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October 27, 1925, where there was a bequest certain bonds of the United States Steel Corof the income only of a fund left by the tes- poration held by the estate for the purpose of tator in trust, that bequest was taxable, be- producing the necessary funds to pay this cause it was the gift of the income of the annuity, among others provided for in the fund, and not a gift of the fund itself. That will. Beatty had no interest in the invest. case considered the very act that we are here ment of this fund. The providing of the necconsidering. Mr. Justice Holmes, delivering essary funds for this bequest was one entirely the opinion and after quoting the provisions of internal management of the Carnegie esof the act of 1918 applicable, said: tate, in which the trustee alone was interested.

"The language quoted leaves no doubt in Beatty was entitled to his annuity, whether our minds that if a fund were given to trus- the securities produced the necessary funds to tees for A. for life with remainder over, the cover the annuity or not. The income derivincome received by the trustees and paid over ed from the invested funds, it seems very to A. would be income of A. under the stat

plain, was income only to the Carnegie esute. It seems to us hardly less clear that even

tate. Its trustee was enjoined to see to it that if there were a specific provision that A.

the clear net interest was sufficient to cover should have no interest in the corpus, the

the annuity. If, in the course of the investpayments would be income none the less,

ment of these funds of the Carnegie estate within the meaning of the statute and the

for the purpose of paying this bequest, Constitution, and by popular speech. In the

among others, income was produced, that infirst case it is true that the bequest might be

come was taxable only to the Carnegie essaid to be of the corpus for life; in the sec

tate. Congress seems to have foreseen this ond it might be said to be of the income.

situation by providing in section 219 (Comp. But we think that the provision of the act

St. Ann. Supp. 1919, § 63367/8ü) that estates that exempts bequests assumes the gift of a

must make return of their income. corpus and contrasts it with the income aris

In the instant case, it is not necessary for ing from it, but was not intended to exempt

the determination of the point at issue to asincome property so called simply because of

certain whether or not this income was actuà severance between it and the principal fund. But the distinction between

ally taxable as against the Carnegie esiate,

for here we have only to deal with the taxthe cases put of a gift from the corpus of the estate payable in installments and the pres

ability so far as pertains to Beatty. As we ent seems to us not hard to draw, assuming

consider this will of Andrew Carnegie, we that the gift supposed would not be income.

have to deal here with the bequest of a fixed This is a gift from the income of a very large

sum, which we regard as an absolute gift of a fund, as income. It seems to us immaterial corpus, and not the income of a corpus, which that the same amounts might receive a differ

was found to be taxable by the Supreme ent color from their source.”

Court in the case of Irwin v. Gavit, supra. [3] Turning to the bequest in the instant We therefore conclude that, within the plain case, we find that there is no bequest of in- language of the statute, the bequest to John come as income. There was an absolute gift

W. Beatty, which he returned as income in of $5,000 each year, and the gift was not the

his 1920 income tax return, was not in fact income of any particular fund. It was an income, but was exempt from income tax, outright gift, regardless of the source from

and that he error

roneously paid the tax upon which it came. The duty of producing this

that income. annuity devolved upon the executor and trus- [4] This brings us to the second question tee under the Carnegie will. Carnegie gave

raised. The return made by Beatty was volhis trustee the option of producing this sum

untarily made, and the tax was paid without by purchasing an annuity in some life insur- protest or without duress. Can he, under ance company, or of producing it "by the these circumstances, recover these taxes ? clear net interest and income" from invested Under ordinary circumstances, voluntary funds of the estate. This duty is placed up- payments of money may not be recovered on the executor and trustee by paragraph 6 back, and were it not for the provisions of of the will. The bequest, however, was in no section 1014(a), title 10, of the Revenue Actr way dependent upon the income of any in- of 1924 (Comp. St. Supp. 1925, $ 5949), we vested fund. The executor had the power ei- would say that in the instant case this sum ther to use the funds of the estate to pur- might not be recovered now by Beatty's execchase securities or might hold the securities utrix. The act of 1924, however, provides owned by the estate for the purpose. The in reference to actions for the recovery of trustee resorted to the latter, and set aside internal revenue tax alleged to have been er

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10 F.(20) 393 roneously assessed or taxed, "but such suit In the light of the careful presentation by

may be maintained, whether or not both sides upon the application to reargue, such tax, penalty, or sum has been paid under and of the comprehensive memoranda subprotest or duress.” In view of the provi- mitted thereafter, I have concluded that my sions of this statute, we therefore conclude determination of the original motion should that this action may be maintained, and that be recalled. the erroneously paid tax may be recovered. Rule 113 of the Civil Practice Act of the

We therefore decide against the defendant state of New York provides that, where an the questions of law raised by the affidavit of answer is served in an action to recover a defense. The defendant may, within 15 days, debt or liquidated demand arising on a con-, file a supplemental affidavit of defense to tract, express or implied, the answer may be averments of fact contained in the plaintiff's struck out and judgment entered thereon on statement of claim, and in case of his failure motion, and the affidavit of the plaintiff, or so to do an order may be submitted for the of any other person having knowledge of the entry of judgment herein in favor of the facts, verifying the cause of action and statplaintiff and against the defendant for the ing the amount claimed, and his belief that sum claimed in the plaintiff's statement of there is no defense to the action, unless the claim, with interest, for the want of such af- defendant by affidavit, or other proof, shall fidavit.

show such facts as may be deemed, by the

judge hearing the motion sufficient to entitle THOMSON, District Judge, concurs in him to defend. This provision was manifestthis opinion.

ly enacted by the Legislature to put an end to

a practice, unfortunately only too common, 34of endeavoring to prevent a plaintiff from re

covering judgment on a just demand merely MCNEIL V. MAYHEW,

by complying with the technical requirements (District Court, E. D. New York. May 13, of a denial; the defendant having no defense 1925.)

on the merits, nor in law, if actually forced Factors Om 42-Correspondence held to show

to trial. The rule has proved effective, not meeting of minds on guaranty of price. only to accomplish the desired result, but

Correspondence between the parties held to also has frequently saved time and money to establish a meeting of minds in contract where

both parties to a suit, where it has appeared, by broker guaranteed shipper of lumber a particular price.

as a result of an examination of the motion

papers, that there was no real question of At Law. Action by Walter McNeil fact in dispute between the litigants, but against Zeb Maybew. On plaintiff's motion merely a question of law to be decided by the to strike out amended answer and for sum- court, and which could be decided quite as mary judgment. Motion granted.

well upon affidavits as after a trial. Judgment affirmed 10 F.(20) 396.

Such is the case now before the court, Zabriskie, Sage, Gray & Todd, of New according to the claim of the plaintiff, and a York City (George Zabriskie and George

careful examination of the facts will be helpGray Zabriskie, both of New York City, of ful in leading to a correct determination of counsel), for plaintiff.

his contention. The suit is brought to recover Kelly, Hewitt & Harte, of New York

upon two causes of action—the first, for City, for defendant.

breach of contract to pay for lumber shipped

by plaintiff to defendant at an agreed price; GARVIN, District Judge. A motion hav

the second, for goods sold and delivered. ing been made before me by the plaintiff for

On August 1st, plaintiff sent a telegram summary judgment and having been denied, to defendant reading as follows: plaintiff now moves for leave to rcargue.

“Am loading deck load two hundred thouThe motion is granted, and the motion for sand white pine on schooner Joan Kielburg judgment will now be considered de novo. Bridgewater next week for direct sailing New My first conclusion, expressed in a short

York. This nice dry two inch stock. If you memorandum, was

the effect that the de- can guarantee minimum price forty-two dolnials interposed by the defendant raised such lars, will send to you also will give you prefan issue as required the question of the meet- erence cargo on schooner Chautauqua. Pine ing of the minds to be determined upon evi- from same locality as previous shipments but dence produced at a trial. The motion was think better. Will load both Susan and Annot argued at great length, nor fully briefed. nabel about September first. Answer.

a

On August 2d, defendant answered by party of the schooner Joan Kielburg, and telegram as follows:

note your plan for loading this vessel.” “Replying telegram first will guarantee Plaintiff's first telegram contains a clear forty-two delivered New York regular terms offer; defendant's answer accepts in part, subject our commission and discount for two but calls for two new conditions, specifying inch white pine lengths six foot and up log a certain quality of wood and a designated run but with mill culls out separate lo of manner of loading; i. e., 50,000-foot separate fifty thousand feet and no Norway pine in- lots. cluded stop what are you doing with balance Plaintiff's letter, dated August 4th, acof cargo in hold confirm.

knowledges receipt of defendant's telegram On August 4th, plaintiff sent a letter to of August 20, and agrees to furnish a minidefendant which reads in part as follows: mum of 200,000 feet, and states that the first

“Messrs. Simpson, Clapp & Co., 44 lot will probably have to be 100,000 feet. Whitehall St., New York-Dear Sirs: Deck There appears to be no understanding beload Schr. Joan Kielburg. I have your tele- tween the parties upon that point at this gram of the 2d inst. and note where you time. Defendant's letter to plaintiff, dated guarantee $42 delivered New York, regular August 7th, referred to plaintiff's letter, datterms, subject your commission and discount ed August 4th, but did not take any excepfor 2-inch white pine, lengths 6 feet and up, tion to plaintiff's proposals. The court is of log run, with mill culls out. Separate lots the opinion that it was a duty of the defendof 50 M feet.

ant, upon receipt of the letter of August 4th, “The Joan Kielburg was loading pulp in if he was dissatisfied, to have stopped the Bridgewater, and she was offered to me for a sailing of the schooner Joan Kielburg by deck load at the low rate of $5.00 per M, so telegram, for it appears that on August 5th I decided to take her. I agreed to furnish a plaintiff had telegraphed that he was consignminimum of 200 M, but she will probably ing that boat to the defendant. It is conceivcarry 225 M or more so I will probably load able, of course, that the boat might have her to full capacity. I have also chartered started before plaintiff received such a telethe Schr. Chautauqua, now discharging coal gram, but in that event defendant could have at Lunenberg, N. S., and she will be in refused to accept the lumber when it arrived. Bridgewater any day to load.

It seems to the court that the meeting of “Mr. Williams, my superintendent at the minds occurred with the receipt by deCaledonia, had started to load out cars for fendant of plaintiff's letter, dated August the Chautauqua, so I am transferring these 7th, to which he sent no reply. There was to the Joan Kielburg. Immediately on re- later correspondence between the parties. ceiving your telegram, I called him up and Under date of August 22d, defendant wrote advised him how you wished this deck load plaintiff as follows: in separate lots of 50 M, so he is trying to “Mr. Walter McNeil, New Glasgow, Nova arrange this, but he advises that the first lot Scotia, Canada–Dear Sir: We acknowlwill probably have to be 100 M, because about edge receipt of your favor, August 19th, givthat quantity has gone forward to the vessel. ing loading time of the Joan Kielburg, for He however, will be in Bridgewater to- which we thank you. day and see if loading can be done in line "To our surprise this schooner arrived with your requirements.

yesterday, before we had received the last "I inclose you herewith one copy of char- schedule, which came later in the day. We ter party and will wire the specifications in have not been able to start this cargo yet, general to you as soon as I have it from Mr. and find as previously advised you that some Williams and will also mail a complete de- of our former customers for this pine are not tailed specification when received. I trust interested at any price. What white pine is you will be able to sell this pine for $43 or used today is chiefly Western pine, sorted in$44."

to definite grades, dressed, and in carload On August 5th plaintiff telegraphed de- lots. Due to the modern manufacture of fendant as follows:

lumber, retail yards are no longer interested “Am consigning Joan Kielburg to you. in log run, whether it be in white pine, Wrote you fully yesterday.”

spruce, hemlock, or fir; and no matter what On August 7th defendant sent this letter the stumpage may represent to the mill own. to plaintiff :

ers in the provinces, this is of no interest to "We acknowledge receipt of your favor the buyer in the retail yard." of August 4th with inclosed copy charter Defendant did not raise any question with

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10 F.(20) 393 regard to the quantity, or the manner in "We acknowledge receipt of your telewhich the boat was loaded. If he was dis- gram, but have not wired you, as we had no satisfied with respect to either of these opportunity yet to show these schedules, and points, it was manifestly his duty to bring we do not know what you think you should them up for discussion without further delay, get. Despite your idea of price, we cannot even if he had the right to do so at such a obtain more than the market will pay, and late date.

your lumber is in competition with fir and It is claimed that defendant wrote a let- spruce coming in from the Pacific Coast by ter to plaintiff, dated August 23d, reading steamer, and white pine from California and as follows:

Idaho by rail. We have repeatedly advised "Mr. Walter McNeil, New Glasgow, Nova you that values in this market are governed Scotia, Canada-Dear Sir: As wired you by competitive prices, and not by stumpage yesterday, schooner Joan Kielburg arrived values in Nova Scotia. The writer got stuck Thursday and should be ordered to berth to- when you offered $42 for the white pine on day. This cargo does not comply with our the Joan Kielburg, because we figured that offer, August 2d, which specified that this car- one of the three previous customers would go should be loaded in lots of 50 M ft., and use it and we took a chance on getting $42 was in answer to your original offer of only from them in order to get started again with 200 M ft. The first lot loaded was loaded you. The actual facts are that Bossert would mixed up in 100 M ft. parcel, and the last not look at the schedule, that Cross Austin lot should not be shipped at all, as it totals offered $33 for it, and Gates would not take 239 M ft. Furthermore, this lumber was to

it at any price. be log run, and of same quality and manu

“The vessel got here before her papers facture as previously shipped, and it is re- were complete, so that we had no opportunity ported to us that there is considerable bark. to properly canvass the market, although we The grade is low, knotty, and does not con- had three men on it, including the writer pertain the clear, approximating almost entirely sonally, and in order to save further demur. No. 3 barn, instead of running No. 3 barn rage, we finally stored the lumber in Newand better to average No. 2 barn. The cap- town creek and will peddle it out by motor tain further demands a berth, so that unless

truck. we hear from you to the contrary by the

“The facts are simply as we have often 27th, making some other disposition, we will and repeatedly advised you, there is very lithave to place this in storage for your account tle call for log run, especially in white pine. and risk.

This has to be sold to concerns which run a "Very truly yours,

planing mill, making sash and blind stock, "Simpson, Clapp & Co.” etc. W have canvassed every yard from In the opinion of the court, the fact that New London to Philadelphia, with results as the writing of this letter is in dispute is of reported above. We naturally will give you no consequence, for the reason that the minds $42 for the Kielburg and take what we can of the parties had already met. On Septem- get; but we do not expect to get any $42 for ber 2d, defendant wrote plaintiff a letter the Chautauqua white pine. If you know reading in part as follows:

anybody that will give you that, we will be “As previously advised you, we had to very glad to turn over the white pine to them. discharge to a storage wharf the white pine “We cannot help what the price for lumex Sch. Joan Kielburg, to give us more time,

ber is in New York, and have kept you adbecause there was no interest for it here at vised monthly by market letter, and further that time. We find that there is less use to- in our correspondence with you.

We can day than ever for this stock, and we are not only repeat that this market does not want at all enthusiastic about having 113 M ft. odd widths or lengths in any kind of lumber, more on consignment, but we will do the yet you persist in manufacturing your lumvery best we can. The trouble is that the ber that way. This may sell locally, and you Californian pine, both white and sugar, are may get more out of the log; but as far as put here so cheap by rail that even No. 3 the American market is concerned it only rebarn can be bought at less than $40.00 in duces the value of the whole schedule more carload lots."

than any possible saving in log scale." Then again, on September 8th, the de- The former of these two later letters does fendant wrote the following letter, a part of not speak of rejecting the lumber, but rather which has no reference to the matter in dis- asks for additional time. The latter letter pute:

contains nothing inconsistent with the suggestion that a contract was already in exist- 3a (Comp. St. $ 9587), on dismissal of peti

tion. ence; on the other hand, the statement therein contained, “We naturally will give you 3. Bankruptcy 474-Liability for damages $42,” clearly indicates that the defendant un- to alleged bankrupts on dismissal of petition derstood that he was obligated to plaintiff in

held enforceable only against creditor secur.

ing appointment of receiver. that amount.

Under Bankruptcy Act, $ 3d (Comp. St. $ The plaintiff's motion for an order strik- 9587), liability for costs, expenses, and daming out the amended answer and for sum- ages to alleged bankrupts from seizure, taking, mary judgment is granted.

or detention of property, on dismissal of petition, is enforceable only against creditor who secured appointment of receiver.

In the matter of Herbert S. Elgot and

another, copartners trading as the Whistle Zeb MAYHEW, Plaintiff in Error, v. Walter Bottling Company of the Bronx, alleged MCNEIL, Defendant in Error.

bankrupts. On exceptions to report of spe(Circuit Court of Appeals, Second Circuit.

cial master under an order of reference made December 17, 1925.)

on ex parte petition of alleged bankrupts,

under Bankruptcy Act, $ 3a, that fees, costs, No. 153.

expenses, and damages of alleged bankrupt In Error to the District Court of the be fixed and allowed. Exceptions overruled, United States for the Eastern District of and report confirmed. New York.

Affirmed in 10 F.(20) 399. Kelly, Hewitt & Harte, of New York J. G. M. Browne, of New York City, for City (D. Theodore Kelly and Howard B. alleged bankrupts. Harte, both of New York City, of counsel), William Hauser, of Newark, N. J., for for plaintiff in error.

National Box & Lumber Co. George G. Zabriskie, of New York City, Paul Englander, of New York City, pro for defendant in error.

se and for Sheffield Glass Bottle Co. Before HOUGH, HAND, and MACK, Circuit Judges.

AUGUSTUS N. HAND, District Judge.

This matter comes up on exceptions to the PER CURIAM. Judgment (10 F.[28] report of John J. Townsend, special master 393) affirmed in open court, with 5 per cent. under an order of reference "to take proof

and fix penalty for delay.

the costs and expenses and damages of the alleged bankrupts."

The petition in bankruptcy was filed against the alleged bankrupts by the Whistle

Bottling Company, Inc., National Box & in re ELGOT et al.

Lumber Company, and Sheffield Glass Bot

tle Company, and the creditors, Standard (District Court, S. D. New York. June 30,

Porcelain Enameling Company, George 1924.)

Schmidt, and Paul Englander, intervening. 1. Bankruptcy Cw477–Evidence held insuffi- On July 29, upon the application of one of

cient to show that profitable business was conducted by alleged bankrupts, so as to en

the petitioning creditors only, viz. Whistle title them to damages to good will and for Bottling Company, Inc., a receiver was aploss of prospective profits.

pointed. The issues were tried by Referee Evidence held insufficient to show that prof- Townsend, and upon his report the petition itable business was conducted by alleged bank- in bankruptcy was dismissed on October 17, rupts, so as to entitle them to damages to 1921, and the foregoing order of reference good will and for loss of prospective profits, under Bankruptcy Act, $ 3a (Comp. Șt. $ 9587), under section 3a of the Bankruptcy Act on dismissal of petition.

(Comp. St. § 9588) was made. The dismis2. Bankruptcy em477-Claims held prima facie

sal of the bankruptcy proceeding was not items of damages to alleged bankrupts on dis

based upon the insolvency of the alleged missal of petition.

bankrupts, and no finding in respect to that Items representing alleged bankrupts' equi- matter has been made. ties in machinery and trucks, cost of hauling, freight and installation in plant, security de; the Whistle Company of Pennsylvania, Inc.,

“Whistle” is a syrup manufactured by posited under lease, and moneys in bank, held prima facie items of damage to bankrupts' and the product of this company was hancorporate property, under Bankruptcy Act, dled by licensees. The alleged bankrupts ob

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