source: Caselaw Access Project

author: BYERS, District Judge.

license: Public Domain

text:
    THE EUROPA.
    No. A-12046.
    District Court, E. D. New York.
    April 20, 1934.
    Lords Broido, of New York City (Milton S. Harrison, of New York City, of counsel), for libelants.
    Alfred W. Andrews, of New York City (James M. Baird, of New York City, of counsel), for claimant.
   BYERS, District Judge.

Hearing on exceptions to certain paragraphs in the answer which plead as a separate and complete defense a 10 day notice of claim clause in a passenger ticket, and failure to comply therewith.

The libel alleges the death of the libel-ants’ decedent on the night of May 1, 1930, in Paris, the day following an injury suffered by him as" the result of the fault and negligence of the ship, her owners, etc., while a passenger on the Europa bound to Cherbourg, France, from New York. Apparently the ship made port on the morning of May 1st and the decedent went on to Paris the same day, and died that night. The body was returned to Pittsburgh, Pennsylvania, where the decedent resided. His will was probated on May 14, 1930, and the libelants were named therein as exeeutors.

The date of their qualification is not stated in the libel, which was filed in this court on September 16, 1930. The 10 day period for the giving of notice expired on May 11, 1930.

The paragraphs in the answer to which the exceptions apply refer to the contract of passage embodied in the ticket, the clause in question, the failure to comply with the 10 day notice requirement, and the consequent bar to this action.

No reference is made to the failure to bring suit within 90 days, and that question is not involved.

The clause relied upon reads as follows:

“(C) No suit shall be maintainable against the Carrier for loss or delay of, or injury to, baggage or property, or for death or detention of, or injury to, any Passenger, or for breach of this contract, unless written notice of the claim, with full particulars, shall be delivered to the Carrier at its office within 10 days after termination of the voyage, and unless suit shall be commenced thereon within 90 days after such termination. In case such voyage shall be prevented or uncompleted for any reason, no such suit shall be maintainable unless such notice shall be delivered to the carrier at the port of embarkation or at the port of debarkation within 30 days after the sailing date mentioned herein and unless such suit shall be commenced within 90 days after such sailing date.”

If the foregoing be given the effect asserted in the answer, the plaintiffs are barred from maintaining this suit, although the Act of Congress of March 30, 1920 (41 Stat. 537, U. S. C. title 46, § 761 [46 USCA § 761]) expressly provides for such a cause of action, if the same be begun within two years from the date of the alleged wrongful act.

It is difficult to see how the claimant’s position can be sound, since it has been held that a carrier cannot contract for freedom from liability imposed by law. Oceanic Steam Nav. Co. v. Corcoran (C. C. A.) 9 F.(2d) 724, at page 727, 57 A. L. R. 163, and cases cited.

I This Court cannot hold that the failure of the libelants to give the notice contemplated by the ticket, within a period of time that expired before they enjoyed the legal status which would enable them to assert the claim, constituted a bar, without doing violence to the purpose of the statute.

True, the ticket does not say that the notice must be given by the personal representatives of the deceased, but it is the failure by the libelants or their intestate to give the notice, which is relied upon, in paragraph Fifteenth of the answer, to constitute the bar.

So far as the decedent is concerned, he was not required to give the notice before May 11, 1930, and as has been stated he died on May 1st, and the libelants could not have given notice prior to May 14, 1930, at the •earliest. Whether they could have done so then does not appear from the pleadings.

So that, for present purposes, the 10 day notice was not only unreasonable; it was impossible.

The eases seem not to have presented the question concerning the failure to give notice within a stipulated time, where personal representatives are involved, although it was forecast in the dissent in Gooch v. Oregon, Short Line R. Co., 258 U. S. 22, 42 S. Ct. 192, 66 L. Ed. 443.

It will be assumed that W. R. Grace & Co. v. Panama R. Co. (C. C. A.) 12 F.(2d) 338, is still the law, for it was not held otherwise in Hessler v. North German Lloyd (C. C. A.) 55 F.(2d) 927. That case apparently weighed the giving of notice, and the commencement of suit, and found them wanting.

If such a course is to be followed here, the facts involved should be brought to light, and the issue resolved accordingly. Presumably that was done in Martin v. Royal Mail Steam Packet Co. (C. C. A.) 65 F.(2d) 1019.

The exceptions will be sustained in the belief that the allegations of the answer to which they are directed, if taken to be true, do not constitute a bar to the libelants’ cause; pursuant to Admiralty Rule 27 (28 USCA § 723), the claimant, if so advised, and within ten days from the date of service of the order hereon, may amend its answer so as to allege that the notice of claim was not presented within a reasonable time, after the termination of the voyage in question.

Settle order on 3 days’ notice.


author: GALSTON, District Judge.

text:
    In re LEHRENKRAUSS et al.
    No. 25564.
    District Court, E. D. New York.
    April 18, 1934.
    Newman & Bisco, of New York City (Basil Robillard, of New York City, of counsel), for petitioner.
    Silberman & Steinfeld, of Brooklyn, N. Y. (Isidore M. Silberman, of Brooklyn, N. Y., of counsel), for various certificate holders.
    Archibald Palmer, of New York City (Sydney Basil Levy, of New York City, of counsel), for trustees.
   GALSTON, District Judge.

These are three motions argued and submitted together. Since substantially similar facts and the same principles are involved in each motion, what is said of one applies as a matter of law to the others.

It will suffice, therefore, to discuss the petition of Thomas Halloran, so far as it concerns the bond and mortgage executed by the Tressa Holding Corporation..

On or about June 3, 1927, the Tressa Holding Corporation executed its bond and mortgage in the sum of $40,000 to J. Lehrenkrauss & Sons; on or about August 27, 1928, it executed another mortgage in the sum of $35,000 on the same property, which was also delivered to J. Lehrenkrauss & Sons. Subsequently there was a consolidation of the two mortgages effected and set forth in an agreement dated August 28, 1928, between J. Lehrenkrauss & Sons and the corporation. These mortgages purport to be a hen on premises on Bay avenue, Huntington, Long Island.

On or about November 15, 1928, J. Lehrenkrauss & Sons sold to Thomas Halloran, the petitioner, an undivided interest in these two mortgages. The petition sets forth that the bankrupt sold other participating interests in these mortgages, in the aggregate face amount of about $64,060; that the premises are owned by'J. Lester M. Lehrenkrauss, one of the bankrupts; that interest due January 1, 1934, has not been paid; and that the rents, issues, income, and profits, if any, from the premises have not been applied to the payment of the interest.

The petition further alleges that the bankrupts executed • an assignment of the first of these mortgages to Julius Lehrenkrauss, Charles P. Lehrenkrauss, and J. Lester M. Lehrenkrauss, as trustees for the participation certificate holders.

The petitioner seeks an order:

, (a) Directing the segregation of the income, rents, issues, and profits of the said premises in the hands of the trustees in bankruptcy for the purpose of applying them for the payment of the interest upon said mortgages and taxes upon said premises;

(b) permitting the petitioner or any other holder of a participation certificate to apply, pursuant to section 112 of the Real Property Law of the State of New York, for the substitution of a new trustee or trustees in place of said Julius Lehrenkrauss, Charles P. Lehrenkrauss, and J. Lester M. Lehrenkrauss, as trustees of said bonds and mortgages;

(e) permitting the certificate holders or such substituted. trustee or trustees to foreclose the mortgage.

To the petition is annexed a copy of the participation certificate. In substance, it recites that the copartnership of J. Lehrenkrauss & Sons assigned to Halloran, in consideration of $20,000, an undivided share equal to that amount, with interest from November 14, 1928, in the bond of the Tressa Holding Corporation for $75,000, and in the mortgage given as collateral security thereto. J. Lehrenkrauss & Sons are named “as trustees for. the participants,” and they are empowered as such trustees to collect the interest and principal and to distribute the same pro rata among the persons participating; at their own expense and in their own name, to take such action as may be necessary to enforce any of the provisions of the bond and mortgage; and then this unusual provision is set forth empowering the said trustees: “3. To cancel this certificate at their option upon the payment to the participant of the face amount of certificate together with accrued interest, provided that 15 days advance notice of such intention is given in writing to participant. Such cancellation of the certificate shall operate to assign all participant’s rights thereunder to J. Lehrenkrauss & Sons.” There is also a guaranty clause with this provision therein: “Should the mortgage become due during a time of panic or a stringency be apparent in the money market, the undersigned shall not be required to liquidate or make payment of the principal, and their guarantee shall be null and void.”

Despite the relief sought in the motion, on the argument counsel for the petitioner, and for a majority of the certificate holders under each mortgage, expressed a preference to have their rights administered in this court if it has jurisdiction; and they seek thus primarily an order determining their rights and the proper forum in which to enforce them. Attorneys for other certificate holders maintain that this court can summarily determine who owns the mortgage; that the title is in the trustees in bankruptcy; and that since title is in the trustees, the court cannot remove them on this motion and should allow and direct the trustees to continue to act pursuant to the terms mentioned in the certificate. The attorney for the trustees is also in opposition to the motion as originally made, and contends that it should be denied in all respects, and that this court declare the respective rights of the participation certificate holders and the trustees in bankruptcy herein.

Thus, as the motion is now submitted, it is apparent that all parties seek a declaration of the court as to the respective rights of the participation certificate holders and the trustees in bankruptcy.

It is conceded that the recorded legal title to the bonds and mortgages was at the time of the issuance of the participation certificates, and at all times subsequent thereto, has been in the bankrupts. It is also conceded that-up to the time of the filing of the petition in bankruptcy, tbe bonds and mortgages were in tbe possession of the bankrupts and are now in the possession of the trustees in bankruptcy.

Moreover, however one views the legal effect of the certificate as constituting an agency or a trust, or as the petitioner Halloram contends, merely a relationship of debt- or and secured creditor, because of the terms and conditions of the mortgage participation certificate, J. Lehrenkrauss & Sons procured a power coupled with an interest. They are authorized not merely to collect the interest and principal, and distribute the same, and take other steps in regard thereto, but also to cancel the certificate at their option. This is a valuable right, at least in certain circumstances conceivably it might prove to be so. The terms of this certificate in that respect are even more pronounced than in, otherwise similar certificates that have recently been before the courts, as in Matter of Nemerov, 149 Misc. 797, 268 N. Y. S. 588.

Under section 70a, as amended by Act May 27, 1926, of the Bankruptcy Act, 11 U. S. Code, § 110 (11 USCA § 110 (a), the trustees are vested by operation of law with title to the bankrupt’s property and property rights. The foregoing power coupled with an interest, as distinguished from a mere naked legal title, is certainly a property right and so passes to the trustees in bankruptcy. Black on Bankruptcy (4th Ed.) § 805. See, also, In re Ballard (D. C.) 279 F. 574.

In consequence this court has acquired jurisdiction over these property rights and the property to which they attach. The situation is not complicated by the pendency of any foreclosure suit. This court, therefore, has not only jurisdiction, but initial and exclusive jurisdiction in respect to the title and possession of the property. Isaacs v. Hobbs Tie & Timber Co., 282 U. S. 734, 51 S. Ct. 270, 75 L. Ed. 645. There is no reason assigned why this court should surrender its jurisdiction.

The petition makes reference to an existing but unrecorded assignment of the mortgages from the bankrupts to the individuals as trustees, but the certificates do not refer to any such assignment. So far as the proof before me appears, this assignment must be treated as ineffectual because it has never been recorded, nor does it appear that the existence thereof was known to the certificate holders or consented to by them.

I conclude, therefore, that the bankrupts at the time of the bankruptcy held the legal title to the mortgages; that it was not merely a naked legal title, but one coupled with an interest, though of course subject to the equitable rights of the certificate holders.

In such circumstances, I can see no power in the court to substitute trustees; nor is there any need for so doing. The trustees in bankruptcy will continue to carry on. the administration of the estate, including the mortgages in question, subject, however, to the rights of the certificate holders, and act pursuant to the terms mentioned in the certificate, until further order of the court.

Settle order on notice.

       J. Lehrenkrauss & Sons.


author: COXE, District Judge.

text:
    CORPORATION OF THE ROYAL EXCHANGE ASSURANCE v. UNITED STATES.
    District Court, S. D. New York.
    Jan. 8, 1934.

      Bigham, Englar, Jones & Houston, of New York City (Henry N. Longley and Alfred Ogden, both of New York City, of counsel), for libelant.
    Thomas E. Dewey, U. S. Atty., of New York City (O. P. M. Brown and F. R. Conway, both of Washington, D. C., of counsel), for respondents.
   COXE, District Judge.

These exceptions challenge the sufficiency of the libels in two suits for cargo loss brought under the 1932 Amendment to the Suits in Admiralty Act (USCA title 46, § 745), on the ground that the prior actions were commenced more than six years after the respective claims first accrued. USCA title 28, § 262. The libels are substantially identical except that, in one the United States is the respondent, and in the other the Shipping Board Corporation. The suits have been consolidated; and there is a stipulation of facts amplifying the allegations of the pleadings.

The libels allege the delivery to the respondents in December, 1919, of 480 barrels of wine and 3,883 pieces of lumber, for carriage on the S. S. West Aleta under bills of lading, providing for safe delivery at Cardiff, Wales. There are four counts in each libel, the first and second relating to the wine shipment, and the third and fourth to the lumber shipment. In the first and third counts, nondelivery is alleged; and in the second and fourth counts it is charged that the vessel deviated from her course, and stranded off the coast of Holland, arid that the wine and lumber became a total loss. It is also alleged that prior actions at law on the claims were commenced against the Fleet Corporation February 17, 1926, and dismissed February 24, 1930, because not brought under the Suits in Admiralty Act, following the Supreme Court decision in Johnson v. United States Shipping Board Emergency Fleet Corporation, 280 U. S. 320, 50 S. Ct. 118, 74 L. Ed. 451.

In the stipulation of facts, it is stated that the West Aleta sailed from San Francisco January 6, 1920, and, instead of putting into .Cardiff, proceeded through the English Channel for Hamburg, and stranded February 12, 1920, on Terschelling Island; that, if the vessel had proceeded directly to Cardiff, she would have arrived, and have made delivery there of the wine and lumber, on February 10, 1920; that on February 18, 1920, arrangements were made with a salvage company to salve the cargo on the vessel, and it was not until July 15, 1920, that all salved cargo was on shore under the control of the salvage company; and that a considerable portion of the vessel’s cargo was salved, although none of the wine or lumber involved in the present suits was recovered.

It is insisted by the respondents that the elaims asserted by the libelant in the pending suits “first accrued” on February 12, 1920, when the West Aleta stranded off the coast of Holland, and were barred by limitation on February 12, 1926, or five days before the prior suits were commenced on February 17, 1926. The libelant, on the other hand, contends that the limitation period did not commence to run on the claims until the salvage operations were completed, and after it was established that delivery could not be made, as required by the bills of lading.

[,1,2] A claim first accrues against the United States, within the meaning of the 'statute, “when a suit may first be brought upon it.” Rice v. U. S., 122 U. S. 611, 617, 7 S. Ct. 1377, 1381, 30 L. Ed. 793. And the question of the bar of the statute may properly be raised by exception to the libel. U. S. Shipping Board Emergency Fleet Corporation v. Rosenberg Bros. & Co., 276 U. S. 202, 214, 48 S. Ct. 256, 72 L. Ed. 531.

In the present suits, the Fleet Corporation was under a contract obligation to deliver the wine and lumber at Cardiff; and, when the vessel stranded on February 12, 1920, and as a result of the stranding the cargo became damaged, claims for loss immediately accrued in favor of the cargo owners, regardless of whether the claims sounded in contract or in tort. Wilcox v. Plummer, 4 Pet. (29 U. S.) 172, 7 L. Ed. 821; Aachen & Munich Fire Ins. Co. v. Morton (C. C. A.) 156 F. 654, 15 L. R. A. (N. S.) 156, 13 Ann. Cas. 692; In re Herbert & Co. (C. C. A.) 262 F. 682, 684; Watkins v. Madison County Trust & Dep. Co. (C. C. A.) 24 F.(2d) 370; certiorari denied 277 U. S. 602, 48 S. Ct. 562, 72 L. Ed. 1010; John S. Sills & Sons v. Bridgeton Condensed Milk Co. (C. C. A.) 43 F.(2d) .72; H. P. Cummings Const. Co. v. Marbleloid Co. (C. C. A.) 51 F.(2d) 906. This is so, even though the amount and extent of the damage could not be definitely ascertained until the termination of the salvage operations. Wilcox v. Plummer, supra; Aachen & Munich Fire Ins. Co. v. Morton, supra. The statement to the contrary in Kunglig, etc., v. U. S. (C. C. A.) 19 F.(2d) 761, 763, was merely dictum, and does not seem to he in harmony with the general trend of the authorities.

The deviation of the vessel rendered the ship owner liable as an insurer, The Willdomino, 272 U. S. 718, 47 S. Ct. 261, 71 L. Ed. 491, The Malcolm Baxter, Jr., 277 U. S. 323, 48 S. Ct. 516, 72 L. Ed. 901, but it in no way affected the question as to when the claims first accrued; it merely withdrew from the shipowner defenses which might otherwise have been available in opposition to the claims.

The exceptions to both libels are therefore sustained.


author: PATTERSON, District Judge.

text:
    THE JULIA C. DAVIN. THE DE WITT CLINTON. DAVIN v. HUDSON RIVER DAY LINE et al. THE JOAN FLANNERY. THE KERAN FLANNERY. THE HANA C. BOLES v. HUDSON RIVER DAY LINE et al. THE CONSTANCE AND EILEEN. GUINDON v. HUDSON RIVER DAY LINE.
    District Court, S. D. New York.
    July 13, 1933.
    Macklin, Brown, Lenahan & Speer, of New York City, for libelants.
    Hatch & Wolfe, of New York City, for Hudson River Day Line.
    Alexander, Ash & Jones, of New York City, for Newtown Creek Towing Co:
   PATTERSON, District Judge.

On August 15, 1928, a tow of sixteen or eighteen canal boats in charge of the tug Joan Flannery was proceeding down the Hudson river. The steamer De Witt Clinton passed the tow at a point between Poughkeepsie and New Hamburg at about 2:39 p. m. Three separate libels were filed against the steamer by the owners of three boats in the tow. It is charged that the rate of speed of the De Witt Clinton while passing the tow was excessive, that the high swells thereby produced made the boats jump around and collide with one another, and that the De Witt Clinton is responsible for the resulting damage.

The only issue is one of fact, whether the speed of the De Witt Clinton on passing the tow was excessive. The witnesses for the libelants testified that the steamer, although warned by whistles from the tug, passed close to the canal boats without moderating her speed. The witnesses for the steamer, with their memories refreshed from the log, testified that the speed was slowed down for five minutes while in the neighborhood of the tow, in order to prevent damage from swells. Upon a balancing of the testimony and a consideration of the probabilities of the ease, I accept as true the version given by the latter group of witnesses and find that the De Witt Clinton did not pass the tow at a dangerous rate of speed.

The libels will accordingly be dismissed. The petitions bringing in other parties will also be dismissed.


author: WOOLSEY, District Judge.

text:
    In re CANARIATE.
    District Court, S. D. New York.
    Sept. 21, 1933.
    Emanuel Mehl, of Brooklyn, N. Y., for trustee.
    Ereudenberg & Mattuck, of New York City (Louis G. Langer, of New York City, of counsel), for bankrupt.
   WOOLSEY, District Judge.

This petition to review is denied.

Under the language of the Circuit Court of Appeals in Re Messinger, 29 F.(2d) 158, at page 160, 68 A. L. R. 1205, I should have said — before the decision of United States Mortgage & Trust Co. v. Ruggles, 258 N. Y. 32, 179 N. E. 250, 79 A. L. R. 802 — that the express reservation to the bankrupt of the surrender value in the policy before me herein would have caused it to go to the trustee subject to the ransom provisions of section 70a of the Bankruptcy Act, as amended by Act May 27, 1926 (11 USCA § 110 (a). But since the decision in the Ruggles Case in which Judge Pound construed the extent of the exemption under section 55-a of the New York Insurance Law, see 258 N. Y. at page 39, 179 N. E. 250, 252, the decision of the referee seems to me inevitable.

Exemption laws involve state considerations solely, and the federal courts have always recognized and respected such laws both under executions and in bankruptcy. Holden v. Stratton, 198 U. S. 202, 204, 214, 25 S. Ct. 656, 657, 659, 49 L. Ed. 1018. In this proceeding, therefore, the construction given to the New York state exemption law as to insurance policies by the New York courts controls.


text:
    HINES v. FIDELITY MUT. LIFE INS. CO.
    No. 5951.
    District Court, E. D. New York.
    April 19, 1934.
    Irving D. Lipkowitz, of New York City, for plaintiff.
    Root, Clark, Buckner & Ballantine, of New York City, for defendant.
   GALSTON, District Judge.

The motion is to dismiss this suit on the ground that it appears from the face of the pleadings that it does not involve a controversy properly within the jurisdiction of this court.

The complaint sets forth two eauses of action, each on a policy of life insurance. It alleges that the defendant agreed, upon proof of total and presumably continuous and permanent disability by bodily injury or disease such as would prevent the plaintiff from engaging in any occupation whatever for remuneration or profit, to pay the plaintiff a monthly sum of $177.08 under the policy set forth in the first cause of action; and the sum of $104.17 monthly under the policy set forth in the second cause of action.

It is alleged that within the terms of the' insurance policy, the plaintiff became totally disabled on or about December 30, 1930, and that due proof of such total and permanent disability was furnished to the defendant; that the defendant on or about January 14, 1931, notified the plaintiff that it had accepted such proof and allowed the total and permanent disability benefits under the said policy as of December 30, 1930, and would pay the plaintiff the monthly disability sums commencing June 30, 1931. Such sums were paid to and ineluding June 30, 1933. Thereafter, defendant notified the plaintiff that it would no longer pay the disability benefits, and has refused to pay the plaintiff these benefits since that time.

The answer denies the allegations regarding permanent disability and sets forth a clause of the policy of insurance in respect to a recovery from disability, which reads: “Recovery from Disability. — The Company-after accepting proof of disability under this Section may demand of the insured at any time thereafter, but not oftener than once a year, proof of the continuance of such disability and upon failure to furnish such proof, or if it appear that the insured has become able to engage in any occupation whatsoever for remuneration or profit, no further premiums shall be waived and no further disability payments shall be made by the. Company.”

The answer also alleges as a complete defense that the plaintiff has become and now is able to engage in and has actually engaged in occupation for remuneration or profit.

On these pleadings it is urged that since the plaintiff has alleged complete performance by him of all the conditions of the contract, the defendant’s obligation to make disability payments at specified dates is wholly unilateral, and the doctrine of anticipatory breach does not apply.

A similar question was presented in Menssen v. Travelers’ Insurance Co., 5 F. Supp. 114. Judge Byers, after a careful review of the authorities, sustained the proposition and dismissed the complaint. The plaintiff here seeks to distinguish the case on the ground that the complaint in that case negatived the theory that the relations of the parties were mutually executory; but the line of distinction which he seeks to draw between that case and this is very attenuated indeed. The eleventh paragraph of the present complaint reads: “That plaintiff has duly performed all the conditions of the said policy of insurance on his part to be performed up to the time of the breach and repudiation of said agreement by defendant and plaintiff was at all times thereafter and is now ready, able and willing to duly perform any and all conditions on his part to be performed under said policy of insurance.” And so the plaintiff argues that because in paragraph tenth he alleges that by the terms of the policy he is still required to furnish to the defendant upon its demand proof of the continuance of such disability, he cannot be regarded as having completely performed his obligation. There seems to me to be no force in that contention.

Under the allegations of the pleadings, plaintiff is not entitled to more than $281.-25; and accordingly this case is not within the jurisdiction of the court.

The motion to dismiss for lack of jurisdiction is, therefore, granted. Settle order on notice.


author: GALS TON, District Judge.

text:
    In re ZIMMERMAN.
    No. 24825.
    District Court, E. D. New York.
    April 11, 1934.
    Morris Gogolick, of New York City, for bankrupt.
    Seymour D. Altmark, of New York City, for objecting creditor Linker & Kline.
    Carl J. Austrian, of New York City (Sol Dubow, of Brooklyn, N. Y., of counsel), for objecting creditor Bank of United States.
   GALS TON, District Judge.

This is a motion to confirm the report o£ the referee, which recommends the discharge of the bankrupt. The specifications of objection to the discharge recited that: (1) The bankrupt destroyed, concealed, and failed to keep books of account; (2) the bankrupt obtained credit on a false financial statement; (3) the bankrupt failed to explain any loss of assets or deficiency of assets to meet his liabilities.

After retiring from the cloak and suit business in 1926, the bankrupt had a net worth of about $800,000. He then entered into extensive building operations, acting through corporations which he organized for that purpose, and otherwise had extensive real estate holdings through the ownership of the capital stock of various corporations.

He testified that he kept no personal books nor any record of what moneys he received from various corporations. He had salaries from various corporations, but received no dividends. However, there is no record to show the receipt of the moneys nor what was done therewith. He gave his wife cash for housekeeping, or, if payment from the corporation was by cheek, he deposited such cheek or cheeks in his personal bank account. He was unable to produce the check books, and stated he did not know where they were. He was unable to produce vouchers from his bank, and he did not know what had happened to the vouchers.

Referring to the corporation, No. 110 West 86th Street, organized in 1028, he was unable to state how much his investment was; the books were not procurable; he was unable to state what loans he had made to the corporation.

No records of any kind showed what his transactions with any corporations were. He produced copies of some corporate tax returns, but from these it is impossible to ascertain what his financial condition and business transactions were.

He accounts for the nonproduetion of the books of the corporations in which he was interested by stating that he was unable to provide a place for their safe-keeping, and that at one time they were in the possession of Tennenbaum, his brother-in-law, who, after some talk with Zimmerman towards the end of July, 1933, gave his records to the junk-man.

Clearly, it was the duty of this bankrupt, particularly in the absence of personal books of account from which his financial condition and business transactions could be ascertained, to make every effort to preserve, the corporate records. His failure, therefore, to keep personal records or books of account, irrespective of the question of intent, in all the circumstances of the ease, cannot be justified.

The first specification must therefore be sustained. Karger v. Sandler (C. C. A.) 62 F.(2d) 80.

The second specification relates to the giving of a false financial statement. This statement was delivered to the Bank of United States. He listed his assets' as of April 1, 1930, on the basis of which he sought to have the bank extend credit to corporations of which he was an officer and of which he owned 75 per cent, of the stock. Loans were granted on the corporate paper indorsed by the bankrupt. In this financial statement, the bankrupt included among his assets an equity of $13,000 in his home at Long Beach. It appears that this home at 35 East Walnut street, Long Beach, had been deeded to Anna Zimmerman, the wife of the bankrupt. His explanation was that at the time he made the statement he did not know that he had not himself taken title to the premises in question. The explanation is not convincing.

This specification must also be sustained.

The third specification is very closely related to the first. Without either the personal books or the corporate books, he was unable satisfactorily to explain his loss of assets. 11 USCA § 32 (b) (7), provides that a discharge shall be granted, unless the bankrupt “has failed to explain satisfactorily any losses of assets or deficiency of assets to meet his liabilities.”

Undoubtedly the bankrupt suffered severe losses arising out of his various real estate investments and other business enterprises. But the creditors have not been put in the position of knowing how the whole of his $800,000 of net worth in 1926 has disappeared. One cannot read his testimony without feeling that there is much unexplained. His lack of memory cannot be ignored.

The motion to confirm the report of the referee is denied.

Settle order on notice.


text:
    LA MASCOTTE IV.
    Nos. 2943, 13670.
    District Court, E. D. New York.
    April 13, 1934.
    Howard W. Ameli, U. S. Atty., of Brooklyn, N. Y. (Alfred C. McKenzie, of Brooklyn, N. Y., of counsel).
    J. Hunter Lack, of Brooklyn, N. Y., for libelant Marine Basin Co.
   GALSTON, District Judge.

The repairs to this vessel were made not prior, but subsequent, to the seizure thereof by the United States government, and subsequent also to the filing of the government’s libel on February 2, 1933.

Section 971 of title 46, U. S. C. (46 USCA § 971), provides:

“Persons Entitled to Lien. Any person furnishing repairs, supplies, towage, use of dry dock or marine railway, or other necessaries, to any vessel, whether foreign or domestic, upon the order of the owner of such vessel, or of a person authorized by the owner, shall have a maritime lien on the vessel, which may be enforced by suit in rem, and it shall not be necessary to allege or prove that credit was given to the vessel. (June 5, 1920, e. 250, § 30, subsee. P, 41 Stat. 1005.)”

On January 27, 1933, while the vessel was in the custody of the collector of customs, by letter the attorneys on behalf of the owner of the vessel requested permission to have the vessel towed, at the expense of the owner, to the dry docks of the Marine Basin Company; but the attorney at law is not one of the persons authorized to procure repairs under the provisions of the foregoing section.

The Commissioner found that a Coast Guard tug on January 28, 1933, towed the vessel to the dry dock of the Marine Basin Company; and thereafter repairs to the vessel were made by the Marine Basin Company. These repairs were effected by the Marine Basin Company on the order of one Barney Reeves. But there is no proof that Reeves was either “the managing owner, ship’s husband, master, or any person to whom the management of the vessel at the port of supply” was intrusted.

The Marine Basin Company knew that the vessel was in the custody of the collector of customs, and inquiry would also have revealed that the government had filed its libel. The situation called for cautious investigation and ample proof that the person seeking to have the repairs effected had authority to act for the vessel.

The lienor argues that the government, haying consented to receive the benefit of the repairs, is estopped from deling that proper authority was given to have them made. I have been furnished with no precedent which shows that the doctrine of estoppel works against the United States government merely because some officer of the government stands by and permits repairs to be made to a seized vessel.

The Thomaston (D. C.) 26 F.(2d) 279, cited by the Marine Basin Company, shows merely that liens of innocent persons furnishing repairs and supplies are not extinguished by libel and forfeiture of the schooner by the government; but in that and similar eases the liens existed before the seizure. This generally is the rule which would obtain as to prior innocent claimants. See, also, The Antigostine (D. C.) 44 F.(2d) 170.

However, in. the case at bar, the claimant is not prior bnt subsequent to the government, and, moreover, Cannot be held to be innocent; but, on the contrary, everything points to knowledge on the part of the lienor that the vessel had been seized by the government for a violation of law.

The exceptions to the report of the Commissioner are overruled, and the motion to confirm the report and dismissing the claim of the Marine Basin Company, Inc., and decreeing forfeiture in- favor of the United States for violation of the Tariff Act, is granted.

Settle order on notice.


author: CAFFEY, District Judge.

text:
    UNITED STATES ex rel. GOULD v. UHL, Acting Commissioner of Immigration.
    District Court, S. D. New York.
    April 21, 1934.
    Pinto & Marcantonio, of New York City, for George Angeloni.
    Martin Conboy, United States Attorney, for the United States. (Irvin C. Ritter, Asst. U. S. Attorney).
   CAFFEY, District Judge.

On June 20, 1932, a warrant for the arrest of the alien was issued on charges of entering the United States as a stowaway and not possessing an unexpired immigration visa at the time of entry. Hearings thereon were held July 30 and September 30, 1932. There was adequate evidence to sustain findings of guilt.

The petition for the writ alleges that the charge on which the deportation hearings were held was that the alien had been convicted of a crime involving moral turpitude within five years after entering the United States, for which he had been sentenced for one year or more; also that he had been in the United States for more than five years preceding the conviction. It appears without dispute that the conviction — which was in this court for forging a United States passport and conspiring so to do — was in July, 1932, and that the sentence was two years.

The only dispute in the evidence is as to the date of entry. There was ample evidence to warrant the Labor Department in finding that the entry was subsequent to March 31, 1930.

At the oral argument on the 17th instant and in the brief of the alien’s present coun-' sel, the allegations of the petition were completely abandoned. The criticism of the deportation warrant is now confined solely to the claim that the alien was deprived of opportunity to be represented by counsel at the hearings. Although this phase of the matter was not mentioned in the petition, I have examined the record concerning it.

The proof is conclusive that during the period covered by the hearings the alien, at different times, had two lawyers. Although both were seasonably informed of the time and place of hearing, neither ever appeared. In advance of the September 30 hearing the second lawyer advised the Immigration Service that he would not attend any hearing unless it were postponed until after the alien had completed service -of his two years’ sentence on the conviction in this court.

The position taken by the alien’s lawyer was wholly arbitrary. The Labor Department was entirely justified in proceeding, without abdicating its function of prescribing the date when it should act. In no sense, therefore, can it be said that the alien was deprived of the right to be represented by counsel at the hearings. Cf. Dengeleski v. Tillinghast (C. C. A.) 65 F.(2d) 440. Moreover, the hearings were in all respects fair.

Writ dismissed.


author: THOMAS, District Judge.

text:
    McKEEVER v. EATON, Collector of Internal Revenue. SAME v. UNITED STATES.
    Nos. 3379, 3380.
    District Court, D. Connecticut.
    April 21, 1934.
    Donald Home, of New York City, for plaintiff.
    R. P. Herzog, Sp. Atty., Bureau of Internal Revenue, of Washington, D. C., and George H. Cohen, Asst. U. S. Atty., of Hartford, Conn., for defendants.
   THOMAS, District Judge.

These are two actions brought to recover an alleged excess of income and profits taxes paid by the British American Manufacturing Company for the years 1918 and 1919.

On June 14, 1919, the taxpayer filed its income and profits tax return for the year 1918, disclosing a tax liability which, with interest, aggregated $42,291.38, which sum was paid in installments from March 19, 1919, to January 19, 1920. For the year 1919 the taxpayer filed its return on March 15, 1920, showing a net income of $1,769.97, and no taxes were paid for this year.

On March 17, 1923, the Commissioner addressed a letter to the taxpayer, advising it of a proposed assessment of additional taxes. The taxes were thereafter assessed in April, 1923. Notice and demand were made for the payment of these assessments.

On May 10, 1923, the taxpayer filed a claim in abatement of the assessments. Upon the filing of this claim in abatement, collection was withheld.

I find that on or about February 3, 1924, the taxpayer submitted to the Commissioner a protest against the amount of the allowance that had theretofore been made for claimed amortization.

I find that there was received by the Commissioner on the 26th day of February, 1924, a document entitled “Statement of Appeal,” which was sworn to February 25th on behalf of the taxpayer. In this statement, exception was taken to the failure of the Commissioner to make allowance for depreciation of certain machinery used by the taxpayer, as well as to the failure to give adequate credit for invested capital. No claim was embodied therein for amortization of war facilities.

The taxpayer also asserted that the exeess profits tax proposed by the Department for 1918 was 63 per cent, of the net income of that year, which tax “is abnormal and is in exeess of that paid by representative concerns,” etc. Abnormality of the.size of the tax was also claimed for 1919, and as to both it was “therefore requested that the company’s excess profit tax be computed under the -provisions of sections 327, 328 of the Revenue Act of 1918.”

To this request the Commissioner, by a letter dated April 14, 1924, replied to the effect that before consideration could be given thereto, the taxpayer would have to file, within fifteen days therefrom, a written acquiescence in the net income as disclosed in the schedules annexed to the letter, or submit such exceptions as the taxpayer might take thereto. No such acquiescence or, exceptions, responsive to this letter, were ever filed.

On March 14th a claim for refund was filed for the year 1918. This claim, however, did not purport to do anything else than to refer to an application that had already been made to have the company taxed under the provisions of sections 327 and 328 of the Revenue Act of 1918 (40 Stat. 1093). The only language of any materiality in this statement of March 14th is as follows:

“Assessments under sections 327, 328 based upon the tax paid by representative corporations, will, we believe, result in a tax which will indicate a refund for the year 1918 of the sum of approximately $33,000.00, for which the annexed claim is filed.”

By a letter dated the 26th day of August, 1924, the Commissioner referred to taxpayer’s application under the provisions of sections 327 and 328 of the Act of 1918, as well as to claim for refund of the 1918 tax and for the abatement of the 1919 tax, and then went on to say:

“After careful consideration and review, your application for assessment'of your profits tax under the provisions of Section 328 of the Revenue Act of 1918, has been allowed.”

The Commissioner thereupon proceeded to find the net income for 1918, as shown by his communication of April 14,1924, and applied a 12 per cent, rate thereto, and found an overassessment for the year 1918 in the sum of $8,278.32. For the year 1919' he applied a rate of 10 per cent, to the net income shown in the letter of April 14, 1924, and found an overassessment of $7,408.63. He thereupon notified the taxpayer that thirty days was granted within which to present a protest.

What had transpired between April 14th and August 26th does not appear. Nor is there any indication as to precisely what did happen upon the receipt of the communication of August 26, 1924. Nor is there anything to indicate what action was taken by the taxpayer from August 26, 1924, until the 5th day of January, 1925, when it executed new claims for refund for the years 1918 and 1919, in which all the taxes paid by it for those years were claimed and in which five general grounds were set out in support of the claim as follows :

(1) Adjustment, of depreciation; (2)-amortization of war facilities; (3) adjustment of invested capital; (4) restoration of items disallowed as deductions; and (5) loss of use for value and obsolescence and other discrepancies in the return.

It appears from the testimony that these claims for refund were in fact mailed on the date that they were executed, accompanied by a letter to the Collector of Internal Revenue at Hartford. Why they were mailed to Hartford, and not to Washington, does not appear. However, they were returned by the Collector with the request that the taxpayer submit a certified copy of the order appointing the receiver. They were thereupon returned to the Collector with the statement that he had on file already a copy of such order, showing the authority of the receiver in the premises. The claims for refund bear upon their face the Collector's stamp-, showing that they were received by him August 25, 1925. However, in view of the fact that the sworn testimony of the witness as to the date when they were mailed is not contradicted, I find that they were actually transmitted to the. Collector and received by him- some time in January, 1925.

It is obvious, then, from this, that the taxpayer did not accept special assessment under sections 327 and 328; in fact, proceeded to, treat them as if they were nonexistent and filed a claim for refund of taxes on grounds-that error had been committed in computing, the tax. It appears that on March 26, 1926, and again on June 25, 1926, the Collector at Hartford requested a certificate of the appointment of a receiver.

On September 2, 1926, the receiver, alluding to the letter of August 26, 1924, inquired as to why he had not received the refund of taxes, to which the Collector at Hartford replied that the same had been credited against the outstanding tax of 1919.

On May 6,1927, the Treasury Department acknowledged' some communication dated April 27, 1927, and stated that the Department had adjusted the elaim for refunds by the issuance of a certificate dated December 10, 1924, and that on March 7, 1925, a check in the amount of $1,705.38 had been forwarded to the Collector of Internal Revenue for transmittal to the taxpayer.

On June 9, 1927. the taxpayer wrote the Commissioner, enclosing a brief in support of a claim for refund. The brief purported to be in support “of elaim for refund as claimed in a letter dated February 3, 1924, and on form 843 filed on January 25, 1925, with the Collector of Internal Revenue.” This brief largely concerned itself with a claim for deductions based on amortization of war facilities.

On July 12, 1927, an additional brief was submitted, with a elaim for refund, in support of such claims as were already filed. This brief concerned itself with the question of an alleged erroneous determination of invested capital and alleged erroneous disallowances of certain deductions.

On August 11, 1927, the Commissioner acknowledged the receipt of the letter of July 12,1927 (called July 13), and a brief in support of the claim for refund, with the statement that an examination of the brief did not warrant the allowance of the elaim.

On October 31, 1927, the Commissioner addressed a letter to the taxpayer, referring to a claim for refund based on the alleged failure of the taxpayer t<3 take proper deductions for amortization of war facilities. The elaim was rejected on the ground that it was belated.

On November 9, 1927, the taxpayer pro< tested against this decision in an elaborate brief; and on November 14, 1927, the Commissioner reiterated his position that the claim for deduction on amortization of war facilities was belated.

On February 11, 1928, the Treasury Department wrote to the receiver, stating that the claims for refund were being taken up with the taxpayer and not with the receiver, because there was no record in their office of the appointment of the receiver.

Again, on March 28, 1928, the receiver was advised that the ease was transferred to the Internal Revenue agent in charge at the Custom House, where it might be handled more expeditiously.

On June 27, 1928, an elaborate supplemental brief, involving a close analysis of all the factual elements, all in support of claims theretofore made, was duly submitted to the Treasury Department.

On August 24, 1928, the Treasury Department replied. It acknowledged that the claims were based upon five separate grounds, including adjustment of invested capital, amortization of war facilities, and other matters. All of the claims, excepting the claim for amortization of war facilities, were rejected upon the ground that the taxpayer had no hooks and records available to verify its contentions. As for the elaim based on amortization of war facilities, that was rejected because it was not filed prior to March 3, 1924.

Correspondence continued between the taxpayer and the Department, and the elaim for refund was finally rejected on November 3, 1928.

A question of fact has arisen with reference to a claimed notification by the taxpayer to the government, by letter dated February 3, 1924, of a claim for readjustment of an allowance for amortization on war facilities. I have examined the actual carbon copy of a letter of February 3, 1924, in connection with the carbon copies of other letters, the authenticity of which is undoubted, and I conclude that the carbon copy is contemporaneous with its purported date. There is also adequate testimony in the record to convince me that the original was mailed to the Commissioner of Internal Revenue on or about February 3, 1924. The record discloses several instances where documents mailed to the Department were claimed not to have been received by it. Nevertheless photostatie copies thereof have been furnished by the Commissioner of Internal Revenue, indicating that in spite of the elaim that the documents had not been received, they had in fact been received. I make the finding, therefore, as a finding of fact, that on or about February 3, 1924, a notification was received from the taxpayer by the Commissioner of Internal Revenue, of a elaim based on an erroneous computation of deductions for war facilities, which elaim embodied the categorical statement that the taxpayer had spent the approximate sum of $225,000 for the acquisition of war facilities.

It would have been wholly unnecessary in this opinion to have set forth such an extended statement of the nature of the correspondence had between the taxpayer and the government, had it not been for the claim by the defendant that the award of special assessment under sections 327 and 328 of the % Revenue Act of 1918, barred all further claim by the plaintiff. In this connection, the government claims that the case of Heiner v. Diamond Alkali Co., 288 U. S. 502, 53 S. Ct. 4Í3, 77 L. Ed. 921, rules the case at bar. I think that a proper understanding of this case involves a consideration of two other cases; one decided prior to the Diamond Alkali Case and the other contemporaneously with it.

The first case was United States v. Henry Prentiss & Co., Inc., 288 U. S. 73, 53 S. Ct. 283, 77 L. Ed. 626. There suit had been brought to recover overpayments of taxes due to undervaluation by the Commissioner of the taxpayer’s invested capital. The taxpayer bad filed a claim for refund on the ground that, owing to abnormal conditions, there could be no fair computation of the invested capital, and it asked for a special assessment under the provisions of sections 327 and 328 of the Revenue Act of 1918. The Commissioner replied by saying that the request for special assessment would not be considered “until statutory net income and invested capital are definitely determined. It is therefore necessary that you acquiesce in the net income and invested capital as shown in the revenue agent’s report of March 25, 1920, for the year 1918, or submit exceptions, if any, which you may take thereto.” Pages 81 and 82 of 288 U. S., 53 S. Ct. 283, 284.

The plaintiff took no exception, nor did he appeal. Mr. Justice Cardozo, speaking for the court, said, at page 82 of 288 U. S., 53 S. Ct. 283, 284:

“What the respondent chose to do was obviously to acquiesce in the report that the cash value of the capital had been fairly ascertained, and to take its stand on the position that under sections 327 and 328 its tax should be determined without reference to such value and in accordance with other methods both exceptional and discretionary.”

The Commissioner determined that there was no error in refusing to grant special assessment and rejected the claim therefor. However, the ease was kept open and the solicitor wrote that his office had before it an application for special assessment, and asked if the taxpayer desired to be heard. The taxpayer did get an oral hearing, at which' he filed an amended proof of claim and put before the Commissioner evidence of undervaluation of real estate and exclusion of intangibles in the estimate of invested capital. The Commissioner again rejected the claim on the ground that it was belated.

The court held that the claim based upon the improper evaluation of the invested capital was made to the Commissioner after the time for making such claim had expired, and that the taxpayer could not make such claim merely in the guise of an amendment to its original claim for special assessment. In this connection the court said:

“A statement, without explanation, to the effect that overpayments have been made in an aggregate amount is broad enough to cover any and all grounds for reassessment and return. This at all events is true where the basis of the grievance is that the tax has been erroneously computed even by the normal method, that there has been a deviation, in other words, from the statutory rule. Such is not the claim in controversy here. Here the taxpayer by its claim as originally presented abandoned the position that there had been any error of fact or law in the assessment of the tax according to the normal method, and planted itself on the position that the special method would be fairer. We are to say whether the ground thus deserted may be recovered by amendment.”

And the court held that the ground “thus deserted”, could not be recovered by amendment. .

Then came the case of Heiner v. Diamond Alkali Co., 288 U. S. 502, 53 S. Ct. 413, 77 L. Ed. 921, relied upon by the government. The best exposition of the problem involved in that case is found in the words of Justice Roberts, who wrote the opinion. On page 503 of 288 U. S., 53 S. Ct. 413) he presents the problem in the following way:

“These cáses present the question whether, where the Commissioner of Internal Revenue has granted special assessments of profits taxes pursuant to section 328 of the Revenue Act of 1918 (40 Stat. 1093), a court, in an action for a refund, may recalculate the taxpayer’s net income and recompute the tax by applying to the corrected net income the rate per cent, used by -the Commissioner in his computation of the tax.”

In that ease the taxpayer filed returns for the years 1918 and 1919 and paid the taxes. The Commissioner proposed certain changes, whereupon the taxpayer asked for a special assessment. This request was denied at first, but finally granted, and the Commissioner communicated his calculation of taxes, to which plaintiff took exception. The Commissioner then made an assessment according to his findings, and demanded payment of the deficiency which was paid under protest. The taxpayer then brought suit and the. District Court found that additional amounts should have been allowed for amortization, and then reduced the net income as determined, and thereupon recomputed the taxes on the reduced ineome by applying the percentage rates used by the Commissioner in his computation and rendered judgment in favor of the plaintiff. Upon an appeal to the Circuit Court of Appeals, 60 F.(2d) 505, that court allowed still further deductions from the ineome, and to said net income as so determined, applied the rate used by the Commissioner in his special assessment. On page 505 of 288 U. S., 53 S. Ct. 413, 414, Mr. Justice Roberts said:

“In Williamsport Wire Rope Company v. U. S., 277 U. S. 551, 48 S. Ct. 587, 72 L. Ed. 985, it was decided that the allowance of special assessment is a matter of administrative discretion; and it was further said that the selection for comparison of representative corporations engaged in a like or similar trade or business is also a question of discretion. The Commissioner cannot make an administrative finding upon the question for decision under section 327 (d) or that under 328 until he has determined the net income of the taxpayer. See U. S. v. Henry Prentiss & Co., 288 U. S. 73, 53 S. Ct. 283, 77 L. Ed. 626.”

And on page 507 of 288 U. S., 53 S. Ct. 413, 415:

“The grant of special assessment and the ascertainment of the rate or ratio of tax to be applied to the net ineome of the taxpayer are indissolubly connected by the terms of the statute. The exercise of the discretion in both aspects is committed to the Commissioner and to the Board of Tax Appeals upon review of his action. That discretion cannot be reviewed by the courts, nor exercised by them in place of the administrative officer designated by law. It is beyond the power of a court to usurp the Commissioner’s function of finding that special assessment should be accorded, and equally so to substitute its discretion for his as to the factors to be used in computing the tax. The courts below were in error in adopting the rate chosen by the Commissioner and applying it to a net ineome other than that which he used in making his comparisons and arriving at the rate.”

In the case of Bemis Bro. Bag Co. v. United States, 289 U. S. 28, on page 29, 53 S. Ct 454, 455, 77 L. Ed. 1011, which case is relied upon by the plaintiff at bar, speaking for the court, Mr. Justice Cardozo said:

“There is need once again to decide whether a claim for the refund of a tax has been presented by the taxpayer in such a form as to be subject to amendment after a claim wholly new would be barred by limitation.”

Here the taxpayer, having paid, filed a claim for refund and requested special assessment. The right to such relief was placed upon three separate grounds. The first was that the Commissioner was unable to determine invested capital in the ordinary way. The second was that the mixed aggregate of tangibles and intangibles paid for in capital stock was such that the Commissioner would be unable to determine the respective values of the several classes of property. The third was such abnormality of conditions as should move the Commissioner to make special assessment.

As to each of these grounds, the taxpayer submitted an itemized statement of facts which showed a factual basis for claims for refunds based upon erroneous determinations of fact. The court said that grounds numbered one and two gave notice to the Commissioner that the taxpayer’s invested capital had been erroneously assessed and charged him with the duty to inquire into the error and to give appropriate relief. The Commissioner notified the taxpayer that there was no evidence under sections 327 (d) to warrant special assessment on the ground of abnormal conditions. He overlooked the fact that the taxpayer was also claiming relief under section 327 (a) and (c). The taxpayer protested and amended his claim to demand relief in the alternative; in the event that special assessment was denied, then that “items improperly eliminated from invested capital should be restored to invested capital, and the excess profits tax recalculated on that basis.”

Upon reconsideration the Commissioner held that there had been an undervaluation of invested capital but that the demand for refund as first presented was defective and that the amendment came too late. On page 32 of 289 U. S., 53 S. Ct. 454, 456, Mr. Justice Cardozo said:

“We held in United States v. Henry Prentiss & Co., supra, that, after the period of limitation, a claim for a special assessment under section 327 (d) may not be turned by amendment into one for the reaudit of invested capital and for the reassessment of the tax accordingly. The two proceedings, it was pointed out, are essentially diverse.”

It was then held that the prayer for relief embodied in the taxpayer's protest did not necessarily determine the rights of the taxpayer, and that if the Commissioner was duly apprised by the statement of the claim that error had been committed by him in his computation, he was bound to proceed to inquiry and to determination of that error.

With these three cases in mind, we now turn to the facts of the case at bar. To start •with, it is obvious that the plaintiff does not take the position taken by the taxpayer in the Diamond Alkali Case. He is not asking that the rate used by the Commissioner in making his special assessment should be applied to a different base. In fact, he is ignoring the special assessment entirely. He is asking for no relief under such special assessment. The theory of the Diamond Alkali Case was obviously that the taxpayer could not accept part of the benefits of the special assessment and object to the rest. Whether it was the rate of the assessment or the base against which the rate was computed, if he accepted one, he was bound to accept-the other. For this reason I do not regard the Diamond Alkali Case as applicable to the ease at bar.

In the Prentiss Case the real question was not whether the acceptance of special assessment barred suit, but, rather, whether having claimed nothing more than special assessment, the taxpayer was in a position after the period of limitation expired, to amend his claim from a claim for special assessment into a claim of error in fact and law in the computation of his tax. The court held that such amendment was for an inadmissible “transfiguration.” In the Bemis Case the original prayer was" for special assessment, but the facts embodied in the protest showed errors in fact and law in the computation of the tax, and the special assessment was not allowed.

It thus appears that none of the three case^ embody the situation presented in the. ease at bar. This case is distinguishable from the Diamond Alkali Case by the fact that here the taxpayer completely ignores the special assessment, seems never to have in any sense accepted the same, and is not asking this court to apply the rate of tax determined upon by the Commissioner in his special assessment to a base different from that found by him. On the other hand, it is also distinguishable from the Bemis Case by the fact that in the Bemis Case the special as- • sessment was refused, whereas in the case at bar the special assessment was actually made. However, I find from the entire record the following:

1. That the Commissioner was adequately apprised, prior to the making of his special assessment, of the various grounds upon which error was claimed in his computation of the tax.

2. That, while it is true that the prayer for a special assessment was granted and the tax computed accordingly, the taxpayer did not in fact acquiesce in the decision arrived at by the Commissioner, but, on the contrary, consistently kept on claiming errors in the computation of the tax, based upon errors of fact and law.

3. That the Commissioner never took the . position that his special assessment concluded the matter but, on the contrary, kept the case open and kept on reexamining the situation upon the merits for several years after the special assessment had been made. By the merits in this connection I mean not the mez’its with relation to special assessment, but the merits of the claims of error's in fact and in law in his computation of the tax.

Upon this record I therefore reach the conclusion that the making of the special assessment does not constitute a bar to the prosecution of this suit.

The claim is further made that the action is barred by the statute of limitations. I find upon all the facts that the essential claims of the plaintiff were finally rejected by the Commissioner on November 3, 1928, and that suit was brought within two years thereafter.

This brings us to a consideration of the merits. British American Manufacturing Company was organized in November, 1919, with a capital stock of 3,000 shares, having a par value of $100 per share. On December 16, 1913, the entire capital stock was issued to E. A. Brinekerhoff and William M. McIntosh for the transfer of certain secret processes in rubberizing. The aggregate value of these processes was the par value of the stock issued in exchange therefor. The stockholders thereupon donated 2,988 shares to the corporation to be used in the raising of working capital with which to begin operations. The two stockholders had obtained an option on a plant of the Interstate Rubber Company and the taxpayer purchased such rights by reissuing to each of its stockholders 752 shares. It also, for the transfer of the plant, assumed a mortgage of $7,000 and notes in the sum of $20,000. The balance of the treasury stock was sold at various times at par.

The contentions made by the plaintiff for the year 1918 are as follows:

It claims too low a calculation on its invested capital; inadequacy in the allowance of amortization of war facilities; inadequacy in the allowance for obsolescence; illegal elimination of a $12,000 item of expense for the rental of a certain calender machine.

For the year 1919 we have practically the same objections, excepting that there is no question of amortization of war facilities, and there is an illegal deduction claimed of $37,000 expenses by way of eommissiozis.

It would extend the bounds of this opinion beyond all due limits if the court were to indulge in further analyses of the evidence. I limit myself, therefore, to findings.

I find that, for the years 1918 and 1919, the invested capital was the sum of $132,000, made up of the items of $57,000 tangible assets and 25 per cent, of $300,000 of capital stock issued for secret process rights. As to the item for tangible assets, I find that this investment was carried on the books at $57,-000 for several years.. I am not persuaded that there is adequate testimony to offset the taxpayer’s own valuations during those years.

As for the intangibles, I find that the full amount of $300,000 of stock was issued for these secret process rights in the rubber processing of textiles, and I find that this stock was bona fide issued at this valuation for these process rights.

As to the claim for amortization for war facilities, I find that the total expenditures for war facilities were the sum of $196,317.-17, against which $43,895.15 has already been allowed as a deduction. The subject of amortization of war facilities is indeed a very thorny one, and I agree with the contention of counsel for the plaintiff that the term “amortization” as used in connection with war facilities is not to be construed as obsolescence or depreciation, as any such construction would delete all meaning out of the term. That Congress did not here indulge in strictly scientific terminology is apparent enough; but unless some significance be attached to the term “amortization,” different from obsolescence, the statute is meaningless.

Nor am I persuaded that, under the regulatory power conferred by Congress upon the Commissioner of Internal Revenue, any delegation of legislative authority was or could have been made. The government relict* upon certain rules and regulations promulgated by the Commissioner of Internal Revenue which, in the opinion of the United States Attorney “provide the manner in which such allowance should be determined.” The word “manner” here is exceedingly ambiguous. If by that term is meant the forms upon whieh such claim should be made and the procedure necessary to place the claim before the Commissioner, then there can be no question about the authority of the Commissioner to make such rules. But if the term “manner” is construed as intending to convey the idea that the Congress has devolved upon the Commissioner the power to determine the incidence of the tax and its quantum by way of an ostensible exercise in interpretation, then I cannot follow the argument. By section 234 (a), subd. 7, of the Revenue Act of 1918 (40 Stat. 1078), provision is made for “a reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence.”

By subdivision 8, further provision is made:

“In the case of buildings, machinery, equipment, or other facilities, constructed, erected, installed, or acquired, on or after April 6, 1917, for the production of articles contributing to the prosecution of the present war * * * there shall be allowed a reasonable deduction for the amortization of such part of the cost of such facilities or vessels as has been borne by the taxpayer, but not again including any amount otherwise allowed under this title or previous Acts of Congress as a deduction in computing net income.”

The legislative mandate here is to allow “a reasonable deduction for the amortization of such part of the cost” etc. I cannot conceive that there is vested in the Commissioner of Internal Revenue any power, either by interpretative decisions or by interpretative “rules and regulations,” to abate by one minim the full strength of this mandate.

I find that further allowance for amortization should be made for the year 1918 in the sum of $152,422.58.

The claim for deduction based on alleged error in striking out the deduction of $12,000 for the use of the calender machine for 1918 and 1919 is disallowed.

I find that there was a pro forma arrangement under which the president of the company, Mr. Brinckerhoff, leased this machine at an alleged annual rental of $12,000, but I cannot persuade myself that there was in essence any such arrangement. Plaintiff admitted that the total cost of the machine was $25,000 including installation, and that the machine had a life use of twenty-five years. Some time in 1920 the machine itself is alleged to have been sold to the company, but for what price does not appear.

Considering the following factors:

(a) The dose relation of the president of the company to which he was “renting” the machine, (b) The utter disproportion between the reasonable value of the use of the machine and the actual alleged rental exacted therefor. I am of the opinion that the whole arrangement was in essence fictitious, and for that reason I reject the claim made as to this item.

Nor am I able to follow plaintiff’s counsel on his theory of obsolescence. He claims a prewar cost of tangibles of $177,400, and secret processes valued at $300,000, making a total of $477,400 which be claims became valueless after the war. The further claim is then advanced that this loss “should be deducted over 1918-1019 pro rata.” I have already found that the value of the tangibles was $57,000. I cannot understand what is meant by the “obsolescence” of a rubberizing process, unless there is evidence in the record to show that newer and better processes have since that time been invented which render the process at bar obsolete. Of course, there is no such testimony in the record.

Nor am I able to understand why, if the entire invested capital is to be deducted for obsolescence, any allowance of any kind should be made for invested capital. It appears to me that the taxpayer cannot have it both ways. The claim, therefore, for obsolescence is disallowed.

Nor am I able to find any basis for allowing the commissions of $37,136.88 to the Leather Coat Company. .The term “company” here is a misnomer; it was merely the trade-name of the president of the company. I regard payment of such commissions, under the circumstances disclosed in this case, as nothing more than a distribution of dividends.

Counsel for the plaintiff will submit an order incorporating the findings of fact as herein outlined; and' counsel for the plaintiff and defendant will recalculate the tax in accordance therewith and embody tbe conclusions in said final decree. Submit order accordingly.