author: SIBLEY, Circuit Judge. HUTCHESON, Circuit Judge

text:
    WITBECK v. HARDEMAN.
    No. 5258.
    Circuit Court of Appeals, Fifth Circuit.
    July 17, 1931.
    Concurring Opinion July 20, 1931.
    Rehearing Denied Aug. 12, 1931.

      S. L. Herold, of Shreveport, La. (Thig-pen, Herold & Cousin, of Shreveport, La., on the brief), for appellant.
    J. M. Grimmet, of Shreveport, La. (Tan-dell Boatner, J.'M. Grimmet, Frank J. Looney, ■ and Pugh, Grimmet & Boatner, all of Shreveport, La., on the brief), for appel-lee.
    Before FOSTER, SIBLEY, and HUTCHESON, Circuit Judges.
   SIBLEY, Circuit Judge.

Witbeek and Hardeman each desired to prospect for gas and oil under section 13 of the Leasing Act of February 25, 1920, 30 USCA § 221, upon a certain quarter section of land in Louisiana belonging to the United States; both being qualified under the act to do so. Witbeek made oath to his application for a permit on November 9, 1923, and mailed it with the required fees. It was marked “Received” at the land office at 3:30 p. m., November 12, 1923. Harde-man went on the land on Sunday, November 11, 1923, and made a monument and posted a notice thereon, as mentioned in section 221, to obtain a preferential right to a permit for thirty days, and on December 11, 1923, his unsworn application for a permit was received by mail at the land office, but without the fees which were required by the regulations of the Department. A contest between the two applications was had in the Land Department upon issues of law and fact, with appeals and rehearings, resulting finally in a revision of the matter by the Secretary of the Interior, who awarded the permit to .Wit-beek. Before the permit issued, Hardeman brought his bill in the Supreme Court of the District of Columbia against the Secretary and Witbeek, seeking to enjoin the issuance of the permit to Witbeek, and to judicially establish his own prior right thereto. Witbeek was not served, and the bill was dismissed “for want of jurisdiction.” Afterwards, on May 6, 1925, Witbeek got his permit, and gave the bond required of him. Hardeman brought the present bill in equity against Witbeek alone, asserting that he, and not Witbeek, was entitled to the permit, and that Witbeek had been awarded it in consequence o£ an error of law on the part of the Secretary of the Interior, and praying a decree that he is the equitable owner of the permit, and that Witbeek is only a trustee for him, and that Witbeek assign the permit to Hardeman. Witbeek moved to dismiss the bill for want of equity, and also because it concerns property the title to which is still in the United States, and because the United States are an indispensable party and cannot be brought in without their consent. The first motion was overruled, and the second and third reserved for consideration on the merits. After trial, they were impliedly overruled, for a decree was granted Hardeman in all respects as prayed for. Witbeek appeals. The permit has been kept in life by an extension pending the litigation.

Witbeck's first assignments of error are upon the overruling of his motions to dismiss. It is first contended that the bill lacks equity because the grant of a permit to anyone is discretionary, so that no one can complain at not getting it. The language of the statute, 30 USCA § 221, is: “The Secretary of the Interior is authorized, under such necessary and proper rules and regulations as he may prescribe, to grant to any applicant qualified * ® * a prospecting permit.” Regulation 2, 47 Land Decisions 437, declares : “It should be understood that under the Act the granting of a prospecting permit for oil and gas is discretionary with the Secretary of the Interior, and any application may be granted or denied either in part or entirely as the facts may be deemed to warrant.” If the grant be wholly discretionary, the preferring of a competitor cannot be .complained of, because the complainant ean show no certain right in himself had the competitor been refused, notwithstanding the Secretary may have given bad reasons for his aetion. Anicker v. Gunsburg, 246 U. S. 110, 38 S. Ct. 228, 62 L. Ed. 603. But we think the language of section 221 in reference to the applicant who goes upon the land and erects the monument and posts the required notice that “he shall, during the period of thirty days following such marking and posting, be entitled to a preference right over others to a permit for the land so identified,” cannot be so easily nullified. Regulation 5 recognizes this preference, and declares that priority in initiating the claims shall govern in ease of conflict. The Secretary has discretion to deeide whether particular land shall be withdrawn from exploitation, and may refuse all applications for permits to explore it. United States ex rel. McLennan v. Wilbur, Secretary, 283 U. S. 414, 51 S. Ct. 502, 75 L. Ed. 1148. But having decided that the land shall be exploited, he must recognize the statutory preference in issuing the permit, there being no discretion to ignore this plain mandate of the law. Daniels v. Wagner, 237 U. S. 547, 35 S. Ct. 740, 59 L. Ed. 1102, L. R. A. 1916A, 1116, Ann. Cas. 1917A, 40.

It is next urged that Witbeek has nothing that he can assign, but has only a contract with respect to land belonging to the United States which cannot be remodeled by a court, even if it ought to be, without the presence of the United States as a party. The bill is framed after the likeness of those often entertained in reference to patents under the land laws prior to the Leasing Act here involved. Daniels v. Wagner, supra, is an example. In that ease the question of the indispensability of the United States as a party was raised, but at page 567 of 237 U. S., 35 S. Ct. 740, was dismissed as too obviously without merit to deserve discussion. The reason is that in such cases the courts refuse to interfere until the Land Department has done its work and issued a final patent, thus ending the proprietary interest of the United States in the land and making the contest over it a matter of private interest only. Johnson v. Towsley, 13 Wall. 72, 20 L. Ed. 485; Marquez v. Frisbie, 101 U. S. 473, 25 L. Ed. 800; Cosmos Exploration Co. v. Gray Eagle Oil Co., 190 U. S. 301, 23 S. Ct. 692, 47 L. Ed. 1064. Under the Leasing Act the land of the United States is not to be conveyed by patent, but leased, so that the proprietary interest of the United States in the land never ceases. Nevertheless, the lease is the final action of the Land Department in disposing of the land, and in this respect is analogous to a patent. The general powers of the Land Department in administering this law are just such as are exercised in administering other land laws, and exactly the same necessities exist for judicial review of frauds on or in the Department, or mistakes of law, or excesses of the limits of authority, as arose in reference to the grant of patents, and similar remedies ought to apply. Furthermore, since a mere permit to' prospect for oil or gas under 30 USCA § 221, is exclusive, and in ease of discovery carries the right to take the oil and gas found at a royalty of 20 per cent, until a lease is applied for, section 224, and to lease for twenty years 160 acres, or one-fourth of the land prospected, at a royalty of 5 per cent., with a preference right to lease the whole land at a royalty to be fixed under Regulations, section 223, the permit may be of as much value and importance as the lease which it controls. The permit is itself an ae.t of the Land Department, final so long as it lasts, and though in its inception a mere license conveying no estate in the land, it is a final grant of a valuable right pursuant to law which ought to be secured to the person to whom the law gives it. Judicial inquiry concerning this right cannot be delayed until the permit is executed by the permittee’s making the .required expenditures, and by his making discovery and obtaining a lease, for it would be most inequitable then to substitute another lessee for the permittee. A just remedy for a wrong award of the permit should be applied prior to the issuance of the permit or promptly thereafter. In deference to the authority of the Land Department, the courts have always refused to interfere until it has exercised its function, or has refused to do so. When that function is to issue a patent, no interference has been allowed until the patent issues. Marquez v. Frisbie, 101 U. S. 473, 25 L. Ed. 800; Brown v. Hitchcock, 173 U. S. 473, 19 S. Ct. 485, 43 L. Ed. 772; Cosmos Exploration Co. v. Gray Eagle Oil Co., 190 U. S. 301, 23 S. Ct. 692, 47 L. Ed. 1064; Humbird v. Avery, 195 U. S. 480, 25 S. Ct. 123, 49 L. Ed. 286. We assume that it was for this reason that Hardeman’s bill in the Supreme Court of the District of Columbia against the Secretary for an injunction was dismissed. That bill strongly presented the reasons why the remedy it proposed was to be preferred over that here sought, whose difficulties now under discussion were foreseen. That the permit is a perishing thing, unable to outlast a long litigation, is another reason for settling whose it shall be before it issues. But it being apparently established that injunction is unavailable, we think the remedy here sought when invoked without laches is to be allowed. It has been applied to leases and permits under the Leasing Act without question. Isaacs v. De Hon (C. C. A.) 11 F.(2d) 943. In Hodgson v. Federal Oil & Development Co. (C. C. A.) 5 F.(2d) 442, the question was raised that the United States were a necessary party, but it was not decided either by the Circuit Court of Appeals or by the Supreme Court on appeal to it, 274 U. S. 15, 47 S. Ct. 502, 71 L. Ed. 901, 54 A. L. R. 869, both courts dealing only with the merits. It is true that neither lease nor permit ends the interest of the United States in the land involved. If the court were undertaking to dispose of the land to the injury of the United States, they would be an indispensable party. Louisiana v. Garfield, Secretary, 211 U. S. 70, 29 S. Ct. 31, 53 L. Ed. 92; Goldberg v. Daniels, Secretary, 231 U. S. 218, 34 S. Ct. 84, 58 L. Ed. 191. And in so far as lease and permit are contracts, neither could be canceled or reformed without all parties to them being before the court. Shields v. Barrow, 17 How. 130, 15 L. Ed. 158; Ribon v. Chicago, R. I. & P. R. Co., 16 Wall. 446, 21 L. Ed. 367; Kendig v. Dean, 97 U. S. 423, 24 L. Ed. 1061; Vincent Oil Co. v. Gulf Refining Co. (C. C. A.) 195 F. 434. But looking at the substance of the matter, we think that the disposition of the land has already been made by the action of the Secretary in issuing a permit on the terms fixed by the law and the regulations. No other or different disposition is now proposed to be made, and no term of the contract is to be altered. A change of permittee is alone to be effected. This would be a most important matter in contracts, permits, or leases where the person to be dealt with could be freely chosen or rejected. But here the law makes the choice, and the question is whether the Secretary by mistaking the law has given the contract to some one other than the one chosen and intended by the United States, speaking through the Congress. The court but succeeds to the Secretary in identifying that choice. The only real interest of the United States lies in having their will as expressed in their laws carried out, and this is not a proprietary interest that will be adversely affected by the transfer proposed.

It is again objected that the lease is expressly made unassignable without the consent of the Secretary, 3Q USCA § 187, and the permit being a personal license is in its nature nontransferable, but is by Regulation 12%, 47 Land Decisions 437, made assignable to qualified persons, but only on first obtaining the consent of the Secretary. This restriction on transfer applies to voluntary transfers, and will hardly be deemed applicable in case of death, bankruptcy, or court decree. But the difficulty is met by the just assumption that the Secretary intends that leases and permits shall go to those whom the law entitles to them, and when a transfer is ordered to accomplish this his consent is to be implied, and may be compelled if refused. If such a transfer be decreed, he will no doubt, on request, enter his consent thereto, and make necessary substitution of bond, and do all else that is appropriate to perfect the transfer. We therefore affirm the judgment which retained the bill for trial.

Upon the merits of the case we think the law is with Witbeck. His application for a permit was filed November 12, 1923, perfect in form and substance, and accompanied by required fees. Hardeman’s was filed December 11, 1923. Conceding that he was entitled to preference by having on November 11th gone upon the land and posted notice of his intention to apply, the preference lasted only for the thirty days next following, 30 USCA § 221, and was lost unless a lawful application was filed within that time. The application he filed was not sworn to, and was accompanied with no fees. The fees were paid on demand December 19,1923, and the oath was offered to be supplied in 1925, long after the thirty days had expired. For lack of oath and fees, the Secretary denied Hardeman the preference. The fees to be paid in connection with an application for a permit were fixed by the special regulations made under 30 USCA § 189, which were known to Hardeman. Payment with the application was not expressly required by them, but was made a condition of filing all applications and declarations by paragraph 8 of Circular 616, 46 Land Decisions 513, of general application in the land office, but unknown to Hardeman. The application was in fact filed, and the filing never expunged, and the'fees were paid on notification. We should hesitate to nullify the application on this ground. But the oath to the application was required by the statute itself, 30 USCA § 190, and by the special regulations made under it. Numerous facts were required to be stated in the application, in addition to the important fact of posting the land. An application lacking an oath was no more one in compliance with law than a tax return ha." - ing such a defect. Lucas v. Pilliod Lumber Co., 281 U. S. 245, 50 S. Ct. 297, 74 L. Ed. 829, 67 A. L. R. 1350, or an unsworn application for a patent, Stewart v. American Lava Co., 215 U. S. 161, 30 S. Ct. 46, 54 L. Ed. 139. An attachment when required by law to be founded on an oath is void without it. Cohen v. Manco, 28 Ga. 27; Tacoma Grocery Co. v. Draham, 8 Wash. 263, 36 P. 31, 40 Am. St. Rep. 907; 4 Cyc. 470. Hardeman testified at the trial that he did in fact swear to the application at the same time that the affidavit which is mentioned in it as attached, and which showed Hardeman’s age and citizenship, was executed by his father. This, if true, occurred at a distance from the land office. The application disclosed no unsigned form of oath, or other indication that its contents were sworn to or intended to be. By requiring it and all other statements to the Secretary to be upon oath, and in such form and upon such blanks as he may require, we think the statute, section 190, intended written papers and an oath disclosed by the paper filed, so that the Secretary and the interested publie could know by inspection whether the requirement had been complied with. No other construction of the statute is practicable, for otherwise there would be intolerable uncertainty, and a penalty for perjury would be hard to inflict for want ‘of knowing who had administered the oath, or whether one had been administered at all. Although ordinarily the omission of an oath can be supplied later, when the oath is made a condition of priority or advantage over 'another the amendment will operate only from its date. Because Hardeman filed no lawful application within thirty days from his posting of the land, he lost his priority right, and the permit was properly awarded to Witbeek. ,

It was claimed that the award was first made to Hardeman, and that afterwards, without notice to him, it was reconsidered irregularly by the Secretary and reversed. This, it appears, was done in the exercise of the Secretary’s supervisory authority, which may be exercised regardless of rules of procedure, and until a patent finally issues. Knight v. United Land Association, 142 U. S. 161, 12 S. Ct. 258, 35 L. Ed. 974; Love v. Flahive, 205 U. S. 195, 27 S. Ct. 486, 51 L. Ed. 768. No new evidence was taken, or argument heard behind Hardeman’s back. 'The reversal of the decision was on questions of law only, and as to these Hardeman stated his position in a motion for rehearing, and the Secretary in ruling on this motion reiterated his conclusions. The question under the present bill is not the regularity of the procedure in the Land Department, but is whether the permit was at last issued to the wrong man through error of law. We think it was not, and the decree to the contrary is reversed, with direction to dismiss the bill.

HUTCHESON, Circuit Judge

(concurring).

I concur in so much of the judgment as reverses the judgment appealed from. If the court had a right to consider the case on its merits, I think it plain that it decided it wrongly. The Secretary’s award to Wit-beek should have been sustained.

I think, however, that the United States not being a party to the suit and not having parted with title to the land, the case presents no justiciable matter and the judgment should dismiss, not remand, the cause.

Witbeek had nothing which the court can make him assign, Hardeman claiming not under but adversely to the Witbeek permit Wilson v. Elk Coal Co. (C. C. A.) 7 F.(2d) 112.

Quite a different situation is presented where, as in the cases cited in the majority opinion in favor of the jurisdiction, Isaacs v. De Hon (C. C. A.) 11 F.(2d) 943, 944; Hodgson v. Federal Oil Co. (C. C. A.) 5 F.(2d) 442, 449, the plaintiff claimed a right in property, title to which was still in the United States, not adversely to but qnder the defendant, and the objeet of the suit was to compel him to perform the trust which he had undertaken, to recognize the interest which he had created, or with which he was in privity.

In the Isaacs Case the same court which had decided the Wilson Case makes this very clear. “It is contended that there is a defect of parties, in that the Secretary of the Interior has not been joined. * * * It may be that plaintiffs will lose the fruits of this litigation by the refusal of the Secretary to approve the assignment of interests in the permit. But appellant is nevertheless held in a court of equity to the obligations he assumed in his grubstake contract. The Secretary of the Interior would not have been a proper party to this suit. * * * Courts do have power to enforce contracts with reference to lands while title thereto is held by the government.”

While in the Hodgson Case Judge Stone makes it very plain why there the court had jurisdiction, and here it would not have. “Section 18 [30 USCA § 227] provides that ‘all leases hereunder shall inure to the benefit of the claimant and all persons claiming through or under him. * * * ’ The words ‘or otherwise’ * » * would seem broad enough to cover a claim that the lessor was a trustee. -* * If the appellant is, as he alleges, a tenant in common in such property, the right would exist, if the property were privately owned, in any tenant to exploit it. * * * If the property involved * * * is a part of the public domain •* * * and if one of the eotenants has secured this exclusive right to exploitation it would seem that an accounting for the net results would not in' any wise affect the lessee or, the government. * * * My judgment is that his allegátions, if establishing a cotenancy * * * could result only in establishment of a trust relation as to this lease. If this he true * * * I do not see how the government is interested or affected by this controversy.”

Thus it is seen that in the Isaacs and in the Hodgson Cases there was a controversy between persons claiming to be in privity with each other, in which it was sought to establish a trust upon the property in question, not adverse but subordinate to the right held by the defendant.

Here the effort is to strike down wholly the defendant’s right in order to'set up an independent right asserted in lands the title to which is still in the United States, not in subordination to but wholly in despite of that right, and in contradiction of the action of the Secretary in the. exercise of his discretion in awarding the permit to Witbeek.

It seems plain to me that this ease presents an attempt to invoke the jurisdiction of the court to, in the absence of indispensar ble parties, do a vain and idle thing.


source: Caselaw Access Project

author: VAN VALKENBURGH, Circuit Judge. BOOTH, Circuit Judge,

license: Public Domain

text:
    McGONIGLE v. FOUTCH (two cases). A. Y. McDONALD MFG. CO. et al. v. SAME (two cases).
    Nos. 9010, 9011, 9092, 9093.
    Circuit Court of Appeals, Eighth Circuit.
    June 8, 1931.

      BOOTH, Circuit Judge, dissenting in part.
    Arthur N. Adams, of Kansas City, Mo., for appellant D. S. McGonigle.
    Goodwin Creason, of Kansas City, Mo. (W. S. MeClintock, Arthur L. Quant, F. K. Ferguson, James A. Reed, F. A. Frateher, George K. Brasher, Joseph F. Keirnan, John S. Wright, Whitson -Rogers, John T. Harding, David A. Murphy, R. C. Tucker, August F. Behrendt, Frank P. Walsh, James P. Ayl-ward, C. A. Capron, John M. Cleary, Raymond G. Barnett, and Maurice O’Sullivan, all of Kansas City, Mo., on the brief), for appellants A. Y. McDonald Mfg. Co. et al.
    James B. Hourse, of Kansas' City, Mo. (Glen C. Weatherby, of Kansas City, Mo., for petitioning creditors, and Milford W. Rider, of Kansas City, Mo., on the brief), for appellee.
    Arthur Miller, of Kansas City, Mo., for bankrupt.
    Charles W. German, of Kansas City, Mo., for creditors.
    Before VAN VALKENBURGH and BOOTH, Circuit Judges, and MUNGER, District Judge.
   VAN VALKENBURGH, Circuit Judge.

These four eases áre appeals from the order of the District Court for the Western District of Missouri overruling exceptions to - orders of the referee in the matter of Kelley Development Company, a corporation, bankrupt. The orders in question are of date June 4, 1930. So far as a determination of the issues presented by these appeals are concerned, the orders complained of may bé deemed to have arisen upon the following state of facts:

On or about May 1, 1929, the Kelley Development Company, as owner, began the erection of an eleven-story structure on lots 1, 2, 3, 4, 20, 21, and 22, all in block No. 7 of Hyde Park, an addition to Kansas City, Jackson county, Mo. The building in question, a twin apartment or hotel building, called the Chief, was to be erected in part by the owners and in part under one entire general contract by tbe Fleming-Gilehrist Construction Company, a corporation. One G. Á. Oxler was a general contractor for the furnishing of all the plumbing and heating materials to be used in the building, and appellant A. Y. McDonald Manufacturing Company is a subcontractor under Oxler, and furnished plumbing and heating material at Tiis special instance and request. It is unnecessary for the purposes of this opinion to name other mechanic’s lien-elaimants. Work on the Chief began May 1, 1929, and labor was performed and materials were furnished beginning on that date. Work ceased on or about October 17, 1929. The lien claim of Fleming-Gilehrist Construction Company states that the last work performed and the last materials furnished by it was performed and were furnished on that date.

Section 3161 of the Missouri mechanic’s lien law (Rev. St. Mo. 1929) provides as follows : “It shall be the duty of every original contractor within six months, and every journeyman and day laborer within sixty days, and every other person seeking to obtain the benefit of the provisions of,this article within four months, after the indebtedness shall have accrued, to file with the clerk of the circuit court of the proper county a just and true account of the demand due him or them after all just credits have been given, which is to be a lien upon such building or other improvements,” etc.

The lien account of appellant McDonald Manufacturing Company was filed November 13, 1929; that of another lien claimant, on December 13, 1929. The remaining accounts were filed on various dates up to and including April 4, 1930. The claim of Fleming-Gilehrist Construction Company was filed January 20, 1930; the petition in bankruptcy, April 7, 1930. All actions to enforce liens shall be commenced within ninety days after the filing of the lien account. Rev. St. Mo. 1929, § 3172. The nature of the action, such as that under consideration, and the procedure in the courts of the state, are thus described in the latest revision of the Statutes of Missouri, R. S. Mo. 1929:

“See. 3180. Liens may be adjudicated, how. — Any and all liens in this article provided for may be adjudicated and determined and the rights of all parties interested in the same and in the property and any of the property against which the same is claimed may be adjudicated, determined and enforced in one action which may be brought by any such lien claimant after the statement for such lien is filed in the office of the clerk of court, as herein provided, or such action may be brought by any owner or lessee of the property or any of it to be affected, or mortgagee or holder of any other encumbrance thereon. Such action shall be an equitable action for the purpose of determining the various rights, interests and liens of the various mechanics’ lien claimants and claimants of other liens and owner of any interest in or leasehold upon said property and for enforcing the rights of any and all such persons in, to or against the property, being the lands and buildings and either of the same and for sale of such property, land and buildings or either of the same and for mar-shalling and distribution of the proceeds thereof among the parties according to their respective legal and equitable rights therein. Such action shall be an equitable action for the purpose of determining, establishing and enforcing the various and respective rights of the parties thereto and for the purpose of marshalling, applying and distributing the proceeds of the sale of such property that may be ordered and decreed in said action.
“See. 3181. Who may be made party to action. — All persons claiming any Ken or encumbrance upon, and all persons having any rights in or against and all owners and lessees of said property to be affected and any of it, all as may be disclosed by the proper public records, shall be made parties to said action and parties whose interests are divers may join as plaintiffs therein, but if they do not join as plaintiffs, then they shall be made defendants. Any person, Ken claimant or other having any rights in, to, against or up7 on said property and any of it whose rights are not disclosed at the time of bringing said action by the proper reeord, shaü be bound by the proceedings, orders and judgments in said actions, but any such person shall be entitled upon application to the court to be made a party to said action at any time before final disposition by the final judgment of the court therein of the proceeds of said property and shall be entitled according to their respective rights to participate in the proceeds of the sale of such property and any of it, as the same may he thereafter received or then remain under the jurisdiction of the court. If at the commencement of said action any person whose rights are disclosed by the record is omitted as a party, he may thereafter be made party to said action either upon his own application or upon the application of any other party to said action or by the court of its own motion. If any party to said action shall die or cease to exist during the pendency of said action before the judgment or order of sale therein of said property, then the proper representatives, either administrator or other proper successor in right, shall be substituted by order of the court upon motion and notice of motion without formal revivor of said action.”

This equitable action shall not apply when there is only one mechanic’s lien claimed against the property (section 3182); but after the action is commenced, in eases in which it does apply, it is exclusive of other remedies for enforcement (section 3186), “and all other suits that, may have been brought on any mechanic’s lien claim or demand shall be stayed and no further prosecuted, and the parties in any such other suit shall be made parties to such equitable action as in the foregoing sections provided, and any costs rightfully accrued in behalf of any lien claimant in any such other action shall be and become a part of the lien claim of such party. After the institution of such equitable action no separate suit shall be brought upon any mechanic’s lien or claim against said property, or any of it, but the rights of all persons shall be adjusted, adjudicated and enforced in such equitable suit.” Section 3183.

January 23, 1930, Fleming-Gilehrist Construction Company filed in the circuit court of Jackson county, Mo., at Kansas City, the equitable action provided for the foreclosure of mechanic’s liens. All the other lien claimants were made parties, and all duly became impleaded as by law provided. Appellant McGonigle, mortgagee, was also made a party and served. This appellant is the owner of a note in the sum of $150,000, and of the deed of trust securing the same. This deed of trust was executed November 17, 1925, and filed for record November 20, 1925, and covers all the property hereinabove described. In this proceeding, no attack is made upon the validity of this deed, nor of the indebtedness thereby secured. It was in default under its terms on and before March 20, 1930. •On that date, McGonigle filed his answer in the Fleming-Gilehrist case in the state court, asserting the priority of his mortgage lien, and asking to be dismissed with’ his costs. March 21, 1930, McGonigle began advertising the property for sale under the provisions of his deed of trust. That sale was fixed for April 17, 1930, and on that date was enjoined by the bankruptcy court at the instance of the petitioning creditors. May 23, 1930,. appellant McGonigle filed an amended answer and cross-petition in the state court, wherein he prayed the foreclosure of his mortgage lien in that jurisdiction, and for all equitable relief. The hearing of the Fleming-Gilehrist Construction Company’s equitable suit for enforcement of the mechanic’s liens in the state court was set for May 23, 1930. The trial proceeded on that date, and, being unfinished, was adjourned until the following day. Meantime, appellee had been duly appointed and had qualified as trustee for the bankrupt’s estate. May 13, 1930, he petitioned for the granting of an order requiring appellants and all interested parties to show cause why the property should not be sold free and clear of incumbrances and liens in the bankruptcy court, and the liens and incumbrances be transferred from the property to the proceeds of sale. May 24, 1930, the referee granted this petition of the trustee and ordered that appellants and all respondents named in said petition “their agents, servants, employees and attorneys shall be and each of them are hereby jointly and severally restrained from further proceeding in any attempt to fix and determine liens or claims or from instituting of suits for the disposition of properties and assets to which the trustee in bankruptcy might be entitled, or from any attempt to fix and establish claims in or upon any of the properties of which the trustee in bankruptcy has possession and control.”

Appellants duly filed their pleas, setting up that the “mechanics’ lien foreclosure suit was commenced, and the jurisdiction of said Circuit Court in such equitable foreclosure suit attached to the above described real estate and all improvements thereon, and to all of it, and to all the above named parties, pri- or to the commencement of this proceeding in bankruptcy,” and praying that the restraining order entered by the referee May 24, 1930, and the trustee’s application for show cause order filed May 13, 1930, “be set aside, vacated and held for naught for want of jurisdiction of this court in bankruptcy to make the same, or grant the relief prayed in such application.” On hearing, the referee overruled the pleas to the jurisdiction. The order overruling the plea of McGonigle contained this recital: “The court finds that this Bankruptcy Court has jurisdiction and authority to enjoin the foreclosure of the deed of trust set forth in the pleadings of D. S. McGonigle filed in this cause, and the plea of said D. S. McGonigle to the jurisdiction of this court is hereby denied and said restraint is hereby eontimxed until the matter may be fully and adequately heard by this court.”

The order overruling the plea of the Fleming-Gilehrist Construction Company closed as follows:

“The court finds that it does have jurisdiction to hear and determine the matters raised by the issues in this cause and that the said several pleas to the jurisdiction of this court by respondent should be and áre hereby overruled and denied, to which ruling of the court the-respondents and each of them then and there severally duly excepted and still except.
“It is, by the undersigned referee in bankruptcy, further ordered that the return date of the restraining order aforesaid made by this court on May 24th, 1930, returnable June 12th, 1930, is modified, so that said restraining order will not come up for hearing on said date, but shall be and remain in full force and effect until the further order of the undersigned referee in bankruptcy, to which order of the court the respondents and each of them then and there severally duly excepted and still except.
“It is further ordered that the respondents be and are given until and including June 9th, 1930, to file such responses to the said citations heretofore issued, or such other pleas, as they or any of them may desire.
“Dated June 4th, 1930.”

The referee found that there was in the property a substantial equity over and above the mortgage and the mechanic’s liens filed. On petition for review, the District Court, considering itself bound by the decision of this court in First Savings Bank & Trust Co. v. Butler, 282 F. 866, overruled the exceptions to these orders of the referee. These appeals followed.

This recital is found in the brief of McDonald Manufacturing Company: “Being uncertain as to proper mode of appeal, such appeals have all been taken both by orders of the lower court and this appellate court, resulting in four eases docketed on these appeals, as appear in the caption of transcript of record herein.”

Reference is made to section 24b, Bankr. Act, as amended by Act May 27, 1926, § 9 (44 Stat. 664, 11 USCA § 47(b). This controversy is not one of the cases mentioned in section 25, Bankr. Act, as amended by Act May 27, 1926, § 10 (44 Stat. 665 [11 USCA § 48]), and, therefore, did not require allowance by this court.

Appellants urge that a referee m bankruptcy is without jurisdiction to restrain the prosecution of a proceeding in a state court; that such restraining order, in a proper ease, can be issued only by the judge. We think this is a correct statement of the law. General Order No. XII, par. 3 (11 USCA § 53); Gatell v. Millian (C. C. A. 1) 2 F.(2d) 365. But appellants took these orders, upon petition for review, to the district judge, by whom they were affirmed, thereby becoming, in effect, his orders. The point is,-therefore, without substance in this appeal. In re Benjamin (D. C.) 140 F. 320; In re Roger Brown & Co. (C. C. A. 5) 196 F. 758, 762.

It is next suggested, though not insisted upon by counsel, that the orders, being temporary in their nature, involving primarily the overruling of pleas to the jurisdiction, are not final and, therefore, not ap•pealable. It is ordinarily true that an order of the District Court sustaining the referee’s decision that the bankruptcy court has jurisdiction is not an appealable order, where there is no trial on the merits. Pearson et al. v. Higgins (C. C. A. 9) 34 F.(2d) 27; Board of Road Commissioners of Monroe County, Mich., v. Keil (C. C. A. 6) 259 F. 76. However, section 129 of the Judicial Code (28 USCA § 227) provides that “where, upon a hearing in a district court, or by a judge thereof, * * * an injunction is granted, continued, modified, refused, or dissolved by an interlocutory order or decree, or an application to dissolve or modify an injunction is refused, * * * an appeal may be taken from such interlocutory order or decree.” The Court of Appeals for the Sixth Circuit (O’Dell v. Boyden, 150 F. 731, 10 Ann. Cas. 239), holds that such interlocutory order by a court of bankruptcy, which is not one in a mere proceeding in bankruptcy, is reviewable by appeal, where the final decree therein would be, notwithstanding the jurisdiction of the District Court to grant such injunction is involved. Bothwell v. Fitzgerald (C. C. A. 9) 219 F. 408, holds such orders to be controversies arising in bankruptcy proceedings, and, as such, appealable. In the instant case, the referee, upon petition of trustee, issued a show cause order that appellant be “enjoined and restrained” from further proceedings in the state court, and fixed June 12, 1930, as the date on which appellants might show cause, “if any, as to why the said order as-herein entered shall not become permanent, and shall not be merged in such order as the eourt may make, etc.” This- order was promptly challenged by pleas to the jurisdietion, in which, it, was prayed that this restraining order be dissolved. Upon these pleas, a full hearing was held on May 27, 1930, as witness the following recital in the record respecting the plea of appellant Mc-Gonigle: “Now, on this day there came on for hearing the restraining order issued May 24, 1930, and the plea of D. S. McGonigle and Arthur N. Adams, said plea containing an allegation or plea denying the jurisdiction of this court to restrain them from proceeding further under their deed of trust to foreclose same; evidence having been submitted by the respondents and on behalf of the Trustee in Bankruptcy; the Court having heard the arguments of counsel and the presentation of the law; all parties having been given a full and complete opportunity of having been fully and adequately heard, all issues having been presented to the court.”

Then follows the finding by the referee of authority to “enjoin,” as hereinabove set out. It was then ordered that the pleas of appellants be overruled; that the restraining order theretofore issued be so modified that it should not come up for further hearing on June 12, 1930, but “should be and remain in full force and effect until the further order of the undersigned referee in bankruptcy.” On review, exceptions by appellants were overruled by the court, and the orders of the referee were thus adopted and continued in force. We think this order of the District Court is appealable under section 129 of the Judicial Code. .

“Conceding that a restraining order granted without a hearing is not ordinarily appealable, yet a restraining order which is granted, or sustained, or denied after a hearing of the parties, and which in effect and in everything but name, is a temporary injunction, falls within the evident meaning of the statute, and is reviewable by appeal, and the orders in question were of that character.” Western Union Telegraph Co. v. United States & M. T. Co. (C. C. A. 8) 221 F. 545, 553; Field v. Kansas City Refining Co. (C. C. A. 8) 296 F. 800.

The crucial question is, Had the bankruptcy court jurisdiction, in the situation here presented, to stay the proceedings in the circuit court of Jackson county, Mo., and to draw to itself the administration 'of the mortgage and mechanic’s liens in process of foreclosure and enforcement in the state court? This question has, we think, received definite’ answer in the recent opinion of the Supreme Court in Straton et al. v. New, Jr., 51 S. Ct. 465, 466, 75 L. Ed.-, April 20, 1931. In that case, the following question was certified to the Supreme Court by 'the Circuit Court of Appeals for the Fourth Circuit [49 F.(2d) 869]: “Where creditors have obtained and docketed judgments constituting liens on the real estate of defendant, and have instituted a creditors’ suit in a state court to marshal and enforce the liens and sell the real estate subject thereto, does the bankruptcy of defendant occurring more than four months after the institution of the creditors’ suit oust the state court of jurisdiction, or vest in the court of bankruptcy power to enjoin further proceedings in the state court?”

It appears that April 11, 1927, one Alley had obtained a judgment against a coal company in a court of West Virginia. This was docketed May 5, 1927, and thus became a lien upon the real estate of the coal company. In West Virginia, the debtor’s real estate cannot be sold under execution. The judgment creditor must resort, for the enforcement of his judgment, to an equitable proceeding such as is described in the certificate to the Supreme Court above set out. Accordingly, February 20, 1928, Alley filed in the same state court a judgment creditors’ suit against the coal company, making parties thereto all creditors having liens against the real estate. He prayed that the liens and assets be marshaled, the real estate sold, and the proceeds distributed among the lien holders according to their respective rights. The case being at issue, commissioners were appointed at the July term, 1928, to make a sale of the property. August 4, 1928, the coal company filed its voluntary petition in bankruptcy. October 11, the District Court, for the Southern District of West Virginia, entered its order in the bankruptcy of the coal company enjoining the commissioners of the state court from proceeding further in carrying out its order of sale.

In answering the certified question in the negative, Mr. Justice Roberts announced a number of propositions pertinent to the determination of the ease at bar. The exclusive jurisdiction of the bankruptcy court, after the filing of the petition in bankruptcy, and before that of any other court has attached, over the settlement and distribution of the bankrupt’s estate is reasserted, in that no liens can thereafter be obtained nor proceedings be instituted in other courts to reach the property. Thereafter, though a lien be not discharged in bankruptcy, its owner may not institute proceedings in a state court to enforce it, without the bankruptcy court’s permission. Liens acquired by legal proceedings, more than four months before the petition in bankruptcy is filed, are preserved from the operation of the law, for that law “voids only liens obtained by legal proceedings within that period. It has consequently been held that those acquired earlier, if valid under state law, are preserved, and will be aeeorded priority by the bankruptcy court in distribution of the estate, in accordance with applicable local law.”

The following language in Globe Bank v. Martin, 236 U. S. 288, 35 S. Ct. 377, 59 L. Ed. 583, is quoted with approval: “The difference, having the provisions of the act in view, between the beginning of a proceeding to assert liens that existed more than four months before the filing of the petition in bankruptcy, and the attempt to create them by attachment and other proceedings within four months, has been recognized in decisions of this court” — citing Metcalf v. Barker, 187 U. S. 165, 23 S. Ct. 67, 47 L. Ed. 122.

The trustee in bankruptcy may, of course, intervene in suits instituted prior to the filing of a petition in bankruptcy to protect the interests of the estate. The broad purport of the decision in the Straton Case is thus embodied in the closing paragraph of the opinion: “Most of the cases cited by the appel-lees to the effect that the initiation of bankruptcy proceedings confers on the district ■court jurisdiction to enjoin pending suits in state courts deal with the situation where a lien was acquired within four months of the filing of the petition, or where, after the fil--ing of the petition an action was begun to enforce a lien valid' in bankruptcy. As heretofore noted, there are a few cases which have held that the bankruptcy court may enjoin proceedings, brought prior to the filing of the petition, to enforce valid liens which are more than four months old at the date of bankruptcy; but these eases are contrary to the decisions of this Court and to the great weight of federal authority.”

In as much as the equitable action to foreclose the mechanic’s, liens was brought prior to the filing of the petition in bankruptcy, it remains to consider whether that ■equitable action was brought to enforce valid liens which were more than four months old at the date of the bankruptcy. The nature ■of a Missouri mechanic’s lien is clearly defined in the decisions of the appellate courts ■of that state: “The right of a mechanic or material man against property subject to a mechanic’s lien commences at the time the ■building is commenced, and the labor or materials are furnished; and for all beneficial purposes the lien commences from that date, and while the claimant cannot enforce his lien against the property until he has complied with the provisions of the statute, still his right to the lien exists from the time that his work and materials go into the building. When the account is filed, the lien relates back to the commencement of the building, and cannot be cut off or divested by any transfer or assignment of the owner after the building is commenced.” Douglas, Jr. v. St. Louis Zinc Co., 56 Mo. 388.

In Reilly v. Hudson, 62 Mo. 383, the nature of the controversy and the holding of the Missouri Supreme Court is thus stated in the syllabus: “Where the owner of a house had a range erected therein, which became a fixture, and afterwards gave to an outside party a deed of trust on the premises, the purchaser, under a sale of the property made to satisfy a mechanic’s lien filed by the range builder, would hold the title to the house as against a purchaser under the mortgage, although the lien was filed subsequent to the mortgage. The mechanic’s lien related back to the time of commencing the work on the range, and superseded the lien of the mortgage.”

In the opinion, the court, speaking through Judge Sherwood, said: “The Ren given by the statute attaches as soon as the work is begun (Houck Liens, § 157), arid when made perfect in the mode pointed out by law, has preference to any prior lien on the land on which the improvements are put.”

In Holland v. Cunliff, 96 Mo. App. 67, 76, 69 S. W. 737, 739, the court said: “As a Ren of this nature does not originate in legal proceedings, it is not released by virtue of the procedure under the bankrupt act” — citing In re Emslie (D. C.) 98 F. 716, 719.

In the latter ease, discussing the mechanic’s Ren law of Missouri, among those of other states named, the court said: “ * * * a Ren is created directly by the statute itself from the time the building is commenced or the work or materials furnished, and from the very act of doing the work, without any further act 'or proceeding whatever on the part of the lienor. A subsequent notice of the Ren is, indeed, required to be filed in those states; but that is not for the purpose of creating the Ren, but only to prevent its loss afterwards, and to give notice of it to the public. The lien ■ itself, under that system, exists anterior to the notice and independently of it.”

What has been declared in the foregoing decisions is the well-settled law in Missouri (Riverside Lumber Company v. Schafer, 251 Mo. 539, 548, 158 S. W. 340; Langdon v. Kleeman, 278 Mo. 236, 241, 211 S. W. 877), and is in harmony with the federal rule. In Kemp Lumber Company v. Howard, 237 F. 574, 577, this court, speaking through the late Judge Sanborn, said: “Mechanics’ liens are not liens created, by or obtained in or pursuant to any suit or proceeding at law or in equity. Nor are they liens obtained through legal proceedings. They are liens created by statute, and by the act of the lien-holders pursuant to- the statute, without suits or legal proceedings, and the paragraphs of the bankruptcy law cited are inapplicable to them.” Bankr. Act, § 67c to § 67f, 11 USCA § 107, subds. c-f.

See, also, Eggleston v. Birmingham Purchasing Company (C. C. A. 5) 15 F.(2d) 529. By analogy, the following holding in Metcalf v. Barker, 187 U. S. 165, 23 S. Ct. 67, 47 L. Ed. 122, is pertinent: “While the lien created by a judgment creditors’ bill is contingent in the sense that it may possibly be defeated by the event of the suit, it is in itself, and. so long as it exists, a charge, a specific lien, on the assets, not subject to being divested save by payment of the judgment sought to be collected, and a judgment or decree in enforcement of an otherwise valid pre-existing lien is not the judgment denounced by the bankruptcy statute which is plainly eonfined to judgments creating liens.” Compare Pickens v. Roy, 187 U. S. 177, 23 S. Ct. 78, 47 L. Ed. 128; Globe Bank v. Martin, 236 U. S. 288, 299, 301, 35 S. Ct. 377, 59 L. Ed. 583; and Straton v. New, Jr., supra.

Prom the foregoing, it clearly appears that the mechanic’s liens sought to be enforced are apparently valid liens which were more than four months old when the petition in bankruptcy was filed. The filing of the lien accounts was but a step in the perfection of a valid inchoate lien already existing by virtue of the work done and materials furnished. The filing of this account within the four months period is, therefore, unimportant; but at least two of the lien accounts were filed more than four months prior to the petition in bankruptcy, thus insuring the jurisdiction of the state court in any view. The equitable action to establish the liens and insure their ultimate satisfaction is an enforcement action pure and simple. It creates no lien within the meáning of the bankruptcy act. It is true that the liens, or some of them, may be defeated by the event of the suit, but this is true of all enforcement actions — creditors’ bills, mortgage foreclosures, etc. This involves not the jurisdiction of the court, but'the power to determine issues within that jurisdiction. We conclude, therefore, that the enforcement and administration of the mechanic’s liens involved is within the exclusive jurisdiction of the circuit court of Jackson county, Mo.

It is, however, suggested that, since the mortgagee has instituted no independent suit in foreclosure, and submitted to the jurisdiction of the state court in that behalf by amended answer lodged after the filing of the petition in bankruptcy, the bankruptcy court retains jurisdiction of the mortgage lien, even though the administration of the mechanic’s liens must be surrendered. The rule which must govern here has been thus stated by this court: “The legal custody of specific property by one court of competent jurisdiction withdraws it, so far as necessary to accomplish the purpose of that custody, until that purpose is completely accomplished from the jurisdiction of every other court. The court which first acquires jurisdiction of specific property by the lawful seizure thereof, or by the due commencement of a suit in that court, from which it appears that it is, or will become, necessary to a complete determination of the controversy involved, or to the enforcement of the judgment or decree therein, to seize, charge with a lien, sell, or exercise other like dominion over it, thereby withdraws that property from the jurisdiction of every other court and entitles the former to retain the control of it requisite to effectuate its judgment or decree in the suit free from the interference of every other tribunal.” Lang v. Railroad Company, 160 F. 355, 359.

See, also, McKinney v. Landon (C. C. A. 8) 209 F. 300, 306; Kline v. Burke Construction Co., 260 U. S. 226, 43 S. Ct. 79, 67 L. Ed. 226, 24 A. L. R. 1077.

The equitable suit provided by section 3180, Rev. St. Mo. 1929, has for its purpose determining “the .various' rights, interests and liens of the various mechanics’ lien claimants and claimants of other liens and owner of any interest in or leasehold upon said property and for enforcing the rights of any and all such persons in, to or against the property, being the lands and buildings and either of the same and for sale of such property, land and buildings or either of the same and for marshalling and distribution of the proceeds thereof among the parties according to their respective legal and equitable rights therein. Such action shall be an equitable action for the purpose of determining, establishing and enforcing the various and respective rights of the parties thereto and for the purpose of marshalling, applying and distributing the proceeds of the sale of such property that may be ordered and decreed in said action.”

All persons claiming any lien or incum-brance upon, or rights in, the property shall be made parties. The scope of the act is similar to that of the West Virginia statute providing for the enforcement of a judgment against real estate by creditors’ suit as described in Straton v. New, Jr., supra. The full accomplishment of the purpose of the equitable enforcement suit pending in the state court requires dominion and control of parties and subject-matter. The mortgagee was made a party to that suit, and served prior to the filing of the petition in bankruptcy. The state court had jurisdiction over the mortgagee and others for the purpose of determining the respective rights of the parties, and of marshaling and distributing the proceeds of any sale that might be ordered and decreed. Of this it could not be divested by the order of the bankruptcy court. This accords also with the policy of the law under which, in proper eases, the bankruptcy court may draw to itself the administration of all matters affecting the estate, in order that that administration may be lodged in a single court. It follows that the order appealed from must be set aside and held for naught, and the eases remanded to the District Court, with directions that the injunctive orders complained of be dissolved, and that the trustee in bankruptcy be authorized to intervene in the pending state court action, if the interests of the estate so demand. It is so or-, dered.

BOOTH, Circuit Judge,

concurring in part.

I concur in the result and also in the opinion, except that portion thereof which holds that this court has jurisdiction of the appeal under section 129, Jud. Code (28 USCA § 227).

I do not think that the “hearing” before the referee in bankruptcy on the sole question of his jurisdiction was such a “hearing” as would give to the restraining order the character of an interlocutory injunction, and make it an appealable order under section 129, Jud. Code.

A “hearing” to have that effect must, in my opinion, be one on the merits of the application for the injunction. This is my understanding of the holding in .the case of Western Union Telegraph Co. v. United States & Mexican Trust Co., 221 F. 545 (C. C. A. 8), cited in the majority opinion.

In the ease of Field v. Kansas City Refining Co., 296 F. 800, 802 (C. C. A. 8), also cited in the majority opinion, the order appealed from was described by this court, in its opinion, thus: “Not only was the order in effect a temporary injunction, but it was such in name also.”

I prefer to base the jurisdiction of this court on the ground that the present “appeal” is an equivalent of the “petition to revise” which existed, section 24b of the Bankruptcy Act, prior to the passage of the Act of May 27, 1926 (44 Stat. 664, 11 USCA § 47 (b), and which “petition to revise” was the approvéd method of bringing before the appellate court the question of the jurisdiction of the referee in bankruptcy. In re Rathman, 183 F. 913 (C. C. A. 8); In re Weidhorn (C. C. A.) 253 F. 28; Id., 253 U. S. 268, 40 S. Ct. 534, 64 L. Ed. 898; Gibbons v. Goldsmith (C. C. A.) 222 F. 826; Board of Commissioners v. Keil (C. C. A.) 259 F. 76.

The Act of May 27, 1926, substituted an “appeal” in place of a “petition to revise,” but, in my judgment, did not change the essential character or scope of the procedure to obtain review.


author: WATKINS, District Judge.

text:
    BURNET, Commissioner of Internal Revenue, v. HANLON. SAME v. HENAGHAN.
    Nos. 3085, 3086.
    Circuit Court of Appeals, Fourth Circuit.
    June 27, 1931.

      J. Louis Monarch, Sp. Asst, to Atty. Gen. (G. A. Youngquist, Asst. Atty. Gen., Sewall Key and Andrew D. Sharpe, Sp. Assts. to Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and R. N. Shaw, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for petitioner.
    George E. H. Goodner, of Washington, D. C., for respondents.
    Before PARKER, Circuit' Judge, and WATKINS and WEBB, District Judges.
   WATKINS, District Judge.

In each of the two above-styled cases, the Commissioner of Internal Revenue has appealed from the decision of the Board of Tax Appeals reversing the assessment by the Commissioner of certain deficiency taxes against respondents. The cases are so related in fact and in law that they were consolidated for the hearing below, and were argued together on appeal.

On October 1, 1921, each of the respondents received as a gift, Mrs. Hanlon from her brother and Mrs. Henaghan from her husband, one and the same individual, a one-fourth interest in two certain properties, one embracing á manufacturing plant and the other a storage and selling station, used respectively in manufacturing and in storing and distributing “casinghead” gasoline. In their income tax returns for thé fiscal year ending January 31, 1923, each of the respondents deducted a depreciation based on the value of the property at the date of its gift. The Commissioner held that the deductions should have been based upon costs to the donor, and made assessments for the deficiency.' The Board of Tax Appeals reversed the Commissioner, holding that “The basis for the computation of the allowance for depreciation of property acquired by gift subsequent to December 31, 1920 under the provisions of the Revenue Act of 1921 is the fair market value of the property at the date of the gift.”

The cases are presented by the Commissioner to this court by petition to review in accordance with the provisions of the Revenue Act of 1926, c. 27, 44 Stat. 9,109,110, §§ 1001-1003 (26 USCA §§ 1225, 1226, and § 1224 and note). The applicable statute is the Revenue Act of 1921, e. 136, 42 Stat. 227. This statute provides, among other things, that ,the basis for ascertaining gain derived or loss sustained from a sale or other disposition of property, real, personal, or mixed, acquired after February 28, 1913, shall be the cost of such property except that, in ease of such property acquired by gift after December 31, 1920, the basis shall be the same as that which it would have in the hands of the donor or the last preceding owner by whom it was not acquired by gift. This statutory basis for valuation related, however, only to eases in which there was a sale of the property by the donee. The act provided, however, section 214 (a), that in computing net income there shall be allowed as deductions * * * “(8) A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence.” 42 Stat. 239. It is agreed by both sides, therefore, that the question presented by these appeals is whether an allowance for depreciation of property in the hands of a donee after December 31, 1920, based upon the cost of the property to the donor, is a reasonable allowance under the provisions of the last-named act.

Prior to the act of 1921, both in the ease of sale and in the computation of depreciation, the value of the property when acquired by the donee was the basis of calculation adopted by the Commissioner. This provision made possible tax evasion to such an extent that Congress in the act of 1921 adopted as the basis of computing profits in case of sale the cost of the property to the donor, and this basis has been upheld by the Supreme Court as a reasonable and proper basis. Taft v. Bowers, 278 U. S. 470, 49 S. Ct. 199, 73 L. Ed. 460, 64 A. L. R. 362; Cooper v. U. S., 280 U. S. 409, 50 S. Ct. 164, 74 L. Ed. 516. Were it not so, the donee of property would be permitted to enjoy any enhancement in value thereof, however great, since its acquirement by the donor, without accounting to the government therefor any profit taxes. A reasonable theory and a reasonable basis to adopt would allow the government to follow the status of the property itself, rather than the status of the owner. The passing of the property from one to another by gift does not fix its value or earning capacity. These arise out of the property itself, and furnish the reasonable basis for assessing income and profit taxes. Exceptional eases resulting in hardship from this rule are not sufficient to overturn its wisdom as a general principle. The determination of a basis for ascertaining what is a reasonable allowance for exhaustion, wear and tear, and obsolescence in the very nature of the case must be committed to one agency rather than left to the individual choice of each of thousands of taxpayers. Bate Refrigerating Co. v. Sulzberger, 157 U. S. 1, 15 S. Ct. 508, 39 L. Ed. 601. This discretion is vested in the Commissioner and is not subject to review unless based upon error of law, wholly unsupported by evidence, or clearly arbitrary or . capricious. Williamsport Wire Rope Co. v. U. S., 277 U. S. 551, 48 S. Ct. 587, 72 L. Ed. 985; Ennis Coal Co. v. U. S. (C. C. A. 4th) 37 F.(2d) 574; Quitt v. Stone (C. C. A. 4th) 46 F.(2d) 405, 408, and cases there cited.

When the Revenue Act of 1921 was adopted, the Commissioner applied the same basis to the computation of allowances for depreciation as was applied in computing profits on the sale of property. A like uniform basis had previously prevailed. It was evidently the intention of Congress when the act was passed to recognize and approve this method of computation. As originally drawn, the statute made provisions for the same basis for allowance for depreciation as in cases of sale. These provisions were stricken from the bill merely because they were deemed as surplusage. In agreeing to the Senate amendments, the managers on the part of the House made the following explanation: “Amendment No. 65: The House bill provides that, except in the ease of the depletion allowance, the basis for ascertaining allowable deductions for loss, exhaustion, wear and tear, obsolescence, amortization, and other like deductions shall be the same as that provided in the subdivision of the law relating to the basis for determining gain or loss in the ease of sale or other disposition of property. Senate amendments Nos. 181, 186, 401, 404 (agreed to by the conferees), added to the law provisions that in ease of the depreciation allowance and in ease of the deduction for loss arising from destruction, of or damage to property, the deduction shall be computed on the basis of the fair market value of the property as of March 1, 1913, if acquired before that date. Amendment Ño. 65 strikes out the provision of the House bill, above referred to, as being (subject to the exceptions noted above) surplusage and merely declaratory of a rule already followed by the Treasury Department in the absence of an express statutory declaration; and the House recedes.”

The case of Lucas v. Daniel, 45 F.(2d) 58, decided by the Circuit Court of Appeals of the Fifth Circuit, has been cited as in conflict with the conclusion which we have here reached. That case, however, related to allowance for depletion on oil lands given to taxpayers by their parents, and it was held that the proper basis in such case was the fair market value at the date of the gift. Subdivision 10 of section 214 (a), Revenue Act of 1921 provides that, in computing net income, there should be allowed as deductions: “(10) In the ease of mines, oil and gas wells, other natural deposits, and timber, a reasonable allowance for depletion and for depreciation of improvements, according to the peculiar conditions in each ease, based upon cost including cost of development not otherwise deducted.” In the case cited, the parents of taxpayers had in 1902 and 1903 acquired 640 aeres of land in Wichita county, Tex. Subsequent thereto, and some years prior to 1919, shallow oil production was discovered on the property, but the production was relatively small. In October, 1919, oil in large quantities was discovered; in November, 1919, an interest in the property was deeded by the parents to their children, who were petitioners in the decided case. It is evident that the court was influenced in its decision because of the “peculiar conditions” affecting the case. The language of the decision, however, seems to lay down a general rule fixing the market value of the property at the date of the gift as the basis for computing net income generally. If so construed and made to apply to the instant ease, we regard the rule stated as unsound.

For the reasons above set out, the decisions of the Board of Tax Appeals in these cases must be reversed.


text:
    ATCHISON, T. & S. F. RY. CO. v. CALIFORNIA SEA PRODUCTS CO.
    No. 6341.
    Circuit Court of Appeals, Ninth Circuit.
    July 22, 1931.

      The reeord contains several assignments of error, of which the fii’st reads as follows:
    “The court erred in awarding damages to libelant in any sum whatever for its alleged loss of six days of whale fishing, for the reason that the evidence was too uncertain, speculative and conjectural, to be made the basis of a verdict for damages, and, in support of this, respondent calls attention to the following, as shown by the evidence:
    “(a) That the use of a floating whale factory was a new business or enterprise, and wholly untried;
    “(b) That the libelant had never before been engaged in whaling in the San Clemente waters;
    “(e) That there is no evidence that either the libelant or anyone else ever before had engaged in whaling operations in the San Clemente waters;
    “(d) That the only evidence of the probability of capturing any number of whales, within the period complained of, was the number of whales that were subsequently captured in the San Clemente waters;
    “(e) There was no evidence that whaling was a seasonable occupation in the San Clemente waters.
    “Por all of the reasons above urged any damages assessed by the court were in no way warranted by the evidence.”
    Robert Brennan and H. K. Lockwood, both of Los Angeles, Cal., for appellant.
    Harold M. Sawyer, Alfred T. Clufif, Daniel W. Evans, and Webster P. Street, all of San Praneiseo, Cal., for appellee.
    Before RUDKIN, WILBUR, and SAW-TELLE, Circuit Judges.
   SAWTELLE, Circuit Judge (after stating the facts):

We are not disposed to disturb the findings of the commissioner with regard to the strictly factual question of whether or not the repairs to the Lansing were done with the greatest expedition, and whether the whaling boats could have left port several days before their actual departure. There was strongly conflicting testimony on both sides of the question, and the commissioner made a decision after a full consideration of the matter. In the absence of palpable error, that finding may stand. But the basis on which the allowance of demurrage in the instant case was made was not merely factual: it .was a matter of surmises, a question of determining the “reasonable certainty” of the profits supposed to have been lost, and in such questions of “reasonable certainty of profits” our jurisdiction to consider the matter on its merits is not limited. With regard to the question of the probability of the number of whales that might have been caught in the six days in question and the use of that number as the basis of an award for damages, this court is quite within its powers in reaching a conclusion from the same facts that the commissioner considered in arriving at his conclusions.

The well-established rule governing the award of damages in cases of this category is laid down in The Conqueror, 166 U. S. 110, 125, 17 S. Ct. 510, 516, 41 L. Ed. 937: “ * * * Demurrage will only be allowed when profits have actually been, or may be reasonably supposed to have been, lost, and the amount of such profits is proven with reasonable certainty. * * * There must be a pecuniary loss, or at least a reasonable certainty of pecuniary loss, and not a mere inconvenience arising from an inability to use the vessel.”

The principle is elucidated in The Nantasket (D. C.) 290 F. 813, 814: “It has been the general understanding in this country, I think, that damages for detention are not recoverable in collision cases without proof of actual pecuniary loss caused thereby.” (Cases therein cited.)

These eases are an expansion of the principle announced in the earlier case of The Apollon, 22 U. S. (9 Wheat.) 362, 6 L. Ed. 111, in which it was held that the loss of anticipated profits could form no basis for the allowance of demurrage. It is now well settled that the loss of a catch in the case of fishing vessels may be sufficient to warrant demurrage. In the case of The Gleaner, 3 Asp. Mar. Cas. 582, the smack Gleaner’s nets were fouled and demurrage for four weeks’ fishing was allowed on the evidence of a prior eateh in the same waters. In the case of the Mary Steele, Fed. Cas. No. 9,226, there was evidence of a catch the morning of the day the accident occurred; in The Resoluto, 5 Asp. Mar. Cas. 93, and Pacific Steam Whaling Co. v. Alaska Packers Ass’n, 138 Cal. 632, 72 P. 161, there was evidence of the catch of other craft during the period of detention. In The Columbia, Fed. Cas. No. 3,035, allowance was made for the eateh lost because the accident happened “at the height of the fishing season.”

All of these cases, however, must be differentiated from the instant case, in that there there was clearly established evidence of a definite season, of the catch of other vessels in the same waters, or of actual catches on the day of the collision of the vessel injured. None of those factors is present in the instant case; no such criteria for assessing damages are presented to us. There “the waters were well known to contain fish” or the expedition was in “such a state of for"wardness that its results may be foreseen.” The Mary Steele, supra.

There is nothing in the record in the instant ease to show that there had ever been fishing for whales in the waters off San Clemente Island before December, 1926, and certainly no evidence of any such fishing by the appellee herein; there were no other companies fishing in those particular waters at the time the Lansing was in port or after she arrived off San Clemente; the only standard of comparison by which we may judge the number of whales that might have been caught in the six days immediately preceding December 19, 1926, is the number that were subsequently caught in that month and the number caught in the same waters the following year. We do not think it legally sound to generalize from subsequent catches in December, 1926, and December, 1927. The fact that the fishing company claimed 2.69 whales per day for the six days they were delayed, basing their figures on the average catch for the rest of the month of December, and the fact that the commissioner allowed an average of only one whale per day, based on the catch for the six days immediately succeeding their arrival at the waters off San Clemente, shows that the award was in a measure speculative and that there was no legally recognizable standard on which the award could be allowed.

The fact that demurrage in analogous eases is allowed on the basis of anticipated profits and that profits are distinctly the fruits of a commercial venture, brings the award of such claims squarely under the rule set forth in the case of Central Coal & Coke Co. v. Hartman (C. C. A.) 111 F. 96, 98. There the court said: “The anticipated profits of a business are generally so dependent upon numerous and uncertain contingencies that their amount is not susceptible of proof with any reasonable degree of certainty; hence the general rule that the expected profits of a commercial business are too remote, speculative, and uncertain to warrant a judgment for their loss. [Cases cited.] * * * He who is prevented from embarking in a new business can recover no profits, because there are no provable data of past business from which the fact that anticipated profits would have been realized can be legally deduced. [Cases cited.]”

The mere addition of the new equipment, the Lansing, to the whaling fleet did not make the business of catching whales “new” to the appellees, for the latter had had nine years’ experience in whaling. But in the light of the record we cannot logically call the venture of fishing for whales in the untried waters off San Clemente Island an established business, the profits of which are reasonably capable of ascertainment. We think it too broad an interpretation of the rule set forth in The Conqueror and Central Coal & Coke Cases, supra, to allow for the loss of anticipated profits on the record of the two catches of 1926 and the one in December, 1927. The commissioner himself, in making the award, said that there was a “reasonable supposition” that whales would have been caught, but that is not the equivalent of “reasonable certainty.” He continued, “We are constrained to find that the eateh was the same as that six days after arrival at the whaling fields,” but we see no necessary connection.

Although confronted with the findings of the commissioner, approved by the District Court, we think that there was obvious error in the application of the law as well as serious mistake in the consideration of the evidence. Anderson et al. v. Alaska S. S. Co. (C. C. A. 9) 22 F.(2d) 532, 535.

Holding that the lower eourt erred in awarding damages to libelant in any sum, in that “the evidence was too uncertain, speculative and conjectural, to be made the basis of a verdict for damages,” we do not think it necessary to consider the other assignments.

Decree reversed.

WILBUR, Circuit Judge, concurs.


author: THOMPSON, Circuit Judge.

text:
    BATON COAL CO. v. COMMISSIONER OF INTERNAL REVENUE.
    No. 4535.
    Circuit Court of Appeals, Third Circuit.
    July 28, 1931.
    W. W. Booth and W. A. Seifert, both of Pittsburgh, Pa. (Smith, Shaw McClay & Seifert, of Pittsburgh, Pa., of counsel), for appellant.
    G. A. Youngquist, Asst. Atty. Gen., and John MacC. Hudson and Sewall Key, Sp. Assts. to Atty. Gen. (C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and William E. Davis, Sp. Atty., Bureau of - Internal Revenue, both of Washington, D. C., of counsel), for appellee.
    Before WOOLLEY, DAVIS, and THOMPSON, Circuit Judges.
   THOMPSON, Circuit Judge.

This case comes up upon petition for review of a decision of the Board of Tax Appeals finding deficiencies in the petitioner’s income taxes for the years 1926 and 1927.

On November 2, 1925, petitioner leased •certain coal properties from the Shenango Eumaee Company for a term of one year ■ at a rental consisting of $40,000 in quarterly payments of $10,000, a royalty upon the coal mined of 25 cents per ton, with a minimum royalty of $50,000, and payment of the taxes on the property. All payments made under the lease were deducted as expenses on the petitioner’s income tax return for 1926, and were approved and allowed by the Commissioner. On November 14, 1926, the petitioner entered into a new lease for the same properties to run from November 1, 1926, until all of the Pittsburgh vein of coal had been mined and removed. The new lease provided for payment of rental of $50,000 upon the execution and delivery of the lease, and $51,250 on May 1, 1927, for the payment of a royalty of 13 cents per ton, with a minimum royalty of $26,000 per annum, for payment by the lessee of all taxes, and for payment to the lessor of one-half of the net profits of operation. The payments were made in accordance with the lease for each of the years 1926 and 1927.

In its income tax returns, the petitioner deducted the sum of $50,000 as an expense of carrying on the business during the year 1926, and deducted $51,250 as a similar expense for the year 1927. The Commissioner disallowed each of the deductions as an expense of the taxpayer’s business for the years 1926 and 1927, and apportioned the entire sum throughout the life of the lease, ascertained by taking the petitioner’s estimate of the total tonnage of coal in the ground and dividing that by the average tonnage of coal taken out per year. He gave as his reason therefor that those amounts represented a bonus “paid in connection with the attaining of the lease and Should be capitalized and the cost recovered over the life of the asset.”

The Board of Tax Appeals held that, whether the sums paid in each of the years 1926 and 1927 were considered a bonus or advance payment of rental, the payments should not be deducted in their entirety in those taxable years, but should be spread over the years during which the lease would continue.

The pertinent section of the Revenue Act of 1926 is’as follows:

“See. 234. (a) In computing the net income of a corporation subject to the tax imposed by section 230, there shall be allowed as deductions:
“(1) All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered, and including rentals or other payments required to be made as a condition to the continued use or possession of property to which the corporation has not taken or is not taking title, or in which it has no equity. * * *
“(7) A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence;
“(8) In the case of mines, oil and gas wells, other natural deposits, and timber, a reasonable allowance for depletion and for depreciation of improvements, according to the peculiar conditions in each ease; such reasonable allowance in all cases to be made under rules and regulations to be prescribed by the commissioner with the approval of the Secretary. In the ease of leases the deductions allowed by this paragraph shall be equitably apportioned between the lessor and lessee.” 26 USCA § 986 (a) (1), (7), 'and (8).

The pertinent part of the Treasury Department Regulation, prescribed in accordance with the authority granted by that act, is as follows: “Art. 110. Rentals. — Where a leasehold is acquired for business purposes for a specified sum, the purchaser may take as a deduction in his return an aliquot part of such sum each year, based on the number of years the lease has to run.”

We perceive no ground for differing from the conclusions and rulings of the Commissioner and the Board of Tax Appeals. It is clear that the payments of $50,000 in 1926 and $51,250 in 1927 did not constitute rental payments for these respective years, but together represented the payment of a bonus or rental in advance for the entire term of the lease, the length of which was determinable by the quantity of coal in the ground divided by the annual average output. The lease was to run until exhaustion of the coal. It is clearly evident, therefore, that those sums, together with the other payments specified in the lease, constituted the consideration for a lease during the entire period, and that, under the law and the regulations, those sums must be apportioned as an expense over the whole term of the lease, and are not deductible as a business expense of the years in which they were paid. Duffy v. Central R. Co., 268 U. S. 55, 45 S. Ct. 429, 69 L. Ed. 846; Galatoire Bros. v. Lines (C. C. A.) 23 F.(2d) 676.

The petition is' dismissed, and the order and decision of the Board of Tax Appeals affirmed.


author: SAWTELLE, Circuit Judge.

text:
    WESTERN SURETY CO. v. UNITED STATES.
    No. 6361.
    Circuit Court of Appeals, Ninth Circuit.
    July 29, 1931.
    Patrick P. Kirby, of Los Angeles, Cal., for appellant.

      Samuel F. McNabb, U. S. Atty., and Ignatius F. Parker and Louis J. Somers, Asst. U. S. Attys., all of Los Angeles, Cal.
    Before WILBUR and SAWTELLE, Circuit Judges, and ST. SURE, District Judge. .
   SAWTELLE, Circuit Judge.

This is an appeal from a judgment on a writ of scire facias issued by tbe United States District Court for the Southern District of California, upon a forfeited bail bond.

David A. Schaffer was principal and the Western Surety Company, the appellant herein, was surety on the bond, which was for the sum of $2,000. The undertaking was to secure the appearancé of Schaffer whenever or wherever he might be required to answer any information to be filed or any indictment to be returned, charging him with violating the Harrison Narcotic Act, on or about July 3,1926, in Los Angeles, Cal.

Schaffer not being found, service of the writ was made against the.surety only. Having obtained a severance in the court below for the purpose of prosecuting this appeal, the Western Surety Company is the only appellant before this court.

After setting out the formal matters of the bond and the release of Schaffer from the custody of the United States Marshal, and the filing, on September 4, 1926, of the true bill against the defendant, the writ of scire facias continues: “Thereafter, notice was sent on several occasions to David A. Schaf-fer to appear in court pursuant to recognizance and notice was likewise sent to the Western Surety Company to produce the body of David A. Schaffer before the court pursuant to the recognizance filed, and said David A. Schaffer failed to appear, and Western Surety Company, a corporation, having failed to produce the body of David A. Schaffer before the court pursuant to the recognizance to answer to the indictment then on file. On November 5, 1928, the recognizance filed herein with David B. Head, United States Commissioner, on July 7,1926, and filed in the office of the Clerk of this Honorable Court on October 17, 1928, was by this Honorable Court declared forfeited.”

To this writ, the Western Surety Company filed demurrers, both general and special, pursuant to section 430 of the California Code of Civil Procedure, challenging its suffi--cieney to state a cause of action. As separate grounds for demurrer, the appellant urges that the writ is uncertain, ambiguous, and unintelligible, in that it cannot be ascertained therefrom, among other things, (b) when, if ever, under the terms of the recognizance, Schaffer became in default; (e) when, if ever, there was any default under the terms of the'recognizance; and (f) in what manner, if at all, there was any default. The overruling of this special demurrer is assigned as error.

The nature of a bail bond is clearly set forth in United States v. Davenport (D. C.) 266 F. 425, 427: “The issues are measured by the terms of the bond and the recitations of the judgment nisi. * * * The bail bond is a contract between the sureties and the government. Upon-the failure of the principal to appear the sureties become debtors. U. S. v. Sanges, 144 U. S. 310, 12 S. Ct. 609, 36 L. Ed. 445; U. S. v. Zarafonitis, 150 F. 97, 80 C. C. A. 51, 10 Ann. Cas: 290 [rehearing denied (C. C. A.) 156 F. 1023].”

Where a defendant has been bailed in conformance with the usual procedure of the laws of the state where the offense is alleged to have been committed, the laws of that state determine the sufficiency of the steps taken. United States v. Davenport, supra. Under the Judicial Code, § 262 (28 USCA § 377), federal courts may issue writs of scire facias, notwithstanding that the proceeding is unknown in the state wherein the' federal court employs it. Bassett v. United States, 18 F.(2d) 856 (C. C. A. 9).

In Hollister v. United States, 145 F. 773, 779, 780 (C. C. A. 8), the following language was used:

“A writ of scire facias on a forfeited recognizance is a judicial writ founded upon and to be proved by the record of the court taking it. * * * In Winder v. Caldwell, 14 How. 434, 14 L. Ed. 487, it is said:
‘A scire facias is a judicial writ used to enforce the execution of some matter of record on which it is usually founded; but though a judicial writ, or writ of execution, it is so far an original that the defendant may .plead to it. As it discloses the facts on which it is founded, and requires an answer from the defendant, it is in the nature of a declaration, and the plea is properly to the writ.’ * * » • t
“From the principles announced in the foregoing authorities certain conclusions inevitably follow: First. The record upon which the writ issues is not a part of the declaration. It is the evidence upon which plaintiff must rely to prové the case, and. the legal sufficiency of the declaration must be determined, as in ordinary cases of pleading, from a consideration of its averments.”

Taking the place of the declaration or complaint, then, the writ of scire facias must state a cause of action. It is subject to challenge by demurrer for failure to do so.

It is not a prerequisite to the forfeiture of a bail bond that the defendant be notified or that, in the courtroom, he be called to answer. It is his duty to follow the proceedings and to be in court when his presence is required. County of Los Angeles v. Delahunt, 99 Cal. App. 569, 279 P. 187; State v. Holtdorf, 61 Mo. App. 515. Likewise, it is not necessary that notice be given the surety to produce the body of the defendant in court. National Surety Co. v. United States (C. C. A.) 29 F.(2d) 92.

Nevertheless, as will be seen from the allegations of the writ set out above, there is no sufficient averment that any default was committed by the defendant.

To authorize a judgment upon scire facias against bail in a criminal case the scire facias must aver that the principal (the defendant) has made default on some specified date or during some specified term of court. The scire facias in this ease does not so allege. It does allege that the notice was “sent on several occasions to the defendant to appear in court pursuant to recognizance, and that notice was likewise sent to the appellant .surety company to produce the body of the defendant before the court pursuant to the recognizance filed, and that the defendant failed to appear.” It further alleges that on November 5, 1928, the recognizance was by the court declared forfeited.

As a matter of fact, the allegation that a notice “was sent on several occasions” to the defendant and the surety means nothing. There is no averment as to when the said defendant failed to appear. From what appears there the defendant might have been in attendance upon the court on the latter date, the very date the forfeiture was declared. The appellant could be liable only, if the defendant failed to appear.

So far as the question of notice to defendant and surety was concerned, we think no notice "tfas required. When a defendant enters into an obligation for his appearance in court to answer a criminal charge, as was done in the instant case, it is his duty to keep in touch with the proceedings of the court and to be present at all times until the case is finally disposed of, or unless there is some special order of the court setting the ease down for hearing or trial on some special date. As a matter of fact, a notice to the surety to produce the defendant is not required.

There was no error in overruling the general demurrer, but grounds (b) (e) and (f) of the special demurrer should have been sustained. The remaining grounds of the special demurrer were without merit and were properly overruled.

We think that the scire facias should have averred that the defendant was not present on the date the forfeiture was declared. It is urged by the defendant that it was necessary that the appellant should be called before the forfeiture was entered. There is some authority for this contention, but we find nothing in the law making that a condition to declaring a forfeiture on a bail bond. Undoubtedly, it is the better practice to have the defendant called, and, if he is absent, to have his absence noted on the record; but an allegation to the effect that the defendant was absent on some particular date when he, by the terms of his obligation, was required to be present, would seem to be sufficient to justify a forfeiture.

For the reasons given, the case will be reversed and remanded to the District Court, with instructions to sustain the above referred to grounds of the special demurrer, with leave to amend. It is therefore unnecessary to consider the other assignments of error.

Reversed.


author: NETERER, District Judge.

text:
    BAUMGARTNER v. COMMISSIONER OF INTERNAL REVENUE.
    No. 6379.
    Circuit Court of Appeals, Ninth Circuit.
    July 20, 1931.
    Rehearing Denied Sept. 14, 1931.

      Chickering & Gregory and Walter C. Fox, Jr., all of San Francisco, Cal., for petitioner.
    G. A. Youngquist, Asst. Atty. Gen., and J. Louis Monarch and John H. McEvers, Sp. Asst, to Atty. Gen. (C. M. Charest, Gen. Counsel, and Allin H. Pierce, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for respondent.
    Before WILBUR and SAWTELLE, Circuit Judges, and NETERER, District Judge.
   NETERER, District Judge.

This is a proceeding to review an order of the Board of Tax Appeals. 21 B. T. A. 623. The petitioner challenges the constitutionality of section 316 of the Revenue Act of February 26, 1926 (26 USCA § 1119), and also (a) preclusion of proceeding against the distributee, or transferee, without first having exhausted civil remedy against the estate; (b) recovery from petitioner by reason of erroneous determination with relation to-deficiency tax in 1925; and (e) that the assessment against petitioner’s liability is •barred. Decedent died August 1, 1921. Executrix filed return April 20, 1922. The estate was distributed to petitioner, except $5,-000 to another, December 27, 1922. Commissioner served notice of redetermination March 12, 1923. Claim in abatement was filed February 18,1925, and allowed in part. The tax on the estate was due August 1,1922. Four years from due date was August 1, 1926. The Act of 1926 was passed on February 26, 1926. On February 14, 1927, respondent served notice of proposed deficiency assessment.

At the outset it may be said that petitioner, as distributee, bears the same relation and status to this assessment as her beneficiary, except as to the bar, or limitations. That was extended as to her for one year by section 316, supra (section 1119, title 26, USCA) ; i. e., to August 1, 1927. When the tax was determined the estate had been distributed, execution would have been fruitless, legal remedies were exhausted upon distribution of the estate, and the lien may be asserted in equity. Tappan v. Evans, 11 N. H. 311; Holt & Chambers v. Bancroft, Betts & Marshall, 30 Ala. 193. The tax is not a debt in a strict sense, and the petitioner, as distributee, held the property in trust until the revenue claims were satisfied, and the government’s claim followed the res. Updike v. United States (C. C. A.) 8 F.(2d) 913; United States v. Fairall (D. C.) 16 F.(2d) 328; Pann v. United States (C. C. A.) 44 F.(2d) 321; Hatch v. Morosco Holding Co. (C. C. A.) 50 F.(2d) 138, decided May 18, 1931, C. C. H. Fed. Tax Service, p. 8610.

Commissioner v. Wire Wheel Corporation of America (C. C. A.) 46 F.(2d) 1013, is clearly distinguishable from the instant issue, because made pursuant to a special statute prohibiting suit against a merging corporation for debts of the merged, without judgment unsatisfied.

Nor is the erroneous determination of deficiency in 1925 a bar to additional assessment. The yardstick by which revenue taxes are measured is the United States revenue laws, and not the acts of government officers. Couzens v. Commissioner, 11 B. T. A. 1040. The Congress provides the formula, “and did not intend to intrust the final settlement * * *■ to the informal action of subordinate officials in the Bureau.” Botany Worsted Mills v. U. S., 278 U. S. 282, 49 S. Ct. 129, 131, 73 L. Ed. 379 (26 USCA § 158; section 3229, Rev. St.). Until the revenue tax liability fixed by law is fully settled, deficiency may be assessed any time within the period of limitations. The “undisputed facts” claimed by the petitioner do not enlarge any right or privilege under the law and the decisions. Holmquist v. Blair (C. C. A.) 35 F.(2d) 10; Austin Co. v. Commissioner (C. C. A.) 35 F.(2d) 910; Oak Worsted Mills v. United States (Ct. Cl.) 38 F.(2d) 699; McIlhenny v. Commissioner (C. C. A.) 39 F.(2d) 356. Nor is the deficiency assessment out of time. Section 401 of the Revenue Act of 1918 (40 Stat. 1057, 1096) imposes a tax upon the transferee of the net estate of the decedent after passage of the act, and section 406 (40 Stat. 1099) fixed the due date for such tax after one year of decedent’s death. The act of 1921, § 1322 (42 Stat. 315), provides that taxes as in issue shall be assessed within four years after such tax became due, except that fraudulent attempt to evade the tax may he assessed any time. Section 316 of the Act of 1926 provides a new remedy for enforcing existing liability. At the time of the enactment of this section a fixed right obtained. Section 316 (1119), supra, “provides a new remedy for enforcing existing liability and extends the statute of limitations for an additional year in ease of distributee.” This section or act did not change the right, but did enlarge the remedy, which the Congress had power to do. Petitioner, as distributee, is equitably liable for deficiency taxes due from the estate of the deceased, limited as stated ante, because after distribution of the discovered estate it was not solvent on its “face.”

In Phillips v. Commissioner, 283 U. S. 589, 51 S. Ct. 608, 75 L. Ed. 1289, decided by the Supreme Court May 25, 1931, the procedure was held constitutional, and this is in harmony with that ease. After the assets of an estate have been distributed a claim, or the actionable demand, is recoverable from the distributees of the estate to the extent of the distributed property. Rankin v. City of Big Rapids (C. C. A.) 133 F. 670. Analogous in principle is case where a corporation divests itself of all its assets by distribution to its stockholders. The stockholders are liable. Pierce v. United States, 255 U. S. 398, 41 S. Ct. 365, 65 L. Ed. 697. And the government may by suit in equity follow the assets of the dissolved corporation into the hands of the stockholders. United States v. Garbutt (C. C. A.) 35 F.(2d) 924; Pann v. United States (C. C. A.) 44 F.(2d) 321.

The aim in the one case, as the other, is to enforce a tax liability. United States v. Updike, 281 U. S. 489, 50 S. Ct. 367, 74 L. Ed. 984; see, also, Huntley v. Gile (C. C. A.) 32 F.(2d) 857; Levy v. Commissioner (C. C. A.) 48 F.(2d) 725. No vested right in property free from tax accrues to the taxpayer until after the payment of the tax or after the limitation for the collection of a valid, tax. Notice of this assessment having been given within five years after, the expiration of the one year provision with relation to the estate (i. e., within six years from death of testator),- the assessment is not avoided by W. P. Brown & Sons Lumber Co. v. Burnet, 282 U. S. 283, 51 S. Ct. 140, 75 L. Ed. 343. To discuss, apply, or distinguish the numerous decisions could serve no useful purpose.

The'order is affirmed.