author: GREEN, Judge.

text:
    WONDER BAKERIES CO., Inc., v. UNITED STATES.
    No. K-497.
    Court of Claims.
    June 4, 1934.

      Raymond P. Garrity, of Washington, D. C. (Leon P. Cooper, of Washington, D. C., on the brief), for plaintiff.
    John W. Hussey, 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.
   GREEN, Judge.

An order has been entered amending two of the findings in the ease. We do not think this amendment affects the final result of the. action, but as the matter now omitted was referred to in the original opinion, we have thought it best that another opinion should be rendered and the former opinion withdrawn.

This is a suit to recover taxes assessed against Gary Baking Company alleged to have been unlawfully exacted from Ward Brothers Company, Inc., a corporation to which the plaintiff succeeded, and the basis of the suit is that the taxes in question were collected after the period of limitation had expired.

In considering the ease it will be necessary to keep in mind that another concern is involved entitled the Gary Baking Company which is a different corporation, the stock of which was owned by W. B. Ward, its president. This last-named corporation which was a subsidiary of Ward & Ward, Inc., on September 30, 1918, bought all the assets of Gary Baking Company. The negotiations of the sale were had between Max Hirseh, president of Gary Baking Company, who owned all the common stock thereof, and W. B. Ward, president, and G. G. Barher, secretary-treasurer, of the Gary Baking Company. The Gary Baking Company acquired all the assets of Gary Baking Company. Ward Brothers Company, Inc., of which Ward and Barber were also respectively president and i secretary-treasurer, acquired the assets of •'the Gary Baking Company and succeeded thereto. The name of Ward Brothers Company, Inc., was changed to Wonder Bakeries Company which brings this suit as successor.

In 1919, Gary Baking Company filed a corporation income-tax return for the period beginning April 1, 1918, and ending September 30, 1918, the date of the sale. This return disclosed a total tax in the amount of $1,186.06 which was paid. This is the last return' filed by Gary Baking Company. Some time prior to December 20, 1920, proceedings were commenced for the voluntary dissolution of Gary Baking Company. These dissolution proceedings were carried to completion on February 17,1921, in manner and form as required by the Indiana statute. Shortly prior thereto and on January 18, 1921, the Commissioner addressed a letter to Gary Banking Company, Inc., at Gary, Ind., with reference to the audit of 1917 taxes and “all additional taxes which may appear to be due unless waivers áre executed and filed.” This notice was answered by Harry Call, counsel for Gary Baking Company, Inc., inclosing a waiver and stating that Gary Baking Company had been out of business since .1918 and that “an entire new corporation, incorporated as 'The Gary Baking Company/ owns and has been operating this plant since October 1, 1918.” The letter inclosing the. waiver stated that it was signed by the president of Gary Baking Company. Following the receipt of this letter, the Commissioner of Internal Revenue on March 10, 1924, and within the statutory period of limitation, made an additional jeopardy assessment against Gary Baking Company, Inc., in the amount of $33,403.38 based on the profit which had been made in the sale to the Gary Baking Company. A few days after the collector sent to Gary Baking Company a ten-day notice and demand for payment of the additional assessment made against it. In addition to this waiver inclosed in the letter, three other waivers had been filed before the jeopardy assessment was made. The first, on January 31, 1923, consented to assessment and collection of income and excess-profits taxes due under any return made by or on behalf of Gary Baking Company of Indiana for the year 1918 for the period of one year after the expiration of the statutory period of limitations. This waiver was signed, “Gary Baking Company of Indiana, W. B. Ward, president,-and G. G. Barber, secretary,” also by the Commissioner. On January 18, 1924, a second income and excess-profits tax waiver was filed consenting to the assessment and collection of taxes due under any return made by or on behalf of Gary Baking Company for 1918 for a period of one year after the expiration of the extension by any previous waivers. This was signed in the same manner as the first. March 8, 1924, a third waiver was filed with the same provisions, but it was signed, “Gary Baking Company, Inc., of Indiana, by G. G. Barber,” and by the Commissioner. Neither Ward nor Barber were or had been officers of Gary Baking Company nor did they have any stock therein. Two other waivers were filed later, as set out in findings 13 and 16 ; also on March 24, 1924, a claim in abatement was filed on behalf of Gary Baking Company, and later a brief in support of the claim in abatement was filed. On March 19, 1926', the Commissioner having considered the claim in abatement, determined an overassessment in the amount of $21,710.49, and a certificate thereof was mailed to Gary Baking Company. On March 22, 1926, Ward Brothers Company paid the rejected portion of the claim in abatement in the sum of $11,692.89 together with interest in the sum of $643.11, and shortly after filed a claim for refund of the amount paid on the ground that the tax had been improperly computed. The Commissioner of Internal Revenue allowed the claim for refund to the extent of over half the amount claimed and rejected it as to the balance. On August 15, 1927, Ward Brothers Company filed a second claim for refund of taxes and interest paid in satisfaction of the unabated portion of the assessment against Gary Baking Company. The grounds of this claim were that the tax and interest sought to be refunded were collected after the expiration of the applicable statute of limitations. This refund claim was rejected December 2, 1927, and the plaintiff bases its action on this refund claim and its rejection.

Summarizing the evidence to bring out the salient portions thereof, we find that Gary Baking Company sold all of its property in September, 1918, that it had made no return of the profits on such sale, that a tax was subsequently assessed in due time on account of these profits but that in the meantime proceedings for the dissolution of the corporation had been carried to completion, that after this dissolution and the assessment of the additional tax numerous waivers were filed covering the period in which the tax was collected, that when the first three waivers were filed, as we shall see later, the Government could have collected the tax without regard to them, that a plea in abatement was also filed which was sustained in part and the unabated portion was paid by Ward Brothers Company without any demand being made upon them for its payment, that subsequently Ward Brothers Company filed a claim for refund which was granted in part and then a second claim for refund on the ground that the tax was collected after the period of limitations had expired. This is the sole and only ground stated in the second claim for refund upon which this action is begun. The defendant contends that the period of limitations was extended by reason of the waivers, the plea of abatement, and other proceedings which we have set forth, and that in any event Ward Brothers Company was estopped from claiming a further refund of the .amount which it paid. It is contended on behalf of plaintiff that none of the waivers or the plea in abatement had any effect in the way of extending the period for collection of the tax for the reason that they were all filed after the corporation called Gary Baking Company had been dissolved and at a time when no person had any authority to act for it.

It should be noted here that in order to carry out the dissolution proceedings Gary Baking Company filed a certificate stating that all claims against it had been settled and paid. This was contrary to the fact but we do not need to consider whether it rendered the dissolution proceedings invalid as there are other reasons why plaintiff cannot recover.

[1,2] The fundamental error in plaintiff’s position, as we see it, is that it assumes that the hands of the Government were paralyzed by the dissolution of the corporation. The Government could not of course collect taxes from a defunct corporation, but it lost thereby none of its rights to assess taxes which had been due from the corporation and to proceed by appropriate methods with the collection thereof from persons who, by reason of transactions with the corporation, held property against which the tax could be enforced or were liable for the tax for other reasons. The legal death of the corporation no more prevented such action than would the physical death of an individual prevent the Government'from assessing taxes against him and collecting them from his administrators' who held the property which he had -formerly possessed. See Phillips v. Commissioner, 283 U. S. 589, 51 S. Ct. 608, 75 L. Ed. 1289, and Penna-Dixie Cement Corp. v. United States, 57 F.(2d) 909, 74 Ct. Cl. 651. Cf. Brady v. Anderson (C. C. A.) 240 F. 665; United States v. Armstrong (C. C. A.) 26 F.(2d) 227, and Updike v. United States (C. C. A.) 8 F.(2d) 913 (certiorari denied). The fact that the Commissioner was notified that the corporation ceased to do any business is immaterial. After the dissolution of the corporation its property became a trust fund for the benefit of creditors and those sustaining a like position under the law, and if that property has been distributed to stockholders it still remains impressed with the trust in favor of the Government for the amount of taxes which may subsequently be assessed. Cf. Updike v. United States, supra, citing numerous eases including United States v. McHatton (D. C.) 266 F. 602; United States v. Boss & Peake Automobile Co. et al. (D. C.) 285 F. 410, affirmed (C. C. A.) 290 F. 167, and Hutton v. Commissioner (C. C. A.) 59 F.(2d) 66.

The fact that the Government’s claim for taxes on the profit made by the sale had not become definitely fixed would not prevent the Government from following the assets which had been transferred or from eventually? l>y proper proceedings, holding the stockholders or other parties who had acquired the assets with knowledge that the tax had not been paid. Cf. Pierce v. United States, 255 U. S. 398, 403, 41 S. Ct. 365, 65 L. Ed. 697. It is certain that a liability arose on the part of Hirseh without regard to the waivers and continued in force until the statute of limitations had run, and we are clear that it continued afterwards by reason of the waivers. He had signed the first waiver as president of Gary Baking Company and the last one which was filed February 10, 1925, and the circumstances of the ease show that he must have known of the others being filed. Hirseh also approved all of the acts of Call in behalf of Gary Baking Company and especially ratified the preparation and fifing of the plea in abatement.

There is a conflict in the decisions as to whether an officer and stockholder of a dissolved corporation can file a waiver for it under any circumstances. We do not think a corporation can defeat federal taxes by dissolving under a state law, and we think also that such a party can file_ a waiver that would be binding against himself if no further.

In any event, Hirseh, having received benefits from this action, is estopped from claiming that the waivers were invalid. This principle applies to all of the waivers and the claim in abatement. All these proceedings were finked together, the waivers expressly by their terms. The main purpose was the same throughout, namely, to get the tax adjusted and reduced. The fact that some of the waivers filed by Hirseh or sanctioned by him were filed after the expiration of the statutory period of limitations did not affect their validity. The tax having been assessed in time and a claim in abatement having been filed delaying the collection of the tax, the statute of limitations no longer applied.

Having determined the liability of Hirseh, we come next to the ultimate question of whether the plaintiff can recover back the amount whieh was paid on the tax by Ward Brothers Company. Ward Brothers Company, Inc., made its claim for refund as successor of Gary Baking Company and, by reason of having succeeded the Gary Baking Company and having with notice acquired the property of Gary Baking Company, the same liability for taxes existed against it.

When we consider the waivers filed by Ward and Barber it is found that these individuals acted in a double role. They filed waivers stating that they were respectively president and secretary of Gary Baking Company, which they were not. In fact, they occupied these positions with reference to the Gary Baking Company and Ward Brothers Company, and all stock of the Gary Baking Company was owned or controlled by Ward. It is now claimed that they represented no one and bound no one in filing these waivers. The waivers filed or ratified by Hirseh and all of the circumstances of the case show that he must have known of the action of Ward and Barber in filing the waivers, and their purpose is so plain that we think he must have fully understood it. The acts of Ward Brothers Company subsequent to the allowance of the claim in abatement showed that it, through its officers, knew of what Hirseh had done, and that its officers, while purporting to act for Gary Baking Company, were at the same time acting for and in behalf of their own company. In this connection it should be noted that the communications of the Commissioner and collector addressed to Gary Baking Company were received by the Gary Baking Company and presumably by its successor. Counsel for defendant insist that having received the benefit of the proceedings for the adjustment and reduction of the tax and having applied for and been granted a refund after it paid the tax, Ward Brothers Company is now estopped from disputing the validity of the waivers filed by Ward and Barber which were accepted by the Commissioner and postponed the enforcement of the tax. Cf. Helvering, Commissioner, v. Newport Company, decided March 5, 1934, 291 U. S. -, 54 S. Ct. 480, 78 L. Ed. -, in whieh a waiver executed and filed by the defendant in the name of its predecessor corporation after the tax was barred by limitation was held sufficient to justify the assessment of tax against the defendant after the period of limitation had expired. We thihk this contention is well founded and that a company whieh these parties represented cannot now be heard to complain that collection of the tax was barred. But for several reasons, it is not necessary to rest the ease upon this conclusion alone.

The provisions of the Revenue Act of 1926 with reference to proceedings against transferees were retroactive. We have already shown that the ease of Phillips v. Commissioner, supra, held that stockholders of a dissolved corporation who had received the property of it were subject to this provision. The case last cited and the case of Pierce v. United States, supra, hold that the assets of a dissolved corporation constitute a trust fund for the benefit of its creditors. It is’ further held in these cases that this fund may be followed in the hands of stockholders. We think that where the corporation has been dissolved and the trust fund doctrine is applied, it would enable the creditors to follow the assets of the corporation or the proceeds thereof not only when stockholders have received them but also in the hands of parties other than stockholders who acquired the property with knowledge of the claims of the Government against it. See Updike v. United States, cited above. Unquestionably Ward and Barber had full knowledge with reference to all the details of the transactions whieh we have considered and knew at the time Ward Brothers Company acquired the property, which had originally belonged to Gary Baking Company, that the taxes had not been paid. It filed the first claim for refund as successor to Gary Baking Company. We are of the opinion that at the time Ward Brothers Company paid the tax whieh is now sought to be recovered, a liability existed against it whieh could have been enforced under the provisions against transferees and also independently thereof under the trust fund doctrine. Even if we treat the collection of the tax as barred, there was a consideration for the payment of the tax by Ward Brothers Company whieh would prevent that company from recovering back the payment which it had voluntarily made. Cf. David Daube v. United States, 59 F.(2d) 842, 1 F. Supp. 771, 75 Ct. Cl. 633, 640, 641, in which the plaintiff directed the application of money belonging to him in the form of an overpayment to be applied on the taxes of the partnership of which he was a member and the application was made after the statute of limitations had run as to the collection of the partnership tax.

If, however, the position which we have taken as to the liability of Ward Brothers Company is not well taken there still remains a conclusive reason why the plaintiff cannot recover in this case. We have already shown that the tax was assessed in time and not collected after the period of limitations as extended by valid waivers. It has hereinabove been noted that the sole and only ground of the refund claim upon which suit was brought is that the statute of limitations had expired when the tax was paid. Plaintiff made no claim that the tax was paid by mistake or that Ward Brothers Company had paid a tax for which no liability in any event existed against it. No other ground than the bar of the statute was remotely suggested by the claim, and if we are correct in what has been said above it is clear that plaintiff cannot recover herein.

Counsel for plaintiff urge that this case is controlled by the decision made by this court in the ease of A. J. Bates Co. v. United States, 3 F. Supp. 245, 77 Ct. Cl. 611. But the two cases are altogether different. In the Bates Case the suit was brought by the stockholders who were entitled to the property of the dissolved corporation and the respective counsel in the ease had agreed, and the court stated in the opinion, that the single issue in the case was whether the tax involved was “barred by the statute of limitations at the time the assessment was made.” In the case now before the court there is no such question, it being an undisputed fact that the assessment was made before the bar of the statute had run. It is true that in the Bates Case the question arose as to whether the period of limitations had not been extended by a waiver, but no question of estoppel was raised or even suggested on the submission of the ease and all of the circumstances were . quite different from those existing in the ease at bar. The Bates Case, therefore, cannot be regarded as an authority supporting plaintiff’s position.

Counsel cite the case of Neuland v. Bowers (D. C.) 38 F.(2d) 842, 844, as holding that the claim in abatement filed in this ease did not come within the provisions of section 611 of the Revenue Act of 1928 (26 US CA § 2611). The question that arose in the Neuland Case was quite different from that in the case at bar. In the Neuland Case there were no waivers extending the period of limitations — a fact which is most important here, as we have held that by reason thereof the tax was still owing when the claim in abatement was filed. Nor was there any claim of. an estoppel which we have also found to exist in the case at bar. In the Neuland Case the tax was not demanded until after the expiration of the period of limitations and the taxpayer then filed a plea in abatement. The decision was based on the theory that nothing was due when the claim in abatement was filed and the court said that the application of section 611 [26 USCA § 2611] depended “upon a stay of the right to make collection.” Counsel for defendant contend that this holding is not in accordance with the intent and expressed purpose of section 611 and with the views of the Supreme Court as expressed in the case of Graham & Foster v. Goodcell, 282 U. S. 409, 51 S. Ct. 186, 75 L. Ed. 415. This contention of defendant was approved by this court in Vanderlip v. United States, 6 F. Supp. 965, decided May 7, 1934. Moreover, the Neuland Case is so different in its facts as to make it not applicable.

Our attention has been called to opinions of the Board of Tax Appeals holding waivers invalid which were executed after the dissolution of a corporation. We note that one of its decisions on this point has been overruled by an appellate court. In any event these decisions are not controlling here as they were rendered in eases in> which the question of estoppel did not arise.

It follows that plaintiff’s petition must be dismissed, and it is so -ordered.


source: Caselaw Access Project

license: Public Domain

text:
    DAVISON et al. v. UNITED STATES.
    No. J-662.
    Court of Claims.
    March 12, 1934.

      Leo H. Hoffman, of New York City (Robín t W. Knox and Kix Miller, Baar & Hoffman, all of New York City, on the briefs), for plaintiffs.
    H. Brian Holland, of Philadelphia, Pa., and Prank J. Wideman, Asst. Atty. Gen. (J. R. Pillman, E. Barrett Prettyman, T. H. Lewis, Jr., and E. J. Dowd, all of Washington, D. C., on the brief), for the United States.
    Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.

       Gross purchase'price, Dec. 31, 1898........$311,724.00
      Less depreciation Mar. 1, 1913, to Dec. 29,
      1919 ....................................... 21,102.94
      Net purchase price....................... 290,621.06
      Sale price Dec. 29, 1919...................... 254,007.70
      Loss on purchase price.................. 36,613.36

   GREEN, Judge.

Since the commencement of this action, the plaintiff has died and his executors have been substituted as the parties plaintiff but the word'“plaintiff” as used in the findings and in this opinion means the original plaintiff in the case.

The issue in this ease is whether in computing the income taxes of the plaintiff for 1919 an allowance should be made for depreciation on improved real estate sold by him.

The property was a lot in the city of New York with an apartment building thereon. Plaintiff purchased it in December, 1896, for $311,724. The parties agree that its fair value on March 1, 1913, was $285,000, and that in the period between the time when the property was purchased and March 1, 1913, the building had depreciated $49,926.46. Plaintiff sold the property on December 29, 1919, and received $254,007.70. In computing the plaintiff’s net income for the calendar year 1919 the Commissioner made no allowance for loss or gain on account of the sale of the property. The plaintiff paid the taxes as computed by the Commissioner but duly filed a claim for refund and now claims that a deductible loss of $36,613.36 was sustained in the sale.

There is much discussion in the argument made on behalf of the respective parties with reference to the allocation of values to the building and the lot upon which it was constructed, and the amount of this allocation at the time the property was purchased has been agreed upon. We do not think it is necessary or proper to consider these allocations further than to say that if they are worked out in accordance with what we understand plaintiff’s computation to be, the allocation to the building on December 29, 1919, when the property was sold, would have been over $50,000 larger than on December 31, 1896, which, of course, is quite unreasonable.

In our opinion, the building and the site have no separate market value. In law the building was attached to the lot. No one would buy the lot under a contract that gave him no right to the building and no one would buy the building under a contract that gave him no right to the lot, unless he wanted to move the building off. A number of expert witnesses did, indeed, testify to the value of each separately, but we think this testimony really referred only to what the lot would be worth if no building stood on it, and what the building at the time in question would add to the value of the lot. In any event, we are clear that the testimony has no value for the purpose of deciding the issues in the ease.

The Revenue Act of 1918 controls the allowance of depreciation in the case and section 202 thereof provides that for the purpose of ascertaining the gain derived by a sale of property, the basis shall be:

“(1) In the ease of property acquired before Mareh 1, 1913, the fair market price or value of such property as of that date.”

So far as the basis is concerned, nothing could be simpler or more easily applied. Article 1561 of Regulations 45 expands the statement in the statute, hut we‘do not think it is possible to.make it more clear. This article reads as follows:

“Art. 1561. Basis for Determining Gain or Loss from Sale. — For the purpose of ascertaining the gain or loss from the sale or exchange of property the basis is the cost of such property, or if acquired on or after Mareh 1, 1913, its cost or its approved inventory value. But in the ease of property acquired before Mareh 1, 1913, when its fair market value'as of that date is in excess of its cost, the gain which is taxable is the excess of the amount realized therefor over such fair market value. Also in the ease of property acquired before Mareh 1, 1913, when its fair market value as of that date is lower than its cost, the deductible loss is the excess of. such fair market value over the amount realized therefor. No gain or loss is recognized in the case of property sold or exchanged (a) at more than cost, but at less than its fair market value as of Mareh 1, 1913, or (b) at less than cost but at more than its fair market value as of March 1, 1913. In any case proper adjustment must be made for any depreciation or depletion sustained.”

This article has several times been amended and what is stated above is not its original form but as set forth in the briefs of the respective counsel. The amendments, however, have not affected its application to the ease at bar, and language to the same effect was incorporated in revenue acts subsequent to the time of the transactions in question.

In the case before us it will be observed’ that the parties have agreed on the value of the property on March 1, 1913, at $285,000'. This was less than the purchase price of $311,724, and greater than the sale price of $254,007.70. Consequently, under both the statute and the regulations, the March 1, 1913, value is the basis for determining the amount of loss, if any, which is “the excess of such fair market value [of the property] over the amount realized therefor.”

Neither the act of 1918 nor the act of 1921 expressly provided that in determining gain or loss adjustments should be made for depreciation or depletion. In preparing the Revenue Act of 1921, the House bill 'contained such a provision but it was stricken out by the Senate on the ground that “it specified a self-evident rule and was thus superfluous.” Sen. Rep. No. 275, 67th Cong., 1st sess., p. 11. In section 202 (b) (2) of the 1924 Revenue Act (26 USCA § 933' note), the depreciation to be deducted was limited to that which was “allowed” in computing net income during the years of ownership, but in section 202 (b) (2) of the 1926 Revenue Act, 26 USCA § 933- (b) (2) it was provided that the “basis” should be diminished by the “deductions for exhaustion *' * * allowable.” Congress was evidently intending to clarify the provisions of the law withJ reference to this matter, but when the Revenue Act of 1932 was prepared it seems to have been recognized that there was still a question as to how the tax should be computed in' cases where the property had been acquired prior to March 1, 1913, and had depreciated in the interval, and it was provided in section 113' (a) (13) as follows:

“(13) Property Acquired Before March 1, 1913. In the case of property acquired before March 1, 1913, if the basis otherwise determined under this subsection, adjusted as provided in subsection (b), is less than the fair market value of the property as of March -1, 1913, then the basis shall be such fair market value.” 26 USCA § 3113 (a) (13).

In the ease of United States v. Ludey, 274 U. S. 295, 47 S. Ct. 608, 610, 71 L. Ed. 1054, it is said with reference to a manufacturing plant:

“When the plant is disposed of after years of use, the thing then sold is not the whole thing originally acquired. The amount of the depreciation must he deducted from the original cost of the whole in order to determine the cost of that disposed of in the final sale of properties.”

This rule was applied by the court to a mining property in computing taxes for the year 1917, and, as we shall attempt to show further on) the court applied it in such a way as not to conflict with the statute. The amount invested on March 1, 1913, for the purposes of estimating gain or loss under this rule, is not the cost at some prior time but the market value on that date, and it follows that when the property has depreciated in value from the time of its purchase up to March 1, 1913, that depreciation must be taken out in order to ascertain its market value on that date.

While the property and the deductions which might be allowed were quite different in the Ludey Case from that in the ease we are now considering, we think the principle is the same, and its application requires that the depreciation which the property sustained should be considered in determining the gain or loss resulting from its sale. So far the parties to the ease on trial agree and such, so far as we are aware, is the holding of the various courts which have considered cases involving similar circumstances. But it is contended on behalf of the plaintiff that depreciation sustained prior to March 1, 1913, should be ignored, and in effect that the original purchase price, less depreciation from March 1, 1913, -to the time of sale, is the basis for determining gain or loss, and subtracting therefrom the sale price, a loss of $36,613.36 is shown as stated in the petition.

Plaintiff also contends that to determine the gain or loss from the sale it is proper to allocate the selling price between the land and building. We have already shown, as we think, that this contention cannot be sustained. Plaintiff submits an elaborate calculation based upon this theory, but we shall not review it, as we think it has no foundation in either law or fact. It may be said, however, that the same result is reached as is shown in the table under note 1 which takes as the basis the original purchase price and deducts therefrom the depreciation after March 1, 1913.

A further contention is made by plaintiff that where the cost of property acquired prior to March 1, 1913', exceeds the March 1, 1913, value thereof, and the March 1, 1913, value exceeds the sale price, the March 1,' 1913, value should not be reduced by depreciation sustained since March 1, 1913, in determining the loss deductible on a sale in 1919. In other words, when the property is worth less on March 1,1913, than when purchased, the cost and not the 1913 value is to be taken as the basis in determining gain or loss on a subsequent sale without deducting the depreciation from the time of purchase to March 1, 1913, or using its value at that date except to ascertain the amount of depreciation therefrom at the time of sale.

It is urged that the first and third of the propositions are sustained by United States v. Ludey, supra. The decision in this case has sometimes been treated as if it had ignored the provisions of the statute which require the basis to be the March 1,1913, value, but the language used in the opinion in this case as well as that in United States v. Flannery, 268 U. S. 98, 45 S. Ct. 420, 69 L. Ed. 865 and in the companion case, McCaughn v. Ludington, 268 U. S. 106, 45 S. Ct. 423, 69 L. Ed. 868, should, as we think, be considered only as applying in each instance to the case then before the court. A note to the opinion in the Ludey Case seems to have been often overlooked. It states in substance that throughout the opinion the term “cost” is used as meaning the value of the property “as of March 1, 1913, that" value being higher than the original cost.” The Ludey Case differed from the ease at bar in that only the period after March 1, 1913, was being considered and also that the March 1, 1913, value was higher than the original cost. The Flannery Case was one in which stock had been purchased prior to March 1,1913, at a price that was less than its value at that date. It was sold for more than its original cost, which is not the situation in the ease we have under consideration. In McCaughn v. Ludington, stock bought prior to March 1, 1913, was worth more on that date, but when sold brought less than its purchase price, and again presents a different ease from what we have before us.

It is true that in the Ludey Case the court said:

“We cannot accept the government’s contention that the full amount of depreciation and depletion sustained, whether allowable by law as a deduction from gross income in past years or not, must be deducted from cost in ascertaining gain or loss. Congress doubtless intended that the deduction to be made from the original cost should be the aggregate amount which the taxpayer was entitled to deduct in the several years.”

The language quoted above from the Ludey Case must be considered to apply to a. ease similar to the one then before the Supreme Court where depletion occurred but no allowable deduction therefor could be made under the law as it then stood, and by the words “original cost” was meant the March 1, 1913, value.

As a result of what we think is a misunderstanding of the holding in the Ludey Case, there has been much conflict in the decisions of the courts and those made by the Board of Tax Appeals. It would require too much space to review these decisions, but we think the comparatively recent case of Nichols v. Smith (C. C. A.) 35 F.(2d) 938, which reviews the decisions to which we have referred and holds in substance that a proper construction of the decisions of the Supreme Court permits the deduction of a loss only to the extent that actual loss had occurred after March 1, 1913, expresses the true doctrine. In other words, in cases such as we now have before the court, the March 1,1913, value must be taken as the basis and not the original cost.

Having thus determined that the March 1, 1913, value must be taken as the basis, we must next determine what depreciation should be taken therefrom. This, we think, is settled by the numerous eases which hold that it is the actual gain or loss on the basis of the March 1, 1913, value acquired or sustained by the sale which is the ultimate fact to be ascertained, and this can only be found in the instant ease by deducting from the March 1, 1913, value, the depreciation which took place up to the time of the sale, and then comparing the result with the sale price. Plaintiff urges that this would be in conflict with the case of United States v. Ludey, supra. We do not think so. It is true that only “allowable” depreciation was permitted in the Ludey Case, but this, as we have shown, was for a special reason not appearing in this ease, namely, that not all the depreciation sustained by plaintiff during the period involved was allowable under the income-tax statutes. In the Ludey Case there was no occasion to consider depreciation pri- or to March 1, 1913, for the reason that cost was taken as of that date. We do not think that either in the Ludey Case or elsewhere when reference is made to “allowable” or “allowed” deductions, any reference is made to the depreciation prior to March 1, 1913; first, because tbe value at that date must be taken as the basis, and, second, because in tbe Ludey Case only allowances after March 1, 1913, under the statute, were being considered. It may be in some cases that to ascertain the March 1, 1913, value, the depreciation from cost has to be deducted. In this case the March 1, 1913, value is known and we ascertain tbe depreciation by comparing it with the original purchase price. In any event, under the express language of the act, the March 1, 1913, value is the basis, and notwithstanding the courts have differed at times with reference to the proper construction of the Ludey Case we think the consensus of opinion is now in accordance with what is above stated. See Klein on Income Tax, 1933 Supplement, page 457 (p. 870), par. 2©: 13. “Restatement of the rule under the 1918 act as determined by the Supreme Court,” which reviews the later decisions.

We think the rule as we have applied it is fair and just and that the statute is so direct and plain in its terms that no other construction can be placed upon it.

A computation of the actual loss, taking the March 1, 1913-, value as the basis in accordance with tbe rules we have above laid down, determines tbe amount thereof to be $9,889.36. The computation is shown by the table below.

It is urged on behalf of defendant that under the statute neither gain nor loss could be allowed on the sale, but the argument is so contrary to tbe principles that we have applied that we do not think it is necessary to discuss it.

The plaintiff is entitled to recover, but entry of judgment is suspended pending the submission by counsel of a computation of the tax in accordance with this opinion.

       Mar. 1, 1913, value.......................... $285,000.00
      Less depreciation therefrom to Dec. 29,
      1919 ....................................... 21,102.94
      Amount to he compared with sale
      price ................................... 263,897.06
      Sale price Dec. 29, 1919 ..................... 254,007.70
      Actual loss on sale..................... 9,889.36


author: ATWELL, District Judge.

text:
    SEELEY et al. v. CORNELL et al.
    No. 190.
    District Court, N. D. Texas, San Angelo Division.
    March 14, 1934.
    T. R. Boone, E. T. Duff, and Kearby Peery, all of Wichita Falls, Tex., for complainants.
    Harris & Martin, of Wichita Falls, Tex., for defendant heirs.
    Collins, Jackson & Snodgrass, of San Angelo, Tex., for defendant Cornell and associates.
   ATWELL, District Judge.

On December 11, 1933, Mrs. Viola Seeley, a feme sole, and Mrs. Ida May Ramsey, joined by her husband, Gr. W. Ramsey, filed their bill against James Cornell, L. W. Elliott, W. H. Colquitt, Bryan Montague, C. R. Sutton, Will Monroe, Jerry Monroe, Zack Monroe, Mrs. B. E. Taylor, a feme sole, Mrs. Josie Pahl, and husband, Ernest A. Pahl, J. H. Mathews, Willie Mae Mathews, Lennie Loreno Mathews Aiken, and husband, Edwin Aiken, all of whom reside in some of the counties of Texas; also against Henry Monroe, of New Mexico, W. R. Whitesides, of Oklahoma, John D. La Mont, of Minnesota, M. C. Robinson, Sophie Whitesides, and Roger V. Whitesides, of Minnesota, Douglas Oil Company, Minnesota, Hargrove Hudson, Oklahoma, and the American Surety Company of New York.

The complainants, together with defendants Jerry Monroe, Willie Monroe, Henry Monroe, Zack Monroe, Mrs. B. E. Taylor, Mrs. Joseph Pahl, Lennie Loreno Mathews Aiken, Minnie Pearl Mathews, and Willie Mae" Mathews are the heirs of Mrs. M. A. Monroe Smith, deceased. The complainants are residents of the states of California and Arizona.

They allege that they, together with the other mentioned heirs of Mrs. Monroe Smith, are entitled to a large estate in lands and moneys in Pecos county, Tex. That such lands and moneys were the community property of Mrs. Monroe Smith, née Mrs. Monroe, their mother, and her deceased husband. That in the year 1927, upon the discovery of oil in that section, the then widowed mother began to lease and make contracts with certain oil companies concerning the exploitation of the lands that she and her husband had accumulated during their married life. That thereupon one of her children, mentioned above as one of the heirs, filed a petition in the state court, over which the defendant C. R. Sutton presided as judge, for the appointment of a receiver for her properties, alleging the interest of himself and her other children therein, and stating that the mother was not capable of managing the estate. Thereupon the court appointed defendant Colquitt as receiver. Bond was given by the receiver in the sum of $100,000, with the defendant American Surety Company as surety.

That during the administration of that estate in that court the heirs of Mrs. Monroe Smith employed the defendant James Cornell to represent them and agreed to pay him 20 per cent, of what he recovered for them. That some eighty suits were filed by the receiver for the cancellation of leases and contracts that had been made for and on such lands. That the defendant Cornell and the receiver, Colquitt, and Judge Sutton conspired in the entry of certain orders and decrees in that and other eases concerning this estate for the collection of large sums of money from oil companies and parties interested in such lands and appropriated the same. That these transactions were participated in by some of the other defendants, outside of the heirs. That many muniments of title were passed from such defendants and through said court and other courts, with the fraudulent design and intention of the said defendants to take from the heirs that which was really theirs, and that finally a large and valuable part of the estate passed through the defendant Cornell to the Douglas Oil Company. That later on, in the year 1930, the defendant Cornell secured from the heirs, by fraudulent representation, a transfer of all of their interests in and to all of the property that had theretofore belonged to the community estate of the father and mother, paying therefor to each of such nine heirs the sum of $20,000.

That the estate was worth many hundreds of thousands of dollars. That such value and such fraud was concealed from the heirs, they trusting their attorney, Cornell, implicitly.

The plaintiffs ask for a cancellation of these various muniments of title, judgments of court, and of the transfer from them to Cornell; for an accounting of all the moneys received by him as attorney in their name and behalf; for a judgment against the re- . ceiver and against his official bond; for a decree for money due them by Cornell, Elliott, Colquitt, Montague, and Sutton; and for a recovery of the lands and other properties as well as the proceeds received from said property.

The bill is quite lengthy, and I have only given a cursory résumé of it.

All of the parties have made an appearance. The defendant heirs have filed lengthy answers following substantially the allegations made by the plaintiff heirs. In fact, the answers are almost identical with the plaintiff’s bilí and seek the same relief.

After these appearances the defendant Cornell, joined by his wife, filed six suits in the state district court of Pecos county, the same court in which it is alleged all of these untoward occurrences happened. Those suits' are against the heirs who are parties to this suit. In those suits the defendant Cornell describes many pieces of property in Pecos county which were originally a part of Mrs. Monroe’s estate, and also several thousand dollars of ehoses in action, and alleges his employment as attorney for these particular heirs, parties to this suit, and defendants in his recent suits, the acquisition by him of the lands and interests mentioned, the placing of certain properties by him in such capacity in the Douglas Oil Company, and that all accounting and settlement between himself and his clients, the said heirs, was fair and honorable and honest, and that, in spite of such settlements and conveyances and ratifications, the heirs are asserting claims and interests to said lands and properties and are contending that he obtained them by fraud and misrepresentation, by reason of which claims they are casting a cloud upon his title thereto, and he sues to have such cloud removed, and for a quieting of his right and titles.

When these suits were filed by defendant Cornell the plaintiff and defendant heirs in this suit filed an application for an injunction. They asked that this court enjoin him from going further in those suits, alleging that jurisdiction attached here first and that what he is seeking to do there is directly involved in the controversy here, and that those suits would in truth be an interference with the jurisdiction of this court.

It is too clear for argument that even the rough statement that has been made of this controversy exhibits the identity of the issues involved in the new state court suits and in the suit here. It is quite true that parties may litigate in the courts of the different sovereignties at the same time provided there' is no impingement of jurisdiction or interference therewith. Lewis v. Schrader (D. C.) 287 F. 893; Krauss v. Bossert (C. C. A.) 62 F.(2d) 1004. Where a national court has obtained jurisdiction of the subject-matter of a controversy it will protect that jurisdiction and restrain proceedings subsequently begun in a state court. There is little doubt that what the defendant Cornell is now attempting in the state court is for the purpose of influencing and impeding the attempts that the plaintiffs and the other heirs are making in this court to get what they claim to be their rights. Long v. Stites (C. C. A.) 63 F.(2d) 855, 857.

But the defendant Cornell, in answer to the rule to show cause why he should not be restrained from going forward in his state court suits, contends that this court is without jurisdiction.

The right to go forward here depends upon diversity of citizenship. Mrs. Seeley and Mir. and Mrs, Ramsey, the plaintiffs, being residents of states other than Texas, in choosing their forum, brought into it a suit in which they aligned, as defendants, certain co-tenants and joint heirs and similarly wronged parties. Those defendants, upon entering, adopted, in a large measure at any rate, their pleadings, and sought the same relief. This is true even of the defendant receiver Colquitt, though he denies any wrong upon his own part and says that he relied upon the defendant Cornell and the other attorneys and the court. But, leaving Colquitt out of the question, we need do no straining in order to realize that the defendant heirs are, not only pleased with the suit, but joined fully therein both as to allegation and prayer, and are such parties that they may not be said to be merely formal, for they are, in truth, indispensable.

If authorities are needed we may start with Shields v. Barrow, 17 How. (58 U. S.) 139, 15 L. Ed. 158, and follow the words of the courts down to and including Lee v. Lehigh Valley Coal Company, 267 U. S. 542, 45 S. Ct. 385, 69 L. Ed. 782. It is impossible for an equity court to make a decree in the absence of an indispensable party, that is, in the absence of a party whose rights must necessarily be affected by such decree. There is no way to cancel the acquittance and transfer which Cornell received from the heirs as to a part of those who executed it and leave it in force and effect as to the others. There is no safe or .satisfactory way to account as between Cornell and the heirs without having all of them before the court. Nor is there any way to cancel muniments of title and judgments of courts without having all of the parties thereto in court.

That being true, the court may not, upon the suggestion of the plaintiffs, now dismiss from their bill the heirs whom they brought in. Lee v. Lehigh Valley Coal Co., 267 U. S. 542, 45 S. Ct. 385, 69 L. Ed. 782.

In the case of Drumright v. Texas Sugarland Co. (C. C. A.) 16 F.(2d) 657, cited by the plaintiffs, it is merely held that the plaintiff might remove the jurisdictional defect of a coplaintiff who was a resident of the same state as the defendant, provided he was not an indispensable party. A holder of a mortgage in existence prior to the happening of the matters complained of in that suit, and with reference to which no relief was sought, was not indispensable.

In Waterman v. Canal-Louisiana Bank & Trust Co., 215 U. S. 49, 30 S. Ct. 10, 54 L. Ed. 80, it was held that, when, in the relief sought.and in the subject-matter of the suit, parties are so bound up that their legal presence is a necessity without which the court cannot proceed, then, of course, they are vital and may not be dispensed with. See, also, Murphy v. Johnson (D. C.) 49 F.(2d) 410; Hazeltine v. Freed-Eisemann Radio Corporation (D. C.) 4 F.(2d) 867; United States v. Allen (C. C. A.) 179 F. 13.

Equity Rule 37 (28 USCA § 723) provides that persons having a community interest must be joined on the same side as either plaintiffs or defendants.

The truth is that all of the heirs are really complainants. They are all interested in the same controversy. They all seek the same relief. According to their pleadings they have all suffered in the same way. They are victims of the same parties. Their losses are substantially the same. Their overreaching was exactly alike. Their acquittances and contracts and releases and interests are identical. There is no relief that can be had as to a part of them without affecting all of them. The controversy is theirs. They really must be aligned in that way. When that is done the jurisdiction of this court is at an end. There is no diversity such as warrants the retention of the suit. There are those seeking relief who are residents of Texas, and also residents of Texas against whom relief is sought. Hamer v. New York Rys. Co., 244 U. S. 266, 37 S. Ct. 511, 61 L. Ed. 1125; Meyer v. Delaware Construction Co., 100 U. S. 457, 25 L. Ed. 593; Steele v. Culver, 211 U. S. 26, 29 S. Ct. 9, 53 L. Ed. 74; Lindauer v. Compania (C. C. A.) 247 F. 428.

There is nothing in the ease of Williams v. Crabb (C. C. A.) 117 F. 193, 203, 59 L. R. A. 425, contrary to this doctrine. The facts of that case are quite different from those that are pleaded here. Nor is there anything in the ease of Payne v. Hook, 7 Wall. (74 U. S.) 425, 431, 19 L. Ed. 260, contrary to these principles. There it was said that: “It is undoubtedly true that all persons materially interested in the subject-matter of the suit should be made parties to it; but this rule, like all general rules, being founded in convenience, will yield, whenever it is necessary that it should yield, in order to accomplish the ends of justice. It will yield, if the court is able to proceed to a decree, and do justice to the parties before it, without injury to absent persons, equally interested in the litigation, but who cannot conveniently be made parties to the suit.” By what measure of wisdom can it be said that a part of these heirs can safely go forward in their attack upon instruments, deeds, judgments, joint conveyances and agreements, not to say for an accounting and distribution of the real estate and moneys so recovered, without all being present?

The motion to dismiss pressed by the defendant, both as an answer to the application for a restraining order, and on the merits as to the original bill, must be sustained, the injunction denied, and the cause dismissed.


author: PATTERSON, District Judge.

text:
    In re ROTHBELL.
    No. 54797.
    District Court, S. D. New York.
    Nov. 13, 1933.
    Mortimer Kraus, of New York City, for trustee.
    Gettinger & Gettinger, of New York City, for petitioner.
   PATTERSON, District Judge.

Application is made by the Continent al Bank & Trust Company for leave to file an amended proof of claim. The adjudication in bankruptcy occurred on September 2, 1932. On October 27, 1932, the bank filed a petition asking that it be permitted to examine the bankrupt under section 21a of the Bankruptcy Act, 11 USCA § 44 (a). The petition itself made no specific mention that the bank was a creditor, but in the verification it is referred to as a creditor of the bankrupt. The petition was granted, the order staling that the application was by a creditor. Thereafter the attorneys for the bank examined the bankrupt before one of the referees, the attorney for the trustee participating in the examinations. No formal proof of claim was filed within six months from adjudication. On September 14, 1933, more than'one year after adjudication, the bank attempted to file with the referee a proof of claim based on a promissory note signed by the bankrupt, but the referee rejected it as offered too' late. The present application makes the point that the bank’s petition for examining the bankrupt and the examinations thereunder within the six-month period may be deemed a sufficient filing of a claim to permit an amendment of the claim to be filed at the present time.

The prohibition against proving elaims more than six months after adjudication (section 57n of the Bankruptcy Act, as amended by Act May 27, 1926, 11 USCA § 93 (n) is peremptory. In re Lago (D. C.) 38 F.(2d) 887. But where a proof of claim has been filed within the permissible time, it may bo amended after the expiration of the time. Hutchinson v. Otis, 190 U. S. 552, 23 S. Ct. 778, 47 L. Ed. 1179. The courts have gone far in applying this rule as to amendments. The tenor of the eases is that any assertion of the claim by the creditor that was made within the required period and that appears in the records of the bankruptcy proceeding, whether or not intended as a proof of claim, will serve as a basis for an amended proof of claim.

There are many instances of such accidental proofs of claim. A paper filed by a creditor in support of an alleged lien on a special fund, though never intended as a proof of claim, is sufficient if it shows the existence of a claim against the bankrupt. In re Roeber (C. C. A.) 127 F. 122. See, also, In re Faulkner (C. C. A.) 161 F. 900. But see In re Ragan (C. C. A.) 2 F.(2d) 785. Testimony taken before the referee to determine the validity of an assignment may amount to a proof of claim sufficient to support a later amendment. In re Salvator Brewing Co. (C. C. A.) 193 F. 989. Likewise as to letters written by tbe claimant to the trustee in bankruptcy in which the existence of a claim against the bankrupt is mentioned or asserted. In re Patterson-MacDonald Shipbuilding Co. (C. C. A.) 293 F. 190; Scottsville Nat. Bank v. Gilmer (C. C. A.) 37 F.(2d) 227. The same is held of a statement of the claim in an 'involuntary petition in bankruptcy. In re Fant (D. C.) 21 F.(2d) 182. It was held in Re Lipman, 65 F.(2d) 366, decided this year by the Circuit Court of Appeals of this Circuit, that specifications filed in opposition to confirming a composition, the specifications stating that the concern filing them was a “creditor” of the bankrupt, constituted proof of claim sufficient to warrant the filing of an amended proof of claim after the expiration of the six-month period.

In certain .eases it has been said broadly that wherever there is anything in the record of the ease that establishes a claim against the bankrupt, it may be used as a basis for amendment after the expiration of the required time for proving claims, provided substantial justice -will thereby be promoted. In re Fant (D. C.) 21 F.(2d) 182, 183; Cotton v. Bennett (C. C. A.) 59 F.(2d) 373, 375. Under such a rule it would seem that the mere listing of a claim in the bankrupt’s schedules would be enough; the creditor could years later file what he .might call an “amended proof of claim” and obtain its allowance. If this be the law, there is almost nothing left in the requirement that claims be proved within six months after adjudication. I know of no ease in this circuit that goes to such a length. In all of them there was an assertion by the creditor of a claim within the required period, and I take it that some such action on the part of the creditor is necessary to permit an amendment.

In the present case the bank filed a petition for examination of the bankrupt and in the-verification of the petition it is referred to as a creditor. The order entered upon the petition recites that it is entered on motion of a creditor. The nature and amount of the claim are nowhere stated, and it is manifest that the bank never intended that this petition be deemed a proof of claim. But it was certainly as efficacious as the specifications in opposition to a composition in the Lipman Case, supra. It was a declaration by the bank that the relationship of creditor and debtor existed between it and the bankrupt; it is part of the record in the bankruptcy proceeding; it was made within six months after adjudication. Under the authorities referred to above, particularly the Lipman Case, it is a sufficient proof of claim for the purpose of allowing an amendment after the expiration of the statutory period for proving claims. The application will therefore be granted.


text:
    In re I. GREENBAUM & SONS CO., Inc.
    District Court, S. D. New York.
    Nov. 14, 1933.

      Abraham I. Menin, of New York City (Arthur S. Simon, of New York City, of counsel), for trustee.
    Blau, Perlman & Polakoff, of New York City (Nathan D. Perlman and Cyrus Levinthal, both of New York City, of counsel), for respondents.
   PATTERSON, District Judge.

In a summary proceeding the trustee in bankruptcy of I. Greenbaum & Sons, Inc., asks that an assignee of accounts receivable who took them as collateral security for a loan be required to account for them and to reassign the uncollected ones to the trustee. The validity of the assignment is not questioned. It is insisted, however, that the accounts remained in the “possession” of the bankrupt, with the result that they now are property in custodia legis, and therefore the subject of a summary proceeding. The referee who heard the matter dismissed the petition for lack of jurisdiction.

Some weeks before bankruptcy, the bankrupt borrowed $6,000 from the respondent, assigning accounts receivable to him as collateral security. .The ledger sheets and sales memoranda in connection with the accounts were at the same time assigned and deposited with the assignee. It was agreed that the bankrupt as agent of the assignee would attend to collections and would deposit all sums collected in a special bank account from which withdrawals might be made only on the assignee’s consent. The assignee might terminate the agency at any time and make collections himself. No notice of the assignment was given to the debtors prior to the filing of the petition in bankruptcy.

The question upon these facts is whether the bankruptcy court has jurisdiction to adjudicate the rights of the parties in a summary proceeding. This raises the point as to who was in possession of the accounts when the petition in bankruptcy was filed; if the bankrupt, then the possession passed to the trustee, and the rights of the parties in the accounts are determinable by this court in a summary proceeding of the sort brought here; if the assignee, then jurisdiction to entertain the ease on summary proceeding is wanting. Hebert v. Crawford, 228 U. S. 204, 33 S. Ct. 484, 57 L. Ed. 800; Board of Trade of City of Chicago v. Johnson, 264 U. S. 1, 44 S. Ct. 232, 68 L. Ed. 533. In no event can the bankruptcy court summarily exercise jurisdiction as to the debtors in the accounts, except on their consent. In re Roman (C. C. A.) 23 F.(2d) 556.

The difficulty of discussing possession in connection with ehoses in action has been commented on in several cases. See In re Kelley (D. C.) 297 F. 676; In re Roman, supra; In re Borok (C. C. A.) 50 F.(2d) 75. We may lay to one side instances where the chose in action is represented by a note, bond, policy of insurance, or the like. In these eases there is no difficulty in concluding that possession of the intangible right against the obligor is inseparable from possession of the document that evidences the right. In re Detroit Waterproof Fabric Co. (D. C.) 295 F. 338; In re Republic Plumbing Supply Corporation (D. C.) 295 F. 573; In re Hudson River Navigation Corporation (C. C. A.) 57 F.(2d) 175.

As to bank accounts, it has been held that possession of the chose in action against the bank goes with the customer in whose name the account stands on the bank’s books, despite the fact that others have legal or equitable claims to the “money,” In re Ransford (C. C. A.) 194 F. 658; In re Zimmermann (C. C. A.) 66 F.(2d) 397. The possession of a stock exchange seat, so far as the jurisdiction of bankruptcy courts is concerned, is held to follow the person recognized by the exchange as the member, irrespective of assignments or claims in favor of others. Board of Trade of City of Chicago v. Johnson, supra; O’Dell v. Boyden (C. C. A.) 150 F. 731, 10 Ann. Cas. 239; In re Hoey (C. C. A.) 290 F. 116.

In the case of book accounts and similar claims covered by an assignment as collateral security for a debt, a common practice is for the assignor to keep the books and papers representing the accounts and to attend to collections; no notification of the assignment being given to the debtors. The part played by the assignee prior to troubles of the assignor is a passive one. Under such conditions, possession of the accounts in the sense of dominion and control remains with the assignor, and upon his bankruptcy the summary jurisdiction of the bankruptcy court may be invoked to decide the rights of the trustee in bankruptcy and the assignee. In re Gottlieb & Co. (D. C.) 245 F. 139, affirmed in (C. C. A.) 257 F. 72; In re Borok, supra. See, also, In re Wegman Piano Co. (D. C.) 228 F. 60, 65; Street v. Pacific Indemnity Co. (C. C. A.) 61 F.(2d) 106. I cannot see that it matters that the assignor’s control of the accounts is said to be as agent for the assignee. Compare Hebert v. Crawford, supra; In re Moody (D. C.) 131 F. 525, Where, however, the assignee has notified the debtors of the assignment and has taken complete charge of collections prior to the assignor’s bankruptcy, possession may be said to have passed to the assignee and summary proceedings will not lie. Copeland v. Martin (C. C. A.) 182 F. 805; In re Paramount Fireproof Door Co, (D. C.) 43 F.(2d) 558. It is the situation at the time of the filing of the petition in bankruptcy that is determinative. Activities on the part of the assignee thereafter cannot deprive the bankruptcy court of a jurisdiction that has once attached. See Whitney v. Wenman, 198 U. S. 539, 25 S. Ct. 778, 49 L. Ed. 1157; May v. Henderson, 268 U. S. Ill, 45 S. Ct. 456, 69 L. Ed. 870.

In the case at bar, the bankrupt continued to collect the assigned accounts, and no notice of the assignment was given to debtors. These features are to some extent indicative of possession remaining with the bankrupt. On the other hand, the ledger sheets and memoranda evidencing the accounts were deposited with the assignee and were retained by him. Such deposit was as near to a delivery of the accounts themselves as the circumstances permitted, and put the assignee in actual control of the accounts. This is an element that was lacking in the Borok Case and in the Gottlieb Case, and in my opinion it differentiates the present ease from them. In addition, it is to be noted that the assignor had no right to use the money collected, but had to deposit such sums to the account of the assignee. While the case is a close one, I am of opinion that possession of the accounts was with the assignee.

It follows that the bankruptcy court has not summary jurisdiction over the assigned accounts. The decision of the referee was right, and the petition for review will be dismissed.


author: COXE, District Judge.

text:
    COHEN et al. v. HOLLAND-AMERICA LINE.
    District Court, S. D. New York.
    June 22, 1932.
    Bigham, Englar, Jones & Houston, of New York City (James N. Seneeal and Ezra G. Benedict Fox, both of New York City, of counsel), for libelants.
    Burlingham, Veeder, Fearey, Clark & Hupper, of New York City (Ray R. Allen and Burton H. White, both of New York City, of counsel), for respondent.
   COXE, District Judge.

This is a libel against the Holland-America Line for alleged cargo damage of $1,937.78 to 29 bales of dry salted goat skins discharged from the steamship’ Yolendam at Hoboken, N. J., on December 3,1927.

The skins originated at Amritsar, India, where they were dried, salted, and baled; they were then wrapped in straw matting with a covering of burlap, and the bales were bound with metal hoops. The skins were placed on railroad cars at Amritsar in the middle or latter part of September, 1927, and carried by rail across the Sind Desert, “a distance of a few hundred miles,” to Karachi, where they were received by Messrs. Cox & Kings (Agents), Limited, as forwarding agents for the shippers, and by them delivered to the Holland-British India Line, a subsidiary of the respondent, at Karachi, on October 7, 1927.

The bill of lading issued by the Holland-British India Line recites that the 29 bales are “shipped in good order and condition” on the steamship Andyk to be delivered at “New York transhipment at Rotterdam”; it is stamped with a rider to the effect that the shipment shall be subject also to “the conditions and exceptions required by the steamer or steamers of carrying company by which the goods shall be transhipped or forwarded”; it also contains the usual exceptions against damag from “sweating” or “decay” and provisions with respect to the giving of notice of claim at the port of destination.

The skins were transhipped at Rotterdam to the steamship Volendam, operated by the respondent, and were carried by that vessel to New York. There was, however, no separate bill of lading issued by the steamship Volendam, but it is insisted that the provisions of the standard form have, by reference, been incorporated in the original bill of lading. The two forms are not identical, but, in the view I have taken of the case, the variations are unimportant and require no discussion; neither is it necessary to consider what, if any, application the notice provisions of the India Carriage of Goods by Sea Act of 1925 have on the claim.

The Volendam arrived at Hoboken November 30, 1927, and finished unloading December 3, 1927. Mr. Nash, libelants’ surveyor, examined the 29 bales at the pier December 5, 1927, and, although he did not open the 'bales, he testified that they appeared to have suffered rain damage of not.recent origin. On December 7, 1927, 15 of the bales were delivered to the libelants against a clean receipt; the remaining 14 bales were opened at the pier, and it was found that the skins underneath the matting were wet. Mr. Anderson, respondent’s surveyor, who saw the bales on December 8, 1927, testified that the burlap was spotted, the hoops rusty, and the matting dry, but that the skins underneath the matting were wet; it was his opinion that the damage was caused by absorption of moisture.

The libelants’ notice of claim, dated December 7,1927, was mailed on that day to the respondent at its New York office; it bears a rubber stamp of respondent’s freight department of December 9,1927. The last 14 bales were delivered to the libelants December 8, 1927, and were receipted for under protest..

The damage claimed is for injury to 5,026 skins out of a total of 12,000 skins in the 29 bales, and the libelants assert that the extent of the damage varied from 20 per cent, with respect to some skins to 75 per cent, with others.

It has, I think, been satisfactorily established that the skins were in good condition and properly packed and baled when they left Amritsar in the middle or latter part of September, 1927. From there they traveled by rail over hundreds of miles of desert during the rainy season, and, on arriving at Karachi, were taken in charge by Cox & Kings, Limited, as forwarding agents for the shippers, and delivered hy them to the Holland-British India Line October 7, 1927, for shipment to New York.

What happened to the skins during this interval of two or three weeks between the time they left Amritsar and the time when they were received on board the steamship Andyk does not satisfactorily appear. Neither is there anything to show that the skins were in good condition when delivered to the steamship company. The recital of the bill of lading refers only to external condition [Bronstein Bros. & Co. v. Societa (D. C.) 25 F.(2d) 122], and was clearly satisfied, even though the burlap was spotted and the hoops rusted.

The libelants insist, however, that, under the doctrine of continuing presumptions, proof that the skins were in good condition at Amritsar is all that it is necessary to show to sustain the initial burden resting on the libelants, and require explanation from the steamship company.

The difficulty with this contention is that there was no continuous shipment from Amritsar, as the skins were consigned to the shippers’ own agents at Karachi, and were by them transmitted to the steamship company. The case in that respect is not unlike Price v. Shawmut S. 8. Co., 212 App. Div. 51, 207 N. Y. S. 30, where the goods after shipment came back into the possession of the consignor and remained in its control for a number of days before proceeding to destination.

However, I am inclined to think the respondent has satisfactorily explained its handling of the skins. The Dondo (D. C.) 287 F. 239. The weather conditions at Rotterdam during the loading of the Volendam were favorable, and the record contains nothing even to suggest damage there. It is true that stormy weather was encountered on the voyage to New York, but the vessel was shown to have been sound, the stowage was proper, and nothing was proved to indicate liability of the respondent. Furthermore, there were other salted hides in the same hold where the hides of the libelants were stowed, and these were undamaged.

On the whole case, I am satisfied that the loss was caused either by rain during the period prior to delivery to the steamship company on October 7,1927, or by sweating; and for neither of these is the respondent to be held responsible.

There may be a decree dismissing the libel, with costs.


author: WOOLSEY, District Judge.

text:
    RAILWAY EXPRESS AGENCY, Inc., et al. v. UNITED STATES (INTERSTATE COMMERCE COMMISSION et al., Interveners).
    District Court, S. D. New York.
    March 7, 1934.

      Henry Thurtell, of Washington, D. C., George R. Allen, of Philadelphia, Pa., and Albert M. Hartung, of New York City (Albert M. Hartung, of New York City, of counsel), for Railway Express Agency, Inc.
    Henry J. Balzer, of Washington, D. C. (Henry Vollmer, Jr., of Brooklyn, N. Y., of counsel), for intervening defendants Wishnatzki' & Nathel and others.
    C. R. Marshall, of Washington, D. C., for intervening defendants R. W. Burch, Inc., and R. J. Head.
    Theo. T. Turnbull, of Tallahassee, Fla., for intervener Railroad Commission of the State of Florida.
    Charles H. O’Connor, of New York City, for intervening defendant Atlantic Commission Co.
    Elmer E. Collins, Asst. Atty. Gen., for the United States.
    Nelson Thomas and H. L. Underwood, both of Washington, D. C. (Daniel W. Knowlton and Nelson Thomas, both of Washington, D. C., of counsel), for Interstate Commerce Commission.
    Heard, pursuant to title 28, United States Code, §§ 45 and 380 (45 USCA §§ 45, 380), by a three-judge court consisting of SWAN, Circuit Judge, and WOOLSEY and COXE, District Judges.
   WOOLSEY, District Judge.

The judgment of the court herein is that the bill of complaint must be dismissed with costs, and a decree so providing may be entered.

I. The bill of complaint sets out that upon complaint of R. W. Burch, Inc., and others, proceedings were had before the Interstate Commerce Commission which resulted in the order of November 7, 1933, requiring reduction in express rates, express refrigeration charges, and freight charges of the plaintiffs in respect of transportation of fresh strawberries from points in Florida to destinations in Southern, Southwestern, Central, and Western trunk line territories and destinations in New England and in trunk line territory including the Buffalo-Pittsburg district.

The bill charges as its gravamen: (1) That the rates prescribed are confiscatory; (2) that the Commission has made strawberries shipped in refrigerated carload lots from Florida a favored class, and applied standards of reasonableness contrary to those provided by the Interstate Commerce Act (49 USCA § 1 et seq.); and (3) that the commission acted arbitrarily and contrary to the evidence and without evidence to support its order.

The prayer is for an injunction against the said order pendente lite and that on final hearing the United States and its officers and agents be permanently enjoined' from enforcing the said order.

The United States filed an answer admitting that proceedings were had before the Commission and asserting that the resultant order of November 7, 1933, was in every respect lawful.

The Interstate Commerce Commission and numerous other parties who had appeared in the proceedings before the Commission intervened, pursuant to title 28, United States Code, § 45a (28 USCA § 45a), to support the order. Some of the interveners have filed answers and motions similar to the answer of the United States.

The cause came on for argument upon the plaintiffs’ motion for a preliminary injunction.

Thereupon the plaintiffs filed a copy of the record of the proceedings before the Commission, and all parties asked that the ease be dealt with and decided as upon a final hearing.

Originally, the order of November 7,1933, was to go into effect on December 28, 1933. Subsequently, the time was extended by the Commission to February 5, 1934, and thereafter, by a further order, until ten days after the decision of this court herein.

There is no occasion, therefore, to grant a preliminary injunction. We shall, consequently, consider the ease as on final hearing.

II. The proceeding before the Commission was heard twice on the same record.

The first hearing was before three Commissioners — Commissioners Lewis, Farrell, and Tate — sitting as Division 5, and resulted in the ■unanimous report and order of Deeember 30, 1032, which provided that future express rates ou strawberries from Florida points of origin should not exceed 120 per cent, of the present first class freight rates, but left the refrigeration charges and freight rates then obtaining unchanged.

The rates prescribed by Division 5, as we understand it, are acceptable to the plaintiffs.

On the seeond hearing before the whole Commission these rates were reduced, and by the report and order then made — November 7, 1033 — it was provided that for the future (1) express rates shall not exceed 105 per cent, of present first class rates; (2) express refrigeration charges shall not exceed 85 per cent, of present charges; and (3) freight rates shall not exceed 65 per cent, of present first class freight rates.

In the report after the reargument before the whole Commission, Commissioner Lee did not take part, and, of the nine Commissioners who heard the reargument, six, including Commissioners Lewis and Tate, who sat in Division 5, voted for the reductions of which complaint is here made. Commissioner Farrell, who also sat in Division 5, however, did not change his vote, and Commissioner Miller and Commissioner Mahaffie dissented from the vote of the majority of the full Commission.

III. In order to be able to appreciate the rationale of the proceedings before the Interstate Commerce Commission by R. W. Burch, Inc., No. 23972, Wishnatzki & Nathel et ah, No. 24145, Caruso, etc., Inc., No. 24671, and R. W. Burch, Inc., v. Atlantic Coast Line Railroad, No. 24612, and others, it should be observed that all these complainants were involved in one way or another in the strawberry trade between Florida and Northern points, and that the gravamen of their complaint to the Commission was that the rates for the transportation of strawberries under refrigeration both by express and by freight were much lower for strawberries originating in Alabama, in Texas and the Mississippi Valley States of Louisiana, Mississippi, Arkansas, and Missouri to the same destination territories in the North than for strawberries originating in Florida.

Particular emphasis was placed on the fact that the existing freight rates unduly preferred competitors of the complainants, especially those whose strawberries originated in Louisiana.

The Interstate Commerce Commission, as it points out in its report, had prescribed and approved the rates on strawberries from all the Southwestern producing points and from some of the Southern and Southeastern producing points. Consolidated Southwestern Cases, 123 I. C. C. 203; Arkansas R. R. Comission v. Ann Arbor R. Co., 153 I. C. C. 371; Coulbourn Fruit Co. v. Baltimore & Ohio R. R. Co., 104 I. C. C. 734; Lewis v. L. & N. R. R. Co., 112 I. C. C. 213; Lewis Co. v. Cincinnati, N. O. & T. P. Ry. Co., 128 I. C. C. 3.

The competition between Louisiana and Florida strawberries is shown by what the Commission states regarding the season for and marketing of strawberries.

It finds that the Florida season for strawberries begins in December and ends about the middle of May, and the peak of production is in February and March. The Louisiana and Texas seasons open in March, reaching a peak of production in April. In Alabama and Mississippi the peak is also in April, which is the opening month of their season. That there is direct competition between Florida strawberries and Louisiana strawberries is indicated in the list given in the Commission’s report of ears arriving during the strawberry season of 1930' at Philadelphia as a typical destination point.

It is, of course, only during the months of March, April, and May, when their seasons overlap, that the competition between the Florida strawberries and Louisiana strawberries comes poignantly to be felt. But it finally becomes so acute that the Florida berry is forced off the Northern markets, with the result that every year a large portion of the late Florida crop cannot be marketed and has to be destroyed in the fields.

The Commission finds that the high transportation charge from Florida is the reason why the Florida strawberry is unable to compete with the Louisiana strawberry during the latter part of the season.

There is not any difference in the actual service given by the railways from the Florida shipping points and from the shipping points in Louisiana and other Mississippi Valley territory. In this the situation differs from the shipments from the Delmarva Peninsula, commonly called the Eastern Shore, which was cited by the plaintiff as an example of higher rates than the Commission has found in its ultimate decision on the proceedings involved herein. There, however, the equivalent of passenger train service is given to strawberry shippers, and somewhat higher rates are necessarily allowed. The reason for this special service, apparently, is that the berries from the Eastern Shore, as well as from North Carolina, for some reason do not stand transportation as well as do the Florida berries, and so need to have faster deliveries. The North Carolina and Eastern Shore service rendered to strawberry shippers, therefore, being a more expensive service than that rendered to the Florida shippers, is not a norm by whieh to measure rates from Florida, where the strawberry service is just the same as that accorded to any other perishable freight. Cf. Peninsula Produce Exchange v. Penn. R. R. Co., 160 I. C. C. 711.

IV. Before December 1, 1929, carload movements originating in Florida were wholly in freight service under refrigeration. The express refrigerated service thence was inaugurated December 1, 1929, after investigation proceedings initiated by the Commission on its own motion had satisfied it that the existing. freight service was inadequate to the increase that had occurred in the Florida strawberry acreage, and that a service involving greater speed was advisable. Transportation of Strawberries by Express, 151 I. C. C. 553; Id., 156 I. C. C. 4.

The carriers were required to arrange for the establishment of an express refrigerated carload service. This service is furnished by the plaintiff in this ease, Railway Express Agency, Incorporated, under a special agreement with the rail carriers. The Commission has never fixed rates for this express service or for refrigerated freight service from Florida.

V. The Commission was therefore faced, in the proceedings whieh eventuated in this cause, with a situation in which it found that it had prescribed a basis of 65 per cent, of normal first class freight rates subject to a minimum carload of 17,600 pounds in refrigerated carload lots, for about 50' per cent, of all the commercial strawberries produced in the United States, and at the same time the carriers had established a much higher carrier-fixed rate structure in Florida for the same kind of service.

The Commission summarizes very well the situation that had existed as to the rate structure for other commodities which it had prescribed in Florida and the South and Southwest. It says:

“Complainants cite numerous other cases in whieh we prescribed for commodities from and to the south including the Florida Peninsula the same percentage of first class as we had previously prescribed for application on the same commodities between southwest•ern points. Review of these and similar cases bearing upon this question discloses that heretofore we have generally accepted the class rate structure which we prescribed in Florida, the south and the southwest, as fairly representing the differences in transportation conditions in the three territories; that in the prescription of rates on like commodities in the three territories we have, as a rule,, used the same percentages of first class; and that we have departed from this rule only in cases where there was a definite showing of some peculiar condition whieh would have rendered the application of like percentage-relationships in the three territories unfair or otherwise inappropriate.

“The Florida defendants render services-substantially similar to those performed by the carriers serving the southwest and most of the south. When we prescribed the 65-percent basis from southwestern points thqtraffic moved under refrigeration in expedited service and that character of service is still' being performed by the southwestern carriers. Strawberries from Florida and other southern producing sections likewise move under refrigeration in expedited service. The expedited service performed by the Florida defendants is good but it is not superior to that rendered by the carriers serving other producing sections in the south and southwest."

It was quite proper for, if, indeed, it was not the duty of, the Commission as an administrative body with quasi legislative powers on rates to give consideration to the difference in rates on a commodity prescribed by it in one territory of origin and the rates fixed by carriers in another territory of origin for identic service under substantially similar conditions, to give to such comparison such value as it sees fit, and to use it as one of the reasons for its ultimate findings.

The Supreme Court says in Louisville & Nashville Railroad Co. v. United States, 238 U. S. 1, at page 15, 35 S. Ct. 696, 760, 59 L. Ed. 1177, in dealing with the question of a coal rate on the Louisville & Nashville Railroad to Nashville: “Giving the widest possible effect to the fact that mere comparison between rates does not necessarily tend to establish the reasonableness of either, it is still true that, when one of many rates is found to be higher than all others, there may arise a presumption that the single rate is high. And when to that is added the fact that some of the comparative and lower rates had been prescribed by the Commission, there was at least a prima facie standard, which, after allowing for dissimilarity in conditions, might be used along with all the other evidence in order to test the reasonableness of the Nashville rate.”

Later in the opinion there is a quotation from the court’s earlier opinion in Interstate Commerce Commission v. Louisville & Nashville Railroad, 227 U. S. 88, at page 98, 33 S. Ct. 185, 57 L. Ed. 431, as follows: “The pleadings charged that the new rates were unjust in themselves and by comparison with others. This was denied by the carrier. The Commission considered evidence and made findings relating to rates which the carrier insists had been compelled by competition, and were not a proper standard by which to measure those here involved. The value of such evidence necessarily varies according to circumstances, but the weight to be given it is peculiarly for the body experienced in such matters and familiar with the complexities, intricacies, and history of rate-making in each section of the country.”

To the same effect are Western Chemical Co. v. United States, 271 U. S. 268, 271, 46 S. Ct. 500, 70 L. Ed. 941; Northern Pacific Railway Co. v. United States (D. C.) 60 F.(2d) 302, 308, reversed on other grounds 288 U. S. 490, 53 S. Ct. 406, 77 L. Ed. 914; Interstate Commerce Commission v. Louisville & Nashville Railroad, 227 U. S. 88, 98, 33 S. Ct. 185, 57 L. Ed. 431.

VI. The contention that the prescribed rates are so low as to amount to confiscation rests wholly upon certain cost studies introduced as schedules by plaintiffs.

The plaintiffs insist that the evidence which they presented was undisputed, despite the fact that the Commission pointed out that there were many uncertain factors in the studies, and that in a number of material elements they were untrustworthy.

It was entirely within the competence of the Commission to reject this evidence as it has done. Whether a fact-finding body believes a witness or not is its own concern.

Indeed, it seems to us that the Commission’s challenge of these costs is entirely supportable, for it would be almost impossible accurately to show by such cost schedules what the actual cost of carrying a particular commodity was when that commodity was but one of thousands of different kinds of commodities carried by the railroads. Consequently it would be almost, if not quite, impossible to establish that a rate on any individual commodity was confiscatory.

To attempt to show that the rate prescribed for the carriage of a single one of many thousand commodities is confiscatory or indeed unreasonable is inherently very much more difficult than to make such showing in respect of the rate prescribed for a homogeneous service, such as that furnished by a city traction line or by an electric public utility.

The difficulty facing such proof has been often recognized by the Supreme Court; e. g., Louisville & Nashville Railroad Co. v. Garrett, 231 U. S. 298, 314, 315, 34 S. Ct. 48, 58 L. Ed. 229; Northern Pacific R. Co. v. State of North Dakota, 216 U. S. 579-581, 30 S. Ct. 423, 54 L. Ed. 624; Interstate Commerce Commission v. Union Pacific Railroad Co., 222 U. S. 541, 549, 32 S. Ct. 108, 56 L. Ed. 308; Atlantic Coast Line R. Co. v. State of Florida, 203 U. S. 256, 260, 27 S. Ct. 108, 51 L. Ed. 174.

In the light of what was said of such proof of the decisions just cited, it seems to us that it certainly does not lie within our province to find fault with the criticism which the Commission made of the cost study schedules which were the principal basis of the complainants’ case, or to challenge the Commission’s refusal to accept them at their face value.

The decision of the Commission cannot be set aside by a court because on like testimony the court might not have made a similar ruling. The weight of the evidence or the wisdom of the conclusions is beyond the province of the courts. Northern Pacific Railroad Co. v. State of North Dakota, 216 U. S. 579, 30 S. Ct. 423, 54 L. Ed. 624; Illinois Cent. R. Co. v. Interstate Commerce Commission, 206 U. S. 441, 27 S. Ct. 700, 51 L. Ed. 1128.

Quite apart from the detailed criticism made by the Commission, it may be observed that, although the carriers would have been satisfied with the rates prescribed by Division 5, still the cost studies which they have introduced prove, if true, that these rates also were below the cost of service. This clearly proves too much, and in the present ease inferentially puts the cost estimates at once under a cloud.

We think the affidavits of Lamb and Gross filed herein, whereby they seek to meet the Commission’s criticism on their cost evidence and schedules, really involve argument which should have been addressed to the Commission- at the time of the rehearing, rather than to the court in the present cause, for courts must necessarily remain outside of the zone of such disputed questions of fact as may be involved in proceedings before the commission. These affidavits, therefore, are not relevant in this cause.

VII. The contention that the order is not supported by evidence is also not well founded.

As above indicated-, the Commission considered evidence relating to rates from other points in similarly situated territory, a comparison which has been held proper as above noted in a number of decisions. See Louisville & Nashville Railroad Co. v. United States, 238 U. S. 1, 15, 16, 35 S. Ct. 696, 59 L. Ed. 1177; Skinner & Eddy Corp. v. United States, 249 U. S. 557, 565, 39 S. Ct. 375, 63 L. Ed. 772; Virginian Railway v. United States, 272 U. S. 658, 665, 666, 47 S. Ct. 222, 71 L. Ed. 463.

The carriers urge, however, that this evidence was not a proper basis for the orders because the conditions of transportation and of competition were not the same. The Commission, after giving consideration to this contention, specifically found that these rates were a reasonable means of chancering the proper rates in the present ease. This finding is a determination of fact, and a court has not any concern with the correctness of the Commission’s reasoning or the soundness of its conclusion. Virginian Railway v. United States, 272 U. S. 658, 665, 666, 47 S. Ct. 222, 71 L. Ed. 463; Illinois Central Railroad Co. v. Interstate Commerce Commission, 206 U. S. 441, 454, 27 S. Ct. 700, 51 L. Ed. 1128. In Interstate Commerce Commission v. Louisville & Nashville Railroad Co., 227 U. S. 88, 98, 33 S. Ct. 185, 189, 57 L. Ed. 431, the court said: “The value of such evidence necessarily varies according to circumstances, but the weight to be given it is peculiarly for the body experienced in such matters and familiar with the complexities, intricacies, and history of rate making in each section of the country.”

The plaintiffs also argue that in some instances these comparative rates were from territories where strawberries were rated third class, while in Florida strawberries are rated first class. However, it is hardly possible to contend seriously that the classification of commodities can operate to control the fixing of freight rates or to prohibit the Commission from „ preventing unjust discrimination against particular localities.

VIII. In addition, the plaintiffs argue that in fixing the express rates the Commission took as its guide the rates established in Express Rates, 1922, 83 I. C. C. 606, Id., 89 I. C. C. 297, and that these rates were established in depressed times without giving consideration to what was the proper basis for computing the express charges. It is true that there are certain expressions of opinion by members of the Commission in those cases to this effect, b-ut the majority did not feel that the record was inadequate to show what was the cost of transportation. Nor will this court set aside a finding of reasonableness on the ground of alleged inconsistencies with findings made in other proceedings of the Commission. Virginian Railway Co. v. United States, 272 U. S. 658, 47 S. Ct. 222, 71 L. Ed. 463.

Furthermore, it is not to he assumed that, if these rates were as unremunerative as plaintiffs contend, the carriers would have continued them for so long a period of time without complaint that their expenses in respect of such transportation were greater than their revenue. Cf. Interstate Commerce Commission v. Union Pacific R. R., 222 U. S. 541, 543, 32 S. Ct. 108, 56 L. Ed. 308; Louisville & Nashville Railroad Co. v. Garrett, 231 U. S. 298, 314, 34 S. Ct. 48, 58 L. Ed. 229.

IX. It is also argued that the Commission acted arbitrarily.

The principal reliance for this argument is placed upon the Commission’s alleged inconsistency in sustaining as reasonable Division 5’s rates for the period prior to March 3, 1933, and holding them unreasonably high for the future. It is true that there is nothing to show any change in conditions after March 3,1933, for all the evidence was closed in October, 1932. However, there is nothing inconsistent in this action. It was merely a recognition by the Commission that it may not reject with retroactive effect a rate which it itself has declared to be reasonable and lawful and to which the carrier has conformed. By declaring its own finding improper, the Commission would oblige a carrier which had' acted.on its previous order to make reparations on the basis of the new rates. Such an order would be improper.

We think that this method of dealing with findings Nos. 1 and 2 of the report of the full Commission of November 7, 1983, is charted for us clearly by the decision of the Supreme Court in Arizona Grocery Co. v. Atchison, T. & S. F. Ry. Co., 284 U. S. 370, 52 S. Ct. 183, 76 L. Ed. 348, which was in the Supreme Court on certiorari from a decision of the Circuit Court of Appeals for the Ninth Circuit [49 F.(2d) 563] in. an action at law involving -a reparation order.

At page 388 of 284 U. S., 52 S. Ct. 183, 186, Mr. Justice Roberts says:

“As has been pointed out, the system now administered by the Commission is dual in nature. As respects a rate made by the carrier, its adjudication finds the facts, and may involve a liability to pay reparation. The Commission may, and often does, in the same proceeding, and in a single report and order, exercise its additional authority by fixing rates or rate' limits for the future. But the fact that this function is combined with that of passing upon the rates theretofore and then in effect does not alter the character of the action. (Citing in footnote the following cases: Interstate Commerce Commission Co. v. Cincinnati, N. O. & T. P. Ry. Co., 167 U. S. 479, 499, 17 S. Ct. 896, 42 L. Ed. 243; Baer Bros. Co. v. Denver & R. G. R. Co., 233 U. S. 479, 34 S. Ct. 641, 58 L. Ed. 1055.)

“As respects its future conduct, the carrier is entitled to rely upon the declaration as to what will be a lawful, that is, a reasonable, rate; and, if the order merely sets limits, it is entitled to protection if it fixes a rate which falls within them. Where, as in this- ease, the Commission has made an order having a dual aspect, it may not in a subsequent proceeding, acting in its quasi judicial capacity, ignore its own pronouncement promulgated in its quasi legislative capacity and retroactively repeal its own enactment as to the reasonableness of the rate it has prescribed.”

And continuing on page 389' of 284 U. S., 52 S. Ct. 183, 186, Mr. Justice Boberts says that the Commission “was bound to recognize the validity of * * * its own enactment with retroactive effect. It could repeal the order as it- affected future action, and substitute a new rule of conduct as often as occasion might require, but this was obviously the limit of its power, as of that of the Legislature itself.”

It seems to us necessarily to follow that, whilst we are not concerned here directly with the findings of the Commission in regard to reparation, in so far as those findings might be cited as showing arbitrary or ill-advised action by the Commission, such an argument cannot prevail, because, after Division 5 of the Commission had fixed rates by its order of December, 1932, to become effectual in March, 1933, carriers complying therewith could not properly be mulcted in damages for so doing.

With regard to the argument as to the Commission having acted arbitrarily, it seems to us that the conclusive answer is shown in the fact that, after the decision by Division 5 of the Commission, consisting of three Commissioners, there was a full reargument before the whole Commission, and two of the Commissioners who sat in Division 5 changed their minds. Surely such considered attention to a situation as is shown by that circumstance in the history of this case cannot be a proper basis for a contention that there was any arbitrary action by the Commission.

X. The defendants may submit for signature findings of fact and conclusions of law consistent with the foregoing opinion, and, after those are signed, a final decree may be noticed dismissing the complaint, with costs.