author: BOOTH, Circuit Judge.

text:
    DAHLY v. UNITED STATES. BEATON v. SAME.
    Nos. 9045, 9060.
    Circuit Court of Appeals, Eighth Circuit.
    May 2, 1931.

      Theodore Hollister, of Duluth, Minn. (Jay H. Hoag, of Duluth, Minn., on the brief), for appellant Dahly.
    Arthur LeSueur, of Minneapolis, Minn., for appellant Beaton.
    George A. Heisey, Asst. U. S. Atty., of St. Paul, Minn. (Lewis L. Drill, U. S. Atty., of St. Paul, Minn., on the brief), for the United States.
    Before YAH YALKENBURGH and BOOTH, Circuit Judges, and MUNGER, District Judge.
   BOOTH, Circuit Judge.

There are here two appeals from judgments of conviction under the Conspiracy Statute (section 37, Cr. Code [18 USCA § 88]).

The indictment (filed September 13, 1929) alleged that the conspiracy was between three officers of the United States and a fourth person. The three officers were Dahly, collector of customs at Duluth; Beaton, a customs supervising agent located at St. Paul, but whose duties took him elsewhere; Hoban, a customs inspector in the Duluth district. The fourth person was Peters,* a resident of Duluth. The offense to be committed against the United States was charged to be that set out in title 18, USCA, § 203, which reads as follows:

“(Criminal Code, section 113.) Receiving pay by Member of Congress in matters affecting United States. Whoever, being elected or appointed a Senator, Member of or Delegate to Congress, or a Resident Commissioner, shall, after his election or appointment_ and either before or after he has qualified, and during his continuance in office, or being the head of a department, or other officer or clerk in the employ of the United States, shall, directly or indirectly, receive, or agree to receive, any compensation whatever for any services rendered or to be rendered to any person, either by himself or another, in relation to any proceeding, cqntraet, claim, controversy, charge, accusation, arrest, or other matter or thing in which the United States is a party or directly or indirectly interested, before any department, court-martial, bureau, officer, or any civil', military, or naval commission whatever, shall be fined not more than $10,000 and imprisoned not more than two years; and shall moreover, thereafter be incapable of holding any office of honor, trust, or profit under the Government of the United States. (R. S. § 1782; Mar. 4, 1909, c. 321, § 113, 35 Stat. 1109.)”

The charging part of the indictment and the overt acts alleged are set out in the margin.

It is seen from the allegations of the in-dietment that the charge in brief was that the conspirators agreed to receive from .Smith compensation for services to be rendered by them to him in connection with the charge against him; that the services were to consist in endeavoring to induce Drill (United States Attorney) (a) to dismiss the charge against Smith; or (b) to recommend a fine as punishment; or (e) to recommend a compromise of the charge through the Treasury Department of the United States; that the endeavoring was to be (1) by the influence of the conspirators; (2) by persuasion; (3) by enlisting the influence of a named United States Senator.

The case was tried; each of the defendants made motion for directed verdict at the close of all the evidence; the motions were denied; and the three officials were convicted. Hoban had also previously pleaded guilty to the charge of having committed the substantive offense under section 203. Peters was found not guilty. The present appeals followed as to Dahly and Beaton.

The vital question on these appeals is whether the court should have directed verdicts. in favor of Dahly and Beaton.

The salient facts are substantially as follows : December 6, 1928, Smith was arrested for illegal sale of narcotics. He was taken before a United States Commissioner on that date; a hearing was had; a bond was given; and he was released. Smith immediately began efforts to get into touch with Beaton. He telephoned to Beaton’s mother-in-law and found that Beaton was at Two Harbors on official business. After several efforts, he reached him by telephone and made an appointment with him for the 8th of December, when Beaton said he would return to Duluth. Smith had known Beaton for a number of years. Smith’s family and Beaton’s father-in-law and mother-in-law were neighbors and friends. Beaton returned to Duluth on the night of December 8th, and Smith and his son, Dr. Wallace Smith, had an interview with him at the Hotel Duluth. Dahly and a man by the name of Christiansen were in Beaton’s room- and he introduced them to Smith. They, however, shortly left. Smith then told Bea-ton about the narcotic charge against himself and asked Beaton to put in a good word for him. Beaton told Smith that the offense was a very serious one, and that he doubted whether he could do anything for him. Both Smiths testified that they knew that the offense was serious before being so told by Beaton. Edward Smith testified: “I knew before I was arrested that some people had received as high as ten to fifteen years for violation of the narcotic act in this district. I knew that before I went to see Beaton.”

At the interview with Beaton, both of the Smiths were very mueh excited. The son testified: .

“I was so worried over the offense and so worried over Dad’s condition that we didn’t know what we were doing. * * *
“Father was talking that night somewhat at random about this matter; couldn’t get his mind down to one point as to just how it happened; he was too excited.”

The sale of Smith’s drug store was also talked about. Smith had been trying to sell his drug store for sometime on account of bad health. He told Beaton that he thought it might help his ease if he should sell out his drug store, and that he wanted to find somebody that would buy it. Finally Bea-ton promised Smith that he would see Mr. de la Gardia, narcotic agent in Minneapolis, when he returned from Duluth.

There is little difference between the account of the Smiths and the account of Beaton as to what occurred at this interview, except that the Smiths testified that Beaton told them about the case of a man who was charged with violating the Prohibition Act and got off with a fine, but had to pay his attorney $2,000. Beaton denied telling this story. The Smiths also testified that Beaton said that, if Smith got a tip, to do something or to hire somebody to go ahead and do it; and that Beaton said further that he couldn’t telephone or write to him.

During the period from December 8th to 13th, Beaton was engaged in carrying on the investigation mentioned, at Two Harbors. It involved the stealing of certain ale. Dahly and Hoban were interested in the investigation, and the three men drove back and forth between Duluth and Two Harbors together in an automobile. The Smith matter was discussed, and the possible sale of the Smith Drug Store. Beaton told Dahly what Smith had told him. During this period, Peters, one of the defendants, had learned from Olson and Dahl of the Northern Drug Company that possibly the Smith Drug Store might be for sale. Peters had been looking for the opportunity to buy a drug store. He had formerly worked for Dahly in a drug store owned by him. Peters talked to Dahly as early as December 9th about the possible purchase of the Smith Drug Store. Dahly told Beaton that Peters might possibly buy the store.

On December 15th, in a telephone talk between Dahly and Beaton about the ale investigation, the Smith matter was mentioned, and either Dahly or Beaton suggested that Smith see Dahly. Beaton called Smith by phone the same morning and Smith went to Beaton’s room. Smith testifled as to what occurred:

“The first thing Mr. Beaton did on the 15th he called me up from the hotel. Told me over the phone to come to the hotel Duluth. I went there; Beaton was there.
“Q. What did ha tell you when you saw him? A. He said to go and see Mr. Dahly, that he was reliable, and I could depend on anything he said. Then I left Beaton’s room and went up to see Mr. Dahly in his room.”

The testimony as to what occurred in Dahly’s room is as to some matters undisputed ; as to other matters, in sharp dispute. Smith testified as follows:

“Q. “ What conversation did you have with Mr. Dahly on this date, after Mr. Beaton sent you to his room? A. He said- that I should get up a petition and get it signed by my friends. A character petition.
“Q. What else did he say to you? A. Well, he said he would send a man — one of his men to Washington that had a lot of influence and that I should talk to him.
“Q. Did he tell you why; did he say anything further about the man going to Washington for the purpose of a visit or anything? A. Yes, he was going to see the senator — to see the district attorney — I, — I have forgot.
“Q. Just tell it as near as you remember? A. All I remember he told me to see his man, his head man.
“Q. Well, how did you get in touch with the man that Mr. Dahly was speaking about? A. He went out and got him. And brought him back into the room.
“A. Who did he bring back into the room? A. Timmins. [Hoban]
“Q. Mr. Dahly introduced you? A. Yes, he said he would take care of me. He said he was influential in Washington, and that he would take care .of me.
“Q. Who said that? A. Dahly said that.
“Q. Mr. Dahly said Mr. Timmins would take care of you? A. Yes.
“Q. What else was said — did Mr. Dahly remain in the room? A. No, he went out.”

Smith also testified that no one else was present in Dahly’s room until Dahly went out and brought in Hoban (Timmins). Smith also testifled that the petition advised by Dahly was a character petition, but was not to contain an admission of guilt. Smith also testifled that he got up the petition and took it to the Northern Drug Company, but it was not used. Smith testified further that nothing was said while Dahly was present about money or paying any one. Smith testified further that he could not remember whether he and Dahly discussed the sale of the drug store. Dahly testified that Smith came to his room on the morning of the 15th and appeared to be very much excited; that they talked about the sale of the drug store; and the possibility of Peters buying it; that they then talked of the charge against Smith; that he (Dahly) advised Smith to get up a character petition admitting his guilt and present it to the court, and ask for leniency.

Dahly testified that he made no statements about sending a man to Washington and did not go out and get Hoban and introduce him to Smith. Dahly further testified that two other men, Zoey and Cook, were in his room during all the time that Smith was there. Zoey and Cook corroborated the testimony of Dahly. The testimony of Dahly was also corroborated, as to the contents of the petition to be gotten up, by the testimony of Olson of the Northern Drug Company, whom Smith consulted as to circulating the petition.

The testimony of Smith as to what occurred at the interview which he claims took place between himself and Hoban on December 15th is to the effect that Hoban asked him what the charges were against him and said he would have to go to Washington “to bring a Senator who appointed the district attorney at St. Paul, and he would see him”; that Hoban also said he would have to have $1,000 for expenses; and that he and Hoban Went to the bank and he got the money and gave it to Hoban.

Smith testified further that on December 19th Hoban called him to the hotel and Smith went and met him. Hoban then told him that he had been to Washington and had things started, and further told Smith that he must have $3,500 more; that the whole matter would cost $10,000; that the men they were dealing with were highprieed men. Smith told Hoban that $3,500 was “pretty much.” .Hoban also asked Smith about selling bis drug store and said he knew a man who wanted to buy a drug store. Smith said he would have to sell the drug store. Hoban then called Peters by phone and shortly thereafter Peters came up to Hoban’s room. After some talk, Smith and Peters went to look over the drug store.

Smith, on his cross-examination, was uncertain whether Hoban called Peters into conference as to the sale of the store on December 15th or on the 19th, when the second interview was had.

Peters testified that it was on the 14th when he was called by Hoban to meet Smith, and that he and Smith went to the store and looked it over on that date.

Later in the day, on the 19th, Smith telephoned his brother, Elmer Smith, and Elmer came from Minneapolis to Duluth. Smith told him his whole story, and Elmer took Smith back to Minneapolis, and they went before officers of the Department of Justice, and there' Smith told all about the charge against him, and all about the negotiations with Hoban.

On December 15th, Beaton returned to (his office in St. Paul. On the 18th, he telephoned to de la Gardia, the narcotic agent at Minneapolis, as he had promised Smith. Mr. de la Gardia was not in but Beaton talked to Mr. Wall, an assistant. Beaton asked if the ease of Smith was one that could properly be compromised. Wall said he would look up the files. Later Beaton received, through his secretary, Wall’s message that the case was not one that would be compromised, but that criminal proceedings had already been commenced; that the file on Smith was bad. Upon receiving the message, Beaton said, “To hell with them,” or “to hell with him.”

On December 21st, Dahly left for California on official business. He stopped at St. Paul. While there, on December 22d, he saw Beaton and Hoban, but he testifies that he had no talk with them relative to the Smith matter. The same day Beaton and Hoban had lunch together, but Beaton testified that they did not discuss the Smith matter.

On January 5, 1929, Hoban, in Duluth, telephoned to Smith to come to the hotel, and Smith did so, accompanied by his brother Elmer. They had prepared $3,500 in bills marked, which Smith carried. Two policemen followed them at a distance. Smith went alone to Hoban’s room and gave him $3,500. Hoban asked Smith to meet him again at 2 o’clock in the afternoon, as his man was in town. Smith left, and immediately the policemen went in and arrested Hoban and found the money, which had been marked/ Other facts will appear in the discussion.

The present indictment followed.

Before considering the evidence, it may not be amiss to restate a few of the well-established principles of law applicable to the present case. Citation of authorities will not be necessary.

A conspiracy under section 37 Cr. Code (18 USCA § 88) is an agreement by two or more persons to commit an offense against the United States. The gist of the offense is the conspiracy; that is, the agreement between two or more persons to effect the unlawful end; but before the offense is a completed one, some one or more of the parties to the conspiracy must do some act to effect the object of the conspiracy. Such act is called an overt act.

Two things, therefore, must be proved before a conviction can properly be had: (1) The conspiracy or agreement to commit the offense named against the United States; (2) an overt act or acts done in furtherance of the conspiracy. The overt act or acts heed not be criminal per se; but an overt act must be one independent of the conspiracy or agreement. It must not be one of a series of. acts constituting the agreement or conspiring together, but it must be a subsequent independent act following the complete agreement or conspiracy, and done to carry into effect the object of the conspiracy.

The overt act or acts, the manner and circumstances under which they are done, may be considered in connection with other evidence in the ease as circumstances in determining whether or not there was formed the conspiracy or agreement charged; but it must be established that the conspiracy or agreement which is charged to have existed and which is the gist of the offense had been formed before and was existing at the time of the commission of the overt act or acts.

Proof of the overt acts may or may not be sufficient to prove the conspiracy. This will depend upon the character of the overt acts; not whether they are criminal per se or not, but whether they are of such character separately or collectively that they are clearly referable to a preagreement or conspiracy of the actors. If the jury is satified, _ beyond a reasonable doubt, from the evidence that such is the character of the overt acts proven, the jury may find the preexistence of the conspiracy. Otherwise, evidence independent of the overt acts is necessary to prove the conspiracy.

Circumstantial evidence is equally available with direct evidence to prove the conspiracy, but suspicion or conjecture cannot take the place of evidence. Guilt must be established beyond a reasonable doubt, and, where the evidence is as consistent with innocence as with guilt, no conviction can properly be had. Even participation in the offense which is the object of the conspiracy does not necessarily prove the participant guilty of conspiracy. The evidence must convince that the defendant did something other than participate in the offense which is the object of the conspiracy. There must, in addition thereto, be proof of the unlawful agreement and participation therein, with knowledge of the agreement.

Presumption cannot be based upon another presumption, but only upon facts. It is not necessary that all of the alleged conspirators should have been such from the beginning of the conspiracy. There may be a subsequent joining; but a person, to be held as subsequently joining a conspiracy, must be shown to have had knowledge of the conspiracy at the time of joining, and to have participated while having such knowledge.

In the ease at bar, it is conceded by counsel for the government that the conspiracy claimed was not formed until after the interview between Smith and Beaton on the night of December 8, 1928; therefore, what was said and done by Beaton at that interview cannot be considered as overt acts. It follows that the acts alleged as overt acts 1 and 2 cannot be considered as such; nor can they be considered as evidence of a preexisting conspiracy; nor can they be considered as evidence in any respect against Dahly.

Even conceding that the statements as to acting on a tip, testified to by Smith, were made by Beaton, arid placing the worst permissible construction upon them, they would merely support a suspicion that Beaton liad in mind that Smith should avail himself of aid of doubtful legitimacy if opportunity offered. But such an inference is not a necessary or even a natural one. This is shown conclusively by the fact that neither of the Smiths drew any such inference. Wallace Smith testified on this point as follows:

“Q. You spoke of him saying he might get some tip as to how the matter should be handled? A. Yes, sir.
“Q. Was there anything said by Mr. Bea-ton which would indicate that any suggestion he would make would be anything un-r lawful or improper? A. No, sir.
“Q. And the tip— A. Yes.
“[A.] — Whatever it might be you looked on as in the nature of some suggestion which he might offer that might be of some benefit, to your father in his case? A. Well, we-didn’t know, we left that up to him.
“Q. Well, was that not your understanding? A. Yes.
“Q. And you felt that anything he would' have to offer in the way of a suggestion would.1 be perfectly legal and proper and nothing-wrong about it? A. Yes.
“Q. And you don’t mean to tell us here in relating any such conversation that Mr. Beaton agreed to do anything that was not right? A. Well, we left that up to him entirely.
“Q. Your request and your conversation were in no way intended that any public official should be bribed, or anything of that kind? A. No, sir, perfectly legal.
“Q. And you wouldn’t expeet and didn’t expect Mr. Beaton to do anything except what was perfectly proper to render— A. Perfectly proper.
“Q. —Some assistance to your father? • • *»

Furthermore, it is to be noted that nothing was said in the talk with Beaton about the payment of any money. Smith testified: “There was no talk there that night between myself, Beaton and my son as to my paying Mr. Beaton anything for his services for doing anything for me to help me. We didn’t offer to pay him; he didn’t ask for anything. He simply told me that he would see de la, Gardia and find out his attitude about my case and let me know; he said, next week. That is all I asked him to do.”

Wallace Smith testified: “There was no-talk there that night with -Mr. Beaton about any money. We didn’t offer him any money; he didn’t ask for any money. There-was no intention on my part of doing anything wrong, or having Mr. Beaton do anything wrong.”

Suggestion is made by government counsel that Beaton sought to terrorize Smith by dwelling upon the seriousness of the offense-that he had committed. The suggestion is-wholly without merit. Smith knew of the-seriousness of his offense before he saw Bea-ton, and he so testified. Furthermore, the offenses which Smith had committed and confessed to Beaton were serious. They involved, not only sales of narcotics contrary to law, but falsification of records made to the United States government.

The testimony of Smith that Beaton said he could not telephone or write him is discredited by the uneontradicted fact that Bea-ton did telephone to him within a week.

It is further contended that two other matters with which Beaton was connected tend to prove the alleged conspiracy, and Bea-ton’s connection with it. They are the sending of Smith by Beaton to see Dahly on December 15th; and the meeting of Beaton with Dahly and Hoban in St. Paul on December 22d. Both matters are without probative force of guilt when viewed in the light of their surrounding circumstances. As to the former, Smith had told Beaton that he wished to sell his drug store. Dahly hkd told Beaton that Peters, a former employee of Dahly, might buy the store. What was more natural than that Beaton should send Smith to see Dahly. The act was perfectly innocent in itself and requires the piling of presumption upon presumption to connect it with the conspiracy charged. The meeting of Dahly, Beaton, and Hoban in St. Paul on December 22d is also devoid of sinister aspect, when viewed in the light of the surrounding circumstances. Beaton’s office and headquarters were in St. Paul. Dahly was on his way to California on a government mission. What Hoban’s exact business in St. Paul was is not shown, except that he visited the District Attorney’s office on that day and requested that the Smith matter be considered carefully.

There is no evidence that either Dahly or Beaton knew of the visit of Hoban to the District Attorney’s office; no evidence whatever that either Dahly or Beaton knew that Hoban had received money from Smith or that he was interesting himself in Smith’s behalf.

The three men, Dahly, Beaton, and Ho-ban, were government officials.’ They had recently been associated in a government investigation at Two Harbors. There was nothing unusual or suspicious that they should call upon each other if they were in the same city. Here, again, it requires the piling of presumption upon presumption to connect the St. Paul meeting with the conspiracy charged.

Our conclusion is that the evidence by which it is sought to connect Beaton with the conspiracy charged, even if a conspiracy existed, cannot be considered as substantial; at most, it amounts to a very slender suspicion.

The evidence as to- the ease against Dahly —whether the conspiracy charged existed and whether he was a party thereto — is also ■ entirely circumstantial.

The matters mainly relied upon by the government are: The alleged introduction by Dahly of Smith to Hoban, and the statements of Dahly in connection therewith; the trip to Washington by Hoban and the telegram sent by him to Dahly; the meeting of Dahly, Beaton, and Hoban at St. Paul; the trip by Dahly to California and the use by him of an assumed name in connection therewith; the letter written by Dahly from California to Hoban.

As to the alleged introduction by Dahly of Smith to Hoban and the attendant statements by Dahly, it is clear that, unless these things did occur, the remaining evidence presents no semblance of a ease either against Dahly or Beaton; but, on the other hand, it must be conceded that, if full credence is to be given to the testimony of Smith, these matters at least form suspicious circumstances. Whether such credence should be given to the testimony of Smith may be open to grave doubt. The mental condition of Smith was shown by the evidence to be open to serious question. In addition to this, his testimony as to this particular matter was denied by Dahly and by two distinterested witnesses, Zoey and Cook; further, Smith’s testimony as to other matters was confusing and contradictory; still further, he admitted having violated the Harrison Anti-Narcotic Act; and, finally, his veracity as a witness was completely destroyed by his own testimony and by the admission of government counsel.

Without trenching upon the general rule that appellate courts will not usually weigh the evidence, yet on account of the foregoing considerations, and in view of _the exceptional facts in the ease, we are of the opinion that the testimony of Smith relative to the particular matters mentioned cannot be held to be substantial in any true sense of that word. 17 C. J. §§ 3594-3596; Sykes v. United States, 204 F. 909 (C. C. A. 8); United States v. Murphy (D. C.) 253 F. 404; Jahn-ke v. State, 68 Neb. 154, 94 N. W. 158, 104 N. W. 154; Green v. State, 6 Okl. Cr. 585, 120 P. 667; Standford v. State, 16 Okl. Cr. 107, 180 P. 712; see, also, Mickle v. United States, 157 F. 229 (C. C. A. 8); State v. Moe, 68 Mont. 552, 219 P. 830; State v. Wilson, 76 Mont. 384, 247 P. 158: Cooper v. State, 130 Miss. 288, 94 So. 161.

But even giving full credence to his testimony, yet the suspicious circumstances thus raised fall far short of being substantial evidence of the conspiracy charged and of Dahly’s connection therewith.

Stress is laid on the testimony of Smith that Hoban was introduced under the name of Timmins, and that he knew him under that name thereafter, as indicating an intention of concealing Hoban’s identity. The suggestion loses some of its force when it is recalled that Peters was in conference with Dahly and Hoban on December 14th, 15th, or 19th, and that no mention is made in the testimony as to the alleged alias being used at that time. The suggestion loses more of its force when it is recalled that the uneon-tradieted testimony shows that Hoban was commonly called “Tim” or “Timmy” by his friends. That Smith came to know Hoban as Timmins is, therefore, of no significance, whether Hoban was introduced by Dahly or by Peters.

As to the trip to Washington made by Hoban, there is no direct evidence that this was made at the direction of Dahly, or that Dahly knew of it at the time. The telegram sent by Hoban from Washington to Dahly was never received by the latter, according to his testimony, which in that regard is un-contradieted. Further, in connection with this Washington trip, it is to be borne in mind that the' uneontradicted evidence shows that prior to this time Hoban had expressed an intention of going to Washington in connection with the matter of the ale investigation. It seems quite as probable, therefore, that Hoban made the trip for his own purpose and conceived the idea of making Smith pay him money under the belief that the trip was in his behalf, as that Dahly and Hoban had previously conspired to receive money from Smith as compensation for rendering him service in the matter of the charge against him. The telegram which Hoban sent from Washington may quite as probably refer to the ale investigation as to the Smith matters.

The circumstance of the meeting of Dahly, Beaton, and Hoban in St. Paul on December 22d has been already considered as without significance.

The trip by Dahly to California is shown by uneontradicted and disinterested evidence to have been on a governmental mission of a secret nature. The evidence also shows that Dahly, for this reason, did not want it known at Duluth and vicinity that he had gone to California and that he, therefore, had his mail sent by Hoban in the name of L. R. Smith to the address of his sister-in-law. The evidence further shows that this use of the name Smith by Dahly was not uncommon in connection with his work.

Finally, there is a letter sent by Dahly, while in California, to Hoban. With great-ingenuity, counsel for the government have sought to connect the words and references contained in the letter with the alleged conspiracy and Dahly’s alleged connection therewith.- Even the innocent symbol, H 2 O, has had suspicion cast upon it as cloaking something sinister. But the explanations given by Dahly and other witnesses as to the words and references contained in the letter demonstrate conclusively that the letter had nq possible connection with the alleged conspiracy.

There are two other circumstances in connection with Dahly’s stay in California that are worthy of mention. On January 10, 1929, Dahly, on hearing of the arrest of Ho-ban, sent the following telegram:

“Los Angeles, Calif. 10 “1929 Jan. 10 P. M. 8 54 “N. A. Linderberg, Asst. Coll. Customs Duluth, Minn.
“Wire me at once Collector Los Angeles present status Hoban matter stop Also write me complete details stop If you have not already done so suspend Hoban pending complete investigation and if as result thereof facts warrant charges should be preferred against him looking to his dismissal.
“Oscar E. Dahly.”

And on January 11, 1929, the following:

“1929 Jan. 11 A. M. 12 18 • • •»•■:::■***** • •
“Los Angeles, Cal. 10 “Collector of Customs, Treasury Department, Washington, D. C.
“Duluth newspaper accounts refer to arrest patrol inspector Hoban for alleged extortion Stop Request Customs agent Beaton St. Paul be directed to make immediate investigation to determine facts in order that criminal prosecution may be aided if charges are true or that Hoban’s dismissal may be had if facts warrant preference of charges Stop Advise care collector Los Angeles.
“Osear E. Dahly, Collector of Customs.”

It is contended by the government that these were self-serving telegrams of a conspirator. . That is a possible explanation. But to us it seems more probable that they were the acts of an officer doing his plain duty, and not at all in line with what might be expected of a conspirator.

Whatever may be thought of the acts of Hoban, the ease against the two appellants on the charge of conspiracy appears to us to consist almost entirely of conjecture, suspicion, presumption, and misinterpretation of acts and statements of the two appellants.

The evidence shows that, up to the time of this charge against them, Beaton ’ and Dahly had both borne excellent reputations in the community where they lived.

Our conclusion is that there was no substantial evidence of the formation or existence of the conspiracy charged in ther indictment, and that the trial court erred in not granting the motions of appellants for directed verdicts.

The judgment on each appeal is reversed, and the case remanded for a new trial.

       “And the grand jurors aforesaid, upon their oath aforesaid, do further present, that one Edwaid A. Smith, during said period of time, to-wit, on December 5, 1928, was charged and accused, in a complaint made on behalf of the United States before one Lloyd J. Palmer, then and since then a United States Commissioner for said District of Minnesota, with a criminal offense against the United States in his having before then violated the narcotic laws of the United States in said District of Minnesota, and that throughout said period of time said charge, accusation and complaint, and the prosecution thereof, stood pending before one Lewis L. Drill, then the United States Attorney for ‘ said District of Minnesota and an officer of the United States and of the Department of Justice in the Government thereof.
      “And the grand jurors aforesaid, upon their oath aforesaid, do further present, that said Oscar E. Dahly, Ernest W. Beaton and Thomas F. Hoban, throughout said period of time at Duluth aforesaid, in the Fifth Division of said District of Minnesota, each as aforesaid then and there so being an officer in the employ of the United States, unlawfully and feloniously did conspire, combine, confederate and agree together, with Edward Peters, and with divers other persons to said grand jurors unknown, to commit divers, to-wit, three, offenses against the United States, to be committed by said Oscar E. Dahly, Ernest W. Beaton and Thomas F. Hoban, and each to consist in their together receiving, from said Edward A. Smith, compensation, to-wit, a sum of money, at one time one thousand dollars, at another time thirty-five hundred dollars, and at another time sixty-five hundred dollars, for certain services to be rendered by them to him the said Edward A. Smith while they were still such officers in the employ of the United States, in relation to said charge, accusation and complaint against him the said Edward A. Smith, the same being throughout said period of time, as said conspirators then well knew, a matter and thing in which the United States was a party; and that said services, according to said unlawful and felonious conspiracy, combination, confederation and agreement, were to consist in said Oscar E. Dahly, Ernest W. Beaton and Thomas F. Hoban, by their influence as such officers, by persuasion, and by their enlisting the influence of Thomas D. Schall, then a United States Senator for the State of Minnesota, in favor of it, endeavoring to induce said Lewis L. Drill, United States Attorney and officer as aforesaid, either to dismiss said charge, accusation and complaint before said United States Commissioner, and discontinue any further proceedings by him in the matter of such charge and accusation, or to recommend to the court fixing the punishment in said matter a sentence not involving imprisonment, or to recommend the acceptance by the Secretary of the Treasury of the United States of an offer of said Edward A. Smith to pay money in compromise of his the said Edward A. Smith’s civil and criminal liability in said matter, as said Lewis L. Drill should prefer; said Oscar E. Dahly, Ernest W. Beaton, Thomas F. Hoban and Edward Peters being herein referred to as conspirators.
      “Overt Acts.
      “And the grand jurors aforesaid, upon their oath aforesaid, do further present, that said conspirators, at the several times during said period of time, and at the several places, in that behalf hereinafter mentioned in connection with their names, did do, among many other acts done by them for that purpose, certain acts to effect the object of said unlawful and felonious conspiracy, combination, confederation and agreement; that is to say:
      “1. Said Ernest W. Beaton, on December 8, 1928, at Duluth aforesaid, in said Fifth Division of said District of Minnesota, invited said Edward A. Smith to meet him the said Ernest W. Beaton at Hotel Duluth.
      “2. Said Ernest W. Beaton, on said December 8, 1928, at Duluth, aforesaid, in said Fifth Division of said District of Minnesota, introduced said Edward A. Smith to said Oscar E. Dahly.
      “3. Said Oscar E. Dahly, on December 15, 1928, at Duluth aforesaid, in said Fifth Division of said District of Minnesota, introduced to said Edward A. Smith said Thomas F. Hoban under the name of Timmons.
      “4. Said Thomas F. Hoban, on said December 15, 1928, at Duluth aforesaid, in said Fifth Division of said District of Minnesota, requested said Edward: A. Smith to pay to him the said Thomas F. Hoban the sum of one thousand dollars in money.
      “5. Said Thomas F. Hoban, on sáid December 15, 1928, at Dulutb aforesaid, in said Fifth Division of said District of Minnesota, accepted and received from said Edward A. Smith the sum of one thousand dollars in money.
      “6. Said Thomas F. Hoban, on said December 15, 1928, departed from Duluth aforesaid, in said Fifth Division of said District of Minnesota, for the City of Washington, in the District of Columbia.
      “7. Said Thomas F. Hoban, on December 17, 1928, departed from said City of Washington for Duluth aforesaid, in said Fifth Division of said District of Minnesota, arriving at said Duluth on December 19, 1928.
      "8. Said Thomas F. Hoban, on December 17, 1928, sent a telegram from Washington aforesaid to said Oscar E. Dahly at Duluth aforesaid, containing the following words, to-wit: Everything 0. K. Tim.
      “9. Said Edward Peters, on December 19, 1928, at Duluth aforesaid, in said Fifth Division of said District of Minnesota, discussed with said Oscar E. Dahly and said Thomas F. Hoban ways and means of effecting the object of said unlawful and felonious conspiracy, combination, confederation and agreement.
      “10. Said Thomas F. Hoban, on December 19, 1928, at Duluth aforesaid, in said Fifth Division of said District of Minnesota, requested said Edward A. Smith to pay him the said Thomas F. Hoban the further sum of ten thousand dollars in money, thirty-five hundred dollars of which was to be paid on' or before December 21, 1928.
      ' “11. Said Oscar E. Dahly, on December 30, 1928, at Los Angeles, in the State of California, wrote and mailed to said Thomas F. Hoban a certain letter, to-wit, a letter of the tenor following:
      “The Langham “Apartment Hotel “7th at Normandie “Los Angeles.
      “12/30/28
      “Dear Tim — Just a line or two to let you know we are still walking around. The Mrs. is Reeling a lot better. I am taking the Drs. dope and plenty of H 2 0 — but I still need your ‘Hert’ you spoke of.
      “Am anxious to know how ever little thing is — * your East End friend and your West End bozo.
      “Drop a line to L. R. Smith, 702 Mariposa South, Apt. 102 that is my sister in law—
      “Do not let anyone around the north know who this is. If you mail any packages, send to same Address. Phone is Drexel 4483.
      “Things are booming out here again. Have a party waiting for me so must cut this short. Best from us both—
      “Yours— 900.
      “12. Said Thomas F. Hoban, on January 5, 1929, at Duluth aforesaid, in said Fifth Division of said District of Minnesota, received from said Edward A. Smith the sum of Thirty-five Hundred dollars in money.
      “And so the grand jurors aforesaid, upon their oaths aforesaid, do say, that said conspirators, at the time and place, and in manner and form, aforesaid, unlawfully and feloniously did conspire to commit offenses against the United States, and did do acts to effect the object of the conspiracy: Against the peace and dignity of the United States, and contrary to the form of the statute of the same in such case made and provided.”


source: Caselaw Access Project

author: MUNGER, District Judge.

license: Public Domain

text:
    SMITH v. UNITED STATES (two cases).
    Nos. 9096, 9097.
    Circuit Court of Appeals, Eighth Circuit.
    May 6, 1931.
    Rehearing Denied June 22, 1931.
    Floyd E. Stein and John E. Harris, both of El Dorado, Ark., for appellant.
    W. N. Ivie, U. S. Atty., and G. T. Sullins,. Asst. U. S. Atty., both of Ft. Smith, Ark.
    Before VAN VALKENBURGH and BOOTH, Circuit Judges, and MUNGER, District Judge.
   MUNGER, District Judge.

Appellant was convicted under two counts-of an indictment (case No. 232), one charging unlawful possession, and one an unlawful sale of intoxicating liquor. He was convicted also under three counts of another indictment (ease No. 240), one charging an unlawful possession, one an unlawful transportation, and the third an unlawful sale of intoxicating liquor.

Appellant assigns as error the submission of case No. 232 to the jury because of" insufficient evidence to justify a conviction. There was no motion or request for a directed, verdict. Notwithstanding this fact, the testimony in this ease has been examined to ascertain if there was a vital error in the submission of the ease. Clyatt v. United States, 197 U. S. 207, 221, 25 S. Ct. 429, 49 L. Ed. 726. There was testimony for the government by a prohibition agent that he had a talk with the defendant about whisky and that the defendant told him to see a man named McClure, who was a mechanic and worked for the defendant at his garage, and that McClure would probably furnish it. The agent went to the garage, and the defendant introduced the agent to McClure and said that that agent wished to purchase some whisky. McClure went to the rear of the garage and returned with some whisky which he delivered to the agent in the presence of the defendant. The agent asked to whom payment should be made for the whisky and the defendant said McClure should be paid, and payment was made accordingly. This was sufficient participation by the defendant in the sale under section 332 of the Criminal Code (18 USCA § 550) which provides: “Whoever directly ■commits any act constituting an offense defined in any law of the United States, or aids, abets, counsels, commands, induces, or procures its commission, is a principal.” But there is no substantial evidence of the alleged possession by the defendant of this liquor or of his aiding and abetting in the possession of ■it by McClure.

In case No. 240, the indictment charged the defendant with the unlawful possession of five gallons of whisky, at a named place, .and with unlawful transportation of five gallons of whisky from some unknown place to the place named in the first count and then alleged that the transportation was effected •by the use of a Victory Six Dodge sedan, motor No. 87256, an automobile which was seized by the prohibition department, and which was then in custody of the deputy prohibition administrator for the Western district of Arkansas. The third count charged an unlawful sale of five gallons of whisky at the same place referred to in counts 1 and 2. There was testimony that the defendant after the sale by McClure, told two prohibition agents that he had 2,200 gallons of whisky but would sell only in wholesale lots. The defendant finally agreed to sell them five gallons and said he would deliver it in an hour •at the place named. The defendant drove up in a Dodge sedan at the time and place agreed upon and delivered the whisky and was paid for it. One of the agents testified that the automobile in which defendant transported the whisky was the same ear which was seized by the prohibition department. The defendant did not testify, but produced a number of witnesses who testified that the defendant owned a Dodge Victory Six, and had no other automobile, and that that ear was in a repair shop at the time of the alleged offenses. No questiop. of the sufficiency of the evidence of the alleged sale or possession was made in the court below, or is presented on this appeal, except by asking a review of the facts, a jurisdiction not possessed by this court, except that this court may determine whether a verdict is supported by substantial evidence.

It is conceded that there was evidence on behalf of the United States tending to show that the automobile described in the indictment was the vehicle in which the liquor was transported, but complaint is made of a portion of the instructions of the court, in which the court told the jury, in substance, that under the second count in ease No. 240, the transportation was the essential thing and that it was not necessary for the government to prove that the automobile used in this transportation was the Victory Six Dodge sedan, motor No. 87256, mentioned in that count of the indictment. It is claimed that this submitted the case to the jury upon evidence that was a variance from the allegations. Since the enactment in 1872 of section 1025 of the Revised Statutes (18 USCA § 556), providing that, “No indictment found and presented by a grand jury in any district or other court of the United States shall be deemed insufficient, nor shall the trial, judgment, or other proceeding thereon be affected by reason of any defeet or imperfection in matter of form only, which shall not tend to the prejudice of the defendant,” there has been some relaxation of the former rules on the sub jeet of variance. The essential thing to be considered is whether the allegations and proof so correspond as to inform the defendant of the charge against him and to protect him against another prosecution for the same offense. Bennett v. United States, 227 U. S. 333, 338, 33 S. Ct. 288, 57 L. Ed. 531; Hoke v. United States, 227 U.. S. 308, 324, 33 S. Ct. 281, 57 L. Ed. 523, 43 L. R. A. (N. S.) 906, Ann. Cas. 1913E, 905; Mathews v. United States (C. C. A.) 15 F.(2d) 139, 144; Day v. United States (C. C. A.) 28 F.(2d) 586, 587.

In Friedman v. United States (C. C. A.) 276 F. 792, 795, the indictment charged the defendant with an unlawful importation of aigrettes into the United States on the steamer La France on May 27th, but it was held that it was unnecessary for the government to prove that the importation was by the steamer La France or at the date charged and that the allegation of the means of transportation by the steamer named was surplusage.

In Anderson v. United States (C. C. A.) 294 F. 593, 595, an indictment alleged that the defendant unlawfully possessed intoxicating liquor, which was in custody of the American Railway Express Company in a ear marked and known as “P. R. R. 2471.” It was held that the allegation as to the custody of the liquor was surplusage. We think that the allegation in this case of the description of the "automobile in which the liquor was transported was surplusage (see Stine v. United States [C. C. A.] 32 F.(2d) 742, 743), and that there was no variance between the allegations and proof as to this automobile, which was prejudicial to the defendant, within the rules stated in the cases which have been cited. Objection was also made because the eourt declined an offer of the defendant to allow the jury to view the automobile which, the defendant claimed had been under repair at the time of the alleged transportation, but it does not appear how such a view would aid the jury, and it also appeared that the defendant had possession of the car for the preceding six months, and there was no offer of proof that its present condition was not different from that on the occasion of the transportation. There was no error in refusing this offer of proof.

The sentence of the court on the two counts charging sale was imprisonment in the United States penitentiary, the sentences being concurrent. The sentence under counts 1 and 2 in ease No. 240 was the payment of a fine, with imprisonment in the penitentiary until the fine was paid. The sentence to imprisonment in the penitentiary as a means of enforcing nonpayment of the fine was erroneous. Cahill v. Biddle (C. C. A.) 13 F. (2d) 827, 829; Bonner v. United States (C. C. A.) 46 F.(2d) 619, 621.

The judgment under count 1 in ease No. 232 will be reversed, and the case under that count remanded for a new trial. The judgments under counts 2 in case No. 232 and 3 in ease No. 240- will be affirmed, and the sentences under counts 1 and 2 in case No. 240, will be set aside, with directions to the trial court to impose new sentences upon the verdicts under those counts.


author: ANDERSON, Circuit Judge.

text:
    STRATTON et al. v. UNITED STATES.
    No. 2514.
    Circuit Court of Appeals, First Circuit.
    May 28, 1931.
    G. Philip Wardner, of Boston, Mass., for appellants.
    J. Duke Smith, Sp. Asst. to U. S. Atty., of Boston, Mass. (Frederick H. Tarr, U. S. Atty., of Boston, Mass., on the brief), for the United States.

      Before BINGHAM, ANDERSON, and WILSON, Circuit Judges.
   ANDERSON, Circuit Judge.

Marian A. Sargent died on February 16, 1924, and her will was duly probated in Suffolk county, Mass. The Commissioner of Internal Revenue assessed a tax on her estate, including therein property valued at $1,494,-182.27, the income of which she had during life, under trusts established by her father, T. Jefferson Coolidge, containing general powers of appointment by her will over the principal of the trust property, with gifts over in default of such appointment. These powers she exercised hy her will.

In a brief but cogent opinion by Judge Morton, the tax on the aggregate estate thus computed, was sustained. Her executors have appealed to this court.

The question arises under the following provisions of the Revenue Act of 1921, § 402 (42 Stat. 278):

“That the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated. * * *
“(e) To the extent of any property passing under a general power of appointment exercised by the decedent (1) by will,” etc.

The decedent had the income of this property during her life, and full power to dispose of it after her death. Her exercise of her general powers of appointment subjected the property to her debts. Clapp v. Ingraham, 126 Mass. 200, and cases cited. These rights amounted, practically, almost to full ownership.

We are unahle to adopt the contention of the plaintiff’s learned counsel that, failing explicit statement of such intention, thd statute does not apply to powers created before its passage. Plainly, until her death in February, 1924, the decedent possessed full power to leave the property by will to whomsoever she saw fit, or to permit the gifts over of her father to take effect. In Knowlton v. Moore, 178 U. S. 41, 20 S. Ct. 747, 753, 44 L. Ed. 969, the Supreme Court said:

“It is the power to transmit, or the transmission from the dead to the living, on which such taxes are more immediately rested.” She transmitted this property by her will and this transmission was taxable. Compare Fidelity-Phil. Trust Co. v. McCaughn (C. C. A.) 34 F.(2d) 600; Leser v. Burnet (C. C. A.) 46 F.(2d) 756.

The case falls under the reasoning of Chase National Bank v. United States, 278 U. S. 327, 49 S. Ct. 126, 73 L. Ed. 405, 63 A. L. R. 388, and Reinecke v. Northern Trust Co., 278 U. S. 339, 49 S. Ct. 123, 73 L. Ed. 410, 66 A. L. R. 397. See, also, Lee v. Commissioner, 18 B. T. A. 251; Minis v. United States, 66 Ct. Cls. 58, certiorari denied 278 U. S. 657, 49 S. Ct. 186, 73 L. Ed. 566; Fidelity-Phil. Trust Co. v. McCaughn (C. C. A. 3d) 34 F.(2d) 600, certiorari denied 280 U. S. 602, 50 S. Ct. 85, 74 L. Ed. 647; Whitlock-Rose v. McCaughn (C. C. A. 3d) 21 F.(2d) 164; Blackburne v. Brown (C. C. A. 3d) 43 F.(2d) 320.

Whether overruled or modified or not, by the Chase Nat. Bank Case and the Reineeke Case, supra (see Heiner v. Grandin [C. C. A.] 44 F.[2d] 141), the decision in Lewellyn v. Frick, 268 U. S. 238, 45 S. Ct. 487, 69 L. Ed. 934, is not in point. In that ease it was held that insurance policies taken out before the passage of the act, in which the decedent retained the power to change at will the beneficiaries, were not taxable as a part of his estate. See also, Reinecke v. Northern Trust Co., 278 U. S. 339; at page 345, 49 S. Ct. 123, 73 L. Ed. 410, 66 A. L. R. 397; Saltonstall v. Saltonstall, 276 U. S. 260, 271, 48 S. Ct. 225, 72 L. Ed. 565.

The appellants’ contention that, under the law of Massachusetts, the property passing under the decedent’s exercised powers of appointment was no part of her estate, and therefore not taxable, while possibly logically sound, is not practically tenable. Compare United States v. Field, 255 U. S. 257, 41 S. Ct. 256, 65 L. Ed. 617, 18 A. L. R. 1461. The federal power to tax is not thus limited. The decedent had, to repeat, not only the income during her life, but full power to dispose of it at her death. She actually transmitted the property by exercising the granted powers. Congress might tax such transmission. Tyler v. United States, 281 U. S. 497, 50 S. Ct. 356, 74 L. Ed. 991, 69 A. L. R. 758. The fact that the decedent’s appointees took, technically, from the donor of her power, is, for present purposes, immaterial. Compare Third Nat. Bank & Trust Co. v. White (D. C.) 45 F.(2d) 911.

Appellants’ learned counsel also contends that, thus construed, the act was unconstitutional. We fail to see wherein this is so.

The judgment of the District Court is affirmed.


author: BINGHAM, Circuit Judge. ANDERSON, Circuit Judge

text:
    PETTEE et al. v. CITY OF NASHUA.
    No. 2539.
    Circuit Court of Appeals, First Circuit.
    May 28, 1931.
    ANDERSON, Circuit Judge, dissenting.
    Arthur D. Hill, of Boston, Mass. (Faneuil Adams, of Boston, Mass., on the brief), for appellants on appeal.
    Jonathan Piper, of Concord, N. H. (F. J. Sulloway and Demond, Woodworth, Sul-loway & Rogers, all of Concord, N. H., and Robert Earley, City Sol., of Nashua, N. H., on the brief), for appellee.
    •Before BINGHAM, ANDERSON, and WILSON, Circuit Judges.
   BINGHAM, Circuit Judge.

This is an action of debt on a contract of May 37,1925, to recover two distinct sums for services rendered under the contract as per specification attached to the declaration. According to the specification one braneh of the alleged claim is:

“Eor services in connection with plans, specifications, contracts, borings, and field supervision for Main Street Bridge, Nashua, New Hampshire: 7%% of the cost of the undertaking :
Cost-Amount paid Cunningham & Birdwood Construction Company ................. $61,020.00
Plus amount paid to Blakes-ley Rollins Corp............ 157,520.00
Cost ................... $218,520.00
Total Commission — 7%% of $218,520.00 ............... $16,389.00
Credit by cheeks to date...... 13,032.53
$3,356.47

The other braneh is:

“Eor services in connection with the termination of contract with the Cunningham & Bird-wood Construction Company by the Board of Public Works, consisting of conferences, estimates, survey of conditions, investigation, new plans, and specifications, obtaining new bids; awarding contract from December 24, 1925 to April 5, 1926 as specified under Article 37 of the Contract as additional engineering services:................. $1,150.00
Expenses ................. 198.74
$1,348.74.”

The plea was a general denial. The case was tried before Judge Morris and a jury. At the close of the evidence the court directed a verdiet for the defendant. Thereafter judgment was entered on the verdict and this appeal was taken.

The plaintiffs assign as error that the court erred in directing a verdict for the defendant as to either or both of the two sums claimed to be due them.

It appears that the contract relied on is contained in two letters. The plaintiffs’ letter of proposal reads as follows:

“April 9, 1925. , “Hon. Eaton D. Sargent, Mayor, Nashua, N. H.
“Dear Sir: We will furnish plans, specifications, contract, additional borings, and field supervision for the new Main Street Bridge, Nashua, for 7%% of the cost of the undertaking, exclusive of land damages and engineering.
“The field supervision will include the services of Mr. Pettee or other member of the firm during erection with, visits to Nashua as frequently as required by the progress of the work.
“Field inspection will require the constant presence at the site of a competent inspector during the erection of the bridge. This work will be done at cost plus 25% and a similar charge will be made to cover the cost of any substantial changes that may be made in the plans involving new drawings.
“The percentage charge will include all work that we have done to date on the new bridge and also on the street widening.
“Payments will be due as follows: 4% when plans and specifications have been completed and ready for bidders, 1% when contract has been awarded, 1% when the first portion of the bridge has been completed and the final 1%% when the bridge has been completed.' Bills for inspection will be rendered on the first of each month and will be due on the following tenth day of the month.
“Yours respectfully,
“J. R. Worcester & Co.
“EEP/D By E. E. P.”
The defendant’s acceptance was:
“City of Nashua, New Hampshire “Engineering Department.
“George P. Winn, City Engineer ¡ Fred L. Clark, Asst. Engineer.
“Nashua, N. H., May 27,1925. “Mr. E. A. Norwood, J. R. Worcester & Co., 79 Milk Street, Boston, Mass.
“Dear Mr. Norwood: The Board of Public Works at its recent meeting accepted your proposal relative to percentage and inspection on the Main Street Bridge job, in accordance with Mr. Pettee’s letter to Eaton D. Sargent, Mayor, dated April 9, 1925.
“Very truly yours,
“G. P. Winn, City Engineer.”

At the time the contract embodied in these letters was made, no contract for the construction of the bridge had been let., Later such a contract was awarded to the Cunningham & Birdwood Construction Company, the price being fixed at $173,767. This company rendered service under its contract for which it was paid $61,020, and then defaulted. It had, however, given a surety bond to the city for the fulfillment of its undertaking. Later a contract for the completion of the bridge was made with another contractor, the Rollins Company, at a cost of $157,500, or $44,743 more than the unpaid balance of $112,747 on the original contract price. Whether the contract with the Rollins Company was made with the bonding company or with the city does not appear. The bonding company had bound itself to see that the original contract was carried out. In fulfillment of its obligation it no doubt employed the Rollins Company to do so. The city was not a necessary party to that contract. It does, however, appear that on the completion of the bridge the city paid $112,747, the balance due under its contract with the Cunningham & Birdwood Construction Company, and that the bonding company paid the excess cost of $44,743.

The plaintiffs have received compensation from the defendant city at the rate of 7% per cent, on $173,767, the latter sum being the full amount which the city paid for building the bridge. What the plaintiffs seek to recover under their first claim, as above set out, is 7% per cent, on the excess cost of $44,743, which the bonding company paid in fulfillment of its obligation under its bond —that the Cunningham & Birdwood Construction Company would complete the bridge at the price of $173,767.

The other item of the claim, made up of services amounting to $1,150 and expenses of $198.74, was claimed at the trial to be due the plaintiffs under the provisions of the contract with the city as embraced in the letters of April 9 and May 27, 1925. But at the hearing before us on appeal the further and apparently contradictory claim was made that the sum of $1,348.74 is due them for extra work performed outside the contract embodied in these letters.

As to this item of $1,348.74, the court below, in construing the third paragraph in the contract as contained in the letter of April 9, held that, according to the evidence, the field inspection had been paid for; and as to the last clause in that paragraph, providing for a cost-plus 25 per cent, charge “to cover the cost of any substantial changes that may be made ill the plans involving new drawings,” he held that nothing was due under this clause, as (1) the evidence disclosed that no substantial changes were made in the plans involving new drawings, and (2) that the evidence did not disclose “the cost to the plaintiffs of any extra work that they did upon which a percentage could be computed,” under this provision.

As to the $1,348.74, we are satisfied that there was no evidence from which this item could be found to be due for services rendered under any provision of the contract, and particularly under the last provision of the third paragraph thereof, for the evidence disclosed that no substantial changes were made in the plans involving new drawings. The work was completed under the old plans and drawings. There were no new plans. There was simply a red line drawn on the old plans showing where the first contractor ended his work and where the new one was to begin.

Furthermore, if this work was rendered under the provisions of the contract and particularly under the last provision of the third paragraph of the contract, the direction of a verdict was proper, for there was no evidence from which the jury could find what the reasonable cost of the work was to the plaintiffs as a basis for recovery under the contract. In these respects we agree with the rulings of the District Court.

We are also of the opinion that, if the plaintiffs had included in their declaration a count in quantum meruit, and the work had been done outside the contract, there was no evidence from which the jury could find the value of such work, or that the expenses charged were actually incurred. But the declaration contained no count in quantum meruit; the ease was not tried on that basis and no amendment to that effect was requested. Had the evidence been such as to warrant a finding in the plaintiffs’ favor on this branch of the case, we might allow an amendment, but it is not, and to allow an amendment at this time would be to grant a new trial, not on account of any error of the District Court, .but because of the failure of the plaintiffs to prove a ease.

As to the item of $3,356.47, as to which the District Court directed a verdict for the defendant, we think there was no error in the ruling of the court below. By the first paragraph of the, contract the plaintiffs agreed to “Furnish plans, specifications, contract, additional borings, and field supervision for the new Main Street Bridge, Nashua, for 7% per cent of the host of the undertaking, exclusive of land damages and engineering,” and the plaintiffs’ right to recover the amount of $3,356.47 depends upon the construction of this provision of the contract read in the light of the other provisions of the contract and the circumstances under which the contract was made.

As to this item, the court below was of the opinion that the expression “cost of the undertaking,” as used in the contract, meant the cost of building the bridge to the city. The plaintiffs were contracting with the city. By the cost of the undertaking they did not mean the cost to the contractor or any other third parfcy, but the cost to the city. Had the cost to the contractor been less than what the city paid, it is. not likely that the plaintiffs would claim that their percentage was based on such cost; and it is no more reasonable to suppose that the language was intended to cover the cost to the contractor, or to the contractor and his surety, if that cost exceeded the cost to the city.

The judgment of the District Court is affirmed, with costs in this court to the ap-pellee.

ANDERSON, Circuit Judge

(dissenting).

It seems plain to me that the court below erred in ordering a verdict for the defendant. The phrase “cost of the undertaking” in the written contract cannot, as matter of law, fairly be construed, under the circumstances disclosed in this record, to mean the hypothetical cost to Nashua. The plaintiffs were employed to make plans and superintend the building of a new bridge; its actual cost was $218,520'; there is nothing to show that this was an excessive cost; the fair inference is that it was not.

The bridge might have been built by the city under one or under several contracts; if under several, their aggregate would have been the “cost of the undertaking” on which the engineer’s percentage should be reckoned. Whether any or all of such contractors made profits or losses, would have made no difference in the rights now in question. Their rights were measured by the agreed percentage on the sum of all the contracts made by the city, whatever the aetual cost of the job to the contractors. “Cost of the undertaking” means “contract cost of the undertaking” — whatever the number of contractors with the city, and whether more than one was adopted — by choice, or under compulsion, as in this ease.

The facts that the city wisely took a bond from the first contractor to secure the construction of the bridge at a price of only $173,767, that the first contractor failed to complete the job, and that therefore the second partial contract was completed at the expense of the surety company, are, in my view, irrelevant. The fair inference is that the first contractor’s failure to complete was due to a demonstrated inadequacy of the agreed contract price. Moreover, the city was a necessary party to the second contract.

The exact terms of the surety company’s obligation do not appear. There is no warrant in the record for the statement in the majority opinion that that obligation bound the surety company * ‘ * “to see that the original contract was carried out. In fulfillment of its obligation it no doubt employed the Rollins Company to do so. The city was not a necessary party to that contract.” I can conceive of no grounds on which the Rollins Company could enter upon city property and complete that bridge except a contract with the city. The record simply says that, after the first contractor defaulted, “the contract was given * '* * to e * the Rollins Corporation.” This fairly implies given by the city, and nothing else.

At most, the statements in the majority opinion are only guesswork; but cases should not be taken from the jury and verdicts ordered on guesswork. The actual cost of the bridge, under one or more contracts made with the city, was what the plaintiffs had in mind in making their accepted offer, and what the city fairly ought to have understood by the phrase “cost of the undertaking.”

It follows that this phrase should, as matter of law, have been construed as the plaintiffs construed it; or, at least, its meaning should have been submitted to the jury under the familiar doctrine stated by Judge Hand in Companhia De Navegacao Lloyd Brasileiro Co. v. C. G. Blake Co. (C. C. A.) 34 F.(2d) 616. See, also, Bank of New Zealand v. Simpson, [1900] A. C. 182. 2 Williston on Contracts, § 616, and cases cited. 13 C. J. page 532, and cases cited.

The other claim (for extras) it seems to me (with a possibly needed amendment of the pleadings) should also have been left to the jury. It is a fair — probably a necessary —inference that the default of the first contractor put extra work upon the superintending engineers, not contemplated by the original contract. While the evidence as to the amount of extra labor and expense was rather meager, it was not so plainly defective as to warrant the court in ordering a verdict for the defendant.


author: SPARKS, Circuit Judge.

text:
    JENKINS-KREER & CO., Inc., v. COMMISSIONER OF INTERNAL REVENUE.
    No. 4378.
    Circuit Court of Appeals, Seventh Circuit
    April 18, 1931.
    Rehearing Denied July 8, 1931.

      Clarence N. Goodwin, of Chicago, Ill., for petitioner.
    G. A. Youngquist, Asst. Atty. Gen., and F. Edward Mitchell and Sewall Key, Sp. Assts. to Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Robert L. Williams, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., for respondent.
    Before ALSCHULER, EVANS, and SPARKS, Circuit Judges.
   SPARKS, Circuit Judge.

This appeal involves petitioner’s income and profits taxes for the fiscal year ended November 30, 1920. -

Petitioner is an Illinois corporation. Its business is selling goods for mills on commission, and also purchasing goods which it converts into other and different sorts of cloth by printing, dyeing, or bleaching, and which it resells as its own product to its own customers. During the fiscal year ended November 30,1920, the stockholders of petitioner numbered nine, one of whom was S. C. Downs. He owned ten shares of the common stock, had a desk in the office of the corporation, attended regularly at the office, and devoted approximately one-fourth of his time to petitioner’s business. All the other stockholders devoted their entire time to the business. Of these Jenkins was president, and he was engaged in the general supervision of the business and the usual duties of an active president of a company. He did some of the purchasing and general managing. Field was vice president, in charge of the sales of the organization, and he assisted in the general conduct of the business. Toates was secretary and treasurer, and he kept the records, looked after the credits, and had charge of the office. The other directors were salesmen. The employees, other than the stockholders and one traveling salesman, consisted of office clerks, bookkeepers, stenog--raphers, a switchboard operator, and a shipping clerk. The shipping clerk’s duties related to trade sales, and the services of the ether employees were devoted approximately 95 per cent- to trade sales and 5 per cent, to commission sales. On commission sales the salesmen solicited orders and sent them to petitioner, who transmitted them direct to the mills; and when the orders were accepted the mills paid petitioner the amount of commission without waiting for payment for the goods.

During the fiscal year in controversy petitioner made commission sales in the amount of $6,010,488.50. The total salaries, excepting the compensation of officers, was $41,-438.96. Traveling expenses were $7,292.01, which constituted the entire sales expenses. Rent was $1,500, insurance $376.57, expenses of petitioner’s New York office $3,030.19, and the commissions on the trading portion of the business $633.11. The compensation of officers was $29,700, of which $8,838.52 was segregated by petitioner as sales expenses and the balance was allocated to general expenses. Interest in the sum of $858.28, in connection with the trading business, was paid, as well as taxes in the sum of $1,350.62, and depreciation on furniture and fixtures in the sum of $250 was sustained. According to petitioner’s books its sales expenses during the year amounted to $48,989.01, and sundry expenses of $6,584.86 were listed as part of its general expenses.

Petitioner’s trade sales cost approximately three times as much as its commission sales on the same volume of sales, and its sales expenses were allocated by it as $6,549.83 for its trade accounts, and $42,439.18 for its commission accounts. At least 75 per cent, of its general expenses were attributable to the trading business, and 25 per eent. to the commission business. Petitioner’s trade sales were approximately $1,400,000, and its gross profit thereon was $25,226.20; its commission sales exceeded $6,000,000, and its commission thereon aggregated $146,689.86.

During the year in controversy petitioner purchased goods amounting to $1,258,951.23 for sale or conversion, paid freight and cartage of $2,389.28, and had an inventory, as of December 1, 1919, of $217,982.77, and on November 30, 1920, of $108,578.67. On November 30, 1919, it had on hand an item of cash of $7,378.59 and on November 30, 1920, $35,835.99. At the end of the year 1919 :t had trade accounts and notes receivable of $234,214.52, and a year later of $206,949, resulting from goods sold as a principal. It had investments in war-savings stamps and' Liberty Loan bonds of $7,923 in 1919, and the same amount a year later. It also carried on its books an item called “brands, labels, and good will” in the amount of $20,000, being its estimate of the value of certain nationally known trade brands which it handled ' as a principal. On November 30, 1919, it had notes payable of $30,000, money borrowed for merchandising goods traded in as a principal, and it had accounts payable on the same date of $90,027.80, representing goods bought for resale. A year later the same items aggregated $16,546.37 and $15,-723.05.

The total capital stock of petitioner outstanding on November 30, 1920, was $165,-000. On November 30,1919, its surplus and undivided profits were $57,091.66, and a year later were $100,951.15.

In handling its commission sales petitioner never advanced any money to its customers.

Respondent denied petitioner’s claim for personal service classification under section 231 of the Revenue Act of 1918 (chapter 18, 40 Stat. 1057, 1076, 1077), and determined the deficiency. Upon the hearing of the petition for redetermination of the deficiency before the Board of Tax Appeals the commissioner was sustained. The record contains a stipulation and agreement of the parties that at the hearing of this ease evidence was introduced on behalf of the parties tending to sustain all the findings of the board contained in the opinion and findings of fact.

It is not claimed by petitioner that the facts as found by the board are without proper legal foundation, but it contends that the board reached a wrong conclusion from the facts so found.

The only question urged by petitioner is its right to personal service classification, under section 231 (14) of the Revenue Act of 1918, as a basis for computing its tax liability. This was denied by respondent on the ground that capital was a material income-producing faetor in petitioner’s business. Such determination is prima facie correct, and it is incumbent upon petitioner to overcome the presumptive correctness of that ruling. United States v. Rindskopf, 105 U. S. 418, 26 L. Ed. 1131; Wickwire v. Reinecke, 275 U. S. 101, 48 S. Ct. 43, 72 L. Ed. 184.

Section 231 (14) referred to above reads as 'follows:

“Sec. 231. That the following organizations shall be - exempt from taxation under this title— * * * (44) Personal service corporations.”
Section 200 of the same act (40 Stat. 1059) defines a personal service corporation to mean “a corporation whose income is to be ascribed primarily to the activities of the principal owners or stockholders who are themselves regularly -engaged in the active conduct of the affairs of the corporation and in which capital (whether invested or borrowed) is not a material income-producing faetor; but does not include any foreign corporation, nor any corporation 50 per centum or more of whose gross income consists either (1) of gains, profits or income derived from trading as a principal. * * * ”

The controversy before us arises over the interpretation of the word “income” as used in the statute. The board construed it to mean gross income, while petitioner insists that it means net income, or profit. According to petitioner’s construction, section 200, above referred to, would read: The term personal service corporation means a corporation whose net income or profit is to be ascribed primarily to the activities of the principal owners or stockholders • * * and in which capital * * * is not a material net income or profit producing faetor; but does not include * * * any corporation 50 per centum or more of whose gross income consists either (1) of gains, profits or income derived from trading as a principal, or (2) of gains, profits, commissions, or other income derived from a government contract.

In this view we cannot concur, and we think the board correctly held that wherever the word “income” is used in section 200 it means gross income. We interpret this section to mean that where 50 per centum or more of the gross income consists of gains, profits, or gross income derived from trading as a principal, etc., it is to be conclusively presumed that the corporation is one whose capital is a material ineome-produeing faetor. On the other hand, if a less amount than 50 per centum of the gross income consists of the items named, the presumption does not arise; but, in such case, whether capital is a material gross income-producing factor depends upon the facts involved. The limitation of 50 per centum is not the basis for determining whether capital is a material income-producing faetor, but rather it is a point of limitation at and beyond which the proof of the ultimate fact becomes conclusive. Below this point it still remains a mat-' ter of proof.

We are of the opinion that the facts as found by the court amply support the board’s conclusion that petitioner was not'entitled to classification as a personal service corporation.

Petitioner claims, however, that there is no finding by the board that petitioner corporation, in the year in controversy, was one in which capital was a material ineome-prodneing factor. This is quite true, but -an affirmative finding of such fact was not necessary in order to support a ruling in appellee’s behalf, although the evidence submitted ip our opinion is ample to support such a finding.,

The statute above referred to, under which petitioner is seeking relief, is an exempting statute, and unless petitioner brings itself within the terms of that statute it cannot recover. The burden of proof was upon petitioner to establish the existence of two conditions during the time in controversy, (1) that the income of the corporation resulted primarily from the activities of the principal owners or stockholders who were themselves regularly engaged in the active conduct of the affairs of the corporation, and (2) that the capital of petitioner, whether invested or borrowed, was not a material income-producing factor. Prey Bros. Live Stock Commission Co. v. Commissioner (C. C. A.) 36 F.(2d) 326. It was not denied that condition 1 existed. Both parties hereto, in argument and briefs, have assumed its existence, and the record shows that the board gave as the reason for its ruling on this particular branch of the ease the nonexistence of condition 2. A failure to find the existence of a fact, the truth of which is necessary for petitioner to establish, is equivalent to a finding against the petitioner as to such matter. In order to find for respondent it was not necessary for the board affirmatively to find that the capital of petitioner was a material income-producing factor, otherwise the burden of proving such fact must be considered as being upon respondent, and this is not the law.

We think the board’s ruling was fully justified under Denver Live Stock Commission Co. v. Commissioner (C. C. A.) 29 F.(2d) 543, 544, in which the court used the following language:

“Thus its income from capital sources was approximately one-fifth of its total income. It is true that deductions on account of re-discounts, etc., reduced its net income from capital sources “ * * to a loss; but this does not alter the principle that the capital invested was income producing and formed one factor of its business. In such case, the loss or gain must be computed upon the entire business and nSt upon any one factor. * •

Petitioner attempts to distinguish the Denver Case from the instant case by virtue of the faet that in the Denver Case the petitioner made loans to its customers to finance their purchases, while in the instant ease the petitioner in handling its commission sales did not do so. We are unable to recognize this as a material distinguishing difference; for in the instant case, aside from the commissions, the board held, in effect, that the use of petitioner’s capital was a material income-producing factor as compared to the total income from all sources. In this we think the board ruled correctly, and the order is affirmed.


author: BINGHAM, Circuit Judge.

text:
    LANSDOWNE REALTY TRUST v. COMMISSIONER OF INTERNAL REVENUE.
    No. 2545.
    Circuit Court of Appeals, First Circuit.
    May 28, 1931.

      Alonzo H. Garcelon, of Boston, Mass., for petitioner for review.
    J. Louis Monarch, Sp. Asst. to Atty. Gen. (G. A. Youngquist, Asst. Atty. Gen., F. Edward Mitchell, Sp. Asst. to Atty. Gen., and C. M. Charest, Gen. Counsel, and J. K. Polk, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for the Commissioner.
    Before BINGHAM, ANDERSON, and WILSON, Circuit Judges.
   BINGHAM, Circuit Judge.

This is a petition to review an order or decision of the Board of Tax Appeals affirming the commissioner’s assessments of deficiency taxes against the petitioner in the sum of $1,585.53 for the year 1923, of $1,-342.44 for the year 1924, $800.11 for the year 1925, and $568.83 for the year 1926. The statutes involved are section 2 (2) of 1921 (42 Stat. 227, 252), § 2 (a) (2) of 1924 and 1926, and section 230 of the Revenue Acts of 1921, 1924, and 1926 (26 USCA §§ 1262 (a) (2), 981 note), and section 704 (a) of the Revenue Act of 1928, 26 USCA § 2704 (a).

The question is whether the petitioner, a Massachusetts trust, is an association and therefore taxable as a corporation under the provisions of the revenue acts above referred to.

The Hammond Real Estate Trust, having determined to wind up its affairs and be dissolved, on February 28, 1920, conveyed, subject to a mortgage for $55,000, 15,000 square feet of land, with a one-story building thereon, situated in Boston, to certain individuals, trustees of the Lansdowne Realty Trust under a declaration of trust executed on the same day, together with the benefits of and subject to the rights and easements created under a lease of the property made by the Hammond Real Estate Trust on the 19th day of February, 1920, to the Standard Steel Motor Company and the Standard Steel Car Company, whieh lease was to run for five years from March 1, 1920, and in whieh the lessees, in addition to agreeing to pay the rent for the entire building, agreed to pay the taxes, make repairs, keep up the insurance, and, in ease the lessor supplied elevator service, power, steam,’ water, heat, gas, or electricity, the lessees agreed to pay such charges.

The declaration of trust provided that the trustees would hold the granted premises for the benefit of the cestuis que trustent, “who shall be trust beneficiaries only, without partnership, associate or any other relation whatever inter sese.” The trustees were authorized (1) to convert the property into money and distribute the proceeds among the beneficiaries existing at the time of the conversion, with the right in the trustees, in their discretion, to defer the conversion for a period not to exceed twenty years; (2) pending final conversion the trustees were to manage and control the trust property, having the powers and authority they would have if they were themselves sole owners in fee; (3) to collect all rents and income and semiannually to distribute such portions thereof as they might, in their discretion, determine to be fairly distributable net income to the beneficiaries, with authority to use any funds on hand, income or capital, for purposes of repair, improvement, protection, or development of the property, or the acquisition of other property as the trustees might determine to be wise for the protection and development of the trust property as a whole; (4) to borrow money and give any pledge, mortgage, or other security; and (5) employ such agents or attorneys as they might think proper. It provided that the trustees should keep books of account and records of their doings, and annually render an account of the trust. They were to receive as compensation for their services a sum not to exceed 1 per cent, of the gross income. Vacancies in the office of trustee were to be filled by the remaining trustees, with the written assent of the holders of a majority in. amount of the beneficial interests. But in case a trustee was absent from the state or was incapacitated through illness or otherwise from acting, then a majority of the trustees were authorized to exercise the powers therein conferred upon all the trustees. The terms of the trust could be modified by the trustees, with the written consent of a majority in interest of the beneficiaries.

The trustees were Arthur H. Tabor, Wendall Tabor, Sturgis Coffin, and Rodman S chaff. Arthur H. Tabor was a beneficiary to the extent of 20 per cent, of the beneficial interests; Wendall Tabor, his son, and Elizabeth W. Tabor, his daughter, each owned 10 per cent.; Elizabeth W. Coffin held a life interest in 20 per cent., the reversion being in Sturgis Coffin; and Sarah T. Coffin and Sturgis Coffin, as trustees of William H. Coffin, deceased, held 40 per cent.

During the years in question the firm of Coffin & Tabor, consisting of Sturgis Coffin, Arthur H. -Tabor, and one Dolben, collected the rents from the building and paid the same directly to the beneficiaries monthly, according to their interests. The partnership kept books showing the amount of income received, the expenses paid, and the amounts , distributed to . the beneficiaries. They also looked after the unrented portions of the building, insured the property, and operated a central boiler for the tenants, although the partnership had no contract with them and received no compensation for these services. The trustees held no meetings, had no bank account, and kept no books. A few improvements and necessary repairs to protect the property were made and some new leases and extensions of old ones were made, and the $55,000 mortgage was extended.

The Board of Tax Appeals held that the trust was an association taxable like a corporation (1) for the reason, as stated in their opinion, that a majority in interest of the beneficiaries were a majority in number of the trustees and thereby in control of the trust; and (2) for the reason that the trustees were carrying on business.

We think the board erred as to the first reason, for the faets specifically found by them show that a majority in interest of the beneficiaries did not constitute a majority in number of the trustees. The only trustees who held a direct and immediate interest as beneficiaries were Arthur H. Tabor and Wendall Tabor, who together owned,30 per cent. The 40 per cent, was not held by Stur-gis Coffin as a beneficiary, but as cotrustee with Sarah T. Coffin for the benefit of the estate of William H. Coffin; and Sturgis Coffin had no interest in the 20 per cent, belonging to Elizabeth W. Coffin during her life. Then, again, the trustees did not act by a majority in the conduct of the trust. The declaration of trust required all the trustees to aet as a unit in every case except when a trustee was absent from the state or was incapacitated through illness or otherwise from acting, in which ease the majority, acting as a unit, could exercise the powers of the trust.

We are also of the opinion that the trust was not an association and taxable as a corporation on the ground that it was doing business as such. It it true that the trustees had powers of a broad character, but they did not exercise them and were not carrying on business after the form and manner of a corporation. When the trustees received the property, it had all been leased for a term of five years from March 1, 1920. During this period of five years the trustees were not called upon to seek tenants or to do anything with reference to the property of any consequence except to collect the rents and turn them over to the beneficiaries. By the terms of the lease the lessees were to keep the premises in repair, pay the insurance, and be responsible for all damages connected with the building. It is perfectly apparent that they were not doing business in any sense, during the years 1923 and 1924, and we are of the opinion that, during the years 1925 and 1926, they were not conducting business after the mode and manner of a corporation, but were doing nothing more than trustees ordinarily would be called upon to perform in the management of trust property. See Gardiner v. United States, 49 F.(2d) 992, decided by this court Feb. 19, 1931; Malley v. Howard (C. C. A.) 281 F. 363; Hecht v. Malley, 265 U. S. 144, 44 S. Ct. 462, 68 L. Ed. 949; Little Four Oil & Gas Co. v. Lewellyn, 35 F.(2d) 149; Lucas, Com’r, v. Extension Oil Co. (C. C. A.) 47 F.(2d) 65; Id., 16 B. T. A. 1028.

This ease differs materially from United States v. Neal (C. C. A.) 28 F.(2d) 1022, for there the trustees not only had broad powers, but exercised those powers by loaning the funds of the trust on real estate mortgages. They also made construction loans, loans on collateral securities, bought accounts receivable and notes, made contracts of conditional sale, dealt in stoeks and bonds, and owned a large building in Worcester which they maintained and let to numerous tenants. See opinion of the District Court reported in 26 F.(2d) 708, for the facts. In that case the trustees were clearly doing business after the manner of a corporation, and we so held.

The order or decision of the Board of Tax Appeals is reversed, and the ease is remanded to that board for further proceedings not inconsistent with this opinion.