and when and how they are to be filled. Notwithstanding all the money is furnished by the contract holders, they are entirely without a voice in its administration; and notwithstanding 20 pages of provisions, not one furnishes them any degree of protection.

The advertising of the company was not less misleading than the contract. In few instances only are there affirmative misstatements. The mendacity involved was more efficacious and less dangerous. The part of it which went into the papers was substantially confined to an announcement that the company was lending money at 5 per cent. The statement was untrue; but, even if it had explained that payments were monthly, and that interest was calculated on yearly balances, the rate was sufficiently under the current rate in the section in which most of the business was conducted to attract attention and excite inquiry. Another part of the advertising which preceded the sale of the contract was an appeal to the homeless who desired homes. The appeal was peculiarly to those who could hope to own a little home only. The loan unit was $1,000. It is true there were a number of loans for larger sums. So far as the facts were developed, these larger borrowers were connected in some way with the company. But, without reference to who was to get the money, it was evidently expected that persons of small means should furnish it. This was, perhaps, not because of any peculiar partiality for the money of any particular class, but indicated an appreciation of the fact that the easiest approach was to those whose aspirations for homes exceeded their experience in business.

Some of these cases presented heart-breaking experiences. Even church organizations were made to suffer-churches of the poor where contributions meant, not alone devotion, but sacrifice. The case of Alice Holman was not typical, because the entire pound of flesh was not exacted. She paid in $144, and $100 was returned to her, an amount sufficient to cover, not only all that she had contributed to the loan and reserve fund which the company held in trust, but $14.50 of the $58.50 charged by the agent and the company for receiving the $144. She was evidently of that class of colored women, held all over the South in affectionate esteem, who, big of heart and strong of arm, knowing no lines of race and having no thought of self, love and serve children and the sick, the weak and all who suffer. "I generally take care of the sick," she said. "I keep the home for orphan children at Ensley." Once a kindly one in the company's office said to her: "Woman, I want to tell you this; don't you turn loose that $12; if you do, it will be the last you see of it." She paid the $12 every month until one of the little girls became ill. "After the little girl was taken down," she testified: "I had to stop work. I told him (the president) about the little girl being down, and I could not work, and of course he said he could not do me any good, and he said, 'You will have to pay in for 12 months.' * * * When the little girl kept getting worse, I kept pushing them for the money, and the day she was a corpse I wrote him a letter that morning. I went to see him afterwards. * I told him the little girl died, and I had to get two white men to stand for me to bury the girl. *

* *

'The following is a part of the advertising, directed evidently at persons whose income placed very humble homes only within their reach: "You can lose $2,932.35. If you rent a $1,000 home for 101⁄2 years and do not take advantage of the offer presented to you by the Standard Home Company, you certainly will not have the amount above mentioned. It does not seem possible that you would lose such large amounts just by renting a $1,000 home for 101⁄2 years at $12.50 per month; however, we will show you the actual results in figures: Ten and one-half years' house rent at $12.50 per month is a loss of $1,575. You don't own the house, valued at $1,000. You have lost the difference between buying and renting, $357.35. Then you have certainly lost a total of $2,932.35."

Contemporaneously a bathetic appeal is made, which as ruthlessly attacks the English as the loss statement assaults the truth:

"The mother goes about her daily tasks with a song in her heart, serenely conscious that no grim stranger will throw the little ones and she out into a cold world, and that every loving touch she places upon things within its sacred walls is there to stay as long as she wills."

The advertising which followed purchase and disappointment will be referred to in another connection.

[9] The evidence principally depended upon by the government to establish a fraudulent intent were the statements made by the agents of the company to prospective purchasers of the contract. More than 100 witnesses were introduced, each of whom testified that the agent had, by statements, led him to believe that he would, at the end of six (or eight or some other number of) months, be able to secure a loan of $1,000 from the company at 5 per cent. interest. The introduction of this evidence was strenuously objected to by the defendants. The objection was upon the ground that the representations were not the representations of the defendants or the company. If there had been evidence of a single transaction only, or of isolated and occasional transactions, the contention might have appeared meritorious. But the accumulated evidence, aided as it was by evidence of the subsequent conduct of the company, and by the correspondence with which the misrepresentations were always followed up, clearly indicates an established course of business, an important feature of which was systematic misrepresentation by agents. It is apparent that the agents were expected to follow up the misleading advertising and misleading contract by suppression of the facts that should have been disclosed, and misrepresentations as to terms and effect of the contract. The agents realized, as the company realized, that the persons with whom they were dealing were not, in most instances, in a position to make investments, and that they were, in order to acquire homes, paying each month no inconsiderable part of their small incomes. They knew, and the managers of the company knew, that unless these persons were misled the contracts could not be sold.

A frequent course of events was that, after the agent, by his misrepresentation, had secured an application for a contract, and 6 months of installments had been paid, the contract purchaser would indicate to the company that he was ready for his loan. Thereupon the company would write him that it was true that he had now become "eligible" for a loan, but that he had not been reached in the order in which loans

were made. The purchaser would then make a statement of what had been said to him by the agent. Thereupon the company would express surprise that he had been misled, and would call attention to the fact that he, the purchaser, had made an application in which he had stated that he had read the contract and understood its terms. A response from the victim is to the effect that it is impossible for him to continue the payment of the installments upon the uncertainty of securing a loan; whereupon the company begins to send literature entirely new to the contract buyer, supplemented by letters, in which the purchaser is urged to continue his payment. It is argued, and many figures are used to establish, that the person who receives his loan last is really the one who gets most benefit from the contract. If this fails as a soporific, and the contract buyer undertakes to secure a cash settlement, the company expresses regret (no doubt, with all sincerity) that the contract holder has determined to stop payment of installments, and tries to show him that, outside the loan feature, the investment is a good one.

It is at this point that the example in compound interest is usually introduced. Among "the profits of the company and investors" is (says the advertisement):

"(2) Compounding or reloaning both principal and interest as paid monthly." "The compounding of the interest and principal is not paid by a borrower, for few men are good enough financiers to compound their money, nor is it paid by the investor. It is simply made by the good plan of the company, and its able financiering. The illustration below shows $1,000 compounded at 5 per cent. interest per month for every month in the year for one year, which will verify our statement."

A table follows which shows that the $1,000 at that modest rate, compounded monthly for one year, will amount to $1,795.832015807129150348625. The company frankly acknowledges that it "does not have the advantage of compounding the entire thousand dollar loan every month." It abstains from suggesting that it does not get 5 per cent. per month for any part of it. If, notwithstanding the impressive figures quoted, the contract owner insists upon a cash payment, the next interesting fact developed by the correspondence is that he is not to receive even 50 per cent. of what he has paid in, but 50 per cent. of what he has paid in that has been appropriated to the loan and reserve fund, and that he would not get back any part of the $6 primarily paid in, any of the first three payments, or any part of $1.25 out of each of the subsequent payments. At this point the victim ordinarily takes what he çan get.

The initial correspondence in most cases calls attention of the purchaser to the fact that he has signed an application in which it is stated. that he has read the contract and understands its terms. The evidence shows that the agents, in many cases, would state to the prospective buyer that he did not happen to have a copy of the contract with him; and, in most instances, the first time the contract buyer sees the contract is when, after having made his initial payment, the contract is sent to him by the company. The application is signed by the purchaser, as applications ordinarily are, after having been prepared by the

agent, and after its terms have been explained to him by the agent. In very few cases was it the fact that the purchaser either saw the contract or had any knowledge of the provision in the application that stated that he had read and understood it.

The purchaser had a right to depend upon the statements of the agent, and a right to assume that the application and the contract were as represented by the agent. This right was not destroyed by the circumstance that the company undertook to relieve itself of responsibility for the acts of its "agents, general, special, and local." The course of business and uniform correspondence indicates that the provision referred to in the application, to the effect that the purchaser had read the contract and understood it, was put there as part of the scheme to defraud and as tangible defensive matter when correspondence became necessary, rather than for the purpose of having the purchaser know the character of the obligations he was assuming, and of the rights which he was acquiring.

Notwithstanding the large number of instances called to the attention of the company of misleading statements by agents, the record does not show a case in which such agent was discharged or reprimanded by the company for his misconduct, or compelled by the company to make restitution to the defrauded person. Nor is there a single case in which, after ascertaining that the purchaser had been defrauded, the company undertook to make him whole. The defendants who have been convicted were in active control of the affairs of the company. The representations made by the agents came to their attention. They permitted money to be taken by their agents with knowledge of the fact that the purchasers would not have parted with the money if they had not been deceived. In many cases they got the benefit of the first three payments with the knowledge that misrepresentations had been made; or, having gotten the benefit of these payments, and having the fact of misrepresentation brought to their attention, made no effort of any kind to restore the purchaser to his original condition. The correspondence brought to their attention in a very large number of cases. the fact that application had been made by persons who had not read the contract, and, further, that in many cases where purchasers had read the contract they had misunderstood its terms and effect. The contract, as heretofore suggested, is calculated to mislead, and defendants knew that fact, because they knew that in a very great number of instances it had had that effect. It is apparent, not only that defendants knew that large numbers of persons were being misled by the agents, by the advertising and by the contract; but it is also apparent that they knew, and relied upon the fact, that many of the purchasers would soon realize that they had been defrauded, and would forfeit what they had paid in, or accept whatever they could get and surrender the contract. They knew, also, that many of the purchasers who might never realize that they had been defrauded would stop payment when they ascertained that being "eligible" for a loan had the same relation to securing a loan as being eligible to the presidency had to holding that high office. They knew, too, that the incomes of many of the

purchasers were not equal to paying rent and to paying installments while waiting for a loan.

Even if there were absence of evidence of specific cases of misrepresentation brought to the attention of defendants, familiarity with the general course of business would negative a claim of innocence. The contracts issued covered classes "A" and "B." In class "A" 11,804 contracts were written, covering business for five years, ending June 29, 1912. In this class 543 loans were made. One out of every twentyone purchasers received a loan. Eighty-nine contracts were carried to maturity. Assuming a separate purchaser for each contract, 632 purchasers were permitted to get what all expected. Each of the other 11,172 purchasers lost all or a part of what he paid in.

Up to June 29, 1912, the company had sold 34,607 class "B" contracts. On 13,430 of these no payment was made except the first. These payments were made before the delivery of the contract. These persons, having paid $80,580, lost this amount and quit. No part of this went to the loan or reserve fund. At the time of the examination 8,643 of the 34,607, or just one-fourth, had forfeited their contracts after paying one or more installments, in addition to the first $6. Assuming only one installment by each of them, these persons paid in $103,816, receiving therefor no benefit of any kind, and no part of the money going to the loan or reserve fund. Nearly 64 per cent. of the purchasers having suffered a total loss of what they had paid in, another 5 per cent. took the partial loss of cash settlement. A fortunate 2.55 per cent. received loans; 2.16 per cent. obtained paid-up certificates, and the remaining one-fourth continued to hope and pay. Those who received loans waited an average of 25.16 months.

These facts of the business render unnecessary any further comment in support of the verdict of the jury. No error that would justify a reversal has been found in any ruling of the court. The judgment is affirmed.

CLALLAM LUMBER CO. v. CLALLAM COUNTY et al.
(Circuit Court of Appeals, Ninth Circuit. August 6, 1917.)

1. TAXATION

Nos. 2905-2908.

338-ASSESSMENT-MODE OF ASSESSMENT-TIMBER LANDS. The action of the assessor of a county containing large tracts of timber lands in dividing such lands into zones for the purposes of assessment held not illegal, under the laws of the state requiring equality in the assessment of all property, where the zones were determined by the character and value of the timber in each, and its location with reference to the cost of marketing.

2. TAXATION 494(3)-LEGALITY OF ASSESSMENT REVIEW BY COURTS. Owners of timber lands held not entitled to relief in equity against the assessment of their lands, affirmed by the board of equalization after hearings, in the absence of proof establishing fraud, or discrimination against any class or owner, or showing the violation of any fundamental principle of uniformity, and where the testimony as to value, while conflicting, fairly sustained the assessment made.

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes