author: MADDEN, Judge. WHITAKER, Judge

text:
    PENNSYLVANIA CO. FOR INSURANCES ON LIVES & GRANTING ANNUITIES et al. v. UNITED STATES.
    No. 45889.
    Court of Claims.
    Oct. 1, 1945.
    This case having been heard by the Court of Claims, the court, upon an agreed statement of facts entered into between the parties, makes the following special findings of fact:
    1. The plaintiffs are the duly qualified and acting executors of the estate of Edward C. Knight, Jr., deceased. The Pennsylvania Company for Insurances on Lives and Granting Annuities is a corporation duly organized and existing under and by virtue of the laws of the State of Pennsylvania. H. Wilber Bircks is an individual and a citizen of the United States.
    2. On October 21, 1937, the plaintiffs filed with the Collector of Internal Revenue a Federal Estate Tax return for the estate of Edward C. Knight, Jr., showing a gross estate of $2,691,897.37 and deductions of $587,091.25, with a resulting tax liability of $475,041.84, which was duly paid to the Collector of Internal Revenue on October 21, 1937.
    3. Thereafter, as a result of an examination of the aforesaid Federal estate tax return by an agent in the employ of the Bureau of Internal Revenue and as a result of protest filed by the plaintiffs and conferences held with the said agent, it was determined that the net taxable estate under the Revenue Act of 1926, 26 U.S.C.A. Int. Rev.Acts, page 145 et seq., was in the amount of $1,607,142.03 and $1,667,142.03 under the Revenue Act of 1932, 26 U.S.C.A. Int.Rev.Acts, page 475 et seq., upon which there was due a tax liability of $362,585.49 as compared with the $475,041.84 paid at the time the return was filed, resulting in an overpayment of $112,456.35. The aforesaid overpayment of tax was based upon a reduction in the value of the real estate of the decedent by the sum of $404,200 and other minor adjustments. The adjustments which resulted in the determination of the overpayment in the amount of $112,456.35 are not in controversy in this action.
    4. By letter forwarded to the plaintiffs under date of December 7, 1939, the defendant, through the Internal Revenue Agent in Charge at Philadelphia, Pennsylvania, notified the plaintiffs of a proposed over-assessment against the estate of Edward C. Knight, Jr., in the amount of $112,456.35. In this letter the said Internal Revenue Agent in Charge further advised the plaintiffs that due notification of the adjustments reflecting the overassessment of $112,456.35 was forwarded to the. Commissioner of Internal Revenue at Washington, D. C., under date of January 4, 1940.
    5. Later the Commissioner of Internal Revenue recomputed the estate tax liability of the estate of the decedent and included in the gross estate certain assets held by The Pennsylvania Company for Insurances on Lives and Granting Annuities, as trustees, under a deed of trust dated June 28, 1912. This trust property had a value at the date of death of the decedent of $121,-288.21, and the inclusion of this amount in the gross estate resulted in reducing the overpayment of estate tax to $72,857.68 from $112,456.35 as had been previously determined. In due course the overpayment of $72,857.68, together with interest, was refunded to the plaintiffs by the Commissioner of Internal Revenue.
    6. On October 17, 1940, plaintiffs filed a claim for refund of estate tax with the Commissioner of Internal Revenue, through the office of the Collector of Internal Revenue at Philadelphia, Pennsylvania, the material parts of which read as follows:
    “Under date of June 15, 1939, the Internal Revenue Agent-in-Charge at New Haven, Connecticut, advised the executors of this estate (Estate of Edward C. Knight, Jr.) that the net taxable estate under the 1926 Act had been tentatively determined, in the amount of $2,051,062.28, while under the 1932 Act it was reflected in the amount of $2,111,062.28 with estate tax liability in the total of $537,971.70.
    “As the result of protest statement filed with the said Revenue Agent-in-Charge and subsequent conferences with respect thereto in the office of the Internal Revenue Agent-in-Charge in Philadelphia, Pa., the net estate under the 1926 Act was revised to $1,067,142.03 and $1,667,142.03 under the 1932 Act, upon which estate tax liability was indicated in the total of $362,585.49, as compared with $475,041.84 paid at the time the return was filed. Notification of the recomputation of the liability, and the basis upon which the liability was redetermined, was contained in letter addressed to the agent of the taxpayer under date of December 7, 1939. The Agent of the taxpayer has been further advised that due notification of the adjustments reflecting the overassessment of $112,456.35 was forwarded to the Commissioner of Internal Revenue by the Internal Revenue Agent-in-Charge at Philadelphia under date of January 4, 1940.
    “After the determination of the adjusted liability in the total of $362,585.49 and while the matter was under consideration in the office of the Commissioner of Internal Revenue, the United States Supreme Court promulgated its decision in the matter of Hel-vering v. Hallock, 309 U.S. 106, 60 S.Ct. 444, 84 L.Ed. 604, 125 A.L.R. 1368, as the result of which the Commissioner instructed the Philadelphia office to reopen the matter of the determination of this estate and include as taxable property certain assets held by the Pennsylvania Company for Insurances on Lives and Granting Annuities, as Trustee, on the date of death, under irrevocable deed dated June 28, 1912, which property had a total value as of July 23, 1936, of $121,288.21.
    “A recomputation, giving effect to the said adjustment, indicates a total liability-in the amount of $402,184.16 and results in a reduction of the recommended overassessment to $72,857.68. A so-called 'Acceptance of Proposed Overassessment’ was executed by the agent of the taxpayer under date of September 17, 1940.
    “However, it is now the taxpayer’s contention that a further allowance should be made in the amount of $53,238.67 indicating a total overassessment of $126,096.35. This claim for additional allowance is based on two adjustments: first, the elimination from the net estate of the $121,288.21 trust property conveyed to an irrevocable trust on June 28, 1912, inasmuch as it is not considered to be properly includible on the authority of the so-called Hallock decision, and second, the allowance, as an additional deduction, of $31,000.00 fees paid or incurred for attorneys and appraisers in connection with the adjustment of this matter, in accordance with the decision of the United States Board of Tax Appeals in the matter of Margaret Gordon Myers, Executrix of the Estate of Theodore F. Myers, v. Commissioner, Docket #90553.
    “While, as indicated, $72,857.68 of the total refund requested herein has been recommended by the proper executive of the Internal Revenue Bureau, this claim is being filed in the total amount as explained for statutory purposes and to avoid the bar of the statute in any subsequent action that may become necessary or desirable.”
    7. By certificate of overassessment dated August 18, 1942, the Commissioner of Internal Revenue advised the plaintiffs of the determination of an overpayment of $10,850 based upon his consideration of the claim for refund filed by the plaintiffs on October 17, 1940. The said overpayment of $10,850 was arrived at by allowing as a deduction the additional attorneys’ fees in the amount of $31,000 as set foi'th in the second point raised in the said claim for refund. No adjustment was made by the Commissioner of Internal Revenue with respect to his previous action whereby he had included in the assets of the Estate of Edward C. Knight, Jr., the sum of $121,-288.21, representing the value, at the time of the death of Edward C. Knight, Jr., of the assets which the said Edward C. Knight, Jr., had transferred in trust by deed dated June 28, 1912. The said certificate of overassessment notified plaintiffs that their claim for refund was rejected to the extent that it was not being allowed.
    The certificate of overassessment contained a paragraph reading as follows:
    “This overassessment, which is subject to refund, is due to the allowance of an increase in attorneys’ fees from $18,500 to $49,500. No reduction is made in the value of the taxable assets of $121,288.21, which assets were transferred in trust under date of July 28, 1912. It is the position of this office that, under the terms of the trust, upon the death of the decedent’s daughter, Clara W. K. Colford, and' the deaths of all of her descendants, the corpus of the trust was to be returned to the decedent, if living. No person could receive any interest or estate without surviving the decedent. There was a possibility of reverter which could not terminate without decedent’s death. Accordingly, the transfer was intended to take effect at decedent’s death. No part of this refund is due to credit. To the extent not herein allowed, the claim for refund is rejected.”
    The said sum of $10,850 covered by the certificate of overassessment referred to above was duly refunded to the plaintiffs, together with statutory interest thereon.
    8. Under date of June 28, 1912, Edward C. Knight, Jr., created a trust which reads as follows:
    “Know All Men by These Presents, that I, Edward C. Knight, Jr., for and in consideration of the sum of One Dollar to me in hand well and truly paid, by the Pennsylvania Company for Insurances on Lives and Granting Annuities, at and before the sealing and delivery of these Presents, the receipt whereof is hereby acknowledged, as well as the assumption by said Company of the trusts hereinafter set forth, have granted, bargained, sold, assigned, transferred and set over, and by these Presents do grant, bargain, sell, assign, transfer, and set over unto the Pennsylvania Company for Insurance on Lives and Granting Annuities and its successors and assigns, all of my right, title and interest of, in and to the estate or under the Will of Clara Dwight Knight, deceased (with the exception of my interest in the jewelry which has heretofore been assigned to my daughter, Clara W. K. Colford), whether awarded to me by the Orphans’ Court of Philadelphia County upon the adjudication of the first Account of the Executors of the said estate, or otherwise.
    “To Have and to Hold the same unto the said Pennsylvania Company for Insurances on Lives and Granting Annuities, and its successors and assigns, In Txmst, nevertheless, for the uses, persons, and purposes following :—
    “In trust, to invest and re-invest the same, from time to time, in such securities as shall be approved by me, the said Edward'C. Knight, Jr., without any obligation on the part of the Trustee to confine itself to what are known as ‘Legal Investments,’ and after' deducting all necessary and proper charges, to pay the net income to me, the said Edward C. Knight, Jr., for and during the term of my natural life, and, upon my death, to pay the said net income to my daughter, Clara W. K. Colford, for and during the term of her natural life.
    “In trust upon the death of Clara W. K. Colford, I the said Edward C. Knight, Jr., being then dead, — to pay, assign, transfer, and set over the principal to and among the children of the said Clara W. K. Col-ford, then living, and the descendants of any child then dead, share and share alike, per stirpes, upon the principle of representation.
    “In trust, in the event of the death of the said Clara W. K. Colford, in my lifetime, the said Edward C. Knight, Jr., without leaving descendants her surviving, to pay, assign, transfer and set over the principal of all of the estate hereby transferred, to the said Trustee of me, the said Edward C. Knight, Jr., absolutely and free from all trusts.
    “In trust, in the event of the death of the said Clara W. K. Colford after my decease, the said Edward C. Knight, Jr., without leaving descendants her surviving, to pay, assign, transfer, and set over the principal to such person or persons, for such use or uses, and in such proportion or proportions, as I, the said Edward C. Knight, Jr., may, by my last Will and Testament or any writing in the nature thereof, constitute, limit, and appoint.
    “This Deed of Trust is conditional upon the faithful performance by Clara W. K. Colford of a certain agreement dated the - day of - between Edward C. Knight, Jr., Edward W. Dwight, and The Pennsylvania Company for Insurances on Lives and Granting Annuities, Executors and Trustees under the Will of Clara D. Knight, deceased, and of a certain agreement dated the - day of - between Edward C. Knight, Jr., and Clara W. K. Colford, and in the event of the breach of any covenant, agreement, or condition of either of said agreements by the said Clara W. K. Colford, this Deed of Trust shall, at my option, the said Edward C. Knight, Jr., expressed in writing and delivered to the Trustee, absolutely determine and become null and void, and the said the Pennsylvania Company for Insurances on Lives and Granting Annuities shall thereafter immediately assign, transfer, and set over the principal of all of the estate hereby transferred to the said Trustee, free and clear of all trusts.
    “In witness whereof, I have hereunto set my hand and seal this 28th day of June, one thousand nine hundred and twelve (1912).
    “Sealed and delivered in the presence of: B. B. Lyons, C. A. Robbins.
    “[SEAL] Edward C. Knight, Jr.
    “The Pennsylvania Company for Insurance on Lives and Granting Annuities hereby accepts the above trust.
    “The Pennsylvania Co. for Ins on Lives etc.
    “T. S. Gates, Vice-Pres. “County of Philadelphia, ss:
    “On the 28th day of June 1912, before me, the Subscriber, a Notary Public for the Commonwealth of Pennsylvania, residing in the City of Philadelphia, personally appeared the above named Edward C. Knight, Jr., who, in due form of law, acknowledged the foregoing instrument to be his act and deed and desired the same to be recorded as such.
    “Witness my hand and notarial seal the day and year aforesaid.
    “I am not a Stockholder, Director, or Officer of within mentioned Corporation.
    “B. B. Lyons, Notary Public.
    “Commission expires Feb. 21, 1915.”
    The aforesaid deed of trust was subject to the faithful performance by Clara W. K. Colford of the conditions set forth in two agreements executed by her in 1912 and which are specifically referred to in the said deed of trust. Clara W. K. Colford carried out the terms and conditions of the said two agreements.
    9. Edward C. Knight, Jr., was born December 14, 1863, and died July 23, 1936. Clara W. K. Colford died on December 18, 1924, leaving to survive her two children, both of whom are still living. These children are Dorothy Colford Armstrong, who was born March 12, 1909, and Clara Knight Doreau, who was born March 22, 1913. Prior to the death of the said Edward C. Knight, Jr., on July 23, 1936, Dorothy Col-ford Armstrong had married and on July 23, 1936, she had one child, who had been born on September 27,1930.
    10. In December of 1927 The Pennsylvania Company for Insurances on Lives, and Granting Annuities filed with the Court of Common Pleas for Philadelphia County its First Account under the deed of trust executed by Edward C. Knight, Jr., on June 28, 1912, in which it acknowledged that it was holding as trustee the property covered by the said deed of trust. Under date of September 18, 1928, the said Court of Common Pleas of Philadelphia County entered a decree approving the said account and directing that the principal of the trust property be awarded to The Pennsylvania Company for Insurances on Lives and Granting Annuities to be held by it in trust under the terms of the deed of trust dated June 28, 1912.
    11. Subsequent to the death of Edward C. Knight, Jr., on July 23, 1936, The Pennsylvania Company for Insurances on Lives and Granting Annuities, as trustee under the deed of trust executed by the said Edward C. Knight, Jr., on June 28, 1912, filed with the Court of Common Pleas of Philadelphia County its Petition for Distribution, requesting the Court to authorize distribution of the trust property in accordance with the conditions of the said trust deed dated June 28, 1912. In the said Petition for Distribution it was stated that Dorothy Colford Armstrong and Clara Knight Doreau, the grandchildren of Edward C. Knight, Jr., were “each entitled to one-half of the net estate now before your Honorable Court for distribution.” Joinders in the Petition for Distribution were executed by Dorothy Colford Armstrong and Clara Knight Doreau and also by The Pennsylvania Company for Insurances on Lives and Granting Annuities and H. Wilber Bircks, executors of the estate of Edward C. Knight, Jr., deceased.
    12. Under date of December 14, 1936, the said Court of Common Pleas of Philadelphia County entered a decree approving the Petition for Distribution, in accordance with the said decree.
    In accordance with the said decree, a schedule of distribution was prepared showing the net value of the assets in the hands of the trustees and assigning one-half of the said net assets to Clara D. Doreau and one-half to Dorothy Colford Armstrong. The said schedule of distribution was approved by the Court of Common Pleas of Philadelphia County on July 6, 1937. Distribution of the said trust property was thereupon made in accordance with the schedule of distribution approved by the Court.
    13. Edward C. Knight, Jr., had remarried and at the time of his death he was survived by his widow, Marie Louise LeBel Knight. Edward C. Knight, Jr., left a will which was duly admitted to probate. Under the terms of the will of Edward C. Knight, Jr., his property was distributed under terms and conditions at variance with the terms and conditions covering the distribution of the property transferred by the deed of trust executed by Edward C. Knight, Jr., on June 28, 1912.
    Frank J. Albus, of Washington, D. C., for plaintiffs.
    Elizabeth B. Davis, of Washington, D. C., and Samuel O. Clark, Jr., Asst. Atty. Gen. (Robert N. Anderson and Fr.ed K. Dyar, both of Washington, D. C., on the brief), for defendant.
    Before WHALEY, Chief Justice, and LITTLETON, WHITAKER, JONES, and MADDEN, Judges.
   MADDEN, Judge.

The issue in this estate tax case is whether the Commissioner of Internal Revenue properly included in the gross estate of the decedent, Edward C. Knight, Jr., certain property transferred by him in trust June 28, 1912. The basis of the Commissioner’s action was that under the trust instrument there was a possibility of reverter which could not terminate until decedent’s death and therefore the transfer was intended to take effect at decedent’s death.

The trust instrument gave successive life interests to Edward C. Knight, Jr., and to his daughter, Clara W. K. Colford. It then provided for the further disposition of the trust property upon the death of Mrs. Col-ford under three different described conditions: (1) Her death, after Knight’s death, leaving children or descendants of children; (2) her death, in Knight’s lifetime, without descendants; (3) her death, after Knight’s death, without descendants. In situation (1) the property was to go to the descendants living at Mrs. Colford’s death, per stirpes; in (2) it was to go back to Knight; and in (3) it was to go as Knight might have appointed by a testamentary disposition.

In fact, Mrs. Colford died before Knight, and left two children, so that no one of the three described conditions covered by the trust instrument occurred. The consequence was that the trust instrument made no disposition of the property at all except that of the life estates to Knight and Mrs. Colford, in the circumstances which in fact occurred. This may well have been an oversight on Knight’s part. But we think it is not permissible for the court to fill in a complete gap in a deed in order to make a disposition of property which the grantor did not, by his language, make, but which he probably would have made if he had thought of it.

It is true that, as shown in finding 11, the Pennsylvania court having supervision of the trust approved a distribution of the property as if it had been covered by the trust deed. But this approval was in response to a petition presented by all interested parties, including the executor of Knight’s estate, and was nothing more than a consent decree. It represents no determination at all by a Pennsylvania court that it is the law of Pennsylvania that complete gaps in a trust deed will be filled by writing into them what would probably have been the intent of the grantor if he had given thought to the matter. We cannot, therefore, agree that the Pennsylvania court’s decree binds the Government, with regard to the taxability of this transaction, or binds this court in this contested .case between different parties, to follow the Pennsylvania court’s consent decree.

The trust deed made no disposition of the property beyond the two life estates, in the event which occurred, and accordingly, from the time that Mrs. Colford’s life estate was extinguished in 1924, Knight had a life estate by the terms of the deed and a resulting trust of the undisposed of reversion. He was therefore, in equity, the complete owner of the property at the time of his death and the estate tax should apply.

If the court should seek to fill the gap in the trust deed with some gift of a remainder to Mrs. Colford’s issue, it still would have the task of formulating the language to be inserted. It must determine whether to make, for the creator of the trust, a gift of a remainder to the descendants of Mrs. Colford who should be living at her death, or to those who should be living at the death of Knight, the time at which the interest of Mrs. Colford’s descendants would take effect in possession.

A reasonable construction of the trust instrument is that if Knight had made provision for the event which in fact occurred, he would have provided, as he did in the parts of the deed which he wrote, that the interests of the descendants of Mrs. Col-ford should not vest until they vested in possession, upon his death. For instance, if one of the two daughters of Mrs. Colford who survived her had died before Knight, leaving a child, and creditors, Knight’s intention, as shown by the provisions of his deed, would have been that the child should get the property, when Knight died, and not the creditors. Family settlements in general keep the interests contingent, so that those of the family who are alive when the time for enjoyment arrives may not find their inheritance has been dissipated without ever being enjoyed.

It is reasonable therefore to conclude that if a provision is to be written into the deed it should be that upon the expiration of the life estates of both Knight and his daughter, no matter which died first, the trustee should “pay, assign, transfer and set over the principal to and among the children of the said Clara W. K. Colford, then living, and the descendants of any child then dead, share and share alike, per stirpes, upon the principal of representation.” The quoted language is the language actually used by Knight for one of the situations which he foresaw and provided for. If his deed is so read, the gift would have failed if the two daughters who survived Mrs. Colford had died without issue before Knight died. Until that question was resolved by Knight’s death, he had an equitable reversion in the property, and an estate tax was payable thereon upon his death.

The decree of the Pennsylvania court, even if it had been a decision in a contested case, would have been of no assistance in this latter question of construction. The daughters who survived Mrs. Colford in 1924 survived Knight in 1936 and the court would have had no occasion, after Knight’s death, to determine whether their interests had vested in 1924 or not until 1936.

It follows that the petition should be dismissed. It is so ordered.

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

WHITAKER, Judge

(dissenting).

The controversy in this case arises over the inclusion within the gross estate of the deceased, Edward C. Knight, Jr., of property transferred by him in trust on the 28th day of June, 1912. The Commissioner of Internal Revenue included it in the decedent’s gross estate on the theory that under the trust instrument the grantor retained a possibility of reverter and, therefore, that the transfer was “intended to take effect in possession or enjoyment at or after” the death of the decedent.

The trust instrument was executed at Philadelphia, Pennsylvania. The trustees were directed to pay the net income to the grantor for life, and upon his death to pay the net income to his daughter Clara W. K. Colford for her life, and upon the death of his daughter, the grantor then being dead, to divide the principal among his daughter’s children then living, and the descendants of any child who was dead, per stirpes. If, however, his daughter should die during the lifetime of the grantor “without leaving descendants her surviving,” the property was to revert to the grantor; and if the daughter should die after the decease of the grantor “without leaving descendants her surviving,” the principal was to be paid to such persons and in such proportions as the grantor should by last will and testament provide.

The grantor died on July 23, 1936; his daughter Mrs. Colford died on December 18, 1924, leaving surviving her two children, aged 15 and 11, respectively. These children survived the grantor.

No provision was made in the trust instrument for the contingency that the daughter might die before the grantor leaving issue, and her issue should later die during the lifetime of the grantor. In this event, defendant says the property would by operation of law revert to the grantor, and it says this possibility of reverter justified the Commissioner in including the value of the property in the grantor’s gross estate.

Defendant says that the right of the grandchildren to receive any part of the estate was contingent upon their surviving their mother and the grantor because the trust provided that on the death of the grantor the principal should be transferred only to such children of the daughter as should be living at her death, or, if dead, to their descendants. Therefore, it says that if the daughter’s children died without issue after the mother’s death, but before the grantor’s death, there was no one to whom the principal could be paid and, therefore, it would revert to the estate of the grantor.

In support of this defendant cites the case of Battenfeld v. Kline, 228 Pa. 91, 77 A. 416, 417. In this case the will under construction directed that the estate “shall be divided in equal shares between such of the children” of the testatrix and her husband “as shall then be living,” and that “if any one or more of the said children shall then be dead leaving issue, such issue shall stand in the place of and be entitled to the share to which such child would have been entitled if such child had survived. * * * ” The court held that the children’s interest was a contingent, and not a vested one, and that it did not vest until the death of the life tenants. The court said, however: “Of course this rule may be overborne by the addition of words of limitation showing that the testator’s intention was that the children should take a transmissible interest; as where the gift is implied from a direction to divide among them or their heirs. Appeal of Muhlenberg, 103 Pa. 587.”

If, therefore, the trust instrument in the case before us discloses an intention that the grantor’s grandchildren should receive a vested interest upon the death of their mother during the lifetime of the grantor, there was no further possibility of reverter after the death of the grantor’s daughter leaving issue. I think it does.

After having provided for the payment of the income from the trust to him for his life and to his daughter for her life, with remainder to the daughter’s children living at the time of her death, the grantor then provided for the contingency that his daughter should die without leaving descendants surviving her, either in his lifetime or after his death. If she died during his lifetime, it was provided that the property should revert to his estate free from all trusts; if she died after he did, it was provided that the property should be disposed of as he should by will direct. No provision was made for the disposition of the remainder if at the time of the dáughter’s death she left issue surviving her and her issue died before the grantor did.

What conclusion is to be drawn from this? Is it not that if she died leaving issue the remainder was then to vest in her issue? And since he made no provision for the contingency of the death of her issue after his daughter’s death but before his death, is it not to be supposed that he meant the remainder to vest in them upon his death ? If he had not wanted it to vest in them upon her death, would he not have made provision for the disposition of the remainder in case of their death after their mother’s death but before his? His mind was on the subject of the disposition of the property in case of the daughter’s d.eath without issue both in his lifetime and after his death, and he made provision for both. He must have thought of the contingency that his daughter might die during his lifetime leaving issue and that her issue might later die during his lifetime; but he made no provision for the disposition of the remainder in that event. Why not ? Because the remainder had already gone where he wanted it to go? It would seem so. He must have thought: The remainder would immediately vest in my daughter’s issue, and, hence, there is nothing for me to dispose of at their death; the remainder becomes theirs on their mother’s death.

If he had had in mind reserving to himself the disposition of the property if both his daughter and her issue should die before he did, there was as much reason for him to have provided for the termination of the trust in the case of the daughter’s death leaving issue, and their later death in his lifetime, as in the case of his daughter’s death without leaving issue surviving her. But it seems he was not concerned with disposing of the remainder if his daughter died leaving issue, but only in the case of her death without issue surviving her. This must have been because, once her issue survived her, he intended the remainder to vest in them.

Now, it is quite true that the trust instrument made provision for the disposition of the remainder only in the event that his daughter should outlive him, but the probate court entered a decree based upon a construction of the instrument under which her issue got the remainder although she predeceased him. In other words, he was understood to have intended that upon his daughter’s death, whether before or after his death, the remainder interest should go to her children. I think we are bound by this decree.

If I have properly divined the intention of the grantor, he could not have intended this remainder interest to take effect in possession or enjoyment only on his death. It seems to me that what has been said belies an intention that he should part with all possession and control over the property only on his death. But suppose the grantor merely failed to take into consideration the contingency that his daughter might die before he did leaving issue surviving her, and that her issue might later die before he did, and so did not provide for the disposition of the estate in that event, can it be said that he “intended” to reserve a possibility of reverter? He could not have intended this if he did not think of this contingency. It is only when the transfer is “intended” to take effect at his death that it is properly includible in a decedent’s estate. Central Hanover Bank and Trust Company v. United States, 103 Ct.Cl. -, 58 F.Supp. 565, opinion on motion for a new trial, decided February 5, 1945; Estate of Hunnewell, 4 T.C. 1128.

In the view I take of the intention of the grantor, the case of Fidelity-Philadelphia Trust Co. et al. v. Rothensies, 324 U.S. 108, 65 S.Ct. 508, and the other cases cited by defendant are not in point.

I must respectfully dissent.

LITTLETON, Judge, concurs in the foregoing opinion.


source: Caselaw Access Project

author: BARD, District Judge.

license: Public Domain

text:
    ANDERSON v. ANDREWS et al.
    No. 9665.
    District Court, E. D. Pennsylvania.
    Aug. 3, 1945.
    As Amended Nov. 15, 1945.

      Vincent C. Veldorale and Joseph Mar-inelli, both of Philadelphia, Pa., and Nichols, Wood, Marx & Ginter, of Cincinnati, Ohio, for plaintiff.
    David Kerr, Harold Evans, of MacCoy, Brittain, Evans & Lewis, and John Win-tersteen, of Ballard, Spahr, Andress & In-gersoll, all of Philadelphia, Pa., for defendants. .
   BARD, District Judge.

Defendants seek dismissal of the complaint under Federal Rules of Civil Procedure, rule 12(b), 28 U.S.C.A. following section 723c, because the complaint was not filed within the time prescribed by the applicable statute of limitations.- The suit was brought by the Receiver of The National Bank of Kentucky to recover an assessment made by the Comptroller of the Currency under the provisions of Section 12 of the National Bank Act and Section 23 of the Federal Reserve Act.

The facts, insofar as they are pertinent hereto, are as follows:

The National Bank of Kentucky, domiciled at Louisville, Kentucky, a national banking association organized under the laws of the United States of America, failed November 15, 1930. On November 17, 1930 the Comptroller of the Currency of the United States appointed a receiver for the bank pursuant to the power and authority vested in him by law. On February 20, 1931 the Comptroller of the Currency levied an assessment upon the shareholders of the bank of $4,000,000, representing the par value of the 40,000 shares of stock outstanding, payable on or before April 1, 1931 at the office of the receiver in Louisville, and directed the receiver to take all steps necessary to enforce the liability of the shareholders. Practically all of the stock was controlled by the BancoKentucky Company, a holding corporation organized under the laws of the State of Delaware under a complicated investment and reorganization plan, the details of which are not pertinent to this opinion. On March 20, 1931 the receiver notified the stockholders of the BancoKentucky Company of the assessment, of a demand for payment which had been made upon the receiver of the BancoKentucky Company, and of the receiver’s intention to proceed against them to the extent of any portion of the assessment not paid by the Banco-Kentucky Company.

In October 1931 the receiver Sued Banco-Kentucky Company on the assessment as holder of substantially all the bank shares and obtained a judgment which was affirmed on appeal. Laurent v. Anderson, 6 Cir., 70 F.2d 819. About $90,000 was paid on that judgment. In February 1936 the receiver brought an action in the United States District Court for the Western District of Kentucky against stockholders of the BancoKentucky Company who were residents of Kentucky to recover a porportionate share of the assessment from them. On review, the Supreme Court of the United States held that the Banco-Kentucky stockholders were liable on the assessment and remanded the cause to the District Court for appropriate action. Anderson v. Abbott, 321 U.S. 349, 64 S.Ct. 531, 88 L.Ed. 793, 151 A.L.R. 1146, rehearing denied, 321 U.S. 804, 64 S.Ct. 845, 88 L.Ed. 1090.

This case, instituted February 18, 1937, is a similar suit against BancoKentucky shareholders residing in Pennsylvania. The defendants move to dismiss the complaint for failure to bring the suit within the time prescribed by the applicable statute of limitations.

Two questions must be answered: (1) When did the cause of action arise; (2) What is the applicable statute of limitations ?

Before discussing these questions specifically a few relevant principles of law should be adverted to.

The liability of a shareholder of an insolvent national bank for an assessment equal to the par value of his stock is contractual in nature. Chisholm v. Gilmer, Receiver, 299 U.S. 99, 57 S.Ct. 65, 81 L.Ed. 63; Brown v. O’Keefe, Receiver, 300 U.S. 598, 57 S.Ct. 543, 81 L.Ed. 827; Bernheimer v. Converse, 206 U.S. 516, 27 S.Ct. 755, 51 L.Ed. 1163. Although the liability finds its origin in a statute, the statute is considered to impose a contractual clause in every subscription or purchase of stock. By his purchase the stockholder agrees that he shall be liable for an assessment in accordance with the terms of the statute, Platt v. Wilmot, 193 U.S. 602, 24 S.Ct. 542, 48 L.Ed. 809, and assumes whatever conditions or burdens the statutes have imposed as incident to the holding of national bank shares.

Ordinarily an action to enforce contractual liability is brought on the law side of the court. However, because plaintiff here seeks an accounting and other equitable relief, this action is within the equity jurisdiction of the court, but the right which is the basis of the suit remains a legal right. Since equity merely affords plaintiff a means of enforcing his legal claim, the jurisdiction of equity is concurrent with that of law. In this situation the period within which suit may be brought is determined by the statute of limitations applicable to the legal right and not by the doctrine of laches. Russell v. Todd, 309 U.S. 280, 60 S.Ct. 527, 84 L.Ed. 754; Over-field v. Pennroad Corporation, 3 Cir., 146 F.2d 889.

1. Date when the cause of action accrued and the statute of limitations began to run. The federal statutes impose an obligation, contingent upon an assessment by the Comptroller of the Currency, upon every holder of national bank shares to pay an amount equal to the par value of the shares. This contingent obligation becomes an absolute liability upon proclamation of the assessment. Although the order of assessment removes the contingency, it does not give rise to a cause of action. Reich v. Van Dyke, 3 Cir., 107 F. 2d 682; Strasburger v. Schram, 68 App. D.C. 87, 93 F.2d 246. The receiver cannot bring an action to recover the assessment until the date when the assessment is to be paid arrives and the shareholder fails to tender payment. It is this failure to pay the assessment on the date fixed that creates the cause of action and it is on this date that the statute of limitations begins to run. Pufahl, Receiver v. Parks’ Estate, 299 U.S. 217, 57 S.Ct. 151, 81 L.Ed. 133; McDonald v. Thompson, 184 U.S. 71, 22 S.Ct. 297, 46 L.Ed. 437; Hawkins v. Glenn, 131 U.S. 319, 9 S.Ct. 739, 33 L.Ed. 184; Glenn v. Marbury, 145 U.S. 499, 12 S.Ct. 914, 36 L.Ed. 790. Therefore, although the order of assessment was made February 20, 1931, plaintiff’s cause of action did not accrue until April 1, 1931, the date upon which payment was due, and computation of limitation of actions must begin on that date.

2. The applicable statute of limitations. The law of the forum governs so far as the limitation of actions is concerned. In the absence of a federal statute limiting the time in which to bring an action to enforce the liability of national bank stockholders, the state statutes of limitations are applicable. Although this right of action is based on a federal statute, it may be enforced only in conformity to the law of the forum. Rawlings, Receiver v. Ray, 312 U.S. 96, 61 S.Ct. 473, 85 L.Ed. 605; Pufahl, Receiver v. Parks’ Estate, supra; McClaine v. Rankin, 197 U. S. 154, 25 S.Ct. 410, 49 L.Ed. 702, 3 Ann. Cas. 500; Reich v. Van Dyke, supra.

In Pennsylvania the statute of limitations ordinarily applicable to actions founded upon a contract requires that a suit be brought within a period of six years. This complaint was filed February 18, 1937, within the six year period. However, defendant contends that the applicable statute of limitations is the Act of June 26, 1895, P.L. 375, § 1, 12 P.S. § 39, a “borrowing” statute, which reverses the general rule of conflict of laws that an action not barred by the law of the forum can be maintained though it is barred in the state where it arose. The statute reads as follows: “When a cause of action has been fully barred by the laws of the state or country in which it arose, such bar shall be a complete defense to an action thereon brought in any of the courts of this commonwealth.”

Defendants urge that the cause of action arose in Kentucky and that since the Kentucky statute of limitations bars actions upon contracts not commenced within five years after the cause of action accrued, the five year Kentucky period is made applicable in this case by the Pennsylvania statute of 1895. The Kentucky statute applies to all actions in law or equity, Auditor v. Halbert, 78 Ky. 577; Hargis v. Sewell’s Adm’r, 87 Ky. 63, 7 S. W. 557, and is controlling in a suit brought in Kentucky to recover the statutory assessment against national bank shareholders, Anderson v. Abbott, D.C.W.D.Ky., 23 F. Supp. 265. The ultimate issue thus becomes clearly defined. If plaintiff’s cause of action arose in Kentucky, the five year Kentucky limitation, borrowed by the Pennsylvania Act of June 26, 1895, is controlling and the action must be dismissed. Mister v. Burkholder, 56 Pa.Super. 517; Bluefields S. S. Co., Ltd., v. United Fruit Co., 3 Cir., 243 F. 1, writ of error dismissed, 248 U.S. 595, 39 S.Ct. 136, 63 L.Ed. 438; see Mechanics Sav. Bank v. Fidelity Ins. Trust- & Safe-Deposit Co., D.C.E.D.Pa., 91 F. 456.

A cause of action requires the existence of two basic elements — a primary right belonging to the plaintiff, and a wrong done by the defendant which is a breach of plaintiff’s right resulting in damage. In re Shaffer’s Estate, 228 Pa. 36, 76 A. 716. Where the cause of action is based upon a contract plaintiff must establish the existence of contractual rights between the parties and the defendant’s performance of an act or failure to act which constitutes a breach thereof. Pond Creek Mill & Elevator Co. v. Clark, 7 Cir., 270 F. 482. The place where the breach occurs is the place where the cause of action arises. Baltimore & O. R. Co. v. Reed, 6 Cir., 223 F. 689. When the act or failure to act occurred which created the cause of action, the place where it occurred was the place of the breach and hence the place where the cause of action arose. The failure to act on April 1, 1931, which constituted the breach of contract and created the present cause of action, was defendants’ failure to tender payment, as directed, to the receiver at his office in Louisville, Kentucky. Applying the legal principles set forth above, I must hold that the cause of action arose in the State of Kentucky, the place of performance of the contract. Auglaize Box Board Co. v. Kansas City Fiber Box Co., 6 Cir., 35 F.2d 822, certiorari denied, 281 U.S. 730, 50 S.Ct. 247, 74 L.Ed. 1147. Plaintiff’s contention that the cause of action arose in the United States and not in the State of Kentucky is based upon the fallacious assumption that the cause of action arose when the Comptroller of the Currency made the order of assessment and not upon defendants’ failure to tender payment at the proper time and place.

Since the cause of action has been fully barred by the limitation laws of Kentucky, the state in which it arose, the Pennsylvania “borrowing” statute makes the Kentucky statute of limitations operative as the applicable limitation law of the forum.

The Pennsylvania Act of June 26, 1895, borrows the Kentucky limitation statute which becomes the limitation law of the forum for the purposes of this case, and requires that plaintiff’s remedial rights against defendants be controlled by the five year limitation period of Kentucky. The cause of action accrued in Kentucky on April 1, 1931 and was barred by the Kentucky five year statute of limitations on April 1, 1936. Since this action was brought 323 days thereafter, it is barred by virtue of the Pennsylvania Act of June 26,1895.

The complaint must be dismissed.

       Rev.Stat. § 5151, 12 U.S.O.A. § 63.

       Act of December 23, 1913, c. 6, § 23, 38 Stat. 273, 12 U.S.C.A. § 64.

        28 U.S.O.A. § 725.

       Act of March 27, 1713, 12 P.S. § 31.

       General Statutes Chap. 71, Art. Ill, See. 2, Kentucky Revised Statutes, Baldwin’s 1943 Revision, Chap. 413, Sec. 413.-120. This Kentucky statute of limitations bars actions upon contracts not in writing or actions upon liability created by statute not commenced within five years after the cause of action accrued.


author: DONOVAN, District Judge.

text:
    BOWLES, Administrator, Office of Price Administration, v. FLOODWOOD CO-OPERATIVE CREAMERY ASS’N.
    Civ. No. 498.
    District Court, D. Minnesota, Fifth Division.
    Oct. 22, 1945.
    Harris J. Nuernberg, District Enforcement Attorney, and Amherst Tautges and Bessie Levine, Enforcement Attorneys, of Office of Price Administration, all of St. Paul, Minn., for plaintiff.
    Amasa Wheeler and Herbert M. Burns, both of Duluth, Minn., for defendant.
   DONOVAN, District Judge.

Plaintiff seeks to enjoin defendant from violating Regulation No. 1 of the Office of Economic Stabilization, issued August 5, 1943 (8 F.R. 10988), promulgated pursuant to the Stabilization Act of 1942, 50 U.S. C.A. Appendix, § 961 et seq. The complaint charges defendant with violation of said Regulation in:

“That on the 23rd day of April, 1945, and on divers dates since that time, defendant broke beef and veal carcasses and wholesale cuts, and in the course of trade or business received beef and veal from its customers and permitted such beef and veal to be stored in its cold storage lockers, which beef and veal was not graded or grade marked as required by said Regulation No. 1.
“That if the defendant is not restrained from breaking beef and veal carcasses and wholesale cuts, and from receiving, in the course of trade or business, beef and veal, and permitting such beef and veal to be stored in its plant by itself or its customers, which meat has not been graded or grade marked, it will continue so to do, and such continued violation of the said Regulation No. 1 by the defendant will cause irreparable injury to the plaintiff in the administration of the Price Control and Rationing Program for meat, and the policies of the United States as set forth in the Stabilization Act of 1942, and the purposes of such Regulation No. 1 of the Office of Economic Stabilization will be defeated.
“That plaintiff has no adequate remedy at law.”

In its answer, defendant alleges reliance on previous “rulings and understandings had” with the Office of Price Administration and, further, that: “Defendant informed and advised the Duluth-Superior District Office of the Office of Price Administration of what it was doing prior to the making of this complaint and requested advice as to whether it was in any violation in not having farmers’ meat for their own consumption graded. That the failure to grade farmers’ meat for their own consumption was not an intentional violation and that Defendant definitely and permanently discontinued such violation immediately upon learning it was making such violation and prior to the making of this complaint, all to the knowledge of said Office of Price Administration.”

By supporting affidavits it appears that the investigation made by plaintiff, and upon which this action is based, arose out of voluntary disclosures made to plaintiff by defendant with a view to obtaining information that would lead to an intelligent understanding of plaintiff’s requirements and full compliance with said regulation. Further, “That there was no intentional violation of such O.P.A. regulations * * * and in this instance the practice complained of was immediately discontinued * * * after knowledge of the same. That the officials in the Duluth-Superior District office of the Office of Price Administration have known that any failure or neglect * * * to comply with the O.P.A. regulations was involuntary and has been corrected since discovered, and have further known of the good faith and diligence on the part * * *” of defendant.

Nothing in the supporting affidavit or testimony of Joe Roth, investigator of the Duluth-Superior District Office of the Office of Price Administration, even suggests willful or intentional violation of the Stabilization Act.

1. Plaintiff’s motion for a preliminary injunction is denied. There can be no doubt on the record here made of defendant’s “good faith and diligence”. The injury or wrong sought by plaintiff to be enjoined “was corrected as soon as discovered”. Defendant’s claimed good faith, uncontradicted by plaintiff, urges the exercise of this Court’s discretion and refusal to issue an injunction under the particular circumstances here existing. In support of this conclusion see Hecht Company v. Bowles, etc., 321 U.S. 321, 64 S.Ct. 587, 88 L.Ed. 754.

2. The absence of evidence of continued violations, subsequent to defendant’s being warned or informed that the regulation has been or is being violated, taken in conjunction with defendant’s proof that the violation was inadvertent and unintentional, together with an immediate promise to discontinue the infraction complained of, makes it obvious that a preliminary injunction would serve no useful purpose at this time.

3. The propriety of and need for injunction is discretionary with the Court. Speten v. Bowles, etc., 8 Cir., 146 F.2d 602. Inasmuch as the record makes it clear that defendant acted in good faith and immediately discontinued the practice complained of, no injunction will be granted, but an order will be entered “retaining the case on the docket with the right of the Administrator, on notice, to renew his application for injunctive relief” if a violation should recur.

Counsel may submit an appropriate order.


author: LINDLEY, District Judge.

text:
    KOTIMSKY v. LUBIN et al.
    No. 493-D.
    District Court, E. D. Illinois.
    Oct. 18, 1945.

      Leo Burk, of Danville, Ill., and Geist & Netter, of New York City, for plaintiff.
    Allen K. Swann, of Evansville, Ind., Donovan McCarty, of Olney, Ill., George W. Hazlett, of Cleveland, Ohio, and Leigh M. Kagy and Harold Baker, both of East St. Louis, Ill., for defendants.
   LINDLEY, District Judge.

Plaintiff Kotimsky began this suit in April, 1945, against the First National Petroleum Trust, Valley Oil Corporation, Sohio Petroleum Company, Herbert Lubin and various other individual defendants, seeking rescission of certain transactions and recovery of certain properties for the First National Petroleum Trust, hereinafter referred to as the Trust. Later he brought in other individual defendants. He sued as a shareholder, averring that it was futile to ask the Trust to bring suit. Later Clear Creek Corporation, by leave of court, intervened and joined as plaintiff. Kotimsky’s interest in the Trust originated sometime in 1943; Clear Creek acquired its interest in November, 1942, in the form of 70,000 shares and $600,000 in certificates. These two dates may be of some importance in view of the fact that certain of the pertinent events occurred before Kot-imsky received his shares but after Clear Creek acquired its securities.

Substantial averments of the complaint follow. The trust, a business trust under the laws of Rhode Island, was created August 1, 1940. It has outstanding 500,000 shares, income debentures in the amount of $2,150,000 and certain Trustee’s certificates promising payment to their holders from proceeds of oil produced.

Approximately 300,000 shares were issued to nominees of defendant Herbert Lubin, who has at all times exercised dominion over and control of the Trust, the Trustee and the Trust Committee and who has initiated, negotiated and put into effect practically all transactions regarding oil properties for and on behalf of the Trust. The Trust acquired certain oil leases in various states and, later, 58% of all outstanding capital stock of Pryor and Lock-hart, Inc., which owns and operates certain oil properties in the state of Kansas. The remaining 42% of the stock was owned by Messrs. Pryor and Lockhart.

On or about July 1, 1943, Mackenzie resigned as Trustee, and Pryor, one of the officers of Pryor and Lockhart, Inc., was designated his successor. Thereafter Pry- or and Lockhart entered into a contract with Lubin, agreeing to sell the remaining 42% of the stock of Pryor and Lockhart, Inc., to Lubin or his nominee for $250,000, to be paid in securities of the Trust. About the same time, Pryor, as Trustee, procured a transfer to the Trust of the contract which Lubin had made with him and Lockhart for the purchase of their 42% of the stock of Pryor and Lockhart, Inc., and of certain oil leases belonging to Lubin, in consideration of which the Trust issued to Lubin $440,000 in notes, known as the Kansas notes. The leases transferred by Lubin were of comparatively small value and the substantial portion of the $440,000 was in fact, consideration for the assignment of the contract which Pryor and Lockhart had made to Lubin for the sale to Lubin of their 42% of the stock of Pryor and Lockhart, Inc. Pryor, as Trustee, and the Trust never completed the contract for the purchase of said 42% and never received any value for the notes issued for the assignment of the contract. The Trust issued and has outstanding certain other notes known as Illinois notes in an amount unknown to plaintiff, the consideration for which is unknown.

In 1943 Lubin negotiated a transaction whereby the Trust acquired from one Ying-ling, an associate and friend of Lubin, certain oil leases in Illinois known as the Case-Pomeroy properties, including the Helm A. lease, on certain property in the county of Wabash, Illinois. The Trust paid for the Case-Pomeroy properties, subject to certain overriding royalties retained by Lubin, $1,250,000, secured by a Trust mortgage of its property to Sohio.

Thereafter the Trust was unable to meet its obligations as they matured or to pay the principal and interest on the Kansas and Illinois notes and failed to complete its contract to buy 42% of the Pryor and Lockhart, Inc., stock. It defaulted on the payment of interest on its debentures. Lu-bin transferred or caused to be transferred the Illinois and Kansas notes to persons including defendant Greenlaw and his clients, friends, relatives and those of Lubin, himself, and to others closely connected with the management of the Trust.

In August, 1944, Pryor, as Trustee, conveyed %ths of the Case-Pomeroy properties to Valley Oil Corporation which immediately retransferred it to Lubin. The Trust was paid no cash by Valley or Lu-bin but received only the surrender of certain Kansas and Illinois notes aggregating $260,000. These transactions were inaugurated and carried out by Lubin. The Valley Oil Corporation was formed, owned, dominated and controlled by Lubin. After receiving the property, Lubin, in order to procure and surrender to the Trust, $260,-000, traded to the holders of such notes equivalent participations in a second mortgage which he placed on the property. Later Lubin transferred to the Trust all his interest in all Case-Pomeroy properties other than the Helm A. lease and the Trust thereupon released to him its formerly retained t/gth of the Helm A. lease.

Lubin has caused to be placed upon the latter lease another mortgage of $650,000, $300,000 of which has gene to preferred creditors of the Trust, who were interested in and related to the Trust management. The Trust received no adequate consideration for the transfer of the Case-Pomeroy properties or the Helm A. lease; and the transfer was fraudulent and void as against the Trust, its creditors and shareholders, because of a conspiracy in which defendants participated.

It is provided in the Trust Indenture that the Trust Committee should not sell any property producing more than 40% of the total income of the trust without ratification by %rds of the shareholders. The property conveyed to Lubin produced more than 40% of the total income and the transfer was not ratified or approved by the shareholders. Pryor was never validly a trustee.

In September, 1944, Pryor resigned as Trustee and defendant Greenlaw was purportedly designated as his successor. In December, following, Greenlaw purported to sell to Pryor, his predecessor as trustee, and Lockhart, the 58% of Pryor and Lock-hart, Inc., owned by the Trust, for $250,000, which was used by Greenlaw for the purpose of making preferential payment of Illinois and Kansas notes held by Green-law, his clients, friends and relatives and by members of the Trust Committee and friends and associates of Lubin. All these transactions were unauthorized and should be set aside. A demand upon the Trust and Trustee to institute action for rescission would be futile for the reason that the members of the Trust Committee acquiesced in the alleged fraudulent actions.

Plaintiffs pray that the transfers, mortgages and encumbrances of the Case-Pom-eroy properties and of the Helm A. lease be declared fraudulent and void, set aside and cancelled of record; that the Case-Pomeroy properties and Helm A. lease be adjudged the property of the Trust; that the rights, title, liens and interests of the parties, and the rents, proceeds, increments and profits of the properties be determined and adjudicated; that a receiver be appointed and that plaintiffs and the Trust have such other and different relief as the court may deem equitable and proper.

Two answers were filed by the same solicitor, one in behalf of Lubin and the Valley Oil Corporation and the other for the Trust and the other individual defendants. These answers aver, amongst other things, that the Trust bought from Lubin his contract with Pryor and Lockhart for the purchase of 42% of the stock of Pryor and Lockhart, Inc., and certain other productive and wildcat properties and agreed to issue therefor $340,000 in Kansas notes; that the properties acquired from Lubin were and are still valuable; that Yingling acquired an option to purchase the Case-Pomeroy properties and sold the option to the Trust, reserving certain overriding royalties; that Lubin received no interest in the overriding royalties and oil payments reserved; that the money to purchase the Case-Pomeroy properties, $1,250,000 was obtained, with the help of Yingling, from Sohio, that out of the proceeds of this loan, a prior and existing mortgage of $300,000 was satisfied and the balance of $950,000 paid upon the purchase price; that this necessitated borrowing an additional $300,000 which Lubin procured from personal friends and caused to be paid direct to the vendor.

With respect to the sale of %ths of the Trust’s interest in the Case-Pomeroy properties, defendants aver that on June 1, 1944, Valley Oil Corporation proposed to purchase the %ths interest, not including 5000 acres of wildcat leases, for $985,000, to be represented by the assumption of indebtedness owing Sohio and the surrender of $260,000 of obligations owing by the Trust; that Lubin was also to help refinance certain outstanding obligations of the Trust of $155,000. They further aver that the purchase was to be subject to a primary overriding royalty of l/32nd, a secondary overriding royalty of l/32nd, l/16th of the net remaining interest until the sum of $200,000 was paid and 5¡á per barrel on the production from the remaining interest for a term of years.

Defendants aver also that there was an excess of expenditures on the property in June and July, 1944, over the income and that Lubin has been compelled to furnish funds to make up deficiencies and to operate the property; that in all the transactions the trust received a fair and adequate consideration; that all the deals were on a sound business basis; that the interests transferred produced less than 40% of the total income; that all the transactions should be approved and the complaint dismissed.

The annals of Lubin and the Trust and their relationship, one with the other, so far as this record is concerned, had their genesis in the National Petroleum Corporation of which Lubin, according to its prospectus, was parent and promoter. Lu-bin’s brokerage firm, Presser & Lubin, was the underwriter of its securities, until enjoined, at the suit of the Attorney General of New York, from dealing in oil securities, leases or interests. The properties held by the National Petroleum Corporation found their way into the Transcontinental Petroleum Corporation, with which, too, Lubin was intimately concerned and from Transcontinental, in turn, into the Trust. Again, we find an organization in intimate relationship with Lubin.

Creation of the Trust followed the injunction against Presser & Lubin. Lubin himself tells us that of the shares of the Trust, over and above those issued to Clear Creek, 250,000 passed to persons whom he designated, in return for property transferred to the Trust by such persons or by himself. For all intents and purposes Lubin was the moving spirit of the undertaking, bringing together the creators of the Trust, suggesting the original Trustee and, when that one resigned, nominating his successor and, still later, when the Trustee Pryor resigned in order that he might purchase the 58% of the Pryor and Lock-hart, Inc., stock held by the Trust, Lubin, it was, who seriously urged Clear Creek to send in its proxy in order to elect Green-law as Trustee.

It is impossible to read this record without finding that from the inception of the Trust until the present day, the originator, the entrepeneur, the promoter, the heart and soul of the Trust, as well as of its predecessor organizations, was Herbert Lubin. In substantially all its transactions, his controlling, manipulating hand was active behind the scene, and in every sale or acquisition of property,' he eventually turned up with some bonus, some free royalty or some property interest. He boasted openly that the Trust was his idea or, as he said, “his baby”; that he intended to see it “grow up” and that, rather than be one of its officers, he preferred to be the “power behind the throne.” Exemplification of his active interest appears in his preparation and exhibition of a moving picture history of the Trust activities, in his printing an elaborate booklet illustrating the properties of the Trust, his provision of lavish food, drink, music and entertainment for the shareholders, his distribution of a pamphlet elaborating upon the future program of the Trust bearing the legend “Herbert Lubin’s Presentation.” He was at all times fully and intimately informed as to and actively participating in all affairs of the Trust; the directors relied upon him implicitly for advice; he gave instructions to employees of the Trust; he wrote letters upon its stationery; he inevitably determined its policies and managed to have them carried out. He announced that if anyone wished to deal with the Trust they must do so through him. When complications arose, he assured shareholders that he would get the difficulties “straightened out”; and it stands without dispute that not only did the successive trustees and members of the Trust Committee go to him for advice, but that they relied upon his suggestions, upon his counsel, and inevitably did that which he suggested or requested done.

I shall not attempt to review in detail the multitudinous facts and circumstances in the record but, taken in connection with what I have related and with the inevitable inferences which one must draw from all the circumstances, they constitute convincing proof that, from the inception of the Trust, Lubin occupied the trust position of promoter, director, and entrepeneur of a corporation and that his influence over the members of the Trust Committee was so great that the latter gave to him such credence, such faith and such reliance as to render them his supine, willing tools and as to charge him with all the obligations of a fiduciary whose transactions with the Trust must be scrutinized with great care to determine whether he has realized property, profit or advantages in violation of his obligation to his cestui que trusts and in violation of the trust and credence placed in him by the managerial and executive officers of the Trust, at the expense of the shareholders, and to determine whether his transactions have been such as will stand the light of day in a court of equity, in other words, whether he has violated obligations owing the Trust and its shareholders within the doctrine announced by the courts in largely similar situations. I shall not quote from the many authorities but refer to the following as fully exemplificative: 18 C.J.S., Corporations, §§ 147, 160, pp. 548 to 559; Jackson v. Smith, 254 U.S. 586, 41 S.Ct. 200, 65 L.Ed. 418; Davis v. Las Ovas Co., 227 U.S. 80, 33 S.Ct. 197, 57 L.Ed. 426; Dickerman v. Northern Trust Co., 176 U.S. 181, 20 S. Ct. 311, 44 L.Ed. 423; Tilden et al. v. Barber et al., D.C., 268 F. 587; Pepper v. Litton, 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed. 281; Geddes v. Anaconda Copper Mining Co., 254 U.S. 590, 41 S.Ct. 209, 65 L.Ed. 425; McCandless, Rec., v. Furlaud, 295 U.S. 140, 56 S.Ct. 41, 80 L.Ed. 121; Noble v. Noble, 255 Ill. 629, 99 N.E. 631; Dixmoor Golf Club, Inc., v. Evans, 325 Ill. 612, 156 N.E. 785; Eichhorst v. Eichhorst, 338 Ill. 185, 170 N.E. 269; Staufenbiel v. Staufenbiel, 388 Ill. 511, 58 N.E.2d 569; Goodwin v. Wilbur, 104 Ill.App. 45; In re Marquette Manor Bldg. Corp., 7 Cir., 97 F.2d 733; Wendt v. Fischer, 243 N.Y. 439, 154 N.E. 303.; Irving Trust Co. v. Deutsch, 2 Cir., 73 F.2d 121.

The Supreme Court of Illinois has gone so far as to place upon the fiduciary the burden of proving validity of transfers attacked. Thus, in Staufenbiel v. Staufen-biel, supra, 388 Ill. at pages 522 and 523, 58 N.E.2d at page 574, the court said: “When a fiduciary relationship is established, the burden is on the one profiting by the transfer of property to show that it was procured fairly and without the exercise of undue influence. If such relationship existed at the time of the transfers, then the transactions are deemed to be presumptively fraudulent and will be set aside, unless the one in whom the confidence and trust was reposed establishes their fairness by clear and convincing proof. Fisher v. Burgiel, 382 Ill. 42, 46 N.E.2d 380; Children’s Home of Rockford v. Andress, 380 Ill. 452, 44 N.E.2d 437; Seely v. Rowe, 370 Ill. 336, 18 N.E.2d 874; Mors v. Peterson, 261 Ill. 532, 104 N.E. 216; Thomas v. Whitney, 186 Ill. 225, 57 N.E. 808.” To the same effect are Vrooman v. Hawbaker, 387 Ill. 428, 56 N.E.2d 623; Doner v. Phoenix Joint Stock Land Bank, 381 Ill. 106, 45 N.E.2d 20; Quist v. Dorn, 301 Ill.App. 264, 22 N.E.2d 729.

Early in its history, the Trust purchased 58% of the stock of Pryor and Lockhart, Inc., the remaining 42% being retained by the two men whose names appear in the firm, Pryor and Lock-hart, both of whom were well known to Lubin, Mackenzie, the Trustee, and Greenlaw, the later Trustee. Having acquired this 58%, the Trust may well have thought it advisable that it purchase the remaining 42%. But the record’ discloses not the slightest reason why the Trust should not have approached the officers of the corporation in which it held a 58% interest, if it desired to purchase the remainder. Yet we find that Lubin first made a contract with Pryor for the purchase of the 42% at a cost of $250,000 payable, strangely enough, in securities of the Trust, which Lubin contracted to deliver to the vendors. Shortly later, Lubin contracted with Mackenzie as trustee to sell to the Trust the 42% interest, not at what he had agreed to purchase it from Pryor and Lockhart, but for $341,000 in addition to the original purchase price. In other words, for the assignment of the contract, the Trust agreed to pay not only the $250,-000 which Lubin had agreed to deliver to Pryor and Lockhart, but, in addition, $341,-000 in notes of the company, as additional consideration to Lubin. Some proved territory and some wildcat territory were included in this assignment by Lubin, but the Trust never examined these additional properties. It had no appraisement made and consulted no third person concerning them. It relied entirely upon the representations of Lubin, accepted his valuation and delivered to him the $341,000 in notes, all without consulting the shareholders and all as result of the unconfirmed suggestion of Lubin. The circumstances surrounding this transaction were such that no impartial person can say other than that there was no dealing at arms’ length but rather crude over-reaching by the man who claimed the Trust was his creature. He could not, in that situation, under the authorities, legally sell the Trust anything except upon an arms’ length basis and after objective impersonal determination of adequacy of valuation. From all the circumstances in the record I must hold that the notes for $341,000 were received by Lubin in violation of all his trust duties, as a promoter or as a fiduciary and that they were, in his hands, void at the suit of the Trust or its shareholders.

Lubin insists that this was an ordinary business transaction, because, in addition to turning over the contract with Pryor and Lockhart, he included additional leases. It is doubtful if these properties, which had no connection with Pryor and Lockhart, Inc., had any established market value at that time or anything more than a small speculative value. At any rate they were not such properties as would justify a fiduciary in Lubin’s position in unloading them upon the shareholders at this grossly overstated valuation. The whole transaction is so tainted with fraud, so stained with the wrongful, grasping greed of a promoter and faithless fiduciary, leading to his undue enrichment, that I must rescind it.

A sorry day, indeed, it was for the Trust when these notes were issued. No adequate consideration was received for them. The 42% was never paid for, never received and the notes issued, from that time on, constantly were in the hands of persons to whom Lubin transferred or sold them with resulting plaguing and harassing of the Trust and upsetting and destroying its financial well being. Not only did Lubin deceive the shareholders in this manner but later $260,000 of these and similar ■notes turn up as the only actual consideration delivered by him for the most valuable asset of the Trust.

I am convinced that Lubin must account to the Trust for the entire Kansas note issue of $341,000. Obviously, if the properties be conveyed to the Trust at the time he assigned the contract to purchase the 42% of Pryor and Lockhart, Inc., had any value they should be returned to him or he should be credited with their value. Under the evidence I find the fair cash market value of the producing properties that he delivered to the Trust at the time of the transaction was not in excess of $65,000. The Trust must either return these properties to him or credit him with the sum of $65,000. There is no evidence that the nonproducing properties had any market or other value. But, inasmuch as they were transferred to the Trust, they should be re-conveyed to Lubin or their value, if any can be shown, credited against the $341,000 note issue. The Kansas notes surrendered by Lubin at the time he later purchased an interest in the Case-Pomeroy properties I shall discuss later in this memorandum.

While negotiation of the contract by Lu-bin for the purchase of 42% of Pryor and Lockhart, Inc., was pending and during the period when its assignment .to the Trust was being perfected, resulting in the issue of the $341,000 in Kansas notes, Yingling, who was well known to the officers of the Trust, was negotiating for an option on the valuable Case-Pomeroy properties, and in July, 1943, he submitted to the Trust, an option which he had procured, stating that he desired to retain a l/32nd overriding royalty, in consideration of his turning the option over to the Trust. The Trust accepted and took an assignment of the option. The purchase price was $1,250,000. To obtain the money, the Trust mortgaged to Sohio all its property in Indiana and Illinois for $1,210,000 and borrowed also an additional $300,000, $100,000 from Albert, father-in-law of Lubin, upon its Louisiana and Texas properties and $200,000 by issuing notes known as the Illinois notes. Later the Texas and Louisiana properties were sold at a substantial loss, the net proceeds being used to pay the notes held by Albert. Out of the money borrowed from Sohio the Trust paid off an existing mortgage of $300,000.

When the contract of sale was completed, however, we find that after the Trust received the property, it issued a l/32nd overriding royalty on all the Case-Pomeroy properties except the Heil lease, to Ying-ling; l/32nd overriding royalty on all property except the Heil lease to Barney Lubin, one $25,000 oil payment out of the production from the Heil lease to Ying-ling; a like oil payment out of the same lease to Barney Lubin; a $200,000 oil payment out of the net l/16th of the working interest, except the Heil lease, to Barney Lubin and a reservation of 5^ a barrel, payable to Barney Lubin, on the net production accruing to the Trust upon all the Case-Pomeroy properties for ten years. Defendants claim that these cost free burdens were in existence at the time of the purchase of Yingling’s option, but the evidence confirms only the existence of an agreement to deliver to Yingling his cost free burden in consideration of his assigning the option. There is no evidence that Barney Lubin rendered any service and, indeed, it follows, I think, from the testimony of Herbert Lubin himself, despite his statement in his answer to the contrary that all interests that Barney Lubin ever had always belonged to him, Herbert Lubin, and that he used the name of his brother, Barney Lubin, for the reception of interests which were entirely his. At any rate, Barney Lubin, a defendant, has produced no evidence of any substantial service rendered by him or by Herbert Lubin in securing the Case-Pomeroy properties. Yet we find delivered to Barney Lubin, for the benefit of Herbert Lubin and, so far as the record shows, as his sole property, l/32nd cost free overriding royalty in all the Case-Pomeroy properties except the Heil lease; $25,000 cost free oil payment out of the Heil lease; $200,000 cost free oil payment out of all the property except the Heil lease and 5^ per barrel on all the production from all the Case-Pomeroy properties for ten years, all of a value of probably over $300,000.

As I have said, defendants insist that these overriding royalties and oil payments were burdens upon the property when the Trust secured it, but the evidence is that they were never created by formal instrument until after the Trust secured the property, and, for some unexplained reason, the instruments executed by the Trust conveying them were not placed on record until the following year, April, May or June, 1944. Nor did the letter to the shareholders, in which the management of the Trust praised itself for securing the Case-Pomeroy properties, advise the shareholders that there were any cost free overrides and oil payments outstanding. Nor do the records of the Trust themselves disclose the fact that these payments were to go to Lubin, who had furnished no consideration for them.

I find nothing to impeach the interest reserved by Yingling. Apparently he obtained in his own right a valuable option, and the evidence does not indicate that the consideration which he received for its assignment was unreasonable or extravagant. But as to the remaining overrides, taken in the name of Barney Lubin and belonging to Herbert Lubin, quite a different situation exists. The evidence is silent as to any reason why Lubin should have had anything. He was not a party to the option or its assignment and so stated in his answer; he had no interest in it, and he rendered no service justifying issuance to him of cost free interests worth $300,000. Whether the management of the Trust was unappreciative of its obligations to the shareholders and sadly negligent or whether it blindly and implicitly relied upon the person who claimed to be the power beyond the throne and, supinely, at his suggestion and under his persuasion, issued to him these cost free interests, it is difficult to determine. I prefer to believe, not that they were not aware of their trust obligations and woefully failed to discharge them but rather that they were lacking in alertness and fell prey to the influence of a man who had been so intimately connected with the creation of the Trust and its predecessor companies and who had been so active in all the transactions of the Trust that he was, as I have said, in such a position as to necessitate the closest scrutiny upon his acts in so far as they affected the Trust. I find and conclude that the assignments of the cost free interests to Barney Lubin must be cancelled and set aside and the moneys received upon them accounted for by Herbert Lubin to the Trust.

No reason appears for the intervention of Lubin in this transaction. Ying-ling and Greenlaw were well acquainted and intimately associatted; Greenlaw testified that he rarely made any important move in the management of the Trust’s affairs without seeking the advice of Yingling. Pryor, the Trustee, also was well acquainted with Yingling. All in all, there is complete absence of reason why the Trust could not deal directly with Yingling in procuring the properties and, indeed, that is what defendants in their answer said happened. Lubin testified that he never informed the Trust Committee that he had any interest in Ying-ling’s option. As a matter of fact Barney Lubin was always spoken of as a nominee of Yingling and though, in the resolutions of the Trust Committee, the cost free interests are referred to, it is not disclosed that either of the Lubins had any interest therein. Furthermore, because of the reasons heretofore advanced, if Lubin acquired a secret profit, he can not be permitted to retain it.

It is asserted by defendants that consideration for the existence of the cost free interests in Lubin arises from the fact that he helped obtain a loan of part of the money with which the Trust purchased the property, but the record is silent as to any evidence that the cost free interest was treated as a consideration for procuring any of the funds. And, if it were, Lubin can not take it as against the shareholders. As a matter of fact the record discloses that eventually the Trust paid Lubin $10-000 purportedly for procuration of funds.

The purchase of the Case-Pomeroy property occurred in mid-summer 1943. Within less than a year Lubin proposed to Green-law that he, Lubin, buy the Case-Pomeroy properties. Largely because of the Pryor and Lockhart affair the Trust had, despite a large income, become involved financially, it had applied to R.F.C. for a loan without success. It made no attempt to sell the property to anybody else, no attempt to refinance through Sohio, whose mortgage had been greatly reduced by proceeds from oil, and no search for other sources of refinance. Again the Trust management subserviently followed the lead of Lubin who, in the name of the Valley Oil Company, was given a contract to purchase %ths of the Case-Pomeroy properties. Valley, too, was Lubin’s creature. He organized it and he alone was responsible for all of its acts. It was a paper corporation, without assets of any character and as soon as it had secured the property, it transferred the same to Lubin. Why it was necessary for the transfer to pass to a corporation without assets and then immediately to Lubin is wholly unexplained. A legitimate inference, I think, is that, had the shareholders known that this valuable property was to go to Lubin, they might well have raised valid objection, and prevented the transfer to Lubin. Neither Valley nor Lubin paid any cash consideration to the Trust. Both assumed and agreed to pay a proportionate share of the unpaid balance of the So-hio mortgage. But the promises were of no value; neither had funds, property or bank account. Lubin was in debt to the extent of at least two unsatisfied judgments' for substantial amounts of record against him. No release was obtained at that time of the Trust’s obligation to pay any part of the mortgage. Sohio obtained a new worthless promise but did not release the old one. In addition, Lubin undertook to obtain and surrender to the Trust $260,000 of its outstanding notes. These were in part the Kansas notes originally received by Lubin at the time of the contract to buy 42% of Pryor and Lockhart, Inc. He had disposed of some or all of these and managed to reacquire some of them. They were, as we have seen, issued without consideration and, under such circumstances, in the hands of Lubin, void. In so far as the surrender of these notes entered into a consideration for the purchase of %ths interest of the Case-Pomeroy properties there was no consideration for the sale. However, inasmuch as they were returned to the Trust, they should be credited to Lu-bin as against the sum of $341,000 in Kansas notes issued to him which I have directed he should account for.

The total, $260,000, was paid by surrender of: (1) Kansas notes, principal $181,-000; interest $10,860, total $191,860; (2) Illinois notes, $32,700; interest $1,962, total $34,662; (3) unsecured notes belonging to Greenlaw, $32,500; interest $1,399.17, total $33,899.17; grand total, principal and interest $260,421.17. The excess of $421.17 was credited on the books of the Trust against operation charges. Thus of the total of $260,000, $191,860 consisted of Kansas notes turned over to the Trust by Lubin, all of which were void in his hands. The validity of the balance, consisting of Illinois notes of $32,700 and Greenlaw’s unsecured notes $32,500 plus the interest thereon, I do not consider impeached by the record.

My conclusion is that the transaction was not a fair and open one at arms’ length but one again in which Lubin, by the exercise of what seems to have been most powerful persuasive influence, to say the least, upon the executive management of the Trust, through a fictitious corporation, through the surrender of almost $200,-000 in fictitious paper and without consideration other than a worthless promise to pay, from the oil produced, a proportionate share of the Sohio mortgage debt, secured title to this valuable property producing some $300,000 per year upon surrender of $65,400 in notes and the interest due thereon. As a promoter, the force behind the official organization of the Trust, Lu-bin was under an obligation to deal fairly, openly and at arms’ length with the Trust and its shareholders, and, inasmuch as he failed to do so, the transaction must be set aside.

When the transfer is rescinded, Lubin is entitled to credit against the Kansas notes not only for those he redelivered but also to the amount of the valid notes of $65,400 he likewise surrendered, namely, the Illinois notes and the unsecured notes- of Greenlaw. He can not be credited with any interest on the Kansas notes, but will be credited with the principal and interest of the other notes.

But this was not the end of the transactions between Lubin and the Trust. Within a few months a new one occurred, whereby, as of January 1, 1945, the Trust transferred to Lubin %th of the Helm A. lease and Lubin to the Trust %ths of all Case-Pomeroy properties other than the Helm A. lease. While the items were entered upon the books as of January 1, 1945, they resulted from a Trust resolution of February 13, 1945. The entries must have been dated back. But nothing occurred in this transaction which alters in any way the nature of the original transaction or the conclusions that I have reached.

The Trust Indenture contains a provision that the Committee shall not transfer or assign any property belonging to the Trust, the income of which amounts to 40% of its total income. Figures have been submitted as to the proportion to the entire income of the Trust, the income from the %ths of the Case-Pomeroy properties and that of the income of the Helm A. lease bear. These calculations have been made upon both the income free of all cost free burdens and the income when such burdens are deducted. However, no figures have been submitted which disclose satisfactorily what proportion of the total income the Case-Pomeroy income would represent if the properties were freed of the cost free burdens in the name of Barney Lubin and held by him for Herbert Lu-bin. It is obvious, however, that the income from the %ths and the income from the Helm A. lease, free of the Lu-bin cost free burdens, have each from time to time, represented more than 40%. It is doubtful whether they represented more than 40% prior to the date of the purchase. In this connection I might observe that, while the books of the company represent an attempt to set up a transfer to Lubin in June, 1944, the sale was not completed for some time thereafter. The figures supplied indicate, I think, that within the period during which the contract was pending, the percentage of income received from the property, when Lubin’s cost free burdens are excluded, would be more than 40% of the total income of the Trust and, if this be true, inasmuch as no notice was given to the shareholders, the transfer unauthorized in view of the provision of the Trust Indenture.

If I be in error as to this computation, which I am unable to make satisfactorily to myself, the result would not be changed. The relationship of Lubin to the Trust, the confidence which the Committee exhibited in and bestowed upon Lubin and which he betrayed, the failure of the Trustee and members of the Trust Committee to advise the shareholders of such an important matter, the concealment from the shareholders of the cost free interests given Lubin, the void issue of $341,000 in Kansas notes to Lubin, and all of the other facts and circumstances appearing in this record, are sufficient, as I have found, to invalidate the sale. All of the circumstances, I say, are such that, at all events, irrespective of whether the income received by Lubin was in fact 40% of the total income, the transaction must be rescinded.

Plaintiffs seek relief also against the Trustee and the members of the Committee. I think the evidence too scant to justify a finding that they have been guilty of fraud. Their management was grossly careless, but I think I am not justified in saying that their bad business judgment, in handling speculative oil properties in proved, wildcat and unproved territory amounts to fraud. The results were disastrous. Indeed, before rescission of any of these transactions, the books of the Trust reflect a loss of $1,486,385.38 between September 1, 1943 and May 31, 1944, if we accept the Trust’s depletion and depreciation figures. In the same period the Trust’s monthly income declined from $81,068.42 to $32,308.39. I believe, however, from what I have seen and heard in this hearing that the Committee was not made up of dishonest men but rather of men of integrity, who, mistakenly and with poor judgment, came to rely upon a man who looked upon the Trust as “his baby,” accepted without consideration any and all suggestions that he made and were betrayed by him. True, Pryor became trustee immediately after the contract was signed for the purchase of 42% interest in his corporation. Then he resigned just before the Trust resold to Pryor and Lock-hart, its 58% in the same corporation. Truly, such evidence does not reflect a keen appreciation of the fiduciary obligations of a trustee. And true it is that in the last three years the Trust has managed to put itself in a thoroughly unhealthy financial condition. But that result is due, as I interpret the record, to the treachery and manipulation of Lubin, without conscious malfeasance upon the part of the other defendants. Some circumstances excite grave suspicion but the evidence is insufficient, to my thinking, to prove fraud upon the part of the Trust or the members of the Committee satisfactorily or to the extent and with that strictness ordinarily required in fraud cases.

Lubin, I find, artfully planned every step he took from the time of the existence of the prior corporations and in the organization of this Trust as their successor. The evidence reflects his domination of each corporation, negotiations with persons to form a trust, his naming of the trust committee, his suggestion of a trustee and his controlling activity generally in all matters pertaining to the Trust. This all reflects one concerted plan, out of which, as a result of all the transactions, we find him the owner of the most valuable asset of the Trust without delivery of adequate consideration.

Lubin shall account in the manner I have directed. I find further that the Trust advanced between June 1, 1944, and December 31 the same year, Lubin’s portion of the operating costs of the CasePomeroy properties, overpaying him $71,-156.43. To reimburse the Trust for the overpayment he delivered Kansas notes for $12,000 plus interest thereon of $720 or $12,720; Illinois notes and interest $15,-370 and received credit for $421.17 overpayment of $421.17 on the purchase price of $60,000 for the %ths interest. He also paid the Trust $645.26 in cash. The credit for the Kansas note $12,700 must be eliminated. Consequently he owed the Trust $54,720. Of this debt the Trust wrongfully forgave Lubin $42,000. I find nothing in the subsequent transactions to justify elimination of the total balance of $54,720 indebtedness in this respect. In view of the fact that all of the contracts with regard to %ths and Helm A. lease are rescinded, nothing can grow out of the action of the Trust in accepting the Kansas note for $12,700 or for cancelling $42,000. Much is said of services rendered by Lubin in procuring loans for the company but each step he took in this respect redounded eventually to his own benefit and not to that of the Trust. Moreover, the situation was that he could not legitimately charge a commission. Thus, upon an accounting for that period, he would clearly owe the Trust $42,000 plus $12,720 in Kansas notes or a total of $54,720.

In addition, because of rescission, he must account for the expenditure of the sums he has received from the property $183,926 in the period mentioned and remains liable to show that he expended it for the benefit of the Trust. He must account for all receipts since December 31, 1943. He will be credited for such expenditures as he shows have been made for the benefit of the Trust and charged with all other receipts.

The Trust sold its 58% in Pryor and Lockhart for $250,000. It had previously contracted to pay more than twice that amount for 42% and it had originally paid very much more for the 58% interest. But I feel that nothing contained in this record justifies rescission of the sale of the 58% and that I have no jurisdiction of the parties necessary to such rescission despite the resulting tremendous loss. I find only a picture of poor business judgment at the most.

Another record fact deserves comment. When the Trust and Lubin were sued, the same solicitor answered for each of them and for Lubin’s paper corporation, Valley Oil Corporation. Lubin insisted that all his transactions with the Trust had been in good faith and the Trust affirmed the truth of his averments. This circumstance reflects a lack of proper appreciation upon the part of the Trust of its obligation to present its case free of any association with a man whom plaintiffs were accusing of defrauding it and its shareholders. This, too, was surely poor judgment. The Trust ■Committee should have seen that it should seek independent counsel. It does not follow, however, that the solicitor who appeared for Lubin at that time was wrongfully at fault. Apparently, before the trial, he did not fully appreciate the fact that' there might develop a conflict between Lubin and the legal representatives of the Trust and that the ethical proprieties demanded separate representation. At the trial the Trust was represented by other counsel, but even then the Trust took the position that the transactions should be approved rather than rescinded. I have no doubt that counsel acted upon what he was told by the members of the Trust Committee. But they had been so long under the dominion of Lubin that he had their utter confidence. An advocate, I take it, is justified in taking the word of his clients until he learns better. But at the end of the trial, the court has approved in part the complaint of shareholders seeking to enforce the rights of the Trust where the Trust has failed to do so. The court has now determined that the Trust and its shareholders have been imposed upon, misled and deceived to their serious injury and I have no doubt that the Trust’s further actions will reflect the soundness of the court’s conclusion and that it will disaffirm its alliance with Lubin, its allegiance to him and its reliance upon him and conduct its affairs from the point of view of the well-being of the Trust, uninfluenced by his association or suggestions.

The complaint prays for a receiver, but I am loath to take the properties from the parties and put them in the hands of a court official and shall do so only as final resort necessary for the protection of creditors and shareholders. In the absence of a finding of fraudulent conduct upon the part of the Trust Committee and believing that past misfortunes have been due entirely to the manipulations of Lubin, I shall not at this time take the property from the custody of the Trust but shall reserve action on the prayer for a receiver.

Since the transfer of the Helm A. lease to Lubin, he has placed upon the property additional mortgages to Swann as Trustee. The beneficiaries of those mortgages are not all before me. I can not adjudicate in favor of plaintiffs as against them. I can only comment that, in view of the record, any money loaned in good faith to Lubin on these mortgages must stand as a valid lien against the Trust and the shareholders, but whether Lubin has received the proceeds of such loans and expended them upon the property or for his own purpose is another matter not now determined. In the absence of conclusive proof at this time upon this branch of the case, I take no action with reference thereto except to say that Lubin shall render full account with reference thereto.

All parties have admitted the good faith and integrity of the mortgages of Sohio. They are valid and enforcible according to their terms. Sohio has no interest in the controversy other than to protect its liens. The decree herein will provide such full protection.

There are other matters in this voluminous record which, in view of my stated conclusions, I have not thought it necessary to discuss.

There will be a decree rescinding the issuance of the Kansas notes, in so far as Lubin is concerned. He shall account for the entire issue of $341,000 and be credited for such of them as he has surrendered. There will be a rescission of the sale of %ths interest in the Case-Pomeroy properties and of the Helm A. lease to Valley and to Lubin and he shall be credited with the consideration he delivered over and above the Kansas notes. He shall account for the balance due from him to the Trust as above stated for the period ending January 31, 1944. He shall account for all moneys paid to himself or to Barney Lubin upon the cost free burdens on the Case-Pomeroy properties and all of said rights are cancelled. He shall account for $10,-000 purported commission for obtaining loans as mentioned above, and for any and all of the proceeds of the production received from the %ths interest in the Case-Pomeroy properties and from the Helm A. lease and from the mortgages placed thereon and be credited with such expenditures as he has made for the preservation, operation or betterment of the Trust’s interest in those leases. He and Valley shall, within ten days, execute a conveyance conveying that property to the Trust and if he does not voluntarily account in the manner aforesaid, this court will set the matter for hearing or refer the same to a master as circumstances may require.

The foregoing memorandum supplements my findings and conclusions and is made a part thereof. There is no question as to jurisdiction of the parties or of the subject matter.

Proper draft of judgment shall be submitted.