source: Caselaw Access Project

license: Public Domain

text:
    MILLER et al. v. UNITED STATES.
    No. 45821.
    Court of Claims.
    Oct. 1, 1945.
    This case having been heard by the Court of Claims, the court, upon the evidence and the report of a commissioner, makes the following special findings of fact:
    1. Plaintiff, Anthony P. Miller, is a resident of Pleasantville, New Jersey, and plaintiff, Anthony P. Miller, Incorporated, is a New Jersey corporation with its principal place of business in Atlantic City. Both plaintiffs are now and were at all times hereinafter mentioned engaged in the general contracting business. Plaintiff, Anthony P. Miller, owns 60 percent of the stock of plaintiff, Anthony P. Miller, Incorporated, the balance being owned by his wife and children. He is and was president of that corporation and manages and controls it.
    2. October 10, 1942, the National Housing Agency, Federal Public Housing Authority, hereinafter sometimes referred to as the “Authority,” issued an invitation for bids for the construction of a housing project near Hatboro, Pennsylvania, which read as follows:
    “Sealed Bids, in triplicate, subject to the conditions contained herein, and the Contract Documents, will be received until 2 P.M. o’clock on October 22, 1942, and then publicly opened at the Federal Public Housing Authority, 270 Broadway, New York City, for furnishing all labor and materials and performing all work for the construction of War Housing Project PA36258, Upper Moreland Township near Hatboro, Montgomery County, Pennsylvania.
    “Attention is called to the fact that the minimum wage rates as set forth in the Contract Documents must be paid on this project. Forms of contract documents, including specifications and drawings are on file at the office of Silverman and Levy, Architects Building, 17th and Sansom Streets, Philadelphia, Pennsylvania, and may be obtained by the deposit of $50.00 for each set to assure its return in good condition within 10 days after opening of bids. The right is reserved, as the interest of the Government may require, to reject any and all bids and to waive any informality in bids received.
    “Receipt of this notice of bids by any contractor shall not be construed as an admission by the Government of such contractor’s qualifications to perform the work contemplated by the bids.
    “Bid security in the form of a money order, certified check, or cashier’s check made payable to the Treasurer of the United States, or a satisfactory bid bond on U. S. Standard Form No. 24, in an amount not less than two percent (2%) of the bid will be required.
    “Attention is also called to the fact that the cost of performance and Payment Bonds shall not be included in the lump sum bid.”
    3. Included in the instructions to bidders as a part of the contract documents were the following provisions:
    “8. Bid and Performance Guarantees
    í|í # j}s >}e *
    “(4) Bids in excess of $2,000 shall be accompanied by a bid guarantee of not less than two per cent (2%) of the amount of the bid, which may be: Bid Bond on U. S. Standard Form No. 24, Money Order, Certified Check or Cashier’s Check, made payable to the Treasurer of the United States. Such money order or check shall be submitted with the understanding that it shall guarantee that the bidder will not withdraw his bid within thirty days after the date of the opening of the bids; that if his bid is accepted he will enter into a formal contract with the Government, and give bonds as may be required; and that in the event of the withdrawal of said bid within said period, or the failure to enter into said contract and give said bonds within the time specified, the bidder shall be liable to the Government for the difference between the amount specified in his bid and the amount for which the Government may otherwise procure the required work, if the latter amount be in excess of the former, and the Government shall have the right to retain the proceeds of said money order or check to apply on account of such excess cost. Money orders and checks of unsuccessful bidders will be returned when award is made; that of the successful bidder will be returned when formal contract and bonds are approved.
    ******
    “9. Time for Receiving Bids
    “(1) Bids received prior to the time of opening will be securely kept, unopened. The officer whose duty it is to open them will decide when the specified time has arrived, and no bid received thereafter will be considered; except that when a bid arrives by mail after the time fixed for opening, but before the award is made, and it is shown to the satisfaction of the officer authorized to make the award that the non-arrival on time was due solely to delay in the mails for which the bidder was not responsible, such bid will be received and considered. No responsibility will attach to an officer for the premature opening of a bid not properly addressed and identified. Unless specifically authorized, telegraphic bids will not be considered, but modifications by telegraph of 'bids already submitted will be considered if received prior to the hour set for opening: Provided, That such modifications are confirmed in writing over the signature of the bidder within 48 hours thereafter; Provided further, That the Government may, in its discretion, waive failure of the bidder to so confirm such modifications.
    “(2) Bidders are cautioned that, while telegraphic modifications of bids may be received as provided above, such modification, if not explicit and if in any sense subject-to misinterpretation, shall make the bid so modified or amended subject to rejection.
    “(3) Bidders are cautioned to allow ample time for transmittal of bids by mail or otherwise. Bidders should secure correct information relative to the probable time of arrival and distribution of mail at the place where bids are to be opened; and, so far as practicable, make due allowance for possible delays in receipt of bids.
    “10. Withdrawal of Bids
    “Bids may be withdrawn on written or telegraphic request dispatched by the bidder in time for delivery in the normal course of business prior to the time fixed for opening; Provided, That telegraphic withdrawal is confirmed in writing over the signature of the bidder within 48 hours thereafter. Negligence on the part of the bidder in preparing the bid confers no rights for the withdrawal of the bid after it has been opened.
    “11. Bidders Present
    “At the time fixed for the opening of bids, their contents will be made public for the information of bidders and others properly interested who may be present either in person or by representative.
    “12. Award of Contract — Rejection of Bids
    “The contract will be awarded to the lowest responsible bidder complying with the conditions of the invitation for bids, provided his bid is reasonable and it is to the interest of the Government to accept it.”
    4. Pursuant to the instructions set out abovej plaintiffs, on October 21, 1942, mailed to the Federal Public Housing Authority, 270 Broadway, New York, N. Y., their bid in the sum of $693,000, plus $7,500 in addition for the cost of the bond should the Authority desire it. The Authority received that bid at or prior to 2 p.m. on October 22, 1942. The bid contained the following provision:
    “If written notice of the acceptance of this bid is mailed, telegraphed or delivered to the undersigned within thirty days after the date of .opening of the bids, or at any time thereafter before this bid is withdrawn, the undersigned agrees that he will execute and deliver a contract in the form attached to the Instruction to Bidders (U. S. Standard Form No. 23, Revised) as required by the Contract Documents, in accordance with the bids as accepted, and that he will, if required, by the Government, give performance and payment bonds as specified, with good and sufficient surety or sureties, all within five days (unless a longer period is allowed) after the proscribed forms are presented to him for signature.”
    With the bid, and referred to therein, was forwarded the bid bond on a standard Government form in the amount of $15,000, executed by plaintiffs, as principals, and by the Seaboard Surety Company of New York, as surety. The bond contained the following provision:
    “Now, Therefore, if the principal shall not withdraw said bid within the period specified therein after the opening of the same, or, if no period be specified, within sixty (60) days after said opening, and shall within the period specified therefor, or, if no period be specified, within ten (10) days after the prescribed forms are presented to him for signature, enter into a written contract with the Government, in accordance with the bid as accepted, and give bond with good and sufficient surety or sureties, as may be required, for the faithful performance and proper fulfillment of such contract, or in the event of the withdrawal of said bid within the period specified, or the failure to enter into such contract and give such bond within the time specified, if the principal shall pay the Government the difference between the amount specified in said bid and the amount for which the Government may procure the required work and/or supplies, if the latter amount be in excess of the former, then the above obligation shall be void and of no effect, otherwise to remain in full force and virtue.”
    5. In accordance with provisions contained in invitations for bids, plaintiffs had usually on prior similar occasions submitted telegraphic modifications of their bids. When the bid involved in this case was-submitted, plaintiffs had anticipated that such a modification might be made on account of the receipt of delayed proposals from subcontractors which might make necessary either an increase or decrease in their submitted bid. In this instance proposals were received from subcontractors after plaintiffs’ written bid was mailed and as a result plaintiffs at or about 12:43 p.m. on October 22, 1942, delivered to the Western Union Telegraph Office in Atlantic City, New Jersey, for transmission to New York City, the following telegram:
    “RXMHA125 31/28 — Atlantic City NJ 22 12 32P
    “National Housing Agency—
    “DLR Before 1 45 PM Federal Public Housing
    “Authority Room 2811 270 Broadway NYK — Reduce the basic bid price of our bid on the construction of war housing projects PA36258, dated October 22nd 1942 by the amount of $50,000.00 (fifty thousand dollars)
    “Anthony P Miller and Anthony P Miller Inc.”
    A telegram sent from Atlantic City, New Jersey, at 12:43 p.m. would normally reach the addressee in New York City before 2 p.m. on the same day, and this telegram was sent by plaintiffs with the expectation that it would be delivered by that time. However, when it was delivered to the Western Union Office in Atlantic City that office, in accordance with the custom at that time, refused to guarantee the time of delivery.
    6. The telegram referred to in the preceding finding was received at the main office in New York City of the Western Union Telegraph Company at 12:49 p.m. on October 22, and was by that office forwarded to its branch office at 306 Broadway, where it was received at 1:07 p.m. Due to a shortage of messengers, the telegram was not sent from the branch office until 2 p.m., at which time it was sent, together with nine other telegrams, all of them for delivery by the same messenger boy within three blocks of the branch office. As will hereinafter appear, that telegram was not received by the Housing Authority until after the opening of the bids.
    7. C. O. Skinner of the Housing Authority was in charge of the opening of bids which took place in the conference room on the fourteenth floor of the offices of the Authority at 270 Broadway, New York City. The bids, five in all, were opened promptly at 2 p.m. on October 22, 1942, and the amounts read aloud by Mr. Skinner. The time spent in the opening and reading of the bids was between five and ten minutes. Plaintiffs’ bid in the amount of $693,000, with an additional $7,-500 if bond was required, was the lowest bid and the next bid was some $4,000 higher. No -telegrams modifying the bids of any bidders were read. In accordance with the practice of the Authority, although the bids were read aloud, no formal statement was made as to which was the low bid and no award was made at that time.
    After the bids had been read, a representative of the Authority inquired whether a representative of plaintiffs was present and Howard Hager, a bonding agent, came forward. Hager had attended the opening of bids at the request of plaintiffs but had no authority from plaintiffs to take any action in regard to plaintiffs’ bid other than to report what occurred at the opening, and he advised one of the Authority’s representatives of his lack of authority to speak for plaintiffs. At that time one of the Authority’s representatives discussed with Hager the preparation of a breakdown of plaintiffs’ bid on the basis of the amount of $693,000 which had been read at the opening and later plaintiffs submitted a breakdown on that basis.
    8. About 2:15 p.m. Hager telephoned from a public telephone in the building where the bids had been opened, to plaintiff Anthony P. Miller in Atlantic City advising him that plaintiffs’ bid in the amount of $693,000 as read at the opening was the low bid. Miller asked Hager whether the telegram referred to in finding 5 had been read at the opening and, upon being told that it had not, Miller instructed Hager to make inquiry as to whether the telegram had been received. Up to that time Hager had no knowledge that plaintiffs had sent such a telegram. Upon returning to the room where the bids had been opened and being told by Skinner that no telegram had been received so far as he knew, Hager then telephoned that information to Miller-in Atlantic City, and Miller instructed Ha-ger to tell the representatives of the Authority to disregard the telegram when they did receive it as it had been sent in error.
    9. When Hager returned from his second conversation with Miller, an air raid drill, which began at 2:30 and continued until 2:40, was in progress. During the drill the employees of the Authority assembled in the corridors of the building on the floors outside their respective offices. Immediately after the drill ended, Hager met Skinner in the corridor on the fourteenth floor and advised Skinner that plaintiffs had instructed him to advise the Authority of their withdrawal of their telegram modifying their bid and that the Authority was to ignore it. That conversation was concluded by about 2:45 p.m. At that time the telegram modifying the bid and referred to in finding 5 had not been received by the Authority.
    10. After Skinner had returned to his office on the twenty-eighth floor, his secretary informed him shortly after three o’clock that she had received a telephone call from another office to the effect that the telegram in question had been received. The telegram was sent immediately by special messenger to Skinner’s office and had stamped thereon the time of receipt as 3 p.m., or two or three minutes thereafter. That stamp was placed thereon upon its receipt in the receiving room, or within five minutes after such receipt, and prior to its delivery to Skinner.
    11. At 4:27 p.m. on October 22, 1942, plaintiffs sent the following telegram to the Housing Authority which was not received by the Authority until about 10 a.m. on October 23, 1942:
    “Request you disregard our previous telegram of today concerning war housing project Pa 36258 as same was not received prior to hour set for opening of bids as required by specifications.”
    Plaintiffs sent no written confirmation of the above telegram.
    12. November 6, 1942, the Authority wrote plaintiffs as follows:
    “Reference is made to your bid submitted on October 22, 1942, as amended by your telegram of the same date for the construction of War Housing Project Pa-36258, Upper Moreland Township, near Hatboro, Pa.
    “This is written Notice of Acceptance of your lump sum bid submitted on that date in the amount of $693,000, modified by your telegram of the same date for a reduction of $50,000, making a net amount of $643,000. To this amount will be added the actual cost of furnishing Performance and Payment Bonds, which cost shall not exceed $7,500, as indicated in your bid. The net amount of award, therefore, shall not exceed $650,-500.
    “The contract is now being prepared in this office and you will be notified as soon as possible when it is ready for signature. In the meantime, you are requested to obtain promptly four signed and four conformed copies of the necessary Performance and Payment Bonds.”
    13. At the time of the events herein-above referred to, Raymond J. Roth was regional counsel for the Housing Authority and Thomas A. Burns was principal attorney for that organization. One of the duties of Burns was to review legal work which passed through his office before consideration by Roth. Before writing the letter of November 6, 1942, referred to in finding 12, Roth and Burns had made an investigation as to the delivery of the two telegrams which had been sent iby plaintiff on October 22, 1942. In considering the effect to be given to these telegrams it was Burns’ opinion that the telegraph company was the agent of the Government and that accordingly the first telegram should be considered as having been received by the Housing Authority at the time it was delivered to the telegraph company in Atlantic City at 12:43 p.m. on October 22, 1942, and that there had been no effective revocation of that telegram. On that basis Burns approved a memorandum opinion on October 29, 1942, for Roth’s signature with respect to the bid to be used in the preparation of the contract. Roth signed that memorandum which contained the following paragraph:
    “I have caused an examination to be made of the material outlined above, and it is my opinion that the same is legally unobjectionable and that the bid submitted by Anthony P. Miller and Anthony P. Miller, Inc., is acceptable. This latter bid, you will no doubt recall, was originally submitted in the amount of $693,000, and thereafter a telegram authorized a deduction of $50,000. Under the circumstances, the telegraphic modification operated effectively to reduce the original ‘Miller’ proposal so that it represented an offer to construct the proposed improvements for the sum of $643,000.”
    14. Upon receipt of the above opinion, John K. Leonard, the employee in the Housing Authority charged with the preparation of contracts, prepared a form of contract in accordance with that opinion which showed the contract price as $643,-000, and notified Miller by telephone to come to New York on November 12, 1942, for the purpose of signing the contract.
    15. Pursuant to that notification, Miller and certain employees of plaintiffs’ organization came to New York on the morning of November 12, 1942. Among those accompanying Miller was Thomas M. Mun-yan, plaintiffs’ attorney. Upon being shown the contract with the contract price appearing therein as $643,000, Miller made known his dissatisfaction with that contract price. Munyan conferred with Roth and Burns in regard to the contract price and in that conference Munyan urged that the telegram reducing the original bid had been revoked prior to its delivery to the Housing Authority and that therefore the only bid of plaintiffs which was before the Housing Authority was the original bid of $693,000. At the time of this conference, the Government was desirous of getting the work started which was covered by the contract. The only item in controversy at that conference was whether the contract price should be $643,000 or $693,000, the defendant’s representatives insisting upon the former and plaintiffs’ representatives upon the latter. In order to give plaintiffs an opportunity to establish, if it was legally possible, that the correct contract price, based upon the amount of plaintiffs’ effective bid, was $693,000, without being prejudiced by having signed the contract showing the contract price as $643,000, the suggestion was made that a paragraph be prepared and inserted in the contract which would save plaintiffs’ rights in that respect. In the discussion of the proposed reservation Roth contemplated the possibility of setting up a $50,000 contingent fund to cover the outcome of the controversy which involved that difference in the two amounts and therefore suggested that in order to avoid accounting difficulties the parties should include in the reservation a provision requiring that plaintiffs assert their right within ninety days. Where and how plaintiffs would assert their right was not discussed. Roth instructed Bums to collaborate with Munyan in the preparation of the reservation provision.
    16. Munyan and Burns thereupon left Roth’s office and thereafter collaborated in the preparation of the reservation provision which is set out in finding 17 and which was incorporated in the contract. After they completed it, Munyan explained his understanding of it to Miller in the presence of Bums as being in substance that in the event it could be shown that the first telegram sent by Miller was revoked prior to its receipt by the Housing Authority the contract price would be $693,000, but that in the event there was no effective revocation the contract price would be $643,000. Miller then indicated that the provision as drafted was satisfactory to him. Burns was satisfied that the provision was not harmful to the defendant’s interests but made no comment as to its effect. Munyan and Burns took the reservation provision to Roth who approved it. Shortly thereafter it was delivered to Leonard who had it incorporated in the contract. Miller thereupon on the same day' signed the contract which contained the reservation provision.
    17. In the contract, plaintiffs for a consideration of $643,000, plus the cost ■ of bonds, not to exceed $7,500, agreed to furnish the materials and perform the work of constructing the Housing Project involved in their bid in accordance with the Government’s specifications and drawings. The language of the reservation was as follows :
    “Notwithstanding anything to the contrary herein, it is mutually understood and agreed by and between the parties hereto that neither the execution of this Contract nor any action taken thereunder, nor the recital of the contract sum herein, shall constitute or be construed as a waiver by the contractors of any right which the said contractors might have to establish, by such lawfitl process as the said contractors shall deem expedient, the true contract price to be the sum of $693,000, being the amount of the written bid submitted plus the cost of the Performance and Payment Bonds as hereinbefore stated. The government grants the aforesaid right of action to the contractors and shall not interpose the defense of waiver or estoppel.
    “It is further mutually understood and agreed by and between the parties hereto, however, that any action taken by the contractors for the purpose aforesaid must be instituted within ninety days from the date hereof.”
    The work under the contract was duly commenced by plaintiffs and is now completed. This suit was filed February 6, 1943.
    John W. Gaskins, of Washington, D. C. (King & King, of Washington, D. C., Thomas H. Munyan, of Atlantic City, N. J., and Harry D. Ruddiman, of Washington, D. C., on the brief), for plaintiff.
    Philip Mechen, of Iowa City, Iowa, New-ell A. Clapp, of Chicago, Ill., and Francis M. Shea, Asst. Atty. Gen. (Horace G. Marshall, of Chicago, Ill., on the brief), for defendant.
    Before WHALEY, Chief Justice, and LITTLETON, WHITAKER, JONES, and MADDEN, Judges.
   MADDEN, Judge.

On October 10, 1942, the National Housing Agency, Federal Public Housing Authority, hereinafter for brevity referred to as the Authority, invited bids for the construction of a war housing project at Hat-boro, Pennsylvania. The invitation stated that bids would be opened at the Authority’s office at 270 Broadway at 2 P.M. on October 22. On October 21, the plaintiffs mailed a letter from Atlantic City, New Jersey, which was their principal place of business, to the Authority, containing a bid of $693,000. This letter arrived in time for the opening of bids.

The instructions to bidders, which were sent by the Authority to prospective bidders, and pertinent parts of which are quoted in finding 3, contained in section 9 (1) a provision that telegraphic modifications of bids already submitted in writing would be considered if received by the Authority prior to the hour set for the opening of bids. This provision, which was usual in invitations, was often made use of by bidders, including the plaintiffs, when bidding for Government contracts. It enabled them to set their final bids on the basis of late offers received by them from prospective subcontractors, and of late information concerning prices. The plaintiffs, having received late offers from subcontractors justifying a reduction of their mailed bid, sent a telegram at 12:43 P.M. on October 22 reducing their bid by $50,000. The plaintiffs very strongly desired that this telegram should reach the Authority before 2 P.M., and sought to have the telegraph company guarantee that it would do so. The company would not so guarantee, and in fact the telegram was not delivered to the Authority until about 3 P.M.

At 2 P.M. the bids, of which there were five, were opened by a Mr. Skinner in the conference room of the Authority’s offices in New York, and the amounts of the bids were read aloud to those present. The plaintiffs’ bid of $693,000 was lowest, the next one being $4,000 higher. A Mr. Ha-ger of Philadelphia, who was in the insurance and surety bond business, had been requested by the plaintiffs to attend the opening to observe and report what happened. After the bids had been read, Hager went downstairs to a public telephone and called the plaintiffs and advised them that their bid of $693,000 was the low bid. He was asked by the plaintiffs to find out whether their telegram modifying their bid had been received. He returned to the room where the bids had been opened, and was told by Skinner that he had not heard of any such telegram. Hager then returned to the public telephone and reported to the plaintiffs what he had learned. He was told to go back and tell Skinner to disregard the telegram when it arrived, as it had been sent “in error.”

While Hager was downstairs on this errand an air raid alert had been called at 2:30, and the employees in the various offices of the building were required to assemble in the halls outside their offices. The elevators were not running and Hager climbed the stairs to the fourteenth floor where, when the alert was over at 2:40, and when Hager had recovered his breath, he told Skinner, in substance, that the plaintiffs wished their telegram to be disregarded when received, as it had been sent by mistake. This conversation was concluded by about 2:45 P.M. Skinner then returned to his office on the twenty-eighth floor of the building. Shortly after 3 o’clock his secretary told him that she had received a telephone call advising her that a telegram relating to the plaintiffs’ bid had come to the Authority. Skinner asked that the telegram be sent to him immediately by special messenger, which was done. This was the telegram reducing the plaintiffs’ bid by $50,000. The receiving room stamp on it showed the time of receipt as two or three minutes after 3 P.M., and it had been delivered to the Authority, at the receiving room, not more than ten minutes before that time.

The plaintiffs, at 4:27 P.M. on the same day, sent another telegram, which is quoted in finding 11, requesting the authority to disregard the telegram modifying the written bid. This telegram was not received by the Authority until the next day.

On November 6 the Authority wrote the plaintiffs that it had accepted their bid of $693,000, as reduced by their telegram, and that a contract setting the price at $643,000 was being prepared for the plaintiffs’ signature. On November 12 the plaintiffs and the Authority signed such a contract, but pursuant to discussion, inserted in it the following statement:

“Notwithstanding anything to the contrary herein, it is mutually understood and agreed by and .between the parties hereto that neither the execution of this Contract nor any action taken thereunder, nor the recital of the contract sum herein, shall constitute or be construed as a waiver by the contractors of any right which the said contractors might have to establish, by such lawful process as the said contractors shall deem expedient, the true contract price to be the sum of $693,000 being the amount of the written bid submitted plus the cost of the Performance and Payment Bonds as hereinbefore stated. The government grants the aforesaid right of action to the contractors and shall not interpose the defense of waiver or estoppel.
“It is further mutually understood and agreed by and between the parties hereto however that any action taken by the contractors for the purpose aforesaid must be instituted within ninety days from the date hereof.”

The construction called for by the contract has been completed. The plaintiffs are suing for the $50,000 involved in the telegram, the history of which is recited above. The plaintiffs assert that, since their telegram reducing their bid had not been received by the Authority by two o’clock, the hour set for opening bids, and since section 9 (1) of the instructions to bidders, quoted in finding 3 said “Unless specifically authorized, telegraphic bids will not be considered, but modifications by telegraph of bids already submitted will be considered if received prior to the hour set for opening:”, the Authority had no right to consider their telegraphic modification, just as they would have had no right to have it considered, if their original bid had not been the low bid. The Government urges that the quoted provision was inserted for the benefit of the Government; that it could, at its option, either insist upon it or waive it; and that since the plaintiffs’ bid in writing was already low, and hence no other bidder could complain, there was no reason why the Government could not accept a still lower, though belated, offer from the already low bidder. A comparable problem was involved in Leitman v. United States, Ct.Cl. 60 F.Supp. 218, and we said that, where the late telegram came from a bidder who was already low, the reason for the placing of the time limit on modifications did not apply. But in view of the facts which we have found, and the applicable law as we see it, it is not necessary to further consider that question in this case.

We think that the plaintiffs did not make an effective offer to reduce their written bid. They dispatched a telegram intended to make such an offer, but when they learned that the telegram had been delayed and that their written bid of $693,000 was low, they formed the intention to withdraw the offer contained in the telegram, and communicated that intention to the intended offeree, the Authority, before their offer reached it. An offer is not made until it is communicated to the offeree, and until it is made it may be withdrawn, or obliterated, by a communication expressing an intent to do so. If the willingness to contract on the basis of words previously dispatched no longer exists, and if the absence of that willingness has been brought home to the person to whom the words were dispatched, the words, when they later arrive, are empty of the substance necessary to the meeting of the minds of parties in a contract. We have found that the plaintiffs’ oral message, withdrawing the offer to reduce their bid, was delivered through Hager to Skinner before the telegram was delivered to the Authority. There was, therefore, no offer to reduce the bid, made either on time or late, which the Authority could accept, either under the particular procedures by which Government contracts are made, or under ordinary contract law.

The Government contends that the provisions of the paragraph next to the last, quoted in finding 2, and of section 8 (4) of the instructions to bidders, quoted in finding 3, requiring the submission by a bidder with his bid of a bid bond, made the plaintiffs’ written bid and its telegraphic modification irrevocable for thirty days, like an offer made for a consideration, or an offer under seal at common law. The plaintiffs contend that their bid was only an offer, and was therefore revocable by them without any penalty except the forfeiture of their bid bond, at any time before acceptance, which here did not take place until some fifteen days after the opening of the bids and the events relating to the telegram.

Again we do not find it necessary to resolve these contentions. The facts here do not involve the revocation of an offer, but the making or, as we have found, the non-making of a contemplated offer to do the work for $50,000 less than the sum specified in an offer formerly made. Since the contemplated offer was not made, the question of the revocability of such an offer, if it had been made, will not be considered. It is true that when the plaintiffs sent the telegram reducing their written bid, they intended to modify, or pro tanto revoke, their previously made offer. But before that offer was communicated, they had changed their minds and again were willing to stand by their original offer. The Authority never having been advised of any desire on the part of the plaintiffs to revoke their $693,000 offer, indeed, having been affirmatively advised that the plaintiffs adhered to that offer, had the right to accept it within the thirty-day period named in the instructions to bidders, and thereby make a binding contract for that amount. The problems that arise here are, therefore, not problems of the revocability of offers.

As we have said, the parties signed a contract on November 12, 1942, naming the contract price as $643,000, but containing the proviso above quoted. The Government urges that this contract settles the question of price; that whether or not the plaintiff had offered to perform the contract for $643,000, it made a contract to do so, which made all the preceding events irrelevant. It says, and the plaintiffs concede, that the plaintiffs had no right, as a result of their being the low bidder at $693,000 to a contract; that the Government had not promised to award the contract to anyone. The Government further says that, the Authority having learned from the telegram that the plaintiffs were willing to do the work for $50,000 less than $693,000, whether they had effectively offered to do so or not, it would not have awarded the contract to the plaintiffs or any other bidder at $693,000, but would have re-advertised for new bids, if the plaintiffs had not been willing to make the contract for $643,000. This is speculation. To be sure, the Authority had learned something from the plaintiffs’ belated telegram, but it knew that tho plaintiffs had learned something from the public opening of the bids of other bidders. What the Government would have done would have, probably, depended on the trend of prices of labor and materials, and the necessity for early completion of the work, which was a war housing project. Re-advertising would have taken time, which might have been regarded as more valuable than the possibility, by no means a certainty, of saving some money.

We consider now what we regard as the essence of the case; the meaning of the special language inserted in the contract because of the problem arising out of the telegram relating to the $50,000. The plaintiffs contend that the contract is, in reality, a promise by the Government to pay either $643,000 for the work, or, if it shall be determined by suit that the Government did not have a bid, which it had a right to accept, for $643,000, but only a bid for $693,-000, then to pay $693,000.' The Government contends that tho inserted language means only that the plaintiffs may bring a suit and that the Government will not interpose the defenses of waiver or estoppel; but that it affects in no way the balance of the contract which is a plain agreement on the part of the plaintiffs to do the work for $643,000.

Of the plaintiffs’ asserted interpretation of the special language, one must say that the language is an inept way of saying what the plaintiffs say it means. As to the Government’s asserted interpretation, it makes the language quite completely futile and useless, as well as somewhat self-contradictory when read in connection with the rest .of the contract. Whether it is called waiver, estoppel, or something else, it comes very close to one of those concepts to be told that one paragraph of their contract, specially written and inserted, gives the plaintiffs no rights because the contract which they have signed contains other contradictory paragraphs. So we have a situation in which the meaning for which the plaintiffs contend is by no means the plain meaning of the words in question, and the meaning for which the Government contends is, in essence, no meaning at all. We must, therefore, either omit the language from our consideration altogether, or search for its meaning in the expressions of the parties at the time they formulated the cryptic language, and the background of events in which they used it.

If the Government agents who made the contract held the same beliefs as the (Government lawyers express in their briefs; that the telegram was, or probably was, delivered to the Authority before it was countermanded by the sender; that it therefore constituted a bid, if.the Authority chose to waive the fact of its arrival after the other bids had been opened; and that as a bid it was irrevocable for thirty days, according to the Government’s interpretation of the instructions to bidders; then it would seem that the agents of the Authority insisted on the $643,000 figure in the contract because they thought the plaintiffs had bid that amount. That fact would have a tendency to show that the agents of the Authority were willing, if they did not have a bid for $643,000, 'but one for $693,000, to pay $693,000 for the work; that they were somewhat uncertain as to which figure was the plaintiffs’ effective bid, and were willing to insert the special language in the contract to permit the'plaintiffs to establish, in litigation, which was the effective bid, and to express the thought that the contract price should be whatever amount should be so established. If that was what the parties meant by the special language in the contract, the plaintiffs are entitled to recover, as we have determined that the plaintiffs’ only bid was $693,000.

We remanded the case for a hearing of evidence as to the intent of the representatives of the parties when they composed the reservation which was written into the contract, as shown by what they said in their conversations about it. On the basis of that evidence, we have concluded that the parties were in disagreement as to what amount the plaintiffs had effectively bid; that neither party was willing to make an unqualified contract for the amount which the other contended to be the amount of the bid; that they reached an agreement to qualify the language of the contract so that ■it would permit the plaintiffs to establish the bid price, which would thus be the contract price, 'by litigation, in which the disputed facts relating to the telegram could be resolved, and the correct rules of law could be applied to them.

We therefore construe the ambiguous special language in the contract of November 12, 1942, as intended to mean that the price should be $643,000, or $693,000 if that sum should be shown by litigation to be the plaintiffs’ bid. We have concluded above that the plaintiffs’ bid was $693,000. That was, therefore, the price which the Authority promised to pay for the work. It follows that the plaintiffs may recover $50,000.

It is so ordered.

WHALEY, Chief Justice, and WHITAKER and LITTLETON, Judges, concur.

JONES, Judge, took no part in the decision of this case.


author: ATWELL, District Judge.

text:
    BOWLES, Price Administrator, v. LORCH MFG. CO.
    Civil Action No. 1692.
    District Court, N. D. Texas, Dallas Division.
    Oct 11, 1945.
    W. R. Herring, of Dallas, Tex., for plaintiff.
    Emil Corenbleth and George S. Wright, both of Dallas, Tex., for defendant.
   ATWELL, District Judge.

The plaintiff seeks injunctive relief and a large amount of damages against the defendant for alleged violations of price regulations for women’s outer wear; such regulations being Ho. 287, and said to be made under the authority of the Act of Congress giving that authority.

The complaint seemed to justify the granting of a motion filed by the defendant for a bill of particulars. That bill was filed by the plaintiff within the time fixed, and particularized as to the alleged violation and named the time from September 4, 1944, to January 15, 1945.

But a few days before the case was called for trial the plaintiff sought permission to amend his hill of particulars and extended the time in such amendment to June 26, 1945.

Both parties announced ready with an objection pending by the defendant to the consideration of the amended bill of particulars, because it was a physical impossibility to furnish the data demanded by the plaintiff in its amended bill of particulars and prepare for trial.

One of the immediate issues out of which the difference between the plaintiff and the defendant’s accounting methods arose, centers around an addition to the cost of garments by the defendant for loss and wastage. The testimony discloses that there were such items. For a great many years prior to the price-fixing legislation and regulation, this particular manufacturer had verified a system whereby a charge of 1%0 to the cost from 300 to 400, and 2^0 to the cost between 400 and 500 and 50 a yard for over 500, was to within one-tenth of one per cent correct.

Another issue was the right to add to the cost the contractor’s direct labor on the garment; and the matter of trimming the garment; and the method of computing the direct labor cost per week.

The law contemplates the use of actual cost. The regulations assist in that direction by suggesting items that may be appropriately aggregated into such cost and also what may riot be included. Aside from the regulations, the law, itself, speaks with reference to the lack of power, by the Administrator, to unsettle a well balanced and long-used method of bookkeeping and accounting.

Considering the testimony as developed in all of its intricate details, it appears that the plaintiff’s expert, in the matter of labor cost, decided to follow an average, upon a basis fixed by herself, rather than to get her data from the records of the defendant showing actual payments for that particular service which went ultimately into the cost of the garment.

Upon the question of loss and wastage, the same expert sought to figure from markers and from samples and other data without consultation of inventory records, or, incoming, or, outgoing invoices.

Deducting from the amount claimed by the government, which includes alleged violations from January 15, 1945, to June 26, 1945, and deducting what the court believes to be erroneous calculations in the items above mentioned, there is still a balance of $191.19 which appears to have been an overcharge. This amount I find to have been knowingly overcharged, and, therefore, authorizes a trebling of that amount, which aggregates $573.57.

The defendant’s testimony has been straight-forward, highly satisfactory in its logic and exposure in even the remotest details of its affairs and is sufficiently revealing to demand at the hands of the chancellor, a restraint from repeating any overcharges. The period from January 15, 1945 to June 26, 1945, should remain unruled by the case because of the facts heretofore detailed, and it is, therefore, dismissed by the court without prejudice.


author: DAWKINS, District Judge.

text:
    OGILVIE HARDWARE CO., Inc., v. UNITED STATES.
    Civil Action No. 1256.
    District Court, W. D. Louisiana, Shreveport Division.
    Oct. 3, 1945.
    H. C. Walker, Jr., and E. Goldstein, both of Shreveport, La., for plaintiff.
    M. E. Lafargue and J. A. Patin, both of Shreveport, La., for defendant.
   DAWKINS, District Judge.

The facts in this case are not disputed and are as follows:

The Ogilvie Hardware Company was incorporated in 1907 with a capital stock of 1000 shares of the par value of $100,000, issued and outstanding; and on August 12, 1918, $100,000 of seven per cent preferred stock was authorized, of which $23,000 was issued in 1919 and $15,300 in 1920. At the end of the fiscal year, May 31, 1924, the corporation had a surplus of $149,306.43, out of which it declared a stock dividend of 100 per cent and issued to its shareholders an additional 1000 shares of common stock of the par value of $100,000. At the same time it declared a cash dividend of $14,-681, thus leaving in its surplus the sum of $42,229.70. January 23, 1934, the charter was amended so as to establish two classes of preferred stock, A and B, and the preferred stock authorized and issued on August 12, 1918, became Class B.

On April 18, 1934, the corporation being “badly in need of a loan” borrowed from individuals the sum of $23,000, represented by note and, as a bonus or further consideration for the loan, there was issued to the lenders Class A preferred stock of the par value of $23,000, which carried with it full voting rights with respect to control and management. The loans of $23,000 were due July 15, 1935, but were paid in full “during the fiscal years ending in 1937 and 1938.” The preferred stock issued to the lenders was redeemed “partly in 1940 and 1941 and the remainder * * * in 1943 and 1944.”

The taxpayer’s books, at the end of the fiscal year of May 31, 1936, showed a deficit of $74,875.10, which included “net operating losses since the declaration of the stock dividend in 1924” and the $23,000 paid as a bonus in preferred stock Class A in 1934, charged at the time to surplus, but subsequently redeemed as above stated.

The books also showed operating deficits in the fiscal years of May 31, 1937, of $71,-347.18 and of May 31, 1938, of $60,923.58.

Stipulation IX recites:

“The dispute in this case relates entirely to the right of the taxpayer to take into consideration in determining the amount of its surplus or deficit, as the case might be, the $100,000 common stock dividend and the $23,000 stock bonus.”

The taxpayer returned and paid for the year 1937 an income tax in the amount of $3,362.93 and a profits tax of $142.72, or a total of $3,505.65, and for the year 1938 total taxes of $3,656.25. The Commissioner, on examination of the returns of 1937, assessed additional taxes of $6;249.21, of which $5,426.93 consisted of a surtax on undistributed profits, which was paid. A similar reassessment for 1938 resulted in the imposition of additional taxes in the sum of $502.14, which were also paid. Of the total taxes paid for 1938, “$1,488.86 consisted of surtaxes on undistributed profits.”

After the passage on October 21, 1942, of the Revenue Act for that year, particularly Section 501(c), 26 U.S.C.A. Int.Rev.Acts, the taxpayer filed claims for “refunds of surtaxes on undistributed profits in the amounts of $5,426.93 and $1,488.86 for the fiscal years ending May 31, 1937 and May 31, 1938, respectively * * * on the ground” that the taxpayer had a continuous deficit in accumulated earnings and profits on May 31, 1936, on May 31, 1937, and on May 31, 1938, which deficits on each of the three dates named, exhausted the total amount of its income for those fiscal years, and it was thus prohibited by the Louisiana law from paying dividends. The claims having been denied, this suit was instituted to recover the full amount of the alleged overpayments, totalling $6,915.79, with six per cent interest from date of each payment.

There are three points of law involved, which, in substance, are as follows:

1st. Whether the stock dividend of 1924 can be said to have diminished the accumulated earnings and profits of the taxpayer within the meaning of Section 26(c) (3) of the Revenue Act of 1936, as amended by Section 501(a) (2) of the Revenue Act of 1942;

2nd. Whether within the meaning of the statute as amended “the taxpayer was prohibited by state law from paying, dividends for the fiscal years ending May 31, 1937 and May 31, 1938”; and

3d. If recovery is allowed, from what dates interest should be figured.

Prior to 1936, corporations had been able to escape taxation upon much of their earnings and profits by declaring “stock dividends.” The Revenue Act of that year (C. 690, Secs. 13 and 14), 26 U.S.C.A. Int. Rev.Acts, pages 822, 823, imposed income and surtaxes upon the undistributed profits of the corporation, and Section 26, 26 U.S.C.A. Int.Rev.Acts, page 835, provided the credits which might be taken thereon, among which was [(c) (2)] “an amount equal to the portion of earnings and profits of the taxable year which is required (by a provision of a written contract executed * * * prior to May 1, 1936, which provision expressly deals with the disposition of earnings and profits of the taxable year) to be paid within the taxable year in discharge of a debt, or to be irrevocably set aside within the taxable year for the discharge of a debt; to the extent that such amount has been so paid or set aside.”

In order to make clear its purpose to tax undistributed income and profits, the Revenue Act of 1936, Ch. 690, Sec. 115(h), 26 U.S.C.A. Int.Rev.Acts, page 868, provided :

“Effect on earnings and profits of distributions of stock. The distribution (whether before January 1, 1936, or on or after such date) to a distributee by or on behalf of a corporation of its stock or securities or stock or securities in another corporation shall not be considered a distribution of earnings or profits of any corporation — ■
“(1) if no, gain to such distributee from the receipt of such stock or securities was recognized by law, or
“(2) if the distribution was not subject to tax in the hands of such distributee because it did not constitute income to him within the meaning of the Sixteenth Amendment to the Constitution or because exempt to him under Section 115(f) of the Revenue Act of 1934 or a corresponding provision of a prior Revenue Act. * * * "

The amendment of 1942 was expressly made retroactive and effective as of “the date of the enactment of the Revenue Act of 1936” and any “overpayment shall be refunded or credited in the same manner as in the case of an income tax erroneously collected under the Revenue Act of 1936 * * § 501(c). At the time of the stock dividend in the present case in 1924, the revenue law of that year had specifically provided [Sec. 201(f), C. 234, 43 Stat. 253, 26 U.S.C.A. Int.Rev.Acts, page 2] that stock dividends should not be taxable. It had long since been decided by the Supreme Court (March 8, 1920) that a stock dividend could not constitutionally be taxed in the hands of a stockholder. Eisner v. Mac-omber, 252 U.S. 189, 40 S.Ct. 189, 64 L.Ed. 521, 9 A.L.R. 1570, and, as stated earlier, the Revenue Act of 1936 was a deliberate attempt to reach undistributed profits of all kinds, including those represented by stock dividends, at least from the passage of that law. At the same time it was recognized that there would be instances where the income of the corporation would be pledged by written contracts to pay debts, such as bond issues, etc.; and, hence, that it should not be penalized for failure to distribute income so bound, to its stockholders.

In the case of Helvering Comm. v. Northwest Steel Mills, 311 U.S. 45, 61 S.Ct. 109, 85 L.Ed. 29, the Supreme Court decided that such credit could not be taken for that portion of the income or undivided profits which the corporation was prohibited from distributing under state law, but only so much as was covered by “provision of a written contract” as provided in subsections (c) (1) and (c) (2) of Sec. 26 of the Revenue Act of 1936, 26 U.S.C.A. Int.Rev.Acts, page 835, and that restrictions contained in the charter against the declaration of dividends were not such a contract within the meaning of the statute (as between the state and corporation.)

Thereafter, the Revenue Act of 1942 [Sec. 501, C. 619, 56 Stat. 798, Sec. 26(c)] amended the Revenue Act of 1936 to read as follows: 1

“(c) Restrictions on Payment of Dividends. — ■ * * *
“(3) Deficit corporations. In the case of a corporation having a deficit in accumulated earnings and profits as of the close of the preceding taxable year, the amount of such deficit, if the corporation is prohibited by a provision of a law or of an order of' a public regulatory body from paying dividends during the existence of a deficit in accumulated earnings and profits, and if such provision was in effect prior to May 1, 1936.”

After the Supreme Court had decided in the Northwest Steel Mills case, supra, that a corporation could not take credit for income on profits which it was prohibited from distributing under state law under the provisions of the Revenue Act of 1936, Congress, in the passage of the Revenue Act of 1942, drew a “deadline,” so to speak, which had the effect of allowing such credits under any such law or order of any public regulatory body “which was in effect prior to May 31, 1936.”

Apparently, it saw the possibility of the states or other regulatory bodies passing such laws when they did not exist on that date. There was no attempt to define or distinguish as between the reasons or grounds by which distribution might be prohibited by state law.

At the time of the stock dividend in this case in 1924, some twelve years before the passage of the Revenue Act of 1936, it was both lawful and justified under the financial condition of the corporation, to declare dividends in stock. There is nothing in the stipulation of facts to question the good faith of the parties or that this stock was treated and handled the same as that originally subscribed insofar as participation in management, profits, etc., or the power of the holders to sell and dispose of it. Its surplus was adjusted by charging it with the value of the additional stock so issued, and continuously thereafter, until the assessment of the deficiencies in 1937 and 1938, its books showed only such surpluses and undivided profits as accrued from year to year without consideration of the $100,000.00 which had represented the stock dividend back in 1924.

Act 250 of the Louisiana Legislature for the year 1928 declares:

“No corporation shall pay dividends in cash or property,
“(a) except from the surplus of the aggregate of its assets over the aggregate of its liabilities, plus the amount of its capital stock.” § 26, subd. I.

This is unquestionably a statutory prohibition against the distribution of the income of a corporation as dividends, without taking into consideration, as against its assets and surplus, the par value of its entire stock as a liability. To this extent, the plaintiff was a “deficit corporation” within the meaning of Section 26(a) (3) of the Revenue Act of 1936, as amended by Section 501 of the Revenue Act of 1942, 56 Stat. 954.

Numerous authorities are cited on points which appear not to be disputed. However, the two cases most nearly in point are Century Electric Co. v. Commissioner, 8 Cir., 144 F.2d 983, relied upon by the Government, and United States and Glenn, Collector, v. Byron Sash & Door Co., 6 Cir., 150 F.2d 44, 46, cited by plaintiff.

The Court in the first case rests its af-firmance of the tax court’s decision, disallowing a credit for the stock issued against surplus, upon the provisions of Section 115(h) of the Revenue Act of 1936, declaring that the distribution of non-taxable stock dividends was not to be considered a distribution of earnings, without discussing at least the effect of the amendment of 1942 permitting the taking of credit for earnings or profits which the corporations were prohibited from distributing under the state law.

In the latter, or Byron Sash & Door Co. case, however, in a factual situation very similar to that of the present case, the Court went at length into the reasons, intents and purposes of the amendment, and reached a conclusion directly opposite to that in the former. The Court, in this latter case, points out that the deficit was caused by losses over a period of seven years subsequent to the conversion of that part of the surplus into capital stock by the issuance of the stock dividend; whereas, in Century Electric Company, the deficit arose from the acts of the corporation in issuing the stock dividends in those identical years, 1936 and 1937, against earnings and profits. Attention was called to the fact that Section 115(h) of the Revenue Act of 1936 “deals with the taxable status of the stockholder who receives stock dividends, rather than with the liability of the corporation for taxes, and to use this provision of the statute in order to ignore the deficit * * * seems untenable. Moreover, it is based on a false premise— that the deficit was caused by the distribution of the stock dividend. Actually the deficit was caused by seven continuous years of operating losses.”

Here, too, the deficit arises, not from the stock dividend of some twelve years before, when the corporation was prosperous and fully justified in declaring it, but from operating losses occurring largely in the depths of the depression of the early 1930’s.

The discussion and citation of authorities in the Byron Sash & Door Company case are so exhaustive I do not feel that anything could be added by a repetition of those views here. My conclusion is that the plaintiff should recover.

Interest should be calculated from the various dates on which the instalment paid exceeded the taxes actually due. Blair v. Birkenstock, 271 U.S. 348, 46 S.Ct. 506, 70 L.Ed. 983.


text:
    CHRISTIANSEN v. CHRISTIANSEN et al.
    Civ. No. 1527.
    District Court, N. D. Texas, Dallas Division.
    Oct. 3, 1945.

      Randall & Gray, of Dallas, Tex., for plaintiff.
    W. H. Reid, of Dallas, Tex., for defendants.
   ATWELL, District Judge.

Alette Sullivan, a resident of Dallas County, Texas, the wife of J. A. Sullivan, died intestate, on June 26, 1933, leaving real estate which was her separate property. Under the statute of descent and distribution, one-half went to her surviving husband, and the other one-half vested in her brothers and sisters and the decedents of any such who were deceased. The survivor, Sullivan, was entitled to one-half; Chris Christiansen, a brother, one-sixth; Johanna, a sister, one-sixth; Alfred Chris-tiansen, surviving son of Gilbert Christian-sen, deceased, brother of Alette Sullivan,, one-sixth.

Gilbert Christiansen had married Carrie Christiansen, and they had two girls and one boy. They lived in Astoria, Oregon. Gilbert was a blacksmith. During that time, Chris Christiansen also lived in Astoria, and was intimately acquainted with his brother and family. Chris moved to. Dallas, Texas, leaving Gilbert and his family in Astoria.

In 1900 Gilbert came to Dallas, leaving-his wife and two children in Astoria. One of his daughters, Annie, had previously left. Astoria and came to Dallas where she died. Carrie Christiansen and her two children,, after being abandoned by the husband and father, Gilbert, moved from Astoria to Portland, Oregon, where they lived until their death.

Alfred died in 1940, leaving a widow,. Margaret. Alfred lived in Metzger, Oregon, a numer of years preceding his death.. Metzger was and is a suburb of Portland.

When Alette Sullivan died in 1933, one-half of her property was divided between Chris Christiansen and Johanna Carter, an uncle and aunt of Alfred. They obtained a judgment in Dallas County, declaring that Alfred was dead, because he had been absent over seven years Yvithout having been heard from. They, thereupon, divided Alfred’s property among themselves and said nothing about it.

The judgment declaring Alfred dead was obtained upon the sole testimony of Chris. Neither Chris nor his sister, Johanna, nor any person for them, ever went to Astoria or made any inquiry of any person living in Astoria for the purpose of obtaining information as to the whereabouts of Alfred. They did make inquiry in South Dakota, where Johanna lived, and where some of the kin of Carrie Christiansen, Alfred’s mother, lived.

Gilbert and Carrie had married in South Dakota in 1870 but neither Gilbert nor his wife, nor any of the children had lived in South Dakota since that time.

Alfred Christiansen, during the entire time he lived in Astoria, occupied a home where he and his wife and sister lived, and thereafter, his wife lived with him, and he was never absent from his home.

Revised Statutes of Texas, 1925, Art. 5541, provides that, “Any person absenting himself for seven years, successively, shall be presumed to be dead, unless proof be made that he was alive within that time ; but an estate recovered on such presumption, if in a subsequent action or suit the person presumed to be dead shall be proved to be living, shall be restored to him with the rents and profits of the estate with legal interest during such time as he shall be deprived thereof.’’

Margaret Christiansen brings this suit under that statute. The defendants are the surviving members of her husband’s family and their grantees.

The defense urged is the ten, five, four, three and two years’ statutes of limitation. In support of this defense, they show that the judgment which declared the Oregon legatee dead because of an alleged absence from Texas for more than seven years, was rendered more than ten years before this suit was brought.

The issue is the effect of the Texas statute, and the applicability of the Texas statutes of limitation.

Let us look at the authorities.

Beginning with the case of Pollock v. Wuntch, Tex.Civ.App., 116 S.W.2d 796, and the case of Scott v. McNeal, 154 U.S. 34, 14 S.Ct. 1108, 38 L.Ed. 896, and threading our way through Fisk v. Norvell, 9 Tex. 13, 58 Am.Dec. 128, Withers v. Patterson, 27 Tex. 491, 86 Am.Dec. 643, Steele’s Unknown Heirs v. Belding, Tex.Civ.App., 148 S.W. 592, we find that the Texas statute is valid.

Tenants in common are entitled to possession. The possession of one or more of the tenants is not notice to those out of possession. It is presumed that those in possession are holding for those out of possession. Those who testified in the Dallas County Court proceedings with reference to the absence of the other heir are charged with a legal fraud in their representations with reference to his absence. It is charged that they knew that he lived in Oregon; that they knew that he did not and had not lived in Dallas County; that they knew that he had not and did not live in South Dakota; that they made no search for him nor for any of his iegatees in Oregon.

As to cotenants’ possession, see Wiggins v. Holmes, Tex.Civ.App., 39 S.W.2d 162; Viduarri v. Bruni, Tex.Civ.App., 154 S.W.2d 498; Terry v. Prairie Oil & Gas Co., 5 Cir., 83 F.2d 843.

Fraud is established as a matter of law where it appears that the next of kin of the absentee obtained the judgment pronouncing him dead when the undisputed fact shows that such next of kin knew that the absentee last lived in a particular place but made no search or inquiry there. Buenrostro v. American National Ins. Co., Tex. Civ.App., 105 S.W.2d 393; Woodmen of the World Life Ins. Co. v. Cooper; Tex. Civ.App., 164 S.W.2d 729.

The Texas rule as exhibited by applicable decisions of the appellate courts, seems at present, to be that neither fraud alone, nor ignorance of its existence, will prevent the statute of limitations from running. The ignorance which effects such a result must be attended with such concealment of the fraud as will prevent its discovery by the exercise of reasonable diligence. Cowden v. Limpia Royalties, Tex.Civ.App., 109 S.W.2d 992.

The evidence presented does not show any affirmative act upon the part of the defendants which prevented the plaintiffs from discovering the alleged acts of fraud during the running of the period of limitation. Mere silence and inaction by .the defendants is insufficient to entitle the plaintiffs to recover. See also Sherman v. Sipper, 137 Tex. 85, 152 S.W.2d 319, 137 A.L.R. 263. In that case the Supreme Court stated the rule to be that fraud will prevent the running of the statute only until such time as the fraud is discovered, or, by the exercise of reasonable diligence, might have been discovered.

Records of title are open to the party and he must exercise reasonable diligence to discover. If by such diligence he could have discovered, he is held to have known it.

Interesting, also, are Houston Oil Co. v. Davis, Tex.Civ.App., 181 S.W. 851; Brown v. Phillips Petroleum Co., Tex.Civ. App., 144 S.W.2d 358; Mauritz v. Thatcher, Tex.Civ.App., 140 S.W.2d 303; Vaughan v. Kiesling, Tex.Civ.App., 150 S.W.2d 435, 436; Kouri v. Kelton, Tex.Civ.App., 178 S.W.2d 712.

With this line of reasoning before us, it would seem that even though one did not know of one’s inheritance, there must be an active and continuing fraud practiced by the party claiming the property, which prevented the heir from discovering the true facts and thus concealed them from the heir’s ability to discover the same by the exercise of reasonable diligence.

The conflict that appears upon casual examination of such Texas appellate cases under the dead man’s statute, and such cases as appear under that statute where there is no probate proceeding and where the defense is limitation, disappears when one considers the difference between the probating of the affairs of one’s estate who is presumed to be dead but is subsequently ascertained to be alive.

The limitation rule in Texas is founded upon the necessity of repose and settlement of titles. Those statutes are general and apply alike to heirs and all others, even though heirs may not, in reality, have actual notice of the ripening of their rights by the death of the one from whom they inherit.

This court, being bounden by the decisions of the state court with reference to these state statutes, must, and does, enter judgment for the defendant.


author: BOYNTON, District Judge.

text:
    NAVAR et al. v. UNITED STATES.
    Civ. No. 333.
    District Court, W. D. Texas, El Paso Division.
    Aug. 2, 1945.
    J. L. Rasberry (Burges, Scott, Rasberry & Hulse), of El Paso, Tex., for plaintiff..
    Wm. R. Smith, Jr., U. S. Atty., and Harold L. Sims, Asst. U. S. Atty., both of El Paso, Tex., Western District of Texas, Samuel O. Clark, Jr., Asst. Atty. Gen., and Andrew D. Sharpe and Robert R-Reynolds, Jr., Sp. Assts. to Atty. Gen., for defendant.
   BOYNTON, District Judge.

Action is brought by the plaintiffs herein for refund of taxes alleged erroneously claimed, illegally assessed and collected by the Commissioner of Internal Revenue as Social Security Taxes, under Section 1600, Title 26 U.S.C.A.Int.Rev.Code; for services rendered plaintiffs by three classifications of employees, to-wit: (1) Workers-in the processing plant. (2) Repairmen or mechanics. (3) Truck drivers. Plaintiffs alleging the work done by said employees was “agricultural labor” within Secs. 811(b) (1) and 907(c) (1) of the Social Security Act, Secs. 1426(b) (1) and 1607 (c) (1), Internal Revenue Code, 26 U.S. C.A., and Treasury Regulations 91, Art. 6 under Title VIII and 90, Art. 206(1) under Title IX of the Social Security Act. and as such exempt from taxation undei the provisions of the Social Security Act.

The services of all other workers on plaintiffs’ dairy farm, except the three classifications above listed, are conceded to be “agricultural laborers”.

Findings of Fact.

(Based on written stipulation of parties, filed in case as “Stipulation of Facts”).

1. Paragraph 29 of “Stipulation of Facts” being in part as follows: “Said taxes were paid by virture of the employment by plaintiffs of three classifications of employees, to-wit: (1) workers in the processing plant as herein described, (2) repairmen or mechanics as herein defined and (3) truck drivers also herein described. Should the wages of the workers of all three classifications be held to be exempt from taxation under the provisions of the Social Security Act, plaintiffs would be entitled to recover the entire sum mentioned. Should the wages of the workers of some of such classifications be held to be exempt and others not so exempt, plaintiffs would be entitled to recover only the taxes assessed on the wages so held to be exempt. * * * ”

2. Nature of plaintiffs’ business: Operation of a dairy farm as set forth in Paragraph 5 of Stipulation of Facts. “In other words, the plaintiffs’ chief business is the breeding of cattle and the raising of calves born as a result thereof into milk cows for use at plaintiffs’ dairy farm and the production and marketing of milk from milk cows so produced, raised and maintained on plaintiffs’ dairy farm. As an incident thereto and for the purpose of marketing such milk, plaintiffs pasteurize or process the same and maintain milk routes as hereinafter described.” (The last two clauses of Paragraph 5 of Stipulation of Facts.)

3. About 95% of such production is sold as milk while the remaining 5% is sold as cream. The milk and cream is sold at both wholesale and retail. Methods of preparing the production for sale and sale of same set forth in detail in Paragraph 7 of Stipulation of Facts.

4. Plaintiffs during taxable periods here involved .also processed and sold an orangeade for the accommodation of its customers. The processing and sale of such orangeade being detailed and set forth in Paragraphs 8, 9, and 10 of Stipulation of Facts.

5. None of the 17 acres on which the dairy is located is under cultivation, and the plaintiffs do not own any farm implements such as plows, tractors, harrows, etc. All the feed consumed by the dairy cattle is purchased from others with the exception that some of the calves and dry cows are pastured on a ranch which is owned by plaintiffs. The ranch is approximately 20 miles distant from the dairy farm. (Paragraphs 11 and 12 of Stipulation of Facts.)

6. The improvements or buildings located on the dairy farm consist of feed-barns, corrals, milking barns, sheds, milk processing or pasteurizing plant, storage room, repair shop, garages for trucks, and the residences of various of the plaintiffs, and quarters in which some of the delivery men reside and occasionally some of the other workers. Each of the copartners is and was during all pertinent dates engaged in performing some part of the work incident to the operation of the business, and with the exception of certain named plaintiffs, reside in the home of their father, Adalberto Navar. All the dairy business of plaintiffs is conducted on or sold from the dairy farm of plaintiffs. The dairy herd is kept and maintained on said dairy farm, and all machinery and equipment used in the operation of said dairy owned by plaintiff is housed on such dairy farm, all trucks, etc. (Paragraphs 13, 14, 15 and 16, Stipulation of Facts.)

7. Plaintiffs owned seven panelled trucks costing approximately $1,000 each. The trucks were painted white and had the words “Farmers Dairies” painted thereon in blue lettering. (Paragraph 17, Stipulation of Facts.)

8. From January 1, 1938, until May 1, 1939, some milk was purchased by plaintiffs from outside sources to supplement the volume of the dairy farm in order to fill the orders of the regular customers. The milk purchased for the entire year, however, was not in excess of Jis of the entire amount sold by the dairy in 1938. (Paragraph 18 of Stipulation of Facts.)

9. Plaintiffs employed about eight delivery men. Those who had retail routes were paid commissions on collections, while those who had wholesale routes were paid commissions on sales. Their commissions were paid to them weekly. Details as to such delivery men, duties performed by them, being set forth in Paragraph 19 of Stipulation of Facts. “They do not perform any other duties around the dairy farm.” “Obviously from the facts herein-before stated, each truck driver was engaged for more than 50% of the time worked in any pay period in the handling and delivering of milk and cream produced on plaintiffs’ dairy farm.” (Paragraph 19, Stipulation of Facts.)

10. Quoting from Paragraph 20 of Stipulation of Facts: “Plaintiffs employed two mechanics, but only one was actually a full time mechanic. The other one worked only part time. They were paid weekly and received more than the other workers on the dairy farm. They were mechanics on trucks and cars before they began working for plaintiffs. They worked on the trucks and equipment on the dairy farm and did not work for others when not working for plaintiffs. Their hours were from about 9:00 A. M. to 6:00 P. M. The trucks and machinery worked on were maintained and operated by plaintiffs as a means of and as an incident to the marketing of the milk produced from plaintiffs’ dairy cows on plaintiffs’ dairy farm.”

11. Six men were employed in the pasteurizing plant and worked in two shifts, three on each shift. (Paragraph 20, Stipulation of Facts.)

12. Obviously the processing plant workers spend more than 50% of the time worked in any pay period in handling of milk produced on plaintiffs’ farm and the mechanics spend more than 50% of the time worked in any pay period working on machinery and equipment necessary to the marketing of the milk produced on plaintiffs’ dairy farm. (Paragraph 22, Stipulation of Facts.)

13. In 1930 the City of El Paso adopted an ordinance requiring all milk and cream sold in the City of El Paso to be pasteurized and from and after such date all milk and cream sold by plaintiffs within the city limits of El Paso was pasteurized and the only raw milk and cream sold was sold outside the city limits of El Paso. (Paragraph 23, Stipulation of Facts.)

14. The methods employed by plaintiffs on all pertinent dates in operation of plaintiffs’ dairy farm and distribution of milk produced from plaintiffs’ cows, as above described, are the usual and customary methods employed by dairy farmers in the vicinity of plaintiffs’ dairy farm. Such methods vary from the methods of the large city dairies, among other things, in that the city dairies own no cows, maintain offices in the City of El Paso, Texas, buy all milk sold, do not raise cows but handle butter, buttermilk, ice cream and other milk products and have all machinery and facilities for processing and producing such by-products. (Paragraph,24, Stipulation of Facts.)

15. Quoting from Paragraph 25 of Stipulation of Facts: “All employees of plaintiffs’ dairy farm engaged in feeding and caring for the dairy cattle, in milking the same, and in caring for the dairy grounds, corrals and milk parlors and all workers on such dairy other than (1) workers in the processing plant, (2) repair men or mechanics and (3) truck drivers are engaged in ‘agricultural labor’ within the meaning of the Social Security Act aj that term is there defined and the labor performed by such employees has been classified as ‘agricultural labor’ by the Commissioner of Internal Revenue.”

16. All copies of letters passing between plaintiffs or their attorneys and the Collector of Internal Revenue or the Commissioner of Internal Revenue are attached to the Stipulation of Facts and form a part of the record in the case. (Paragraph 26, Stipulation of Facts.)

17. That “When the words ‘dairy’ or ‘dairy farm’ are used in this stipulation, such words are not intended to be conclusive on the rights of the parties hereto but are merely used to describe the business of plaintiffs.” (Paragraph 27, Stipulation of Facts.)

18. Quoting from Paragraph 28 of Stipulation of Facts it is agreed that “The taxes involved in this suit aggregating $1045.96 were paid by plaintiffs out of funds belonging to plaintiffs and no part of said taxes was paid from funds or salaries withheld from plaintiffs’ employees for the purpose of paying said taxes or for any other purpose.”

Conclusion.

The Court holds, from the Findings of Fact above recited, based upon written stipulation of parties, filed herein, submitted on trial of case, — no oral evidence beÍKj/ offered on the trial; as a matter of law, that the services rendered plaintiffs by all three classifications of employees here in controversy, to-wit: (1) workers in the processing plant, (2) repairmen or mechanics, and (3) truck drivers, to be “agricultural labor” within the meaning of the Social Security Act, and as such exempt from Social Security taxes. 26 U.S.C.A.Int.Rev. Code, § 1607(c) (1) and 1607(d); United States v. Turner Turpentine Co., 5 Cir., 111 F.2d 400; Jones v. Gaylord Guernsey Farms, 10 Cir., 128 F.2d 1008; Stuart v. Kleck, 9 Cir. 129 F.2d 400, 402; Lake Region Packing Ass’n v. United States, 5 Cir., 146 F.2d 157; State v. Christensen and Hanson Bros. Dairy et al. v. Riley, 18 Wash.2d 7, 137 P.2d 512, 146 A.L.R. 1302.

Therefore, judgment and decree will be entered herein in favor of plaintiffs, against defendant, for refund of taxes paid by plaintiffs, aggregating the sum of $1,-045.96, with interest thereon from dates of various payments made, as prayed in plaintiffs’ petition, and costs of court. Draft of judgment accordingly may be prepared by counsel for plaintiffs, and submitted to the Court for consideration and entry herein.


author: BYERS, District Judge.

text:
    UNITED STATES v. GORMAN.
    Cr. No. 40708.
    District Court, E. D. New York.
    Sept. 25, 1945.
    T. Vincent Quinn, U. S. Atty., of Brooklyn, N. Y. (James D. Saver, Asst. U. S. Atty., of Brooklyn, N. Y., and Howard G. Campbell, Sp. Asst, to Atty. Gen., of counsel), for plaintiff.
    Corbin & Bennett, of New York City, for defendant.
   BYERS, District Judge.

Motion for bill of particulars addressed to indictment containing one count, which alleges that the defendant, as to his income and victory tax for the calendar year 1943, attempted to evade a large portion thereof by filing a false and fraudulent return wherein he stated that his net income for said calendar year was $26,654 and that the tax due and owing thereon was $10,961.55, whereas in truth his net income for that year was the sum of $1,047,511, as follows:

“Gross Income: Salaries, etc., net.. Capital gain...... Other inr.ome ____ $ 5,050 1,250 1,044,007
'Deductions: Contributions ..:.. $1,500 Interest .......... 250 Taxes............ 626 Other deductions.. 420 2,796
“Net Income ..., $1,047,511”

That upon the said net income he owed the United States of America $946,706; that the true facts were concealed from the United States in violation of law.

The specifications demanded by the defendant are as follows:

“1. State in detail the items of income making up the item of $1,044,007. of ‘other income’ set forth in the indictment.
“2. As to each of such items of other income, state when it is claimed the same was received by or paid to the defendant.
“3. As to each of such items of other income, state by whom it is claimed the same was paid to the defendant.
“4. As to each of such items of other income, state where it is claimed that the same was paid to the defendant.
“5. As to each of such items of oth-c-r income, state the manner in which it is claimed payment was made, whether by cash, by check, by goods, services or other means.
“6. As to each of such items of other income, state what the transaction was by reason of which it is claimed that such other income was received by him, whether he bought or sold merchandise, or performed, or agreed to perform, work, labor and services.”

In connection therewith the defendant makes an affidavit to the effect that he does not know how the government arrives at the figures above quoted, and that he correctly reported his income, and that he is advised that in order to prepare for trial “we should be advised by the government of the transactions which it claims I had resulting in such other income, of the sources from which it is claimed I derived such other income, and of the time and place of payment of such alleged other income. This information I am unable to furnish to my attorneys, since I do not know what the government’s claim is as to such other income.”

The defendant’s chief reliance is upon the case of Singer v. United States, 58 F.2d 74, where a conviction in such a case was reversed by the Third Circuit Court of Appeals, and apparently one reason that contributed to that result was the denial of a motion in the District - Court for a bill of particulars of the items constituting “other income”.

Other cases approving of the granting of such motions are: Rose v. United States, 10 Cir., 128 F.2d 622, at page 624; United States v. Empire State Paper Corporation et al., D.C., 8 F.Supp. 220; United States v. Farrington, D.C., 11 F.Supp. 215; United States v. Yoffe, D.C., 52 F.Supp. 175, at page 177. Contra: United States v. Wexler, D.C., 6 F.Supp. 258.

The ruling on this subject was not commented upon on the appeal from conviction, reported in United States v. Wexler, 2 Cir., 79 F.2d 526.

In the decision of the motion in the Wex-ler case, reference was made to United States v. Miro, 2 Cir., 60 F.2d 58, at page 60, also an income tax case, in which the Court remarked: “In revenue offenses, the particular means need not be alleged in the indictment. United States v. Simmons, 96 U.S. 360, 24 L.Ed. 819.”

In the Wexler case, the indictment alleged that the defendants “were engaged in the enterprise of manufacturing, selling, and distributing beverages and in enterprises related and incidental thereto”, and the opinion says: “* * * and the indictment set forth various figures representing income from enterprise of manufacturing, selling, and distributing beverages and related enterprises, and expense allowable in operation of the enterprises.” To that extent the indictment directed attention to the source from which the defendant was said to have derived the income concerning which he evaded the payment of tax.

The present indictment is not so specific, since it refers merely to “Other income $1,044,007”. Conceivably that could have been derived from dividends, interest on bonds, bank deposits, mortgages, etc., annuities, rents and royalties, operation of a business, or the income from partnerships or fiduciaries, and it would seem reasonable, in order that the defendant may concentrate his efforts in the preparation for trial, to require that the government shall indicate the source or sources, according to its information, of the alleged unreported income.

To that extent the motion is granted, but this does not mean that the items need be stated in accordance with the tabulated demands above quoted, nor the dates when received or paid to the defendant (since the year 1943 alone is involved), nor the agency of payment (unless a fiduciary was the source), or the place or the medium of payment, or the nature of the transaction, except as it may be revealed by the requirement above stated.

Settle order.


author: HARRY E. WATKINS, District Judge.

text:
    TINNERMAN PRODUCTS, Inc., v. ADEL PRECISION PRODUCTS CORPORATION.
    Civil Action No. 285.
    District Court, S. D. West Virginia.
    Sept. 22, 1945.

      Albert R. Teare, of Cleveland, Ohio, and C. W. Strickling, of Huntington, W. Va. (Bates, Teare & McBean, of Cleveland, Ohio, and Fitzpatrick, Strickling & Marshall, of Huntington, W. Va., on the brief), for plaintiff.
    Helge C. Dieserud, of New York City, and Harry Scherr, of Huntington, W. Va. (Fish, Richardson & Neave, of New York City, and Vinson, Thompson, Meek & Scherr, of Huntington, W. Va., on the brief), for defendant.
   HARRY E. WATKINS, District Judge.

Plaintiff seeks an injunction, an accounting and damages for infringement of two patents for snap clips or clamps, used primarily to fasten a bundle of wires to the frame of an airplane. The damages-claimed relate to alleged infringements at defendant’s plant at Huntington, W. Va., from the date of issuance of such patents-(January 11, 1944 and February 1, 1944, respectively) to January 8, 1945, when this-action was instituted.

The defendant has appeared specially and moved to dismiss the complaint because of (1) lack of jurisdiction over the subject matter of the controversy, and (2) lack of venue. Both grounds for dismissal relate to Title 35, Sec. 68, U.S.C.A., which provides, in part, as follows:

“Whenever an invention described in and covered by a patent of the United States shall hereafter be used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, such owner’s remedy shall be by suit against the United States in the Court of Claims for the recovery of his reasonable and entire compensation for such use and manufacture. * * *”

Defendant says that all accused clips which it made at Huntington were “used or manufactured” “for the United States” within the intent and meaning of Section 68, and that this action must be brought against the United States in the Court of Claims. It says that Sec. 68 deprives this court of jurisdiction over the subject matter of this controversy, and gives the Court of Claims exclusive jurisdiction thereof.

As to lack of venue, the defendant points out that the complaint alleges plaintiff to be an Ohio corporation and defendant to be a California corporation, with its principal place of business at Burbank, California, but having an established place of business at Huntington, W. Va., where defendant is charged with infringement of both patents. Jurisdiction over the defendant is alleged under Section 48 of the Judicial Code, 28 U.S.C.A. § 109, which requires that patent infringement suits be brought in the district of which the defendant is an inhabitant or * * * “in any district in which the defendant, whether a person, partnership, or corporation, shall have committed acts of infringement and have a regular and established place of business.” Since defendant is a California corporation, venue must be founded on the quoted provision of the statute. Defendant urges, therefore, that to establish venue in this court, plaintiff must show that defendant not only has a regular and established place of business, but also has committed at least one act of infringement within this district. It contends that such act of infringement must be an actionable one; and that by virtue of Title 35, Section 68 U.S.C.A., its manufacture and sale of the accused clips for the United States Army and Navy could not and did not constitute an actionable infringement within this district as required under Section 48 of the Judicial Code. It says that to establish venue in this district it is necessary for plaintiff to show the manufacture or sale of at least one clamp which was not used or manufactured for the United States.

Both parties took extensive affidavits and depositions upon the motion to dismiss, particularly with reference to whether the clips made at Huntington were used or manufactured by or for the United States within the meaning of Sec. 68. After a full hearing, the motion was submitted for decision.

A careful consideration of the motion and a study of the controlling authorities convince me that the motion to dismiss should be overruled for procedural reasons. Section 68 does not deprive this court of jurisdiction, but only operates as a defense to the relief sought. It is a matter of defense whether raised on the question of venue or jurisdiction. The controlling authority is Sperry Gyroscope Co. v. Arma Engineering Co., 271 U.S. 232, 46 S.Ct. 505, 506, 70 L.Ed. 922. There a patent owner sued the manufacturer of gyroscopic compasses, alleging infringement, and further alleging that they were made by defendant for, and sold to, the United States Navy. Defendant moved to dismiss the complaint for lack of jurisdiction by reason of Sec. 68, Title 35 U.S.C.A. The District Court granted the motion and dismissed the bill for want of jurisdiction. By virtue of Section 238 of the Judicial Code, 28 U.S.C.A. § 345, as it then read, a direct appeal was had to the Supreme Court. The Supreme Court reversed the District Court, and said:

“The argument is that the act of 1918 [35 U.S.C.A. § 68] deprived the District Court of jurisdiction over the controversy between the present parties, because it limited the patent owner’s remedy, under circumstances like those here disclosed, to a suit against the United States in the Court of Claims. But we think this contention goes to the merits of the matter, and not merely to the question of jurisdiction. The true intent and meaning of the statute is not free from doubt; but certainly there is nothing therein which shows any clear purpose to take away the power to decide. It became the duty of the court below to consider and determine whether, in the circumstances stated, appellee was relieved of liability and permitted by the statute to do what otherwise would have constituted a violation of appellant’s rights. There was jurisdiction. The judgment below must be reversed, and the cause remanded for further proceedings in conformity with this opinion.”

This case has never been reversed. It was referred to in Broome v. Hardie-Tynes Mfg. Co., 5 Cir., 92 F.2d 886, 887, as holding that Section 68 “does not deprive the District Court, as a federal court, of jurisdiction, but only operates as a defense.” In that case, the defendant raised the exclusive jurisdiction of the Court of Claims by answer, in which it also denied infringement and put the validity of the patent in issue. The District Court was of opinion that the defense raised by Section 68 should be tried first, heard the evidence upon this defense, determined it in favor of defendant and dismissed the bill. Upon appeal it was contended that the District Court gave effect to the statute as a jurisdictional bar, and that, instead of hearing the whole cause on its merits, including the issue of exclusive remedy thus raised, the case was dismissed for want of jurisdiction in contravention of the practice approved in the Sperry case. The appellate court said:

“We think there could be no merit in this contention. If sustained, it would require the laborious and tedious process of trying a patent suit, only to dismiss it at the end because plaintiffs’ remedy lies in some other court. Without regard to what defendant may have called its plea, the District Judge did not determine it as one going to its jurisdiction to hear the cause, but as one going to the right of plaintiffs to the relief they sought. He disposed of it on that basis. As shown in his full findings of fact and conclusions of law, followed by an opinion and final decree, the court took full jurisdiction of the cause, and, having done so, proceeded to try independently of other matters of defense, the fundamental defense that plaintiffs’ sole remedy was in the Court of Claims. Having determined that, because of the statute providing an exclusive remedy in the Court of Claims, plaintiffs were without remedy in the District Court, he dismissed the bill.”

The same procedure was followed by the District Court in Hazeltine Corporation v. General Electric Co. et al., D.C.Md., 19 F. Supp. 898, where, as here, both Section 48 of the Judicial Code and Section 68 of Title 35 U.S.C.A. were relied upon. General Electric Company appeared specially and moved to dismiss the complaint on the ground that it was not an “inhabitant” of the district, and had committed no acts of infringement within the district where sued. Since the complaint alleged that defendant had committed acts of infringement within the district, the trial court denied the motion to dismiss the complaint and gave defendant leave to answer, in which defendant again raised the same issues relating to exclusive jurisdiction in the Court of Claims as to property used or manufactured for the United States, and that defendant had committed no act of infringement within the district. These defenses were heard separately and both being decided in favor of defendant, the suit was dismissed.

I am not unmindful of the fact that these cases were all decided prior to the adoption of the Federal Rules of Civil Procedure, and that Rule 12(b), 28 U.S. C.A. following section 723c, permits a defendant to raise questions of lack of jurisdiction over the subject matter and improper venue by motion prior to answer. But the Supreme Court has squarely held that Section 68 does not raise a question of jurisdiction, but raises a defense as to the right of plaintiff to the relief sought. Such a defense is not one of the six defenses enumerated in Rule 12(b) which may be raised by motion in advance of answer. By analogy it would seem that Section 68 does not raise a question of inr proper venue.

Since the courts have held that Section 68 does not deprive this court of jurisdiction, but only operates as a defense, it would seem that the motion to dismi=-> for lack of jurisdiction and venue should be overruled, with leave given to defendant to answer, in which it may set up the defenses raised by its motion to dismiss. When answer is filed, counsel may submit these preliminary issues for decision upon the evidence already taken, or may take additional evidence thereon, whereupon this court will proceed to pass upon such defenses in advance of a hearing upon other defenses, if any, raised by the answer. It should be understood, however, that the motion to dismiss is overruled for reasons of procedure, and that I have not yet considered the merits of the matters raised insofar as they may or may not constitute defenses to this action. I have not considered the merits because I am of opinion that these matters can only be raised by answer, and can not be raised by motion under Rule 12(b).

An order may be entered in accordance with the views herein expressed.