author: BODINE, District Judge.

text:
    RADIO CORPORATION OF AMERICA et al. v. UNITED RADIO & ELECTRIC CORPORATION et al.
    No. 1603.
    District Court, D. New Jersey.
    July 27, 1926.
    Sheffield & Betts, John W. Griggs, and Gilman D. Blake, all of New York City, for the motion.
    Everett & Rook, of Newark, N. J., and Thomas G. Haight, of Jersey City, N. J., opposed.
   BODINE, District Judge.

The bill of complaint alleges the infringement of United States letters patent 1,341,-006. The sole question on this motion is whether the counterclaim states facts sufficient to constitute a cause of action in equity. So far as pertinent, the answer alleges in the first paragraph that the Radio Corporation of America, the General Electric Com- ■ pany, and the Westinghouse Electric & Manufacturing Company, hereinafter called plaintiffs, have formed a combination and conspiracy to collectively acquire patents covering all devices used in every branch of the radio art; that they have acquired numerous patents, including the patent in suit; and charges that by assignments and licensing agreements the rights to certain devices have been allotted to some of the conspirators and refused to others, so that a monopoly in the manufacture and sale of such devices and apparatus throughout the United States has been created.

The Constitution, article 1, § 8, and section 4884 of the Revised Statutes (35 USCA § 40), secured to inventors for the term of seventeen years the exclusive right to make, use, and vend their invention. The exercise of a patent necessarily results in a monopoly. An owner of a patent has the right to sell it or to keep it; to manufacture the article himself, or to license others to manufacture it; to sell such article himself or to authorize others to sell it. Bement & Sons v. National Harrow Co., 186 U. S. 88, 22 S. Ct. 747, 46 L. Ed. 1058.

The plaintiffs were all pioneers in the manufacture of electrical apparatus of various sorts. To insure the greatest profit to themselves and the greater service to the public, they maintain scientific bureaus to advance the utility of their products.

They were all holders of patents covering radio apparatus of novelty and value at the time of the entry of the United States into the European War. In order to effectively advance the art for government purposes, their patents were pooled. The poolings and working agreements employed during a national emergency resulted in the license agreements referred to in the cross-bill. Certainly, their patriotic action was not a conspiracy.

Paragraph 1, if it seeks to charge a conspiracy in restraint of trade, does not allege any material facts. The patentee has a right to sell or has a right not to sell his invention as he may elect. Federal Trade Commission v. Beech-Nut Packing Co., 257 U. S. 441, 42 S. Ct. 150, 66 L. Ed. 307, 19 A. L. R. 882. The paragraph ineffectively charges a monopoly. Motion Picture Patents Co. v. Eclair Film Co. (D. C.) 208 F. 416.

The reference made by counsel at the argument to the Clayton Act altering the rule in the Eclair Case (D. C.) 208 F. 416, seems inapplicable since it does not appear1 in the counterclaim that section 3 of the Clayton Act (15 USCA § 14) was violated.

The mere fact that these three corpora^ tions have acquired many patents can avail the defendant nothing. The public have no inherent right to use those articles in which the government has created a monopoly for the public good. The Paper Bag Patent Case, 210 U. S. 405, 28 S. Ct. 748, 52 L. Ed. 1122.

Paragraph 2 of the counterclaim alleges that these plaintiffs have combined to prevent and are preventing the use of other apparatus than that manufactured and sold under their patent rights, by refusing to sell or grant manufacturing rights to those who manufacture, use, or sell competing apparatus and by bringing suits for infringement of their patents. The paragraph is filled with conclusions of the pleader.

Assuming that the conclusions of the pleader are facts, the patentee clearly had the right to restrict the license to manufacture and sell to those who do not deal in competing apparatus. See Westinghouse Electric & Mfg. Co. v. Diamond State Fibre Co. (D. C.) 268 F. 121. The Clayton Act does not invalidate such action. Curtis Pub. Co. v. Federal Trade Commission (C. C. A.) 270 F. 881.

Nowhere is it made clear just what the style of the cross-action or counterclaim is, nor does the defendant show a special damage suffered by it and not by the public generally. The counterclaim is not predicated» upon any dear principle of law.

The motion will be granted.


source: Caselaw Access Project

author: CAMPBELL, District Judge.

license: Public Domain

text:
    ROYAL MAIL STEAM PACKET CO. v. COMPANHIA DE NAVEGACAO LLOYD BRASILEIRO. COMPANHIA DE NAVEGACAO LLOYD BRASILEIRO v. ROYAL MAIL STEAM PACKET CO.
    Nos. 10863, 11145.
    District Court, E. D. New York.
    March 12, 1931.

      See, also, 27 F.(2d) 1002; 31 F.(2d) 757.
    Burlingham, Veeder, Fearey, Clark & Hupper, of New York City (Van Vechten Veeder, Chauncey I. Clark, and A. Howard Neely, all of New York City, of counsel), for the Silarus.
    Purrington & McConnell, of New York City (Frank J. McConnell and James D. Brown, both of New York City, of counsel), for Companhia De Navegacao Lloyd Brasi-leiro.
   CAMPBELL, District Judge.

The above-entitled suits were instituted to recover damages alleged to have been caused by a collision between the steamships Silarus and Almirante Jaeeguay, in the Scheldt river, Belgium, on August 24, 1927.

The Royal Mail Steam Packet Company has pleaded the Belgian law with respect to damages, and also the regulations governing the navigation of the Scheldt river.

Companhia De Navegacao Lloyd Brasi-leiro twice attempted to plead the limitation of liability statute of Belgium, but both times exceptions thereto were filed by the Royal Mail Steam Packet Company.

On the argument of the first exceptions, Companhia De Navegacao Lloyd Brasileiro submitted to the exceptions and consented to an order sustaining them.

On the argument of the second exceptions, which were to the amended answer, the exceptions were sustained by the court.

The first above-entitled suit was instituted February 15,1928, by the filing of a libel in personam with clause of foreign attachment, which libel respondent moved to dismiss, and which attachment respondent moved to vacate for lack of jurisdiction, but this court denied the motion and retained jurisdiction, 27 F.(2d) 1002.

The testimony of all the witnesses for both parties was taken by deposition in London, Antwerp, Hamburg, and New York, and the court has therefore been unable to see or hear any of the witnesses.

The evidence is conflicting, but I find the facts as follows:

At all the times hereinafter mentioned and at the time of the trial the Royal Mail Steam Packet Company was a corporation duly organized and existing under the laws of the kingdom -of Great Britain, having an office for the transaction of business in New York City, and the owner of the steamship Silarus.

At all the times hereinafter mentioned and at the time of the trial Companhia De Navegacao Lloyd Brasileiro was a corporation duly organized and existing under the laws of the United States of Brazil, having an office for the transaction of business in New York City, and the owner of the steamship Almirante Jaeeguay.

This court has jurisdiction.'

Before and up to the time of the happening of the events hereinafter described, both the steamship Silarus and the steamship Almirante Jaeeguay were tight, staunch, and strong, and in all respects seaworthy.

On the night of August 24, 1927, with the weather clear, wind light southwest, tide flood' V4 to 2% knots, the steamship Silarus, 126 meters long, loaded with 6,000 tons of general cargo; and having a draft of 23 feet forward and 24 feet aft, was proceeding up the Scheldt river, bound for Antwerp from Brazilian ports via Havre. . .

She stopped at Doel at about 11 o’clock p. m., and after pratique was granted again got under way..

The master, a Scheldt river pilot, the third officer, and a cadet were on the bridge; a quartermaster was at the wheel.

The first officer and a lookout were stationed on the forecastle head.

Her regulation lights were set and burning, including a red signal light on the mainmast, indicating a vessel of large measurements carrying a pilot.

Shortly before midnight on the same night the Almirante Jaceguay, 120 meters long, with passengers and general cargo, not fully loaded and having a draft of 22 feet 6 inches forward, and 22 feet 9 inches aft, left her dock at Antwerp and proceeded down the Scheldt river outward bound to sea.

The master, a Scheldt river pilot, and the third officer were on the bridge, and the helmsman was at the wheel. A lookout was stationed on the forecastle head.

Her deep sea German pilot was standing in the wheelhouse.

Her regulation lights were set and burning, including a red signal light on her mainmast indicating a vessel of large measurements carrying a pilot.

The Scheldt river makes almost a right angle turn at Fort Ste. Marie. Approaching the fort from Antwerp the navigable channel is serpentine and treacherous.

Either side of the river is flanked by a dike, and the distance from the top of the dike on the Flemish shore to midchannel is about 574 feet.

The Silarus was proceeding through Wil-lem’s Bek, about in midehannel, and observed across the land on her port bow the range lights and red signal light, but not the side lights, of the Almirante Jaceguay, bound down the river and distant about miles.

The Silarus then pulled over to her starboard side of the river.

After the Silarus passed Le Perel, the Almirante Jaeeguay’s green light also became visible.

Only the red light of the side lights of the Silarus was shown to the Almirante Jaceguay.

The Silarus passed Fort Ste. Marie at 11:45 o’clock p. m., her deck time, which was one minute faster than her engine room time, and she then reduced her speed from full ahead to half ahead, and under half speed she was making 5 to 6 knots over the ground.

The tug Hercules met the Silarus at Fort Ste. Marie and proceeded to- her starboard bow and passed a heaving line to the Silarus, to which her seamen were to attach a hawser, by which the Hercules was to assist the Sila-rus into Antwerp, especially to pass Kranke-loon.

At that time the Almirante Jaceguay was still showing her green light of her side lights.

The Silarus when abreast of Fort Ste. Marie and Fort Philippe sounded a one blast passing signal, three to five minutes before the collision, which the Almirante Jaceguay, then abreast of buoy 59, answered with one blast.

The channel was marked with black buoys on the northerly side, and red buoys on the southerly side.

The Silarus was as far over on her own starboard side of the river as safety would permit, and therefore she could not go further.

The Almirante Jaceguay did not keep to her own starboard side of the river, but sheered to port across the channel toward the southerly shore.

The collision would not have occurred if the Almirante Jaceguay had remained on .the northerly side of the river.

The danger of a collision became imminent, and the Silarus, in an attempt to swing her stem- away from the Almirante Jaceguay, put her helm hard astarboard and her engines at full speed.

The starboard anchor of the Almirante Jaceguay was let go, but she was unable to overcome her headway, and at 11:50 o’clock p. m., deck time of the Silarus, the bluff of her port bow struck the port side of the Silarus a short distance aft of amidships, tearing a hole in her side and doing other serious damage to ship and cargo, and also damaging the Almirante Jaceguay. The angle of collision -was about 3 points, and the place of collision bn the southerly side of the river. The leading lights of Krankeloon, Fort Ste. Marie, and Boerenschans weare all open to the north, the lower lights being to the north of the higher ones.

The Hercules at the time of the collision had let go her heaving line, which she had passed up to the Silarus’ bow, and had cleared away ahead and slightly to starboard to escape the anticipated danger of the collision.

The Silarus made water so rapidly that it became necessary to beach her, when it was found that she had 20 feet of. water in the No. 4 hold.

Her plates were patched while she was aground and she was then pumped out and refloated, about 2 o’clock p. m. on August 25th, and proceeded to Antwerp, where her cargo was discharged and transhipped.

From the facts as found the fault of the Almirante Jaeeguay clearly appears.

In this as in all collision cases'there is a dispute as to the plaee where the collision occurred.

It occurred in that section of the river shown on the charts about above the words “Krankeloon Polder,” on the south side of the river.

The conflict in the testimony is shárp, but, before determining the weight to be given to the testimony taken on deposition on behalf of the Almirante Jaeeguay, we must consider the statements of such witnesses at an investigation held shortly after the event.

In Belgium all mariñe accidents are investigated by nautieal experts appointed by the Commercial Court, who file a report under oath containing their views as to the cause of the collision.

' Such an investigation of the collision which forms the basis of the two above-entitled suits was held, commencing in September,- 1927, by senior nautical expert F. Van Rysselberghe, assisted by two other experts, and in March, 1928, the experts filed their report.

I have rendered my decision on the objections to testimony and exhibits offered, and have not allowed the said report in evidence.

It is quite dear to me that the notes of such investigation, taken by Mr. Van Ryssel-berghe, are not admissible in evidence, and I have not allowed them, but he had the right to use them to refresh his recollection when his deposition was taken.

The stories then told by all the witnesses are entitled to much greater weight than that given at a later date by deposition, because undoubtedly the matter was fresh in the minds of all at the time of the investigation, so soon after the collision.

Making all allowance for the claim of lack of familiarity with the French language, of the witnesses for the Almirante Jaeeguay, they must have had a pretty good understanding of the language to have testified as fully as they did on the investigation; hut this claim of lack of familiarity with the language cannot be made by Claes-sens, the pilot, who was examined in Flemish, and who said he spoke both French and Flemish, and he on cross-examination admitted the correctness of positions on such examination that were called to his attention.

The testimony of the pilot and helmsman of the Almirante Jaeeguay on the investigation and the depositions, when taken together, clearly show that the collision -occurred on the south side of the channel, and this to me is much more impressive than the testimony and the marking of charts by the witnesses called on behalf of the Almirante Jaeeguay on the direct examination on the taking of the depositions, by which it was attempted to show that the place of the collision was on the north side of the channel.

The pilot, master, first officer, and third officer of the Silarus all plaee the collision on the south side of the channel.

In this they are corroborated by the master of the tug Direeteur Buleke, the Almirante Jaceguay’s assisting tug, which was following her down the river, and the master of the tug Hercules, which had come down to assist the Silarus into Antwerp, and had passed a heaving line to the Sila-rus, but let go and went forward and inshore of the Silarus when a collision became imminent.

I have not overlooked the fact that the proctors for the Almirante Jaeeguay contend that these two witnesses are not disinterested, but the fact still remains that neither of these witnesses were in any way responsible for the collision, or could in any way be charged with fault with reference thereto, and I cannot follow the reasoning of the proctors for the Almirante Jaeeguay that they became interested witnesses simply because they rendered salvage services to the Silarus after the collision.

Both of these witnesses fix the plaee of the collision as the south side of the channel, and I accept that as true. The red line x-y drawn by the master of the Direeteur Buleke, on Exhibit D, as the course of vessels bound up the river, does not contradict his testimony that the Silarus was navigating on her starboard side of the river, because he said that, if there was another vessel approaching, the vessel approaching Antwerp takes a course to the southerly of the red line, closer to the southerly bank.

It was the duty of the Almirante Jaee-guay to navigate on the north side of the channel.

Regulations for the navigation of the Scheldt river, in so far as is necessary for present consideration, read as follows: “Article 32. Keeping to the right of middle of the fairway. A steam vessel under way, if its draft and its measurements permit, * " * shall hug that side of the fairway which is to its starboard.”

This rule the Almirante Jaeeguay failed to obey, in that proper allowance was not made for the flood tide, which, as was or should have been well known to the pilot of the Almirante Jaeeguay, would strike her starboard bow and set her over to the south side of the channel, and this could only be obviated by keeping the helm hard aport all the time. This the Almirante Jaeeguay did not do, and as a result she started to sheer to port, and once that sheer started she was unable to break it, although her helm was put hard aport.

The collision would not have occurred if the Almirante Jaceguay had observed this rule and remained on the north side of the river.

The Scheldt river at the point in question was a narrow channel, and the aforesaid local regulation is similar to article 25 of both the International and Inland Rules (33 USCA §§ 110 and 210), which provide as follows: “In narrow channels every steam .vessel shall, when it is safe and practicable, keep to that side of the fairway or mid-channel which lies on the starboard side of such vessel.”

The evidence convinces me that the collision would not have occurred but for the sheering of the Almirante Jaceguay across to the south side of the channel into contact with the port side of the Silarus.

This was a fault on the part of the Almirante Jaceguay and raises a presumption against her, and places upon her the burden, not only of exonerating herself, but of establishing fault on the part of the Silarus. The Australia (C. C. A.) 120 F. 220, 222; Nicholas Transit Co. v. Pittsburgh Steamship Co. (D. C.) 196 F. 60; Davidson v. American Steel Barge Co. (C. C. A.) 120 F. 250; The Giove (The M. F. Elliott, Royal Navy of Italy, v. Standard Oil Co.), 27 F.(2d) 331 (C. C. A.).

This sheering of the Almirante Jaceguay was not an act in extremis, but was due to the fact that her navigator did not seasonably put and keep her helm hard aport, as he knew was required under the tidal conditions there prevailing, in order to keep her on her starboard side of the channel.

The evidence shows that at times incoming and outgoing vessels did pass each other at the section of the channel in question, but the pilot of the Almirante Jaceguay knew that section of the Scheldt river, Krankeloon pass, to be dangerous, and that vessels approaching each other there have to be very careful.

With this knowledge the Almirante Jace-. guay should have obeyed that portion of the regulations governing the navigation of the Scheldt river which was applicable, and reads as follows: “Article 40. (1) Whenever, in a fairway with current, vessels meet near a channel, a bridge, an anchorage or a bend where the channel is so narrow that it would be dangerous for them to go through the channel simultaneously, the vessel running against the current shall stop its progress with respect to the bottom until the vessel running with the current has passed the channel, the bridge, or bend or has gone beyond the anchorage.” The pilot of the Al-mirante Jaceguay made no effort to comply with this regulation.

When the Silarus was.first observed by the Almirante Jaceguay, the pilot of the latter should have begun to navigate so as to allow the Silarus. to pass the point of danger before the vessels passed each other. This was not done, as the evidence shows that from a full speed, in excess of 13 knots, the Al-mirante Jaeeguay’s engines were reduced to half speed of about 8 knots at 11:40 o’clock p. m., her time, and continued at that speed for five minutes until she was abreast of black buoy 60, when at 11:45 o’clock p. m., her time, her engines were put at slow speed about 4 knots, at which speed they were continued for two minutes, until 11:47 o’clock p. m., her time, when they were stopped and the collision occurred one minute thereafter, at 11:48. o’clock p. m., her time.

The testimony of the master of the Al-mirante Jaceguay and Seifert, the North Sea German pilot, that the Silarus was not observed until 11:45 o’clock p. m., is not impressive, and in any event it is not the time when they observed the Silarus that is important, but the time when Claessens, the pilot of the Almirante Jaceguay, observed the Silarus, and that was at 11:40 o’clock, p. m., when she was abreast of red buoy 60 and had not yet got under the influence of the flood tide.

The failure of the Almirante Jaceguay, which was running against the current, to comply with the provisions of such regulation was a fault, as the collision would not have occurred if she had stopped in time and allowed the Silarus, which was running with the current, to pass through the section of the channel in question. The Talabot, 6 Asp. Mar. Cas. (N. S.) 602.

The Silarus had given the one whistle signal for a port to port passage, and this had been answered by the Almirante Jaceguay with a one whistle signal, but the danger of a collision was recognized by those on board the Almirante Jaceguay three minutes before the collision.

In fact it appears to me that the Almir-ante Jaceguay was practically out of control and sheering across to the south side of the channel for at least two minutes before the collision, and yet her engines were not stopped until one minute before the collision, and her anchor was not let go until two to twenty seconds before the collision.

Under all the circumstances it is clear to me that, had the anchor been let go two minutes before the time of the collision, there certainly would have been no collision, and I am inclined to the belief that no collision would have occurred even if the anchor had been let go when the engines were stopped one minute before the collision.

To continue on in the face of the known danger of the situation was a violation of the regulations for the navigating of the Scheldt river, so much of which as is necessary for consideration on this point reads as follows: “Article 27. Reduction of speed, etc., in case or risk of collision. A steam vessel approaching another vessel when there is danger of collision, shall reduce its speed, stop or back, according to the circumstances.” This regulation is similar to article 23 of the International and Inland Rules (33 USCA §§ 108 and 208).

The failure of the Almirante Jaceguay to obey the regulations was a fault which contributed to the collision.

The contention of the Almirante Jaceguay that she had no headway at the time she came into contact with the Silarus cannot be sustained because she could not have overcome her headway entirely in one minute before the collision.

As I have hereinbefore said, the Silarus was well over on her starboard side of the river when she blew the one blast whistle signed for a port to port passage, and continued on that side of the river until the Al-mirante Jaceguay came into contact with her.

The Silarus, after starboarding a little to round the Fort Ste. Marie bend, steadied on a shore light a long way ahead, and proceeded close to her starboard side of the river. I see no reason to cast doubt on the existence of the light, because the helmsman could not say just what light it was, when you consider the large number of lights which could be seen, even those on the docks at Antwerp being visible.

The attempt on the part of the Almirante Jaceguay to establish that the Silarus was steadied on a light off shore in the channel failed, first, because the witnesses do not agree, even approximately, upon the location of the lighted vessel; Second, because “vessels of small draft, inland navigation vessels, !l 9 * are forbidden to anchor in the fairway” or “in bends,” by the express provisions (article 46, paragraphs 3 and 4) of the Scheldt river regulations; third, because I am convinced that no such vessel was anchored in the vicinity, and that it was not the light which the helmsman used.

The Silarus did¡ not attempt a starboard to starboard passage and at the last minute pass to port.

The Silarus did not sheer and fall over to starboard, nor did she sheer across the bow of the Almirante Jaceguay. If she had, the stem of the Almirante Jacegury would have been bent to port, but instead of that it was bent to starboard, showing conclusively that the Almirante Jaceguay sheered over into contact with the Silarus.

The Silarus was as far over on the south side as was consistent with safety, and believed the Almirante Jaceguay would carry out the port to port passage.

The Silarus maintained a good lookout.

There was evidently a difference of one minute in the engine room clocks of the Sila-rus and the Almirante Jaceguay, as the time 6f the collision on the engine room clock of the Silarus is given as 11:49 o’clock p. m., and on the engine room clock of the Al-mirante Jaceguay at 11:48 o’clock p. m.

The deck time on the Silarus was one minute faster, as the time of collision on that clock was 11:50 o’clock p. m.

The Silarus was not proceeding at excessive speed as her engine movements show, by the engine room clock, 11:41 half ahead for two minutes, 11:43 full ahead for one minute and a half, 11:44% half ahead for four minutes, and full ahead 11:48% for one-half minute until collision at 11:49. She had thus been proceeding at half speed, which was between 5 and 6 knots, for four minutes before the order for full speed ahead for one-half minute before collision, and this was not excessive nor improper, nor was the rate of speed regulated by the Scheldt river statute.

The Silarus was the privileged vessel and was proceeding with the current at half speed, her passing signal had been accepted by the Almirante Jaceguay, and she had the right to expect that the Almirante Jaceguay would navigate on the north side of the river, and no signal was given to apprise the Silar-us she would not so navigate; and, when it became apparent that there would be a collision, she went full speed ahead to prevent the Almirante 'Jaceguay from coming into contact with the most vulnerable part of the ship; that where the engines were located, and in an attempt to swing the stem clear, the Silarus put her helm hard astarboard, but was unsuccessful, as the bluff of the port bow of the Almirante Jaceguay struck the port side of the Silarus a short distance aft of amidships.

For the Silarus to have stopped her engine and attempted to go astern when she discovered that the Almirante Jaceguay was out of control would not have helped, but only have made matters worse, and she would either have sustained the collision at the most vulnerable part of the ship, or put the Silarus ashore, if she did not do both of these things.

At no time after accepting the one whistle signal did the Almirante Jaceguay give any signal or in any way indicate that she would not or could not navigate in accordance with the one tyhistle signal, and the maneuver of the Silarus when she became aware of the imminence of a collision was one made in extremis, and in the opinion of a competent navigator the best that could be made; and, even if now it might be determined that a better order could have been given, that will not prévent the awarding of full damages to the Silarus, the faults of the Almirante Jaceguay being so plain, and she having placed the Silarus in a position of extreme danger. The Maggie J. Smith, 123 U. S. 349, 8 S. Ct. 159, 31 L. Ed. 175; YangTsze Ins. Ass’n v. Furness, Withy & Co. (C. C. A.) 215 F. 859.

The faults of the Almirante Jaceguay were so glaring, and adequate to account for the collision, that it would require clear evidence of fault on the part of the Silarus, and not merely the raising of a doubt as to her navigation, to make a case of apportionment, and this court should not be astute to find fault on the part of the Silarus. The Victory & The Plymothian, 168 U. S. 410, 423, 18 S. Ct. 149, 42 L. Ed. 519; The City of New York, 147 U. S. 72, 13 S. Ct. 211, 37 L. Ed. 84; The Fort St. George (C. C. A.) 27 F.(2d) 788.

The Silarus was not at fault for failing to sound a two whistle signal when she, in an emergency, hard astarboarded her helm in an attempt to avoid collision. She did not intend to make a starboard to starboard passage, but simply to throw the stern of the Silarus away from the advancing Almirante Jaceguay, and the sounding of such signal would only have confused matters.

If there was any fault, it was an act in extremis and could not have, contributed to the collision.

I find as conclusions of law:

That the Almirante Jaceguay was guilty of negligence and solely at fault in failing to keep on her right side, the north side of the river, and in allowing herself to sheer over on the south side of the river; in failing to stop her progress until the Silarus running with the current had passed; in failing to carry out the port to port passage to which she had agreed; in failing to reduce her speed; and in allowing her to come into contact with the Silarus and to damage the Silarus and her cargo; and that the Silarus did not, by any action or failure of action on her part or that of her owner, the Royal Mail Steam Packet Company, its agents or servants, contribute to the damages she or her cargo received from the Almirante Jaceguay.

The Silarus was without fault and was not guilty of negligence in failing further to reduce her speed or to stop and back, or in failing to sound a two whistle signal.

That the Royal Mail Steam Packet Company, owner of the steamship Silarus, libel-ant, on her own behalf and as bailee of the cargo she had on board, is entitled to recover and to have a decree against the Companhia De Navegaeao Lloyd Brasileiro, respondent in the first above-entitled action, for damages, with costs and the usual order of reference.

That the Royal Mail Steam Packet Company, cross-respondent, is entitled in the second above-entitled action to a decree against the Companhia De Navegaeao Lloyd Brasil-eiro, cross-libelant, dismissing the cross-libel with costs.

A decree may be entered in the first above-entitled action in favor of the libelant the Royal Mail Steam Packet Company against the respondent Companhia De Navegaeao Lloyd Brasileiro, with costs and the usual order of reference.

A decree may be entered in the second above-entitled action in favor of the cross-respondent, the Royal Mail Steam Packet Company, against the cross-libelant, Com-panhia De Navegaeao Lloyd Brasileiro, dismissing the cross-libel with costs.

If this is not considered a sufficient compliance with Rule 46% of the Rules in Admiralty (28 USCA. § 723), proposed findings of fact and conclusions of law may be submitted.


author: VAUGHT, District Judge.

text:
    CARTER OIL CO. v. ALEXANDER, Collector of Internal Revenue.
    No. 3211.
    District Court, W. D. Oklahoma.
    Oct. 7, 1930.

      James A. Veasey, L. G. Owen, Walter Davison and Ford & Montgomery, all of Tulsa, Okl., for plaintiff.
    Roy St. Lewis, U. S. Dist. Atty., of Oklahoma City, Okl., for defendant.
   VAUGHT, District Judge.

The petition in this case, after alleging the jurisdictional facts, states:

That from November 1, 1919, to November 31, 1921, and for a number of years pri- or thereto, the plaintiff’s sole business was the development of lands for oil and gas, and the sale of production therefrom in the state of Oklahoma and elsewhere. That it owned and operated certain leases producing oil in the Healdton and Hewitt districts in Carter county, Okl. That it never owned or operated a pipe line for the transportation of crude oil in the state of Oklahoma or elsewhere, nor has it ever engaged in the business of transporting crude oil by pipe line or otherwise. That prior to said month of November, 1919, the plaintiff acquired the fee title to several tracts of land not within the producing regions of Carter county, Okl., but convenient to said region, and erected thereon a large number of steel storage tanks of 37,500 and 55,000 barrels capacity, each, to be utilized in the storing of plaintiff’s excess production from said districts, or to store plaintiff’s production when it was desirous of obtaining a higher market price for the same at some future time. That said tanks were located from four to twelve miles distant from plaintiff’s producing leases, and long prior to November, 1919, the plaintiff had connected said producing leases with steel tanks by a series of small service lines either two, three, or four inches in diameter. That the function of said facilities was to enable the plaintiff to store all or part of its production in that vicinity. That in the interval between November 1,1919, and August 31, 1921, the plaintiff stored 1,626,963.99 barrels of crude oil produced by it from said districts, through said small service lines owned by it as aforesaid. That in like manner during the four months succeeding August 31, 1921, additional quantities of crude oil produced and belonging to plaintiff were run through said small lines into plaintiff’s storage, to wit: September, 1921, 328,104.49 barrels; October, 1921, 122,430.71; November, 1921, 114,280.47 barrels; December, 1921, 70,763.92 barrels. That all of said oil was run into storage either because the pipe line service in said field was temporarily inadequate or because plaintiff desired to store a part of said production for a better market price.

That at no time during the period beginning November 1, 1919, and ending December 31,1921, nor at any other time, did plaintiff use said facilities for the running, movement, or storage of crude oil belonging to another person or persons. That said storage tanks were not located at or near an oil refinery, nor at or near a center of petroleum consumption. That plaintiff’s reasons for building said tanks from four to twelve miles distant from its producing properties was to reduce the hazard of fire which would have been accentuated by the storing of large quantities of crude oil in the immediate vicinity of the producing and operated oil property, and for the further reason that the construction of tanks of the size mentioned surrounded by the necessary fire walls to protect the tanks from destruction would have seriously interfered with the operation of any oil property on which the same might have been located, and thus would have prevented the development of the oil producing properties occupied by said storage. That during said time pipe line companies operating in said fields performed the following service: They connected their relatively small lateral lines with the producing properties in those districts, or with the steel tanks containing crude oil held in storage located there, and thereupon moved sueh oil to their nearest receiving station on their main trunk line, and this service was referred to, and known in the business as, the “gathering of oil.” That, following this operation, the oil was conveyed through their tank line or lines to the point of destination, and this act was re^ ferred to and known in the business as the “transportation of oil.” That in February, 1922, the Commissioner of Internal Revenue found that the movement of oil from the producing field to the storage tanks constituted transportation of oil under the Federal Revenue Aot of 1918, and upon sueh finding made the following assessments against the plaintiff on account of said alleged transportation of crude oil, to wit: For the period beginning November 1, 1919, and ending August 31, 1921, $13,015.73; during the month of September, 1921, $2,624.84; October 1921, $979.45; November 4th, $924.24; December 1921, $556.11, and thereafter, the Commission, on October 5, 1922, increased the “gathering rate,” held the basis for said assessment, from ten cents per barrel to twelve cents pier barrel, and in other respects modified and adjusted the assessment or assessments made against plaintiff on account of said movements. That, as a result of said several assessments, notice and demand for the payment of the following taxes was made upon the plaintiff by the defendant, to wit: $13,015.73, $2,624.84, $979.45, $914.24, $2,-984.56, plus a penalty of $149.23, making a total tax of $20,668.05. That immediately following such notice and demand plaintiff filed proper claims for abatement, alleging that said assessments, and all of them, were illegal and erroneous and setting forth the reasons therefor. That all of said claims for abatement were by the Commissioner of Internal Revenue rejected.

That on the 27th day of March, 1923, a further notice and demand for the payment of said taxes were made upon plaintiff by the defendant, and that the plaintiff was forced to and did pay the sum of $20,668.05 under protest, said-payments being made on different dates from the 31st day of March 1923 to the 5th of December, 1923, and that upon the payment of said sum under protest the plaintiff filed with the Commissioner of Internal Revenue proper claims for refund with respeet to each item of said tax, alleging the illegality of said assessments, and each of them; that, while said claims for refund were pending, the Commissioner of Internal Revenue rebated to the plaintiff $4,-518.53, leaving as a balance the total tax of $16,149.52, illegally and erroneously assessed and collected, from the plaintiff, wherefore the plaintiff prays judgment against the defendant for the sum of $16,149.52, with interest at the legal rate from the date of the collection of said items of tax, and for costs.

The defendant has filed its answer denying the material allegations alleged in the petition, and prays that the plaintiff take nothing and that the defendant recover his costs.

The parties to this action have filed a stipulation expressly waiving a jury, and, after the introduction of evidence and the arguments of counsel, the defendant moves for judgment.

There is little or no conflict in the evidence in this ease, but in the judgment of the court it is purely a question of law, and there is involved only the construction of certain parts of the Revenue Act of 1918, 40 Stat. at Large, 1057,1101,1102,1103 (amendatory of the Revenue Act of 1917 [40 Stat. 314], entitled, “War Tax on Facilities Furbished by Public Utilities, and Insurance”), under which the tax complained of was levied and collected. Section 500 of said act provides: “See. 500. That from and after April 1, 1919, there shall be levied, assessed, collected, and paid, in lieu of the taxes imposed by section 500 of the Revenue Act of 1917 — ”

Subdivision (a) provides for a tax of 3 per centum on the amount paid for freight shipments.

Subdivision (b) provides for a per cen-tum tax on amount paid for express shipments.

Subdivision (c) provides for a tax of 8 per centum on the amount paid for transportation of persons.

Subdivision (d) provides for a tax of 8 per centum on the amount paid for parlor car seats and sleeping ear berths.

Subdivision (e) provides a tax equivalent to 8 per centum of the amount paid for the transportation on or after sueh date (April 1, 1919) of oil by pipe line.

Subdivision (f) provides for a tax on telegraph, telephone, cable, or radio dispatch, message, or conversation.

Subdivision (g) provides for a tax on telephone and telegraph companies.

Section 501 (a) provides that the taxes imposed by section 500 shall be paid by the person paying for the services or facilities rendered.

Subdivisions (o) and (d) of section 501 provides as follows:

“(c) The taxes imposed by section 500 shall apply to all services or facilities specified in such section when rendered for hire, whether or not the agency rendering them, is a common carrier. In ease a carrier (other than a pipe line) principally engaged in rendering transportation services or facilities for hire does not, because of its ownership of the goods transported, or for any other reason, receive the amount which as a carrier it would otherwise charge, such carrier shall pay1 a tax equivalent to the tax which would be imposed upon the transportation of such goods if the carrier received payment for such transportation, such tax, if it can not be computed from actual rates or tariffs of the carrier, to be computed on the basis of the rates or tariffs of other carriers for like services as determined by the Commissioner. In the case of any carrier (other than a pipe line) the principal business of which is to transport goods belonging to it on its own account and which only incidentally renders services for hire, the tax shall apply to such services or facilities only as are actually rendered by it for hire. Nothing in this or the preceding section shall be construed as imposing a tax (1) upon the transportation of any commodity which is necessary for the use of the carrier in the conduct of its business as such and is intended to be so used or has been so used; or (2) upon the transportation of company material transported by one carrier, which constitutes a part of a railroad system, for another carrier which is also a part of the same system.
“(d) The tax imposed by subdivision (e) of section 500 shall apply to all transportation of oil by pipe line. In ease no charge for transportation is made, by reason of ownership of the commodity transported, or for any other reason, the person transporting by pipe line shall pay a tax equivalent to the tax which would be imposed if such person received payment for such transportation, and if the tax can not be computed from actual bona fide rates or tariffs, it shall be computed (1) on the basis of the rates or tariffs of other pipe lines for like services, as determined by the Commissioner, or (2) if no such rates or tariffs exist, on the basis of a reasonable charge for such transportation, as determined by the Commissioner.”

The construction, therefore, of subdivision (e), section 500, is necessary in order to determine the issues in this ease.

What is meant by transportation of oil by pipe lines? Counsel for plaintiff quote 23 Treasury decision page 745, No. 3197, dated July 18, 1921, which is as follows:

“Where the person so transporting is not a carrier, there is a taxable transportation of oil by pipe.line within the meaning of section 501 (d), whenever the movement of said oil, affeeted by the owner thereof, is substantially similar to those movements which pipe line carriers usually undertake and perform; or, in other words, where the movement is not merely local and incidental to another business engaged in by the person so transporting, such as the producing or refining of oil. Thus where a refiner maintains a main, trunk, or stem line from his refinery to an oil field or pool, the services he performs for himself are similar to those which pipe line carriers would otherwise render to him. He should, therefore, pay the tax as though he had in fact employed the services of a carrier. If, on the other hand, the movement is from storage tanks to stills, which are a part of the same manufacturing unit, or from wells to flow tanks or storage tanks situate in the immediate vicinity, the movement is not such as a pipe line carrier of oil would normally render, and consequently should not be taxed.
“[Sgd] D. H. Blair, Commissioner of Internal Revenue. “Approved July 18,1921: “A. W. Mellon, Secretary of the Treasury.”

It is clear that Congress had in mind, at the time that section 500 was enacted, the taxation of transportation facilities. The evidence in this ease disclosed that there are main pipe lines running from various oil fields to central markets, some of theni hundreds of miles in length. These are recognized as public utilities the same as other common carriers. There are also branch pipe lines which connect various oil fields or storage farms with the main trunk pipe line. Then there are smaller pipe lines connecting the branch lines with various wells or producing fields known as gathering lines, and we might define the pipe lines as being the main trunk line, the branch lines, and the gathering lines. The facts in this case are undisputed that the plaintiff was operating certain leases in the Healdton and Hewitt fields. It had numerous producing wells thereon, but, in order to'conserve its oil and provide storage therefor which would enable it to produce oil in excess of the amount which would be taken from its wells by the pipe line, or for the purpose of holding for a higher price, provided within four to twelve miles of the field its own tank farm on which it erected a number of tanks of 37,500 and 55,00o1 barrel capacity. There is no contention that the plaintiff utilized these tanks for any purpose except to store its own oil, and that these tanks were connected with the main trunk pipe line, first, by gathering lines whieh emptied into the branch lines, and the branch line into the main trunk line.

Was the carriage of the oil from the wells of the plaintiff to its own storage tanks transportation of oil as. contemplated by Congress in the act of 1918 ? Is there a distinction between the transportation of oil and conservation of oil? If a producer has a storage tank within a hundred yards or a hundred feet of his well, would it be contended that taking his oil from the well would be transportation in the sense intended in the act, or would it merely be a part of the necessary acts in producing the oil, and, if the storage tanks were located because of fire hazards and convenience, a number of miles away from the wells, would that change the production and conservation of oil to transportation of oil? The Treasury decision, No. 3197, supra, in the last sentence says: “If, on the other hand, the movement is from storage tanks to stills, whieh are a part of the same manufacturing unit, or from wells to flow tanks or storage tanks situate iu the immediate vicimty, the movement is not such as a pipe line carrier of oil would normally render, and consequently should not be taxed.”

Attorneys for the defendant contend that the carrying of oil from the well to the storage tank, regardless of the distance, would be transportation, and have cited numerous eases.'

In Motter v. Derby Oil Company (C. C. A.) 16 F.(2d) 717, the facts were that the Derby Oil Company operated and maintained a refinery in Wichita, Kan. They also owned producing properties in Butler county, and operated and controlled two> and three inch pipe lines connecting the greater part of its production with its refinery at Wichita, Kan. The Circuit Court of Appeals held that this was transportation, and I thoroughly agree with that honorable court, because it would be immaterial whether the oil was transported to a refinery or to a market, and, if the transportation of the oil to a refinery or to a loading tank or to a main pipe line was the first step in the removal of the oil from the producing field to- the market or to the refinery, it would certainly be transportation. Both plaintiff and defendant cite the case of Dixie Oil Company v. United States (C. C. A.) 24 F.(2d) 804, 805.

. In this ease the Dixie Oil Company had a producing lease approximately one mile and a half from the main line of the Texas & Pacific Railway Company. On the western part of the lease was located a battery of settling tanks. Near the eastern line of that lease there was a 55,000 barrel tank used for storage purposes. ’ The company owned and operated the pipe line connecting the tanks on its lease with a loading rack on the Texas & Pacific Railway. The loading rack was also owned by the company. The oil produced was pumped from the wells into the tanks, and from the tanks transported to the loading rack, and from the loading rack into tank cars. If no tank ears were available, the oil was stored in the storage tanks near the eastern boundary of the lease, and, when the tank cars were available, tbe oil was pumped from tbe storage tanks to tbe loading rack. The trial court [23 F.(2d) 888] in that ease held that tbe movement of tbe oil by tbe Dixie Company from its lease to the loading rack was a taxable transportation as meant and intended by tbe Revenue Act of 1918, and tbe case was affirmed. Tbe appellate court, in affirming the ease, said: “The production of the oil, the extraction of it from beneath the earth’s surface, and the preparation of it for transportation, by depositing it in settling or storage tanks, were completed before the movement of it from plaintiff’s lease began. The oil’s journey to its destination bad begun when it left plaintiff’s premises, though that journey was interrupted by putting the oil in the loading rack. The movement of the oil from plaintiff’s lease preparatory to its being loaded into tank ears was as much transportation of it by pipe line as it would have been if the distance covered had greatly exceeded a mile and a half.”

The opinion in this case is not inconsistent with the holding of the Eighth Circuit Court of Appeals in the Derby Oil Company Case, supra. Nor, in the opinion of the court, is either of these eases applicable to the ease at bar. The plaintiff, it is true, stored his oil in his tanks by means of a pipe line, or rather a line of pipe, hut pipe line as contemplated in this act carries with it the act of transportation. It is the public utility feature, and, in tbe judgment of tbe court, it was used in that connection with tbe idea of being a public utility. Now the plaintiff in this case found it necessary to transport its oil from tbe the storag'e tanks by means of gathering lines or branch lines to the main trunk pipe line. In other words, the transportation of its oil had never begun. The use of the storage tanks in this case was more a means of conserving the oil and preparing it for transportation then for transportation itself. The court finds no fault with the authorities cited by the defendant, hut does not agree to their application to the ease at bar. The farmer gathers his com in the field, and conveys it by a wagon to his granary, or he conveys his wheat from the field to the bin, and, while this is actually transportation in one sense, it certainly is not transportation with reference to marketing his grain, and it is apparent to the court that Congress had in mind that, whenever the movement of oil began from tbe possession of the producer to the market or to a refinery, then transportation as intended by this act began, but not-before. What would the producer do- with his oil if the pipe line could not carry the oil produced, and he had no place to- store it? Must he shut down his wells? Is the government prejudiced in any way by him storing his oil? Is the transportation interfered with, or is the tax which the government provides must be levied upon transportation, whether it be by gathering the oil in the field or by conveying it by branch pipe lines to tbe main trunk line, in any wise lessened. I think not. The government receives the same tax that it would have received had this oil been taken directly from the well by means of a gathering line to the pipe line proper or to the loading rack or to the refinery. I am not of the opinion that every line of pipe is a pipe line as intended by this act. An oil field is filled with pipes, and the oil is taken from the well in pipes, but it certainly would not be contended by the government that that is a pipe line as contemplated by this act, which has reference to a common carrier. If, therefore, the pipe line connecting the well to the storage tank was not a public utility, and did not perform the function ordinarily performed by other pipe lines in the vicinity, but was merely a means for producing and conserving the oil by the owner of the lease, and was not such a pipe line as is contemplated under subdivision (e), § 500, of the Revenue Act of 1918, then the Commissioner had no power to assess a tax against the p-laintiff for the transportation of its oil from the wells to the storage or settling tanks.

Judgment is therefore rendered in favor of the plaintiff and against the defendant in the sum of $16,149.52, with interest thereon at the rate of 6 per cent, from the 5th day of December, 1923, until paid. Exception is allowed defendant.


author: PRAY, District Judge.

text:
    LUMBERMEN’S TRUST CO. v. TOWN OF RYEGATE.
    No. 224.
    District Court, D. Montana.
    May 14, 1931.
    Order July 7, 1931.

      Stewart & Brown, of Helena, Mont., for plaintiff.
    Johnston, Coleman & Jameson, of Billings, Mont., for defendant.
   PRAY, District Judge.

The purpose of this action is to establish a liability against the town of Ryegate, Golden Valley county, Mont., on an implied contract for the balance due on the construction of a water supply system, which otherwise would have been paid from bonds issued by a special improvement district of that town, had the entire issue not been declared illegal and void, after the water supply system had been fully constructed. The facts appear herein and in an agreed statement and testimony taken at the trial, which was before the court without a jury, according to written stipulation of counsel for the respective parties.

Proceedings were begun by the town council for the creation of the special improvement district in 1919, followed by the usual bond issue and commencement of work by the contractor, the Security Bridge Company, the precedessor of plaintiff. It appears from the resolutions adopted by the town that the character of the improvements were to be “the construction of pipes, hydrants, and hose connections for irrigating appliances and fire protection.” That pursuant thereto the improvements actually installed consisted of waterworks and a water system of reservoirs, pumping plant, mains, and fire hydrants, for the furnishing of water to the inhabitants of the town. To provide for the payment of the improvements, the town council assessed each parcel of land within the district for that part of the entire cost which its area bore to the entire area of the improvement district, exclusive of streets and alleys. That the assessment so made against the property in said district was for the purpose of retiring the bonds of the district in the amount of $45,602.42.

No notice was ever given to the property owners in the district of the letting of the contract for the construction of the improvements. The cost of improvements which the town attempted to assess against the property in the district was the sum above mentioned, whereas the estimated cost was only $28,350. Within the time allowed after letting of contract protests and objections were filed.

Plaintiff claims that under section 6 of article 13 of the Constitution of the State of Montana, and subdivision 64 of section 5039 of the Revised Codes of Montana of 1921, the town of Ryegate had general authority to procure a water supply and construct a complete waterworks system, and therefore contends that since the city had general power and authority to do the work and construct the improvements embraced in the special improvement district in question, although it had no authority to resort to the special improvement district plan to make the improvements and although bonds used in payment of the’ work were illegal and void, nevertheless, the town having the general power to make such improvements, and having received and retained the benefit of the improvements and the construction thereof, it is liable as upon an implied contract, and the delivery of void warrants did not amount to payment, and also that a contract may be illegal and void, yet if the corporation has the general power to do the thing agreed upon, but has done it in an irregular manner, or even in violation of some common-law rule, or statutory inhibition, yet if it has received the benefit and the contract was not immoral, unjust, or inequitable, it is liable upon the implied contract.

The defendant states the proposition of law as follows: “The general question presented by this action is whether or not a city or town in Montana is liable upon any theory for the debt represented or evidenced by the bonds of a special improvement district which by their terms are made payable from a special fund derived from special assessments upon and against the property embraced within that district.” If this question should receive an affirmative answer, then the further question arises whether the town of Ryegate can be held liable in this instance in view of section 6 of article 13 of the Constitution of Montana. In commenting on the foregoing statement of the issue of law involved, plaintiff contends that the town never acquired jurisdiction to create a special improvement district and that the bonds issued wore by the court declared to be invalid, after the contract, for which the bonds were delivered, had been fully performed. Not all the bonds representing the entire consideration for the works were declared invalid ; only those of the special improvement district. Fifteen thousand dollars of the consideration was paid through an issue of the general bonds of the town, and the remainder by the issue of special improvement district bonds.

It seems clear that because of the constitutional inhibition the town was unable lawfully to contract for the installation of a water system without the approval of the taxpayers. It found that it could lawfully issue $15,000 in bonds as a direct obligation and no more; consequently the town council by appropriate resolution and with apparent authority undertook the establishment of a special improvement district for the purpose of creating a bonded indebtedness against the property lying within the boundaries of such district to raise the money necessary to install the works hereinbefore described which were to be located in the special improvement district. It appears that the improvement district embraced the greater part of the town including the principal business and residental sections. By resorting to these two methods the town secured a waterworks system, such as was provided by contract, and has used the same for several years without paying for it, except the payment of $15,000 in bonds of the town. The town apparently set about to accomplish in a lawful manner indirectly what it could not lawfully do directly without an election and favorable majority vote. Unquestionably there is a general obligation to do justice resting upon cities as well as upon natural persons, and while plaintiff cannot now recover upon the contract, the question remains: Can it lawfully recover from the town as on an implied contract for money had and received? Can the town be compelled to assume as a general obligation the indebtedness contracted with the special, improvement district and secured by an issue of bonds upon property lying wholly within the district? Irrespective of what the general result has been here, does the law permit the plaintiff to recover from the town when it or its predecessor accepted the bonds of the special improvement district, enforceable against the property of the district, for the amount now claimed from the town itself? Plaintiff claims to have no recourse against the property of the district because of a decision of the state court, from which no appeal was taken, declaring the bonds of the district illegal and void. According to the record, counsel representing the bondholders took part in the trial of the issues there involved.

Whether it be held, as contended by plaintiff, that there was no grant of power under the statute conferred upon the municipality to install and pay for a waterworks system, as provided in chapter 56 of part 4 . • (sections 5225-5277), Revised Codes of Montana (1921), or not, there is certainly enough in the language of that chapter to lead the members of the average town council to believe that they had the authority to create a special improvement district for the purpose of installing the aforesaid waterworks within the district and paying for it by the issuance of bonds of that district. The Security Bridge Company and plaintiff could have subjected these bonds and proceedings to the closest scrutiny of counsel before accepting them, and could have rejected them if they were issued without authority of law, or if' they found that their invalidity consisted in a failure to comply with the requirements of a valid statute.

If in this instance the proper officers had been authorized to enter into the contract on the part of the town, after submitting the question to a vote of the taxpayers as required by law and receiving favorable action thereon, there would be no question whatever as to the liability of the town, irrespective of any mere oversight or irregularity in conducting the proceedings.

Subdivision 64 of section 5039 of the Revised Codes of Montana (1921) provides that a city or town council shall have power to contract an indebtedness on behalf of the city or town for the construction of a waterworks system supplying the city or town after the proposition has been submitted to the vote of the taxpayers affected thereby and the majority vote cast in favor of the improvement. The other method is by the creation of a special improvement district under chapter 56 of part 4 of the same Code. This was the plan adopted by the town for the balance of the necessary funds, and it failed; but its failure was not discovered until after the receipt of the money and the construction of the system. Section 6 of article 13 of the Constitution of the State of Montana provides a debt limit for cities and towns. Ryegate had exceeded its constitutional limit of indebtedness.

From the authorities and statutes cited by plaintiff it seems that a complete water supply system for an entire city or town cannot be constructed under the special improvement district plan embracing only a part of the city or town and charging up the total cost to the property included therein, and benefited thereby, for such an arrangement manifestly would be an injustice to the residents of the district, but where the cost of a certain part of the works has been accurately figured in correct proportion to the cost of the whole system and constructed and paid for under the special improvement plan, an entirely different question is presented and one which does not seem to conflict with the general payment plan for a water system by the other method. But here a eomj>lete system was not attempted to be constructed at the expense of the taxpayers of this particular improvement district. The town itself became directly liable for part of the indebtedness; it assumed apparently as much of the debt as could be done without exceeding the constitutional limit and without being obliged to go to the expense of submitting the question to a vote of the taxpayers. Surely the “waterworks, water mains and extension of water mains” along the lots, blocks, and parcels of land in the special improvement district as provided in said chapter 56 may be a benefit to the property and persons served — a special benefit to the property and a general benefit to the town at large. Plaintiff attempts to make a distinction between “waterworks” and “water system,” but there appears to be no authority for it in the laws and decisions of Montana. On the question of a recovery for money had and received many cases have been cited; but one, that of Rogers v. City of Omaha, 75 Neb. 318, 107 N. W. 212, 214, 215, seems to have been relied upon as a sustaining authority by both sides. There the court held: “There is a clear distinction between contracts outside of the powers conferred upon municipal corporations, and contracts within the general scope of the powers conferred, but which have been irregularly exercised. Contracts falling entirely outside of the powers delegated -to the corporation are absolutely null and void, and no right of action against the corporation can be founded upon them.” Reference is then made to the rule as stated by Dillon on Municipal Corporations: “A municipal corporation, as against persons who have dealt with it in good faith and parted with value for its benefit, cannot set up mere irregularities in the exercise of power conferred, as, for example, its failure to make publication in all of the required newspapers of a resolution involving the expenditure of moneys.” But in the instant ease we are not dealing with a mere irregularity but with an express constitutional requirement in the following language: “No city, town, township or school district shall be allowed to become indebted in any manner or for any purpose to an amount, including existing indebtedness, in the aggregate exceeding three (3) per centum of the value of the taxable property therein * * * and all bonds or obligations in excess of such amount given by or on behalf of such city, town, township or school district shall be void,” unless the legislative assembly extend the debt limit mentioned by authorizing municipalities to submit the question to a vote of the taxpayers affected thereby for the purpose of constructing a sewerage system or to procure a supply of water. Section 6, article 13 of Constitution of Montana. Counsel for plaintiff is undoubtedly correct in asserting that when acting in its proprietary capacity a city or town will be more readily held liable than in its governmental, but that is far from admitting that it would be liable here for that reason unless it appeared that an irregularity in procedure was involved instead of the violation of a constitutional provision. Had the bonds of the improvement district been held valid, no good reason appears why payment of both issues could not have been made under the present laws of Montana relating to general taxes and assessments in special improvement districts.

The Supreme Court of Washington, in Comfort v. Tacoma, 142 Wash. 251, 252 P. 929, said, in speaking of a similar issue of bonds by a special improvement district: “Countless numbers of these bonds were purchased by persons unskilled in such matters who failed to grasp the fact that the obligations which the bonds represented were not legally those of the city, but were' restricted to the particular fund created .by the assessment * * * the creation of a special fund to which the bondholders are restricted in itself negatives the idea of a general indebtedness .upon the part of the city.”

The leading case relied upon in Bell v. Kirkland, 102 Minn. 213, 113 N. W. 271, 13 L. R. A. (N. S.) 793, 120 Am. St. Rep. 621, that of Moore v. Mayor, 73 N. Y. 238, 29 Am. Rep. 134, seems to be easily distinguishable from the facts here; there the action was to recover a balance due upon a contract made by the corporation of the City of New York, by the Croton Aqueduct Board and Robert Jardine, plaintiff’s assignor, for the paving of Eighth avenue, from Forty-Second to Fifty-Eighth streets. “The contract was entered into, under the terms of, and pursuant to a resolution adopted by the boards of couneilmen and aldermen of the city and approved by the mayor [of the city]. * * * This resolution provided for the improvement at the expense of the city, to be reimbursed by an assessment upon the property benefited.”

One dealing with the agents of a municipality is bound to know the limts of its power. When the town of Ryegate issued $15,000 in general bonds as a direct obligation of the town, those dealing therewith well knew, or should have known, that the city could contract no greater indebtedness at that time for the purpose in view, and because of that fact resorted to the special improvement plan to raise the funds required to pay for that part of the works to be constructed in that particular district.

The funds here were used for a corporate purpose — a special purpose as to the improvement district and a general corporate purpose as to the town at large. Would that of itself create a legal obligation on the part of the town to pay the debt in event of failure of the district plan? With no such constitutional inhibition, it was within the general powers of the town to construct a water supply; but in the instant case no such general power existed on the part of the town until conferred upon it by the taxpayers of the town. To begin with, it had no power at all, and in order to acquire it, an election must be held to determine whether such power should or should not be granted.

The court held in Stanley v. City of Great Falls, 86 Mont. 114, 284 P. 134, 140, 70 A. L. R. 166: “Proposing purchasers of bonds and warrants look only to the present condition of the law, and therefrom determine whether or not such bonds and warrants furnish a reasonably safe investment.” The responsibility is upon the purchasers of such bonds to know the law and to see that it has been complied with before investing their funds; and well may they purchase with care when they read the language of the Supreme Court of Montana in respect to them: “No other city bonds and warrants stand in the precarious situation of these special’improvement district bonds and warrants, as this is the only class of bonds and warrants which does not have the credit of the city back of them.” Stanley v. Jeffries, County Treasurer, 86 Mont. 128, 284 P. 134, 137, 70 A. L. R. 166. And again from the same source: “Section 5226, Id., provides that ‘whenever the public interest or convenience may require, the city council is hereby authorized and empowered to create special improvement districts. * 's *’ Then follows a long list of purely public improvements which may he erected hy the creation of such a district. Under the special improvement district law, the cost of the work may be assessed to bordering property because of supposed special benefit, and ‘whenever the contemplated work or improvement, in the opinion of the city council, is of more than local or ordinary public benefit ' * *’ and under certain other conditions, the council may spread the assessments over an extended district. Section 5228, Id. ■* -s * When, therefore, the Legislature provided that, as to special improvement districts created in the future, a fund shall be created to insure the prompt payment of bonds and warrants issued in payment of such improvements, it but modified the special improvement district law to impose upon the general public, within the municipality, a conditional obligation to pay a small portion of the cost of erecting the public improvement, whereas it might have, lawfully, imposed a much greater burden upon the municipality. It is readily discernible that, under the law as it existed at the time this act was passed, the value of - district bonds and warrants was problematical, and their salability greatly impaired, and the public credit and public good necessitated some action to remedy the defects in the existing law. * * * We are concerned only with the legality, and not at all with the policy or reasonableness, of a legislative enactment, and, in the absence of a constitutional limitation, the Legislature has plenary power to levy taxes for public purposes. The question as to whether or not this enactment will trench upon the constitutional limitation of indebtedness of the city is not here presented. Finding no constitutional prohibition against such an act as this in its application to improvement districts created after the passage of the act, the judgment in Stanley v. Jeffries is affirmed.”

In Stanley v. Great Falls, supra, the court said: “Herein the Legislature did not attempt to impose a liability upon the people with respect to past transactions, but merely gave them the option to impose such a burden upon themselves if they saw fit, which, in so far as this inhibition of the Constitution is concerned, they may do. In re Pom-eroy, 51 Mont. 119, 151 P. 333. * * * However, what is the purpose of the act in so far as it deals with special improvement district bonds and warrants issued prior to the date thereof? Such bonds and warrants were, it is true, issued for the purpose of constructing a public work, and consequently issued for a public purpose, but the transaction has-been completed and the bonds and warrants accepted in full settlement thereof; they have passed into the hands of individuals or corporations. With respect to these, there is no duty or obligation resting upon the eity other than to enforce and obey the provisions of the special improvement district laws; if this is done, and still a loss is suffered by reason of deficiencies in that law, the loss falls upon the holders of the bonds and warrants, and not upon the eity.” From this ease it appears that there is no obligation resting upon the city other than to enforce the provisions of the special improvement district laws. The court held in Gagnon v. Butte, 75 Mont. 279, 243 P. 1085, 1088, 51 A. L. R. 966: “ ‘There is no liability in the eity to the contractor other than to make and collect the assessment and pay it over, unless the eity fails in some duty it owes to the contractor connected with the levy and collection of the assessment. Upon the receipt of the assessment the city becomes liable to the contractor as for money received to his use.’ 2 Dillon on Municipal Corporations (5th Ed.) § 827. * * * Primarily, the eity of Butte incurred no personal liability to the contractor who did the work. It was merely constituted an instrumentality of the law in initiating and carrying out the improvements and in collecting the money due upon assessments made by it against the property benefited in order to pay the obligations incurred in execution of the work. * * * The plaintiff was chargeable with knowledge of the nature and terms of the city’s obligation with respect to the bonds, and to now permit him to hold the general taxpayers responsible because of the neglect of duty on the part of the eity treasurer would be manifestly unjust.” And much to the same effect will be found the principles laid down in the following cases: Moore v. City of Nampa, 18 F.(2d) 860, 861 (C. C. A. 9); New First National Bank v. City of Weiser, 30 Idaho, 15, 166 P. 213; Capital Heights v. Steiner, 211 Ala. 640, 101 So. 451, 38 A. L. R. 1264; Town of Windfall City v. First National Bank, 172 Ind. 679, 87 N. E. 984, 89 N. E. 311; Castle v. City of Louisa, 187 Ky. 397, 219 S. W. 439; Morrison v. Morey, 146 Mo. 543, 48 S. W. 629.

The case of Hitchcock v. Galveston, 96 U. S. 341, 348, 24 L. Ed. 659, fairly illustrates the line of argument of plaintiff in its effort to shift the indebtedness of a special improvement district to the taxpayers of the eity. In the main the law presented by plaintiff could be accepted if the facts here were substantially identical with the facts cited in those eases. In the first place, the town of Ryegate did not enter into a contract to pay this debt. The town officers had no right to bind the town in this instance by any act or failure to act on their part. All the town agreed to do was to deliver the bonds and agree to make the necessary assessments against the property, and the contractor accepted the bonds in full payment. Nowhere has the court been able to find authority for holding that the debt of a special improvement district is an obligation of the eity or town; seemingly under Montana statutes and decisions there can be found no authority for doing so. Under the contract in the Hitchcock Case the eity was primarily liable for the cost of the improvement; “the resort to the lot-owners is to be after the work has been done, after the expense has been incurred, and it is to be for reimbursement to the city.”

That the special improvement district in Ryegate “for practical purposes included the town” was a general statement made by counsel for plaintiff in their brief. According to the stipulated facts herein, the improvement district embraced within its boundaries thirty business houses, several public buildings, and sixty-one residences, and thirty-five residences, four warehouses, and a substation of the Montana Power Company in the town but outside of the improvement district. Of that number, not within the district, thirteen residences and two warehouses receive no benefit from the improvement district except fire protection, and twenty-two residences and two warehouses “cannot use the water system and improvements or equipment for fire protection, or for any other purposes as tHe same is now installed.” It appears that the persons owning property within the district were the ones chiefly benefited by the water system, and that perhaps the claim here made should have been advanced in the suits brought in the state court to enjoin the town and its officers from levying the special improvement assessments, wherein the Lumbermen’s Trust Company was represented by its counsel. From the evidence there were many taxpayers outside of the district who were not benefited by' the water system and who were given no opportunity to be heard on the question of creating the indebtedness.

The agreed facts show that plaintiff purchased these bonds from the Security Bridge Company “with the knowledge that they were special improvement district bonds and with full knowledge of the laws of Montana governing the issuance of such bonds, the power of the defendant with reference thereto and the methods provided and authorized for the payment thereof.”

Whatever the decision here, loss is bound to be sustained, if for the plaintiff, many taxpayers who derive no benefit from the waterworks system and others who never had a chance to object; if for the defendant, the bondholders lose. It was held by the Supreme Court of Washington in German-American Savings Bank v. Spokane, 17 Wash. 315, 49 P. 542, 549, 550, 38 L. R. A. 259, that: “After all that can be said and done, however, as a matter of right and law, where one of two parties must suffer, the loss should fall upon the one who has had the best opportunity to protect himself, and is the most at fault. * '■ ; While, perhaps, such general taxpayer might have compelled the city officers to act after the work was done, and the danger of loss to him imminent, the contractor or warrant holder had this same right, and the courts have all the time been open to him. By force of the contract, such officers should be held to be more directly his agents or representatives than the . agents of the general taxpayers for the purposes of the assessment, if they were such taxpayers’ agents at all in the premises. By the contract, the contractor has, in effect, adopted the machinery provided for raising his money through the acts of such officers.”

It is, of course, manifest that the town had exceeded its constitutional limit of indebtedness, but I cannot agree with counsel that under the circumstances here there would be a general liability on the part of the town, and that the calling of an election to authorize additional indebtedness should be treated as a mere formality, and that the failure to call it would amount to no more than an irregularity. On the contrary, 'there was no power at all on the part of the town to incur such excessive indebtedness without the previous authorization of the qualified voters.

After consideration of both sides of the issues, the court feels obliged to hold that the town of Ryegate did not become indebted to plaintiff on account of the special improvement district bonds delivered to it. In accordance with these views, judgment will be

entered for the defendant, with costs. Bell v. Kirkland, 102 Minn. 213, 113 N. W. 271, 13 L. R. A. (N. S.) 793, 120 Am. St. Rep. 621; Stanley v. Jeffries (Stanley v. City of Great Falls), 86 Mont. 114, 284 P. 134, 70 A. L. R. 166; City of Litchfield v. Ballou, 114 U. S. 190, 5 S. Ct. 820, 29 L. Ed. 132; City of Santa Cruz v. Wykes, 202 F. 357, 361 (C. C. A. 9); Deer Creek Highway District v. Doumecq Highway District, 37 Idaho, 601, 218 P. 371; Mittry v. Bonneville County, 38 Idaho, 306, 222 P. 292; Eaton v. Shiawassee County (C. C. A.) 218 F. 588; Atkinson v. City of Great Falls, 16 Mont. 372, 40 P. 877; 44 C. J. 1131; sections 5278, 5280, 5039 (subdivision 64), 5227, 5229, 5230, and 5279 of the Revised Codes of Mont. (1921); 44 C. J. 1194; State ex rel. City of Great Falls v. Jeffries, 83 Mont. 111, 270 P. 638.

Order.

On application of plaintiff it is ordered that the decision heretofore rendered in the above-entitled cause may stand as the findings of fact and conclusions of law required under Equity Rule 70%, to avoid any question that may arise as to whether said cause is an action at law or a suit in equity, and accordingly such decision is hereby amended to conform to said rule.


author: NIELDS, District Judge.

text:
    AMERICAN CRAYON CO. v. PRANG CO.
    No. 618.
    District Court, D. Delaware.
    May 14, 1931.

      William G. Mahaffy, of Wilmington, Del., and Carl Goepel, of New York City, and Charles E. Erohman, of Sandusky, Ohio, for plaintiff.
    Clifford E. Dunn and David A. Woodcock (of Duell, Dunn & Anderson), both .of New York City, and Charles E. Curley, of .Wilmington, Del., for defendant.
   NIELDS, District Judge.

The American Crayon Company filed a .bill of complaint against the Prang Company charging infringement of trade-mark and unfair competition. The defendant, by counterclaim, charged the plaintiff with like offenses. This court dismissed the bill of complaint and the counterclaim on .the ground that both parties were guilty of improper conduct. The Circuit Court of Appeals found both parties at fault, but reversed the decree of this court, with directions to issue an injunction against each party. Accordingly, the defendant was enjoined “from selling crayons, pastels, and oil and water* color paints, without such goods being disassociated in the minds of the public from the name ‘Prang’; from selling said goods in cartons and containers deceptively resembling those of plaintiff; from using the Prang monogram ‘A.P.P.’ (A Prang Product) in the sale of said goods; from using the Prang name, character and mark of the plaintiff in the sale of said goods; from using the word ‘Prismex’ in the sale of said goods; and from so advertising the word ‘Prismex’ as to make it a synonym for and an equivalent of the word ‘Prang’ in the sale of said goods; from using the boxes of the same size, color and indentation as plaintiff’s Prang boxes; from selling the said commodities excepting in the cartons, boxes or packages of the real maker thereof, and having the name of the real maker thereon; the general form, color, texture and design of the packages to be such as to clearly differentiate the same in the minds of the buying public from packages used by the plaintiff in the sale of said commodities under the designation of the name ‘Prang,’ or the ‘Prang monogram.’ ” The facts are fully set out in the prior opinions. (D. C.) 28 F.(2d) 515; (C. C. A.) 38 F.(2d) 448. The plaintiff now seeks to have the defendant and two of its officers, John Laidlaw and Wayne Laidlaw, adjudged in civil Contempt for violation of the injunction.

The decree of April 5, 1930, above recited, contains two interdictions broadly restraining defendant from selling crayons, pastels, and oil and water color paints, without such goods being disassociated in the minds of the public from the name “Prang,” and further restraining defendant from using the Prang name, character, and mark of the plaintiff in the sale of these goods. The other six interdictions of the decree specifically restrain defendant from repeating particular acts of unfair competition found by the court to have occurred and prescribe certain directions to prevent their repetition. The specific restraints are embraced within the broad interdictions, but in m> way limit their breadth, meaning, or application. To' a considerable extent defendant observed the specific restraints. It discontinued the use of the trade-mark '“Prismex” and the monogram “A.P.P.” in connection with the sale of the goods in question. It discontinued advertising any definition or slogan making “Prismex” a synonym of “Prang.” It sold the goods in packages which did not deceptively resemble those of the plaintiff, but .were substantially different in label, color, and design from plaintiff’s packages and could be clearly differentiated in the minds of the buying public from plaintiff’s packages were it not for the matters hereinafter considered.

Several months before the entry of the above decree defendant ordered supplies for the coming school year and advertised its stock in school and trade journals. Pos- ' sibly with some apprehension of the outcome of this ease on appeal, defendant donned a fresh costume. The proof shows that it arranged to continue selling crayons, pastels, and oil and water color paints in competition with plaintiff “without such goods being disassociated in the minds of the public from the name ‘Prang,’ ” a trade-name, representing these goods, sold by defendant to plaintiff on March 1, 1918, for twenty years.

In January, 1930, defendant caused the name of a subsidiary corporation, which had been dormant and inactive for some time, to be ehanged to Bril-tone Products, Inc. The principal officers and directors of that corporation and of the defendant are the same, and their post office addresses are the same. ' Customers desiring Bril-tone crayons, water colors, etc., were advised by such advertisements to order the goods from Bril-tone Products, Inc. Defendant continued this line of competition with plaintiff after the entry of the decree. It adopted Bril-tone as the trade-name for such goods. It substituted Bril-tone for Prismex and made Bril-tone a synonym of Prang by artful advertising.

In March, 1930, the defendant caused to be inserted in School Arts, a trade magazine, in which the Prang Company had theretofore advertised in such a manner as to make “Pris-mex” synonymous with “Prang,” an advertisement identifying the name “Bril-tone” with the name “The Prang Company,” stating “A New Name for a Colcir Line that Has Won Widespread Approval” and “The Prang Company, Distributor of 'Bril-tone’ Quality Products.” Again, in School Arts, April, 1930, the defendant’s advertisement features the trade-name “Bril-tone,” as “A Trade-Name for a Color Line,” and “Bril-tone is the trade-name of the brilliant high quality school colors supplied exclusively by Bril-tone Producís, Incorporated, to The Prang Company as sole distributor of these products.” These early advertisements show an intention on the part of the defendant to tie up or connect the old products sold under the trade-name “Prismex” with the same products now to be sold under the trade-name “Bril-tone,” and to fix in the minds of the buying public the thought that “Bril-tone” was the new name for the same products theretofore sold by the Prang Company under the name “Prang,” or “Prismex,” the sale of which under the name “Prang” or “Prismex” had been restrained. A continuation of such advertising could not help but lead to confusion in the minds of the buyers of these articles.

Further, the defendant has issued and distributed many thousand copies of a cata-logue (Plaintiff’s Exhibit No. 1) bearing on the front and back covers “School Buyers Guide — 1930” with the name “Prang” in bold letters. The thought underlying the above-mentioned advertising of making “Bril-tone”. a synonym for “Prang” is illustrated by an examination of this catalogue. On page 2, appear the words “'Bril-tone’ is the trade name of water colors, crayons, and certain other products distributed by The Prang Company. * * * Order water colors from The Prang Company.” At the top of practically every even-numbered page of this catalogue appear the words “The Prang Company,” and at the bottom of each page the words “Distributors of Bril-tone Quality Products — Water Colors — Crayons—Poster Colors — Oil Colors — Easel Paints.” On many other pages the word “Prang” is prominently displayed, for example, “Prang En-ginex Papers,” “Prang School Water-Color Brushes,” “Prang Oil Dyes,” “Prang Art Packet,” “Prang Quality Erasers,” and many similar instances. This intermingling in the same catalogue of the trade-name “Prang” in connection with the advertising of water colors and crayons can only result in creating in the minds of the public that confusion which the decree was designed to prevent. It is true that since the decree the defendant has placed on packages designed and made up by the Bril-tone Products Co., Inc., and containing the articles in question, the name of the real maker of the product contained therein, and also placed the name of such maker- upon the advertising of such products. But in addition to the name of the maker the defendant has also placed on these packages, and used in connection with such advertising, 'the name “Bril-tone” and Bril-tone Products, Inc. By the decree the defendant was prohibited from selling the articles in question except in packages of the real maker thereof and having the name of the real maker thereon. By “packages of the real maker,” the decree meant the standard well-recognized packages identified in the trade as a part of the good will of the maker of the goods, and not a special line or private brand prescribed by a subsidiary corporation under the control and direction of the Prang Company or its officers.

It seems to me that the defendant has failed to give effect to. the finding' of the appellate court when this case was reviewed by it. That court stated: “Turning first to the contract rights of the plaintiff which have been violated by the defendant, we are of opinion that so far as the specified articles, viz., 'all kinds of crayons, pastels, oil and water color paints, pencils, pens and erasers’ are concerned, the Prang-Maine gave up everything of a Prang name, character or mark to the American. This they have not done.” Had the defendant company intended to continue in fair and honest competition with the plaintiff, and given full force and respect to the decision of the appellate court, it would have discontinued entirely the use of the word “Prang” in connection or association with all advertising of the articles in question, whether by stationery, trade journal, or catalogue. As the corporate name of the defendant includes the word “Prang,” it necessarily follows that the defendant cannot use its corporate name in advertising, in catalogue or otherwise, in association with the sale of these products.

I am not impressed with the contention of the plaintiff that the defendant has violated the injunction in the sale and advertisement of “Prang Temperine.” It is doubtful from the evidence whether this product is or has been considered by either party as a water color. So far as I find, its sale was not complained of by the plaintiff in the main cause, referred to in the pleadings oí testimony, mentioned in either of the prior opinions, nor discussed in the briefs. This contention, it seems to me, is but an afterthought on the part of the plaintiff.

On the whole, I am satisfied that the defendant has violated the decree and injunction issued in pursuance thereof by the use of the word “Bril-tone” in connection with the advertising and sale of the articles in question and in issuing and distributing its catalogue, Plaintiff’s Exhibit No. 1; and that in all other respects it has complied with the spirit and intent, if not the letter, of the decree. -

To ascertain the extent of the loss, expense, or injury the plaintiff has sustained by defendant’s disobedience of the injunction, testimony will be heard in open court.