author: RITTER, District Judge.

text:
    HARRIS et al. v. CITY OF MIAMI, FLA., et al.
    No. 1119-M.
    District Court, S. D. Florida.
    Aug. 18, 1932.
    Shutts & Bowen, of Miami, Fla., for complainants.
    John W. Watson, Jr., Mitchell D. Price, and Charles W. Zaring, all of Miami, Fla., for defendants.
   RITTER, District Judge.

This matter comes on for hearing upon the application of the plaintiffs for a temporary injunction. The matter has been heard upon the verified bill of complaint and answer, with numerous exhibits and affidavits.

The plaintiffs allege that they are the owners and holders of $6,972,000 worth of bonds of the defendant city; .that said bonds are general obligations of the defendant, and were issued and sold to provide money for the payment of public improvements in said city; that the defendant did create special assessment districts and levy special assessments against the property in such districts to raise money to pay the principal and interest of these bonds, and did especially pledge all such money to such payment; that each bond contains the provision: “Both principal and interest of this bond are payable in gold coin of the United States * * * For the prompt payment hereof and the interest hereon as the same shall fall due, the full faith and credit and resources of said city are hereby irrevocably pledged.” That on the 23d of July, 1932, the defendant, by Resolution No. 7569, authorized the Director of Finances, Alvin E. Fuller, a defendant, to accept “any and all City of Miami bonds outstanding in payment of all delinquent taxes for which the said city owns the certificates, up to and including the year 1929; and is further authorized and directed to accept such bonds in payment of all special assessments, the principal amount of such bonds and the coupons to be accepted at par value and applied against principal and interest of such taxes and/or special assessments at par.” Such bonds were further directed to be canceled. The defendant is accepting, under said resolution, bonds in payment of special assessments, and the taxpayers’ property is being released from the assessment; that the city has not levied a general tax which, together with the special assessment fund, is adequate to pay the principal and interest of bonds, there being now due and unpaid as defendants admit of principal on bonds $2,394,000, and interest in the sum of $271,412.5-0; that the action of the city in so doing is unlawful, wall irreparably injure the plaintiffs in the collection of their bonds by indefinitely deferring payment; that they have a beneficial interest in the speaial assessment fund, as the same is pledged for the payment of the bonds.

The defendant admits all of these material facts, but deny that the resolution is invalid, or that they are acting unlawfully, and deny any interest of the bondholders in the special assessment fund, asserting that that is a fund which exists by initiation of the city for its own convenience, and is not in any way subject to equitable jurisdiction at the behest of the plaintiffs. They assert they will continue to accept bonds in such manner unless restrained by this court.

From the exhibits, it is clear that in each special assessment district, the fund arising therefrom has been b.y action of the defendant city, pursuant to the direction of the charter of.the city, specifically set aside by ordinances or resolutions for the sole purpose of paying the principal and interest of the respective bond issues set up in the bill. The answer states that the city of Miami does not have at this time sufficient funds with which to pay either the principal or interest of past-due bonds, or the interest represented by past-due coupons, and states that all of the said special assessments are assets of the city and owing to it.

The first question presented is: From what sources are the bonds to be paid? The pledge in the bond is faith, credit, and resources of the city. The resources are twofold. O'ne is by general levy of an ad valorem tax; the other is by the fund arising from the collection of special assessments. These two are conjoined. They supplement each other. The charter of the city of Miami, "section 56, subparagraph X, creates a fund into which shall be paid collections from -general tax levy for principal and interest, and special assessments collections, and provides: “That the amount of the annual tax levy herein required may be reduced in any year by the amount then contained in said fund, it being the intention hereof to provide that such bonds shall be payable by general taxation, as other bonds of the city, but that the additional security provided herein by way of special assessments will reduce the amount of such general taxation.”

In City of Sanford v. Dial, 104 Fla. 1, 142 So. 233, 238, the Supreme Court of Florida has said: “Where bonds of the city issued for improvements are direct obligations of the city, the special assessment liens held by the city for such improvements are in the nature additional resources for the payment of the bonds.”

Section 3033, C. G. L. Florida 1927, under the Cities and Towns Act, provides: “All special assessments * * * shall constitute a fund for the payment of the principal and interest of the bonds authorized.”

Commenting on this, the Supreme Court of Florida, in Klemm v. Davenport, 100 Fla. 627, 129 So. 904, 909, 70 A. L. R. 156, says: “In view of the fact that so many and various factors and combinations of elements enter into and control the disposition of eases affecting the liability of a municipality for local improvement, we think the ultimate test of the power must be extracted from the statute or contract authorizing the improvement. An examination of the statute as above quoted discloses that the city is the sole and only primary obligor to the bondholder, that there is no ground whatever to assume that the special assessments imposed constitute the only fund for the discharge of the said bonds, and that the bondholder is not concerned with the source or means exercised by the city for raising funds to pay its bonds.”

The word “fund,” as defined by the dictionaries, means “money” which is gathered for or to be appropriated to a specific object. It cannot mean bonds or anything else except cash. The special assessment “fund” is, therefore, a resource pledged to bond payment.

Judges Bryan and Sibley, of the Circuit Court of Appeals, and myself, as a three-judge court, recently in the case of Crummer et al. v. City of Fort Pierce (D. C.) 2 F. Supp. 737, had occasion to consider the constitutionality of chapter 15810 of the Laws of Florida enacted in 1931, which purports to give the city the power to receive outstanding bonds and matured interest coupons in lieu of money receivable in payment of taxes for debt service purposes., We therein held this law unconstitutional by granting an interlocutory injunction against. the* city of Fort Pierce, for the reason that taxes must be paid in money and the city could only discharge its bonded debt in lawful money, under the contractual relations governing the issue.

The ordinance in question of the city of Miami was passed pursuant to that state law. If the state law is unconstitutional, this ordinance must be held void. This leaves the city without any authority to do what it is charged with doing in this case. The plaintiffs are entitled to have the special assessment fund preserved as a resource pledged to the payment of the bonds, which are payable in gold coin. The contract and statutes at the time the bonds were issued provided for money payment and collection of special assessments in money. The ordinance in question and the action of the city is an impairment of the contractual relations of the bondholders. The bondholders, being entitled under their contract to payment in money, cannot be postponed in their rights until all bonds except theirs have been retired by being used in payment of taxes. As long as taxes can be paid with depreciated bonds, it cannot reasonably be expected that the city will collect any substantial amount of money with which to retire matured bonds and coupons. As a general rule, city bonds cannot be used as a set-off against city taxes unless the law permits and the contracting parties consent. By the method being pursued, a bondholding taxpayer is preferred over non-taxpayers holding bonds in the payment of his bond. He received payment in full by the,method prescribed, whereas the non-taxpaying bondholders must take the depreciated market price. A contractual equality is thus destroyed. Special assessments are to be classified as taxes. They differ in many respects from general taxes for city, county, and state purposes, but the principle presented in this case knows no distinction.

I cannot consider the assertions of the defendant that what is being done benefits the city by reducing its outstanding bonds and enhances the value of the market price of bonds by creating a demand. The practical and economical aspects of the situation are not before me. The law governing the rights of the parties is all that is here involved.

The defendant objects to the temporary injunction on the ground that the plaintiffs are not the owners of the bonds, alleging that the plaintiffs constitute a bondholders’ committee employed by the city to facilitate the exchange of refunding bonds; that they are agents or trustees for the city and are not the real parties in interest. There is thus presented a question of fact which must be determined upon final hearing. The plaintiffs claim legal title under contract, and appear to be clothed with authority to protect bondholders’ rights. Enough appears in the pleadings and documents presented to warrant a presumption for the purpose of this hearing that they are the legal owners and holders of the bonds, as alleged. I do not consider this objection of such major importance at this time as to halt m,y action, nor is the objection that the bill does not allege insolvency serious. It is not a question of whether the city is insolvent, but a situation is presented where it makes payment indefinite and uncertain by destroying a resource of payment. The plaintiffs are entitled to a temporary injunction.

I have stated my view of the law in more detail than is necessary upon a motion for temporary injunction. I have done so purposely, so that parties may be advised of what holding I shah make upon final hearing in that respect. If the question of fact above stated must be determined upon final hearing, of course this can be done. Even if the plaintiffs are not the proper persons to sue, the city cannot escape a suit involving the questions herein, as some other bondholder will undoubtedly promptly institute action. I hope technicalities may be waived by both sides, a final decree entered, and the matter prosecuted on appeal so that the law’s delay will be eliminated.

A temporary injunction will be granted effective this day.


source: Caselaw Access Project

author: KENNERLY, District Judge.

license: Public Domain

text:
    In re KEENE’S EXTRADITION.
    No. 481.
    District Court, S. D. Texas, Laredo Division.
    March 10, 1934.
    M. J. Raymond, of Laredo, Tex., and M. C. Gonzales, of San Antonio, Tex., for Government of Mexico.
    Mann, Neel & Mann, of Laredo, Tex., and H. M. Holden, U. S. Atty., and M. S. Mc-Corquodaie, Asst. U. S. Atty., both of Houston, Tex., for Henry Keene.
   KENNERLY, District Judge.

Proceeding under section 651, title 18 US CA, relating to the extradition of fugitives from foreign, countries and/or under the Treaty of February 22, 1899, between the United States of America and the United States of Mexico (31 Stat. 1818), and particularly articles 9 and 10 thereof, the Honorable John F. Mullally, judge of the Forty-Ninth judicial district of Texas, and of the district court of Webb county, Tex., in such district (same being a court of record of general jurisdiction of Texas), issued his warrant for the arrest, and caused the arrest, of Henry Keene, of Laredo, Tex., who it is claimed is charged with the commission of an offense in Mexico, and extraditable under such treaty.

Before a hearing, such as is required by section 651, was bad before Judge Mullally, Keene filed with the clerk of this court his petition for the removal of such proceeding into this court, claiming therein that he is an officer of this court (deputy United States marshal), and that such proceeding was for or on account of an act done under color of his office, and in the performance of his duties as such officer. See section 76, title 28 USCA. Thereupon, the deputy clerk of this court at Laredo issued out of this court, and there was served, a writ of habeas corpus cum causa, and such matter was removed, or attempted to be removed, into this court. Judge Mullally then directed the sheriff of Webb county, who had Keene in custody, to deliver him, and he was delivered, into the custody of the United States marshal of this district. Pending a hearing, Keene has been admitted to bail.

1. The first question presented is whether such proceeding may be removed into this court under section 76, title 28 USCA, and whether this court has jurisdiction.

Section 76 applies to “civil suits” and “criminal prosecutions” “commenced in any court of a State.” The proceeding before Judge Mullally was neither under nor by virtue of a state law, nor was it in, nor commenced in, the state court of which he is judge. It was before him under the treaties and laws of the United States, and as a magistrate of the United States.

Section 651 gives any justice of the Supreme Court of the United States the same jurisdiction in extradition matters as is given a state court judge, yet it would hardly be contended that there would be commenced a suit in the United State Supreme Court should a justice thereof see fit to proceed under such section and/or such treaty.

The fact that Judge Mullally called to his assistance the clerk of the state court to keep a record of the proceeding and issue process, and the sheriff of Webb county (an officer of bis court) to execute tbe process and have custody of Keene, does not change the status.

The true nature of the proceeding is stated in Benson v. McMahon, 127 U. S. 457, 8 S. Ct. 1240, 1243, 32 L. Ed. 236, as follows: “Taking this provision of the treaty, and that of the Revised Statutes above recited, we are of opinion that the proceeding before the commissioner is not to be regarded as in the nature of a final trial by which the prisoner could be convicted or acquitted of the crime charged against him, but rather of the character of those preliminary examinations which take place every day in this country before an examining or committing magistrate for the purpose of determining whether a ease is made out which will justify the holding of the accused, either by imprisonment or under bail, to ultimately answer to an indictment, or other proceeding, in which he shall be finally tried upon the charge made against him. The language of the treaty, which we have cited above, explicitly provides that ‘the commission of the crime shall be so established as that the laws of the country in which the fugitive or the person so accused shall be found would justify his or her apprehension and commitment for trial if the crime had been there committed.’ This describes the proceedings in these preliminary examinations as accurately as language can well do it. The act of congress conferring jurisdiction upon the commissioner, or other examining officer, it may be noted in this connection, says that if he deems the evidence sufficient to sustain the charge under the provisions of the treaty he shall certify the same, together with a copy of all the testimony, and issue his warrant for the commitment of the person so charged.”

It has long been the rule that there is no appeal from such a magistrate’s decision, whether he be a justice, judge, or commissioner. Re Metzger, 5 How. (46 U. S.) 176, 12 L. Ed. 104; Benson v. McMahon, supra; In re Luis Oteiza y Cortes v. Jacobus, 136 U. S. 330, 10 S. Ct. 1031, 34 L. Ed. 464; Collins v. Miller, 252 U. S. 366, 40 S. Ct. 347, 64 L. Ed. 617. And it is ordinarily not reviewable by habeas corpus, except for the purpose of inquiring into the jurisdiction of the magistrate, whether the offense charged is within the treaty and whether th'ere is any evidence affording reasonable ground to believe the accused guilty. Collins v. Miller, supra; Bernstein v. Gross (C. C. A.) 58 F.(2d) 154.

The Supreme Court, in Colorado v. Symes, 286 U. S. 511, 52 S. Ct. 635, 637, 76 L. Ed. 1253, in referring to what is now section 76 of the Code, uses this language (italics mine): “The various acts of Congress constituting the section as it now stands were enacted to maintain the supremacy of the laws of the United States by safeguarding officers and others acting under federal authority against peril of punishment for-violation of state law or obstruction or embarrassment by reason of opposing policy on the part of those exerting or controlling state power. Tennessee v. Davis, 100 U. S. 257, 25 L. Ed. 648; Maryland v. Soper (No. 1), 270 U. S. 9, 32, 46 S. Ct. 185, 70 L. Ed. 449; The Mayor v. Cooper, 6 Wall. 247, 253, 18 L. Ed. 851; Findley v. Satterfield, Fed. Cas. No. 4,792. It scarcely need be said that such measures are to be liberally construed to give full effect to the purposes for which they were enacted. See Venable v. Richards, 105 U. S. 636, 638, 26 L. Ed. 1196; State v. Sullivan (C. C.) 50 F. 593, 594. And it is axiomatic that the right of the states, consistently with the Constitution and laws of the United States, to make and enforce their own law? is equal to the right of the federal government to exert exclusive and supreme power in the field that by virtue of the Constitution belongs to it. The removal statute under consideration is to be construed with highest regard for such equality. Federal- officers and employees are not, merely because they are such, granted immunity from prosecution in state courts for crimes against state law. Congress is not to be deemed to have intended that jurisdiction to try persons accused of violating the laws of a state should be wrested from its courts in the absence of a full disclosure of the facts constituting the grounds on which they claim protection under section 33.”

See, also, Commonwealth of Virginia v. Paul, 148 U. S. 117, 13 S. Ct. 536, 37 L. Ed. 386.

My conclusion is that section 76 has no application to the proceeding before Judge Mullally, and that it is not removable into this court under such section.

2. The question is presented also of whether the deputy clerk was empowered to issue such writ of habeas corpus cum causa. I think this must be answered in the negative. Section 76 empowers the clerk and his deputies to issue such process without the order of a judge only in cases where the court is not in session. This court is in session in all of the divisions all of the time, and was in session in the Laredo Division at the time the writ was issued.

3. It is also suggested that in view of the fact that the Judge of this court and Judge Mullally as magistrates have, under section 651, concurrent jurisdiction in this proceeding, the Judge of this court should retain jurisdiction and proceed to hearing. While I think it is clear that any Justice or Judge before whom a proceeding of this kind is pending would have the right to request another Justice or Judge (authorized to act under section 651) to hear it for him, the record does not present a ease of that kind. The record shows that the proceeding is here because of an attempted removal in the manner indicated.

From what has been said, it follows that the case must be remanded to Judge Mullally sitting as a magistrate.

Let an order be drawn and presented accordingly.

       “Section 651. Fugitives from foreign country. Whenever there is a treaty or convention for extradition between the Government of the United States and any foreign government, any justice of the Supreme Court, circuit judge, district judge, or commissioner, authorized- so to do by any of the courts of the United States, or judge of a court of record of general jurisdiction of any State, may, upon complaint made under oath, charging any person found within the limits of any State, District, or Territory, with having committed within the jurisdiction of any such foreign government any of the crimes provided for by such treaty or convention, issue his warrant for the apprehension of the person so charged, that he may be brought before such justice, judge, or commissioner, to the end that the evidence of criminality may be heard and considered.
      If, on such hearing, he deems the evidence sufficient to sustain the charge under the provisions of the proper treaty or convention, he shall certify the same, together with a copy of all the testimony taken before him, to the Secretary of State, that a warrant may issue upon the requisition of the proper authorities of such foreign government, for the surrender of such person, according to the stipulations of the treaty or convention; and he shall issue his warrant for the commitment of the person so charged to the proper jail, there to remain until such surrender shall be made.”

       Articles 9 and 10 of the Treaty of February 22, 1809, between the United States of America and the United States of Mexico, are as follows:
      “Article IX. In the ease of crimes or offenses committed or charged to have been committed in the frontier states or territories of the two contracting parties, requisitions may be made either, through their respective diplomatic or consular agents as aforesaid, or through the chief civil authority of the respective state or territory, or through such chief civil or judicial authority of the districts or counties bordering on the frontier as may for this purpose be duly authorized by the said chief civil authority of the said frontier states or territories, or when, from any cause, the civil authority of such state or territory shall be suspended, through tlie chief military officer in command of such state or territory, and such respective competent authority shall thereupon cause the apprehension of the fugitive, in order that he may be brought before the proper judicial authority for examination; and the record of such examination, with the evidence, duly attested, shall be forwarded to the proper executive authority of the United' States of America or of the United Mexican States, as the case may be; when it is found by such respective executive authority that, according to the law and the evidence, the extradition is due pursuant to the terms of this convention, the fugitive may be given up accordiug to the forms of law prescribed in such cases.
      “Article X. On being informed by telegraph or otherwise, through the diplomatic channel, that a warrant has been issued by competent authority for the arrest of a fugitive criminal charged with any of the crimes enumerated in the foregoing articles of this treaty, and on being assured from the same source that a requisition for the surrender of sueli criminal is about to be made accompanied by such warrant and duly authenticated depositions or copies thereof in support of the charge, each government shall endeavor to procure the provisional arrest of such criminal and to keep him in safe custody for such time as may be practicable, not exceeding forty days, to await the production of the documents upon which the claim for extradition is founded.”


author: FORMAN, District Judge.

text:
    In re OCEAN CITY TITLE & TRUST CO.'S BOND.
    District Court, D. New Jersey.
    March 14, 1934.
    Osborne, Cornish & Scheck, and Emanuel P. Scheck, all of Newark, N. J., for American Surety Co.
    Hiram Steelman, of Atlantic City, N. J., for trustees.
    Robert K. Bell, of Ocean City, N. J., for receiver of First Nat. Bank of Ocean Citv, N. J.
   FORMAN, District Judge.

The American Surety Company filed a petition in this court praying for the cancellation of its bond in the sum of $10,000, given to secure bankruptcy deposits made in the Ocean City Title & Trust Company (which bond was subsequently amended, by a rider, changing the name of the bank to the First National Bank of Ocean City, N. J.), and to restrain trustees in bankruptcy, depositors of bankrupt funds in the said First National Bank of Ocean City, from suing it on the said bond.

The matter was referred to Samuel Roessler, Esquire, as master, for the purpose of hearing the matter for the court and to determine and advise it as to the truth of the allegations of the said petitioner, and as to what relief should be granted thereon.

The master accordingly took testimony and has filed his report. He finds that the petitioner, American Surety Company, is entitled to * * * have an order entered directing the clerk of this Court to surrender to petitioner (American Surety Company) the Bond of the Ocean City Title and Trust Company as principal and of American Surety Company of New York as surety, together with the Rider subsequently attached thereto and on file with the Clerk of this Court; and to an injunction restraining Frank P. Mulligan, as Trustee in Bankruptcy for Alfred P. Gordon and Alfred J. Gordon, trading as Gordon Bros., Henry Roeser, Jr., as Trustee in Bankruptcy for Ocean City Printing & Publishing Co., and F. E. J. Bower, as Receiver for the First National Bank of Ocean City, from instituting any suit at law or in equity or otherwise against petitioner under said Bond or the Rider attached thereto.” Exceptions to the report were taken by the receiver of the First National Bank of Ocean City, N. J., and by the trustees in bankruptcy of the estate of Alfred P. Gordon and Alfred J. Gordon, trading as Gordon Bros., and the estate of Ocean City Printing & Publishing Company.

The master carefully and ably analyzed the testimony in his report, and his findings therein contained are firmly sustained by the evidence.

I find, with regard to the first exception filed by the receiver of the First National Bank of Ocean City, N. J., that this court has ample jurisdiction in a summary proceeding to pass upon the question of the cancellation of this bond.

As to the other exceptions I cannot agree that the master was not warranted in his findings and recommendations based upon the testimony before him. I believe they were all fully justified.

I further find that by reason of the fact that there is no order on file in this court establishing the First National Bank of Ocean City, N. J., as a bankruptcy depository, under the statute (Bankr. Act § 61 (11 USCA § 161) and rules of this court that the said bank was not in fact or in law an official bankruptcy depository.

The recommendations of the master will accordingly be confirmed. An appropriate order may be taken.

In view of this holding and to secure a prompt and expeditious disposition of this matter so that the bankruptcy funds may be returned to the respective estates for administration without further delay, the trustees in bankruptcy should forthwith proceed to petition the court to direct the receiver of the bank to return to them the said deposits in a summary proceeding before this court.

This form of procedure is authorized in the ease of In re Potell (D. C.) 53 F.(2d) 877 in an opinion by Judge Inch.

It is true that in the ease at bar the deposits were made by trustees in bankruptcy rather than a receiver in bankruptcy.

The distinction means naught as declared by Judge Byers in the ease of In re Weiss (D. C.) 2 F. Supp. 767, who followed the Potell Case and said:

“A similar application, made by a receiver in bankruptcy, has been granted by Judge Inch in this court, under date of January 30, 1931, in the Matter of Joseph Potell, 53 F.(2d) 877.

“In a carefully reasoned opinion, that experienced judge concluded that the motion should -be granted, and reliance upon the views therein expressed would entirely dispose of this matter, were it not for the suggestion here made by the superintendent, that there is such distinction between the status of a trustee and a receiver that Judge Inch’s views do not control the disposition of this motion.

“There may be a distinction for technical reasons, not now important, but there is no difference for present purposes.

“That a bankrupt estate is in custodia legis from the time of filing the petition, has been frequently declared by the Supreme Court, and most recently in Straton, etc., v. New, 283 U. S. 318, 51 S. Ct. 465, 75 L. Ed. 1060, decided April 20, 1931.

“Such was the character therefore of the funds that this trustee sought to entrust to the Bank of United States on October 28, 1930, and as to which he would have succeeded in making a deposit, had the bank been a depository; lacking that legal capacity, it was unable to establish, between itself and the trustee, the relation of debtor and creditor. The disqualification was as complete as in the Potell Case, in which it sought to establish the same relation to a receiver in bankruptcy.

“As the bank did not become a debtor to the trustee, but rather held funds without right and to which title did not pass, it results that the said funds must now he returned to the trustee.”


author: FAKE, District Judge.

text:
    CLARKE v. GOLD DUST CORPORATION.
    District Court, D. New Jersey.
    March 8, 1934.
    Hobart & Minard (by Ralph Cooper), of Newark, N. J., for plaintiff.
    McCarter & English (by Conover English), of Newark, N. J., for defendant.
   FAKE, District Judge.

The issues here arise on a motion to strike out the complaint upon two grounds. The first is an attack upon the jurisdiction in equity, and the second turns on a question of laches.

Complainant is a stockholder in the American Linseed Company, which corporation entered into a merger with the Gold Dust Corporation on December 20, 1928. The grievances of which she complains arise out of the merger. The stock which she holds was issued to her prior to the merger, and she contends that as to her the merger was unfair. The prayers of the complaint are for an accounting and a money decree. She seeks no -injunctive relief.

The allegations of the bill are sufficient upon which to base an action for an accounting, and in this connection the question arises as to whether the action will lie in equity in view of section 267 of the Judicial Code (28 USCA, § 384), which provides: “suits in equity shall not be sustained in any court of the United States in any ease where a plain, adequate, and complete remedy may be had at law.”

The complaint discloses that before we may answer the question as to the unfair or unjust treatment of complainant under the merger (which she at all times opposed), we must ascertain the value of her stock, and as well the value of that which was offered to her in return for it. This necessitates an examination of the hooks of the corporations involved, and manv other factors which would be pertinent as elements in fixing values — a situation at once fraught with complications and involvements beyond that which a jury could adequately deal with. The conclusion, therefore, is that an action at law would not furnish an adequate remedy. Fidelity & Deposit Co. v. Fidelity Trust Co. (C. C.) 143 F. 152, at page 159; Balfour v. San Joaquin Valley Bank (C. C.) 156 F. 500; and London Guarantee & Accident Co. v. Bell Telephone Co. (C. C.) 171 F. 278.

The motion to dismiss the complaint upon the ground of laches is denied at this time because no injunctive relief is sought and that issue would be better decided after the trial of the cause.


author: JOHNSON, District Judge.

text:
    UNITED STATES v. MUNLEVITCH et al. SAME v. WRIGHT et al.
    Nos. 3052, 3053.
    District Court, M. D. Pennsylvania.
    March 24, 1934.

      Andrew B. Dunsmore, of Wellsboro, Pa., for the United States.
    Ahram Salsburg, of Wilkes-Barre, Pa., for defendants.
   JOHNSON, District Judge.

This is a consolidated petition by the surety to remit forfeitures of recognizances in the cases of the United States v. Munleviteh and United States v. Wright. The facts in thé two cases are fully set forth in an opinion filed by this court on July 28, 1933, and reported as United States v. Munlevitch et al., 4 F. Supp. 171.

On September 28, 1933, subsequent to the opinion rendered by this court, Michael Gower, the surety, filed a verified petition to remit the forfeitures. No answer was filed to this petition and the facts therein set forth must be taken as true. The petition in substance sets forth that both defendants appeared during the March, 1931, term of this court held at Scranton, Pa., and at the June, 1931, term held at Williamsport, Pa., but that the eases were continued each time, the second time over the objections of the defendants; that the defendants did not appear at the January, 1932, term because they believed the cases would not be tried and left this section of the country in search of employment; that the failure of the defendants to appear was not willful; that the defendant John Munleviteh is now confined in the Insane Asylum at Dan-ville, Pa.; and that the defendant Jack Wright is prepared to answer the charges. It appears that the defendant Jack Wright later appeared in court and was sentenced.

In United States v. Munlevitch et al., 4 F. Supp. 171, 172, this court held under the provisions of 18 USCA § 601, that “two conditions must affirmatively appear to give this court jurisdiction to remit forfeitures: First, that there has been no willful forfeiture by the party; and, secondly, that a trial can, notwithstanding, be had in the cause. From the pleadings it appears that the defendants in the criminal proceedings have not been apprehended and the trial cannot be had. The second condition required by the statute has not been met and this court, therefore, cannot remit the forfeiture.” Since this opinion was rendered, the second condition required by the statute has been met in the case of Jack Wright, as he appeared before this court and was sentenced.

In the case of Munlevitch, the second condition required by the statute has been made impossible by. an act .of God (defendant’s insanity) and by an act of law [repeal of the Eighteenth Amendment; United States v. Gibson et al. (D. C.) 5 F. Supp. 153, which deprives the court of jurisdiction to try the defendant; United States v. Borke (D. C.) 5 F. Supp. 429; United States v. Smith (D. C.) 5 F. Supp. 470; United States v. Chambers et al., 54 S. Ct. 434, 78 L. Ed. -], neither of which acts should prejudice the defendant. The provisions of 18 USCA § 601 are highly remedial and are to be liberally construed; U. S. v. Smoller (D. C.) 275 F. 1911; U. S. v. Jenkins (C. C. A.) 176 F. 672, 20 Ann. Cas. 1255, and the condition “that a trial can, notwithstanding, be had in the cause” should militate against the “party” only when the trial is prevented by his acts, and not when the fault is beyond his control. Since it appears that Munleviteh’s failure to appear was not willful; that he has been apprehended ; that he has done nothing to prevent the trial which if had would result in his dismissal; and since it is not the object of a recognizance to enrich the treasury, “public justice does not otherwise require the same penalty to be enforced.”

Notwithstanding judgment has been entered, this court can remit forfeitures, even at a later term than the one wherein judgment was entered. U. S. v. Jenkins et al. (C. C. A.) 176 F. 672, 20 Ann. Cas. 1255; U. S. v. Traynor (D. C.) 173 F. 114. Without doubt, the forfeiture in the Wright case should now be remitted. As to the forfeiture in the Munleviteh case, the court suggests that a nolle prosequi be entered by the United States Attorney upon which the court may make a formal order, remitting the forfeiture; this will virtually amount to a final trial or disposition of the ease.

And now, March 24,1934, the rule to show cause why the forfeiture of the recognizance in the case of United States v. Jack Wright and Michael Gower should not be remitted is made absolute, but judgment is to remain until all costs are paid.


author: WATSON, District Judge.

text:
    UNITED STATES v. TROY.
    No. 8694.
    District Court, M. D. Pennsylvania.
    Feb. 22, 1934.
    Andrew B. Dunsmore, of Wellsboro, Pa., for the United States.
    R. L. Levy and A. M. Lucks, both of Scranton, Pa., for defendant.
   WATSON, District Judge.

The defendant was indicted on June 7, 1933, for a violation of the Revenue Act of 1928 (USCA title 26, § 2146). The defendant filed a petition for a rule to show cause why the indictment should not be quashed, which rule was granted.

The third reason assigned in support of the rule to show cause is as follows:

“Third. The indictment is defective because it fails to aver that Jacob Troy was under a duty to perform the act in respect of which there was a violation charged of the Act of Congress of May 29, 1928.

“The indictment is defective in that it fails to set forth that the defendant was under a duty to perform the act in respect of which the violation occurred and in the absence of this averment the indictment fails to set forth facts showing prima facie, a commission of the crime charged in the indictment.”

The definition of the offense with which the defendant is charged in the indictment is found in that part of the Revenue Act of 1928, which read as follows:

“(b) Any person required under this title to collect, account for, and pay over any tax imposed by this title, who willfully fails to collect or truthfully account for and pay over such tax, and any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof, shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more then five years, or both, together with the costs of prosecution, (c) The term 'person’ as used in this section includes an officer or employee of a corporation or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs.”

In the indictment it is alleged, inter alia, that the defendant on March 15, 1930, did willfully and knowingly attempt to defeat and evade a large part, to wit, $4,429.08, of a tax upon the net income of the Troy Oil Company, Incorporated, for the calendar year 1929; that the defendant was the dirly elected and acting president of said corporation; that the defendant, on March 15, 1930, did make under oath an income tax return for said corporation for the year 1929; that, on March 15, 1930, the defendant did file said income tax return; that said defendant did pay, and cause to be paid, by said corporation, the total tax due and payable by said corporation on said income, and no more; that the actual income of said corporation for the year, for which said return was made, was far in excess of said income return; and that the income tax 'due the United States of America March 15, 1930, was far in excess of the income tax so paid.

Nowhere in the indictment is it alleged that the defendant was under a duty to perform the act in respect of which the violations occurred. It cannot be said that, as the defendant was president of the corporation] he was under a duty to perform the acts which he is alleged to have performed. “Aside from his position as presiding officer of the board of directors and of the stockholders when convened in general meeting, the president of a corporation has by virtue of his office, merely, no greater power than that of any director. Whatever authority he has must be expressly conferred on him by statute, charter, or by-law or the board of directors or be implied from express powers granted, usage or customs, or the nature of the company’s business.” 14a Corpus Juris, § 1858.

In an indictment every fact necessary to constitute the crime charged must be positively alleged, and nothing can be charged by implication or intendment. “It may be said this is a very technical construction, but in criminal eases, where the liberties of the defendant are involved, no intendments can be indulged in favor of an indictment; it must allege ‘all the facts necessary to bring the ease within the intent of the act.’ ” United States v. Horton (D. C.) 282 F. 731, 733.

In my opinion, it would be necessary to prove that the defendant was as a resident under a duty to perform the act which he is alleged to have performed in order to support a conviction, and such is not alleged in the indictment.

Now, February 22, 1934, the rule to show cause why the indictment should not be quashed is made absolute, and the indictment is quashed.


author: WOOLSEY, District Judge.

text:
    PICKER et al. v. UNITED CIGAR STORES CO. OF AMERICA.
    District Court, S. D. New York.
    Sept. 12, 1933.
    Charles Rosenbaum, of New York City (Mortimer Hays and Charles Joseph, both of New York City, of counsel), for plaintiffs.
    Sullivan & Cromwell (by Alexander M. Grean, Jr.), of New York City, for defendant.
   WOOLSEY, District Judge.

These motions to remand are granted. As I find no jurisdiction, there cannot be any costs.

I. There is a nice question involved in this and its sister motion as to whether the removing defendants may claim that there is a separable cause of action against them. The stronger argument can be made for the Delaware corporation. But it seems to me that it may be fairly said that the situation here shown lies between that before me in Rogers v. Hill et al. (D. C.) 53 F.(2d) 395, a clearly removable case, and that before me in Del Fungo Giera v. Rockland Light & Power Company et al. (D. C.) 46 F.(2d) 552, wherein the removal was held to have been improper.

II. The technique of approach to a decision on motions of this kind is that, as this is a court of limited jurisdiction, the party invoking the jurisdiction must clearly show that the cause is within it. That the removing parties have not done herein.

For I think that, though the word “joint” is not used, the allegations of paragraphs nineteenth and twentieth of the complaint, especially the latter, sufficiently clearly set forth a joint action of all the defendants, and require me to hold that, as the plaintiffs have chosen to plead their cause, it involves joint action of all the defendants and, hence, a nonseparable controversy with the two New York corporations, which makes its remand necessary.

Settle order on notice.


author: WILLIAMS, Judge.

text:
    CHARLES A. ZAHN CO. v. UNITED STATES. ZAHN et al. v. SAME (two cases).
    Nos. K-188, L-118, M-71.
    Court of Claims.
    April 2, 1934.

      Vincent J. Hefferman, of Chicago, 111. (Edward Clifford and H. IT. Shinniek, both of Washington, D. C., on the brief), for plaintiffs.
    Joseph H. Sheppard, of Washington, D. C., and Frank J. Wideman, Asst. Atty. Gen., for the United States.
    Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
   WILLIAMS, Judge.

These eases were consolidated by the court on March 1, 1932, for the purpose of trial. The facts applicable to the three eases have been stipulated by the parties as set forth in the findings. The controversy relates to an overpayment by the Charles A. Zahn Company, an Illinois corporation, of its income and profits taxes for the year 1920 which, to the extent of $32,081.68, was credited by the Commissioner of Internal Revenue against taxes due from the same company for the year 1919, after the expiration of the statutory period in which taxes for the year 1919 were legally collectible.

The petition in No. K-188 is filed in the name of the Charles A. Zahn Company. In Nos. L-118 and M-71, the petitions are filed in the names of Charles J. Zahn and Ernst Bartel, acting for and on behalf of all parties interested in the collection and distribution of the assets of the Charles A. Zahn Company, dissolved, and certain persons acting in their own individual rights as stockholders of the Charles A. Zahn Company as of the date of its dissolution.

No. K-188

The Charles A. Zahn Company was dissolved under the laws of the state of Illinois, on March 30, 1921. Section 14 of the Corporation Act of Illinois.(chapter 32, § 14 of the 1925 Smith-Hurd Revised Statutes) provides that: “All corporations organized under the laws of this State, whose powers may have expired by limitation or otherwise, shall continue their corporate capacity for two years for the purpose only of collecting debts due such corporation and selling and conveying the property and effects thereof. Such corporations shall use their respective names for such purposes and shall be capable of prosecuting and defending all suits at law or in equity.” Section 79 of the same act (Smith-Hurd Rev. St. 1925, e. 32, § 79) provides that: “The dissolution, for any cause whatever, of any corporation, shall not take away or impair any remedy given against such corporations, its officers, or stockholders, for any liahilities incurred previous to its dissolution, if suit therefor is brought and service of process had within two years after such dissolution.”

Two years after the dissolution of the corporation, or on March 30, 1923, the Charles A. Zahn Company ceased to exist, and became incapable of transacting any business whatever in its corporate capacity. A. J. Bates Co. v. United States (Ct. Cl.) 3 F. Supp. 245. This suit filed more than six years thereafter, on May 10, 1929', cannot b<? maintained.

Nos. L-118 and M-71

The petitions in these eases were filed on April 7, 1930, and February 18, 1931, respectively, seven and eight years after the Charles A. Zahn Company had ceased to exist for any purpose whatever and had become incapable of either instituting or defending suits in its corporate capacity. The defendant makes the point that, under the decision in the Bates Case, supra, the same situation obtains in respect to the plaintiffs’ right to maintain these suits as that of the Charles A. Zahn Company in No. K-188. Since this contention, if meritorious, is material to the decision only in the event the plaintiffs are otherwise entitled to recover, and we do not think they are, we prefer to dispose of the eases upon the merits.

The Charles A. Zahn Company filed its tax return for the year 1919 on March 3, 1920. The statutory period for the collection of the taxes assessed thereon expired on March 3, 1925. The credit of $32,081.68 of the overpayment for 1920 against the outstanding assessment for 1919 was made on May 14, 1925, the date on which the Commissioner signed the schedule of refunds and credits. Girard Trust Co. v. United States, 270 U. S. 163, 46 S. Ct. 229, 70 L. Ed. 524; United States v. Swift & Co., 282 U. S. 468, 51 S. Ct. 202, 75 L. Ed. 464. The statutory period in which the 1919 tax could be collected had expired when the credit was made. If the credit was made by the Commissioner of his own motion without the taxpayer’s approval or with an approval falling short of inducement and request, it was void as an erroneous credit under section 609 of the Revenue Act of 1928, 45 Stat. 791, 875 ( 26 US CA § 2609). R. H. Stearns Co. v. United States, 54 S. Ct. 325, 78 L. Ed. -, decided by the Supreme Court on January 8, 1934.

The facts disclosed by the findings justify the conclusion that the credit was made with the taxpayer’s approval and in accordance with its request. The 1919 return showed a tax liability of $34,718.64. No part of the tax shown to be due on the return was paid by the company at the time the return was filed, or subsequently. A claim for credit for the entire amount of the tax against an asserted overpayment for a like amount for the year 1918 accompanied the return. Subsequently, on June 21, 1922, and before the Commissioner had completed his audit of the company’s 1938 return, the company filed, amended returns for the years 1919 and 1920. The amended return for 1919 disclosed a tax liability of $74,107.67 instead of $34,718.64 shown on the original return for that year, while the amended return for 1920 disclosed a tax liability of only $151.55, as against a tax of $38,290.68 shown on the original return for that year. With the amended returns for 1919 and 1920 the company transmitted a letter in which it .was stated “no additional payments of taxes nor claims for refund are being made with the filing of these amended returns as it is assumed that the adjustment of all payments will be made with the completion of your present audit. As a matter of information figures pertaining to the assessments and payments for the years 1918,1919, and 1920, follow:” The company knew at the time this letter was written that the claim for credit of $34,718.64 made with the filing of the original return for 1919 against the alleged overpayment for 1918, if allowed in full, would pay less than half the amount of the tax due for the year 1919 as shown by the amended return. How did it expect to pay the balance of this tax? Not in cash, as the letter stated that no additional payments of taxes nor claims for refund were being made. The reason why no additional payments nor claims for refund were made with the filing of the amended returns is quite clearly explained by the statement that it was assumed that the adjustment of “all payments” would be made with the completion of the present audit. Manifestly “all payments” had reference to the years 1918, 1919, and 1920, as a detailed summary of the assessments and payments for these years followed. It is clear, therefore, that the company proposed to pay the 1919 taxes from overpayments asserted, but at that time undetermined, for the years 1918 and 1920. Construed in the light of these facts the letter accompanying the amended returns amounted to a direct request to the Commissioner to postpone the collection of the 1919 tax until the company’s tax liability for all the years involved, had been finally determined, and to credit whatever overpayments the final audit might develop for the years 1918 and 1920 to the tax due for 1919. This is exactly what the Commissioner did. The final audit of the Commissioner determined an overpayment of taxes for the year 1918 in the amount of $2,-636.96, and an overpayment for 1920 in the amount of $38,139.13, and an underassessment for the year 1919 of $29,029.36, which amount was subsequently duly assessed. The Commissioner credited the overpayment of $2,636.96 for the year 1918 to the original - tax for 1919. This credit was timely made and is not in controversy. He credited $32,-081.68 of the overassessment for 1920 to the remaining balance due on the original return for 1919, and $6,057.45 to the additional tax assessed on the amended return for that year. The balance of the additional tax, $22,971.91, was paid by the company on April 11,1925.

These adjustments were in accordance with the company’s,request, a request which necessarily carried with it approval of the Commissioner’s action. The suspended collection of the amount in controversy, $32,081.68, by credit against the 1920 overpayment was valid, although the credit was made after the expiration of the statutory period for collection of the 1919 taxes. Section 609 of the' 1928 Revenue Act (26 USCA § 2609) cannot be construed to make void a credit made in these circumstances, R. H. Steams Co. v. United States, supra, and the plaintiffs are equitably estopped from asserting its invalidity, Ralston Purina Co. v. United States, 58 F.(2d) 1065, 75 Ct. Cl. 525, certiorari denied, 289 U. S. 732, 53 S. Ct. 594, 77 L. Ed. 1481; Naumkeag Steam Cotton Co. v. United States, 2 F. Supp. 126, 76 Ct. Cl. 687, certiorari denied, 289 U. S. 749, 53 S. Ct. 694, 77 L. Ed. 1495; David Daube v. United States, 59 F.(2d) 842, 1 F. Supp. 771, 75 Ct. Cl. 633; Id., 289 U. S. 367, 53 S. Ct. 597, 77 L. Ed. 1261, and it is immaterial whether recovery is sought on the disallowance of a proper claim for refund or upon the basis of an account stated.

The plaintiff in No. K-188 cannot recover because of its incapacity to maintain suit. The plaintiffs in Nos. L-118 and M—71 are not entitled to recover on the merits. The petition in eaeh of the eases is therefore dismissed. It is so ordered.


author: FEANKLIN E. KENNAMEE, District Judge.

text:
    SALE et al. v. WORLD OIL CO. et al.
    No. 601.
    District Court, N. D. Texas.
    April 18, 1933.

      Arthur A. Dichl, Dean & Perkins, and Boykin & Ray, all of Fort Worth, Tex., for complainants.
    McLean, Scott & Sayers, of Fort Worth, Tex., for defendants Frank M. and Madeline Greene.
    R. M. Eowland, of Fort Worth, Tex., and G. P. Dougherty, of Houston, Tex., for defendant Humble Oil & Eefining Co.
   FEANKLIN E. KENNAMEE, District Judge.

This is a proceeding ancillary to the equitable action in this court of J. W. Sale et al. v. World Oil Company, Ine., et al., in which receivers were appointed for the World Oil Company; and is prosecuted upon a bill filed under the ease number of the main action by the receivers so appointed, supplemented by a stockholders’ intervening bill in aid, -against Chester E. Bunker, E. Harriette Bunker, his wife, Mrs. N. E. Thiell, Frank M. Greene, and Madeline Greene, his wife, and the Humble Oil & Eefining Company, as defendants, for an accounting and to recover alleged diverted trust proceeds. The cause was referred to a special master for hearing upon both the pleadings and the merits, and is now before the court on exceptions of complainants and defendants to the master’s report.

A history of the incidents which brought about this litigation reveals many unique and involved features. Defendant Chester E. Bunker was the organizer, principal stockholder, and in control of the World Company, a Texas corporation, chartered to do a printing and publishing business, chiefly engaged in the publication of the Texas Oil World, which was ostensibly a trade journal for the oil industry, but in fact mainly devoted to the oil promotions of Bunker. During the years 1922 and 1923, Bunker, for the purposes of inducing subscriptions to the Texas Oil World, and in furtherance of his promotional activities, through the columns of the paper and otherwise by alluring literature, offered, as premiums to prospective subscribers, memberships in clubs designated as “Texas Oil World Marathon Fold Club” and “Texas Oil World Marathon Fold Drilling Club.” For the basis of his club promotions he acquired, at a small cost, some “wild cat” oil and gas leases in Crockett county, Tex., covering, at the beginning of the club promotions, at least 10,000 acres, and part of the time during the period of the promotions as much as 12,000 acres, taking title thereto in the name of the World Company.

The Marathon Fold Club was first organized and provided for 10,000 membership units; one unit to be given as a premium for a one-year subscription to the Texas Oil World, and each unit, as recited in the membership card, entitling the holder thereof to “a l/10,00'0th interest in all emoluments and profits accruing from certain oil and gas leases of 10,000 acres, more or less in Crockett County, State of Texas, and held in trust for all members by the undersigned trustee.”

About the middle of the year 1928, Bunker began the promotion of the Marathon Fold Drilling Club, advertising to the public that not all of the 10,000 units in the Marathon Fold Club had been sold, and consequently the World Company still owned a substantial portion of the 10,000 acres of leases, from which unsold portion the-World Company would donate 1,000 acres to the new club. The Marathon Fold Drilling Club was to be composed of 10,000 membership units; one unit to be given as a premium for each three years’ subscription to the paper, and each unit to entitle the holder thereof to a 1/10,000 interest in the 1,000 acres, and a well to be drilled thereon, free of cost to the unit holders, and with recitals otherwise about the same in the membership cards issued as those contained in the first club organized. This proposition went over much better than the first one and was practically all sold out.

After the Marathon Fold Drilling Club campaign had been presented, and in the summer of 1928, Bunker employed defendant Frank M. Greene, an experienced oil well driller, to begin the drilling of a well in Crockett county. The drilling of this well continued for many months, and finally on June &, 1925, was found to be a producer. Prior to this date, on November 24, 1924, the World Company, by charter amendment, became the Bunker Printing & Book Company, and Bunker offered to the public, in his usual manner, an issue of preferred stock in the company, with a stock bonus to each purchaser of $100 worth of stock, a Y¿50 interest in a 50-aere oil and gas lease in Crockett county, Tex., particularly described, and which was acquired by Bunker in his own name about December 12, 1924. In the bonus agreement given stock purchasers it was represented that a well was being drilled in the vicinity of this tract, and, in the event the well should prove that oil and gas might be profitably produced from the premises, then Bunker would use his best efforts to either let a drilling contract on said tract on some basis free of cost to the interest owners, or sell the same outright and distribute the net proceeds to them. This promotion was called the “Crockett County Lease Bonus” and was not very successful.

Features common to all three of the promotions were that Bunker was to be the trustee, and that the interests given to the subscribers were simply for the purpose of promoting the circulation of the oil journal and its business, and that neither Bunker nor his corporation were to benefit or profit from the promotions.

For the drilling of the well, Greene and Bunker had a • verbal contract whereby Greene’s compensation was to be $200 per month. Greene dealt with Bunker and looked to him for his salary, but in fact was paid by the World Company. During the year 1924 he was not able to collect his salary regularly, and on October 12, 1924, the back salary amounted to $1,701). At that time Greene became concerned about trying to collect. He went to Fort Worth and finally agreed with Bunker that he should receive assignments from the World Company of oil and gas leases covering 160 acres in Crockett county, a part of which was a 40 acre offset to the drilling well. Greene also received $50 in cash. He agreed that these considerations should pay his back salary in full, and that he would continue with the drilling of the well. An assignment of the 40 acre offset was executed and delivered to Greene on October 12, 1924, and duly placed of record on January 17, 1925.

During all the time of these promotions, Miss B. H. Thiell was an employee of the World Company and also, according to the literature sent the subscribers, secretary of the drilling club. She subsequently became Bunker’s wife and as such is a defendant here. On December 12,1924, Bunker caused his corporation to execute an assignment to himself and Miss Thiell of another 40-acre offset to the drilling well. This assignment was properly recorded January 25,1925. The consideration recited was $1,200 cash, and Miss Thiell paid her portion of the consideration, partly in cash and partly by deductions from salary, but Bunker gave no consideration for his half interest in the lease.

About June 10, 1925, Bunker and de-. fendant Humble Oil & Refining Company reached an oral agreement for the sale of the well and surrounding acreage, aggregating 2,710 acres, and this agreement was a few days later reduced to writing, in which the Bunker Printing & Book Company, successor to the World Company, E. Harriette Thiell, Chester R. Bunker, and Frank M. Greene were designated as the sellers. The deal with the Humble was consummated June 20, 1925, by the delivery of an assignment to it executed by the sellers named in the contract, and a check for $350,000 was issued by the Humble, payable to the Bunker Printing & Book Company, Chester R. Bunker, E. H. Thiell, and Frank M. Greene, and delivered to Bunker.' The assignment provided, as a further consideration, for the payment to Bunker Printing & Book Company, of $1,-050,000 out of oil runs. While the deal with the Humble was pending, Bunker, Greene, and Thiell, together with two other employees of the Bunker Printing & Book Company, incorporated the World Oil Company, with a capital stock of $300,000, fully paid; the stock being paid for by the transfer of all the’assets theretofore belonging to the three clubs to the corporation. The Bunker Printing & Book Company, under Bunker’s direction, assigned to the new corporation $900,-000 in deferred oil payments due from the Humble under the sale contract, valued at $100,000, and also transferred to the new corporation the remaining oil and gas leases belonging to the three clubs, valued at $200,-000, the transfer describing the leases which aggregated about 5,000 acres. All of the capital stock, with the exception of 400 shares divided among the other organizers, was subscribed to by Bunker. The minutes of the first meetings of the stockholders and directors, who were in both cases the same as the incorporators above named, showed that Bunker had transferred or caused to be transferred to the new corporation all the assets belonging to the three clubs, of which he had been “acting as trustee,” and which properties constituted the assets of the corporation. These minutes also showed that the stockholders and directors accepted the assets in payment of the entire capital stock, and directed Bunker to surrender 97,000 shares to the treasury, to become the property of the corporation, and that the officers should issue the remaining approximately 200,000 shares, except the qualifying shares of the other individual organizers, to members of tbe three clubs, who were thereupon to surrender their membership certificates in the clubs in lieu thereof. Practically all the club members made this exchange.

The cheek for the $350,006 cash payment made by the Humble was indorsed by all of the payees, and Greene received $75,000, Bunker $37,500, and Miss Thiell $37,500 of the sum, the remaining $200,000 being deposited to the credit of the new World Oil Company, whose charter was granted June 20, 1925. $100,000 of this sum so paid into the treasury of the World Oil Company was, within a short time, disbursed to the stockholders, who had exchanged their club- memberships for stock, by way of a cash dividend on the basis of $10 for every unit or membership. Subsequently, under division orders out of production, the World Oil Company received a considerable sum of money, and Bunker and his wife, the former Miss Thiell, and Greehe and their assigns received the following amounts:

Greene........................$33,544.18

Chester R. Bunker.............. 16,772.09

E. H. Bunker (née Thiell) ...... 16,772.09

Since the institution of the main action, there has been paid into the registry of the court, the sum of $9,624.69 out of oil runs.

The receivers were appointed for the World Oil Company in the main action, on July 24, 1930, and, after an examination of the affairs of the company and the circumstances of the creation of the trust and the sale to the Humble, this ancillary action was brought.

The master has filed a single report, divided into two parts, the first dealing with the motions and the second with the merits of the case; the report being made in such manner for reasons therein stated. The master has recommended that all motions to dismiss the receiver’s bill and to strike the intervention of stockholders in aid thereof be overruled, except as to a certain paft of one paragraph of the bill of complaint, which complainants conceded should be dismissed, and which is not here material. The grounds urged to warrant a dismissal of the bills, were: - (1) want of equity; (2) that complainants were without right of action; (3) that the causes of action were barred by the two and four years’ Texas statutes of limitation and by laches.

The intervention was filed with leave of .court by certain stockholders of the corporation who were beneficiaries of the alleged trust, on their own account and on behalf of all other beneficiaries similarly situated, praying that, if it should be held that.the right of action did not pass to' the receivers in their capacity as such, as alleged by the receivers in the bill of complaint, nevertheless, the receivers be permitted and authorized to prosecute the action for and on behalf of the interveners as stockholders of the corporation and beneficiaries of the alleged trust estate. The motion to strike this bill of intervention set up that it did not show the court had jurisdiction; that no relief was sought in favor of the interveners; that, unless the receivers have the right to maintain the suit independently of the intervention, such intervention could not give them the right; and, further, that the bill of intervention was wanting in equity and defective, in that it did not show to which clubs the interveners belonged, or the number of units or interests owned by each. I am of the opinion that the master’s report recommending the overruling of these motions should be confirmed.

In his report on the merits, the master has recommended the entry of a judgment against defendants Chester R. Bunker and the Humble Oil & Refining Company jointly and severally in the amount of $215,388.36, with interest, and against defendant Frank M. Greene in the sum of $106,844.18, with interest, and a further judgment that the complainants own and are entitled, as against all the defendants, to all the deferred oil payments from the leases conveyed to the Humble Oil & Refining Company, including all sums paid into the registry of the court. I am of the opinion that'the master’s recommendation that judgment should be rendered against all the defendants should be confirmed, but modified as to defendants Humble Oil & Refining Company and defendant Frank M. Greene in amount, as hereinafter set out.

The issue of limitations and laches was again raised in the answers of the defendants, and will be discussed along with the other issues involving the merits, but it is well at this point to recur to the question of whether the receivers of the World Oil Company can bring this action, which was also raised by the motion to dismiss the bill. As recited by the master, it is not disputed that, if the World Oil Company, Inc., were not in receivership and could bring the action, the complainants, as receivers, might also do so. The defendants contended that neither the corporation nor its receivers had any right of action; that, if any existed, it was in the beneficiaries of the alleged trusts, and they alone were entitled to sue. Here we hare a trustee and beneficiaries in existence, and operating before there is a corporation, in contemplation, and the corporation was an instrument chosen by Bunker to merge the interests of the eestuis que trustent in a corporation, for the purpose of better effectuating his fraud upon them. It is true, under the terms of the trust, the beneficiaries were entitled to its proceeds, and would have had a right to sue because of the frauds perpetrated by Bunker, but now they have all come into a new corporation, and it would seem clear, as a matter of equity, that the cause of action thereby accrued to the corporation. The following cases abundantly support the conclusions of the master in this respect: Davis v. Las Ovas Co., 227 U. S. 80, 33 S. Ct. 197, 57 L. Ed. 426; Yeiser v. U. S. Board & Paper Co. (C. C. A.) 107 F. 340, 52 L. R. A. 724; Commonwealth S. S. Co. v. American Shipbuilding Co. (D. C.) 197 F. 797; Id. (C. C. A.) 215 F. 296, 304; Chandler v. Bacon (C. C.) 30 F. 538; Walker v. Pike County Land Co. (C. C. A.) 139 F. 609; Tilden v. Barber (D. C.) 268 F. 587; York Mfg. Co. v. Brewster (C. C. A.) 174 F. 566.

Agreeing with the master that the receivers had the right to maintain the action, I am likewise in accord with his conclusions that, while the intervention filed by the stockholders was not required to confer right of action on the receivers, still the interveners had the right to come into the litigation as they did, and their presence is agreeable -to the principles of equity procedure.

Coming to the merits of the case, and considering limitations and laches, the master has held adversely to the defendants, and I think his conclusions should not be disturbed. These matters will be discussed with reference to the Humble Oil & Refining Company, for the reason that this defendant has made the strongest insistence on these defenses. The theory of the complainants’ ease against the Humble is that the latter had notice of the trusts and of a misapplication of trust assets by the fiduciaries, and having made this purchase of trust property, with such notice, it is held to the same liability as the original trustee as to the application of the trust assets; and, further, that having taken with notice of the trust it became bound to carry out the same, and, if the trust was violated, limitations did not begin to run until discovery of the fraud, or, under all the circumstances of the case, until it should have been discovered. Among the basic principles involved in the application of the doctrine of limitations applied to this ease may be said to be that contained in the statement made in Bailey v. Glover, 21 Wall. (88 U. S.) 342, 348, 22 L. Ed. 636, wherein the court said: “We also think that in suits in equity the decided weight of authority is in favor of the proposition that where the party injured by the fraud remains in ignorance of it without any fault or want of diligence or care on his part, the bar of the statute does not begin to run until the fraud is discovered, though there be no special circumstances or efforts on the part of the party committing the fraud to conceal it from the knowledge of the other party.”

The language of Judge Van Valkenburgh in Schindler v. Spackman, 16 F.(2d) 45, 48 (C. C. A. 8), to the effect that “furthermore, a federal court of equity will never follow a state statute of limitation, where thereby manifest wrong and injustice would be wrought,” is applicable to the facts here.

I think the findings of fact by the master as to notice to the Humble was correct and should be confirmed.

The assignment of the 40-acre offset to Bunker and Thiell had been placed of record long prior to any negotiations between Bunker and the Humble. Then, after the verbal agreement with reference to the sale of the acreage purchased by the Humble had been made, and prior to the final closing of the deal, Cleaves, an attorney for the Humble, who was passing on the sufficiency of the title to be conveyed it, received information as to club memberships outstanding and the nature of the trusts thereby created. Copies of the certificates of membership in at least two of the clubs was shown to Cleaves before the deal was consummated, and the matter was discussed between him and Morgan,, an attorney representing Bunker, and the others named as sellers in the Humble contract. Bunker and Greene, together with their attorney, Morgan, and one Thomas, a banker of Fort Worth, went to Houston and there had a discussion as to these outstanding interests in the presence of Cleaves, and also in the presence of officers with authority to make the contract on behalf of the Humble. There is further evidence in the record of circumstances importing notice of the trusts to the Humble, and the master’s finding that the Humble had constructive notice of the trusts is amply warranted by the evidence. As to its knowledge of the misapplication of the trust funds by reason of the assignment to Bunker and Thiell, it, of course, had only constructive notice such as is imparted by proper recordations. So far as the ease is concerned, the question of whether the notice to the Humble was actual or constructive is of little importance. The authorities cited in the report of the master, and in the briefs, demonstrate that, even if the Humble is held only to have constructive notice, it is liable the Same as though it had actual notice unless, of course, relieved by the statute of limitations or laches, and it is not considered that there are any circumstances in the ease entitling it to these defenses. Having notice of the trusts, it was the duty of the Humble, equally with that of Bunker, in order to be acquitted from further responsibility to the cestuis que trustent, to apprise them of the transaction between it and the persons selling to it. It is true that, under the trusts as created, Bunker had the power of sale, and had a right to make a sale to the Humble. The Humble contacted none of the interest holders and made no effort to do so. It relied on Bunker to satisfy the unit holders and likely believed that he would do so. It had the assurance of Banker Thomas that Bunker was thoroughly reliable and faithful and would properly discharge every obligation owing to the unit holders. It may be further noticed that, in the discussions between Morgan and Cleaves, Cleaves was informed that it was the purpose of Bunker to organize a corporation in which he proposed to merge all of the interests of the unit holders and have the latter exchange their interests in the different clubs for stock in the new corporation. With this knowledge the Humble rested apparently secure in the thought that no claim would be made against it by any of the unit holders, although it may be said that the attorney for the Humble was of the opinion that the unit holders had no legal interest in the leases, by reason of the trust organizations, of a character which could be enforced against any purchaser from the trustees.

It is claimed that the unit holders, by taking stock in the World Oil Company, Inc., thereby ratified the acts of Bunker in making the sale to the Humble, and waived the fraud perpetrated upon them. This would be true, of course, if the unit holders had been theretofore correctly informed as to the real transaction with the Humble, but this was not done. The Humble made no explanation whatever to them, and Bunker misinformed them as to the profits he and his associates were making out of the deal, and by notices sent to them almost in effect made it a condition t to their receiving the proposed $10 per unit dividend that their certificates of membership be exchanged for stock. It would be a manifest injustice to say that because the unit holders did not complain at the time of the sale to the • Humble, and the organization of the World Oil Company, Inc., that they cannot do so now. They trusted Bunker and his promises, of course, and believed the report of his sale was accurate, and certainly remained in ignorance of the fraud without any fault on their part. It may be said that the Humble was not an actual participant in the fraud, and there was no effort on its part to conceal it from the knowledge of the beneficiaries, but it appears that the situation of the Humble here is very clearly fixed by the great weight of authority as shown by the briefs of complainants.

It will suffice to state the rule as perhaps best announced in the ease of Redford v. Clarke, 100 Va. 115, 40 S. B. 630, 631, in which it was said: “The prevailing doctrine in the United States and the rule in this state is that a purchaser (of trust property) is not bound to see to the application of the purchase money, except where the sale is a breach of trust on the part of the trustee, of which the purchaser has notice, either from the face of the transaction itself, or otherwise. If he has such notice as makes him a party or privy to the trustee’s misconduct, the property will be affected in his hands with the trusts which previously attached to it.” While there are a good many circumstances in the case upon which, on behalf of the Humble, equity might look with favor, yet, when the equities are all balanced, I am of the opinion that the recommendations contained in the master’s report as to a judgment against the Humble should be confirmed, with this modification; that the exceptions of the Humble to the conclusion No. 104 of the master should be sustained in part, and that, instead of the judgment there recommended to be entered in the sum of $150,000, less $1,700, with interest at the rate of 6 per cent, per annum from June 20', 1926, and the further sum of $67,088.36, with interest thereon at the rate of 6 per cent, per annum from the dates of the deferred oil payments, in that aggregate amount, the judgment should be for the sum of $150,000, less $75,000, with interest thereon as first above mentioned,, and the further sum of $67,088.36, with interest, as before noted. This conclusion is-arrived at by reducing the Humble judgment to the extent of the $75,-000 cash payment made to defendant Frank M. Greene, and for the reason that I am of the opinion that, under all of the circumstances of this ease, neither Greene nor the Humble should be held liable for this payment.

I think the master was correct in concluding that there was no merit in the defense made that no valid and enforceable trusts existed. The defendants argued that the certificates of membership in the clubs were too indefinite and uncertain to create any such trusts, and that such certificates should be considered as the only evidence of the trust declaration. The master took into account in the creation of the trusts the literature sent out by Bunker to the public to induce subscriptions as indicia of the extent and character of the terms of the trusts, and in this he was quite correct. No specific description of any certain acreage was made in the membership certificates of the drilling clubs, hut it was apparently the intention of the donors of the trust estate to dedicate thereto all of the acreage owned in Crockett county, and, of course, express trusts of this character are always construed most strongly against the grantor and most favorably to the grantees, and the capacity of a court of equity to enforce this sort of a trust cannot bo questioned with any degree of soundness.

As to the judgment recommended against the defendant Greene, I am persuaded that the exceptions of the defendants to the report of the master should he sustained in part and overruled in part. I think judgment should go against Greene for the sum of $33,544.18, being the amount of the payments made to him out of oil runs after the organization of the World Oil Company, Inc., but that no further judgment should be entered against him. This, for the reason that it is beyond dispute that Bunker or his publishing corporation owed Greene $1,700 for back salary in connection with the drilling of the well, and at the time the agreement was had between Bunker and Greene, in the settlement of this indebtedness, it was agreed that Greene should have the assignment of the 40-aere offset (later conveyed to the Humble under the assignment hereinbefore mentioned) as part of the consideration of this indebtedness, and that Greene would continue bis work in tbe drilling of tbe well. At the time of the assignment of this acreage to Greene, it had a value not to exceed the amount due Mm for services. He continued with the drilling of.the well and thereby enhanced the value of the trust estate. The master found that, at the time of this assignment, Greene had no notice of the trust character of the property, and Bunker was a trustee with the power of sale. Furthermore, at the time of the sale to the Humble, the 40-aere offset was reasonably worth the amount of $75,000, wMch Greene received out of the cash payment. In balancing the equities, I think that neither Greene nor the Humble should be held to answer for tMs sum. The ease is different with reference to the moneys received by Greene from the deferred oil payments. He participated in the organization of the World Oil Company, Inc., and was present as an organizing stockholder and director at the first meetings of the stockholders and directors, and aided Bunker in the fraud perpetrated on the unit holders in the clubs. He thereby bad full knowledge of the trusts and the rights of the beneficiaries therein. He should not, in equity, be allowed any further-profits after such knowledge, and that part of the master’s conclusions No. 105, fixing the liability of Greene for the deferred oil payments received by Mm, is confirmed.

As to the recommendation that a judgment be entered against defendant Bunker, as contained in conclusion No. 104 of the report, the same is confirmed, and likewise the exceptions of defendant Bunker, as to the master’s report, are in all respects overruled, and judgment should be entered against Mm in accordance with the recommendation of the master.

The master’s recommendation as to judgment for costs is also adopted.

Let a decree be entered confirming the master’s report and overruling the exceptions of all parties thereto, except in the particulars in which the findings of fact and conclusions of the master are herein modified.


author: COSGRAYE, District Judge.

text:
    VENTURA CONSOL. OIL FIELDS v. WELCH, Collector of Internal Revenue.
    District Court, S. D. California, Central Division.
    March 20, 1934.

      Charles C. Stanley, R. K. Barrows, and J. A. Tucker, all of Los Angeles, Cal., for plaintiff.
    Samuel W. MeNahb, U. S. Atty., and Ignatius F. Parker and Alva' C. Baird, Asst. U. S. Attys., all of Los Angeles, Cal., for defendant.
   COSGRAYE, District Judge.

Action in equity to restrain the collection by the collector of internal revenue of certain income and excess profits taxes levied against plaintiff and its subsidiaries. The ease is submitted upon an agreed statement of facts. The assessments, the collection of which the plaintiff seeks to restrain, are for the four years of 1920 to 1923, inclusive.

For these four years the plaintiff regularly made its returns and the taxes disclosed thereby were regularly assessed and fully paid. The usual agreement was made by whieh the plaintiff waived the running of the statute with reference to the ascertainment of deficiencies.

On September 14, 1928, the Commissioner of Internal Revenue addressed a letter to the plaintiff, by whieh plaintiff was advised that an examination disclosed a deficiency for each of the four years mentioned and that it might present a protest against the proposed liability within thirty days. Plaintiff was further advised by this letter that, if a protest were filed and the Commissioner finally determined that a deficiency existed, it would be advised thereof by registered mail, and, if such proposed deficiency were not agreed to, sixty days after the mailing of such registered letter would be allowed in whieh to petition the Board of Tax Appeals for a redetermination of the deficiency. Conforming and explanatory schedules were inclosed, showing the figures arrived at in detail.

Protest was duly made by plaintiff, and thereafter an agent of the plaintiff conferred with the Commissioner, and, according to the Commissioner’s understanding, at least, an agreement was reached respecting the amount of tax liability for each of the four years mentioned.

On September 4, 1929, the Commissioner, by registered letter mailed to plaintiff, referred to the conference had with plaintiff’s representative and advised plaintiff that, “in accordance with the agreement referred to above” (meaning the agreement with plaintiff’s representative), its tax liability had been computed and the letter of September 14, 1928, revised to disclose a deficiency for the four years mentioned in certain sums shown upon certain inclosed schedules. The inclosed schedules showed the essentials as follows:

The plaintiff was further advised, “It is believed that this revised computation of your tax liability will be satisfactory and it will be your desire to definitdy close your case as promptly as possible.” The plaintiff was requested to execute form 866, which was 'inclosed, and to return the same to the Commissioner at Washington, and was advised that, upon receipt of the form mentioned, action would he taken at the earliest practicable date.

Inclosed with this letter was the proposed agreement, form 866. It is entitled “Agreement as to Final Determination of Tax Liability,” and reads:

“This agreement, made * * * in pursuance of Section 606 of the Revenue Act of 1928, by and between (the names of plaintiff and of its affiliated corporations with periods affected here appear) and the Commissioner of Internal Revenue;

“Whereas, there has been a determination of tax liability of said taxpayers in respect of income and profits taxes for said periods listed above in the principal sum of * * *: and

“Whereas, said taxpayers hereby agree to this determination *“ * * and consent to the assessment and collection of any deficiency in tax included in the amount of the principal tax liability so determined. * * *

“Now, this agreement witnesseth, that the said taxpayers and said Commissioner of Internal Revenue hereby mutually agree that the principal amount of such liability so determined shall be final and conclusive if and when this agreement is approved by the Secretary or Undersecretary. * * * ”

Appropriate blanks were provided for the signature of plaintiff and its affiliates and for the Commissioner of Internal Revenue. The approval of the Secretary of the Treasury or Undersecretary was to appear on the proper schedules.

The instrument was signed by plaintiff on September 18,1929, and forwarded to the office of the Commissioner of Internal Revenue at Washington, where it was filed on October 11, 1929. It was never signed by the Commissioner. It was never approved by the Secretary of the Treasury or the Undersecretary. The Commissioner regarded it as a waiver of all restrictions pertaining to the assessment and collection of the several deficiencies then discovered and ascertained, but concluded not to accept it as a conclusive determination of the correct amount. Doubtless for this reason it was never signed by him nor approved by the Secretary of the Treasury or Undersecretary.

No further action was taken until November 2, 1920. Then the Commissioner made the assessments for the years mentioned, $193,555.28 for 1920; $267,077.92 for 1921, $19,065.73 for 1922, $16,298.13 for 1923. Plaintiff thereafter took no action whatever with respect to the assessments for the several years either by way of appeal to the Board of Tax Appeals, by payment under protest, or in any other manner.

On March 29,1930, a letter was written by the Commissioner to the plaintiff stating that “In accordance with Section 274 of the Revenue Act of 1926” plaintiff was advised that determination of its tax liability for the years 1920 and 1921, together with other years not here involved, disclosed a deficiency for the two years mentioned of $214,687.48 and $100,-223.75, respectively. Accompanying this letter were schedules showing the following essentials :

It will be seen that for the year 1920 $896,-824.30 was found to be the correct tax liability, that $682,136.82 had been previously assessed, and that the deficiency was $214,687.48; the $682,136.82 necessarily included the $193,555.28 previously assessed on November 2, 1929; that for the year 1921 $680,719’.25 was the correct tax liability, $580,495.50 had been previously assessed, and the deficiency was $100,223.75; the item of $580,495.50', the amount previously assessed, necessarily included the assessment of $267,077.82 assessed as of November 2,1929.

Defendant contends primarily that no injunction can issue, citing Revised Statutes, § 3224 to the effect that no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court. 26 USC 154 (26 USCA § 154). The statute cited states the very general rule prevailing in taxation matters that prohibits the interference by the court with officers charged with the duty of assessing and collecting taxes. In an attempt to facilitate the levy and collection of revenue under the Revenue Act of 1926, the Board of Tax Appeals, a separate tribunal, has been established by Congress with authority to settle disputes. Its judgment is subject to review by the Circuit Court of Appeals. That the taxpayer might not be oppressed by an attempt on the part of the Commissioner to enforce the collection of the tax before he has had an opportunity to present the question to the Board of Tax Appeals, an exception to Revised Statute § 3234 (26 US CA § 154) is found in section 274 (a) of the Revenue Act (26 USC § 1048 [26 USCA § 1048]). It is there provided that: “If * * * the commissioner determines that there is a deficiency * * * the commissioner is authorized to send notice of such deficiency to the taxpayer by registered mail'. Within 60 days after such notice is mailed * * * the taxpayer may file a petition with the Board of Tax Appeals for a redetermination of the deficiency. Except as otherwise provided * * * no assessment of a deficiency * * * shall be made * * * until such notice has been mailed * * * nor until the expiration of such 60-day period, nor, if a petition has been filed with the board, until the decision of the board has become final. Notwithstanding the provisions of section 154 [Rev. St. § 3224 (26 USCA § 154) ] of this title the making of such assessment * * * during the time such prohibition is enforced may be enjoined. * * * ” (26 USC § 1048 [26 USCA § 1048]).

The taxpayer may therefore enjoin the Commissioner from making an assessment until he has had an opportunity to present the matter by petition to the Board of Tax Appeals, and such prohibition may be continued until the decision of the Board. This plainly is the purpose of the act and of the exception to the general rule stated in Rev. St. § 3224 (26 USC § 154 [26 USCA § 154]).

If the letter of September 4,1929, is to be deemed a notice within the provisions of 274 (a) of the Revenue Act (26 USC § 1048 [26 USCA § 1048]) then plainly the period during which the Commissioner might be restrained from making the assessment expired at the end of sixty days, and the position of the defendant is well taken and the action must be dismissed. Injunction can only be justified by assuming that the letter referred to is not the notice contemplated by section 274 (a), 26 USC § 1048 (26 USCA § 1048), mentioned. Since, as will be further shown, the letter mentioned fills the requirements of such a notice, the position of the government must be sustained.

Plaintiff claims that the letter of September 4, 1929, does not fill the requirements of section 274 (a) (26 USCA § 1048), but with this position I am unable to agree. The only requirement as to the form of the letter is that the Commissioner shall send to the taxpayer by registered mail “notice of such deficiency”; that is, the deficiency 'that has been determined by the Commissioner. It will be remembered that agreement had been reached between the Commissioner and plaintiff’s representatives. The Cominissioner advises that in accordance with that agreement the original letter of September 14, 1928, had been revised “to disclose a deficiency” in the several amounts named. No duty rest's upon the Commissioner to go further in his letter, and there is nothing in the statute requiring any special form for such letter. Revenue Act of 1926, § 274 (a), 26 USC § 1048 (26 USCA § 1048). Commissioner Internal Revenue v. N. Y. Trust Co., 54 F.(2d) 463, 465 (C. C. A. 2); McDonnell v. United States (Ct. Cl.) 59 F.(2d) 290.

A more serious question is presented by plaintiff’s contention that the assessment of November 2, 1929, was made within the 60-day period within which the Commissioner is prohibited from taking such action by the express terms of section 274 (a), 26 USC § 1048 [26 USCA § 1048]). The letter was mailed on September 4th; the assessment, having been levied on November 2d, was plainly within the 60 days. Was such irregularity cured or waived?

As heretofore shown, the representative of the plaintiff agreed with the Commissioner on the correct amount of this assessment. The Commissioner transmitted the schedules with his letter of September 4,1929', assuming that it was satisfactory to the plaintiff. That it was satisfactory is without dispute, for the plaintiff expressly agreed to it and expressly authorized the Commissioner to make the assessment. This is established by the language of the proposed agreement. By way of recital to its proposal made to the Commissioner that the amount of the proposed assessment be deemed final and conclusive it is said that “taxpayers hereby agree to this determination * * * and consent to the assessment and collection of any deficiency in tax included in the amount of the principal tax liability so determined.” The fact that it was willing to make a proposal to the Commissioner that the determination be final and conclusive, and which was the object of the agreement, does not, I think, change the effect of his positive recital. It agreed to the correctness of the proposed assessment, and in addition thereto was willing to make it final if the Commissioner likewise agreed. In other words it would agree not to seek any reduction or repayment of the tax provided the Commissioner agreed not to seek any increase of it. Without doubt it authorized the Commissioner to make the assessment and waived the 60-day limit of time within which the Commissioner was prohibited from acting. I am more persuaded to this conclusion because there was no further reason for the 60-day limitation. It did not dispute the assessment. It did not propose to petition the Board of Tax Appeals, and there was no necessity for further delay. It is provided in subdivision (d) of section 274, 26 TJSC § 1048b (26 US CA § 1048b), that the taxpayer, by a signed notice in writing, may waive the restrictions provided therein with respect to the assessment. No requirements for such a waiver are made other than that it be in writing. When therefore the taxpayer consents to the assessment and collection of the tax, leaving no reason for postponement of the assessment, my conclusion is that he waives the element of time.

“We recognize the importance of regarding matters of substance and disregarding forms in applying the provisions of the Sixteenth Amendment and income tax laws enacted thereunder. In a number of eases besides those just cited we have under varying conditions followed the rule.” Citing Lynch v. Turrish, 247 U. S. 221, 38 S. Ct. 537, 62 L. Ed. 1087; Southern Pacific Co. v. Lowe, 247 U. S. 330, 38 S. Ct. 540, 62 L. Ed. 1142; Gulf Oil Corporation v. Lewellyn, 248 U. S. 71, 39 S. Ct. 35, 63 L. Ed. 133; U. S. v. Phellis, 257 U. S. 156, 168, 42 S. Ct. 63, 65, 66 L. Ed. 180.

Defendant further contends that, in so far as the years 1920 and 1921 are concerned, the judgment of the Board of Tax Appeals, with respect to those two years, entered on July 24, 1931, is conclusion in its favor and is an adjudication of the question here litigated so far as the years mentioned are concerned. As heretofore shown, that judgment, while it affected only the assessment of March 29, 1930, yet it was made on the assumption that the assessment of November 2, 1929', was a valid assessment. This of necessity appears because it is so recited in the schedules transmitted with a letter of March 29, 1930, the correctness of which proposed deficiency the plaintiff at first contested, but later consented to, and which was finally established by the judgment referred to. It was determined by the Board of Tax Appeals that the total amount for the year 1920 was $896,824.30; that of this amount $682,136.82 had been previously assessed. As heretofore pointed out, this last amount of necessity included the assessment of November 2, 1929, which the plaintiff now disputes. The adjudged deficiency was $214,687.48; the same with the year 1921. In order that the judgment of the Board of Tax Appeals be correct, a valid assessment must have been found to exist for the two years. The correctness of the assessment in question was involved, and, the Board of Tax Appeals having jurisdiction of the parties and the subject-matter, and having entered judgment thereon and such judgment now being final, the question is definitely settled.

The plaintiff contends that such result does not follow if for no other reason than for the reason that the United States was party before the Board of Tax Appeals, whereas not the United States but the collector of internal revenue is the party involved in the present action. The judgment of the Board of Tax Appeals was in favor of the United States. The defendant here is but the agent of the United States. A judgment against the principal binds the agent notwithstanding the converse may not be true. Second National Bank of Saginaw v. Woodworth (D. C.) 54 F.(2d) 672.

It may not be inappropriate to quote very recent language of the United States Supreme Court in a ease where the taxpayer sued to recover the amount of an overassessment which was originally due it but which had been applied to the payment of an outlawed deficiency. It had authorized such application with full knowledge of the facts. The court says: “The taxpayer did not object to the account as submitted in its final form. Ear from objecting, it paid the resulting balance, and by this act as well as by silence conceded the indebtedness.” R. H. Stearns Co. v. United States, 54 S. Ct. 325, 330, 78 L. Ed. -, January 8, 1934.

Eor the reasons mentioned, judgment is ordered in favor of the defendant. Exception to plaintiff.