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the latter in his patent, of "the screw-follower, H, in combination with the valve of a self-closing faucet, substantially as set forth, must be limited to the precise form of mechanism designated. It must be limited to a screw-follower, and cannot be construed to embrace a cam arrangement for moving the valve. Whether it is also to be limited to a valve which moves to its seat concurrently with, and not against, the pressure of the water, it is not necessary to determine. The limitation to the screw is sufficient to determine this case. In the faucet manufactured by the defendant the screw is not used, but the old cam device is employed for lifting the valve from its seat. It is true that the cam, instead of being placed at the top of the stem, on the outside of the faucet, as was done by Bartholomew, is placed at its lower extremity, by the valve, inside of the faucet; but this does not change the principle of its construction or operation. We concur with the court below in holding that, construed as the patent of Jenkins must be in view of the state of the art at the time of its issue, the defendant has not infringed it, and the bill of complaint was properly dismissed.

The decree of the circuit court dismissing the bill is therefore af. firmed.

(110 U. S. 205)

SIOUX CITY & P. R. Co. v. UNITED STATES.

(January 21, 1884.)

INTERNAL REVENUE ACT-NET PROFITS-ACCRUED INTEREST.

By the internal revenue act, as amended in 1866, a tax was imposed upon "all

profits of any railroad company carried to the account of any fund, or used for construction.” Certain so-called subsidy bonds were issued by the United States to the Sioux City & Pacific Railroad Company, upon which a certain amount of interest accrued yearly, which the company would be liable to pay upon the maturity of the bonds. This interest was to be met by a fund in the nature of a sinking fund. Held, that the taxable earnings of the railroad could not be reduced by the deduction of the amount of the accrued interest.

In Error to the Circuit Court of the United States for the District of Iowa.

E. S. Bailey, for plaintiff in error.
Sol. Gen. Phillips, for defendant in error.

BRADLEY, J. This was an action brought by the United States against the Sioux City & Pacific Railroad Company to recover certain arrears of taxes alleged to have accrued from November, 1868, to September, 1871, inclusive. The first count of the declaration states that for the 11 months ending September 30, 1868, the gross receipts of the company from passengers were $51,786.12, on which it became liable to pay a tax of 27 per cent., or $1,294.55; and that the undivided net earnings of the company for the same period, which were carried to the construction fund or account, were $43,889.39, on which the company became liable to pay a tax of 5 per cent., amounting to $2,194.41; that the sompany paid the tax on gross receipts, but refused to pay the tax on net earnings carried to construction account. Three other counts for the following years showed an aggregate arrearage (including that stated in the first count) of over $11,000. There were four other counts for penalties, to which the statute of limitations was pleaded, and which are not the subject of controversy. Issue being taken on the first four counts, the parties entered into a stipulation for the purpose of showing the precise matter in dispute.

This stipulation, after stating the title of the cause, was as follows:

"The parties to the above-entitled action hereby stipulate to waive a jury on the trial thereof. For the purpose of the trial of this action the following facts are admitted:

“(1) All the material facts alleged in the first count of the petition are true, subject to the following statement and exception, to-wit: The amount of interest accrued during the period mentioned in said count on the subsidy bonds, (so-called) issued by the United States to said defendant in pursuance of the act of congress entitled • An act to aid in the construction of a railroad and telegraph line from the Missouri river to the Pacific ocean, and to secure to the government the use of the same for postal, military, and other purposes', approved July 1, 1862, and the amendments thereto, was the sum of thirty-six thousand dollars ($36,000.) If the said sum of $36,000 is subject in law to be deducted from the gross receipts of the defendant, in order to ascertain the net earnings thereof for the period named, then the amount of the net earnings liable to a tax of five per cent., is the sum of seven thousand eight hundred and eighty-eight and 39-100 dollars ($7,888.39,) and the tax on the same is three hundred ninety-four and 41-100 dollars ($394.41,) instead of the sum of $2,194.41, as claimed in said count.”

Similar admissions were made with regard to the other counts, and the stipulation concluded as follows:

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If the court is of the opinion that the interest which accrued on the said subsidy bonds for the several periods named is subject to bo deducted from the gross receipts in order to ascertain the net earnings, then the plaintiff is entitled to recoverOn the first count, only

$ 394 51 On the second count, only

52 60 On the third count, only

1,434 37 And on the fourth count,

221 81

Total

$2,103 29 But if on the other hand the court should be of the opinion that the said interest accrued on said bonds is not subject to be deducted, the plaintiff is entitled to receiveOn the first count,

$2,194 51 On the second count,

3,944 77 On the third count,

3,416 23 On the fourth count,

221 81

“Making a total of

$9,777 32

Upon this state of facts the court gave judgment for the latter sum, and the company has brought this writ of error to review said judg. ment. We think that the judgment was right. The accruing in. terest on the subsidy bonds loaned by the government to the company ie payable by the company at a future day, to-wit, at the maturity of the bonds; and if a sufficient amount of the company's annual net earnings is laid aside (as it should be) to meet that interest wben it shall become due, the amount so laid aside would be directly within the scope of the internal revenue act, as it stood when the net earnings in question arose. The 122d section of that act, as amended in 1866, imposed a 5 per cent. tax, not only on all payments cf interest due on bonds and on all dividends declared by any rail. road or canal company, but also on "all profits of such company car. ried to the account of any fund, or used for construction.” The profits here referred to are the profits arising from the operation of the road or canal without deduction of interest paid to its bondholders, or div. idends paid to its stockholders, and correspond to the phrase "net earnings" used in the stipulation of the parties in this case. U. Pacific R. Co. v. U.S. 99 U. S. 402. The expression in the act, “profits carried* to the account of any fund,” would cover the exact case here if any portion of such net earnings had been carried to a fund created for meeting the interest to be paid on the subsidy bonds. It is very clear, therefore, that whether the whole of said net earnings were carried to construction account (as admitted in the stipulation) or a part of it were carried to account of such accruing interest fund, it would be expressly taxable by the internal revenue act.

The same result, we think, would have followed had the interest in the subsidy bonds been payable by the company semi-annually as it fell due; for although the words of the internal revenue act, as that act stood when the transactions in question occurred, (14 St. 138,) imposed the 5 per cent. tax upon interest due and payable by a railroad or canal company only where such company was indebted for “money for which bonds or other evidence of indebtedness have been issued, payable in one or more years after date, upon which interest is stipulated to be paid, or coupons representing the interest;" which words may be regarded as literally referring only to “bonds or other evidence of indebtedness" issued by the company itself; yet, if the company had been obliged to pay the interest accruing on the subsidy bonds semi-annually as the same fell due, said bonds would have been, in effect, the bonds "or other evidence of indebtedness" of the company. Though in form government bonds, the subsidy act makes them a mortgage lien on the property of the company, and ultimately payable by the company, principal and interest, (12 St. at Large, 492, 493;) and if an obligation had been imposed by the statute to pay both principal and interest as they respectively fell due, it would have made them substantially and in effect, the bonds of the company, and fairly taxable under the internal revenue act. Be

this, however, as it may, it is clear that where, as in the present case, the interest is to be provided for by a fund, in the nature of a sinking fund, to be laid by for the purpose, the case comes within the express terms of the internal revenue act, and no deduction of such accruing interest can be made from the taxable net earnings of the company.

The judgment of the circuit court is affirmed.

(110 U. S. 212)

DISTRICT OF COLUMBIA V. CLEPHANE.

(January 21, 1884.)

CONTRACT TO PAVE STREETS CHARACTER OF PAVEMENT

OF CONTRACTOR.

REPAIRS–LIABILITY

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The defendant agreed to pave certain streets with the “Miller wood pavement,''

and that if the pavement should become defective within three years, by reason of improper material or construction, he would repair it; or, if he failed to do 80, that the city might repair it at his expense. The pavement became defective within three years, and the city aced the wood with vulcanite concrete pavement. No evidence was given that tbe defects in the pavement were due to improper work or materials. Held, that without proof of this the defendant was not chargeable with the cost of the repairs; and held, that if he were so chargeable he could not be required to bear any part of the expense of substituting a different kind of pavement.

In Error to the Supreme Court of the District of Columbia.
A. G. Riddle, for plaintiff in error.

Wm. F. Mattingly, C. C. Cole, and Wm. A. Cook, for defendant in error.

MILLER, J. The defendant in error made & contract in writing with the board of public works of the District of Columbia in 1872 for the paving of parts of certain streets in the city of Washington with the “Miller wood pavement.” In that contract there was the following clause, on which this action is founded, on account of its alleged violation by the defendant:

Ninth. It is further agreed that if at any time during the period of three years from the completion of the work to be done under this contract any part or parts thereof shall become defective from imperfect or improper material or construction, and in the opinion of the said party of the first part require repair, the said party of the second part will, on being notified thereof, immediately commence and complete the same to the satisfaction of the said party of the first part; and in case of a failure or neglect of the said party so to do, the same shall be done under the-directions and orders of the said party of the first part at the cost and expense of the said party of the second part.”

The plaintiff alleges that the defendant did not in good, sufficient, and workmanlike manner, nor in accordance with the specifications of the contract, execute the work therein mentioned, and that within

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three years from its completion a large part of it became defective from imperfect and improper material and construction. It is further alleged that defendant was duly notified of this, and required to repair it, which he failed to do, whereupon plaintiff did so, at an expense of $40,517, for which judgment is asked against defendant. The answer is a substantial denial of these allegations, with some special matter in defense not material to be noticed here. On the trial before a jury, after all the plaintiff's evidence was in, the defendant demurred to it as insufficient, and the court directed the jury to find a verdict for the defendant. It appears from the bill of exceptions, which contained all the evidence offered, that within the three years after the completion of the work the pavement became so badly broken up and so imperfect as to require extensive repairs, and demand was made on defendant to repair it; that on his failure to do so the officers of the district who had charge of the matter determined to remove the wooden pavement on several squares of the streets and replace it with another kind of pavement, to-wit, vulcanite concrete pavement; that the cost of this was $40,517, except that of this sum $1,242.92 was for taking up and relaying wood pavement and removing debris. No evidence was given that the material furnished by defendants was defective or unsound, or that the work was not well done in putting it down.

It is too plain for argument that the defendant did not agree that if his pavement should need repair within the three years, that the authorities of the district, because he failed to repair, could change the entire character of the pavement from a wooden to a stone or concrete or vulcanite or any other pavement, and place it where the one had been constructed by him, and charge the entire cost of the new and better class of pavement to him. . Even if it be conceded* that defendant was bound at all hazard to keep his pavement in repair for the three years, or pay the district government for so doing, this meant repair, not a new pavement,—such repairs as that kind of pavement was capable of, and not a new and much more expensive one, to be laid at his cost. As plaintiff did not make such repairs, and offered no evidence of what it would have cost to make them, we do not see that there was any evidence on which a verdict could be rendered. It is true that it appears that plaintiff paid $1,242.92 for taking up and relaying wooden blocks, and if there had been any evidence that this was rendered necessary by the failure of the defend. ant to perform his contract well, it might have been left to the jury as to that much damage by reason of such failure.

But we concur with the court below that the defendant did not contract for the perfection of his work for three years, nor that he would keep it good for that time. His contract was to lay the Miller wood pavement, a patented invention. Of the capacity of this invention for resisting weather and use the board of public works, and not he, took the responsibility. All his material was submitted to the in

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