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Full text of "United States Court of Appeals For the Ninth Circuit"

Form No. 7 



San Francisco 

Law Library 



EXTRACT FROM BY-LAWS 

Section 9. No book shall, at any time, be taken from the 
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of such Trustees or Executive Committee. 



WILCOX & CO 



No. 6523 



g% Inttf h States 

(Etrmtt fflourt af Amtrota 

3far % Nmif? Olirrmt 



NARCISO LUCHESSI, 

Appellant, 

vs. 

LUTHER WEEDIN, as Commissioner of Immi- 
gration, at the Port of Seattle, Washington, 

Appellee. 



OtattBrript af V&tmb 



Upon Appeal from the United States District Court 

for the Western District of Washington, 

Northern Division. 



< FILED 

SEP 121932 

PAUL P. O'BRIEN, 

1HK 



Pebnatj-Walsh Pbinting Co., 755 Mabket St., San Fbancisoo 



No. 6523 



Ittttefo States 

(Etrwti (Emtrt of Appeals 

3far % 2fintt| Oltrnttt 



NARCISO LUCHBSSI, 

Appellant, 
vs. 

LUTHER WEEDIN, as Commissioner of Immi- 
gration, at the Port of Seattle, Washington, 

Appellee. 



afeutHrnpi of itentrfc 



Upon Appeal from the United States District Court 

for the Western District of Washington, 

Northern Division. 



Pebnau-Walsh Pbinting Co., 755 Mabkbt St., San Fbanoisoo 



INDEX 

[Clerk's Note: When deemed likely to be of an important nature, 
errors or doubtful matters appearing in the original certified record are 
printed literally in italic; and, likewise, cancelled matter appearing in 
the original certified record is printed and cancelled herein accordingly. 
When possible, an omission from the text is indicated by printing in 
italic the two words between which the omission seems to occur.] 

Page 

Assignment of Errors 15 

Attorneys of Record 2 

Citation 

Dated June 9, 1931 22 

Clerk's Certificates: 

Dated July 13, 1931, to Transcript of Rec- 
ord 20 

Re Original Stipulation and New Citation 23 

Decision Dated May 12, 1931 9 

Notice of Appeal 13 

Order to Show Cause 4 

Order and Decree Dated May 16, 1931 11 

Order Allowing Appeal 14 

Order for Transmission Original Records.... 17 

Petition for Writ of Habeas Corpus 1 

Petition for Appeal 12 

Praecipe 19 

Return to Order to Show Cause 6 

Stipulation for Transmission Original Record. 16 

Stipulation Re Appeal Bond 17 

Stipulation Re New Citation 23 



NAMES AND ADDRESSES OF COUNSEL. 

Messrs. JOHN J. SULLIVAN and MICHAEL F. 
WARD, Attorneys for Appellant, 1801 
Smith Tower, Seattle, Washington. 
Mr. LOUIS F. BUTY, Attorney for Appel- 
lant, 1605 Exchange Building, Seattle, 
Washington. 

Messrs. ANTHONY SAVAGE and HAMLET P. 
DODD, Attorneys for Appellee, 310 Fed- 
eral Building, Seattle, Washington. [2]* 



In the District Court of the United States for the 
Western District of Washington, Northern 
Division. 

No. 20,470 

In the Matter of the Application of 

NARCISO LUCCHESI, 

for a Writ of Habeas Corpus. 

PETITION. 

The petition of Narciso Lucchesi respectfully 
shows : 

I. 

That he is a citizen of the Kingdom of Italy. 
That petitioner first arrived in the United States in 
the year 1906 at the port of New York, and has 



*Page numbering appearing at the foot of page of original certified 
Transcript of Record. 



2 Narciso Luchessi 

lived in the United States continuously since said 
time, except for two short trips to Italy, one in 
1908 and one in 1925. That his last entry was at 
the Port of New York, August 25th, 1925, and ever 
since said time he has been continuously lived in the 
United States. 

II. 

Petitioner further alleges that he is now being 
confined, restrained and deprived of his liberty by 
Luther Weedin, Commissioner of Immigration, 
Seattle, Washington, at the Immigration Station at 
Seattle; that said confinement, restraint and de- 
privation is illegal, for the following reasons, to-wit : 

That your petitioner has been charged by the 
United States Department of Labor, through the 
Secretary of Labor at Washington, D. C. and the 
Commissioner of Immigration at Seattle, Washing- 
ton, with violation of the Immigration Act of Feb- 
ruary, 1917, to-wit: 

That he has been found managing a house of 
prostitution, or music, or dance hall, or other place 
of amusement, or resort, habitually frequented by 
prostitutes, or where prostitutes gather. 

III. 

That your petitioner was not granted a fair hear- 
ing in that witnesses were examined in the absence 
of his counsel of record, and that the record and 
evidence discloses no facts or [4] evidence upon 
which the Secretary of Labor and Commissioner of 



vs. Luther Weedin 3 

Immigration at Seattle, Washington, could base the 
findings that your petitioner had violated said act, 
as charged. 

IV. 

That your petitioner has never managed a house 
of prostitution, or music, or dance hall, or other 
place of amusement, or resort, habitually frequented 
by prostitutes, or where prostitutes gather, and that 
there is no evidence disclosed in the proceedings 
taken for his deportation upon which the said Sec- 
retary of Labor or Commissioner of Immigration 
at Seattle, Washington, could legally base a finding 
that your petitioner had every managed a house of 
prostitution, or music, or dance hall, or other place 
of amusement, or resort, habitually frequented by 
prostitutes, or where prostitutes gather. 

WHEREFORE, petitioner prays that an order 
issue out of this Court directed to Luther Weedin, 
Commissioner, as aforesaid, commanding him to 
show cause if any he have at a time and place to be 
fixed by the Court, why a Writ of Habeas Corpus 
should not issue, and petitioner restore to his liberty 
or such other and further order made, as to this 
Court may seem lawful in. the premises. 

H. SYLVESTER GARVIN, 

LOUIS F. BUTY, 

Attorneys for Petitioner. 



4 Narciso Ltichessi 

United States of America, 
Western District of Washington, 
Northern Division. — ss. 

Narciso Lucchesi, being first duly sworn on oath 
deposes and says: That he is the petitioner above 
named; that he has read the foregoing petition, 
knows the contents thereof, and believes the same 
to be true. 

NARCISO LUCCHESI. 

Subscribed and sworn to before me this 24th day 
of February, 1931. 

[Notary Seal] WESLEY J. MIFFLIN, 

Notary Public in and for the State of Wash- 
ington, residing at Seattle. [5] 

[Endorsed]: Filed Febr. 24, 1931. Ed. M. Lakin, 
Clerk. [6] 



[Title of Court and Cause.] 

ORDER TO SHOW CAUSE. 

This matter coming on this day for hearing be- 
fore the Court upon petition of Narciso Lucchesi 
for a writ of habeas corpus, the petitioner appear- 
ing by his attorneys H. Sylvester Garvin and Louis 
F. Buty, and the Court having read the petition 
herein and it appearing therein that the said Nar- 
ciso Lucchesi is illegally restrained of his liberty 
at Seattle, Washington by Luther Weedin, Commis- 
sioner of Immigration, and all and singular the law 
and the premises being duly considered, 



vs. Luther Weedin 5 

IT IS HEREBY ORDERED that the said 
Luther Weedin, Commissioner of Immigration, be 
and he is hereby commanded to appear before this 
Court on the 2nd day of Mar. 1931, at the hour of 
10 o'clock in the A noon to show cause is any he 
may have, why a writ of habeas corpus whould not 
issue herein and said petitioner be restored to his 
liberty and it is further 

ORDERED that pending the final determination 
hereof said petitioner shall not be deported but shall 
remain in the jurisdiction of this Court provided 

that the petitioner deposit with said Commissioner 
the sum of $100.00 to defray expenses of his main- 
tenance and such other sums as may be necessary 
when demand is made to do so, pending determina- 
tion hereof. 

Done in open Court this 24th day of February, 
1931. 

JEREMIAH NETERER, 

Judge. 

[Endorsed] : Filed Febr. 24, 1931. Ed. M. Lakin, 
Clerk. [7] 



RETURN ON SERVICE OF WRIT. 

United States of America, 
Western District of Wash. — ss. 

I hereby certify and return that I served the 
annexed order to show cause on the therein-named 



6 Narciso Luchessi 

Luther Weedin, Com. Immigration by handing to 
and leaving a true and correct copy thereof with 
Luther Weedin personally at Seattle in said Dis- 
trict on the 24th day of February, A. D. 1931. 

CHARLES E. ALLEN, 

U. S. Marshall. 
By FRED A. GROW, 

Deputy. 
M. F. 2.12. 

[Endorsed] : Filed Febr. 25, 1931. Ed. M. Lakin, 
Clerk. [8] 



[Title of Court and Cause.] 

RETURN TO ORDER TO SHOW CAUSE. 

To the Honorable Jeremiah Neterer, Judge of the 
District Court of the United States for the 
Western District of Washington: 

Comes now Luther Weedin, United States Com- 
missioner of Immigration at Seattle, Washington, 
and, for answer and return to the Order to Show 
Cause entered herein, certifies and shows to the 
Court that the said alien, Narciso Lucchesi, was 
duly arrested by an immigrant inspector under au- 
thority of a warrant of arrest issued by A. E. Cook, 
Assistant to the Secretary of Labor, October 18, 
1928, charging that the said Narciso Lucchesi, alias 
Nelson Lucchesi, who landed at the port of New 
York, N. Y., ex SS "Duillio," on or about the 25th 
day of August, 1925, had been found in the United 



vs. Luther Weedin 7 

States in violation of the Immigration Act of Feb- 
ruary 5, 1917, for the following among other rea- 
sons: "That he has been found managing a house 
of prostitution, or music or dance hall or other place 
of amusement, or resort, habitually frequented by 
prostitutes; that he has been found receiving, shar- 
ing in, or deriving benefit from the earnings of a 
prostitute; and that he has been found assisting a 
prostitute"; that the said Narciso Lucchesi was 
thereafter accorded a hearing before an immigrant 
inspector, at which time he was afforded ample op- 
portunity to show cause why he should not be de- 
ported; that, as a result of the evidence adduced at 
said hearing, a warrant of deportation was issued 
December 12, 1929, by P. F. Snyder, Assistant to 
the Secretary of Labor, commanding that the said 
Narciso Lucchef, alias Nelson Lucchesi, or Narciso 
Lucchesi, who "has been found in the United States 
in violation of the Immigration Act of February 5, 
1917, to wit: That he has been, found managing a 
house of prostitution, or music, or dance hall, or 
other place of amusement, or resort, habitually fre- 
quented by prostitutes, or where prostitutes gather," 
be returned to Italy, the country whence he came; 
that the said Narciso Lucchesi surrendered [9] him- 
self to this respondent February 24, 1931, and, from 
said date until February 26, 1931, was held and de- 
tained by this respondent for deportation to Italy 
as an alien. Italian person not entitled to be and 
remain in the United States under the laws of the 
United States, and subject to deportation to Italy 



8 Narciso LucKessi 

under the laws of the United States ; that, on Febru- 
ary 26, 1931, the said Narciso Lucchesi was released 
from the custody of this respondent by order of this 
Court, and since the said date has not been in the 
custody of this respondent. 

The original record of the Department of Labor 
relating to the deportation proceedings against the 
said Narciso Lucchesi is attached hereto and made 
a part and parcel of this return, as fully and com- 
pletely as though set forth herein in detail. 

WHEREFORE, respondent prays that the peti- 
tion for a writ of habeas corpus be denied. 

LUTHER WEEDIN. 

United States of America, 
Western District of Washington, 
Northern Division. — ss. 

Luther Weedin, being first duly sworn, on oath 
deposes and says: That he is United States Com- 
missioner of Immigration at Seattle, Washington, 
and the respondent named in the foregoing return; 
that he has read the foregoing return, knows the 
contents thereof and believes the same to be true. 

LUTHER WEEDIN. 
Subscribed and sworn to before me this 28th day 
of March, 1931. 

[Seal] D. L. YOUNG, 

Notary Public in and for the State of Wash- 
ington, residing at Seattle, Washington. 
[Endorsed] : Filed Apr. 6, 1931. Ed. M. Lakin, 
Clerk. [10] 



vs. Luther Weedin 9 

In the District Court of the United States for the 
Western District of Washington, Northern 
Division. 

No. 20,470 

In the Matter of the Application of 
NARCISO LITOCHESI, 

for a Writ of Habeas Corpus. 

DECISION. 

For near three years proceedings to deport peti- 
tioner have been pending. 

The Immigration officers held hearing and the 
final determination made October 28, 1928, is that he 
was " found managing a house of prostitution'' in 
Tacoma. 

December, 1929, warrant to deport issued. For 
various reasons importunities of an assortment of 
dignitaries, a six months jail sentence for violation 
of the prohibition law, etc., deportation was deferred 
and this petition for habeas corpus filed in Febru- 
ary, 1931. 

It alleges that the alien petitioner has not a fair 
hearing because (1) witnesses were examined in 
absence of his counsel of record, and (2) the record 
"discloses no facts or evidence upon which the Sec- 
retary * * * could base the finding" aforesaid, 

Altho the second is argumentative and no 
warrant for review, the record has been examined, 



10 Nwrciso Luchessi 

thereupon it appears that the alien's attorney after 
employed was present at all hearings. Before that, 
was some inquiry or hearing of the alien and wit- 
nesses, and which likely was considered in arriving 
at the final decision, and properly so. Admissions 
and statements before arrest and furthering the 
practices of the house or in relation to management, 
are competent as of accomplices or co-conspirators. 

It is enough to say the evidence suffices in 
quantity to legally sustain the Secretary's finding 
and that is the extent of the inquiry by the Court. 

The decisions of the Secretary are those of a tri- 
bunal vested by law with jurisdiction in, this and 
like cases ; and it is settled law that when the Courts 
are invoked to consider [11] any such tribunal's de- 
cision, if the hearing was fair and regular, no preju- 
dicial error of law, and evidence sufficient to legally 
sustain its findings, they are final, conclusive, and be- 
yond the power of courts to disturb. See Tisi vs. 
Todd, 264 U. S. 131. Vatjauer vs. Corns., 273 IT. S. 
103. Accordingly the petition must be and is denied. 

BOURQUIN, J. 

May 11, 1931. 

[Endorsed] : Filed May 12, 1931. Ed. M. Lakin, 
Clerk. [12] 



vs. Luther Weedin 11 

[Title of Court and Cause.] 

ORDER AND DECREE. 

This cause having come on duly for hearing before 
this Court on the 11th day of May, 1931, on the 
return of the United States Commissioner of Im- 
migration to the order to show cause theretofore 
issued herein, the respective parties being repre- 
sented by their attorneys of record, John J. Sullivan 
and Michael P. Ward for the petitioner, and 
Anthony Savage and Cameron Sherwood, United 
States Attorney and Assistant United States At- 
torney, respectively, for the respondent, and the 
Court, being fully advised in the premises, having 
on the 12th day of May, 1931, entered its written 
opinion directing the denial of the petition for a 
writ of habeas corpus. 

It is now hereby ORDERED, ADJUDGED and 
DECREED that the writ of habeas corpus as prayed 
for be, and the same is hereby, DENIED, and the 
petitioner ordered deported to Italy; PROVIDED, 
however, that, pending the determination of the 
petitioner as to the perfection of an appeal from 
this order and decree, he shall file with the Clerk 
of this Court a good and sufficient bond in the sum 
of $1,000, to be approved by the Court, conditioned 
that, in the event an appeal be taken to the United 
States Circuit Court of Appeals for the Ninth Cir- 
cuit, he will at all times, during the pendency of 
such appeal, hold himself amenable to the orders 



12 Nmrciso Luchessi 

of this Court and of the said Circuit Court of Ap- 
peals, and will abide by all judgments and orders 
rendered upon such appeal. 

Done in open Court this 16 day of May, 1931. 

BOURQUIN, J. 
United States District Judge. [13] 

Received a copy of the within order and decree 
this 15th day of May, 1931. 

MICHAEL F. WARD, 
Attorney for Petitioner. 
O.K. 

MICHAEL F. WARD, 
Attorney for Petitioner. 

[Endorsed] : Piled May 16, 1931. Ed. M. Lakin, 
Clerk. [14] 



[Title of Court and Cause.] 

PETITION FOR APPEAL. 

Narciso Luchessi, petitioner herein, deeming him- 
self aggrieved by the order and decree entered 
herein on the 12 day of May, 1931, does hereby ap- 
peal from said judgment, order and decree to the 
United States Circuit Court of Appeals for the 
Ninth Circuit, and prays that a transcript and rec- 
ord of proceedings and papers upon said order and 
decree were made, duly authenticated, may be sent 



vs. Luther Weedin 13 

to the United States Circuit Court of Appeals for 
the Ninth Judicial District of the United States. 

JOHN J. SULLIVAN, 
LOUIS F. BUTY, 
MICHAEL P. WARD, 
Attorneys for Petitioner. 

Received copy this 3 day of June, 1931. 

ANTHONY SAVAGE, 
Atty. for Respondent. 

[Endorsed] : Piled Jun. 3, 1931. Ed. M. Lakin, 
Clerk. [15] 



[Title of Court and Cause.] 

NOTICE OP APPEAL. 

To Luther Weedin, Commissioner of Immigration, 
and to Anthony Savage, United States District 
Attorney : 

You, and each of you, are hereby notified that 
Narciso Luchessi, petitioner above named, hereby 
and now appeals from that certain order, judgment 
and decree made herein, by the above entitled court 
on the 12 day of May, 1931, ordering, adjudging 
and decreeing that the writ of habeas corpus prayed 
for herein by the above named petitioner, Narciso 
Luchessi, be denied, and ordering said petitioner de- 
ported to Italy, and from the whole thereof, to the 



14 Narciso Luchessi 

United States Circuit Court of Appeals for the 

Ninth Circuit. 

JOHN J. SULLIVAN, 
LOUIS P. BUTY, 
MICHAEL F. WARD, 
Attorneys for Petitioner. 

Received a copy of the within, notice of appeal 
this 3 day of June 1931. 

ANTHONY SAVAGE, 
Attorney for Respondent. 

[Endorsed] : Filed Jim. 3, 1931. Ed. M. Lakin, 
Clerk. [16] 



[Title of Court and Cause.] 

ORDER ALLOWING APPEAL AND FIXING 
BOND OF APPELLANT. 

Now, to-wit: on the 9th day of June, 1931, it is 
hereby 

ORDERED that the appeal herein be allowed as 
prayed for, and it is further 

ORDERED that petitioner herein may remain 
at large pending said appeal upon executing a rec- 
ognizance or bond to the United States of America 
to the satisfaction of the Clerk of this Court in the 
sinn of $1000, for the appearance of said petitioner, 
Narciso Luchessi, to answer the judgment of the 
Circuit Court of Appeals, and the judgment of this 
Court. 



vs. Luther Weedin 15 

Done in open Court this 9th day of June, 1931. 

COLIN NEBLETT, 
Judge United States District Curt. 
O.K. 

HAMLET P. DODD, 
Asst. U. S. Atty. 

[Endorsed] : Piled Jun. 9, 1931. Ed. M. Lakin, 
Clerk. [17] 



[Title of Court and Cause.] 

ASSIGNMENTS OP ERROR. 

1. 

The Court erred in holding and deciding that the 
writ of habeas corpus prayed for by the petitioner 
should be denied. 

2. 

The Court erred in ordering the petitioner, Nar- 
ciso Luchessi, deported to Italy. 

JOHN J. SULLIVAN, 
LOUIS F. BUTY, 
MICHAEL P. WARD, 
Attorneys for Appellant. 

Received copy this 11 day of June, 1931. 

ANTHONY SAVAGE, 

U. S. Attorney. 

[Endorsed] : Filed Jun. 11, 1931. Ed. M. Lakin, 
Clerk. [18] 



16 Narciso Luchessi 

[Title of Court and Cause.] 

STIPULATION FOR TRANSMISSION 
OF ORIGINAL RECORD. 

It is hereby stipulated by and between counsel for 
the petitioner and for the Commissioner of Immi- 
gration, that the certified immigration file and other 
records of the Department of Labor, covering the 
deportation proceedings against the petitioner here- 
in., which were filed with the return of the Commis- 
sioner of Immigration to the order to show cause 
in this case, may be considered by the Circuit Court 
of Appeals in lieu of a certified copy of said im- 
migration file and the records of the Department of 
Labor. 

ANTHONY SAVAGE, 

United States Attorney, 
HAMLET P. DODD, 
Assistant United States Attorney, 
Attorneys for Respondent. 
JOHN J. SULLIVAN, 
MICHAEL F. WARD, 
LOUIS F. BUTY, 
Attorneys for Petitioner. 

[Endorsed] : Filed Jim. 9, 1931. Ed. M. Lakin, 
Clerk. [19] 



vs. Luther Weedin 17 

[Title of Court and Cause.] 

ORDER FOR TRANSMISSION OP 
ORIGINAL RECORD. 

Upon stipulation of counsel, it is by the Court, 

ORDERED, and the Court does hereby order, 
that the Clerk of the above entitled Court transmit 
with the appellate record in said cause the original 
file and records of the Department of Labor, cover- 
ing the deportation, proceedings against the peti- 
tioner, which were filed with the return of the Com- 
missioner to the order to show cause, directly to the 
Clerk of the Circuit Court of Appeals for the Ninth 
Circuit, in order that said original file and records 
may be considered by the Circuit Court of Appeals 
in lieu of a certified copy of the same. 

Done in open Court this 9th day of June, 1931. 

COLIN NEBLETT, 
United States District Judge. 
O.K. 

HAMLET P. DODD, 
Asst. U. S. Atty. 

[Endorsed] : Filed Jun. 9, 1931. Ed. M. Lakin, 
Clerk. [20] 



[Title of Court and Cause.] 

STIPULATION RE APPEAL BOND. 

Whereas, it appearing that the above named peti- 
tioner has heretofore furnished cash bonds herein 



18 Narciso Luchessi 

in the sum of $1000.00, and said bond has hereto- 
fore been approved by the Court, and whereas 

Petitioner's appeal bond herein has been fixed at 
the same sum of $1000.00, now therefore 

IT IS HEREBY STIPULATED AND AGREED 

that said undertaking in the sum of $1000.00 now on 
file herein may remain in effect for the purpose of 
this appeal, and the same shall have the same force 
and effect as though re-posted, and that petitioner 
herein will not be required to furnish further or 
additional undertaking herein on, account of said 
appeal. 

ANTHONY SAVAGE, 

United States Attorney. 
HAMLET P. DODD, 
Asst. United States Attorney, 
Attorneys for Respondent. 
JOHN J. SULLIVAN, 
LOUIS P. BUTY, 
MICHAEL F. WARD, 
Attorneys for Petitioner. 

[Endorsed] : Piled Jun 11, 1931. Ed. M. Lakin, 
Clerk. |"21] 



vs. Luther Weedin 19 

[Title of Court and Cause.] 

PRAECIPE FOR TRANSCRIPT OF RECORD 
ON APPEAL. 

To the Clerk of the above entitled Court : 

Please prepare and duly authenticate the tran- 
script and following portions of the record in this 
case for appeal of the petitioner and appellant here- 
tofore allowed, to the United States Circuit Court 
of Appeals for the Ninth Circuit : 

1. Petition for writ of habeas corpus. 

2. Order to show cause. 

3. Return to order to show cause. 

4. Decision dated May 12, 1931. 

5. Order and decree, dated 16 day of May, 1931. 

6. Petition for appeal. 

7. Notice of appeal. 

8. Order allowing appeal and fixing bond. 

9. Assignments of error. 

10. Citation. 

11. Stipulation for transmission of original 
record. 

12. Order for transmission of original record. 

13. Stipulation relating to bond of appellant. 

14. This praecipe. 

JOHN J. SULLIVAN, 
LOUIS F. BUTY, 
MICHAEL F. WARD, 
Attorneys for Appellant. 



20 Narciso Luchessi 

Received copy this 15 day of June, 1931. 

ANTHONY SAVAGE, 
IT. S. Attorney. 

[Endorsed] : Filed Jun. 15, 1931. Ed. M. Lakin, 
Clerk. [22] 



[Title of Court and Cause.] 

CERTIFICATE OF CLERK TO TRANSCRIPT 
OF RECORD. 

United States of America, 

Western District of Washington. — ss. 

I, Ed. M. Lakin, Clerk of the United States Dis- 
trict Court for the Western District of Washington, 
do hereby certify this typewritten transcript of rec- 
ord, consisting of pages numbered from 1 to 22, in- 
clusive, to be a full, true, correct and complete copy 
of so much of the record, papers and other proceed- 
ings in the above and foregoing-entitled cause as is 
required by praecipe of counsel filed and shown 
herein, as the same remain of record and on file in 
the office of the Clerk of said District Court, at 
Seattle, and that the same constitute the record on 
appeal herein from the judgment of said United 
States District Court for the Western District of 
Washington to the United States Circuit Court of 
Appeals for the Ninth Circuit, 

I further certify the following to be a full, true, 
and correct statement of all expenses, costs, fees and 



vs. Luther Weedin 21 

charges incurred in my office by or on behalf of the 
appellant for making record, certificate or return 
to the United States Circuit Court of Appeals for 
the Ninth Circuit in the foregoing cause, to wit : 
Clerk's fees (Act of Feb. 11, 1925) 
for making record, certificate or 
return, 44 folios at 15^ $ 6.60 

Certificate of Clerk to Transcript 

of Record, with seal .50 

Petition for Appeal (Section 5 of 

Act) . 5.00 

Certificate of Clerk to Original 
Exhibits, with seal .50 



Total $12.60 [23] 



I hereby certify that the above cost for preparing 
and certifying record, amounting to $12.60, has 
been paid to me by the attorney for appellant. 

I further certify that I attach hereto and transmit 
herewith the original citation issued in this cause. 

IN WITNESS WHEREOF I have hereunto set 
my hand and affixed the official seal of said District 
Court, at Seattle, in said District this 6th day of 
July, 1931. 

[Seal] ED. M. LAKIN, 

Clerk of the United States District Court for 
the Western District of Washington, 
By E. W. PETTIT, 

Deputy Clerk. [24] 



22 Narciso Luchessi 

[Title of Court and Cause.] 

CITATION. 

The United States of America. — ss. 

To Luther Weedin, Commissioner of Immigration, 
Seattle, Washington, GREETING: 

WHEREAS, Narciso Luchessi, petitioner herein, 
has lately appealed to the United States Circuit 
Court of Appeals for the Ninth Circuit from the 
judgment and order lately, on, to-wit : May 12, 1931, 
rendered in the United States District Court for 
the Western District of Washington, Northern 
Division, made in favor of you, as said commis- 
sioner, denying petitioner a writ of habeas corpus, 
and ordering his deportation to Italy, 

YOU ARE THEREFORE CITED TO AP- 
PEAR before the United States Circuit Court of 
Appeals, in the City of San Francisco, State of Cali- 
fornia, on the 5 day of October, 1931, to do and 
receive what may obtain to justice to be done in the 
premises. 

Given under my hand in the City of Seattle, 
Washington, in the Ninth Circuit, this 9th day of 
June, 1931. 
[Seal] COLIN NEBLETT, 

United States District Judge. 
O.K. 

HAMLET P. DODD, 

Asst. U. S. Atty. 

[Endorsed] : Filed Jun. 9, 1931. Ed. M. Lakin, 
Clerk. [25] 



vs. Luther Weedin 23 

[Title of Court and Cause.] 

CERTIFICATE OF CLERK DISTRICT COURT 

OF IT. S. AS TO ORIGINAL STIPULATION 

AND NEW CITATION. 

United States of America, 

Western District of Washington. — ss. 

I, Ed. M. Lakin, Clerk of the United States Dis- 
trict Court for the Western District of Washington, 
do hereby certify that the attached papers are the 
original " Stipulation" and new "Citation" filed in 
the above entitled cause, and on request of Counsel 
are forwarded to the Circuit Court of Appeals for 
the Ninth Circuit. 

Dated this 14th day of July, 1931, at Seattle, 
Washington. 

[Seal] ED. M. LAKIN, 

Clerk of the United States District Court for 
the Western District of Washington. 

By E. W. PETTIT, 
Deputy. 



[Title of Court and Cause.] 

STIPULATION. 

WHEREAS, it appears that the citation herein 
signed and entered on June 9, 1931, cites the ap- 
pellee to appear before the U. S. Circuit Court of 
Appeals in San Francisco on October 5, 1931 and 

WHEREAS, said citation should be for thirty 
days from the time same was signed and entered 



24 Nmrciso Luchessi 

NOW THEREFORE IT IS HEREBY STIPU- 
LATED by and between the parties to this action 
that a new citation may be taken out herein, requir- 
ing an appearance of the appellee on a date not less 
than thirty days after the date of said citation. 

Dated this 11 day of July, 1931. 

ANTHONY SAVAGE, 

U. S. Attorney, 
HAMLET P. DODD, 
Assistant U. S. Attorney. 
JOHN J. SULLIVAN, 
MICHAEL F. WARD, 
Attorneys for Appellant. 

[Endorsed] : Filed Jul. 11, 1931. Ed. M. Lakin, 
Clerk. 



[Title of Court, and Cause.] 

CITATION. 

The United States of America. — ss. 

To Luther Weedin, Commissioner of Immigration, 
Seattle, Washington. GREETING: 

WHEREAS, Narciso Luchessi, petitioner here- 
in, has lately appealed to the United States Circuit 
Court of Appeals for the Ninth Circuit from the 
judgment and order lately, on, to-wit : May 12, 1931, 
rendered in the United States District Court for the 
Western District of Washington, Northern Division, 
made in favor of you, as said commissioner, denying 



vs. Luther Weedin 25 

petitioner a writ of habeas corpus, and ordering 
his deportation to Italy, 

YOU ARE THEREFORE CITED TO AP- 
PEAR before the United States Circuit Court of 
Appeals, in the City of San Francisco, State of 
California on the 13 day of August, 1931, to do and 
receive what may obtain to justice to be done in the 
premises. 

Given under my hand in the City of Seattle, 
Washington, in the Ninth Circuit, this 13 day of 
July, 1931. 

[Seal] JEREMIAH NETERER, 

United States District Judge. 
O.K. 

HAMLET P. DODD, 
Asst. U. S. Attorney. 

[Endorsed] : Filed Jul. 13, 1931. Ed. M. Latin, 
Clerk. 



[Endorsed] : No. 6523. United States Circuit 
Court of Appeals for the Ninth Circuit. Narciso 
Luchessi, Appellant, vs. Luther Weedin, Commis- 
sioner of Immigration, Seattle, Washington, Ap- 
pellee. Transcript of Record. Upon Appeal from 
the United States District Court for the Western 
District of Washington, Northern Division. 

Filed July 16, 1931. 

PAUL P. O'BRIEN, 
Clerk of the United States Circuit Court of Ap- 
peals for the Ninth Circuit. 



In the 

United States Circuit Court 
of Appeals 

For the Ninth Circuit 

No. 6523 



NARCISSO LUCHESSI, 

Appellant, 

vs. 

LUTHER WEEDIN, Commissioner of Immigration, 
Port of Seattle, Washington, Appellee. 



Upon Appeal From the United States District Court for 
the Western District of Washington, Northern Division 

HONORABLE JEREMIAH NETERER, JUDGE 



Brief of Appellant 

SEP 12 193. 

L. F. BUTY 
JOHN J. SULLIVAN PAUL P. 
MICHAEL F. WARD 
Attorneys for Appellant 



In the 

United States Circuit Court 
of Appeals 

For the Ninth Circuit 



No. 6523 
NARCISSO LUCHESSI, 



Appellant, 



vs. 



LUTHER WEEDIN, Commissioner of Immigration, 
Port of Seattle, Washington, Appellee. 



Upon Appeal From the United States District Court for 
the Western District of Washington, Northern Division 

HONORABLE JEREMIAH NETERER, JUDGE 



Brief of Appellant 



STATEMENT OF THE CASE 

The appellant in this case, Narcisso Luchessi, is 
an Italian, born in Italy. He first came to the United 
States in 1906, being at that time of the age of eigh- 
teen years. With the exception of two trips back to 
Italy, he has resided continuously in the United States 
since he first entered the country. He was charged 
in a warrant of arrest issued by the Secretary of 
Labor, as follows: 



"That he has been found managing a house of 
prostitution, or a musical dance hall or other place 
of amusement or resort habitually frequented by 
prostitutes; that he has been found receiving, shar- 
ing in, or deriving benefit from the earnings of a 
prostitute; that he has been found assisting a pros- 
titute." 

That portion of the charge referring to the alien's 
having been found assisting a prostitute was dis- 
missed by the Department of Laibor at the original 
hearing. 

The appellant was given a hearing before a United 
States Immigration Inspector, and held for deporta- 
tion by the Immigration authorities. 

Thereafter the appellant appealed to the Secretary 
of Labor from the decision of the inspector at Seattle, 
but the appeal was dismissed. The appellant then 
applied for a writ of habeas corpus before Jeremiah 
Neterer, Judge of the United States District Court, 
Western District, Washington, Northern Division, at 
Seattle, Washington, which was denied. 

ASSIGNMENTS OF ERROR 

1. The Court erred in holding and deciding the 
writ of habeas corpus prayed for by the petitioner 
should be denied. 

2. The Court erred in ordering the petitioner de- 
ported to Italy. 



ARGUMENT 

The Government in this case relies on evidence pro- 
duced by the following persons, who testified at the 
hearing: Immigration Inspectors C. C. Hall and 
William G. McNamara; one Phemie Novak and one 
Helen Gilbert, both admittedly prostitutes. 

The facts relating to the conduct of the premises in 
which the appellant is alleged to have been found 
managing a house of prostitution, are as follows: 
On September 15, 1925, Mr. Luchessi married a 
woman by the name of Loie Tucker. The marriage 
in question took place at Everett, Washington. Prior 
to the marriage, of Mr. Luchessi and Loie Tucker, 
the latter had been operating a hotel in Tacoma, 
known as the Palmer Hotel, located at lBOT 1 /^ Broad- 
way. The appellant had been occupying a room in 
this hotel for some time prior to his marriage with 
Loie Tucker, the lessee of the premises. After their 
marriage he continued to occupy a room and live at 
the hotel but had nothing to do with the management 
of, care, or looking after the hotel at all. The appel- 
lant at that time was conducting a cigar stand at 
5214 South Union Avenue, South Tacoma, Washing- 
ton, a distance of at least four miles from the Palmer 
Hotel. 



In the conduct of his cigar business, Mr. Luchessi 
was in the habit of leaving his hotel at about 8:15 
or 8:30 o'clock in the morning, to go to his place of 
business in South Tacoma, where he would be oc- 
cupied during the entire day and part of the night, 
as he kept his cigar stand operating as late as 12 
o'clock midnight. This was the occupation of the 
appellant at the time that he was alleged to have 
violated the law which led up to the charges pre- 
ferred by the Labor Department against him. At the 
particular time that the charges were preferred by 
the Secretary of Labor, Mr. Luchessi was actually 
confined to a hospital in Tacoma. That was in Oc- 
tober, 1928. The only evidence in this case which 
allegedly connects the appellant directly as the owner 
or manager of the place in question is that found 
given by Inspector William G. McNamara, on page 
nine of the Immigration records in this case. The 
following is quoted from the record as the testimony 
of Mr. McNamara bearing on that point: 

"Q. State whether on or about that date you had 
occasion to go to the place known as the Palmer Hotel, 
1307% Broadway, and if so, what occurred there? 

"A. I went to that hotel accompanied by Inspector 
Yeager. Inspector Yeager represented to the girl 
he met that we were from Seattle, that he was a real 
estate dealer and that I wanted to see about buying 
the place. We saw the girl they call Phemie and 
then she called Mr. Luchessi. Her exact words were, 
'Here is a couple of guys from Seattle who want to 



buy the place.' We talked to Mr. Luchessi, told him 
we understood the place was for sale. He said yes, 
that he was the owner and he would sell for $2500. 
We asked if he had a lease. He said yes, he had. As 
I recall it he said the lease ran for three years, the 
rental during the first year was $90 per month and 
a larger sum each succeeding year. Mr. Yeager 
asked him how many girls they had there. He said 
he didn't have any at the present time, but see his 
manager, Phemie. He called Phemie in. She showed 
us over the place and she mentioned that she didn't 
have any girls there at the present time. 

"During the conversation, however, Inspector Yea- 
ger asked her what the girls got and she said $2, 
but the loggers were all going to Seattle, they would 
have to cut the price, probably to a dollar and a 
half." 

The evidence of Mr. Hall, Immigrant Inspector, 
follows, taken from the Immigration record: 

"Q. What is your name? 

"A. My name is Carl C. Hall, U. S. Immigrant 
Inspector. 

"Q. Were you employed as immigrant inspector on 
or about October 4, 1928? 

"A. I was. 

"Q. State whether on or about that date you went 
to a place known as the Palmer Hotel, 1307y 2 Broad- 
way, Tacoma, and if so, what occurred there? 

"A. I made a visit to that house in Tacoma, the 
Palmer Hotel, on the evening of the 4th, about mid- 
night, and was met there by a landlady who wanted 
to know what I wanted. I told her I wanted to see 
a girl. She said there was no girl — 

"Attorney: I object. 
" — present at that time, but to come back tomorrow. 
I asked her what she charged. She said she charged 



$2 a trick, so I left her then. I called her up the 
following day in the afternoon and asked for Luchessi, 
and she informed me that he met with an automobile 
accident some time previous and was then stopping 
at his brother's home. She gave me the address of 
the brother's home. I called up the home and a girl 
answered the phone, and while the receiver was down 
I heard some conversation. 

"Attorney : I object to all this. 

"I could hear voices conversing in Italian. I wait- 
ed there a few moments at the end of the receiver. 
I called from the U. S. Immigration office in Tacoma 
with Inspector McNamara sitting at the desk when I 
had the phone call in, so I hung up the receiver before 
anybody was able to answer. Later on in the evening 
I made another call to the landlady and told her I 
hadn't succeeded in getting Luchessi on the phone 
and she repeated her former statement as to his meet- 
ing with an accident, and so forth. Later on in the 
evening I made a visit up to the house, the Palmer 
Hotel, around between nine and ten o'clock. The 
same landlady whom I had met the previous night 
met me at the door and I informed her what I wanted, 
I wanted to see a girl. She told me to come in. I 
entered the hallway there, intending to follow her in. 
She proceeded to what I took for a front parlor. I 
saw a man sitting there whom she conversed with 
and when I proceeded to follow her into the front 
parlor she said, 'You wait here and I will send a 
girl out,' and she sent a girl out, whose name later 
developed as Marian. She came out to the hallway 
and I engaged her in quite a lengthy conversation as 
to the prices for the trick and who the lady was 
that I met there and she informed me that that was 
the landlady, and also informed me that the price 
of a trick was $2 and upon being questioned as to 
how much she received of that $2, she told me she 
paid half of it over to the landlady. The conversation 



apparently developed on too long to suit the landlady 
because she came out in the hallway. 

"Attorney: I object. 

"Q. You mean then that you were solicited in the 
Palmer Hotel on or about the night of October 4th 
or 5th, 1928, by a girl whom you know now as 
Marian? 

"Attorney: I object. 

"A. Yes. 

"Q. Did this girl, Marian, solicit you to practice 
prostitution with you? 

"A. She was sent out for that purpose because I 
asked the landlady specifically for that, for a girl to 
commit prostitution and she sent Marian out for that 
purpose. I made my purpose for coming there fully 
known to the landlady. 

"Q. And you state that you inquired of this girl, 
Marian, What she would charge for an act of pros- 
titution? 

"A. Yes. 

"Q. What did she say? 

"A. $2. 

"Q. You testify then that you asked her as to what 
amount of that $2 was to be hers and whether she 
divided it with anyone else? 

"A. Yes, I did. ' 

"Q. What did she say? 

"A. She informed me that she paid half of it over 
to the landlady." 

The foregoing, together with evidence of Phemie 
Novak, who claimed to be the manager of this hotel, 
and the evidence of Helen Gilbert, a prostitute, con- 
stitutes the entire testimony introduced by the Gov- 



eminent to sustain the charges against the ap- 
pellant. 

The evidence as shown by Exhibit "1," in this case, 
being the lease entered into by Loie Tucker, wife of 
the appellant, in September, 1926, would surely indi- 
cate that the property was leased by the woman and 
not by Mr. Luchessi. The receipts on file in this case 
known as Exhibit "2" show that Loie Tucker paid 
for the water, lights, telephone, etc., after September, 
1926. Nowhere in the evidence does it appear that 
the appellant was in any manner directly or indi- 
rectly, interested in the management of the business 
of this hotel. 

"Alien's Exhibit Nos. 1 and 2, show that said hotel 
was leased to LOIE TUCKER, in September, 1926, 
and that thereafter during 192-6 rent, telephone, elec- 
tric light and gas bills, etc., were paid by Loie 
Tucker." (Page "A," Summary of Inspector Joseph 
H. Gee. Immigration Records of this case.) 

At the time of the activities of the Immigrant In- 
spectors, Mr. Luchessi was incapacitated and laid up 
in the hospital. It is quite evident that anything that 
might be going on there while he was confined to the 
hospital would not be under his personal supervision 
or with his knowledge. In as much as there was 
only one woman in the place and she was there visit- 
ing Phemie Novak, it does not seem that the Govern- 
ment made out a case from which it could be held the 



hotel in question was a house of prostitution, within 
the meaning of the statute. There is no evidence of 
any kind or description Which shows that the appel- 
lant in this case profited directly or indirectly by 
reason of any prostitution being practiced at this 
house. 

A case almost in point with the case before us was 
decided in the Tenth Circuit, December 31, 1931, 
being the case of Strench vs. Pedaris, 55 F. (2nd) 
597. This case was tried before Judges Cotteral and 
Phillips of the Circuit Court and Judge Pollock, of 
the District Court. The decision being rendered by 
Judge Pollock. 

The defendant was tried for deportation on the 
ground that he had been found an inmate of a house 
of prostitution. As found on page 597, the evidence 
established that Francis Pedaris, wife of the defend- 
ant, practiced prostitution in a building owned by 
Pedaris, and a portion of which said building Pedaris 
conducted as a coffee shop. That Pedaris lived with 
his wife in this building as man and wife. There 
was no evidence found in the record that defendant 
acted as a pimp or in anywise aided his wife in any 
such practice, or that he in any manner profited from 
the practice of prostitution by his wife. The statute 
under which Pedaris was arrested was the Act of 



10 

February 20, 1917, e. 1134, 34 Stat. 898, which be- 
fore amendment read as follows: "Any alien woman 
or girl who shall be found an inmate of a house of 
prostitution or practicing prostitution, within three 
years after she shall have entered the United States, 
shall be deemed to be unlawfully within the United 
States and shall be deported as provided by sections 
twenty and twenty-one of this Act." 

As amended by Act of March 26, 1910, 36 Stat. 
263, the Act reads as follows: "Any alien who shall 
be found an inmate of a house of prostitution, or con- 
nected with the management of a house of prostitu- 
tion or practicing prostitution after such alien shall 
have entered the United States, shall be deemed to be 
unlawfully within the United States." 

The question presented to the Court was whether, 
under this act a man could be held guilty of being 
an inmate of a house of prostitution, as was the 
charge made against Pedaris in the warrant issued 
by the Assistant Secretary of Labor under which 
deportation was attempted. Quoting from page 598 : 

"While it is apparent that the act before amend- 
ment was limited by its terms to members of the 
female sex, yet it is entirely plain it was so amended 
as to include members of the male sex if they in- 
habited a house of prostitution, and took part in the 
immoral practice carried on therein, or participated 
in the profit derived from the practice. As has been 



11 

seen the evidence in this case fails to so show, and 
on this ground alone the judgment in the habeas 
-corpus case appealed from would have to be af- 
firmed." 

The evidence in the instant case fails to show that 
the defendant in this case took part in any immoral 
practice carried on on the premises, or participated 
in the profits derived from the practice. The Circuit 
Court held in the last mentioned case that inasmuch 
as the evidence failed to show that the defendant 
in that case took part in any immoral practice or 
participated in any profits, that the judgment there- 
upon rendered in favor of the defendant would neces- 
sarily have to be affirmed. Applying the rule in that 
case to the case before us, it would appear that the 
defendant in this case should have been granted a 
writ of habeas corpus as prayed for in the District 
Court. 

As stated hereinabove, there is no competent evi- 
dence to show that Mr. Luchessi was the owner of 
the hotel, whereas there was positive evidence to 
show that his wife was the owner, or lessee. The 
only evidence at all that indicates that Luchessi might 
have been the owner of the hotel was the evidence of 
Phemie Novak, who had no personal knowledge of 
the fact, and the statements of the inspectors; the 
documentary testimony clearly shows that Loie Tuck- 
er was the owner. 



12 

"In the proceedings for the deportation of an alien 
on the ground that he is sharing in the earnings of 
a prostitute, proof of his ownership of such house 
can not be made by proof of general reputation." 

Katz vs. Commissioner of Immgiration, 245 F., 
page 316. 

It is held in the same case at page 319 as follows: 

"We are aware of the holding of the Supreme Court 
that the question is for the Commissioner of Immigra- 
tion, and that the Court is not permitted to look be- 
hind his findings, when it is a matter of weighing 
evidence; but where there is substantially no evidence 
competent to establish the charge preferred, it then 
bcomes a question of law for the Court." 

The principle involved has been substantially de- 
termined by the case of Backus vs. Owe Sam Goon, 
235 Federal, page 847. 

In Backus vs. Katz, 245 Federal, page 320, it was 

held: 

"In a proceeding where the deportation of an alien, 
evidence held insufficient to show that he had received 
or was receiving the earnings of a prostitute ; deporta- 
tion was improperly ordered." 

CONCLUSION 

We maintain the Government has failed herein for 
the following reasons: 

I. There is no competent evidence before the court 
that the defendant was managing a house of prostitu- 
tion or musical dance hall or other place of amuse- 
ment or resort habitually frequented by prostitutes. 



13 

II. There is no competent evidence establishing the 
Palmer Hotel as a house of prostitution. 

III. There is no competent evidence establishing 
this place as a musical dance hall, or other place of 
amusement. 

IV. There is no competent evidence establishing 
that the Palmer House was habitually frequented by 
prostitutes. 

V. That there is no competent evidence establish- 
ing that the defendant was found receiving anything 
of any value whatever from a prostitute. 

VI. There is no competent evidence establishing 
that he shared in or derived any benefit whatever 
from the earnings of a prostitute. 

In view of the fact that the above constitutes the 
various elements of the charges stated by the Secre- 
tary of Labor against the defendant and in view of 
the fact that the Government has failed to offer com- 
petent evidence sustaining any one of these points, we 
respectfully urge on this Court that the Government 
has failed to establish its case and that therefore the 
judgment of the District Court should be reversed. 

Respectfully submitted, 

L. F. BUTY, 

JOHN J. SULLIVAN, 

MICHAEL F. WARD, 

Attorneys for Appellant. 



6 s~ 2. i 

In the 

United States Circuit Court 
of Appeals 3 

For the Ninth Circuit 

No. 6523 

NARCISO LUCCHESI, 

Appellant, 
vs, 
LUTHER WEEDIN, as United States Commissioner of Im- 
migration at Seattle, Washington, 

Appellee. 



Upon appeal from the District Court of the United States 
for the Western District of Washington, Northern Division. 

HONORABLE JEREMIAH NETERER, JUDGE 



BRIEF OF APPELLEE 



ANTHONY SAVAGE, 

United States Attorney, 

HAMLET P. DODD, 

Assistant United States Attorney- 
Attorneys for Appellee. 
Office and Postoffice address: 
310 Federal Building, Seattle, Washington. 



Filed 

SEP 1 2 1932 



JOHN F. DUNTON, 
United States Immigration Service, Pfi^{J\_ P. C 

Seattle, Washington, £ L 

On the Brief. 



MERCANTILE PTO. & ADV. CO. 



INDEX 



ARGUMENT 5 

CONCLUSION 28 

STATEMENT OF THE CASE 1 



STATUTES CITED 

Section 19, Immigration Act of February 5, 1917 (8 US 

CA, Sec 155) 18 

Section 20, Immigration Act of February 5, 1917 (8 US 
CA, Sec. 156 19 



CASES CITED 

Bilokumsky v. Tod, 263 U. S. 149 10 

Chin Yow v. United States, 208 U. S. 8 20 

Ex parte Kaizo Kamiyama, 44 F (2d) 503 10 

Flynn ex rel. Jew Yet Wing v. Tillinghast, 44 F (2d) 

789 28 

Ghiggeri v. Nagle, 19 F (2d) 875 .... 27 

Johnson v. Kock Shing, 3 F (2d) 889 20 

Kwock Jan Fat v. White, 253 U. S. 454 20 

Low Wah Suey v. Backus, 225 U. S. 460 10 

Moy Chee Chong v. Weedin, 28 F (2d) 263 27 

Moy Said Ching v. Tillinghast, 21 F (2d) 810 20 

Ng Kai Ben v. Weedin, 44 F (2d) 315 10 

Ng Mon Tong v. Weedin, 43 F (2d) 718 21 

Prentis v. Seu Leung, 203 F. 25 27 

Tisi v. Tod, 264 U. S. 131 19 

Tod v. Walman, 266 U. S. 103 19 

United States v. Ju Toy, 198 U. S. 253 20 

United States ex rel. Smith v. Curran, 12 F (2d) 636.... 21 

United States v. Uhl, 211 F. 628 20 

Vajtauer v. Com'r of Immigration, 273 U. S. 103 10 



In the 

United States Circuit Court 
of Appeals 

For the Ninth Circuit 

No. 6523 

NARCISO LUCCHESI, 

Appellant, 
vs, 
LUTHER WEEDIN, as United States Commissioner of Im- 
migration at Seattle, Washington, 

Appellee. 



Upon appeal from the District Court of the United States 
for the Western District of Washington, Northern Division. 

HONORABLE JEREMIAH NETERER, JUDGE 



BRIEF OF APPELLEE 



STATEMENT OF THE CASE 

The appellant, NARCISO, alias NELSON, LUC- 
CHESI, alias NARCISO LUCCHESI, was born in 
Italy January 24, 1888, and is a subject of Italy. 
He claims that he first came to the United States in 
1905 or 1906; that he remained in this country two 
and one-half years and then returned to Italy; that 
he next entered the United States in 1911; that he 



departed for Italy June 8, 1925, and remained there 
about two or three months. The record shows that he 
returned to this country on the steamer "Duilio," 
landing at the port of New York, August 25, 1925. 

Information having been received by the immi- 
gration officials that said appellant was running the 
Palmer Hotel in Tacoma as a house of prostitution, 
an investigation as to the facts was instituted by the 
said officials and, in connection therewith, statements 
were taken by Immigrant Inspector H. G. Yeager 
at Tacoma, Washington, October 16, 1928, from the 
appellant and from Helen Alice Wilbert, Mrs. Phemie 
Novak and Immigrant Inspector William G. Mc- 
Namara. October 17, 1928, the Commissioner of 
Immigration at Seattle, Washington, applied to the 
Secretary of Labor for a warrant for the arrest of 
the appellant, and such warrant was issued October 
18, 1928, by A. E. Cook, Assistant to the Secre- 
tary of Labor, charging that said appellant had been 
found in the United States in violation of the Im- 
migration Act of February 5, 1917, for the follow- 
ing among other reasons: 

"That he has been found managing a house 
of prostitution, or music or dance hall or other 
place of amusement, or resort, habitually fre- 
quented by prostitutes; that he has been found 



3 

receiving, sharing in, or deriving benefits from 
the earnings of a prostitute; and that he has 
been found assisting a prostitute." 

The appellant was duly arrested by an immi- 
grant inspector under authority of this warrant, 
and was released under $1,000 bond October 20, 
1928, pending further hearing and investigation. 
January 3, 1929, a hearing under the said warrant 
was held at the United States Immigration Station 
at Seattle, Washington, said hearing being conducted 
by Immigrant Inspector Joseph H. Gee. At this 
hearing testimony was taken from the appellant 
and Immigrant Inspectors C. C. Hall and William 
G. McNamara. September 26, 1929, a further hear- 
ing was accorded the appellant at the same place 
by the same Immigrant Inspector. Thereafter the 
entire record was forwarded to the Department of 
Labor at Washington and, on December 12, 1929, 
a warrant of deportation was issued by P. F. Snyder, 
Assistant to the Secretary of Labor, commanding 
that the appellant be returned to Italy, on the 
finding that he had been found in the United States 
in violation of the Immigration Act of February 5, 
1917, to wit: 

"That he has been found managing a house 
of prostitution, or music, or dance, hall, or other 



place of amusement, or resort, habitually fre- 
quented by prostitutes, or where prostitutes 
gather." 

Before deportation could be accomplished the 
appellant was convicted of violating the National 
Prohibition Act and was sentenced to six months 
imprisonment in the Pierce County Jail. He sur- 
rendered to the immigration authorities August 26, 
1930, and, on August 27, 1930, filed a Petition 
for a Writ of Habeas Corpus in the District Court 
of the United States for the Western District of 
Washington, Northern Division. He was released by 
the immigration officials August 30, 1930, by order 
of said court, having filed therewith a bond of 
$1,000. After various postponements of the hearing 
on the Order to Show Cause, which had issued on 
the filing of the Petition, the habeas corpus proceed- 
ings were dismissed without prejudice December 29, 
1930, at the request of the appellant, and a petition 
for a re-hearing was filed with the Department of 
Labor, pending the result of which the appellant was 
released under $1,000 bond to that Department. 
This petition was denied by the Department of Labor 
and the appellant then filed a petition for a stay of 
deportation, which also was denied. The appellant 
again surrendered to the immigration authorities 
February 24, 1931, and immediately filed another 



petition for a Writ of Habeas Corpus in the same 
court as before. He was admitted to bail by said 
court February 26, 1931, and was released by the 
immigration authorities on that date. Subsequently 
the writ was denied by said court, and the case now 
comes before this court on appeal from said judg- 
ment. 

ARGUMENT 

The Petition alleged that the petitioner was not 
granted a fair hearing by the Immigration officials, 
and cited as reasons for such allegation: 

1. "That witnesses were examined in the absence 
of his counsel of record." 

2. "That the record and evidence discloses no 

facts or evidence upon which the Secretary 
of Labor and Commissioner of Immigration 
at Seattle, Washington, could base the find- 
ing that your petitioner had violated said 
Act, as charged." 

Immigrant Inspector Carl C. Hall reported Octo- 
ber 8, 1928, (pp. 33-32) that, on October 4, 1928, 
about midnight, he called at the Palmer Hotel and 
was met at the door by the "landlady"; that the 
said "landlady" asked him what he wanted, and he 
replied that he wanted a girl; that the "landlady" 



told him to return the following afternoon, as there 
was no girl there at the time; that he then asked the 
"landlady" if she wouldn't do, and the "landlady" 
that she had a "party" and was busy; that he then 
inquired of the "landlady" the price of a "trick", 
and she replied that the price was two dollars; that, 
about 9:30 P. M. October 5, 1928, he again visited 
the Palmer Hotel and was met at the door by the 
same "landlady" ; that he asked her if he could have 
a girl ; that she sent a girl into the hallway ; that said 
girl, who informed him that her name was "Marion", 
stated to him that she charged two dollars a "trick", 
and that she gave the "landlady" half of the money 
which she received for each "trick"; that, earlier in 
the evening, he had walked up and down the street 
in front of the Palmer Hotel, and had seen men go 
into and come out of, said hotel quite frequently. 

Helen Alice Wilbert testified October 16, 1928 
at Tacoma, Washington, before Immigrant Inspector 
H. G. Yeager, (pp. 14-12) that she had been practic- 
ing prostitution for four years, in Seattle and Tacoma ; 
that she had been living at the Palmer Hotel since a 
week ago the preceding Saturday; that a girl named 
"Marion" had been at the said hotel prior to the time 
she went there; that Phemie Novak was "running" 
the Palmer Hotel for Nels Lucchesi. 



Mrs. Phemie Novak testified on the same date, 
at the same place and before the same Inspector, 
(pp. 12-10) that she was taking care of the Pal- 
mer Hotel for Nelson Lucchesi; that he owned the 
said hotel and that she was just doing the work around 
there, for which she received her room and board; 
that she had had girls living at said hotel, among 
them being "Marion" who had gone to Olympia 
about three weeks before; that "Marion" must have 
been at the said hotel about five days altogether, 
inclusive of October 5, 1928; that "Marion" paid 
her two dollars a night for her two rooms; and, al- 
though denying that she knew for what purpose 
Immigrant Inspector Hall wanted a girl, when he 
came to the hotel in the evening of October 5th and 
asked for one she let him in and sent the girl "Mar- 
ion" out into the hall to see him, because "Marion" 
was the only girl there at the time. She denied that, 
when the said Immigrant Inspector had called at 
the said hotel about midnight of October 4, 1928, 
she had told him that the price for prostitution at 
the said hotel was two dollars, and claimed that she 
knew nothing concerning the price, because that was 
"up to" the girls. 

After Mrs. Novak had testified, Helen Alice Wil- 
bert made a further statement (pp. 10-9) and admitt- 



8 

ed that she had practiced prostitution at the Palmer 
Hotel within the last week, and that she had per- 
formed approximately ten such acts. She also stated 
that Lucchesi never had told her that she could not 
practice prastitution in the said hotel. 

Mrs. Phemie Novak also made an additional 
statement (pp. 9-8) and testified that she had stopped 
at the Palmer Hotel for approximately seven months ; 
that, prior to going to the said hotel to stay, she 
often visited Lucchesi's wife there, and that there 
were a number of prostitutes there; that, since 
she had been at the hotel, she had given Helen 
Wilbert the privilege of "picking up extra change" 
from men; that, as far as she knew, Helen's state- 
ment that she had performed acts of prostitution with 
approximately ten men during the last week was cor- 
rect that Helen did not hesitate to accommodate men 
because Lucchesi happened to be in the building; 
that Lucchesi had never said anything to her regard- 
ing getting the girl, Helen, out of the hotel; that the 
girl, "Marion", paid her two dollars a night for her 
room, with the privilege of practicing prostitution, 
and that the said "Marion" took men to her room. 

The appellant, Narciso Lucchesi, also testified 
on the same date, at the same place, before the same 



9 

Inspector, (pp. 8-4) that he was also known as Nel- 
son Lucchesi ; that he bought and paid for the Palmer 
Hotel ; that he did not buy it for himself, but for his 
wife, Loie Tucker; that, after said Loie Tucker 
had left him and gone to Aberdeen,, he got the wo- 
man, Phemie Novak, to take care of it for him until 
he could sell it; that there were girls staying at the 
hotel but he did not know what they were doing. 

United States Immigrant Inspector William G. 
McNamara testified on the same date, at the same 
place, before the same Inspector, (p. 4) that, on the 
16th (apparently, from subsequent testimony, should 
read 4th) of October 1928, he visited the Palmer Ho- 
tel; that he saw a girl called "Helen" there; that he 
also saw a tall girl "running" the place, and Mr. Luc- 
chesi; that he talked with the girl who was running 
the place and that the said girl, in the presence of 
Mr. Lucchesi, stated that they kept only one girl there 
because there was no business for more; that this 
girl (who was running the place) stated to him 
that the price was two dollars ; that the girls did not 
pay room rent, but "split at the time". When Inspec- 
tor McNamara concluded his statement, Lucchesi, 
who appeares to have been present while he was mak- 
ing same, was asked if there was anything he wished 
to ask the Inspector, and answered, "No", (p. 4) 



10 

It will be noted that the report of Immigrant 
Inspector Hall and the statements, supra, were made 
prior to the designation of Mr. C. T. McKinney as 
attorney for the appellant, notice of Mr. McKinney's 
authorization to represent the appelant being dated 
October 17, 1928, (see Exhibit "A"). The appellant 
had no counsel of record prior to that date. Conse- 
quently the allegation that these witnesses (presum- 
ably referred to in the Petition) were examined in 
the absence of the appellant's counsel of record is 
totally without foundation. The appellant and the 
witnesses were advised of the object of taking their 
testimony and there is nothing in the record to show 
that any one of their statements was other than vol- 
untary. Consequently such statements were admissi- 
ble in evidence : 

Low Wah Suey v. Backus, 225 U. S. 460-469- 
470. 

Ng Kai Ben v. Weedin, 44 F (2nd) 315. (this 
court). 

Ex Parte Kaizo Kamiyama, 44 F (2nd) 503. 
(this court). 

Bilo Kumsky v. Tod, 263 U. S. 149. 

Vajtauer v. Commissioner of Immigration, 273 
U. S. 103. 

October 17, 1928, Phemie Novak and Helen Alice 

Wilbert again testified before Immigrant Inspec- 



11 

tor H. G. Yeager, at Seattle, Washington. The appel- 
lant was present at this hearing, together with At- 
torney C. T. McKinney who participated in the 
examination of the witnesses. 

Phemie Novak testified (pp. 38-37) that she 
was temporarily managing, or looking after, the 
Palmer Hotel, and that Lucchesi was the owner of 
said hotel. She also reaffirmed her statement of 
October 16th regarding Helen Wilbert's presence 
in the said hotel and having accorded the said Helen 
Wilbert the privilege of practicing prostitution there ; 
also as to the presence of the girl "Marion" at the 
said hotel, although claiming that she did not remem- 
ber anything regarding having given "Marion" the 
privilege of practicing prostitution there. On cross 
examination by Attorney McKinney she testified that 
she was unable to prove that Lucchesi was the own- 
er of the hotel in question, and knew only that he 
claimed ownership thereof. She also stated that, 
as far as she knew, Lucchesi had no knowledge re- 
garding "Marion's" presence there. 

Helen Alice Wilbert testified (pp. 36-35) that 
she was a prostitute by occupation, and reaffirmed 
her former statements as to having been granted the 
privilege of practicing prostitution at the Palmer 



12 

Hotel, and having practiced prostitution there. She 
also testified that, during the period of approxi- 
mately one week she was at the hotel, she saw Luc- 
chesi there, and that he was in the place three or 
four times and stayed all night once or twice. She 
claimed, however, that she never talked with Luc- 
chesi about practicing prostitution there, and that 
she did not know that he had knowledge that she was 
doing so, and that, while she had no absolute knowl- 
edge that Lucchesi was the owner of the hotel, it 
was her understanding, from what she had heard, 
that such was the fact. 

On re-call Phemie Novak testified (pp. 35-34) 
that, while Mrs. Lucchesi was at the Palmer Hotel, 
she had visited there and had seen girls there; that, 
while she was living at the hotel, Luccesi never had 
told her to allow girls to practice prostitution there. 

At the hearing under the warrent of arrest 

January 3, 1929, Attorney C. T. McKinney was 

present and participated in the examination of the 
witnesses. 

At said hearing the appellant (pp. 54-50 and 
45-44) repudiated his former statement that he bought 
the Palmer Hotel for his wife, and claimed that his 
wife paid for the said hotel with her own money. 



13 

He also claimed that he never had any interest in the 
said hotel, that he never paid any bills for said hotel 
and never had any voice in the management of 
same. He stated, however, that he had roomed at the 
said hotel from 1923 or 1924 until the date which he 
was testifying, and that he did not pay any room 
rent. 

Immigrant Inspector Carl C. Hall testified (pp. 
50-47) as to his visit to the Palmer Hotel October 
4 and 5, 1928, and his testimony was in substantial 
agreement with his report of October 8, 1928, refer- 
red to above. He stated that, on the occasion of his 
visit to the Palmer Hotel October 5th„ he made it 
fully known to the "landlady" that he wanted a 
girl for the purpose of committing an act of prosti- 
tution, and reiterated his statements contained in 
his report that the girl, "Marion," told him that two 
dollars was the price of a "trick" and that she paid 
one-half of that amount to the "landlady". 

Immigrant Inspector William G. McNamara 
testified (pp. 47-45) that, on or about October 4, 
1928, he visited the Palmer Hotel in company with 
Inspector Yeager; that Inspector Yeager represent- 
ed to the girl they met at the hotel that he was a real 
estate dealer from Seattle and that the witness wished 



14 

to see about buying the hotel; that he and Inspector 
Yeager saw the girl named "Phemie" and that 
she called Lucchesi, telling him that he and Inspector 
Yeager were a couple of "guys" from Seattle who 
wanted to buy the place ; that he and Inspector Yeager 
talked to Lucchesi, and that Lucchesi stated that he 
was the owner of the hotel and would sell it for 
$2,500.00; that Lucchesi stated that he did not have 
any girls there at the time, but they should see his 
manager, Phemie; that Lucchesi called Phemie in, 
and Phemie showed them over the place and mentioned 
that she did not have any girls there at that time; 
that, during the conversation between them and 
Phemie, Phemie stated that the girls, when there, got 
two dollars but, as the loggers were all going to Seat- 
tle, they probably woud have to cut the price to a 
dollar and a half; that, at all times during their 
conversation with Lucchesi, Lucchesi represented 
himself to them as the owner, or proprietor, of the 
hotel and that he referred to the woman Phemie as 
his manager ; that, during their visit to the hotel, they 
saw a smaller woman there who was called Helen; 
that Lucchesi made no claim that he was trying to 
sell the hotel for any person other than himself. 

September 26, 1929 the appellant was accorded 
a further hearing at the Seattle Immigration Station 



15 

by Immigrant Inspector Josheph H. Gee. Paul D. 
Coles was present as attorney for the appellant and 
participated in his examination. 

The appellant testified (pp. 43-41) that he did 
not remember whether or not, about February 16, 
1925, he made application to the City Light and 
Water Department of Tacoma to have the light 
turned on at the Palmer Hotel. He stated that 
sometimes he paid the rent for the said hotel as the 
owner thereof sometimes sent him over to pay the 
rent. When asked if it was not a fact that, Febru- 
ary 16, 1925, he signed an application to the Pacific 
Telephone and Telegraph Company, Tacoma, Wash- 
ington, for a telephone for the Palmer Hotel, and 
also an application for a private telephone for his 
own room at the said hotel, he answered that he 
did not remember, and that he never had a telephone 
in his room. On cross-examination by Mr. Coles, he 
testified that he thought that he leased the Palmer 
Hotel in 1924 or 1923 and had it probably about 
fifteen months; that he thought that, when he made 
application for City Light and Water in February 
1925, he signed the said application for Loie Tucker; 
that, when he paid the rent for the Palmer Hotel, 
he did so for Loie Tucker; that, if he ever signed 
for the telephone at the hotel, he did so for Loie 



16 

Tucker; that he never got any money from the Pal- 
mer Hotel and never had anything to do with the 
management of same. 

Immigrant Inspector Voligny's report of Janu- 
ary 19„ 1929 (pp. 31-30), shows that, on Febru- 
ary 16, 1925, the appellant signed an application to 
have the electric light turned on at the Palmer Ho- 
tel, and on the same date signed applications of a 
telephone for the said hotel and for his room therein. 
However, as the hotel appears to have been in the 
hands of another person for some months in 1926 
prior to its lease by Loie Tucker September 17 of 
that year these matters do not appear to have any ma- 
terial bearing on the present case. 

The record shows that the appellant was married 
in Italy June 3, 1909, to one Assunta Trinci and 
had two children by her; that he never was divorced 
from her; that, on or about September 15, 1925, 
shortly after his last return from Italy, he bigam- 
ously married Loie Beatrice Jacobs, alias Loie Tuck- 
er, at Everett, Washington; that he lived with the 
said woman from that time until about May or June 
1928, when she left him and went to Aberdeen, Wash- 
ington, to live; that he and the said woman lived 
together at the Palmer hotel from the latter part of 



17 

1926 until May or June 1928, and that he continued 
to make his home at the said hotel after the said wo- 
man went to Aberdeen, and until the date on which 
he testified (January 3, 1929). 

It was contended before the Department of Labor 
that, inasmuch as the appellant had a business a 
few miles distant from the Palmer Hotel, he could 
not have been managing said hotel at the time in 
question. The record shows, however, that he was 
present at said hotel several times during the period 
Helen Wilbert was there, and also was present 
when Immigrant Inspectors McNamara and Yeager 
called there October 4, 1928. It also was contended 
that he could not have been the owner, or lessee, 
of the hotel because the said building had been leased 
to Loie Tucker September 17, 1926, for a period of 
three years. There is no reasonable evidence that 
Loie Tucker complied with the terms of said lease 
after she went to Aberdeen in May or June 1928, 
and that the appellant did not take over the hotel 
on his own account when she left. In fact the evi- 
dence shows that, when he offered to sell the hotel 
to Immigrant Inspectors McNamara and Yeager 
October 4, 1928, he told the said inspectors that he 
had a lease on same. As this so-called "hotel" is 
said to contain only seven bed-rooms, a parlor and a 



18 

kitchen, the petitioner's claim that he did not know 
what the girls were doing there is absurd. 

Among various definitions of the term "Manage" 
contained in Webster's International Dictionary, 1923 
Edition, are the following: 

"To have under control and direction;" "to 
conduct;" "to cotnrol;" "to carry on;" "to have 
the care of;" "to tend;" "to direct affairs;" "to 
carry on business or affairs;" "to administer;" 
also "to admit of being carried on." 

Section 19 of the Immigration Act of February 
5, 1917 (8 USCA, Section 155) provides as follows: 

«* * * ^ n y a jj en w Yio shall be found an in- 
mate of or connected with the management of a 
house of prostitution or practicing prostitution 
after such alien shall have entered the United 
States, or who shall receive, share in, or derive 
benefit from any part of the earnings of any 
prostitute; any alien who manages or is employ- 
ed by, in, or in connection with any house of 
prostitution or music or dance hall or other place 
of amusement or resort habitually frequented by 
prostitutes, or where prostitutes gather, or who 
in any way assists any prostitute * * * shall, 
upon the warrant of the Secretary of Labor, be 
taken into custody and deported; * * * In every 
case where any person is ordered deported from 
the United States under the provisions of this 
act, or of any law or treaty, the decision of the 



19 

Secretary of Labor shall be final." (Italics ours) 

Section 20 of the same Act (8 USCA, Sec. 156) 
provides : 

"That the deportation of aliens provided for 
in this act shall, at the option of the Secretary 
of Labor, be to the country whence they came or 
to the foriegn port at which such aliens em- 
barked for the United States; or, if such em- 
barkation was for foriegn contiguous territory, 
to the foreign port at which they embarked for 
such territory ; or, if such aliens entered foreign 
contiguous territory from the United States and 
later entered the United States ; or if such aliens 
are held by the country from which they entered 
the United States not to be subjects or citizens of 
such country, and such country refuses to per- 
mit their re-entry, or imposes any condition upon 
permitting reentry, then to the country of which 
such aliens are subjects or citizens, or to the 
country in which they resided prior to entering 
the conutry from which they entered the United 
States. * * *" 

The findings of immigration officials on ques- 
tions of fact, after a fair hearing, are conclusive: 

Vajtauer v. Comis. of Immigration, supra. 
Tod v. Walman, 266 U. S. 103. 
Tisi v. Tod, 264, U. S. 131. 



20 

A Departmental warrant for the deportation of 
an alien cannot be rightfully issued without evidence 
to support it, but, if there is a hearing and some evi- 
dence, the decision of the Secretary of Labor is con- 
clusive : 

United States v. Uhl, (CCA), 211 Fed. 628. 

It also has been uniformly held that the courts 
have no power to interfere with decisions of immi- 
gration officials unless there was a denial of a fair 
hearing, or the finding was not supported by evi- 
dence, or there was erroneous application of a rule 
of law: 

United States v. Ju Toy, 198 U. S. 253. 
Chin Yow v. United States, 208 U. S. 8. 
Low Wah Suey v. Backus, supra. 
Kwock Jun Fat v. White, 253 U. S. 454. 

In reception of evidence immigration officials 
are not restricted to such evidence as meets the re- 
quirements of legal proof, but can receive, and de- 
termine the questions before them upon, any evidence 
which seems to them worthy of credit: 

Johnson v. Kock Shing (CCA 1), 3 F (2d) 889. 

Moy Said Ching v. Tillinghast (CCA 1), 21 F 
(2d) 810,811. 



21 

In immigration cases neither the hearsay, the 
best evidence, nor any of the common-law rules of 
evidence need be observed: 

United States ex rel. Smith v. Curran (CCA 
NY), 12 F (2d) 636. 

Ng Mon Tong v. Weedin 43 F (2d) 718. (this 
court). 

The present case differs materially from Katz 
v. Commissioner of Immigration, 245 Fed. 315, and 
Backus v. Katz, 245 Fed. 320, cited by counsel for 
the appellant. Katz was simply the owner of a house 
which he was shown to have rented to a woman who 
apparently used it for a house of prostitution. He 
did not live there nor have anything whatever to do 
with the management. In the present case the evi- 
dence shows that, after Loie Tucker left him and 
went to Aberdeen, Washington, to live, the appellant 
continued to make his home at the Palmer Hotel, 
#1307^ Broadway, Tacoma; that he secured Phemie 
Novak to act as housekeeper, or "landlady," at said 
hotel; that Phemie Novak acted as such for him; that 
he claimed to be the owner of the said hotel, and was 
so regarded by both Phemie Novak and Alice Wil- 
bert. The present case is clearly distinguished from 
Strench v. Pedaris, particularly in that Pedaris was 
charged with being an "inmate" of a house of pros- 



22 

titution. The case of Backus v. Owe Sam Goon is not 
in point here. 

The record contains two affidavits dated Jan- 
uary 14, 1930 (more than three and one half months 
subsequent to the last hearing; more than two and 
one half months after the record of the various hear- 
ings had been forwarded to the Department of Labor 
at Washington, D. C, and more than a month after 
the warrant of deportation was issued) , one of same 
purporting to have been executed by PHEMIE NO- 
VAK, and the other by LOIE TUCKER (pp. 78-75). 
The affidavit of PHEMIE NOVAK is to the effect 
that the appellant never had knowledge of any acts 
of prostitution committed by HELEN WILBERT, or 
any other person, in the Palmer Hotel; that, when 
she was questioned by Inspector Yeager October 17, 
1928, she merely assumed that the appellant was the 
owner of said hotel; that, at the time HELEN WIL- 
BERT was stopping at said hotel, the appellant was 
convalescing at the home of his brother from an op- 
eration for appendicitis; that the said HELEN WIL- 
BERT was staying at the said hotel for the purpose 
of being a companion to her (the affiant), and did 
not pay any room-rent at any time to her or to any 
other person. The affidavit of LOIE TUCKER is to 
the effect that she was the owner of the Palmer Hotel 



23 

and that the appellant never had anything to do with 
its operation, and never shared in the profits there- 
from ; that PHEMIE NOVAK was in charge of said 
hotel and the appellant was living there at her re- 
quest for the purpose of protecting her interests, and 
was receiving free rent for his services in her behalf ; 
that, at said time, she was the legal wife of the ap- 
pellant. 

The above-mentioned affidavits apparently were 
forwarded to the Commissioner-General of Immigra- 
tion by United States Senator C. C. Dill with his 
letter of March 10, 1930 (p. 79). The Commissioner- 
General of Immigration replied to said letter April 
21, 1930 (pp. 83-82) to the effect that the appellant 
was then serving a sentence of six months in the 
Pierce County Jail, that his deportation was manda- 
tory under the law and would be proceeded with upon 
the termination of his imprisonment. In the said let- 
ter of reply the Commissioner-General also cited some 
of the testimony which had been adduced, and which 
has been refered to supra. August 19, 1930, tele- 
grams were sent to the Department of Labor by Con- 
gressman Albert Johnson and Attorney Louis F. Buty 
requesting that the petitioner's deportation be stayed 
(pp. 83 i and 89), which request was denied (See 
memorandum of the Board of Review, p. 90). Such 



24 

stay of deportation was effected, however, by the in- 
stitution of habeas corpus proceedings. After said 
proceedings had been dismissed at the request of the 
petitioner in the latter part of December 1930 (more 
than a year after the warrent of deportation was 
issued), a formal Petition for a re-hearing of the 
case was filed (pp. 130-124), accompanied by affi- 
davits purporting to have been executed by LOIE 
BEATRICE HART, PHEMIE NOVAK, the appel- 
lant, and NEILL M. HEATH, a certificate by Dr. 
A. L. SCHULTZ, and a letter, or certificate, by E. 
R. KRONA (pp. 123-107). This Petition was follow- 
ed up closely by a letter from the Director of the 
National Catholic Welfare Conference and telegrams 
from three Catholic clergymen of Tacoma and St. 
Martin's College (pp. 137-134). 

The affidavit of LOIE BEATRICE HART as- 
serts that, at the time in question (October 1928), 
she and the appellant had been separated for several 
months, during which period she had been living in 
Aberdeen; that, prior to leaving the appellant, she 
had employed PHEMIE NOVAK to act as her agent 
and manager, and given her instructions to conduct 
the Palmer Hotel in a proper and legitimate manner, 
and to make all accountings to her; that she did not 
at any time authorize the said PHEMIE NOVAK to 



25 

operate the said hotel as a house of prostitution ; that 
she had no knowledge of the mariner in which the 
said PHEMIE NOVAK operated the hotel, for the 
reason that she never visited the hotel after separat- 
ing from the appellant. 

The affidavit of PHEMIE NOVAK contradicts 
her testimony (pp. 12-8) in most of the essential par- 
ticulars, as will be noted by perusal of same. That of 
the appellant amounts to a reiteration of his former 
claims that he did not own or have anything to do 
with the management of the Palmer Hotel. It also 
sets forth that LOIE TUCKER, instead of himself 
as he testified at first, hired PHEMIE NOVAK to 
manage the hotel ; that, during the period in question, 
he was making his home with his brother, and had 
no idea whatever as to the manner in which the said 
PHEMIE NOVAK was conducting the hotel. The af- 
fidavit of NEILL M. HEATH is of a negative char- 
acter, and is of no value as impeaching any of the 
testimony. The laudatory telegrams of the clergymen 
(pp. 136-134) are of no evidential value. It seems 
evident that the said clergymen did not know that the 
appellant was a bigamist, and that he had served a 
sentence of six months in the Pierce County Jail for 
violation of the prohibition laws only a short time 
before. 



26 

Nearly nine months intervened between the hear- 
ings January 3, 1929, and September 26, 1929, and 
nearly another month elapsed before the record was 
forwarded to the Department of Labor October 24, 
1929. The record of the hearing September 26, 1929, 
gives no indication that the appellant was not pre- 
pared to go forward with same at that time, or that 
he desired or proposed to introduce any additional 
evidence later. Had it been desired to introduce any- 
thing additional, there was ample opportunity to have 
done so. 

The record shows that, at the hearing January 3, 
1929, the appellant was represented by Attorney C. 
T. McKinney, a former Assistant United States At- 
torney; that, at the hearing September 26, 1929, he 
was represented by Attorney Paul D. Coles, another 
former Assistant United States Attorney, and that 
the Brief in the appellant's behalf (pp. 27-20) was 
signed by Thomas P. Revelle, former Uniter States 
Attorney for the Western District of Washington; 
also that the appellant was represented before the De- 
partment of Labor at Washington, D. C. by Roger 
O'Donnell, unquestionably one of the ablest attorneys 
in the United States in immigration matters, whose 
Brief comprises pages 62-58 of the record. No con- 
tention was set up by Mr. O'Donnell that the appel- 



27 

lant's rights had been prejudiced in any manner by 
the change in counsel during the progress of the case, 
which appears to be the principal basis for the Peti- 
tion for Re-hearing filed more than a year after the 
case was closed and the warrant of deportation is- 
sued. 

Attention is invited to the memorandum of the 
Board of Review made in connection with the denial 
of the said petition (pp. 139-138). 

The Secretary of Labor was not obliged to be- 
lieve the statements contained in the affidavits ex- 
ecuted and filed after the case was closed, and would 
not have been obliged to believe such testimony as 
might have been offered if the petition for a re-hear- 
ing had been granted: 

Prentis v. Sen Leung (CCA 7), 203 F. 25. 

Moy Chee Chong v. Weedin, 28 F. (2d) 263. 
(this court). 

Ghiggeri v. Nagle, 19 F. (2d) 875. (this court). 

Ng Kai Ben v. Weedin, supra. 

The Secretary of Labor was under no legal ob- 
ligation to grant the petition for a re-hearing and, 
under the circumstances, his refusal to do so was not 
arbitrary or unfair: 



28 

Flynn ex rel. v. Jew Yet Wing v. Tillinghast, 
(CCA 1), 44 F (2d) 789. 

While the circumstances in said case were not 
exactly parallel with those in the present one, it is 
believed that the opinion is applicable here. 

CONCLUSION. 

The appellant was accorded a fair hearing by 
the immigration officials. The action of the Assist- 
ant to the Secretary of Labor in issuing the warrant 
of deportation, and in denying the petition for a re- 
hearing, was not arbitrary, or capricious, or in con- 
travention of any rule of law. There was ample evi- 
dence to justify the conclusion that, on or about Octo- 
ber 4th and 5th, 1928, the Palmer Hotel, #1307J 
Broadway, Tacoma, Washington, was a "house of 
prostitution," and that the appellant had been found 
"managing" same. The charge in the warrant of de- 
portation is sustained. The District Court was not 
in error in denying the Writ of Habeas Corpus and 
its Judgement should be affirmed. 

Respectfully submitted, 

ANTHONY SAVAGE, 

United States Attorney, 



29 



HAMLET P. DODD, 

Assistant United States At- 
torney, 

Attorneys for Appellee. 

JOHN F. DUNTON, 

United States Immigration 
Service, Seattle, Washington, 
On the Brief. 



No. 6427 



•United &iafrfl 

ffitrntit fflmtrt of Appeal* 

JTor tip Nttttlj ©trrutt. 



MARY C. YOUNG, 

Petitioner, 
vs. 

COMMISSIONER OF INTERNAL REVENUE, 

Respondent, 

and 

MARY YOUNG MOORE, 

Petitioner, 
vs. 

COMMISSIONER OF INTERNAL REVENUE, 

Respondent. 



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Upon Petition to Review an Order of the United States 
Board of Tax Appeals. 



FILED 

AP 



Filmer Bro». Oo. Print, 330 Jackipn St.; 3. P., 0«1. 



No 6427 



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MARY C. YOUNG, 

Petitioner, 
vs. 

COMMISSIONER OF INTERNAL REVENUE, 

Respondent, 

and 

MARY YOUNG MOORE, 

Petitioner, 
vs. 

COMMISSIONER OF INTERNAL REVENUE, 

Respondent. 



SrmtBrrtpi ni ULnntb. 



Upon Petition to Review an Order of the United States 
Board of Tax Appeals. 



Filmer 3ro*. Co. Print. 330 Jackson St., S. P., C»l. 



INDEX TO THE PEINTED TRANSCRIPT OP 

RECORD. 



[Clerk's Note: When deemed likely to lie of an important nature, 
errors or doubtful matters appearing in the original certified record are 
printed literally in italic; and, likewise, cancelled matter appearing in 
the original certified record is printed and cancelled herein accord- 
ingly. When possible, an omission from the text is indicated by 
printing in italic the two words between which the omission seems to 
occur.] 

Page 

Answer (No. 39,824) 20 

Answer (No. 39,825) 39 

Decision (No. 39,824) 56 

Decision (No. 39,825) 57 

Docket Entries (No. 39,824) 1 

Docket Entries (No. 39,825) 3 

EXHIBITS : 

Exhibit "A" Attached to Petition (No. 
39,824)— Letter Dated May 16, 1928, 
D. H. Blair to Mrs. Mary Young 

Moore 13 

Exhibit "A" Attached to Petition (No. 
39,825)— Letter Dated May 16, 1928, 
D. H. Blair to Mrs. Mary C. Young. . . 32 
Findings of Pact and Opinion (Nos. 39,825, 

39,824) 50 

Motion to Consolidate Causes for Hearing 

(Nos. 39,825, 39,824) 43 

Notice of Filing Petition for Review (Nos. 

39,825, 39,824) 68 

Petition (No. 39,824) 5 



ii Mary C. Young et ah 

Index. Page 

Petition (No. 39,825) 23 

Petition for the Review of the Decision of the 

United States Board of Tax Appeals (Nos. 

39,825, 39,824) 58 

Praecipe for Transcript of Record (Nos. 39,- 

825, 39,824) 70 

Stipulation of Facts (Nos. 39,825, 39,824) 44 



[1*] DOCKET No. 39,824. 

MARY YOUNG MOORE, 

Petitioner, 
vs. 

COMMISSIONER OF INTERNAL REVENUE, 

Respondent. 

APPEARANCES. 

For Petitioner: THEO. B. BENSON, Esq., 
For Respondent: W. F. GIBBS, Esq. 

DOCKET ENTRIES. 
1928. 
July 16 — Petition received and filed. Taxpayer 

notified (fee paid). 
July 17 — 'Copy of petition served on General Coun- 
sel. 
Sept. 13 — Answer filed by General Counsel. 
Sept. 15 — Copy of answer served on taxpayer — 
General Calendar. 
1929. 
Dec. 6— Hearing set 2/24/30. 

1930. 
Feb. 24 — Hearing had before Mr. Murdock on 
merits. Submitted on stipulation and 
record. Ordered consolidated for 
hearing and decision. Briefs due in 30 
days. 

*Page-number appearing at the top of page of original certified 
Transcript of Eecord. 



2 Mary C. Young et al. vs. 

Feb. 24— Motion to consolidate with 39,825 filed at 
hearing by taxpayer — granted. 

Mar. 3— Transcript of hearing of Feb. 24, 1930, 
filed. 

Mar. 24 — Motion for hearing on brief filed by tax- 
payer, 4/8/30 motion denied. 

Mar. 24 — Brief filed by taxpayer. 

Mar. 24 — Brief filed by General Counsel. 

Sept. 8 — Findings of fact and opinion rendered — 
Annabel Matthews, Division 13. Judg- 
ment will be entered for respondent. 

Sept. 10 — Decision entered — Annabel Matthews, 
Division 13. 

Dec. 20 — Supersedeas bond in the amount of $10,- 
094.96 approved and ordered filed. 
1931. 

Jan. 13 — Petition for review by U. S. Circuit 
Court of Appeals (9) with assignments 
of error filed by taxpayer. 

Jan. 13 — Proof of service filed. 

Jan. 13 — Praecipe filed — proof of service thereon. 

Jan. 23 — Motion for extension of 10 days to file ob- 
jections to praecipe filed by General 
Counsel. 

Jan. 23 — Motion granted. 

Now, Feb. 24, 1931, the foregoing Docket Entries 
certified from the record as a true copy. 

[Seal] B. D. GAMBLE, 

Clerk, U. S. Board of Tax Appeals. 



Commissioner of Internal Revenue. 3 

[2] DOCKET No. 39,825. 

MARY C. YOUNG, 

Petitioner, 
vs. 

COMMISSIONER OF INTERNAL REVENUE, 

Respondent. 

APPEARANCES. 

For Petitioner: THEO. B. BENSON, Esq., 
For Respondent: W. F. GIBBS, Esq. 

DOCKET ENTRIES. 

1928. 

July 16 — Petition received and filed. Taxpayer 
notified (fee paid). 

July 17 — Copy of petition served on General Coun- 
sel. 

Sept. 13 — Answer filed by General Counsel. 

Sept. 15 — Copy of answer served on taxpayer — 
General Calendar. 
1929. 

Dec. 6— Hearing set 2/24/30. 

1930. 

Feb. 24 — Hearing had before John E. Murdock, 
Division 3, on merits. Submitted on 
stipulation and record. Ordered con- 
solidated for hearing and decision. 
Briefs due in 30 days. 

Feb. 24— Motion to consolidate with 39,824 filed by 
taxpayer at hearing — granted. 



4 Mary G. Young et al. vs. 

Mar. 3— Transcript of hearing of Feb. 24, 1930, 
filed. 

Mar. 24 — Motion for hearing on brief filed by tax- 
payer. See 39,824. 4/8/30 denied. 

Mar. 24 — Brief filed by taxpayer. 

Mar. 24 — Brief filed by General Counsel. 

Sept. 8 — Findings of fact and opinion rendered — 
Annabel Mathews, Division 13. Judg- 
ment will be entered for respondent. 

Sept. 10 — Decision entered — Annabel Matthews, 
Division 13. 

Dec. 20 — Supersedeas bond in the amount of $9,- 
833.68 approved and ordered filed. 
1931. 

Jan. 13 — Petition for review by U. S. Circuit 
Court of Appeals (9th) with assign- 
ments of error filed by taxpayer. 

Jan. 13 — Proof of service filed. 

Jan. 13 — Praecipe filed — proof of service thereon. 

Jan. 23 — Motion for 10 days extension to file ob- 
jections to praecipe filed by General 
Counsel. Granted. 

Now, Feb. 24, 1931, the foregoing Docket Entries 
certified from the record as a true copy. 

[Seal] B. D. GAMBLE, 

Clerk, U. S. Board of Tax Appeals. 



[3] Filed Jul. 16, 1928. United States Board 
of Tax Appeals. 



Commissioner of Internal Revenue. 5 

United States Board of Tax Appeals. 

DOCKET No. 39,824. 

MARY YOUNG MOORE, 1001 South Hoover 
Street, Los Angeles, California, 

Petitioner, 

vs. 

COMMISSIONER OF INTERNAL REVENUE, 

Respondent. 

PETITION. 

The above-named petitioner hereby petitions for a 
re-determination of the deficiency set forth by the 
Commissioner of Internal Revenue in his notice of 
deficiency IT : AR :B-8-LMM-60D, dated May 16, 
1928, and as a basis of its proceeding alleges as fol- 
lows: 

1. The petitioner is an unmarried woman with 
residence at 1001 South Hoover Street, City of Los 
Angeles, State of California. 

2. The notice of deficiency (a copy of which is 
attached hereto marked Exhibit "A") was mailed to 
the petitioner on May 16, 1928, and alleges a defi- 
ciency in tax for the calendar years 1924 and 1925 of 
$2,930.06 and $2,117.42, respectively, and pursuant 
thereto petitioner's appeal to this Board has been 
perfected within the period of sixty (60) days, as 
prescribed by the Revenue Act of 1928. 

3. The taxes in controversy are individual in- 
come taxes for the calendar years 1924 and 1925, and 
in an amount of less than $10,000.00. 



6 Mary C. Young et al. vs. 

4. The determination of tax set forth in said 
notice of deficiency is based upon the following 
errors : 

For Year 1924. 

(a) That the Commissioner of Internal Revenue 
failed to allow as a deduction in computing net in- 
come for the year 1924 the loss sustained by peti- 
tioner on account of the voluntary demolition in 
1924 of several old buildings owned by the petitioner 
jointly, petitioner's share of the loss on said demoli- 
tion being $21,107.50. 

[4] (b) That the Commissioner of Internal 
Revenue failed to allow as a deduction in comput- 
ing the net income for the year 1924 the sum of 
$10,750.00, said sum being expended by petitioner 
as commission to an agent for securing in 1924 a 
99-year lease of certain real property jointly owned 
by petitioner. 

(c) That the Commissioner of Internal Revenue 
failed to allow a deduction in computing the net 
income for the year 1924 the sum of $2,750.00, said 
sum being attorneys' fees expended by the peti- 
tioner in 1924. 

(d) That the Commissioner of Internal Reve- 
nue failed to allow as a deduction in computing the 
net income for the year 1924 the sum of $2,251.43, 
said sum being expended by petitioner as title costs. 

(e) That should the Board sustain petitioner's 
allegations of error 4(a), (b), (c), and (d) above, 
and 4(f) below, then the Commissioner of Internal 
Revenue incorrectly allowed as a deduction in com- 
puting the net income for the year 1924 the sum of 



Commissioner of Internal Revenue. 7 

$513.59, said sum being so-called amortization of 
the alleged cost of securing the 99-year lease re- 
ferred to in (b) above, at the rate of 1% of the 
amounts expended or sustained as outlined in 4(a), 
(b), (c), and (d) above, and 4(f) below, but should 
the Board sustain but a portion of the allegations 
4(a), (b), (c), (d) and (f), then that proportionate 
part thereof at the rate of 1% should be considered 
as being erroneously allowed as a deduction. 

For Year 1925. 

(f) That the Commissioner of Internal Reve- 
nue failed to allow as a deduction in computing 
the net income for the year 1925, the sum of $14,- 
500.00, said sum being expended by petitioner in 
the year 1925 as the balance of commission to an 
agent for securing in 1924 the 99-year lease of 
certain real property jointly owned by the peti- 
tioner. 

(g) That should the Board sustain petitioner's 
allegations of error 4(a), (b), (c), (d) and (f) 
above, then the Commissioner of Internal Revenue 
incorrectly allowed as a deduction in computing the 
net income for the year 1925 the sum of $513.59, 
said sum being so-called amortization of the al- 
leged cost of securing the 99-year lease referred to 
in (b) above, at the rate of 1% per annum of the 
amount expended or sustained as outlined in 4(a), 
(b), (c), (d), and (f) above, but should the Board 
sustain but a portion of the allegations 4(a), (b), 
(c), (d) and (f), then that proportionate part 
thereof at the rate of 1% should be considered as 
being erroneously allowed as a deduction. 



8 Mary C. Young et ah vs. 

5. The facts upon which taxpayer relies as a 
basis for this proceeding are as follows: 

[5] (a-1) Petitioner is the owner in joint of 
50% interest with Mary C. Young of certain real 
and personal property, among which is that real 
property situated in the City of Los Angeles and 
located at the Southeast corner of Seventh and 
Figueroa Streets, extending East on Seventh Street 
to the Southwest corner of Flower and Seventh 
Streets. 

(a-2) In 1917 and 1918 petitioner and Mary C. 
Young, co-owners, erected on this real property 
several brick store buildings which cost of erection 
of the buildings amounted to $50,000.00. 

(a-3) These buildings were rented or were for 
rent throughout the period from completion until 
1924. 

(a-4) In the latter part of the year 1924, peti- 
tioner voluntarily caused to be demolished and de- 
stroyed all of these several store buildings erected in 
1917 and 1918 at a cost of $50,000.00. 

(a-5) The depreciation sustained on the demol- 
ished buildings from date of erection until demol- 
ishment in 1924 at the rate of 3% per annum 
amounts to $7,785.00. 

(a-6) The net depreciated cost to petitioner and 
Mary C. Young, each having a 50% interest of the 
demolished buildings, as at date of demolishment in 
1924, amounts to $42,215.00. 

(a-7) Petitioner nor her co-owner never re- 
ceived any insurance money or salvage value on ac- 
count of the demolition of the buildings. 



Commissioner of Internal Revenue. 9 

(a-8) Petitioner claimed as a deduction on her 
original income tax return for 1924 the amount of 
$21,107.50 as her one-half of a loss sustained on the 
demolition of the buildings. 

(a-9) The Commissioner disallowed this amount 
of $21,107.50, and added the same back to net income, 
and the deficiency determined for 1924 is due in 
part to the disallowance of this deduction. 

(b-1) Petitioner and Mary C. Young on October 
1, 1924, ground-leased to the Sun Realty Company, 
for a period of ninety-nine (99) years, the real prop- 
erty situated at the Southeast corner of Seventh 
and Pigueroa Streets extending East on Seventh 
Street to Flower Street, as mentioned in statement 
5(a-l) above. 

(b-2) This lease was obtained for petitioner 
by an agent, which agent charged petitioner and 
Mary C. Young a total commission of $50,500.00 
for obtaining this lease. 

(b-3) Of this $50,500.00 commission for obtain- 
ing the lease $21,500.00 was paid in 1924, and $29,- 
000 was paid in 1925. 

(b-4) Petitioner paid to the agent her one-half 
of this commission in cash, as follows: 

[6] In Year 1924 $10,750.00 

In Year 1925 14,500.00 

(b-5) Petitioner claimed as a deduction on her 
original tax return for 1924 in Schedule A the 
amount of $10,750.00 as an ordinary and necessary 
expense in conducting her rental business. 

(b-6) The Commissioner of Internal Revenue 
disallowed this deduction of $10,750.00, and the defi- 



10 Mary C. Young et al. vs. 

ciency determined for 1924 is in part due to the dis- 
allowance of this deduction. 

(b-7) Petitioner kept her books and rendered 
her income tax return for the year 1924 on the cash 
receipts and disbursements basis. 

(c-1) Petitioner expended in cash during the 
year 1924 the amount of $2,750.00, being one-half of 
a total of $5,500.00, as attorneys' fees paid in con- 
nection with the preparation of the lease mentioned 
in 5(b-l) above. 

(c-2) Petitioner claimed as a deduction on her 
original tax return for 1924 in Schedule A this 
amount of $2,750.00 as an ordinary and necessary 
expense in conducting her rental business. 

(c-3) The Commissioner of Internal Revenue 
disallowed this deduction of $2,750.00, and the defi- 
ciency determined for 1924 is in part due to the dis- 
allowance of this deduction. 

(d-1) Petitioner expended in cash during the 
year 1924 the amount of $2,251.43 (being her one- 
half of $4,502.85) for obtaining a certificate of title, 
which was required by the lessee of the lease men- 
tioned in 5(b-l) above. 

(d-2) Petitioner claimed as a deduction on her 
original tax return for 1924 in Schedule A thereof 
this amount of $2,251.43 as an ordinary and neces- 
sary expense in conducting her rental business. 

(d-3) The Commissioner of Internal Revenue 
disallowed this deduction of $2,251.43, and the defi- 
ciency determined for 1924 is in part due to the dis- 
allowance of this deduction. 



Commissioner of Internal Revenue. 11 

(e-1) The Commissioner of Internal Revenue 
capitalized the deductions and losses referred to in 
4(a), (b), (c), (d), and (f), and has allowed a de- 
duction of 1% thereof for the year 1924 as amortiza- 
tion of the cost of the lease. 

(f-1) Petitioner expended in cash during the 
year 1925 the amount of $14,500.00 (being her one- 
half of $29,000.00) as balance of commission due the 
agent for obtaining the lease referred to in 5(b-l) 
to 5(b-4) inclusive, above. 

(f-2) Petitioner claimed as a deduction on her 
original income tax return for the year 1925 in 
Schedule A thereof this amount of $14,500.00 as an 
ordinary and necessary expense in [7] conducting 
her rental business. 

(f-3) The Commissioner of Internal Revenue 
disallowed this deduction of $14,500.00, and the de- 
ficiency determined for the year 1925 is in part due 
to the disallowance of this deduction. 

(f-4) Petitioner kept her books and rendered 
her income tax return for the year 1925 on the cash 
receipts and disbursements basis. 

(g-1) The Commissioner of Internal Revenue 
allowed as a deduction for 1925 as amortization of 
cost of a lease 1% of the amounts of the deductions 
and loss sustained, per 4 (a), (b), (c), (d), and (f) 
above. 

WHEREFORE, the petitioner prays that this 
Board may hear the proceeding and 

(a) Allow as a deduction in computing net in- 
come the loss sustained in the year 1924 in the 



12 Mary C. Young et ah vs. 

amount of $21,107.50 on account of demolition of 
buildings. 

(b) Allow as a deduction in computing net in- 
come for the year 1924 the amount of $10,750.00, 
being commission paid in that year. 

(c) Allow as a deduction in computing net income 
for the year 1924 the amount of $2,750.00, being at- 
torneys' fees paid in that year. 

(d) Allow as a deduction in computing net in- 
come for the year 1924, the amount of $2,251.43, 
being title costs paid in that year. 

(e) Allow the restoration to net income for the 
year 1924 of the amount of $513.59, amortization 
of cost of lease, said restoration to be made only 
upon allowance of (a), (b), (c), (d), and (f). 

(f) Allow as a deduction in computing the net 
income for the year 1925 the amount of $14,500.00, 
being commissions paid in that year. 

(g) Allow the restoration to net income for 
1925 the amount of $513.59, amortization of cost of 
lease, said restoration to be made only upon allow- 
ance of (a), (b), (c), (d), and (f), 

And such other relief as the premises may justify. 
THEODORE B. BENSON, 
917 Southern Building, Washington, D. C, 

Counsel for Petitioner. 

[8] State of California, 
County of Los Angeles, — ss. 

Mary Young Moore, hereby duly sworn, says that 
she is the petitioner above named, that she has 
read the foregoing petition, or had the same read to 
her, and is familiar with the statements contained 



Commissioner of Internal Revenue. 13 

therein, and that the facts stated are true, except 
as to those facts stated to be upon information and 
belief, and those facts she believes to be true. 

MARY YOUNG MOORE. 
MARY YOUNG MOORE. 
Subscribed and sworn to before me this 11th day 
of July, 1928. 

[Seal] MARY S. ALEXANDER, 

Notary Public. 

[9] EXHIBIT "A." 
TREASURY DEPARTMENT. 

Washington. 

May 16, 1928. 
(Seal) 
Office of 
Commissioner of Internal Revenue 

Address Reply to 

Commissioner of Internal Revenue 

And Refer to 

Mrs. Mary Young Moore, 

1001 South Hoover Street, 
Los Angeles, California. 
Madam : 

In accordance with Section 274 of the Revenue 
Act of 1926 you are advised that the determination 
of your tax liability for the years 1924, 1925 and 
1926 discloses a deficiency of $5,047.48, as shown 
in the attached statement. 

The section of the law above mentioned allows 
you an appeal to the United States Board of Tax 



14 Mary C. Young et al. vs. 

Appeals within sixty days from the date of the 
mailing of this letter. However, if you acquiesce 
in this determination, you are requested to execute 
the inclosed Form A and forward it to the Com- 
missioner of Internal Eevenue, Washington, D. C, 
for the attention of IT:C:P:-7. 

Respectfully, 

D. H. BLAIR, 
Commissioner. 
By C. B. ALLEN, 
Deputy Commissioner. 



Inclosures : 






Statement 






Form A. 






Form 882 


• 






[10] 


STATEMENT. 

May 16, 1928. 


IT:AR:B-8. 






LMM. 






In re 


i: Mrs. 


Mary Young Moore, 




1001 South Hoover Street, 




Los 


Angeles, California. 




Year. 


Deficiency. 




1924 


$2,930.06 




1925 


2,117.42 




1926 


None 



Total $5,047,.48 

The report of the Internal Revenue Agent in 
Charge at San Francisco, California, covering your 



Commissioner of Internal Revenue. 15 

income tax liability for the years 1924, 1925 and 
1926 has been reviewed and approved by this office. 

1924. 

Net income reported on return $ 3,419 . 56 

Add: 

1. Loss disallowed on account of 

demolition of buildings and ex- 
penses with securing 99-year 
lease 36,345.31 

Total $39,764.87 

Deduct : 

2. Additional depreciation 

on furniture and fix- 
tures $ 90.00 

3. Increase in contribu- 

tions 5438.30 5,528.30 

Adjusted net income $34,236.57 

Income subject to tax $34,236.57 

Less: 

Dividends $ 590.00 

Interest on Liberty 
bonds 1,912.50 

Personal exemption 1,000.00 3,502.50 

Income subject to normal tax $30,734.07 

[ii] 

Mrs. Mary Young Moore Statement 

Normal tax at 2% on $4,000.00 $ 80 . 00 

Normal tax at 4% on $4,000.00 160.00 



16 Mary C Young et al. vs. 

Normal tax at 6% on $22,734.07 1,364.04 

Surtax on $34,236.57 1,346.02 

Total tax $2,950.06 

Earned income credit 20 . 00 

Balance $2,930.06 

Tax previously assessed None 

Deficiency in tax $2,930.06 

Explanation of Changes. 

1. Since the lease acquired had a difinite life of 
99 years, the cost of the buildings less sustained de- 
preciation and the costs of securing the lease, have 
been amortized over the life of the lease. 

The total commission paid for securing the lease 
of lot was $50,500.00, the amount of $21,500.00 be- 
ing paid in 1924 and $29,000.00 in 1925. 

The following items have been disallowed and 
spread over the life of the lease: 

Depreciated cost of old buildings $ 42,215 . 00 

Real estate commissions for securing 

lease 50,500.00 

Attorney's fees in connection with lease .. 5,500.00 
Title costs 4,502.85 

Total ....77.... $102,717. 85 

1% of $102,717.85 or $1,027.18 is deductible each 
year during life of lease. One-half of $1,027.18 or 
$513.59 is your share. 
Gross income from business $124,083 . 69. 



Commissioner of Internal Revenue. 17 

[12] Mrs. Mary Young Moore Statement 

Brought forward $124,083.69 

Salaries $ 2,220.00 

Taxes 38,537.53 

Office rent 1,560.00 

Eepairs 790.15 

Office supplies and expenses . 495.75 

Water bills 439.60 

Commissions 357.75 

Insurance 1,955.80 

Depreciation hotel building. 2,320.00 

Furniture and fixtures 300.00 

Amortization deductible each 
year over life of lease. . . . 1,027.18 50,003.76 

Net income from business $ 74,079.93 

One-half to each owner $ 37,039.97 

Net income from business reported. . . 784.66 

Additions to income $ 36,255.31 

Included in the amount of $36,255.31 

is additional depreciation of $90.00 

and shown separately by the agent. . 90.00 

Additions shown by agent $ 36,345.31 

Deductions : 

2. Depreciation on office furniture increased 
from 4% to 10%. 

Office furniture and fixtures $ 3,000.00 

10% allowed $ 300.00 

Previously deducted 120.00 

Additional allowable $ 180.00 



18 Mary C. Young et al. vs. 

Your share, one-half $ 90.00 

3. Additional contributions allowed on account 

of 15% limitation of net income 

1925. 

Net income reported on return $38,870.46 

Additions : 

1. Real estate commission 14,500.00 



Total $53,370.46 

[13] Mrs. Mary Young Moore Statement 

Brought forward $53,370.46 

Deduct : 

2. Depreciation $ 90.00 

3. Adjustment of amorti- 

zation of building 
and expenses secur- 
ing lease...... 513.59 

4. Contributions 1,278.01 1,881.60 



Adjusted net income ....... .$51,488.86 

Income subject to tax $51,488.86 

Less: 

Dividends .. . . $ 280.00 

Interest on Liberty Bonds. 1,912.50 

Personal exemption 1,500.00 3,692.50 



Income subject to normal tax , $47,796.36 

Normal tax at 1 y 2 % on $ 4,000.00 $ 60.00 

Normal tax at 3% on $ 4,000.00 120.00 

Normal tax at 5% on 39,796.36 1,989.82 

Surtax on $51,488.86 3,173.55 



Total tax. $ 5,343.37 



Commissioner of Internal Revenue. 19 

Earned income credit 13.13 

Net tax assessable $ 5,330.24 

Tax previously assessed 3,212.82 

Deficiency in tax $ 2,117.42 

Explanation of Changes. 

1. Eeal estate commission of $29,000.00 paid in 
1925 in connection with securing lease in 1924 has 
been disallowed and added to other costs of secur- 
ing lease to be amortized over the life of the lease. 
See 1924 adjustment of lease. One-half of $29,- 
000.00 or $14,500.00 is your share. 

2. 1% of $102,717.85 (total of items disallowed 
and spread over the life of the lease) or $1,027.18, 
One-half or $513.59 is your share. 

3. Adjustment of contributions on account of 
15% limitation of net income. 

[14] Mrs. Mary Young Moore Statement 

1926. 

No tax. 

If the above explanations are satisfactory, it is 
suggested that you execute and return to this office 
the enclosed agreement waiving the right to appeal 
and consenting to immediate assessment in order 
that your case may be closed without delay. 

Payment should not be made until a bill is re- 
ceived from the Collector of Internal Revenue for 
your district, and remittance should then be made 
to him. 



20 Mary C. Young et at. vs. 

Now, Feb. 24, 1931, the foregoing petition certi- 
fied from the record as a true copy. 

[Seal] B. D. GAMBLE, 

Clerk, U. S. Board of Tax Appeals. 



[15] Filed Sep. 13, 1928. United States Board 
of Tax Appeals. 

United States Board of Tax Appeals. 
DOCKET No. 39,824. 

MARY YOUNG MOORE, 

Petitioner, 

vs. 

COMMISSIONER OF INTERNAL REVENUE, 

Respondent. 

ANSWER. 

The Commissioner of Internal Revenue, by his at- 
torney, C. M. Charest, General Counsel, Bureau of 
Internal Revenue, for answer to the petition filed 
in the above-entitled appeal admits and denies as 
follows : 

1. Admits the allegations contained in para- 
graph 1. 

2. Admits the allegations contained in para- 
graph 2. 

3. Admits the allegations contained in para- 
graph 3. 

4. Denies the respondent erred in the manner al- 
leged and set forth in paragraphs 4(a), 4(b), 4(c), 
4(d), 4(e), 4(f) and 4(g). 



Commissioner of Internal Revenue. 



21 



5 (a-1) Admits the allegations contained in 
paragraph 5 (a-1). 

5 (a-2) Admits the allegations contained in 
paragraph 5 (a-2). 

5 (a-3) Denies the allegations contained in para- 
graph 5 (a-3). 

allegations contained in 



the 



the 



the 



the 



the 



the 



the 



the 



allegations 
allegations 
allegations 



contained in 



contained in 



contained in 



5 (a-4) Admits 
paragraph 5 (a-4). 

5 (a-5) Admits 
paragraph 5 (a-5). 

5 (a-6) Admits 
paragraph 5 (a-6). 

5 (a-7) Admits 
paragraph 5 (a-7). 

5 (a-8) Admits 
paragraph 5 (a-8). 

5 (a-9) Admits 
paragraph 5 (a-9). 

5 (b-1) Admits 
paragraph 5 (b-1). 

5 (b-2) Admits 
paragraph 5 (b-2). 

[16] 5 (b-3) Admits the allegations contained 
in paragraph 5 (b-3). 



allegations contained in 

allegations contained in 

allegations contained in 

allegations contained in 



5 (b-4) Admits 
paragraph 5 (b-4). 

5 (b-5) Admits 
paragraph 5 (b-5). 

5 (b-6) Admits 
paragraph 5 (b-6). 

5 (b-7) Admits 
paragraph 5 (b-7). 



the allegations contained in 

the allegations contained in 

the allegations contained in 

the allegations contained in 



22 



Mary C. Young et al. vs. 



5 (c-1) Admits the allegations contained in 
paragraph 5 (c-1). 

5 (c-2) Admits the allegations contained in 
paragraph 5 (c-2). 

5 (c-3) Admits the allegations contained in 
paragraph 5 (c-3). 

5 (d-1) Admits the allegations contained in 
paragraph 5 (d-1). 

5 (d-2) Admits the allegations contained in 
paragraph 5 (d-2). 

5 (d-3) Admits the allegations contained in 
paragraph 5 (d-3). 

5 (e-1) Admits the allegations contained in 
paragraph 5 (e-1). 

5 (f-1) Admits the allegations contained in 
paragraph 5 (f-1). 

5 (f-2) Admits the allegations contained in 
paragraph 5 (f-2). 

5 (f-3) Admits the allegations contained in 
paragraph 5 (f-3). 

5 (f-4) Admits the allegations contained in 
paragraph 5 (f-4). 

5 (g-1) Admits the allegations contained in 
paragraph 5 (g-1). 

6. Denies generally and specifically each and 
every allegation contained in taxpayer's petition, 
not hereinbefore admitted, qualified or denied. 

WHEREFORE, it is prayed that the taxpayer's 
appeal be denied. 

(Signed) C. M. CHAREST. 
C. M. CHAREST, 
General Counsel, 
Bureau of Internal Revenue. 



Commissioner of Internal Revenue. 23 

Of Counsel: 
W. FRANK GIBBS, 

Special Atty., 
Bureau of Internal Revenue. 

Now, Feb. 24, 1931, the foregoing answer certified 
from the record as a true copy. 

[Seal] B. D. GAMBLE, 

Clerk, U. S. Board of Tax Appeals. 



[17] Filed Jul. 16, 1928. United States Board 
of Tax Appeals. 

United States Board of Tax Appeals. 

DOCKET No. 39,825. 

MARY C. YOUNG, 1001 South Hoover Street, Los 
Angeles, California, 

Petitioner, 

vs. 

COMMISSIONER OF INTERNAL REVENUE, 

Respondent. 

PETITION. 

The above-named petitioner hereby petitions for 
a re-determination of the deficiency set forth by the 
Commissioner of Internal Revenue in his notice of 
deficiency IT : AR : B-8-LMM-60D, dated May 16, 
1928, and as a basis of its proceeding alleges as fol- 
lows: 

1. The petitioner is a widow with residence at 



24 Mary C. Young et ah vs. 

1001 South Hoover Street, City of Los Angeles, 
State of California. 

2. The notice of deficiency (a copy of which is 
attached hereto and marked Exhibit "A") was 
mailed to the petitioner on May 16, 1928, and alleges 
a deficiency in tax for the calendar years 1924 and 
1925 of $2,825.63 and $2,091.21, respectively, and 
pursuant thereto petitioner's appeal to this Board 
has been perfected within the period of sixty days, 
as prescribed by the Revenue Act of 1928. 

3. The taxes in controversy are individual in- 
come taxes for the calendar years 1924 and 1925, 
and in an amount of less than $10,000.00. 

4. The determination of tax set forth in said 
notice of deficiency is based upon the following 
errors : 

For Year 1924. 

(a) That the Commissioner of Internal Reve- 
nue failed to allow as a deduction in computing net 
income for the year 1924 the loss sustained by peti- 
tioner on account of the voluntary demolition in 
1924 of several old buildings owned by the peti- 
tioner jointly, petitioner's share of the loss on said 
demolition being $21,107.50. 

(b) That the Commissioner of Internal Revenue 
failed to allow as a deduction in computing the net 
income for the [18] year 1924 the sum of $10,- 
750.00, said sum being expended by petitioner as 
commission to an agent for securing in 1924 a 99- 
year lease of certain real property jointly owned by 
petitioner. 

(c) That the Commissioner of Internal Rev- 
enue failed to allow as a deduction in computing the 



Commissioner of Internal Revenue. 25 

net income for the year 1924 the sum of $2,750.00, 
said sum being attorneys' fees expended by the 
petitioner in 1924. 

(d) That the Commissioner of Internal Revenue 
failed to allow as a deduction in computing the net 
income for the year 1924 the sum of $2,251.43, said 
sum being expended by petitioner as title costs. 

(e) That should the Board sustain petitioner's 
allegations of error 4(a), (b), (c), and (d) above, 
and 4(f) below, then the Commissioner of Internal 
Revenue incorrectly allowed as a deduction in com- 
puting the net income for the year 1924 the sum of 
$513.59, said sum being so-called amortization of 
the alleged cost of securing the 99-year lease re- 
ferred to in (b) above, at the rate of 1% of the 
amounts expended or sustained as outlined in 
4(a), (b), (c), and (d) above, and 4(f) below, 
but should the Board sustain but a portion of the 
allegations 4(a), (b), (c), (d), and (f), then that 
proportionate part thereof at the rate of 1% should 
be considered as being erroneously allowed as a 
deduction. 

For Year 1925. 

(f) That the Commissioner of Internal Reve- 
nue failed to allow as a deduction in computing the 
net income for the year 1925, the sum of $14,500.00, 
said sum being expended by petitioner in the year 
1925 as the balance of commission to an agent for 
securing in 1924 the 99-year lease of certain real 
property jointly owned by the petitioner. 

(g) That should the Board sustain peti- 
tioner's allegations of error 4(a), (b), (c), (d), and 



26 Mary C. Young et al. vs. 

(f) above, then the Commissioner of Internal Rev- 
enue incorrectly allowed as a deduction in comput- 
ing the net income for the year 1925 the sum of 
$513.59, said sum being so-called amortization of 
the alleged cost of securing the 99-year lease re- 
ferred to in (b) above, at the rate of 1% per annum 
of the amount expended or sustained as outlined 
in 4(a), (b), (c), (d), and (f) above, but should 
the Board sustain but a portion of the allegations 
4(a), (b), (c), (d), and (f), then that proportion- 
ate part thereof at the rate of 1% should be con- 
sidered as being erroneously allowed as a deduc- 
tion. 

[19] 5. The facts upon which taxpayer relies as 
a basis for this proceeding are as follows : 

(a-1) Petitioner is the owner in joint 50% 
interest with Mary Young Moore of certain real 
and personal property, among which is that real 
property situated in the City of Los Angeles and 
located at the Southeast corner of Seventh and 
Figueroa Streets, extending East on Seventh Street 
to the Southwest corner of Flower and Seventh 
Streets. 

(a-2) In 1917 and 1918 petitioner and Mary 
Young Moore, co-owners, erected on this real prop- 
erty several brick store buildings which cost of erec- 
tion of the buildings amounted to $50,000.00. 

(a-3) These buildings were rented or were for 
rent throughout' the period from completion until 
1924. 

(a-4) In the latter part of the year 1924, peti- 
tioner voluntarily caused to be demolished and de- 



Commissioner of Internal Revenue. 27 

stroyed all of these several store buildings erected 
in 1917 and 1918 at a cost of $50,000.00. 

(a-5) The depreciation sustained on the de- 
molished buildings from date of erection until de- 
molishment in 1924 at the rate of 3% per annum 
amounts to $7,785.00. 

(a-6) The net depreciated cost to petitioner and 
Mary Young Moore, each having a 50% interest of 
the demolished buildings, as at date of demolish- 
ment in 1924, amounts to $42,215.00. 

(a-7) Petitioner nor her co-owner never re- 
ceived any insurance money or salvage value on ac- 
count of the demolition of the buildings. 

(a-8) Petitioner claimed as a deduction on her 
original income tax return for 1924 the amount of 
$21,107.50 as her one-half of a loss sustained on the 
demolition of the buildings. 

(a-9) The Commissioner disallowed this 
amount of $21,107.50, and added the same back to 
net income, and the deficiency determined for 1924 
is due in part to the disallowance of this deduction. 

(b-1) Petitioner and Mary Young Moore on 
October 1, 1924, ground-leased to the Sun Realty 
Company, for a period of ninety-nine (99) years, 
the real property situated at the Southeast corner 
of Seventh and Figueroa Streets extending East 
on Seventh Street to Flower Street, as mentioned 
in statement 5(a-l) above. 

(b-2) This lease was obtained for petitioner by 
an agent, which agent charged petitioner and Mary 
Young Moore [20] a total commission of $50,- 
500.00 for obtaining this lease. 



28 Mary C. Young et al. vs. 

(b-3) Of this $50,500.00 commission for ob- 
taining the lease, $21,500.00 was paid in 1924, and 
$29,000.00 was paid in 1925. 

(b-4) Petitioner paid to the agent her one-half 
of this commission in cash, as follows: 

In Year 1924 $10,750.00 

In Year 1925 14,500.00 

(b-5) Petitioner claimed as a deduction on her 
original tax return for 1924 in Schedule A the 
amount of $10,750.00 as an ordinary and necessary 
expense in conducting her rental business. 

(b-6) The Commissioner of Internal Revenue 
disallowed this deduction of $10,750.00, and the de- 
ficiency determined for 1924 is in part due to the 
disallowance of this deduction. 

(b-7) Petitioner kept her books and rendered 
her income tax return for the year 1924 on the 
cash receipts and disbursements basis. 

(c-1) Petitioner expended in cash during the 
year 1924 the amount of $2,750.00, being one-half of 
a total of $5,500.00, as attorneys' fees paid in con- 
nection with the preparation of the lease mentioned 
in 5(b-l) above. 

(c-2) Petitioner claimed as a deduction on her 
original tax return for 1924 in Schedule A this 
amount of $2,750.00 as an ordinary and necessary 
expense in conducting her rental business. 

(c-3) The Commissioner of Internal Revenue 
disallowed this deduction of $2,750.00, and the de- 
ficiency determined for 1924 is in part due to the 
disallowance of this deduction. 

(d-1) Petitioner expended in cash during the 



Commissioner of Internal Revenue. 29 

year 1924 the amount of $2,251.43 (being her one- 
half of $4,502.85) for obtaining a certificate of 
title, which was required by the lessee of the lease 
mentioned in 5(b-l) above. 

(d-2) Petitioner claimed as a deduction on her 
original tax return for 1924 in Schedule A thereof 
this amount of $2,251.43 as an ordinary and neces- 
sary expense in conducting her rental business. 

(d-3) The Commissioner of Internal Revenue 
disallowed this deduction of $2,251.43, and the de- 
ficiency determined for 1924 is in part due to the 
disallowance of this deduction. 

[21] (e-1) The Commissioner of Internal Reve- 
nue capitalized the deductions and losses referred to 
in 4(a), (b), (c), (d), and (f), and has allowed a 
deduction of 1% thereof for the year 1924 as amort- 
ization of the cost of the lease. 

(f-1) Petitioner expended in cash during the 
year 1925 the amount of $14,500.00 (being her one- 
half of $29,000.00) as balance of commission due 
the agent for obtaining the lease referred to in 
5(b-l) to 5(b-4) inclusive, above. 

(f-2) Petitioner claimed as a deduction on her 
original income tax return for the year 1925 in 
Schedule A thereof this amount of $14,500.00 as 
an ordinary and necessary expense in conducting 
her rental business. 

(f-3) The Commissioner of Internal Revenue 
disallowed this deduction of $14,500.00, and the de- 
ficiency determined for the year 1925 is in part 
due to the disallowance of this deduction. 

(f-4) Petitioner kept her books and rendered 



30 Mary C. Young et al. vs. 

her income tax return for the year 1925 on the 
cash receipts and disbursements basis. 

(g-1) The Commissioner of Internal Revenue 
allowed as a deduction for 1925 as amortization of 
cost of a lease 1% of the amounts of the deductions 
and loss sustained, per 4(a), (b), (c), (d), and (f) 
above. 

WHEREFORE, the petitioner prays that this 
Board may hear the proceeding and 

(a) Allow as a deduction in computing net in- 
come the loss sustained in the year 1924 in the 
amount of $21,107.50 on account of demolition of 
buildings. 

(b) Allow as a deduction in computing net 
income for the year 1924 the amount of $10,750.00, 
being commission paid in that year. 

(c) Allow as a deduction in computing net in- 
come for the year 1924 the amount of $2,750.00, 
being attorneys' fees paid in that year. 

(d) Allow as a deduction in computing net 
income for the year 1924 the amount of $2,251.43, 
being title costs paid in that year. 

(e) Allow the restoration to net income for the 
year 1924 of the amount of $513.59, amortization 
of cost of lease, said restoration to be made only 
upon allowance of (a), (b), (c), (d), and (f). 

[22] (f ) Allow as a deduction in computing the 
net income for the year 1925 the amount of $14,500.- 
00, being commissions paid in that year. 

(g) Allow the restoration to net income for 
1925 the amount of $513.59, amortization of cost 



Commissioner of Internal Revenue. 31 

of lease, said restoration to be made only upon al- 
lowance of (a), (b), (c), (d), and (f). 

And such other relief as the premises may jus- 
tify. 

THEODORE B. BENSON, 
917 Southern Building, Washington, D. C. 

Counsel for Petitioner. 

[23] State of California, 
County of Los Angeles, — ss. 

Mary C. Young, hereby duly sworn, says that she 
is the petitioner above named, that she has read the 
foregoing petition, or had the same read to her, 
and is familiar with the statements contained 
therein, and that the facts stated are true, except 
as to those facts stated to be upon information and 
belief, and those facts she believes to be true, 

MARY C. YOUNG. 

MARY C. YOUNG. 

Subscribed and sworn to before me this, 11th 
day of July, 1928. 

[Seal] MARY S. ALEXANDER, 

Notary Public. 



32 Mary C. Young et ah vs. 



[24] EXHIBIT "A." 

TREASURY DEPARTMENT. 

Washington. 

May 16, 1928. 
(Seal) 
Office of 
Commissioner of Internal Revenue. 

Address Reply to 
Commissioner of Internal Revenue. 
And Refer to 

Mrs. Mary C. Young, 

1001 South Hoover Street, 
Los Angeles, California. 
Madam : 

In accordance with Section 274 of the Revenue 
Act of 1926 you are are advised that the determina- 
tion of your tax liability for the years 1924, 1925 
and 1926 discloses a deficiency of $4,916.84, as shown 
in the attached statement. 

The section of the law above mentioned allows you 
an appeal to the United States Board of Tax Ap- 
peals within sixty days from the date of the mail- 
ing of this letter. However, if you acquiesce in this 
determination, you are requested to execute the in- 
closed Form A and forward it to the Commissioner 



Commissioner of Internal Revenue. 33 

of Internal Revenue, Washington, D. C, for the 
attention of IT :C:P-7. 

Respectfully, 

D. H. BLAIR, 
Commissioner. 
By C. B. ALLEN, 
Deputy Commissioner. 
Inclosures : 
Statement. 
Form A. 
Form 882. 

[25] STATEMENT. 

IT:AR:B-8. May 16, 1928. 

LMM-60D. 

In re : Mrs. Mary C. Young, 

1001 South Hoover Street, 

Los Angeles, California. 
Year. Deficiency. 

1924 $2,825.63 

1925 2,091.21 

1926 None 



Total $4,916.84 

The report of the Internal Revenue Agent in 

Charge, San Francisco, California, covering your 

income tax liability for the years 1924, 1925 and 

1926 has been reviewed and approved by this office. 



34 Mary C. Young et ah vs. 

1924. 

Net income reported $ 2,783 . 35 

Add: 

1. Loss disallowed on account of 

demolition of building and ex- 
penses with securing 99-year 
lease $36,345 . 31 

Total $39,128.66 

Deduct : 

2. Additional deprecia- 

tion on furniture 

and fixtures $ 90.00 

3. Contributions 5,438.30 5,528.30 

Adjusted net income $33,600.36 

Income subject to tax $33,600.36 

Less: 

Dividends $ 594.62 

Liberty bond interest. 1,912.50 

Personal exemption. . . 1,000.00 3,507.12 

Income subject to normal tax 30,093.24 

Normal tax at 2% on $4,000.00 $ 80.00 

Normal tax at 4% on $4,000.00 160.00 

Normal tax at 6% on $22,093.24 1,325.59 

Surtax on $33,600.36 1,280.04 

Total tax $2,845.63 



Commissioner of Internal Revenue. 35 

[26] Mrs. Mary C. Young. Statement. 

Brought forward $2,845.63 

Earned income credit 20.00 

$2,825.63 
Tax previously assessed None 



$2,825.63 
Explanation of Changes. 

1. Since the lease acquired had a definite life of 
99 years the cost of the buildings less sustained de- 
preciation and the costs of securing the lease have 
been amortized over the life of the lease. 

The total commission paid for securing the lease 
of lot was $50,500.00, the amount of $21,500.00 being 
paid in 1924 and $29,000.00 in 1925. 

The following items have been disallowed and 
spread over the life of the lease : 

Depreciated cost of old buildings $42,215.00 

Real estate commissions for securing 

lease 50,500.00 

Attorney's fees in connection with lease. . 5,500.00 
Title costs 4,502.85 

Total $102,717.85 

One per cent of $102,717.85 or $1,027.18 is de- 
ductible each year during the life of the lease. 
One-half of $1,027.18 or $513.59 is your share. 

Gross income from business $124,083 . 69 

Salaries $ 2,220.00 

Taxes 38,537.53 

Office rent 1,560.00 



36 Mary C. Young et al. vs. 

Eepairs 790.15 

Office supplies and expenses 495 . 75 

Water bills 439.60 

Commissions 357 . 75 

Insurance 1,955 . 80 

Depreciation hotel building . . 2,320 . 00 

Furniture and fixtures 300.00 

Amortization deductible 

each year over life of 

lease $ 1,027.18 50,003.76 



Net income from business $74,079 . 93 

[27] Mrs. Mary C. Young. Statement. 

One-half to each owner $37,039.97 

Net income from business reported 784 . 66 



Additions to income $36,255 . 31 

Included in the amount of $36,255.31 is 
additional depreciation of $90.00 and 
shown separately by the agent 90 . 00 



Additions shown by the agent $36,345 . 31 

Deductions : 

2. Depreciation on office furniture increased 
from 4% to 10%. 

Office furniture and fixtures $ 3,000.00 

10% allowed $ 300.00 

Previously allowed 120 . 00 



Additional allowable $ 180.00 

Your share, one-half $ 90.00 



Commissioner of Internal Revenue. 37 

3. Additional contributions allowed on account 
of 15% limitation of net income. 

1925. 

Net income reported on return $38,446 . 03 

Add: 

1. Real estate commission 14,500 . 00 

Total $52,946.03 

Deduct : 

2. Depreciation $ 90.00 

3. Adjustment amortiza- 

tion of building and 
securing lease 513 . 59 

4. Contributions 1,352.91 1,956.50 

Adjusted net income $50,989.53 

Income subject to tax $50,989 . 53 

Less: 

Dividends $ 289.36 

Interest on Liberty Bonds. . 1,912 . 50 

Personal Exemption 1,500.00 3,701.86 

Income subject to normal tax $47,287.67 

[28] Mrs. Mary C. Young. Statement. 

Normal tax at V/ 2 % on $ 4,000.00 $ 60.00 

Normal tax at 3 % on $ 4,000.00 120.00 

Normal tax at 5 % on $39,287.67 1,964.38 

Surtax on $50,989.53 3,108.64 

Total $5,253.02 



38 Mary C. Young et al. vs. 

Earned income credit 13 . 13 

Balance $5,239.89 

Tax previously assessed 3,148 . 68 

Deficiency in tax $2,091 . 21 

Explanation of Changes. 

1. Real estate commission of $29,000.00 paid in 
1925 in connection with securing lease in 1924 has 
been disallowed and added to other costs of securing 
lease, to be amortized over the life of the lease. See 
1924 adjustment of lease. One-half of $29,000.00 
or $14,500.00 is your share. 

2. One per cent of $102,717.85 (total of items 
disallowed and spread over the life of the lease) or 
$1,027.18. One-half or $513.59 is your share. 

3. Adjustment of contributions on account of 
15% limitation of net income. 

1926. 
No Tax. 

If the above explanations are satisfactory, it is 
suggested that you execute and return to this office 
the enclosed agreement waiving the right to appeal 
and consenting to immediate assessment in order 
that your case may be closed without delay. 

Payment of the deficiency in tax should not be 
made until a bill is received from the Collector of 
Internal Revenue for your district, and remittance 
should then be made to him. 



Commissioner of Internal Revenue. 39 

Now, Feb. 24, 1931, the foregoing Petition certi- 
fied from the record as a true copy. 

[Seal] B. D. GAMBLE, 

Clerk, U. S. Board of Tax Appeals. 



[29] Filed Sep. 13, 1928. United States Board 
of Tax Appeals. 

United States Board of Tax Appeals. 
DOCKET No. 39,825. 

MAEY C. YOUNG, 

Petitioner, 
vs. 

COMMISSIONER OF INTERNAL REVENUE, 

Respondent. 

ANSWER. 

The Commissioner of Internal Revenue, by his 
attorney, C. M. Charest, General Counsel, Bureau 
of Internal Revenue, for answer to the petition filed 
in the above-entitled appeal, admits and denies as 
follows : 

1. Admits the allegations contained in para- 
graph 1. 

2. Admits the allegations contained in para- 
graph 2. 

3. Admits the allegations contained in para- 
graph 3. 

4. Denies the respondent erred in the manner 



40 Mary C. Young et al. vs. 

alleged and set forth in paragraphs 4(a); 4(b); 
4(c); 4(d); 4(e); 4(f); and 4(g). 

5(a-l) Admits the allegations contained in para- 
graph 5(a-l). 

5(a-2) Admits the allegations contained in para- 
graph 5(a-2). 

5(a-3) Denies the allegations contained in para- 
graph 5(a-3). 

5(a-4) Admits the allegations contained in para- 
graph 5(a-4). 

5(a-5) Admits the allegations contained in para- 
graph 5(a-5). 

5(a-6) Admits the allegations contained in para- 
graph 5(a-6). 

5(a-7) Admits the allegations contained in para- 
graph 5(a-7). 

5(a-8) Admits the allegations contained in para- 
graph 5(a-8). 

5(a-9) Admits the allegations contained in para- 
graph 5(a-9). 

5(b-l) Admits the allegations contained in para- 
graph 5(b-l). 

5(b-2) Admits the allegations contained in para- 
graph 5(b-2). 

[30] 5(b-3) Admits the allegations contained in 
paragraph 5(b-2). 

5(b-4) Admits the allegations contained in para- 
graph 5(b-4). 

5(b-5) Admits the allegations contained in para- 
graph 5(b-5). 

5(b-6) Admits the allegations contained in para- 
graph 5(b-6). 



Commissioner of Internal Revenue. 41 

5(b-7) Admits the allegations contained in para- 
graph 5(b-7). 

5(c-l) Admits the allegations contained in para- 
graph 5(c-l). 

5(c-2) Admits the allegations contained in para- 
graph 5(c-2). 

5(c-3) Admits the allegations contained in para- 
graph 5(c-3). 

5(d-l) Admits the allegations contained in para- 
graph 5(d-l). 

5(d-2) Admits the allegations contained in para- 
graph 5(d-2). 

5(d-3) Admits the allegations contained in para- 
graph 5(d-3). 

5(e-l) Admits the allegations contained in para- 
graph 5(e-l). 

5(f-l) Admits the allegations contained in para- 
graph 5(f-l). 

5(f-2) Admits the allegations contained in para- 
graph 5(f-2). 

5(f-3) Admits the allegations contained in para- 
graph 5(f-3). 

5(f-4) Admits the allegations contained in para- 
graph 5(f-4). 

5(g-l) Admits the allegations contained in para- 
graph 5(g-l). 

6. Denies generally and specifically each and 
every allegation contained in taxpayer's petition, 
not hereinbefore admitted, qualified or denied. 



42 Mary C. Young et al. vs. 

WHEREFORE, it is prayed that the taxpayer's 
appeal be denied. 

(Signed) C. M. CHAREST. 
C. M. CHAREST, 
General Counsel, Bureau of Internal Revenue. 

Of Counsel: 

W. FRANK GIBBS, 

Special Atty., 

Bureau of Internal Revenue. 

Now, Feb. 24, 1931, the foregoing Answer certi- 
fied from the record as a true copy. 

[Seal] B. D. GAMBLE, 

Clerk, U. S. Board of Tax Appeals. 



[31] Filed at Hearing Feb. 24, 1930. U. S. 
Board of Tax Appeals. 

The United States Board of Tax Appeals. 

DOCKET No. 39,825. 

MARY C. YOUNG, 1001 South Hoover Street, Los 
Angeles, California, 

Petitioner, 

vs. 

COMMISSIONER OF INTERNAL REVENUE, 

Respondent. 



Commissioner of Internal Revenue. 43 

DOCKET No. 39,824. 

MARY YOUNG MOORE, 1001 South Hoover 
Street, Los Angeles, California, 

Petitioner, 

vs. 

COMMISSIONER OF INTERNAL REVENUE, 

Respondent. 

MOTION TO CONSOLIDATE CAUSES FOR 

HEARING. 

Come now the petitioners in the above-entitled 
causes, by their attorney, and move the Board to 
enter an order consolidating the two causes and 
setting them for hearing at the same time and on 
the basis of the same evidence, and as grounds there- 
for set forth the following : 

Granted Feb. 24, 1930. 

A. MATTHEWS, 
G. 
Member U. S. Board of Tax Appeals. 

[32] 1. Mary C. Young is a widow and Mary 
Young Moore is her daughter and they are joint 
owners of certain real estate in connection with 
which expenditures, involved in these proceedings, 
were made. 

2. The same facts are involved in both proceed- 
ings. 

3. This motion has been discussed with counsel 
for respondent and it is understood will not be op- 
posed. 



44 Mary C. Young et al. vs. 

WHEREFORE, the petitioners pray that the two 
causes be consolidated and heard at the same time 
and on the basis of the same evidence. 

THEODORE B. BENSON, 
917 Southern Building, 
Washington, D. C, 
Attorney for Petitioners. 

Now, Feb. 24, 1931, the foregoing Motion to Con- 
solidate and Order Granting same certified from the 
record as a true copy. 

[Seal] B. D. GAMBLE, 

Clerk, U. S. Board of Tax Appeals. 



[33] Filed at Hearing Feb. 24, 1930. IT. S. 
Board of Tax Appeals. 

United States Board of Tax Appeals. 

DOCKET No. 39,825. 

MARY C. YOUNG, 1001 South Hoover St., Los 
Angeles, California, 

Petitioner, 
vs. 

COMMISSIONER OF INTERNAL REVENUE, 

Respondent. 

DOCKET No. 39,824. 

MARY YOUNG MOORE, 1001 South Hoover 
Street, Los Angeles, California, 

Petitioner, 
vs. 
COMMISSIONER OF INTERNAL REVENUE, 

Respondent. 



Commissioner of Internal Revenue. 45 

STIPULATION OF FACTS. 

Counsel for petitioners and counsel for respond- 
ent hereby stipulate and agree to the following facts 
in this proceeding: 

1. The petitioner, Mary C. Young, is a widow 
and resides at 1001 South Hoover Street, Los An- 
geles, California. 

2. Under date of May 16, 1928, the respondent 
mailed a notice of deficiency to the said Mary C. 
Young and asserted deficiencies in the amounts of 
$2,825.63 and $2,091.21, for the years 1924 and 1925 
respectively. The said Mary C. Young, within the 
time prescribed by law, duly filed her petition to 
this Board. 

3. The petitioner, Mary Young Moore, is the 
daughter of the said Mary C. Young, and also re- 
sides at 1001 South Hoover Street, Los Angeles, 
California. 

[34] 4. Under date of May 16, 1928, the re- 
spondent mailed a notice of deficiency to the said 
Mary Young Moore and asserted deficiencies in the 
amounts of $2,930.06 and $2,117.42, for the years 
1924 and 1925 respectively. The said Mary Young 
Moore, within the time prescribed by law, duly filed 
her petition to this Board. 

5. The petitioners, the said Mary C. Young and 
the said Mary Young Moore, are joint owners of 
certain lands in the City of Los Angeles, California, 
and located at the Southeast corner of Seventh and 
Figueroa Streets, extending East on Seventh Street 



46 Mary C. Young et al. vs. 

to the Southwest corner of Flower and Seventh 
Streets. The petitioners are equal owners. 

6. During the years 1917 and 1918 the petition- 
ers erected on the said land several brick store 
buildings at a cost of $50,000.00. - 

7. The said brick store buildings were rented or 
were for rent throughout the period from the date 
or dates of completion until that of demolition dur- 
ing the year 1924 as hereinafter mentioned. 

8. In 1924 a lease for the term of ninety-nine 
years was entered into with the Sun Eealty Com- 
pany, whereby the brick buildings erected during 
1917 and 1918 should be demolished and a new 
building to be occupied by Barker Brothers should 
be erected and pursuant thereto the said buildings 
were demolished in 1924. 

[35] 9. The depreciation sustained on the said 
brick store buildings from the time of erection to 
the time of demolition in 1924 should be determined 
at the rate of 3% per annum and it is stipulated and 
agreed that the full amount thereof is $7,785.00. 

10. It is further stipulated and agreed that the 
net depreciated cost of the said brick store build- 
ings to the petitioner at the time demolished in 1924 
is $42,215.00. 

11. The petitioner received no insurance or other 
compensation on the demolition of the buildings. 
The buildings were not salvaged or otherwise dis- 
posed of and the petitioner received no compensa- 
tion whatever from the demolition of the said build- 
ings. 

12. Each of the petitioners in her income tax 



Commissioner of Internal Revenue, 47 

return for the calendar year 1924 claimed a deduc- 
tion in the amount of $21,107.50, representing her 
one-half of the undepreciated lost. 

13. The respondent audited the income tax re- 
turn of each of the petitioners and disallowed the 
said deduction claimed by each in the amount of 
$21,107.50 and added the same back to income and 
the said sum is included in and constitutes a part 
of the total addition to the income of each of the 
petitioners in the amount of $36,345.31, as appears 
on page 1, of the statement attached to the notice 
of deficiency. 

14. The petitioners on October 1, 1924, granted 
a ground-lease of the said premises at Seventh and 
Figueroa Streets to the Sun Realty Company for 
the period of ninety-nine years, and on the basis of 
a monthly rental of $10,000.00 from October 1, 1924 
to June 30, 1926 and of the monthly [36] rental 
of $20,000.00 thereafter and until the end of the 
term of the lease. 

15. The lease to the said premises was obtained 
for the petitioners by a real estate agent who charged 
as his commission therefor the sum of $50,500.00. 

16. The commission charged by the said real es- 
tate agent was paid during the years 1924 and 1925. 
During the year 1924 there was paid $21,500.00, and 
during the year 1925, $29,000.00: The said amounts 
were paid by the petitioners in equal sums and each 
paid $10,750.00 during the year 1924 and $14,500.00 
during the year 1925. 

17. Each of the petitioners claimed as a deduc- 
tion in her income tax return for the year 1924, the 



48 Mary C. Young et al. vs. 

amount actually paid by her during such year in 
the said sum of $10,750.00. 

18. The respondent in his audit of the return of 
each of the petitioners disallowed the said deduction 
in the amount of $10,750.00, which is included in 
and constitutes part of the said sum of $36,345.31 
above mentioned. 

19. In addition to the commission paid the real 
estate agent the petitioners were required to pay at- 
torneys' fees in the amount of $5,500.00 and ex- 
pense of obtaining certificate of title in the amount 
of $4,502.85. 

20. In the income tax returns filed by the said 
petitioner each claimed a deduction in the amount 
of $2,750.00, being one-half of the said attorneys' 
fees and $2,251.43 being one-half of the cost of ob- 
taining the said certificate of title. 

[37] 21. The respondent in his audit of the 
return of each of the petitioners disallowed the full 
amount of said deductions in the amounts of $2,- 
750.00 and $2,251.43, and the said sums are in- 
cluded in and constitute a part of the said sum of 
$36,345.31. 

22. The respondent considered the said losses 
sustained on the demolition of the said brick build- 
ings to be a capital loss and further considered the 
said sums expended by the petitioners as commis- 
sions, attorneys' fees, and cost of obtaining cer- 
tificate of title to be capital expenditures to be 
amortized and deducted over the term of the lease, 
and as a result thereof allowed a deduction to each 
of the petitioners for the year 1924 in the amount 
of $513.59. 



Commissioner of Internal Revenue. 49 

23. In the income tax returns filed by the peti- 
tioner for the year 1925 each claimed a deduction in 
the amount of $14,500.00, being the amount paid by 
each as commission to the real estate agent as above 
mentioned. 

24. The respondent disallowed the said deduc- 
tion to each of the petitioners as appears at page 3 
of the statement attached to the notices of defi- 
ciency. 

25. In his adjustment of the income of each of 
the petitioners for the year 1925 the respondent 
allowed a deduction for amortization of the cost of 
the lease in the said amount of $513.59. 

26. Each of the petitioners kept her books and 
rendered her income [38] tax returns for the 
years 1924 and 1925 on the basis of cash receipts 
and disbursements. 

(Signed) THEODORE B. BENSON, 

Counsel for Petitioners. 
(Signed) C. M. CHAREST, 
Counsel for the Respondent. 

Now, Feb. 24, 1931, the foregoing Stipulation of 
Facts certified from the record as a true copy. 
[Seal] B. D. GAMBLE, 

Clerk, U. S. Board of Tax Appeals. 



[39] A true copy. 

[Seal] Teste: B. D. GAMBLE, 

Clerk, U. S. Board of Tax Appeals. 



50 Mary C. Young et al. vs. 



20 B. T. A. 



United States Board of Tax Appeals. 

DOCKET Nos. 39,825, 39,824. 

Promulgated September 8, 1930. 

MAEY C. YOUNG, 

Petitioner, 

vs. 

COMMISSIONER OP INTERNAL REVENUE, 

Respondent. 

MARY YOUNG MOORE, 

Petitioner, 

vs. 

COMMISSIONER OF INTERNAL REVENUE, 

Respondent. 

1. Where a 99 year lease is made with the 
purpose of erecting a new building the unex- 
tinguished cost of the old buildings is not 
deductible by lessor as a loss in the year of 
their demolition but should be exhausted over 

the term of the lease. 

2. A commission and fees paid by the peti- 
tioners to procure a 99 year lease held not to 
constitute deductible expenses in the years 
in which paid but capital expenditures to be 
ratably deducted over the term of the lease. 



Commissioner of Internal Revenue. 51 

THEODORE B. BENSON, Esq., for the Peti- 
tioners. 
W. FRANK GIBBS, Esq., for the Respondent. 

These proceedings, which were consolidated for 
hearing and decision, are for the redetermination of 
deficiencies in income taxes asserted by the re- 
spondent against Mary C. Young of $2,825.63 for 
[40] 1924 and $2,091.21 for 1925, and against 
Mary Young Moore of $2,930.06 for 1924 and $2,- 
117.42 for 1925. The facts were stipulated, from 
which we make the following: 

FINDINGS OF FACT. 

Mary Young Moore is the daughter of Mary C. 
Young. They both reside at 1001 South Hoover 
Street, Los Angeles, California. They are joint 
owners of certain land in the City of Los Angeles, 
California, and located at the Southeast corner of 
Seventh and Figueroa Streets, extending East on 
Seventh Street to the Southwest corner of Flower 
and Seventh Streets. The petitioners are equal 
owners. 

During the years 1917 and 1918 the petitioners 
erected on this land several brick store buildings 
at a cost of $50,000. These buildings were rented 
or for rent until their demolition. 

In 1924 a lease for the term of ninety-nine years 
was entered into by the petitioners with the Sun 
Realty Company, whereby the brick buildings 
erected during 1917 and 1918 should be demolished 
and a new building erected to be occupied by Bar- 



52 Mary C. Young et al. vs. 

ker Brothers. The buildings were demolished in 
1924. 

The full amount of the depreciation sustained 
on the brick store buildings, from the time of erec- 
tion to the time of demolition in 1924, was $7,785, 
and the undepreciated cost thereof to the petitioners 
at the time of demolition was $42,215. 

The buildings were not salvaged or otherwise dis- 
posed of, and [41] the petitioners received no in- 
surance or other compensation on the demolition of 
the buildings. 

Each of the petitioners, in her income tax return 
for the year 1924, claimed a deduction in the amount 
of $21,107.50, representing her one-half of the un- 
depreciated cost. These deductions were disallowed 
by the respondent and the sum of $21,107.50 was 
added back to the income of each of the peti- 
tioners. 

On October 1, 1924, the petitioners granted a 
ground lease of the premises at Seventh and Figu- 
eroa Streets to the Sun Eealty Company for a 
period of ninety-nine years, on the basis of a 
monthly rental of $10,000 from October 1, 1924, 
to June 30, 1926, and of a monthly rental of 
$20,000 thereafter until the end of the term 
of the lease. This lease was obtained for the 
petitioners by a real estate agent who charged as 
his commission therefor the sum of $50,500, which 
commission was paid during the years 1924 and 
1925. During the year 1924 there was paid $21,500, 
and the sum of $29,000 was paid during the year 
1925. These amounts were paid by the petitioners 



Commissioner of Internal Revenue. 53 

in equal sums and each paid $10,750 in 1924 and 
$14,500 in 1925. 

Each of the petitioners claimed as a deduction in 
her income tax return for 1924 the sum of $10,750, 
representing the amount actually paid by her to the 
real estate agent during that year. These deduc- 
tions were disallowed by the Commissioner. 

In addition to the commission paid to the real 
estate agent, [42] the petitioners were required 
to pay attorneys' fees in the amount of $5,500, and 
the expense of obtaining certificate of title in the 
amount of $4,502.85. 

Each petitioner, in her income tax return for 
1924, claimed a deduction in the amount of $2,750, 
being one-half of the attorneys' fees, and a deduc- 
tion in the amount of $2,251.43, being one-half of 
the cost of obtaining certificate of title. These 
deductions were disallowed by the respondent. 

The respondent considered the loss sustained on 
the demolition of the brick buildings to be a capital 
loss and further considered the sums expended by 
the petitioners as commissions, attorneys' fees and 
cost of obtaining certificate of title, to be capital 
expenditures to be amortized and deducted over the 
term of the lease, and as a result thereof allowed a 
deduction to each of the petitioners for the year 
1924 in the amount of $513.59. 

In his adjustment of the income of the petitioners 
for the year 1925, the respondent disallowed the 
deduction claimed by each in the amount of $14,500, 
representing the sum paid by each as commission to 
the real estate agent in 1925, and allowed a deduc- 



54 Mary C. Young et al. vs. 

tion for amortization of the cost of the lease in the 
amount of $513.59. 

Each of the petitioners kept her books and ren- 
dered her income tax returns for the years 1924 
and 1925 on the basis of cash receipts and disburse- 
ments. 

[43] OPINION. 

MATTHEWS.— The petitioners assert that the 
respondent erred in two particulars. First, in re- 
fusing to allow as a deduction in 1924 the unex- 
tinguished cost of the brick store buildings which 
were demolished in order that a new building might 
be erected on the premises. Second, in refusing to 
allow as deductions in 1924 and 1925 the amounts 
paid by the petitioners in those years in connection 
with the negotiation of a 99 year lease on the prop- 
erty owned by petitioners, such amounts represent- 
ing the commission paid to a real estate agent, at- 
torneys' fees, and the expense of obtaining a cer- 
tificate of title. 

The first issue is governed by our decision in 
Charles N. Manning, 7 B. T. A. 286, in which we 
held that the unextinguished cost of buildings re- 
moved in order to obtain a 99 year lease upon the 
land represented the cost to the lessor of such lease 
and should be exhausted over the term of the lease. 
This decision was followed in William Ward, 7 B. 
T. A. 1107, in which case the same question was 
presented. See, also, Liberty Baking Company vs. 
Heiner, 37 Fed. (2) 703; Anahma Realty Corpora- 
tion vs. Commissioner, decided on May 5, 1930, by 
the Circuit Court of Appeals for the Second Cir- 



Commissioner of Internal Revenue. 55 

cuit, Fed. (2d) , affirming our decision in 

this case, 16 B. T. A. 749. 

With respect to the second issue, the petitioners 
take the [44] position that the amounts paid in 
connection with the procuring of the 99 year lease 
do not constitute capital expenditures but represent 
necessary expenses and that, since they were on a 
cash receipts and disbursements basis, they are en- 
titled to deduct from income the amounts paid in 
cash in 1924 and 1925. The respondent contends 
that the expenditures in question resulted in the 
acquisition of a capital asset and that any deduction 
allowable is by way of amortization over the life of 
the lease. 

In Bonwit-Teller & Company, 17 B. T. A. 1019, 
and Julia Stow Lovejoy, 18 B. T. A. 1179, this 
question was considered at length. These decisions 
were cited and followed in James M. Butler, 19 
B. T. A. 718, in which it was held that the commis- 
sion paid by a lessor to procure a long term lease 
does not constitute a deductible expense in the 
year paid, but is a capital expenditure to be 
ratably deducted as the lease is exhausted. See, 
also, Evalena M. Howard, 19 B. T. A. 865, and Cen- 
tral Bank Block Association, 19 B. T. A. 1183. On 
authority of these decisions, the respondent's action 
in prorating the expenditures over the term of the 
lease is approved. 

Judgment will be entered for the respondent. 



56 Mary C. Young et al. vs. 

Now, Feb. 24, 1931, the foregoing Findings of 
Fact and Opinion certified from the record as a true 
copy. 

[Seal] B. D. GAMBLE, 

Clerk, U. S. Board of Tax Appeals. 



[45] United States Board of Tax Appeals, 

Washington. 

DOCKET No. 39,824. 

MARY YOUNG MOORE, 

Petitioner, 

vs. 

COMMISSIONER OF INTERNAL REVENUE, 

Respondent. 

DECISION. 

Pursuant to the Board's findings of fact and 
opinion, promulgated September 8, 1930, it is 
ORDERED AND DECIDED : That there are de- 
ficiencies of $2,930.06 and $2,117.42 for the years 
1924 and 1925, respectively. 

ANNABEL MATTHEWS, 
MR. 
Member, United States Board of Tax Appeals. 

Entered Sep. 10, 1930. 
A true copy. 

[Seal] Teste: B. D. GAMBLE, 

Clerk, U. S. Board of Tax Appeals. 



Commissioner of Internal Revenue. 57 

Now, Feb. 24, 1931, the foregoing Decision certi- 
fied from the record as a true copy. 

[Seal] B. D. GAMBLE, 

Clerk, U. S. Board of Tax Appeals. 



[46] United States Board of Tax Appeals, 
Washington. 

DOCKET No. 39,825. 

MARY C. YOUNG, 

Petitioner, 

vs. 

COMMISSIONER OF INTERNAL REVENUE, 

Respondent. 

DECISION. 

Pursuant to the Board's findings of fact and 
opinion, promulgated September 8, 1930, it is 
ORDERED AND DECIDED: That there are de- 
ficiencies of $2,825.63 and $2,091.21 for the years 
1924 and 1925, respectively. 

ANNABEL MATTHEWS, 
MR. 
Member, United States Board of Tax Appeals. 
Entered Sep. 10, 1930. 

A true copy. 

[Seal] Teste: B. D. GAMBLE, 

Clerk, U. S. Board of Tax Appeals. 



58 Mary C. Young et al. vs. 

Now, Feb. 24, 1931, the foregoing Decision certi- 
fied from the record as a true copy. 

[Seal] B. D. GAMBLE, 

Clerk, U. S. Board of Tax Appeals. 



[47] Filed Jan. 13, 1931. United States Board 
of Tax Appeals. 

In the United States Circuit Court of Appeals for 
the Ninth Circuit. 

DOCKET No. 39,825. 

MARY C. YOUNG, 

Petitioner, 

vs. 

COMMISSIONER OF INTERNAL REVENUE, 

Respondent. 

and 
DOCKET No. 39,824. 

MARY YOUNG MOORE, 

Petitioner, 

vs. 

COMMISSIONER OF INTERNAL REVENUE, 

Respondent. 

PETITION FOR THE REVIEW OF THE 

DECISION OF THE UNITED STATES 

BOARD OF TAX APPEALS. 
To the Honorable the Judges of the United States 

Circuit Court of Appeals for the Ninth 

Circuit : 



Commissioner of Internal Revenue. 59 

Mary C. Young, and Mary Young Moore, in sup- 
port of this their separate and joint petition, filed 
in pursuance of the provisions of Section 1001 of 
the Act of Congress of February 26, 1926, entitled 
the Revenue Act of 1926, for the review of the 
decision of the United States Board of Tax Appeals 
rendered on September 8, 1930, and from the final 
orders of the said Court entered on September 10, 
1930, approving a deficiency in income and profits 
taxes of the Petitioner Mary C. Young for the calen- 
dar year 1924 in the sum of Two Thousand Bight 
Hundred Twenty-five Dollars and Sixty-three Cents 
($2,825.63) and for the calendar year 1925 in the 
sum of Two [48] Thousand Ninety-one Dollars 
and Twenty-one Cents ($2,091.21), and of the Peti- 
tioner, Mary Young Moore, for the calendar year 
1924 in the sum of Two Thousand Nine Hundred 
Thirty Dollars and Six Cents ($2,930.06) and for 
the calendar year 1925 in the sum of Two Thousand 
One Hundred Seventeen Dollars and Forty-two 
Cents ($2,117.42), respectively, show to this Hon- 
orable Court as follows: 

I. 

STATEMENT OF THE NATURE OF THE 
CONTROVERSY. 

On July 16, 1928, the Petitioners filed with the 
United States Board of Tax Appeals, in pursuance 
of the Revenue Act of 1926, their separate petitions 
requesting the re-determination of deficiencies and 
income and excess profits taxes for the calendar 
years 1924 and 1925, as shown by the final notices 



60 Mary C. Young et al. vs. 

of deficiency previously mailed by the Respondent 
to the Petitioners under date of May 16, 1928. Said 
notices of deficiency asserted in the case of Mary 
C. Young a deficiency of Two Thousand Eight 
Hundred Twenty-five Dollars and Sixty-three Cents 
($2,825.63) for the year 1924 and Two Thousand 
Ninety-one Dollars and Twenty-one Cents ($2,- 
091.21) for the year 1925, and in the case of Mary 
Young Moore a deficiency of Two Thousand Nine 
Hundred Thirty Dollars and Six Cents ($2,930.06) 
for 1924 and Two Thousand One Hundred Seven- 
teen Dollars and Forty-two Cents ($2,117.42) for 
1925. The issues to be determined by the United 
States Board of Tax Appeals were identical in both 
cases. By an order of the United States Board 
of Tax Appeals the proceedings in both appeals 
were consolidated for hearing and decision. A stip- 
ulation of facts was entered into by the Petitioners 
and the Respondent and said stipulation was filed 
with the United States Board of Tax Appeals. 
Said appeals so consolidated duly came on for hear- 
ing on February 24, 1930. No evidence was intro- 
duced other than that contained in the [49] stipu- 
lation of facts filed. On September 8, 1930, the 
United States Board of Tax Appeals promulgated 
its findings of fact, which findings of fact are in 
substantial accord with the stipulation of facts filed 
and with the allegations contained in the Petitions 
filed with the United States Board of Tax Appeals 
and with the Answers thereto filed by the Respond- 
ent. Said findings of fact are as follows : 



Commissioner of Internal Revenue. 61 

FINDINGS OF FACT. 

"Mary Young Moore is the daughter of Mary C. 
Young. They both reside at 1001 South Hoover 
Street, Los Angeles, California. They are joint 
owners of certain land in the City of Los Angeles, 
California, and located at the southeast corner of 
Seventh and Figueroa Streets, extending East on 
Seventh Street to the southwest corner of Flower 
and Seventh Streets. The petitioners are equal 
owners. 

"During the years 1917 and 1918 the petitioners 
erected on this land several brick store buildings 
at a cost of $50,000. These buildings were rented 
or for rent until their demolition. 

"In 1924 a lease for the term of ninety-nine years 
was entered into by the petitioners with the Sun 
Realty Company, whereby the brick buildings 
erected during 1917 and 1918 should be demolished 
and a new building erected to be occupied by Barker 
Brothers. The buildings were demolished in 1924. 

"The full amount of the depreciation sustained 
on the brick store buildings, and from the time of 
erection to the time of demolition in 1924, was 
$7,785, and the undepreciated cost thereof to the 
petitioners at the time of demolition was $42,215. 

"The buildings were not salvaged or otherwise 
disposed of, and the petitioners received no insur- 
ance or other compensation on the demolition of the 
buildings. 

[50] "Each of the petitioners, in her income 
tax return for the year 1924, claimed a deduction 



62 Mary C. Young et al. vs. 

in the amount of $21,107.50, representing her one- 
half of the undepreciated cost. These deductions 
were disallowed by the respondent and the sum of 
$21,107.50 was added back to the income of each 
of the petitioners. 

"On October 1, 1924, the petitioners granted a 
ground lease of the premises at Seventh and Figu- 
eroa Streets to the Sun Realty Company for the 
period of ninety-nine years, on the basis of a 
monthly rental of $10,000 from October 1, 1924, 
to June 30, 1926; and of a monthly rental of $20,000 
thereafter until the end of the term of the lease. 
This lease was obtained for the petitioners by a 
real estate agent who charged as his commission 
therefore the sum of $50,500, which commission was 
paid during the years 1924 and 1925. During the 
year 1924 there was paid $21,500, and the sum of 
$29,000 was paid during the year 1925. These 
amounts were paid by the petitioners in equal 
sums and each paid $10,750 in 1924 and $14,500 in 
1925. 

"Each of the petitioners claimed as a deduction 
in her income tax return for 1924 the sum of 
$10,750, representing the amount actually paid by 
her to the real estate agent during that year. 
These deductions were disallowed by the Com- 
missioner. 

"In addition to the commission paid to the real 
estate agent, the petitioners were required to pay 
attorneys' fees in the amount of $5,500, and the 
expense of obtaining certificate of title in the 
amount of $4,502.85. 



Commissioner of Internal Revenue. 63 

"Each petitioner, in her income tax return for 
1924, claimed a deduction in the amount of $2,750, 
being one-half of the attorneys' fees, and a deduc- 
tion in the amount of $2,251.43, being one-half of 
the cost of obtaining certificate of title. These 
deductions were disallowed by the respondent. 

[51] "The respondent considered the loss sus- 
tained on the demolition of the brick buildings to 
be a capital loss and further considered the sums 
expended by the petitioners as commissions, at- 
torneys' fees and cost of obtaining certificate of 
title, to be capital expenditures to be amortized 
and deducted over the term of the lease, and as a 
result thereof allowed a deduction to each of the 
petitioners for the year 1924 in the amount of 
$513.59. 

"In his adjustment of the income of the peti- 
tioners for the year 1925, the respondent disallowed 
the deduction claimed by each in the amount of 
$14,500, representing the sum paid by each as com- 
mission to the real estate agent in 1925, and allowed 
a deduction for amortization of the cost of the lease 
in the amount of $513.59. 

"Each of the petitioners kept her books and 
rendered her income tax returns for the years 1924 
and 1925 on the basis of cash receipts and disburse- 
ments. ' ' 

On September 8, 1930, the United States Board 
of Tax Appeals promulgated its opinion in said 
causes in which it held as a matter of law that the 
petitioners were not entitled to deduct from their 
gross income for the year 1924 the undepreciated 
cost of the buildings demolished in that year. Said 



64 Mary C. Young et al. vs. 

opinion further held as a matter of law that the 
petitioners were not entitled to deduct in the year 
1924 the amount paid by them in that year to a real 
estate agent as his commission for obtaining the 
ninety-nine year lease on petitioners' property, and 
said opinion further held as a matter of law that 
petitioners were not entitled to deduct from their 
gross income for the year 1925 the balance of said 
commission actually paid by them to the real estate 
agent in the year 1925. Said opinion further held 
that the petitioners were not entitled to deduct 
[52] from the gross income for the year 1924 
the amounts paid by them in that year for attor- 
neys' fees and for a certificate of title, both of 
which amounts were expended in effecting said 
ninety-nine year lease. Said board in its opinion 
held all of said amounts to be capital expenditures 
to be amortized and deducted over the term of 
said lease and allowed to each of the petitioners for 
each of the years 1924 and 1925 a deduction of 
$513.59. 

On September 10, 1930, the said Board entered 
its final orders approving the deficiencies as deter- 
mined by the respondent. 

II. 

DESIGNATION OF COURT OF REVIEW. 

The petitioners being aggrieved by the said 
opinion, decision and orders, and being individuals 
who have at all times herein mentioned resided in 
the City of Los Angeles, California, and who filed 
their income tax returns for the calendar years 



Commissioner of Internal Revenue. 65 

1924 and 1925 with the Collector of Internal Reve- 
nue at Los Angeles, California, desire a review of 
said opinion, decision and orders by the United 
States Circuit Court of Appeals for the Ninth Cir- 
cuit. 

III. 

ASSIGNMENT OF ERRORS. 

The petitioners as a basis for review make the 
following assignments of error: 

(1) The Board of Tax Appeals erred in hold- 
ing that each of the petitioners was not entitled to 
deduct from her gross income for the year 1924 
the amount of Twenty-one Thousand One Hundred 
and Seven Dollars and Fifty Cents ($21,107.50) 
representing one-half of the undepreciated cost 
of their buildings demolished in that year. 

[53] (2) The Board of Tax Appeals erred in 
holding that each of the petitioners was not en- 
titled to deduct from her gross income for the year 
1924 the sum of Ten Thousand Seven Hundred 
Fifty Dollars ($10,750.00) actually paid by each 
of the petitioners in that year as a commission to 
the real estate agent who obtained said ninety-nine 
year lease. 

(3) The Board of Tax Appeals erred in holding 
that each of the petitioners was not entitled to de- 
duct from gross income for the year 1925 the sum 
of Fourteen Thousand Five Hundred Dollars ($14,- 
500.00) actually paid by each of the petitioners in 
that year as a commission to the real estate agent 
who obtained said ninety-nine year lease. 



66 Mary G. Young et al. vs. 

(4) The Board of Tax Appeals erred in holding 
that each of said petitioners was not entitled to 
deduct from gross income for the year 1924 the 
sum of Two Thousand Seven Hundred Fifty Dol- 
lars ($2,750.00) actually paid by each of said peti- 
tioners in that year to an attorney for his services 
in effecting said ninety-nine year lease. 

(5) The Board of Tax Appeals erred in hold- 
ing that each of said petitioners was not entitled to 
deduct from her gross income for the year 1924 the 
sum of Two Thousand Two Hundred Fifty-one 
Dollars and Forty-three Cents ($2,251.43) actually 
paid by each of said petitioners in said year for a 
certificate of title necessary in effecting said ninety- 
nine year lease. 

(6) The findings of fact made by said Board 
are insufficient to support the decision and order 
of said Board. 

(7) The Board erred in rendering decision for 
the respondent. 

(8) The Board erred in entering its final orders 
on September 10, 1930, approving the deficiencies 
determined by the respondent. 

[54] WHEREFORE, your petitioners pray 
that the Honorable Court may review said decision, 
opinion and orders and reverse and set aside the 
same, and that the Clerk of the United States Board 
of Tax Appeals be directed to transmit and de- 
liver to the Clerk of the said Court certified copies 
of all and every of the documents necessary and 
material to the presentation and consideration of 
the foregoing Petition for Review, and as required 



Commissioner of Internal Revenue. 61 

by the rules of said Court and statutes made and 
provided. 

MRS. MARY C. YOUNG. 
MARY C. YOUNG. 
MRS. MARY YOUNG MOORE. 
MARY YOUNG MOORE. 
M. F. MITCHELL. 
M. F. MITCHELL, 
Petroleum Securities Building, 
Los Angeles, California. 
GEORGE G. WITTER. 
GEORGE G. WITTER, 
Petroleum Securities Building, 
Los Angeles, California. 
THEODORE B. BENSON, 
THEODORE B. BENSON, 
Southern Building, 

Washington, D. C, 

Attorneys for Petitioners. 

[55] State of California, 
County of Los Angeles, — ss. 

Personally appeared before me, John B. Horbach, 
a Notary Public in and for the County and State 
aforesaid, the above-named petitioners, Mary C. 
Young and Mary Young Moore, and each for her- 
self does depose and say: That she signed the 
foregoing petition ; that she has read the same ; and 
that the facts set forth therein are true to the best 
of her knowledge and belief; and that said petition 
is filed in good faith. 

JOHN B. HORBACH, 
Notary Public, in and for the County of Los An- 
geles, State of California. 



68 Mary C. Young et al. vs. 

[56] Filed Jan. 13, 1931. United States Board 
of Tax Appeals. 

United States Board of Tax Appeals. 

DOCKET No. 39,825. 

MARY C. YOUNG, 

Petitioner, 

vs. 

COMMISSIONER OF INTERNAL REVENUE, 

Respondent. 

and 

DOCKET No. 39,824. 

MARY YOUNG MOORE, 

Petitioner, 

vs. 

COMMISSIONER OF INTERNAL REVENUE, 

Respondent. 

NOTICE OF FILING PETITION FOR RE- 
VIEW. 

To the General Counsel, Bureau of Internal Reve- 
nue, Attorney for Respondent : 
You are hereby notified that on the 13th day of 
January, 1931, a petition for Review of the decision 
of the United States Board of Tax Appeals was 
filed with the Clerk of the Board in the cases of 
Mary C. Young, Petitioner, vs. Commissioner of In- 
ternal Revenue, Respondent, Docket No. 39,825, and 
Mary Young Moore, Petitioner, vs. Commissioner 
of Internal Revenue, Respondent, Docket No. 



Commissioner of Internal Revenue. 69 

39,824, and a true copy of said Petition is herewith 
served upon you. 

M. F. MITCHELL. 

M. F. MITCHELL, 

Petroleum Securities Building, 

Los Angeles, California. 
GEORGE G. WITTER, 
GEORGE G. WITTER, 
Petroleum Securities Building, 

Los Angeles California. 
THEODORE B. BENSON. 
THEODORE B. BENSON, 
Southern Building, 

Washington, D. C. 
Attorneys for Petitioners. 

[57] Receipt of the above petition acknowledged 
this 13th day of January, 1931. 

C. M. CHAREST, 
General Counsel Bureau of Internal Revenue, 

Attorney for Respondent. 

Now, Feb. 24, 1931, the foregoing Petition for Re- 
view and Notice of Filing certified from the record 
as a true copy. 

[Seal] B. D. GAMBLE, 

Clerk, U. S. Board of Tax Appeals. 



[58] Filed Jan. 13, 1931. United States Board 
of Tax Appeals. 



70 Mary C. Young et al. vs. 

United States Board of Tax Appeals. 
DOCKET No. 39,825. 

MARY C. YOUNG, 

Petitioner, 

vs. 

COMMISSIONER OF INTERNAL REVENUE, 

Respondent. 

and 

DOCKET No. 39,824. 

MARY YOUNG MOORE, 

Petitioner, 

vs. 

COMMISSIONER OF INTERNAL REVENUE, 

Respondent. 

PRAECIPE FOR TRANSCRIPT OF RECORD. 

To the Clerk of the United States Board of Tax 
Appeals : 

You will please prepare and within sixty (60) 
days and such additional times as has been granted 
by the Board from the date of the filing of Petition 
for Review in the above-stated case, transmit to the 
Clerk of the United States Circuit Court of Appeals 
for the Ninth Circuit certified copies of the follow- 
ing documents : 

1. Documentary entries of proceedings before 
the United States Board of Tax Appeals in the 
above-entitled causes. 



Commissioner of Internal Revenue. 71 

2. Pleadings before the Board in said causes. 

(a) Petitions. 

(b) Answers. 

3. Petitioners' Motion to consolidate the above- 
entitled causes for hearing and decision. 

4. Order of the Board of Tax Appeals granting 
said motion to consolidate. 

[59] 5. Stipulation of facts filed in said causes. 

6. Findings of fact, opinion and decision of the 
Board. 

7. Two Board orders of redetermination dated 
September 10, 1930. 

8. Petition for review. 

9. Notice of filing petition for review. 

10. This praecipe. 

The foregoing to be prepared, certified and trans- 
mitted as required by law and the rules of the 
United States Court of Appeals for the Ninth Cir- 
cuit. 
• M. F. MITCHELL, 

M. F. MITCHELL, 

Petroleum Securities Building, 

Los Angeles, California. 

GEORGE G. WITTER. 

GEORGE G. WITTER, 

Petroleum Securities Building, 

Los Angeles, California. 

THEODORE B. BENSON. 

THEODORE B. BENSON, 

Southern Building, Washington, D. C. 

Attorneys for Petitioners. 



72 Mary C. Young et ah vs. 

Service of a copy of the foregoing is hereby ac- 
knowledged this 13th day of January, 1981. 

C. M. CHAREST, 
General Counsel, Bureau of Internal Revenue, 

Attorney for Respondent. 
No objection. 

C. M. CHAREST, 
General Counsel for Commissioner of Internal 
Revenue. 

Now, Feb. 24, 1931, the foregoing praecipe certi- 
fied from the record as a true copy. 

[Seal] B. D. GAMBLE, 

Clerk, U. S. Board of Tax Appeals. 



[Endorsed] : No. 6427. United States Circuit 
Court of Appeals for the Ninth Circuit. Mary C. 
Young, Petitioner, vs. Commissioner of Internal 
Revenue, Respondent, and Mary Young Moore, Pe- 
titioner, vs. Commissioner of Internal Revenue, Re- 
spondent. Transcript of Record. Upon Petition 
to Review an Order of the United States Board of 
Tax Appeals. 

Filed March 30, 1931. 

PAUL P. O'BRIEN, 
Clerk of the United States Circuit Court of Appeals 
for the Ninth Circuit. 






IN THE 

United States 



Circuit Court of Appeals, 

FOR THE NINTH CIRCUIT. 



Mary C. Young, 

Petitioner, j Docket 
vs. J No. 39825. 

Commissioner of Internal Revenue, 

Respondent, 
and 
Mary Young Moore, 

Petitioner, 

!# 1 Docket 

Commissioner of Internal Revenue, j No. 39824. 

Respondent. 



APPELLANTS' OPENING BRIEF. 



M. F. Mitchell, 
1038 Petroleum Securities Bldg., 
Los Angeles, California. 
George G. Witter, 
1002 Petroleum Securities Bldg., 
Los Angeles, California. 
Attorneys for Petitioners and Appellants. 

Theodore B. Benson, p I I p r> 

Southern Building, Washington, D. C, ^ 

Of Counsel. NOV 1 

Parker, Stone & Baird Co., Law Printers, Los Angeles. 

CLERK 



TOPICAL INDEX. 

PAGE 

Statement of the Case 3 

Statement of Facts 3 

Argument 5 

I. 

The Commissions Paid to Real Estate Agent, the 
Fees Paid the Attorney, and the Premium Paid 
on Title Insurance Should Be Allowed as Deduc- 
tions in the Years in Which Paid 5 

II. 

The Undepreciated Cost of the Old Building 
Amounting to $42,215 Should Be Allowed as a 
Deductible Loss in the Year 1924 13 

III. 

It Is Important to Consider That the Petitioners 
Were Filing Their Returns on a Cash Basis 21 

Conclusion 27 



TABLE OF CASES AND AUTHORITIES CITED. 

PAGE 

Appeal of Seaboard Oil Company, 1 B. T. A. 1259 21 

Article 142, Treasury Department Regulations 13 

Bonwit Teller and Company v. Commissioner, 17 B. 
T. A. 1019 8, 10 

Central Bank Block Association, 19 B. T. A. 1183 10 

Charles N. Manning, 7 B. T. A. 286 14 

Daly v. Anderson, 37 Fed. (2nd) 728 11, 22 

Eckert v. Commissioner, 42 Fed. (2nd), 9 C. C. A 21 

Evelena M. Howard, 19 B. T. A. 865 8 

Fidelity Title and Trust Company v. Heiner, 34 Fed. 
(2nd) 350 21 

Grosvenor Atterbury, 1 B. T. A. 169 (1925 C. C. H.. 
B. T. A. 2117 16 

James M. Butler, 19 B. T. A. 730 10 

Julius Stowe Lovejoy v. Commissioner, 18 B. T. A. 
1179 8, 10 

Liberty Baking Company v. Heiner, 37 Fed. (2nd) 
703 20 

Osterlich v. Lucas, 37 Fed. (2nd) 277 (9 C. C. A.).... 21 

Realty Corporation v. Commissioner, 42 Fed. (2nd).... 20 

Revenue Act of 1924, Section 202 18 

Revenue Act of 1924, Section 203 19 

Robert McNeill, 16 B. T. A. 479 6, 24 

Section 214 (a) Tax Law of 1921 (42 Stat. 239) 22 



IN THE 



United States 

Circuit Court of Appeals, 

FOR THE NINTH CIRCUIT. 







Mary C. Young, \ 

Petitioner, I 

vs. 1 


Docket 
No. 39825. 


Commissioner of Internal Revenue, / 




Respondent. 1 
and \ 




Mary Young Moore, ( 

Petitioner, 1 




vs. \ 
Commissioner of Internal Revenue, j 


Docket 
1 No. 39824, 


Respondent, j 





STATEMENT OF THE CASE. 

This is an appeal from a decision of the United States 
Board of Tax Appeals. The appeals of Mary C. Young 
and Mary Young Moore were consolidated before the 
Board of Tax Appeals, and are consolidated for the pur- 
pose of this appeal. The issues in the two cases are 
identical although there is a slight variation in the amount 
of tax. 

STATEMENT OF FACTS. 

The appellants are mother and daughter. They reside 
in Los Angeles. For many years they have been the 
joint owners of valuable lots located at the corner of 



— 4— 

Seventh and Figueroa streets, Los Angeles, California. 
During 1917 they erected brick buildings on these lots at 
a cost of $50,000. The buildings were rented until 1924 
when a lease was entered into for the period of 99 years. 
This lease was made with the Sun Realty Company in 
behalf of Barker Brothers and provided that the brick 
buildings then standing on the lots should be demolished 
and new buildings be erected by the lessee. This lease 
was obtained for the appellants by a real estate agent 
who charged as his commission therefor the sum of 
$50,500, which was paid during the years 1924 and 1925. 

Each of the petitioners file their income tax returns on 
cash receipts and disbursements basis. Each of the peti- 
tioners actually paid to the real estate agent as commis- 
sion in the year 1924 the sum of $10,750 and in the year 
1925 the sum of $14,500. They deducted these amounts 
as expense on their income tax returns for the years 1924 
and 1925. The Board of Tax Appeals disallowed the 
deduction of the amounts as expenses and treated them 
as capital expenditures to be amortized over the 99-year 
period of the lease. The petitioners assign this as error. 

Likewise and for the same purpose the petitioners were 
required to pay and actually did pay in 1924 $5,500 in 
attorneys fees in procuring said lease, and $4,502.85 for 
obtaining certificate of title in connection with said lease. 
Each petitioner in her income tax return for 1924 claimed 
a deduction in the amount of $2,750, being one-half of 
the attorneys fees, and a deduction in the amount of 
$2,251.43, being one-half of the cost of obtaining certifi- 
cate of title. These deductions were likewise disallowed 
by the Board of Tax Appeals and treated as capital ex- 



penditures to be amortized over the period of the lease. 
The petitioners assign this as error. 

In the year 1924 in accordance with the terms of the 
lease the brick buildings, erected by the petitioners in 1917, 
were demolished. Depreciation sustained on the brick 
buildings from the date of their erection to the time of 
demolition was $7,785, which left an undepreciated cost 
thereof to the petitioners at the time of demolition of 
$42,215. Each of the petitioners in her income tax return 
for the year 1924 claimed a deduction of $21,107.50, 
representing her one-half of the undepreciated cost of 
these buildings, on the ground that the same was a realized 
loss in the year 1924. These deductions were disallowed 
by the Board of Tax Appeals, and the sum of $21,107.50 
added back to the income of each of the petitioners to be 
amortized over the 99-year period of the lease. The peti- 
tioners assign this as error. 

As a result of the decision the petitioners have each been 
allowed a deduction of $513.59 per year instead of the 
amounts claimed. 

ARGUMENT. 

I. 
The Commissions Paid to Real Estate Agent, the Fees 
Paid the Attorney, and the Premium Paid on 
Title Insurance Should Be Allowed as Deductions 
in the Years in Which Paid. 

This question has been the subject of several conflicting 
decisions by the Board of Tax Appeals. In the early 
decision of Crompton Building Corporation, found in 2 
B. T. A. 1056, the Board made a holding with respect to 



— 6— 

a 5-year lease which would be contrary to the contentions 
of the taxpayer in this case. In the case of Robert 
McNeill, found in 16 B. T. A. 479, the Board reconsidered 
the precise question which arises in this appeal and 
decided squarely in favor of the taxpayers contentions, 
and expressly reversed its earlier decision. In its opinion 
in the McNeill case the Board spoke as follows: 

"Petitioner testified that the lease of his Maryland 
land to the Government was for a term of two years, 
at an annual rental of $25,000, and that he paid 
certain agents the amount of $3,000 for services in 
procuring" said lease. We have frequently and con- 
sistently held that expenses incurred by a lessee in 
connection with the acquisition of a leasehold or other 
capital asset, such as bonds having a definite income- 
producing life, are capital expenditures and that for 
each taxable year ending within such term the lessee 
is entitled to deduct a ratable part of such expendi- 
tures from his gross income. D. N. and E. Walter 
& Co., 4 B. T. A. 142; Lincoln L. McCandless, 5 
B. T. A. 1114; C. M. Nusbaum, 10 B. T. A. 664; 
Marjorie Post Hutton, 12 B. T. A. 265. In these 
and similar cases the lessee or the purchaser was the 
moving party claiming the right to deduct such ex- 
penditures from income as ordinary and necessary 
expenses. The disallowance in each instance was 
based on the theory that the expense was incurred in 
the acquisition of assets that became fused into the 
capital structure of the petitioner for income-pro- 
ducing purposes through a term of years and should 
be pro-rated against the income realized in each year 
of such term. 

"It appears, however, that in at least one case, 
Crompton Building Corporation, 2 B. T. A. 1056, we 
have held that brokers' commissions paid for procur- 
ing or selling leases to property owned by the tax- 
payer are capital expenditures which should be spread 
over the term of the lease. In our opinion in that 
proceeding we said: 



— 7— 

'The leases were to run for a period of five years, 
and amounts paid out in acquiring them are just as 
much capital expenditures to be returned over the 
life of the leases as if they had been paid out by the 
tenant in acquiring a leasehold estate. The lease of 
property running for a period of years is just as 
much property in the hands of the owner as a lease- 
hold is property in the hands of a tenant. As such 
the acquisition thereof by the owner of the property 
is capital.' 

"If the Crompton decision is sound law, it follows 
that it is immaterial whether expense in connection 
with the creation of a leasehold interest in property 
is incurred by the lessor or the lessee and that case 
and those above cited establish a principle that makes 
it impossible for us to allow the deduction here 
claimed as an ordinary and necessary expense in- 
curred or paid in the taxable year and requires us to 
find that the amount in question is a capital expendi- 
ture amortizable over the term of the lease. 

"After careful consideration, however, we are con- 
vinced that there is a readily distinguishable differ- 
ence between the situations of the lessor and lessee in 
connection with expenses incident to the creation of a 
leasehold. The lessor acquires nothing that can be 
taken into his accounts as a capital asset. On the 
contrary he parts with something when he severs the 
lessor or leasehold interest from the greater or fee 
interest of the estate. In effect he sells the right to 
use his property for a limited term and the commis- 
sion which he pays may very properly be regarded as 
expense incident thereto. On the other hand the 
lessee acquires something which he can take into his 
asset accounts. He has more than he owned before 
the transaction and the fee owner has less. In ex- 
change for income, all of which may be taxable, the 
lessor has parted with the right to use a certain part 
of his capital. The lessee has acquired a capital asset 
at a cost which he is entitled to recover free from tax 
within the period of its useful life to him, which is 
the term of the lease. The lessor merely makes a sale 



— 8- 

and has no capital investment to recover. If he 
incurs any cost in the creation of the leasehold estate, 
he may be entitled to deduct the amount thereof from 
his gross income, but certainly not ratably over the 
term of the lease, since such expense is for a service 
in connection with a transaction which is closed when 
the leasehold is created. The lessor is, therefore, in 
the situation of one who pays a commission for a 
service rendered and in this case is within the rule 
established in Olinger Corporation, 9 B. T. A. 170, 
which is based on American National Co. v. United 
States, 274 U. S. 99. We conclude, therefore that 
this petitioner is entitled to deduct the amount of 
$3,000 from his gross income for 1922 as commission 
for services rendered to him in that year and that in 
view of the conclusion here reached and of our 
opinion in the Olinger proceeding, supra, it is neces- 
sary to reverse our opinion in Crompton Building 
Corporation, supra" (Italics added.) 

In the case of Bonwit Teller and Company v. Commis- 
sioner, 17 B. T. A. 1019, the Board refused to allow as a 
deduction a brokerage fee paid by a lessee to secure a 
sub-tenant from whom it received a substantially larger 
rental. We see nothing in this holding inconsistent with 
the Board's holding in the McNeill case. In the McNeill 
case the Board had already distinguished between the posi- 
tion of lessor and lessee. Likewise, the case of Evelena 
M. Howard, 19 B. T. A. 865 (cited by the Board) is a 
case of a lessee obtaining a sub-tenant at a substantially 
higher rental. 

In the case of Julius Stozvc Love joy v. Commissioner, 
18 B. T. A. 1179, (cited by the Board) the taxpayer had 
paid a commission for obtaining a loan which was to run 
over a long period of years, the loan to be used in the 
construction of a building. The Board refused to permit 






—9— 

the deduction in the year in which the commission was 
paid. That case is clearly distinguishable from the instant 
case for in the Lovejoy case the petitioner did obtain the 
use of capital over a period of years. However, in the 
Lovejoy case a strong - dissenting opinion was written in 
which four members of the Board joined. The dissenting 
opinion is set out below : 

"The petitioner made her income-tax returns upon 
the basis of cash receipts and disbursements. In such 
returns she could deduct from gross income as ordi- 
nary and necessary expenses only amounts actually 
paid out. In dinger Corporation, 9 B. T. A. 170, 
we held that a note given for securing a loan was 
deductible as an expense in the year given where the 
petitioner was on the accrual basis. In Robert H. 
McNeill, 16 B. T. A. 479, involving the same point 
as is involved in this proceeding, we held that amounts 
paid out in obtaining leases are deductible expenses 
of the year in which paid. The decision in the 
McNeill case was followed by the United States 
District Court, Southern District of New York, in 
Daly v. Anderson, decided January 29, 1930, in 
which the court held that a commission paid in 1923 
to a broker for obtaining a 21 -year lease on the tax- 
payer's property to begin in 1931 was deductible in 
1923 by the taxpayer where on a cash receipts and 
disbursements basis. Those decisions are, I think, in 
line with American National Co. v. United States, 
274 U. S. 99, and United States v. Anderson, 269 
U. S. 422. It is not to be presumed that Congress 
contemplated the spread of an expense of the nature 
of that paid out by the petitioner in 1924 over a series 
of years. Such a method of charging off the expense 
is entirely foreign to the petitioner's method of keep- 
ing her books of account and making her tax returns. 
It needlessly complicates the administration of the 
income-tax law. // the petitioner were on an accrual 
basis it might be proper to treat the amount as a 
deferred expense and then to spread the charge. But 



—10- 

the petitioner was not on an accrual basis. The in- 
come tax is levied not on economic income but on net 
income to be determined in the manner prescribed by 
the taxing statutes. In years subsequent to 1924, the 
petitioner is not entitled to deduct any part of the 
amount expended by her in 1924 in securing the 
money borrowed. The expense paid in 1924 is a legal 
deduction from income of 1924." (Italics added.) 

The Board's decision in Central Bank Block Associa- 
tion, 19 B. T. A. 1183 (also cited in Board's opinion), is 
based on its holding in Bonwit Teller and Company, supra, 
and Julius Stowc Love joy, both of which we have dis- 
cussed above and distinguished from the instant appeal. 

The only Board decisions that we find in point with the 
instant appeal where the Board has discussed the reasons 
for its opinion are the McNeill case, and the appeal of 
James M. Butler, 19 B. T. A. 730. The reasoning in the 
McNeill case has been set out above. To our minds it is 
both thorough and convincing. We believe it correctly 
states the law. Below we set out the reasoning in the 
Butler case holding contra: 

"The petitioner relies upon Robert H. McNeill, 16 
B. T. A. 479, in which we held that the cost, to the 
lessor, of securing a lease is deductible from the 
gross income to the lessor in the year in which the 
expenditure is made. However, the principle laid 
down in Robert H. McNeil, supra., has been over- 
ruled in two recent Board decisions. Donwit Teller 
& Co., 17 B. T. A. 1019, and Julia Stowe Lovejoy, 
18 B. T. A. 1179. 

In the instant proceeding the $980 which petitioner 
expended to secure the lease was not an ordinary and 
necessary expense. The expenditure in question re- 
sulted in the securing of an asset from which income 
was to be derived for 99 years. Such an expenditure 
is, beyond a doubt, of a capital nature and may be 



—11— 

allowed as a deduction only as the benefit is realized. 
The respondent has allowed petitioner a deduction 
from income of 1923 calculated in accordance with 
our decision and upon the basis of a larger expendi- 
ture than petitioner has here shown. In this circum- 
stance the holding of the respondent will be ap- 
proved." 

The only material statement in the Butler opinion is the 
one italicized. The Board's own opinions, the decision of 
the courts, and common reason all deny the truth and 
accuracy of the statement. The lease was not a new 
asset purchased by the taxpayers nor was it the income 
producer. 

This whole question was squarely presented to the Dis- 
trict Court in the Southern District of New York in the 
case of Daly v. Anderson, 37 Fed. (2nd) 728. In that 
case the owner of land paid in the year 1923 a commission 
of $8,500 to his broker for obtaining a 21-year lease, 
whose term was to commence to run in 1931. Having 
kept his books on the cash basis the petitioner claimed the 
$8,500 as a deduction in the year 1923. The court held 
that the taxpayer was entitled to the deduction in the 
year 1923, and spoke as follows: 

"I think that the first question must be answered 
in the negative. The taxpayer did not invest in any- 
thing when he paid the real estate broker for services 
in securing a lease for him. What he did was to pay 
some one for services in connection with the use to 
which was lawfully putting his land. Cf. McNeill 
v. Commissioner of Internal Revenue, 16 B. T. A. 
479; Evalena M. Howard v. Commissioner of Inter- 
nal Revenue, decided by the Board of Tax Appeals 
on November 30, 1929, Docket No. 25,749, and not 
yet reported. 



—12- 

The taxpayer when the transaction was over had 
his estate in his land, minus the leasehold estate. It 
is true that ultimately he was to be paid rent, but that 
would be merely a periodic recognition by his tenant 
of the surrender the taxpayer has made by carving 
the lease out of his freehold, and would be taxable 
as income to the taxpayer in the year when paid." 
(Italics added.) 

The court further in its opinion emphasizes the fact 
that the taxpayer is on the cash basis and that, therefore, 
the only years in which the taxpayer is entitled to the 
deductions under the law are those in which the payments 
were actually made. 

The Board's theory is that when the taxpayers leased 
their land they bought something, and that this something 
they bought is the income-producing factor. To the con- 
trary, and in line with the court's decision in Daly v. 
Anderson and the Board's decision in the McNeill case, 
we say the taxpayers bought nothing when they leased 
their land, but, in fact, they sold, or at least parted with 
something, namely, the right to use their land. As the 
Board states in the McNeill case, the fees and commis- 
sions were expenses incident to the sale, or, as the court 
puts it, they were amounts paid by the petitioners for 
services rendered in connection with the use to which they 
were lawfully putting their land. As either they are 
deductible expenses in the year in which paid. 

The Board's decision assumes that the lease is the 
income producing factor. We deny this. The land itself 
is the income producing factor. The lease is merely the 
agreement through which income from the land is fixed 
and realized. Presumably the bargain made in 1924 was 



—13— 

a fair one, and that being so, then the lease within itself 
at the date made had no value. It was only the land that 
was valuable. The terms of the lease represent the fair 
market rental value of the land on a 99-year basis. The 
only way the lease could take on value within itself would 
be because of changing conditions and changing values so 
that the payments stipulated under the lease would be in 
excess of the fair rental value of the land. Instead of 
the lease proving to be an asset it might just as easily 
and frequently does prove to be a loss; that is, the land 
in a few years after the execution of the lease might have 
a rental value substantially higher than the payments pro- 
vided for in the lease. 

II. 

The Undepreciated Cost of the Old Building Amount- 
ing to $42,215 Should Be Allowed as a Deductible 
Loss in the Year 1924. 

It is agreed that the undepreciated cost of the old build- 
ings is $42,215 and that, if there is a loss and it is 
deductible it is deductible in this amount. 

The Commissioner of Internal Revenue has frequently 
disallowed a loss from the demolition of buildings by 
reason of the provisions of article 142 of Treasury 
Department regulations. That article reads as follows: 

"Voluntary removal of buildings. Loss due to the 
voluntary removal or demolition of old buildings, 
the scrapping of old machinery, equipment, etc., in- 
cident to renewals and replacements will be deductible 
from gross income. When a taxpayer buys real 
estate upon which is located a building, which he pro- 
ceeds to rase with a view to erecting thereon another 



—14— 

building, it will be considered that the taxpayer has 
sustained no deductible loss by reason of the demo- 
lition of the old building-, and no deductible expense 
on account of the cost of such removal, the value of 
the real estate, exclusive of old improvements, being 
presumably equal to the purchase price of the land 
and buildings plus the cost of removing the useless 
building." 

We think it very clear that this article means that when a 
person buys real estate on which is located a building with 
the intent and purpose at the time he buys of demolishing 
the old building and erecting a new one that he shall not 
be entitled to any loss, but that such unextinguished cost 
of the old building shall become part of the cost of the 
new building. The words "which he proceeds to raze" 
clearly indicate this. If this be the correct interpretation 
then the article has no application to the present case 
where the petitioners had owned the land for many years, 
erected the brick buildings in 1917 and rented them con- 
tinuously until 1924, when not the owners themselves but 
others erected a new building. 

The Board of Tax Appeals denied the loss in the instant 
case on the ground that the issue was controlled by the 
Board's decision in the appeal of Charles N. Manning, 
7 B. T. A. 286. The facts in that case are that the peti- 
tioners invested in certain real estate having buildings 
upon it in the year 1920 and in the year 1921 executed a 
99-year lease which provided for the erection of new 
buildings and the consequent demolition of the old build- 
ings. The Board held that the case did not come within 
the scope of article 142 set out above, but quoted section 
214 (a) (5) of the Revenue Act of 1921, which provides 
for the deduction of the following losses: 






—15— 

" Losses sustained during taxable year and not 
compensated for by insurance, or otherwise, if in- 
curred in any transaction entered into for profit 
though not connected with the trade or business/' 

The Board admitted the loss but held that the petitioners 
had received compensation for the loss. Following is the 
most pertinent portion of the Board's opinion. 

'Trior to the execution of the lease the petitioners 
had land and buildings from which they were deriving 
income in the form of rent, and also land. After the 
execution of the lease, they had only the land and 
were lessors under a more advantageous lease than 
they formerly had. Did they part with the buildings, 
without receiving compensation therefor, quid pro 
quo? That the lease in question was a favorable one 
is admitted by the petitioners and that they improved 
their position thereby is shown by the fact that their 
rentals were substantially greater under the new lease 
than those being received prior to October 31, 1921, 
from the old buildings. But the petitioners say that 
they could not have been compensated in 1921 under 
the lease for the loss since they did not begin to re- 
ceive rentals thereunder until 1922. We are not im- 
pressed by the logic of this argument. The acquisition 
of something from which income will be derived in 
futuro has a value in money's worth in the same sense 
as something which will produce income in praesenti. 
The value may differ on this account, but this does 
not alter the fact that each has a compensating value 
which may be recognized as having money's worth. 

''Taken by itself, the petitioners undoubtedly would 
be said to have sustained a loss in the demolition of 
their buildings, but when considered in connection 
with the entire transaction entered into on October 
31, 1921, the Board is of the opinion that the removal 
of the buildings was fully compensated for in the 
rights acquired under the lease and that the cost of 
the buildings, less sustained depreciation, is properly 
allocable to the cost of securing the lease. In other 
words, there was in this instance what amounted to 



—16- 

a substitution of assets; instead of an asset in the 
form of buildings, the petitioners now have another 
asset, viz., a lease, the giving up or voluntary destruc- 
tion of the buildings being a necessary incident to the 
acquisition of the lease. 

lk Since, however, the lease acquired had a definite 
life of 99 years, cost of the buildings, less sustained 
depreciation, which entered into securing the lease, 
are properly amortizable over the life of the lease, 
and a deduction from gross income should be allowed 
under the provisions of section 214 (a) (8) of' the 
Revenue Act of 1918, for the exhaustion of this asset 
over a 99-year period from the date the lease was 
signed. Appeal of Grosvenor Atterbury, 1 B. T. A. 
169 (1925 C. C. H, B. T. A. 2117). 

It will be seen from the above that the theory of the 
Board is that although the demolition of the buildings 
represents within itself a loss yet the rental money to be 
obtained from the lease must be regarded as compensation 
for such loss. We believe this theory to be entirely 
erroneous. On what ground and for what reason does 
the Board say that a portion of the rent must be allocated 
to compensation for the old buildings which the lessee 
never used? Is it reasonable to infer that the lessee 
paid more than the fair rental value of the land on account 
of buildings which it couldn't use? Why should the 
Board say that the lessee paid more than the land was 
worth in order to compensate for old buildings rather 
than to say that the owners, two women, were willing to 
take a loss on the buildings in order to place dieir land on 
a definite income paying basis for 99 years and relieve 
them of cares and responsibilities. If the land had been 
clear of buildings in 1924, there is no reason to think 
the lessee would not have entered into the same lease on 






—17— 

the same terms. The lessee was only interested in what 
it was getting for its money. The lease names the month- 
ly income as rent, not compensation for old buildings. 

If the petitioners could have made the lease on the same 
terms without the buildings being on the land, and this 
we say, is the only reasonable view to take, then the un- 
depreciated cost of the old buildings can represent nothing 
but a loss to them for which they have received no com- 
pensation. 

Could the petitioners have foreseen in 1917 what was 
to happen in 1924 it is hardly reasonable that they would 
have invested $50,000 in brick structures. What hap- 
pened in 1924 was unforeseen and while on the whole it 
was advantageous, specifically there was a loss. Revenue 
laws operate specifically, not generally. They operate on 
specific items of property and income regardless of the 
general betterment or detriment of the taxpayer's condi- 
tion. For example, suppose a man who had constructed 
a factory was offered a ten year salary contract elsewhere 
which would pay him substantially more than he could 
hope to realize in profit from his factory. He accepts the 
contract, thereby necessitating the complete abandonment 
of his factory. Would this mean that the factory was 
not a loss to him? It is true his economic situation has 
improved, but has there been any specific compensation 
for his loss? Of course, if he had built the factory with 
the view to obtaining the contract the situation would have 
been quite different. The abandonment of the factory 
was a necessary incident in the acceptance of the contract, 
and likewise the demolition of the old buildings in the 
instant case was an incident necessary to the execution of 



—18— 

a long-term lease. But in neither case was the new con- 
tract procured nor influenced by the abandoned or de- 
stroyed asset. In fact, the Board states in its findings 
that "the petitioners received no insurance or other com- 
pensation on the demolition of the buildings", but since 
it has based its opinion upon the decision in the Manning- 
case, which turns almost entirely upon compensation, we 
thought it necessary to discuss the issue more fully. 

Section 202 of the Revenue Act of 1924 provides in 
part as follows: 

"(a) Except as hereinafter provided in this sec- 
tion, the gain from the sale or other disposition of 
property shall be the excess of the amount realized 
therefrom over the basis provided in subdivision (a) 
or (b) of section 204, and the loss shall be the excess 
of such basis over the amount realised. 

Sp 3|£ 2gC 3g* tfg* 2JC 2|C 5{C 

(c) The amount realized from the sale or other 
disposition of property shall be the sum of any money 
received plus the fair market value of the property 
(other than money) received." 

"Such basis" in the instant case means cost which is 
agreed to be $42,215. The "amount realized" under the 
Board's theory would be the cost of the property, the tax- 
payers waiting, however, 99 years to get such cost, that 
being paid at the rate of $426.41 per year without interest. 
Paid in a lump sum in the year 1924, this would mean 
approximately the sum of $7,000.00. In other words, 
what the Board's decision allows to these petitioners is 
the equivalent of $7,000.00 paid to them in the year 1924, 
which means a direct loss to these petitioners of approxi- 
mately $35,000.00. This is the result even under the 
Board's theory of the case, and we submit that it can 



—19- 

hardly be called full compensation. Under our view, 
there was no amount realized for the old buildings, all 
payments made being for rent of the land itself, and the 
full $42,215 was a realized loss in 1924. Section 203 pro- 
vides as follows: 

"(a) Upon the sale or exchange of property the 
entire amount of the gain or loss, determined under 
section 202, shall be recognised, except as hereinafter 
provided in this section. 

(b) (1) No gain or loss shall be recognized if 
property held for productive use in trade or business 
or for investment (not including stock in trade or 
other property held primarily for sale, nor stocks, 
bonds, notes, choses in action, certificates of trust or 
beneficial interest, or other securities or evidences of 
indebtedness or interest) is exchanged solely for 
property of a like kind to be held either for productive 
use in trade or business or for investment, or if 
common stock in a corporation is exchanged solely 
for common stock in the same corporation, or if pre- 
ferred stock in a corporation is exchanged solely for 
preferred stock in the same corporation. * * *" 

(The remaining sub-sections are not pertinent.) The 
Board says that the old buildings are a part of the cost 
of the lease. If so, the building being physical property, 
the transaction cannot be a purchase, so it must be an 
exchange. In fact, the Board terms it a substitution of 
assets, expressly stating that ''instead of an asset in the 
form of buildings, the petitioners now have another asset, 
namely, a lease". Section 203 (a) and (b) above quoted 
clearly provides that the gain or loss from each exchange 
of property shall be recognized unless ''property held for 
productive use for trade or business or for investment is 
exchanged solely for property of a like kind". It can 
hardly be contended that brick buildings and a 99-year 



—20- 

lease are of a like kind. It, therefore, follows that the 
loss to which the petitioners are entitled must be rec- 
ognized in the year 1924. 

The Board in its opinion cites two court decisions, the 
first is that of the Liberty Baking Company v. Heiner, 
37 Fed. (2nd) 703. The facts in that case are that the 
taxpayers bought land for the purpose of enlarging their 
plant and contemplated the demolition of the buildings 
already on the land at the time of the purchase. The case, 
therefore, comes squarely within article 142, above quoted, 
and furnishes no precedent for the instant case. The 
other case, is that of Anahma Realty Corporation v. Com- 
missioner, 42 Fed. (2nd) In that case the taxpayers 

bought the land with the old buildings thereon on January 
30, 1920, and in May, 1920 executed a 21 -year lease which 
was renewable, and pursuant to said lease the old build- 
ings were destroyed in June and July, 1920. The court 
(1) quoted article 142 (above set out) and held it a valid 
regulation and applicable to the case; (2) it referred to 
section 215 (b) of the Revenue Act of 1918 providing 
that there may be no deduction of amounts paid out for 
permanent improvements to property and that no deduc- 
tion could be allowed in the case for that reason; (3) the 
court held that the "long-term lease of the land with the 
rentals as stated was a valuable asset to take the place of 
the demolished buildings". 

As to the first ground, we have already observed that 
article 142 has no application to the instant case. As to 
the second ground, the statute says "any amount paid out 
for new buildings". This could not refer to physical 
properties but only to money, or its equivalent. As to 



-21- 

the third ground, the court clearly states that the demol- 
ished buildings were exchanged for the long-term lease. 
As already pointed out, the only exchanges that are not 
taxable under the statute are those of like properties. 

The Board admits that the demolition of the old build- 
ings taken by itself represents a loss. What its decision 
does then is to spread this loss over a period of 99 years. 
There is no provision in the Revenue law for so spreading 
a loss. The statute says a loss shall be allowed in the 
year in which sustained. 

III. 

It Is Important to Consider That the Petitioners Were 

Filing Their Returns on a Cash Basis. 

There is no contention by the respondent in this case 
that the cash basis is not a proper one to be used by the 
petitioners. Both the decisions of the courts and of the 
Board of Tax Appeals have been very strict in not per- 
mitting taxpayers reporting on a cash basis to deduct any 
amounts or losses in a given year except those actually 
paid out or sustained during that year. They have been 
equally strict in requiring all amounts received to be 
included in the income of the given year. Eckert v. Com- 
missioner, 42 Fed. (2nd), 9 C. C. A. Fidelity Title and 
Trust Company v. Heiner, 34 Fed. (2nd) 350. Osterlich 
v. Lucas, 37 Fed. (2nd) 277 (9 C. C. A.). Appeal of 
Seaboard Oil Company, 1 B. T. A. 1259. It follows that 
the courts and the Board of Tax Appeals should be equally 
strict in permitting taxpayers on a cash basis to deduct 
amounts actually paid out and losses actually sustained 
in the year of payment or loss, and the more so, because 



—22— 

the taxpayers' right to deduct such amounts or losses in 
other years may very properly be questioned. This was 
emphasized by the court in its opinion in Daly v. Ander- 
son, snpi r a, in the following* language: 

"Coming to the second question, the taxpayer had 
the right under the laws to keep his books on a cash 
basis. He did so. 

Section 214 (a) of the Tax Law of 1921 (42 Stat. 
239) provides in part: 

That in computing net income there shall be al- 
lowed as deductions : 

' ( 1 ) All the ordinary and necessary expenses 
paid or incurred during the taxable year in carrying 
on any trade or business'. 

Section 200 of the same law says: 

<* * * Thg terms 'paid or incurred' and 'paid 
or accrued' shall be construed according to the method 
of accounting upon the basis of which the net income 
is computed under section 212 * * *'. 

Section 212 (b) of the same law says: 

'The net income shall be computed * * * in 
accordance with the method of accounting regularly 
employed in keeping the books of such taxpayer 

(3) What the government is entitled to tax is the 
true net income computed as the law allows. 

(4) In the case of taxpayers on a cash basis, that 
is reflected by deducting, from all money receipts 
during the year, all expenditures incurred in business, 
not to mention other deductions not here involved. 
Decisions involving taxpayers on an accrual basis, 
such as American Can Co. v. Bowers, 35 Fed. (2d) 
832, decided by the Circuit Court of Appeals for this 
Circuit, on November 4, 1929, are beside the mark. 
In those cases, of course, accrued deductions must 
march with the taxable year. 



—23- 

The government's complaint, aside from the ques- 
tion of the payment being a capital expenditure above 
disposed of, is, as I understand it, that it is dislocated 
in time, so to speak, and bears no relation to the 
plaintiff's 1923 income. 

In that contention the government is trying to 
change the reading of section 214 (a) of the act so 
that it would read in effect that deductions could only 
be allowed for expenses paid 'for carrying on any 
trade or business during the taxable year'. 

But that is distortion of the meaning of the clause. 
The section in question says : 'Paid * * * dur- 
ing the taxable year in carrying on any trade or 
business'. 

(5) The taxpayers on a cash basis, therefore, 
could not deduct an expense, except in the year when 
it was paid. 

(6) Mr. Daly cannot pro-rate the commission and 
deduct it yearly from the rent for 21 years after 
1931, because he will not have paid it in those years. 
If he made such a deduction, the government would 
properly meet such a claim by saying to him, 'You 
should have deducted it in 1923 when you paid it'. 

But the government can and will tax the whole 
rent as income during the period of the lease. 

It may be that those years will be years of low 
taxes, but, if so, it will be a legitimate incidental ad- 
vantage to Mr. Daly. 

It may be that those years will be high tax years. 
If so, that will be a legitimate incidental advantage 
to the government. 

As to the present question, however, the govern- 
ment cannot have a right to refuse this deduction 



—24- 

now and tax the full rent hereafter. That is what 
their reading of section 214 (a) means. 

The United States cannot have it both ways/' 

In the McNeill case the Board "after careful consider- 
ation" flatly said: 

"If he (owner) incurs any cost in the creation of 
the leasehold estate, he may be entitled to deduct the 
amount thereof from his gross income, but certainly 
not ratably over the term of the lease since such ex- 
pense is for a service in connection with the trans- 
action which is closed when the leasehold is created. 
The lessor is, therefore, in the situation of one who 
pays a commission for a service rendered and in this 
case is within the rule established in dinger Cor- 
poration, 9 B. T. A. 170, which is based on American 
National Company v. U. S., 274 U. S. 99." 

In the dissenting opinion of the Love joy case, four 
members of the Board, speaking of taxpayers on a cash 
basis, who had paid our commissions, spoke as follows : 

"It is not to be presumed that Congress contem- 
plated the spread of an expense of the nature of that 
paid out by the petitioners in 1924 over a series of 
years. Such a method of charging off the expense 
is entirely foreign to the petitioner's method of keep- 
ing her books of account and making her tax returns. 
It needlessly complicates the administration of the 
income tax law. If the petitioner were on an accrual 
basis it might be proper to treat the amount as de- 
ferred expense and then to spread the charge. But 
the petitioner was not on the accrual basis. The in- 
come tax is levied not on economic income but on net 
income, to be determined by the manner prescribed 
in the taxing statutes. In years subsequent to 1924 
the petitioner is not entitled to deduct any part of 
the amount paid by her in 1924 in securing the money 
borrowed." 



—25— 

In reaching its opinion in the instant case the Board 
seems to be persuaded that unless the commissions and 
other expenses paid are spread over the 99-year period 
that the result will not reflect the petitioner's true net 
income. Such an argument is very effectively answered 
by the opinion of the Ninth Circuit in the case of Osterloh 
v. Lucas, 37 Fed. (2d) 277. We quote below a portion of 
the opinion : 

"* * * The method of accounting regularly 
employed by the petitioner is a recognized one within 
the meaning of the act, and should be accepted as 
controlling unless such method does not clearly reflect 
the income. And it is conceded that the deduction 
claimed does not appear on the books of the petitioner 
because of the method of accounting adopted, and that 
for the same reason an unpaid gain or profit would 
not appear. The method of accounting thus adopted 
and recognized will be of little value to either the tax- 
payer or the government, if the former is at liberty 
to go outside of the books to show unpaid losses and 
the latter to show uncollected gains or profits. We 
do not think that either course is permissible. The 
case turns largely upon what is meant by the require- 
ment that the method of accounting shall clearly re- 
flect the income. // this requirement is absolute, it 
is safe to say that books kept on the basis of cash 
received and disbursed will rarely, if ever, reflect the 
true income, because nearly always at the end of a tax 
year accounts due the taxpayer will remain uncollected 
and some of his own obligations will remain unpaid. 
But we do not think that any such literal construction 
was contemplated. In our opinion, all that is meant is 
that the books shall be kept fairly and honestly ; and 
when so kept they reflect the true income of the tax- 
payer within the meaning of the law. In other words, 
the books are controlling, unless there has been an 
attempt of some sort to evade the tax. This construc- 
tion may work to the disadvantage of the taxpayer or 



—26- 

the government at times, but if followed out con- 
sistently and honestly year after year the result in the 
end will approximate equality as nearly as we can 
hope for in the administration of a revenue law." 

The purpose of the accrual basis is to enable each period 
to reflect its true income, but this is not the purpose and 
only rarely the result of the cash receipts and disburse- 
ments method. Although, as the court states, when the 
latter method is followed out consistently and honestly 
year after year the result will approximate equality as 
nearly as can be hoped for. The two methods, however, 
are distinct and separate. There is no reason or justifica- 
tion for merging the two methods, and any tendency to do 
so should be discouraged, for this would only result in con- 
fusion and inequality. Both methods are recognized by 
the revenue laws and the Commissioner of Internal 
Revenue has found no fault with the use by these peti- 
tioners of the cash basis. Possibly the cash basis works 
to the advantage of these petitioners in the years 1924 
and 1925, but doubtless it has worked to their disadvantage 
in other years and will do so in some future years. If 
payment of rent had been expedited so that petitioners 
received two years in advance they would be required to 
report the entire amount in the year in which such rent was 
received. Why should not the same rule apply where 
payment of expenses is expedited? They actually paid 
out in cash in the years 1924 and 1925 for services ren- 
dered the amounts they are claiming as deductions, and 
they actually sustained in 1924 the loss which they claim, 
and the same should be allowed to them in conformity with 
the cash basis provided for by statute. 



-27- 

Conclusion. 

The commission, attorney's fees and tit 1 e insurance 
premium should be allowed as expenses in 1924 and 1925, 
for the petitioners paid them out not to purchase a capital 
asset but as an ordinary and necessary expense in the 
management of their land. The land and not the lease is 
the real income-producing factor. 

II. 

The unextinguished cost of the brick buildings is de- 
ductible as a loss in the year 1924 for the following rea- 
sons: 

(1) The case is clearly not within the provisions of 
Article 142. 

(2) Even though the Board were correct in saying that 
the old buildings were part of the cost of the lease the 
transaction was nevertheless an exchange of unlike proper- 
ties and the statute compels recognition of the loss in the 
year in which such an exchange is made. 

(3) Even though the Board were correct, waiting 99 
years to get back the cost without any interest is not full 
compensation. 

(4) The stipulation of facts and the findings of the 
Board establish that the petitioners sustained a loss of 
$42,215 invested in their buildings for which they have 
received no compensation. 

III. 

The petitioners filed their returns on a cash basis. 

There is no contention that that was not a proper basis 

for them. To those on a cash basis the law allows the 

deduction of amounts paid for services only in the year 



-28- 

in which paid and of losses only in the year in which 
actually sustained. Petitioners paid the amounts claimed 
in 1924 and 1925 and sustained their loss on buildings in 
1924 and should be allowed the deductions in those years 
and not in years in which no payment was made and no 
loss sustained. 

Respectfully submitted, 

M. F. Mitchell, 
1038 Petroleum Securities Bldg., 
Los Angeles, California. 

George G. Witter, 
1002 Petroleum Securities Bldg., 
Los Angeles, California. 

Attorneys for Petitioners. 

Theodore B. Benson, 

Southern Building, Washington, D. C, 
Of Counsel. 



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No. 6427 



In the United States Circuit Court of 
Appeals for the Ninth Circuit 



Mary C. Young, petitionee 

v. 

Commissioner of Internal Revenue, respondent 

and 

Mary Young Moore, petitioner 

v. 

Commissioner of Internal Revenue, respondent 



UPON PETITION TO REVIEW ORDERS OF THE UNITED 
STATES BOARD OF TAX APPEALS 



BRIEF FOR RESPONDENT 



G. A. YOUNGQUIST, 

Assistant Attorney General. 
SEWALL KEY, 
JOHN G. REMEY, 
Special Assistants to the Attorney General. 
C. M. CHABEST, 

General Counsel, Bureau of Internal Revenue, 
W. FBANK GIBBS, 

Special Attorney, Bureau of Internal Revenue, 

Of Counsel. 



FILtD 
DEC i - 1934 



PAUL. P. 



INDEX 



Page 

Previous opinion 1 

Jurisdiction 1 

Questions presented 2 

Statutes and regulations involved 3 

Statement of facts 9 

Summary of argument 13 

Argument: 

I. No deductible loss was sustained by reason of the 
destruction of the petitioners' buildings, demolished 
in order to secure a ninety-nine year lease of the land 
on which they stood; their undepreciated cost 
became a part of the cost of securing the lease and 
may be recovered through annual deductions for 

exhaustion 14 

II. A commission paid to a real estate broker, a fee paid to 
an attorney, and an expenditure made for a certificate 
of title, all made in connection with the effecting of a 
ninetj'-nine year lease, are not deductible in the year 
when made as ordinary and necessary business 
expenses, but such expenditures should be treated as 
a part of the cost of securing said lease, to be deducted 
ratably over the life of the lease, and, in any event, 
these items are not deductible as ordinary and 
necessary expenses since these petitioners have failed 
to show they were made in connection with the 

carrying on of a trade or business 21 

Conclusion 28 

CITATIONS 
Cases : 

Anahma Really Corporation v. Commissioner, 42 F. (2d) 128- 15 

Bonwit-Teller & Co. v. Commissioner, decided August 25, 

1931 24 

Central Bank Block Association v. Commissioner, 19 B. T. A. 

1183 26 

Citrus Soap Co. of California v. Lucas, 42 F. (2d) 372 17 

Corning Glass Works v. Lucas, 37 F. (2d) 798 26 

Daly v. Anderson, 37 F. (2d) 728 26 

Douglas v. Edwards, 298 Fed. 229 22 

Duffy v. Central R. R., 268 U. S. 55 26 

Eysenbach v. Commissioner, 10 B. T. A. 716 17 

First National Bank of Goodland, Kansas, Appeal of, 

5 B. T. A. 1174 17 

George H. Bowman Co. v. Commissioner, 32 F. (2d) 404 26 

87818—31 1 (I) 



n 

Cases — Continued. Page 

Howard v. Commissioner, 19 B. T. A. 865 26 

Hutton v. Commissioner, 39 F. (2d) 459 25 

Laemmle v. Eisner, 275 Fed. 504 26 

Lane Timber Co. v. Hynson, 4 F. (2d) 666 27 

Lansburgh & Brother, Inc., v. Commissioner, 23 B. T. A. 66__ 17 

Liberty Banking Co. v. Heiner, 37 F. (2d) 703 17 

Louis Pizitz Dry Goods Co. v. Commissioner, 22 B. T. A. 161. 17 

Manning v. Commissioner, 7 B. T. A. 286 17 

Maryland Casualty Co. v. United States, 251 U. S. 342 24 

McCoach v. Minehill Railway Co., 228 U. S. 295 27 

McNeill v. Commissioner, 16 B. T. A. 479 26 

National City Bank of Seattle v. United States, 64 Ct. Cls. 236. 26 

National Lead Co. v. United States, 252 U. S. 140 24 

Pelican Bay Lumber Co. v. Blair, 31 F. (2d) 15 15, 16 

Pembroke v. Commissioner, 23 B. T. A. 1175 26 

Pig & Whistle Co. v. Commissioner, 9 B. T. A. 668 17 

Simmons Co. v. Commissioner, 33 F. (2d) 75 26 

Spinks Realty Co. v. Commissioner, 21 B. T. A. 674 17 

Southern Amusement Co., Inc., v. Commissioner, 14 B. T. A. 

300 17 

Southern Pac. R. Co. v. Muenter, 260 Fed. 837 22 

Union Bed & Spring Co. v. Commissioner, 39 F. (2d) 383 17 

United States v. Block 8c Kohner Mercantile Co., 33 F. (2d) 

196 22 

United States v. Emery, 237 U. S. 28 27 

United States v. Nipissing Mines Co., 206 Fed. 431 27 

Von Baumbach v. Sargent Land Co., 242 U. S. 503 27 

Ward v. Commissioner, 7 B. T. A. 1107 17 

Watson v. Commissioner, 15 B. T. A. 422 17 

White v. Hornblower, 27 F. (2d) 777 27 

Statutes : 

Revenue Act of 1924, c. 234, 43 Stat. 253: 

Sec. 214 3 

Sec. 215 3 

Miscellaneous: 

Treasury Department Regulations 33, Par. 108 24 

Treasury Department Regulations 45, Art. 293 24 

Treasury Department Regulations 65: 

Art. 141 4 

Art. 142 4 

Art. 161 5 

Art. 162 6 

Art. 163 6 

Art. 164 7 

Art. 165 8,24 

Art. 292 8,24 

Treasury Department Regulations 69, Art. 292 24 

Treasury Department Regulations 74, Art. 282 24 



In the United States Circuit Court of 
Appeals for the Ninth Circuit 



No. 6427 

Mary C. Young, petitioner 

v. 

Commissioner of Internal Revenue, respondent 

and 

Mary Young Moore, petitioner 

v. 

Commissioner of Internal Revenue, respondent 



UPON PETITION TO REVIEW ORDERS OE THE UNITED 
STATES BOARD OF TAX APPEALS 



BRIEF FOR RESPONDENT 



PREVIOUS OPINION 

The only previous opinion in the present cases 
is that of the United States Board of Tax Appeals 
(R. 54-55), which is reported in 20 B. T. A. 692. 

jurisdiction 

The appeal in the above-entitled cases involves 
deficiencies in income taxes of Mary C. Young for 

(i) 



the years 1924 and 1925 in the amounts of $2,825.63 
and $2,091.21, respectively, and deficiencies in in- 
come taxes of Mary Young Moore for the years 1924 
and 1925 in the amounts of $2,930.06 and $2,117.42, 
respectively, and is taken from decisions of the 
United States Board of Tax Appeals entered Sep- 
tember 10, 1930. (R. 56-57.) These cases are 
brought to this court by petitions for review filed 
January 13, 1931 (R. 58-68), pursuant to the Rev- 
enue Act of 1926, c. 27, Sections 1001, 1002, and 
1003, 44 Stat. 9, 109, 110. 

QUESTIONS PRESENTED 

1. Whether petitioners may deduct in 1924 as a 
loss the net depreciated cost of buildings voluntar- 
ily demolished in that year in order to effect a 
ninety-nine year lease of land on which they stood, 
or whether the net depreciated cost of such demol- 
ished buildings should be treated as a part of the 
cost of such lease to be amortized over the entire 
period thereof. 

2. Whether petitioners may deduct as ordinary 
and necessary expenses (a) an amount paid to a 
real-estate agent as a commission for effecting a 
ninety-nine year lease, (b) amounts paid to an 
attorney as fees for legal services in effecting said 
lease, and (c) amounts paid for a certificate of title 
necessary to effect said lease, or whether said 
amounts are capital expenditures to be ratably 
deducted as the lease is exhausted. 



STATUTES AND REGULATIONS INVOLVED 

Eevenue Act of 1924, c. 234, 43 Stat. 253: 

Sec. 214. (a) In computing net income 
there shall be allowed as deductions : 

(1) All the ordinary and necessary ex- 
penses paid or incurred during the taxable 
year in carrying on any trade or business, 



(4) Losses sustained during the taxable 
year and not compensated for by insurance 
or otherwise, if incurred in trade or busi- 
ness; 

(5) Losses sustained during the taxable 
year and not compensated for by insurance 
or otherwise, if incurred in any transaction 
entered into for profit, though not connected 

with the trade or business ; * * * . 

* * * •* * 

(8) A reasonable allowance for the ex- 
haustion, wear and tear of property used in 
the trade or business, including a reasonable 
allowance for obsolescence; * * *. 

Sec. 215. (a) In computing net income no 
deduction shall in any case be allowed in 

respect of — 

* * * * * 

(2) Any amount paid out for new build- 
ings or for permanent improvements or bet- 
terments made to increase the value of any 
property or estate ; 

(3) Any amount expended in restoring 
property or in making good the exhaustion 



thereof for which an allowance is or has 
been made ; * * * . 

Treasury Department Regulations 65, promul- 
gated under the Revenue Act of 1924 : 

Art. 141. Losses. — Losses sustained during 
the taxable year and not compensated for by 
insurance or otherwise are fully deduc- 
tible * * * if (a) incurred in a tax- 
payer's trade or business, or (b) incurred in 
any transaction entered into for profit, or 
(c) arising from fires, storms, shipwreck, or 
other casualty, or theft. They must usually 
be evidenced by closed and completed trans- 
actions. The basis for determining the 
amount of the deduction for losses is the same 
as is provided in section 204 for determining 
the gain or loss from the sale or other dispo- 
sition of property. See articles 1591-1603. 
Proper adjustment must be made in each 
case for expenditures properly chargeable to 
capital account, and for items of loss, de- 
preciation, obsolescence, amortization, or de- 
pletion, previously allowed with respect to 
the property. Moreover, the amount of the 
loss must be reduced by the amount of any 
insurance or other compensation received, 
and by the salvage value, if any, of the 
property. See articles 1579 and 1580. A 
loss on the sale of residential property is 
not deductible unless the property was pur- 
chased or constructed by the taxpayer with 
a view to its subsequent sale for pecuniary 
profit. * * * 

Art. 142. Voluntary removal of build- 
ings. — Loss due to the voluntary removal or 



demolition of old buildings, the scrapping of 
old machinery, equipment, etc., incident to 
renewals and replacements will be deductible 
from gross income. When a taxpayer buys 
real estate upon which is located a building, 
which he proceeds to raze with a view to 
erecting thereon another building, it will be 
considered that the taxpayer has sustained 
no deductible loss by reason of the demoli- 
tion of the old building, and no deductible 
expense on account of the cost of such re- 
moval, the value of the real estate, exclusive 
of old improvements, being presumably 
equal to the purchase price of the land and 
building plus the cost of removing the use- 
less building. 

Art. 161. Depreciation. — A reasonable al- 
lowance for exhaustion, wear and tear, and 
obsolescence of property used in the trade 
or business may be deducted from gross in- 
come. For convenience such an allowance 
will usually be referred to as depreciation, 
excluding from the term any idea of a mere 
reduction in market value not resulting from 
exhaustion, wear and tear, or obsolescence. 
The proper allowance for such depreciation 
of any property used in the trade or busi- 
ness is that amount which should be set aside 
for the taxable year in accordance with a 
reasonably consistent plan (not necessarily 
at a uniform rate), whereby the aggregate of 
the amounts so set aside, plus the salvage 
value, will, at the end of the useful life of 
the property in the business, equal the basis 



of the property determined in accordance 
with section 204 and articles 1591-1603. Due 
regard must also be given to expenditures 
for current upkeep. 

Akt. 162. Depreciable property. — The ne- 
cessity for a depreciation allowance arises 
from the fact that certain property used 
in the business gradually approaches a 
point where its usefulness is exhausted. The 
allowance should be confined to property of 
this nature. In the case of tangible prop- 
erty, it applies to that which is subject to 
wear and tear, to decay or decline from nat- 
ural causes, to exhaustion, and to obsoles- 
cence due to the normal progress of the art, 
as where machinery or other property must 
be replaced by a new invention, or due to 
the inadequacy of the property to the grow- 
ing needs of the business. It does not apply 
to inventories or to stock in trade, nor to 
land apart from the improvements or physi- 
cal development added to it. * * * The 
deduction of an allowance for depreciation 
is limited to property used in the taxpayer's 
trade or business. * * * 

Art. 163. Depreciation of intangible prop- 
erty. — Intangibles, the use of which in the 
trade or business is definitely limited in 
duration, may be the subject of a deprecia- 
tion allowance. Examples are patents and 
copyrights, licenses, and franchises. Intan- 
gibles, the use of which in the business or 
trade is not so limited, will not usually be a 
proper subject of such an allowance. If, 



however, an intangible asset acquired through 
capital outlay is known from experience to 
be of value in the business for only a limited 
period, the length of which can be estimated 
from experience with reasonable certainty, 
such intangible asset may be the subject of a 
depreciation allowance, provided the facts 
are fully shown in the return or prior thereto 
to the satisfaction of the Commissioner. 

Art. 164. Capital sum recoverable through 
depreciation allowances. — The capital sum 
to be replaced by depreciation allowances is 
the cost or other basis of the property in 
respect of which the allowance is made. See 
article 1602. To this amount should be 
added from time to time the cost of improve- 
ments, additions, and betterments, the cost 
of which is not deducted as an expense in the 
taxpayer 7 s return, and from it should be de- 
ducted from time to time the amount of any 
definite loss or damage sustained by the 
property through casualty, as distinguished 
from the gradual exhaustion of its utility 
which is the basis of the depreciation allow- 
ance. In the case of the acquisition on or 
after March 1, 1913, of a combination of de- 
preciable and nondepreciable property for a 
lump price, as, for example, buildings and 
land, the capital sum to be replaced is lim- 
ited to an amount which bears the same pro- 
portion to the lump price as the value of 
the depreciable property at the time of ac- 
quisition bears to the value of entire prop- 
erty at that time. Where the lessee of real 

87818—31- 2 



8 

property erects buildings, or makes perma- 
nent improvements which become part of 
the realty and income or loss has been re- 
turned by the lessor as a result thereof, as 
provided in article 48, the capital sum to be 
replaced by depreciation allowances is held 
to be the same as though no such buildings 
had been erected or such improvements 
made. * * * 

Art. 165. Method of computing deprecia- 
tion allowance. — The capital sum to be re- 
placed should be charged off over the useful 
life of the property, either in equal annual 
installments or in accordance with any other 
recognized trade practice, such as an appor- 
tionment of the capital sum over units of 
production. Whatever plan or method of 
apportionment is adopted must be reason- 
able and must have due regard to operating 
conditions during the taxable period. While 
the burden of proof must rest upon the tax- 
payer to sustain the deduction taken by him, 
such deductions must not be disallowed un- 
less shown by clear and convincing evidence 
to be unreasonable. The reasonableness of 
any claim for depreciation shall be deter- 
mined upon the conditions known to exist at 
the end of the period for which the return is 
made. 

Art. 292. Capital expenditures. — Amounts 
paid for increasing the capital value or for 
making good the depreciation (for which a 
deduction has been made) of property are 



not deductible from gross income. See sec- 
tion 214 (a) (8) of the statute and article 
161. * * * The cost of defending or 
perfecting title to property constitutes a 
part of the cost of the property and is not a 
deductible expense. The amount expended 
for architect's services is part of the cost of 
the building. Commissions paid in pur- 
chasing securities are a part of the cost 
price of such securities. Commissions paid 
in selling securities are an offset against the 
selling price. * * * 

STATEMENT OF FACTS 

Upon motion of petitioners' attorney these cases 
were consolidated for hearing before the United 
States Board of Tax Appeals (R. 43), and the facts 
were stipulated and agreed to by counsel (R. 45- 
49), from which stipulation the Board found the 
facts to be as follows (R. 51-54) : 

Mary Young Moore is the daughter of 
Mary C. Young. They both reside at 1001 
South Hoover Street, Los Angeles, Califor- 
nia. They are joint owners of certain land 
in the City of Los Angeles, California, and 
located at the Southeast corner of Seventh 
and Figueroa Streets, extending East on 
Seventh Street to the Southwest corner of 
Flower and Seventh Streets. The peti- 
tioners are equal owners. 

During the years 1917 and 1918 the peti- 
tioners erected on this land several brick 



10 

store buildings at a cost of $50,000. These 
buildings were rented or for rent until their 
demolition. 

In 1924 a lease for the term of ninety-nine 
years was entered into by the petitioners 
with the Sun Realty Company, whereby the 
brick buildings erected during 1917 and 1918 
should be demolished and a new building 
erected to be occupied by Barker Brothers. 
The buildings were demolished in 1924. 

The full amount of the depreciation sus- 
tained on the brick store buildings, from the 
time of erection to the time of demolition in 
1924, was $7,785, and the undepreciated cost 
thereof to the petitioners at the time of 
demolition was $42,215. 

The buildings were not salvaged or other- 
wise disposed of, and the petitioners re- 
ceived no insurance or other compensation 
on the demolition of the buildings. 

Each of the petitioners, in her income-tax 
return for the year 1924, claimed a deduction 
in the amount of $21,107.50, representing her 
one-half of the undepreciated cost. These 
deductions were disallowed by the respond- 
ent and the sum of $21,107.50 was added back 
to the income of each of the petitioners. 

On October 1, 1924, the petitioners granted 
a ground lease of the premises at Seventh 
and Figueroa Streets to the Sun Realty 
Company for a period of ninety-nine years, 
on the basis of a monthly rental of $10,000 
from October 1, 1924, to June 30, 1926, and 



11 

of a monthly rental of $20,000 thereafter 
until the end of the term of the lease. This 
lease was obtained for the petitioners by a 
real estate agent who charged as his commis- 
sion therefor the sum of $50,500, which com- 
mission was paid during the years 1924 and 
1925. During the year 1924 there was paid 
$21,500, and the sum of $29,000 was paid dur- 
ing the year 1925. These amounts were paid 
by the petitioners in equal sums and each 
paid $10,750 in 1924 and $14,500 in 1925 

Each of the petitioners claimed as a deduc- 
tion in her income-tax return for 1924 the 
sum of $10,750, representing the amount 
actually paid by her to the real estate agent 
during that year. These deductions were 
disallowed by the Commissioner. 

In addition to the commission paid to the 
real estate agent, the petitioners were re- 
quired to pay attorneys' fees in the amount 
of $5,500, and the expense of obtaining cer- 
tificate of title in the amount of $4,502.85. 

Each petitioner, in her income tax return 
for 1924, claimed a deduction in the amount 
of $2,750, being one-half of the attorneys' 
fees, and a deduction in the amount of 
$2,251.43, being one-half of the cost of ob- 
taining certificate of title. These deductions 
were disallowed by the respondent. 

The respondent considered the loss sus- 
tained on the demolition of the brick build- 
ings to be a capital loss and further consid- 
ered the sums expended by the petitioners 



12 

as commissions, attorneys' fees and cost of 
obtaining certificate of title, to be capital ex- 
penditures to be amortized and deducted 
over the term of the lease, and as a result 
thereof allowed a deduction to each of the 
petitioners for the year 1924 in the amount 
of $513.59. 

In his adjustment of the income of the 
petitioners for the year 1925, the respondent 
disallowed the deduction claimed by each in 
the amount of $14,500, representing the sum 
paid by each as commission to the real estate 
agent in 1925, and allowed a deduction for 
amortization of the cost of the lease in the 
amount of $513.59. 

Each of the petitioners kept her books and 
rendered her income tax returns for the 
years 1924 and 1925 on the basis of cash 
receipts and disbursements. 

The Board held that the petitioners were not en- 
titled to deduct the unextinguished cost of the build- 
ings demolished in order to obtain a ninety-nine 
year lease upon the land upon which they were 
erected, and that such extinguished cost should be 
exhausted over the term of the lease. The Board 
also held that the amount paid as a commission to 
a real estate agent for his services in effecting a 
ninety-nine year lease of the property, amounts 
paid to an attorney as fees for legal services in con- 
nection with said lease, and amounts paid for a 
certificate of title which was necessary to effect 



13 

said lease were capital expenditures, to be ratably 
deducted as the lease is exhausted. (R. 54-55.) 
The Board entered separate orders of rede- 
termination against the petitioners (R. 56-58), 
from which orders of redetermination this petition 
for review has been filed (R. 58-68). 

SUMMARY OF ARGUMENT 

Petitioners owned land with brick buildings 
thereon and in 1924 demolished the buildings as a 
necessary incident to the acquisition of a long-term 
lease. Under these circumstances, the undepreci- 
ated cost of the demolished buildings is not a de- 
ductible loss. The result of the transaction was 
merely that the taxpayers had a new building on 
their land in lieu of the old buildings and in addi- 
tion had secured a valuable lease on terms which 
otherwise would have been impossible. There was 
merely a substitution of assets and no loss has been 
shown, because of such substitution. The unde- 
preciated cost of the old building constitutes a part 
of the cost of securing the lease ; that is, a capital 
expenditure which should be recovered through 
annual deductions spread over the term of the 
lease. 

The various amounts expended by the petitioners 
were paid in connection with the procuring of a 
ninety-nine year lease, which is a capital asset, and, 
therefore, are not deductible in computing net 
income. 



14 

ARGUMENT 
I 

No deductible loss was sustained by reason of the 
destruction of the petitioners' buildings, demolished in 
order to secure a ninety-nine year lease of the land on 
which they stood; their undepreciated cost became a 
part of the cost of securing the lease and may be 
recovered through annual deductions for exhaustion 

The petitioners were the owners of certain real 
estate in the City of Los Angeles, California, and 
during 1917 and 1918 they erected thereon several 
brick store buildings at a cost of $50,000. (R. 51.) 
In 1924 they entered into an agreement with the 
Sun Realty Company wherein it was agreed that 
these buildings were to be demolished and a new 
building was to be erected which was to be leased 
to Barker Brothers for ninety-nine years at an 
agreed rental. The brick store buildings were 
demolished in 1924 and each petitioner claims 
one-half of the depreciated cost, which in 1924 
amounted to $42,215. In other words, each peti- 
tioner claims a loss of $21,107.50 in 1924 on account 
of the demolition of the brick store buildings. 

Respondent urges that the removal of the build- 
ings was a part of the cost of acquiring a lease and 
that the cost of acquiring an asset cannot be re- 
garded as a loss. The statute expressly provides 
that in computing net income no deduction shall 
in any case be allowed in respect of any amount 
paid out for new buildings or for permanent im- 



15 

provements or betterments made to increase the 
value of any property or estate. Section 215, 
supra. 

The case of Anahma Realty Corporation v. Com- 
missioner (C. C. A. 2nd), 42 F. (2d) 128, certiorari 
denied, 282 U. S. 854, is directly in point. The 
court said (p. 130) : 

Under the provisions of the lease, appel- 
lant's lessee, at its own expense, was obliged 
to replace the buildings demolished with a 
new office building which became the prop- 
erty of the appellant at the end of the term. 
While section 234 (a) of the Revenue Act of 
1918 permits the deduction of losses sus- 
tained during the taxable years, the appel- 
lant did not sustain a loss. Pelican Bay 
Lumber Co. v. Blair (C. C. A. 1929), 31 F. 
(2d) 15. The removal of the buildings was 
a part of the cost of acquiring the lease, and 
with it came the obligation of the tenant to 
pay the rent. The cost of acquiring an asset 
can not be regarded as deductible as a loss 
or business expense for the year in which it 
is paid or incurred. Moreover, section 215 
(b) of the Revenue Act of 1918 provides that 
there may be no deduction for any amount 
paid out for new buildings or for permanent 
improvements or betterments to increase 
the value of any property or estate, and, as 
the asset acquired was a long-term lease, 
which provided an obligation to pay stipu- 
lated rentals and erect a new building in 



16 

place of the building demolished, there may 
be no deduction allowed. There was neces- 
sarily contained in the lease permission on 
the part of the appellant to permit the lessee 
to destroy the old buildings. The acquisition 
of something from, which income will be de- 
rived in, the future has a value in money's 
worth in the same sense as something which 
will produce income in praesenti ; there was 
a compensating value for the loss of the 
buildings which must be recognized as hav- 
ing money's worth. There was a substitu- 
tion of assets rather than a loss sustained in 
the destruction of the buildings. 

The case of Pelican Bay Lumber Co. v. Blair, 
cited by the Circuit Court of Appeals for the Sec- 
ond Circuit, was decided by this Court. The situ- 
ation in that case, while not identical, is analogous 
in principle to the instant case. This Court held 
that where an amount of the taxpayer's lumber- 
ing plant constructed at a cost of $124,641.25 was 
destroyed by fire, and the taxpayer collected insur- 
ance in the sum of $164,832.64, realized salvage 
in the sum of $1,267.68, and constructed a new unit 
substantially a duplication of the old at a cost of 
$315,816.95, there was no deductible loss sustained 
but that the difference between the insurance re- 
ceived and the cost of the new mill should be 
capitalized. 

Had petitioners voluntarily demolished the 
buildings without obtaining in substitution a 



17 

valuable asset, they undoubtedly would have sus- 
tained a deductible loss. Article 142, Regulations 
65, supra; Citrus Soap Co. of California v. Lucas 
(C C. A. 9th), 42 F. (2d) 372; Appeal of First 
National Bank of Goodland, Kansas, 5 B. T. A. 
1174. Of course if land and buildings thereon are 
purchased with the purpose of demolishing the 
buildings to erect in their place another building, 
no loss is sustained on account of the demolition of 
the old buildings. Liberty Banking Co. v. Heiner 
(CCA. 3d), 37 P. (2d) 703 ;Lansburghd Brother, 
Inc., v. Commissioner, 23 B. T. A. 66. In such 
cases the true test is the intention of the taxpayer. 
Union Bed& Spring Co. v. Commissioner (C C A. 
7th), 39 F. (2d) 383; Watson v. Commissioner, 15 
B. T. A. 422; Southern Amusement Co., Inc. v. 
Commissioner, 14 B. T. A. 300; Louis Pizitz Dry 
Goods Co. v. Commissioner, 22 B. T. A. 161. Here 
the result of the transactions was that the peti- 
tioners had erected on their land a new office build- 
ing, and that they leased the property for a ninety- 
nine year lease on terms which could not have been 
made so long as the old brick store buildings re- 
mained thereon. In other words, the demolition 
and removal of the buildings were a part of the cost 
of acquiring the ninety-nine year lease and with it 
the obligation of the tenant to pay the rent pro- 
vided in the lease. The removal of the old build- 
ings and the erection of a new building was made a 



18 

part of the lease agreement. (R. 46.) Before the 
new building was to be erected and the tenant was 
to assume the obligation to pay rent, there was an 
obligation upon these petitioners to demolish the 
old buildings, and, therefore, the unextinguished 
cost of the old buildings at the time of their de- 
struction constituted a part of the cost of securing 
a tenant on advantageous terms, and is not deduct- 
ible as a loss sustained. The Board of Tax Ap- 
peals has consistently so held. In Manning v. 
Commissioner, 7 B. T. A. 286, the Board said (pp. 
289-290) : 

While no provision was made in the lease 
as to the buildings then on the land, the very 
nature of the building to be erected made it 
necessary for the existing structures to be 
torn down. The razing of the buildings was 
agreed upon at the time of the execution of 
the lease. The petitioners gave the lessee 
the option of tearing down the old buildings 
and retaining the salvage as compensation 
for its work in their destruction, or the peti- 
tioners agreed to demolish them and keep 
the salvage. The lessee agreed to demolish 
and remove the buildings on the terms of- 
fered. The cost to petitioners allocable to 
these structures which were demolished was 
$26,000. The question is whether a deducti- 
ble loss of this cost less depreciation was sus- 
tained through demolition. 

Prior to the execution of the lease the peti- 
tioners had land and buildings from which 



19 

they were deriving income in the form of 
rent, and also land. After the execution of 
the lease, they had only the land and were 
lessors under a more advantageous lease than 
they formerly had. Did they part with the 
buildings, without receiving compensation 
therefore, quid pro quo f That the lease in 
question was a favorable one is admitted by 
the petitioners and that they improved their 
position thereby is shown by the fact that 
their rentals were substantially greater 
under the new lease than those being re- 
ceived prior to October 31, 1921, from the 
old buildings. But the petitioners say that 
they could not have been compensated in 1921 
under the lease for the loss since they did 
not begin to receive rentals thereunder until 
1922. We are not impressed by the logic 
of this argument. The acquisition of some- 
thing from which income will be derived in 
futuro has a value in money's worth in the 
same sense as something which will produce 
income in praesenti. The value may differ 
on this account, but this does not alter the 
fact that each has a compensating value 
which may be recognized as having money's 
worth. 

Taken by itself, the petitioners undoubt- 
edly would be said to have sustained a loss 
in the demolition of their buildings, but 
when considered in connection with the en- 
tire transaction entered into on Octo- 
ber 31, 1921, the Board is of the opinion 
that the removal of the buildings was fully 



20 

compensated for in the rights acquired un- 
der the lease and that the cost of the build- 
ings, less sustained depreciation, is properly 
allocable to the cost of securing the lease. 
In other words, there was in this instance 
what amounted to a substitution of assets; 
instead of an asset in the form of buildings, 
the petitioners now have another asset, viz, 
a lease, the giving up or voluntary destruc- 
tion of the buildings being a necessary in- 
cident to the acquisition of the lease. 

See also Ward v. Commissioner, 7 B. T. A. 1107 ; 
Eysenbach v. Commissioner, 10 B. T. A. 716; Pig 
& Whistle Co. v. Commissioner, 9 B. T. A. 668; 
Spinks Realty Co. v. Commissioner, 21 B. T. 
A. 674. 

The contention that there was an exchange of 
the demolished buildings for the lease is without 
merit. No exchange occurred. The buildings were 
demolished to clear the land so as to enable the 
petitioners to grant a ground-lease of the premises 
to the Sun Realty Company. The demolition of 
the buildings was a necessary incident in this trans- 
action and whatever value remained in the build- 
ings represented what petitioners were willing to 
pay to secure the lease. 

In view of the foregoing, it is our contention that 
these petitioners sustained no deductible loss when 
the old buildings were removed. 



21 

II 

A commission paid to a real-estate broker, a fee paid to 
an attorney, and an expenditure made for a certificate 
of title, all made in connection with the effecting of a 
ninety-nine year lease, are not deductible in the year 
when made as ordinary and necessary business expenses, 
but such expenditures should be treated as a part of 
the cost of securing said lease, to be deducted ratably 
over the life of the lease, and, in any event, these items 
are not deductible as ordinary and necessary expenses 
since these petitioners have failed to show they were 
made in connection with the carrying on of a trade or 
business 

The petitioners advance the argument that since 
they kept their books and rendered their income- 
tax returns for the years 1924 and 1925 on the basis 
of cash receipts and disbursements, these expendi- 
tures are deductible in the years when paid as 
ordinary and necessary business expenses. 

It is obvious that while Section 212 (b) recog- 
nizes different systems of accounting and provides 
that the tax shall be computed in accordance with 
the method of accounting regularly employed by 
the taxpayer in keeping its books, if such method 
clearly reflects the income, that provision does not 
authorize a taxpayer to take any deductions not 
authorized by law. This section does not under- 
take to provide the deductions which may be al- 
lowed, but simply prescribes generally the method 
to be used in taking deductions which are allowable 
from gross income. The deductions allowable in 
computing net income are enumerated elsewhere in 



22 

the statute and Section 212 (b) merely provides 
the method of computation. If a taxpayer deducts 
from gross income items which are not allowable 
deductions under the Act, even though his doing so 
may be in accordance with his method of account- 
ing regularly employed in keeping books, the net 
income would not be clearly reflected, and in ac- 
cordance with the provisions of Section 212 (b) the 
Commissioner would be required to determine it 
in accordance with a method which does clearly 
reflect income. Bookkeeping entries are not 
conclusive. Douglas v. Edwards, 298 Fed. 229; 
Southern Pac. R. Co. v. Muenter, 260 Fed. 837; 
United States v. Block & Kohner Mercantile Co., 
33 F. (2d) 196. 

In the instant case the right to claim a deduction 
for a commission paid to a real-estate broker, attor- 
ney fees and fees for securing a certificate of title, 
all made to secure a ninety-nine year lease, is pred- 
icated upon the claim that they constitute " ordi- 
nary and necessary expenses paid * * * in 
carrying on * * * business" within the mean- 
ing of Section 214 (a) (1) of the Revenue Act of 
1924, supra. This particular section makes specific 
provisions for the deduction of ordinary and neces- 
sary expenses paid or incurred in carrying on a 
business, but makes no provision for the deduction 
of capital expenditures. These taxpayers do not 
prove their right to deduct these expenditures 
merely by showing that they kept their books and 



23 

made their income-tax returns upon the basis of 
cash received and disbursements made during the 
taxable years in question. That fact is not relevant 
for the method of keeping accounts does not go to 
the question whether an outlay is an expense or a 
capital item. 

Article 292 of Regulations 65, supra, adopted 
for the enforcement of the Revenue Act of 1924, 
enumerates several examples where specific expen- 
ditures are not deductible since they represent 
capital expenditures. It being practically impos- 
sible to set forth the entire field of capital expendi- 
tures in a Treasury Regulation, yet a sufficient 
number are enumerated to show that any expendi- 
ture made in connection with the acquisition of a 
capital asset is not deductible. For instance, this 
Article provides that " amounts expended for se- 
curing a copyright and plates, which remain the 
property of the person making the payments, are 
investments of capital. The cost of defending or 
perfecting title to property constitutes a part of 
the cost of the property and is not a deductible ex- 
pense. The amount expended for architect's serv- 
ices is part of the cost of the building. Commis- 
sions paid in purchasing securities are a part of 
the cost price of such securities." This same con- 
struction of the statute with reference to the deduc- 
tion of such items from gross income ha<s been 
given by the Commissioner in the Regulations pro- 
mulgated under each revenue act since the adoption 



24 

of the income tax amendment. See Paragraph 
108, Regulations 33; Article 293, Regulations 45; 
Article 292, Regulations 65; Article 292, Regula- 
tions 69 ; Article 282, Regulations 74. And again, 
attention is called to the well-settled rule of statu- 
tory construction that where a statute has been con- 
strued for a long period of time as having a certain 
meaning, a reenactment of that statute without 
change indicates legislative sanction of such con- 
struction. It is equally well settled that the con- 
struction of a doubtful statute adopted and long 
enforced by the officers charged with its admin- 
istration will be given great weight by the courts. 
Maryland Casualty Co. v. United States, 251 U. S. 
342; National Lead Co. v. United States, 252 U. S. 
140. 

The distinction drawn by the Treasury Regula- 
tions between business expenses and expenditures 
incurred in the acquisition of a capital asset has 
been upheld in the Federal courts. A case directly 
in point is Bonwit-Teller & Co. v. Commissioner 
(C. C. A. 2nd), decided August 25, 1931, in which 
it was held that a $20,000 fee paid as a commission 
to a real estate broker for securing a sub-tenant for 
a long term was a capital expenditure. The court 
said : 

In effect the lessor exchanges the leasehold 
estate for the lessee's obligations, and pays 
a broker a fee for negotiating the exchange. 
Whether the fee be deemed part of the cost 
of acquiring an exhaustible capital asset, or 



25 

be deemed a business " expense" to be allo- 
cated to the appropriate year (the taxpayer 
keeping its books on the accrual basis) it 
would seem that truly to reflect annual in- 
come such a fee should be spread over the 
term of the lease rather than charged 
against the first year's income. 

By payment of the commission petitioners ac- 
quired a new productive asset in the form of a 
lease, an income-producing asset. It is settled law 
that any expenditure to acquire an asset which is 
income-producing over a number of years is a cap- 
ital expenditure. 

The payments here are very similar to commis- 
sions paid to brokers in connection with the pur- 
chase of securities, and attention is called to the 
case of Hutton v. Commissioner (C. C. A. 5th), 39 
F. (2d) 459. The court said (p. 460) : 

The petitioner can derive no right to 
charge the commissions to expenses from her 
method of keeping books, unless they clearly 
reflect the income. It has been a settled rule 
of the Treasury Department that commis- 
sions paid in purchasing securities are a cap- 
ital expenditure as part of the cost price of 
the securities. This ruling has uniformly 
been approved by the Board of Tax Appeals. 
We are not referred to any controlling de- 
cision to the contrary nor to any decision 
that is persuasive. The rule is fair and rea- 
sonable. It is clear that the taxpayer suf- 
fers no hardship by the rule, as the com- 



26 

mission paid in purchasing the securities 
may be deducted from the profits or added 
to the losses when the securities are eventu- 
ally sold. 

See also Simmons Co. v. Commissioner (C. C. A. 
1st), 33 F. (2d) 75, certiorari denied, 280 U. S. 
588; Corning Glass Works v. Lucas, 37 F. (2d) 
798; Duffy v. Central R. R., 268 U. S. 55; George 
H. Bowman Co. v. Commissioner (App. D. C), 32 
F. (2d) 404; Laemmle v. Eisner, 275 Fed. 504; 
National City Bank of Seattle v. United States, 64 
Ct. Cls. 236, certiorari denied, 276 U. S. 620. 

The Board has not been consistent in its deci- 
sions but it has recently in a number of cases 
adhered to the position contended for by the re- 
spondent. See cases cited in Bonwit-Teller & Co., 
supra, and Central Bank Block Association v. 
Commissioner, 19 B. T. A. 1183 ; Pembroke v. Comv 
missioner, 23 B. T. A. 1175. 

Respondent concedes that the decision of the 
District Court in Daly v. Anderson, 37 F. (2d) 728, 
is to the contrary. The court decided the case on 
the authority of McNeill v. Commissioner, 16 B. T. 
A. 479, and Howard v. Commissioner, 19 B. T. A. 
865. But these cases the Board subsequently over- 
ruled. Furthermore the Daly case was referred to 
by the Circuit Court of Appeals for the Second 
Circuit in the Bonwit-Teller case and was there dis- 
regarded. Aside from this reference it has not 
been cited in any other Federal court decision. 



27 

Finally, these amounts are not deductible in any 
event under the provisions of Section 214 (a) (1) 
of the Revenue Act of 1924, since they were not 
made in connection with the carrying on of a trade 
or business. The Board of Tax Appeals made no 
finding that these petitioners were engaged in a 
trade or business, these petitioners do not allege 
they were carrying on a trade or business, the an- 
swers filed do not admit this essential fact, the 
stipulation of facts make no reference to it, and 
no error set forth in this petition that the 
Board failed to find they were carrying on a 
trade or business. The record only shows 
that these petitioners in 1917 or 1918 erected 
several brick store buildings on the land, and 
in 1924 entered into a lease agreement which 
called for the demolition of these buildings and the 
erection of a new building to be leased for ninety- 
nine years. These events are isolated transactions 
and are not sufficient to base a finding that these 
petitioners were engaged in a trade or business. 
United States v. Emery, 237 U. S. 28 ; McCoach v. 
Minehill Railway Co., 228 U. S. 295 ; Von Baum- 
lach v. Sargent Land Co., 242 U. S. 503 ; White v. 
Hornblower (C. C. A. 1st), 27 F, (2d) 777; United 
States v. Nipissing Mines Co. (C. C. A. 2nd), 206 
Fed. 431; Lane Timber Co. v. Hynson (C. C. A. 
5th), 4 F. (2d) 666. 

As the court pointed out in the Button case, these 
petitioners suffer no hardship and the amounts ex- 



28 

pended will be amortized over the life of the lease, 
or in case of a sale of the property will be added 
to the cost of the property. Each year as the lease 
is exhausted these amounts will be ratably de- 
ducted, or in case of sale, the amount of profit will 
be lessened or a deductible loss will be increased 
since these amounts would be added to the basic 
cost of the property. 

CONCLUSION 

In view of the fact that the determination of the 
Board of Tax Appeals is in accord with regula- 
tions of the Treasury Department which are based 
upon a reasonable construction of the statute and 
have received the implied approval of Congress, it 
is submitted the decision of the Board should be 

affirmed. 

G. A. Youngqitist, 

Assistant Attorney General. 
Sew all Key, 
John G. Eemey, 
Special Assistants to the Attorney General. 
C. M. Charest, 

General Counsel, 

Bureau of Internal Revenue. 
W. Prank Gibbs, 

Special Attorney, 

Bureau of Internal Revenue, 

Of Counsel. 
November, 1931. 

U. S. GOVERNMENT PRINTING OFFICE: 18 Jt 



No. 6545 



(tttrnttt (Emtrf nf Apjmtte 

3far tip Nttttlj (tirratt. 



In the Matter of the Application of VICTORIA 
WARD to Register and Confirm Title to 
Certain Land Situate at Kewalo, Honolulu, 
Oahu, Territory of Hawaii, 

HATTIE KULAMANU WARD, LUCY KAIAKA 
WARD and VICTORIA KATHLEEN 
WARD, 

Appellants, 

vs. 

CITY AND COUNTY OF HONOLULU, a Muni- 
cipal Corporation, 

Appellee. 



Upon Appeal from the Supreme Court of the Territory of 

Hawaii. 

/-F-HLED 

Filmer Bros. Oo. Print, 330 Jackson St., S. F„ Oal. 



No. 654S 



MnxUh BtnttB 

(Etrrwf ffimtri of Kppml* 

3far tip 5ftntl| (Strrutt. 



In the Matter of the Application of VICTORIA 
WAED to Register and Confirm Title to 
Certain Land Situate at Kewalo, Honolulu, 
Oahu, Territory of Hawaii, 

HATTIE KULAMANU WARD, LUCY KAIAKA 
WARD and VICTORIA KATHLEEN 
WARD, 

Appellants, 

vs. 

CITY AND COUNTY OF HONOLULU, a Muni- 
cipal Corporation, 

Appellee. 



Upon Appeal from the Supreme Court of the Territory of 

Hawaii. 



Filmer Bros. Co. Print, 330 Jackson St., S. F., Cal. 



INDEX TO THE PRINTED TRANSCRIPT OP 

RECORD. 



[Clerk's Note: When deemed likely to be of an important nature, 
errors or doubtful matters appearing in the original certified record are 
printed literally in italic; and, likewise, cancelled matter appearing in 
the original certified record is printed and cancelled herein accord- 
ingly. When possible, an omission from the text is indicated by 
printing in italic the two words between which the omission seems to 
occur.] 

Page 
Answer and Eeturn of Hattie Kulamanu Ward, 
Lucy Kaiaka Ward and Victoria Kathleen 

Ward (No. 670) 7 

Assignment of Errors (No. 1989) 38 

Certificate of Clerk of the Supreme Court of the 
Territory of Hawaii to Transcript of Rec- 
ord (No. 1989) 49 

Citation on Appeal (No. 1989) 44 

Cost Bond (No. 1989) 42 

Decree (No. 670) 16 

Decision on Shov/ Cause Order (No. 670) 14 

Demurrer to Answer and Return of Hattie 
Kulamanu Ward, Lucy Kaika Ward and 
Victoria Kathleen Ward (No. 670) 11 

EXHIBITS : 

Exhibit " A "—Deed Dated July 17, 1928, 
Victoria Ward to Hattie Kulamanu 

Ward et al 4 

Hearing on Order to Show Cause on Petition of 
the City and County of Honolulu for Issu- 
ance of Certificate of Title upon Final 
Order of Condemnation (No. 670) 19 



ii Hattie Kulamanu Ward et al. vs. 

Index. Page 

Hearing (Continued — September 6, 1930) (No. 

670) 20 

Hearing (Continued — September 13, 1930) 

(No. 670) 21 

Hearing (Continued — September 15, 1930) 

(No. 670) 22 

Hearing (February 24, 1931) (No. 1989) 34 

Hearing (Continued — February 27, 1931) (No. 

2002) 36 

Hearing (Continued — February 27, 1931) 

(No. 1989) 35 

Judgment on Writ of Error (No. 1989) 32 

Minutes of Court — Hearing (Continued) (No. 

670) 22 

Minutes of Supreme Court — February 24, 

1931— Hearing (No. 1989) 34 

Minutes of Supreme Court — February 27, 

1931— Hearing (Conitnued) (No. 2002) ... 36 

Minutes of Supreme Court — February 27, 

1931— Hearing (Continued) (No. 1989) ... 35 

Minutes of Court — September 6, 1930 — Hearing 

(Continued) (No. 670) 20 

Minutes of Court — August 30, 1930 — Hearing 
on Order to Show Cause on Petition of the 
City and County of Honolulu for Issuance 
of Certificate of Title upon Final Order of 
Condemnation (No. 670) 19 

Minutes of Court — September 13, 1930 — Hear- 
ing (Continued) (No. 670) 21 

Notice of Appeal (No. 1989) 40 



City and County of Honolulu. iii 

Index. Page 

Notice of Judgment on Writ of Error (No. 

1989) 33 

Opinion of the Supreme Court (No. 1989) 25 

Order Allowing Appeal (No. 1989) 41 

Order Extending Time to and Including July 1, 
1931, to Prepare Transcript and Record on 

Appeal (No. 1989) 47 

Order Extending Time to and Including July 
31, 1931, to Prepare Transcript and Record 

on Appeal (No. 1989) 48 

Order to Show Cause (No. 670) 6 

Petition for Appeal (No. 1989) 37 

Petition for Issuance of Certificate of Title 

upon Final Order of Condemnation 1 

Praecipe for Transcript of Record (No. 1989) . 46 



Filed 9:30 o'clock A. M., Aug. 20, 1930. [6*] 

In the Land Court of the Territory of Hawaii. 

APPLICATION No. 670. 

In the Matter of the Application of VICTORIA 
WARD to Register and Confirm Title to 
Certain Land Situate at Kewalo, Honolulu, 
Oahu, Territory of Hawaii. 

PETITION FOR ISSUANCE OF CERTIFI- 
CATE OF TITLE UPON FINAL ORDER 
OF CONDEMNATION. 

Comes now the City and County of Honolulu, a 
municipal corporation, by L. P. Scott, Deputy City 
and County Attorney, petitioner herein, and respect- 
fully alleges and avers as follows : 

I. 

On March 19, 1928, the City and County of Hono- 
lulu, petitioner herein, instituted a suit in eminent 
domain in the Circuit Court, First Judicial Crcuit, 
against Victoria Ward, defendant, to condemn cer- 
tain parcels of land described in the petition filed in 
said suit, being Lots F and G of Land Court Appli- 
cation No. 670, covered by Original Certificate of 
Title No. 5773. That summons in said suit was 
issued March 19, 1928, and returned served on said 
Victoria Ward on March 20, 1928. On July 26, 
1928, Victoria Ward, through her attorneys Peters 
& O'Brien, filed her answer to the petition in said 



*Page-number appearing at the foot of page of original certified 
Transcript of Record. 



2 Hattie Kulamanu Ward et al. vs. 

suit, admitting amongst other things, that she was 
the sole owner of the premises sought to be con- 
demned, that it appears, however, that on July 18, 
1928, and during the pendency of the said suit, Vic- 
toria Ward aforesaid, defendant and owner of said 
parcels of land, executed a deed conveying the said 
parcels together with [7] other adjacent lands 
to her daughters, as joint tenants with her, reserv- 
ing to herself the joint use and occupation of the 
said land, a copy of which said deed is attached 
hereto, marked Exhibit "A" and made a part 
hereof, that Transfer Certificate of Title No. 7250 
was issued to the above-named grantees upon said 
deed of conveyance. 

II. 
Petitioner herein further alleges that said suit in 
g eminent domain was tried in the First Circuit Court 

ti 1 

g 1 beginning October l-£, 1928, and continuing there- 

§ after until a verdict was rendered by the jury on 

p October 12, 1928, and judgment thereon was en- 

o tered condemning the said Lots F and Gr and fix- 

g, ing compensation therefor October 23, 1928 ; that 

^ January 

final order of condemnation was entered December 

1 7, 1930. 

g 3±7 1929, which said final order was recorded in the 
office of the Registrar of Conveyances February 13, 

t> 1930, as document No. 20,898, as required by Sec. 

fej 824, Revised Laws of Hawaii, 1925, vesting title to 

m said Lots F and G in the City and County of Hono- 
lulu. 



City and County of Honolulu, 3 

III. 

Petitioner herein further alleges that during all 
the time in which the aforesaid condemnation suit 
was being tried, either one or all of the aforesaid 
daughters of Victoria Ward, joint tenants with her 
in the said Lots F and G, were in attendance daily 
upon said trial, and had actual notice of all the 
proceedings had herein, and that neither they nor 
any of them, nor anyone appearing in their behalf, 
intervened in the said suit as provided for under 
the terms of Sec. 819, Revised Laws of Hawaii, 
1925. 

WHEREFORE your petitioner prays: 

1. That an order to show cause be issued out of 
this court, requiring Victoria Ward, Hattie Kula- 
manu Ward, Lucy Kaiaka Ward and Victoria 
Kathleen Ward, to appear and show cause, if any 
they [8] have, why the petition of petitioner 
herein should not be granted. 

2. That upon hearing of this petition an order 
issue out of this court, directing Victoria Ward, 
Hattie Kulamanu Ward, Lucy Kaiaka Ward and 
Victoria Kathleen Ward to surrender to the Regis- 
trar of this court, Transfer Certificate of Title No. 
7250, and further directing the said Registrar, upon 
such surrender, to cancel Transfer Certificate of 
Title No. 7250, and to issue a new Certificate of 
Title to the City and County of Honolulu for Lots 
F and G aforementioned, and for such other and 
further relief as to this court may seem meet. 



4 Hattie Kulamanu Ward et al. vs. 

Dated at Honolulu, T. EL, this 18th day of Au- 
gust, A. D. 1930. 

(Sgd.) L. P. SCOTT, 
Deputy City and County Attorney. 

City and County of Honolulu, 
Territory of Hawaii, — ss. 

L. P. Scott, being first duly sworn on oath de- 
poses and says: 

That he is the duly appointed, qualified and act- 
ing Deputy City and County Attorney of the City 
and County of Honolulu ; that he has been duly and 
regularly authorized to bring this action for and on 
behalf of the City and County of Honolulu by the 
Board of Supervisors of the City and County of 
Honolulu and by James F. Gilliland, the duly 
elected, qualified and acting City and County At- 
torney of said City and County of Honolulu, that 
he has read the foregoing petition, knows the con- 
tents thereof and that the facts therein stated are 
true to the best of his information, knowledge and 
belief. 

(Sgd.) L. P. SCOTT. 

Subscribed and sworn to before me this 18th day 
of August, A. D. 1930. 

[Seal] (Sgd.) LEON K. STERLING, 

Notary Public, First Judicial Circuit, Territory of 
Hawaii. [9] 

EXHIBIT "A." 

KNOW ALL MEN BY THESE PRESENTS 
that I, Victoria Ward of Honolulu, City and County 



City and County of Honolulu, 5 

of Honolulu, Territory of Hawaii, in consideration 
of the love and affection which I have for my 
daughters, Hattie Kulamanu Ward, Lucy Kaiaka 
Ward, and Victoria Kathleen Ward — all of whom 
are unmarried, and whose place of residence and 
post office address are 959 South King Street, in 
Honolulu aforesaid — do hereby, subject to the reser- 
vation hereinafter made by me, give, grant, and 
convey unto the said Hattie Kulamanu Ward, Lucy 
Kaiaka Ward, and Victoria Kathleen Ward that 
piece of land, containing an area of 36.254 acres, 
situated between, and bordering upon, the south- 
west side of King Street and the northeast side of 
Waimanu Street, at Koula, Kewalo, in Honolulu 
aforesaid, and being portions of R. P. 7516, L. C. A. 
10605, Apana 7 to Piikoi, a portion of R. P. 1807, 
L. C. A. 3169, Apana 1 to Koalele, a portion of 
R. P. 85, L. C. A. 200, Apana 1 to Kaina, and the 
whole of R. P. 306, L. C. A. 274 to J. Booth and 
R. P. 581, L. C. A. 213 to J. Vowles, the said piece 
of land being more particularly described as com- 
prising Lots A, B, C, D, E, F and G, as shown on 
a plan accompanying Land Court Application No. 
670, and being the same piece of land so designated 
by lot numbers in Original Certificate of Title No. 
5773 issued to me by the Land Court of the Terri- 
tory of Hawaii, which certificate of title has been 
registered in the Office of the Assistant Registrar 
of the said court, in Book 58, Page 291 ; 

TO HAVE AND TO HOLD THE same unto the 
said Hattie Kulamanu Ward, Lucy Kaiaka Ward, 
and Victoria Kathleen Ward, as joint tenants with 



6 Hattie Kulamanu Ward et at. vs. 

me, the heirs of the survivor of them, and unto their 
assigns, forever. 

RESERVING, HOWEVER, to myself the right 
to jointly use and occupy the said piece of land 
during my life together [10] with the said Hattie 
Kulamanu Ward, Lucy Kaiaka Ward, and Victoria 
Kathleen Ward. 

IN WITNESS WHEREOF, I hereunto subscribe 
my name, at Honolulu aforesaid, this 17th day of 
July, 1928. 

VICTORIA WARD. 

Territory of Hawaii, 
First Judicial Circuit. 

On this 17th day of July, 1928, before me per- 
sonally appeared Victoria Ward — to me known to 
be the person described in and who executed the 
foregoing instrument — and acknowledged that she 
executed the same as her free act and deed. 

[Notarial Seal] 

JOHN ALBERT MATTHEWMAN, 
Noa£ry Public, First Judicial Circuit, Territory of 
Hawaii. [11] 



[Title of Court and Cause— No. 670.] 

ORDER TO SHOW CAUSE. 

Territory of Hawaii to Victoria Ward, Hattie 
Kulamanu Ward, Lucy Kaiaka Ward and Vic- 
toria Kathleen Ward: 
Upon reading and filing the petition of the City 
and County of Honolulu, a municipal corporation, — 
You and each of you are hereby ordered to appear 



City and County of Honolulu. 7 

on Saturday, the 30th day of August, A. D. 1930, at 
the hour of 9 o'clock A. M. of said day in the court- 
room of the undersigned Judge in the Judiciary 
Building, City and County of Honolulu, Territory 
of Hawaii, then and there to show cause why an 
order of the Court should not issue in accordance 
with the prayer of the petition, directing you and 
each of you to surrender to the Registrar of this 
court, Transfer Certificate of Title No. 7250, and 
further directing the said Registrar to issue to the 
City and County of Honolulu, a new Certificate of 
Title for Lots F and Gr in the petition mentioned. 

Dated at Honolulu, T. H., this 19th day of Au- 
gust, A. D. 1930. 

[Seal] (Sgd.) A. E. STEADMAN, 

Judge of the Land Court, Territory of Hawaii. 

Filed 10:00 o'clock A. M., Aug. 20, 1930. [12] 



Service is hereby accepted this 5th day of Sep- 
tember, 1930. 

(Sgd.) L. P. SCOTT, 
Deputy City and County Attorney. 
Filed 9:05 o'clock A. M., Sept. 6, 1930. [13] 

[Title of Court and Cause— No. 670.] 

ANSWER AND RETURN OF HATTIE KULA- 
MANU WARD, LUCY KAIAKA WARD 
AND VICTORIA KATHLEEN WARD. 

Now comes Hattie Kulamanu Ward, Lucy Kaiaka 
Ward and Victoria Kathleen Ward, by their attor- 



8 Hattie Kulamanu Ward et al. vs. 

ney, Charles B. Dwight, and for answer and return 
to the order to show cause heretofore issued herein, 
aver as follows: 

I. 
These respondents admit the allegations con- 
tained in Paragraph I of the petition. 

II. 

In answer to Paragraph II, these respondents 
aver that the trial of the condemnation proceed- 
ings was started in the Circuit Court on October 
1st, 1928, and that a verdict was rendered by the 
jury in said cause, on October 12th, 1928, and that 
judgment thereon was entered on October 23d, 1929 ; 
that final order of condemnation was entered Janu- 
ary 7th, 1930, which said final order was recorded 
in the office of the E^gistrar of Conveyances as 
Document No. 20,898. 

III. 

These respondents deny that they were present 
during all of the trial of the proceedings for the 
condemnation of the parcels herein described, but 
aver that the respondents Lucy Kaiaka Ward and 
Victoria Kathleen Ward did [14] attend the hear- 
ings on various and divers occasions, and aver that 
the respondent Hattie Kulamanu Ward did not at- 
tend any of the hearings of said condemnation suit. 

IV. 

And further answering, these respondents aver 
that they are the owners with the respondent Victo- 
ria Ward, as joint tenants, of Lots F and G of Land 
Court Application No. 67, and were such owners at 



City and County of Honolulu. 9 

the time of the trial of the condemnation suit. That 
they were not joined as defendants in the eminent 
domain proceedings, notwithstanding the fact that 
Transfer Certificate of Title No. 7250 had been 
issued to them and notwithstanding the fact that 
the records of the Land Court showed such to be the 
fact. That no summons as required by law was 
served upon them in said proceedings. 

That no compensation was offered or given to 
them respondents by the City and County of Hono- 
lulu. 

That in compelling them to produce the Certifi- 
cate of Title, the City and County of Honolulu 
would take from these respondents property with- 
out just compensation and would deprive them of 
property without due process of law. 

That they were not bound by any judgment of any 
competent court of this Territory, and that their in- 
terests in Lots F and G were not determined and 
compensation was not paid for their interests, as re- 
quired by law. 

That there is no provision under the statutes of 
this Territory upon which a petition or an order to 
show cause may issue to compel these respondents to 
produce their Certificate of Title. 

WHEREFORE, these respondents pray that the 
petition be [15] denied and the order to show 
cause dismissed. 



10 Hattie Kulamanu Ward et at. vs. 

Dated at Honolulu, T. H., this 5th day of Septem- 
ber, A. D. 1920. 

HATTIE KULAMANU WARD, 
LUCY KAIAKA WARD and 
VICTORIA KATHLEEN WARD, 

Respondents. 
(Sgd.) By CHARLES B. DWIGHT, 

Their Attorney. 

Territory of Hawaii, 

City and County of Honolulu, — ss. 

Victoria Kathleen Ward, being first duly sworn 
on oath, deposes and says: 

That she is one of the respondents above named; 
that she makes this verification for and on behalf 
of the respondents ; that she has read the foregoing 
answer and return, knows the contents thereof and 
that the allegations therein contained are true to 
the best of her knowledge and belief. 

(Sgd.) VICTORIA KATHLEEN WARD. 

Subscribed and sworn to before me this 5th day 
of September, 1930. 

[Seal] (Sgd.) HENRY C. HAPAI, 

Notary Public, First Judicial Circuit, Territory of 
Hawaii. [16] 



City and County of Honolulu, 11 

Filed 2:30 o'clock P. M., Sept. 12, 1930. [17] 

[Title of Court and Cause— No. 670.] 

DEMURRER TO ANSWER AND RETURN OF 
HATTIE KULAHANU WARD, LUCY 
KAIKA WARD AND VICTORIA KATH- 
LEEN WARD. 

Comes now the City and County of Honolulu, 
petitioner herein, and hereby demurs to the answer 
and return of Hattie Kulamanu Ward, Lucy Kaika 
Ward and Victoria Kathleen Ward, respondents 
herein, and more particularly to the allegations 
contained in Paragraph IV thereof, and for ground 
of demurrer alleges: 

I. 

That this Honorable Court, sitting as a Court of 
Land Registration, is without jurisdiction to hear 
and/or determine any question relative to the join- 
der or nonjoinder of the aforesaid respondents as 
parties defendants in the eminent domain proceed- 
ings referred to in the petition and in Paragraph II 
of the answer and return, as alleged in Section 1 
of Paragraph IV of said answer. 

II. 

That this Honorable Court is without jurisdiction 
to hear and/or determine any questions relative to 
the service or nonservice of summons upon the 
aforesaid respondents in the aforementiond con- 
demnation suit, as alleged in Section II of Para- 
graph IV of said answer. [18] 



12 Hattie Kulamanu Ward et ah vs. 

III. 

That this Honorable Court is without jurisdiction 
to hear and/or determine any questions relative to 
the payment or nonpayment of compensation in the 
aforementioned condemnation suit, as alleged in 
Section III of Paragraph IV of said answer. 

IV. 

That this Honorable Court is without jurisdiction 
to hear and/or determine any questions relative to 
the deprivation of respondents' property without 
just compensation and without due process of law 
by compelling them to produce their Certificate of 
Title, as alleged in Section IV of Paragraph IV 
of said answer. 

V. 

That this Honorable Court is without jurisdiction 
to hear and/or determine any questions relative to 
the binding validity upon the respondents of the 
judgment of the Circuit Court of the First Circuit 
Court in the eminent domain suit above mentioned, 
in so far as it affected the determination of their 
interest or right to compensation if any in the afore- 
said suit, as alleged in Section V of Paragraph IV 
of said answer. 

VI. 

That this Honorable Court has ample authority 
Under the express provisions of Section 3226 of the 
Revised Laws of Hawaii, 1925, to issue an order to 
show cause in this proceeding. 

VII. 

That the allegations contained in Paragraph IV 



City and County of Honolulu. 13 

of the answer and return of the respondents herein- 
above referred to as Sections I to V, constitute a 
collateral attack upon a judgment and a final order 
of condemnation heretofore entered in a court of 
competent jurisdiction, to wit, the Circuit Court 
of the [19] First Judicial Circuit, which said 
judgment has been affirmed by the Supreme Court 
of the Territory of Hawaii, and that as a further 
and final ground of demurrer to the aforesaid an- 
swer and return, this Honorable Court sitting as 
a Court of Land Registration, is without jurisdic- 
tion to hear and/or determine any questions relative 
to the validity of the aforesaid judgment and the 
final order of condemnation. 

WHEREFORE petitioner herein prays that the 
prayer of the petition be granted. 

Dated at Honolulu, T. H., this 12th day of Sep- 
tember, A. D. 1930. 

(Sgd.) L. P. SCOTT, 
Deputy City and County Attorney. 

Service of within demurrer is admitted this 12th 
day of September, A. D. 1930. 

(Sgd.) CHARLES B. D WIGHT, 

Attorney for Respondents. 
(Sgd.) S. G. FISKE. [20] 



14 Hattie Kulamanu Ward et al. vs. 

Filed 3:25 o'clock P. M. Oct. 17, 1930. 

L. P. SCOTT, Esq., Deputy City and County At- 
torney, Attorney for Petitioner. 

CHAS. B. DWIGHT, Esq., Attorney for Respond- 
ents. 

Honorable A. E, STEADMAN, Judge of the Land 

Court. 

Receipt of a certified copy of the within decision 
is hereby acknowledged this 17 day of October, 1930. 
CITY AND COUNTY OF HONOLULU, 

Petitioner. 
By (Sgd.) L. P. SCOTT. 
(Sgd.) CHARLES B. DWIGHT, 
Attorney for Respondents. [21] 

[Title of Court and Cause— No. 670.] 

DECISION ON SHOW CAUSE ORDER. 

This cause came on for hearing upon the petition 
and order to show cause of petitioner, and the an- 
swers and returns of respondents thereto, and 
upon the demurrers of the petitioner to the said 
answers and returns, L. P. Scott, Esquire, Deputy 
City and County Attorney, appearing for peti- 
tioner, and Charles B. Dwight, Esquire, appearing 
for respondents. The Court overruled the afore- 
said demurrers and subsequently heard arguments 
of counsel and considered the petition and order 
to show cause and the answers and returns thereto, 
and all the other records and files and the evidence 
adduced herein. The Court finds that the allega- 



City and County of Honolulu, 15 

tions of the petition are established by the evidence 
and the record herein, and that the petitioner is 
entitled to the relief prayed for in the prayer of its 
petition. 

The evidence shows that Lucy Kaika Ward and 
Victoria Kathleen Ward, two of the daughters of 
Victoria Ward and grantees pendente lite of Lots 
F and G, together with other lands of aforesaid 
Victoria Ward, who with Hattie Kulamanu Ward, 
were her attorneys-in-fact at the time of the filing 
of the aforesaid condemnation suit, were at various 
times [22] present at and participated in the 
trial of said condemnation suits mentioned in Para- 
graphs I and II of the petition. 

It further appears from the pleadings and evi- 
dence and more particularly from the admissions 
made in open court upon the hearing of this mat- 
ter, that Lucy Kaika Ward, Victoria Kathleen 
Ward and Hattie Kulamanu Ward, the three 
daughters and grantees pendente lite and attor- 
neys-in-fact of said Victoria Ward, had full, com- 
plete and actual notice of the pendency of the con- 
demnation suit against Victoria Ward as sole owner 
of Lots F and G, at the time of the conveyance of 
the aforesaid property to them, and of all the sub- 
sequent proceedings in said suit culminating in the 
final order of condemnation filed January 7, 1930. 

And it further appears that neither Lucy Kaika 
Ward, nor Victoria Kathleen Ward, nor Hattie 
Kulamanu Ward, nor anyone appearing in their 
behalf, intervened in the said suit, nor made any 
claim for the compensation awarded in the afore- 



16 Hattie Kulamanu Ward et al. vs. 

said suit at any time during the pe^ency of the 
aforesaid suit. 

NOW, THEREFORE, the Court finds that the 
petitioner herein is entitled to the relief prayed for 
in the petition, and that a decree should be entered 
directing Lucy Kaika Ward, Victoria Kathleen 
Ward and Hattie Kulamanu Ward to surrender to 
the Assistant Registrar of this Court Transfer Cer- 
tificate of Title No. 7250, now in their possession, 
and further directing the said Assistant Registrar, 
upon such surrender, to cancel said Transfer Cer- 
tificate of Title and issue to the City and County 
of Honolulu a new Certificate of Title for Lots F 
and Gr aforementioned. 

Let a decree be entered accordingly. 

Dated: Honolulu, T. H., October 17, 1930. 

[Seal] (Sgd.) A. E, STEADMAN, 

Judge of the Land Court. [23] 



Filed 4:00 o'clock P. M., Nov. 7, 1930. [24] 
In the Land Court of the Territory of Hawaii. 
APPLICATION No. 670. 

In the Matter of the Application of VICTORIA 
WARD to Register and Confirm Title to Cer- 
tain Land Situate at Kewalo, Honolulu, Oahu, 
Territory of Hawaii. 

DECREE. 

This cause having come on for hearing upon the 
petition and order to show cause of petitioner, and 



City and County of Honolulu. 17 

the answers and returns of respondents thereto, and 
upon the demurrers of the petitioner to the said 
answers and returns, L. P. Scott, Esq., Deputy City 
and County Attorney, appearing for petitioner, and 
Charles B. Dwight, Esq., appearing for respondents, 
and the Court having overruled the aforesaid de- 
murrers and subsequently heard arguments of coun- 
sel and considered the petition and order to show 
cause and the answers and returns thereto, and all 
the other records and files and the evidence adduced 
herein, and the Court having filed its written deci- 
sion herein finding that the allegations of the peti- 
tion are established by the evidence and the record 
herein, and that the petitioner is entitled to the re- 
lief prayed for in the prayer of its petition. 

Further, the Court having found in its written 
decision that the evidence shows that Lucy Kaika 
Ward and Victoria Kathleen Ward, two of the 
daughters of Victoria Ward and grantees pendente 
lite of Lots F and G, together with other lands of 
aforesaid Victoria Ward, who with Hattie Kula- 
manu Ward, were her attorneys-in-fact at the time 
of the [25] filing of the aforesaid condemnation 
suit, were at various times present at and partici- 
pated in the trial of said condemnation suits men- 
tioned in Paragraph I and II of the petition. 

And the Court having found that from the plead- 
ings and evidence and more particularly from the 
admissions made in open court upon the hearing of 
this matter, that Lucy Kaika Ward, Victoria Kath- 
leen Ward and Hattie Kulamanu Ward, the three 
daughters and grantees pendente lite and attorneys- 
in-fact of said Victoria Ward, had full, complete 



18 Hattie Kulamanu Ward et al. vs. 

and actual notice of the pendency of the condemna- 
tion suit against Victoria Ward as sole owner of 
Lots F and G, at the time of the conveyance of the 
aforesaid property to them, and of all the subse- 
quent proceedings in said suit culminating in the 
final order of condemnation filed January 7, 1930. 

And the Court further having found that neither 
Lucy Kaika Ward, nor Victoria Kathleen Ward, 
nor Hattie Kulamanu Ward, nor anyone appearing 
in their behalf, intervened in the said suit, nor made 
any claim for the compensation awarded in the 
aforesaid suit at any time during the pendency of 
the aforesaid suit. 

IT IS HEREBY ORDERED, ADJUDGED 
AND DECREED that the petitioner herein is enti- 
tled to the relief prayed for in its petition, and that 
Lucy Kaika Ward, Victoria Kathleen Ward and 
Hattie Kulamanu Ward be and they hereby are di- 
rected to surrender to the Assistant Registrar of this 
Court, Transfer Certificate of Title No. 7250, now in 
their possession, and the Assistant Registrar be and 
he hereby is directed, upon such surrender to cancel 
said Transfer Certificate of Title No. 7250 and is- 
sue to the City and County of Honolulu, a munici- 
pal corporation, petitioner herein, a new Certificate 
of Title for [26] Lot F and G in the petition 
aforementioned. 

Dated at Honolulu, T. H., this 7th day of No- 
vember, A. D. 1930. 

[Seal] (Sgd.) P. H. MULHOLLAND, 

Registrar of the Land Court. 



City and County of Honolulu. 19 

Approved : 

[Seal] (Sgd.) A. E. STEADMAN, 

Judge of the Land Court. [27] 



[Title of Court and Cause— No. 670.] 

MINUTES. 
Land Court— Saturday, August 30, 1930, 9 :00 A. M. 

Hon. A. E. STEADMAN, Judge. 
H. R, JORDAN, Reporter. 
A. W. AKANA, Asst. Regr. 

Present: L. P. SCOTT, Deputy City and County 
Attorney for City and County of Hono- 
lulu, Petitioner. 
CHARLES B. DWIGHT, Esq., for Vic- 
tory Ward, Hattie K. Ward, Lucy K. 
Ward, and Victoria K. Ward, Re- 
spondents. 

HEARING ON ORDER TO SHOW CAUSE ON 
PETITION OF THE CITY AND COUNTY 
OF HONOLULU FOR ISSUANCE OF CER- 
TIFICATE OF TITLE UPON FINAL OR- 
DER OF CONDEMNATION. 

The Assistant Registrar called the case by its 
title and number. Mr. Dwight who appeared and 
noted his appearance for the above respondents, re- 
quested the continuance of this matter for one week. 
Mr. Scott offered no objections. 

The Court so ordered. 



20 Hattie Kulamanu Ward et al. vs. 

The court adjourned at 9:20 o'clock A. M. 
By the Court: 

(Sgd.) ABRAHAM W. AKANA, 

Assistant Registrar. [28] 



MINUTES OF COURT— HEARING (CON- 
TINUED). 

Land Court— Saturday, September 6, 1930, 9:00 

A. M. 

Hon. A. E. STEADMAN, Judge. 
JAMES L. HORNER, Reporter. 
A. W. AKANA, Asst. Regr. 

Present: L. P. SCOTT, Deputy City and County 
Attorney for the City and County of 
Honolulu, Petitioner. 
CHAS. B. DWIGHT, Esq., Attorney for 
Victoria Ward, Hattie K. Ward, Lucy 
K. Ward and Victoria K. Ward, Re- 
spondents. 
Mr. Dwight filed with the Court, the answers and 
returns of the respondents, a copy of which was 
handed to Mr. Scott. 

Mr. Scott requested that this matter be continued 
for one week. 

After due consideration, the Court granted the 
continuance. 

The court adjourned at 9:15 o'clock A. M. 
Bt the Court: 

(Sgd.) ABRAHAM W. AKANA, 
Assistant Registrar. [29] 



City and County of Honolulu. 21 

MINUTES OF COURT— HEARING (CONTIN- 
UED). 

Land Court — Saturday, September 13, 1930, 

9:15 A.M. 

Hon. A. E. STEADMAN, Judge. 
JAMES L. HORNER, Reporter. 
A. W. AKANA, Asst. Regr. 

APPLICATION No. 670. 

Present: L. P. SCOTT, Deputy City and County 
Attorney for the City and County of 
Honolulu, Petitioner. 
CHAS. B. DWIGHT, Esq., Attorney for 
Victoria Ward, Hattie K. Ward, Lucy 
K. Ward and Victoria K. Ward, Re- 
spondents. 
On motion of Mr. Scott, the Court allowed the 
following amendments to the petition, to wit : Para- 
graph 2, line 3, " October 12, 1928" to read " Oc- 
tober 1, 1928"; line 4, insert "12" between "Oc- 
tober" and "1928," line 7, "December 31, 1929" to 
read "January 7, 1930." Counsel for the respond- 
ent offered no objection to said amendments. 
Mr. Scott opens his argument. 
Mr. Dwight waives the forty-eight hours notice 
and elects to proceed herewith. 
Mr. Dwight replies. 

The Court held that this matter is within its juris- 
diction. 

Mr. Dwight notes an exception. 
Mr. Scott offers in evidence, records filed in the 
Clerk's Office of the First Judicial Circuit, in Law 



22 Hattie Kulamanu Ward et al. vs. 

No. 11946, when is received and marked Applicant's 
Exhibit "A." 

Further hearing on this matter is continued until 
Monday, September 15th at 9:00 o'clock A. M. 
The court adjourned at 10:05 o'clock A. M. 
By the Court: 

(Sgd.) ABRAHAM W. AKANA, 
Assistant Registrar. [30] 



MINUTES OF COURT — HEARING (CON- 
TINUED). 

Land Court— Monday, September 15, 1930, 9:00 

A. M. 

Hon. A. E. STEADMAN, Judge. 
JAMES L. HORNER, Reporter. 
A. W. AKANA, Ass't Regr. 

APPLICATION No. 670. 

Present: L. P. SCOTT, Deputy County Attorney 
for City and County of Honolulu, Peti- 
tioner. 
CHAS. B. D WIGHT, Esq., for Respond- 
ents, Victoria Ward, Hattie K. Ward, 
Lucy K. Ward, and Victoria K. Ward. 
Mr. Scott argues on the demurrer as filed. 
The Court overruled the demurrer. 
Counsel stipulates that the respondents had actual 
notice in the eminent domain proceedings. 

The Court suggests that future reference be made 
to Mrs. Victoria Ward, as the " Mother" and the 
other respondents as the " Daughters" to distin- 
guish between them. 



City and County of Honolulu. 23 

Counsel stipulates that the mother is bound by the 
judgment. 

Mr. Dwight raises the following issues : First, are 
the proceedings in the condemnation suit binding 
on the daughters? Second, the daughters are not 
bound by the judgment, not having received com- 
pensation. 

Mr. Scott moves for an order directing the re- 
spondents to surrender Transfer Certificate of Title 
No. 7250, and directing the Assistant Registrar of 
this court to issue a new certificate of title to the 
City and County of Honolulu for Lots F and G, 
as prayed for in the petition. 

The Court grants the prayer of the petitioner. 

Mr. Dwight takes exception to the decision of the 
Court and requests twenty days within which to file 
a written exception. 

The Court advised Mr. Dwight that a written deci- 
sion will have to be filed first, when a written ex- 
ception will be allowed. 

The Court adjourned at 9:40 o'clock A. M. 
By the Court: 

(Sgd.) ABRAHAM W. AKANA, 
Assistant Registrar. [31] 



24 Hattie Kulamanu Ward et al. vs. 

Piled February 27, 1931, at 10:07 o'clock A. M. 
[32] 

In the Supreme Court of the Territory of Hawaii. 
October Term, 1930. 

No. 1989. 

In the Matter of the Application of VICTORIA 
WARD to Register and Conform Title to 
Certain Land Situate at Kewalo, Honolulu, 
Oahu, Territory of Hawaii. 

Error to Land Court. 

Hon. A. B. STEADMAN, Judge. 

Argued February 24, 1931. 
Decided February 27, 1931. 

PERRY, C. J., BANKS and PARSONS, JJ. 

Lis Pendens — Purchase pendente lite — Operation 
and effect. 
A purchaser pendente lite is bound by the result 

of the suit. 
One who during the pendency of the action pur- 
chases from the respondent in a statutory ac- 
tion for condemnation of land for public pur- 
poses and who does not enter an appearance in 
the action and makes no claim to the compensa- 
tion awarded to the owner by the verdict and 
judgment, is bound by the result of the action 
for condemnation and cannot in the Land Court 
successfully resist a petition for the cancella- 
tion of an outstanding certificate of title and 
for the issuance of a new certificate relating to 
the land condemned. 



City and County of Honolulu. 25 

Courts — Land Court — Procedure — Petition for can- 
cellation of certificate. 
The Land Court of this Territory has power to 
bear and to [33] determine a petition to com- 
pel the holders of an outstanding certificate of 
title to surrender the same for cancellation 
and for the issuance to the City and County 
of Honolulu of a new certificate of title relat- 
ing to parts of the land which have been duly 
condemned by judicial proceedings. [34] 

OPINION OP THE COURT BY PERRY, C. J. 

Under the title of the above-entitled court and 
cause the City and County of Honolulu presented 
to the Land Court of this Territory a petition to the 
effect that Victoria Ward and her three daughters, 
Hattie Kulamanu Ward, Lucy Kaiaka Ward and 
Victoria Kathleen Ward, be required to appear and 
show cause, if any they had, why they should not 
surrender Land Court Transfer Certificate No. 7250 
for cancellation and further asking for the issuance 
of a new certificate of title to the petitioner for lots 
"F" and "G" being portions of the land described 
in certificate No. 7250. The four respondents above 
named answered. Demurrers to the answer were 
overruled and subsequently upon the admissions 
contained in the answ T er and upon other admissions 
made orally at the hearing, the Land Court granted 
the prayer of the petition and entered a decree in 
conformity therewith. Thereupon the respondents 
other than Victoria Ward sued out a writ of error 
to review that decree. 



26 Hattie Kulamanu Ward et al. vs. 

On March 19, 1928, the City and County of Hono- 
lulu instituted a statutory action for the condemna- 
tion of Lots "F" and "G-," above referred to, for 
road purposes. Thereafter, and before answer was 
filed, the respondent Victoria Ward executed and 
delivered a deed conveying to her three daughters 
above named a certain tract of land including lots 
"F" and "G-." The conveyance was to the three 
"as joint tenants with me, the heirs of the survivor 
of them, and unto their assigns, forever," with the 
reservation to the grantor of "the right to jointly 
use and occupy the said piece of land during my life 
together with the said three. ' ' It was expressly ad- 
mitted in the Land Court in the proceeding now un- 
der review that at the time of the receipt of said 
conveyance the three grantees "had full, [35] 
complete and actual notice of the pendency of the 
condemnation suit against Victoria Ward as sole 
owner of" the two lots. After the date of this deed 
an answer was filed by Victoria Ward in the action 
for condemnation in which it was averred inter alia 
that she was the owner of the land sought to be 
condemned. It further appears from the record 
that two at least of the three daughters attended fre- 
quently at the trial, which continued for about ten 
days, and were perfectly familiar with the details 
of the proceeding. 

Section 819, R. L. 1925, which is a part of chap- 
ter 61 relating to eminent domain, provides that: 
"Any person in occupation of or having any claim 
or interest in any property sought to be con- 
demned or in the damages for the taking thereof 
though not named in the complaint, may appear, 



City and County of Honolulu. 27 

plead, and defend in respect to his own property 
or interest, in like manner as if named in the 
complaint.' ' No appearance was entered in the 
condemnation suit by any of the three daughters 
and no attempt was made by them to defend in 
their own names. A verdict having been ren- 
dered and a judgment entered assessing the dam- 
ages payable to Victoria Ward as owner of the 
land, the City and County of Honolulu thereafter 
paid the amount required by the judgment to the 
Clerk of the Circuit Court in which the judgment 
had been entered and later still the money was 
paid by the Clerk to the attorney for Victoria 
Ward. No claim was presented by any of the 
three daughters to the Clerk or to the court for 
the compensation awarded by the verdict and no 
effort was made in that action for the establish- 
ment of the right on their part as owners of the 
land to the compensation or to any part thereof. 
The three daughters purchased during the 
pendency of the action for condemnation. It is 
well established in this [36] jurisdiction that a 
purchaser pendente lite is bound by the result of 
the suit. Watson vs. Watson, 9 Haw. 389, 391; 
Spresels vs. Macfarlane, 9 Haw. 412; Bertelman 
vs. Lucas, ante, pp. 71, 73, 74, United States vs. 
Merriam, 161 Fed. 303, is not an authority to the 
contrary. The question now under consideration 
was not discussed or decided in that case. More- 
over, the three daughters, as shown by their ad- 
mission in open court, had at the time of receiving 
the deed actual knowledge of the existence of the 
action for condemnation. They are bound by the 



28 Hattie Kulamanu Ward et al. vs. 

judgment rendered in the proceeding against their 
grantor. 

Section 823, R. L. 1925, reads as follows: "The 
plaintiff must within two years after final judgment' 
pay the amount assessed as compensation or dam- 
ages ; and upon failure as to do all rights which may 
have been obtained by such judgment shall be lost to 
the plaintiff; and if such payment shall be delayed 
more than thirty days after final judgment, then 
interest shall be added at the rate of seven per 
cent per annum. Such payment shall be made to 
the clerk of the court rendering the judgment, 
who shall distribute the same in accordance with 
the order of the court." Section 824 reads: 
"When all payments required by the final judg- 
ment have been made, the court shall make a final 
order of condemnation, which must describe the 
property condemned and the purposes of such 
condemnation, a certified copy of which must be 
filed and recorded in the office of the register of 
conveyances; and thereupon the property de- 
scribed shall vest in the plaintiff. " 

The City and County of Honolulu made the 
payment of the amount of the judgment to the 
Clerk of the court as was required by the statute, 
and made that payment within the two years 
named in the same section. Thereafter, pursuant 
to the [37] statute, the final order of condem- 
nation was made by the court and recorded in the 
office of the register of conveyances. Thereupon 
the title to the property described in the final* 
order became vested in the City and County of 



City and County of Honolulu. 29 

Honolulu. Section 3269, R. L. 1925, which is a 
part of chapter 186 relating to the court of land 
registration, provides: "No writ of entry * * * 
and no judgment or decree * * * shall have 
any effect upon registered land as against per- 
sons other than the parties thereto unless a full 
memorandum thereof, containing also a reference 
to the number of the certificate of title of the 
land affected, and the volume and page of the 
registration book where it is entered, shall be 
filed and registered." In effect this provision 
is entirely consistent with that of section 824 
above quoted. Title vested upon recording of 
the final order of condemnation. 

There has been no taking without due process 
of law or without just compensation. The person, 
Victoria Ward, who was the sole owner of the 
land at the time the action was instituted, was duly 
summoned, was given notice and an opportunity 
to be heard and made vigorous contest at the trial. 
The hearing and the determination was by a jury, 
the tribunal authorized by law to hear and de- 
termine cases of that nature. The three daugh- 
ters had ample notice, both constructive and 
actual, of the institution of the suit, even before 
the filing of any answer. The statute expressly 
gave them an opportunity to appear in the action 
and to present their claims. Of this opportunity 
they did not care to avail themselves. Compensa- 
tion was awarded and paid to the owner of the 
land, — compensation admeasured by the jury after 
a complete and adequate trial. That the com- 
pensation was paid wholly to the mother and not 



30 Hattie Kulamanu Ward et at. vs. 

partly to the daughters must be deemed to be due 
entirely to the failure of the daughters [38] to 
appear and to present their claim when they had 
the opportunity to do so. As to the daughters, and 
the mother as well, the constitutional provisions in- 
voked have not been violated. 

The jurisdiction of the Land Court to hear and to 
pass upon such a petition as was filed in this case for 
the surrender of an old certificate in order to pro- 
cure the issuance of a new one, in the case of a trans- 
fer of the title of a whole or a part of the land de- 
scribed in the original certificate, is attacked by 
the appellants. We are of the opinion that the 
procedure followed was in conformity with and was 
authorized by the statute relating to registration of 
land in the Land Court. It is true that while 
under section 3268 in chapter 186 new certificates 
are specifically authorized in cases of sales on exe- 
cution or for the enforcement of liens, there is in 
the statute no specific provision relating to the 
issuance of a new certificate upon the acquisition 
by the Territory or any subdivision thereof, by 
condemnation, of land for public purposes. It is 
obvious, however, from the statute as a whole, and 
particularly from section 3237, that the certificates 
of title issued by the Land Court are intended to 
represent the truth and that when they cease to 
represent the truth they are intended to be can- 
celled or modified so as to conform to the new facts. 
Section 3237 provides that "the original certificate 
in the registration book, any copy thereof duly 
certified under the signature of the registrar 
* * * and also the owner's duplicate certificate, 



City and County of Honolulu. 31 

shall be received as evidence in all the courts of the 
Territory, and shall be conclusive as to all matters 
contained therein, except so far as otherwise pro- 
vided in this chapter.' 7 Section 3226 provides 
that: "The land court shall have power to make 
and award all such judgments, decrees, orders and 
mandates; to issue all such executions, right of 
possession and other processes, and to take all other 
[39] steps necessary for the promotion of justice 
in matters pending before it, and to carry into full 
effect all powers which are, or may be given to it 
by law." In cases of voluntary transfers of land 
provision is made for the surrender of old certifi- 
cates and the issuance of new ones to conform to 
the facts. In case of a transfer of a part or parts 
only of registered land, described in a given certifi- 
cate, the provision is that the old certificate shall be 
surrendered and a new one issued to the grantee 
for the part or parts that are sold and a new cer- 
tificate to the grantor for the part that is not sold. 
It was undoubtedly the intention of the legislature 
that when a part of registered land has been judi- 
cially condemned and fully paid for, any certificate 
theretofore issued by the Land Court shall be can- 
celled or corrected so as to show the taking by the 
Government and the transfer of the title. To hold 
otherwise would be to say that it was the intention 
of the legislature to permit certificates of the Land 
Court to continue in existence after they, through 
changes in the facts, become misleading and instru- 
ments of error or fraud. This we cannot do. 



32 Hattie Kulamanu Ward et al. vs. 

The decree of the Land Court is affirmed. 
(Sgd.) ANTONIO PEEEY. 
(Sgd.) JAS. J. BANKS. 
(Sgd.) CHAELES F. PAESONS. 
C. B. DWIGHT (also on the Briefs), for Plaintiff 

in Error. 
L. P. SCOTT, Deputy City and County Attorney 
(also on the Brief), for Defendant in Error, 
[40] 



Filed March 2, 1931, at 11:56 o'clock A. M. [41] 
In the Supreme Court of the Territory of Hawaii. 

No. 1989. 
Error to Land Court, Territory of Hawaii. 

Hon. A. B. STEADMAN, Judge. 

In the Matter of the Application of VICTORIA 
WARD, to Register and Confirm Title to 
Certain Land Situate at Kewalo, Honolulu, 
Oahu, Territory of Hawaii. 

JUDGMENT ON WRIT OF ERROR. 

In the above-entitled cause pursuant to the 
opinion of the above-entitled court rendered and 
filed on the 27th day of February, A. D. 1931, the 
decree of the Land Court of the Territory of Ha- 
waii, dated November 7, 1930, is affirmed. Costs 
amounting to $13.25 to be paid by the defendants- 
plaintiffs in error. 

Dated: Honolulu, T. H., March 2, 1931. 
By the Court: 

(Sgd.) J. A. THOMPSON, 
Clerk, Supreme Court. 



City and County of Honolulu. 33 

Approved : 

(Sgd.) ANTONIO PERRY, 
Chief Justice. [42] 



[Title of Court and Cause— No. 1989.] 

NOTICE OF JUDGMENT ON WRIT OF 

ERROR. 

To the Honorable the Judge of the Land Court of 
the Territory of Hawaii: 
YOU WILL PLEASE TAKE NOTICE that in 
the above-entitled cause the Supreme Court has 
entered the following judgment on writ of error: 

" JUDGMENT ON WRIT OF ERROR. 

In the above entitled cause pursuant to the opin- 
ion of the above entitled court rendered and filed 
on the 27th day of February, A. D. 1931, the De- 
cree of the Land Court of the Territory of Ha- 
waii, dated November 7, 1930, is affirmed. Costs 
amounting to $13.25 to be paid by the defendants- 
plaintiffs-in-error. ' ' 

Dated : Honolulu, T. H., March 2, 1931. 
By the Court : 

[Seal] (Sgd.) J. A. THOMPSON, 

Clerk, Supreme Court. 

The form of the foregoing notice is hereby ap- 
proved and IT IS ORDERED that the same issue 
forthwith. 

Dated: Honolulu, T. H., March 2, 1931. 

[Seal] (Sgd.) ANTONIO PERRY, 

Chief Justice. [43] 



34 Hattie Kulamanu Ward et al. vs. 

MINUTES OF SUPREME COURT — HEAR- 
ING. 

Tuesday, February 24, 1931. 

Court convened at 10:00 o'clock, A. M. 
Present on the Bench: 

Hon. ANTONIO PERRY, C. J., Hon. JAMES 
J. BANKS and Hon. CHARLES F. ^AR- 
SONS, JJ. 

1989. 

Error to Land Court. 

In the Matter of the Application of VICTORIA 
WARD to Register and Confirm Title to 
Certain Land Situate at Kewalo, Honolulu, 
Oahu, Territory of Hawaii. 

2002. 

Original Petition for Injunction and Proceedings 
from Circuit Court First Circuit. 

HATTIE KULAMANU WARD, LUCY KAIAKA 
WARD and VICTORIA KATHLEEN 
WARD, 

vs. 

THE CITY AND COUNTY OF HONOLULU, a 

Municipal Corporation. 

ARGUMENT. 

APPEARANCES. 

C. B. D WIGHT, for the Appellants. 
L. P. SCOTT, Deputy City and County Attorney, 
for Appellee. 



City and County of Honolulu. 35 

The above-entitled causes having been ordered set 
for this day for argument, when the court convened, 
Mr. Dwight addressed the Court and proceeded to 
state the facts in the above-entitled causes and then 
followed with his argument concluding at 11:20 
A. M. 

At 11:21 A. M. Mr. Scott commenced with his 
argument and called the Court's attention to Lewis 
Eminent Domain, Volume 1, Section 65, page 56 
(what constitutes a taking), and also the provisions 
of Section 823 of the Revised Laws of Hawaii 1925, 
concluding at 11 :50 A. M. 

At 11 :51 A. M. Mr. Dwight replied concluding at 
11:59 A. M. 

Case submitted and taken under advisement. 

At 12:00 noon the court adjourned until to-mor- 
row morning at 10 :00 o 'clock, Wednesday, February 
25, 1931. 

(Sgd.) ROBERT PARKER, Jr., 
Assistant Clerk. [44] 

MINUTES OP SUPREME COURT— HEARING 
(CONTINUED). 

Friday, February 27, 1931. 

1989. 

Error to Land Court. 

In the Matter of the Application of VICTORIA 
WARD to Register and Confirm Title to 
Certain Land Situate at Kewalo, Honolulu, 
Oahu, Territory of Hawaii. 



36 Hattie Kulamanu Ward et al. vs. 

At 10:07 o'clock A. M., this day the court handed 
down its written opinion in the above-entitled cause 
affirming the decree of the Land Court. 

(Sgd.) ROBERT PARKER, Jr., 

Assistant Clerk. 

MINUTES OP SUPREME COURT— HEARING 
(CONTINUED). 

2002. 

Original Petition for Injunction and Proceedings 
from Circuit Court First Circuit. 

HATTIE KULAMANU WARD, LUCY KAIAKA 
WARD and VICTORIA KATHLEEN 
WARD, 

vs. 

THE CITY AND COUNTY OF HONOLULU, 
a Municipal Corporation. 

At 10:08 o'clock A. M. this day the court handed 
down its written opinion in the above-entitled cause 
affirming the decree appealed from. 

(Sgd.) ROBERT PARKER, Jr., 
Assistant Clerk. [45] 

Filed June 1, 1931, at 4:05 o'clock P. M. 

Service is hereby accepted this 1st day of June, 
1931. 

L. P. SCOTT, 
Deputy City and County Attorney for Plaintiff. 
[46] 



City and County of Honolulu, 37 

[Title of Court and Cause— No. 1989.] 

PETITION FOR APPEAL. 

To the Honorable, the Chief Justice, and Associate 
Justices of the Supreme Court of the Terri- 
tory of Hawaii: 
Hattie Kulamanu Ward, Lucy Kaiaka Ward and 
Victoria Kathleen Ward, Respondents-Plaintiffs 
in error herein, deem themselves aggrieved by the 
judgment of the above-entitled court in the above- 
entitled matter, which judgment of the Supreme 
Court of the Territory of Hawaii, was made and 
entered on the 2d day of March, 1931, and hereby 
appeal to the United States Circuit Court of Ap- 
peals for the Ninth Circuit, from said judgment, for 
the reasons specified in the assignment of errors 
hereto attached, and they pray that this appeal 
may be allowed, and that a transcript of the record 
and proceedings upon which said judgment was 
made, duly authenticated, may be sent to the United 
States Circuit Court of Appeals for the Ninth Cir- 
cuit and that said judgment may be reversed. [47] 
Dated at Honolulu, Hawaii, this 1st day of June, 
A. D. 1931. 

HATTIE KULAMANU WARD, 
LUCY KAIAKA WARD and 
VICTORIA KATHLEEN WARD, 

Respondents-Plaintiffs in Error. 
By (S.) CHARLES B. DWIGHT, 
Their Attorney. [48] 



38 Hattie Kulamanu Ward et al. vs. 

Filed June 1, 1931, at 4:05 o'clock P. M. 

Service is hereby accepted this 1st day of June, 
1931. 

L. P. SCOTT, 
Deputy City and County Attorney for Plaintiff. 
[49] 

[Title of Court and Cause— No. 1989.] 

ASSIGNMENT OF ERRORS. 

Now come Hattie Kulamanu Ward, Lucy Kaiaka 
Ward and Kathleen Victoria Ward, respondents- 
plaintiffs in error, and file the following assignment 
of errors, upon which they will rely in the prosecu- 
tion of their appeal in the above-entitled cause, 
from the judgment entered herein on the 2d day 
of March, A. D. 1931, in the Supreme Court of the 
Territory of Hawaii: 

I. 

That the Supreme Court of the Territory of 
Hawaii erred in holding that the petitioner, the 
City and County of Honolulu, was entitled to the 
relief prayed for in its petition, to wit, to compel 
these respondents-plaintiffs in error, to deliver their 
Transfer Certificate of Title No. 7250 to the Regis- 
trar of the Land Court. 

II. 

That the Supreme Court of the Territory of 
Hawaii erred in holding that these respondents- 
petitioners in error were bound by the final order 
of condemnation made and entered on the 7th day 
of January, 1930, in that certain cause entitled 



City and County of Honolulu. 39 

[50] "The City and County of Honolulu vs. Vic- 
toria Ward," docketed and numbered Law No. 
11946. 

III. 

That the Supreme Court of the Territory of 
Hawaii erred in failing to hold and decide that it 
was without jurisdiction to grant the prayer of the 
petition. 

IV. 

That the Supreme Court of the Territory of 
Hawaii erred in failing to hold and decide that 
there was and is no provision of law upon which 
the petition herein could be based, or an order to 
show cause issued, or the prayer of the petitioner 
granted. 

V. 

That the Supreme Court of the Territory of 
Hawaii erred in failing to hold and decide that these 
respondents-petitioners in error, would be deprived 
of property without due process of law by granting 
the relief prayed for in said petition. 

VI. 

That the Court erred in failing to hold and decide 
that the property of these respondents-petitioners 
in error would be taken for public use without 
just compensation by granting the prayer of the 
petitioner. 

WHEREUPON, the said Hattie Kulamarm 
Ward, Lucy Kaiaka Ward and Victoria Kath- 
leen Ward, respondents - petitioners in error, 
pray that said opinion and decision and judg- 
ment be reversed and that the Supreme Court 



40 Hattie Kulamanu Ward et al. vs. 

of the Territory of Hawaii be ordered to enter a 
judgment reversing the decree of the Land Court, 
made and entered the 7th day of November, A. D. 
1930. [51] 

Dated at Honolulu, Hawaii, this 1st day of June, 
A. D. 1931. 

HATTIE KULAMANU WARD, 
LUCY KAIAKA WARD, and 
VICTORIA KATHLEEN WARD, 

Respondents-Plaintiffs in Error. 
By CHARLES B. D WIGHT, 
Their Attorney. [52] 



Filed June 1, 1931, at 4:05 o'clock P. M. 

Service is hereby accepted this 1st day of June, 
1931. 

L. P. SCOTT, 
Deputy City and County Attorney, 
For Plaintiff. [53] 

[Title of Court and Cause— No. 1989.] 

NOTICE OF APPEAL. 

Now comes Hattie Kulamanu Ward, Lucy Kaiaka 
Ward and Victoria Kathleen Ward, Respondents- 
plaintiffs in error herein, by their attorney, Charles 
B. D wight, and gives notice of appeal from the 
judgment of the Supreme Court of the Territory 
of Hawaii, dismissing the appeal of the respondents- 
plaintiffs in error from the decision of the Judge 
of the Land Court, of the Territory of Hawaii, and 



City and County of Honolulu. 41 

sustaining the decree of the said Judge of the Land 
Court, to the United States Circuit Court of Ap- 
peals for the Ninth Circuit. 

Dated at Honolulu, Hawaii, this 1st day of April, 
A. D. 1931. 

HATTIE KULAMANU WARD, 
LUCY KAIAKA WARD and 
VICTORIA KATHLEEN WARD, 
Respondents-Plaintiffs in Error. 
By CHARLES B. D WIGHT, 

Their Attorney. [54] 

ORDER ALLOWING APPEAL. 

Upon filing by the respondents-petitioners in 
error, Hattie Kulamanu Ward, Lucy Kaiaka Ward 
and Victoria Kathleen Ward, of a bond in the sum 
of Five Hundred Dollars ($500), with good and 
sufficient sureties, the appeal in the above-entitled 
cause is hereby allowed. 

[Seal] ANTONIO PERRY, 

Chief Justice. [55] 



Filed June 1, 1931, at 4:05 o'clock P. M. 
Service is hereby accepted this 1st day of June, 
1931. 

(Sgd.) L. P. SCOTT, 
Deputy City and County Attorney for Plaintiff. 
[56] 



42 Hattie Kulamanu Ward et al. vs. 

^ [Title of Court and Cause— No. 1989.] 

^ COST BOND. 

y The United States of America, 
- District of Hawaii. 

a> We, Hattie Kulamanu Ward, Lucy Kaiaka Ward 
£. and Victoria Kathleen Ward, as principals and 
q New York Indemnity Company of New York, as 
^ surety, jointly and severally acknowledge ourselves 
g indebted to the United States of America in the sum 
^ of Five Hundred no/100 Dollars ($500.00) to be 
^ levied on our goods, and chattels, lands and tene- 
k^ ments, upon this condition: 

£p WHEREAS, the above-named respondents-plain- 
tiffs in error have taken an appeal from the Su- 
preme Court of the Territory of Hawaii to the 
United States Circuit Court of Appeals for the 
Ninth Circuit, to reverse the judgment dated and 
entered in said cause on the 2d day of March, A. D. 
1931 — 

NOW, THEREFORE, if the above-bounded re- 
spondents-plaintiffs in error, shall prosecute their 
appeal without delay and shall answer all costs if 
they fail to make good their [57] plea, then this 
obligation shall be void; otherwise to remain in full 
force and effect. 



City and County of Honolulu. 43 

IN WITNESS WHEREOF, we have hereunto 
set out hands and seals this 1st day of June, A. D. 
1931. 

HATTIE KULAMANU WARD, 

By CHARLES B. DWIGHT, 

LUCY KAIAKA WARD, 

KATHLEEN VICTORIA WARD, 

By CHARLES B. DWIGHT, 

Her Attorney, 

Principals. 

NEW YORK INDEMNITY COMPANY, 

(Sgd.) H. A. TRUSLOW, 

Agent and Attorney-in-fact, 

Sureties. 
Reaffirmed. 

NEW YORK INS. CO., 
By Agent H. A. TRUSLOW, 
Agent and Atty.-in-fact. 
June 1, 1931. 

Taken and acknowledged before me the day and 
year first above written. 

(Sgd.) SIZANNE G. FISKE, 
Notary Public, First Judicial Circuit, Territory of 
Hawaii. 

The foregoing bond is approved as to amount and 
sufficiency of sureties. 

[Seal] (Sgd.) ANTONIO PERRY, 

Chief Justice, Supreme Court. 



44 Hattie Kulamanu Ward et ah vs. 

The foregoing bond id approved as to firm. 

(Sgd.) P. L. SCOTT, 
Deputy City and County Attorney. 
Eeaffirmed 3:45 P. M. June 1, 1931. 
LUCY K. WARD. 
HATTIT KULAMANU WARD. 
KATHLEEN VICTORIA WARD. 
By (Sgd.) CHARLES B. DWIGHT, 
There Attorney. [58] 



Filed June 1, 1931, at 4:05 o'clock P. M. 

Service is hereby accepted this 1st day of June, 
1931. 

L. P. SCOTT, 
Deputy City and County Attorney for Plaintiff. 
[59] 

[Title of Court and Cause— No. 1989.] 

CITATION ON APPEAL. 

The United States of America, — ss. 
The President of the United States of America to 
the City and County of Honolulu, a Municipal 
Corporation, and James F. Gilliland, City and 
County Attorney, Its Attorney, GREETINGS : 
You are hereby cited and admonished to be and 
appear at the Ninth Circuit, to be held at the City 
and County of San Francisco, State of California, 
within thirty (30) days from the date of this writ, 
pursuant to an order allowing appeal, filed in the 
office of the Clerk of the Supreme Court of the Ter- 
ritory of Hawaii, wherein Hattie Kulamanu Ward, 



City and County of Honolulu. ' 45 

Lucy Kaiaka Ward and Victoria Kathleen Ward 
are the respondents-plaintiffs in error, and you are 
petitioner, to show cause, if any there be, why the 
judgment in such appeal mentioned, should not be 
corrected, and speedy justice should not be done to 
the parties in that behalf. [60] 

WITNESS, the Honorable CHAELES EVANS 
HUGHES, Chief Justice of the Supreme Court of 
the United States of America, this 1st day of June, 
A. D. 1931, and of the Independence of the United 
States the 15th. 

ANTONIO PERRY, 

Chief Justice. 

[Seal] Attest: J. A. THOMPSON, 

Clerk of the Supreme Court of the Territory of 
Hawaii. 

Received a copy of the within citation June 1st, 
1931. 

L. P. SCOTT, 
Deputy City and County Attorney. 

Let the within citation issue. 
[Seal] ANTONIO PERRY, 

Chief Justice. [61] 



Filed June 1, 1931, at 4:05 o'clock P. M. 
Service is hereby accepted this 1st day of June, 

1931. 

(Sgd.) L. P. SCOTT, 
Deputy City and County Attorney, 
For Plaintiff. [62] 



46 Hattie Kulamanu Ward et ah vs. 

[Title of Court and Cause— No. 1989.] 

PRAECIPE FOR TRANSCRIPT OF RECORD. 

To the Clerk of the Above-entitled Court : 

You will please prepare transcript of the record 
in this cause, to be filed in the office of the Clerk 
of the United States Circuit Court of Appeals for 
the Ninth Circuit, and include in said transcript 
the following pleadings, proceedings and papers 
on file, to wit: 

1. Petition and order to show cause. 

2. Answer and return of the respondents, Hattie 

Kulamanu Ward, Lucy Kaiaka Ward, and 
Victoria Kathleen Ward. 

3. Demurrer to the answer and return. 

4. Decision of the court. 

5. Decree. 

6. Transcript of the evidence had and taken of 

the proceedings herein, and all original ex- 
hibits. 

7. Minutes of the registrar of the Land Court of 

the proceedings had and taken herein. 

8. Opinion and decision of the Supreme Court of 

the Territory of Hawaii, dated February 
27th, 1931. [63] 

9. Judgment on appeal of the Supreme Court of 

the Territory of Hawaii. 

10. All minute entries in the above-entitled cause. 

11. Petition for appeal. 

12. Notice of appeal and order allowing appeal. 

13. Assignment of errors. 

14. Citation on appeal. 



City and County of Honolulu. 47 

15. Bond for costs on appeal. 

16. This praecipe. 

17. Clerk's certificate to transcript. 

Said transcript to be prepared as required by law, 
and the rules of this court, and the rules of the 
United States Circuit Court of Appeals, at San 
Francisco, in the State of California, before the 
1st day of July, A. D. 1931. 

Dated at Honolulu, Hawaii, this 1st day of June, 
A. D. 1931. 

HATTIE KULAMANU WARD, 
LUCY KAIAKA WARD and 
VICTORIA KATHLEEN WARD, 
Respondents-Plaintiffs in Error. 
By (Sgd.) CHARLES B. DWIGHT, 
Their Attorney. [64] 



Piled June 1, 1931, at 4:05 o'clock P. M. 

Service is hereby accepted this 1st day of June, 
1931. 

L. P. SCOTT, 
Deputy City and County Attorney, 
For Plaintiff. [65] 

[Title of Court and Cause— No. 1989.] 

ORDER EXTENDING TIME TO AND IN- 
CLUDING JULY 1, 1931, TO PREPARE 
TRANSCRIPT AND RECORD ON AP- 
PEAL. 
IT IS HEREBY ORDERED that the time in 

which to prepare and file the record on appeal in 



48 Hattie Kulamanu Ward et al. vs. 

the above-entitled cause be extended up to and in- 
cluding the 1st day of July, A. D. 1931. 

Dated at Honolulu, this 1st day of June, A. D. 
1931. 

[Seal] ANTONIO PEERY, 

Chief Justice. [66] 



Received and filed in the Supreme Court June 
24, 1931 at 2 :09 o'clock A. M. [67] 

[Title of Court and Cause— No. 1989.] 

ORDER EXTENDING TIME TO AND IN- 
CLUDING JULY 31, 1931, TO PREPARE 
TRANSCRIPT AND RECORD ON AP- 
PEAL. 

IT IS HEREBY ORDERED that the time in 
which to prepare and file the record on appeal in the 
above-entitled cause be extended up to and includ- 
ing the 31st day of July, A. D. 1931. 

Dated at Honolulu, Hawaii, this 24th day of June 
A. D. 1931. 

[Seal] ANTONIO PERRY, 

Chief Justice. 
Approved : 

L. P. SCOTT, 
Deputy City and Cty. Atty. [68] 



City and County of Honolulu. 49 

[Title of Court and Cause— No. 1989.] 

CERTIFICATE OF CLERK OF THE SU- 
PREME COURT OF THE TERRITORY OF 
HAWAII TO TRANSCRIPT OF RECORD. 

Territory of Hawaii, 

City and County of Honolulu, — ss. 

I, Robert Parker, Jr., Assistant Clerk of the Su- 
preme Court of the Territory of Hawaii, DO 
HEREBY CERTIFY, that the documents hereto 
attached and enumerated hereunder, viz.: 

1. Fly-leaf and index to transcript of record. 

2. Petition for issuance of certificate of title upon 

final order of condemnation and order to 
show cause. 

3. Copy answer and return of Hattie Kulamanu 

Ward, Lucy Kaiaka Ward and Victoria 
Kathleen Ward, dated and filed September 
6, 1930. 

4. Copy demurrer to answer and return of Hat- 

tie Kulamanu Ward, Lucy Kaiaka Ward 
and Victoria Kathleen Ward, dated and 
filed September 12, 1930. 

5. Copy decision of Hon. A. E. Steadman, Judge 

of the Land Court, on order to show cause, 
dated and filed October 17, 1930. 

6. Copy decree entered in the Land Court, dated 

and filed November 7, 1930. 

7. Copy minutes of the Registrar of the Land 

Court. 



50 Hattie Kttlamanu Ward et al. vs. 

8. Copy opinion of the Supreme Court, Terri- 

tory of Hawaii, filed February 27, 1931. 

9. Copy judgment on writ of error and notice 

of judgment on writ of error, filed March 2, 
1931. 

10. Clerk's minutes of the Supreme Court, Terri- 

tory of Hawaii. 

11. Original petition by the respondents for ap- 

peal to the United States Circuit, Court 
of Appeals for the Ninth Circuit, dated 
June 1, 1931. 

12. Original assignment of errors, dated June 1, 

1931. 

13. Original notice of appeal and order allowing 

appeal, dated and filed June 1, 1931. [69] 

14. Copy cost bond, dated June 1, 1931, for the 

sum of $500.00, Hattie Kulamanu Ward, 
Lucy Kaiaka Ward, and Victoria Kathleen 
Ward, Principals; New York Indemnity 
Company of New York, Surety, and United 
States of America, Obligee, and approval 
thereof. 

15. Original citation on appeal, etc., dated June 1, 

1931. 

16. Copy praecipe for transcript of record, dated 

June 1, 1931. 

17. Original order extending time to July 1, 1931, 

to prepare transcript and record on appeal, 
dated June 1, 1931. 

18. Original order granting petitioners-appellant 

to and including July 31, 1931, in which to 
prepare and file record on appeal, 



City and County of Honolulu. 51 

are full, true and accurate copies of the original 
documents, filed in the above-entitled cause and now 
on file in the office of the Clerk of the Supreme 
Court of the Territory of Hawaii. 
I FURTHER CERTIFY that the 

19. Original transcript of evidence, filed Decem- 

ber 5m, 1930, and 

20. Petitioner's Exhibit "A," being Original Law 

Record No. 11946, Circuit Court First Judi- 
cial Circuit, Territory of Hawaii, in a cause 
entitled u The City and County of Honolulu, 
Plaintiff, vs. Victoria Ward, Respondent," 
are the originals, and are herewith transmitted to 
the United States Circuit Court of Appeals for the 
Ninth Circuit, at San Francisco, California; ex- 
cepting number 11 — Petition by the respondent for 
appeal to the U. S. Circuit Court of Appeals for the 
Ninth Circuit, dated June 1, 1931; number 12 — 
Assignment of errors, dated June 1, 1931; number 
13 — Notice of appeal and order allowing appeal, 
dated and filed June 1, 1931; number 15 — Citation 
on appeal to the U. S. Circuit Court of Appeals for 
the Ninth Circuit, dated June 1, 1931 ; number 17 — 
Order extending time to prepare transcript and 
record on appeal, filed June 1, 1931, and number 
18 — Order extending time to prepare transcript 
and record on appeal, filed June 24, 1931, are the 
originals, and are herewith transmitted to the 
United States Circuit Court of Appeals for the 
Ninth Circuit, at San Francisco, California. [70] 
In pursuance to the praecipe filed June 1, 1931, 
in the above-entitled cause, the foregoing are here- 



52 Hattie Kulamanu Ward et al. vs. 

with transmitted to the Circuit Court of Appeals 

for the Ninth Circuit. 

IN WITNESS WHEREOF, I have hereunto 

set my hand and the seal of the above-entitled 

court, at Honolulu, City and County of Honolulu, 

Territory of Hawaii, this 22d day of July, A. D. 

1931. 

[Seal] ROBERT PARKER, Jr., 

Assistant Clerk of the Supreme Court of the Terri- 
tory of Hawaii. [71] 



[Endorsed] : No. 6545. United States Circuit 
Court of Appeals for the Ninth Circuit. In the 
Matter of the Application of Victoria Ward to 
Register and Confirm Title to Certain Land Situ- 
ate at Kewalo, Honolulu, Oahu, Territory of Ha- 
waii. Hattie Kulamanu Ward, Lucy Kaiaka 
Ward and Victoria Kathleen Ward, Appellants, vs. 
City and County of Honolulu, a Municipal Corpora- 
tion, Appellee. Transcript of Record. Upon Ap- 
peal from the Supreme Court of the Territory of 
Hawaii. 

Filed July 29, 1931. 

PAUL P. O'BRIEN, 
Clerk of the United States Circuit Court of Appeals 
for the Ninth Circuit. 

By Frank H. Schmid, 
Deputy Clerk. 



Nos. 6545-6546 

Ittttrii States 
dtrmtt fllnurt nf Appals 

3far % Ntntif (tftrnrit 



In the Matter of the Application of 
VICTORIA WARD to Register 
and Confirm Title to Certain 
Land Situate at Kewalo, Hono- 
lulu, Oahu, Territory of Hawaii. 

HATTIE KULAMANU WARD, 
LUCY KAIAKA WARD and 
VICTORIA KATHLEEN 
WARD, 

Appellants, 
vs. 

CITY AND COUNTY OF HONO- 
LULU, a Municipal Corporation, 

. Appellee. 

HATTIE KULAMANU WARD, 
LUCY KAIAKA. WARD and 
VICTORIA KATHLEEN 
WARD, 

Appellants, 
vs. 
CITY AND COUNTY OF HONO- 
LULU, a Municipal Corporation, 
Appellee. 



\ 






FILED 

KC 1 193 i 

PAUL P. o'SRlCN, 

CLERK 



APPEAL FROM THE SUPREME COURT OF 
THE TERRITORY OF HAWAII 

BRIEF OF APPELLANT 

CHARLES B. DWIGHT, 
Attorney for H attic Kulamanu Ward, 
Lucy Kaiaka Ward and Victoria 
Kathleen Ward, Appellants, 

Filed this day of , 1031 

PAUL P. O'BRIEN, ( 1 lcrl\ 



By. 



Deputy Clerk, 



CONTENTS 

Pages 

STATEMENT OF FACTS 2-10 

ASSIGNMENTS OF EEKOK 10-13 

ARGUMENT 13-22 

CONCLUSION 22-23 



TABLE OF CASES 

Tages 

Baker vs. Morton, 79 U. S. 150 ; 20 L. Ed. 262 17 

Bush vs. Territory, 13 Hawaii 1 20 

Canoe vs. Davis, 121 S. E. 601 15 

Chicago vs. Messier et al, 38 Fed. 302 at 303 18 

City of Troy vs. Watkins, 78 So. 50 19 

Cowan vs. Skinner, 42 So. 730 21 

Department of Public Works vs. Ingall, 146 N. 

E. 521 18 

East San Mateo Land Co. vs. S. P. By. Co., 157 

p. 634 15 

German Evangelical Cong. vs. Hoessle, 13 Wis. 

348 at page 358 21 

Ilargett vs. Franklin County et al, 267 S. W. 688 19 

Johnson vs. Washington Co., 20 S. W. (2) 179.... 16 

Lindsay vs. Kanaina, 4 Haw. 165 17 

Bockaway Pacific Corp. vs. Stotesburg et al, 255 

Fed. 345 19 

Bussakox vs. McCarthy, 275 Pac. 808 16 

Safe Deposit & Title Guaranty Co. vs. Lenton, 

100 A. S31 16 



Pages 

Spencer vs. Comm. River Co., 101 A 528 15 

Stall vs. Bremer, 118 N. E. 1087 19 

U. S. vs. Marriam, 161 Fed. 303 16 

Uvalde Rock Asphalt Co. vs. Asphalt Belt Ry. 

Co. et al, 103 So. 40 19 

Van Etten vs. C. of N. Y., 124 N. E. 201 15 

Van Etten vs. C. of N. Y., 124 N. E. 201 16 

Weieke vs. Chic. M. & St. P. Ry., 178 N. W. 1009 18 

Yee Hop vs. Colburn, 24 Hawn. 658 20 

32 C. J. 136 22 

32 C. J. 137 22 

Section 3237, Revised Laws of Hawaii, 1925 14 

Section 824, Revised Laws of Hawaii, 1925 16 

Sections 823 and 824, Revised Laws of Hawaii, 

1925 17 

Sections 1892 and 1893, Revised Laws of Ha- 
waii, 1925 20 



Nos. 6545-6546 

Mmtei States 
(Etrnrit fflmtrf nf Appeals 

Jnr % Nmtfj Ctrnrit 

In the Matter of the Application of 

VICTORIA WARD to Register 

and Confirm Title to Certain 

Land Situate at Kewalo, Hono- 
lulu, Oahu, Territory of Hawaii. 
HATTIE KULAMANU WARD, 

LUCY KAIAKA WARD and 

VICTORIA KATHLEEN 

WARD, 

Appellants, 
vs. 

CITY AND COUNTY OF HONO- 
LULU, a Municipal Corporation, 

Appellee. 

HATTIE KULAMANU WARD, 
LUCY KAIAKA WARD and 
VICTORIA KATHLEEN 
WARD, 

Appellants, 
vs. 
CITY AND COUNTY OF HONO- 
LULU, a Municipal Corporation, 
Appellee. 

BRIEF OF APPELLANTS 

These proceedings have come to this Court upon 
the appeals of HATTIE KULAMANU WARD, 
LUCY KAIAKA WARD and VICTORIA KATH- 



LEEN WARD, from the judgments of the Supreme 
Court of the Territory of Hawaii, made and entered 
on the 2nd day of March, 1931. As the issues in- 
volved in both causes are similar, by stipulation, ap- 
proved by this Court, the causes were consolidated 
for briefing and argument. 

FACTS 
Cause No. 6545 

This cause was instituted in the Land Court of the 
Territory of Hawaii by a petition of the City and 
County of Honolulu, praying for the issuance to it 
of a certificate of title covering Lots "F" and "G" of 
Land Court Application No. 670. 

The Petitioner alleged in its petition that on 
March 19, 1928, the City and County of Honolulu in- 
stituted a suit in eminent domain in the Circuit 
Court of the First Judicial Circuit of the Territory 
of Hawaii, against Victoria Ward to condemn the 
parcels above named; that the summons in the con- 
demnation suit were issued on the 19th day of March, 
1928, and that service was made on March 20th, 
1928; that on July 26th, 1928, Victoria Ward, 
through her attorneys, filed an answer; that prior 
thereto and on to-wit, the 18th clay of July, 1928, 
during the pendency of the eminent domain suit, 
Victoria Ward executed a deed conveying parcels 
"F" and "G" and other lands to her daughters, HAT- 
TIE KULAMANU WARD, LUCY KAIAKA 
WAED and VICTORIA KATHLEEN WARD as 
joint tenants with herself, and that pursuant there- 
to Transfer Certificate of Title No. 7250 was issued 



out of the Land Court of the Territory of Hawaii to 
HATTIE KULAMANU WARD, LUCY KAIAKA 
WARD and VICTORIA KATHLEEN WARD. 

The petition further alleged that the trial of the 
eminent domain proceeding began in the Circuit 
Court of the First Judicial Circuit on October 1st, 
1928, and continued to and including October 12th, 
1928, when a verdict was rendered; that judgment 
was entered on October 23rd, 1928, and that the final 
order of condemnation was entered on January 7th, 
1930, which order was recorded in the office of the 
Registrar of Conveyances as Document No. 20898. 
The petition also alleged that during the trial of 
the condemnation suit either one or all of the gran- 
tees of Mrs. Ward were in attendance and had no- 
tice of the proceedings and that neither of them en- 
tered an appearance or intervened in said suit. An 
order to show cause was issued upon the petition, 
addressed to Victoria Ward, Lucy Kaiaka Ward, 
Hattie Kulamanu Ward and Victoria Kathleen 
Ward. 

Victoria Ward separately filed an answer and re- 
turn and the cause was dismissed as to her. Hattie 
Kulamanu Ward, Lucy Kaiaka Ward and Victoria 
Kathleen Ward filed their answer and return and in 
the answer and return admitted that the eminent 
domain proceeding was commenced in the Circuit 
Court on October 1st, 1928; that a verdict was ren- 
dered on October 12th, 1928, and that judgment 
thereon was entered on October 23rd, 1928. They 
also admitted that the final order of condemnation 
was entered on January 7th, 1930, and was recorded 
in the Office of the Registrar of Conveyances as Docu- 



ment No. 20898. They denied that they were present 
during all of the trial, but admitted that they had 
notice of the condemnation proceedings and further 
averred that they were the owners, as joint tenants, 
of Lots "F" and "G" of Land Court Application No. 
670, subject to a life estate in Victoria Ward, and 
were such owners at the time of the trial of the con- 
demnation suit ; that they were not joined as defend- 
ants ; that no summons was served upon them in the 
eminent domain proceedings; that no compensation 
was offered or paid to them by the City and County 
of Honolulu, or the Territory of Hawaii. The re- 
spondents set up other grounds in their answer 
which will not be considered here. 

A demurrer was interposed to the return of the 
respondents and overruled. 

The facts, having been admitted by the pleadings, 
the cause was argued and the Land Court of the Ter- 
ritory of Hawaii granted the prayer of the petition. 

An appeal upon Writ of Error was taken to the 
Supreme Court of the Territory of Hawaii. 

The Supreme Court of the Territory of Hawaii on 
the 27th day of February, 1931, entered its Opinion 
and Decision sustaining the Decree of the Land 
Court. A Judgment pursuant to the Opinion and De- 
cision of the Land Court of the Territory of Hawaii 
was made and entered on the 2nd day of May, 1931, 
from which Judgment these respondents have ap- 
pealed to this Court. 

FACTS 
Cause No. 6546 

This cause has come to this Court upon an appeal 



taken by the Petitioners from the Judgment of the 
Supreme Court of the Territory of Hawaii made and 
entered on the 2nd day of May, 1931, pursuant to the 
Opinion and Decision of the Supreme Court of the 
Territory of Hawaii made and entered on the 27th 
day of February, 1931, which opinion and decision 
sustained the decree of the Circuit Judge of the First 
Judicial Circuit, Territory of Hawaii. 

On December 5th, 1930, the Appellants herein 
filed their bill in equity praying for an injunction to 
restrain the respondent, The City and County of Ho- 
nolulu, its officers, agents and servants, from in any 
manner trespassing upon Lots "E", "F" and "G" of 
Land Court Application No. 670 and committing 
irreparable injury to the homestead of the petition- 
ers. A temporary restraining order was issued, 
which was modified by stipulation of counsel, and 
the respondent was temporarily restrained from 
trespassing on Lot "G" of Land Court Application 
No. 670 and from committing irreparable injury to 
the homestead of the petitioners. 

The respondent demurred to the bill, which de- 
murrer was overruled. 

The cause was heard before the Circuit Judge at 
Chambers and a decision was entered dismissing the 
petition for injunction. 

Pursuant to the decision of the Circuit Judge a 
Decree was duly entered, from which an appeal was 
taken to the Supreme Court of the Territory of Ha- 
waii, and as hereinbefore stated, on March 2nd, 1931, 
the Supreme Court of the Territory of Hawaii dis- 
missed the appeal. 

The petition for injunction alleged that the pot i- 



tioners were the owners in fee simple, and as joint 
tenants with Victoria Ward, of Lots "E", "F" and 
a G" of Land Court Application No. 670; that on 
July 18th, 1928, there was issued to them Transfer 
Certificate of Title No. 7250 out of the Land Court 
of the Territory of Hawaii; that Lots "E", "F" and 
"G" are a portion of the lands constituting the fam- 
ily homestead of the petitioners, which homestead 
had been maintained as such for more than fifty 
years ; that the grounds of the said homestead were 
planted to valuable trees and the plants and trees 
were set out and cultivated with great care by the 
petitioners and Victoria Ward; that Lots "E", "F" 
and "G" constitute the proposed right-of-way for the 
Kapiolani Boulevard, a proposed public highway of 
the City and County of Honolulu and that the pro- 
posed right-of-way constituted a strip running over 
and across the homestead of the Petitioners, divid- 
ing the same into two parts. 

The petition further alleged that the City and 
County of Honolulu had threatened and was threat- 
ening to trespass upon Lots "E", "F" and "G" and 
to break down the family fence of the homestead and 
enter upon said Lots "E", "F" and "G" and trespass 
thereon ; that the respondent threatened to fill in the 
right-of-way to a grade considerably higher than the 
remaining portion of the homestead lying mauka 
(the direction toward the mountains and away from 
the sea) ; that if the respondent had carried out its 
threat to enter upon the strip and trespass upon the 
property of the petitioners, the petitioners would 
suffer irreparable injury in that by filling in the pro- 
posed strip the natural flow of surface waters, off the 



homestead of the petitioners, would be obstructed 
and that the flood waters would back up over and 
upon the homestead of the petitioners, damaging the 
property of the petitioners and that the back waters 
would kill and injure the plants and trees planted by 
the petitioners and their mother and that the stop- 
page of the flow of surface waters would seriously 
affect the homestead and make insanitary, unhealth- 
ful and uninhabitable the premises occupied by the 
petitioners as their home. 

The petition further alleges that no compensation 
had been paid to the petitioners by the City and 
County of Honolulu, or the Territory of Hawaii, for 
Lots "E", "F" and "G" notwithstanding the fact that 
the respondent proposes to use the property for pub- 
lic purposes, to-wit, for a public highway. 

The petition further alleged actual threats by the 
agents of the City and County of Honolulu to enter 
upon and trespass over the above described lots. 

Other allegations in the petition need not be in- 
serted here as those allegations are immaterial to a 
decision by this Court. 

The answer of the respondent averred that as to 
Lot "E", the petitioners had only a bare legal title, 
subject to a binding agreement between the predeces- 
sor in interest of the Petitioners and the Territory 
of Hawaii. As to Lots "F" and "G" the respondent 
claimed title pursuant to a proceeding in condemna- 
tion instituted by the City and County of Honolulu 
against Victoria Ward. 

The answer also admitted the threats to enter 
upon Lots "E", "F" and "G" by the agents of the 
City and County of Honolulu but denied that the 



8 

petitioners were suffering, or did suffer, any irrepar- 
able injury. To which answer the petitioners filed 
their replication denying that they owned a bare 
legal title to Lot "E", but reasserted their claim to 
title in fee simple to Lots "E", "F" and "G". 

In the hearing before the Circuit Judge the peti- 
tioners offered in evidence Transfer Certificate of 
Title No. 7250, which certified that title in fee sim- 
ple to Lots "E", "F" and "G" was in the petitioners, 
as joint tenants with Victoria Ward. 

It was stipulated by counsel in the Circuit Court, 
that neither of the petitioners were made parties- 
defendant in the suit in condemnation, but that the 
petitioners did have notice of the suit. 

Kathleen Ward, one of the petitioners, testified 
that she was one of the owners in fee simple of Lots 
"E", "F" and "G" ; that she received no compensation 
for her interest in the property from the City and 
County of Honolulu, nor was any compensation ever 
offered to her. She further testified that one Oli- 
veira, purporting to act as the agent of the City and 
County of Honolulu, threatened to break down the 
family fence and that the County engineer had ad- 
dressed a communication to her conveying the inten- 
tion of the City and County of Honolulu to enter 
upon Lots "E", "F" and "G", which letter was in- 
troduced in evidence. She further testified that a 
partial fill had been put upon Lot "G" and that as a 
result the surface waters had backed up and into 
their homestead and made a portion of the home- 
stead low, marshy and insanitary. That because of 
the backing up of the water a number of choice trees 
had died. 



9 

Miss Lucy Ward, one of the petitioners, testified 
that she was the owner of Lots "E", "F" and "G" 
with her sisters and mother; that no compensation 
had been paid to her, nor offered by the City and 
County of Honolulu, nor anyone in its behalf; that 
a portion of Lot "G" had been filled by the City and 
County of Honolulu and as a result thereof the sur- 
face waters had backed up and a portion of the home- 
stead had become insanitary, low and marshy caus- 
ing several choice trees planted many years prior to 
the time that she testified, to die. 

The City and County of Honolulu by way of de- 
fense offered in evidence the record in the case of 
"City and County of Honolulu vs. Victoria Ward" 
and a portion of the record in Land Court Applica- 
tion No. 670. It also offered in evidence a letter 
signed by E. H. Wodehouse, attorney in fact for Vic- 
toria Ward, and the reply thereto signed by James 
H. Boyd, Superintendent of Public Works, both let- 
ters being dated in the year 1902, all of which ex- 
hibits are now before this Court. 

The City and County of Honolulu then proceeded 
to prove through its witnesses that it had partially 
complied with the conditions set forth in the letter 
of Mrs. Ward. 

The Petitioners were then recalled and testified 
that the Territory of Hawaii had failed to comply 
with the conditions set forth in the letter of 1902. 
That the petitioners and their mother at their own 
expense, were compelled to put in fences on both 
sides of Lot "E" ; that Lot "E" was never paved un- 
til 1910; that no curbs were laid and that an attempt 
to lay curbs was being made by the Ci1y and County 



10 

of Honolulu after the filing of the suit; that the 
petitioners were compelled at their own expense to 
fill in a large portion of the area Ewa (westerly 
side) of Lot "E". 

The petitioners also put in evidence the entire rec- 
ord in Land Court Application 670. 

The Court entered its decision dismissing the bill. 
Pursuant thereto a decree was entered, from which 
decree an appeal was taken to the Supreme Court. 

The Supreme Court of the Territory sustained the 
Circuit Judge and the matter is now before this 
Court upon appeal. 

ASSIGNMENTS OF ERROR 
No. 6545 



That the Supreme Court of the Territory of Ha- 
waii erred in holding that the petitioner, the City 
and County of Honolulu, was entitled to the relief 
prayed for in its petition, to-wit, to compel these re- 
spondents to deliver their Transfer Certificate of 
Title No. 7250 to the Eegistrar of the Land Court. 

II 

That the Supreme Court of the Territory of Ha- 
waii erred in holding that these respondents were 
bound by the final order of condemnation made and 
entered on the 7th day of January, 1930, in that cer- 
tain cause entitled "The City and County of Hono- 
lulu vs. Victoria Ward," docketed and numbered 
Law No. 11946. 



11 

III 

That the Supreme Court of the Territory of Ha- 
waii erred in failing to hold and decide that it was 
without jurisdiction to grant the prayer of the peti- 
tion. 

IV 

That the Supreme Court of the Territory of Ha- 
waii erred in failing to hold and decide that there 
was and is no provision of law upon which the peti- 
tion herein could be based, or an order to show cause 
issued, or the prayer of the petitioner granted. 



That the Supreme Court of the Territory of Ha- 
waii erred in failing to hold and decide that these re- 
spondents, would be deprived of property without 
clue process of law by granting the relief prayed for 
in said petition. 

VI 

That the Court erred in failing to hold and decide 
that the property of these respondents would be tak- 
en for public use without just compensation by grant- 
ing the prayer of the petitioner. 

No. G546 

I 

That the Supreme Court of the Territory of Ha- 
waii erred in overruling the appeal of the petitioners 
and affirming the decision of the Circuit Court of the 



12 

First Judicial Circuit, Territory of Hawaii, made 
and entered on the 5th day of February, 1931. 

II 

That the Supreme Court of the Territory of Ha- 
waii erred in holding and finding that the petition- 
ers were not entitled to the relief prayed for in their 
petition. 

Ill 

That the Supreme Court of the Territory of Ha- 
waii erred in holding and finding that the petitioners 
were bound by the judgment in the eminent domain 
proceeding entitled "The City and County of Hono- 
lulu vs. Victoria Ward." 

IV 

That the Supreme Court of the Territory of Ha- 
waii erred in failing to grant the relief prayed for by 
the petitioners in their petition. 

V 

That the Supreme Court of the Territory of Ha- 
waii erred in failing to hold and find that the peti- 
tioners would be deprived of their private property 
without just compensation if the prayer of the peti- 
tioners was not granted. 

VI 

That the Supreme Court of the Territory of Ha- 
waii erred in failing to hold and find that the peti- 
tioners were not bound by the Final Order of Con- 



13 

demnation in the eminent domain proceeding enti- 
tled "The City and County of Honolulu vs. Victoria 
Ward." 

ARGUMENT 

The assignments of error in both causes raise but 
one main issue — whether, the City and County of 
Honolulu, under the power of eminent domain, can 
take private property for public use without first 
paying just compensation therefor, to the owner at 
the time of taking. For this reason all of the assign- 
ments of error will be argued together. 

It will be remembered that these appellants were 
purchasers pendente lite of Lots "F" and "G" of 
Land Court Application No. 670 ; that said lots were 
condemned for public purposes in a proceeding 
against their predecessor in interest, and a judg- 
ment fixing the damage for the taking had been en- 
tered, but that the compensation fixed by the judg- 
ment to be paid to the owner was not paid to these 
appellants but to their predecessor in interest, not- 
withstanding the prior issuance to them of a Cer- 
tificate of Title out of the Land Court of the Ter- 
ritory of Hawaii, certifying that these appellants 
were the owners in fee. 

While it is contended by these appellants, that 
they were not bound by the judgment in the eminent 
domain proceeding, we will assume for the purposes 
of this argument that they are, that is, that as to 
them, it has been judicially determined that Lots 
"F" and "G" of Land Court Application No. G70, 
could be taken for public purposes upon the payment 
of the award fixed in the judgment, It is, however, 



14 

respectfully contended that the Final Order of Con- 
demnation was void and of no effect as to them and 
teas ineffectual to divest them of their fee simple 
title because of the failure of the City and County of 
Honolulu to pay to them the compensation fixed by 
the judgment for their interest in the land. It would 
violate the constitution of the United States to hold 
otherwise for their private property would be taken 
for public use, without just compensation. 

As hereinbefore stated, the Final Order of Con- 
demnation involves Lots "F" and "G". The evidence 
before the Circuit Court was conclusive that the Peti- 
tioners, Lucy Kaiaka Ward, and her sisters, the ap- 
pellants herein, were the owners in fee simple, as 
joint tenants with their mother, prior to the entering 
of the judgment fixing the compensation. Transfer 
Certificate of Title No. 7250, had already been is- 
sued to them by the Land Court of the Territory. 
The Certificate, on its face, shows these appellants 
to be the owners and under our statute a transfer 
certificate of title is conclusive evidence of the state- 
ments contained therein. 

"Sec. 3237. Certificate as Evidence. The orig- 
inal certificate in the registration book, any copy 
thereof duly certified under the signature of the 
registrar or assistant registrar, and the seal of the 
Court, and also the owners duplicate certificate, 
shall be received as evidence in all the courts of 
the Territory, and shall be conclusive as to all mat- 
ters therein contained, except so far as otherwise 
provided in this chapter." 

Revised Laws of Hawaii, 1925. 

The evidence also conclusively showed that no 



15 

part of the compensation fixed by the judgment was 
ever paid to these appellants. This fact was not only 
proven, but admitted by the City and County of Ho- 
nolulu. The compensation was not paid to these ap- 
pellants notwithstanding the fact that a year and a 
half elapsed between the issuance of the Transfer 
Certificate and the filing of the Final Order of Con- 
demnation. 

There can be no question but that the award of 
damages set forth in the eminent domain proceeding 
should be payable to the owner or owners at the time 
the title passes to the government. 

The authorities are uniform in that regard. They 
all hold that the owner at the time that the title 
passes to the government is the person to whom the 
award is payable. 



"When land is condemned, the damages belong 
the owner at the time of taking." 

Spencer vs. Comm. Elver Co. 101 A. 528. 



"He from whom the title of the condemned prop- 
erty is taken is entitled to the compensation." 
Van Etten vs. C. of N. Y. 124 N. E. 201. 
See also 99 A 64 and 106 A. 65. 

"The right of compensation for land taken for 
public use occurs when the land is taken." 
East San Mateo Land Co. v. S. P. Ky. Co. 
157 P. 634. 

"Damages for the taking of land for a highway 
belong to the one who owns the land at the time 
of taking." 

Canoe v. Davis, 121 S. E. 601. 



16 

"Grantee entitled to damages caused by laying 
out of road." 

Johnson vs. Washington Co. 
20 S. W. (2) 179. 

"Vendee is entitled to damages suffered where 
right to condemnation proceeds, accrues after 
conveyance." 

Eussakox vs. McCarthy, 275 Pac. 808. 

"It is the divesting of title which entitles to the 
compensation" 

Van Etten vs. C. of N. Y. 124 N. E. 201. 

"Damages for appropriation of land by either 
public or private corporation belong to the owner 
of land when appropriation is made." 

Safe Deposit & Title Guaranty Co. 
vs. Lenton, 100 A. 831. ' 

It is provided in Section 824, Kevised Laws of Ha- 
waii, 1925, that the owners are divested of their title 
when the final order of condemnation is entered and 
recorded. This Court in the case of U. S. vs. Mar- 
riam, 161 Fed. 303, in construing this section has so 
held. It said : 

"The direct language of this provision makes it 
plain that the judgment must be filed and recorded 
before the property vests in the plaintiff. By the 
use of the adverb 'thereupon' the law fixes the time 
when the title shall vest, that is when the act of 
filing and recording the certified copy of the judg- 
ment is done and not until then. The reason for 
requiring such registry must also lie in the general 
rule that the judgment, unless filed and recorded, 
would not create a lien upon the realty involved, 
or conclude any who were not parties to the con- 



17 

damnation proceedings" Lindsay v. Kanaina, 4 
Haw. 165; Baker v. Morton, 79 U. S. 150; 20 L. 
Ed. 262. 

It will be noted that our statute is silent as to 
whom the compensation should be payable. It is a 
matter of general knowledge, and it is not uncom- 
mon that owners of lands about to be condemned 
who do not feel that they can bear the burden of the 
cost of the improvement sell their lands to others 
who can bear the burden and that the owner at the 
time when the Final Order is entered is the person 
to whom the payments provided by the judgment 
should be made, and to no other. 

The Petitioners therefore, being the owners of Lots 
"F" and "G", were entitled to the compensation. 
The evidence conclusively shows that they did not 
receive it. Certainly under the law and the conclu- 
sive evidence there could be no justification for the 
conclusion of the Supreme Court of Hawaii that the 
"Compensation was awarded and paid to the owner 
of the land" (Tr. No. 6545, p. 29). Furthermore 
Section 823, Revised Laws of Hawaii, 1925, provides 
that the payments must be made within two years 
and Section 824 of the Revised Laws, 1925, provides : 

"When all payments required by the final judg- 
ment have been made the Court shall make a final 
order of condemnation and until then no final 
order can be made." 

It is submitted that the requirements of Section 
824 were not complied with by the City and County 



18 

of Honolulu and that the final order of condemnation 
was therefore void. The title to Lots a F" and "G" 
therefore remained in the appellants, and the appel- 
lants who were not parties to the condemnation pro- 
ceedings are not concluded. 

It is fundamental that private property cannot be 
taken for public use without compensation. It is a 
constitutional right guaranteed to every citizen and 
no legislature or court can deprive a citizen of that 
right. 

"Private property cannot be taken unless com- 
pensation be first made, a constitutional provision 
which the legislature cannot abrogate." 

Weieke v. Chic. M. & St. P. Ky. 178 N. W. 1009. 

The conclusion of the Supreme Court of Hawaii 
that these appellants' constitutional rights were not 
violated, even though their private property was 
taken for public use without paying just compensa- 
tion therefor, is manifestly error. 

The attempt of the City and County of Honolulu 
to enter upon and take possession of these appel- 
lants' private property violates the Constitution. 
The question as to whom the compensation is to be 
paid is just as vital as the amount which is to bd 
paid, when constitutional rights are concerned, in an 
eminent domain proceeding. 

While a purchaser pendente lite, may be bound by 
the judgment, still and notwithstanding that fact, 
the Owner's subsequent conveyance does affect the 
question as to whom the compensation should be 
paid. (See Department of Public Works v. Ingall, 
140 N. E. 521, and Chicago vs. Messier et al, 38 Fed. 



19 

302 at 303.) And, as the law clearly indicates that 
these appellants should have been paid the compen- 
sation as they were the owners at the time of the 
taking the Supreme Court of Hawaii erred, and 
should be reversed. 

The Supreme Court also erred in failing to grant 
injunctive relief. 

The threatened acts of the City and County of Ho^ 
nolulu to take and injure the property of these Ap^ 
pellants is sufficient ground, in itself, for the issu- 
ance of an injunction to restrain such acts. 

"Property owner has right to enjoin acts of dam- 
ages to his property by municipality where there 
is an attempt to take or injure his property for 
public use without compensation." 

City of Troy v. Watkins, 78 So. 50. 

"Citizens may enjoin municipality from taking 
or injuring his property without first making com- 
pensation without regard to the fact that adequate 
damages at law can be recovered." 

Id. 

See also 

Stall vs. Bremer, 118 N. E. 1087. 

Eockaway Pacific Corp. v. Stotesburg et al, 255 
Fed. 345. 

Uvalde Kock Asphalt Co. v. Asphalt Belt By. Co. 
et al. 103 So. 40. 

Hargett v. Franklin County et al, 267 S. W. 688. 

The Supreme Court of Hawaii in its opinion and 
decision found that as to Lot "E" these Appellants 
had an adequate remedy at law, to-wit, a suit against 
the City and County of Honolulu in ejectment. Lot 
"E" is a highway. To arrive at the conclusion that 



20 

the Supreme Court did, it must of necessity also ar- 
rive at the conclusion that the fee to Lot "E" was in 
the Territory. 

Section 1892 of the Revised Laws of Hawaii, 1925, 
defines public highways as roads, etc., dedicated to 
the public as a highway, and Section 1893 of the Re- 
vised Laws provides that : 

"The ownership of all public highways and the 
land, real estate and property of the same shall 
be in the government in fee simple." 

In other words, once a way becomes a public high- 
way by dedication the fee therein is in the Territory. 

If the fee is in the Territory then the conclusion 
of the Supreme Court is clearly error, for the Su- 
preme Court has in the case of Bush vs. Territory, 
13 Hawaii 1, held: 

"That ejectment does not lie against the Ter- 
ritory." 

As to the power of a court in equity to restrain a 
trespass the Supreme Court of Hawaii has in the 
case of Yee Hop v. Colburn, 24 Hawn. 658, set down 
the rule as follows: 

"In the present case we have a petition address- 
ed to a court of equity by the owner in possession 
of the property to restrain parties who have tres- 
passed upon the property and caused destruction 
of a part thereof and who threaten future tres- 
passes and acts of destruction. Upon two recog- 
nized principles equity would afford relief in such 
a case. First, because the threatened acts of the 
respondents, if carried into effect, might tend to 



21 

the destruction of the property, and second, the re- 
peated acts of trespass would result in a multi- 
plicity of suits." 

The evidence before the circuit court also showed 
that the City and County of Honolulu had trespassed 
upon Lots "E", "F" and "G" and had caused damage 
to a portion of these Appellants homestead by mak- 
ing the same low, marshy and insanitary, resulting 
in the death of several choice trees. These facts en- 
title the appellants to equitable relief. 

"Equity may enjoin the destruction of or injury 
to trees when the inadequacy of the remedy at law 
is because of the value of the trees as a part of the 
estate, the destruction of which would be irrepara- 
ble injury to the owner of the land." 

Cowan v. Skinner, 42 So. 730. 

And in the case of German Evangelical Cong. v. 
Tloessle, 13 Wis. 348, at page 358, that Court, in 
speaking of the rule said : 

"But in cases of a peculiar nature which dam- 
ages could not compensate, or where the injury 
reached the very substance and value of the estate 
and went to the destruction of it in the character 
in tvhich it tvas enjoyed then Courts of Equity 
would grant an injunction to prevent the injury 
complained of." 

How can money compensate the Appellants foi/ 
the damage suffered? How can money replace the 
trees and shrubs that have been killed? How can 
money replace the security of the Appellants in their 
enjoyment in the tropical beauty and splendor of 
their home grounds, a portion of which already has 



22 

been taken away? How can money place in status 
quo that portion of "Old Plantation" that has be- 
come low, marshy and insanitary — a swamp? The 
injury suffered is irreparable. This, it is submitted, 
has been clearly proven by the evidence. The circuit 
court in its decision found that the damage set forth 
above had been suffered. 

The Appellants having proved that they had suf- 
fered and were suffering irreparable injury, the Su- 
preme Court erred in not granting the relief prayed 
for. 

"It is well settled that if the bill shows that irre- 
parable injury will result from a trespass, a suffi- 
cient ground for the interference of equity by in- 
junction to restrain its commission or continuance 
is made out." 

32 C. J. 136. 

Or, to put the rule, in another form : 

"Where the injury is of such a nature that it 
cannot be fully compensated in damages by any 
pecuniary standard, it is irreparable and the tres- 
pass may be enjoined." 

32 C. J. 137. 

CONCLUSION 

It is the respectful contention of the Appellants, 
in view of the law, that the Supreme Court of Ha- 
waii erred in the manner and form set forth in the 
Specifications of Error. The Appellants herein un- 
der the law and facts were entitled to the relief pray- 
ed for by them and for these reasons the Judgments 
of the Supreme Court of Hawaii should be reversed. 



23 

Dated at Honolulu, Hawaii, this day of No- 
vember, A. D. 1931. 



CHAELES B. D WIGHT, 
Attorney for HATTIE KTJLAMANU WAED, 
LUCY KAIAKA WAED and VICTOEIA 
KATHLEEN WAED, 

Appellants. 



No. 6546 



United #tate0 

Gftrntti (ftnuri nf Kppmln 

$at tip Nteitl; ffltrnrit 



HATTIE KULAMANU WAED, LUCY KAIAKA 
WAED and VICTORIA KATHLEEN 
WARD, 

Appellants, 

vs. 

CITY AND COUNTY OF HONOLULU, a Muni- 
cipal Corporation, 

Appellee. 



Qttxmtfvpt of ftrroriL 

Upon Appeal from the Supreme Court of the Territory of 

Hawaii. 



F I L E D v 

AU 






Filmer Bros. Oo. Print, 330 Jackson St., S. P., Oal. 



No. 6546 



United Butt* 

(Hxvtnxt (Enttri nf Ajtpntla 

3tor % Jftatlj ©tmrit. 



HATTIE KULAMANU WAED, LUCY KAIAKA 
WARD and VICTORIA KATHLEEN 
WARD, 

Appellants, 
vs. 

CITY AND COUNTY OP HONOLULU, a Muni- 
cipal Corporation, 

Appellee. 



Qtamarript nf Hwori. 

Upon Appeal from the Supreme Court of the Territory of 

Hawaii. 



Pilmer Bros. Co. Print, 330 Jackson St., S. F., Cal. 



INDEX TO THE PEINTED TEANSCRIPT OF 

RECORD. 



[Clerk's Note: When deemed likely to foe of an important nature, 
errors or doubtful matters appearing in the original certified record are 
printed literally in italic; and, likewise, cancelled matter appearing in 
the original certified record is printed and cancelled herein accord- 
ingly. When possible, an omission from the text is indicated by 
printing in italic the two words between which the omission seems to 
occur.] 

Page 

Answer (No. E.-3121) 11 

Assignment of Errors (No. 2002) 62 

Certificate of Clerk of Supreme Court of Ter- 
ritory of Hawaii to Transcript of Record 

(No. 2002) 72 

Chambers Summons 8 

Citation on Appeal (No. 2002) 68 

Cost Bond (No. 2002) 65 

Decision (No. E.-3121) 36 

Decree 42 

EXHIBITS: 

Exhibit "A"- Letter Dated January 29, 
1902, E. H. Wodehouse to James H. 
Boyd 22 

Exhibit "B"— Letter Dated February 7, 
1902, Jas. H. Boyd to E. H. Wode- 
house 23 

Exhibit "C"— Order Putting Plaintiff into 
Possession of Lands in the Above-en- 
titled Cause Sought to be Condemned 26 
Hearing (No. 2002) 58 



ii Hattie Kulamanu Ward et al. vs. 

Index. Page 

Hearing— Continued (No. 1989) (No. 2002) . . 60 
Hearing Upon Motion by Appellee to Set Aside 

Restraining Order 57 

Judgment on Appeal (No. 2002) 55 

Minutes of Court — December 6, 1930 — Order 
Allowing Issuance of Temporary Restrain- 
ing Order (No. E.-3121) 43 

Minutes of Court — December 15, 1930 — Order 

Overruling Demurrer 44 

Minutes of Court — January 20, 1931 — Motion 

to Strike Replication (No. E.-3121) .... 45 
Minutes of Court — January 27, 1931 — Hearing 

(No. E.-3121) 45 

Minutes of Court — February 4, 1931 — Deci- 
sion 48 

Minutes of Supreme Court — February 11, 1931 
— Hearing Upon Motion by Appellee to Set 

Aside Restraining Order 57 

Minutes of Supreme Court — February 24, 1931 

—Hearing (No. 2002) 58 

Minutes of Supreme Court — February 27, 1931 

—Hearing (Continued) (No. 2002) 60 

Minutes of Supreme Court — February 27, 1931 
—Hearing (No. 2002) (Continued) (No. 

1989) 60 

Motion to Strike Replication (No. E.-3121) ... 45 

Notice of Appeal (No. 2002) 64 

Notice of Judgment on Appeal (No. 2002) 56 

Order Allowing Appeal (No. 2002) 65 

Order Allowing Issuance of Temporary Re- 
straining Order 9 



City and County of Honolulu. iii 

Index. Page 
Order Extending Time to and Including July 
1, 1931, to Prepare Transcript and Rec- 
ord on Appeal (No. 2002) 71 

Order Extending Time to and Including July 
31, 1931, to Prepare Transcript and Rec- 
ord on Appeal (No. 2002) 72 

Opinion (No. E.-3121) 36 

Opinion of the Supreme Court (No. 2002) .... 49 

Petition 1 

Petition for Appeal (No. 2002) 61 

Praecipe for Transcript of Record (No. 2002) 69 

Replication (No. E.-3121) 30 

Summons, Chambers 8 

Temporary Restraining Order 10 



Filed at 2:45 o'clock P. M., Dec. 5, 1930. 

Eeturned at 8:42 o'clock A. M., Dec. 8, 1930. 
[4*] 

In the Circuit Court of the First Judicial Circuit, 
Territory of Hawaii. 

Bill for Injunction. 

HATTIE KULAMANU WARD, LUCY KAI- 
AKA WARD and VICTORIA KATH- 
LEEN WARD, 

Petitioners, 

vs. 

THE CITY AND COUNTY OF HONOLULU, a 

Municipal Corporation, 

Respondent. 

PETITION. 

To the Honorable, the Presiding Judge of the 
Circuit Court of the First Judicial Circuit, 
Territory of Hawaii, at Chambers, in Equity: 
Now comes Hattie Kulamanu Ward, Lucy Kai- 
aka Ward and Victoria Kathleen Ward, peti- 
tioners above named, and complaining of the city 
and county of Honolulu, a municipal corporation, 
respondent above named, respectfully shows and 
presents as follows: 

I. 
That the petitioners above named, were and at 
all of the times herein mentioned are residents of 



*Page-number appearing at the foot of page of original certified 
Transcript of Record. 



2 Hattie Kulamanu Ward et al. vs. 

Honolulu, City and County of Honolulu, Terri- 
tory of Hawaii. [5] 

II. 
That the respondent, The City and County of 
Honolulu, was and at all of the times herein men- 
tioned is a municipal corporation. 

III. 

That heretofore and on, to wit, the 18th day of 
July, 1928, the petitioners herein, together with 
Victoria Ward, became the owners, in fee simple 
and as Joint Tenants, of Lots E, F and G, 
of Land Court Application No. 670, subject to 
a life estate in Victoria Ward; that on said date 
Transfer Certificate of Title No. 7250 was issued 
to them out of the Land Court of the Territory of 
Hawaii. 

IV. 

That said Lots E, F and G of Land Court Ap- 
plication No. 67 are a part and parcel of the 
family home of the petitioners herein and Victoria 
Ward. That the family homestead of the peti- 
tioners has been maintained as such for a period 
of more than fifty (50) years. That the grounds 
of said homestead have been planted to trees and 
has been set out and cultivated with great care by 
the petitioners and the said Victoria Ward. 

V. 

That said Lots E, F and G of said homestead 
constitute the proposed right of way for the 
Kapiolani Boulevard, a proposed public highway 
of the City and County of Honolulu. [6] 



City and County of Honolulu, 3 

VI. 

That the said Lots E, F and G are adjacent to each 
other and constitute a strip running over and 
across the said homestead of the petitioners, divid- 
ing the homestead of the petitioners into two 
parts. 

VII. 

That the respondent, The City and County of 
Honolulu, has threatened, and is now threatening, 
to trespass upon the said Lots E, F and G, and 
have threatened, and are now threatening to break 
down the family fence of the homestead of your 
petitioners, and enter in and upon said Lots E, 
F and G. 

VIII. 

That the respondent, The City and County of 
Honolulu, has threatened, and is now threatening, 
to trespass upon the said Lots E, F and G, the 
property of the petitioners, and then and there 
fill in the said Lots E, F and G, to a grade consider- 
ably higher than the remaining portion of the 
homestead of your petitioners lying on the mauka 
side of said Lots E, F and G. 

LX. 

That if the respondent, The City and County 
of Honolulu, proceeds to carry out its threat and 
trespass upon the property of your petitioners, 
your petitioners will suffer irreparable injury in 
that the proposed fill which the respondent 
threatens to place upon said Lots E, F and G, will 
obstruct the natural flow of surface waters off: 
[7] of the homestead of your petitioners and 



4 Hattie Kulamanu Ward et al. vs. 

would back the flood waters over and upon the 
homestead of your petitioners, damaging the prop- 
erty of your petitioners lying on the mauka 
side of said Lots E, P and G, and will kill and 
injure the plants and trees planted by your peti- 
tioners and the said Victoria Ward, and cared 
for and nurtured for many years. That the stop- 
page of the flow of surface waters, as aforesaid, 
will seriously affect the sanitary condition of the 
petitioners' homestead, and make unsanitary and 
unhealthful and uninhabitable the premises now 
occupied by your petitioners as their home. 

X. 

That your petitioners will suffer irreparable 
injury by the proposed and threatened action of 
the respondent, in that their homestead will be 
divided into two parts; that the security of their 
home will be threatened and that the remaining 
portion of their homestead situated makai of the 
said Lots E, F and G, will have to be abandoned 
and their homestead area curtailed. 

XI. 

That no compensation has been awarded or paid 
to your petitioners by the respondent, The City 
and County of Honolulu, for the said Lots E, P 
and G, and that the said respondent, The City 
and County of Honolulu, proposes to use said 
Lots E, F and G, and does now threaten to use 
the same for public purposes, to wit, for a public 
highway. [8] 



City and County of Honolulu. 5 

XII. 

That the respondent, The City and County of 
Honolulu through its agents and servants, has 
threatened and has trespassed upon, and is now 
threatening to continue to trespass upon the said 
Lots E, F and G, and that on, to wit, the 1st day 
of December, 1930, one Oliveira, whose full and 
true name your petitioners ask leave to insert at 
the hearings hereof, purporting to act as the agent 
of the respondent, The City and County of Hono- 
lulu, proceeded to instruct your petitioners to tear 
down a portion of the boundary fence surround- 
ing your petitioners' homestead, and has informed 
your petitioners that if the request is not complied 
with that as the agent of the respondent, he would 
proceed to break down said fence and to enter 
upon said Lots E, F and Gr, and that on, to wit, 
the 2d day of December, 1930, L. M. Whitehouse, 
purporting to act as Chief Engineer of the re- 
spondent, The City and County of Honolulu, and 
on behalf of said respondent, threatened to enter 
upon and break down and demolish said structure, 
the property of the petitioners, upon the said Lots 
E, F and G, and grade and roll said Lots E, F and 
G, and that the said respondent has informed your 
petitioners that they will proceed and carry out 
said threat on the 8th day of December, 1930. 

XIII. 

That by reason of the acts complained of herein, 
[9] your petitioners have suffered and are now 
suffering and will continue to suffer irreparable 
injury unless restrained by this court. 



6 Hattie Kulamanu Ward et ah vs. 

XIV. 

That your petitioners are without an adequate 
remedy at law. 

XV. 

That it is necessary that a temporary restrain- 
ing order issue herein, restraining the respond- 
ent, its officers, agents and servants, from in any 
manner trespassing upon the said Lots E, F and 
G, and committing irreparable injury to the home- 
stead of your petitioners. 

WHEREFORE, petitioners pray: 

I. That the process of this Court do issue as 
provided by law summoning said respondent to 
appear and answer this petition (answer under 
oath being hereby waived) and to stand to, per- 
form and abide by such orders, directions and de- 
crees as may be made and entered herein. 

II. That a temporary restraining order issue 
restraining said respondent, its officers, agents and 
servants, from in any manner trespassing upon 
the said Lots E, F and G, and committing irrep- 
arable injury to the homestead of your petitioners. 

III. That upon a hearing hereof, a permanent 
injunction issue out of this court restraining the 
said respondent, its officers, agents and servants, 
from in any [10] manner trespassing upon the 
said Lots E, F and G, and committing irreparable 
injury to the homestead of your petitioners. 

IV. And for such other and further relief in 
the premises as may be just and equitable. 



City and County of Honolulu. 7 

Dated at Honolulu, Hawaii, this 5th day of De- 
cember, A. D. 1930. 

HATTIE KULAMANU WARD, 
LUCY KAIAKA WARD and 
VICTORIA KATHLEEN WARD, 

Petitioners. 
By (S.) CHARLES B. DWIGHT, 

Their Attorney. 

Territory of Hawaii, 

City and County of Honolulu, — ss. 

Lucy Kaiaka Ward, being first sworn, on oath de- 
poses and says : 

That she is one of the petitioners above named; 
that she makes this verification for and on behalf of 
the petitioners ; that she has read the foregoing peti- 
tion, knows the contents thereof and that the alle- 
gation therein contained are true to the best of her 
knowledge and belief. 

(S.) LUCY KAIKA WARD. 

Subscribed and sworn to before me this 5th day of 
December, 1930. 

[Seal] (S.) HENRY C. HAPAI, 

Notary Public, First Judicial Circuit, Territory of 
Hawaii. [11] 



8 Hattie Kulamanu Ward et at. vs. 

No. . Reg. . p g . . 

In the Circuit Court of the First Judicial Circuit, 
Territory of Hawaii. 

At Chambers. 

HATTIE KULAMANU WARD, LUCY KAIAKA 
WARD and VICTORIA KATHLEEN 
WARD, 

Petitioners, 

vs. 

THE CITY AND COUNTY OP HONOLULU, a 

Municipal Corporation, 

Respondent. 

CHAMBERS SUMMONS. 

The Territory of Hawaii: To the High Sheriff of 
the Territory of Hawaii, or His Deputy; the 
Sheriff of the City and County of Honolulu, or 
His Deputy, or Any Police Officer in the Ter- 
ritory of Hawaii: 
YOU ARE COMMANDED to summon The City 
and County of Honolulu, to appear ten days after 
service hereof, if it reside in the City and County 
of Honolulu, otherwise twenty days after service, 
before such Judge of the Circuit Court of the First 
Circuit as shall be sitting at Chambers in the court- 
room of said Judge, in the Judiciary Building in 
Honolulu, City and County of Honolulu, to answer 
the annexed petition of Hattie Kulamanu Ward, 
Lucy Kaiaka Ward and Victoria Kathleen Ward, 
and have you then there this writ with full return 
of your proceedings thereon. 



City and County of Honolulu, 9 

WITNESS the Honorable Presiding Judge of 
the Circuit Court of the First Circuit, at Honolulu 
aforesaid, this 5th day of December, 1930. 

[Seal] (S.) JOHN LEE KWAI, 

Clerk. 

SECTION 2394 REVISED LAWS 1925. The 

time within which an act is to be done * * * 
shall be computed by excluding the first day and 
including the last. If the last day be Sunday, or a 
legal holiday, it shall be excluded. [12] 

Served the within chamber summons, petition, 
order allowing issuance of temporary restraining 
order, temporary restraining order, order of ser- 
vice and order to show cause on James F. Gilli- 
land, Honolulu, City and County of Honolulu, 
T. H., this 5th day of Decembrr, 1930, by deliver- 
ing to him a certified copy thereof and of the peti- 
tion or complaint hereto annexed, and at the same 
time showing him the original. 

Dated Honolulu, December 8th, 1930. 

ANTONE MANUEL, 
Deputy Sheriff, Police Officer, 
Deputy High Sheriff, Territory of Hawaii. 



[Title of Court and Cause.] 

ORDER ALLOWING ISSUANCE OF TEM- 
PORARY RESTRAINING ORDER. 

Upon reading the verified petition herein filed 
and the prayer of the petitioners for a temporary 
restraining order, — 



10 Hattie Kulamanu Ward et al. vs. 

IT IS HEREBY ORDERED that a temporary 
restraining order issue forthwith restraining the 
above-named respondent, its officers, agents and ser- 
vants, from in any manner trespassing upon the said 
Lots E, F and G of Land Court Application No. 67, 
and committing irreparable injury to the homestead 
of the petitioners. 

Dated at Honolulu, T. H., this 5th day of De- 
cember, A. D. 1930. 

[Seal] (S.) A. E. STEADMAN. [Seal] 

Judge of the Above-entitled Court. 

Dec. 6, 1930. 

Above order vacated by consent. 

(S.) A. R. WHITMORE, 
Clerk. [13] 

[Title of Court and Cause.] 

TEMPORARY RESTRAINING ORDER. 

The Territory of Hawaii, to the City and County of 
Honolulu, a Municipal Corporation, Respond- 
ent. 

Pursuant to the order allowing the issuance of a 
temporary restraining order heretofore entered 
herein, you and your officers, agents and servants, 
are hereby ordered, enjoined and restrained from 
in any manner trespassing upon the said Lots E, 
F and G, of Land Court Application No. 67, and 
committing irreparable injury to [14] the home- 
stead of the petitioners. 

This order and injunction shall be and remain 
in full force and effect until the further order of 
this court. 



City and County of Honolulu. 11 

Dated at Honolulu, T. H., this 5th day of Decem- 
ber, A. D. 1930. 

[Seal] (S.) A. E. STEADMAN, 

Judge, Circuit Court, First Judicial Circuit, Terri- 
tory of Hawaii. 
[Seal] Attest: (S.) JOHN LEE KWAI, 

Clerk. 
Dec. 6, 1930. 

Above order vacated by consent. 

(S.) A. R. WHITMORE, 
Clerk. [15] 



Filed at 9:15 o'clock A. M., Jan. 10, 1931. 

Service of a copy of the above and foregoing an- 
swer is hereby acknowledged this 10th day of Janu- 
ary, 1931. 

(S.) CHARLES B. D WIGHT, 
Attorney for Petitioners. [16] 

[Title of Court and Cause— No. E.-3121.] 

ANSWER. 

Comes now the City and County of Honolulu, a 
municipal corporation, by L. P. Scott, Esq., Deputy 
City and County Attorney, and for answer to the 
petition of petitioners herein, alleges and avers as 
follows : 

I. 

That it admits the allegations contained in Para- 
graph I of the said petition. 



12 Hattie Kulamanu JVard et al. vs. 

II. 

That it admits the allegations contained in Para- 
graph II of the said petition? 

III. 

That it denies the allegations contained in Para- 
graph III of said petition, but on the contrary al- 
leges the true facts to be that prior to July 18, 1928, 
Victoria Ward [17] was the sole owner of Lots 
E, F and G of Land Court Application No. 670 in 
said paragraph mentioned ; that Victoria Ward held 
the bare legal title to Lot E, subject to an offer 
dated January 20, 1902, and an acceptance thereof, 
constituting a binding agreement to deed the same 
to the Territory of Hawaii upon the completion by 
the Territory of certain conditions therein named, 
a copy of which offer is hereto attached, marked 
Exhibit "A," and made a part hereof; that said 
offer was accepted by the aforesaid Territory of Ha- 
waii through its duly authorized Superintendent of 
Public Works by letter dated February 7, 1902, a 
copy of which said letter is attached hereto, marked 
Exhibit "B," and made a part hereof; that under 
the terms of said agreement the Territory of Ha- 
waii and its successor in interest, the City and 
County of Honolulu, entered into and took posses- 
sion of said Lot E, and constructed a road thereon 
and thereover, which said road ever since for a 
period of well over twenty (20) years has been a 
public highway of the City and County of Honolulu, 
known as Ward Avenue ; that the City and County 
of Honolulu has completed and fulfilled all the 
terms of the above-mentioned agreement and now 



City and County of Honolulu. 13 

awaits a conveyance of the said Lot E to it. It is 
further alleged that whatever interest the petition- 
ers obtained by the conveyance to them by Victoria 
Ward of July 18, 1928, of the various properties 
therein described of which Lot E was one, was ob- 
tained subject to the agreement hereinabove set 
forth. 

Eespondent further alleges and avers that as to 
Lots F and Gr in the Paragraph III referred to, 
that prior to [18] July 18, 1928, Victoria Ward 
was the sole owner of said lots. That on March 
19, 1928, a suit in eminent domain was instituted 
by the City and County of Honolulu against Vic- 
toria Ward, which said suit is numbered Law No. 
11946 in the records and files of the Circuit Court 
of the First Judicial Circuit and which said records 
and files are incorporated in this answer by refer- 
ences and will be offered in evidence upon the hear- 
ing of this cause, to condemn the aforesaid Lots F 
and G for a public use, to wit, for the construction of 
the Kapiolani Boulevard. On July 26, 1928, Vic- 
toria Ward, through her attorneys Peters & 
O'Brien, filed her answer to the petition in said suit, 
admitting amongst other things, that she was the 
sole owner of the premises sought to be condemned ; 
that it appears, however, that on July 18, 1928, and 
during the pendency of the said suit, Victoria 
Ward aforesaid, defendant and owner of said par- 
cels of land, executed a deed conveying the said 
parcels together with other adjacent lands to her 
daughters, as joint tenants with her, reserving to 
herself the joint use and occupation of the said 



14 Hattie Kulamanu JFard et ah vs. 

land, that Transfer Certificate of Title No. 7250 was 
issued to the above-named grantees upon said deed 
of conveyance. 

Respondent herein further alleges that said suit 
in eminent domain was tried in the First Circuit 
Court beginning October 1st, 1928, and continuing 
thereafter until a verdict was rendered condemning 
the said Lots F and G and fixing compensation 
therefor October 23, 1928 ; that Final Order of Con- 
demnation was entered January 7, 1930, which said 
Final [19] Order was recorded in the office of 
the Registrar of Conveyances February 13, 1930, as 
Document No. 20,898, as required by Section 824, 
Revised Laws of Hawaii, 1925, vesting title to said 
Lots F and G in the City and County of Honolulu. 

Respondent further alleges that on October 29, 
1928, in and as a part of the proceedings in the 
aforesaid condemnation suit, an order was issued 
out of the Circuit Court of the First Judicial Cir- 
cuit placing the City and County of Honolulu in 
possession of said Lots F and G pending appeal 
pursuant to the terms of Section 825, Revised Laws 
of Hawaii, 1925, together with full right to use 
the same for the purpose of constructing a public 
highway thereon, a copy of which said order is 
hereto attached, marked Exhibit "C," and made a 
part hereof, and that the City and County of Hono- 
lulu since that time has been and is now in posses- 
sion of the said Lots F and G, and has been and is 
now constructing the aforesaid highway across said 
lots under the terms of said order. 

Respondent further alleges that all of the mat- 






City and County of Honolulu. 15 

ters and things in the petition alleged relative to 
the ownership of the aforesaid subject matter, Lots 
F and G, have been litigated before the Land Court 
of the Territory of Hawaii in an action, or cause, 
or petition, entitled "In the Matter of the Applica- 
tion of Victoria Ward, Application No. 670, etc., 
Application for Issuance of Certificate of Title upon 
Final Order of Condemnation, ' ' which said petition 
was brought by the City and County of Honolulu as 
petitioner, wherein an order to show cause was 
issued directing Victoria Ward and the present 
petitioners herein, Hattie Kulamanu Ward, Lucy 
[20] Kaiaka Ward and Victoria Kathleen Ward, 
to appear and show cause why the prayer of the 
petitioner should not be granted, and a Certificate 
of Title to said Lots F and G should not be issued 
to it. That the within petitioners appeared upon 
the hearing of said petition and entered their de- 
fense, but that upon a full hearing, the aforesaid 
Judge of the Land Court entered his decision and 
decree in favor of the petitioner, the City and 
County of Honolulu, and against the respondents, 
Victoria Ward, Hattie Kulamanu Ward, Lucy 
Kaiaka Ward and Victoria Kathleen Ward, upon 
all the matters and things above alleged relative to 
the same subject matter, Lots F and G, and direct- 
ing that a Certificate of Title issue to the City and 
County of Honolulu for said Lots F and G, and 
that the aforesaid suit in the Land Court is now 
pending upon appeal before the Supreme Court 
of the Territory of Hawaii as Supreme Court 
Docket No. 1989, which record is herein incorpo- 



16 Hattie Kulamanu Ward et al. vs. 

rated by reference and will be produced and offered 
in evidence upon the hearing in this matter. Re- 
spondent further alleges that the decree of the 
Land Court above mentioned is res adjudicata as 
to all matters alleged in the petition herein relative 
to Lots F and G and constitutes a bar to any fur- 
ther proceedings herein relative thereto. 

IV. 

Respondent herein denies so much of Paragraph 
LV of said petition as alleges that Lots E, F and G 
of Land Court Application No. 670 are a part and 
parcel of the family home of the petitioners herein 
and Victoria Ward, but alleges [21] the true 
facts to be as alleged in Paragraph III hereinabove 
set forth. That as to the remaining allegations 
contained in Paragraph IV respondent neither al- 
mits nor denies the same but leaves petitioners to 
their proof thereof. 

V. 

Respondent denies that Lots E, F and G consti- 
tute the proposed right of way for the Kapiolani 
Boulevard, but on the contrary alleges the true 
facts to be (1) that Lot E constitutes a public high- 
way of the City and County of Honolulu, and has 
been such for upwards of twenty (20) years; (2) 
that Lot F is owned by and in the possession of the 
City and County of Honolulu and constitutes a por- 
tion of the completed Kapiolani Boulevard at 
the point where it enters Ward Avenue aforesaid, 
and has been and now is in use as a public high- 
way; (3) that Lot G is owned by and in the posses- 
sion of the City and County of Honolulu as set out 



City and County of Honolulu. 17 

in Paragraph III herein, and is now in the process 
of construction as a part of the extension of Kapio- 
lani Boulevard from Ward Avenue to Sheridan 
Street. 

VI. 

That respondent denies so much of Paragraph 
VI as alleges that Lots E, F and G constitute a 
strip running over or across the homestead of peti- 
tioners but admits that they are adjacent to each 
other and divide the homestead of petitioners into 
two parts. 

VII. 

Respondent denies the allegations contained in 
Paragraph VII of said petition. [22] 

VIII. 

Respondent denies the allegations contained in 
Paragraph VIII of said petition. 

IX. 

Respondent denies specifically and categorically 
all of the matters and things alleged in Paragraph 
IX of the petition herein, and for answer thereto 
and as a special defense herein alleges that all the 
matters and things in said Paragraph IX alleged, 
and more particularly the allegation that the "pro- 
posed fill which the Respondent threatens to place 
upon said Lots E, F and G, will obstruct the natural 
flow of surface waters off of the homestead of your 
petitioners and would back the flood waters over 
and upon the homestead of your petitioners, dam- 
aging the property of your petitioners lying on the 
mauka side of said Lots E, F and G, and will in- 



18 Hattie Kulamanu Ward et at. vs. 

jure the plants and trees planted by your petition- 
ers and the said Victoria Ward, and cared for and 
nurtured for many years. That the stoppage of the 
flow of surface waters, as aforesaid will seriously 
affect the sanitary condition of the petitioners' 
homestead, and make unsanitary and unhealthful 
and uninhabitable the premises now occupied by 
your Petitioners as their home," have been adjudi- 
cated in the condemnation suit above-mentioned 
entitled ' ' The City and County of Honolulu, a muni- 
cipal corporation, vs. Victoria Ward, Law No. 
11946" in the Circuit Court of the First Judi- 
cial Circuit, the judgment wherein was affirmed by 
the Supreme Court of the Territory of Hawaii as 
appears in 31 Haw. 184, which said judgment is 
binding upon the petitioners herein as grantees 
pendente lite and [23] and as privies of Victoria 
Ward, defendant in the aforesaid suit. Respond- 
ent further alleges that no injury, irreparable or 
otherwise, will result to petitioners' property as a 
result of the construction of the Kapiolani Boule- 
vard, the imrpovement complained of. 

X. 

Respondent denies specifically and categorically 
the allegations contained in Paragraph X of said 
petition. 

XI. 

Respondent denies the allegations contained in 
Paragraph XI of said petition, and more particu- 
larly as to that portion of said paragraph which 
alleges that "the City and County of Honolulu pro- 
poses to use said Lots E, F and G, and does now 



City and County of Honolulu. 19 

threaten to use the same for public purposes, to wit, 
for a public highway/' but on the contrary respond- 
ent avers the true facts to be that Lot E is now 
and has been for upward of twenty (20) years a 
public highway; that Lot F is now owned by and 
in the possession of the City and County of Hono- 
lulu and for upwards of one (1) year has been a 
public highway; and that Lot G is owned by and 
in the possession of the City and County of Hono- 
lulu and is in the process of construction as a pub- 
lic highway. 

Further, and as a special defense to the allega- 
tion "that no compensation has been paid to your 
petitioners by the respondent * * * for the 
said Lots E, F and G," respondent avers that this 
question has been settled and determined in the Land 
Court of the Territory of Hawaii in the petition 
brought by the City and County of [24] Hono- 
lulu entitled "In the Matter of the Application of 
Victoria Ward to Register and Confirm Her Title, 
etc., Application No. 670, Application for Issuance 
of Certificate of Title upon Final Order of Con- 
demnation," the record of which said cause will be 
produced by respondent and offered in evidence at 
the hearing of this matter, wherein the same con- 
troversy involving the same parties, and the same 
subject matter, was heard and determined by the 
aforesaid court, which said cause is now pending 
on appeal before the Supreme Court of the Terri- 
tory of Hawaii, being Supreme Court Docket No. 
1989, and which record is more particularly referred 
to in Paragraph III of this answers and the de- 



20 Hattie Kiilamanu Ward et at. vs. 

cree entered in said cause is a bar to any further 
proceedings in this court between the parties hereto 
upon the question of compensation above referred 
to. 

XII. 

Respondent denies specifically and categorically 
all the allegations contained in Paragraph XII of 
said petition and alleges the true facts to be as fol- 
lows : 

That on or about December 1, 1930, one John C. 
Oliveira, an employee of the City and County En- 
gineers' Department, was directed to orally notify 
Mrs. Victoria Ward and the petitioners herein to 
remove the fence at present extending along the 
Waikiki side of Ward Avenue where it crossed the 
projected line of Kapiolani Boulevard, which said 
fence the City and County of Honolulu had per- 
mitted to remain in the position it then and now 
occupies, as the [25] City was desirous of open- 
ing up free access to Lot G, to which it has title 
and of which it is in possession, and proceeding with 
the further construction of Kapiolani Boulevard. 
That Mrs. Ward and her privies in interest, the 
petitioners herein, have been duly compensated in 
full for the replacement of said fence, and have 
received from the City and County of Honolulu the 
money therefor. That subsequently, on December 
2, 1930, L. M. Whitehouse, then City and County 
Engineer, addressed a written communication to 
Mrs. Victoria Ward and petitioners herein, confirm- 
ing the matters orally communicated by Oliveira. 
Respondent further alleges, however, that respond- 



City and County of Honolulu. 21 

ents herein have contumaciously and defiantly re- 
fused the said request of the aforesaid City and 
County Engineer, and are here endeavoring by this 
suit to restrain the City and County of Honolulu 
from the proper and necessary use of its own prop- 
erty in the furtherance of a great public project. 

WHEREFORE, your respondent prays that the 
order to show cause be quashed, that the prayer for 
an injunction be denied, and that this bill be dis- 
missed with costs. 

Dated: Honolulu, T. H., this 10th day of Janu- 
ary, A. D. 1931. 

THE CITY AND COUNTY OF HONOLULU, 

Respondent. 
By L. P. SCOTT, 
Deputy City and County Attorney. [26] 

Territory of Hawaii, 

City and County of Honolulu, — ss. 

L. P. Scott, being first duly sworn on oath, de- 
poses and says: That he is the duly appointed, 
qualified and acting deputy city and county attor- 
ney of the City and County of Honolulu; that he 
has been duly and regularly authorized to prepare, 
subscribe to and file this answer for and on behalf 
of the City and County of Honolulu by the Board 
of Supervisors of the City and County of Honolulu 
and by James F. Gilliland, the duly elected, quali- 
fied and acting city and county attorney of the said 
City and County of Honolulu ; that he has read the 
foregoing answer, knows the contents thereof and 



22 Hattie Kulamanu Ward et al. vs. 

that the facts therein stated are true to the best of 
his information, knowledge and belief. 

(S.) L. P. SCOTT. 

Subscribed and sworn to before me this 10th day 
of January, A. D. 1931. 

(S.) EMELIA L. KRAMER, 
Notary Public, First Judicial Circuit, Territory of 
Hawaii. [27] 

EXHIBIT " A." 

Honolulu, January 29th, 1902. 
James H. Boyd, Esq., 

Superintendent of Public Works. 
Honolulu. 
Dear Sir: 

Your favor of the 11th inst., addressed to Mrs. 
V. Ward, is to hand, and the contents have my 
careful attention. 

In reply thereto I have to state as follows : — 
Reverting to the conversation which I had with 
you some days since, in which this matter was fully 
discussed, I now beg to put in writing the final 
proposition which I agreed to submit and to which 
I ask your usual careful consideration. 

On behalf of Mrs. Ward I agree to deed to the 
Government in fee the following lands for the con- 
struction of a proper macadamized road; 
1. Starting at a point 125 feet from the Ewa 
boundry of the premises known as the "Old 
Plantation," a strip 56 feet wide running 
the entire length of the aforementioned 



City and County of Honolulu. 23 

premises to the street called "Waimanu," 
as shown on the tracing hereunto attached. 
2. Commencing near the junction of "Laniwai" 
street and the mauka boundary of Kukulu- 
aeo, a strip 56 feet wide running through 
said Kukuluaeo to Ala Moana; also shown 
on tracing above referred to. [28] 

In consideration of the above, the Government 
to properly fence the property boimded by the pro- 
posed street, curb the sidewalk and fill to street 
grade such portion of the strip of the "Old Plan- 
tation" premises on the Ewa side of the proposed 
road as is at present below said grade, and as in- 
dicated on map heretofore mentioned. 

The Government further to abandon the present 
storm ditch from King Street, held by mutual agree- 
ment, replacing same under the sidewalk of the 
proposed street with a properly covered cement 
drain. 

Awaiting your consideration of this matter, I 
remain, 

Yours faithfully, 

(S.) E. H. WODEHOUSE, 
Attorney for Victoria Ward. [29] 

EXHIBIT "B." 

February 7, 1902. 
E. H. Wodehouse, Esq., 

Attorney for Victoria Ward, 
Honolulu. 
Sir: 

I have to acknowledge receipt of your favor of the 



24 Hattie Kulamanu Ward et al. vs. 

11th inst, in regard to the application made by the 
Territory for a roadway and ditch line through 
the property of Mrs. Victoria Ward on King Street, 
to the beach, and to say in reply that I cordially 
agree with you in that had the Board of Health 
declined to grant their permission for the opening 
up or selling of lots in Kewalo until the swamp 
lands had been reclaimed the nuisance would not 
have occurred. 

Your final proposition submitted, namely, on be- 
half of Mrs. Ward you agreed to deed to the Gov- 
ernment in fee the following lands for the con- 
struction of a proper macadamized road: 

1. Starting at a point 125 feet from the Ewa 

boundary of the premises known as the "Old 
Plantation," a strip 56 feet wide, rumiing 
the entire length of the aforementioned 
premises to the Street called "Waimanu," as 
showm on the tracings hereto attached. 

2. Commencing near the junction of "Laniwai" 

street and the mauka boundary at Kukuluaeo, 
a strip 56 feet wide running through said 
Kukuluaeo to Ala Moana; also shown [30] 
on tracing above referred to. 

In consideration of the above, the Government 
to properly fence the property bounded by the 
proposed street, curb the sidewalk and fill to street 
grade such portion of the strip of the "Old Plan- 
tation" premises on the Ewa side of the proposed 
road, as is at present below said grade, and as 
indicated on map heretofore mentioned. 



City and County of Honolulu. 25 

The Government further to abandon the present 
storm ditch on Queen Street, held by mutual agree- 
ment, replacing same under the sidewalk of the 
proposed street with a properly covered cement 
drain. 

In reply I have to state that in accepting this 
proposition I am directed to express to you a hearty 
appreciation of the Territory of Hawaii for this 
noble concession on your part, by which means you 
enable this Department to undertake the work of 
relieving the District of Kewalo and vicinity from 
its present insanitary condition. 

The deeds of transfer for the above property for 
the purpose stated in your proposition will be pre- 
pared by this Department and submitted to you 
for approval, the same to be executed upon the ful- 
fillment by the Government of the conditions above 
above enumerated. 

Very respectfully, 

(S.) JAS. H. BOYD, 
Superintendent of Public Works. [31] 



26 Hattie Kulamanu Ward et al. vs. 

EXHIBIT "0." 

In the Circuit Court of the First Judicial Circuit, 
Territory of Hawaii. 
January Term, 1928. 

PROCEEDINGS IN EMINENT DOMAIN. 
LAW No. 11,964. 

THE CITY AND COUNTY OF HONOLULU, 

a Municipal Corporation, 

Plaintiff, 

vs. 

VICTORIA WARD, 

Defendant. 

ORDER PUTTING PLAINTIFF INTO POS- 
SESSION OF LANDS IN THE ABOVE- 
ENTITLED CAUSE SOUGHT TO BE 
CONDEMNED. 
The Court having read the foregoing Petition for 
an Order Putting Plaintiff into Possession of 
Lands in the above-entitled cause sought to be con- 
demned, together with certified copy of judgment 
herein, thereto attached, and affidavit of Henry 
Smith, Clerk of the Circuit Court of the First Judi- 
cial Circuit, Territory of Hawaii, thereto attached 
and based upon all of the files, records and pro- 
ceedings in the above-entitled cause and pursuant 
to the power and authority vested in the Court by 
Section 825, Revised Laws of Hawaii, 1925; [32] 
IT IS HEREBY ORDERED that the City and 
County of Honolulu, a municipal corporation, 



City and County of Honolulu, 27 

plaintiff in the above-entitled cause, be and hereby 
is vested with the right to peaceable possession of the 
lands in this proceedings sought to be condemned, 
herein generally designated as Parcel 19, and Par- 
cel 21, more particularly described as follows, to 
wit: 

PARCEL 19. 

BEING Lot F of Land Court Application No. 
670, situated on the northwest side of Ward Ave- 
nue, at Kewalo, Honolulu, Oahu, T. H. 

BEGINNING at the south corner of this lot, be- 
ing also the East corner of Lot C of Land Court 
Application No. 670 and the proposed west corner 
of Ward Avenue and Kapiolani Boulevard, the 
coordinates of said point of beginning referred to 
a Government Survey Street Monument near the 
east corner of King and Victoria Streets being 
949.18 feet south and 1400.06 feet west; said street 
monument is set on an offset of 10.0 feet to the 
northeast side of King Street and on an offset of 
10.00 feet to the southeast side of Victoria Street 
and the coordinates of said Street Monument re- 
ferred to Government Survey Triangulation Sta- 
tion "Punchbowl" being 3876.59 feet south and 
139.29 feet east, and running by true azimuths: 
[33] 

1. 143° 50' 150.62 feet along Lot C of Land Court 

Application No. 670 along the proposed south- 
west side of Kapiolani Boulevard; 

2. 212° 07' 107.64 feet along fence to the proposed 

northeast side of Kapiolani Boulevard; 



28 Hattie Kulamanu Ward et al. vs. 

3. 323° 50' 160.58 feet along Lot B of Land Court 

Application No. 670 along the proposed north- 
east side of Kapiolani Boulevard; 

4. 37° 12' 104.37 feet along the northwest side of 

Ward Avenue to the point of beginning and 
Containing an area of 15,560 square feet. 

PARCEL 21. 

BEING Lot G of Land Court Application No. 
670. Situated on the southeast side of Ward Ave- 
nue, Honolulu, Oahu, T. H. 

BEGINNING at the west corner of this lot, be- 
ing also the north corner of Lot D of Land Court 
Application No. 670, on the southeast side of Ward 
Avenue, the coordinates of said point of beginning 
referred to a Government Survey Street Monument 
near the east corner of King and Victoria [34] 
Streets being 996.37 feet south and 1365.57 feet 
w r est: said street monument is set on an offset of 
10.0 feet to the northeast side of King Street and 
on an offset of 10.0 feet to the southeast side of 
Victoria Street, and the coordinates of said Street 
Monument referred to Government Survey Trian- 
gulation Station " Punchbowl" being 3875.49 feet 
south and 139.29 feet east, and running by true 
azimuths : 

1. 217° 12' 104.37 feet along the southeast side of 

Ward Avenue to the proposed northeast side 
of Kapiolani Boulevard; 

2. 323° 50' 495.43 feet along Lot A of Land Court 

Application No. 670 along the proposed 
northeast side of Kapiolani Boulevard; 






City and County of Honolulu. 29 

3. Thence on a curve to the left having a radius 

of 1608.0 feet along Lot A of Land Court Ap- 
plication No. 670 along the proposed north- 
east side of Kapiolani Boulevard, the direct 
azimuth and distance being 318° 08' 39" 
318.81 feet; 

4. 29° 45' 67.30 feet along the McKinley High 

School lot; [35] 

5. 29° 45' 35.05 feet along the remainder of L. C. A. 

3169, Apana 1, to Koalele to the proposed 
southeast side of Kapiolani Boulevard; 

6. Thence on a curve to the right having a radius 

of 1708.0 feet along Lot D of Land Court Ap- 
plication No. 670, along the proposed south- 
west side of Kapiolani Boulevard, the direct 
azimuth and distance being 137° 45' 59" 
361.02 feet; 

7. 143° 50' 465.56 feet along Lot D of Land Court 

Application No. 670, along the proposed 
southwest side of Kapiolani Boulevard to the 
point of beginning and containing an area of 
82,118 square feet, together with full right to 
use the same for the purpose of constructing 
a public highway thereon during the pend- 
ency of and until the final conclusion of the 
above entitled cause. [36] 

Dated: Honolulu, T. H., October 29th, 1928. 

(S.) E. K. MASSEE, 
Third Judge, Circuit Court of the First Judicial 
Circuit, Territory of Hawaii. 

Service of a copy of the foregoing order putting 
plaintiff into possession of lands in the above-en- 



30 Hattie Kulamanu Ward et al. vs. 

titled cause sought to be condemned, is hereby ad- 
mitted and accepted this 1st day of November, 1928. 
(S.) PETERS & O'BRIEN, 
Attorneys for Defendant. [37] 



Filed at 10:31 o'clock A. M., Jan. 13, 1931. 

Service is hereby accepted this 13th day of Janu- 
ary, 1931. 

(S.) L. P. SCOTT, 
Deputy City and County Attorney for Re- 
spondent. [38] 

[Title of Court and Cause— No. E.-3221.] 

REPLICATION. 

Now comes Hattie Kulamanu Ward, Lucy Kai- 
aka Ward and Victoria Kathleen Ward, petitioners 
above named, and by way of replication to the 
answer of the City and County of Honolulu, Re- 
spondent above named, allege as follows: 

I. 

Replying to Paragraph III of said answer, peti- 
tioners admit that prior to July 18, 1928, Victoria 
Ward was the sole owner of Lots E, F and G of 
Land Court Application No. 670, and deny that 
Victoria Ward held the bare legal title to Lot E. 
Further replying petitioners aver that on January 
20th, 1902, E. H. Wodehouse, attorney for Vic- 
toria Ward, made an offer to convey Lot E to the 
Territory of Hawaii in consideration of certain 
covenants on the part of the Territory of Hawaii 



City and County of Honolulu. 31 

[39] to be fully observed and performed. The 
petitioners admit that Exhibit "A" and Exhibit 
"B" attached to the answer of the respondent, is 
a copy of the offer and acceptance referred to by 
the respondent. 

The petitioners deny that the City and County 
of Honolulu entered into and took possession of 
said Lot E and constructed a road thereon and 
thereover, and deny that the said Lot E is a pub- 
lic highway and has been used as such by the City 
and County of Honolulu for more than twenty (20) 
years, but aver that the use by the Territory of 
Hawaii, or by the City and County of Honolulu, 
was permissive, and petitioners further aver that 
in that certain application before the Land Court 
of the Territory of Hawaii entitled "In the Mat- 
ter of the Application of Victoria Ward," the Ter- 
ritory of Hawaii filed its answer and claim, claim- 
ing Lot E as a public highway; that the claim of 
the Territory of Hawaii was rejected and the Land 
Court confirmed the title of Victoria Ward in and 
to the said Lot E; that the Territory of Hawaii 
made no claim in said Land Court Application un- 
der the terms of the alleged agreement of 1902, and 
the City and County of Honolulu is not estopped 
from in any manner making a claim to said high- 
way pursuant to said agreement of 1902. 

Further replying to said Paragraph, petitioners 
admit that Victoria Ward, prior to July 18th, 1928, 
was the sole owner of Lots F and G. They fur- 
ther admit that on March 19th, 1928, a suit in emi- 
nent domain was instituted [40] by the City and 



32 Hattie Kulamanu iWard et at. vs. 

County of Honolulu against Victoria Ward to con- 
demn the said Lots F and G for a public highway. 
Petitioners further admit that on July 20th, 1928, 
Victoria Ward filed her answer, through her attor- 
neys of record, to the petition admitting ownership 
of the premises, but aver that prior thereto and on, 
to wit, July 18th, 1928, the said Victoria Ward, by 
deed, conveyed said Lots F and G to the petitioners 
herein as joint tenants, subject to a life estate in 
the said Victoria Ward; that Transfer Certificate 
of Title No. 7250 was thereupon issued to the 
above-named petitioners. 

Petitioners further aver that on July 20th, 1928, 
they w 7 ere the owners in fee simple of the said Lots 
F and Gr, subject to a life estate in the said Victoria 
Ward. 

Petitioners admit that on October 1st, 1928, the 
trial of the eminent domain suit above referred to, 
was commenced and that thereafter on the 23d day 
of October, 1928, a verdict was entered, and that 
thereafter on January 7th, 1930, a final order of 
condemnation was entered pursuant to Section 824 
of the Revised Laws of Hawaii, 1925, but peti- 
tioners aver that they were not made parties — de- 
fendant in the eminent domain proceedings; that 
no summons as required by law was served upon 
them ; that no compensation was offered or given to 
these petitioners by the City and County of Hono- 
lulu, or by anyone on its behalf. That no evidence 
was adduced at the hearing in the condemnation suit 
as to the true ownership of Lots F and G ; and that 
[41] the said Victoria Ward was not awarded just 
compensation as required by the Constitution of the 



City and County of Honolulu. 33 

United States and was deprived of property with- 
out just compensation. 

Petitioners neither deny nor admit that on Octo- 
ber 29th, 1928, an order was issued out of the Circuit 
Court granting to the respondent the right to use 
Lots F and G, but aver that they were not bound 
by such order, not being parties to the said eminent 
domain proceeding and not having been compen- 
sated for the taking of their property. 

Petitioners admit that the ownership of Lots F 
and G was litigated before the Land Court in the 
"Matter of the Application of Victoria Ward" upon 
a order to show cause based upon a petition of the 
City and County of Honolulu, but aver that the 
Land Court was without jurisdiction to issue the 
said order to show cause, or to entertain the peti- 
tion of the City and County of Honolulu, and fur- 
ther aver that the Court was without jurisdiction 
to enter its order. 

Petitioners further aver that the matter has 
not been disposed of by any court of competent 
jurisdiction, and that the matter is pending before 
the Supreme Court of the Territory of Hawaii. 

Petitioners further aver that the proceedings 
before the Land Court of the Territory of Hawaii, 
last referred to herein, deprived them of their 
private property without just compensation as 
guaranteed by the Constitution of the United 
States. 

Replying to Paragraph V of the answer peti- 
tioners deny that Lot E is a public highway of the 
City and County of [42] Honolulu, or that Lot 
F is owned by and in the possession of the City 



34 Hattie Kulamanu jWard et al. vs. 

and County of Honolulu, or that Lot G is owned 
by and in the possession of the City and County of 
Honolulu. 

Replying to Paragraph VI, petitioners reallege 
that Lots E, F and G constitute a strip over and 
across the homestead of petitioners. 

Replying to Paragraph IX of said answer, peti- 
tioners deny that they are bound by the judgment 
in the case of the "City and County of Honolulu 
vs. Victoria Ward" as set forth in 31 Hawaii, 184, 
but aver that the decision of the Supreme Court of 
the Territory of Hawaii in 31 Hawaii, 184, con- 
clusively and affirmatively shows that Victoria 
Ward was deprived of her private property with- 
out just compensation as required by the Con- 
stitution of the United States. 

Replying to Paragraph XI of said answer, peti- 
tioners deny that Lot E is, or ever was, a public 1 
highway, or that Lot F is owned by and in posses- 
sion of the City and County of Honolulu, or that Lot 
G is owned by and in possession of the City and 
County of Honolulu. And further replying to 
Paragraph XI, petitioners aver that the Land 
Court was without jurisdiction to entertain the 
petition, or to issue the order or decree referred 
to in said paragraph. 

Answering Paragraph XII of said answer, peti- 
tioners admit that on December 1st, 1930, John C. 
Oliveira ordered and directed the petitioners to 
remove the fence along the Waikiki side of Ward 
Avenue, or Lot E, where the same crossed the 
projected line of Kapiolani Boulevard, and deny 
that these petitioners have been compensated for 



City and County of Honolulu. 35 

said fence. [43] Petitioners further admit that 
L. M. Whitehouse, City and County Engineer, de- 
manded that the fence be removed, and these 
petitioners ask leave to insert at the hearing 
hereof a copy of said letter. Petitioners further 
admit that they refused the request of the City 
and County Engineer. 

Dated at Honolulu, T. H., this 12th day of Janu- 
ary, 1931. 

HATTIE KULAMANU WARD, 
LUCY KAIAKA WARD and 
VICTORIA KATHLEEN WARD, 

Petitioners. 
By (S.) CHARLES B. DWIGHT, 

Their Attorney. 

Territory of Hawaii, 

City and County of Honolulu, — ss. 

Charles B. D wight, being first duly sworn, on 
oath deposes and says: 

That he is the attorney for the above-named peti- 
tioners and makes this verification for and on 
their behalf; that he has read the foregoing repli- 
cation, knows the contents thereof and that the 
matters and things therein set forth are true to the 
best of his knowledge and belief. 

(S.) CHARLES B. DWIGHT. 

Subscribed and sworn to before me this 12th 
day of January, A. D. 1931. 

(S.) SUZANNE G. FISKE, 
Notary Public, First Judicial Circuit, Territory 
of Hawaii. [44] 



30 Hattie Kulamanu \Ward et al. vs. 

Filed at 12:10 o'clock P. M., Feb. 4, 1931. [45] 
[Title of Court and Cause— No. E.-3121.] 

DECISION. 

The petitioners above named bring their bill for 
injunction against the City and County. They al- 
lege in the petition that they are owners in fee 
simple of certain lots designated Lots E, F and G 
of Land Court Application No. 670, and that the 
City and County is threatening to trespass on these 
lots, break down the family fence, fill said lots to a 
grade higher than remaining portions of peti- 
tioners' land and thereby backing up surface drain- 
age upon the remaining property of petitioners, 
rendering that property unsanitary and killing and 
injuring trees and plants. [46] 

The answer of the respondent alleges that the City 
and County has been using Lot E for a public high- 
way known as Ward Avenue for more than twenty 
(20) years under dedication and consent from Vic- 
toria Ward, the predecessor in title to the peti- 
tioners. The answer further alleges that the City 
and County began a suit in eminent domain on 
March 19, 1928, against Victoria Ward, who on that 
date was the sole owner of Lots F and G, and duly 
served summons upon Victoria Ward, carried said 
proceedings in eminent domain to judgment and 
paid the judgment to Victoria Ward, getting a final 
order of condemnation against Victoria Ward; that 
under said final order and under an order of pos- 
session the City and County entered upon and com- 



City and County of Honolulu. 37 

pleted a highway over Lot F and entered upon and 
filled Lot G to the proposed grade; and that all 
matters of compensation for the strips taken, in- 
cluding elements of damage to the remaining prop- 
erty were litigated in said eminent domain pro- 
ceedings for which payment was made. The re- 
spondent further denies any irreparable or other 
damage. 

The case being at issue a hearing was had. At 
said hearing the evidence showed that for more 
than twenty (20) years the City and County had 
been using, repairing and improving Lot E as 
Ward Avenue"; that, altho petitioners had the 
record title in fee simple to Lot E, there had never 
been any interference with the use of Lot E as a 
part of the public highway system until this pro- 
ceeding was filed. There was no evidence of any 
new or other entry upon Lot E (Ward Avenue) 
than had been [47] so continuously maintained 
for more than twenty (20) years without inter- 
ference. There was also no evidence that the use 
of Ward Avenue (Lot E) had any reference to the 
present elements of damage complained of by peti- 
tioners. 

The evidence further showed that after the City 
and County had properly commenced the proceed- 
ing in eminent domain in March 1928 involving 
Lots F and G, the then owner, Victoria Ward, 
pendente lite in July, 1928, executed a conveyance 
of gift to the three petitioners in this proceeding, 
granting a joint tenancy with herself in the fee to 
the premises known as the Homestead and includ- 
ing the area known as Lots E, F and G, to the 



38 Hattie Kulamanu Ward et al. vs. 

petitioners in this suit. The petitioners, at the 
time of this deed of gift, knew that their mother, 
Victoria Ward, was the party defendant in the 
condemnation proceedings; were acquainted with 
the subsequent proceedings and hearings, verdict 
and judgment against Victoria Ward; and at no 
time sought to intervene either to protect what 
interest they may have or to secure any part of the 
payment for the taking of the Lots F and G in ques- 
tion. 

Also under the evidence adduced at the hearing 
the elements of claimed damage, other than remov- 
ing a strip of fence separating Lot G from Ward 
Avenue, involve solely the question of whether or 
not the fill already on Lot G obstructed surface 
waters so as to result in intermittent flowage upon 
the* remaining portions of petitioners' lands and 
thereby creating unsanitary conditions and affect- 
ing some of the trees and plants. [48] 

In other words the sole question relied by the 
pleadings and the evidence so far as Lot E (Ward 
Avenue) is concerned is one of title and right of 

continued user of the same character that has been 



allowed without interference for more than twenty 
(20) years. This question of disputed title and 
right of continued user subject to the fee presents 
no equity supporting the purposes of the Bill. 
Under guise of injunction proceeding it is sought 
to accomplish an ejectment. 

The evidence as to Lot F also shows that this par- 
cel has no connection with the claim of irreparable 
damage forming the background of the purposes of 



City and County of Honolulu. 39 

the bill. The evidence shows in that connection 
that a completed highway has been constructed by 
the City and County under claim of title derived 
from eminent domain proceedings. The inclusion 
of Lot F in this proceeding is in no way connected 
up with the claim of irreparable damage affecting 
surface waters or destroyed trees, but solely involves 
the question as to whether or not petitioners' land 
have heretofore been properly condemned. Whether 

or not petitioners were or are entitled to any part 
of the compensation ordered in that proceeding is a 
matter that either should have been litigated therein 
or pressed now against the grantor of petitioners' 
title. 

As to Lot G the evidence shows also that the City 
had filled said Lot to the approximate proposed 
grade in connection with the contemplated improve- 
ment forming the background of the eminent domain 
proceedings against Victoria Ward. [49] Assum- 
ing that the petitioners are right that this fill to 
grade does back up surface flow at intermittent 
times so as to destroy some of the trees formerly 
grown upon the lower homestead, such result would 
be the inevitable consequence of changing conditions. 
It would be the kind of damage referred to in Sec- 
tion 821, Revised Laws of Hawaii 1925, being 
". . . . damages which will accrue to the por- 
tion not sought to be condemned by reason of 
. . . . the construction of the improvements in 
the manner proposed by the plaintiff . . . ." 
In that respect the damages complained of, if peti- 
tioners are entitled to compensation, are the kind of 
damages assessable and recoverable in an action at 



40 Hattie Kulamanu Ward et al. vs. 

law, which should either have been litigated by 
intervention in the eminent domain proceeding or 
pressed against petitioners' grantor. 

In other words under the evidence and pleadings 
the Court is unable to find any equity in the bill 
supporting injunctive relief as distinct from ade- 
quate remedies at law. Especially is this true in 
relation to the allegation and evidence affecting the 
petitioners in connection with Lots E and F. If 
by some stretch of the imagination, the use by the 
city of Lot G could be construed as creating a kind 
of damage that might have been considered in this 
kind of proceeding, the record shows a complete bar 
against petitioners. 

The city acquired its title to Lots F and G under 
an eminent domain proceeding properly served upon 
Victoria Ward while she was the sole owner and the 
only proper defendant. The subsequent deed of 
gift to the present petitioners [50] in this suit 
created no more than a right in these petitioners 
to intervene if they so desired to secure an adjust- 
ment between themselves and Victoria Ward in the 



compensation thereafter found to be due and owing. 

Even if the petitioners had been bona fide pur- 
chasers for value pendente lite they would be bound 
by the judgment against the prior grantor with 
whom they were in privity of interest. Drinkhouse 
vs. Spring Valley Waterworks, 87 Cal. 253, 25 Pa- 
cific, 420; City of Chicago vs. Messier et al, 38 Fed- 
eral, 302; 2 Lewis, Eminent Domain (Third ed.), 
section 537, page 965; Trogden vs. Winoua, 22 
Minn. 198; Board of Education vs. Van Der Veen, 



City and County of Honolulu. 41 

169 Mich. 470, 135 N. W. 241; 20 C. J. 925, also 
1065, 1067. 

Indeed, the principle is concisely stated in a case 
cited on behalf of petitioners. 

"In a condemnation proceeding the rights of 
the parties are fixed at the time the petition is 
filed.' ' (A conveyance pendente lite would only 
affect the question as to whom compensation 
should be paid.) Dept. of Public Works vs. 
Engel, 146 N. E. 521, 522. 
For the foregoing reasons the bill herein will be 
dismissed for want of equity. 

Dated at Honolulu, Hawaii, this 4 day of Febru- 
ary, 1931. 

(S.) ALBERT M. CRISTY. (Seal) 
Second Judge, 1st Judicial Circuit, Territory of 
Hawaii. [51] 



$17.00—46/67. 

Filed at 9:50 o'clock A. M., Feb. 6, 1931. [52] 

In the Circuit Court of the First Judicial Circuit, 
Territory of Hawaii. 

AT CHAMBERS— IN EQUITY. 

Bill of Injunction. 

HATTIE KULAMANU WARD, LUCY KAIAKA 
WARD and VICTORIA KATHLEEN WARD, 

Petitioners, 

vs. 

THE CITY AND COUNTY OF HONOLULU, a 

Municipal Corporation, 

Respondent. 



42 Hattie Kulamanu Ward et al. vs. 



DECREE. 

This cause having come on for hearing before the 
Honorable A. M. Cristy, Judge of the above-entitled 
court, sitting at Chambers, in Equity, on Tuesday 
the 27th day of January, A. D. 1931, on the bill or 
petition and order to show cause of petitioners, and 
the answer and return of respondent, and the repli- 
cation of petitioners thereto, Charles B. Dwight, 
Esq., appearing for petitioners, and L. P. Scott, 
Esq., Deputy City and County Attorney, appearing 
for respondent, and the Court having considered 
all the evidence adduced upon said hearing and 
having heard argument of [53] counsel and hav- 
ing considered the petition or bill and order to show 
cause and the answer and return and replication 
thereto, and all the other records and files and the 
evidence adduced herein, and being advised in the 
premises, and the Court having found all the allega- 
tions of the answer to be true and that the peti- 
tioners are not entitled to the relief prayed for in 
the prayer of their petition, for the reason that the 
bill or petition shows a want of equity in the prem- 
ises, and having found that the prayer of the answer 
that the bill or petition be dismissed, should be 
granted, — 

IT IS HEREBY ORDERED, ADJUDGED 
AND DECREED, that the prayer of the answer 
herein, be granted, and that the order to show cause 
be quashed; that the prayer of the bill for an in- 
junction be denied; that all restraining orders or 
agreements hereinbefore entered into, be set aside, 



City and County of Honolulu. 43 

and the bill for injunction be dismissed with costs 
against petitioners. 

Dated at Honolulu, T. H., this 5 day of February, 
A. D. 1931. 

(S.) A. M. CRISTY, (Seal) 
Judge of the Above-entitled Court. 

Approved as to form. 

(S.) CHARLES B. DWIGHT, 

Attorney for Petitioners. [54] 



[Title of Cause— No. E.-3121] 

At Chambers — 11:00 o'clock A. M., Saturday, De- 
cember 6, 1930. 

Present: Hon. A. E. STEADMAN, First Judge, 
Presiding. 
A. R. WHITMORE, Clerk. 
J. L. HORNER, Reporter. 

Counsel : 
CHAS. B. DWIGHT, Esq., for Peti- 
tioners. 
L. P. SCOTT, Esq., Deputy C. & C. Attor- 
ney, for Respondents. 

MINUTES OF COURT— DECEMBER 6, 1930— 
ORDER ALLOWING ISSUANCE OF TEM- 
PORARY RESTRAINING ORDER. 

By consent of respective counsel the above two 
orders were this day by the Court vacated. 
By order of the Court : 

A. R. WHITMORE, 
Clerk. [55] 



44 Hattie Kulamanu Ward et al. vs. 

At Chambers— 10 :00 o'clock A. M., Monday, De- 
cember 15, 1930. 

Present: Hon. A. E. STEADMAN, First Judge, 
Presiding. 
A. E. WHITMORE, Clerk. 
Respondent 's Counsel : 
CHAS. B. DWIGHT, Esq., for Peti- 
tioners. 
L. P. SCOTT, Esq., Deputy C. & C. At- 
torney, for Respondent. 

MINUTES OF COURT— DECEMBER 15, 1930— 
ORDER OVERRULING DEMURRER. 

After argument by counsel the Court overruled 
respondent's demurrer, and respondent was given 
ten (10) days within which to answer or otherwise 
plead. Counsel for respondent noted his excep- 
tion to the Court's ruling. 

By order of the Court : 

A. R. WHITMORE, 
Clerk. [56] 

Tuesday, January 20, 1931. At Chambers— 9 :00 

o'clock A. M. 
Present: Hon. A. M. CRISTY, Second Judge, 
Presiding. 
L. R. HOLT, Clerk. 
H. R. JORDAN, Reporter. 



City and County of Honolulu. 45 



[Title of Cause— No. E-3121.] 

MINUTES OF COUET— JANUARY 20, 1931— 
MOTION TO STRIKE REPLICATION. 

Counsel: CHARLES B. D WIGHT, Esq., for Peti- 
tioners. 
LESLIE P. SCOTT, Esq., for Respond- 
ent. 
Counsel for respondent argued on the merits of 
his motion to strike the replication filed by counsel 
for petitioners argued. 

The Court, after listening to the argument of 
counsel, granted the motion to strike over objec- 
tion of counsel for petitioners. The case was set 
for Tuesday, January 27, 1931, at 9:00 A. M. for 
hearing. 

By the Court: 

(S.) L. R. HOLT, 
Clerk. [57] 

At Chambers — 9:00 o'clock A. M. Tuesday, January 

27, 1931. 

Present: The COURT. 

H. R. JORDAN, Reporter. 

Counsel : Same. 

MINUTES OF COURT— JANUARY 27, 1931— 

HEARING. 

Counsel being ready to proceed with the hearing 
on the bill for injunction, counsel for petitioners 
moved to amend Paragraph 3 of the petition by 
striking out the numericals "#67" on line 4 and in- 



46 Hattie Kulamanu Ward et al. vs. 

serting in lieu thereof the numericals "#670" and 
also moved to add after the figures 670 the following 
insert " subject to a life estate in Victoria Ward." 
The amendments were granted by the Court, en- 
tered and initialed in the petition. 

Counsel for respondent made a statement to the 
Court. 

Counsel for petitioners acquainted the Court with 
the facts of the case and called as a witness (1) 
Abraham V. Akana, who, upon being duly sworn, 
testified. 

No cross-examination. 

Counsel for petitioners offered in evidence, A map 
of Land Court Application #670, which was re- 
ceived by the Court without any further numerical 
identification. 

At 9:25 A. M. counsel for petitioners called as a 
witness (2) Victoria K. Ward, who, upon being 
duly sworn, testified. 

Counsel for petitioners offered in evidence [58] 
Owner's Transfer Certificate of Title #7250, issued 
out of the Land Court of the Territory of Hawaii, 
and was received by the Court without any further 
markings. 

At 9 :52 A. M. cross-examination. 

At 10 :00 A. M. redirect examination. 

At 10:02 A. M. recross-examination. 

At 10.10 A. M. the Court took a recess. 

At 10:20 A. M. the Court reconvened whereupon 
counsel for petitioners called as a witness (3) Lucy 
K. Ward, who, upon being sworn, testified. 

At 10 :24 A. M. cross-examination. 



City and County of Honolulu. 47 

Counsel for petitioners offered in evidence, Pro- 
ceedings in Land Court Application #670, and by 
order of the Court was received and made a part of 
this record. 

Counsel for respondent offered the following doc- 
uments in evidence, — 

The entire record in Law No. 11946, being the 
case of the City and County of Honolulu vs. 
Victoria Ward in Eminent Domain Proceed- 
ings: Certified Copy #3114 — Judgment and 
Final Order of Condemnation in L.-# 11946; 
certified to by A. A. Dunn, Acting Commis- 
sioner of Public Lands — (Exhibit "I") 

and by order of the Court was received and made 
a part of the record. [59] 

At 10 :35 A. M. counsel for respondent called as a 
witness (4) John H. Wilson, who, upon being duly 
sworn, testified. 

At 10 :41 A. M. cross-examination. 

At 10 :30 A. M. redirect examination. 

At 10:54 A. M. recross-examination. 

At 10 :55 A. M. counsel for respondent called as a 
witness (5) Louis M. Whitehouse, who upon being 
duly sworn testified. 

At 11 :20 A. M. cross-examination. 

At 11 :30 A. M. redirect examination. 

At 11 :35 A. M. recross-examination. 

At 11 :40 A. M. counsel for respondent called as a 
witness (6) Daniel F. Balch, who, upon being duly 
sworn testified. 

At 12 :01 P. M. the Court took a recess. 

At 1:45 P. M. the Court reconvened whereupon 



48 Hattie Kulamanu Ward et al. vs. 

Mr. Balch resumed the witness-stand on further di- 
rect examination. 

At 1 :46 P. M. cross-examination. 

At 2 :00 P. M. redirect examination. 

At 2 :05 P. M. counsel for respondent rested. 

At 2 :06 P. M. counsel for petitioners recalled Miss 
Lucy K. Ward in rebuttal. 

At 2 :20 P. M. cross-examination. 

At 2 :40 P. M. counsel for petitioners rested. 

At 2:41 P. M. counsel for petitioners delivered 
his opening argument to the Court. [60] 

At 3:55 P. M. the Court suggested that counsel 
supply him with a memorandum of authorities in 
lieu of further argument. This suggestion being 
agreeable to counsel, the Court continued the matter 
until said briefs are submitted. 

By the Court : 

(S.) L. E. HOLT, 
Clerk. 

At Chambers — 10:00 o'clock A. M., Wednesday, 
February 4, 1931. 

MINUTES OF COURT— FEBRUARY 4, 1931— 

DECISION. 

On the above day and hour, the Court rendered a 
written decision in favor of the respondent and 
against the petitioners and dismissed the petition 
for " want of Equity. " 

By the Court : 

(S.) L. R. HOLT, 
Clerk. [61] 



City and County of Honolulu. 49 

Filed February 27, 1931, at 10:08 o'clock A. M. 
[62] 

In the Supreme Court of the Territory of Hawaii. 
October Term, 1930. 

No. 2002. 

HATTIE KULAMANU WARD, LUCY KAIAKA 
WARD and VICTORIA KATHLENE 
WARD, 

vs. 

THE CITY AND COUNTY OF HONOLULU, a 
Municipal Corporation. 

Appeal from Circuit Judge First Circuit. 

Hon. A. M. CRISTY, Judge. 
Argued February 24, 1931. 
Decided February 27, 1931. 

PERRY, C. J., BANKS and PARSONS, JJ. 

Equity — Jurisdiction — Adequate remedy at law — 
Ejectment. 
When the City and County of Honolulu is in pos- 
session of a piece of land as a public highway, 
claiming the title thereto, a suit in equity pre- 
senting no equitable features and the sole pur- 
pose of which is to obtain an injunction to re- 
strain the further possession and use by the 
city and county of the land as a highway, will 
not lie, the remedy by an action of ejectment 
being adequate to try the title. 
Lis Pendens — Purchase pendente lite — Operation 
and effect. 



50 Hattie Kulamanu Ward et al. vs. 

A purchaser pendete lite is bound by the result of 
the suit. 
Eminent Domain — Action for condemnation — Dam- 
ages to accrue to adjacent land not con- 
demned. 

Damages caused, as by the overflowing of lands, 
by the construction of a roadway over a piece 
of land judicially [63] condemned after trial 
by jury, are recoverable under our statute in the 
action for condemnation; and if a claim for 
such damages is not presented or adjudicated in 
the action for condemnation the injury cannot 
be made the ground of a subsequent suit in 
equity to restrain the continued use and occu- 
pation by the Government of the land con- 
demned for road purposes. [64] 

OPINION OF THE SUPREME COURT BY 
PERRY, C. J. 

This is a suit in equity in which the complainants 
pray for an injunction restraining the respondent 
from in any manner trespassing upon land described 
as "lots 'E,' 'F' and 'G,' of land court application 
No. 670," which are included in the land described 
in transfer certificate of title No. 7250 issued by the 
Land Court of this Territory. After trial, a decree 
was entered by the Circuit Judge refusing the relief 
prayed for and dismissing the bill. From that de- 
cree the case comes to this court by appeal. 

Lot "E" was originally a part of a larger tract 
of land owned by Victoria Ward. It is now a part 
of what is known as Ward Street, leading from 
King Street in a southerly direction towards the 



City and County of Honolulu. 51 

ocean. The City and County of Honolulu was at 
the date of the commencement of the suit in posses- 
sion of lot "E" as a public highway and it and its 
predecessor in interest, the Territory of Hawaii, 
have been in possession of it for a period of more 
than twenty years last past, using* it at all times as a 
public highway. The claim now advanced by the 
complainants is that lot "E" first came into the pos- 
session of the Territory under a conditional contract 
and that the Territory and the city and county did 
not comply with the terms of the contract and there- 
fore did not acquire the title. On the other hand it 
is claimed by the respondent that the terms were 
complied with in part and waived in part and that 
in any event there has been a statutory dedication 
of the land for highway purposes. The merits of 
this controversy we need not consider. The re- 
spondent is in possession and the complainants are 
out of possession. Their purpose in securing the in- 
junction is to eject the respondent [65] from the 
land. This can be adequately accomplished in an 
action of ejectment. No equitable features are pre- 
sented in the petition. Irreparable damage is not 
alleged, as to this lot. Jurisdiction in equity is 
therefore not maintainable. 

The further claim is made that certificate No. 
7250, issued by the Land Court prior to the verdict 
in the condemnation case, is an adjudication to the 
effect that the city and county has no title to lot "E" 
as a highway. We do not so understand it. The 
certificate is silent on the subject of roadways, but 
under section 3229, R. L. 1925, a successful applicant 
in whose favor a certificate of title is issued holds 



52 Hattie Kulamanu Ward et al. vs. 

it subject to the possible encumbrance of "any high- 
way * * * laid out under the provisions of 
law, when the certificate of title does not state that 
the boundary of such way has been determined/' 
as this certificate does not. In other words, if there 
is a highway running over registered land, the exist- 
ence of the highway may be proven, even though it is 
not noted in the certificate as an encumbrance, when 
as in this case there has been no express adjudica- 
tion on the subject. In any event, if the certificate 
of title can be properly construed as claimed by the 
present complainants that claim will be equally 
available to them in an action of ejectment. 

The same is true in substance of lot "F." That 
lot is now a part of the recently constructed Kapio- 
lani Boulevard and is in the possession of the re- 
spondent. It was awarded to the city and county 
in condemnation proceedings brought against Victo- 
ria Ward, the grantor of the three complainants. 
As held in the Land Court case entitled "In re Appli- 
cation No. 670 of Victoria Ward to Eegister Title 
to Land," ante, p. 781, the present complainants 
who received a deed of certain interests from Vic- 
toria Ward during the pendency of the action for 
condemnation [66] of lot "F" and other lands 
are bound by the results of that action. No irrepa- 
rable damage or other equitable features are alleged. 

Lot "Gr" likewise is one of the pieces of land con- 
demned in the action brought against Victoria 
Ward. As held in the Land Court case above re- 
ferred to, ante, p. 781, the present complainants are 
bound by the judgment rendered in the action for 
condemnation. The alleged irreparable damage is 



City and County of Honolulu. 53 

that the construction of the road over lot "G" 
caused an overflow of water upon other lands of the 
complainants (acquired from their mother and not 
condemned) and the destruction of trees which had 
been planted and cared for by the complainants and 
their mother, The respondent denies that the in- 
juries complained of were caused by the construc- 
tion of the roadway and contends that they were 
temporary in their nature and were the result of the 
acts of a dredging company which was making a fill 
of marshy lands either in lot "G" or elsewhere in 
the vicinity. Section 821, R. L. 1925, of the chapter 
on eminent domain, provides that "If the property 
sought to be condemned constitutes only a portion 
of a larger tract, the damages which will accrue to 
the portion not sought to be condemned by reason of 
its severance from the portion sought to be con- 
demned and the construction of the improvements 
in the manner proposed by the plaintiff shall also be 
assessed." If the overflowing of the uncondemned 
land of the complainants was caused by the acts of 
the dredging company or even if those acts were at- 
tributable to the respondent, damages therefor 
could be recovered in an action at law or, conceiv- 
ably (but we do not decide), it might, with equitable 
circumstances, justify an injunction to restrain the 
nuisance; [67] but certainly would not justify 
the relief prayed for in this suit which is that the re- 
spondent be restrained from "trespassing" upon lot 
"G," — the equivalent in effect of a writ of posses- 
sion. On the other hand, if the injuries complained 
of resulted from the construction of the road on lot 
"G," the claim for damages in that respect should 



54 Hattie Kulamanu Ward et al. vs. 

have been presented, under the statutory provision 
just quoted, in the action for condemnation, If 
through neglect or for any other reason the owners 
of the land failed to include that element of damages 
in their claims for compensation when the action for 
condemnation was being tried before the jury, the 
defect cannot be remedied in a new proceeding, 
whether at law or in equity. The owners have had 
their day in court. There must be an end to litiga- 
tion. 

The decree appealed from is affirmed. 
(Signed) ANTONIO PEEEY. 
(Signed) JAS. J. BANKS, 
(Signed) CHABLES P. PAESONS, 
C. B. DWIGHT (also on the briefs), for Peti- 
tioners. 
L. P. SCOTT, Deputy City and County Attorney 
(also on the brief), for Eespondent. [68] 



City and County of Honolulu. 55 

Filed March 2, 1931, at 11:56 o'clock A. M. [69] 

In the Supreme Court of the Territory of Hawaii. 

No. 2002. 

Appeal from Circuit Court, First Judicial Circuit, 
Hon. A. M. CRISTY, Presiding. 

HATTIE KULAMANU WARD, LUCY KAIA- 
AKA WARD and VICTORIA KATHLENE 
WARD, 

Petitioners-Appellants, 
vs. 

THE CITY AND COUNTY OF HONOLULU, a 

Municipal Corporation, 

Respondent- Appellee. 

JUDGMENT ON APPEAL. 

In the above-entitled cause pursuant to the opin- 
ion of the above-entitled court rendered and filed 
on the 27th day of February, A. D. 1931, the tem- 
porary restraining order issued in this court and 
cause on the 10th day of February, A. D. 1931, is 
hereby vacated and set aside and the judgment of 
the Circuit Court of the First Judicial Circuit, 
dated February 5, 1931, is affirmed. Costs amount- 
ing to $14.00 to be paid by the petitioners-appel- 
lant. 

Dated: Honolulu, T. H., March 2, 1931. 
By the Court: 
[Seal] (Sgd.) J. A. THOMPSON, 

Clerk, Supreme Court. 



56 Hattie Kulamanu Ward et al. vs. 

Approved : 

A. PERRY, 
Chief Justice. [70] 



[Title of Court and Cause— No. 2002.] 

NOTICE OF JUDGMENT ON APPEAL. 

To the Honorable the Judges of the Circuit Court 

of the First Judicial Circuit, Territory of 

Hawaii : 

YOU WILL PLEASE TAKE NOTICE that in 

the above-entitled cause the Supreme Court has 

entered the following judgment on appeal: 

" JUDGMENT ON APPEAL. 

In the above-entitled cause pursuant to the opin- 
ion of the above-entitled court rendered and filed 
on the 27th day of February, A. D. 1931, the tem- 
porary restraining order issued in this Court and 
cause on the 10th day of February, A. D. 1931, is 
hereby vacated and set aside and the judgment of 
the Circuit Court of the First Judicial Circuit, 
dated February 5, 1931, is affirmed. Costs amount- 
ing to $14.00 to be paid by the Petitioners-Appel- 
lant." 

Dated: Honolulu, T. H., March 2, 1931. 
By the Court: 

[Seal] (Sgd.) J. A. THOMPSON, 

Clerk, Supreme Court. [71] 

The form of the foregoing notice is hereby ap- 
proved and it is ordered that the same issue for- 
with. 



City and County of Honolulu. 57 

Dated: Honolulu, T. H., March 2, 1931. 
[Seal] (Sgd.) ANTONIO PERRY, 

Chief Justice. [72] 



Wednesday, February 11, 1931. 

Court convened at 10:00 o'clock A. M. 
Present in Chambers: 

Hon. ANTONIO PERRY, C. J., Hon. JAMES 
J. BANKS, and Hon. CHARLES F. 
PARSONS, JJ. 

MINUTES OF SUPREME COURT— FEBRU- 
ARY 11, 1931— HEARING UPON MOTION 
BY APPELLEE TO SET ASIDE RE- 
STRAINING ORDER. 

Appearances : 

L, P. SCOTT, Deputy City and County At- 
torney, for the Motion. 
CHARLES B. DWIGHT, contra. 
In the above-entitled matter, counsel for the 
respective parties appeared this day at 10:00 
o'clock A. M. at the Chambers of the Chief Jus- 
tice re hearing of the above-entitled motion. When 
said matter was called, Mr. Scott proceeded to read 
the motion and then followed with his argument 
in support thereof. 

Mr. Dwight addressed the Court stating, that 
the record on appeal be filed in this court Friday 
morning; and after discussion between the Court 



58 Hattie Kidamanu Ward et al. vs. 

and counsel, the Court rendered its oral ruling- 
ordered the restraining order stay. 

(Sgd.) ROBERT PARKER, Jr., 
Assistant Clerk. [73] 



Tuesday, February 24, 1931. 
Court convened at 10:00 o'clock, A. M. 

Present on the Bench: Hon. ANTONIO PERRY, 
C. J., Hon. JAMES J. BANKS and Hon. 
CHARLES F. PARSONS, JJ. 

1989. 

Error to Land Court. 

In the Matter of the Application of VICTORIA 
WARD to Register and Confirm Title to 
Certain Land Situate at Kewalo, Honolulu, 
Oahu, Territory of Hawaii. 

2002. 

Original Petition for Injunction and Proceedings 
from Circuit Court First Circuit. 

HATTIE KULAMANU WARD, LUCY KAIKA 
WARD and VICTORIA KATHLEEN 
WARD, 

vs. 

THE CITY AND COUNTY OF HONOLULU, 

a Municipal Corporation. 



City and County of Honolulu. 59 

MINUTES OF SUPREME COURT— FEBRU- 
ARY 24, 1931— HEARING. 

Appearances : 

C. B. DWIGHT, for the Appellants. 
L. P. SCOTT, Deputy City and County At- 
torney for Appellee. 
The above-entitled causes having been ordered 
set for this day for argument, when the convened, 
Mr. Dwight addressed the court and proceeded to 
state the facts in the above-entitled causes and 
then followed with his argument concluding at 
11:20 A. M. 

At 11:21 A. M. Mr. Scott commenced with his 
argument and called the court's attention to Lewis 
Eminent Domain, Volume 1, Section 65, page 56 
(what constitutes a taking), and also the provisions 
of Section 823 of the Revised Laws of Hawaii 
1925, concluding at 11:50 A. M. 

At 11:51 A. M. Mr. Dwight replied concluding 
at 11:59 A. M. 

Case submitted and taken under advisement. 
At 12:00 Noon the Court adjourned until to- 
morrow morning at 10:00 o'clock, Wednesday, 
February 25, 1931. 

(Sgd.) ROBERT PARKER, Jr., 
Assistant Clerk. [74] 



60 Hattie Kulamanu Ward et al. vs. 

Friday, February 27, 1931. 
[Title of Cause— No. 1989.] 

MINUTES OF SUPREME COURT— FEBRU- 
ARY 27, 1931— HEARING (CONTINUED.) 

At 10:07 o'clock A. M. this day the Court handed 
down its written opinion in the above-entitled 
cause affirming the decree of the Land Court. 
(Sgd.) ROBERT PARKER, Jr., 

Assistant Clerk. 



[Title of Cause.— No. 2002.] 

MINUTES OF SUPREME COURT— FEBRU- 
ARY 27, 1931— HEARING (CONTINUED.) 

At 10:08 o'clock A. M. this day the court handed 
down its written opinion in the above-entitled 
cause affirming the decree appealed from. 

(Sgd.) ROBERT PARKER, Jr., 
Assistant Clerk. [75.] 



Filed June 1, 1931, at 4:05 o'clock P. M. 

Service is hereby accepted this 1st day of June, 
1931. 

L. P. SCOTT, 
Deputy City and County Attorney, 
Attorney for Respondents-Appellee. [76] 



City and County of Honolulu. 61 

[Title of Court and Cause— No. 2002.] 

PETITION FOR APPEAL. 

To the Honorable, the Chief Justice, and Associate 
Justices of the Supreme Court of the Terri- 
tory of Hawaii: 
Hattie Kulamanu Ward, Lucy Kaiaka Ward 
and Victoria Kathleen Ward, petitioners-appel- 
lant herein, deem themselves aggrieved by the 
judgment of the above-entitled court in the above- 
entitled matter, which judgment of the Supreme 
Court of the Territory of Hawaii, was made and 
entered on the 2d day of March, 1931, and hereby 
appeal to the United States Circuit Court of Ap- 
peals for the .Ninth Circuit, from said judgment, for 
the reasons specified in the assignment of errors 
hereto attached, and they pray that this appeal may 
be allowed, and that a transcript of the record 
and proceedings upon which said judgment was 
made, duly authenticated, may be sent to the United 
States Circuit Court of Appeals for the Ninth 
Circuit and that said judgment may be reversed. 
[77] 

Dated at Honolulu, Hawaii, this 1st day of June, 
A. D. 1931. 

HATTIE KULAMANU WARD, 
LUCY KAIAKA WAED and 
VICTORIA KATHLEEN WARD, 
Petitioners- Appellants. 
By CHARLES B. DWIGHT, 
Their Attorney. [78] 



62 Hattie Kulamanu Ward et al. vs. 

Filed June 1, 1931, at 4:05 o'clock P. M. 

Service is hereby accepted this 1st day of June, 
1931. 

L. P. SCOTT, 
Deputy City and County Attorney, 
For the Respondents-Appellee. [79] 

[Title of Court and Cause— No. 2002.] 

ASSIGNMENT OF ERRORS. 

Now come Hattie Kulamanu Ward, Lucy Kaiaka 
Ward and Kathleen Victoria Ward, petitioners-ap- 
pellant, and file the following assignment of errors, 
upon which they will rely in the prosecution of their 
appeal in the above-entitled cause from the judg- 
ment entered herein on the 2d day of March, A. D. 
1931, in the Supreme Court of the Territory of 
Hawaii. 

I. 

That the Supreme Court of the Territory of Ha- 
waii erred in overruling the appeal of the petition- 
ers-appellant and affirming the decision of the Cir- 
cuit Court of the First Judicial Circuit, Territory 
of Hawaii, made and entered in the 5th day of 
February, 1931. 

II. 

That the Supreme Court of the Territory of Ha- 
waii erred in holding and finding that the petition- 
ers-appellant were not entitled to the relief prayed 
for in their petition. 

III. 

That the Supreme Court of the Territory of Ha- 



City and County of Honolulu. 63 

waii [80] erred in holding and finding that the 
petitioners-appellant were bound by the judgment 
in the eminent domain proceeding entitled "The 
City and County of Honolulu vs. Victoria Ward." 

IV. 

That the Supreme Court of the Territory of Ha- 
waii erred in failing to grant the relief prayed for 
by the petitioners-appellant in their petition. 

V. 

That the Supreme Court of the Territory of Ha- 
waii erred in failing to hold and find that the peti- 
tioners-appellant would be deprived of their private 
property without just compensation if the prayer 
of the petitioners-appellant was not granted. 

VI. 

That the Supreme Court of the Territory of Ha- 
waii erred in failing to hold and find that the peti- 
tioners-appellant were not bound by the final order 
of condemnation in the eminent domain proceeding 
entitled "The City and County of Honolulu vs. Vic- 
toria Ward." 

WHEREFORE, the said Hattie Kulamanu 
Ward, Lucy Kaiaka Ward and Victoria Kathleen 
Ward, petitioners-appellant, pray that said opinion 
and decision and judgment be reversed and that the 
Supreme Court of the Territory of Hawaii be or- 
dered to enter a judgment sustaining the appeal of 
petitioners-appellant from the decree of the Circuit 
Court of the First Judicial Circuit, Territory of 
Hawaii. 



64 Hattie Kulamanu Ward et al. vs. 

Dated at Honolulu, Hawaii, this 1st day of June, 
A. D. 1931. 

HATTIE KULAMANU WARD, 
LUCY KAIAKA WAED and 
VICTORIA KATHLEEN WARD, 

Petitioners- Appellant. 
By CHARLES B. DWIGHT, 
Their Attorney. [81] 



Filed June 1, 1931, at 4:05 o'clock P. M. 

Service is hereby accepted this 1st day of June, 
1931. 

L. P. SCOTT, 
Deputy City and County Attorney, Attorney for 
Respondent-Appellee. [82] 

[Title of Court and Cause— No. 2002.] 

NOTICE OF APPEAL. 

Now comes Hattie Kulamanu Ward, Lucy Kaiake 
Ward and Victoria Kathleen Ward, petitioners-ap- 
pellant above named, by their attorney, Charles B. 
Dwight, and gives notice of appeal from the judg- 
ment of the Supreme Court of the Territory of Ha- 
waii, dismissing the appeal of the petitioners from 
the decision of the Circuit Judge of the First Cir- 
cuit, of the Territory of Hawaii, and sustaining the 
decree of the said Circuit Judge, to the United 
States Circuit Court of Appeals for the Ninth Cir- 
cuit. 



City and County of Honolulu. 65 

Dated at Honolulu, Hawaii, this 1st day of June, 
A. D. 1931. 

HATTIE KULAMANU WARD, 
LUCY KAIAKA WARD and 
VICTORIA KATHLEEN WARD, 

Petitioners-Appellant. 
By CHARLES B. DWIGHT, 
Their Attorney. [83] 

ORDER ALLOWING APPEAL. 

Upon filing by the petitioners-appellant, Hattie 
Kulamanu Ward, Lucy Kaiaka Ward and Victoria 
Kathleen Ward, of a bond in the sum of Five Hun- 
dred Dollars ($500), with good and sufficient sure- 
ties, the appeal in the above-entitled cause is hereby 
allowed. 

[Seal] ANTONIO PERRY, 

Chief Justice. [84] 



Filed June 1, 1931, at 4:05 o'clock P. M. 

Service is hereby accepted this 1st day of June, 
1931. 

L. P. SCOTT, 
Deputy City and County Attorney, 
Attorney for Respondent- Appellee. [85] 

[Title of Court and Cause— No. 2002.] 

COST BOND. 

The United States of America, 
District of Hawaii. 

We, Hattie Kulamanu Ward, Lucy Kaiaka Ward 



66 Hattie Ktdamanu Ward et al. vs. 

and Victoria Kathlene Ward, as principals, and 
New York Indemnity Company of New York, as 
surety, jointly and severally acknowledge ourselves 
indebted to the United States of America, in the 
sum of Five Hundred and/100 ($500.00), to be 
levied on our goods, and chattels, lands and tene- 
ments, upon this condition: 

WHEREAS, the above-named petitioners-appel- 
lant have taken an appeal from the Supreme Court 
of the Territory of Hawaii to the United States 
Circuit Court of Appeals for the Ninth Circuit, to 
reverse the judgment dated and entered in said 
cause on the 2d day of March, A. D. 1931, — 

NOW, THEREFORE, if the above-bounded pe- 
titioners-appellant shall prosecute their appeal with- 
out delay and shall [86] answer all costs if they 
fail to make good their plea, then this obligation 
shall be void ; otherwise to remain in full force and 
effect. 

IN WITNESS WHEREOF, we have hereunto 
set our hands and seals this 1st day of June, A. D. 
1931. 
(Signed) HATTIE KULAMANU WARD, 

By CHARLES B. DWIGHT, 

Her Attorney. 
LUCY KULAMANU WARD, 
VICTORIA KATHLENE WARD, 
By CHARLES B. DWIGHT, 

Her Attorney, 
Principals. 



City and County of Honolulu. 67 

Reaffirmed. 

NEW YORK INS. CO. 
H. A. TRUSLOW, 
Agent: Atty.-in-fact. 
June 1, 1931. 

NEW YORK INDEMNITY COMPANY, 

H. A. TRUSLOW, 
Agent and Agency-in-fact, 
Sureties. 
Taken and acknowledged before me the day and 
year first above written. 

SUZANNE G. FISKE, 
Notary Public, First Judicial Circuit, Territory of 
Hawaii. 
The foregoing bond is approved as to amount and 
sufficiency of sureties. 

(Signed) ANTONIO PERRY, 
Chief Justice, Supreme Court. 
The foregoing bond is approved as to form. 

(Signed) L. P. SCOTT, 
City and County Attorney. 
Reaffirmed 3:45 P. M., June 1st, 1931. 
LUCY K. WARD, 
HATTIE KULAMANU WARD, 
KATHLENE VICTORIA WARD. 
By CHARLES B. D WIGHT, 
Their Attorney. [87] 



68 Hattie Kulamanu Ward et al. vs. 

Filed June 1, 1931, at 4:05 o'clock P. M. 

Service is hereby accepted this 1st day of June, 
1931. 

L. P. SCOTT, 
Deputy City and County Attorney. [88] 

[Title of Court and Cause— No. 2002.] 

CITATION ON APPEAL. 

The United States of America, — ss. 
The President of the United States of America to 
the City and County of Honolulu, a Municipal 
Corporation, and James F. Gilliland, City and 
County Attorney, Its Attorney, GREETINGS : 
You are hereby cited and admonished to be and 
appear at the Ninth Circuit, to he held at the City 
and County of San Francisco, State of California, 
within thirty (30) days from the date of this writ, 
pursuant to an order allowing appeal, filed in the 
office of the Clerk of the Supreme Court of the Ter- 
ritory of Hawaii, wherein Hattie Kulamanu Ward, 
Lucy Kaiaka Ward and Victoria Kathleen Ward 
are the petitioners and you are respondent, to show 
cause, if any there be, why the judgment in such 
appeal mentioned, should not be corrected, and 
speedy justice should not be done to the parties in 
that behalf. [89] 

WITNESS, the Honorable CHARLES EVANS 
HUGHES, Chief Justice of the Supreme Court of 
the United States of America, this 1st day of June, 



City and County of Honolulu. 69 

A. D. 1931, and of the Independence of the United 
States the :Z5th. 

ANTONIO PERRY, 

Chief Justice. 
[Seal] Attest: J. A. THOMPSON, 

Clerk of the Supreme Court of the Territory of Ha- 
waii. 

Received a copy of the within citation June 1st, 
1931. 

L. P. SCOTT, 
Deputy City and County Attorney. 

Let the within citation issue. 
[Seal] ANTONIO PERRY, 

Chief Justice. [90] 



Filed June 1, 1931, at 4:05 o'clock P. M. 

Service is hereby accepted this 1st day of June, 
1931. 

(S.) L. P. SCOTT, 
Deputy City and County Attorney, 
Attorney for Respondent- Appellee. [91] 

[Title of Court and Cause— No. 2002.] 

PRAECIPE FOR TRANSCRIPT OF RECORD. 

To the Clerk of the Above-entitled Court: 

You will please prepare transcript of the record 
in this cause, to be filed in the office of the Clerk of 
the United States Circuit Court of Appeals for the 
Ninth Circuit, and include in said transcript the 
following pleadings, proceedings and papers on file, 
to wit : 



70 Hattie Kulamanu Ward et al. vs. 

1. Petition and chamber summons, order allow- 

ing issuance of temporary restraining order. 
Temporary restraining order. 

2. Answer of the City and County of Honolulu. 

3. Replication. 

4. Decree. 

5. Transcript of the evidence had and taken of 

the proceedings herein, and all original ex- 
hibits. 

6. Minutes of the Clerk of the Circuit Court of 

the proceedings had and taken herein. 

7. Opinion of the Supreme Court of the Terri- 

tory of Hawaii, dated February 27th, 1931. 
[92] 

8. Judgment on appeal of the Supreme Court of 

the Territory of Hawaii. 

9. All minute in the above-entitled cause. 

10. Petition for appeal. 

11. Notice of appeal and order allowing appeal. 

12. Assignment of errors. 

13. Citation on appeal. 

14. Bond for costs on appeal. 

15. This parecipe. 

16. Clerk's certificate to transcript. 

Said transcript to be prepared as required by law, 
and the rules of this court, and the rules of the 
United States Circuit Court of Appeals for the 
Ninth Circuit, and filed in the office of the Clerk of 
said Circuit Court of Appeals, at San Francisco, 
in the State of California, before the 1st day of 
July, A. D. 1931. 



City and County of Honolulu, 71 

Dated this 1st day of June, A. D. 1931. 

HATTIE KULAMANU WARD, 
LUCY KAIAKA WARD and 
VICTORIA KATHLEEN WARD, 

Petitioners- Appellant. 
By CHARLES B. DWIGHT, 
Their Attorney. [93] 



Filed June 1, 1931, at 4:05 o'clock P. M. 

Service is hereby accepted this 1st day of June, 
1931. 

L. P. SCOTT, 
Deputy City and County Attorney, 
Attorney for Respondent- Appellee. [94] 

[Title of Court and Cause— No. 2002.] 

ORDER EXTENDING TIME TO AND IN- 
CLUDING JULY 1, 1931, TO PREPARE 
TRANSCRIPT AND RECORD ON AP- 
APPEAL. 

IT IS HEREBY ORDERED that the time in 
which to prepare and file the record on appeal in 
the above-entitled cause be extended up to and 
including the 1st day of July, A. D. 1931. 

Dated at Honolulu, T. H., this 1st day of June, 
A. D. 1931. 

[Seal] ANTONIO PERRY, 

Chief Justice. [95] 



72 Hattie Kulamanu Ward et al. vs. 

Received and filed in the Supreme Court June 
24, 1931, at 2:10 o'clock P. M. [96] 

[Title of Court and Cause— No. 2002.] 

ORDEE EXTENDING TIME TO AND IN- 
CLUDING JULY 31, 1931, TO PREPARE 
TRANSCRIPT AND RECORD ON AP- 
PEAL. 

IT IS HEREBY ORDERED that the time in 
which to prepare and file the record on appeal in 
the above-entitled cause be extended up to and in- 
cluding the 31st day of July, A. D. 1931. 

Dated at Honolulu, Hawaii, this 24th day of June, 
A. D. 1931. 

[Seal] ANTONIO PERRY, 

Chief Justice. 
Approved. 

L. P. SCOTT, 
Deputy City and Cty. Atty. [97] 



[Title of Court and Cause— No. 2002.] 

CERTIFICATE OP CLERK OF SUPREME 
COURT OF TERRITORY OF HAWAII TO 
TRANSCRIPT OF RECORD. 

Territory of Hawaii, 

City and County of Honolulu, — ss. 

I, Robert Parker, Jr., Assistant Clerk of the 
Supreme Court of the Territory of Hawaii, DO 



City and County of Honolulu, 73 

HEREBY CERTIFY, that the documents hereto 
attached and enumerated hereunder, viz.: 

1. Fly-leaf and index to transcript of record; 

2. Copy of petition, dated December 5, 1930; 

3. Copy chambers summons, issued December 5, 

1930, with return of service; 

4. Copy of order allowing issuance of temporary 

restraining order, dated December 5, 1930; 

5. Copy temporary restraining order, dated De- 

cember 5, 1930; 

6. Copy answer of City and County of Honolulu, 

a municipal corporation, by L. P. Scott, 
Deputy City and County Attorney, and at- 
tached thereto as exhibits thereof are the fol- 
lowing, viz.: Exhibit "A," copy letter from 
James H. Boyd, Esq., Superintendent of Pub- 
lic Works, dated January 29th, 1902 ; Exhibit 
"B," copy of letter from James H. Boyd, 
Superintendent of Public Works to E. H. 
Wodehouse, Esq., Attorney for Victoria 
Ward, dated February 7, 1902, and Exhibit 
"C," copy of order putting plaintiff into 
possession of lands in the above-entitled 
cause sought to be condemned, dated and filed 
Jan. 13, 1931 ; 

7. Copy petitioners' replication, dated and filed 

Jan. 13, 1931; 

8. Copy decision of Hon. Albert M. Cristy, Sec- 

ond Judge, First Judicial Circuit, Territory 
of Hawaii, filed Feb. 4, 1931 ; 

9. Copy decree entered in the Circuit Court, First 

Judicial Circuit, filed Feb. 6, 1931 ; [98] 



74 Hattie Kulamanu Ward et al. vs. 

10. Copy clerk 's minutes of the Circuit Court, 

First Judicial Circuit; 

11. Copy opinion of the Supreme Court, Territory 

of Hawaii, dated and filed Feb. 27, 1931 ; 

12. Copy judgment on appeal, filed March 2, 1931 ; 

13. Copy notice of Judgment on appeal, dated 

March 2, 1931 ; 

14. Copy clerk's minutes of the Supreme Court; 

15. Original petition by petitioners-appellant for 

appeal to the United States Circuit Court 
of Appeals for the Ninth Circuit, filed June 
1,1931; 

16. Original assignment of errors, filed June 1, 

1931; 

17. Original notice of appeal and order allowing 

appeal, filed June 1, 1931; 

18. Cost bond on appeal to the United States Cir- 

cuit Court of Appeals for the Ninth Circuit, 
dated June 1, 1931, for the sum of $500.00; 
Hattie Kulamanu Ward, Lucy Kaiaka Ward 
and Victoria Kathleen Ward, Principals; 
New York Indemnity Company of New 
York, Surety, and United States of America, 
obligee ; 

19. Original citation on appeal, filed Jan. 1, 1931, 

with acknowledgement of service of a copy 
thereof by L. P. Scott, Deputy City and 
County Attorney ; 

20. Copy praecipe for transcript of record, dated 

and filed June 1, 1931 ; 

21. Original order granting petitioners-appellant 

to and including July 1, 1931, within which 



City and County of Honolulu, 75 

to prepare and transmit to the Clerk of the 
United States Circuit Court of Appeals for 
the Mnth Circuit at San Francisco, Cali- 
fornia, record on appeal, dated June 1, 1931 ; 

22. Original order granting petitioners-appellant 

to and including July 31, 1931, within 
which to prepare and transmit to the Clerk 
of the United States Circuit Court of Ap- 
peals for the Ninth Circuit at San Francisco, 
California, record on appeal, dated June 24, 
1931,— 
are all full, true and accurate copies of the original 
documents, filed in the above-entitled cause and now 
on file in the office of the Clerk of the Supreme Court 
of the Territory of Hawaii. 

I FURTHER CERTIFY that the 

23. Original transcript of evidence, volume 1, num- 

bered 695, filed February 13, 1931; 

24. Petitioners' Exhibit "A," Letter from L. M. 

Whitehouse, Chief Engineer, to Mrs. Vic- 
toria Ward et al., dated December 2, 1930, 
and 

25. Respondent's Exhibit "1," certified copy of 

judgment and final order of condemnation 
in the Circuit Court First Judicial Circuit, 
Territory of Hawaii, in a cause entitled Law 
No. 11946, The City and County of Honolulu, 
a Municipal Corporation, Plaintiff, vs. Vic- 
toria Ward, Defendant; [99] 

26. Original Land Court Record, No. 670, Three 

(3) Volumes, — 



76 Hattie Kulamanu Ward et al. vs. 

are the originals, and are herewith transmitted to 
the United States Circuit Court of Appeals for the 
Ninth Circuit, at San Francisco, California ; except- 
ing number 15 — petition for appeal, number 16 — 
assignment of errors, number 17 — notice of appeal 
and order allowing appeal, number 19 — citation on 
appeal, number 21 — order extending time to pre- 
pare transcript and record on appeal, dated June 1, 
1931, and number 22 — order extending time to pre- 
pare transcript and record on appeal, dated June 
June 24, 1931, are the originals and are herewith 
transmitted to the United States Circuit Court of 
Appeals for the Ninth Circuit, at San Francisco, 
California, 

In pursuance to the praecipe filed June 1, 1931, 
in the above-entitled cause, the foregoing are here- 
with transmitted to the Circuit Court of Appeals 
for the Ninth Circuit. 

IN WITNESS WHEREOF, I have hereunto set 
my hand and the seal of the above-entitled Court, at 
Honolulu, City and County of Honolulu, Territory 
of Hawaii, this 22d day of July, A. D. 1931. 

[Seal] ROBERT PARKER, Jr., 

Assistant Clerk of the Supreme Court of the Terri- 
tory of Hawaii. [100] 



[Endorsed]: No. 6546. United States Circuit 
Court of Appeals for the Ninth Circuit. Hattie 
Kulamanu Ward, Lucy Kaiaka Ward and Vic- 
toria Kathleen Ward, Appellants, vs. City and 
County of Honolulu, a Municipal Corporation, Ap- 



City and County of Honolulu. 11 

pellee. Transcript of Record. Upon Appeal from 
the Supreme Court of the Territory of Hawaii. 
Filed July 29, 1931. 

PAUL P. O'BRIEN, 
Clerk of the United States Circuit Court of Ap- 
peals for the Ninth Circuit. 

By Frank H. Schmid, 

Deputy Clerk. 



No. 6564 



Intfrfc States 

(Eirattf (ttmtri of Apjmtte 

3far tip Nuttlj ffiirnrfL 



LUMBERMENS TRUST COMPANY, a Corpora- 
tion, 

Appellant, 



vs. 



THE TOWN OF RYEGATE, a Municipal Corpo- 
ration, 

Appellee. 



atrattanrtpt nf X*mriL 



Upon Appeal from the United States District Court for the 
District of Montana. 



F! LED 

AUG -31 

PAUL P. O'BRIEN, 

CLERK 



Filmer Bros. Oo. Print, 380 Jackson St., S. P., 0»1. 



No. 6564 



(Etrwti (Etfurt nf Kppml* 



3nx % Nttttlj (Utrrutt 



LUMBEEMENS TEUST COMPANY, a Corpora- 
tion, 

Appellant, 



vs. 



THE TOWN OF EYEGATE, a Municipal Corpo- 
ration, 

Appellee. 



atrattarripi of Stennri. 



Upon Appeal from the United States District Court for the 
District of Montana. 



Filmer Brog. Co. Print, 330 JackM>n St., S. F., 0»1. 



INDEX TO THE PRINTED TRANSCRIPT OF 

RECORD. 



[Clerk's Note: When deemed likely to be of an important nature, 
errors or doubtful matters appearing in the original certified record are 
printed literally in italic; and, likewise, cancelled matter appearing in 
the original certified record is printed and cancelled herein accord- 
ingly. When possible, an omission from the text is indicated by 
printing in italic the two words between which the omission seems to 
occur.] 

Page 

Affidavit of Mailing of Appeal Papers 264 

Agreement of Statement of Evidence 262 

Answer 19 

Assignment of Errors 254 

Bond on Appeal 259 

Certificate of Clerk U. S. District Court to 

Transcript of Record 267 

Citation on Appeal 261 

Complaint 2 

Decision 94 

Decree 112 

DEPOSITIONS ON BEHALF OF PLAIN- 
TIFF: 

BRIGGS, W. P 170 

Cross-examination 177 

HASTINGS, PARKER W. (In Rebut- 
tal) 249 

Cross-examination 250 

Redirect Examination 250 



ii Lumbermens Trust Company vs. 

Index. Page 

DEPOSITIONS ON BEHALF OF PLAIN- 
TIFF— Continued : 

NEALE, JOHN N 157 

Cross-examination 161 

Redirect Examination 164 

Recr oss-examination 165 

Redirect Examination .■ 165 

Recross-examination 166 

Redirect Examination 167 

ROSCOE, W. P 178 

Cross-examination 184 

Redirect Examination 185 

THIEN, HENRY (In Rebuttal) 248 

Cross-examination 249 

DEPOSITIONS ON BEHALF OF DE- 
FENDANT : 

CORRINGTON, G. H 229 

MELLEN, B 235 

Cross-examination 238 

NORTHEY, W. H 234 

PARIZEK, C. H 231 

Cross-examination 233 

THIEN, HENRY 203 

Cross-examination 207 

Redirect Examination 209 

Recalled 231 

EXHIBITS: 

Exhibit "A" Attached to Answer — Resolu- 
tion No. 14 Creating Special Improve- 
ment District No. 4 35 



The Town of Ryegate. iii 

Index. Page 

EXHIBITS— Continued : 

Exhibit "A" Attached to Complaint- 
Resolution No. 10 of Council of Town 
of Ryegate to Create Special Improve- 
ment District No. 4 10 

Exhibit "B" Attached to Answer — Ordi- 
nance No. 28 Passed and Adopted by 

Council of Town of Ryegate 39 

Exhibit "B" Attached to Complaint- 
Special Improvement District Coupon 
Bond Issued by Town of Ryegate .... 16 
Exhibit "C" Attached to Answer — Ordi- 
nance No. 29 Passed and Adopted by 

Council of Town of Ryegate 40 

Plaintiff's Exhibit No. 1— Official State- 
ment of Local Improvement Bonds . . . 171 
Plaintiff's Exhibit No. 2— Draft Dated 
May 29, 1920, Town of Ryegate to The 
Farmers & Merchants State Bank of 

Ryegate 175 

Exhibit No. 2 Attached to Plaintiff's Bill 
of Exceptions — Contract Dated April 
26, 1920, Between Town of Ryegate 
and The Security Bridge Company. . . 124 
Exhibit No. 2 Attached to Stipulation as 
to Trial and Facts — Contract Dated 
April 26, 1920, Between Town of Rye- 
gate and The Security Bridge Com- 
pany 61 

Exhibit No. 3 Attached to Plaintiff's Bill 
of Exceptions — Complaint In re Cause 



iv Luntbennens Trust Company vs. 

Index. Page 

EXHIBITS— Continued : 

Entitled Mike Belecz et al. vs. Town 

of Eyegate and W. O. Wood 131 

Exhibit No. 3 Attached to Stipulation as 

to Trial and Facts — Complaint In re 

Cause Entitled Mike Belecz et al. vs. 

Town of Eyegate and W. O. Wood. . . 68 

Exhibit No. 4 Attached to Plaintiff's BiU 

of Exceptions — Answer 144 

Exhibit No. 4 Attached to Stipulation as 

to Trial and Facts — Answer 81 

Exhibit No. 5 Attached to Bill of Excep- 
tions — Eeply 146 

Exhibit No. 5 Attached to Stipulation as 

to Trial and Facts— Eeply 83 

Exhibit No. 6 Attached to Bill of Excep- 
tions — Decree 147 

Exhibit No. 6 Attached to Stipulation as 

to Trial and Facts — Decree 84 

Names and Addresses of Attorneys of Eecord 1 

Opinion 94 

Order Allowing Appeal 258 

Order Amending Decision 254 

Order Approving Statement of Evidence 263 

Order Extending Time Fifty Days to File 

Transcript on Appeal 265 

Petition to Appeal 257 

Plaintiff's Bill of Exceptions 113 

Praecipe for Transcript of Eecord 266 

Eeply 48 

Stipulation as to Trial and Facts 52 

Trial 93 



NAMES AND ADDEESSES OP ATTORNEYS 
OF RECORD. 

S. V. STEWART and JOHN G. BROWN, 
Helena, Montana, 

Attorneys for Plaintiff and Appellant. 

Messrs. JOHNSTON, COLEMAN and JAME- 
SON, Billings, Montana, 

Attorneys for Defendant and Appellee. 

[1*] 



In the District Court of the United States in and for 
the District of Montana. 

No. 224. 

LUMBERMENS TRUST COMPANY, a Cor- 
poration, 

Plaintiff, 

vs. 

THE TOWN OF RYEGATE, MONTANA, a 

Municipal Corporation, 

Defendant. 

BE IT REMEMBERED, that on December 
31st, 1926, a complaint was duly filed herein, being 
in the words and figures following to wit: [2] 

*Page-number appearing at the foot of page of original certified 
Transcript of Kecord. 



2 Ltimbermens Trust Company vs. 

In the District Court of the United States in and 
for the District of Montana, Billings Division. 

LUMBERMENS TRUST COMPANY, a Cor- 
poration, 

Plaintiff, 

vs. 

THE TOWN OP RYEGATE, MONTANA, a 

Municipal Corporation, 

Defendant. 

COMPLAINT. 

The plaintiff for cause of action against the de- 
fendant complains and alleges: 

I. 

That the plaintiff was at all of the times herein 
mentioned and referred to, and yet is, a corpora- 
tion duly organized and existing under and by 
virtue of the laws of the State of Oregon and a 
compliance therewith, having its principal place of 
business in the city of Portland in said state. 

II. 

That the defendant, the Town of Ryegate was 
at all the times herein mentioned and referred to 
and yet is a municipal corporation and body politic, 
situated in Golden Valley County, Montana, and 
duly organized and existing under and by virtue of 
the laws of the State of Montana and a compliance 
therewith. 

III. 

That on or about December 30, 1919, the Town 



The Toivn of Ryegate. 3 

Council of the Town of Ryegate, for the purpose of 
supplying the town and its residents with water 
for municipal and private use, passed a resolution 
of intention to create a special improvement dis- 
trict known as Special Improvement District No. 
4, which said resolution is designated as Resolu- 
tion No. 10 of said town, a copy of which is here- 
unto attached, marked Exhibit "A" and [3] 
hereby made a part of this complaint. 

IV. 

That on January 1st, 1920, the notice set out in 
and required to be published by said resolution of 
intention, was published in the said Town of Rye- 
gate, as required by said resolution and the laws 
of the State of Montana. 

V. 

That thereafter, and on or about February 11, 
1920, a resolution known as Resolution No. 14 of 
said Town, was passed by the Town Council thereof, 
creating said Special Improvement District No. 4, 
which improvement district was to all intents and 
purposes coextensive with the boundaries of said 
town, and that in said Resolution No. 14, the general 
character of the improvement to be made is de- 
scribed in the same words as in Exhibit "A" hereto 
attached. 

VI. 

That the true object and purpose of each and all 
of said foregoing proceedings was the establishment 
and installation in and for the Town of Ryegate of 
a complete waterworks, and a complete waterworks 



4 Ltimbermens Trust Company vs. 

system, consisting of reservoir, pumping plant, 
mains, and all other connections and appliances 
necessary for a complete system for the supplying 
of water for municipal purposes to said town and 
water to the inhabitants thereof, all within the 
powers of said town. 

VII. 
That when the said town of Ryegate called for 
bids for the construction of said waterworks system, 
all in manner and form as required by law, the Se- 
curity Bridge Company, a corporation was the suc- 
cessful bidder therefor, and said town prepared to 
and later did enter into a written contract with said 
Security Bridge Company for the construction of 
said waterworks system [4] as contemplated by 
the creation of the Special Improvement District 
and the plans of the defendant town's engineer. 

VIII. 

That in connection with said resolution and pro- 
ceedings it was intended and contemplated that the 
said Town of Ryegate should issue negotiable evi- 
dence of the debt in the form of Special Improve- 
ment District Bonds to evidence the obligation to pay 
for the construction of said waterworks system, and 
after due and legal proceedings had been had to au- 
thorize the issuance of the same, an issue of such ne- 
gotiable bonds in single bonds of the par value of 
five hundred dollars each, and in the total sum of 
$45,602.42 was accomplished. That hereto at- 
tached and made a part hereof, being marked Ex- 
hibit "B," is a true and correct copy of one of said 
bonds, which save and except as to amounts and 



The Town of Ryegate. 5 

dates of maturity is a true and correct copy of all 
of said bonds. 

IX. 

That prior to the time the town entered into its 
contract for the construction of said waterworks 
system the officers and councilmen of said town 
deemed it to be the best interest of the town and its 
taxpayers and inhabitants to endeavor to persuade 
said contractor to accept the special improvement 
bonds that were authorized and would be issued 
under the proceedings before herein referred to as 
payment on said contract, and said defendant town 
and its officers and inhabitants being desirous of 
completing the installation of said waterworks im- 
portuned and prevailed upon said Security Bridge 
Company to take and accept said special improve- 
ment district bonds for the construction of said 
waterworks system, and in payment on said con- 
tract as the work would be completed and accepted 
and the said Security Bridge Company did upon 
such request and importuning take and [5] ac- 
cept the defendant town's special improvement dis- 
trict bonds aforesaid as an evidence of the pay- 
ments due on its construction contract. Said bonds 
were thereafter duly signed and sealed by the 
proper officers of said defendant town and by them 
issued and delivered to the Security Bridge Com- 
pany from time to time upon the defendant town's 
engineer's estimates as the work was completed 
and accepted. 

X. 

That the said Security Bridge Company was a 



6 Lumbermens Trust Company vs. 

construction company with no facilities or ca- 
pacity for handling bonds in lieu of cash and it was 
necessary for said Security Bridge Company to at 
once arrange for the sale of said bonds in order to 
obtain the money to purchase supplies and mate- 
rials and pay the labor necessary for the construc- 
tion of the said waterworks desired by the defend- 
ant town, all of which facts were well known to the 
defendant town and its officers. 

XL 

That the Security Bridge Company, as plaintiff 
is informed and believes and therefore alleges, with 
the knowledge of the defendant town and its of- 
ficers, did negotiate with this plaintiff for the sale 
of said bonds, and plaintiff did become the pur- 
chaser thereof, and as such holder became pos- 
sessed of all the rights, privileges and claims which 
the Security Bridge Company might have, or hold, 
or be entitled to, under and by virtue of its con- 
tract with the said defendant town and its faith- 
ful performance of the terms and conditions 
thereof and acceptance of the work therein con- 
templated by said defendant. 

XII. 

That in accordance with its agreement of pur- 
chase this plaintiff did, from time to time as the 
same were issued for completed and accepted work, 
purchase the said bonds from the [6] Security 
Bridge Company, and did thus furnish all of the 
money that was used to build and furnish to the de- 
fendant town and its inhabitants the waterworks 



The Town of Ryegate. 7 

plant which was constructed in and for the said 
defendant town. That by purchase plaintiff be- 
came and yet is the owner and holder before ma- 
turity and for value and without notice of any 
imperfection in said bonds, or any thereof, or 
claims against the same of the bonds issued by the 
defendant town covering this Special Improvement 
District No. 4, all in the total sum of $45,602.42, 
together with 6% interest thereon according to the 
terms and conditions of said bonds and each 
thereof. 

That said bonds were duly issued and delivered 
to this plaintiff on the dates and of the number and 
in the amounts as follows: May 29, 1920, all the 
general bonds referred to in the amount of $15,- 
000.00. 
July 28th, 1920, Bonds No. 1 to 6, inclusive, in the 

amount of $3,000.00 
August 11th, 1920, Bonds No. 7 to 19, inclusive, in 

the amount of $6,500.00 
August 25th, 1920, Bonds No. 20 to 27, inclusive, in 

the amount of $4,000.00 
September 8th, 1920, Bonds No. 28 to 53, inclusive, 

in the amount of $13,000.00 
October 13th, 1920, Bonds No. 54 to 78, inclusive, 

in the amount of $12,500.00 
November 24th, 1920, Bonds No. 79 to 91, inclusive, 

in the amount of $6,602.42. 

XIII. 

That said waterworks system was constructed, 
received and accepted and is now and has been 
used by the defendant town and the inhabitants 



8 Lumbermens Trust Company vs. 

thereof continuously since its completion and ac- 
ceptance. That said defendant town and the in- 
habitants thereof now have and are using and re- 
ceiving the income and benefits from valuable prop- 
erty totally and wholly built and constructed from 
moneys of this plaintiff had and received, and used 
by said [7] defendant town and its officers for 
such public purpose, all of which moneys so had 
and used being evidenced by said bonds before 
herein referred to. 

XIV. 

That the defendant paid the interest maturing 
and becoming due upon said bonds on January 
1st, 1922, but thereafter refused and still continues 
to refuse to pay any interest thereon or on ac- 
count thereof, and has totally and wholly failed to 
pay and has declared its intentions of never paying 
the principal sum due upon said debt evidenced 
by said bonds, or any part thereof, and has repudi- 
ated in toto said debt and its obligation to pay the 
same, so that there is now due, owing and unpaid 
on the same the total sum of $45,602.42 on account 
of principal thereof, and the further sum equiva- 
lent to 6% interest thereon from January 1st, 1922, 
unto this date, being the interest at the rate agreed 
to and which plaintiff alleges is a reasonable rate 
of interest in the State of Montana for moneys had, 
received and used. That the defendant continues 
to refuse to pay said claim and has repudiated said 
debt and obligation in toto notwithstanding re- 
peated demand has been made for payment thereof. 



The Town of Ryegate. 9 

XV. 

That this action is an action entirely between a 
citizen and resident of the State of Oregon and a 
citizen and resident of the State of Montana and 
the amount involved exceeds the sum of $3,000.00 
exclusive of interest and costs. 

WHEREFORE, plaintiff prays judgment against 
the defendant for the sum of $45,602.42, together 
with interest thereon at the rate of 6% per annum 
from this date until paid, and for the further sum 
of $13,680.72, being accrued interest on said princi- 
pal obligation from January 1st, 1922, until this 
time, and for its costs of suit herein expended. 

STEWART & BROWN, 
Attorneys for the Plaintiff, 
Helena, Montana. [8] 

State of Montana, 

County of Lewis and Clark, — ss. 

John G. Brown, being first duly sworn according 
to law, deposes and says : 

That he is one of the attorneys for the plaintiff in 
the above-entitled action and that he makes this 
verification for and on behalf of the plaintiff by 
reason of the fact that there is no officer or agent 
of said corporation in the county of Lewis and 
Clark wherein affiant resides and this complaint is 
verified. I have read the foregoing complaint, 
know the contents thereof and the matters and 
things therein stated are true to the best of my 
knowledge, information and belief as such attor- 
ney. 

JOHN G. BROWN. 



10 Lumbermens Trust Company vs. 

Subscribed and sworn to before me tbis 31st day 
of December, 1926. 

[Seal] R. L. HILLIS, 

Notary Public for tbe State of Montana, Residing 
at Helena, Montana. 

My commission expires 1-5-1927. [9] 

EXHIBIT "A." 

RESOLUTION No. 10. 

A RESOLUTION DECLARING IT TO BE THE 
INTENTION OP THE TOWN COUNCIL 
OF THE TOWN OF RYEGATE, MON- 
TANA, TO CREATE SPECIAL IMPROVE- 
MENT DISTRICT No. 4 IN THE TOWN 
OF RYEGATE, MONTANA, FOR THE 
PURPOSE OF CONSTRUCTING PIPES, 
HYDRANTS AND HOSE CONNECTIONS 
FOR IRRIGATING APPLIANCES AND 
FIRE PROTECTION WITHIN THE 
TOWN OF RYEGATE, MONTANA. 

BE IT RESOLVED BY THE COUNCIL OF 
THE TOWN OF RYEGATE, MONTANA: 

Section 1. Tbat tbe public interest and conveni- 
ence require, and it is deemed necessary to order 
and create, and tbe Town Council of tbe Town of 
Ryegate, Montana, intends to order and create, a 
Special Improvement District, witb tbe number, 
tbe boundaries and tbe character of tbe improve- 
ments to be made as hereinafter set forth: 

Section 2. That it is the intention of the Town 
Council of the Town of Ryegate, Montana, to create 
and establish in said town a special improvement dis- 



The Town of Ryegate. 11 

trict for the purpose of making special improve- 
ments upon and along that portion of Railway 
Avenue, Second Avenue and the alley between 
Third and Fourth Avenues, and the Alley between 
Fourth Avenue and the avenue next north of 
Fourth Avenue, from Harkins Street on the West 
and the street next east of Second Street on the 
East, including all avenues, streets and alley inter- 
sections. 

Section 3. That the number of said Special 
Improvement District is hereby designated as 
" Special Improvement District No. 4 of the Town 
of Ryegate, Montana." 

Section 4. That the boundaries of said Spe- 
cial Improvement District are hereby declared to 
be as follows: — 

Beginning at the intersection of the center 
line of Harkins Street with the center line of 
the avenue next north of Fourth Avenue, run- 
ning thence southerly along said center line 
of Harkins Street to its intersection with 
the center line of the alley lying between Rail- 
way Avenue and Second Avenue, and running 
through Blocks 23, 24 and 12 in said Town of 
Ryegate, running thence easterly along the 
center line of said alley with the west line ex- 
tended of Lots 1 and 12, in Block 12, of said 
Town of Ryegate, running thence southerly 
along the west line extended of said Lots 1 
and 12, in said Block 12, to its intersection 
with the southern boundary of the right-of- 
way of the Chicago, Milwaukee and St. Paul 



12 Lumbermens Trust Company vs. 

Railway Company, running thence easterly 
along said southern boundary of the right-of- 
way of the Chicago, Milwaukee and St. Paul 
Eailway Company to its intersection with the 
center line of the street next east of Second 
Street extended, running thence northerly 
along the center line extended of the street 
next east of Second Street to its intersection 
with the center line of Fourth Avenue, run- 
ning thence westerly along the center line of 
Fourth Avenue to its intersection with the 
east line extended of Lots 7 and 6, in Block 
14, of said Town of Ryegate, running thence 
northerly along said east line extended of 
Lots 7 and 6 in Block 14, of said Town of 
Ryegate, to the intersection of said line with 
the center line of the [10] avenue next 
north of Fourth Avenue, running thence west- 
erly along the center line of the avenue next 
north of Fourth Avenue to the point of begin- 
ning. 

The above described area embraces lots 1 to 
12 inclusive, in Block 18; Lots 1 to 12 inclusive 
in Block 17, Lots 1 to 12 inclusive in Block 16; 
Lots 1 to 12 inclusive in Block 15 ; Lots 6 and 7 
in Block 14 ; Lots 1 to 12 inclusive in Block 19 ; 
Lots 1 to 12 inclusive in Block 20; Lots 1 to 
12 inclusive in Block 10; Lots 1 to 12 inclusive 
in Block 9; Lots 1 to 12 inclusive in Block 8; 
Lots 1 to 12 inclusive in Block 7 ; Lots 1 to 6 in- 
clusive in Block 22; Lots 1 to 6 inclusive in 
Block 21 ; Lots 1 to 6 inclusive in Block 3 ; Lots 
1 to 6 inclusive in Block 2; Lots 1 to 6 inclu- 



The Town of Ryegate. 13 

sive in Block 1; Lots 1 to 6 inclusive in Block 
23; Lots 1 to 6 inclusive in Block 24; Lots 1 
to 6 inclusive and Lot 12 in Block 12 ; Lots 1 to 
18 inclusive in Block 4; Lots 1 to 14 inclusive 
in Block 5; Lots 1 to 18 inclusive in Block 6; 
and all of the Chicago, Milwaukee and St. Paul 
Railway Company's right-of-way between the 
west line extended of Lots 1 and 12, in Block 12, 
and the center line extended of the street next 
east of Second Street; all of the school block 
and Park site. 

Section 5. That the Town Council hereby finds 
and determines that the contemplated improvement 
is of more than local or ordinary public benefit and 
that all real estate situated in said district will be 
especially benefited and affected by such improve- 
ment, and the property included within the bound- 
aries of said district it is hereby declared to be the 
property to be assessed for the cost and expense of 
making said improvement. 

Section 6. That the character of the improve- 
ments to be made in said Special Improvement Dis- 
trict is hereby declared to be as follows: The con- 
struction of pipes, hydrants and hose connections 
for irrigating appliances and fire protection; all of 
which improvements are to be made in accordance 
with the plans and specifications to be prepared by 
the Engineer of the Town of Ryegate and to be 
adopted by the Council of said town, and which 
plans and specifications will then be on file in the 
office of the Town Clerk, and to which reference is 
hereby made and by such reference are made a part 



14 Lumbermens Trust Company vs. 

hereof to all intents and purposes the same as though 
said plans and specifications were fully set forth 
and incorporated at length in this Resolution. 

Section 7. That the approximate estimate of the 
cost and expenses of constructing said improvements 
is the sum of Twenty-eight Thousand Three Hun- 
dred Fifty Dollars ($28350.00) for the entire dis- 
trict. 

Section 8. That all the cost and expense incurred 
in the construction and making of such improve- 
ments shall be paid by Special Improvement Dis- 
trict Bonds, with interest coupons attached; such 
bonds shall be drawn in substantially the form pro- 
vided by law in such cases and shall be drawn 
against " Special Improvement District Fund No. 
4," hereafter to be ordered and created, and that 
the entire cost and expense of said improvement 
shall be paid by said Special Improvement District. 
The entire district, cost of said improvements shall 
be assessed against the entire district, each lot or 
parcel of land within said improvement district to 
be assessed for that part of the whole cost of said 
improvements which its area bears to the entire 
area of said district, exclusive of streets, avenues, al- 
leys [11] and public places. 

Section 9. That said assessments shall be paid 
in equal annual installments and are hereby ex- 
tended over a period of ten years and said payments 
shall constitute a fund to be known as "Fund of 
Special Improvement District No. 4" and it is 
hereby ordered that said Special Improvement Dis- 
trict Bonds shall be issued against such fund, the 



The Town of By eg ate. 15 

denomination and maturity dates of such bonds to 
be fixed by a Resolution to be hereafter adopted. 

Section 10. That on Wednesday, the 11th day of 
February, 1920, at the regular place of meeting of 
the Town Council, the Farmers and Merchants 
State Bank, in the Town of Ryegate, Montana, at 
eight o'clock P. M., the Council of the Town of Rye- 
gate, Montana, will hear objections and protests, at 
which time and place any person or persons w T ho 
are owners, or agents of owners, of any lot or parcel 
of land within said Special Improvement District, 
who shall, within fifteen days after the first publica- 
tion of the notice of the passage of this Resolu- 
tion, have delivered to the Town Clerk of the Town 
of Ryegate a protest in writing against the proposed 
work or improvements, or against the extent or crea- 
tion of the district to be assessed, or both, shall have 
the right to appear in person or by counsel and 
show cause, if any there be, why said district should 
not be created or why the improvements herein 
mentioned should not be made. 

Section 11. The following notice of the adop- 
tion of this Resolution shall be published in the 
Ryegate Weekly Reporter, a weekly newspaper 
published in the Town of Ryegate, Montana, on the 
1st day of January, 1920, to-wit: 

(Here appears notice in full, a true printed copy 
of which is annexed to the affidavit of Charles H. 
Allan at Page 7 of this transcript.) 

The Clerk is hereby directed to mail a copy of the 
foregoing notice to every person, firm or corpora- 
tion, or to the agent of such person, firm or corpora- 
tion, having property within the proposed district, 



16 Lumbermens Trust Company vs. 

at his last known address, upon the date of the first 
publication of said notice. 

PASSED by the Council of the Town of Ryegate, 
Montana, and APPROVED By the Mayor, this 
30th day of December, 1919. 

R. C. CURRIE, 
Mayor. 
Attest: J. A. BROWN, 
Town Clerk. [12] 

EXHIBIT "B." 

DISTRICT No. 4. 

UNITED STATES OF AMERICA, 
STATE OF MONTANA. 

BOND. 

Bond No. $500.00 

Interest 6 per cent, per annum, Payable Annually. 
Special Improvement District Coupon Bond Is- 
sued by the Town of Ryegate, Montana. 

THE TREASURER OF THE TOWN OF RYE- 
GATE, MONTANA, will pay to the bearer on the 
1st day of January, 1930, the sum of Five Hundred 
($500.00) Dollars, as authorized by Resolution No. 
14, as passed on the 17th day of February, 1920, 
creating Special Improvement District No. 4, for the 
construction of the improvements and the work per- 
formed as authorized by said Resolution to be done 
in said District, and all laws, resolutions and ordi- 
nances relating thereto, in payment of the contract 
in accordance therewith. 

The principal and interest of this bond are pay- 
able at the office of the Town Treasurer of Ryegate, 



The Town of Ryegate. 17 

Montana. This bond bears interest at the rate of 
six per cent. (6%) per annum from the date of its 
maturity as expressed herein until the date called 
for redemption by the Town Treasurer. The inter- 
est on this bond is payable annually, on the 1st day 
of January in each year, unless paid previous 
thereto, and as expressed by the interest coupons 
hereto attached, which bear the engraved facsimile 
signature of the Mayor and Town Clerk. 

This bond is payable from the collection of a spe- 
cial tax and assessment, which is a lien against the 
real estate within said Improvement District as de- 
scribed in said Resolution No. 14 as well as in Reso- 
lution No. 10 passed and adopted December 30th, 
1919. 

This bond is redeemable at the option of the Town 
of Ryegate at any time there are funds to the credit 
of said Special Improvement District Fund for the 
redemption thereof, and in the manner provided for 
the redemption of the same; provided, however, 
that the date of payment shall not be later than the 
maturity date hereinabove contained. 

IT IS HEREBY CERTIFIED AND RECITED, 
That all things required to be done precedent to the 
issuance of this bond have been properly done, hap- 
pened and been performed in the manner prescribed 
by the laws of the State of Montana relating to 
the issuance thereof. 



18 Lambermens Trust Company vs. 

Dated at Ryegate, Montana, this day of 

, 1920. 

TOWN OF RYEGATE, MONTANA, 
By W. H. NORTHEY, 

Mayor. 
Attest: J. A. BROWN, 
Town Clerk. [13] 

Registered at the office of the Town Treasurer 

of Ryegate, Montana, this day of , 

1920. 



Town Treasurer. 

COUPON. 

$30.00 Coupon No. — 



On the first day of January, 192 — , the Treasurer 
of the Town of Ryegate, Montana, will pay to the 
bearer the sum of Thirty Dollars, at the office of 
said Treasurer in Ryegate, Montana, out of the 
funds of Special Improvement District No. 4, be- 
ing the interest then due on Bond No. of said 

Special Improvement District; provided, however, 
that if said bond, together with accrued interest 
thereon to the date called for its redemption, has 
theretofore been paid under the option reserved 
in said bond, then this coupon shall be null and void. 

W. H. NORTHEY, 

Mayor. 
J. A. BROWN, 

Town Clerk. 
Filed Dec. 31, 1926. [14] 



The Town of Ryegate. 19 

THEREAFTER, on August 10th, 1927, answer 
was duly filed herein in the words and figures fol- 
lowing, to wit: [15] 

[Title of Court and Cause.] 

ANSWER. 

Defendant makes this its answer to the complaint 
of plaintiff herein: 

1. Admits the allegations of Paragraphs I and 
II of said complaint. 

2. Admits that resolution number ten of the 
Town of Ryegate was passed on December 30, 1919 ; 
denies that it was passed for the purpose of supply- 
ing the Town of Ryegate and its residents with 
water for municipal or private use; alleges that 
said resolution was passed for the purpose of con- 
struction of pipes, hydrants and hose connection 
with irrigating appliances and fire protection, as 
set out in section six of said resolution ; admits that 
Exhibit "A," attached to said complaint, is a cor- 
rect copy of said resolution number ten except that 
the words "to the intersection of said center line 
of said alley' ' were omitted after the words "center 
line of said alley" in section four of said resolution, 
and before the words "with the west line extended 
of Lots 1 and 12." 

3. Admits the allegations of Paragraph IV of 
said complaint. 

4. Admits that on February 17, 1920, a resolu- 
tion known as number fourteen of said town was 
passed by the Town Council [16] thereof, creat- 
ing said special improvement district number four; 



20 Lambermens Trust Company vs. 

admits that the general character of the improve- 
ments to be made is described in said resolution in 
the same words as in Exhibit "A" attached to the 
complaint herein; denies that said improvement 
district number four was, to all intents or purposes, 
coextensive with the boundaries of the Town of Eye- 
gate. 

5. Denies that the true object or purpose of each 
or all of said proceedings was the establishment or 
installation in or for the Town of Ryegate of a com- 
plete waterworks or a complete waterworks system 
consisting of reservoir, pumping plant, mains or 
all other connections or appliances necessary for a 
complete system for the supplying of water for 
municipal purposes to said town, or water to the 
inhabitants thereof ; alleges that about the time said 
improvement district was so created the Town of 
Ryagate issued and sold bonds of said town for the 
par value of $15,000.00, for the purpose of securing 
the money necessary to pay a part of the cost of in- 
stallation of a water system for said town. 

6. Admits that when said town called for bids 
for the construction of a waterworks system and the 
improvements* for which said special improvement 
district number four was created, as hereinbefore 
alleged, the Security Bridge Company was the suc- 
cessful bidder therefor, and that in fact it was the 
only bidder for such work; admits that a written 
contract was entered into with said Security Bridge 
Company for the construction of said waterworks 
system, and the improvements for which said spe- 
cial improvement district number four was created. 



The Town of By eg ate. 21 

7. Denies that it was intended or contemplated 
that defendant should issue negotiable evidence of 
the debt in the form of special improvement dis- 
trict bonds to evidence the obligation to pay for 
the construction of said waterworks system; alleges 
that it was intended and contemplated by defend- 
ant and said Security Bridge Company that the pro- 
ceeds derived from the sale of the aforesaid [17] 
bonds of the Town of Ryegate of the par value of 
$15,000.00, would be used in payment of cost of con- 
struction of said waterworks system, and that the 
balance of said cost of construction of said system, 
and of the improvements to be constructed in said 
special improvement district number four, as set out 
in the aforesaid resolutions numbered ten and four- 
teen, was to be paid by the issuance and delivery 
to said contractor, the said Security Bridge Com- 
pany, or bonds of said special improvement district 
number four, which, it was agreed between defend- 
ant and said Security Bridge Company, would be 
accepted by it, at the par value of said bonds, in pay- 
ment of balance due on such work; admits that 
bonds of said district in the sum of $45,602.42 were 
so issued and alleges that the same were delivered by 
the defendant to said contractor, Security Bridge 
Company, and that they were by it accepted in full 
settlement and payment of the balance due it under 
its said contract with the Town of Ryegate, after al- 
lowing said town credit for proceeds of sale of the 
aforesaid general bonds of said town paid by it to 
said contractor; admits that Exhibit "B" attached 
to said complaint is a true and correct copy of one 
of said improvement district bonds, and that except 



22 Lumbermens Trust Company vs. 

as to amounts and dates of maturity, it is a true and 
correct copy of all of said improvement district 
bonds. 

8. Alleges that at and prior to the time said con- 
tract was entered into between defendant and said 
Security Bridge Company, it was known by both 
said town and said contractor that the bonds of said 
special improvement district could not be sold for a 
discount of not more than ten per cent, as required 
by the laws of Montana, and it was then known and 
understood between said town and said contractor 
that said special improvement district bonds would 
be issued by said town and accepted by said con- 
tractor at par value in payment of work done under 
said contract; denies that said town, or any of its 
officers or inhabitants, ever importuned said Secur- 
ity Bridge Company to take or accept said special 
improvement district [18] bonds, as alleged in 
Paragraph IX of the complaint, but alleges in that 
connection that said Security Bridge Company solic- 
ited said work and was anxious to do the same, and 
to accept in payment thereof, said special improve- 
ment district bonds, in so far as the proceeds of 
sale of said general bonds would not pay for such 
construction ; denies that said Security Bridge Com- 
pany, upon request or importuning of the Town of 
Ryegate, or any of its officials, or otherwise, ac- 
cepted said special improvement district bonds as an 
evidence of the payments due on said construction 
contract, but alleges that said special improvement 
district bonds were issued by defendant, and ac- 
cepted by said contractor, in payment of the 



The Town of Ryegate. 23 

amounts due under said contract; admits that said 
special improvement district bonds were issued by 
the proper officials of defendant and delivered to 
Security Bridge Company from time to time upon 
estimates of the defendant's engineer, and alleges 
that, as so issued and delivered, they were accepted 
by said Security Bridge Company as actual pay- 
ment of said estimates. 

9. Defendant denies that it has any knowledge 
or information sufficient to form a belief as to 
whether said Security Bridge Company had no 
facilities or capacity for handling bonds in lieu of 
cash, or that it was necessary for said Security 
Bridge Company to at once arrange for the sale of 
said bonds in order to obtain the money to purchase 
supplies or materials or to pay the labor necessary 
for the construction of said waterworks system, and 
denies that the defendant, or any of its officers, knew 
that said Security Bridge Company would have to 
arrange for sale of said improvement district bonds, 
as alleged in Paragraph X of said complaint. 

10. Denies that the defendant, or any of its offi- 
cers, had any knowledge, until long after said con- 
tract was completed, that said Security Bridge Com- 
pany did negotiate with plaintiff for the sale of said 
bonds, or that plaintiff did become the purchaser 
thereof; denies that plaintiff ever became possessed 
of any rights, privileges [19] or claims, which the 
Security Bridge Company might have or hold, or 
be entitled to under or by virtue of its said contract 
with the defendant, or of its faithful performance of 
the terms or conditions thereof, or acceptance of the 
work therein contemplated by said defendant. 



24 Lumbermens Trust Company vs. 

11. Denies that it has any knowledge or informa- 
tion sufficient to form a belief as to whether there 
was any agreement of purchase between plaintiff 
and said Security Bridge Company of the bonds 
in question, or that the plaintiff did purchase 
the same from time to time, as the same were 
issued, or that plaintiff did furnish all, or any 
part, of the money that was used to build or 
furnish to the defendant town, or its inhabitants, 
the said waterworks system, or the improvements 
for which said special improvement district was 
created; denies that it has any knowledge or infor- 
mation sufficient to form a belief as to whether 
plaintiff became, or is, the owner or holder of any 
of said special improvement district bonds, before 
maturity, or for value ; denies that plaintiff ever be- 
came the holder or owner of any of said bonds with- 
out notice of any imperfection in said bonds or any 
of them ; admits that said bonds were issued and de- 
livered to Security Bridge Company approximately 
upon the dates and of the numbers and in the 
amounts as alleged in Paragraph XII of said com- 
plaint; save and except as hereinbefore admitted, 
qualified or specifically denied, defendant denies 
each and every allegation of Paragraph XII of said 
complaint. 

12. Admits that said waterworks system, and the 
improvements provided for and specified in the 
resolution of intention, and the resolutions creating 
said special improvement district number four, as 
hereinbefore alleged, was constructed, received and 
accepted, and is now, and at all times since its ac- 
ceptance has been, used by the defendant and some 



The Toivn of Ryegate. 25 

of the inhabitants thereof ; denies that said defend- 
ant, or its inhabitants, now have or are using or re- 
ceiving the income or benefits from valuable prop- 
erty [20] totally and wholly built or constructed 
from moneys had or received from plaintiff, or that 
were built or constructed in whole or in part from 
any moneys had or received from plaintiff; denies 
that this defendant used any moneys had or received 
by it from plaintiff for the construction of said 
waterworks system, or the improvements contem- 
plated in, or provided for by the creation of said 
special improvement district number four; and de- 
nies that defendant ever had or received or used any 
moneys from plaintiff evidenced by the aforesaid 
bonds. 

13. Denies that the defendant ever paid any in- 
terest maturing or becoming due upon any of said 
special improvement district bonds ; alleges that the 
interest thereon to January 1, 1922, was paid out of 
assessments levied upon the property included in 
said special improvement district number four, and 
not otherwise; denies that defendant has ever re- 
fused to pay any interest on said special improve- 
ment district bonds for the reason that the defend- 
ant is not liable thereon and has never been requested 
to pay the same; admits that the defendant has not 
paid any part of the interest or principal of said 
special improvement district bonds, and does not in- 
tend to ever pay the same or any part thereof; de- 
nies that said bonds are a debt of defendant, or that 
there is any obligation on the part of defendant to 
pay the same or any part thereof; denies that there 



26 Lumbermens Trust Company vs. 

is now due or owing from defendant to plaintiff 
the said sum of $45,602.42, or any part thereof, or 
interest thereon at six per cent per annum from 
January 1, 1922, or interest whatever; admits that 
interest at the rate of six per cent per annum is a 
reasonable rate of interest in the State of Montana ; 
admits that defendant now refuses to pay any part 
of said alleged claim, but denies that defendant has 
ever repudiated said debt or obligation, and denies 
that the aforesaid bonds are the debt or obligation 
of said defendant. 

14. Admits the allegations of Paragraph XV of 
said [21] complaint. 

15. Denies that said bonds are negotiable. 

16. Alleges that on February 17, 1920, the Town 
Council of the Town of Ryegate adopted and passed, 
and the Mayor of said town approved, Resolution 
Number 14 of the town of Ryegate creating said spe- 
cial improvement district number 4, a copy of which 
resolution, marked Exhibit "A," is hereunto an- 
nexed and made a part of this answer. 

17. Alleges that on June 9, 1920, the Town Coun- 
cil of the Town of Ryegate passed and adopted, and 
the Mayor of said town approved, Ordinance Num- 
ber 28 of the Town of Ryegate, which provides the 
manner and method of assessment and paying cost 
of improvements in said special improvement dis- 
trict number 4, copy of which said ordinance is here- 
unto annexed, marked Exhibit "B" and hereby 
made a part of this answer. 

18. Alleges that on June 9, 1920, the Town 
Council of the Town of Ryegate passed and adopted, 



The Town of Ryegate. 27 

and the Mayor of said town approved, Ordinance 
Number 29 of the Town of Ryegate, authorizing 
the execution, issuance and delivery of the bonds 
in question in payment of the work and improve- 
ments in special improvement district number 4 
of the Town of Ryegate, a copy of which ordinance 
is hereunto annexed, marked Exhibit "C" and 
hereby made a part of this answer. 

19. That under the aforesaid resolutions and or- 
dinances, the bonds in question were payable only 
out of assessments to be levied upon the real prop- 
erty in said special improvement district number 
4, and not otherwise, and were and are not general 
obligations of the Town of Ryegate nor an indebt- 
edness of the Town of Ryegate, nor payable out of 
the general funds of the Town of Ryegate. 

20. Save and except as hereinbefore specifically 
admitted, qualified or denied, defendant denies gen- 
erally each and [22] every allegation, and all of 
the allegations of said complaint. 

II. 

For its first affirmative defense, defendant alleges 
that when the contract for the construction of the 
water system for the Town of Ryegate and the im- 
provements specified in the resolutions creating 
special improvement district number 4 of the Town 
of Ryegate was entered into on April 26, 1920, the 
outstanding and unpaid indebtedness of the Town 
of Ryegate was $15,584.87; that the assessed value 
of all property in the Town of Ryegate was then 
$577,005.00; that there was then no money in the 



28 Lumbermens Trust Company vs. 

general fund of the Town of Ryegate out of which 
the bonds in question could be paid, nor were the 
same payable out of the current revenues of said 
Town of Ryegate; that the assessed value of all 
property in the Town of Ryegate for the year 1920 
was the sum of $420,006.00; that on the dates on 
which the bonds in question were issued and de- 
livered, the general indebtedness of the Town of 
Ryegate, and the amounts of money in the general 
fund of said town were as follows, to wit : 

Amount of Money- 
General in General Fund 
Date Indebtedness of Said Town 

July 28, 1920 $15,965.36 $ 93.53 

August 11, 1920 16,669.29 127.53 

August 25, 1920 16,615.14 129.17 

September 8, 1920 16,877.98 148.17 

October 13, 1920 16,953.89 78.20 

November 24, 1920 17,180.35 60.70; 

that on December 31, 1926, when this action was 
instituted, the assessed value of all property in 
the Town of Ryegate was the sum of $375,949.00; 
that at that time the general indebtedness of the 
Town of Ryegate was the sum of $19,462.07; tha+ 
the moneys then in the general fund of the Town 
of Ryegate was the sum of $494.08 ; that said bonds 
never were payable out of the current revenues of 
said town, and that if the said bonds of special im- 
provement district number 4 of the Town of Rye- 
gate, amounting to the sum of $45,602.42 were held 
to be [23] general obligations of the Town of 
Ryegate the same and each of said bonds would be 
and are unconstitutional, invalid and void for that 
the amount of said bonds and each of them, added to 



The Town of Syegate. 29 

the then general indebtedness of said town would 
be and are greatly in excess of the constitutional 
and statutory limit of indebtedness which said town 
might then or may now incur. 

III. 

For its second affirmative defense, defendant al- 
leges that it is informed and believes and therefore 
states the fact to be that plaintiff purchased the 
bonds in question at eighty per cent of the face 
value of said bonds and paid therefor the sum of 
$36,481.94, and no more. 

IV. 

For its third separate defense defendant alleges: 
1. That when the Town Council of the Town of 
Ryegate decided to create special improvement dis- 
trict number four for the purpose of constructing 
and installing the improvements mentioned and 
specified in said Resolutions Numbered Ten and 
Fourteen, the said Town Council employed special 
counsel of especial skill and experience in bond 
matters, and particularly in municipal bonds, to 
prepare the necessary resolutions and ordinances 
in connection with the creation of special improve- 
ment district numbered four, the issuance of the 
bonds of said district which are the subject of this 
action, and in supervising all of the proceedings of 
the Town Council of the Town of Ryegate in con- 
nection therewith, for the sole purpose of having 
all of its proceedings in connection with said bond 
issue done strictly in accordance with the laws of 
Montana, and so as to make certain, if possible, that 



30 Lumbermens Trust Company vs. 

such bond issue should be legal and valid, and that 
the said Town Council did everything that it was 
advised by such special counsel was necessary and 
proper to make said bond issue a legal and valid 
obligation of said special improvement district 
number 4. [24] 

2. That the Security Bridge Company did not 
rely upon said proceedings being had under the 
advice and direction of special counsel so employed 
by the Town Council of the Town of Ryegate, but 
had all of said proceedings with reference to the 
creation of special improvement district number 
four, and the issuance of its bonds, passed upon by 
counsel for said Security Bridge Company, who 
were of more than ordinary skill and experience 
in investigating the legality of bond issues and es- 
pecially the validity of bond issues of special im- 
provement districts under the laws of Montana, 
and that in purchasing the general bonds of the 
Town of Ryegate, as herein alleged, and in agree- 
ing to accept said special improvement district 
bonds at par value in payment of work under its 
said contract with the Town of Ryegate, said Se- 
curity Bridge Company relied wholly upon the ad- 
vice of its counsel; that in so accepting said 
special improvement district bonds said Security 
Bridge Company well knew that the Town of Rye- 
gate was not liable for the payment of any part of 
said bonds, either principal or interest, and ac- 
cepted said bonds well knowing that it would have 
to rely entirely upon payment of assessments on 
real property in said special improvement district 



The Totvn of Ryegate. 31 

number four for the payment of said bonds, both 
principal and interest. 

3. Defendant is informed and believes and 
therefore states the fact to be that when plaintiff 
purchased said special improvement district bonds 
from Security Bridge Company, it did so knowing 
that the Town of Ryegate was not liable for the 
payment of either principal or interest of any of 
said bonds, and did so without relying upon any 
statements of any officer of the Town of Ryegate, 
and did rely solely upon the advice of its counsel, 
lawyers skilled in examination of proceedings with 
reference to the legality of bond issues, and pur- 
chased said bonds solely upon the advice of its 
counsel that the proceedings had with reference to 
the issuance of said special improvement district 
bonds were legal and that said [25] bonds were 
valid and binding obligations of said district. 

V. 

For its fourth affirmative defense, defendant al- 
leges : 

1. That the first attempt made by the Town 
Council of the Town of Ryegate to levy assessments 
upon the property in said special improvement dis- 
trict number four to pay interest and principal of 
said special improvement district bonds, was made 
in the year 1921, and the first alleged assessment 
therefor was made payable on or prior to November 
30, 1921. 

2. That in the month of January, 1922, Mike 
Belecz, a property owner in said special improve- 



32 Ltimbennens Trust Company vs. 

ment district number four, together with a large 
number of other property owners in said district, 
began various suits in the District Court of the 
Fifteenth Judicial District of the State of Mon- 
tana, in and for the County of Golden Valley, 
against the Town of Byegate, and the County Treas- 
urer of Golden Valley County, Montana, in which 
county the said Town of Ryegate is located, for the 
purpose of enjoining and restraining said Town of 
Ryegate and said County Treasurer, from the col- 
lection of any assessments so attempted to be levied 
upon property in said special improvement district 
number four, for the payment of any part of the 
principal or interest of any of said special im- 
provement district bonds, and alleged in their com- 
plaints in such suits; that the only description set 
out in said resolutions numbered ten and fourteen, 
as to the character of the work to be done and im- 
provements to be made, was "the construction of 
pipes, hydrants, and hose connections for irrigat- 
ing appliances and fire protection," which said gen- 
eral language gave no definite information to the 
lot owners in said special improvement district num- 
ber four as to the specific character, extent or nature 
of the contemplated improvements and did not in- 
clude the payment of the cost of installation of any 
general waterworks system for the Town of Rye- 
gate; that when said resolution of intention num- 
ber ten was passed and approved there were no 
plans and specifications on file or available for 
[26] examination by lot owners showing the na- 
ture or character of improvements to be made un- 



The Town of Ryegate. 33 

der said resolution of intention ; that the whole cost 
of improvements made under said resolutions in 
said special improvement district number four 
greatly exceeded the sum of $1.50 per lineal foot 
plus the cost of the pipe laid in said district, which 
total cost was in excess of the limit prescribed by 
law; that no notice of any kind was given of the 
letting of the contract for construction of said im- 
provements in said special improvement district 
number four, and when the same was let the con- 
tract price therefor amounted to $52,829.35, whereas 
the estimated cost thereof amounted to the sum of 
$28,350.00; that in addition to said contract price 
other payments were made by the Town Council of 
said town to the contractor and for engineering 
work so that the total cost of making such improve- 
ments was the sum of $57,619.22; that the contract 
price and the actual cost of making such improve- 
ments was and is wholly out of proportion to the 
value of said improvements to the Town of Rye- 
gate, or to the property included within said dis- 
trict; that when said contract was let it was im- 
possible to sell the bonds or warrants of said special 
improvement district at par; that no purchaser 
therefor could be found ; that those facts were then 
well known to the Mayor and Town Council of said 
town; that the contractor took the bonds of said 
special improvement district number four in pay- 
ment of its contract price and claimed extras in 
connection with the installation of said improve- 
ments; that in so doing it allowed for a consider- 
able discount on said bonds and added such dis- 



34 Liimbermens Trust Company vs. 

count to its bid for such work ; that because thereof 
the cost of said work was greatly increased over 
what it would have been if said bonds had been sold 
at the par value thereof ; that when the bid of said 
contractor was accepted the Mayor and the Town 
Council of said town had knowledge of said facts, 
and that such proceedings were had in said suits 
that judgments and decrees were duly given, made 
and entered therein holding that all such assess- 
ments were null [27] and void and enjoining 
restraining the Town of Byegate and said County 
Treasurer from collecting or attempting to collect 
any such assessments. 

3. That plaintiff herein was advised of the com- 
mencement of each and all of said suits, and em- 
ployed special counsel to assist counsel for the Town 
of Ryegate in defending said suits; that no appeal 
was taken from any of said judgments or decrees; 
and that said judgments and decrees have long 
since become final judgments and decrees as to the 
legality of said bond issue of such special improve- 
ment district. 

WHEREFORE, defendant having fully answered 
said complaint demands judgment that plaintiff 
take nothing by this action and that defendant do 
have and recover of and from plaintiff its costs and 
disbursements herein. 

JOHNSTON, COLEMAN & JOHNSTON, 
By W. M. JOHNSTON, 
Attorneys for Defendant. 



The Town of Ryegate. 35 



State of Montana, 

County of Yellowstone, — ss. 

W. M. Johnston, being first duly sworn, deposes 
and says: 

That he is one of the attorneys for the defendant 
in the above-entitled cause ; that he makes this veri- 
fication for and on behalf of defendant for the rea- 
son that no officer of defendant is now in Yellow- 
stone County, Montana, where affiant resides and 
makes this affidavit; that he has read the forego- 
ing answer and knows the contents thereof, and that 
the matters and things therein stated are true to 
the best of his knowledge, information and belief. 

W. M. JOHNSTON. 

Subscribed and sworn to before me this 8th day 
of August, 1927. 

[Seal] W. J. JAMESON, Jr., 

Notary Public for the State of Montana, Residing 
at Billings. 

My commission expires Aug. 10, 1928. [28] 

EXHIBIT "A." 

RESOLUTION No. 14. 

A RESOLUTION CREATING SPECIAL IM- 
PROVEMENT DISTRICT NO. 4 OF THE 
TOWN OF RYEGATE, MONTANA, FOR 
THE PURPOSE OF CONSTRUCTING 
PIPES, HYDRANTS, AND THE HOSE 
CONNECTIONS FOR IRRIGATING AP- 



36 Liimbermens Trust Company vs. 

PLIANCES AND FIRE PROTECTION 
WITHIN THE TOWN OF RYEGATE, MON- 
TANA. 

WHEREAS, the Town Council of the Town of 
Ryegate, duly and regularly passed and adopted 
Resolution No. 10 on the 30th day of December, 
1919, which said Resolution is now on file in the 
office of the Town Clerk of the Town of Ryegate, 
Montana, and to which reference is hereby made; 
and 

WHEREAS, said Town Council of said Town 
caused a Notice of its passage and adoption of said 
Resolution of Intention to be published in the Rye- 
gate Weekly Reporter, a weekly newspaper pub- 
lished in the Town of Ryegate, Montana, in the man- 
ner and form and during the period of time as re- 
quired by law and has also caused the town clerk 
of said town on the first day of January, 1920, that 
being the date of the first publication of Notice, to 
mail to each and every person, firm or corporation, 
or a known agent thereof, having property within 
the proposed District, to the last known address of 
such person, firm or corporation, or agent, a notice 
of the passage and adoption of said resolution, giv- 
ing them notice of the intention of the Town Coun- 
cil to create such Special Improvement District 
for the purposes therein mentioned and giving them 
full, due and timely notice as is required by law, 
which said Notices so published and mailed de- 
scribed the character of the improvement proposed 
to be made in said district, the estimated cost thereof 
and setting the time and place for the hearing of 



The Town of Ryegate. 37 

protests against the creation of said proposed Dis- 
trict and the making of said improvement and which 
said Notices also contained a reference to the num- 
ber of said Resolution of Intention, giving the 
boundaries of the said proposed District and all 
other necessary particulars; and 

WHEREAS, the Town Council having on the 11th 
day of February, 1920, met in regular session at 
the time and place fixed [29] and mentioned in 
said Resolution of Intention and in said Notices 
for the hearing of protests against the creation of 
said proposed District and against the making of 
said proposed improvement and such regular meet- 
ing of the Town Council having been regularly 
adjourned to this 17th day of February, 1920, and 
the Council having fully heard and considered all 
such protests, NOW THEREFORE, 
BE IT RESOLVED BY THE COUNCIL OF 
THE TOWN OF RYEGATE MONTANA: 

Section 1. That the said Town Council has and 
does hereby FIND AND DETERMINE that the 
protests and each of them made against the creation 
of such proposed Improvement District and against 
the making of said improvement be and the same 
are hereby over-ruled and denied and that the Town 
Council deems itself to have acquired jurisdiction 
to Order the proposed improvement. 

Section 2. That there be and there hereby is crea- 
ted a Special Improvement District to be known 
and designated as "special Improvement District 
No. 4 of the Town of Ryegate, Montana" and that 
the general character of the improvements to be 



38 Liimbermens Trust Company vs. 

made in said District as follows, to-wit: The con- 
struction of pipes, hydrants, and hose connections 
for irrigating appliances and fire protection ; all of 
which improvements are to be made in accordance 
with the plans and specifications to be prepared by 
the Engineer of the Town of Ryegate and to be 
adopted by the Council of said Town, and which 
plans and specifications will then be on file in the 
office of the Town Clerk to which reference is hereby 
made and by such reference are made a part hereof, 
to all intents and purposes the same as though said 
plans and specifications were fully set forth and in- 
corporated at length in this resolution. 

Section 3. That the boundaries of said special 
improvement District No. 4 shall be and the same 
are hereby declared to be the same as are described 
in the foregoing mentioned Resolution No. 10, to 
which reference is hereby made for a particular de- 
scription [30] thereof. 

Section 4. That the Town Council hereby makes 
reference to Resolution No. 10 declaring its inten- 
tion to create the District hereby created, which 
said resolution is for all purposes hereby referred 
to for further particulars. 

Passed by the Council of the Town of Ryegate, 
Montana and approved by the Mayor this 17th day 
of February, 1920. 

R. C. CURRIE, 

Mayor. 

(Seal) Attest: J. A. BROWN, 

Town Clerk. [31] 



The Town of Ryegate. 39 

EXHIBIT "B." 

ORDINANCE No. 28. 

PROVIDING THE MANNER AND METHOD 
OF ASSESSMENT AND PAYMENT OF 
THE COST AND EXPENSE OF MAKING 
AND INSTALLING THE IMPROVE- 
MENTS IN SPECIAL IMPROVEMENT 
DISTRICT No. 4 OF THE TOWN OF RYE- 
GATE, MONTANA. 

BE IT ORDAINED BY THE TOWN COUNCIL 
OF THE TOWN OF RYEGATE, MON- 
TANA: 

Section 1. That the entire cost and expense of 
making and installing the improvements in Spe- 
cial Improvement District No. 4 of the Town of 
Ryegate, Montana, shall be paid by said entire dis- 
trict, each lot or parcel of land within said district to 
be assessed for that part of the whole cost of said im- 
provements which its area bears to the area of the en- 
tire district, exclusive of streets, alleys and public 
places. The work and improvements to w T hich 
this ordinance relates are more particularly de- 
scribed in Resolution No. 10 passed by the Town 
Council of said Town of Ryegate, on December 30, 
1919; the plans and specifications for which said 
work and improvements are now on file in the office 
of the Town Clerk of said Town, and reference to 
which plans and specifications is hereby expressly 
made. 

Section 2. That the entire cost and expense of 
making and installing said improvements shall be 



40 Lambermens Trust Company vs. 

paid in ten (10) equal annual installments, and bonds 
therefor are to be drawn against the fund of said 
Special Improvement District No. 4, and made pay- 
able exclusively from said fund. Such bonds shall 
be in the denomination of One Hundred ($100.00) 
Dollars each, or some multiple thereof. Said as- 
sessments shall be paid in ten (10) equal annual in- 
stallments, and the payments thereof is hereby ex- 
tended over a period of ten years from and after the 
completion and acceptance of said improvements. 
All moneys derived from the collection of said im- 
provements shall constitute a fund to be known as 
"FUND OF SPECIAL IMPROVEMENT DIS- 
TRICT No. 4." 

Section 3. All ordinances and parts of ordi- 
nances, resolutions and parts of resolutions, in con- 
flict or inconsistent with this ordinance, are hereby 
repealed. [32] 

Passed and adopted by the Town Council and ap- 
proved by the Mayor this 9th day of June, 1920. 
Approved: W. H. NORTHEY, 

Mayor. 

(Seal) Attest: J. A. BROWN, 

Town Clerk. [33] 

EXHIBIT "O." 

ORDINANCE No. 29. 

AUTHORIZING THE EXECUTION, ISSU- 
ANCE AND DELIVERY OF COUPON 
BONDS IN PAYMENT FOR THE WORK 
AND IMPROVEMENTS IN SPECIAL IM- 
PROVEMENT DISTRICT No. 4 OF THE 



The Town of Ryegate. 41 

TOWN OF RYEGATE, MONTANA, AND 
PRESCRIBING THE FORM, DENOMINA- 
TION AND MATURITY DATE OF SUCH 
BONDS. 

WHEREAS, on February 17th, 1920, the Town 
Council of the Town of Ryegate, Montana, passed 
and finally adopted Resolution No. 14, creating 
Special Improvement District No. 4 in said Town 
of Ryegate, for the purpose of installing pipes, hy- 
drants and hose connections for irrigating appli- 
ances and fire protection within said Town of Rye- 
gate; and 

WHEREAS, it is provided in the resolutions, 
ordinances and proceedings heretofore passed and 
had by said Town Council in connection with the 
creation of said Special Improvement District, 
that payment for said work and improvement shall 
be made by Special Improvement District Bonds to 
be issued against said District; all of which more 
fully appears from the resolutions and ordinance 
heretofore passed and adopted by said Town Coun- 
cil, and from the minutes of the meetings of said 
Town Council, and from the minutes of the meet- 
ings of said Town Council, reference to all of 
which is hereby expressly made: 

NOW, THEREFORE, BE IT ORDAINED BY 
THE TOWN COUNCIL OF THE TOWN OF 
RYEGATE, MONTANA: 

Section 1. That for the purpose of providing 
the necessary funds with which to pay for the work 
and improvements in Special Improvement District 
No. 4 of the Town of Ryegate, Montana, including 



42 Liimbermens Trust Company vs. 

engineering expenses and all other incidentals, there 
shall be executed and issued negotiable coupon 
bonds of said special improvement district No. 4, 

in the principal sum of Dollars, such bonds 

to be in number, and numbered consecutively 

from 1 to , both inclusive. Such bonds shall be 

redeemable at the option of the Town at any time 
there are funds to the credit of said Special Im- 
provement District No. 4 for the redemption thereof. 
[34] Each of said bonds shall bear interest at the 
rate of six per cent (%) per annum from the date 
of its registration, interest payable annually on 
January 1st of each year, and interest coupons in 
the form hereinafter provided shall be attached to 
each of said bonds, said bonds shall be issued, dated 
and delivered from time to time as may be neces- 
sary in payment for the work and improvements in 
said District, as the work progresses, and upon esti- 
mates to be furnished by the engineer in charge of 
the said work. 

Section 2. That the denomination of each bond 
issued in payment for the work and improvements in 
said Special Improvement District No. 4 be, and the 
same is hereby, fixed at the sum of Five Hundred 
($500.00) Dollars, provided, however, that the 
last bond to be so issued shall be in the sum as shall 
represent the balance due for said work and im- 
provements less than Five Hundred Dollars ($500.- 
00). 

Section 3. That the maturity date and time of 
payment of each and all of said bonds shall be the 
1st day of January, 1930, subject, however, to re- 



The Town of Ryegate. 43 

demption as provided in the form of bond in this 
ordinance hereinafter contained. 

Section 4. That each of said bonds shall be sub- 
stantially in the following form: 

DISTRICT No. 4. 

UNITED STATES OF AMERICA, 
STATE OF MONTANA. 

BOND. 

Bond No. $500.00. 

Interest 6 per cent per annum, Payable Annually. 

Special Improvement District Coupon Bond Is- 
sued by the Town of Ryegate, Montana. 

THE TREASURER OF THE TOWN OF RYE- 
GATE, MONTANA WILL PAY TO THE 
BEARER ON THE 1st DAY OF JANUARY, 

1930, the sum of Five Hundred ($500.00) Dollars, 
as authorized by Resolution No. 14, as passed on the 
17th day of February, 1920, creating Special Im- 
provement District No. 4, for the construction of 
the improvements and the work performed as [35] 
authorized by said Resolution to be done in said 
District, and all laws, resolutions and ordinances re- 
lating thereto, in payment of the contract in accord- 
ance therewith. 

The Principal and Interest of this bond are pay- 
able at the office of the Town Treasurer of Ryegate, 
Montana. This bond bears interest at the rate of 
six per cent (6%) per annum from the date of its 
maturity as expressed herein until the date called for 
redemption by the Town Treasurer. The interest 
on this bond is payable annually, on the 1st day 



44 Lambcmiens Trust Company vs. 

of January in each year, unless paid previous 
thereto, and as expressed by the interest coupons 
hereto attached, which bear the engraved facsimile 
signature of the Mayor and Town Clerk. 

This bond is payable from the collection of a 
special tax or assessment, which is a lien against 
the real estate within said improvement district 
as described in said Resolution No. 14, as well as 
in Resolution No. 10, passed and adopted December 
30th, 1919. 

This bond is redeemable at the option of the Town 
of Ryegate at any time there are funds to the credit 
of said Special Improvement District Fund for the 
redemption thereof; and in the manner provided 
for the redemption of the same ; Provided, however, 
that the date of Payment shall not be later than the 
maturity date hereinabove contained. 

IT IS HEREBY CERTIFIED AND RECITED, 
That all things required to be done precedent to the 
issuance of this bond have been properly done, hap- 
pened and been performed in the manner prescribed 
by the laws of the State of Montana, relating to the 
issuance thereof. 

Dated at Ryegate, Montana, this day of , 

1920. 

TOWN OF RYEGATE, MONTANA, 
By W. H. NORTHEY, 

Mayor. 
Attest: J. A. BROWN, 
Town Clerk. [36] 



The Toivn of Ryegate. 45 

Registered at the office of the Town Treasurer 

of Ryegate, Montana, this day of , 

1920. 



Town Treasurer. 
Section 5. That the interest coupons to be at- 
tached to each of said bonds shall be substantially 
in the following form: 

COUPON. 

$30.00 Coupon No. . 



On the first day of January, 192 — , the Treasurer 
of the Town of Ryegate, Montana, will pay to the 
bearer the sum of Thirty Dollars, at the office of said 
Treasurer in Ryegate, Montana, out of the funds of 
Special Improvement District No. 4, being the in- 
terest then due on Bond No. of said Special 

Improvement District; provided, however, that if 
said bond, together with accrued interest thereon 
to the date called for its redemption, has heretofore 
been paid under the option reserved in said bond, 
then this coupon shall be null and void. 

W. H. NORTHEY, 

Mayor. 
J. A. BROWN, 

Town Clerk. 

Section 6. That each of said bonds shall be 
signed by the Mayor and Town Clerk of said Town 
of Ryegate and be impressed with the corporate 
seal of said Town, and each of said interest coupons 
shall bear the engraved facsimile signatures of 
said Mayor and Town Clerk, and said officers are 
hereby authorized and directed to cause said bonds 



46 Lumbermens Trust Company vs. 

and coupons to be prepared and to execute the same 
for and on behalf of said Special Improvement Dis- 
trict No. 4 in accordance with the proceedings here- 
tofore had in connection with the creation of said 
District. 

Section 7. That a continuing direct annual tax 
in the form of a special assessment be, and the same 
is hereby levied upon all the taxable real estate 
within the boundaries of said Special [37] Im- 
provement District No. 4 in said Town of Ryegate, 
in addition to all other taxes and assessments 
thereon, which said special assessment shall be in an 
amount sufficient to pay the interest on said bonds as 
the same becomes due and to discharge the principal 
of £aid bonds at the maturity thereof. 

Section 8. That all money derived and received 
from the collection of said special assessment shall 
be deposited by the Town Treasurer to the credit 
of Special Improvement District No. 4 of said Town 
of Ryegate, and the same shall be paid out by the 
Town Treasurer for no purpose other than in pay- 
ment of the principal and interest of said bonds. 

Section 9. This ordinance shall take effect and be 
in full force from and after the date of its passage 
and approval. All ordinances and parts of ordi- 
nances in conflict or inconsistent with this ordinance 
are hereby repealed. 

Passed by the Town Council and approved by the 
Mayor this 9th day of June, 1920. 

Approved: W. H. NORTHEY, 

Mayor. 

(Seal) Attest: J. A. BROWN, 

Town Clerk. [38] 



The Town of Ryegate. 47 

State of Montana, 

County of Yellowstone, — ss. 

Orpha fcregness, being first duly sworn, deposes 
and says: That she is informed and believes and 
therefore states the fact to be that Messrs. Stewart 
& Brown, whose address is Helena, Montana, are 
the attorneys for the plaintiff in the above-entitled 
cause; that Johnston, Coleman & Johnston, of Bill- 
ings, Montana, are the attorneys for the defendant 
in said cause; that there is regular communication 
by mail between Billings, Montana, and Helena, 
Montana; that on August 8, 1927, she deposited in 
the postoffice at Billings, Montana, in an envelope 
securely sealed, with postage thereon prepaid, and 
addressed to "Messrs. Stewart & Brown, Attorneys 
at Law, Helena, Montana," a true and correct copy 
of the foregoing answer. 

ORPHA KREGNESS. 

Subscribed and sworn to before me this 8th day 
of August, 1927. 

[Notarial Seal] W. M. JOHNSTON, 

Notary Public for the State of Montana, Residing 
at Billings. 

My commission expires April 21, 1929. 

Filed Aug. 10, 1927. [39] 



THEREAFTER, on September 17, 1927, reply 
was duly filed herein in the words and figures fol- 
lowing, to wit : [40] 



48 Lumbermens Trust Company vs. 

[Title of Court and Cause.] 

REPLY. 

Comes now the above-named plaintiff and reply- 
ing to the answer of the defendant herein on file 
admits, denies and alleges: 

I. 

Admits the allegations of new matter set forth in 
Paragraphs 2 and 5 and all of the allegations of 
Paragraphs 16, 17 and 18 of said answer. 

II. 

Admits that the special improvement district 
bonds were issued by said town at par value in pay- 
ment of work done under said contract, and that 
the Security Bridge Company had solicited said 
work and agreed to take the proceeds from the 
general bonds of said city and the proceeds of, or 
the bonds of said special improvement district as 
evidence of the obligation owing for such construc- 
tion work. 

III. 

Generally denies each, every and all of the affirma- 
tive allegations and allegations of new matter set 
forth in said answer not herein specifically ad- 
mitted or denied. 

Replying to the separate and affirmative defenses 
[41] contained in said answer plaintiff admits, 
denies and alleges as follows : 



The Town of Ryegate. 49 

I. 

Denies that defendant has any knowledge or in- 
formation sufficient to form a belief as to the alle- 
gations contained in the first paragraph of the first 
affirmative defense (denominated II in the answer) 
and therefore denies the same. 

II. 

Generally denies each and every and all of the 
allegations of said first and second affirmative de- 
fenses not herein specifically admitted or denied. 

III. 

Denies that this plaintiff has any knowledge or 
information sufficient to form a belief as to the alle- 
gations of Paragraph 1 of the third separate de- 
fense, and therefore denies each and all of the same. 

IV. 

Admits that said Security Bridge Company had 
its own counsel investigate the legality of the bond 
issues of the defendant. 

V. 

Generally denies each and every and all of the 
other allegations of Paragraph 2 of said third sepa- 
rate defense. 

VI. 

Generally denies each, every and all of the other 
allegations of said third separate defense not 
herein specifically admitted or denied. 

VII. 

Admits the allegations of Paragraph 1 of the 
fourth affirmative defense. Admits that in the 



50 Lambermens Trust Company vs. 

month of January, 1922, one Mike Belecz, and other 
property owners began various suits in the District 
Court of the Fifteenth Judicial District of the 
[42] State of Montana in and for the County of 
Golden Valley against the Town of Ryegate and 
against the Treasurer of Golden Valley County, 
Montana, for the purpose of enjoining and re- 
straining the said Town of Ryegate and said 
County Treasurer from the collection of any assess- 
ments to be levied upon property in special im- 
provement district number 4 for the payment of 
principal and interest of said special improvement 
district bonds. 

Denies that this plaintiff has any knowledge or 
information sufficient to form a belief as to the con- 
tents of said complaints in said actions and the alle- 
gations therein contained. Admits that in such 
proceedings judgments and decrees were duly made 
and entered, but denies that this plaintiff has any 
knowledge or information sufficient to form a be- 
lief as to the extent and character of such judgments 
and decrees, save and except that they have pre- 
vented the collection of said principal and interest 
upon such special improvement district bonds. 

VIII. 

Generally denies each and every and all of the 
allegations of said fourth affirmative defense not 
herein specifically admitted or denied. 

IX. 

Generally denies each, every and all of the affirma- 
tive allegations and allegations of new matter and of 



The Town of Ryegate. 51 

separate or affirmative defenses in said answer con- 
tained which have not been heretofore specifically 
admitted or denied. 

WHEREFORE, having fully replied to defend- 
ant's answer the plaintiff prays as in its complaint 
set forth and demanded. 

STEWART & BROWN, 
Attorneys for Plaintiff. [43] 

State of Montana, 

County of Lewis and Clark, — ss. 

John G. Brown, being first duly sworn according 
to law, deposes and says : 

That he is one of the attorneys for the plaintiff 
in the above-entitled action and that he makes this 
verification for and on behalf of the plaintiff by 
reason of the fact that there is no officer or agent 
of said corporation in the County of Lewis and 
Clark wherein affiant resides and this reply is veri- 
fied. I have read the foregoing reply, know the 
contents thereof and the matters and things therein 
stated are true to the best of my knowledge, infor- 
mation and belief as such attorney. 

JOHN G. BROWN. 

Subscribed and sworn to before me this 15th day 
of September, 1927. 

[Seal] R. L. HILLIS, 

Notary Public for the State of Montana, Residing 
at Helena, Montana. 

My commission expires 1-5-1930. 

Filed Sept. 17, 1927. [44] 



52 Lumbermens Trust Company vs. 

THEREAFTER, on July 16th, 1928, stipulation 
as to trial and facts was duly filed herein, being 
in the words and figures, as follows, to wit : [45] 

[Title of Court and Cause.] 

STIPULATION AS TO TRIAL AND FACTS. 

It is hereby stimulated by and between the parties 
above named as follows: 

I. 

That a trial by jury in the above-entitled cause is 
hereby waived by the parties. 

II. 

That the following matters may be considered 
by the Court as facts admitted in evidence for all 
purposes in this action. 

a. That the allegations of Paragraphs I, II, IV, 
and XV of the complaint are true. 

b. In 1919 the Town of Ryegate, the county seat 
of Golden Valley County, was desirous of installing 
a water system, but because of the small assessed 
value of all property within its corporate limits 
it could not legally and constitutionally issue suffi- 
cient general bonds to cover the entire cost of such 
installation. It did issue general bonds of the Town 
of Ryegate in the sum of $15,000.00 and on Decem- 
ber 30th, 1919, passed a resolution of intention to 
create and establish improvement district known 
as Special Improvement District No. 4, and Ex- 
hibit "A" attached to the complaint herein, is, ex- 
cept as to an immaterial matter, a true and correct 



The Totvn of Ryegate, 53 

copy of the [46] resolution so passed and said 
district was created for the purpose of raising addi- 
tional funds over and above the $15,000.00 general 
bonds necessary to pay for said water system and 
improvements specified in such resolution. 

c. On Feb. 17th, 1920, said town passed and the 
Mayor thereof approved Resolution No. 14, a true 
copy of which is attached to the answer herein, 
marked Exhibit "A" thereto. 

d. The map initialed and marked Exhibit 1 filed 
with this agreed statement correctly portrays the 
boundaries of the town and its additions, the bound- 
aries of said improvement district and location of 
water mains and street or city hydrants of said 
water system. The unplatted area shown within 
the boundaries of the town and its additions on said 
map is liable for the payment of all taxes levied for 
town purposes, the same as though it were platted; 
said map also portrays the location of certain pub- 
lic buildings in said town. The only buildings be- 
longing to the Town of Ryegate as a municipal cor- 
poration are the pumping station of said water 
system and a small frame building used to store 
fire equipment, said building and equipment hav- 
ing a value not to exceed $1,000.00. 

e. The true object and purposes of the passage 
and approval of said resolution and the issuance of 
said general and special improvement district bonds 
was the establishment and installation in and for 
the Town of Ryegate, and for a portion of its in- 
habitants of a complete, waterworks and a complete 
waterworks system consisting of reservoir, pump- 



54 Lumbermens Trust Company vs. 

ing plant, mains, and all other connections and ap- 
pliances necessary to have a complete system for 
the supplying of water for municipal purposes to 
said town, and water to a portion of the inhabitants 
thereof and for the purpose set out in said resolu- 
tions. 

f. That when the said Town of Ryegate called 
for bids [47] for the construction of said water- 
works system and the improvements specified in 
said resolutions, the Security Bridge Company was 
the successful bidder therefor and a written con- 
tract was thereupon entered into between said town 
and said Security Bridge Company for the con- 
struction of said waterworks system and the im- 
provements specified in said resolution, a true and 
correct copy of which contract is hereto annexed 
and marked Exhibit 2. 

g. For the purpose of paying for said water- 
works system and the improvements specified in 
said resolution, said town issued its general bonds 
in the sum of fifteen thousand dollars and bonds of 
said Special Improvement District No. 4 in the 
sum of forty-five thousand six hundred two dollars 
and forty-tw T o cents; that Exhibit "B" attached to 
the complaint herein is a true and correct copy of one 
of said special improvement district bonds which, 
save and except as to amounts and dates of matu- 
rity, is a true and correct copy of all of said bonds. 

h. On April 14, 1920, W. P. Roscoe, as an officer 
of the Security Bridge Company, purchased said 
general bonds of said tow T n at par and accrued in- 
terest and said Security Bridge Company agreed 
to accept and did accept said general bonds and 



The Town of Ryegate. 55 

said special improvement district bonds in the sum 
of forty-five thousand six hundred two dollars and 
forty-two cents in payment of the costs of installa- 
tion of said waterworks system and the improve- 
ments specified in said resolution and that said im- 
provement district bonds were issued and delivered 
to said Security Bridge Company, or upon its or- 
der, from time to time as the work progressed and 
upon the estimates of the engineer of said town as 
said work was completed and accepted. 

i. That said Security Bridge Company was a 
construction corporation without funds for invest- 
ment purposes and it was necessary for said com- 
pany to at once arrange for the sale of [48] said 
bonds in order to obtain the money necessary to 
purchase supplies and materials and to pay the 
labor necessary for the construction of said water- 
works and the improvements specified in said reso- 
lution. 

j. The Security Bridge Company sold said gen- 
eral and improvement district bonds to plaintiff 
herein at 85% of the par value thereof, the plain- 
tiff paying said Security Bridge Company the sum 
of thirty-eight thousand seven hundred sixty-two 
dollars and six cents for said improvement district 
bonds. 

k. That while said contract disclosed that said 
bonds were taken at par as the consideration in the 
construction contract, they were in accordance with 
a prior agreement between plaintiff and the Secu- 
rity Bridge Company sold by the Security Bridge 
Company to the plaintiff herein at a price of 85% 
of the par value thereof. 



56 Lumberniens Trust Company vs. 

1. From time to time, after said improvement 
district bonds were issued for completed and ac- 
cepted work, plaintiff purchased and accepted said 
bonds at 85% of their par value with accrued inter- 
est from said Security Bridge Company and did 
thus by the purchase of said district and said gen- 
eral bonds furnish to Security Bridge Company all 
the money used by it to build and complete said 
waterworks system and the improvements specified 
in said resolutions, that plaintiff became the pur- 
chaser of said bonds for value before maturity and 
is now the owner and holder thereof and that said 
general and improvement district bonds were issued 
and delivered by said town to said Security Bridge 
Company, or delivered to the plaintiff, at the re- 
quest of said Security Bridge Company, upon the 
dates, of the number and in the amounts set out in 
paragraph twelve of the complaint herein. 

m. Said water system and improvements speci- 
fied in said resolution were so constructed and ac- 
cepted and the said [49] town has been and yet 
is receiving the income from said system and im- 
provements, and said town and such of the inhabi- 
tants thereof as live within the limits of said dis- 
trict now have and are using said water system and 
improvements. 

In further amplification of this paragraph "m" 
the facts are that there are : 

(1) Thirty business houses within said improve- 
ment district and none without. 

(2) Public buildings consisting of public school, 
courthouse, four churches, postoffice in one of said 



The Town of Ryegate. 57 

business houses, Milwaukee Railway Station, 
school gymnasium and a shack used as fire hall, 
all within said special improvement district, there 
being no similar buildings in said town outside of 
said improvement district. 

(3) Sixty-one residences within said improve- 
ment district. 

(4) Thirteen residences, two warehouses, a 
small substation of the Montana Power Company 
outside of the limits of said improvement district 
but within the fire protection of said water system 
by reason of the fire apparatus owned by said town 
but used for fire protection only as to such resi- 
dences and structures. 

(5) There are twenty-two residences and two 
county warehouses in the Town of Ryegate situated 
outside of the limits of said special improvement 
district which cannot use said water system and im- 
provements or equipment for fire protection, or for 
any other purposes as the same was installed. 

(6) Said town has operated said water system 
and said improvements since their installation and 
has received therefrom total gross income as fol- 
lows, each year of its operation thereof: 

1921 $211.33 

1922 978.53 [50] 

1923 721.16 

1924 980.95 

1925 811.70 

1926 1092.68 

1927 749.18 
Total gross receipts $5,545.53. 



58 Lumbermens Trust Company vs. 

(7) The charges against said water depart- 
ment, water system and improvements during the 
same years are as follows: 
Cash paid on warrants issued with inter- 
est thereon $5,539.28 

Warrants outstanding 1,504.03 

The interest accruing on said general bond issue 
of $15,000.00 is paid out of a levy of iy 2 mills each 
year upon all of the property within the Town of 
Ryegate and its additions, which levy has not been 
quite sufficient to pay such accruing interest. 
None of such general bonds have been paid. 

The interest which matured on said improvement 
district bonds up to January 1, 1922, was paid by 
the Town of Ryegate out of assessments levied 
upon the lots in said district in accordance with 
said resolutions, but no part of said interest was 
paid out of any general or special fund of said 
town. Six per cent is a reasonable rate of interest 
in the State of Montana. 

n. On October 16, 1920, the town clerk of the 
Town of Ryegate at the request of Security Bridge 
Company forwarded bonds numbered fifty-four to 
seventy-eight inclusive for five hundred dollars 
each a total par value of twelve thousand five hun- 
dred dollars of said Special Improvement District 
No. 4 to plaintiff and on November 26, 1920, at the 
request of Security Bridge Company said town 
clerk forwarded to plaintiff bonds of said Special 
Improvement District No. 4, numbered from 
seventy-nine to ninety-one inclusive of the par 
value of six thousand six hundred two dollars and 



The Totvn of Ryegate. 59 

forty-two cents and that plaintiff remitted to Se- 
curity Bridge Company 85% of the par value of 
said bonds with accrued interest. 

o. All of the allegations of Subdivision II of de- 
fendant's [51] answer, being defendant's first 
affirmative defense, are admitted to be true except- 
ing the clause u nor were the same payable out of 
the current revenues of said town of Ryegate" and 
excepting the clause "that said bonds were never 
payable out of the current revenues of said town," 
and excepting all of that portion of said Subdivi- 
sion II which reads as follows: "and that if the 
said bonds of special improvement district number 
-1 of the Town of Ryegate, amounting to the sum of 
$45,602.42 were held to be general obligations of the 
town of Ryegate the same and each of said bonds 
would be and are unconstitutional, invalid and void 
for that the amount of said bonds and each of 
them, added to the then general indebtedness of said 
town would be and are greatly in excess of the con- 
stitutional and statutory limit of indebtedness 
which said town might then or may now incur." 
None of the exceptions above noted are admitted. 

p. All of the allegations of Paragraph one of 
Subdivision IV of defendant's answer being de- 
fendant's third separate defense are admitted. 

q. All of the allegations of Paragraph 2 of said 
Subdivision IV are admitted except the following 
allegations "and that in purchasing the general 
bonds of the Town of Ryegate, as herein alleged, 
and in agreeing to accept said special improvement 
district bonds at par value in payment of work un- 



60 Lumbermens Trust Company vs. 

der its said contract with the Town of Ryegate, said 
Security Bridge Company relied wholly upon the 
advice of its counsel. " 

r. It is further admitted that plaintiff pur- 
chased said special improvement district bonds 
from Security Bridge Company with the knowl- 
edge that they were special improvement district 
bonds and with full knowledge of the laws of Mon- 
tana governing the issuance of such bonds, the 
powers of the defendant with reference thereto 
and the methods provided and authorized for the 
payment thereof. [52] 

s. It is admitted that in the month of Janu- 
ary, 1922, Mike Belecz and other property owners 
began various suits (see reference thereto in Sub- 
division V of defendant's answer), and that made 
a part of this statement of agreed to facts by 
being attached hereto, marked Exhibits 3, 4, 5 and 
6 are, except for formal parts, true copies of the 
complaint, answer, reply and decree respectively 
in said suit. 

That similar suits were filed by a number of 
other persons similarly entitled to sue with simi- 
lar pleading and decree. That this plaintiff had 
its own counsel associated in the defense and trial 
of those actions. That no appeal was ever taken 
from said judgment and decrees. 

t. In none of the minutes of the town council 
of the Town of Ryegate does the name of plain- 
tiff, as purchaser of said general bonds of the 
Town of Ryegate or of said special improvement 
district bonds appear. Neither does plaintiff's 
name appear in any of said minutes, records or 



The Toivn of Byegate. 61 

files in any connection whatever, except in copies 
of letters of the town clerk remitting some of said 
bonds to plaintiff at the request of Security Bridge 
Company, as hereinbefore set forth. 

Upon the trial of this cause, both plaintiff and 
defendant may offer evidence by depositions or 
otherwise upon all issues raised by the pleadings 
herein not covered by or included in this agreed 
statement of facts, and the cause may be submitted 
to the court upon the admissions in the pleadings, 
this statement of facts and the evidence intro- 
duced upon the trial of the cause, but no evidence 
shall be introduced by either party to this action 
upon any disputed question of fact which is cov- 
ered by the foregoing statement of facts. 

Signed and dated July 13, 1928. 

JOHNSTON, COLEMAN & JOHNSTON, 

Attorneys for Defendant. 
STEWART & BROWN, 
Attorneys for Plaintiff. [53] 

EXHIBIT No. 2. 
CONTRACT. 

THIS AGREEMENT, made and entered into 
the 26th day of April in the year ONE THOU- 
SAND NINE HUNDRED TWENTY, by and be- 
tween the TOWN OF RYEGATE, MONTANA, 
of the first part, and THE SECURITY BRIDGE 
COMPANY, a corporation of Billings, Montana, 
of the second part. 

WITNESSETH, that the said party of the sec- 
ond part has agreed, and by these presents does 



62 Lumiermens Trust Company vs. 

agree with the said party of the first part, for the 
considerations herein mentioned and contained, 
and under the penalty expressed in a bond bear- 
ing even date with these presents and hereto at- 
tached, to furnish at his own proper cost and ex- 
pense, all the necessary material and labor, except 
as herein specifically provided, and to excavate 
for and build in a good, firm, substantial and work- 
manlike manner, before the first day of October, 
A. D. 1920, the water mains, pumping plant, and 
reservoir indicated on the plans now on file in the 
office of the Town Clerk, and the connections and 
appurtenances of every kind complete, of the 
dimensions, in the manner and under the condi- 
tions herein specified, and has further agreed that 
the Engineer shall be and is hereby authorized to 
inspect or cause to be inspected the materials to be 
furnished and the work to be done under this 
agreement and to see that the same conform to 
plans and specifications. 

The party of the second part hereby further 
agrees that he will furnish the Town with satis- 
factory evidence that all persons who have done 
work or furnished material under this agreement, 
and are entitled to a lien therefor under any law 
of the State of Montana, have been fully paid or 
are no longer entitled to such lien, and in case 
such evidence be not furnished as aforesaid, such 
amount as the party of the first part may consider 
necessary to meet the lawful claims of the persons 
as aforesaid shall be retained from the money due 
the party of the second part under [54] this 



The Totvn of Ryegate. 63 

agreement until the liabilities aforesaid may be 
fully discharged and the evidence thereof fur- 
nished. 

The said party of the second part further agrees 
that within ten days of notification of award of 
contract he will execute a bond in the sum of 
Twenty-five Thousand Dollars ($25000.00) satis- 
factory to the Town Council, for the faithful per- 
formance of this contract, conditioned to indemnify 
and save harmless the said Town of Kyegate, Mon- 
tana, its officers and agents, from all suits or ac- 
tions of every name or description brought against 
any of them for or on account of any injuries or 
damages received or sustained by any party or 
parties, by or from the said party of the second 
part, its servants or agents, in the construction of 
said work, or by or in consequence of any negli- 
gence in guarding the same, or any improper mate- 
rials used in the construction, or by or on account 
of any commission of the said party of the second 
part or its agents in the performance of this agree- 
ment, and for the faithful performance of this 
contract in all respects by the party of the second 
part, and the said party of the second part hereby 
further agrees that so much of the moneys due, 
under and by virtue of this contract, as shall be 
considered necessary by the said town of Ryegate, 
may be retained by the said party of the first part 
until all such suits or claims for damages as afore- 
said shall have been settled, and the evidence 1 to 
that effect furnished to the satisfaction of the 
town. 



64 Lumbermens Trust Company vs. 

The said party of the first part hereby agrees to 
pay and the said second party agrees to receive the 
following prices as full compensation for furnish- 
ing all materials, labor, tools and equipment used 
in building and constructing and completing said 
water system, in the manner and under the condi- 
tions heretofore specified, and full conpensation 
for all loss or damage arising out of the nature of 
the work aforesaid, or from the action of the ele- 
ments, or from any unforeseen obstructions or 
difficulties which may be encountered in the prose- 
cution of the same, and for all [55] expenses 
incurred by or in consequence of the same, and for 
all expenses incurred by or in consequence of the 
suspension or discontinuance of the said work, and 
for well and faithfully completing the same and 
the whole thereof, according to plans and specifi- 
cations and the requirements of the engineer un- 
der them, to- wit: 

For furnishing all material, tools and labor and 
in every way completing in a first class workman- 
like manner the proposed water system in the 
Town of Eyegate, Montana, according to plans and 
specifications therefor on file in the office of the 
Town Clerk, and any special instructions that may 
be given from time to time during the construction 
of the work. 

Per linear foot for four inch cast iron water 
pipe complete including the necessary excavation, 
backfill and all valves and specials according to 
plans and specifications. 



The Town of Ryegate. 65 

Price in words. Price in figures. 

Two Dollars and Fifty Five Cents. $2.55 

Per linear foot for six inch cast iron water pipe 
complete including the necessary excavation, back- 
fill and all valves and specials according to plans 
and specifications. 

Price in words. Price in figures. 

Three Dollars and Sixty Cents $3.60 

Per linear foot for eight inch cast iron water pipe 
complete including the necessary excavation, back- 
fill and all valves and specials according to plans 
and specifications. 

Price in words. Price in figures. 

Five Dollars and Five Cents $5,044 

For hydrants complete in place including aux- 
iliary valve and all necessary excavation and back- 
fill according to plans and specifications. 

Price in words. Price in figures. 

One Hundred Seventy Four Dol- 
lars Forty Cents. $174.70 

Per cubic yard excavation at reservoir site includ- 
ing disposition of surplus material according to 
plans and specifications. [56] 

Price in words. Price in figures. 

Three Dollars Seventeen Cents. $3.17 

Per cubic yard for concrete in reservoir including 
forms, and reinforcing according to plans and speci- 
fication. 

Price in words. Price in figures. 

Thirty Seven Dollars Fifty Cents. $37.50 



66 Lambevmens Trust Company vs. 

For equipment for reservoir including roof, lad- 
der, overflow, and floor drain according to plans and 
specifications. 

Price in words. Price in figures. 

Fourteen Hundred Twenty Five 

Dollars. $1425.00 

Per cubic yard for excavation for well including 
the disposal of surplus material according to plans 
and specifications. 

Price in words. Price in figures. 

Two Dollars and Seventy Five Cents. $2.75 

Per cubic yard for concrete in place in well and 
pump house foundation, pump pit and floor accord- 
ing to plans and specifications. 

Price in words. Price in figures. 

Forty Dollars. $40.00 

For shallow well pumping equipment complete, in- 
cluding pump, motor valves, switchboard and all 
electrical equipment, according to plans and specifi- 
cations. 

Price in words. Price in figures. 

Twenty Five Hundred Twenty 

Five Dollars. $2525.00 

For pump house complete according to plans and 
specifications. 

Price in words. Price in figures. 

Sixteen Hundred Twenty Five 

Dollars. $1625.00 

Per cubic yard for excavating rock encountered 



The Town of Ryegate. 67 

in trench, pump pit and well in addition to above 
prices. 

Price in words. Price in figures. 

Three Dollars. $3.00 

And the said party of the second part further 
agrees that it will not assign, transfer or sub-let the 
aforesaid work or any [57] portion thereof, 
(with the exception of contracts for materials and 
tools) without the written consent of the Town 
Council, and that any assignment, transferring or 
sub-letting without such written consent shall in 
every case be absolutely void. 

It is further agreed by the party of the second 
part that the payments by the party of the first part 
shall be as provided for in the specifications. 

The provisions herein contained shall bind the 
parties hereto and their heirs, administrators, suc- 
cessors and assigns. 

IN WITNESS WHEREOF The Town of Rye- 
gate, party of the first part, has caused these pres- 
ents to be sealed with its corporate seal and to be 
signed by its Mayor and Town Clerk, and said party 
of the second part has hereunto set its hand on the 
15th day of May, A. D. 1920. 

TOWN OF RYEGATE. 
By W. H. NORTHEY, Mayor. 
Party of the Second Part. 
By H. C. HARKNESS, 

Secty. 
(Seal) Attest: J. A. BROWN, 

Town Clerk. 



68 Lumbermens Trust Company vs. 

State of Oregon, 

County of Multnomah, — ss. 

I hereby certify that the above is a full, true and 
correct copy of the Original Contract. 

In testimony whereof I have hereunto set my 
hand and notarial seal this 18th day of February, 
1927. 

ANNE McNAB, 
Notary Public for Oregon. 
My commission expires Feb. 25, 1929. [58] 

EXHIBIT No. 3. 

In the District Court of the Fifteenth Judicial Dis- 
trict of the State of Montana in and for the 
County of Golden Valley. 

MIKE BELECZ, IDA GBAMS, BEET BELD- 
ING, L. F. LUBELY, GEORGE A. COPE, 
H. C. STILGER, ISABEL CURRIE, R. C. 
CURRIE, JOSEPH H. KOLMAN, MAR- 
THA J. BROYLES, SARAH G. SNYDER, 
PHYLINDA C. REDISKE, W. J. EDSON, 
HENRY G JACOBSON, STATE BANK 
OF RYEGATE, J. B. GREGG, GOLDEN 
VALLEY COUNTY ABSTRACT COM- 
PANY, L. P. ALBRECHT, G. M. BAB- 
COCK, EVANGELICAL LUTHERAN 
CHURCH OF RYEGATE, M. W. WAUGH, 
L. W. MARQUARDT, WILLIAM E. 
STOKES, HENRY THIEN, THE RO- 
MAN CATHOLIC BISHOP OF GREAT 



The Town of Ryegate. 69 

FALLS, Sometimes Known as MATHIAS 
C. LENIHAN, Bishop of Great Falls, 
a Corporation Sole, FRED WYMAN, 
THE HILBERT-THIEN COMPANY, 
FRANCES THIEN, RYEGATE CREAM- 
ERY COMPANY, CHARLOTTE GRAMS, 
A. D. LINDERMAN, ESTATE OF P. A. 
HILBERT, Deceased, 

Plaintiffs, 
vs. 

THE TOWN OF RYEGATE, Montana, and W. O. 
WOOD, as County Treasurer of Golden Val- 
ley County, Montana, 

Defendants. 

COMPLAINT. 

Plaintiffs complain and allege : 

1. That the defendant, the Town of Ryegate, is 
and at all of the times hereinafter mentioned was, a 
municipal corporation and body politic, duly organ- 
ized and existing under and by virtue of the laws 
of the State of Montana, and situated in Golden 
Valley County, Montana. 

2. That the defendant, W. O. Wood, is now and 
during the year 1921, was the duly elected, qualified 
and acting treasurer of said County, and the proper 
person to whom payment should be made of taxes 
and assessments levied on behalf of the said Town 
of Ryegate. 

3. That the plaintiffs, State Bank of Ryegate, 
Golden Valley County Abstract Company, The 
Roman Catholic Bishop of Great Falls, sometimes 



70 Lumbermens Trust Company vs. 

known as Mathias C. Lenihan, Bishop of Great 
Falls, a corporation sole, the Hilbert-Thien Com- 
pany, Evangelical Luthern Church of Ryegate and 
Ryegate Creamery Company are now and at all of 
the times hereinafter mentioned have been corpora- 
tions organized, existing and doing business under 
and by virtue of the laws of Montana. [59] 

4. That the plaintiffs are now and at all of the 
times hereinafter mentioned have been the owners 
of the various tracts of land hereinafter set forth, 
as belonging to them, and that all of said tracts of 
land are embraced in the description of Special Im- 
provement District No. 4 in the said Town of Rye- 
gate, hereinafter described. 

5. That on or about December 30, 1919, the Town 
Council of the Town of Ryegate, passed a resolu- 
tion of intention to create a special improvement 
district known as Special Improvement District No. 
4, which said resolution is designated as Resolution 
No. 10 of said town, a copy of which is hereunto at- 
tached, marked Exhibit "A" and hereby made a 
part of this complaint. 

6. That on January 1, 1920, the notice set out 
in and required to be published by said resolution 
of intention, was published in the said Town of 
Ryegate. 

7. That thereafter, and on or about February 11, 
1920, a resolution known as Resolution No. 14 of 
said Town, was passed by the Town Council thereof, 
creating said Special Improvement District No. 4, 
and that in said Resolution No. 14, the general 
character of the improvement to be made is de- 



The Town of Ryegate. 71 

scribed in exactly the same words as in Exhibit " A" 
hereto attached. 

8. That the object and purpose of each and all 
of the foregoing proceedings was the establishment 
and installation in the said Town of Ryegate of 
complete water works and a complete water works 
system, consisting of reservoir, pumping plant, 
mains and all other connections and appliances 
necessary for a complete system for the furnishing 
of water to the inhabitants of said town ; that there- 
after a contract was made for the construction and 
installation of such system and the same was con- 
structed and installed. 

9. That thereafter, for the purpose of paying 
for said improvements, a resolution was passed by 
the Town Council of said Town, known as Ordi- 
nance No. 28, providing the method and manner of 
[60] assessment and payment of the cost and ex- 
pense of making and installing the improvements 
in said Special Improvement District No. 4, by 
which resolution it was provided that each lot or 
parcel of land within said District was to be assessed 
for that part of the whole cost of said improvements 
which its area bore to the area of the entire dis- 
trict, exclusive of streets, alleys and public places, 
and which resolution further provided for the issu- 
ance of the bonds of said District to be retired out 
of the fund derived from said assessment when 
paid ; that by Ordinance No. 29 passed by the Town 
Council of said Town, the issuance of such bonds 
was authorized, and the amount thereof and form 
of bond, together with other details in connection 
therewith, were fixed and determined. 



72 Lambermens Trust Company vs. 

10. Thereafter, the Town Council of said Town, 
by its Resolution, No. 20, provisionally passed on 
August 22, 1921, and finally passed and adopted by 
the Town Council of said Town in the month of 
September, 1921, purported to levy and assess a 
tax and special assessment against all the real prop- 
erty in said Special Improvement District No. 4, 
including the property of these plaintiffs, to defray 
the cost of said improvements, in which Resolution 
it was recited that the total cost thereof was $45,- 
602.42. Plaintiffs are informed and believe and 
therefore state the fact to be that the notice of the 
resolution levying such assessment, to the effect that 
the same was on file in the office of the Town Clerk 
and stating the time and place at which objections 
to the final adoption of said resolution would be 
heard, was not published as required by law; that 
the property owned by each of the plaintiffs herein 
and the total amount so attempted to be assessed 
against the same, exclusive of interest, is as fol- 
lows, to wit : [61] 



The Town of Ryegate. 



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76 Lumbermens Trust Company vs. 

11. That the resolution of intention hereto at- 
tached and marked Exhibit "A" did not contain 
any sufficient description of the general character 
of the improvements to be made as required by law 
in this, — that the only description used was: "the 
construction of pipes, hydrants and hose connec- 
tions for irrigating appliances and fire protection," 
which said general language gave no definite infor- 
mation to plaintiffs and others within the district 
as to the specific character, extent or nature of said 
improvement; that there was nothing in said de- 
scription advising the plaintiff and others in the 
district that a waterworks system or a system of 
mains was contemplated or would be installed and 
that the character of the improvement described 
in said notice included only pipes, hydrants and 
hose connections for irrigating appliances and fire 
protection, and did not include waterworks or a 
general waterworks system or system of mains, or 
reservoir, or pumping plant, which was in fact con- 
templated, and was thereafter constructed and in- 
stalled; that the improvements described in the 
notice were entirely different and much less exten- 
sive than the improvements that were actually 
made; [63] that said description recited that 
said improvements were to be made in accordance 
with plans and specifications to be prepared, which 
said plans and specifications were not then pre- 
pared and were not on file or available for the ex- 
amination of these plaintiffs or any other property 
owners within said district; that the notice as pub- 
lished and the resolution purporting to create said 



The Town of Ryegate. 77 

district, were defective in the same particulars as 
in this paragraph recited, in failing to describe the 
character of the improvement, and that for the rea- 
sons herein stated the said Town Council of the 
Town of Ryegate did not at any time acquire any 
jurisdiction to create said improvement district or 
to proceed with the installation or construction of 
said mains, and that all subsequent proceedings 
were and are void and of no effect. 

12. That the whole cost of said improvements so 
assessed as hereinbefore alleged, far exceeds the 
sum of $1.50 per lineal foot plus the cost of the 
pipe so laid of the entire length of the water mains 
laid in said district and that said total cost is in 
excess of the limit prescribed by law. 

13. That no notice of any kind was given of the 
letting of the contract for said improvement, and 
when the same was let the contract price therefor 
amounted to $52,829.35, whereas the estimated cost 
amounted to $28,350; that in addition to said con- 
tract price, other payments have been made by the 
Town Council of said Town to the contractor and 
for engineering work, so that the total cost of mak- 
ing such improvements is the sum of $57,619.22 and 
that both the contract price agreed upon and the 
actual cost of making such improvements is wholly 
out of proportion to the value of said improvements 
to the said Town or to the property included within 
said district. 

14. That plaintiff is informed and believes and 
therefore states, that at the time said contract was 
let, it was impossible to sell the bonds or warrants 
of said Special Improvement District at [64] 



78 Lumbermens Trust Company vs. 

par; that no purchaser therefor could be found; 
that these facts were then well known to the Mayor 
and Town Council of said Town; that the con- 
tractor took the bonds of said District in payment 
of its contract price and claimed extras in connec- 
tion with the installation of said improvements; 
that in so doing, it allowed for a considerable dis- 
count on said bonds and added such discount to its 
bid for said work ; that because thereof, the cost of 
said work was greatly increased over what it would 
have been if said bonds had been sold by said town 
council at the par value thereof, and that at the 
time said contract was entered into and the bid of 
said contractor accepted, the Mayor and Town 
Council of said Town had knowledge of all of the 
aforesaid facts. 

15. That before the time fixed in said Resolu- 
tion No. 10 for hearing objections and protests to 
the creation of said Special Improvement District 
No. 4, written protests thereto were made and filed 
by the owners of a majority in area of the lots and 
parcels of land within said District No. 4. Among 
the lot owners so protesting was the Chicago, Mil- 
waukee & St. Paul Railway Company, the owner 
of a large amount of land within the said district; 
that prior to the hearing upon the creation of said 
Special Improvement District No. 4, said Chicago, 
Milwaukee & St. Paul Railway Company withdrew 
its protest to the creation of said district, thereby 
leaving protests from the owners of an insufficient 
number of lots to defeat the creation of said dis- 
trict, and that plaintiff is informed and believes, 
and therefore states the fact to be that said Chicago, 



The Town of Ryegate. 79 

Milwaukee & St. Paul Railway Company was in- 
duced to withdraw its said protest by the payment 
to it of $2500.00, which sum of money was fur- 
nished, provided and paid by certain parties who 
were greatly interested in having said improve- 
ments made, including the contractor who secured 
the contract for making such improvements. 

16. That by reason of the facts stated in para- 
graphs 11 to 15, inclusive, in this complaint, the 
levy of any and all assessments [65] against the 
said property of plaintiffs in said district was and 
is, illegal and void. 

17. That one-tenth of all of the taxes and assess- 
ments so attempted to be levied against the afore- 
said property of these plaintiffs was by the resolu- 
tion aforesaid, to be paid on or before November 30, 
1921; that if not so paid, the same was to become 
delinquent on December 1, 1921, and a ten per cent 
penalty added thereto because of such delinquency; 
that none of the plaintiffs herein has paid any part 
of said alleged tax and assessment against his or 
its said property for the year 1921; that the said 
Town of Ryegate is now advertising said property 
for sale for the non-payment of the taxes and assess- 
ments which it claims should have been paid thereon 
in November, 1921; that if not restrained by order 
and decree of this court, the defendants will sell 
all of the aforesaid property belonging to plaintiffs 
for the non-payment of the aforesaid installments 
thereon for the year 1921, and thus cloud the title 
to plaintiff's said lands; that if plaintiffs were 
to pay said alleged taxes each year under protest 
and then bring suit against the defendants to re- 



80 Lumbermens Trust Company vs. 

cover the taxes and assessments so paid, it would 
result in a great multiplicity of suits; that plain- 
tiffs have no plain, speedy and adequate remedy 
at law for the wrongs herein complained of and 
that great and irreparable damage and injury will 
be done to plaintiffs and each of them, if said de- 
fendants are not enjoined and restrained from sell- 
ing any portion of the aforesaid lands, because of 
the non-payment of any of said alleged taxes and 
assessments. 

WHEREFORE, plaintiffs demand judgment: 

That a decree of this court be entered adjudging 
and decreeing the aforesaid taxes and assessments 
null and void; 

That the defendants herein be enjoined and re- 
strained from selling any of the aforesaid property 
of these plaintiffs on account of the non-payment 
of said alleged taxes and assessments thereon for 
the year 1921 ; that their agents, servants, attorneys, 
employes [66] and successors be enjoined and 
restrained from selling any portion of said de- 
scribed lands for the non-payment of any install- 
ment of said alleged taxes and assessments for any 
year hereafter; 

That in case any of said property should be sold 
by said defendants or either of them, for the non- 
payment of said installments of such alleged taxes 
and assessments for the year 1921, before the final 
determination of this suit, that the said defendants, 
their agents, servants, attorneys, employes and suc- 
cessors be enjoined and restrained from issuing 
any tax deed to the purchaser of said lots or any 
part thereof at such sale. 



The Totvn of Ryegate. 81 

That said defendants, their agents, servants, at- 
torneys, employ rs and successors be enjoined and 
restrained from in any way or manner attempting 
to collect any portion of said alleged taxes and 
assessments. 

That plaintiffs may have such other and further 
relief as to the court may seem just and equitable, 
and that they may recover their costs and disburse- 
ments herein incurred. 

D. AUGUSTUS JONES, 
JOHNSTON, COLEMAN & JOHNSTON, 
By W. M. JOHNSTON, 
Attorneys for Plaintiffs. 
(Duly verified.) [67] 

EXHIBIT No. 4. 

ANSWER. 

Come now the defendants in the above-entitled 
cause and, answering the complaint of plaintiffs 
herein allege: 

I. 

They admit the averments of paragraphs 1, 2, 3, 
4, 5, 6, 7, 9 and all that portion of paragraph 10 ex- 
cepting that part thereof beginning with the words 
" Plaintiffs" in the last line on page 3 and conclud- 
ing with the words "law" in line five on page 4. 

II. 

They specifically deny the averments of para- 
graphs 8, 11, 12, 13, 14, 15 and 16. 

III. 

Answering the averments of paragraph 17 of said 



82 Lumbermens Trust Company vs. 

complaint, the defendants admit all the averments 
thereof excepting that portion beginning with the 
words "that plaintiffs" in the last line on page 8 
and continuing to the end of the paragraph, as to 
which they deny the same. 

Further answering said complaint and as a spe- 
cial defense, the defendants allege : 

I. 

That notice of the passage of the resolution of in- 
tention to create said Special Improvement District 
No. 4 was actually published in one issue of the Rye- 
gate Reporter, a weekly newspaper printed and pub- 
lished in the Town of Ryegate, said publication hav- 
ing been made on the 1st day of January, 1920, as re- 
quired by law. 

II. 

That the plaintiffs did not at any time within 
sixty days from the date of the awarding of the 
contract for the construction of the improve- 
ments referred in said complaint, file with the 
said Clerk of the Town or Ryegate a written 
notice specifying in what respect [68] the said 
acts were irregular, erroneous, or invalid, or in what 
manner their property would be damaged by the 
making of said improvements, and did not in writ- 
ing make any objections to any act or proceeding 
in relation to the making of said improvements ; and 
these defendants now allege that the plaintiffs have 
thereby waived all the objections which they now 
urge in their said comi)laint and upon which their 
cause of action is based. 



The Town of Ryegate. 83 

WHEREFORE, the defendants having answered 
the complaint of the plaintiffs herein, now pray 
that they may take nothing by their cause of action 
and that the defendants may have judgment against 
them for their costs and disbursements herein. 

STUART JMcHAFFIE, 
NICHOLS & WILSON, 
By EDMUND NICHOLS, 

Attorneys for Defendants. 
(Duly verified.) [69] 

EXHIBIT No. 5. 
REPLY. 

Plaintiffs make this their reply to the answer of 
defendants herein: 

1. Admit the allegations contained in paragraphs 
one and two of defendants' Special Defense, except 
that they deny that they waived any objections to the 
irregular, erroneous and invalid acts of the officials 
of the Town of Ryegate complained of in the com- 
plaint herein. 

2. Save and except as hereinbefore specifically 
admitted or denied, plaintiffs deny generally each 
and every allegation of new matter in said answer. 

WHEREFORE, plaintiffs demand judgment as 
prayed for in their complaint. 

D. AUGUSTUS JONES, 
JOHNSTON, COLEMAN & JOHNSTON, 
By W. M JOHNSTON, 
Attorneys for Plaintiffs. 
(Duly verified.) [70] 



84 Lambermens Trust Company vs. 

EXHIBIT No. 6. 

DECREE. 

This cause came on for trial February 6, 1923, be- 
fore the Court, sitting without a jury, a jury hav- 
ing been expressly waived by counsel for the respec- 
tive parties. D. Augustus Jones, Esq., and John- 
ston, Coleman & Johnston appeared as attorneys for 
plaintiffs, and Stuart McHaffie, Esq., and Nichols 
and Wilson appeared as attorneys for the defendants. 
Evidence was introduced on behalf of both plaintiffs 
and defendants and the cause was thereupon sub- 
mitted to the Court. 

Thereafter and on June 27, 1924, the Court made 
and filed its Findings of Fact and Conclusions of 
Law herein, which, omitting title of Court and cause, 
are as follows, to-wit : 

" FINDINGS OF FACT. 

1. That the defendant Town of Ryegate is, and 
was, at all times referred to in the proceedings, a 
Municipal corporation, organized and existing under 
and by virtue of the laws of Montana, and situated 
in the county of Golden Valley, Montana, and that 
the defendant W. O. Wood, was, during the times 
referred to in the proceedings, the duly elected, 
qualified and acting treasurer of said Golden Valley 
County, and the officer to whom the assessments 
hereinafter referred to were paid. 

2. That the plaintiffs were at all of the times re- 
ferred to in the proceedings herein, the owners of the 



The Town of Ryegate. 85 

various lots and tracts of land described in plain- 
tiffs' complaint as belonging to said plaintiffs, all of 
which property was and is embraced within the 
limits of Special Improvement District No. 4 in the 
said Town of Ryegate. 

3. That on the 30th day of December, 1919, the 
town Council of the Town of Ryegate, duly passed 
resolution of intention number 10, for the creation 
of special improvement district No. 4 within said 
Town of Ryegate, a copy of which said resolution 
as adopted is attached to the plaintiffs 's complaint 
and marked Exhibit "A" and that notice of such 
[71] resolution was duly published as required 
by law, and that thereafter on the 11th day of Feb- 
ruary, 1920, resolution number 14, creating said spe- 
cial improvement District No. 4 was duly passed by 
the Town Council of said Town of Ryegate. 

4. That the character of the improvements as set 
out in said resolution of intention and also in said 
resolution No. 14 was "the construction of pipes, 
hydrants, and hose connections for irrigating appli- 
ances and fire protection." That the actual im- 
provement sought to be installed as a result of said 
proceedings and which was actually installed by said 
town was a complete water works and water system 
consisting of reservoirs, pumping plant, mains and 
fire hydrants constituting a complete system for the 
furnishing of water to the inhabitants of said town 
That said improvement was installed and con- 
structed by Security Bridge Company, a corpora- 
tion, under one contract, which contract was entered 
into upon the award of said work to said Security 



86 Lumbennens Trust Company vs. 

Bridge Company, which said award was made upon 
bid filed in response to notice to contractors given 
in pursuance of resolutions numbers 10 and 14, re- 
ferred to above. That the notice to contractors and 
the plans and specifications covering said work and 
contract itself all refer to and call for the construc- 
tion of a complete water system consisting of the 
elements above described. 

5. That after the contract for said water system 
was let, the Town Council of the Town of Ryegate 
by appropriate action provided the mode of assess- 
ment for the payment of said improvement and as- 
sessed each parcel of land within the district for that 
part of the entire cost of the improvement which its 
area bore to the entire area of said district, exclusive 
of streets and alleys, and that the total amount as- 
sessed against each of the plaintiffs herein is cor- 
rectly set forth in their complaint herein. That 
the assessment so made against the property in said 
district was for the purpose of retiring the bonds 
of said district to the amount of $45,602.42, which 
said bonds under the provisions of said contract 
with said [72] Security Bridge Company, were to 
be accepted and were in fact issued and accepted in 
payment for said improvement to the extent of 
forty-five thousand six hundred two and 42/100 dol- 
lars. 

6. That the plans and specifications for the im- 
provements actually made were delivered to the 
Town Clerk ten days or two weeks before April 13, 
1920, but were not presented to the Town Council or 
approved by the Town Council of Ryegate until 



The Town of Ryegate. 87 

April 13, 1920, one day before bids were received 
for the construction of the improvements called for 
by said plans and specifications. 

7. That the total amount of pipe used in said 
construction was 8271 feet of four inch pipe, 2726 
feet of six inch pipe and 841 feet of eight inch pipe, 
and that the cost of said pipe so used was not in ex- 
cess of Seventeen Thousand Seven Hundred 
Twenty-six and 47/100 dollars. ($17,726.47.) 

8. That the said contractor, Security Bridge 
Company, in making its bid took into consideration 
the fact that the bonds issued in payment would 
have to be sold at a discount and it was known to the 
Town Council of the Town of Ryegate at the time 
the contract for said improvement was let that the 
bid of said contractor was made upon that basis and 
with the expectation and understanding that said 
bonds would be disposed of at a discount and with 
the knowledge that the bid was higher than it would 
have been had it been provided that payment was to 
be made in cash. 

9. That no notice of any kind was ever given to 
the property owners in Improvement District No. 4 
or to anyone else of the letting of the contract for 
the construction of the improvements made under 
the aforesaid plans and specifications. 

10. That the cost of installation of improvement 
made, which the Town Council of the Town of Rye- 
gate attempted to assess against the property in- 
cluded in Special Improvement District No. 4 was 
the sum of $45,602.40; whereas, the estimated cost of 
such improvements was $28,350.00. [73] 



88 Liimbermens Trust Company vs. 

11. That there are no sprinkling, or parking, or 
boulevard districts in the Town of Ryegate, and 
never have been. 

12. That the plaintiffs L. F. Lubeley, Isabel Cur- 
rie, W. J. Edson, Henry G. Jacobson, State Bank 
of Ryegate, Henry Thien, Fred Wyman and the 
Hilbert-Thien Company within sixty days of the let- 
ting of the contract to construct the improvements 

in question, made and filed their written protests 
and objections thereto, setting up the grounds re- 
lied upon by plaintiff in this action, and that none 
of the other plaintiffs herein filed any protest or ob- 
jection whatsoever. 

13. That the improvement actually installed as 
a result of the proceedings hereinbefore referred to 
was a different improvement from that described 
in resolutions 10 and 14 in that the improvement ac- 
tually installed was an entire and complete water 
system, whereas the improvement described in the 
resolution of intention was the construction of pipes, 
hydrants, and hose connections for irrigating appli- 
ances and fire protection. 

14. That within the time fixed by the resolution 
of intention for the creation of Special Improve- 
ment District No. 4, written protests were made and 
filed by the owners of a majority in area of the lots 
and parcels of land within said District No. 4; that 
among the land owners so protesting was the Chi- 
cago, Milwaukee & St. Paul Railway Company, the 
owner of a large amount of land within said Dis- 
trict; that prior to the hearing upon said protests, 
interested citizens of the Town of Rygate agreed to 



The Toivn of Ryegate. 89 

raise a fund of $2500.00 and to pay the same to the 
Chicago, Milwaukee & St. Paul Railway Company 
so as to reduce its assessment to the sum of $6,000.00, 
for installation of both a water system and sewer 
system in the town of Ryegate, as it was informed 
by the parties so agreeing to raise and pay said sum 
of money, and that on account of said agreement, 
the said Chicago, Milwaukee and St. Paul Railway 
Company withdrew its protest to the formation and 
creation of Special Improvement District No. 4; 
that by so doing an insufficient number of protests 
were left on file to defeat the creation of said dis- 
trict. [74] 

From the findings of Fact the Court makes the 
following Conclusions of Law. 

CONCLUSIONS OF LAW. 

1. That the Town Council of the Town of Rye- 
gate never at any time acquired jurisdiction to cre- 
ate an improvement district for the installation of a 
water system or of an improvement of the kind ac- 
tually installed, and that the installation of said sys- 
tem was without authority and all of the proceedings 
with reference thereto were and are null and void 
and of no effect. 

2. That the cost of said system as installed was 
in excess of the cost allowed by law, to-wit: $1.50 
per lineal foot of pipe laid, plus the cost of pipe and 
the assessment imposed upon the tax payers within 
said district was and is for that reason illegal. 

3. That the Town Council of the Town of Rye- 
gate in awarding the contract for said improvement 



90 Lumbermens Trust Company vs. 

knew that the contract price was increased by reason 
of the fact that the bonds issued in payment therefor 
would have to be disposed of at less than par and 
knew that the bid would have been a lower bid and 
the contract price lower if the bonds could have been 
sold at par, and that for this reason the proceedings 
of the Council in letting said contract were null and 
void 

4. Plaintiffs are entitled to an injunction re- 
straining the defendants, their agents, servants, at- 
torneys, employees, or successors from in any way or 
manner attempting to collect any portion of the al- 
leged assessments against the property of any of 
said plaintiffs situate in Special Improvement Dis- 
trict No. 4 of the Town of Ryegate. 

5. Let Decree be drawn in accordance with these 
Findings and Conclusions. 

Dated this 27 day of June, A. D. 1924. 

GEO. A. HORKAN, 
Judge." [75] 

WHEREFORE, by reason of the law and the 
premises aforesaid, IT IS ORDERED, AD- 
JUDGED AND DECREED: 

That all taxes and assessments levied and assessed 
upon property situate in Special Improvement Dis- 
trict No 4 within the Town of Ryegate, in Golden 
Valley County, Montana, to pay for special im- 
provements therein under resolution of intention 
No. 10 for the creation of said district, and under 
resolution No. 14 of said town creating said Special 
Improvement District No. 4, which are the subject 
of this action, are null and void ; that the defendants 



The Town of Ryegate. 91 

are, and each of them is hereby enjoined and re- 
strained from selling any of the property of plain- 
tiffs herein, described in the complaint herein, on ac- 
count of the nonpayment of any of said alleged taxes 
and assessments imposed because of the creation of 
said district and the construction of improvements 
therein; that if any of said property has been sold 
for the nonpayment of any of such taxes or assess- 
ments, the defendants, their agents, servants, attor- 
neys, employees and successors are, and each of them 
is, hereby enjoined and restrained from issuing any 
tax deed to the purchaser of any of said lots or prop- 
erty, or any part thereof. 

That the said defendants, their agents, servants, 
attorneys, employees and successors are, and each of 
them is, hereby enjoined and restrained from in any 
way or manner attempting to collect any portion of 
said alleged taxes and assessments ; 

That the lots and property referred to herein, the 
taxes and assessments against which, on account of 
the creation of said district and construction of im- 
provements therein, are hereby declared to be null 
and void and the collection of which is hereby re- 
strained, are particularly described as follows, to- 
wit: 

Lots 5 and 6, block 1 ; lot 1 of block 5 ; lot e 
of block 9; lots 10, 11 & 12 of block 17; lots 1, 2 
& 3 of block 15; Lots 7, 8, & 9 of Block 16; Lots 

4 and 5 of block 22 ; Lots 3 and 4 of block 21 ; 
lots 9 and 10 of block 8; south 100 feet of lots 

5 and 6 in block 2; lots 4 and 5 of block 12; 
lot 4 of block 24; lots 5 and 6 of block 3; lots 



92 Lumbermens Trust Company vs. 

7, 8, [76] and 9 of block 15; Lots 9 and 10 
of Block 9, lot 4 of Block 8; Lots 7, 8, and 9 of 
Block 18; lots 13 and 14 of Block 5; Lots 11, 
and 12 of Block 9; Lots 15 to 18 of Block 4; 
lot 1 of block 1; lot 12 of block 19; lots 7 and 8 
of block 5; lot 12 of block 7; lot 6 of block 24; 
West half of lot 2 and lot 3 of block 22 ; lots 10, 

11 and 12 of block 10; lot 2 of block 5; lot 6 of 
block 15 ; lot 12 of block 5 ; lot 1 of block 2 ; north 
50 feet of lots 15 to 18 in block 4 ; lots 1 and 3 
of block 6 ; lots 1 to 6 of block 7 ; lots 1, 11, and 

12 of block 8; lot 4 of Block 16; lot 6 of block 
22 ; lots 1, 2, and 3 of block 17 ; Lots 7 and 8 of 
Block 20; South 50 feet of lots 7 to 10 of Block 
6; Lots 3, 4, 5 and 6 of block 18; Lots 7, 8, 9, 10 
and 11 of Block 19; lots 5 and 6 of block 23; lot 
2 of block 24; lot 3 of block 3; lots 3 and 4 of 
block 5; Lot 9 of Block 10; and Lot 9 of Block 
20. 

Done in open court this 8th day of July, 1924. 

GEO. A. HORKAN, 

Judge. 
Filed July 16, 1928. [77] 



THEREAFTER, on December 11th, 1929, the 
cause herein was tried to the Court, the record of 
trial being in the words and figures as follows, to 
Wit : [78] 



The Town of By eg ate. 93 

[Title of Court and Cause.] 

TRIAL. 

This cause came on regularly for trial to the 
Court this day without a jury, a jury trial having 
been expressly waived by written stipulation of the 
parties filed herein on July 16, 1928. Messrs. Stew- 
art and Brown appeared for the plaintiff and 
Messrs. Johnston, Coleman and Jameson appeared 
for the defendant. 

Thereupon the agreed statement of facts filed 
herein on July 16, 1928, and the depositions of John 
D. Neale and W. P. Briggs, as witnesses for plain- 
tiff, were read in evidence. Thereupon W. P. Ros- 
coe was sworn and examined as a witness for the 
plaintiff and certain documentary evidence intro- 
duced, whereupon plaintiff rested. 

Thereupon Henry Thien, Q-. H. Corrington, C. H. 
Parizek, W. H. Northey and B. Mellen were sworn 
and examined as witnesses for the defendant, and 
certain documentary evidence introduced, where- 
upon the defendant rested. 

Thereupon Henry Thien and W. P. Roscoe were 
recalled in rebuttal and Mr. Hastings was sworn 
and examined as a witness for plaintiff in rebuttal, 
whereupon the evidence closed and the cause was 
submitted to the Court and taken under advisement, 
the plaintiff being granted twenty-five days from 
this day and the defendant twenty-five days there- 
after in which to submit and file briefs and proposed 
findings. 



94 Lumbermens Trust Company vs. 

Entered in open court this 11th day of December, 
1929. 

C. R. GARLOW, 
Clerk. [79] 



THEREAFTER, on May 14, 1931, the court ren- 
dered its decision herein, said decision being in 
the words and figures as follows, to wit: [80] 

[Title of Court and Cause.] 

DECISION. 

The purpose of this action is to establish a lia- 
bility against the Town of Ryegate, Golden Valley 
County, Montana, on an implied contract for the 
balance due on the construction of a water supply 
system, which otherwise would have been paid from 
bonds issued by a special improvement district of 
that town, had the entire issue not been declared 
illegal and void, after the water supply system had 
been fully constructed. The facts appear herein 
and in an agreed statement and testimony taken at 
the trial, which was before the court without a jury, 
according to written stipulation of counsel for the 
respective parties. 

Proceedings were begun by the town counsel for 
the creation of the special improvement district in 
1919, followed by the usual bond issue and coiamce- 
ment of work by the contractor, the Security 
Bridge Company, the predecessor of plaintiff:. It 
appears from the resolutions adopted by the town 
that the character of the improvements were to be : 



The Town of Ryegate. 95 

"the construction of pipes, hydrants, and hose con- 
nections for irrigating appliances and fire protec- 
tion." That pursuant thereto the improvements 
actually installed consisted of waterworks and a 
water system of reservoirs, pumping plant, mains 
and fire-hydrants, for the furnishing of water to 
the inhabitants of the town. To provide for the 
payment of the improvements the town council as- 
sessed each parcel of land within the district for 
that part of the entire cost which its area bore to the 
entire area of the improvement district, exclusive 
of streets and alleys. That the assessment so made 
against the property in said district was for the pur- 
pose of retiring the bonds of the district in the 
amount of $45,602.42. [81] 

No notice was ever given to the property owners 
in the district of the letting of the contract for the 
construction of the improvements. The cost of im- 
provements which the town attempted to assess 
against the property in the district was the sum 
above mentioned, whereas the estimated cost was 
only $28,350.00. Within the time allowed after 
letting the contract protests and objections were 
filed. 

Plaintiff claims that under Section 6, of Article 
13, of the Constitution of the State of Montana, and 
subdivision 64 of section 5039 of the Revised Codes 
of Montana of 1921, that the Town of Ryegate had 
general authority to procure a water supply and 
construct a complete waterworks system and there- 
fore contends that since the city had general power 
and authority to do the work and construct the im- 



96 Liimbermens Trust Company vs. 

provements embraced in the special improvement 
district in question, although it had no authority to 
resort to the special improvement district plan to 
make the improvements and although bonds used in 
payment of the work were illegal and void, neverthe- 
less, the town, having the general power to make 
such improvements, and having received and re- 
tained the benefit of the improvements and the con- 
struction thereof, it is liable as upon an implied 
contract, and the delivery of void warrants did not 
amount to payment, and also, that a contract may be 
illegal and void, yet if the corporation has the gen- 
eral power to do the thing agreed upon, but has 
done it in an irregular manner, or even in violation 
of some common-law rule, or statutory inhibition, 
yet if it has received the benefit and the contract 
was not immoral, unjust or inequitable, it is liable 
upon the implied contract. 

The defendant states the proposition of law as fol- 
lows : " The general question presented by this action 
is whether or not a city or town in Montana is liable 
upon any theory for the debt represented or evi- 
denced by the bonds of a special improvement dis- 
trict which by their terms are made payable from a 
special fund derived from special assessments upon 
and against the property embraced within that dis- 
trict. " If this question should receive an affirma- 
tive answer, then the further question arises whether 
the Town of Ryegate can be held [82] liable in 
this instance in view of Section 6 of Article 13 of 
the Constitution of Montana. In commenting on 
the foregoing statement of the issue of law involved 



The Town of Ryegate. 97 

plaintiff contends that the town never acquired 
jurisdiction to create a special improvement district 
and that the bonds issued were by the court de- 
clared to be invalid, after the contract, for which 
the bonds were delivered, had been fully performed. 
Not all the bonds representing the entire considera- 
tion for the works were declared invalid ; only those 
of the special improvement district. Fifteen Thou- 
sand Dollars of the consideration was paid through 
an issue of the general bonds of the town, and the 
remainder by the issue of special improvement dis- 
trict bonds. 

It seems clear that because of the constitutional 
inhibition the town was unable lawfully to contract 
for the installation of a water system without the 
approval of the taxpayers. It found that it could 
lawfully issue $15,000.00 in bonds as a direct obli- 
gation and no more, consequently the town counsel 
by appropriate resolution and with apparent author- 
ity undertook the establishment of a special im- 
provement district for the purpose of creating a 
bonded indebtedness against the property lying 
within the boundaries of such district to raise the 
money necessary to install the works hereinbefore 
described which were to be located in the special 
improvement district. It appears that the improve- 
ment district embraced the greater part of the town 
including the principal business and residential 
sections. By resorting to these two methods the 
town secured a waterworks system, such as was 
provided by contract, and has used the same for 
several years without paying for it, except the pay- 



98 Lumbermens Trust Company vs. 

ment of $15,000 in bonds of the town. The town 
apparently set about to accomplish in a lawful man- 
ner indirectly what it could not lawfully do di- 
rectly without an election and favorable majority 
vote. Unquestionably there is a general obligation 
to do justice resting upon cities as well as upon 
natural persons, and while plaintiff cannot now 
recover upon the contract the question remains can 
it lawfully recover from the town as on an implied 
contract for money had and received. Can the 
town be compelled to assume as a general obligation 
the indebtedness contracted with the special [83] 
improvement district and secured by an issue of 
bonds upon property lying wholly within the dis- 
trict. Irrespective of what the general result has 
been here, does the law permit the plaintiff to re- 
cover from the town when it or its predecessor ac- 
cepted the bonds of the special improvement district, 
enforceable against the property of the district for 
the amount now claimed from the town itself. Plain- 
tiff claims to have no recourse against the property 
of the district because of a decision of the state 
court, from which no appeal was taken, declaring 
the bonds of the district illegal and void. Accord- 
ing to the record counsel representing the bond- 
holders took part in the trial of the issues there 
involved. 

Whether it be held, as contended by plaintiff, 
that there was no grant of power under the statute 
conferred upon the municipality to install and pay 
for a waterworks system, as provided in chapter 
56 of Part IV, Political Code of Montana (1921), 



The Town of Ryegate. 99 

or not, there is certainly enough in the language of 
that chapter to lead the members of the average 
town council to believe that they had the authority 
to create a special improvement district for the pur- 
pose of installing the aforesaid waterworks within 
the district and paying for it by the issuance of 
bonds of that district. The Security Bridge Com- 
pany and plaintiff could have subjected these bonds 
and proceedings to the closest scrutiny of counsel 
before accepting them, and could have rejected them 
if they were issued without authority of law, or if 
they found that their invalidity consisted in a fail- 
ure to comply with the requirements of a valid 
statute. 

If in this instance the proper officers had been 
authorized to enter into the contract on the part of 
the town, after submitting the question to a vote of 
the taxpayers as required by law and receiving fa- 
vorable action thereon, there would be no question 
whatever as to the liability of the town, irrespective 
of any mere oversight or irregularity in conduct- 
ing the proceedings. 

Paragraph 64 of Section 5039 of the Political 
Code of Montana (1921) provides that a city or 
town council shall have power to contract an in- 
debtedness on behalf of the city or town for the 
construction of a waterworks system supplying the 
city or town after the proposition has been sub- 
mitted to the vote of the taxpayers affected thereby 
and [84] the majority vote cast in favor of the 
improvement. The other method is by the creation 
of a special improvement district under chapter 56 



100 LiMibermens Trust Company vs. 

of Part IV of the same code. This was the plan 
adopted by the town for the balance of the necessary 
funds, and it failed, but its failure was not discov- 
ered until after the receipt of the money and the 
construction of the system. Section 6 of Article 
XIII of the Constitution of the State of Montana 
provides a debt limit for cities and towns. Rye- 
gate had exceeded its constitutional limit of in- 
debtedness. From the authorities and statutes cited 
by plaintiff it seems that a complete water supply 
system for an entire city or town cannot be con- 
structed under the special improvement district 
plan embracing only a part of the city or town and 
charging up the total cost to the property included 
therein, and benefited thereby, for such an arrange- 
ment manifestly would be an injustice to the resi- 
dents of the district, but where the cost of a certain 
part of the works has been accurately figured in 
correct proportion to the cost of the whole system 
and constructed and paid for under the special im- 
provement plan an entirely different question is 
presented and one which does not seem to conflict 
with the general payment plan for a water system by 
the other method. But here a complete system 
was not attempted to be constructed at the expense 
of the taxpayers of this particular improvement 
district. The town itself became directly liable 
for part of the indebtedness ; it assumed apparently 
as much of the debt as could be done without ex- 
ceeding the constitutional limit and without being 
obliged to go to the expense of submitting the ques- 
tion to a vote of the taxpayers. Surely the " water- 



The Town of Ryegate. 101 

works, water mains and extension of water mains" 
along the lots, blocks and parcels of land in the 
special improvement district as provided in said 
chapter 56 may be a benefit to the property and per- 
sons served — a special benefit to the property and 
a general benefit to the town at large. Plaintiff 
attempts to make a distinction between " water- 
works" and " water systems" but there appears to 
be no authority for it in the law and decisions of 
Montana. On the question of a recovery for money 
had and received many cases have been cited, but 
one, that of Rogers vs. City of Omaha, 107 N. W. 
214, 215, seems to have been relied upon as a sus- 
taining authority by both [85] sides; there the 
court held: " There is a clear distinction between 
contracts outside of the powers conferred upon mu- 
nicipal corporations and contracts within the gen- 
eral scope of the powers conferred, but which have 
been irregularly exercised. Contracts falling en- 
tirely outside of the powers delegated to the corpo- 
ration are absolutely null and void and no right 
of action against the corporation can be founded 
upon them." Reference is then made to the rule 
as stated by Dillon on municipal corporations: "A 
municipal corporation as against persons who have 
dealt with it in good faith and parted with value 
for its benefit can not set up mere irregularities in 
the exercise of power conferred, as for example, its 
failure to make publication in all the required news- 
papers of a resolution involving the expenditure 
of moneys." But in the instant case we are not 
dealing with a mere irregularity but with an express 



102 Liimbermens Trust Company vs. 

constitutional requirement in the following lan- 
guage: "No city, town, township or school district 
shall be allowed to become indebted in any manner 
or for any purpose to an amount, including existing 
indebtedness, in the aggregate exceeding three per 
centum of the value of the taxable property therein 
* * * and all bonds or obligations in excess of 
such amount given by or on behalf of such city, 
town, township or school district shall be void, un- 
less the legislative assembly extend the debt limit 
mentioned by authorizing municipalities to submit 
the question to a vote of the taxpayers affected 
thereby for the purpose of constructing a sewerage 
system or to procure a supply of water * * V 
(Sec. 6, Article XIII of Constitution of Montana.) 
Counsel for plaintiff is undoubtedly correct in as- 
serting that when acting in its proprietary capacity 
a city or town will be more readily held liable than 
in its governmental, but that is far from admitting 
that it would be liable here for that reason unless 
it appeared that an irregularity in procedure was 
involved instead of the violation of a constitutional 
provision. Had the bonds of the improvement dis- 
trict been held valid, no good reason appears why 
payment of both issues could not have been made 
under the present laws of Montana relating to gen- 
eral taxes and assessments in special improvement 
districts. 

The Supreme Court of Washington, in Comfort 
vs. Tacoma, 142 [86] Wash. 251, said, in speak- 
ing of a similar issue of bonds by a special improve- 
ment district, "Countless numbers of these bonds 



The Totvn of Ryegate. 103 

were purchased by persons unskilled in such matters 
who failed to grasp the fact that the obligations 
which the bonds represented were not legally those 
of the city, but were restricted to the particular fund 
created by the assessment * * * the creation 
of a special fund to which the bond holders are re- 
stricted in itself negatives the idea of a general in- 
debtedness upon the part of the city." 

The leading case relied upon in Bell vs. Kirk- 
land, 113 N. W. 271, that of Moore vs. Mayor, 73 
N. Y. 238, seems to be easily distinguishable from 
the facts here ; there the action was to recover a bal- 
ance due upon a contract made by the corporation 
of the City of New York, by the Croton Aqueduct 
Board and Robert Jardine, plaintiff's assignor for 
the paving of 8th Avenue, from 42nd to 58th Sts. 
"The contract was entered into, under the terms of, 
and pursuant to a resolution adopted by the boards 
of councilmen and aldermen of the city and approved 
by the Mayor of the city. * * * This resolution 
provided for the improvement at the expense of the 
city, to be reimbursed by an assessment upon the 
property benefited." 

One dealing with the agents of a municipality is 
bound to know the limits of its power. When the 
Town of Ryegate issued $15,000 in general bonds 
as a direct obligation of the town those dealing 
therewith well knew, or should have known, that the 
city could contract no greater indebtedness at that 
time for the purpose in view, and because of that 
fact resorted to the special improvement plan to 
raise the funds required to pay for that part of 



104 Lumbermens Trust Company vs. 

the works to be constructed in that particular dis- 
trict. 

The funds here were used for a corporate pur- 
pose — a special purpose as to the improvement dis- 
trict and a general corporate purpose as to the 
town at large. Would that of itself create a legal 
obligation on the part of the town to pay the debt in 
event of failure of the district plan ? With no such 
constitutional inhibition, it was within the general 
powers of the town to construct a water supply, but 
in the instant case no such general power existed on 
the part of the town until conferred upon it by the 
taxpayers of the town. To begin with, it had 
[87] no power at all, and in order to acquire it, 
an election must be held to determine whether such 
power should or should not be granted. 

The Court held in Stanley vs. City of Great Falls : 
" Proposing purchasers of bonds and warrants look 
only to the present condition of the law, and there- 
from determine whether or not such bonds and war- 
rants furnish a reasonably safe investment." The 
responsibility is upon the purchaser of such bonds 
to know the law and to see that it has been complied 
with before investing their funds ; and well may they 
purchase with care when they read the language 
of the Supreme Court of Montana in respect to 
them: "No other city bonds and warrants stand in 
the precarious situation of these special improve- 
ment district bonds and warrants, as this is the only 
class of bonds and warrants which does not have 
the credit of the city back of them." (Stanley vs. 
Jeffries, County Treasurer, 86 Mont. 128.) And 



The Town of By eg ate, 105 

again from the same cource: " Section 5226, Id., 
provides that * Whenever the public interest or con- 
venience may require, the city council is hereby au- 
thorized and empowered to create special improve- 
ment districts. * * * ' Then follows a long list 
of purely public improvements which may be erected 
by the creation of such a district. Under the spe- 
cial improvement district law, the cost of the work 
may be assessed to bordering property because of 
supposed special benefit, and ' whenever the contem- 
plated work or improvement, in the opinion of the 
city council, is of more than local or ordinary public 
benefit * * * ' and under certain other condi- 
tions, the council may spread the assessment over an 
extended district (Sec. 5228 Id.) * * * When 
therefore the legislature provided that, as to spe- 
cial improvement districts created in the future, 
a fund shall be created to insure the prompt 
payment of bonds and warrants issued in pay- 
ment of such improvements, it but modified the 
special improvement district law to impose upon 
the general public, within the municipality, a con- 
ditional obligation to pay a small portion of the cost 
of erecting the public improvement, whereas it 
might have lawfully, imposed a much greater [88] 
burden upon the municipality. It is readily discern- 
ible that, under the law as it existed at the time 
this act was passed, the value of district bonds and 
warrants was problematical, and their salability 
greatly impaired, and the public credit and public 
good necessitated some action to remedy the defect 
in existing law. * * * we are concerned only 



106 Lambermens Trust Company vs. 

with the legality, and not at all with the policy or 
reasonableness of a legislative enactment, and, in 
the absence of a constitutional limitation the legisla- 
ture has plenary power to levy taxes for public pur- 
poses. The question as to whether or not this en- 
actment will trench upon the constitutional limita- 
tion of indebtedness of the city is not here presented. 
Finding no constitutional prohibition against such 
an act as this in its application to improvement 
districts created after the passage of the Act, the 
judgment in Stanley vs. Jeffries is affirmed." 

In Stanley vs. Great Falls, supra, the Court said : 
" Herein the Legislature did not attempt to impose 
a liability upon the people with respect to past 
transactions, but merely gave them the option to 
impose such a burden upon themselves if they saw 
fit, which, in so far as this inhibition of the con- 
stitution is concerned, they may do. In re Pomeroy, 
51 Mont. 119, 151 P. 333 * * * . However, 
what is the purpose of the act in so far as it deals 
with special improvement district bonds and war- 
rants issued prior to the date thereof? Such 
bonds and warrants were, it is true, issued for the 
purpose of constructing a public work, and conse- 
quently issued for a public purpose, but the trans- 
action has been completed and the bonds and war- 
rants accepted in full settlement thereof; they 
have passed into the hands of individuals or cor- 
porations. With respect to these there is no duty 
or obligation resting upon the city other than to 
enforce and obey the provisions of the special im- 
provement district laws; if this is done, and still 



The Town of Ryegate. 107 

a loss is suffered by reason of deficiencies in that 
law, the loss falls upon the holders of the bonds 
and warrants, and not upon the city." From this 
case it appears that there is no obligation resting 
upon the city other than to enforce the provisions 
of the special improvement district laws. The 
Court held in Gagon vs. [89] Butte, 75 Mont. 
279, ' There is no liability in the city to the con- 
tractor other than to make and collect the assess- 
ment and pay it over, unless the city fails in some 
duty it owes to the contractor connected with the 
levy and collection of the assessment. Upon re- 
ceipt of the assessment the city becomes liable to 
the contractor as for money received to his use' (2 
Dillon on Municipal Corporations, 5th ed., Sec. 82) 
* * * Primarily, the city of Butte incurred no 
personal liability to the contractor who did the 
work. It was merely constituted an instru- 
mentality of the law in initiating and carrying out 
the improvements and in collecting the money due 
upon assessments made by it against the property 
benefitted in order to pay the obligations incurred 
in execution of the work * * * . The plain- 
tiff was chargeable with knowledge of the nature 
and terms of the city's obligation with respect to 
the bonds, and to permit him to hold the general 
taxpayers responsible because of the neglect of 
duty on the part of the city Treasurer would be 
manifestly unjust." And much to the same effect 
will be found the principles laid down in the fol- 
lowing cases: 

Moore vs. City of Napa, 18 F. (2d) 861, 
C. C. A. 9; 



108 Liimbcrmens Trust Company vs. 

New First National Bank vs. City of 
Weiser, 166 Pac. 213; 

Capital Heights vs. Steiner, 101 So. 451; 

Windfall City vs. First National Bank, 87 
N. E. 984; 

Castle vs. City of Louisa, 219 S. W. 439; 

Morrison vs. Morey, 48 S. W. 629. 
The case of Hitchcock vs. Galveston (24 L. Ed. 
659, 96 U. S. 341), fairly illustrates the line of 
argument of plaintiff in its effort to shift the in- 
debtedness of a special improvement district to the 
taxpayers of the city. In the main the law pre- 
sented by plaintiff could be accepted if the facts 
here were substantially identical with the facts 
cited in those cases. In the first place, the Town 
of Eyegate did not' enter into a contract to pay 
this debt. The town officers had no right to bind 
the town in this instance by any act or failure to 
act on their part. All the town agreed to do was 
to deliver the bonds and agree to make the neces- 
sary assessments against the property, and the 
contractor accepted the bonds in full payment. 
Nowhere has the court been able to find authority 
for holding that the debt of a special improvement 
district is an obligation of the city or town; seem- 
ingly under Montana statutes and decisions there 
can be found no authority [90] authority for 
doing so. Under the contract in the Hitchcock 
case the city was primarily liable for the cost of 
the improvement; "The resort to the land owner 
is to be after the work has been done, after the ex- 
pense has been incurred, and it is to be for the re- 
imbursement of the city." 



The Town of Ryegate. 109 

That the special improvement district in Rye- 
gate "for practical purposes included the town/' 
was a general statement made by counsel for plain- 
tiff in their brief. According to the stipulated 
facts herein, the improvement district embraced 
within its boundaries thirty business houses, sev- 
eral public buildings and sixty-one residences, and 
thirty-five residences, four warehouses and a sub- 
station of the Montana Power Company in the 
town but outside of the improvement district. Of 
that number, not within the district, thirteen resi- 
dences and two warehouses receive no benefit from 
the improvement district except fire protection, 
and twenty-two residences and two warehouses 
"can not use the water sytem and improvements 
or equipment for fire protection, or for any other 
purposes as the same is now installed. " It ap- 
pears that the persons owning property within the 
district were the ones chiefly benefited by the 
water system and that perhaps the claim here 
made should have been advanced in the suits 
brought in the state court to enjoin the town and 
its officers from levying the special improvement 
assessments, wherein the Lumbermens Trust Com- 
pany was represented by its counsel. From the 
evidence there were many taxpayers outside of 
the district who were not benefited by the water 
system and who were given no opportunity to be 
heard on the question of creating the indebted- 
ness. 

The agreed facts show that plaintiff purchased 
these bonds from the Security Bridge Company 



110 Lumbermens Trust Company vs. 

"with the knowledge that they were special im- 
provement district bonds and with full knowledge 
of the laws of Montana governing the issuance of 
such bonds, the power of the defendant with refer- 
ence thereto and the methods provided and au- 
thorized for the payment thereof." 

Whatever the decision here loss is bound to be 
sustained, if for the plaintiff — many taxpayers 
who derive no benefit from the [91] waterworks 
system and others who never had a chance to ob- 
ject, if for the defendant — the bondholders lose. 
It was held by the Supreme Court of Washington 
in German-American Savings Bank vs. Spokane, 
49 Pac. 542, 549, 550, that "after all that can be 
said and done, however, as a matter of right and 
law, where one of two parties must suffer, the 
loss should fall upon the one who has the best op- 
portunity to protect himself and and is the most 
at fault. * * * While perhaps such general 
taxpayer might have compelled the city officers to 
act after the work was done, and the danger of 
loss to him imminent, the contractor or warrant 
holder had this same right, and the courts have 
all the time been open to him. By force of the 
contract such officers should be held to be more 
directly his agents or representatives than the 
agents of the general taxpayers for the purposes 
of the assessment, if they were such taxpayers' 
agents at all in the premises. By the contract the 
contractor has in effect adopted the machinery 
provided for raising his money through the acts 
of such officers." 



The Town of Ryegate. Ill 

It is, of course, manifest that the town had ex- 
ceeded its constitutional limit of indebtedness but 
I cannot agree with counsel that under the cir- 
cumstances here there would be a general liability 
on the part of the town and that the calling of an 
election to authorize additional indebtedness 
should be treated as a mere formality and that the 
failure to call it would amount to no more than an 
irregularity. On the contrary there was no power 
at all on the part of the town to incur such exces- 
sive indebtedness without the previous authoriza- 
tion of the qualified voters. 

After consideration of both sides of the issues 
the court feels obliged to hold that the Town of 
Eyegate did not become indebted to plaintiff on 
account of the special improvement district bonds 
delivered to it. In accordance with these views 
judgment will be entered for the defendant with 
costs. 

Bell vs. Kirkland, 113 N. W. 271; 

Stanley vs. Jeffries and Stanley vs. City of 

Great Falls, 86 Mont. 114. 
City of Lichfield vs. Ballou, 114 U. S. 190. 
City of Santa Cruz vs. Wykes, 202 Fed. 

361 C. C. A. 9; 

Deer Creek Highway District vs. Doumecq 

Highway District, (Idaho) 218 Pac. 371; 

[92] 

Mittry vs. Bonneville County, 222 Pac. 292 ; 

Eaton vs. Shia Wassee County, 218 Fed. 

588; 
Atkinson vs. City of Great Falls, 16 Mont. 
372: 



112 Lumbermens Trust Company vs. 

44 C. J. 1131; 

Sections 5278, 5280, 5039 #64, 5227, 5229, 
5230 and 5279 of the Political Code of 
Mont. (1921); 

44 C. J. 1194; 

State vs. Jeffries, 83 Mont. 76. 

CHARLES N. PRAY, 



Judge. 



Dated May 14th, 1931. 
Filed May 14, 1931. [93] 



THEREAFTER, on May 16th, 1931, decree was 
duly filed and entered herein, said decree being in 
the words and figures as follows, to wit : [94] 

In the District Court of the United States, in and 
for the District of Montana, Billings Division. 

LUMBERMENS TRUST COMPANY, a Cor- 
poration, 

Plaintiff, 

vs. 

THE TOWN OF RYEGATE, MONTANA, a 

Municipal Corporation, 

Defendant. 

DECREE. 

This cause came on to be heard January 20, 
1930, and was submitted upon briefs thereafter 
filed by counsel; and thereupon, upon considera- 
tion thereof, it was ORDERED, ADJUDGED 
AND DECREED that the complaint of plaintiff 



The Town of By eg ate. 113 

herein be dismissed, that plaintiff take nothing by 
this action and that the defendant do have and re- 
cover of and from plaintiff its costs and disburse- 
ments herein, taxed at the sum of $193.50. 
Done in open court, May 16th, 1931. 

CHARLES N. PRAY, 

Judge. 
Filed May 16, 1931. [95] 



THEREAFTER, on June 19th, 1931, plaintiff's 
bill of exceptions was duly signed, settled, allowed 
and filed herein, as follows, to wit: [96] 

[Title of Court and Cause:] 

PLAINTIFF'S BILL OF EXCEPTIONS. 

BE IT REMEMBERED, That this cause came 
on regularly for trial at Billings, Montana, on the 
20th day of January, 1930, before the above- 
entitled court, sitting without a jury, a jury having 
been theretofore duly waived by a stipulation in 
writing and filed in said cause, the same being 
hereinafter referred to and set out. 

There appeared as counsel for the plaintiff, John 
G. Brown, Esq., of the firm of Stewart and Brown 
and as counsel for the defendant, W. M. Johnston, 
Esq., and H. J. Coleman, Esq., of the firm of John- 
ston, Coleman & Jameson. 

After both parties had announced to the court 
their readiness for trial the following testimony 
was given and proceedings had. 



114 Limibermens Trust Company vs. 

Mr. Brown offered in evidence on behalf of both 
parties an agreed statement of facts, the same be- 
ing in words and figures as follows: 

(Title of Court and Cause.) 

STIPULATION AS TO TRIAL AND FACTS. 

It is hereby stipulated by and between the par- 
ties above named as follows: [97] 

I. 

That a trial by jury in the above-entitled cause 
is hereby waived by the parties. 

II. 

That the following matters may be considered 
by the Court as facts admitted in evidence for all 
purposes in this action. 

a. That the allegations of Paragraphs I, II, 
IV and XV of the complaint are true. 

b. In 1919 the Town of Ryegate, the County 
seat of Golden Valley County, was desirous of in- 
stalling the water system, but because of the small 
assessed value of all property within its corporate 
limits it could not legally and constitutionally is- 
sue sufficient general bonds to cover the entire cost 
of such installation. It did issue general bonds of 
the Town of Ryegate in the sum of $15,000.00 and 
on December 30th, 1919, passed a resolution of in- 
tention to create and establish improvement dis- 
trict known as Special Improvement District 
No. 4, and Exhibit "A" attached to the com- 
plaint herein, is, except as to an immaterial mat- 
ter, a true and correct copy of the resolution so 



The Town of Ryegate. 115 

passed and said district was created for the pur- 
pose of raising additional funds over and above 
the $15,000.00 general bonds necessary to pay for 
said water system and improvements specified in 
such resolution. 

c. On Feb. 17th, 1920, said Town passed and 
the Mayor thereof approved Resolution No. 14, a 
true copy of which is attached to the answer 
herein, marked Exhibit "A" thereto. 

d. The map initialed and marked Exhibit 1 
filed with this agreed statement correctly portrays 
the boundaries of the town and its additions, the 
boundaries of said improvement district and loca- 
tion of water-mains and street or city hydrants of 
said water system. The unplatted area shown 
within the boundaries of the town and its additions 
on said map is liable for the payment of all taxes 
levied for town purposes, the same as though it 
were platted; said map also portrays the location 
of certain public buildings in said town. The only 
buildings belonging [98] to the Town of Rye- 
gate as a municipal corporation are the pumping 
station of said water system and a small frame 
building used to store fire equipment, said build- 
ing and equipment having a value not to exceed 
$1,000.00. 

e. The true object and purposes of the passage 
and approval of said resolution and the issuance 
of said general and special improvement district 
bonds was the establishment and installation in 
and for the Town of Ryegate, and for a portion of 
its inhabitants of a complete waterworks and a 
complete waterworks system consisting of reser- 



116 Lambermens Trust Company vs. 

voir, pumping plant, mains, and all other connec- 
tions and appliances necessary to have a complete 
system for the supplying of water for municipal 
purposes to said town, and water to a portion of 
the inhabitants thereof and for the purpose set out 
in said resolutions. 

f. That when the said Town of Eyegate called 
for bids for the construction of said waterworks 
system and the improvements specified in said 
resolution, the Security Bridge Company was the 
successful bidder therefor and a written contract 
was thereupon entered into between said town and 
said Security Bridge Company for the construc- 
tion of said waterworks system and the improve- 
ments specified in said resolution, a true and cor- 
rect copy of which contract is hereto annexed and 
marked Exhibit 2. 

g. For the purpose of paying for said water- 
works system and the improvements specified in 
said resolution, said town issued its general bonds 
in the sum of fifteen thousand dollars and bonds of 
said Special Improvement District No. 4 in the 
sum of forty-five thousand six hundred two dol- 
lars and forty-two cents; that Exhibit "B" at- 
tached to the complaint herein is a true and cor- 
rect copy of one of said special improvement dis- 
trict bonds which, save and except as to amounts 
and dates of maturity, is a true and correct copy 
of all of said bonds. 

h. On April 14, 1920, W. P. Roscoe, as an of- 
ficer of the Security Bridge Company, purchased 
said general bonds of said town at par and accrued 



The Town of Ryegate. 117 

interest and said Security Bridge Company agreed 
to accept and did accept said general bonds and 
said special improvement district bonds [99] in 
the sum of forty-five thousand six hundred two 
dollars and forty-two cents in payment of the costs 
of installation of said waterworks system and the 
improvements specified in said resolution and that 
said improvement district bonds were issued and 
delivered to said Security Bridge Company, or 
upon its order, from time to time as the work 
progressed and upon the estimates of the engineer 
of said town as said work was completed and ac- 
cepted. 

i. That said Security Bridge Company was a 
construction corporation without funds for invest- 
ment purposes and it was necessary for said com- 
pany to at once arrange for the sale of said bonds 
in order to obtain the money necessary to pur- 
chase supplies and materials and to pay the labor 
necessary for the construction of said waterworks 
and the improvements specified in said resolution. 

j. The Security Bridge Company sold said 
general and improvement district bonds to plain- 
tiff herein at 85% of the par value thereof, the 
plaintiff paying said Security Bridge Company 
the sum of thirty-eight thousand seven hundred 
sixty-two dollars and six cents for said improve- 
ment district bonds. 

k. That while said contract disclosed that said 
bonds were taken at par as the consideration in 
the construction contract, they were in accordance 
with a rior agreement between plaintiff and the 
Security Bridge Company sold by the Security 



118 Lumbermens Trust Company vs. 

Bridge Company to the plaintiff herein at a price 
of 85% of the par value thereof. 

1. From time to time, after said improvement 
district bonds were issued for completed and ac- 
cepted work, plaintiff purchased and accepted 
said bonds at 85% of their par value with accrued 
interest from said Security Bridge Company and 
did thus by the purchase of said district and said 
general bonds furnish to Security Bridge Com- 
pany all the money used by it to build and com- 
plete said waterworks system and the improve- 
ments specified in said resolutions, that plaintiff 
became the purchaser of said bonds for value be- 
fore maturity and is now the owner and holder 
thereof and that said general and improvement 
district bonds were issued and delivered by said 
town to said Security Bridge Company, [100] or 
delivered to the plaintiff, at the request of said Se- 
curity Bridge Company, upon the dates, of the num- 
ber and in the amounts set out in paragraph twelve 
of the complaint herein. 

m. Said water system and improvements speci- 
fied in said resolution were so constructed and ac- 
cepted and the said town has been and yet is re- 
ceiving the income from said system and improve- 
ments, and said town and such of the inhabitants 
thereof as live within the limits of said district 
now have and are using said water system and im- 
provements. 

In further amplification of this paragraph "m" 
the facts are that there are : 

(1) Thirty business houses within said im- 
provement district and none without. 



The Town of Ryegate. 119 

(2) Public buildings consisting of public 
school, courthouse, four churches, postoffice in one 
of said business houses, Milwaukee Railway Sta- 
tion, school gymnasium and a shack used as fire 
hall, all within said special improvement district, 
there being no similar buildings in said town out- 
side of said improvement district. 

(3) Sixty-one residences within said improve- 
ment district. 

(4) Thirteen residences, two warehouses, a 
small substation of the Montana Power Company 
outside of the limits of said improvement district 
but within the fire protection of said water system 
by reason of the fire apparatus owned by said town 
but used for fire protection only as to such resi- 
dences and structures. 

(5) There are twenty-two residences and two 
county warehouses in the Town of Ryegate situated 
outside of the limits of said special improvement 
district which cannot use said water system and 
improvements or equipment for fire protection, 
or for any other purposes as the same was in- 
stalled. 

(6) Said town has operated said water system 
and said improvements since their installation and 
has received therefrom total gross income as fol- 
lows, each year of its operation thereof: 



120 Lambermens Trust Company vs. 

[101] 



1921 


$211.33 


1922 


978.53 


1923 


721.16 


1924 


980.95 


1925 


811.70 


1926 


1092.68 


1927 


749.18 


Total gross receipts 


15,545.53. 



(7) The charges against said water department, 
water system and improvements during the same 
years are as follows : 
Cash paid on warrants issued with interest 

thereon $5,539.28 

Warrants outstanding 1,504 . 03 

The interest accruing an said general bond issue 
of $15,000.00 is paid out of a levy of iy 2 mills each 
year upon all of the property within the Town of 
Eyegate and its additions, which levy has not been 
quite sufficient to pay such accruing interest. 
None of such general bonds have been paid. 

The interest which matured on said improve- 
ment district bonds up to January 1, 1922, was 
paid by the Town of Ryegate out of assessments 
levied upon the lots in said district in accordance 
with said resolutions, but no part of said interest 
was paid out of any general or special fund of 
said town. Six per cent is a reasonable rate of 
interest in the State of Montana. 

n. On October 16, 1930, the town clerk of the 
Town of Ryegate at the request of Security Bridge 
Company forwarded bonds numbered fifty-four to 
seventy-eight inclusive for five hundred dollars 



The Town of Ryegate. 121 

each a total par value of twelve thousand five hun- 
dred dollars of said Special Improvement District 
No. 4 to plaintiff and on November 26, 1920, at the 
request of Security Bridge Company said town 
clerk forwarded to plaintiff bonds of said Special 
Improvement District No. 4, numbered from 
seventy-nine to ninety-one inclusive of the par 
value of six thousand six hundred two dollars and 
forty-two cents and that plaintiff remitted to Se- 
curity Bridge Company 85% of the par value of 
said bonds with accrued interest. 

o. All of the allegations of Subdivision II of 
defendant's answer, being defendant's first af- 
firmative defense, are admitted to be true except- 
ing the clause "nor were the same payable out of 
the current [102] revenues of said Town of 
Ryegate" and excepting the clause "that said 
bonds were never payable out of the current reve- 
nues of said town," and excepting all of that por- 
tion of said Subdivision II which reads as follows : 
"and that if the said bonds of special improve- 
ment district number 4 of the Town of Ryegate, 
amounting to the sum of $45,602.42 were held to be 
general obligations of the town of Ryegate the 
same and each of said bonds would be and are un- 
constitutional, invalid and void for that the 
amount of said bonds and each of them, added to 
the then general indebtedness of said town would 
be and are greatly in excess of the constitutional 
and statutory limit of indebtedness which said 
town might then or may now incur." None of the 
exceptions above noted are admitted. 



122 Lumbeimens Trust Company vs. 

p. All of the allegations of paragraph one of 
Subdivision IV of defendant's answer being de- 
fendant's third separate defense are admitted. 

q. All of the allegations of Paragraph 2 of said 
Subdivision IV are admitted except the following 
allegations "and that in purchasing the general 
bonds of the Town of Ryegate, as herein alleged, 
and in agreeing to accept said special improve- 
ment district bonds at par value in payment of 
work under its said contract with the Town of 
Ryegate, said Security Bridge Company relied 
wholly upon the advice of its counsel." 

r. It is further admitted that plaintiff pur- 
chased said special improvement district bonds 
from Security Bridge Company with the knowledge 
that they were special improvement district bonds 
and with full knowledge of the laws of Montana 
governing the issuance of such bonds, the powers 
of the defendant with reference thereto and the 
methods provided and authorized for the payment 
thereof. 

s. It is admitted that in the month of January, 
1922, Mike Belecz and other property owners be- 
gan various suits (see reference thereto in Sub- 
division V of defendants answer), and that made 
a part of this statement of agreed to facts by being 
attached hereto, marked Exhibits 3, 4, 5 and 6 
are, except for formal parts, true copies of the 
[103] complaint, answer, reply and decree re- 
spectively in said suit. 

That similar suits were filed by a number of other 
persons similarly entitled to sue with a similar 



The Toivn of Ryegate. 123 

pleading and decree. That this plaintiff had its own 
counsel associated in the defense and trial of those 
actions. That no appeal was ever taken from said 
judgment and decrees. 

t. In none of the minutes of the town council 
of the Town of Ryegate does the name of plaintiff, 
as purchaser of said general bonds of the Town of 
Ryegate or of said special improvement district 
bonds appear. Neither does plaintiff's name ap- 
pear in any of said minutes, records or files in any 
connection whatever, except in copies of letters of 
the town clerk remitting some of said bonds to plain- 
tiff at the request of Security Bridge Company, as 
hereinbefore set forth. 

Upon the trial of this cause, both plaintiff and de- 
fendant may offer evidence by depositions or other- 
wise upon all issues raised by the pleadings herein 
not covered by or included in this agreed statement 
of facts, and the cause may be submitted to the 
court upon the admissions in the pleadings, this 
statement of facts and the evidence introduced upon 
the trial of the cause, but no evidence shall be intro- 
duced by either party to this action upon any dis- 
puted question of fact which is covered by the fore- 
going statement of facts. 

Signed and dated July 13, 1928. 

(Signed) JOHNSTON, COLEMAN & 
JOHNSTON, 
Attorneys for Defendant. 
STEWART & BROWN, 
Attorneys for Plaintiff. 



124 Lambennens Trust Company vs. 

EXHIBIT No. 2. 

CONTRACT. 

THIS AGREEMENT, made and entered into the 
26th day of April in the year ONE THOUSAND 
NINE HUNDRED TWENTY, by and between the 
TOWN OF RYEGATE, MONTANA, of the first 
part, and THE SECURITY BRIDGE COMPANY, 
a corporation of Billings, Montana, of the second 
part. 

WITNESSETH, that the said party of the sec- 
ond part has agreed, [104] and by these presents 
does agree with the said party of the first part, for 
the considerations herein mentioned and contained, 
and under the penalty expressed in a bond bearing 
even date with these presents and hereto attached, 
to furnish at his own proper cost and expense, all 
the necessary material and labor, except as herein 
specifically provided, and to excavate for and build 
in a good, firm, substantial and workmanlike man- 
ner, before the first day of October, A. D. 1920, the 
water mains, pumping plant, and reservoir indicated 
on the plans now on file in the office of the Town 
Clerk, and the connections and appurtenances of 
every kind complete, of the dimensions, in the man- 
ner and under the conditions herein specified, and 
has further agreed that the Engineer shall be and is 
hereby authorized to inspect or cause to be inspected 
the materials to be furnished and the work to be 
done under this agreement and to see that the same 
conform to plans and specifications. 



The Town of Byegate. 125 

The party of the second part hereby further 
agrees that he will furnish the Town with satisfac- 
tory evidence that all persons who have done work 
or furnished material under this agreement, and are 
entitled to a lien therefor under any law of the State 
of Montana, have been fully paid or are no longer 
entitled to such lien, and in case such evidence be 
not furnished as aforesaid such amount as the party 
of the first part may consider necessary to meet the 
lawful claims of the persons as aforesaid shall be re- 
tained from the money due the party of the second 
part under this agreement until the liabilities afore- 
said may be fully discharged and the evidence 
thereof furnished. 

The said party of the second part further agrees 
that within ten days of notification of award of con- 
tract he will execute a bond in the sum of Twenty- 
five Thousand Dollars ($25000.00) satisfactory to 
the Town Council, for the faithful performance of 
this contract, conditioned to indemnify and save 
harmless the said Town of Byegate, Montana, its 
officers and agents, from all suits or actions of every 
name or description brought against [105] any 
of them for or on account of any injuries or damages 
received or sustained by any party or parties, by or 
from the said party of the second part, its servants 
or agents, in the construction of said work, or by or 
in consequence of any negligence in guarding the 
same, or any improper materials used in the con- 
struction, or by or on account of any commission of 
the said party of the second part or its agents in the 
performance of this agreement, and for the faithful 



126 Lumbermens Trust Company vs. 

performance of this contract in all respects by the 
party of the second part, and the said party of the 
second part hereby further agrees that so much of 
the moneys due, under and by virtue of this contract, 
as shall be considered necessary by the said town of 
Ryegate, may be retained by the said party of the 
first part until all such suits or claims for damages 
as aforesaid shall have been settled, and the evidence 
to that effect furnished to the satisfaction of the 
town. 

The said party of the first part hereby agrees to 
pay and the said second party agrees to receive the 
following prices as full compensation for furnishing 
all materials, labor, tools and equipment used in 
building and constructing and completing said water 
system, in the manner and under the conditions 
heretofore specified, and full compensation for all 
loss or damage arising out of the nature of the work 
aforesaid, or from the action of the elements, or 
from any unf orseen obstructions or difficulties which 
may be encountered in the prosecution of the same, 
and for all expenses incurred by or in consequence 
of the same, and for all expenses incurred by or in 
consequence of the suspension or discontinuance of 
the said work, and for well and faithfully complet- 
ing the same and the whole thereof, according to 
plans and specifications and the requirements of 
the engineer under them, to-wit : 

For furnishing all material, tools and labor and 
in every way completing in a first class workman- 
like manner the proposed water system in the Town 
of Ryegate, Montana, according to plans [106] 
and specifications therefor on file in the office of the 



The Town of Ryegate. 127 

Town Clerk, and any special instructions that may 
be given from time to time during the construction 
of the work. 

Per linear foot four inch cast iron water pipe 
complete including the necessary excavation, back- 
fill and all valves and specials according to plans and 
specifications. 

Price in words. Price in figures. 

Two Dollars and Fifty-five Cents. $2.55 

Per linear foot for six inch cast iron water pipe 
complete including the necessary excavation, back- 
fill and all valves and specials according to plans and 
specifications. 

Price in words. Price in figures. 

Three Dollars and Sixty Cents. $3.60 

Per linear foot for eight inch cast iron water 
pipe complete including the necessary excavation, 
backfill and all valves and specials according to 
plans and specifications. 

Price in words. Price in figures. 

Five Dollars and Five Cents. $5.04 

For hydrants complete in place including auxil- 
iary valve and all necessary excavation and backfill 
according to plans and specifications. 

Price in words. Price in figures. 

One Hundred Seventy Four Dol- 
lars Forty Cents. $174.70 

Per cubic yard excavation at reservoir site in- 
cluding disposition of surplus material according to 
plans and specifications. 



128 Lumbermens Trust Company vs. 

Price in words. Price in figures. 

Three Dollars Seventeen Cents. $3.17 

Per cubic yard for concrete in reservoir including 
forms, and reinforcing according to plans and speci- 
cation. 

Price in words. Price in figures. 

Thirty Seven Dollars Fifty Cents. $37.50 

For equipment for reservoir including roof, lad- 
der, overflow, and floor drain according to plans and 
specifications [107] 

Price in words. Price in figures. 

Fourteen Hundred Twenty-five 

Dollars. $1425.00 

Per cubic yard for excavation for well including 
the disposal of surplus material according to plans 
and specifications. 

Price in words. Price in figures. 

Two Dollars and Seventy-five Cents. $2.75 

Per cubic yard for concrete in place in well and 
pump house foundation, pump pit and floor accord- 
ing to plans and specifications. 

Price in words. Price in figures. 

Forty Dollars. $40.00 

For shallow well pumping equipment complete, 
including pump, motor valves, switchboard and all 
electrical equipment, according to plans and specifi- 
cations. 

Price in words. Price in figures. 

Twenty-five Hundred Twenty-five 

Dollars. $2525.00 



The Town of Ryegate. 129 

For pump house complete according to plans and 
specifications. 

Price in words. Price in figures. 

Sixteen Hundred Twenty-five Dol- 
lars. $1625.00 

Per cubic yard for excavating rock encountered 
in trench, pump pit and well in addition to above 
prices. 

Price in words. Price in figures. 

Three Dollars $3.00 

And the said party of the second part further 
agrees that it will not assign, transfer or sub-let the 
aforesaid work or any portion thereof, (with the ex- 
ception of contracts for materials and tools) without 
the written consent of the Town Council, and that 
any assignment, transferring or sub-letting without 
such written consent shall in every case be absolutely 
void. 

It is further agreed by the party of the second 
part that the payments by the party of the first part 
shall be as provided for in the specifications. 

The provisions herein contained shall bind the 
parties hereto [108] and their heirs, administra- 
tors, successors and assigns. 

IN WITNESS WHEREOF The Town of Rye- 
gate, party of the first part, has caused these pres- 
ents to be sealed with its corporate seal and to be 
signed by its Mayor and Town Clerk, and said party 



130 Lumbermens Trust Company vs. 

of the second part has hereunto set its hand on the 
15th day of May, A D. 1920. 

TOWN OF RYEGATE, 
By W. H. NORTHEY, Mayor. 
Attest: J. A. BROWN, Town Clerk. 
PARTY OF THE SECOND PART. 
[Seal] By H. C. BARENESS, 

Secty. 

State of Oregon, 

County of Multnomah, — ss. 

I hereby certify that the above is a full, true and 
correct copy of the original contract. 

IN TESTIMONY WHEREOF I have hereunto 
set my hand and notarial seal this 18th day of Feb- 
ruary, 1927. 

ANNE McNAB, 
Notary Public for Oregon. 

My commission expires Feb. 25, 1929. 

EXHIBIT No. 3. 

In the District Court of the Fifteenth Judicial Dis- 
trict of the State of Montana, in and for the 
County of Golden Valley. 

MIKE BELECZ, IDA GRAMS, BERT BELD- 
ING, L. F. LTJBELY, GEORGE A. COPE, 
H. C. STILGER, ISABEL CURRIE, R. 
C. CURRIE, JOSEPH H. KOLMAN, 
MARTHA J. BROYLES, SARAH G. SNY- 
DER, PHYLINDA C. REDISKE, W. J. 
EDSON, HENRY G JACOBSON, STATE 
BANK OF RYEGATE, J. B. GREGG, GOL- 



The Town of Ryegate. 131 

DEN VALLEY COUNTY ABSTRACT 
COMPANY, L. P. ALBRECHT, G. M. 
BABCOCK, EVANGELICAL LUTHERAN 
CHURCH OF RYEGATE, M. W. WAUGH, 
L. W. MARQUARDT, WILLIAM E. 
STOKES, HENRY THIEN, THE ROMAN 
CATHOLIC BISHOP OF GREAT FALLS, 
Sometimes Known as MATHIAS C. LENI- 
HAN, Bishop of Great Falls, a Corporation 
Sole, FRED WYMAN, THE HILBERT- 
THIEN COMPANY, FRANCES THIEN, 
RYEGATE CREAMERY COMPANY, 
CHARLOTTE GRAMS, A. D. LINDER- 
MAN, Estate of P. A. HILBERT, Deceased, 

Plaintiffs, 
vs. 

THE TOWN OF RYEGATE, MONTANA, and 
W. O. WOOD, as County Treasurer of Gol- 
den Valley County, Montana, 

Defendants. 

COMPLAINT. [109] 

Plaintiffs complain and allege : 

1. That the defendant, the Town of Ryegate, is 
and at all of the times hereinafter mentioned was, 
a municipal corporation and body politic, duly or- 
ganized and existing under and by virtue of the laws 
of the State of Montana, and situated in Golden Val- 
ley County, Montana. 

2. That the defendant, W. 0. Wood, is now and 
during the year 1921, was the duly elected, qualified 
and acting treasurer of said County, and the proper 



132 Lumbermens Trust Company vs. 

person to whom payment should be made of taxes 
and assessments levied on behalf of the said Town 
of Ryegate. 

3. That the plaintiffs, State Bank of Ryegate, 
Golden Valley County Abstract Company, The 
Roman Catholic Bishop of Great Falls, sometimes 
known as JVIathias C. Lenihan, Bishop of Great 
Falls, a corporation sole, the Hilbert-Thien Com- 
pany, Evangelical Lutheran Church of Ryegate and 
Ryegate Creamery Company are now and at all of 
the times hereinafter mentioned have been corpora- 
tions organized, existing and doing business under 
and by virtue of the laws of Montana. 

4. That the plaintiffs are not and at all of the 
times hereinafter mentioned have been the owners 
of the various tracts of land hereinafter set forth, 
as belonging to them, and that all of said tracts of 
land are embraced in the description of Special 
Improvement District No. 4 in the said Town of 
Ryegate, hereinafter described. 

5. That on or about December 30, 1919, the Town 
Council of the Town of Ryegate, passed a resolution 
of intention to create a special improvement district 
known as Special Improvement District No. 4, which 
said resolution is designated as Resolution No. 10 
of said town, a copy of which is hereunto attached, 
marked "Exhibit A" and hereby made a part of this 
complaint. 

6. That on January 1, 1920, the notice set out 
in and required to be published by said resolution of 
intention, was published in the said Town of Rye- 
gate. 



The Town of Ryegate. 133 

7. That thereafter, and on or about February 
11, 1920, a resolution known as Resolution No. 14 of 
said Town, was passed by the Town Council thereof, 
creating said Special Improvement District No. 4, 
and [110] that in said Resolution No. 14, the gen- 
eral character of the improvement to be made is 
described in exactly the same words as in "Exhibit 
A" hereto attached. 

8. That the object and purpose of each and all of 
the foregoing proceedings was the establishment and 
installation in the said Town of Ryegate of complete 
water w r orks and a complete water works system, 
consisting of reservoir, pumping plant, mains and 
all other connections and appliances necessary for 
a complete system for the furnishing of water to the 
inhabitants of said town ; that thereafter a contract 
was made for the construction and installation of 
such sj^stem and the same was constructed and in- 
stalled. 

9. That thereafter, for the purpose of paying for 
said improvements, a resolution was passed by the 
Town Council of said Town, known as Ordinance 
No. 28, providing the method and manner of assess- 
ment and payment of the cost and expense of mak- 
ing and installing the improvements in said Special 
Improvement District No. 4, by which resolution it 
was provided that each lot or parcel of land within 
said District was to be assessed for that part of the 
whole cost of said improvements which its area bore 
to the area of the entire district, exclusive of streets, 
alleys and public places, and which resolution fur- 
ther provided for the issuance of the bonds of said 



134 Lambermens Trust Company vs. 

District to be retired out of the fund derived from 
said assessments when paid; that by Ordinance No. 
29 passed by the Town Council of said Town, the 
issuance of such bonds was authorized, and the 
amount thereof and form of Bond, together with 
other details in connection therewith, were fixed and 
determined. 

10. Thereafter, the Town Council of said Town, 
by its Resolution No. 20, provisionally passed on Au- 
gust 22, 1921, and finally passed and adopted by the 
Town Council of said Town in the month of Septem- 
ber, 1921, purported to levy and assess a tax and spe- 
cial assessment against all the real property in said 
Special Improvement District No. 4, including the 
property of these plaintiffs, to defray the cost [111] 
of said improvements, in which Resolution it was 
recited that the total cost thereof was $45,602.42. 
Plaintiffs are informed and believe and therefore 
state the fact to be that the notice of resolution levy- 
ing such assessment, to the effect that the same was 
on file in the office of the Town Clerk and stating the 
time and place at which objections to the final adop- 
tion of said resolution would be heard, was not pub- 
lished as required by law ; that the property owned 
by each of the plaintiffs herein and the total amount 
so attempted to be assessed against the same, exclu- 
sive of interest, is as follows, to-wit : 



The Town of Ryegate. 



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136 Larnbermens Trust Company vs. 



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The Town of Ryegate. 139 

11. That the resolution of intention hereto at- 
tached and marked " Exhibit A" did not contain any 
sufficient description of the general character of 
the improvements to be made as required by law in 
this, — that the only description used was: "the 
construction of pipes, hydrants and hose connections 
for irrigating appliances and fire protection, ' ' which 
said general language gave no definite information 
to plaintiffs and others within the district as to the 
specific character, extent or nature of said improve- 
ment ; that there was nothing in said description ad- 
vising the plaintiff and others in the district that 
a waterworks system or a system of mains was con- 
templated [113] or would be installed and that 
the character of the improvement described in said 
notice included only pipes, hydrants and hose con- 
nections for irrigating appliances and fire protec- 
tion, and did not include waterworks or a general 
waterworks system or system of mains, or reservoir, 
or pumping plant, which was in fact contemplated, 
and was thereafter constructed and installed; that 
the improvements described in the notice were en- 
tirely different and much less extensive than the 
improvements that were actually made; that said 
description recited that said improvements were to 
be made in accordance with plans and specifications 
to be prepared, which said plans and specifications 
were not then prepared and were not on file or avail- 
able for the examination of these plaintiffs or any 
other property owners within said district; that the 
notice as published and the resolution purporting 
to create said district, were defective in the same 
particulars as in this paragraph recited, in failing 



140 Lumbcrmens Trust Company vs. 

to describe the character of the improvement, and 
that for the reasons herein stated the said Town 
Council of the Town of Kyegate did not at any 
time acquire any jurisdiction to create said im- 
provement district or to proceed with the installa- 
tion or construction of said mains, and that all sub- 
sequent proceedings were and are void and of no 
effect. 

12. That the whole cost of said improvements so 
assessed as hereinbefore alleged, far exceeds the 
sum of $1.50 per lineal foot plus the cost of the pipe 
so laid of the entire length of the water mains laid 
in said district and that said total cost is in excess 
of the limit prescribed by law. 

13. That no notice of any kind was given of the 
letting of the contract for said improvement, and 
when the same was let the contract price therefor 
amounted to $52,829.35, whereas the estimated cost 
amounted to $28,350; that in addition to said con- 
tract price, other payments have been made by the 
Town Council of said Town to the contractor and 
for engineering work, so that the total cost of mak- 
ing such improvements is the sum of $57,619.22 and 
that both the [114] contract price agreed upon 
and the actual cost of making such improvements 
is wholly out of proportion to the value of said im- 
provements to the said Town or to the property in- 
cluded within said district. 

14. That plaintiff is informed and believes and 
therefore states, that at the time said contract was 
let, it was impossible to sell the bonds or warrants 
of said Special Improvement District at par; that 
no purchaser therefor could be found; that these 



The Town of Ryegate. 141 

facts were then well known to the Mayor and Town 
Council of said Town; that the contractor took the 
bonds of said District in payment of its contract 
price and claimed extras in connection with the in- 
stallation of said improvements; that in so doing, 
it allowed for a considerable discount on said bonds 
and added such discount to its bid for said work; 
that because thereof, the cost of said work was 
greatly increased over what it would have been if 
said bonds had been sold by said town council at 
the par value thereof, and that at the time said 
contract was entered into and the bid of said con- 
tractor accepted, the Mayor and Town Council of 
said Town had knowledge of all of the aforesaid 
facts. 

15. That before the time fixed in said Resolution 
No. 10 for hearing objections and protests to the 
creation of said Special Improvement District No. 4, 
written protests thereto were made and filed by the 
owners of a majority in area of the lots and parcels 
of land within said District No. 4. Among the lot 
owners so protesting was the Chicago, Milwaukee 
& St. Paul Railway Company, the owner of a large 
amount of land within the said district; that prior 
to the hearing upon the creation of said Special Im- 
provement District No. 4, said Chicago, Milwaukee 
& St Paul Railway Company withdrew its protest 
to the creation of said district, thereby leaving pro- 
tests from the owners of an insufficient number of 
lots to defeat the creation of said district, and that 
plaintiff is informed and believes, and therefore 
states the fact to be that said Chicago, Milwaukee 
& St. Paul Railway Company was induced to with- 



142 Lumbermens Trust Company vs. 

draw its said [115] protest by the payment to it 
of $2500.00, which sum of money was furnished, pro- 
vided and paid by certain parties who were greatly 
interested in having said improvements made, in- 
cluding the contractor who secured the contract for 
making such improvements. 

16. That by reason of the facts stated in para- 
graphs 11 to 15, inclusive, in this complaint, the 
levy of any and all assessments against the said 
property of plaintiffs in said district was and is, il- 
legal and void. 

17. That one-tenth of all of the taxes and assess- 
ments so attempted to be levied against the afore- 
said property of these plaintiffs was by the resolu- 
tion aforesaid, to be paid on or before November 
30, 1921 ; that if not so paid, the same was to become 
delinquent on December 1, 1921, and a ten per cent 
penalty added thereto because of such delinquency; 
that none of the plaintiffs herein has paid any part 
of said alleged tax and assessment against his or 
its said property for the year 1921; that the said 
Town of Kyegate is now advertising said property 
for sale for the nonpayment of the taxes and assess- 
ments which it claims should have been paid there- 
on in November, 1921 ; that if not restrained by or- 
der and decree of this court, the defendants will sell 
all of the aforesaid property belonging to plaintiffs 
for the nonpayment of the aforesaid installments 
thereon for the year 1921, and thus cloud the title 
to plaintiff's said lands; that if plaintiffs were to 
pay said alleged taxes each year under protest and 
then bring suit against the defendants to recover 
the taxes and assessments so paid, it would result in 



The Town of Ryegate. 143 

a great multiplicity of suits ; that plaintiffs have no 
plain, speedy and adequate remedy at law for the 
wrongs herein complained of and that great and ir- 
reparable damage and injury will be done to plain- 
tiffs and each of them, if said defendants are not 
enjoined and restrained from selling any portion 
of the aforesaid lands, because of the nonpayment 
of any of said alleged taxes and assessments. 
[116] 

WHEREFORE, plaintiffs demand judgment; 

That a decree of this court be entered adjudging 
and decreeing the aforesaid taxes and assessments 
null and void; 

That the defendants herein be enjoined and re- 
strained from selling any of the aforesaid property 
of these plaintiffs on account of the nonpayment of 
said alleged taxes and assessments thereon for the 
year 1921 ; that their agents, servants, attorneys, em- 
ployes and successors be enjoined and restrained 
from selling any portion of said described lands for 
the non-payment of any installment of said alleged 
taxes and assessments for any year hereafter ; 

That in case any of said property should be sold 
by said defendants or either of them, for the non- 
payment of said installments of such alleged taxes 
and assessments for the year 1921, before the final 
determination of this suit, that the said defendants, 
their agents, servants, attorneys, employes and 
successors be enjoined and restrained from issuing 
any tax deed to the purchaser of said lots or any 
part thereof at such sale. 

That said defendants, their agents, servants, at- 
torneys, employes and successors be enjoined and 



144 Lumbermens Trust Company vs. 

restrained from in any way or manner attempting 
to collect any portion of said alleged taxes and as- 
sessments. 

That plaintiffs may have such other and further 
relief as to the court may seem just and equitable, 
and that they may recover their costs and disburse- 
ments herein incurred. 

D. AUGUSTUS JONES, 
JOHNSTON, COLEMAN & JOHNSTON, 
By W. M. JOHNSTON, 
Attorneys for Plaintiffs. 
(Duly verified.) 

EXHIBIT No. 4. 
ANSWER. 

Comes now the defendants in the above entitled 
cause and, answering the complaint of the plaintiffs 
herein allege: 

I. 

They admit the averments of paragraphs 1, 2, 3, 
4, 5, 6, 7, 9 and all that portion of paragraph 10 ex- 
cepting that part thereof [117] beginning with 
the words "Plaintiffs" in the last line on page 3 and 
concluding with the words "law" in line five on 
page 4. 

II. 

They specifically deny the averments of para- 
graphs 8, 11, 12, 13, 14, 15 and 16. 

III. 

Answering the averments of paragraph 17 of 
said complaint, the defendants admit all the aver- 
ments thereof excepting that portion beginning 



The Town of Ryegate. 145 

with the words "that plaintiff s" in the last line on 
page 8 and continuing to the end of the paragraph, 
as to which they deny the same. 

Further answering said complaint and as a spe- 
cial defense, the defendants allege: 

I. 

That notice of the passage of the resolution of 
intention to create said Special Improvement Dis- 
trict No. 4 was actually published in one issue of 
the Ryegate Reporter, a weekly newspaper printed 
and published in the Town of Ryegate, said publi- 
cation having been made on the 1st day of January, 
1920, as required by law. 

II. 

That the plaintiffs did not at any time within 
sixty days from the date of the awarding of the 
contract for the construction of the improvements 
referred to in said complaint, file with the said 
Clerk of the Town or Ryegate a written notice 
specifying in what respect the said acts were irregu- 
lar, erroneous, or invalid, or in what manner their 
property would be damaged by the making of said 
improvements, and did not in writing make any ob- 
jections to any act or proceeding in relation to the 
making of said improvements ; and these defendants 
now allege that the plaintiffs have thereby waived 
all the objections which they now urge in their 
said complaint and upon which their cause of action 
is based. [118] 

WHEREFORE, the defendants having answered 
the complaint of the plaintiffs herein, now pray 
that they may take nothing by their cause of action 



146 Lumbermens Trust Company vs. 

and that the defendants may have judgment against 
them for their costs and disbursements herein. 

STUAET McHAFFIE, 
NICHOLS & WILSON, 
By EDMUND NICHOLS, 
Attorneys for Defendants. 
(Duly verified.) 

EXHIBIT No. 5. 

EEPLY. 

Plaintiffs make this their reply to the answer of 
defendants herein: 

1. Admit the allegations contained in paragraphs 
one and two of defendants' Special Defense, except 
that they deny that they waived any objections to 
the irregular, erroneous and invalid acts of the offi- 
cials of the Town of Byegate complained of in the 
complaint herein. 

2. Save and except as hereinbefore specifically 
admitted or denied, plaintiffs deny generally each 
and every allegation of new matter in said answer. 

WHEBEFORE, plaintiffs demand judgment as 
prayed for in their complaint. 

D. AUGUSTUS JONES, 
JOHNSTON, COLEMAN & JOHNSTON, 
By W. M. JOHNSTON, 
Attorneys for Plaintiffs. 
(Duly verified.) [119] 



The Town of Ryegate. 147 

EXHIBIT No. 6. 
DECREE. 

This cause came on for trial February 6, 1923, 
before the Court sitting without a jury, a jury hav- 
ing been expressly waived by counsel for the. re- 
spective parties. D. Augustus Jones, Esq., and 
Johnston, Coleman & Johnston appeared as attor- 
neys for plaintiffs, and Stuart McHaffie, Esq., and 
Nichols and Wilson appeared as attorneys for the 
defendants. Evidence was introduced on behalf of 
both plaintiffs and defendants and the cause was 
thereupon submitted to the Court. 

Thereafter and on June 27, 1924, the Court made 
and filed its Findings of Fact and Conclusions of 
Law herein, which, omitting title of Court and 
cause, are as follows, to-wit : 

" FINDINGS OF FACT. 

1. That the defendant Town of Ryegate is, and 
was, at all times referred to in the proceedings, a 
Municipal corporation, organized and existing 
under and by virtue of the laws of Montana, and 
situated in the county of Golden Valley, Montana, 
and that the defendant W. O. Wood, was, during 
the times referred to in the proceedings, the duly 
elected, qualified and acting treasurer of said Golden 
Valley County, and the officer to whom the assess- 
ments hereinafter referred to were paid. 

2. That the plaintiffs were at all of the times re- 
ferred to in the proceedings herein, the owners of 
the various lots and tracts of land described in plain- 



148 Lumbermens Trust Company vs. 

tiff's complaint as belonging to said plaintiffs, all 
of which property was and is embraced within the 
limits of Special Improvement District No. 4 in the 
said Town of Eyegate. 

3. That on the 30th day of December 1919, the 
town Council of the Town of Eyegate, duly passed 
resolution of intention number 10, for the creation 
of special improvement district No. 4 within said 
Town of Eyegate, a copy of which said resolution as 
adopted is attached to the plaintiffs' complaint and 
marked Exhibit "A" and that notice of such resolu- 
tion was duly published as required by law, and that 
thereafter on the 11th day of February, 1920, reso- 
lution number 14, creating said [120] special im- 
provement District No. 4 was duly passed by the 
Town Council of said Town of Eyegate. 

4. That the character of the improvements as set 
out in said resolution of intention and also in said 
resolution No. 14 was "the construction of pipes, 
hydrants, and hose connections for irrigating appli- 
ances and fire protection." That the actual im- 
provement sought to be installed as a result of said 
proceedings and which was actually installed by 
said town was a complete water works and water 
system consisting of reservoirs, pumping plant, 
mains and fire hydrants constituting a complete sys- 
tem for the furnishing of water to the inhabitants 
of said town. That said improvement was installed 
and constructed by Security Bridge Company, a 
corporation, under one contract, which contract was 
entered into upon the award of said work to said 
Security Bridge Company, which said award was 
made upon bid filed in response to notice to con- 



The Town of Ryegate. 149 

tractors given in pursuance of resolutions numbers 
10 and 14, referred to above. That the notice to 
contractors and the plans and specifications covering- 
said work and contract itself all refer to and call 
for the construction of a complete water system con- 
sisting of the elements above described. 

5. That after the contract for said water system 
was let, the Town Council of the town of Ryegate 
by appropriate action provided the mode of assess- 
ment for the payment of said improvement and as- 
sessed each parcel of land within the district for 
that part of the entire cost of the improvement 
which its area bore to the entire area of said district, 
exclusive of streets and alleys, and that the total 
amount assessed against each of the plaintiffs herein 
is correctly set forth in their complaint herein. That 
the assessment so made against the property in said 
district was for the purpose of retiring the bonds of 
said district to the amount of $45,602.42, which said 
bonds under the provisions of said contract with 
said Security Bridge Company, were to be accepted 
and were in fact issued and accepted in payment for 
said improvement to the extent of forty-five thou- 
sand six hundred two and 42/100 dollars. [121] 

6. That the plans and specifications for the im- 
provements actually made were delivered to the 
Town Clerk ten days or two weeks before April 13, 
1920, but were not presented to the Town Council 
or approved by the Town Council of Ryegate until 
April 13, 1920, one day before bids were received 
for the construction of the improvements called for 
by said plans and specifications. 



150 Lumbermens Trust Company vs. 

7. That the total amount of pipe used in said 
construction was 8271 feet of four inch pipe, 2726 
feet of six inch pipe and 841 feet of eight inch pipe, 
and that the cost of said pipe so used was not in ex- 
cess of Seventeen Thousand Seven Hundred 
Twenty-six and 47/100 dollars. ($17,726.47.) 

8. That the said contractor, Security Bridge 
Company, in making its bid took into consideration 
the fact that the bonds issued in payment would have 
to be sold at a discount and it was known to the 
Town Council of the Town of Ryegate at the time 
the contract for said improvement was let that the 
bid of said contractor was made upon that basis 
and with the expectation and understanding that 
said bonds would be disposed of at a discount and 
with the knowledge that the bid was higher than it 
would have been had it been provided that payment 
was to be made in cash. 

9. That no notice of any kind was ever given to 
the property owners in Improvement District No. 4 
or to anyone else of the letting of the contract for 
the construction of the improvements made under 
the aforesaid plans and specifications. 

10. That the cost of installation of improvements 
made, which the Town Council of the Town of Rye- 
gate attempted to assess against the property in- 
cluded in Special Improvement District No. 4 was 
the sum of $45,602.40; whereas, the estimated cost 
of such improvements was $28,350.00. 

11. That there are no sprinkling, or parking, or 
boulevard districts in the Town of Ryegate, and 
never have been. 



The Town of Ryegate. 151 

12. That the plaintiffs L. F. Lubeley, Isabel Cur- 
rie, W. J. Edeson, Henry G. Jacobson, State Bank 
of Ryegate, Henry Thien, Fred [122] Wyman 
and the Hilbert-Thien Company within sixty days 
of the letting of the contract to construct the im- 
provements in question, made and filed their written 
protests and objections thereto, setting up the 
grounds relied upon by plaintiffs in this action, and 
that none of the other plaintiffs herein filed any pro- 
test or objection whatsoever. 

13. That the improvement actually installed as 
a result of the proceedings hereinbefore referred to 
was a different improvement from that described 
in resolutions 10 and 14 in that the improvement 
actually installed was an entire and complete water 
system, whereas the improvement described in the 
resolution of intention was the construction of pipes, 
hydrants, and hose connections for irrigating appli- 
ances and fire protection. 

14. That within the time fixed by the resolution 
of intention for the creation of Special Improve- 
ment District No. 4, written protests were made and 
filed by the owners of a majority in area of the lots 
and parcels of land within said District No. 4 ; that 
among the land owners so protesting was the Chi- 
cago, Milwaukee & St. Paul Railway Company, the 
owner of a large amount of land within said Dis- 
trict; that prior to the hearing upon said protests, 
interested citizens of the Town of Ryegate agreed to 
raise a fund of $2500.00 and to pay the same to the 
Chicago, Milwaukee & St. Paul Railway Company 
so as to reduce its assessment to the sum of $6,000.00, 



152 Liwibermens Trust Company vs. 

for installation of both a water system and sewer 
system in the town of Ryegate, as it was informed by 
the parties so agreeing to raise and pay said sum 
of money, and that on account of said agreement, 
the said Chicago, Milwaukee and St. Paul Railway 
Company withdrew its protest to the formation and 
creation of Special Improvement District No. 4; 
that by so doing an insufficient number of protests 
were left on file to defeat the creation of said dis- 
trict. 

From the Findings of Fact the Court makes the 
following Conclusions of Law. [123] 

CONCLUSIONS OF LAW. 

1. That the Town Council of the Town of Rye- 
gate never at any time acquired jurisdiction to cre- 
ate an improvement district for the installation of a 
water system or of an improvement of the kind ac- 
tually installed, and that the installation of said 
system was without authority and all of the pro- 
ceedings with reference thereto were and are null 
and void and of no effect. 

2. That the cost of said system as installed was 
in excess of the cost allowed by law, to-wit: $1.50 
per lineal foot of pipe laid, plus the cost of pipe and 
the assessment imposed upon the tax payers within 
said district was and is for that reason illegal 

3. That the Town Council of the Town of Rye- 
gate in awarding the contract for said improvement 
knew that the contract price was increased my rea- 
son of the fact that the bonds issued in payment 
therefor would have to be disposed of at less than 



The Totvn of Ryegate. 153 

par and knew that the bid would have been a lower 
bid and the contract price lower if the bonds could 
have been sold at par, and that for this reason the 
proceedings of the Council in letting said contract 
were null and void. 

4. Plaintiffs are entitled to an injunction re- 
straining the defendants, their agents, servants, at- 
torneys, employees, or successors from in any way 
or manner attempting to collect any portion of the 
alleged assessments against the property of any of 
said plaintiffs situate in Special Improvement Dis- 
trict No. 4 of the Town of Ryegate. 

5. Let Decree be drawn in accordance with these 
Findings and Conclusions. 

Dated this 27 day of June, A. D. 1924. 

GEO. A. HORKAN, 

Judge. " 

WHEREFORE., by reason of the law and the 
premises aforesaid, IT IS ORDERED, AD- 
JUDGED AND DECREED : 

That all taxes and assessments levied and assessed 
upon property [124] situate in Special Improve- 
ment District No. 4 within the Town of Ryegate, in 
Golden Valley County, Montana, to pay for special 
improvements therein under resolution of intention 
No. 10 for the creation of said district, and under 
resolution No. 14 of said town creating said Special 
Improvement District No. 4, which are the subject 
of this action, are null and void ; that the defendants 
are, and each of them is hereby enjoined and re- 
strained from selling any of the property of plain- 
tiffs herein, described in the complaint herein, on 
account of the nonpayment of any of said alleged 



154 Lumbermens Trust Company vs. 

taxes and assessments imposed because of the crea- 
tion of said district and the construction of improve- 
ments therein; that if any of said property has been 
sold for the nonpayment of any of such taxes or as- 
sessments, the defendants, their agents, servants, 
attorneys, employees and successors are, and each of 
them is, hereby enjoined and restrained from issuing 
any tax deed to the purchaser of any of said lots 
or property, or any part thereof. 

That the said defendants, their agents, servants, 
attorneys, employees and successors are, and each of 
them is, hereby enjoined and restrained from in any 
way or manner attempting to collect any portion of 
said alleged taxes and assessments: 

That the lots and property referred to herein, the 
taxes and assessments against which, on account of 
the creation of said district and construction of im- 
provements therein, are hereby declared to be null 
and void and the collection of which is hereby re- 
strained, are particularly described as follows, to- 
wit: 

Lots 5 and 6, block 1 ; lot 1 of block 5 ; lot e of 
block 9 ; lots 10, 11 & 12 of block 17 ; lots 1, 2 & 3 
of block 15; Lots 7, 8, & 9 of Block 16; Lots 4 
and 5 or block 22 ; Lots 3 and 4 of block 21 ; lots 
9 and 10 of block 8 ; south 100 feet of lots 5 and 
6 in block 2 ; lots 4 and 5 of block 12 ; lot 4 of 
block 24; lots 5 and 6 of block 3 ; lots 7, 8, and 9 
of block 15 ; Lots 9 and 10 of Block 9, lot 4 of 
Block 8 ; Lots 7, 8, and 9 of Block 18 ; lots 13 and 

14 of Block 5; Lots 11, and 12 of Block 9; Lots 

15 to 18 of Block 4; lot 1 of block 1; lot 12 of 



The Town of Ryegate. 155 

block 19 ; lots 7 and 8 of block 5 ; lot 12 of block 7 ; 
lot 6 of block 24; West half of lot 2 and lot 3 of 
block 22; lots 10, 11 and 12 of block 10; lot 2 of 
block 5; lot 6 of block 15; [125] lot 12 of 
block 5 ; lot 1 of block 2 ; north 50 feet of lots 15 
to 18 in block 4 ; lots 1 and 3 of block 6 ; lots 1 
to 6 of block 7; lots 1, 11, and 12 of block 8; lot 
4 of Block 16 ; lot 6 of block 22 ; lots 1, 2, and 3 
of block 17; Lots 7 and 8 of Block 20; South 50 
feet of lots 7 to 10 of Block 6; Lots 3, 4, 5 and 6 
of block 18; Lots 7, 8, 9, 10, and 11 of Block 19; 
lots 5 and 6 of block 23; lot 2 of block 24; lot 3 
of block 3; lots 3 and 4 of block 5; Lot 9 of 
Block 10; and Lot 9 of Block 20. 
Done in open court this 8th day of July, 1924. 

GEO. A. HORKAN, 
Judge. 

Filed July 16, 1928. [126] 

The deposition of John D. Neale, taken under 
stipulation between the parties was read in evidence 
by Mr. Brown, during which reading the following 
objections were made to the questions noted: 

(First question on page 5.) 

"Q. And what was the character and extent 
of your investigation of bond issue prior to 
the time that it was passed and issued?" 

Mr. JOHNSTON.— We object to that as ir- 
relevant and immaterial. 

By the COURT.— I will let it stand, subject 
to the objection. (Exception.) 
(Last question on page 5.) 

"Q. In connection with your desire to find 



156 Limibennens Trust Company vs. 

out not only the financial resources, but the at- 
titude of the town, did you discuss with the 
town officers there the feasibility of the project 
and learn their attitude either for or against 
it?" 

Mr. JOHNSTON.— We object to that as ir- 
relevant. 

By the COURT.— It is rather difficult to say 
whether it is or not. I do not think I will pass 
on the objection. Let is stand, subject to the 
ob j ection. ( Exception. ) 
(Second and third questions on page 8.) 

"Q. Now subsequently when the bond issue 
came up for sale, or when the contract came up 
for bidding, did you have any correspondence 
or wires from Roscoe relative to it ? 

Q. And at that time were you reminded of 
the assurances that you had given relative to 
[127] the handling some of these bonds — I 
mean the water bonds?" 

Mr. JOHNSTON.— We object to that as ir- 
relevant and immaterial. 

By the COURT.— Overruled. (Exception.) 
Cross-examination of Witness JOHN D. NEALE, 
in the Deposition of Said Witness. 

Mr. BROWN.— To that question, which is 
the second question on page 11 of the deposi- 
tion, we object as not proper cross-examina- 
tion; as assuming a state of facts not shown to 
exist, and for the further reason that the Mil- 
waukee Railroad or any other protestant would 
have a perfect right to, for or without consid- 
eration, to withdraw its protest if it so desired. 



The Toivn of Byegate. 157 

By the COURT.— I will overrule the objec- 
tion. 

The said deposition being in the words and figures 
as follows: 

" Pursuant to the stipulation of the parties for 
taking the depositions of witnesses on behalf of 
plaintiff, and the conditions under which deposi- 
tions should be taken, on the 30th day of July, 
A. D. 1928, at the hour of 1 :30 P. M., the plaintiff 
appeared by John G. Brown of Helena, Montana, 
and the defendant appeared by W. M. Johnston of 
Billings, Montana, before Fred M. Rose, a Notary 
Public in and for the State of Oregon in the city 
of Portland, Oregon, whereupon proceedings were 
had as follows: 

DEPOSITION OF JOHN N. NEALE, FOR 
PLAINTIFF. 

"JOHN N. NEALE was produced as a witness 
on behalf of plaintiff in the above-entitled cause, 
and, testified on direct examination by Mr. BROWN 
as follows: 

Direct Examination. 

"My name is John D. Neale. I reside at 318 Elm 
Street, San Mateo, California. In 1919 I was em- 
ployed by the Lumbermens Trust Company of Port- 
land, Oregon, as a bond buyer. My duties required 
examination of securities; examination of towns 
and districts, and cities, where we were [128] ne- 
gotiating for the purchase of bonds and other 



158 Lumbermens Trust Company vs. 

(Deposition of John N. Neale.) 
towns, cities and municipal subdivisions that had 
no bonds for sale. During that year, representing 
the Lumbermens Trust Company, I went to Billings, 
Montana, some time about the middle of May, 1919, 
I was in that vicinity until about the month of Sep- 
tember of the same year. I know and then knew 
W. P. Roscoe, Executive Vice-President of the Se- 
curity Bridge Company. The principal place of 
business of the Security Bridge Company was 
Billings, Montana, and its business was general con- 
tracting, building of bridges, installation of water 
systems, sewer systems, etc. It had a very exten- 
sive and substantial business at that time. It had 
no financial department, it was entirely a construc- 
tion concern. In connection with my trip to Bill- 
ings for the Lumbermens Trust Company I made 
investigation of contemplated municipal projects 
in Roundup, Hardin, Laural, Harlowton, Ryegate, 
Ingomar and Musselshell, towns in Montana which 
were contemplating municipal or public bond issues 
based upon construction contemplated to be done by 
the Security Bridge Company. I visited the Town 
of Ryegate at least twice, possibly three times. The 
improvement there contemplated was a water ex- 
tension for municipal and domestic purposes. Oh, 
no, it wasn't any irrigation system. It was a mu- 
nicipal proposition for fire protection and domestic 
purposes. Mr. Roscoe accompanied me on the trip 
to Ryegate. The Lumbermens Trust Company 
which I represented subsequently got these bonds 
that were issued to install this water system at Rye- 



The Town of Ryegate. 159 

(Deposition of John N. Neale.) 
gate. I was the man they sent there. As to my 
investigation of the bond issue prior to the time 
that it was passed and issued, I examined carefully 
the territory to be included in the enterprise, going 
over the plat with the City Clerk. I also checked 
up carefully the resources of the community there 
and the shipments of products from the Town of 
Ryegate. I talked the matter over with an officer 
of the town in the bank there, Mr. Thien, or Thiel, 
or some such name. I discussed the bond issue with 
another officer of the town, a member of the Coun- 
cil, in the creamery. Whether he was manager of 
the creamery or just in the creamery that day, I 
don't know; I have forgotten, but he was a member 
of the Council. Naturally we were interested in 
knowing whether the town was anxious to make this 
[129] improvement or whether it was simply a 
contractor's promotion. The figures pertaining to 
valuations were obtained from the City Clerk, 
which I believe was a man by the name of Brown 
at that time. There was other work contemplated 
besides the water extension, but I never gave Mr. 
Roscoe nor anyone else connected with the enter- 
prise any encouragement that we would be inter- 
ested in the sidewalk bonds. Yes, I discussed the 
feasibility of project and attempted to learn the 
attitude of the town, from these two men that I 
talked to, two members of the Council. I don't 
remember for sure whether I talked to any more 
than that. I don't remember about a pool-hall. I 
met a city official one evening there, but whether 
it was on the street or on the platform of the hotel, 



160 Lumbermens Trust Company vs. 

(Deposition of John N. Neale.) 
on the porch of the hotel, where we ate, or some 
other place — I don't know at this time. As to the 
information given these officials by Mr. Roscoe, as 
to why I was interested, Roscoe introduced me as 
the representative of the Lumbermens Trust Com- 
pany, to whom he would sell the bonds if he secured 
them from the city for the work contemplated. He 
stated to them in my presence his inability to 
handle them. As to the extent of his explanation, 
he stated that he could not do the work and accept 
bonds in payment therefor, except he was assured 
beforehand that he had a market for the bonds, 
stating that he was not in the bond business and 
must be assured that he could convert them into 
cash before he accepted them and took the contract, 
unless they expected to pay him in cash. It seems 
that the city could not pay him in cash. I made at 
least two trips to Ryegate. The first trip was when 
I saw the Councilman in the bank and the man in 
the creamery, who was a member of the City Coun- 
cil. Another trip was late in the evening. Roscoe 
and I came in from Harlowton, ate dinner at the 
hotel in Ryegate, and talked to one member of the 
City Council late that evening on the street. Yes, 
I made up my mind that my company would be in- 
terested in these bonds and I so stated to Roscoe. 
I recommended the purchase of about fifty thou- 
sand dollars of water bonds, approximately fifty 
thousand dollars worth. Yes, I know that my com- 
pany subsequently purchased the general [130] 
and the improvement bonds that were to cover the 



The Town of Ryegate. 161 

(Deposition of John N. Neale.) 
installation of this water system, about sixty thou- 
sand dollars worth of them. The purchase didn't 
take place until eight or nine months later, some- 
time the next year following my investigation, but 
it was on the basis of my investigation of the issue. 
Subsequently I had some correspondence with Ros- 
coe about these bonds. In the meantime I had been 
transferred by the Trust Company to San Fran- 
cisco, late in September, 1919, and some time early 
in the spring of 1920, possibly March, I received 
communications from Mr. Roscoe concerning this 
particular financing, and was reminded of the as- 
surances that I had given relative to handling some 
of these water bonds. I recommended the pur- 
chase to the Lumbermens Trust Company." 

Cross-examination by Mr. JOHNSTON. 

' ' As to my going to Montana in 1919, I was there 
primarily to meet Mr. Roscoe or to meet represen- 
tatives of the Security Bridge Company for the 
purpose of buying bonds. Yes, I knew that the 
Security Bridge Company was doing considerable 
contracting work and I knew it was quite a com- 
mon practice for contractors to do work for 
small cities and take their pay in bonds and dis- 
pose of them to bond buyers. I went with Mr. 
Roscoe to look over towns where he was al- 
ready figuring with them on work. Yes, he had 
been figuring with the Town of Ryegate on that 
work. I am quite sure of that. As to whether or 
not the Town of Ryegate had planned on any im- 
provement, it was my understanding that it had; 



162 Lwiribermens Trust Company vs. 

(Deposition of John N. Neale.) 
that before we visited the town, considerable talk 
had been taking place between Roscoe and the city 
officials. I got that understanding from things 
Mr. Roscoe said. As to whether or not when I 
was there in May, 1919, anything had been done, 
I am not able to say whether or not any previous 
construction had been done in the Town of Rye- 
gate. It had evidently been discussing the matter 
with the Security Bridge Company. As to it be- 
ing the fact that Mr. Roscoe and I went there to 
promote the installation of the city water system, 
he was not promoting anything. [131] It seemed 
to be an established fact on the part of the Security 
Bridge Company and the City of Ryegate that a 
water system was going to be constructed and that 
the chances were good that the Security Bridge 
Company would be the agency through which the 
construction should take place. As to what I base 
that statement on, it is on account of my talks with 
Roscoe and statements which he made in my pres- 
ence when we were in Ryegate and statements made 
to members of the Council that I met there. As to 
my recollections of the names of these councilmen, I 
do not recall their names, except Mr. Thien. 

"Q. Is it not a fact that when you and Roscoe 
were there you examined the Town of Ryegate 
without disclosing to any city official who you were 
or what company you represented 1 ? 

"A. That is not a fact." 

WITNESS.— (Continuing.) "I do not recall the 
name of the city official I met on my second visit. 



The Toivn of Ryegate. 163 

(Deposition of John N. Neale.) 
I think he was the mayor, but I am not sure. As 
to my business when I go to towns like that it is 
not simply to examine the town or city with refer- 
ence to reporting as to the assessable wealth of the 
town and its future prospects and the security that 
would really be back of any bond issue, but to ascer- 
tain whether the proposed improvement was popu- 
lar, whether the bonds which we were considering 
would be authorized. There would be no use in us 
examining the towns unless we knew that the city 
officials and the taxpayers were in favor of the im- 
provement. I did not learn in the spring of 1920 
that the bonds were opposed, by nearly one-half of 
the property holders in the district. I did not 
know of the Chicago, Milwaukee & St. Paul Rail- 
road protest and their being paid to withdraw their 
name from the protest. I do not pass upon the 
legality of the bonds. Messrs. Teal, Minor & Win- 
free of Portland, Oregon, passed upon them for 
the Lumbermens Trust Company I think. I do not 
know whether they are the regular attorneys or not, 
but they approved many bond issues. I am not 
certain which one of the attorneys did it. It is my 
understanding that they don't buy bonds until they 
have their counsel pass upon the legality of the pro- 
ceedings. I do not know the firm of Nichols & Wil- 
son, a firm of lawyers of Billings, Montana. [132] 

Redirect Examination by Mr. BROWN. 

44 As a result of this trip we bought bonds at 
Hardin, Harlowton and Laurel. I do not remember 
the name of the mayor of Hardin. I do not re- 



164 Lumbermens Trust Company vs. 

(Deposition of John N. Neale.) 
member the names of the aldermen at Hardin. I 
do not remember the name of the mayor of Harlow- 
ton. I do not remember the name of the aldermen 
of Harlowton. It would be very difficult to remem- 
ber the names of all the city officials that we meet 
when I am making investigations over a period of 
years. As to the investigation as to the financial 
responsibility and attitude of the town generally, 
that is very distinct because it is fundamental. 

"Q. Now, counsel has asked you about protests, 
and suggested an improper use of money to get 
protestants to withdraw; I will ask you when was 
the first time you ever heard of that*? 

"A. When Mr. Johnston mentioned it just now. 

"Q. Did you ever hear of any such thing as that 
in connection with your investigation'? 

"A. No, sir. 

"Q. Was there ever any suggestion that there 
would be protests at the time you made the investi- 
gation? A. Certainly not." 

WITNESS.— (Continuing.) "If I had known 
at my first visit or at my second investigation of 
protests of a substantial character I would not have 
made a recommendation to purchase any bonds. I 
would not have made a recommendation to purchase 
any bonds where there was any actual or threatened 
litigation existing or pending, as at the time I made 
this investigation I was an experienced bond buyer, 
and that is one of the things that an experienced 
bond buyer always looks out for, as to whether there 
is threatened litigation. 



The Toivn of Ryegate. 165 

(Deposition of John N. Neale.) 

"Q. As to any improper or other use of money 
to get a railroad or any other taxpayer to withdraw 
protests, did you ever hear of any such thing in 
connection with this ? 

"A. Not before Mr. Johnston's question to-day, 
no, sir; absolutely not. [133] 

"Q. Did you or your company have anything to 
do with any such thing ? A. No, sir. ' ' 

Recross-examination by Mr. JOHNSTON. 

"I did not make any effort to ascertain whether 
there were any protests after my second investiga- 
tion. I was out of the transaction. I know 
nothing about what transpired after my last 
visit. I know nothing of any dissatisfaction 
on the part of any property owners concern- 
ing this improvement. As to whether or not one 
of the council opposed the creation of the district 
and the issuance of the district improvement bonds, 
I knew nothing about it. My investigation had 
shown there was absolute harmony in connection 
with the proposed improvement. 

"Q. And you did not know, in the spring of 1920, 
that the then Mayor of the Town of Ryegate re- 
fused to sign ordinances and resolutions for the 
creation of the district and the issuance of these 
bonds ? A. I did not ; no. ' ' 

Further Redirect Examination by Mr. BROWN. 

' ' As to whether or not there was any secretive or 
covered-up character about my visits to Ryegate, 
absolutely not- All these jobs I went to look over 



166 Lumbermens Trust Company vs. 

(Deposition of John N. Neale.) 
had been talked over by Roscoe and the officials 
before I had ever looked at them. Mr. Roscoe had 
a story that he illustrated it with. The cities were 
always anxious to carry out these proposed im- 
provements, and they stated their desires and en- 
thusiasm to Roscoe and myself, and Roscoe would 
always say that if the Lumbermens Trust Company 
will buy the bonds, we will be glad to do the work, 
but we cannot take the bonds unless we have them 
sold. His story was that bonds to a contractor are 
no good, are worth nothing to the contractor unless 
he can sell them; that 'in fact, there was a dozen 
contractors found starved to death last winter with 
their pockets full of bonds.' That was his story, 
the one he always told in illustrating the point that 
he couldn't accept bonds unless they were [134] 
sold first. They used to say to him, 'We will give 
you the bonds,' He always told them the bonds 
would not do him any good unless he was sure he 
could convert them into cash." 
Further Recross-examination by Mr. JOHNSTON. 
"My information as to these bonds being talked 
over before I went to Ryegate came from Mr. Ros- 
coe. I knew it was talked over before I was there 
because the first man we met, who was one of the 
councilmen, if not the mayor himself, in the cream- 
ery, was thoroughly conversant with the situation 
when I first saw him. He had evidently been told 
by Mr. Roscoe he would bring a man through that 
country soon to look over a number of towns and 
districts in which he had been and on which he had 
been figuring contracts, and when I was introduced 



The Town of By eg ate. 167 

(Deposition of John N. Neale.) 
to this member of the Council in the Creamery, Ros- 
coe told him that I was the man that he had been 
speaking about. I do not recollect the man's name. 
When I refer to the City officials I met, I met three. 
I know the name of Mr. Brown and Mr. Thien, or 
Mr. Thiel. I don 't recall the name of the man I met 
one night, late at night there. That was the second 
trip there.'' 

Further Redirect Examination by Mr. BROWN. 

"It is my recollection that the man I met late at 
night on the street, or the porch of the hotel, was 
the mayor." 

Witness signed the deposition and was excused. 

The deposition of W. P. BRIGGS taken under 
stipulation between the parties was read in evidence 
by Mr. Brown, during which reading the following 
objections were made to the questions noted: 

"Mr. BROWN.— We offer the Financial State- 
ment that is attached to the deposition, in evidence. 

"Mr. JOHNSTON.— No objection. 

"By the COURT.— It will be received. [135] 

"Mr. JOHNSTON.— I object to the following 
questions and answers on page 19 of the deposition 
of W. P. Briggs, on the ground the matters men- 
tioned in these questions and answers are thor- 
oughly covered by the Agreed Statement of Facts 
in this case, therefore, under the Agreed Statement, 
they are not admissible in evidence. 

"Q. Did your Company buy both the general and 
special improvement district bonds, necessary for 



168 Liimbermens Trust Company vs. 

(Deposition of John N. Neale.) 
the promotion and completing of the water improve- 
ments of the Town of Ryegate? A. Yes, sir. 

"Q. In connection with the general bonds, or the 
first group of bonds that was sent in, did you buy 
them through the Security Bridge Company or deal 
direct with the City upon those ? 

"A. You mean in taking them up? 

"Q. Yes. 

"A. We dealt with the City direct and paid to 
them. ' ' 

"Mr. JOHNSTON.— We make the further objec- 
tion, on the ground those questions and answers are 
irrelevant and immaterial, and also, incompetent, 
for the reason that the matter of the general bonds 
are not involved in this case. It would make no 
difference whether the plaintiff purchased those 
bonds direct from the City or from the Security 
Bridge Company. 

"By the COURT.— I will let it stand. (Excep- 
tion.) 

"Mr. BROWN. — We offer this paper in evi- 
dence.) " 

(Paper marked Plaintiff's Exhibit 2 attached to 
Deposition of W. P. Briggs.) [136] 

"Mr. JOHNSTON.— We object to the testimony, 
and I would like to have an objection to all that 
part of the deposition with reference to this proof, 
on the ground and for the reason it is irrelevant 
and immaterial, and also, incompetent, as being in 
relation to the general bond issue, and not having 
anything to do, whatever, with the special improve- 
ment bonds which are involved in this case. 



The Town of Ryegate. 169 

(Deposition of John N. Neale.) 

"For the further reason that is covers matters 
that are completely covered by the agreed state- 
ment of facts in this case, which shows that these 
general bonds were sent to the plaintiff by the Town 
of Ryegate at the request of the Security Bridge 
Company, and the mere fact that a sight draft 
would accompany them would have no bearing on 
the issues in this case, whatever. 

By the COURT. — It may go in, subject to your 
objection, and I will either rule on it and cut it out 
or let it stay in, after I carefully scrutinize this." 

(Question in latter part of the Deposition of 
W. P. Briggs.) 

"Q. What was the first that you knew, your com- 
pany or you knew, that there was a contest about 
these bonds, the payment of the principal or inter- 
est — that there was objection to these bonds in the 
payment of principal or interest? 

"Mr. JOHNSTON.— Objected to as irrelevant 
and immaterial. 

"By the COURT.— Overruled. (Exception.) " 

(Question found in latter part of Deposition of 
W. P. Briggs.) [137] 

"Q. Now some suggestion has been made here in 
connection with this, with relation to protests being 
made to the creation of the District or the issues of 
the bonds; did you or your company, so far as you 
know, ever have any knowledge of any contest or 
objection to those bonds prior to their issuance? 

"Mr. JOHNSTON.— Objected to as irrelevant 
and immaterial. 



170 Liimbermens Trust Company vs. 

(Deposition of W. P. Briggs.) 
By the COURT.— Overruled. (Exception.) " 
The said deposition being in the words and figures 

as follows: 

Under the same stipulation and at the same time 

and place, the deposition of W. P. BRIGGS was 

taken, who being duly sworn, on direct examination 

by Mr. BROWN, testified as follows: 

DEPOSITION OF W. P. BRIGGS, FOR 
PLAINTIFF. 

"My name is W. P. Briggs and I have been 
either assistant secretary or secretary of the Lum- 
bermens Trust Company during the time involved 
in controversy here. As to the investigation of the 
records and so forth pertaining to municipal or 
public bond issues prior to my company's purchase 
of them, I handled considerable of the office end 
of the matter, taking care of the correspondence 
and getting figures here to submit to attorneys and 
submit to our officials. I made a request of the 
town clerk of the Town of Ryegate to furnish me 
or my company, under seal, an official statement of 
local improvement district bonds and financial 
statement of the City of Ryegate, with reference to 
the particular bond issues here in controversy. 
This paper which you call to my attention, marked 
for identification as Plaintiff's Exhibit No. 1, to be 
attached to my deposition, is the statement fur- 
nished to the Lumbermens Trust Company by J. A. 
Brown, town clerk of the Town of Ryegate, relative 
to the bond issues here under controversy and was 



The Town of Ryegate. 171 

(Deposition of W. P. Briggs.) 

furnished to the Company and received in due 

course of mail in response to requests therefor." 

[138] 

The said statement was thereupon marked for 
identification, Plaintiff's Exhibit 1 and offered and 
received in evidence and the same is in words and 
figures as follows: 

PLAINTIFF'S EXHIBIT No. 1. 

Lumbermens Trust Co. 
Portland, Oregon. 

OFFICIAL STATEMENT OF LOCAL IM- 
PROVEMENT BONDS. 

Town of Ryegate in the County of Golden Valley, 

State of Montana. 
District No. 4. Boundaries and names of streets 

to be improved . 

See Transcript of Proceedings. 
If possible, furnish map of city showing location of 

district . 

Nature of improvement Water improvement. 

Material used in improvement Cast Iron 

Pipe and concrete structures. 
Opposition to improvement . Not material 

. How evidenced . By protest 

against creation of district. 
Engineer's estimate of coss — $42000. 

Amount of Contract, $56000 Less $15000 Cash. 
Number of blocks improved — 264 Lots Basis 50x140. 

Average size . 



172 Lambcrmens Trust Company vs. 

Number of front feet . See map . 

Cost per front ft. Figured area $158.00 per 
50x146. 

Assessed value of District: 
Real Estate, $ 73 543. 
Improvements, $130 289. 

Estimated actual value : 

Real Estate $ 

Improvements $ 

Amount of Bonds authorized for this improvement 
— Entire cost of plant over and above author- 
ized. 

Estimated amount to be used for this improvement 
—$43,000. 

Interest rate six payable annually or 

semi-annually — Annually. 

Date of Bonds. Dated as issued . 

Maturity of bonds 1931, Jany. 1st. 

Denomination $500.00. When ready for de- 
livery from time to time. 

Principal and interest payable at office Town Treas- 
urer of Ryegate, Mt. 

Are Bonds Special Assessment, District or General 
Obligations — Special. Assessment on District. 

Does the city or abutting property pay for street 
intersections — Yes, pro rata over district. 

Character of abutting property, business or resi- 
dence — Partly residential and partly business 
property. 

What percentage of District improved with build- 
ings— 70%. 



The Town of Byegate. 173 

Give names of six responsible people who own prop- 
erty abutting improvements — Henry Henton, 
Binone Mellen, C. H. Corrington, T. A. Strong, 
Anton Barta. 

If any city, county or school property is abutting 
the improvement, what portion of above in- 
debtedness is assessed against same — School 
District equal to 6 lots. 

Nature and amount of other assessment liens in this 

district — $ . Sidewalk Districts cover 

portion of this district outstanding — Sidewalk 
Bonds $18,200.00. 

Amount of maintenance bond required and for how 
long a period does it remain in force — None. 

Any litigation pending or threatened affecting this 
issue — No. 

Under what law or authority are bonds issued — 
State of Montana, Chapter 89, 1913. 

Can you arrange to have principal and interest pay- 
able in New York, or remitted by treasurer in 
New York Exchange . [139] 

FINANCIAL STATEMENT OF CITY. 

Estimated actual value of all taxable 

property in city $601,366.00 

Assessed valuation of all property (year 

1919) Assessed at full value $601,366.00 

INDEBTEDNESS— 

Bonded debt (Water Bonds) $ 15,000.00 

Floating debt $ 1,315.90 

Water debt included in above (In- 
cluded in $15000 item) Yes 



174 Lumbermens Trust Company vs. 

Local Improvement debt NOT in- 
cluded above $ 18,200 

sidewalk bonds 

Amount of Sinking Fund — Bonds just issued 
. $ None 

Population of city (census 1910) 300. Present esti- 
mate — 750. 

Date city incorporated — April, 1917. 

On what railroads— C. M. & St. P. Ry. Co. 

General Resources — Agricultural, County Seat 
Golden Valley County. 

Nature of surrounding country — Well improved, 
good farming country. 

Who owns waterworks — Town. Who owns elec- 
tric light plant? — Montana Power Co. 

Have your bonds (including local improvement 
bonds) and the interest thereon always been 
paid promptly when due — Yes. 

The foregoing statement I certify to be, to the 
best of my knowledge and belief, true and correct. 

IN TESTIMONY WHEREOF, I have hereunto 
set my hand this 12th day of August, A. D. 1920. 

(Seal) (Signature) J. A. BROWN, 

(Official Title) Town Clerk, Town of Ryegate. 

ATTACH PRINTED NOTICE AND COPY OF 
ORDINANCE. [140] 

"My company bought both the general and the 
special improvement district bonds necessary for 
the promotion and completing of the water im- 
provements of the Town of Ryegate. As to the 
first issue of bonds sent out we dealt direct with the 
city and paid to them. The paper which you have 



The Totvn of Ryegate. 175 

marked as Plaintiff's Exhibit No. 2, to be offered 
in connection with my deposition, is a draft written 
on the typewriter ; it is a sight draft on the Lumber- 
mens Trust Company, drawn under date of May 
29th, 1920, payable to the order of The Farmers 
and Merchants State Bank of Ryegate, for $11,- 
158.76, plus certain accrued interest, and drawn on 
the Town of Ryegate by Harry Henton, Treasurer. 
That is the draft that accompanied this issue of 
bonds when they were forwarded to me by the 
Town of Ryegate. My company took up the draft 
when it came." 

The said draft, known as Plaintiff's Exhibit 2, 
was offered and received in evidence to be attached 
to the deposition of witness Briggs, the same being 
in words and figures as follows : 

PLAINTIFF'S EXHIBIT No. 2. 

"The Farmers & Merchants State Bank of Ryegate, 
Ryegate, Montana, May 29th, 1920. 

(Int. 375.00) 
On sight pay to the order of The Farmers & Mer- 
chants State Bank of Ryegate $11,158.76 plus ac- 
crued interest at 6% on $15,000 from Jany. 1st, 
1920, to date of settlement. Eleven thousand one 
hundred fifty eight and 76/100 dollars with ex- 
change. 

Value received and charge the same to account of 
TOWN OF RYEGATE, RYEGATE, MONT. 
By HARRY HENTON, Treas. 



176 Lumbermens Trust Company vs. 

(Deposition of W. P. Briggs.) 

Lumbermen's Trust Company, Portland, Ore- 
gon. 

Care Ladd & Tilton, Bankers, Portland, Oregon. 

Ladd & Tilton Bank. 

Paid 

June 1, 1920. 

Collection Teller, 

Portland, Oregon. [141] 

"The first that I knew there was any trouble 
about these bonds, that there was a contest about 
these bonds, the payment of the principal or inter- 
est was early in 1922 when we were advised that 
somebody had started injunction proceedings. 

"Q. Now, some suggestion has been made here in 
connection with this, with relation to protests being 
made to the creation of the district or the issues of 
the bonds ; did you or your company, so far as you 
know, ever have any knowledge of any contest or 
objection to these bonds prior to their issuance 1 ? 

"A. Not so far as I know. 

"Q. If there had been any such, you, doubtless, 
would have known it, wouldn't you, in your posi- 
tion? 

"A. I think so, because that detail, normally, 
came through my hands. 

U Q. The suggestion also has been made of a pos- 
sible proper or improper use of money in connec- 
tion with the withdrawal of objections to the crea- 
tion of the improvement district and the issues of 
bonds; when was the first time you ever heard of 
any such comment as that? 



The Town of By eg ate. Ill 

(Deposition of W. P. Briggs.) 

"A. After this litigation was started, some time 
in the early part of 1922, and pleadings had been 
filed by the plaintiffs; I think they set up some- 
thing of that character in the litigation. It was in 
connection with that, was the first time I ever heard 
of it. 

"Q. Did your company or you or anyone, to your 
knowledge, ever have anything to do with anything 
of that kind or nature? A. We did not. 

u Qj. Did you ever instigate any such action or 
conduct? A. We did not. 
. "Q. Or approve or ratify or confirm it? 

"A. We did not. 

WITNESS.— (Continuing.) "Mr. J. A. Brown 
was town clerk of the Town of Ryegate at the time 
I received Plaintiff's Exhibit 1. I am morally cer- 
tain they furnished [142] us with a transcript 
of the proceedings. This Exhibit 1 is the form of 
certificate which we always require and was fur- 
nished in response to our request." 

Cross-examination by Mr. JOHNSON. 

"I can't say positively without checking up the 
correspondence of whom I made the request for this 
statement. ' ' 

(Witness was excused after signing his deposi- 
tion.) 



178 Lambermens Trust Company vs. 

DEPOSITION OF W. P. ROSCOE, FOR 
PLAINTIFF. 

W. P. ROSCOE, a witness called on behalf of 
the plaintiff, being first duly sworn, on direct ex- 
amination by Mr. BROWN, testified as follows : 

"My name is W. P. Roscoe and I am the Mr. 
Roscoe referred to as executive vice-president of 
the Security Bridge Company. I was such officer 
of that company at the time of the building of the 
waterworks involved in the controversy and was 
then acquainted with the Mayor and Councilmen 
of the Town of Ryegate. I made infrequent trips to 
Ryegate possibly over a period of 18 months, upon 
which trips I talked to Mr. Thien, and Mr. Gregory. 
Mr. Curry was Mayor at that time. No, I never 
met the Mayor and Councilmen in executive ses- 
sion. I did meet them in groups, met at one time 
the three of them, that is the Mayor and two alder- 
men. ' ' 

"Q. You may state whether or not in these vari- 
ous conferences you had with them prior to your 
taking the contract, if they understood and were 
told by you of the necessity of your selling bonds ? " 

Mr. JOHNSTON.— We object to that as irrele- 
vant and immaterial, also, incompetent. It does 
not appear this was a session of the City Council, 
and statements on the curbstone between the wit- 
ness and the officials would not be of any material 
weight in this matter. 

By the COURT. — Perhaps you would have to 
show some authority on the part of one to speak 



The Town of Ryegate. 179 

(Deposition of W. P. Roscoe.) 
rather than the actual conversation, to make it ma- 
terial. Was there any official sanction of this? 
[143] 

Mr. BROWN.— We have to come to that later. 

By the COURT. — It is merely preliminary? 

Overruled, if it is simply preliminary. 

Mr. JOHNSTON.— Exception. Subject to be 
stricken out if you do not connect it up. An ex- 
amination of the minutes will never disclose any 
authority of that kind, I am quite sure. 

(Question read.) 

"A. Oh, yes. 

Q. Did you advise the Town, or its officers, of 
the Company to whom you expected to sell these 
bonds? 

Mr. JOHNSTON.— Objected to as irrelevant 
and immaterial. 

By the COURT. — Are you starting out to estab- 
lish the legality of the bond issue. 

Mr. BROWN. — No, your Honor. Before you 
can recover for money had and received, we have 
got to bring home to the defendant the knowledge 
that it was our money that was had and received 
and used. 

By the COURT. — That is some law we have to 
encounter and pass upon later on. I will let him 
show that under his allegation, subject to your ob- 
jection. 

Mr. JOHNSTON. — We may have an exception. 

By the COURT.— Yes. 

Mr. JOHNSTON.— In order to save time and 



180 Lumbermens Trust Company vs. 

(Deposition of W. P. Roscoe.) 
the record, may it be understood, we have that ob- 
jection and exception to all questions of this char- 
acter ? 

By the COURT. — Everything is deemed ex- 
cepted to. 

Mr. JOHNSTON. — With reference to conversa- 
tions between this witness and any official of the 
City or Town of Ryegate? [144] 

By the COURT.— Yes. 
(Question read.) 

A. Yes, sir. 

Q. Now, as to the first bond issue, the fifteen 
thousand general bond issue, I will ask you to state 
whether or not you directed the Town and its 
Clerk, to mail these bonds, with draft attached, to 
the Lumbermens Trust Company, in Portland, 
Oregon ? 

Mr. JOHNSTON.— I object to that as irrele- 
vant and immaterial. 

By the COURT.— I will let it stand in the same 
way. 

Mr. JOHNSTON.— I object to this question, ad- 
ditionally, for the reason it is covered by the 
Agreed Statement of Facts. 

By the COURT. — I will let him answer, subject 
to your objection. (Exception.) 

(Question read.) 

"A. I will answer that question this way: Yes, 
sir. The draft was not in the full amount of the 
bonds. 

Q. We were not asking you the amount, we 
were asking you if you did that? A. Yes, sir." 



The Town of Ryegate. 181 

(Deposition of W. P. Eoscoe.) 

WITNESS.— (Continuing.) Prior to the time 
that the bonds were sent and the draft issued, I 
made request of the Town Council and City Clerk 
of Ryegate for a legal opinion as to the $15,000 
bond issue. Plaintiff's Exhibit "A" is the letter 
that was furnished me by the Town of Ryegate in 
response to this request. I made this request for 
a legal opinion of the Council. No, sir, I do not 
recall that the request was in writing. I might 
explain the matter so that you will understand it, 
Mr. Johnston, if the Court permits. Yes, sir, the 
City Council furnished me with that opinion of Mr. 
Thompson on this general bond issued. Plaintiff's 
Exhibit "A" is the opinion in question. 

(Plaintiff's Exhibit "A" offered and admitted in 
evidence.) 

At the time I got the opinion I advised the city 
officers of the Town of Ryegate that it was to be 
forwarded to the Lumbermens Trust Company and 
I [145] did forward it to the Lumbermens 
Trust Company. This is the first time I have seen 
it since then. Subsequently I made a request of 
the City (Ryegate) to furnish me with an official 
transcript of the proceedings of the Special Im- 
provement District of the Town of Ryegate. 
When I requested these proceedings I likewise ad- 
vised the City Officers who it was for and they fur- 
nished me that transcript of the proceedings, which 
was for and delivered by me to the Lumbermens 
Trust Company. Plaintiff's Exhibit "B" con- 
tains the official transcript of the Special Improve- 



182 Lumbermens Trust Company vs. 

(Deposition of W. P. Roscoe.) 
ment District proceedings that are involved in this 
lawsuit and that is the transcript so furnished by 
the officers of the Town of Ryegate for transmittal 
to the Lumbermens Trust Company. 

(Plaintiff's Exhibit "B" admitted in evidence.) 
WITNESS.— (Continuing.) " Claude Renshaw 
of Roundup, Montana, was the engineer on the Rye- 
gate job. He is the same engineer who was on a 
number of waterworks systems along the line of 
the Milwaukee. He had charge of the work at 
Harlowton, Roundup and Ryegate. From time 
to time this City Engineer made up an estimate of 
the amount of work completed in any prescribed 
period and furnished it to the City Council so that 
they could authorize bonds to be issued for work 
done. The City Council would allow these esti- 
mates. In two or three instances they paid us cash 
out of the proceeds — out of the general obligations 
and the balance out of the Improvement District 
Bonds. When they furnished me with Improve- 
ment District Bonds I would request a certificate 
from the city showing that the Council had author- 
ized the issuance, advising the Council and officers 
that it was for the Lumbermens Trust Company. 
Plaintiff's papers grouped together as Exhibit 
"C" are the certificates covering these estimates, 
covering the Improvement District Bonds and cov- 
ering the certificates of the officers, but I did not 
personally obtain all of them. Some other officer 
of our company got the rest of them. These were 
forwarded to the Lumbermens Trust Company." 



The Town of Ryegate. 183 

(Deposition of W. P. Roscoe.) 

(Plaintiff's Exhibit "C" offered and received in 
evidence.) 

WITNESS.— (Continuing.) [146] "During the 
times in question, as vice-president of the com- 
pany, I was in charge of what we call the Water- 
works and Sewer Department, particularly in 
charge of the work and various matters we had in 
connection with the council of the Town of Rye- 
gate and the construction work of the Security 
Bridge Company. I was the one exclusively in 
charge and made frequent trips to Ryegate in con- 
nection with the work. When I could not go I out- 
lined what was to be done to some other office of 
the company. I have been in the contracting busi- 
ness 26 years, including 10 years of waterworks 
construction in the State of Montana, and have a 
knowledge and experience of waterworks construc- 
tion in Montana generally. I have made a study 
of the capacity of plants for future growth of 
towns and things of that sort. I am also person- 
ally familiar with the character and kind of equip- 
ment and installation made in the Ryegate water- 
works system. The population of Ryegate when 
this construction was put in was approximately 
four or five hundred. The construction that we 
put in there I would say would serve a population 
of 1500 people with the equipment installed. It 
would serve more people than there is now in Rye- 
gate, or up to fifteen hundred people. To furnish 
water it would not require any changes or altera- 
tions in the fundamental system installed by us. 
The system was installed in such a way that exten- 



184 Lunibermens Trust Company vs. 

(Deposition of W. P. Roscoe.) 

sions could be made to it that would serve the 

entire community of Ryegate within the corporate 

limits.'' 

Cross-examination by Mr. JOHNSTON. 

"Yes, sir, I would say that no changes would be 
necessary to serve more people with this water 
system. Well, that is true in one sense that it is 
on the theory that these additional people were liv- 
ing adjacent to the mains that are there now; how- 
ever, they could be served outside the lines of the 
district. If they lived outside of the lines of the 
district there would have to be some extensions to 
the mains ; yes, sir, the same as in Billings. As to 
whether or not there would have to be additions if 
there were any additional population in Ryegate, 
some could be served with ordinary service, Mr. 
Johnston, similar to that that runs from the main 
to the house — and some on the other side of the 
line. If they were outside the [147] district 
they could be served by these mains if they would 
build additional houses along side of these mains. 
If they built a block or half a block away from these 
mains, you would have to have a service pipe. 
The ordinary distance, the length of the service 
pipe is from the street to the house. There are 
lots of service, however, run further than that. 
Well, some here in Billings. About over in Rye- 
gate, I don't know. If a man lived outside the dis- 
trict and wanted to get, and got permission of the 
Council to build his own main, it would not cost the 



The Town of Ryegate. 185 

(Deposition of W. P. Roscoe.) 
city anything, I don't think. If the town wanted 
to extend the system so as to cover additional ter- 
ritory to any extent, yes, sir, it would have to lay 
additional mains." 

Redirect Examination by Mr. BROWN. 

"As to these additional mains, they would not 
have to put new mains going back to the pumping 
system. They would be simply extensions. There 
were "TV placed at street intersections for that 
purpose so that these extensions could be made at 
some future date. Oh, yes, that was done at the re- 
quest of the city ; that was part of the plan. ' ' 

(Witness excused.) 

Mr. BROWN. — There was furnished to us at our 
request, the Ordinances of the City of Ryegate and 
we would offer them in evidence. Ordinance No. 
33, found on pages 152 to 158 of the Ordinance 
Records of the Town of Ryegate, and Ordinance 
No. 34, found on page 159 of the Ordinance Records. 
We offer these in evidence. 

(Objected to; objection overruled and ordinances 
admitted.) 

The Ordinances in question, read as follows: 
[148] 



186 Lumbermens Trust Company vs. 

ORDINANCE No. 33. 

Entitled: "AN ORDINANCE PROVIDING 
REGULATIONS FOR THE USE OF 
WATER IN THE TOWN OF RYEGATE, 
PROVIDING RATES FOR THE USE OF 
SAME, PROVIDING PENALTIES FOR 
THE VIOLATION OF THIS ORDINANCE 
AND REPEALING ALL RULES AND 
ORDINANCES IN CONFLICT HERE- 
WITH. 
BE IT ORDAINED BY THE TOWN COUNCIL 
OF THE TOWN OF RYGATE, MONTANA: 
Section. 1. The following rules and regulations, 
approved by the Public Service Commission of Mon- 
tana are hereby adopted to govern the use of city 
water in the Town of Ryegate, Montana, and are 
hereby made a part of the contract with every indi- 
vidual, firm or corporation, who takes water, and 
every such individual, firm or corporation agrees, in 
making application for water to be bound hereby. 
GENERAL RULES AND REGULATIONS: 
Rule G-l. THE CITY WATER DEPART- 
MENT contracts with agents or with tenants. The 
City Water Department may require a deposit 
equal to one and one-half the estimated amount of 
the monthly or billing period, as guarantee of pay- 
ment of same. Application for the use of water 
must be made at the City Water Department office 
on a printed form furnished for that purpose. Ser- 
vice will be furnished to any consumer who fully 
and truly sets forth all the purposes for which 



The Town of Ryegate. 187 

water may be required and who agrees to and 
conforms to all rules and regulations governing 
the service ; provided the purposes set forth comply 
with all the City Water Department Rules, and 
that the system of mains and pipes extend to the 
point w T here service is desired, and is adequate to 
supply the service applied for. Interest will be paid 
on consumers ' deposits at the rate of six per cent 
per annum, provided such deposits are left with the 
City Water Department for one month or longer. 
Such interest will cease when the use of City water 
is discontinued. 

Rule G-2. An application for the installation 
must be signed by the owner of the premises and 
must be made on the regular form furnished by the 
City Water Department for that purpose. When 
such application has been granted, the City Water 
Department at its own expense, will tap the main 
and furnish corporation cock or any other material 
used or labor furnished in connection with the tap- 
ping of the main. All expense of laying and main- 
taining the service pipes from the mains to the con- 
sumers ' premises must be borne by the consumer. 
The service pipe must be laid below the street grade 
and on the consumers premises, at a standard depth 
designated by the City Water Department, to pre- 
vent freezing. A Curb cock of approved pattern 
with cast iron curb bos must be installed by the 
consumer at a point designated by the City Water 
Department. Whenever a tap is made through 
which service is not immediately desired, the appli- 



188 Liimbermens Trust Company vs. 

cant will bear the entire expense of tapping, subject 
to refund whenever regular service is begun. 

Rule G-3. At some convenient point inside 
the building and so located that it cannot freeze, a 
stop and waste cock must be placed, so that water 
can be readily shut off from the building and the 
water pipes drained to prevent freezing. [149] 

Rule G-4. Waste of water is prohibited, and 
consumers must keep their fixtures and service 
pipes in good order at their owm expense, and all 
waterways closed when not in use. Leaky fixtures 
must be repaired at once without waiting for notice 
from the City Water Department, and if not re- 
paired for notice from the City Water Department, 
and if not repaired after reasonable notice is given, 
the water will be shut off by the City Water Depart- 
ment. 

Rule Gr-5. No plumber or other person will be 
allowed to make connection with any conduit, pipe 
or other fixture therewith, or to connect pipes when 
they have been disconnected or to turn water off 
or on, on any premises without permission from the 
City Water Department. 

Rule Q-6. Service pipes will be so arranged that 
the supply of each separate building, house or prem- 
ises, may be controlled by a separate curb cock, 
placed within or near the line of the street curb, 
under rules established by the City Water Depart- 
ment or civil authorities. This curb cock and box 
must be kept in repair and easily accessible by the 
owner of the premises. 

Rule G-7. Should the consumer desire to dis- 



The Town of Ryegate. 189 

continue the use of water temporarily, or should 
the premises become vacant, the City Water Depart- 
ment, when notified to do so in writing, will shut off 
the water at the curb cock and allowance will be 
made on the bill for such time as the water is not in 
use. No deductions will be made in bills for the 
time any service pipes may be frozen. 

Rule G-8. Notice will be given whenever prac- 
ticable, prior to shutting off water, but consumers 
are warned that, owing to unavoidable accidents or 
emergencies, their water supply may be shut off at 
any time. 

All persons having boilers on their premises, 
depending on connected pressure with the water 
mains, are cautioned against collapse of their boilers. 
As soon as water is turned off, the hot water faucet 
should be opened and left open until the water is 
again turned on. A check valve must always be 
placed between the boiler and the City Water De- 
partment mains to prevent draining the boiler. 
Never leave the premises with any faucets open and 
the water turned off. 

Rule G-9. Contractors, builders and owners are 
required to take out a permit for the use of water 
for building and other purposes in construction 
work. Consumers are warned not to allow con- 
tractors to use fixtures unless they produce a per- 
mit specifying the premises on which the water is 
to be used. Water will not be turned on at any 
building until all water used during construction 
has been paid for. 



190 Lumbermens Trust Company vs. 

Rule G-10. Permits for lawn sprinkling during 
each current year must be secured at the office of 
the City Water Department as the supply to any 
premises, using a hose without a permit, will be 
shut off without warning. Lawn sprinklers will 
only be permitted where water is carried into the 
house also. 

Rule G-ll. The City Water Department agents 
or other authorized persons, shall have access at 
reasonable hours [150] to any premises where 
water is used, for the purpose of making inspections 
or investigations. 

Rule GM.2. For violation of any of these rules, 
or for non-payment of water rent, for either do- 
mestic, sprinkling or other purposes, the City Water 
Department has the right to turn off water without 
further notice, and after it has been turned off 
from any service pipe on account of non-payment 
or violation of rules, the same shall not be turned 
on again until back rents are paid, together with the 
actual costs incurred thereby, not to exceed $1.00. 

Rule G-13. The foregoing rules shall be effective 
for all water utilities operating in Montana. The 
flat rate rules and meter rules shall be effective for 
all water utilities having schedules of that nature. 

This rule, however, shall not be construed to 
mean that any utility must have both flat rates and 
meter rates. A utility may adopt, subject to the 
approval of the Public Service Commission, either 
a flat rate or a meter schedule, or both. 

In addition to the general flat rate and meter 
rate rules a utility may adopt, subject to the ap- 



The Town of Ryegate. 191 

proval of the Public Service Commission, other 
rules to be designated as special rules, to fit local 
conditions. In case of an apparent conflict in rules, 
the general rules shall govern. 



MONTHLY RATES— FLAT. 




Apartments 


Not over five rooms 


$1.50 




Each additional room 


.15 


Bakery 


Using not more than one 






barrel of flour per day 


2.50 




Each additional barrel 


.75 


Banks 


Not more than two persons 


1.50 




Each additional person 


.15 


Barber Shops 


1 chair and lavatory 


2.00 




Each additional chair 


.50 


Bath tubs 


Private each 


.35 




Public each 


1.50 


Blacksmith shop 


One fire 


1.50 




Each additional 


.50 


Boarding House 


Board only not more 






than ten persons 


3.00 




Each additional 5 persons 


1.00 


Board and Lodging 


Not over ten rooms or per- 






sons 


5.00 




Each additional room or 






persons 


.35 


Building & Construe- (Brick per 1000 


.20 


tion 


(Cement walk per 100 Sq. 






Ft. 


.30 




(Concrete work per Cu. Yd. 


.12% 




(Plastering per 100 Sq. yds. 


1.00 



192 



Lurnbermens Trust Company vs. 



10. Butcher Shop 



11. Dwelling 



12. Fire Hydrants 



13. Garage. 

[151] 

14. Halls, Lodge Rooms 

15. Heating Plant Steam 
Boiler or Hot Water 

16. Hotel 



17. Hydrant— Yard 

18. Ice Cream Parlor 

19. Laundry 

20. Lodging House 

21. Office Building. 

22. Photograph Gallery 



(Settling earth per Cu. yd. .05 
(Stone work per perch .10 

Not more than two persons 2 . 50 
Each additional person .15 

Not more than five rooms 1 . 50 
Each additional room .15 

Municipal First 15 per 

year 225.00 

Each Additional 10.00 

Private one car .25 

Each additional car .15 



One cold water faucet 
Each additional 

(First 10,000 cu. ft. heating 

(space or less 

(Each additional 1000 ft. 
Base rate: kitchen, dining 

room and office 

Each additional room 
Not more than one family 
Each additional family 
12 chairs or stools 
Each additional six chairs 

Hand Meter 

Steam Meter 

Not over ten rooms 
Each additional room 
Each room 
Not over two persons 



1.00 
.25 

.50 
.05 

5.00 
.10 
1.50 
1.50 
3.00 
.50 



3.00 
.15 

.25 

3.00 



The Town of Ryegate. 193 

Printing Office Not over two persons.. 2.00 



Public Building 
Restaurant 

Schools 

Soda Fountain 

Sprinkling 



Store 

Theater 
Urinal 
Water Closets 



Meter 

12 chairs or stools or less 3.50 

Each additional 6 chairs .50 

Meter 

Single fountain per season 12.00 
Lawn, Garden, etc. each 
Sq. Ft. or major portion 

thereof per season 6.00 

Drug 3.00 

Candy, grocery, fruit etc. 2.00 

One cold water faucet 1.50 

Public 1.50 

(Private .65 

(Each additional .50 

(Public self closing 1 . 00 

(Each additional one 1.00 

(Public continuous flow 2.00 

METER RATE, 
The meter rates are divided into commercial and 
industrial. 

Commercial Rates. 
Mimwmum rate per month $2.00 

1st 5000 gallons 40 per 1000 gallons 

next 5000 gallons 35 per 1000 gallons 

above 10,000 gallons 30 per 1000 gallons 

Industrial Rate. 
Minimum rate $5.00 per month. 
From 1 to 25,000 gallons per month per 1000 

gallons . 20 



194 Lumbermens Trust Company vs. 

From 25M to 50,000 gallons per month per 1000 

gallons . 15 

From 50M to 100,000 gallons per month per 

1000 gallons .13 

From 100M to 200,000 gallons per month per 

1000 gallons . 12 

From 200M to 300,000 gallons per month per 

1000 gallons .10 

From 300M to 500,000 gallons per month per 

1000 gallons .09 

From 500M to 10,000,000 gallons per month per 

1M gallons .08 

Above 10,000,000 gallons per month per 1000 

gallons . 07 

[152] 

FLAT RATE SERVICE. 

Rule F-l. The flat rate will cover the use of 
water for domestic uses, lawn sprinkling, and any 
other purposes enumerated on the rate sheet cover- 
ing flat rate service. The City Water Department 
agrees to furnish water for certain specified uses 
for a certain specified sum. Id, therefore, a con- 
sumer furnishes other people with water without 
permission from the City Water Department, or 
uses it for other purposes than he is paying for, 
it is a violation of his contract, and the consumer 
offending, after reasonable notice, may have his 
water shut off and service discontinued until such 
time as the additional service furnished has been 
paid for, together with the additional expense in- 
curred in shutting off the water, not to exceed $1.00. 



The Totvn of Ryegate. 195 

Rule F-2. Flat rate water rents are payable 
monthly in advance, and payments should be made 
at the City's office before the 10th of each month. 
If not paid before the 15th of each month, the right 
is reserved to discontinue the service after reason- 
able notice. 

Rule F-3, Should any consumer on a flat rate 
schedule wish to install additional fixtures, or should 
he desire to apply for water for purposes not stated 
in the original application, written notice must be 
given to the City Water Department prior to mak- 
ing such installation or change of use. Special 
extension permits are issued for any extension of 
pipe within a building. In case a consumer places 
new fixtures on his premises without securing an 
extension permit from the City Water Department 
when such fixtures are discovered, a charge will be 
made for such extra fixture at schedule rates for 
the full length of time such fixtures have been in- 
stalled. 

Rule F-4. Should it be desired to discontinue 
the use of water for any purpose, whether for bath 
tubs, closets, lawn sprinkling, hose connections, or 
other fixtures, the faucet must be removed, the 
branch line plugged and notice given the City 
Water Department at its office before any reduc- 
tion of rates will be made. 

METERED SERVICE. 

Rule M-l. Meter rates will apply to all services 
not covered by the accompanying flat rate schedule. 
Any consumer desiring to receive water by meter 



196 Lumbermens Trust Company vs. 

measurement may have meter placed by the City 
Water Department under the following rules and 
regulations. Meters may be installed on any ser- 
vice when the same becomes necessary to prevent 
the waste of water. Meters are owned by the City 
Water Department and are furnished to consum- 
ers and set in place, provided proper receptacles are 
provided for them. 

Rule M-2. Each metered consumer is subject 
to the minimum charge for such class of service as 
he receives. Minimum and rates for additional 
water are shown on accompanying schedules of 
meter rates. 

Rule M-3. In all cases where a meter is installed 
the consumer must furnish proper protection from 
frost or other damage, and meter must be located 
where it is easily accessible for reading purposes 
and repairs; where necessary for [153] protec- 
tion a standard form of meter box will be placed 
by the City Water Department. The actual cost 
of the same shall be paid for by the consumer. 
After such receptacle is placed the City Water 
Department will furnish and connect the meter, 
and maintain the same in good condition. 

Rule M-4. When a meter is installed at the re- 
quest of the consumer its installation is to be per- 
manent unless the consumer elects to have the same 
removed and pays all expenses incident to the in- 
stallation and removal of same, or discontinues ser- 
vice entirely. Service on a meter for a shorter 
period than six months will be considered tempo- 
rary, and in such case the consumer will be required 



The Town of Ryegate. 197 

to reimburse the City Water Department for the 
actual cost of the labor in connection with the in- 
stallation and removal of the meter. 

Rule M-5. One meter only will be supplied for a 
single service and in case a consumer desire one or 
more secondary meters for various tenants in a 
single building, the consumer will be required to pay 
$1.00 per month for the installation and mainte- 
nance including the reading of said secondary 
meters. The City Water Department will not 
make collections for any secondary meters and all 
water rents for a single building must be paid by 
one consumer when supplied by meter measurement 
from one service. The City Water Department, 
however, will inclose the reading of the secondary 
meters with the bill for the whole building. 

Rule M-6. The City Water Department may re- 
place any meter at such time as it may see fit and 
shall be the judge of the size and make any meter 
installed. In case of a dispute as to the accuracy 
of the meter, the consumer may upon depos- 
iting the estimated cost of making a test, demand 
the meter be removed and tested as to accuracy, in 
his presence. In case the meter is found to be regis- 
tering correctly or in favor of the consumer the cost 
of such testing and replacing of the meter shall be 
horn by the consumer. 

In case the meter is found to be recording in- 
correctly and against the consumer, the amount 
deposited by the consumer will be funded and a 
reasonable adjustment made for overcharges, for 



198 Lumbermens Trust Company vs. 

period not exceeding sixty days previous to the 
demand of the consumer for a test to be made. 

Rule M-7. In case a meter is found stopped for 
any reason so that it is not correctly registering 
the quantity of water consumed the City Water 
Department may average the amount due for the 
current month, using the past two months as a 
basis of such average. 

Rule M-8. Water consumers are not permitted 
to interfere in any way with the meter after it is 
set in place. In case the meter seal is broken, or 
the working parts of the meter have been tampered 
with or the meter damaged, the City Water De- 
partment may render a bill for the current month 
based on an average of the last two months, to- 
gether with the cost of such damage as has been 
done the meter and may refuse to furnish water 
until the account is paid in full. 

Rule M-9. In no case will the City Water De- 
partment furnish water from one meter to two or 
more houses, whether the same are owned by one 
person or not. [154] 

SPECIAL RULES AND REGULATIONS. 

Rule S-l. The Office of the Water Department 
will be open daily for the transaction of business 
and accomodation of the public, from 9 :00 A. M. to 
4 P. M. with the exception of Sundays and Holidays. 

Rule S-2. All water supplied to consumers must 
be paid in advance, and such charges become delin- 
quent on the 5th day of each month and if not paid 
by the 15th of the current month, it is hereby made 
the duty of the Superintendent to shut of the water 



The Town of Ryegate. 199 

from such consumer and he shall not trun the water 
on again except for the payment of all past indebt- 
edness, and in addition $ 1.00 for turning the water 
on again. 

Rule S-3. Blank application forms for the tap- 
ping of the main, extension of service lines and for 
the installing of additional fixtures must be pro- 
cured at the office of the Town Clerk. 

Rule S-4. Service pipes must be laid at least 
fice feet below the established street grade and at 
least Hve feet below the surface of the ground in all 
other places. Where service enters upon property 
from the street the curb cock and curb box shall be 
placed one foot from the outer edge of the swde 
walk line. Where the surface enters the property 
from the alley the curb box and curb cock shall be 
placed one foot from the outside of the property 
line. This rule must be strictly complied with. 

Rule S-6. Owners, agents and tenants should 
familiarize themselves with the location of the stop 
and waste, which should be installed in such a man- 
ner as to drain the entire building, and close it as 
soon as the property becomes vacant, thereby pre- 
venting the pipes freezing and bursting. This stop 
and waste should always be placed in an accessible 
part of the premises. The shutting off of the water 
at the curb cock will not drain the pipes. 

Rule S-7. For flat rate services, where the rate 
remains the same from month to month, failure to 
receive a bill will not constitute a waiver of the 
provisions of this ordinance requiring that rentals 
be paid before a certain date of each month. 

Rule S-9. The hours during which sprinkling 



200 Ltimbermens Trust Company vs. 

is allowed will always appear on the permit in ac- 
cordance with Rule G-10. These hours must be 
strictly observed except where water is metered, and 
for the violation of this rule the water will be shut 
off without notice. 

Rule S-10. In no case will consumers be per- 
mitted to use a hose larger than 3/4 inches in in- 
side diameter for lawn sprinkling, washing vehicles 
or any other purpose. No hose of any size shall be 
used for any purpose except that it be provided 
with a nozzle with a discharge not greater than 14 
inches in diameter except when service is metered. 

Rule S-ll. Meters may be placed at the option 
of the water Superintendent where in his judg- 
ment water is being wasted or the amount of water 
used is in excess of the amount the consumer is en- 
titled to under the flat rate. Meters will be installed 
for any consumer complying with [155] the reg- 
ulations of the City Water Department on request. 

Rule S-12. The size and character of the ser- 
vices shall be subject to the approval of the water 
Superintendent and shall be governed by such rules 
as may be prescribed from time to time by the 
water Department. 

Section 2: This Ordinance shall be in full force 
and effect from and after its passage, and approval 
and publication as provided by law. 

Passed and approved this 8th day of December, 
A. D. 1920. 



The Totvn of Ryegate. 201 

Approved : 

W. H. NORTHEY, 
Mayor. 
(Corporate Seal) Attest : J. W. BROWN, 

Town Clerk. 

ORDINANCE No. 34. 

Entitled an "ORDINANCE OF THE CITY 
COUNCIL OF THE CITY OF RYEGATE, 
MONTANA, CREATING THE OFFICE OF 
CITY WATER COMMISSIONER, PRO- 
VIDING FOR THE APPOINTMENT, PRE- 
SCRIBING THE DUTIES AND FIXING 
THE SALARY OF THE APPOINTEE :" 

BE IT ORDAINED BY THE CITY COUNCIL 
OF THE CITY OF RYEGATE, MONTANA: 

Section 1. There is hereby created the Office of 
City Water Commissioner for the City of Ryegate, 
Montana, which office shall be filled by appointment 
by the Mayor, subject to confirmation of the City 
Council, and shall hold during the term of the Mayor 
appointing. 

Section 2. The person so appointed to the office 
of City Water Commissioner may be the same per- 
son holding the appointment of City Clerk, and 
while exercising the duties of the City Water Com- 
missioner shall be designated as "City Water Com- 
missioner.' ' 

Section 3. The person appointed to the office of 
City Water Commissioner before assuming the 
duties thereof, shall take and subscribe the Constitu- 
tional Oath and file the same duly certified, and 
furnish the City a good and sufficient bond in the 



202 Ltimbermens Trust Company vs. 

penal sum of One Thousand ($1000.00) Dollars 
conditioned upon the faithful performance of the 
duties of his office, and the prompt, and faithful 
payment over to the person entitled thereto of all 
moneys coming into his hands by virtue of his 
office; which said bond, when approved by the City 
Council, shall be filed with the City Treasurer of 
the City of Ryegate, Montana. 

Section 4. It shall be the duty of the City Water 
Commissioner to ask, demand, and collect all water 
rentals as heretofore, or as may hereinafter be fixed 
and prescribed by ordinance or the City Council, 
and subscribe and deliver receipts therefor, and to 
collect fees for permits and fines and forfeitures 
pursuant to ordinances and rules and regulations of 
said City Council, in the conduct, [156] manage- 
ment and control of the City Water Department, 
and to monthly pay all such moneys collected over 
to the City Treasurer, taking his receipts therefor. 

Section 5. It shall be the duty of the City Water 
Commissioner, and he is hereby empowered and di- 
rected to enforce all rules and regulations prescribed 
for the furnishing of water to the consumers, includ- 
ing the issuing of permits, shutting off or discontinu- 
ing the supply to consumers for the violation thereof 
as heretofore, or as may hereinafter be, prescribed 
by said City Council ; and said City Water Commis- 
sioner shall make, subscribed a monthly report and 
statement to the City Council of the amount of col- 
lections made, permits issued, and causes and rea- 
sons for any discontinuances of service, if any, to 
consumers. 



The Town of Ryegate. 203 

Section 6. The City Water Commissioner shall 
receive for his services a salary to be fixed by the 
City Council, and until the City Council shall other- 
wise determine, his salary shall be One Hundred 
Twenty Dollars per year ($120.00) payable in equal 
installments at the end of each month after his 
services are rendered upon his filing of the proper 
voucher and approval thereof by the City Council. 

7. This office is hereby declared to be an emer- 
gency measure and ordinance and shall take effect 
and be in full force and effect after its passage and 
approval. 

Passed and Approved this 22nd day of December 
A. D. 1920. 
Approved : 

W. H. NORTHEY, 

Mayor. 

Attest : , 

Town Clerk- 
Plaintiff rests. 

DEPOSITION OF HENRY THIEN, FOR DE- 
FENDANT. 

HENRY THIEN, a witness called on behalf of 
the defendant, being first duly sworn, on direct ex- 
amination by Mr. JOHNSTON, testified as follows: 

' 'My name is Henry Thien; I live at Ryegate and 
was living there in 1919 and 1920. In 1919, up to 
May, 1920, I was a member of the Town Council. 
R. C. Curry was the Mayor at the time. He is not 
living now. The other members of the Council at 
that time were T. A. Strong, C. H. Parizek, D. H. 



204 Lumbermens Trust Company vs. 

(Deposition of Henry Thien.) 

Corrington, he wasn't the full time, but part of the 
time, and myself. Mr. Gregory succeeded Mr. Cor- 
rington, in the fall of 1919 I should judge, Septem- 
ber or October, I would not know the exact date. 
My term of office [157] expired in May, 1920. 
Yes, sir, I know Mr. Roscoe who was just on the 
stand, and knew him prior to 1919, and the company 
that he was then connected with. The question of 
establishing a water and sewer system for Ryegate 
was first discussed in a general way among the peo- 
ple in the summer of 1919. I remember Mr. Roscoe 
coming to town, I think it was in May or June, pos- 
sibly in July. I think I saw him there three or 
four times up to September. I recall one instance 
that he was accompanied by another party. As to 
whether or not the other party was Mr. Neale, I 
cannot recall. I cannot say I knew him personally 
or even recall the name. I know there was another 
man accompanined Mr. Roscoe that called at my 
place of business on that trip. I was running a 
bank there at the time. I think it was in May, June 
or July. I could not make it any more definite as 
to time. No, I don't think I remember what busi- 
ness Mr. Neale, or whoever this man was with Mr. 
Roscoe, represented. I think Mr. Roscoe intro- 
duced him as representing some bond company, a 
purchaser of bonds, but I do not recall he mentioned 
the name of the company that he was representing. 
I believe he mentioned i Portland' but I do not re- 
call that he mentioned any firm. I would rather 
think that he mentioned Portland as the residence 
of Mr. Neale, if he mentioned it at all, but I would 



The Town of Ryegate. 205 

(Deposition of Henry Thien.) 

not be certain as to that. I heard Mr. Roscoe 's 
testimeny this morning relative to the conversations 
that took place between us and him and this third 
man. I do not recall Mr. Roscoe in that conversa- 
tion telling me that if the Security Bridge Company 
took the contract and built the water system they 
would have to sell the bonds. I do not recall in that 
conversation that anything was said about Mr. 
Neale, or whoever this third man was, buying any 
bonds of the Town of Ryegate. As to what action 
was taken by the Council, as a body, with reference 
to the installation of the water system, I thing not 
any, when these two men were there. I think the 
matter did not come before the Council before prob- 
ably August cr September, when perhaps it started. 
Yes, there was some opposition to this proposed 
plan later in the year 1919. The cause of the oppo- 
sition was, when we obtained the estimate of w 7 hat 
the probable cost would be, that was when the oppo- 
sition developed, on account of the excessive cost; 
that it was more than the Town could [158] 
•stand — could bear. That was the grounds for the 
opposition. Yes, sir, we had that estimate before 
the Ordinance or Resolution was passed creating 
the district. I was present at the Council Meeting 
when Mr. Roscoe, for the Security Bridge Company, 
became the purchaser of the Qenerla Bonds for the 
sum of $15,000, and I think it was the same day, 
the same meeting, that he submitted the bid of the 
Security Bridge Company for the contract of this 
water system. Mr. Roscoe may have appeared be- 
fore the Town Council on other occasions. He may 



206 Lumbermens Trust Company vs. 

(Deposition of Henry Thien.) 

have appeared once or twice besides that, after I 
think, perhaps before. As to this meeting when the 
bid for the General Bonds was submitted being my 
last meeting which I attended as Councilman, no, I 
think we had another meeting prior to when our 
term expired. It was the windup of the old Coun- 
cil before the new one took charge. I don't think 
Mr. Roscoe was there at that time. As to whether 
or not Mr. Roscoe said when he made his bid for 
the General Bonds and submitted his contract, or 
at any other time when he appeared before the 
Council in session, I do not recall that he ever said 
anything as to the Security Bridge Company selling 
the General and Special improvement Bonds if they 
got the contract. I do not recall that the pur- 
chaser, Lumbermens Trust Company's name was 
ever mentioned. He didn't ever mention in conver- 
sation with me when the Council was in session that 
the Lumbermens Trust Company had purchased or 
was going to purchase these bonds, either the gen- 
eral or special, in case his company got the contract 
to construct the sewer system. I do not recall ever 
knowing until after the suit was started by the prop- 
erty owners in 1922 that the Lumbermens Trust 
Company had purchased the general or special bonds 
from the Security Bridge Company. That suit was 
the one started to have these improvement bonds de- 
clared illegal, the cases that are mentioned in this 
lawsuit. Mr. Strong who in 1919 was a member of 
the Council is no longer living. Mr. Parizek is here 
as a witness. The other Councilman, Mr. Gregory, 
is in California, although I haven't his address. 



The Totvn of Ryegate. 207 

(Deposition of Henry Thien.) 

During 1919, the Mayor of Ryegate or a councilman 
was connected with the creamery in Ryegate as a 
stockholder, but not to my knowledge, as manager 
or employee. You call my [159] attention to 
the legal opinion of these general bonds by John C. 
Thompson, dated April 1, 1920, Exhibit 'A,' well I 
might have seen it, but I do not recall it. I was 
not aware that the City Council employed Mr. 
Thompson or his firm to pass on the legality of the 
issue. I was aware that they employed an attorney 
named Mitchell, who was acting for the Wells- 
Dickie Company, the Council made arrangements 
with him. Since you refresh my memory, I think 
it was the Gold-Stabeck Company. I don't recall 
Mr. Roscoe making a request of the Council for an 
opinion of Mr. Thompson, though I attended every 
meeting of the Council. I don't recall Mr. Roscoe 
ever advising the Council that he was going to for- 
ward this opinion of Mr. Thompson to the Lumber- 
mens Trust Company of Portland." 

Cross-examination by Mr. BROWN. 

"Yes, the opposition developed later; it was due to 
the high cost it would probably involve. This in- 
stallation was made during 1920. That was in the 
period at which expenses were rather high, follow- 
ing the war. Materials were high. Mr. Renshaw 
was the engineer who prepared the estimates, plans 
and specifications for the Town Council in the fall 
of 1919 and I was still a member of the Council. 
That was the fall preceding the passage of the or- 
dinance that created the district that went ahead. 



208 Lttmbermens Trust Company vs. 

(Deposition of Henry Thien.) 

Well, I examined those plans and specifications in 
a general way. They were before the Council and 
I was a member of it. Yes, the opposition was con- 
fined to the question of costs. I would say I was 
one of the leaders of that opposition. Well, per- 
haps, it might be stated without embarrassment to 
me that I was the leader of it. When these matters 
were taken up and worked out, I was the only 
Councilman who voted 'No.' I got out of the situa- 
tion. My term expired and I wasn't anxious to con- 
tinue as councilman. I was engaged in the banking 
business at Ryegate at that time and the leader 
in the movement in favor of the ordinance was the 
opposing banker, yes, sir. I would not call it a 
war between the two bankers. I think it was a con- 
troversy between the elements who considered the 
cost entirely excessive for a town of that size and on 
the other hand such that thought it would be all 
right. [160] 

The two leaders of the two movements, myself 
as opposed to the construction and the other bank 
of those in favor of it. There were a good many on 
the other side. I, also, had some associates on the 
thing. I didn't say that I didn't remember seeing 
Roscoe before the Council. I remember seeing him 
at the time the bid was submitted and he probably 
appeared before that. The general bond issue had 
been authorized and issued when I went out of office. 
The bid had been accepted, later, I think the Coun- 
cil passed the ordinances having these bonds issued 
and the amount that might be necessary. I don't re- 
member Mr. Roscoe ever mentioning the Lumber- 



The Town of Ryegate. 209 

(Deposition of Henry Thien.) 

mens Trust Company. I heard his testimony here 
this morning, upon that subject. In preparing 
for this bond issue the Town Council employed the 
Grold-Stabeck Company to get up the proceedings 
and I believe Mr. Mitchell represented them." 

Redirect Examination by Mr. JOHNSTON. 

" Referring to the opposition that was arising and 
the extent of it there were formal protests against 
the creation of the district." 

"Q. There has something been said today about 
some opposition arising, and the extent of it; were 
there any formal protests filed against the creation 
of the district? A. Yes. 

Q. Did you examine that so as to know whether 
or not as it was originally filed it represented over 
half of the area of the Improvement District? 

Mr. BROWN. — Objected to as not the best evi- 
dence. 

By the COURT.— Sustained. 

Q. Do you know whether that protest was numer- 
ously signed, or not? 

Mr. BROWN. — Objected to as not the best evi- 
dence. 

By the COURT. — I think you should produce the 
protest if it was a written protest. He says it was. 

Mr. JOHNSTON.— I will look it up and put it 
in later on. 

By the COURT.— Very well. ' ' [161] 

WITNESS. — (Continuing.) "Prior to engaging 
Renshaw we had another engineer there to prepare 
a rough estimate as to the probable cost." 



210 Lumbermens Trust Company vs. 

(Deposition of Henry Thien.) 

"Q. Do you know, Mr. Thein, how much, if 
at all, the actual cost exceeded the estimate of Mr. 
Renshaw ? 

Mr. BROWN. — To which we object as not compe- 
tent from this witness. 

By the COURT. — I hardly think, unless you have 
the estimates here, showing it is competent. That 
would be a matter of writing. There must be some 
written document in existence showing what that is. 
I do not think he could testify about it. I will sus- 
tain the objection. (Exception.) 

Mr. JOHNSTON.— (Offer of proof.) We now 
offer to show by this witness that the estimate of the 
engineer, Renshaw, for that portion of the work 
which was to be paid for by special improvement 
bonds, was something over $28,000.00 and that the 
actual cost of the work, which was in excess of the 
$15,000.00 general bond issue and was paid by Spe- 
cial Improvement warrants, was over $45,000.00. 

Mr. BROWN. — That is objected to as not the best 
evidence and for that very reason, incompetent to 
any issue in this proceeding. It is for the actual 
money involved irrespective of whether it was over 
or under the estimates. If there were a charge of 
fraud an issue might be raised upon that. 

By the COURT.— I will let it stand as it is." 

WITNESS.— (Continuing.) "I knew J. W. 
Brown, Town Clerk of Ryegate at that time and am 
familiar with his signature. Yes, that is his signa- 
ture on Defendant's Exhibit 'D.' " 

Mr. BROWN, — I am willing to agree that the 
record may show, there is now produced on the 



The Totvn of Ryegate. 211 

(Deposition of Henry Thien.) 

witness-stand from the files of the Town of Ryegate, 
a paper called Specifications of Water and Sewer 
System, and the captions Contractors [162] Pro- 
posal: Instructions to Bidders, etc., and that that 
received the approval of the Mayor and Council 
on the meeting of April 13, 1920, and that proposal 
includes all the things which that description de- 
scribes, to wit: The Specifications, the copy of In- 
structions, etc., and that it includes as a part 
thereof such parts as counsel wants to read. 

Mr. JOHNSTON.— Counsel for the defendant 
now offers in evidence the second page of the docu- 
ment marked Defendant's Exhibit "D," referred 
to by Mr. Brown in his statement to the Court, be- 
ing entitled " NOTICE TO CONTRACTORS," and 
particularly the first 5 lines of that proposal. The 
proposal consisting of two pages, the first part be- 
ing signed by the United States F. & G. Co., Balti- 
more, Md., and then as a part of that proposal, 
signed by The Security Bridge Company, by P. W. 
Hastings, Treasurer, on April 14, 1920, to which is 
appended in pen and ink, the following: 

"This proposal is made upon the express condi- 
tion that the bid of W. P. Roscoe upon the general 
obligation bonds be accepted. 

THE SECURITY BRIDGE CO. 
By P. W. HASTINGS, 
Treas," 

And that part of the Specifications, being a part 
of the same exhibit, which appears upon page 28, as 
it is numbered in the exhibit under the word 
" PAYMENTS," being the latter part of page 28 



212 Lumbermens Trust Company vs. 

and a portion of page 29. 

Now, it may simplify the record by reading it 
into the record. 

(Pages 28 and 29.) 

"PAYMENTS. 

The contractor will receive monthly partial pay- 
ments of the amount of ninety per cent of an esti- 
mate of the work done or the material furnished 
during the preceding month made by the engineer 
in charge on the 1st day of each month. Said esti- 
mate to be less the amount of any deduction which 
may be made in accordance with these specifications. 
The remaining ten per cent shall be paid upon final 
completion and acceptance of the work by the en- 
gineer and members of the Town Council. Final 
payment shall be made within ten days [163] of 
date of final acceptance of the work. The Town 
now has available from the proceeds of general ob- 
ligation bonds, $15,000.00 in cash to apply on the 
construction of the sewer system and $15,000.00 in 
cash to apply on the construction of the water sys- 
tem. After deducting the preliminary expenses 
this money will be paid to the contractor in cash for 
the construction of the reservoir, pump house, pump- 
ing plant, the sewage disposal plant, and such of the 
main water line and the main sewer line as it will 
cover. The balance of the water system is to be 
paid in Special Improvement District bonds drawn 
against Special Improvement District No. 4 in the 
Town of Byegate, Montana, and the balance of the 
cost of the Sewer System will be paid for in Special 



The Town of Ryegate. 213 

Improvement District Bonds drawn against Special 
Improvement District No. 3, in the Town of Rye- 
gate, Montana. These bonds will be accepted by 
the contractor in full payment for such work at 
their par value. 

The contractor will from time to time have in- 
cluded in his estimate, the cost of such incidental 
expenses, as printing, engineering, legal expenses, 
etc., for which he will be issued Special Improve- 
ment District bonds against Special Improvement 
Districts Nos. 3 and 4, and the amount of such in- 
cidental expenses as shown by the estimate shall be 
immediately refunded in their full amounts without 
discount to the Town or such other persons as esti- 
mates may have been issued for." 

Mr. BROWN.— To which offer the plaintiff ob- 
jects for the reason, First : That the item is covered, 
or the evidence sought to be introduced, by the stip- 
ulation of facts therein. 

There is no dispute, according to the agreed state- 
ment of facts, as to the procedure, the terms and 
conditions under which the petition or contract — 
including the fact he obtained the contract under the 
agreement he would accept the Special Improvement 
District Warrants. 

Second: Because the proposed offer includes the 
contract or details relative to another construction 
job of public improvement, to wit: Sewer System 
and Improvement District Number 3 about which 
there is no controversy in this lawsuit and has no 
part in this lawsuit. 

Ooject further, for the reason it is a segregation 
of a part of the exhibit without offering the whole, 



214 Lambermens Trust Company vs. 

and without counsel has an opportunity to examine 
to see if the whole would modify or affect any of 
the parts offered in evidence. [164] 

By the COURT. — I would sustain the objection as 
to the Sewer proposal — it is not involved here. 
Really, it ought to be sustained as to the parts 
offered on the ground it all should be offered. If 
there are any parts that might modify what you 
have introduced it certainly would be immaterial — 
would be material to have them considered as well. 

You can put it all in if you want to submit it as 
an exhibit. 

Mr. JOHNSTON".— I am perfectly willing. It 
makes the record more cumbersome. 

By the COURT.— I know it is. 

Mr. JOHNSTON.— As long as he objects to it— I 
now offer the entire Exhibit, Defendant's Exhibit 
"D." 

By the COURT. — It will go in subject to your 
objection, Mr. Brown. (Exception.) 

(Portion of Exhibit "D" offered by Mr. John- 
ston, referred to as "the first five lines of page 2.) 

EXHIBIT "D." 
"NOTICE TO CONTRACTORS. 

Sealed Bids will be received by the Town Clerk 
at his office until eight o'clock P. M. of the Four- 
teenth day of April, A. D. 1920, for the furnishing 
of all materials and the construction of the proposed 
water system in the Town of Ryegate, Montana, and 
in Special Improvement District No. Four in said 
Town of Ryegate 



The Town of Ryegate. 215 

(Portion of Exhibit 'D' offered by Mr. John- 
ston, referred to in his offer as ' Proposal,' consist- 
ing of two pages, the first part being signed by the 
United States F. & G. Co., Baltimore, Md., and then 
as a part of that proposal, signed by the Security 
Bridge Company, by P. W. Hastings, Treasurer). 

PROPOSAL. 

To the Honorable Mayor and Town Council of the 

Town of Ryegate, Montana. 
Gentlemen : 

The undersigned propose to furnish all material 
and do all work of constructing the proposed water 
and sewer systems in the town of Ryegate, Montana, 
in a first class workmanlike manner, according to 
the attached form of contract and specifications, 
plans and profiles on file in the office of the Town 
Clerk, at the prices hereinafter mentioned and 
named. 

The following is the name and place of business of 
the surety company which will sign the form of bond 
as surety if the work is awarded to the undersigned. 
[165] 

UNITED STATES F. & G. CO., 

Baltimore, Md. 

And we hereby agree, to enter into a contract 
within 10 days of the notification of the acceptance 
of this proposal to finish and complete all of said 
work by the 1st day of October, A. D. 1920, accord- 
ing to the form of contract, plans and specifications 
hereto attached or filed in the office of the Town 
Clerk under which this proposal is made. In de- 
fault of any of the conditions to be performed by the 



216 Lumbermens Trust Company vs. 

party of the second part, the certified checks which 
accompany this proposal, shall at the discretion of 
the Town Council, be absolutely forfeited to the 
Town of Ryegate as liquidated damages for the fail- 
ure of the undersigned to comply with all the terms 
of this proposal. If this proposal is rejected, then 
the accompanying checks made payable to the Town 
of Ryegate shall be returned to the undersigned 
within 10 days of the date thereof. If this proposal 
is accepted then the enclosed checks will be returned 
within 10 days of the filing of a bond for the faith- 
ful performance of the work. 

Dated this 14 day of April, A. D., 1920. 

Name THE SECURITY BRIDGE CO., 

Residence , 

By P. W. HASTINGS, 

Treas." 
(The following letter was received by the Court 
Reporter, accounting for only the portions originally 
offered by Mr. Johnston being copied in the record. 

" Helena, Montana. Jan. 28th, 1930. 
Re: Lumbermens Trust Co. v. Town of Ryegate, 

Mont. 
Mr. C. S. Prater, 
Court Reporter, 
Billings, Mont. 
Dear Mr. Prater : 

Upon further consideration of Mr. Johnston's Ex- 
hibit D I can see no reason for burdening the record 
with this entire exhibit. I believe his suggestion 
that we only use the parts that he desires is per- 
fectly proper. I return the Exhibit to you here- 



The Town of Ryegate. 217 

with. I am copying this letter to Mr. Johnston 
that he may be advised. 

Very truly yours, 

JOHN G. BROWN.") 

Mr. JOHNSTON.— We now offer in evidence the 
Minutes of the Town Council of the Town of Rye- 
gate of February 11, 1919, appearing on Pages 135, 
136, 137 and 138 of the Minute Book of the Town of 
Ryegate, and — 

Page 139 of the same Minute Book, being a copy 
of the protests referred to in the minutes of that 
meeting. 

Mr. BROWN. — We object to the offer upon the 
sole ground that the minutes offered refer to a meet- 
ing of a later date, which later date appears to have 
been [166] on February 17, 1920, and found on 
Page 140 of the same Minutes, and if this is offered 
in connection with the other, we have no objection. 

Mr. JOHNSTON.— We will include that in the 
offer. 

Mr. BROWN.— No objection. 

By the COURT.— It may be admitted. 

Mr. BROWN.— That will include Page 140, as 
well as the other pages'? 

By the COURT.— Yes. 

Mr. BROWN. — We can agree that the Stenog- 
rapher may omit parts of that minute that has 
nothing to do with this case. 

By the COURT. — You may agree on that, there. 



218 Lumbermens Trust Company vs. 

Page 135. 
MINUTES OF REGULAR MEETING OP THE 
TOWN COUNCIL OF THE TOWN OF 
RYEGATE, MONTANA, HELD AT THE 
REGULAR PLACE OF MEETING, THE 
FARMERS AND MERCHANTS STATE 
BANK, ON WEDNESDAY THE 11TH 
DAY OF FEBRUARY L("), (1920) AT 7:30 
P.M. 

Upon roll call the following members were found 
to be present: Mayor R. C. Currie. Aldermen, 
Gregory, Parizek, Strong and Thirn. Absent 
None. Town Clerk J. A. Brown was present. 

The Committee to whom was referred Ordinance 
No. 25 at the regular meeting of the Council on 
January 14, 1920, submitted the following report: 
"To the Mayor and Council of the Town of 

Ryegate, Montana. 
Gentlemen : — 

We, your Committee, to whom was referred by 
the Mayor at the regular meeting of the Town 
Council on January 14, 1920, Ordinance No. 25 en- 
titled: "AN ORDINANCE TO PROVIDE FOR 
THE ISSUANCE AND SALE OF #15,000 
WATER BONDS OF THE TOWN OF RYE- 
GATE, MONTANA, FOR THE PURPOSE OF 
PROCURING A WATER SUPPLY AND CON- 
STRUCTING A WATER SYSTEM FOR SAID 
TOWN : AND DESIGNATING THE FORM OF 
SUCH BONDS AND PROVIDING FOR THE 
LEVY OF A TAX FOR THE PURPOSE OF 
PAYING THE INTEREST ON AND TO CRE- 



The Town of Ryegate. 219 

ATE A SINKING FUND FOR THE REDEMP- 
TION OF SAID BONDS/' beg leave to report 
and recommend the following amendments to said 
Ordinance as introduced and passed upon its first 
reading : 

The Town Treasurer having filed a Certificate with 
the Town Clerk, designating the LIBERTY NA- 
TIONAL BANK in the City of New York, State of 
New York, as the Bank in the City of New York at 
which the principal and interest of said bonds may 
be payable at the option of the holder, that the words 
" Liberty National" be inserted in the first para- 
graph of the [167] form of the bond and also 
in the form of the coupon in Section 2 of said Or- 
dinance, so that the same will read, "or at the op- 
tion of the holder at the LIBERTY NATIONAL 
BANK in the City of New York, State of New 
York/' 

That the date of the sale of such bonds be the 
14th day of April, 1920, at 8 o'clock P. M. and that 
the Notice of Sale, provided for in Section 4 of said 
Ordinance be amended in the second line thereof 
by interlineation so as to provide for the sale of 
such bonds at said date and hour. 

That the last line in the second paragraph of 
said Notice of Sale be amended by inserting the 
words " Liberty National" so as to read as follows: 
"or at the option of the holder at the LIBERTY 
NATIONAL BANK in the City of New York, 
State of New York." 



220 Lumbermens Trust Company vs. 

We recommend that the foregoing amendments 
be made in said Ordinance and that as amended 
the said Ordinance be finally passed and adopted. 

Respectfully submitted, 
L. W. GREGORY, 
C. H. PARIZEK, 

Committee.'' 
Alderman Gregory moved the adoption of the re- 
port of the Committee which motion was duly sec- 
onded and carried and the foregoing report was 
adopted and ordered spread upon the minutes of 
the meeting. Alderman Gregory thereupon moved 
that the Clerk be instructed to amend said Or- 
dinance by interlineation in accordance with the 
above report, which motion was duly seconded and 
carried and the Clerk thereupon inserted the words 
"LIBERTY NATIONAL" in the form of the 
bond and form of the coupon in Section 2 of said 
Ordinance and also in the Notice of Sale in Section 
4, and also inserted the words "14th day of April, 
1920 at 8 o'clock P. M." in the second line of said 
Notice of Sale. 

Thereupon said Ordinance No. 25 was read at 
length as of its second reading and Alderman Strong 
regularly moved the final passage and adoption oi 
said Ordinance. Such motion was duly seconded 
by Alderman Parizek and upon roll call the fol- 
lowing vote was recorded upon the final passage 
and adoption of said Ordinance. 

AYES: Alderman Gregory, Parizek, Strong 
and Thien. 

NOES: None. 

Thereupon said Ordinance No. 25 was declared 



The Town of Ryegate. 221 

duly passed and adopted and was signed by the 
Mayor and Clerk in open session of the Council 
and the Clerk was directed to make proper record 
and publication of the same. The Town Clerk was 
instructed to cause the Notice of Sale provided in 
said Ordinance No. 25 to be published in the u Rye- 
gate Weekly Reporter/ ' a weekly newspaper pub- 
lished and printed in the Town of Ryegate and in 
the Bond Buyer, a newspaper published in New 
York City, for a period of not less than four weeks. 

(Minutes of meeting held February 11, 1920, 
continued.) 

The Town Council of the Town of Ryegate hav- 
ing at a [168] Special meeting thereof duly 
called and held on December 30, 1919, regularly 
passed and adopted Resolution No. 10, the same 
being a Resolution declaring it to be the intention 
of the Town Council of the Town of Ryegate, Mon- 
tana, to create Special Improvement District No. 4 
and Notices having been regularly published and 
mailed on the first day of January, 1920, as pro- 
vided in said Resolution No. 10, and this being the 
next regular meeting of the Town Council, after 
the expiration of the time within which protests 
may be made to the Town Council against the crea- 
tion of said Special Improvement District, the 
Council proceeded to hear and pass upon all pro- 
tests which had been filed with the Town Clerk 
within the time allowed by law after the first pub- 
lication of such Notice of the passage of said Reso- 
lution of Intention. 

Attorney D. Augustus Jones representing cer- 
tain protestants was present at such hearing and 



222 Lumbermens Trust Company vs. 

orally argued the reasons why protestants opposed 
creation of such districts and the proposed works; 
said reasons being same as set out in the written 
protests. 

After considering such protests filed, Alderman 
Strong made the following motion: That an ad- 
journed regular meeting of the Town Council be 
held Tuesday, February 17th, 1920, at 8 o'clock 
P. M. for the purpose of giving such protests filed 
final consideration and for the additional purpose 
of finally determining the matter of the creation 
of such special improvement districts, hereinbefore 
mentioned, in accordance with Resolutions of Inten- 
tion heretofore introduced and passed by the Town 
Council. Said motion was regularly seconded by 
Alderman Parizek. The Mayor stated the motion 
and put the question and upon roll call the follow- 
ing vote was recorded: 

AYES Alderman Gregory, Parizek, Strong and 
Thien. 

NOES None. 



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228 Lumbermens Trust Company vs. 

Protest of I. G. Madden for Lot 1 Block 2 not 
considered as signature was not authorized. 

I, J. A. Brown, Town Clerk of the Town of Rye- 
gate, Montana, hereby certify that the foregoing is 
true and correct list of all the protests and with- 
drawal of protests filed with me as such Town 
Clerk against the formation of Special Improve- 
ment Districts as outlined in Resolution Nine and 
Ten declaring it to be the intension of the council 
to create such districts. 

(Corporate Seal) J. A. BROWN, 

Town Clerk. [170] 

Page 140. 

MINUTES OF ADJOURNED REGULAR 
MEETING HELD FEBRUARY 17, 1920. 

MINUTES OF AN ADJOURNED REGULAR 
MEETING OF THE TOWN COUNCIL OF 
THE TOWN OF RYEGATE, MONTANA, 
HELD AT THE REGULAR PLACE OF 
MEETING, THE FARMERS AND MER- 
CHANTS STATE BANK, ON TUESDAY 
THE 17th DAY OF FEBRUARY, A. D. 1920, 
AT EIGHT O'CLOCK P. M. 
Upon roll call, the following members were 
found to be present. 
Mayor R. C. Currie. 

Aldermen Gregory, Parizek, Strong and Thien. 
Absent none. 
Town Clerk J. A. Brown was also present. 

The Clerk read all the protests filed with him 
against the creation of Special Improvement Dis- 
tricts Number 3 and Number 4 as outlined in Reso- 



The Town of Ryegate. 229 

(Deposition of G. H. Corrington.) 

lutions Number 9 and Number 10 passed by the 

Council at the meeting held December 10, 1919. 

The Council then fully considered the protests 
filed against the creation of Special Improvement 
District No. 4 and upon finding that the total area 
of the property protested was less than 50% of the 
total area of the entire district, Alderman Strong 
made the following motion: "That the protests 
filed with the Clerk in accordance Resolution No. 9 
protesting the creation of Special Improvement 
District No. 4 have been considered in full and 
found insufficient under the law to prevent the 
creation of such District.' ' Alderman Gregory 
seconded the motion. The Mayor stated the mo- 
tion and put the question and the following vote 
was recorded. 

Ayes: Aldermen Gregory, Parizek and Strong. 

Noes: Alderman Thien. 

The Mayor declared the motion carried 

DEPOSITION OF G. H. CORRINGTON, FOR 
DEFENDANT. 

G. H. CORRINGTON, a witness called on be- 
half of the defendant, being first duly sworn, on 
direct examination by Mr. JOHNSTON, testified 
as follows: 

"G. H. Corrington is my name and I live at Rye- 
gate, Montana. I am Town Treasurer and have 
been since the spring of 1922. Prior to that time 
I was alderman. I was alderman when we were 



230 Lumbermens Trust Company vs. 

(Deposition of G. H. Corrington.) 
first incorporated, until the fall of 1919 — Septem- 
ber or October. I resigned in the fall of 1919. I 
know W. P. Roscoe who testified in this case. No, 
sir, Mr. Roscoe never appeared before the Council 
with reference to the proposed water system for 
the Town of Ryegate while I was a member of the 
Town Council. I recall meeting Mr. Roscoe but 
not in regard to this particular matter in the sum- 
mer of fall of 1919. He did not discuss with me 
the matter of the water system for the Town of 
Ryegate. My resignation was accepted in Octo- 
ber. I do not recall meeting Mr. Roscoe in that 
spring or summer [171] or fall when he was ac- 
companied by another gentleman and I do not re- 
call having met Mr. Neale. I didn't know that the 
Lumbermens Trust Company contemplated buying 
the General or Special Improvement Bonds of the 
Town of Ryegate, for the construction of this 
water system.'' 

"Q. Did you, as an officer of the Town of Rye- 
gate, ever importune or request the Lumbermens 
Trust Company to buy an of the General or Spe- 
cial Improvement District bonds of the Town of 
Ryegate ? 

Mr. BROWN. — To which we object for the rea- 
son that the witness has said he never knew of their 
being in the market up to the time he went out of 
office ; no bonds were ready to be sold until after he 
had passed out as an officer. 



The Town of Ryegate. 231 

(Deposition of C. H. Parizek.) 

By the COURT. — Ask him the question; let it 
go. 

(Exception.) 

(Question read.) 

A. I did not." 

DEPOSITION OF HENRY THIEN, FOR DE- 
FENDANT (RECALLED). 

HENRY THIEN a witness recalled on behalf of 
the defendant, on direct examination by Mr. JOHN- 
STON, testified as follows : 

"Q. Mr. Thien, at any time while you were an 
officer of the Town of Ryegate, did you importune 
or request the Lumbermens Trust Company to buy 
any of the General or Special Improvement Bonds 
of the Town of Ryegate? A. I did not. 

Mr. BROWN. — The same objection. 

By the COURT.— The same ruling." 

DEPOSITION OF C. H. PARIZEK, FOR DE- 
FENDANT. 

C. H. PARIZEK, a witness called on behalf of 
the defendant, being first duly sworn, on direct ex- 
amination by Mr. JOHNSTON, testified as follows : 

"My name is C. H. Parizek and I live at Ryegate. 
I was a member of the Town Council in 1919 and 
1920. My term of office expired in the spring of 
1920, at the same time Mr. Thien's expired. I had 
never met Mr. W. P. [172] Roscoe who testi- 
fied here. I have seen him. I do not recall any 



232 Lumbermens Trust Company vs. 

(Deposition of C. H. Parizek.) 
conversation with Mr. Roscoe during the time I 
was alderman with reference to the Security Bridge 
Company getting the contract for the construction 
of the water system for Ryegate." 

"Q. Did you ever meet anybody there in Rye- 
gate with Mr. Roscoe in connection with that water 
system, about the issuance of these bonds'? 

Mr. BROWN. — We object to that as incompe- 
tent because the witness says he never knew Mr. 
Roscoe and never saw him. 

By the COURT.— I will let it go in. (Excep- 
tion.) 

(Question read.) 

A. I never met them to talk to them. I have 
seen the man with him. I knew Mr. Roscoe by 
sight. " 

WITNESS.— (Continuing.) "I do not recol- 
lect ever meeting Mr. Neale, whose deposition was 
read. I do not recollect anybody else ever talking 
to me about the Lumbermens Trust Company buy- 
ing either Special or General Improvement bonds 
of the Town of Ryegate. No, I don't recall Mr. 
Roscoe ever appearing before any meeting of the 
Town Council. I don't recall ever having heard 
that the Lumbermens Trust Company might buy 
any of these Special Improvement Bonds while I 
was Councilman. As to whether or not I, or any 
other official ever requested the Lumbermens Trust 
Company to buy these Special Improvement 
Bonds, I would say not that I know of. I do not 
recall that I ever saw the opinion of Mr. Thomp- 



The Town of By eg ate. 233 

(Deposition of C. H. Parizek.) 
son, marked Plaintiff's Exhibit 'A' with reference 
to the legality of the General Bonds of the Town. 
I might have seen it but I do not recall. I have no 
recollection of Mr. Roscoe ever appearing before 
the Council when it was in session and asking for 
this copy and advising the Council that he was go- 
ing to send it to the Lumbermens Trust Company.' ' 
[173] 

Cross-examination by Mr. BROWN. 

"I knew Mr. Strong the banker. He was in the 
Farmers & Merchants State Bank. I also knew 
Mr. Thien; he was in the State Bank of Ryegate. 
I was a merchant in Ryegate at that time. I did 
business with both banks. I do not recollect ever 
having met Mr. Roscoe and Mr. Neale and two 
other of the Councilmen with Mr. Strong in Mr. 
Strong's bank to discuss this matter. I do not 
recollect any such meeting at any time or at any 
date. As to my saying I never did, I would answer 
I do not recall it. I do not recall at that time and 
place, if there was such a time and occurrence at 
such a place, it was discussed as to how the matter 
would be delayed until Thompson's opinion came 
on these General Bonds, before Mr. Roscoe would 
forward the bonds, with the opinion, on to the 
Lumbermens Trust Company. As to whether or 
not it ever happened, I do not recall." 



234 Lumbermens Trust Company vs. 

DEPOSITION OF W. H. NORTHEY, FOR DE- 
FENDANT. 

W. H. NORTHEY, a witness called on behalf of 
the defendant, being first duly sworn, on direct ex- 
amination by Mr. JOHNSTON, testified as fol- 
lows: 

"My name is W. H. Northey. I live at Ryegate 
and was a member of the Ryegate Town Council in 
1920 and 1921. I was Mayor of the town from 
May, 1920, to May, 1922. I know Mr. W. P. Ros- 
coe but I am not acquainted with Mr. Neale, whose 
deposition was read. I never met him that I know 
of. I was not an official of the town in 1919. I 
had no conversation with any official of the Lum- 
bermens Trust Company. I never had any knowl- 
edge that the Lumbermens Trust Company had 
agreed to buy these Special Improvement Bonds 
from the Security Bridge Company. The first time 
I knew this company had the bonds was the other 
day when I was served with the summons — I mean 
the subpoena served on me. That was the first 
time I ever knew the Lumbermens Trust Company 
claimed to be the purchaser of these bonds. As to 
Plaintiff's Exhibit 'A,' the opinion of Mr. Thomp- 
son with reference to the legality of the General 
Bonds of the Town, I don't know anything about 
it — I don't remember ever seeing it. I don't re- 
call that Mr. Roscoe ever appeared before me and 
the Council [174] when I was Mayor, asking 
for this opinion, Plaintiff's Exhibit 'A.' I don't 
recall Mr. Roscoe ever stating to me and the Coun- 



The Town of Eyegate. 235 

(Deposition of W. H. Northey.) 
cil, while in session or otherwise, that he wanted 
this opinion to send to the Lumbermens Trust Com- 
pany of Portland, Oregon; in fact I never heard 
of that man Thompson in connection with the water 
system at all. [175] Calling my attention to the 
certificates marked for Identification as Plaintiff's 
Exhibit 'C,' being certificates relative to the con- 
struction, I would say it is my signature on them. 
I understand they were estimates of work done. 
Also, this third place, where it appears to be my 
signature, it is mine. Yes, sir, that is my signa- 
ture on the fourth and fifth ones." 

Mr. BROWN. — Are these signatures disputed? 

Mr. JOHNSTON.— No, sir. 

WITNESS.— (Continuing.) "I think my signa- 
ture was put on at the request of the engineer. I 
think that is the Clerk's handwriting on them, Mr. 
Brown. Mr. Roscoe never appeared and requested 
me to sign any of these certificates. Mr. Roscoe, 
nor anyone else ever told me they were being sent to 
the Lumbermens Trust Company. I never heard 
the Lumbermens Trust Company mentioned, in con- 
nection with these certificates. I never importuned 
or requested the Lumbermens Trust Company to 
buy any of these General or Special Bonds." 

DEPOSITION OF B. MELLEN, FOR DE- 
FENDANT. 

B. MELLEN, a witness called on behalf of the 
defendant, being first duly sworn, on direct exami- 
nation by Mr. JOHNSTON, testified as follows: 



236 Lumbermens Trust Company vs. 

(Deposition of B. Mellen.) 

"My name is Binone Mellen and I live at Rye- 
gate and was a member of the Town Council of Rye- 
gate in 1920 and 1921. I went into office the first 
Monday in May, 1920. I served two full years. I 
know Mr. Roscoe by sight; I never met him until 
I came on the Council. I do not know Mr. Neale 
whose deposition was read in evidence. I was not 
an officer of the Town of Ryegate in 1919 and to 
my knowledge I never met Mr. Roscoe or Mr. Neale 
in connection with this water system or these bonds. 
I never at any time importuned the Lumbermens 
Trust Company to buy any of these Special Im- 
provement Bonds, nor did I wever know of any 
officer of the Town of Ryegate asking the Lumber- 
mens Trust Company to buy any of the bonds. I 
don't remember when I learned that the Lumber- 
mens Trust Company was the owner of these Special 
Improvement Bonds. It wasn't until after the suit 
was started, to annul the bonds. Yes, sir, that was 
the suit started in 1922. I do not remember Mr. 
Roscoe appearing before the Town Council as rep- 
resentative of the Security Bridge Company, but 
[176] he may have been present. I do not remem- 
ber any particular meeting. He never appeared 
before the Town Council and mentioned that the 
Lumbermens Trust Company had bought any of 
the General or Special Improvement Bonds." 

"Q. I call your attention to Plaintiff's Exhibit 
'A/ being an opinion of Mr. Thompson with ref- 
erence to the validity of the General Bond Issue of 
Ryegate, and ask you whether you recall ever hav- 
ing seen that before. 



The Town of Ryegate. 237 

(Deposition of B. Mellen.) 

Mr. BROWN.— Objected to as immaterial. The 
letter shows by its face it is an advance date, be- 
fore the time he was a member of the Council. 

By the COURT.— Overruled. (Exception.) 

A. No, sir." 

WITNESS.— (Continuing.) "I do not recall 
Mr. Roscoe ever appearing before the Council while 
I was a member and asking for this opinion of Mr. 
Thompson. I never heard of this opinion of Mr. 
Thompson's until to-day.' ' 

"Q. Now, I call your attention to Plaintiff's Ex- 
hibit 'C,' being a bunch of certificates with refer- 
ence to the work on this system — supposed to be 
copies of the minutes of the meetings relative to 
that, the allowance of estimates; certified copy of 
the minutes being signed by Mr. Brown, and the 
ones with reference to the work, of the issuance of 
bonds, signed by Northey, Mayor, Brown, Town 
Clerk and Hinton, Town Treasurer. Did the mat- 
ter of the issuance of any of these certificates ever 
come before the Mayor or Council, in session, while 
you were a member of the Council ? 

Mr. BROWN. — We object to that as incompetent. 
If it came before them, officially, the best evidence 
of it is the minutes of their meeting. 

By the COURT.— Overruled. (Exception.) 

(Question read.) 

A. These were brought up — these estimates were 
brought up and allowed at the Board meeting." 
[177] 

WITNESS.— (Continuing.) "I never knew that 
certified copies of the minutes were being made out 



238 Lumbennens Trust Company vs. 

(Deposition of B. Mellen.) 

by the Town Clerk and delivered to anyone. No, 
sir, I didn't know that the Mayor, Town Clerk and 
Treasurer were making them out at that time. I 
never heard of them before to-day. I never knew 
of any officers of the Town of Ryegate having any 
such knowledge during the time I was Councilman." 

Cross-examination by Mr. BROWN. 

U Q. Mr. Mellen, you were present at meetings of 
the Town Council, at seven o'clock P. M. on the 11th 
of August; 7:30 o'clock the 25th day of August and 
7:30 o'clock the 8th of September and other times 
along in that interval, that the Town Council of 
Ryegate was in session, were you not? 

A. The minutes would show whether I was pres- 
ent. 

Q. Do you recall whether or not you were pres- 
ent? A. I think I was present most of the time. 

Q. Now the, calling your attention to these min- 
utes in question, to the minutes of the dates men- 
tioned, I mean — to the dates mentioned in these cer- 
tificates, isn't it a fact that each of the estimates 
submitted by the engineer was submitted to the 
Council, and each time they were submitted, 'it was 
regularly moved that the estimate of the Security 
Bridge Company be allowed as read and that the 
Mayor and Town Clerk be instructed to issue bonds 
numbered from 20 to 27, both inclusive, etc., against 
Special Improvement District Number 4,' Don't 
you recall of a number of instances where a similar 
motion to that went through each time these were 
prepared? A. The estimates, yes, sir. 



The Town of Ryegate. 239 

(Deposition of B. Mellen.) 

Q. And that was all done in accordance with the 
contract for the construction was it not ? 

Mr. JOHNSTON.— That is a conclusion he is 
asking for; objected to for that reason. [178] 

By the COURT. — Let him answer the question, if 
you were there and participated in the meeting? 

A. Yes, sir. 

Q. Is that correct? A. Yes, sir. 

Q. You were present and voted for the authority, 
for the estimate upon that date — 

Mr. JOHNSTON.— Object to that as not the best 
evidence. 

By the COURT. — Let him testify whether he was 
or not. 

A. I was present on that date." 

WITNESS.— (Continuing.) "On that date I 
voted for the estimate being allowed. I was pres- 
ent at the meeting of July 28, 1920, and voted in 
favor of the allowance of the estimate of the Secu- 
rity Bridge Company on the construction of the 
waterworks. I was present at the meeting of Au- 
gust 25th and voted for the allowance of the esti- 
mate of the Security Bridge Company for the con- 
struction work that had been certified to that meet- 
ing. I was present at the meeting of September 8, 
1920, and voted in favor of the allowance of the esti- 
mate of the Security Bridge Company on that date. 
I was present at the meeting of October 13. There 
was submitted to the Council and I voted in favor 
of the allowance of the estimate of the Security 
Bridge Company for the construction of this water- 



'240 Lumbermens Trust Company vs. 

works system at that time. As to the meeting of 
November 24, 1920, I was present on that date and 
voted in favor of the allowance of the estimate of 
the Security Bridge Company of the waterworks 
of the City of Eyegate submitted to that meeting. 
I still live in Eyegate." 

"Mr. JOHNSTON.— We now offer in evidence 
the minutes of the meetings of the Town Council of 
Eyegate on each of the dates mentioned by counsel 
on his inquires of the witness who just left the 
stand. We want to show there was nothing — 

Mr. BEOWN.— We have no objection to the offer 
if confined to this; if confined to the bills of Tom, 
Dick and Harry— [179] 

By the COUET.— Let it be confined to the esti- 
mates, and they may go in. 

Mr. JOHNSTON.— Offered for the purpose of 
showing, at these meetings nothing was said about 
the certificates. 

By the COUET.— They will be admitted for what 
they show." 

(POETION OF MINUTES OF EEGULAE 
MEETING OF TOWN COUNCIL OF TOWN 
OF EYEGATE, MONTANA, ON WEDNES- 
DAY THE 11th OF AUGUST, 1920, AT 7:30 
O'CLOCK P. M.) 

The July estimate of the Security Bridge Com- 
pany for labor and material on waterworks was 
read as follows: 
117 cu. yds. concrete in reservoir © 

$37.50 $ 4,387.50 



The Totem of Ryegate. 241 

Eeservoir roof structure complete 1,425.00 

11 cu. yds. concrete at well @ $40.00 440.00 

100 cu. yds. excavation at well © $2.75 . . 275.00 
300 cu. yds. excavation at reservoir © 

$3.17 951.00 

1400 lin. ft. 6" pipe on ground © $2.50. . 3,500.00 

Material on ground as per first estimate 4,268.04 



Total to August 1st $15,246.54 

Less 

Previous estimated $6,341.24 

Re-inforcing at reservoir 873.00 

10% 1,532.30 



Total deductions $8,746.54 

Balance due contractor this estimate .... $ 6,500.00 

Alderman Gregory moved that the estimate be 
allowed as read at the the Mayor and Town Clerk 
be instructed to issue bonds numbered 7 to 19 in- 
clusive of Special Improvement District No. 4 in 
the denomination of $500.00 each to the Security 
Bridge Company according to the terms of the con- 
tract with that company. This motion was duly 
seconded and unanimously carried. 

(PORTION OF MINUTES OF REGULAR 
MEETING OF THE TOWN COUNCIL OF 
THE TOWN OF RYEGATE, MONTANA, 
ON WEDNESDAY THE 28th OF JULY, 
1920, AT 7:30 P. M.) 
Estimate Ryegate Water System for the month 

of June, 1920, to the Security Bridge Company, 



242 Lumbermens Trust Company vs. 

Contractors, approved by Claude A. Renshaw was 

read as follows : 

Material on ground as per previous esti- 
mate $4,268.04 

64 yds. Concrete in place in reservoir (a) 

$37.50 2,400.00 

300 Cu. Yds. excavation at reservoir © 

$3.17 951.00 

Total material furnished and work com- 
pleted to date $7,619.04 

[180] 

Less previous estimate $3,841.24 

Less re-inforcing in reservr. . 360.00 
Less 10% ; 917.80 

Total deductions . $5,119.04 

Balance due contractor this estimate $2,500.00 

(PORTION OF MINUTES OF SPECIAL 
MEETING OF THE TOWN COUNCIL OF 
THE TOWN OF RYEGATE, MONTANA, 
HELD ON THE 25th DAY OF AUGUST, 

1920, AT 7:30 P. M.) 
Fourth Estimate Ryegate Water Works System, 
Security Bridge Company, Contractors. 
August 25th, 1920. 

Previous estimates $15,246.54 

Materials furnished and labor performed 
since August 11th Estimate as fol- 
lows: 

1200' 6" pipe © $2.50 3,000.00 

2 tons specials @ $365.00 730.00 



The Town of Ryegate. 243 

11 Cu. Yds. Concrete at well © $40.00. . . 440.00 

100 Cu. yds. Excavation at well © $2.75 275.00 



Total material furnished & labor per- 
formed $19,691.54 

Less previous estimate $12,841.24 

Less reinforcing in reservoir 873.00 
Less 10% 1,977.30 

Total deductions $15,691.54 

Bal. due this Estimate .... 4,000.00 



$19,691.54 
These items are correct. 

(Signed) CLAUDE A. RENSHAW, 

Engineer. 
Alderman Gregory moved that the Fourth Esti- 
mate of the Security Bridge Company be allowed 
as read and that the Mayor and Town Clerk be in- 
structed to issue Bonds numbered from 20 to 27, 
both inclusive in the denomination of five hundred 
dollars each against Special Improvement District 
Number 4 be issued in payment of same. 

Upon roll call all the members voted "Aye." The 
motion was declared to have unanimously carried. 
(PORTIONS OF MINUTES OF REGULAR 
MEETING OF THE TOWN COUNCIL OF 
THE TOWN OF RYEGATE, MONTANA, 
HELD ON SEPTEMBER 8, 1920, AT 7:30 
P. M.) 
The following estimate of the Security Bridge 
Company was read : 



244 Lumbermens Trust Company vs. 

"Fifth Estimate for the Security Bridge Company 
for Ryegate Water System." 

Previous estimated $19,691.54 

Work done and materials furnished since 

last estimate, 

840 lin. feet 8" C. I. Pipe © $3.50 2,940.00 

4320 Lin. feet 4" C. L. Pipe © 165 7,128.00 

9000# lead O 15^ 1,350.00 

Brick and Tile 250.00 

Millwork 100.00 

[181] 

Pump, Motor, Switchboard & other 

pumping equip 1,750.00 

100 Cu. Yds. Excavation at well (a) $40.00 960.00 



Total work completed & material fur- 
nished to date $34,444.54 

Less previous estimates .... $16,481.24 

Less reinforcing used 873.00 

Less 10% 3,730.30 



Total Deductions $21,444.54 

Due Cont'r this Est 13,000.00 



$34,444.54 
This estimate was approved by Claud A. Renshaw, 
Engineer in charge. 

Alderman (In lead pencil ("Mellen") moved that 
this estimate be allowed as read. This motion w r as 
duly seconded and on roll call all members present 
voted, "Aye." The motion was declared to have 
been carried by the Mayor and the Mayor and Town 



The Town of Ryegate. 245 

Clerk were instructed to issue Special Improvement 
District #4 Bonds numbered from 28 to 40 both 
inclusive. 

(PORTION OF MINUTES OF REGULAR 
MEETING OF THE TOWN COUNCIL OF 
THE TOWN OF RYEGATE, MONTANA, 
HELD ON OCTOBER 13, 1920, AT 7:30 
P. M.) 
The September Estimate (estimate #6) Ryegate 
Water System, Security Bridge Company, Con- 
tractors, was read as follows : 
5437 Lin. feet 4" pipe laid complete © 

$2.55 $16,414.35 

1602 Lin. feet 6" pipe laid complete (a) 

$3.60 5,767.20 

10 Fire Hydrants complete © $174.40. . 1,744.00 
438 Cu. Yds. Excavation at well © $2.75 1,204.50 
79 Cu. Yds. concrete at well © $40.00. . . 3,160.00 
300 Cu. Yds. excavation at reservoir © 

$3.17 951.00 

117 Cu. yds. concrete at reservoir © 

$37.50 4,387.50 

Roof and reservoir equipment complete 1,425.00 
Materials on ground, 

1835 Lin. feet 4" pipe © $1.65 3,027.75 

1011 Lin. feet 6" pipe © $2.50 2,527.50 

840 Lin. feet 8" pipe © $3.50 2,940.00 

3 fire hydrants © $142.50 427.50 

1800 # speicals © $365.00 per 328.50 

5 valves with boxes 280.50 

Motor and pumping equipment 1,750.00 



246 Lumberniens Trust Company vs. 

Millwork, brick tile etc 350.00 

4000# lead ©15^ 600.00 



Total work complete to date and material 

on gd $47,285.30 

Less previous estimates .... $29,841.24 

Leback fill incomplete 300.00 

Less 10% 4,644.06 

Total deductions $34,785.30 

Balance due contractor .... 12,000.00 



47,285.30 
Alderman Gregory moved and Alderman sec- 
onded the motion that the estimate No. 6 be allowed 
and that the Mayor and Town Clerk be instructed 
to issue Special Improvement District No. 4 Bonds 
numbered from 54 to 78 both inclusive in the sum 
[182] of Five Hundred dollars each to the Secu- 
rity Bridge Company in payment for said estimate. 
On roll call all the members voted "AYE." 

(PORTION OF MINUTES OF AN AD- 
JOURNED REGULAR MEETING OF THE 
TOWN COUNCIL OF THE TOWN OF RYE- 
GATE, MONTANA, HELD NOVEMBER 24, 
1920, AT 7:30 O'CLOCK P. M.) 
The Final Estimate on the Ryegate Water Sys- 
tem submitted by the Security Bridge Company, 
Contractors, and approved by Claude A. Renshaw, 
Engineer, was read as follows: 

8271 Lin. Feet 4" C I Pipe @ $2.55 $21,091.05 

2726 Lin. Feet 6" C I Pipe © $3.60 9,813.60 



The Town of Byegate. 247 

841 Lin. Feet 8" C I Pipe © $5.04 4,238.64 

13 Fire Hydrants (a) $174.40 2,267.20 

320 Cu. Yds. Excavation at reservoir (a) 

$3.17 1,014.40 

117 Cu. Yds. concrete at reservoir (a) 

$37.50 4,387.50 

Eeservoir equipment complete 1,425.00 

452 Cu. Yds. Excavation at well Q) 2.75. . 1,243.00 

89.1 Cu. Yds. Excavation at well (a) 40.00 3,564.00 

Pumping Equipment complete 2,525.00 

Pump House complete 1,625.00 

Frost casing complete (force account) . . 316.43 

15 profit on above item 47.40 

Printing bonds (Billings Gazette Prtg. 

Co.) 104.00 

239 Cu. yds. extra rock excavation <a) 

3.00 717.00 

Engineering (a) 6% as per contract 3,240.00 



Total Cost of Improvements $57,619.22 

Paid to contractor by previous 

estimates $42,341.24 

Paid engineer by previous 

estimates 2,078.30 

Balance due contractor 12,037.98 

Balance due Engineer 1,161.70 



$57,619.22 

Alderman Gregory moved that the final Estimate 

just read be allowed and in payment for the same 

the Clerk be instructed to pay out of the Treasury 

the sum of $5,435.56 and that the balance be paid 



248 Lambennens Trust Company vs. 

(Deposition of Henry Thien.) 

by Special Improvement District No. 4 Bonds num- 
bered 79 to 91 both inclusive in the sum of $500.00 
excepting Bond numbered 91 shall be in the sum of 
$602.40. Alderman Mellen seconded the motion and 
on roll call all the members voted "Aye." Where- 
upon the motion was declared to have carried." 
The defendant rests. 

DEPOSITION OF HENRY THIEN, FOR DE- 
FENDANT (RECALLED IN REBUTTAL). 

HENRY THIEN, a witness heretofore called on 
behalf of the defendant, being recalled in rebuttal, 
on direct examination by Mr. BROWN, testified as 
follows: [183] 

"When on the stand a while ago, I testified that I 
knew the signature of Mr. Brown, the Town Clerk. 
As to the two letters you call my attention to, I be- 
lieve that is his signature. I believe they contain 
his signature. One of these letters is dated October 
16, 1916, but it refers to these Ryegate water bonds ; 
there wasn't any Ryegate water bonds in existence 
at that time, so that date must have been in error. 
I am a banker at Ryegate. I met Mr. Roscoe at 
different times. Generally, I am interested in pub- 
lic bonds, and so forth, used as collateral for county 
and public deposits, and am interested in Town 
finances and improvements. No, I never knew and 
was never informed who was going to buy these 
bonds." 



The Town of Ryegate. 249 

(Deposition of Henry Thien.) 

Cross-examination by Mr. JOHNSTON. 

"As to whether or not, I ever made any inquiry 
as to who was buying these bonds, well, it was natur- 
ally presumed — I presumed that they had some out- 
let for these bonds otherwise they would not take 
them. It didn't particularly concern me who was 
taking them. I knew that Mr. Roscoe of the Secu- 
rity Bridge Company submitted the bid. Yes, I 
knew he submitted a certified check for $15,000.00. 
That was the par value of the General Bonds." 

U Q. Then did you know what his proposal was 
with reference to taking the Special Improvement 
Bonds in part payment of his work ? 

Mr. BROWN. — Objected to as not proper cross- 
examination. 

By the COURT. — I think such cross-examination 
would be warranted. Proceed. 

(Question read.) 

A. Yes." 

DEPOSITION OF PARKER W. HASTINGS, 
FOR PLAINTIFF (IN REBUTTAL). 

PARKER W. HASTINGS, a witness on behalf 
of the plaintiff, being first duly sworn, on direct 
examination, in rebuttal, by Mr. BROWN, testified 
as follows: [184] 

"I was one of the officers of the Security Bridge 
Company during the times there was up with the 
Security Bridge Company, the Town of Ryegate 
and the Lumbermens Trust Company, the matter of 



250 Lumbermens Trust Company vs. 

(Deposition of Parker W. Hastings.) 
waterworks construction and the sale of the water- 
works bonds of Ryegate. During the time I was 
such officer, I requested the Town or Town officers of 
the Town of Ryegate to forward these certificates 
as to estimates to the Lumbermens Trust Company. 
These are certificates included in Plaintiff's Ex- 
hibit <C, 



> ?? 



Cross-examination by Mr. JOHNSTON. 

"I requested that the certificate to the bonds 
be sent. I refer to the certificate that was issued 
with each bond issue. I made the request in person 
once or twice to the City Clerk, Brown. The Coun- 
cil was not in session when I made the request. I 
simply went to the Clerk's office and requested it. 
The estimate had been allowed." 

U Q. You really went to him, personally, or write 
him, personally, a letter asking that this be done? 

A. Yes. 

Q. Were any other officers — were the Mayor or 
any Councilmen of the Town, present at the time, 
as far as you know? 

A. I think at one time I took the certificate to 
the Mayor, Mayor Northey to have him sign it. 

Q. You didn't go into any explanation, you 
simply asked him to sign that certificate did not? 

A. Yes, sir." 

Redirect Examination by Mr. BROWN. 

"I got the Mayor's signature to one of the cer- 
tificates, yes. I don't recollect explaining to him the 
details of what he was signing. I think it was evi- 



The Town of Ryegate. 251 

(Deposition of Parker W. Hastings.) 
dent what he was signing. I have a bare recollec- 
tion of taking it to him." 

"Q. In answer to counsel's question a minute 
ago; I may be wrong, but you gave me the impres- 
sion you got the bonds [185] and these certifi- 
cates at the same time, is that correct ? 

A. An issue of bonds and the certificates at the 
same time, yes, sir. 

Q. For the purpose of refreshing your memory, 
I call your attention to a letter and ask you if there 
wasn't an interval of time between the getting of 
the bonds and the forwarding of the certificates. 
(Witness examining letter.) 

A. Evidently there was." 

WITNESS.— (Continuing.) "Evidently I sent 
the bonds and the clerk sent the certificates." 

The plaintiff rests. 

"Mr. JOHNSTON.— I would like the record to 
show that the stenographer is authorized to make 
copies of the minutes and ordinances of the Town 
Council of the Town of Ryegate, which were intro- 
duced in evidence and when that is done, he then 
return the Minute Book and the Ordinance Book 
to the Town Clerk of the Town of Ryegate. 

Mr. BROWN. — There is no objection to that 
order. I ask that the stenographer submit what he 
proposes to copy to counsel for the defense so 
we do not copy immaterial matter. 

Mr. JOHNSTON.— Just the part of the minutes 
we made reference to in these matters. Mr. Prater 
may take that up with me and I will cut out any- 



252 Lumbermens Trust Company vs. 

(Deposition of Parker W. Hastings.) 

thing that does not pertain to the issues in this 

case. 

By the COURT. — Only such matters that pertain 
to the issues here. 

By Mr. BROWN. — And that he may return these 
exhibits without further order. 

By the COURT.— Very well, it is so ordered." 
[186] 

Said cause being finally submitted to the Court, 
thereafter upon the 15th day of May, 1931, the Court 
did file his findings and conclusions in words and 
figures as follows: 

(Clerk please here insert copy of same.) 

The plaintiff herein being allowed an exception 
thereto. 

Thereafter and on the day of May, 1931, at 

the request of the attorneys for the defendant there 
was signed, filed, entered and docketed a judgment in 
said cause, in favor of the defendant and against 
the plaintiff, the same being in words and figures as 
follows : 

(Clerk please herein insert copy of same.) 

The plaintiff herein being allowed an exception 
thereto. 

Now within the time allowed by law and orders 
of the Court herein, the plaintiff having presented 
the foregoing as and for a bill of exceptions herein, 
and a full, true and correct record of the proceedings 
had upon said trial and of all of the agreed facts, 
evidence and pleadings submitted to the Court and 
upon which it based its decision, the said parties 
hereto, acting through their respective attorneys, 



The Town of Ryegate. 253 

do hereby stipulate and agree that the foregoing 
proposed bill of exceptions, or statement on appeal, 
may be signed, settled and allowed herein as and for 
a full, true, and correct record of the proceedings 
had in this cause, the agreed facts and evidence sub- 
mitted to the Court and the records, evidence and 
agreed statement of facts before the Court in mak- 
ing its decision herein. 

And the defendant hereby waives the right 
granted by the rules of the Court herein to propose 
amendments to the foregoing draft of the bill of ex- 
ceptions herein. 

Dated, June 18th, 1931. 

STEWART & BROWN, 
Attorneys for Plaintiff. 
JOHNSTON, COLEMAN & JAMESON, 

Attorneys for Defendant. [187] 

United States of America, 
District of Montana, — ss. 

I, Chas. N. Pray, Judge of the District Court of 
the United States, in and for the District of Mon- 
tana, and the Judge before whom the foregoing en- 
titled action was tried, do hereby certify that the 
foregoing bill of exceptions is a full, true and cor- 
rect bill of exceptions and statement on appeal in 
the above-entitled cause and the same is hereby 
signed, settled and allowed by me as a full, true and 
correct bill of exceptions and statement on appeal 
herein. 



254 Lumbermens Trust Company vs. 

Dated this 19th day of June, 1931. 

CHAELES N. PRAY, 
Judge of the United States District Court, in and 
for the District of Montana. 
Filed June 19, 1931. [188] 



THEREAFTER, on July 7th, 1931, order amend- 
ing decision was duly filed and entered herein, as 
follows, to wit: [189] 

ORDER AMENDING DECISION. 

On application of plaintiff IT IS ORDERED 
that the decision heretofore rendered in the above- 
entitled cause may stand as the findings of fact and 
conclusions of law required under Equity Rule 70% 
to avoid any question that may arise as to whether 
said cause is an action at law or a suit in equity, 
and accordingly such decision is hereby amended to 
conform to said rule. 

CHARLES N. PRAY, 

Judge. 

Filed July 7th, 1931. [190] 



THEREAFTER, on July 31st, 1931, assign- 
ment of errors was duly filed herein as follows, to 
wit: [191] 

[Title of Court and Cause.] 

ASSIGNMENT OF ERRORS. 
Comes now Lumbermens Trust Company, a cor- 



The Totvn of Ryegate. 255 

poration, plaintiff in the above-entitled cause, and 
by their solicitors, Stewart & Brown, of Helena, 
Montana, makes and files its assignment of errors, 
as follows: 

I. 

The Court erred in ordering this action dismissed 
and in entering a decree in favor of defendant and 
against the plaintiff and for the dismissal of said 
cause in its entirety. 

II. 

The Court erred in making any findings whatso- 
ever relative to whether or not there was notice 
given to property owners within the district of the 
letting of the contract for the construction of the 
improvement in the Town of Ryegate, which is the 
subject of this action. 

III. 

The Court erred in making any finding relative to 
the estimated cost of the improvement in the Town 
of Ryegate. 

IV. 

The Court erred in making any finding as to 
whether or not protests were filed after the contract 
was let for the installation of the improvement 
in the Town of Ryegate, which is the subject of 
this action. [192] 

V. 

The Court erred in limiting its findings to a ques- 
tion of the improvements and the improvement dis- 
trict and in finding that the improvements were 
within an improvement district and for the use and 
benefit of the improvement district's inhabitants 
alone. 



256 Lumbermens Trust Company vs. 

VI. 

The Court erred in not finding that the water 
system was for the use and benefit of the munici- 
pality and the Town of Ryegate and for certain 
portions of the inhabitants thereof and for the pur- 
poses set forth in the resolutions creating the im- 
provement district in question. 

VII. 

The Court erred in finding that the defendant, 
Town of Ryegate, did not, and has not become in- 
debted to the plaintiff, on account of moneys ad- 
vanced by it and had and received by the Town of 
Ryegate, the benefits of which the defendant, Town 
of Ryegate is now using and enjoying. 

VIII. 

The Court erred in holding that the indebtedness 
sought to be imposed upon the defendant, Town of 
Ryegate, is unconstitutional and in violation of any 
provision of the Constitution of the State of Mon- 
tana, including Section 6 of Article XIII of said 
Constitution. 

WHEREFORE, plaintiff, now appellant herein, 
prays that the judgment of the District Court of 
the United States for the District of Montana, Bill- 
ings Division, may be reversed and the cause be re- 
manded to said District Court with orders to enter 
a judgment for the plaintiff, this appellant herein, 
Lumbermens Trust Company, a corporation, for the 
sum of $38,762.56. 

STEWART and BROWN, 
Attorneys for Appellant, Helena, Montana. 

Filed July 31, 1931. [193] 



The Town of Ryegate. 257 

THEREAFTER, on July 31st, 1931, petition to 
appeal was duly filed herein as follows, to wit: 
[194] 

[Title of Court and Cause.] 

PETITION TO APPEAL. 

Now comes Lumbermens Trust Company, a cor- 
poration, plaintiff in the above-entitled cause, and 
respectfully asking to become appellant herein, and 
conceived itself aggrieved by the decree of the 
above-entitled court, made and entered in the above- 
entitled suit on the 16th day of May, 1931, does 
hereby appeal from said decree and judgment en- 
tered herein and from the whole and every part 
thereof, to the United States Circuit Court of Ap- 
peals for the Ninth Circuit, sitting at San Fran- 
cisco, State of Calif ornia r and prays that its appeal 
be allowed ; and that a transcript of the records and 
proceedings and papers upon which said decree was 
made, rendered and duly authenticated, and all the 
papers upon which said decree was entered and ren- 
dered may be sent to the United States Circuit 
Court of Appeals at its place of sitting at San Fran- 
cisco, in the State of California. 

Dated, July 31st, 1931. 

STEWART & BROWN, 
Solicitors for the Above-named Plaintiff and Appel- 
lant, Helena, Montana. 

Filed July 31, 1931. [195] 



258 Lwmbermens Trust Company vs. 

THEREAFTER, on July 31st, 1931, order al- 
lowing appeal was duly filed and entered herein, as 
follows, to wit: [196] 

[Title of Court and Cause.] 

ORDER ALLOWING APPEAL. 

And now, to wit, upon this 31st day of July, 
1931, IT IS ORDERED that the appeal of the 
plaintiff in the above-entitled cause be allowed as 
prayed for, and IT IS FURTHER ORDERED 
that a bond in the sum of Five Hundred Dollars, in 
form and with sureties approved by the Court, be 
given for the payment of all costs which may be 
hereafter assessed against said plaintiff and appel- 
lant in the United States Circuit Court of Appeals 
for the Ninth Circuit; and IT IS FURTHER OR- 
DERED that all proceedings under said decree en- 
tered on the 16th day of May, 1931, as aforesaid, 
be stayed from the date of this order, and that upon 
the giving and filing in the office of the Clerk of this 
court of the bond now ordered in the sum of five 
hundred dollars in the form and with sureties ap- 
proved by the Court and conditioned that the said 
plaintiff and appellant will prosecute such appeal 
with effect, and answer all damages and costs if it 
fails to procure a reversal of said decree by the 
said United States Circuit Court of Appeals for the 
Ninth Circuit, within ten days from the date of this 
order, all proceedings under the aforesaid decree 
entered on the 16th day of May, 1931, be stayed, 



The Town of Ryegate. 259 

pending said appeal and until the further order of 
this court. 

Dated, July 31, 1931. 

CHARLES N. PRAY, 
Judge District Court of the United States, District 
of Montana. 
Filed July 31, 1931. [197] 



THEREAFTER, on July 31st, 1931, bond on 
appeal was duly filed herein as follows, to wit: 
[198] 

[Title of Court and Cause.] 

BOND ON APPEAL. 

KNOW ALL MEN BY THESE PRESENTS: 
That we, the Lumbermens Trust Company, a corpo- 
ration, as principal, and the National Surety Com- 
pany, a corporation, duly authorized under the laws 
of the State of Montana and its compliance there- 
with, to act as surety and indemnitor upon bonds 
upon appeal, do acknowledge ourselves to be in- 
debted to the Town of Ryegate, a municipal cor- 
poration, defendant in the above-entitled cause, in 
the sum of five hundred dollars ($500) conditioned 
that whereas on the 16th day of May, 1931, in the 
District Court of the United States for the District 
of Montana, Billings Division, in a suit pending in 
that court wherein the said Lumbermens Trust 
Company, a corporation was plaintiff and the 
Town of Ryegate, a municipal corporation, was 
defendant, numbered 224 of the Records of that 



260 Lumbermens Trust Company vs. 

Court, a decree was rendered and judgment entered 
against the plaintiff, Lumbermens Trust Company, 
a corporation and in favor of the defendant, the 
Town of Eyegate, a municipal corporation, and 
said plaintiff, Lumbermens Trust Company, a cor- 
poration, having obtained an appeal to the United 
States Circuit Court of Appeals of the Ninth Cir- 
cuit, and filed a copy thereof in the office of the 
Clerk of the said District Court of Montana to re- 
verse said decree, and a citation directing and ad- 
monishing the said Town of Ryegate, a municipal 
corporation, defendant to appear within thirty days 
at a session of the United States Circuit Court of 
Appeals for the Ni£h Circuit, to be holden in the 
city of [199] San Francisco, State of California, 
on the day of , 1931, next. 

Now, if said plaintiff, Lumbermens Trust Com- 
pany, a corporation, shall prosecute their appeal to 
effect, and answer all costs, if it fails to procure a 
reversal of said decree by the United States Circuit 
Court of Appeals for the Ninth Circuit, then the 
above obligation shall be void, otherwise to remain 
in full force and virtue. 

LUMBERMENS TRUST COMPANY, a 
Corporation, 

[Corporate Seal] By JOHN G. BROWN, 
Its Attorney Hereunto Duly Authorized. 
NATIONAL SURETY COMPANY. 
By H. L. HART, 
State Manager and Resident Vice-president, 

Attorney-in-fact. 

Filed July 31, 1931. [200] 



The Town of Ryegate. 261 

THEREAFTER, on July 31st, 1931, a citation 
was duly issued herein, which original citation is 
hereto annexed and is in the words and figures as 
follows, to wit: [201] 

[Title of Court and Cause.] 

CITATION ON APPEAL. 

To the Town of Ryegate, a Municipal Corporation, 
GREETING: 

You are cited and admonished to be and appear 
at the session of the United States Circuit Court 
of Appeals for the Ninth Circuit to be held in the 
City of San Francisco, State of California, within 
thirty days from the date hereof, pursuant to an ap- 
peal taken, allowed and filed in the office of the 
Clerk of the United States Court for the District 
of Montana on the 31st day of July, 1931, in that 
certain suit being No. 224, wherein Lumbermens 
Trust Company, a corporation, is the plaintiff and 
The Town of Ryegate, a municipal corporation, is 
the defendant, to show cause, if any there be, why 
the judgment made and entered in the above-entitled 
action in said appeal mentioned should not be cor- 
rected, and why speedy justice should not be done 
the parties in this behalf. 

Dated this 31st day of July, 1931. 

CHARLES N. PRAY, 
United States District Judge for the District of 
Montana, Eastern Division. [202] 

Filed July 31, 1931. [203] 



262 Lumbermens Trust Company vs. 

THEREAFTER, on July 31st, 1931, an agreement 
of statement of evidence was duly filed herein, as 
follows, to wit: [204] 

[Title of Court and Cause.] 

AGREEMENT OF STATEMENT OF EVI- 
DENCE. 

We have examined and read the " Stipulation as 
To Trial and Facts" and the bill of exceptions set- 
tled in the above-entitled action, and, do state that 
said stipulation as to trial and facts and bill of ex- 
ceptions herein does comprise all of the evidence 
taken in the above-entitled action which is relevant 
and material to the hearing of the appeal on said 
action; the said evidence being set out in simple 
and concise form, all of the evidence not essential 
to the decision and the questions presented by the 
appeal being omitted and the testimony of the 
witnesses being stated in narrative form. 

AND WE AGREE that all parties hereto have 
received due and legal notice of the statement of 
evidence as required by equity rule number 75, and 
we accept service of such notice, and hereby waive 
further notice of filing of said statement, and we 
agree that said statement as made may be approved 
by a Judge of the United States District Court, 
District of Montana, without further notice to the 
parties hereto, and when so approved, may be filed 
in the Clerk's office and become a part of the record 



The Town of Ryegate. 263 

for the purposes of appeal in said action taken by 
the above-named plaintiff. 

STEWART & BROWN, 
Helena, Montana, 
Attorneys for the Plaintiff. 
JOHNSTON, COLEMAN & JAMESON, 

Billings, Montana, 
Attorneys for the Defendant. 
Filed July 31, 1931. [205] 



THEREAFTER, on July 31st, 1931, order ap- 
proving statement of evidence was duly filed and 
entered herein, as follows, to wit : [206] 

[Title of Court and Cause.] 

ORDER APPROVING STATEMENT OF EVI- 
DENCE. 

It appearing that the herewith and foregoing 
statement of evidence was lodged in due time with 
the Clerk of this court, and that the attorneys for 
all parties to the said action have agreed that said 
statement may be approved without further notice 
to any of said parties, and it appearing that said 
statement is true, complete, and properly prepared, 
and that it contains all of the evidence relevant 
and material to a hearing of the question to be 
presented on the appeal in said action, — 

IT IS THEREFORE ORDERED that the same 
be allowed, settled and approved as a true, complete 
and correct statement of the evidence of said action. 



264 Lumberniens Trust Company vs. 

Dated this 31st day of July, 1931. 

CHARLES N. PRAY, 

Judge. 
Filed July 31, 1931. [207] 



THEREAFTER, on July 31st, 1931, affidavit of 
mailing of appeal papers was duly filed herein, as 
follows, to wit: [208] 

[Title of Court and Cause.] 

AFFIDAVIT OF MAILING OF APPEAL 

PAPERS. 

State of Montana, 
County of Cascade, — ss. 

John G. Brown, being first duly sworn upon oath, 
deposes and says: 

He is a member of the firm of Stewart & Brown, 
who are solicitors for the plaintiff, now the appellant 
in the above-entitled cause; that on the 31st day 
of July, 1931, I deposited in the United States mail 
at Great Falls, Montana, in an envelope with post- 
age prepaid thereon addressed to the firm of John- 
ston, Coleman and Jameson, Montana Power Block, 
Billings, Montana, known to me to be the address 
of the attorneys who are now attorneys and solicitors 
for the defendant, now respondent, in the above- 
entitled cause, true and correct copies of the fol- 
lowing papers, which were on the same day filed 
with the Clerk of the above-entitled court in said 
cause, to wit: 
Petition to appeal. 



The Town of By eg ate. 265 

Assignment of errors. 

Order allowing appeal. 

Bond on appeal. 

Citation on appeal. 

Praecipe for transcript of the record on appeal. 

JOHN G. BROWN. 

Subscribed and sworn to before me this 31 day 
of July, 1931. 

[Seal] C. G. KEGEL, 

Deputy Clerk U. S. District Court, District of Mon- 
tana. 

Filed July 31, 1931. [209] 



THEREAFTER, on July 31, 1931, order extend- 
ing time to file transcript on appeal was duly filed 
and entered herein, as follows, to wit: [210] 

[Title of Court and Cause.] 

ORDER EXTENDING TIME FIFTY DAYS TO 
FILE TRANSCRIPT ON APPEAL. 

For good cause appearing, IT IS HEREBY 
ORDERED that the time for filing the record on 
appeal in this case be, and the same is hereby ex- 
tended for a period of fifty days from and after the 
time allowed by law and the rules of this court. 
Dated, this 31st day of July, 1931. 

CHARLES N. PRAY, 
Judge of the District Court of the United States 
for the District of Montana. 

Filed July 31, 1931. [211*] 



266 Lambermens Trust Company vs. 

THEREAFTER, on July 31st, 1931, praecipe for 
transcript of record was duly filed herein, as fol- 
lows, to wit : [212] 

[Title of Court and Cause.] 

PRAECIPE FOR TRANSCRIPT OF RECORD. 

To the Clerk of the United States District Court 
for the District of Montana, Having Reference 
to the Billings Division: 
Please prepare a record for the purpose of an ap- 
peal to the United States Circuit Court of Appeals 
for the Ninth Circuit, and include the following: 

1. Plaintiff's bill of complaint, including its 

exhibits. 

2. Answer of defendant, including its exhibits. 

3. Reply of plaintiff, including its exhibits. 

4. All minutes of the court having to do materi- 

ally with said cause. 

5. Stipulation as to trial and facts. 

6. All bills of exception and statements of evi- 

dence which have been signed, settled and al- 
lowed. 

7. Court's opinion and findings. 

8. All orders of Court made in said cause as dis- 

tinguished from the minute entries herein- 
before requested, including order amending 
opinion. 

9. The judgment and decree. 

10. Assignment of errors. 

11. Petition to appeal and allowance thereof. 

12. Bond on appeal. 



The Town of Uyegate. 267 

13. Citation on appeal. 

14. Agreed statement of evidence. 

15. Order extending time for filing transcript. 

[213] 

16. Affidavit of service of appeal papers. 

17. This praecipe. 

All captions and endorsements may be omitted. 
Provisions of act approved February 13, 1911, are 
waived and you are requested to forward type- 
written transcript to the United States Circuit 
Court of Appeals for the Ninth Circuit for print- 
ing under the rules of Court. 

Dated this 31st day of July, 1931. 

STEWART & BROWN, 
Solicitors for Appealing Plaintiff, Helena, Mon- 
tana. 

Filed July 31, 1931. [214] 



CERTIFICATE OF CLERK U. S. DISTRICT 
COURT TO TRANSCRIPT OF RECORD. 

United States of America, 
District of Montana, — ss. 

I, C. R. Garlow, Clerk of the United States Dis- 
trict Court for the District of Montana, do hereby 
certify and return to the Honorable, the United 
States Circuit Court of Appeals for the Ninth 
Circuit, that the foregoing volume, consisting of 215 
pages, numbered from 1 to 215, inclusive, is a full, 
true and correct transcript of the records and pro- 
ceedings in the within entitled cause, and all that 
is required by praecipe filed, to be incorporated in 



268 Lumbeiynens Trust Company vs. 

said transcript, as appears from the original rec- 
ords and files of said court in my custody as such 
Clerk; and I do further certify and return that I 
have annexed to said transcript and included within 
said pages the original citation issued in said cause. 

I further certify that the costs of said transcript 
of record amount to the sum of $31.60 and have been 
paid by the appellant. 

WITNESS my hand and the seal of said court 
at Great Falls, Montana, this 4th day of August, 
1931. 

[Seal] C. R. GARLOW, 

Clerk U. S. District Court for the District of Mon- 
tana. 

By C. G. Kegel, 
Deputy. [215] 



[Endorsed] : No. 6564. United States Circuit 
Court of Appeals for the Ninth Circuit. Lumber- 
mens Trust Company, a Corporation, Appel- 
lant, vs. The Town of Ryegate, a Municipal Cor- 
poration, Appellee. Transcript of Record. Upon 
Appeal from the United States District Court for 
the District of Montana. 

Filed August 7, 1931. 

PAUL P. O'BRIEN, 
Clerk of the United States Circuit Court of Appeals 
for the Ninth Circuit. 



No. 6564 



IN THE 

United States Circuit Court of Appeals 

FOR THE NINTH CIRCUIT 



LUMBERMENS TRUST COMPANY, 

a Corporation, 
Appellant, J / 

vs. 

THE TOWN OF RYEGATE, MONTANA, 

a Municipal Corporation, 
Appellee. 



Brief for Appellant 



Upon Appeal from the United States District Court 
for the District of Montana. 



Samuel V. Stewart, 
John G. Brown, 
Stewart & Brown, 
Helena, Montana, 

Geo. B. Guthrie and 
Wilson & Reilly, 

Piatt Building, 

Portland, Oregon, 

Attorneys and Solicitors 
for Appellant. 

FILED 

#K 181931 * 

PAUL P. O'BRIEN, 

CLERK 



T. W.BALTES AND COMPANY, PRINTERS, PORTLAND 



TEXT WRITERS AND AUTHORITIES Pages 

Dillon: Municipal Corpus. (5th Ed.) 

104, 105, 110, 114, 125, 136, 

138, 143, 147, 154, 173, 174, 176, 180, 184, 236, 239 

Simonton: Municipal Bonds 154, 168 

Williston: Contracts 266 

Corpus Juris 121, 153, 154 

Ruling Case Law 63, 89, 168 



CONSTITUTIONS Pages 

Montana Constitution, 1889: 

Art. Ill, Sec. 1 86, 186 

Art. IV, Sec. 1 86, 186 

Art. V, Sec. 1 86, 186 

Art. XIII, Sec. 6 

10, 54, 108, 135, 136, 137, 153, 187, 263 

Art. XIII, Sec 6 (quoted at pp. 135, 187) 

Illinois Constitution, 1870 

Art. IX, Sec. 12 108, 136 

loiva Constitution, 1857 

Art. XI, Sec. 3 108, 136 



STATUTES Pages 

U. S. Judicial Code: 

Sec. 274a (28 U. S. C. A., § 397) 55, 56 

Sec. 274b (28 IT. S. C. A., § 398) 55 

Montana Code, 1907 

Sec. 3427 (quoted) 122 

Montana Revised Code, 1$21: 

Sec. 5039 [§3259, Code of 1907], subd. 64 

153, 155, 187, 188, 191, 194, 197, 213 

(quoted at p. 191) 

Sec. 5039 [§ 3259, Code of 1907], subd. 80 
. .86, 104, 145, 146, 150, 151, 197, 261, 262, 263 
(quoted at p. 150) 

Sees. 5214, 5215, 5216 87 

Sec. 5226 (statutory description of im- 
provements) 58 

Sec. 5227 ("approximate estimate" of 
costs) 221 

Sec. 5230 (town's power to contract for 
spl. improvements) 112 

Sec. 5232 (protest against creation of dis- 
trict) 102 

Sec. 5237 (60-day protest after award of 
contract) 73, 79, 87, 170, 224, 229, 243 

Sees. 5241, 5243 171, 229 

Sec. 5249 (statutory form of bond) . . . .146, 155 

Sec. 5250 (sale price of bonds) 248 

Sec. 5252 (reassessment provisions) 

143, 144, 171 

(quoted at p. 144) 

Sec. 904 (Statute of Limitations for at- 
tacks on bonds, etc.) 244, 245 

(quoted at p. 244) 

Sees. 9146, 9147 (pleading of defenses) 
quoted at 215 

Sec. 10606 (statutory presumptions) 88 

Part IV, Chap. 56 '(§§ 5225-5255) 

86, 87, 104, 111, 123, 146, 150, 197 

(Special Improvement Chapter) 



INDEX-DIGEST Pages 

xEneral Statement 1- 8 

Assignment of Errors 8-10 

^leadings 10-23 

Stipulated Facts 24-30 

Exhibit 1, Map 30 

Exhibit 2, Contract 31-33 

Exhibits 3, 4, 5, Belecz Pleadings 33-38 

Exhibit 6, Belecz Findings and Decree 38-41 

Cestimony 41 

Neale 42 

Briggs 42 

Roscoe 43 

Thien 45, 46, 48 

Corrington 46 

Parizek 46 

Northey 47 

Mellen 47 

Hastings 48 

>cope of Review 50-57 

Points and Authirties 51 

Argument 52 

Preliminary 57-85 

Bona Fide Position of Plaintiff 60-62 

Points and Authorities 60, 61 

Argument 62 

Res Judicata Inapplicable 63-72 

Points and Authorities 63-65 

Argument 65-72 

Stare Decisis Inapplicable 72-85 

Points and Authorities 73-75 

Argument 75-85 



II 

INDEX-DIGEST— Continued Pages 

Defendant Liable for Accounting 86-103 

Points and Authorities 86- 89 

Argument 89-103 

Defendant Liable for Breach of Duties. .104-142 

Points and Authorities 104-110 

Argument 111-142 

Liability Not Inhibited by Constitution. . .135-142 

Defendant Liable for Special Judgment 

LTnder Peculiar Federal Practice 142-145 

Points and Authorities 142-143 

Argument 143-145 

Defendant's Liability for Bond Recitals. . . . 145 

Points and Authorities 145-148 

Argument 149-172 

Power to Issue Special Bonds 150-156 

Estoppel to Deny Validity 157-165 

Recitals as a Representation of Fact 166-172 

Entire Cause Determinable in Equity. . . .173-184 

Points and Authorities 173, 174 

Argument 174-180 

Suggested Adjustments 180-184 

Defendant's Liability in Quantum Meruit. 185-2 13 

Points and Authorities 186-190 

Argument 190-213 

Defenses Offered by Town 213 

First Defense — Constitutional Limitation. .2 13, 214 

Second Defense — Price Paid 214-216 

Third Defense — Advice of Counsel 216, 217 

Fourth Defense— Belecz Case 217-246 

Pleadings in Belecz Case 217-223 

Character of Improvements 219, 220 

Legal Cost Limitations 220 



Ill 

INDEX-DIGEST— Continued Pages 

Notice, Estimates, etc 220-222 

Sale Below Par 222, 223 

Authorities on Belecz Case 224-228 

Argument 228-252 

Estimated Costs, etc 228-231 

Change in Improvements 231-232 

Value of Improvements 232 

Sale Below Par 233-236 

Belecz Facts 237-239 

Property Owners Estopped 239-246 

Montana Law 243 

60-day Statute 243 

Statute of Limitations 244-246 

Evans v. Helena 247-252 

Cases Cited by Pray, J. Distinguished 252-260 

Moore v. Nampa 257-260 

Gagnon v. Butte 122-125 

Erroneous Assumptions by Pray, J 260-263 

Unjust Enrichment Basis of Liability. . . .264-268 
CONCLUSION 269-271 



IV 

CASES CITED Pages 

Addyston Pipe Co. v. Corry, 197 Pa. 41, 46 Atl. 

1035 106, 110, 117, 138 

Aetna Co. v. Lyon Co., 44 Fed. 329, 95 Fed. 325 . . 180 

American Trust v. Butler, 47 Fed. (2d) 482 55 

Anderson v. Messinger, 146 Fed. 929 51 

Argenti v. San Francisco, 16 Cal. 256 130 

Arkansas Coal Co. v. Stokes, 277 Fed. 625 56 

Atkinson v. Great Falls, 16 Mont. 372, 40 Pac. 877 254 
Atkinson v. Newton, 169 Mass. 240, 47 N. E. 1029 225 

Aurora v. Gates, 208 Fed. 101 147, 158 

Avis v. Allen, 83 W. Va. 789, 99 S. E. 188 226 

Bainbridge v. Jester, 157 Ga. 505; 121 S.E. 798.233-236 

Baker v. Seattle, 2 Wash. 576; 41 Pac. 888 110 

Bangor Park v. Stillwater, 49 Fed. 721 188 

Bank v. Goodhue, 120 Minn. 362 189, 207, 213 

Bank v. Weiser, 30 Idaho 15; 166 Pac. 213 253 

Barber Asphalt Co. v. Denver, 72 Fed. 336.105, 106, 126 
Barber Asphalt Co. v. Harrisburg, 64 Fed. 283. . 

105, 106, 116, 129, 130, 131, 189, 212, 216, 217, 260 

Barnard v. Douglas County, 37 Fed. 563 110 

Bartlesville v. Holm, 40 Okla. 467; 139 Pac. 273. . 225 
Bass v. Casper, 28 Wyo. 387; 208 Pac. 439, 1008. . 227 
Bates County v. Wills, 239 Fed. 785.104, 107, 131,260 

Battle v. Des Moines, 38 la. 414 108 

Beard v. Brooklyn, 31 Barb. 142 130 

Beggs v. Kelly, 110 Okla. 274; 238 Pac. 466 235 

Bell v. Kirkland, 102 Minn. 213; 113 N. W. 271 . . 252 
Bigelow v. Old Dominion Min. Co., 255 U. S. 111.64, 68 

Bill v. Denver, 29 Fed. 344 130, 134, 188, 260 

Billings Assn. v. Yellowstone County, 70 Mont.; 

401 ; 255 Pac. 996 87, 224 

Block v. Comrs., 99 U. S. 686 147 

Bloomington v. Perdue, 99 111. 329 109 

Board of Corners, v. National Life Co., 90 Fed. 228 160 



CASES CITED--Continiied Pages 

Board of Com'rs v. Sherwood, 64 Fed. 103 162 

Board of Com'rs. v. Sutliff ', 97 Fed. 270 159 

Board of Education v. James, 49 Fed. (2d) 91.60, 179 
Bower v. Bainbridge, 168 Ga. 616; 148 S. E. 511. . 234 
Branting v. Salt Lake City, 47 Utah 296; 153 Pac. 

995 229 

Breakenridge v. Newark, 94 N. J. Law 361; 110 

Atl. 570 226 

Briggs v. U. S., 45 Fed (2d) 479 54 

Buckhouse v. School District, 85 Mont. 141; 277 

Pac. 961 88 

Bucroft v. Council Bluffs, 63 la. 646.121, 127, 128, 129 
Burgess v. Seligman, 107 U. S. 20.77, 81, 179, 223, 252 
Burlington Bank v. Clinton, 106 Fed. 269 . 143, 174, 180 

Burlington Bank v. Clinton, 111 Fed. 439 180 

Butler v. Andrus, 35 Mont. 575; 90 Pac. 785 190 

Butters v. Oakland, 58 Cal. App. 294; 200 Pac. 354 226 
Byers v. Fowler, 12 Ark. 218; 54 Am. Dec. 271 . . 89 

Cairo v. Zane, 149 U. S. 122 161 

Caldwell v. Guardian Trust Co., 26 Fed. (2d) 218 60 
Capital Hts. Co. v. Steiner, 211 Ala. 640; 101 So. 

451 253 

Carlson v. Helena, 39 Mont. 82; 102 Pac. 39 

188, 191, 195, 263 

Cass County v. Johnston, 95 U. S. 360 125, 142 

Castle v. I^ouisa, 187 Ky. 397, 219 S. W. 439 254 

Catlettsburg v. Citizens Bank, 234 Ky. 120, 27 

S. W. (2d) 662 106, 107 

Chaffee County v. Potter, 142 U. S. 355 147 

Chapman v. Douglas County, 107 U. S. 568. .188, 206 

Chehalis v. Cory, 64 Wash. 367; 116 Pac. 875 230 

Chelsea Bank v. Ironton, 130 Fed. 410 173 

Chicago v. Manhattan Cement Co., 178 111. 327; 53 

N. E. 68 110 



VI 

CASES CITED— Continued Pages 

Chicago v. Norton Co., 196 111. 580 109 

Chicago v. People, 56 111. 327 127, 129, 130, 134 

Chicago v. Sexton, 115 111. 230 109 

Clapp v. Otoe County, 104 Fed. 472 161 

Clarksburg Trust v. Com. Ins. Co., 40 Fed. (2d) 

626 56 

Climax v. Burnside, 150 Ga. 556; 104 S. E. 435. . 154 
Cochran v. Thomasville, 167 Ga. 579; 146 S. E. 462 226 
Cole v. Shreveport, 41 La. Ann. 839 ; 6 So. 688 . 189, 212 
Collins v. Ellensburg, 68 Wash. 212; 122 Pac. 1010 230 

Coloma v. Eaves, 92 U. S. 484 161 

Com. Bank v. Portland, 24 Ore. 188; 33 Pac. 532 

105, 120, 130 

Comrs. v. Seal, 113 U. S. 227 161 

Comrs. v. Jackson, 165 111. 17 109 

Community Bldg. v. Maryland Casualty Co., 8 

Fed. (2d) 678 74 

Concordia Co. v. School Dist., 282 U. S. 438 73 

Cornell v. Gt. N. By., 57 Mont. 177; 187 Pac. 902 . 215 

Cramer v. Singer Mfg. Co., 93 Fed. 636 64, 66 

Crewdson v. Elliott, 233 N. W. 712 (la.) 166 

Cronan v. Municipality, 5 La. Ann. 537 127 

Cuddy v. Sturdevant, 111 Wash. 304; 190 Pac. 909 

60,61,148 

Dakota Trust Co. v. Hankinson, 53 N. D. 366, 205 

N. W. 990 61, 189, 190, 212 

Dale v. Scranton, 231 Pa. 604, 80 Atl. 1110. . .105, 107 
Damron v. Huntington, 82 W. Va. 401, 96 S. E. 53 224 

Danzer v. Gulf % I. By., 268 U. S. 633 246 

Davenport v. Dodge City, 105 U. S. 237 126, 142 

Deer Creek District v. Doumecq District, 37 Ida. 

601, 218 Pac. 371 254 

Dennis v. Willamina, 80 Ore. 486, 157 Pac. 799. . 121 
Denver v. Denver Tramway Co., 23 Fed. (2d) 287 74 



VII 

CASES CITED^Continued Pages 

Denny v. Spokane, 79 Fed. 719.104, 106, 110, 116, 138 

District of Columbia v. Lyon, 161 U. S. 200 105 

Dodge v. Memphis, 51 Fed. 165 188 

Douglas County Comrs. v. Bowles, 94 U. S. 104 . . 59 

Dublin v. State, 198 Ind. 164, 152 N. E. 812 254 

Durant v. Story, 112 Okla. 110, 240 Pac. 84. .189, 212 

Eaton v. Shiawassie County, 218 Fed. 588 256 

Edmunds v. Glasgow, 300 Pac. 203 (Mont.) 

109, 139, 147, 153, 158, 187, 188, 213, 262 

Edwards v. County, 53 Mont. 359, 165 Pac. 297. . 186 
Elkhart v. Wickwire, 121 Ind 331, 22 N. E. 342. . 229 

El Sol, The, 45 Fed. (2d) 852 54 

Ennever v. Harrington Bank, 150 Atl. 571 (N. J. 

Misc.) 230, 231 

Evans v. Helena, 60 Mont. 577, 199 Pac. 445 

80, 247, 248, 249, 251 

Evansville v. Dennett, 161 U. S. 434 147 

Everett v. School District, 109 Fed. 697, 102 Fed. 

529 180 

Eyer v. Mercer County, 292 Fed. 292 

60, 163, 188, 213, 216, 256 

Fahey Tobacco Co. v. Senior, 247 Fed. 809 64, 68 

Fairfield v. School District, 116 Fed. 838. .61, 160, 172 

Farr v. Detroit, 136 Mich. 200; 99 N. W. 19 226 

F arris v. Manchester, 168 Ga. 653; 149 S. E. 27. . 226 

F arson v. Sioux City, 106 Fed. 278 173 

Fetzer v. Johnson, 15 Fed. (2d) 145. . .74, 75, 179, 241 

First Bank vy Elliott, 233 N. W. 712 (Iowa) 148 

Fisher v. St. Louis, 44 Mo. 482 130, 134 

Flagg v. School District, 4 N. Dak. 30; 58 N. W. 

499 61, 147 

Floyd v. Bainbridge, 164 Ga. 616; 138 S. E. 851 . . 234 
Fort Dodge Co. v. Fort Dodge, 115 la. 568; 89 

N. W. 7 104, 106, 107, 110, 117, 137, 140 



VIII 

CASES CITED— Continued Pages 

Freese v. Pierre, 37 S. Dak. 433; 158 N. W. 1013. 

105, 190, 212 

Gable v. Altoona, 200 Pa, 15; 49 Atl. 367 

106, 110, 117, 138 

Gagnon v. Butte, 75 Mont. 279; 243 Pac. 1080. . . 

122, 123, 253, 262 

Game v. Clarksville, 5 Dill 168; Fed. Cas. No. 

5276 188 

Geer v. School District, 111 Fed. 682 188, 209 

General Electric v. Morgan-Gardner Co., 168 

Fed. 2 64, 67 

German- Am. Bank v. Spokane, 17 Wash. 315; 49 

Pac. 542 121, 124, 133 

Gilman v. Ferrald, 141 Fed. 941 188 

Gladstone v. Throop, 71 Fed. 341 174, 175 

Grand Chute v. Winegar, 82 U. S. 355 147 

Grant Co. v. Lake County, 17 Ore. 453 110 

Great Northern Ry. v. Pub. Service Com., 88 

Mont. 180; 293 Pac. 294 186 

Green v. Bogue, 158 U. S. 985 64, 69 

Gunnison County v. Rollins, 173 U. S. 255 154 

Haislup v. Union Const. Co., 70 Ind. App. 308; 

123 N. E. 426 226 

Harvey v. Townsend, 57 Mont. 407; 188 Pac. 897. 

74, 80, 85, 224 

Hauge v. Des Moines, 207 la. 1207; 224 N. W. 520 

107, 118, 148, 154 

Hay den v. Aurora, 57 Colo. 389; 142 Pac. 183 154 

Heckman v. Custer County, 70 Mont. 84 ; 223 Pac. 

916 186 

Heine v. Com'rs., 19 Wall. 655 143 

Henderson v. Sovereign Camp W. O. W 

147, 154, 157 



IX 

CASES CITED— 'Continued Pages 

Hill County v. Shaw $ Borden, 225 Fed. 475 . . 189, 204 

Hilger v. Moore, 56 Mont. 146; 182 Pac. 477 186 

Hitchcock v. Galveston, 96 U. S. 341 

129, 132, 133, 188, 199, 211, 255 

Hogansville v. Planters Bank, 108 S. E. 480 (Ga. 

App.) 190, 212 

Hughes County v. Livingston, 104 Fed. 306 160 

Huron v. Second Bank, 86 Fed. 272 160, 161, 162 

Hussey v. Sibley, 66 Me. 192 134 

Hyde v. Mineral County, 73 Mont. 363; 236 Pac. 

248 88 

Indep. School Dist. v. Rew, 111 Fed. 1 160 

Intermela v. Perkins, 205 Fed. 609 121 

I. T. S. Rubber Co. v. Essex Co., 270 Fed. 594.64, 67 

Jackson v. Harris, 43 Fed. (2d) 513 74 

Janutola Co. v. Taidbee, 211 Ky. 356, 277 S. W. 

477 232 

Jersey v. Peacock, 70 Mont. 46, 223 Pac. 903 88 

Jewell v. Superior, 135 Fed. 19 173 

Johnston v. Florida E. Coast Ry., 66 Fla. 415, 63 

So. 713 89 

Johnston v. Hardin, 55 Mont. 574, 179 Pac. 824 . . 87 
Johnston v. Hartford, 96 Conn. 142, 113 Atl. 273. 225 

Jones v. Gable, 150 Mich. 30, 113 N. W. 577 226 

Jones v. Portland, 35 Ore. 512, 58 Pac. 657. .105, 120 
Jordan v. Cass County, 3 Dill. 185, Fed. Cas. 7517 

125, 142 

Kansas City Life v. Shirk, 50 Fed. (2d) 1046. . .51, 53 

Kansas City So. Ry. v. Wolf, 261 U. S. 133 246 

Kerker v. Bocher, 20 Okla. 729; 95 Pac. 981 234 

Knox v. Aspinwall, 62 U. S. 539 147 

Leavenworth v. Mills, 6 Kan. 288 130 

Lehnen v. Dickson, 148 U. S. 71, 37 L. Ed. 389. . 51 
Lewys v. O'Neill, 49 Fed. (2d) 602 54 



CASES CITED--Continued Pages 

Liberty Oil Co. v. Condon Bank, 260 U. S. 235. . 56 

Litchfield v. Ballon, 114 U. S. 190 136, 255 

Litchfield v. Goodnough, 123 U. S. 549 64, 68 

Little v. Portland, 26 Ore. 235, 37 Pac. 911 

110, 120, 138 

Long Beach District v. Lutge, 129 Cal. 409, 62 

Pac. 36 61, 189 

Louisiana v. Wood, 102 U. S. 294 188, 200 

Louisville v. Hyatt, 5 B. Mon. 199 130, 134 

Lumber Co. v. School Dist., 84 Mont. 461, 277 

Pac. 9 88, 89 

Maker v. Chicago, 38 111. 266 129, 134 

Mather v. San Francisco, 115 Fed. 37 

126, 142, 144, 180 

Mankato v. Barber Asphalt Co., 142 Fed. 329. .64, 

66, 73, 76, 104, 106, 110, 115, 125, 131, 138, 252, 260 
Mansur v. Poison, 45 Mont. 585 ; 125 Pac. 1002 . 220-231 

Marietta v. Kile, 40 Ga. App. 73; 149 S. E. 54 226 

Marsh v. Fulton, 10 Wall. 676 188, 199 

Mayor v. Brown Bros., 168 Ga. 1; 147 S. E. 80. . . 226 

Memphis v. Brown, 20 Wall. 289 129 

Michel v. Police Jury, 9 La. Ann. 67 130 

Miller v. Milwaukee, 14 Wis. 699 129, 134 

Mittry v. Bonneville, 38 Idaho 306; 222 Pac. 292 

255 

Moore v. Mayor, 73 N. Y. 238 252 

Moore v. Nampa, 276 U. S. 536; 18 Fed. (2d) 860 

131, 257-259 

Moore v. Yonkers, 235 Fed. 485; 9 A. L. R. 590. . 224 
Morrison v. Morey, 146 Mo. 543; 48 S. W. 629. . . 254 
Morse v. Granite County, 19 Mont. 450; 48 Pac. 

745 189 

Mutual Life Ins. Co. v. Tweed, 7 Wall. 44 51 



XI 

CASES CITED— Continued Pages 

Mc Arthur v. Picayune, 156 Miss. 456; 125 So. 813 

232 

McCraken v. San Francisco, 16 Cal. 691 110 

McClintock l\ Great Falls, 53 Mont. 221; 163 Pac. 

99 86, 186, 187 

McEwan v. Spokane, 16 Wash. 212; 47 Pac. 433. 110 

M'llhenny v. Gaidry, 253 Fed. 613 64, 67 

McKim v. Beiseker, 56 Mont. 330; 185 Pac. 153. . 215 
National Life Co. v. Board of Education, 62 Fed. 

778 160, 161 

Nelson v. Kearney, 132 Atl. 299 (N. S.) 232 

New Albany v. Crumbo, 37 N. E. 1062 (Ind.) 

App.) 228 

New Orleans v. Warner, 175 U. S. 120 173 

Nolan v. Reading, 235 Pa. 365; 84 Atl. 390 105 

Northern Bank v. Stone, 88 Fed. 413 64, 67 

Northern Pacific Ry. v. Mjelde, 48 Mont. 287; 137 

Pac. 386 186 

Northern Pacific Ry. v. VanDusen, 34 Fed. (2d) 

786 51 

Northwestern Bank v. Centreville, 143 Fed. 81 . . . 

61, 74, 172 

O'Brien v. Wheelock, 184 U. S. 450 225 

Odegard v. General Casualty Co., 44 Fed. (2d) 31 73 

Oklahoma City v. Orthwein, 258 Fed. 190 

105, 106, 119, 131 

Olmsted v. Superior, 155 Fed. 172 173 

O'Neill v. Portland, 59 Ore. 84, 113 Pac. 655 121 

Oubre v. Donaldsonville, 33 La. Am. 390 189, 212 

Palmer v. Helena, 19 Mont. 61 ; 47 Pac. 209 109 

Parker v. Butte, 58 Mont. 539; 92 Pac. 748. . .109, 139 
Porter v. Cleveland Trinidad Co., 172 Pac. 945 

Okla 224 

Philadelphia Co. v. New Whatcom, 19 Wash. 225. 124 



XII 

CASES CITED^Continued Pages 

Pine Tree Co. v. Fargo, 12 N. Dak. 360; 96 N. W. 

357 105 

Piatt v. Columbia, 131 S. C. 89; 126 S. E. 523 227 

Piatt v. Hitchcock County, 139 Fed. 929 160 

Plews v. Burrage, 274 Fed. 881 55, 56 

Pointer v. Chelsea, 125 Okla. 278; 257 Pac. 785 .. . 230 

Pomeroy, In Re, 51 Mont. 119; 157 Pac. 333 254 

Pope v. Rich, 293 S. W. 373 

Potter v. Douglas County, 87 Mo. 239 110 

Power v. Helena, 43 Mont. 336; 116 Pac. 415 

87, 224, 232, 243 

Presidio County v. Noel-Young Bond Co., 212 

U. S. 58 60, 159, 161 

Prince v. Quincy, 105 111. 215 136 

Pub. Service Co. v. Corboy, 250 U. S. 153 75 

Quintan v. Green County, 205 U. S. 410 159, 161 

Richardson v. Denison, 189 la. 426, 178 N. W. 

332 231 

Railroad v. Bank, 102 U. S. 14 64, 69 

Raines v. Clay, 161 Ga. 574, 131 S. E. 499 226 

Read v. Plattsmouth, 107 U. S. 568 188, 201 

Reilly v. Albany, 112 N. Y. 30, 19 N. E. 508 

105, 121, 126, 130 

Rice v. Des Moines, 40 la. 638 108 

Road Dist. No. 4 v. Home Bank, 5 Fed. (2d) 625 . 

147, 162 

Road Dist. No. 7 v. Guardian S. § T. Co., 8 Fed. 

(2d) 932 65 9 69, 71, 147, 162 

Robbins v. Chicago, 4 Wall. 657 64, 69 

Rogers v. Omaha, 82 Neb. 118, 117 N. W. 119. 105, 252 
Salt Lake City v. Smith, 104 Fed. 457 184 



XIII 

CASES CITED— 'Continued Pages 

Santa Cruz v. Wykes, 202 Fed. 357 256 

School District v. Stone, 106 U. S. 183 161 

Scofield v. Council Bluffs, 68 la. 695; 28 N. W. 

20 129, 134 

Scott County v. Advance-Rumely, 288 Fed. 739. . 

188, 256 

Seymour v. Freer, 8 Wall. 202 179 

Shapard v. Missoula, 49 Mont. 269; 141 Pac. 544. 

87, 145, 146, 150, 243 

She par d v. Tulare Irrigation Dist., 94 Fed. 1 .. 125, 143 
Shoemaker v. Buffalo Roller Co., 144 N. Y. S. 721 

190, 212 

Simon v. Southern By., 236 U. S. 115 75 

Sioux City v. Trust Co., 82 Fed. 124 162 

Southlands Co. v. San Diego, 297 Pac. 521 227 

South Sioux City v. Hanchett, 19 Fed. (2d) 476. . 189 
South St. Paul v. Lampbrecht Co., 88 Fed. 449. . 160 

Southern By. v. Greenwood, 40 Fed. 679 56 

Speer v. Board of Corners., 88 Fed. 749 161 

Spydell v. Johnson, 128 Ind. 235; 25 N. E. 889. . 

173, 174, 175, 254 

St. Louis v. Pender gast Co., 288 Mo. 197; 231 

S. W. 989; 260 U. S. 469 226 

Stanley v. Great Falls, 86 Mont. 114; 284 Pac. 134 253 

Stanly County v. Coler, 190 U. S. 437 154, 159, 161 

State v. Dickerman, 16 Mont. 278 ; 40 Pac. 698 . 189, 202 
State v. District Court, 50 Mont. 134; 145 Pac. 721. 186 
State v. District Court, 72 Mont. 213; 232 Pac. 201 

88, 89 

State v. Greer, 88 Fla. 249 189 

State v. Jeffries, 83 Mont. 76; 276 Pac. 638 253 



XIV 

CASES CITED— Continued Pages 

State v. Hastings, 120 Wash. 283, 207 Pac. 23. . . 121 

State v. Mills, 81 Mont. 86; 261 Pac. 885 88 

State v. State Board, 56 Mont. 413; 185 Pac. 708; 

186 Pac. 697 186 

State v. West Duluth, 75 Minn. 456; 78 N. W. 115 60 

Steiner v. Capital Hts. Co., 213 Ala. 539; 109 So. 
682 253 

Stromberg v. Zenith Carburetor Co., 220 Fed. 154 

64, 66 

Stryker v. Goodnow, 123 U. S. 527 64, 68 

Supervisors v. Kennicott, 103 U. S. 554; 26 L. Ed. 

486 51 

Swords v. Simineo, 68 Mont. 164; 216 Pac. 806. . 

88, 89, 224, 243 

Terrell v. Paducah, 122 Ky. 331, 92 S. W. 310. . . 105 
Thomas v. Burlington, 69 la. 140, 28 N. W. 480. . 

108, 136 

Thomson v. Elton, 109 Wis. 589, 85 N. W. 425. . . 189 

Thompson v. Perrine, 103 U. S. 806 252 

Tidal Oil Co. v. Flanagan, 263 U. S. 444 85 

Travelers Ins. Co. v. Thome, 180 Fed. 82 73 

Trice v. Comstock, 121 Fed. 620 178 

Troy Bank v. Russell, 291 Fed. 185 61, 62, 147, 164 

Truett v. Caldwell, 3 Minn. 364, 74 Am. Dec. 764 . 89 
Tulare Irrig. Dist. v. She par d, 185 U. S. 1 

59, 73, 161, 252 

Tulsa v. Weston, 102 Okla. 222, 229 Pac. 108 235 

Union Pacific v. C.R.I$ P. Co., 51 Fed. 309 ... . 161 

Union Pacific v. Syas, 246 Fed. 561 55 

U. S. Bank v. Great Western Sugar Co., 60 Mont. 

342, 199 Pac. 245 51, 57 



XV 

CASES CITED— Continued Pages 

U. S. v. Amalgamated Sugar, 48 Fed. (2d) 156. . 56 
U. S. v. Calif. Bridge Co., 245 U. S. 337. . . .64, 65, 69 

U. S. v. Girault, 11 How. 22 89 

U. S. v. Mullan Fuel Co., 118 Fed. 663 215 

Vickery v. Hendricks County, 134 Ind. 554, 32 

N. E. 880 226 

Vickrey v. Sioux City, 104 Fed. 164 173 

Waitz v. Ormsby County, 1 Nev. 370 189 

Waite v. Santa Cruz, 184 U. S. 302 154, 159 

Walsh v. First Bank, 139 Mo. Ap. 641, 123 S. W. 

1001 229 

Walz v. Agricultural Ins. Co., 282 Fed. 646 68 

Warner v. New Orleans, 87 Fed. 826. .88, 102, 173, 188 
Washington County v. Williams, 111 Fed. 801. . . 

173, 174, 177 

Wells Fargo v. Taylor, 254 U. S. 175 75 

Wesson v. Saline County, 73 Fed. 917 160 

White v. Croker, 13 Fed. (2d) 321 64, 68 

White v. Snell, 5 Pick. (Mass.) 425 127, 134 

Willard v. Wood, 135 U. S. 309, 34 L. Ed. 210. . . 51 
Windfall City v. Bank, 172 Ind. 679, 87 N. E. 894 . 254 

Wingate v. Astoria, 39 Ore. 603, 65 Pac. 982 228 

Winston v. Spokane, 12 Wash. 524, 41 Pac. 888. . 110 



No. 6564 
IN THE 

United States Circuit Court of Appeals 

FOR THE NINTH CIRCUIT 



LUMBERMENS TRUST COMPANY, 

a Corporation, 
Appellant, 



vs. 



THE TOWN OF RYEGATE, MONTANA, 

a Municipal Corporation, 
Appellee. 



Brief for Appellant 



GENERAL STATEMENT 

This is an appeal involving old principles of common 
honesty. Principles which have been clothed by Dean 
Ames of the Harvard Law School with the forcefully 
descriptive words of "unjust enrichment". A munici- 
pality has, uses, and receives the income from, and a 
large portion of its inhabitants has and uses a complete 
water-system all in accord with the express wish of its 
electors, but the bonds given in payment thereof it re- 
fuses to collect or repay. 

In 1919 the Town of Ryegate, Montana, County Seat 
of the newly created County of Golden Valley, under- 
took to secure the construction and installation of cer- 
tain public improvements. Among others it sought to 
secure a sewerage system and a supply of water, in- 
cluding distributing pipes and hydrants. The case at 



2 

bar particularly involves the happenings relating to the 
water supply and distribution system and the means 
provided and attempted looking to the payment of the 
attendant indebtedness. 

There are under the laws of Montana two methods 
under which such public improvements may be con- 
structed and indebtedness created with respect to pay- 
ment for the same in the future. One method is the in- 
curring of general indebtedness on the part of the town 
itself. In this connection and at this time it is enough to 
note that the people of Montana in the adoption of their 
constitution in 1889, imposed a restriction upon munic- 
ipal indebtedness whereby a town was not allowed to 
become indebted in any manner or for any purpose in 
an amount, including existing indebtedness, exceeding 
three percentum of the taxable value of the property 
within said town, with a proviso as to sewerage and water 
system, that upon favorable vote of the affected tax- 
payers such limitation might be exceeded. This consti- 
tutional restriction was directed to the legislative assem- 
bly, and the legislative assembly acting thereunder em- 
powered towns, with respect to the construction, control 
and acquisition of water supply, to indebt themselves in 
excess of the 3% limit, particularly requiring an elec- 
tion to determine whether or not any bond shall be is- 
sued and requiring the proposition to be submitted to a 
vote of the affected taxpayers. 

A second method for the securing of public improve- 
ments is provided by laws permitting the creation of 
Special Improvement Districts with respect to which a 
legislative code was in effect at the time in question. 
Under this method the indebtedness incurred was paya- 



3 

ble by means of assessments against the real estate ben- 
efited and within the improvement district and pro- 
vision for the issuance of bonds spread over a period of 
time. Proceedings touching the issuance of such special 
improvement district bonds are inaugurated by a reso- 
lution of intention to create the district, which resolution 
shall, among other matters, state the general character 
of the improvement contemplated and an approximate 
estimate of its cost; a hearing of protests, and due no- 
tice thereof through publication and mail; and a reso- 
lution creating said district after the determination at 
the hearing of the protests. 

The Town of Ryegate undertook to arrange for the 
funding of the indebtedness to be incurred through the 
construction of its contemplated water system and dis- 
tributing plant by using both methods, and accordingly 
it held an election, the result of which was a favorable 
vote authorizing the exceeding of the 3% limit of in- 
debtedness imposed by law and the constitution; and 
further authorizing the issuance of $15,000 par value 
general bonds of the Town of Ryegate for the purpose 
of acquiring a water supply and system for the town. 
This method provided funds to the extent of $15,000 
to be applied, under the specifications which were 
later adopted, to the payment of the reservoir, pump 
house, pumping plant, and such of the main water 
line as it would cover. This sum, however, would not 
pay for the installation of a distribution system suffi- 
cient to supply the town or its inhabitants with water, 
and the town council thereupon proceeded by the second 
method to create a special improvement district to sup- 
plement the water supply and system just referred to. 



Accordingly in December of 1919 the council passed a 
resolution of intention to create Special Improvement 
District No. 4, and stated the character of the improve- 
ment to be "the construction of pipes, hydrants and hose 
connections for irrigating appliances and fire protec- 
tion, all of which improvements are to be made in ac- 
cordance with plans and specifications to be prepared'', 
etc. The resolution stated the approximate estimate of 
costs and expense of constructing improvements to be 
$28,350. The resolution made further and regular pro- 
vision for notice of hearing; declared the boundaries, 
and numerous other matters not pertinent to this suit. 
Thereafter publication was duly made of the notice for 
the hearing of protests. Protests were received and a 
hearing afforded, and on being found insufficient the 
same were overruled and a resolution creating said dis- 
trict was duly passed whereby the town council became 
vested with jurisdiction to order the improvement con- 
templated. Notice for the submission of bids was there- 
after published, which resulted in the award of the con- 
tract to Security Bridge Company on April 26, 1920. 
The contract was made on a unit basis, that is, at stipu- 
lated prices per cubic yard as to excavation, etc., and 
per linear foot as to pipes, a unit price as to each hydrant 
complete, together with certain prices for pump-house, 
pump-house machinery, etc. The contract covered the 
installation of the entire water system and distributing 
plant, and the specifications providing for payment stip- 
ulated that the $15,000 available under the general bonds 
should be applied as hereinbefore mentioned in connec- 
tion with the reservoir, pump-house, etc., and the balance 
was to be paid by the acceptance of bonds of Special 



5 

Improvement District No. 4 at par by the contractor, 
and upon approved payments of the engineer with usual 
provisions for withholding percentages pending final 
approval and acceptance, and particularly provided that 
expense such as should be incurred for legal purposes, 
printing, engineering, etc., should be paid by the con- 
tractor refunding without discount to the town the full 
amount, with respect to which the contractor would be 
paid in the bonds of the Special Improvement District. 

Following the award of this contract on April 26, 
1920, the contractor executed the contract, qualified by 
furnishing the necessary sureties, and undertook the 
construction of the work. 

The Security Bridge Company was not able to carry 
on the work of construction without converting the spe- 
cial improvement bonds into cash, and it therefore ar- 
ranged the sale of these bonds to Lumbermens Trust 
Company, plaintiff herein, and the Trust Company 
from time to time accepted delivery of the bonds as sent 
to it, remitting therefor in money 85% of the par value. 
These moneys provided the means of payment by the 
contractor for the material and labor required in the 
construction of the work. 

The bonds so issued were in the statutory form sug- 
gested by the Montana laws, which bonds stated the 
obligation to pay as authorized by Resolution No. 14 
(resolution creating Special Improvement District No. 

4) as: 

"for the construction of the improvements and the 
work performed as authorized by said resolution to be 
done in said district, * * * in payment of the contract 
in accordance therewith." 



6 

The bond further declared itself to be 

"payable from the collection of a special tax and as- 
sessment, which is a lien against the real estate within 
said improvement district", 

and it further recited that 

"all things required to be done precedent to the issu- 
ance of the bond had been properly done, happened 
and been performed in the manner prescribed by the 
laws of the state of Montana." 

The coupons covering the agreement to pay interest 
on the bonds in question were so arranged that the first 
coupon became due and payable on January 1, 1922. 
In August, 1921, the Town Council of Ryegate pro- 
ceeded to the matter of a levy and assessment against 
the property within the district for the purpose of meet- 
ing the obligation first maturing on the bonds in ques- 
tion, and this was accomplished by resolutions duly 
adopted in the month of September, 1921, whereby cer- 
tain levies and assessments were made payable on or be- 
fore November 30, 1921. 

On January 1, 1922, the coupons referred to were paid 
and a few weeks thereafter suit was brought in the 
District Court of the State of Montana for Golden 
Valley County at the instance of Mike Belecz and others, 
who complained of the assessment levied against their 
properties within the district and charged that such as- 
sessments and levies were illegal. This suit went on to 
issue and subsequently came on for trial, which resulted 
in a decree signed July 8, 1924, by the terms of which 
taxes and assessments levied and assessed upon the 
property within Special Improvement District No. 4 



were decreed to be null and void, and an injunction is- 
sued against the Town of Ryegate and the County 
Treasurer of Golden Valley County, restraining them 
from attempting to collect the same or to issue tax deeds 
against the same, and particularly described certain par- 
cels of real estate, with respect to which the assessments 
were declared to be null and void. This suit was not 
representative by which plaintiffs attempted to appear 
for other taxpayers or persons similarly situated. Nor 
were all the persons and property in the district in- 
volved. No payments of interest or principal have been 
made since the payment of the coupons due January 1, 
1922. 

The case at bar was instituted, the same being filed 
in December, 1926, to impose liability against the Town 
of Ryegate on account of the failure of collections and 
payments of funds designed to pay interest and prin- 
cipal accruing and due upon the bonds issued by the 
town as bonds of Special Improvement District No. 4, 
the money required for the construction and installation 
of said improvements having been furnished by the 
plaintiff, who is the owner and holder of all of the bonds 
in question, and the town itself having accepted and re- 
ceived as for its own the water plant and its distributing 
system, and continued to use the same for municipal and 
public purposes under elaborate ordinances providing 
rates, rules, supervisors, etc. Answer was made to the 
complaint, which will be discussed later on, which in- 
cluded four separate and affirmative answers. Plain- 
tiff's reply brought the allegations of these answers to 
issue, and thereafter the parties entered into a Stipula- 
tion in writing as to the trial and the facts. Under this 



8 

Stipulation the parties expressly waived in writing a 
trial by jury and further stipulated that the admissions 
of the pleadings and the agreed facts should exclusively 
stand as the evidence to be offered as to the issues cov- 
ered by such admissions and agreed facts, and that testi- 
mony might be taken only as to matters not so covered. 
The cause was brought on for trial before the court in 
December, 1929, and on May 14, 1931, the court filed its 
written opinion as and for its findings of fact and con- 
clusions of law herein, and thereafter and on the 16th 
day of May, decree was entered dismissing the suit and 
taxing costs against the plaintiff. To sustain the record, 
if the same should be viewed with uncertainty as to the 
nature of the case, whether an action at law or a suit in 
equity, the court further ordered on July 7, 1931, that 
the written decision filed in the cause should stand as 
the Findings of Fact and Conclusions of Law under 
Equity Rule 70*4 . Thereafter an appeal was brought to 
this court upon the record made and the bill of excep- 
tions below, wherein is found the following 

ASSIGNMENT OF ERRORS 

(found at pages 255 and 256 of printed 
Transcript on Appeal) 

I 

The Court erred in ordering this action dismissed and 
in entering a decree in favor of defendant and against 
the plaintiff and for the dismissal of said cause in its 
entirety. 

II 

The Court erred in making any findings whatsoever 
relative to whether or not there was notice given to 



property owners within the district of the letting of the 
contract for the construction of the improvement in the 
Town of Ryegate, which is the subject of this action. 



Ill 

The Court erred in making any finding relative to 
the estimated cost of the improvement in the Town of 
Ryegate. 

IV 

The Court erred in making any finding as to whether 
or not protests were filed after the contract was let for 
the installation of the improvement in the Town of Rye- 
gate, which is the subject of this action. 



The Court erred in limiting its findings to a question 
of the improvements and the improvement district and 
in finding that the improvements were within an im- 
provement district and for the use and benefit of the 
improvement district's inhabitants alone. 

VI 

The Court erred in not finding that the water system 
was for the use and benefit of the municipality and the 
Town of Ryegate and for certain portions of the inhab- 
itants thereof and for the purposes set forth in the reso- 
lutions creating the improvement district in question. 

VII 

The Court erred in finding that the defendant, Town 
of Ryegate, did not, and has not become indebted to the 
plaintiff, on account of moneys advanced by it and had 
and received by the Town of Ryegate, the benefits of 
which the defendant, Town of Ryegate, is now using 
and enjoying. 



10 

VIII 

The Court erred in holding that the indebtedness 
sought to be imposed upon the defendant, Town of Rye- 
gate, is unconstitutional and in violation of any provi- 
sion of the Constitution of the State of Montana, in- 
cluding Section 6 of Article XIII of said Constitution. 



THE PLEADINGS 

(pp. 2-51 of Printed Transcript) 

Under stipulation (t) of the Stipulation as to Trial 
and Facts (p. 60 Tr.) it was agreed 

"Upon the trial of this cause, both plaintiff and 
defendant may offer evidence by depositions or other- 
wise upon all issues raised by the pleadings herein not 
covered by or included in this agreed statement of 
facts, and the cause may be submitted to the court 
upon the admissions in the pleadings, this statement 
of facts and the evidence introduced upon the trial of 
the cause, but no evidence shall be introduced by 
either party to this action upon any disputed question 
of fact which is covered by the foregoing statement of 
facts." 

This provision makes it important that we have a 
clear understanding of what the admissions in the plead- 
ings are. In studying these pleadings (reference of page 
numbers is to the Printed Transcript) we find the fol- 
lowing : 



The Complaint (p. 2) alleges the identity and status 
of the parties to the case in Paragraphs I and II, which 
allegations are admitted by the Answer (p. 19) in Par- 
agraph I. 



11 
II 

The Complaint in Paragraphs III, IV and V (pp. 
2-3) alleges the passage by the Town council of Resolu- 
tion No. 10, being the resolution of intention to create 
Special Improvement District No. 4, on or about De- 
cember 30, 1919; publication of the required notice Jan- 
uary 1, 1920; and passage on or about February 11, 
1920, of Resolution No. 14, creating Special Improve- 
ment District No. 4. The Answer in Paragraphs II, 
III and IV (p. 19) admits these facts with slight qual- 
ifications not important, showing a slight correction in 
the boundaries of District No. 4 as shown by Exhibit 
"A", made a part of Paragraph III of the Complaint 
by reference. The Answer denies that these boundaries 
are coextensive with the boundaries of the town itself, 
and by affirmative allegation states the purpose of Res- 
olution No. 10 was the "construction of pipes, hydrants, 
and hose connections for irrigating appliances and fire 
protection as expressed'' in the resolution. This affirm- 
ative allegation is admitted by plaintiff in its Reply in 
Paragraph I (p. 48). 

Ill 

The Complaint in Paragraph VI (p. 3) alleges the 
true object and purpose of the proceedings to be the 
establishment and installation of a complete water sys- 
tem for the town and its inhabitants. The Answer in 
Paragraph V (p. 20) denies the purpose as alleged and 
affirmatively states that at about the same time the 
town sold general bonds, aggregating $15,000 par value, 



12 

to pay part of the cost of the water system for the town. 
The Reply in Paragraph I (p. 48) admits the truth of 
this further allegation. 

IV 

The Complaint alleges in Paragraph VII (p. 4) that 
Security Bridge Company was the successful bidder 
and was awarded the contract for the construction of 
the improvements contemplated. The Answer in Para- 
graph VI (p. 20) admits the bridge company was the 
successful bidder and admits that a written contract 
was entered into with the bridge company "for the con- 
struction of said water works system and the improve- 
ments for which said special improvement district was 
created". 



The Complaint at Paragraph VIII (p. 4) alleges in 
effect that it was intended that the town should issue 
negotiable evidence of the debt in the form of special 
improvement bonds to pay for the construction, and that 
after due and legal proceedings an issue, aggregating 
$45,602.42, was accomplished; and refers to Exhibit "B" 
as a copy of one of such issue of bonds. The Answer in 
Paragraph VII (p. 21) denies that such bonds were ne- 
gotiable; admits $45,602.42 par value in bonds was de- 
livered to the Bridge Company in payment of its con- 
tract and that Exhibit "B" is a correct copy of such a 
bond. It alleges further the intention of the town and 
the Bridge Company was that the proceeds of the gen- 
eral bonds of $15,000 would be used for the construc- 
tion of a waterworks system, and the balance of the sys- 



13 

tern and improvements to be constructed in District 
No. 4, was to be paid by the Special District bonds at 
par ; and further alleges that these bonds were delivered 
by the town to the contractor, Security Bridge Com- 
pany, and were accepted in full settlement and payment 
of the balance due under its contract with the Town of 
Ryegate, after allowing credit for the proceeds of the 
sale of the general bonds of the town. The Reply, Par- 
agraph III (p. 48) denies these allegations of the An- 
swer. 



VI 

The Complaint in Paragraph IX (p. 5) alleges that 
the town requested and importuned the Bridge Com- 
pany to take bonds in lieu of cash prior to making its 
contract, to which the Bridge Company acceded, and 
that bonds were duly signed, sealed and delivered from 
time to time as the work progressed and was finished. 
The Answer in Paragraph VIII (p. 22) denies such 
request or importunity; admits that the bonds were is- 
sued from time to time, and alleges that the Bridge 
Company solicited and was anxious to do the work and 
accept bonds as a portion of its pay; it further alleges 
that the bonds so delivered were accepted as payment 
of amounts due on the contract and as actual payments 
of the estimates made. It further alleges that the Bridge 
Company and the Town Council knew that the bonds 
of the Special District could not be sold at a discount of 
not more than 10%. The Reply in Paragraph II (p. 48) 
admits that the Bridge Company solicited the work and 
agreed to take the proceeds of the general bonds, and 



14 

the proceeds or the bonds of the Special District as evi- 
dence of the obligation to pay ; but the other allegations 
are denied in Paragraph III (p. 48) . 

VII 

The Complaint in Paragraph X (p. 5) alleges that 
the Bridge Company had no means of handling bonds 
in lieu of cash and was obliged to find a market for the 
same, and that the town had knowledge of this condi- 
tion and circumstance from the beginning. The Answer 
in Paragraph IX (p. 23) denies knowledge or infor- 
mation sufficient to form a belief as to these matters. 

VIII 

The Complaint alleges in Paragraph XI (p. 6) that, 
with the knowledge of the town, the Bridge Company 
negotiated a sale of the bonds to plaintiff, Lumbermens 
Trust Company, who became the purchaser and suc- 
ceeded thereby to all rights of the Bridge Company 
growing out of its construction, etc. The Answer in 
Paragraph X (p. 23) denies knowledge of plaintiff's 
rights in the premises until long after the completion of 
the contract, and denies that plaintiff succeeded to any 
rights of the Bridge Company. 

IX 

The Complaint alleges in Paragraph XII (p. 6) that 
under its contract with the Bridge Company, plaintiff 
accepted the bonds from time to time and furnished all 
the money required to build the water plant; that plain- 
tiff is the owner and holder of all the bonds without 



15 

notice of imperfection and for value according to the 
terms of the bonds, deliveries having begun on July 28, 
1920, and concluded November 24, 1920, under the 
schedule of deliveries set forth. The Answer admits in 
Paragraph XI (p. 24) that bonds were so issued and 
delivered on the approximate dates and in the amounts 
stated; denies sufficient knowledge or information to 
form a belief as to purchase of the same or furnishing of 
money, or as to the ownership of the bonds or for value, 
and denies that plaintiff took the same without notice 
of imperfection. 

X 

The Complaint alleges in Paragraph XIII (p. 7) 
that the water system was constructed, received and ac- 
cepted and used by the town continuously since its com- 
pletion and acceptance, and the town has received the 
income therefrom, the same having been built wholly 
from moneys of the plaintiff had and received and used 
by the defendant town for such purpose. The Answer 
admits in Paragraph XII (p. 24) that 

"said "waterworks system, and the improvements pro- 
vided for and specified in the resolution of intention, 
and the resolutions creating said special improvement 
district number four, as hereinbefore alleged, was con- 
structed, received and accepted, and is now, and at all 
times since its acceptance has been, used by the de- 
fendant and some of the inhabitants thereof/' 

but denies (p. 25) that the improvements were built 
or constructed from moneys had or received from plain- 
tiff, in whole or in part ; denies the use of any money had 
or received from plaintiff for the construction of the 
system, or the improvements contemplated in or pro- 



16 

vided for by the creation of the district, and denies that 
defendant ever had, received or used any money from 
plaintiff evidenced by the bonds aforesaid. 

XI 

The Complaint alleges in Paragraph XIV (p. 8) that 
interest was paid by defendant on the bonds as the same 
matured January 1, 1922, and thereafter it refused, and 
continues to refuse, to pay any interest thereon or on 
account thereof, and has totally and wholly failed to pay 
and has declared its intention of never paying the prin- 
cipal sum due or any part thereof, and has repudiated 
the debt and any obligation to pay the same, and that 
there is now due the total sum of $45,602.42, with inter- 
est from January 1, 1922; and that defendant continues 
to refuse to pay the claim and has repudiated the debt 
and obligation, notwithstanding repeated demands 
made for payment thereof. The Answer denies that 
defendant ever paid any interest upon the bonds ; it de- 
nies that the bonds are a debt of the defendant, or that 
there is any obligation on defendant's part to pay the 
same, or any part, and denies that anything is due or 
owing from defendant to plaintiff, or any interest what- 
ever. It admits that defendant refuses to pay any part 
of the claim, denies that it ever repudiated the debt, 
and denies that the bonds are a debt of defendant. It 
admits further that the defendant has not paid any part 
of the interest or the principal, and does not intend ever 
to pay the same, or any part thereof. It alleges that 
the interest on January 1, 1922, was paid out of assess- 
ments levied upon property included in the Special Im- 
provement District No. 4, and not otherwise; and by 



17 

way of explanation denies that defendant has ever re- 
fused to pay any interest on the district bonds, for the 
reason that defendant is not liable thereon and has never 
been requested to pay the same. The Reply Par. Ill 
(p. 48) denies all these affirmative allegations. 

XII 

The Complaint alleges in Paragraph XV (p. 3) the 
diverse citizenship of the parties and the jurisdictional 
amount involved. This is admitted by the Answer in 
Paragraph XIV (p. 26). 

XIII 

Further matters in the Answer are to be noticed as 
follows : 

Paragraph XV (p. 26) is an additional denial of 
"negotiability" of the bonds; and in Paragraph XVI 
(p. 26) the Answer alleges that on February 17, 1920, 
Resolution No. 14, creating Special Improvement Dis- 
trict No. 4, was passed and refers to a copy thereof, 
marked Exhibit "A", which is annexed; and by Para- 
graph XVII (p. 26) the Answer alleges that on June 
9, 1920, the Town Council passed Ordinance No. 28, 
providing a method and manner of assessment and pay- 
ing the cost of improvements, a copy of the ordinance 
being annexed and marked Exhibit "B"; and further 
by Paragraph XVIII (pp. 26-27) the Answer alleges 
that the Town Council passed and adopted Ordinance 
No. 29, authorizing the execution, issuance and delivery 
of the bonds in question, a copy of such ordinance being 
annexed to the Answer as Exhibit "C". These allega- 



18 

tions of Paragraphs XVI, XVII and XVIII and Ex- 
hibits are admitted by the Reply in Paragraph I (p. 48) . 

XIV 

The Answer in Paragraph XIX (p. 27) alleges that 
under these resolutions and ordinances the bonds in 
question were payable only out of assessments to be 
levied on the real property in Special Improvement Dis- 
trict No. 4, and not otherwise ; that they are not general 
obligations of the town, nor an indebtedness of the town, 
nor payable out of the general funds of the town. These 
allegations appear to be denied under the provisions of 
Paragraph III of the Reply (p. 48). 

XV 

The defendant pleaded a "first affirmative defense" 
(p. 27) , the purport of which is, that the Town of Rye- 
gate on April 26, 1920, had an assessed value of all 
property within the town of $577,005.00, and that its 
then outstanding and unpaid indebtedness was $15,- 
584.87, with no money in the general fund out of which 
special improvement district bonds could be paid, nor 
were the same payable from current revenues. Further 
schedules of indebtedness and money in the general fund 
is set forth as of the date of delivery of each of the par- 
cels of bonds delivered during the construction work in 
question, and at its termination, purporting to show that 
at all these times the town was generally indebted in 
excess of 3% of the tax valuation of the property with- 
in the town, and that, therefore, the constitutional lim- 
itation of indebtedness would prevent the obligation of 



19 

the special improvement district bonds from being im- 
posed upon the town itself. These allegations appear to 
be denied in Paragraphs I and II (p. 49), being the 
Reply to the separate and affirmative defenses. 

XVI 

For a "second affirmative defense" (p. 29) defendant 
alleges, on information and belief, that plaintiff pur- 
chased the bonds at 80% of the par value thereof. This 
allegation is denied by the Reply in Paragraph II 
(p. 49). 

XVII 

For a "third separate defense" (p. 29) defendant al- 
leges in Paragraph I, that the Town Council, in decid- 
ing to create Special Improvement District No. 4, em- 
ployed special counsel, of especial skill and experience 
in municipal bonds, to prepare the necessary resolutions 
and ordinances, and supervise all the proceedings, for 
the sole purpose of having the same done strictly in ac- 
cordance with the Montana laws, so that the bond issues 
should be legal and valid, and that everything advised 
by said special counsel to be necessary to make and do 
was made and done to make the bond issue legal and 
valid. This allegation is denied for want of knowledge 
or information sufficient to form a belief in Paragraph 
III (p. 49) of the Reply. 

Defendant further alleges in Paragraph II, (p. 30) 
that Security Bridge Company did not rely upon the pro- 
ceedings had under the advice and direction of the special 
counsel employed by the town, but had all the proceed- 
ings passed upon by their own counsel, who are of more 



20 

than ordinary skill and experience in bond issues, and 
matters relating thereto under the Montana laws, and 
that in purchasing the general bonds of the town, and 
in agreeing to accept the special improvement district 
bonds in payment of its work, Security Bridge Com- 
pany relied entirely on the advice of its own counsel, 
and accepted the improvement district bonds knowing 
that the Town of Ryegate was not liable for the pay- 
ment of any part of the bonds, principal or interest, and 
accepted the same knowing that it must rely entirely 
upon the payment of assessments on the real property 
within the district. These allegations are denied by the 
Reply in Paragraphs IV and V (p. 49), except that it 
is admitted Security Bridge Company had its own coun- 
sel investigate the legality of the bond issues referred to. 
In Paragraph III, (p. 31) defendant alleges, on in- 
formation and belief, that when plaintiff, Lumbermens 
Trust Company, purchased the bonds from Security 
Bridge Company it purchased the same knowing that the 
town was not liable for the payment of either principal or 
interest, and did so without relying on any statement of 
any officer of the Town of Ryegate, but relied solely 
on the advice of its counsel, who were skilled in such 
matters, and purchased the bonds on the advice of its 
counsel that the proceedings had were legal and the 
bonds were valid obligations of the district. These al- 
legations are denied by Paragraph VI of the Reply 
(p. 49). 

XVIII 

For a "fourth affirmative defense" (p. 31) defendant 
alleges in Paragraph I that the town made an attempt 



21 

to levy assessments upon the property in Special Im- 
provement District No. 4 in the year 1921, which assess- 
ment was made payable on or before November 30, 1921. 
This is admitted by the Reply in Paragraph VII (p. 

49). 

In Paragraph II, (p. 31) defendant alleges that in 
January, 1922, Mike Belecz, a property owner, together 
with a number of other property owners within the dis- 
trict, began suits in the District Court of the State of 
Montana for the County of Golden Valley, against the 
Town of Ryegate and the County Treasurer of Golden 
Valley County, for the purpose of enjoining and re- 
straining the Town of Ryegate and the County Treas- 
urer from the collection of any assessments levied, or 
attempted to be levied, upon property in the Improve- 
ment District No. 4, on account of the payment of any 
part of the principal or interest on any of the bonds in 
question, and alleged in their complaint that the de- 
scription as to the character of the work set forth in the 
Resolutions of Intention and of Creation of said dis- 
trict was defective, in that the character of the work de- 
scribed was "the construction of pipes, hydrants, and 
hose connections for irrigating appliances and fire pro- 
tection", which was not definite information to the prop- 
erty owners as to the specific character, extent or nature 
of the contemplated improvements, and did not include 
the payment of the cost of installation of any general 
waterworks system. They further complained that at 
the time the Resolution of Intention was passed there 
was not on file or available plans and specifications for 
examination by the lot owners; further that the whole 



22 

cost of the improvements made under the resolutions in 
said special improvement district exceeded the sum of 
$1.50 per lineal foot plus the cost of pipe as prescribed 
by law ; and further that no notice of any kind was given 
of the letting of the contract for construction of the im- 
provements; and that when the same was let the price 
under the contract amounted to a sum exceeding 
$52,000, while the estimated cost was stated at $28,350, 
and that the total cost when actually constructed ex- 
ceeded $57,000; and further that the contract price and 
the actual cost of making the improvements were wholly 
out of proportion to the value of the improvements to 
the property ; and that when the contract was let it was 
impossible to sell bonds in the improvement district at 
par; that no purchaser could be found; which facts were 
known to the mayor and town council, and that the 
contractor took the bonds in payment of the contract 
price, and in so doing allowed for a discount on the 
bonds, which was added to its bid for the work, thereby 
increasing the cost of the work over what it would have 
been had the bonds sold at par; all of which was done 
with the knowledge of the mayor and the town council ; 
and further, that in the suits referred to judgments and 
decrees were entered holding the assessments to be null 
and void, and enjoining the Town of Ryegate and the 
County Treasurer from collecting, or attempting to 
collect, any assessments. Under Paragraph VII of the 
Reply (pp. 49-50) it is admitted that in the month of 
January, 1922, Mike Belecz and other property owners 
began various suits for the purpose of enjoining and 
restraining the Town of Ryegate and the County Treas- 



23 

urer from collecting any assessments to be levied upon 
property in District No. 4 for the payment of principal 
and interest of the special improvement district bonds. 
It denies knowledge or information sufficient to form 
a belief as to the contents of the complaints, and admits 
that judgments and decrees were made and entered, 
but denies knowledge or information sufficient to form 
a belief as to the extent and character of the judgments 
and decrees, excepting that they have prevented the 
collection of principal and interest on the bonds in ques- 
tion. 

At Paragraph 3 (p. 34) defendant alleges that plain- 
tiff herein, Lumbermens Trust Company, was advised 
of the commencement of these suits and employed spe- 
cial counsel to assist counsel for the town in defending 
the suits; that no appeals have been taken from the 
judgments and decrees, which have long since become 
final judgments and decrees as to the legality of the 
bond issue. These further allegations are denied by 
Paragraph VIII of the Reply (p. 50), and all other 
allegations not specifically touched upon in the affirma- 
tive matters are denied by Paragraph IX of the Reply 
(p. 50). 

Since the Stipulation as to Trial and Facts referred 
to is especially important under the Montana practice 
as well as the federal practice in cases tried to the court 
without a jury, wherein an agreed statement of facts 
is in effect considered as findings of fact for the pur- 
pose of review on appeal, we believe this brief should 
contain the 



24 

STIPULATED FACTS 

(found at pp. 52-61, Transcript on Appeal) 
It is agreed. 

a. That the allegations of Paragraphs I, II, IV, and 
XV of the complaint are true. (p. 52) . 

b. In 1919 the Town of Ryegate, the county seat of 
Golden Valley County, was desirous of installing a 
water system, but because of the small assessed value of 
all property w T ithin its corporate limits it could not 
legally and constitutionally issue sufficient general 
bonds to cover the entire cost of such installation. It did 
issue general bonds of the Town of Ryegate in the sum 
of $15,000.00 and on December 30th, 1919, passed a 
resolution of intention to create and establish improve- 
ment district known as Special Improvement District 
No. 4, and Exhibit "A" attached to the complaint here- 
in, is, except as to an immaterial matter, a true and 
correct copy of the resolution so passed and said district 
was created for the purpose of raising additional funds 
over and above the $15,000.00 general bonds necessary 
to pay for said water system and improvements speci- 
fied in such resolution, (pp. 52-53). 

c. On Feb. 17th, 1920, said town passed and the 
Mayor thereof approved Resolution No. 14, a true copy 
of which is attached to the answer herein, marked Ex- 
hibit "A" thereto, (p. 53). 

d. The map initialed and marked Exhibit 1 filed with 
this agreed statement correctly portrays the boundaries 
of the town and its additions, the boundaries of said 
improvement district and location of water mains and 
streets or city hydrants of said water system. The un- 
platted area shown within the boundaries of the town 
and its additions on said map is liable for the payment 
of all taxes levied for town purposes, the same as 
though it were platted; said map also portrays the loca- 
tion of certain public buildings in said town. The only 
buildings belonging to the Town of Ryegate as a mu- 
nicipal corporation are the pumping station of said 
water system and a small frame building used to store 
fire equipment, said building and equipment having a 
value not to exceed $1,000.00. (p. 53) . 



25 

e. The true object and purposes of the passage and 
approval of said resolution and the issuance of said gen- 
eral and special improvement district bonds was the 
establishment and installation in and for the Town of 
Ryegate, and for a portion of its inhabitants of a com- 
plete waterworks and a complete waterworks system 
consisting of reservoir, pumping plant, mains, and all 
other connections and appliances necessary to have a 
complete system for the supplying of water for munici- 
pal purposes to said town, and water to a portion of the 
inhabitants thereof and for the purpose set out in said 
resolutions, (p. 53-54). 

f. That when the said town of Ryegate called for 
bids for the construction of said waterworks system and 
the improvements specified in said resolutions, the Se- 
curity Bridge Company was the successful bidder there- 
for and a written contract was thereupon entered into 
between said town and said Security Bridge Company 
for the construction of said waterworks system and the 
improvements specified in said resolution, a true and 
correct copy of which contract is hereto annexed and 
marked Exhibit 2. (p. 54) . 

g. For the purpose of paying for said waterworks 
system and the improvements specified in said resolu- 
tion, said town issued its general bonds in the sum of 
fifteen thousand dollars and bonds of said Special Im- 
provement District No. 4 in the sum of forty-five thou- 
sand six hundred two dollars and forty-two cents; that 
Exhibit "B" attached to the complaint herein is a true 
and correct copy of one of said special improvement 
district bonds which, save and except as to amounts and 
dates of maturity, is a true and correct copy of all of 
said bonds, (p. 54) . 

h. On April 14, 1920, W. P. Roscoe, as an officer of 
the Security Bridge Company, purchased said general 
bonds of said town at par and accrued interest and said 
Security Bridge Company agreed to accept and did ac- 
cept said general bonds and said special improvement 
district bonds in the sum of forty-five thousand six hun- 
dred two dollars and forty-two cents in payment of the 
costs of installation of said waterworks system and the 



26 

improvements specified in said resolution and that said 
improvement district bonds were issued and delivered to 
said Security Bridge Company, or upon its order, from 
time to time as the work progressed and upon the esti- 
mates of the engineer of said town as said work was 
completed and accepted, (pp. 54-55). 

i. That said Security Bridge Company was a con- 
struction corporation without funds for investment pur- 
poses and it was necessary for said company to at once 
arrange for the sale of said bonds in order to obtain the 
money necessary to purchase supplies and materials 
and to pay the labor necessary for the construction of 
said waterworks and the improvements specified in said 
resolution, (p. 55) . 

j. The Security Bridge Company sold said general 
and improvement district bonds to plaintiff herein at 
85% of the par value thereof, the plaintiff paying said 
Security Bridge Company the sum of thirty-eight thou- 
sand seven hundred sixty-two dollars and six cents for 
said improvement district bonds, (p. 55). 

k. That while said contract disclosed that said bonds 
were taken at par as the consideration in the construc- 
tion contract, they were in accordance with a prior agree- 
ment between plaintiff and the Security Bridge Com- 
pany sold by the Security Bridge Company to the plain- 
tiff herein at a price of 85% of the par value thereof, 
(p. 55). 

1. From time to time, after said improvement district 
bonds were issued for completed and accepted work, 
plaintiff purchased and accepted said bonds at 85% of 
their par value with accrued interest from said Security 
Bridge Company and did thus by the purchase of said 
district and said general bonds furnish to Security 
Bridge Company all the money used by it to build and 
complete said waterworks system and the improvements 
specified in said resolutions, that plaintiff became the 
purchases of said bonds for value before maturity and is 
now the owner and holder thereof and that said general 
and improvement district bonds were issued and deliv- 
ered by said town to said Security Bridge Company, or 
delivered to the plaintiff, at the request of said Security 



27 

Bridge Company, upon the dates, of the number and in 
the amounts set out in paragraph twelve of the com- 
plaint herein, (p. 56) . 

m. Said water system and improvements specified in 
said resolution were so constructed and accepted and the 
said town has been and yet is receiving the income from 
said system and improvements, and said town and such 
of the inhabitants thereof as live within the limits of 
said district now have and are using said water system 
and improvements, (p. 56). 

In further amplification of this paragraph "m" the 
facts are that there are: 

(1) Thirty business houses within said improvement 
district and none without, (p. 56). 

(2) Public buildings consisting of public school, 
courthouse, four churches, postoffice in one of said 
business houses, Milwaukee Railway Station, school 
gymnasium and a shack used as fire hall, all within said 
special improvement district, there being no similar 
buildings in said town outside of said improvement dis- 
trict, (pp. 56-57). 

(3) Sixty-one residences within said improvement 
district, (p. 57). 

(4) Thirteen residences, two warehouses, a small sub- 
station of the Montana Power Company outside of the 
limits of said improvement district but within the fire 
protection of said water system by reason of the fire 
apparatus owned by said town but used for fire pro- 
tection only as to such residences and structures, (p. 57) . 

(5) There are twenty-two residences and two county 
warehouses in the Town of Ryegate situated outside of 
the limits of said special improvement district which 
cannot use said water system and improvements or 
equipment for fire protection, or for any other purposes 
as the same was installed, (p. 57) . 

(6) Said town has operated said water system and 
said improvements since their installation and has re- 
ceived therefrom total gross income as follows, each year 
of its operation thereof: 



28 



1921 $ 211.33 

1922 978.53 

1923 721.16 

1924 980.95 

1925 811.70 

1926 1092.68 

1927 749.18 

Total gross receipts $5,545.53. (p. 57). 

(7) The charges against said water department, 
water system and improvements during the same years 
are as follows: 

Cash paid on warrants issued with 

interest thereon $5,539.28 

Warrants outstanding 1,504.03 

The interest accruing on said general bond issue of 
$15,000.00 is paid out of a levy of 7^2 mills each year 
upon all of the property within the Town of Ryegate 
and its additions, which levy has not been quite suffi- 
cient to pay such accruing interest. None of such gen- 
eral bonds have been paid. (p. 58). 

The interest which matured on said improvement dis- 
trict bonds up to January 1, 1922, was paid by the Town 
of Ryegate out of assessments levied upon the lots in 
said district in accordance with said resolutions, but no 
part of said interest was paid out of any general or spe- 
cial fund of said town. Six per cent is a reasonable rate 
of interest in the State of Montana, (p. 58) . 

n. On October 16, 1920, the town clerk of the Town 
of Ryegate at the request of Security Bridge Company 
forwarded bonds numbered fifty-four to seventy-eight 
inclusive for five hundred dollars each a total par value 
of twelve thousand five hundred dollars of said Special 
Improvement District No. 4 to plaintiff and on No- 
vember 26, 1920, at the request of Security Bridge 
Company said town clerk forwarded to plaintiff bonds 
of said Special Improvement District No. 4, numbered 
from seventy-nine to ninety-one inclusive of the par 
value of six thousand six hundred two dollars and 



29 

forty- two cents and that plaintiff remitted to Security 
Bridge Company 85% of the par value of said bonds 
with accrued interest, (pp. 58-59). 

o. All of the allegations of Subdivision II of de- 
fendant's answer, being defendant's first affirmative de- 
fense, are admitted to be true excepting the clause "nor 
were the same payable out of the current revenues of 
said town of Ryegate" and excepting the clause "that 
said bonds were never payable out of the current reve- 
nues of said town," and excepting all of that portion of 
said Subdivision II which reads as follows : "and that if 
the said bonds of special improvement district number 
4 of the Town of Ryegate, amounting to the sum of 
$45,602.42 were held to be general obligations of the 
town of Ryegate the same and each of said bonds would 
be and are unconstitutional, invalid and void for that 
the amount of said bonds and each of them, added to 
the then general indebtedness of said town would be and 
are greatly in excess of the constitutional and statutory 
limit of indebtedness which said town might then or may 
now incur." None of the exceptions above noted are 
admitted, (p. 59). 

p. All of the allegations of Paragraph one of Subdi- 
vision IV of defendant's answer being defendant's third 
separate defense are admitted, (p. 59). 

q. All of the allegations of Paragraph 2 of said Sub- 
division IV are admitted except the following allega- 
tions "and that in purchasing the general bonds of the 
Town of Ryegate, as herein alleged, and in agreeing to 
accept such special improvement district bonds at par 
value in payment of work under its said contract with 
the Town of Ryegate, said Security Bridge Company 
relied wholly upon the advice of its counsel." (pp. 59-60). 

r. It is further admitted that plaintiff purchased said 
special improvement district bonds from Security 
Bridge Company with the knowledge that they were 
special improvement district bonds and with full knowl- 
edge of the laws of Montana governing the issuance of 
such bonds, the powers of the defendant with reference 
thereto and the methods provided and authorized for the 
payment thereof, (p. 60). 



30 

s. It is admitted that in the month of January, 1922, 
Mike Beleez and other property owners began various 
suits (see refernce thereto in Subdivision V of defend- 
ant's answer), and that made a part of this statement 
of agreed to facts by being attached hereto, marked Ex- 
hibits 3, 4, 5 and 6 are, except for formal parts, true 
copies of the complaint, answer, reply and decree re- 
spectively in said suit. 

That similar suits were filed by a number of other 
persons similarly entitled to sue with similar pleading 
and decree. That this plaintiff had its own counsel asso- 
ciated in the defense and trial of those actions. That no 
appeal was ever taken from said judgment and decrees, 
(p. 60). 

t. In none of the minutes of the town council of the 
Town of Ryegate does the name of plaintiff, as pur- 
chaser of said general bonds of the Town of Ryegate or 
of said special improvement district bonds appear. 
Neither does plaintiff's name appear in any of said min- 
utes, records or files in any connection whatever, except 
in copies of letters of the town clerk remitting some of 
said bonds to plaintiff at the request of Security Bridge 
Company, as hereinbefore set forth, (pp. 60-61). 

Upon the trial of this cause, both plaintiff and defend* 
ant may offer evidence by depositions or otherwise upon 
all issues raised by the pleadings herein not covered by 
or included in this agreed statement of facts, and the 
cause may be submitted to the court upon the admis- 
sions in the pleadings, this statement of facts and the 
evidence introduced upon the trial of the cause, but no 
evidence shall be introduced by either party to this ac- 
tion upon any disputed question of fact which is covered 
by the foregoing statement of facts, (p. 61). 

Signed by the respective counsel and filed, (p. 61). 

This Stipulation of Agreed Facts refers to 
EXHIBIT NO. 1 
Blue-Printed Map of Ryegate 

This Exhibit is a blue-printed map of the Town of 
Rvegate and adjacent territory, intended to show the 



31 

boundaries of the Town of Ryegate, the boundaries of 
Special Improvement District No. 4 therein, the loca- 
tion of the reservoir, the pumping plant and the con- 
necting mains, distributing pipes and hydrants. This 
Exhibit in reduced size has been made into a cut, which 
is hereunto appended. 

The Agreed Facts refer also to 

EXHIBIT NO. 2 

(Printed Transcript, pp. 61-67.) 

Construction Contract 

(Important provisions only are set up.) 

* * * TOWN OF RYEGATE, MONTANA, of 
the first part, and THE SECURITY BRIDGE 

COMPANY, a corporation of Billings, Montana, of 
the second part. (p. 61). 

* * * party of the second part has agreed * * * to 
furnish * * * all the necessary material and labor, * * * 
and to excavate for and build * * * before the first day 
of October, A. D. 1920, the water mains, pumping 
plant, and reservoir indicated on the plans now on file 
in the office of the Town Clerk, and the connections and 
appurtenances of every kind complete * * * in the man- 
ner * * * specified, * * * the Engineer shall * * * inspect 
* * * the materials to be furnished and the work * * * 
to see that the same conform to plans and specifications. 
(pp. 61-62). 

* * * The first part * * * to pay * * * the following 
prices as full compensation for furnishing all materials, 
labor, tools and equipment used in building and con- 
structing and completing said water system * * * and 
full compensation for all loss or damage arising out of 
the nature of the work, etc. * * * according to plans and 
specifications and the requirements of the engineer * * * 
to- wit: (p. 64). 



32 

For all material, tools and labor and in every way 
completing the proposed water system in the Town of 
Ryegate, Montana, according to plans and specifica- 
tions * * *, and any special instructions that may be 
given from time to time * * *. (p. 64) . 

(Here follows a list of unit prices given both in 
words and figures, and describing each size or kind of 
pipe, hydrant, excavation, backfill reservoir, pump 
house, motors, cess pools, electrical equipment, etc.) 
(pp. 65-66). 

* * * that the payments by the party of the first part 
shall be as provided for in the specifications, (p. 67). 

(Signatures follow). 

The Specifications as introduced at the trial supple- 
mented the foregoing contract and the portion dealing 
with "payments" will be found (pp. 212-213) in the fol- 
lowing language : 

PAYMENTS 

The contractor will receive monthly partial pay- 
ments of the amount of ninety per cent of an estimate 
of the work done or the material furnished during the 
preceding month made by the engineer in charge on 
the 1st day of each month. Said estimate to be less 
the amount of any deduction which may be made in 
accordance with these specifications. The remaining 
ten per cent shall be paid upon final completion and 
acceptance of the work by the engineer and members 
of the Town Council. Final payment shall be made 
within ten days of date of final acceptance of the 
work. The Town now has available from the proceeds 
of general obligation bonds, $15,000.00 in cash to 
apply on the construction of the sewer system and 
$15,000.00 in cash to apply on the construction of the 
water system. After deducting the preliminary ex- 
penses this money will be paid to the contractor in 
cash for the construction of the reservoir, pump house, 
pumping plant, the sewage disposal plant, and such 
of the main water line and the main sewer line as it 



33 

will cover. The balance of the water system is to be 
paid in Special Improvement District bonds drawn 
against Special Improvement District No. 4 in the 
Town of Ryegate, Montana, and the balance of the 
cost of the Sewer System will be paid for in Special 
Improvement District Bonds drawn against Special 
Improvement District No. 3, in the Town of Rye- 
gate, Montana. These bonds will be accepted by the 
contractor in full payment for such work at their par 
value. 

The contractor will from time to time have included 
in his estimate, the cost of such incidental expenses, as 
printing, engineering, legal expenses, etc., for which 
he will be issued Special Improvement District bonds 
against Special Improvement Districts Nos. 3 and 4, 
and the amount of such incidental expenses as shown 
by the estimate shall be immediately refunded in their 
full amounts without discount to the Town or such 
other persons as estimates may have been issued for. 

The litigation brought in the state court in behalf of 
Mike Belecz and others in January, 1922, referred to in 
the Agreed Facts as Exhibits Nos. 3, 4, 5 and 6, are re- 
spectively the Complaint, Answer, Reply and the 
Court's Findings and Decree (pp. 68-92). 

These have been edited for the present purpose by 
the elimination of unimportant provisions intended to 
show the issues made in that suit. The Complaint, An- 
swer and Reply will be considered together, being 

EXHIBITS NOS. 3, 4, 5. 

(Printed Transcript, pp. 68-83.) 

The Complaint alleged in Paragraphs 1, 2, 3 and 4, 
the identity of the parties, and alleges the plaintiffs to 
be the owners of the various tracts of land set forth as 



34 

belonging to them and embraced within the description 
of District No. 4. In Paragraphs 5, 6 and 7 it is alleged 
that the resolution of intention, publication of notice 
and resolution creating District No. 4 were accom- 
plished. All of these allegations (pp. 69-70) are ad- 
mitted by the Answer (p. 81). 

Paragraph 8 of the Complaint alleges the object and 
purpose of the proceedings as the establishment and in- 
stallation of a complete water works and complete water 
works system, consisting of reservoir, pumping plant, 
mains and other connections and appliances necessary 
for a complete system furnishing water to the inhabi- 
tants of the town, and that a contract was made for the 
construction of such system, which was constructed and 
installed (p. 71). These allegations are denied by the 
Answer (p. 81). 

The ninth paragraph of the Complaint alleged that 
for the purpose of paying for the improvements a reso- 
lution known as Ordinance No. 28 was passed, provid- 
ing method and manner of assessment and payment on 
an area basis, and further provided for the issuance of 
bonds of District No. 4 to be retired out of the fund 
derived from assessments when paid, and that Ordi- 
nance No. 29 was passed authorizing the issuance of 
bonds and detail connected therewith (p. 71). These 
allegations are admitted by the Answer (p. 81). 

The Complaint in Paragraph 10 alleges levy and as- 
sessment adopted by the town council imposed against 
the real property in District No. 4, including plaintiff's 
properties, to defray the cost of improvements, reciting 



35 

the total cost as $45,602.42, and further alleges on in- 
formation and belief that notice of resolution levying 
the assessment was not published as required by law, 
and further alleged the detailed descriptions of the 
properties owned by the plaintiffs (pp. 72-75). The 
Answer admits these allegations, except for the denial 
of allegations referring to lack of publication of the 
notice of resolution levying assessment (p. 81). 

The Complaint in Paragraph 12 alleged the descrip- 
tion in resolution of intention to be insufficient to give 
definite information to plaintiffs of the specific char- 
acter, extent or nature of the improvement ; that the de- 
scription used was "construction of pipes, hydrants and 
hose connections for irrigating appliances and fire pro- 
tection"; that this description did not include water 
works or a general water works system or system of 
mains or reservoir or pumping plant which was con- 
templated, and was thereafter constructed ; that the im- 
provements described were entirely different and much 
less extensive than the improvements actually made; 
that the description recited that the improvements would 
be made in accordance with plans and specifications to 
be prepared, which were not then prepared and were 
not available for examination by plaintiffs. That the 
notice published and the resolution creating the district 
were equally defective in failing to describe the charac- 
ter of the improvement; that the town council did not 
acquire jurisdiction to create the improvement district 
or proceed with the installation of mains; that all pro- 
ceedings were therefore void (pp. 76-77). These alle- 
gation are denied by the Answer (p. 81). 



36 

The Complaint in Paragraph 12 alleges cost in excess 
of the limit prescribed by law, i. e. $1.50 per lineal foot 
plus the cost of the pipe laid (p. 77). The Answer de- 
nies this (p. 81). 

The Complaint in Paragraph 13 alleges no notice of 
any kind given of the letting of the contract ; that when 
the contract was let the price amounted to $52,829.35; 
estimated cost was $28,350.00; total actual cost was 
$57,619.22; that contract price and actual cost are 
wholly out of proportion to the value of the improve- 
ments (p. 77). The Answer denies these allegations 
(p. 81). 

The Complaint in Paragraph 14 (p. 77) alleges on 
information and belief that at the time contract was en- 
tered into it was impossible to sell the bonds at par ; the 
contractor took the bonds in payment of its contract 
price and extras, and allowed a considerable discount 
because of the market condition; that the cost of the 
work was greatly increased thereby; that all of these 
matters were well known to the mayor and town council. 
The Answer (p. 81) denies these allegations. 

The Complaint in Paragraph 15 (p. 78) alleges pro- 
tests were made by the owners of a majority in area of 
the lots and parcels of land within District No. 4, and 
alleges the withdrawal of protest by the railway com- 
pany by the payment of $2500.00 furnished by certain 
parties who were interested in having the improvements 
made, including the contractor who secured the contract. 
The Answer (p. 81) denies these allegations. 

The Complaint in Paragraph 16 alleges illegality of 
the levies and assessments on account of the matters re- 



37 

ferred to (p. 79), which are denied by the Answer 
(p. 81). 

The Complaint in Paragraph 17 (p. 79) alleges that 
one-tenth of the taxes and assessments levied were pay- 
able on or before November 30, 1920 ; became delinquent 
December 1, 1921, with penalties thereafter; that de- 
fendants threatened to sell the property on account of 
such delinquencies, thereby causing irreparable damage, 
injury, etc. The Answer (pp. 81-82) admits the alle- 
gations of Paragraph 17, excepting a denial as to plain- 
tiffs' remedies or wrongs or damage or injury which will 
be occasioned by the enforcement of the levies and as- 
sessments. 

The Complaint prayed a decree adjudging the taxes 
and assessments null and void (p. 80), and prayed an 
injunction against defendants from selling any of the 
property on account of the taxes and assessments for 
the year 1921; and further prayed injunction from sell- 
ing any portion of the lands for any year thereafter, and 
restraining the issuance of tax deeds if sales were ac- 
complished, and restraining defendants from in any 
manner attempting to collect any portion of the taxes 
and assessments. 

The defendants filed a special defense (pp. 82-83) 
which alleged actual publication of the resolution of in- 
tention. This is admitted in the Reply (p. 83). 

Defendants further alleged (p. 82) that plaintiffs 
did not within sixty days from the date of awarding the 
contract file written notice specifying in what respect 
the acts were irregular, erroneous or invalid, or in what 
manner their property would be damaged by the mak- 



38 

ing of said improvements, and did not in writing make 
any objections to any act or proceeding with relation 
to the making of said improvements, and alleged that 
thereby plaintiffs have waived all objections which they 
now urge. 

The Reply (p. 83) admits these further allegations, 
except that they deny the waiver of any objections to 
the irregular, erroneous and invalid acts complained of 
herein. 

EXHIBIT NO. 6 

(Printed Transcript, pp. 84-92.) 
covers the State Court's findings, etc., as follows: 

DECREE, ETC. 

(p. 84) 

This cause came on for trial February 6, 1923 * * * 
court * * * without a jury * * *. D. Augustus Jones, 
Esq., and Johnston, Coleman & Johnston appeared as 
attorneys for plaintiffs, and Stuart McHaffie, Esq., 
and Nichols and Wilson appeared as attorneys for the 
defendants. Evidence was introduced on behalf of both 
plaintiffs and defendants and the cause was thereupon 
submitted to the Court. 



Thereafter * * * June 27, 1924, * * * filed * * * 
Findings of Fact and Conclusions of Law * * * as 
follows : * * * 

FINDINGS OF FACT 

(p. 84) 

( 1 ) That the defendant Town * * * a Municipal cor- 
poration, * * * the defendant W. O. Wood * * * treas- 
urer of said Golden Valley County, * * * 



39 

(2) The plaintiffs * * * the owners of * * * property 

* * * described in complaint * * * within the limits of 
Special Improvement District No. 4 * * * (p. 84-85). 

(3) * * * on the 30th day of December, 1919, * * * 
town * * * duly passed resolution of intention number 
10, for the creation of special improvement district No. 
4 * * * notice * * * was duly published * * * thereafter 

* * * resolution number 14, creating * * * was duly 
passed * * * (p. 85). 

(4) * * * the character of the improvement as set out 

* * * was "the construction of pipes, hydrants, and hose 
connections for irrigating appliances and fire protec- 
tion." * * * the * * * improvement * * * actually in* 
stalled * * * was a complete water works and water sys- 
tem * * * reservoirs, pumping plant, mains and fire 
hydrants * * * for the furnishing of water to the inhab- 
itants of said town. * * * installed * * * by Security 
Bridge Company * * * under one contract, * * * upon 
bid * * * * * * t- ne no tice * * * and the plans * * * and 
contract * * * all refer to * * * a complete water system 
consisting of the elements above described, (pp. 85-86) . 

(5) * * * after the contract * * * let, the Town * * * 
provided * * * mode of assessment * * * of * * * each 
parcel of land * * *. * * * the assessment * * * was for 

* * * $45,602.42 * * * bonds * * * were * * * accepted 
and * * * issued * * * in payment * * *. (p. 86) . 

(6) * * * the plans * * * delivered to * * * Clerk ten 
days or two weeks before April 13 * * * not presented to 
the Town Council * * * until April 13 * * * one day be- 
fore bids * * * received * * *. (pp. 86-87) . 

(7) * * * pipe used * * * cost * * * $17,726.47. 
(p. 87). 

(8) * * * contractor * * * took into consideration 

* * * the bonds * * * discount * * * and bid * * * upon 
that basis * * * (p. 87). 

(9) * * * no notice of any kind * * * of the letting of 
the contract, (p. 87). 

(10) * * * the cost * * * which the Town Council * * * 
attempted to assess against the property * * * was the 
sum of $45,602.40 * * * estimated cost * * * was $28 $ - 
350.00. (p. 87). 



40 

(12) * * * plaintiffs (8 named) * * * within sixty 
days * * * filed written protests, (p. 88). 

(13) * * * improvement * * * was a different im- 
provement * * * in that the improvement actually in- 
stalled was an entire and complete water system, where- 
as * * * resolution * * * was the construction of pipes, 
hydrants, and hose connections * * *. (p. 88). 

(14) * * * within the time * * * written protests * * * 
filed by * * * majority in area * * * the Chicago, Mil- 
waukee & St. Paul Railway Company, the owner of a 
large amount of land * * * prior to the hearing upon 
said protests interested citizens * * * raised a fund of 
$2500.00 and paid the same to the Chicago, Milwaukee 
& St. Paul Railway Company * * * the said * * * Rail- 
way Company withdrew its protest * * * so doing an 
insufficient number of protests were left on file to de- 
feat the creation of said district, (pp. 88-89). 



From the foregoing Findings of Fact the Court made 

CONCLUSIONS OF LAW 

(p. 89) 

1. * * * Town Council * * * never * * * acquired jur- 
isdiction to create * * * district for the installation of a 
water system or of an improvement of the kind actually 
installed, * * * installation * * * without authority * * * 
all of the proceedings with reference thereto * * * null 
and void. 

2. * * * cost of * * * system as installed was in excess 
of the cost allowed by law * * * and the assessment * * * 
for that reason illegal, (p. 89). 

3. * * * Town Council * * * knew * * * contract price 
was increased * * * that the bonds issued * * * would 
have to be disposed of at less than par * * * knew * * * 
bid would have been * * * lower * * * and contract price 
lower if the bonds could have been sold at par, * * * 
for this reason * * * proceedings * * * in letting said 
contract were null and void. (pp. 89-90) . 

4. Plaintiffs * * * entitled to an injunction restrain- 
ing the defendants * * * from in any way * * * attempt- 



41 

ing to collect * * * assessments against the property of 
any of said plaintiffs situate in * * * District No. 4 

* * *. (p. 90). 

5. Let Decree be drawn in accordance * * *. (p. 90) . 

DECREE 

(p. 90) 

That all taxes and assessments levied and assessed 
upon property * * * to pay for special improvements 

* * * under resolution of intention No. 10 * * * and * * * 
resolution No. 14 * * * which are the subject of this 
action, are null and void; that the defendants are * * * 
enjoined and restrained from selling any of the prop- 
erty of plaintiffs herein, described in the complaint * * * 
account of the nonpayment of any of said * * * assess- 
ments imposed because of the creation of said district 
and the construction of improvements therein; * * * and 

* * * enjoined and restrained from issuing any tax deed 
to the purchaser of any of said lots or property * * *. 

That the said defendants * * * are * * * enjoined and 
restrained from * * * attempting to collect * * * assess- 
ments; that the lots and properties referred to herein, 
the taxes and assessments against which * * * are hereby 
declared to be null and void * * * are particularly de- 
scribed as follows: (Detailed description bv lot and 
block number, etc.) (pp. 90-91-92). 

Dated July 8, 1924. 
Filed July 16, 1928. 



TESTIMONY 

(Printed Transcript, pp. 151-251.) 

At the trial of this cause, in addition to the pleadings, 
agreed statement of facts and exhibits appended thereto, 
some testimony was offered intended to cover the facts 
which were not made the subject either of admission or 
agreement. 



42 

We find the testimony of John N. Neale (beginning 
p. 157) . This witness was a bond buyer of the plaintiff 
in the years 1919 and 1920. His testimony discloses that 
he visited the town of Ryegate, interviewed various 
members of the council, discussed the prospective im- 
provements and made his recommendations; all this in 
the year of 1919. He testifies affirmatively that he 
discussed his identity and his principal with these par- 
ties. The testimony shows (p. 163) that he had no in- 
formation as to any opposition by the property holders 
in the district and explains (p. 164) that he would have 
made no recommendation to purchase any bonds had 
he known or heard of any protests or opposition, that 
being a condition which he always looked out for and 
which his company would always avoid if present. This 
is reiterated (p. 165). His testimony further discussed 
the necessity of Security Bridge Company finding a 
market for the bonds (p. 166) and discloses that such 
necessity was discussed and knowledge of the condition 
imparted to the officers of the Town of Ryegate. This 
testimony was offered to show knowledge on the part 
of the Town of plaintiff's position in the matter, and 
a lack of notice on the part of plaintiff of any opposi- 
tion or basis of imperfection in the bonds, as well as 
disclosing knowledge imparted to the town of the neces- 
sity of the contractors finding an outlet for the sale of 
the bonds. 

The testimony of W. P. Briggs (p. 170) discloses 
that a statement relating to Local Improvement Bonds, 
marked Plaintiff's Exhibit No. 1 (p. 171) was for- 
warded to the plaintiff, signed by the town clerk and 



43 

with the seal of the town attached, dated August 12, 
1920. This statement discloses a negative answer to 
the question propounded as to whether any litigation 
was pending or threatened affecting the issue (p. 173). 
The witness' testimony further discloses that on May 
29, 1920, the Town of Ryegate drew a sight draft on 
plaintiff for the balance of the proceeds of $15,000 gen- 
eral bond issue (p. 175) ; and further shows (pp. 176- 
177) that no knowledge of threatened litigation, pro- 
tests or anything of that character was brought to the 
plaintiff until the earlier part of the year 1922, when 
suit was begun in the state courts. The testimony of this 
witness was offered to show good faith and lack of 
notice of any imperfection on the part of plaintiff, and 
also as bearing upon the knowledge of the Town that 
plaintiff, Lumbermens Trust Company, had undertaken 
to purchase these securities, as well as the general bonds, 
as early as the month of May, 1920. 

The testimony of W. P. Roscoe (beginning p. 178) 
was received, which showed him to be officer of Security 
Bridge Company; shows that the witness made several 
trips to the Town of Ryegate, talked to the various 
councilmen and the mayor; definitely shows that he 
discussed with these officials the necessity of the con- 
tractor selling the bonds; that the witness directed the 
Town and its clerk to mail the first issue of general 
bonds, with draft attached, to plaintiff (p. 180), and 
further discloses that witness secured a copy of legal 
opinion from the Town referring to the general bond 
issue, and advised the city that it was to be forwarded 
to Lumbermens Trust Company, as well as the tran- 



44 

script of the special district proceedings and the opinion 
and transcript were made Plaintiff's Exhibits "A" and 
"B" attached to the deposition, which were received in 
evidence. The witness further testified that certificates 
were made up as to the allowance of estimates on the 
work in connection with the bonds issued from time to 
time (pp. 182-183), and that he advised the council 
and the town officers that these certificates were for 
the Lumbermens Trust Company. The witness further 
testified as to the installation of the system. That it 
would serve a population three times the then popula- 
tion of Ryegate. "The system was installed in such a 
way that extensions could be made to it that it would 
serve the entire community of Ryegate within the cor- 
porate limits" (pp. 183-184). This witness' testimony 
was intended to show ( 1 ) knowledge on the part of the 
town of the necessity of selling the bonds by the con- 
tractors; (2) that Lumbermens Trust Company was 
known by the town to be the buyer of the bonds early in 
the transaction and that various exhibits indicated rec- 
ognition of this on the part of the town and its officers ; 
(3) and further disclose facts with respect to the instal- 
lation of the water system that the water system was for 
the entire city, irrespective of the limitation of the im- 
provement district, was what was contemplated and in- 
stalled; (4) and that the plant installed could serve a 
growing community without additional expense to the 
plant itself (the ordinances provide for the cost of ex- 
tensions). 

Ordinance No. 33 (p. 186), showing that the town 
had provided regulations for the use of the water and 



45 

charges and tariffs relating thereto, was introduced; 
Ordinance No. 34 (p. 201), showing the creation of 
the office of City Water Commission and its duties. 
These ordinances were important in showing not only 
the intent and extent of the use of the water system and 
the acceptance of it by the city, but also in showing that 
it was an entire project for the benefit of the town and 
the whole of its population. 

On the part of the defendant, testimony of Henry 
Thien (p. 206) is that of a witness who was a member 
of the council in 1919, and whose term of office expired 
in May, 1920. His testimony, in rebutting that of Mr. 
Neale and Mr. Roscoe, is almost entirely negative. In 
large part the witness does not recall the conversations, 
although he admits that Mr. Roscoe referred to Port- 
land in introducing Mr. Neale (p. 204). The witness 
stated that the opposition to the improvement developed 
when the estimate of probable cost was obtained (p. 
205) . The witness states that he knew nothing of Lum- 
bermens Trust Company until after the suit started by 
Mike Belecz in 1922 (p. 206). Cross-examination of 
this witness (pp. 207-209) disclosed that prices were 
high in the year 1920; that the opposition was entirely 
one as to matter of costs; that there were two factions 
in the town. In offering his testimony certain exhibits 
relating to specifications, notice to contractors, pro- 
posals in connection with the bid, etc., were offered and 
received, the purport of which was to explain in greater 
detail some of the matters adverted to in the Agreed 
Facts. This is particularly true as to the specifications 
relating to "Payments" (p. 212), but the offer to 



46 

prove "Estimates" by the witness was unsuccessful, 
though it may not be of material importance (p. 210). 
The "Payment" provisions and the Proposal indicate 
that the water system and the sewer system were com- 
bined in one set of specifications. 

Defendant further offered (p. 218), and there was 
received, Minutes of council meetings, which have some 
bearing by way of explanation, and particularly the 
Minutes of the meeting held February 11, 1920, and 
the adjourned meeting February 17, 1920, at which 
time protests were filed and disposed of at the last 
named date in connection with the proceedings to create 
Special Improvement District No. 4, including a sched- 
ule of protestants who were represented by counsel at 
said meeting. The Minutes of the meeting of February 
17, 1920, are shown in detail (pp. 228-229), at which 
time the protests were found insufficient under the law. 

The deposition of G. H. Corrington, former council- 
man, is found at pages 229-230. This testimony is 
negative as to knowing anything about Lumbermens 
Trust Company. The witness states that he did not 
recall meeting Mr. Roscoe and did not recall meeting 
Mr. Neale, and stated that he did not request Lum- 
bermens Trust Company to buy any of the bonds. 

Further testimony of Henry Thien (p. 231) devel- 
oped that that witness did not request Lumbermens 
Trust Company to buy any of the bonds. 

The testimony of C. H. Parizek, former councilman 
(p. 231), is wholly negative. He does not recall con- 
versation with Mr. Roscoe during the time he was an 
alderman; he did not recollect meeting Mr. Neale; did 



47 

not recollect anyone talking about Lumbermens Trust 
Company; did not recall Mr. Roscoe appearing before 
the council; did not recall having heard Lumbermens 
Trust Company might buy the special bonds; did not 
recall legal opinion with reference to the legality of the 
general bonds. 

Testimony of W. H. Northey (pp. 234-235). This 
witness was mayor of the town from May, 1920, to 
May, 1922. He admitted knowing Mr. Roscoe but was 
not acquainted with Mr. Neale. His testimony is replete 
with "I don't recall," "I don't know anything about 
it," "I don't remember." He recognized his own sig- 
nature and stated that the first time he knew Lumber- 
mens Trust Company had the bonds, was when he was 
served with summons in the case at bar. His testimony 
is entirely negative except as to two or three unim- 
portant details. 

Testimony of B. Mellen (pp. 235-240) . This witness 
was a member of the Town Council beginning in May, 
1920. He admits knowing Mr. Roscoe by sight; de- 
clared he did not know Mr. Neale. The greater part 
of his testimony is negative. He asserted that he knew 
nothing of Lumbermens Trust Company until after the 
suit started in 1922; declared he had never seen the 
legal opinion furnished by the town as to the validity of 
the general bonds; did not recall Mr. Roscoe having 
appeared before the council; never knew that certified 
copies of the minutes approving estimates were made 
out; never heard of them until the time of taking his 
testimony. The witness (p. 238) was unwilling to say 
whether he was present at the meeting unless the 



48 

minutes should so state. Confronted with the records, 
the witness admitted (pp. 238-239) that he voted in 
favor of the allowance of the estimates. 

The defendant put in portions of the Minutes of 
meetings (pp. 240-247) . These showed the detail of the 
estimates made, and progress of the work, the earliest 
date being July 28, 1920, and thereafter August 11, 
1920, August 25, 1920, September 8, 1920, October 13, 
1920, and the final estimate of November 24, 1920. De- 
tail of the work done and payments made, etc., set forth 
in these statements, made part of the Minutes. These 
are corroborative of many of the matters agreed upon in 
the Agreed Facts. 

Further testimony of Henry Thien (p. 248) dis- 
closed that the witness did not know and was never in- 
formed who was going to buy the bonds, but on cross- 
examination (p. 249) he admitted that he presumed 
they had some outlet, for otherwise they would not take 
them. 

Testimony of Parker W. Hastings (p. 249) was 
taken in rebuttal in behalf of plaintiff. It appears that 
he was one of the officers of Security Bridge Company, 
and that he, as such officer, requested the town or its 
officers to forward the certificates issued during 
progress to the Lumbermens Trust Company, these 
being the same certificates marked Plaintiff's Exhibit 
"C" introduced by Mr. Roscoe. 

The foregoing synopsis hastily sketches the testimony 
offered and it appears to us that the only important 
matters which were not settled by the Agreed Facts or 
the admission of the pleadings are as follows : 



49 

1 — Notice of any defects, threatened litigation, pro- 
tests, etc., given to plaintiff. It was admitted that plain- 
tiff was a purchaser before maturity and for value, and 
the matter of notice of imperfection was left open. The 
uncontradicted testimony of the witnesses Neale and 
Briggs shows conclusively that plaintiff had no actual 
notice of any imperfections. 

2 — The matter of knowledge on the part of the Town 
of Lumbermens Trust Company having agreed to pur- 
chase these bonds. This testimony is conflicting, the 
trial court made no finding upon it. On the one side 
there is definite positive testimony on the part of the 
witnesses Neale, Roscoe and Hastings, to the effect 
that the town and its officers were notified at various 
times and in various ways, and that information was 
forwarded by the town to the plaintiff, as disclosed by 
the testimony of Mr. Briggs. On the part of the town 
we have the halting, negative testimony of the various 
councilmen, who recall nothing specific, and who do not 
remember detailed facts. It is important to notice that 
this line of testimony is guarded, none of these witnesses 
being willing positively to testify that these things did 
not occur, and each relies on the time-worn crutches of 
"do not recall" and "do not remember." 

The other issues which may not have been agreed 
upon are unimportant, since they are either matters of 
legal conclusion, such as the "negotiability" of the bonds, 
with respect to which plaintiff will now state that the 
special improvement bonds are not "negotiable" in the 
sense that such term is used, under the Negotiable In- 



50 

struments Law as an obligation which is payable by its 
terms at some specific date, whereas special improve- 
ment bonds by their terms are payable only from special 
funds to be derived from properties which may or may 
not be a time certain. In the other sense of assignability 
by delivery, etc., the bonds are "negotiable" in a prac- 
tical sense. They may more properly be called for legal 
purposes "assignable choses in action" which have the 
characteristics of negotiability. They carry with them, 
however, a greater degree of commercial transferability 
than is accorded to a mere contract which is assignable, 
and the cases disclose that the law will protect a holder 
of a special improvement bond who has purchased the 
same for value and before maturity and without notice 
of imperfection, in much the same degree as would be 
the case were the instrument legally negotiable in the 
sense of commercial law. It should be noted that the 
ordinances of the Town of Ryegate, in connection with 
the issuance of these bonds, refer to them as "negotiable 
coupon bonds," and there is an argument to be made as 
to whether or not the town may, having so ordained, be 
heard thereafter to deny their negotiability. 



SCOPE OF REVIEW 

Where an action is tried to a federal court, trial be- 
fore a jury having been waived as provided by the 
statutes, and an agreed statement of facts submitted to 
the court as the foundation of the action and as evidence 
in support thereof, the scope of review in the Circuit 
Court of Appeals becomes immediately of interest. 



51 
Points and Authorities 

An agreed statement of facts is on appeal the equiva- 
lent of a jury's special verdict, and the legal conclu- 
sions properly to be deduced therefrom are thereby 
brought before the court for review on appeal. 

Mutual Insurance Co. v. Tweed, 7 Wall. 44. 
Supervisors v. Kennicott, 103 U. S. 554; 26 L. Ed. 

486. 
Lehnen v. Dickson, 148 U. S. 71, 73; 37 L. Ed. 

389. 
Anderson v. Messinger, 146 Fed. 929. 
Northern Pacific Ry. v. Van Dusen, 34 Fed. (2d) 

786. 
Kansas City Life v. Shirk, 50 Fed. (2d) 1046. 

The reception of other matter in evidence, which does 
not disturb the ultimate or material facts, does not 
change the rule above stated. 

Anderson v. Messinger, 146 Fed. 929. 

Where the court has filed an opinion which is treated 
as its findings of fact, or where parties by stipulations 
have agreed that such opinion shall be considered as the 
findings of fact, the court on appeal will give effect to 
such findings as such for the purposes of review. 

Mutual Insurance Co. v. Tweed, 7 Wall. 44. 
Lehnen v. Dickson, 148 U. S. 71 ; 37 L. Ed. 373. 

On a case submitted to the court without a jury under 
an agreed statement of facts the form of the action is 
not open to objection. 

Willard v. Wood, 135 U. S. 309, 314; 34 L. Ed. 
210. 



52 

The same practice obtains in the State of Montana. 

U. S. Bank v. Great Western Sugar Co., 60 Mont. 
342; 199 Pac. 245. 

Argument 

In the case at bar a Stipulation of Facts was entered 
into in addition to the pleadings, under the terms of 
which the admissions of the pleadings and the agreed 
statement of facts should stand exclusively as to issues, 
with respect to which no dispute is made in the plead- 
ings. A very little additional evidence was taken, none 
of which tended to disturb the ultimate facts as agreed 
upon. In making its decision the trial court filed an 
opinion by way of Decision (p. 94) which, as shown by 
the bill of exceptions, was entered as the Findings and 
Conclusions of the court (p. 252). In preparing the 
transcript as shown by the printed record (p. 252) the 
clerk was requested to insert a copy of these findings, 
but the same was apparently overlooked and the direc- 
tion to the clerk printed in its stead. The same condition 
developed as to the decree or judgment (p. 252). To 
correct this oversight the parties, by a Further Stipula- 
tion filed in this court, have agreed that the Decision 
shown (beginning p. 94) constituted the Findings and 
Conclusions which were to have been entered by the 
clerk at page 252, and that the Decree shown (p. 112) 
was the judgment intended to be inserted by the clerk at 
page 252. It will be observed that the court allowed an 
exception to the plaintiff, with respect to these findings 
(p. 252). In this state of the record it is clear that the 
court has made reviewable findings in the case at bar to 



53 

which exceptions have been allowed, and thereby the 
correctness of the findings upon the exceptions is before 
the court on review. There are no authorities to the 
contrary. Had the court's findings been general only, 
under the authorities listed above it is clear that the ap- 
plication of the law to the Agreed Facts and the plead- 
ings would also have been properly before the court for 
review. 

The latest case discussing this matter to be found by 
counsel is Kansas City Life v. Shirk, 50 Fed (2d) 1046, 
wherein Judge Pollock has marshaled the cases, discus- 
sing the underlying principles with a collection of au- 
thorities, which amply demonstrate the law with respect 
to review in the circuit court of appeals. In this very 
recent decision, Judge Pollock declined to review a gen- 
eral finding made in the lower court, pointing out that 
important additional testimony and evidence had been 
received, and no exceptions taken respecting such there- 
by presenting a condition which the court was not per- 
mitted to review. In the case at bar, however, the trial 
court has, by making its decision a special finding as 
explained by the Further Stipulation and by allowing 
exceptions thereto, supplied precisely for the benefit of 
the record on review, the very matters which were lack- 
ing in Judge Pollock's case. 

In Judge Pray's decision in the case at bar the court 
has stated the position of defendant as follows (p. 96) : 

' 'The general question presented by this action 
is whether or not a city or town in Montana is liable 
upon any theory for the debt represented or evidenced 
by the bonds of a special improvement district which 



54 

by their terms are made payable from a special fund 
derived from special assessments upon and against 
the property embraced within that district.' If this 
question should receive an affirmative answer, then 
the further question arises whether the Town of 
Ryegate can be held liable in this instance in view 
of Section 6 of Article 13 of the Constitution of 
Montana." 

We are willing to accept the proposition as so stated 
and will undertake to show the liability of the Town of 
Ryegate thereunder. 

To make sure that the questions might be fully re- 
viewed in the event that this case should be considered 
as a suit in equity rather than an action at law, the trial 
court on July 7, 1931, entered an order amending its 
decision, to the effect that the decision theretofore filed 
(p. 94) should stand as findings of fact and conclusions 
of law as required under the new Equity Rule 70^ 
This will be found at page 254. 

The action of the trial court in so doing is supported 
by the following cases : 

Briggs v. United States, 45 Fed. (2d) 479. 
Lewys v. O'Neill, 49 Fed. (2d) 603. 

Both of these cases were suits in equity; the first in 
the Circuit Court of Appeals and the other in the Dis- 
trict Court. The same practice has been followed in 
admiralty. 

The El Sol 45 Fed. (2d) 852, 857. 

The case at bar was instituted on the law side and the 
answers of defendant raise a number of defenses some of 
which have equitable significance. Being submitted to 



55 



the court without a jury and on an agreed statement of 
facts, not only is the form of action not deemed impor- 
tant as held by the United States Supreme Court in 
Willard v. Wood, supra, but, since the change in federal 
practice effected by Sections 274-a and 274-b of the 
Judicial Code (U. S. C. A., Sections 397-398), it makes 
little difference for the purpose of review upon which 
side the case was begun with respect to the review 
granted on appeal. 

Where the facts are agreed upon and the cause tried 
to the court, the question as to whether the matter be 
determined at law or in equity is waived and failure to 
transfer the same to the equity side of the court will be 
regarded as harmless, since the judge would determine 
the matter anyway. 

American Trust Co. v. Butler, 47 Fed. (2d) 482. 

Where plaintiff has begun at law and defendant has 
interposed a legal answer, the plaintiff may still have 
the benefit of equity on a replication to the answer. 

Plews v. Burr age, 274 Fed. 881. 

Union Pacific By. v. Syas, 246 Fed. 561. 

Even where the case has been tried as an action at 
law when it should have been equitable, it will be deter- 
mined on the equity side. 

Gunther v. Home Insurance Co., 286 Fed. 396. 

A party is not estopped from demanding his right 
to an equitable hearing because he has started at law. 



56 

Clarksburg Trust Co. v. Commercial Ins. Co., 40 

Fed. (2d) 626. 
United States v. Amalgamated Sugar Co., 48 Fed. 

(2d) 156. 

A case need not be transferred to the equity side in 
order to determine whether the equitable defenses are 
good. 

Arkansas Coal Co. v. Stokes, 277 Fed. 625. 

The Circuit Court of Appeals may on its own motion 
transfer a cause from the law to the equity side or vice 
versa under the act (28 U. S. C. A., Sec. 391) authoriz- 
ing the court to give judgment "after an examination 
of the entire record before the court, without regard to 
technical error, defects, or exceptions which do not af- 
fect the substantial rights of the parties." 

Clarksburg Trust Co. v. Commercial Ins. Co., 40 
Fed. (2d) 626, 634, 

wherein Judge Parker, after stating the rule above 

set forth, said that the court 

"will not hesitate to exercise the power when other- 
wise a failure of justice may result. Courts exist to 
do justice; and it would be a reproach * * * to deny 
relief * * * merely because his counsel came in * * * 
by the wrong door of the court." 

The statute is to be liberally construed, its intent be- 
ing to make the change from law to equity or vice versa 
with the least change of form possible. 

Liberty Oil Co. v. Condon Bank, 260 U. S. 235; 43 

Sup. Ct. 118. 
Plews v. Burr age, 274 Fed. 881. 
Southern By. v. Greenwood, 40 Fed. 679. 



57 

Under the foregoing authorities and the condition of 
the record the review in the case at bar extends to the 
entire record and this Court may administer equitable 
relief if the facts shown by the record shall so require in 
order to do substantial justice. 

A fine discussion and review of these very principles 
by the Montana Supreme Court on a rehearing appli- 
cation is found in 

U. S. Natl. Bank v. Great Western Sugar Co. , 60 
Mont. 351 ; 199 Pac. 345. 

PRELIMINARY 

In considering this case we believe the broad under- 
lying facts clearly show the plan of improvement adopt- 
ed by the town to be the installation of a water plant 
and distributing system for the town, under which the 
proceeds of general bonds of the par value of $15,000, 
duly issued pursuant to an election held under the ap- 
plicable laws, should be used in paying for the work and 
material involved in the construction of the reservoir, 
pump house and pumping plant, while the distributing 
system emanating therefrom would be paid either by 
the bonds or the proceeds of the bonds of the Special 
Improvement District No. 4 which was created. This is 
clear under the provisions of the contract as shown by 
the "payment" provision of the specifications made a 
part thereof by reference (p. 212). Pursuant to this 
plan general bonds were authorized under appropriate 
proceedings which described the purpose of the $15,000 
issue as "procuring a water supply and constructing a 



58 

water system for said town." (See reference to Ordi- 
nance No. 25 at p. 218). It was not unreasonable or 
unnatural that, with this description of the improve- 
ments to be paid for by the proceeds of the general 
bonds, the town council in its resolutions and proceed- 
ings relating to the Special Improvement District No. 
4, should use the descriptive language referring to the 
improvements therein to be constructed as "pipes, hy- 
drants, hose connections for irrigating purposes and fire 
protection." This language is identical to that found in 
Section 5226, Montana Revised Codes 1921. Combining 
the description used in connection with the proceedings 
touching the general bonds with the description of the 
improvements to be constructed in District No. 4, we 
have in practical language a fair description of the en- 
tire water plant and distributing system which the town 
sought to acquire and have constructed. Common sense 
suggests that "pipes, hydrants, hose connections for ir- 
rigating purposes and fire protection" is the equivalent 
of any common description given such water pipes and 
fire hydrants as were in fact installed in District No. 4. 
The Agreed Facts includes Exhibit No. 1, which is a 
map of the Town of Ryegate and of District No. 4. It 
shows the location of the improvements as installed, 
from which it will be observed that within District No. 
4 there was constructed and installed pipes and hydrants 
only, and whether or not the water-mains, (being pipes 
of various diameters, 4", 6" or 8") should, under the 
common meaning of the English language, be designat- 
ed other than as "pipes", is, we assert, nothing more 
than the merest quibble and entitled to no substantial 



59 

consideration. These mains are pipes in fact, and gener- 
ally recognized as such by the parties hereto (see Min- 
utes of the Council relating to Estimates, pp. 240-247) 
wherein the only descriptions of the water-mains are 
shown to be either "pipe" or "cast-iron pipe." 

If the foregoing be kept clearly in mind the principal 
objection raised in this controversy vanishes. No other 
contention can be deemed jurisdictional. 

Further underlying facts constantly to be kept in 
mind are that, under the plan adopted, the Town of 
Ryegate actually secured and is using for municipal 
purposes a water-plant and distributing system planned 
to extend and reach its corporate limits, and that as to 
the latter, except for the payment of one interest coupon 
January 1, 1922, nothing has been paid either on inter- 
est or principal, although the town accepted and re- 
ceived the distributing plant, and has continuously used 
the same and appropriated for its own the revenues de- 
rived therefrom for a period of ten years! Under such 
circumstances every intendment of law must be pre- 
sumed to be in favor of the obligation unless an insuper- 
able legal obstacle shall prevent. The language of the 
United States Supreme Court is pertinent. It said: 
"Common honesty demands that a debt thus incurred 
should be paid." Douglas County Commissioners v. 
Bowles, 94 U. S. 104, 110. 

Referring to the foregoing expression, the same tri- 
bunal afterwards remarked: "This sentiment has lost 
no force by the lapse of time." Tulare Irrigation Dis- 
trict v. Shepard, 185 U. S. 1, 8. 



60 

PLAINTIFF'S POSITION HEREIN IS EQUIVALENT 
TO THAT OF A BONA FIDE HOLDER 

Points and Authorities 

I 

The holder of bonds admittedly genuine is presumed 
to be a bona fide holder within the meaning of the Ne- 
gotiable Instruments Law. 

Board of Education v. James, 49 Fed. (2d) 91. 
Caldwell v. Guardian Trust, etc., Co., 26 Fed. (2d) 

218, 224, 227. 
Presidio County v. Noel-Young Bond Co., 212 U. 

S. 58, TO; 29' Sup. Ct. 237. 

II 

The fact that a holder had actual knowledge of the 
proceedings taken and had prepared the instruments 
himself does not affect his position as bona fides where 
he has paid value. 

Eyer v. Mercer County, 292 Fed. 292. 
Affirmed 1 Fed. (2d) 609. 

The rule is not changed because the interest rate was 
illegal, nor because a discount of the face value had 
been made in the negotiation, even where the holder 
prepared the instruments himself. 

Eyer v. Mercer County, 292 Fed. 292. 

Ill 

The fact that the bonds were purchased by the holder 
at less than par does not deprive him of the rights of a 
bona fide holder. 

State v. West Duluth, 75 Minn. 456; 78 N. W. 115. 

Eyer v. Mercer County, 292 Fed. 292. 

Cuddy v. Sturdevant, 111 Wash. 304; 190 Pac. 909. 



61 

IV 

The holder of a special improvement bond, which is 
recognized as not being a "negotiable instrument" 
within the meaning of the Negotiable Instruments law, 
has the same rights in this respect as the holder of a 
fully negotiable instrument. 

Cuddy v. Sturdevant, 111 Wash. 304; 190 Pac. 909. 
Troy Bank v. Russell County, 291 Fed. 185, 191. 
Flagg v. School District, 4 N. D. 30, 51 ; 58 N. W. 
499, 507. 



A bona fide holder is not charged with duty of in- 
vestigating the character of improvements actually 
made. 

Northwestern Bank v. Centreville, 143 Fed. 81. 

Reference to a resolution in the bond does not require 
purchaser to determine its legality. 

Fairfield v. School District, 116 Fed. 838. 



VI. 

The transferee of special improvement warrants is 
not subject to any defense offered against the contrac- 
tor. It is subject only to defenses existing at the time 
of issuance. The town must protect such warrants. 

Dakota Trust Co. v. Hankinson, 53 N. D. 356; 

205 N. W. 990. 
Long Beach District v. Lutge, 129 Cal. 409; 62 

Pac. 36. 



62 

Argument 

We have earlier in this brief discussed the testimony 
touching the matter of actual notice of any defect in the 
bonds of Special Improvement District No. 4. Under 
the Agreed Facts it is stipulated that plaintiff was the 
owner and holder of all of these bonds; that plaintiff 
purchased the same for value and before maturity. The 
question of notice was left open. The testimony of the 
witnesses Neale and Briggs referred to at pages 42-43 of 
this brief, clearly shows that no actual notice of defect 
in the bonds was brought to the plaintiff prior to the 
bringing of the Belecz suit. No evidence to the contrary 
was offered or received. 

As to constructive notice and whether the law imputes 
constructive notice to the holder of special improvement 
bonds as distinguished from direct obligations which are 
fully negotiable, the cases referred to in Points and 
Authorities are controlling. A full discussion of this 
matter will be found in Cuddy v. Sturdevant J supra, 
which case is closely in point, since the defects com- 
plained of are substantially identical with defects con- 
tended for in the Belecz suit. The case of Troy Bank v. 
Russell County, supra, has a fair discussion of the same 
matter when dealing with a certificate of indebtedness, 
which was held to be not negotiable in the legal sense. 

The legal presumption of bona fides stated in the 
authorities clearly supports plaintiff's position, there 
being no opposing testimony. 



63 
EFFECT OF BELECZ DECREE AS RES JUDICATA 

Defendant has pleaded suits begun by Mike Belecz 
and other plaintiffs in the state court, alleging 
various grounds of attack against the validity of the 
assessments and the improvements constructed in Spe- 
cial District No. 4. It is stated that these suits came to 
judgment and decree, that they were not appealed from 
and are therefore final, and that in the defense of such 
suits counsel employed by plaintiff, Lumbermens Trust 
Company, assisted counsel for the Town of Ryegate. 

Points and Authorities 

I 

The defense of res judicata is effective against parties 
and privies to the proceeding adjudicated, and as to 
such it extends to the issues made and which might 
properly have been adjudicated, whether actually deter- 
mined or not, but which were open to adjudication in 
the particular case. 

15 Ruling Case Law, p. 483. 



One who participates in litigation by paying a portion 
of the expense, who assists in the trial, who files briefs, 
who employs or pays counsel, but is not a party to the 
proceeding, and does not have the right to control the 
case and to direct its disposition, and to appeal from a 



64 

decree therein, is not bound by that judgment if the 
same facts and issues are controverted in a later contest. 

Manhato v. Barber Asphalt Co., 142 Fed. 329. 
Stryher v. Goodnow, 123 U. S. 527, 540; 31 L. Ed. 

194. 
Litchfield v. Goodnow, 123 U. S. 549; 31 L. Ed. 

199. 
Bigelow v. Old Dominion Min. Co., 255 U. S. Ill; 

56 L. Ed. 1009; 32 Sup. Ct. 641. 
U. S. v. California Bridge <$ C. Co., 245 U. S. 337; 

62 L. Ed. 333; 38 Sup. Ct. 91. 
Cramer v. Singer Mfg. Co., 93 Fed. 636 (9th C. 

C. A.) 
Northern Bank v. Stone, 88 Fed. 413. 
General Electric Co. v. Morgan-Gardner Co., 168 

Fed. 52. 
M'llhenny v. Gaidry, 253 Fed. 613. 
Stromberg v. Zenith Carburetor Co., 220 Fed. 154, 

156. 



II 

It is recognized that while the "adjudication" can run 
only to the parties properly before the court, yet the 
doctrine of "estoppel" is sometimes urged against those 
who assist in its participation, but as to such the federal 
rule is that the party is not estopped unless he had the 
right to defend, the right to control the proceeding, and 
the right to appeal. 

Bobbins v. Chicago, 4 Wall. 657, 672; 18 L. Ed. 

427. 
Railroad v. Bank, 102 U. S. 14, 21; 26 L. Ed. 61. 
Green v. Bogue, 158 U. S. 985; 39 L. Ed. 1061. 
White v. Croker, 13 Fed. (2d) 321. 
Fahey Tobacco Co. v. Senior, 247 Fed. 809, 817. 
I. T.S. Rubber Co. v. Essex Rubber Co., 270 Fed. 

594, 608; 257 U. S. 664. 



65 
III 

The subject matter in the earlier litigation must be 
identical to operate as an estoppel, where one is not a 
party before the court in such case. 

U. S. v. California Bridge Co., 245 U. S. 837. 
Road District No. 7 v. Guardian Sav. <§ Tr. Co., 8 
Fed. (2d) 932. 

Argument 

In the case at bar and under the Agreed Facts, para- 
graph "s" (p. 60), it is stipulated as follows: 

''That this plaintiff had its own counsel associated 
in the defense and trial of those actions. That no ap- 
peal was taken from said judgment and decrees." 

The Agreed Facts had further stipulated, paragraph 
"t" (p. 61): 

"no evidence shall be introduced by either party to 
this action upon any disputed question of fact which 
is covered by the foregoing statement of facts." 

This stipulation with respect to the association of 
counsel controls the record in the case under the last 
stipulation quoted. This clears the record under the 
denial made by the reply, paragraph VIII (p. 50), of 
the allegation in defendant's answer (p. 34) : 

"That plaintiff herein was advised of the com- 
mencement of each and all of said suits, and employed 
special counsel to assist counsel for the Town of Rye- 
gate in defending said suits; that no appeal was taken 
from any of said judgments or decrees ; v 

The foregoing is the entire record touching this mat- 
ter. It goes no further than to agree that plaintiff em- 
ployed counsel who assisted in the defense. 



66 

In the federal courts it is well settled that such par- 
ticipation in a trial does not bind the party who em- 
ployed the assisting counsel. A case most directly in 
point is Mankato v. Barber Asphalt Co., 142 Fed. 329, 
where the contractor employed its own counsel to assist 
the city and paid the fees of special counsel selected by 
the city in the defense of property owners suits brought 
against the city to declare the proceedings invalid with 
respect to street paving in the nature of a special im- 
provement. 

The question respecting employment of counsel has 
arisen in a number of patent suits. In Stromberg v. 
Zenith Carburetor Co., 220 Fed. 154, 156, it appeared 
that in the former suit the manufacturer, who was not 
named a party to the suit, paid the expenses of the 
defense, employed counsel who took charge of the cost 
in the trial, and who took an appeal in the name of the 
defendant, but upon the appeal pending the defendant 
discharged this attorney and went no further, substi- 
tuting counsel of its own, who dismissed the appeal and 
consented to a decree and waiver of the right to appeal. 
It was held that this participation and conduct of the 
case did not estop the manufacturer from setting up his 
position in a later case. 

In the 9th Circuit Court of Appeals it was held, 
Cramer v. Singer Mfg. Co., 93 Fed. 636, opinion by 
Judge Gilbert, that judgment in a former case, which 
made a manufacturer a party by name, but who was 
not served, yet who assisted in the defense, paid the 
costs, expenses and counsel fees, did not estop the man- 
ufacturer from bringing in its own behalf a subsequent 
suit. 



67 

The Circuit Court of Appeals for the 7th Circuit, in 
General Electric Co. v. Morgan-Gardner Co., 168 Fed. 
52, held that a manufacturer who paid the attorney who 
defended the patent infringement suit for a customer, 
and who paid part or all of the costs incurred, did not 
thereby become concluded by the decree in the absence 
of a showing that the attorney had exclusive control 
and direction of the case. 

In I. T. S. Rubber Co. v. Essex Rubber Co., 270 Fed. 
594, 608, the District Court for Massachusetts held that 
a party who participated in an earlier case involving 
patent infringement, who advised defendants therein 
to allow decrees to go by default, and who paid the 
damage decreed thereunder, was not estopped by that 
judgment from trying out the merits of the infringe- 
ment in a subsequent controversy. 

An earlier case is that of Northern Bank v. Stone, 88 
Fed. 413, decided by Judges Harlan, Taft and Lurton, 
which held that where the attorney general of the state 
participated in a suit brought by a Bank against a 
county, involving the validity of taxes under a state 
statute resulting in a decree, a subsequent suit involving 
the right of other counties and municipalities to collect 
the tax did not bind the state from further participation. 

In a trade mark case of M'llhenny v. Gaidry, 253 
Fed. 613, 617, it was held that a person named as a de- 
fendant in an earlier case, but who was not served, but 
who employed counsel, who prepared the answer which 
was filed by attorney for codefendant who was served, 
was not held bound by the decree entered. 



68 

A further trade mark case is that of Fahey Tobacco 
Co. V. Senior, 247 Fed. 809, 817, where it was held that 
contribution to defending counsel in a former case which 
was settled by stipulation, did not bind the contractor in 
a later case directly brought against him. 

The filing of a brief in support of a party's position 
in a prior case does not estop the party furnishing the 
brief from defense in a later suit, Stryker v. Goodnow, 
123 U. S. 527, 540. 

The owner of lands described in the bill, but not 
named as a party to the suit, is not estopped because she 
paid part of the defense expense required in resisting 
the proceeding, Litchfield v. Goodnow, 123 U. S. 549. 

One who contributes to the cost of the defense, but 
has not the right to control the same, is not bound by a 
judgment therein in a later suit, involving the same 
issue, Walz v. Agricultural Ins. Co., 282 Fed. 646. 

One who participates in a defense but who is not a 
party must participate openly and avowedly, and con- 
trol the proceedings in order to be estopped by the 
judgment, White v. Croker, 13 Fed. (2d) 321. 

The famous case of Bigelow v. Old Dominion Min. 
Co., 225 U. S. Ill, is to the same effect. In that case 
two joint tortfeasors were implicated in a fraud against 
their corporation. One was sued in the Federal Court 
for the Southern District of New York and the other 
not made a party because not resident within the dis- 
trict. The nonresident assisted in the defense of his 
joint tortfeasor in the federal court, although not nom- 
inally a party, and contributed to the expense and de- 
fense of the matter, which went in favor of the defend- 



69 

ant. Subsequently the nonresident was sued in the State 
Court of Massachusetts, where he resided. That court 
held participation in the federal case did not operate as 
an estoppel against the corporation bringing the action, 
and the Federal Supreme Court sustained that position. 

The cases go even further in that the subject matter 
must be precisely identical even where the participation 
is complete. See U. S. v. California Bridge $ C. Co., 
245 U. S. 337. The former case involved the site of a 
shipyard in San Francisco Bay, in connection with 
which the party had fully participated. This was held 
not to be an estoppel in connection with a later case, 
which involved an alternative site. 

Generally the federal law is clear that to bind a party 
who is not nominally a party or privy, it must appear 
that the party sought to be estopped had a direct interest 
in the subject matter which was precisely determined, 
the right to defend, the right to control the proceedings 
and the right to appeal. Road District No. 7 v. Guar- 
anty Sav. <§ Trust, 8 Fed. (2d) 932; Bobbins v. Chi- 
cago, 4 Wall. 657, 672; Railroad Co. v. Bank, 102 U. 
S. 14, 21; Green v. Bogue, 158 U. S. 985. 

In the Ryegate case the record shows only assistance 
given to the counsel of the town; it does not show what 
participation, if any, plaintiff's counsel gave to the de- 
fense of the property owners suit; it does not show 
that the assistant counsel controlled the proceedings; it 
does not show that assistant counsel or plaintiff in this 
cause had any right to control the proceedings, much 
less to appeal therefrom; it merely shows that appeal 



70 

was not taken. There is nothing in this record to show 
that participation by counsel was openly and avowedly 
in behalf of plaintiff ; on the contrary the findings in the 
state court show the following (p. 84) : 

"This cause came on for trial February 6, 1923, 
before the Court, sitting without a jury, * * * D. 
Augustus Jones, Esq., and Johnston, Coleman & 
Johnston appeared as attorneys for plaintiffs, and 
Stuart McHaffie, Esq., and Nichols and Wilson ap- 
peared as attorneys for the defendants.' 3 

This narration does not disclose that anyone appeared 
for Lumbermens Trust Company, and there is no open 
and avowed appearance for them whatsoever. It is clear 
that the record compels the state case to stand as no 
estoppel insofar as Lumbermens Trust Company is 
concerned, by reason of participation in the defense of 
the state cases. 

Furthermore the issues made in the state cases are 
quite different from those set up in the case at bar. A 
cursory reading of the complaint in the state court and 
comparison with the complaint in the case at bar will 
show various positions which are not common to the two 
causes. The validity of the bonds is not drawn in ques- 
tion in the Belecz case. The relief prayed for in the 
Belecz suit looked only to the cancellation of assessments 
levied at the time the suit was brought. These levies 
may have been bad in part and have justified a decree, 
which under no circumstances would determine the 
validity of the bonds themselves or the position of plain- 
tiff herein as a holder of the same, having purchased 
them before maturity and for value. Applying the doc- 



71 

trine of the United States Supreme Court the precise 
questions were not involved in both cases in addition to 
the other matters referred to, and we can confidently 
say that the state adjudication has no bearing as such 
or as an estoppel against plaintiff herein. 

This precise question was determined by J. San- 
born in 

Road District No. 7 v. Guardian Savings Etc. Co., 
8 Fed. (2d) 932 (CCA. 8th). 

This renowned jurist declares (p. 935) as follows: 

"Other arguments of the assailants of this decree 
are that the United States District Court was without 
jurisdiction to render it: (a) Because the suit of the 
Weona Land Company and others against the dis- 
trict and its officers, in which that (state) court m 
July, 1922, adjudged the assessment of benefits void 
and enjoined defendants therein from collecting the 
taxes based thereon, was commenced before this suit 
was brought, and the state court thereby 'first 
acquired jurisdiction of the same matter involved in 
this suit, and both this suit and said suit in equity, 
Weona Land Company v. Road Improvement Dis- 
trict No. 7 of Poinsett County, Arkansas, involve the 
very matters in controversy in this case,' and, the suit 
in the state court having been first brought, the court 
below had no jurisdiction of this case under Kline v. 
Burke Construction Co., 26 U. S. 226, 43 S. Ct. 79, 
67 L. Ed. 226, 24 A. L. R. 1077. But the facts on 
which this position is based never existed, and do not 
now exist, and it is consequently untenable. The state 
court never first, or at any time, acquired jurisdiction 
of the 'same matter involved in this suit,' nor were 'the 
very matters in controversy' in this case involved in 
that suit. The matters in controversy in that suit 
were the claims and rights of the district and its offi- 



72 

cers to enforce the assessment they had made and the 
taxes they had levied on the property in the district 
against the owners of that property. The matters in 
controversy in this suit are the claims and rights of 
the purchasers for value before maturity, without no- 
tice of any defects or defenses thereto, of the negoti- 
able mortgage bonds of the district, certified to have 
been lawfully made and secured on the property 
therein, * * *" 

We have developed the argument under this head 
with some consideration, because it appears to have been 
assumed by Judge Pray in deciding this cause in the 
trial court, that an adjudication had been made which 
bound the parties with respect to the legality of the 
bonds. Judge Pray himself makes no specific finding 
on this with respect to which an assignment of error 
could have been predicated, but the language of his de- 
cision (p. 94) indicates such assumption on his part. 
The cases cited and the doctrine developed therein 
clearly show that such assumption would be unfounded 
in federal law if present in the mind of the court. 

RULE OF STARE DECISIS INAPPLICABLE TO 
CASE AT BAR 

The judgment of the state court, while in no sense 
res judicata and not a basis of estoppel, is still open to 
discussion as a decision under the rule of stare decisis. 
This involves the jurisdiction of the federal court in 
cases of diverse citizenship and brings up the question 
as to the independent determination of the issues by the 
federal courts, notwithstanding contrary decisions in 
state courts. 



73 
Points and Authorities 



It is well settled that the federal courts have a concur- 
rent but wholly independent jurisdiction in matters of 
general law, particularly as the same refers to contracts 
and as relating to decisions of the state courts in dealing 
therewith, and where the construction of state statutes 
or city ordinances has not been settled in the highest 
court of the state prior to the fixing of the federal liti- 
gants' rights complained of, the federal courts are free, 
and it is their duty independently, to interpret the state 
statutes as its own judgment shall determine, irrespec- 
tive of the state decisions made prior to the federal de- 
cision but subsequent to the date of such vesting. 

Mankato v. Barber Asphalt Co., 142 Fed. 329. 
Tulare Irrigation Dist. v. Shepard, 185 U. S. 1, 10. 
Concordia Ins. Co. v. School District, 282 U. S. 

438. 
Travelers' Ins. Co. v. Thome, 180 Fed. 82. 
Ode gar d V. General Casualty Co., 44 Fed. (2d) 

31, 37. 

II 

Under Section 5237, Revised Code Montana 1921, 
any property owner or person having an interest in land 
liable to assessment, who claims any previous act or pro- 
ceeding to be irregular, defective, erroneous or faulty, 
may file within sixty days from the date of the con- 
tract's award, a written notice specifying in detail the 
matter complained of, and failure so to object within the 
time shall constitute a waiver by such property owner, 



74 

provided only that notice of the passage of the resolu- 
tion of intention has been actually published and the no- 
tice of improvements posted as provided. Prior to the 
proceedings involved in this case the Supreme Court of 
Montana had held that a property owner could not 
bring a suit attacking the legality of districts, their cre- 
ation, contracts, etc., where he had not filed his claim 
within sixty days. 

Harvey v. Townsend, 57 Mont. 407; 188 Pac. 897. 

Ill 

Recent cases sustaining the right of the federal court 
to make its independent judgment from that of the state 
courts, whether of general law or statutory law declara- 
tory of the common law or statutes, which have been 
construed by the state court after the contract or right 
had originated, are as follows : 

Fetzer v. Johnson, 15 Fed. (2d) 145 (6th C. C. A.) 
Community Bldg. v. Maryland Casualty Co., 8 

Fed. (2d) 678, 680 (9th C. C. A.) 
Jackson v. Harris, 43 Fed. (2d) 513, 517 (10th 

CCA.) 
Denver v. Denver Tramway Corp., 23 Fed. (2d) 

287, 302 (8th C C A.) 
Northwestern Bank v. Centreville, 143 Fed. 81. 

IV 

Where the federal courts judgment conflicts with 
that of the state court dealing with the same subject 
matter, the federal court has power by appropriate or- 
ders to enjoin or to command state officers to perform 



75 

the necessary acts to give support to the federal judg- 
ment, notwithstanding contrary decrees of the state 
court. 

Fetzer v. Johnson, 15 Fed. (2d) 145. 

V 

Generally a federal court will interfere by enjoining 
parties from claiming rights under a state judgment or 
decree where the result would be unconscionable or sup- 
port a fraud, notwithstanding that the state court has 
otherwise determined the issues. 

Wells Fargo § Co. v. Taylor, 254 U. S. 175; 41 

Sup. Ct. 93, 96. 
Simon v. Southern By., 236 U. S. 115; 35 Sup. Ct. 

255. 
Public Service Co. v. Carboy, 250 U. S. 153; 39 

Sup. Ct. 440. 

Argument 

The proposition of independent federal determina- 
tion with respect to general law is so well known as to 
require no extended argument. The cases are so numer- 
ous in pronouncing the doctrine with respect to the in- 
dependent right of the federal court to determine state 
statutes, where the same have not been settled by the 
state courts prior to the vesting of the federal litigants 
rights, that it is only necessary to call attention to the 
leading case of Burgess v. Seligman, 107 U. S. 20, and 
following the same through the cases, we find scores of 
cases following that doctrine in the subsequent deter- 
minations of the federal courts. 



76 

The case which most nearly approaches the facts in 
the case at bar is that of Mankato v. Barber Asphalt Co., 
142 Fed. 329. In that case it appears that the contract 
had been awarded to Barber Asphalt Company, but that 
shortly before the award a taxpayer's suit had been 
begun against the city but not against Barber Asphalt 
Company, who was not yet the contractor, asking an 
injunction against any improvement which should im- 
pose pecuniary liability upon the city. The contract was 
thereafter awarded, which avowedly imposed no such 
liability upon the city. Shortly thereafter the complaint 
was amended by the taxpayer asserting this contract to 
be invalid. This case went on for trial and was tried 
while the work was under construction. It resulted in an 
adjudicataion of invalidity. This was appealed to the 
Minnesota Supreme Court and affirmed. Meanwhile 
the work was completed. The contractor was not 
brought into the case as a party but employed counsel 
to assist, and paid the fees of special counsel who repre- 
sented the city. During the pendency of the work, but 
after the award of the contract, a property owner 
brought a second suit with similar allegations against 
the contractor, asking relief based upon invalidity of 
the contract. This cause was not immediately tried but 
was determined subsequent to the first case, and resulted 
in a similar judgment of invalidity. On appeal to the 
Supreme Court of Minnesota it also was affirmed. Be- 
fore the affirmation of the second case on appeal, but 
subsequent to the affirmation of the first case, Barber 
Asphalt Company brought its action against the City 
of Mankato for having negligently failed to do its duty 



77 

in making the necessary levies and assessments designed 
to provide funds for the payment of the construction 
work. This necessarily required that the contract should 
be held valid. In a well reasoned opinion Judge Adams 
holds the state decisions to be ineffective; that the fed- 
eral court is not bound to follow the same and in its 
best judgment cannot follow their reasoning. The case 
is a stronger case by far than the position of the Town 
of Ryegate in the case at bar, since the Mankato case 
developed the facts showing a suit brought to determine 
the validity long before the work was completed, and 
the first suit was actually filed prior to the award of 
contract, though it did not involve, and necessarily could 
not involve, the validity of the contract itself, which 
was supplied by supplemental complaint later. The 
court clearly holds that the contractor's rights were 
vested when the contract was awarded, and that as such 
the federal court's duty was to protect those rights, 
particularly in cases of diverse citizenship, with respect 
to which the federal courts must protect the nonresident 
citizen. 

Burgess v. Seligman, 107 U. S. 20, is one where the 
Supreme Court of the United States, dealing with the 
identical contract, that of subscription to railroad stock, 
and the statute of Missouri dealing therewith, refused 
to follow the Supreme Court of Missouri, which decided 
the identical contract and subscription prior to the de- 
cision in the Federal Supreme Court. The litigant's 
rights were vested when the contract was entered into 
and a subsequent decision of the state court was ineffec- 
tive to change that right. 



78 

Let us now consider the facts applicable to the case 
at bar. The Town of Ryegate entered into a contract 
April 26, 1920. The rights of Security Bridge Com- 
pany as contractor were vested and settled as of that 
date. Any decision by any Montana court thereafter 
which determined any matter of municipal law which 
had not been definitely settled prior to April 26, 1920, 
has no binding effect upon the federal courts, who will 
exercise their independent jurisdiction to determine the 
same, notwithstanding any later decisions of the Mon- 
tana Supreme Court or any Montana trial court. 

The first block of bonds which were issued and de- 
livered by the Town of Ryegate for Special Improve- 
ment District No. 4 was made, under the stipulated 
facts, on July 28, 1920. As heretofore discussed in 
another matter, it appears that on June 9, 1920, the 
town council of Ryegate passed its Ordinance No. 29, 
whereby it ordained that a continuing annual tax should 
be levied to provide for the payment of principal and 
interest on the bonds which were to be issued. The same 
ordinance ordained further that all moneys collected on 
account of said assessments should be deposited by the 
town treasurer in a special fund, and should not be paid 
out for any other purpose than the payment of principal 
and interest on these bonds. 

The bond itself, which is shown in the record (p. 43) 
is in the statutory form, and states that the Treasurer 
of the Town of Ryegate will pay to the bearer the sum 
of $500.00 

«* * * f or th e construction of the improvements 
and the work performed as authorized by said Res- 



79 

olution to be done in said District, and all laws, res- 
olutions and ordinances relating thereto, in payment 
of the contract in accordance therewith." 

It further recited (p. 44) : 

"This bond is payable from the collection of a 
special tax or assessment, which is a lien against the 
real estate within said improvement district." 

It further certified: 

"That all things required to be done precedent to 
the issuance of this bond have been properly done, 
happened and been performed in the manner pre- 
scribed by the laws of the State of Montana * * *." 

It must be clear that Ordinance No. 29 having been 
enacted before the issuance of the bond, is one of the 
ordinances referred to in the bond itself as above quoted. 
The rights of the plaintiff herein date from the purchase 
of the bonds themselves, the first purchase being as of 
July 28, 1920. Everything done by the Town of Rye- 
gate prior to July 28, 1920, and for the protection or 
support of these bonds, is available to the plaintiff as a 
purchaser thereof. 

It is of extreme importance to note at this time that 
the contract was awarded to Security Bridge Company 
on April 26, 1920. The first bonds were delivered 
thereafter, and on July 28, 1920, the intervening time 
aggregates ninety-three days, the statute, Section 5237, 
requires that notices in the nature of protest as to any 
irregularity, etc., must be filed within sixty days from 
the date of the contract's award. If, in fact, any such 
protests were made, they must have been made prior to 



80 

July 28, 1920, and were known to have been made by 
the town when it issued and delivered the first block 
of bonds mentioned. The bond speaks as of the date of 
its delivery, and the bond certifies and recites that all 
things precedent and necessary have been done, and 
declares that the bond is a lien on the real estate within 
the district. In the nature of things the plaintiff could 
not know what protests, if any, were filed after the 
award of the contract, and is not obliged to know, nor 
to keep on hand an inspector of the mail coming to the 
Town of Ryegate, or any other file or record, in order 
to determine what protests, if any, should be filed. That 
information was the private information, practically 
speaking, of the town. The Montana Supreme Court 
had held a few years prior thereto in Harvey v. Town- 
send, 57 Mont. 407; 188 Pac. 897, that a party who had 
filed no such protest was barred from attacking the 
legality of the districts, their creation, contract of im- 
provement, etc., where the sixty day period had elapsed. 
Plaintiff had a right to rely on that decision. 

It is true that about one year after the installation of 
the improvements in the Town of Ryegate the Supreme 
Court of Montana expressed an opinion in the case of 
Evans v. Helena, 60 Montana, 577; 199 Pac. 445, 
construing the statutes relating to the nature of im- 
provements and the sale of bonds at less than par. That 
case, however, was one brought by a diligent property 
owner at the inception of the proceedings and before 
the work had been done on the bonds issued. We shall 
refer with more detail to this position later on. There is 
no doubt that this decision was the inspiration for the 



81 

Belecz case in the state court, but for the present we 
content ourselves with saying that this case subsequent- 
ly adjudicated must not be considered as having any 
bearing whatever on the rights of the bridge company 
or of the plaintiff growing out of the issues involved in 
the case at bar. 

We have found, and there has been cited by defend- 
ant to the trial court, no case of the Supreme Court of 
Montana which settled the law as to the issues in this 
case prior to April 26, 1920, or for that matter at a 
later date where the exact issues of this case are prop- 
erly considered. Under the federal rule above stated 
it is unnecessary that we determine whether this cause 
shall be determined as a matter of general law applicable 
to contracts, or whether it involves statutory construc- 
tion of Montana's laws. Viewed in either direction the 
issues are open to the federal court for an independent 
determination, and of course the decision in the trial 
court sitting in Golden Valley County has no bearing 
whatever as an adjudication insofar as settling the law 
of the state is concerned, whether it be appealed from 
or not. 

The law in the national courts was settled in Burgess 
v. Seligman, supra, and the expressions of Justice 
Bradley in that case have not been improved upon, but 
have been followed with fidelity in the intervening years. 
We quote as follows : 

"But the appellant's counsel, with much confidence, 
press upon our attention the decisions of the Supreme 
Court of Missouri on the questions involved in this 
case, and on the very transactions which we are con- 



82 

sidering. That court, since the determination of this 
case by the Circuit Court, has given judgment in two 
cases adversely to the judgment in this, and to the 
views above expressed. The first case was that of 
Griswold v. Seligman, decided in November, 1880; 
the other, that of Fisher v. Seligman, decided in 
February, 1882, in which the former case was sub- 
stantially followed and confirmed. The case of Gris- 
wold v. Seligman seems to have very fully and care- 
fully considered. We have read the opinion of the 
court and the dissenting opinion of one of the judges 
with much attention, but we are unable to come to the 
conclusion reached by the majority. 

We do not consider ourselves bound to follow the 
decision of the State court in this case. When the 
transactions in controversy occurred, and when the 
case was under the consideration of the Circuit Court, 
no construction of the statute had been given by the 
State tribunals contrary to that given by the Circuit 
Court. The Federal courts have an independent jur- 
isdiction in the administration of State laws, co- 
ordinate with, and not subordinate to, that of the 
State courts, and are bound to exercise their own 
judgment as to the meaning and effect of those laws. 
The existence of two co-ordinate jurisdictions in the 
same territory is peculiar, and the results would be 
anomalous and inconvenient but for the exercise of 
mutual respect and deference. Since the ordinary 
administration of the law is carried on by the State 
courts, it necessarily happens that by the course of 
their decisions certain rules are established which 
become rules of property and action in the State, and 
have all the effect of law, and which it would be 
wrong to disturb. This is especially true with regard 
to the law of real estate and the construction of State 
constitutions and statutes. Such established rules are 
always regarded by the Federal courts, no less than 
by the State courts themselves, as authoritative dec- 
larations of what the law is. But where the law has 
not been thus settled, it is the right and duty of the 
Federal courts to exercise their own judgment; as 






83 

they also always do in reference to the doctrines of 
commercial law and general jurisprudence. So when 
contracts and transactions have been entered into, 
and rights have accrued thereon under a particular 
state of the decisions, or when there has been no 
decision, of the State tribunals, the Federal courts 
properly claim the right to adopt their own interpre- 
tation of the law applicable to the case, although a 
different interpretation may be adopted by the State 
courts after such rights have accrued. But even in 
such cases, for the sake of harmony and to avoid con- 
fusion, the Federal courts will lean towards an agree- 
ment of views with the State courts if the question 
seems to them balanced with doubt. Acting on these 
principles, founded as they are on comity and good 
sense, the courts of the United States, without sacri- 
ficing their own dignity as independent tribunals, 
endeavor to avoid, and in most cases do avoid, any 
unseemly conflict with the well-considered decisions 
of the State courts. As, however, the very object of 
giving to the national courts jurisdiction to admin- 
ister the laws of the States in controversies between 
citizens of different States was to institute independ- 
ent tribunals which it might be supposed would be 
unaffected by local prejudices and sectional views, 
it would be a dereliction of their duty not to exercise 
an independent judgment in cases not foreclosed by 
previous adjudication. As this matter has received 
our special consideration, we have endeavored thus 
briefly to state our views with distinctness, in order 
to obviate any misapprehensions that may arise from 
language and expressions used in previous decisions. 
The principal cases bearing upon the subject are re- 
ferred to in the note, but it is not deemed necessary 
to discuss them in detail. 

(The court here cited more than fifty prior de- 
cisions in the Federal Supreme Court.) 

In the present case, as already observed, when the 
transactions in question took place, and when the de- 
cision of the Circuit Court was rendered, not only 



84 

was there no settled construction of the statute on the 
point under consideration, but the Missouri cases re- 
ferred to arose upon the identical transactions which 
the Circuit Court was called upon, and which we are 
now called upon, to consider. It can hardly be con- 
tended that the Federal court was to wait for the 
States courts to decide the merits of the controversy 
and then simply register their decision; or that the 
judgment of the Circuit Court should be reversed 
merely because the State court has since adopted a 
different view. If we could see fair and reasonable 
ground to acquiesce in that view, we should gladly do 
so; but in the exercise of that independent judgment 
which it is our duty to apply to the case, we are forced 
to a different conclusion. Pease v. Peck, 18 How. 
595, and Morgan v. Curtenius, 20 id. 1, in which the 
opinions of the court were delivered by Mr. Justice 
Grier, are precisely in point." 

The independent right of the federal judiciary to de- 
termine the underlying issues is so clearly demonstrated 
in the line of authority hereinbefore cited (which is only 
a small fraction of the many federal cases in accord 
therewith) that it makes pertinent the suggestion that 
in the trial court Judge Pray has labored under the 
assumption, in part at least, that the issues made in 
the state court were determinative of the law in the 
trial of the case at bar. It is difficult to put one's finger 
on the specific assumption in the trial court's decision, 
but we feel that the underlying thought of the court 
has been based upon the state court decision, since there 
is nothing whatever in the record made in the case at 
bar touching alleged want of notice to property owners 
after letting the contract; filing of protests against the 
contract within sixty days thereafter, together with 
other specific matters adverted to by the trial court, 



85 

save and except as the same will be found related in the 
findings made in the Belecz case in the state court. As 
the cases demonstrate, federal courts are not bound in 
any degree as to the application of the law if such were 
the determination of the state court and the statute re- 
lating to sixty days, since no decision of the Supreme 
Court of Montana had settled that law in favor of the 
contention declared by the court in the Belecz case, and 
in fact the decision of Harvey v. Townsend, supra, prior 
to the time of entering into the Ryegate construction 
contract on April 26, 1920, was precisely the opposite. 
The Supreme Court has recently covered the subject 
and clearly shown the distinctions between state deci- 
sions reversing earlier decisions as applied by the Fed- 
eral Courts in their own independent jurisdiction where 
State statutes are involved and the effect of the State 
decisions as a basis for Federal review either as ex post 
facto, impairment of the obligations of contracts, or due 
process of law, in Tidal Oil V. Flanagan, 263 U. S. 444, 
451; 44 Sup. Ct. 197, 198, which opinion, as stated by 
Taft, C. J., was intended to clear up the apparent con- 
fusion in the decisions theretofore. 



86 

We come now to discuss a first and preliminary view 
as to the liability of the Town of Ryegate as determined 
from the pleadings and the Agreed Facts. 

UNDER THE ADMISSIONS OF THE PLEADING 
AND THE UNANSWERED ALLEGATIONS AS 
SUPPORTED BY THE AGREED FACTS, DEFEND- 
ANT IS LIABLE TO THE PLAINTIFF IN SOME 
AMOUNT FOR MONEYS WHICH DEFENDANT 
HAS COLLECTED AND HAS NOT PAID TO THE 
PLAINTIFF AS THE HOLDER OF ALL THE 
BONDS, AND HAS NOT ACCOUNTED THEREFOR 
IN WHOLE OR IN PART. 

Points and Authorities 



Under the Montana system of jurisprudence munici- 
palities are granted their powers by the legislative as- 
sembly through general laws. 

Constitution of Montana, Art. Ill, Sec. 1; Art. 

IV, Sec. 1; Art. V, Sees. 1, 26. 
McCUntock v. Great Falls, 53 Mont. 221 ; 163 Pac. 

99. 

II 

The legislative assembly has empowered towns to 
create special improvement districts for water supply 
and distribution; to levy taxes and assessments, issue 
bonds, etc., in payment therefor, etc. 

Revised Code Montana 1921, Sec. 5039 (subd. 80), 
Sees. 5225-5255. 



87 
III 

Where a town has duly passed a resolution of inten- 
tion, published due notice for hearing of protests at a 
time and place where the same have been heard, and has 
passed a resolution creating special improvement dis- 
trict after finding the protests to be insufficient, it 
thereupon has acquired jurisdiction to order the pro- 
posed improvements. 

Revised Code Montana 1921, Sees. 5227, 5229, 

5230. 
Power v. Helena, 43 Mont. 336; 116 Pac. 415. 
Shapard v. Missoula, 49 Mont. 269; 141 Pac. 544. 
Johnston v. Hardin, 55 Mont. 574; 179 Pac. 824. 
Billings Association v. Yellowstone County, 70 

Mont. 401 ; 225 Pac. 996. 

IV 

It is the statutory duty of the town council to correct 
defective improvement proceedings, provide a method 
of assessment to defray the costs of improvements, make 
levies and assessments, modify and correct assessments 
if proper objections are made and sustained, make the 
necessary relevies, certify the same to the county treas- 
urer, whose duty it is to collect the same, etc. 

Revised Code Montana 1921, Sees. 5237, 5238, 

5240, 5241, 5243, 5251, 5252. 
Revised Code Montana 1921, Sees. 5214, 5215, 

5216. 



The law presumes that public officers have duly and 
regularly performed their official duties in the absence 
of a contrary showing. 



88 

Revised Code Montana 1921, Sec. 10606 (subd. 

15). 
State v. Mills, 81 Mont. 86; 261 Pac. 885, 

where allocation of tax funds by the county commis- 
sioners was presumed to have been regular. 

Lumber Co. v. School District No. 56, 84 Mont. 
461; 277 Pac. 9, 

where proceedings relating to the purchase of lumber 
for a school house was presumed to be regular. 

Buckhouse v. School District No. 28, 85 Mont. 141 ; 
277 Pac. 961, 

which presumed the regularity of notices, polling places 
and establishment of precinct boundaries relating to a 
school election. 

Swords v. Simineo, 68 Mont. 164; 216 Pac. 806, 
which presumed the regularity of all proceedings of 
county commissioners in creating a special improvement 
district. 

Warner v. New Orleans, 87 Fed. 826, 
where equity's maxim that considers that as done which 
ought to be done is applied to a city involved in collec- 
tion of assessments to pay improvement warrants, and 
the city held as if collections had been made. 

See also: 

Jersey v. Peacock, 70 Mont. 46; 223 Pac. 903. 
State v. District Court, 72 Mont. 213; 232 Pac. 201. 
Hyde v. Mineral County, 73 Mont. 363; 236 Pac. 
248. 

This presumption under Sec. 10606, Revised Code 
1921, is in and of itself satisfactory evidence and the 



89 

burden of proof is on the party who contends to the 
contrary. 

Lumber Co. v. School District No. 56, (supra.) 
State v. District Court, (supra.) 
Swords v. Simineo, (supra.) 

VI 

An answer or a plea must be responsive to the com- 
plaint or declaration, and to the whole thereof. 

21 Ruling Case Law 532. 

Johnston v. Florida East Coast Ry., 66 Fla. 415; 

63 So. 713. 
Truitt v. Caldwell, 3 Minn. 364; 74 Am. Dec. 764. 
Bijers v. Fowler, 12 Ark. 218; 54 Am. Dec. 271, 

287. 
United States v. Girault, 11 How. 22. 

Argument 

We wish to point out the complete insufficiency of 
defendant's defense made by its Answer and the Agreed 
Facts. This first discussion is based upon the proposi- 
tion that the Town of Ryegate under the most favor- 
able theory advanced by it is necessarily liable to the 
plaintiff in some amount. 

We have analyzed the Pleadings and the Agreed 
Facts heretofore. We wish now briefly to comment up- 
on these admissions and agreed facts as made. 

The plaintiff has alleged a prima facie case of liabil- 
ity; it has alleged the identity of the parties, federal 
jurisdiction, the creation of Special Improvement Dis- 
trict No. 4, the award of contract for the construction 
thereunder, plan for the issuance of bonds in payment 
of the special district's share of the improvements, the 



90 

completion of the work and the issuance of the bonds by 
the Town of Ryegate for that purpose, the situation by 
which plaintiff became the purchaser of the bonds, 
thereby furnishing money for the improvements, and 
that plaintiff at the time of bringing this action was 
the holder and owner of all of the bonds ; that the town 
had accepted the work as performed by the contractor 
and continued to use the same ; that the interest coupon 
of January 1, 1922, had been paid; that nothing further 
had been paid and that defendant refused to pay fur- 
ther sums in any amount and declared its intention of 
never paying the same, or any part thereof, or on ac- 
count thereof. 

The defendant by its answers has admitted all of 
these important matters with qualifications not impor- 
tant to this discussion. The only important feature in 
its answers by way of denial touched the matter of plain- 
tiff being the owner and holder of all of the bonds, and 
this is admitted in the Agreed Facts. The differences as 
to object and purpose of the improvements as stated, de- 
tails in the pleading which are verbally distinguished, 
are not important at this time. 

Defendant, however, has appended to its answers as 
Exhibits "A", "B" and "C" certain ordinances of the 
town, including that of the resolution of intention No. 
10. The only importance attaching to this matter in 
this discussion is the description of the improvements 
which were proposed to be constructed, that is, ''pipes, 
hydrants, and hose connections for irrigating appliances 
and fire protection." There is no dispute as to this, and 
for the record in this case (p. 56) there is no dispute 



91 

that those improvements were actually "constructed and 
accepted", because the Answer, paragraph 6 (p. 20) 
specially admits the contract was entered into 

"for the construction of a waterworks system, and the 
improvements for which said special improvement 
district number four was created" 

The answer further specially alleges, paragraph 12 
(p. 24): 

"that said waterworks system, and the improvement 
provided for and specified in the resolution of inten- 
tion * * * was constructed, received and accepted," 

The Answer also set up as its Exhibit "C" Ordinance 
No. 29, which, Section 7 (p. 46), ordained that 

"a continuing direct annual tax in the form of a spe- 
cial assessment be, and the same is hereby levied upon 
all the taxable real estate within the boundaries of said 
Special Improvement District No. 4 * * * in an 
amount sufficient to pay the interest on said bonds 
as the same becomes due and to discharge the prin- 
cipal of said bonds at the maturity thereof" 

And further, Section 8 (p. 46) : 

"That all money derived and received from the col- 
lection of said special assessment shall be deposited by 
the Town Treasurer to the credit of Special Improve- 
ment District No. 4 of said Town of Ryegate, and the 
same shall be paid out by the Town Treasurer for no 
purpose other than in payment of the principal and 
interest of said bonds." 

Defendant set up further affirmative Answers, the 
first of these purports to plead the unconstitutionality 
of the debt of the special improvement district if it 



92 

should be imposed upon the town generally. That is 
not important for the purpose of this discussion. 

The second defense declares that plaintiff paid 80% 
of the par value of the bonds in purchasing the same. 
This is equally unimportant at this time. 

The third defense is to the effect that plaintiff em- 
ployed skilled counsel to prepare the proceedings; that 
the contractor submitted the matters involved in the 
proceedings to its own counsel and relied thereon, and 
that plaintiff did the same. This Answer is unimpor- 
tant for the present purpose. 

The fourth separate Answer alleges that, pursuant 
to its ordinances, the town attempted to make assess- 
ments and levies in 1921 and against the real property 
in District No. 4, which assessments were due on or be- 
fore November 30, 1921. That in January, 1922, Mike 
Belecz and others brought a suit in the state court, set- 
ting up various grounds of attack against these assess- 
ments, which resulted in decrees annulling the same. 
This matter is set forth more particularly in Agreed 
Facts, to which is appended the complaint, answer, re- 
ply and the court's findings and decree in the state court. 
This defense is apparently offered by defendant in the 
case at bar as an excuse for not making the regular 
payments as originally contemplated, and it is with re- 
spect to this defense that we now urge the insufficiency 
of these answers as a defense in full to plaintiff's com- 
plaint in the case at bar. It affirmatively appears with- 
out question that the Belecz suit in the state court ap- 
plied only to the real property specifically described in 
the complaint and in the court's decree. The suit was not 



93 

brought in a representative capacity. The proceedings 
in the state court do not disclose the issuance of any re- 
straining order in the nature of a preliminary injunc- 
tion, and no reason whatever is advanced as to why taxes 
and assessments might not have been collected on all 
other properties not involved in the litigation, notwith- 
standing said suit. The Answer makes no effort to 
plead a full defense in behalf of the town with respect to 
collections which should have been made under the pro- 
visions of Ordinance No. 29, which defendant has 
pleaded in its own behalf. 

The Answers do not undertake to show to the court 
what sums were collected prior to the institution of the 
Belecz suit. It appears that some funds were collected, 
because the interest coupon was paid. The defendant 
has rendered no account in its pleadings and none are 
disclosed by the Agreed Facts or other matters pertain- 
ing to this record. 

We now wish particularly to notice the position of de- 
fendant : It has conceded the legality of the district and 
the plan of payment, and has expressly stated that the 
work specified in the resolutions of intention and of 
creation were the improvements contracted for and con- 
structed by and accepted from Security Bridge Com- 
pany. Whatever may be the issues as to the character of 
improvements contended for by property owners in the 
suits in the state court, defendant in the case at bar has 
admitted that the improvements described in the resolu- 
tions were actually contracted for, constructed, accepted 
and received as the identical improvements resolved 
upon at the initiation of the proceedings relating to Spe- 



94 

cial Improvement District No. 4. That is the record in 
this case. To explain its position in the matter in the 
case at bar the Town of Ryegate has set up as exhibits 
to its Answer resolutions and ordinances designated 
Exhibits "A", "B" and "C". Of particular importance 
is Exhibit "C" in Ordinance No. 20, passed June 9, 
1920, which provided for the continuing annual taw by 
way of assessments and the creation of a special fund for 
the deposit of all the moneys collected. This last pro- 
vision is a clear declaration of trust for the sole benefit 
of the special improvement bonds and their holders. 
The defendant has thereby placed itself in the position 
of being an agent or a trustee and not an obligor. Nec- 
essarily this invokes the principles of equity. The dec- 
laration of trust itself, shown in Exhibit "C", definitely 
prescribed the duty of the town treasurer to pay out 
moneys from this fund only and solely in payment of 
principal and interest on these bonds. An action for 
money had and received to recover money from an agent 
or trustee is fundamental, provided that the amount of 
such money is known. In the case at bar defendant has 
evaded the issue as to what funds it has on hand. It has 
shown a performance of its obligations under its own 
theory, to the extent of having paid only one interest 
coupon, and by way of excuse has stated that certain 
suits in the state court resulted in decrees annulling 
the assessments made against the properties described. 
Unless this excuse is sufficient in itself to be a complete 
defense to any further funds which the Town of Ryegate 
has collected, it is manifestly insufficient, and having 
failed to render an accounting to the court or to plead 



95 

that no funds were on hand to apply to the payment of 
the principal or interest, or on account thereof, defend- 
ant has necessarily by such Answer opened up such 
issues as can be determined only by a court in equity, 
which can properly command the trustee to render an 
accounting, and in aid thereof grant relief by way of 
discovery, together with any other or further proceed- 
ings which may be required to make the same effective. 
This Answer definitely throws the cause on the equity 
side of the court. 

There are a number of things in the Agreed Facts of 
no importance in this important discussion. It is impor- 
tant, however, to note paragraph "e" (p. 53). This 
states the true object and purpose of the resolutions 
creating Special District No. 4 and the issuance of the 
special bonds, to include a supply of water for municipal 
purpose to the town, and water to a portion of the in- 
habitants "and for the purpose set out in said resolu- 
tions" ; and by paragraph "f" (p. 54) that the contract 
entered into between the town and the bridge company 
was 

"for the construction of said waterworks system and 
the improvements specified in said resolutions" 

and further, paragraph "g" (p. 54), that the town is- 
sued its bonds generally in the sum of $15,000, and the 
bonds of Special District No. 4 in the sum of $45,602.42, 

"for the purpose of paying for said waterworks sys- 
tem and the improvements specified in said resolu- 
tion" 

and further, paragraph "h" (p. 54), Security Bridge 
Company purchased the general bonds of the town at 



96 

par plus accrued interested, and accepted said general 
bonds and the special improvement district bonds in 
the sum of $45,602.42 

"in payment of the costs of installation of said water- 
works system and the improvements specified in said 
resolution" 

It is agreed that the Bridge Company had no funds 
of its own for investment purposes and it was necessary 
to arrange the sale of these bonds, which it sold to plain- 
tiff at 85% of par value, and that plaintiff paid for the 
special bonds $38,762.06 (paragraphs "i" and "j", 
p. 55). 

Of especial interest is paragraph "1" (p. 56), which 
agrees that plaintiff purchased these bonds and fur- 
nished all the money used by it to build and complete the 

"waterworks system and the improvement specified in 
said resolutions" ; 

and further, that plaintiff purchased the bonds for value 
before maturity and is the owner and holder thereof, 
and that these bonds were delivered either by the town 
to the bridge company, or to the plaintitff, in the 
amounts and upon the dates in the schedules set forth in 
the complaint, the first delivery being July 28, 1928. 
The agreed statement, paragraph "m" (p. 56), stipu- 
lates that "said water system and improvements speci- 
fied in said resolution were so constructed and accepted",, 
and the town has received the income from such im- 
provements and now has and continues to have and use 
the same. 

The Agreed Facts further refers to the suit brought 
in the state court, and Exhibits 3, 4, 5 and 6 appended 



97 

refer to the Complaint, Answer, Reply and Findings 
and Decree made in such case. It is agreed that similar 
suits by a number of persons resulted in similar plead- 
ings and decrees; it is agreed that plaintiff has counsel 
associated in the defense of these actions; it is agreed 
that no appeal was taken from the judgments and de- 
crees. 

This brings us to an inspection of the proceedings in 
the Belecz case in the state court. For present purpose 
the only matter of particular interest is that the com- 
plaint involves the property specifically described there- 
in (paragraph 10, pp. 72-75). The demand made by 
plaintiffs in the Belecz case is that the taxes and assess- 
ments be decreed null and void and an injunction from 
selling the property aforesaid on account thereof; that 
in case any property should be sold the injunction should 
extend to restraining the issuance of a tax deed. It ap- 
pears that the cause was tried February 6, 1923 (p. 
84). In the conclusions of law entered (p. 90) we find 
that the court declared plaintiffs as entitled to an in- 
junction against defendants collecting any portion of 
the assessment against the "property of any of the plain- 
tiffs situate in District No. 4" This was dated June 27, 
1924. The decree which followed adjudged that the 
taxes and assessments levied and assessed upon prop- 
erty situate in District No. 4, to pay for special im- 
provements therein under resolutions which are the sub- 
ject of the action, are null and void; 

"that the defendants are, and each of them is hereby 
enjoined and restrained from selling any of the prop- 
erty of plaintiffs herein, described in the complaint 



98 

herein, * * * and * * * enjoined and restrained from 
issuing any tax deed to the purchaser of any of said 
lots or property, or any part thereof" 

The decree further declares: 

"That the lots and property referred to herein, the 
taxes and assessments against which, on account of 
the creation of said district and construction of im- 
provements therein, are hereby declared to be null 
and void and the collection of which is hereby re- 
strained, are particularly described as follows, to-wit : 

(A detailed description by lot and block number 
follows ) . 

This decree was dated July 8, 1924, and appears to 
have been filed July 16, 1928. 

The scope of the suit in the state court and of the 
conclusions and decree therein, clearly and emphatically 
show that it was limited to the precise property therein 
specifically described and passed upon. The decree was 
not signed until July 8, 1924, and could not be effective 
prior to that date. The complaint does not ask for a 
restraining order or temporary injunction, nor does the 
record show that any such restraint was imposed upon 
the town. The pertinent question which must be an- 
swered, and with respect to which this record is silent, 
is this : What moneys were collected prior to the decree 
in the state court ? A further question is : What collec- 
tion has been made of assessments against properties 
other than the plaintiffs, who brought suits in the state 
court? What excuse has defendant offered for not hav- 
ing fulfilled its statutory duty? The defendant has 



99 

pleaded itself as an agent or supervisor of the special 
improvement district, and by virtue of its own ordi- 
nances it shows itself to be a trustee for the benefit of 
the holders of the special improvement district bonds. 
Irrespective of the Montana statutes, which are noted 
under Points and Authorities, the duties of the town un- 
der its own Ordinance No. 29, which requires a continu- 
ing annual tax, and which requires the deposit of all 
funds collected to be placed in the special fund for the 
benefit of these bonds, are sufficient to impose liability 
against the Town of Ryegate and require not only an 
accounting and remittance of the funds on hand and 
collected by it, but a detailed and further showing to ex- 
plain why taxes and assessments have not been collected 
each year from and after the passage of Ordinance 
No. 29. 

We do not wish the court to believe the criticism made 
in this respect is merely captious, theoretical or incon- 
sequential. The fundamental law underlying the plead- 
ing of answers require that a full answer, responsive to 
all of the issues, must be made, in order to constitute a 
defense. While the pleadings are not in the precise 
form which would be most agreeable for the determina- 
tion of such matters, because of the submission of the 
case on the Agreed Facts, it is nevertheless clear that, 
putting together the pleadings and the Agreed Facts, 
we find that defendant has not responded f