an action in rem against the steamship Gasconier for the same cause, based on the same facts, in this court, and in that action a bond for $25,000 was given by the claimant. This action was noticed for trial and thereafter duly reached for trial on April 2, 1924, having been previously set down for trial on that day without objection, on a call of the admiralty calendar held on March 22, 1924, and, on the failure of the libelant to proceed, the case was dismissed.

On April 3, 1924, the libelant moved to open his default, but the motion was denied by Judge Inch, who filed a memorandum on such denial, in which he held that there was no default in the sense that failure to appear had been caused by inadvertence or mistake, but that on the contrary the action of the libelant's counsel constituted a deliberate abandonment, and held that to have been established by the moving papers presented before him.

On June 24, 1924, the libelant commenced a new action in rem in this court against the said ship for the same cause and based on the same facts, in which action process was issued, and it is the libel in this action that claimant now seeks to have dismissed.

The first action in rem has been held by one of the judges of this court to have been abandoned, and, that decision not having been reversed on appeal, is binding on this court.

[1] I am fully aware that the rights of seamen are to be carefully protected, but that does not mean that a proctor or advocate may play with this court and hide behind the fact that his client is a seaman. If the libelant now finds himself in a less advantageous position than is satisfactory, it is due entirely to the unwillingness of his proctor to prosecute the prior action when it was reached for trial; and, while the rights of seamen are to be protected, so are the rights of the ship and claimant, and it is apparent that it would place an unreasonably heavy burden on the claimant to compel it, more than two years after the happening of the alleged accident, to try and find the witnesses to the accident and even take their testimony by deposition, which they would be compelled to do, as any depositions taken in a former case are not admissible in this case.

It would therefore seem that on the merits the decision should be in favor of the claimant, and, not only should the motion be granted on the merits, but I am of the opinion that I am not vested with discretion but bound by the law to grant this motion.

[2] There can be no question about the right of the libelant to bring an action in personam after dismissal or discontinuance of an action in rem, but it seems equally clear that once a bond or other security is given to release a ship from a lien, in an action in rem, the bond or other security takes the place of the ship, and the ship returns to her owner free of the lien, except there be fraud in the appraisement or bond, in which case the court has the right to recall the vessel for the purpose of requiring an honest appraisement and exacting a legal bond, as in case of a mistake in the amount of the bond, in which case the court can require additional security. The Kalamazoo, 9 Eng. Law and Eq. 557; The Wild Ranger, Brown and Lush. 84; The Union, Fed. Cas. No. 14346; The Old Concord, Fed. Cas. No. 10482; Benedict's Admiralty (4th Ed.) p. 286, § 421.

Had the stipulators on the bond become insolvent, the ship could not have been rearrested; the only remedy would have been to order the claimant to file new security on penalty of contempt or of being denied the right to appear further and contest the suit. The Fred M. Lawrence, 94 F. 1017, 36 C. C. A. 631; Home Ins. Co. v. The Concord, Fed. Cas. No. 6659; The Old Concord, Fed. Cas. No. 10482.

Where the former suit in rem had been discontinued by libelant and costs paid after claimant had given a bond and obtained the release of the ship, a libel in a subsequent action in rem for the same cause was dismissed. The Thales, Fed. Cas. 883, No. 13855, affirmed Fed. Cas. 884, No. 13856, in which, at page 883, Judge Blatchford said:

"There can be no doubt that the vessel is not liable to arrest in this action for the same cause of action for which she was arrested in the former action, she having been duly discharged on bond in that action."

And again, at page 884, answering libelant's claim that by discontinuance and payment of costs the new action was an original one, he said:

"This view overlooks the fact that the vessel was discharged on bond. The rights of the parties interested in the vessel were fixed by the bonding and discharge, and she then returned into their hands freed from the lien or charge for which she had been arrested, and from liability to be again arrested therefor. Such liability could not be renewed or recreated, against their consent, by the ac

tion of the libelants in discontinuing the suit."

Where the former suit had been brought in rem by the owner of a scow to recover damages from a tug which had been released on giving a bond, and the suit had been dismissed because of libelant's failure to file security for costs, a second suit in rem brought by the wife of the former owner of the scow for the same cause of action was dismissed. The William F. McRae (D. C.) 23 F. 557, in which Judge Brown said: "That a vessel discharged from arrest upon admiralty process by the giving of a bond or stipulation for her value, or for the payment, of the amount claimed in the libel, returns to her owner freed forever from the lien upon which she was arrested, and can never be seized again for the same cause of action, even by the consent of the parties, is a proposition too firmly established to be open to question."

Where two suits in rem were brought by the same libelant for the same cause of action against the same vessel, in the first the libelant having been allowed to sue in forma pauperis, and the court, later determining that the affidavits upon which the order therefor had been granted were untrue, and considering that there had been an abuse of process of the court, made an order dismissing the suit without prejudice to the libelant to commence other suits for the same cause of action, such order of dismissal having been made after the vessel had been released on giving bond, the court dismissed the second suit on the ground that the giving of the bond in the first suit released the vessel from the lien. In that case, The Cleveland (D. C.) 98 F. 631, at page 632, Judge Hanford said:

"This case does not come within any recognized exception to the general rule. The release of the steamer Cleveland was not obtained by means of fraud on the part of the claimant, nor was the decision of the court in the former case founded upon a mistake or misunderstanding of the facts. The court has not passed an order in this case directing that the vessel be again taken into custody, but the libelants are endeavoring to proceed as if the former suit had never been commenced, and as if it were permissible for them to ignore the fact that in the former suit a bond to answer their several demands was received as a substitute for the security which they obtained by attaching the vessel. Upon the authority of the decisions above referred to, and other cases to which they refer, I am obliged

to hold that the release of the steamship Cleveland in the former suit against her, by these libelants, discharged her absolutely from liability to answer the demands of the libelants in this case, and that the proviso in the order dismissing the former suit that the same was made without prejudice can have no other effect, as a saving clause, than to prevent the decree of dismissal from being set up in bar of subsequent suits in personam against the master or owners of the vessel."

The motion to dismiss the libel and vacate the attachment made herein is granted.

FRASER v. NAUTS, Collector of Internal Revenue.

(District Court, N. D. Ohio, W. D. September 12, 1925.)

No. 3013.

1. Internal revenue 38-Government, seeking to impeach as mala fides written contract, has burden of producing clear and convincing proof.

Government, seeking to impeach as mala fides a written contract, in so far as it affects income tax of one of parties. thereto, must produce proof that is clear and convincing rather than mere preponderance.

2. Internal revenue 5- Device to avoid burden of revenue acts may be resorted to if effectuated by legal means.

Device to avoid or minimize burden of revenue acts may be resorted to if effectuated by legal means.

3. Statutes 245-Revenue statutes not extended by implication, and doubts resolved against government.

Taxing statutes may not be extended by implication beyond clear import of language used, nor may their operations be enlarged to embrace matter not specifically pointed out; doubts being resolved against government.

4. Internal revenue 7-Contract for sale of lumber business, including good will valued at $100,000, held not illegal attempt to evade income taxes.

Bona fide contract for sale of lumber business and lease, by which good will of business was valued at $100,000, held not impeachable by government as mala fides and illegal evasion of income tax on such $100,000.

At Law. Suit by Harold W. Fraser, as executor of the estate of William T. Hubbard, deceased, against Charles H. Nauts, Collector of Internal Revenue. Decree for plaintiff.

Fraser, Hiett & Wall and Marshall, Melhorn, Marlar & Martin, all of Toledo, Ohio, for plaintiff.

D. L. Sears, Asst. U. S. Atty., of Toledo, Ohio, and Mr. Ward, Dept. of Internal Revenue, for defendant.

KILLITS, District Judge. [1] As the government, in this case, to succeed in its defense, must impeach, as in mala fides, a written contract between the plaintiff's testator and the Willys-Overland Company, it is illuminating to advert, at the outset of this memorandum, to the established principle respecting the quantum of proof requisite to such an undertaking; i. e., that the necessary proof, far from a mere preponderance, must be clear and convincing.

As the case is pleaded and presented, if the contract is sustainable with the application of this principle, relief such as is asked by the plaintiff must be afforded.

With intent of the parties to the contract, then, under scrutiny, it becomes important, as elements of interpretation of such intent, to consider the respective situations of these contracting parties at the time of execution.

The date is October 6, 1919, a time when, as the proof shows and as is well known, the transportation system of the country was under great demoralization resulting from war conditions, to the serious embarrassment of manufacturers using large quantities of raw materials, not produced in the vicinity of their operations. Lumber, as a bulky commodity, was definitely a raw material difficult of ready and quantitative procurement. The Willys-Overland Company was a very large consumer of hardwood lumber, under circumstances which made it willing, at times, to pay even exorbitant prices for quick delivery; and it was, at the date in question, in need of such commodity to a very large amount. In addition, the current business of this manufacturer made highly desirable an immediate enlargement of its storage and shipping facilities.

The decedent, plaintiff's testator, Hubbard, had been for a long time a dealer in hardwood lumber. He had in his yards a very large amount of this merchandise, in an assortment of quality and dimensions which was adaptable to the Willys-Overland Company's use. Besides, he enjoyed a long lease of a yard whose facilities met substantially the company's storage and shipping needs.

Hubbard had been negotiating with the Willys-Overland Company for a sale of his

business, and had fixed his aggregate price at $525,000, which the company was preparing its mind to accept. At this juncture he was stricken with what was feared to be a mortal disease. In the hospital, with surgeons in the hall, impatient to commence a necessarily immediate and hazardous operation, Hubbard, himself believing that death was imminent, had but time to place the conclusion of negotiations in the hands of his counsel as his attorneys in fact, clothing them with plenary powers respecting the present matter.

[2, 3] Naturally, an effort was made by Hubbard's representatives to minimize, as far as possible, the burden of federal taxation. It is the opinion of this court that, while such an idea moving to what was done by way of apportioning the elements of sale to the Willys-Overland Company should be considered as one of the factors of possible mala fides, yet it is relatively unimportant unless otherwise pretty definite impeaching proof is found. A device to avoid the burden of revenue acts may be resorted to, if effectuated by legal means (United States v. Isham, 17 Wall. 496, 21 L. Ed. 728); wherefore, after all, the inquiry is not as to the object, but of the legal sufficiency of such means. In this inquiry enters, in behalf of plaintiff's position, the established rule that the provisions of the taxing statutes may not be extended by implication beyond the clear import of the language used therein, nor may the operations of statutes be enlarged so as to embrace matter not specifically pointed out, and the further principle that doubts upon these questions are to be resolved against the government. Gould v. Gould, 245 U. S. 151, 38 S. Ct. 53, 62 L. Ed. 211.

[4] The revenue law recognized good will, as its value was ascertainable as of March 1, 1913, to be a species of property subject to transfer by sale free of revenue tax, and regulations were promulgated involving formula whereby values of such intangible property as of that date might be computed. Under these circumstances a written contract of sale was made and executed between Hubbard, through his attorneys in fact, and the company, of the lumber, for a stated consideration of $250,000, and of the good will as of March 1, 1913, as of the value of $100,000, and also of a sublease of the yards and shipping facilities for ten years at $17,500 per year rental. The contract required Hubbard to cease doing business as an individual, except for the completion of current contracts with third parties.

Hubbard survived the transaction and his operation but a few months, carrying on, for a short time, business at the old location, later forming a corporation to engage in the hardware lumber business at another point, with about two-thirds of the stock interest in himself.

The Willys-Overland Company, for a considerable period, used the yard leased under the contract, both for the continued storage of the lumber bought, and extensively for shipping purposes, and for the storage of its product, finally disposing of the lease. It never used its good will interest, if, in fact, that intangibility had a practical use; and it never questioned whether Hubbard fully complied with the trade restriction imposed upon him by the contract. On its books it entered the transaction merely as a merchandise purchase for $525,000. Hubbard, for 1919, returned a net income which involved him in an income tax of $80,061.54, not accounting for the $100,000 received for good will. Later, the government, going no farther into the good faith of the transaction, demanded accountability for the $100,000 in question, assessing an additional tax for 1919 of $67,654.95, which was paid by the Hubbard estate under protest; this suit following in an effort to recover such payment.

The government has so restricted the situation as to raise in this action nothing but the question whether the good will as of March, 1913, was actually sold, or whether to include that as an item of sale was to indulge an illegal effort to defraud the government of revenue. A regulation formula was introduced in evidence, which, applied

to the condition of the Hubbard business prior to March, 1913, justifies a conclusion that this good will then had a valuation for tax reduction office of about $102,000, although the government contends here, not very strenuously, that, upon another basis of calculation, its fair value was but $62,370.55.

The lumber was undoubtedly worth more than $250,000. To the Willys-Overland Company, then involved in its present necessities, it may have been worth a half a million dollars or more. There is some reason for the government's contention also that Hubbard breached his contractual restriction upon continuing in business under his individual name, for which the company may have had a right of action against him,

and which it never attempted to exercise; but, we repeat, the issue is the narrow one whether the good will was sold. On that point the contract is in the plainest possible terms. It clearly expresses a sale, and binds the contracting parties, respectively, to a transfer, which the Revenue Act expressly permitted to be the subject of consideration to the diminution of the amount of the sales tax. Between the parties to the contract, then, no question of good faith is possible on this point; neither could be heard to question that the Willys-Overland Company paid $100,000 for this item, and thereby acquired it from Hubbard; and, as we have suggested, and the evidence shows, and we must hold, that the valuation was not exorbitant.

The government, although but a third party, directly, of course, is in a position to question the good faith of the transaction, because of its taxing interest. However, presumptions run strongly in favor of the contract as an expression of the actual intent of the parties, and an exhibition of what in fact was done; the execution thereof being shown.

Hubbard had a clear legal right to fix a value on each item of property he had to sell, whether his choice was to establish a depreciated or exorbitant figure. The government concedes, by its legislation, that the good will in question was a disposable asset. He was justified in law to place upon his merchandise a low or inadequate price as an inducement to obtain a market for his less salable good will. Likewise, it

the other party to meet his terms in the purchase of something which it could not use, to be able thereby to satisfactorily acquire something greatly to be desired. Therefore, by means entirely legal, taxes which otherwise might have been imposable were avoided.

was within the noncriticizable discretion of

It is plain that, if the tax question were not here, no one would dream that the contract was fraudulent. That question involved is not sufficient to render fraudulent a transaction otherwise unimpeachable.

It is the court's judgment that the government has not succeeded in meeting the presumptions facing it with proof sufficient to impeach the good faith of the transaction, and that the plaintiff should recover its protested payment with interest.

10056.

Bankruptcy 330-Proof of claims held sufficient.

Individuals who borrowed money from a bank on their own notes and had it credited to bankrupt corporation, which used it in its business, may prove their claims for money lent, regardless of whether or not the notes have been paid.

In Bankruptcy. In the matter of the Standard Wholesale Produce & Supply Company, bankrupt. On review of orders of referee. Affirmed.

L. B. Brownfield, E. J. McDaniel, and Elias Goodstein, all of Uniontown, Pa., for petitioners.

John L. Robinson, of Uniontown, Pa., for

trustee.

SCHOONMAKER, District Judge. This case now comes before the court on petition to review:

(1) Action of the referee in bankruptcy in granting permission to L. B. Brownfield, E. J. McDaniel, and Theodore Baroni to amend their original claim in bankruptcy in this case after the expiration of one year from the date of adjudication in bankruptcy.

(2) The refusal on the part of the referee to reconsider and expunge from the record the claim filed by said L. B. Brownfield, E. J. McDaniel, and Theodore Baroni.

We have carefully reviewed the findings of the referee in bankruptcy in this case, and find no reason to disturb his findings. So far as the first question is concerned, the power of amendment was properly exercised by the referee, under the authority of the cases cited by the referee in his opinion. The amendment granted really is not necessary, for the claim was based, not only upon the promissory notes, but on the loan of the money to the bankrupt, which the claimants secured by means of the notes.

It seems in the instant case that the corporation desired to negotiate a loan at the bank; its officers went there for that purpose; the bank declined to deal with the corporation, or to loan any money; but it was agreed that, if the individuals concern

ed, the claimants in this case, Brownfield, McDaniel, and Baroni, would give their notes to the bank in the sum of $14,500, the bank would loan the money. This was accomplished on the promissory notes, one in the sum of $7,000, and the other in the sum of $7,500, on which McDaniel and Baroni appeared as makers and Brownfield as indorser. The money secured on these notes was turned over to the bankrupt, and deposited to its credit, and used by it in the conduct of its affairs.

So, as we view the case, the debt that is represented by the claim filed is not evidenced by the notes in question, and the payment of the notes in question, therefore, is not necessary to render the bankrupt liable to the claimants in this case, or any of them. Therefore it was unnecessary to allow the amendment, which would show the payment of the two notes in question by Brownfield. The effect of what was done in this case, the borrowing of the money on these two notes,, and the placing of the money to the credit of the corporation, was to make these three individuals the creditors of the now bankrupt debtor. The proof of claim filed set forth sufficient facts to establish the claim of money loaned, independently of the notes concerned, or the payment of them.

In the argument before the court it was urged that the three persons concerned agreed to take stock in the company for the amount of these notes, and that therefore there could be no allowance of these amounts as claims against the estate, for the persons were really shareholders of the company. The referee in bankruptcy, in passing upon this claim, makes no reference to these facts of the case. We do not know what his views are with reference thereto. We have reviewed the testimony, and do not think that that position can be sustained.

There seems to be no question about the main facts in this case-that these three individuals borrowed this money from the bank and loaned it to the bankrupt company. We think that the referee is clearly right in refusing to reconsider this claim as proved and allowed and thereupon expunge it from the record.

An order may be entered, confirming the order of the referee, to which exceptions have been taken by the trustee.