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8 F.(2d) 56

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Plaintiff owned and held both common and preferred stock during the years 1916 and 1917. On October 25, 1916, the corporation declared on its common stock a dividend of $1 per share, payable February 15, 1917, and on January 24, 1917, another dividend on its common stock, of $1 per share, payable May 15, 1917. On October 25, 1916, it declared a dividend of $1.75 per share on its preferred stock, payable January 2, 1917, and on January 24, 1917, it declared two dividends of $1.75 per share on its preferred stock, payable one half April 2, 1917, and the other half July 2, 1917. The dividend on the preferred stock declared October 25, 1916, and payable January 2, 1917, was not included in plaintiff's tax assessment or paid. All the other dividends were included, and the tax levied and assessed thereon at the 1917 rate. It is plaintiff's contention that the applicable rate is that obtaining in 1916, and not the rate obtaining in 1917.

The solution of this dispute turns on the proper interpretation and construction of section 31, added October 3, 1917, to the Revenue Act of 1916 (Comp. St. 1918, § 6336z). This section was considered, and a conclusion announced in Douglas v. Edwards (2 C. C. A.) 298 F. 229. When this case was argued, it was represented that the United States Supreme Court would shortly thereafter, in April last, hear arguments in that case on review, and counsel were later advised that I would hold up the decision of the instant case until an opinion was announced by that court. It has, however, now adjourned until October, without any pronouncement having been made, and, upon consideration of the interests involved,

I deem it my duty to announce my own conclusion without further delay.

If Douglas v. Edwards is correctly decided, defendant concedes plaintiff is entitled wards may be reversed, and plaintiff will to judgment. In my opinion Douglas v. Edstill be entitled to judgment. In that case the dividends in question were declared, part late in September, 1917, and the remainder in December, 1917. The corporation, on declaring the dividend, announced that it was a distribution of accumulated undivided profits or surplus for the year 1916 and prior years. It appears, however, that there were ample current earnings and income accruing in the calendar year 1917, and prior to the declaration of dividends, out of which such distribution could have been made. This being so, there was presented the exact question which defendant's counsel present to me for decision in this case, but the facts in this case have a distinctly different aspect.

Here part of the dividends were declared in October, 1916, the remainder were declared as early as January 24, 1917. It is true the earliest payment was February 15, 1917, and the latest July 2, 1917. The corporation, on making these declarations of dividend, recited and announced that they were a distribution of accumulated and undivided profits and surplus accruing during the year 1916. It seems to me that this declaration is the only inference which may be legitimately drawn from the agreed facts.

The section in question is quoted in full in Douglas v. Edwards. The important language is, in substance, this: Any distribution made to the shareholders of corporations in the year 1917 shall be deemed to have been made from the most recently accumulated undivided profits or surplus, and shall constitute a part of the annual income of the distributee for the year in which received, and shall be taxed to the distributee at the rates prescribed for the years in which such profits or surplus were accumulated by the corporation. First, it is a distribution made by a corporation. Second, the distribution is from accumulated undivided profits or surplus. Third, it shall be included in the annual income of the shareholder for the year in which received. And, fourth, it shall be taxed to the distributee, not at the rates prescribed for the year in which received by the distributee, but at the rates prescribed for the years in which such profits or surplus were accumulated. “Earnings or profits," as is pointed out in Douglas v. Edwards, appears six times in the same

act, whereas "most recently accumulated undivided profits or surplus" appears only in the connection above stated. The difference in language is so distinct as to evidence a difference in meaning.

This, however, is not the strongest consideration. Section 31 distinguishes between the year in which the shareholder receives payment of the income and the year in which the corporation shall have accumulated undivided profits or surplus. The shareholder is to include it as a part of his annual income for the year in which it is received. It is to be taxed, however, at the rate prevailing during the year in which it was accumulated. Obviously, therefore, a distinction is made, not only between earnings or profits and accumulated undivided profits or surplus, but also between distribution by the corporation and receipt of the sum distributed, by the shareholder. As applied to the facts of the instant case, this last consideration seems to be controlling.

A distribution by the corporation to the shareholders takes place when the declaration of the dividend is made, and not when the dividend is paid. The amount of the dividend, after the declaration, becomes the property of the shareholder. As between him and the corporation, the relation of debtor and creditor as to such dividend is as once created. If, after the declaration and before the payment, the shareholder dies or sells his shares, the dividends, in the absence of any board rule or by-law to the contrary, passes to the executor and not to the purchaser. It is, in substance, a debt due from the corporation, payable in the future at the date specified. These principles are well settled and have been applied to dividends declared under the Income Tax Act of October 3, 1913, making the effective date of distribution the date the dividend was declared, and not the date when it was paid. See United States v. Guinzburg (2 C. C. A.) 278 F. 363; Plant v. Walsh (D. C.) 280 F. 722. In addition thereto, it is familiar law that a corporation cannot lawfully declare a dividend except from accumulated undivided profits or surplus in existence at the time such declaration is made. It is customary, if not essential, that the existence thereof shall have been ascertained by some form of profit and loss statement. This profit and loss statement should show, carried into the surplus or undivided profits, the earnings previously made.

All of these principles must have been within the knowledge and cognizance of the lawmakers when they phrased section 31.

It is not necessary to go the length of Douglas v. Edwards in construing the language, "accumulated undivided profits or surplus," but it is essential that the undivided profits or surplus should at least have been susceptible of, ascertainment, and of being carried into a profit and loss statement, if one had been made. Upon the facts agreed, no undivided profits or surplus had or could be accumulated in this sense, even if some had been earned after January 1, 1917, and prior to January 24, 1917. According to the law, and the customary principles of corporate management, the dividend declaration of January 24th must have been made on the basis of a profit and loss statement closed not later than the first of that

month. If, therefore, distribution by the corporation, within the contemplation of section 31, means the declaratory distribution made by the corporation, as distinguished from the receipt of the dividend when actually paid, by the shareholder, it follows that the dividends now in controversy must be a distribution of accumulated undivided profits or surplus for 1916.

I am content to dispose of this case on this ground: I agree that the word "deemed" is to be taken in the sense of "conclusively presumed." If there are or have been accumulated undivided profits or surplus before the distribution is declared or, in other words, made, it will be conclusively presumed against the shareholder that the distribution is from those most recently accumulated; but it is essential that the existence of accumulated undivided profits or surplus should be shown. In this case the showing is to the contrary, and it is not necessary, in order to support this showing, that a finding should be made upon the question of law and fact propounded in the last paragraph of the agreed statement of facts. It may be, as is contended by defendant, that tire sales under the facts agreed were what in law is known as a sale or return, and not a bailment, or a consignment. Even so, the showing is conclusive that on January 24, 1917, when the last dividend was declared, i. e., when the last distribution was made, there could not have been in existence accumulated undivided profits for any period later than the year 1916.

Due consideration has been given to the conflicting decisions of Douglas v. Edwards (D. C.) 287 F. 919, reversed by the Second Circuit Court of Appeals, and Harder v. Irwin (D. C.) 285 F. 402. In the main, I agree with the reasoning of the Second Circuit in reversing those decisions.

In my

8 F.(2d) 59

opinion, the District Courts ignored the delivered to or placed aboard said steamship, well-settled rule that, in statutes levying but, ever since received by libelants have taxes, all doubts inhering therein must be been, and still are, at Cleveland in their resolved against the government and in fa- custody and possession. vor of the taxpayer. United States v. Merriam, 263 U. S. 179, 44 S. Ct. 69, 68 L. Ed. 240, 29 A. L. R. 1547; Gould v. Gould, 245 U. S. 151, 38 S. Ct. 53, 62 L. Ed. 211. Judgment will be rendered for plaintiff for amount prayed in the petition.

THE NEW ROCHELLE.

FIX et al. v. UNITED STATES.

This steamship during the time in question was and still is owned by the United States. On April 28, 1920, the United States Shipping Board entered into a charter sales agreement with Charles G. A. Pfitsch, trading as the International Bureau of Supplies. On May 3, 1920, the steamship was delivered to him pursuant to this agreement, at the port of New York. On November 4, 1920, the charter sales agreement of April 20 was canceled and a new charter sales agreement entered into with the Baltic Steamship Cor

(District Court, N. D. Ohio, E. D. February 27, poration of America in lieu thereof. In

1923.)

Maritime liens 25-No lien for merely repairing boiler tubes at vessel at distance from, and not delivered to, vessel.

Under Ship Mortgage Act 1920, § 30, subsec. P (Comp. St. Ann. Supp. 1923, § 81464000), giving maritime lien for furnishing repairs or supplies to a vessel, they must have been delivered to the vessel; and there is no lien for cleaning and rewelding a vessel's boiler tubes at a distance from it, they not being shipped or delivered to it, but cause of action is in personam against contracting party.

In Admiralty. Libel by John W. Fix and others against the United States, as owner of the steamship New Rochelle. Libel dis

missed.

Li

WESTENHAVER, District Judge. belants, a partnership, having their principal place of business at Cleveland, Ohio, filed in this court this libel against the United States under favor of section 2, act of Congress known as the Suits in Admiralty Act, approved March 9, 1920 (41 Stat. 525 [Comp. St. Ann. Supp. 1923, 1251a]). The libelants elect in their libel to proceed in accordance with the principles of libels in rem, as is permitted by section 3 of said act (Comp. St. Ann. Supp. 1923, § 12514b). Libelants' claim is for work and labor performed in cleaning and rewelding 1,280 boiler tubes for a steamship, then known as the New Rochelle, now the President Fillmore. This work was ordered by the Baltic Steamship Corporation, July 16, 1920, was performed at Cleveland, Ohio, and was finished about December, 1920. These boiler tubes were intended to be returned to said steamship and carried aboard her as extra or supply parts. They were never, in fact, shipped from Cleveland, received by the Baltic Steamship Corporation, nor

both of these agreements, provisions are contained too long to quote or summarize, but which clearly and explicitly deprive the charterer of all authority to bind the vessel for repairs, supplies, or other necessaries.

When libelants were approached by one Fred Harmon and asked for prices and sample of their welding work, they were informed by him that the cleaning and rewelding was to be done for the New Rochelle, and that she was owned by the Baltic Steamship Corporation. Harmon was not connected with, nor authorized by, that company to order repairs, but it was then clearly understood that he was a mere volunteer, and that, if an order was placed, it would be placed later by the owner or some authorized agent of the owner. The order was in fact placed by a letter dated July 16, 1920, on the letter head of the Baltic Steamship Corporation. The libelants, neither then nor at any time before completing the work, made any inquiry or exercised any diligence to ascertain whether or not the Baltic Steamship Corporation had authority to bind the vessel.

When this order was placed, the New Rochelle was lying in port at Jersey City, undergoing repairs. These repairs were completed, and she was placed in the ocean mercantile service not later then October, 1920. She was on January 26, 1921, redelivered to the United States Shipping Board, and the rights acquired by the Baltic Steamship Corporation under its charter sales agreement were thereupon finally terminated. This libel was filed October 6, 1922, at which time the evidence shows that the steamship was probably in Germany, having left the port of New York for Bremen, Germany, September 29, and was later reported as having sailed on her return trip from Bremen Oc

tober 18, and was due at New York October 23, 1910 (Comp. Stat. § 7783), a maritime 27, 1922.

No allegation is made in the libel as to the presence of the vessel at the time it was filed, in any port of the United States or of any of its possessions.

Such are the facts. Respondent insists that relief cannot be granted, for the following reasons: (1) That this court is without jurisdiction; (2) that no maritime lien at

taches to the vessel under the circumstances stated; (3) that, if the supplies had in fact been furnished and delivered, the libelants are without remedy, because of the terms of the charter sales agreement and their failure to exercise reasonable diligence to ascertain the same.

1. That this court has not jurisdiction of this proceeding is held in Blamberg v. United States, 260 U. S. 452, 43 S. Ct. 179, 67 L. Ed. 346, 1923 A. M. C. 50, affirming (D. C.) 272 F. 978. It is there held that the Suits in Admiralty Act does not confer jurisdiction of a proceeding based upon a maritime lien, enforceable only in accordance with the principles of a libel in rem, if the vessel is not within a port of the United States and its possessions at the time the libel is filed. In this case it is not asserted that the United States is liable in personam, since the contract was not with any of its authorized representatives but with the Baltic Steamship Corporation. On the contrary, it is conceded that liability can be established only on the principles of maritime law which make a vessel liable in rem for repairs, supplies, or other necessaries. Hence, in my opinion, it follows that this case, upon the facts, falls within the rule of Blamberg v. United States. In Cunard Steamship Co. v. United States, as owner of the S. S. Isonomia, recently decided by the Court of Appeals, Second Circuit, 285 F. 516, 1923 A. M. C. 132, it was also held that a district court has not jurisdiction, under section 2 of said act, of a libel to enforce a maritime lien binding the vessel on in rem principles unless at the time it is filed the vessel is within the district. The contrary was held in Middleton & Co. v. United States (D. C.) 273 F. 199, and in a number of other unreported cases. It is unnecessary to express any opinion upon this disputed question.

2. Upon the facts above stated, no maritime lien is created binding this vessel. By subsection P, § 30, Ship Mortgage Act 1920, approved June 5, 1920 (41 Stat. 988 [Comp. St. Ann. Supp. 1923, § 81464000]), reenacting in substance section 1, Act June

lien exists only when repairs, supplies, and other necessaries are furnished to the vessel upon the order of the owner or of some person duly authorized by the owner. It is settled law that the repairs, supplies, or other necessaries must have been delivered to the vessel in order that a maritime lien will arise. If the claim is based upon the breach of a contract for the purchase or procurement of supplies which are never delivered to the vessel, then a maritime lien, enforceable by a proceeding in rem, is not created. Osaka Shosen Kaisha v. Pacific Export Lumber Co., 260 U. S. 490, 43 S. Ct. 172, 1923 A. M. C. 55; Piedmont Coal Co. v. Seaboard Fisheries Co., 254 U. S. 1, 41 S. Ct. 1, 67 L. Ed. 97; The Yankee, 233 F. 919, syl. 5, 147 C. C. A. 593; The Curtin (D. C.) 165 F. 271; The Vigilancia (D. C.) 58 F. 698; The Cabarga, 4 Fed. Cas. No. 2276. See, also, The S. L. Watson (1st C. C. A.) 118 F. 945, 952, 55 C. C. A. 439, cited with approval by Mr. Justice McReynolds in Osaka Shosen Kaisha, supra. Consequently, since it appears in this case that the cleaning and rewelding of these boiler tubes was done at Cleveland and not on or about the vessel, and they were never shipped from libelants' place of business, nor delivered to nor in the vicinity of the vessel, it results from the foregoing authorities that no maritime lien attaches to the vessel but that libelants' cause of action is in personam against the person or corporation with which their contract was made.

3. The respondent urges that, since this work and labor was not ordered by the owner of the vessel or by a duly authorized agent of the owner, but was, on the contrary, ordered by a charterer having possession under a charter sales agreement which forbade the charterer from binding the vessel for repairs, supplies, and other necessaries, the libelants cannot in any event recover, because they failed to exercise reasonable diligence to ascertain the terms of such charter sales agreement. That the charter sales agreement in this case left Charles G. A. Pfitsch and later the Baltic Steamship Corporation without authority to bind the vessel is settled by United States, as owner of the Steamships Clio and Morganza et al. v. Carver, 260 U. S. 482, 43 S. Ct. 181, 67 L. Ed. 361, 1923 A. M. C. 47, decided by the United States Supreme Court January 2, 1923, in which similar provisions of a charter party were considered and held to deprive the charterer of such authority. Respondent also urges that this case is au

8 F.(2d) 61

thority for the proposition that libelants did not exercise reasonable diligence as required by section 3, Act June 23, 1910 (Comp. St. § 7785), and by subsection R, § 30, Ship Mortgage Act 1920, approved June 5, 1920 (Comp. St. Ann. Supp. 1923, § 81461⁄4pp). To the same effect is cited Pensacola Shipping Co. v. Fleet Corporation (5 C. C. A.) 277 F. 889. Libelants insist that these cases are not to be regarded as having this controlling effect, because, as they insist, the law was well settled prior thereto that a furnisher of supplies to a vessel is not obliged to inquire whether the person in possession has authority, but is only required to exercise reasonable diligence after being put on notice, and that a settled rule ought not to be regarded as overturned without a more definite expression of opinion by the United States Supreme Court. It is unnecessary to express any opinion upon this disputed question.

For the foregoing reasons, the libel will be dismissed. Judgment is rendered against the libelants for the costs. An exception will be noted.

THE AWENSDAW.

BENSAUDE & CO. v. UNITED STATES.

(District Court, E. D. South Carolina. February 8, 1923.)

United States 140-Libel against United States for supplies furnished vessel must be

filed while vessel is "employed as merchant vessel," and allege that it is so employed.

Construed strictly, as it must be, Act March 9, 1920, § 2 (Comp. St. Ann. Supp. 1923, § 12514a), providing that libel may be brought against the United States, on account of its vessel, "provided such vessel is employed as a merchant vessel," requires vessel to be so employed at the time of filing of libel, and libel, to give court jurisdiction, must state that it is so employed.

[Ed. Note. For other definitions, see Words and Phrases, First and Second Series, Employed.]

SMITH, District Judge. A libel was filed in this case against the United States of America on December 19, 1922. This libel was filed under the term of the Act of March 9, 1920 (Comp. St. Ann. Supp. 1923, §§ 12514-12514), to obtain a decree against the United States for $1,704.17, as due to a materialman for supplies and other necessaries furnished to the steamship Awensdaw whilst it was in the ownership and possession of the United States.

.

It appears upon the face of the libel that, since the incurring of the liability claimed for the furnishing of those supplies and necessaries in January, 1921, the steamship Awensdaw was sold by the United States to a private corporation called Clinchfield Navigation Corporation, which subsequently sold the vessel to other parties, the name of the vessel being changed to that of Cubwood, and that some time in the year 1922, whilst in the ownership and possession of these last vendees, the vessel was damaged by fire, and has been abandoned and is now lying in the harbor of Charleston.

The United States has filed an exception to this libel, upon the ground, among others, that, in order for this court to have jurisdiction of the proceedings under the Act of March 9, 1920, it must clearly appear from the libel and be therein alleged that, at the time of the filing of the libel, the vessel was being operated as a merchant vessel.

By the terms of the second section of the Act of March 9, 1920 (Comp. St. Ann. Supp. 1923, § 12514a), it is provided that proceedings of this character in admiralty may be brought against the United States or against any corporation in which the United States or its representatives shall own the entire outstanding capital stock, provided that such vessel is employed as a merchant vessel, or is a tugboat operated by such corporation. Inasmuch as the provisions of this statute should be construed strictly, it being an act whereby the United States subjects itself to the jurisdiction of the court, the question arises whether or not it is essential, in order that any such proceeding may be brought against the United States, that the vessel through which the liability originated is employed as a merchant vessel

at the time the libel was filed.

In Admiralty. Libel by Bensaude & Co. against the United States, as owner of the steamship Awensdaw (now the steamship Cubwood). On exception to libel. Exception sustained, and libel dismissed. Alfred M. Huger, of Charleston, S. C., have been so employed at the time of the for libelant. accrual of the liability?

Glen R. Snider, of New York City, for the United States.

libel was filed, or is the statute to be conMust it be so employed at the time the strued as meaning only that the vessel must

The position of the libelant is that the reason of the case is only that the vessel

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