text:
    BANK OF COMMERCE & TRUSTS v. HATCHER.
    No. 3132.
    Circuit Court of Appeals, Fourth Circuit.
    June 17, 1931.
    O. R. Cunningham and Robert H. Talley, both of Richmond, Va., for appellant.
    R. Carter Scott, Jr., of Richmond, Va., for appellee.
    Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.
   PARKER, Circuit Judge.

This is an appeal from a decree in a suit instituted in the court below under section 60b of the Bankruptcy Act, 11 USCA § 96 (b). The suit was brought by the trustee in bankruptcy of the Allport Construction Company against the Bank of Commerce & Trusts of Richmond, Va., Its purpose was to recover the amount of a deposit made by the bankrupt, which was alleged to constitute an unlawful preference within the meaning of the Bankruptcy Act. There was a decree in favor of the trustee, and the bank has appealed.

The construction company was adjudged bankrupt on December 17, 1927. For some time prior thereto it had been insolvent and the fact of its insolvency had been known to the bank. The deposit in question was made under the following circumstances: The construction company had undertaken the completion of a road building contract as subcontractor under a contract awarded to C. S.* Luck & Sons. One of the conditions of the contract between bankrupt and Luck & Sons was that the moneys received by bankrupt thereunder were to be deposited in the bank and were to be paid out only on checks approved by the bank’s vice president. The bankrupt was indebted to the bank in a considerable amount and had promised to make a substantial payment on this indebtedness. The payment was not made according to promise;. and on December 2d bankrupt bad no balance whatever to its credit in the bank. On that date bankrupt’s bookkeeper, for the purpose of paying certain of its creditors, handed the vice president of the bank cheeks aggregating $8,797.60 drawn in their favor, with request that he approve them, and at the same time handed him a certified cheek for like amount drawn in favor of bankrupt by C. S. Luck & Sons and indorsed for deposit. The vice president refused to approve the checks drawn in favor of the creditors, and returned them, but credited bankrupt’s account with the cheek of Luck & Sons and-applied the balance thus created on bankrupt’s indebtedness to the bank. This credit was reduced by the later presentation of checks whieh had been previously drawn by the bankrupt and approved by the bank’s vice president, so that the amount applied on the indebtedness to the bank was reduced to $7,661.78. Deeree was entered in favor of the trustee and against the bank for this amount.

The question in the case, as stated by the judge below, is whether there was a deposit in regular course, whereby the relationship of debtor and creditor was created between the bank and bankrupt, or whether there was an attempt at deposit whieh the bank by its action converted into a, payment on pre-existing indebtedness. In the former case the right of set-off Would exist under section 68a of the Bankruptcy Act, 11 USCA § 108(a); in the latter there would be a transfer void as preferential under section 60b, 11 USCA § 96(b), The judge held, and we think correctly, that the transaction constituted a preferential transfer.

We had occasion to examine the questions here involved in the recent ease of Citizens’ Nat. Bank of Gastonia v. Lineberger (C. C. A. 4th) 45 F.(2d) 522, 527. After a thorough examination of the authorities, we laid down, what we conceive to be the true rule relating to deposits in bank by insolvents as follows : “An ordinary deposit in a bank, * * * is not a ‘transfer’ within the meaning of this section. Section 1(25) of the Bankruptcy Act, 11 USCA § 1(25), defines the word transfer as used in the act as follows: ‘(25) “transfer” shall include the sale and every other and different mode of disposing of or parting with property, or the possession of property, absolutely or conditionally, as a payment, pledge, mortgage, gift, or security.’ A deposit in a bank is not a sale or parting with property, ór its possession, as a . payment, pledge, mortgage, gift, or security. It does not deplete the estate of the depositor, but results in substituting for currency, bank notes, cheeks, drafts, and other bankable items a corresponding credit with the bank, which may be cheeked against, and whieh provides the depositor with the medium of exchange in universal use in the transaction of business. A deposit of funds differs from a payment in the essential particular that it is withdrawable at the will of the depositor. Of course a deposit may be made the cloak for some other transaction, such as payment or the giving of security; and in such case equity, whieh looks through form to substance, will treat the transaction according to its real nature. But if the deposit is in reality a deposit, made in good faith as such, subject to the withdrawal of the depositor, and not made as a cloak for a payment or other forbidden transaction, it is not a transfer within the meaning of the Bankruptcy Act and cannot be attacked as preferential, even though it may have been made when the depositor was insolvent, and even though the bank, by applying it as a set-off, may have obtained a greater percentage on a debt which it holds against its insolvent depositor than his other creditors can obtain.”

But after stating that deposits made in regular course of business might be set off even though made when the bankrupt was known to be insolvent, we distinguished the ease of deposits made otherwise than in regular course of business, as where made for the purpose of giving the bank a preference, or where made as payments and not for the purpose of creating a balance subject to cheek. In this connection we said: “Of course, where deposits are not made in the regular course of business, as where they are made fraudulently and collusively for the purpose of giving the bank a preference, or where they are not in reality deposits at all, but are payments, the right of set-off does not exist, and they may be recovered as preferential. Thus in Union Trust Co. v. Peck (C. C. A. 4th) 16 F.(2d) 986, reported below as In re Almond-Jones Co. [D. C.] 13 F.(2d) 152, the deposits were not made in the ordinary course of business, but were made to build up the account so that it might be applied in payment of the bank’s claim. See 13 F.(2d) at pages 156 and 157. In Blue v. Herkimer National Bank (C. C. A. 2d) 30 F.(2d) 256, it appeared that moneys were collected and deposited for the purpose .of being applied on the maturing notes of the bankrupt. In Kolkman v. Manufacturers’ Trust Co. (C. C. A. 2d) 27 F.(2d) 659, it appeared that the deposits were made by the bankrupt in order that the bank, by exercising its right of set-off, might obtain a preferential payment. In Elliotte v. American Savings Bank (C. C. A. 6th) 18 F.(2d) 469; First Nat. Bank of El Centro v. Harper (C. C. A. 9th) 254 F. 641; and In re Kellar (D. C.) 110 F. 348, deposits Were applied in payment of overdrafts, and it was held that they were not deposits in ordinary course subject to cheek, but were in reality payments on pre-existing debts. In Mechanics’ & Metals’ Nat. Bank v. Ernst, 231 U. S. 60, 34 S. Ct. 22, 58 L. Ed. 121, deposit was made after the officers of the bank had forbidden payment of depositor’s checks; and it was held that for this reason the deposit was in reality a payment, not a deposit in ordinary course. In Rupp v. Commerce Guardian Trust & Savings Bank (C. C. A. 6th) 32 F.(2d) 234, the account of the depositor had been closed and the deposits in question were accepted for application on the indebtedness of depositor and were held to be mere payments. In Bank of California v. Brainard (C. C. A. 9th) 3 F.(2d) 3, bankrupt deposited cheeks for collection, was given immediate credit for same, and drew a check against the deposit in payment of a note due the bank; and it was held that this was evidence for the jury that the transaction was in reality a preferential payment and not a deposit.”

It is perfectly clear that the transaction here involved did not constitute a deposit in regular course of business. The distinguishing characteristic of such a deposit is that it creates a balance in favor of the depositor which is subject to withdrawal at his will. Here the deposit lacked absolutely this characteristic. It was intended by the bankrupt to provide for the payment of certain checks which were presented for approval, not to create a balance in the bank subject to its control. It was received by the bank, not for the purpose of creating such balance, but for the purpose of being applied on the pre-ex-isting indebtedness of the bankrupt. The balance created was at no time subject to the withdrawal of the bankrupt and was promptly applied by the bank upon the bankrupt’s indebtedness. The net result of what took place was the transfer of the certified check of Luck & Sons to the bank as payment upon pre-existing indebtedness, not the ereation of a deposit balance subject to withdrawal by the bankrupt in ordinary course.

The case of Mechanics’ & Metals’ Bank v. Ernst, 231 U. S. 60, 34 S. Ct. 22, 23, 58 L. Ed. 121, is directly in point. In that case a deposit was made after the cashier of the bank had ordered that no more checks of bankrupt should be paid. The court said: “The so-called deposit of $54,048.08 was paid in after the cashier had forbidden the payment of cheeks against the deposit account^ and therefore rightly was held to be a payment and a preference. A set-off properly was denied.” Here the deposit was made at the time that cheeks were presented for approval. The bank’s vice president refused to approve them and he did this solely because he desired that the proceeds of the check deposited be applied on the indebtedness due the bank. There can be no distinction between such case and one where deposits are received after instructions have been given that cheeks against the deposit account are not to be paid. The principle upon which the right of set-off is denied in either case is that the bank, by refusing to permit cheeks to be paid from the account, has evinced an unequivocal intention that the deposit balance shall not be subject to withdrawal by the depositor, but shall be applied on the indebtedness due the bank, and consequently deposits thereafter made have the effect of payments and not of creating an ordinary deposit balance.

There was no error, and the decree appealed from will be affirmed.

Affirmed.


source: Caselaw Access Project

author: PHILLIPS, Circuit Judge.

license: Public Domain

text:
    PUEBLO DE TAOS v. GUSDORF et al.
    No. 379.
    Circuit Court of Appeals, Tenth Circuit.
    June 2, 1931.

      R. H. Hanna and Fred E. Wilson, both of Albuquerque, N. M., for appellant.
    Wm. J. Barker and Charles Fahy, both of Santa Fé, N. M., and Floyd W. Beutler, of Taos, N. M., for appellees.
    Before LEWIS, PHILLIPS, and Mc-DERMOTT, Circuit Judges.
   PHILLIPS, Circuit Judge.

This is a suit to quiet title brought by plaintiff under the provisions of section 4 of the Pueblo Lands Act (43 Stat. 636 [25 USCA § 331 note]).

Defendants claimed title to various tracts of land, designated by numbers, under the limitation provisions of said section 4.

From a decree in favor of defendants, plaintiff has appealed.

The sole question presented is whether defendants showed compliance with the taxpaying requirements of said section 4.

Sub-divisions (a) and (b) of said section 4 required the payment of taxes “lawfully assessed and levied” during certain periods “to the extent required by the statutes of limitation or adverse possession of the Territory or of the State of New Mexico.” The New Mexico statute referred to (section 83 — 122, N. M. Code 1929) required that the claimant shall have “continuously paid all the taxes, state, county and municipal * * * levied upon the land or interest claimed.”

A number of the questions here presented were determined by this court, after full and careful consideration, in United States v. Wooten (C. C. A. 10) 40 F.(2d) 882, and we reaffirm the propositions therein laid down.

Under the provisions of chapter 22, N. M. Laws 1899, claim No. 8 was sold to Taos County for $9.74 due as delinquent taxes assessed for 1904, and certificate of sale No. 995 was issued therefor. On November 9, 1906, the former owner redeemed claim No. 8 from such sale and received redemption certificate No. 83 as evidence thereof.

The pertinent provisions of chapter 22, N. M. Laws 1899, and acts amendatory thereto are set out in note 1.

The question is whether a payment made to redeem land sold to the county for delinquent taxes, under tlie statutes set out m note 1, is a payment of taxes within the meaning of section 4 of the Pueblo Lands Act.

Had the sale been made to a third person rather than to the county, the payment, under the provisions of section 23, supra, would have been made to the county treasurer for the benefit of such third person, and neither the territory nor any of its political sub-divisions would have received any part thereof. Under such circumstances, it clearly would not have been a payment of taxes.

Section 23, supra, expressly declares that the county purchasing at tax sales shall take the same rights as an ordinary purchaser, and that the certificate of sale, when recorded, shall vest in the purchaser, his heirs or assigns a complete legal title to the land, subject to redemption within three years from the date of sale.

Section 22, supra, provides that, upon a sale to the county, “the collector shall make an entry ‘sold to the county’ on the tax roll opposite the tax and shall be credited with the amount thereon in his settlement.”

The sale of the land to the county discharged the claim for taxes. In lieu of such claim, the county took the legal title to claim No. 8 subject to the former owner’s right of redemption. It had the right to sell such title evidenced by the certificate of sale at either a private sale for its face value, or at public sale to the highest bidder. The payment in question was made not to discharge a claim for taxes but to redeem claim No. 8 from the sale and to reinvest in the former owner the legal title thereto. It was not a payment of taxes.

Claim No. 19 was assessed for taxes for 1914. On July 16, 1915, such claim for delinquent taxes was sold to Tobias Graham, and certificate of sale No. 531 was issued to him. On July 17, 1915, it was redeemed by the former owner and redemption certificate No. 242 was issued as evidence thereof. This sale was made under the provisions of chapter 84, N. M. Laws 1913 (sections 5495 to 5506, ine., N. M. Code 1915). The pertinent provisions thereof are set out in note 2.

Upon the sale of claim No. 19 to Graham, the state and its political sub-divisions received payment of their taxes and the tax liability resulting from such assessment was discharged. The payment made by the former owner to redeem from such sale was in no sense a payment of taxes to the county treasurer, but was a payment to the county treasurer for the use and benefit of Graham.

It follows that the court erred in sustaining the defendants’ titles to claims Nos. 8 and 19.

.Section 25, c. 22, N. M. Laws 1899, required that real estate should be described on the assessment roll “by such description as will serve to identify the same.” Under the decisions of the Supreme Court of New Mexico, an assessment made under that statute, in order to be valid, must describe the land with sufficient certainty to identify it without the aid of extrinsic evidence. Ferguson v. Gusdorf, 35 N. M.-, 290 P. 214; Security Inv. & Dev. Co. v. Gross, Kelly & Co., 33 N. M. 535, 271 P. 95; King v. Doherty, 32 N. M. 431, 258 P. 569; Manby v. Voorhees, 27 N. M. 511, 203 P. 543.

Section 2, c. 84, N. M. Laws 1913 (section 5437, N. M. Code 1915), and section 203, c. 133, N. M. Laws 1921, provided that an assessment of land should contain a description “such as would be sufficient in a deed to identify it so the title thereto would pass.” In State v. Board of Trustees of Town of Las Vegas, 32 N. M. 182, 253 P. 22, it was held that a description in an assessment of land, made under the last mentioned statute, may be aided by extrinsic evidence, and is valid if it is sufficiently definite that it can be made certain by the means of such evidence.

Section 30, c. 62, N. M. Laws 1882 (section 5460, N. M. Code 1915), provided that “each tract of land shall be valued and assessed separately except when one or more adjoining tracts are returned by the same person, in which case they may be valued and assessed together.”

Section 207, c. 133, N. M. Laws 1921, provided that “each tract of land shall be valued and assessed separately.”

The trial court held that defendants were not required to show payments of taxes levied upon assessments which did not meet the requirements of the above statutes as to description and separate assessment. In so doing, the court followed the plain provision of section 4 of the Pueblo Lands Act which limits the tax-paying requirements to taxes “lawfully assessed and levied.” United States v. Wooten, supra, p. 889.

We conclude that plaintiff is entitled to a decree as prayed for as to claims Nos. 8 and 19. In all other respects, the decree below was correct. The cause is reversed with instructions to enter a new decree in accordance with this opinion.

Each party shall pay his own costs on appeal.

      Note 1.
      1 Sec. 22, chapter 22, supra: " * * » Each lot or parcel o£ property offered for sale shall be struck off to the best bidder for cash; but if there should be no purchaser, in good faith, for the same on the first day, the property is offered for sale, when the property is thereafter offered for sale, and there is no purchaser in good faith bidding upon the same, the whole amount of the property assessed shall be struck off to the county as the purchaser, and the duplicate certificate delivered to the county treasurer and filed by him in his office, after having the same recorded in the office of probate clerk of said county. No charge shall be made for issuing duplicate certificate, or for filing and recording the same when the county is the purchaser. And the collector shall make an entry ‘sold to the county’ on the tax roll opposite the tax and shall be credited with the amount thereon in his settlement.”
      Sec. 23, chapter 22, supra: “After receiving the amount for which any real estate shall be sold, the collector shall execute and deliver to the purchaser thereof a certificate of sale containing »a description of the property .• sold and stating the name of the person or persons against whom the same was assessed, or that the same was assessed against unknown owners, as the case may be, the amount paid therefor, that it was sold for taxes, the amount and for the year or years for which the taxes were assessed, the amount of interest, penalties and costs, the date of sale, and the consideration or amount so paid therefor at such sale, that the collector, by virtue of the authority vested in him by law, has sold and does convey said real estate to said purchaser, his heirs and assigns, subject to the right of the former owner to redeem the same within three years from date of sale by paying to the purchaser, his heirs or assigns, the amount paid therefor *t such sale with interest thereon at the rate of one and one-half per cent per month from date of sale. Such certificate must be recorded in the office of the probate clerk of such county, in a book to be kept for the purpose of recording such certificates and when so recorded, shall vest in the purchaser, his heirs or assigns, a complete legal title to the real estate described therein subject, however, to redemption as herein provided, and such property shall thereafter, unless redeemed, be assessed in the name of the purchaser, or his assigns, but the former owner shall have the right to redeem the same at any time within three years from the date of sale by paying to the collector then in office for the use of the purchaser the amount of purchase money witl} interest at the rate of one and one-half per cent per month from date of such sale, together with any taxes that may have been paid upon such real estate by the purchaser and assignees with interest thereon at the same rate; and such former owner may retain possession of said real estate until re-' deemed, or until the time of.redemption has expired. * * * Upon the redemption of any property sold as herein provided, the collector shall enter the fact of such redemption upon his book of sales, and shall issue to the person redeeming a certificate of redemption describing the property and giving date of redemption and amount paid, upon the production of such certificate of redemption the probate clerk shall mark the word ‘redeemed’ with the date of redemption and by whom redeemed, on the margin of the page where the record of such certificate of sale is made and from the date of such redemption when so made, and noted, the certificate of sale shall be deemed cancelled and annulled. * * * Counties purchasing at tax sales shall be deemed purchasers within the meaning of this act.” (Italics ours.)
      Sec. 26, chapter 22, supra, as amended by section 1, c. 7, N. M. Laws 1961, and section 1, chapter 134, N. M. Laws 1905:
      ‘‘In case any property shall be bid in by any county as provided for in section 22 of the act embraced in chapter 22 of the laws approved March 1, 1899, the duplicate certificate of such sale shall be sold by the tax collector to any person who shall pay the face value thereof with accrued interest and if the same cannot be sold at private sale within three years from the date of such certificate, such certificate shall be sold at public auction to the highest bidder for cash by the collector in office at the time of said sale after said collector shall have posted a notice giving a statement of the proposed sale, said notice to be posted on the front door of the court house for not less than four weeks prior to said sale."
      Sec. 27, chapter 22, supra, as amended by section 2, c. 7, N. M. Laws 1901:
      “All real estate so sold shall be assessed for the succeeding year, in the name of the original owner of said property or the person or corporation in whose name the said property was listed on the assessment roll or his assign, if the name of such as-signee be known.

      Note 2.

         Sec. 5498. “ * * * Each parcel of real estate* offered for sale shall be struck off to the highest bidder for cash, but if such real estate cannot be sold for the full amount of the taxes, penalty and interest due thereon or if there should be no bidder for the same, the whole amount of the property upon which the taxes have been levied shall be struck off to the county for such total amount, and the collector shall make an entry on the assessment book of the fact, opposite to the name of the person assessed, and shall be credited with the amount of the tax thereon in his usual settlement."
      Sec. 5506. “When any property shall be struck off to the county as provided in section 5498, it shall be the duty of the county treasurer to sell and assign the duplicate certificate of such sale to any person who will at any time pay the full face value thereof with accrued interest, and if the same cannot be sold at private sale before the regular sale of property for delinquent taxes in the next succeeding year, such certificate shall be sold at public auction at the time of such delinquent tax sale to the highest bidder for cash by the county treasurer then in office, but in no case shall such certificate of sale be sold for less than the full amount of the taxes and interest due. * % * ”
      Sec. 5502. “Upon payment of the amount for which any real estate is sold, the treasurer shall give to the purchaser a certificate of sale containing a description of the property sold, stating the name of the person or persons to whom the same was assessed or that it was assessed to unknown owners, as the case may be, the amount paid therefor, and that it was sold for taxes, with the date of sale, and that the sale is subject to the right of the owner to redeem the property within three years by paying the amount paid at such sale with interest thereon at the rate of one per cent per month, which certificate must be recorded in the office of the county clerk in a book kept for the purpose of recording such certificates. Such former owner may at any time, within three years from the date of recording such certificate, or duplicate certificate, provided for.in section 5500, redeem the property by paying to th^e county treasurer for the use of the purchaser, or his assigns, the amount of purchase money with interest, as aforesaid, together with any taxes which may have been paid upon the property by the purchaser or his assigns, with interest at the same rate, and such former owner may retain possession of the property until the time of redemption has expired.
      “Real estate sold for taxes, whether struck off to the county or sold to others, shall continue to be assessed in the name of the original owner, or to unknown owners, as the case may be, until the title shall pass by tax deed or otherwise. * * * ”


author: SOPER, Circuit Judge.

text:
    THE VARANGER. WESTFAL-LARSEN & CO. v. BALTIMORE & CAROLINA LINE, Inc.
    No. 3164.
    Circuit Court of Appeals, Fourth Circuit.
    June 17, 1931.

      W. Ainsworth Parker, of Baltimore, Md. (Brune, Parker, Carey & Gans, of Baltimore, Md., on the brief), for appellant.
    J. Harvey Turnure, of New York City (Kirlin, Campbell, Hickox, Keating & McGrann, of New York City, Janney, Ober & Williams, of Baltimore, Md., and Ira A. Campbell, of New York City, on the brief), for appellee.
    Before NORTHCOTT and SOPER, Circuit Judges, and ERNEST F. COCHRAN, District Judge.
   SOPER, Circuit Judge.

A collision took place on August 23,1927, in the Neches river near the city of Beau-mount, Tex., between the Norwegian steamship Varanger and the American steamship Dora Weems, as both vessels were proceeding down stream to the Gulf of Mexico. The river at this point is a narrow tortuous stream; and the collision took place when the Dora Weems overtook and attempted to pass the Varanger. Before attempting to pass, the Dora Weems sounded a passing signal of two blasts, indicating her desire to pass on the left or port side of the vessel ahead, and the Varanger on her part answered with two blasts of the whistle signifying her assent to the maneuver. In passing, the starboard side of the Dora Weems at the break of the forecastle came in contact with the port side of the Varanger abreast of her funnel aft of amidships, causing substantial damage to both.

A libel was filed in the District Court by the owners of the Varanger against the Dora Weems and a cross-libel by her owners against the Varanger. The details of the accident are fully set out in the careful and exhaustive opinion of the District Judge reported at 45 F.(2d) 608. He reached the conclusion, which finds support in the testimony, that it was unsafe for an overtaking vessel to attempt to pass a vessel at this point in the river; that the pilot of the Var-anger, as he expressly testified, knew that the passing was dangerous, and that the pilot of the Dora Weems, who did not testify, was chargeable with like information. The Van-anger’s pilot offered as an excuse for his own conduct that he was forced to permit the passing because the Dora Weems gave him no opportunity to do otherwise, being right at his stem when she blew to pass. But the District* Judge projSerly rejected this theory as contrary to the weight of testimony. Consequently he held both vessels at fault and entered a decree for divided damages. No appeal was taken by the owner of the Dora Weems, but the owner of the Varanger appealed, and the substantial question in the case is whether the navigators of the Varang- ' er are chargeable with any liability for the collision.

Basing our conclusion upon the fact that the passing of the vessel at the point of collision was necessarily attended by danger, we think that this decree was correct. The Navigation Rules for Western Rivers (33 USCA §§ 301-351) provide, amongst other things, that every vessel overtaking any other vessel shall keep out of the way of the last-mentioned vessel (Rule 22 [33 USCA § 347]); and that where, by Rule 22, one of two vessels shall keep out of the way, the other shall keep her course, subject to the qualification of Rule 24 (33 USCA § 349) that due regard must be had to all dangers of navigation and to any special circumstances which may exist in any particular case’ rendering a departure necessary in order to avoid immediate danger. Pilot Rule VIII for Western Rivers, established by the Board of United States Supervising Inspectors, Steamboat Inspection Service under the authority of R. S. § 4412 (46 USCA § 381), is particularly applicable to the case at bar. It provides:

“VHI. When a steamer is overtaking another steamer, and the overtaking steamer shall desire to pass on the right or starboard side of the steamer ahead, the overtaking steamer shall give one short blast of' the whistle, and if the steamer ahead answers with one blast, the overtaking steamer may-pass on the starboard side of the steamer ahead; or if the overtaking steamer shall desire to pass on the left or port side of the steamer ahead, she shall give two short blasts of the whistle, and if the steamer ahead answers with two blasts the overtaking steamer •may pass on the port side of the steamer ahead; or if the steamer ahead does not think it safe for the overtaking steamer to attempt to pass at that point, she shall immediately signify the same by giving not less than four short and rapid- blasts of the whistle, and under no circumstances shall the overtaking steamer attempt to pass the steamer ahead until such time as they have reached a point where it can be safely done, when the steamer ahead shall signify her willingness by blowing one blast of the whistle for the overtaking steamer to pass on the starboard side of the steamer ahead, or two blasts of the whistle for the overtaking steamer to pass on the port side of the steamer ahead.
“Every steamer overtaking another shall keep out of the way of the overtaken steamer. * • * ”

This rule has the same force and effect as a statutory rule of navigation; and it has been held by numerous decisions that a vessel'whieh violates such a rule, if she would escape liability for a disaster which follows, must not only show that her fault did not contribute to the calamity, but could not have done so. Belden v. Chase, 150 U. S. 674, 698, 699, 14 S. Ct. 264, 37 L. Ed. 1218; The City of Baltimore (C. C. A.) 282 F. 490. By the express provisions of Rule VIII, it became the duty of the Varanger, if she did not think it safe for the Dora Weems to attempt to pass at the point of collision, to signify the same immediately by giving not less than four short and rapid blasts of the whistle. Having failed to carry out this duty, but, on the contrary, having given express assent to the passing, it is incumbent upon her to show that the Dora Weems would have passed and the collision would have occurred even if danger signals had been sounded. The Varanger cannot meet this burden, for it is quite impossible to conclude that the Dora Weems in any event would have gone ahead, especially in view of the testimony of her' navigators that, had alarm signals been sounded, she could have stopped and remained astern.

It is, however, argued on behalf of the Varanger that under the decision of the United States Supreme Court in Warner Co. v. Pier Co., 278 U. S. 85, 49 S. Ct. 45, 73 L. Ed. 195, an overtaken vessel assumes no responsibility for the safe passage of a vessel coming up from behind by giving assent to the passage, except to do nothing to thwart the maneuver, unless the former vessel knows of some circumstances not open to the observation of the latter which would prevent her from going safely by if prudently navigated. In that case the steamship Gulftrade, overtaking the tug Taurus with two scows in tow in the Schuylkill river,' attempted to pass the tug and tow after an exchange of signals assenting to the passage. It was possible for the passage to take place safely, but the set of the tide swung the tail of the tow more or less athwart the channel, and the navigator of the ship inaccurately assumed that it would be out of the way in time. By reason of his miscalculation, the collision took place. The Supreme Court said (page 89 of 278 U. S., 49 S. Ct. 45): “We cannot conclude that the Taurus was in fault. She was prudently navigated in plain view of the Gulftrade who knew the relevant facts; and by assenting that the latter might pass she certainly did not assume responsibility for the maneuver. At most the Taurus obligated herself to hold her course and speed so far as practicable, to do nothing to thwart the overtaking vessel, and she knew of no circumstances not open to the observation of the Gulftrade which would prevent the latter from going safely by, if prudently navigated. Of course, no ship must ever lead another into a trap. There was ample room for the Gulftrade to pass. But, if not, she should have slowed down and kept at a safe distance. Her fault was the direct and sole cause of the collision.”

The outstanding circumstance which distinguishes this case is that there was ample room for the overtaking vessel to pass, as both vessels knew. Hence it was pertinent for the court to observe that the tug did her full duty when she held her course and speed and did nothing to thwart the overtaking vessel, since the tug knew of no danger which was hidden from the steamer. But this is far from saying that when a leading vessel thinks that the passage is dangerous, she may escape all liability for assenting to a passing, providing only that the overtaking vessel has like information. To so hold would be in effect to repeal and nullify the positive provisions of the rule that the leading vessel must refuse her assent if she does not think it safe for the overtaking vessel to attempt to pass. The mandate of the rule is clear, and it is our duty to give it full effect. When the overtaken vessel, believing that the maneuver is dangerous, nevertheless assents to it, she becomes a participant and is at least jointly liable for a subsequent disaster unless she can show that her assent could not possibly have contributed to the result. See The City of Baltimore (C. C. A.) 282 F. 490.

The decree of the District Court will be affirmed.


author: NORTHCOTT, Circuit Judge.

text:
    WRIGHT et al. v. COMMISSIONER OF INTERNAL REVENUE.
    No. 3139.
    Circuit Court of Appeals, Fourth Circuit.
    June 17, 1931.
    A. C. Todd, of Greenwood, S. C. (Park, McDonald & Todd, of Greenwood, S. C., on the brief), for petitioners.
    Wm. Cutler Thompson, 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 J. K. Polk, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for respondent.
    Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.
   NORTHCOTT, Circuit Judge.

This is a petition to review a decision of the United States Board of Tax Appeals, which decision is reported in 19 B. T. A. 541. The Banna Manufacturing Company was a corporation organized under the laws of South Carolina engaged in operating a cotton mill at Goldville in that state. In the years 1919 and 1920 its outstanding capital stock was $248,300 divided into 2,483 shares of the par value of $100 each, and consisted of three classes of stock as follows: 1,000 shares of common stock ($100,000); 967 shares of guaranteed stock ($96,700); and 516 shares of preferred stock ($51,600). In the latter part of the year 1919 a written contract was executed by and between all the holders of the common stock of the Banna Manufacturing Company as sellers, and one S. H. Mc-Ghee as buyer, for the sale of the common stoek. The agreement provided, among other things, that the sellers agreed to sell and the buyer agreed to buy on January 2, 1920, all of the stock of the Banna Manufacturing Company at a certain fixed price for each spindle of the said Banna Manufacturing Company, and in addition, the buyer agreed to buy and pay for certain quick assets of the Manufacturing Company. The agreement further provided that all the stock of the Banna Manufacturing Company was to be put in the name of Banna Mills and indorsed in blank and deposited with a trust company for the benefit and security of the sellers, qualifying shares of directors excepted. The buyer agreed to pay, and did pay, for the stoek $234,116 in cash, and $250,000 par value of the preferred stock of the Ban-na Mills. Part of the cash received was used to pay the expenses of the sale, and for the purchase of certain guaranteed and preferred stock of the Banna Manufacturing Company, which the holders of the common stock had purchased in accordance with the agreement of sale, and the remainder was distributed to the common stockholders of the Banna Manufacturing Company in payment at par for the shares of guaranteed and preferred stoek held by them, and for their common stoek at the rate of $70 per share. The preferred stock of the Banna Mills, which was delivered according to the agreement, was all distributed among the common stockholders of the Banna Manufacturing Company in proportion to the number of shares owned by them.

The petitioner George M. Wright received on account of the 225 shares of the common stock of the Banna Manufacturing Company owned by him the sum of $15,750 in cash and 563 shares of the preferred stoek of Banna Mills. The petitioner William A. Moorehead received on account of the 100 shares of common stoek of the Banna Manufacturing Company owned by him the sum of $7,000 in cash and 250 shares of the preferred stoek of Banna Mills. Concurrently with the delivery of the capital stoek of the Banna Manufacturing Company said stoek was placed in trust by the buyers for the benefit and security of the $250,000 of preferred stoek of the Banna Mills, in accord with the agreement. . ....

The $250,000 of the preferred stock of the Banna Mills was to pay 8 per cent, cumulative dividends, and this was promptly paid until the year 1924, when the stoek was redeemed at $95 per share. The trust, agreement had provided that it was to run for a period of five years.

• At and after January 2, 1920, the preferred stock of the Banna Mills was closely held and was not listed or dealt in on any exchange! In January or February, 1920, the Petitioner George M. Wright sold 50 shares. of said preferred stock to one J. B. Wharton, who purchased the stock as an investment at $100 per share. There were no other sales or offers for sale of said preferred stoek in the year 1920. There were some other small sales of the stock in the years 1922 and 1923, at $95 per share, and a sale of 55 shares in February, 1922, at $80 per share. The contract price of the stoek of the Banna Manufacturing Company, on a basis of $34 per spindle, amounted to $483,6Í6, and the Board of Tax Appeals found that the value of the assets of the Banna Manufacturing Company in 1920 was greater than the $415,000 for which they were sold in 1924.

It is contended, on behalf of the petitioners, that by the transaction of January, 1920, they did not receive any gain or profit that was taxable, and that the transaction amounted, in effect, to a stock dividend, and that the preferred stock of the Banna Mills, received by them, represented an appreciation in value of .the common stoek of the Ban-na Manufacturing Company of the nature of a stoek dividend of that company. It is also claimed on behalf of the petitioners that there was no ascertainable fair market value of the Banna Mills; that there was no substantial evidence to support the findings of the Board of Tax Appeals, and that the admitted presumption in favor of the correctness of the final determination of deficiencies by the Commissioner was overcome by the evidence.

We cannot agree with the contention that the transaction was of the nature of a stoek dividend, but are of the opinion that it was more in the nature of a sale with part payment in cash, and a lien for the remainder of the purchase price. A large portion, nearly or about one-half of the agreed price, was. paid by the purchaser in cash; the contract refers to the transaction as a sale, and to the purchaser as the buyer, and holders of the common stock as sellers; the entire common stock of the Banna Manufacturing Company, which represented all that was transferred by the contract in question, was deposited in trust as security for the redemption of the preferred stoek in the Banna Mills, which constituted, together with the cash payment, the consideration for the transfer of the common stoek in the Banna Manufacturing Company; the common stoek in the Banna Manufacturing Company passed entirely out of control of its holders, and the preferred stoek in the Banna Mills was issued to the Banna Manufacturing Company stockholders by the purchasers, and not to the company itself. Peabody v. Eisner, 247 U. S. 347, 38 S. Ct. 546, 62 L. Ed. 1152; Marr v. United States, 268 U. S. 536, 45 S. Ct. 575, 69 L. Ed. 1079; Cullinan v. Walker, 262 U. S. 134, 43 S. Ct. 495, 67 L. Ed. 906; Rockefeller v. United States, 257 U. S. 176, 42 S. Ct. 68, 66 L. Ed. 186; see Eisner v. Macomber, 252 U. S. 189, 40 S. Ct. 189, 64 L. Ed. 521, 9 A. L. R. 1570.

On this point counsel for petitioners rely on tbe case of Weiss v. Stearn, 265 U. S. 242, 44 S. Ct. 490, 68 L. Ed. 1001, 33 A. L. R. 520, and tbe decision of this court in Schoenheit v. Lucas, 44 F. (2d) 476, but these eases are easily distinguished from the instant ease. In the Weiss v. Stearn Case, the court said a new corporation had, in fact, been organized to take over the assets and business of the old. Technically there was a new entity; but the corporate identity was deemed to have been substantially maintained because the new corporation was organized under the laws of the same state, with presumably the same powers as the old. There was also no change in the characters of securities issued. By reason of these facts, the proportional interest of the stockholder after the distribution of the new securities was deemed to be exactly the same as if the par value of the stoek in the old corporation had been reduced, and five shares of reduced par value stoek had been issued in place of every two shares of the old stock.

In the Sehoenheit Case, this court held that the transaction was not taxable because the change was one of form rather than of substance, and the stockholder got nothing which he did not already have. Here there was not only technically, but in fact, a new entity. There was a change in the character of securities issued. The proportional interest of the stockholders, after the distribution of the new securities, was different from that which it was before the distribution. We cannot escape the conclusion that the transaction was, in effect, a sale, and that the petitioner received something taxable from it in the year 1920.

This court has repeatedly held, and it is not necessary to quote authorities to that effect, that the determination of the commissioner is priina facie correct, nor will the courts review the finding of the Board of Tax Appeals on questions of fact, where there is substantial evidence to support such finding.' Anchor Co. v. Commissioner (C. C. A.) 42 F.(2d) 99, 100, and authorities there quoted.

As to the contention that there was no ascertainable fair market value, we again can-not agree. In Anchor Co. v. Commissioner, supra, Judge Parker of this court said:

“The fair market value of the property as of March 1, 1913, was peculiarly a question of fact for the determination of the Board. It had before it, not only the opinion evidence relied upon by the taxpayer, but also the facts as to the cost of the property, the cost of the improvements placed thereon, the rate qf depreciation, and the valuation fixed by the Commissioner of Internal Revenue, the last of whieh was prima facie correct. Brooks v. Commissioner (C. C. A. 4th) 35 F.(2d) 178; Wickwire v. Reinecke, 275 U. S. 101, 105, 48 S. Ct. 43, 72 L. Ed. 184. What weight was to be given to these various matters in determining the value as of March 1, 1913, was for the Board to decide; and there is nothing to show that it abused its discretion or proceeded upon any erroneous view of the law.”

Again in the case of Penney & Long, Inc., v. Commissioner of Internal Revenue, 39 F.(2d) 849, 851, this court said:

“The very language of the statute itself, 'to the amount of its fair market value,’ presupposes the making of some estimate and the exercise of some judgment on the part of the Commissioner in finding, from all the circumstances, what ,a 'fair market value’ may have been.”

In the instant case sales were made, it is true, of a small quantity of the preferred stock in the Banna Mills at the same or a greater price than -that fixed as the value of the stoek by the commissioner. Certainly the intrinsic value of the security behind the stoek justified the value fixed by the commissioner. The 8 per cent, dividend, whieh was promptly paid, would tend to prove at least the value fixed by the Commissioner, and, finally, the price, at which the. stoek was redeemed in 1929, was the same price as that fixed by him and found by the Board of Tax Appeals as the fair market value. Certainly there was substantial evidence to support the finding of the Board of Tax Appeals, and as above shown, in such case, we will not review that finding.

The contention on behalf of the petitioners that the taxable profit accruing to them could not be ascertained until the end of the period fixed in the trust agreement of five years is not sound. Were such an agreement held to fix the date of the taxation of profits in a'transaction of this kind the government would be at the mercy of the purchaser and seller in each contract of sale, and if the taxing date could be postponed for five years by such a contract between purchaser and seller, it could be postponed for twenty years. As pointed out by Mr. Justice Stone in the ease of Burnet v. Sanford & Brooks Co., 282 U. S. 359, 51 S. Ct. 150, 152, 75 L. Ed, 383, “It is the essence of any system of taxation that it should produce revenue ascertainable, and payable to the government, at regular intervals. Only by such a system is it practicable to produce a regular flow of income and apply methods of accounting, assessment, and collection capable of practical operation. It is not suggested that there has ever been any general scheme for taxing income on any other basis»” And the government cannot, of necessity, in the collection of its taxes, be left to the mercy of agreements between individuals.

There was nothing in the action of the board subject to review by this court, and its order is accordingly affirmed.


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    CHESAPEAKE & O. RY. CO. v. BURTON.
    No. 3127.
    Circuit Court of Appeals, Fourth Circuit.
    June 17, 1931.
    John E. F. Wood, of New York City, and Douglas W. Brown, of Huntington, W. Va. (Fitzpatrick, Brown So Davis, of Huntington, W. Va., on the brief), for appellant.
    A. A. Lilly, of Charleston, W. Va. (Lilly, Lilly & Warwick, of Charleston, W. Va., on the brief), for appellee.
    Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.
   SOPER, Circuit Judge.

The plaintiff below was injured after he had alighted from a train of the railway company upon the platform at Blue Sulphur, a flag station located about thirteen miles east of Huntington, W. Va. A few of the company’s trains stopped at his station upon signal. The building was merely a small shed or covered shelter, approximately six feet wide by twelve feet long, open on the side towards the railroad track. The platform occupied a space between the shed and the tracks five or six feet wide by sixteen feet in length, and was composed of crushed limestone raised six or eight inches above the level of the adjoining ground. The plaintiff was the only passenger to leave the train on this occasion. He left by the front steps of the second coach in the train, stepping off as soon as it came to a standstill. He made two or three steps away from the train towards' the shed, and then turned towards the rear of the train, intending to take a path which led away from the platform at its western end. In making the turn, his foot became entangled in a steel wire barrel hoop, which happened to be lying there. Struggling to free himself, he proceeded between ten or twenty feet, and then tripped and fell, after he had stepped down from the station platform. The train was then in motion, having started quite promptly upon his leaving it, and as he fell he turned in such a manner that the rear wheels of the coach he had just left passed over his left hand.

The plaintiff in the District Court depended upon two items of negligence on the part of the railway company, and, the ease having been submitted on these issues to the jury, a verdict in his favor in the sum of $6,000 was rendered. He complained and now argues (1) that the company was negligent in permitting the steel hoop to obstruct the safe passage of persons over the platform, and (2) that the railway company negligently started the train before the plaintiff had an* opportunity to get away from it safely and without danger to himself. The defendant on its part at the trial below and in this court contended (1) that there was no evidence of negligence to justify the submission' of the case to the jury, and (2) that the relation of passenger and carrier did not exist between the parties at the time of the accident, and that therefore the only duty owed to the plaintiff was not willfully or wantonly to injure him.

The second contention of the railway is based upon the admitted fact that the plaintiff presented for his passage a ticket which, as shown by a notice printed on the back, had already expired. It was argued on the part of the plaintiff that the defect in the ticket had been waived by its acceptance on this occasion by the conductor, representing the railway company. We do not find it necessary, however, to decide this question, because, even if we assume that the railway company owed to the plaintiff all the duties which such a carrier owes to passengers on its premises, the evidence does not show negligence on the part of the railway company, but rather that the unfortunate accident which the plaintiff suffered was brought about by a circumstance for which it had no responsibility in law.

The parties to the cause agree that the duty which a carrier owes to passengers on its premises, as distinguished from passengers on its trains, is to exercise reasonable or ordinary care for their safety, and, amongst other things, to provide and maintain safe and adequate platforms and stations for their use in waiting for approaching and leaving trains. See 10 Corpus Juris, §§ 1337, 1340-1342; Taylor v. Pennsylvania Railroad (C. C.) 50 F. 755. And so, if a passenger is injured upon a station platform by an obstacle which the carrier has negligently failed to remove, he is ordinarily entitled to recover damages. However, in such eases, as is usually true where a charge of negligence is involved, the liability depends upon the facts of the particular case, such as the circumstances of time and place, the manner in which the obstacle was created, and the opportunity the carrier has had to discover and remove it. When it does not appear that the obstruction was caused by the carrier or its servants, the passenger must prove that the carrier knew, or by the exercise of ordinary care could have known, of it in time to remove it. Thus we held in Livingston v. Atlantic Coast Line R. Co., 28 F.(2d) 563, that a passenger injured by slipping on a banana peeling on the floor of a railroad car was not as a matter of law entitled to recover damages from the railroad, where it was not shown how long the peeling had been there or that the employees of the company had had an opportunity to discover its presence and to remove it. See, also, Goddard v. Boston & Maine R. R., 179 Mass. 52, 60 N. E. 486; Scholtz v. Interborough Rapid Transit Co., 48 Misc. Rep. 619, 95 N. Y. S. 557; Chesapeake & Ohio Ry. Co. v. Mathews, 114 Va. 173, 76 S. E. 288; Munro v. Railroad, 155 Mo. App. 710, 135 S. W. 1016.

The character of the railroad station at Blue Sulphur has already been indicated. It was not designed or needed for large public use. Ho employee was in attendance. The nearest residence was three' hundred feet away, and the nearest business house from seven to eight hundred feet. The station and. the surroundings were inspected daily by an employee of the railway, the last time the day before the accident, and there was then no hoop or other obstruction upon the platform. An attempt was made on behalf of the plaintiff to draw the inference from the testimony of the employee that he had not been diligent in his work of inspection, but we are satisfied from our examination of the record that no inference of negligence may be reasonably drawn therefrom. It was also contended that, since the hoop was rusty, it must have lain on the platform for a long time, but of course rust could have accumulated as well in one exposed place as in another.

In short, the record is devoid of evidence to show by what agency or when the hoop was placed upon the platform. It may conceivably have been left by an employee or it may with equal or greater probability have been thrown away by some third person, as, for instance, by a child at play. There is nothing to show how long it had lain upon the platform before the arrival of the train. ' Under these circumstances, ■ we are forced to the conclusion that there was no evidence to justify the jury’s finding that the presence of the hoop was due to the negligence of the railway or its employees.

Nor do we think that the plaintiff’s injury was caused by negligence of the railway in prematurely starting the train. It is of course well settled that a carrier of passengers by railroad, when a train is stopped for the discharge of passengers, must keep it stationary a sufficient length of time to allow them to alight in safety. But this duty was performed in the instant case, as the plaintiff was free of the train before it started. He had proceeded two or three steps away from it, and from ten to twenty feet alongside of it, before he fell. His fall was not caused or brought, about in any way by the starting of the train, but was due entirely to the fact that the hoop lay upon the platform. Consequently, there was no evidence to warrant the submission to the jury of the issue of negligence, and the defendant was entitled to an instructed verdict in its behalf, as it requested.

The judgment of the District Court must therefore be reversed.


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    PENDER COUNTY et al. v. GARYSBURG MFG. CO.
    No. 3120.
    Circuit Court of Appeals, Fourth Circuit.
    June 17, 1931.
    C. E. McCullen, of Burgaw, N. C., for appellants.
    George Rountree and J. O. Carr, both of Wilmington, N. C. (F. S. Spruill, of Rocky Mount, N. C., on the brief), for appellee.
    Dennis G. Brummitt, Atty. Gen., of North Carolina (Frank Nash, Asst. Atty. Gen., and Walter D. Siler, Asst. Atty. Gen. for North Carolina State Board of Assessment, on the brief), on behalf of North Carolina State Board of Assessment, as amicus curise.
    Before PARKER and NORTHCOTT, Circuit Judges, and ERNEST F. COCHRAN, District Judge.
   NORTHCOTT, Circuit Judge.

Appellee, the Garysburg Manufacturing Company, is a North Carolina corporation with its place of business in the county of Pender, and J. T. Brown is sheriff and tax collector of said county.

The Garysburg Manufacturing Company is the owner of certain shares of stock in the Argent Lumber Company, a South Carolina corporation, having a place of business in the town of Hardeeville, in the county of Jasper, in the state of South Carolina, of the par value of $225,000, which stock was and is actually worth that sum.

The manufacturing company duly filed with the state board of assessment for the state of North Carolina its annual report for the year 1925, by -which it was shown that the total actual cash value of its capital stock for that year was $350,000; that the assessed value of its real estate listed with local assessors was $21,855, and the assessed value of personal property listed with local assessors was $88,701.63, aggregating $110,-556.63, which, deducted from the total valuation of $350,000, left a “corporate excess” of $239,443.37, and the state board of assessment accepted the report as correct, both as to the items of property and their valuation, and certified down to the county of Pender an account showing that the “corporate excess” of appellee amounted to the sum of $239,443.37.

In the account so certified by the state board of assessment was included the said 225 shares of the capital stock of the Argent Lumber Company.

Upon this valuation of $239,443.37, reported by the manufacturing company and accepted by the state board of assessment, and so certified down by the state board of assessment, the county of Pender levied a tax upon the sum of $239,443.37, at the rate of 2 per cent. — making $4,788.86.

The manufacturing company declined to pay this sum, but offered to pay the tax at the rate of 2 per cent, on $14,443.37, the amount of the “corporate excess,” less the value of the shares of stock in the Argent Lumber Company, of South Carolina, upon the ground that the 225 shares of stock was property owned by the manufacturing company in a South Carolina company, and, under the law of North Carolina, has its situs in South Carolina, and was not taxable if owned by an individual resident of the state of North Carolina, and, therefore, not taxable merely because it was owned by a corporation.

The county of Pender and the sheriff declined to accept the amount tendered, and the sheriff threatened to seize and sell the property of the manufacturing company, and has actually advertised the same for sale for the purpose of collecting the tax. Ap-pellee brought this action to enjoin such seizure and sale, claiming that the assessment and taxation of the shares held by ap-pellee in the Argent Lumber Company, a foreign corporation, is a violation of the equal protection of the laws secured under the Fourteenth Amendment of the Constitution of the United States, in that like shares, if held by an individual, or by an unincorporated association of individuals, are not taxed, and in addition thereto that such tax is prohibited by article 5, § 3, of the Constitution of the State of North Carolina, because an illegal discrimination.

On submission of the cause to the court below, the learned judge granted the injunction prayed for, on the ground that the assessment of the tax was in violation of the Fourteenth Amendment to the Constitution of the United States, from which action of the court this appeal was taken.

The- statutes of North Carolina that are pertinent to this controversy are:

Section 4, chapter 101, of the Public Acts of 1925 (North Carolina): “Individual stockholders in any corporation, joint-stock association, limited partnership, or company paying a tax on its capital stock shall not be required to pay any tax on said stock or list the same, nor shall corporation legally holding capital stock in other corporations in this state; upon which the tax has been paid by the corporation issuing the same, be required to pay any tax on said stock or list the same. Nor shall any individual stockholder of any foreign corporation be required to list or pay taxes on any share of its capital stock in this State, and the situs of such shares of stock in foreign corporations, owned by residents of this State, for the purposes of this act is hereby declared to be at the place where said corporation undertakes and carries on its principal business.”
Section 15, chapter 102, Public Acts of 1925 — State board of assessment to make certificate to register of deeds. “The State Board of Assessment shall, on or before September first, certify to the register of deeds of the county in which‘such corporation, joint-stock association, limited partnership, or company whatsoever has its principal office or place of business, the total value of the stock of such corporation, joinbstoek association, limited partnership, or company whatsoever, as determined in the preceding sections. The corporation, joint-stock association, limited partnership, or company-whatsoever shall pay the county, township, town, or city taxes upon the valuation so-certified by the State Board of Assessment.”
Section 12, chapter 102, Public Acts of 1925: “ * * * Provided, that if the State Board of Assessment or either of them is not satisfied with the appraisement and valuation so made and returned, they are hereby authorized and empowered to make a valuation thereof, based upon the facts contained in the report herein required or upon any information within their possession, and to set-tie an account on the valuation so made by them for taxes, penalties, and interest due the State thereon, of which such settlement immediate notice shall be given to such corporation by said State Board of Assessment, with the right to the company dissatisfied with any settlement so made against it to appeal to the Superior Court in term-time of the county in which such company has its principal place of business in this State, and thence to the Supreme Court of this State; but before such company shall be allowed to exercise the right of appeal it shall, within twenty days after notice of such settlement, file with the State Board of Assessment exceptions to the particulars to which it objects, and the grounds thereof, and said State Board of Assessment shall hear said exceptions, after ten days notice of such hearing given by said State Board of Assessment to said company; and if they shall overrule any of said exceptions, then such company, if it desires to appeal to said Superior Court, shall within ten days thereafter give notice to said State Board of Assessment of such appeal to said Superior Court, and the State Board of Assessment shall thereupon transmit to said Superior Court a record of said settlement, with the exceptions of the company thereto, and all decisions thereon, and all papers and evidence considered in making said decision. The said cause shall he placed on the civil docket of said Superior Court, and shall have precedence of all civil actions, and shall be tried under the same rules and regulations as are prescribed for the trial of other civil causes. The cause shall be entitled, ‘State of North Carolina on the relation of State Board of Assessment against such Company.’ Either party may appeal to the Supreme Court.”

Three points are raised by appellants as follows: First, that a single federal judge has no jurisdiction, but that the suit should have been heard by a three judge court, under title 28, § 380, USCA; second, that ap-pellee before it could pursue the remedy here asked for in the federal court should have proceeded under section 12, chapter 102, of the Public Laws of North Carolina, 1925, and applied first to the state board of assessment for correction of its finding and then appealed to the superior court and the Supreme Court of the state, as provided in said section; third, that the statute authorizing the assessment is not unconstitutional.

Ag to the first question: In a suit brought to enjoin a sheriff and seeking to restrain him from collecting a tax alleged to be in violation of the Fourteenth Amendment, the county being made a party, this court has decided that the ease is not one for three judges, because it is not sought to restrain the action of the officer of a state. Henrietta Mills Co. v. Rutherford County et al. (D. C.) 26 F.(2d) 799. In that case Judge Parker, in an able opinion, fully discusses the question presented, and holds that the ease is one in which a single judge has jurisdiction. We do not think this position can be successfully controverted.

As to the second question, it seems clear to us that appellee had not exhausted its administrative remedies before it brought this suit, and, further, that it had a complete and adequate remedy at law. The return made by the manufacturing company to the state board of assessment in no way showed the nature of the property that went to make up its corporate excess. The return did not in any way show that the $225,000, admitted value of the stock in the South Carolina corporation, was included in the return. This should have been shown in the report, else how could the state board of assessment have passed upon the question as to whether the $225,000 was taxable in the state of North Carolina? After the state board of assessment had done the only thing that it could do, and-found the taxable corporate excess to include the $225,000, the manufacturing company could have filed an exception to the action of the state board of assessment, under section 12, chapter 102, above quoted, and caused the board to pass upon the question here raised, and under the same section, had the action of the board not been satisfactory to the manufacturing company, an appeal could have been taken to the superior court and then to the Supreme Court of the state.

A taxpayer, who does not exhaust his administrative remedy to secure the correct assessment of a tax, cannot be heard by a judicial tribunal to assert its invalidity. Gorham Mfg. Co. v. State Tax Commission of State of New York, 266 U. S. 265, 45 S. Ct. 80, 69 L. Ed. 279.

A suit to enjoin the collection of a state tax as violative of the Fourteenth Amendment will not lie in the federal court, if the plaintiff has a plain, adequate and complete remedy at law. Henrietta Mills v. Rutherford County, North Carolina, 281 U. S. 121, 50 S. Ct. 270, 74 L. Ed. 737.

In Garysburg Mfg. Co. v. Board of Commissioners, 196 N. C. 744, 147 S. E. 284, the principles here involved, with respect to a similar tax for another year against this same company, were discussed by the Supreme Court of North Carolina, and the court held that where this company had paid the tax, under protest, and sought to recover it back, it could not do so, because it had not exhausted the remedies provided by the statute as to the correction of its assessment. In this ease will be found a citation of authorities dealing with this question, and we agree with the conclusion reached by the Supreme Court of North Carolina.

We find no authority in the taxing aet that would permit the county to change the assessment as certified to it by the state board, as appellee urge should be done. The proper remedy lies with the state board and the courts, not with the county authorities.

In view of our conclusion on the seeond question, it is not necessary to decide whether the statute of North Carolina taxing property of this character, when owned by a corporation, and exempting it from taxation, when owned by an individual, is a violation of the Fourteenth Amendment.

Appellee should have so made its return as' to show the character of the property owned, it should have filed exceptions to the aetion of the state board of assessment, and in the event it was not satisfied with the final aetion of the state board, it should have appealed to the courts, as provided by the statute; having not done so, it cannot be heard in the federal court, to enjpin the collection of the tax.

The action of the court below was erroneous, and this cause is remanded, with instructions to dissolve the injunction heretofore awarded, and dismiss the bill.

Reversed.


author: SIBLEY, Circuit Judge.

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    ACME BRICK CO. et al. v. HEATH UNIT TILE CO. et al.
    No. 6036.
    Circuit Court of Appeals, Fifth Circuit.
    June 19, 1931.
    Rehearing Denied July 17, 1931.
    Melville Church and Halbert P. Brown, both of Washington, D. C., Leroy A. Smith, of Fort Worth, Tex., and Clarence B. Des Jardins, of Washington, D. C., for appellants.
    J. W. Gormley, of Dallas, Tex., and Justin W. Macklin, of Cleveland, Ohio, for ap-pellees.
    Before BRYAN, SIBLEY, and HUTCH-ESON, Circuit Judges.
   SIBLEY, Circuit Judge.

By the decree appealed from, Heath patent reissue No. 16,468, granted November 9, 1926, and covering a hollow tile building block and a system of wall construction, was held valid and infringed by appellants, who were enjoined during the life of the patent from manufacturing or selling hollow tile cubes for use in wall construction in the manner set forth in the patent, or from so using such cubes. The appellant Acme Brick Company is a manufacturer of hollow tile cubes, and was selling them to the other appellants, who were using them in construction. The patent was originally issued July 7, 1925, on an application filed April 4, 1923, and covered only a special sort of cubical hollow tile of an improved construction, with the use of that tile in building walls. The first five claims of the reissue are those of the original patent. Claims six to twelve inclusive are new, and purport to cover generally the use in walls of any hollow cubical blocks in the manner stated in these claims. The tiles made and sold by Acme Brick Company, although hollow cubes and of the size suggested in Heath’s patent, 8"x8"x8", are conceded not to infringe his patent on tiles. None of the first five claims is therefore in issue here, but only the last seven, relating generally to the use of hollow cubes in wall construction. A use of them in the manner sought to be patented is admitted. The question is whether the method of construction was anticipated by prior use, patents, or publications, or invalid because no invention, but at most only skill in the art of masonry is disclosed. It may be assumed that the patentee advanced the art of hollow tile wall construction by his cubical tile formed to sustain weight, and to be easily cut, before or after burning, into halves and quarters, and made of a size to work with standard brick with due allowance for mortar joints. The conveniences and economies resulting seem to have gained it commercial success. But, as stated, the claims of the patent which cover this tile and its use are not involved here. The useful and convenient size 8"x8"x8", if mere size were a patentable matter, is not, as was assumed by the district judge, involved in any claim of the patent. The specifications picture and describe the cubes as having the dimension 2x, an algebraical symbol of indefiniteness, and the infringed claims on wall construction which alone are in issue name no dimension, but purport to cover all dimensions. Their language js rather obscure, but can be understood by reference to the accompanying specifications' and drawings. Without detailed analysis or quotation of them, it will suffice to say that they purport to claim a monopoly of using cubical hollow blocks, and halves and quarters thereof, in building walls, with mortar joints, of 1, 1%, or 2 or more units in thickness where the courses are kept level with each other, and where the joints between the blocks, both longitudinally and transversely, are broken by placing the tile in one course equally across the joints in the course below, and where the ends and faces of the wall are filled out with fractions of the cubes, and where the blocks are placed with their open ends vertical at the comers of the wall instead of plugging the openings. It is plain that no single element in this method of construction was patentable. The use of hollow tiles instead of solid bricks or stone laid in mortar in leveled courses was confessedly old. The use of cubical tiles was anticipated generally by the use of cubical stones centuries ago, and specifically by the use of hollow tiles 12"xl2"xl2" and also 8"x8"x8" so early as the year 1917. Fractions thereof also were, cut as needed at the job or turned out by the manufacturers. To turn such a cube on end when the openings would show at the corner of the wall instead of plugging them up would occur to any neat and skillful mason, who always chooses the best face of any unit to be exposed to view. To break transverse joints by placing the upper unit across the joint between two lower units is universal masonry practice, whatever the shape or size of the units. Where the wall is thicker than a single unit, so. as to cause, also, longitudinal joints, it has always been the practice in stone, brick, and tilé work to break this joint in a lower course by covering it with the units of a higher course. This in brick work is usually done by turning the brick endwise, and so making a “header course” every fifth or sixth course, but in “Flemish Bond” it is done by thus turning every alternate brick in each course. But this breaking of the longitudinal joint has been accomplished not only by turning a long unit such as a brick endwise, but also by simply laying a unit over this joint, thus setting the unit back half a unit’s thickness from the face of the wall and then filling the wall out flush with a half unit. The superimposed unit then rests equally upon four units beneath, as stated in the patent. This practice is common in stonework, and is illustrated in figure 2 of a prior patent No. 1,215,149 granted to Heath February 6, 1917, and in the patent on wall construction No. 1,349,793 granted to Torosian on August 17, 1920. The breaking of joints, both transversely and longitudinally, as shown in Torosian’s patent, is identical with that shown by the patent in controversy, except that the Torosian units, though square, are not high enough to make cubes. The patent, however, expressly discloses that any height units might be used, and plainly the height has nothing to do with the method of breaking joints. All the elements of Heath’s process of construction are thus seen to be separately unpatentable. We are unable to see any invention in combining them. While the use of hollow tile in wall construction may be in a sense a separate art, it is so closely related to the general art of masonry that to apply to it things well known to masonry is only skill. If cubical hollow tiles and fractions or means of making fractions of them are given to a skilful mason to construct a wall by applying the common principles of masonry, he would undoubtedly use them precisely as disclosed in the Heath claim. A wall of a single unit’s thickness would have its transverse joints broken as disclosed in this patent, for there is no other way to break them. If the wall be thicker than one unit, the longitudinal joints must also be broken in order to make a good wall, and this would usually and naturally be accomplished in the case of cubes just as set forth in the Heath and Torosian patents. The mason would also finish the ends of the wall with fractions, and conceal the open ends .of the tiles all according to this patent as a ‘matter of common skill. To sustain the patent would practically give this patentee a monopoly on building walls out of cubical hollow tiles, although he has no ex-elfisive patent upon them, and could not have obtained one. It is conceded that the tiles of Acme Brick Company do not infringe Heath’s patent on tiles, but neither they nor any other cubical tile3 could be successfully used at all if this patent were held good. Having found each element of the claimed method of wall construction to have been previously known and used, and the combination of them to involve only mechanical skill in the building art, we conclude that claims six to twelve inclusive are invalid. Concrete Appliances Co. v. Gomery, 269 U. S. 177, 46 S. Ct. 42, 70 L. Ed. 222; Powers-Kennedy Co. v. Concrete Mixing Co., 282 U. S. 175, 51 S. Ct. 95, 75 L. Ed. 278; Mast, Foos & Co. v. Stover Mfg. Co., 177 U. S. 485, 20 S. Ct. 708, 44 L. Ed. 856; Keene v. New Idea Spreader Co. (C. C. A.) 231 F. 701.

The judgment is reversed, and the bill directed to be dismissed.


author: SAWTELLE, Circuit Judge.

text:
    In re HENRY DUFFY PLAYERS. HOLLYWOOD IMPROVEMENT CO. v. BLANCHARD.
    No. 6360.
    Circuit Court of Appeals, Ninth Circuit.
    June 15, 1931.
    W. B. Mathews, W. H. Wadsworth, and Ray W. Bruce, all of Los Angeles, Cal., for appellant.
    Louis E. Goodman, of San Francisco, Cal., Herman A. Baehraek, of Los Angeles, Cal., and Reuben G. Hunt, of San Francisco, Cal., for appellee.
    Before WILBUR and SAWTELLE, Circuit Judges, and NETERER, District Judge.

      Reliearing denied September 14, 1931.

   SAWTELLE, Circuit Judge.

This is an appeal from an order of the United States District Court for the Southern District of California, Central Division, affirming the findings of fact and conclusions of law of the referee in bankruptcy, acting as special master, adjudging the bankrupt company to be the owner of a certain electric sign and ordering said sign to be turned over to the receiver.

The question of the jurisdiction of the special master was not raised, but, on the contrary, according to the certificate on review filed by the referee, “the parties indicated their desire to submit the matter on its merits for determination in this forum.”

The special master found the facts to be, briefly, as follows:

The Henry Duffy Players was a corporation, of which Henry Duffy was “the large substantial stockholder.” . The Hollywood Improvement Company was the owner of a theater building in Los Angeles, Cal., which it leased, under the terms of a written agreement dated January 1, 1928, to the bankrupt corporation. In a bill of sale dated May 16, 1930, the bankrupt company purported to sell and transfer to the appellant all its property in the said theater, consisting of fixtures, replacements, tools, supplies, and “all other personal property.” The instrument was ex-eeuted by Henry Duffy Players, Ine., by Henry Duffy. ■

On tbe same day, tbe Hollywood Improvement Company caused to be drawn an instrument purporting to cancel the written lease, which had been for a term of twenty years. ,

On the following day, May 17, 1930, an involuntary petition in bankruptcy was filed against the Henry Duffy Players.

The electric sign in question was fastened to a steel tower or towers. The tower was an integral part of the building, but the sign was “fastened on frames and connected with electric wires,” on which frames were “emblazoned in metal the words ‘El Capitán.’ ” The frames were portable and were fastened to the fabricated steel tower by bolts, said fastenings being “temporary, and * * * for convenience and use of the tenant, the bankrupt.”

The special master further found that the sign was “a trade fixture and * * * the property of the bankrupt,” and that the receiver was “entitled to the possession thereof.”

In its brief, the appellant company contends that there existed an oral agreement preceding the written lease as to ownership of “improvements,” whereby title to the sign was vested in the appellant. As to this claim, the special master stated: “There never was any agreement made prior to the lease relative to the said trade fixtures, and * * * it is not true that there was an oral agreement by which the signs were installed on the condition that they should be the property of the respondents [the appellant herein and its president, C. A. Toberman].”

. The District Court agreed with this finding, saying: “I agree with the master that the evidence does not show that it was orally agreed that the sign lettering should become the property of the lessor; nor did the bill of sale executed by an officer of the bankrupt a few days prior to the bankruptcy, impart any such right of ownership, since there was no consideration for its execution and delivery. It was void as against creditors and the trustee in bankruptcy. .See section 47a(2) of the Bankruptcy Act, as amended by Act June 25, 1910, § 8, 11 USCA § 75(a) (2), and section 3440 of the Civil Code of California.”

The foregoing findings of fact by the special master and by the court below are based on substantial evidence and are not to be disturbed by this tribunal.

The sole question here, .therefore, is whether or not the electric sign, clearly a trade fixture, belongs to the bankrupt lessee and, through him, to the trustee, or to the owner of the building, the appellant herein.

Section 1019 of the Civil Code of California provides: “A tenant may remove from the demised premises, any time during the continuance of his term, anything affixed thereto for purposes of trade, manufacture, ornament, or domestic use, if the removal can be effected without injury to the premises, unless the thing has, by the manner in which it is affixed, become an integral part of the premises.”

This is in line with the general rule of law. In the ease of In re Danville Hotel Co. (D. C.) 33 F.(2d) 162, 167, the following language was used: “The tapestry upon the walls, the tables and beds in the rooms, the settees in the lobby, the chairs, the lamps, and all other similar, property obviously never lost their character as personal property, nor in the opinion of the court did the draperies, curtains, and shades. All such property re¡mained suitable to be used in any other location ; it was not especially adaptable to this property; it was affixed only by temporary means. * * * ”

See, also, In re Lexington Motors Co. of New York, 294 F. 233, 236 (C. C. A. 2): “The trade fixtures of a tenant remain personal property in the eye of the law so far as the right of removal is concerned.”

The same doctrine was applied in the case of In the Matter of the Cooknut Corporation, 6 A. B. R. (N. S.) 510, 519.

In the ease of In re Howard Laundry Co. (C. C. A. 2) 203 F. 445, 447, it was held that the term “improvements” ordinarily does not relate to' trade fixtures, but “to improvement! to the realty.”

An examination of the lease of January 1, 1928, discloses no mention of the electric sign. In view of the particularity with which the inventory attached to the lease sets forth the articles included thereunder, even down to the last cuspidor and waste basket, the absence of so valuable an item as the electric sign is significant. The silence of the lease as to this fixture, attached as it was as a “temporary appurtenance” or a “detachable instrumentality” that may have been “removed without substantially injuring thq building,” can hardly be regarded as an inadvertence. Certainly it has not been accounted for in the appellant’s brief, save on the theory of a prior oral agreement that the master and the District Court held did not exist.

We are therefore led to the conclusion that, up to the time of the purported bill of sale and cancellation of lease, executed by the Henry Duify Players, Inc., the title to the sign remained with lessee.

We will not go into the narrow question of whether or not Henry Duffy, owner of most of the stock of the corporation, but not an officer, was empowered to sign these two documents for the lessee company. We are resting our decision on broader grounds.

The purported bill of sale and cancellation of lease were both executed on the same day — the eve of the Duffy Company’s bankruptcy. The same thought motivated each document, namely, to prefer the lessor over and above the other creditors of the insolvent.

The uneontradicted testimony of C. E. Toberman, the appellant’s own president, clearly establishes this' purpose: “A short time before the bankruptcy I was approached by Mr. Robertson and Mr. Duffy with the statement they were unable to carry on with the theater, that their payroll cheeks had been turned down by the Bank of Italy, and that they were up against it financially. At that time they owed $13,000.00 for back rent and $2,500.00 guaranteed utility bills. Mr. Duffy stated to me they were unable to go further because the Bank of Italy had stopped their cheeks and that the newspapers were unwilling to go on and carry their advertising, and he urged me to repossess the El Cap-itán Theater. I finally consented and they executed a Bill of Sale of the personal property. Having recovered possession of the theater I immediately made arrangements with the staff to carry on.”

. Such a transaction is at least a preference, if not an actual fraud against the other creditors of the insolvent. It comes squarely within the purview of Bankruptcy Act § 60a and § 60b, 11 USCA § 96 (a) and (b):

“(a) A person shall be deemed to have given a preference if, being insolvent, he has, within four months before the filing of the petition, or after the fifing of the petition and before the adjudication, procured or suffered a judgment to be entered against himself in favor of any person, or made a transfer of any of his property, and the effect of the enforcement of such judgment or trans-. fer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class. * * *
“(b) If a bankrupt shall have procured or suffered a judgment to be entered against him in favor of any person or have made a transfer of any of his property, and if, at the time of the transfer, or of the entry of the judgment, or of the recording or registering of the transfer if by law recording or registering thereof is required, and being within four months before the filing of the petition in bankruptcy or after the fifing thereof and before the adjudication, the bankrupt'be insolvent and the judgment or transfer then operate as a preference, and the person receiving it or to be benefited thereby, or his agent acting therein, shall then have reasonable cause to believe that the enforcement of such judgment or transfer would effect a preference, it shall be voidable by the trustee and he may recover the property or its value from such person. * * * ”

In the ease of In re Connolly (D. C.) 100 F. 620, 627, the court said: “The transactions in July, resulting in bills of sale to Jones, were intended to prefer certain creditors of Connolly, including Jones himself. As Jones took part in these transactions, knowing the intention to prefer, and attempting to profit thereby, the bill of sale of July 24, 1899, was void, and (against the trustee) conveyed no title to the property.”

See, also, the recent case of In re Putterman et al. (D. C.) 46 F.(2d) 175, 176, and Elliotte v. American Savings Bank & Trust Co. (C. C. A.) 18 F.(2d) 460, 462.

The so-called surrender of the property by the lessee to the lessor, being done under the color of a bill of sale and lease cancellation clearly prejudicial to the rights of the other creditors, was not such an abandonment of the lessee’s property as to place it without the reach of the bankrupt’s creditors —or of "the trustee, who “shall be deemed vested” with all their “rights, remedies, and powers.” Bankr. Act § 47a(2), 11 USCA § 75 (a) (2).

The courts have repeatedly refused to allow the provisions of the Bankruptcy Act relative to preferences to be evaded by indirect means. In Stern et al. v. Louisville Trust Co. et al., 112 F. 501, 503 (C. C. A. 6), the court laid down the following doctrine: “However devious the method, if the result is that, but for the act, the creditor acquires property from the debtor which is subject at law or in equity to be appropriated to the satisfaction of the debtor’s obligations, that is a transfer within the meaning of the law. Coll. Bankr. (3d Ed.) 356; Loveland, Bankr. 464.”

See, also, Roberts et al. v. Johnson et al. (C. C. A.) 151 F. 567, 570, and In re Blount (D. C.) 142 F. 263, 268, 269.

The special master and the court below properly held that the oral agreement, if any existed, did not convey the title to the sign to the lessor; that the written lease was silent on the subject and that therefore title to the sign was governed by the principles of law applicable to trade fixtures; and that the purported bill of sale and “surrender” of the premises were clearly preferential as against other creditors and would not prevent the trustee, clothed with the rights of “a judgment creditor holding an execution duly returned unsatisfied,” from recovering the sign for the benefit of the estate.

Judgment affirmed.


author: NETERER, District Judge.

text:
    COMMISSIONER OF INTERNAL REVENUE v. ATHERTON et al.
    No. 6412.
    Circuit Court of Appeals, Ninth Circuit.
    June 15, 1931.
    G. A. Youngquist, Asst. Atty. Gen., and Sewall Key, Wm. Cutler Thompson, and Norman D. Keller, Sp. Asst, to the Atty. Gen. (C. M. Charest, Gen. Counsel, and J. K. Polk, Jr., Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for petitioner.
    Bernhard Knollenberg, of New York City (Robertson & Castle, of Honolulu, Hawaii, and Lord, Day & Lord, of New York City, of counsel), for respondents.
    Before WILBUR, and SAWTELLE, Circuit Judges, and NETERER, District Judge.
   NETERER, District Judge.

This is a petition to review a decision of the Board of Tax Appeals (19 B. T. A. 1172), which held that the respondents were not taxable under the Revenue Acts of 1921 and 1926 for income taxes for the years 1922, 1923, and 1925. The respondents are trustees under a deed of trust dated May 1, 1922, by which the Honolulu Rapid Transit Company, Limited, an Hawaiian corporation, conveyed to them certain lands for the benefit of the stockholders of the company.

By its original charter the Honolulu Rapid Transit Company, Limited, was authorized to purchase, hold, sell, and deal in lands, etc. In 1921 the company was granted a new charter, the purpose of which was to confine the company to a fair return on its property actually used for public utility purposes. Thereupon the properties of the company which could not be utilized for public utility or railway purposes were transferred to the respondents, as trustees, to be sold when favorable terms could be arranged; in the meantime the trustees to pay taxes and expenses, • collect rents, and. distribute the proceeds to the stockholders of the company, who were the beneficiaries of the trust. This method of disposal of the nonutility properties was approved by the stockholders of the company, and they were issued certificates of interest in the trust in proportion to their stock holdings in the company. The property so transferred consisted of seven parcels, three of which were sold in 1922, one in 1923, and one in 1925, and the money distributed to the certificate holders. The question for consideration is, Was the trust referred to an association taxable as a corporation under the Revenue Acts of 1921 and 1926?

The purpose for which the trust was formed was liquidation and distribution of the real estate holdings of the Honolulu Rapid Transit Company, Limited, which could not be utilized by the company for transit purposes. With the conveyance of the property to the trustees, the grantor lost all control thereover. There was and is nothing that required the time, attention, or labor of any one for profit or for livelihood. The beneficiaries had and have a common interest, but no immediate right to voice any authority, directly or indirectly, in the management of the property. Crocker v. Malley, 249 U. S. 223, 225, 39 S. Ct. 270, 63 L. Ed. 573, 2 A. L. R. 1601. And no obligation rested on them for any liability for debts. The land was listed with land agents for sale and sold by others than the trustees for cash in hand, or “within a short time.” No mortgages were taken and no papers discounted. No office or place of business was maintained. Sales were kept track of by one Davis, and the money deposited in bank and later distributed to the beneficiaries, on instructions given by the trustees. Such activities as the trustees exercised were in furtherance of liquidation and distribution. It is conceded by the récord that the trustees did no business except to collect rent on the parcels involved, pay taxes and expenses thereon until sold, and distribute the net proceeds to the certificate holders as proceeds became available.

Regulation 69 of article 1504 provides: “Where trustees merely hold property for the collection of the income and its distribution among the beneficiaries of the trust and are hot engaged, either by themselves or in connection with the beneficiaries in the carrying on of any business, and the beneficiaries have no control over the trust, although their consent may be required for the filling of a vacancy among the trustees or for a modification of the terms of the trust, no association exists, and the trust and the beneficiaries will be subject to tax as provided by section 219. * * * ”

Section 219 (a) of the Revenue Act of 1921 (42 Stat. 246) provides:

“That the tax imposed by sections 210 and 211 shall apply to the income of estates or of any kind of property held in trust, including : * * *
“(4) Income which is to be distributed to the beneficiaries periodically, whether or not at regular intervals, and the income collected by a guardian of an infant to be held or distributed as the court may direct.”

Section 219 (a) (4) of the Revenue Act of 1926 (44 Stat. 32) provides: “Income which, in the discretion of the fiduciary, may be either distributed to the beneficiaries or accumulated.”

In White v. Hornblower (C. C. A.) 27 F.(2d) 777, 778, a real estate development company was organized to develop tracts of land in New Mexico and Colorado. It was unsuccessful. The security holders were widely scattered. The trustees were given full power to take “such steps and measures as will insure the most prompt and efficient realization upon the values in the Costilla property and a winding-up of its affairs and the affairs of this trust. * *“ * The provisions of the trust deed might be modified by the trustees, if assented to by a majority of the certificate holders.” The court held it to be a strict trust, and not an association within the revenue laws.

In United States v. Emery, 237 U. S. 28, 35 S. Ct. 499, 59 L. Ed. 825, certain land was occupied for dry goods business by Emery & Co. Some of the lands were leased. Before enactment of the tax laws, some members of Emery & Co. organized the claimant to acquire the lands occupied by the dry goods company and lease them to the company; it taking the management and assuming responsibility in respect thereto. The only business the claimant did was to collect and distribute rents received. The charter powers of the claimant included performance, and enforcing performance, of the respective covenants in the lease taken over, and the sale of the property or any part of it, upon the vote of not less than two-thirds of the stockholders, who were very nearly the same as those of the company. It was also covenanted to rebuild in case the buildings were destroyed. There was no oeeásion to perform any of these undertakings. The court héld it a trust, saying, at page 32 of 237 U. S., 35 S. Ct. 499, 501: “The claimants’ characteristic charter function, and the only one that it was carrying on, was the bare receipt and distribution to its stockholders of rent from a specified parcel of land.”

In Zonne v. Minneapolis Syndicate, 220 U. S. 187, 31 S. Ct. 361, 55 L. Ed. 428, it was held that an organization formed as a holding concern of real estate for distribution and liquidation, and incidental activity, as collection of rents, sale of property, payment of taxes, etc., and distribution of the accumulated proceeds, is not doing business. This was indorsed in United States v. Emery, supra.

The controlling feature of a trust is an association of individuals for administration of an estate for liquidation and equitable distribution, and the controlling distinction of an association is an association of individuals for administration of an estate for convenience and profit. In Hecht v. Malley, 265 U. S. 144, 44 S. Ct. 462, 68 L. Ed. 949, the trustee was conducting business.' In the instant case the trustees are holding parcels of land for an opportunity to sell, collecting rents and paying taxes and distributing available funds, and it is a strict trust. Crocker v. Malley, 249 U. S. 223, 39 S. Ct. 270, 63 L. Ed. 573, 2 A. L. R. 1601; White v. Homblower (C. C. A.) 27 F.(2d) 777; Blair v. Wilson Syndicate Trust (C. C. A.) 39 F.(2d) 43; Lucas v. Extension Oil Co. (5th C. C. A. Feb. 18, 1931) 47 F.(2d) 65, par. 663, Prentice-Hall, 1931 Federal Tax Service; Allen v. Commissioner (2d C. C. A. May 11, 1931), 49 F.(2d) 716, par. 1209, Prentice-Hall, 1931 Federal Tax Service.

The appellant moves, in the event' the court holds the land trust to be a strict trust, that this court reverse the order of the Board of Tax Appeals denying a rehearing, and that the ease be remanded to the Board of Tax Appeals to determine the tax due from the trust by reason of the increased value of the land at the date of sale over the value on March 1, 1913. The record discloses that the proceeds of the sales were immediately distributed, and it is stipulated that the trustees did no business except to collect and ' distribute the net proceeds available, and the payment of any income fell within section 219 (a) (4), supra, and accordingly the certificate holders were subject to a tax.

The decision of the Board of Tax Appeals is affirmed.