author: WILBUR, Circuit Judge.

text:
    FIRST NAT. BANK OF SAN RAFAEL v. PHILIPPINE REFINING CORPORATION OF NEW YORK.
    No. 6417.
    Circuit Court of Appeals, Ninth Circuit.
    July 13, 1931.

      Luther Elkins, of San Francisco, Cal., and Thomas P. Boyd, of San Rafael, Cal. (George M. Naus, of San Francisco, Cal., of counsel), for appellant.
    Alfred Sutro, Eugene D. Bennett, and Samuel L. Wright, all of San Francisco, Cal. (Pillsbury, Madison & Sutro, of San Francisco, Cal., of counsel), for appellee.
    Before WILBUR and SAWTELLE, Circuit Judges, and NETERER, District Judge.
   WILBUR, Circuit Judge.

Appellant brought an action for the conversion of 7,159 gallons of denatured alcohol valued at $4,152. After written stipulation, the ease was tried by the court without a jury on August 28, 1930, and submitted to the court for its decision. On December 12,1930, the court entered an order for judgment as follows: “Ordered that the plaintiff take nothing, and that the defendant have judgment for its costs of suit. Let judgment be entered accordingly.” The same day judgment was entered in accordance with the order, and the appeal is taken from that judgment.

Appellant contends that the uneontro-verted evidence justified and required a judgment in its favor, and presents the evidence, for our consideration by a bill of exceptions.

The appellee objects to the consideration of the bill of exceptions or the question of the sufficiency of the evidence to justify the judgment in its favor for the reason that that question was not presented to the trial court at the proper time for its determination and that no exception is shown by the record upon which such a contention can be predicated in the appellate court. It appears from the bill of exceptions that at the close of the evidence the defendant (appellee) moved the court for a judgment in its favor. No similar motion was made at that time by the plaintiff (appellant) prior to the submission of the case. The matter was taken under submission upon written briefs. On the 12th of December, 1930, in the November, 1930, term of court, the court made and filed an order “that plaintiff take nothing and that defendant have judgment for costs. No finding, either general or special, was expressly made, nor placed on the record.” This recital in the bill of exceptions with reference to the findings of course is modified by the statement with reference to the order filed by the court which was a general finding in favor of the appellant. V. S. & P. Ry. Co. v. Anderson-Tully Co., 256 U. S. 408, 41 S. Ct. 524, 65 L. Ed. 1020; Newlands v. Calaveras Min. & Mill. Co. (C. C. A.) 28 F.(2d) 89. The bill of exceptions shows that, after the judgment was rendered and entered, appellant moved the court “that the Court render judgment for plaintiff, as a matter of law upon the pleadings and evidence, in the sum of $3,006.78.” The motion was based upon the insufficiency of the evidence, as a matter of law, to support a judgment in favor of the defendant and that it was sufficient, as a matter of law, to support a judgment for plaintiff. The record recites: “Said motion was denied and the exception allowed and taken.” The second motion is of similar purport, that the court make a declaration of law to the effect that the plaintiff was entitled under the pleadings and evidence to a judgment against the defendant for said amount upon the same ground. The third motion to like effect requested the court to make a finding of the facts on the ground that it is the duty of the court to make a general or special finding on the facts and that a judgment without it was unauthorized. These motions were denied “and an exception allowed and taken.”

It has been held by this court, in an opinion by Judge Rudkin, and concurred in by Judges Gilbert and Hunt, that under such circumstances this court has no jurisdiction to pass upon the sufficiency of the facts to support a finding. Edwards v. Robinson, 8 F.(2d) 726, 727. The court there said: “There was no motion or request at or before the close of the trial to find generally for the plaintiff, or to make special findings in favor of the plaintiff, and there was no ruling of the court on that question. In this state of the record, it is well settled that an appellate court cannot consider the sufficiency of the testimony to support the findings.”

It appears in that ease that such a motion was made ten days after the decision of the trial court in favor of the appellee had been announced by the court. The court stated, “Under such circumstances, we are without jurisdiction to consider the sufficiency of the testimony to support the findings.” 8 F.(2d) 726, 727, supra.

In view of the contention of the appellant that decisions of the Supreme Court and of the Circuit Court of Appeals for the Eighth Circuit justify and require a further consideration of this point, we will briefly refer to such decisions.

The statutory rule with reference to a review of a civil case tried in a district court without the intervention of a jury provides that the rulings of the court in the progress of the trial of the cause, “if excepted to at the time, and duly presented by a bill of exceptions, may be reviewed upon a writ of error or upon appeal. * * * ” 28 USCA § 875. The appellant did not during the trial of the ease and at the conclusion of the evidence invoke a ruling by the court as to the sufficiency of the evidence to support or require a judgment in its favor. The situation is substantially the same as though a case at law were submitted to a jury without a motion for a directed verdict in favor of the plaintiff; the determination of controverted facts being left in one ease to the judge by stipulation and in the other to the jury as triers of the fact. In either ease the judgment of the court upon the legal sufficiency of the evidence must be invoked by proper motion to authorize an appellate court to consider that question. We cite the following decisions by this court upon that proposition: Dunsmuir v. Scott, 217 F. 200; Callan v. U. S. Spruce Production Corp., 28 F.(2d) 770; Newlands v. Calaveras Min. & Mill. Co., 28 F.(2d) 89; Sierra Ld. & Live Stk. Co. v. Desert P. & M. Co., 229 F. 982; Feather River Lbr. Co. v. United States, 30 F.(2d) 642. Appellant seeks to avoid the force of these decisions by the exceptions taken to the denial of the motions made after the judgment was entered. Its claim, in sub¿ stance, is that, inasmuch as the motions were made after judgment was rendered but during the same term of court, upon its exceptions to the rulings of the trial court refusing to reconsider the matter or grant the motion, we can review the sufficiency of the evidence to sustain the judgment in the same manner and with like effect as if a motion for a judgment upon that ground had been interposed, denied, and exception noted before the rendition of the judgment. This contention seems to find support in two decisions of the Circuit Court of Appeals of the Eighth Circuit. Commonwealth Casualty Co. v. Aichner, 18 F.(2d) 879; McCandless v. Haskins, 28 F.(2d) 693. In both of these eases the evidence was reviewed, and in the first case [18 F.(2d) 879] the judgment was reversed on the ground that the evidence was insufficient to support the judgment, and in the latter [28 F.(2d) 693] the judgment of the lower court was affirmed after consideration of the evidence. These eases are not only in conflict with the above-cited decisions of this court, but also, we think, with other decisions of that court. Wear v. Imperial Window Glass Co., 224 F. 60; United States v. A., T. & S. F. Ry. Co., 270 F. 1; Southern Surety Co. v. United States, 23 F.(2d) 55.

The decision in Commonwealth Casualty Co. v. Aiehner, supra, is based upon the decision of the Supreme Court in So. Utah Mines v. Beaver County, 262 U. S. 325, 43 S. Ct. 577, 578, 67 L. Ed. 1004, which dealt with a situation where the case was tried by the court without a jury and no exception was taken and no request was made for special findings or for a declaration of law during the progress of the trial. The trial court gave its decision and general finding orally and directed judgment for the defendant which was duly entered. Nearly three months later, on motion of the plaintiff, and against defendant’s objection, the court made and filed special findings of fact. The defendant, before the Supreme Court challenged the power of the court to make these special findings, insisted that they should be disregarded, in which event nothing substantial should be left for review. After stating the fact that the special findings were made at the same term, the court states:

“The rule is that during the term the record is ‘in the breast of the court’ and may be altered during that time in its discretion as justice may require. Goddard v. Ordway, 101 U. S. 745, 752, 25 L. Ed. 1040; Ayres v. Wiswall, 112 U. S. 187, 190, 5 S. Ct. 90, 28 L. Ed. 693; Doss v. Tyack, 14 How. 297, 312, 14 L. Ed. 428; Barrell v. Tilton, 119 U. S. 637, 643, 7 S. Ct. 332, 30 L. Ed. 511; Bas-sett v. United States, 9 Wall. 38, 41, 19 L. Ed. 548.
“That rule is applicable here and the motion to dismiss is accordingly denied.”

This case, it will he observed, goes no further than to hold that during the term of court in which the judgment was rendered the court, in the exercise of its sound discretion, may make special findings, which when made constitute a part of the judgment roll. The question in the case at bar, however, is an entirely different one; that is, must it do so if so requested? It is fundamental that the exercise of the discretion of the trial court is not subject to review on appeal, so that the ruling of the trial court in denying or granting such a motion made after a judgment cannot be reviewed. Here, as appears from the record, appellant made no motion invoking a ruling by the court, no ruling was made by the court and no exception was reserved by the appellant which raised the question during the trial as to whether or not the evidence was sufficient, as a matter of law, to go to the jury or to be considered by the judge as a trier of the facts. The question here is whether after judgment a motion directed to the discretion of the trial judge and denied by it can be made the basis for reviewing a question of law which was not presented to the trial court during the trial. In other words, can the denial of such a motion so made inject into the record an error in the trial which did not occur during the trial. Thus stated, the question answers itself. The Supreme Court dealt with a somewhat similar question in Fleischmann Construction Co. v. U. S., 270 U. S. 350, 46 S. Ct. 284, 286, 70 L. Ed. 624, decided March 1, 1926. We quote from that opinion as follows :

“ * * * in April, 1923, before action had been taken on this report, the parties filed a written stipulation, under section 649 of the Revised Statutes [28 USCA § 773], waiving a jury and agreeing that all the issues might be tried and determined by the court.
“In August, the District Judge handed down an extended written opinion [298 F. 320] in which he considered the entire case as to the facts and law. * “ * No special findings of fact had been requested; and none were made.
“On the same day a judgment was entered. * * * The defendants, without having excepted to any of the rulings or conclusions of the court or requested any special findings of fact, sued out, in September, a writ of error from the Circuit Court of Appeals. After this writ had issued, however, the District Judge, in October, granted them a ‘bill of exceptions/ which recited that the court had filed its opinion and entered its final judgment on the same day, without notice to the parties; set for the various exceptions then, for the first time, noted by the defendants ‘to the rulings, finding of fact and conclusions of law by the court’ in the opinion and judgment; and stated that, by reason of the circumstances, these exceptions were ‘to be taken as severally made at the time thereof and before the entry of judgment thereon.’ And later the District Judge granted them another ‘bill of exceptions/ embodying the evidence and the proceedings before the master, and setting forth in the same manner other exceptions to be taken, for like reason, as made before the entry of the judgment.
“The Circuit Court of Appeals disposed of the case in a per curiam opinion [298 F. 330] stating that, while there was a serious question whether there was anything before it because of the want of due exceptions, it preferred to rest the affirmance of the judgment on the merits, as it thought the District Court was clearly right on all the points decided.
“I. The assignment of errors challenges the affirmance of the judgment because of the action of the District Court in overruling the demurrers to the original and amended declaration and petitions; in allowing the amendments to the original declaration and petitions; and in making various other ‘holdings’ and ‘findings’ in reference to matters of law and fact. It is clear that none of these questions are open to review except those which arise upon the pleadings. * * *'
“And it is settled by repeated decisions, that in the absence of special findings, the general finding of the court is conclusive upon all matters of fact, and prevents any inquiry into the conclusions of law embodied therein, except in so far as the rulings during the progress of the trial were excepted to and duly preserved by bill of exceptions, as required by the statute. Norris v. Jackson, 9 Wall. 125, 128, 19 L. Ed. 608; Miller v. Insurance Co., 12 Wall. 285, 300, 20 L. Ed. 398; Dickinson v. Planters’ Bank, supra [16 Wall. 257, 21 L. Ed. 278]; Ins. Co. v. Folsom, 18 Wall. 237, 248, 21 L. Ed. 827; Cooper v. Omohundro, 19 Wall. 65, 69, 22 L. Ed. 47; Ins. Co. v. Sea, 21 Wall. 158, 161, 22 L. Ed. 511; Martinton v. Fairbanks, 112 U. S. 670, 673, 5 S. Ct. 321, 28 L. Ed. 862; Boardman v. Toffey, 117 U. S. 271, 272, 6 S. Ct. 734, 29 L. Ed. 898; British Mining Co. v. Baker Mining Co., supra [139 U. S. 222, 11 S. Ct. 523, 35 L. Ed. 147]; Lehnen v. Dickson, 148 U. S. 71, 73, 13 S. Ct. 481, 37 L. Ed. 373; St. Louis v. Telegraph Co., 166 U. S. 388, 390, 17 S. Ct. 608, 41 L. Ed. 1044; Vicksburg Ry. v. Auderson-Tully Co., 256 U. S. 408, 415, 41 S. Ct. 524, 65 L. Ed. 1020; Law v. United States, 266 U. S. 494, 496, 45 S. Ct. 175, 69 L. Ed. 401; Humphreys v. Third National Bank, 75 F. 852, 855, 21 C. C. A. 538; United States v. [Sioux City] Stock Yards Co. [C. C. A.] supra [167 F. 127]. To obtain a review by an appellate court of the conclusions of law a party must either obtain from the trial court special findings which raise the legal propositions, or present the propositions of law to the court and obtain, a ruling on them. Norris v. Jackson, supra [9 Wall. 129, 19 L. Ed. 608]; Martinton v. Fairbanks, supra [112 U. S. 673, 5 S. Ct. 321, 28 L. Ed. 862], That is, as was said in Humphreys v. Third National Bank, supra [75 F. 855], ‘he should request special findings of fact by the court, framed like a special verdict of a jury, and then reserve his exceptions to those special findings, if he deems them not to be sustained by any evidence; and if he wishes to except to the conclusions of law drawn by the court from the facts found he should have them separately stated and excepted to. In this way, and in this way only, is it possible for him to review completely the action of the court below upon the merits.’
“These rules necessarily exclude from our consideration all the questions presented by the assignment of errors except those arising on the pleadings. All the others relate either to matters of fact or to conclusions of law embodied in the general finding. These are not open to review, as there were no special findings of fact and no exceptions to the rulings on matters of law were taken during the progress of the trial or duly preserved by a bill of exceptions. The defendants offered no exceptions to the rulings of the court until after the writ of error had issued, transferring jurisdiction of the ease to the Court of Appeals. And the recitals in the subsequent ‘bills of exceptions’ that the exceptions, then for the first time, presented, were to be taken as made before the entry of the judgment, are nugatory. A bill of exceptions is not valid as to any matter which was not excepted to at the trial. Walton v. United States, 9 Wheat. 651, 657, 6 L. Ed. 182; Insurance Co. v. Boon, 95 U. S. 117, 127, 24 L. Ed. 395. And it cannot incorporate into the record, nunc pro tune as of the time when an exception should have been taken, one which in fact was not then taken. Walton v. United States, supra [9 Wheat. 658, 6 L. Ed. 182]; Turner v. Yates, 16 How. 14, 29, 14 L. Ed. 824.”

In the ease at bar it is clear, we think, that, if we pass upon the questions of the sufficiency of the evidence to justify the judgment, we will be in effect considering an exception which was not in fact taken to a ruling which was not in fact made, upon a question which was not even presented for the consideration of the trial court at the time fixed by law therefor. In view of the quotation of the Supreme Court from Humphreys v. Third National Bank (C. C. A.) 75 F. 852, 855, supra, it should be added that it is well settled that the insufficiency of the entire evidence to support the judgment can be raised by an appropriate motion for a judgment based upon that ground. Societe Nouvelle d’Armement v. Barnaby (C. C. A.) 246 F. 68; Ozark Pipe Line Corp. v. Decker (C. C. A.) 32 F.(2d) 66; Maryland Casualty Co. v. Klickalumber Co. (C. C. A.) 41 F.(2d) 222. In Insurance Co. v. Boon, 95 U. S. 117, 126, 24 L. Ed. 395, the Supreme Court had occasion to consider the right of a Circuit Court at a subsequent term to make findings of fact and conclusions of law to be filed nunc pro tune as of the previous term. It was held that, where the trial court in the previous term had filed an opinion of the court, and where the finding was but an amendment or correction in form of the finding contained in the opinion and was not of its substance, there is enough to amend by. It is stated that:

“The opinion, which was filed concurrently with the entry of the judgment, contained substantially, almost literally, the same statement of facts, and relied upon it as the foundation of the judgment given. True, that opinion is no part of the record, any more than are a judge’s minutes. * * * All that was wanting to make it a sufficient special finding was that it was not entitled ‘finding of facts.’ The amendment or correction, therefore, contradicts nothing in the record as made at April Term, and it is in strict accordance with the truth. * * *
“It is the ease of a correction of the record, not merely an allowance of exceptions never taken, and necessary to have been taken, to bring an interlocutory ruling upon it. We hold now, as we have always holden, that when bills of exceptions are necessary to ■bring any matter upon record so that it can be reviewed in error, it must appear by the record that the exception was taken at the trial. A judge aarmot afterwards allow one not taken in time. Could he allow it, the ree- ord would be made to speak falsely(Italics ours.)

It should perhaps be stated that three of the justices dissented from this view on the ground that the opinion filed at April term was at most a general finding and was in legal effect a denial of special findings instead of an attempt to make them.

It is clear from the foregoing that the question of the sufficiency of the evidence to justify the judgment cannot be reviewed by this court.

Judgment affirmed.


source: Caselaw Access Project

author: DAVIS, Circuit Judge,

license: Public Domain

text:
    SCALP LEVEL COAL MIN. CO. et al. v. NEW ENGLAND COAL & COKE CO.
    No. 4349.
    Circuit Court of Appeals, Third Circuit.
    Oct. 11, 1930.
    Rehearing Denied June 4, 1931.
    John M. Freeman, H. F. Stambaugh, Albert C. Hirseh, Ralph H. Demmler, and Watson & Freeman, all of Pittsburgh, Pa., for appellants.
    Edwin W. Smith, of Pittsburgh, Pa., George E. Shaw and Reed, Smith, Shaw & McClay, all of Pittsburgh, Pa., for appellee.
    Before BUFFINGTON and DAVIS, Circuit Judges, and AVIS, District Judge.
   DAVIS, Circuit Judge,

This is an appeal from a judgment of the District Court for $111,965.10 entered on the verdict of a jury for damages for the breach of a contract.

On March 20, 1914, a written contract was entered into between the Scalp Level Coal Mining Company, hereinafter called the Scalp Company, of the first part, and John Loehrie, of the second part, and the New England Coal & Coke Company, hereinafter called the New England Company, of the third part. The New England Company agreed to loan the Scalp Company $100,000 for the purchase and development of coal lands. In consideration of this loan, Loehrie and the Scalp Company entered into an agreement with the New England Company, whereby the Scalp Company appointed the New England Company its exclusive sales agent of the entire output of its mines for a period of five years beginning April 1,1914, and if at the expiration of that time the New England Company had performed all its obligations to the Scalp Company as set forth in the agreement, the New England Company was to have the option of extending the contract for the sale of the entire output of the Scalp Company for a second period of five years beginning April 1, 1919.

The Scalp Company, however, did not give to the New England Company all of its coal for sale during the five years in question. It mined 1,542,371 tons of coal during that time, and of this amount the Scalp Company gave 332,187 tons to others than the New England Company to sell. The New England Company brought this suit to recover the profit which it would have made on the 332,187 tons which it says it could and would have sold at a profit had the Scalp Company kept its agreement with it.

The case was first brought on the equity side of the court and by it referred to a master, but when the case was subsequently brought before the court, on exceptions to the master's report, the three District Judges sitting in banc held that the ease should have been brought on the law side of the court and so it transferred the ease to that side. The case was tried to the court and jury and a verdict was rendered in favor of the plaintiff for $111,965.10, and from that judgment an appeal has been taken to this court.

The sixty-eight errors alleged by the defendant have been compressed into several propositions. We have considered these and have resolved all of them against the defendants except those relating to the mitigation of damages.

The defendants contend that the plaintiff was required to use reasonable efforts to mitigate the damages. But the learned trial judge held that this was not a case for the application of the rule for the mitigation of damages because the contract was not for the purchase of the cOal by the plaintiff, but was a sales-agency contract which did not restrict the plaintiff to the sale of the coal mined by the Scalp Company; that it could, inferentially at least, have purchased other coal on the open market and thus supplied all the orders which it could have secured.

The rule of law is that where a party is entitled to the benefit of a contract afid can with reasonable exertions save himself from loss arising from its breach, it is his duty to do so and he is entitled to only such damages as he could not with reasonable efforts and expense have prevented. Wicker v. Hoppock, 73 U. S. (6 Wall.) 94, 18 L. Ed. 752; Warren v. Stoddart, 105 U. S. 224, 229, 26 L. Ed. 1117; United States v. United States Fidelity & Guaranty Co., 236 U. S. 512, 526, 35 S. Ct. 298, 59 L. Ed. 696; Chesapeake & Ohio Railway Co. v. Kelly, 241 U. S. 485, 489, 36 S. Ct. 630, 60 L. Ed. 1117, L. R. A. 1917F, 367; Chamberlin v. Morgan, 68 Pa. 168; Morris v. Supplee, 208 Pa. 253, 57 A. 566; Sharpsville Furnace Co. v. Snyder, 223 Pa. 372, 72 A. 786; French v. Pullman Motor Car Co., 242 Pa. 136, 88 A. 876; Jessup & Moore Paper Co. v. Bryant Paper Co., 297 Pa. 483, 147 A. 519. Was there anything in this case to take it out of the general rule? We see nothing in the nature of this contract which makes the general rule inapplicable. The plaintiff was under the duty to use all reasonable efforts to mitigate the damages arising from the breach of the contract, and what those damages were, and whether or not with reasonable efforts they could have been mitigated wholly or in part, were questions for the determination of the jury. The plaintiff recognized that this rule of law is applicable to this case. It purchased during the period covered by the contract large quantities of Pennsylvania low volatile coal on which it made a considerable profit, and this in its supplemental statement of claim it applied in mitigation of damages.

Defendants offered to submit evidence “for the purpose of showing that the plaintiff sustained no loss by reason of the alleged breach of the contract,” but the learned trial judge refused to admit it on the ground that “this was not a case for the application of the rule of mitigation” of damages. In this, we think, he fell into error.

The judgment is reversed, and a new trial granted.


author: CLARK, District Judge.

text:
    CLAPP v. HEINER, Internal Revenue Collector.
    No. 4283.
    Circuit Court of Appeals, Third Circuit.
    June 23, 1931.

      Samuel Kaufman, S. Leo Ruslander, and Geo. K. Warn, all of Pittsburgh, Pa., for appellant.
    Louis E. Graham, U. S. Atty., and John A. McCann, Sp. Asst. U. S. Atty., both of Pittsburgh, Pa. (C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Thomas H. Lewis, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for appellee.
    Before DAVIS, Circuit Judge, and CLARK and AVIS, District Judges.
   CLARK, District Judge.

The plaintiff is aggrieved at the failure of the Commissioner of Internal Revenue to refund the taxes assessed on payments by the Union Trust Company to beneficiaries under three trust agreements dated March 12,1917. By those deeds of trust, Mr. Clapp, as set-tlor, conveyed shares of stock in the Aluminum Company of America to the aforesaid trust company in trust to pay the dividends therefrom to his wife and two daughters. The trust for the wife was for life, and for the daughters for life, and to their children and grandchildren within the limits prescribed by the rule against perpetuities.

The contest between the citizen and his government over taxes will beyond question last as long as that other great struggle with which it is often coupled. To describe its various phases as evasion rather than as avoidance seems to us to use the language of the ultimately victorious contestant rather than to speak as an impartial observer. The artifice or cunning implicit in the first term is not consistent with the approval given by the courts to a disposition of property in the manner best suited to avoid taxation. Mr. Justice Holmes, speaking for the Supreme Court in the ease of Bullen v. Wisconsin, 240 U. S. 625, at pages 630, 631, 36 S. Ct. 473, 474, 60 L. Ed. 830, said:

“We do not speak of evasion, because, when the law draws a line, a ease is on one side of it or the other, and if on the safe side is none the worse legally that a party has availed himself to the full of what the law permits. When an act is condemned as an evasion, what is meant is that it is on the wrong side of the line indicated by the policy if not by the mere letter of the law.”

Within the past week we are in receipt of two circulars advertising two books whose titles speak for themselves — Robinson, Saving Taxes in Drafting Wills and Trusts, and Lee’s, Minimizing Taxes. By the same token, the state cannot be criticised for eontin-uing the battle by legislation designed as an effective counter attack. The principal case presents one such skirmish.

Even since, the Statute of Uses, the trust has served as a means of escape, from the embarrassments of ownership. Its employment to avoid this particularly onerous incidence was inevitable. So the estate was divided among the family and the surtax became the inverse reward of fertility. Taxation being by definition dependent uj)on beneficial receipt, the government had no answer for this procedure unless it was willing to declare such transactions presumptively fraudulent. Harvard Law Review, vol. 43, p. 1286.

The “cake and eat it too” east of the legal mind soon, however, furnished the weapon appropriate to barrage these trenches, behind which the eestuis were dug in. So the stratagem of the revocable trust was met.by a provision of the Revenue Act which dealt expressly with these attempts to keep the actual control of untaxable property. In Holmes Federal Taxes (6th Ed.) pages 3 and 4, we find this legislation described as follows :

“It has been realized that many provisions of the 1921 law open the door too wide to tax avoidance and many provisions of the new statute reflect a desire on the part of congress to remedy this sort of defect in the 1921 law. Chief among this class of changes are those relating to the organization and reorganization of corporations, the basis for depreciation and depletion upon the transfer of property to a corporation and the various provisions relating to transfers in trust. * * *
“Other provisions reflecting a desire to close avenues of tax avoidance are the provision taxing the income of revocable trusts in the hands of the grantor and treating in a similar manner trusts the income of which may in the discretion of the grantor be either distributed or accumulated, or the income of which is to be applied to the payment of insurance premiums on policies covering the life of the grantor.”

It first appears as section 219 (g) of the Revenue Act for 1924 (26 USCA § 960 note), and is found in identical language in every Revenue Act passed since then. Revenue Act 1928, § 166 (26 USCA § 2166):

“Where the grantor of a trust has, at any time during the taxable year, either' alone or in conjunction with any person not a beneficiary of the trust, the power to revest in himself title to any part of the corpus of the trust, then the income of such part of the _ trust for such taxable year shall be included in computing the net income of the grantor.”

No sooner was the Government’s position consolidated by this provision, than the legal shock troops of the embattled taxpayer began a fresh assault. The opening guns wére of course directed at its constitutionality. This argument met with no favor in the courts, and we find the Supreme Court in the ease of Corliss v. Bowers, Collector, expressly sustaining the statute in an opinion handed down one week prior to the argument of the ease at bar. Corliss v. Bowers, Collector, 281 U. S. 376, 50 S. Ct. 336, 74 L. Ed. 916.

Forced to abandon this position, counsel are attempting to infiltrate the enemy’s position through the medium of the clause of the trust agreement, which requires six months’ notice of revocation. His argument in this respect is based, first, on a curious interpretation of a phrase in the statute, and, secondly, on some general theory of injustice.

He contends that the notice of revocation requirement is inconsistent with the words “at any time,” which appear in the larger expression of the statute, as follows: “Where the grantor of a trust has at any time during the taxable year * * * the power to revest in himself title to any part of the corpus of the trust.” In other words, he says that the indefinite adjective pronoun “any” is synonymous with its fellow indefinite adjective pronoun “all.” Like many other statements, this proposition is a half truth. “Any,” which derives from the Anglo-Saxon “Aenig,” meaning “one,” may unquestionably be used in a context where “all” could be substituted without changing the sense. Without attempting an exclusive classification of such use, we suggest eases wherein it modifies, either as adverb, adverbial phrase, or as cognate object, a subject;- as, for instance, “Any contract under seal is valid.” “I will plead at any time.” “I will try any case.” Where, however, “any” is used in a context where the substitution of “all” requires a different and broader meaning, it seems to us clear that “any” must be interpreted in its narrower sense; the user of; the language being assumed to have before him both meanings, and to have, therefore, deliberately made his selection. So, in the principal ease, the context refers to the conditional happening of an event which may occur one or more times. The choice, then, of “any” and the rejection of the alternative, “all,” indicate its interpretation as “one” or “once.”

The appeal to conscience made by the taxpayer might be answered generally by saying that in taxation that guide has little if any place. Dane v. Jackson, 256 U. S. page 589, 41 S. Ct. 566, 65 L. Ed. 1107; Ft. Smith Lumber Co. v. Arkansas, 251 U. S. page 532, 40 S. Ct. 304, 64 L. Ed. 396; Forsyth v. Hammond, 166 U. S. page 506, 17 S. Ct. 665, 41 L. Ed. 1095. Apart from that, however, the argument evinces a misconception of the legal theory on which the taxation of revocable trusts has. been sustained. That theory does not concern itself with any actual receipt of income, but rather, as Mr. Justice Holmes says (Corliss v. Bowers, 281 U. S. 376, 50 S. Ct. 336, 337, 74 L. Ed. 916), with what is “subject to a man’s unfettered command.” The hard and imaginary cases suggested in appellant’s brief, having as they do with enjoyment of income rather than with power over it, are therefore beside the point.

The judgment is affirmed.


author: VAN VALKENBURGH, Circuit Judge.

text:
    UNITED DRUG CO. v. IRELAND CANDY CO. et al.

    No. 8943.
    Circuit Court of Appeals, Eighth Circuit.
    May 21, 1931.

      Jesse A. Holton, of Boston, Mass. (Delos G. Haynes, of St. Louis, Mo., on the brief), for appellant.
    Chester T. Neal, of Springfield, Mass. (James L. Hopkins, of St. Louis, Mo., on the brief), for appellees.
    Before STONE, KENYON, and VAN VALKENBURGH, Circuit Judges.

      Rehearing denied October 10, 1931.

   VAN VALKENBURGH, Circuit Judge.

Appellant sued the Ireland Candy Company, a Missouri corporation with its principal place of business in St. Louis, for alleged infringement of United States patent No. 1,612,762, issued to one John M. Flynn December 28, 1926, of which said patent appellant is now the owner. The candy company answered, denying infringement, and alleged that it had purchased the mechanisms charged to be covered by the patent in suit from the National Equipment Company, a Massachusetts corporation. The National Equipment Company intervened, and ultimately filed answer, adopting that of the candy company previously filed, and moving that the complaint be dismissed for the reasons therein stated. By way of counterclaim, it charged that appellant had infringed United States patent No. 1,302,205 issued April 29, 1919, to one Antonio Pagliuca, interest acquired by the National Equipment Company on or about January 30, 1918. In its counterclaim the prayer was for an injunction and accounting against appellant. The Ireland Candy Company, as a customer of the National Equipment Company, became a nominal defendant in the case. Upon trial, the court found the issues in favor of the equipment company; decreed that the bill of complaint be dismissed; that claims 1, 3,10, 12,14,15, and 16 of the Pagliuca patent, No. 1,302,205, were valid and infringed; enjoined appellant from further acts of in-fringment; ordered an accounting for profits and damages; and appointed a master to take and state the account.

Both patents relate to the same type of mechanism. The Pagliuca patent is for a “Chocolate-Coating Machine And The Like”; the Flynn patent in suit relates to “Detailing Mechanism for Candy Coating Machines.” As appears from this record, the Pagliuca patent may fairly be called a basic or pioneer patent in the art with which it deals. The nature of the invention is thus described in the specification of letters patent No. 1,302,205:

“The present invention relates to an improvement in machines for coating chocolates or other coating machines in which chocolate or material in a liquid state is applied to the goods and the goods then passed from one moving part or conveyer to another while the coating upon them is still soft.

“A difficulty encountered in machines of this kind resides in the fact that when the goods pass from one conveyer to another there is a tendency for the coating to he drawn out or pulled away from the rear side or edge of the chocolate adjacent its bottom edge. This leaves a tail, so called, which is disfiguring and which it is desirable to eliminate. The -probable reason for the formation of this tail is the tendency of the coating, which is more or less viscous, to cling to the end of the conveyer off which the chocolate is moving and accordingly be drawn out as the chocolate passes onto the next conveyer and is carried forward by it.”

The machine to which this patented device is applied is called an “enrober,” and the device itself a “detailer.” The specification of the Flynn patent, No. 1,612,762, makes the following claims and concessions:

“This invention relates to detailing mechanism for candy coating machines and with regard to certain more specific features thereof to rod detailers arranged between conveyor sheets. The invention has for one of its principal objects to overcome the difficulties encountered in the use of prior constructions of this general character which have for some time been subject to criticism on account of disfiguring the bottom surfaces of the confections, and also on account of inefficient operation which left in many eases an unsightly confection. It is not suggested that the arrangement of a rod between the ends of adjacent feed sheets is new. Enrober machines have been equipped for some years with such a structure as broadly stated. The present invention deals with an improvement on the machines which have been in commercial use, the additional mechanical changes being relatively slight and confined to variations in size of the detailing rod, the speed at which it rotates and the arrangement of the rod with respect to the conveyor sheets and the arrangement of the conveyor sheets with respect to each other. While these modifications in themselves as mechanical differences from the prior art are slight, nevertheless, a most important commercial advantage has followed, and what was formerly regarded as a seriously defective organization now operates with the highest efficiency to produce evenly coated and trimmed confections. * * *
“Between adjacent ends of the feeding mechanisms there is arranged a detailing rod 13 of very small diameter, reduced in the size to about one-third of the diameter of the detailing rods formerly used. * * * The high speed of the rotation given to the very small detailing rod 13 produces a centrifugal action which causes this rod to travel in a circular path, the diameter of which is slightly greater than the diameter of the rod. * * * the detailing rod effectively acts to wipe off the tail of the soft coating which has been deposited on the confection during its passage along the screen 10.”

The operation of the enrobing machine is thus satisfactorily described in the brief of appellant: “The issue in this case concerns a small device which is a part of a large candy-coating machine called in the trade an Enrober. Enrobers are characterized by two endless belts, one of which is a wiremesh belt, known as the feed belt, and the other of which is usually a canvas, paper-covered or oilcloth belt, known as the delivery belt. In the operation of enrobers, what are known as centers, which may be of cream, caramel, nuts or various mixtures, are fed onto the wire feed belt at one end and are moved slowly and continuously along by the wire belt through a hath of commercial chocolate. The chocolate hath* is kept at a temperature of 88 to 90 degrees Fahrenheit, and is constantly agitated and circulated so as to cover these centers as they pass on the wire belt through the bath. After the centers have been covered by the hard chocolate, it is necessary to deliver them to a cooling room where the chocolate is hardened in position. For this purpose they are delivered from the endless wire belt to the delivery belt and conveyed by the latter to the cooling room where a number, of operatives, usually girls, standing at the far end of the delivery belt, take off the coated centers an,d pack them in suitable boxes or containers. The differences in temperature require two separate endless belts which necessitates a gap of some sort, either small or large, between the two belts. Enrobers have been in operation for a great many years, but the product of same had been distinguishable from high-grade, hand-dipped chocolates by reason of tails of chocolate hardened and extending from the rear lower edges of the pieces. These tails were caused by the soft chocolate coating being drawn out as the coated center left the wire belt and passed over to the delivery belt. There was just enough frictional engagement to pull out a tail of the soft chocolate so that when the confection reached the delivery belt it had an extension from its rear lower edge which might he anywhere from three-sixteenths of an inch to three-quarters of an inch in length. Because of this, Enrober-made chocolates were distinguishable from what was considered a high-grade confeetion.”

The problem then was to procure a device which would eliminate these disfiguring tails. The operation of the entire mechanism and the relationship of the elements under consideration are shown in the accompanying drawings:

Here, as numbered in Figs. 2 and 4, in the Flynn drawings, 10 represents the feed belt upon which the centers are fed and moved through the chocolate bath; 12 is the delivery belt to which the covered centers are delivered from the feed belt for conveyance to the cooling room; 13 is the detailer, located between the feed and delivery belts, for the purpose of eliminating the extension, or “tail,” from the rear lower edge of the covered center as it passes from one belt to the other. In the Pagliuca device the above-named elements are similarly situated. In the drawings 5 to 6 (1) is the feed belt, (2) the delivery belt, and (31) the detailer. The confection is seen passing from left to right until the elimination of the disfiguring “tail” is shown in Fig. 8. Appellant makes a point upon the apparent space between the two belts, and the size of the detailing rod or roll, as shown in the Pagliuca drawings; but there is nothing in the specifications or claims to condition such space and size; drawings are designed to show with clearness the general relationship of the elements, and not with precision the measurements involved, unless such a purpose is specially indicated. The striking similarity of the devices covered by the two patents is disclosed by reference to typical claims of each patent. Claims 12 and 14 of the Pagliuca patent read thus:

“12. In a machine of the type specified, the combination comprising conveyors arranged one forward of the other in continuation thereof with a space separating the adjacent ends of said conveyors, an interposed means presenting a moving surface in the space between the ends of said conveyors, and means whereby said conveyor's and interposed means may be operated and the moving surface of said interposed means may have a speed greater than the speed of said conveyors.”
“14. In a machine of the type specified, the combination comprising conveyors arranged one forward of the other in continuation thereof with a space separating the adjacent ends of said conveyors, a roll arranged in the space between the ends of said conveyors, means for operating said conveyors, means for operating said roll whereby the surface thereof will have a speed in excess of the running speed of said conveyors, and means .for cleaning the surface of said roll.”

From the Flynn patent we take claim numbered 1 for comparison: “A mechanism for removing the tails from confections comprising in combination a feeding sheet for coated confections, an extremely small rotating gyratory rod arranged close to the end of said sheet and operated at a high speed with a gyral action, and a second feed sheet having an end arranged close to the said small rod, the aforesaid parts being juxtaposed so as to enable the confection to get its entire support from the feeding means as it passes from one to the other.”

It will be observed that the elements employed in each patent are identical. In each there are the two sheets and the detailer occupying the same general position with reference to each other. In the Pagliuca patent the detailing element is called variously “an interposed means presenting a moving surface” and a “roll”; in the Flynn patent the same element is called a “rod.” This difference in nomenclature is unimportant. Obviously, th'e claims of the former patent read with exactness upon the described Flynn structure. The patentee of the latter concedes that the mechanical changes and differences from the prior art are slight, and are “eonfined to variations in size of the detailing' rod, the speed at which it rotates and the arrangement of the. rod with respect to the conveyor sheets and the arrangement of the conveyor sheets with respect to each other.” As has been pointed out, the general location of these elements with respect to each other is the same in both patents; the reciprocating operation of these elements is identical; and the result the same in kind, if not in excellence. It can scarcely be claimed that slight mechanical modifications of these same elements, such as bringing the sheets a little closer to' each other, slightly depressing -the sfirfaee of the detailing roll or rod, decreasing its size and increasing its speed, as experimentation in operation might dictate, could rise to the plane of novelty and invention, and could operate to remove the later device from the application of the claims of a prior basic patent entitled to a liberal range of equivalents.

The patentee of the Flynn, patent depended upon the alleged gyral action of the detailing rod in his application to the Patent Office. It was upon this consideration only that his application was allowed. This gyral action is claimed to be attained by the employment of a small rod operated at a high speed — how “small” and how “high” is not stated in the claims, and to them we must look for ascertainment of the invention. In the specification it is stated that the rod should be very small, reduced in size to “about one-third of the diameter of the detailing rods formerly used.” From the record this description is still indefinite. It is a matter of some dispute whether any such rod will “gyrate,” causing it “to travel in a circular path, the diameter of which is slightly greater than the diameter of the rod,” unless the rod itself is bent, or its bearings are loose and not perfectly fitted; also whether such a result is useful and desirable. But, however this may be, it is clear that, from the teaching of the Flynn patent, no one skilled in the art could construct and operate its detailing device without experimentation to determine both the size of the rod and the speed at which it must be driven. This court, condemning indefiniteness of this nature in Cleveland Gas Burner, etc., v. American Heater Corporation, 38 F.(2d) 760, 762, said:

“There is no description of this specific structure in the specification, and claim 5 contains no description of the invention adequate to render it useful and to disclose a practical invention. The patent fails to satisfy the requirements of section 4888, Rev. St. (35 USCA § 33), which provides that the application shall contain a written description of the manner and process of making and using the invention fin such full, clear, concise and exact’ terms as to enable any person skilled in the art to make and construct it. Beidler v. United States, 253 U. S. 447, 40 S. Ct. 564, 64.L. Ed. 1006; Stewart v. American Lava Co., 215 U. S. 161, 30 S. Ct. 46, 49, 54 L. Ed. 139.

“As said by the Supreme Court in the case last cited 'the public are told little more than to try experiments until they find a burner that works.’ ”

“If description of patent is so vague and uncertain that no one can tell, except by independent experiments, how to construct patented device, patent is void, since object of Rev. Stat. § 4888 (Comp. St. § 9432), requires that it apprise the public of what pat-entee claims as his own, courts of what they are called on to construe, and competing manufacturers and dealers of exactly what they are bound to avoid.” Reflectolyte Co. v. Luminous Unit Co. (C. C. A. 8) 20 F.(2d) 607.

But we do 'not think the modifications claimed are sufficient to differentiate the Flynn from the Pagliuea patent. In the specification of the latter, the following language is found: The detailing roll is driven “preferably at an appreciably faster speed’ than the conveyers. * * *

“While the roll 31 (the detailer) will operate to eliminate the tails to a certain extent without especial regard to its speed in relation to that of the conveyers, yet the aetion is materially improved if the roll 31 be rotated faster than the conveyers. *' * *

“During the action just described the excess speed of the roll 31 over the conveyers and especially the conveyer 2 will not materially affect the movement of the chocolate or disturb the coating on the bottom of the chocolate, inasmuch as the roll lies below the-coated bottom surface of the chocolate which will be resting upon one or the other of the conveyers owing to the narrowness of the space between them within which the roll 31 is contained. * * *

“It will be understood of eourse that the invention might be applied in other connections than that referred to and that considerable variation from that shown might be employed in the means for practising it.”

This teaching respecting the comparative speed of detailer and conveyers is carried forward and repeated in the claims. It is apparent that Flynn merely considered it* desirable to increase the speed of the detailing rod over what may have been thought necessary theretofore, and sought to make this action a distinguishing feature of his patent.

Such “slight modifications” as Flynn claims to have made do not constitute invention. He uses the same “elements functioning in the same way and producing the same result, with perhaps difference in degree only.” Reflectolyte Co. v. Luminous Unit Co. (C. C. A. 8.) 20 F.(2d) 607.

“Changes in degree, proportion, or symmetry in a machine, where it does the same thing in the same way and by substantially the same means, although it may produce better results, does not amount to patentable invention.” Torrey et al. v. Hancock (C. C. A. 8) 184 F. 61.

“A close copy which seeks to use the substance of the invention, and, although showing some change in form and position, uses substantially the same devices, performing precisely the same offices with no change in principle, constitutes an infringement.” Sanitary Refrigerator Co. v. Winters et al., 280 U. S. 30, 50 S. Ct. 9, 13, 74 L. Ed. 147.

Under the rules declared in the foregoing eases, it is our opinion that the Flynn patent, No. 1,612,762, is void for want of patentable invention and definiteness of description, and that appellant’s device infringes the Paglinea patent, No. 1,302,205, by which it was anticipated. Appellant seeks to avoid this result by the contention that the Pagliuea device was not a commercial success. This contention meets with strong contradiction in the record. But, whatever the truth may be in this regard, the “fact that machines built under patent were crude and imperfect does not militate against validity of patent, where such machines, though crude, were operative, since capacity to operate is one of the acid tests of utility as an element of invention.” McDonough v. Johnson-Wentworth Co. (C. C. A. 8) 30 F.(2d) 375.

This principle is thus stated by the Supreme Court in Hildreth v. Mastoras, 257 U. S. 27, 34, 42 S. Ct. 20, 23, 66 L. Ed. 112: “It is not necessary, in order to sustain a generic patent, to show that the device is a commercial success. The machine patented may be imperfect in its operation; but if it embodies the generic principle and works, that is, if it actually' and mechanically performs, though only in a crude way, the important function by which it makes the substantial change claimed for it in the art, it is enough. Telephone Cases, 126 U. S. 1, 535, 8 S. Ct. 778, 31 L. Ed. 863; Mergenthaler Linotype Co. v. Press Publishing Co. (C. C.) 57 F. 502, 505.”

Counsel for appellant in argument and the patentee in his specification lay great stress upon the “important commercial advantage” which, they claim, has followed this invention, “but such evidence is inconclusive and insufficient, where the changes made from the prior art are mere changes of mechanical construction, or of form, size, or materials.” Western Willite Co. v. Trinidad Asphalt Mfg. Co. (C. C. A. 8) 16 F.(2d) 446, 450; Klein v. City of Seattle (C. C. A. 9) 79 F. 200.

It is further urged that the equipment company is estopped because of laches ti maintain its counterclaim. Defendant probably learned of this infringement of the Pagliuea patent in September, 1924. It filed suit on its patent in the district of Massachusetts in November, 1928. That suit is still pending. Its amended answer in this ease was filed September, 1929. Its action is well within the six-year period fixed by the analogous statute of limitations. In such case the rule is thus stated by this court: “When' a suit is brought within the time fixed by the analogous statute, the burden is on the defendant to show, either from the face of the bill or by his answer, that extraordinary circumstances exist which require the application of the doctrine of laches; and, when sueh a suit is brought after the statutory time has elapsed, the burden is on the complainant to show, by suitable averments in his bill, that it would be inequitable to apply it to his ease.” Kelley v. Boettcher (C. C. A.) 85 F. loc. cit. 62,

See, also, Columbia Graphophone Co. v. Searchlight Horn Co. (C. C. A. 9) 236 F. 135.

Neither pleadings nor evidence disclose the “extraordinary circumstances” which require the application of the doctrine of lach-es. The trial court found against appellant upon the additional ground of prior use. Because of the conclusions reached, as herein stated, we find it unnecessary to determine this issue. The deeree below is affirmed.


author: ALSCHULER, Circuit Judge.

text:
    CITY OF EVANSVILLE, IND., et al. v. GASETERIA, Inc.
    No. 4437.
    Circuit Court of Appeals, Seventh Circuit.
    June 29, 1931.

      Frank C. Dailey, Percy E. O’Neal, George S. Dailey, and Robert A. Efroymson, all of Indianapolis, Ind., for appellants.
    Myron H. Gray, of Muncie, Ind., and William H. Thompson, Albert L. Rabb, and Thomas D: Stevenson, all of Indianapolis, Ind., for appellee.
    Before ALSCHULER, EVANS, and SPARKS, Circuit Judges.
   ALSCHULER, Circuit Judge.

Appellee brought its equity action to enjoin appellant city and its officers from interfering with appellee’s installation in the city of a gasoline filling station having bulk and service tanks of a total of some 51,000 gallons capacity. Upon final hearing, the court granted the relief prayed,.and the appeal is from the decree.

Federal jurisdiction is invoked upon the allegation that through the acts complained of appellee was and would be deprived of its property without just compensation, in violation of the Fifth Amendment, and be denied the equal protection of the laws, contrary to the Fourteenth Amendment of the Federal Constitution.

In November, 1929, appellee, desirous of installing such a station in Evansville, applied to the Indiana state fire marshal for requisite permit therefor. The marshal granted the permit, which recites tnat the filling and service station is to be located at the corner of John and Heidelbaeh streets and on the Illinois Central railroad land, and to consist of three tanks aggregating 47,000 gallons capacity and two tanks each of 2,000 gallons capacity, and attached a blue print of the plans.

This blue print and the marshal’s permit, together with application for permit from the city to erect the necessary buildings, were presented by appellee to one Voss, then Evansville’s building commissioner. Voss at first refused to grant the permit unless, as he said, appellee would agree in writing not to cut the price of gasoline in the city. With this proposition appellee refused to comply, and Voss indorsed on the application the following :

“The undersigned in the past has denied the Hoosier Petroleum Co. and others a building permit for the reason that they were retailing gasoline in other cities at a cut price and the undersigned does not want to be instrumental in starting in substance a gasoline war in Evansville and denies this permit for the same reason.
“Signed by
“John Voss
“Building Comm., City of Evansville.
“P. S. I acknowledge that the permit fee of $4.00 has been offered and tendered but was refused by me.
“[Signed] John Voss.”

It appears that Voss had -written the fire marshal under date of November 1, 1929, urging him to assist him in keeping out such price cutters.

There was evidently a renewal of the application for the permit, and it was granted on November 21, 1929, with the following in-dorsement thereon:

“Permit considered, approved and ordered by City Attorney, Henry Hardin, and also approved by Mr. Blanchard of City Plan Commission from the standpoint of Zoning and quantity of gasoline storage.
“[Signed] John Voss”

Thereupon appellee completed or let contracts for buying land and equipment; buildings upon the site were tom down, pipes were laid, tanks and other equipment were brought to the property,' and the work was in progress and some equipment installed when, on February 12, 1930, appellee was notified to discontinue excavation in an adjacent alley, and, on disobedience of the notice, appellee’s president, Williams, and agents were arrested, and the work was stopped.

It appears that appellee was not then excavating in the alley, hut had laid pipe across it, and excavation for the building and underground tanks was in progress within six inches of the alley. The board then based its complaint oh the assertion that appellee had no right to cross the alley with, pipe which was designed to carry gasoline from the storage tanks being located on the railroad property to the filling station proper on the opposite side of the alley.

On December 17, 1929, after the procurement of the site and letting of contracts by appellee, the city council passed an ordinance called “gasoline amendment,” amending the Building Code and declaring it unlawful, within the city limits, to install, above or below ground, storage tanks of combined ca-paeity exceeding 3,000 gallons at one location. The City Code had previously provided that such installations should be in accordance with the rules and regulations of the state fire marshal. These regulations provided that no filling station should be installed at any place within a city’s fire limits or fire zone, which had tanks of maximum capacity of over 6,600 gallons, and that bulk storage should not exceed 8,800 gallons. The rules also provided for making exceptions thereto on written request whenever the fire marshal deems that life and property will not thereby be endangered.

Section 2 of the new ordinance provided that it was to be in force fifteen days after its publication. The .publication claimed was by posting on the Federal building in Evansville December 24, 1929. Appellee contends that it never heard of the ordinance until February 5, 1930.

Under date of February 13, 1930, there was sent from the fire- marshal’s office to the Board of Works a letter which stated that if appellee’s bulk storage and filling station was within the fire limits of the city of Evansville it had no approval from his department, as the approval was procured by Mr. Williams, with definite understanding that his bulk storage station of over 8,800 gallons capacity was located outside of the fire limits of Evansville.

Under date of February 18, the fire marshal again addressed a letter to the board of works and to Williams wherein, after purporting to recite the facts, the fire marshal concluded that there was nothing hazardous to life and property in the erection, operation, and conduct of the station, and that he approved its erection upon the terms of the original permit, and for purpose of clarifying the particular ease modified the rule.

Under date of February 20, the state fire marshal, in a more formal instrument, addressed to the mayor, the board of works, the zoning board, the building commissioner, the city council of the city, and to appellee, purported to recite the facts of the ease, and made the order ratifying the original permit of November 18, 1929, and waiving the rules and regulations to the extent that the original permit may have been in conflict therewith.

Respecting the representation to the marshal that the station was not in the fire limits, Williams testified that the location was far from the business part of the city, and so remote from buildings that he honestly assumed it was not within the fire limits.

It appears that on January 8,1930, there was a change of administration in the city; a new mayor and others, including a successor to Voss as building commissioner. However, resistance to this installation appeared to have continued, and there are some faets tending to indicate tbat it was inspired or supported by one or more persons interested in' .other filling stations.

But under date of February 25, the then building commissioner revoked appellee’s permit of .November 21,1929, in so far as it'permits installation of tanks for storage of petroleum products, except as to two 4,000-gal-lon tanks for storage of motor oil and two 2,000-gallon tanks for gasoline and one 500-gallon tank for kerosene, and one 500-gallon tank for alcohol, such revocation purporting on its face to be predicated solely upon subsection 38 of section 6 of an ordinance of the city adopted August 17, 1925, known as the “zone ordinance,” which provides that in the district there defined buildings and premises may be used for any purpose except the following: “38. Petroleum Products, Refining or Wholesale Storage of Petroleum.”

The notice of revocation specified “wholesale storage of petroleum” as the particular part of the ordinance which appellee’s permit transgressed.

It thus appears that the prior pretexts upon which the carrying on of this work was resisted and stopped, after the permit had been granted, viz., misrepresentation to the fire marshal as to location outside of the fire limits, the contention of excavation of alley, which culminated in stopping the work and the arrest of Williams and others of ap-pellee’s employees and the claim that appel-lee had unlawfully crossed the alley with pipes, were all abandoned by the city, and the revocation was predicated wholly upon ap-pellee’s alleged transgression of the above-indicated provision of the zone ordinance.

Appellee properly maintains that appellants are precluded from now asserting grounds for revocation of the permit, other than those asserted in the revocation itself. Ohio & M. Railway Co. v. McCarthy, 96 U. S. 258, 24 L. Ed. 693; McCreary v. Strongman et al., 6 F.(2d) 441 (C. C. A. 3); Second Nat. Bank of Allegheny v. Lash Corporation, 299 F. 371 (C. C. A. 3).

The situation then was this: The city authorities, with definite knowledge of the location and of the plans for this work, granted the permit for it with the recited concurrence of a representative of the zone board. On the faith of the permit appellee exercised options for the purchase of land, and leased other land and rights to lay pipes, and entered into contracts for constructing the buildings and installing and equipping the plant. Building was then under construction, the tanks had been purchased and were partly installed, some of them were on railroad cars awaiting unloading at the site, and the work was progressing, and about $20,000 had been expended when the work was interrupted by the city.

There is much discussion in the briefs respecting the power of the state fire marshal to make exceptions to his rules. We do not deem it necessary to give much consideration to this proposition beyond referring to Gorieb v. Fox, 274 U. S. 603, at page 607, 47 S. Ct. 675, 676, 71 L. Ed. 1228, 53 A. L. R. 1210, where it is said, concerning a regulation by a city council: “In laying down a general rule, such as the one with which we are here concerned, the practical impossibility of anticipating in advance and providing in specific terms 'for every exceptional case which may arise, is apparent. And yet the inclusion of such cases may well result in great and needless hardship, entirely disproportionate to the good which will result from a literal enforcement of the general rule. Hence the wisdom and necessity here of reserving the authority to determine whether, in specific cases of need, exceptions may be made without subverting the general purposes of the ordinance.”

The statute of Indiana (Acts 1913, p. 556, e. 192; sections 11761-11780, Burns’ 1926; sections 11762-11778, Burns’ Supplement 1929), creating the office of fire marshal, conferred upon the marshal broad functions and authority, which upon their face are sufficiently inclusive to authorize him, in his good judgment, to adopt rules, and in particular cases to make reasonable exceptions thereto.

It would seem that the city, when granting the permit, recognized this as having been a proper ease for exceptional treatment, both as to fire limits and zone; for while the fire marshal may not have known just where Evansville’s fire limits were, it would be drawing quite too heavily upon the imagination to assume that the building commissioner who granted the permit, and the zone officer who concurred in it, not to mention the city attorney, did not have definite knowledge of these lines. Such knowledge was manifestly a fundamentally requisite qualification for proper exercise of their official duties. We are therefore justified in saying that their approval of the permit was, so far as they were concerned, a recognition of its propriety, the fire limits and zone ordinance to the contrary notwithstanding; and when, shortly thereafter, the fire marshal found this to he a proper case for a waiver of his rules respecting the granting of permits within the fire limits, or respecting the zone ordinance, the city officials, whether of the old or new administration, were in no position to maintain that the fire marshal had no right to make the waiver; in fact the city attorney, upon receipt of a copy of the letter from the fire marshal, wherein he waived his rules, advised the building commissioner that that action by the fire marshal permitted of no prohibition against the proposed construction.

It .is not seriously contended that there is anything unreasonable or improper or unjust in the fire marshal’s waiver, so far as concerns the facts upon which he assumed to make it. This installation was not within prohibited proximity to any buildings or institutions as specified in any ordinance. It was on the edge of the fire limits, with no substantial buildings within a hundred feet of it. It was alongside the Illinois Central Railroad, so located that the oil could be passed from the tank ears into the buried storage tanks adjacent to the tracks, and from these tanks by pipes into the buried service tanks of the station, avoiding any further transportation. The tanks were all to be under ground, thereby eliminating considerable of the danger which would otherwise be involved, and the storage tanks were not to be employed for the filling of tank wagons and the general sale of gasoline.

It is quite evident that this location of the station in proximity to the railroad afforded advantages which might enable the station either to make a larger profit or to make reduction in selling price, and it was just this situation which Voss openly proclaimed he was resisting by refusing to grapt permits for stations located in such relation to railroads. However honest his views may have been, he of course had no lawful right to make such discrimination. But it may be fairly gathered from the circumstances here appearing that it was this spirit and purpose which actuated the opposition to this installation.

To obviate such conclusions, it is pointed out that the revocation did not undertake to revoke the permit to the extent of the two 2,000-gallon tanks for the gasoline. But the special advantage of the location, as pointed out, would be minimized, if not wholly neutralized, if in connection with the service tanks there were not bulk tanks into which the contents of cars might be run; for if adequate storage capacity were not immediately available, further handling of the oil was quite inevitable.

It occurs to us further that the words “wholesale storage of petroleum” as used in the zone ordinance may not apply to an installation such as this.

If it be assumed that gasoline would be included in the classification of “petroleum,” nevertheless the word “wholesale” seems to us to be employed in its ordinary significance, indicating sale in quantities, as opposed to sales at “retail.” A “wholesale” storage, where the product is disposed of in bulk quantities, such as to tank wagons, which thus obtain their supplies for retail distribution, is quite unlike one where the storage tanks are designed only to supply by gravity through pipes the nearby smaller tanks out of which the gasoline is pumped for the consumer. There is no procession of vehicles, each taking its load of gasoline; none of the special hazards manifestly incident to such a traffic. In this view, the installation would not in any event fall within the terms of even the zone ordinance.

Expenditure by appellee of this large amount on installation and equipment of this plant, under the facts and circumstances here appearing, in our judgment presents a case where the revocation of the permit, and stoppage of the work, would deprive appellee of its property without due process of law. Dobbins v. Los Angeles, 195 U. S. 223, 25 S. Ct. 18, 49 L. Ed. 169.

There is yet another feature upon which so far we have not dwelt. It is the contention by appellee that the conduct of the city officials has been such as to deny appellee the equal protection of the laws. This was sought to be shown by the fact that, under substantially like circumstances as here appear, various others have been permitted to make and maintain large installations, far in excess of alleged ordinance limits, both before and after these occurrences, and they have been in no manner disturbed by the city or its officials. Examination of the transcript satisfies us that there is good reason to conclude that this is so.

We think it may be fairly said that the openly manifested purpose of preventing price cutting of gasoline within the city, and to that end resisting the location in the city of bulk or storage tanks tillable from ears on adjacent tracks, in connection with a filling station, has so far dominated these transactions on behalf of appellants as to indicate a definite purpose and plan of discriminating unlawfully against this installation. We think it may be fairly gathered from the evidence that appellants have purposely and unlawfully denied to .appellee that protection which they have nevertheless extended to practically all others. This, in our judgment, is violative of the Fourteenth Amendment to the Federal Constitution. Yick Wo v. Hopkins, 118 U. S. 356, 6 S. Ct. 1064, 30 L. Ed. 220; Dobbins v. Los Angeles, supra; D. J. Dunigan v. District of Columbia, 59 App. D. C. 384, 44 F.(2d) 892 (C. C. A.); City of Vincennes, Ind., v. Marland Refining Co., 33 F.(2d) 427 (C. C. A. 7).

We are satisfied that the relief awarded was equitable and justifiable, and the decree is affirmed.

       “Department of-Buildings
      “John Voss, Building Commissioner
      “Evansville, Indiana, November 1, 1929.
      “State Fire Marshal, Indianapolis, Ind.
      “Dear Sir: Several times in the past different parties have attempted to locate a retail gas filling station near a Railroad Switch for the purpose of retailing gasoline at cut prices and so far this office has been able to keep them out and we would like to continue to do so, because if one cut price concern gets started all the others will have to follow and the result is a complete demoralization of the business, as well as throwing a lot of men out of work and I would like before you ok any proposition of this kind to let me know, before giving your final decision and I will be obliged if you will help me out in this matter.
      “Yours truly,
      “[Signed] John Voss
      “Commissioner of Buildings.”

       To Gaseteria, Inc., Indianapolis, Ind.
      The Mayor, Board of Works, Zoning Board, City Building Commissioner, and City . Council of Evansville, Ind.
      In re: Installation and operation of combination bulk and public filling station at the corner of John and Heidelback Streets on the Illinois Central Railroad in the City of Evansville, Indiana.
      A permit having been issued by the State Fire Marshal Department on the 18th day of November, 1929, and by the Building Commissioner of the City of Evansville, Indiana, on the 21st day of November, 1929, to Gaseteria, Inc., of Indianapolis, Indiana, for the installation, erection and operation of a combined bulk and public filling station at the corner of John and Heidelback streets on the Illinois Central Railroad in the said City of Evansville, Indiana;
      The said Gaseteria, Inc., having proceeded to expend money for work, real estate, supplies and equipment in the installation and erection of said station, all in good faith and to the amount of approximately twenty two thousand dollars ($22,009.-00); and
      A controversy having arisen as to the legality of the said permit granted by the State Fire Marshal Department; and
      „ The State Fire Marshal having made investigation of all the facts in the matter does now and hereby render his decision as follows:
      1. That there is nothing dangerous or hazardous to life or property in the installation and operation of this station at said location, at least no more dangerous or hazardous than is any other bulk or filling station at any other place in the state.

        2. That all measurements are to be taken from pumps and center of tanks and not the buildings connected with such station.
      3. That for the purpose of clarifying this particular case and rendering justice therein, so far as this said station is concerned the rules of the State Fire Marshal Department prohibiting the erection and operation of bulk storage stations within the fire zone of any city in the state are hereby waived; but this waiver is for only this particular case and not general in its application.
      4. That the store building on the corner and about 310 feet from said station is not an apartment house.
      • 5. That the unused alley across which the pipes of the Gaseteria, Inc., go is not a public passage way so far as this Department is concerned and the burial of said pipes across this alley to the depth of twenty-four inches is satisfactory to this Department and has the approval of this Department.
      6. That the permit granted to the Gaseteria, Inc., by the State Fire Marshal Department on the 18th of November, 1929, was legal, and is so now; that said Gaseteria, Inc., should be permitted to proceed with its work on this station, complete it and operate it.
      7. That in order to get this matter straightened out and render substantial justice, the State Fire Marshal does for this case only now and hereby waive all the rules and regulations of the Department that could or might in any way be construed as prohibiting the completion of this station and its operation according to the blue print filed; but such waiver is not general in application to other cases which might arise.
      Witness my hand and official seal this 20th day of February, 1930.
      [Signed] Alfred Hogston,
      [Seal.] State Fire Marshal
      State Fire Marshal Indiana,


author: BINGHAM, Circuit Judge. WILSON, Circuit Judge

text:
    ROQUE GONZALEZ & CIA., v. TORRES.
    No. 2528.
    Circuit Court of Appeals, First Circuit.
    June 29, 1931.

      WILSON, Circuit Judge, dissenting.
    Henri Brown, of San Juan, Porto Rico, for- appellant.
    Benieio P. Sanchez, of San Juan, Porto Rico (Campos & Romero, of San Juan, Porto Rico; on the brief), for appellee.
    Before BINGHAM, ANDERSON, and WILSON, Circuit Judges.
   BINGHAM, Circuit Judge.

This is an appeal from a decree of the federal District Court of Porto Rico in a proceeding in equity brought by the appel-lee, as trustee in bankruptcy of one Juan Botet, against the appellants, to have set aside an agricultural loan contract alleged to .have been entered into with intent to hinder, delay, and defraud creditors of Juan Botet and to recover of the appellants an alleged preference of $2,351.42, Botet having been adjudged .a bankrupt August 12, 1929, on his voluntary petition filed that day.

Botet had three farms in Cidra, Porto Rico,' on which he raised tobacco. He also had a store there, where he dealt in merchandise. Prior to January 2, 1929, he purchased merchandise from Gonzalez & Co., defendants-appellants, for which, on January 2,1929, he owed a balance of $1,696.47, after deducting certain payments amounting to $1,100. On January 2, 1929, he was also owing the firm of Lopez & Co. $2,683.29 for merchandise which he had theretofore purchased. Neither Gonzalez & Co. nor Lopez & Co. had any security for these advancements. They were in fact largely used by Botet in preparing his tobacco crop, although there was no agreement or understanding, at the time they were made, that they would be so used or that Gonzalez & Co. and Lopez & Co. should have a lien on the crop therefor.

In September, 1928, a hurricane swept over Porto Rico, injuring Botet’s tobacco crop and taking away his barns, requiring him to build new ones to house his crop.

Binding it necessary that he should have further advances or loans to restore his barns and complete the making and storing of his tobacco crop, he applied to some of his creditors for aid. They declined to extend him further credit. Thereafter, on December 21, 1928, he applied to Gonzalez & Co. and Lopez & Co., requesting advancements and offering to secure them by a refacción contract on the tobacco crop being raised on his three farms which he then had. These firms agreed to make advancements for use in making, harvesting, and storing his 1929 crop, and a formal contract was drawn up and executed and recorded in compliance with the laws of Porto Rico. In it it was stated that. Botet had been advanced $6,000 toward the making of this crop. The fact was that, at that time, he had been advanced by these parties $4,831.64, after deducting payments of $1,100 which had been made to Gonzalez & Co. on their advancements.

It was also provided in the contract that there should be advanced to Botet a further sum of $2,000 to aid him in making and harvesting his tobacco crop. Under this provision of the contract Lopez & Co. turned over to Botet two lots of merchandise of the value of $1,003.54, and Gonzalez & Co., under this branch of the contract, made advances in goods of the value of $1,385.98; and $602.48 for fertilizer — a total of $1,998.-46. ‘

While the formal contract ran to Gonzalez & Co. alone, the evidence shows and it was admitted that it was understood and agreed between the parties that it was entered into for the benefit of Lopez & Co. as well.

July 29,1929, and within four months before the filing of the petition in bankruptcy, Botet turned over to Gonzalez & Co. the proceeds derived from the sale of his tobacco crop, amounting to $2,351.42. Of this sum Gonzalez & Co. turned over to Lopez & Co. $708.16, leaving in their hands a balance of $1,643.26.

In this action the plaintiff, trustee, is seeking to recover of Gonzalez & Co. the entire $2,351.42 received as above stated, and it is this sum which the court below held the plaintiff was entitled to recover on the ground that the contract of January 2, 1929, was fraudulent and the payment a preference.

It is unnecessary to consider whether the statement in the contract of January 2, 1929 — that there had been advanced to Botet the sum of $6,000 to aid him in planting, harvesting, and storing his crop — was true or false and intended to hinder and delay his creditors, for the branch of the contract wherein it was agreed to advance Botet a further sum of $2,000 is entirely separable from that relating to the prior advancements of $6,000. The evidence conclusively shows that Lopez & Co., under the agreement to advance the further sum of $2,000, advanced to Botet $1,003.54 to aid him in making his tobacco crop, and received only $708.16 out of the proceeds of the sale of the crop. The evidence also conclusively shows that Gonzalez & Co. advanced goods under the contract on and after January 2, 1929, of the value of $1,385.98, and $602.48 in cash for fertilizers, or a total of $1,988.46; and that they received and kept out of the proceeds derived from the sale of the tobacco only $1,643.26.

In respect to the further advancements, there is nothing to show that the contract was not made in absolute good faith, and it is not questioned but that advancements in merchandise and money of the value above set out were actually made by Lopez & Co. and Gonzalez & Co.

The evidence, not only shows that these further advancements were actually made under the agricultural loan contract, but that substantially all, if not all, of them, whether in goods or money, were used by Botet in making and storing his crop. But having shown that advancements were actually made under the loan contract, it was not necessary that the defendants should show that Botet used the money or property advanced in the making of his crop, to establish their right to a lien on the crop under the contract. This was so held by the Supreme Court of Porto Rico in Gomez v. Bravo et al., 34 Porto Rico 141.

Some question is raised as to whether, under the Porto Rican Act No. 37 of March 10, 1910, as amended by the Act No. 66 of August 1, 1925, advances for agricultural purposes may be made in merchandise as well as in cash. The Spanish text in the original act, and as amended, reads as follows: “Entiéndese por contrato de refacción agrieola aquel mediante el cual una de las partes en-trega y la otra recibe con carácter devolutivo, determinadas cantidades de dinero efectivo o en especies, bien en una sola vez o en distintas ocasiones.”

The English translation given in the Porto Rican laws is as follows: “A. contract of advances for agricultural, purposes is one under which one of the parties thereto turns over and the other party receives, subject to reimbursement, a certain amount of money in cash or specie, whether in lump sum or in different instalments, etc.”

The Spanish words, “dinero efectivo” mean “cash.” The words “en especies,” according to the Royal Spanish Dictionary of the Spanish Language, Fifteenth Edition, mean “fruitage or merchandise.” If such is the correct meaning of the language used, it is evident that the act contemplates that advancements for agricultural purposes may be made in cash or in fruits or merchandise.

The Supreme Court of Porto Rico, in Gomez v. Bravo, supra, at page 146 of 34 Porto Rico, evidently took this view of the act, for it said: “Section 1 of Act No. 37 [1910] provides that a contract of advances for agricultural purposes is one under which one of the parties thereto turns over and the other party receives, subject to reimbursement, a certain amount of money in cash or its equivalent.”

And continuing on page 147 of 34 Porto Rico it said: “From the foregoing it may •be seen that an agricultural loan contract arises from the delivery of cash or its equivalent for the cultivation of the property.”

As, under the statute (Act No. 37, of 1910, amended by Act No. 66, 1925), advancements may be made in cash or merchandise, and the lender is not required to show that the advancements in fact went into the making of the crop, and the defendants, Gonzalez & Co., actually advanced under the contract $1,385.98 in goods and $602.-48 in cash, or a total of $1,988.46, to Botet to make, harvest, and store his crop, and received out of the proceeds of the crop for their own benefit only $1,643.26, or a sum more than $340 less than the sum they had actually advanced, no other conclusion can be reached than that the court below erred in ordering the defendants to' pay the trustee the sum of $2,351.42, which includes, not only the $1,643.26, which the defendant actually received out of the crop, but the $708.-16, which Lopez & Co. received out of it.

The $1,643.26, which the defendants had out of the proceeds of the crop, though re-eeived 'within the four months, was not a preference. They had a valid lien on the crop, created prior to the four months’ period, for more than that sum. The same would be true if their lien were only an equitable one and not one sanctioned at law. Massachusetts Trust Co. v. MacPherson (C. C. A., 1st Circuit) 1 F.(2d) 769, 771, 772; Harding v. Federal Nat. Bank (C. C. A.) 31 F.(2d) 914; Boyle v. Gray (C. C. A.) 28 F.(2d) 7; Beacon Trust Co. v. Dolan (C. C. A.) 27 F.(2d) 247; Forman v. Jacobs (C. C. A.) 26 F.(2d) 764; Credito y Ahorro Ponceno v. Gorbia (C. C. A.) 25 F.(2d) 817, 820.

Moreover, the other creditors of Botet were not prejudiced by the statement in the contract that $6,000 had already been advanced for making the crop, for the value of the crop was not sufficient even to meet the further advancements actually made for the purpose of making .the crop. Some of the further advances undoubtedly were used to rebuild the tobacco barns, which the statute authorized, thereby enhancing the value of the property remaining to general creditors.

The decree of the District Court is vacated, and the ease is remanded to that court, with directions to enter a decree for the defendants, with costs-.

WILSON, Circuit Judge

(dissenting).

I cannot agree to the majority opinion. It is conceded, and the evidence is conclusive on the point, that the merchandise furnished by Gonzalez & Co. and Lopez & Co. prior to January 2, 1929, or at least prior to December 21, 1928, was not furnished the bankrupt as advances to aid him in preparing, cultivating, or harvesting his crop of tobacco in the year 1928-29. Up to this time they had no agricultural lien on his tobacco crop or any right to one, nor could he give them security, thereon for such prior indebtedness, even prior to four months of the filing of the petition in bankruptcy, if done to hinder and delay other creditors.

This prior indebtedness was incurred over a period of a year beginning in ’ October, 1927, and for boots, shoes, and notions for sale in his store, the bankrupt being a merchant.

Prior to this, in October, 1927, the bankrupt had mortgaged all his real estate to Gonzalez & Co. to secure creditors whose indebtedness exceeded the value of the property or his equity therein, and had defaulted in July, 1928, in his payments under this mortgage. Failing to obtain credit elsewhere^ he appealed to Gonzalez & Co. and Lopez in December, 1928, to aid him, in harvesting his crop of tobacco on three small parcels of land totaling 25 acres, agreeing to give them a refacción or crop mortgage to secure not only future advances for agricultural purposes, but the past unsecured indebtedness of approximately $4,000. When the refacción contract was executed in January, 1929, it stated that Gonzalez & Co. and Lopez & Co. had already advanced Botet $6,000 for agricultural purposes, that is, for necessary expenses in cultivating his crop of tobacco, although they well knew that it was not advanced for that purpose, and that their total unsecured indebtedness at that time could not have exceeded $4,900, even if the advances by Lopez & Co. on December 21,1928, and by Gonzalez & Co. on January 2, 1929, were included, and if these two items are treated as a part of their advances for agricultural purposes under the refacción contract, as the opinion holds, their prior unsecured indebtedness was less than $4,000 instead of $6,000 as stated in the contract, and none of it had been advanced for agricultural purposes.

The majority opinion holds, as I understand it, that, since it does not appear that the false statements in the contract as to the amount of the prior unsecured indebtedness and that it had been advanced for agricultural purposes actually injured any creditors, presumably because the proceeds of the sale of the tobacco did not fully reimburse Gonzalez & Co. and Lopez & Co. for the amount actually advanced by them after the contract was agreed upon, though it more than reimbursed them for advances made after it was recorded, it did not prevent a valid lien attaching in equity, if not under the refacción statute of Porto Bico, and any transfer of the property to which the lien attached, or of the proceeds of a sale thereof, was not a preference under the Bankruptcy Act, even though within four months of the filing of a petition in bankruptcy.

But the appellant here claims under the refacción contract. The District Court, under sections 70 (a) (4) and 70 (b) of the Bankruptcy Act, found that the contract, though entered into more than four months prior to the petition in bankruptcy, was conceived in fraud and intended to hinder and delay creditors. The real issue before this court, is whether this finding was clearly wrong, not whether the appellant later actually advanced for agricultural purposes more than they'finally received. Boyle v. Gray (C. C. A.) 28 F.(2d) 7. If the contract was not fraudulent as to other creditors, then the defendant’s lien for actual advances was good and no preference resulted; but if the appellants fraudulently entered into the contract to secure for themselves, not only future amounts actually advanced for agricultural purposes, but other indebtedness for which they were not entitled to such a lien, they are not here with clean hands, and under the well-known equity rule can hold nothing under the contract. It is not a case where a part of the consideration of a contract is good and can be separated from the bad and upheld to that extent. The entire contract being conceived in fraud, a court of equity will not uphold any part of it.

I think it cannot be said that the finding of the District Court was clearly wrong. It appeared that the bankrupt with the full knowledge of both creditors, who must have known his financial condition, not only misrepresented the amount of their previous unsecured indebtedness, but also falsely stated that it was advanced for agricultural purposes. To hold that such a contract was conceived in good faith requires more credulity than I possess. The District Judge heard the witnesses and the lame explanation which the representative of the appellant gave for omitting to give credit for the payment of $1,100 on its claim, which omission was obviously done to give color to the representation that they had previous to January 2, 1929, advanced $6,000. The advances made on December 21, 1928, by Lopez & Co. and on January 2, 1929, by Gonzalez & Co. were also juggled back and forth by the parties in testifying to give color to their claim that their prior, advances total $6,000, and that their advances under the refacción contract exceeded the amount they received from the sale of the tobacco. I think there was sufficient evidence to warrant the conclusion of the District Court that the contract was fraudulent and intended by the parties to hinder and delay the other unsecured creditors of the bankrupt, especially if any credence can be given to the testimony of the bankrupt that he had reasonable ground for believing that out of the proceeds of his crop he might repay a large part, if not all, of his past unsecured indebtedness to the appellant and Lopez & Co. That the contract was entered into to insure the payment of this prior indebtedness, or any part, and to that extent to hinder other unsecured creditors from receiving their just share of the proceeds of the crop, does not render it any less fraudulent, because, owing to unforeseen causes, it failed to - produce an amount equal to the sums actually advanced after it was executed. It is the intent of the parties at the inception and not the result that determines the presence of fraud.

If, therefore, the contract was fraudulent in its inception, and it was entered into for the purpose of hindering or delaying creditors, it makes no difference whether it was made within four months or not. If invalid, any payment made within four months of the date of bankruptcy by virtue of its terms would become a preference.

If the findings by the District Court are not clearly wrong, this case does not present a situation for applying the rule as to equitable liens laid down in the cases cited in the opinion. In those eases the contract under which the lien was created was held by the trial court .and this court to have been entered into in good faith, and the alleged preference resulted merely from an enforcement of the lien and dated back to the granting of the lien, which was more than four months prior to the bankruptcy petition.

The fact that Gonzalez & Co. paid to Lopez & Co. a part of the money they received does not relieve them of liability for the full amount. They accepted a preference from the bankrupt. If they paid out part of it, it does not relieve them of the obligation of accounting for it. The trustee is not obliged to trace it into the hands of third parties.


author: BYERS, District Judge.

text:
    UNITED STATES v. LANE et al.
    No. 28746.
    District Court, E. D. New York.
    June 25, 1931.

      Howard W. Ameli, U. S. Atty., of Brooklyn, N. Y. (Frederick J. Peper, of Brooklyn, N. Y., of counsel), for the United States.
    Arthur A. Kestler, of Brooklyn, N. Y., for defendants.
   BYERS, District Judge.

Motion for order suppressing evidence.

The claim is made that the defendants are members of a club, and that the club, property was the subject of an unlawful search.

The matter cannot be disposed of on the present state of the record, and, if the mo-tion is to be pressed, a hearing will be had, at which the officers of the club should be produced, together with the minutes books and all other records having to do with the club activities; the original certificate of incorporation, and the lease of the property occupied by the club at the time of the search in question. In other words, it will be necessary to establish, by fairly complete evidence, the bona fides of the club and its activities before a determination may be had as to the right of these defendants to raise the question of the legality of the search.