author: LITTLETON, Judge.

text:
    ARUNDEL CORPORATION v. UNITED STATES.
    Na. 45947.
    Court of Claims.
    Nov. 5, 1945.
    Plaintiff seeks to recover alleged over-payments of income taxes in the amounts of $1,869.71 for 1936 and of $436.51 for 1938. The amount of the overpayment, if any, for 1938 depends upon decision of the question presented as to whether the amount of net income of $12,649.40 was taxable in 1936, as defendant contends, or in 1935 as plaintiff contends.
    The question presented is whether, under the facts, this item of net income was taxable under the accrual method of accounting in 1935 or 1936. It was received in 1936 as a result of a judgment of the trial court rendered in 1935, affirmed October 16, 1936, on appeal, for material furnished and .work performed under a contract with the City of New York which was made and completed 1926.
    Special Findings of Fact
    1. Plaintiff is a Maryland corporation with principal office and place of business at Baltimore. Its principal business is that of general contractor, including the mining of sand and gravel.
    Its books of record, particularly for the cálendar year 1926 and since that time, were kept upon the accrual basis. Its income and expenses were accrued therein according to standard accounting practice.
    2. On May 14, 1937, plaintiff filed its completed income and excess profits tax return, under an extension theretofore granted, reporting thereon a total normal tax of $32,622.47 which was thereafter timely -assessed. In addition to the payment of $10,000 on a tentative return filed March 15, 1937, plaintiff made further payments during 1937 of $6,311.24, June 15; $8,155.62, September 15; and $8,155.61, December 15; aggregating $32,622.47. This return was prepared upon the accrual basis.
    Not included as part of the gross income reported upon this return, but included under a heading “Non-taxable income” in Schedule M thereto attached, was the following item:
    (3) Income from contract earned in 1922 and 1923 recorded in 1936, $12,649.40.
    3. Following an investigation of plaintiff’s return and of its books and records for 1936, a Revenue Agent recommended an additional tax or deficiency of $2,750.10 which was based in part upon an inclusion in plaintiff’s gross income of the item of $12,649.40 originally reported as non-taxable income as aforesaid. This item was shown to represent money received in 1936 as the result of a judgment obtained in a suit at law. It was itemized as follows:
    Principal of verdict ........................ $11,058.04
    Interest from December 30, 1928 to December 31, 1935................. $4,644.38
    Interest in 1936 ...... 933.46 - 5,577.84
    Court costs recovered .........$ 315.87 Court costs paid out ............. 302.35
    Excess of costs over amount paid out...... 13.52
    Total ..................................... 16,649.40
    Less Lawyer’s fees ......................... 4,000.00
    Amount included in 1936 income ....... 12,649.40
    4. January 25, 1940, plaintiff signed and filed a statutory consent in writing or waiver extending the period for assessment of any taxes for 1936, to and including June 30, 1941. This waiver was accepted and signed by the Commissioner January 27, 1940.
    April 4, 1939, plaintiff signed and filed on Treasury Department Form 870 a waiver of restrictions on assessment and collection of deficiency in tax for 1936, showing income tax in the sum of $852.69. Plaintiff endorsed thereon in handwriting the following :
    Additional tax per report of agent.......... $2,750.10
    .Less tax on receipts from suit 15% of $12,-649.40 ......................................... 1,897.41
    Amount agreed to ......................... 852.69
    An assessment was made May 5, 1939, of the agreed amount of $852.69, with interest of $105.82, aggregating $958.61 for 1936, which was paid as follows: April 10, 1939, $852.69; May 18, 1939, $105.82.
    5. May 23, 1939, plaintiff filed a written protest contending that the amount of $7,058.04 ($11,058.04, the principal amount of the judgment, less lawyer’s fees of .$4,000) was not income in 1936 but “rather in 1926 when it accrued” and further that the interest item of $5,577.84 was taxable only to the extent that such income applied to 1936.
    6. February 16, 1940, plaintiff filed a formal claim for refund of $2,120.58 for 1936 wherein it set forth as grounds and reasons the following:
    “Unemployment and gross receipts taxes in amount of $14,137.30 accrued in 1936 were deducted in 1937 and 1938 when paid; revenue agent who examined the returns for 1937 and 1938 disallowed the deduction then taken. The taxpayer now claims them .as deduction in 1936.
    “See also revenue agent’s supplementary report dated November 14, 1939. Taxpayer has protested addition of $12,649.40 to taxable income in revenue agent’s original report.”
    7. March 17, 1941, plaintiff executed and filed another formal claim for refund for 1936 in the amount of $498.45, stating as grounds and reasons the following:
    Deduction not taken in return, legal fees.. $4,000.00 Less income not reported:
    Court costs recovered .............. $ 13.52
    Interest received ................... 663.48
    - 677.00
    $3,323.00
    The aforesaid amounts pertained to the judgment hereinabove referred to, the net amount of which was reported in the 1936 return as nontaxable income.
    But this claim of March 17 had no connection with the question of whether the tax on the net judgment of $12,649.90 was due for 1935 or 1936. At that time the tax of $1,869.71 on the principal and interest of the judgment had not been determined, assessed, or collected by the Commissioner. Such tax was never assessed and it was collected by the process of an offset, as hereinafter mentioned, against an overpayment found by the Commissioner to be due on account of the deduction of $14,137.30 claimed in the refund claim of February 16, 1940, of which action the Commissioner notified plaintiff on May 8, 1941.
    8. March 17, 1941, plaintiff also executed and filed a formal claim for refund of $436.51 for the calendar year 1938, stating as grounds and reasons the following:
    “The taxpayer has claims pending before the Treasury Department for a reduction of taxable income for the year 1936 in the amount of $17,460.30. These claims, if allowed, will increase the dividend carry-over of that year, through 1937, into 1938 and reduce the surtax on undistributed profits in the amount of $436.51. (2yz%, Sec. 13(c) (2) (B), 1938 Revenue Act, 26 U.S.C.A. Int.Rev.Acts, page 1005.)”
    Plaintiff’s return for 1938 was filed March 15, 1939, and its last payment of tax assessed thereon was made February 14, 1941, in the amount of $28,234.32.
    9. The claim for refund for 1936 which plaintiff filed on February 16, 1940, was allowed by the Commissioner of Internal Revenue as to the item of $14,137.30, representing a deduction from gross income for 1936, and was disallowed to the extent of the tax due on the item of income of $12,649.40 mentioned in the claim by referring to the protest to the proposed tax of $1,869.71 on this item. The Commissioner simultaneously with his decision allowing the deduction of $14,137.30 denied plaintiff’s protest against the inclusion of the above mentioned item of $12,649.40 in its gross income for 1936. The allowance of the first item and the disallowance of the second item resulted in a determined over-assessment of $223.17 in tax and $27.70 in interest for which a certificate of overas-sessment was issued. These overassess-ments were determined to be overpayments and the aggregate sum thereof, $250.87, with accrued statutory interest thereon, $29.34, was paid to the plaintiff by Treasury check during May 1941.
    10. .Plaintiff’s claim for refund filed February 16, 1940, for 1936, was disallowed and rejected as to the balance not covered in this certificate of overassessment and plaintiff was so notified by registered letter dated May 8, 1941, from the Commissioner of Internal Revenue. The petition herein based on this action of the Commissioner on the refund claim of February 16, 1940, was filed September 3, 1943.
    11. The two claims for refund which plaintiff filed March 17, 1941, in the amounts of $498.45 for 1936 and $436.51 for 1938, were disallowed and rejected in full and plaintiff was so notified by registered letter dated September 12, 1941, from the Commissioner of Internal Revenue.
    12. The controverted item of $12,649.40, hereinbefore mentioned, represents money which plaintiff received in 1936 as the net proceeds of a judgment in a suit that it instituted on or about June 27, 1929, against the City of New York. Plaintiff’s claim in that suit arose under a written contract to furnish services and material. Plaintiff’s work was completed under that contract in 1926. A decision in plaintiff’s favor in the principal sum of $11,058.04, with interest thereon from December 30, 1928, was entered by the trial court September 7, 1935. The defendant below, City of New York, perfected an appeal therefrom on September 20, 1935. The judgment of the lower court was affirmed, without opinion, on October 16, 1936. 248 App.Div. 862, 291 N.Y.S. 169. Copies of the court decision and of plaintiff’s contract are in evidence as Joint Exhibits A and B, respectively.
    The item of $12,649.40 was not accrued upon plaintiff’s books in the year 1926 or at any other time until it was paid to the plaintiff in 1936. This item was not included upon plaintiff’s federal return of taxable income for the calendar year 1926, or upon its return for any other taxable period, except for 1936, as above indicated. No tax thereon has ever been paid to defendant, except as hereinbefore stated and as an adjustment in determining plaintiff’s correct tax liability for 1936, in connection with the claim for refund of February 16, 1940.
    13. The parties agree that the exclusion of the item of $12,649.40 from plaintiff’s gross income for 1936 will affect the surtax upon undistributed profits in its income and excess profits tax return for 1938. The amount of that claimed reduction, if any, cannot be determined until it be established whether the item of $12,649.40, or any part thereof, has been correctly included in plaintiff’s taxable income for 1936.
    Wm. S. Hammers, of Washington, D. C.,. for plaintiff.
    John A. Rus, of Washington, D. C., and' Samuel O. Clark, Jr., Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, both of Washington, D. C., on the brief),, for defendant.
    Before WHALEY, Chief Justice, LIT-TLETON, WHITAKER, MADDEN, and JONES, Judges.
   LITTLETON, Judge.

Although we are of opinion on the facts, and under the decided cases that the controverted item in the net amount of $12,-649.40 was taxable income for 1936 under the accrual method of accounting, it is not necessary to discuss in this connection the-facts and the decided cases for the reason that the facts show the suit was barred by the statute of limitation of two years at the-time the petition was filed.

During 1926 plaintiff made and performed a contract with the City of New York. Upon completion, a controversy arose between the parties as to the number of cubic yards of sand for which plaintiff should be paid under the contract at the agreed rate of fifty-eight and four-tenths-cents a cubic yard. It was admitted that plaintiff had furnished 118,935 cubic yards-but the city contended and the engineer who was given authority to decide held that 94,500 cubic yards, or 5 percent more than the contract estimated quantity, was all that was required and permitted by the contract to be paid. The controversy continued and plaintiff brought suit in June 1929. The trial court rendered a decision on September 7, 1935, in plaintiff’s favor for the principal sum of $11,058.04, with interest from December 30, 1928, the opinion concluding-with the following provision: “Thirty days’ stay and sixty days to make a case.’” The City appealed and the decision of the trial court was affirmed October 16, 1936, and the judgment and interest was thereafter paid during that year. No portion of the total amount received was ever reported by plaintiff for income tax purposes and no tax was ever paid on the net amount of $12,649.40 thereof until the decision of the Commissioner in May 1941 holding that it was taxable income for 1936 and that a tax of $1,869.71 was due thereon for that year. Plaintiff did, however, disclose in its 1936 return the receipt of the net amount of $12,649.40 and claimed that it was taxable in prior years.

In a claim for refund filed February 16, 1940, plaintiff claimed an overpayment and refund for 1936 based on an additional deduction in that year of $14,137.30 which had erroneously been taken in 1937 and 1938, and in this claim called specific attention to its written protest against the proposed assessment of an additional tax for 1936 on the net judgment item of $12,649.40. In May 1941 the Commissioner of Internal Revenue allowed the deduction of $14,137.-30 for 1936, and the overpayment resulting therefrom, but reduced the amount refundable by offsetting against it the'tax of $1,-869.71 determined by him at that time to be due for 1936 on the judgment item mentioned. He, therefore, by the offset, collected the tax in question at that time and so advised plaintiff, and he also notified it on May 8, 1941, as required by the statute, that this claim for refund, except as to the amount of $250.87 ($223.17 tax and $27.70 interest collected), was disallowed and rejected. As a result of that action and that notice, and the rejection of the claim for refund of March 17, 1941, for 1937 .and 1938, this suit was instituted on September 3, 1943, more than two years after notice of May 8, 1941 as to the year 1936 (see sec. 1103, Revenue Act of 1932, 26 U.S.C.A. Int.Rev.Acts, page 652). The suit as to the year 1936 was therefore barred when the petition was filed.

In these circumstances we need not discuss the question whether, under the statute, plaintiff was required as a condition to bring suit to file a claim for refund of the additional tax of $1,869.71 after it was collected for 1936 by the offset made in May 1941.

The claim for refund of $498.45 for 1936 ■filed by plaintiff on March 17, 1941, and rejected September 12, 1941, does not help plaintiff on the jurisdictional question. That claim related only to a net deduction of $3,323 for 1936 for attorneys fees paid in that year in connection with the net judgment of $12,649.40, mentioned in the claim of February 16, 1940. The Commissioner allowed that deduction in determining and collecting by offset the additional t-ax of $1,869.71 in May 1941. The item covered by the refund claim for 1936 of March 17, 1941, is therefore not in question in this suit. Since plaintiff is not entitled to recover for 1936, no overpayment results for 1938. See finding 13.

Plaintiff is not entitled to recover and the petition is dismissed. It is so ordered.

WHITAKER, Judge, and WHALEY, Chief Justice, concur.

MADDEN and JONES, Judges, took no part in the decision of this case.


source: Caselaw Access Project

author: WHITAKER, Judge.

license: Public Domain

text:
    C. J. MANEY CO., Inc., et al. v. UNITED STATES.
    No. 45048.
    Court of Claims.
    Nov. 5, 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. Plaintiffs, C. J. Maney Co., Inc., and New England Foundation Co., Inc., are corporations organized and existing under the laws of Massachusetts, the former having its principal place of business at Somerville, Massachusetts, and the latter having its principal place of business at Boston, Massachusetts.
    2. On August 4, 1936, the plaintiffs entered into a contract with the defendant, the latter represented by the Assistant Federal Emergency Administrator of Public Works as its contracting officer, whereby the plaintiffs agreed to furnish all labor and materials and perform all work required for the construction of the superstructure for Fair-field Court Housing Project, No. H-9601, at Stamford, Connecticut, for the consideration of $690,956.00. The contract provided that the work should be performed in strict accordance with the specifications, schedules, and drawings, which were made a part, of the contract, and that the work should be commenced upon receipt by the plaintiffs of notice to proceed, and that the work should be completed within 250 calendar days from the date of the receipt of notice. The superstructures to be constructed consisted of three buildings of three stories each and five rows of houses of two stories each.
    3. Notice was given by defendant and received by plaintiffs fixing the commencement day as August 13, 1936, and the completion day as April 19, 1937. Change orders, not involved in this suit, extended the completion date 123 calendar days. Plaintiffs completed the work on August 19, 1937, which was within the contract time as extended by the change orders. However, the work involved in the change orders did not actually delay the final completion of the contract more than about 53 days.
    4. Under the terms of the contract, the surface of the ceilings in the various rooms of the buildings was the under-surface of the concrete slabs which divided the buildings into stories. This under-surface of the slabs which constituted the ceilings in the various rooms was not to be plastered but was to be painted.
    5. The specifications relative to concrete work and forms provided inter alia as follows:
    “1. Forms shall conform to the lines, dimensions, and shapes indicated on the drawings for the member for which provided. They shall be tight to prevent leakage of concrete and shall be securely braced and maintained in position to prevent any possibility of movement after the concrete is poured and insure safety to workmen and passersby.
    :jí ;j; íjc ;j< j}t
    “4. Forms may be either lined or unlined but shall produce the following surfaces:
    “(A) Exterior concrete surfaces exposed to view, interior exposed concrete surfaces in spaces where glazed finish tile or brick occurs, and interior exposed concrete surfaces in spaces where plastered walls occur (see Div. ‘Plastering’) shall be level and smooth to receive paint. The external angles of concrete beams and columns in these spaces which are not plastered shall be bevelled, the bevel being formed of smooth-grained wood strips.
    “(a) The material used for form work shall produce a level, dense surface, free from honeycombing, joint marks, fins, bulges, depressions, or marks showing the grain of the wood forms. The requirement for level ceilings shall be construed to mean a ceiling in which the surface shall not vary from the level more than % inch in 10 feet.
    “(b) Any defects that may appear shall be rubbed smooth with carborundum stone, or by other means if necessary, until the surfaces meet with the approval of the Contracting Officer.
    “(B) All exposed interior concrete surfaces, except in spaces where plastered walls occur and except in spaces indicated on the drawings as ‘Pipe Spaces’ shall be free from fins, and honeycombing, and equal in all respects to surfaces produced by use of surfaced lumber forms.
    “(C) All other surfaces of concrete work shall be equal to that produced by use of rough lumber forms. Fins and other surface defects need not be remedied, subject to the approval of the Contracting Officer.”
    6. The specifications relative to paint and painting contained a schedule in part as follows:

    The specifications then provided under general notes supplementary to the schedule as follows:

      “6. If Formula No. 10 is used, the Plaster Primer (Formula Nos. 9A or 9B) may be omitted. If Formula Nos. 10A or 11 are used, the Plaster Primer (Formula Nos. 9A or 9B) may be omitted at the Contractor’s option, but if so omitted the Contractor will be held responsible for lime burns or other blemishes that may show through the paint and he shall remedy same at his own expense to the entire satisfaction of the Contracting Officer.

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    “10. Where painting of concrete surfaces is required, and where in pursuance to the Concrete specification the concrete has been rubbed or patched to eliminate irregularities, the paint shall be so applied as to render the rubbed or patched surfaces the same in appearance as untouched surfaces. This shall include stippling if necessary.”
    Plaintiffs elected to use Formula 11.

      7. The concrete slabs, the lower surfaces of which constituted the ceilings of the rooms, were completed and the forms stripped therefrom about the middle of February 1937, and on February 19, 1937, the defendant’s project engineer, J. M. Curley, wrote plaintiffs a letter in part as follows:
    “In regard to the ceilings, as you are aware, there are a great many irregularities and imperfections which, in the writer’s opinion, must be removed before the paint is applied. These irregularities and imperfections, as you are aware, become more pronounced and visible when the paint is applied to the ceilings, as you will note in Building ‘D-l’ where a sample of the paint has been applied.
    “In connection with this matter of painting the finished concrete surfaces it would be well to refer again to page 71, Section 8, describing the forms, wherein it is pointed out the extreme care which must be exercised in the selection of materials and in the erection of the forms so that the exposed concrete surfaces would be level and smooth to receive paint; and, of course, the painting specifications on page 164, Section 3, paragraphs 6 and 10 augment the foregoing concrete specifications concerning forms to require a uniform, desirable and acceptable finish on these ceilings.
    “In view of the fact that your painter has expressed the intention to use Formula No. 11, and thus omit the plaster primer, and by such use the ceilings will receive but two coats of paint, you are advised that you will be held strictly responsible for lime burns or other blemishes that may show through the paint, and further that you are required to remedy same at your own expense and to the entire satisfaction of the Contracting Officer.
    “The writer cannot stress too much the fact that a great deal of thought should be given to the manner in which you treat these ceilings before paint is applied, so that when the painting of concrete surfaces is completed you will have attained the result required by the Specifications.”
    The concrete work was well done, except that it did not comply with the specifications in that fins had been left in the concrete which developed at the place where the concrete forms came together. These fins consisted either of protuberances where the concrete had run down between the two forms, or of depressions in the surface. After receipt of the above letter plaintiffs did some experimental work in undertaking to remove these fins, but did not succeed in doing so to the extent necessary to make an acceptable job, since after the paint had been applied the fins still appeared.
    Fiad the concrete work been constructed in accordance with paragraph 4 (A), (a), and (b) of the specifications, ceilings would have been produced that would have been sufficiently level and smooth to have received the paint and would have produced a satisfactory paint.job by the use of the paints specified, but the removal of these fins was expensive and they were not removed, but an alternative was adopted, as later appears.
    8. Defendant’s project engineer, on April 12, 1937, again wrote to plaintiffs, called their attention to the specifications relative to concrete and painting, and said:
    “These concrete ceilings at the present time are not ready to receive paint. They are uneven, contain many pits and projections, show the joints made by the forms, and have many other imperfections. * * *
    “These ceilings must be rubbed smooth-in accordance with specification requirement to receive paint. They are not acceptable in their present state * * *.
    “This office wishes to emphasize and make clear the fact that these ceilings must comply with the specification requirements-in every respect and we also wish to urge that you take immediate steps to correct and smooth these concrete ceilings before-any paint is applied.”
    9. On April 26, 1937, at the request of plaintiffs, a representative of the defendant went to the site and examined the several ceilings which plaintiffs had painted in experiments without prior full preparation of the concrete, but none of them were acceptable. On April 27, 1937, the presidents of the plaintiff companies went to Washington and talked to the defendant’s chief engineer of inspection, and at his suggestion later looked at a project then under construction at Harlem, but nothing important came of this.
    10. On May 13, 1937, defendant’s project engineer wrote plaintiffs as follows:
    “Please refer to the writer’s letter to you-dated April 12, 1937.
    “The writer wishes to point out to you that since the date of the above mentioned letter no further progress has been made in-connection with these ceilings and that painting of same has now been put off for a considerable length of time.
    “It might be pertinent at this point testate that in view of the fact that the extended date of completion of your contract is May 4, 1937, you are now in technical default and it seems imperative that you take every means possible to proceed with the painting of these ceilings without any further delay.”
    11. Plaintiffs’ paint subcontractor, Browning Decorating Company, had refused to paint the ceilings without the plaintiffs either preparing the concrete or giving it a letter assuming full responsibility for putting on the paint without previous preparation of the concrete, so on May 17, 1937, under an agreement with plaintiffs, the E. K. Perry Company, a widely experienced painting contractor of Boston, Massachusetts, sent some of its men to the site in an endeavor by experiment to produce satisfactory results on a few ceilings without previous full preparation of the concrete, but nothing they produced was satisfactory, mainly because the lines or ridges left by the form joints, even after rubbing and grinding, still showed through the paint.
    12. Beginning about May 21, 1937, plaintiffs sent telegrams and letters to defendant contending in effect that the specifications as to concrete and painting were defective in that full compliance therewith would not produce an acceptable ceiling.
    In the meantime, and on May 25, 1937, J. G. Gholston of defendant’s inspection division, wrote plaintiffs a letter telling them that on some concrete ceilings satisfactory results had been obtained by applying one coat of casein-bound, textured paint of certain characteristics, one coat of washable casein paint of certain characteristics, and one coat of tint. Plaintiffs tried this on a ceiling or two but it did not produce a satisfactory ceiling.
    Some of the correspondence referred to is set out in detail in the following finding.
    13. On May 21, 1937, plaintiffs sent the following telegram to the Director of the Inspection Division of the Federal Emergency Administration of Public Works in Washington:
    “In reference to painting concrete ceilings Stamford Connecticut stop several concrete ceilings which have been painted in accordance with contract requirements have been rej ected by proj ect engineer stop in an endeavor to produce a ceiling which would be approved we have painted several ceilings using materials and methods exceeding contract requirements but these also are unsatisfactory to project engineer stop the results he insists upon cannot be obtained by the methods and materials specified nor can it be obtained by other materials and or methods which we have tried stop therefore please advise how you desire us to proceed in order that there may be no further delay and resultant expense because of this matter.”
    On May 25, 1937, plaintiffs sent the following telegram to the same officer:
    “Please reply to our telegram of May twenty-first regarding painting Stamford project stop all other work except that dependent on completion of painting is substantially completed stop your failure to advise us how to proceed is causing delay and expense for which we hereby make claim.”
    On May 25, 1937, the Director of the Inspection Division wrote plaintiffs as follows :
    “Reference is made to your telegram dated May 21 concerning the painting of concrete ceilings on the Fairfield Courts project, Stamford, Connecticut. It is assumed that your telegram refers to difficulty in complying with Specifications, Division XXIV, Painting. Section 3, paragraph 10, reading as follows:
    “ Where painting of the concrete surfaces is required, and where in pursuance of the concrete specification the concrete has been rubbed or patched to eliminate irregularities, the paint shall be so applied as to render the rubbed or patched surfaces the same in appearance as untouched surfaces. This shall include stippling if necessary.’
    “For your information you are advised that a treatment of concrete ceilings as described below has produced satisfactory results on other projects where similar conditions have been encountered.
    “(a) One coat of Casein Bound Textured Paint of an approved make and complying with the following:
    “Casein Bound Texture Paint shall be a dry powder paint which is to be mixed with water to prepare it for use and shall show the following analysis:
    Casein — Factor Nitrogen 7.7 Minimum 10% Mica — Properly graded Fine Minimum 20% Hydrated Lime ...........Minimum 03%
    “Remainder to be properly balanced fillers ; it shall be free from the compounds of mercury or other poisonous preservatives.
    “The resultant Casein Bound Textured Paint shall be a finely ground uniform mixture which disperses easily when mixed with water and which is free from lumps; it shall require 90 to 100 CC of Water per 100 grams for material producing a minimum texture, or 120 to 130 CC for light textures; it shall apply readily and shall not roll up under the brush or pull excessively, it shall take and hold various textures and shall show no tendency to melt, sag or break;- it shall dry hard over night with no cracking on medium textured [sic] and no chalking on light textures.

      "This paint shall be applied so as to produce a stippled finish of approved texture; and
    “(b) Over the Casein Bound Textured Paint apply one coat of washable casein paint complying with Federal Specification No. TT-P 23, Section E-3, Grade B, Type II.
    “(c) Finished coats on both plastered and concrete surfaces shall be of tint or tints as selected by the Contracting Officer and shall also comply with the requirements of the division 'Painting’ under the heading ‘Colors.’
    “Properly prepared concrete ceilings when treated as outlined above have produced acceptable finished surfaces on other projects.
    “It is suggested that a sample ceiling be prepared in accordance with the above and if found to produce a satisfactory result on Fairfield Courts, a proposal to change the contract requirements without change in contract time or price will be entertained by the Government.”
    On June 3, 1937, defendant’s Director of the Inspection Division telegraphed plaintiffs as follows:
    “Assistant Chief Engineer Frank Anderson will be in Stamford Friday morning with full authority to settle question of acceptable finish of concrete ceilings stop presence of your authorized representative requested.”
    14. After further experiments and trips to the job by defendant’s inspectors and engineers it was found that with very little, if any, preparation of the concrete, ceilings acceptable to the defendant could be obtained by the use of a casein-bound, textured paint and a second coat of casein paint very much like the paint described in Mr. Gholston’s letter of May 25, 1937, outlined in finding 12. This was in the early part of June 1937, and defendant requested that as a condition to its agreement to accept the ceilings painted with the casein-bound, textured paint and second coat of casein paint, in lieu of previous full preparation of the concrete and the use of the specification formula paint, the plaintiffs should make a covering proposal providing for no additional payments to plaintiffs and no extension of the contract time. Since plaintiffs kept up their contention, stated in findings 12 and 13, they did not make such a proposal, but on or about June 14, 1937, began the painting as above described in this finding and carried it on through to completion, and defendant accepted the ceilings as satisfactory.
    After the work had been finished plaintiffs presented defendant with an itemized statement of a claim for excess costs, with supporting documents.
    15. It cost the plaintiffs more to put on the textured paint that they actually put on than it would have cost them to put on the formula paint called for in the specifications, but the elimination of the full preparation of the concrete more than offset this additional expense. The delay in doing the painting resulted in a delay in the final completion of the contract with a resulting increase in overhead expense.
    The excess cost of using the substituted paint, plus overhead during the period of delay, is $9,243.03, made up of the following items:
    1. Additional labor and material, including cost of workmen’s compensation and liability
    insurance................. $5,100.46
    2. Less credit from subcontractor 735.01
    4,365.45
    3. Plus 10% overhead.......... 436.54
    4,801.99
    4. Plus 10% profit............. 480.20
    Net total............... 5,282.19
    5. Overhead during period of delay ...................... 3,600.76
    6. Plus 10% profit.............• 360.08
    Total .................. 3,960.84
    Grand total............. $9,243.03
    This excess cost, however, was incurred on account of the failure of the plaintiffs to prepare the concrete in accordance with paragraph 4 (A), (a) and (b) of the specifications. Any delay that may have been incurred in doing the , painting was due to plaintiffs’ failure to prepare the ceilings in accordance with the before-mentioned' paragraph of the specifications.
    16. On June 29, 1937, defendant’s project engineer demanded that the plaintiffs paint the kitchens, utility rooms and toilet rooms with two additional coats of oil paint, although plaintiffs had painted the kitchens, utility rooms, and toilet rooms with two coats of casein paint as required by Assistant Chief Engineer Anderson. Because of the demand of the project engineer two coats of oil paint were also applied to these rooms.
    On July 12, 1937, plaintiffs wrote to the Director of the Inspection Division of the Federal Emergency Administration of Public Works objecting to the requirement of the project engineer that the ceilings of the kitchens, utility rooms, and toilet rooms be painted with oil paint and advising the Director that the cost of painting the ceilings of these rooms in this manner would be made a part of the plaintiffs’ claim.
    On September 2, 1937, H. A. Gray, Director of Housing of the Federal Emergency Administration of Public Works ruled that the plaintiffs should not have been required to apply the oil paint to the' ceilings of the kitchens, utility rooms, and toilet rooms and advised the defendant’s project engineer as follows:
    “It is noted that the Contractor has proceeded to paint these kitchens with casein-bound textured paint and has finished them with a coat of washable-casein paint. It is also noted that the Project Engineer has ruled that in addition the Contractor must furnish two coats of oil paint over the textured paint on the ceilings of the rooms in question.
    “In view of the fact that the authority to modify the painting requirements was granted in an endeavor to make the ceilings more presentable than they would have been had the original specifications been followed, I do not consider that it would be equitable to require the Contractor to furnish additional coats of oil paint. You are, therefore, requested to inform the Contractor through the Project Engineer that I do not consider that the contract as modified required the additional coats of paint.”
    The proof does not show the cost of putting on these two additional coats of oil paint in the kitchens, utility rooms, and toilet rooms. Whatever it may have cost is included in plaintiffs’ claim for the cost of using the substituted paint, but the amount of it does not separately appear.
    Dean Hill Stanley, of Washington, D.C. (Joseph R. McCuen, of Washington, D.C., on the brief), for plaintiff.
    Frank J. Keating, of Washington, D.C., and Francis M. Shea, Asst. Atty. Gen., for defendant.
    Before WHALEY, Chief Justice, and LITTLETON, WHITAKER, JONES, and MADDEN, Judges.
   WHITAKER, Judge.

Plaintiffs had a contract for the construction of the superstructures for the houses in the Fairfield Court Housing Project at Stamford, Connecticut. Included in the contract was the painting of the concrete ceilings in the dwellings. Plaintiffs were unable to paint these ceilings to the satisfaction of the contracting officer by using the paint specified, and finally used a different sort of paint which produced a satisfactory job. The excess cost of the substituted paint and labor and overhead and profit was $9,243.03. For this amount plaintiffs sue.

Defendant does not deny that this excess cost was incurred in doing the paint job, but it says that plaintiffs’ failure to prepare the concrete ceilings in the manner specified was the thing that made it necessary to use a different paint from that specified and, hence, that it is not liable for the excess cost.

Paragraph 4 of the specifications relates to concrete work. Paragraph (A), with subparagraphs (a) and (b), relate to exterior concrete surfaces exposed to view, to interior exposed concrete surfaces in spaces where glazed-finish tile or brick occurs, and to interior exposed concrete surfaces in spaces where plastered walls occur. Paragraph (B) relates to interior concrete surfaces, except in spaces where plastered walls occur and except in spaces indicated on the drawings as “Pipe Spaces.” Paragraph (C) relates to all other surfaces of concrete work. The painting in controversy was of interior exposed concrete ceilings in rooms with plastered walls and these concrete ceilings, therefore, are governed by paragraph (A) and subparagraphs (a) and (b). They are not governed by paragraph (B) because there is excepted from its provisions “spaces where plastered walls occur.” Paragraph (B) evidently refers to the ceilings in basement rooms or other rooms the walls of which were not plastered. The concrete ceilings of those rooms the walls of which were plastered are governed by paragraph (A).

The concrete work governed by paragraph (A) was the best of that specified; that governed by paragraph (B) did not have to be quite so level and smooth; and that governed by paragraph (C) could be even rougher. Paragraph (A) required that the concrete surface should be “level and smooth to receive paint,” and it further specified in subparagraph (a) that the material used for form work should produce “a level, dense surface, free from honeycombing, joint marks, fins, bulges, depressions, or marks showing the grain of the wood forms.” It was further required in subparagraph (b), “Any defects that may appear shall be rubbed smooth with carborundum stone, or by other means, if necessary, until the surfaces meet with the approval of the contracting officer.”

The concrete surfaces mentioned in paragraph (B) also had to be free from fins and honeycombing, but this paragraph made no mention of “joint marks, fins, bulges, depressions, or marks showing the grain of the wood forms.”

It is not denied that the concrete in the rooms, the walls of which were plastered, did have fins and were not sufficiently level and smooth to receive the paint specified.

Plaintiffs tried a number of times to paint these ceilings so that the fins and depressions and other rough places in the concrete would be hidden, but they were unable to do so. After the paint had been applied the fins still appeared. Plaintiffs tried to remove these fins by the use of carborundum stone, but still were unable to do so successfully. After the paint was applied the fins still appeared. The contracting officer, therefore, was wholly within his rights in rejecting the work.

Quite a good deal of time was consumed in trying to produce a satisfactory result, and finally one of defendant’s employees in its Inspection Division suggested to plaintiffs the use of a different sort of paint, and plaintiffs finally succeeded in obtaining satisfactory results by using a paint very similar to that suggested by defendant. Defendant then told plaintiffs it would agree that they might use this substitute paint instead of requiring them to prepare the concrete in the way specified, hut with the understanding that no additional payment should be made to plaintiffs and no extension of the contract time would be granted.

Plaintiffs refused to agree to this because they insisted that the paint specified would not produce a satisfactory result, but they did proceed to paint the ceilings with the substituted paint; and at the conclusion of the work they presented their claim for the excess cost.

The evidence leaves no doubt that the ceilings had not been prepared in the way called for by the specifications, and we are of opinion that this is the reason that the paint specified would not produce a satisfactory job. In order to properly prepare the ceilings plaintiffs would have been required to do a great deal of work, which would have cost more than it cost them to use the substituted paint. Instead of doing this, they used the more expensive paint. Its use would not have been necessary if the concrete surfaces had been properly prepared.

Plaintiffs also complain of the requirement of the Project Engineer that two additional coats of oil paint should be applied in the kitchens, utility rooms, and toilet rooms; but whether this requirement was proper or not, plaintiffs are not entitled to recover on this account because the proof does not show the cost of this item. Whatever it may have cost is included in plaintiffs’ general claim for the additional cost of using the substituted paint. The cost of this item is not separated from the total excess cost.

Plaintiffs are not entitled to recover. Their petition will be dismissed. It is so ordered.

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

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


author: BAKER, District Judge.

text:
    UNITED STATES v. WEIRTON STEEL CO. (two cases).
    Nos. A-5634, A-5635.
    District Court, N. D. West Virginia.
    Nov. 14, 1945.
    Joe V. Gibson, U. S. Atty., of King-wood, W. Va., E. E. Hamstead, Asst. U. S. Atty., of Morgantown, W.Va., Theron L. Caudle, Asst. Atty. Gen., and Gordon L. Eakle, Sp. Atty., of Washington, D. C., for plaintiff.
    Earl L. Maxwell, of Elkins, W. Va., and Earl F. Reed and John E. Laughlin, both of Pittsburgh, Pa., for defendant.
   BAKER, District Judge.

To each of the above indictments the defendant has entered a plea of nolo contendere. The first case, No. A-5634, contains 11 counts, and the second, No. A-5635, contains 26 counts. While from a purely technical point of view a plea of nolo contendere does not admit the allegations of the charge, but merely says that the defendant does not choose to defend the same, in this instance, after reading the reports of the investigating officers, I am compelled to hold that the charges in every count of the two indictments could be amply substantiated by proof. It must be understood, of course, that where I make statements of fact in this Memorandum, I am reciting the facts as shown by the Investigator’s Reports now in my hand.

The first indictment, A-5634, containing 11 counts, charges the defendant with having made false representations in a matter within the jurisdiction of the War Production Board in violation of Title 18, Section 80, United States Code Annotated.

The second indictment, A-5635, containing 26 counts, charges the defendant with having violated certain orders and regulations of the War Production Board in obtaining critical materials and doing unauthorized construction on the club house at the Williams Country Club.

In this connection, while it has no direct bearing on the case, it might be well to note that Weirton Steel Company is a wholly-owned subsidiary of National Steel Corporation. The Williams Country Club is a corporation maintaining a club house upon property owned by a wholly-owned subsidiary of Weirton Steel Company. For all practical purposes, it may be said that the Williams Country Club is a club maintained for the benefit and enjoyment of the officials and guests of the Weirton Steel Company and its parent, National Steel Corporation.

On June 28, 1940, 54 Stat. 676, Congress passed a law entitled “An Act to expedite national defense, and for other purposes,” which gave the President certain broad powers. These powers were further expanded by the Second War Powers Act of 1942, 50 U.S.C.A.Appendix, § 633. Under these two laws various orders and directives were issued granting the War Production Board the power and authority to allocate critical materials for national defense and essential civilian use. Among those orders and regulations were some which are herein alleged, and by implication admitted, to have been violated; namely, Conservation Order L-41, which prohibits construction of buildings (with certain exceptions not relevant to this case) in the absence of specific permission of the War Production Board; Preference Rating Order P-68, an order granting priority assistance to enable producers of iron and steel to obtain materials and equipment for maintenance of their plant facilities; Priorities Regulation No. 3, prohibiting the use of preference ratings for any other purpose than that for which they were assigned; Priorities Regulation No. 1, requiring persons given priorities assistance to use the preference ratings given them for the particular purpose for which the assistance was given; Conservation Order M-9-C-4, prohibiting the accepting of delivery of copper or copper base alloy products unless the person making delivery was permitted to do so by the War Production Board; and Conservation Order M-126, prohibiting the accepting of delivery of iron or steel products made in violation of said Order.

There is no doubt, in light of the Investigator’s Reports, that these orders and regulations were wilfully violated and that the false representations were made. The defendant, however, attempts to justify or excuse these violations on grounds which will now be considered in the order that they are presented in Defendant’s Brief.

First, the defendant, in a halfhearted way, attempts to fall back on the old excuse that the orders are difficult to interpret or understand. The court might lend a sympathetic ear to this plea if coming from a private citizen or small merchant, but I feel that I am justified in taking judicial notice of the fact that a corporation of the magnitude and caliber of the Weirton Steel Company would have an able corps of priority experts who would keep thoroughly abreast of all regulations, and certainly of those pertaining directly to the steel and construction business. If any doubts existed in the minds of the company, they would have certainly obtained the best possible advice before acting. In this connection it should be borne in mind that time was not at all of the essence in the construction of a country club. The defendant further pleads its contribution to the war effort in mitigation of the offense here committed. This court knows and appreciates the splendid service that Weirton Steel Company has rendered the United States during the critical years just passed. In many instances Weirton can justifiably claim that it has been the most outstanding supporter of the war effort in the United States. That is appreciated by this court and has been taken into consideration in the sentence which will be pronounced herein. The next item of defense advanced by the Weirton Steel Company is that the addition to the country club was of a minor nature. The facts do not bear this out. As nearly as can be ascertained from the reports, the cost of the construction and equipment of this addition aggregated $78,295.06. It consisted of five rooms added as a second story to the west wing of the club house. This addition is made accessible by a heavily carpeted stairway leading from the lobby on the first floor to the new portion above. At the top of the stairs is a highly ornamental wrought-iron grill in keeping with a wrought-iron stair railing. A metal sign marked “private” is suspended from the gate which opens into a second floor foyer. On the right side of the foyer is a private telephone room. On the left side is the entrance to a large bedroom and private bar. A long hall extends from the foyer to the rear of the building. Doorways on the left of the hall give entrance to two additional bedrooms, each with private bath. These bedrooms are approximately 12 x 18 feet each. At the end of the hall is a lounge room, 12 x 25 feet in size. Between this room and the last bedroom are a fully equipped bar, kitchenette, and lavatories. The walls of the foyer, hall, and lounge are paneled with pressed wood walnut veneered paneling. Other interior finishing trim is of high quality and luxurious character. The bathrooms in each of the three bedrooms are finished in Carrara glass with lavatories, toilets, and glassed-in showers. Floors of all rooms are completely covered with heavy carpeting in harmony with the decorative scheme of the different rooms. A sprinkler system has been installed equipped with chromium-plated outlets, and the entire section is air-conditioned. To say that this was intended to be used as a hospital is an insult to the intelligence of any court.

At this time it might be well to summarize chronologically the history of the transactions involved. In this Memorandum I will not attempt to deal with the misuse of any of the essential materials which were misused other than the air-conditioning system, since that is a matter concerning which the court has the best information.

On December 17, 1943, the Weirton Steel Company contacted the Danforth Air-Conditioning Company of Pittsburgh, Pennsylvania, relative to the installation of certain air-conditioning equipment. Mr. Wilbur C. Sutherland, Manager of the Danforth Company, went to Weirton and in company with Mr. Harry W. Wright, Assistant Chief Engineer for Weirton, calculated the requirements for an air-conditioning system for “emergency hospital rooms” to be located on the country club grounds. Mr. Sutherland had some discussion with Mr. Wright on the subject of the limitations on procurement of the necessary equipment and expressed the opinion that it would be difficult to obtain priorities. He was told that “they were the Weirton Steel Company and they could handle any priority difficulties which would come up.”

On January 24, 1944, the Weirton Steel Company filed application with the War Production Board for priorities to obtain this air-conditioning equipment, and about the same time started actual construction on the addition to the country club. This application was denied on February 2, 1944, and in the face of that denial on February 8, 1944, the Weirton Steel Company contracted with the Danforth Company for the purchase of the equipment.

On February 21, 1944, the Weirton Company filed a second application, which was treated as an appeal and was approved on March 17, 1944, and on March 21, 1944, the Danforth Company was furnished with the necessary priority data.

In all the transactions between Danforth Company and Weirton, Mr. Sutherland said that his company was doubtful of the job, but that Weirton insisted that the rooms were to be used as a hospital, although the country club is about four miles from the plant of the Weirton Steel Corporation.

In addition to this Mr. Weiss, of Gardner Display Company, said that he was contacted relative to the installation of a bar in the addition to the country club by a Mr. Kline, Chief Engineer for Weirton Steel Company; that he told Mr. Kline that he could construct the bar, but could not obtain the priorities for the needed equipment and Mr. Kline said that Weirton would take care of all priorities.

From all of this the court is driven to the conclusion that the defendant deliberately and premeditatedly set out to obtain high priority materials by false representations and to use the same in violation of the War Production Board’s Orders and Regulations. It is fruitless to continue a discussion of the matters here involved. Weirton says that it was constructing this addition to the club primarily as a convenience for Government officials, who of necessity visited the plant and who would otherwise have had to obtain lodging in Steuben-ville, Ohio, which after all would be about as close as the Williams Country Club. This may be true, but in time of war or in time of peace there must be some constituted authority to determine and regulate the conduct of the citizens of this country. Congress saw fit to place this authority in the President' of the United States and the War Production Board. To permit an individual or a corporation, however patriotic, to substitute his views for those of the constituted authority would inevitably lead to anarchy and disregard for all law and order. We all know that many of the wartime regulations were unpopular, but the private citizen cannot choose which law he will obey and which he will disregard. The court has no alternative other than to enforce every law as it is written and interpreted.

After a careful deliberation of this case I have concluded to assess fines as follows:

On Indictment, No. A-5634, consisting of 11 counts, $4,000 on each count, or a total of $44,000.

On Indictment No. A-5635, consisting of 26 counts, a fine of $4,000 on each count, or a total of $104,000, making a total fine of $148,000 on two indictments.


author: PAUL, District Judge.

text:
    In re BUCHANAN.
    No. 1311.
    District Court, W. D. Virginia, at Big Stone Gap.
    Nov. 2, 1945.
    S. H. Sutherland, of Clintwood, Va., for bankrupt.
   PAUL, District Judge.

On April 25, 1945, Jasper Newton Buchanan was adjudicated a bankrupt upon his voluntary petition accompanied by schedules listing some twenty-two creditors and the debts owing to each. Thereafter in due course the matter came on for a hearing upon the bankrupt’s discharge and notice was given of the time within which objections to discharge might be filed. Within the time so limited A. M. Phipps, the trustee in bankruptcy, filed objections to the discharge, stating as grounds therefor: “That upon a former adjudication in voluntary bankruptcy by the said Jasper Newton Buchanan objection was made to the granting of a discharge and upon issue duly made and tried it was decided and ordered by the court that the said bankrupt be denied a discharge. That the same debts were reported and listed and scheduled by the said bankrupt in his said former petition and proceedings as were listed and scheduled in the said present bankruptcy proceedings. That former adjudication is res adjudicata on the present proceedings for discharge of said bankrupt.”

On the filing of the above-quote‘d objections, the bankrupt moved the referee (1) for a more definite statement as to the alleged refusal of a discharge in a prior proceeding and (2) to strike out and dismiss the objections in the instant case on the ground that they failed to state any reason for denial of a discharge. The referee reserved action on clause (2) of the bankrupt’s motion until the time of the hearing and in the meanwhile procured a stipulation from the parties for a more definite statement as to the prior proceeding in which the bankrupt had been involved. From this stipulation, as well as from the record in the prior proceeding, it appears that Buchanan filed a voluntary petition in bankruptcy in this court on February 18, 1929, resulting in his adjudication on February 19, 1929; that when he thereafter applied for a discharge in that proceeding objections were filed on the grounds that he had concealed his assets, had committed fraudulent transfers of property prior to filing his petition, and had made a false oath in relation to the proceeding; that on December 12, 1930, the then judge of this court entered an order denying the bankrupt a discharge. It is further agreed that nineteen of the creditors listed in the present proceeding were among those listed in the former proceeding and that as to these creditors the debts listed in both proceedings are the same. It appears, therefore, that only three of the creditors in the present proceedings hold debts incurred since the first bankruptcy. The schedule shows these three debts to be in a very small amount.

As a result of the hearing on discharge in the instant case the Referee entered an order in which, after referring to the proceeding of 1929 and the denial of a discharge therein and to the identity of the debts in the two proceedings, he granted a discharge as to those debts incurred since the prior proceeding but specifically and in terms excepted from the operation of the discharge the nineteen debts which had been involved in the former proceeding. It is this order which the bankrupt has asked to be reviewed, his complaint relating, of course, to the provision which denies the right of a discharge as to the nineteen debts. I take it that the bankrupt’s contention is that the referee erred in (1) not striking the objections to discharge on the ground that they failed to state a reason for which a discharge could be denied, and (2) exempting any of the debts from the operation of the discharge order.

Discussion

It has long been settled that where a bankrupt has been denied a discharge in a bankruptcy proceeding he cannot thereafter, in another and subsequent proceeding, obtain a discharge which will release him from the debts scheduled in the prior procéeding. The rule is stated in Gilbert’s Collier on Bankruptcy, 4th Ed., p. 362, as follows: “A debt provable in a former proceeding in which a discharge was denied on the merits will not be released by a discharge in a subsequent proceeding. In such a case the determination in the first proceeding is res adjudicata as to the creditors scheduled therein, and as to their claims the discharge of the bankrupt in a subsequent proceeding is not a bar.”

This rule has been stated and repeated in numberless cases. It rests on the principle that where a court has denied a discharge and the proceeding has terminated with an adjudication that a bankrupt is not entitled to be discharged from his debts, this adjudication cannot be circumvented or nullified by a discharge of the same debts in a subsequent proceeding. It is an application of the doctrine of res adjudi-cata which prevents the re-litigation of issues once decided. In re Fiegenbaum, 2 Cir., 121 F. 69; In re McCausland, D.C., 9 F.Supp. 129.

Even wdiere there has been no formal denial of a discharge in the first proceeding but a failure to obtain one through failing to apply for it, the result is the same. “Denial of a discharge from the debts provable, or failure to apply for it within the statutory time, bars an application under a second proceeding for discharge from the same debts.” Freshman v. Atkins, 269 U.S. 121, 123, 46 S.Ct. 41, 70 L. Ed. 193. To the same effect see: In re Bramlett, D.C., 161 F. 588; In Re Weintraub, D.C., 133 F. 1000; In re Pullian, D.C., 171 F. 595; In re Loughran, 3 Cir., 218 F. 619; In re Von Borries, D.C., 168 F. 718; In re Bacon, 5 Cir., 193 F. 34; Kuntz v. Young, 8 Cir., 131 F. 719; In re McMorrow, D.C., 52 F.2d 643; In re Brislin, 10 F.Supp. 181. The same is held where in the prior proceeding the petition was dismissed for failure to prosecute; Pollet v. Cosel, 1 Cir., 179 F. 488, 30 L.R.A.,N.S., 1164; Colwell v. Epstein, 1 Cir., 142 F.2d 138, 156 A.L.R. 836.

The referee was undoubtedly correct in his conclusion that the denial of a discharge to the bankrupt in the first proceeding was a conclusive adjudication against him and rendered the question of his right to a discharge of the same debts in this proceeding res adjudicata.

The bankrupt argues that the objections filed by the trustee set forth none of the grounds upon which a discharge can be denied as prescribed in Section 14 of the Bankruptcy Act, 11 U.S.C.A. § 32, except by suggestion and by reference to the grounds upon which the discharge was denied in the first proceeding. From this he argues that the concealment of assets and the fraudulent transfers of property did not take place within twelve months preceding the filing of the present petition in bankruptcy and are therefore not grounds for denying a discharge herein. This argument misses the point. The issue here is not whether the bankrupt has been guilty of concealing or transferring his assets. The objections are not based on that ground. They are based on the ground that it has heretofore been formally and finally adjudicated that he is not entitled to be discharged from certain debts. The reason for that former adjudication is not material here. As pointed out above, the result would have been exactly the same if his failure to obtain a discharge in the first proceeding had been due to no delinquency of conduct but due solely to a failure to apply for a discharge.

The only question that could be raised is of appropriate procedure. As to whether the referee, in the light of the record before him, made up of the objections filed by the trustee and the record in the previous case, had authority to enter an order in the form in which he did; i. e. granting a discharge as to debts incurred since the first proceeding, but exempting from its operation the debts involved in the old case.

It is true that the objections filed by the trustee did not set forth any of those specific grounds for denial of a discharge named in Section 14. The referee recognized and mentioned this fact both in his opinion and in his order; but held that the objections filed were good as a plea of res adjudicata to the application for discharge as to the nineteen debts listed in the old proceeding. I am of opinion that the course pursued by the referee was clearly within his powers and that his order was a proper one, the authority for which is now well settled.

During the ten years or so following enactment of the Bankruptcy Act of 1898 various courts had had before them this problem of attempts by bankrupts to secure discharge of debts as to which they had failed to obtain a discharge in a prior proceeding; and had dealt with it in several ways. In Kuntz v. Young, 8 Cir., 1904, 131 F. 719, where the debts in the two proceedings were identical, the action of the lower court in dismissing the second proceeding was approved. In re Fiegen-baum, 2 Cir., 1903, 121 F. 69, also involved identical debts and the court, stating that it was unnecessary to decide whether the second proceeding should be dismissed, said a proper course was to restrain the bankrupt from filing a second application for discharge. In the case of In re Wein-traub, D.C., 1905, 133 F. 1000, the bankrupt was enjoined from prosecuting the second proceeding. In the last three cases cited the debts involved in the two proceedings were the same. However, in Re Kuffler, 2 Cir., 1907, 168 F. 1021, some of the debts listed in the second proceeding had been incurred since the first. As to these the court noted that the bankrupt was entitled to a discharge and indicated that the proper course was to stay the application for discharge, but limiting the stay to such of the debts as had been involved in the prior proceeding. In the Matter of Pullian, D. C., 1909, 171 F. 595, there were likewise a few debts incurred since the first' proceeding. The court stated that had the debts been identical the proper course would have been to dismiss the second proceeding; but because of the new debts it followed the procedure indicated in the Kuf-fler case, supra, which it cited. It is to be noted, however, that in this case (Pullian) the court pointed out authority to the effect that the situation could be dealt with by granting an order of discharge from the operation of which the debts provable in the first bankruptcy were expressly excepted.

The later acceptance of the procedure of granting a discharge in the second bankruptcy proceeding with an express exception of debts provable in the first was, no doubt, impelled by the case of Bluthenthal v. Jones, 208 U.S. 64, 28 S.Ct. 192, 52 L. Ed. 390, 13 L.R.A.,N.S., 629, decided by the Supreme Court in 1908, which indicates the desirability and necessity of such a course. That case was one in which a bankrupt, as here, sought the discharge in a second proceeding of debts the discharge of which had, been denied in a previous proceeding. No opposition being offered a general discharge in the second proceeding was granted. An affected creditor thereafter sought to enforce his debt in the state court, claiming that it was not affected by the discharge on account of the adjudication denying its discharge in the previous proceeding. The Supreme Court in holding against the creditor pointed out that there was nothing in the record to show that the discharge was not applicable to the debt in question and said in substance that the creditor should have appeared in the second proceeding and pleaded the former adjudication; that one who relies upon a former adjudication must properly present it to the court in which he seeks to enforce it, and that while an adjudication in bankruptcy, refusing a discharge, finally determined for all time and in all courts the facts upon which the refusal was based, it must be proved in a second proceeding in order to bar a discharge therefrom in the latter.

Thereafter came the cases of Pollet v. Cossel, 1 Cir., 1910, 179 F. 488, 30 L.R.A., N.S., 1164, and In re Bacon, 5 Cir., 1912, 193 F. 34, 37, in both of which the opinion in Bluthenthal v. Jones, supra, was discussed and in both of which approval was given to the granting of a discharge excepting certain debts. In the case of In re Bacon the court, after referring to and quoting from the opinion in Bluthenthal v. Jones, says: “From this it appears to be required that the granting of a discharge under a second petition be resisted by objecting creditors with claims provable under a first petition. If so, the bankruptcy court must have authority in its order of discharge to limit the effect of the discharge and to except from its operation all debts provable under the former petition.” (Emphasis supplied.)

The court refers to the cases of KufHer and of Pullian, supra, in which the court had enjoined the bankrupt from applying for a discharge; and cites Pollet v. Cossel, supra, with several other cases as accomplishing the same result by granting a discharge expressly excepting the old debts. It approves the latter practice as being more convenient and says: “If the District Court has authority to limit the discharge so as to except from its operation debts of this character, it seems clear that it has the authority to express the limitation and exception in the order granting the discharge, though the Supreme Court form of discharge contains no such exception.”

In this case certiorari was denied under the style of Bacon v. Buffalo Cold Storage Co., 225 U.S. 701, 32 S.Ct. 836, 56 L. Ed. 1264. See also In re Von Borries, D. C., 1909, 168 F. 718 and In re Westbrook, D.C. 1911, 186 F. 414, District Court cases cited in Re Bacon, supra, in which the same procedure was approved.

As the years have gone by this procedure has become settled as the accepted and approved practice in cases of this sort. See In re Cooper, D.C.N.J., 236 F. 298, where the court answered in the affirmative the specific question: “Whether in such subsequent proceeding, when it appears that there are debts which have been incurred since the first proceeding, and from which he (the bankrupt) is entitled to a discharge, he may be granted a qualified discharge, excepting the old debts.” And see In re McCausland, D.C.Cal., 9 F.Supp. 129; Colwell v. Epstein, 1 Cir., 142 F.2d 138, 156 A.L.R. 836; In re Summer, 2 Cir., 107 F.2d 396, 397, in the latter of which the court points out the proper procedure as follows: “In a case where the debts listed in both bankruptcy proceedings are the same, a discharge may be denied altogether in the later proceeding * * *; but where the later proceeding includes additional debts, the practice is to grant a discharge which specifically excepts from its operation the debts that were listed in the prior proceeding. (Citing cases.) Indeed, it appears to be necessary for the creditor to obtain such an exception if his claim is to be preserved against the bar of the discharge.” Citing Bluthenthal v. Jones, 208 U.S. 64, 28 S.Ct. 192, 52 L.Ed. 390, 13 L.R.A,,N.S., 629.

So far have the courts recognized this as a settled practice and as one necessary for the protection of creditors that they have allowed a general order of discharge to be amended some months afterward so as to exclude from its operation a debt listed and not discharged in a prior proceeding. In re Zeiler, D.C.N.Y., 18 F.Supp. 539.

And in the recent case of In re Shepherd, D.C.Or., 61 F.Supp. 948, 951, the court says: “It has long been the recognized practice of the bankruptcy court, upon motion of a proper party, or on its motion if the facts appear from its records, to qualify a discharge by excluding debts on which the bankrupt is barred from obtaining relief.”

The authoritative text-books on bankruptcy lay down the same procedure as the proper and established one. See Collier on Bankruptcy, 14th Ed., as cited in Re Shepherd, supra; and Gilbert’s Collier on Bankruptcy, 4th Ed. 333, saying: “The discharge in the subsequent proceedings must except all debts provable in the first bankruptcy and which could have been discharged therein.”

I also have no doubt that it was a proper function, and within the duties, of. the trustee to raise this question before the referee. Under Section 14, sub. b of the Act, as amended in 1938, it is provided that the court shall hear “such proofs and pleas as may be made in opposition to the discharge, by the trustee, creditors, the United States attorney, or * * * ” (others). It is no longer required that the trustee shall act in opposition to a discharge only when previously authorized by the creditors to do so. The facts being known to the trustee he, in pursuance of his duty to protect the interest of creditors, had the right to act on his own initiative. Nor is it material whether, in bringing the situation before the court, his action be entitled objections to discharge or a plea in denial of the right to discharge. All that was necessary was that the facts be brought to the attention of the court. In fact, the court might have acted on its own initiative when the facts were made to appear before it. In this case the referee treated the objections filed as a plea of res adju-dicata to the application for an order of discharge. It upheld the plea as to the nineteen debts involved in the first proceeding. This was plainly right and the terms of the order of discharge, in which this holding was specifically set forth, were in the form usual and proper in such cases. The action of the referee is affirmed.


author: WELSH, District Judge.

text:
    UNITED STATES v. 11,360 ACRES OF LAND IN YUBA COUNTY, CAL., et al.
    Civil Action No. 4442.
    District Court, N. D. California, N. D.
    Nov. 1, 1945.

      M. Mitchell Bourquin, Sp. Asst. to Atty. Gen., for plaintiff.
    Manwell & Manwell, of Marysville, Cal., for defendants Wellman.
   WELSH, District Judge.

The Government brought this action to condemn land for military purposes. Possession was obtained pursuant to law of 11,360 acres, more or less, in the County of Yuba, State of California, designated as the Marysville Cantonment, and subsequently called Camp Beale. Defendants William E. and Viola Wellman were the owners of 40 acres, with improvements thereon, in said area for which they agreed to accept $4,260. An option was executed accordingly on the 2nd day of March, 1942.

Defendants continued to remain in possession until the 28th day of March, 1942, when a fire destroyed their family dwelling. They carried insurance thereon in the sum of $2,000. Their insurance carrier tendered a check for said amount, which was forwarded to plaintiff, but acceptance thereof was declined. Defendants are, so far as this Court is advised, still entitled to the payment of said insurance. Plaintiff claims that title to the property had not yet passed, that it had not accepted possession, and that the full purchase price could not, therefore, be paid.

If there were solely a question of eminent domain involved herein the following principles would apply.

“The owner [is] entitled to * * * ‘market value’ * * * of what is taken * * * what ‘it fairly may be believed that a purchaser in fair market conditions would have given * * * market value fairly determine’ * * * what a willing buyer would pay in cash to a willing seller.” United States v. Miller, 317 U.S. 369, 374, 63 S.Ct. 276, 280, 87 L.Ed. 336, 147 A.L.R. 55.
“The compensation to which the owner is entitled is the full and perfect equivalent of the property taken. Monongahela Nav. Co. v. United States, 148 U.S. 312, 327, 13 S.Ct. 622, 37 L.Ed. 463. It rests on equitable principles and it means substantially that the owner shall be put in as good position pecuniarily as he would have been if his property had not been taken.” Seaboard Air Line R. Co. v. United States, 261 U.S. 299, 304, 43 S.Ct. 354, 356, 67 L.Ed. 664.
“The sum required to be paid the owner does not. depend upon the uses to which he has devoted his land but is to be arrived at upon just consideration of all the uses for which it is suitable. The highest and most profitable use for which the property is adaptable and needed or likely to be needed in the reasonably near future is to be considered, not necessarily as the measure of value, but to the full extent that the prospect of demand for such use affects the market value while the property is privately held.” Olson v. United States, 292 U.S. 246, 254, 54 S.Ct. 704, 708, 78 L.Ed. 1236.

The situation is of the sort referred to in Montana R. Co. v. Warren, 137 U.S. 348, 11 S.Ct. 96, 97, 34 L.Ed. 681:

“At best, evidence of value is largely a matter of opinion, especially as to real estate. * * * The jury is compelled to reach its conclusion by comparison of various estimates. Much more so is. this true when the effort is to ascertain the value of real estate in the country, where sales are few, and where the elements which enter into and determine the value are so varied in character.”

The defendants are placed in an even stronger position by reason of the fact that negotiations had reached the point where an actual option contract had been entered into with the Government. One provision of said contract relied on by plaintiff reads:

“(5) The Vendor agrees that loss or damage to the property by fire or acts of God shall be at the risk of the Vendor until the title to the land and deed to the United States have been accepted by the United States through its duly authorized representative, or until the right of immediate occupancy and use of the land, as hereinbelow provided for, has been exercised by the United States, and in the event that such loss or damage occurs, the United States may, without liability, refuse to accept conveyance of title, or it may elect to accept conveyance of title to such property, in which case there shall be an equitable adjustment of the purchase price.”

The Government has elected to accept title to the property, consequently “an equitable adjustment of the purchase price” is in order.

What would be an “equitable adjustment” under these circumstances? Plaintiff appears to take the view that it is entitled to the land at a price fixed by its appraiser in arriving at the figure of $4,260 for the land with the dwelling house standing thereon. The Court is not convinced that that would be equitable.

It is not inequitable to require the Government to pay an amount in excess of the $23.50 per acre fixed by its appraiser for the bare land. It is a matter of common knowledge that actual use as dwellings is not made of buildings such as those standing on defendants’ property at the time the contract was made. Defendant William Wellman testified that Government engineers had told him that he could buy the buildings back for $515, and that he actually would have purchased them if the house had not taken fire. These buildings included the dwelling which the official appraiser had appraised at $3,000, and on which defendants carried insurance in the sum of $2,000.

The term “equitable” has been defined as meaning “according to natural right or natural justice; marked by due consideration for what is fair, unbiased, or impartial; fair; just.” Taylor v. School District, 128 Neb. 437, 259 N.W. 168, 169. Also as being “characterized by equity or fairness; according to the principles of equity; just and right; fair; reasonable.” Burlington Transp. Co. v. Iowa State Commerce Commission, 230 Iowa 570, 298 N.W. 631, 635.

Adjustment has been said to mean an arrangement; a settlement. Davis Lumber Co. v. Pacific Lumber Agency, 127 Wash. 198, 220 P. 804, 805.

It seems fair, reasonable and just in making an arrangement or settlement for the parties involved to take into consideration the situation in which defendants are placed. They may well have concluded originally to take the amount offered by the Government even though they firmly believed that their property was worth more. It is possible that they had in mind other property which might be purchased as a home for approximately the $4,260 which was offered. They might have been quite unwilling to take a lesser sum. Now that their dwelling has been destroyed and they are offered only the price of the bare land, they are entitled to have figures other than those prepared by the plaintiff’s appraiser taken into consideration.

There is testimony in the record that defendants’ land itself, without the improvements, was worth $45 per acre. The Court is inclined to accept that figure rather than the $23.50 per acre mentioned by the witness Thomas G. Mapel. Said witness had not lived in, or consummated any real estate transactions in, the vicinity of defendants’ land. As a resident of Sacramento, it appears that he had no specific knowledge of the tract involved in this action prior to the time he was employed to make appraisals in the year 1941.

The only testimony as to the value of the barn, garage, shop, woodshed, storage shed, acetylene tank, pipes, fixtures, waste bowl and well which was cemented down to rock, was that of said witness Mapel. The Court therefore takes his figure of $320 for these items.

Forty acres of land at $45 per acre amounts to $1,800. Adding the aforesaid $320 makes a total of $2,120. It is concluded, therefore, that $2,000 is an equitable adjustment of the purchase price, for which it is ordered that defendants have judgment.

It is hereby further ordered that defendants recover interest at the rate of six per cent (6%) per annum on said amount from the date of taking of the property.

Counsel for defendants will prepare findings in accordance herewith.