author: WILBUR, Circuit Judge.

text:
    LUSE v. UNITED STATES.

    No. 6348.
    Circuit Court of Appeals, Ninth Circuit.
    April 6, 1931.

      Paul W. Sehenek and John M. Bowen, both of Los Angeles, Cal., for appellant.
    Samuel W. McNabb, U. S. Atty., and Gwyn S. Redwine and P. Y. Davis, Asst. U. S. Attys., all of Los Angeles, Cal.
    Before RUDKIN, WILBUR, and SAWTELLE, Circuit Judges.

      Rehearing denied June 15, 1931.

   WILBUR, Circuit Judge.

Appellant was convicted on two counts of an indictment charging him with having committed perjury upon the trial of himself and four others for a violation of section 215 of the Federal Penal Code (18 USCA § 338) relating to schemes to defraud by the use of the mails. The first count upon which appellant was convicted charged him with having falsely testified that he had a conversation with one Blaylock, in Los Angeles, Cal., on January 6, 1930, concerning a deal between appellant and one Yardley. The second count related to testimony concerning a transaction between the accused and one Edna Abbott. This count of the indictment was dismissed by the district attorney after the court had sustained appellant’s motion for a directed verdict. The third count charged that appellant committed perjury in denying a certain conversation with E. J. Kelly concerning a profit which would be realized from a proposed exchange of Kelly’s residence in Inglewood, Cal., for an oil lease on Texas property. Appellant was sentenced to imprisonment for five years on each count, sentences to run concurrently, and to pay a fine of $1,000 on each of said counts.

The principal point involved in the evidence and allegations concerning the charge of perjury in the first count relate to the whereabouts of W. T. Blaylock. The appellant having testified in the mail fraud case that he had the conversation with Blaylock in Los Angeles concerning a transaction with Yardley, one of the alleged victims of the scheme to defraud, the Government claims that on the 6th day of January, 1930, the day upon which the conversation is alleged to have occurred in Los Angeles, Blaylock was actually in the town of Italy, Téx., and that he had been there continuously for nearly three years, and that he remained there until some time in February, when he did go to Los Angeles. In support of the government’s claim that Blaylock was in Italy, Tex., on the 6th day of January, 1930, ten witnesses were introduced who corroborated Blaylock’s testimony that he was in Texas on that date. As further corroborative evidence, the government, in its case in chief, introduced two additional lines of evidence, to which appellant interposed seasonable and appropriate objections. The first .item objected to was a contract purporting on its face to have been signed in Los Angeles on the 6 th day of January by Blaylock. This instrument had attached thereto a certificate of acknowledgment certifying that it was acknowledged before a notary on that day in Los Angeles, Cal. The tendency of this instrument was to rebut the government’s contention if it was admissible at all, a question which we will presently consider. To overcome this evidence, which at best was anticipatory of appellant’s -defense, evidence was introduced and handwriting experts were called in an attempt to establish that the signature to the document was in the. simulated handwriting of W. T. Blaylock and that this simulation had been accomplished by means of tracing a genuine signature of Blaylock’s. This evidence might have been proper if the defendant had first offered the document to prove the presence of Blaylock in Los Angeles on the 6th day of January, and if such document had been received either with or without objection on the part of the government, but to introduce such evidence in the first instance could har'dly avoid impressing the jury with the fact that there was something wrongful in the tracing of the signature of Blaylock, whereas the theory of the government was in this ease, as well as in the mail fraud ease, that Blaylock was a mere dummy, and that appellant had used his name constantly and repeatedly and was authorized so to do by Blaylock, and that Blaylock had no interest whatever in the transactions which were carried on in his name. In this connection it may be stated that in the charge to the jury the simulation of handwriting was referred to as forgery, although upon objection the word “forgery” was withdrawn.

In rebuttal the appellant testified that Blaylock was actually in Los Angeles on the 6th of January as he had sworn on the previous trial for fraud, and he offered the testimony of the notary public and of another witness in his office who corroborated that statement. We thus have ten witnesses for the prosecution and three for the defense in direct conflict as to the whereabouts of Blay-lock on the 6th of January. The government, however,, not content with the overwhelming number of witnesses it had produced to establish the presence of Blaylock in Texas, including the testimony of Blaylock’s wife and mother, who had been constantly aware of his whereabouts during the entire period, introduced in chief by way-of further corroboration certain cheeks drawn by Blaylock on the First National Bank of Italy, Tex., a promissory note signed by him on or about that date, together with about 100 eheoks drawn upon that bank during the three-year period preceding and immediately succeeding the 6th day of January, 1930. In addition to the testimony of Blaylock that these several cheeks were drawn on the date specified, we have the physical fact that the checks were canceled by perforation by the bank upon which they were drawn sufficiently near the date of the check to make it reasonably certain that the cheeks were not signed as far away from the bank which had paid them as Los Angeles, Cal. The jury must have been impressed with the large volume of evidence of this character, and particularly with the instruments signed by Blaylock at Italy, Tex., on January 6,1930. We cannot see that any of this evidence was properly admissible. The various documents referred to so far as this case is concerned were mere memoranda which could be referred to and which were referred to by the witnesses concerned for the purpose of refreshing their memory. It is fundamental that such memoranda are not admissible' unless demanded by opposing counsel, in which event, of course, the purpose of the memoranda is to discredit rather than corroborate the witness’s testimony. At first blush we are impressed with the possibility that there was some justification for the introduction of cheeks which were paid so soon after their date as to show that--the checks were not signed in Los Angeles on the date specified, but on reflection it is clear that the probative effect of such evidence would depend upon the testimony of the witness that he signed the document on the date it bears; therefore the cheeks did not tend to corroborate, but their weight and effect depended upon the evidence of witnesses whose veracity was involved in the ease. Counsel for the government seem to contend that in a perjury case, where conviction cannot be had on the uncorroborated testimony of a single witness, that such evidence is admissible by way of corroboration where it would not be in another ease where such corrobora, tion is not required by statute. This view assumes that such evidence is corroboration, and, if it is corroboration in a case of perjury, it would be corroboration in any other ease, and it is desirable to corroborate the testimony of a witness in every ease where his testimony is disputed.

The government claims that, if there is any error in the introduction of the contract dated January 6th, purporting to have been signed at Los Angeles by Blaylock on that day, such error was cured by the subsequent testimony of the appellant and his witnesses that the document was so signed on that date. It is true that this testimony would have made the evidence of the government in that regard proper rebuttal testimony, but it does not follow that the error in admitting it in chief was not prejudicial. The real difficulty in the case is that the government used mere memoranda as substantive evidence. It not only had the advantage of a large volume of that evidence in the ease in chief, but by its case in chief it also placed the appellant in the position of having fabricated a similar memorandum, and' thus discredited him by showing that he manufactured evidence, although the evidence alleged to have been fabricated was not properly admissible, either in chief or in rebuttal.

The third count charges the following answer given by appellant to the following question to be false: “When you were in bed, he [meaning E. J. Kelly] said he [meaning E. J. Kelly] didn’t like to be left without any cash, and you said, ‘If you take it, I will guarantee to make you $100,000 in two years,’ and the next morning he [meaning E. J. Kelly] went out with you to his [meaning E. J. Kelly’s] wife and asked you to tell her what you had said to him [meaning E. J. Kelly] during the night, and asked if you would state it again, and you then said in the presence of Kelly’s wife again, if he. [meaning E. J. Kelly] would take this deal and trade the Inglewood house, you would make him [meaning E. J. Kelly] $100,000 in two years? Answer: That is not true.” And assigns its falsity in the following language: “ * * * wag true -¿hat the sai,j defend- ’ ant A. F. Luse did state to the said E. J. Kelly at said time and place, as testified to by the said E. J. Kelly, and as referred to in said question by said Paul W. Sehenek, that he would guarantee to make $100,000 in two years, and it was further true that the next morning the said A. F. Luse and the said E. J. Kelly went out to the wife of E. J. Kelly and the said E. J. Kelly asked the defendant, the said A. F. Luse, to tell the wife of the said E. J. Kelly what the defendant A. F. Luse had said to him during the night and asked the said A. F. Luse if he would state it again, and the said defendant, A. F. Luse, then and there, in the presence of E. J. Kelly’s wife, again stated that if he, the said E. J. Kelly, would take this deal and trade his house that he, the said defendant, A. F. Luse, would make him $100,000 in two years. * » * n

Upon the trial E. J. Kelly testified, in part, as follows: “ * * * This conversation was between he and I in bed together; I was asking $15,000 for my house; he asked me several times what I wanted for my home, and I told him $15,000, and he wanted to trade that in for 100 aeres of this oil property; this was the talk while we were in bed together; he said he wanted to hold 200 acres for himself but wasn’t able to take the 200 acres, but if I would take $12,500 for my home instead of $15,000, which I asked, and trade it in for 100 acres of that 200 acres-he would take the other 100 acres himself, and I told him I didn’t like, hardly, at my age, trading all I had in that way and not getting any money, not'having money to do anything else with, and he says, ‘Well, you go ahead and trade it in and I will guarantee to make you $100,000 inside of two years on that lease;’ and so the next morning I got up and went out and done my chores and came back in and Mr. Luse was up and the wife was getting breakfast and I asked the wife if Mr. Luse had told her anything about the conversation we had last night in regard to trading our home off for 100 acres. She said ‘No.’ I asked Mr. Luse to repeat that to the wife, which he did; he said the same thing he did to me, what I just stated; he said if we would trade our home in for that 100 acres he would, guarantee to make us $100,000 within two years on the lease; that was word for word what he said, too; my house was 322 East Plymouth street, Englewood.” •

Mrs. Ada Kelly, his wife, testified, in part, as follows:

“ * * * Mr. Kelly came in and asked me if Mr. Luse had told me about the conversation they had the night before, and I said No> and he turned around to Mr. Luse and asked him to repeat the conversation they had; Mr. Luse said there was a pieee of property down in Texas a man had and he wanted $25,000 for the property, and he said he couldn’t handle it all and if we would trade in our Englewood property for $12,500 he would take the other half and that he would guarantee to make us $100,000 within two ; years.”
« * * * Mr. Kelly came into the kitchen; Mr. Luse and I were already in the kitchen; Mr. Luse and I had had no talk concerning land before Mr. Kelly came in. * * *«

It will be observed that the question contained in the indictment includes the element that the appellant and Kelly went out together to Kelly’s wife and Kelly asked Luse to tell her what had been said to him during the night. It is a familiar rule of pleading that a conjunctive denial is an ineffective denial of the several conjoined statements for the reason that, if any one of them is not true, the conjunctive denial would be true. Bancroft’s Code Pleading, vol. 1, sec. 407, and cases cited; 21 Cal. Jur., § 105, and cases cited; Pomeroy’s Code Remedies, (5th Ed.) § 509; see, also, §§ 513, 514 id.; 49 C. J. 273, § 337. This rule would seem to be peculiarly applicable to a situation where a defendant is charged with perjury in the denial of several conjoined statements. If any one of those statements were untrue, his answer to the conjunctive question would be true. We must therefore hold that the appellant was not guilty of perjury, if, as the uneontradieted evidence shows, the above referred to portion of the conjunctive question was untrue. The motion for directed verdict on count 3 should have been granted.

In view of the necessity of a new trial on count 1, we will consider a question which will no doubt again arise on such trial. One of the main difficulties presented in the trial of the case was that of proving that the false testimony alleged to have been given on a former trial was material to that trial. It is stated that trial of the former case occupied over a month, that the transcript of the testimony contained about 4,000 pages. The trial of the former ease charging fraud involved many transactions over a long period of years (1922-1930). The appellant’s most serious complaint of the course takfen by the court below relates to the prejudicial effect of the reading before the jury of the transcript of the evidence given in the former trial, which evidence, it is rightfully claimed, was extremely prejudicial to the appellant because it tended to show that he had been guilty of defrauding widows and others. This claim is predicated upon the proposition advanced by appellant on appeal and acted upon by the court below in its rulings upon the admissibility of the evidence and in its instructions to the jury, to the effect that the Question of the materiality of the false evidence alleged to have been given by appellant in the former trial to the issues in that trial was a question of law to be determined upon the trial of this case by the judge; that this question was one not proper to submit to the jury, and that therefore, inasmuch as the testimony adduced upon this subject was for the benefit of the court and not the jury, it is not sufficient to instruct the jury that such evidence was for the consideration of the court alone, because it was a psychological impossibility for a.jury to follow such an instruction, and prejudice was therefore inevitable because of the mass of testimony tending to show the fraudulent character of the operations of the defendant as disclosed by the portions of the transcript read in the presence of the jury.

It is unquestionably true that the materiality of the evidence adduced upon the former trial was a question to be determined by the trial judge. This was a question of law, but in a charge of perjury the question of materiality of the evidence adduced upon the former trial is necessarily a mixed question of law and fact. That is, it is not an abstract question of law, but depends upon what occurred upon the former trial. Materiality depends primarily upon the issues involved in the former trial and upon the evidence adduced in support of these issues. What the evidence was, and what the pleadings were upon that trial is a question of fact. Whether the testimony alleged to be perjured was material to such issues is a question of law. In this case counsel stipulated that the transcript could be read with the same force and-effect as though the various official court reporters who had phonographically reported the testimony and transcribed the same were personally present and testifying to the cor-’ rectnéss of their phonographic notes and the transcription thereof. But the plea of riot guilty interposed by the defendant traversed the fact that such testimony was given at all, and it was for the jury to say from all the evidence whether such testimony was given upon the former trial. The charge of the court to the jury as to the materiality of the testimony alleged to have been perjured must necessarily be predicated upon the assumption that the evidence and the pleadings read before the jury were those involved in the previous trial, although the jury might have concluded otherwise For the court to determine the materiality of the false testimony it was necessary for it to assume these facts in a hypothetical instruction. In the ease at bar there was no serious contention as to what occurred upon the previous trial, court and counsel both apparently assuming that the pleadings and transcript presented and read before the jury in this case were virtually conclusive on the parties, but this assumption, in the absence of a stipulation to that effect, did not establish what evidence had been actually, introduced upon the fraud trial. Our view of the situation may perhaps be made more apparent if we consider the problem presented by the prosecution of a charge of perjury where no court reporter was present upon a former trial, particularly in a ease where the witnesses testify through an interpreter. In such a case it is evident that the most difficult question of fact to be determined in the trial for perjury would be the ascertainment of the fact as to what evidence was given upon the former trial, which would make the alleged perjured testimony material upon that trial. The difficulties of such a situation are illustrated by cases in which an attempt had been made to convict a Chinese witness of perjury. It was held in People v. Lee Fat, 54 Cal. 527, that the reporter could not testify from his notes taken upon the former trial, but that some other witness should be called to prove what the accused swore to on the previous examination. In People ex rel. Lee Lin Tai v. Hewill, 56 Cal. 117, it was said that the interpreter, or some other witness who heard and understood the language in which the statements of the defendant were made, should have been called to prove them.

While the stipulation of counsel in this case as to the correctness of the reporter’s notes greatly facilitated the trial of the ease, it does not follow that this stipulation removed from the consideration of the jury the question of fact involved in a determination of the materiality of the evidence, namely, as to whether the evidence: offered to show materiality was actually given in the former trial. This was a question for the jury.

There is another aspect in which it is proper for the jury to consider the evidence presented in the trial court with relation to the pleadings and testimony given in the fraud case, namely, the question of whether or not the evidence alleged to be perjured was willfully gpven. That question also was for the jury. Assuming that the evidence'read from the transcript was actually given upon the trial of the former ease, it was for the court to say whether or not the false evidence was material and for the jury to say whether the false evidence was given willfully. In determining that question it was necessary for the jury to have before them the same picture which was presented to the judge to determine its materiality. It was from this evidence that they were to determine whether or not the evidence was given inadvertently or willfully. Nothing is more common in court than an honest mistake as to dates, and, in view of the fact that the first charge of perjury was predicated upon a given date, it was necessary for the prosecution to establish beyond a reasonable doubt that the false evidence was not given inadvertently. The jury should be fully instructed as to the purpose and effect of such evidence.

Appellant raises numerous other questions which are not likely to recur on new trial, and for that reason we deem it unnecessary to consider them.

Judgment reversed.


source: Caselaw Access Project

author: ALSCHULER, Circuit Judge.

license: Public Domain

text:
    CITY OF JERSEYVILLE, ILL., v. CONNETT.
    No. 4357.
    Circuit Court of Appeals, Seventh Circuit.
    April 15, 1931.
    Walter J. Chapman, of Jerseyville, 111., Logan Hay, of Springfield, 111., O. H. Richards, of Jerseyville, 111., and R. Allan Stephens, Leslie H. Yogel, and Leigh M. Kagy, all of Springfield, 111., for appellant.
    Louis F. Gillespie, of Springfield, 111., William E. Wheeler and Martin Oehmke, both of East St. Louis, 111., and Edmund Burke and George B. Gillespie, both of Springfield, 111., for appellee.
    Before ALSCHULER, EVANS, and SPARKS, Circuit Judges.
   ALSCHULER, Circuit Judge.

The appeal is from a decree of foreclosure of a trust deed given by appellant, city of Jerseyville, an Illinois municipal corporation, upon its waterworks system, to secure payment of certain certificates 'of indebtedness of the city. To the bill of complaint, which was in usual form; the city filed its amended answer and amendment thereto to sustain its asserted defenses, mainly that the certificates so secured by the trust deed constituted a debt of the city, and created an indebtedness beyond the city’s constitutional debt limit of 5 per cent, of the assessed valuation of its property, and that the certificates of indebtedness and trust deed are therefore void.

Appellee filed motions to strike those parts of the answers comprising the allegations in support of such alleged defenses, which motions the court sustained, and, no further answer being filed, the decree in question was entered.

The answers alleged, in substance, that prior to January 1, 1921, the city had built and paid for and was operating a system of waterworks, including pumping plant, water tower, reservoir, wells, pumps, and system of distribution; .that on September 3, 1921, the city council approved plans and specifications- for additions and extensions to the old waterworks; that an understanding was had between the officers of the city and one Hanes and one Heller whereby the city should sell its old waterworks system to Heller for $40,000, and that Hanes would make a contract for constructing and selling to the city a complete waterworks system (including the old waterworks which Heller would convey to Hanes) for the sum of $235,-000, for which the city would issue its special water fund certificates for that amount; that, upon conveyance to the city of the completed plant, $40,000 of such certificates should be turned over to the city for cancellation in discharge of the consideration to the city for the old plant; that Hanes did in fact submit to the city a bid for $215,000, subject to increase by changes to a total of not exceeding $235,000, and that in said complete system there might be included the old waterworks system; that bn March 27, 1922, the city passed its Ordinance No. 63 for the sale of the old waterworks system, and called for bids therefor; that Heller submitted a bid of $40,000, which the city accepted, making a deed to him accordingly ; that Hanes’ bid for constructing the waterworks was accepted, and that Heller conveyed to Hanes the old waterworks system; that' Hanes completed the contract and received the city’s special water fund certificates together with the trust deed in issue, and conveyed the entire waterworks system to the city, and that $40,000 of the certificates which the city gave Hanes were delivered to the city and canceled, whereby the consideration to the city for -the sale of the old waterworks system was satisfied.

The answers charged that the conveyance of the old waterworks system to Heller, and by Heller to Hanes, and by Hanes to the city, was not a bona fide transaction, but a device for the purpose of evading the constitutional debt limit of the city as prescribed in the Illinois Constitution; that the assessed value of the taxable property of the city for the time in question was less than $1,600,000, 5 per cent, of which was the limit of indebtedness which the city might lawfully incur.

The decree, following the trust deed and the statute, provided that through the sale under foreclosure the waterworks system shall pass to such purchaser who shall agree for the least number of years, not exceeding fifty, to possess and operate the system, and who shall receive the prescribed rates for the period; and, at the expiration of the agreed term, shall return the system to the city in as good condition as when received, ordinary wear excepted.

The city relies mainly on City of Joliet v. Alexander, 194 Ill. 457, 62 N. E. 861, 863. In our consideration of this case we will assume that the transactions here respecting the sale of the old plant were a mere device for evading the constitutional debt limit, and, notwithstanding them, the old plant remained all along the property of the city.

In the Joliet Case the action was by a taxpayer to enjoin that city from issuing water fund certificates in the amount of $240,000 for extension and enlargement of its existing system, the ordinance therefor making provision 'for a “water fund” into which should be paid all the income, save operating expenses, from the entire waterworks system, for application to the payment of water fund certificates to be issued, and providing for a mortgage upon the entire water works system to secure payment of the water fund certificates. It was held that the giving of the mortgage upon the old system, to secure the payment of the certificates, would constitute the certificates an indebtedness of Joliet (at that time already indebted beyond its constitutional limit), and the decree of the lower court awarding the injunction was affirmed. It was also held that pledging the income of the entire waterworks system to secure indebtedness incurred for its enlargement and extension likewise made the certificates an indebtedness of the city within the purview of the constitutional limitation.

The propriety of appropriating the income from extensions alone, and of mortgaging the extensions to secure payment of the certificates, was there conceded. Just what sort of mortgage was contemplated in the Joliet Case does not appear, since the certificates and mortgage had not yet been issued. But it may be assumed that it would have been fin compliance with the Act of April 22, 1899 (Laws 1899, p. 104), the same act under which the city assumed to act in the instant case, the applicable portions whereof appear in the margin.

Here the instruments had long been executed and delivered, and the transaction completed years prior to the institution of this suit.

While the instrument of security is denominated “trust deed,” we do not think that it was such in essence in the sense in which that term is ordinarily employed and understood. The waterworks system, old or new, was not in fact conveyed, hut only temporary possession of it, to give assurance that the income from the waterworks system (less operating expenses) would he devoted to the payment of the water fund certificates and interest. The security of the “trust deed” extended to this only. Under it the city eould not lose the title to its waterworks, but, in ease of foreclosure, the possession only, subject to the obligation on the part of the possessor to continue adequately to supply the city and its inhabitants with water, and at the time specified to return the waterworks system to the city.

Since the Joliet ease there has intervened a condition under which the power over the property of the purchaser at such a sale, and his interest therein, has been materially modified, by the passage in Illinois of the act to provide for the regulation of public utilities, in force January 1, 1914 (Laws 111. 1913, p. 460), and its successor, “An act concerning public utilities,” in force July 1, 1921 (Laws 111. 1921, p. 702). Thereby the state has .assumed control over the reasonable conditions and rates upon which public utilities shall be operated. The prime object of such legislation is the protection of the'public, as well as of the utility, in the matter of conditions and rates for the service.

Even though the mortgage contemplated in the Joliet case was to< have been given under, and subject to, foreclosure pursuant to the provisions of the Act of April 22,1899, the public utility legislation referred to was not then in existence, to limit and regulate the right and power which the purchaser under a foreclosure might acquire.

With the power of rate regulation in the hands of the state, a trust deed or mortgage, whereunder the use only of the utility property for a limited time may pass to the purchaser at the foreclosure, is sufficiently different from what it was when no such regulation and control by the state was assumed that, in our-judgment, what was said in the Joliet case respecting the creation of a municipal debt by the giving of a mortgage on the enlarged plant to secure payment of the water fund certificates does not have application.

But the Joliet ease went yet further in holding that the income from the plant, over and above operating expenses, is the property of the city, and, if pledged to pay the water fund certificates, the certificates become an indebtedness of the city. We may say, in passing, that in the Joliet ease it appears the city was having an annual income of $10,000 from its existing waterworks system. In the instant case it does not appear that the old system was yielding the city any income. Indeed, it might well be assumed from the pleadings as filed that the old system, in its outgrown and deficient state, was incapable of yielding the city any profit or income, and would so remain unless suitably supplemented.

In the ease of Ward v. City of Chicago et al., 342 Ill. 167, 173 N. E. 810, 812, the ordinance of the city provided for issuing certificates of indebtedness to pay for the enlargement of the city’s waterworks under the statute authorizing it, and provided that the certificates were payable only from revenue derived from the waterworks. It provided that certificates be issued for $12,000,000, which should not constitute an indebtedness of the city within any constitutional limitation, and that thereupon the entire revenue received from the operation of the city’s system of waterworks should be deposited in a separate fund, to be used only in paying operating expenses, obligations theretofore issued payable from such revenue, and the certificates issued under the ordinance.

The bill to enjoin issuance of the certificates w.as brought upon the theory that since the certificates were an indebtedness of the city they contravene section 12 of article 9 of the Illinois Constitution, in that the ordinance authorizing them did not provide for the collection of an annual tax to pay them. Thus the question was whether the certificates created an indebtedness against the city. The court said: “The position thus taken seems to be that pledging the water fund creates indebtedness within the constitutional prohibition unless the pledge is confined to such precise income as can be directly traced to the particular new physical element of the plant to pay for which the obligation secured was issued, leaving the original- income in effect intact and usable by the city for other purposes altogether.”

The validity of this contention the court denied, and it affirmed the decree of the superior court dismissing the bill for want of equity.

Now it is true that in that opinion reference was made to the Joliet ease, and the court stated that “these certificates were secured by a mortgage which covered both the existing system and the extensions constructed under the ordinance. The court properly held that an indebtedness within the constitutional prohibition was thereby created.” But in the Ward case the effect of a mortgage was not in issue, for there was no mortgage, and what was said in approval of the Joliet ease in no way conflicts with the views we have indicated respecting the conditions under which the Joliet decision was made. But the Ward case is distinctly antagonistic to that part of the decision in the Joliet ease where it is said that the pledging of the income from the old plant for the payment of water fund certificates issued for enlargement or extension constituted the certificates an indebtedness of the municipality within the constitutional provision.

The Ward opinion makes extended reference to a decision of the same court in Maffit v. City of Decatur, 322 Ill. 82, 152 N. E. 602, 606. In that ease it was sought to enjoin the city, already indebted beyond the constitutional limit, from carrying out an agreement for the supplementing of its insufficient water plant through an undertaking with a corporation, whereby the latter would construct and maintain, at large cost, a reservoir, and that the water rents of the entire waterworks plant should be paid into a fund, of which 90 per cent, was to be paid annually to' the company which financed the construction until there was full repayment, in which ease the company’s property would be conveyed to the city. The court held that an indebtedness of the city was not created by this agreed method of paying the company and acquiring the addition to the plant out of most of the income from the entire plant, since no obligation was imposed on the city to pay the company.

Through the foreclosure of the trust deed appellant’s plight in respect to its waterworks system is not substantially different from what it would have been had the trust deed not been given. The foreclosure of the trust deed did not assume to deprive the city of its legal title to its waterworks plant; this still remained as before, and, whether operated by the city or by the purchaser who for the time being was let into possession, the obligation to supply reasonable service at fair rates remained the same, with the state board of control in position to require and enforce such service and rates. Without the trust deed, the certificate holders had the right to insist that the net income from the entire waterworks system be applied to the payment of the certificates. With the trust deed, the certificate holders, or their successor, the purchaser at the sale under the trust deed, would have no right heyond this. With or without the trust deed, only the net income of the system was applicable to the discharge of the certificates. With the regulatory power of the state, as prescribed by the statutes in force when the contract was made, even the purchaser at the foreclosure sale, in the operation of the plant for the time limited by his bid, would not likely be permitted to take unconscionable advantage of the city, nor of its water users, whose rates would in any ease alone provide the fund out of which the purchaser would be reimbursed for his investment. Under the circumstances we do not think it can be fairly concluded that the giving of the trust deed upon the entire water plant constituted the certificates of indebtedness a present debt against the city, nor that the pledging of the entire income for the payment of the certificates had any such effect.

If this conclusion is justified, it is unnecessary to discuss the effect of the pretended sale to Hanes of the old plant, and his resale of it to the city as a portion of the new and complete plant. We may say, however, that if the figure of $40,000, as employed in the alleged sales, may be taken as the value of the plant, its sale at that price would have no necessary bearing upon the application of the constitutional debt limit. The sale of the plant did not create an indebtedness. Indeed, it does not appear from the pleadings that the city then had any indebtedness. The cancellation of the $40,000 of certificates would be equivalent to a cash payment by the city upon the new plant, and, as said in the Decatur ease: “Nor did the payment of $35,000 to the water company when the contract was executed make it void. That sum was paid out of the city’s current funds by cheek dated the same day as the •contract. It was to all intents and purposes a cash transaction, and for that reason no indebtedness was created thereby.”

But even if appellant then had constitutional right to create $80,000 of indebtedness, the face of the certificates, less the $40,000 which was canceled, and which may be treated as a cash payment, would be still considerably beyond its debt-contracting power if the certificates were held to be an indebtedness of the city.

It is most likely that the attempted sale to the city of the enlarged plant, at a price equal to the total of the certificates, was with the view of having the transaction regarded as one where the certificates would represent the unpaid purchase price, in which ease, whether or not secured by the trust deed, they would not be an indebtedness of the city. This was practically so stated in the Joliet case in these words: “What is said relative to mortgaging property owned by the city, or pledging its existing income, is not intended to apply to a mortgage purely in the nature of a purchase money mortgage, payable wholly out of the income of property purchased, or by resort to such property.”

The only other proposition we feel called upon to consider is in respect to the alleged disposition of the certificates by the city at less than par. Notwithstanding the general assertion in the answer that this is so, it appears that the balance of the certificates was turned over to Hanes in settlement of the contract price of the completed system. Pleadings are taken most strongly against the pleader, and we do not deem the allegations sufficient to indicate that, as between the city and Hanes, the certificates were issued at less than their face.

The amended answer was framed upon the theory that if the city sold the certificates at less than par, the certificates thereupon were void and were not collectible. We do not think this result would follow. We find no reported ease in the more than thirty years since the statute of 1899 was passed wherein it has been so adjudicated. Where the responsibility and liability would rest for such a transgression of the statute we need not here determine.

For appellee it is earnestly contended that the recitals in the issued certificates or in the trust deed, or in both, of full compliance by the city with the Constitution and the statutes, equitably estops the city from disputing these recitals. Disposing of the ease as we do upon other grounds, we do not deem it necessary to consider this one.

We are of opinion that the stricken portions of the amended answer and the amendment thereto as filed presented no valid defense to the bill, and the decree of the District Court is accordingly affirmed.

       Article 9, § 12. “No county, city, townsliip, school district, or other municipal corporation, shall be allowed to become indebted in any manner or for any purpose, to an amount, including existing indebtedness, in the aggregate exceeding five per cent-um on the value of the taxable property therein, to be ascertained by the last assessment for State and county taxes, previous to the incurring of such indebtedness. * * •" . .. ,

       “Section 1. Every city, incorporated town and villag© in this State, is hereby authorized to acquire water works for supplying water for public use, and for domestic use of its inhabitants by building or purchasing a water works system or enlarging or extending an existing system. In payment for such building, purchase or enlargement any such municipality may issue certificates of indebtedness limited in their payment solely to the water fund hereinafter provided for; such certificates may bear interest at a rate of not exceeding six per centum per annum, payable semiannually, and shall only be issued at not less than par value in payment for the building, purchase or extension of a water works system.”
      “§ 3. Whenever any such municipality shall avail itself of the provisions of this act, the entire proceeds arising from the operation of the water works system thereof shall be paid into a fund known as the ‘water fund’ and which fund shall be and remain inviolate until the certificates issued under the terms hereof and the interest thereon is fully paid, and the treasurer of such municipality shall not pay any warrants drawn on said fund unless the same be drawn in payment of the necessary operating expenses of such water works system, or in payment of the certificates issued hereunder or the interest thereon.
      “§ 4. In order to secure in the most ample manner the payment of the water certificates authorized as aforesaid, any such municipality may convey by way of mortgage or deed of trust the water works system so acquired or enlarged which said mortgage or deed of trust shall be acknowledged and recorded in the 'same manner as mortgages of real property, and which mortgage or deed of trust may contain such provisions and conditions as are reasonably necessary to fully secure the payment of said water certificates.”
      Section 5 provides for foreclosure of mortgage in case of default in payment of certificates, and that upon sale the waterworks system shall pass to such purchaser who shall for the least number of years not exceeding fifty possess and operate said system and receive the prescribed rates for the water during said period, and on its expiration shall return the waterworks system to the city in as good condition ts when received, ordinary wear excepted.


author: HICKS, Circuit Judge.

text:
    CHESAPEAKE & OHIO RY. CO. v. WELLS.
    No. 5648.
    Circuit Court of Appeals, Sixth Circuit
    April 15, 1931.
    Fred C. Rector, of Columbus, Ohio (Wilson & Rector, of Columbus, Ohio, on the brief), for appellant.
    R. B. Newcomb, of Cleveland, Ohio (Skiles & Skiles, of Shelby, Ohio, Newcomb, Newcomb & Nord, of Cleveland, Ohio, and Pugh & Pugh, of Columbus, Ohio, on the brief), for appellee.
    Before MOORMAN, HICKS, and HICKENLOOPER, Circuit Judges.
   HICKS, Circuit Judge.

Action by appellee, Wells, to recover damages of appellant, the Chesapeake & Ohio Railway Company, for personal injuries. The suit was brought under the federal Boiler Inspection Act § 2, as amended by Act June 7, 1924, § 2, 43 Stat. 659, U. S. Code, tit. 45, § 23 (45 USCA § 23).

The questions are, whether the court erred . in (1) denying appellant’s motion for a directed verdict; and in (2) instructing the jury to return a verdict for appellee.

On the night of Sept. 9, 1927, appellee was the engineer on engine No. 1100, pulling a freight train from Peru, Ind., to Chicago. The train left Peru at about 12:35, and ran about 18 miles in about 35 minutes, when the boiler of the locomotive exploded and injured appellee. It is undisputed that low water in the boiler was the cause of the explosion. At the close of the evidence the court instructed the jury to return a verdict in favor of appellee upon the conception that it was undisputed that the two injectors, one on each side of the engine, although operating at the time of the explosion, were not effectively feeding the water into the boiler, and that no other reasonable inference could therefore be drawn than that there was some defect in the feed or delivery pipes or other mechanism of the injectors. In addition to the testimony referred to by the court in the charge, there was evidence tending to show (1) that the water glass falsely indicated the level of the water in the boiler; (2) that the lowest of the three gauge cocks when, turned emitted water when as a fact the water in the boiler was below the gauge cock; (3) that a “telltale” device attached to the injectors failed to warn the engineer that they were not functioning; and (4) the theory is advanced that the boiler was “dirty,” which condition caused the water to foam and to indicate a supply in excess of the actual amount being used.

There is also evidence tending to show that prior to the accident it was frequently necessary to repair both injectors, and that, although the right injector was functioning properly at the beginning of the trip, yet, after the accident, it was found disabled and one of its valve stems was broken in such manner as to indicate that the major portion, at least four-fifths of the break, was old. It is conceded, however, that, as long as this valve stem or rod held together, the injector would function, but, when completely broken, the injector would no longer feed water into the boiler.

Viewing these circumstances in the light most favorable to appellee, we do not think that, when considered along with certain countervailing testimony, they require or compel a verdict in his favor. They were certainly sufficient to send the case to the jury over appellant’s motion for a directed verdict (Baltimore & O. R. Co. v. Groeger, 266 U. S. 521, 527, 45 S. Ct. 169, 69 L. Ed. 419), but ‘ they were not sufficient as a matter of law to destroy appellant’s defense. See Sweeney v. Erving, 228 U. S. 233, 240, 33 S. Ct. 416, 57 L. Ed. 815; Rose v. Transp. Co. (C. C.) 11 P. 438; Gill v. Brown, 130 Tenn. 174, 169 S. W. 752.

Liability does not arise upon proof only of a violation of the act. It must appear that the appellant’s failure to obey the law was the proximate cause of appellee’s injury. Lehigh Valley R. Co. v. Beltz, 10 F.(2d) 74, 77 (C. C. A. 2). Appellant’s theory is that the explosion was not caused by any defective, unsafe, or improper condition of the boiler or any of its appurtenances, but that it happened because appellee allowed the water to become too low and neglected to start the injectors until it was too late. In support thereof there was testimony indicating that both injectors were effective at the beginning of the trip; that the engine would use only about 2,000 gallons of water per hour, and that, if one injector should become disabled the other was capable of delivering 6,000 gallons; that the purpose of two injectors was to forestall the contingency of one becoming disabled; that both injectors were inspected shortly after the accident; that the injectors, supply valves, and the feed lines were then wide open; that the left injector when attached to another engine operated perfectly; that the lower connection of the water glass, although somewhat limed, still had three-sixteenths of an inch unobstructed passage for the flow to and from the boiler; that the connection as originally made was three-eighths of an inch in diameter to allow for liming; and that the gauge cock pipes were absolutely clear. There is also evidence that the boiler was kept washed out in obedience to Federal Instruction Rules. ■■■ There is evidence indicating that the “telltale” gave warning only when the injectors were open but not functioning. The injectors having been found open, the silence of the “telltale” indicated that they were feeding. In addition, appellant introduced evidence to the effect that both an examination and a chemical test demonstrated that the water in the boiler did not and could not foam. There was also evidence tending to show that the engineer should always have at least 5% inches of water above the crown sheet, that is, the metal sheet forming the top of the fire box and the bottom of the boiler; that, if the water gets below the crown sheet, the engineer may discover it by looking at the water glass or turning the gauge cock; that the burned condition of the crown sheet revealed that before the explosion the water was 4% inches below the crown sheet, and that under such circumstances the engineer should have stopped and drawn the Are. There is also testimony, which is contradicted, to the effect that the engineer upon a hearing before a board of inquiry touching the accident, accepted the responsibility therefor.

We think that the evidence in support' of appellant’s position was more than a scintilla, that it was substantial, and, if a jury should believe it,.we cannot stay that it would not sustain a verdict in appellant’s favor. Fair-minded jurymen might at least have divergent opinions as to the cause of the explosion. See Small Co. v. Lamborn & Co., 267 U. S. 248, 254, 45 S. Ct. 300, 69 L. Ed. 597; Payne v. Haubert, 277 F. 646, 650 (C. C. A. 6). We do not weigh the evidence or test the credibility of witnesses, but jurymen,, to whom these functions belong, might reasonably infer that the explosion was not caused by any improper or unsafe condition of the “boiler, tender and all parts and appurtenances thereof,” but that it occurred because the engineer allowed the water to get too low and turned on the injectors instead of stopping the train and drawing the fire. We think the jury should have been permitted, under appropriate instructions, to consider the evidence in the aggregate and to determine the issues according to its weight, keeping in mind that the burden of proof was upon appellee.

Reversed.


text:
    NORTH AMERICAN COAL CORPORATION v. WHEELING & L. E. RY. CO.
    No. 5704.
    Circuit Court of Appeals, Sixth Circuit.
    April 15, 1931.
    H. H. Hoppe, of Cleveland, Ohio (Taplin & Eillius, of Cleveland, Ohio, on the brief), for appellant.
    A. E. Powell, of Cleveland, Ohio (Squire, Sanders & Dempsey, of Cleveland, Ohio, on the brief), for appellee.
    Before MOORMAN, HICKS, and HICKENLOOPER, Circuit Judges.
   HICKS, Circuit Judge.

Appellee sued to recover the sum of $2,-101 as demurrage on 157 cars of coal. The solution of the controversy depends upon the proper application of certain demurrage rules published and filed by appellee with the Interstate Commerce Commission and the Public Utilities Commission of Ohio.

The facts are undisputed. The coal was shipped for appellant’s account over appellee’s railway to Huron, Ohio. There it was loaded by appellee into the steamer Upson for trans-shipment for appellant upon Lake Erie to points beyond Ohio. In December, 1923, the Upson moored at the south end of the ore slip in the river at Huron and about 3,000 feet from the coal slip. As so located, other boats mooring afterward became an obstruction to her passage into the river. About the same time the steamer Worrall Clarkson, chartered by third parties to carry coal hauled and loaded by appellee, moored for loading under the loading machines in the coal slip. About the 1st of January, 1924, the entire port began to freeze and remained frozen through February. Both boats and all other shipping in the harbor were frozen in. The mean temperature for January was 23.4 degrees and for February was 26.1 degrees. The lowest temperature in each month was 10 degrees below. The ice was from 15 to 24 inches in thickness. Under these conditions, it was practically impossible to move either vessel. If the ice by any reasonable effort could have been broken up, it could not have been cleared from the harbor. The coal destined for the Upson arrived from February 6th until and including February 27th. The Clarkson’s cargo had also arrived. Early in March the weather moderated, and the Cleveland Stevedore Company, operating the docks for plaintiff, sawed out the Clarkson, loaded her, broke up the intervening ice, and moved her into the river. About the same time two tugs were employed by appellee to break the ice in the harbor. After the harbor and river were cleared, the tugs broke into the ore slip, released the Upson, and moved -her at her own expense to the point under the loading machines vacated by the Clarkson. It was not the duty of appellee to dock the Upson for loading. Just when either vessel began to load is unimportant because the parties have stipulated that, if appellant is hable, the amount sued for is correct. It is sufficient to state that no demurrage was charged ■after the loading of the Clarkson began.

Appellant’s contention is that even before the time its coal arrived the Upson had “reported” ; that, because the Clarkson then occupied the berth at the loading machines, the Upson was delayed in receiving its cargo, •and that therefore clause 2 of subsection (c), rule I of the Demurrage Rules, relieves it of liability. We cannot assent. We think that clause 2 of subsection (e) presupposes a situation wherein a vessel is at hand ready and waiting its turn .at the machines but is delayed because the loading docks or berths are occupied by other vessels taking on cargo. See Hite v. Central Railroad of N. J., 171 F. 370, 373 (C. C. A. 3). Such was not this case. Passing by whether the Upson, although moored 3,000 feet away, had “reported” in the sense that she could under ordinary conditions have promptly taken her place at the machines after the Clarkson had cleared, it is apparent that the inability of the Upson to dock and the consequent delay in receiving its cargo was not due to the presence of the Clarkson. The Upson was incapable of moving, she was icebound. This was her situation even before she was designated by appellant for loading. The presence of the Clarkson was an incident only. No delay caused by it has been charged for. Had the entire harbor been clear of shipping, the same result would have followed. The demurrage rules have provided no exception on account of ice-locked ports, and we can make none. See, Sinclair Ref. Co. v. Schaff, 275 F. 769, 774 (C. C. A. 8).

Appellant excepted to the exclusion of certain testimony offered, including its Exhibits A, B; .and C, upon the theory that this evidence tended to show that appellee had contracted to ship and load the coal into the Upson after it knew that the Upson was ice-locked. We find nothing relevant in the proposed testimony. There was an embargo upon .all goods arriving in port by rail for shipment across the lake. To regulate such shipments, there was maintained by the port railroads and shippers an organization styled “Ore and Coal Exchange.” The shipper applied to the exchange, and the exchange in turn to the port railway, and the shipper, after'agreeing'to pay the freight, was then allowed by the port railway to ship, and the exchange notified the shipper and all the carriers, ineluding the initial carrier. The purpose was to regulate and control lake shipments at their point of origin. The testimony offered indicates no intent to in any way modify the demurrage rules.

Affirmed.

       “WLE Freight Tariff No. 47-H, I. C. C. No. 1415, and Ohio No. 914.
      “Rule 1. — Computing Time, (a) Five (5) days, of twenty-four (24) hours each, free time will be allowed, to be computed on the basis of the detention to all cars released during each period.
      “(b) Time will be computed from the first 7:00 a. m. after the day on which written notice is sent or given to the consignee of the arrival at Cleveland, Huron, or Toledo, Ohio; such notice to contain point of shipment, car initials and numbers, contents, and if transferred in transit the initial and number of the original car.
      “(c) 1. All cars of a cargo or fuel supply shall be considered released on the day first car is loaded into the vessel, including all cars arriving subsequently to the arrival of the vessel of whose cargo or fuel supply they form a part, provided the freight charges thereon have been paid or satisfactory arrangement for payment has been made at the time vessel reports, except that when, for convenience of the railroad, to prevent unnecessary switching cars are not dumped in order of their arrival, the dates on which the substituted cars are dumped will be used in computing the detention of the cars for which they are substituted so that, as far as credit and debit days are concerned, the record will be the same as though the cars were dumped in the order of their arrival.
      “2. When the vessel is unable to dock because other vessels are at loading machines, and is thereby delayed in receiving its cargo or fuel supply* cars of that cargo or fuel supply shall be considered released as of the day the vessel reported and would have docked.**


author: BRYAN, Circuit Judge.

text:
    JOHN M. PARKER CO. v. COMMISSIONER OF INTERNAL REVENUE.
    No. 5916.
    Circuit Court of Appeals, Fifth Circuit.
    April 23, 1931.
    Rehearing Denied May 25, 1931.

      John D. Miller, of New Orleans, La., for petitioner.
    G. A. Youngquist, Asst. Atty. Gen., and J. P. Jackson, Sp. Asst, to Atty. Gen. (Se-wall Key and S. Dee Hanson, Sp. Assts. to Atty. Gen., C. M. Charest, Gen. Counsel, Bureau Internal Revenue, of Washington, D. C., and De Witt M. Evans, Sp. Atty., Bureau Internal Revenue, of Washington, D. C., on the brief), for respondent.
    Before BRYAN, SIBLEY, and HUTCHESON, Circuit Judges.
   BRYAN, Circuit Judge.

This is a petition by a taxpayer, the John M. Parker Company, to review a decision of the Board of Tax Appeals sustaining a deficiency assessment upon income and profits taxes for the fiscal year ending July 31, 1920. In arriving at that decision, the Board rejected contentions of petitioner (1) that the assessment was barred by the statute of limitations; (2) that it was entitled under sections 200 and 303 of the Revenue Act of 1918 (40 Stat. 1059, 1089). to classification as a partial personal service corporation; and (3) that the value of a share of stock which it owned in the New Orleans Cotton Exchange should have been included in invested capital. 11 B. T. A. 1236. The adverse ruling upon each of those contentions is assigned here as error.

The tax return was due on October 15, 1920, under section 227 (a) of the Revenue Act of 1918 (40 Stat. 1075); and presumably it was filed within that time. The statutory period of limitations for assessing and collecting the taxes was five years, section 250(d); and therefore would have expired October 15, 1925; but on July 22, 1925, petitioner signed and furnished to the Commissioner a statutory waiver which by its terms extended the statutory period until December 31, 1926. In August, 1925, petitioner signed a Treasury form, of agreement consenting to the assessment of a deficiency tax amounting to $584.65 as shown on a report of the revenue agent in charge at New Orleans, and paid the amount so shown. That agreement provided that it was made subject to the approval of the Commissioner. He never approved it, but, on the contrary, in December, 1925, made the deficiency assessment in dispute.

During the taxable ye?ar in question, petitioner had a capital'stock of $500,000, half of which was common stock, the other half was nonvoting preferred stock. Seven owners had 3,500 shares, and were all actively engaged in the management of its business. That business consisted of advancing funds to planters to enable them to grow cotton; making advances on cotton which had been shipped and accepting cotton as collateral; selling cotton “to arrive,” which means that, when petitioner sold cotton for interior shipment, it guaranteed to the buyer that it would measure up to samples, and to the seller that it would be paid for on delivery; and selling cotton on commission where no advances were made. Petitioner maintained a separate office for the handling of cotton “to arrive” pursuant to a rule of the New Orleans Cotton Exchange, and another office in which it conducted the rest of its business. It kept only one set of books. A revenue agent examined its books and divided its business into two classes; one, that in which capital was required, and the other, that which was attributed to the personal activities of the principal stockholders.

He computed the gross income at $346,-000, of which he attributed $135,000 to capital and $211,000 to personal services. The total expenses were found to be $184,000, of which he attributed $76,000 to capital expenses and $108,000 to personal service expenses. This left a net income of approximately $162,000. Of the gross income attributed by the revenue agent to personal services, $207,000 was represented as commissions, of which, it was admitted by petitioner’s president and found by the Board, $102,000 was attributable to capital and $105,000 to personal services. Without an adjustment of the expenses, only $1,811 of the net income appeared to be attributable to personal services. The Board recognized that more than that amount had been earned as commissions, but held that there was no evidence to show how much more was so earned. A former commissioner in a previous year classified petitioner as a partial personal service corporation.

The record before us shows that a copy of the rules of the New Orleans Cotton Exchange was received in evidence, apparently for the purpose of proving rule 6 as to the responsibility of petitioner under contracts covering cotton to arrive; and those rules were to be copied in the record or sent up in the original, but it does not show that the charter or constitution of the exchange was introduced. There was testimony for petitioner given by its president that it owned a share of stock in the New Orleans Cotton Exchange; and that this stock had no dividend or earning power, its only value being to give the privileges of membership in the exchange.

It is contended that the waiver of the statutory period was invalid because-it was not shown that it was signed by the Commissioner. But that contention is without merit. Florsheim Bros. Co. v. United States, 280 U. S. 453, 464, 50 S. Ct. 215, 74 L. Ed. 542; Stange v. United States, 282 U. S. 270, 276, 51 S. Ct. 145, 75 L. Ed. -. The form of agreement signed pursuant to the request of the revenue agent was made subject to the approval of the Commissioner, and, in the absence of such approval, was not binding upon him. Botany Mills v. United States, 278 U. S. 282, 49 S. Ct. 129, 73 L. Ed. 379. The bar of the statute was therefore effectively waived by the petitioner.

The Revenue Act of 1918 by section 200 defines a personal service corporation to be one whose income is to be ascribed primarily to the activities of the principal stockholders who are themselves regularly engaged in the active conduct of its affairs, and in which capital is not a material income-producing factor; and provides in section 303 that, if not less than 30 per cent, of a corporation’s total net income is derived from a separate trade or business, or a distinctly separate branch of its trade or business, which, standing alone, would bring it within the classification of a personal service corporation, then the tax upon such part of the net income so derived shall be separately computed, as though the stockholders were partners. The assessment made by the Commissioner was prima facie correct. In order to overcome it, petitioner had the burden of proving that the net income derived from personal service activities amounted to as much as 30 per cent, of the total income. This burden could not be met by showing only the gross income. The calculations of the revenue agent ceased to be of evidential value upon it being admitted that his calculation was wrong as to gross income derived from commissions, for then it became necessary to readjust the expenses, which was not done. The segregation of expenses was rendered more difficult by the circumstance that only one set of books was kept. Besides, it is not clear that petitioner’s large capital and financial standing was without influence upon its commission business. J. H. Lane & Co. v. United States, 62 Ct. Cl. 721. It is now settled that the Board’s findings of fact will not be set aside unless they are clearly contrary to the evidence. The fact that a former Commissioner classified petitioner as a partial personal service corporation during a previous year did not es-top the respondent Commissioner to determine in his own way the tax liability for the year in question. Sweets Company v. Commissioner (C. C. A.) 40 E.(2d) 436.

The value of a share of corporate stock is to be excluded from, or included in, invested capital in computing net income according as such share has or has not dividend earning power. Revenue Act of 1918, § 325 (40 Stat. 1091). To which of these two types of corporations the New Orleans Cotton Exchange belongs is not shown by the record, as its charter is not included therein or properly before us. The oral testimony that it belonged to one or the other type of corporation amounted to no more than the opinion or conclusion of the witness.

The petition for review is denied.


text:
    BLAIR, Commissioner of Internal Revenue, v. STEWART.

    No. 5745.
    Circuit Court of Appeals, Fifth Circuit.
    April 25, 1931.
    See, also, Esperson v. Commissioner of Internal Revenue, 49 F.(2d) 259.
    G. A. Youngquist, Asst. Atty. Gen., Se-wall Key and J. Lewis Monarch, Sp. Assts. to Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau Internal Revenue, and Prew Savoy, Sp. Atty., Bureau Internal Revenue, both of Washington, D. C. (M. M. Mahany, Sp. Atty. Bureau Internal Revenue, of Washington, D. C., on the brief), for petitioner.
    B. F. Louis, of Houston, Tex. (Murray G. Smyth, of Houston, Tex., on the brief), for respondent.
    Before BRYAN, SIBLEY, and HUTCHESON, Circuit Judges.

      Rehearing denied June 11, 1931.

   BRYAN, Circuit Judge.

Niels Esperson and Mellie Esperson were husband and wife. During their married life, while citizens of Texas, they accumulated considerable property which under the laws of that state became community property. They had no children, and each made a will leaving to the other the entire property of which he or she should die possessed. In 1919 they sold 999 shares of oil stock to the Invincible Oil Corporation for $5,000,000. Niels Esperson died in 1922. His widow, now Mrs. Stewart, qualified as executrix. She testified that half of the just mentioned stock was given to her by her husband, but that after the sale he borrowed from time to time for investment various sums, which in the aggregate amounted to more than $1,000,-000; that she thought some of the investments he was making were hazardous, but that he did not think so; and that he promised that he would repay to her) but without interest, any loans she made to him. The following questions and answers were asked and given on her direct examination:

“Q. Did he state anything about what part of the estate this repayment would be made from? A. Mr. Esperson. did not anticipate'death.
“Q. That is not the question, Mrs. Stewart, I want to know whether Mr. Esperson agreed with you and stated anything to you as to what source the repayment of the funds loaned to him by you would come from. A. That they would come from the investments that he would make.
“Q. Was there anything stated by him as to whether it would come from his part of the community estate or as to whether they would come from the entire community estate? A. Yes, sir.
“Q. What was the agreement with reference to that as to where it would come from? A. That he would repay me the moneys loaned to him from his — from his—
“Q. (Interrupting.) From his part of the estate or from the entire estate? A. Well, from his part of the estate. As I say, Mr. Esperson did not anticipate death.”

Upon this testimony of the executrix the Board found that “it was understood and agreed by and between Esperson and his wife that the money borrowed by him would be paid to her from his part of the community estate.” The evidence does not disclose whether the borrowed money, or any part of it, was lost, or whether it formed in whole or in part a portion of the community estate as it existed at the time of Esperson’s death.

The Board of Tax Appeals held that the aggregate amount of the loans should be deducted from Esperson’s half of the community estate. It also held that Esperson’s funeral expenses, including the cost of a monument over his grave, should be deducted from his part of the community estate. 11 B. T. A. 1283.

These rulings are brought here for review by the petitioner, the Commissioner of Internal .Revenue.

Esperson had no property which he had owned before marriage, or which he had acquired during marriage by gift, devise, or descent. He therefore had no separate property, but only a half interest in the community estate. Revised Civil Statutes of Texas, arts. 4613, 4619. If we accept the Board’s finding of fact that he agreed to repay out of his half of the community estate the loans which he received from his wife, the only reasonable interpretation, as it seems to us, that can be placed upon his agreement is that he promised to secure his wife against any loss that might result on account of the loans out of his share of the community estate. The object of the agreement, even according to respondent’s testimony, was to protect her separate property against loss. It was not contemplated by the agreement that her separate property should thereby be increased in value, even to the extent of interest on -the loans. It would be an unreasonable and unfair interpretation of the agreement to hold, in the event there was not any loss, that Esperson bound himself to charge his share of the community 'estate with the aggregate amount of the loans; for in such event the result would be that his share of that estate would, without receiving any benefit, contribute half of the borrowed money to his wife’s separate estate. If only part of the borrowed money had been lost, the contribution would be less, but it would be in the same proportion; and whatever amount he returned to the wife’s separate estate would be in fulfillment of a promise to make a gift to her, and would be unenforceable and void because of a total lack of consideration. The burden was on the respondent to prove a loss by Esperson of the whole or some part of the borrowed money, and this burden she failed to meet. For all that appears there was no loss, and the borrowed money was represented in the amount which was left in the community estate at the time of Esperson’s death. It follows that in our view the deduction which the Board made from Esperson’s share of the community estate was erroneous. But we are further of the opinion that there should be no deduction from Esperson’s estate, even though there had been satisfactory proof of the loss of some or all of the borrowed money.

Under the Texas decisions a husband and wife cannot convert community property into separate property, or vice versa, except by a contract which in law has the effect of an actual conveyance. Cox v. Miller, 54 Tex. 16; Green v. Ferguson, 62 Tex. 525; Kellett v. Trice, 95 Tex. 160, 66 S. W. 51; McKay’s Community Property § 936. See also Justice v. McRuffin (Tex. Civ. App.) 224 S. W. 204. The conveyance whether absolute or as security ought to be proved by clear and convincing evidence where as here the proof of it depends, not upon the interpretation of a written instrument, but upon the oral testimony of the grantee, as to what was agreed to by the grantor whose lips have been sealed by death. In the absence of such evidence, the policy of the law places in the community the property acquired during marriage otherwise than by gift, devise, or descent. The testimony of the respondent is too vague and uncertain to support the inference that Esperson conveyed to her, as security, any part of his share of the community estate. That testimony indicated at first that the loans were to be paid out of Esperson’s investments; and respondent’s final statement that payment was to be made out of her husband’s part of the community estate was made in response to a leading question which suggested the answer that was given. And so it was pot satisfactorily shown whether the loans were to be paid back out of investments or out of Esperson’s part of the community property. Respondent would have been as well off without the alleged agreement, since she would have received all Esperson’s property at his death both under his will, and, there being no children, under the laws of descent. R. C. S. art. 2578.' The fact that such an agreement was unnecessary renders it highly improbable that it was made. Besides no definite or identifiable property then in existence was pledged, nor was property to be afterwards acquired definitely pledged, assuming that it could be; but the pledge of any property existing or to he acquired was made dependent upon the contingency that a loss might be sustained by Esperson in the making of future investments. The agreement which it is claimed Esperson made did not amount to a conveyance of any property, and was nothing more than a promise to make a conveyance if that should be found necessary in order to protect his wife’s property against a possible future loss. The conclusion is that the alleged agreement did not amount to an .actual conveyance.

We are of opinion that the Board was correct in holding that Esperson’s funeral expenses were deductible from his half of the community property. Funeral expenses are deductible from an estate when they are “allowed by the laws of the jurisdiction.” 26 USCA § 1095a (1). Such expenses are by the law of Texas recognized as claims against an estate and are given preference over all other claims. Article 3531, Revised Civil Statutes. The executor of an estate has no authority to administer any estate except that of the decedent, and therefore cannot administer on the behalf of the community property that belongs to the surviving spouse. An estate liable for funeral expenses at all is, of course, liable for the whole of such expenses. Gilroy v. Richards, 26 Tex. Civ. App. 355, 63 S. W. 664, and Goldberg v. Zellner (Tex. Com. App.) 235 S. W. 870, hpld that community property rather than separate property is primarily bound for funeral expenses. In the first cited ease it is not clear whether the court meant to hold that funeral expenses were chargeable against the entire community estate or only against the decedent’s interest therein. But we think any doubt on that question was set at rest by the decision of the Supreme Court of Texas in Richardson v. McCloskey, 276 S. W. 680, where it was held that funeral expenses were chargeable against “the estate.” The only estate there being administered was the interest of the decedent in community property; for in that case, as in this, the decedent had no separate property.

For the reason that in our opinion the Board erred in deducting from Esperson’s share of the community estate the amounts claimed as loans made to him by respondent, the petition for review is granted, and the cause remanded for further proceedings not inconsistent with this opinion.


text:
    ESPERSON v. COMMISSIONER OF INTERNAL REVENUE (three cases).

    Nos. 5746-5748.
    Circuit Court of Appeals, Fifth Circuit.
    April 25, 1931.

      See, also, Blair v. Stewart, 49 F.(2d) 257.
    B. F. Louis, of Houston, Tex. (Murray G. Smyth, of Houston, Tex., on the brief), for petitioner.
    G. A. Youngquist, Asst. Atty. Gen., Se-wall Key and A. H. Conner, Sp. Assts. to Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau Internal Revenue, and Prew Savoy, Sp. Atty., Bureau Internal Revenue, both of Washington, D. C. (M. M. Mahany, Sp. Atty., Bureau Internal Revenue, of Washington, D. C., on the brief), for respondent.
    Before BRYAN, SIBLEY, and HUTCHESON, Circuit Judges.

      Rehearing deniel June 11, 193L

   BRYAN, Circuit Judge.

These petitions for review present the question whether Niels Esperson in October, 1921, made bona fide sales of 8,100 shares of stock which in October, 1921, formed part of the community property of himself and his wife.

Esperson died in 1922, and his widow, now Mrs. Stewart, was appointed executrix of his estate. The Board of Tax Appeals held that the stock had not been actually sold, and consistently with that conclusion refused to allow deductions for losses sustained on account of purported sales thereof from the income for 1921 of petitioner individually and as executrix of Esperson’s estate, and included half of the value of that stock in arriving at the taxes upon Esperson’s estate. It also held that the collection of the estate tax was not barred by the statute of limitations. 11 B. T. A. 1283; 13 B. T. A. 596; 13 B. T. A. 616.

In October, 1921, Esperson, for the admitted purpose of taking a loss, simultaneously sold and bought through a broker on the New York Stock Exchange 8,100 shares of stock of the Invincible Oil Corporation. The purchases were made in the names of Esperson’s private secretary and brother-in-law, but were financed by Esperson, who immediately took the new stock into his possession. The evidence is set out at length in the above-cited opinions of the Board, and abundantly sustains its conclusion that throughout it was Esperson’s intention to keep the same number of shares of stock after the sales were completed that he had before any sales were made. Each share of the stock was of equal value; one was as good as another. It may be assumed that an owner of stock would sustain a deductible loss by selling it and later buying back an equal amount, but no real sale is made where by one and the same transaction the same number of shares are both bought and.sold at the same time and at the same price.

After Esperson’s death, George B. Newton, who represented the executrix of the estate, by letter requested the Commissioner to make immediate audit of the amounts due for income taxes in order that the estate tax could be definitely determined. The Commissioner replied in a letter which stated that immediate consideration of the request would be given “under provisions of section 250(d) of the Revenue Act of 1921 (42 Stat. 265) , and the determination of the tax liability will be made as soon as possible.” Section 250(d) referred to provides: “That in the ease of income received during the lifetime of a decedent, all taxes due thereon shall be determined and assessed by the Commissioner within one year after written request therefor by the executor, administrator, or other fiduciary representing the estate of such decedent.” There was nothing in Newton’s letter to indicate either that he was a “fiduciary representing the estate,” or that his request for information was intended to be such a written request as would start the running of the one-year statute of limitations. Nor was the Commissioner put on notice that the request was being preferred by one who had authority to make it on behalf of the estate. It was therefore not a sufficient compliance with the statute. Lucas v. Pilliod Lumber Co., 281 U. S. 245, 50 S. Ct. 297, 74 L. Ed. 829, 67 A. L. R. 1350. The government is not estopped by the reply letter of the Commissioner to insist upon the written request required by the statute. Lee Wilson & Co. v. United States, 245 U. S. 24, 38 S. Ct. 21, 62 L. Ed. 128.

The petitions for review are and each of them is denied.


author: PER CURIAM.

text:
    WIREBOUNDS PATENTS CO. et al v. SARANAC AUTOMATIC MACH. CO.
    No. 5076.
    Circuit. Court of Appeals, Sixth Circuit.
    April 17, 1931.
    Laurence A. Janney, of Chicago, 111. (Emery, Booth, Janney & Yarney, of Boston, Mass., and A. Trevor Jones, of Chicago, 111., on the brief), for appellants.
    Howard M. Cox, of Chicago, 111., and A. C. Paul, of Minneapolis, Minn. (Cheever & Cox, of Chicago, 111., on the brief), for appellee.
    Before DENISON, MOORMAN, and HICKENLOOPER, Circuit Judges.
   PER CURIAM.

In our opinion, 37 F.(2d) 830, filed in this ease we held that claim 25 of machine patent No. 1,128,145 was valid and infringed and that it was unnecessary to determine the validity or infringement of the method patent No. 1,128,252 or the workholder patent No. 1,128,144. We therefore directed that the decree of the District Court, 24 F. (2d) 872, be reversed, and the ease remanded, with instructions for the usual decree for injunction and accounting upon claim 25 of patent No. 1,128,145, and to dismiss the bill without prejudice as to. the method and: workholder patents. We also provided that, if counsel thought there was necessity for a definite decision as to the method or the work-holder patent, we would entertain their request to give that subject further consideration. No such request was made. Before our mandate issued accordingly to the District Court, an application was made to the Supreme Court for certiorari; our mandate was accordingly stayed, and has never yet been issued. Upon the hearing of the certiorari, the Supreme Court filed an opinion, 51 S. Ct. 232, 75 L. Ed.-, on February 24,1931, distinctly finding that this claim 25 was invalid for laek of invention. The opinion also holds that the workholder patent was invalid. The validity of the method patent is discussed, but, in view of the entire opinion and the mandate of the Supreme Court, we conclude that it was not intended to decide the validity of the method patent. We have been furnished with a copy of the mandate of the Supreme Court which runs, not to this court, but to the District Court, and which recites that the decree of this court is “reversed with costs so far as it relates to the validity of patent No. 1,128,145,” and directs that the cause be remanded to the District Court “for further proceedings as-to said patent in conformity with the opinion of this court.”

The plaintiff now asks that this court proceed to consider further the validity and effect of the method patent and, in effect, to direct the District Court to enter a decree for plaintiff upon that patent. We think it at least doubtful whether we are at liberty to entertain this application, but in any event we think it unwise to do so. Our order was that the District Court should dismiss the bill as to this patent without prejudice. Plaintiff’s counsel had opportunity to apply for a more definite decision upon this subject,' but failed to do so. To entertain the application now, after plaintiff’s counsel has failed in the Supreme Court in maintaining the position upon which he was content to-rely, involves difficulties which we think we need not assume.

The Supreme Court mandate was limited to the machine patent; the opinion decided the invalidity of the workholder patent just as completely as of the machine patent. The-reason for not including the workholder patent in the mandate was probably that this court had not decided the issue as to the workholder patent, and therefore the Supreme Court .would not do so. The failure to include in the mandate any direction as to the method patent is more distinctly significant, because of the more definite omission of the Supreme Court to pass upon the validity of that patent.

Under these circumstances which are, so far as we know, without express precedent, we conclude that we should now issue our mandate to the District Court in accordance with so much of our opinion as has not been overruled by the Supreme Court.

Accordingly the mandate will be that, as to the machine patent, we give no directions because that subject is covered by the Supreme Court mandate; that, as to the work-holder patent, the bill should be dismissed because that subject is definitely covered by the Supreme Court opinion; and that, as to the method patent, the bill should be. dismissed without prejudice.

The bond given and filed in this court on April 2, 1939, in the penalty of $25,000 as a condition of the stay of our mandate pending certiorari having served its purpose and no liability having accrued, it is ordered that such bond be and it is canceled and discharged.


text:
    UNITED STATES ex rel. KREUTER v. BALDWIN, County Sheriff.
    No. 4428.
    Circuit Court of Appeals, Seventh Circuit.
    April 23, 1931.
    Roy F. Hall, of Rockford, 111., for appellant.
    Thos. E. Gill, of Rockford, 111., for appellee.
    Before EVANS and SPARKS, Circuit Judges, and WILKERSON, District Judge.
   PER CURIAM.

The District Court on final hearing discharged the writ of habeas corpus, which had previously issued and which had released appellant from the custody of appellee, the sheriff of Winnebago county, III. Appellant .had been imprisoned for nonpayment of a judgment rendered against him in the Winnebago circuit court in an action brought by one Hedrick to recover damages arising out of the negligent operation of an automobile. Appellant then obtained an order authorizing an appeal, and his record, on appeal, was duly filed in this court. No request was made of the District Judge for a certificate stating there waS probable cause for the appeal. Appellee moved this court to dismiss the appeal, relying upon 28 USCA § 466, which reads as follows: “From a final' decision by a court of the United States ,in a proceeding in habeas corpus where the detention complained of is by virtue of process issued out of a State court no appeal to the ■ circuit court of appeals shall be allowed unless the United States court by which the final decision was rendered or a judge of the circuit court of appeals shall be of opinion that there exists probable cause for an appeal, in which event, on allowing the same, the said court or judge shall certify that there is probable cause for such allowance.”

Appellant thereupon secured permission of this court to return the record to the District Court that he might obtain the certificate of probable cause from the District Judge. The request was granted. The District Court, upon request, gave the certificate. The action of this court was not taken until after the term of the District Court at which the judgment was entered had expired, and after the expiration of the time fixed by statute for taking an appeal.

We are thoroughly satisfied that this court had no authority to extend the time within which appellant might appeal from the judgment rendered in the District Court. It is equally clear that appellant could not appeal without an accompanying certificate of probable cause signed by the District Judge. Bilik v. Strassheim, 212 U. S. 551, 29 S. Ct. 684, 53 L. Ed. 649; Ex parte Patrick, 212 U. S. 555, 29 S. Ct. 686, 53 L. Ed. 650; Genna v. Frazier (C. C. A.) 24 F. (2d) 706. There having been no certificate of probable cause entered by the District Court during the time within which appellant might appeal, and this court being without authority to extend the time for taking an appeal, it follows that this court has no jurisdiction of this appeal. The appeal must be, and it is hereby, dismissed.


author: PEE CUEIAM.

text:
    Petition of ATLANTIC GULF & WEST INDIES S. S. LINES et al. Appeal of FEDERAL SHIPBUILDING & DRY DOCK CO.
    No. 323.
    Circuit Court of Appeals, Second Circuit.
    April 20, 1931.
    Kirlin, Campbell, Hickox, Keating & MeGrann, of New York City (Cletus Keating and Edwin S. Murphy, both of New York City, of counsel), for appellant.
    Burlingham, Veeder, Fearey, Clark & Hupper, of New York City (Chauncey I. Clark and P. Fearson Shortridge, both of New York City, of counsel), for appellees.
    Before MANTON, L. HAND, and CHASE, Circuit Judges.
   PEE CUEIAM.

In these limitation proceedings, the Federal Shipbuilding & Dry Dock Company filed a claim on its own behalf, as owner of the tug Federal No. 2, and on behalf of the charterer and erew of the tug for salvage services rendered while the steamship Agwisun was on fire on December 11, 1926, at the Eobins Dry Dock, Brooklyn, N. Y. The Agwisun was a steel tank steamer, length 429.3, breadth 59.2, depth 33.2; her tonnage was 10,600 dead weight, 6,784 gross, and 4207 net. She was classed by Lloyds X100 A-l before the explosion. The tug Federal No. 2, measured length 95, beam 24%; depth 12; her tonnage 178 gross, and 29 net. She had a erew of five men on board at the time of the salvage services. The Agwisun had been taken out of dry dock and was on the southeast side of the pier directly adjacent to the dry-dock. She was moored bow in with her port-side to the pier. Her stern projected well out into the stream. The master of the tug observed and heard an explosion and fire on the vessel, and immediately went full speed toward her. The erew set up the pumps for operation; the No. 2 arrived alongside before any other assistance, and rescued the erew and repairmen from the stern of the vessel and labored to prevent further explosions by extinguishing the flameé in the blazing drip barrel, playing water on the flames wherever seen, and on the heated plates and the structure of the vessel. The importance of this as a preventive was recognized by witnesses. There was danger of further explosions, for there was gas aboard the vessel even after the explosion which had taken pljce. In performing the services, the tug and crew incurred risks which should be recognized in ascertaining the amount to be awarded for salvage.

The vessel was valued at $341,395; the tug at about $70,000 at the time. The services were meritorious, and the amount awarded of $1,000 is insufficient. An allowance of $3,000 we think fair under all the circumstances. The salvage awarded should be in a sum sufficient to reward the salvors and to encourage them and other seamen to render prompt service under similar peril in the future. The Blackwall, 10 Wall. (77 U. S.) 1, 19 L. Ed. 870; The Niels Nielsen, 277 F. 164 (C. C. A. 2); Huasteca Petroleum Co. v. United States, 27 F.(2d) 734 (C. C. A. 2).

The decree will be modified.-


author: PEE CURIAM.

text:
    In re SCHULTE UNITED, Inc.
    Circuit Court of Appeals, Second Circuit.
    April 22, 1931.
    Davies, Auerbach & Cornell, of New York City, for trustee.
    Allen Cleveland Bragaw, of New York City, for Charfhays Corporation.
    Before MANTON, AUGUSTUS N. HAND, and CHASE, Circuit Judges.
   PEE CURIAM.

The bankrupt was adjudicated such on the 21st of January, 1931, and on the 5th of February, 1931, a trustee was elected. The bankrupt owned the property, located in the county of Queens, city and state of New York, upon which the Charfhays Corporation held a mortgage of $204,000. On March 6, 1931, this mortgagee petitioned the District Court for the Southern District of New York for leave to institute foreclosure proceedings against the property in the State Supreme Court, Queens county, N. Y. It asked to name the trustee in bankruptcy as a party defendant. The District Court gave its consent to institute such foreclosure pro-ceedings, and entered an order accordingly. Leave to appeal from this order is the subject of this motion.

It appears from the motion papers that there is little equity above the mortgage. The trustee has declined to take care of the property and expend sums of money , necessary for its care and maintenance, although it is.claimed that, if the foreclosure be permitted, the equity of the bankrupt would be severely prejudiced.

The application for leave to appeal is based upon the claim that the District Court has no power to oust itself from jurisdiction over property of an estate in bankruptcy and after jurisdiction is once obtained by the court it is exclusive. Counsel argues that, in view of the recent decision in Isaacs, as Trustee, v. Hobbs Tie & Timber Co., 51 S. Ct. 270, 272, 75 L. Ed.-, the court cannot permit a foreclosure in the State Supreme Court. Justice Roberts, writing in that ease, expressly held that, after the bankruptcy court has acquired jurisdiction of the estate, other courts are without jurisdiction “save by consent of the bankruptcy court.” In the Isaacs Case, the foreclosure was instituted without application to the bankruptcy court in the district having jurisdiction of the bankruptcy proceedings. At bar the mortgagee proceeded to obtain consent of the bankruptcy court, in the Southern district, having jurisdiction of the above-named bankrupt, and upon satisfying the court it obtained consent to proceed with the foreclosure in the State Supreme Court. This we think is within the rule, announced in Isaacs, etc., v. Hobbs, etc., supra. See, also, Stratton et al. v. Andy New, Jr., trustee, 51 S. Ct. 465, 75 L. Ed. -, Supreme Court, April 20, 1931.

Since the application for leave to appeal raises solely the question of the power of the court to give its consent to the foreclosure in the State Supreme Court, we think that leave to appeal should be denied.

Motion denied.


author: SIBLEY, Circuit Judge.

text:
    BARNETTE et al. v. COMMISSIONER OF INTERNAL REVENUE.
    No. 5945.
    Circuit Court of Appeals, Fifth Circuit.
    April 21, 1931.
    Prank J. Looney, of Shreveport, La. (Prank J. Looney, of Shreveport, La., and Holland & Strong, of Washington, D. C., on the brief), for petitioners.
    G. A. Youngquist, Asst. Atty. Gen., Se-wall Key, Sp. Asst, to Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and E. Riley Campbell, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., and J. P. Jackson, Sp. Asst, to Atty. Gen. (G. A. Youngquist, Asst. Atty. Gen., Sewall Key and J. P. Jackson, Sp. Assts. to Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Nathan Gammon, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for respondent.
    Before BRYAN, SIBLEY, and HUTCHESON, Circuit Judges.
   SIBLEY, Circuit Judge.

This petition for review concerns the income taxes for 1921 of J. M. Poster and W. A. Wilkinson, and turns on oil royalty transactions had in partnership with P. J. Looney. The three claimed certain royalty interests in Louisiana oil lands under one title, and West, Goldstein & Walker claimed royalty interests in the same lands arising under an adverse title. The opposing claimants of title were engaged in litigation. The above-named claimants of inconsistent royalty rights compromised their dispute by a writing signed by them all in the form of a recorded deed, the effect of which was to allow West, Goldstein & Walker to have the royalties until $200,000 was realized, after which Poster, Looney & Wilkinson were to have them. The collector of internal revenue construed the instrument as a purchase by Poster, Looney & Wilkinson for $200,000.00 of an outstanding title, thereby making a capital investment of that sum, while they remained at all times the owners of the royalty right, so that the oil which went to pay the $200,000 was considered income chargeable to them as owners, subject to depletion allowance. This decision was contested separately by all three, Looney paying his tax and suing for recovery in the District Court [26 P.(2d) 481], Poster and Wilkinson seeking redetermination by the Board of Tax Appeals. Looney’s Case came by appeal to this court. United States v. Looney, 29 F. (2d) 884. It was there held that the true effect of the compromise was to divide the subject of dispute by giving the royalty-right to West, Goldstein & Walker until they-realized $200,000, after which it was to vest, in Poster, Looney & Wilkinson, so that Poster, Looney & Wilkinson did not own the royalty right during the year 1921, for West,. Goldstein & Walker were still getting the-oil, and the income from the royalty right for that year was that of West, Goldstein &; Walker and not of Poster, Looney & Wilkinson.

No question regarding depletion was decided. The Board of Tax Appeals followed the decision of this court in redetermining the taxes of Poster and Wilkinson, ordering the elimination as income of the oil which West, Goldstein & Walker had received, but which the Commissioner had added to the returns. 16 B. T. A. 1390. The Board, however, found that the Commissioner, in adding the oil to the income, had also increased the deduction allowed for depletion at a stated amount per gallon, and it ordered a correction of this deduction also, so that the net reduction of taxable ineome was only the value of the oil less the depletion allowed in respect of it. This action was-clearly right. It having been decided at the instance of the taxpayers that they were not the owners of the royalty right at the time the oil in question was taken, so that it was not their income, it follows that they are not entitled to allowance for the resulting depletion. Depletion is allowed to him who at the time owns the royalty right. Pugh et al. v. United States (C. C. A.) 49 F.(2d) 76, this day decided. While the taxpayers had sought only a correction in the income charged to them, it was the duty of the Board to make all resulting adjustments and to restate the true tax. There was no error in correcting the depletion allowance also. Blair v. Oesterlein Co., 275 U. S. 220, 227, 48 S. Ct. 87, 72 L. Ed. 249.

Petition denied.