author: HAYES, District Judge.

text:
    ROYAL MFG. CO. v. SPRADLIN.
    No. 95.
    District Court, M. D. North Carolina, Winston Salem Division.
    Feb. 5, 1934.
    As Amended June 11, 1934.
    E. C. Bivens, of Mount Airy, N. C., for plaintiff.
    John J. Ingle, of Winston Salem, N. C., for defendant.
   HAYES, District Judge.

The Boyal Manufacturing Company drew a draft, with bill of lading attached, on Chatham Manufacturing Company of Elkin, N. C., which was sent by the American Trust Company of Charlotte, N. C., through the usual banking channels, to the Elkin National Bank for collection and remittance. The Elkin National Bank presented the draft to the Chatham Manufacturing Company, and the Chatham Manufacturing Company paid it with a check on its deposit in the Elkin National Bank. The draft was marked paid and delivered to the Chatham Manufacturing Company, and the check was marked paid and charged to the account of the Chatham Manufacturing Company. The Chatham Manufacturing Company had on deposit funds more than sufficient to satisfy the cheek, and the Elkin National Bank had cash on hand more than sufficient to pay the Chatham Manufacturing Company’s cheek. The Elkin National Bank kept its cash reserve account with the Wachovia Bank & Trust Company, and drew a draft against this amount and sent it to the American Trust Company in payment of the proceeds of the draft, but before the draft cleared the Wachovia Bank & Trust Company, the Elkin National Bank was placed in the hands of a receiver. The Elkin National Bank had in the Wachovia Bank & Trust Company cash on deposit more than sufficient to pay this draft, and it remained on deposit at the time of the appointment of the receiver, and the receiver took possession of the deposit.

C. S. Supp. N. C. 1924, § 218 (e), subsec. 14, as amended by Pub. Laws 1927, c. 113, contains the following: “The word ‘asset’ used herein shall not be deemed to include bailments or other property to which such banks has no title. Provided, that when any bank, or any officer, clerk, or agent thereof, receives by mail, express or otherwise, a check, bill of exchange, order to remit, note, or draft for collection, with request that remittance be made therefor, the charging of such item to the account of the drawer, acceptor, indorser, or maker thereof, or collecting any such item from any bank or other party, and failing to remit therefor, or the non-payment of a cheek sent in payment therefor, shall create a lien in favor of the owner of such item on the assets of such bank making the collection, and shall attach from the date of the charge, entry or collection of any such funds.”

Under the law in this state prior to the enactment of this statute in 1927, the holder of a draft which had been sent to the bank for collection, and which had been collected by the bank on one of its depositors, was not entitled to a preference. First Nat’l Bank v. Davis, 114 N. C. 343, 19 S. E. 280, 41 Am. St. Rep. 795; Corporation Com. v. Bank, 137 N. C. 697, 50 S. E. 308; N. Car. Corp’n Com. (Pine Hall Brick Company) v. Bank of Hamlet, 192 N. C. 823, 135 S. E. 342; Braswell v. Bank, 197 N. C. 229, 148 S. E. 236, 238.

While Braswell v. Bank, supra, was decided after the enactment of the statute, the facts in the ease occurred before the statute was enacted.

This statute was construed by the Supreme Court of North Carolina in Morecock v. Hood, 202 N. C. 321, 162 S. E. 730, 731, in which Judge Adams says: “The proviso applies to the receipt by any bank of a check, etc., with request that remittance, not manual delivery, be made therefor. One of the conditions imposing liability is a failure to remit, or ‘the non-payment of a cheek sent in payment therefor.’ The language excludes the idea of a direct communication when the depositor goes to the bank and personally presents his cheek for payment.” Plaintiff was denied the lien because the check was not sent by mail or express. In re Liquidation of Bank of Pender, 204 N. C. 143, 167 S. E. 561 and Board of Education v. Hood, 204 N. C. 353, 168 S. E. 522, denied the existence of the lien for the same reason.

Notwithstanding the large number of bank failures which have occurred in North Carolina since 1927, the Supreme Court of this state has not been asked to interpret this statute except as above referred to, for the reason, no doubt, that receivers have respected the law as expressed in that statute by treating the proceeds of a collection not as assets of a bank, but as a fund belonging to the one for whom collected. This statute clearly supersedes the law as declared by the Supreme Court in Corporation Commission v. Bank, supra, and similar decisions. The North Carolina statute embodies what was declared to be the law by the United States Supreme Court in Dakin v. Bayly, decided November 20, 1933, 290 U. S. 143, 54 S. Ct. 113, 78 L. Ed. 229, where it was held that the forwarding bank of a draft for collection is nothing but the agent of the drawer, and that this agency continues until the proceeds are remitted, and that the forwarding bank is not a creditor of the collecting bank and for this reason cannot offset such items against its debt to the collecting bank. It is there held that the owners of the drafts were entitled to collect the same from the collecting bank; that the forwarding bank could not take any position of its own initiative, without affecting the owner’s consent and the pre-existing relation of principal and subagent between the owner and the collecting bank.

The purpose of this statute is to require faithful performance of an agency enterprise which a reasonable standard of morals would call for.

The decisions of this circuit may appear to be in conflict with the views expressed in this opinion, but an examination and analysis of them will show that they have not had the controlling facts and this statute presented. The last decision, Lifsey v. Goodyear Tire & Rubber Co., Inc. (C. C. A.) 67 F.(2d) 82, holds the facts do not come within the Yirginia statute. It does not contain a provision applying to the bank’s charging the collection against the account of the depositor, whereas the North Carolina statute does. The collection had not been completed, nor remitted. The manifest purpose of the North Carolina statute is to place the out of town holder of a check or draft on a footing as favorable as the one occupied by the local depositor. The local depositor can present his check and get the cash. If the bank collects the out of town check or draft received through the mails by charging it to the account of its customer, it is the bank’s duty, under this statute, to remit the proceeds to the owner, and the owner has a lien thereon. The proceeds of the collection rightfully belong to the owner of the draft; thereafter they are not the property of the bank, and the general creditors have no right to participate therein.

The receiver contends that the statute relates only to the distribution of assets of an insolvent bank, directed entirely to state banks, but, if intended to apply to national banks, it conflicts with the federal statute requiring ratable distribution (12 USCA §§ 91, 194), and is void as to them, relying on Davis v. Elmira Savings Bank, 161 U. S. 275, 16 S. Ct. 502, 40 L. Ed. 700. The state statute in that case undertook, only in the event of insolvency, to make one general depositor preferred over another, which was repugnant to the acts of Congress, and void. The acts of Congress in regard to the creation, operation, and liquidation of national banks are paramount to state legislation, but it does not follow that state legislation cannot apply when not repugnant to the acts of Congress. At page 287 of 161 U. S., 16 S. Ct. 502, 505, it is said: “It is certain that, in so far as not repugnant to acts of Congress, the contracts and dealings of national banks are left subject to the state law, and upon this undoubted premise, which nothing in this opinion gainsays, the proposition is advanced that the deposit here considered of the savings bank with a national bank imported a contract to pay the claim of the former with the preference allowed by the New York statute. But this overlooks the plain terms of the New York law. That statute does not profess to deal with the bank and its relations as a going concern; it wholly and exclusively undertakes to regulate the distribution of the assets after insolvency. Insolvency, and insolvency alone, is made the criterion from which the preference is to arise.” Again, on page 288 of 161 U. S., 16 S. Ct. 502, 506, it is said: “True it is that where, by state law, a lien is made to result from a particular contract, that lien, when its existence is not incompatible with the act of congress, will be enforced.”

Referring to Rev. St. § 5242 (12 USCA § 91), and Rev. St. § 5236 (12 USCA § 194), in Scott v. Armstrong, 146 U. S. 499, at page 510, 13 S. Ct. 148, 151, 36 L. Ed. 1059, the court said: “Liens, equities, or rights arising by express agreement, or implied from the nature of the dealings between the parties, or by operation of law, prior to insolvency and not in eontemplation thereof, are not invalidated. The provisions of the act are not directed against all liens, securities, pledges, or equities, whereby one creditor may obtain a greater payment than another, but against those given or arising after or in contemplation of insolvency.”

The dealings and contracts of national banks are governed by general state laws except where they expressly conflict with the laws of the United States, or frustrate the purpose for which the national banks were created or impair their efficiency. McClellan v. Chipman, 164 U. S. 347, 357, 17 S. Ct. 85, 41 L. Ed. 461; First National Bank v. Union Trust Co., 244 U. S. 416, 426, 37 S. Ct. 734, 61 L. Ed. 1233, L. R. A. 1918C, 283, Ann. Cas. 1918D, 1169. In First National Bank in St. Louis v. Missouri, 263 U. S. 640, 44 S. Ct. 213, 68 L. Ed. 486, a statute of Missouri prohibited any bank from operating a branch bank. In a suit by the state to enjoin a national bank from operating a branch bank, the national bank denied the authority of the state over it, but the Supreme Court held the statute applied to national banks for the reason that the legislation did not conflict with the acts of Congress. In this case, on page 656 of 263 U. S. 44 S. Ct 213, 215, it is said: “Nevertheless, national banks are subject to the laws of a state in respect of their affairs, unless such laws interfere with the purposes of their ereation, tend to impair or destroy their efficiency as federal agencies, or conflict with the paramount law of the United States.”

The -mere fact that the proviso is attached to a section of the North Carolina statute dealing with the distribution of the assets of insolvent banks does not confine its operation to insolvent banks. It clearly establishes a lien in favor of one who sends by mail, etc., a draff, etc.,'for collection, with request that remittance be made therefor, and which is collected by charging it to the account in the bank, and failing to remit therefor, or the nonpayment of a cheek sent in payment therefor, which lien attaches to the assets of the bank making the collection from the date of the charge, entry, or collection of any such funds. The lien, therefore, is in no wise contingent upon the insolvency of the bank. It attaches, in all eases, “from the date of the charge, entry or collection of any such funds.” The lien exists before insolvency and subsequent insolvency does not invalidate it. Moreover, it is not attempting to prefer one creditor over another in eases of insolvency, but the purpose of the act is to make a lien against the assets of any collecting bank until it pays the proceeds of collection made by it as agent. The language is perfectly plain. It was' to put an end to court decisions making the collecting bank a mere common debtor and denying the principal the right to reach his property in the hands of his agent.

The banks receive a fee for collecting drafts sent to them. If a lien attaches in favor of the sender, if sent to a state bank, a national bank would be unable to compete in that field, with a state bank, if a similar lien does not attach against the assets of a national bank.

It is true, as contended by the Receiver, that the purpose of a proviso is to modify the enacting clause and not to enlarge it or confer a power. But the general principle has no application when the language of the proviso plainly implies a specific intent on the part of the legislature, for, in such eases, it must be construed, in accordance with the language, although it may enlarge the scope of the act, or assume the force of an independent enactment.

In Propst v. Southern R. Co., 139 N. C. 397, 399, 51 S. E. 929, 921, it is said, in considering a proviso: “The intention of the lawmaker, if plainly expressed, must have the force of law, though it may be in the form of a proviso; the intention expressed being paramount to form.” There the Court was determining whether the proviso affecting railroads applied only to domestic railroads, or to foreign railroads also. The Court did not restrict it to domestic, but applied it to foreign, railroads to carry out the legislative intent. This decision apparently answers the receiver’s contention that the bank, referred to in the proviso, is a state bank, and not a national bank. But the statute says, “when any bank, etc.,” which plainly shows its application to all banks and the creation of a lien against its assets for the proceeds of a collection where the cheek or draft is sent by mail, or otherwise, for collection and remittance. The language is plain and explicit. It is our duty to declare it accordingly.

The Supreme Court of the United State-has adopted the same rule of construing a proviso. Railroad v. Smith, 128 U. S. 174, 9 S. Ct. 47, 32 L. Ed. 377; Springer v. Philippine Islands, 277 U. S. 189, 207, 48 S. Ct. 489, 484, 72 L. Ed. 845. In the latter case it is said: “We think rather that both provisos are to be construed as independent and substantive provisions. As this court has more than once pointed out, it is not an uncommon practice in legislative proceedings to include independent pieces of legislation under the head of provisos. See Gerogia Banking Company v. Smith, 128 U. S. 174, 181, 9 S. Ct. 47, 32 L. Ed. 377; White v. United States, 191 U. S. 545, 551, 24 S. Ct. 171, 48 L. Ed. 295; Cox v. Hart, 260 U. S. 427, 435, 43 S. Ct. 154, 67 L. Ed. 332,”

The proviso did not create a preference; it created a statutory lien. The lien was not contingent upon the bank becoming insolvent; it attached upon the collection of the item. Of necessity the bank would be open and transacting business in order to make the collection. The legislature used the word “preference” everywhere in the act preceding the proviso, but it used the word “lien” advisedly and to make it apply without regard to preferences.

Assuming then that the state statute is applicable to national banks, does it conflict with the acts of Congress or frustrate the purposes for which national banks are created? Congress has not legislated at a„ on the liabilities of a bank as collecting agent. It has provided for the distribution of the assets of insolvent banks. 12 USCA § 194. But the provisions of this statute and 12 USCA § 91 do not conflict with the North Carolina statute, nor does that statute in any way frustrate the objects for which national banks are created.

The ease of Dakin v. Bayly, supra, involved the construction of a state statute in regard to set-off, and the decision turned on the construction of the state statute. It is an authority also for the proposition that the collecting bank is agent, not alone to- collect, but to remit the proceeds of the collection. In view of this decision ahd of the others cited above, and of the state statute here involved, the assets in the possession of the receiver are subject to the lien created by the North Carolina statute, and the receiver must pay it out of the assets.

A lien against the assets of a bank, under the Georgia statute, was held applicable to, and enforceable against, a national bank in Fidelity & Deposit Company of Maryland v. Howard, 67 F.(2d) 961. Affirmed in Lewis v. Fidelity & Deposit Company of Maryland, 291 U. S. ---, 54 S. Ct. 848, 78 L. Ed. ---.


source: Caselaw Access Project

author: MO SCO WITZ, District Judge.

license: Public Domain

text:
    OLSEN v. JACKLOWITZ et al.
    No. 5484.
    District Court, E. D. New York.
    March 22, 1934.
    Richard M. Cantor, of New York City, for plaintiff.
    Arthur Taft, of New York City, for defendant Pearl Jaeklowitz.
    James J. Mahoney, of New York City, for defendant Shell Eastern Petroleum Products, Inc.
   MO SCO WITZ, District Judge.

The plaintiff, George Olsen, instituted a personal injury action against both defendants by reason of the carelessness and recklessness of the defendants, as a result of which he sustained personal injuries.

The complaint alleges that the plaintiff is a citizen and resident of the borough of Brooklyn, city and state of New York, in the Eastern District of New York. The defendant Pearl Jacklowitz is also a citizen and resident of the state of New York. The defendant Shell. Eastern Petroleum Products, Inc., is a foreign corporation duly organized and existing under and by virtue of the laws of the state of Delaware, and maintaining an office and doing business at 420 Oakland street, in the borough of Brooklyn, city and state of New York, within the Eastern District of New York.

Subsequently, both defendants were served in this action, joined issue, and came on for trial before this court on the 3d day of November, 1933. All parties to the action duly appeared by counsel and proceeded to trial. The jury rendered two verdicts, one in favor of the plaintiff, George Olsen, against the defendant Pearl Jacklowitz in the sum of $4,000, and the other in favor of the defendant Shell Eastern Petroleum Products, Inc.,. against the said plaintiff. No motion was made by either of the defendants challenging the jurisdiction of this court.

After judgment against the defendant Pearl Jacklowitz, she moved this court for an order setting aside the judgment on the ground that the court had no jurisdiction. The plaintiff joins the defendant Jacklowitz in moving to set aside the verdict, agreeing with counsel for the defense that the court had no jurisdiction. However, the defendant Shell Eastern Petroleum Products, Inc.,claims that the action against the defendants is severable and separable, and therefore asks for a severance from the above-entitled action.

The complaint in this case alleges a joint liability against both these defendants, and the defendant Shell Eastern Petroleum Products, Inc., cannot seek to make separable that which the plaintiff seeks to make joint. Powers v. Chesapeake & Ohio Railway Co., 169 U. S. 92, 18 S. Ct. 264, 42 L. Ed. 673.

The federal court is of limited jurisdiction. If diversity of citizenship Is lacking between the parties, that is a jurisdictional defect and cannot be waived. The want of it would be an error at any stage of the proceedings. Chicago, Burlington & Quincy Railway Co. v. Willard, 220 U. S. 413, 31 S. Ct. 460, 55 L. Ed. 521; Martin’s Adm’r v. Baltimore & Ohio Railroad Co., 151 U. S. 673, 14 S. Ct. 533, 38 L. Ed. 311; Mansfield C. & L. M. Railroad Co. v. Swan, 111 U. S. 379, 4 S. Ct. 510, 28 L. Ed. 462; De Vost v. Twin State Gas & Electric Co. et al. (C. C. A.) 250 E. 349.

The judgment against Pearl Jacklowitz is set aside and the judgment in favor of Shell Eastern Petroleum Products, Inc., is set aside on the ground of lack of jurisdiction, and the complaint is dismissed.

Settle order on notice.


text:
    JOINER v. FIREMEN’S INS. CO. OF NEWARK, N. J., et al.
    Nos. 59, 60.
    District Court, M. D. North Carolina.
    Feb. 3, 1934.
    Clifford Frazier, of Greensboro, N. C., John T. Brittain, of Asheboro, N. C., and Leland Stanford, of High Point, N. C., for plaintiff.
    Julius C. Smith (of Smith, Wharton & Hudgins), of Greensboro, N. C., for defendants.
   HAYES, District Judge.

The defendants deny liability under fire insurance policies on the dwelling because the insured was not the sole and unconditional owner in fee, for that an interest in the property was purportedly conveyed to Mm by a married woman without the joinder of her husband in the body of the deed. Questions as to validity of deeds are determined by the laws of the. state where the land lies. Haas v. Rendleman (C. C. A. 4th) 62 F.(2d) 701.

The Constitution of North Carolina, art. 10, § 6) provides that the wife may convey her realty “with the written assent of her husband * * * as if she were unmarried.”' C. S. N. C. § 2506, makes her property sole and separate with power to devise and bequeath, and, with the written assent of her husband, conveyed by her as if she were unmarried. C. S. N. C. § 2507, known as Martin Act of 1911, gives her the capacity to contract as if she were unmarried. And she is now liable as if she were unmarried on her contracts to convey land, though the contract to convey is without the written assent of her husband. Everett v. Ballard, 174 N. C. 16, 93 S. E. 335.

C. S. N. C. § 997, requires every conveyance affecting the title to real estate of a married woman to be executed by her and her husband, “and due proof or acknowledgment thereof must be made as to the husband and due acknowledgment thereof must be made by the wife, and her private examination, touching her voluntary assent to such instrument, shall be. taken separate and apart from her husband. * * * Any conveyance * '* * or contract to convey executed by any married woman in the manner by this chapter provided, and executed by her husband also, shall be valid,” etc. .

It is necessary that a wife’s deed be signed by the husband and acknowledged by both husband and wife. Hensley v. Blankinship, 174 N. C. 759, 94 S. E. 519. It was said in Stallings v. Walker, 176 N. C. 321, 324, 97 S. E. 25, his assent must be in writing, but it need not be by deed, as he has nothing to eonvey, his joining with her is sufficient, but the point was not presented and the language is dictum. The decisions of this state clearly indicate that it is necessary for the husband to sign and acknowledge his wife’s deed before deliver}’ before it is valid. Hensley v. Blankinship, supra; Ferguson v. Kinsland, 93 N. C. 337; Jackson v. Beard, 162 N. C. 109, 78 S. E. 6; Warren v. Dail, 170 N. C. 406, 87 S. E. 126; and Graves v. Johnson, 172 N. C. 178, 90 S. E. 113. In Gray v. Mathis, 52 N. C. 503, it was held that a deed by a married woman to her separate estate which was signed by the husband under the wife’s name, but his name not appearing in the body of the deed, was void, but this decision antedated the Constitution of 1868 giving the wife the right to eonvey her real estate with the written assent of her husband, and at a time when married women labored under many legal handicaps, most of which have been abrogated by statute, Stallings v. Walker, supra, and the Mathis Case is not decisive of the facts here involved.

Since the husband has no estate in his wife’s land and merely holds a “veto” over her conveyances, is her deed which he signs under her name and under seal, which he, as a grantor, acknowledges the due execution of, a sufficient written assent to meet the requirements of the Constitution and of the North Carolina statute? I think so. The purpose of requiring the written assent is to afford the wife the counsel and protection of her husband, and not to eonvey any estate in the realty. When he signs it under her signature and then acknowledges the execution of the deed as one of the grantors, but one inference can arise, and that is that he was giving his required written assent to her conveyance.

In Yates v. Insurance Company, 173 N. C. 473, 477, 92 S. E. 356, the names of the grantors did not appear in the body of the deed, but they signed it, and acknowledged it before an officer. The court held that it was a valid deed of conveyance. Berry v. Cedar Works, 184 N. C. 187, 192, 113 S. E. 772, 775, approves the following principle: “We concede all that is contended for as to the common-law rule of construction, and that it has been followed in this state. But this doctrine, which regarded the granting clause and the habendum and tenendum as separate and independent portions of the same instrument, each with its especial function, is becoming obsolete in this country, and a more liberal and enlightened rule of construction obtains, which looks at the whole instrument without reference to formal divisions, in order to ascertain the intention of the parties, and does not permit antiquated technicalities to override the plainly expressed intention of the grantor, and does not regard as very material the part of the deed in which such intention is manifested.” Watkins v. Simonds, 202 N. C. 746, 164 S. E. 363, cites this case with approval.

The old common-law policy of strict construction is criticized in an instructive case from Georgia (Sterling v. Park, 129 Ga. 309, 58 S. E. 828, 829, 13 L. R. A. [N. S.] 298, 121 Am. St. Rep. 224, 12 Ann. Cas. 201), and it is said: “When a deed is signed, the utility of naming the grantor in the premises or any part of the body of the instrument appears in a great measure superseded; for know,’ says Perkins, section 36, ‘that the name of the grantor is not put in the .deed to any other intent but to make certainty by the grantor.’ * * * This certainty is attained whenever the person signs, seals, acknowledges, and delivers an instrument as his deed, though no mention, whatever be made of him in the body of it, because he can perform these acts for no other possible purpose than to make the deed his own.”

Since the deed of the husband conveys no title to his wife’s land, but evidences his written assent to her conveyance, upon reason and authority, subscribing his name under seal to her deed, and acknowledging his execution thereof as required by law, is a sufficient written assent to make her deed valid.

If there is some doubt as to the correctness of this view, the deed is subject to reformation upon proof that the name of the husband was omitted by mutual mistake.

Be that as it may, the deed is undoubtedly sufficient to make the plaintiff an equitable owner in fee of the land. Under the Martin Act, supra, and decisions construing it, her contracts, without the written assent her husband, are valid, and she is liable in damages for a breach, and, in this case, specific performance could be decreed against her and her husband, as his signature to her deed is undoubtedly sufficient to hind him, so that plaintiff is the equitable owner, to say the least. of

In Jordan v. Insurance Company, 151 N. C. 341, 60 S. E. 266, the court said: “A vendee of land under an executory contract of purchase, who has paid a portion of the purchase price and entered into possession is an ‘unconditional and sole owner' in fee simple in respect to the usual clause in a policy of fire insurance relating to the title; and sueh does not avoid the policy on the house under a provision therein that the policy shall be void if the interest of the insured is other than unconditional and sole ownership of the fee simple title, in the absence of allegation of misrepresentation as to title and encumbrances. * * * The idea is that equitable ownership is, properly speaking, entire and sole ownership in fee, as regards the real purpose of the provision commonly used in insurance contracts on that subject.” The policies are in language of the North Carolina Code (C. S. N. C. § 6436), and this court is bound by the decisions of North Carolina construing its statutes. Niagara Fire Insurance Co. of New York v. Raleigh Hardware Co. (C. C. A. 4th) 62 F.(2d) 705.

The insurance policies are not voidable on the ground that the insured was not the sole and unconditional owner, within the meaning of that clause.

The master finds that the insured, in making proof of loss, willfully made false oath to the proof of loss in respect of the separate policies on the household and kitchen furniture, in that he filed a proof of loss showing the destruction of a piano valued at $850 and a radio valued at $350, when neithem of them was destroyed, and that he placed a value of $650 on a living room suite when it cost him only $150 new. The evidence amply supports the findings. The law is so recently and so clearly stated by Judge Parker in Globe & Rutgers Fire Insurance Company v. Stallard (C. C. A. 4th) 68 F.(2d) 237, decided January 4, 1934, that it is unnecessary to cite any further authorities. The provision is valid, and its violation avoids the policy.

The plaintiff, therefore, is not entitled to recover on the policy covering the personal property.


text:
    In re FINLEY.
    District Court, M. D. North Carolina, Wilkesboro Division.
    April 12, 1933.
    Kyle Hayes, for petitioner.
    J. A. Rousseau and Jones & Brown, all of North Wilkesboro, N. C., for trustees.
   HAYES, District Judge.

This is a petition by J. H. Johnson to have the deed of trust executed by the bankrupt on September 10, 1928, though not recorded until October 9, 1930, declared a first lien on the real estate therein described. A voluntary petition in bankruptcy was filed January 14, 1931.

The trustees assail the conveyance under section 60b of the National Bankruptcy Act, 11 USCA § 96 (b). The application. of the section to the facts, of this case depends upon the law of North Carolina. Firestone Tire & Rubber Co. v. Cross (C. C. A.) 17 F.(2d) 417.

N. C. Code Annotated § 3311 provides that mortgages shall not be valid as against creditors or purchasers for a valuable consideration from the mortgagor, but from the registration thereof.

As between the parties the mortgage is valid. Wallace v. Cohen, 111 N. C. 103, 15 S. E. 892; Deal v. Palmer, 72 N. C. 582; McBrayer v. Harrill, 152 N. C. 712, 68 S. E. 204, 205; Ellington v. Supply Co., 196 N. C. 784-789, 147 S. E. 307.

In McBrayer v. Harrill, supra, the administrator of the deceased mortgagor sold the land and paid off a first mortgage but refused to pay a second mortgage which was unrecorded at the death of mortgagor and applied the proceeds to the payment of debts due general creditors. Chief Justice Clark said: “The surplus left should have applied to the lien of plaintiff’s unregistered second mortgage. It was a specific lien with priority over all other classes of debt (Revisal, § 87 (1), to the extent of the net proceeds of the realty covered by the mortgage. * * * He was evidently under the erroneous impression that, the plaintiff’s mortgage being unregistered at the death of the mortgagor, the plaintiff had no specific lien. This was error.”

In Hinkle v. Greene, 125 N. C. 489, 34 S. E. 554, it was held that the widow’s year’s allowance has priority over general creditors of deceased but is subject to unregistered mortgage, citing with approval Williams v. Jones, 95 N. C. 504, in which the principle was first announced.

Judge Connor, the author of the North Carolina Registration Act, was a distinguished member of the Supreme Court of North Carolina for many years before he was appointed United States District Judge. He was thoroughly conversant with the legislative history and the decisions construing it. In National Bank of Goldsboro v. Hill (D. C.) 226 F. 102, 115, he regarded the question settled without citation of authority. He said: “No creditor had, at that time, fastened any lien, by levy of an execution thereon or otherwise. It does not appear that judgments had been rendered or any suits brought against the * * * company. It is weE settled by the decisions in this state that, unless a general creditor has secured a specific lien on the property of the mortgagor or grantor, before the registration of the deed or mortgage,' it is valid as against general creditors from its registration.” He cited Holt v. Crucible Steel Co., 224 U. S. 262, 32 S. Ct. 414, 56 L. Ed. 756, where the Kentucky Statute which is in the same language as ours was involved and in which it was held that, as no creditor had fastened any lien upon the property covered by the mortgage prior to the proceedings in bankruptcy by which the title passed to the trustee, the mortgage was valid as against him. See York Mfg. Co. v. Cassell, 201 U. S. 344, 26 S. Ct. 481, 50 L. Ed. 782.

There was no proof to show that the bankrupt was insolvent when the mortgage was executed, or recorded, nor that mortgagee had reasonable ground to believe the bankrupt insolvent at either time. It is essential for the trustee to aver and prove that the bankrupt was insolvent at the time of the fixing of the lien. Liberty National Bank v. Bear, 265 U. S. 365, at page 369, 44 S. Ct. 499, 68 L. Ed. 1057.

There is no evidence that any general creditor has obtained a judgment or fastened any lien on property here involved prior to the registration of the mortgage as between the parties and as affecting general creditors, without a lien, the unregistered mortgage is good. The question was presented in. Re Cunningham (Higdon & Franks v. Jones) (4th C. C. A.) 64 F.(2d) 296, decided April 4, 1933, a case involving similar case and arising in the Western District of North Carolina, and decided in favor of the validity of the mortgage.

The mortgage was executed for a valuable consideration years before the filing of petition in bankruptcy, through inadvertence and without fraud, it was nor recorded until within four months from the filing of petition, hut no lien having attached, and no proof of insolvency of bankrupt at time of recording mortgage, the mortgage is valid and does not constitute a preference. Bonner v. First National Bank (C. C. A.) 248 F. 692.


author: CAYANAH, District Judge. •

text:
    EVANS v. UNITED STATES.
    No. 1597.
    District Court, D. Idaho, S. D.
    Feb. 3, 1934.
    Hawley & Worthwine, of Boise, Idaho, for plaintiff.
    John A. Carver, U. S. Atty., E. H. Casterlin, Asst. U. S. Atty., and R. L. Slaughter, Atty., of U. S. Department of Justice, all of Boise, Idaho.
   CAYANAH, District Judge. •

At the close of all the evidence, the defendant requested the court to direct a verdict in its favor, which was granted. The plaintiff now moves for a new trial, and his principal assertion is that, while the policy was in force, he became totally and permanently disabled, and that there was substantial evidence to warrant the submission of that question to the jury. One other ground is urged in the motion, that Dr. Stewart should have been permitted to have given his expert opinion upon the hypothetical question.

Although not tenable, on the argument and in counsel’s brief other questions are urged which are not raised by the motion and may not be considered.

As in this class of eases a.request for a directed verdict is generally made in this district, the court deems it necessary to endeavor to lay down the rule governing when a directed verdict should be, and should not be, granted.

The rule testing the direction of a verdict as recognized by the federal courts is: “Where the evidence is undisputed, or of such conclusive character that if a verdict were returned for one party, whether plaintiff or defendant, it would have to be set aside in the exercise of a sound judicial discretion, a verdict may and should be directed for the other party,” and not where there is scintilla or modicum of conflict in evidence. Small Company v. Lambom & Company, 267 U. S. 248, 254, 45 S. Ct. 306, 69 L. Ed. 597.

In Slocum v. New York Life Ins. Co., 228 U. S. 364, 369, 33 S. Ct. 523, 525, 57 L. Ed. 879, Ann. Cas. 1914D, 1029, the Supreme Court again recognized the mode of invoking the application of the rule, and said: “As a preliminary to the consideration of the first question it may be well to repeat what this court often has said, that when, on the trial of the issues of fact in an action at law before a Federal court and a jury, the evidence, with all the inferences that justifiably could be drawn from it, does not constitute a sufficient basis for a verdict for the plaintiff or the defendant, as the case may be, so that such a verdict, if returned, would have to be set aside, the court may and should direct a verdict for the other party.”

In Gunning v. Cooley, 281 U. S. 90, 50’ S. Ct. 231, 233, 74 L. Ed. 720, in review of its prior decisions, it was said by Mr. Justice Butler, who spoke for the court:

“A mere scintilla of evidence is not enough to require the submission of an issue to the jury. The decisions establish a more reasonable rule ‘that in every case, before the evidence is left to the jury, there is a preliminary question for the judge, not whether there is literally no evidence, but whether there is any upon which a jury can properly proceed to find a verdict for the party producing it, upon whom the onus of proof is imposed.’ Schuylkill & D. Improvement Companv v. Munson, 14 Wall. 442, 448, 20 L. Ed. 867; Pleasants v. Fant, 22 Wall. 116, 122, 22 L. Ed. 780. * * *
“Where uncertainty as to. the existence of negligence arises from a conflict in the testimony or because, the facts being undisputed, fair-minded men will honestly draw different conclusions from them, the question is not one of law but of fact to be settled by the jury. Richmond & Danville Railroad Co. v. Powera, 149 U. S. 43, 45, 13 S. Ct. 748, 37 L. Ed. 642.
“Where the evidence upon any issue is all on one side or so overwhelmingly on one side as to leave no room to doubt what the. fact is, the court should give a peremptory instruction to the jury. * * *
“The burden was on plaintiff to establish the negligence and injury alleged; and, if the evidence failed adequately to support either element, defendant’s motion should have been granted. * * *”

Compare Herbert v. Butler, 97 U. S. 319, 24 L. Ed. 958; McGuire v. Blount, 199 U. S. 142, 26 S. Ct. 1, 50 L. Ed. 125; Empire State Cattle Co. v. Atchison, T. & S. P. By. Co., 210 U. S. 1, 28 S. Ct. 607, 52 L. Ed. 931, 15 Ann. Cas. 70. These views are in accord with the numerous 'decisions of the Ninth Circuit Court of Appeals where it is said: “The test to be applied in such a case, of course, is not whether the evidence brings conviction in the mind of the trial judge; it is 'whether or not the evidence to support a directed verdict as requested, was so conclusive that the trial court in the exercise of a sound judicial discretion should not sustain a verdict for the opposing party.’ (Cases cited.)” Sorvik v. United States, 52 F.(2d) 406, 410; Nichols v. United States (C. C. A.) 68 F.(2d) 597 (decided January 24, 1934); United States Fidelity & Guaranty Company v. Blake (C. C. A.) 285 F. 449-452; United States v. Burke (C. C. A.) 50 F.(2d) 653.

While some of the decisions say that the court does not weigh the evidence upon a motion for a directed verdict, but it must inquire whether there was sufficient evidence of such a conclusive character as to sustain the verdict, and, if not, its duty is, in the exercise of a sound judicial discretion, to grant a new trial, and, if there is substantial evidence both for the plaintiff and the defendant, it is for the jury to determine what facts are established. This reasoning, considered with the thought expressed by the Supreme Court that, should the evidence be of a conclusive character and a verdict were returned for one party, whether plaintiff or defendant, it would have to be set aside by the court in the exercise of a sound judicial discretion, requires the court to determine the eonclusiveness of the evidence. Does then the evidence in the present ease disclose that it is of such a conclusive character that the plaintiff should not recover after the court has exercised a sound judicial discretion, and not where there may be a conflict in, or some evidence in support of, plaintiff’s claim?

At the time the plaintiff enlisted in the Army in July, 1918, he had only received a fifth grade education, without training for any occupation or profession, and had been engaged in mining and farming. He obtained war risk insurance against total permanent disability, which lapsed for nonpayment of premiums. While in the Army, he was wounded in action in October, 1918, by being struck first on the left side of his head with a high explosive shell and again with a shell which,struck his side, hip, fingers, and broke his left arm. He was taken to a hospital in France and pieces of loose bones were removed from his arm and pieces of iron from his neck. After arriving in the United States, he was taken to different hospitals, and another piece of iron was taken from his arm. His service record shows that in October, 1918, he was given a diagnosis of a hemorrhage carotid, and had an operation which was the ligation of the external carotid left. Since his return from the Army, he has frequently made efforts to work at mining and farming, but was required to quit within a short time on account of being weak and dizzy. He has not been able, since returning home, to follow continuously any occupation. No work record appears which would show that he was able to follow continuously an occupation within the meaning of the policy and the law. The disability alleged in his complaint is that he was wounded in and about his head, ears, arm, and neck, causing an injury to, and destruction of, flesh, bone, tissues, blood vessels, nerves, veins, and arteries, and a partial loss of hearing. At the argument on the motion it was conceded that the claim of disability of hearing and the wound in the left arm had not been established by the proof, leaving then the remaining contention of disability by reason of shell striking plaintiff on the left side of his head and neck, severing the artery which supplies blood to the brain, causing him to become totally and permanently disabled. The function of the brain is dependent upon the carotid artery, which furnishes the brain with the nutrition necessary to carry on the function.

The inquiry then is, Under the proof, is the plaintiff totally and permanently disabled as the result of the wound he received on the left side of his head and neck which caused the hemorrhage and the tying off of the artery? One would think that the determination of that question is within the field of the medical testimony, as a lay witness would not be versed as to what effect such a condition would have on the functioning of the brain or body. So we have to go to the testimony of the doctora, and, when we do so, we find a conflict in that respect. Dr. Stewart and Dr. Budge, who made an examination of the plaintiff, assert that they found him totally and permanently disabled, and was so at the time of his discharge from the Army as the result of a gunshot wound which caused the hemorrhage and severing of the carotid artery on the left side'of his head and neck, while other doctors testified for the defendant that he was not totally and permanently disabled, as his brain and spinal cord functioned normally. While one of the opinions of Dr. Stewart was based' on the history given to him by the plaintiff at the time he examined him and was stricken because be expected to testify in the case, yet we find that he gave further testimony as to his physical findings and his opinion as to what effect the tying off of the artery has upon the functioning of the brain, which in some respects corroborates the opinion of Dr. Budge. These two witnesses made an examination of the plaintiff, and found him to be in the condition they testified to. At the close of the evidence, I had the impression that the medical testimony overwhelmingly established normal functioning of the brain of the plaintiff and no disability as to use of arm or hearing. But, upon a careful reading of that portion of the testimony of Dr. Stewart which was not stricken together with Dr. Budge’s, considered in connection with the facts and circumstances rightly to he taken as proof which go to establishing the fact that the plaintiff could not continuously follow a substantially gainful occupation, I am now forced to the thought that a substantial conflict exists in the evidence, and the evidence is not of sueh a conclusive character as to bring the case within the above-stated rule warranting the giving of the directed verdict, and therefore a new trial is granted.


author: NETERER, District Judge.

text:
    In re NASLUND.
    No. 32830.
    District Court, W. D. Washington, N. D.
    Oct. 9, 1933.
    Newton & Newton, of Everett, Wash., for trustee.
    Wm. A. Johnson, of Everett, Wash., for bankrupt.
   NETERER, District Judge.

From an order of the referee denying the exemption claim of the bankrupt to the homestead of the bankrupt and his deceased wife before death, review is sought by the bankrupt; and review is sought by the trustee of the allowance of the claim of the bankrupt to household furniture and equipment as exempt and $250 in lieu of other property.

At bar, on hearing, the court affirmed the order allowing the furniture and equipment, and the in lieu allowance.

It is shown that the bankrupt’s wife died on the 12th day of January, 1931, and on the 16th day of January following her will was admitted to probate. The bankrupt was appointed and qualified as executor and entered upon the discharge of sueh duties. Small bequests were made to each of three children, and the remainder to the bankrupt.

On April 11, 1931, the estate was appraised at $22,850. Before the wife’s death, the bankrupt, for the community, owned and operated a grocery business, and continued to operate the same thereafter, replacing stock in trade as occasion demanded, and paid creditors of his business in the usual course. This continued until the 22d day of December, 1932, when the bankrupt made an assignment for the benefit of creditors.

On the 24th day of March, 1933, the bankrupt filed a petition in the probate court asking that there be set aside for him, as surviving spouse, in lieu of the homestead, property of the estate to the value of $3,009, including the home and furniture. This petition set forth that the funeral expenses and expenses of last illness of the deceased had been paid, that the costs of administration had been provided for, and that neither the decedent nor the surviving spouse had filed a declaration of homestead.

On April 20, 1933, an order of adjudication was entered in bankruptcy. On June 6, 1933, a hearing was had on the bankrupt’s petition for a homestead award upon due notice, as provided by state law, and an order was entered by the probate court setting aside the home, furniture, and household goods of the appraised value of $1,700, and some other property not in issue.

I think the referee erred in the consideration of this claim of exemption by ignoring the state court probate court proceedings. The probate court of the state acquired jurisdiction of the entire estate, and would retain it until disposed of in the manner provided by law. The irregular conduct of the executor would in no sense oust the probate court of jurisdiction. Adjudication in bankruptcy did not oust the probate court’s possession of the estate. While it had jurisdiction, it had the right to make such disposition of the property in due course of administration as was warranted by the law of the state, and it would appear from the record that the probate court proceeded in harmony with section 1473, Rem. Comp. Stat. of Washington, as amended by Laws Wash. 1927, p. 230, § 1 .which provides that:

“If it shall be made to appear to the satisfaction of the court that no homestead has been claimed in the manner provided by law, either prior or subsequent to the death of the person whose estate is being administered, then the court after hearing and upon being satisfied that the funeral expenses, expenses of last sickness and of administration have been paid or provided for, and upon petition for that purpose, shall award and set off to the surviving spouse, if any, property of the estate, either community or separate, not exceeding the value of three thousand dollars * * * and such award shall be made by an order or judgment of the court and shall vest the absolute title, and thereafter there shall be no further administration upon such portion of the estate so set off, but the remainder of the estate shall be settled as other estates.”

It is obvious that the probate court had jurisdiction. It entered judgment in harmony with the statute. This judgment has not been reversed or modified, and is res judicata in this court of the matter in issue. The order of the referee is therefore reversed, except as hereinbefore affirmed.


author: BREWSTER, District Judge.

text:
    In re PHOENIX BOND & MORTGAGE CO.
    No. 47605.
    District Court, D. Massachusetts.
    Feb. 23, 1934.

      Edward O. Proctor and Withington, Cross, Proctor & Park, all o£ Boston, Mass., for trustee in bankruptcy.
    George L. Dillaway, of Boston, Mass., for petitioner.
   BREWSTER, District Judge.

Review on certificate of an order of the referee entered in a reclamation proceeding which authorized the return to the petitioner of certain securities in the possession of the trustee in bankruptcy upon payment of $5,000, which the petitioner has received as dividends from the bankrupt, and upon the further payment by her of any debit balance due from her to the bankrupt estate on her open account.

I am unable to affirm this order.

The certificate is accompanied by an agreed-statement of facts, from which the following appears: That one McClaskey organized and was president, treasurer, and principal stockholder of the bankrupt corporation; that McClaskey, prior to the organization of the company, had acted for the petitioner as her adviser and broker in investment matters; that he had sold her stock in the bankrupt corporation upon which he had paid dividends aggregating $5,000', which were unlawfully paid. I do not understand that it is seriously disputed that the petitioner owed the bankrupt estate this amount.

Without going too much in detail into the transactions entered into by the bankrupt, apparently for the account of the petitioner, it is enough to say that, according to the books of the bankrupt, Mrs. Knapp owed a debit balance of $12,069.18. The books of a bankrupt broker, however, are not conclusive against its customers. They have a right to show that what appeared to be a debit balance was, in fact, a credit balance. Leonard v. Hunt (C. C. A.) 36 F.(2d) 13.

From the agreed statement of facts, it appears that the petitioner’s account had been charged with the following items:

$26,764.00 for 480 shares Associated Gas & Electric.

$2,535.70 for 100 shares Fed. Cap. Pfd.

$2,502.00 for 25 shares American Water Works.

None of these stocks were ever transferred to the petitioner. For a time the bankrupt carried a sufficient number of shares of the Associated Gas & Electric Company to enable it to make deliveries of the 480 shares in that company, but the bankrupt never allocated any particular 480 shares to the petitioner’s account. Respecting the other shares, the bankrupt never was in a position to make delivery of these shares to satisfy the petitioner and other customers. All of the shares were finally sold by the bankrupt, or its pledgees, without the knowledge or consent of the petitioner, and the account of the petitioner never received any credit on account of these shares or the sale thereof.

It also appears that the petitioner is entitled to a further credit of $1,456.90, representing the proceeds of 15 shares of J. S. Young Company stock belonging to the petitioner which was sold by the bankrupt on November 13, 1930, and for which no credit appears upon the books of the bankrupt.

It is also agreed that the market value, on the date of bankruptcy, of the stock which the bankrupt should have been holding for this petitioner was $15,660. I think, however, that this market value is not the extent of the bankrupt’s liability arising from these transactions. I agree with the petitioner that she is entitled to receive credit for the full amount charged against her on account of these shares, which were never delivered to her and never set apart for her. Compare Crehan v. Megargel, 235 Mass. 279, 126 N. E. 477.

The Massachusetts law controls. Leonard v. Hunt, supra; Lavien v. Norman (C. C. A.) 55 F.(2d) 91.

If proper credits were given the petitioner for the sums improperly charged to her and for the 15 shares of J. S. Young Company sold, together with interest, the bankrupt’s account would show a credit balance of over $24,000, against which she would be entitled to set off $5,000 which she owed the trustee in bankruptcy.

I do not conceive it my province to determine in these proceedings the exact amount of any claim for which petitioner may be permitted to prove. I have no doubt the parties can agree on this matter.

The petitioner is entitled to a return of the securities now in the possession of the trustee which she can identify as her own, without the payment of any money to the trustee.


author: COSGRAVE, District Judge.

text:
    SULLIVAN v. SHAW, Mayor, et al.
    No. 150-C.
    District Court, S. D. California, Central Division.
    Feb. 23, 1934.
    A. L. Wirin, of Los Angeles, Cal., for plaintiff.
    Ray L. Chesebro, City Atty., and John L. Bland, Deputy City Atty., both of Los Angeles, Cal., for defendants.
   COSGRAVE, District Judge.

At the instance of plaintiffs, an order was issued requiring the mayor, chief of police, and city council of Los Angeles to show cause why they should not be enjoined from interfering with a parade by the members of the United Front Conference Against Hunger which they propose to hold on May 1, 1934.

The United Front Conference Against Hunger is a voluntary association with a membership of 60,000. They propose to parade over the principal streets of the city in protest against hunger and starvation of workers; to expose the extent of suffering and hunger; and to secure relief and redress of grievances from the public authorities. Application for permit to parade was made to the city council and by that body denied, and plaintiffs allege that such action was because of their political and economic views. The petition refers to previous similar applications made by it, one of which shows a purpose to withdraw children from the public schools to join in the proposed parade. The petition further sets forth the action of the city council in granting permission for similar parades by other bodies, and claims that the refusal of the city authorities to allow the parade is unlawful interference with freedom of speech, freedom of assemblage, and a denial of the equal protection of the law enjoyed under the Constitution of the United States.

Responsive to the order to show cause, defendants by their answer admit the refusal of the application of the permit, deny that their action was based upon disapproval of the political and economic views of the plaintiffs; that their action was taken to prevent undue interference with traffic, in the interests of public order; and that such parade would be provocative of disorder and riot.

The ordinance under which the city council acted designates a certain portion of the city, which includes the streets upon which plaintiffs desire to parade, over which parades and processions may not pass without a permit from the city council. Such regulation is a very common example of the exercise of police power and there is nothing peculiar in such an ordinance in any city of considerable size. The enactment by states of police regulations as to subjects within their control is not a denial of the rights guaranteed by the Fourteenth Amendment to the Federal Constitution. Davis v. Commonwealth of Massachusetts, 167 U. S. 43, 17 S. Ct. 731, 42 L. Ed. 71.

The power to grant or refuse permits must, however, be exercised without discrimination. A permit to parade ma.y not be granted to one and refused to another under similar circumstances. Time, circumstance, and occasion, however, properly enter into the decision of the city council. That body might well consider seriously the granting of a permit for a parade of 60,000 people, or any considerable fraction of that number, including an indefinite number of children withdrawn from public schools, through the main business streets of the city, necessarily loosely organized, not responsive to or amenable to the discipline that should attend such a demonstration and with possible ineitation to riot and disorder.-

With the political or economic opinions of the United Front Conference Against Hunger neither the city council nor the court has anything to do. The city council may, however, examine all the circumstances attending such applications, and if there appears a reasonable basis for its action, such action is conclusive. It does not matter that the court might differ from its conclusions. Under the circumstances here presented, the city council exercised a reasonable discretion in the refusal of the permit.

Application for mandatory injunction should therefore be denied, and it is so ordered. Exception to plaintiffs with respect to this order.


text:
    THE KERMIT.
    No. 1899.
    District Court, S. D. California, S. D.
    Jan. 8, 1934.
    Alfred C. B. McNevin, of New York City (Overton, Lyman & Plumb and L. K. Vermille, all of Los Angeles, Cal., of counsel), for libelants.
    Young, Lillick, Olson, Graham & Kelly, of Los Angeles, Cal. (John C. McHose, of Los Angeles, Cal., of counsel), for respondent and claimant.
    Kirlin, Campbell, Hickox, Keating & McGrann, of New York City (James H. Herbert, of New York City, of counsel), for respondent and claimant.
   COSGRAVE, District Judge.

My conclusions with respect to all of the issues here presented, other than the statute of limitations, are in favor of the libelant. The frail and unsafe condition of the containers of the sugar was noticed at the time the cargo was loaded at Hamburg. Contrary, however, to this known fact, a bill of lading was issued certifying that the cargo was in apparent good condition. On the strength of this bill of lading, payment was made in Dresden, and the Irving National Bank immediately became liable to the Dresden bank for this sum. Libelants plainly could do nothing to help themselves on the arrival of the cargo in New York.

The cargo was damaged and libelants were financially injured.

The damage was suffered in July, 1920. Claim was made asserting damage in October following. The libel was not filed until December 3, 1924. The claim is made on behalf of claimant that the statute of limitations had run, for that the admiralty court adopts by analogy the statute of limitations of the forum, which in this ease would be four years. I believe that this position is supported by authorities generally and decisively supported in this circuit by the following eases: U. S. Shipping Board v. Rosenberg (C. C. A.) 12 F.(2d) 721, 724; Frymier v. Mascola (C. C. A.) 31 F.(2d) 107, 108; The San Rafael (C. C. A.) 141 F. 270, 280; Cresci v. Standard Fisheries (D. C.) 7 F.(2d) 378; and in other circuits: Davis v. Smokeless Fuel Co. (C. C. A.) 196 F. 753, 755; McGrath v. Panama R. Co. (C. C. A.) 298 F. 303.

I see no exceptional circumstances in the evidence that would render the running of the statute of limitations inequitable. As suggested, the damage was suffered in July, 1920; claim was made first in October, 1920: an action in personam might have been commenced in New York at any time from the occurrence of the loss, as the office of claimant was but a short distance from the office of libelants.

Judgment must be for claimant, and it is so ordered. Claimant will prepare appropriate decree. Exception to libelants.


author: CUSHMAN, District Judge.'

text:
    McKINLAY v. PUGET SOUND BRIDGE & DREDGING CO.
    No. 20818.
    District Court, W. D. Washington, N. D.
    Nov. 4, 1933.
    Rehearing Denied Feb. 19, 1934.
    Preston, Thorgrimson & Turner, of Seattle, Wash., for plaintiff.
    Roberts, Skeel & Holman, of Seattle, Wash., for defendant.
   CUSHMAN, District Judge.'

■Plaintiff moves to remand on the ground that the petition and bond for removal were not served or filed within the time required by the statute of the state of Washington or rules of its courts for the defendant to answer to the complaint of the plaintiff.

The summons and complaint were served on the 30th day of June, 1933.

In so far as material to the present question, civil actions in the state of Washington are commenced by the service of the summons (Remington’s Revised Statutes of Washington, § 220), which summons is directed to the defendant, requiring him to answer the complaint within 20 days after the service of the summons, exclusive of the day of service (Remington’s Revised Statutes of Washington, § 221).

28 USCA § 72 provides that any party entitled to remove any suit (with an exception not now material) may file a petition in the state court at any time before the defendant is required by the laws of the state or the rules of the state court in which such suit is brought to answer or plead to the declaration or complaint of the plaintiff.

The petition for removal was served and filed August 12, 1933, on the forty-third day after the service of the summons and complaint.

It appears that on July 17, 1933, that is, on the seventeenth day after service of summons, defendant, through its attorneys, served its appearance upon the attorneys for the plaintiff.

Section 411 of Remington’s Revised Statutes of Washington provides that:

“Judgment may be had if the defendant fail to answer to the complaint, as follows:
“If the defendant give notice of appearance in the action before the expiration of the time for answering, he shall be entitled to five days’ notice of the time and place of application to the court for the relief demanded in the complaint. * * * ”

Rule IV of the Rules of the Superior Courts in the State of Washington provides: “A party may respond to any pleading at any time before a default is claimed. A default shall be deemed claimed whenever a motion therefor is filed, accompanied with the affidavit of the party or his attorney, claiming such default, that no appearance has been made in the action; but will not be granted against a party who has appeared in the action by attorney, until the motion has been served.” (Italics now supplied.)

There is no showing in the present record that a default was ever claimed in the state court.

The motion to remand will be denied. Hofto v. National Casualty Co., 135 Wash. 313, 237 P. 726.

The clerk will notify the attorneys for the parties herein of the foregoing decision.


author: LITTLETON, Judge.

text:
    CENTRAL IRON & STEEL CO. v. UNITED STATES.
    No. J-184.
    Court of Claims.
    March 5, 1934.
    Ralph J. Baker, of Harrisburg, Pa. (Hause, Evans & Baker, of Harrisburg, Pa., on the brief), for plaintiff.
    George H. Foster and James A. Cosgrove, both of- Washington, D. C., and Frank J. Wideman, Asst. Atty. Gen., for the United States.
    Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
   LITTLETON, Judge.

This ease again comes before the court on defendant’s motion for a new trial, in which it is contended that the conclusion of law and judgment in favor of plaintiff, pursuant to the findings of fact and opinion of the court heretofore rendered on June 19, 1933 (4 F. Supp. 113), should be set aside, vacated, and the petition dismissed for the reasons that, first, the court is without jurisdiction because the Commissioner of Internal Revenue granted special assessment under section 210' of the Revenue Act of 1917 (40 Stat. 307); and, second, if the court has jurisdiction in a case of this character, the income and profits tax liability must be determined without regard to special assessment and on the basis of a determination of the statutory invested capitel and net income; that such a determination, after allowing the interest deduction claimed of $306,168.01, would show an additional tax to be due in excess of-that shown on the return, instead of an overpayment.

Neither of these questions was presented when the ease was first tried and submitted for decision on the basis of the issues (1) whether the claims for refund were sufficient, and (2) whether plaintiff was entitled to a deduction from gross income of interest paid by receivers in 1917. The overpayment claimed by plaintiff was not otherwise questioned, except to the extent of $14,351.58, with interest, based on plaintiff’s claim for an excess profits credit of 9 per cent, instead of 7 per cent., as allowed by the Commissioner. This item, set forth in the petition as plaintiff’s first cause of action, was resisted by the defendant on the ground that the court was without jurisdiction to consider it in view of the decision in Williamsport Wire Rope Co. v. United States, 277 U. S. 551, 48 S. Ct. 587, 72 L. Ed. 985, inasmuch as the Commissioner had granted special assessment and computed the profits tax under the provisions of section 210 of the Revenue Act of 1917 (40 Stat. 307). Plaintiff abandoned its claim on this item when the case was submitted, and it was not considered or allowed by the court.

The findings of fact heretofore made by the court disclose the facts with reference to the Commissioner’s allowance of special assessment and the computation of the profits tax under section 310. However, for the purpose of the questions now presented, finding 29 is amended by making a part thereof by reference the Commissioner’s letter of December 27, 1922, and the computations thereto attached, Plaintiff’s Exhibit 7, and the Commissioner’s letter of March 12, 1925, and the computation thereto attached, Plaintiff’s Exhibit 6. These letters set forth the Commissioner’s determinations before the allowance of special assessment and the computation of the profits tax under section 210 of the Revenue Act of 1917. The consolidated invested capital of $3,049,401.50, set forth in schedule 6 of the letter of December 27, 1922, was increased by subsequent adjustments to $3,148,880.46. In addition to the aforementioned letters, the Commissioner’s letter of April 9, 1926, together with the computations thereto attached, Plaintiff’s Exhibit D, is also made a part of finding 29 by reference. This letter sets forth the Commissioner’s final determination of the tax liability for 1917 after computation of the profits tax under section 210.

The question presented by the motion for a new trial relates to the jurisdiction of the court and may be raised at any time. Upon careful consideration thereof we are of opinion that the court is without jurisdiction in any case where the Commissioner has allowed special assessment and determined the tux under the special assessment section of the statute when the result of the court’s decision, if in favor of the plaintiff on the question presented, would alter or abrogate the Commissioner’s determination under the special assessment provision, or necessitate further consideration by the Commissioner for the purpose of determining whether the profits tax rate theretofore fixed under the relief provisions should be increased or decreased, or whether the decision of the court on the question concerning the correct income had removed the abnormality upon the basis of which special assessment had been allowed. While the last-mentioned feature would not be presented in a ease like the one at bar, involving 1917, where the only ground for special assessment is the inability satisfactorily to determine invested capital, the principle is the same whether the case arises under the act of 1917 or 1918, for the reason that net income is one of the principal factors in determining the constructive invested capital and amount of the profits tax.

In Heiner v. Diamond Alkali Co., 288 U. S. 502, 53 S. Ct. 413, 415, 77 L. Ed. 921, the Commissioner of Internal Revenue allowed special assessment and determined the tax under section 328 of the Revenue Act of 1918 (40 Stat. 1093). The taxpayer thereafter brought suit in the District Court, contending that the Commissioner had allowed insufficient amortization and that the net income determined by him should be decreased and the resulting overpayment computed by using the profits tax rate determined by the Commissioner under section 328. The District Court held, 39 F.(2d) 645, that plaintiff was entitled to an increase in the deduction for amortization and computed the overpayment accordingly. On appeal to the Circuit Court of Appeals, the deduction allowed by the District Court was further increased, 60 F.(2d) 505. In the Supreme Court the government contended that the decisions of the District Court and the Circuit Court of Appeals amounted to an abrogation of the Commissioner’s administrative discretionary findings in the making of a new finding as to the right of special assessment and a fresh computation of the tax upon the revised net income. The court held that the position taken by the government was correct and that the case of Williamsport Wire Rope Co. v. United States, supra, precluded revision, correction, or abrogation of the Commissioner’s discretionary findings for the reason that “it is beyond the power of a court to usurp the Commissioner’s function of finding that special assessment should be accorded, and equally so to substitute its discretion for his as to the factors to be used in computing the tax.” The court further held that the special assessment section “grants the taxpayer the benefit of discretionary action by the Commissioner, and precludes judicial revision or alteration of the computation of the tax.” When the taxpayer upon application obtains a determination of his tax under the special assessment provisions, he surrenders the right further to contest in court the correctness of the Commissioner’s determination with respect to any of the factors necessary to his discretionary findings and the computation of the tax. The system provided by law for a judicial review of the Commissioner’s actions in tax cases contemplates that the court shall render final judgment, and, since the court is without jurisdiction to substitute its decision for that of the Commissioner as to the factors to be used in computing the tax, it cannot proceed with a case as though special assessment had not been applied, and the court is likewise without jurisdiction to decide the question presented and remand the ease to the Commissioner for further exercise of his discretionary powers to determine whether or not the change in net income results in a greater or less profits tax.

The motion for a new trial is allowed, and the conclusion of law and judgment heretofore entered are vacated and set aside, and a conclusion of law and judgment dismissing the petition are this day entered. It is so-ordered.

BOOTH, Chief Justice, and WHALEY, WILLIAMS, and GREEN, Judges, concur.


text:
    W. H. BRADFORD & CO., Inc., v. UNITED STATES.
    No. J-253.
    Court of Claims.
    March 5, 1934.

      Paul Armitage, of New York City, for plaintiff.
    George H. Foster, of Washington, D. C., and Frank J. Wideman, Asst. Atty. Gen. (E. H. Horton, of Washington, D. C., on the brief), for the United States.
    Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
   LITTLETON, Judge.

In this action plaintiff seeks to have the court reduce the net income of $612,493.50, as found by the Commissioner of Internal Revenue in granting special assessment, by the amount of $38,341.72, claimed as a loss or worthless debt deduction, and then apply to the changed net income the profits tax rate of 34.162 per cent, determined and employed by the Commissioner in Ms computation, and, upon such computation of plaintiff’s income and profits tax, enter judgment for an overpayment of $15,615.05.

The defendant contends that the court is without jurisdiction to inquire into the merits of the claim presented by plaintiff for the reason that the Commissioner allowed plaintiff’s request for special assessment and computed its profits tax liability under the provisions of section 328 of the Revenue Act of 1918 and that any change in the net income for the taxable year would alter the Commissioner’s administrative discretionary findings. We think the defendant’s position is well taken.

Inasmuch as the court is without authority to review the action of the Commissioner in determining the amount of the profits tax under section 328 or to revise, correct, or abrogate such determination, it necessarily follows that the Commissioner’s action in determining the amount of plaintiff’s net income is not subject to judicial review. Before-the Commissioner can apply the provisions of seetion 328, he must determine the net income. If net income is reduced, one of the principal factors in computing the profits tax has been destroyed and the Commissioner’s determination has been altered. Any change in the income requires a new computation of the tax. This is not permitted by the statute. Central Iron & Steel Co. v. United States (Ct. Cl.) 6 F. Supp. 115, decided this date. If the net income is altered, the same corporations used as comparatives by the Commissioner may no longer be similarly circumstanced with respect to net income. It may also be that by reason of the reduced income, because of the deduction claimed, there would be no abnormality in income, which may have been the cause that prompted the Commissioner to allow special assessment, and the taxpayer would not be entitled to any relief under the special assessment section of the statute, or that the corporations used as comparatives would no longer be comparable. Moreover, the amount of the profits tax is a deduction, credited against income under section 236 (b), Act of 1918 (40’ Stat. 1080) from income in computing the income tax. If the profits tax should be rendered erroneous by reason of a change of factors upon which such tax was computed under section 328, the income tax, computed upon an income erroneously determined, by reason of the deduction of an erroneous profits tax, would also be erroneous.

The petition must be dismissed. It is so ordered.

BOOTH, Chief Justice, and WHALEY, WILLIAMS, and GREEN, Judges, concur.


author: PER CURIAM.

text:
    SEMMES v. UNITED STATES.
    No. M-329.
    Court of Claims.
    March 5, 1934.

      John A. Sweeney, of Washington, D. C. (Fred A. Woodis, of Washington, D. C., on the brief), for plaintiff.
    George H. Foster and Elizabeth B. Davis, both of Washington, D. C., and Frank J. Wideman, Asst. Atty. Gen., for the United States.
    Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
   PER CURIAM.

Upon the foregoing special findings of fact, whieh are made part of the judgment herein, the court decides as a conclusion of law that the plaintiff is not entitled to recover and the petition is therefore dismissed. Judgment is rendered against the plaintiff in favor of the United States for the cost of printing the record herein, the amount thereof to be ascertained by the clerk and collected by him according to law.


author: WHALEY, Judge.

text:
    JOHNSON MOTOR CO. v. UNITED STATES.
    No. M-113.
    Court of Claims.
    March 5, 1934.

      Lyle T. Alverson, of New York City (Johnson & Shores, of New York City, on the brief), for plaintiff.
    James A. Cosgrove, of Washington, D. C., and Frank J. Wideman, Asst. Atty. Gen., for the United States.
    Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
   WHALEY, Judge.

This is a suit for the recovery of $10',098.-90 representing income tax and interest paid by plaintiff February 9, 1927, for the calendar year 1923.

The record of this ease is most inadequate and unsatisfactory in regard to the essential facts upon which the plaintiff bases its contention ; the facts axe left in the twilight zone and the court is expected to pick out and piece together a ease for the plaintiff from inferences and assumptions. All of the facts were well known to the officers of the old and new corporations and there is no assignment of any reason why the testimony of these officials has not been produced. From this vague record we gather that the plaintiff claims a capital set-up of approximately $260,600. In arriving at this amount plaintiff attempts to show that it purchased the entire assets of an insolvent corporation at a public sale held by the receiver of this corporation for the sum of $60,000; and that when this purchase was made it had an understanding with'the agent of the creditors of this insolvent corporation whereby certain creditors’ claims would be assumed by it. And as a matter of fact, in carrying out this agreement, the plaintiff subsequently paid the sum of $147,795.37 on the liabilities of the insolvent corporation although it only agreed to assume $137,735.98. There is no reason given for the additional payment. There is nothing in the record to show that the assets were worth more than the sum of $60,000' for which they were purchased at the public sale. The receiver who sold the assets was not a party to the agreement. The agent of the creditors made the so-called “agreement.” The evidence fails to disclose if all, or what proportion, of the creditors were protected by the agreement and to what extent. There is an intimation in the record that the stockholders of the new corporation axe the same as those of the old corporation; that these stockholders were the creditors of the old corporation; and that the new corporation was formed for the purpose of taking care of these creditor-stockholders. But there is no clear evidence to substantiate these facts. Who the creditors were whose claims were assumed and subsequently paid, is left in uncertainty.

The plaintiff contends that it is entitled to combine the actual cost of the assets at the receiver’s sale and the liabilities under the agreement with the agent of the creditors so that its books will reflect the actual outlay of the two amounts and not solely the amount of the purchase price at the receiver’s sale.

There is no question that the plaintiff would have been entitled to have included the debts assumed, if this assumption had been a part of the consideration of the purchase price at the receiver’s sale. It would have then been a capital and not a business expense, as held in Athol Manufacturing Company v. Commissioner (C. C. A.) 54 F.(2d) 230, and as the Board of Tax Appeals has repeatedly held. Randolph Bergfeld, 19 B. T. A. 312, and Consolidated Coke Co., 25 B. T. A. 345. But the instant ease is outside the rule laid down in these decisions. The agreement was no part of the purchase price of the assets of the old corporation.

The Commissioner of Internal Revenue made an audit of plaintiff’s books for the purpose of ascertaining plaintiff’s tax liability and decided $60,000 was the true capital expenditure, and on this amount assessed the tax. The rule is elementary that in tax proceedings a determination of the Commissioner is prima facie correct, and the burden is upon the plaintiff to overcome this presumption by the greater weight of the evidence. Wickwire v. Reinecke, 275 U. S. 101, 48 S. Ct. 43, 72 L. Ed. 184.

The evidence in this case fails to sustain the burden and, on the contrary, lends support to the Commissioner’s decision. It is not necessary to discuss the other contentions of the plaintiff in detail. All of them axe based on the capital set-up, and since we are clearly of the opinion that the amount found by the Commissioner should be affirmed, these contentions disappear from the case.

The petition should be dismissed. It is so ordered.


text:
    PIEDMONT WAGON & MFG. CO. v. UNITED STATES.
    No. K-254.
    Court of Claims.
    March 5, 1934.

      Marion Butler, of Washington, D. C., for plaintiff.
    John W. Hussey and W. W. Scott, both of Washington, D. C., for the United States.
    Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
   LITTLETON, Judge.

The elaim for additional interest on the overpayment for 1917 credited on March 31, 1926, to a tax due for 1929 cannot be allowed. This credit was made under section 1116 of the Revenue Act of 1926 (26 USCA § 153 note), which provides that interest on over-payments credited shall be paid only to the due date of the tax against which credited. The Commissioner computed and paid interest to the due date of the 1929 tax in accordance with the statute. No additional tax was assessed for 1917.

The claim for an overpayment of $18,-736.88 for the fiscal year 1919, based on the alleged erroneous determination by the Commissioner of Internal Revenue of the inventory for that year, cannot be considered for the reason that no claim for refund on this ground was filed until August 29, 1931, more than five years after the return was due and more than four years after the tax was paid. Moreover, the evidence introduced by plaintiff with respect to this item does not support the claim that the inventory was erroneously determined by the Commissioner.

The main contention of plaintiff, and the ground upon which the suit was originally predicated, is that the additional taxes for the fiscal years 1918 and 1919 were barred by the statute of limitation at the time they were assessed and collected for the reasons that (1) E. P. Rhyne, manager, secretary, and treasurer of the corporation, was without authority to execute the waivers, and (2) all of them were secured under duress and by fraud. We cannot sustain this contention. E. P. Rhyne was an executive officer of the corporation and it held him out as authorized to act for it in the matter of its tax liability for the years involved. The Commissioner, by letters addressed to plaintiff, requested the waivers for 1918 and 1919 and in response to these requests plaintiff transmitted to the Commissioner and filed with him such waivers bearing' its corporate seal, and executed by it by said E. P. Rhyne as secretary and treasurer. Central Aguirre Sugar Co. v. United States (Ct. Cl.) 2 F. Supp. 538. An executive officer or manager of North Carolina corporations has broad authority to act therefor. Rumbough v. Improvement Co., 112 N. C. 751, 17 S. E. 536, 34 Am. St. Rep. 528; Morris v. Basnight, 179 N. C. 298, 102 S. E. 389; Beck v. Wilkins-Ricks Co., 186 N. C. 210, 119 S. E. 235; Kelly v. Newark Shoe Stores Co., 190 N. C. 406, 130 S. E. 32; Fuller v. Motor & Tire Service, 190 N. C. 655, 130 S. E. 545, and such authority is the same as to third persons; Powell & Powell v. Lumber Co., 168 N. C. 632, 84 S. E. 1032. See, also, Hammond v. Carthage Sulphite Pulp & Paper Co. (D. C.) 34 F.(2d) 155; Liberty Baking Co. v. Heiner (D. C.) 34 F.(2d) 513; Id. (C. C. A.) 37 F.(2d) 703; Stevens Engraving Co. v. United States (C. C. A.) 53 F.(2d) 1.

Upon the record we think E. P. Rhyne acted within the scope of his authority as manager, secretary, and treasurer of the corporation in signing the waivers consenting to assessment and collection of the tax in question after the statutory period of limitation and that plaintiff is not entitled to recover on the ground that the waivers were invalid for lack of authority in Rhyne to act for the corporation in the premises.

The claim that the waivers were obtained under fraud and duress is not sustained by the evidence. The waivers in question were sent to plaintiff by the Commissioner in the usual way with request that they be executed and returned. This was done without protest of any kind.

The petition must be dismissed. It is so ordered.


text:
    UNIVERSITY CLUB, CITY OF WASHINGTON, D. C., v. UNITED STATES.
    No. M-428.
    Court of Claims.
    March 5, 1934.

      G. F. Snyder, of Washington, D. C., for plaintiff.
    Fred K. Dyar, of Washington, D. C., and Frank J. Wideman, Asst. Atty. Gen., for the United States.
    Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
   PER CURIAM.

This case is controlled by the decisions of this court in Army & Navy Club of America v. United States, 53 F.(2d) 277, 72 Ct. Cl. 684; Block Hall, Inc., v. United States, 57 F.(2d) 918, 74 Ct. Cl. 600; Union League Club of Chicago v. United States (Ct. Cl.) 4 F. Supp. 929, and Phi Gamma Delta Club v. United States (Ct. Cl.) 5 F. Supp. 140.


text:
    WILLIAM S. GRAY & CO. v. UNITED STATES.
    No. L-199.
    Court of Claims.
    March 5, 1934.

      Thomas G. Haight, of Jersey City, N. J. (J. Marvin Haynes and Robert H. Montgomery, both of Washington, D. C., and Roswell Magill, of New York City, on the brief), for plaintiff.
    James W. Morris, of Washington, D. C., and Frank J. Wideman, Asst. Atty. Gen., for the United States.
    Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
   WHALEY, Judge.

This is a suit to recover from the United States: (1) The sum of $6,801.90 on account of overpayment of income and profits taxes for the years 1917 and 1918, together with interest; and (2) the sum of $874.86, due under a contract of settlement with the United States dated January 5, 1921. There is no dispute as to the validity of these claims and the Comptroller General has approved them. Defendant, however, has asserted an offset against them on account of an alleged overpayment made to the plaintiff in the course of a settlement of war contracts which the defendant had with the plaintiff. The sole question in this case revolves around the validity of the counterclaim which the Comptroller General has asserted.

During the World War plaintiff entered into some fourteen contracts and a like number of orders with the government for the manufacture of war materials. It was necessary for the plaintiff to employ subcontractors under these contracts. At the termination of the war these contracts were canceled by the defendant. Each of the contracts contained a provision whereby it was agreed that in the event of termination, prior to its completion, the defendant would protect the plaintiff against its outstanding obligations to an extent apportionable to the unfinished portion of each of its contracts. Among the subcontractors with whom the plaintiff had to deal was the Albany Chemical Company. The plaintiff furnished the raw material to .the Albany Chemical Company and the Albany Chemical Company manufactured it into finished products. The Albany Chemical Company, in addition to its contracts with the plaintiff as a subcontractor, also had contracts directly with the government. These contracts were also terminated after the Armistice. The Albany Chemical Company filed its claim with respect to its canceled contracts with the government but made no claim as the subcontractor of plaintiff.

The plaintiff on-June 6, 1919, filed its claim with respect to the canceled contracts and thereafter made proof of its obligations incurred under the provisions of the contracts and included in its sworn-statement that the Albany Chemical Company was indebted to it for material winch had been furnished to it by the plaintiff for the manufacture of finished products under the contracts which the plaintiff had with the defendant. The government made an audit of the plaintiff’s statement of its obligations and investigated the relevant books, records, and plants of its subcontractors and determined that there was due from the Albany Chemical Company, the subcontractor of the plaintiff, to the plaintiff under the contracts which the plaintiff had with the government, the sum of $40,421.78. In order to dispose of the contracts involved, in which the Albany Chemical Company was the subcontractor, a supplemental agreement was drawn up by the government whereby it was agreed that'the plaintiff should be paid the stun of $49,421.78 in full settlement of its claims against the defendant on account of its canceled contracts. The agreement specifically mentions the contracts involved, and these are the only ones with the Albany Chemical Company as subcontractor. It provides that the plaintiff was to furnish a statement from the Albany Chemical Company that it would look to the plaintiff alone for the settlement of its claims as subcontractor under these' contracts. It was further provided that the supplemental contract should not be obligatory upon the defendant until approved by the Air Service Section of the War Department Claims Board, which approval “shall be deemed also as approval of said ‘statement’, or said ‘satisfactory evidence’ as sufficiently determining for the Government, for the purpose herein intended, the contractual relations existing between the contractor and the said subcontractor respecting commitments (Italics inserted.)

In August, 1929, the Albany Chemical Company executed and delivered a statement in which it asserted that it looked alone to the plaintiff for the payment of the sum of $40,421.78, in settlement of its claims against the government, as subcontractor on the contracts with plaintiff, and upon the receipt of this statement from the Albany Chemical Company, the Air Service Section of the War Department Claims Board executed and delivered in September, 1920, the supplemental contract to the plaintiff and paid to the plaintiff the sum called for in the contract, and this amount was duly applied by the plaintiff on its books to the amount which was owed to it by the Albany Chemical Company for the raw materials furnished to it under the canceled contracts.

Among the items for which the government paid the plaintiff, and which entered into the sum agreed upon in full settlement of this particular subcontractor’s indebtedness to the plaintiff, was $6,764.04 for 8,308.6 gallons of methyl alcohol. Previous to this settlement with the plaintiff and while these negotiations were going on, the defendant made an audit of the contracts which the Albany Chemical Company had directly with the government on the claims which had been presented by the Albany Chemical Company, and determined that the Albany Chemical Company, under these direct contracts, was entitled to the sum of some $23,000. In the examination of the books, records, and plant of the Albany Chemical Company by the auditor, there was found at this plant the methyl alcohol which had been furnished to it by the plaintiff. Without any claim from the Albany Chemical Company and without notice to the plaintiff, the government auditor included in the claim of the Albany Chemical Company the additional amount of the value of this methyl alcohol and increased the amount due the Albany Chemical Company by the sum of $6,764.04, and payment was duly made to the Albany Chemical Company on June 1,1920, in the sum of $29,421.29, and the Albany Chemical Company delivered to the government the 8,308.6 gallons of methyl alcohol which had been furnished to it by the plaintiff to be manufactured into finished products under plaintiff’s contracts with the government. When the supplemental contract was made with the plaintiff some months after the payment had been made to the Albany Chemical Company, the plaintiff being unaware, and having no knowledge of the Albany Chemical Company’s receipt of the payment for this alcohol from the government, applied the voucher given to it by the government to the account of the Albany Chemical Company in full satisfaction of the Albany Chemical Company to it for the material which it had furnished to the Albany Chemical Company, as subcontractor under the government contracts with the plaintiff. The Albany Chemical Company knew when it executed the statement in August that it looked to the plaintiff for the settlement of its account, and that it had been paid by the government through the action of the auditor of the government in including this amount in its claims against the government under its direct contracts. The government knew, or should have known, that this amount had been paid, as the books, records, and plants of the subcontractors of the plaintiff had been examined by the government auditors, but the plaintiff had no way of knowing, and did not know, that the auditor of the government had included the value of the methyl alcohol in the settlement of the government’s direct contracts with the Albany Chemical Company, or that payment had been made to its subcontractor. The indebtedness of the'Albany Chemical Company to the plaintiff for this methyl alcohol remained open on plaintiff’s books and was well known to the auditors of the government who had made the examination of the books and plants of the plaintiff, as well as of its subcontractors.

The discovery of these duplicate payments to the Albany Chemical Company and to the plaintiff was made by the War Department on June 9,1921. The plaintiff was then notified that it would be held liable for the payment of the methyl alcohol for which the Albany Chemical Company had been paid. The plaintiff sought to collect from the Albany Chemical Company, but payment was refused upon the ground that the government owed the Albany Chemical Company more than this amount and it was a matter between the Albany Chemical Company and the government. In 1923 the Albany Chemical Company was adjudged a bankrupt.

The government seeks now to offset the payment made to the plaintiff against an amount which is admittedly due to the plaintiff, and the question arises as to the liability of the plaintiff for the value of this methyl alcohol because of the double payments made by the government. The principal contention of the defendant is that its obligation under the cancellation provisions of the contracts was to protect plaintiff against its “outstanding obligations” incurred in connection with the performance of the war contracts, and, since the Albany Chemical Company had been paid for the alcohol in its prior settlement with the government, there was no obligation outstanding for this item at the time of settlement with the plaintiff for which plaintiff required protection, and therefore the payment was improperly made to the plaintiff.

The facts in the ease do not support this contention. The alcohol belonged to the plaintiff and was furnished by it to its subcontractor for the purpose of having it manufactured into completed articles as called for in the plaintiff’s contracts with the government. It was charged on plaintiff’s books against its subcontractor and the subcontractor owed this amount to the plaintiff, and the plaintiff only owed to the subcontractor the price of the finished product less the value of the raw material furnished.

When these contracts were canceled the Albany Chemical Company was indebted to the plaintiff for raw materials furnished it, and the auditor of the War Department established this amount in the sum of $40,421.78. The payment to the Albany Chemical Company by the government for this alcohol was not in fulfillment of -any contract that the government had with the Albany Chemical Company. It was entirely a voluntary payment outside of the contractual relations and in no way protected the plaintiff for the sums due it from its subcontractor.

The record shows no attempt by the government to recover this amount from the Albany Chemical Company. It appears that the government’s agents simply assumed that the second payment necessarily was the erroneous one and attempted to collect from the plaintiff which happened to be the last paid. It must be borne in mind that the payment made to the plaintiff was in settlement of canceled contracts, in compliance with the supplemental contract entered into with the government, and there was no fraud, overreaching, or connivance in the execution of this contract. The contract was drawn by the government. The amount to be paid was the amount found by the auditors of the government, and the contract was executed in order to liquidate the amount due to the plaintiff from the Albany Chemical Company as established by an examination of the books, not only of the plaintiff, but the books, records, and plant of the Albany Chemical Company also.

No attempt is made by the defendant to recover the full amount paid on the ground that it was not “an outstanding obligation.” The value of this raw material alone is singled out as not being within the terms of the agreement because it was paid twice. If this amount is not an outstanding obligation as covered by the agreement, then the rest of the account due the plaintiff by the subcontractor is in the same class. Both were due from the subcontractor to the contractor and the government in dealing with these accounts classified them as involved in the outstanding liabilities of the contractor. Although, strictly speaking, they were outstanding obligations of the subcontractor to the contractor, nevertheless, the government was obligated to pay for them and it took the straight and short course and made payment to the one who had furnished the material and who ultimately would have to be paid;

The record is singularly clear of all error on the part of the plaintiff. It was unaware that the auditor had included this amount.in the claim of the Albany Chemical Company. It had no knowledge that the government-had made the payment to the subcontractor, and when it received payment from the government, it applied the amount received to the account for which it was made, and which account had been duly audited by the agents of the defendant and found owing by the government to the plaintiff. The knowledge of this payment to the Albany Chemical Company was in the possession of the government and the Albany Chemical Company, and, even if it had been conveyed to the plaintiff, the liability of the defendant to pay the plaintiff for the material furnished under its contracts would remain.

We can find no mutual mistake so far as the plaintiff and the defendant are concerned.. If there were a mistake, and it is plain that there was, it is due entirely to the wrongful inclusion of the value of this methyl alcohol by the auditor of the government in the settlement of the direct contracts with the Albany Chemical Company. This company has gone ' out of existence and the money cannot be collected from it, and the government has paid twice for the same item; but this does not justify the recovery of the amount from the ■wrong party, or the innocent party, and the only one from whom collection can be made.

The plaintiff is entitled to recover the sum of $6,676.76, with interest.

It is so ordered.