author: NETERER, District Judge.

text:
    In re PUGET SOUND SAVINGS & LOAN ASS’N.
    No. 31632.
    District Court, W. D. Washington, N. D.
    April 4, 1931.

      MeBumey & O’Brien, Byers & Byers, and A. J. Westberg, all of Seattle, Wash. (Leopold M. Stem, of Seattle, Wash., of counsel), for petitioners.
    Lewis & Black and Colvin & Rhodes, all of Seattle, Wash., for alleged bankrupt.
    John H. Dunbar, Atty. Gen., of Washington, and Greene & Henry, C. E. Gates, Miller & Weiss, and Moore & Higgins, all of Seattle, Wash., for objectors to petition.
    Caldwell & Lycette, of Seattle, Wash., amici curiae, for temporary receiver.
    Grinstead, Laube, Laughlin & Meakim, of Seattle, Wash., amid curiae, for Washington Savings & Loan League.
   NETERER, District Judge.

In this memorandum the alleged bankrupt will be referred to as the saving and loan assodation.

Involuntary adjudication in bankruptcy is sought by three shareholders and one intervening shareholder of the alleged bankrupt," alleging payment of money within three years, that over withdrawals and offsets there remains $2,063.54, $1,698.94, $5,350, and $98.10, respectively; that the said association is insolvent and within four months next preceding committed an act of bankruptcy when a “receiver was put in charge of its property” by the state court. Objections and answers have been filed by the alleged bankrupt, and many shareholders, and by the receiver as amicus curiae, and a memo brief by the Washington Savings & Loan League as amid curiae, a voluntary group representing savings and loan associations operating under the laws in this state.

The assodation, receiver, and appearing shareholders deny petitioners are creditors, and all parties deny insolvency. The assodation admits its capital is impaired, and that it was in an “unsound condition within the meaning of the statute,” and upon this admission the receiver was appointed. At bar it is stated that there are 27,000 shareholders, and between fourteen and fifteen million dollars in assets, and an impairment of approximately $2,000,000. The issue now submitted is whether the petitioners are creditors, and, if so> was the appointment of a receiver an act of bankruptcy?

On February 7, 1931, the board of directors of the savings and loan assodation, acting within its powers, passed a resolution that no withdrawals of shares be permitted, unless previous notice be given, and only then on further order of the board.

The basic principle underlying the methods and business of savings and loan associations under the Washington statute is mutuality. The purpose is to create a fund by periodic payments by its members. It has no function save to gather contributions to justify loans to such of its members as desire to avail themselves of the privilege. Payments made by members “at any time shall be deemed to be the authorized capital.” Laws of Washington 1925, pp. 397, 398, § 1 (g). Each petitioner signed a membership card “consent (ing) to the rules, regulations and by-laws.” The passbook issued to each shareholder, as evidence of the holder’s shares, has this provision, “The holder of this passbook is subject to the rules and regulations appearing herein and to the by-laws of this association,” and the following: “The legal holder of this passbook owns one-one hundredth part of a paid up share of the capital stock of the association for every dollar standing to his or her credit on the books of the association, subject to the by-laws.” A statement as to withdrawals and that money paid for credit of a member “on or before the fifth of the month will earn dividends from the first day of the month. In January and July this date is extended to the fifteenth, * * * ” and statement as.to juvenile accounts.’

The shareholders are a collection of individuals united under a collective name, sharing equally profits and losses, and enjoying privileges and immunities in their collective character which do not belong to the individuals composing it. The entire membership composes a distinct entity. See City of Los Angeles v. State Loan & Trust Co., 109 Cal. 396, 42 P. 149; Wells v. Black, 117 Cal. 157, 48 P. 1090, 37 L. R. A. 619, 59 Am. St. Rep. 162. The relation is sui generis. It has been styled a corporate copartnership. Towle v. American Building, Loan & Inv. Co. (C. C.) 61 F. 446. The policy of the state in its provision for savings and loan associations is to promote the general welfare by accumulation of the “small savings belonging to the industrious and thrifty.” Mercantile Nat. Bank v. New York, 121 U. S. 138, 7 S. Ct. 826, 838, 30 L. Ed. 895. Any person may become a shareholder on approval of his application and payment of the membership fee and dues. The membership of the association shall consist of those holding shares. Section 3720, Rem. Comp. Stat. Minors may hold shares free from the control of lien of all other persons (section 3721, Rem. Comp. Stat.), and shares held by members shall he free from taxation (section 3732, Rem. Comp. Stat.). A contingent or reserve fund equal to 5 per cent, of its capital must be maintained (section 3721); when losses exceed the contingent and reserve fund and undivided profits, the director of efficiency may proceed to wind up the affairs of the association as provided by section 3729, Rem. Comp. Stat. No cause of action is saved to the shareholders, as such, by the provisions of, the statute.

No “demand” or “commercial cheeking account” shall be carried, nor shall any savings account be received without issuing shares of stock for the same. Section 3727, Rem. Comp. Stat. The term ‘‘deposit” or “depositor,” when used, must be considered in the sense of operation of the association, since the “deposits” furnish the only capital which is invested and employed. Bank of Redemption v. Boston, 125 U. S. 60, 8 S. Ct. 772, 31 L. Ed. 689; Aberdeen Savings, etc., Ass’n v. Chase, 157 Wash. 351, 289 P. 536, 290 P. 697.

A distinguishing difference between a savings and loan association and a eommerieal corporation is that a shareholder of a savings and loan association has a right to withdraw (section 3755, Rem. Comp. Stat., and bylaws of the association) by giving notice of withdrawal and be relieved from further payments (Merchants’ Nat. Bank v. Continental Building & Loan Ass’n (C. C. A.) 232 F. 828), and on demand for payment of matured shares the collective relation, is severed, and that of debtor and creditor created.

It is obvious that petitioners, as shareholders, bear the same relation to the corporation and general creditors, except as to earned dividends, as does a shareholder, or stockholder in a commercial corporation. After general creditors are paid, a stockholder in a commercial corporation and in a savings and loan association is entitled to his distributive share of the assets of the corporation. Sections 3277 and 3721,. Rem. Comp. Stat. Each is entitled to his pro rata portion of its assets. Huber v. Home Savings, etc., Ass’n, 99 Wash. 593, 169 P. 979.

A “creditor” is one who has a “claim provable in bankruptcy.” Section la (9), Bankruptcy Act, 11 USCA § 1 (9). If claims in issue are provable debts under the Bankruptcy Aet, it must be (section 63a (4), 11 USCA § 103 (a) (4) “founded upon an open account, or upon a contract express or implied.” It is obvious that it is not an open account,1 and upon the record and statute, the only contractual relation is statutory, and until the withdrawal or demand on matured shares there is no obligation to pay. A method of payment is specifically provided: “ * • * * Shares may be withdrawn at any time after one year from the time of issuance. The withdrawing shareholders shall be paid the amount of withdrawal value of the shares, as shown by the last prior distribution of profits, together with all dues paid thereon since such distribution. * ■ * * Withdrawals shall be paid in the order of their filing * * * not more than two-thirds of the receipts of the association in any one month shall be applied to the payment of withdrawals and matured shares without the consent of the board of directors. Whenever an application for withdrawal shall have been on file or the payment of matured shares demanded, and either shall have remained unpaid for a period of six months, all receipts of the association in any one month from dues, loans repaid and the proceeds of all other investments shall, after the payment of expenses and general indebtedness be applied to the payment of withdrawals and matured stock, and the board of directors, or the state auditor (director of efficiency), in his discretion may direct that withdrawals be paid upon a ratable and proportionate basis. * * »»

The contract was fully executed; the membership fee and capital stock paid, and certificates, or passbooks, issued. Nothing remained but to await the fruits of the investments, “profits and losses,” profits to be paid June 30 and December 31 of each year. Section 3722, Rem. Comp. Stat.

Before a right of action accrues to the shareholder, notice of withdrawal must be given and demand for matured shares made, and money be in the treasury, as provided by section 3731, and the directors withhold payment. Heinbokel v. Nat. Savings, etc., Ass’n, 58 Minn. 340, 59 N. W. 1050, 25 L. R. A. 215, 49 Am. St. Rep. 519; Stilwell v. People’s, etc., Ass’n, 19 Utah, 257, 57 P. 14.

The Circuit Court of Appeals of the Fifth Circuit, in Curtis v. Dade County Securities Co., 30 F.(2d) 325, 326, in passing upon a Florida statute similar to the Washington statute, said: “Rights possessed by one by reason of his relation to a corporation as a stockholder do not make him a creditor of the corporation, and liabilities of a corporation to its stockholders on account of their stock are not debts of the corporation, within the meaning of the above-quoted provision [referring to the Bankruptcy Act, § la (15), 11USCA § 1 (15) ].” And further in the same ease said: “But, whether appellants did or did not, as between themselves and the Company or its other stockholders, have the right to withdraw what they had paid in on their stock, their claims, based on their relation to the Company as stockholders, are not ‘debts’ within the meaning of the above set out provision of the Bankruptcy Act.”

A stockholder, as such, is not a creditor of the corporation whose stock he owns. In re Eureka Anthracite Coal Co. (D. C.) 197 F. 216; Cook et al. v. Emmet Perpetual & Mutual Building Association of Baltimore, 90 Md. 284, 44 A. 1022; Hannon v. Williams, 34 N. J. Eq. 255, 38 Am. Rep. 378; Missouri Valley Cattle Loan Co. v. Alexander (C. C. A.) 276 F. 266; Curtis v. Dade County Securities Co., supra.

The shareholders are bound by the statutory provisions and by-laws not inconsistent with the statute. Columbia Building, etc., Ass’n v. Junquist (C. C.) 111 F. 645; Heinbokel v. Nat., etc., Ass’n, supra; Stilwell v. People’s, etc., Ass’n, supra; Kent v. Quicksilver Min. Co., 78 N. Y. 159. In this case the shareholders, under a special declaration, hold one one-hundredth part of a paid up share of the capital stock of the association for every dollar paid, emphasizing the collective corporate status. That a shareholder is not a creditor by the terms of the statute is obvious by section 3742, Rem. Comp. Stat., which' provides, among other things, that, after paying indebtedness the assets reduced to cash shall be distributed among the shareholders — clearly distinguishing between creditors and shareholders. In section 3755, Rem. Comp. Stat., upon conversion of a savings and loan company into a mutual savings bank, it provides that every person who was a shareholder shall become a depositor of the bank equal to the withdrawal value of his share in the savings and loan association, specifically providing that a shareholder in the savings and loan association shall become a creditor of the savings bank on conversion — emphasizing the distinction between shareholders and creditors in both sections.

While many shareholders are denying the petitioners are creditors, that has no determining force on the legal status and right of the petitioners. It is, however, a circumstance to be considered as to the construction and conduct of a substantial number of shareholders, related as petitioners. By statute the state governs the operation of savings and loan associations. The statute fixes the relation and establishes the right of shareholders and prescribes the duties and limits the powers of the managing officers (Home Building & Loan Ass’n v. Barrett et al., 160 Mo. App. 164, 141 S. W. 723), and clothes with ample power specially charged officers with the duty to see that the laws are carried into effect, and whenever the affairs of the association are in an “unsound condition”— when the losses exceed the contingent and reserve funds and undivided profits — “the director of efficiency may direct the inspector of savings and loan associations to take possession,” and if the affairs of the association are not restored to a sound condition within twenty days, the Attorney General shall institute proceedings in the state court for the appointment of a receiver. In furtherance of the express statutory provision, the Attorney General, as the statutory agent of all the shareholders by operation of law, and the instrumentality of the state, and pursuant to statute, sued in the state court and had a receiver appointed on the ground that the association is in an unsound condition; and the estate is now in process of liquidation in the state court. Query: May petitioners, if otherwise qualified, maintain their petition after institution by the Attorney General of the proceedings in the state court and placing the estate under liquidation ? See In re Commonwealth Lbr. Co. (D. C.) 223 F. 667.

Merchants’ Nat. Bank v. Continental Build. & L. Ass’n (C. C. A.) 232 F. 828, claimed by petitioners to be decisive of this issue, is not in point. The California statute is not set out, but was no doubt controlling. Curtis et al. v. Dade County Securities Co., supra, is strictly in point and based upon tbe Florida statute (section 6168, Compiled General Laws of Florida 1927, vol. 3), in all material respects like the Washington statute (section 3731, Rem. Comp. Stat.), and the court, passing directly upon the point in issue, held that a shareholder in the association has no enforceable right to withdraw until the accrual of a fund applicable to withdrawing shareholders; and affirmed the order of dismissal.

In Merchants’ Nat. Bank v. Continental, etc., Ass’n, supra, the issue at bar was not before the court. The order of adjudication had been entered upon a voluntary petition. No objection was made to the court’s jurisdiction by any one at any time. The assets were many times the indebtedness. The appellant, a general creditor, rightly claimed priority over the distributing shares of the shareholders, at a meeting of the creditors moved that shareholders of the bankrupt be denied the right to vote, upon the ground that they were not creditors. This was denied, and when appellant endeavored to vote he was asked by the referee whether he waived his prefer- • enee as a general creditor, and, failing, was denied the right to vote. The court, at page 830 of 232 F., said: “Petitioner is scarcely in a position to urge serious harm,” and On page 832 of 232 F., “ * * * no possible harm was done to the appellant by denying it the right to vote for a trustee, it has no cause for complaint.” At page 831 of 232 F.: “Building and loan associations are at once distinguishable from ordinary commercial corporations. In building and loan corporations, where' the capital stock consists of the dues paid in by members, together with the apportioned profits, the shareholder has a right to withdraw at any time from the association and to receive what has been paid in plus his share of the profits earned and minus the penalties imposed for withdrawal, without being compelled to complete his stock subscription.” The court says, “has a right to withdraw” and be paid, irrespective of money accrued to meet payment? This was evidently in accord with the California statute, and in this it is radically different from the Washington statute. See section 3731, supra.

A shareholder may be, also, a creditor, and his right, to the extent that he is a creditor, may not be denied. A shareholder under the Washington statute is entitled to the computed dividends taken from the net earnings, to be paid at stated times, and to that extent he is a creditor. Payments made by him are capital; computed dividends taken on the payments is a credit.

The Court of Appeals recognized that a procedure in bankruptcy is in the nature of a proceeding in equity. Bardes v. Hawarden First Nat. Bank, 178 U. S. 524, 535, 20 S. Ct. 1000, 44 L. Ed. 1175, and affirmed the order of the lower court, which, in good conscience, should have been done, in view of all of the circumstances, and absolutely no ¡harm to the objecting general creditors, and disposed of the ease by the application of good common sense to the issue before it. In Alexander et al. v. Southern Home, etc., Ass’n (C. C.) 110 F. 267, Judge Pardee held that holders of paid up stock, or stockholders who gave notice of withdrawal before the receivership, were transformed to creditors.

The disenablement of the association, by the appointment of a receiver in the state court from carrying on, did not change the legal status or relation of the petitioning shareholders, and in that this case is clearly distinguished from Central Trust Co. v. Chicago Auditorium, 240 U. S. 581, 36 S. Ct. 412, 60 L. Ed. 811, L. R. A. 1917B, 580, where the disablement from performing an executory contract constituted a breach, and the cause of action accrued and made the demand actionable and, therefore, provable in bankruptcy; while here, there was no executory contract, and the petitioners had no enforceable right disclosed in the petition -(eases supra), and they are on an equal status and relation with (so stated at bar) 27,000 shareholders, and are entitled to their proportionate distributive share after general indebtedness is paid.

The issue at bar has never been directly considered by the Supreme Court of the state, as contended by the petitioners. Interstate S. & L. Association v. Cairns, 16 Wash. 215, 47 P. 509; Interstate S. & L. Association v. Knapp, 20 Wash. 225, 55 P. 48, 931; Hale v. Stenger, 22 Wash. 516, 61 P. 156; U. S. S. & L. Ass’n v. Parr, 26 Wash. 115, 66 P. 109, involve payments pertaining to accounting with relation to mortgages and payment of dues, fines, penalties, ete., and not predicated upon the present law, and its relation to the savings and loan system.

Time does not permit a detailed analysis and would unduly extend this memoranda. Huber v. Home Savings & Loan Ass’n, 99 Wash. 593, 169 P. 979, and Aberdeen Savings & Loan Ass’n v. Chase, supra, were upon other independent issues, and what was said with relation to debtor and creditor of savings and loan association shareholders was merely incidental, perhaps loosely expressed, which eases are cited in support of some statements herein made, but cannot be considered as at all authority in support of the petitioners, in view of the expressive language employed in the state statute, supra. Savings Bank of Danbury v. Loewe, 242 U. S. 357, 37 S. Ct. 172, 61 L. Ed. 360, holds that a deposit in a savings bank account held for investment is a vested right, and under the attachment statute of Connecticut, section 936, Gen. St. 1902, reaches the share and earnings. So concluding, the alleged act of bankruptcy will not be discussed.

The petition does not disclose any relation of debtor and creditor under the Bankruptcy Law, and the petition is dismissed.


source: Caselaw Access Project

author: CAFFEY, District Judge.

license: Public Domain

text:
    THE ANTHONY D. NICHOLS. PEDERS et al. v. HARTFORD FIRE INS. CO.
    District Court, S. D. New York.
    Dec. 17, 1930;
    Jan. 29, 1931.

      Kirlin, Campbell, Hiekox, Keating & McGrann, of New York City (E. S. Murphy, of New York City, of counsel), for libelantá.
    William F. Purdy, of New York City, for respondent.
   CAFFEY, District Judge.

There are some interesting and close legal questions in this ease. Upon several I am doubtful. Due to the considerable number of authorities cited and the lateness with which they were brought to my attention, I have not had opportunity, to make up my mind finally. In consequence, I must choose between two alternatives as the method of disposing of the ease. I could reserve decision and deal with it hereafter, or I can express an opinion now. I have decided to follow the latter course. Counsel must understand, however, that the present opinion is tentative. I shall take the papers with me. When I find the time I shall make a more complete and deliberate examination of the authorities. I reserve the right, after I have done that, to change the result that will follow from the impressions which I now entertain as to what is the law. This seems to me better than wholly reserving decision.

From' the evidence I find these facts:

(1) The schooner was owned by the libelant Peders, and there was a mortgage on it held by the libelant Williams, as alleged in the libel.
(2) The premium of $200, as required by the terms of the policy, was paid.
(3) The insured property was destroyed by fire on February 28, 1928.
(4) This occurred at a point in the open sea four and a half miles or more off the northern coast of Yucatan.
(5) The location of the point at which the fire occurred was within the usual and ordinary lane or route followed by craft, of which the schooner was a type, in passing in the course of voyages from points on the coast of the United States to points in Cuba and other parts of the West Indies.
(6) Preceding the fire, the schooner had been into' the port of Progreso, which is also on the northern coast of Yucatan.
(7) There was no concealment by the schooner or its representatives or by libelants or either of them, of an intention during the life of the policy to have the schooner go to a Mexican port.
(8) The value of the property destroyed by the fire was, at the time, $20,000.
(9) There was then insurance on the schooner, issued by six other companies, for an aggregate amount of $8,000, outside of the insurance covered by the policy in suit.
(10) Proof of loss was furnished to the insurer, through its duly authorized New York agent, and this was presented on April 16, 1928.
(11) The next day, namely, April 17, 1928, on behalf and as the duly authorized representative of the insurance company, the New York agency rejected the proof of loss, returned it with the accompanying documents to the insured, and disclaimed any liability on the part of the company.
(12) In so rejecting the proof of loss and denying liability, it was expressly stated in writing by tbe agency to the insured that there was nonliability because, of violation of the terms of the policy through the fire having occurred outside of the limits prescribed for coverage by the terms of the policy; and no other ground for repudiating liability or refusing payment was then assigned.
(13) The proof of loss included a statement of, and was accompanied by a document which correctly described, the approximate location of the fire which resulted in the loss of the schooner.
(14) The proof of loss correctly listed other insurance on the schooner in six companies, with the amounts of the outstanding policies and the names of the companies.
(15) At the time of the fire there was on board a considerable quantity of 'gasoline.
(16) A surveyor named Williams was the duly authorized agent of the insurance company to conduct a survey of the schooner and report thereon to the company.
(17) Prior to the policy sued on being delivered or going into effect, the Williams survey report was furnished, and its contents were known, to the company through its duly authorized agent whieh was charged with the acceptance, issuance, and delivery of the policy.
(18) The survey report contained information on its face that there were on board, and as part of the equipment of the schooner, a gasoline pump and a gasoline engine.
(19) The surveyor, preceding the making of this report, knew by a visit to and examination of the schooner that there was gasoline on board and that the schooner was equipped for the carriage and use of gasoline.
(20) By reason of examination by the insurer, through its duly authorized agent, of the survey report, there was, in advance of issuance of the policy, reasonable ground for the insurance company to anticipate that in regular course the schooner would carry gasoline aboard, at all times.
(21) The presence on the schooner of gasoline in the quantities disclosed by the evidence inherently increased danger of fire on, and/or if fire occurred, increased danger of destruction of or injury to, the insured property.
(22) Gasoline on board the schooner at the time of the fire was not a factor in,, nor did it contribute toward, causing the fire as the result of whieh the schooner was destroyed.
(23) The proof of loss did not itself disclose or contain any reference to the presence on the schooner of gasoline at the time of the fire.
(24) At the time of the rejection of the proof of loss on April 17, 1928, so far as revealed by the evidence, there was no actual knowledge on the part of the insurance company and/or its representative who rejected the proof of loss that at the time of the fire there was gasoline on board the schooner.

I turn now to the law questions. I shall take them up substantially in the order in which they have been discussed by counsel.

It is quite essential, in disposing of these questions, to examine with care the precise provisions of the policy under which arise the contention as to the fire having occurred outside of the insured limits and the several defenses. The issues cannot fairly or at all be determined without bearing in mind the phraseology employed in the policy. Moreover, the decisions of the courts, federal and state, relied on by counsel, are not of consequence, unless we take into account, and their bearing cannot be determined without taking into account, the exact terms of the policies that were litigated in those cases.

On the question as to whether the fire occurred within or without the insured lim- ' its, we must pass on these words in the policy: “This policy to cover said vessel only while on inland and coastwise waters of the United States and West Indies and waters tributary thereto.”

This language is very different from that used in a good many of the cases cited. It is clear from what is said in a number of those eases that they arose under policies that prescribed ports or contained descriptions of points between which voyages must occur in order to keep within coverage by the policies.

It does not seem to me that the language I have just quoted deals — and certainly it does not deal directly — with voyages. 'On the contrary, it very plainly defines localities" at which an insured loss may occur. I think that is the uneseapable interpretation of the policy. Note that it speaks of the vessel “while on” certain waters. It says that those waters are “inland and coastwise waters of the United States and West Indies and waters tributary thereto.” We are bound to give effect to what, under the circumstances, the parties meant when the words “tributary thereto” were used. Did the fire occur at a time when the schooner was “on” waters which were “tributary” to those which are specified by territorial names?

The poliey obviously was obtained by the schooner to protect it in the course of its operations. With equal certainty, the insurer committed itself to cover the vessel while on inland or coastwise waters of the United States and while on inland or coastwise wa'ters of the West Indies, and while on waters tributary to such inland or coastwise waters. I have no sympathy with the narrow and technical way in whieh many courts have at times dealt with insurance policies. In ascertaining intention, I see no reason why insurance companies should be treated differently from people not engaged in insurance. Nevertheless, in construing a poliey, it is only justice, as between insurer and insured, that the circumstances under which it was issued and its purpose be borne in mind just precisely as they must be taken into account when construing contracts between others where the relation is wholly apart from the subject of insurance.

Inasmuch as the policy used the words “while on,” I reject the contention that it was' contemplated that a deviation into a Mexican, port — being manifestly not within either the inland or the coastwise waters of the United States or of the West Indies — the mere act of going into that port, should prevent recovery. The reasonable interpretation of the poliey is that, if the fire had occurred while the schooner was inside such a port, and therefore without the waters permitted by the poliey, there could be no recovery. But here the fire was not in a Mexican port. It occurred in the open sea. It was four and a half or more miles from the coast. The fact that previous to the fire the schooner had been into Progreso or into Monte de Cuyo may therefore be disregarded. It does not affect the question of liability.

As established by the testimony of a number of experts in the navigation of sailing ships, it is customary for a sailing ship going from a port on the coast of the United States to a port in Cuba or elsewhere in the West Indies quite frequently to pass exactly along waters which would include the point at whieh the fire occurred. Was the point, on that account, within “waters tributary” to “inland and coastwise waters of the United States and West Indies?”

It does not seem to me that we can properly limit the word “tributary” to what is perhaps its most frequent geographical significance. I think to consider that tributary, as here employed, is confined to a river or lake or other similar body immediately connected with another body of water of larger size would be entirely too restrictive. This poliey, as in the case of all policies, was framed and issued by the insurance company. In consequence, following the ordinary rule for construing contracts, we are entitled to exercise liberality toward the insured in determining what was the intent or what was the meaning. Plainly, as it seems to me, it was a permissible meaning of the word “tributary,” as here used, in the connection in which it was employed, and particularly as it deals with waters, that it included afi the waters on whieh the vessel would ordinarily go, or which in the Usual course of navigation would be traversed, in passing between waters on the coast of the United States and waters in the West Indies.

The result of what I have said is that the defense of the loss occurring outside of insured waters, whether regarded as arising under the general denials of the answer or on one of the special defenses, cannot be sustained. If that were all that is involved in the ease, the libelant would be entitled to a decree.

I come next to paragraph 20 of the amended answer, setting up insufficiency of the proof of loss.

The language of the pleader is so general that I have been doubtful as to precisely what is the objection relied on by the respondent. However that may be, under all the authorities "as I understand them — certainly on very high authority — the rejection of the proof of loss and the disclaimer of liability for a single designated reason, without including any complaint of insufficiency of the proof of loss, is a waiver or constitutes an estoppel. In the letter of April 17,1928, Exhibit 4, the insurance company denied liability exclusively on the ground that “this loss occurred while outside the waters provided for in our poliey.” In consequence, I cannot uphold the defense as to insufficiency of proof of loss.

Turning now to the defense of other insurance, the facts are clear. On these facts, considering the way in which the poliey is worded, but for a circumstance to which I shall soon advert, I should hold — at least I should be very strongly inclined to hold — that the defense is good.

The first thing that seems to me probably to differentiate the ease at bar on this point from the very well-settled authorities on whieh the respondent- relies is that in the present policy there is a coinsurance clause. As was well recognized by both parties apparently, this is the New York standard form of policy. In addition, it is to be borne in mind that the policy was delivered in the state of New York. It seems to me, therefore, that we must give more than usual weight to the decisions of the New York courts as to the proper interpretation of the policy. It may be that this is such a general question of law that, if there were any difference between the decisions of the New'York state courts and the decisions of the federal courts, we should be bound to prefer the latter. At the moment, however, there is no occasion to determine that. If we are to follow the New York decisions, I am quite impressed with the view taken by Judge Bisckoff in the Catoosa Case, 18 Misc. Rep. 209, 41 N. Y. S. 377, cited by libelant. Again, applying the ordinary principles for construing contracts, if there be any repugnance between clauses in different parts of the policy or if it be doubtful of meaning or if it contain ambiguities, the insured is entitled to have the court apply any reasonable interpretation favorable to him that the wording of the policy will allow.

The coinsurance clause meant something. It eertainly contemplated either that additional insurance would be taken out by the insured or else that, through failure to get additional insurance, he would put himself in position where in effect his loss would not at all be reimbursed by the policy in suit. Judge Bisehoff squarely held that the inclusion of the coinsurance clause was, in and of itself, an assent, expressly embodied in the policy, to the insured carrying additional insurance. If that be a correct interpretation, then it would seem to me that, within the provision on the back of the policy, lines 32 to 37, in regard to other insurance, the coinsurance clause may properly be deemed a consent to insurance which, within the terms of the clause as to other insurance, is “otherwise provided (for) by agreement in writing.”

Suppose, however, that I am wrong in this interpretation or in giving this effect to the coinsurance clause. Yet I cannot escape from the feeling that, within the well-settled authorities, the rejection of the proof of loss and the denial of liability by the insurance company after presentation of the proof of loss was a waiver of the defense as to other insurance, or, in the language of some of the eases, estopped the insurance company from setting up the defense of other insurance. The proof of loss reeited, and correctly recited, the existence of all the other insurance that existed at the time of the fire1. By reason of that fact the insurance company, on receiving the proof of loss, had it within its province, and, if it was going to deny liability on that ground, was under the duty, to base its denial of liability definitely on that ground. In discussing waiver and estoppel, the authorities are not always consistent in their reasoning. They are not always precise in stating whether the conduct of the 'insurance company constitutes a waiver or constitutes estoppel. Nevertheless, the rule on the subject, so far as I have examined the authorities, is pretty nearly universal and is uniform. As expressed in one of the cases which I examined, ■ Georgia Home Ins. Co. v. Allen, 128 Ala. 451, 30 So. 537, 539, “when one specific ground of forfeiture is urged against a policy of insurance, and the validity thereof denied on that ground alone, all other grounds are waived.” Because of waiver or estoppel I feel, therefore, that I cannot sustain the defense of other insurance.

In regard to the defense of increased hazard, I fail to discover any support in the proof, unless it be based on the presence of gasoline on board the schooner, which I shall discuss in a moment in connection with another defense.

As to concealment of intention to take a voyage into Mexico, as I have already said, there are no facts which would substantiate such a defense.

Lastly, I think there is a serious question as to what is the effect of the presence on board of gasoline. The evidence satisfactorily shows that it was on board. The presentation, previous to actual issuance of the policy, of the survey to the agency handling the issuance of the policy on behalf of the company, adequately put the insurance company on notice that in ordinary course there would be gasoline on board the schooner. I see no explanation of the significance to be attached to the disclosure in the survey of the vessel being equipped with a gasoline engine and a gasoline pump except that insurer knew they were there to be used. If there to be used, that necessarily involved employment of gasoline and, in consequence, carriage of gasoline on board the ship. The testimony of Mr. Billin malíes it manifest that, prior to delivery of the policy, he was entirely conscious of the equipment of the schooner with the facilities for the use of gasoline. While it is not very definite as to who, representing the brokers who were negotiating with him, had the conversation with him on the subject, it is perfectly clear that, from its own standpoint, the insurance company contemplated at the time of the delivery of the policy that gasoline would be employed on the schooner. Moreover, the testimony of Capt. Clausen substantiates what was disclosed in the survey report. From what he says it is plain that the surveyor, before making the report, saw the supply of gasoline on board the schooner, and, if he did not, inasmuch as, for the purpose of making his survey, he went out to the vessel at Wilmington in the schooner’s launch, he was bound to know that, as the launch was operated by gasoline, gasoline would be carried on board.

My difficulties are with respect to the extent to which these indisputable facts may be employed in the application of the doctrine of waiver or estoppel. I am inclined to think that mere knowledge of the surveyor, qua surveyor, is insufficient basis for the creation of a waiver or estoppel on the part of the company, in the absence of his having transmitted that information to the company or to its New York agency which was acting for it in issuing the policy. However, my feeling is that, at the time of the receipt of the proof of loss, the knowledge which the company had gained from the examination of the survey put on it a duty. Indeed, with the undisputed proof — produced out of the files of the company; based on the contents of the survey report itself — I am rather inclined to think that, when the company got this notice from its surveyor, and thereafter issued the policy without communicating in unequivocal form, or substantially unequivocal form, to the insured that the presence of gasoline on the schooner would avoid the policy, the course of conduct of the insurance company in that respect bars it from now setting up the defense of the presence of gasoline on board.

In addition, when the proof of loss came in, I do not think that, in order to ebnstitute waiver or estoppel, through rejection of the proof of loss and denial of liability on a single assigned ground, which did not include the presence of gasoline on board, it was necessary that there be something on the subject in the proof of loss itself. It seems to me that a fair application of the doctrine, as announced by the courts, compels us to make use, as foundation for waiver or estoppel, of this knowledge that was in the hands of the insurance company at or prior to the time when it delivered the policy.

As I have said, I reserve the right to review your authorities before I commit myself finally to these tentatively expressed views. If I adhere to them, the result will be that the libelant is entitled to a decree. The proof is undisputed that the proofs of loss were preisented to the company on April 16,1928. If, therefore, the libelant recover, the amount should include interest from June 16,1928.

On the other hand, if I change my views on the law of the case, the libel should be dismissed.

Memoranda to be submitted by December 29, 1930.

Engrossment in work of the motion part has prevented me from earlier giving further consideration to this case since the briefs came in. Time is not now available for extended discussion. I shall therefore Confine myself to somewhat summary comment on a> few points which seeamto me' controlling.

While I am not wholly free from doubt, unjustifiable delay would be required for a more extended examination of the eases than I have been able to give them in an effort to solve the doubt. Indeed, laek of dearness or uniformity in numerous decisions is some excuse for a feeling of uncertainty on the part of any one who has not had the chance for prolonged study of the subject involved here.

I still think the loss was within insured limits.

Can the policy be reasonably construed to afford coverage only while the vessel was either on waters of the United States or West Indies or on waters physically connected with or flowing into waters of the United States or West Indies? Does “waters tributary thereto” include merely waters so connected or flowing?

In the first place, it will be noted that it would be difficult to conceive of waters so connected or flowing which were not already included in the description of “inland” or “coastwise” waters of the named countries. It is incontrovertible that there could be none such not already so included, under the words “inland” and “coastwise,” unless they were waters which came out of some other country into one of the countries named. This is true because otherwise the words “waters tributary thereto” would be meaningless and without field of operation.

Is it a natural or probable meaning to assign to the words “waters tributary thereto” application exclusively to waters of other countries which connected with, or flowed into, waters of the United States or West Indies? Is it not more natural, as well as more probable, that it was within the contemplation of the parties that the vessel would pass between tbe United States and the West Indies, and that, while so passing, the insurance would be in force? Unless that were the intention, then the result would be that, while passing, in course of usual voyages, between the named countries, the design was that the vessel should be insured part of the time and uninsured part of the time; that no insurance should exist while the vessel was at sea between, and outside the coastwise waters of, the specifically named countries.

So unnatural a result should be avoided if other interpretation be possible. It can be avoided by construing “waters tributary thereto” to embrace the usual lanes of travel for a sailing ship while at sea on voyages between the United States and the West Indies. Such an interpretation is not strained. On the contrary, it is obviously consonant with the purposes which can rationally be attributed to both parties when the policy was written.

“Tributary” is both a noun and an adjective. An illustration of its use as an adjective is in Amsbary v. City of Twin Falls, 34 Idaho, 313, 318, 319, 200 P. 723. That the policy under consideration employed it in an adjective sense is clear.

While there is some conflict in the authorities, and the significance of a particular holding cannot be determined without precise ascertainment of the provisions of the policy under examination at the time, I am persuaded that the overwhelmingly sustained view of the courts is that rejection by the respondent .of the proofs of loss, coupled with a disclaimer of liability, on the sole ground that the fire occurred without insured limits, constitutes what some of the cases bail a waiver and others call an estoppel, on the part of the respondent, now to defend on the ground of other insurance.

So also I am convinced, upon what I regard as the best applicable authority, that the respondent is estopped from defending on the ground that, at the time of the fire, there was gasoline on board the vessel.

The policy in terms provided that it should not be valid until countersigned by the respondent company’s authorized agent at New York. It was in fact countersigned at New York by the Vessel Agency on July 14, 1927. Moreover, as will be observed, the execution of the countersignature at New York by the Vessel Agency was through Mr. Billin, its assistant manager, who was a witness at the trial.

The surveyor realized that gasoline .was regularly used on board the schooner. His report shows that. The report was dated July 11, 1927. It was in the hands of Mr. Billin preceding issuance of the policy. By that report he had full notice, as his testimony plainly establishes, that the schooner was equipped for using gasoline and would in ordinary course carry gasoline on board. Of what he had such, notice, he is conclusively presumed to know. Fidelity & Deposit Co. v. Queens County Trust Co., 226 N. Y. 225, 233, 123 N. E. 370. What he knew, the company knew. With this knowledge the premium was paid and accepted by the company on September 16, 1927, some two months later.

In view of the facte in evidence, and particularly of the provision in the policy that it should go into effect only by countersignature at New York, I think its meaning is governed by the law of New York. Moreover, it seems to me, that the provision with respeet to gasoline was a condition and was not a warranty.

Under the law of New York, such knowledge by the respondent, as it had through Billin as its representative, when it delivered the policy, followed by subsequent acceptance of the premium, raised an estoppel against the respondent defending on the ground that there was gasoline on board at the time of the fire. McCelland v. Mutual Life Ins. Co., 217 N. Y. 336, 111 N. E. 1062; Satz v. Massachusetts Bonding & Ins. Co., 243 N. Y. 385, 390,153 N. E. 844, 59 A. L. R. 606.

In addition, I am inclined to the view that, with such notice at the time of the issuance of the policy, denial of liability, when the proofs of loss were presented, on a ground not including breach of the gasoline clause,' constituted a waiver of the right to defend on that ground.

Libelant by brief requests additional findings that the original form of the policy was supplemented by various specified riders. I do not think the rule makes this necessary. The riders were parte of the policy, were so treated in the pleadings, and were so regarded by the parties during the course of the trial as well as in the briefs.

As I read the coinsurance elause, upon the facts in evidence, there should be no reduction below $10,000 in the amount recoverable. If, however, the parties desire further hearing on the point, they may submit memoranda or present the matter orally at a time to be arranged.

Accordingly, a decree may be taken for libelant in conformity with the tentative view I expressed at the trial.


author: FRANK J. COLEMAN, District Judge.

text:
    WEAGANT v. BOWERS, Collector of Internal Revenue.
    District Court, S. D. New York.
    Nov. 13, 1930.
    Humphreys & G-winn, Adrian C. Hum- • phreys, and Robt. N. Anderson, all of Wash- ( ington, D. C., for plaintiff.
    ' Charles H. Tuttle, U. S. Atty., of New ; 'York City (Leon E. Spencer, of New York City, of counsel), for defendant.
   FRANK J. COLEMAN, District Judge.

The question presented is whether the sums of $33,333.33 and $16,666.66 received by the plaintiff in 1917 and 1919 were taxable income or were gifts. He was an inventor employed by the Marconi Wireless Telegraph Company from 1914 until 1920 under an agreement whereby the company became entitled to all his inventions and discoveries made during the time of his employment. In 1917 he invented certain improvements in radio apparatus which the company beeame entitled to without further payment to him under the original agreement; but because of the great value of the invention the company decided to give him one-third of what the rights might be sold for in other countries. Accordingly, on October 3, 1917, a written document was entered into between him and the company which was in form a contract providing that the company would pay the plaintiff one-third of the proceeds of the sale of foreign rights in the invention in consideration for his assignment to the company Of- all his rights in the invention and in “all improvements which he has now made or which he may hereafter make on the same.” The question presented is whether this writing was a valid contract or was merely the guise under which the company made a gift to the plaintiff. Certain of the foreign rights were subsequently sold by the company for $150,000 and the two sums of $33,333.33 and $16,666.66 which the plaintiff subsequently received represented his one-third share and were paid to him under the above arrangement.

The law of this case has been established by the decision of Judge Caffey in denying a motion to dismiss the second amended complaint. He decided that the complaint al-, leged two grounds upon which the payments to the plaintiff could be held to be gifts: (1) That the instrument of Oótober 3, 1917, was not intended to be a contract, but the memorial of a gift; and (2) that, even if it were intended as a contract, there was nevertheless no consideration for the company’s promise, and that, therefore, payments made under it were gifts. It only remains to be determined, therefore, whether there is competent evidence to support the allegations oC tlie second amended complaint and in those instances where divergent inferences might be drawn whether the preponderance of the evidence is in favor of the plaintiff.

The only evidence in the case is a stipulation of fact, the deposition of the plaintiff, and an exhibit on behalf of the defendant consisting of a statement made by the plaintiff to the Treasury Department prior to the bringing of the present suit. All the exhibits offered by the plaintiff, consisting of affidavits, letters, and statements of third parties, I exclude with exception to the plaintiff on the ground that they are incompetent. Many of the questions and answers in the deposition of the plaintiff are also incompetent, but, in view of the fact fhat he was not examined in open court, and that therefore they could not be reframed, E believe that the objections to them should he overruled, with exception to the defendant.

The evidence shows that the plaintiff was employed from 1914 to 1920 under a contract terminable at the will of either party; that he received a definite salary for his services and was entitled to nothing more under the contract of employment; and that the company was entitled to all rights foreign and domestic in every invention and .discovery which the plaintiff made during his employment. When the plaintiff made the valuable inventions in 1917 the company became entitled to all rights in them merely by virtue of the previous contract of employment, and was furthermore entitled to all rights in any improvement which the plaintiff might thereafter make during the period of his employment.

When the instrument of Octobér 3, 1917, was entered into, I believe the parties did not intend that the company should receive anything more than what it was otherwise entitled to, and that, when they mentioned improvements which the plaintiff might “hereafter” make, they meant such improvements as he might make during his employment. I do not believe that they intended to bind the plaintiff for the rest of his life, whether he was employed by the company or not, to surrender all the fruits of his efforts in this field. If that conclusion is correct, the promise of the company was without consideration, and under the prior decisions in this ease the payments must he held to have been gifts.

I believe that the greater weight of the evidence is in favor of a finding that the parties intended the instrument of October 3,1917, to be a mere memorial of a gift rather than a contract. The plaintiff might have vastly strengthened his ease by getting competent evidence from the officers and directors of the company, as is shown by the exhibits which I have excluded; hut, even in the absence of it, I think the plaintiff’s uncorroborated testimony constitutes a preponderance of the evidence. I therefore direct judgment for the plaintiff. Settle findings on notice.


author: ST. SURE, District Judge.

text:
    Ex parte MASUDA TATSUMI.
    No. 20449-S.
    District Court, N. D. California, S. D.
    May 8, 1931.
    Cuy C. Calden and Russell W. Cantrell, both of San Francisco, Cal., for petitioner.
    George J. Hatfield, U. S. Atty., of San Francisco, Cal.
   ST. SURE, District Judge.

Petitioner, a subject of Japan, was, on July 13, 1928, admitted to the United States at the port of San Francisco under subdivision 2 of section 3 of the Immigration Act of 1924 (8 USCA § 203) as a temporary visitor for a period not to exceed six months, for the purpose of inspecting a Buddhist Sunday School. The Ko Sho Ji Buddhist Temple in Japan assisted him in obtaining his passport, and upon arrival here he claimed to be a Buddhist preacher, and testified that he contemplated becoming a Buddhist priest. He presented a certificate reading as .follows:

“Kyoto 7th of April, 1928, Teacher of Buddhist Sunday School Mr. Tatsiumi Masuda, age 23 years 4 months, we delegate the above person to the United States of Ameri•ca for the six months in order to inspect our Sunday School for which we hereby certify.” “Signed: Kosho Ji Buddhist Sunday School, “Koshyi Sect Provost Hasui Aoki.”

Almost two months after the expiration of his six months’ stay, about March 1, 1929, he became engaged as a bookkeeper by Z. Inouye, a treaty trader in the import and export business. Petitioner claims that he became the manager of this business about May 1, 1929.'

On July 18,1939, petitioner was taken in.to custody by the Commissioner of Humigration for the reason that he had remained in the United States for a longer period than permitted under the provisions of subdivision 2 of section 3 of the Immigration Act of 1924 (8 USCA § 203). On August 28, 1930, he was granted a hearing to enable him to show cause why he should not be deported. The record and findings of this hearing were forwarded to the Secretary of Labor at Washington, D. C., and on November 3, 1930, the Secretary of Labor issued a warrant of deportation, upon the ground that petitioner had remained in this country for a longer time than permitted under the Immigration Act.

Petitioner claims that he is entitled to a treaty trader status by virtue of subdivision 6 of section 3 of the Immigration Act (8 ■USCA § 203), and under article 1 of the Treaty of Commerce and Navigation between United States and Japan dated February 21, 1911 (37 Stat. 1504); that he had a right, while lawfully within the United States, to change his status from that of a temporary visitor to that of a treaty trader; that even though his alleged change of status did not take place until almost four months after the expiration of his six months’ stay, it was timely because made before the institution of deportation proceedings.

In stressing claimed rights under the treaty with Japan, petitioner relies upon Metaxis v. Weedin, No. 5947, Ninth Circuit, May 26, 1930. The facts there were entirely different from those in the instant case. Me-taxis, a subject of Greece, was admitted to the United States as a visitor on February 11, 1924, for a period of six months, and immediately entered into a partnership with his brother in mercantile business. Metaxis’ admission was under the Quota Act of 1921 (42 Stat. 5) as amended by Act May 11,1922 (42 Stat. 540), and it was under the provisions of that act and a supposed treaty with Greece that the Circuit Court held him to be permitted to remain in this country. On rehearing, however, the government called the court’s attention to the fact that the treaty with Greece had been abrogated, thus, presenting .an entirely different situation, whereupon the court held that Metaxis should be deported. (C. C. A.) 44 F.(2d) 539. Since the entry of Metaxis in February, 1924, the law has been changed, and we now have the Immigration Act of May 26, 1924 (8 USCA §§ 145, 146, 166, 167, 179, 201-226, 229), which provides that any alien who remains longer than the time permitted by the act and regulations thereunder shall be taken into custody and deported.

Petitioner contends that he was lawfully within the United States at the time that he changed his status, when, as a matter of fact, his stay here was unlawful. The time of his temporary permit had expired, and under such circumstances attempting to take on the status of a treaty trader would avail him nothing. He applied for and obtained temporary admission under the immigration laws as an alien otherwise inadmissible. He entered into a solemn obligation with the authorities representing the United States government to depart within six months. At the expiration of that period his stay within the United States was unlawful, and he states he knew it was unlawful. Section 14 of the Immigration Act of 1924 (8 USCA § 214) provides that any alien who remains longer than the time permitted by the act and regulations thereunder “shall be taken into custody and deported.” Under all the authorities an alien gains no rights by an occupation entered into while unlawfully in the country. Kaichiro Sugimoto v. Nagle (C. C. A.) 38 F.(2d) 207, certiorari denied 281 U. S. 745, 50 S. Ct. 351, 74 L. Ed. 1158; Wong Gar Wah v. Carr (C. C. A.) 18 F.(2d) 250; Wong Mon Lun v. Nagle (C. C. A.) 39 F.(2d) 844; Wong Fat Sheun v. Nagle (C. C. A.) 7 F.(2d) 611; Ewing Yuen v. Johnson (I). C.) 299 F. 604; In re Low Yin (D. C.) 13 F.(2d) 265.

Petitioner suggests that should he be deported, he might thereafter be admitted as a treaty trader under the provisions of the treaty and the Act of 1924, and therefore the law should be construed to fit his ease. But the express provision of the act will admit of no such construction. Furthermore, what petitioner’s rights would he on attempting to re-enter is not now before the court. Marty v. Nagle (C. C. A.) 44 F.(2d) 695. There may be some hardship involved in petitioner’s deportation under the circumstances, but, as was said by Judge Wilbur in Kaichiro Sugimoto v. Nagle (C. C. A.) 38 F.(2d) 207, 209, these considerations are properly directed to the legislative, rather than to the judicial, branch of the government.

The application for a writ of habeas corpus will be denied, and the petition dismissed.


author: CAYANAH, District Judge.

text:
    C. I. T. CORPORATION v. SANDERSON.
    No. 4119.
    District Court, D. Idaho, E. D.
    May 5, 1931.
    See, also, 43 F.(2d) 985.
    L. E. Glennon, of Pocatello, Idaho, for petitioner. <
    Ralph Albaugh, of Idaho Falls, Idaho, and Merrill & Merrill, of Pocatello, Idaho, for bankrupt.
   CAYANAH, District Judge.

The petitioner, a creditor of Maude C. Sanderson, seeks a decree to adjudge her a bankrupt, and the case is now before the court again upon the evidence.

The questions now raised under the evidence by the bankrupt as to why she should not be adjudged a bankrupt are that she was at the time the acts of bankruptcy are alleged to have been committed a wage-earner, and therefore exempt from the operation of the bankruptcy law; that the contract of’guaranty, signed by her, was not a California contract, but was either a Utah or an Idaho contract, and therefore she was not liable for the indebtedness of petitioner; that no act of bankruptcy was committed, for the reason that the property conveyed had no value at the time of the conveyance.

As to whether or not the bankrupt was exempt under the Bankruptcy Act depends upon her status as to occupation at the time the alleged acts of bankruptcy were committed. Was she, under the circumstances of the case, a bona fide wage-earner at that time ? And, if so, she cannot he adjudged an involuntary bankrupt. A wage-earner, as defined by section 1 of the Bankruptcy Act, “shall mean an individual who works for wages, salary, or hire, at a rate of compensation not exceeding $1,500 per year.” 11 USCA § 1. To bring a person within- the meaning of the statute, it must appear that the earning of salary or wages is his paramount occupation, and is determined by the vocation of the individual when the act of bankruptcy was committed. Every individual who is paid a salary is not necessarily a wage-earner within the meaning of the law, for one who is engaged in some mercantile business might at the same time incidentally éarn a salary, Carpenter et al. v. Cudd et al. (C. C. A.) 174 F. 603, 20 Ann. Cas. 977, and yet would not be a wage-earner within the meaning of the statute.

The evidence shows that the bankrupt was a married woman, residing with her husband, and engaged with him in the business, known as the “Sanderson Motor Car Company,” of purchasing, selling, and repairing automobiles at Idaho Falls, in the state of Idaho. She had an investment of $5,035 in the business, and one-eighth of the capital stock of the company in her own name; 59 shares of the 150 shares of stock issued to her husband were owned by the community, in which she was equally interested with him. She, her husband, and one Beamguard were the three persons actively in charge of the business. Her net worth outside of the business was $12,000. Various financial statements of the business of the company show that the business was large, and the net profits were in a substantial amount. She was helping keep the books, and was secretary, drawing a salary of $50 per month, and her husband was president, and had charge of the parts department'and the repair shop of the company, receiving a salary of $125 per month. The salary she received of $600 a year was a nominal one, and, as her time was principally used with her husband in jointly carrying on the business, it would seem that the duties of secretary was not her paramount occupation. Under these circumstances, and others which appear in the record, she cannot be held to be a wage-earner in the sense of the statute. In re Wakefield (D. C.) 182 F. 247.

The next thought urged by the bankrupt, that the contract of guaranty is not a California contract, but either a Utah or an Idaho contract, and therefore under the laws of Utah and Idaho a married woman is not liable thereunder, was discussed in the decision of the court on motion to dismiss the petition. See C. I. T. Corporation v. Sanderson (D. C.) 43 F.(2d) 985, 986. And the rule of law there announced applies and governs the consideration of the evidence in that-respect. It was there said that the one question then for decision was, “whether a contract signed by a married woman, resident and domiciled in the state of Idaho, and forwarded for acceptance and completion to the other party thereto in the state of California,' shall be enforced in the state of Idaho, although such contract would be invalid if governed by the laws of Idaho. It seems settled under the laws of Idaho that the disability of a married woman to enter into contracts has not been removed except where she contracts for her own use or benefit or in reference to the management and control or the use and benefit of her separate property. Bank of Commerce v. Baldwin, 12 Idaho, 202, 85 P. 497; Meier & Frank Co. v. Bruce, 30 Idaho, 732, 168 P. 5. While under the laws of the state of California the rule is to the contrary, for a married woman there may bind iterself by contract even though the transaction does not respect her separate property. California (Civil) Code, vol. 1, § 158; Wood v. Orford, 52 Cal. 412; Goad v. Moulton, 67 Cal. 536, 8 P. 63; Burkle v. Levy, 70 Cal. 250, 11 P. 643. And such is the ease where she enters into a contract as surety or guarantor. Anderson v. Shaffer, 98 Cal. App. 457, 277 P. 185; Stafford v. Hill, 53 Cal. App. 337, 200 P. 33.”

So that the inquiry under the evidence now is, Was the guaranty contract completed in either the states of Utah or Idaho, and not in the state of California, for its acceptance and delivery were essential to a meeting of the minds of the parties before the com-, pleted contract took place? If the contract was not completed until it was forwarded to, and accepted by, the petitioner in San Francisco, Cal., then its enforcement is governed by the laws of California, where a married woman can legally make such a contract as we are considering, and the test of the place of such a contract is as to the place at which the last act was done by either of the parties essential to a meeting of the minds.

The evidence discloses that the indebtedness of the bankrupt to the petitioner arises out of the liability as a guarantor on the written contract signed by her while she was residing in Idaho, in which she, with others, in consideration of an extension of credit to the Sanderson Motor Car Company, guaranteed the payment of all sums advanced by petitioner to that company. The instrument was in the first instance sent to the Sander-son Motor Car Company, addressed to it at Idaho Falls, and, after it was signed by her and three other persons in Idaho, guarantors, it was then received by Mitchell, the intermountain district manager of petitioner at Salt Lake City, Utah, who then sent it on with all of the other papers to the executive officers of petitioner at San Francisco, Cal., for acceptance or rejection, and it was there, accepted by petitioner, who thereafter made advances to the Sanderson Motor Car Company in the sum of $17,429.32, which is unpaid by reason of the insolvency and inability of the Sanderson Motor Car Company to meet its financial obligations. All eredit was established for all dealers by the petitioner, by its executive or finance committee at San Francisco, Cal., who had the sole authority to do so, and no privilege or authority to act in extending credit was granted by petitioner to any of its other offices until the account had been approved by its executive officers, or finance committee, at San Francisco, Cal. The guaranty contract is in itself directed to the San Francisco office of petitioner, and was there finally accepted, which was necessaiy for its completion, thereby making it a contract entered into and governed by the laws of the state of California and binding upon the bankrupt.

This brings us to a consideration of the further contention of the bankrupt that there is no proof of an act of bankruptcy because the property conveyed by the bankrupt had no value. It appears that the bankrupt, when she was insolvent, and within four months preceding the filing of the petition, conveyed to Lula C. Maguire, her sister, certain interests in real property and received therefor the sum of $1,500, which she then paid to the Pacific Finance Corporation, a creditor. The property so conveyed had a , value to the extent of $1,500, for the bankrupt received that amount as a consideration of the conveyance. The paying to the Pacific Finance Corporation of the $1,500, derived from the sale of an interest in her real property, granted a preference which was another act of bankruptcy.

On the record, the motions of the bankrupt to dismiss the petition will be denied.


author: COXE, District Judge.

text:
    In re VANDEWEGHE.
    No. 48047.
    District Court, S. D. New York.
    Jan. 22, 1931.
    The report of Henry K. Davis, referee in bankruptcy, acting as special master, is as follows:
    To the honorable judges of the United States District Court for the Southern District of New York:
    Bankrupt, a dealer in furs in this city, was adjudicated on his own petition December 14, 1929.
    Thereafter he duly made a composition, with his creditors, and in due course and on the 14th day of March, 1930, the said composition was duly confirmed thereby, resulting in the bankrupt’s discharge. Section 12 e, Bankruptcy Law (11 USCA § 30 (e).
    Thereafter, and on or about September 8, 1930, the petitioner, Pomros Import Corporation, moved to set aside the order of. this court confirming the said composition, and the same came before me under due reference for hearing, testimony, and report.
    At the first hearing, December 2, 1930, the attorneys for the bankrupt questioned the legal sufficiency of the petition on which the application is founded, and the special master ruled that he was without power to pass upon this question.
    Thereupon the parties obtained from the District Court an amended order dated December 20, 1930, referring the matter to me “for examination and consideration of the petition as to its sufficiency and validity and to entertain any motion or demurrer directed to the sufficiency and validity of said petition and/or for examination, testimony and report.”
    The law under which the petitioner moves is as follows: “The judge may, upon the application of parties in interest filed at any time within six months after a composition has been confirmed, set the same aside and reinstate the case if it shall he made to appear upon a trial that fraud was practiced in the procuring of such composition, and that the knowledge thereof has come to the petitioners since the confirmation of such composition.” Section 13, Bankruptcy Act (11 USCA § 31).
    It will be noted that the point of the law above quoted is that there must have been fraud in the procuring of the composition, and that knowledge thereof has come to the objector after its confirmation.
    The law gives ample remedies to a creditor who objects to a composition when it is offered, and such objecting creditor, if he can sustain a specification which would prevent a discharge, can prevent a composition, even if all of the other creditors have consented in its favor.
    In this ease this objector accepted the composition, and has been paid some $800 thereunder. This application was made five days before the expiration of the six-month period within which such an application must be made.
    A reading of the petition does not impress with its merit.
    The most of its allegations relate to matters which would have been relevant under specifications to oppose composition, but none of them, in my opinion, set out fraud in the procuring of the composition.
    The very material statutory allegation that the knowledge of the alleged fraud came to the objector after the confirmation of the composition is made upon information and belief.
    The president of the objector was chairman of the creditors’ committee of the bankrupt under his assignment to Mr. Otto, the actuary of the Fur Merchants’ Association.
    By reason of this relation, it is unbelievable that the objector did not know prior to the bankruptcy, if they existed, the things in generalities and upon information and belief he now alleges.
    This view is fortified by the fact that this .creditor through its said president raised no objection to the composition and took its dividends, thus far paid some $800 thereunder.
    Applications to set aside compositions after they have been confirmed and acted upon, unless adequate statutory grounds exist therefor, is not favored by the courts.
    In a late case reviewing many of the authorities, the Circuit Court reversed an order setting aside a composition; Judge Swan saying: “Fraud is not to be inferred, and can only be alleged by stating facts which show that the false representations were made with fraudulent intent.” In re Isidor Klein, Inc., 22 F.(2d) 906, 908.
    In Re Kass (D. C.) 263 F. 138, 139, a case on its general facts quite similar to the case at bar, the objector moved to set aside the composition on the last day of the six-month period, and, as here, his conclusions of fraud were stated upon information and belief. Relative to this Judge Veeder says: “Although the petitioner bases his claim to relief upon knowledge which he says came to him subsequent to the confirmation of the composition, he states no facts within his own knowledge, but simply verifies the petition upon information and belief.”
    There, as here, the petitioner did not state when he knew of the fraudulent representations, and the court further says: “In a matter of this kind a creditor is bound to move at once; otherwise, he is barred by his own laches. Yet the petitioner nowhere states when he learned of the falsity of the representations.”
    In re White (D. C.) 222 F. 688, 689, also holds that a petition to set aside a composition upon the grounds of fraud alleged upon information and belief is insufficient.
    It is apparent that there is a difference between opposition to a bankrupt’s application for discharge, which in the last analysis is not a matter of right but a matter of legal favor, in order that the bankrupt may resume business without the hamper of prior obligations. A composition, on the other hand, is a contract approved by the court, entered into by the bankrupt with his creditors with the approval of the court, and for its carrying out' after confirmation he is held to the strictest legal accountability.
    With this distinction in view, the courts have held that the rules on the setting aside of a composition apply with greater force than those in opposition to a composition and discharge.

      In City National Bank v. Doolittle, 107 F. 236, 240 (C. C. A. 5th), the court said: “It was the duty of the bank to show, by proper averments and by evidence, sufficient grounds why the court should grant a rehearing and set aside the order confirming the composition. Such is the rule in proceedings on objections to the confirmation of a composition and to a discharge of the bankrupt, and this rule should apply with equal, if not greater, force to applications to set aside a composition which has been confirmed. Coll. Bankr. 147, 160, 161; In re Logan (D. C.) 102 F. 876.”
    It may be said in passing that the creditors should have had notice of this appliea; tion. Collier (13th Ed.) p. 470. It is really more of a matter of their concern than that of the bankrupt, important though it is to him.
    In view of the conclusion I have reached, however, for the reasons above stated such notice will not be necessary. The petitioner has not shown legal or proper grounds for the setting aside of this composition.
    The petition is insufficient, and the laches are too great. The payments under the composition have in part been made, and the second installment of notes thereunder are about falling due.
    The affidavit of the bankrupt shows that there is an ulterior motive in making this application at this late day.
    Be that as it may, the petitioner has not shown equitable or legal grounds for setting aside the composition sought and the application should be denied.
    Kaplan, Kestin & Burnstein, of New York City, for the motion.
    Burnstine & Geist, of New York City, opposed.
   COXE, District Judge.

Referee’s report confirmed February 2, 1931.


author: CAVANAH, District Judge.

text:
    MODERN WOODMEN OF AMERICA v. WOODDEN et al.
    No. 741.
    District Court, D. Idaho, E. D.
    May 12, 1931.

      George G. Perrin, of Rook Island, HI., and Alfred S. Edler, of Chicago, III., for complainant.
    T. C. Coffin, of Pocatello, Idaho, for defendant Woodden.
    Jones, Pomeroy & Jones,' of Pocatello, Idaho, for defendant Snyder.
   CAVANAH, District Judge.

The Modern Woodmen of America, a fraternal beneficiary society, issued a benefit certificate on the life of Lindley H. Aecard, payable to Elizabeth J. Aeeard, his mother, as beneficiary, with the right on the part of the insured to change the beneficiary in the manner provided in the certificate and by-laws of the society. On November 6,1927, the insured requested a ehange of beneficiary, and a new benefit certificate was issued on December 6, 1927, payable to Ralph E. Wood-den, in compliance with the provisions of the certificate and by-laws of the society. Thereafter, on July 26, 1929, the insured indorsed on the new benefit certificate a request for change of beneficiary, payable to John W. Snyder. The camp clerk at Grand Rapids, Mieh., a subordinate lodge of the society, on July 30, 1929, attached his signature to- the request of Aeeard, although he had not seen Aecard execute the request. The insured having died on July 30, 1929, and conflicting claims of Woodden and Snyder to the insurance having been made to the society, it paid the amount into court and filed a bill of inter-pleader, praying that the defendants Wood-den and Snyder be required to interplead and litigate their respective claims.

It is urged by Woodden that no ehange of beneficiary is effective under the provisions of tbe by-laws and certificate until a new certificate has been issued by the head clerk in the lifetime of the insured, as it is required that if the insured desires to make a change of beneficiary he must execute the clause on the back of the benefit certificate and designate the change he desires to make, which must be made in the presence of and attested by a camp clerk or acknowledged by an officer authorized' by law to take acknowledgments and deposit a fee of fifty cents with the local camp clerk.

The evidence material to the question presented shows that on July 26, 1929, the insured indorsed upon the benefit certificate a request for ehange of beneficiary to Snyder, and requested Welch to deliver the certificate to the camp elerk of the society at Grand Rapids, Mieh., which was done on July 27, 1929, and the necessary fee of fifty cents was then paid. The camp elerk then on July 30, 1929, after the death of the insured, placed his signature on the application for ehange of benefieiary, and then sent it by mail to the main office at Rook Island, 111. There was no certificate issued by the society changing the benefieiary from Wood-den to Snyder, as tbe insured died on July 30, 1929, at 2 o’clock a. m. Snyder now contends that the insured did everything in strict accordance with the by-laws and certificate, with the exception of the fact that the camp elerk’s signature attached to the certificate for change of beneficiary was done outside the presence of the insured, and that on account of the acts and conduct of the camp clerk there was a waiver of that requirement, and both Woodden and the society are now .es-topped from claiming that the request for ehange of benefieiary was not executed in the presence of the camp clerk, or acknowledged before an officer authorized by law.

Unquestionably there is a difference between fraternal benefit societies and ordinary life insurance, and the difference in respeet to the right of the insured to ehange the benefieiary is firmly established. No vested right is conferred upon a benefieiary named in a benefit certificate of a fraternal benefit association until the death of the insured member, in the absence of a rule of the association to the contrary, as it may be defeated at any time by an act of the insured member, who may ehange his designation of benefieiary at will. The requirements that a ehange of benefieiary shall he done in a certain manner are made for the' protection of the society, and if complied with to its satisfaction, or if waived by the society during the life of the insured, it cannot be availed of to support the claim of a former beneficiary. Supreme Council of Royal Arcanum v. Behrend, 247 U. S. 394, 38 S. Ct. 522, 62 L. Ed. 1182, 1 A. L. R. 966. This principle is recognized, with three exceptions. In the ease of Supreme Conclave, Royal Adelphia v. Cappella (C. C.) 41 P. 1, 4, which has been cited with approval generally by the courts, the court there stated the general rule to be that: “In making such change of beneficiary, however, the insured is bound to do it in the manner pointed out by the policy and the bylaws of the association, and any material deviation from this eourse will invalidate the transfer,” with the exceptions: (a) “If the society has waived a strict compliance with its own rules, and, in pursuance of a request of the insured to ehange his benefieiary, has issued a new certificate to him, the original beneficiary will not be heard to complain that the course indicated by the regulations was not pursued. This naturally follows from the fact that, having no vested interest in the certificate during the life-time of the assured, he has no right to require that the rules of the association, whieh are framed alone for its own protection and guidance, are not complied with.” (b) “If it be beyond the power of the insured to comply literally with the regulations, a court of equity will treat the change as having been legally made.” And (c) “if the insured has pursued the course pointed out by the laws of the association, and has done all in his power to change the benefieiary, but, before the new certificate is actually issued, he dies, a court of equity will deeree that to be done whieh ought to be done, and act as though the certificate has been issued.” Stringham v. Dillon et al., 42 Or. 63, 69 P. 1020; McLaughlin v. McLaughlin, et al., 104 Cal. 171, 37 P. 865, 43 Am. St. Rep. 83; Knights of Maccabees of the World v. Sackett et al., 34 Mont. 357, 86 P. 423, 115 Am. St. Rep. 532.

Snyder here insists that the insured did everything he could to change the benefieiary, as pointed out by the by-laws and application for change of beneficiary, and therefore a court of equity will decree that it be done which ought to be done, bringing the change of beneficiary by the insured Accard within the third exception recognized by the authorities. The application for change of benefieiary required the insured Accard, in ease for any reason it cannot be attested by the camp clerk that it must be executed before an officer authorized to take acknowledgments, as it is there provided that, “In case the foregoing, for any reason, cannot be attested by the elerk of any camp, same must be executed before an officer authorized to take acknowledgments, having a seal, who should attach a certificate of acknowledgment in the usual form.” The by-laws of the society also contain the same instruction, as it is provided that the insured, desiring to make a change of benefieiary, must himself execute the clause on the back of the benefit certificate and designate therein the change he desires. The execution of the surrender clause must be made in the presence of, and be attested by, a camp elerk, or acknowledged by an officer authorized by law to take acknowledgments and having a seal. Fifty cents must be deposited with the local camp elerk, who shall forward the certificate to the head elerk, who shall thereupon issue a new certificate, and no change in the designation of benefieiary should be effective until the new certificate has been issued by the head clerk in the lifetime of the member.

The inquiry then is: Did the insured Accard do everything he could have done to effect a change of benefieiary? The undisputed facts disclose that his signature to the application for change of benefieiary was not attested by a camp elerk or by an officer authorized to administer oaths. The camp elerk did not sign his name to the baek of the certificate until after the death of the insured, and in ignorance that the insured was dead. He did not see the insured sign his name. It is evident that the signature of the insured to the certificate was not attested as required by the by-laws and the certificate. The fact that the insured signed his name in the presence of Welch, who was neither the camp clerk or an officer authorized to take acknowledgments, does not comply with the requirements of the by-laws and the certificate when in making a change of beneficiary, as it is there provided that, “Any attempt by a member to change the payee of the benefits of any benefit certificate or rider by will, or other testamentary document, contract, agreement, assignment, or otherwise than by strict compliance with the provisions of this section shall be absolutely null and void.” Some other method cannot be substituted for the method provided in the by-laws and instructions on the certificate. The purpose of the provisions in the by-laws and instructions on the certificate, requiring the insured to attest his signature in the presence of a camp elerk or before an officer authorized by law to take acknowledgments, was to protect both the original beneficiary and the society from any fraud or influence that might be imposed on the insured, who may be mentally weak or easily influenced by others during his last hours. No new certificate showing ehange of benefieiary to Snyder was ever issued, and the head office, who was the only one who could issue a new certificate, had the right to refuse to do so on the ground that a strict compliance with the by-laws and instructions on the certificate had not been done during the lifetime of the insured, and therefore the society could not, under the authorities, have waived this requirement of its by-laws and instructions on the certificate unless it was done during the -lifetime of the insured. A camp clerk could not waive the requirements, because the authority to issue a new certificate was vested only in the society ,at its head office, and neither he nor the society could waive compliance with the by-laws and instructions, unless done during the lifetime of the insured. . No duty devolved upon the camp clerk to take any action until he had received an application for change of beneficiary completed in accordance with the rules of the society.

The record failing to establish a change of beneficiary in compliance with the rules of the society, and no waiver of the by-laws and instructions qn the certificate having occurred during the lifetime of the insured, it must follow that a decree be entered awarding to the defendant Ralph E. Woodden the $3.,000‘de- ' posited in court by the complainant, Modem Woodmen of America, with costs against the defendant John W. Snyder.


author: BONDY, District Judge.

text:
    KUTTROFF et al. v. SUTHERLAND, Alien Property Custodian, et al.
    District Court, S. D. New York.
    April 2, 1931.
    Cardozo & Nathan, of New York City (Michael H. Cardozo, Jr., of New York City, of counsel), for plaintiffs.
    George Z. Medalie, U. S. Atty., of New York City, and Thomas E. Rhodes and Phillip M. Marcum, Sp. Assts. to Atty. Gen., and Marion Henderson, Gen. Counsel for Alien Property Custodian, of Washington, D. C.,for defendants.
   BONDY, District Judge.

The decree directing the defendants to deliver to the complainants Liberty bonds of the par value of $440,500 and to pay them $137,850.90 interest thereon expressly provides that such payment should be without prejudice to the rights of the complainants, if any, in respect to $3,164.97 paid March 15, 1924, by Thomas W. Miller, the then Alien Property Custodian, to the Bureau of Internal Revenue, and in respect to $668.11 (now alleged to be $1,059.81) deducted by the Alien Property Custodian from the in-’ come on the bonds returned to the plaintiffs.

The defendant Frank White resigned as Treasurer of the United States on April 30,1928. No application has ever been made for the substitution of any of his successors, and,-it being more than six months since he resigned, the suit against the Treasurer of the United States has abated and eannot be revived against the present Treasurer. Act of Congress February 13, 1925, § 11 (28 USCA § 780); Rule 19 of the Supreme Court of the United States (28 USCA § 354); Le Crone v. McAdoo, 253 U. S. 217, 40 S. Ct. 510, 64 L. Ed. 869; U. S. ex rel. Claussen v. Curran, 276 U. S. 590, 48 S. Ct. 206, 72 L. Ed. 720.

Nor can the suit be maintained as to said sum of $3,164.97 against Howard Sutherland, Alien Property Custodian.

Under section 9 (a) of the Trading with the Enemy Act (50 USCA Appendix § 9 (a), plaintiffs are limited to the recovery of money or other property actually held by the Alien Property Custodian or by the Treasurer of the United States at the time the suit was instituted. At that time the sum of $3,164.97 had been paid over by the Custodian to the Treasurer.

Section 24 of that act (50 USCA Appendix § 24), as well as the executive order of the President, dated July 16,1918, authorize the Alien Property Custodian to pay all taxes lawfully assessed against any' money or other property held by him or by the Treasurer of the United States, notwithstanding that a claim may have been filed or suit instituted under the act. Section 7 (e) (50 USCA Appendix § 7 (e) provides that no person shall be held liable for anything done or omitted in pursuance of any order, rule, or regulation made by the President under the authority of the act.

Moreover, the Trading with the Enemy Act specifically provides that all moneys paid to or received by the Alien Property Custodian shall be deposited forthwith in the Treasury of the United States. Section 12 (50 USCA Appendix § 12).

The tax was paid by Thomas W. Miller, as Alien Property Custodian, to the Treasury Department in March, 1924. Howard Sutherland became Alien Property Custodian December 24, 1925. It accordingly appears that the defendant Sutherland never had possession, custody, or control of this $3,164.97 either personally or as Alien Property Custodian, but it was properly paid by his predecessor in office to the Treasury Department.

Section 24 also authorizes the Alien Property Custodian to pay the necessary expenses incurred by him in securing the possession, collection, or control of any money or other property held by him or by the Treasurer of the United States under the act, or in protecting or administering the same, out of the money or property in respect of which such expenses are incurred, notwithstanding that a claim may have been filed or suit instituted under the act. Eor all that appears by affidavit, “these deductions were to cover the expenses incurred by the Alien Property Custodian in connection with the collection of said earnings and income and the payment of the same to the plaintiffs.” Such expenses accordingly were deductible even though the property was erroneously seized. Escher v. Woods, 281 U. S. 379, 50 S. Ct. 337, 74 L. Ed. 918; Henkels v. Sutherland, 271 U. S. 298, 46 S. Ct. 524, 70 L. Ed. 953, 51 A. L. R. 229.

Though the sum of $3,164.97 was taken out of money belonging to the plaintiffs in payment of a tax assessed against an alien enemy, their motion for a supplementary decree must be denied under the foregoing circumstances.


author: WATSON, District Judge.

text:
    O’HORA v. UNITED STATES.
    No. 2279.
    District Court, M. D. Pennsylvania.
    May 21, 1931.
    Earl V. McLaughlin, of Scranton, Pa., for the plaintiff.
    Andrew B. Dunsmore, U. S. Atty., of Wellsboro, Pa., A. A. Vosburg, Asst. U. S. Atty., of Scranton, Pa., and John M. Dervin, Regional Atty., United States Veteran’s Bureau, of Philadelphia, Pa.
   WATSON, District Judge.

This is an action on a war-risk insurance policy. The ease was tried without the intervention of a jury, the attorneys of record having agreed to w.aive a jury by a stipulation in writing filed with the clerk.

From the evidence, the court finds the following facts:

(1) That plaintiff entered the United States Army on December 7,1917, and thereafter, until March 16,1918, was in the active service of the United States Army.
(2) That, on December 7,1917, the plaintiff was granted war-risk insurance pursuant to the Act of Congress (40 Stat. 398) in the sum of $10,000, which insurance was payable to the plaintiff in installments of $57.50 per month for a period of 240 months, in case the insured became totally and permanently disabled while the insurance was in force.
(3) That the policy of insurance was in force until April 1, 1918.
(4) That, when the plaintiff was an acting supply sergeant at Kelly Meld, San Antonio, Tex., he was injured on the back of his head by the fall of a center tent pole, which injury resulted in severe headaches, vertigo, and traumatic epilepsy of Jacksonian type.
(5) That, since the injury which plaintiff received, he has at times been able to work only for short intervals at some work.
(6) That, since the injury, plaintiff has not been able to engage continuously in a gainful occupation without endangering his health.
(7) That plaintiff received an honorable discharge from the United States Army March 16, 1918, which stated that he was honorably discharged by reason of epilepsy grand mal.
(8) That, prior to the date upon which this action was commenced, the plaintiff made demand upon the Bureau of War Risk Insurance for payments of total permanent disability, and that the Bureau of War Risk Insurance refused to pay same, and that a disagreement existed between plaintiff and ihe Bureau of War Risk Insurance.
(9) That, since March 25,1918, the mind and body of the plaintiff have been so impaired that it has been impossible for him to follow continuously any substantially gainful occupation.

It is conceded that epilepsy is not one of the disabilities which is scheduled in the regulations as a total disability, and that it should not be. There is, however, ample evidence in the case to show that the plaintiff was injured while he was in the'military service, and while the insurance was in force; that thereafter, and as a result of that injury, he had dizzy spells, severe headaches, vertigo, and stupor; that he was placed in a hospital, and discharged from the Army while the insurance was in force, by reason of epilepsy grand mal; that he was placed in vocational training, and removed therefrom because of his physical or mental condition; that he secured positions through the sympathy of employers for short intervals; that he was removed from those positions because of his mental or physical condition; that he tried different classes of employment, such as working in a garage, working in a theater, working in a railroad roundhouse, working as a bill collector; and that it was impossible for him to follow continuously any of these occupations or any other occupation. “This [total disability] does not mean that a person must be in such a physical condition as to render it impossible for him to do any work at all. If his physical condition is such that he cannot engage continuously in some gainful occupation, then he is totally disabled. The fact that he may engage in some light occupation, requiring but little physical exercise, or that he may work for short intervals at some work, would not mean that he is not totally disabled within the meaning of the policy and the regulations of the Bureau of War Risk Insurance.” Marsh v. United States (D. C.) 33 F.(2d) 554, 555. “The policy is a contract. In the consideration of it every reasonable presumption must be indulged in favor of the plaintiff. He was an enlisted man, and the whole scheme of war risk insurance was designed to benefit men who thus served, and who, from any cause during the period of their service, became disabled. Great liberality of construction must therefore be indulged. If this plaintiff can be said to have become totally disabled during his service, even though the cause of it may be traced back to remote conditions, with which his service had nothing to do, I think he should recover a judgment here. The very purpose of the insurance was to protect the service man against such a misfortune.” Starnes v. United States (D. C.) 13 F.(2d) 212, 213.

In Anderson v. United States (D. C. Western District of Pennsylvania) reported in 50 F.(2d) 268, Judge Sehoonmaker said: “There is some evidence that he did earn some money after his discharge, but that mere fact would not prevent him from recovering the total disability fixed by the policy. The evidence showed that the work he did was intermittent, and continued only for brief periods. * * * The fact that the insured may be able to perform some simple kind of physical labor intermittently does not change the total disability status.”

I believe that a soldier who has a. disability which dates back to the time when the insurance was in force, so that he is compelled to drop out of the ranks of the workers of the world, stand by the side of the road, and watch the rest of the world go by, is entitled to recover under his policy.

I find . for the plaintiff, Richard A. O’Hora, and fix the date of his total and permanent disability from following continuously any substantially gainful occupation from March 25, 1918. A formal decree may be prepared accordingly and submitted for approval and entry.