text:
    V. H. HUEY v. The UNITED STATES.
    No. 111-72.
    United States Court of Claims.
    Oct. 23, 1974.

      James William Lewis, Birmingham, Ala., atty. of record, for plaintiff. Bradley, Arant, Rose & White, Birmingham, Ala., of counsel.
    Richard D. Silvester, Washington, D. C., with whom was Asst. Atty. Gen. Scott P. Crampton, for defendant. Gilbert E. Andrews, Jr., Washington, D. C., of counsel.
    Before DAVIS, KUNZIG and BENNETT, Judges.
   OPINION

PER CURIAM:

This case comes before the court on the joint motion, filed April 19, 1974, of the parties moving that the court adopt the recommended decision, filed March 19, 1974, by Trial Judge Harry E. Wood, pursuant to Rule 134(h), as the basis for its judgment in this case and to enter a judgment in this proceeding in accordance therewith. Upon consideration thereof, without oral argument, since the court agrees with the said recommended decision, as hereinafter set forth, it hereby grants the joint motion of the parties and adopts the decision as the basis for its judgment in this case. Therefore, it is concluded that plaintiff is entitled to recover in accordance with the trial judge’s recommended decision and judgment is entered for plaintiff accordingly with the amount thereof to be determined in further proceedings pursuant to Rule 131(c).

OPINION OF TRIAL JUDGE

WOOD, Trial Judge: In this action to recover federal income taxes, and self-employment taxes, paid for the years 1966 and 1967, the main issue is whether certain lands sold by plaintiff in each of those years were “held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business”, within the meaning of Section 1221(1) of the Internal Revenue Code of 1954. If so, plaintiff’s gains from such sales are not capital gains, as he asserts, but are, rather, ordinary income.

The parties agree that the determination whether plaintiff's said gains are ordinary income or capital gains will also govern the subsidiary question whether, during 1966 and 1967, plaintiff carried on the “trade or business” of selling real estate, and is therefore liable for self-employment taxes under Section 1402 There is also a separate issue whether or not plaintiff is entitled to a “retirement income” credit under Section 37.

For reasons hereinafter appearing, it is concluded that plaintiff is entitled to recover on each of the issues defined hereinabove, with the amount of his recovery to be determined pursuant to Rule 131(c).

I

The Sales of Land in 1966 and 1967

Plaintiff, a resident of Birmingham, Alabama, was born in 1900. About 1941, after obtaining a real estate broker’s license from the State of Alabama, he went into business for himself under the name “Huey Realty Company”. He also developed an insurance business, which he sold in 1954.

For some years prior to, and during, 1966 and 1967, plaintiff rented desk space in the office of Insurers Exchange. For both 1966 and 1967, the Birmingham alphabetical telephone directory carried listings for “V. Hain Huey, rl est”, and “Huey Realty Co”, and for both years the Birmingham classified telephone directory listed, under the heading of “Real Estate”, “Huey Realty Co”. Until the Insurers Exchange (and plaintiff) moved from one location to another in Birmingham about 1967, a sign bearing the words “Huey Realty Company” appeared on the window of the building in which plaintiff had desk space.

As a matter of financial caution, plaintiff maintained his state broker’s license and a City of Birmingham real estate license to and after 1967. He deducted the annual cost of these licenses as a business expense on his federal income tax returns. He made no brokerage sales in or after 1966, however, and he did not actively solicit any brokerage business after 1961. He had partially retired by 1966, and the bulk of his time in 1966 and 1967 was spent in research and writing for publication, and in selling and servicing insurance policies.

In 1949 plaintiff purchased, from a seller who would not sell less than all of the tract, 720 acres of land in Shelby County, Alabama. The land, in a rural and largely unpopulated area, and then about 18 miles by road from Birmingham, ran along and straddled New Hope Mountain. Plaintiff’s purpose in acquiring the land was to use the central portion of the tract, at some future time, as the site of a summer or health resort.

Not all of the acreage was contiguous. Portions of the tract, totaling 360 acres, did not adjoin the remaining acreage. By 10 further purchases, nine in or prior to October 1957, and one of 5 acres in July 1962, plaintiff acquired at least 266 additional acres in Shelby County, thus becoming the owner of a tract of at least 866 acres of contiguous mountaintop properties and an additional 125 acres near, but not adjoining, that acreage. Plaintiff’s Shelby County land was known as, and is here called, the Acreage Tract.

Although a fairly good road traversed the Tract at each of its outer extremes, the Tract was, when purchased, essentially raw mountain land, as a whole largely inaccessible to vehicular traffic. Plaintiff neither subdivided nor platted the Tract, nor did he have utilities extended to it, build sidewalks or curbs, or make any other subdivision-type improvements. In 1955 he had pine trees planted on the Tract, at a cost of some $6,400, and in 1958 he had a water well drilled on it, at a cost of about $2,500, but neither the tree planting nor the water well drilling took place on land sold in 1966 or 1967.

Commencing in 1957, and continuing to 1964, plaintiff gradually cut and built a paved road through the entire Acreage Tract at a total cost of some $65,000. In essence, the road divided the Tract along its longest axis.

Land at either end of the Tract was, as noted, fairly accessible by automobile and was not essential to the effectuation of plaintiff’s health resort plans. Accordingly, at or about the same time in 1957 that he began to cut and build the road, plaintiff also began to sell parcels from either end of the Tract in order to obtain cash with which to cut and build the road. Obtaining cash for future construction of his health resort was also a consideration.

After his initial decision to sell portions of the Acreage Tract, plaintiff’s effort to sell his land, in parcels as large as possible, was made in part by signs, some 8 inches by 20 inches and some 10 inches by 14 inches, stating that “Acreage Tracts” were “For Sale”, and bearing plaintiff’s name and business telephone number. Several such signs were posted along plaintiff’s road through the Tract for a time. In 1966 and 1967, however, no signs were posted on the portions of the Acreage Tract plaintiff still owned. In those years, two signs substantially identical in content to those just described were located on portions of the Tract sold by that time, and one other such sign was placed at a nearby street intersection.

In his effort to sell the Acreage Tract, plaintiff also ran a total of 540 newspaper advertisements, all but one of which appeared in the Birmingham News, during the period February 1958 to June .21, 1964. The lines per ad varied from a high of 30 to a low of 6, but averaged about 7.3 lines per ad overall. In 1958, 1959, and 1960, plaintiff averaged 53 ads per year. In 1961 and 1962 he averaged 142 ads per year. In 1963 he ran 72 ads, and between January 1 and June 21, 1964, he ran 15 ads. He did not place any ads after the latter date.

Sales of portions of the Acreage Tract were infrequent. In 1957, and again in 1962 and 1963, plaintiff made only one sale of a parcel in that Tract. In 1958 and 1961 he made none. In other years between 1957 and 1968 he sold as many as five parcels in only 2 years, and he usually sold less than four parcels in any single year. The Acreage Tract was ultimately sold, in a total of 27 transactions, between 1957 and 1968, in parcels ranging from 4.5 acres (in 1966) to 200 acres (in 1959). Plaintiff represented himself in all such sales transactions.

In 1966 and 1967, plaintiff spent about 30 to 40 hours per year on the Acreage Tract. He sold five parcels from the Acreage Tract in 1966, and four in 1967. He had acquired all of the acreage sold in those years in 1949. The 1966 sales occurred between January 31 and March 26 of that year, and the 1967 sales occurred between February 2 and February 15 of that year. While, as noted, the only improvement to the parcels sold in 1966 and 1967 was the portion of the road which went past the property, the cost of the road alloca-ble to each of the parcels sold in 1966 and 1967 considerably exceeded the “proportionate purchase price” of the respective parcels.

Certain other facts should also be noted at this point. One is that, in 1959, and again in 1967, plaintiff underwent surgery for the removal of growths (the first from his jaw, and the second from his mouth) subsequently determined to be malignant. The record does not establish any real connection between plaintiff’s malignancies and his sales, however. The proof is that plaintiff still owned the contemplated site for his health resort in both 1966 and 1967, and that he did not completely give up the idea of building his health resort until about 1968.

The basic problem is “old, familiar, recurring, vexing and oft-times elusive * * *.” Thompson v. Commissioner, 322 F.2d 122, 123 (5th Cir. 1963). As the court held in Cross-White v. United States, 369 F.2d 989, 991, 177 Ct.Cl. 671, 672-673 (1966), the starting point for its resolution is:

* * * the recognized principle that the “benefit” of capital gains treatment connotes no more than the term itself — an exception to the normal tax structure. “[T]he definition of a capital asset must be narrowly applied and its exclusions interpreted broadly» * -x- * statutory scheme of Section 1221 contemplates a distinction between appreciation in the value of property which accrues with the passage of time and profits and losses which arise from the regular conduct of a business venture. * * * [Citations omitted.]

Also to be recognized at the outset is that plaintiff has the burden of proving a right to capital gains treatment. Ibid.

A dealer in real estate may, of course, hold real property for investment rather than primarily for sale to customers in the ordinary course of his trade or business. Municipal Bond Corp. v. Commissioner, 382 F.2d 184 (8th Cir. 1967); see also Tibbals v. United States, 362 F.2d 266, 176 Ct.Cl. 196 (1966). Whether plaintiff had profits and losses arising from the everyday operation of a business, or gains from realization of an appreciation in value over a substantial period of time, is basically a question of fact.

The holdings of this and other courts teach that the only principle of universal application in a case such as this is that no single test applies to all of them, but that the purposes for which the land was acquired, the motive for selling, the extent of improvements made to facilitate sales, the frequency and continuity of sales, the method employed in selling, income from sales as compared to the taxpayer’s other income, and the time and effort expended by the taxpayer in promoting sales, are among the factors which may be helpful in resolving a particular ease. Goodman v. United States, 390 F.2d 915, 182 Ct.Cl. 662, cert. denied, 393 U.S. 824, 89 S.Ct. 87, 21 L.Ed.2d 96 (1968); Miller v. United States, 339 F.2d 661, 663, 168 Ct.Cl. 498, 504 (1964); Lazarus v. United States, 172 F.Supp. 421, 145 Ct.Cl. 541 (1959).

A number of those factors strongly support plaintiff. The land he sold in 1966 and 1967 had been acquired nearly two decades theretofore, primarily for use as a health resort. No improvements at all were made to the Acreage Tract for several years following acquisition. The sole improvements ever made consisted of planting pine trees, a water well, and a road through virtually inaccessible property, and only the road related to the land sold in 1966 and 1967.

Moreover, plaintiff’s decision, in 1957, to sell portions of the Acreage Tract was largely motivated by his desire to obtain cash for road construction and toward future health resort construction. His sales activities were never extensive, and during the years in issue were confined to having three “For Sale” signs posted near the property. Moreover, sales in and after 1957 were plainly neither frequent nor continuous, and plaintiff, semi-retired in 1966 and 1967, spent very little time on the Acreage Tract. Finally, there is no suggestion that profits from 1966 or 1967 sales were applied to the purchase of other real property. Cf. Lazarus v. United States, supra.

Not surprisingly, defendant urges other factors as requiring a contrary conclusion. It argues, among other things, that the “proportionate purchase price” of each of the several parcels sold in 1966 and 1967 was far less than the cost of the “improvement” (i. e., the road) allocable to each such parcel; and that a large percentage of plaintiff’s income in those years was attributable to real estate activities.

According to defendant, plaintiff’s purpose in holding the Acreage Tract in 1966 and 1967 was to sell it, piecemeal, and over several years, as a retirement income. Defendant concedes that plaintiff’s sales activities and efforts in 1966 and 1967 were minimal, but asserts that this factor is here insignificant, and notes that in Huey v. United States, 24 A.F.T.R.2d 5925 (N.D.Ala.1969), a jury determined that plaintiff’s gains from sales of land in the Acreage Tract during 1964 and 1965 constituted ordinary income.

The 1969 jury verdict against plaintiff is not, and could not properly be, relied upon by defendant as governing this litigation. Whatever facts may have been before the District Court, this case is to be decided on the record presented to this court. And, on those facts defendant’s arguments are unpersuasive.

The land that plaintiff sold in 1966 and 1967 had been purchased in 1949, and was, when acquired, essentially raw mountain acreage. Closing costs for sales in those years at least approached, and in many instances exceeded, the “proportionate purchase price” of the land sold. ■ In the circumstances, attributing significance to the extent to which the cost of an improvement allocable to a particular parcel sold exceeded its cost of acquisition is unjustified.

Nor is the fact that plaintiff’s income in 1966 and 1967 was largely attributable to real estate of great moment. In those years plaintiff was over 65 years old and in semi-retirement. His time was largely devoted to research and writing for publication, and to selling and servicing insurance policies, and his total income, from all sources, was less than $15,000 in 1966 and less than $18,000 in 1967.

The real question is not whether plaintiff hoped to realize profit from any sale of a parcel in the Acreage Tract during 1966 or 1967, nor whether he supported himself (and Mrs. Huey) during his retirement years by such profits, but whether or not he held the land sold in 1966 and 1967 “primarily for sale to customers in the ordinary course of his trade or business.” While that question is seldom easy to answer, it is concluded that plaintiff in this cause has satisfactorily proven that he did not so hold the land. Accordingly, he is entitled to recover on the capital gains issue.

The parties have agreed that resolution of the capital gains issue is determinative as to the self-employment tax issue for 1966 and 1967. Thus, plaintiff is also entitled to recover on the latter issue.

II

The Retirement Income Credit

It is stipulated that the Internal Revenue Service disallowed the retirement income credit claimed by plaintiff for both 1966 and 1967. While defendant accurately characterizes plaintiff’s argument respecting such denial as “almost by way of a postscript,” there is no doubt that plaintiff has sufficiently raised the retirement income credit issue. Indeed, as will be seen, defendant does not contend otherwise.

In substance, Section 37(a) provides that an individual “who has received earned income before the beginning of the taxable year” is entitled to a tax credit of 15 percent of the individual’s “retirement income”. Section 37(b) provides that an individual “shall be considered to have received earned income if he has received, in each of any 10 calendar years before the taxable year, earned income * * * in excess of $600 * * *.” Section 37(g) defines “earned income”, by reference to Section 911(b), as “wages, salaries, or professional fees, and other amounts received as compensation for personal services actually rendered * *

Defendant's sole argument on this phase of the matter is that plaintiff has failed to show that he had “earned income” in excess of $600 in any 10 of the years preceding 1966, and thus has failed to prove he meets the statutory requirements for retirement income credit. This view of the record is too technical and narrow.

The evidence does not reflect the exact amount of plaintiff’s income for any years other than 1966 and 1967. It does show, however, that plaintiff entered the real estate business as a salesman in 1921 or 1922, that he went into the real estate business for himself in 1941, that he thereafter also developed an insurance business, that his real estate brokerage business was fairly successful, and that he made a fairly good living most of the time.

In this state of the record, plaintiff asks that the trial judge infer from the record as a whole that he meets the “earned income” requirements in question. Where a fact is clearly and readily susceptible of direct proof, this practice is not to be viewed with enthusiasm or approval, nor is it free from risk. The validity of the inference sought seems clear, however, and in the interests of justice the making of a finding that plaintiff had the requisite “earned income” is deemed warranted. Accordingly, plaintiff is also entitled to recover on the retirement income credit issue.

FINDINGS OF FACT

Background Facts

1. (a) Plaintiff in this action sues to recover federal income taxes assessed against him for the years 1966 and 1967, and paid, in the amounts of $1,726.43 and $2,536.44, respectively, and self-employment taxes assessed against him for the years 1966 and 1967, and paid, in the amounts of $405.90 and $422.40, respectively, plus deficiency interest paid and statutory interest as provided by law.

(b) Trial of this cause has been limited to the issues of law and fact relating to plaintiff’s right to recover, reserving determination of the amount of recovery, if any, for further proceedings.

2. (a) Plaintiff, a resident of Birmingham, Alabama, was born October 23, 1900. He began to receive social security benefits in May 1964.

(b) Plaintiff’s late wife, Lucile C. Huey, passed away August 21, 1970. Mrs. Huey had no income during the taxable years here involved. She signed a request for joint federal income tax computation for 1966, and a joint federal income tax return for 1967, solely for the purpose of obtaining the benefit of joint federal income tax rates. Plaintiff is duly entitled to receive the full amount of any refund of taxes and interest due herein.

(c) Plaintiff timely filed an individual federal income tax return for the year 1966. A request for joint federal income tax computation for that year, signed by plaintiff and his wife, was granted by the Internal Revenue Service. Plaintiff and his wife timely filed a joint federal income tax return for the year 1967.

(d) The tax assessments described in finding 1(a) resulted from determinations of the Internal Revenue Service that for both the years 1966 and 1967 (1) plaintiff’s gain from the sale of certain real property was ordinary income rather than long-term capital gain, as reported, and (2) that plaintiff was a self-employed real estate dealer liable for self-employment taxes. The parties have stipulated that the Service also disallowed the retirement credit claimed by plaintiff for such years.

(e) Plaintiff’s timely claims for refund of the taxes assessed against him for the years 1966 and 1967, as described in finding 1(a), were denied by the Service March 8, 1972. This action followed.

Plaintiffs History

3. (a) About 1921 or 1922, plaintiff was employed in the rental department of a real estate firm, and in 1926 he became a salesman for that firm. Sometime between 1935 and 1940 he received from the State of Alabama a real estate broker’s license. About 1941 he went into business for himself, under the name “Huey Realty Company”. His brokerage business, which dealt largely with locating purchasers for, or sellers of, small business and industrial sites, was fairly successful, and he made a good living most of the time.

(b) After going into the real estate business for himself, plaintiff also developed an insurance business. In 1954, plaintiff sold his insurance business to A. R. Dearborn & Company, Realtors. Real estate brokerage is an individual, personal, service performed by the broker for his client, and the sale to Dear-born did not include plaintiff’s brokerage business. To facilitate the keeping in force of insurance policies he had sold prior to 1954, however, plaintiff did agree to work for Dearborn for a time.

(c) In 1956 plaintiff left Dearborn and rented desk space in the office of Insurers Exchange. Plaintiff had no employees and no real connection with Insurers Exchange except that the Exchange wrote up any policies of insurance plaintiff sold. For the years 1956-58, 75 to 85 percent of plaintiff’s time was devoted to his real estate business.

(d) The Birmingham alphabetical telephone directory for 1966 carried listings for “V. Hain Huey, rl est”, and “Huey Realty Co”, with the address and telephone number of Insurers Exchange, and Exchange employees took calls for plaintiff. The Birmingham classified telephone directory for 1966 also listed “Huey Realty Co” with that address and telephone number under the heading “Real Estate”. Plaintiff paid $3.20 per month for the three listings and deducted this (and other expenses) as business expenses on his federal income tax returns for 1966 and 1967.

(e) From 1956 to sometime in 1966 or 1967, there was in the front window of the building in which the Exchange was located a painted sign bearing the words “Huey Realty Company”.

(f) About 1967, Insurers Exchange moved its offices from North 22nd Street, Birmingham, to the sixth floor of an office building on 4th Avenue North, also in Birmingham. Plaintiff continued to rent space from the Exchange at its new offices and the Birmingham alphabetical and classified telephone directories for 1967 listed plaintiff (and Huey Realty Company) at the Exchange’s telephone number and new address, as had the 1966 directories. Plaintiff was uncertain whether or not “Huey Realty Company” was listed on the office building directory in the lobby. In 1968 the telephone directory listings for “Huey Realty Co” were discontinued at plaintiff’s request.

(g) In 1966 and 1967, plaintiff was partially retired. The bulk of his time was devoted to research and writing for publication, and to selling and servicing insurance policies. He spent about 30 to 40 hours each year on the Acreage Tract to be described (finding 6). Despite any medical problems he may have had (see finding 3(h)) plaintiff led an active life. In 1966 he drove his car 7,211 miles, of which 5,049 were business-related, and in 1967 he drove his car 6,880 miles, of which 4,128 were business-related.

(h) In 1959 plaintiff underwent surgery for a growth (subsequently determined to be malignant) at the back of his right lower jaw, and in 1967 a growth (also malignant) was removed from the upper palate of his mouth.

4. (a) As a matter of financial caution, plaintiff retained his real estate business license from the City of Birmingham until 1968, and his state brokerage license (see finding 3(a)) until 1969, but he made no brokerage sales after 1965, and he did not actively solicit any real estate brokerage business after 1961.

(b) Plaintiff deducted the annual cost of his broker’s and city business licenses ($98.50 per year) as a business expense on his federal income tax returns for 1966 and 1967.

(c) On leaving Dearborn in 1956 (finding 3(c)), plaintiff dropped his real estate business licenses in the Cities of Homewood and Mountain Brook, Alabama. Plaintiff has never had a business license to sell real estate in Shelby County, Alabama (see findings 6(a), 8(c), infra).

5. (a) From 1956 to trial in 1973, plaintiff made a total of 43 brokerage sales, S3 of which were made prior to 1963, and all of which were made prior to 1966.

(b) From 1949 to trial in 1973, plaintiff sold a total of 41 tracts of real property owned by him. During that period he intentionally limited such sales to no more than five per year because of his understanding of Section 1237 of the Internal Revenue Code. On two occasions he intentionally delayed the sale of a tract he owned until the following year. Usually, plaintiff made less than four such sales per year, and in only 2 years were five such sales made. In 1953, 1956, 1958, 1961, and the years 1969-73, plaintiff made no such sales. For each of the years 1949, 1950, 1955, 1957, 1962 and 1963, he made only one such sale. Except for one sale in 1964 and one in 1968, all of such sales in and after 1957, were of portions of the “Acreage Tract” (see finding 6(a), infra).

(c) Plaintiff always represented himself in sales of land he owned, but from time to time a real estate agent did solicit buyers for plaintiff’s land and act on their behalf in sales transactions. At no time did plaintiff retain an independent real estate broker and assign him the task of completely liquidating all of plaintiff’s real property.

Acquisition of, and improvements to, the Acreage Tract

6. (a) On April 15, 1949, plaintiff purchased, from a seller who would not sell less than all of the property, 720 acres of land in Shelby County, Alabama, running along and straddling New Hope Mountain. The acreage was situated in a rural and largely unpopulated area, and was then about 18 miles, by road, south of Birmingham. Not all of the acreage was contiguous. Portions of the tract, comprising a total of 360 acres, did not adjoin the remaining acreage. Plaintiff’s purpose in aequir-ing the land was to use the central portion of it, sometime in the future, as the site of a summer or health resort. Between April 15, 1949 and October 1957, through nine further purchases, plaintiff acquired at least 266 additional acres of land in Shelby County, and in July 1962 he purchased an additional 5-acre tract in Shelby County. Plaintiff thus put together a tract of at least 866 acres of contiguous mountaintop properties, and an additional 125 acres near, but not adjoining, the large tract. The combined acreage was known as, and is herein referred to as the Acreage Tract.

(b) The several properties comprising the Acreage Tract were, when purchased, essentially raw mountain land. In two places, at the outer extremes of the Tract, fairly good roads crossed it, trails existed through the woods on the Tract, and “country”, “logging”, or “old” roads traversed portions of the property. As a whole, however, the Tract was largely inaccessible to vehicular traffic.

(c) Valleys at the foot of New Hope Mountain near the Acreage Tract, have an elevation of about 500 feet. On the Tract, the mountain varies in elevation from 600 to 740 feet. The north side of the mountain is very steep. Plaintiff was unable to get permission from property owners on the south side of the mountain to cross their land for access to his.

7. (a) The Acreage Tract was never subdivided or platted by plaintiff in any manner whatever, nor did he have utilities extended to the property. Plaintiff did not build sidewalks or curbs, or make any other subdivision-type improvements on the Tract.

(b) In 1955 plaintiff spent $6,394.84 for clearing and planting pine .trees on the Acreage Tract. In 1958 a water well was drilled, at a cost of $2,500, on the Tract. Neither the pine trees nor the water well were located on portions of the Tract sold during the years here in issue.

(c) Commencing in 1957, and continuing each year through 1964, plaintiff gradually cut and built a road (paved when completed) through the entire Acreage Tract. In essence, the road divided the Tract along its longest axis. The total cost of the road (including survey costs) was approximately $65,000. At least at some points on the Tract, plaintiff’s land was as much as 1500 feet from the road.

(d) The only improvement to portions of' the Acreage Tract sold during the years here in issue was the road through the Tract. On the average, the cost of the road allocable to each of the nine portions sold in 1966 and 1967 (including, in accordance with the stipulation of the parties, sale closing costs), considerably exceeded the “proportionate purchase price” of each such portion of the Tract. More specifically, with respect to the parcels sold in 1966 and 1967, the value of improvements, as compared to a total basis (including closing costs) of 100 percent, results in the following percentages:

1966 Sales: Proportionate Purchase Price (Percent) Closing Costs Improvements (Percent) (Percent)
Tract 1-4.8 4.1 91.1
Tract 2-4.6 5.2 90.2
Tract 3-8.4 5.3 86.3
Tract 4-5.1 3.2 91.7
Tract 5-8.2 6.6 85.2
1967 Sales:
Tract 1-7.0 51.0 42.0
Tract 2-4.4 3.2 92.4
Tract 3-3.3 20.7 76.0
Tract 4-2.6 24.8 72.6

Sales of portions of the Acreage Tract

8. (a) As noted (finding 6(a)), plaintiff’s initial purchase in connection with the Acreage Tract of 720 acres had resulted from the seller’s refusal to sell less than all of the seller’s acreage in Shelby County. That purchase, and subsequent ones to form a chain of contiguous mountaintop properties, had resulted in plaintiff’s ownership in the Acreage Tract of more land than his contemplated health resort (which plaintiff planned to locate on the central portion of the Tract) would require if built.

(b) Land at both ends of the Acreage Tract was fairly accessible to vehicular traffic, and the effectuation of plaintiff’s health resort plans would not have depended on his retention of such land. Accordingly, about the same time that plaintiff began to cut and build a road across the Acreage Tract in 1957, he also began to sell off parcels of land from either end of the Tract, in order to obtain cash with which to cut and build the road. Obtaining cash for future construction of his health resort was also a consideration. Cf. finding 11(a), infra.

(c) The Acreage Tract was ultimately sold in a total of 27 parcels over a period of some 11 years (1957-68). The central portion of the Tract was retained by plaintiff until 1968. The smallest parcel sold was 4.5 acres, sold in 1966; the largest was 200 acres, sold in 1959. In 12 of the sales, an independent real estate agent handled the transaction for the purchaser and received a full real estate commission. As noted, plaintiff always represented himself in the sales of such land.

9. (a) After deciding to sell parts of the Acreage Tract, plaintiff’s effort to sell his land, in the largest parcels possible, was made by (1) signs, and (2) newspaper advertising.

(b) From three to five arrow-shaped signs measuring 8 inches by 20 inches were posted along plaintiff’s road through the Tract. Thé signs stated that “Acreage Tracts” were “For Sale”, and bore plaintiff’s name and business telephone number. Additionally, several rectangular-shaped signs measuring 10 inches by 14 inches were placed at various points along the road. The rectangular signs contained the same information as the arrow-shaped signs, albeit in slightly different order.

(c) Plaintiff placed newspaper advertisements in connection with his effort to sell the Acreage Tract from February 1958 to June 21, 1964. During this period plaintiff ran a total of approximately 540 newspaper ads, all but one of which appeared in the Birmingham News. In 1958, 1959, and 1960, the number of ads averaged 53 per year. In 1961 and 1962, the number of ads averaged 142 per year. In 1963 plaintiff ran 72 ads, and between January 1, 1964 and June 21, 1964, he ran 15 ads. The lines per ad varied from a high of 30 to a low of six, but averaged about 7.3 lines per ad overall.

(d) During the taxable years here in issue, plaintiff did not advertise the portion of the Acreage Tract which he still owned in any newspaper, nor were any signs placed on that portion of the Tract. Three arrow-shaped signs, one located at a nearby street intersection and two located on a portion of the Tract plaintiff had previously sold, were, however, used. It is reasonable to conclude that the signs in use in 1966 and 1967 were substantially indentical in content to those described in finding 9(b).

(e) While plaintiff’s signs were on the property he received an average of 40 to 50 calls per year from prospective purchasers of parcels in the Acreage Tract. Only a small fraction of such calls required that plaintiff show the property, because some callers were represented by agents and others were not sufficiently interested to see it. Plaintiff made about 12 trips per year to the Acreage Tract in 1966 and 1967 to show it to prospective purchasers.

(f) Plaintiff discussed the possibility of selling the entire Acreage Tract (or a substantial portion of it) with Mr. Newman Waters and others, albeit precisely when is unclear.

10. (a) During the period January 31-March 26, 1966, plaintiff sold five tracts of land, of varying acreage, totaling about 74.36 acres, and all part of the Acreage Tract in Shelby County. All of the land sold in 1966 had been acquired by plaintiff on April 15, 1949.

(b) During the period February 2-15, 1967, plaintiff sold four tracts of land, of varying acreage, totaling approximately 34.75 acres, and all part of the Acreage Tract in Shelby County. Some 24.6 acres of the land sold in 1967 had been acquired by plaintiff on April 15, 1949, and 10.15 acres of such land had been acquired by him on May 18, 1949.

(c) On one occasion, perhaps in 1966 or 1967, plaintiff declined to give an exclusive listing on his Acreage Tract to a then inexperienced real estate agent in Shelby County who was eager to find listings of property for sale. On one occasion, plaintiff declined an offer from a real estate developer who had successfully promoted a valley subdivision development adjacent to portions of the Acreage Tract to develop some of plaintiff’s land. Had plaintiff enlisted the services of a real estate agent or a specialist in development of real property, he probably could have sold land more quickly than he did. Had plaintiff himself wished to do so, however, he probably could have sold land more quickly than he did.

11. (a) Plaintiff “saw that it wasn’t possible, or begin [sic] to see that it wasn’t possible * * * ” for him to build a health resort on the portion of the Acreage Tract he still owned about 1962. While plaintiff testified that he “actually didn’t give it up until 1968”, and that his early sales were for the purpose of facilitating his intent to build a health resort on the Tract, there is no evidence in the record of any real action by plaintiff, either before or after 1962, toward actual construction of such a resort. The parcels of land sold in 1966 and 1967 Were not on the site originally contemplated by plaintiff for use as the location of his health resort.

(b) While plaintiff suffered malignancies in 1959 and again in 1967, the proof fails to support any conclusion that his sales of land within the Acreage Tract represented a liquidation of an investment in consequence of his health problems.

12. Plaintiff capitalized surveying and closing costs in connection with, and the costs of road construction allocable to, parcels of land in the Acreage Tract which he sold in 1966 and 1967.

18. From and after his acquisition of the Acreage Tract in 1949, plaintiff attempted to keep the Tract entirely separate from his brokerage business.

14. The record establishes that plaintiff did not utilize the proceeds from the sale of portions of the Acreage Tract during the years here in issue for purchase of other real estate.

Plaintiffs Income

15. (a) During the years 1966 and 1967, plaintiff’s income, as reported on his federal income tax returns for those years, was derived from several sources. The sources, and the amounts and percentages, of such reported income 'for the said years are as follows:

1966 1967

Source Percent Amount of Total Percent Amount of Total

Income not connected with sales of land--------------$2,395.36 16.28 $3,341.67 18.88

Profit: current sales------6,066.65 41.23 2,854.36 16.13

Profit: installment sales----2,536.89 17.24 7,163.94 40.48

Interest: real estate mortgages — 3,714.39 25.26 4,337.53 24.51

Total __________________ $14,713.29 100.00 $17,697.50 100.00

(b) For 1967, plaintiff and his late wife reported a total of $1,720.80 “received as pensions or annuities under the Social Security Act, the Railroad Retirement Acts, and certain other exclusions from gross income.” While plaintiff received social security benefits in 1966, the amount so received is not ascertainable from the evidence.

16. The evidence does not establish the exact amount of plaintiff’s income for any years other than 1966 and 1967. It is reasonable to conclude from the record as a whole, however, that plaintiff had “earned income”, within the meaning of Section 37 of the Internal Revenue Code, in excess of $600 in each of the 10 calendar years prior to the taxable years here in issue.

CONCLUSION OF LAW

Upon the foregoing findings of fact and opinion, which are adopted by the court and made a part of the judgment herein, the court concludes as a matter of law that plaintiff is entitled to recover and judgment is entered to that effect. Absent a stipulation of the parties as to the amount of recovery due plaintiff, that amount is to be determined in further proceedings pursuant to Rule 131(c).

      . “§1221. Cajntal asset defined.
      “For purposes of this subtitle, the term ‘capital asset’ means property held by the taxpayer (whether or not connected witli his trade or business), but does not include— “(1) * * * property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business; * * *»

      . All statutory references herein are to the 1954 Code.

      . At least at some points, plaintiff’s land extended as much as 1500 feet from the road.

      . Because of his understanding of Section 1237 of the Code, plaintiff intentionally limited sales of parcels of land which he owned to not more than five per year.

      . In fairness, closing costs in connection with the sales approached or exceeded the “proportionate purchase price” of a parcel sold.

      . Plaintiff did discuss the possibility of selling the Acreage Tract (or a substantial portion of it) with more than one person, albeit precisely when is not clear.

      . It should be borne in mind, however, that plaintiff completed his road construction in 1964.

      . Defendant’s Brief, p. 20.

      . Section 37 (c) defines “retirement income” for those, like plaintiff, more than 65 years old.

      . Between 1961 and 1965, plaintiff made some brokerage sales as favors or accommodations for old customers. See also findings 3(d)-(f).

      . The road distance from Birmingham is now about 14.5 miles.

      . The parties have stipulated that the Acreage Tract included 991 acres. A joint exhibit reflects, however, that plaintiff’s purchases for that Tract totaled 1023 acres. For j>resent purposes, the discrepancy is of little or no significance.


source: Caselaw Access Project

author: LANE, Judge.

license: Public Domain

text:
    SEARS, ROEBUCK AND CO., Appellant, v. The UNITED STATES, Appellee.
    No. 74H23.
    United States Court of Customs and Patent Appeals.
    Nov. 14, 1974.
    Lane, Young & Fox, New York City, attys. of record, for appellant. Peter Jay Baskin and Ellsworth F. Qualey, Rode & Qualey, New York City, of counsel.
    Carla A. Hills, Asst. Atty. Gen., Andrew P. Vance, Chief, Customs Section, John J. Mahon, New York City, for United States.
    Before MARKEY, Chief Judge, and RICH, BALDWIN, LANE and MILLER, Judges.
   LANE, Judge.

This is an appeal from the judgment of the United States Customs Court reported at 71 Cust.Ct. 168, C.D. 4492, 371 F.Supp. 1073 (1973), denying appellant’s motion for summary judgment, granting appellee’s motion for summary judgment, and overruling appellant’s claim for classification of certain imported jewelry boxes within item 204.50, Tariff Schedules of the United States (TSUS), as jewelry boxes of wood. We affirm.

Involved in the controversy are jewelry boxes with metal musical movements which are wound by a key. The jewelry boxes were classified in item 654.20 TSUS. The relevant statutory provisions are:

Jewelry boxes, silverware chests, cigar and cigarette boxes, microscope cases, tool or utensil cases, and similar boxes, cases, and chests, all the foregoing of wood:
•X* 'X 'X* "Jf 'X*
Other:
* * * * * x
204.50 Lined with textile fabrics
X X *
x x x * x x
Articles not specially provided for of a type used for household, table or kitchen use; toilet and sanitary wares; all the foregoing and parts thereof, of metal:
X X X * X- X
Articles, wares, and parts, of base metal, not coated or plated with precious metal:
X- X X X X X
654.20 Other * * *

There is no dispute between the parties as to the fact that the metal musical movement is the component material of chief value. The determinative question is whether item 204.50 TSUS is limited by the definitions in TSUS General Headnote 9(f) to jewelry boxes in chief value of wood.

9. Definitions. — For the purposes of the schedules, unless the context otherwise requires—
X- X X X X X
(f) the terms “of”, “wholly of”, “almost wholly of”, “in part of” and “containing”, when used between the description of an article and a material (e. g., “furniture of wood”, “woven fabrics, wholly of cotton”, etc.), have the following meanings:
(i) “of” means that the article is wholly or in chief value of the named material;
[Emphasis added.]
(ii) “wholly of” means that the article is, except for negligible or insignificant quantities of some other material or materials, composed completely of the named materials ;
(iii) “almost wholly of” means . that the essential character of the article is imparted by the named material, notwithstanding the fact that significant quantities of some other material or materials may be present; and
(iv) “in part of” or “containing” mean that the article contains a significant quantity of the named material.
X X X X X X

Appellant contends these definitions do not apply and that it was not the intent of Congress in enacting the Tariff Schedules of the United States to change existing definitions or rates of duty on individual products.

The Customs Simplification Act of 1954, § 101(a), Pub.L. No. 768, 68 Stat. 1136, 19 U.S.C.A. § 1332 note, directed the Tariff Commission to compile a revision and consolidation of the customs laws to accomplish to the extent practical the following purposes:

(1) - Establish schedules of tariff classifications which will be logical in arrangement and terminology and adapted to the changes which have occurred since 1930 in the character and importance of articles produced in and imported into the United States and in the markets in which they are sold.
(2) Eliminate anomalies and illogical results in the classification of articles.
(3) Simplify the determination and application of tariff classifications.

Section 101(b) of the Customs Simplification Act of 1954 provided that the Tariff Commission should seek to accomplish these purposes without suggesting changes in any rate or rates of duty on individual products. However, it was also provided that where, in the judgment of the Tariff Commission, the purposes could not be accomplished without such changes, the Commission was authorized to suggest incidental changes in rates. The Commission was required to hold public hearings in connection with any proposed rate changes. In fact, however, the Tariff Commission held public hearings in connection with every proposed schedule of classification and the general headnotes and rules of interpretation. It is to be noted that the hearings held by the Tariff Commission were much broader than were actually required. Tariff Classification Study, Submitting Report (1960), page 2.

In discussing the general headnotes the Tariff Commission said:

An important feature of the proposed tariff schedules not found in the existing schedules is a system of interpretive headnotes which specify certain special rules of interpretation, define important terms, prescribe special procedures, and, in general, clarify the realtionships between the various schedules, parts, and subparts and the classification descriptions incorporated therein. These headnotes replace cumbersome provisos and other provisions which intrude on the existing classification provisions and make their interpretation more difficult. Also, they contain much substantive matter presently buried in administrative and judicial rulings and in unwritten customs practices. The effort has been made to place these head-notes in closest proximity to the classification descriptions to which they relate. Thus . . . the most general provisions of all are made general headnotes to the entire set of schedules. [Submitting Report, supra, at 9.]

Appellant in reviewing the legislative history, as found in the Tariff Classification Study, Schedule 2, supra, pp. 26-27, notes that products within item 204.50 must be “made of wood.” Appellant contends that this means that products within item 204.50 need not be in chief value of wood. We do not agree. The statement that'products are produced “of wood” does not support appellant’s position that “of” as defined in General Headnote 9(f) (i) does not apply to products within item 204.50. In construing a statute the duty of the court is to effect the intention of the legislature, which is to be searched for in the words the legislature has employed and in the legislative history. In view of the statutory language and the history of the statute it appears to us that Congress intended that products within item 204.50 be in chief value of wood. If Congress had made a choice of language which fairly brings a given situation within a statute, it is unimportant that the particular application may not have been contemplated by the legislators. Barr v. United States, 324 U.S. 83, 90, 65 S.Ct. 522, 89 L.Ed. 765 (1945).

In view of the statutory language and legislative history we hold that item 204.50 TSUS is limited by the definitions in TSUS General Headnote 9(f) to boxes in chief value of wood. Since the metal musical movement is the component material of chief value, the jewelry boxes in controversy cannot be classified under item 204.50.

Appellant further contends that jewelry boxes are eo nomine provided for within item 204.50 in a manner which permits the “predominant materials” concept as an exception to the requirement that an article “of” a named material be in chief value of that material. This contention was carefully considered and was rejected by the trial judge. We have considered appellant’s arguments and have concluded that we are in full agreement with the opinion of the trial judge in this regard.

The judgment of the Customs Court is affirmed.

Affirmed.

      . Tariff Commission, Tariff Classification Study (1960) (published as a report to the President and the Chairmen of the Committee on Ways and Means of the House and the Committee on Finance of the Senate).


author: RICH, Judge.

text:
    KNOWLES ELECTRONICS, and J. E. Bernard & Co., Inc., Appellants, v. The UNITED STATES, Appellee.
    Customs Appeal No. 74-22.
    United States Court of Customs and Patent Appeals
    Nov. 7, 1974.
    Barnes, Richardson & Colburn, New York City, attys. of record, for appellants. Joseph Schwartz, New York City, and John W. Hupp, Chicago, 111., of counsel.
    Carla A. Hills, Asst. Atty. Gen., Andrew P. Yance, Chief, Customs Section, New York City, David A. Ast, Trial Atty., Customs Section, Civil Div., Dept, of Justice, New York City, for United States.
    Before MARKEY, Chief Judge, and RICH, BALDWIN, LANE and MILLER Judges.
   RICH, Judge.

This appeal is from the judgment of the United States Customs Court, 71 Cust.Ct. 112, C.D. 4483, 371 F.Supp. 1393 (1973), overruling in part appellants’ consolidated protests against the classification of merchandise imported from England in 1966 and 1969. We affirm.

The merchandise consists of miniature electrical devices, invoiced as microphones, coils, and receivers, which the Government concedes were intended for assembly into hearing aids. Appellants claim the goods are classifiable under item 709.50, TSUS, as parts of hearing aids. The microphones and receivers were classified by Customs under item 684.70, TSUS, as “microphones”; the coils were classified under item 682.60, TSUS, as “inductors.”

The relevant statutory provisions are:

Schedule 6. — Metals and Metal Products

Part 5. Electrical Machinery and Equipment

•X * -X X -X -X -X X

Part 5 headnotes:

1. This part does not cover—
•X * X -X ' -X -X -X X
(vi) electrical instruments and apparatus * * * provided for in schedule 7.
Generators, motors, motor-generators, converters (rotary or static), transformers, rectifiers and rectifying apparatus, and inductors; all the foregoing which are electrical goods, and parts thereof:
# * * * * *X* X- *
682.60 Other..................................... 12% ad val.
•X X * * X X -X *
684.70 Microphones; loudspeakers; headphones; audio-frequency electric amplifiers; ■ electric sound amplifier sets comprised of the foregoing components; and parts of the foregoing articles (including microphone stands)............. 15% ad val.
•X X X X X X X X

Schedule 7. — Specified Products; Miscellaneous and Nonenumerated Products

X * X . X X X X -X X

Part 2 — Optical Goods; Scientific and Professional Instruments ; Watches, Clocks, and .Timing Devices; Photographic Goods; Motion Pictures; Recordings and Recording Media

* * -x- * -x- * * *

Subpart B. — Medical and Surgical Instruments and Apparatus; X-ray Apparatus

•X* -X* •X* ■5í> -X- -X-
709.50 Hearing aids and parts thereof.............. 12% ad val. [1966 rate] 9.5%' ad val. [1969 rate]

GENERAL HEADNOTES AND RULES OF INTERPRETATION

10. General Interpretative Rules. For the purposes of these schedules—
* -x- -X- * * * * *
(ij) a provision for “parts” of an article covers a product solely or chiefly used as a part of such article, but does not prevail over a specific provision for such part. [Emphasis ours.]

The parties and the court below have treated the microphones and coils separately. So shall we.

The Microphones

The Customs Court held that appellants failed to show that the imports invoiced as microphones were not “microphones” within the ambit of item 684.70. Appellants concede that the imported goods are commonly known in the trade as “microphones” and that item 684.70 is an eo nomine provision for microphones. The Customs Court found that the primary function of the goods at bar is conversion of acoustical energy into electrical energy, fitting the technical definition of “microphones.” These findings clearly conform to the weight of the evidence and we accept them. Montgomery Ward & Co. v. United States, 61 CCPA —, C.A.D. 1131, 499 F.2d 1283 (1974). Appellants contend, however, that item 684.70 is not a specific provision for the microphones at bar and thus General Interpretative Rule 10(ij) does not require classification of these microphones under the eo nomine provision.

In the absence of contrary legislative intent, an eo nomine provision for an article includes all forms of the article. Nootka Packing Co. v. United States, 22 CCPA 464, T.D. 47464 (1935). Appellants have not demonstrated that the term “microphones” in item 684.70 was not intended by Congress to include the merchandise at bar.

Appellants agree with the Customs Court that there is minimal direct legislative history to indicate what Congress intended the breadth of item 684.-70 to be and suggest that heading 85.14 to the Brussels Nomenclature fills the gap, alleging that the scheme adopted by Congress is similar thereto. Even were there some basis to conclude that Congress enacted the substance of the Tariff Schedules with this heading to the Brussels Nomenclature in mind, we do not consider heading 85.14 to be evidence of intent clear enough to require classification of these microphones outside the eo nomine provision.

Appellants argue in the alternative that “parts of hearing aids” is a designation more specific to the merchandise at bar than “microphones” and that accordingly the rule of relative specificity requires classification as parts of hearing aids. We disagree, Item 709.50 includes parts of electrical hearing aids unnamed in item 684.70, such as the case and the power supply; the legislative history of the item shows it is also intended to cover ear trumpets and .other won-electrical hearing aids. The term “microphone” on the other hand pertains only to electrical devices which convert acoustical energy into electrical energy. This is not a case like C. J. Tower & Sons v. United States, 44 CCPA 41, C.A.D. 634 (1957), where the tariff term was shown not to include everything falling within its literal scope. We there rejected the argument that all corn is “corn,” in light, inter alia, of prior administrative construction.

We conclude that the Customs Court properly read the term “microphones” in accordance with its meaning in the trade, see Brown Boveri Corp. v. United States, 53 CCPA 19, C.A.D. 870 (1966), and agree that appellants did not overcome the presumption of correctness attaching to the Government’s classification.’

The Coils

The Customs Court opinion observes :

In short, the evidence does preponderantly establish that the imported coils are manufactured to exacting design specifications; that the imported coils are not made to any specific level of inductance; that the inductance of the coil is secondary to the design considerations, and that the imported coils are dealt with in the trade as “coils” rather than as “inductors”. The sum of that evidence, however, is not sufficiently relevant to overcome the presumption that the coils, in the manner of their use and application in miniature magnetic transducers, are inductors within the common meaning of the term. To the contrary, as I suggested earlier, the evidence of how the coils function in transducers tends to support the classification of these imported coils as inductors.
Plaintiffs’ witnesses testified to the use and function of the imported coils in miniature magnetic transducers and flatly opined that the imported coils were not inductors. But their opinions, as mentioned earlier, were preponderantly based on facts too inconclusive to establish that the coils were not inductors in the common meaning of the tariff term. The lack of concern for the property of inductance in the coils, constantly adverted to in the testimony, in my opinion, is quite immaterial since the inductance native in the coils is not established to be insufficient for application in miniature magnetic transducers. Plaintiffs’ witnesses also testified that the function of the coils involved a process of induction which they said was not inductance. Such testimony, in my opinion, does no more than suggest a possible distinction which, for all that is said, may be a distinction without a difference.
One of plaintiffs’ witnesses testified that the induction process he described was different from inductance as defined by McGraw-Hill, for the reason there was no current creating the magnetic field. (R.90.) Weighing the testimony of plaintiffs’ witnesses on cross-examination, however, it is apparent that while they were inclined to equivocate, they were unable to deny that the imported coils have the property of inductance and that the manner in which the imported coils function in miniature magnetic transducers is a process of induction.
•X- # -X- * *x- ■»
Thus, notwithstanding plaintiffs’ witnesses were of the opinion that the coils were not inductors, their explanation of the function of the coils in miniature magnetic transducers strongly supports that the coils do function to assist in the conversion of energy by inductance. The classification of the coils as inductors is presumed to include each and every fact necessary to support the classification, E. I. du Pont de Nemours & Co. v. United States, 27 CCPA 146, 149, C.A.D. 75 (1939), and the explanation of the function of the coils appears to involve electromagnetic induction which, as discussed in the McGrawHill Encyclopedia of Science and Technology, Vol. 7, at 69, is:
The production of an electromotive force either by motion of a conductor through a magnetic field in such a manner as to cut across the magnetic flux or by a change in the magnetic flux that threads a conductor.
The customs classification is further supported by the opinion of defendant’s witness, who testified that the coils are inductors and explained in fuller detail than did plaintffs’ witnesses the manner in which the coils function as inductors in miniature magnetic transducers to produce an electromotive force. [Footnotes omitted.]

We find appellants’ explanation of the difference between “induction” and “inductance” in the context of the function of the coils in transducers no more convincing than did the the Customs Court, which had the parties’ witnesses before it and was in a better position than we are, on the appellate level, to assess their credibility. Based on our consideration of the conflicting testimony and exhibits, the oral arguments, and the briefs, we conclude that the findings of the Customs Court reproduced supra are amply supported by the evidence. We agree that evidence the coils were not designed with inductance in mind, when rebutted by evidence the coils actually function by the process of induction when used in transducers, does not prove that the coils are not “inductors” for tariff purposes. It was also well within the province of the Customs Court as the trier of fact to accept the testimony of the Government’s witness, an employee of a large manufacturer of these coils, that the coils function as inductors in transducers.

The judgment of the Customs Court is affirmed.

Affirmed.

      . The Government concedes also that the mi.crophones, but not the coils, are chiefly used as parts of hearing aids.

      . The Government admitted in its answer that receivers were properly classifiable under item 709.50 and judgment was entered sustaining the protests to that extent.

      . The Explanatory Note to this heading indicates that it covers “microphones, loudspeakers, and audio-frequency amplifiers of all hinds imported separately, regardless of the particular purposes for which such apparatus may he designed.” [Emphasis ours.] Heading 85.14 provides expressly that it does not cover “deaf aids.” We do not understand appellants to contend that the microphones are themselves “deaf aids.”

      . Tariff Classification Study, Submitting Report (1960), at 8:
      The “Brussels Nomenclature” and the “Standard Industrial Classification Manual” exerted the greatest influence on the arrangement of the proposed revised schedules. [Emphasis ours.]
      Schwarz v. United States, 57 CCPA 19, C.A.D. 971, 417 F.2d 1391 (1969) ; F. L. Smidth & Co. v. United States, 56 CCPA 77, C.A.D. 958, 409 F.2d 1369 (1969).

      . General Interpretative Rule 10(c) provides :
      * * * an imported article which is described in two or more provisions of the schedules is classifiable in the provision which most specifically describes it * * *

      . Tariff Glassification Study, Yol. 9 at 147.

      . Appellants consider the Government’s admission that the receivers (output transducers) are classifiable under item 709.50 strong evidence that the microphones, which are similar in structure to the receivers, should be classified likewise. There is argument, but no evidence of record, concerning the Government’s motives in conceding the protest as to the receivers. In the absence of explanatory evidence, the Customs Court saw no reason to give the Government’s admission any weight with respect to the classification of the microphones, nor do we.


author: LARAMORE, Senior Judge.

text:
    FATTORE COMPANY, INC., Plaintiff-Appellee, v. METROPOLITAN SEWERAGE COMMISSION OF the COUNTY OF MILWAUKEE, Defendant-Appellant.
    Nos. 73-1660 and 73-1661.
    United States Court of Appeals, Seventh Circuit.
    Argued May 24, 1974.
    Decided Oct. 25, 1974.

      Ewald L. Moerke, Jr., Stewart G. Ho-neek, Milwaukee, Wis., for Metropolitan Sewerage Comm.
    Elwin J. Zarwell, Richard W. Cutler, Peter W. Bunde and Ronald L. Wallen-fang, Milwaukee, Wis., for Fattore Co.
    Before PELL and STEVENS, Circuit Judges, and LARAMORE, Senior Judge.

       Senior Judge Don N. Laramore of the United States Court of Claims is sitting by designation.

   LARAMORE, Senior Judge.

This case is before the court- on appeal by each party; both the plaintiff and defendant requesting review of the District Court’s findings regarding damages due and the defendant also requesting review of a finding favoring the payment of prejudgment interest.

The main issues in this case are the amount of damages under a changed condition and equitable adjustment provision of a municipal government construction contract and prejudgment interest on such a claim. The District Court, after carefully considering the evidence in its totality, found plaintiff entitled to a “jury verdict” equitable adjustment of $1,500,000. The finding was based on this court’s reasoning in the first appeal that a broad exculpatory clause should not operate to render another clause meaningless, freeing defendant from its liability. The judgment included superintendence, overhead expense, home office expense, profit and any and all other items aside from interest. Prejudgment interest was awarded at the rate of five per cent per annum from and after June 18, 1964, the date all plaintiff’s accounting data necessary to compute the equitable adjustment under the changed conditions clause was complete and the retained percentage was paid.

Plaintiff presented its damages, in a very detailed accounting, as the difference between the actual costs incurred, adjusted downward for events unrelated to the changed condition, and its bid. Plaintiff argues its method for computing damages is the most reliable and is clearly supported by the evidence; therefore, the “jury” type verdict awarded is inappropriate, surpassed by plaintiff’s proof. In effect, plaintiff contends that it used reasonable costs, not total costs, because it only used items affected by the changed conditions. Accordingly, the increase in cost was directly related to the increase in time required to complete the contract due to the changed condition. Plaintiff also contends that it is correct and has always been appropriate for an equitable adjustment to include a profit because it would be “inequitable” for one to do two extra years work under the circumstances involved in this case, with a substantial increase in investment, for no additional return.

Defendant contends plaintiff, in effect, used the normally unacceptable total cost method of computing damages and that the total cost method is not acceptable because here there is an alternative in reasonable costs which the plaintiff failed to prove. Further, there is no right to recover the costs unreasonably incurred, when the changed geological conditions were discovered, by abandoning the shield technique for hand mining. Accordingly, failure to use the proper proof of damages, reasonable costs, requires dismissal of the case. It is further alleged that even if the equitable adjustment were applicable, it would be error to include profit because such an adjustment should only permit the contractor to break even on extra costs due to changed conditions. The defendant also asserts award of prejudgment interest is contrary to law because there is a genuine dispute regarding the amount due; it cannot be determined with the reasonable certainty necessary to bring it within the definition of liquidable or liquidated damages entitling it to an award of prejudgment interest.

The defendant’s argument aimed at barring correction of a wrong for failure of proof, is untenable based on the principle that a judicially recognized wrong is not a bar to recovery of damages that would be difficult to establish with precision. Given the plaintiff’s adequate proof, including the correlation between the increase in time and expense due to the changed condition, it would be unjust to only permit recovery for a recognized wz’ong by holding plaintiff to a near impossible standard of requiring him to list with mathematical precision the amount of every item of damage flowing from that wrong. See also, Dale Construction Co. v. United States, 161 Ct.Cl. 825 (1963); Luria Bros. & Co. v. United States, 369 F.2d 701, 712-713, 177 Ct.Cl. 676, 695-696 (1966); Adams v. United States, 358 F.2d 986, 993, 175 Ct.Cl. 288, 299 (1966); Specialty Assembling & Packing Co. v. United States, 355 F.2d 554, 572-573, 174 Ct.Cl. 153, 184 (1966).

It is well settled that the one liable for established and proven harm shall not escape monetary responsibility because the one harmed failed to prove his damages with mathematical precision. This view is in consonance with the Supreme Court case, Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, at 562-563, 51 S.Ct. 248 at 250, 75 L.Ed. 544 (1931), which stated:

* * The l’ule which precludes the recovery of uncertain damages applies to such as are not the certain result of the wrong, not to those damages which are definitely attributable to the wrong and only uncertain in respect of their amount. * * * it will be enough if the evidence shows the extent of the damages as a matter of just and reasonable inference, although the result be only approximate.

In addition, recognition of defendant’s argument concerning damages would have the effect of negating both the first decision in this case, Fattore Co. v. Metropolitan Sewerage Commission of Milwaukee, supra, which found plaintiff was entitled to relief, and the policy considerations upon which the changed conditions and equitable adjustment provisions az'e based. The purposes for institution and utilization of these two provisions includes eliminating the contractor’s need for placing large contingencies and unknown costs into his pricing for the gz-eat risk he may be taking by encountering adverse subsurface conditions, Kaiser Industries Corporation v. United States, 340 F.2d 322, 169 Ct.Cl. 310 (1965), and providing administrative remedies involving negotiation for what otherwise would amount to a breach of contract requiring litigation for resolution. The bidder will neither enjoy windfalls nor suffer disaster. The municipal government benefits or pays according to the occurrence of adverse conditions. Foster Construction C. A. & Williams Bros. Co. v. United States, 435 F.2d 873, 887, 193 Ct.Cl. 587, 614 (1970). The contract solicitation procedure followed by defendant in this ease is the common one for reducing costs by making the borings and providing the information to the bidders. In such a situation “ * * * [i]t is settled that the [municipal] government is deemed to warrant the adequacy of its plans and specifications to the extent that compliance therewith will result in satisfactory performance.” Jefferson Construction Company v. United States, 392 F.2d 1006, 1011, 183 Ct.Cl. 720, 727 (1968).

Foster Construction C. A. & Williams Bros. Co., supra, 435 F.2d at 875, held:

ap y^t js required is that there be enough of an indication on the face of the contract documents for a bidder reasonably not to expect “subsurface or latent physical conditions at the site differing materially from those indicated in this contract.”

Equally settled is the “ * * axiom that the parties may, by virtue of their contract, convert into a dispute arising under the contract a claim which is the result of deficient plans or specifications and, in the absence of an agreement, would be a sufficient predicate for an action based on a breach of the [municipal] government’s implied warranty. Additional compensation which may be awarded for the damages incurred as a result of the deficient plans is limited by that conversion to the specific equitable adjustment provided for in the contract.” [Jefferson Construction Co. v. United States, supra, 392 F.2d at 1011.] Accordingly, the parties here are bound by their contract and are, therefore, protected and limited to the amount of damages permitted through the operation of the equitable adjustment in that contract.

Given the inherently imprecise nature of an equitable adjustment, the existence of sufficient evidence for a court to come to a fair and reasonable conclusion, and the quantum issue presented in this case, the District Court’s “jury verdict” must stand.

“Jury verdicts” have always been supported if there was clear proof that the contractor was injured and there was no more reliable method for computing damages provided that the evidence adduced was sufficient to enable a court or jury to make a fair and reasonable approximation. Specialty Assembling & Packing Co. v. United States, supra; see, River Construction Corp. v. United States, 159 Ct.Cl. 254, 271 (1962); Western Contracting Corp. v. United States, 144 Ct.Cl. 318, 320, 333-336 (1958); Brand Investment Co. v. United States, 58 F.Supp. 749, 751, 102 Ct.Cl. 40, 45 (1944), cert. denied, 324 U.S. 850, 65 S.Ct. 853, 89 L.Ed. 1410 (1945).

The record in this case is replete with evidence upon which a jury or court could fairly and reasonably determine the approximate amount of damages.

Plaintiff, by selecting and compiling all the costs of certain items that directly related to the changed condition, has rhetorically labeled its cost presentation as reasonable because this selective process does not include “all” of the costs. However, the “total cost” concept, even when applied to selective items and rhetorically labeled “reasonable” based on selectivity of items, cannot be accepted. See, F. H. McGraw & Co. v. United States, 130 F.Supp. 394, 131 Ct.Cl. 501 (1955) and Oliver-Finnie Co. v. United States, 279 F.2d 498, 150 Ct.Cl. 189 (1960) for complete rejection of the total cost concept.

Total costs cannot be generally accepted as the end for determining an equitable adjustment in a fixed-price contract because it would undermine the prospective costing approach thus negating the contract’s basic incentive character.

F. H. McGraw & Co. v. United States, supra, 130 F.Supp. at 400, held:

This method of proving damage is by no means satisfactory, because, among other things, it assumes plaintiff’s costs were reasonable and that plaintiff was not responsible for any increase in cost, and because it assumes plaintiff’s bid was accurately computed, which is not always the case by any means.

A pure total cost method, even when applied to selective items, would allow for correction of bidding errors and reward possible inefficiency. However, the defendant failed to offer an alternative for measuring damages in this case. In this absence of a more i-eliable method for computing damages, justice, in this case, could only be done by resorting to the jury type verdict. Western Construction Corp. v. United States, supra; Dale Construction Co. v. United States, 168 Ct.Cl. 692, 729 (1964); Houston Ready-Cut House Co. v. United States, 96 F.Supp. 629, 119 Ct.Cl. 120 (1951); Riess & Weinsier, Inc. v. United States, 116 F.Supp. 562, 126 Ct.Cl. 713 (1953).

The District Court addressed itself to the heart of the matter, the monetary loss suffered by the contractor as the direct result of the Commission’s wrong, and in so doing avoided the danger of accepting the total costs as the true loss following from the wrong. Although it did not fully articulate its computations, the District Court’s effort represents what we find to be its best judgment on the record before it, and this is all that the parties have a right to expect. Specialty Assembling & Packing Co. v. United States, supra.

The short answer on the issue of including profit in the equitable adjustment is that profit is allowed on contract adjustments involving changed conditions and equitable adjustments. When the dispute arises under an equitable adjustment clause and is confined to that clause, profit is payable on the specific cost items involved. United States v. Callahan Walker Construction Co., 317 U.S. 56, 61, 63 S.Ct. 113, 87 L.Ed. 49 (1942); Bruce Construction Corp. v. United States, 324 F.2d 516, 163 Ct.Cl. 97 (1963).

Also, in General Builders Supply Co. v. United States, 409 F.2d 246, 249, 187 Ct.Cl. 477, 485 (1969), it was held that an equitable adjustment can cover an allowance for a profit on work actually done but does not encompass unearned or anticipated profits.

The award of prejudgment interest in this case is just and proper. The major principles and guidelines for making such an award in Wisconsin were well stated in Laycock v. Parker, 103 Wis. 161, 79 N.W. 327, 335 (1899):

* * -x- ipjjg true principle, which is based on the sense of justice in the business community and on our statute, is that he who retains money which he ought to pay to another should be charged interest upon it. The difficulty is that it cannot well be said one ought to pay money, unless he can ascertain how much he ought to pay with reasonable exactness. Mere difference of opinion as to amount is, however, no more a reason to excuse him from interest than difference of opinion, whether he legally ought to pay at all, which has never been held an excuse. * *' * So, if there be a reasonably certain standard of measurement by the correct application of which one can ascertain the amount he owes, he should equally be held responsible for making such application correctly and liable for interest if he does not.

The ability to ascertain the amount payable with reasonable certainty is of primary importance if there is to be a recognized liquidable sum upon which prejudgment interest can be computed. Well kept cost figures existed in this case for all contract input, including those relating to the changed conditions, as of June 18, 1964. Defendant was free to inspect these records and the District Court found them generally acceptable. It also found that plaintiff did not pad the job with unreasonable costs and that the costs incurred correlated in a general way with the changed conditions. Under these circumstances, one can conclude that at a minimum, the defendant, had it chosen to inquire, could have determined at least the upper limit of its liability with reasonable certainty.

If defendant had acted upon the possibilities presented herein, a fixed and determinate amount could have been tendered and interest stopped. The amount of the claim was known or readily determinable. Valiga v. National Foods Co., 58 Wis.2d 232, 254, 206 N.W.2d 377, 389 (1973).

Defendant argues a “genuine dispute” regarding the amount due eliminates reasonable certainty, thus thwarting payment of prejudgment interest. Congress Bar & Restaurant, Inc. v. Transamerica Insurance Co., 42 Wis.2d 56, 165 N.W.2d 409. By accepting this argument, we are faced with the danger of encouraging defendant to understate liability on clearly due and payable claims in order to create bargaining leverage as to such claims. Dahl v. Housing Authority of City of Madison, 54 Wis.2d 22, 194 N.W.2d 618. If the requirement is a mere fact of disagreement concerning the amount due, this sham type operation of putting the amount into dispute would eliminate a right to interest on items clearly established, obviously due and clearly payable without resorting to litigation. Dahl v. Housing Authority of City of Madison, supra; Laycock v. Parker, supra.

As the exculpatory clauses have not and should not be interpreted-to restrict the application of the changed conditions clause, Fattore Co. v. Metropolitan Sewerage Commission of Milwaukee, supra, so the raising of a dispute where no “genuine” dispute exists should not deny one the interest due him. We find the District Court was correct in determining the sum liquidable or liquidated and subject to prejudgment interest. A li-quidable claim should draw interest from the date payment was due, and at the time all the accounting data was available to make the determination. In this case the final payment date was June 18, 1964, not the date first demand was made.

Accordingly, the judgment of the District Court is

Affirmed.

      . This case is the second part of a bifurcated trial that originated, based on diversity of citizenship, in United States District Court for the Eastern District of Wisconsin. The issues developed from a dispute regarding a “changed” condition and liability under the “changed” conditions and equitable adjustment provisions of a government contract involving the construction of a sewer tunnel for the defendant. On the merits, the District Court, theorizing that a broad exculpatory clause dominated, found the defendant free from liability under the changed conditions clause. On the subsequent appeal the issues were divided into the questions of liability and amount. This court reversed and remanded to the District Court for a determination of the amount of the equitable adjustment. See, Fattore Co. v. Metropolitan Sewerage Commission of Milwaukee, 454 F.2d 537 (7 Cir. 1971).
      The facts considered relevant to the issues are stated in the opinion. For a more detailed discussion of the facts germane to liability and remand on damages see Fattore Co., id.

      . "Moreover, in the presence of a ‘Changed Conditions’ clause such as Paragraph 20, broad exculpatory clauses do not preclude the contractor-bidder from relying upon the existence of subsurface conditions of the nature indicated by the contract specifications.” /</., at 542. flee also, Woodcrest Construction Co. v. United States, 408 F.2d 406, 410, 387 Ct.Cl. 249 (1969) and cases cited therein.

      . At the first trial defendant argued as an affirmative defense that final payment, precluding plaintiff’s claim for equitable adjustment, occurred on June 18, 3964. Plaintiff, while accepting the retained percentage unequivocally reserved the right to pursue its equitable adjustment due to the “changed condition.” The District Court found for the defendant and this court reversed, based on a determination of objective factors considered in the light of attending circumstances, that such was not the parties’ intentions. Fattore Co. v. Metropolitan Sewerage Commission of Milwaukee, supra.

      . $2,015,491.52.

      . .$4,972,170.00.

      . As an example, a manhole collapse occurred ; it delayed mining work approximately eight days.

      . $2,940,822.00.

      . The mining portion of the job was actually completed in 121 weeks, rather than the approximated 40 weeks anticipated mining time on which the bid was based. There was a direct correlation between the increase in expenses and the increase in time to finish the job.

      . Bennett v. United States, 371 F.2d 859, 178 Ct.Cl. 61 (1967); General Builders Supply Co. v. United States, 409 F.2d 246, 187 Ct.Cl. 477 (1969).

      . This contention was clearly rejected in this court’s first opinion regarding liability: “However, the actual underground conditions encountered in the performance of the work differed materially from those indicated by the defendant’s test borings. Solid rock and mixed face were encountered at the sewer grade throughout the first 496 feet of the tunnel. Therefore, the shield method of tunneling and constructing the concrete sewer had to be abandoned, and once abandoned, it is impossible to again begin using the shield when conditions permit. The plaintiff was unable to use the shield and as a result the tunneling costs were substantially increased.” Fattore Co. v. Metropolitan Sewerage Commission of Milwaukee, supra, 454 F.2d at 539-540.

      . The facts in both this case and Fattore Co. v. Metropolitan Sewerage Commission of Milwaukee, supra, make it clear defendant refused to resort to these government contract devices to alleviate the potential harm; i. e., the Commission engineers refusal to act on the changed conditions and a failure to attempt negotiation of the equitable adjustment.

      . Generally, in the type of construction contract situation presented in this case, the doctrine of implied warranty of specifications will render the government liable for a changed condition. See, United Contractors v. United States, 368 F.2d 585, 598, 177 Ct. Cl. 151, 165-166 (1966); Peter Kiewit Sons’ Co. v. United States, 74 F.Supp. 165, 167-168, 109 Ct.Cl. 517, 520-523 (1947); II. L. Yoh Co. v. United States, 288 F.2d 493, 153 Ct.Cl. 104 (1961).

      . See, Spector, An Analysis of the Standard “Changes” Clause, 25 F.Bar Jrnl. 177 (19651.

      . Id., note 13.

      . Note 11, .supra ; note 19, infra.

      . The District Court began with the plaintiff’s total cost and moved to a more reasonable figure by reducing it for what it considered, based on the evidence, to be questionable or dubious amounts, as in the case of the equipment costs which were found to be excessive by a large amount. This uso of “total costs” does not appear unreasonable. It recognizes the fact that total costs have probative value and should be offered as evidence on the issue of reasonable costs. Hee, Spector, An Analysis of the Standard “Changes” Clause, 25 F.Bar Jrnl. 177 (1965), supra, at note 13. On the other hand, it does not go to the other extreme of accepting the incurred cost approach for determining an equitable adjustment. Hee, McBride, Confusion in the Concept of Equitable Adjustments in Government Contracts, 22 F.Bar Jrnl. 235 (1962).

      . See note 8, supra.

      . Reasonably certain standards of measurement of less precision than the records existing in this case have been upheld for determining that a liquidable sum existed. See, Necedah Mfg. Corp. v. Juneau County, 206 Wis. 316, 237 N.W. 277, 283, 240 N.W. 405, where determination of the liquidable sum was left to the inquiry and judgment of real estate experts.

      . After liability was determined, defendant did very little to facilitate ascertaining quantum. It chose instead, by the arguments presented herein, to continue a strategy of avoiding liability.

      . The opposite danger [not present in this case] also exists of encouraging plaintiff to overstate claims as a bargaining tool for pretrial negotiations. Dahl v. Housing Authority of City of Madison, supra.

      . See note 3, supra.


author: DYER, Circuit Judge:

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Pedro Luis PRIETO and Jorge Diaz, Defendants-Appellants.
    No. 74-1303.
    United States Court of Appeals, Fifth Circuit.
    Dec. 16, 1974.

      Max P. Engel, Miami, Fla., for Lugo. Joseph C. Brannen, David B. Javits, Miami, Fla., for Prieto.
    Miguel A. Suarez, Miami, Fla., for Diaz.
    Robert W. Rust, U. S. Atty., David F. McIntosh, Asst. U. S. Atty., Miami, Fla., for plaintiff-appellee.
    Before BROWN, Chief Judge, and AINSWORTH and DYER, Circuit Judges.
   DYER, Circuit Judge:

Prieto and Diaz appeal from their jury convictions for conspiracy to distribute, distribution, and possession of cocaine with intent to distribute, in violation of 21 U.S.C.A. § 841(a)(1). Both appellants assert that they were convicted on insufficient evidence. Prieto also assigns as error the trial court’s denial of a motion to strike the testimony of a government witness which was in some respects inconsistent with his Jencks Act statement, and its failure to grant a mistrial because of certain allegedly prejudicial remarks in the prosecution’s opening argument. We affirm.

The operative facts giving rise to these convictions occurred within a span of approximately six hours on July 23, 1973. At 5:00 P.M., Special Agent Ale-man, working in an undercover capacity for the Drug Enforcement Administration, picked up Marrero and drove him to a jewelry store where appellant Diaz was employed, negotiating enroute the purchase of one-quarter kilogram of cocaine. After conferring with Diaz, Mar-rero announced that the deal was set for 7:30 that evening. At 7:00 P.M., Ale-man telephoned Marrero and was informed that only an eighth kilogram was available and that the price had gone up. After clearing these changes with his supervisor, Aleman again met Marrero and drove him to the jewelry store for further discussions with Diaz, during which he has given a new telephone number where he could reach Marrero. At 9:55 P.M., Aleman called this number and was instructed to go immediately to the Matador Lounge, where he was met by Marrero and Prie-to. About an hour later, following more discussions among the conspirators outside Aleman’s presence, the cocaine was delivered in a grassy area of the shopping center in which the lounge was located. Aleman, Marrero, and Prieto then proceeded to an alley some blocks away where the purchase price was paid.

The gist of Prieto’s sufficiency claim is that the evidence adduced at trial showed only that he was present during the cocaine transaction and was aware that a crime was taking place, but failed to establish his participation as a conspirator. While this Court has consistently refused to permit an inference of guilt from mere association with a “bad man,” see, e. g., United States v. Oliva, 5 Cir. 1974, 497 F.2d 130, 134, we are convinced that Prieto’s view of the evidence against him is unduly circumscribed. It was established that while at the Matador, Prieto questioned Ale-man about his plans for reselling the drug and at least twice assured him of the quality of the cocaine and that he would not be cheated. Further, Prieto accompanied Aleman and Marrero to transfer the money, helped Marrero count it, and drove him away from the scene. From this, we are fully satisfied that the jury could reasonably conclude that Prieto was not a mere observer but an active member of the conspiracy. See United States v. Squella-Avendano, 5 Cir. 1973, 478 F.2d 433, 436-438; United States v. Sidan-Azzam, 5 Cir. 1972, 457 F.2d 1309, 1310.

Diaz’s argument on the sufficiency of the evidence is equally ill-founded. Aleman twice drove Marrero to the jewelry store to discuss the transaction with Diaz; he was also observed with the other conspirators at the Matador Lounge. More damaging was his statement at the second meeting at the jewelry store, when with Aleman present, he responded to Marrero’s inquiry concerning delivery by stating, “Lugo will be bringing the stuff over, but I have to call him and make sure that everything is all right.” This statement was of course admissible against Diaz. United States v. Apollo, 5 Cir. 1973, 476 F.2d 156, 161; United States v. Rouse, 5 Cir. 1971, 452 F.2d 311, 313. Since this is more than the “slight evidence” necessary to connect Diaz with the conspiracy, United States v. Iacovetti, 5 Cir. 1972, 466 F.2d 1147, 1154, cert. denied 1973, 410 U.S. 908, 93 S.Ct. 963, 35 L.Ed.2d 270, the jury was also entitled to consider the hearsay declarations of other conspirators naming Diaz as the source of the drugs.

Finally, Diaz’s argument that his convictions on the substantive counts should be reversed because he was not shown to have had physical possession of the cocaine is patently frivolous. The short answer to this contention is that, as a conspirator, Diaz became responsible for substantive offenses committed in furtherance of the conspiracy whether he personally participated in them or not. United States v. Falco, 5 Cir. 1974, 496 F.2d 1359, 1362; Roberts v. United States, 5 Cir. 1969, 416 F.2d 1216, 1219.

Appellant Prieto further urges that the trial court erred in denying his motion to strike the testimony of Special Agent Mumfort because of inconsistency between his trial testimony and a composite Jeneks Act report furnished to the defense at the beginning of trial. Specifically, he objected to Mumfort’s statement that he had observed Lugo, a co-defendant, enter Prieto’s car at the Matador Lounge, a fact not contained in the report. In making this argument, Prieto misapprehends the underlying purpose of the Jeneks Act, which is solely to enable the defense to impeach a government witness by bringing any such variances to the attention of the jury during cross-examination. Palermo v. United States, 1959, 360 U.S. 343, 349, 79 S.Ct. 1217, 3 L.Ed.2d 1287; United States v. Harris, 5 Cir. 1972, 458 F.2d 670, 677, cert. denied, sub nom. Scott v. United States, 409 U.S. 888, 93 S.Ct. 195, 34 L.Ed.2d 145. This opportunity was fully available to, and exploited by, Prieto’s counsel.

As we stated in Castillo v. United States, 5 Cir. 1969, 409 F.2d 762, 765: “The right to discovery of statements is not a guarantee that the statement is complete in all respects.” In the absence of evidence that the omission was the product of deliberate prosecutorial suppression, see Castillo, supra, the trial court properly refused to strike the testimony. Mumfort’s credibility was a question for the jury. United States v. Strickland, 5 Cir. 1974, 493 F.2d 182, 186.

Prieto finally contends that certain allegedly prejudicial remarks in the prosecution’s opening argument, primarily two references to the fact that Prieto was armed with a gun during the sale, resulted in a denial of his Sixth Amendment right to confrontation, and that the district court consequently erred in denying his motion for a mistrial. The contested remarks were offered in support of an additional count of the indictment charging Prieto alone with carrying a gun during the commission of a felony, in violation of 18 U.S. C.A. § 924(c)(2); however, at the conclusion of opening argument, the court granted a defense motion to sever this count and to exclude evidence relating to the firearm from the trial. Thus, the statements were proper when made but, due to the court’s ruling, could not be substantiated by testimony at trial.

Good faith on the part of the prosecution is, of course, not the sole measure of the right to confrontation when evidence alluded to in argument does not materialize at trial. The primary focus under such circumstances must be on the impact of the statements in the context of the particular trial. United States v. Hyde, 5 Cir. 1971, 448 F.2d 815, 847, cert. denied, 1972, 404 U.S. 1058, 92 S.Ct. 736, 30 L.Ed.2d 745. In this case, the sufficiency of the evidence against Prieto was not close, the references to the gun were brief and were not touted as a crucial part of the prosecution’s case on the other counts, and defense objections to the statements were promptly sustained. See Frazier v. Cupp, 1969, 394 U.S. 731, 736, 89 S.Ct. 1420, 22 L.Ed.2d 684. Consequently, we hold that the trial court acted well within the bounds of its discretion in denying a mistrial. Koran v. United States, 5 Cir. 1969, 408 F.2d 1321, 1325, cert. denied, 1971, 402 U.S. 948, 91 S.Ct. 1603, 29 L.Ed.2d 118.

Affirmed.

      . Indictments were also returned against Lugo, who was convicted but dismissed his appeal, and Marrero, who was a fugitive at the time of trial.

      . Prieto also takes umbrage at two other misstatements in the prosecution’s opening argument. We find them insignificant and clearly harmless. See Gurleski v. United States, 5 Cir. 1968, 405 F.2d 253, 265-266, cert. denied, 1969, 395 U.S. 981, 89 S.Ct. 2140, 23 L.Ed.2d 769.

      . The defense initially moved for severance prior to the opening of trial, and the court reserved ruling on the motion at that time. However, the court presaged its ultimate ruling when it sustained a defense objection to the prosecution’s remarks concerning the gun.

      . Prieto’s alternative argument that the court should have given a further affirmative instruction that the jury should disregard statements referring to the gun is devoid of merit. When his objections to these remarks were sustained, no request was made for any further action from the court. Further, when it severed the firearm count, the court aua aponte broached the possibility of a further instruction, but rejected it on the ground that this might only tend to underline the references in the minds of the jury. Again, Prieto’s counsel failed to indicate any dissatisfaction with the court’s course of action.