text:
    SOUTH CAROLINA PRODUCE ASS’N v. COMMISSIONER OF INTERNAL REVENUE.
    No. 3143.
    Circuit Court of Appeals, Fourth Circuit.
    June 17, 1931.
    Allen Gr. Gartner, of Washington, D. C., for petitioner.
    Wm. Cutler Thompson, Sp. Asst, to Atty. Gen. (G. A. Youngquist, Asst. Atty. Gen., J. Louis Monarch, Sp. Asst, to Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Nathan Gammon, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for respondent.
    Before PARKER, NORTHCOTT, and' SOPER, Circuit Judges.
   NORTHCOTT, Circuit Judge.

This is a petition to review a decision of the United States Board of Tax Appeals, involving deficiencies in income taxes for the fiscal years ended September 30, 1923, and September 30, 1924, in the amounts of $165.-50 and $456.30, respectively. 19 B. T. A. 1028.

Petitioner is a corporation organized under the general corporation statutes of South Carolina, with its principal office at Meggett, S. C., and since its organization in 1915 has been engaged in marketing perishable produce and purchasing supplies for its members. It has authorized capital stock of $20,-000, divided into 1,000 shares, voting common stock of $10 par value, and 1,000 shares nonvoting common stock of $10 par value. The petitioner charged all its members a commission of 5 per cent, on sales made for them, which was its only source of income, except interest on its bank deposits during the years under review, and paid annual dividends to its stockholders of 10 per cent, upon its capital stock for all years dating from its organization from 1915 to 1924, inclusive. Subsequent to 1924 it decreased its annual dividends to 7 per cent. The legal rate in South Carolina was, and is, 7 per cent., except when by written agreement it could be made 8 per cent. In addition to the dividends paid, the petitioner had in the years 1923 and 1924 a surplus of $89,583.03 and $93,-381.18, respectively, and, in addition, had a reserve for bad debts of $1,500 in each year, and a reserve for depreciation of $12,576 and $16,229.10, respectively.

The only issue is whether petitioner is exempt from taxation for its fiscal years ended September 30, 1923, and 1924, under the provisions of sections 231 (11) of the Revenue Acts of 1921 (42 Stat. 253) and 1924 (26 USCA § 982 note), which are identical, and which are as follows:

“See. 231. The following organization shall be exempt from taxation under this title—
“(11) Banners’, fruit growers’, or like associations, organized and operated as sales agents for the purpose of marketing the products of members and turning back to them the proceeds of sales, less the necessary selling expenses, on the basis of the quantity of produce furnished by them; or organized ' and operated as purchasing agents for the purpose of purchasing supplies and equipment for the use of members and turning over such supplies and equipment to such members at actual cost, plus necessary expenses.”

All of the provisions of article 522 of the Commissioner’s Regulations 62, pertaining to the 1921 act, are contained in article 522 of his Regulations 65 of the 1924 Act, which provides:

“Art. 522. Cooperative Associations.— (a) Cooperative associations, acting as sales agents for farmers, fruit growers, live-stock growers, dairymen, etc., or engaged in the marketing of farm products, and turning back to the producers the proceeds of the sales of their products, less the necessary operating expenses, on the basis of' the produce furnished by them, are exempt from income tax and shall not be required to file returns. Thus cooperative dairy companies which are engaged in collecting milk and disposing of it or the products thereof and distributing the proceeds, less necessary operating expenses, among the producers upon the basis of the quantity of milk or of butter fat in the milk furnished by such producers, are exempt from the tax. If the proceeds of the business are distributed in any other way than on such a proportionate basis, the association does not meet the requirements of the státute and is not exempt. The accumulation and maintenance of a reasonable reserve for depreciation or possible losses or a reserve required by State statute or a reasonable sinking fund or surplus to provide for the erection of buildings and facilities required in business, or for the purchase and installation of machinery and equipment, or to retire indebtedness incurred for such purposes, will not destroy the exemption. A corporation organized to act as a sales agent for farmers, or to market cooperatively the products of the farm, and having a capital stock on which it pays a dividend not exceeding 8 per cent, per annum or not exceeding the legal rate of interest, and in which the voting control is retained -by the shareholders who are actual producers, will not for such reasons be denied exemption. „
“(b) Cooperative associations organized and operated as purchasing agents for farmers, fruit growers, live-stock growers, dairymen, etc., for the purpose of buying supplies and equipment for their use and turning over such supplies and equipment to them at actual cost, plus necessary operating expenses, are also exempt. The provisions of paragraph (a) relating to a reserve, sinking fund, or surplus, and to capital stock shall apply to associations coming under this paragraph.”

In order to be exempt under either (a) or (b), an association must establish that it hag no net income for its own account other than that reflected in a reserve, sinking fund, or surplus specifically authorized in paragraph (a). An association acting both as a sales and a purchasing agent is exempt if as to each of its functions it meets the requirements of the statute.

The Board of Tax Appeals found that the petitioner came within the provisions of the statute and regulations with respect to being a “farmer’s association organized and operated as a sales agent for the purpose of marketing the products of its members and, also, purchasing supplies for the use of its members,” but that it did not come within the provisions of the statute and regulations with respect to the distribution of its net receipts. With this conclusion we agree. The statute clearly states that exempt organizations must be organized and operated for the purpose of turning over the proceeds of their sales to its members, less the necessary selling expenses. This the petitioner did not do, for it paid a 10 per cent, dividend to its stockholders and reserved susbtantial sums for surplus and reserve.

While rules of statutory construction are applied to solve doubts, they are not applied to create them, and, where there is no ambiguity, there is no need for either a liberal or strict construction. Flannagan v. Provident Life & Accident Ins. Co. et al. (C. C. A.) 22 F.(2d) 136; Ruggles v. Illinois, 108 U. S. 526, 2 S. Ct. 832, 27 L. Ed. 812; Hamilton v. Rathbone, 175 U. S. 414, 20 S. Ct. 155, 44 L. Ed. 219.

Exemptions from taxation aré not favored, and, if any rule of interpretation were to be invoked, it would be the rule that the statute in question would be strictly construed as against petitioner. Hoge v. Railroad Co., 99 U. S. 348, 355, 25 L. Ed. 303; Bank of Commerce v. Tennessee, 161 U. S. 134, 146, 16 S. Ct. 456, 40 L. Ed. 645.

There is no need to quote authority to the effect that the Secretary of the Treasury cannot, by his regulations, alter or amend a revenue law (see Morrill v. Jones, 106 U. S. 466, 1 S. Ct. 423, 27 L. Ed. 267), but, assuming, without deciding, that the regulation above set out does not amend the act, the petitioner cannot complain of the regulation, because it is clearly, if anything, more liberal than the aet, which itself does not specifically authorize the creation of a surplus and a payment of dividends. The petitioner does not come within the regulation because admittedly for the years in question its payment to its stockholders exceeded the rate fixed. Again assuming, without deciding, that the statute permitted the payment of any dividends or the creation of any surplus, certainly no greater rate of dividend would be permitted than that allowed by the regulation, and in' no event has the petitioner brought himself within the class of those entitled to exemption for the years in question.

The decision of the Board of Tax Appeals is affirmed.


source: Caselaw Access Project

author: WILSON, Circuit Judge.

license: Public Domain

text:
    A. & E. PITMAN MFG. CO., Inc., v. PITMAN et al.
    No. 2453.
    Circuit Court of Appeals, First Circuit.
    June 10, 1931.
    BINGHAM, J., dissenting.
    Odin Roberts, of Boston, Mass. (Richard F. Walker and Roberts, Cushman & Woodr berry, all of Boston, Mass., on the brief), for appellant.
    Franklin F. Phillips, of Boston, Mass., for appellees.
    Before BINGHAM, ANDERSON, and WILSON, Circuit Judges.
   On Rehearing.

WILSON, Circuit Judge.

On defendants’ petition for rehearing, the court has carefully considered the reargu-ments, oral and written, of learned counsel, and reached the conclusion that the judgment of the District Court should be affirmed.

The invention relates to a frying apparatus for cooking food in fat or oil, and its object is to provide an apparatus whereby the flavor of the food cooked will not be imparted to the cooking medium so that it may, if desired, be used successively for cooking different kinds of food.

There are two claims in issue — claims 1 and 4. Claim 1 is as follows: “Frying apparatus, comprising in combination a cooking-medium container provided with a depending extension, and means for applying heat to the cooking-medium above said extension whereby the sediment from the food which falls into said extension is maintained at a lower temperature than the cooking-medium in the. upper part of the container.”

The fourth claim is like the first, only it contains as an additional element in the combination a frying basket to hold the food while being cooked.

It has been discovered that the cause of the contamination of the cooking medium or fat was due to the carbonization of particles of the food during the cooking coming in close contact with the bottom of the ordinary kettle to which the heat was in common use directly applied. The function of the plaintiff’s patented apparatus was to prevent this carbonization, which he accomplished by constructing his container with sloping sides to which the heat was directly applied, and with a depending extension below the point where the heat, was applied, into which the débris fell, and which was relatively cool.

The alleged infringing apparatus of the defendants performs the same'function of preventing carbonization of particles of food by inserting within a kettle of conventional shape, with a slightly rounded bottom, an inverted metal cone having a series of holes around the base of the cone, or the top, as we shall hereafter designate it, and at a fixed distance below the rim, and also holes about two thirds of the way toward the apex, or the bottom of the cone, as for convenience we shall refer to the part in the bottom of the kettle. The holes at the bottom of the cone are covered with a metal gauze to prevent particles of food escaping from the cone at the bottom. The cone is truncated near the apex and a plug inserted, which fits snugly into a drain or draw-off pipe in the bottom of the kettle to prevent any débris escaping around the edges of the truncated apex and into the bottom of the kettle, and finally coming in contact with the hot part of the kettle or very hot fat and carbonizing. The apparatus of the defendants, therefore, in no way resembled the plaintiff’s in form, either with respect to the sloping sides, or as to any depending extension of the kettle, the drain pipe at the bottom of the defendants’ kettle in no way resembling the depending extension of the plaintiff’s nor serving the same function.

The issue in the ease is whether the apparatus constructed by the defendants is the equivalent of the plaintiff’s. It, of course, accomplished the same result. Both rely on the same principles of physics that heated liquids rise and the cooler liquids and heavier particles of food sink. The defendants, however, rely upon the additional facts, and as an essential feature of their apparatus and to its successful operation, viz.: That fat or oil is a relatively poor conductor of heat, and that the lower part of the inverted cone below the lower ring of holes, being immersed in this poor conductor and at a considerable distance from the point of the kettle where the heat is applied, is kept below a charring temperature.

The essential element of the plaintiff’s invention is the application of the heat entirely above a depending extension suitable for collecting the débris; while the defendants’ apparatus, as Exhibits A, B, and C show, applies the heat to their1 kettle at a point some distance below a line on the cone up to which the débris may be allowed to collect without interfering with its successful operation, and the heat could undoubtedly be applied still lower than is shown by the exhibits without charring the débris in the cone.

The District Court found as facts that any débris which escaped in the bottom of the kettle, as might occur when the plug in the drain pipe above described was not used, would eventually char, and that the heat was not applied above that part of the defendants’ cone in which the débris was collected. Wé do not think his findings were clearly wrong. Stratton v. Buller et al. (C. C. A.) 268 F. 823, 825; Keeton v. Jefferson Standard Life Ins. Co. (C. C. A.) 5 F.(2d) 183, 188.

The finding of the District Court that if particles of food did escape into the kettle from the cone they would eventually char, is not overcome, we think, by the appearance of the Exhibits B and C, which show the bottom of the kettle clean and a rim of blued steel where the flame impinged, since it does not satisfactorily appear what the conditions were under which the tests were made by the plaintiff, the kettles being supplied to them new for the purpose by the defendants. Plaintiff’s manager testified that in making the tests, heat was first applied without any liquid in the kettles. If they used a plug, no débris could escape to leave any discoloration on the kettle.

We think but little weight can be given to these exhibits as evidence of the result of use under ordinary conditions, "which is shown by Exhibit A, the bottom of which is also discolored, as well as the sides. A significant fact does appear, however, from Exhibits B and C, whatever the conditions were under which the tests were made, that the ring of blued steel on the inside shows where the hottest part of the kettle is when in use, and that it was below the bottom of the lower series of holes in the cone, and below where a part, at least, of the débris would be collected before it became necessary to empty the cone.

Counsel for plaintiff labored in argument .to show that the flame from the circular gas ring, by means of which the heat was applied to the defendants’ kettle, although the holes through which the gas was vented was directed inward at an angle of 45 degrees and against the rounded edge of the bottom of the kettle, by reason of an upward current of cooler air, induced by the heat of the flame, bathed the vertical sides of the kettle, and thereby applied the heat above a point below which the débris' is collected in the cone, and left the bottom of the kettle and the fat in the bottom, or apex, of the cone below a charring temperature, and thus converted it into an equivalent of the plaintiff’s depending extension.

Counsel carefully omitted in presenting this point in argument the well-known fact that gas for domestic uses is always supplied under pressure, against which any current of air drawn upward inside the heated gas ring would have but little effect in forcing the ring of flame vertically upward. Plaintiff’s expert admitted that when the gas was turned on with full force the flame was directed against the kettle at an angle of at least 30° instead of vertically.

The flame striking the kettle at or near the top of the rounded bottom might have a tendency within certain limits to bathe the sides of the kettle, but the point of greatest heat as Plaintiff’s Exhibits B and C conclusively indicate, was on the rounded part and below the apertures in the bottom of the defendants’ -cone, and sustain the evidence of the defendants’ witnesses that without the cone the defendants’ apparatus would not produce the desired result.

It is a generally accepted fact that heat is conveyed through metal by conduction equally in all directions. The opinion of the plaintiff’s expert that a current of cool air, induced by the heat of the gas flame striking the bottom of the kettle, would tend in any appreciable degree to prevent the heat being conducted downward along the bottom of the kettle, seems to have been demolished, as the opinions of experts often are, by the facts testified to by the defendants’ witnesses, if believed, that débris escaping into the bottom of the kettle would and did char.

The course of the current of oil or fat in defendants’ apparatus, as contended by the plaintiff’s counsel, is not proven by any evidence and could not be. The oil or fat nearest to the sides of the kettle where the heat is applied, is, of course, the hottest and rises rapidly, flows into, apertures in the top of the cone, cools through radiation and contact with the materials in process of cooking, and descends, and, no doubt induced by the upward current of oil outside the cone, flows out through the lower apertures. It cannot, however, then be hot enough to rise again to the top until reheated, nor will it stay in suspension until heated by conduction with' the hot fat near the sides of the kettle. A more reasonable inference as to its course on the outside of the cone is that the oil nearest the point of contact of the flame on the kettle, being the hottest, rises first, and its place is supplied chiefly by the oil below it. The result, therefore, is not a dead body of oil in the bottom of the defendants’ kettle, but a circulating body with that nearer the sides of the hot kettle making its way into the upward stream, and that nearest the sides of the bottom of the cone descending and then gradually making its way upward along the increasingly heated sides of the kettle to its hottest point, and into the upward stream to the top of the cone. That some of the oil coming out of the vents in the cone may also come in contact with the ascending hot oil and be carried to the top, would not prevent the remainder of the cooler oil, as it emerged from the cone, from descending and keeping the lower part of the eone bathed in a relatively cool liquid, while the oil nearest the metal bottom of the kettle would tend to rise both in temperature and location until it reached the point of contact of the gas flame, when it would reach the hottest point.

This, at least, is supported by the facts testified to by the defendants, and supports the finding by the court below that débris escaping into the bottom of the kettle will char.

It was also suggested by counsel for the plaintiff that the defendants’ eone constitutes the container described in the plaintiff’s i claim 1, and by the heated fat or oil rising to the top, the heat by convection is thus applied above the bottom of the inverted eone where the débris collects, and is, therefore, an equivalent of the plaintiff’s invention; but to call a metal cone full of holes a container would be a strained construction even to sustain a pioneer patent.'

It is true that the plaintiff’s patent is a pioneer patent and entitled to a liberal construction, but to give it the broad scope contended for by the plaintiff would amount to a patent on the function, viz.: That of protecting from carbonization the particles that always separate from the materials being cooked during the process of frying in deep fat or oil. Bryce Bros. Co. v. National Glass Co. (C. C. A.) 116 F. 186; Werner v. King, 96 U. S. 218, 239, 24 L. Ed. 613; Burr v. Duryee, 1 Wall. 531, 17 L. Ed. 650.

As the court said in Bryce Bros. Co. v. National Glass Co., supra, page 192 of 116 F.: “Care must be taken, however, in all cases, that we do not, by an uncalled for application of the doctrine of equivalents, practically give to the patentee a monopoly of-the function of his mechanism.”

The decree of the District Court is affirmed, with costs.

BINGHAM, J., dissents.


author: WILBUR, Circuit Judge.

text:
    NORWICH UNION FIRE INS. SOCIETY, Limited, et al. v. PARAMOUNT FAMOUS LASKY CORPORATION.
    No. 6262.
    Circuit Court of Appeals, Ninth Circuit.
    June 15, 1931.
    Rehearing Denied July 22, 1931.

      ■ Redman, Alexander & Bacon, Orrick, Palmer & Dahlquist, and Herbert Chamber-lin, all of San Francisco, Cal., for appellants.
    Gavin McNab, Schmulowitz, Wyman, Aikins & Brune, Nat Schmulowitz, Ernest L. Bruñe, Miller & Thornton, and H. B. M. Miller, all of San Francisco, Cal., for appellee.
    Before RUDKIN, WILBUR, and SAW-TELLE, Circuit Judges.
   WILBUR, Circuit Judge.

The appellee suffered a loss by reason of the partial' destruction of premises owned by it in the vicinity of Los Angeles. The fire occurred at 6 o’clock p. m. on January 16, 1929. On that morning the appellants, upon the application of James & Co., insurance brokers at San Flraneiseo, issued, respectively, two instruments, each of which was designated “covering note” and an instrument designated “covering memorandum” (such instruments being otherwise termed, in the insurance world, as “binders”), covering the property which was later on the same day destroyed by fire. The two covering notes were in the same form, one of them specifying insurance in the sum of $25,000 in one of the three appellant companies, and the other specifying insurance in the sum of $50,000 in another of said companies; the “covering memorandum” specifying insurance in the sum of $50,000 in still another of said companies, Each of said covering notes stated that “insurance against loss or damage is thereby kept covered in the above named company and for the amount given above, subject to the printed conditions” of the California standard statutory form of fire insurance policy, in favor of appellee corporation, on its properties of designated character and location, at Los Angeles, “from Jan. 16,1929, at 10 a. m. To cease Feb. 16, at noon, or such time prior thereto as the Company’s policy may be issued on above described risk in lieu hereof.” The “covering memorandum” was shorter, merely stating that “insurance against fire is hereby ‘kept covered’ ” in favor of the same insured and upon the same property, “from Jan. 16, 1929, at noon M.” and that “Insurance under this Covering Note is subject to all the printed conditions of policies now in use by the above named Company, and is to cease March 1, 1929, at noon, or at such time prior thereto as the Company’s policy may be issued.”

The only question in the case is as to whether or not James & Co., insurance brokers by whom said insurance was placed, were authorized by the appellee to secure such binder agreements, and, if not, whether the ratification of their act after the fire was sufficient to obligate the appellant companies under the binder contracts procured by James & Co.

The case was tried Without a jury, pursuant to stipulation. The trial court denied a motion made by defendants (appellants) at the close of all the evidence for .judgment in favor of defendants and a request for special findings. This ruling is assigned as error.

It appears from the evidence that the appellee usually procured insurance upon its Pacific Coast properties through the Behrendt-Levy Insurance Agency of Los Angeles, acting as insurance brokers. The Behrendt-Levy Agency, in placing large lines of insurance for the appellee, were in the habit of acting with and through James & Co., insurance brokers at San Francisco, as placing agents. According to a course of dealing for five or six years, it appeared that the appellee’s customary method of procuring insurance was for A. C. Martin, manager of appellee’s accounting department, having general charge of insurance matters for appellee on the Pacific Coast, to notify the Behrendt-Levy Agency that appellee desired a certain amount of insurance. In pursuance of this general instruction, the BehrendtLevy Agency, either directly or through James & Co., procured the desired insurance in such amounts and in such individual companies as their judgment dictated. Before the procurement of the insurance contracts which are involved in this action, Martin, on January 11th, requested the Behrendt-Levy Agency to procure increased insurance by the following letter:

“Gentlemen: Will you kindly increase the coverage on the new four-unit sound stage, monitor room, et cetera, from $150,000 to $470,000; the sound-proofing building from $66,000 to $70,000; and the sound recording building from $90,000 to $110,000. I believe that these figures will represent the final coverage required on these three buildings.
“Would you also please increase the coverage on the sound-recording and reproducing equipment belonging to the Electrical Research Products, Inc., from $175,000 to $183,000. We are still short $7,500 of the coverage which we previously requested December 11th. Would you please cheek up on this.
“I would ask that you please arrange to submit a list of the companies with which you expect to place this additional coverage, for my approval.”

In pursuance of this request the Beh-rendt-Levy Company telegraphed from their Los Angeles office to James & Co., at San Francisco', a request to place $320,000 additional insurance upon the property which was subsequently destroyed by fire. This amount, together with the existing insurance of $150,000 upon the property, made up a total of $470,000 insurance thereon.

The full amount of increased insurance requested was procured on January 14th. Thereafter, on January 16th, James & Co., under circumstances hereinafter narrated, secured $160,000 additional insurance upon these properties, thus increasing the total insurance to $630,000. The covering notes or binder contracts executed by appellants and involved herein constituted a portion ($125,-000) of the $160,000 insurance thus procured.

On January 14th the Behrendt-Levy Agency were at once advised by wire that the property was covered. A list of the covering agreements was forwarded to Los Angeles by mail and received in Los Angeles January 15th. Among the agreements was one of the Newark Company for $22,500 and one of the Philadelphia Fire & Marine for $200,000. After the hereinafter quoted telegram of January 12th had been sent, Mr. Paddaek of the Behrendt-Levy Agency recalled that on January 7th they had received a letter from ' Martin in which it was stated that the appel-lee felt that its policies in the Newark and Philadelphia companies were in larger amount than should be carried in those companies, and it was indicated that the amounts of insurance in those companies should be decreased. In view of the importance of this letter, we quote it in full:

“There are certain companies now carrying our line of insurance which have policies coming up for renewal very shortly and which we feel we should drop altogether or in some eases materially reduce their limits.
“Referring to renewal policy No. 277568 of the Newark Fire Insurance Company issued January 6, 1929, for $47,009 covering film in laboratory, and vaults. This company now carries close to $2,000,000 of our line in all locations, and we would like to see this reduced to around $500,000. Will you kindly bear this in mind when placing further insurance.
“We also have Globe Underwriters Agency policy No. P-137506 issued January 6, 1929, in amount $25,000 covering film in laboratory and vaults. We would like to discontinue carrying any of our coverage with the Globe and I am returning this policy herewith for cancellation. Will you kindly place this coverage with some other good company? We have $178,600 with this company and I would like you to place this coverage with other companies as the policies come up for renewal.
“I am listing below several companies having policies coming up for renewal in February and would like to have you place the coverage with other companies or reduce the limits in certain instances:
“Stuyvesant Insurance Company: We are now carrying about $500,000 with this Company. We would like to have the limit reduced to approximately $200,000.
“Importers and Exporters Ins. Co.: We are carrying about $62,000 with this company and would not care to have our limits increased over that amount.
“Philadelphia Fire & Marine Ins. Co.: We have approximately $640',0001 with this company and would like to have the limits reduced to not more than $250,000'.
“London & Provincial Ins. Co., Ltd.: We are carrying $23,500 with this company, which we would not care to have increased.
“There may be policies with other companies coming up for renewal at a later date, which we will wish to discontinue or reduce the limits on. I would therefore appreciate it if before' placing future renewals you would cheek with me as to the companies, as we want to make certain that all our insurance is carried with what we consider good, substantial and reliable companies.”

The Behrendt-Levy Agency thereupon, on January 14th, wrote a letter to James & Co., inclosing a copy of the above-quoted letter, quoting in confirmation the telegram of January 12th to James & Co., the pertinent part of which is as follows:

“Re conversation with Terhune November Paramount Famous Lasky Sound Stages One Two Three and Four * * * total insurance required four hundred seventy thousand now written one hundred fifty place three hundred twenty thousand concurrent on terminal naught four two Avery Colonial Newark .desire increased lines this new construction * * * ”

—the writer, “H. T. Paddaek, Secretary” of the Behrendt-Levy Agency, goes on to say:

“When the writer was in San Francisco in the early part of November (you were in the Bast), we placed insurance on the new concrete sound proving building and the new sound recording building, these buildings being practically finished. We also placed insurance on the new sound stages of fireproof construction in the amount-of around $66,-000.
“I told Terry [L. P. Terhune, secretary-treasurer of James & Co.] at that time the total amount required was $470,000, and I believe he made a note of same. You will note .in my wire that I stated that the Philadelphia, Colonial and Newark desire to increase their lines of this construction.
. “However, since sending the wire, I remember a letter which Mr. Martin, the auditor of Paramount Famous Lasky, wrote me concerning lines in various companies, this letter being prompted by a letter he received from Mr;' Henry Anderson, in charge of all insurance for Paramount Famous in the New York office.
“Mr., Anderson, of course, does not understand the .difficulty in placing insurance on motion picture plants. Furthermore, he is used to having insurance written the same way as it is in New York. In other words, New York is practically on the same basis as San Francisco — -no agents, everyone being a broker.”

Then follows an explanation of the method of placing lines of insurance in New York, and mention is made of a visit of Mr. 'Levy and the writer to Mr. Martin, on which occasion an explanation was given him of “the difficulties that such large companies as the Newark, who are carrying a large line on this risk, have in writing this insurance through their treaty company as well as in securing outside insurance,” and of the great increase in the number of policies that would result in following out Mr. Anderson’s suggestion in a ease where a line of insurance in large amount is canceled on a company and, in order to replace this, reinsurance is secured in smaller amounts. Continuing, the letter says:

.■“If we have to-comply with Mr. Anderson’s suggestion, it will mean the placing of all overlines; which are handled as reinsurance, as direct insurance and the Behrendt-Levy Insurance Company will lose five per cent commission on all this business * * *
“Mr. Martin is perfectly satisfied with the insurance as placed at present, but states that Mr. Anderson informed him that if the insurance could not be written in smaller amounts in various companies, he [Anderson] would place it all in New York. * * * a

The letter, further referring to the manner in which the insurance would be handled from New York, says, in substance, that this would be a very unsatisfactory way of handling the matter, from various indicated standpoints ; and it is then said:

“I showed this letter from Martin to Mr. Terhune and Mr. Avery when they were here in the office. Terry, of course, was certain that things could be handled in the way desired by placing the line in many cofnpanies, but it would necessitate numerous policies and also the loss of commission to our office. Mr. Avery stated that where he had $640,000 in the Philadelphia, he would drop to $250,-000. He would like to take the balance of this amount in the Fire Association as he does not want to lose this business.
“From the foregoing you will see that it would not be a good policy to place any additional insurance in the Newark or in the Philadelphia and this additional line on these nice fire-proof buildings will have to be placed in the other companies in our office.
“You will note that the companies mentioned in Martin’s letter are the Stuyvesant, Importers and Exporters, Philadelphia and London & Provincial, and Newark. No mention has *been made of the Hanover, Eagle-Star, Commercial Union, Norwich Union or Colonial. Mr. Anderson is making up a list of companies and the amounts he desires to be written in each company.
“The Globe & Rutgers is mentioned in the letter and evidently Mr. Anderson has had some trouble with this company in New York and does not want this company to carry lines on the plant. The fire insurance had better be placed in the Hanover, Commercial Union, Norwich Union, Colonial and Eagle-Star. * * *
“I would like your reaction on the above matter.”

Upon the receipt of this letter a conference was held in the office of James & Co., and it was determined that additional insurance should be procured at once, and this was procured in the appellant companies.

The evidence tends to show that, in placing the insurance of January 16th, the purpose of James & Co., acting upon the letter of January 14th from the Behrendt-Levy Agency and the inclosed letter of January 7th from Martin, was to take out insurance that should be acceptable to appellee, having in view an arrangement later, if so instructed by the Behrendt-Levy Agency or appellee, for cancellation of the insurance placed with the Philadelphia and Newark, and consequent reduction of the total amount of insurance placed, within the $320,006 called for by the telegram of January 12th. It would appear from the evidence that this cancellation could be effected by virtue of a “general custom among insurance men in relation to insurance obtained by binders” testified to by Mr. Pad-dack and not questioned in the record or in the briefs, on appeal; such custom being “that very often more insurance is' placed than is actually needed; the reason being the companies have to adjust their lines for cancellations that may go in effect anywhere from five to fifty days after the line is placed.” The occurrence of the fire shortly after the placing of the insurance with appellant companies, while it prevented cancellation, did not affect the validity of the insurance placed with the appellant companies, because, in the circumstances existing at the time, the placing of that insurance was expedient and proper in the carrying out of one of the main purposes of the agency, which was the prompt placing of the insurance requested in companies not unacceptable to the insured. The fact that in placing the insurance of January 16th the total amount requested had been exceeded would not make the insurance invalid as not authorized, because a reasonable interpretation of appel-lee’s instructions to its agents, in view of the custom of insurance brokers, implied authority to make a temporary coverage in exeess of the amount specified,' pending the action of the principal in reference to the final coverage.

The contention of appellants seems to be that, inasmuch as the policies obtained January 14th in the Philadelphia and Newark companies were not canceled, there was no replacement of the insurance placed with those companies on that date, and thus such insurance with the appellant companies was unauthorized, that said insurance was repudiated by Martin on behalf of appellee after the loss, and that the hereafter mentioned attempted ratification by Gain was not valid. The communications and dealings between Martin and the Behrendt-Levy Agency and James & Co. prior to the fire were communications between those acting in the capacity of agents for the appellee, which were in no way binding upon appellee and which had no effect upon the contracts of insurance between appellants and appellee, except as affecting the'authority of James & Co. to make the contracts on behalf of ap-pellee. Subsequent to the fire there were further communications between the agents of the appellee. These last-mentioned communications are set forth in the record, but they too have no bearing upon the case, other than as they tend to show the feeling and attitude of these agents among themselves with reference to their authority. Not being communicated to appellants, they did not influence their action. Inasmuch, however, as these communications are contained in the record, we will briefly state their import:

H. T. Paddaek, secretary of the Behrendt-Levy Agency, called for defendants, testified that “on January 17, 1929, I received from Mr. Fox [manager of James & Co.] a telegram reading as follows: ‘We do not consider yesterday’s placements Famous Players as additional insurance. Shall we consider it void and original insurance only covering. This is important question. Discuss with Terhune and telephone this P. M.’ ”

The record contains no answer to this telegram.

On January 19th, three days after the fire, Mr. Martin wrote the following letter to the Behrendt-Levy Agency,, signing as “Manager Accounting Department”:

“With reference to the conversation between your Mr. Paddaek, the adjusters and the executives of the Paramount Famous Lasky Corporation on January 18th, concerning the apparent mixup on account of .over or additional insurance having been placed I wish to refer you to my letter of January 11th, in which I asked (in the first paragraph) for additional insurance on the new four-unit sound stage, monitor room, etc., to make a total insurance of $470,000..
“I also call your attention to the fact that the companies with which the additional insurance was to be placed were to'be submitted for my approval. I know that you understand that this did not mean that you were to hold up placing the insurance; but rather to give me a choice, if there was any, as to what companies would be placed on this coverage. I think I appreciate the situation which caused the mix-up of the companies in that you were attempting to get the insurance placed at the earliest possible moment but at the same time allow some leeway for a choice of companies’. However, I feel that this should have been arranged in some manner whereby in no instance would we be actually carrying insurance for more than the $470,-000 requested, and therefore, in my position with Paramount Famous Lasky Corporation, 1 naturally object to paying any premium for insurance over and above the $470,000. As I see it, any insurance placed above this amount does not in any way concern this corporation.
“I trust that the matter of having placed additional insurance over the amount required will be amicably settled, without this corporation being asked to consider paying a premium for any coverage over or above $470,000 on the buildings in question, and I •am relying upon you to see if this cannot be arranged.”

Under date of January 23d, Mr. J. J. Gain, executive manager of appellee corporation, wrote the following letter to the Beh-rendt-Levy Insurance Agency:

“I have read Mr. Martin’s letter to you of January 19th in regard to the question of our paying premium on any amount of insurance taken out in our new sound stage building in excess of $470,000.
“Since the fire occurred before adjustment of the line could be effected and you and your representatives had full authority to place insurance for this corporation, I hereby sanction and'ratify the full amount of the coverage as placed prior to the fire that occurred between 4:30 and 6:00 p. m. January 16,1929.”

It will be seen that the letter of January 19th from Martin to the Behrendt-Levy Insurance Agency amounts to a complaint as to the procurement of more than $470,000 insurance. Therein Martin gives it as his opinion that insurance for more than that amount does not concern the appellee corporation, and expresses the hope that the company can avoid paying the premium on the total amount of insurance requested. If this letter had been written to the appellants, the effect of it as an attempted repudiation of the contracts of insurance might be considered, and in this connection we would have to consider the question as to the power of Martin, as an agent of appellee; to cancel policies or repudiate them after a loss. See Cassville Roller Mill. Co. v. Aetna Ins. Co., 105 Mo. App. 146, 79 S. W. 720; Waterloo Lumber Co. v. Des Moines Ins. Co., 158 Iowa, 563, 138 N. W. 504, 51 L. R. A. (N. S.) 539. Inasmuch, however, as this communication is merely between agents of the appellee, it had no effect other than as an indication of Martin’s opinion concerning the discussion in question.

• It may here be said that the total loss which arose from the destruction of the insured property was $375,230.07, and that, under an apportionment that was made of this loss among the companies with which the total of $630,000 insurance was placed, the proportion of appellants the Norwich Union and the Allied Underwriters, upon the insurance placed with each of them' in the sum of $50,000, were, respectively, $29,780:16 and $29,780.17, and the loss apportioned to appellant the Commercial Union, upon the insurance placed with it in the sum of $25;000, was $14,890.08, and that the amounts of loss apportioned among the insurance companies, other than appellants, who participated in said total insurance of $630,000, were paid by said other companies.

The evidence justified the conclusion of the trial court that the appellee authorized the placement of policies in appellant companies. Appellants are not concerned with the validity of the policies in the prohibited companies, except as those policies reduce the amount of the loss appellants are required to pay under the binder agreements issued by them.

Judgment affirmed.

SAWTELLE, Circuit Judge, concurs.


text:
    BURNET, Commissioner of Internal Revenue, v. NORTH AMERICAN OIL CONSOLIDATED.
    No. 6315.
    Circuit Court of Appeals, Ninth Circuit.
    June 15, 1931.
    As Modified on Denial of Rehearing. Sept. 14, 1931.

      G. A. Youngquist, Asst. Atty. Gen., and Sewall Key and Helen R. Carioss, Sp. Assts. to the Atty. Gen. (C. M. Charest, Gen. Counsel, and Prew Savoy and Allin Pierce, Sp. Attys., Bureau of Internal Revenue, all of Washington, D. C., of counsel), for petitioner.
    Herbert W. Clark and Leon de Fremery,' both of San'Francisco, Cal., for respondent.
    Before WILBUR and SAWTELLE, Circuit Judges, and NETERER, District Judge.
   WILBUR, Circuit Judge.

Petitioner seeks to review a decision of the Board of Tax Appeals with relation to a deficiency tax of respondent for income and profit taxes for the year 1917. The sole ques•tion involved is whether or not the sum of $171,972.20 derived from the sale of oil produced on section 2 during the year 1916, impounded in {he hands of a receiver appointed by the federal court for that purpose, and retained by him until 1917, when under order of court it was turned over to the respondent, was taxable as income for the year 1917. The land which produced this oil was government land which had been in the possession of the respondent under placer mining claims. The government contended that, as the land had been withdrawn from location by an order of President Taft, the respondent was not entitled to a patent. An action was brought to terminate the respondent’s right, and in that action the receiver was appointed. The respondent was a large operating company holding many pieces of property, and this litigation affected only the property in section 2. The trial court determined the matter in favor of the respondent U. S. v. North American Oil Consolidated (D. C.) 242 F. 723. This decision was affirmed by the Circuit Court of Appeals of this circuit (264 F. 336). The case was finally disposed of by the Supreme Court on March 21, 1922, when it issued its mandate dismissing the appeal thereto in pursuance of a stipulation of counsel. 258 U. S. 633, 42 S. Ct. 315, 66 L. Ed. 802. The money thus impounded had been paid over to the respondent after the decision of the District Court in 1917.

The Board of Tax Appeals held, in accordance with the contention of the respondent, that the ineome impounded by the receiver should have been returned by him as his ineome for the year 1916. In that regard we quote from the opinion of the Board of Tax Appeals as follows: "The respondent affirmatively alleges that the amount impounded in the hands of the receiver in 1916 and released to petitioner in 1917 was income to the petitioner in the latter year. The respondent’s principal argument in support of his claim herein is that petitioner was on the cash receipts and disbursements basis in the years 1916 to 1919, inclusive, and, as the amount here involved was not actually received by the petitioner until 1917 it must be taxable ineome in that year. We think it immaterial whether petitioner’s accounts were kept on the receipts and disbursements basis or some other basis as permitted by section 13 (d) of the Revenue Act of 1916 (39 Stat. 771). The fact is that the ineome was actually produced in 1916. The sole reason that it did not reach the petitioner in that year was because of the suit by the United States. By reason of that suit a receiver was appointed, who actually received the ineome, and who should have reported it for taxation. Section 13 (e) of the Revenue Act of 1916; United States v. Chicago & E. I. Ry. Co. (D. C.) 298 F. 779; Forstmann v. Ferguson (D. C.) 17 F.(2d) 659, affirmed (C. C. A.) 25 F.(2d) 47. If the receiver did not report it, that is no sufficient reason for taxing the petitioner on it in a later year. Accordingly, the amount of $171,979.23 received by petitioner in 1917 is not an item of income in that year.”

The petitioner contends that section 13, subdivision (e), of the Revenue Act of 1916, 39 Stat. 756, 771, does not apply, for the reason that it is inapplicable to a receiver holding only a part of the property of the taxpayer corporation. This section provides for returns by receivers where they are operating “the property or business of corporations,” etc. It is provided that they “shall make returns of net income as and for such corporations, * * * in the same manner and form as such organizations are hereinbe-fore required to make returns.” It provides that the tax should be assessed in the same manner as if assessed directly against the organizations of whose businesses or properties they have custody or control. It will be observed that, as applied to the receiver having possession of the entire property of the corporation, etc., as in the ease of receiver in bankruptcy, the statutory provisions .with reference to such taxation are readily applicable, but, where only a portion of the property of the corporation is in the hands of a receiver, it would follow that only a portion of the income of the corporation was in the possession of the receiver, and the tax could not be assessed and collected in the same manner as if assessed directly against the taxpayer, unless for purposes of assessment and collection it was in some fashion combined with the income, if any, received directly by the corporation or in case of loss by the corporation and corresponding deduction was made therefrom. While this consideration does not necessarily determine the proper interpretation of the statute (section 13. [c] supra), it clearly points to the conclusion that section 13 (e) applies only to receivers who are operating the entire property or business of a corporation, etc. The Secretary of the Treasury, soon after the enactment of the statute in 1916, adopted regulations based upon that view of the statute (article 26, par. 181, art. 209). We quote therefrom as follows: “ * * * Such receiver, trustee, or assignee stands in the place of the corporate officers and is required for the purpose of this title to perform all the duties and assume all the liabilities which would devolve upon the officers of the corporation were they in control. The income which he receives on account of the business transacted is the income of the corporation and no matter how such income is applied, it is subject to the tax imposed by this title insofar as it exceeds the deductions or allowances authorized by law.”

Later additional regulations were promulgated pursuant to 40 Stat. 1057, 1143, § 1309' (26 USO A § 1245 note): “A receiver who stands in the stead of an individual or corporation must render a return of ineome and pay the tax for his trust, but a receiver of only part of the property of an individual or corporation need not. * * * A receiver of the rents and profits appointed to hold and operate a mortgaged parcel of real estate, but not in control of all the property or business of the mortgagor, and a receiver in partition proceedings, are not required to render returns of ineome. In general, statutory receivers and common-law receivers of all the property or business of an individual or corporation must make returns.”

Article 622, after providing for returns of ineome by receivers, concludes as follows: “A receiver in charge of only part of the property of a corporation, however, as a receiver in mortgage foreclosure proceedings involving merely a small portion of its property, need not make a return of income. See articles 424 and 547.”

Similar provisions were incorporated in the regulations promulgated under later statutes. If in any case it is proper for a receiver to withhold a return of income on the ground that the property in his custody does not constitute all of the property of the taxpayer, it is clear that, where the receiver is appointed because of a controversy over the title to the property which he holds, which is only a part of that owned by the taxpayer, it is pre-eminently a case in which the return should not be made by the receiver who has been appointed for the very purpose of impounding the income to await the determination of the court as to its ownership. If it is to be treated as a part of the income of the owner of the property, the amount of tax thereon would depend upon which one of the two litigants was subsequently determined to be the owner, and this difficulty is particularly marked in the situation presented by the case at bar, where, if the income belonged to the government, it was not subject to tax, whereas, if it belonged to the respondent, the amount of tax thereon would depend upon the income derived by the respondent taxpayer.

We are informed by the brief filed on behalf of the government that the uniform practice of the Treasury Department with relation to returns from receivership has been in accordance with the rules of the Treasury Department as above interpreted, and that under that practice the receiver of a part only of respondent’s property as in the case at bar was neither required nor permitted to make such return.

In view of the departmental construction placed upon the statute, which seems to be in' accordance with the intent of Congress, the receiver was not required to make return of this income, but the l-espondent corporation was required to do so.

It remains to consider whether or not the respondent, who was entitled to the income derived from its property which was impounded by the receiver, was liable for income tax thereon as a part of its income for the year 1917. The petitioner asserts in his brief that respondent made its return upon a cash rather than upon an accrual basis. The returns would indicate this to be true, for it is expressly stated therein that the returns are based upon receipts and disbursements. Respondent, however, takes issue with the petitioner’s statement, and points out that the Board of Tax Appeals failed to determine whether or not respondent’s returns were made upon a cash or accrual basis. In either view we think that the amount of this income was properly taxed as income for the year when it was received by the respondent. If the returns were made upon a cash basis, it is clearly taxable in the year in which the money was actually received. If, on the other hand, the respondent made its returns upon the accrual basis, as it seems now to contend, it is properly taxable in the year 1917, for it has been held that, where tax returns are made upon the accrual basis, obligations whose validity is a subject of litigation, are not taxable as accrued income. Dodge v. United States, 64 Ct. Cl. 178; Kales v. Woodworth (D. C.) 20 F.(2d) 395; Lucas v. North Texas Co., 281 U. S. 11, 50 S. Ct. 184, 74 L. Ed. 668; Lucas v. Am. Code Co., 280 U. S. 445, 50 S. Ct. 202, 74 L. Ed. 538. The respondent, apparently conceding this rule, takes the position that, notwithstanding the fact that it actually received the income in 1917, its right thereto was in litigation until the final decision of the Supreme Court of the United States in 1922, and that therefore the money was not taxable as income until such final determination.

It is said that the Consolidated Tea Co. v. Bowers (D. C.) 19 F.(2d) 382, 384, is directly in point on the proposition that the impounded funds cannot constitute income in 1917, but were reportable as income either in 1916 or 1922. We do not think that this case is in point, for it deals with the question as to whether or not the taxpayer is entitled to deduct as a loss a judgment for $10,000 rendered against it by the lower court in 1919, and affirmed by the appellate court and paid in 1921. The taxpayer in that ease claimed the right to deduct the loss in 1919 because at that time it set up a reserve against the amount of the judgment. In that connection the District Court stated: “From a tax income standpoint, both logical and practical, reasons seem to me to support the conclusion that a loss should be deductible, not in the year when the judgment was rendered, but in the year when the claim was adjudicated to be final and definite, or possibly, under certain circumstances, in the year when the claim originated.”

We do not think this case is authority for the proposition that money paid to a corporation as a part of its income is not taxable because its right to receive such income is being litigated in the court. The decision of Burnet v. Sanford & Brooks Co., 282 U. S. 359, 51 S. Ct. 150, 75 L. Ed. 383, supports the view that we have advanced. In that ease Sanford & Brooks were engaged in dredging for the government. In 1915 they declined to proceed with the work, and brought suit against the government for the amount expended in performance of the contract on the ground that the government had failed to make proper disclosure of the character of the dredging to be done. The Court of Claims awarded a judgment against the government in 1918. This judgment was affirmed by the Supreme Court in 1920 (U. S. v. Atlantic Dredging Co., 253 U. S. 1, 40 S. Ct. 423, 64 L. Ed. 735), and the judgment was paid by the government in 1920. It was contended by the taxpayer that it was entitled to make return of this amount as income for the years 1913-1916, during which the work was done and money expended, with the result that such expenditures made during those years would offset the income. The Supreme Court held that the income was properly taxable as income for the year 1920, there being no evidence that the taxpayer took advantage of the regulation providing for reporting income on long-term contract basis under treasury regulations, or upon an accrual basis under section 212 (b) (40 Stat. 1064).

Income is ordinarily taxable only when it is received. See, also, decision in Herold v. Mutual Benefit Life Ins. Co, (C. C. A.) 201 F. 918; Maryland Casualty Co. v. U. S., 251 U. S. 342, 40 S. Ct. 155, 64 L. Ed. 297; Eisner v. Macomber, 252 U. S. 189, 207, 40 S. Ct. 189, 64 L. Ed. 521, 9 A. L. R. 1570; Eckert v. Burnet, 51 S. Ct. 373 75 L. Ed.-, decided April 13, 1931; Lucas, Commissioner, v. North Texas Oil Co., 281 U. S. 11, 50 S. Ct. 184, 74 L. Ed. 668; Commissioner v. Garber (C. C. A. 9) 50 F.(2d) 588, decided June 8, 1931.

Order reversed.


text:
    EVANOFF et al. v. BONHAM, District Director of Immigration.
    No. 6375.
    Circuit Court of Appeals, Ninth Circuit.
    June 15, 1931.
    Irvin Goodman, of Portland, Or., for appellants.
    George Neuner, U. S. Atty., of Portland, Or., for appellee.
    ' Before WILBUR and SAWTELLE, Circuit Judges, and NETERER, District Judge.
   WILBUR, Circuit Judge.

Appellants are aliens detained under a warrant of deportation. They filed petitions for writs of habeas corpus in the United States District Court for the District of Oregon. In response to these writs, R. P. Bon-ham, the District Director of Immigration at Portland, Or., filed answers and returns, to which petitioners filed reply. Upon the hearing the petitions were dismissed. Separate appeals are taken from this order of dismissal which by stipulation are to be heard on a single transcript. The warrants of deportation are based upon the finding of the immigration authorities that the petitioners are members of “an organization, association, society or group that believes in, advises, advocates and teaches the overthrow by force and violence of the government of the United States.”

The petitions for the writ of habeas corpus were based upon the ground that the appellants did not have a fair trial before the immigration authorities. In this regard the petition alleges that, while the petitioners were imprisoned and restrained by the poliee of the city of Portland, Multnomah county, Or., they were required to give testimony and answer questions propounded by the immigration authorities without being first informed of their legal right to counsel, and without obtaining counsel and without being notified of the nature of the charges filed against them by the Department of Labor. The petitioners allege that they answered the questions propounded through fear and duress. It was alleged that at the subsequent hearing before the appellee the evidence so taken was introduced against the petitioners, and that, when said questions and answers so obtained were offered in evidence at the hearing, they were objected to by appellants’ counsel upon the aforementioned ground. It is also alleged in the petition that six additional charges were specified at the beginning of the hearing. It is alleged further that, prior to being questioned by the immigration authorities while in custody of the police, appellants’ attorney was not permitted to interview the petitioners. It is further alleged that there was no legal testimony whatever offered at the time of the hearing before the immigration authorities that the petitioners were guilty of the charge specified in the warrant, “except that he was a member of the Communist party of the United States which said membership, obtained from me in violation of law as hereinbefore alleged, is not a violation of the laws of the United States. * * * and that there was not offered or introduced at my said hearing any legal testimony whatsoever that I ever, at any time committed any overt act of force and violence, or either, against the Government of the United States or any other Government.”

In the return filed in response to the order to show cause, the appellee alleged that a hearing was conducted before the immigration authorities from the 7th to the 13th day of October, 1930; that the hearing was had for the purpose of determining whether or not the petitioners were liable to deportation on the charge specified in the warrant. It is alleged that the proceedings were conducted in all respects in conformity with the rules of the United States Department of Labor: “that said petitioners’ counsel was given an opportunity to, and did cross-examine witnesses testifying at the said hearing, and was permitted to introduce evidence and given an opportunity to show cause why he should not be deported, and for the purpose of showing that he had not violated the Immigration Act of October 16, 1918, as amended, as aforesaid. That no hearsay testimony was introduced at the said hearing.”

It is further alleged that evidence was introduced at the said hearing to show that the petitioner is an alien and a member of an organization denounced by the Immigration ■ Act (8 USCA § 137) and specified in the warrant for deportation hereinbefore referred to. It is further specified “that the original record of said hearing and exhibits therein received are hereby referred to and by reference incorporated herein, to be presented and filed in court in this eause”; that this complete record was transferred to the Commissioner General of Immigration of the United States in conformity with the immigration laws of the United States for his consideration; and that thereafter on the 5th day of December, 1930, the Secretary of Labor decided that the petitioner, an alien in the United States, believes in, advocates, and teaches the overthrow by force and violence of the government of the United States, and is a member of an organization, association, society, or. group that believes in, advocates, and teaches the overthrow by force and violence of the government of the United States, etc. It is alleged “that the said hearing was fair and impartial, properly and regularly conducted as disclosed by the exhibits filed herein and the testimony duly and regularly transcribed was reasonably sufficient to satisfy and did satisfy the proper authorities as to the merits of the Government’s claim that the petitioner should be deported”; 'that the return was traversed by a reply denying the whole thereof, “save and except as admitted or alleged in petitioners’ petition for writ of habeas corpus and exhibits attached thereto.” It is further alleged in petitioners’ reply on information and belief that, at the close of petitioners’ hearing before R, P. Bonham, said R. P. Bonham went to Washington and consulted the Department of Labor concerning the rendition of its decision in petitioners’ ease in violation of due process of law.

The trial judge states: “That there was evidence before the Department to support its findings is manifest from an examination of its record, and its findings are binding on the court in this proceeding whether it agrees with the conclusions reached or not.”

The assignments of error are based upon the examination of the petitioners by the immigration authorities while they were in the custody of the "police at Portland and the subsequent reception into evidence upon their hearing before the District Director of Immigration of the questions and answers so taken. Other assignments are based upon the addition of six charges to those specified in the warrant during the hearing before the ap-pellee on or about October 7,1930.

It is stipulated that, upon appeal, the record should be printed in the case of Evan-off only, and that the decision against the other appellants should be reviewed upon that record. It is further stipulated “that there be omitted from said transcript the record of the hearing and the exhibits referred to in the answer and return of appellee and by reference made a part of said answer and return.”

In view of these stipulations, we must assume on this appeal in support of the order of the District Court that there was ample evidence presented before the appellee to sustain the charges against the petitioners, and that they were given a fair hearing, nor can it be said under this record that the appellants objected on the hearing to the introduction of the answers elicited upon the examination by the immigration authorities while they were in custody. They do so allege in their petition, and then repeat that allegation by reference in their reply to the return, but, in the absence of evidence in the record upon that subject, we must assume in support of the action of the trial court that this allegation was not sustained. It is well settled by the decisions of this court that the questioning of an alien in custody before he procures an attorney is not a violation of due process of law, where subsequently there was a full and fair hearing at which the petitioner was represented by counsel and had full opportunity to cross-examine the witnesses against him and to present witnesses on his own behalf. Chin Shee v. White (C. C. A.) 273 F. 801; Chan Wong v. Nagle (C. C. A.) 17 F.(2d) 987; Plane v. Carr (C. C. A.) 19 F.(2d) 470; Ex parte Ematsu Kishimoto (C. C. A.) 32 F.(2d) 991; Bilokumsky v. Tod, 263 U. S. 149, 44 S. Ct. 54, 68 L. Ed. 221. In the absence of objection to their introduction at the hearing, it is clear that admission of statements so procured does not render the subsequent hearing unfair in violation of the constitutional requirement of due process of law. Ng Kai Ben v. Weedin (C. C. A.) 44 F.(2d) 315; citing Ah Lin v. U. S. (C. C. A.) 20 F.(2d) 107; United States ex rel. Vajtauer v. Commissioner, 273 U. S. 103, 47 S. Ct. 302, 71 L. Ed. 560.

Orders affirmed.


author: MOORMAN, Circuit Judge.

text:
    SHAKESPEARE CO. v. FEDERAL TRADE COMMISSION.
    No. 5719.
    Circuit Court of Appeals, Sixth Circuit.
    June 13, 1931.

      Robert O. Brownell, of Washington, D. C. (A. R. Serven and D. R. Forbes, both of Washington, D. C., on the brief), for petitioner.
    Alfred M. Craven, of Washington, D. C. (Martin A. Morrison and Robert E. Healy, both of Washington, D. C., on the brief), for respondent.
    Before MOORMAN, HICKS, and HICKENLOOPER, Circuit Judges.
   MOORMAN, Circuit Judge.

The petitioner is now, and for more than thirty years has been, engaged in the manufacture and sale of fishing rods, reels, lines and other items of tackle. It sells these products through small sporting goods and hardware stores located in towns and cities in all parts of the United States and to some of the large mail order and department stores. On May 19, 1939, the Federal Trade Commission issued an order directing it to cease and desist from using certain trade methods found by the Commission to be unfair. The order is in three sections, the first of whieh orders the petitioner to cease and desist from entering into or procuring from its dealers contracts, agreements, understandings, promises, or assurances that its products, or any of them, are to be resold by such dealers at prices specified or fixed by it. This section of the order, as well as the other two sections, is assailed by the petitioner in this proceeding upon the ground that the findings of fact whieh the Commission made are not sufficient to support it and are themselves not supported by substantial evidence.

The petitioner admits that it furnishes to its customers suggested minimum resale prices, and that in several instances, where a customer has cut prices below those suggested by it, it has refused thereafter to make further sales to the customer; but it contends that it has never made any agreements with its customers, either express or implied, whieh undertook to obligate them to observe specified resale prices, and- therefore has never adopted or engaged in any unfair trade practice within the meaning of the Federal Trade Commission Act (15 USCA §§ 41-51).

Although the evidence fails to disclose any express or formal agreement entered into by the petitioner with any of its customers, under whieh the customer agreed not to- sell the petitioner’s products below the suggested minimum prices, it is apparent from the proofs ‘that there has been co-operation between the petitioner and its customers which was the equivalent, for practical purposes, of such formal arrangement. The reeord shows several instances in whieh the petitioner refused to fill orders except upon assurance by the customer that he would discontinue selling below the suggested minimum prices. There are to be found, too, instances of the refusal of the petitioner to make furthei' shipments on orders that had been accepted until such assurance was given. Upon assurance being given, the orders were accepted, or, having been accepted, the further shipments were made. Thus, while the petitioner had the right to refuse to sell its goods to those who did not sell them at the suggested resale prices, with the further right, we think, to state to them its reasons for so doing, the evidence referred to shows that it put into practice “a system of co-operative effort,” within the meaning of that part of the decision in Toledo Pipe-Threading Machine Co. v. Federal Trade Commission, 11 F.(2d) 337 (6 C. C. A.) upholding the order of the Commission in so far as it required the manufacturer to desist from requiring dealers placing orders to give assurance that they would be governed by the suggested resale prices as a condition precedent to the acceptance of the orders. It also brings this aspect of the ease, in our opinion, within the principles announced in Federal Trade Commission v. Beech Nut Packing Co., 257 U. S. 441, 42 S. Ct. 150, 66 L. Ed. 397, 19 A. L. R. 882. We think, therefore, that the Commission’s finding that petitioner enters into understandings with and procures promises and assurances from its customers to maintain minimum prices as a condition to accepting their orders or continuing to supply them with its products is not only supported by substantial evidence, but likewise is sufficient as a matter of law to support the first section of the order. It is apparent, also, under the deei-sions referred to, that the promises or assurances that the petitioner has required of its customers have the effect of suppressing competition and amount to unfair trade practice within the meaning of the statute.

Our approval of this first section of the Commission’s order, however, is subject to certain explanatory limitations. The line of demarcation between the permissible and the prohibited, under principles already suggested, is indistinct, and rather baffles definition. Perhaps it might be said that those contracts, or those co-operative efforts, which fall within the inhibition of the law, relate primarily to the fixing of prices for goods already in the hands of jobber or retailer, rather than to a refusal by the manufacturer to make further sales to those who cut prices. In this connection we are of the opinion that the petitioner, under the Commission’s order, may refuse to sell to those customers who demoralize the mai’ket and may announce as its general policy an intention so to do. If some customer cuts prices below the requested minimum, the petitioner may refuse to make additional sales to such customers, but may go no further. Assurances as to future .conduct may not be solicited. Should such assurances be given by the customer, notwithstanding the lack of solicitation, they must be considered as gratuitous and as not involving the petitioner in a violation of the Commission’s order. They would then amount to no more than persuasion on the part of the customer that the petitioner resume its former relations.

The second part of the order complained of directs the petitioner to cease and desist from requesting its dealers to report the names of other dealers who do not maintain petitioner’s resale prices or who are suspected of not maintaining them. The Commission found as a fact that petitioner had requested its dealers to report the names of other dealers who did not maintain its resale prices. The only evidence that we find in the record touching that question is contained in a letter which the petitioner wrote to one of its customers in reply to a letter from the customer complaining of the cutting of prices by a competitor. In this letter petitioner thanked the customer for calling its attention to the price-cutting, stating that it had refused and would continue to refuse to fill the orders of dealers who persisted in cutting prices, and, further, that it would assist petitioner if dealers who did not cut prices would call its attention to competitors who did. No general request of this kind was sent to dealers, and the only other evidence with respect to any praeti.ce on the part of the petitioner by which it sought to obtain from its dealers the names of other dealers who cut prices consists of responses to letters of complaint in which the petitioner merely expressed to the dealer his thanks for information unsolieitedly given. None of these letters, including the one first mentioned, can be said to amount to a request that the dealer report to the petitioner the names of other dealers who did not maintain the suggested prices.. Contrarily the evidence shows, we think conclusively, that petitioner never made such request of any dealer. We need not determine whether, if it had done so, its conduct would be subject to condemnation by the Commission under the rulings in United States v. Colgate & Co., 250 U. S. 300, 39 S. Ct. 465, 63 L. Ed. 992, 7 A. L. R. 443, and Federal Trade Commission v. Beech Nut Co., supra. It is sufficient for the decision of this ease that the finding by the Commission that it did is lacking in evidentiary support.

The third portion of the order directed the petitioner to desist from “seeking by any methods and co-operation of dealers in making effective any policy adopted by respondent for the maintenance of prices.” This part of the order is too incomplete to be intelligible. If it may be construed as meaning to desist from seeking by any methods of co-operation of dealers to make effective any policy adopted by respondent for the maintenance of prices, it is wholly unjustified under the evidence save as to the practice which is forbidden by the first section of the order. It would be broad enough under the changed phraseology to cover the procuring of dealers to give assurance of the maintenance of suggested resale prices, but that practice is expressly taken care of by section 1 of the order, and it is not to be supposed that the Commission issued section 3 to cover a practice that it had already forbidden by another provision. As there was no other unlawful practice indulged in by the petitioner, we think section 3 should also be set aside.

It results that section 1 of the order is affirmed, and sections 2 and 3 are set aside.


author: WEST, District Judge.

text:
    WYNNE v. FRIES et al.
    No. 5743.
    Circuit Court of Appeals, Sixth Circuit.
    June 13, 1931.
    W. L. Guice, of Biloxi, Mss., and A. C. Roudebush, of Cincinnati, Ohio, for appellant.
    W. M. Shohl, of Cincinnati, Ohio (Dins-more, Shohl & Sawyer, of Cincinnati, Ohio, on the brief), for appellee.
    Before DENISON and HICKENLOOPER, Circuit Judges, and WEST, District Judge.
   WEST, District Judge.

This was an action on promissory notes given for lands in Mssissippi. Steiner and Ach, who will be termed defendants, set up as defenses that the lands were purchased and notes executed by a certain development company by its sole trustee, constituting a common-law trust, and not by or for them; and that the entire transaction was void for fraud practiced upon the vendee by the vendor, to which defenses reply was filed. Trial by jury was waived in writing, the ease was heard by the court, and at the conclusion of all the evidence the defendants moved for judgment in their favor. After oral argument, the judge announced his tentative view that a certain document in evidence declared a trust and not a partnership, and, after further argument respecting the defense of fraud, said in effect that he regarded the validity of the trust as the immediately important question, and gave the parties thirty days to present briefs; and “we will let it rest that way and consider the matter submitted.” We get this from the bill of exceptions. On April 3, 1930, the court filed its decision found in the transcript, but not incorporated in the bill of exceptions. Therein it ruled that “the motion made by counsel for defendants at the elose of plaintiff’s case in chief and renewed at the elose of all the evidence, as appears above from the record, should be and it is, therefore, sustained. An entry may be drawn accordingly and submitted to the court for approval.” No exception was reserved to this ruling either when it was announced or later. Thirteen days after-wards judgment was entered, and the entry shows that this was upon consideration of the pleadings, evidence, and argument of counsel. The entry states: “Upon the issues joined thereon the court finds for the defend ants, Lawrence Aeh and Albert-Steiner. It is therefore considered and adjudged that plaintiff’s petition be and hereby is dismissed as to the defendants, Lawrence Ach and Albert Steiner, and that the defendants, Lawrence Aeh and Albert Steiner, go hence without day and recover from plaintiff their costs herein expended. To all of which plaintiff excepts.” No special findings were requested or made. Appellant’s motion for new trial was overruled, to which he excepted.

Errors are assigned to the granting of the motion for judgment at the close of the testimony, to the judgment given in favor of defendants when it should have been for the plaintiff, to the ruling that the articles of agreement in evidence constituted a common-law trust and not a partnership, to the holding that defendants as beneficiaries in the trust were not liable as partners or otherwise on the notes, to rulings upon the evidence-, and to the overruling of the motion for new trial.

While the motion to dismiss was not based on any stated reasons, the trial court treated it as raising the question of the sufficiency of the evidence to justify a verdict for the plaintiff, and we think we should so regard it. That a ruling upon such a question can be reviewed is decided in Maryland Casualty Co. v. Jones, 279 U. S. 793, 49 S. Ct. 484, 73 L. Ed. 969, and many other cases.

In eases such as this, section 875, tit. 28, U. S. C. (28 USCA § 875), permits a review of rulings made by the court in the progress of the trial, if they are excepted to at the time and duly presented by a bill of ■ exceptions. And here, as shown by the transcript, neither of these requirements was met. The record discloses no exception to the decision on the question of law raised by the motion, but only an exception to the judgment. And the decision is not embodied in the bill of exceptions.

The absence of an exception to the preliminary ruling on the law, as distinguished from the judgment, is fatal. The judgment, which was the court’s general finding upon the facts (title 28, § 773, U. S. C. [28 USCA § 773]) was not based on the decision of the motion or insufficiency of the evidence to support a verdict, but in express terms upon the issues joined between the parties. In addition to adjudging that the defendants go without day and recover costs, the petition was dismissed, but that did not alter the character of the judgment as a general finding. It was not made “in the progress of the trial,” but after its conclusion. And the exception raised no question of law or fact which this court has power to consider. Lewellyn v. Elec. Reduction Co., 275 U. S. 243, 248, 48 S. Ct. 63, 72 L. Ed. 262; Fleischmann Co. v. United States, 270 U. S. 350, 46 S. Ct. 284, 70 L. Ed. 624; Law v. United States, 266 U. S. 494, 45 S. Ct. 175, 69 L. Ed. 401; Martinton v. Fairbanks, 112 U. S. 670, 5 S. Ct. 321, 28 L. Ed. 862; Cooper v. Omohundro, 19 Wall. 65, 22 L. Ed. 47; Norris v. Jackson, 9 Wall. 125, 19 L. Ed 608; Zurich Gen. Acc. & L. Ins. Co. v. Mid-Continent P. Corp., 43 F.(2d) 355, 357 (C. C. A. 10); Ocean Accident & Guarantee Corp. Ltd., v. Pearson, 37 F.(2d) 896 (C. C. A. 6); Federal Intermediate Credit Bank v. L’Herisson, 33 F.(2d) 841, 843 (C. C. A. 8); People’s Bank v. International Finance Corp., 30 F.(2d) 46 (C. C. A. 4); Oyler v. C., C., C. & St. L. Ry. Co., 16 F.(2d) 455, 456 (C. C. A. 6). Plaintiff claims that certain statements found in the decision should be regarded as findings of fact; but that is not permissible. Fleischmann Co. v. United States, supra; Ocean Accident & Guarantee Corp. v. Pearson, supra.

It has been held that a trial such as this ends for the purposes of section 875 when the court files its decision on the law. Seep v. Ferris-Haggarty Copper Mining Co., 201 F. 893 (C. C. A. 8); United States Fidelity & G. Co. v. Board of Com’rs (C. C. A. 8), 145 F. 144, and cases cited at page 151. Whether this rule prevents exceptions being noted at any time after the decision,' even though prior to the court’s final action, is not necessary to decide; no such exception having been offered.

No special finding of fact or separate ruling as to the law concerning the alleged common-law trust or its bearing upon the defendants’ liability, was requested or made. And any decision of these matters was incidental to the court’s ruling upon the motion to dismiss and for judgment, which for want of timely exception cannot be reviewed.

The briefs filed by appellant set out the assignments of error to the introduction and exclusion of evidence, but present no argument in support of these assignments, and we consider them waived under Wege v. Safe-Cabinet Co., 249 F. 696 (C. C. A. 6). See Maryland Casualty Co. v. Jones, supra, 279 U. S. page 796, 49 S. Ct. 484, 73 L. Ed. 960. The action on plaintiff’s motion for new trial presents nothing for review. Coopier v. Omohundro, supra.

Judgment affirmed.


text:
    CODMAN v. COMMISSIONER OF INTERNAL REVENUE.
    No. 2524.
    Circuit Court of Appeals, First Circuit.
    May 28, 1931.
    John R. Lazenby, of New York-City, for petitioner.
    Prew Savoy, Sp. Atty., Bureau of Internal Revenue, of Washington, D. C. (G. A. Youngquist, Asst. Atty. Gen., J. Louis Monarch, Andrew D. Sharpe, and F. Edward Mitchell, Sp. Assts. to Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, of Washington, D. C., on the brief), for respondent.
    Before BINGHAM, ANDERSON, and WILSON, Circuit Judges.
   WILSON, Circuit Judge.

Two petitions for review of decisions of the Board of Tax Appeals affirming assess- ' ments by the Commissioner of Internal Revenue of deficiencies in income taxes for the years 1923 and 1924. Both petitions involve the same questions and have been consolidated and may be disposed of in one opinion. The facts are not in dispute.

On August 6, 1902, Maria P. Codman, a resident of Bristol, R. I., died leaving a will. In September of that year William S. Dexter, who was named as executor, petitioned the probate court in Bristol to prove and allow the will and grant letters testamentary to him as executor. On October 6, 1902, Martha C. Codman, sole heir at law of the testatrix and one of the beneficiaries, appeared and objected to the probate of the will. On January 22, 1903, a compromise settlement was entered into between the executor, trustees, and all persons and corporations named as beneficiaries. This agreement was thereafter approved by the Appellate Division of the Supreme Court of Rhode Island, acting under chapter 212 of the General Laws 1896 of that state, and a decree was entered wherein it was ordered, adjudged, and deereed that the written agreement of compromise and settlement “is found by this court under the circumstances to be just and reasonable in relation to the parties in being and to its effect upon any future contingent interests that might arise under said will, and any and all gifts to charities in the same, and the said agreement of compromise and settlement is hereby sanctioned and approved.” It was further ordered that the probate court of Bristol ■ should proceed with the probating of the will as modified by the agreement of compromise and settlement. This decree of the Supreme Court was entered of record March 2, 1903, and on the same date the will as modified by the agreement of compromise and settlement was proved and allowed as such by the probate court of Bristol, and the same was recorded and letters testamentary on the estate were granted to Robert M. Morse and Edmund D. Codman, as executors, in accordance with the said will as modified.

The only change in the terms of the will made by this agreement of compromise was in the first and eighth paragraphs of the will. In the first paragraph the names of Robert M. Morse and Edmund D. Codman were substituted for that of William S. Dexter, as executors.

The eighth paragraph of the will, in substance, provided that the net income of the trust estate should be divided equally among Martha C., Leslie and Catherine Codman, or among such of them as survived the testatrix; and, in the event of any one of the eestuis que trustent dying after the death of the testatrix, his or her share, in case he or she had not appointed some one by will to take, should go to the same persons, in the same proportions as they would have taken if such beneficiary had owned the same property in his or her own right.

Leslie Codman died before the testatrix, and, if no compromise settlement had been made, Martha and Catherine would then have shared equally in the trust income, and the corpus of the trust upon the death of each would have been distributed as above provided.

By the terms of the agreement a new paragraph eighth was substituted which provided for the disposition of the income and of the corpus of the trust estate in the same manner as had been originally provided in the will, except that by the terms of the will a spendthrift trust was created, but .this change has no bearing, we think, on the questions at issue here.

The effect of these proceedings, according to the decisions of the Supreme Court of Rhode Island, Barber v. Westcott, 21 R. I. 355, 43 A. 844, was to embody the agreement of compromise in the will and to give effect to it as if originally a part of the will, and “virtually make the award or compromise as mueh a part of the will as if originally contained in the will.”

Following the probate of the will as modified in Rhode Island, the will with the agreement was probated in Suffolk county in Massachusetts, and Robert M. Morse and Edmund D. Codman were appointed executors and trustees and qualified as such, and following the 'settlement of the estate the trustees proceeded to administer the trust estate and have continued, except for a change in the trustees in consequence of the death of Mr. Morse, down to the present. The trust estate in 1903 consisted of real estate located in Boston of the value of approximately $1,160,000, and personal property of the appraised value of $403,240.12.

The net income of the trust from April 16, 1903, the date of the appointment of .the trustees, to December 31 of that year, was $79,922.88, of which the petitioner received one-half, or $39,961.44. In 1904 her share was $33,180.19. In 1923 her share of the net income of the trust fund was $68,638.26, and in 1924, $80,889.87.

In computing her income tax for the years 1923 and 1924, the petitioner omitted to include in her gross income the receipts from said trust fund. The Commissioner included them and assessed a deficiency tax for each year based on the amount of the trust income so received. The petitioner appealed to the Board of Tax. Appeals, which affirmed the Commissioner’s decision and the petitioner now seeks a review of the Board of Tax Appeals’ decision by this court under sections 1001, 1002, and 1003 of the Revenue Acts of 1926 and 1928 (section 603, amending section 1001), 26 USCA §§ 1224-1226.

The petitioner says that under the laws of Massachusetts she received the income by virtue of the agreement and not under the will, that her interest under the contract or agreement is an exhaustible estate, and that the income therefrom should be depreciated each year in proportion to her expectancy of life. In any event the petitioner claims that under section 214(a) (8) of the Revenue Act of 1921 (42 Stat. 240), and a similar provision in section 214 (a) (8) of the Revenue Act of 1924 (26 USCA..I 955 and note), she is entitled to deduct from the income received from the real estate one-half of the allowable annual depreciation and obsolescence of the buildings.

The government contends that the contract or agreement of compromise having been entered into in Rhode Island, its effect is governed by the decisions of the courts of that state, and the petitioner therefore takes under the will as modified by the agreement; that by the terms of the will she took an equitable interest in the trust fund, which she could dispose of by will, and under the decision of Irwin v. Gavit, 268 U. S. 161, 45 S. Ct. 475, 69 L. Ed. 897, the income was taxable to her.

While by the law of Rhode Island the petitioner took as legatee, Barber v. Westcott, supra; Chase Nat. Bank et al. v. Sayles et al. (C. C. A.) 11 F.(2d) 948, 48 A. L. R. 207, the agreement of compromise, though made in Rhode Island, was clearly intended to be carried out in Massachusetts, and should be construed and given effect in accordance with the law of that commonwealth. Pritchard v. Norton, 106 U. S. 124, 136, 137, 1 S. Ct. 102, 27 L. Ed. 104; Hall v. Cordell, 142 U. S. 116, 12 S. Ct. 154, 35 L. Ed. 956. The agreement was made with full cognizance of the fact that the entire trust estate was located in Massachusetts, and-the beneficiaries were residents of Massachusetts, that trustees must be appointed there, the trust property administered there, and specifically provided that in case of a vacancy the probate court of Suffolk county should fill the vacancy by the appointment of a new trustee.

If the law of Massachusetts applies, then the petitioner takes under the contract and not under the will. Baxter v. Treasurer et al., 209 Mass. 459, 95 N. E. 854; Ellis v. Hunt, 228 Mass. 39, 116 N. E. 956. But we think in either event the petitioner acquired an equitable interest in the trust estate, which would pass to her heirs if not disposed of by a power of appointment under her will, which could be enforced in equity by her heirs, or by her devisees and legatees in case she disposed of the trust estate by will.

While the opinion does not disclose that the issues here involved were raised in the case of Codman v. Miles (C. C. A.) 28 F.(2d) 823, 824, which was a petition for review brought by Martha C. Codman, the other beneficiary under the trust, the court proceeded to dispose of the case without making any distinction whether the taxpayer took under the will or the agreement, citing Irwin v. Gavit, supra, which disposed of any contention that the provision for the payment of the income annually was a bequest and not income. The court further held that “the contention that the value of the estate was eaeh year depleted by exhaustion is intriguing rather than logical. What the plaintiff received and was entitled to receive was not the corpus of the property but the increment annually accruing therefrom. It is nowhere suggested that the corpus of the property, from which the income was derived, was in any way depleted. There is no destruction or diminution by use of the property which furnishes the source of the income, and to allow an abatement for any portion of the taxes accruing eaeh year because of the limited time of the plaintiff’s enjoyment of the income would not only defeat the reiterated purpose of Congress as expressed in various provisions of the act, but would invite as well as permit, to an unlimited extent, subterfuges whereby those entitled to large incomes could avoid their just obligations to the government.”

That there was a daily lessening of the amount which the taxpayer wou.ld receive because of her lessening expectancy of life is met by the Supreme Court in Stratton’s Independence v. Howbert, 231 U. S. 399, 415, 34 S. Ct. 136, 140, 58 L. Ed. 285: “But the same is true of the earnings of the human brain and hand when unaided by capital, yet such earnings are commonly dealt with in legislation as income.”

There is no more ground for holding in this case that the petitioner’s interest in the trust estate created either under the will or by the agreement was an exhaustible asset lessening with eaeh passing year than in the case of a life interest in the income of any trust estate. The petitioner’s interest differs from that of the lessee’s in a mine which suffers annual depletion from the ore removed, Lynch v. Alworth-Stephens Co., 267 U. S. 364, 45 S. Ct. 274, 69 L. Ed. 660, or stump-age rights in timberlands, Doyle v. Mitchell Bros. Co., 247 U. S. 179, 38 S. Ct. 467, 62 L. Ed. 1054. The trust estate in this instance has suffered no exhaustion. On the other hand, the corpus of the trust estate had increased in value and will pass to her heirs or devisees and legatees undiminished by any income she .may receive. In Merle-Smith v. Commissioner (C. C. A.) 42 F.(2d) 837, 841, the court very properly drew a distinction between the case at bar involving royalties on ores removed from mines and the ease of Roxburghe v. United States, 64 Ct. Cl. 223, where the beneficiary was entitled to the income of a trust estate for life and had no interest in the corpus. •

Neither do we think that the petitioner’s contention can be sustained that she should be allowed to deduct from the income received by her a proportionate share of the allowable depreciation of the buildings in the trust estate over and above the sums expended by the trustees under the agreement for maintenance and repairs.

Whether the trustees in this case did under section 214(a) (8) set aside any fund for depreciation, the record does not disclose, but, if they did not, we do not think it can be deducted from the income paid to the beneficiaries. It is income and income alone that the petitioner here received.

Under an agreement in which the trustees are directed to pay over the “net income,” the depreciation suffered, if any, during the continuance of the life estate, in case no depreciation is set aside, is borne by the remaindermen or by the devisee of the cestui •que trustent if the cestui has the power of appointment by will, as in this ease. Baltzell v. Mitchell (C. C. A.) 3 F.(2d) 428; Whitcomb v. Blair, 58 App. D. C. 104, 25 F.(2d) 528; Abell v. Tait (C. C. A.) 30 F.(2d) 54.

The ease of Rose v. Grant (C. C. A.) 39 F.(2d) 338, cited by the petitioner, in which case certiorari was granted by the Supreme Court, 51 S. Ct. 28, 75 L. Ed.-, but which was finally abandoned by the government owing to amendments to the Revenue Act, has no bearing, we think, on the issues here, sinee it involved a deduction for depreciation by the life tenant in possession.

This petitioner did not, as in the cases of United States v. Bolster (C. C. A.) 26 F.(2d) 760, 59 A. L. R. 491, Warner v. Walsh (C. C. A.) 15 F.(2d) 367, and Allen v. Brandeis (C. C. A.) 29 F.(2d) 363, release any interest in the real estate in consideration of receiving other property in exchange. The only change in the will in this case affecting the petitioner, so far as the record shows, was a substitution of new executors and trustees for those provided by the will. The trust provision in the agreement corresponded in its effect to that provided in the will, and, whether she took under the will or the agreement, the final result was the same.

She was a recipient of income in either case, and her interest in the trust estate was no more subject to exhaustion in the one ease than in the other, nor was she entitled to deduct a proportional part of an allowable annual depreciation of the buildings from the income received by her.

The decrees of the Board of Tax Appeals are affirmed.