they are, we still adhere to the conclusion already announced. It is undenied in the record' that the general purpose for which these alterations and changes were made, the general improvement of lighting conditions in the building, has been accomplished, although, perhaps, not to the degree expected or hoped for. Furthermore, all sueh alterations and changes have been continued in use throughout all of the taxable years on appeal, and the record contains no hint of any subsequent abandonment. We And no error in the action of the respondent in disallowing the cost of the alterations and changes as a deduction from gross income for 1918.”

We find no error in this conclusion of the Board. The evidence compels a finding that the alterations constitute a capital expenditure, the deduction of which is not permitted by the statute.

With respect to petitioner’s contention that, since the expenditures in question did not increase the productivity capacity of the factory building — a fact which must, on the evidence, be taken as true — sueh expenditures are properly deductible as ordinary and necessary expenses of the business, it is sufficient to say that whether or not a given outlay actually results in ultimate advantage to the taxpayer does not determine whether sueh outlay is to be treated as representing permanent improvement; that is, a capital expenditure, or merely current upkeep, that is, repairs. The true test is rather the nature of the expenditure in and of itself, for, as the government rightly contends, an alteration may be made expressly for the purpose of increasing the value of a given property; and, though it may fail to accomplish that purpose, it nevertheless may remain a capital expenditure. The extent and permanency of the given alteration are indicative of its true character. Here two floors of the building were torn out; its general structure was strengthened by the introduction of steel beams; a sky light was placed in the roof; new concrete foundations were constructed for machinery; a new concrete floor was laid; and the line shafting rearranged — all of which alterations have been retained. These facts indubitably stamp the expenditure for such alterations as being a capital investment, to be treated as a whole because interrelated and of substantially equal permanency, and the amount so capitalized may not, as petitioner contends, be limited to the expenditure that actually produced the only tangible benefit to the structure as a factory building, namely, the increased natural lighting, because, as we have already seen, ultimate advantage or disadvantage to the taxpayer is not the criterion.

The words “ordinary and necessary expenses,” as used in section 234 (a) (1) of the statute, and also the words “permanent improvements or betterments made to increase the value of any property or estate,” as used in section 215 (b), must be given their rational, practical meaning, according to which the alterations were unquestionably “necessary,” because compelled by the exigencies of the war. However, they were not “ordinary,” but in fact extraordinary for this very reason, and they resulted in “permanent improvements” to the property, when that phrase is interpreted in the sense that it must be assumed to be used in the statute; 'that is, alterations which, both by their very nature and use, are relatively permanent, although they may never in fact enhance the actual value of the property as an investment, as opposed to alterations of whieh both the nature and the use are relatively temporary. See Duffy v. Central R. Co., 268 U. S. 55, 45 S. Ct. 429, 69 L. Ed. 846. In Hubinger v. Commissioner (C. C. A.) 36 F.(2d) 724, 726, “ordinary expenses” under this statute were defined as “those due to wear and tear and trifling accidental causes.”

Whether, although denied a reduction of the tax under section 234 (a) (1) of the Revenue Act of 1918, the present petitioner might have successfully invoked section 234 (a) (8) of the same aet (40 Stat. 1078), which provides for the allowance of a reasonable deduction for amortization of the cost of buildings and other facilities constructed, etc., for the production of articles contributing to the prosecution of the war, is a question whieh is not presented for decision by the present appeal.

For the aforegoing reasons, we find no error in the decision of the Board of Tax Appeals, and the same is accordingly affirmed.


author: SPARKS, Circuit Judge.

text:
    PARIDY v. CATERPILLAR TRACTOR CO.
    No. 4404.
    Circuit Court of Appeals, Seventh Circuit.
    March 26, 1931.
    Edward W. Tobin and Edward E. Longan, both of St. Louis, Mo., for appellant.
    Frank T. Miller, John M. Elliott, O. P. Westervelt, and Val C. Guenther, all of Peoria, Ill., for appellee.
    Before ALSCHULER, EVANS, and SPARKS, Circuit Judges.
   SPARKS, Circuit Judge.

This action was instituted on December 4,1929, for the purpose of establishing a constructive trust against property in the hands of appellee. The action arises out of alleged fraud and wrongdoing of appellee’s privies in fraudulently obtaining from appellant information, plans, and a model of an endless track mechanism of whieh appellant claims to have been the original and sole inventor.

The bill alleges that appellant conceived his claimed invention in June, 1892; that thereupon he drafted plans and constructed a small model thereof, whieh he retained in his possession and exhibited only in secrecy and confidence to those whose financial assistance he sought for the purpose of securing a patent. On account of sickness and financial distress, he was unable to pay the neeessary expense of securing a patent, and was unsuccessful in procuring the assistance of others. This condition prevailed until January, 1899, when two men, unknown to appellant, and who gave fictitious names, proposed 'to him that if he.could demonstrate to them the successful operation of his invention they would furnish the necessary financial assistance to enable him to secure a patent and to develop and market the invention. Appellant permitted these men to make a sketch of his invention, and he delivered his model to them. He never saw or heard from them again until January, 1918, although he made diligent effort to do so. At the time last mentioned he learned for the first time that the names of the men so defrauding him were Benjamin Holt and Alvin 0. Lombard, and that they had appropriated the invention to their own use and had applied for patents thereon, in their own respective names, on the following dates: Alvin 0. Lombard, May 21, 1901, and May 21, 1907; Benjamin Holt, December 17, 1907, January 4, 1910, March 15,1910, and April 5,1910; and that patents were thereupon issued to them. Of these facts appellant had no knowledge until January, 1918, and he had unsuccessfully continued his efforts to enlist financial assistance of others to enable him to secure a patent on his invention.

The bill further charges that after Holt and Lombard had thus acquired the invention, Holt became the principal stockholder and president of Holt Manufacturing Company, which company, with knowledge of all the facts above set forth, began, to use appellant’s invention in the manufacture and sale of tractors, harvesters, and other machinery; that later Holt Manufacturing Company was acquired by appellee, Caterpillar Tractor Company, and both companies, with knowledge of all the facts above set forth, continued to wrongfully and illegally use appellant’s invention in the manufacture of their products up to April 5, 1927, which was the expiration date of the letters patent issued to Holt and Lombard; that as a result thereof Caterpillar Tractor Company received and now holds great gains, profits, find property, which, it is claimed, are impressed with a constructive trust ex maleficio in favor of appellant. •

The bill further alleges that immediately after discovering the identity of Holt and Lombard as the parties who had surreptitiously and fraudulently obtained knowledge of his invention and Lad wrongfully and fraudulently appropriated the same to their own use and benefit, appellant retained one John C. Higdon, now deceased, a member of the bar of the state of Missouri, residing in St. Louis and specializing in the practice of patent law for a great number of years, and in whom he had implicit confidence as to ability, as his attorney to prepare and prosecute the necessary proceedings for the recognition, enforcement, and protection of his rights; that Higdon was then seriously ill, suffering from a stroke of paralysis, and mentally disturbed, and because of illness and disturbed mental condition disregarded instructions and directions of appellant in filing an erroneous action, in the nature of a patent infringement suit, against the appellee et ah, and failed to diligently and properly prosecute such erroneous action; that appellant was not aware of the error of his then counsel until after Higdon’s death, when he retained new counsel and was advised of the error of Higdon in filing such suit; that since the disposition of such erroneous suit appellant has been endeavoring to enlist sufficient financial assistance to enable him to proceed with this cause of action, in which endeavor he was successful shortly prior to the filing of the instant bill.

In answer to the bill appellee filed its motion to dismiss on the grounds that appellant had previously brought a like action against Holt Manufacturing Company in the same court in which the instant case was tried; that appellee was by stipulation made a defendant in that suit, as the assignee of Holt Manufacturing Company; and that action has been prosecuted and defénded to a final decree on its merits, which decree was affirmed by the Circuit Court of Appeals, 24 F.(2d) 1020, and a certiorari denied by the United States Supreme Court, 278 U. S. 617, 49 S. Ct. 21, 73 L. Ed. 540; that the instant bill alleges the same facts in support of the present action as were set forth and relied upon in the prior suit; that the prior decree finds that appellant has no claim whatever against appellee or any one acting for it or in its behalf, and is a bar to further litigation on this matter; that the instant bill shows upon its face appellant’s gross laches; that neither appellant’s poor health, nor his financial distress, nor his unfortunate choice of counsel, excuses or justifies his delays; and that appellant’s allegations of conspiracy, and knowledge thereof on the part of appellee, are not based upon alleged facts, but upon conclusions of the pleader.

The decree in the former suit was, by reference, made a part of appellee’s motion to dismiss, but we assume it was not attached to the bill as it . does not appear in the record before us. Appellant thereupon filed a motion to strike from the motion to dismiss all those portions, separately, which relate to the prior suit. These motions were argued before the trial court but no evidence was introduced, and subsequently the court overruled appellant’s motion to strike and sustained appellee’s motion to dismiss the bill. It is upon these rulings that appellant seeks a reversal.

Equity Rule 29 (28 USCA § 723), ih so far as it applies to motions to dismiss, is as follows :

“Demurrers and pleas are abolished. Every defense in point of law arising upon the face of the bill, whether for misjoinder, nonjoinder, or insufficiency of fact to constitute a valid cause of action in equity, which might heretofore have been made by demurrer or plea, shall be made by motion to dismiss or in the answer; and every such point of law going to the whole or a material part of the cause or causes of action stated in the bill may be called up and disposed of before final hearing at the discretion of the court. * * * If the defendant move to dismiss the bill or any part thereof, the motion may be set down for hearing by either party upon five days’ notice, and, if it be denied, answer shall be filed within five days thereafter or a decree pro confesso entered.”

Appellee concedes this to be a correct general statement of the law, but seeks to parry the force of it when applied to the instant case because of the fact that appellant has in his bill referred to the prior case which was tried in the District Court, using only such portions of the record as are helpful to him in the present action, and alleges that this fact is sufficient to authorize appellee to include in its motion to dismiss the complete decree of the prior suit, by virtue of which appellee claims that the controversy in the instant ease has been formerly adjudicated. In support of this proposition appellee cites no authority, nor have we been able to find any. There is no ambiguity in the language of Equity Rule 29, and it in effect says that only issues of law arising upon-the face of the bill of complaint can be reached by mo-' tion to dismiss, and only three instances are 'specifically mentioned where such' motion is proper, viz., for misjoinder, for nonjoinder, and for insufficiency of fact to constitute a valid cause in equity. It has been held, however, that if laches or res adjudicata is apparent on the face of the bill, such matters respectively are properly raised by a motion to dismiss the bill. McMullen v. Lewis (C. C. A.) 32 F.(2d) 481; Young v. Southern Pac. Co. (C. C. A.) 34 F.(2d) 135. In such instances the facts pleaded are insufficient to constitute a cause of action. These facts are ■ to be judged as they appear in the bill, and we have found no ease in which the effect of such facts has been permitted to be altered by any averments in the motion. We can see no reason why the mere mention in the bill of certain facts pertaining to the prior suit, but not harmful to appellant, could in any way authorize appellee to insert in his motion to dismiss a complete statement of the facts in relation to the prior suit in order to raise the question of res adjudicata. Such a procedure would in effect change the issue from a question of law to one of fact and law, which is not regarded as a function of a motion to dismiss under Equity Rule 29.

It is contended, however, by appellee, that, inasmuch as a court of record will take judicial knowledge of its. former decrees, the District Court was justified in considering the entire decree of the prior suit in passing on the motion to dismiss. We think this position is not tenable. We have been unable to find any authority supporting it, and none has been cited by counsel.

It is true that a court will take notice of its own records, but it cannot travel for this purpose out of the record relating to the particular case; it cannot take notice of the proceedings in another ease, even between the same parties and in the same court, unless such proceedings are put in evidence. Matthews v. Matthews, 112 Md. 582, 77 A. 249, 29 L. R. A. (U. S.) 905; Murphy v. Citizens’ Bank, 82 Ark. 131, 100 S. W. 894, 11 L. R. A. (N. S.) 616, 12 Ann. Cas. 535; Haaren v. Mould, 144 Iowa 296, 122 N. W. 921, 24 L. R. A. (N. S.) 404; Oliver v. Enriquez, 16 N. M. 322, 117 P. 844, Ann. Cas. 1913A, 140; Elgin v. Gross-Kelly & Co., 20 N. M. 450, 150 P. 922, L. R. A. 1916A, 711; Myers v. State, 46 Ohio St. 473, 22 N. E. 43, 15 Am. St. Rep. 638; State ex rel. Gibson et al. v. Richardson, 48 Or. 309, 85 P. 225, 8 L. R. A. (N. S.) 362; Pickens v. Coal River Boom & Timber Co., 66 W. Va. 10, 65 S. E. 865, 24 L. R. A. (N. S.) 354, notes 89 Am. Dee. 689. In absence of evidence to that effect, the reviewing court cannot take judicial notice that a case before the court had connection with one formerly decided by it. Elgin v. Gross-Kelly & Co., 20 N. M. 450, 150 P. 922, L. R. A. 1916A, 711.

While a court will invariably take judicial knowledge of the facts which it has acv quired at a prior hearing of a cause (Murphy v. Citizens’ Bank, supra — and in that case it was the same cause which was referred to), only under exceptional circumstances will it notice proceedings in another cause, although tried in that court and between the same parties. 15 R. C. L. p. 1111, § 42, and cases heretofore cited. The exceptional cases referred to are such as a proceeding for contempt in violating a prior decree, or a proceeding in garnishment in aid of a prior judgment; but in none of the decisions above referred to were these exceptional cases before the court.

The reason for the rule above referred to is that the decision of a cause must-depend upon the evidence introduced. If the courts should recognize judicially facts adjudicated in another case, it makes those facts, though unsupported by evidence in the case in hand, conclusive against the opposing party; while if they had been properly introduced they might have been met and overcome by him. So, on a plea of res adjudieata, a court cannot judicially notice that the matters in issue are the same as those in a former suit. Such matters must be pleaded and proved. 15 R. C. L. p. 1111, § 42.

Appellee contends that such a holding in effect will require it to submit to another long drawn out, expensive series of hearings and will seriously impose upon the court’s time. This indeed would be deplorable if true, but a part of Equity Rule 29 which we have not quoted provides that “Every defense heretofore presentable by plea in bar 'or abatement shall be made in the answer and may be separately heard and disposed of before the trial of the principal ease in the discretion of the court.” The rule provides a most expeditious way of disposing of this issue, i. e., by answer; but appellee chose rather to present it by motion to dismiss and relied upon the court’s judicial knowledge in lieu of evidence, and we think this cannot'be done under the facts of this case, for the instant and prior cases cannot he considered the same even though one issue is present in both.

Appellee insists that its motion to dismiss was properly sustained on account of laches of appellant apparent on the face of the hill. The doctrine of laches does not apply in such a case as presented here, where appellee, by its motion, admits all the fraud charged, and has acted in open and known hostility to appellant’s alleged rights, and has been misled by no apparent acquiescence on appellant’s part. In the ease of Saxlehner v. Eisner & Mendelson Co., 179 U. S. 19, 21 S. Ct. 7, 15, 45 L. Ed. 60, the court said: “Indeed, in a case of an active and eontinuing fraud * “ * we should be satisfied with no evidence of laches that did not amount to proof of assent or acquiescence.”

Our disposition of the appeal is on the hypothesis that the allegations of the bill axe true, and that the facts referred to in the motion to dismiss are not before the court,

The deeree o£ dismissal is reVersed, with djreeti0n to the District Court to overrule appellee>s motion to ¿;a>ri;aa.


author: DAVIS, Circuit Judge.

text:
    CLARK CAR CO. v. CLARK et al.
    No. 4458.
    Circuit Court of Appeals, Third Circuit.
    March 20, 1931.

      John M. Freeman, John T. Duff, Jr., Albert C. Hirsch, and Watson & Freeman, all of Pittsburgh, Pa., for appellant.
    John O. Wicks and Weller, Wicks & Wallace, all of Pittsburgh, Pa., for appellees.
    Before WOOLLEY and DAVIS, Circuit Judges, and JOHNSON, District Judge.
   DAVIS, Circuit Judge.

This is an appeal from a decree of the District Court disallowing a set-off to the Royal Indemnity Company, surety and appellant, which its principal, the Clark Car Company of Pennsylvania, had against its creditor, Frank J. Lanahan.

This case was here before in a suit to determine title .to certain property. 11 F. (2d) 820. After the questions as to title had been determined, the ease was sent back to the District Court with directions to refer it to a special master to make an accounting between Lanahan and the Clark Car- Company. While the proceedings were in progress, Lanahan filed a petition in the District Court for a receiver for the Clark Car Company. This was denied on May 8, 1926, on condition that a bond be filed by the company, “conditioned for the payment to Frank J. Lanahan of any sum or sums of money which may finally be ascertained to be due him from the Clark Car Company of Pennsylvania in the accounting directed by the decree of court in this ease.” The bond as required was filed on May 14, 1926) in which the Clark Car Company and Charles H. ■Clark were principals and the appellant was surety.

On December 7, 1927, the master filed his report, to which appellant filed exceptions. The District Court dismissed these exceptions, and from this decree an appeal was taken to this court. The exceptions were decided seriatim, and the ease was sent back to the District Court, with directions that it be remanded to the master for an amended accounting on the same reference. On further hearings, the master found that the Clark Car Company was insolvent. He filed •his final report on February 8, 1930; and at the same time orally moved the court to appoint a receiver for the Clark Car Company. The motion was granted, and the master was appointed receiver.

Exceptions were filed to this final report, which the court dismissed, and decreed the Clark Car Company owed Lanahan $115,785, and that Lanahan owed the Clark Car Company $11,695.05. It ordered that these be paid! that is, that, the appellant, surety of the Clark Car Company, pay $115,785 to Lanahan, and that Lanahan pay $11,695.05 to the receiver of the Clark Car Company.

Thereupon, on July 10, 1930, the appellant filed a petition asking the court to modify the decree by allowing to it a set-off of $11,-695.05 which Lanahan owed the Clark Car Company. This was denied, and the surety appealed from the decree ordering it to pay Lanahan' $115,785 without allowing the set-off.

The question at issue is whether or not the $11,695.05 which Lanahan owed the Clark Car Company should have been allowed to its surety as a set-off against the $115,785 the Clark Car Company owed Lanahan and which the surety bound itself to pay.

The general rule of law is that, where a surety alone is sued, in the absence of statute permitting it, he cannot avail himself of any claim of his principal against the creditor where he has not interest in the claim. The surety must pay the claim and look to h'is principal for reimbursement. But where there are special circumstances, such as the insolvency of the principal, which would make it inequitable to deny the set-off, it will be allowed. When the surety has no recourse to his principal, it would be inequitable to deprive him of what was a perfectly good set-off between the principal and his creditor. Fidelity & Deposit Company v. Duke, 293 F. 661 (C. C. A. 9); Tidewater Coal Exchange v. New Amsterdan Casualty Company (D. C. Del.) 20 F.(2d) 951, 954; 50 Corpus Juris, § 334; 21 R. C. L. p. 1079, § 120; 24 R. C. L. p. 862, § 66.

But the appellee says that, before the bond was given in this ease, this court had decided that the assets of the Clark Car Company were a trust fund for the creditors of the company, who were strangers to the transaction in the original suit; that the claim which the company had against Lanahan was part of these assets and so constituted a part of the trust fund for the benefit of creditors; that the surety is not entitled to set off the claim which its principal had against Lanahan because the claim is not of the same right and character, and that consequently the exception to the above rule is inapplicable to the set-off sought in this case. <

However, when the trust was created, the rights and interests between the principal and creditor were mutual, of the same right and kind, certain and determinate. On the trust fund theory, creditors take assets of the insolvent as they stood on the creation of the trust. The receiver takes the assets in trust for creditors, in the absence of statute to the contrary, subject to all claims and defenses that might have been interposed against the insolvent corporation. The right of set-off is of statutory origin, but courts of equity, independently of statute, will grant relief and prevent the defeat of the equitable right of set-off by the interposition of assignments and receiverships, whenever there, appears any substantial equity in favor of the claim. Central Appalachian Company et al. v. Buchanan (C. C. A.) 90 F. 454, 459; Scammon v. Kimball, 92 U. S. 362, 23 L. Ed. 483; Scott v. Armstrong, 146 U. S. 499, 13 S. Ct. 148, 36 L. Ed. 1059. Story’s Equity Jurisprudence, § 1437; Gray v. Rollo, 85 U. S. (18 Wall.) 629, 632, 21 L. Ed. 927.

Accordingly, the surety’s claim here comes within the exception to the general rule and should have been allowed.

The decree is reversed, and the ease remanded to the District Court, with directions to allow the set-off.


author: RUDKIN, Circuit Judge.

text:
    TERRITORY OF HAWAII v. ANDUHA.
    No. 6257.
    Circuit Court of Appeals, Ninth Circuit.
    March 23, 1931.
    H. R. Hewitt, Atty. Gen. and E. R. McGhee, Third Deputy Atty. Gen., for the Territory.
    Before RUDKIN, WILBUR, and, SAWTELLE, Circuit Judges.
   RUDKIN, Circuit Judge.

This appeal involves the validity of a statute of the territory of Hawaii providing that any person who shall habitually loaf, loiter, and/or idle upon any public street or highway or in any public place shall be guilty of a misdemeanor, and punished as therein provided. Session Laws 1929, Act 256, § 1. The Supreme Court of the territory affirmed a judgment of the circuit court declaring the statute unconstitutional and void. The appellee has submitted the case to this court on the opinion of the court below, without brief or argument, but a brief has been submitted by the Attorney General on behalf of the territory.

So far as we can find, there is but little direct authority bearing upon the question thus presented. Nearly all of the eases cited by the appellant have to do with the police power in general, and are without special application to the statute before the court. Thus the question involved in Re Opinions of the Justices, 251 Mass. 569,147 N. E. 681, was automobile insurance and the discussion of the right to use streets and highways was merely incidental to that question.

In Commonwealth v. Challis, 8 Pa. Super. Ct. 130, an ordinance was upheld making it an offense to obstruct a street by idly standing, loafing, or congregating thereon. The right to prohibit the obstruction of a public street is not open to question, but some of the language employed by the court would seem to go beyond the question then under consideration.

The ordinance involved in Taylor v. City of Sandersville, 118 Ga. 63, 44 S. E. 845, prohibited idling, loitering, or loafing upon thei streets of the city, but the court expressly refused to pass upon its validity because the question had not been raised in the lower courts.

On the other hand, in Pinkerton v. Verberg, 78 Mich. 573, 44 N. W. 579, 582, 7 L. R. A. 507, 18 Am. St. Rep. 473, cited in the opinion of the court below, it was said:

“Personal liberty, which is guarantied to every citizen under our constitution and laws, consists of the right of locomotion — to go where one pleases, and when, and to do that which may lead to one’s business or pleasure, only so far restrained as the rights of others may make it necessary for the welfare of all other citizens. One may travel along the publie highways or in public places; and while conducting themselves in a decent and orderly manner, disturbing no other, and interfering with the rights of no other citizens, there they will be protected under the law, not only in their persons, but in their safe conduct. The constitution and the laws are framed for the publie good, and the protection of all citizens, from the highest to the lowest; and no one may be restrained of his liberty, unless he has transgressed some law. Any law which would place the keeping and safe conduct of another in the hands of even a conservator of the peace, unless for some breach of the peace committed in his presence, or upon suspicion of felony, would be most oppressive and unjust, and destroy all the rights which our constitution guaranties. These are rights which existed long before our constitution, and we have taken just pride in their maintenance, making them a part of the fundamental law of the land.”

But here again the principal question involved was the right to make an arrest without a warrant.

In City of St. Louis v. Gloner, 210 Mo. 502,109 S. W. 30, 32,15 L. R. A. (N. S.) 973, 124 Am. St. Rep. 750, the court declared void a city ordinance prohibiting any person from lounging, standing, or loafing upon the street corners or other public places in the day or •night time, saying, among other things:

“It is, however, said for the city that ‘ John Smith, a member of the public, has no right for his own private purposes, whatever they may be, to take his stand for a period of two hours every day upon a particular portion of the public street in a great and populous city.’ That he has such right there can, in our opinion, be no question, providing he conducts himself in a peaceful, orderly manner, disturbs no one, and commits no overt act.” See, also, In re McCue, 7 Cal. App. 765, 96 P. 110.

In sustaining the demurrer in this ease, the trial judge said:

“Por all that appears in the complaint filed against this defendant under this act, the defendant may well have been consistently in the pursuit of health or other innocent activity at all the times mentioned in the complaint. There is nothing in the charge itself nor in the wording of the act under which the charge is brought which would advise this defendant or any defendant at what point an innocent use of publie places had become connected with any criminal purpose or activity. There is nothing in the charge or in the attempted definition of an offense in the act which would enable a resident to know the dividing line between innocent idleness and criminal idleness in a public place. This discrimination is delegated to the whim of every police officer who desires to interfere with the personal liberty of a resident within the Territory.”

In affirming the judgment, the Supreme Court said:

“All loitering, loafing or idling on the streets and highways of a city, even though habitual, is not necessarily detrimental to the public welfare nor is it under all circumstances an interference with travel upon them. It may. be and often is entirely innocuous. The statute draws no distinction between conduct that is calculated to harm and that which is essentially innocent.
Visitors, lured by the fame .of our climate and of our natural scenery and the hospitality of our people, come here for recreation and pleasure. Many of them, having no other occupation, habitually but harmlessly idle or loiter upon our streets and highways. In their pursuit of happiness, which is a guaranteed right, they loiter before shop windows, pause to enjoy the changing colors of the ocean and to talk with friends. ' It would be shocking to say that so long as they are innocent of any wrong and conduct themselves with due regard to the rights of others and the good order of the community the legislature has the constitutional authority to declare them misdemeanants and subject them to arrest and imprisonment. Also, there are persons who, taking advantage of the leisure they have on the Sabbath, habitually go for long hikes along the public highways. When weariness overtakes them they stop for rest. Attracted by the beauties of the landscape they loiter and idle for as long as they choose. The free use of the highway by others is not impeded and the public peace is not* disturbed. Is the legislature empowered to declare them lawbreakers ? Children, who have reached the age of legal responsibility, on their way to and from school habitually loiter along the sidewalks. If the statute is constitutional they are in danger of imprisonment even though their manner of using the sidewalks is without probable injury or inconvenience to any one.”

In these views we fully concur. The different terms used in the statute have been thus authoritatively defined:

Idle: To spend in idleness; waste; with away, as, to idle away an hour; to spend or lose time in inaction or without employment.
Loiter: To consume (time) idly; with away, as, to loiter away the hours; to linger idly along the way; to spend time idly; to' be dilatory; delay; to travel indolently with frequent intermissions.
Loaf: To spend idly; with away, as loafing one’s time away; to idle away the time; lounge.

These words have no sinister meaning and imply no wrongdoing or misconduct on the part of those engaged in the prohibited practices. It is a matter of common knowledge, of which we must take judicial cognizance, that the majority of mankind spend a goodly part of their waking hours in whiling or idling the time away, and much of that time is spent on public streets and highways and in public places. Daylight saving laws have been enacted in order that those employed during the day may have more time at their disposal for recreation and pleasure; more time to idle, loiter, and loaf. On our streets daily are seen hundreds and even thousands of idle men who have nothing to do and no place to go, through ho fault of their own, and are we to add to their misfortunes by declaring them lawbreakers and criminals? The public press informs us that three million tourists are expected to visit California, during the present year, and what will they come for and what will they do after their arrival but idle and loiter on the public streets and highways and in public places, because they will not be permitted to invade private property. In short, the multitudes who seek rest, recreation, and pleasure at summer and winter resorts and at sea shores are at best little more than idlers or loiterers.

As already stated, the right of the, territory, or one of its municipalities, to legislate against the obstruction of public streets and highways, whether caused by idlers or others, is not open to question. But a regulation as broad as this is wholly unnecessary for that purpose. Furthermore, the statute is as broad as the limits of the territory. It is not confined to congested streets or highways, but extends to every public highway and byway in the territory, whether traveled much or little. It even extends to public parks,. created for the express purpose of affording a place of recreation in which the public may idle and loiter to their hearts content. In the dissenting opinion it is said that the part of the statute relating to public places may be rejected without affecting the remainder. But, be it so, the act cannot be limited to some streets and highways and rejected as to others.

It is almost needless to say that such an act cannot be enforced, and that ho attempt will be made to enforce it, indiscriminately. It may be enforced against those poor hapless ones who are unable to assert or protect their rights, but as to all others it will remain a dead letter. It may be enforced to suppress one class of idlers in order to make a place inore attractive to other idlers of a more desirable class. - In any view we take of it, the act trenches upon the inalienable rights of the citizen to do what he will and when he will, so long as his course of conduct is not inimicable to himself or to the general public of which he is a part.

The judgment is affirmed.


author: SIBLEY, Circuit Judge.

text:
    BLACKSHEAR MFG. CO. v. UMATILLA FRUIT CO.
    No. 5979.
    Circuit Court of Appeals, Fifth Circuit.
    March 24, 1931.
    S. F. Memory, of Blackshear, Ga., and Hilton S. Hampton and Jno. W. Bull, both of Tampa, Fla. (Hampton & Bull, of Tampa, Fla., and S. F. Memory, of Blackshear, Ga., on the brief), for appellant.
    O. K. Reaves, G. E. Mabry, and Morris E. White, all of Tampa, Fla. (G. E. Mabry, O. K. Reaves, Morris E. White, E. C. Johnson, and Mabry, Reaves & White, all of Tampa, Fla., on the brief), for appellee.
    Before FOSTER, SIBLEY, and HUTCHESON, Circuit Judges.
   SIBLEY, Circuit Judge.

The Blackshear Manufacturing Company, plaintiff below, sued Umatilla Fruit Company, defendant, in three counts at law, and on the conclusion of its evidence a verdict was directed for the.defendant, followed by this ■appeal.

The first count was plainly in contract, alleging that the defendant promised to sell certain fertilizers as plaintiff’s salesman to responsible parties only, and to use care and diligence in endeavoring to collect the price, but that, notwithstanding the elapsing of a reasonable time for the performance of the promise, defendant had not used due care and diligence in endeavoring to collect. The count was traversed. There was no evidence submitted of an express promise to collect with diligence. We need not inquire whether one should be implied because also there was no sufficient evidence to show a breach of it. It was proven that no considerable collection was made, but the whole tendency of the evidence was to show, not that by diligence better collection might have been made, but, on the contrary, that the debts were uncollectible.

The second amended count alleges a contract of employment of defendant by plaintiff as a fertilizer salesman, and an agreement to use defendant’s best judgment in extending credit, and plaintiff’s reliance on defend- ’ ant’s judgment, honesty, and diligence in the premises, but that defendant did not use its best judgment, but so negligently extended eredit to customers whom it knew, or should have known, were not entitled to eredit, as to dissipate the plaintiff’s property to its loss in the sum of $15,593.99. The third count is similar in its frame to the second, but adds allegations of want of good faith on the part of defendant, and want of diligence in the collections as well as in the sales. The gist of. these two counts is negligence and bad faith rather than breach of contract, the contract of employment being alleged by way of inducement as the basis for the duty of good faith and diligence. 21 R. C. L. Pleading, § 34. Under the common-law forms which obtain in Florida, these counts sound in case rather than in assumpsit. At common law their joinder with a contract count would be fatal to the whole declaration upon demurrer, and error on the face of the record upon writ of error. 1 Chitty, Pleading, 199, 201, 205. But in Florida it is provided by statute, section 2585, Rev. Gen. St., 1920: “Causes of action, of whatever kind, by and against the same parties in the same rights, may. be joined in the same suit, except that replevin and ejectment shall not be joined together nor with other causes of action.” Our construction of the counts is therefore not embarrassed by considerations of misjoinder. The defendant, however, pleaded to each of these counts a general issue of never promised as alleged instead of not guilty, and the plaintiff by not demurring joined issue. It is urged that this established the counts as sounding in contract. The same error of pleading non assumpsit instead of not guilty occurred in Garland v. Davis, 4 How. 131, 11 L. Ed. 907. It was considered that the declaration, though setting out a contract as here, as matter of inducement, sounded in tort, and was not by the joinder of issue on such a bad plea converted into one in contract. Because of the faulty plea the verdict was set aside and amendment of the pleadings directed to be had in the court below. Revised General Statutes of Florida 1920, § 2656 provides: “Any plea which shall be good in substance shall not be objectionable on account of its treating the declaration either as framed for a breach of contract or for a wrong.” This statute may operate to make these pleas effectual as denials of the contract of employment, but whether they are so effectual or not there were additional' traverses of the allegations of negligence and bad faith, and these certainly presented goo’d issues for trial.

The evidence introduced tended to show a contract of employment as alleged in the counts, and the sale under it by defendant of more than $15,000 worth of fertilizers to some forty customers, all sales being made upon the judgment of the defendant and without'interference by plaintiff. The total collections made upon the notes, all of which were held by defendant, were but $100 from two customers only. Many of the customers were shown to have been at the time of the sales without property and of had financial repute in their community. Want of diligence or bad faith might well have been considered established by the jury, with consequent loss and damage to the plaintiff. The law exacts of every agent and employee diligence, good faith, and obedience to instructions in the execution of his agency or employment, and holds him liable for failures therein that occasion damage. 21 R. C. L., Prin. and Agent, § 9; 18 R. C. L., Master and Servant, § 13. The case should have been submitted to the jury on the second amended and third counts.

The court permitted witnesses to testify to the actual financial status of each customer, and to his reputation in the community, but refused to allow the witnesses to express an opinion as to whether, in view thereof, a business man of ordinary prudence would have credited him. The opinion was properly excluded. Witnesses are usually to tell what they know rather than what they think. Upon the faets detailed the jury were to form their opinion. The opinions of the witnesses could not safely aid them in doing so, and the multiplication of witnesses on the’ point might easily lead to embarrassing the trial. When all the faets can be given to the jury on an issue of negligence, it is usually best to stop there. 1 Greenleaf on Evidence (6th Ed.) § 441b; Camp v. Hall, 39 Fla. 536, 22 So. 792; Evans v. Josephine Mills, 124 Ga. 318, 52 S. E. 538; Mayor, etc., of City of Milledgeville v. Wood, 114 Ga. 370, 40 S. E. 239.

The assignment of error complaining of the exclusion of some letter cannot be considered because it fails to set out the substance of the evidence, as required by our Rule XI.

Reversed for further proceedings not inconsistent with this opinion.