author: BINGHAM, Circuit Judge.

text:
    GONZALEZ v. PEOPLE OF PORTO RICO.
    No. 2511.
    Circuit Court of Appeals, First Circuit.
    June 29, 1931.

      A. Dones, for appellant.
    William C. Rigby, of Washington, D. C. (James ,R. Beverley, Atty. Gen., and Blan-ton Winship, of Washington, D. C., on the brief), for appellee.
    Before BINGHAM, ANDERSON, and WILSON, Circuit Judges.
   BINGHAM, Circuit Judge.

This is an appeal from a judgment of the Supreme Court of Porto Rico sustaining a judgment of the District Court of San Juan, sentencing the " defendant-appellant for a violation of the provisions (hereafter italicized) of Act No. 24 of April 20,1928, of the Legislature of Porto Rico. Section-1 of that Act provides:

“Seo. 1. It shall he illegal to adulterate or to mix coffee, in the grain, ground, or pul-verised, with any other grain or substance with the intention of selling it, or to offer or have it for sale, and it shall he equally illegal for said coffee, so adulterated or mixed, to he sold, offered or had'for sale, or that it be transported or stored for the purpose of using it for human consumption, or to use it for industrial purposes, when intended for the preparation of food for human consumption.”

The specific charge in the information was that the defendant “on or about the thirteenth day of August, 1928, and in the municipality of San Juan, -Porto Rico, * * * unlawfully, wilfully and maliciously had and offered for sale, * * * coffee roasted and ground, adulterated with another substance known as sugar.”

It appeared that the defendant-appellant, on or about the 13th day of August, 1928, and in San Juan, offered for sale, with the purpose of being used for human consumption, coffee roasted and ground, adulterated with sugar; that the adulteration was not injurious to health; and that the package in which the coffee so adulterated was sold bore a label stating that the coffee was mixed with 4% per eent. of sugar.

The defendant, in his assignments of error, makes two contentions: (1) That the facts alleged in the information, admitted and found, do not constitute a publie offense, because section 1 is unconstitutional; and (2) that section 1 is in conflict with the Federal Food and Drugs Act (21 USCA §§ 1-5, 7-15), which allows harmless adulterations, provided the container or package bear a label stating the substance with which the article is adulterated and the percentage of the adulteration, and is therefore invalid.

In Armstrong v. Goyco, 29 F.(2d) 900, 902, this court said:

“In the matter of local regulations and the exercise of police power Porto Rico possesses all the sovereign powers of a state, and any exercise of this power which is reasonable and is exercised for the health, safety, morals, or welfare of the public is not in contravention of the Organic Act nor of any provision of the Federal Constitution.”

As the Legislature of Porto Rico, under the Organic Act, possesses the powers of a state, including the police power, the first question presented is whether the italicized provisions of section 1, under which the information was brought and conviction had, is a lawful enactment within the scope of that power.

All rights of a citizen are held subject to the lawful exercise of the police power. And unless a court can clearly see that a law purporting to have been enacted to protect the public health, public morals, or general welfare has no substantial relation to those objects, it cannot set it aside as unconstitutional. Purity Extract Co. v. Lynch, 226 U. S. 192, 201-202, 33 S. Ct. 44, 57 L. Ed. 184; Hennington v. Georgia, 163 U. S. 299, 303-304, 16 S. Ct. 1086, 41 L. Ed. 166; Booth v. Illinois, 184 U. S. 425, 429-430, 22 S. Ct. 425, 46 L. Ed. 623; Minnesota v. Barber, 136 U. S. 313, 320, 10 S. Ct. 862, 34 L. Ed. 455; Mugler v. Kansas, 123 U. S. 623, 661, 8 S. Ct. 273, 31 L. Ed. 205; State v. Roberts, 74 N. H. 476, 478, 69 A. 722,16 L. R. A. (N. S.) 1115.

The Supreme Court of Porto Rico, when this ease was before it for consideration, stated the object of the sale provisions of the act as follows:

“The purpose of the law was to protect the public against fraud and deceit by discouraging the admixture of cheaper or inferior grain or other substance, whether wholesome or unwholesome, which would increase the weight and impair the quality of coffee as such.”
It is evident that coffee adulterated with sugar, as an article of sale, has a harmful tendency. Such adulteration cheapens the article and increases its weight, and consequently has a tendency to deceive and defraud the purchasing public. Murphy v. California, 225 U. S. 623, 629, 32 S. Ct. 697, 698, 56 L. Ed. 1229, 41 L. R. A. (N. S.) 153.

In that case the court said:

“Playing at billiards is a lawful amusement; and keeping a billiard hall is not, as held by the supreme court of California on plaintiff’s application for habeas corpus, a nuisance per se. But it may become such; and the regulation or prohibition need not be postponed until the evil has become flagrant. That the keeping of a billiard hall has a harmful tendency is a fact requiring no proof, and' incapable of being controverted by the testimony of the plaintiff that his business was lawfully conducted, free from gaming or anything which could affect the morality of the community or of his patrons. The fact that there had been no disorder or open violation of the law does not prevent the municipal authorities from taking legislative notice of the idleness and other evils which result from the maintenance of a resort where it is the business of one to stimulate others to play beyond what is proper for legitimate recreation. The ordinance is not aimed at the game, but at the place; and where, in the exercise of the police power, the municipal authorities determine that the keeping of such resorts should be prohibited, the courts cannot go behind their finding and inquire into local conditions; or whether the defendant’s hall was an orderly establishment, or had been conducted in such manner as to produce the evils sought to be prevented by the ordinance.” See, also, Booth v. Illinois, 184 U. S. 425, 429, 22 S. Ct. 425, 46 L. Ed. 623.

The purpose of the act here in question was to safeguard the general welfare of the citizens of the island and, as it tends to accomplish that purpose, it is clear that the Legislature was acting within its constitutional powers in enacting it. The power of the Legislature to regulate, restrain, or prohibit what is injurious to the general welfare is universally recognized. The fact that the adulterated article was not injurious to health is unimportant. Its tendency, as an article of sale, was to mislead and deceive the public. This was an adequate reason for the enactment of the law. Plumley v. Massachusetts, 155 U. S. 461, 15 S. Ct. 154, 39 L. Ed. 223; Patapsco Guano Co. v. North Carolina, 171 U. S. 345, 358, 18 S. Ct. 862, 43 L. Ed. 191.

The extent of the restraint, whether absolute or regulatory, presented a political question for the Legislature, in its discretion, to determine and is not subject to review by a court. Silz v. Hesterberg, 211 U. S. 31, 40, 29 S. Ct. 10, 53 L. Ed. 75; Purity Extract Co. v. Lynch, 226 U. S. 192, 201-202, 33 S. Ct. 44, 57 L. Ed. 184; Crowley v. Christensen, 137 U. S. 86, 91, 11 S. Ct. 13, 34 L. Ed. 620.

We think the court below did not err as to this branch of the case.

Neither do we think it erred in holding that the National Food and Drugs Act did “not forbid the enactment of any local law prohibiting the manufacture of, or traffic in, food or other things”; and that there was “no conflict between that statute and the law now under consideration.”

Section 2 of chapter 3915, 34 Stat. at Large, p. 768 (21USCA § 2), does not apply to the manufacture, sale, or offering for sale of adulterated food in Porto Rico, or in any of the insular possessions of this government. That section extends only to a state, territory, or the District of Columbia. That our insular possessions were not intended to be covered by section 2 clearly appears from section 10 (21 USCA § 14), which makes it a crime to transport adulterated food “from one State, Territory, District, or insular possession to another for sale,” whereas section 2 omits the term “insular possession.”

The judgment of the Supreme Court of Porto Rico is affirmed.


source: Caselaw Access Project

author: ST. SURE, District Judge.

license: Public Domain

text:
    CHIN CHING v. NAGLE.
    No. 6426.
    Circuit Court of Appeals, Ninth Circuit.
    June 25, 1931.
    Stephen M. White, of San Francisco, Cal., for appellant.
    George J. Hatfield, U. S. Atty., and William A. O’Brien, Asst. U. S. Atty., both of' San Francisco, Cal., for appellee.
    Before WILBUR and SAWTELLE, Circuit Judges, and ST. SURE, District Judge.
   ST. SURE, District Judge.

■ Chin Ching, a male Chinese, bom on April 22, 1909, arrived in San Francisco on May 28, 1980, and applied for admission into the United States on the ground that he is the foreign-bom son of Chin Kim, a native-born citizen. His application was denied by the Board of Special Inquiry on the ground that the relationship was not established, and upon appeal this excluding decision was affirmed by the Secretary of Labor. Application was then made to the District Court for a writ of habeas corpus, and froip the order denying same this appeal is taken. The sole question before us is whether or not the applicant had a fair hearing.

Under the provisions of the statute the decision of a Board of Special Inquiry is final unless reversed on appeal to the Secretary of Labor. It is only to be reviewed on habeas corpus when the administrative officers have manifestly abused the power and discretion conferred upon them. Tulsidas v. Insular Collector, 262 U. S. 258, 263, 43 S. Ct. 586, 588, 67 L. Ed. 969. It is not the function of an appellate court in a habeas corpus proceeding to weigh the evidence or to go into the sufficiency of the probative facts. White v. Young Yen (C. C. A.) 278 F. 619; Low Wah Suey v. Backus, 225 U. S. 460, 468, 32 S. Ct. 734, 56 L. Ed. 1165; Zakonaite v. Wolf, 226 U. S. 272, 274, 33 S. Ct. 31, 57 L. Ed. 218; Lewis v. Frick, 233 U. S. 291, 300, 34 S. Ct. 488, 58 L. Ed. 967; Kwock Jan Fat v. White, 253 U. S. 454, 457, 40 S. Ct. 566, 64 L. Ed. 1010; Tulsidas v. Insular Collector, supra; Tisi v. Tod, 264 U. S. 131, 133, 44 S. Ct. 260, 68 L. Ed. 590. This rule has been reiterated by this court in many similar eases, recently in Louie Lung Gooey v. Nagle, 49 F.(2d) 1016, decided May 18, 1931. Thus leaving the “administration of the law, where the law intends it should be left, to the attention of officers made alert tó attempts at evasion of it, and instructed by experience of the fabrications which will be made to accomplish evasion.” Tulsidas v. Insular Collector, supra.

Logically this decision should end here, but as it is the custom to mention discrepancies we will note one, which alone is fatal to applicant’s ease.

The alleged father, upon a return trip from China on February 25, 1907, testified that he had no children. In 1921 he attempted to bring into this country as his son one Chin Pok, claimed to have been bom on October 2, 1906, when he denied testifying on February 25, 1907, that he had no children, and stated, “I think there must be a mistake made in the writing because my son was bom several months before I left home.” On J une 22,1921, in connection with the same matter, he said that the boy was an adopted son. He was then confronted with his testimony of May 13,1920, wherein he testified that he had no adopted children, and he denied that he ever made such a statement.

In view of such contradictory statements upon important and material matters by the alleged father, we cannot say that the board was wrong in not believing his testimony and denying the application. Quong Wing Seung v. Nagle (C. C. A. 9) 41 F.(2d) 58; U. S. ex rel. Fong Lung Sing v. Day (C. C. A. 2) 37 F.(2d) 36, 38; U. S. ex rel. Soy Sing v. Chinese Inspector (C. C. A. 2) 47 F.(2d) 181, 184.

Affirmed.


author: PER CURIAM.

text:
    ROACH et al. v. UNITED STATES.
    No. 3160.
    Circuit Court of Appeals, Fourth Circuit.
    July 3, 1931.
    Lester S. Parsons, of Norfolk, Va. (Venable, Miller, Pilcher & Parsons, of Norfolk, Va., John W. Price, of Washington, D. C., and Lewis G. Hansen, of Jersey City, N. J., on the brief), for appellants.
    Alvah H. Martin, Asst. U. S. Atty., of Norfolk, Va., and Robert H. Talley, U. S. Atty., of Richmond, Va., for the United States.
    Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.
   PER CURIAM.

The appellants were indicted in the court below under a bill of indictment containing two counts. The first of these charged a conspiracy under section 37 of the Penal Code (18 USCA § 88) to import, transport, and possess intoxicating liquors in violation of the National Prohibition Act. The second charged a conspiracy to violate the provisions of the Tariff Act of 1930 by bringing intoxicating liquors into the country contrary to the provisions of that aet. The record proper shows that before entering upon the trial the United States attorney, with the consent of the court, entered a nol. pros, as to the second count of the bill. The bill of exceptions shows that he elected to try the defendants upon the second count, and entered a nol. pros, as to the first. The point is made that it thus appears that a nol. pros, was entered as to both counts of the bill, and that nothing remained of the charges against appellants.

We think it clear that the statement in the bill of exceptions is a mere clerical error. Both the record proper and the bill of exceptions show that a nol. pros, was entered as to only one count of the indictment; and while the statement in the bill of exceptions is that this was the first count, the bill of exceptions goes on to show that the accused were tried under that count and not under the second count. The motion for directed verdict made at the conclusion of the testimony did not assign as a ground that anol. pros, had been entered as to both counts of the indictment; nor was any motion made to arrest the judgment of the court on that ground. The case presented is one of conflict between the recitals of the record proper as to a matter properly a part thereof and the recitals of the bill of exceptions; and it is well settled that in such ease the record proper controls. 2 R. C. L. 153; 4 C. J. 519, 529, and cases there cited.

There can be no question but that, upon the evidence adduced a conspiracy to violate the National Prohibition Act was clearly established. Appellants do not controvert this, but contend that the evidence was not sufficient to connect them with the conspiracy. We think, however, that it was amply sufficient to take the case to the jury as to each of them, and that their motions for a directed verdict were properly overruled. The failure of the witness Lewis to identify immediately the defendant Hogan, when called upon to do so, is a matter which went merely to the weight of his testimony. He subsequently identified Hogan positively, and gave reasons why he did not identify him at first.

One of the exceptions is directed to the admission of evidence obtained upon a search of three of the defendants and the ear in which they were riding, the ground of exception being that the search was unlawful. The exception is without merit. The officers who arrested the defendants and made the search had information that a felony had been committed and that persons supposed to be guilty of its commission were fleeing in a Ford coupé bearing a New York license. They stopped and searched a car corresponding with this description, and arrested and searched the occupants. That their action was proper, and that the evidence obtained was properly admitted on the trial, is too well settled to admit of discussion. See Carroll v. U. S., 267 U. S. 132, 45 S. Ct. 289, 69 L. Ed. 543, 39 A. L. R. 790; Husty v. U. S., 282 U. S. 694, 51 S. Ct. 249, 75 L. Ed. 629; 5 C. J. 399 ; Pritchett v. Sullivan (C. C. A. 8th) 182 F. 489, 482; U. S. v. Fuellhart (C. C.) 196 F. 911.

We have examined all the assignments of error with care, and find no merit in any of them. The judgment below will be affirmed.

Affirmed.


text:
    HORNE v. UNITED STATES.
    No. 3202.
    Circuit Court of Appeals, Fourth Circuit.
    July 3, 1931.
    R. C. Horne, Jr., of Columbia, S. C., in pro. per.
    S. Henry Edmunds, Jr., Asst. U. S. Atty., of Charleston, S. C.
    Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.
   PER CURIAM.

This is a motion for an order directing the District Judge of the United States for the Eastern District of South Carolina to pass upon a motion for a new trial on the, ground of after-discovered evidence. The motion is made by one R. C. Horne, who was convicted of a violation of section 37 of the Penal Code (18 USCA § 88) at the January term, 1928, of the District Court for the Eastern District of South Carolina. At the January term, 1929, of this court, Home made an unsuccessful application for a writ of mandamus to require the District Judge to sign a certain bill of exceptions which he' had proposed. In re Richardson et al. (C. C. A.) 39 F.(2d) 687. At the April term, 1929, a motion to docket and dismiss the appeal of Home and his eodefendants was made and allowed. Richardson v. U. S. (C. C. A.) 32 F.(2d) 237. Application to the Supreme Court for writ of certiorari to review the action of this court was denied. 279 U. S. 859, 49 S. Ct. 419, 73 L. Ed. 999.

After the denial of the application for certiorari, Home moved before the District Judge of the Eastern District of South Carolina to stay the execution of the sentence, to enable him to present to this court an application for an order authorizing the District Court to entertain a motion for a new trial on the ground of after-discovered evidence; the after-discovered evidence referred to in that motion being the same as that referred to in the motion now before us. The District Judge, in passing upon the motion for the stay of fhe execution of the sentence, went fully into the matter of this evidence and denied the stay on the ground that no sufficient showing was made to justify the granting of a new trial, even if the court should be authorized by the Circuit Court of Appeals to entertain the motion. Horne thereupon entered upon the service of his sentence, and has served all except a short portion thereof.

The government denies the power of this court to authorize the District Court to entertain the motion for a new trial. It is said that this court has no power to grant new trials on the ground of after-discovered evidence, but such power resides solely in the District Court; that permission is granted by this court to a District Court to entertain such motions only in cases which have been removed into this court by appeal and in which, but for such appeal, the motion might be entertained by the District Court; that the District Court has no right to entertain such motion after the expiration of the term at which judgment was rendered; and that, where the District Court has lost the power to entertain such motion through expiration of the term, this court cannot restore the power by authorizing consideration of the motion. As to the case at bar, it is said that not only has the term expired at which sentence was imposed, but also that there is no ease before this court in which an order could be entered, as the appeal of Horne was never perfected, but was docketed and dismissed more than two years ago. See Delaware, L. & W. R. Co. v. Rellstab, 276 U. S. 1, 48 S. Ct. 203, 72 L. Ed. 439; U. S. v. Mayer, 235 U. S. 55, 35 S. Ct. 16, 59 L. Ed. 129; Holmgren v. U. S., 217 U. S. 509, 521, 30 S. Ct. 588, 54 L. Ed. 861, 19 Ann. Cas. 778; Di Carlo v. U. S. (C. C. A.) 6 F.(2d) 364, 365, 369.

We need not consider the questions thus presented, however, as we are satisfied from the record before us, which includes the findings and rulings of the District Judge on the motion to stay the execution of the sentence, that the motion for a new trial on the ground of after-discovered evidence is without merit, and that the questions involved in such motion have already been considered by the District Judge and passed upon adversely to the contention of petitioner. Even where this court has power to authorize the District Court to consider a motion for a new trial on the ground of after-discovered evidence, the power will not be exercised except where it appears that the motion is meritorious and that the questions involved have not already been considered by the District Court. The motion will be denied.

Motion denied.


author: WOODROUGH, District Judge. STONE, Circuit Judge.

text:
    UNITED BRICK & TILE CO. v. McKISSICK et al.

    No. 8923.
    Circuit Court of Appeals, Eighth Circuit.
    May 25, 1931.
    STONE, Circuit Judge, dissenting.
    H. M. Havner, of Des Moines, Iowa, and Elavel Robertson, of Kansas City, Mo. (B. J. Flick and Havner, Flick, Huebner & Powers, all of Des Moines, Iowa, and Baker, Botts, Parker & Garwood, of Kansas City, Mo., on the brief), for appellant.

      W. B. Sloan, of Des Moines, Iowa (Paul H. Cunningham, of Des Moines, Iowa, on the brief), for appellees.
    Before STONE and GARDNER, Circuit Judges, and WOODROUGH, District Judge.

      For opinion denying rehearing, see 52 F.(2d) 426.

   WOODROUGH, District Judge.

This appeal is taken from a decree upon foreclosure of a conditional sale contract, in which decree the appellant is found to be personally liable for the debt established by the decree to be a lien upon the property covered. The appellant was not originally a party to the contract, but the court finds in the decree that the appellant became the purchaser of it through mesne conveyances and assumed to perform and to pay the balance of the unpaid purchase price. Appellant denies that it ever became personally liable on the contract, and the question is for review.

The contract is called the MeKissiek contract throughout the record, and bears date February 26, 1926. By its terms MeKissiek and others, owners of a brick and tile manufacturing plant including real and personal property, agreed to sell, and one La Fountain and others agreed to buy, the property upon installment payments specified. The vendors agreed to give conveyance upon receipt of the full purchase price. On December 23, 1927, the contract was assigned with the vendors’ consent, and the assignee assumed and agreed to discharge all the obligations of the original purchasers. On the same day the vendors and the assignee entered into an amendatory agreement changing the forfeiture clause from a strict foreclosure to an Iowa statutory clause, and in the amendatory agreement the assignee repeated its assumption of all obligations. The assignee went into possession, and thereafter, on February 27, 1929, before default on the contract, involuntary petition in bankruptcy was filed against the assignee, and a receiver was appointed.

The receiver considered the property worth much more than the unpaid balance of the purchase price, and applied to the court for authority to enter into a proposed contract with the vendors and to make certain of the payments specified in the proposed contract, “in order to preserve the benefits of said contract for the estate in bankruptcy, without, however, adopting or assuming on behalf of the estate the covenants and obligations contained in said contract of sale dated February 26,1926, as modified.”

The court granted authority to the receiver as prayed, including in its order the proviso: “Provided, however, that the receiver shall not adopt or assume said contract on behalf of the estate, nor assume any of the obligations or covenants contained in the contract of sale dated February 26, 1926.”

By the terms of the contract so authorized and afterwards executed between the receiver and the vendors, additional time was given to pay certain installments then in default and other installments, and the contract was continued in force so long as the payments were duly made. It was also recited that the MeKissiek contract might be sold as part of the assets of the bankrupt estate, but without prejudice to vendors’ rights “created or existing under and pursuant to said contract, except as herein or heretofore amended and modified.”

While various defaults were made in the payments by the receiver and by the trustee who succeeded him after adjudication in bankruptcy, these were all waived. On October 27, 1928, the referee in bankruptcy ordered the trustee to sell at public sale all the properties of the bankrupt estate, including the MeKissiek contract. The incumbered property was ordered to be sold free of liens, but this contract was listed as a free asset, and the trustee was ordered to sell:

“M. All of the right, title and interest of the trustee in bankruptcy and the bankrupt corporation in and to: (1) A certain contract'of sale for property known as the Mc-Kissick plant or plant No. 33, Carlisle, Warren County, Iowa, all as more fully described in Group I, Division E, of Part One of Paragraph (A) of this order containing the description of the property to be sold hereunder. The purchaser of said MeKissiek contract shall assume and indemnify the estate against all liability arising out of said contract as the court may determine.”

The appellant through unquestioned agency made the high bid of $1,000 at the trustee’s sale, the property was knocked down on that bid, the sale confirmed by the court, and transfer ordered. The conveyance was executed direct to appellant, and stipulates that the appellant “will pay and discharge in accordance with the provisions of said order of sale, the purchase price not heretofore paid of all the property sold in execution of said order of sale including all amounts which * * * under any * * * provisions of said order of sale and order confirming sale are to be paid by the purchasers in addition to the amount of the accepted bid for said property, as part of the purchase price thereof.”

The appellant then went into possession of the property, and for a time fulfilled the obligations of the MeKissiek contract as to taxes, insurance, monthly installments, and interest payments; its remittances to the vendors specifying that they were “to apply on the purchase price of the plant” covered by the MeKissiek contract. In June of 1929, however, it wrote to the vendors declining to perform further, and shortly afterwards it tendered the keys of' the plant back to the vendors. Whereupon the foreclosure suit was brought resulting in the decree for personal liability of which the appellant now complains.

The bankruptcy sale at which appellant bought was a judicial sale, and appellant was clearly bound by the conditions of the order of sale and confirmation and the conveyance made pursuant thereto. The language of the order of sale, “The purchaser of the MeKissiek contract shall assume and indemnify the estate against all liability arising out of said contract as the court may determine,” permits of no doubt of the intention of the court to require the purchaser to assume the obligations of the contract. There is nothing to which the requirement upon the purchaser that he “shall assume” could apply except those obligations. The requirement as to indemnity to be given by the purchaser is perhaps rendered somewhat ambiguous by the words “as the court may determine.” It is not perfectly clear whether the court intended to leave open the question of kind and amount of indemnity or the whole question whether indemnity should be exacted. By the bankruptcy sale the trustee was passing over to the appellant for the sum of $1,000 a contract for the purchase of property on which contract the bankrupt owed some $93,000. That is the obligation which the purchaser at the bankruptcy sale was required to assume. It would be a very large amount to some purchasers, not as to others. There was no impropriety in leaving the matter of indemnifying the estate in regard to it for subsequent determination by the court. But the phraseology of the whole clause in the order of sale could not have deceived any purchaser into the belief that the trustee was offering the contract and possession of the plant with the whole matter of paying the $93,000 left open. The words “the purchaser shall assume” precluded any such contention. But, even if it should be considered that the appellant became, by the proceedings, a mere assignee of the contract, it does not follow that it could not impliedly undertake to assume the obligations imposed upon the purchaser by the original contract. While a simple assignment of a contract for the purchase of land or other property creates no personal liability in the assignee, by virtue of the assignment alone [Urban v. Phy (C. C. A. 9th) 24 F.(2d) 494; Potts v. Burkett (Tex. Civ. App.) 278 S. W. 471; Adron v. Evans, 52 S. D. 292, 217 N. W. 397, 59 A. L. R. 947 and note], yet the assignee may so act with reference to the other party or to the property, the subject-matter of the assigned contract, as to make himself personally liable for performance of the ex-ecutory covenants thereof, which otherwise could be enforced only against his assignors. Senninger v. Rowley, 138 Iowa, 617, 116 N. W. 695, 697, 18 L. R. A. (N. S.) 223; Wightman v. Spofford, 56 Iowa, 145, 8 N. W. 680, 681; Union Pacific Ry. Co. v. Douglas County Bank, 42 Neb. 469, 60 N. W. 886; Oregon & Western Colonization Co. v. Strang, 123 Or. 377, 260 F. 1002; Kirby Lbr. Co. v. R. L. Lbr. Co. (Tex. Civ. App.) 279 S. W. 546.

In Senninger v. Rowley, supra, the Supreme Court of Iowa said: “True, there is no such assumption by the terms of the deed, but we see no good reason why it may not be established by evidence other than the conveyance. * * * It is also true that no witness testifies to such an agreement by appellant. But he did buy the land incumbered by the mortgage; paid interest thereon from year to year; secured a reduction in the rate of interest; paid a part of the principal and later gave a check for the computed remainder, and, although this paper was returned to him, its significance is none the less marked. In short, his entire conduct for a period of some fifteen years was consistent with the theory that he was and considered himself to be the debtor of the appellee and inconsistent with the attitude which he now assumes.”

Again, in Wightman v. Spofford, supra, the Supreme Court of Iowa said: “The contract is assignable, and was assigned to Spof-ford by Townsend. It is not denied that Spofford accepted the assignment and claimed an interest under the contract. On the ground of his being the assignee he procured the quitclaim deed from Cassady. When Spofford accepted the contract as an as-signee, and became clothed with all the rights conferred by it, he assumed all the obligations of his assignor.” That the appellant did as a matter of fact understand it was taking over the MeKissiek contract with the obligations therein specified is clearly demonstrated by its conduct. It took possession of the property, mortgaged it, insured it, paid taxes on it, removed some machinery and equipment from the plant, and made payments to the vendors which it specified were to “apply on the purchase price.” These were all acts of ownership of the property evidencing an intention to pay in full — its determination not to pay for it is obviously an afterthought merely.

On the trial of the issue of personal liability, oral evidence consisting of a shorthand report of proceedings at the sale was received. It shows that, when the crier of the sale offered the MeKissick contract, he made - it clear that the purchaser would have to pay the balance of the purchase price called for by the contract. The appellant insists that the oral evidence, though a correct report, was not admissible, because the order of sale was the best and only - evidence of the terms and conditions of the sale. As we find that the orders of sale and confirmation and the conveyance and the conduct of appellant fix upon it as purchaser the obligation to pay and perform according to the contract, we do not deem it necessary to pass upon the abstract question whether oral testimony should be received to explain the conditions of a bankruptcy sale. The appellant’s agent at the sale did, however, participate in the colloquy with the crier at the sale, and the statements there made do corroborate the proof of appellant’s understanding that it assumed the obligations of the contract.

Appellant also contends that the transactions between the bankruptcy receiver and the vendors worked such a change in the Mc-Kissick contract that it ceased to be a contract to pay the purchase price obligatory upon the purchasers named in it, or their assignees, or upon the appellant who bought it. We have carefully examined the record of the transactions, the letters, receiver’s application for directions and authority, the court order and the contract, but do not find that the absolute obligation to pay the purchase price or to fulfill the other usual requirements specified in the contract were impaired.

It is true that, when the bankruptcy court ordered the MeKissick contract to be sold, and when it was sold, and when the sale was confirmed, the description of the MeKissick contract always included the words “as amended by the contract” made between the receiver in bankruptcy and the McKissieks. Appellant contends that, inasmuch as the contract with the receiver in bankruptcy relieved the receiver from obligation to pay for the property, there was an amendment of the MeKissick contract that took the promise to pay for the property out of the contract entirely. But there was no such purpose or intent of the receiver or of the McKissieks to so change the essential nature of the contract. The purpose of the deal with the receiver was simply to preserve the chance to sell the MeKissick contract for the benefit of the trust without making the receiver himself a party to the contract, and obliged to buy and pay for the property. As the receiver was unwilling to and would not be the “party of the second part” in the MeKissick contract himself, the identification of “the party of second part” (the buyer of the property) had to be and was .suspended until the receiver or the trustee could find the purchaser at his sale. But, when the trustee made the sale, the purchaser immediately became identified as the party of the second part to the contract. The sense in which the contract was “amended” was that there was some postponement of due dates. But there was no amendment of the essential of the contract that the party of the first part promised to sell and convey, and the party of the second part promised to buy and pay for, the property. The receiver was permitted to preserve the contract, upon which the bankrupt and its assignor had expended large sums, as an asset of his trust without himself as receiver assuming the obligations. But it was to be sold, and was sold, without prejudice to the main right of the vendors to compel the buyer to pay for the property.

The appellant is liable on the contract, and, after the sale under the foreclosure, must respond to the deficiency, if any is found.

Affirmed.

STONE, Circuit Judge.

I find myself compelled to dissent. The vital point of cleavage between the majority of the court and myself is as to the effect upon the original contract (as it was when bankruptcy intervened) of the contract made with the receiver and of the effect of the orders made thereafter in connection with the sale by the trustee.

At the time bankruptcy intervened, the contract contained a clearly expressed obligation and liability upon the part of the bankrupt to continue the payments thereunder, and the contract provided the remedies by which that obligation and liability might .be enforced. The receiver had a right to accept the contract or to decline it. Appel-lees had the right to require him to elect, within a reasonable time, which he would do. The receiver desired to do neither absolutely, but to have the right to continue the payments without any legal obligation so to do. This desired result could be attained only by consent of appellees. There were somewhat extended negotiations between the receiver and appellees upon this subject. Finally, the receiver sent a proposed form of contract to appellees which was returned as unsatisfactory because “it contains no promise whatever on your [receiver’s] part as to future performance and does not obligate the receivership to make the payments. * * * ” The same letter from appellees contained their proposition which eliminated the above objection. The receiver declined to accept this form, saying, “Your contract specifically requires the receiver and any trustee that may be selected to continue the payments under the contract, while the form which Mr. Dickey [the receiver] submitted to you merely gives the receiver the right to do so. * * * ” A contract was finally agreed to and was approved by the court. In the succeeding quotations from this contract and from the various subsequent court proceedings, I shall italicize portions which seem to me to show clearly that there was a modification of the contract (as it stood before the bankruptcy) by the contract with the receiver, and that it was this modified contract which was sold to appellant’s assignors. It will be borne in mind that there had been but one amendment or change in the contract theretofore. This is important, because the word “amendments” is frequently used after the contract with the receiver, and the plural could refer to nothing else, since the contract with the receiver was the second and last contract. The contract with the receiver sets forth the existing defaults in the payments, provides for the extension thereof for three months, and provides that, “so long as said payments are made and continued by said receiver, the said contract shall remain in full force and effect except as modified by a certain agreement heretofore entered into on or about the 23rd day of December, 1927 [before the bankruptcy], and except as modified by this contract.” It provides that, “in the event that there shall be or occur any failure to make any payment provided for in said contract of February 26th, 1926 as herein amended and modified or in the performance of any of the several covenants and agreements of the purchaser party to said contract of February 26th, 1926, as amended and modified, * * * the said Receiver or Trustee will consent to and not resist” an appropriate action “for the purpose of foreclosing or cancelling and terminating the certain contract of February 26th, 1926, as amended and modified.” Also, it provides for sale (as part of the assets of the bankrupt estate) of the contract, “provided, however, that such sale shall be without prejudice to any right or remedy of first parties [appellees] created or existing under and pursuant to said contract, except as herein or heretofore amended and modified.”

In the order approving the contract, the court found, inter alia, “that so long as payments are made said agreement heretofore entered into shall be continued in force except as modified by the proposed contract,” and ordered the receiver to execute the contract and to continue to make such payments until further order of the court.

From the above extracts from the contract with the receiver and from the order of approval it seems to me clear that the parties expressed the intention, and the court understood the intention to be, that the former contract was modified and amended by the contract with the receiver. If this be true, the only contract then in existence was the former contract as modified and amended by the contract with the receiver. Undoubtedly, that modification and amendment removed all obligation to continue payments, and confined appellees to taking back the property, if payments came in default. When it is considered that the total purchase price was $150,000, that $48,429.75 had been paid in principal, interest, taxes, and insurance by the bankrupt before the receiver made his contract; and that the appellees could take back the property, the incentive for appellees to make such a contract with the receiver is readily understood.

In my judgment, the court proceedings in connection with the sale of the contract further emphasize the verity of'the above view of the effect of the receiver’s contract. Pri- or to the order of sale, appellees filed a “Statement of Interest in Property,” which stated their claim to title in the property (covered by the sale contract) as “subject only” to the original contract (February 26, 1926) “as amended by” the contract of December 23, 1927 “and as further amended by agreement betioeen claimants and Fred L. Dickey, as receiver, * * * made on or about February ¿1st, 1928.” It further states that “under and pursuant to the terms of said agreement of February 26th, 1926, and said amendments thereto,” certain payments had been made leaving unpaid certain sums, and that certain parts of the plant had been allowed to get out of repair. It then alleges :

“The claimants do not hereby and have not in any manner heretofore waived or relinquished any right or remedy existing on account of any breach of any condition, covenant or agreement of the purchaser parties under the terms of said agreement of February 26th, 1926, and amendments thereto.
“That any sale of the right, title and interest of the Trustee in Bankruptcy and the bankrupt corporation in and to said agreement of February 26, 1926, and said amendments thereto shall and must be without prejudice to any remedy or right of claimants created or existing under and pursuant to the said agreement of February 26th, 1926, mid said amendments thereto.”

The order of sale (in group I, division E of part 1 of paragraph A) was of “All of the right, title and interest of the trustee in bankruptcy and the bankrupt corporation in and to a certain contract of sale for property * * * which contract is dated February 26th, 1926 * * * and Amendato-ry Agreement * * * dated December 23, 1927, and agreement * * * dated February 21, 1928 [the receivership contract], all as more fully set forth in said contracts to which reference is hereby made.” In a later part of the order, under the title “Keal Property Not Mortgaged,” the description is:

, “All of the right, title, and interest of the Trustee in Bankruptcy and the bankrupt corporation in and to:
“(1) A certain contract of sale for property known as the McKissick plant or plant No. 33, Carlisle, Warren County, Iowa, all as more fully described in Group I, Division E, of Part One of Paragraph (A) of this order containing the description of the property to be sold hereunder.”

And in this connection is the statement: “The purchaser of said McKissick contract shall assume and indemnify the estate against all liability arising out of said contract as the court may determine.”

The description of the property in the confirming order and in the conveyance of the trustee is identical with that first above quoted from the order of sale.

The repeated inclusion of and reference to the receiver’s contract in the description of this property as contained in the order of sale, in the order confirming the sale and in the conveyance of the trustee, seem to me to be significant to the point of determining this controversy. What pertinency could such expressions possibly have had therein, unless the receiver’s contract affected what was to be sold by the trustee? How could that contract affect the matter except in the one essential manner in which it modified the prior contract? That one manner was clearly to release from the obligation to continue the payments — such was the purpose and effect of the contract made by the receiver. The above recital of the terms of the receiver’s contract and of what was done concerning this contract of the receiver is convincing that the parties did not merely suspend, during the bankruptcy, the theretofore existing contract, but that such prior contract was modified and changed for all purposes and as to all persons. The order of sale would have had no reason for mentioning or including the receivership agreement in its description of the contract to be sold if the entire efficacy of that contract was confined to the estate and ceased when the contract of sale passed from the estate, yet it would so cease if its purpose and effect were suspension and not alteration of the sale contract. If this be true, the trustee could not sell any other contract than the modified one, because no other contract existed.

Appellees attempt to avoid the above situation by introducing evidence of statements made by the auctioneer at the time of the sale to appellant under the order of sale. Their contention is that these statements were that the purchaser must assume the obligations of the contract. All of such statements were seasonably objected to by appellant. The language used is in some respects ambiguous because much of it might be applicable to either theory of the situation — he repeatedly speaks of the “burden” of the contract, which might have applied to the necessity of paying the unpaid balance in order to secure the property instead of meaning the assumption of a legal obligation to make such payments. However, he did say that the “re-, ceiver ratified those and took them up,” so that a purchaser who had not familiarized himself with the contracts and the situation might possibly have gained the impression which appellees advance. The purchaser here represented the reorganization committee of the bondholders, and it is very improbable that he and the committee were not very familiar with this entire situation. Appel-lees insist that this parol evidence was admissible (1) “to explain and interpret” the order of sale; and (2) “to show consideration.” They urge, also, that no sufficient objection was made to the introduction thereof.

A provision of the order of sale was that “the purchaser of said MeKissick contract shall assume and indemnify the estate against all liability arising out of said contract as the court may determine.” Appellees contend that this language was ambiguous, and the parol evidence is competent “to see what the parties themselves did in putting a construction upon the language.” This is not tenable. The language is not ambiguous. The estate could be liable for such “liabilities” only as were assumed; such assumption was solely through the contract of the receiver and the order approving that contract; neither that contract nor that order assumed any obligations of payment, but clearly and expressly negatived such assumption. There could be no ambiguity as to that situation. •The “liability” of the estate could be only for payments coming due while it had the property and did not renounce, it or for waste committed during such retention.

The contention as to consideration is that the parol evidence was admissible “to show the consideration for defendant’s purchase of the contract.” This is not well founded. No question of consideration is involved here. Appellant does not deny purchasing the contract — -the dispute is as to what the purchased contract was.

The contention that there was no proper objection or exception to this evidence is of no practical value to appellees. This was tried as an equity ease; this evidence was in-compent to vary the terms of the order of sale so that a contract not in existence could be sold.

I think the decree should be reversed, with directions to dismiss the substituted bill with prejudice.


author: HICKENLOOPER, Circuit Judge.

text:
    BOARD v. COMMISSIONER OF INTERNAL REVENUE.
    No. 5532.
    Circuit Court of Appeals, Sixth Circuit.
    June 11, 1931.
    J. C. W. Beckham, Jr., and Elwood Hamilton, both of Louisville, Ky. (Woodward, Hamilton & Hobson, of Louisville, Ky., on the brief), for petitioner.
    A. H. Conner, of Washington, D. C. (G. A. Youngquist, Asst. Atty. Gen., and Sewall Key, C. M. Charest, and Stanley Suydam, all of Washington, D. C., on the brief), for respondent.
    Before DENISON, MOORMAN, and HICKENLOOPER, Circuit Judges.
   HICKENLOOPER, Circuit Judge.

The above-entitled petition for review was consolidated, for purposes of the hearing, with the petitions in W. E. Massey v. Commissioner (C. C. A.) 51 F.(2d) 76, and Lincoln Bank & Trust Co. et al. v. Commissioner (C. C. A.) 51 F.(2d) 78, also this day decided. All involve income tax assessments for the years 1919, 1920, and/or 1921, and the point to be here first decided likewise appears in the other two eases.

The Old Dominion Oil Company was organized on December 31, 1917, and petitioner was a' stockholder throughout the years 1918, 1919, and 1920. In the summer of 1918 those in control of the company conceived the plan of securing for it certain valuable leases belonging to the Southwestern Petroleum Company and the Cliff Petroleum Company. These were to be secured upon the payment of $200,000 in cash and an equal amount to be obtained by and paid from the sale of oil produced by operating the properties. The Old Dominion Oil Company was prepared to carry on these operations, but was without funds to make the initial payment.

The plan finally adopted was that participation in the purchase was to be offered to all stockholders of the Old Dominion Oil Company upon payment of 40 per cent, of the par value of their holdings in that company. At this rate, all stockholders — total $500,000 par — must participate in order to raise the contemplated amount. The stockholders making such payments were to be “the owners of all the right, title and interest in and to the aforesaid contract of August 12, 1918, in proportion to their said respective payments.” The O'ld Dominion Oil Company was then to pay the first installment of the purchase price ($200,000) from the advances of its stockholders, operate the properties, and from the proceeds of sale of the oil produced apply one-half in payment of the deferred installment of the purchase price, and hold the other half for the use and benefit of the contributing stockholders. When the total purchase price had been paid, and a fund of $200,000 had also thus been accumulated for the contributing stockholders, the original contributions of sueh stockholders were to be repaid, without interest, and the property was to be transferred from them to the Old Dominion Oil Company in exchange for an equal par value ($200,000) of its stock. Thus contributing stockholders were to receive repayment of their advances, plus an equal amount of capital stock of the Old Dominion Oil Company. In other words, for their advancements put at risk, they were to receive, contingently, return of the advancements and a 40 per cent, stock dividend or new stock issue.

The options thus given were exercised by or on behalf of all stockholders, the leases were transferred to the Old Dominion Oil Company, and that company thereafter successfully operated the properties. But when the time arrived for the repayment of the advances made by the stockholders, as originally contemplated, the holders of warrants or stock rights were given stock to the amount of twice the original advance, instead of an equal amount of cash and of stock. As of July 31, 1919, petitioner thus received stock, both on account of the payments made upon his holdings in August, 1918, and also in respect of warrants or stock rights in said project which he had purchased in the interim. This was held by the Commissioner to constitute an exchange of property within.section 202 (b) of the Internal Revenue Act of 1918 (40 Stat. 1060) —an exchange of an interest in the oil leases for stock having a fair market value as of the date of receipt — and the difference between the cost to the taxpayer and such fair market value of the stock received was added to the taxpayer’s gross income and the tax assessed thereon for the year 1919.

The foregoing, as in fact carried into execution, seems to us to present nothing more than the exercise of a stock subscription privilege. We need not inquire whether a taxable profit would have resulted under section 202 of the Act of 1918 had a first suggested plan been carried out by subscription to the capital stock of two new corporations and their ultimate consolidation with the Old Dominion Oil Company; or if there had been an exchange, as between strangers, of oil leases for capital stock; or if, under the plan as at first proposed,'the advances of the stockholders had been repaid in cash. In the last-mentioned event, the original advance might well be considered a loan and the additional stock as in the nature of interest. Such, however, was clearly not the case, as the transaction was ultimately carried out. The course finally pursued was in substance and effect but an expedient for obtaining certain oil-producing properties for the Old Dominion Oil Company, stripped, it is true, of some of their productivity, but obtained without impairing the cash position of the purchasing company. Participation was offered to all stockholders alike, and, whatever the initial plan, the ultimate result was a subscription to the capital stock at 50 per cent, of its par value.

Tax laws should be applied, as equitable principles are applied, with regard to substance rather than to form. U. S. v. Phellis, 257 U. S. 156, 168, 172, 42 S. Ct. 63, 66 L. Ed. 180. Upon the view, just stated, that rights to subscribe were offered, accepted, and carried out, it would not be material whether all stockholders participated; but another aspect brings the same result. Here we have no small syndicate of “insiders,” dealing with the company. All stockholders did join and participate; most of them directly, but some by selling their stock, with appurtenant rights, to assignees, who did participate and contribute, and a few by selling their rights only, and thus, through their vendees, joining in the enterprise. No stockholder was hurt; no stockholder'complained. Under such circumstances, distinctions between the general body of stockholders, represented by the corporation, and the special body of the same members participating in the new purchase, become fanciful. Whether property received is income depends on the facts under which it was received, not on what the facts might have been under other contingencies. Viewing the whole deal as it was actually carried out, the stockholders ventured a special capital fund for a special speculative purpose; the speculation turned out well; the new property earned $400,-000 in one year; and the company issued stock at par for the new capital then finally received, and, on account of the valuable asset it had acquired, issued $200,000 of new stock, in the nature of a 40 per cent, stock dividend on the old stock. We are of the opinion that a computation of profit or loss should have awaited the final closing of the transaction by disposition or sale of the stock of the taxpayer, thus and otherwise obtained. Cf. U. S. v. Davison, 1 F.(2d) 465 (D. C., Pa.); Teehan v. U. S., 25 F.(2d) 884 (D. C., Mass.); Miles v. Safe Deposit & Trust Co., 259 U. S. 247, 251, 252, 42 S. Ct. 483, 66 L. Ed. 923. Upon this issue the order of the Board of Tax Appeals is reversed.

The next point made by petitioner Board is raised also in the Massey Case. In August, 1920, the O'ld Dominion Oil Compar ny sold all of its assets to the Superior Oil Corporation and went into liquidation. The petitioner, W. E. Massey, and James R. Duffin were appointed liquidating trustees. In 1918 the Old Dominion Oil Company had entered into a contract with one Sehroer for the construction of a pipe line between certain points in Kentucky. Sehroer was unable to finance his part of the agreement, and it was taken over by the petitioner, Duf-fin, Massey, and two other officers of the company. The pipe line was constructed upon the joint credit of the Old Dominion Oil Company and the five officers and directors who had taken over the Sehroer contract. Presumably this debt was discharged by the profits of operation, leaving the Old Dominion Oil Company as the owner of one-half of the fee and the five officers and directors as the owners of a one-tenth interest each. Upon sale of the properties of the Old Dominion Oil Company, the liquidating trustees received $181,306.60 as purchase price of the pipe line, and said trustees thereupon made distribution of this sum; Board and Massey each claiming and receiving $18,130.-66 as his share of the profits secured from the construction and sale of the pipe line.

The right to this distributive interest was immediately contested by other stockholders, who filed an action to recover it, and this litigation was not finally adjusted until the year 1927, when it was agreed between the parties in interest that the liquidating trustees might retain the distribution made to them, but on condition that they waive and would forego further compensation for their services as liquidating trustees. What disposition was made of the claims against the other three distributees who were not also liquidating trustees does not appear upon the record. Under these circumstances it is claimed by the petitioner that he was charged, as one of the liquidating trustees, with the receipt of the purchase priee of this pipe line, and that he was not relieved of his obligation to account for such fund, including the $18,130.66 actually withdrawn by him, until the year 1927, and that this sum should therefore be allocated to income for 1927 rather than 1920.

We are of the opinion that the board was right in allocating this income to the year 1920. That it was actually received during that year is not disputed;, nor is it disputed that it was received under a claim of right and as profits to which the petitioner was justly entitled. The only claim made is that the contract whereby petitioner purported to secure his interest in the pipe line was illegal and unenforceable by reason of his position as a director of the Old Dominion Oil Company. In this contention the petitioner of course never acquiesced. The payment was never refunded. Possibly it might have been recovered in the litigation which was instituted for that purpose, but it was not, and it is at least unusual that a taxpayer should be heard to assert the possibility of an adjudication of alleged misconduct and breach of trust, as relieving him from tax liability which is predicated upon the assumption of the honesty and legality of his acts. Obviously, the sum involved must be considered as income either for the year 1920 or 1927, and we think that it must be allocated to the year 1920, in which it was actually received, rather than to the year 1927, in which the taxpayer’s right to retain it was established.

Holbrook v. Moore, 293 F. 264 (D. C., Mo.), is not inconsistent with this position.In that case the amounts withdrawn during the years prior to 1913 were pure overdrafts, and were not received under any claim of right. When a portion of this amount was subsequently allowed to the taxpayer, by order of the board of directors, in 1913, the sum so allowed became income as and for that year. It was not received as income before 1913 and the fact that it was then applied in satisfaction of prior overdrafts was immaterial.

The petitioner Board also raises the questions of the validity of the waiver executed by him December 3, 1925, on the ground that this waiver was not signed by the Commissioner, and of the right or propriety of assessing a negligence penalty against him for the year 1920 because of failure of the taxpayer to include $5,000 paid him as salary us president of the Ohio Refining Company and $6,000 paid as salary by the Old Dominion Oil Company in his tax return for that year.

The record is wholly devoid of evidence upon which to substantiate a claim that the waiver was not executed by the Commissioner himself or by one duly authorized to act in that behalf. The execution of the waiver by the Commissioner is a purely ministerial act, and it is not clear why signature by a duly authorized deputy is not sufficient. Statutes of limitation must be strictly construed in favor of the sovereign. Compare The Confiscation Cases, 20 Wall. 92, 111, 22 L. Ed. 320; Loewer Realty Co. v. Anderson, 31 F.(2d) 268 (C. C. A. 2). Having been signed by the petitioner and acted upon by the Commissioner, and bearing his signature either in person or by one presumably authorized to affix it, “it would be unconscionable to allow the taxpayer to afterwards repudiate a consent upon which the Commissioner had acted and relied.” Liberty Baking Co. v. Heiner, 37 F.(2d) 703, 704 (C. C. A. 3). See, also, Greylock Mills v. Commissioner, 31 F.(2d) 655 (C. C. A. 2).

The assessment of a negligence penalty is a purely administrative act dependent upon a finding of the existence of negligence. Whether an assessment based upon such finding falls within the doctrine that the assessment is prima facie correct (Wickwire v. Reinecke, 275 U. S. 101, 48 S. Ct. 43, 72 L. Ed. 184; Austin Co. v. Commissioner, 35 F.[2d] 910 [C. C. A. 6]; Hitchcock v. Commissioner, 44 F.[2d] 756 [C. C. A. 6]), or whether the taxpayer has the burden of showing that the finding was wrong (Niles Bement Pond Co. v. U. S., 281 U. S. 357, 361, 50 S. Ct. 251, 74 L. Ed. 901), need not be decided. Upon a consideration of the evidence we can attribute the omission of certain items of income' only to negligence, and such finding was proper. The order of the Board of Tax Appeals both upon the validity of the waiver and the legality of the imposition of a negligence penalty, is affirmed.

For the reasons above stated, this cause is remanded to the Board of Tax Appeals for redetermination of the tax upon principles consistent with the foregoing opinion.


text:
    MASSEY v. COMMISSIONER OF INTERNAL REVENUE.
    No. 5533.
    Circuit Court of Appeals, Sixth Circuit.
    June 11, 1931.

      See, also, Lincoln Bank & Trust Co. v. Commissioner of Internal Revenue, 51 F.(2d) 78; Board v. Commissioner of Internal Revenue, 51 F.(2d) 73.
    J. C. W. Beckham, Jr., and Elwood Hamilton, both of Louisville, Ky. (Woodward, Hamilton & Hobson, of Louisville, Ky., on the brief), for petitioner.
    A. H. Conner, of Washington, D. C. (G. A. Youngquist, Asst. Atty. Gen., and Sewall Key, C. M. Charest, and Stanley Suydam, all of Washington, D. C., on the brief), for respondent.
    Before DENISON, MOORMAN,, and HICKENLOOPER, Circuit Judges.
   HICKENLOOPER, Circuit Judge.

The petition for review in the above-entitled cause involves both the question of taxable income arising from the acquisition of leases of the Southwestern Petroleum Company and the Cliff Petroleum Company by the Old Dominion Oil Company, and the issue of capital stock of the latter company to the taxpayer incident to such transaction, and the question of taxable income arising by reason of the sale of the assets of the Old Dominion Oil Company, including a pipe line in which the taxpayer claimed an interest and by reason of which interest he received a payment of $18,130.66 in the year 1920, both as fully covered by our decision in the case of R. V. Board v. Commissioner, 51 F.(2d) 73, this day delivered. The order of the Board of Tax Appeals with reference to the first of these questions is reversed, and with reference to the second question is affirmed, upon the authority of the Board Case.

The petitioner here also claims that he was wrongfully assessed upon income to the amount of $7,134.16 for the year of 1919 under the following circumstances: Petitioner was the owner of 163 shares of the capital stock of the Dixie Motor Car Company, which went into dissolution, and during the year 1919 petitioner received in the liquidation an amount equal to his original investment plus $7,134.16. Thereafter, on May 18, 1925, the United States instituted an action against this petitioner and six other stockholders to collect $34,660.45 additional taxes and $17,330.23 penalties for false return, alleged to have been due by the corporation for the year ending January 1, 1919. This suit terminated by judgment for the petitioner and other defendants on May 18,1925. U. S. v. Board et al. (D. C.) 14 F.(2d) 459. Presumably, therefore, the claim of the government was always without merit. We see no distinction in law between the claim now pressed by petitioner and the claims of petitioner and of R. Y. Board, arising from the pipe line transaction already decided. Upon analogous principles the claim now urged is denied, and the order of the Board of Tax Appeals thereon is affirmed.

Petitioner also claims that he was improperly denied personal exemption as the head of a family during the years 1919,1920, and 1921. Petitioner was a single man who maintained a home. During 1919 and a part of 1920 his mother lived with him, and during 1919, 1920, and 1921 his sister also lived with him and supervised the running of the household. The petitioner paid the expenses of the home and also his sister’s expenses. At the hearing before the Board of Tax Appeals this claim was abandoned in so far as it Was bottomed upon dependence of the mother. Nor is it clear to what extent the mother had had an independent income. The sister Was a widow, between 42 and 43 years of age, and without separate estate or income of her own, except a small amount of stock in the Old Dominion Oil Company which was given her by the petitioner. The Board of Tax Appeals took the view that the taxpayer’s adult sister had the status of an employee, rather than a dependent, and that contributions to her support were in return for the performance of the duties of a housekeeper, rather than by reason of any legal or moral obligation of support. Because of paucity of evidence upon this subject we .are unable to say that the Board was wrong. Its order is therefore affirmed.

This cause is likewise remanded to the Board of Tax Appeals for redetermination of the tax for the years involved, in accordance with the foregoing opinion.


text:
    LINCOLN BANK & TRUST CO. et al. v. COMMISSIONER OF INTERNAL REVENUE.
    No. 5534.
    Circuit Court of .Appeals, Sixth Circuit.
    June 11, 1931.
    See, also, Massey v. Commissioner of Internal Revenue, 51 F.(2d) 76.
    J. C. W. Beckham, Jr., and Elwood Hamilton, both of Louisville, Ky. (Woodward, Hamilton & Hobson, of Louisville, Ky., on the brief), for petitioners.
    A. H. Conner, of Washington, D. C. (G. A. Youngquist, Asst. Atty. Gen., and Sewall Key, C. M. Charest, and Stanley Suydam, all of Washington, D. C., on the brief), for respondent.
    Before DENISON, MOORMAN, and HICKENLOOPER, Circuit Judges.
   HICKENLOOPER, Circuit Judge.

The petition for review in the above-entitled cause involves the question of taxable income arising from the acquisition of leases of the Southwestern Petroleum Company and the Cliff Petroleum Company by the Old Dominion Oil Company, and the issue of capital stock of the latter company to the taxpayer, as incident to such transaction. This question was fully covered by our decision in the case of R. V. Board v. Commissioner, 51 F.(2d) 73, this day delivered, and the order of the Board of Tax Appeals upon this issue is reversed upon the authority of that decision.

The next question presented involves profits said to have arisen from the purchase and resale of the properties of the Hopewell Petroleum Company. On February 21,1919, Earl S. Gwyn, James R. Duffln, and V. J. Bulleit formed a syndicate, to purchase the properties of the Hopewell Petroleum Company for $200,000 in cash, 200,000 shares of a company to be organized, which shares were to have or be given a trading value of 50 eents per share, and $60,000 of proceeds of the sale of oil, if found, thereafter to be pumped from the properties. Bulleit and his associates immediately organized the Belle Point Oil Company with an authorized capital stock of $1,000,000, of which $900,-000 was to be delivered to Bulleit or, on his order, to others. The remaining $100,000 of the stock was to be sold as treasury stock and the proceeds of such sales, with advances from the syndicate, were to be used to complete the contract of purchase and provide operating capital. Two hundred thousand shares of the Belle Point Oil Company were transferred by the syndicate to the Hopewell Petroleum Company, leaving the syndicate in possession of 700,000 shares. Shortly thereafter approximately 547,000 shares were sold at a price slightly in excess of 50 cents per share. From the proceeds of these sales all previous advances of the syndicate members were returned, other syndicate expenses defrayed, and each member of the syndicate realized a cash profit of $14,400.15, which profit has been included, without objection, in the taxable income. However, there remained in the hands of the syndicate about 153,000 shares on. July 31, 1919, when the Belle Point Oil Company consolidated with the Old Dominion Oil Company. In this consolidation the taxpayer received one share of the stock of the Old Dominion Oil Company for each four shares of his proportionate interest in the surplus syndicate stock of the Belle Point Oil Company. He therefore received by reason of his syndicate holdings, 12,561% shares of the stock of the Old Dominion Oil Company. This elosed the affairs of the syndicate.

Upon redetermination of the taxpayer’s income tax for the year 1919, the Board of Tax Appeals placed a “fair market value” of 43.75 cents per share upon the stock of the Belle Point Oil Company held by the syndicate at the close of syndicate operations on July 31,1919, which, added to the cash profit already referred to, brought the taxable income from this transaction to a total of $36,559.96. It was the taxpayer’s and is now the petitioners’ contention that the stock of the Belle Point Oil Company had no ascertainable market value which would bring the transaction within section 202 (b) of the Internal Revenue Act of 1918 (40 Stat. 1057). Obviously the Belle Point Oil Company stock had no such market value as of February 21, 1919, as would justify an attempt to assess the tax as of that date. O’Meara v. Commissioner, 34 F.(2d) 390, 395 (C. C. A. 10); Tsivoglou v. U. S., 27 F.(2d) 564 (D. C., Mass.), affirmed, Id., 31 F.(2d) 706 (C. C. A. 1). But it is equally clear that the Board made its finding of syndicate profits upon a valuation of the stock of the Belle Point Oil Company as at the close of syndicate operations. In so doing the Board took , into consideration not only the sales which had already been made to the public, and the oral testimony of Gwyn himself, which was consistent with the Board’s valuation, but also a valuation of $1.75 per share of Old Dominion Oil Company stock into which the shares of the Belle Point Oil Company were converted. We are unable to say that the evidence does not fully justify the valuation placed upon the latter shares, provided it was proper to value them for income tax purposes as of the date of the close of the syndicate operations on July 31, 1919. Cf. Phillips v. Commissioner, 283 U. S. 589, 51 S. Ct. 608, 75 L. Ed. 1289.

In determining profit or loss from syndicate operations it is essential either that such operations be treated as partnership transactions, in which each member of the syndicate is regarded as having individually purchased or sold a proportionate share of the securities in which the syndicate dealt, or that the syndicate be given the status of an independent entity, the funds advanced by syndicate members being considered as the sole investment of the several members, as such, and the profits from syndicate operations being subject to income taxes only upon distribution, in cash or in kind, and then only after the transaction has been so far elosed that the initial investment has been returned in full to the investor.

It is in this latter aspect that the syndicate operations were regarded by both the Board of Tax Appeals and the taxpayer, for otherwise it would have been necessary that the stock of the Belle Point Oil Company be given a per share cost basis, and that profits upon the various sales be estimated with respect to such basis, rather than computed on the net excess of receipts over disbursements, with no cost value whatever being assigned to the remaining syndicate shares. We express no opinion as to the propriety of this action, but simply accept it as correct in.view of the attitude of both litigants. In this aspect it is clear that the syndicate operations were elosed with the consolidation of the Belle Point Oil Company and the Old Dominion Oil Company, and that profits were to be computed as of that date by ascertaining the fair market value of the surplus syndicate shares, as well as by balancing cash receipts and disbursements. At the close of syndicate operations the taxpayer received in kind, in addition to the previous return of his cash investment and a cash profit theretofore realized, his proportion of the surplus shares of the Belle Point Oil Company stock, which shares carried, we think, a “fair market value.” This marked the close of one business or investment venture and the beginning of another. It was proper that he be taxed not only upon cash profits realized, but also upon the cash equivalent of the profits represented by stock distributed in kind. The ruling of the Board of Tax Appeals to this effect is affirmed.

The petitioners also insist that the Board of Tax Appeals erred in placing a fair market value of $3,750 upon certain stock of the Marden-Orth-Hastings Company, received by the taxpayer during the year 1920 as compensation for services; and in refusing to allow losses on a bad debt of Edward Moore ($4,000 claimed in 1920 and $2,250 claimed in 1921), loss on an investment in Sandow Oil Company stock in 1921 ($1,000), and loss on an investment in Royhome Oil Company stock in 1921 ($185). On these items it is enough to say that the evidence is insufficient to establish lack of a fair market value of the stock of the Marden-OrthHastings Company when it was received; to justify a finding that the debt of Edward Moore was ascertained to be worthless and charged off during the yeans in question; or to show that it, or the loss upon investment in the Sandow Oil Company or in the Roy-home Oil Company, was sustained during the applicable year. “The burden of proof.to establish a deductible loss and the amount of it, clearly, was upon the respondent,” here the petitioner. Burnet v. Houston, 283 U. S. 223, 51 S. Ct. 413, 75 L. Ed. 991. Failing to sustain the burden of showing the Commissioner wrong, the assessment must stand. Upon these issues the order of the Board of Tax Appeals is affirmed. Cf. Niles Bement Pond Co. v. U. S., 281 U. S. 357, 361, 50 S. Ct. 251, 74 L. Ed. 901.

For the reasons above stated, this cause is remanded to the Board of Tax Appeals for redetermination of the tax upon principles consistent with the foregoing opinion.


author: BOURQUIN, District Judge.

text:
    BUFFUM v. PETER BARCELOUX CO.  SAME v. GELINAS.
    Nos. 263, 267.
    District Court, N. D. California.
    July 29, 1929.
    See, also (C. C. A.) 51 F.(2d) 82.
    Devlin & Devlin & Diepenbrock, of Sacramento, Cal., George R. Freeman, of Willows, Cal., and H. B. Wulff, of Sacramento, Cal., for c'omplainant.
    Huston, Huston & Huston, of Sacramento, Cal., for respondents.

      For opinion reversing judgment see 52 F.(2d) 598.

   BOURQUIN, District Judge.

These suits are consolidated for trial.

Plaintiff is trustee of the estate of Henry Barceloux, bankrupt, and defendants are transferees of portions of his property alleged to have been made with mutual intent to hinder, delay, and defraud his creditors.

Without ranging as wide as does the evidence, by the latter it appears that in 1926 the bankrupt, later so adjudicated, was engaged in large operations in banking, real estate, ranching, etc., and had arrived at a crisis in his affairs. He had extensive properties and likewise debts. If not insolvent in the sense of the bankruptcy law, he was in that of the local law for that he could not pay his debts due.

Amongst his properties were 2,494 shares of the defendant in ease 263, a family corporation the shares of which always had been owned by him, his brother George, his sister Cora, defendant in ease 267, and three children of his deceased brother. Its book value was fully $36 per share. Of course, held in the family it had, strictly speaking, no market value. Moreover, it was subject to a reservation of all income from the corporate property (with perhaps some unimportant exception of surplus) in favor of the mother of Henry, and the others, evidently an aged woman of years undisclosed. Others of Henry’s properties were certain stocks, unincum-bered and of value some $2,400 which may be described as pledge 2, and certain bank stocks incumbered $13,800 and of value $24,-100 and one share of defendant corporation unincumbered, which may be described as the Gelinas transfer. These three parcels are the subject-matter of the suits.

In 1926 Henry’s properties were of value some $180,000 and his debts, including those alleged due defendants, other relatives, and attorneys, were about equal in amount if not some $191,000. In 1921, one Freeman secured judgment against Henry and one Don-ohoe, which in 1924 became final, and which less some $10,000 paid, in 1926 was in amount some $58,000. From finality until June, 1926, Freeman and Henry co-operated to make a portion of this judgment from Dono-hoe, with such poor success that at the date last aforesaid Freeman was insisting upon security from Henry. To that end, on June 30,1926, to Freeman, Henry executed a trust deed of Lake county lands in which, with George, he had a considerable equity, and assigned to Freeman said 2,494 shares of defendant; this latter, however, subject to a claim of pledge to defendant corporation to secure certain debts due it from Henry. Freeman at once sought from the corporation (at all times theretofore managed by Henry, George, and Cora) an agreement that the corporate pledge would not be foreclosed save after 90 days’ notice to him, which agreement, after some-consideration, was refused. Henry testifies the assignment and proposed agreement created a “fuss,” and that George and Cora “sold him out.”

It is evident no stranger was wanted within the family corporation gates. Rapid action followed. As of June 29,1926, but evidently of a time subsequent to the deed and assignment aforesaid to Freeman, defendant corporation executed to itself a certificate of said 2,494 shares as pledgee. July 3, 1926, George procured from Henry the parcel, pledge 2, as additional security for the defendant corporation, though at the time the 2,494 shares claimed to be pledged to the corporation were of book value more than twice any debts claimed due it from Henry, and near three times the specific debts for which they had been pledged.

July 7, 1926, Henry conveyed to his wife his equity of some $2,900 in certain lands, for $1,000 eash or cheek, though it is claimed that at the same time he owed her far more.

July 28, 1926, he. sold his qualifying share in defendant corporation to Cora for $10, and resigned the presidency he had held for 14 years.

August 5,1926, the defendant corporation assumed to foreclose the pledges aforesaid, therein including debts not secured by the pledge, and to have purchased all thereof for the amount due.

August 24, 1926, for $2,000, Henry transferred to Cora certain bank stocks pledged for $13,800, and of value $24,100. About this time Henry deposited of his earnings in his son’s account, for “school expenses,” and paid him money on a noté executed by Henry, he says, to his mother-in-law in 1915, and by her given to the son’s mother for his use.

In September, 1926, defendant corporation assumed certain debts of Henry’s, and took over his collateral securities thereof. And in October, 1926, Henry assigned certain farming implements and his office furniture to his attorney, whereupon, he testified, he had no property left of any kind.

So, February 25, 1927, he was adjudicated a voluntary bankrupt; thereafter plaintiff was appointed trustee.

In respect to the pledge of the 2,494 shares to defendant corporation, it appears that if it was attempted to be made before Henry resigned as president, it was void for that the pledged certificate and any writing of pledge until said time were in his possession along with all other corporate documents and books. And by virtue of local law, possession by the pledgee taken thereafter and foreclosure and sale does not render the void pledge valid in respect to existing creditors of whom there were many and represented by plaintiff herein. The foreclosure is invalid also for that, though assumed to have been made at public sale, no outcry was given, no bids invited, but said stock together with that of pledge 2 was quietly appropriated to defendant corporation as purchaser thereof for the amount due it, en masse; and it purports to' have sold the pledged property for debts it was not pledged to secure. The pledge agreement provided that upon a sale to satisfy its specific debts, any surplus proceeds could be appropriated to any other debt due the pledgee from Henry. Payment from surplus, and payment by sale, are quite different. In the latter ease, it is sale of a pledge for debts other than for whieh the pledge was made, and the transaction is void. ,

Moreover, taking into account all the facts and circumstances in evidence, all that makes for credibility of witnesses and weight to be given to evidence, all the undefinable impressions of the trial, the conviction is compelled that the transfers involved were made with intent by all parties to hinder, delay, and defeat Henry’s creditors. When Henry was in desperate case, when appeared probability that his shares in the family corporation might vest in the stranger Freeman, George and Cora undoubtedly resented it, determined to prevent it, and, with Henry, immediately worked to that end. And it was but a natural development to aid him to dispose of all his other properties, to acquire them, to protect them from Freeman and other creditors. Their more or less contradictory testimony to their own innoeeney, fails to persuade, to outweigh all that gives that sinister aspect to their actions which establish their intent not only to acquire Henry’s properties, to satisfy their claims, perhaps to protect him, also, but also to foil efforts of his unsecured creditors to make their claims out of his properties.

The last suffices to condemn.

The court finds for plaintiff and against defendants.

The decree will provide for an auditor to take an account and determine the highest value of the property or stocks involved between their transfer to defendants and the audit. For so much will defendants account; and again following the local law, no part of tHé proceeds will be devoted to any of defend’ants’ claims against the bankrupt, until all his creditors existing at the time of the void transfers are paid in full.


author: WILBUR, Circuit Judge.

text:
    BARCELOUX v. BUFFUM et al.
    No. 6327.
    Circuit Court of Appeals, Ninth Circuit.
    May 25, 1931.
    Stephen W. Downey and Downey, Brand & Seymour, all of Sacramento, Cal., for appellant.
    Devlin & Devlin & Diepenbrock, Robt. T. Devlin, Wm. H. Devlin, Arthur C. Devlin, A. I. Diepenbrock, and Horace B. Wulff, all of Sacramento, Cal., and George R. Freeman, of Willows, Cal., for appellees.
    Before RUDKIN, WILBUR, and SAW-TELLE, Circuit Judges.
   WILBUR, Circuit Judge.

Appellant petitioned for leave to intervene in a suit brought by respondent Buffum, as trustee in bankruptcy, against Peter Baree-loux Company, a corporation, and George R. Freeman, as administrator of the estate of Frank Freeman, deceased. Her petition was denied, and she has appealed from the order dismissing her petition for leave to intervene.

The action was brought by the trustee in bankruptcy to set aside an alleged fraudulent conveyance by the bankrupt to Peter Baree-loux Company, purporting to have been given to secure an indebtedness due from the bankrupt to that company. The property so transferred consisted of 2,499 shares of the capital stock of the company, alleged to be worth $80,000, and shares of stock in certain other corporations, alleged to be worth $2,100. The trustee alleged that this property so fraudulently assigned was subsequently sold by the defendant corporation to George A. Baree-loux, a brother of the bankrupt, for the sum of $36,341, and that such sale was part of a scheme tq defraud creditors. The trustee alleged that the same stock in the respondent corporation had also been pledged to respondent George R. Freeman, administrator. He also alleged that the stock of the respondent company had no market value, and that in order to ascertain the actual value of the stock it was necessary to have the assistance of the court in examining into the affairs of the respondent corporation; and “that complainant is entitled to recover from defendant Peter Bareeloux Company the excess, if any, over and above the amount, if any, found to be due and owing to said George R. Freeman upon the security of said transfer and assignment at the time of said sale and still remaining due and owing, and the value of all of said shares of stock at the time of said sale” (August 16, 1926). The relief prayed for by the trustee was that the court ascertain the amount of indebtedness due George R. Freeman, as administrator, secured by the transfer of stock in the respondent corporation ; that the value of all the property transferred by the bankrupt to the respondent corporation be ascertained as of August 16, 1926; that “complainant have judgment against defendant, Peter Bareeloux Company, for the value of all of said shares of stock at the time of said sale, to-wit, August 16, 1926, less such sum, if any, as may be found to be due or owing to George R. Freeman, as administrator of the estate of Frank Freeman, deceased, upon the security of said transfer and assignment at the time of said sale and still remaining due or owing, together with interest thereon at the rate of 7 per cent, from said 16th day of August, 1926,” and for general relief. The action was commenced April 3, 1928. Answers were filed, the case was tried, and on July 29, 1929, an opinion was filed by the trial court. In this opinion the court discussed the evidence and indicated its conclusions in favor of the trustee, and ordered an interlocutory decree to the effect that the plaintiff have judgment for the highest value of the property fraudulently transferred between the time of the transfer and the time of an audit authorized by the decree. This decision was apparently based upon section 3336 of the California Civil Code, which provides:

“The detriment caused by the wrongful conversion of personal property is presumed to be:
“First. The value of the property at the time of the conversion, with the interest from that time, or, where the action has been prosecuted with -reasonable diligence, the highest market value of the property at any time between the conversion and the verdict, without interest, at the option of the injured party; and
“Second. A fair compensation for the time and money properly expended in pursuit of the property.”

In an opinion by Judge Rudkin, in Schainman v. Dean, 24 F.(2d) 475, 476, this court, in considering section 70e of the Bankruptcy Act, 11 USCA § 110 (e) said:

“Under this section it is optional with the trustee whether he shall proceed at law or in equity, and whether he shall pursue the goods, or sue for their value, or for their conversion. * * *
“Whatever the form of action, or whatever the relief sought, the basis of the recovery is the goods or their value, and the bankruptcy court has concurrent jurisdiction with the courts of the state under the express provisions of section 70e. Flanders v. Coleman, 250 U. S. 223, 39 S. Ct. 472, 63 L. Ed. 948; Brainard v. Cohn (C. C. A.) 8 F.(2d) 13.”

In its opinion [51 F.(2d) 80] the trial court also said: “ * * * following the local law, no part of the proceeds will be de- ‘ voted to any defendants’ claims against the bankrupt, until all his creditors existing at the time of the void transfers are paid in full.”

This was followed by an interlocutory decree, dated August 5, 1929, filed August 8, 1929, decreeing that the trustee in bankruptcy recover from the respondent corporation a sum equal to the aggregate highest value of the property therein described, viz., that alleged to have been fraudulently transferred, and ordering that an auditor be appointed to examine into the affairs of the corporation for the purpose of ascertaining the highest aggregate value of said property and stocks, and also providing that the court should retain jurisdiction until the report of the auditor was made and approved and final decree rendered. It is further provided that no part of the moneys that may be collected by the trustee pursuant to the decree should be devoted to the payment of any of the claims of the defendant corporation against the bankrupt, until all claims of other creditors of the bankrupt existing on August 16, 1926, and expenses in the bankruptcy proceedings, be paid in full.

On May 8, 1930, in accordance with the terms of the interlocutory decree, the auditor made a report fixing the value of the property at $106,409.44, and recommended that a decree be entered for that sum in favor of the trustee in bankruptcy. Thereafter, and while the hearing on the report of the auditor was pending before the court a petition for leave to intervene was filed by the appellant. This petition was accompanied by the proposed answer of the intervener. It appears from the petition of the appellant that she is the widow of Peter Bareeloux, who died December 14, 1918; that in 1912 the appellant and her husband organized the respondent corporation and conveyed to it some 2,000 acres of real estate and other property, which property, with part of its increment, now constitutes the assets of the respondent corpora^ tion; that at the time of making said transfer the corporation executed a written agreement wherein it undertook to pay to appellant and her husband, and to the survivor of them, the entire income from the property so transferred, less necessary expenditures incurred by the corporation in the management of the property. It also stipulated in that agreement that, in the event any of such income was not paid to said parties, the income so retained should become the property of the company. The entire capital stock of the company was issued to the appellant and her husband and was by them transferred one-fourth to each of their three children and one-fourth to their two grandchildren by a deceased child. In this manner Henry Joseph Bareeloux, the bankrupt, received one-fourth of the capital stock of the respondent corporation which is involved in this action. The three children of the appellant and the two grandchildren constitute the board of directors of the corporation. It is not claimed by the appellant that the children and grandchildren have failed in any respect in asserting the rights of respondent corporation or that they do not intend to assert those rights. Evidently the appellant has been fully advised at all times of the nature of these proceedings and the progress thereof. It was not until the report of the auditor indicated that there would be a money judgment against the respondent corporation for approximately $106,000, and that the claim of the respondent corporation against the bankrupt for a debt would be subordinated to the rights of other creditors, that she sought to intervene.

Appellant predicates her right to intervene solely upon the ground that by the enforcement of so large a judgment against the corporation her claim would be jeopardized.

It is asserted on appeal that we must assume the truth of the allegation that the respondent corporation would be rendered insolvent by the entry of the proposed judgment. But this allegation must be considered in connection with the proceedings which in-, dieate that the court has found the fact to be that the value of the property owned by the corporation is approximately $400,000, and that the indebtedness, other than that involved in this action, is comparatively small. Appellant’s allegation of insolvency is evidently based on the theory that at a sheriff’s sale the property of the corporation might not produce a sufficient amount to pay all its indebtedness in full. At the time of the filing of appellant’s petition for intervention the decree foreshadowed by the interlocutory decree and the finding of the auditor was a simple money judgment against respondent corporation for conversion of personal property belonging to the bankrupt, and also holding that the claim of the corporation against the bankrupt was to be deferred to the payments of other claims as indicated in the interlocutory decree. Appellant claims that the interlocutory decree goes beyond the prayer of thé trustee’s bill, in that the court instead of fixing the value of the property involved on August 16, 1926, as prayed, directed that the highest -value of the property be ascertained as the basis for the final decree. Appellant also objects for the same reason to that feature of the decree which defers the claim of the corporation against the bankrupt until other creditors are paid.

If the appellant by reason of the contract of herself and her husband with the defendant corporation retains a life interest or any interest whatever, in the property of the corporation, any sale of property of the corporation would, of course, be subject to this claim, and the purchaser would take it with that burden. She could not be injured by a sale of property of the corporation, subject to her right to the income derived therefrom. On the other hand, if her claim to the income of the property, or to an amount equal thereto, merely constitutes her a general creditor of the corporation, her right to intervene depends upon the right of a general creditor of a corporation to intervene in an action brought by another general creditor to obtain a money judgment, at law or in equity, where it is believed and claimed that the liquidation of the indebtedness due the creditor bringing the suit will render the defendant debtor a bankrupt. No ease going this far has been cited or discovered. Where a debtor is acting in good faith in making his defense to a creditor’s action against him, there is no occasion for, or right of, intervention by another general creditor. Caldwell v. Guardian Trust Co. (C. C. A.) 26 F.(2d) 218. It is sufficient for the purpose of this appeal to say that the case presented is not one where there is an absolute right of intervention, but one resting in the sound discretion of the trial court, and such discretion cannot be reviewed on appeal from an order denying the right to intervene. Richfield Oil Co. v. Western Machinery Co. (C. C. A.) 279 F. 852, 855; O’Connell v. Pac. Gas & Elec. Co. (C. C. A.) 19 F.(2d) 460, 461; Merriam v. Bryan (C. C. A.) 36 F.(2d) 578, 579.

Appellant freely admits that where the right to intervene rests in the sound discretion of the court, an appeal from a denial of a petition to intervene cannot be maintained, but predicates her right to intervene upon the assumption that she is interested in a fund being administered by the trial court, and for that reason comes within equity rule 37. She does not, however, point out what fund it is that is being administered by the court in which she claims such an interest, and in fact no fund is to be administered by the court. It is said in her brief: “Her interest is the preservation of the property in which she claims an interest amounting to a life estate. The corporation’s interest in the suit is not therefore a representative one in which appellant’s interest can also be protected.” But the property in which she claims a life estate is not involved in the action at all. It may be sold on an execution to enforce the decree herein, but, as we have already pointed out, if she has a life interest in the property in the possession of the respondent corporation that interest cannot be affected by such sale.

We are not concerned on this appeal from the dismissal of the petition for intervention with the question of whether or not the trial court committed error in fixing the value of the property alleged to have been converted, or in entering judgment therefor, or in subordinating the claims of the defendant corporation to others, but solely with the right of the appellant to intervene in this action to protect her own rights, as distinguished from the rights of the respondent corporation, which are being actually litigate ed in good faith by the respondent corporation, and can be considered upon an appeal from the judgment. 'The order of the trial court, being an exercise of a sound discretion committed to it by the law, is not appealable. The appeal should be dismissed. O’Connell v. Pac. Gas & Elec. Co., supra.

Appeal dismissed.

SAWTELLE, Circuit Judge, concurs.