1919, and on the 29th day of December, 1919, it filed a return to cover the period extending from November 1, 1918, to December 31, 1918; this return bearing a notation to the effect that it was a final report and that the company had dissolved. This return showed a net operating loss, and, of course, reported no tax due. On December 30, 1918, all the stockholders of the Dixie Motor Car Company signed a contract with the Kentucky Wagon Manufacturing Company, a Kentucky corporation, by the terms of which it is claimed by the defendants in this case that these stockholders sold all of their common and preferred stock in the Dixie Motor Car Company to the Kentucky Wagon Manufacturing Company. The government contends, however, that this contract, when properly construed, was not one of sale of stock by the stockholders, but was a contract for the sale of the assets of the Dixie Motor Car Company to the Kentucky Wagon Manufacturing Company. The Commissioner caused a field audit of the Dixie Motor Car Company's books to be made for the period covered by the report of the taxpayer filed on December 29, 1919, and, construing the contract in question as one of sale of the taxpayer's assets, reached the conclusion that as a result of this transaction the company had actually made a taxable profit of $60,600.62, and therefore assessed against the motor car company an income and profits tax of $34,660.45 and a penalty of 50 per cent. of the tax, amounting to $17,330.23, as authorized by law in case of false and fraudulent returns made for the purpose of evading the tax.

This bill in equity was filed on May 18, 1925, against the defendants, all of whom were stockholders of the Dixie Motor Car Company, for the purpose of having the assets of the Dixie Motor Car Company, which it is claimed these stockholders received in liquidation of the corporation's business, declared to be a trust fund for the payment of the taxes in question. An amendment to the bill was subsequently filed, showing that in April, 1926, pursuant to a request by the defendants, the Commissioner of Internal Revenue redetermined the tax liability of the Dixie Motor Car Company for the taxable period extending from November 1, 1918, to January 1, 1919, under the provisions of sections 327 and 328 of the Revenue Act of 1918 (Comp. St. §§ 63367/16j, 63367/16k). Upon such re-examination by the Commissioner, the tax liability of the Motor Car Company for that period was fixed at $21,330.50 and the penalty at $10,665.25. Therefore, upon the issues as finally completed, the government

seeks recovery for the sum of $738.86, deficiency tax for the fiscal year ending October 31, 1918, and for $31,995.75, tax and penalty for the period extending from November 1, 1918, to January 1, 1919. [1,2] In determining the liability of the defendants for the tax and penalty claimed by the government for the period extending from November 1, 1918, to January 1, 1919, a vital question is whether the contract of December 30, 1918, was a sale of stock by the stockholders or a sale of company assets. If construed as a sale of stock, then of course the motor car company realized no profit, and no tax would be due. If construed to be a sale of company assets, then the motor car company is liable for the income and profits taxes on the gain realized as the result of the transaction. If the court were forced to construe this contract upon its face alone, there would be some difficulty in determining just what the parties were attempting to do, as on its face it contains many features of a sale of stock by the stockholders, as well as provisions which ordinarily would be found only in a contract selling the assets of a corporation. In such a situation, even as between the parties to the contract, the court would be justified in resorting to extraneous evidence to determine what the real intention of the parties was. It is well settled that, in determining tax liability on contracts such as the one in question, the government is not bound to accept the contract upon its face, but may burrow under the words used in the contract and by extraneous evidence, if necessary, determine the real agreement between the parties. Certainly the taxpayer should be accorded the same right to demonstrate by extraneous evidence, where the contract is ambiguous, what the real contract was.

[3] There is another cardinal rule in the construction of contracts which are susceptible of two meanings, viz. that that construction should be given, if the facts justify it, which would render the contract enforceable, rather than to adopt a construction which would render it unenforceable.

[4, 5] With these principles in mind, it is difficult to reach any other conclusion than that this contract was a sale of stock by the stockholders. To construe the contract as one of sale of assets of the corporation would, in effect, be to declare it an unenforceable contract, because it is well settled that stockholders, as such, under the Kentucky law, cannot sell the assets of a corporation. It is true that, under section 883b of Kentucky Statutes (Acts Ky. 1918, c. 15), no sale of all of a corporation's assets is valid, unless consent

after the date when such return was filed, but this shall not affect suits or proceedings begun at the time of the passage of this act: Provided further, that in the case of a false or fraudulent return with intent to evade tax, or of a failure to file a required return, the amount of tax due may be determined, assessed and collected, and a suit or proceeding for the collection of such amount may be begun, at any time after it becomes due."

Section 277 of the Revenue Act of 1924, approved June 2, 1924 (Comp. St. § 6336%zz [4]), in part reads as follows:

"(a) Except as provided in section 278, and in subdivision (b) of section 274, and in subdivision (b) of section 279

"(2) The amount of income, excess profits and war profits taxes imposed by the act entitled 'An act to provide revenue, equalize duties, and encourage the industries of the United States, and for other purposes,' approved August 5, 1909, the act entitled 'An act to reduce tariff duties and provide revenue for the government, and for other purposes,' approved October 3, 1913, the Revenue Act of 1916, the Revenue Act of 1917, the Revenue Act of 1918, and by any such act as amended, shall be assessed within five years after the return was filed, and no proceeding in court for the collection of such taxes shall be begun after the expiration of such period." Subdivision (a) of section 278 of the act of 1924 (Comp. St. § 63361/6zz[5]) reads as follows:

"In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return the tax may be assessed or a proceeding in court for the collection of such tax may be begun without assessment, at any rate."

by distraint or by a proceeding in court if at the time of the enactment of this Act such assessment, distraint or proceeding was barred by the period of limitation then in existence, or (2) affect any assessment made, or distraint or proceeding in court begun, before the enactment of this act."

From the quoted sections of the acts referred to it will be observed that, except in case of false or fraudulent returns, made with intent to evade the tax, under the 1918 act suit for the collection of the tax could not be commenced after the expiration of five years after the date when the return was due or made, and that under the act of 1921 suit for the collection of the tax could not be commenced after the expiration of five years after the date when the return was filed; that act, however, adding certain other exceptions

not important here to note-under which suit might be brought after the expiration of five years from the filing of the return. The act of 1924 extended the time within which suit might be brought on account of taxes accruing under the Revenue Acts of 1916, 1917, 1918, and 1921 for six years following the assessment of the tax, provided the assessment was made within five years after the return was filed, and provided, further, that the right to bring such action was not barred under such previous statutes at the time the Revenue Act of 1924 was enacted.

The last return filed by the motor car company for its fiscal year ending October 31, 1918, was filed on April 14, 1919. Under the acts of 1918 and 1921, no suit could have been brought to collect taxes on this return after the expiration of five years from the filing of this return. Five years from April 14, 1919, expired on April 14, 1924. Therefore, under the express provisions of subdivision (e) of section 278 of the act of 1924, the right to

"Where the assessment of the tax is made within the period prescribed in section 277 or in this section, such tax may be collected by distraint or by a proceeding in court, begun within six years after the assessment of the tax. Nothing in this act shall be construed as preventing the beginning, without assessment, of a proceeding in court for the collection of the tax at any time before the expiration of the period within which an assessment may be made."

er the assessment, given by subdivision (d) of that section, has no application, unless the court should find that the two returns made by the taxpayer for the fiscal year ending October 31, 1918, were false and fraudulent and made with intent to evade the tax. The record wholly fails to show that the returns were made with any such intention. The Commissioner himself evidently did not so regard the matter, because, when he made the deficiency assessment on those returns, he made no assessment of penalty for a false

The court is therefore of the opinion that the right of the government to maintain suit for $738.86 was barred on June 2, 1924, at the

time the act of 1924 was enacted into law, and, of course, was barred at the time this suit was filed on May 18, 1925.

It follows, from these conclusions, that plaintiff's bill must be dismissed, and a decree conforming to the views herein expressed may be drawn and presented for entry.

NOTE.-The following is a copy of the material parts of the contract considered in this case: "Know all men by these presents: That we, the undersigned, being all of the stockholders of the Dixie Motor Car Company, a corporation duly organized under the laws of the state of Kentucky, do now and hereby bargain, sell, transfer, and deliver to the Kentucky Wagon Manufacturing Company, a corporation duly organized under the laws of the state of Ken tucky, all of the assets of the said Dixie Motor Car Company, of every kind, character, and description, wherever situated and located, including all trade-marks, trade-names, catalogues, patents, designs, blueprints, templets, patterns, orders on hand for future delivery, orders placed with others for raw materials, supplies, and parts, contracts, accounts and bills receivable, choses in action, machinery, equipment, supplies, finished products, and accessories, in consideration of the said Kentucky Wagon Manufacturing Company assuming and agreeing to pay all of the liabilities of said Dixie Motor Car Company, of every kind and character whatsoever, and in addition thereto to pay to each of the preferred stockholders the follow ing sums set opposite their respective names: "To the preferred stockholders, for their holdings of class A stock and class B stock, as provided in and by the articles of incorporation and amendments thereto, one hundred and eleven thousand six hundred ($111,600.00) dollars, to be paid in cash by the Kentucky Wagon Manufacturing Company to the following persons, to wit:

herein before set forth, close its business and wind up its affairs, as provided in and by the Statutes of the state of Kentucky, and especially section 561 (Carroll 1915), and immediately thereafter effect a complete dissolution of the corporation, and then, in addition to the foregoing assets mentioned herein, transfer and deliver to the Kentucky Wagon Manufacturing Company the remaining cash on hand, if any, after duly and properly closing its fiscal year as of October 31, 1918, and as shown by the statement of the date, with which both parties hereunto are familiar, the understanding being that all business transacted and all earnings made since October 31, 1918, shall be and become the property of said Kentucky Wagon Manufacturing Company.

"It is further understood that, in addition to closing said business as of October 31, 1918, the said Dixie Motor Car Company shall transfer from its previous earnings, earned and belonging to it previous to October 31, 1918, fifteen hundred ($1,500.00) dollars to said Kentucky Wagon Manufacturing Company, the same being an estimated sum necessary and proper to recover possible defective parts that may have to be replaced free of charge.

"In witness whereof, each of the preferred and common stockholders of said Dixie Motor Car Company, the same being all of the stockholders of said Dixie Motor Car Company, do now and hereby affix their signatures hereunto, with the understanding that this agreement shall be valid and binding, when all of said preferred and common stockholders have hereunto affixed their signatures, and each of them do now and hereby consent in writing that the said Dixie Motor Car Company shall close its business and wind up its affairs. And we do now and hereby authorize Robert V. Board, president of and for the Dixie Motor Car Company, to cause notice to be published, as provided by section 561 of the Statutes of the state of Kentucky (Carroll 1915), and authorize, empower, and direct said Robert V. Board, president of said Dixie Motor Car Company, to sign any. and all papers, deeds, conveyances, transfers, checks, notes, and accounts as are necessary and proper to effectually turn over all of said assets of said Dixie Motor Car Company to said Kentucky Wagon Manufacturing Company, and to collect, receipt for, and receive in our names, and to transmit to us, the sum or sums to which we, and each of us, are entitled, as stated herein, within a reasonable time from and after this date, December 30, 1918, and in witness whereof, the said Kentucky Wagon Manufacturing Company has this 30th day of December, A. D. 1918, affixed its signature hereunto for the purposes herein stated."

In re SMITH.

Acton, Acton & Snyder, of Danville, Ill.

1926.)

No. 4121.

1. Bankruptcy 81(1)—Manner of statement in involuntary petition should conform to usual rules of pleading.

Manner of statement in involuntary petition should conform to usual rules of pleading, and should set up facts, not legal conclusions, and ultimate facts, not mere evidentiary facts. 2. Bankruptcy 81(1)-Involuntary petition must allege, as far as petitioner's information and nature of facts permits, essential elements of cause of action, capacity of parties, and jurisdiction, and explain any incomplete

ness.

Involuntary petition must allege, as fully, definitely, and certainly as petitioners' information permits, the acts charged and the essential elements of cause of action, of capacity of parties, and of jurisdiction, and must explain any incompleteness; but no greater nicety or fullness is required than the nature of the facts permits.

3. Bankruptcy 81 (4)-Positive averments of transfer of all of alleged bankrupt's property to brother, to hinder, delay, and defraud creditors, bankrupt's continued receipt of rents, etc., held to make prima facie case within Bankruptcy Act.

Positive averments of transfer of all of alleged bankrupt's property to brother to hinder, delay, and defraud creditors, that tenants continue to pay rents to her, and that before transfer she said that, if suit, which was subsequently brought, should be brought against her, she would prevent collection, and that she could not pay many creditors, make prima facie case within Bankruptcy Act.

4. Bankruptcy 81(4)-In involuntary petition, alleging transfer to hinder, delay, and defraud creditors, "without any valuable con

*

sideration," to brother, "who holds legal title for use and benefit of" alleged bankrupt, the quoted phrases are surplusage.

In involuntary petition, alleging transfer of lands to hinder, delay, and defraud creditors, "without any valuable consideration as petitioners believe," to brother, "who your petitioners are informed and believe holds legal title to said real estate for the use and benefit of the said" alleged bankrupt, quoted phrases are surplusage, considering that transfer may be fraudulent, even though there be valuable consideration.

LINDLEY, District Judge. The petition avers all jurisdictional facts as to residence, claims against the bankrupt, and insolvency of the alleged bankrupt, and negatives the exceptions of the statute. The act of bankruptrelied is thus stated:

cy

upon

"That within four (4) months next preceding the date of this petition she committed an act of bankruptcy, in that she, the said Mary E. Smith, heretofore, on, to wit, the twenty-third day of May, A, D. 1925, conveyed and transferred all of her property with the intent to hinder, delay, or defraud her creditors; that is to say, that she, the said Mary E. Smith, was on the twenty-third day of May, A. D. 1925, owner in fee of the north half of the southeast quarter of section thirtysix (36), township eighteen (18) north, range fourteen (14) west, in the county of Vermil ion and state of Illinois, and on the same was also the owner of a life estate for and during her own life in the following described real estate: The northeast quarter of section twenty-six (26), township eighteen (18) north, range fourteen (14) west of the 2d P. M.; also the southeast quarter of the southeast quarter and the west half of the southeast quarter of section twenty-three (23), township eighteen (18) north, range fourteen west of the 2d P. M.-all situated in the county of Vermilion and state of Illinois, and that at said date there was pending in the circuit court of Vermilion county, Illinois, a proceeding wherein Jacob B. Hirshfeld, petitioner herein, was the plaintiff, and the said Mary E. Smith defendant, and the said cause wherein judgment was secured against the said Mary E. Smith in the sum of fifty-five cents ($5,537.17) was set for trial and comhundred thirty-seven dollars and seventeen ing on to be heard on the 25th day of May, A. D. 1925, the said Mary E. Smith, without any valuable consideration, as your petitioners are informed and believe, and for the purpose of hindering the collection of any judg ment that might be obtained against her, and for the purpose of hindering, delaying, and defrauding your petitioners, did convey to one Louis V. Jurgensmeyer, of Champaign county, state of Illinois, the two said tracts of land above described, and that the said Louis V. Juergensmeyer was a brother of the said Mary E. Smith, and, as your petitioners are informed and believe, holds the legal title to the said real estate for the use and benefit of the said Mary E. Smith; that the placing